<PAGE> 1
As filed with the Securities and Exchange Commission on December 1, 1995
Registration Nos. 33-12608
811-5059
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No.
Post-Effective Amendment No. 16 / X /
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 / X /
Amendment No. 19 / X /
THE HIGHMARK GROUP
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of principal executive offices)
(800) 433-6884
(Registrant's telephone number, including area code)
Name and address
of agent for service
John M. Loder, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b), or
/ X / on December 1, 1995 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective
date for post-effective amendment No. _____ filed
on _____________.
Pursuant to Rule 24f-2(a) under the Investment Company Act of 1940, the
Registrant has registered an indefinite number or amount of its shares of
beneficial interest under the Securities Act of 1933. The Registrant filed a
Rule 24f-2 Notice with respect to the Registrant's fiscal year ended July 31,
1995 on September 28, 1995.
-------------------------------
<PAGE> 2
CROSS REFERENCE SHEET
THE HIGHMARK MONEY MARKET FUNDS
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C>
1. Cover Page................................ Cover Page
2. Synopsis.................................. Fee Table
3. Condensed Financial Information........... Per Share Income And Capital
Changes; Performance
Information
4. General Description of Registrant......... Fund Description; Investment
Objective; Investment Policies
& Fund Portfolios; General
Information--Description of the
Group & Its Shares
5. Management of the Fund.................... Service Arrangements
5A. Management's Discussion of Fund
Performance............................. Inapplicable
6. Capital Stock and Other Securities........ How to Purchase Shares; Exchange
Privileges; How to Redeem
Shares; Dividends; Taxation;
Service Arrangements--
Administrator & Distributor--
The Distribution Plan; General
Information--Description of the
Group & Its Shares; General
Information--Miscellaneous
7. Purchase of Securities Being Offered...... Valuation of Shares; How to
Purchase Shares; Exchange
Privileges; Service Arrangements--
Administrator & Distributor--
The Distribution Plan
8. Redemption or Repurchase.................. How to Redeem Shares
9. Pending Legal Proceedings................. Inapplicable
</TABLE>
<PAGE> 3
HIGHMARK
MUTUAL FUND GROUP
MONEY MARKET
FUNDS
- --------------------------------
. DIVERSIFIED OBLIGATIONS
. U.S. GOVERNMENT OBLIGATIONS
. 100% U.S. TREASURY OBLIGATIONS
. CALIFORNIA TAX-FREE
. TAX-FREE
PROSPECTUS AS OF DECEMBER 1, 1995
NOT FDIC INSURED
11/29/96, 1:31 PM
<PAGE> 4
THE HIGHMARK
MONEY MARKET FUNDS
. . . INVESTMENT PORTFOLIOS OF
THE HIGHMARK MUTUAL FUND GROUP
- - THE FUNDS
The Diversified Obligations Fund
The U.S. Government Obligations Fund
The 100% U.S. Treasury Obligations Fund
The California Tax-Free Fund
The Tax-Free Fund
- - THE DIVERSIFIED OBLIGATIONS FUND invests in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, and additionally
invests in other high-quality rated money market instruments and other unrated
instruments deemed to be of comparable high quality; some of the obligations
and money market instruments in which the Fund invests may be subject to
repurchase agreements
- - THE U.S. GOVERNMENT OBLIGATIONS FUND invests in obligations issued or
guaranteed by the U.S. Treasury, and additionally invests in obligations
issued or guaranteed by agencies or instrumentalities of the U.S. Government;
some of the obligations in which the Fund invests may be subject to repurchase
agreements
- - THE 100% U.S. TREASURY OBLIGATIONS FUND invests exclusively in direct U.S.
Treasury obligations guaranteed by the full faith and credit of the U.S.
Treasury
- - THE OBJECTIVE OF THE DIVERSIFIED OBLIGATIONS FUND, THE U.S. GOVERNMENT
OBLIGATIONS FUND AND THE 100% U.S. TREASURY OBLIGATIONS FUND is to seek
current income with liquidity and stability of principal
- - THE CALIFORNIA TAX-FREE FUND invests primarily in bonds and notes issued by or
on behalf of the State of California and other states, territories,
possessions of the United States, and the District of Columbia and their
respective authorities, agencies, instrumentalities and political
sub-divisions, the interest on which is excluded from gross income for federal
income and California personal income tax purposes and not treated as a
preference item for individuals for purposes of the federal alternative
minimum tax
- - THE CALIFORNIA TAX-FREE FUND'S objective is to seek as high a level of current
interest income free from federal income tax and California personal income
tax as is consistent with the preservation of capital and relative stability
of principal
- - THE TAX-FREE FUND invests primarily in bonds and notes issued by or on behalf
of states, territories and possessions of the United States, and the District
of Columbia and their respective authorities, agencies, instrumentalities and
political sub-divisions, the interest on which is both excluded from gross
income for federal income tax purposes and not treated as a preference item
for individuals for purposes of the federal alternative minimum tax
- - THE TAX-FREE FUND'S objective is to seek as high a level of current interest
income free of federal income taxes as is consistent with the preservation of
capital and relative stability of principal
- - EASY PURCHASE OR REDEMPTION BY TELEPHONE, MAIL OR WIRE
- - LIQUIDITY
- - EACH FUND seeks to maintain a net asset value of $1.00 per Share
- - MINIMUM INITIAL INVESTMENT ONLY $1,000
(a lower or no minimum may apply)
- - MINIMUM SUBSEQUENT INVESTMENT ONLY $100
(a lower or no minimum may apply)
- - PROFESSIONAL MANAGEMENT
- - RECORDKEEPING AND SAFEKEEPING OF SECURITIES
- - INVESTMENT ADVISER--MERUS Capital Management, a division of The Bank of
California, N.A.
not a part of the prospectus
<PAGE> 5
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 6
PROSPECTUS
DECEMBER 1, 1995
THE HIGHMARK MONEY MARKET FUNDS
. . . seeking current income with liquidity and stability of principal.
------------------------------------
The HighMark Money Market Funds (the "Money Market Funds") consist of The
HighMark Diversified Obligations Fund (the "Diversified Obligations Fund"), The
HighMark U.S. Government Obligations Fund (the "U.S. Government Obligations
Fund"), The HighMark 100% U.S. Treasury Obligations Fund (the "100% U.S.
Treasury Obligations Fund"), The HighMark California Tax-Free Fund (the
"California Tax-Free Fund") and The HighMark Tax-Free Fund (the "Tax-Free
Fund"). Each Fund is an investment portfolio of The HighMark Group (the
"Group"), a diversified, open-end management investment company.
The investment objective of the Diversified Obligations Fund, the U.S.
Government Obligations Fund, and the 100% U.S. Treasury Obligations Fund is to
seek current income with liquidity and stability of principal. These three
Funds, however, differ as follows with respect to the types of instruments that
may be purchased:
The Diversified Obligations Fund invests in obligations issued or
guaranteed by the U.S. Government, its agencies, or instrumentalities, and
additionally invests in other high-quality money market instruments and other
unrated instruments deemed to be of comparable high quality by the investment
adviser pursuant to guidelines established by the Group's Board of Trustees.
Some of the obligations and money market instruments in which the Diversified
Obligations Fund invests may be subject to repurchase agreements.
The U.S. Government Obligations Fund invests in obligations issued or
guaranteed by the U.S. Treasury, and additionally invests in obligations issued
or guaranteed by agencies or instrumentalities of the U.S. Government. Some of
the obligations in which the U.S. Government Obligations Fund invests may be
subject to repurchase agreements.
(continued on next page)
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.
------------------------------------
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.
------------------------------------
<PAGE> 7
(continued from previous page)
The 100% U.S. Treasury Obligations Fund invests exclusively in direct U.S.
Treasury obligations guaranteed as to timely payment of principal and interest
by the full faith and credit of the U.S. Treasury.
The California Tax-Free Fund's investment objective is to seek as high a
level of current interest income free from federal income tax and California
personal income tax as is consistent with the preservation of capital and
relative stability of principal.
The Tax-Free Fund's investment objective is to seek as high a level of
current interest income free from federal income taxes as is consistent with the
preservation of capital and relative stability of principal.
Shares in the Funds are not deposits or obligations of, or guaranteed or
endorsed by, The Bank of California, N.A or any of its affiliates, and Shares
are not federally insured by the Federal Deposit Insurance Corporation or any
other government agency. Investments in Shares involve the risk of a possible
loss of principal.
The California Tax-Free Fund and the Tax-Free Fund invest primarily in
bonds and notes issued by or on behalf of states (primarily, in the case of the
California Tax-Free Fund, the State of California), territories and possessions
of the United States, and the District of Columbia and their respective
authorities, agencies, instrumentalities and political sub-divisions ("Municipal
Securities"). As a matter of fundamental policy, under normal market conditions,
at least 80% of the total assets of each of the California Tax-Free Fund and the
Tax-Free Fund will be invested in Municipal Securities, the interest on which is
both excluded from gross income for federal income tax purposes and, in the case
of the California Tax-Free Fund, California personal income tax purposes and not
treated as a preference item for individuals for purposes of the federal
alternative minimum tax. Under normal market conditions, up to 20% of the total
assets of the California Tax-Free Fund and the Tax-Free Fund may be invested in
short-term obligations, the interest on which is treated as a preference item
for individuals for purposes of the alternative minimum tax or subject to
federal income tax or, in the case of the California Tax-Free Fund, California
personal income tax ("Taxable Obligations").
The Investment Adviser to the Money Market Funds is:
MERUS Capital Management, a division of The Bank of California, N.A.
The Money Market Funds are 5 of 13 separate investment portfolios offered by
the Group, which include:
The HighMark Growth Fund
The HighMark Income and Growth Fund
The HighMark Income Equity Fund
The HighMark Balanced Fund
The HighMark Bond Fund
The HighMark Government Bond Fund
The HighMark Diversified Obligations Fund
The HighMark U.S. Government Obligations Fund
The HighMark 100% U.S. Treasury Obligations Fund
The HighMark California Tax-Free Fund
The HighMark Tax-Free Fund
The HighMark Intermediate California Municipal Bond Fund
The HighMark Intermediate Municipal Bond Fund
(continued on next page)
2
<PAGE> 8
(continued from previous page)
As of the date hereof, the HighMark Intermediate California Municipal Bond
Fund and the Intermediate Municipal Bond Fund have not yet commenced operations.
Each Money Market Fund has been divided into two classes of Shares
("Investor" Shares and "Fiduciary" Shares) for purposes of the Group's
Distribution and Shareholder Services Plan (the "Distribution Plan"). Investor
and Fiduciary Shares of a particular Fund represent interests in the same
investments and are identical in all respects except that Investor Shares bear
the expense of the fee under the Distribution Plan, which will cause the
Investor Shares to have a higher expense ratio and to pay lower dividends than
those related to Fiduciary Shares, and Investor Shares have certain exclusive
voting rights with respect to the Distribution Plan. Only the following
investors qualify to purchase a Money Market Fund's Fiduciary Shares: (i)
fiduciary, advisory, agency, custodial and other similar accounts maintained
with The Bank of California or its affiliates; (ii) Select IRA accounts
established with The Bank of California and invested in any of the Group's Money
Market Funds prior to November 25, 1988 which have remained continuously open
thereafter and which are not considered to be fiduciary accounts; and (iii)
present and retired directors, officers, and employees (and their spouses and
children under the age of 21) of The Bank of California, BISYS Fund Services or
their affiliated companies, whether or not investments are made through an
employee benefit plan on such person's behalf. All other investors are eligible
to purchase Investor Shares only. For information concerning those investors who
qualify to purchase Investor and Fiduciary Shares and the operation of the
Distribution Plan, see HOW TO PURCHASE SHARES and SERVICE
ARRANGEMENTS--Administrator & Distributor--The Distribution Plan in the
Prospectus.
This Prospectus relates only to the Money Market Funds. Interested persons
who wish to obtain a prospectus for the other Funds of the Group may contact the
distributor: BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219, or
call the Funds at (800) 433-6884.
Additional information about the Money Market Funds is contained in a
Statement of Additional Information that has been filed with the Securities and
Exchange Commission and is available upon request without charge by writing or
calling the Funds at the above address and telephone number. The Statement of
Additional Information bears the same date as this Prospectus and is
incorporated by reference in its entirety into this Prospectus.
This Prospectus sets forth concisely the information about the Money Market
Funds that a prospective investor ought to know before investing. Please read
this Prospectus and retain it for future reference.
3
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Money Market Funds Fee Table.......................................................... 5
Financial Highlights.................................................................. 6
Fund Description...................................................................... 12
Performance Information............................................................... 12
Investment Objective.................................................................. 14
Investment Policies & Fund Portfolios................................................. 14
Valuation of Shares................................................................... 25
How to Purchase Shares................................................................ 26
Exchange Privileges................................................................... 29
How to Redeem Shares.................................................................. 30
Telephone Transactions................................................................ 32
Dividends............................................................................. 33
Taxation.............................................................................. 33
Service Arrangements.................................................................. 36
General Information................................................................... 40
</TABLE>
4
<PAGE> 10
MONEY MARKET FUNDS FEE TABLE
<TABLE>
<CAPTION>
100% CALIFORNIA
DIVERSIFIED U.S. GOVERNMENT U.S. TREASURY TAX-FREE
OBLIGATIONS FUND OBLIGATIONS FUND OBLIGATIONS FUND FUND
--------------------- --------------------- --------------------- --------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
-------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)..................... 0% 0% 0% 0% 0% 0% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price)....... 0% 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a percentage
of original purchase price or
redemption proceeds, as
applicable)......................... 0% 0% 0% 0% 0% 0% 0%
Redemption Fees (as a percentage of
amount redeemed, if applicable(b)... 0% 0% 0% 0% 0% 0% 0%
Exchange Fee(c)....................... 0% 0% 0% 0% 0% 0% 0%
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary
reduction).......................... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.30%(d)
12b-1 Fees (after voluntary
reduction).......................... 0.05%(e) 0% 0.08%(e) 0% 0.05%(e) 0% 0.05%(e)
Other Expenses (after voluntary
reduction).......................... 0.34% 0.34% 0.38% 0.38% 0.33% 0.33% 0.32%(f)
----- ----- ----- ----- ----- ----- -----
Total Fund Operating Expenses(g)...... 0.79% 0.74% 0.83% 0.78% 0.78% 0.73% 0.67%
===== ===== ===== ===== ===== ===== =====
<CAPTION>
CALIFORNIA
TAX-FREE
FUND TAX-FREE FUND
---------- ---------------------
FIDUCIARY INVESTOR FIDUCIARY
SHARES SHARES SHARES
---------- -------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)..................... 0% 0% 0%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price)....... 0% 0% 0%
Deferred Sales Load (as a percentage
of original purchase price or
redemption proceeds, as
applicable)......................... 0% 0% 0%
Redemption Fees (as a percentage of
amount redeemed, if applicable(b)... 0% 0% 0%
Exchange Fee(c)....................... 0% 0% 0%
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary
reduction).......................... 0.30%(d) 0.35%(d) 0.35%(d)
12b-1 Fees (after voluntary
reduction).......................... 0% 0.03%(e) 0%
Other Expenses (after voluntary
reduction).......................... 0.32%(f) 0.40%(f) 0.40%(f)
----- ----- -----
Total Fund Operating Expenses(g)...... 0.62% 0.78% 0.75%
===== ===== =====
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Diversified Obligations Fund
Investor Shares..................................... $8 $25 $44 $ 98
Fiduciary Shares.................................... $8 $24 $41 $ 92
U.S. Government Obligations Fund
Investor Shares..................................... $8 $26 $46 $103
Fiduciary Shares.................................... $8 $25 $43 $ 97
100% U.S. Treasury Obligations Fund
Investor Shares..................................... $8 $25 $43 $ 97
Fiduciary Shares.................................... $7 $23 $41 $ 91
California Tax-Free Fund
Investor Shares..................................... $7 $21 $37 $ 83
Fiduciary Shares.................................... $6 $20 $35 $ 77
Tax-Free Fund
Investor Shares..................................... $8 $25 $43 $ 97
Fiduciary Shares.................................... $8 $24 $42 $ 93
</TABLE>
5
<PAGE> 11
The purpose of the tables above is to assist an investor in the Money
Market Funds in understanding the various costs and expenses that a Shareholder
will bear directly or indirectly. For a more complete discussion of each Fund's
annual operating expenses, see SERVICE ARRANGEMENTS below. THE FOREGOING EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ---------
(a) Certain entities (including The Bank of California and its affiliates)
making investments in the Money Market Funds on behalf of their customers
may charge customers fees for services provided in connection with the
investment. (See HOW TO PURCHASE SHARES and SERVICE ARRANGEMENTS
--Administrator & Distributor--The Distribution Plan below.)
(b) A wire redemption charge is deducted from the amount of a wire redemption
payment made at the request of a Shareholder. (See HOW TO REDEEM
SHARES--Payments to Shareholders below.)
(c) Certain entities (including The Bank of California and its affiliates) may
charge their customers fees with respect to exchanges effected on the
customer's behalf. (See EXCHANGE PRIVILEGES and SERVICE
ARRANGEMENTS--Administrator & Distributor--The Distribution Plan below.)
(d) As indicated under SERVICE ARRANGEMENTS--Investment Adviser below, The Bank
of California may voluntarily reduce its advisory fee. Absent the voluntary
deduction of investment advisory fees, MANAGEMENT FEES as a percentage of
average daily net assets would be 0.40%.
(e) Reflects Rule 12b-1 fees for fiscal 1995. The maximum annual rate of
distribution fees that may be imposed as a percentage of average daily net
assets attributable to a Fund's Investor Shares is 0.25%. (See SERVICE
ARRANGEMENTS--Administrator & Distributor--The Distribution Plan below.)
(f) OTHER EXPENSES are each Fund's estimated expenses for the current fiscal
year. As indicated under SERVICE ARRANGEMENTS--Administrator & Distributor
below, BISYS Fund Services may voluntarily reduce its administration fee.
Absent the voluntary reduction of administration fees, OTHER EXPENSES as a
percentage of average daily net assets would be 0.37% for each of the
Investor Shares and Fiduciary Shares of the California Tax-Free Fund and
0.50% for each of the Investor and Fiduciary Shares of the Tax-Free Fund.
(g) Absent voluntary fee reductions, Total Fund Operating Expenses would be:
1.23% for the Investor and 0.98% for the Fiduciary Shares of the Diversified
Obligations Fund, 1.27% for the Investor and 1.02% for the Fiduciary Shares
of the U.S. Government Obligations Fund, 1.22% for the Investor Shares and
0.97% for the Fiduciary Shares of the 100% U.S. Treasury Obligations Fund,
1.26% for the Investor Shares and 1.01% for the Fiduciary Shares of the
California Tax-Free Fund, and 1.39% for the Investor Shares and 1.14% for
the Fiduciary Shares of the Tax-Free Fund.
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information with respect to
the Shares of the Diversified Obligations Fund, U.S. Government Obligations
Fund, 100% U.S. Treasury Obligations Fund, California Tax-Free Fund and Tax-Free
Fund. Financial highlights for each Fund for the periods indicated have been
derived from financial statements audited by Coopers & Lybrand L.L.P.,
independent accountants for
6
<PAGE> 12
The HighMark Group, whose report thereon is included in the Statement of
Additional Information. For fiscal 1996, Deloitte & Touche LLP will replace
Coopers & Lybrand L.L.P. as the Group's auditors.
<TABLE>
<CAPTION>
DIVERSIFIED OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------- -------------------- -------------------- -------------------- --------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR
-------- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- -------- ------- -------- ------- -------- -------
Investment Activities
Net investment income...... 0.049 0.049 0.028 0.028 0.027 0.027 0.043 0.043 0.066
-------- -------- ------- -------- ------- -------- ------- -------- -------
Distributions
Net investment income...... (0.049) (0.049 ) (0.028 ) (0.028 ) (0.027 ) (0.027 ) (0.043 ) (0.043 ) (0.066)
-------- -------- ------- -------- ------- -------- ------- -------- -------
Net Asset Value,
End of Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= ======== ======= ======== ======= ======== =======
Total Return................ 4.99% 4.99 % 2.88 % 2.88 % 2.75 % 2.75 % 4.41 % 4.41 % 7.00%
Ratios/Supplementary Data:
Net Assets at end of period
(000).................... $128,191 $270,476 $75,725 $228,934 $77,589 $254,034 $17,600 $337,485 $16,618
Ratio of expenses to
average net assets....... 0.74% 0.74 % 0.74 % 0.74 % 0.72 % 0.72 % 0.72 % 0.72 % 0.70%
Ratio of net investment
income to average net
assets................... 4.92% 4.88 % 2.83 % 2.83 % 2.72 % 2.72 % 4.34 % 4.34 % 6.71%
Ratio of expenses to
average net assets*...... 1.23% 0.98 % 1.14 % 0.89 % 0.79 % 0.73 % 0.97 % 0.72 % 0.70%
Ratio of net investment
income to average net
assets*.................. 4.43% 4.64 % 2.42 % 2.67 % 2.65 % 2.71 % 4.09 % 4.34 % 6.71%
<CAPTION>
AUGUST 10,
1987
YEAR ENDED JULY 31, TO
------------------- JULY 31,
1991 1990 1989 ----------
--------- -------- --------
FIDUCIARY 1988(A)
--------- ----------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Investment Activities
Net investment income...... 0.066 0.079 0.085 0.066
-------- -------- -------- --------
Distributions
Net investment income...... (0.066 ) (0.079) (0.085) (0.066)
-------- -------- -------- --------
Net Asset Value,
End of Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return................ 7.00 % 8.23% 8.84% 6.94%
Ratios/Supplementary Data:
Net Assets at end of period
(000).................... $405,447 $593,116 $621,462 $ 350,499
Ratio of expenses to
average net assets....... 0.70 % 0.66% 0.59% 0.50%(b)
Ratio of net investment
income to average net
assets................... 6.71 % 7.92% 8.50% 6.73%(b)
Ratio of expenses to
average net assets*...... 0.70 % 0.69% 0.71% 0.70%(b)
Ratio of net investment
income to average net
assets*.................. 6.71 % 7.89% 8.38% 6.53%(b)
</TABLE>
- ---------
On December 1, 1990, the Diversified Obligations Fund commenced offering Class A
Shares and designated existing shares as Class B Shares. As of June 20, 1994,
Class A and Class B Shares were designated as "Investor" and "Fiduciary" Shares,
respectively.
* During each period the investment advisory, administration and distribution
fees (Investor Shares) were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Annualized.
[/R]
7
<PAGE> 13
<TABLE>
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------- -------------------- -------------------- -------------------- --------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR
-------- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- ------- -------- ------- -------- ------- ------- ------
Investment Activities
Net investment income..... 0.048 0.048 0.027 0.027 0.027 0.027 0.042 0.042 0.063
------- -------- ------- -------- ------- -------- ------- ------- ------
Distributions
Net investment income..... (0.048) (0.048) (0.027) (0.027) (0.027) (0.027) (0.042) (0.042) (0.063)
------- -------- ------- -------- ------- -------- ------- ------- ------
Net Asset Value,
End of Period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======= ======== ======= ======== ======= ======= ======
Total Return............... 4.86% 4.87% 2.74% 2.74% 2.72% 2.72% 4.25% 4.25% 6.49%
Ratios/Supplementary Data:
Net Assets at end of
period (000)............ $48,474 $159,747 $24,055 $162,094 $37,332 $166,182 $12,527 $94,252 $ 1,761
Ratio of expenses to
average net assets...... 0.78% 0.78% 0.77% 0.78% 0.71% 0.71% 0.73% 0.73% 0.63%
Ratio of net investment
income to average
net assets.............. 4.82% 4.76% 2.63% 2.70% 2.67% 2.67% 4.15% 4.15% 6.29%
Ratio of expenses to
average net assets*..... 1.27% 1.02% 1.17% 0.94% 0.79% 0.74% 0.99% 0.74% 0.73%
Ratio of net investment
income to average
net assets*............. 4.33% 4.52% 2.23% 2.54% 2.59% 2.65% 3.89% 4.14% 6.19%
<CAPTION>
AUGUST 10,
1987
YEAR ENDED JULY 31, TO
------------------- JULY 31,
1991 1990 1989 ----------
--------- ------- --------
FIDUCIARY 1988(A)
--------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- -------- --------
Investment Activities
Net investment income..... 0.063 0.078 0.083 0.064
-------- ------- -------- --------
Distributions
Net investment income..... (0.063) (0.078) (0.083) (0.064)
-------- ------- -------- --------
Net Asset Value,
End of Period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======== ========
Total Return............... 6.49% 8.09% 8.62% 6.78%
Ratios/Supplementary Data:
Net Assets at end of
period (000)............ $103,725 $80,774 $114,945 $131,985
Ratio of expenses to
average net assets...... 0.63% 0.65% 0.62% 0.42%(b)
Ratio of net investment
income to average
net assets.............. 6.29% 7.80% 8.30% 6.59%(b)
Ratio of expenses to
average net assets*..... 0.73% 0.72% 0.75% 0.71%(b)
Ratio of net investment
income to average
net assets*............. 6.19% 7.73% 8.17% 6.30%(b)
</TABLE>
- ---------
On December 1, 1990, the U.S. Government Obligations Fund commenced offering
Class A Shares and designated existing shares as Class B Shares. As of June 20,
1994, Class A and Class B Shares were designated as "Investor" and "Fiduciary"
Shares, respectively.
* During each period the investment advisory, administration and distribution
fees (Investor Shares) were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Annualized.
8
<PAGE> 14
<TABLE>
<CAPTION>
100% U.S. TREASURY OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------- -------------------- -------------------- -------------------- --------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR
-------- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- ------- -------- ------- -------- ------- -------- -------
Investment Activities
Net investment income.... 0.046 0.046 0.026 0.026 0.026 0.026 0.040 0.040 0.063
Net realized and
unrealized gains on
investments.............. 0.001 0.001
------- -------- ------- -------- ------- -------- ------- -------- -------
Total from Investment
Activities.............. (0.046) (0.046) 0.026 0.026 0.026 0.026 0.041 0.041 0.063
------- -------- ------- -------- ------- -------- ------- -------- -------
Distributions
Net investment income.... (0.046) (0.046) (0.026) (0.026) (0.026) (0.026) (0.040) (0.040) (0.063)
Net realized gains....... (0.001) (0.001)
------- -------- ------- -------- ------- -------- ------- -------- -------
Total Distributions..... (0.046) (0.046) (0.026) (0.026) (0.026) (0.026) (0.041) (0.041) (0.063)
------- -------- ------- -------- ------- -------- ------- -------- -------
Net Asset Value, End of
Period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======= ======== ======= ======== ======= ======== =======
Total Return.............. 4.69% 4.69% 2.68% 2.68% 2.64% 2.64% 4.18% 4.18% 6.53%
Ratios/Supplementary Data:
Net Assets at end of
period (000)............. $88,660 $190,604 $39,157 $160,721 $32,629 $191,946 $11,551 $219,451 $19,187
Ratio of expenses to
average net assets....... 0.73% 0.73% 0.74% 0.74% 0.67% 0.67% 0.65% 0.65% 0.62%
Ratio of net investment
income to average net
assets................... 4.68% 4.60% 2.68% 2.63% 2.60% 2.60% 3.99% 3.99% 6.25%
Ratio of expenses to
average net assets*...... 1.22% 0.97% 1.15% 0.90% 0.75% 0.72% 0.97% 0.72% 0.70%
Ratio of net investment
income average net
assets*.................. 4.19% 4.36% 2.27% 2.48% 2.52% 2.55% 3.67% 3.92% 6.17%
<CAPTION>
AUGUST 10,
1987
YEAR ENDED JULY 31, TO
------------------- JULY 31,
1991 1990 1989 ----------
--------- -------- --------
FIDUCIARY 1988(A)
--------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Investment Activities
Net investment income.... 0.063 0.078 0.081 0.063
Net realized and
unrealized gains on
investments..............
-------- -------- -------- --------
Total from Investment
Activities.............. 0.063 0.078 0.081 0.063
-------- -------- -------- --------
Distributions
Net investment income.... (0.063) (0.078) (0.081) (0.063)
Net realized gains.......
-------- -------- -------- --------
Total Distributions..... (0.063) (0.078) (0.081) (0.063)
-------- -------- -------- --------
Net Asset Value, End of
Period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return.............. 6.53% 8.04% 8.43% 6.62%
Ratios/Supplementary Data:
Net Assets at end of
period (000)............. $265,528 $205,787 $174,258 $151,854
Ratio of expenses to
average net assets....... 0.62% 0.65% 0.54% 0.41%(b)
Ratio of net investment
income to average net
assets................... 6.25% 7.76% 8.12% 6.45%(b)
Ratio of expenses to
average net assets*...... 0.70% 0.71% 0.72% 0.72%(b)
Ratio of net investment
income average net
assets*.................. 6.17% 7.70% 7.94% 6.14%(b)
</TABLE>
- ---------
On December 1, 1990, the 100% U.S. Treasury Obligations Fund commenced offering
Class A Shares and designated existing shares as Class B Shares. As of June 20,
1994, Class A and Class B Shares were designated as "Investor" and "Fiduciary"
Shares, respectively.
* During each period the investment advisory, administration and distribution
fees (Investor Shares) were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Annualized.
9
<PAGE> 15
<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE FUND
FINANCIAL HIGHLIGHTS
----------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------- -------------------- -------------------- -------------------- --------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR
-------- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- ------- -------- ------- -------- ------ -------- ------
Investment Activities
Net investment income.... 0.031 0.031 0.020 0.020 0.021 0.021 0.032 0.032 0.045
------- -------- ------- -------- ------- -------- ------ -------- ------
Distributions
Net Investment income.... (0.031) (0.03) (0.020) (0.020) (0.021) (0.021) (0.032) (0.032) (0.045)
------- -------- ------- -------- ------- -------- ------ -------- ------
Net Asset Value,
End of Period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======= ======== ======= ======== ====== ======== ======
Total Return.............. 3.16% 3.16% 1.99% 1.99% 2.13% 2.13% 3.20% 3.20% 4.57%
Ratios/Supplementary Data:
Net Assets at end of
period (000)........... $40,544 $105,742 $31,521 $114,993 $44,410 $142,939 $4,609 $116,062 $4,426
Ratio of expenses to
average net assets..... 0.50% 0.50% 0.50% 0.50% 0.44% 0.44% 0.54% 0.54% 0.53%
Ratio of net investment
income to average net
assets................. 3.14% 3.11% 1.96% 1.96% 2.08% 2.08% 3.15% 3.15% 4.47%
Ratio of expenses to
average net assets*.... 1.26% 1.01% 0.79% 0.93% 0.79% 0.73% 0.99% 0.74% 0.72%
Ratio of net investment
income to average net
assets*................ 2.38% 2.60% 1.28% 1.53% 1.73% 1.78% 2.70% 2.95% 4.28%
<CAPTION>
AUGUST 11,
YEAR ENDED JULY 31, 1987 TO
------------------- JULY 31,
1991 1990 1989 ----------
--------- -------- --------
FIDUCIARY 1988(A)
--------- ----------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Investment Activities
Net investment income.... 0.045 0.052 0.054 0.042
-------- -------- -------- --------
Distributions
Net Investment income.... (0.045) (0.052) (0.049) (0.042)
-------- -------- -------- --------
Net Asset Value,
End of Period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return.............. 4.57% 5.28% 5.58% 4.41%
Ratios/Supplementary Data:
Net Assets at end of
period (000)........... $142,365 $137,308 $147,868 $121,940
Ratio of expenses to
average net assets..... 0.53% 0.66% 0.71% 0.70%(b)
Ratio of net investment
income to average net
assets................. 4.47% 5.17% 5.45% 4.34%(b)
Ratio of expenses to
average net assets*.... 0.72% 0.72% 0.76% 0.75%(b)
Ratio of net investment
income to average net
assets*................ 4.28% 5.11% 5.40% 4.29%(b)
</TABLE>
- ---------
On December 1, 1990, the California Tax-Free Fund commenced offering Class A
Shares and designated existing shares as Class B Shares. As of June 20, 1994,
Class A and Class B Shares were designated as "Investor" and "Fiduciary" Shares,
respectively.
* During each period the investment advisory, administration and distribution
fees (Investor Shares) were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Annualized.
10
<PAGE> 16
<TABLE>
<CAPTION>
TAX-FREE FUND
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
-----------------------------------------------------------------------------------------
1995 1994 1993 1992
-------------------- -------------------- -------------------- --------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- ------- -------- ------- -------- ------ --------
Investment Activities
Net investment income.............. 0.030 0.030 0.019 0.019 0.021 0.021 0.033 0.033
------- -------- ------- -------- ------- -------- ------ --------
Distributions
Net Investment income.............. (0.030) (0.030) (0.019) (0.019) (0.021) (0.021) (0.033) (0.033)
------- -------- ------- -------- ------- -------- ------ --------
Net Asset Value,
End of Period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======= ======== ======= ======== ====== ========
Total Return........................ 3.00% 3.00% 1.96% 1.96% 2.16% 2.16% 3.35% 3.35%
Ratios/Supplementary Data:
Net Assets at end of period
(000)............................ $12,702 $30,813 $20,032 $30,285 $40,010 $29,799 $23,780 $27,136
Ratio of expenses to average
net assets....................... 0.73% 0.73% 0.69% 0.69% 0.53% 0.53% 0.57% 0.57%
Ratio of net investment income to
average net assets............... 2.90% 2.95% 1.93% 1.95% 2.12% 2.12% 3.31% 3.31%
Ratio of expenses to average
net assets*...................... 1.39% 1.14% 1.27% 1.02% 0.96% 0.84% 1.09% 0.84%
Ratio of net investment income to
average net assets*.............. 2.24% 2.54% 1.36% 1.62% 1.69% 1.82% 2.79% 3.05%
<CAPTION>
AUGUST 22,
1989
YEAR ENDED JULY 31, TO
------------------------------ JULY 31,
1991 1990 ----------
-------------------- -------
INVESTOR FIDUCIARY 1989(A)
-------- --------- ----------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ -------- -------- --------
Investment Activities
Net investment income.............. 0.049 0.049 0.054 0.054
------ -------- -------- --------
Distributions
Net Investment income.............. (0.049) (0.049) (0.054) (0.054)
------ -------- -------- --------
Net Asset Value,
End of Period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======== ======== ========
Total Return........................ 4.97% 4.97% 5.58% 5.58%
Ratios/Supplementary Data:
Net Assets at end of period
(000)............................ $ 9,549 $49,558 $38,329 $ 36,156
Ratio of expenses to average
net assets....................... 0.62% 0.62% 0.57% 0.57%(b)
Ratio of net investment income to
average net assets............... 4.80% 4.80% 5.45% 5.73%(b)
Ratio of expenses to average
net assets*...................... 0.77% 0.77% 0.85% 0.83%(b)
Ratio of net investment income to
average net assets*.............. 4.65% 4.65% 5.17% 5.47%(b)
</TABLE>
- ---------
On December 1, 1990, the Tax-Free Fund commenced offering Class A Shares and
designated existing shares as Class B Shares. As of June 20, 1994, Class A and
Class B Shares were designated as "Investor" and "Fiduciary" Shares,
respectively.
* During each period the investment advisory, administration and distribution
fees (Investor Shares) were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Annualized.
11
<PAGE> 17
FUND
DESCRIPTION The HighMark Money Market Funds (the "Money Market
Funds") are 5 of 13 separate investment portfolios
("Funds") of The HighMark Group (the "Group"), a
diversified, open-end management investment company. MERUS
Capital Management, a division of The Bank of California,
N.A. ("MERUS"), serves as the Money Market Funds'
investment adviser.
Each Money Market Fund has been divided into two classes
of Shares (Investor Shares and Fiduciary Shares) for
purposes of the Group's Distribution and Shareholder
Services Plan (the "Distribution Plan"). Investor and
Fiduciary Shares of a particular Fund represent interests
in the same portfolio of investments and are identical in
all respects except that Investor Shares bear the expense
of the fee under the Distribution Plan, which will cause
the Investor Shares to have a higher expense ratio and to
pay lower dividends than those related to Fiduciary
Shares, and Investor Shares have certain exclusive voting
rights with respect to the Distribution Plan. For
information concerning those investors who qualify to
purchase Investor and Fiduciary Shares and the operation
of the Group's Distribution Plan, see HOW TO PURCHASE
SHARES and SERVICE ARRANGEMENTS--Administrator &
Distributor--The Distribution Plan below. (Investor Shares
and Fiduciary Shares collectively may be hereinafter
referred to as "Shares.")
Shares of each Money Market Fund are priced pursuant to
the amortized cost method whereby the Group seeks to
maintain each Money Market Fund's net asset value per
Share at $1.00. There can be, however, no assurance that a
stable net asset value of $1.00 per Share will be
maintained.
Neither the California Tax-Free Fund nor the Tax-Free
Fund is intended to constitute a balanced investment
program and neither is designed for investors seeking
capital appreciation nor maximum tax-exempt income
irrespective of fluctuations in principal. Investment in
either of these Funds would not be appropriate for
tax-deferred plans, such as IRA and Keogh plans, and
investors should consult a tax or other financial adviser
to determine whether investment in the California Tax-Free
Fund or the Tax-Free Fund would be appropriate for them.
PERFORMANCE
INFORMATION From time to time, the Group may advertise the "yield"
and "effective yield" with respect to the Investor and
Fiduciary Shares of each Money Market Fund and a
"tax-equivalent yield" and "tax-equivalent effective
yield" for federal, California and Oregon income tax
purposes with regard to the Investor and Fiduciary Shares
of each of the 100% U.S. Treasury Obligations Fund, the
California Tax-Free Fund and the Tax-Free Fund.
Performance information is computed separately for a
Fund's Investor and Fiduciary Shares in accordance with
the formulas described below. Because only Investor Shares
bear the
12
<PAGE> 18
expense of the fee, if any, under the Distribution Plan,
yield information relating to a Fund's Investor Shares
will be lower than that relating to the Fund's Fiduciary
Shares. Each yield figure is based on historical earnings
and is not intended to indicate future performance.
The "yield" of a Money Market Fund's Investor Shares and
Fiduciary Shares, respectively, refers to the income
generated by an investment in the class 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
class is assumed to be reinvested. The "effective yield"
will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
The 100% U.S. Treasury Obligations Fund's tax-equivalent
yield and tax-equivalent effective yield will reflect the
amount of income subject to California or Oregon personal
income taxation at the rate specified in the advertisement
that a taxpayer would have to earn in order to obtain the
same after tax income as that derived from the yield and
effective yield, respectively, of the relevant class. The
California Tax-Free Fund's tax-equivalent yield and tax-
equivalent effective yield reflect the amount of income
subject to federal income taxation and California personal
income taxation at the rate specified in the advertisement
that a taxpayer would have to earn in order to obtain the
same after tax income as that derived from the yield and
effective yield, respectively, of the relevant class. The
Tax-Free Fund's tax-equivalent yield and tax-equivalent
effective yield will reflect the amount of income subject
to federal personal income taxation at the rate specified
in the advertisement that a taxpayer would have to earn in
order to obtain the same after tax income as that derived
from the yield and effective yield, respectively, of the
relevant class.
Tax-equivalent yields and tax-equivalent effective
yields with respect to a class will be significantly
higher than the yield and effective yield of that class.
From time to time, the Group may advertise the aggregate
total return and average annual total return of the Money
Market Funds. The aggregate total return and average
annual total return of each Fund may be quoted for the
life of each Fund and for five-year and one-year periods,
in each case, through the most recent calendar quarter.
Aggregate total return is determined by calculating the
change in the value of a hypothetical $1,000 investment in
a Fund over the applicable period that would equate the
initial amount invested to the ending redeemable value of
the investment. The ending redeemable value includes
dividends and capital gain distributions reinvested at net
asset value. Average annual total return is calculated by
annualizing a Fund's aggregate total return
13
<PAGE> 19
over the relevant number of years. The resulting
percentage indicates the positive or negative investment
results that an investor in a Fund would have experienced
from changes in Share price and reinvestment of dividends
and capital gain distributions.
INVESTMENT
OBJECTIVE The investment objective of the Diversified Obligations
Fund, the U.S. Government Obligations Fund and the 100%
U.S. Treasury Obligations Fund is to seek current income
with liquidity and stability of principal.
The investment objective of the California Tax-Free Fund
is to seek as high a level of current interest income free
from federal income tax and California personal income tax
as is consistent with the preservation of capital and
relative stability of principal.
The investment objective of the Tax-Free Fund is to seek
as high a level of current interest income free from
federal income tax as is consistent with the preservation
of capital and relative stability of principal.
The investment objectives of the Money Market Funds, and
all of their investment policies that are specifically
identified as fundamental in this Prospectus or the
Statement of Additional Information, may not be changed
without a vote of the holders of a majority of the
outstanding Shares of that Fund (as defined under GENERAL
INFORMATION--Miscellaneous below). There can be, of
course, no assurance that a Money Market Fund will achieve
its investment objective.
INVESTMENT
POLICIES & FUND
PORTFOLIOS While the Diversified Obligations Fund, the U.S.
Government Obligations Fund and the 100% U.S. Treasury
Obligations Fund have the same investment objective, they
differ as follows with respect to the types of instruments
that may be purchased:
The Diversified Obligations Fund invests in obligations
issued or guaranteed by the U.S. Government, its agencies,
or instrumentalities, and additionally invests in other
high-quality rated money market instruments and other
unrated instruments deemed to be of comparable high
quality by MERUS pursuant to guidelines established by the
Group's Board of Trustees. These additional investments
may include bankers' acceptances, certificates of deposit
and time deposits, commercial paper, and certain foreign
money market instruments. Some of the obligations and
money market instruments in which the Diversified
Obligations Fund invests may be subject to repurchase
agreements.
The U.S. Government Obligations Fund invests in
obligations issued or guaranteed by the U.S. Treasury, and
additionally invests in obligations issued or guaranteed
by agencies or instrumentalities of the U.S. Government.
Some of the
14
<PAGE> 20
obligations in which the U.S. Government Obligations Fund
invests may be subject to repurchase agreements.
The 100% U.S. Treasury Obligations Fund invests
exclusively in direct U.S. Treasury obligations guaranteed
by the full faith and credit of the U.S. Treasury.
The California Tax-Free Fund and the Tax-Free Fund
invest in bonds and notes issued by or on behalf of states
(primarily, in the case of the California Tax-Free Fund,
the State of California), territories and possessions of
the United States, and the District of Columbia and their
respective authorities, agencies, instrumentalities and
political sub-divisions ("Municipal Securities").
Under normal market conditions and, as a matter of
fundamental policy, at least 80% of the value of the total
assets of each of the California Tax-Free Fund and the
Tax-Free Fund will be invested in Municipal Securities,
the interest on which is both excluded from gross income
for federal income tax purposes, and, in the case of the
California Tax-Free Fund, California personal income tax
purposes and not treated as a preference item for
individuals for purposes of the federal alternative
minimum tax. Under normal market conditions, up to 20% of
each of the California Tax-Free Fund's and the Tax-Free
Fund's total assets may be invested in short-term
obligations, the interest on which is treated as a
preference item for individuals for purposes of the
federal alternative minimum tax or subject to federal or,
in the case of the California Tax-Free Fund, California
personal income tax ("Taxable Obligations").
Dividends paid by the California Tax-Free Fund that are
derived from obligations, the interest on which is exempt
from California taxation when received by an individual
("California Exempt-Interest Securities") are excluded
from gross income for California personal income purposes.
Dividends derived from interest on obligations other than
California Exempt-Interest Securities may be excluded from
gross income for federal income tax purposes but will be
subject to California personal income tax.
In order for the California Tax-Free Fund to pay
exempt-interest dividends, at least 50% of its total
assets must be invested in California Exempt-Interest
Securities at the close of each quarter of its taxable
year. Dividends, regardless of their source, may be
subject to local taxes.
In seeking to achieve its investment objective, each of
the California Tax-Free Fund and the Tax-Free Fund may
invest all or any part of its assets in Municipal
Securities that are private activity bonds, including
those known as industrial development bonds under prior
federal law. (Any reference herein to private activity
bonds includes industrial development bonds.) Interest on
private activity bonds is excluded from gross income for
federal income tax purposes only if the
15
<PAGE> 21
bonds fall within certain defined categories of qualified
private activity bonds and meet the requirements specified
for those respective categories. However, even if the
California Tax-Free Fund or the Tax-Free Fund invests in
private activity bonds that fall within these categories,
Shareholders may become subject to the alternative minimum
tax on that part of such Fund's distributions derived from
interest on such bonds. For further information, see
TAXATION below.
Securities or instruments in which each Money Market
Fund invests have remaining maturities of thirteen months
or less, although instruments subject to repurchase
agreements and certain adjustable interest rate
instruments may bear longer maturities. The
dollar-weighted average portfolio maturity of each Money
Market Fund will not exceed 90 days.
Although the Diversified Obligations Fund, the U.S.
Government Obligations Fund and the 100% U.S. Treasury
Obligations Fund have the same investment adviser and the
same investment objective, particular securities and
respective yields of these Funds may differ due to
differences in the types of permitted investments, cash
flow, and the availability of particular investments.
Additional information concerning each Money Market
Fund's investments, including certain investment
restrictions that may not be changed with respect to a
particular Fund without a vote of the holders of a
majority of the outstanding Shares of that Fund, is set
forth in the Statement of Additional Information.
High Quality Investments
Each Money Market Fund may invest only in U.S. dollar
denominated obligations determined by MERUS to present
minimal credit risks under guidelines adopted by the
Group's Board of Trustees.
With respect to the Diversified Obligations Fund,
investments will consist of those obligations that, at the
time of purchase, possess the highest short-term ratings
from at least two nationally recognized statistical rating
organizations ("NRSROs") (for example, commercial paper
rated "A-1" by Standard & Poor's Corporation ("S&P") and
"P-1" by Moody's Investors Service, Inc. ("Moody's")).
Although the Diversified Obligations Fund does not
presently expect to do so, it may also invest in
obligations that, at the time of purchase, possess one of
the two highest short-term ratings from at least two
NRSROs, and in obligations that do not possess a rating
(i.e., are unrated) but are determined by MERUS to be of
comparable quality to the rated instruments eligible for
purchase by the Fund under guidelines adopted by the Board
of Trustees.
The Diversified Obligations Fund will not invest more
than 5% of its total assets in the securities of any one
issuer, except that the Fund may invest up to 25% of its
total assets in the securities of a single issuer for a
period of up to three
16
<PAGE> 22
business days. There is no limit on the percentage of the
Fund's assets that may be invested in obligations issued
or guaranteed by the U.S. Government, its agencies, or
instrumentalities and repurchase agreements fully
collateralized by such obligations.
With respect to the California Tax-Free Fund and the
Tax-Free Fund, investments will consist of those
obligations that, at the time of purchase, possess the
highest short-term rating from at least one NRSRO (for
example, Municipal Securities rated "SP-1" by S&P or
"MIG-1" by Moody's). Although neither Fund presently
expects to do so, either Fund may also invest in
obligations that, at the time of purchase, possess one of
the two highest short-term ratings by an NRSRO, and in
obligations that do not possess a rating (i.e., are
unrated) but are determined by MERUS to be of comparable
quality to the rated instruments eligible for purchase by
the Fund under the guidelines adopted by the Board of
Trustees.
For further information concerning the rating and other
requirements governing the investments (including the
treatment of securities subject to a tender or demand
feature or deemed to possess a rating based on comparable
rated securities of the same issuer) of the Diversified
Obligations Fund, the California Tax-Free Fund or the
Tax-Free Fund, see the Statement of Additional
Information. The Statement of Additional Information also
identifies the NRSROs that may be utilized by MERUS with
respect to portfolio investments for the Funds and
provides a description of the relevant ratings assigned by
each such NRSRO.
Government Obligations
The U.S. Government Obligations Fund invests exclusively
in obligations issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities, such as
U.S. Treasury bills, notes and bonds, and obligations
issued by the Government National Mortgage Association and
the Export-Import Bank of the United States. The
Diversified Obligations Fund may similarly invest in these
obligations. Investments by these Money Market Funds in
obligations of certain agencies and instrumentalities of
the U.S. Government, however, may not be guaranteed by the
full faith and credit of the U.S. Treasury, and there can
be no assurance that the U.S. Government would provide
financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law.
As indicated below, U.S. Government obligations in which
each of the Diversified Obligations Fund and the U.S.
Government Obligations Fund invest may be subject to
repurchase agreements.
The 100% U.S. Treasury Obligations Fund invests
exclusively in direct U.S. Treasury obligations guaranteed
as to payment of principal and interest by
17
<PAGE> 23
the full faith and credit of the U.S. Treasury, such as
U.S. Treasury bills, notes and bonds.
Mortgage-Related Securities Issued by the Government
National Mortgage Association
The Diversified Obligations Fund and the U.S. Government
Obligations Fund may each, consistent with its objective
and policies, invest in mortgage-related securities issued
by the Government National Mortgage Association ("GNMA")
representing GNMA Pass-Through Certificates (also known as
"Ginnie Maes"). GNMA is a wholly owned U.S. Government
corporation within the Department of Housing and Urban
Development and Ginnie Maes represent pools of mortgage
loans assembled for sale to investors by GNMA. Ginnie Maes
are guaranteed as to the timely payment of interest and
principal by GNMA and GNMA's guarantee is backed by the
full faith and credit of the U.S. Treasury. In addition,
Ginnie Maes are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under
GNMA's guarantee.
Although, as described above, Ginnie Maes are guaranteed
as to the timely payment of principal and interest by both
GNMA and the U.S. Treasury, the market value of a Ginnie
Mae is not secured and may fluctuate significantly because
of changes in interest rates and changes in prepayment
levels. If a Fund purchases a Ginnie Mae at a premium,
that portion may be lost if there is a decline in the
market value of the security whether resulting from
changes in interest rates or prepayments in the underlying
mortgage collateral. As with other interest-bearing
securities, the prices of Ginnie Maes are inversely
affected by changes in interest rates. Although the value
of a Ginnie Mae may decline when interest rates rise, the
converse is not necessarily true since in periods of
declining interest rates the mortgages underlying the
Ginnie Mae are prone to prepayment which results in
amounts being available for reinvestment which are likely
to be invested at a lower interest rate. For this and
other reasons, a Ginnie Mae's stated maturity may be
shortened by unscheduled prepayments on the underlying
mortgages and, therefore, it is not possible to predict
accurately the security's return to the Fund. In addition,
regular payments received from Ginnie Maes include both
interest and principal. No assurance can be given as to
the return a Fund will receive when these amounts are
reinvested. As a consequence, mortgage securities may be a
less effective means of "locking in" interest rates than
other types of debt securities having the same stated
maturity, may have less potential for capital
appreciation, and may be considered riskier investments as
a result.
18
<PAGE> 24
Bank Instruments (Diversified Obligations Fund)
The Diversified Obligations Fund may invest in bankers'
acceptances, certificates of deposit, and time deposits of
domestic and foreign financial institutions as described
below, provided that investments and obligations of
foreign banks will not exceed 25% of the value of the
Fund's total assets. Investments in bankers' acceptances
are limited to those that are guaranteed by domestic and
foreign banks that, at the time of the investment, have
capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of the bank's most recently
published financial statement). Investments in
certificates of deposit and time deposits of domestic and
foreign banks and savings and loan associations may be
made if (a) at the time of the investment the depository
institution has capital, surplus, and undivided profits in
excess of $100,000,000 (as of the date of its most
recently published financial statements) or (b) the
principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation.
The Diversified Obligations Fund may also invest in
Eurodollar Certificates of Deposit ("ECDs"), which are
U.S. dollar denominated certificates of deposit issued by
offices of foreign and domestic banks located outside the
United States; Eurodollar Time Deposits ("ETDs"), which
are U.S. dollar denominated deposits in a foreign branch
of a U.S. bank or a foreign bank; Canadian Time Deposits
("CTDs"), which are U.S. dollar denominated certificates
of deposit issued by Canadian offices of major Canadian
banks; and Yankee Certificates of Deposit ("Yankee CDs"),
which are certificates of deposit issued by a U.S. branch
of a foreign bank denominated in U.S. dollars and held in
the United States.
The Diversified Obligations Fund will not invest in
excess of 10% of its total assets in time deposits,
including ETDs and CTDs but not including certificates of
deposit, which have maturities in excess of seven days and
which are subject to penalties upon early withdrawal.
Commercial Paper & Variable Amount Master Demand Notes
The Diversified Obligations Fund may invest in
short-term promissory notes issued by corporations. These
investments may include Canadian Commercial Paper ("CCP"),
which is U.S. dollar denominated commercial paper issued
by a Canadian corporation or a Canadian counterpart of a
U.S. corporation, and Europaper, which is U.S. dollar
denominated commercial paper of a foreign issuer.
The Diversified Obligations Fund may also invest in
variable amount master demand notes, which are unsecured
demand notes that permit the indebtedness thereunder to
vary and provide for periodic adjustments in the interest
rate according to the terms of the instrument. Because
master demand notes are direct lending arrangements
between the Group and the issuer, they are not normally
19
<PAGE> 25
traded. Although there is no secondary market in these
notes, the Fund may demand payment of principal and
accrued interest at any time. For purposes of the Fund's
investment policies, a variable amount master demand note
will be deemed to have a maturity equal to the longer of
the period of time remaining until the next readjustment
of its interest rate or the period of time remaining until
the principal amount can be recovered from the issuer
through demand.
Loan Participations
The Diversified Obligations Fund may also invest in loan
participations pursuant to which the Fund acquires a
portion of a bank or other lending institution's interest
in a secured or unsecured loan to a corporate borrower.
The bank or lending institution originating the loan is
generally responsible for collecting interest and
principal from the borrower and for enforcing its rights
against the borrower in the event of a default. Thus,
although the Fund's ability to receive payments of
principal and interest in connection with a particular
loan participation is primarily dependent on the financial
condition of the underlying borrower, it may also depend
on the lending institution. In selecting loan
Participations on behalf of the Fund, MERUS will evaluate
the creditworthiness of both the borrower and the lender
and will treat both the borrower and the lender as an
"issuer" of the loan participation for purposes of the
fund's investment policies and restrictions (see High
Quality Investments above and INVESTMENT RESTRICTIONS in
the Statement of Additional information). As in the case
of mortgage-related securities, loan Participations are
subject to prepayments and there can be no assurance that
the Fund will be able to reinvest the proceeds of any loan
prepayment at the same interest rate or on the same terms
as the original loan participation.
Foreign Investments
Investments in ECDs, ETDs, CTDs, Yankee CDs, CCP, and
Europaper may subject the Diversified Obligations Fund to
investment risks that differ in some respects from those
related to investments in obligations of U.S. domestic
issuers. These risks include adverse political and
economic developments, possible imposition of withholding
taxes on interest income, possible seizure,
nationalization, or expropriation of foreign investments,
possible establishment of exchange controls, or adoption
of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on
such obligations. In addition, foreign branches of U.S.
banks and foreign banks may be subject to less stringent
reserve requirements and different accounting, auditing,
reporting, and recordkeeping standards than those
applicable to domestic branches of U.S. banks.
20
<PAGE> 26
Municipal Securities (California Tax-Free Fund and the
Tax-Free Fund)
The two principal classifications of Municipal
Securities that may be held by the California Tax-Free
Fund and the Tax-Free Fund are "general obligation"
securities and "revenue" securities.
General obligation securities are secured by the
issuer's pledge of its full faith and credit and general
taxing power for the payment of principal and interest.
Revenue securities 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 such as the user of
the facility being financed. Private activity bonds held
by the Tax-Free Fund or the California Tax-Free Fund are
in most cases revenue securities and are not payable from
the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually
directly related to the credit standing of the corporate
user of the facility involved.
In addition, Municipal Securities may include "moral
obligation" bonds, which are normally issued by special
purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service
obligations from current revenues, it may draw on a
reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or
municipality which created the issuer.
Opinions relating to the validity of Municipal
Securities and to the exemption of interest thereon from
federal income tax or California personal income tax are
rendered at the time of issuance by counsel experienced in
matters relating to the validity of and tax exemption of
interest on bonds issued by states and their political
sub-divisions. None of the California Tax-Free Fund, the
Tax-Free Fund or MERUS will review the proceedings
relating to the issuance of Municipal Securities or the
basis for such opinions.
Municipal Securities purchased by the California
Tax-Free Fund or the Tax-Free Fund may include adjustable
interest rate tax-exempt notes which may have a stated
maturity in excess of thirteen months, but which will be
subject to a demand feature that will permit either Fund
to demand payment of the principal of the note either (i)
at any time upon not more than thirty days' notice or (ii)
at specified intervals not exceeding thirteen months and
upon no more than thirty days' notice. There may be no
active secondary market with respect to a particular
adjustable interest rate note. Nevertheless, as described
in greater detail in the Statement of Additional
Information, the adjustable interest rate feature included
in this type of note is intended generally to assure that
the value of the note to the Fund will approximate its par
value.
21
<PAGE> 27
The California Tax-Free Fund and the Tax-Free Fund may
also purchase short-term anticipation notes, bond
anticipation notes, revenue anticipation notes, and other
forms of short-term tax-exempt securities. These
instruments are issued in anticipation of the receipt of
tax funds, the proceeds of bond placements, or other
revenues. In addition, the California Tax-Free Fund and
the Tax-Free Fund may purchase tax-exempt commercial
paper. Under certain circumstances, and subject to the
limitations described in the Statement of Additional
Information, the California Tax-Free Fund and the Tax-Free
Fund may invest directly in Municipal Securities by
purchasing shares of other tax-exempt money market mutual
funds.
The California Tax-Free Fund and the Tax-Free Fund may
also acquire Municipal Securities that have "put"
features. Under a put feature, the Fund has the right to
sell the Municipal Security within a specified period of
time at a specified price. The put feature cannot be sold,
transferred, or assigned separately from the Municipal
Security. Each Fund may buy Municipal Securities with put
features to facilitate portfolio liquidity, shorten the
maturity of the underlying Municipal Securities, or permit
investment at a more favorable rate of return. The
aggregate price of a security subject to a put may be
higher than the price that otherwise would be paid for the
security without such a feature, thereby increasing the
security's cost and reducing its yield.
Although the Tax-Free Fund presently does not intend to
do so on a regular basis, the Fund may invest and has
invested on occasion more than 25% of its total assets in
Municipal Securities that are related in such a way that
an economic, business, or political development or change
affecting one security would likewise affect the other
Municipal Securities. Examples of these types of
securities are obligations the repayment of which is
dependent upon similar types of projects or projects
located in the same state. Such investments will be made
only if deemed necessary or appropriate by MERUS. To the
extent that a Funds' assets are concentrated in Municipal
Securities that are so related, the Fund will be subject
to the peculiar risks presented by such Municipal
Securities, such as negative developments in a particular
industry or state, to a greater extent than it would be if
the Fund's assets were not so concentrated (see Special
Factors Affecting Investments in Obligations of California
Government Issuers below).
Each of the California Tax-Free Fund and the Tax-Free
Fund may invest up to 10% of its total assets in
securities of investment companies, including Shares of
the HighMark Funds. As a shareholder of an investment
company, a Fund may indirectly bear investment management
fees of that investment company, which are in addition to
the management fees the Fund pays its own adviser. In
order to avoid the imposition of additional fees as a
result of investments in Shares of other HighMark Funds,
the Investment Adviser and the Administrator (see
22
<PAGE> 28
SERVICE ARRANGEMENTS) will reduce that portion of their
usual asset-based fees from each Money Market Fund by an
amount equal to their asset-based fees from the other
Highmark Funds that are attributable by such Money Market
Fund's investments. The Investment Adviser and the
Administrator will promptly forward such fees to the
relevant Money Market Fund.
Special Factors Affecting Investments in Obligations of
California Governmental Issuers
Because of the California Tax-Free Fund's investment
objective, many of the securities in its portfolio are
likely to be obligations of California governmental
issuers that rely in whole or in part, directly or
indirectly, on real property taxes as a source of revenue.
"Proposition 13" and similar California constitutional and
statutory amendments and initiatives approved by
California voters in recent years, through limiting real
property and other taxes, have resulted in a substantial
reduction in state and local tax revenues. Decreased state
revenues may result in reductions in allocations of state
revenues to local governments and could affect the ability
of California governmental issuers to pay interest or
repay principal on their obligations. In addition, since
1990 California has faced severe economic and fiscal
conditions and has experienced recurring budget deficits.
The financial difficulties experienced by the State of
California and other issuers of California Municipal
Securities have resulted in the credit ratings of certain
of their obligations being downgraded significantly by the
major rating agencies. There can be no assurance that
credit ratings on obligations of the State of California
and other California Municipal Securities will not be
downgraded further.
A more detailed description of special factors affecting
investments in obligations of California governmental
issuers of which investors should be aware is set forth in
the Statement of Additional Information.
Taxable Obligations
The California Tax-Free Fund and the Tax-Free Fund may
hold uninvested cash reserves pending investment during
temporary "defensive" periods or if, in the opinion of
MERUS, desirable tax-exempt obligations are unavailable.
In accordance with each Fund's investment objective and
subject to its fundamental policies, investments may be
made in Taxable Obligations if, for example, suitable
tax-exempt obligations are unavailable or if acquisition
of U.S. Government or other taxable securities is deemed
appropriate for temporary "defensive" purposes.
As discussed in greater detail in the Statement of
Additional Information, Taxable Obligations may include
obligations issued or guaranteed by the
23
<PAGE> 29
U.S. Government, its agencies, or instrumentalities (some
of which may be subject to repurchase agreements),
certificates of deposit, bankers' acceptances, and
commercial paper. As noted above, Taxable Obligations may
also include private activity bonds depending on their tax
treatment.
Lending of Portfolio Securities
In order to generate additional income, the Diversified
Obligations Fund, the U.S. Government Obligations Fund and
the 100% Treasury Obligations Fund may each lend its
portfolio securities to broker-dealers, banks or other
institutions. During the time portfolio securities are on
loan from a Fund, the borrower will pay the Fund any
dividends or interest paid on the securities. In addition,
loans will be subject to termination by the Fund or the
borrower at any time. While the lending of securities may
subject a Fund to certain risks, such as delays or an
inability to regain the securities in the event the
borrower were to default on its lending agreement or enter
into bankruptcy, the Fund will receive 100% collateral in
the form of cash or U.S. Government securities. This
collateral will be valued daily by MERUS and, should the
market value of the loaned securities increase, the
borrower will be required to furnish additional collateral
to the Fund. Although the Funds do not expect to do so on
a regular basis, a Fund may lend portfolio securities in
amounts representing up to 35% of the value of the Fund's
total assets.
Other Investments
Each Fund may purchase securities on a "when-issued"
basis, which are securities purchased for delivery beyond
the normal settlement date at a stated price and yield and
which thereby involve a risk that the yield obtained in
the transaction will be less than that available in the
market when delivery takes place. When the Fund agrees to
purchase when-issued securities, the Group's custodian
will set aside cash or liquid portfolio securities equal
to the amount of the commitment in a segregated account.
Each Fund will generally not pay for such securities and
no income will accrue on the securities until they are
received. These securities are recorded as an asset and
are subject to changes in value based upon changes in the
general level of interest rates. The purchase of
securities on a "when-issued" basis may have the effect of
leverage, which may increase the risk of fluctuations in
the Fund's net asset value.
Each Fund expects that commitments to purchase
when-issued securities will not exceed 25% of the value of
its total assets under normal market conditions. In the
event a Fund's commitments to purchase when-issued
securities exceeded 25% of the value of its total assets,
the Fund's liquidity and MERUS's ability to manage it
might be adversely affected. Each Fund does not intend to
purchase when-issued securities for speculative purposes
but only for the purpose of acquiring portfolio
securities.
24
<PAGE> 30
Securities held by each of the Diversified Obligations
Fund, the U.S. Government Obligations Fund, the California
Tax-Free Fund and the Tax-Free Fund may be subject to
repurchase agreements whereby a Fund will acquire
securities from financial institutions or registered
broker-dealers that agree to repurchase the securities at
a mutually agreed-upon date and price. The repurchase
price under such an agreement will generally equal the
price paid by the Fund plus interest negotiated on the
basis of current short-term rates, which may be more or
less than the rate on the underlying portfolio securities.
If the seller defaults on its repurchase obligation or
becomes insolvent, the Fund holding the obligation would
suffer a loss to the extent that either the proceeds from
a sale of the underlying portfolio securities were less
than the repurchase price or the Fund's disposition of the
securities was delayed pending court action. Securities
subject to repurchase agreements will be held on behalf of
a Fund by a qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements
are considered to be loans by a Fund under the Investment
Company Act of 1940 (the "1940 Act"). Income earned by the
California Tax-Free Fund from repurchase agreements will
be subject to California personal income tax.
As described in the Statement of Additional Information,
each of the Diversified Obligations Fund, the U.S.
Government Obligations Fund, the California Tax-Free Fund
and the Tax-Free Fund may also enter into reverse
repurchase agreements whereby a Fund will sell portfolio
securities to financial institutions such as banks or to
broker-dealers, and agree to repurchase the securities at
a specified date and price. Each Fund intends to limit its
respective investments in reverse repurchase agreements to
no more than 5% of the Fund's total assets.
VALUATION OF
SHARES Each Fund's net asset value per share is determined by
the administrator as of 1:00 p.m. Eastern Time and as of
the close of regular trading on the New York Stock
Exchange (the "Exchange") (generally, 4:00 p.m. Eastern
Time) on each weekday, with the exception of those
holidays on which the Exchange or the Federal Reserve Bank
of San Francisco are closed (a "Business Day"). Currently
one or both of these institutions are closed on the
customary national business holidays of New Year's Day,
Martin Luther King Jr. Day, President's Day (Washington's
Birthday), Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Columbus Day,
Veteran's Day, Thanksgiving Day and Christmas Day
(observed). Net asset value per share for purposes of
pricing sales and redemptions for each of the Funds is
calculated by adding the value of all securities and other
assets belonging to a Fund, subtracting its liabilities,
and dividing the result by the total number of the Fund's
outstanding shares, irrespective of class.
The assets in each Money Market Fund are valued based
upon the amortized cost method whereby the Group seeks to
maintain a Fund's net asset value per
25
<PAGE> 31
Share at $1.00, although there can be no assurance that a
stable net asset value of $1.00 per Share will be
maintained. For further information concerning the use of
the amortized cost method of valuation, see the Statement
of Additional Information.
HOW TO
PURCHASE
SHARES As noted above, each Fund is divided into two classes of
Shares, Investor and Fiduciary. Only the following
investors qualify to purchase a Money Market Fund's
Fiduciary Shares: (i) fiduciary, advisory, agency,
custodial and other similar accounts maintained with The
Bank of California or its affiliates; (ii) Select IRA
accounts established with The Bank of California and
invested in any of the Group's Money Market Funds prior to
November 25, 1988 which have remained continuously open
thereafter and which are not considered to be fiduciary
accounts; and (iii) present and retired directors,
officers, and employees (and their spouses and children
under the age of 21) of The Bank of California, BISYS Fund
Services or their affiliated companies, whether or not
investments are made through an employee benefit plan on
such person's behalf. All other investors are eligible to
purchase Investor Shares only. At the time of purchase,
the Distributor must be notified by the investor that he
or she qualifies to purchase Fiduciary Shares in
accordance with one of the categories described above.
Investor and Fiduciary Shares are sold on a continuous
basis by the Group's Distributor, BISYS Fund Services. The
principal office of the Distributor is 3435 Stelzer Road,
Columbus, Ohio 43219. If you wish to purchase Shares, you
may contact your investment professional or telephone the
Group at (800) 433-6884.
The Bank of California (the "Bank") and financial
institutions or intermediaries (such as banks, savings and
loan associations, insurance companies or investment
counselors), broker-dealers or the Distributor's
subsidiaries or affiliates (each a "Participating
Organization") acting in a fiduciary, advisory, custodial
or other similar capacity on behalf of customers may
purchase Shares of the Group. Such Shares will normally be
held of record by the Bank or Participating Organization.
With respect to these Shares, it is the responsibility of
the entity making the investment to transmit purchase or
redemption orders to the Distributor and to make payment
for the purchase of Shares. Beneficial ownership of the
Shares will be recorded by the Bank or Participating
Organization and reflected in the account statements
provided by the Bank or Participating Organization to
customers.
Eligible investors may also purchase a Fund's Investor
and Fiduciary Shares through the following procedures. The
minimum initial investment is generally $1,000 for each
Fund and the minimum subsequent investment is generally
only
26
<PAGE> 32
$100. For present and retired directors, officers, and
employees (and their spouses and children under the age of
21) of The Bank of California, BISYS Fund Services and
their affiliates, the minimum initial investment is $250
and the minimum subsequent investment is $50. A Fund's
initial and subsequent minimum purchase amounts may be
waived if purchases are made in connection with Individual
Retirement Accounts, Keoghs, payroll deduction plans,
401(k) or similar plans. To open an account, contact your
investment professional, or call the Group at (800)
433-6884, or follow these steps:
<TABLE>
<CAPTION>
BY CHECK OR MONEY ORDER BY FEDERAL FUNDS WIRE(1)
---------------------- -----------------------
<S> <C>
- Complete Account Registration form - Complete Account Registration form
- Mail check and application to: and mail to:
The HighMark Group The HighMark Group
PO Box 7591 PO Box 7591
San Francisco, CA 94120 San Francisco, CA 94120
- On the day you wish to purchase
Shares, wire funds to the Bank of
California. Call the Group at (800)
433-6884 for proper wire
instructions.
</TABLE>
---------
(1) Note: Shares cannot be purchased by wire until a
properly completed application is received by the
Group.
Shares of each Fund are purchased at the net asset value
per share next determined after receipt by the Group of an
order to purchase shares in proper form. Purchases of
Shares in a Fund will be effected only on a Business Day
(see VALUATION OF SHARES). It is the responsibility of the
investor's broker-dealer or other financial intermediary
to transmit purchase orders and payment for Shares to the
Distributor.
If so designated on a Shareholder's Account Registration
form, a Shareholder may effect the following transactions
by telephone: purchase additional Fund Shares; effect
redemptions; and exchange Fund Shares for Shares of the
class of any other Funds which the Shareholder qualifies
to purchase directly (see TELEPHONE TRANSACTIONS).
Subsequent purchases of Fund Shares may be made at any
time by mailing a check or money order or wiring funds to
the Group as described above. Once an investor's Account
Registration form has been received by the Group, the
investor may also purchase additional Shares by telephone
or under the Automatic Investment Plan described below.
Telephone orders may be placed by calling the Group at
(800) 433-6884. Payment for Shares ordered by telephone
27
<PAGE> 33
may be made by check and must be received by the Group
within five business days of the telephone order.
If a check for the purchase of Shares does not clear (or
in the case of telephone orders, if payment is not
received within five business days), the purchase will be
cancelled and the investor could be liable for any losses
or fees incurred by a Fund. The Group reserves the right
to take such action as is necessary to recover any such
fees and losses, including the involuntary redemption of
any Shares held in the ordering investor's account.
Investors may also purchase Shares by arranging
systematic monthly, bi-monthly or quarterly investments
into the Money Market Funds with HighMark's Automatic
Investment Plan ("AIP"). The minimum initial investment
referenced above still applies for each Fund. The minimum
periodic investment amounts are $50 per monthly or
bi-monthly transfer or $150 per quarterly transfer, and
the minimum periodic investment per Fund is $25. The
maximum amount with respect to any transfer is $100,000.
After investors give the Group proper authorization, their
bank accounts, which must be with banks which are members
of the Automated Clearing House, will be debited
accordingly to purchase Shares. Investors will receive a
confirmation from the Group for every transaction, and a
debit entry will appear on their bank statements.
To participate in AIP, investors must complete the
appropriate sections of the Account Registration form or
the Automatic Investment/Withdrawal Plan form. These forms
may be obtained by calling the Group at (800) 433-6884.
The amount investors specify will automatically be
invested in Shares at the Fund's net asset value per Share
next determined after the debit is made.
To change the frequency or amount invested under AIP,
written instructions must be received by the Group at
least 7 Business Days in advance of the next transfer. If
the bank or bank account number is changed, instructions
must be received by the Group at least 20 Business Days in
advance. In order to change a bank or bank account number,
investors also must have their signature guaranteed by a
bank, broker, dealer, credit union, securities exchange,
securities association, clearing agency or savings
association, as those terms are defined in Rule 17Ad-15
under the Securities Exchange Act of 1934 (an "Eligible
Guarantor Institution"). Signature guarantees are
described more fully under HOW TO REDEEM SHARES below. If
there are insufficient funds in the investor's designated
bank account to cover the Shares purchased using AIP, the
investor's bank may charge the investor a fee or may
refuse to honor the transfer instruction (in which case no
Shares will be purchased).
Investors should check with their banks to determine
whether their banks are members of the Automated Clearing
House and whether their banks charge a fee
28
<PAGE> 34
for transferring funds through the Automated Clearing
House. Expenses incurred by the Funds related to AIP are
borne by the Funds and therefore there is no direct charge
by the Fund to investors for use of these services.
Certain entities (including The Bank of California and
its affiliates) may charge customers fees in conjunction
with investments in a Fund, such as fees for
administrative support services and/or fees for the
purchase or redemption of the Fund's Shares through the
customer's account pursuant to specific or preauthorized
instructions. Information concerning these services and
any charges can be obtained by the entity making the
investment and this Prospectus should be read in
conjunction with that information.
The Group reserves the right to reject any order for the
purchase of Shares in whole or in part, including
purchases made with foreign checks and third party checks
not originally made payable to the order of the investor.
Shareholders will receive a confirmation of each new
transaction in the Shareholder's account. Confirmations of
purchases and redemptions on behalf of customers of
certain entities holding omnibus accounts (including
certain accounts of The Bank of California or its
affiliates) will be sent to the entity making the
investment and Shareholders may rely on these statements
in lieu of certificates. Certificates representing the
Money Market Funds' Shares will not be issued.
EXCHANGE
PRIVILEGES As indicated under GENERAL INFORMATION--Description of
The Group & Its Shares, each of the Group's Funds issues
two classes of Shares (Investor Shares and Fiduciary
Shares); as of the date of this Prospectus, the
Distribution Plan and distribution fee payable thereunder
are applicable only to each Fund's Investor Shares. A
Shareholder's eligibility to exchange into a particular
class of Shares will be determined at the time of the
exchange. The Shareholder must supply, at the time of the
exchange, the necessary information to permit confirmation
of qualification.
Each Fund's Shares may be exchanged for Shares of the
class of the various other Funds of the Group which a
Shareholder qualifies to purchase directly so long as the
Shareholder maintains the applicable minimum account
balance in each Fund in which he or she owns Shares and
satisfies the minimum initial and subsequent purchase
amounts of the Fund into which the Shares are exchanged.
Shareholders may exchange their Investor Shares for
Investor Shares of a Fund with the same or lower sales
charge on the basis of the relative net asset value of the
Investor Shares exchanged. Shareholders may exchange their
Investor Shares for Investor Shares of a Fund with a
higher sales charge by paying the difference between the
two sales charges. Shareholders may also exchange Investor
Shares of a Money Market Fund for which no sales load was
paid for Investor Shares of another HighMark Fund. Under
such circumstances, the cost of the acquired
29
<PAGE> 35
Investor Shares will be the net asset value per share plus
the appropriate sales load. If Investor Shares of the
Money Market Fund were acquired in a previous exchange
involving Shares of a non-money market HighMark Fund, then
such Shares of the Money Market Fund may be exchanged for
Shares of the non-money market HighMark Fund without
payment of any additional sales load within a twelve month
period. In order to receive a reduced sales charge, the
Shareholder must notify the Group that a sales charge was
originally paid and provide sufficient information to
permit confirmation of qualification.
Exchanges will be made on the basis of the relative net
asset values of the Shares exchanged, plus any applicable
sales charge. Exchanges are subject to the terms and
conditions stated herein and the terms and conditions
stated in the respective prospectuses of the Funds.
Certain entities (including Participating Organizations
and The Bank of California and its affiliates), however,
may charge customers a fee with respect to exchanges made
on the customer's behalf. Information about these charges,
if any, can be obtained by the entity effecting the
exchange and this Prospectus should be read in conjunction
with that information.
A Shareholder wishing to exchange Shares in a Money
Market Fund may do so by contacting the Group at (800)
433-6884 or by providing instructions to the Group (see
TELEPHONE TRANSACTIONS). Exchanges will be effected on any
Business Day at the net asset value of the Funds involved
in the exchange next determined after the exchange request
is received by the Distributor or the Transfer Agent.
An exchange is considered to be a sale of Shares for
federal income tax purposes on which a Shareholder may
realize a capital gain or loss. Exchange privileges may be
exercised only in those states where Shares of such other
Funds of the Group may legally be sold. The Group may
materially amend or terminate the exchange privileges
described herein upon sixty days' notice.
HOW TO REDEEM
SHARES Shares may ordinarily be redeemed by mail, by telephone
or by HighMark's Automatic Withdrawal Plan ("AWP")
described below. However, with respect to investments made
on a customer's behalf by certain entities (including
Participating Organizations and The Bank of California or
its affiliates), all or part of the customer's Shares may
be redeemed in accordance with instructions and
limitations pertaining to his or her account with such
entity. For example, if a customer has agreed to maintain
a minimum balance with the entity, the customer may be
required to redeem, or the entity may redeem on the
customer's behalf, all or part of the customer's Shares to
the extent necessary to maintain the required minimum
balance.
30
<PAGE> 36
A written request for redemption must be received by the
Group in order to constitute a valid request for
redemption. The Group may require a signature guarantee by
an Eligible Guarantor Institution, as defined above under
HOW TO PURCHASE SHARES. The Group reserves the right to
reject any signature guarantee if (1) it has reason to
believe that the signature is not genuine, (2) it has
reason to believe that the transaction would otherwise be
improper, or (3) the guarantor institution is a broker or
dealer that neither is a member of a clearing corporation
nor maintains net capital of at least $100,000. The
signature guarantee requirement will be waived if both of
the following conditions apply: (1) the redemption check
is payable to the Shareholder(s) of record; and (2) the
redemption check is mailed to the Shareholder(s) at the
address of record or the proceeds are either mailed or
sent electronically to a commercial bank account
previously designated on the Account Registration form.
Payments to Shareholders
A Shareholder may have the payment of redemption
requests sent electronically or mailed directly to a
domestic commercial bank account previously designated on
the Account Registration form. Redemption orders are
effected at the net asset value per Share next determined
after receipt of a valid request for redemption, as
described above. Payment to Shareholders will be made
within seven days after the Group receives the redemption
order. However, to the greatest extent possible, the Group
will attempt to honor requests from Shareholders for same
day payments upon redemption of Shares if the request for
redemption is received by the Group before 1:00 p.m.,
Eastern Time, on a Business Day or, if the request for
redemption is received after 1:00 p.m., Eastern Time, to
honor requests for payment on the next Business Day,
unless it would be disadvantageous to the Group or the
Shareholders of the particular Fund to sell or liquidate
portfolio securities in an amount sufficient to satisfy
requests for payments in that manner. A wire redemption
request may be made by telephoning the Group, who will
reduce the amount of the wire redemption payment by its
wire redemption charge (presently $11.00). There is no
charge for having payment of redemption requests mailed to
a designated bank account. Shareholders may redeem Shares
by telephone by calling the Group at (800) 433-6884 (see
TELEPHONE TRANSACTIONS).
At various times, the Group may be requested to redeem
Shares for which it has not yet received good payment. In
these circumstances, the Group may delay the forwarding of
proceeds until payment has been collected for the purchase
of the Shares, which may take up to 14 or more days.
Shareholders may avoid the possibility of such a delay by
making payment for Shares by wiring funds to the
custodian. The Group intends to pay cash for all Shares
redeemed, but under abnormal conditions which make payment
in cash unwise, the Group may make payment wholly or
partly in portfolio securities with a market value equal
to the
31
<PAGE> 37
redemption price. In these cases, an investor may incur
brokerage costs in converting the securities to cash.
Shareholders may also arrange to have systematic
monthly, bi-monthly or quarterly redemptions deposited
into their bank accounts with AWP, provided that their
bank accounts are with banks which are members of the
Automated Clearing House. The minimum redemption amounts
are $50 per monthly or bi-monthly transfer or $150 per
quarterly transfer, and the maximum amount with respect to
any transfer is $100,000. With proper Shareholder
authorization, the Group will redeem Shares equal to the
dollar amount specified by the Shareholder at the net
asset value next determined after the credit is made.
To participate in AWP, Shareholders must complete the
appropriate sections of the Account Registration form or
the Automatic Investment/Withdrawal Plan form. These forms
may be obtained by calling the Group at (800) 433-6884. To
change the frequency or amount withdrawn, instructions
must be received by the Group at least 7 Business Days in
advance of the next transfer. If the bank or bank account
number is changed, instructions must be received by the
Group at least 20 Business Days in advance. In order to
change a bank or bank account number, Shareholders also
must have their signature guaranteed by an Eligible
Guarantor Institution as more fully described above.
Shareholders should check with their banks to determine
whether their banks are members of the Automated Clearing
House and whether their banks charge a fee for
transferring funds through the Automated Clearing House.
Expenses incurred by the Funds related to AWP are borne by
the Funds and therefore there is no direct charge by a
Fund to Shareholders for use of these services.
Due to the relatively high cost of handling small
investments, the Group reserves the right to redeem, at
net asset value, Shares of a Money Market Fund if, because
of redemptions, the Shareholder's account with respect to
that Fund has a value of less than $250. Accordingly, an
investor purchasing Shares of a Money Market Fund in only
the minimum investment amount may be subject to
involuntary redemption if he or she thereafter redeems
Shares in that Fund. Before the Group exercises its right
to redeem such Shares, the Shareholder will be given
notice and allowed 60 days to make an additional
investment to increase the value of the account to at
least $250. For examples of when the Group may suspend the
right of redemption or redeem Shares involuntarily, see
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION--Matters
Affecting Redemption and VALUATION--Valuation of the Money
Market Funds in the Statement of Additional Information.
TELEPHONE
TRANSACTIONS As noted above, unless a Shareholder elects otherwise,
he or she has the privilege to effect purchases, exchanges
or redemptions by telephone. A Shareholder risks possible
losses from unauthorized exchanges or redemptions
32
<PAGE> 38
from the Shareholder's account. The Money Market Funds
will employ procedures designed to provide reasonable
assurance to confirm that instructions communicated by
telephone are genuine, and if a Fund does not employ such
procedures, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions. These procedures
include recording all telephone transactions, sending
confirmations to Shareholders within 72 hours of the
telephone transaction, verifying the account name and a
Shareholder's account number or tax identification number
and sending redemption proceeds only to the address of
record or to a previously authorized bank account. If, due
to temporary adverse conditions, investors are unable to
effect telephone transactions, Shareholders may also mail
the redemption request to the Group at the address listed
above under HOW TO PURCHASE SHARES.
DIVIDENDS The net income of each Money Market Fund is declared
daily as a dividend to Shareholders of record at the close
of business on the day of declaration. The net income
attributable to a Fund's Investor Shares and the dividends
payable on Investor Shares will be reduced by the
distribution fee assessed against such Shares under the
Distribution Plan (see SERVICE ARRANGEMENTS--
Administrator & Distributor--The Distribution Plan below).
Dividends with respect to each Money Market Fund are
paid monthly in additional full and fractional Shares of
the Fund at net asset value as of the date of payment,
unless the Shareholder elects to receive such dividends in
cash as described below. Shareholders will automatically
receive all income dividends and capital gains
distributions (if any) paid in respect of a Fund's Shares
in additional full and fractional Shares of the same
class. Shareholders wishing to receive their dividends in
cash (or wishing to revoke a previously made election)
must notify the Group at P.O. Box 7591, San Francisco, CA
94120, and such election (or revocation thereof) will
become effective with respect to dividends having record
dates after notice has been received. Dividends paid in
additional Shares receive the same tax treatment as
dividends paid in cash. Dividends are paid in cash not
later than seven Business Days after a Shareholder's
complete redemption of his or her Shares. Net realized
capital gains, if any, are distributed at least annually
to Shareholders of record.
TAXATION Each Money Market Fund intends to qualify for treatment
as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"), and to
distribute substantially all of its net investment income
so that it is not required to pay federal taxes on these
amounts. Because all of the net investment income of the
Diversified Obligations Fund, the U.S. Government
Obligations Fund and the 100% U.S. Treasury Obligations
Fund is expected to be derived from interest, it is
anticipated that no part of any distribution will be
eligible for the federal dividends received deduction for
corporations. The Money
33
<PAGE> 39
Market Funds do not expect to realize any long-term
capital gains and, therefore, do not foresee paying any
"capital gains dividends" as described in the Code.
Shareholders will be subject to federal income tax with
respect to dividends paid by the Diversified Obligations
Fund, the U.S. Government Obligations Fund and the 100%
U.S. Treasury Obligations Fund (including any capital
gains dividends). Dividends that are attributable to
interest on U.S. Government obligations earned by the
Funds may be exempt from state and local tax, and
Shareholders should consult their own tax advisers to
determine whether these dividends are eligible for the
state and local tax exemption. Dividends (except to the
extent attributable to gains) paid by the 100% U.S.
Treasury Obligations Fund will be exempt from California
and Oregon personal income taxes. The Group intends to
advise Shareholders annually of the proportion of a Fund's
dividends that consists of interest on U.S. Government
obligations.
Exempt-interest dividends from the California Tax-Free
Fund and the Tax-Free Fund are excludable from gross
income for federal income tax purposes. Such dividends may
be taxable to Shareholders under state or local law as
ordinary income even though all or a portion of the
amounts may be derived from interest on tax-exempt
obligations which, if realized directly, would be exempt
from such taxes. Shareholders are advised to consult a tax
adviser with respect to whether exempt-interest dividends
retain the exclusion if such Shareholder would be treated
as a "substantial user" or a "related person" to such user
under the Code.
Under the Code, interest on indebtedness incurred or
continued by a Shareholder to purchase or carry Shares of
the California Tax-Free Fund or the Tax-Free Fund is not
deductible for federal income tax purposes to the extent
the respective fund distributes exempt-interest dividends
during the Shareholder's taxable year.
Under the Code, if a Shareholder sells a Share of the
California Tax-Free Fund or the Tax-Free Fund after
holding it for six months or less, any loss on the sale or
exchange of such Share will be disallowed to the extent of
the amount of any exempt-interest dividends that the
Shareholder has received with respect to the Share that is
sold.
The California Tax-Free Fund and the Tax-Free Fund may
at times purchase Municipal Securities at a discount from
the price at which they were originally issued. For
federal income tax purposes, some or all of this market
discount will be included in the California Tax-Free
Fund's or the Tax-Free Fund's ordinary income and will be
taxable to Shareholders as such when it is distributed to
them.
To the extent dividends paid to Shareholders are derived
from taxable income (for example, from interest on
certificates of deposit or repurchase agreements), or from
long-term or short-term capital gains, such dividends will
be subject to federal income tax, whether such dividends
are paid in the form of cash or
34
<PAGE> 40
additional Shares. A Shareholder should consult his or her
tax adviser for special advice.
Under the Code, dividends attributable to interest on
certain private activity bonds issued after August 7, 1986
must be included in alternative minimum taxable income for
the purpose of determining liability (if any) for the
federal alternative minimum tax. In addition,
exempt-interest dividends will be included in a
corporation's "adjusted current earnings" for purposes of
the alternative minimum tax (except to the extent derived
from interest on certain private activity bonds issued
after August 7, 1986, which interest would already be
included in alternative minimum taxable income as a
specific item of tax preference). Shareholders of the
California Tax-Free Fund and the Tax-Free Fund receiving
social security or railroad retirement benefits may be
taxed on a portion of those benefits as a result of
receiving tax-exempt income (including exempt-interest
dividends distributed by the California Tax-Free Fund and
Tax-Free Fund).
If, at the close of each quarter of its taxable year,
the California Tax-Free Fund continues to qualify for the
special federal income tax treatment afforded regulated
investment companies and at least 50% of the value of the
Fund's total assets consists of California Exempt-Interest
Securities, then "California exempt interest dividends"
attributable to these securities will be exempt from
California personal income tax. A "California-exempt
interest dividend" is any dividend distributed by the Fund
not exceeding the interest received by the Fund on
California Exempt-Interest Securities (less related
expenses) and designated as such by written notice to
Shareholders. For further details, see the Statement of
Additional Information. Dividends received by Shareholders
subject to California state franchise or corporate income
tax may be taxed as ordinary dividends notwithstanding
that all or a portion of such dividends are exempt from
California personal income tax. Distributions other than
"California-exempt interest dividends" by the Fund to
California residents will be subject to California
personal income tax, whether or not such dividends are
reinvested.
Additional information regarding federal and California
taxes is contained in the Statement of Additional
Information. However, the foregoing and the material in
the Statement of Additional Information are only brief
summaries of some of the important tax considerations
generally affecting a Money Market Fund and its
Shareholders. In addition, the foregoing discussion and
the federal and California tax information in the
Statement of Additional Information are based on tax laws
and regulations which are in effect as of the date of this
Prospectus; these laws and regulations may subsequently
change, and such changes could be retroactive.
Shareholders will be advised at least annually as to the
federal income tax status, and, in the case of
Shareholders of the California
35
<PAGE> 41
Tax-Free Fund, as to the California income tax status, of
distributions made during the year.
SERVICE
ARRANGEMENTS Investment Adviser
MERUS, a division of The Bank of California, serves as
the Money Market Funds' investment adviser. Subject to the
general supervision of the Group's Board of Trustees,
MERUS manages each Fund in accordance with its investment
objective and policies, makes decisions with respect to
and places orders for all purchases and sales of a Fund's
investment securities, and maintains the Fund's records
relating to such purchases and sales.
For the expenses assumed and services provided by MERUS
as each Fund's investment adviser, The Bank of California
receives a fee from each Money Market Fund, computed daily
and paid monthly, at the annual rate of forty
one-hundredths of one percent (.40%) of the first $500
million of that Fund's average daily net assets,
thirty-five one-hundredths of one percent (.35%) of the
next $500 million of that Fund's average daily net assets,
and thirty one-hundredths of one percent (.30%) of the
Fund's remaining average daily net assets. The Bank of
California may from time to time agree to voluntarily
reduce its advisory fee. While there can be no assurance
that The Bank of California will choose to make such an
agreement, any voluntary reductions in The Bank of
California's advisory fee will lower such Money Market
Fund's expenses, and thus increase such Fund's yield,
effective yield and total return, during the period such
voluntary reductions are in effect. During the Group's
fiscal year ended July 31, 1995, The Bank of California
received investment advisory fees aggregating 0.40% of the
Diversified Obligations Fund's average daily net assets,
0.40% of the U.S. Government Obligations Fund's average
daily net assets, 0.40% of the 100% U.S. Treasury
Obligations Fund's average daily net assets, 0.18% of the
California Tax-Free Fund's daily net assets and 0.33% of
the Tax-Free Fund's average daily net assets.
Incorporated in 1864, The Bank of California was the
first incorporated banking institution in the West. The
Bank of California offers a wide range of banking services
to its clients in California, Oregon and Washington and
around the world. As of September 30, 1995, The Bank of
California and its subsidiaries had approximately $7.9
billion in commercial assets. MERUS is a division of The
Bank of California's Trust and Investment Management
Group, which manages approximately $6.8 billion of The
Bank of California's trust assets. MERUS, with a team of
approximately 30 stock and bond research analysts,
portfolio managers, and traders, has been providing
investment management services to individuals,
institutions, and large corporations since 1917.
36
<PAGE> 42
The Mitsubishi Bank, Limited, of Tokyo, Japan, directly
or indirectly owns all of the outstanding shares of the
Bank. The Mitsubishi Bank, Limited and The Bank of Tokyo,
Ltd. have announced their intention to merge. The
resulting entity will be named The Bank of Tokyo--
Mitsubishi, Ltd. The directors and shareholders of the
respective organizations have approved the proposed
merger in principle.
The Bank of Tokyo, Ltd. and The Mitsubishi Bank, Limited
announced they had reached a basic understanding
concerning the merger of their respective subsidiary banks
in California, Union Bank and The Bank of California. The
merger has been approved by the Boards of Directors of
Union Bank and The Bank of California, and will be
finalized after obtaining the required shareholders' and
regulatory approvals. The name of the combined California
bank will be Union Bank of California.
The target date of both the above-described mergers is
April 1, 1996.
One or more of the foregoing transactions may constitute
an "assignment" of the existing investment advisory
agreements between the Group and MERUS. In the event they
do constitute such an "assignment" under the 1940 Act, the
"assignment" will result in the automatic termination of
the investment advisory agreements, effective at the time
of the transaction. Prior to the transactions,
shareholders of each Fund will be asked to approve a new
investment advisory agreement between that Fund and Union
Bank of California (or a registered investment adviser
affiliate), to take effect at the time of the
transactions. A proxy statement describing the terms of
the new agreements will be sent to shareholders of the
Group prior to their being asked to vote on the new
agreements.
Administrator & Distributor
BISYS Fund Services Limited Partnership ("BISYS Fund
Services") is the administrator and distributor of the
Money Market Funds. BISYS Fund Services is a subsidiary of
The BISYS Group, Inc., 150 Clove Road, Little Falls, New
Jersey 07424, a publicly owned company engaged in
information processing, loan servicing, and 401(k)
administration and recordkeeping services to and through
banking and other financial organizations. Pursuant to a
separate agreement with BISYS Fund Services, The Bank of
California performs sub-administration services on behalf
of each Fund, for which it receives compensation from
BISYS Fund Services. A description of the services
performed by The Bank of California pursuant to this
Agreement is contained in the Statement of Additional
Information.
As administrator, BISYS Fund Services generally assists
in all aspects of each Fund's administration and
operation. For the expenses assumed and services provided
as administrator, BISYS Fund Services receives a fee from
each Money Market Fund, computed daily and paid
periodically, at an annual rate of twenty
37
<PAGE> 43
one-hundredths of one percent (0.20%) of that Fund's
average daily net assets. BISYS Fund Services may from
time to time agree to reduce voluntarily its
administration fee.
While there can be no assurance that BISYS Fund Services
will choose to make such an agreement, any voluntary
reductions in BISYS Fund Services's administration fee
will lower such Money Market Fund's expenses, and thus
increase such Fund's yield and total return, during the
period such voluntary reductions are in effect. During the
Group's fiscal year ended July 31, 1995, BISYS Fund
Services received administration fees aggregating 0.20% of
the U.S. Government Obligations Fund's average daily net
assets, 0.20% of the Diversified Obligations Fund's
average daily net assets, 0.20% of the 100% U.S. Treasury
Obligations Fund's average daily net assets, 0.15% of the
California Tax-Free Fund's average daily net assets and
0.10% of the Tax-Free Fund's average daily net assets.
The Group has adopted a Shareholder Services Plan
permitting payment of compensation to financial
institutions that agree to provide certain administrative
support services for their customers or account holders.
Each Fund has entered into a specific arrangement with
BISYS Fund Services for the provision of such services by
BISYS Fund Services, and reimburses BISYS Fund Services
for its cost of providing these services, subject to a
maximum annual rate of twenty-five one-hundredths of one
percent (0.25%) of the Fund's average daily net assets.
The Distribution Plan
Pursuant to the Group's Distribution Plan, each Money
Market Fund pays the Distributor as compensation for its
services in connection with the Distribution Plan a
distribution fee, computed daily and paid monthly, equal
to twenty-five one-hundredths of one percent (0.25%) of
the average daily net assets attributable to the Fund's
Investor Shares. Fiduciary Shares are not subject to the
Distribution Plan or a distribution fee.
The Distributor may use the distribution fee applicable
to a Fund's Investor Shares to provide distribution
assistance with respect to the sale of the Fund's Investor
Shares or to provide Shareholder services to the holders
of the Fund's Investor Shares. The Distributor may also
use the distribution fee (i) to pay financial institutions
and intermediaries (such as insurance companies and
investment counselors but not including banks and savings
and loan associations), broker-dealers, and the
Distributor's affiliates and subsidiaries compensation for
services or reimbursement of expenses incurred in
connection with the distribution of a Fund's Investor
Shares to their customers or (ii) to pay banks, savings
and loan associations, other financial institutions and
intermediaries, broker-dealers, and the Distributor's
affiliates and subsidiaries compensation for services
38
<PAGE> 44
or reimbursement of expenses incurred in connection with
the provision of Shareholder services to their customers
owning a Fund's Investor Shares. All payments by the
Distributor for distribution assistance or Shareholder
services under the Distribution Plan will be made pursuant
to an agreement between the Distributor and such bank,
savings and loan association, other financial institution
or intermediary, broker-dealer, or affiliate or subsidiary
of the Distributor (a "Servicing Agreement"; banks,
savings and loan associations, other financial
institutions and intermediaries, broker-dealers, and the
Distributor's affiliates and subsidiaries that may enter
into a Servicing Agreement are hereinafter referred to
individually as a "Participating Organization"). A
Participating Organization may include The Bank of
California, its subsidiaries, and its affiliates.
Participating Organizations may charge customers fees in
connection with investments in a Money Market Fund on
their customers' behalf. Such fees would be in addition to
any amounts the Participating Organization may receive
pursuant to its Servicing Agreement. Under the terms of
the Servicing Agreements, Participating Organizations are
required to provide their customers with a schedule of
fees charged directly to such customers in connection with
investments in a Fund. Customers of Participating
Organizations should read this Prospectus in light of the
terms governing their accounts with the Participating
Organization.
The distribution fee under the Distribution Plan will be
payable without regard to whether the amount of the fee is
more or less than the actual expenses incurred in a
particular year by the Distributor in connection with
distribution assistance or Shareholder services rendered
by the Distributor itself or incurred by the Distributor
pursuant to the Servicing Agreements entered into under
the Distribution Plan. The Distributor may from time to
time voluntarily reduce its distribution fee with respect
to a Money Market Fund in significant amounts for
substantial periods of time pursuant to an agreement with
the Group. While there can be no assurance that the
Distributor will choose to make such an agreement, any
voluntary reduction in the Distributor's distribution fee
will lower such Money Market Fund's expenses, and thus
increase such Fund's yield, during the period such
voluntary reductions are in effect. In addition, the
Distributor and the Participating Organizations have
agreed to voluntarily reduce payments to be received
pursuant to the Distribution Plan with respect to a Money
Market Fund to the extent necessary to ensure that such
payments do not exceed the income attributable to such
Fund's Investor Shares on any day.
Banking Laws
The Bank of California believes that MERUS may perform
the services for the Funds contemplated by its investment
advisory agreement with the Group without a violation of
applicable banking laws and regulations, and has so
39
<PAGE> 45
represented to the Group in the investment advisory
agreement. The Bank of California also believes that it
may perform sub-administration services on behalf of each
Fund, for which it receives compensation from BISYS Fund
Services without a violation of applicable banking laws
and regulations and has so represented in the Servicing
Agreement. Future changes in federal or state statutes and
regulations relating to permissible activities of banks or
bank holding companies and their subsidiaries and
affiliates, as well as further judicial or administrative
decisions or interpretations of present and future
statutes and regulations, could change the manner in which
The Bank of California or MERUS could continue to perform
such services for the Funds. For a further discussion of
applicable banking laws and regulations, see the Statement
of Additional Information.
Transfer Agent, Custodian & Fund Accounting Services
BISYS Fund Services Ohio, Inc., 3435 Stelzer Road,
Columbus, OH 43219, serves as each Money Market Fund's
transfer agent and also acts as each Fund's fund
accountant. While BISYS Fund Services Ohio, Inc. is a
distinct legal entity from BISYS Fund Services (the
Group's administrator and distributor), BISYS Fund
Services Ohio, Inc. is considered to be an affiliated
person of BISYS Fund Services under the 1940 Act due to,
among other things, the fact that BISYS Fund Services
Ohio, Inc. is owned by substantially the same persons that
directly or indirectly own BISYS Fund Services.
Pursuant to an agreement with BISYS Fund Services Ohio,
Inc., The Bank of California provides sub-transfer agency
services with respect to investments in each Fund's Shares
through certain accounts maintained with The Bank of
California and its affiliates, for which it receives
compensation from BISYS Fund Services Ohio, Inc. The Bank
of California also serves as each Fund's custodian.
Services performed by BISYS Fund Services Ohio, Inc. ,
as the Funds' transfer agent and fund accountant, and by
The Bank of California, as the Funds' sub-transfer agent
and custodian, as well as the basis of remuneration for
such services are described in the Statement of Additional
Information.
GENERAL
INFORMATION Description of The Group & Its Shares
The Group was organized as a Massachusetts business
trust on March 10, 1987, and consists of 13 series of
Shares, representing units of beneficial interest in the
Group's Growth Fund, Income and Growth Fund, Income Equity
Fund, Balanced Fund, Bond Fund, Government Bond Fund,
Diversified Obligations Fund, U.S. Government Obligations
Fund, 100% U.S. Treasury Obligations Fund, California
Tax-Free Fund, Tax-Free Fund, Intermediate California
Municipal Bond Fund and Intermediate Municipal Bond Fund.
As of the date hereof, no shares of the Intermediate
California Municipal Bond Fund or the
40
<PAGE> 46
Intermediate Municipal Bond Fund had been offered for
sale. Shares of each Fund are freely transferable, are
entitled to distributions from the assets of the Fund as
declared by the Board of Trustees, and, if the Group were
liquidated, would receive the net assets attributable to
that Fund. Shares are without par value.
As noted above, pursuant to an order received by the
Group from the Securities and Exchange Commission
permitting the issuance and sale of two classes of Shares
in each Fund, Shares of each of the Group's Funds have
been divided into two classes, designated Investor Shares
and Fiduciary Shares, for purposes of the Group's
Distribution Plan and related distribution fee, which fee
is applicable only to such Funds' Investor Shares.
Investor Shares and Fiduciary Shares represent interests
in the same portfolio of investments of a Fund and are
identical in all respects except that Investor Shares bear
the expense of the fee, if any, under the Distribution
Plan, which will cause the Investor Shares to have a
higher expense ratio and to pay lower dividends than those
related to Fiduciary Shares, and Investor Shares have
certain exclusive voting rights with respect to the
Distribution Plan.
The Group believes that as of November 1, 1995, Bank of
California (400 California Street, Post Office Box 45000,
San Francisco, CA 94104) was the Shareholder of record of
substantially all of each Money Market Fund's Fiduciary
Shares.
Miscellaneous
Shareholders will be sent unaudited semi-annual reports
and annual reports audited by independent public
accountants.
Shareholders are entitled to one vote for each Share
held in a Fund as determined on the record date for any
action requiring a vote by the Shareholders, and a
proportionate fractional vote for each fractional Share
held. Shareholders of the Group will vote in the aggregate
and not by series or class except (i) as otherwise
expressly required by law or when the Group's Board of
Trustees determines that the matter to be voted upon
affects only the interests of the Shareholders of a
particular series or particular class, and (ii) only
Investor Shares will be entitled to vote on matters
submitted to a Shareholder vote relating to the
Distribution Plan. The Group is not required to hold
regular annual meetings of Shareholders, but may hold
special meetings from time to time.
The Group's Trustees are elected by Shareholders, except
that vacancies may be filled by vote of the Board of
Trustees. Trustees may be removed by the Board of
Trustees, or by Shareholders at a meeting called for such
purpose. For information about how Shareholders may call
such a meeting and communicate
41
<PAGE> 47
with other Shareholders for that purpose, see ADDITIONAL
INFORMATION-- Miscellaneous in the Statement of Additional
Information.
Inquiries may be directed in writing to The HighMark
Group at 3435 Stelzer Road, Columbus, Ohio 43219, or by
calling toll free (800) 433-6884.
42
<PAGE> 48
THE HIGHMARK MONEY MARKET FUNDS
INVESTMENT PORTFOLIOS OF
THE HIGHMARK MUTUAL FUND GROUP
For further information (including current
yield, purchase and redemption information),
call (800) 433-6884
INVESTMENT ADVISER
MERUS Capital Management,
a division of The Bank of California, N.A.
400 California Street
Post Office Box 45000
San Francisco, CA 94104
CUSTODIAN
The Bank of California, N.A.
400 California Street
Post Office Box 45000
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
AUDITORS
Deloitte & Touche LLP
1700 Courthouse Plaza Northeast
Dayton, OH 45402
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE GROUP
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE GROUP
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
NOT FDIC INSURED
<PAGE> 49
HIGHMARK
MUTUAL FUND GROUP
TRS-17254(R12/95)
<PAGE> 50
CROSS REFERENCE SHEET
THE HIGHMARK EQUITY FUNDS
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C>
1. Cover Page....................................... Cover Page
2. Synopsis......................................... Fee Table
3. Condensed Financial Information.................. Per Share Income And
Capital Changes;
Performance Information
4. General Description of Registrant................ Fund Description;
Investment Objective;
Investment Policies &
Fund Portfolio; General
Information--Description
of the Group & Its Shares
5. Management of the Fund........................... Service Arrangements
5A. Management's Discussion of Fund Performance...... Inapplicable
6. Capital Stock and Other Securities............... How to Purchase Shares;
Exchange Privileges; How
to Redeem Shares; Dividends;
Federal Taxation; Service
Arrangements--Administrator
& Distributor--The
Distribution Plan; General
Information--Description
of the Group & Its Shares;
General Information--
Miscellaneous
7. Purchase of Securities Being Offered............. Valuation of Shares; How
to Purchase Shares;
Exchange Privileges;
Service Arrangements--
Administrator &
Distributor--The
Distribution Plan
8. Redemption or Repurchase......................... How to Redeem Shares
9. Pending Legal Proceedings........................ Inapplicable
</TABLE>
<PAGE> 51
HIGHMARK
MUTUAL FUND GROUP
EQUITY FUNDS
-----------------
. GROWTH
. INCOME & GROWTH
. INCOME EQUITY
. BALANCED
PROSPECTUS AS OF
DECEMBER 1, 1995
Not FDIC Insured
<PAGE> 52
THE HIGHMARK
EQUITY FUNDS
. . . INVESTMENT PORTFOLIOS OF
THE HIGHMARK MUTUAL FUND GROUP
- - THE FUNDS
The Growth Fund
The Income and Growth Fund
The Income Equity Fund
The Balanced Fund
- - THE GROWTH FUND focuses on earnings growth as its major source of long-term
capital appreciation and invests primarily in common stocks (but may also
invest in debt securities and preferred stocks that are convertible into
common stocks) of growth-oriented companies.
THE GROWTH FUND'S objective is to seek investments in equity securities that
provide opportunity for long-term capital appreciation; the production of
current income is an incidental objective.
- - THE INCOME AND GROWTH FUND invests primarily in common stocks (but may also
invest in preferred stocks and debt securities that are convertible into
common stocks) of companies with market capitalization within the range of
capitalization of companies included in the Standard and Poor's 500 Stock
Index (the "S&P 500").
THE INCOME AND GROWTH FUND'S objective is to seek current income above the
average current income of companies included in the S&P 500 and to seek total
return (dividends plus price appreciation) at least equal to that of the S&P
500 while maintaining lower price volatility than the S&P 500.
- - THE INCOME EQUITY FUND invests primarily in the common stocks of U.S.
corporations that regularly pay dividends (although there can be no assurance
that dividends will continue to be paid) in an attempt to keep yield above
the yield of the S&P 500 by approximately one-third to one-half the
difference between the S&P 500's yield and the yield on long-term U.S.
Government bonds.
THE INCOME EQUITY FUND'S objective is to seek investments in equity
securities that provide current income through the regular payment of
dividends, with the goal that the Fund will have a high current yield and a
low level of price volatility; opportunity for long-term growth of asset
value is a secondary consideration.
- - THE BALANCED FUND invests in a combination of equity and fixed-income
securities based on combined considerations of risk, income, capital
enhancement and protection of capital value.
THE BALANCED FUND'S objective is to seek total return with a secondary
investment objective of conservation of capital.
- - EASY PURCHASE OR REDEMPTION BY TELEPHONE, MAIL OR WIRE
- - LIQUIDITY
- - MINIMUM INITIAL INVESTMENT ONLY $1,000 (a lower or no minimum may apply)
- - MINIMUM SUBSEQUENT INVESTMENT ONLY $100 (a lower or no minimum may apply)
- - PROFESSIONAL MANAGEMENT
- - RECORDKEEPING AND SAFEKEEPING OF SECURITIES
- - INVESTMENT ADVISER--MERUS Capital Management, a division of The Bank of
California, N.A.
not a part of the prospectus
<PAGE> 53
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 54
PROSPECTUS
DECEMBER 1, 1995
THE HighMark EQUITY FUNDS
------------------------------------
THE HIGHMARK EQUITY FUNDS (the "Equity Funds") consist of The HighMark Growth
Fund, The HighMark Income and Growth Fund, The HighMark Income Equity Fund and
The HighMark Balanced Fund. Each Fund is an investment portfolio of The HighMark
Group (the "Group"), a diversified, open-end management investment company.
THE HIGHMARK GROWTH FUND (the "Growth Fund")--The investment objective of the
Growth Fund is to seek investments in equity securities that provide opportunity
for long-term capital appreciation. The production of current income is an
incidental objective.
The Growth Fund focuses on earnings growth as its major source of long-term
capital appreciation. Investments will be made primarily in common stocks (but
may also be made in debt securities and preferred stocks that are convertible
into common stocks) of growth-oriented companies.
THE HIGHMARK INCOME AND GROWTH FUND (the "Income and Growth Fund")--The
investment objective of the Income and Growth Fund is to seek current income
above the average current income of companies included in the S&P 500 and to
seek total return (dividends plus price appreciation) at least equal to that of
the S&P 500 while maintaining lower price volatility than the S&P 500.
The Income and Growth Fund invests primarily in common stocks of companies
with market capitalization within the range of capitalization of companies
included in the S&P 500.
THE HIGHMARK INCOME EQUITY FUND (the "Income Equity Fund")--The investment
objective of the Income Equity Fund is to seek investments in equity securities
that provide current income through the regular payment of dividends, with the
goal that the Fund will have a high current yield and a low level of price
volatility. Opportunity for long-term growth of asset value is a secondary
consideration.
The Income Equity Fund invests primarily in common stocks of U.S. corporations
that regularly pay dividends, although there can be no assurance that a
corporation will continue to pay dividends. Investments will be made in an
attempt to keep the Income Equity Fund's yield above the S&P 500's yield by
approximately one-third to one-half the difference between the S&P 500's yield
and the yield on long-term U.S. Government bonds.
THE HIGHMARK BALANCED FUND (the "Balanced Fund")--The primary investment
objective of the Balanced Fund is to seek total return. Conservation of capital
is a secondary objective.
The Balanced Fund invests in a combination of equity and fixed-income
securities based on combined considerations of risk, income, capital enhancement
and protection of capital value.
Shares in the Funds are not deposits or obligations of, or guaranteed or
endorsed by, The Bank of California, N.A. or any of its affiliates, and Shares
are not federally insured by the Federal Deposit Insurance Corporation or any
other government agency. Investments in Shares involve the risk of a possible
loss of principal.
(continued on next page)
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.
------------------------------------
<PAGE> 55
(continued from previous page)
The Investment Adviser to the Equity Funds is:
MERUS Capital Management, a division of The Bank of California, N.A.
The Equity Funds are 4 of 13 separate investment portfolios offered by the
Group, which include:
The HighMark Growth Fund
The HighMark Income and Growth Fund
The HighMark Income Equity Fund
The HighMark Balanced Fund
The HighMark Bond Fund
The HighMark Government Bond Fund
The HighMark Diversified Obligations Fund
The HighMark U.S. Government Obligations Fund
The HighMark 100% U.S. Treasury Obligations Fund
The HighMark California Tax-Free Fund
The HighMark Tax-Free Fund
The Highmark Intermediate California Municipal Bond Fund
The Highmark Intermediate Municipal Bond Fund
As of the date hereof, the HighMark Intermediate California Municipal Bond
Fund and the Intermediate Municipal Bond Fund have not yet commenced operations.
Each Equity Fund has been divided into two classes of Shares ("Investor"
Shares and "Fiduciary" Shares) for purposes of a sales charge and the Group's
Distribution and Shareholder Services Plan (the "Distribution Plan"). Investor
and Fiduciary Shares of a particular Fund represent interests in the same
portfolio of investments and are identical in all respects except that Investor
Shares pay a sales charge upon purchase and bear the expense of the fee under
the Distribution Plan, which will cause the Investor Shares to have a higher
expense ratio (and possibly a lower net asset value) and to pay lower dividends
than those related to Fiduciary Shares, and Investor Shares have certain
exclusive voting rights with respect to the Distribution Plan. Investor Shares
are generally sold subject to a sales charge at the time of purchase. There is
no sales charge on Fiduciary Shares. Only the following investors qualify to
purchase an Equity Fund's Fiduciary Shares: (i) fiduciary, advisory, agency,
custodial and other similar accounts maintained with The Bank of California or
its affiliates; (ii) Select IRA accounts established with The Bank of California
and invested in any of the Group's Equity or Income Funds prior to June 20,
1994, which have remained continuously open thereafter and which are not
considered to be fiduciary accounts; (iii) Shareholders who currently own Shares
of the Group's Equity or Income Funds that were purchased prior to June 20, 1994
within an account registered in their name with the Funds; and (iv) present and
retired directors, officers, and employees (and their spouses and children under
the age of 21) of The Bank of California, BISYS Fund Services or their
affiliated companies, whether or not investments are made through an employee
benefit plan on such person's behalf.
(continued on next page)
2
<PAGE> 56
(continued from previous page)
All other investors are eligible to purchase Investor Shares only. For
information concerning those investors who qualify to purchase Investor and
Fiduciary Shares, sales charges and the operation of the Distribution Plan, see
HOW TO PURCHASE SHARES and SERVICE ARRANGEMENTS--Administrator &
Distributor--The Distribution Plan in the Prospectus.
This Prospectus relates only to the Equity Funds. Interested persons who wish
to obtain a prospectus for the other Funds of the Group may contact the
distributor: BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219, or
call the Funds at (800) 433-6884.
Additional information about the Equity Funds is contained in a Statement of
Additional Information that has been filed with the Securities and Exchange
Commission and is available upon request without charge by writing or calling
the Funds at the above address and telephone number. The Statement of Additional
Information bears the same date as this Prospectus and is incorporated by
reference in its entirety into this Prospectus.
This Prospectus sets forth concisely the information about the Equity Funds
that a prospective investor ought to know before investing. Please read this
Prospectus and retain it for future reference.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PAGE
----
Equity Funds Fee Table................................................................. 4
Financial Highlights................................................................... 6
Fund Description....................................................................... 12
Performance Information................................................................ 12
Investment Objective................................................................... 13
Investment Policies & Fund Portfolios.................................................. 14
Valuation of Shares.................................................................... 20
How to Purchase Shares................................................................. 20
Exchange Privileges.................................................................... 28
How to Redeem Shares................................................................... 30
Telephone Transactions................................................................. 32
Dividends.............................................................................. 32
Federal Taxation....................................................................... 32
Service Arrangements................................................................... 33
General Information.................................................................... 38
</TABLE>
3
<PAGE> 57
EQUITY FUNDS FEE TABLE
<TABLE>
<CAPTION>
INCOME AND INCOME
GROWTH FUND GROWTH FUND EQUITY FUND BALANCED FUND
-------------------- -------------------- -------------------- --------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
Maximum Sales Load Imposed on 4.50% 0% 4.50% 0% 4.50% 0% 4.50% 0%
Purchases (as a percentage
of offering price)..............
Maximum Sales Load Imposed on 0% 0% 0% 0% 0% 0% 0% 0%
Reinvested Dividends (as a
percentage of offering price)...
Deferred Sales Load (as a 0% 0% 0% 0% 0% 0% 0% 0%
percentage of original purchase
price or redemption proceeds, as
applicable).....................
Redemption Fees (as a percentage 0% 0% 0% 0% 0% 0% 0% 0%
of amount redeemed, if
applicable)(b)..................
Exchange Fee(c)................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary 0.62% 0.62% 0% 0% 0.70% 0.70% 0.63% 0.63%
reduction)(d)...................
12b-1 Fees (after voluntary 0%(e) 0% 0%(e) 0% 0.15%(e) 0% 0%(e) 0%
reduction)......................
Other Expenses (after voluntary 0.37% 0.37% 0.97% 0.97% 0.39% 0.39% 0.35% 0.35%
reduction)(f)...................
----- ----- ----- ----- ----- ----- ----- -----
Total Fund Operating 0.99% 0.99% 0.97% 0.97% 1.24% 1.09% 0.98% 0.98%
Expenses(g).....................
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Fund
Investor Shares.......................................................... $ 55 $75 $ 97 $161
Fiduciary Shares......................................................... $ 10 $32 $ 55 $121
Income and Growth Fund
Investor Shares.......................................................... $ 54 $75 $ 96 $159
Fiduciary Shares......................................................... $ 10 $31 $ 54 $119
Income Equity Fund
Investor Shares.......................................................... $ 57 $83 $ 110 $188
Fiduciary Shares......................................................... $ 11 $35 $ 60 $133
Balanced Fund
Investor Shares.......................................................... $ 55 $75 $ 97 $160
Fiduciary Shares......................................................... $ 10 $31 $ 54 $120
</TABLE>
4
<PAGE> 58
The purpose of the tables above is to assist an investor in the Equity Funds
in understanding the various costs and expenses that a Shareholder will bear
directly or indirectly. For a more complete discussion of each Fund's annual
operating expenses, see SERVICE ARRANGEMENTS below. THE FOREGOING EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
Long-term shareholders of Investor Shares may pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by rules
of the National Association of Securities Dealers, Inc.
- ---------
(a) Certain entities (including The Bank of California and its affiliates)
making investments in the Equity Funds on behalf of their customers may
charge customers fees for services provided in connection with the
investment. (See HOW TO PURCHASE SHARES and SERVICE
ARRANGEMENTS--Administrator & Distributor--The Distribution Plan below.)
(b) A wire redemption charge is deducted from the amount of a wire redemption
payment made at the request of a Shareholder. (See HOW TO REDEEM
SHARES--Payments to Shareholders below.)
(c) Certain entities (including The Bank of California and its affiliates) may
charge their customers fees with respect to exchanges effected on the
customer's behalf. (See EXCHANGE PRIVILEGES and SERVICE
ARRANGEMENTS--Administrator & Distributor--The Distribution Plan below.)
(d) As indicated under SERVICE ARRANGEMENTS--Investment Adviser below, The Bank
of California may voluntarily reduce its advisory fee. Absent the voluntary
reduction of investment advisory fees, MANAGEMENT FEES would be at an annual
rate of 1.00% of the first $40 million of each Fund's average daily net
assets and 0.60% of the Fund's remaining average daily net assets.
(e) Reflects Rule 12b-1 fees for fiscal 1995. The maximum annual rate of
distribution fees that may be imposed as a percentage of average daily net
assets attributable to a Fund's Investor Shares would be 0.25%. (See SERVICE
ARRANGEMENTS--Administrator & Distributor--The Distribution Plan below.)
(f) OTHER EXPENSES are based on that Fund's estimated expenses for the current
fiscal year. As indicated under SERVICE ARRANGEMENTS--Administrator &
Distributor below, BISYS Fund Services may voluntarily reduce its
administration fee. Absent the voluntary reduction of administration fees,
OTHER EXPENSES as a percentage of average daily net assets would be 1.17%
for each of the Investor and Fiduciary Shares of the Income and Growth Fund.
5
<PAGE> 59
(g) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be: 1.86%
for the Investor Shares and 1.61% for the Fiduciary Shares of the Growth
Fund, 2.66% for the Investor Shares and 2.41% for the Fiduciary Shares of
the Income and Growth Fund, 1.43% for the Investor Shares and 1.33% for the
Fiduciary Shares of the Income Equity Fund, and 1.84% for the Investor
Shares and 1.59% for the Fiduciary Shares of the Balanced Fund.
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information with respect to the
Shares of each Equity Fund. Financial highlights for each Fund for the periods
ended July 31, 1995 have been derived from financial statements audited by
Coopers & Lybrand L.L.P., independent accountants for The HighMark Group, whose
report thereon is included in the Statement of Additional Information. Financial
highlights for the Income Equity Fund for the periods indicated have been
derived from financial statements audited by Coopers & Lybrand L.L.P. Financial
highlights for the Income Equity Fund for the years ended December 31, 1987,
1986, 1985, and for the period ended December 31, 1984 have been derived from
financial statements examined by other auditors whose report thereon is on file
with the Securities and Exchange Commission. Financial highlights for the Income
Equity Fund for the period from January 1, 1988 through June 22, 1988 are
derived from unaudited financial statements prepared by The HighMark Group. For
fiscal 1996, Deloitte & Touche LLP will replace Coopers & Lybrand L.L.P. as the
Group's auditors.
6
<PAGE> 60
Prior to June 20, 1994, each Equity Fund offered a single class of shares (now
designated Fiduciary Shares) throughout the periods shown.
<TABLE>
<CAPTION>
INCOME EQUITY FUND
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------------------------------------
JULY
YEAR JUNE 20, YEAR 23,
ENDED 1994 TO ENDED 1988
JULY 31, JULY 31, JULY 31, YEAR ENDED JULY 31 TO
1995 1994(A)(B) 1994(B)(D) ------------------------------------------------- JULY
------------------- ---------- ---------- 31,
INVESTOR FIDUCIARY INVESTOR FIDUCIARY 1993 1992 1991 1990 1989 1988(e)
-------- --------- ---------- ---------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, $11.92 $ 11.92 $11.85 $ 12.13 $ 11.42 $ 10.22 $ 10.46 $ 12.12 $ 10.00 $ 10.00
Beginning of
Period.............
------ -------- -------- -------- -------- -------- -------- -------- -------- --------
Investment
Activities
Net investment 0.42 0.44 0.04 0.39 0.38 0.40 0.46 0.54 0.49 0.03
income...........
Net realized and 1.55 1.50 0.08 0.12 0.71 1.20 0.61 (0.62) 2.22
unrealized gains
(losses) on
investments......
------ -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from 1.97 1.94 0.12 0.51 1.09 1.60 1.07 (0.08) 2.71 0.03
investment
Activities...
------ -------- -------- -------- -------- -------- -------- -------- -------- --------
Distributions
Net investment (0.44) (0.44 ) (0.05) (0.39) (0.38) (0.40) (0.46) (0.54) (0.49) (0.03)
income...........
Net realized (0.42) (0.42 ) (0.33) (0.85) (1.04) (0.10)
gains............
------ -------- -------- -------- -------- -------- -------- -------- -------- --------
Total (0.86) (0.86 ) (0.05) (0.72) (0.38) (0.40) (1.31) (1.58) (0.59) (0.03)
Distributions...
------ -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End $13.03 $ 13.00 $11.92 $ 11.92 $ 12.13 $ 11.42 $ 10.22 $ 10.46 $ 12.12 $ 10.00
of Period..........
====== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total Return........ 17.52% 17.26% 4.23% 4.23%(c) 9.75% 16.04% 12.60% (0.84)% 28.16% 1.31%(f)
Ratios/Supplementary
Data:
Net Assets at end $3,881 $221,325 $ 24 $213,328 $104,840 $74,478 $49,047 $41,280 $40,027 $30,495
of period
(000)............
Ratio of expenses 1.06% 1.06% 1.10%(d) 1.06% 1.15% 1.16% 1.17% 1.15% 1.19% 0.99%(d)
to average net
assets...........
Ratio of net 3.06% 3.59% 0.93%(d) 3.29% 3.27% 3.76% 4.81% 4.82% 4.61% 2.56%(d)
investment income
to average net
assets...........
Ratio of expenses 1.55% 1.30% 1.33%(d) 1.10% 1.21% 1.29% 1.40% 1.41% 1.41% 1.41%(d)
to average net
assets*..........
Ratio of net 2.57% 3.34% 0.71%(d) 3.24% 3.22% 3.64% 4.58% 4.56% 4.39% 2.14%(d)
investment income
to average net
assets*..........
Portfolio 36.64% 36.64% 33.82% 33.82% 29.58% 23.05% 33.10% 37.11% 28.83% 3.12%
turnover...........
</TABLE>
- ---------
(a) Period from commencement of operations.
(b) On June 20, 1994, the Income Equity Fund commenced offering Investor Shares
and designated existing shares as Fiduciary Shares.
(c) Represents total return for the Fiduciary Shares for the period from August
1, 1993 to June 19, 1994 plus the total return for the Investor Shares for
the period from June 20, 1994 to July 31, 1994.
(d) Annualized.
(e) The Income Equity Fund commenced operations on June 23, 1988 as a result of
the reorganization involving the Income Equity Portfolio of the IRA
collective Investment Fund described under GENERAL
INFORMATION--Reorganization of The IRA Fund & The Group.
(f) Not annualized.
* During the period the investment advisory and administration fees were
voluntarily reduced. If such voluntary fee reductions had not occurred, the
ratios would have been as indicated.
7
<PAGE> 61
PER SHARE INCOME AND CAPITAL CHANGES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS)
THE IRA COLLECTIVE INVESTMENT FUND INCOME EQUITY PORTFOLIO
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, YEAR ENDED YEAR ENDED YEAR ENDED
1988 THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31,
JUNE 22, 1988 1987 1986 1985
(UNAUDITED) (AUDITED) (AUDITED) (AUDITED)
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment income........................................... $ 0.440 $ 0.927 $ 0.944 $ 0.907
Operating expenses.......................................... 0.102 0.185(g) 0.154(g) 0.097(g)
---------- ---------- ---------- ----------
Net investment income....................................... 0.338 0.742 0.790 0.810
Dividends from net investment income........................ (0.338) (0.742) (0.790) (0.810)
Net realized and unrealized gain (loss) on investments...... 1.884 (0.564) 1.934 2.220
---------- ---------- ---------- ----------
Increase (decrease) in net asset value...................... 1.884 (0.564) 1.934 2.220
Net Asset Value:
Beginning of period........................................ 14.059 14.623 12.689 10.469
---------- ---------- ---------- ----------
End of period.............................................. $ 15.943 $ 14.059 $ 14.623 $ 12.689
========== ========== ========== ==========
Ratio of expenses to average net assets(c)(d)............... 1.41% 1.12% 0.97% 0.80%
Ratio of net investment income to average net assets(c)..... 5.45% 4.50% 4.96% 6.71%
Portfolio turnover.......................................... 5.83% 20.88% 12.07% 5.06%
Number of Shares/units outstanding at end of period......... 1,940,573 1,978,920 1,416,327 556,854
</TABLE>
- ---------
(g)The expenses shown are not representative of expenses actually incurred by
the Income Equity Portfolio through May 31, 1987. During mid-May 1985, The
Bank of California, N.A., investment adviser to the Income Equity Portfolio,
commenced charging its management fee, and commencing June 1, 1987, operating
expenses were charged to the Income Equity Portfolio. Had the maximum
allowable operating expenses and management fees been paid by the Income
Equity Portfolio for the entire period pursuant to the Management Agreement
between the Income Equity Portfolio and The Bank of California, N.A., the per
unit expenses and net investment income would have been as follows:
<TABLE>
<CAPTION>
JANUARY 1, YEAR ENDED YEAR ENDED YEAR ENDED
1988 THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31,
JUNE 22, 1988 1987 1986 1985
(UNAUDITED) (AUDITED) (AUDITED) (AUDITED)
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Expenses................................................ $ 0.257 $ 0.260 $ 0.248 $ 0.222
Net investment income................................... 0.183 0.612 0.557 0.612
Net asset value, end of year............................ 15.943 14.059 14.623 12.689
Expenses as a percentage of average net assets.......... 2.00%(h) 1.67% 2.00% 2.00%
</TABLE>
(h)Annualized based on the period for which assets were held.
8
<PAGE> 62
<TABLE>
<CAPTION>
BALANCED FUND
FINANCIAL HIGHLIGHTS
------------------------------------------------------
YEAR JUNE 20, NOVEMBER 14,
ENDED 1994 TO 1993 TO
JULY 31, JULY 31, JULY 31,
1995 1994(A) 1994(A)
---------------------- -------- ------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $ 9.71 $ 9.76 $ 9.71 $ 10.00
------- ------- ------- -------
Investment Activities
Net investment income.................................. 0.43 0.39 0.26
Net realized and unrealized gains (losses) on
investments.......................................... 1.04 1.09 0.06 (0.24)
------- ------- ------- -------
Total from Investment Activities..................... 1.47 1.48 0.06 0.02
------- ------- ------- -------
Distributions
Net investment income.................................. (0.39) (0.39) (0.06) (0.26)
------- ------- ------- -------
Total Distributions.................................. (0.39) (0.39) (0.06) (0.26)
------- ------- ------- -------
Net Asset Value, End of Period........................... $ 10.79 $ 10.85 $ 9.71 $ 9.76
======= ======= ======= =======
Total Return............................................. 15.60% 15.62% (0.25)%(b)(d) 0.26%(d)
Ratios/Supplementary Data:
Net Assets at end of period (000)...................... $ 467 $ 29,961 $ 25,851
Ratio of expenses to average net assets................ 0.90% 0.89% 0.87%(c)
Ratio of net investment income to average net assets... 3.78% 3.93% 3.77%(c)
Ratio of expenses to average net assets*............... 2.05% 1.80% 1.79%(c)
Ratio of net investment income to average net
assets*.............................................. 2.63% 3.02% 2.85%(c)
Portfolio turnover....................................... 20.70% 20.70% 44.14% 44.14%
</TABLE>
9
<PAGE> 63
<TABLE>
<CAPTION>
GROWTH FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------
YEAR JUNE 20, NOVEMBER 18,
ENDED 1994 TO 1993 TO
JULY 31, JULY 31, JULY 31,
1995 1994(A) 1994(A)
---------------------- -------- ------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $ 9.77 $ 9.76 $ 9.74 $ 10.00
------ ------ -------- -----------
Investment Activities
Net investment income................................ 0.15 0.15 0.05
Net realized and unrealized gains (losses) on
investments........................................ 2.25 2.26 0.04 (0.24)
------ ------ -------- -----------
Total from Investment Activities................... 2.40 2.41 0.04 (0.19)
------ ------ -------- -----------
Distributions
Net investment income................................ (0.15) (0.15) (0.01) (0.05)
Net realized gains................................... (0.15) (0.15)
------ ------ -------- -----------
Total Distributions................................ (0.30) (0.30) (0.01) (0.05)
------ ------ -------- -----------
Net Asset Value, End of Period......................... $11.87 $ 11.87 $ 9.77 $ 9.76
====== ====== ========== ==========
Total Return........................................... 25.10% 25.23% (1.77)%(b)(d) (1.87)%(d)
Ratios/Supplementary Data:
Net Assets at end of period (000).................... $1,218 $25,096 $ 15,254
Ratio of expenses to average net assets.............. .84% .79% 0.77%(c)
Ratio of net investment income to average net
assets............................................. 1.17% 1.40% 0.86%(c)
Ratio of expenses to average net assets*............. 2.11% 1.92% 2.61%(c)
Ratio of net investment income to average net
assets*.......................................... (.10)% .26% (0.98)%(c)
Portfolio turnover..................................... 67.91% 67.91% 123.26% 123.26%
</TABLE>
10
<PAGE> 64
<TABLE>
<CAPTION>
INCOME & GROWTH FUND
FINANCIAL HIGHLIGHTS
-------------------------------------------------
NOVEMBER
YEAR JUNE 20, 18,
ENDED 1994 TO 1993 TO
JULY 31, JULY 31, JULY 31,
1995 1994(A) 1994(A)
-------------------- -------- -----------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......................... $ 9.97 9.96 $ 9.86 $ 10.00
------- ------- ------- -------
Investment Activities
Net investment income...................................... 0.27 0.25 0.20
Net realized and unrealized gains (losses) on
investments.............................................. 1.76 1.78 0.14 (0.04)
------- ------- ------- -------
Total from Investment Activities......................... 2.03 2.03 0.14 0.16
------- ------- ------- -------
Distributions
Net investment income...................................... (0.25) (0.25) (0.03) (0.20)
Net realized gains......................................... -- --
------- ------- ------- -------
Total Distributions...................................... (0.25) (0.25) (0.03) (0.20)
------- ------- ------- -------
Net Asset Value, End of Period............................... $11.75 $ 11.74 $ 9.97 $ 9.96
======= ======= ======= =======
Total Return................................................. 20.67% 20.68% 1.73%(b)(d) 1.63%(d)
Ratios/Supplementary Data:
Net Assets at end of period (000).......................... $ 215 $ 6,669 $ 4,771
Ratio of expenses to average net assets.................... 0.97% 0.97% 0.88%(c) 0.95%(c)
Ratio of net investment income to average net assets....... 2.23% 2.37% 0.88%(c) 2.86%(c)
Ratio of expenses to average net assets*................... 2.66% 2.41% 0.88%(c) 3.27%(c)
Ratio of net investment income to average net assets*...... 0.54% 0.93% 0.88%(c) 0.54%(c)
Portfolio turnover........................................... 15.01% 15.01% 97.24% 97.24%
</TABLE>
- ---------
(a) Period from commencement of operations. On June 20, 1994, the Balanced Fund,
Growth Fund and Income & Growth Fund each commenced offering Investor Shares
and designated existing shares as Fiduciary Shares.
(b)Represents total returns for the Fiduciary Shares from commencement of
operations to June 19, 1994, plus the total return for the Investor Shares
for the period from June 20, 1994 to July 31, 1994.
(c) Annualized.
(d) Not annualized.
* During the period, the investment advisory, administration and custodian
fees were voluntarily reduced. In addition, certain expenses were reimbursed
by the administrator. If such voluntary fee reductions and expense
reimbursements had not occurred, the ratios would have been as indicated.
11
<PAGE> 65
FUND
DESCRIPTION The HighMark Equity Funds (the "Equity Funds") are 4 of
13 separate investment portfolios ("Funds") of The
HighMark Group (the "Group"), a diversified, open-end
management investment company. MERUS Capital Management, a
division of The Bank of California, N.A. ("MERUS"), serves
as the Equity Funds' investment adviser.
Each Equity Fund has been divided into two classes of
Shares (Investor Shares and Fiduciary Shares) for purposes
of a sales charge and the Group's Distribution and
Shareholder Services Plan (the "Distribution Plan").
Investor and Fiduciary Shares of a particular Fund
represent interests in the same portfolio of investments
and are identical in all respects except that Investor
Shares pay a sales charge upon purchase and bear the
expense of the fee under the Distribution Plan, which will
cause the Investor Shares to have a higher expense ratio
(and possibly a lower net asset value) and to pay lower
dividends than those related to Fiduciary Shares, and
Investor Shares have certain exclusive voting rights with
respect to the Distribution Plan. Investor Shares are
generally sold subject to a sales charge at the time of
purchase. There is no sales charge on Fiduciary Shares.
For information concerning those investors who qualify to
purchase Investor and Fiduciary Shares, sales charges and
the operation of the Group's Distribution Plan, see HOW TO
PURCHASE SHARES and SERVICE ARRANGEMENTS--Administrator &
Distributor--The Distribution Plan below. (Investor Shares
and Fiduciary Shares collectively may be hereinafter
referred to as "Shares.")
The net asset value per Share of each of the Equity
Funds will fluctuate as the value of the investment
portfolio changes in response to changing market prices
and other factors.
PERFORMANCE
INFORMATION From time to time, the Group may advertise the aggregate
total return, average annual total return, yield and
distribution rate with respect to the Investor and
Fiduciary Shares of each Equity Fund. Performance
information is computed separately for a Fund's Investor
and Fiduciary Shares in accordance with the formulas
described below. Because only Investor Shares bear the
expense of the fee, if any, under the Distribution Plan
and a sales charge, total return and yield relating to a
Fund's Investor Shares will be lower than that relating to
the Fund's Fiduciary Shares.
The aggregate total return and average annual total
return of the Equity Funds may be quoted for the life of
each Fund and for ten-year, five-year and one-year
periods, in each case through the most recent calendar
quarter (utilizing, when appropriate, in the case of the
Income Equity Fund, the aggregate total return and average
annual total return of the IRA Fund Income Equity
Portfolio prior to June 23, 1988). Aggregate total return
is determined by calculating the change in
12
<PAGE> 66
the value of a hypothetical $1,000 investment in a Fund
over the applicable period that would equate the initial
amount invested to the ending redeemable value of the
investment. The ending redeemable value includes dividends
and capital gain distributions reinvested at net asset
value. Average annual total return is calculated by
annualizing a Fund's aggregate total return over the
relevant number of years. The resulting percentage
indicates the average positive or negative investment
results that an investor in a Fund would have experienced
on an annual basis from changes in Share price and
reinvestment of dividends and capital gain distributions.
The yield of a Fund is determined by annualizing the net
investment income per Share of the Fund during a specified
thirty-day period and dividing that amount by the per
Share public offering price of the Fund on the last day of
the period.
The distribution rate of a Fund is determined by
dividing the income and capital gains distributions, or
where indicated the income distributions alone, on a Share
of the Fund over a twelve-month period by the per Share
public offering price of the Fund on the last day of the
period.
All performance information presented for a Fund is
based on past performance and does not predict future
performance.
INVESTMENT
OBJECTIVE The investment objective of the Growth Fund is to invest
in equity securities which provide opportunity for
long-term capital appreciation. The production of current
income is an incidental objective.
The investment objective of the Income and Growth Fund
is to seek current income above the average current income
of companies included in the Standard & Poor's 500 Index
(the "S&P 500") and to seek total return (dividends plus
price appreciation) at least equal to that of the S&P 500
while maintaining lower price volatility than the S&P 500.
The investment objective of the Income Equity Fund is to
seek investments in equity securities that provide current
income through the regular payment of dividends, with the
goal that the Income Equity Fund will have a high current
yield and a low level of price volatility. Opportunity for
long-term growth of asset value is a secondary
consideration.
The primary investment objective of the Balanced Fund is
to seek total return. Conservation of capital is a
secondary consideration.
The investment objectives for the Growth Fund, the
Income and Growth Fund, the Income Equity Fund and the
Balanced Fund may not be changed without a vote of the
holders of a majority of the outstanding Shares of the
respective Fund
13
<PAGE> 67
(as defined under GENERAL INFORMATION--Miscellaneous
below). There can be, of course, no assurance that a Fund
will achieve its investment objective.
INVESTMENT
POLICIES & FUND
PORTFOLIOS Under normal market conditions, the Growth Fund will
invest at least 65% of its total assets in equity
securities, which will include common stocks, preferred
stocks and securities (including debt securities)
convertible into or exercisable for common stock, of
growth-oriented companies. These companies are identified
and selected based on their potential to produce
above-average relative earnings per share growth.
Under normal market conditions, at least 65% of the
Income and Growth Fund's total assets will be invested in
equity securities, including common stocks, preferred
stocks and securities (including debt securities)
convertible into or exercisable for common stock. The
Income and Growth Fund will invest primarily in equity
securities of companies with a market capitalization
within the range of capitalization of companies included
in the S&P 500. These companies are identified and
selected based on their potential to produce an
above-average level of current income as compared with
companies included in the S&P 500 while providing an
opportunity for long-term capital appreciation.
Under normal market conditions, the Income Equity Fund
will invest at least 65% of the value of its total assets
in equity securities, which include common stocks,
preferred stocks and securities (including debt
securities) convertible into or exercisable for common
stocks. The Income Equity Fund's investments primarily
consist of the common stocks of U.S. corporations that
regularly pay dividends, although there can be no
assurance that a corporation will continue to pay
dividends. Investments will be made in an attempt to keep
the Income Equity Fund's yield above the S&P 500's yield
by approximately one-third to one-half the difference
between S&P 500's yield and the yield on long-term U.S.
Government bonds.
The Income Equity Fund normally will invest in stocks
with favorable, long-term fundamental characteristics when
the stocks have achieved the upper end of their historical
yield ranges. Frequently, these stocks will be issued by
companies that are out of favor in the financial community
and in which investors see little opportunity for price
appreciation. The stocks also may be issued by major U.S.
corporations in a mature stage of development or operating
in slower areas of the economy. While it is anticipated
that a significant part of the total growth in asset value
experienced by the Income Equity Fund will result from a
perception of the companies' improved prospects (although
there can be no assurance that this will in fact occur),
dividends will provide the bulk of the Fund's total
return. When yields on stocks held by the Income Equity
Fund drop to the lower end of their historical ranges, the
Fund may begin to reduce its holdings. Similarly, if
14
<PAGE> 68
there is a significant fundamental change that impairs a
company's ability to pay dividends, or if the yield on a
stock dips below the yield of the general market, the
Income Equity Fund may eliminate its holdings in these
stocks.
The Balanced Fund may invest in any type or class of
security. Under normal market conditions, the Balanced
Fund will invest in a combination of equity securities and
fixed-income securities. Fixed-income securities will
normally constitute at least 25% of the Balanced Fund's
net assets.
Equity securities include common stocks and securities
exercisable for or convertible into common stocks (such as
warrants, convertible debt securities and convertible
preferred stock). The Balanced Fund's investments may
include securities traded "over the counter" as well as
those traded on a securities exchange. "Over the counter"
securities may be more difficult to sell under some market
conditions. The Balanced Fund's fixed-income investments
consist of bonds, debentures, notes, zero-coupon
securities, all forms of mortgage-related securities
(including collateralized mortgage obligations),
asset-backed securities, state, municipal or industrial
revenue bonds, and obligations issued or guaranteed by the
U.S. or foreign Governments or their agencies or
instrumentalities.
The Balanced Fund may invest in bonds, notes and
debentures of any maturity issued by U.S. and foreign
corporate and governmental issuers. The Balanced Fund will
invest only in corporate fixed-income securities that are
rated at the time of purchase within the three highest
rating categories assigned by a nationally recognized
statistical rating organization ("NRSRO") (e.g., at least
A from Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P")) or, if unrated,
which MERUS deems to be attractive opportunities and of
comparable quality. For a description of the rating
symbols of the NRSROs utilized by MERUS, see the Appendix
to the Statement of Additional Information.
The portions of the Balanced Fund's assets invested in
equity securities and fixed-income securities will vary
from time to time, depending upon MERUS's assessment of
business, economic and market conditions.
Cash Equivalents
Under normal market conditions, each equity Fund may
invest up to 35% of its total assets in cash equivalents
in an effort to provide income at money market rates while
minimizing the risk of a decline in value to the maximum
extent possible. Cash equivalents are short-term, interest
bearing instruments or deposits and may include, for
example, commercial paper, certificates of deposit,
repurchase agreements, bankers' acceptances, U.S. Treasury
bills, bank money market deposit accounts and money market
mutual funds. Cash equivalents may also
15
<PAGE> 69
include master demand notes, which are demand obligations
that permit the investment of fluctuating amounts at
varying market rates of interest pursuant to arrangements
between the issuer and a U.S. commercial bank acting as
agent for the payees of such notes. These notes constitute
direct lending arrangements between the Group and the
issuer and are callable on demand by the Group, but are
not marketable to third parties. Except with respect to
variable amount master demand notes with a seven-day or
less demand feature, investment in such notes is subject
to each Fund's non-fundamental restriction on investing no
more than 15% of its net assets in "illiquid" securities.
See INVESTMENT RESTRICTIONS in the Statement of Additional
Information. When market conditions indicate a temporary
"defensive" investment strategy as determined by MERUS, a
Fund may invest more than 35% of its total assets in cash
equivalents.
Lending of Portfolio Securities
In order to generate additional income, a Fund may lend
its portfolio securities to broker-dealers, banks or other
institutions. During the time portfolio securities are on
loan from a Fund, the borrower will pay the Fund any
dividends or interest paid on the securities. In addition,
loans will be subject to termination by the Fund or the
borrower at any time and, while a Fund will generally not
have the right to vote securities on loan, it will
terminate the loan and regain the right to vote if that is
considered important with respect to the investment. While
the lending of securities may subject a Fund to certain
risks, such as delays or an inability to regain the
securities in the event the borrower were to default on
its lending agreement or enter into bankruptcy, a Fund
will receive 100% collateral in the form of cash or U.S.
Government securities. This collateral will be valued
daily by MERUS and, should the market value of the loaned
securities increase, the borrower will be required to
furnish additional collateral to the Fund. Although the
Equity Funds do not expect to do so on a regular basis, a
Fund may lend portfolio securities in an amount
representing up to 35% of the value of the Fund's total
assets.
Other Investments
Each of the Equity Funds may invest up to 20% of the
value of its total assets in securities of foreign
issuers, which include debt securities of any maturity
issued by foreign corporations or governments. Any
investments in these securities will be in accordance with
a Fund's investment objective and policies, and are
subject to special risks, such as adverse political and
economic developments, possible seizure, nationalization
or expropriation of foreign investments, less stringent
disclosure requirements, changes in foreign currency
exchange rates, increased costs associated with the
conversion of foreign currency into U.S. dollars, the
possible establishment of exchange controls or taxation at
the source or the adoption of other foreign governmental
restrictions. To the extent that a Fund
16
<PAGE> 70
may invest in securities of foreign issuers that are not
traded on any exchange, there is a further risk that these
securities may not be readily marketable. The Equity Funds
will not hold foreign currency for investment purposes.
Securities held by a Fund may be subject to repurchase
agreements whereby the Fund will acquire securities from
approved financial institutions or registered
broker-dealers that agree to repurchase the securities at
a mutually agreed-upon date and price. The repurchase
price under such an agreement will generally equal the
price paid by the Fund plus interest negotiated on the
basis of current short-term rates, which may be more or
less than the rate on the underlying portfolio securities.
If the seller defaults on its repurchase obligation or
becomes insolvent, the Fund holding such obligations would
suffer a loss to the extent that either the proceeds from
a sale of the underlying portfolio securities were less
than the repurchase price or the Fund's disposition of the
securities was delayed pending court action. Securities
subject to repurchase agreements will be held by a
qualified custodian or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to
be loans by a Fund under the Investment Company Act of
1940 (the "1940 Act").
The Equity Funds may purchase securities on a
"when-issued" basis, which are securities purchased for
delivery beyond the normal settlement date at a stated
price and yield and which thereby involve a risk that the
yield obtained in the transaction will be less than that
available in the market when delivery takes place. When a
Fund agrees to purchase when-issued securities, the
Group's custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a
segregated account. A Fund will generally not pay for such
securities and no income will accrue on the securities
until they are received. These securities are recorded as
an asset and are subject to changes in value based upon
changes in the general level of interest rates. The
purchase of securities on a "when-issued" basis may have
the effect of leverage, which may increase the risk of
fluctuations in a Fund's net asset value.
Each Equity Fund expects that commitments by a Fund to
purchase when-issued securities will not exceed 25% of the
value of the Fund's total assets under normal market
conditions. If a Fund's commitments to purchase
when-issued securities were to exceed 25% of the value of
its total assets, the Fund's liquidity and MERUS's ability
to manage it might be adversely affected. The Equity Funds
do not intend to purchase when-issued securities for
speculative purposes but only for the purpose of acquiring
portfolio securities.
As described in the Statement of Additional Information,
the Equity Funds may also enter into reverse repurchase
agreements.
17
<PAGE> 71
A Fund may invest up to 10% of its total assets in
securities of investment companies, including Shares of
the HighMark Funds. As a shareholder of an investment
company, a Fund may indirectly bear investment management
fees of that investment company, which are in addition to
the management fees a Fund pays its own adviser. In order
to avoid the imposition of additional fees as a result of
investments in Shares of other HighMark Funds, the
Investment Adviser and the Administrator (see SERVICE
ARRANGEMENTS) will reduce that portion of their usual
asset-based fees from each Equity Fund by an amount equal
to their asset-based fees from the other HighMark Funds
that are attributable to such Equity Fund's investments.
The Investment Adviser and the Administrator will promptly
forward such fees to the Equity Funds.
Special Considerations
An Equity Fund may invest in convertible securities,
which include corporate bonds, notes or preferred stocks
that can be converted into common stocks or other equity
securities. Convertible securities also include other
securities, such as warrants, that provide an opportunity
for equity participation. Because convertible securities
can be converted into common stock, their values will
normally vary in some proportion with those of the
underlying common stock. Convertible securities usually
provide a higher yield than the underlying common stock,
however, so that the price decline of a convertible
security may sometimes be less substantial than that of
the underlying common stock. The value of convertible
securities that pay dividends or interest, like the value
of all fixed-income securities, generally fluctuates
inversely with changes in interest rates. Warrants have no
voting rights, pay no dividends and have no rights with
respect to the assets of the corporation issuing them.
They do not represent ownership of the securities for
which they are exercisable, but only the right to buy such
securities at a particular price. The Equity Funds will
not purchase any convertible debt security or convertible
preferred stock unless it has been rated at the time of
acquisition within the top three rating categories by a
NRSRO or that is not rated but is determined to be of
comparable quality by MERUS.
Like any investment program, investment in the Balanced
Fund entails certain risks. As with a fund investing
primarily in equity securities, the Balanced Fund is
subject to the risk that prices of equity securities, or
certain types of equity securities in which the Fund
invests, in general will decline over short or even
extended periods.
Because the Balanced Fund also invests in debt
securities, investors in the Balanced Fund are also
exposed to the risks associated with a change in interest
rates. Prices of many debt securities are influenced
primarily by changes in the level of interest rates. When
interest rates rise, the prices of debt securities
generally fall; conversely, when interest rates fall, debt
securities prices generally
18
<PAGE> 72
rise. While debt securities normally fluctuate less in
price than equity securities, there have been extended
periods of cyclical increases in interest rates that have
caused significant declines in debt securities prices.
Certain fixed-income securities which may be purchased by
the Balanced Fund such as zero-coupon obligations,
mortgage-backed and asset-backed securities, and
collateralized mortgage obligations ("CMOs") will have
greater price volatility then other fixed-income
obligations. Because declining interest rates may lead to
prepayment of underlying mortgages, automobile sales
contracts or credit card receivables, the prices of
mortgage-related and asset-backed securities may not rise
with a decline in interest rates. Mortgage-backed and
asset-backed securities and CMOs are extremely sensitive
to the rate of principal prepayment. Similarly, callable
corporate bonds also present risk of prepayment. In
addition, the Balanced Fund may purchase securities on a
"when-issued" basis and may enter into repurchase
agreements. These investment techniques involve leveraging
which may enhance the Fund's returns while magnifying its
losses. The Balanced Fund may also lend its portfolio
securities to broker-dealers, banks and other
institutions. This practice will subject the Fund to
certain risks, such as delays or an inability to regain
the securities in the event the borrower were to default
on its lending agreement or enter into bankruptcy.
From time to time, the equity and debt markets may
fluctuate independently of one another. In other words, a
decline in equity markets may in certain instances be
offset by a rise in debt markets, or vice versa. As a
result, the Balanced Fund, with its balance of equity and
debt investments, may entail less investment risk (and a
potentially smaller investment return) than a mutual fund
investing primarily in equity securities.
As described above, the Balanced Fund may invest in debt
securities within the three highest rating categories
assigned by a NRSRO and comparable unrated securities.
Should subsequent events cause the rating of a debt
security purchased by the Balanced Fund to fall below the
third highest rating category, MERUS will consider such an
event in determining whether the Balanced Fund should
continue to hold that security. In no event, however,
would the Balanced Fund be required to liquidate any such
portfolio security where the Balanced Fund would suffer a
loss on the sale of such security.
Portfolio Turnover
A Fund will not purchase securities solely for the
purpose of short-term trading nor will the Fund's
portfolio turnover rate be a factor preventing a sale or
purchase when MERUS believes investment considerations
warrant. Each of the Equity Funds' portfolio turnover rate
may vary greatly from year to year as well as within a
particular year. High portfolio turnover rates generally
will result in
19
<PAGE> 73
correspondingly higher brokerage and other transactions
costs to the Equity Funds and could involve the
realization of capital gains that would be taxable when
distributed to shareholders of the relevant equity Fund.
See FEDERAL TAXATION.
VALUATION OF
SHARES Each Fund's net asset value per share is determined as
of the close of the regular trading on the New York Stock
Exchange (generally 4:00 p.m. Eastern Time) (the
"Valuation Time") on each weekday, with the exception of
those holidays on which the New York Stock Exchange or the
Federal Reserve Bank of San Francisco are closed (a
"Business Day"). Currently, one or both of these
institutions are closed on the customary national business
holidays of New Year's Day, Martin Luther King, Jr. Day,
President's Day (Washington's Birthday), Good Friday,
Memorial Day (observed), Independence Day (observed),
Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day
and Christmas Day (observed).
Net asset value per Investor Share and Fiduciary Share
is calculated by determining the value of each class's
proportional interest in the securities and other assets
of a Fund, less (i) such class's proportional share of
general liabilities and (ii) the liabilities allocable
only to such class, and dividing such amount by the number
of Shares of such class outstanding.
The securities in each Fund will be valued at market
value. If market quotations are not available, the
securities will be valued by a method that the Group's
Board of Trustees believes accurately reflects fair value.
For further information about valuation of investments in
the Equity Funds, see the Statement of Additional
Information.
HOW TO
PURCHASE
SHARES As noted above, each Fund is divided into two classes of
Shares, Investor and Fiduciary. Investor Shares may be
purchased at net asset value plus a sales charge.
Fiduciary Shares may be purchased at net asset value. Only
the following investors qualify to purchase an Equity or
Income Fund's Fiduciary Shares: (i) fiduciary, advisory,
agency, custodial and other similar accounts maintained
with The Bank of California or its affiliates; (ii) Select
IRA accounts established with The Bank of California and
invested in any of the Group's Equity or Income Funds
prior to June 20, 1994, which have remained continuously
open thereafter and which are not considered to be
fiduciary accounts; (iii) Shareholders who currently own
Shares of the Group's Equity or Income Funds that were
purchased prior to June 20, 1994 within an account
registered in their name with the Funds; and (iv) present
and retired directors, officers, and employees (and their
spouses and children under the age of 21) of The Bank of
California, BISYS Fund Services or their affiliated
companies, whether or not investments are made through an
employee benefit plan on such person's behalf. All other
20
<PAGE> 74
investors are eligible to purchase Investor Shares only.
At the time of purchase, the Distributor must be notified
by the investor that he or she qualifies to purchase
Fiduciary Shares in accordance with one of the categories
described above.
Investor and Fiduciary Shares are sold on a continuous
basis by the Group's Distributor, BISYS Fund Services. The
principal office of the Distributor is 3435 Stelzer Road,
Columbus, Ohio 43219. If you wish to purchase Shares, you
may contact your investment professional or telephone the
Group at (800) 433-6884.
The Bank of California (the "Bank") and financial
institutions or intermediaries (such as banks, savings and
loan associations, insurance companies or investment
counselors), broker-dealers or the Distributor's
subsidiaries or affiliates (each a "Participating
Organization") acting in a fiduciary, advisory, custodial
or other similar capacity on behalf of customers may
purchase Shares of the Group. Such Shares will normally be
held of record by the Bank or Participating Organization.
With respect to these Shares, it is the responsibility of
the entity making the investment to transmit purchase or
redemption orders to the Distributor and to make payment
for the purchase of Shares. Beneficial ownership of the
Shares will be recorded by the Bank or Participating
Organization and reflected in the account statements
provided by the Bank or Participating Organization to
customers.
Eligible investors may also purchase a Fund's Investor
and Fiduciary Shares through the following procedures. The
minimum initial investment is generally $1,000 for each
Fund and the minimum subsequent investment is generally
only $100. For present and retired directors, officers,
and employees (and their spouses and children under the
age of 21) of The Bank of California, BISYS Fund Services
and their affiliates, the minimum initial investment is
$250 and the minimum subsequent investment is $50. A
Fund's initial and subsequent minimum purchase amounts may
be waived if purchases are made in connection with
Individual Retirement Accounts, Keoghs, payroll deduction
plans, 401(k) or
21
<PAGE> 75
similar plans. To open an account, contact your investment
professional or call the Group at (800) 433-6884, or
follow these steps:
<TABLE>
<CAPTION>
BY CHECK OR MONEY ORDER BY FEDERAL FUNDS WIRE(1)
------------------------------------- -------------------------------------
<S> <C> <C>
- Complete Account Registration form - Complete Account Registration form
- Mail check and application to: and mail to:
The HighMark Group The HighMark Group
PO Box 7591 P.O. Box 7591
San Francisco, CA 94120 San Francisco, CA 94120
- On the day you wish to purchase
Shares, wire funds to the Bank of
California. Call the Group at (800)
433-6884 for proper wire transfer
instructions.
</TABLE>
--------------------------------
(1) Note: Shares cannot be purchased by wire until a
properly completed application is received by the
Group.
Shares of each Fund are purchased at the net asset value
per share (plus a sales charge, in the case of a purchase
of Investor Shares) next determined after receipt by the
Group of an order to purchase shares in proper form.
Purchases of Shares in a Fund will be effected only on a
Business Day (see VALUATION OF SHARES). It is the
responsibility of the investor's broker-dealer or other
financial intermediary to transmit purchase orders and
payment for Shares to the Distributor.
If so designated on a Shareholder's Account Registration
form, a Shareholder may effect the following transactions
by telephone: purchase additional Fund Shares; effect
redemptions; and exchange Fund Shares for Shares of the
class of any other Funds which the Shareholder qualifies
to purchase directly (see TELEPHONE TRANSACTIONS).
Subsequent purchases of Fund Shares may be made at any
time by mailing a check or money order or wiring funds to
the Group as described above. Once an investor's Account
Registration form has been received by the Group, the
investor may also purchase additional Shares by telephone
or under the Automatic Investment Plan described below.
Telephone orders may be placed by calling the Group at
(800) 433-6884. Payment for Shares ordered by telephone
may be made by check and must be received by the Group
within five business days of the telephone order.
If a check for the purchase of Shares does not clear (or
in the case of telephone orders, if payment is not
received within five business days), the purchase will be
cancelled and the investor could be liable for any losses
or fees incurred by the Fund. The Group reserves the right
to take such action as is necessary to recover any such
fees and losses, including the involuntary redemption of
any Shares held in the ordering investor's account.
22
<PAGE> 76
Investors may also purchase Shares by arranging
systematic monthly, bi-monthly or quarterly investments
into the Equity Funds with HighMark's Automatic Investment
Plan ("AIP"). The minimum initial investment referenced
above still applies for each Fund. The minimum periodic
investment amounts are $50 per monthly or bi-monthly
transfer or $150 per quarterly transfer, and the minimum
periodic investment per Fund is $25. The maximum amount
with respect to any transfer is $100,000. After investors
give the Group proper authorization, their bank accounts,
which must be with banks which are members of the
Automated Clearing House, will be debited accordingly to
purchase Shares. Investors will receive a confirmation
from the Group for every transaction, and a debit entry
will appear on their bank statements.
To participate in AIP, investors must complete the
appropriate sections of the Account Registration form or
the Automatic Investment/Withdrawal Plan form. These forms
may be obtained by calling the Group at (800) 433-6884.
The amount investors specify will automatically be
invested in Shares at the Fund's net asset value per Share
next determined after the debit is made.
To change the frequency or amount invested under AIP,
written instructions must be received by the Group at
least 7 Business Days in advance of the next transfer. If
the bank or bank account number is changed, instructions
must be received by the Group at least 20 Business Days in
advance. In order to change a bank or bank account number,
investors also must have their signature guaranteed by a
bank, broker, dealer, credit union, securities exchange,
securities association, clearing agency or savings
association, as those terms are defined in Rule 17Ad-15
under the Securities Exchange Act of 1934 (an "Eligible
Guarantor Institution"). Signature guarantees are
described more fully under HOW TO REDEEM SHARES below. If
there are insufficient funds in the investor's designated
bank account to cover the Shares purchased using AIP, the
investor's bank may charge the investor a fee or may
refuse to honor the transfer instruction (in which case no
Shares will be purchased).
Investors should check with their banks to determine
whether their banks are members of the Automated Clearing
House and whether their banks charge a fee for
transferring funds through the Automated Clearing House.
Expenses incurred by the Funds related to AIP are borne by
the Funds and therefore there is no direct charge by the
Fund to investors for use of these services.
Certain entities (including The Bank of California and
its affiliates) may charge customers fees in conjunction
with investments in a Fund such as fees for administrative
support services and/or fees for the purchase or
redemption of Fund Shares through the customer's account
pursuant to specific or preauthorized instructions.
Information concerning these services and any charges
23
<PAGE> 77
can be obtained by the entity making the investment and
this Prospectus should be read in conjunction with that
information.
The Group reserves the right to reject any order for the
purchase of Shares in whole or in part, including
purchases made with foreign checks and third party checks
not originally made payable to the order of the investor.
Shareholders will receive a confirmation of each new
transaction in the Shareholder's account. Confirmations of
purchases and redemptions on behalf of customers of
certain entities holding omnibus accounts (including
certain accounts of The Bank of California or its
affiliates) will be sent to the entity making the
investment and Shareholders may rely on these statements
in lieu of certificates. Certificates representing the
Equity Funds' Shares will not be issued.
Sales Charge
The public offering price of an Investor Share of each
of the Funds equals its net asset value plus a sales
charge in accordance with the table below.
BISYS Fund Services (the "Distributor") receives this
sales charge as Distributor and reallows a portion of it
as dealer discounts and brokerage commissions. However,
the Distributor, in its sole discretion, may pay certain
dealers all or part of the portion of the sales charge it
receives. A broker or dealer who receives a reallowance in
excess of 90% of the sales charge may be deemed to be an
"underwriter" for purposes of the Securities Act of 1933.
<TABLE>
<CAPTION>
SALES CHARGE AS DEALER
A PERCENTAGE OF SALES CHARGE AS ALLOWANCE
NET AMOUNT A PERCENTAGE OF AS A PERCENTAGE OF
INVESTED PUBLIC OFFERING PRICE PUBLIC OFFERING PRICE
--------------- --------------------- ---------------------
<S> <C> <C> <C>
Less than $50,000....... 4.71% 4.50% 4.05%
$50,000 but less than
$100,000.............. 3.63% 3.50% 3.15%
$100,000 but less than
$250,000.............. 2.56% 2.50% 2.25%
$250,000 but less than
$1,000,000............ 1.52% 1.50% 1.35%
$1,000,000 or more...... 0.00% 0.00% 0.00%
</TABLE>
From time to time dealers who receive dealer discounts
and broker commissions from the Distributor may reallow
all or a portion of such dealer discounts and broker
commissions to other dealers or brokers.
The Distributor, at its expense, will also provide
additional compensation to dealers in connection with
sales of Shares of any of the Funds of the Group.
Compensation will include financial assistance to dealers
in connection with
24
<PAGE> 78
conferences, sales or training programs for their
employees, seminars for the public, advertising campaigns
regarding one or more of the Funds, and/or other
dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers
whose representatives have sold or are expected to sell a
significant amount of such Shares. Compensation will
include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited
registered representatives and members of their families
to locations within or outside of the United States for
meetings or seminars of a business nature. Compensation
will also include the following types of non-cash
compensation offered through sales contests: (1) vacation
trips, including the provision of travel arrangements and
lodging at luxury resorts at an exotic location, (2)
tickets for entertainment events (such as concerts,
cruises, and sporting events) and (3) merchandise (such as
clothing, trophies, clocks and pens). Dealers may not use
sales of a Fund's Shares to qualify for this compensation
to the extent such may be prohibited by the laws of any
state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. None of the
aforementioned compensation is paid for by any Fund or its
shareholders.
Sales Charge Waivers
The following categories of investors may purchase
Investor Shares of the Funds with no sales charge in the
manner described below (which may be changed or eliminated
at any time by the Distributor):
(1) Existing holders of Investor Shares of a Fund upon
the reinvestment of dividend and capital gain
distributions on those Shares;
(2) Investment companies advised by MERUS or
distributed by The BISYS Group, Inc. or its
affiliates placing orders on each entity's behalf;
(3) State and local governments;
(4) Individuals who have received distributions from
employee benefit trust accounts administered by The
Bank of California who are rolling over such
distributions into an individual retirement account
for which the Bank serves as trustee or custodian;
(5) Individuals who purchase Shares with proceeds from
a required minimum distribution at age 70 1/2 from
their employee benefit qualified plan or an
individual retirement account administered by The
Bank of California;
(6) Individuals who purchase Shares with proceeds
received in connection with a distribution paid
from a Bank of California trust or agency account;
25
<PAGE> 79
(7) Investment advisers or financial planners regulated
by a federal or state governmental authority who is
purchasing Shares for its own account or for an
account for which they are authorized to make
investment decisions (i.e., a discretionary
account) and who charge a management, consulting or
other fee for their services; and clients of such
investment advisers or financial planners who place
trades for their own accounts if the accounts are
linked to the master account of such investment
adviser or financial planner on the books and
records of a broker or agent;
(8) Investors purchasing Shares with proceeds from a
redemption of shares of another open-end investment
company (other than The HighMark Group) on which a
sales charge was paid if such redemption occurred
within thirty (30) days prior to the date of the
purchase order. Satisfactory evidence of the
purchaser's eligibility must be provided at the
time of purchase (e.g., a confirmation of the
redemption);
(9) Brokers, dealers and agents who are purchasing for
their own account and who have a sales agreement
with the Distributor, and their employees (and
their spouses and children under the age of 21);
and
(10) Investors purchasing shares on behalf of a
qualified prototype retirement plan (other than an
IRA, SEP-IRA or Keogh) sponsored by The Bank of
California.
The Distributor may also periodically waive the sales
charge for all investors with respect to a Fund.
With regard to categories 2 through 10 above, the
Distributor must be notified that the purchase qualifies
for a sales charge waiver at the time of purchase.
Letter of Intent
An Investor may obtain a reduced sales charge by means
of a written Letter of Intent that expresses the intention
of such Investor to invest a certain amount in Investor
Shares of any of the Funds within a period of 13 months.
Each purchase of Shares under a Letter of Intent will be
made at the public offering price plus the sales charge
applicable at the time of such purchase to a single
transaction of the total dollar amount indicated in the
Letter of Intent. A Letter of Intent may include purchases
of Investor Shares made not more than 90 days prior to the
date such Investor signs the Letter of Intent; however,
the 13-month period during which the Letter of Intent is
in effect will begin on the date of the earliest purchase
to be included. This program may be modified or eliminated
at any time or from time to time by the Group without
notice.
A Letter of Intent is not a binding obligation upon the
Investor to purchase the full amount indicated. The
minimum initial investment under a Letter of Intent is
26
<PAGE> 80
5% of such amount. Investor Shares purchased with the
first 5% of such amount will be held in escrow (while
remaining registered in the name of the Investor) to
secure payment of the higher sales charge applicable to
the Investor Shares actually purchased if the full amount
indicated is not purchased, and such escrowed Investor
Shares will be involuntarily redeemed to pay the
additional sales charge, if necessary. Dividends on
escrowed Investor Shares, whether paid in cash or
reinvested in additional Investor Shares, are not subject
to escrow. The escrowed Investor Shares will not be
available for disposal by the Investor until all purchases
pursuant to the Letter of Intent have been made or the
higher sales charge has been paid. When the full amount
indicated has been purchased, the escrow will be released.
When an Investor enters into a letter of intent that
includes Shares purchased prior to the date of the letter
of intent or to the extent that an Investor purchases more
than the dollar amount indicated on the Letter of Intent
and qualifies for a further reduced sales charge, the
sales charge will be adjusted for the entire amount
purchased at the end of the 13-month period. The
difference in sales charges will be used to purchase
additional Investor Shares subject to the rate of sales
charge applicable to the actual amount of the aggregate
purchases at the then current public offering price.
For further information, interested investors should
contact the Group at (800) 433-6884.
Concurrent Purchases and Rights of Accumulation
An Investor may qualify for a lower sales charge by
combining concurrent purchases of Investor Shares of one
or more of the Funds of the Group sold with a sales
charge. For example, if a Shareholder concurrently
purchases Shares in one Fund sold with a sales charge at
the total public offering price of $50,000 and Shares in
another Fund at the total public offering price of
$50,000, the sales charge would be that applicable to a
$100,000 purchase. This privilege, however, may be
modified or eliminated at any time or from time to time by
the Group without notice thereof.
Pursuant to rights of accumulation, a Shareholder may
combine a current purchase of Investor Shares of a Fund
with prior purchases of Investor Shares of a Fund of the
Group sold with a sales charge. The public offering price
applicable to a purchase of Investor Shares is based on
the sum of (i) the Shareholder's current purchase of
Investor Shares of any Fund of the Group sold with a sales
charge and (ii) the then current net asset value of the
Shareholder's combined holdings of Investor Shares of any
of the Funds of the Group sold with a sales charge.
27
<PAGE> 81
For purposes of concurrent purchases, rights of
accumulation and letters of intent, the Shareholder's
combined holdings shall include the combined holdings of
the Shareholder and the Shareholder's spouse and children
under the age of 21. To receive the applicable public
offering price pursuant to such concurrent purchases,
rights of accumulation and letters of intent, investors
must, at the time of purchase, provide the Transfer Agent
or the Distributor with sufficient information to permit
confirmation of qualification. Accumulation privileges may
be modified or eliminated at any time or from time to time
by the Group without notice.
Reductions for Qualified Groups
Reductions in sales charges also apply to purchases by
individual members of a "qualified group." The reductions
are based on the aggregate dollar amount of shares
purchased by all members of the qualified group. For
purposes of this paragraph, a qualified group consists of
a "company," as defined in the 1940 Act, which has been in
existence for more than six months and which has a primary
purpose other than acquiring shares of a Fund at a reduced
sales charge, and the "related parties" of such company.
For purposes of this paragraph, a "related party" of a
company is (i) any individual or other company who
directly or indirectly owns, controls or has the power to
vote five percent or more of the outstanding voting
securities of such company; (ii) any other company of
which such company directly or indirectly owns, controls
or has the power to vote five percent or more of its
outstanding voting securities; (iii) any other company
under common control with such company; (iv) any executive
officer, director or partner of such company or of a
related party; and (v) any partnership of which such
company is a partner. Investors seeking to rely on their
membership in a qualified group to purchase shares at a
reduced sales load must provide evidence satisfactory to
the Transfer Agent of the existence of a bona fide
qualified group and their membership therein.
All orders from a qualified group will have to be placed
through a single source and identified at the time of
purchase as originating from the same qualified group,
although such orders may be placed into more than one
discrete account that identifies the group.
EXCHANGE
PRIVILEGES As indicated under GENERAL INFORMATION--Description of
The Group & Its Shares, each of the Group's Funds issues
two classes of Shares (Investor Shares and Fiduciary
Shares); as of the date of this Prospectus, the
Distribution Plan and distribution fee payable thereunder
are applicable only to each Fund's Investor Shares. A
Shareholder's eligibility to exchange into a particular
class of Shares will be determined at the time of the
exchange. The Shareholder must supply, at the time of the
exchange, the necessary information to permit confirmation
of qualification.
28
<PAGE> 82
Each Fund's Shares may be exchanged for Shares of the
class of the various other Funds of the Group which the
Shareholder qualifies to purchase directly so long as the
Shareholder maintains the applicable minimum account
balance in each Fund in which he or she owns Shares and
satisfies the minimum initial and subsequent purchase
amounts of the Fund into which the Shares are exchanged.
Shareholders may exchange their Investor Shares for
Investor Shares of a Fund with the same or lower sales
charge on the basis of the relative net asset value of the
Investor Shares exchanged. Shareholders may exchange their
Investor Shares for Investor Shares of a Fund with a
higher sales charge by paying the difference between the
two sales charges. Shareholders may also exchange Investor
Shares of a Money Market Fund for which no sales load was
paid for Investor Shares of an Equity Fund. Under such
circumstances, the cost of the acquired Investor Shares
will be the net asset value per share plus the appropriate
sales load. If Investor Shares of the Money Market Fund
were acquired in a previous exchange involving Shares of a
non-money market HighMark Fund, then such Shares of the
Money Market Fund may be exchanged for Shares of an Equity
Fund without payment of any additional sales load within a
twelve month period. In order to receive a reduced sales
charge when exchanging into a Fund, the Shareholder must
notify the Group that a sales charge was originally paid
and provide sufficient information to permit confirmation
of qualification.
Exchanges will be made on the basis of the relative net
asset values of the Shares exchanged plus any applicable
sales charge. Exchanges are subject to the terms and
conditions stated herein and the terms and conditions
stated in the respective prospectuses of the Funds.
Certain entities (including Participating Organizations
and The Bank of California and its affiliates), however,
may charge customers a fee with respect to exchanges made
on the customer's behalf. Information about these charges,
if any, can be obtained by the entity effecting the
exchange and this Prospectus should be read in conjunction
with that information.
A Shareholder wishing to exchange Shares in an Equity
Fund may do so by contacting the Group at (800) 433-6884
or by providing instructions to the Group (see TELEPHONE
TRANSACTIONS). Exchanges will be effected on any Business
Day at the net asset value of the Funds involved in the
exchange next determined after the exchange request is
received by the Distributor or the Transfer Agent.
An exchange is considered to be a sale of Shares for
federal income tax purposes on which a Shareholder may
realize a capital gain or loss. Exchange privileges may be
exercised only in those states where Shares of such other
Funds of the Group may legally be sold. The Group may
materially amend or terminate the exchange privileges
described herein upon sixty days' notice.
29
<PAGE> 83
HOW TO REDEEM
SHARES Shares may ordinarily be redeemed by mail, by telephone
or by HighMark's Automatic Withdrawal Plan ("AWP")
described below. However, with respect to investments made
on a customer's behalf by certain entities (including
Participating Organizations and The Bank of California or
its affiliates), all or part of the customer's Shares may
be redeemed in accordance with instructions and
limitations pertaining to his or her account with such
entity. For example, if a customer has agreed to maintain
a minimum balance with the entity, the customer may be
required to redeem, or the entity may redeem on the
customer's behalf, all or part of the customer's Shares to
the extent necessary to maintain the required minimum
balance.
A written request for redemption must be received by the
Group in order to constitute a valid request for
redemption. The Group may require a signature guarantee by
an Eligible Guarantor Institution, as defined above under
HOW TO PURCHASE SHARES. The Group reserves the right to
reject any signature guarantee if (1) it has reason to
believe that the signature is not genuine, (2) it has
reason to believe that the transaction would otherwise be
improper, or (3) the guarantor institution is a broker or
dealer that neither is a member of a clearing corporation
nor maintains net capital of at least $100,000. The
signature guarantee requirement will be waived if both of
the following conditions apply: (1) the redemption check
is payable to the Shareholder(s) of record; and (2) the
redemption check is mailed to the Shareholder(s) at the
address of record or the proceeds are either mailed or
sent electronically to a commercial bank account
previously designated on the Account Registration form.
Payments to Shareholders
A Shareholder may have the payment of redemption
requests sent electronically or mailed directly to a
domestic commercial bank account previously designated on
the Account Registration form. Redemption orders are
effected at the net asset value per Share next determined
after receipt of a valid request for redemption. Payments
to Shareholders will be made within seven days after the
Group receives the redemption order. However, to the
greatest extent possible, the Group will attempt to honor
requests from Shareholders for next Business Day payments
upon redemption of Shares if the request for redemption is
received by the Group before the Valuation Time
(generally, 4:00 p.m., Eastern Time) on a Business Day or,
if the request for redemption is received after the
Valuation Time, to honor requests for payment within two
Business Days, unless it would be disadvantageous to the
Group or the Shareholders of the particular Fund to sell
or liquidate portfolio securities in an amount sufficient
to satisfy requests for payments in that manner. A wire
redemption request may be made by telephoning the Group,
who will reduce the amount of the wire redemption payment
by its wire redemption charge (presently $11.00). There is
no charge for
30
<PAGE> 84
having payment of redemption requests mailed to a
designated bank account. Shareholders may redeem Shares by
telephone by calling the Group at (800) 433-6884 (see
TELEPHONE TRANSACTIONS).
At various times, the Group may be requested to redeem
Shares for which it has not yet received good payment. In
these circumstances, the Group may delay the forwarding of
proceeds until payment has been collected for the purchase
of the Shares, which may take up to 14 or more days.
Shareholders may avoid the possibility of such a delay by
making payment for Shares by wiring funds to the
custodian. The Group intends to pay cash for all Shares
redeemed, but under abnormal conditions which make payment
in cash unwise, the Group may make payment wholly or
partly in portfolio securities with a market value equal
to the redemption price. In these cases, an investor may
incur brokerage costs in converting the securities to
cash.
Shareholders may also arrange to have systematic
monthly, bi-monthly or quarterly redemptions deposited
into their bank accounts with AWP, provided that their
bank accounts are with banks which are members of the
Automated Clearing House. The minimum redemption amounts
are $50 per monthly or bi-monthly transfer or $150 per
quarterly transfer, and the maximum amount with respect to
any transfer is $100,000. With proper Shareholder
authorization, the Group will redeem Shares equal to the
dollar amount specified by the Shareholder at the net
asset value next determined after the credit is made.
To participate in AWP, Shareholders must complete the
appropriate sections of the Account Registration form or
the Automatic Investment/Withdrawal Plan form. These forms
may be obtained by calling the Group at (800) 433-6884. To
change the frequency or amount withdrawn, instructions
must be received by the Group at least 7 Business Days in
advance of the next transfer. If the bank or bank account
number is changed, instructions must be received by the
Group at least 20 Business Days in advance. In order to
change a bank or bank account number, Shareholders also
must have their signature guaranteed by an Eligible
Guarantor Institution as more fully described above.
Shareholders should check with their banks to determine
whether their banks are members of the Automated Clearing
House and whether their banks charge a fee for
transferring funds through the Automated Clearing House.
Expenses incurred by the Equity Funds related to AWP are
borne by the Funds and therefore there is no direct charge
by a Fund to Shareholders for use of these services.
Due to the relatively high cost of handling small
investments, the Group reserves the right to redeem, at
net asset value, Shares of an Equity Fund if, because of
redemptions, the Shareholder's account with respect to
that Fund has
31
<PAGE> 85
a value of less than $250. Accordingly, an investor
purchasing Shares of an Equity Fund in only the minimum
investment amount may be subject to involuntary redemption
if he or she thereafter redeems Shares in that Fund.
Before the Group exercises its right to redeem such
Shares, the Shareholder will be given notice and allowed
60 days to make an additional investment to increase the
value of the account to at least $250. For examples of
when the Group may suspend the right of redemption or
redeem Shares involuntarily, see ADDITIONAL PURCHASE AND
REDEMPTION INFORMATION--Matters Affecting Redemption in
the Statement of Additional Information.
TELEPHONE
TRANSACTIONS As noted above, unless a Shareholder elects otherwise,
he or she has the privilege to effect purchases, exchanges
or redemptions by telephone. A Shareholder risks possible
losses from unauthorized exchanges or redemptions from the
Shareholder's account. Each Fund will employ procedures
designed to provide reasonable assurance to confirm that
instructions communicated by telephone are genuine, and if
a Fund does not employ such procedures, the Fund may be
liable for any losses due to unauthorized or fraudulent
instructions. These procedures include recording all
telephone transactions, sending confirmations to
Shareholders within 72 hours of the telephone transaction,
verifying the account name and a Shareholder's account
number or tax identification number and sending redemption
proceeds only to the address of record or to a previously
authorized bank account. If, due to temporary adverse
conditions, investors are unable to effect telephone
transactions, Shareholders may also mail the redemption
request to the Group at the address listed above under HOW
TO PURCHASE SHARES.
DIVIDENDS The net income of each of the Equity Funds is declared
and paid monthly as a dividend to Shareholders of record
at the close of business on the day of declaration. Net
realized capital gains are distributed at least annually
to Shareholders of record.
Shareholders will automatically receive all income
dividends and capital gains distributions in additional
full and fractional Shares of a Fund at net asset value as
of the date of declaration (which is also the ex-dividend
date), unless the Shareholder elects to receive such
dividends or distributions in cash. Shareholders wishing
to receive their dividends in cash (or wishing to revoke a
previously made election) must notify the Group at P.O.
Box 7591, San Francisco, CA 94120, and such election (or
revocation thereof) will become effective with respect to
dividends and distributions having record dates after
notice has been received. Dividends paid in additional
Shares receive the same tax treatment as dividends paid in
cash.
FEDERAL
TAXATION Each Equity Fund intends to qualify for treatment as a
"regulated investment company" under the Internal Revenue
Code of 1986, as amended (the "Code"),
32
<PAGE> 86
and to distribute substantially all of its net investment
income and net realized capital gains so that each Fund is
not required to pay federal taxes on these amounts.
Distributions of ordinary income and/or an excess of net
short-term capital gain over net long-term capital loss
are treated for federal income tax purposes as ordinary
income to Shareholders. The 70 percent dividends received
deduction for corporations generally will apply to these
distributions to the extent the distribution represents
amounts that would qualify for the dividends received
deduction if a Fund were a regular corporation, and to the
extent designated by a Fund as so qualifying.
Distributions by the Fund of the excess of net long-term
capital gain over net short-term capital loss is taxable
to Shareholders as long-term capital gain in the year with
respect to which it is received, regardless of how long
the Shareholder has held Shares of the Fund. Such
distributions are not eligible for the dividends received
deduction. If a Shareholder disposes of Shares in the Fund
at a loss before holding such Shares for longer than six
months, such loss will be treated as a long-term capital
loss to the extent the Shareholder has received long-term
capital gain dividends on the Shares.
Prior to purchasing Shares of the Equity Funds, the
impact of dividends or capital gain distributions that are
expected to be declared or have been declared, but not
paid, should be carefully considered. Dividends or capital
gain distributions received after a purchase of Shares are
subject to federal income taxes, although in some
circumstances, the dividends or distributions may be, as
an economic matter, a return of capital to the
Shareholder. A Shareholder should consult his or her
adviser for specific advice about the tax consequences to
the Shareholder of investing in the Fund.
Additional information regarding federal taxes is
contained in the Statement of Additional Information.
However, the foregoing and the material in the Statement
of Additional Information are only brief summaries of some
of the important tax considerations generally affecting
each Fund and its Shareholders. In addition, the foregoing
discussion and the federal tax information in the
Statement of Additional Information are based on tax laws
and regulations which are in effect as of the date of this
Prospectus; these laws and regulations may subsequently
change, and such changes could be retroactive.
Shareholders will be advised at least annually as to the
federal income tax status of distributions made during the
year.
SERVICE
ARRANGEMENTS Investment Adviser
MERUS, a division of The Bank of California, serves as
the Equity Funds' investment adviser. Subject to the
general supervision of the Group's Board of Trustees,
MERUS manages each Fund in accordance with its investment
33
<PAGE> 87
objective and policies, makes decisions with respect to
and places orders for all purchases and sales of the
Fund's investment securities, and maintains the Fund's
records relating to such purchases and sales.
All investment decisions for the Equity Funds are made
by a committee and no single person is primarily
responsible for making recommendations to the committee.
For the expenses assumed and services provided by MERUS
as each Fund's investment adviser, The Bank of California
receives a fee from each Equity Fund, computed daily and
paid monthly, at the annual rate of one percent (1.00%) of
the first $40 million of each Fund's average daily net
assets and sixty one-hundredths of one percent (.60%) of
the Fund's remaining average daily net assets. Depending
on the size of the Fund, this fee may be higher than the
advisory fee paid by most mutual funds, although the Board
of Trustees believes it will be comparable to advisory
fees paid by many funds having similar objectives and
policies. The Bank of California may from time to time
agree to voluntarily reduce its advisory fee. While there
can be no assurance that The Bank of California will
choose to make such an agreement, any voluntary reductions
in The Bank of California's advisory fee will lower the
Fund's expenses, and thus increase the Fund's yield and
total return, during the period such voluntary reductions
are in effect. During the Group's fiscal year ended July
31, 1995, The Bank of California received investment
advisory fees from the Growth Fund, Income and Growth
Fund, Income Equity Fund and Balanced Fund aggregating
0.19%, 0%, 0.67% and 0.33%, respectively of each of the
Fund's average daily net assets.
Incorporated in 1864, The Bank of California was the
first incorporated banking institution in the West. The
Bank of California offers a wide range of banking services
to its clients in California, Oregon and Washington and
around the world. As of September 30, 1995, The Bank of
California and its subsidiaries had approximately $7.9
billion in commercial assets. MERUS is a division of The
Bank of California's Trust and Investment Management
Group, which manages approximately $6.8 billion of The
Bank of California's trust assets. MERUS, with a team of
approximately 30 stock and bond research analysts,
portfolio managers and traders, has been providing
investment management services to individuals,
institutions and large corporations since 1917.
The Mitsubishi Bank, Limited, of Tokyo, Japan, directly
or indirectly owns all of the outstanding shares of the
Bank. The Mitsubishi Bank, Limited and The Bank of Tokyo,
Ltd. have announced their intention to merge. The
resulting entity will be named The Bank of
Tokyo-Mitsubishi, Ltd. The directors and shareholders of
the respective organizations have approved the proposed
merger in principle.
34
<PAGE> 88
The Bank of Tokyo, Ltd. and The Mitsubishi Bank, Limited
announced they had reached a basic understanding
concerning the merger of their respective subsidiary banks
in California, Union Bank and The Bank of California. The
merger has been approved by the Boards of Directors of
Union Bank and The Bank of California, and will be
finalized after obtaining the required shareholders' and
regulatory approvals. The name of the combined California
bank will be Union Bank of California.
The target date of both the above-described mergers is
April 1, 1996.
One or more of the foregoing transactions may constitute
an "assignment" of the existing investment advisory
agreements between the Group and MERUS. In the event they
do constitute such an "assignment" under the 1940 Act, the
"assignment" will result in the automatic termination of
the investment advisory agreements, effective at the time
of the transaction. Prior to the transactions,
shareholders of each Fund will be asked to approve a new
investment advisory agreement between that Fund and Union
Bank of California (or a registered investment advisor
affiliate), to take effect at the time of the
transactions. A proxy statement describing the terms of
the new agreements will be sent to shareholders of the
Group prior to their being asked to vote on the new
agreements.
Administrator & Distributor
BISYS Fund Services Limited Partnership ("BISYS Fund
Services") is the administrator and distributor of the
Equity Funds. BISYS Fund Services is a subsidiary of The
BISYS Group, Inc., 150 Clove Road, Little Falls, New
Jersey 07424, a publicly owned company engaged in
information processing, loan servicing and 401(k)
administration and recordkeeping services to and through
banking and other financial organizations. Pursuant to a
separate agreement with BISYS Fund Services, The Bank of
California performs sub-administration services on behalf
of each Fund, for which it receives compensation from
BISYS Fund Services. A description of the services
performed by The Bank of California pursuant to this
Agreement is contained in the Statement of Additional
Information.
As administrator, BISYS Fund Services generally assists
in all aspects of the Equity Funds' administration and
operation. For the expenses assumed and services provided
as administrator, BISYS Fund Services receives a fee from
each of the Equity Funds, computed daily and paid
periodically, at an annual rate of twenty one-hundredths
of one percent (0.20%) of each Fund's average daily net
assets. BISYS Fund Services may from time to time agree to
reduce voluntarily its administration fee. While there can
be no assurance that BISYS Fund Services will choose to
make such an agreement, any voluntary reductions in BISYS
Fund Services's administration fee will lower a Fund's
expenses, and
35
<PAGE> 89
thus increase the Fund's yield and total return, during
the period such voluntary reductions are in effect.
The Group has adopted a Shareholder Services Plan
permitting payment of compensation to financial
institutions that agree to provide certain administrative
support services for their customers who are Fund
Shareholders. Each Equity Fund has entered into a specific
arrangement with BISYS Fund Services for the provision of
such services by BISYS Fund Services, and reimburses BISYS
Fund Services for its cost of providing these services,
subject to a maximum annual rate of twenty-five
one-hundredths of one percent (0.25%) of each Fund's
average daily net assets.
During the Group's fiscal year ended July 31, 1995,
BISYS Fund Services received administration fees
aggregating 0.12%, 0%, 0.20% and 0.20% of the average
daily net assets of the Growth Fund, Income and Growth
Fund, Income Equity and Balanced Fund, respectively.
The Distribution Plan
Pursuant to the Group's Distribution Plan, each Equity
Fund pays the Distributor as compensation for its services
in connection with the Distribution Plan a distribution
fee, computed daily and paid monthly, equal to twenty-five
one-hundredths of one percent (0.25%) of the average daily
net assets attributable to that Fund's Investor Shares.
Fiduciary Shares are not subject to the Distribution Plan
or a distribution fee.
The Distributor may use the distribution fee applicable
to a Fund's Investor Shares to provide distribution
assistance with respect to the sale of the Fund's Investor
Shares or to provide Shareholder services to the holders
of the Fund's Investor Shares. The Distributor may also
use the distribution fee (i) to pay financial institutions
and intermediaries (such as insurance companies and
investment counselors but not including banks and savings
and loan associations), broker-dealers, and the
Distributor's affiliates and subsidiaries compensation for
services or reimbursement of expenses incurred in
connection with the distribution of a Fund's Investor
Shares to their customers or (ii) to pay banks, savings
and loan associations, other financial institutions and
intermediaries, broker-dealers, and the Distributor's
affiliates and subsidiaries compensation for services or
reimbursement of expenses incurred in connection with the
provision of Shareholder services to their customers
owning a Fund's Investor Shares. All payments by the
Distributor for distribution assistance or Shareholder
services under the Distribution Plan will be made pursuant
to an agreement between the Distributor and such bank,
savings and loan association, other financial institution
or intermediary, broker-dealer, or affiliate or subsidiary
of the Distributor (a "Servicing Agreement"; banks,
savings and loan associations, other financial
36
<PAGE> 90
institutions and intermediaries, broker-dealers, and the
Distributor's affiliates and subsidiaries that may enter
into a Servicing Agreement are hereinafter referred to
individually as a "Participating Organization"). A
Participating Organization may include The Bank of
California, its subsidiaries and its affiliates.
Participating Organizations may charge customers fees in
connection with investments in an Equity Fund on their
customers' behalf. Such fees would be in addition to any
amounts the Participating Organization may receive
pursuant to its Servicing Agreement. Under the terms of
the Servicing Agreements, Participating Organizations are
required to provide their customers with a schedule of
fees charged directly to such customers in connection with
investments in a Fund. Customers of Participating
Organizations should read this Prospectus in light of the
terms governing their accounts with the Participating
Organization.
The distribution fee under the Distribution Plan will be
payable without regard to whether the amount of the fee is
more or less than the actual expenses incurred in a
particular year by the Distributor in connection with
distribution assistance or Shareholder services rendered
by the Distributor itself or incurred by the Distributor
pursuant to the Servicing Agreements entered into under
the Distribution Plan. The Distributor may from time to
time voluntarily reduce its distribution fee with respect
to an Equity Fund in significant amounts for substantial
periods of time pursuant to an agreement with the Group.
While there can be no assurance that the Distributor will
choose to make such an agreement, any voluntary reduction
in the Distributor's distribution fee will lower such
Equity Fund's expenses, and thus increase such Fund's
yield and total returns, during the period such voluntary
reductions are in effect. In addition, the Distributor and
the Participating Organizations have agreed to voluntarily
reduce payments to be received pursuant to the
Distribution Plan with respect to an Equity Fund to the
extent necessary to ensure that such payments do not
exceed the income attributable to such Fund's Investor
Shares on any day.
Banking Laws
The Bank of California believes that MERUS may perform
the services for the Funds contemplated by its investment
advisory agreement with the Group without a violation of
applicable banking laws and regulations, and has so
represented to the Group in the investment advisory
agreement. The Bank of California also believes that it
may perform sub-administration services on behalf of each
Fund, for which it receives compensation from BISYS Fund
Services without a violation of applicable banking laws
and regulations and has so represented in the Servicing
Agreement. Future changes in federal or state statutes and
regulations relating to permissible activities of banks or
bank holding companies and their subsidiaries and
affiliates, as well as further judicial or administrative
decisions or interpretations of present and future
statutes and
37
<PAGE> 91
regulations, could change the manner in which The Bank of
California or MERUS could continue to perform such
services for the Funds. For a further discussion of
applicable banking laws and regulations, see the Statement
of Additional Information.
Transfer Agent, Custodian & Fund Accounting Services
BISYS Fund Services Ohio, Inc. 3435 Stelzer Road,
Columbus, Ohio 43219, serves as the Equity Funds' transfer
agent and also acts as the Equity Funds' fund accountant.
While BISYS Fund Services Ohio, Inc. is a distinct legal
entity from BISYS Fund Services (the Group's administrator
and distributor), BISYS Fund Services Ohio, Inc. is
considered to be an affiliated person of BISYS Fund
Services under the 1940 Act due to, among other things,
the fact that BISYS Fund Services Ohio, Inc. is owned by
substantially the same persons that directly or indirectly
own BISYS Fund Services.
[/R]
Pursuant to an agreement with BISYS Fund Services Ohio,
Inc., The Bank of California provides sub-transfer agency
services with respect to investments in each Fund's Shares
through certain accounts maintained with The Bank of
California and its affiliates, for which it receives
compensation from BISYS Fund Services Ohio, Inc. The Bank
of California also serves as the custodian for the Equity
Funds.
Services performed by BISYS Fund Services Ohio, Inc., as
the Funds' transfer agent and fund accountant, and by The
Bank of California, as the Funds' sub-transfer agent and
custodian, as well as the basis of remuneration for such
services, are described in the Statement of Additional
Information.
GENERAL
INFORMATION Description of The Group & Its Shares
The Group was organized as a Massachusetts business
trust on March 10, 1987, and consists of 13 series of
Shares representing units of beneficial interest in the
Group's Growth Fund, Income and Growth Fund, Income Equity
Fund, Balanced Fund, Bond Fund, Government Bond Fund,
Diversified Obligations Fund, U.S. Government Obligations
Fund, 100% U.S. Treasury Obligations Fund, California
Tax-Free Fund, Tax-Free Fund, Intermediate California
Municipal Bond Fund and Intermediate Municipal Bond Fund.
As of the date hereof, no shares of the Intermediate
California Municipal Bond Fund and the Intermediate
Municipal Bond Fund had been offered for sale. Shares of
each Fund are freely transferable, are entitled to
distributions from the assets of the Fund as declared by
the Board of Trustees, and, if the Group were liquidated,
would receive the net assets attributable to that Fund.
Shares are without par value.
38
<PAGE> 92
As noted above, pursuant to an order received by the
Group from the Securities and Exchange Commission
permitting the issuance and sale of two classes of Shares
in each Fund, Shares of the Group's Funds have been
divided into two classes, designated Investor Shares and
Fiduciary Shares, for purposes of the Group's Distribution
Plan and related distribution fee, which fee is applicable
only to such Funds' Investor Shares. Investor Shares and
Fiduciary Shares represent interests in the same portfolio
of investments of a Fund and are identical in all respects
except that Investor Shares bear the expense of the fee,
if any, under the Distribution Plan, which will cause the
Investor Shares to have a higher expense ratio (and
possibly lower net asset value) and to pay lower dividends
than those related to Fiduciary Shares, and Investor
Shares have certain exclusive voting rights with respect
to the Distribution Plan. Investor Shares are generally
sold subject to a sales charge at the time of purchase.
There is no sales charge on Fiduciary Shares.
The Group believes that as of November 1, 1995, The Bank
of California (400 California Street, Post Office Box
45000, San Francisco, CA 94104) was the Shareholder of
record of 30.65% of the Investor Shares and 97.65% of the
Fiduciary Shares of the Growth Fund, 25.58% of the
Investor Shares and 97.55% of the Fiduciary Shares of the
Income and Growth Fund, 29.04% of the Investor Shares and
95.03% of the Fiduciary Shares of the Income Equity Fund
and 8.19% of the Investor Shares and 98.60% of the
Fiduciary Shares of the Balanced Fund.
The Reorganization of The IRA Fund & The Group
As of June 23, 1988, pursuant to an Agreement and Plan
of Reorganization among the IRA Fund, the Group, and The
Bank of California, substantially all of the assets of the
IRA Fund's Income Equity Portfolio and Bond Portfolio were
transferred to the Group's Income Equity Fund and Bond
Fund, respectively, in exchange for such Fund's Shares,
and substantially all of the assets of the IRA Fund's
Short Term Portfolio were transferred to one or more of
the Group's Money Market Funds in exchange for Shares of
such Money Market Fund or Funds.
Miscellaneous
Shareholders will be sent unaudited semi-annual reports
and annual reports audited by independent public
accountants.
Shareholders are entitled to one vote for each Share
held in a Fund as determined on the record date for any
action requiring a vote by the Shareholders, and a
proportionate fractional vote for each fractional Share
held. Shareholders of the Group will vote in the aggregate
and not by series or class except (i) as otherwise
expressly required by law or when the Group's Board of
Trustees determines that the matter to be voted upon
affects only the interests of the Shareholders of a
particular series or particular class, and (ii) only
Investor
39
<PAGE> 93
Shares will be entitled to vote on matters submitted to a
Shareholder vote relating to the Distribution Plan. The
Group is not required to hold regular annual meetings of
Shareholders, but may hold special meetings from time to
time.
The Group's Trustees are elected by Shareholders, except
that vacancies may be filled by vote of the Board of
Trustees. Trustees may be removed by the Board of
Trustees, or by Shareholders at a meeting called for such
purpose. For information about how Shareholders may call
such a meeting and communicate with other Shareholders for
that purpose, see ADDITIONAL INFORMATION--Miscellaneous in
the Statement of Additional Information.
Inquiries may be directed in writing to The HighMark
Group at 3435 Stelzer Road, Columbus, Ohio 43219, or by
calling toll free (800) 433-6884.
40
<PAGE> 94
THE HIGHMARK EQUITY FUNDS
INVESTMENT PORTFOLIOS OF
THE HIGHMARK MUTUAL FUND GROUP
For further information (including current
yield, purchase and redemption information),
call (800) 433-6884
INVESTMENT ADVISER
MERUS Capital Management,
a division of The Bank of California, N.A.
400 California Street
Post Office Box 45000
San Francisco, CA 94104
CUSTODIAN
The Bank of California, N.A.
400 California Street
Post Office Box 45000
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
AUDITORS
Deloitte & Touche LLP
1700 Courthouse Plaza Northeast
Dayton, OH 45402
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE GROUP
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE GROUP
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
NOT FDIC INSURED
<PAGE> 95
[HIGHMARK LOGO]
HIGHMARK
MUTUAL FUND GROUP
TRS-17236(R12/95)
<PAGE> 96
CROSS REFERENCE SHEET
THE HIGHMARK INCOME FUNDS
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C>
1. Cover Page........................................ Cover Page
2. Synopsis.......................................... Fee Table
3. Condensed Financial Information................... Per Share Income And
Capital Changes; Performance
Information
4. General Description............................... Fund Description;
Investment Objective;
Investment Policies & Fund
Portfolio; General
Information--Description
of the Group & Its Shares
5. Management of the Fund............................ Service Arrangements
5A. Management's Discussion of Fund Performance....... Inapplicable
6. Capital Stock and Other Securities................ How to Purchase Shares;
Exchange Privileges; How to
Redeem Shares; Dividends;
Federal Taxation; Service
Arrangements--Administrator
& Distributor--The
Distribution Plan; General
Information--Description of
the Group & Its Shares;
General Information--
Miscellaneous
7. Purchase of Securities Being Offered.............. Valuation of Shares; How to
Purchase Shares; Exchange
Privileges; Service
Arrangements--Administrator
& Distributor--The
Distribution Plan
8. Redemption or Repurchase.......................... How to Redeem Shares
9. Pending Legal Proceedings......................... Inapplicable
</TABLE>
<PAGE> 97
HIGHMARK
MUTUAL FUND GROUP
FIXED INCOME
FUNDS
-----------------
. BOND
. GOVERNMENT BOND
PROSPECTUS AS OF
DECEMBER 1, 1995
NOT FDIC INSURED
11/29/95, 1:46 PM
<PAGE> 98
THE HIGHMARK
INCOME FUNDS
. . . INVESTMENT PORTFOLIOS OF
THE HIGHMARK MUTUAL FUND GROUP
- - THE FUNDS
The Bond Fund
The Government Bond Fund
- - THE BOND FUND invests in long-term, fixed-income securities; investments
primarily include debt obligations such as bonds, notes, debentures and
securities convertible into or exercisable for debt obligations that are
issued by U.S. corporations or issued or guaranteed by the U.S. Government,
its agencies, or instrumentalities; investments may also include zero-coupon
obligations, mortgage-related securities and asset-backed securities.
- - THE BOND FUND'S objective is to seek current income through investments in
long-term, fixed-income securities.
- - THE GOVERNMENT BOND FUND invests primarily in short- to intermediate-term
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Securities").
- - THE GOVERNMENT BOND FUND'S objective is to seek current income and relative
stability of principal through investments in short- to intermediate-term
U.S. Government Securities.
- - EASY PURCHASE OR REDEMPTION BY TELEPHONE, MAIL OR WIRE
- - LIQUIDITY
- - MINIMUM INITIAL INVESTMENT ONLY $1,000 (a lower or no minimum may apply)
- - MINIMUM SUBSEQUENT INVESTMENT ONLY $100 (a lower or no minimum may apply)
- - PROFESSIONAL MANAGEMENT
- - RECORDKEEPING AND SAFEKEEPING OF SECURITIES
- - INVESTMENT ADVISER--MERUS Capital Management, a division of The Bank of
California, N.A.
not a part of the prospectus
<PAGE> 99
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 100
PROSPECTUS
DECEMBER 1, 1995
THE HIGHMARK INCOME FUNDS
. . . seeking opportunities for current income.
------------------------------------
The HighMark Income Funds (the "Income Funds") consist of The HighMark Bond
Fund and The HighMark Government Bond Fund. Each Fund is an investment portfolio
of The HighMark Group (the "Group"), a diversified, open-end management
investment company.
The HighMark Bond Fund (the "Bond Fund")--The investment objective of the Bond
Fund is to seek current income through investments in long-term, fixed-income
securities.
Fixed-income securities in which the Bond Fund invests will have maturities in
excess of one year, although these securities may have maturities of thirty
years or longer. Investments may include debt obligations such as bonds, notes,
debentures and securities convertible into or exercisable for debt obligations
that are issued by U.S. corporations or issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Investments may also include
zero-coupon obligations, mortgage-related securities and asset-backed
securities.
The HighMark Government Bond Fund (the "Government Bond Fund")--The investment
objective of the Government Bond Fund is to seek current income and relative
stability of principal through investments in short- to intermediate-term U.S.
Government Securities.
Obligations in which the Government Bond Fund invests will generally have
maturities in excess of one year. Under normal market conditions, the Government
Bond Fund's dollar-weighted average maturity will be between one and five years.
Investments may include securities issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities, including
zero-coupon obligations and mortgage-related securities.
Shares in the Funds are not deposits or obligations of, or guaranteed or
endorsed by, The Bank of California, N.A. or any of its affiliates, and Shares
are not federally insured by the Federal Deposit Insurance Corporation or any
other government agency. Investments in Shares involve the risk of a possible
loss of principal.
(continued on next page)
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.
------------------------------------
<PAGE> 101
(continued from previous page)
The Investment Adviser to the Income Funds is:
MERUS Capital Management, a division of The Bank of California, N.A.
The Income Funds are 2 of 13 separate investment portfolios offered by the
Group, which include:
The HighMark Growth Fund
The HighMark Income and Growth Fund
The HighMark Income Equity Fund
The HighMark Balanced Fund
The HighMark Bond Fund
The HighMark Government Bond Fund
The HighMark Diversified Obligations Fund
The HighMark U.S. Government Obligations Fund
The HighMark 100% U.S. Treasury Obligations Fund
The HighMark California Tax-Free Fund
The HighMark Tax-Free Fund
The HighMark Intermediate California Municipal Bond Fund
The HighMark Intermediate Municipal Bond Fund
As of the date hereof, the HighMark Intermediate California Municipal Bond
Fund and the Intermediate Municipal Bond Fund have not yet commenced operations.
Each Income Fund has been divided into two classes of Shares ("Investor"
Shares and "Fiduciary" Shares) for purposes of a sales charge and the Group's
Distribution and Shareholder Services Plan (the "Distribution Plan"). Investor
and Fiduciary Shares of a particular Fund represent interests in the same
portfolio of investments and are identical in all respects except that Investor
Shares pay a sales charge upon purchase and bear the expense of the fee under
the Distribution Plan, which will cause the Investor Shares to have a higher
expense ratio (and possibly a lower net asset value) and to pay lower dividends
than those related to Fiduciary Shares, and Investor Shares have certain
exclusive voting rights with respect to the Distribution Plan. Investor Shares
are generally sold subject to a sales charge at the time of purchase. There is
no sales charge on Fiduciary Shares. Only the following investors qualify to
purchase an Income Fund's Fiduciary Shares: (i) fiduciary, advisory, agency,
custodial and other similar accounts maintained with The Bank of California or
its affiliates; (ii) Select IRA accounts established with The Bank of California
and invested in any of the Group's Equity or Income Funds prior to June 20,
1994, which have remained continuously open thereafter and which are not
considered to be fiduciary accounts; (iii) Shareholders who currently own Shares
of the Group's Equity or Income Funds that were purchased prior to June 20, 1994
within an account registered in their name with the Funds; and (iv) present and
retired directors, officers, and employees (and their spouses and children under
the age of 21) of The Bank of California, BISYS Fund Services or their
affiliated companies, whether or not investments are made through an employee
benefit plan on such person's behalf.
(continued on next page)
2
<PAGE> 102
(continued from previous page)
All other investors are eligible to purchase Investor Shares only. For
information concerning those investors who qualify to purchase Investor and
Fiduciary Shares, sales charges and the operation of the Distribution Plan, see
HOW TO PURCHASE SHARES and SERVICE ARRANGEMENTS--Administrator &
Distributor--The Distribution Plan in the Prospectus.
This Prospectus relates only to the Income Funds. Interested persons who wish
to obtain a prospectus for the other Funds of the Group may contact the
distributor: BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219, or
call the Funds at (800) 433-6884.
Additional information about the Income Funds is contained in a Statement of
Additional Information that has been filed with the Securities and Exchange
Commission and is available upon request without charge by writing or calling
the Funds at the above address and telephone number. The Statement of Additional
Information bears the same date as this Prospectus and is incorporated by
reference in its entirety into this Prospectus.
This prospectus sets forth concisely the information about the Income Funds
that a prospective investor ought to know before investing. Please read this
Prospectus and retain it for future reference.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table............................................................................. 4
Financial Highlights.................................................................. 5
Fund Description...................................................................... 9
Performance Information............................................................... 9
Investment Objective.................................................................. 10
Investment Policies & Fund Portfolios................................................. 10
Valuation of Shares................................................................... 18
How to Purchase Shares................................................................ 19
Exchange Privileges................................................................... 26
How to Redeem Shares.................................................................. 27
Telephone Transactions................................................................ 30
Dividends............................................................................. 30
Federal Taxation...................................................................... 30
Service Arrangements.................................................................. 31
General Information................................................................... 36
</TABLE>
3
<PAGE> 103
INCOME FUNDS FEE TABLE
<TABLE>
<CAPTION>
BOND GOVERNMENT
FUND BOND FUND
-------------------- --------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY
SHARES SHARES SHARES SHARES
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
Maximum Sales Load Imposed on Purchases (as a percentage of offering 3.00% 0% 3.00% 0%
price)......................................................................
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of 0% 0% 0% 0%
offering price).............................................................
Deferred Sales Load (as a percentage of original purchase price or redemption 0% 0% 0% 0%
proceeds, as applicable)....................................................
Redemption Fees (as a percentage of amount redeemed, if applicable)(b)....... 0% 0% 0% 0%
Exchange Fee(c).............................................................. 0% 0% 0% 0%
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary reduction)(d)............................... 0.45% 0.45% 0% 0%
12b-1 Fees (after voluntary reduction)....................................... 0%(e) 0% 0%(e) 0%
Other Expenses (after voluntary reduction)(f)................................ 0.47% 0.47% 0.85% 0.85%
-------- ---- - ---- ---- ---- -
Total Fund Operating Expenses(g)............................................. 0.92% 0.92% 0.85% 0.85%
======== ===== ======== =====
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Bond Fund
Investor Shares................................................ $ 39 $58 $79 $140
Fiduciary Shares............................................... $ 9 $29 $51 $113
Government Bond Fund
Investor Shares................................................ $ 38 $56 $76 $132
Fiduciary Shares............................................... $ 9 $27 $47 $105
</TABLE>
The purpose of the tables above is to assist an investor in the Income Funds
in understanding the various costs and expenses that a Shareholder will bear
directly or indirectly. For a more complete discussion of each Fund's annual
operating expenses, see SERVICE ARRANGEMENTS below. THE FOREGOING EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
Long-term shareholders of Investor Shares may pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by rules
of the National Association of Securities Dealers, Inc.
- ---------
(a) Certain entities (including The Bank of California and its affiliates)
making investments in the Income Funds on behalf of their customers may
charge customers fees for services provided in connection with the
investment. (See HOW TO PURCHASE SHARES and SERVICE ARRANGEMENTS--
Administrator & Distributor--The Distribution Plan below.)
4
<PAGE> 104
(b) A wire redemption charge is deducted from the amount of a wire redemption
payment made at the request of a Shareholder. (See HOW TO REDEEM
SHARES--Payments to Shareholders below.)
(c) Certain entities (including The Bank of California and its affiliates) may
charge their customers fees with respect to exchanges effected on the
customer's behalf. (See EXCHANGE PRIVILEGES and SERVICE
ARRANGEMENTS--Administrator & Distributor--The Distribution Plan below.)
(d) As indicated under SERVICE ARRANGEMENTS--Investment Adviser below, The
Bank of California may voluntarily reduce its advisory fee. Absent the
voluntary reduction of investment advisory fees, MANAGEMENT FEES would be
at an annual rate of 1.00% of the first $40 million of each Fund's average
daily net assets and 0.60% of the Fund's remaining average daily net
assets.
(e) Reflects Rule 12b-1 fees for fiscal 1995. The maximum annual rate of
distribution fees that may be imposed as a percentage of average daily net
assets attributable to a Fund's Investor Shares is 0.25%. (See SERVICE
ARRANGEMENTS--Administrator & Distributor--The Distribution Plan below.)
(f) OTHER EXPENSES are based on each Fund's estimated expenses for the current
fiscal year. As indicated under SERVICE ARRANGEMENTS--Administrator &
Distributor below, BISYS Fund Services may voluntarily reduce its
administration fee. Absent the voluntary reduction of administration fees,
OTHER EXPENSES as a percentage of average daily net assets would be 0.54%
for each of the Investor and Fiduciary Shares of the Bond Fund and 1.05%
for each of the Investor and Fiduciary Shares of the Government Bond Fund.
(g) Absent voluntary fee waivers, Total Fund Operating Expenses would be:
1.90% for the Investor Shares and 1.65% for the Fiduciary Shares of the
Bond Fund and 2.54% for the Investor Shares and 2.29% for the Fiduciary
Shares of the Government Bond Fund.
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information with respect to the
Shares of each Income Fund. Information prior to fiscal 1994 is for Fiduciary
Shares only. Financial highlights for the Bond Fund for the periods indicated
have been derived from financial statements audited by Coopers & Lybrand L.L.P.,
independent accountants for The HighMark Group, whose report thereon is included
in the Statement of Additional Information. Financial highlights for the Bond
Fund for the years ended December 31, 1987, 1986 and 1985 have been derived from
financial statements examined by other auditors whose report thereon is on file
with the Securities and Exchange Commission. Financial highlights for the Bond
Fund for the period from January 1, 1988 through June 22, 1988 are derived from
unaudited financial statements prepared by The HighMark Group. For fiscal 1996,
Deloitte & Touche LLP will replace Coopers & Lybrand L.L.P. as the Group's
auditors.
5
<PAGE> 105
Each Income Fund offered a single class of shares (now designated Fiduciary
Shares) throughout the periods shown.
<TABLE>
<CAPTION>
BOND FUND
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------------------------------------------
JUNE 23, 1988
JUNE 20, YEAR TO
YEAR ENDED 1994 TO ENDED YEAR ENDED JULY 31, JULY 31,
JULY 31, JULY 31, JULY 31, --------------------------------------------- -----------
1995 1994(A)(B) 1994(B) 1993 1992 1991 1990 1989 1988(e)
-------------------- ---------- --------- ------- ------- ------- ------ ------ -------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset
Value,
Beginning of
Period...... $10.04 $ 10.11 $10.12 $ 11.13 $ 11.02 $ 10.29 $ 10.18 $10.42 $ 9.86 $ 10.00
-------
-
------- -------- ------- -------- ------- -------- ------ ------ ------- -
Investment
Activities
Net investment
income...... 0.66 0.64 0.07 0.63 0.70 0.67 0.78 0.79 0.82 0.09
Net realized
and
unrealized
gains
(losses) on
investments... 0.23 0.27 (0.05) (0.97) 0.35 0.77 0.04 (0.25) 0.56 (0.14)
-------
-
------- -------- ------- -------- ------- -------- ------ ------ ------- -
Total from
Investment
Activities... 0.89 0.91 0.02 (0.34) 1.05 1.44 0.82 0.54 1.38 (0.05)
-------
-
------- -------- ------- -------- ------- -------- ------ ------ ------- -
Distributions
Net investment
income...... (0.64) (0.64) (0.10) (0.63) (0.70) (0.67) (0.71) (0.78) (0.82) (0.09)
Net realized
gains....... (0.01) (0.24) (0.04)
In excess of
net realized
gains....... (0.04)
-------
-
------- -------- ------- -------- ------- -------- ------ ------ ------- -
Total
Distributions... (0.64) (0.64) (0.10) (0.68) (0.94) (0.71) (0.71) (0.78) (0.82) (0.09)
-------
-
------- -------- ------- -------- ------- -------- ------ ------ ------- -
Net Asset
Value, End of
Period........ $10.29 $ 10.38 $10.04 $ 10.11 $ 11.13 $ 11.02 $ 10.29 $10.18 $10.42 $ 9.86
======= ======== ======= ======== ======= ======== ====== ======== ====== ========
Total Return... 9.29% 9.43% (3.81)%(c)(e) (3.14)% 10.07% 14.43% 8.99% 5.52% 14.79% (0.96)%(e)
Ratios/Supplementary
Data:
Net Assets at
end of period
(000)......... $ 558 $59,758 $ 7 $64,185 $33,279 $21,651 $10,799 $6,974 $4,655 $ 3,487
Ratio of
expenses to
average net
assets........ 0.92% 0.92% 0.99%(d) 0.86% 0.93% 0.91% 0.79% 1.01% 1.18% 1.04%(d)
Ratio of net
investment
income to
average
net assets.... 6.29% 6.35% 5.77%(d) 6.11% 6.41% 6.23% 7.61% 7.77% 8.24% 8.63%(d)
Ratio of
expenses to
average net
assets*....... 1.89% 1.64% 2.96%(d) 1.37% 1.55% 1.55% 1.59% 1.94% 2.11% 2.06%(d)
Ratio of net
investment
income to
average
net assets*... 5.32% 5.62% 3.80%(d) 5.60% 5.79% 5.59% 6.81% 6.84% 7.31% 7.61%(d)
Portfolio
turnover...... 36.20% 36.20% 44.33% 44.33% 58.81% 79.56% 65.81% 53.50% 24.83% 0.00%
</TABLE>
- ---------
(a) Period from commencement of operations.
(b) On June 20, 1994, the Bond Fund commenced offering Investor Shares and
designated existing shares as Fiduciary Shares.
(c) Represents total return for the Fiduciary Shares for the period from August
1, 1993 to June 19, 1994 plus the total return for the Investor Shares for
the period from June 20, 1994 to July 31, 1994.
(d) Annualized.
(e) Not annualized.
6
<PAGE> 106
(e) The Bond Fund commenced operations on June 23, 1988 as a result of the
reorganization involving the Bond Portfolio of the IRA Collective Investment
Fund described under GENERAL INFORMATION-- Reorganization of The IRA Fund &
The Group.
* During the period the investment advisory and administration fees were
voluntarily reduced. If such voluntary fee reductions had not occurred, the
ratios would have been as indicated.
PER SHARE INCOME AND CAPITAL CHANGES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS)
THE IRA COLLECTIVE INVESTMENT FUND BOND PORTFOLIO
<TABLE>
<CAPTION>
JANUARY 1,
1988 THROUGH YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 22, 1988 DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1987 1986 1985
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment income......................................... $ 0.503 $ 1.061 $ 1.129 $ 1.115
Operating expenses........................................ 0.065 0.128(b) 0.119(b) 0.085(b)
------- ------- ------- -------
Net investment income..................................... 0.438 0.933 1.010 1.030
Dividends from net investment income...................... (0.438) (0.933) (1.010) (1.030)
Net realized and unrealized gain (loss) on investments.... (0.050) (0.966) 0.947 1.243
------- ------- ------- -------
Increase (decrease) in net asset value.................... (0.050) (0.966) 0.947 1.243
Net Asset Value:
Beginning of period..................................... 11.281 12.247 11.300 10.057
------- ------- ------- -------
End of period........................................... $ 11.231 $ 11.281 $ 12.247 $ 11.300
======= ======= ======= =======
Ratio of expenses to average net assets(a)(b)............. 1.20% 1.09% 0.92% 0.78%
Ratio of net investment income to average net assets(a)... 8.03% 7.93% 7.83% 9.48%
Portfolio turnover........................................ 0.00% 0.00% 1.61% 0.00%
Number of Shares/units outstanding at end of period....... 317,633 344,456 206,664 58,677
</TABLE>
- ---------
(a) Annualized based on the period for which assets were held.
(b) The expenses shown are not representative of expenses actually incurred by
the Bond Portfolio through May 31, 1987. During mid-May 1985, The Bank of
California, N.A., investment adviser to the Bond Portfolio, commenced
charging its management fee, and commencing June 1, 1987, operating expenses
were charged to the Bond Portfolio. Had the maximum allowable operating
expenses and management fees been paid by the Bond Portfolio for the entire
period pursuant to the Management Agreement between the Bond Portfolio and
The Bank of California, N.A., the per unit expenses and net investment
income would have been as follows:
<TABLE>
<CAPTION>
JANUARY 1,
1988 THROUGH YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 22, 1988 DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1987 1986 1985
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Expenses............................................ $ 0.240 $ 0.226 $ 0.231 $ 0.202
Net investment income............................... 0.263 0.793 0.779 0.832
Net asset value, end of year........................ 11.231 11,281 12.247 11.300
Expenses as a percentage of average net asset....... 2.00%(a) 2.00% 2.00% 2.00%
</TABLE>
7
<PAGE> 107
<TABLE>
<CAPTION>
GOVERNMENT BOND FUND FINANCIAL
HIGHLIGHTS
--------------------------------------------------------
JUNE 20, NOVEMBER 14,
YEAR ENDED 1994 TO 1993 TO
JULY 31, JULY 31, JULY 31,
1995 1994(A) 1994(A)
------------------- ---------------- -----------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............. $ 9.36 $ 9.44 $ 9.47 $ 10.00
------- ------- ------- -------
Investment Activities
Net investment income.......................... 0.66 0.60 0.01 0.40
Net realized and unrealized gains (losses) on
investments.................................. 0.01 0.06 (0.02) (0.56)
------- ------- ------- -------
Total from Investment Activities............. 0.67 0.66 (0.01) (0.16)
------- ------- ------- -------
Distributions
Net investment income.......................... (0.60) (0.60) (0.10) (0.40)
------- ------- ------- -------
Total Distributions.......................... (0.60) (0.60) (0.10) (0.40)
------- ------- ------- -------
Net Asset Value, End of Period................... $ 9.43 $ 9.50 $ 9.36 $ 9.44
======= ======= ======= =======
Total Return..................................... 7.47% 7.30% (2.42)%(b (e) (1.59)%(e)
Ratios/Supplementary Data:
Net Assets at end of period (000).............. $ 68 $ 3,916 $ 5,171
Ratio of expenses to average net assets........ 0.85% 0.85% 0.87%(c) 0.85%(c)
Ratio of net investment income to average net
assets....................................... 6.25% 6.32% 4.37%(c) 5.84%(c)
Ratio of expenses to average net assets*....... 2.54% 2.29% 0.87%(c) 3.09%(c)
Ratio of net investment income to average net
assets*...................................... 4.56% 4.88% 4.37%(c) 3.60%(c)
Portfolio turnover............................... 67.49% 67.49% 176.26% 176.26%
</TABLE>
- ---------
(a) Period from commencement of operations. On June 20, 1994, the Government
Bond Fund commenced offering Investor Shares and designated existing shares
as Fiduciary Shares.
(b) Represents total return for the Fiduciary Shares from commencement of
operations to June 19, 1994, plus the total return for the Investor Shares
for the period from June 20, 1994 to July 31, 1994.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(e) Not annualized.
* During the period the investment advisory, administration and custodian fees
were voluntarily reduced. In addition, certain expenses were reimbursed by
the administrator. If such voluntary fee reductions and expense
reimbursements had not occurred, the ratios would have been as indicated.
8
<PAGE> 108
FUND
DESCRIPTION The HighMark Income Funds (the "Income Funds") are 2 of
13 separate investment portfolios ("Funds") of The
HighMark Group (the "Group"), a diversified, open-end
management investment company. MERUS Capital Management, a
division of The Bank of California, N.A. ("MERUS"), serves
as the Income Funds' investment adviser.
Each Income Fund has been divided into two classes of
Shares (Investor Shares and Fiduciary Shares) for purposes
of a sales charge and the Group's Distribution and
Shareholder Services Plan (the "Distribution Plan").
Investor and Fiduciary Shares of a particular Fund
represent interests in the same portfolio of investments
and are identical in all respects except that Investor
Shares pay a sales charge upon purchase and bear the
expense of the fee under the Distribution Plan, which will
cause the Investor Shares to have a higher expense ratio
(and possibly a lower net asset value) and to pay lower
dividends than those related to Fiduciary Shares, and
Investor Shares have certain exclusive voting rights with
respect to the Distribution Plan. Investor Shares are
generally sold subject to a sales charge at the time of
purchase. There is no sales charge on Fiduciary Shares.
For information concerning those investors who qualify to
purchase Investor and Fiduciary Shares, sales charges and
the operation of the Group's Distribution Plan, see HOW TO
PURCHASE SHARES and SERVICE ARRANGEMENTS--Administrator &
Distributor--The Distribution Plan below. (Investor Shares
and Fiduciary Shares collectively may be hereinafter
referred to as "Shares.")
The net asset value per Share of each of the Income
Funds will fluctuate as the value of the investment
portfolio changes in response to changing market rates of
interest and other factors.
PERFORMANCE
INFORMATION From time to time, the Group may advertise the aggregate
total return, average annual total return, yield and
distribution rate with respect to the Investor and
Fiduciary Shares of each Income Fund. Performance
information is computed separately for a Fund's Investor
and Fiduciary Shares in accordance with the formulas
described below. Because only Investor Shares bear the
expense of the fee, if any, under the Distribution Plan
and a sales charge, total return and yield relating to a
Fund's Investor Shares will be lower than that relating to
the Fund's Fiduciary Shares.
The aggregate total return and average annual total
return of the Income Funds may be quoted for the life of
each Fund and for ten-year, five-year and one-year
periods, in each case through the most recent calendar
quarter (utilizing, when appropriate, in the case of the
Bond Fund the aggregate total return and average annual
total return of the IRA Fund Bond Portfolio prior to June
23, 1988). Aggregate total return is determined by
calculating the change in the value of a
9
<PAGE> 109
hypothetical $1,000 investment in a Fund over the
applicable period that would equate the initial amount
invested to the ending redeemable value of the investment.
The ending redeemable value includes dividends and capital
gain distributions reinvested at net asset value. Average
annual total return is calculated by annualizing a Fund's
aggregate total return over the relevant number of years.
The resulting percentage indicates the average positive or
negative investment results that an investor in a Fund
would have experienced on an annual basis from changes in
Share price and reinvestment of dividends and capital gain
distributions.
The yield of a Fund is determined by annualizing the net
investment income per Share of the Fund during a specified
thirty-day period and dividing that amount by the per
Share public offering price of the Fund on the last day of
the period.
The distribution rate of a Fund is determined by
dividing the income and capital gains distributions, or
where indicated the income distributions alone, on a Share
of the Fund over a twelve-month period by the per Share
public offering price of the Fund on the last day of the
period.
All performance information presented for a Fund is
based on past performance and does not predict future
performance.
INVESTMENT
OBJECTIVE The investment objective of the Bond Fund is to seek
current income through investments in long-term,
fixed-income securities.
The primary investment objective of the Government Bond
Fund is to seek current income and relative stability of
principal through investments in short- to
intermediate-term U.S. Government securities.
The investment objective of the Bond Fund and the
Government Bond Fund may not be changed without a vote of
the holders of a majority of the outstanding Shares of the
respective Fund (as defined under GENERAL INFORMATION--
Miscellaneous below). There can be, of course, no
assurance that a Fund will achieve its investment
objective.
INVESTMENT
POLICIES & FUND
PORTFOLIOS The Bond Fund invests in fixed-income securities with
maturities in excess of one year, except for amounts held
in cash equivalents. Fixed-income securities can have
maturities of up to thirty years or more. Under normal
market conditions, the Bond Fund will invest at least 65%
of the value of its total assets in fixed-income
securities, including bonds and debentures, and may invest
up to 35% of its total assets in cash equivalents.
The Bond Fund's investments primarily consist of debt
obligations such as bonds, notes, debentures and
securities convertible into or exercisable for debt
10
<PAGE> 110
obligations that are issued by U.S. corporations or U.S.
Government Securities. The Bond Fund invests in debt
securities of U.S. corporations only if they carry a
rating at the time of purchase in one of the three highest
bond rating categories by a nationally recognized
statistical rating organization ("NRSRO") (i.e. at least
"A" from Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P")) or, if unrated,
deemed to be of comparable quality by the investment
adviser. For a description of these ratings, see the
Appendix to the Statement of Additional Information. As
described below, the Bond Fund may also invest in
zero-coupon obligations, mortgage-related securities and
asset-backed securities.
The Government Bond Fund invests primarily in U.S.
Government Securities, including zero-coupon obligations
and mortgage-related securities. Under normal market
conditions, the Government Bond Fund will invest at least
65% of the value of its total assets in U.S. Government
bonds (U.S. Government Securities with maturities in
excess of one year at the time of purchase), and may
invest up to 35% of its total assets in cash equivalents
rated at the time of purchase in one of the two highest
short-term rating categories by an NRSRO (i.e. "Prime 2"
by Moody's or "A-2" by S&P) or, if unrated, deemed to be
of comparable quality by MERUS. The Government Bond Fund's
dollar-weighted average maturity will normally be between
one and five years.
U.S. Government Securities have different kinds of
government support. Some U.S. Government Securities (e.g.,
U.S. Treasury bills, notes and bonds and mortgage
participation certificates guaranteed by the Government
National Mortgage Association ("Ginnie Mae")) are
supported by the full faith and credit of the United
States. Other U.S. Government Securities are not backed by
the full faith and credit of the U.S. Government, but
instead are backed only by the credit of the agency or
instrumentality, the agency's or instrumentality's ability
to borrow specified amounts from the U.S. Treasury, or by
the discretionary authority of the U.S. Government to
purchase the issuing entity's obligations. Agencies or
instrumentalities whose obligations are not backed by the
full faith and credit of the U.S. Government include,
among others, the Federal Home Loan Mortgage Corporation,
Federal Home Loan Banks, the Federal National Mortgage
Association ("Fannie Mae"), the Tennessee Valley Authority
and the Bank for Cooperatives. A significant portion of
the Government Bond Fund's portfolio may consist of Ginnie
Mae mortgage-backed certificates ("Ginnie Mae
Certificates") and other U.S. Government Securities
representing ownership interests in mortgage pools.
U.S. Government Securities generally do not involve the
credit risks associated with investments in other types of
fixed-income securities, although, as a result, the yields
available from U.S. Government Securities are generally
lower than the
11
<PAGE> 111
yields available from otherwise comparable corporate
fixed-income securities. Like other fixed-income
securities, however, the values of U.S. Government
Securities change as interest rates fluctuate.
Fluctuations in the value of portfolio securities will in
many cases not affect interest income on existing
portfolio securities, but will be reflected in the Fund's
net asset value. Because the magnitude of these
fluctuations will generally be greater at times when the
Government Bond Fund's average maturity is longer, under
certain market conditions the Fund may invest in
short-term investments yielding lower current income
rather than investing in higher yielding longer-term
securities.
In addition to credit risk which relates to the ability
of an issuer to make payments of principal and interest,
all types of bonds are also subject to market risk. Market
risk relates to changes in a security's value as a result
of interest rate changes generally. An increase in
interest rates will generally reduce the value of the
investments in the Income Funds and a decline in interest
rates will generally increase the value of those
investments. Accordingly, the net asset value of the
Fund's shares will vary as a result of changes in the
value of the securities in a Fund's portfolio. Therefore,
an investment in the Funds may decline in value, resulting
in a loss of principal. Because interest rates vary, it is
impossible to predict the income or yield of the Fund for
any particular period.
Many bonds and notes are also subject to prepayment
risk. This risk results from the ability of the issuer to
prepay all or part of the principal of the bond or note
before the stated maturity date. For example, a
corporation may issue a bond with a stated maturity of
twenty years, but subject to the corporation's right to
"call" or prepay the bond after only five or seven years.
Many mortgaged backed and asset-backed securities, which
are more fully described below, are prepayable at any
time. During periods of falling interest rates, securities
that can be called or prepaid may decline in value
relative to similar securities that are not subject to
call or prepayment.
Depending upon prevailing market conditions, the Income
Funds may purchase debt securities at a discount from face
value, which produces a yield greater than the coupon
rate. Conversely, if debt securities are purchased at
premium over face value, the yield will be lower than the
coupon rate. In making investment decisions, MERUS will
consider many factors other than current yield, including
the preservation of capital, the potential for realizing
capital appreciation, maturity, and yield to maturity.
Zero-Coupon Obligations
It is anticipated that the only non-income producing
securities (other than short-term securities) to be held
in the Income Funds will be zero-coupon obligations
evidencing ownership of future interest and principal
payments on
12
<PAGE> 112
U.S. Treasury bonds, and, in the case of the Bond Fund,
corporate obligations. These obligations pay no current
interest and are typically sold at prices greatly
discounted from par value. The return on a zero-coupon
obligation, when held to maturity, equals the difference
between the par value and the original purchase price.
For federal income tax purposes, the difference between
the par value and the original issue price (original issue
discount) is included in the income of a holder of a
zero-coupon obligation over the term of the obligation
even though the interest is not paid until maturity. The
amount included in income is determined under a constant
interest rate method. In addition, if an obligation is
purchased subsequent to its original issue, a holder such
as the Income Funds may elect to include market discount
in income currently on a ratable accrual method or a
constant interest rate method. Market discount is the
difference between the obligation's "adjusted issue price"
(the original issue price plus original issue discount
accrued to date) and the holder's purchase price. If no
such election is made, gain on the disposition of a market
discount obligation is treated as ordinary income (rather
than capital gain) to the extent it does not exceed the
accrued market discount.
Zero-coupon obligations have greater price volatility
than other fixed-income obligations of similar maturity
and such obligations will be purchased when the yield
spread, in light of the obligation's duration, is
considered advantageous. Each Income Fund will purchase
zero-coupon obligations only if, at the time of purchase,
such investments do not exceed 15% of the value of such
Fund's total assets.
Mortgage-Related and Asset-Backed Securities
Mortgage-related securities in which the Income Funds
may invest represent pools of mortgage loans assembled for
sale to investors by various governmental agencies (such
as the Government National Mortgage Association) and
government-related organizations (such as the Federal
National Mortgage Association and the Federal Home Loan
Mortgage Corporation), and, in addition, in the case of
the Bond Fund, by private issuers (such as commercial
banks, savings and loan institutions, mortgage bankers and
private mortgage insurance companies). Collateralized
mortgage obligations structured on pools of mortgage pass-
through certificates or mortgage loans ("CMOs") will be
purchased, in the case of the Government Bond Fund, only
if they are issued or guaranteed by the U.S. Government or
its agencies and instrumentalities and in addition, in the
case of the Bond Fund, if they meet the rating
requirements set forth above or, if unrated, deemed to be
of comparable quality by MERUS with respect to the Bond
Fund's investments in fixed-income securities of U.S.
corporations. For additional
13
<PAGE> 113
information on the Income Funds' investments in mortgage
related securities, see the Statement of Additional
Information.
Although certain mortgage-related securities may be
guaranteed by a third party or otherwise similarly
secured, the market value of such securities is not
secured and may fluctuate significantly because of changes
in interest rates and changes in prepayment levels. Thus,
for example, if a Fund purchases a mortgage-related
security at a premium, that portion may be lost if there
is a decline in the market value of the security whether
due to changes in interest rates or prepayments of the
underlying mortgage collateral. As with other
interest-bearing securities, the prices of
mortgage-related securities are inversely affected by
changes in interest rates. However, although the value of
a mortgage-related security may decline when interest
rates rise, the converse is not necessarily true because
in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment which
results in amounts being available for reinvestment which
are likely to be invested at a lower interest rate. For
this and other reasons, the stated maturity of a
mortgage-related security may be shortened by unscheduled
prepayments on the underlying mortgages and, accordingly,
it is not possible to predict accurately the security's
return to a Fund. In addition, regular payments received
on mortgage-related securities include both interest and
principal. No assurance can be given as to the return a
Fund will receive when these amounts are reinvested. As a
consequence, mortgage-related securities may be a less
effective means of "locking in" interest rates than other
types of debt securities having the same stated maturity,
may have less potential for capital appreciation and may
be considered riskier investments as a result.
Other asset-backed securities (unrelated to first
mortgage loans) in which the Bond Fund may invest
represent fractional interests in pools of leases, retail
installment loans or revolving credit receivables, both
secured (such as Certificates for Automobile Receivables
or "CARS") and unsecured (such as Credit Card Receivable
Securities or "CARDS"). These assets are generally held by
a trust and payments of principal and interest or interest
only are passed through monthly or quarterly to
certificate holders and may be guaranteed up to certain
amounts by letters of credit issued by a financial
institution affiliated or unaffiliated with the trustee or
originator of the trust. These securities are generally
issued by non-governmental entities and carry no direct or
indirect government guarantee. Asset-backed securities
will be purchased only if they meet the rating
requirements set forth above or, if unrated, deemed to be
of comparable quality by MERUS with respect to the Bond
Fund's investments in fixed-income securities of U.S.
corporations.
Like mortgages underlying mortgage-backed securities,
underlying automobile sales contracts or credit card
receivables are subject to substantial prepayment
14
<PAGE> 114
risk, which may reduce the overall return to certificate
holders. Nevertheless, principal repayment rates tend not
to vary much with interest rates and the short-term nature
of the underlying car loans or other receivables tend to
dampen the impact of any change in the prepayment level.
Certificate holders may also experience delays in payment
on the certificates if the full amounts due on underlying
sales contracts or receivables are not realized by the
trust because of unanticipated legal or administrative
costs of enforcing the contracts or because of
depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors.
If consistent with its investment objective and policies,
the Bond Fund may invest in other asset-backed securities
that may be developed in the future.
Issuers of mortgage-backed and asset-backed securities
often issue one or more classes of which one (the
"Residual") is in the nature of equity. The Income Funds
will not invest in any Residual. The Income Funds may
invest in interest only and principal only classes of
mortgage-backed and, in the case of the Bond Fund,
asset-backed, securities, which tend to be more volatile
than other types of debt securities.
The staff of the Securities and Exchange Commission is
of the view that certain issuers of asset-backed
securities are investment companies under the Investment
Company Act of 1940 (the "1940 Act"). The Bond Fund
intends to conduct its operations in a manner consistent
with this view and, among other things, generally may not
invest more than 10% of its total assets (when combined
with investments in money market mutual funds, if any) in
such obligations without obtaining appropriate regulatory
relief.
Cash Equivalents
Under normal market conditions, each Income Fund may
invest up to 35% of its total assets in cash equivalents
in an effort to provide income at money market rates while
minimizing the risk of a decline in value to the maximum
extent possible. Cash equivalents are short-term,
interest-bearing instruments or deposits and may include,
for example, commercial paper (satisfying the rating
requirements applicable to each Fund's investments in cash
equivalents, in the case of the Government Bond Fund, or
fixed-income securities, in the case of the Bond Fund, as
described above) or, if unrated, deemed to be of
comparable quality by MERUS, certificates of deposit,
repurchase agreements, bankers' acceptances, U.S. Treasury
bills, bank money market deposit accounts and money market
mutual funds. Cash equivalents may also include master
demand notes, which are demand obligations that permit the
investment of fluctuating amounts at varying market rates
of interest pursuant to arrangements between the issuer
and a U.S. commercial bank acting as agent for the payees
of such notes. These notes constitute direct lending
arrangements between the Group and the issuer and are
15
<PAGE> 115
callable on demand by the Group, but are not marketable to
third parties. Except with respect to variable amount
master demand notes with a seven-day or less demand
feature, investment in such notes is subject to each
Fund's non-fundamental restriction on investing no more
than 15% of its net assets in "illiquid" securities. See
INVESTMENT RESTRICTIONS in the Statement of Additional
Information. When market conditions indicate a temporary
"defensive" investment strategy as determined by MERUS, a
Fund may invest more than 35% of its total assets in cash
equivalents.
Lending of Portfolio Securities
In order to generate additional income, a Fund may lend
its portfolio securities to broker-dealers, banks or other
institutions. During the time portfolio securities are on
loan from a Fund, the borrower will pay the Fund any
dividends or interest paid on the securities. In addition,
loans will be subject to termination by the Fund or the
borrower at any time and, while the Fund will generally
not have the right to vote securities on loan, it will
terminate the loan and regain the right to vote if that is
considered important with respect to the investment. While
the lending of securities may subject the Fund to certain
risks, such as delays or an inability to regain the
securities in the event the borrower were to default on
its lending agreement or enter into bankruptcy, the Fund
will receive 100% collateral in the form of cash or U.S.
Government securities. This collateral will be valued
daily by MERUS and, should the market value of the loaned
securities increase, the borrower will be required to
furnish additional collateral to the Fund. Although the
Income Funds do not expect to do so on a regular basis, a
Fund may lend portfolio securities in an amount
representing up to 35% of the value of the Fund's total
assets.
Other Investments
The Bond Fund may invest up to 20% of the value of its
total assets in securities of foreign issuers, which
include debt securities of any maturity issued by foreign
corporations or governments. Any investments in these
securities will be in accordance with the Bond Fund's
investment objective and policies (including the
satisfaction of the rating requirements described above
with respect to the Fund's investments in debt
securities), and are subject to special risks, such as
adverse political and economic developments, possible
seizure, nationalization or expropriation of foreign
investments, less stringent disclosure requirements,
changes in foreign currency exchange rates, increased
costs associated with the conversion of foreign currency
into U.S. dollars, the possible establishment of exchange
controls or taxation at the source or the adoption of
other foreign governmental restrictions. To the extent
that the Bond Fund may invest in securities of foreign
issuers that are not traded on any exchange, there is
16
<PAGE> 116
a further risk that these securities may not be readily
marketable. The Bond Fund will not hold foreign currency
for investment purposes.
Securities held by a Fund may be subject to repurchase
agreements whereby the Fund will acquire securities from
approved financial institutions or registered
broker-dealers that agree to repurchase the securities at
a mutually agreed-upon date and price. The repurchase
price under such an agreement will generally equal the
price paid by the Fund plus interest negotiated on the
basis of current short-term rates, which may be more or
less than the rate on the underlying portfolio securities.
If the seller defaults on its repurchase obligation or
becomes insolvent, the Fund holding such obligations would
suffer a loss to the extent that either the proceeds from
a sale of the underlying portfolio securities were less
than the repurchase price or the Fund's disposition of the
securities was delayed pending court action. Securities
subject to repurchase agreements will be held by a
qualified custodian or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to
be loans by a Fund under the Investment Company Act of
1940 (the "1940 Act").
The Income Funds may purchase securities on a
"when-issued" basis, which are securities purchased for
delivery beyond the normal settlement date at a stated
price and yield and which thereby involve a risk that the
yield obtained in the transaction will be less than that
available in the market when delivery takes place. When a
Fund agrees to purchase when-issued securities, the
Group's custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a
segregated account. A Fund will generally not pay for such
securities and no income will accrue on the securities
until they are received. These securities are recorded as
an asset and are subject to changes in value based upon
changes in the general level of interest rates. The
purchase of securities on a "when-issued" basis may have
the effect of leverage, which may increase the risk of
fluctuations in a Fund's net asset value.
Each Income Fund expects that commitments to purchase
when-issued securities will not exceed 25% of the value of
its total assets under normal market conditions. If a
Fund's commitments to purchase when-issued securities were
to exceed 25% of the value of its total assets, the Fund's
liquidity and MERUS's ability to manage it might be
adversely affected. The Income Funds do not intend to
purchase when-issued securities for speculative purposes
but only for the purpose of acquiring portfolio
securities.
As described in the Statement of Additional Information,
the Income Funds may also enter into reverse repurchase
agreements.
A Fund may invest up to 10% of its assets in securities
of investment companies, including Shares of the HighMark
Funds. As a shareholder of an
17
<PAGE> 117
investment company, a Fund may indirectly bear investment
management fees of that investment company, which are in
addition to the management fees a Fund pays its own
adviser. In order to avoid the imposition of additional
fees as a result of investments in Shares of other
HighMark Funds, the Investment Adviser and the
Administrator (see SERVICE ARRANGEMENTS) will reduce that
portion of their usual asset-based fees from each Income
Fund by an amount equal to their asset-based fees from
other HighMark Funds that are attributable to such Income
Fund's investments. The Investment Adviser and the
Administrator will promptly forward such fees to the
Income Funds.
Portfolio Turnover
A Fund will not purchase securities solely for the
purpose of short-term trading nor will the Fund's
portfolio turnover rate be a factor preventing sale or
purchase when MERUS believes investment considerations
warrant. Each of the Income Funds' portfolio turnover rate
may vary greatly from year to year as well as within a
particular year. High portfolio turnover rates generally
will result in correspondingly higher brokerage and other
transactions costs to the Income Funds and could involve
the realization of capital gains that would be taxable
when distributed to shareholders of the relevant Fixed
Income Fund. See FEDERAL TAXATION.
VALUATION OF
SHARES Each Fund's net asset value per share is determined as
of the close of regular trading on the New York Stock
Exchange (generally, 4:00 p.m. Eastern Time) (the
"Valuation Time") on each weekday, with the exception of
those holidays on which the New York Stock Exchange or the
Federal Reserve Bank of San Francisco is closed (a
"Business Day"). Currently, one or both of these
institutions are closed on the customary national business
holidays of New Year's Day, Martin Luther King, Jr. Day,
President's Day (Washington's Birthday), Good Friday,
Memorial Day (observed), Independence Day (observed),
Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day
and Christmas Day (observed).
Net asset value per Investor Share and Fiduciary Share
is calculated by determining the value of each class's
proportional interest in the securities and other assets
of a Fund, less (i) such class's proportional share of
general liabilities and (ii) the liabilities allocable
only to such class, and dividing such amount by the number
of such class's Shares outstanding.
The securities in each Fund will be valued at market
value. If market quotations are not available, the
securities will be valued by a method that the Group's
Board of Trustees believes accurately reflects fair value.
For further information about valuation of investments in
the Income Funds, see the Statement of Additional
Information.
18
<PAGE> 118
HOW TO
PURCHASE
SHARES As noted above, each Fund is divided into two classes of
Shares, Investor and Fiduciary. Investor Shares may be
purchased at net asset value plus a sales charge.
Fiduciary Shares may be purchased at net asset value. Only
the following investors qualify to purchase an Equity or
Income Fund's Fiduciary Shares: (i) fiduciary, advisory,
agency, custodial and other similar accounts maintained
with The Bank of California or its affiliates; (ii) Select
IRA accounts established with The Bank of California and
invested in any of the Group's Equity or Income Funds
prior to June 20, 1994, which have remained continuously
open thereafter and which are not considered to be
fiduciary accounts; (iii) Shareholders who currently own
Shares of the Group's Equity or Income Funds that were
purchased prior to June 20, 1994 within an account
registered in their name with the Funds; and (iv) present
and retired directors, officers, and employees (and their
spouses and children under the age of 21) of The Bank of
California, BISYS Fund Services or their affiliated
companies, whether or not investments are made through an
employee benefit plan on such person's behalf. All other
investors are eligible to purchase Investor Shares only.
At the time of purchase, the Distributor must be notified
by the investor that he or she qualifies to purchase
Fiduciary Shares in accordance with one of the categories
described above.
Investor and Fiduciary Shares are sold on a continuous
basis by the Group's Distributor, BISYS Fund Services. The
principal office of the Distributor is 3435 Stelzer Road,
Columbus, Ohio 43219. If you wish to purchase Shares, you
may contact your investment professional or telephone the
Group at (800) 433-6884.
The Bank of California (the "Bank") and financial
institutions or intermediaries (such as banks, savings and
loan associations, insurance companies or investment
counselors), broker-dealers or the Distributor's
subsidiaries or affiliates (each, a "Participating
Organization") acting in a fiduciary, advisory, custodial
or other similar capacity on behalf of customers may
purchase Shares of the Group. Such Shares will normally be
held of record by the Bank or Participating Organization.
With respect to these Shares, it is the responsibility of
the entity making the investment to transmit purchase or
redemption orders to the Distributor and to make payment
for the purchase of Shares. Beneficial ownership of the
Shares will be recorded by the Bank or Participating
Organization and reflected in the account statements
provided by the Bank or Participating Organization to
customers.
Eligible investors may also purchase a Fund's Investor
and Fiduciary Shares through the following procedures. The
minimum initial investment is generally $1,000 for each
Fund and the minimum subsequent investment is generally
only $100. For present and retired directors, officers,
and employees (and their spouses
19
<PAGE> 119
and children under the age of 21) of The Bank of
California, BISYS Fund Services and their affiliates, the
minimum initial investment is $250 and the minimum
subsequent investment is $50. A Fund's initial and
subsequent minimum purchase amounts may be waived if
purchases are made in connection with Individual
Retirement Accounts, Keoghs, payroll deduction plans,
401(k) or similar plans. To open an account, contact your
investment professional, call the Group at (800) 433-6884,
or follow these steps:
<TABLE>
<CAPTION>
BY CHECK OR MONEY ORDER BY FEDERAL FUNDS WIRE(1)
------------------------------------- -------------------------------------
<S> <C> <C>
- Complete Account Registration form - Complete Account Registration form
- Mail check and application to: and mail to:
The HighMark Group The HighMark Group
PO Box 7591 P.O. Box 7591
San Francisco, CA 94120 San Francisco, CA 94120
- On the day you wish to purchase
Shares, Wire Funds to the Bank of
California. Call the Group at (800)
433-6884 for proper wire
instructions.
</TABLE>
--------------------------------
(1) Note: Shares cannot be purchased by wire until a
properly completed application is received by the
Group.
Shares of each Fund are purchased at the net asset value
per share (plus a sales charge, in the case of a purchase
of Investor Shares) next determined after receipt by the
Group of an order to purchase shares in proper form.
Purchases of Shares in a Fund will be effected only on a
Business Day (see VALUATION OF SHARES). It is the
responsibility of the investor's broker-dealer or other
financial intermediary to transmit purchase orders and
payment for Shares to the Distributor.
If so designated on a Shareholder's Account Registration
form, a Shareholder may effect the following transactions
by telephone: purchase additional Fund Shares; effect
redemptions; and exchange Fund Shares for Shares of the
class of any other Funds which the Shareholder qualifies
to purchase directly (see TELEPHONE TRANSACTIONS).
Subsequent purchases of Fund Shares may be made at any
time by mailing a check or money order or wiring funds to
the Group as described above. Once an investor's Account
Registration form has been received by the Group, the
investor may also purchase additional Shares by telephone
or under the Automatic Investment Plan described below.
Telephone orders may be placed by calling the Group at
(800) 433-6884. Payment for Shares ordered by telephone
20
<PAGE> 120
may be made by check and must be received by the Group
within five business days of the telephone order.
If a check for the purchase of Shares does not clear (or
in the case of telephone orders, if payment is not
received within five business days), the purchase will be
cancelled and the investor could be liable for any losses
or fees incurred by a Fund. The Group reserves the right
to take such action as is necessary to recover any such
fees and losses, including the involuntary redemption of
any Shares held in the ordering investor's account.
Investors may also purchase Shares by arranging
systematic monthly, bi-monthly or quarterly investments
into the Income Funds with HighMark's Automatic Investment
Plan ("AIP"). The minimum initial investment referenced
above still applies for each fund. The minimum periodic
investment amounts are $50 per monthly or bi-monthly
transfer or $150 per quarterly transfer, and the minimum
periodic investment per Fund is $25. The maximum amount
with respect to any transfer is $100,000. After investors
give the Group proper authorization, their bank accounts,
which must be with banks which are members of the
Automated Clearing House, will be debited accordingly to
purchase Shares. Investors will receive a confirmation
from the Group for every transaction, and a debit entry
will appear on their bank statements.
To participate in AIP, investors must complete the
appropriate sections of the Account Registration form or
the Automatic Investment/Withdrawal Plan form. These forms
may be obtained by calling the Group at (800) 433-6884.
The amount investors specify will automatically be
invested in Shares at the Fund's net asset value per Share
next determined after the debit is made.
To change the frequency or amount invested under AIP,
written instructions must be received by the Group at
least 7 Business Days in advance of the next transfer. If
the bank or bank account number is changed, instructions
must be received by the Group at least 20 Business Days in
advance. In order to change a bank or bank account number,
investors also must have their signature guaranteed by a
bank, broker, dealer, credit union, securities exchange,
securities association, clearing agency or savings
association, as those terms are defined in Rule 17Ad-15
under the Securities Exchange Act of 1934 (an "Eligible
Guarantor Institution"). Signature guarantees are
described more fully under HOW TO REDEEM SHARES below. If
there are insufficient funds in the investor's designated
bank account to cover the Shares purchased using AIP, the
investor's bank may charge the investor a fee or may
refuse to honor the transfer instruction (in which case no
Shares will be purchased).
Investors should check with their banks to determine
whether their banks are members of the Automated Clearing
House and whether their banks charge a fee
21
<PAGE> 121
for transferring funds through the Automated Clearing
House. Expenses incurred by the Funds related to AIP are
borne by the Funds and therefore there is no direct charge
by the Fund to investors for use of these services.
Certain entities (including The Bank of California and
its affiliates) may charge customers fees in conjunction
with investments in a Fund such as fees for administrative
support services and/or fees for the purchase or
redemption of Fund Shares through the customer's account
pursuant to specific or preauthorized instructions.
Information concerning these services and any charges can
be obtained by the entity making the investment and this
Prospectus should be read in conjunction with that
information.
The Group reserves the right to reject any order for the
purchase of Shares in whole or in part, including
purchases made with foreign checks and third party checks
not originally made payable to the order of the investor.
Shareholders will receive a confirmation of each new
transaction in the Shareholder's account. Confirmations of
purchases and redemptions on behalf of customers of
certain entities holding omnibus accounts (including
certain accounts of The Bank of California or its
affiliates) will be sent to the entity making the
investment and Shareholders may rely on these statements
in lieu of certificates. Certificates representing the
Income Funds' Shares will not be issued.
Sales Charge
The public offering price of an Investor Share of each
of the Funds equals its net asset value plus a sales
charge in accordance with the table below.
BISYS Fund Services (the "Distributor") receives this
sales charge as Distributor and reallows a portion of it
as dealer discounts and brokerage commissions. However,
the Distributor, in its sole discretion, may pay certain
dealers all or part of the portion of the sales charge it
receives. A broker or dealer who receives a reallowance in
excess of 90% of the sales charge may be deemed to be an
"underwriter" for purposes of the Securities Act of 1933.
<TABLE>
<CAPTION>
SALES CHARGE AS DEALER
A PERCENTAGE OF SALES CHARGE AS ALLOWANCE
NET AMOUNT A PERCENTAGE OF AS A PERCENTAGE OF
AMOUNT OF PURCHASE INVESTED PUBLIC OFFERING PRICE PUBLIC OFFERING PRICE
------------------------ --------------- --------------------- ---------------------
<S> <C> <C> <C>
Less than $50,000....... 3.09% 3.00% 2.70%
$50,000 but less than
$100,000.............. 2.56% 2.50% 2.25%
$100,000 but less than
$250,000.............. 2.04% 2.00% 1.80%
$250,000 but less than
$1,000,000............ 1.01% 1.00% 0.90%
$1,000,000 or more...... 0.00% 0.00% 0.00%
</TABLE>
22
<PAGE> 122
From time to time dealers who receive dealer discounts
and broker commissions from the Distributor may reallow
all or a portion of such dealer discounts and broker
commissions to other dealers or brokers.
The Distributor, at its expense, will also provide
additional compensation to dealers in connection with
sales of Shares of any of the Funds of the Group.
Compensation will include financial assistance to dealers
in connection with conferences, sales or training programs
for their employees, seminars for the public, advertising
campaigns regarding one or more of the Funds, and/or other
dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers
whose representatives have sold or are expected to sell a
significant amount of such Shares. Compensation will
include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited
registered representatives and members of their families
to locations within or outside of the United States for
meetings or seminars of a business nature. Compensation
will also include the following types of non-cash
compensation offered through sales contests: (1) vacation
trips, including the provision of travel arrangements and
lodging at luxury resorts at an exotic location, (2)
tickets for entertainment events (such as concerts,
cruises, and sporting events) and (3) merchandise (such as
clothing, trophies, clocks and pens). Dealers may not use
sales of a Fund's Shares to qualify for this compensation
to the extent such may be prohibited by the laws of any
state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. None of the
aforementioned compensation is paid for by any Fund or its
shareholders.
Sales Charge Waivers
The following categories of investors may purchase
Investor Shares of the Funds with no sales charge in the
manner described below (which may be changed or eliminated
at any time by the Distributor):
(1) Existing holders of Investor Shares of a Fund upon
the reinvestment of dividend and capital gain
distributions on those Shares;
(2) Investment companies advised by MERUS or
distributed by The BISYS Group, Inc. or its
affiliates placing orders on each entity's behalf;
(3) State and local governments;
(4) Individuals who have received distributions from
employee benefit trust accounts administered by The
Bank of California who are rolling over such
distributions into an individual retirement account
for which the Bank serves as trustee or custodian;
(5) Individuals who purchase Shares with proceeds from
a required minimum distribution at age 70 1/2 from
their employee benefit qualified plan or an
individual retirement account administered by The
Bank of California;
23
<PAGE> 123
(6) Individuals who purchase Shares with proceeds
received in connection with a distribution paid
from a Bank of California trust or agency account;
(7) Investment advisers or financial planners regulated
by a federal or state governmental authority who is
purchasing Shares for its own account or for an
account for which they are authorized to make
investment decisions (i.e., a discretionary
account) and who charge a management, consulting or
other fee for their services; and clients of such
investment advisers or financial planners who place
trades for their own accounts if the accounts are
linked to the master account of such investment
adviser or financial planner on the books and
records of a broker or agent;
(8) Investors purchasing Shares with proceeds from a
redemption of shares of another open-end investment
company (other than The HighMark Group) on which a
sales charge was paid if (i) such redemption
occurred within thirty (30) days prior to the date
of the purchase order. Satisfactory evidence of the
purchaser's eligibility must be provided at the
time of purchase (e.g., a confirmation of the
redemption);
(9) Brokers, dealers and agents who are purchasing for
their own account and who have a sales agreement
with the Distributor, and their employees (and
their spouses and children under the age of 21);
and
(10) Investors purchasing shares on behalf of a
qualified prototype retirement plan (other than an
IRA, SEP-IRA or Keogh) sponsored by The Bank of
California.
The Distributor may also periodically waive the sales
charge for all investors with respect to a Fund.
With regard to categories 2 through 10 above, the
Distributor must be notified that the purchase qualifies
for a sales charge waiver at the time of purchase.
Letter of Intent
An Investor may obtain a reduced sales charge by means
of a written Letter of Intent that expresses the intention
of such Investor to invest a certain amount in Investor
Shares of any of the Funds within a period of 13 months.
Each purchase of Shares under a Letter of Intent will be
made at the public offering price plus the sales charge
applicable at the time of such purchase to a single
transaction of the total dollar amount indicated in the
Letter of Intent. A Letter of Intent may include purchases
of Investor Shares made not more than 90 days prior to the
date such Investor signs a Letter of Intent; however, the
13-month period during which the Letter of Intent is in
effect will begin on the date of the earliest purchase to
be included. This program may be modified or eliminated at
any time or from time to time by the Group without notice.
A Letter of Intent is not a binding obligation upon the
Investor to purchase the full amount indicated. The
minimum initial investment under a Letter of Intent is
24
<PAGE> 124
5% of such amount. Investor Shares purchased with the
first 5% of such amount will be held in escrow (while
remaining registered in the name of the Investor) to
secure payment of the higher sales charge applicable to
the Investor Shares actually purchased if the full amount
indicated is not purchased, and such escrowed Investor
Shares will be involuntarily redeemed to pay the
additional sales charge, if necessary. Dividends on
escrowed Investor Shares, whether paid in cash or
reinvested in additional Investor Shares, are not subject
to escrow. The escrowed Investor Shares will not be
available for disposal by the Investor until all purchases
pursuant to the Letter of Intent have been made or the
higher sales charge has been paid. When the full amount
indicated has been purchased, the escrow will be released.
When an Investor enters into a letter of intent that
includes Shares purchased prior to the date of the letter
of intent or to the extent that an Investor purchases more
than the dollar amount indicated on the Letter of Intent
and qualifies for a further reduced sales charge, the
sales charge will be adjusted for the entire amount
purchased at the end of the 13-month period. The
difference in sales charges will be used to purchase
additional Investor Shares subject to the rate of sales
charge applicable to the actual amount of the aggregate
purchases at the then current public offering price.
For further information, interested investors should
contact the Group at (800) 433-6884.
Concurrent Purchases and Rights of Accumulation
An Investor may qualify for a lower sales charge by
combining concurrent purchases of Investor Shares of one
or more of the Funds of the Group sold with a sales
charge. For example, if a Shareholder concurrently
purchases Shares in one Fund sold with a sales charge at
the total public offering price of $50,000 and Shares in
another Fund at the total public offering price of
$50,000, the sales charge would be that applicable to a
$100,000 purchase. This privilege, however, may be
modified or eliminated at any time or from time to time by
the Group without notice thereof.
Pursuant to rights of accumulation, a Shareholder may
combine a current purchase of Investor Shares of a Fund
with prior purchases of Investor Shares of a Fund of the
Group sold with a sales charge. The public offering price
applicable to a purchase of Investor Shares is based on
the sum of (i) the Shareholder's current purchase of
Investor Shares of any Fund of the Group sold with a sales
charge and (ii) the then current net asset value of the
Shareholder's combined holdings of Investor Shares of any
of the Funds of the Group sold with a sales charge.
For purposes of concurrent purchases, rights of
accumulation and letters of intent, the Shareholder's
combined holdings shall include the combined holdings of
the Shareholder and the Shareholder's spouse and children
under the age of 21. To receive the applicable public
offering price pursuant to such concurrent
25
<PAGE> 125
purchases, rights of accumulation and letters of intent,
Investors must, at the time of purchase, provide the
Transfer Agent or the Distributor with sufficient
information to permit confirmation of qualification.
Accumulation privileges may be modified or eliminated at
any time or from time to time by the Group without notice.
Reductions for Qualified Groups
Reductions in sales charges also apply to purchases by
individual members of a "qualified group." The reductions
are based on the aggregate dollar amount of shares
purchased by all members of the qualified group. For
purposes of this paragraph, a qualified group consists of
a "company," as defined in the 1940 Act, which has been in
existence for more than six months and which has a primary
purpose other than acquiring shares of a Fund at a reduced
sales charge, and the "related parties" of such company.
For purposes of this paragraph, a "related party" of a
company is (i) any individual or other company who
directly or indirectly owns, controls or has the power to
vote five percent or more of the outstanding voting
securities of such company; (ii) any other company of
which such company directly or indirectly owns, controls
or has the power to vote five percent or more of its
outstanding voting securities; (iii) any other company
under common control with such company; (iv) any executive
officer, director or partner of such company or of a
related party; and (v) any partnership of which such
company is a partner. Investors seeking to rely on their
membership in a qualified group to purchase shares at a
reduced sales load must provide evidence satisfactory to
the Transfer Agent of the existence of a bona fide
qualified group and their membership therein.
All orders from a qualified group will have to be placed
through a single source and identified at the time of
purchase as originating from the same qualified group,
although such orders may be placed into more than one
discrete account that identifies the group.
EXCHANGE
PRIVILEGES As indicated under GENERAL INFORMATION--Description of
The Group & Its Shares, each of the Group's Funds issues
two classes of Shares (Investor Shares and Fiduciary
Shares); as of the date of this Prospectus, the
Distribution Plan and distribution fee payable thereunder
are applicable only to each Fund's Investor Shares. A
Shareholder's eligibility to exchange into a particular
class of Shares will be determined at the time of the
exchange. The Shareholder must supply, at the time of the
exchange, the necessary information to permit confirmation
of qualification.
Each Fund's Shares may be exchanged for Shares of the
class of the various other Funds of the Group which the
Shareholder qualifies to purchase directly so long as the
Shareholder maintains the applicable minimum account
balance in each Fund in which he or she owns Shares and
satisfies the minimum initial and subsequent purchase
amounts of the Fund into which the Shares are exchanged.
26
<PAGE> 126
Shareholders may exchange their Investor Shares for
Investor Shares of a Fund with the same or lower sales
charge on the basis of the relative net asset value of the
Investor Shares exchanged. Shareholders may exchange their
Investor Shares for Investor Shares of a Fund with a
higher sales charge by paying the difference between the
two sales charges. Shareholders may also exchange Investor
Shares of a Money Market Fund for which no sales load was
paid for Investor Shares of an Income Fund. Under such
circumstances, the cost of the acquired Investor Shares
will be the net asset value per share plus the appropriate
sales load. If Investor Shares of the Money Market Fund
were acquired in a previous exchange involving Shares of a
non-money market HighMark Fund, then such Shares of the
Money Market Fund may be exchanged for Shares of an Income
Fund without payment of any additional sales load within a
twelve month period. In order to receive a reduced sales
charge when exchanging into a Fund, the Shareholder must
notify the Group that a sales charge was originally paid
and provide sufficient information to permit confirmation
of qualification.
Exchanges will be made on the basis of the relative net
asset values of the Shares exchanged plus any applicable
sales charge. Exchanges are subject to the terms and
conditions stated herein and the terms and conditions
stated in the respective prospectuses of the Funds.
Certain entities (including Participating Organizations
and The Bank of California and its affiliates), however,
may charge customers a fee with respect to exchanges made
on the customer's behalf. Information about these charges,
if any, can be obtained by the entity effecting the
exchange and this Prospectus should be read in conjunction
with that information.
A Shareholder wishing to exchange Shares in an Income
Fund may do so by contacting the Group at (800) 433-6884
or by providing instructions to the Group (see TELEPHONE
TRANSACTIONS). Exchanges will be effected on any Business
Day at the net asset value of the Funds involved in the
exchange next determined after the exchange request is
received by the Distributor or the Transfer Agent.
An exchange is considered to be a sale of Shares for
federal income tax purposes on which a Shareholder may
realize a capital gain or loss. Exchange privileges may be
exercised only in those states where Shares of such other
Funds of the Group may legally be sold. The Group may
materially amend or terminate the exchange privileges
described herein upon sixty days' notice.
HOW TO REDEEM
SHARES Shares may ordinarily be redeemed by mail, by telephone
or by HighMark's SHARES Automatic Withdrawal Plan ("AWP")
described below. However, with respect to investments made
on a customer's behalf by certain entities (including
Participating Organizations and The Bank of California or
its affili-
27
<PAGE> 127
ates), all or part of the customer's Shares may be
redeemed in accordance with instructions and limitations
pertaining to his or her account with such entity. For
example, if a customer has agreed to maintain a minimum
balance with the entity, the customer may be required to
redeem, or the entity may redeem on the customer's behalf,
all or part of the customer's Shares to the extent
necessary to maintain the required minimum balance.
A written request for redemption must be received by the
Group in order to constitute a valid request for
redemption. The Group may require a signature guarantee by
an Eligible Guarantor Institution, as defined above under
HOW TO PURCHASE SHARES. The Group reserves the right to
reject any signature guarantee if (1) it has reason to
believe that the signature is not genuine, (2) it has
reason to believe that the transaction would otherwise be
improper, or (3) the guarantor institution is a broker or
dealer that neither is a member of a clearing corporation
nor maintains net capital of at least $100,000. The
signature guarantee requirement will be waived if both of
the following conditions apply: (1) the redemption check
is payable to the Shareholder(s) of record; and (2) the
redemption check is mailed to the Shareholder(s) at the
address of record or the proceeds are either mailed or
sent electronically to a commercial bank account
previously designated on the Account Registration form.
Payments to Shareholders
A Shareholder may have the payment of redemption
requests sent electronically or mailed directly to a
domestic commercial bank account previously designated on
the Account Registration form. Redemption orders are
effected at the net asset value per Share next determined
after receipt of a valid request for redemption. Payment
to Shareholders will be made within seven days after the
Group receives the redemption order. However, to the
greatest extent possible, the Group will attempt to honor
requests from Shareholders for next Business Day payments
upon redemption of Shares if the request for redemption is
received by the Group before the Valuation Time
(generally, 4:00 p.m., Eastern Time) on a Business Day or,
if the request for redemption is received after the
Valuation Time, to honor requests for payment within two
Business Days, unless it would be disadvantageous to the
Group or the Shareholders of the particular Fund to sell
or liquidate portfolio securities in an amount sufficient
to satisfy requests for payments in that manner.
A wire redemption request may be made by telephoning the
Group, who will reduce the amount of the wire redemption
payment by its wire redemption charge (presently $11.00).
There is no charge for having payment of redemption
requests mailed to a designated bank account. Shareholders
may redeem Shares by telephone by calling the Group at
(800) 433-6884 (see TELEPHONE TRANSACTIONS).
28
<PAGE> 128
At various times, the Group may be requested to redeem
Shares for which it has not yet received good payment. In
these circumstances, the Group may delay the forwarding of
proceeds until payment has been collected for the purchase
of the Shares, which may take up to 14 or more days.
Shareholders may avoid the possibility of such a delay by
making payment for Shares by wiring funds to the
custodian. The Group intends to pay cash for all Shares
redeemed, but under abnormal conditions which make payment
in cash unwise, the Group may make payment wholly or
partly in portfolio securities with a market value equal
to the redemption price. In these cases, an investor may
incur brokerage costs in converting the securities to
cash.
Shareholders may also arrange to have systematic
monthly, bi-monthly or quarterly redemptions deposited
into their bank accounts with AWP, provided that their
bank accounts are with banks which are members of the
Automated Clearing House. The minimum redemption amounts
are $50 per monthly or bi-monthly transfer or $150 per
quarterly transfer, and the maximum amount with respect to
any transfer is $100,000. With proper Shareholder
authorization, the Group will redeem Shares equal to the
dollar amount specified by the Shareholder at the net
asset value next determined after the credit is made.
To participate in AWP, Shareholders must complete the
appropriate sections of the Account Registration form or
the Automatic Investment/Withdrawal Plan form. These forms
may be obtained by calling the Group at (800) 433-6884. To
change the frequency or amount withdrawn, instructions
must be received by the Group at least 7 Business Days in
advance of the next transfer. If the bank or bank account
number is changed, instructions must be received by the
Group at least 20 Business Days in advance. In order to
change a bank or bank account number, Shareholders also
must have their signature guaranteed by an Eligible
Guarantor Institution as more fully described above.
Shareholders should check with their banks to determine
whether their banks are members of the Automated Clearing
House and whether their banks charge a fee for
transferring funds through the Automated Clearing House.
Expenses incurred by the Income Funds related to AWP are
borne by the Funds and therefore there is no direct charge
by a Fund to Shareholders for use of these services.
Due to the relatively high cost of handling small
investments, the Group reserves the right to redeem, at
net asset value, Shares of an Income Fund if, because of
redemptions, the Shareholder's account with respect to
that Fund has a value of less than $250. Accordingly, an
investor purchasing Shares of an Income Fund in only the
minimum investment amount may be subject to involuntary
redemption if he or she thereafter redeems Shares in that
Fund. Before the Group exercises its right to redeem such
Shares, the Shareholder will
29
<PAGE> 129
be given notice and allowed 60 days to make an additional
investment to increase the value of the account to at
least $250. For examples of when the Group may suspend the
right of redemption or redeem Shares involuntarily, see
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION--Matters
Affecting Redemption in the Statement of Additional
Information.
TELEPHONE
TRANSACTIONS As noted above, unless a Shareholder elects otherwise,
he or she has the privilege to effect purchases, exchanges
or redemptions by telephone. A Shareholder risks possible
losses from unauthorized exchanges or redemptions from the
Shareholder's account. Each Fund will employ procedures
designed to provide reasonable assurance to confirm that
instructions communicated by telephone are genuine, and if
a Fund does not employ such procedures, the Fund may be
liable for any losses due to unauthorized or fraudulent
instructions. These procedures include recording all
telephone transactions, sending confirmations to
Shareholders within 72 hours of the telephone transaction,
verifying the account name and a Shareholder's account
number or tax identification number and sending redemption
proceeds only to the address of record or to a previously
authorized bank account. If, due to temporary adverse
conditions, investors are unable to effect telephone
transactions, Shareholders may also mail the redemption
request to the Group at the address listed above under HOW
TO PURCHASE SHARES.
DIVIDENDS The net income of each of the Income Funds is declared
and paid monthly as a dividend to Shareholders of record
at the close of business on the day of declaration. Net
realized capital gains are distributed at least annually
to Shareholders of record.
Shareholders will automatically receive all income
dividends and capital gains distributions in additional
full and fractional Shares of a Fund at net asset value as
of the date of declaration (which is also the ex-dividend
date), unless the Shareholder elects to receive such
dividends or distributions in cash. Shareholders wishing
to receive their dividends in cash (or wishing to revoke a
previously made election) must notify the Group at P.O.
Box 7591, San Francisco, CA 94120, and such election (or
revocation thereof) will become effective with respect to
dividends and distributions having record dates after
notice has been received. Dividends paid in additional
Shares receive the same tax treatment as dividends paid in
cash.
FEDERAL
TAXATION Each Income Fund intends to qualify for treatment as a
"regulated investment company" under the Internal Revenue
Code of 1986, as amended (the "Code"), and to distribute
substantially all of its net investment income and net
realized capital gains so that each Fund is not required
to pay federal taxes on these amounts.
30
<PAGE> 130
Distributions of ordinary income and/or an excess of net
short-term capital gain over net long-term capital loss
are treated for federal tax purposes as ordinary income to
Shareholders. It is anticipated that distributions from
each Fund will not be eligible for the dividends received
deduction for corporations. Distributions by the Funds of
the excess of net long-term capital gain over net
short-term capital loss is taxable to Shareholders as
long-term capital gain in the year with respect to which
it is received, regardless of how long the Shareholder has
held Shares of the Fund. If a Shareholder disposes of
Shares in the Fund at a loss before holding such Shares
for longer than six months, such loss will be treated as a
long-term capital loss to the extent the Shareholder has
received capital gain dividends on the Shares.
Prior to purchasing Shares of the Income Funds, the
impact of dividends or capital gain distributions that are
expected to be declared or have been declared, but not
paid, should be carefully considered. Dividends or capital
gain distributions received after a purchase of Shares are
subject to federal income taxes, although in some
circumstances the dividends or distributions may be, as an
economic matter, a return of capital to Shareholders. A
Shareholder should consult his or her tax adviser for
specific advice about the tax consequences to the
Shareholder of investing in a Fund.
Dividends attributable to interest from obligations of
the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local
income taxes. The Group intends to advise Shareholders of
the proportion of the Funds' dividends which consist of
such interest. Shareholders are urged to consult their tax
advisers regarding the possible exclusion of such portion
of their dividends for state and local income tax
purposes.
Additional information regarding federal taxes is
contained in the Statement of Additional Information.
However, the foregoing and the material in the Statement
of Additional Information are only brief summaries of some
of the important tax considerations generally affecting
each Fund and its Shareholders. In addition, the foregoing
discussion and the federal tax information in the
Statement of Additional Information are based on tax laws
and regulations which are in effect as of the date of this
Prospectus; these laws and regulations may subsequently
change, and such changes could be retroactive.
Shareholders will be advised at least annually as to the
federal income tax status of distributions made during the
year.
SERVICE
ARRANGEMENTS Investment Adviser
MERUS, a division of The Bank of California, serves as
the Income Funds' investment adviser. Subject to the
general supervision of the Group's Board of Trustees,
MERUS manages each Fund in accordance with its investment
31
<PAGE> 131
objective and policies, makes decisions with respect to
and places orders for all purchases and sales of a Fund's
investment securities, and maintains the Fund's records
relating to such purchases and sales.
E. Jack Montgomery has served as the portfolio manager
of the Bond Fund since June, 1994. Prior to joining MERUS,
Mr. Montgomery was employed by the San Francisco
Employees' Retirement System and, prior to that, First
Interstate Bank of Oregon. Mr. Montgomery graduated from
the University of Oklahoma in 1971 and earned his M.B.A.
from the University of Oregon.
William A. Howard has served as the portfolio manager of
the Government Bond Fund since November, 1993 and has
served as portfolio manager of the Group's Money Market
Funds for the past three and one half years. Prior to
joining MERUS, Mr. Howard was employed by Benham
Management Corporation.
For the expenses assumed and services provided by MERUS
as each Fund's investment adviser, The Bank of California
receives a fee from each Income Fund, computed daily and
paid monthly, at the annual rate of one percent (1.00%) of
the first $40 million of each Fund's average daily net
assets and sixty one-hundredths of one percent (.60%) of
the Fund's remaining average daily net assets. Depending
on the size of the Fund, this fee may be higher than the
advisory fee paid by most mutual funds, although the Board
of Trustees believes it will be comparable to advisory
fees paid by many funds having similar objectives and
policies. The Bank of California may from time to time
agree to voluntarily reduce its advisory fee. While there
can be no assurance that The Bank of California will
choose to make such an agreement, any voluntary reductions
in The Bank of California's advisory fee will lower the
Fund's expenses, and thus increase the Fund's yield and
total return, during the period such voluntary reductions
are in effect. During the Group's fiscal year ended July
31, 1995, The Bank of California received investment
advisory fees from the Bond Fund and the Government Bond
Fund aggregating 0.45% and 0%, respectively, of each
Fund's average daily net assets.
Incorporated in 1864, The Bank of California was the
first incorporated banking institution in the West. The
Bank of California offers a wide range of banking services
to its clients in California, Oregon and Washington and
around the world. As of September 30, 1995, The Bank of
California and its subsidiaries had approximately $7.9
billion in commercial assets. MERUS is a division of The
Bank of California's Trust and Investment Management
Group, which manages approximately $6.8 billion of The
Bank of California's trust assets. MERUS, with a team of
approximately 30 stock and bond research analysts,
portfolio managers and traders, has been providing
investment management services to individuals,
institutions and large corporations since 1917.
32
<PAGE> 132
The Mitsubishi Bank, Limited, of Tokyo, Japan, directly
or indirectly owns all of the outstanding shares of the
Bank. The Mitsubishi Bank, Limited and The Bank of Tokyo,
Ltd. have announced their intention to merge. The
resulting entity will be named The Bank of
Tokyo-Mitsubishi, Ltd. The directors and shareholders of
the respective organizations have approved the proposed
merger in principle.
The Bank of Tokyo, Ltd. and The Mitsubishi Bank, Limited
announced they had reached a basic understanding
concerning the merger of their respective subsidiary banks
in California, Union Bank and The Bank of California. The
merger has been approved by the Boards of Directors of
Union Bank and The Bank of California, and will be
finalized after obtaining the required shareholders' and
regulatory approvals. The name of the combined California
bank will be Union Bank of California.
The target date of both the above-described mergers is
April 1, 1996.
One or more of the foregoing transactions may constitute
an "assignment" of the existing investment advisory
agreements between the Group and MERUS. In the event they
do constitute such an "assignment" under the 1940 Act, the
"assignment" will result in the automatic termination of
the investment advisory agreements, effective at the time
of the transaction. Prior to the transactions,
shareholders of each Fund will be asked to approve a new
investment advisory agreement between that Fund and Union
Bank of California (or a registered investment advisor
affiliate), to take effect at the time of the
transactions. A proxy statement describing the terms of
the new agreements will be sent to shareholders of the
Group prior to their being asked to vote on the new
agreements.
Administrator & Distributor
BISYS Fund Services Limited Partnership ("BISYS Fund
Services") is the administrator and distributor of the
Income Funds. BISYS Fund Services is a subsidiary of The
BISYS Group, Inc., 150 Clove Road, Little Falls, New
Jersey 07424, a publicly owned company engaged in
information processing, loan servicing and 401(k)
administration and Recordkeeping services to and through
banking and other financial organizations. Pursuant to a
separate agreement with BISYS Fund Services, The Bank of
California performs sub-administration services on behalf
of the Funds, for which it receives compensation from
BISYS Fund Services. A description of the services
performed by The Bank of California pursuant to this
Agreement is contained in the Statement of Additional
Information.
As administrator, BISYS Fund Services generally assists
in all aspects of each Fund's administration and
operation. For the expenses assumed and services provided
as administrator, BISYS Fund Services receives a fee from
each of the
33
<PAGE> 133
Income Funds, computed daily and paid periodically, at an
annual rate of twenty one-hundredths of one percent
(0.20%) of each Fund's average daily net assets. BISYS
Fund Services may from time to time agree to reduce
voluntarily its administration fee. While there can be no
assurance that BISYS Fund Services will choose to make
such an agreement, any voluntary reductions in BISYS Fund
Services's administration fee will lower a Fund's
expenses, and thus increase the Fund's yield and total
return, during the period such voluntary reductions are in
effect. During the Group's fiscal year ended July 31,
1995, BISYS Fund Services received administration fees
from the Bond Fund and the Government Bond Fund
aggregating 0.13% and 0%, respectively, of each Fund's
average daily net assets.
The Group has adopted a Shareholder Services Plan
permitting payment of compensation to financial
institutions that agree to provide certain administrative
support services for their customers who are Fund
Shareholders. Each Income Fund has entered into a specific
arrangement with BISYS Fund Services for the provision of
such services by BISYS Fund Services, and reimburses BISYS
Fund Services for its cost of providing these services,
subject to a maximum annual rate of twenty-five
one-hundredths of one percent (0.25%) of each Fund's
average daily net assets.
The Distribution Plan
Pursuant to the Group's Distribution Plan, each Income
Fund pays the Distributor as compensation for its services
in connection with the Distribution Plan a distribution
fee, computed daily and paid monthly, equal to twenty-five
one-hundredths of one percent (0.25%) of the average daily
net assets attributable to that Fund's Investor Shares.
Fiduciary Shares are not subject to the Distribution Plan
or a distribution fee.
The Distributor may use the distribution fee applicable
to a Fund's Investor Shares to provide distribution
assistance with respect to the sale of the Fund's Investor
Shares or to provide Shareholder services to the holders
of the Fund's Investor Shares. The Distributor may also
use the distribution fee (i) to pay financial institutions
and intermediaries (such as insurance companies and
investment counselors but not including banks and savings
and loan associations), broker-dealers, and the
Distributor's affiliates and subsidiaries compensation for
services or reimbursement of expenses incurred in
connection with the distribution of a Fund's Investor
Shares to their customers or (ii) to pay banks, savings
and loan associations, other financial institutions and
intermediaries, broker-dealers, and the Distributor's
affiliates and subsidiaries compensation for services or
reimbursement of expenses incurred in connection with the
provision of Shareholder services to their customers
owning a Fund's Investor Shares. All payments by the
Distributor for distribution assistance or Shareholder
services
34
<PAGE> 134
under the Distribution Plan will be made pursuant to an
agreement between the Distributor and such bank, savings
and loan association, other financial institution or
intermediary, broker-dealer, or affiliate or subsidiary of
the Distributor (a "Servicing Agreement"; banks, savings
and loan associations, other financial institutions and
intermediaries, broker-dealers, and the Distributor's
affiliates and subsidiaries that may enter into a
Servicing Agreement are hereinafter referred to
individually as a "Participating Organization"). A
Participating Organization may include The Bank of
California, its subsidiaries and its affiliates.
Participating Organizations may charge customers fees in
connection with investments in a Fund on their customers'
behalf. Such fees would be in addition to any amounts the
Participating Organization may receive pursuant to its
Servicing Agreement. Under the terms of the Servicing
Agreements, Participating Organizations are required to
provide their customers with a schedule of fees charged
directly to such customers in connection with investments
in a Fund. Customers of Participating Organizations should
read this Prospectus in light of the terms governing their
accounts with the Participating Organization.
The distribution fee under the Distribution Plan will be
payable without regard to whether the amount of the fee is
more or less than the actual expenses incurred in a
particular year by the Distributor in connection with
distribution assistance or Shareholder services rendered
by the Distributor itself or incurred by the Distributor
pursuant to the Servicing Agreements entered into under
the Distribution Plan. The Distributor may from time to
time voluntarily reduce its distribution fee with respect
to a Fund in significant amounts for substantial periods
of time pursuant to an agreement with the Group. While
there can be no assurance that the Distributor will choose
to make such an agreement, any voluntary reduction in the
Distributor's distribution fee will lower such Fund's
expenses, and thus increase such Fund's yield and total
returns, during the period such voluntary reductions are
in effect. In addition, the Distributor and the
Participating Organizations have agreed to voluntarily
reduce payments to be received pursuant to the
Distribution Plan with respect to a Fund to the extent
necessary to ensure that such payments do not exceed the
income attributable to such Fund's Investor Shares on any
day.
Banking Laws
The Bank of California believes that MERUS may perform
the services for the Funds contemplated by its investment
advisory agreement with the Group without a violation of
applicable banking laws and regulations, and has so
represented to the Group in the investment advisory
agreement. The Bank of California also believes that it
may perform sub-administration services on behalf of each
Fund, for which it receives compensation from BISYS Fund
Services, without a violation of applicable banking laws
and regulations and has so
35
<PAGE> 135
represented in the Servicing Agreement. Future changes in
federal or state statutes and regulations relating to
permissible activities of banks or bank holding companies
and their subsidiaries and affiliates, as well as further
judicial or administrative decisions or interpretations of
present and future statutes and regulations, could change
the manner in which The Bank of California or MERUS could
continue to perform such services for the Funds. For a
further discussion of applicable banking laws and
regulations, see the Statement of Additional Information.
Transfer Agent, Custodian & Fund Accounting Services
BISYS Fund Services Ohio, Inc., 3435 Stelzer Road,
Columbus, OH 43219, serves as the Income Funds' transfer
agent and also acts as the Income Funds' fund accountant.
While BISYS Fund Services Ohio, Inc. is a distinct legal
entity from BISYS Fund Services (the Group's administrator
and distributor), BISYS Fund Services Ohio, Inc. is
considered to be an affiliated person of BISYS Fund
Services under the 1940 Act due to, among other things,
the fact that BISYS Fund Services Ohio, Inc. is owned by
substantially the same persons that directly or indirectly
own BISYS Fund Services.
Pursuant to an agreement with BISYS Fund Services Ohio,
Inc., The Bank of California provides sub-transfer agency
services with respect to investments in each Fund's Shares
through certain accounts maintained with The Bank of
California and its affiliates, for which it receives
compensation from BISYS Fund Services Ohio, Inc. The Bank
of California also serves as the custodian for the Income
Funds.
Services performed by BISYS Fund Services Ohio, Inc. as
the Funds' transfer agent and fund accountant, and by The
Bank of California, as the Funds' sub-transfer agent and
custodian as well as the basis of remuneration for such
services are described in the Statement of Additional
Information.
GENERAL
INFORMATION Description of The Group & Its Shares
The Group was organized as a Massachusetts business
trust on March 10, 1987, and consists of 13 series of
Shares representing units of beneficial interest in the
Group's Growth Fund, Income and Growth Fund, Income Equity
Fund, Balanced Fund, Bond Fund, Government Bond Fund,
Diversified Obligations Fund, U.S. Government Obligations
Fund, 100% U.S. Treasury Obligations Fund, California
Tax-Free Fund, Tax-Free Fund, the Intermediate California
Municipal Bond Fund and the Intermediate Municipal Bond
Fund. As of the date hereof, no shares of the Intermediate
California Municipal Bond Fund or the Intermediate
Municipal Bond Fund had been offered for sale. Shares of
each Fund are freely transferable, are entitled to
distributions from the assets of the Fund as declared by
the Board of Trustees, and, if the Group were liquidated,
36
<PAGE> 136
would receive the net assets attributable to that Fund.
Shares are without par value.
As noted above, pursuant to an order received by the
Group from the Securities and Exchange Commission
permitting the issuance and sale of two classes of Shares
in each Fund, Shares of the Group's Funds have been
divided into two classes, designated Investor Shares and
Fiduciary Shares, for purposes of the Group's Distribution
Plan and related distribution fee, which fee is applicable
only to such Funds' Investor Shares. Investor Shares and
Fiduciary Shares represent interests in the same portfolio
of investments of a Fund and are identical in all respects
except that Investor Shares bear the expense of the fee,
if any, under the Distribution Plan, which will cause the
Investor Shares to have a higher expense ratio (and
possibly lower net asset value) and to pay lower dividends
than those related to Fiduciary Shares, and Investor
Shares have certain exclusive voting rights with respect
to the Distribution Plan. Investor Shares are generally
sold subject to a sales charge at the time of purchase.
There is no sales charge on Fiduciary Shares.
The Group believes that as of November 1, 1995, The Bank
of California (400 California Street, Post Office Box
45000, San Francisco, CA 94104) was the Shareholder of
record of 67.81% of the Investor Shares and 94.51% of the
Fiduciary Shares of the Bond Fund and 84.20% of the
Fiduciary Shares of the Government Bond Fund.
The Reorganization of The IRA Fund & The Group
As of June 23, 1988, pursuant to an Agreement and Plan
of Reorganization among the IRA Fund, the Group, and The
Bank of California, substantially all of the assets of the
IRA Fund's Income Equity Portfolio and Bond Portfolio were
transferred to the Group's Income Equity Fund and Bond
Fund, respectively, in exchange for such Fund's Shares,
and substantially all of the assets of the IRA Fund's
Short Term Portfolio were transferred to one or more of
the Group's Money Market Funds in exchange for Shares of
such Money Market Fund or Funds.
Miscellaneous
Shareholders will be sent unaudited semi-annual reports
and annual reports audited by independent public
accountants.
Shareholders are entitled to one vote for each Share
held in a Fund as determined on the record date for any
action requiring a vote by the Shareholders, and a
proportionate fractional vote for each fractional Share
held. Shareholders of the Group will vote in the aggregate
and not by series or class except (i) as otherwise
expressly required by law or when the Group's Board of
Trustees
37
<PAGE> 137
determines that the matter to be voted upon affects only
the interests of the Shareholders of a particular series
or particular class, and (ii) only Investor Shares will be
entitled to vote on matters submitted to a Shareholder
vote relating to the Distribution Plan. The Group is not
required to hold regular annual meetings of Shareholders,
but may hold special meetings from time to time.
The Group's Trustees are elected by Shareholders, except
that vacancies may be filled by vote of the Board of
Trustees. Trustees may be removed by the Board of
Trustees, or by Shareholders at a meeting called for such
purpose. For information about how Shareholders may call
such a meeting and communicate with other Shareholders for
that purpose, see ADDITIONAL INFORMATION-- Miscellaneous
in the Statement of Additional Information.
Inquiries may be directed in writing to The HighMark
Group at 3435 Stelzer Road, Columbus, Ohio 43219, or by
calling toll free (800) 433-6884.
38
<PAGE> 138
THE HighMark INCOME FUNDS
INVESTMENT PORTFOLIOS OF
THE HighMark MUTUAL FUND GROUP
For further information (including current
yield, purchase and redemption information),
call (800) 433-6884
INVESTMENT ADVISER
MERUS Capital Management,
a division of The Bank of California, N.A.
400 California Street
Post Office Box 45000
San Francisco, CA 94104
CUSTODIAN
The Bank of California, N.A.
400 California Street
Post Office Box 45000
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
AUDITORS
Deloitte & Touche LLP
1700 Courthouse Plaza Northeast
Dayton, OH 45402
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE GROUP
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE GROUP
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
NOT FDIC INSURED
<PAGE> 139
[HIGHMARK LOGO]
HIGHMARK
MUTUAL FUND GROUP
TRS-17235(R12/95)
<PAGE> 140
CROSS REFERENCE SHEET
THE HIGHMARK MUNICIPAL BOND FUNDS
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C>
1. Cover Page........................................ Cover Page
2. Synopsis.......................................... Fee Table
3. Condensed Financial Information................... Per Share Income And
Capital Changes;
Performance Information
4. General Description of Registrant................. Fund Description;
Investment Objective;
Investment Policies &
Fund Portfolios; General
Information--Description
of the Group & Its Shares
5. Management of the Fund............................ Service Arrangements
5A. Management's Discussion of Fund Performance....... Inapplicable
6. Capital Stock and Other Securities................ How to Purchase Shares;
Exchange Privileges; How to
Redeem Shares; Dividends;
Taxation; Service
Arrangements--Administrator
& Distributor--The
Distribution Plan; General
Information--Description
of the Group & Its Shares;
General Information--
Miscellaneous
7. Purchase of Securities Being Offered.............. Valuation of Shares; How to
Purchase Shares; Exchange
Privileges; Service
Arrangements--Administrator
& Distributor--The
Distribution Plan
8. Redemption or Repurchase.......................... How to Redeem Shares
9. Pending Legal Proceedings......................... Inapplicable
</TABLE>
<PAGE> 141
THE HIGHMARK
MUNICIPAL FUNDS
. . . INVESTMENT PORTFOLIOS OF THE HIGHMARK MUTUAL FUND GROUP
- THE FUNDS
The Intermediate California Municipal Bond Fund
The Intermediate Municipal Bond Fund
- THE INTERMEDIATE CALIFORNIA MUNICIPAL BOND FUND invests primarily in
bonds and notes, the interest on which is excluded from gross income
for federal and California personal income tax purposes.
THE INTERMEDIATE CALIFORNIA MUNICIPAL BOND FUND'S objective is to
provide current income exempt from federal income taxes and California
personal income tax.
- THE INTERMEDIATE MUNICIPAL BOND FUND invests primarily in bonds and
notes, the interest on which is excluded from gross income for federal
income tax purposes.
THE INTERMEDIATE MUNICIPAL BOND FUND'S objective is to provide current
income exempt from federal income taxes.
- EASY PURCHASE OR REDEMPTION BY TELEPHONE, MAIL OR WIRE
- LIQUIDITY
- MINIMUM INITIAL INVESTMENT ONLY $1,000 (a lower or no minimum may
apply)
- MINIMUM SUBSEQUENT INVESTMENT ONLY $100 (a lower or no minimum may
apply)
- PROFESSIONAL MANAGEMENT
- RECORDKEEPING AND SAFEKEEPING OF SECURITIES
- INVESTMENT ADVISER--MERUS Capital Management, a division of The Bank of
California, N.A.
not a part of the prospectus
<PAGE> 142
PROSPECTUS
December 1, 1995
THE HIGHMARK MUNICIPAL BOND FUNDS
The HighMark Municipal Bond Funds (the "Municipal Funds") consist of
The HighMark Intermediate California Municipal Bond Fund and The HighMark
Intermediate Municipal Bond Fund. Each Municipal Fund is an investment portfolio
of The HighMark Group (the "Group"), a diversified, open-end management
investment company.
The HighMark Intermediate California Municipal Bond Fund (the
"California Municipal Fund") -- The investment objective of the California
Municipal Fund is to provide current income exempt from federal income taxes and
California personal income tax.
The HighMark Intermediate Municipal Bond Fund (the "Municipal Fund") --
The investment objective of the Intermediate Municipal Bond Fund is to provide
current income exempt from federal income taxes.
The California Municipal Fund and the Municipal Fund invest primarily
in bonds and notes issued by or on behalf of states (primarily, in the case of
the California Municipal Fund, the State of California), territories and
possessions of the United States, the District of Columbia and their respective
authorities, agencies, instrumentalities and political sub-divisions ("Municipal
Securities"). Under normal market conditions, at least 65% of the total assets
of each of the California Municipal Fund and the Municipal Fund will be invested
in Municipal Securities, the interest on which is excluded from gross income for
federal income tax purposes (and, in the case of the California Municipal Fund,
California personal income tax purposes), although any part of such interest may
be treated as a preference item for individuals for purposes of the federal
alternative minimum tax.
The Municipal Funds will ordinarily seek to maintain an average
dollar-weighted maturity of three to ten years.
Under normal market conditions, up to 35% of the total assets of the
California Municipal Fund and the Municipal Fund may be invested in securities
the interest on which is subject to regular federal or, in the case of the
California Municipal Fund, California personal income tax ("Taxable
Obligations").
SHARES IN THE MUNICIPAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, THE BANK OF CALIFORNIA, N.A. OR ANY OF ITS
AFFILIATES, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. INVESTMENTS IN SHARES
INVOLVE THE RISK OF A POSSIBLE LOSS OF PRINCIPAL.
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.
------------------
(continued on next page)
<PAGE> 143
(continued from previous page)
The Investment Adviser to the Municipal Funds is:
MERUS Capital Management, a division of The Bank of California, N.A.
The Municipal Funds are 2 of 13 separate investment portfolios (each a
"Fund") offered by the Group, which include:
The HighMark Growth Fund
The HighMark Income and Growth Fund
The HighMark Income Equity Fund
The HighMark Balanced Fund
The HighMark Bond Fund
The HighMark Government Bond Fund
The HighMark Diversified Obligations Fund
The HighMark U.S. Government Obligations Fund
The HighMark 100% U.S. Treasury Obligations Fund
The HighMark California Tax-Free Fund
The HighMark Tax-Free Fund
The HighMark Intermediate California Municipal Bond Fund
The HighMark Intermediate Municipal Bond Fund
Each Municipal Fund has been divided into two classes of Shares
("Investor" Shares and "Fiduciary" Shares) for purposes of a sales charge and
the Group's Distribution and Shareholder Services Plan (the "Distribution
Plan"). Investor and Fiduciary Shares of a particular Municipal Fund represent
interests in the same portfolio of investments and are identical in all respects
except that Investor Shares pay a sales charge upon purchase and bear the
expense of the fee under the Distribution Plan, which will cause the Investor
Shares to have a higher expense ratio (and possibly a lower net asset value) and
to pay lower dividends than those related to Fiduciary Shares, and Investor
Shares have certain exclusive voting rights with respect to the Distribution
Plan. Investor Shares are generally sold subject to a sales charge at the time
of purchase. There is no sales charge on Fiduciary Shares. Only the following
investors qualify to purchase a Municipal, Equity or Income Fund's Fiduciary
Shares: (i) fiduciary, advisory, agency, custodial and other similar accounts
maintained with The Bank of California or its affiliates; (ii) Shareholders who
currently own Shares of the Group's Equity or Income Funds that were purchased
prior to June 20, 1994 within an account registered in their name with the
Funds; and (iii) present and retired directors, officers, and employees (and
their spouses and children under the age of 21) of The Bank of California, BISYS
Fund Services or their affiliated companies, whether or not investments are made
through an employee benefit plan on such person's behalf. All other investors
are eligible to purchase Investor Shares only. For information concerning those
investors who qualify to purchase Investor and Fiduciary Shares, sales charges
and the operation of the Distribution Plan, see HOW TO PURCHASE SHARES and
SERVICE ARRANGEMENTS--Administrator & Distributor--The Distribution Plan in this
Prospectus.
This Prospectus relates only to the Municipal Funds. Interested persons
who wish to obtain a prospectus for the other Funds of the Group may write to
the Group's distributor: BISYS Fund Services, 3435 Stelzer, Columbus, Ohio
43219, or call (800) 433-6884.
Additional information about the Municipal Funds is contained in a
Statement of Additional Information that has been filed with the Securities and
Exchange Commission and is available upon request without charge by writing or
calling the Funds at the above address and telephone number. The Statement of
Additional Information bears the same date as this Prospectus and is
incorporated by reference in its entirety into this Prospectus.
This Prospectus sets forth concisely the information about the
Municipal Funds that a prospective investor ought to know before investing.
Please read this Prospectus and retain it for future reference.
-2-
<PAGE> 144
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Fee Table.................................................
Fund Description..........................................
Performance Information...................................
Investment Objective......................................
Investment Policies & Fund Portfolios.....................
Valuation of Share........................................
How to Purchase Shares....................................
Exchange Privileges.......................................
How to Redeem Shares......................................
Telephone Transactions....................................
Dividends.................................................
Taxation..................................................
Service Arrangements......................................
General Information.......................................
</TABLE>
-3-
<PAGE> 145
MUNICIPAL FUNDS FEE TABLE
<TABLE>
<CAPTION>
CALIFORNIA
MUNICIPAL FUND MUNICIPAL FUND
-------------- --------------
Investor Fiduciary Investor Fiduciary
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses(a)
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) .......... 4.50% 0% 4.50% 0%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price) ....................................... 0% 0% 0% 0%
Deferred Sales Load
(as a percentage of original purchase price
or redemption proceeds, as applicable) ....... 0% 0% 0% 0%
Redemption Fees
(as a percentage of amount redeemed,
if applicable)(b) ............................ 0% 0% 0% 0%
Exchange Fee(c) ................................. 0% 0% 0% 0%
Annual Operating Expenses
(as a percentage of net assets)
Management Fees
(after voluntary reduction)(d) ............... 0% 0% 0% 0%
12b-1 Fees ...................................... 0%(e) 0% 0%(e) 0%
Other Expenses (after voluntary reduction)(f) ... 0.80% 0.80% 0.80% 0.80%
Total Fund Operating Expenses ................... 0.80% 0.80% 0.80% 0.80%
==== ==== ==== ====
</TABLE>
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
California Municipal Fund
Investor Shares.................. $53 $69
Fiduciary Shares................. $8 $26
Municipal Fund
Investor Shares.................. $53 $69
Fiduciary Shares................. $8 $26
</TABLE>
The purpose of the tables above is to assist an investor in the
Municipal Funds in understanding the various costs and expenses that a
Shareholder will bear directly or indirectly. For a more complete discussion of
each Fund's annual operating expenses, see SERVICE ARRANGEMENTS below. THE
FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Long-term shareholders of Investor Shares may pay more than the
economic equivalent of the maximum front-end sales charges otherwise permitted
by rules of the National Association of Securities Dealers, Inc.
- ----------------
-4-
<PAGE> 146
(a) Certain entities (including The Bank of California and its affiliates)
making investments in the Municipal Funds on behalf of their customers
may charge customers fees for services provided in connection with the
investment. (See HOW TO PURCHASE SHARES and SERVICE ARRANGEMENTS --
Administrator & Distributor -- The Distribution Plan below.)
(b) A wire redemption charge may be deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See HOW TO
REDEEM SHARES-Payments to Shareholders below.)
(c) Certain entities (including The Bank of California and its affiliates)
may charge their customers fees with respect to exchanges effected on
the customer's behalf. (See EXCHANGE PRIVILEGES and SERVICE
ARRANGEMENTS -- Administrator & Distributor -- The Distribution Plan
below.)
(d) As indicated under SERVICE ARRANGEMENTS-Investment Adviser below, The
Bank of California may voluntarily reduce its advisory fee. Absent the
voluntary reduction of investment advisory fees, MANAGEMENT FEES for
each Fund as a percentage of average daily net assets would be 1.00% of
the first $40 million in net assets and .60% of the remaining net
assets.
(e) Reflects estimated Rule 12b-1 fees for the current fiscal year. The
maximum annual rate of such fees that may be imposed as a percentage of
average daily net assets attributable to a Fund's Investor Shares is
0.25%. See SERVICE ARRANGEMENTS -- Administrator & Distributor -- The
Distribution Plan below.
(f) OTHER EXPENSES for the California Municipal Fund and the Municipal Fund
are based on estimates for each Fund's initial fiscal year. As
indicated under SERVICE ARRANGEMENTS-Administrator & Distributor below,
BISYS Fund Services may voluntarily reduce its administration fee.
Absent the voluntary reduction of administration fees, OTHER EXPENSES
as a percentage of average daily net assets would be ____% (Investor
Shares) and ____% (Fiduciary Shares) of the California Municipal Fund
and ____% (Investor Shares) and ____% (Fiduciary Shares) of the
Municipal Fund.
FUND DESCRIPTION
The HighMark Municipal Funds (the "Municipal Funds") are two of 13
separate investment portfolios ("Funds") of The HighMark Group (the "Group"), a
diversified, open-end management investment company. MERUS Capital Management, a
division of The Bank of California, N.A. ("MERUS"), serves as the Municipal
Funds' investment adviser.
Each Municipal Fund has been divided into two classes of Shares
(Investor Shares and Fiduciary Shares) for purposes of a sales charge and the
Group's Distribution and Shareholder Services Plan (the "Distribution Plan").
Investor and Fiduciary Shares of a particular Fund represent interests in the
same portfolio of investments and are identical in all respects except that
Investor Shares are subject to a sales charge at the time of purchase and bear
the expense of the fee under the Distribution Plan, which will cause the
Investor Shares to have a higher expense ratio (and possibly a lower net asset
value) and to pay lower dividends than Fiduciary Shares, and Investor Shares
have certain exclusive voting rights with respect to the Distribution Plan.
Investor Shares are generally sold subject to a sales charge at the time of
purchase. There is no sales charge on Fiduciary Shares. For information
concerning those investors who qualify to purchase Investor and Fiduciary
Shares, sales charges and the operation of the Group's Distribution Plan, see
HOW TO PURCHASE SHARES and SERVICE ARRANGEMENTS--Administrator & Distributor-The
Distribution Plan below. (Investor Shares and Fiduciary Shares collectively may
be hereinafter referred to as "Shares.")
Neither the California Municipal Fund nor the Municipal Fund is
intended to constitute a balanced investment program. Investment in either Fund
generally would not be appropriate for tax-deferred plans, such as IRA and Keogh
plans, and investors should consult a tax or other financial adviser to
determine whether investment in the California Municipal Fund or the Municipal
Fund would be appropriate for them.
The net asset value per Share of each Municipal Fund will fluctuate as
the value of that Fund's investment portfolio changes in response to changing
market rates of interest and other factors.
-5-
<PAGE> 147
PERFORMANCE INFORMATION
From time to time the Group may advertise the "total return," "yield"
and "tax-equivalent yield" with respect to the Investor and Fiduciary Shares of
each Municipal Fund. Performance information is computed separately for a Fund's
Investor and Fiduciary Shares in accordance with the formulas described below.
Because only Investor Shares bear the expense of the fee, if any, under the
Distribution Plan and a sales charge, total return and yield relating to a
Fund's Investor Shares will be lower than that relating to the Fund's Fiduciary
Shares.
The yield of each class of shares of a Fund is determined by
annualizing the net investment income per Share of that class during a specified
thirty-day period and dividing that amount by the per Share public offering
price of that class on the last day of the period.
In the case of the California Municipal Fund, tax-equivalent yield for
a class of shares will reflect the amount of income subject to federal and
California income taxation at the respective rates specified in the
advertisement that a taxpayer would have to earn in order to obtain the same
after-tax income as that derived from the yield of that class of Shares.
In the case of the Municipal Fund, tax-equivalent yield for a class of
shares will reflect the amount of income subject to federal (or combined federal
and California or Oregon) personal income taxation at the rates specified in the
advertisement that a taxpayer would have to earn in order to obtain the same
after tax income as that derived from the yield of that class of Shares.
The distribution rate of a Fund is determined by dividing the income
and capital gains distributions, or where indicated the income distributions
alone, on a Share of the Fund over a twelve-month period by the per Share public
offering price of the Fund on the last day of the period.
All performance information presented is based on past performance and
does not predict future performance.
Tax-equivalent yield with respect to a class of Shares of a Municipal
Fund will be significantly higher than the yield of that class.
From time to time, the Group may advertise the aggregate total return
and average annual total return of each class of shares of either Fund. The
average annual total return of each class of shares of either Fund may be quoted
for the life of such Fund and for ten-year, five-year and one-year periods, in
each case through the most recent calendar quarter. Aggregate total return is
determined by calculating the change in the value of a hypothetical $1,000
investment in a stated class of shares of a Fund over the applicable period that
would equate the initial amount invested to the ending redeemable value of the
investment. The ending redeemable value includes dividends and capital gain
distributions reinvested at net asset value. Average annual total return is
calculated by annualizing a class's aggregate total return over the relevant
number of years. The resulting percentage indicates the positive or negative
investment results that an investor in such class would have experienced from
changes in Share price and reinvestment of dividends and capital gain
distributions.
INVESTMENT OBJECTIVE
The investment objective of the California Municipal Fund is to provide
current income exempt from federal income tax and California personal income
tax.
The investment objective of the Municipal Fund is to provide current
income exempt from federal income taxes.
The investment objective of either Municipal Fund may not be changed
without a vote of the holders of a majority of the outstanding Shares of that
Fund (as defined under GENERAL INFORMATION-Miscellaneous below). There can, of
course, be no assurance that a Municipal Fund will achieve its investment
objective.
-6-
<PAGE> 148
INVESTMENT POLICIES & FUND PORTFOLIOS
The total assets of the California Municipal Fund and the Municipal
Fund will be invested primarily in bonds and notes issued by or on behalf of
states (primarily, in the case of the California Municipal Fund, the State of
California), territories and possessions of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities and
political sub-divisions ("Municipal Securities").
Under normal market conditions, at least 65% of the value of the total
assets of each of the California Municipal Fund and the Municipal Fund will be
invested in Municipal Securities, the interest on which is excluded from gross
income for federal (and, in the case of the California Municipal Fund,
California) income tax purposes. The income from any or all of such securities
may, however, be taken into account for purposes of the federal alternative
minimum tax. Under normal market conditions, up to 35% of each Fund's total
assets may be invested in securities the interest on which is subject to regular
federal or, in the case of the California Municipal Fund, California personal
income tax ("Taxable Obligations").
Dividends paid by the California Municipal Fund that are derived from
securities the interest on which is exempt from California taxation under the
California constitution or any statute of the State of California ("California
Exempt-Interest Securities") are excluded from gross income for California
personal income purposes. Dividends derived from interest on securities other
than California Exempt-Interest Securities may be excluded from gross income for
federal income tax purposes but will be subject to California personal income
tax.
In order for the California Municipal Fund to pay California
exempt-interest dividends, at least 50% of its total assets must be invested in
California Exempt-Interest Securities at the close of each quarter of its
taxable year. Dividends, regardless of their source, may be subject to state or
local taxes.
Each Municipal Fund will ordinarily seek to maintain an average
dollar-weighted maturity of three to ten years.
Additional information concerning each Municipal Fund's investments,
including certain investment restrictions that may not be changed with respect
to a particular Fund without a vote of the holders of a majority of the
outstanding Shares of that Fund, is set forth in the Statement of Additional
Information.
RATINGS OF INVESTMENTS
Investments by the Funds will consist of those obligations that, at the
time of purchase, are of "investment grade" quality. This means that the
securities will be rated in one of the top four rating categories by a
nationally recognized statistical rating organization ("NRSRO") (e.g., AAA, AA,
A or BBB by Standard & Poor's Corporation, ("S&P") or Aaa, Aa, A or Baa by
Moody's Investors Service, Inc. ("Moody's")), or will be securities that do not
possess a rating from an NRSRO (i.e., are unrated by an NRSRO) but are
determined by MERUS to be of comparable quality to the rated instruments
eligible for purchase by the Funds.
Securities rated in the fourth highest rating category have some
speculative characteristics and unfavorable changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity of the issuer
of these bonds to make principal and interest payments than is the case with
higher rated bonds. If an investment rated in the fourth highest rating category
and held by a Municipal Fund is downgraded by an NRSRO, MERUS will consider
whether the investment remains appropriate for the Fund. The amount of
information about the financial condition of an issuer of Municipal Securities
may not be as extensive as that which is made available by corporations whose
securities are publicly traded.
For further information concerning the rating and other requirements
governing the investments of the California Municipal Fund or the Municipal
Fund, see the Statement of Additional Information. The Statement of Additional
Information also provides a description of the relevant ratings assigned by each
NRSRO.
-7-
<PAGE> 149
MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities that may be
held by the California Municipal Fund and the Municipal Fund are "general
obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its
full faith and credit and general taxing power for the payment of principal and
interest.
Revenue securities 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 such as the user of the
facility being financed. "Private activity" and "industrial revenue" bonds held
by the California Municipal Fund or the Municipal Fund are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of private activity and industrial revenue
bonds is usually directly related to the credit standing of the corporate user
of the facility involved.
In addition, Municipal Securities may include "moral obligation" bonds,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality that
created the issuer.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax or California personal
income tax are rendered at the time of issuance. None of the California
Municipal Fund, the Municipal Fund or MERUS will review the proceedings relating
to the issuance of Municipal Securities or the basis for such opinions.
Although the Municipal Funds will each maintain an average portfolio
maturity in the intermediate range, the Funds may be primarily invested in
short-term Municipal Securities when yields on such securities are greater than
yields available on longer-term Municipal Securities, to stabilize net asset
value or for temporary defensive purposes.
The Municipal Funds may purchase participations in lease obligations or
installment purchase contract obligations ("lease obligations") of municipal
authorities or entities. Although lease obligations do not constitute general
obligations of the municipality for which the municipality's taxing power is
pledged, a lease obligation is ordinarily backed by the municipality's covenant
to budget for, appropriate and make the payments due under the lease obligation.
However, certain lease obligations contain "non-appropriation" clauses, which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. In addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing and may not be as marketable as
more conventional securities. Although "nonappropriation" lease obligations are
secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. In addition, the tax treatment of such
obligations in the event of non-appropriation is unclear. The Municipal Funds'
investments, if any, in these securities will be subject to procedures adopted
by the Trustees of the Group from time to time.
Participation certificates are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities. They may represent participations in a lease, an installment
purchase contract or a conditional sales contract. Some municipal leases and
participation certificates may not be readily marketable.
Municipal Securities may have fixed or variable interest rates. Each
Municipal Fund may purchase floating and variable rate demand notes, which are
securities normally having a stated maturity in excess of one year, but which
permit the holder to tender the notes for purchase at the principal amount
thereof. The interest rate on a floating rate demand note is determined by
reference to some other lending rate, index or formula, such as a bank's prime
rate, and is adjusted periodically based on changes in such other rate, index or
formula. The interest rate on a variable rate demand note is adjusted at
specified intervals. There generally is no secondary market for these notes,
although they may be tendered for redemption at face value. In some cases, the
Funds must give more than seven days' notice before tender. Variable rate demand
notes with such a notice feature are "illiquid securities" for purposes of the
policy limiting the Funds' investments in illiquid securities to 15% of net
assets.
-8-
<PAGE> 150
Certain Municipal Securities may permit the issuer at its option to
"call," or redeem, its securities. If an issuer were to redeem Municipal
Securities held by a Municipal Fund during a time of declining interest rates,
the Fund may realize a capital loss on its investment and may not be able to
reinvest the proceeds in tax exempt securities providing as high a level of
investment return as the securities redeemed.
During a period of declining interest rates, many of each Municipal
Fund's portfolio investments will likely bear coupon rates that are higher than
current market rates, regardless of whether such securities were originally
purchased at a premium. Such securities would generally carry market values
greater than the principal amounts payable on maturity, which would be reflected
in the net asset value of each Fund's shares. The value of such "premium"
securities tends to approach the principal amount as they approach maturity (or
call price in the case of securities approaching a call date). As a result, an
investor who holds shares of a Fund during such periods would initially receive
higher monthly distributions (derived from the higher coupon rates payable on
the Fund's investments) than might be available from alternative investments
bearing current market interest rates, but may face an increased risk of capital
loss as these higher coupon securities approach maturity (or the call date). In
evaluating the potential performance of an investment in a Municipal Fund,
investors may find it useful to compare the Fund's current dividend rate with
each Fund's "yield," which is computed on a yield-to-maturity basis in
accordance with regulations of the Securities and Exchange Commission and which
reflects amortization or market premiums. See PERFORMANCE INFORMATION.
Each Fund may acquire Municipal Securities that have "put" features.
Under a put feature, the Fund has the right to sell the Municipal Security
within a specified period of time at a specified price. The put feature cannot
be sold, transferred or assigned separately from the Municipal Security. Each
Fund may buy Municipal Securities with put features to facilitate portfolio
liquidity, shorten the maturity of the underlying Municipal Securities, or
permit investment at a more favorable rate of return. The aggregate price of a
security subject to a put may be higher than the price that would be paid for
the security without such a feature, thereby increasing the security's costs and
reducing its yield.
Although they presently do not intend to do so on a regular basis, each
Municipal Fund may invest more than 25% of its total assets in Municipal
Securities that are related in such a way that an economic, business or
political development or change affecting one security would likewise affect the
other Municipal Securities. Examples of these types of securities are
obligations the repayment of which is dependent upon similar types of projects
or projects located in the same geographic area. Such investments will be made
only if deemed necessary or appropriate by MERUS. To the extent that a Fund's
assets are concentrated in Municipal Securities that are so related, the Fund
will be subject to the peculiar risks presented by such Municipal Securities,
such as negative developments in a particular industry or state, to a greater
extent than it would be if the Fund's assets were not so concentrated. See also
Special Factors Affecting Investments in Obligations of California Governmental
Issuers below.
Each Municipal Bond Fund may invest up to 10% of its total assets in
securities of investment companies (including Shares of the HighMark Funds). As
a shareholder of an investment company, a Fund may indirectly bear investment
management fees of that investment company, which are in addition to the
management fees the Fund pays its own adviser. In order to avoid the imposition
of additional fees as a result of investments in Shares of other HighMark Funds,
the Investment Adviser and the Administrator (see "Service Arrangements") will
not retain any portion of their usual asset-based fees from those Funds that are
attributable to investments by a Municipal Bond Fund in Shares of those Funds if
the fee is being taken in the Municipal Bond Fund. The Investment Adviser and
the Administrator will promptly forward such fees to the appropriate Municipal
Bond Fund.
SPECIAL FACTORS AFFECTING INVESTMENTS IN OBLIGATIONS OF CALIFORNIA GOVERNMENTAL
ISSUERS
Because of the California Municipal Fund's investment objective, many
of the securities in its portfolio are likely to be obligations of California
governmental issuers that rely in whole or in part, directly or indirectly, on
real property taxes as a source of revenue. "Proposition Thirteen" and similar
California constitutional and statutory amendments and initiatives approved by
California voters in recent years, through limiting real property and other
taxes, have resulted in a substantial reduction in state revenues. Decreased
state revenues may result in reductions in allocations of state revenues to
local governments and could affect the ability of California governmental
issuers to pay interest or repay principal on their obligations. In addition,
since 1990, California has faced severe economic and fiscal conditions and has
experienced recurring budget deficits.
-9-
<PAGE> 151
The financial difficulties experienced by the State of California and
other issuers of California Municipal Securities have resulted in the credit
ratings of certain of their obligations being downgraded significantly by the
major rating agencies. There can be no assurance that credit ratings on
obligations of the State of California and other California Municipal Securities
will not be downgraded further.
A more detailed description of special factors affecting investments in
obligations of California governmental issuers of which investors should be
aware is set forth in the Statement of Additional Information.
TAXABLE OBLIGATIONS
The Municipal Funds may hold uninvested cash reserves pending
investment during temporary "defensive" periods or if, in the opinion of MERUS,
desirable tax-exempt obligations are unavailable. In accordance with each Fund's
investment objective and subject to its fundamental policies, investments may be
made in Taxable Obligations if, for example, suitable tax-exempt obligations are
unavailable or if acquisition of U.S. Government or other taxable securities is
deemed appropriate for temporary "defensive" purposes.
As discussed in greater detail in the Statement of Additional
Information, Taxable Obligations may include obligations issued or guaranteed by
the U.S. Government, its agencies, or instrumentalities (some of which may be
subject to repurchase agreements), certificates of deposit, bankers'
acceptances, commercial paper or shares of money market mutual funds.
WHEN-ISSUED SECURITIES
Each Municipal Fund may purchase securities on a "when-issued" basis,
which are securities purchased for delivery beyond the normal settlement date at
a stated price and yield and which thereby involve a risk that the yield
obtained in the transaction will be less than that available in the market when
delivery takes place. When the Fund agrees to purchase when-issued securities,
the Group's custodian will set aside cash or liquid portfolio securities equal
to the amount of the commitment in a segregated account. Each Fund will
generally not pay for such securities and no income will accrue on the
securities until they are received. These securities are recorded as an asset
and are subject to changes in value based upon changes in the general level of
interest rates. The purchase of securities on a "when-issued" basis may have the
effect of leverage, which may increase the risk of fluctuations in a Fund's net
asset value.
Each Municipal Fund expects that commitments to purchase when-issued
securities will not exceed 25% of the value of the Fund's total assets under
normal market conditions. If a Fund's commitments to purchase whenissued
securities were to exceed 25% of the value of its total assets, the Fund's
liquidity and MERUS's ability to manage it might be adversely affected. Each
Municipal Fund does not intend to purchase when-issued securities for
speculative purposes but only for the purpose of acquiring portfolio securities.
ADJUSTABLE INTEREST RATE NOTES
Each Municipal Fund may also invest in "adjustable interest rate
notes," which include variable rate notes and floating rate notes. A variable
rate note is one whose terms provide for the readjustment of its interest rate
on set dates and that, upon such readjustment, can reasonably be expected to
have a market value that approximates its par value; the degree to which a
variable rate note's market value approximates its par value subsequent to
readjustment will depend on the frequency of the readjustment of the note's
interest rate and the length of time that must elapse before the next
readjustment. A floating rate note is one whose terms provide for the
readjustment of its interest rate whenever a specified interest rate changes and
that, at any time, can reasonably be expected to have a market value that
approximates its par value. Although there may be no active secondary market
with respect to a particular variable or floating rate note purchased by a Fund,
the Fund may seek to resell the note at any time to a third party. The absence
of an active secondary market, however, could make it difficult for the Fund to
dispose of a variable or floating rate note in the event the issuer of the note
defaulted on its payment obligations and the Fund could, as a result or for
other reasons, suffer a loss to the extent of the default. Variable or floating
rate notes may be secured by bank letters of credit. Adjustable interest rate
notes for which no readily available market exists will be subject to each
Fund's non-fundamental 15% limitation governing investments in "illiquid"
securities, unless such notes are subject to a demand feature that will permit
the relevant Fund to receive payment of the principal within
-10-
<PAGE> 152
seven days of the Fund's demand. For more information concerning adjustable
interest rate notes, see the Statement of Additional Information.
VALUATION OF SHARES
Each Fund's net asset value per share for purposes of pricing purchase
and redemption orders is determined by the administrator as of the close of
regular trading of the New York Stock Exchange (the "Exchange") (currently, 4:00
p.m. Eastern Time) (the "Valuation Time") on each weekday, with the exception of
those holidays on which the Exchange or the Federal Reserve Bank of San
Francisco are closed (a "Business Day"). Currently, one or both of these
institutions are closed on the customary national business holidays of New
Year's Day, Martin Luther King, Jr. Day, President's Day (Washington's
Birthday), Good Friday, Memorial Day (observed), Independence Day (observed),
Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day
(observed).
Net asset value per Investor Share and Fiduciary Share is calculated by
determining the value of each class's proportional interest in the securities
and other assets of a Fund, less (i) such class's proportional share of general
liabilities and (ii) the liabilities allocable only to such class, and dividing
such amount by the number of such class's Shares outstanding.
The securities in each Fund will be valued at market value. If market
quotations are not available, the securities will be valued by a method that the
Group's Board of Trustees believes accurately reflects fair value. For further
information about valuation of investments in the Municipal Funds, see the
Statement of Additional Information.
HOW TO PURCHASE SHARES
As noted above, each Fund is divided into two classes of Shares,
Investor and Fiduciary. Investor Shares may be purchased at net asset value plus
a sales charge. Fiduciary Shares may be purchased at net asset value. Only the
following investors qualify to purchase a Municipal, Equity or Income Fund's
Fiduciary Shares: (i) fiduciary, advisory, agency, custodial and other similar
accounts maintained with The Bank of California or its affiliates; (ii)
Shareholders who currently own Shares of the Group's Equity or Income Funds that
were purchased prior to June 20, 1994 within an account registered in their name
with the Funds; and (iii) present and retired directors, officers, and employees
(and their spouses and children under the age of 21) of The Bank of California,
BISYS Fund Services or their affiliated companies, whether or not investments
are made through an employee benefit plan on such person's behalf. All other
investors are eligible to purchase Investor Shares only. At the time of
purchase, the Distributor must be notified by the investor that he or she
qualifies to purchase Fiduciary Shares in accordance with one of the categories
described above.
Investor and Fiduciary Shares are sold on a continuous basis by the
Group's Distributor, BISYS Fund Services. The principal office of the
Distributor is 3435 Stelzer Road, Columbus, Ohio 43219. If you wish to purchase
Shares, you may contact your investment professional or telephone the Group at
(800) 433-6884.
The Bank of California (the "Bank") and financial institutions or
intermediaries (such as banks, savings and loan associations, insurance
companies or investment counselors), broker-dealers or the Distributor's
subsidiaries or affiliates (each, a "Participating Organization") acting in a
fiduciary, advisory, custodial or other similar capacity on behalf of customers
may purchase Shares of the Group. Such Shares will normally be held of record by
the Bank or Participating Organization. With respect to these Shares, it is the
responsibility of the entity making the investment to transmit purchase or
redemption orders to the Distributor and to make payment for the purchase of
Shares. Beneficial ownership of the Shares will be recorded by the Bank or
Participating Organization and reflected in the account statements provided by
the Bank or Participating Organization to customers.
Eligible investors may also purchase a Fund's Investor and Fiduciary
Shares through the following procedures. The minimum initial investment is
generally $1,000 for each Fund and the minimum subsequent investment is
generally only $100. For present and retired directors, officers and employees
(and their spouses and children under the age of 21) of The Bank of California,
BISYS Fund Services and their affiliates, the minimum initial investment is $250
and the minimum subsequent investment is $50. A Fund's initial and subsequent
minimum purchase amounts may be waived if purchases are made in connection with
Individual Retirement Accounts, Keoghs,
-11-
<PAGE> 153
payroll deduction plans, 401(k) or similar plans. To open an account, contact
your investment professional, call the Group at (800) 433-6884, or follow these
steps:
<TABLE>
<CAPTION>
BY CHECK OR MONEY ORDER BY FEDERAL FUNDS WIRE(1)
----------------------- ------------------------
<S> <C>
- - Complete Account Registration form - Complete Account Registration form and
- - Mail check and application to: mail to:
The HighMark Group The HighMark Group
P.O. Box 7591 P.O. Box 7591
San Francisco, CA 94120 San Francisco, CA 94120
- On the day you wish to purchase Shares,
Wire Funds to The Bank of California. Call
the Group at (800) 433-6884 for proper wire
instructions.
</TABLE>
(1) Note: Shares cannot be purchased by wire until a properly completed
application is received by the Group.
Shares of each Fund are purchased at the net asset value per share
(plus a sales charge, in the case of a purchase of Investor Shares) next
determined after receipt by the Group of an order to purchase shares in proper
form. Purchases of Shares in a Fund will be effected only on a Business Day (see
VALUATION OF SHARES). It is the responsibility of the investor's broker-dealer
or other financial intermediary to transmit purchase orders and payment for
Shares to the Distributor on a timely basis.
If so designated on a Shareholder's Account Registration form, a
Shareholder may effect the following transactions by telephone: purchase
additional Fund Shares; effect redemptions; and exchange Fund Shares for Shares
of the class of any other Funds which the shareholder qualifies to purchase
directly (see TELEPHONE TRANSACTIONS).
Subsequent purchases of Fund Shares may be made at any time by mailing
a check or money order or wiring funds to the Group as described above. Once an
investor's Account Registration form has been received by the Group, the
investor may also purchase additional Shares by telephone or under the Automatic
Investment Plan described below. Telephone orders may be placed by calling the
Group at (800) 433-6884. Payment for Shares ordered by telephone may be made by
check and must be received by the Group within seven calendar days of the
telephone order.
If a check for the purchase of Shares does not clear (or in the case of
telephone orders, if payment is not received within five business days), the
purchase will be canceled and the investor could be liable for any losses or
fees incurred by a Fund. The Group reserves the right to take such action as is
necessary to recover any such fees and losses, including the involuntary
redemption of any Shares held in the ordering investor's account.
Investors may also purchase Shares by arranging systematic monthly,
bi-monthly or quarterly investments into the Municipal Funds with HighMark's
Automatic Investment Plan ("AIP"). The minimum initial investment under
HighMark's AIP is as referenced above. The minimum periodic investment amounts
are $50 per monthly or bi-monthly transfer or $150 per quarterly transfer, and
the minimum periodic investment per Fund is $25. The maximum amount with respect
to any transfer is $100,000. After investors give the Group proper
authorization, their bank accounts, which must be with banks which are members
of the Automated Clearing House, will be debited accordingly to purchase Shares.
Investors will receive a confirmation from the Group for every transaction, and
a debit entry will appear on their bank statements.
To participate in AIP, investors must complete the appropriate sections
of the Account Registration form or the Automatic Investment/Withdrawal Plan
form. These forms may be obtained by calling the Group at (800) 433-6884. The
amount investors specify will automatically be invested in Shares at the Fund's
net asset value per Share next determined after the debit is made.
-12-
<PAGE> 154
To change the frequency or amount invested under AIP, written
instructions must be received by the Group at least 7 Business Days in advance
of the next transfer. If the bank or bank account number is changed,
instructions must be received by the Group at least 20 Business Days in advance.
In order to change a bank or bank account number, investors also must have their
signature guaranteed by a bank, broker, dealer, credit union, securities
exchange, securities association, clearing agency or savings association, as
those terms are defined in Rule 17Ad-15 under the Securities Exchange Act of
1934 (an "Eligible Guarantor Institution"). Signature guarantees are described
more fully under HOW TO REDEEM SHARES below. If there are insufficient funds in
the investor's designated bank account to cover the Shares purchased using AIP,
the investor's bank may charge the investor a fee or may refuse to honor the
transfer instruction (in which case no Shares will be purchased).
Investors should check with their banks to determine whether their
banks are members of the Automated Clearing House and whether their banks charge
a fee for transferring funds through the Automated Clearing House. Expenses
incurred by the Funds related to AIP are borne by the Funds and therefore there
is no direct charge by the Fund to investors for use of these services.
Certain entities (including The Bank of California and its affiliates)
may charge customers fees in conjunction with investments in a Fund such as fees
for administrative support services and/or fees for the purchase or redemption
of the Fund's Shares through the customer's account pursuant to specific or
preauthorized instructions. Information concerning these services and any
charges can be obtained by the entity making the investment and this Prospectus
should be read in conjunction with that information.
The Group reserves the right to reject any order for the purchase of
Shares in whole or in part, including purchases made with foreign checks and
third party checks not originally made payable to the order of the investor.
Shareholders will receive a confirmation of each new transaction in the
Shareholder's account. Confirmations of purchases and redemptions on behalf of
customers of certain entities holding omnibus accounts (including certain
accounts of The Bank of California or its affiliates) will be sent to the entity
making the investment and Shareholders may rely on these statements in lieu of
certificates. Certificates representing the Municipal Funds' Shares will not be
issued.
SALES CHARGE
The public offering price of an Investor Share of each of the Funds
equals its net asset value plus a sales charge in accordance with the table
below.
BISYS Fund Services (the "Distributor") receives this sales charge as
Distributor and reallows a portion of it as dealer discounts and brokerage
commissions. However, the Distributor, in its sole discretion, may pay certain
dealers all or part of the portion of the sales charge it receives. A broker or
dealer who receives a reallowance in excess of 90% of the sales charge may be
deemed to be an "underwriter" for purposes of the Securities Act of 1933.
<TABLE>
<CAPTION>
Sales Charge as Dealer
a Percentage of Sales Charge as Allowance
Net Amount a Percentage of as a Percentage of
Amount of Purchase Invested Public Offering Price Public Offering Price
- ------------------ --------------- --------------------- ---------------------
<S> <C> <C> <C>
Less than $50,000 4.71% 4.50% 4.05%
$50,000 but less than $100,000 3.63% 3.50% 3.15%
$100,000 but less than $250,000 2.56% 2.50% 2.25%
$250,000 but less than $1,000,000 1.52% 1.50% 1.35%
$1,000,000 or more 0.00% 0.00% 0.00%
</TABLE>
From time to time dealers who receive dealer discounts and broker
commissions from the Distributor may reallow all or a portion of such dealer
discounts and broker commissions to other dealers or brokers.
The Distributor, at its expense, will also provide additional
compensation to dealers in connection with sales of Shares of any of the Funds
of the Group. Compensation will include financial assistance to dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns
-13-
<PAGE> 155
2regarding one or more of the Funds, and/or other dealer-sponsored special
events. In some instances, this compensation may be made available only to
certain dealers whose representatives have sold or are expected to sell a
significant amount of such Shares. Compensation will include payment for travel
expenses, including lodging, incurred in connection with trips taken by invited
registered representatives and members of their families to locations within or
outside of the United States for meetings or seminars of a business nature.
Compensation will also include the following types of non-cash compensation
offered through sales contests: (1) vacation trips, including the provision of
travel arrangements and lodging at luxury resorts at an exotic location, (2)
tickets for entertainment events (such as concerts, cruises, and sporting
events) and (3) merchandise (such as clothing, trophies, clocks and pens).
Dealers may not use sales of a Fund's Shares to qualify for this compensation to
the extent such may be prohibited by the laws of any state or any
self-regulatory agency, such as the National Association of Securities Dealers,
Inc. None of the aforementioned compensation is paid for by any Fund or its
shareholders.
SALES CHARGE WAIVERS
The following categories of investors may purchase Investor Shares of
the Funds with no sales charge in the manner described below (which may be
changed or eliminated at any time by the Distributor):
(1) Existing holders of Investor Shares of a Fund upon the reinvestment
of dividend and capital gain distributions on those Shares;
(2) State and local governments;
(3) Investment companies advised by MERUS or distributed by the BISYS
Group, Inc. or its affiliates placing orders on each entity's behalf;
(4) Individuals who have received distributions from employee benefit
trust accounts administered by The Bank of California who are rolling over such
distributions into an individual retirement account for which the Bank serves as
trustee or custodian;
(5) Individuals who purchase Shares with proceeds from a required
minimum distribution at age 70 1/2 from their employee benefit qualified plan or
an individual retirement account administered by The Bank of California;
(6) Individuals who purchase Shares with proceeds received in
connection with a distribution paid from a Bank of California trust or agency
account;
(7) Investment advisers or financial planners regulated by a federal
or state governmental authority who is purchasing Shares for its own account
or for an account for which they are authorized to make investment decisions
(i.e., a discretionary account) and who charge a management, consulting or
other fee for their services; and clients of such investment advisers or
financial planners who place trades for their own accounts if the accounts are
linked to the master account of such investment adviser or financial planner
on the books and records of a broker or agent;
(8) Investors purchasing Shares with proceeds from a redemption of
shares of another open-end investment company (other than The HighMark Group) on
which a sales charge was paid if such redemption occurred within thirty (30)
days prior to the date of the purchase order. Satisfactory evidence of the
purchaser's eligibility must be provided at the time of purchase (e.g., a
confirmation of the redemption);
(9) Brokers, dealers and agents who are purchasing for their own
account and who have a sales agreement with the Distributor, and their employees
(and spouse and children under the age of 21); and
(10) Investors purchasing Shares on behalf of a qualified prototype
retirement plan (other than an IRA, SEPIRA or Keogh) sponsored by the Bank of
California.
The Distributor may also periodically waive the sales charge for all
investors with respect to a Fund.
With regard to categories 2 through 10 above, the Distributor must be
notified that the purchase qualifies for a sales charge waiver at the time of
purchase.
[/R]
-14-
<PAGE> 156
LETTER OF INTENT
An Investor may obtain a reduced sales charge by means of a written
Letter of Intent that expresses the intention of such Investor to invest a
certain amount in Investor Shares of any of the Funds, within a period of 13
months. Each purchase of Shares under a Letter of Intent will be made at the
public offering price plus the sales charge applicable at the time of such
purchase to a single transaction of the total dollar amount indicated in the
Letter of Intent. A Letter of Intent may include purchases of Investor Shares
made not more than 90 days prior to the date such Investor signs a Letter of
Intent; however, the 13-month period during which the Letter of Intent is in
effect will begin on the date of the earliest purchase to be included. This
program may be modified or eliminated at any time or from time to time by the
Group without notice.
A Letter of Intent is not a binding obligation upon the Investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intent is 5% of such amount. Investor Shares purchased with the first
5% of such amount will be held in escrow (while remaining registered in the name
of the Investor) to secure payment of the higher sales charge applicable to the
Investor Shares actually purchased if the full amount indicated is not
purchased, and such escrowed Investor Shares will be involuntarily redeemed to
pay the additional sales charge, if necessary. Dividends on escrowed Investor
Shares, whether paid in cash or reinvested in additional Investor Shares, are
not subject to escrow. The escrowed Investor Shares will not be available for
disposal by the Investor until all purchases pursuant to the Letter of Intent
have been made or the higher sales charge has been paid. When the full amount
indicated has been purchased, the escrow will be released. When an Investor
enters into a letter of intent that includes Shares purchased prior to the date
of the letter of intent or to the extent that an Investor purchases more than
the dollar amount indicated on the Letter of Intent and qualifies for a further
reduced sales charge, the sales charge will be adjusted for the entire amount
purchased at the end of the 13-month period. The difference in sales charges
will be used to purchase additional Investor Shares subject to the rate of sales
charge applicable to the actual amount of the aggregate purchases at the then
current public offering price.
For further information, interested investors should contact the Group
at (800) 433-6884.
CONCURRENT PURCHASES AND RIGHTS OF ACCUMULATION
An Investor may qualify for a lower sales charge by combining
concurrent purchases of Investor Shares of one or more of the Funds of the Group
sold with a sales charge. For example, if a Shareholder concurrently purchases
Shares in one Fund sold with a sales charge at the total public offering price
of $50,000 and Shares in another Fund at the total public offering price of
$50,000, the sales charge would be that applicable to a $100,000 purchase. This
privilege, however, may be modified or eliminated at any time or from time to
time by the Group without notice thereof.
Pursuant to rights of accumulation, a Shareholder may combine a current
purchase of Investor Shares of a Fund with prior purchases of Investor Shares of
a Fund of the Group sold with a sales charge. The public offering price
applicable to a purchase of Investor Shares is based on the sum of (i) the
Shareholder's current purchase of Investor Shares of any Fund of the Group sold
with a sales charge and (ii) the then current net asset value of the
Shareholder's combined holdings of Investor Shares of any of the Funds of the
Group sold with a sales charge.
For purposes of concurrent purchases, rights of accumulation and
letters of intent, the Shareholder's combined holdings shall include the
combined holdings of the Shareholder and the Shareholder's spouse and children
under the age of 21. To receive the applicable public offering price pursuant to
such concurrent purchases, rights of accumulations and letters of intent,
Investors must, at the time of purchase, provide the Transfer Agent or the
Distributor with sufficient information to permit confirmation of qualification.
Accumulation privileges may be modified or eliminated at any time or from time
to time by the Group without notice.
REDUCTIONS FOR QUALIFIED GROUPS
Reductions in sales charges also apply to purchases by individual
members of a "qualified group." The reductions are based on the aggregate dollar
amount of shares purchased by all members of the qualified group. For purposes
of this paragraph, a qualified group consists of a "company," as defined in the
1940 Act, which has been in existence for more than six months and which has a
primary purpose other than acquiring shares of a Fund at a
-15-
<PAGE> 157
reduced sales charge, and the "related parties" of such company. For purposes of
this paragraph, a "related party" of a company is (i) any individual or other
company who directly or indirectly owns, controls or has the power to vote five
percent or more of the outstanding voting securities of such company; (ii) any
other company of which such company directly or indirectly owns, controls or has
the power to vote five percent or more of its outstanding voting securities;
(iii) any other company under common control with such company; (iv) any
executive officer, director or partner of such company or of a related party;
and (v) any partnership of which such company is a partner. Investors seeking to
rely on their membership in a qualified group to purchase shares at a reduced
sales load must provide evidence satisfactory to the Transfer Agent of the
existence of a bona fide qualified group and their membership therein.
All orders from a qualified group will have to be placed through a
single source and identified at the time of purchase as originating from the
same qualified group, although such orders may be placed into more than one
discrete account that identifies the group.
EXCHANGE PRIVILEGES
As indicated under GENERAL INFORMATION-Description of The Group & Its
Shares, each of the Group's investment portfolios ("Funds") issues two classes
of Shares (Investor Shares and Fiduciary Shares); as of the date of this
Prospectus, the Distribution Plan and distribution fee payable thereunder are
applicable only to each Fund's Investor Shares. A Shareholder's eligibility to
receive a particular class of Shares will be determined at the time of the
exchange. The shareholder must supply, at the time of the exchange, the
necessary information to permit confirmation of qualification.
Each Fund's Shares may be exchanged for Shares of the class of the
various other Funds of the Group which the shareholder qualifies to purchase
directly so long as the Shareholder maintains the applicable minimum account
balance in each Fund in which he or she owns Shares and satisfies the minimum
initial and subsequent purchase amounts of the Fund into which the Shares are
exchanged. Shareholders may exchange their Investor Shares for Investor Shares
of a Fund with the same or lower sales charge on the basis of the relative net
asset value of the Investor Shares exchanged. Shareholders may exchange their
Investor Shares for Investor Shares of a Fund with a higher sales charge by
paying the difference between the two sales charges. Shareholders may also
exchange Investor Shares of a Money Market Fund for which no sales load was paid
for Investor Shares of a Municipal Fund. Under such circumstances, the cost of
the acquired Investor Shares will be the net asset value per share plus the
appropriate sales load. If Investor Shares of the Money Market Fund were
acquired in a previous exchange involving Shares of a non-money market HighMark
Fund, then such Shares of the Money Market Fund may be exchanged for Shares of a
Municipal Fund without payment of any additional sales load within a twelve
month period. In order to receive a reduced sales charge when exchanging into a
Fund, the Shareholder must notify the Group that a sales charge was originally
paid and provide sufficient information to permit confirmation of qualification.
Exchanges will be made on the basis of the relative net asset values of
the Shares exchanged plus any applicable sales charge. Exchanges are subject to
the terms and conditions stated herein and the terms and conditions stated in
the respective prospectuses of the Funds.
Certain entities (including Participating Organizations and The Bank of
California and its affiliates), however, may charge customers a fee with respect
to exchanges made on the customer's behalf. Information about these charges can
be obtained by the entity effecting the exchange and this Prospectus should be
read in conjunction with that information.
A Shareholder wishing to exchange Shares in a Municipal Fund may do so
by contacting the Group at (800) 433-6884 (see TELEPHONE TRANSACTIONS).
Exchanges will be effected on any Business Day at the net asset value of the
Funds involved in the exchange next determined after the exchange request is
received by the Distributor or the Transfer Agent.
An exchange is considered to be a sale of Shares for federal income tax
purposes on which a Shareholder may realize a capital gain or loss. Exchange
privileges may be exercised only in those states where Shares of such other
Funds of the Group may legally be sold. The Group may materially amend or
terminate the exchange privileges described herein upon sixty days' notice.
-16-
<PAGE> 158
HOW TO REDEEM SHARES
Shares may ordinarily be redeemed by mail, by telephone or by
HighMark's Automatic Withdrawal Plan ("AWP") described below. However, with
respect to investments made on a customer's behalf by certain entities
(including Participating Organizations and The Bank of California or its
affiliates), all or part of the customer's Shares may be redeemed in accordance
with instructions and limitations pertaining to his or her account with such
entity. For example, if a customer has agreed to maintain a minimum balance with
the entity, the customer may be required to redeem, or the entity may redeem on
the customer's behalf, all or part of the customer's Shares to the extent
necessary to maintain the required minimum balance.
A written request for redemption must be received by the Group in order
to constitute a valid request for redemption. The Transfer Agent may require a
signature guarantee by an Eligible Guarantor Institution, as defined above under
HOW TO PURCHASE SHARES. The Group reserves the right to reject any signature
guarantee if (1) it has reason to believe that the signature is not genuine, (2)
it has reason to believe that the transaction would otherwise be improper, or
(3) the guarantor institution is a broker or dealer that is neither a member of
a clearing corporation nor maintains net capital of at least $100,000. The
signature guarantee requirement will be waived if both of the following
conditions apply: (1) the redemption check is payable to the Shareholder(s) of
record; and (2) the redemption check is mailed to the Shareholder(s) at the
address of record or the proceeds are either mailed or sent electronically to a
commercial bank account previously designated on the Account Registration form.
PAYMENTS TO SHAREHOLDERS
A Shareholder may have the payment of redemption requests sent
electronically or mailed directly to a domestic commercial bank account
previously designated on the Account Registration form. Redemption orders are
effected at the net asset value per Share next determined after receipt of a
valid request for redemption. Payments to Shareholders will be made within seven
days after the Group receives the redemption order. However, to the greatest
extent possible, the Group will attempt to honor requests from Shareholders for
next Business Day payments upon redemption of Shares if the request for
redemption is received by the Group before the Valuation Time, on a Business Day
or, if the request for redemption is received after, the Valuation Time to honor
requests for payment within two Business Days, unless it would be
disadvantageous to the Group or the Shareholders of the particular Fund to sell
or liquidate portfolio securities in an amount sufficient to satisfy requests
for payments in that manner. Under most circumstances, payments will be
transmitted on the next Business Day following receipt of a valid request for
redemption. A wire redemption request may be made by telephoning the Group, who
will reduce the amount of the wire redemption payment by its wire redemption
charge (presently $11.00). There is no charge for having payment of redemption
requests mailed to a designated bank account. Shareholders may redeem Shares by
telephone by calling the Group at (800) 433-6884 (see TELEPHONE TRANSACTIONS).
At various times, the Group may be requested to redeem Shares for which
it has not yet received good payment. In these circumstances, the Group may
delay the forwarding of proceeds until payment has been collected for the
purchase of the Shares, which may take up to 14 or more days. Shareholders may
avoid the possibility of such a delay by making payment for Shares by wiring
funds to the custodian. The Group intends to pay cash for all Shares redeemed,
but under abnormal conditions which make payment in cash unwise, the Group may
make payment wholly or partly in portfolio securities with a market value equal
to the redemption price. In these cases, an investor may incur brokerage costs
in converting the securities to cash.
Shareholders may also arrange to have systematic monthly, bi-monthly or
quarterly redemptions deposited into their bank accounts with AWP, provided that
their bank accounts are with banks which are members of the Automated Clearing
House. The minimum redemption amounts are $50 per monthly or bi-monthly transfer
or $150 per quarterly transfer, and the maximum amount with respect to any
transfer is $100,000. With proper Shareholder authorization, the Group will
redeem Shares equal to the dollar amount specified by the Shareholder at the net
asset value next determined after the credit is made.
To participate in AWP, Shareholders must complete the appropriate
sections of the Account Registration form or the Automatic Investment/Withdrawal
Plan form. These forms may be obtained by calling the Group at (800) 433-6884.
To change the frequency or amount withdrawn, instructions must be received by
the Group at least 7 Business Days in advance of the next transfer. If the bank
or bank account number is changed, instructions must be
-17-
<PAGE> 159
received by the Group at least 20 Business Days in advance. In order to change a
bank or bank account number, Shareholders also must have their signature
guaranteed by an Eligible Guarantor Institution as more fully described above.
Shareholders should check with their banks to determine whether their
banks are members of the Automated Clearing House and whether their banks charge
a fee for transferring funds through the Automated Clearing House. Expenses
incurred by the Municipal Funds related to AWP are borne by the Funds and
therefore there is no direct charge by a Fund to Shareholders for use of these
services.
Due to the relatively high cost of handling small investments, the
Group reserves the right to redeem, at net asset value, Shares of a Municipal
Fund if, because of redemptions, the Shareholder's account with respect to that
Fund has a value of less than $250. Accordingly, an investor purchasing Shares
of a Municipal Fund in only the minimum investment amount may be subject to
involuntary redemption if he or she thereafter redeems Shares in that Fund.
Before the Group exercises its right to redeem such Shares, the Shareholder will
be given notice and allowed 60 days to make an additional investment to increase
the value of the account to at least $250. For examples of when the Group may
suspend the right of redemption or redeem Shares involuntarily see ADDITIONAL
PURCHASE AND REDEMPTION INFORMATION-Matters Affecting Redemption in the
Statement of Additional Information.
TELEPHONE TRANSACTIONS
As noted above, unless a Shareholder elects otherwise, he or she has
the privilege to effect purchases, exchanges or redemptions by telephone. A
Shareholder risks possible losses from unauthorized exchanges or redemptions
from the Shareholder's account. Each Fund will employ procedures designed to
provide reasonable assurance that instructions communicated by telephone are
genuine, and if a Fund does not employ such procedures, the Fund may be liable
for any losses due to unauthorized or fraudulent instructions. These procedures
include recording all telephone transactions, sending confirmations to
Shareholders within 72 hours of the telephone transaction, verifying the account
name and a Shareholder's account number or tax identification number and sending
redemption proceeds only to the address of record or to a previously authorized
bank account. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, Shareholders may also mail the redemption request
to the Group at the address listed above under HOW TO PURCHASE SHARES.
DIVIDENDS
The net income of each of the Municipal Funds is declared and paid
monthly as a dividend to Shareholders of record at the close of business on the
day of declaration. Net capital gains are distributed at least annually to
Shareholders of record.
Shareholders will automatically receive all income dividends and
capital gains distributions in additional full and fractional Shares of a Fund
at net asset value as of the date of declaration (which is also the ex-dividend
date), unless the Shareholder elects to receive such dividends or distributions
in cash. Shareholders wishing to receive their dividends in cash (or wishing to
revoke a previously made election) must notify the Group at P.O. Box 7591, San
Francisco, CA 94120, and such election (or revocation thereof) will become
effective with respect to dividends and distributions having record dates after
notice has been received. Dividends paid in additional Shares receive the same
tax treatment as dividends paid in cash.
TAXATION
Each Municipal Fund intends to qualify for treatment as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), and to distribute all of its net investment income and net capital
gains (if any) so that it is not required to pay federal taxes on these amounts.
It is anticipated that no part of any distribution will be eligible for the
federal dividends received deduction for corporations.
Dividends derived from exempt-interest income generally may be treated
by the Shareholders of the California Municipal Fund and the Municipal Fund as
items of interest excludable from their gross income for federal income tax
purposes. However, with respect to dividends paid to Shareholders of the
Municipal Fund, and with respect to Shareholders of the California Municipal
Fund who are subject to income taxes in states other than
-18-
<PAGE> 160
California, such dividends may be taxable to Shareholders under state or local
law as ordinary income even though all or a portion of the amounts may be
derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such taxes. In determining net exempt-interest income,
expenses of the California Municipal Fund and the Municipal Fund are allocated
to gross tax-exempt interest income in the proportion that the gross amount of
such interest income bears to each Fund's total gross income, excluding net
capital gains. (Shareholders are advised to consult a tax adviser with respect
to whether exempt-interest dividends retain the exclusion if such Shareholder
would be treated as a "substantial user" or a "related person" to such user
under the Code.)
Under the Code, interest on indebtedness incurred or continued by a
Shareholder to purchase or carry Shares of the California Municipal Fund or the
Municipal Fund is not deductible for federal income tax purposes to the extent
the California Municipal Fund or the Municipal Fund, respectively, distributes
exempt-interest dividends during the Shareholder's taxable year.
Under the Code, if a Shareholder sells a Share of the California
Municipal Fund or the Municipal Fund after holding it for six months or less,
any loss on the sale or exchange of such Share will be disallowed to the extent
of the amount of any exempt-interest dividends that the Shareholder has received
with respect to the Share that is sold and will be treated as a long-term
capital loss to the extent of any capital gain dividend received with respect to
such Share.
To the extent dividends paid to Shareholders are derived from taxable
income (for example, from interest on certificates of deposit or repurchase
agreements), or from long-term or short-term capital gains, such dividends will
be subject to federal income tax, whether such dividends are paid in the form of
cash or additional Shares. A Shareholder should consult his or her tax adviser
for special advice.
Dividends attributable to interest on certain private activity bonds
issued after August 7, 1986 must be included in alternative minimum taxable
income for the purpose of determining liability (if any) for the federal
alternative minimum tax. In addition, exempt-interest dividends will often be
included in a corporation's "adjusted current earnings" for purposes of the
alternative minimum tax.
Shareholders of the Funds receiving social security or railroad
retirement benefits may be taxed on a portion of those benefits as a result of
receiving tax-exempt income (including exempt-interest dividends distributed by
the Funds).
If, at the close of each quarter of its taxable year, the California
Municipal Fund continues to qualify for the special federal income tax treatment
afforded regulated investment companies and at least 50% of the value of the
Fund's total assets consists of California Exempt-Interest Securities, then
"California exempt interest dividends" attributable to these securities will be
exempt from California state personal income tax. A "California exempt interest
dividend" is any dividend distributed by the Fund not exceeding the interest
received by the Fund on California Exempt-Interest Securities (less related
expenses) and designated as such by written notice to Shareholders. For further
details, see the Statement of Additional Information. Dividends received by
Shareholders subject to California state franchise or corporate income tax may
be taxed as ordinary dividends notwithstanding that all or a portion of such
dividends are exempt from the California state personal income tax.
Distributions other than "California exempt interest dividends" by the
California Municipal Fund to California residents will be subject to personal
income tax, whether or not such dividends are reinvested.
Additional information regarding federal and California taxes is
contained in the Statement of Additional Information. However, the foregoing and
the material in the Statement of Additional Information are only brief summaries
of some of the important tax considerations generally affecting a Municipal Fund
and its Shareholders. In addition, the foregoing discussion and the federal and
California tax information in the Statement of Additional Information are based
on tax laws and regulations which are in effect as of the date of this
Prospectus; these laws and regulations may subsequently change, and such changes
could be retroactive.
Shareholders will be advised at least annually as to the federal income
tax consequences, and, in the case of Shareholders of the California Municipal
Fund, as to the California income tax consequences, of distributions made during
the year.
-19-
<PAGE> 161
SERVICE ARRANGEMENTS
INVESTMENT ADVISER
MERUS, a division of The Bank of California, serves as the Municipal
Funds' investment adviser. Subject to the general supervision of the Group's
Board of Trustees, MERUS manages each Fund in accordance with its investment
objective and policies, makes decisions with respect to and places orders for
all purchases and sales of a Fund's investment securities, and maintains the
Fund's records relating to such purchases and sales.
[Portfolio Manager Information.]
For the expenses assumed and services provided by MERUS as each Fund's
investment adviser, The Bank of California receives a fee from each Municipal
Fund, computed daily and paid monthly, at the annual rate of one percent (1.00%)
of the first $40 million of each Fund's average daily net assets and sixty
one-hundredths of one percent (.60%) of the Fund's remaining average daily net
assets. This advisory fee is higher than that paid by most mutual funds. The
Bank of California may from time to time agree to voluntarily reduce its
advisory fee. While there can be no assurance that The Bank of California will
choose to make such an agreement, any voluntary reductions in The Bank of
California's advisory fee will lower the Fund's expenses, and thus increase the
Fund's yield and total return, during the period such voluntary reductions are
in effect.
Incorporated in 1864, The Bank of California was the first incorporated
banking institution in the West. The Bank of California offers a wide range of
banking services to its clients in California, Oregon and Washington and around
the world. As of September 30, 1995, The Bank of California and its subsidiaries
had approximately $7.4 billion in commercial assets. MERUS is a division of The
Bank of California's Trust and Investment Management Group, which manages
approximately $6.8 billion of The Bank of California's trust assets. MERUS, with
a team of approximately 30 stock and bond research analysts, portfolio managers
and traders, has been providing investment management services to individuals,
institutions and large corporations since 1917.
The Mitsubishi Bank, Limited, of Tokyo, Japan, directly or indirectly owns all
of the outstanding shares of the Bank. The Mitsubishi Bank, Limited and The Bank
of Tokyo, Ltd. have announced their intention to merge. The resulting entity
will be named The Bank of Tokyo-Mitsubishi, Ltd. The directors and shareholders
of the respective organizations have approved the proposed merger in principle.
The Bank of Tokyo, Ltd. and The Mitsubishi Bank, Limited announced they had
reached a basic understanding concerning the merger of their respective
subsidiary banks in California, Union Bank and The Bank of California. The
merger has been approved by the Boards of Directors of Union Bank and The Bank
of California, and will be finalized after obtaining the required shareholders'
and regulatory approvals. The name of the combined California bank will be Union
Bank of California.
The target date of both the above-described mergers is April 1, 1996.
One or more of the foregoing transactions may constitute an "assignment" of the
existing investment advisory agreements between the Group and MERUS. In the
event they do constitute such an "assignment" under the 1940 Act, the
"assignment" will result in the automatic termination of the investment advisory
agreements, effective at the time of the transaction. Prior to the transactions,
shareholders of each Fund will be asked to approve a new investment advisory
agreement between that Fund and Union Bank of California (or a registered
investment advisor affiliate), to take effect at the time of the transactions. A
proxy statement describing the terms of the new agreements will be sent to
shareholders of the Group prior to their being asked to vote on the new
agreements.
ADMINISTRATOR & DISTRIBUTOR
BISYS Fund Services Limited Partnership ("BISYS Fund Services")
is the administrator and distributor of the Municipal Funds. BISYS Fund
Services is a subsidiary of The BISYS Group, Inc., 150 Clove Road, Little
Falls, New Jersey 07424, a publicly owned company engaged in information
processing, loan servicing and 401(k) administration and recordkeeping
services to and through banking and other financial organizations. Pursuant
to a separate agreement with BISYS Fund Services, The Bank of California
performs sub-administration services on behalf of the Funds, for which it
receives compensation from
-20-
<PAGE> 162
BISYS Fund Services. A description of the services performed by The Bank of
California pursuant to this Agreement is contained in the Statement of
Additional Information.
As administrator, BISYS Fund Services generally assists in all aspects
of each Fund's administration and operation. For the expenses assumed and
services provided as administrator, BISYS Fund Services receives a fee from each
of the Municipal Funds, computed daily and paid periodically, at an annual rate
of twenty one-hundredths of one percent (0.20%) of each Fund's average daily net
assets. BISYS Fund Services may from time to time agree to reduce voluntarily
its administration fee. While there can be no assurance that BISYS Fund Services
will choose to make such an agreement, any voluntary reductions in BISYS Fund
Services's administration fee will lower a Fund's expenses, and thus increase
the Fund's yield and total return, during the period such voluntary reductions
are in effect.
The Group has adopted a Shareholder Services Plan permitting payment of
compensation to financial institutions that agree to provide certain
administrative support services for their customers who are Fund Shareholders.
Each Municipal Fund has entered into a specific arrangement with BISYS Fund
Services for the provision of such services by BISYS Fund Services, and
reimburses BISYS Fund Services for its cost of providing these services, subject
to a maximum annual rate of twenty-five one-hundredths of one percent (0.25%) of
each Fund's average daily net assets.
[/R]
THE DISTRIBUTION PLAN
Pursuant to the Group's Distribution Plan, each Municipal Fund pays the
Distributor as compensation for its services in connection with the Distribution
Plan a distribution fee, computed daily and paid monthly, equal to twenty-five
one-hundredths of one percent (0.25%) of the average daily net assets
attributable to the Fund's Investor Shares. Fiduciary Shares are not subject to
the Distribution Plan or a distribution fee.
The Distributor may use the distribution fee applicable to a Fund's
Investor Shares to provide distribution assistance with respect to the sale of
the Fund's Investor Shares or to provide Shareholder services to the holders of
the Fund's Investor Shares. The Distributor may also use the distribution fee
(i) to pay financial institutions and intermediaries (such as insurance
companies and investment counselors but not including banks and savings and loan
associations), broker-dealers, and the Distributor's affiliates and subsidiaries
compensation for services or reimbursement of expenses incurred in connection
with the distribution of a Fund's Investor Shares to their customers or (ii) to
pay banks, savings and loan associations, other financial institutions and
intermediaries, broker-dealers, and the Distributor's affiliates and
subsidiaries compensation for services or reimbursement of expenses incurred in
connection with the provision of Shareholder services to their customers owning
a Fund's Investor Shares. All payments by the Distributor for distribution
assistance or Shareholder services under the Distribution Plan will be made
pursuant to an agreement between the Distributor and such bank, savings and loan
association, other financial institution or intermediary, broker-dealer, or
affiliate or subsidiary of the Distributor (a "Servicing Agreement"; banks,
savings and loan associations, other financial institutions and intermediaries,
broker-dealers, and the Distributor's affiliates and subsidiaries that may enter
into a Servicing Agreement are hereinafter referred to individually as a
"Participating Organization"). A Participating Organization may include The Bank
of California, its subsidiaries and its affiliates.
Participating Organizations may charge customers fees in connection
with investments in a Fund on their customers' behalf. Such fees would be in
addition to any amounts the Participating Organization may receive pursuant to
its Servicing Agreement. Under the terms of the Servicing Agreements,
Participating Organizations are required to provide their customers with a
schedule of fees charged directly to such customers in connection with
investments in a Fund. Customers of Participating Organizations should read this
Prospectus in light of the terms governing their accounts with the Participating
Organization.
The distribution fee under the Distribution Plan will be payable
without regard to whether the amount of the fee is more or less than the actual
expenses incurred in a particular year by the Distributor in connection with
distribution assistance or Shareholder services rendered by the Distributor
itself or incurred by the Distributor pursuant to the Servicing Agreements
entered into under the Distribution Plan. The Distributor may from time to time
voluntarily reduce its distribution fee with respect to a Fund in significant
amounts for substantial periods of time pursuant to an agreement with the Group.
While there can be no assurance that the Distributor will choose to make such an
agreement, any voluntary reduction in the Distributor's distribution fee will
lower such Fund's expenses, and
-21-
<PAGE> 163
thus increase such Fund's yields and total returns, during the period such
voluntary reductions are in effect. In addition, the Distributor and the
Participating Organizations have agreed to voluntarily reduce payments to be
received pursuant to the Distribution Plan with respect to a Fund to the extent
necessary to ensure that such payments do not exceed the income attributable to
such Fund's Investor Shares on any day.
BANKING LAWS
The Bank of California believes that MERUS may perform the services for
the Funds contemplated by its investment advisory agreement with the Group
without a violation of applicable banking laws and regulations, and has so
represented to the Group in the investment advisory agreement. The Bank of
California also believes that it may perform sub-administration services on
behalf of each Fund, for which it receives compensation from BISYS Fund Services
without a violation of applicable banking laws and regulations and has so
represented in the Servicing Agreement. Future changes in federal or state
statutes and regulations relating to permissible activities of banks or bank
holding companies and their subsidiaries and affiliates, as well as further
judicial or administrative decisions or interpretations of present and future
statutes and regulations, could change the manner in which The Bank of
California or MERUS could continue to perform such services for the Funds. For a
further discussion of applicable banking laws and regulations, see the Statement
of Additional Information.
TRANSFER AGENT, CUSTODIAN & FUND ACCOUNTING SERVICES
BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, OH 43219,
serves as the Municipal Funds' transfer agent and also acts as the Municipal
Funds' fund accountant. While BISYS Fund Services Ohio, Inc. is a distinct legal
entity from BISYS Fund Services (the Group's administrator and distributor),
BISYS Fund Services Ohio, Inc. is considered to be an affiliated person of BISYS
Fund Services under the 1940 Act due to, among other things, the fact that BISYS
Fund Services Ohio, Inc. is owned by substantially the same persons that
directly or indirectly own BISYS Fund Services.
Pursuant to an agreement with BISYS Fund Services Ohio, Inc., The Bank
of California provides sub-transfer agency services with respect to investments
in each Fund's Shares through certain accounts maintained with The Bank of
California and its affiliates, for which it receives compensation from BISYS
Fund Services Ohio, Inc. The Bank of California also serves as the custodian for
the Municipal Funds.
Services performed by BISYS Fund Services Ohio, Inc., as the Funds'
transfer agent and fund accountant, and by The Bank of California, as the Funds'
sub-transfer agent and custodian, as well as the basis of remuneration for such
services, are described in the Statement of Additional Information.
GENERAL INFORMATION
DESCRIPTION OF THE GROUP & ITS SHARES
The Group was organized as a Massachusetts business trust on March 10,
1987, and consists of 13 series of Shares representing units of beneficial
interest in the Group's Growth Fund, Income and Growth Fund, Income Equity Fund,
Balanced Fund, Bond Fund, Government Bond Fund, Diversified Obligations Fund,
U.S. Government Obligations Fund, 100% U.S. Treasury Obligations Fund,
California Tax-Free Fund, Tax-Free Fund, Intermediate California Municipal Bond
Fund and Intermediate Municipal Bond Fund. Shares of each Fund are freely
transferable, are entitled to distributions from the assets of the Fund as
declared by the Board of Trustees, and, if the Group were liquidated, would
receive the net assets attributable to that Fund. Shares are without par value.
As noted above, pursuant to an order received by the Group from the
Securities and Exchange Commission permitting the issuance and sale of two
classes of Shares in each Fund, Shares of each Fund have been divided into two
classes, designated Investor Shares and Fiduciary Shares, for purposes of the
Group's Distribution Plan and related distribution fee, which fee is applicable
only to such Funds' Investor Shares. Investor Shares and Fiduciary Shares
represent interests in the same portfolio of investments of a Fund and are
identical in all respects except that Investor Shares bear the expense of the
fee, if any, under the Distribution Plan, which will cause the Investor Shares
to have a higher expense ratio (and possibly lower net asset value) and to pay
lower dividends than those related to Fiduciary Shares, and Investor Shares have
certain exclusive voting rights with respect to the Distribution Plan.
-22-
<PAGE> 164
Investor shares are generally sold subject to a sales charge at the time of
purchase. There is no sales charge on Fiduciary Shares.
MISCELLANEOUS
Shareholders will be sent unaudited semi-annual reports and annual
reports audited by independent public accountants.
Shareholders are entitled to one vote for each Share held in a Fund as
determined on the record date for any action requiring a vote by the
Shareholders, and a proportionate fractional vote for each fractional Share
held. Shareholders of the Group will vote in the aggregate and not by series or
class except (i) as otherwise expressly required by law or when the Group's
Board of Trustees determines that the matter to be voted upon affects only the
interests of the Shareholders of a particular series or particular class, and
(ii) only Investor Shares will be entitled to vote on matters submitted to a
Shareholder vote relating to the Distribution Plan. The Group is not required to
hold regular annual meetings of Shareholders, but may hold special meetings from
time to time.
The Group's Trustees are elected by Shareholders, except that vacancies
may be filled by vote of the Board of Trustees. Trustees may be removed by the
Board of Trustees, or by Shareholders at a meeting called for such purpose. For
information about how Shareholders may call such a meeting and communicate with
other Shareholders for that purpose, see ADDITIONAL INFORMATION-Miscellaneous in
the Statement of Additional Information.
Inquiries may be directed in writing to The HighMark Group at 3435
Stelzer Road, Columbus, Ohio 43219, or by calling toll free (800) 433-6884.
-23-
<PAGE> 165
THE HIGHMARK MUNICIPAL FUNDS
INVESTMENT PORTFOLIOS OF
THE HIGHMARK MUTUAL FUND GROUP
For further information (including current
yield, purchase and redemption information),
call (800) 433-6884
INVESTMENT ADVISER
MERUS Capital Management,
a division of The Bank of California, N.A.
400 California Street
Post Office Box 45000
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
AUDITORS
Deloitte & Touche LLP
1700 Courthouse Plaza Northeast
Dayton, OH 45402
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE GROUP
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE GROUP
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
-24-
<PAGE> 166
CROSS REFERENCE SHEET
THE HIGHMARK GROUP
<TABLE>
<CAPTION>
<S> <C>
Statement of Additional
Form N-1A Part B Item Information Caption
- --------------------- -----------------------
10. Cover Page....................................... Cover Page
11. Table of Contents................................ Table of Contents
12. General Information and History.................. The Group; Additional
Information--Description
of Shares
13. Investment Objectives and Policies............... Investment Objectives and
Policies
14. Management of the Group.......................... Management of the Group
15. Control Persons and Principal Holders of
Securities..................................... Additional Information--
Miscellaneous
16. Investment Advisory and Other Services........... Management of the Group
17. Brokerage Allocation............................. Management of the Group--
Portfolio Transactions
18. Capital Stock and Other Securities............... Valuation; Additional
Purchase and Redemption
Information--Matters
Affecting Redemption;
Management of the Group--
Distributor--The
Distribution Plan;
Additional Information
19. Purchase, Redemption and Pricing of
Securities Being Offered....................... Valuation; Additional
Purchase and Redemption
Information--Matters
Affecting Redemption;
Management of the Group
20. Tax Status....................................... Additional Purchase and
Redemption Information--
Additional Federal Tax
Information; Additional
Purchase and Redemption
Information--Additional
Tax Information Concerning
the California Tax-Free
Fund, the Tax-Free Fund,
the California Municipal
Fund and the Municipal
Fund
21. Underwriters..................................... Management of the Group--
Distributor
22. Calculation of Performance Data.................. Calculation of Performance
Data
23. Financial Statements............................. Independent Auditor's
Report for The HighMark
Group for the Year Ended
July 31, 1995/Financial
Statements for The HighMark
Group for the Periods
Ended July 31, 1995
</TABLE>
<PAGE> 167
The HighMark Group
Statement of Additional Information
December 1, 1995
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectuses of The HighMark Equity Funds, The HighMark
Income Funds, The HighMark Money Market Funds and The HighMark Municipal Funds,
each of which is dated December 1, 1995 (collectively, the "Prospectuses") and
any supplements thereto. This Statement of Additional Information is
incorporated in its entirety into the Prospectuses. Copies of the Prospectuses
may be obtained by writing The HighMark Group at 3435 Stelzer Road, Columbus,
Ohio 43219, or by telephoning toll free (800) 433-6884. Capitalized terms used
but not defined herein have the same meanings as set forth in the Prospectuses.
<PAGE> 168
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
THE GROUP................................................................................... 1
INVESTMENT OBJECTIVES AND POLICIES.......................................................... 2
Additional Information on Portfolio Instruments.................................... 2
High Quality Investments With Regard to the Money Market Funds............ 2
Bank Instruments.......................................................... 4
Commercial Paper and Variable Amount Master Demand Notes.................. 5
Loan Participations....................................................... 5
Lending of Portfolio Securities........................................... 5
Foreign Investments....................................................... 6
Repurchase Agreements..................................................... 6
Reverse Repurchase Agreements............................................. 7
U.S. Government Obligations............................................... 7
Mortgage-Related Securities............................................... 8
Adjustable Interest Rate Notes............................................ 10
Municipal Securities...................................................... 11
Investments in Municipal Securities by the California Tax-Free Fund and
the California Municipal Fund............................................. 15
Investments in Municipal Securities by the Tax-Free Fund.................. 18
Puts...................................................................... 18
Shares of Mutual Funds.................................................... 19
When-Issued Securities.................................................... 19
Zero-Coupon Securities.................................................... 20
Investment Restrictions................................................... 20
Portfolio Turnover........................................................ 26
VALUATION................................................................................... 27
Valuation of the Money Market Funds................................................ 27
Valuation of the Growth Fund, the Income and Growth Fund, the Income Equity
Fund, the Balanced Fund, the Bond Fund, the Government Bond Fund,
the California Municipal Fund and the Municipal Fund...................... 28
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.............................................. 28
Purchase of Investor Shares........................................................ 29
Matters Affecting Redemption....................................................... 29
Additional Federal Tax Information................................................. 29
Additional Tax Information Concerning the California Tax-Free Fund, the Tax-
Free Fund, the California Municipal Fund and the Municipal Fund........... 31
</TABLE>
2
<PAGE> 169
<TABLE>
<S> <C>
Federal Taxation.......................................................... 31
California Taxation....................................................... 33
MANAGEMENT OF THE GROUP..................................................................... 35
Trustees and Officers.............................................................. 35
Investment Adviser................................................................. 37
Portfolio Transactions............................................................. 39
Glass-Steagall Act................................................................. 41
Administrator and Sub-Administrator................................................ 42
Shareholder Services Plan.......................................................... 44
Expenses........................................................................... 44
Distributor........................................................................ 45
The Distribution Plan.............................................................. 45
Transfer Agent, Custodian and Fund Accounting Services............................. 46
Auditors........................................................................... 49
Legal Counsel...................................................................... 49
ADDITIONAL INFORMATION...................................................................... 49
Description of Shares.............................................................. 49
Shareholder and Trustee Liability.................................................. 51
The Reorganization of the IRA Fund and the Group................................... 51
Calculation of Performance Data.................................................... 52
Miscellaneous...................................................................... 57
APPENDIX.................................................................................... 70
INDEPENDENT AUDITOR'S REPORT FOR THE HIGHMARK GROUP
FOR THE YEAR ENDED JULY 31, 1995................................................... F1
FINANCIAL STATEMENTS FOR THE HIGHMARK GROUP FOR THE
PERIODS ENDED JULY 31, 1995 ....................................................... F2
</TABLE>
3
<PAGE> 170
STATEMENT OF ADDITIONAL INFORMATION
THE GROUP
The HighMark Group (the "Group") is a diversified, open-end management
investment company. The Group presently consists of thirteen series of Shares,
representing units of beneficial interest in The HighMark Growth Fund, The
HighMark Income and Growth Fund, The HighMark Income Equity Fund, The HighMark
Balanced Fund, The HighMark Bond Fund, The HighMark Government Bond Fund, The
HighMark Diversified Obligations Fund, The HighMark U.S. Government Obligations
Fund, The HighMark 100% U.S. Treasury Obligations Fund, The HighMark California
Tax-Free Fund, The HighMark Tax-Free Fund, The HighMark Intermediate California
Municipal Bond Fund, and The HighMark Intermediate Municipal Bond Fund. As of
the date hereof, the HighMark California Municipal Bond Fund and The HighMark
Intermediate Municipal Bond Fund have not yet commenced operations. The HighMark
Income and Growth Fund, The HighMark Balanced Fund, and The HighMark Government
Bond Fund commenced operations on November 14, 1993 and The HighMark Growth Fund
commenced operations on November 18, 1993. The HighMark Income Equity Fund and
the HighMark Bond Fund commenced operations on June 23, 1988 as a result of the
reorganization of the Income Equity Portfolio and the Bond Portfolio,
respectively, of the IRA Collective Investment Fund (the "IRA Fund") described
under "ADDITIONAL INFORMATION - The Reorganization of the IRA Fund and the
Group" below. The HighMark Diversified Obligations Fund, the HighMark U.S.
Government Obligations Fund and The 100% U.S. Treasury Obligations Fund
commenced operations on August 10, 1987. The HighMark California Tax-Free Fund
commenced operations on August 11, 1987. The HighMark Tax-Free Fund commenced
operations on August 22, 1987.
As described in the Prospectuses, each of the Group's Funds has been
divided into two classes of Shares (designated Investor Shares and Fiduciary
Shares) for purposes of the Group's Distribution and Shareholder Services Plans
(the "Distribution Plans"), which Distribution Plans applies only to such Funds'
Investor Shares. Investor Shares and Fiduciary Shares are sometimes herein
referred to collectively as "Shares".
The Diversified Obligations Fund, The U.S. Government Obligations Fund,
the 100% U.S. Treasury Obligations Fund, the California Tax-Free Fund and the
Tax-Free Fund are sometimes herein referred to as the "Money Market Funds." The
Income
B-1
<PAGE> 171
Equity Portfolio and the Bond Portfolio of the IRA Fund (which were reorganized
into the Group's Funds as described above) are sometimes referred to herein as
the "IRA Fund Portfolios."
Much of the information contained herein expands upon subjects
discussed in the Prospectuses for the respective Funds. No investment in Shares
of a Fund should be made without first reading that Fund's Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the investment objectives and
policies of each Fund of the Group as set forth in the respective Prospectus for
that Fund.
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
HIGH QUALITY INVESTMENTS WITH REGARD TO THE MONEY MARKET FUNDS. As noted in the
Prospectuses for the Money Market Funds, each such Fund may invest only in
obligations determined by MERUS to present minimal credit risks under guidelines
adopted by the Group's Board of Trustees.
With regard to the Diversified Obligations Fund, the California
Tax-Free Fund, and the Tax-Free Fund, investments will be limited to "Eligible
Securities" that (i) in the case of the Diversified Obligations Fund, include
those obligations that, at the time of purchase, possess one of the two highest
short-term ratings by at least two NRSROs or do not possess a rating (i.e., are
unrated) but are determined by MERUS to be of comparable quality to the rated
instruments eligible for purchase by the Fund under guidelines adopted by the
Board of Trustees and (ii) in the case of the California Tax- Free Fund and the
Tax-Free Fund, include those obligations that, at the time of purchase, possess
one of the two highest short-term ratings by at least one NRSRO or do not
possess a rating (i.e., are unrated) but are determined by MERUS to be of
comparable quality to the rated obligations eligible for purchase by the Fund
under guidelines adopted by the Board of Trustees. In applying the
above-described investment policies, a security that has not received a rating
will be deemed to possess the rating assigned to an outstanding class of the
issuer's short-term debt obligations if determined by MERUS to be comparable in
priority and security to the obligation selected for purchase by the Fund.
A security subject to a tender or demand feature will be considered an
Eligible Security only if both the demand feature and the underlying security
possess a high quality rating or, if such do not possess a rating, are
determined by MERUS to be of comparable quality; provided, however, that where
the demand feature would be readily exercisable in the event of a default in
payment of principal or interest on the underlying security, the obligation may
be acquired based on the rating possessed by the demand
B-2
<PAGE> 172
feature or, if the demand feature does not possess a rating, a determination of
comparable quality by MERUS. A security that at the time of issuance had a
maturity exceeding 397 days but, at the time of purchase, has a remaining
maturity of 397 days or less, is not considered an Eligible Security if it does
not possess a high quality rating and the long-term rating, if any, is not
within the two highest rating categories.
Eligible Securities include First Tier Securities and Second Tier
Securities. In the case of the Diversified Obligations Fund, First Tier
Securities include those that possess at least two ratings in the highest
category and, if the securities do not possess a rating, those that are
determined to be of comparable quality by MERUS pursuant to guidelines adopted
by the Board of Trustees. In the case of the California Tax-Free Fund and the
Tax-Free Fund, First Tier Securities include those that possess a rating in the
highest category and, if the securities do not possess a rating, those that are
determined to be of comparable quality by MERUS pursuant to guidelines adopted
by the Board of Trustees. In the case of each of the Diversified Obligations
Fund, the California Tax-Free Fund, and the Tax-Free Fund, Second Tier
Securities are all other Eligible Securities.
The Diversified Obligations Fund will not invest more than 5% of its
total assets in the First Tier Securities of any one issuer, except that the
Fund may invest up to 25% of its total assets in First Tier Securities of a
single issuer for a period of up to three business days. In addition, the
Diversified Obligations Fund may not invest more than 5% of its total assets in
Second Tier Securities, with investments in the Second Tier Securities of any
one issuer further limited to the greater of 1% of the Fund's total assets or
$1.0 million. If a percentage limitation is satisfied at the time of purchase, a
later increase in such percentage resulting from a change in the Diversified
Obligations Fund's net asset value or a subsequent change in a security's
qualification as a First Tier or Second Tier Security will not constitute a
violation of the limitation. In addition, there is no limit on the percentage of
the Diversified Obligations Fund's assets that may be invested in obligations
issued or guaranteed by the U.S. Government, its agencies, or instrumentalities
and repurchase agreements fully collateralized by such obligations.
Under the guidelines adopted by the Group's Board of Trustees and in
accordance with Rule 2a-7 under the Investment Company Act of 1940 (the "1940
Act"), MERUS may be required to promptly dispose of an obligation held in a
Fund's portfolio in the event of certain developments that indicate a
diminishment of the instrument's credit quality, such as where an NRSRO
downgrades an obligation below the second highest rating category, or in the
event of a default relating to the financial condition of the issuer.
The Appendix to this Statement of Additional Information identifies
each NRSRO that may be utilized by MERUS with regard to portfolio investments
for the Funds and provides a description of relevant ratings assigned by each
such NRSRO. A rating by an
B-3
<PAGE> 173
NRSRO may be utilized only where the NRSRO is neither controlling, controlled
by, or under common control with the issuer of, or any issuer, guarantor, or
provider of credit support for, the instrument.
BANK INSTRUMENTS. Consistent with its investment objective, policies, and
restrictions, each Fund (other than the U.S. Government Obligations Fund, the
100% U.S. Treasury Obligations Fund, the California Tax-Free Fund and the
Tax-Free Fund) may invest in bankers' acceptances, certificates of deposit, and
time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise that
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity. Investments in
bankers' acceptances will be limited to those guaranteed by domestic and foreign
banks having, at the time of investment, capital, surplus, and undivided profits
in excess of $100,000,000 (as of the date of the institution's most recently
published financial statements).
Certificates of deposit and time deposits represent funds deposited in
a commercial bank or a savings and loan association for a definite period of
time and earning a specified return.
Investments in certificates of deposit and time deposits may include
Eurodollar Certificates of Deposit, which are U.S. dollar denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States, Yankee Certificates of Deposit, which are
certificates of deposit issued by a U.S. branch of a foreign bank denominated in
U.S. dollars and held in the United States, Eurodollar Time Deposits ("ETDs"),
which are U.S. dollar denominated deposits in a foreign branch of a U.S. bank or
a foreign bank, and Canadian Time Deposits ("CTDs"), which are U.S. dollar
denominated certificates of deposit issued by Canadian offices of major Canadian
banks. All investments in certificates of deposit and time deposits will be
limited to those (a) of domestic and foreign banks and savings and loan
associations which, at the time of investment, have capital, surplus, and
undivided profits in excess of $100,000,000 (as of the date of the institution's
most recently published financial statements) or (b) the principal amount of
which is insured in full by the Federal Deposit Insurance Corporation.
There is no limitation on the Diversified Obligations Fund's ability to
invest in domestic certificates of deposit and bankers' acceptances in
connection with the Fund's fundamental investment restriction governing
concentration in the securities of one or more issuers conducting their
principal business activities in the same industry. For purposes of this
exception to the Fund's fundamental investment restriction, domestic
certificates of deposit and bankers' acceptances include those issued by
domestic branches of foreign banks to the extent permitted by the rules and
regulations of the
B-4
<PAGE> 174
Securities and Exchange Commission staff. These rules and regulations currently
permit U.S. branches of foreign banks to be considered domestic banks if it can
be demonstrated that they are subject to the same regulation as U.S. banks.
COMMERCIAL PAPER AND VARIABLE AMOUNT MASTER DEMAND NOTES. Consistent with its
investment objective, policies, and restrictions, each Fund (other than the U.S.
Government Obligations Fund and the 100% U.S. Treasury Obligations Fund) may
invest in commercial paper and variable amount master demand notes. Commercial
paper consists of unsecured promissory notes issued by corporations normally
having maturities of less than nine months and fixed rates of return. These
investments may include Canadian Commercial Paper, which is U.S. dollar
denominated commercial paper issued by a Canadian corporation or a Canadian
counterpart of a U.S. corporation, and Europaper, which is U.S. dollar
denominated commercial paper of a foreign issuer.
Variable amount master demand notes are unsecured demand notes that
permit the indebtedness thereunder to vary and provide for periodic adjustments
in the interest rate according to the terms of the instrument. Because master
demand notes are direct lending arrangements between a Fund and the issuer, they
are not normally traded. Although there is no secondary market in the notes, a
Fund may demand payment of principal and accrued interest at any time. A
variable amount master demand note will be deemed to have a maturity equal to
the longer of the period of time remaining until the next readjustment of its
interest rate or the period of time remaining until the principal amount can be
recovered from the issuer through demand.
LOAN PARTICIPATIONS. As indicated in the Money Market Funds' Prospectus, the
Diversified Obligations Fund may invest in loan participations pursuant to which
the Fund acquires a portion of bank or other lending institution's interest in a
secured or unsecured loan to a corporate borrower. Loans in which the Fund may
purchase loan participations may be made to finance a variety of corporate
purposes, but will not be made to finance highly leveraged activities such as
"leveraged buy-outs." Loan participations will be subject to the Fund's
non-fundamental 10% limitation governing investments in "illiquid" securities.
See "Investment Restrictions" below.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Growth Fund, the Income and Growth Fund, the Income Equity Fund, the Balanced
Fund, the Bond Fund, the Government Bond Fund, the Diversified Obligations Fund,
the U.S. Government Obligations Fund and the 100% U.S. Treasury Obligations Fund
may each lend its portfolio securities to broker-dealers, banks or other
institutions. During the time portfolio securities are on loan, the borrower
will pay the Fund any dividends or interest paid on the securities. In addition,
loans will be subject to termination by the Fund or the borrower at any time.
While the lending of securities may subject a Fund to certain risks, such as
delays or an inability to regain the securities in the event the borrower
were to default on its lending agreement or enter into bankruptcy, the Fund
will receive 100% collateral in the form of cash or U.S. Government
securities. This collateral will be valued daily and, should the market value
of the loaned securities increase, the borrower will be required to furnish
B-5
<PAGE> 175
additional collateral to the Fund. Although the Funds do not expect to do so on
a regular basis, a Fund may lend portfolio securities in amounts representing up
to 35% of the value of the Fund's total assets.
FOREIGN INVESTMENTS. Investments in securities issued by foreign branches of
U.S. banks, foreign banks, or other foreign issuers, including American
Depository Receipts ("ADRs") and securities purchased on foreign securities
exchanges, may subject the Funds to investment risks that differ in some
respects from those related to investments in obligations of U.S. domestic
issuers or in U.S. securities markets. Such risks include future adverse
political and economic developments, possible seizure, nationalization or
expropriation of foreign investments, less stringent disclosure requirements,
increased costs associated with the conversion of foreign currency into U.S.
dollars, changes in foreign currency exchange rates, the possible establishment
of exchange controls or taxation at the source, or the adoption of other foreign
governmental restrictions.
REPURCHASE AGREEMENTS. Securities held by each Fund (other than the 100% U.S.
Treasury Obligations Fund) may be subject to repurchase agreements. As a matter
of non-fundamental policy, each of the California Tax-Free Fund and the Tax-Free
Fund intends to limit investments in repurchase agreements to no more than 5% of
the value of its total assets.
Under the terms of a repurchase agreement, a Fund will acquire
securities from financial institutions such as member banks of the Federal
Deposit Insurance Corporation with capital, surplus, and undivided profits of
not less than $100,000,000 (as of the date of the institution's most recently
published financial statements) and from registered broker-dealers that MERUS
deems creditworthy under guidelines approved by the Group's Board of Trustees.
Under a repurchase agreement, the seller agrees to repurchase the securities at
a mutually agreed-upon date and price, and the repurchase price will generally
equal the price paid by the Fund plus interest negotiated on the basis of
current short-term rates, which may be more or less than the rate on the
underlying portfolio securities. The seller under a repurchase agreement will be
required to maintain the value of collateral held pursuant to the agreement at
not less than the repurchase price (including accrued interest) and MERUS will
monitor the collateral's value to ensure that it equals or exceeds the
repurchase price. In addition, securities subject to repurchase agreements will
be held in a segregated custodial account.
If the seller were to default on its repurchase obligation or become
insolvent, the Fund holding such obligation would suffer a loss to the extent
that either the proceeds from a sale of the underlying portfolio securities were
less than the repurchase price under the agreement or the Fund's disposition of
the underlying securities was delayed pending court action. Additionally,
although there is no controlling legal precedent confirming that a Fund would be
entitled, as against a claim by the seller or its receiver or trustee in
bankruptcy, to retain the underlying securities, the Group's Board of Trustees
believes that, under the regular procedures normally in effect for custody of a
Fund's securities subject to repurchase agreements and under federal laws, a
court of
B-6
<PAGE> 176
competent jurisdiction would rule in favor of the Fund if presented with the
question. Securities subject to repurchase agreements will be held by the
Group's custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the Investment Company Act of 1940.
REVERSE REPURCHASE AGREEMENTS. Each Fund (other than the 100% U.S. Treasury
Obligations Fund) may borrow funds for temporary purposes by entering into
reverse repurchase agreements, provided such action is consistent with the
Fund's investment objective and fundamental investment restrictions; as a matter
of non-fundamental policy, each Fund intends to limit such investments to no
more than 5% of the value of its total assets. Pursuant to a reverse repurchase
agreement, a Fund will sell portfolio securities to financial institutions such
as banks or to broker-dealers, and agree to repurchase the securities at a
mutually agreed-upon date and price. A Fund intends to enter into reverse
repurchase agreements only to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. At the time a Fund enters
into a reverse repurchase agreement, it will place in a segregated custodial
account assets such as U.S. Government securities or other liquid, high-quality
debt securities consistent with the Fund's investment objective having a value
equal to the repurchase price (including accrued interest), and will
subsequently monitor the account to ensure that an equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by a Fund may decline below the price at which a Fund is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by a Fund under the Investment Company Act of 1940.
U.S. GOVERNMENT OBLIGATIONS. With the exception of the 100% U.S. Treasury
Obligations Fund, which may invest only in direct U.S. Treasury obligations,
each Fund may, consistent with its investment objective, policies, and
restrictions, invest in obligations issued or guaranteed by the U.S. Government,
its agencies, or instrumentalities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association and the Export-Import Bank of the United States,
are supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; and still others, such as
those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law.
For information concerning mortgage-related securities issued by
certain agencies or instrumentalities of the U.S. Government, see
"Mortgage-Related Securities" below.
B-7
<PAGE> 177
MORTGAGE-RELATED SECURITIES. As indicated in the Money Market Funds' Prospectus,
the Diversified Obligations Fund and the U.S. Government Obligations Fund may
each invest in mortgage-related securities issued by the Government National
Mortgage Association ("GNMA") representing GNMA Mortgage Pass-Through
Certificates (also known as "Ginnie Maes"). The Growth Fund, the Income and
Growth Fund, the Income Equity Fund, the Balanced Fund, the Bond Fund and the
Government Bond Fund may also, consistent with each such Fund's investment
objective and policies, invest in Ginnie Maes as well as other mortgage-related
securities issued or guaranteed by the U.S. Government, its agencies, or its
instrumentalities or, except for the Government Bond Fund, those issued by
nongovernmental entities. In addition, the Balanced Fund, the Bond Fund and the
Government Bond Fund may invest in collateralized mortgage obligations ("CMOs"),
provided that the Government Bond Fund may invest only in CMOs issued or
guaranteed by the U.S. Government, its agencies and instrumentalities. The
Growth Fund, the Income and Growth Fund and the Income Equity Fund will each
limit its investments in mortgage-related securities to no more than 5% of such
Fund's total assets.
Mortgage-related securities represent interests in pools of mortgage
loans assembled for sale to investors. Mortgage-related securities may be
assembled and sold by certain governmental agencies and may also be assembled
and sold by nongovernmental entities such as commercial banks, savings and loan
institutions, mortgage bankers, and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third party or
otherwise similarly secured, the market value of the security, which may
fluctuate, is not so secured. If a Fund purchases a mortgage-related security at
a premium, that portion may be lost if there is a decline in the market value of
the security, whether resulting from changes in interest rates or prepayments in
the underlying mortgage collateral. As with other interest-bearing securities,
the prices of mortgage-related securities are inversely affected by changes in
interest rates. However, although the value of a mortgage-related security may
decline when interest rates rise, the converse is not necessarily true because
in periods of declining interest rates the mortgages underlying the security are
prone to prepayment. For this and other reasons, a mortgage-related security's
stated maturity may be shortened by unscheduled prepayments on the underlying
mortgages and, therefore, it is not possible to predict accurately the
security's return to the Fund. In addition, regular payments received in respect
of mortgage-related securities include both interest and principal. No assurance
can be given as to the return a Fund will receive when these amounts are
reinvested.
There are a number of important differences both among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities themselves. As noted above, Ginnie Maes are issued by
GNMA, which is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. Ginnie Maes are guaranteed as to the timely
payment
B-8
<PAGE> 178
of principal and interest by GNMA and GNMA's guarantee is backed by the full
faith and credit of the U.S. Treasury. In addition, Ginnie Maes are supported by
the authority of GNMA to borrow funds from the U.S. Treasury to make payments
under GNMA's guarantee. Mortgage-related securities issued by the Federal
National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes"), which are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the U.S. Treasury. The FNMA is a government-sponsored organization
owned entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). The FHLMC is
a corporate instrumentality of the U.S. Government, created pursuant to an Act
of Congress, which is owned entirely by the Federal Home Loan Banks. Freddie
Macs are not guaranteed by the U.S. Treasury or by any Federal Home Loan Banks
and do not constitute a debt or obligation of the U.S. Government or of any
Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment of
interest, which is guaranteed by the FHLMC. The FHLMC guarantees either ultimate
collection or timely payment of all principal payments on the underlying
mortgage loans. When the FHLMC does not guarantee timely payment of principal,
FHLMC may remit the amount due on account of its guarantee of ultimate payment
of principal at any time after default on an underlying mortgage, but in no
event later than one year after it becomes payable.
Collateralized mortgage obligations ("CMOs") in which the Balanced
Fund, the Bond Fund and the Government Bond Fund may invest represent securities
issued by a private corporation or a U.S. Government instrumentality that are
backed by a portfolio of mortgages or mortgage-backed securities held under an
indenture. The Government Bond Fund's investments in CMOs are limited to those
issued by the U.S. Government or an agency or instrumentality of the U.S.
Government. The issuer's obligation to make interest and principal payments is
secured by the underlying portfolio of mortgages or mortgage-backed securities.
CMOs are issued with a number of classes or series that have different
maturities and that may represent interests in some or all of the interest or
principal on the underlying collateral or a combination thereof. CMOs of
different classes are generally retired in sequence as the underlying mortgage
loans in the mortgage pool are repaid. In the event of sufficient early
prepayments on such mortgages, the class or series of a CMO first to mature
generally will be retired prior to its maturity. Thus, the early retirement of a
particular class or series of a CMO held by a Fund would have the same effect as
the prepayment of mortgages underlying a mortgage-backed pass-through security.
CMOs may include stripped mortgage securities. Such securities are
derivative multi-class mortgage securities issued by agencies or
instrumentalities of the United States Government, or by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment
B-9
<PAGE> 179
banks and special purpose subsidiaries of the foregoing. Stripped mortgage
securities are usually structured with two or more classes that receive
different proportions of the interest and principal distributions on a pool of
mortgage assets. A common type of Stripped Mortgage Security will have one class
receiving all of the interest from the mortgage assets (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class (or similar
class that receives a disproportionate amount of interest in relation to
principal) is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the securities' yield
to maturity. Generally, the market value of the PO class is unusually volatile
in response to changes in interest rates. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, an Income Fund may
fail to fully recoup its initial investment in these securities even if the
security is rated in the highest rating category.
Although stripped mortgage securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not fully developed. The Funds will not
purchase a stripped mortgage security that is illiquid if, as a result thereof,
more than 15% of the value of the Fund's total assets would be invested in such
securities and other illiquid securities.
ADJUSTABLE INTEREST RATE NOTES. Consistent with its investment objective,
policies, and restrictions, each Fund (other than the 100% U.S. Treasury
Obligations Fund) may invest in "adjustable interest rate notes," which include
variable rate notes and floating rate notes. A variable rate note is one whose
terms provide for the readjustment of its interest rate on set dates and that,
upon such readjustment, can reasonably be expected to have a market value that
approximates its par value; the degree to which a variable rate note's market
value approximates its par value subsequent to readjustment will depend on the
frequency of the readjustment of the note's interest rate and the length of time
that must elapse before the next readjustment. A floating rate note is one whose
terms provide for the readjustment of its interest rate whenever a specified
interest rate changes and that, at any time, can reasonably be expected to have
a market value that approximates its par value. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by a Fund, the Fund may seek to resell the note at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable or floating rate note in the
event the issuer of the note defaulted on its payment obligations and the Fund
could, as a result or for other reasons, suffer a loss to the extent of the
default. Variable or floating rate notes may be secured by bank letters of
credit. Adjustable interest rate notes for which no readily available market
exists will be subject to a Fund's non-fundamental 15% (10% in the case of the
Money Market Funds) limitation governing investments in "illiquid" securities,
unless such notes are subject to a demand feature that will permit the Fund to
receive payment of the principal within seven days of
B-10
<PAGE> 180
the Fund's demand. See "INVESTMENT RESTRICTIONS" below.
Variable and floating rate notes will be deemed to have maturities as
follows:
1. A variable rate note, the principal amount of which is scheduled on
the face of the instrument to be paid within thirteen months or less, will be
deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
2. A variable rate note that is subject to a demand feature will be
deemed to have a maturity equal to the longer of the period remaining until the
next adjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand.
3. A floating rate note that is subject to a demand feature will be
deemed to have a maturity equal to the period remaining until the principal
amount can be recovered through demand.
As used above, a note is "subject to a demand feature" where the Fund
is entitled to receive the principal amount of the note either at any time on
not more than thirty days' notice or at specified intervals, not exceeding
thirteen months and upon not more than thirty days' notice.
MUNICIPAL SECURITIES. As stated in the Money Market Funds Prospectus, under
normal market conditions, at least 80% of the total assets of the California
Tax-Free Fund and the Tax-Free Fund will be invested in Municipal Securities,
the interest on which is both excluded from gross income for federal income tax
(and, in the case of the California Tax-Free Fund, California personal income
tax) purposes and not treated as a preference item for individuals for purposes
of the federal alternative minimum tax.
As stated in the Municipal Funds prospectus, under normal market
conditions, at least 65% of the total assets of the California Municipal Fund
and the Municipal Fund will be invested in Municipal Securities, the interest on
which is excluded from gross income for federal income tax (and, in the case of
the California Municipal Fund, California personal income tax) purposes,
although any part of such interest may be treated as a preference item for
individuals for purposes of the federal alternative minimum tax.
Municipal Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and public entities. Private activity bonds that are issued
by or on behalf of public authorities to finance various privately operated
facilities are included within the term Municipal Securities if the interest
paid thereon is (i) excluded from gross income for federal
B-11
<PAGE> 181
income tax purposes and (ii) not treated as a preference item for individuals
for purposes of the federal alternative minimum tax.
As described in the Money Market Funds' and Municipal Funds'
Prospectuses, the two principal classifications of Municipal Securities consist
of "general obligation" and "revenue" issues. The Tax-Free Fund, the California
Municipal Fund and the Municipal Fund may also acquire "moral obligation"
issues, which are normally issued by special purpose authorities. In general,
only general obligation bonds are backed by the full faith and credit and
general taxing power of the issuer. There are, of course, variations in the
quality of Municipal Securities, both within a particular classification and
between classifications, and the yields on Municipal Securities depend upon a
variety of factors, including general market conditions, the financial condition
of the issuer (or other entity whose financial resources are supporting the
Municipal Securities), general conditions of the municipal bond market, the size
of a particular offering, the maturity of the obligation and the rating(s) of
the issue. In this regard, it should be emphasized that the ratings of any NRSRO
are general and are not absolute standards of quality; Municipal Securities with
the same maturity, interest rate and rating(s) may have different yields while
Municipal Securities of the same maturity and interest rate with a different
rating(s) may have the same yield.
An issuer's obligations with respect to its Municipal Securities are
subject to the provisions of bankruptcy, insolvency, and other laws affecting
the rights and remedies of creditors, such as the Federal Bankruptcy Code, and
laws, if any, that may be enacted by Congress or state legislatures extending
the time for payment of principal or interest, or both, or imposing other
constraints upon the enforcement of such obligations or upon the ability of
municipalities to levy taxes or otherwise raise revenues. Certain of the
Municipal Securities may be revenue securities and dependent on the flow of
revenue, generally in the form of fees and charges. The power or ability of an
issuer to meet its obligations for the payment of interest on and principal of
its Municipal Securities may be materially adversely affected by litigation or
other conditions, including a decline in property value or a destruction of
uninsured property due to natural disasters.
In addition, in accordance with such Fund's investment objective, the
California Tax-Free Fund, the Tax-Free Fund, the California Municipal Fund and
the Municipal Fund may each invest in private activity bonds, which may
constitute Municipal Securities depending upon the federal income tax treatment
of such bonds. Such bonds are usually revenue bonds because the source of
payment and security for such bonds is the financial resources of the private
entity involved; the full faith and credit and the taxing power of the issuer in
normal circumstances will not be pledged. The payment obligations of the private
entity also will be subject to bankruptcy and similar debtor's rights, as well
as other exceptions similar to those described above. Moreover, the California
Tax-Free Fund and the California Municipal Fund may invest in obligations
secured in whole or in part by a mortgage or deed of trust on real property
located in California that are subject to the "anti-deficiency" legislation
discussed below.
B-12
<PAGE> 182
The California Tax-Free Fund and the Tax-Free Fund may also invest
indirectly in Municipal Securities by purchasing the shares of tax-exempt money
market mutual funds. Such investments will be made solely for the purpose of
investing short-term cash on a temporary tax-exempt basis and only in those
funds with respect to which MERUS believes with a high degree of certainty that
redemption can be effected within seven days of demand. Additional limitations
on investments by the Tax-Free Fund and California Tax-Free Fund in the shares
of other tax-exempt money market mutual funds are set forth under "Investment
Restrictions" below.
Certain Municipal Securities in the California Tax-Free Fund and the
California Municipal Fund may be obligations that are payable solely from the
revenues of health care institutions, although the obligations may be secured by
real or personal property of such institutions. Certain provisions under federal
and California law may adversely affect such revenues and, consequently, payment
on those Municipal Securities.
Certain Municipal Securities in which the California Tax-Free Fund and
the California Municipal Fund may invest may be obligations that are secured in
whole or in part by a mortgage or deed of trust on real property. California has
certain statutory provisions that limit the remedies of a creditor secured by a
mortgage or deed of trust. Two of the provisions limit a creditor's right to
obtain a deficiency judgment, one limitation being 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. A third statutory provision, commonly known as the "one action"
rule, has two aspects, an "affirmative defense aspect" and a "sanction aspect."
The "affirmative defense" aspect limits creditors secured by real property to a
single legal action for recovery of their debt, and that single action must be a
judicial foreclosure action against their real property security. Under the
"sanction" aspect, if the real estate-secured creditor proceeds by legal action
other than judicial foreclosure, the creditor loses its lien on the real
property security and, in some instances, the right to recover its debt.
California courts have interpreted enforcement procedures as "actions",
resulting in the "sanction" aspect of the one action rule. There are limited
exceptions to the anti-deficiency rule and the "one action" rule in certain
cases where the debtor property is environmentally contaminated. Another
statutory provision gives the debtor the right to redeem the real property from
any judicial foreclosure sale.
Upon the default under a mortgage or deed of trust with respect to
California real property, a creditor's nonjudicial foreclosure rights under the
power of sale contained in the mortgage or deed of trust are subject to certain
procedural requirements. A non-judicial foreclosure is initiated by the
recording of a formal notice of default. The power of sale is exercised by
recording, mailing and posting a notice of sale after expiration of the
three-month period that commences upon the recording of the formal notice of
default and at least 20 days prior to the sale date, publishing the notice of
sale at least
B-13
<PAGE> 183
weekly during that period. At any time up until five business days prior to the
sale, the debtor is entitled to reinstate the mortgage by making any overdue
payments. Therefore, the effective minimum period for foreclosing on a mortgage
or deed of trust is generally four to five months after the initial default and
such foreclosure could be further delayed by bankruptcy proceedings initiated by
the debtor. 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.
Certain Municipal Securities in the California Tax-Free Fund and the
California Municipal Fund may be obligations that finance the acquisition of
mortgages for low and moderate income mortgagors. These obligations may be
payable solely from revenues derived from home mortgages and are subject to
California's statutory limitations applicable to obligations secured by real
property, as described above. Under California anti-deficiency legislation,
there is no personal recourse against a mortgagor of a dwelling of no more than
four units, at least one of which is occupied by such a mortgagor, where the
dwelling has been purchased with the loan that is secured by the mortgage,
regardless of whether the creditor chooses judicial or nonjudicial foreclosure.
In the event that this purchase money anti-deficiency rule applies to a loan
secured by a mortgage or deed of trust, and the value of the property subject to
that mortgage or deed of trust has been substantially reduced because of market
forces or by an earthquake or other event for which the mortgagor or trustor
carried no insurance, upon default, the issuer holding that loan nevertheless
would be entitled to collect no more on its loan than it could obtain from the
foreclosure sale of the property.
Under California law, loans secured by mortgages or deeds of trust on
residential property of four units or less may be prepaid at any time.
Prepayment charges on mortgage loans on owner-occupied residential property
containing four units or less may be imposed only with respect 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 unpaid balance of the mortgage loan in any
12-month period. Such prepayment charges may not be charged if the property
securing the loan is damaged by a natural disaster for which the Governor has
declared a state of emergency, if the dwelling cannot be occupied and the
prepayment is causally related to such damage.
Legislation has been introduced from time to time regarding the
California state personal income tax status of interest paid on Municipal
Securities issued by the State of California and its local governments and held
by investment companies such as the California Tax-Free Fund and the California
Municipal Fund. Neither the California Tax-Free Fund nor the California
Municipal Fund can predict what legislation relating to Municipal Securities, if
any, may be proposed in the future or which proposals, if any, might be enacted.
Such proposals, while pending or if enacted, might materially adversely affect
the availability of Municipal Securities generally, as well as the
B-14
<PAGE> 184
availability of Municipal Securities issued by the State of California and its
local governments specifically, for investment by the California Tax-Free Fund
and the California Municipal Fund and the liquidity and value of their
portfolios. In such an event, each of the California Tax-Free Fund and the
California Municipal Fund would re-evaluate its investment objective and
policies and consider changes in its structure or possible dissolution. See
"Investments in Municipal Securities by the California Tax- Free Fund and the
California Municipal Fund" below.
INVESTMENTS IN MUNICIPAL SECURITIES BY THE CALIFORNIA TAX-FREE FUND AND THE
CALIFORNIA MUNICIPAL FUND. The following information is a general summary
intended to give a recent historical description, and is not a discussion of any
specific factors that may affect any particular issuer of California Municipal
Securities. The information is not intended to indicate continuing or future
trends in the condition, financial or otherwise, of California. Such information
is derived from official statements utilized in connection with securities
offerings of the State of California that have come to the attention of the
Group.
Because each of the California Tax-Free Fund and the California
Municipal Fund expects to invest substantially all of its assets in California
Municipal Securities, it will be susceptible to a number of complex factors
affecting the issuers of California Municipal Securities, including national and
local political, economic, social, environmental, and regulatory policies and
conditions. These Funds cannot predict whether or to what extent such factors or
other factors may affect the issuers of California Municipal Securities, the
market value or marketability of such securities or the ability of the
respective issuers of such securities to pay interest on, or principal of, such
securities. The creditworthiness of obligations issued by a local California
issuer may be unrelated to the creditworthiness of obligations issued by the
State of California, and there is no responsibility on the part of the State of
California to make payments on such local obligations.
From mid-1990 to late 1993, California suffered the most severe
recession in the State since the 1930's, with significant job losses
(particularly in the aerospace, other manufacturing, services and construction
sectors). The greatest effects of the recession were felt in Southern
California. While a steady recovery has been underway since 1994, pre-recession
employment levels are not expected to be reached until later in the decade.
The recession severely affected State revenues while the State's health
and welfare costs were increasing. Consequently, from the late 1980's until
1992-93, the State had a period of budget imbalance; the State's accumulated
budget deficit approached $2.8 billion at its peak at June 30, 1993. Between
Spring 1992 and Summer 1994, the State depended upon external borrowing,
including borrowings extending into the following fiscal year, to meet its cash
needs. The State anticipates that it will not need to use such "cross-year"
borrowing during the 1995-96 fiscal year.
B-15
<PAGE> 185
The 1993-94 Budget Act proposed to repay the $2.8 billion deficit over
two fiscal years, but as a result of the recession the projected excess of
revenues over expenditures did not materialize. The accumulated budget deficit
at June 30, 1994 was about $1.9 billion, and a second "two-year plan" was
implemented in the 1994-95 Budget Act to eliminate the budget deficit. The State
Budget Act for 1994-95 made certain questionable revenue assumptions, however,
including assumptions concerning the amount of federal assistance available for
certain costs related to refugees and undocumented immigrants. California in
fact received much less federal aid for those costs than was assumed in the
1994-95 Budget Act. The 1995-96 Budget Act nevertheless projects that the State
will end the 1995-96 fiscal year with a slight surplus, and that all of the
accumulated budget deficits will have been repaid.
The 1994-95 and 1995-96 State of California Budget Acts are based upon
estimates and projections of revenues and expenditures, and the foregoing
discussion should not be construed as a statement of fact. The assumptions used
to construct a budget may be affected by numerous factors, including future
economic conditions in California and the nation. There can be no assurance that
the estimates will be achieved.
Certain of the securities in the California Tax-Free Fund and the
California Municipal Fund may be obligations of issuers that rely in whole or in
part, directly or indirectly, on ad valorem real property taxes as a source of
revenue. Article XIII A of the California Constitution, adopted by the voters in
1978, limits ad valorem taxes on real property, and restricts the ability of
taxing entities to increase real property and other taxes. Under Article XIII A,
the maximum ad valorem tax on real property cannot exceed one percent of the
property's "full cash value". Article XIII A permits an increase in the one
percent rate limit for certain bonded indebtedness approved by two-thirds of the
voters voting on the proposed indebtedness. The "full cash value" of property
may be adjusted annually to reflect increases (but not more than two percent) or
decreases in the consumer price index or comparable local data, to reflect
reductions in property value caused by substantial damage, destruction or other
factors, or when there is a "change in ownership" or "new construction" with
respect to the property.
Constitutional challenges to Article XIII A to date have been
unsuccessful. In 1992, the United States Supreme Court ruled that
notwithstanding the disparate property tax burdens that Article XIII A might
place on otherwise comparable properties, those provisions of Article XIII A do
not violate the Equal Protection Clause of the United States Constitution.
In response to the significant reduction in local property tax revenue
caused by the passage of Article XIII A, the State enacted legislation to
provide local governments with increased expenditures from the State. This
fiscal relief has ended, however.
Article XIII B of the California Constitution limits significantly
spending by state government and by "local governments". Article XIII B
generally limits the amount of
B-16
<PAGE> 186
the appropriations of the State and of local governments to the amount of
appropriations of the entity for the prior year, adjusted for changes in the
cost of living, population, and the services that the government entity is
financially responsible for providing. To the extent that the "proceeds of
taxes" of the State or a local government exceed its "appropriations limit," the
excess revenues must be rebated. One of the exclusions from these limitations
for any entity of government is the debt service costs of bonds existing or
legally authorized as of January 1, 1979 or on bonded indebtedness thereafter
approved by the voters. Although Article XIII B states that it shall not "be
construed to impair the ability of the state or of any local government to meet
its obligations with respect to existing or future bonded indebtedness," concern
has been expressed with respect to the combined effect of such constitutionally
imposed spending limits on the ability of California state and local governments
to utilize bond financing.
Article XIII B was modified substantially by Propositions 98 and 111 of
1988 and 1990, respectively. These initiatives changed the State's Article XIII
B appropriations limit to require that the State set aside a prudent reserve
fund for public education, and guarantee a minimum level of State funding for
public elementary and secondary schools as well as community colleges. Such
guaranteed spending is often cited as one of the causes of the State's recurring
budget problems.
Prior to 1988, corporations that conducted business both within and
without California were taxed only under the so-called "unitary" method applied
on a world-wide basis. Since 1988, such corporations have been able to elect,
subject to payment of an election fee, to use the "unitary" method, but on a
"water's edge" basis, and in 1993 the fee was eliminated. As of the date hereof,
the constitutionality of the election fee for prior years is being challenged in
the courts. The success of such litigation could also result in decreased state
revenues. Decreased state revenues may result in reductions in allocations of
state revenues to local governments.
The effect of Article XIII A, Article XIII B and other constitutional
and statutory changes and of budget developments on the ability of California
issuers to pay interest and principal on their obligations remains unclear, and
may depend on whether a particular bond is a general obligation or limited
obligation bond (limited obligation bonds being generally less affected). There
is no assurance that any California issuer will make full or timely payments of
principal or interest or remain solvent. For example, in December 1994, Orange
County filed for bankruptcy.
In addition, it is impossible to predict the time, magnitude, or
location of a major earthquake or its effect on the California economy. In
January 1994, a major earthquake struck the Los Angeles area, causing
significant damage in a four-county area. The possibility exists that another
such earthquake could create a major dislocation of the California economy.
The California Tax-Free Fund's and the California Municipal Fund's
concentration in California Municipal Securities provides a greater level of
risk than a
B-17
<PAGE> 187
fund that is diversified across numerous states and municipal entities.
INVESTMENTS IN MUNICIPAL SECURITIES BY THE TAX-FREE FUND. In addition to the
short-term tax-exempt investments described in the Money Market Funds'
Prospectus, the Tax-Free Fund also may invest in general obligation notes,
construction loan notes, project notes, and pollution control bonds. Project
notes are issued by a state or local housing agency and are sold by the
Department of Housing and Urban Development. While the issuing agency has the
primary obligation with respect to its project notes, such notes are also
secured by the full faith and credit of the United States through agreements
with the issuing authority, which agreements provide that, if required, the
federal government will lend the issuer an amount equal to the principal of and
interest on the project notes.
PUTS. The California Tax-Free Fund, the Tax-Free Fund, the California Municipal
Fund and the Municipal Fund may acquire "puts" with respect to securities held
in their respective portfolios. A put is a right to sell a specified security
(or securities) within a specified period of time at a specified exercise price.
These Funds may sell, transfer, or assign a put only in conjunction with the
sale, transfer, or assignment of the underlying security or securities.
The amount payable to a Fund upon its exercise of a "put" is normally
(i) the Fund's acquisition cost of the securities (excluding any accrued
interest that the Fund paid on the acquisition), less any amortized market
premium or plus any amortized market or original issue discount during the
period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.
Puts may be acquired by a Fund to facilitate the liquidity of the
Fund's portfolio assets. Puts may also be used to facilitate the reinvestment of
a Fund's assets at a rate of return more favorable than that of the underlying
security. Under certain circumstances, puts may be used to shorten the maturity
of underlying adjustable interest rate notes for purposes of calculating the
remaining maturity of those securities and the dollar-weighted average portfolio
maturity of the Fund's assets pursuant to Rule 2a-7 under the Investment Company
Act of 1940. See "INVESTMENT OBJECTIVES AND POLICIES - Additional Information on
Portfolio Instruments - Adjustable Interest Rate Notes" and "VALUATION -
Valuation of the Money Market Funds" in this Statement of Additional
Information.
The California Tax-Free Fund, the Tax-Free Fund, the California
Municipal Fund and the Municipal Fund will generally acquire puts only where the
puts are available without the payment of any direct or indirect consideration.
However, if necessary or advisable, a Fund may pay for puts either separately in
cash or by paying a higher price for portfolio securities that are acquired
subject to the puts (thus reducing the yield to maturity otherwise available for
the same securities).
B-18
<PAGE> 188
SHARES OF MUTUAL FUNDS. The Growth Fund, the Income and Growth Fund, the Income
Equity Fund, the Balanced Fund, the Bond Fund, the Government Bond Fund, the
California Municipal Fund and the Municipal Fund may each invest in the
securities of a money market mutual fund; as a matter of non-fundamental policy,
each Fund intends to limit such investments to no more than 10% of the value of
its total assets. When a Fund invests in the shares of mutual funds other than
the Funds of the Group, investment advisory and other normally applicable fees
will not be waived and the investment's yield will be reduced accordingly. When
a Fund invests in another Fund of the Group, however, the Investment Adviser and
the Administrator will reduce that portion of their usual asset-based fees from
each Fund by an amount equal to their asset-based fees from the Fund in which
the investment is made. The Investment Adviser and the Administrator will
promptly forward such fees to the investing Fund. Additional restrictions on the
Fund's investments in the securities of a money market mutual fund are set forth
under "Investment Restrictions" below.
Investments by the California Tax-Free Fund and the Tax-Free Fund in
the shares of other tax-exempt money market mutual funds are described under
"Municipal Securities" above.
WHEN-ISSUED SECURITIES. Each Fund may purchase securities on a "when-issued"
basis, which means that the securities will be purchased for delivery beyond the
normal settlement date at a stated price and yield and thereby involve the risk
that the yield obtained in the transaction will be less than that available in
the market when delivery takes place. A Fund will generally not pay for such
securities and no interest accrues on the securities until they are received by
the Fund. These securities are recorded as an asset and are subject to changes
in value based upon changes in the general level of interest rates.
When a Fund agrees to purchase securities on a "when-issued" basis, the
Group's custodian will set aside cash or liquid portfolio securities equal to
the amount of the commitment in a separate account. Normally, the custodian will
set aside portfolio securities to satisfy the purchase commitment, and in such a
case, the Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected that the Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when the Fund sets aside
cash. The purchase of securities on a "when-issued" basis may have the effect of
leverage, which may increase the risk of fluctuations in a Fund's net asset
value.
The Funds expect that commitments to purchase "when-issued" securities
will not exceed 25% of the value of their respective total assets under normal
market conditions; in the event any Fund exceeded this 25% threshold, the Fund's
liquidity and MERUS's
B-19
<PAGE> 189
ability to manage it might be adversely affected. In addition, the Funds do not
intend to purchase "when-issued" securities for speculative purposes but only in
furtherance of such Fund's investment objective. When a Fund engages in
"when-issued" transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund incurring a loss or
missing the opportunity to obtain a price considered to be advantageous.
[/R]
ZERO-COUPON SECURITIES. The Balanced Fund, the Bond Fund and the Government Bond
Fund may invest in zero-coupon securities, which are debt securities that do not
pay interest, but instead are issued at a deep discount from par. The value of
the security increases over time to reflect the interest accreted. The value of
these securities may fluctuate more than similar securities that are issued at
par and pay interest periodically. Although these securities pay no interest to
holders prior to maturity, interest on these securities is reported as income to
the Fund and distributed to its shareholders. These distributions must be made
from the Fund's cash assets or, if necessary, from the proceeds of sales of
portfolio securities. The Fund will not be able to purchase additional income
producing securities with cash used to make such distributions and its current
income ultimately may be reduced as a result.
INVESTMENT RESTRICTIONS
Unless otherwise indicated, the following investment restrictions are
fundamental and, as such, may be changed with respect to a particular Fund only
by a vote of a majority of the outstanding Shares of that Fund (as defined
below). Except with respect to a Fund's restriction governing the borrowing of
money, if a percentage restriction is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in asset
value will not constitute a violation of the restriction.
The U.S. Government Obligations Fund may not purchase securities other
than U.S. Treasury bills, notes, and other obligations issued or guaranteed by
the U.S. Government, its agencies, or instrumentalities, some of which may be
subject to repurchase agreements.
The 100% U.S. Treasury Obligations Fund may not purchase securities
other than short-term obligations issued or guaranteed as to payment of
principal and interest by the full faith and credit of the U.S. Treasury, some
of which may be subject to repurchase agreements. It is the present policy of
the 100% U.S. Treasury Obligations Fund to invest only in direct U.S. Treasury
obligations and not to invest in repurchase agreements. The 100% U.S. Treasury
Obligations Fund may lend portfolio securities in order to generate additional
income.
Each Fund, except for the California Tax-Free Fund, the Tax-Free Fund,
the California Municipal Fund and the Municipal Fund (the restrictions for which
are outlined below), may not:
1. Purchase securities on margin (except that, with respect to the
Growth
B-20
<PAGE> 190
Fund, the Income and Growth Fund, the Income Equity Fund, the Balanced Fund, the
Bond Fund, and the Government Bond Fund only, such Funds may make margin
payments in connection with transactions in options and financial and currency
futures contracts), sell securities short, participate on a joint or joint and
several basis in any securities trading account, or underwrite the securities of
other issuers, except to the extent that a Fund may be deemed to be an
underwriter under certain securities laws in the disposition of "restricted
securities" acquired in accordance with the investment objectives and policies
of such Fund;
2. Purchase or sell commodities, commodity contracts (excluding, with
respect to the Growth Fund, the Income and Growth Fund, the Income Equity Fund,
the Balanced Fund, the Bond Fund and the Government Bond Fund only, options and
financial and currency futures contracts), oil, gas or mineral exploration
leases or development programs, or real estate (although investments by the
Growth Fund, the Income Equity Fund, the Balanced Fund, the Bond Fund, the
Government Bond Fund and the Diversified Obligations Fund in marketable
securities of companies engaged in such activities and investments by the Growth
Fund, the Income and Growth Fund, the Income Equity Fund, the Balanced Fund, the
Bond Fund and the Government Bond Fund in securities secured by real estate or
interests therein, are not hereby precluded to the extent the investment is
appropriate to such Fund's investment objective and policies);
3. Invest in any issuer for purposes of exercising control or
management;
4. Purchase or retain securities of any issuer if the officers or
Trustees of the Group or the officers or directors of its investment adviser
owning beneficially more than one-half of 1% of the securities of such issuer
together own beneficially more than 5% of such securities;
5. Borrow money or issue senior securities, except that a Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
emergency purposes in amounts up to 10% of the value of its total assets at the
time of such borrowing; or mortgage, pledge, or hypothecate any assets, except
in connection with permissible borrowings and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's total
assets at the time of its borrowing. A Fund will not invest in additional
securities until all its borrowings (including reverse repurchase agreements)
have been repaid. For purposes of this restriction, the deposit of securities
and other collateral arrangements with respect to options and financial and
currency futures contracts, and payments of initial and variation margin in
connection therewith, are not considered a pledge of a Fund's assets; and
6. Make loans, except that a Fund may purchase or hold debt
instruments, lend portfolio securities, and enter into repurchase agreements in
accordance with its investment objective and policies (as indicated below, each
Fund may not lend portfolio securities in excess of 35% of the value of the
Fund's total assets).
B-21
<PAGE> 191
The Diversified Obligations Fund, the U.S. Government Obligations Fund
and the 100% U.S. Treasury Obligations Fund may not:
1. Buy common stocks or voting securities, or state, municipal or
private activity bonds;
2. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation, reorganization, or
acquisition of assets;
3. Write or purchase put or call options; or
4. Invest more than 10% of total assets in the securities of issuers
that together with any predecessors have a record of less than three years'
continuous operation.
The Growth Fund, the Income and Growth Fund, the Income Equity Fund,
the Balanced Fund, the Bond Fund and the Government Bond Fund may not:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies, or instrumentalities, if,
immediately after the purchase, more than 5% of the value of such Fund's total
assets would be invested in the issuer or the Fund would hold more than 10% of
any class of securities of the issuer or more than 10% of the issuer's
outstanding voting securities (except that up to 25% of the value of the Fund's
total assets may be invested without regard to these limitations). There is no
limit to the percentage of assets that may be invested in U.S. Treasury bills,
notes, or other obligations issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities;
2. Purchase any securities that would cause more than 25% of such
Fund's total assets at the time of purchase to be invested in securities of one
or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. or foreign governments or their agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities; (b) wholly owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (c) utilities will be divided according to their services (for example, gas,
gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry);
3. Invest in securities of other investment companies except as they
may be acquired as part of a merger, consolidation, reorganization, or
acquisition of assets, provided, however, that each of the Funds may purchase
securities of a money market fund, if, immediately after such purchase, the
acquiring Fund does not own in the aggregate (i) more than 3% of the acquired
company's outstanding voting securities, (ii) securities issued by the acquired
company having an aggregate value in excess of 5% of the value of the total
assets of the acquiring Fund, or (iii) securities issued by the
B-22
<PAGE> 192
acquired company and all other investment companies (other than treasury stock
of the acquiring Fund) having an aggregate value in excess of 10% of the value
of the acquiring Fund's total assets; and
4. Lend portfolio securities in excess of 35% of the value of the total
assets of such Fund.
The Diversified Obligations Fund may not:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies, or instrumentalities, if,
immediately after the purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer (except that up to 25% of the value of
the Fund's total assets may be invested without regard to the 5% limitation).
There is no limit to the percentage of assets that may be invested in U.S.
Treasury bills, notes, or other obligations issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities (as indicated under High Quality
Investments in the Fund's Prospectus, the Fund has adopted an investment policy
that is more restrictive than this fundamental investment limitation); and
2. Purchase any securities that would cause more than 25% of the value
of the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities, domestic bank certificates of deposit or bankers'
acceptances, and repurchase agreements secured by bank instruments or
obligations of the U.S. Government, its agencies, or instrumentalities; (b)
wholly owned finance companies will be considered to be in the industries of its
parents if their activities are primarily related to financing the activities of
their parents; and (c) utilities will be divided according to their services
(for example, gas, gas transmission, electric and gas, electric and telephone
will each be considered a separate industry).
The California Tax-Free Fund, the Tax-Free Fund, the California
Municipal Fund and the Municipal Fund may not:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies, or instrumentalities, if,
immediately after the purchase, more than 5% of the value of its total assets
would be invested in such issuer (except that up to 25% of the value of the
Fund's total assets may be invested without regard to the 5% limitation). For
purposes of this investment restriction, a security is considered to be issued
by the government entity (or entities) whose assets and revenues back the
security or, with respect to a private activity bond that is backed only by the
assets and revenues of a non-governmental user, by the non-governmental user;
B-23
<PAGE> 193
2. Purchase any securities that would cause 25% or more of such Fund's
total assets at the time of purchase to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry; provided that this limitation shall not apply to securities of the
U.S. Government, its agencies or instrumentalities or Municipal Securities or
governmental guarantees of Municipal Securities; and provided, further, that for
the purpose of this limitation, private activity bonds that are backed only by
the assets and revenues of a non-governmental user shall not be deemed to be
Municipal Securities;
3. Make loans; provided, however, that each Fund may purchase or hold
debt instruments and enter into repurchase agreements pursuant to such Fund's
investment objective and policies;
4. Purchase or sell real estate; provided, however, that each Fund may,
to the extent appropriate to its investment objective, purchase Municipal
Securities secured by real estate or interests therein or securities issued by
companies investing in real estate or interests therein;
5. Purchase securities on margin, make short sales of securities or
maintain a short position;
6. Underwrite the securities of other issuers;
7. Purchase securities of companies for the purpose of exercising
control or management;
8. Invest in private activity bonds where the payment of principal and
interest are the responsibility of a company (including its predecessors) with
less than three years of continuous operation;
9. Purchase or sell commodities or commodity contracts, or invest in
oil, gas or mineral exploration leases or development programs; provided,
however, each Fund may, to the extent appropriate to such Fund's investment
objective, purchase publicly traded obligations of companies engaging in whole
or in part in such activities;
10. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets;
11. Borrow money or issue senior securities, except that each Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
emergency purposes in amounts up to 10% of the value of its total assets at the
time of such borrowing; or mortgage, pledge, or hypothecate any assets, except
in connection with permissible borrowings and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's total
assets at the time of its
B-24
<PAGE> 194
borrowing. Each Fund will not invest in additional securities until all its
borrowings (including reverse repurchase agreements) have been repaid;
12. Write or sell puts, calls, straddles, spreads, or combinations
thereof, except that each Fund may acquire puts with respect to Municipal
Securities in its portfolio and sell the puts in conjunction with a sale of the
underlying Municipal Securities; and
13. Invest in securities of other investment companies except as they
may be acquired as part of a merger, consolidation, reorganization, or
acquisition of assets; provided, however, that the California Municipal Fund and
the Municipal Fund may purchase securities of another investment company if,
immediately after such purchase, the acquiring Fund does not own in the
aggregate (i) more than 3% of the acquired company's outstanding voting
securities, (ii) securities issued by the acquired company having an aggregate
value in excess of 5% of the value of the total assets of the acquiring Fund, or
(iii) securities issued by the acquired company and all other investment
companies (other than treasury stock of the acquiring Fund) having an aggregate
value in excess of 10% of the value of the acquiring Fund's total assets.
The California Tax-Free Fund and the Tax-Free Fund also may not:
1. Acquire a put, if, immediately after the acquisition, more than 5%
of the total amortized cost value of such Fund's assets would be subject to puts
from the same institution (except that (i) up to 25% of the value of the Fund's
total assets may be subject to puts without regard to the 5% limitation and (ii)
the 5% limitation is inapplicable to puts that, by their terms, would be readily
exercisable in the event of a default in payment of principal or interest on the
underlying securities). In applying the above-described limitation, the Fund
will aggregate securities subject to puts from any one institution with the
Fund's investments, if any, in securities issued or guaranteed by that
institution. In addition, for the purpose of this investment restriction and
investment restriction No. 4 below, a put will be considered to be from the
party to whom such Fund will look for payment of the exercise price;
2. Acquire a put that, by its terms, would be readily exercisable in
the event of a default in payment of principal and interest on the underlying
security or securities if, immediately after the acquisition, the amortized cost
value of the security or securities underlying the put, when aggregated with the
amortized cost value of any other securities issued or guaranteed by the issuer
of the put, would exceed 10% of the total amortized cost value of such Fund's
assets;
3. Invest in securities of other investment companies except as they
may be acquired as part of a merger, consolidation, reorganization, or
acquisition of assets; provided, however, that the California Tax-Free Fund and
the Tax-Free Fund may purchase securities of a tax-exempt money market fund if,
immediately after such purchase, the acquiring Fund does not own in the
aggregate (i) more than 3% of the acquired company's outstanding voting
securities, (ii) securities issued by the acquired
B-25
<PAGE> 195
company having an aggregate value in excess of 5% of the value of the total
assets of the acquiring Fund, or (iii) securities issued by the acquired company
and all other investment companies (other than treasury stock of the acquiring
Fund) having an aggregate value in excess of 10% of the value of the acquiring
Fund's total assets.
Illiquid Securities. Each Fund has adopted a non-fundamental policy
(which may be changed without shareholder approval) prohibiting the Fund from
investing more than 15% (in the case of each of the Money Market Funds, not more
than 10%) of its total assets in "illiquid" securities, which include securities
with legal or contractual restrictions on resale or for which no readily
available market exists but exclude such securities if resalable pursuant to
Rule 144A under the Securities Act ("Rule 144A Securities"). Pursuant to this
policy, the Funds may purchase Rule 144A Securities only in accordance with
liquidity guidelines established by the Board of Trustees of the Group and only
if the investment would be permitted under applicable state securities laws.
Investments in Warrants. The Group has agreed with a state
administrator, on behalf of the Growth Fund, the Income and Growth Fund, the
Income Equity Fund and the Balanced Fund, that it will limit its investments in
warrants to not more than 5% of each of these Funds' net assets and, of this 5%,
not more than 2% will be invested in warrants that are not listed on the New
York Stock Exchange or the American Stock Exchange; provided, however, that for
the purposes of this limitation, warrants acquired in units or attached to other
securities will be deemed to be without value.
Voting Information. As used in this Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of the Group or a
particular Fund or a particular Class of Shares of the Group or a Fund means the
affirmative vote of the lesser of (a) more than 50% of the outstanding Shares of
the Group or such Fund or such Class, or (b) 67% or more of the Shares of the
Group or such Fund or such Class present at a meeting at which the holders of
more than 50% of the outstanding Shares of the Group or such Fund or such Class
are represented in person or by proxy.
PORTFOLIO TURNOVER
A Fund's turnover rate is calculated by dividing the lesser of a Fund's
purchases or sales of portfolio securities for the year by the monthly average
value of the portfolio securities. The calculation excludes all securities whose
maturities at the time of acquisition were one year or less. Thus, for
regulatory purposes, the portfolio turnover rate with respect to each of the
Money Market Funds was zero percent from the commencement of their respective
operations to July 31, 1995, and is expected to remain zero percent. For the
Group's fiscal year ended July 31, 1995, the portfolio turnover rate of the
Growth Fund was 67.91%, for the Income and Growth Fund was 15.01%, for the
Income Equity Fund was 36.64%, for the Balanced Fund was 20.70%, for the Bond
Fund was 36.20%, and for the Government Bond Fund was 67.49%. For the Group's
fiscal year ended July 31, 1994, the portfolio turnover rate of the Growth Fund
B-26
<PAGE> 196
was 123.26%, for the Income and Growth Fund was 97.24%, for the Income Equity
Fund was 33.82%, for the Balanced Fund was 44.14%, for the Bond was 44.33%, and
for the Government Bond Fund was 176.26%. The portfolio turnover rate may vary
greatly from year to year as well as within a particular year, and may also be
affected by cash requirements for redemption of Shares and, in the case of the
California Tax-Free Fund and the Tax-Free Fund, by requirements that enable them
to receive certain favorable tax treatment.
VALUATION
As disclosed in the Prospectuses, each Fund's net asset value per share
for purposes of pricing purchase and redemption orders is determined by the
administrator as of the close of trading on the New York Stock Exchange
(generally 4:00 p.m. Eastern Time) (and 1:00 p.m. Eastern Time in the case of
the Money Market Funds) on each weekday, with the exception of those holidays on
which the New York Stock Exchange or the Federal Reserve Bank of San Francisco
are closed (a "Business Day"). Currently, one or both of these institutions are
closed on the customary national business holidays of New Year's Day, Martin
Luther King, Jr. Day, President's Day (Washington's Birthday), Good Friday,
Memorial Day (observed), Independence Day (observed), Labor Day, Columbus Day,
Veteran's Day, Thanksgiving Day and Christmas Day (observed).
VALUATION OF THE MONEY MARKET FUNDS
The Money Market Funds have elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. The amortized cost method
involves valuing an instrument at its cost initially and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. This
method may result in periods during which value, as determined by amortized
cost, is higher or lower than the price a Fund would receive if it sold the
instrument. The value of securities in a Fund can be expected to vary inversely
with changes in prevailing interest rates.
The Group's Board of Trustees has undertaken to establish procedures
reasonably designed, taking into account current market conditions and a Fund's
investment objective, to stabilize the net asset value per Share of each Money
Market Fund for purposes of sales and redemptions at $l.00. These procedures
include review by the Trustees, at such intervals as they deem appropriate, to
determine the extent, if any, to which the net asset value per Share of each
Fund calculated by using available market quotations deviates from $1.00 per
Share. In the event such deviation exceeds one-half of one percent, Rule 2a-7
requires that the Board promptly consider what action, if any, should be
initiated. If the Trustees believe that the extent of any deviation from a
Fund's $1.00 amortized cost price per Share may result in material dilution or
other unfair results to new or existing investors, the Trustees will take such
steps as they consider appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution
B-27
<PAGE> 197
or unfair results. These steps may include selling portfolio instruments prior
to maturity, shortening the average portfolio maturity of a Fund, withholding or
reducing dividends, reducing the number of a Fund's outstanding Shares without
monetary consideration, or utilizing a net asset value per Share based on
available market quotations.
VALUATION OF THE GROWTH FUND, THE INCOME AND GROWTH FUND, THE INCOME EQUITY
FUND, THE BALANCED FUND, THE BOND FUND, THE GOVERNMENT BOND FUND, THE CALIFORNIA
MUNICIPAL FUND AND THE MUNICIPAL FUND
Except as noted below, investments by the Growth Fund, the Income and
Growth Fund, the Income Equity Fund, the Balanced Fund, the Bond Fund, the
Government Bond Fund, the California Municipal Fund and the Municipal Fund in
securities traded on a national exchange (or exchanges) are valued based upon
their last sale price on the principal exchange on which such securities are
traded. With regard to each such Fund, securities the principal market for which
is not a securities exchange are valued based upon the mean of their latest
available bid prices in such principal market or, if there are no reported bids
for that day, the securities are valued based upon their last reported trading
price. Securities and other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith under
consistently applied procedures established by and under the general supervision
of the Group's Board of Trustees. With the exception of short-term securities as
described below, the value of each Fund's investments may be based on valuations
provided by a pricing service. Short-term securities (i.e., securities with
remaining maturities of 60 days or less) are valued at amortized cost, which
approximates current value.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Both classes of Shares in each Fund are sold on a continuous basis by
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services (the
"Distributor"), and the Distributor has agreed to use appropriate efforts to
solicit all purchase orders.
Investor Shares may be purchased pursuant to agreements between the
Distributor and Participating Organizations whereby investments in Investor
Shares are made by the Participating Organization on behalf of its customers,
while Fiduciary Shares may be purchased through procedures established by the
Distributor in connection with the requirements of fiduciary, advisory, agency
and other similar accounts maintained by or on behalf of customers of The Bank
of California or its affiliates. An investor must be eligible to purchase
Investor or Fiduciary Shares under the criteria described in the Prospectuses.
PURCHASE OF INVESTOR SHARES
As stated in the relevant Prospectuses, the public offering price of
Investor Shares of the Equity Funds, the Income Funds and the Municipal Funds is
the net asset
B-28
<PAGE> 198
value next computed after the receipt of the order to purchase Shares plus a
sales charge, which varies based upon the type of Fund and amount purchased. The
public offering price of such Investor Shares of the Group is calculated by
dividing net asset value by the difference between 100% and the sales charge
percentage of offering price applicable to the purchase (see "How to Purchase
Shares" in the relevant Prospectuses). The offering price is rounded to two
decimal places each time a computation is made. The sales charge scale set forth
in a Fund's Prospectus applies to purchases of Investor Shares of such a Fund by
a purchaser.
As the Group's principal underwriter, the Distributor acts as principal
in selling Investor Shares of the Group to dealers. The Distributor re-allows
the sales charge as dealer discounts and brokerage commissions. Dealer
allowances expressed as a percentage of offering price for all offering prices
are set forth in the relevant Prospectuses (see "How to Purchase Shares"). From
time to time, the Distributor may make expense reimbursements for special
training of a dealer's registered representatives in group meetings or to help
pay the expenses of sales contests. In some instances, promotional incentives to
dealers may be offered only to certain dealers who have sold or may sell
significant amounts of the Funds' Investor Shares. Neither the Distributor nor
dealers are permitted to delay the placement of orders to benefit themselves by
a price change.
MATTERS AFFECTING REDEMPTION
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission; (b) the Exchange is closed for other
than customary weekend and holiday closings; (c) the Securities and Exchange
Commission has by order permitted such suspension; or (d) an emergency exists as
determined by the Securities and Exchange Commission.
The Group may redeem Shares involuntarily if redemption appears
appropriate in light of the Group's responsibilities under the 1940 Act. See
"VALUATION" above.
ADDITIONAL FEDERAL TAX INFORMATION
Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order so to qualify and to qualify for the special tax treatment
accorded regulated investment companies and their Shareholders, a Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale of stock, securities, and foreign currencies, or other income (including
but not limited to gains from options, futures, or forward contracts) derived
with respect to its business of investing in such stock, securities, or
currencies; (b) derive less than 30% of its gross income from the sale or other
B-29
<PAGE> 199
disposition of certain assets (including stocks and securities) held for less
than three months; (c) each year distribute at least 90% of its dividends,
interest (including tax-exempt interest), certain other income and the excess,
if any, of its net short-term capital gains over its net long-term capital
losses; and (d) diversify its holdings so that, at the end of each fiscal
quarter (i) at least 50% of the market value of the Fund's assets is represented
by cash, cash items, U.S. Government securities, securities of other regulated
investment companies, and other securities, limited in respect of any one issuer
to a value not greater than 5% of the value of the Fund's total assets and 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its assets is invested in the securities (other than those of
the U.S. Government or other regulated investment companies) of any one issuer
or of two or more issuers that the Fund controls and that are engaged in the
same, similar, or related trades or businesses. The 30% of gross income test
described above may restrict a Fund's ability to sell certain assets held (or
considered under Code rules to have been held) for less than three months.
If a Fund fails to distribute in a calendar year substantially all of
its ordinary income for the year and substantially all its capital gain net
income for the one-year period ending October 31 of the year (and any retained
amount from the prior calendar year), the Fund will be subject to a
non-deductible 4% excise tax on the undistributed amounts.
Any dividend declared by a Fund to Shareholders of record on a date in
October, November or December generally is deemed to have been received by its
Shareholders on December 31 of such year (and paid by the Fund on or before such
time) provided that the dividend actually is paid not later than the end of
January of the following year.
The Funds will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends and other distributions paid
to any Shareholder who has provided either an incorrect tax identification
number or no number at all, or who is subject to withholding by the Internal
Revenue Service for failure to properly include on his or her tax return
payments of interest or dividends.
Unless treaty relief applies, foreign Shareholders (i.e., nonresident
alien individuals and foreign corporations, partnerships, trusts and estates)
generally are subject to U.S. withholding tax at the rate of 30% on
distributions derived from net investment income and short-term capital gains
notwithstanding whether a portion of such income (e.g., short-term gains and
portfolio interest) may not have been taxable to the foreign Shareholder if it
had been earned directly rather than through a Fund. Distributions to foreign
Shareholders of long-term capital gains and any gains from the sale or other
disposition of Shares of a Fund generally are not subject to U.S. taxation,
unless the recipient is a nonresident alien individual who is present in the
United States for more than 182 days during the taxable year and who meets
certain other requirements. Different tax consequences may result if the foreign
Shareholder is engaged in a trade or business within the United States or, if
treaty relief applies, has a
B-30
<PAGE> 200
U.S. permanent establishment. Foreign Shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Funds.
The foregoing discussion and the one below regarding the California
Tax-Free Fund, the Tax-Free Fund, the California Municipal Fund and the
Municipal Fund under "Federal Taxation" is only a summary of some of the
important Federal tax considerations generally affecting purchasers of the
Funds' Shares. No attempt has been made to present a detailed explanation of the
Federal income tax treatment of the Funds, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential purchasers of
the Funds' Shares are urged to consult their tax advisers with specific
reference to their own tax situation. In addition, this discussion is based on
tax laws and regulations that are in effect on the date of this Statement of
Additional Information; such laws and regulations may be changed by legislative,
judicial or administrative action, and such changes may be retroactive.
ADDITIONAL TAX INFORMATION CONCERNING THE CALIFORNIA TAX-FREE FUND, THE TAX-FREE
FUND, THE CALIFORNIA MUNICIPAL FUND AND THE MUNICIPAL FUND
Federal Taxation. As indicated in their respective Prospectuses, the
California Tax-Free Fund, the Tax-Free Fund, the California Municipal Fund and
the Municipal Fund are designed to provide individual Shareholders with current
tax-exempt interest income. None of these Funds is intended to constitute a
balanced investment program or is designed for investors seeking capital
appreciation. Nor are the California Tax-Free Fund or the Tax-Free Fund designed
for investors seeking maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Funds may not be suitable for tax-exempt institutions
and may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans, and individual retirement accounts because such plans and
accounts are generally tax-exempt and, therefore, would not gain any additional
benefit from the Funds' dividends being tax-exempt, and such dividends would
ultimately be taxable to the beneficiaries when distributed to them.
The Code permits a regulated investment company that invests at least
50% of its total assets in tax-free Municipal Securities to pass through to its
investors, tax-free, net Municipal Securities interest income to the extent such
interest would be exempt if earned directly. The policy of the California
Tax-Free Fund, the Tax-Free Fund, the California Municipal Fund and the
Municipal Fund is to pay each year as dividends substantially all of such Fund's
Municipal Securities interest income net of certain deductions. An
exempt-interest dividend is any dividend or part thereof derived from interest
excludable from gross income and designated as an exempt-interest dividend in a
written notice mailed to Shareholders after the close of such Fund's taxable
year, but the aggregate of such dividends may not exceed the net Municipal
Securities interest received by the Fund during the taxable year. In the case of
each of the California Tax- Free Fund, the Tax-Free Fund, the California
Municipal Fund and the Municipal Fund, the percentage of the dividends paid for
any taxable year that qualifies as federal exempt- interest dividends will be
the same for all Shareholders receiving dividends during such
B-31
<PAGE> 201
year, regardless of the period for which the Shares were held.
Exempt-interest dividends may be treated by Shareholders of the
California Tax- Free Fund, the Tax-Free Fund, the California Municipal Fund and
the Municipal Fund as items of interest excludable from their gross income under
Section 103(a) of the Code. However, each such Shareholder is advised to consult
his or her tax adviser with respect to whether exempt-interest dividends would
retain the exclusion under Section 103(a) if such Shareholder were treated as a
"substantial user" or a "related person" to such user under Section 147(a) with
respect to facilities financed through any of the tax-exempt obligations held by
the California Tax-Free Fund, the Tax-Free Fund, the California Municipal Fund
or the Municipal Fund.
The California Tax-Free Fund, the Tax-Free Fund, the California
Municipal Fund and the Municipal Fund will distribute substantially all of any
investment company taxable income for each taxable year. In general, a Fund's
investment company taxable income will be its taxable income subject to certain
adjustments and excluding the excess of any net long-term capital gains for the
taxable year over the net short-term capital loss, if any, for such year.
Distributions of such income will be taxable to Shareholders as ordinary income.
The dividends-received deduction for corporations is not expected to apply to
such distributions.
Distribution of the excess of the California Tax-Free Fund's, the
Tax-Free Fund's, the California Municipal Fund's and the Municipal Fund's net
long-term capital gain (if any) over its net short-term capital loss will be
taxable to the Fund's Shareholders as a long-term capital gain in the year in
which received, regardless of how long a time the Shareholder held the Fund's
Shares and such distributions will not be eligible for the dividends received
deduction. If a Shareholder disposes of Shares in a Fund at a loss before
holding such Shares for longer than six months, such loss will be treated as a
long-term capital loss to the extent the Shareholder has received a capital gain
dividend on the Shares.
Shareholders receiving social security or railroad retirement benefits
may be taxed on a portion of those benefits as a result of receiving tax-exempt
income (including exempt-interest dividends distributed by the Fund).
Like the other Funds, if for any taxable year the California Tax-Free
Fund, the Tax-Free Fund, the California Municipal Fund or the Municipal Fund
does not qualify for the special tax treatment afforded regulated investment
companies, all of such Fund's taxable income will be subject to tax at regular
corporate rates (without any deduction for distributions to Shareholders), and
Municipal Securities interest income, although not taxable to the California
Tax-Free Fund, the Tax-Free Fund, the California Municipal Fund or the Municipal
Fund, would be taxable to Shareholders when distributed as dividends.
Depending upon the extent of its activities in states and localities in
which its
B-32
<PAGE> 202
offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, the
California Tax-Free Fund, the Tax-Free Fund, the California Municipal Fund and
the Municipal Fund may be subject to the tax laws of such states or localities.
For a summary of certain California tax considerations affecting the California
Tax-Free Fund and the California Municipal Fund, see "California Taxation"
below.
As indicated in their Prospectuses, the California Tax-Free Fund, the
Tax-Free Fund, the California Municipal Fund and the Municipal Fund may acquire
rights regarding specified portfolio securities under puts. See "INVESTMENT
OBJECTIVES AND POLICIES - Additional Information on Portfolio Instruments -
Puts" in this Statement of Additional Information. The policy of each Fund is to
limit its acquisition of puts to those under which the Fund will be treated for
Federal income tax purposes as the owner of the Municipal Securities acquired
subject to the put and the interest on such Municipal Securities will be
tax-exempt to the Fund. There is currently no guidance available from the
Internal Revenue Service that definitively establishes the tax consequences that
may result from the acquisition of many of the types of puts that the California
Tax-Free Fund, the Tax-Free Fund, the California Municipal Fund or the Municipal
Fund could acquire under the 1940 Act. Therefore, although they will only
acquire a put after concluding that it will have the tax consequences described
above, the Internal Revenue Service could reach a different conclusion from that
of the relevant Fund.
California Taxation. Under existing California law, if the California
Tax-Free Fund or the California Municipal Fund, continue to qualify for the
special federal income tax treatment afforded regulated investment companies and
if at the end of each quarter of such Fund's taxable year at least 50% of the
value of that Fund's assets consists of obligations that, if held by an
individual, would pay interest exempt from California taxation ("California
Exempt-Interest Securities"), Shareholders of that Fund will be able to exclude
from income, for California personal income tax purposes, "California
exempt-interest dividends" received from that Fund during that taxable year. A
"California exempt-interest dividend" is any dividend or portion thereof of the
California Tax-Free Fund or the California Municipal Fund not exceeding the
interest received by the relevant Fund during the taxable year on obligations
that, if held by an individual, would pay interest exempt from California
taxation (less direct and allocated expenses, which includes amortization of
acquisition premium) and so designated by written notice to Shareholders within
60 days after the close of that taxable year.
Distributions, other than of "California exempt-interest dividends," by
the California Tax-Free Fund or the California Municipal Fund to California
residents will be subject to California personal income taxation. Gains realized
by California residents from a redemption or sale of Shares of the California
Tax-Free Fund or the California Municipal Fund will also be subject to
California personal income taxation. In general, California nonresidents, other
than certain dealers, will not be subject to California personal income taxation
on distributions by, or on gains from the redemption or sale of,
B-33
<PAGE> 203
Shares of the California Tax-Free Fund or the California Municipal Fund, unless
those Shares have acquired a California "business situs." (Such California
nonresidents may, however, be subject to other state or local income taxes on
such distributions or gains, depending on their residence.) Short-term capital
losses realized by shareholders from a redemption of shares of the California
Tax-Free Fund or the California Municipal Fund within six months from the date
of their purchase will not be allowed for California personal income tax
purposes to the extent of any tax-exempt dividends received with respect to such
Shares during such period. No deduction will be allowed for California personal
income tax purposes for interest on indebtedness incurred or continued in order
to purchase or carry Shares of the California Tax-Free Fund or the California
Municipal Fund for any taxable year of a Shareholder during which the relevant
Fund distributes "California exempt-interest dividends." Unlike federal income
tax law, California personal income tax law does not subject social security or
railroad retirement benefits to tax.
A statement setting forth the amount of "California exempt-interest
dividends" distributed during each calendar year will be sent to Shareholders
annually.
The foregoing is only a summary of some of the important California
personal income tax considerations generally affecting the Shareholders of the
California Tax- Free Fund and the California Municipal Fund. This summary does
not describe the California tax treatment of the California Tax-Free Fund or the
California Municipal Fund and, in addition, no attempt has been made to present
a detailed explanation of the California personal income tax treatment of these
Funds' Shareholders. Accordingly, this discussion is not intended as a
substitute for careful planning. Further, "California exempt-interest dividends"
are excludable from income for California personal income tax purposes only. Any
dividends paid to Shareholders subject to California franchise tax or California
corporate income tax will be taxed as ordinary dividends to such Shareholders,
notwithstanding that all or a portion of such dividends is exempt from
California personal income tax. Accordingly, potential investors in the
California Tax- Free Fund and the California Municipal Fund including, in
particular, corporate investors which may be subject to either California
franchise tax or California corporate income tax, should consult their tax
advisers with respect to the application of such taxes to the receipt of Fund
dividends and as to their own California tax situation, in general.
B-34
<PAGE> 204
MANAGEMENT OF THE GROUP
TRUSTEES AND OFFICERS
Overall responsibility for management of each Fund rests with the
Trustees of the Group, who are elected by the Group's Shareholders. There are
currently five Trustees, four of whom are not "interested persons" of the Group
within the meaning of that term under the 1940 Act.
The Trustees, in turn, elect the officers of the Group to supervise
actively its day-to-day operations.
The Trustees and officers of the Group, their addresses and principal
occupations during the past five years are set forth below.
<TABLE>
<CAPTION>
Position(s)
Held With Principal Occupation
Name and Address The Group During Past 5 Years
---------------- ----------- -------------------
<S> <C> <C>
Stephen G. Mintos* Chairman of Employee, and prior
3435 Stelzer Road the Board, to October 1993 a limited Granville
Columbus, OH 43219 Trustee and partner, BISYS Fund Services.
President
Thomas L. Braje Trustee Vice President and
1000 Alfred Nobel Drive Chief Financial Officer
Hercules, CA 94547 of Bio Rad Laboratories, Inc.
David A. Goldfarb Trustee Partner, Goldfarb & Simens,
111 Pine Street Certified Public Accountants.
18th Floor
San Francisco, CA 94111
Joseph C. Jaeger Trustee Senior Vice President and Chief
100 First Street Financial Officer, Delta Dental
San Francisco, CA 94105 Plan of California.
</TABLE>
B-35
<PAGE> 205
<TABLE>
<S> <C> <C>
Frederick J. Long Trustee President and Chief Executive
520 Pike Street Officer, Pettit-Morry Co.
20th Floor and Acordia Northwest Inc.
Seattle, WA 98101 (each an insurance brokerage
firm).
J. David Huber Vice From June, 1994, Senior Vice
3435 Stelzer Road President President, Business Development;
Columbus, OH 43219 from December 1993 to June 1994,
Managing Director of Business Development;
from June, 1993 to December, 1993,
Managing Director of Sales Management
Services of BISYS Fund Services Limited
Partnership; from June, 1987 to June, 1993,
Managing Director of Client Services of
BISYS Fund Services.
William J. Tomko Vice Employee, BISYS Fund Services.
3435 Stelzer Road President
Columbus, OH 43219
Cynthia L. Lindsey Vice Employee, BISYS Fund Services.
3435 Stelzer Road President
Columbus, OH 43219
Nancy E. Converse Secretary Employee, BISYS Fund Services;
3435 Stelzer Road and prior to July 1990, Assistant
Columbus, OH 43219 Vice President, Bank One Corporation.
Martin R. Dean Treasurer Manager, Mutual Fund Accounting,
3435 Stelzer Road BISYS Fund Services, Inc. since
Columbus, OH 43219 May, 1994. Prior thereto, Senior Manager,
KPMG Peat Marwick.
Alaina Metz Assistant From June, 1995 to present, Chief
3435 Stelzer Road Secretary Administrator, Administrative and
Columbus, OH 43219 Regulatory Services, BISYS Fund Services,
Inc.; from May, 1989 to June, 1995,
Supervisor, Mutual Fund Legal Department,
Alliance Capital Management.
</TABLE>
---------------------
* Mr. Mintos is considered to be an "interested person" of the Group as
defined in the 1940 Act.
B-36
<PAGE> 206
The Trustees of the Group receive quarterly retainer fees and fees and
expenses for each meeting of the Board of Trustees attended. No employee,
officer or stockholder of BISYS Fund Services, BISYS Fund Services, Inc. and/or
BISYS Fund Services Ohio, Inc. ("BISYS Fund Services Ohio") receives any
compensation directly from the Group for serving as a Trustee and/or officer.
BISYS Fund Services receives administration, servicing and distribution fees
from each of the Group's Funds. See "Manager and Administrator" and
"Distributor" below. Messrs. Mintos, Huber, Dean and Tomko, Ms. Lindsey, Ms.
Metz and Ms. Converse are employees of BISYS Fund Services. As described under
"Transfer Agent, Custodian, and Fund Accounting Services" below, BISYS Fund
Services Ohio receives fees from each of the Group's Funds for acting as
transfer agent and fund accountant. Messrs. Huber and Mintos are each officers
of BISYS Fund Services Ohio. While BISYS Fund Services Ohio is a distinct legal
entity from BISYS Fund Services, BISYS Fund Services Ohio is considered to be an
affiliated person of BISYS Fund Services under the 1940 Act due to, among other
things, the fact that BISYS Fund Services Ohio and BISYS Fund Services are both
controlled by the same ultimate parent company, The BYSIS Group, Inc.
During the fiscal year ended July 31, 1995, fees /paid to the
disinterested Trustees for their services as Trustees aggregated $42,000. For
the disinterested Trustees, the following table sets forth information
concerning fees paid and retirement benefits accrued during the fiscal year
ended July 31, 1995:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Annual Total Compensation
Trustee Compensation Retirement Benefits Upon from Fund
from Group Benefits Accrued Retirement Complex Paid to
as Trustees
Part of Fund
Expenses
- ----------------- ------------ ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Thomas L. Braje $10,500 None None $10,500
David A. Goldfarb $10,500 None None $10,500
Joseph C. Jaeger $10,500 None None $10,500
Frederick J. Long $10,500 None None $10,500
</TABLE>
INVESTMENT ADVISER
Investment advisory and management services are provided to each of the
Group's Funds by MERUS pursuant to an investment advisory agreement between The
Bank of California and the Group dated as of May 8, 1992, as amended (the
"Investment Advisory Agreement"). The Bank of California serves as custodian for
each of the Group's Funds. In addition, pursuant to separate agreements with
BISYS Fund Services, The Bank of California serves as sub-transfer agent for
each of the Group's Funds. See "Transfer Agent, Custodian
B-37
<PAGE> 207
and Fund Accounting Services" below. The Bank of California also serves as sub-
administrator to each of the Group's Funds pursuant to an agreement with BISYS
Fund Services. See "Manager and Administrator" below.
Unless sooner terminated, the Investment Advisory Agreement will
continue in effect as to each particular Fund from year to year if such
continuance is approved at least annually by the Group's Board of Trustees or by
vote of a majority of the outstanding Shares of such Fund (as defined under
GENERAL INFORMATION - Miscellaneous in the Prospectuses), and a majority of the
Trustees who are not parties to the Investment Advisory Agreement or interested
persons (as defined in the 1940 Act) of any party to the Investment Advisory
Agreement by votes cast in person at a meeting called for such purpose. The
Investment Advisory Agreement is terminable as to a particular Fund at any time
on 60 days' written notice without penalty by the Trustees, by vote of a
majority of the outstanding Shares of that Fund, or by The Bank of California.
The Investment Advisory Agreement terminates automatically in the event of any
assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that The Bank of California
will not be liable for any error of judgment or mistake of law or for any loss
suffered by the Group in connection with MERUS's services under the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of MERUS in the
performance of its duties, or from reckless disregard by MERUS of its duties and
obligations thereunder.
The Mitsubishi Bank, Limited, of Tokyo, Japan, directly or indirectly
owns all of the outstanding shares of the Bank. The Mitsubishi Bank, Limited and
The Bank of Tokyo, Ltd. have announced their intention to merge. The resulting
entity will be named The Bank of Tokyo-Mitsubishi, Ltd. The directors and
shareholders of the respective organizations have approved the proposed merger
in principle.
The Bank of Tokyo, Ltd. and The Mitsubishi Bank, Limited announced they
had reached a basic understanding concerning the merger of their respective
subsidiary banks in California, Union Bank and The Bank of California. The
merger has been approved by the Boards of Directors of Union Bank and The Bank
of California, and will be finalized after obtaining the required shareholders'
and regulatory approvals. The name of the combined California bank will be Union
Bank of California.
The target date of both the above-described mergers is April 1, 1996.
One or more of the foregoing transactions may constitute an
"assignment" of the existing investment advisory agreements between the Group
and MERUS. In the event they do constitute such an "assignment" under the 1940
Act, the "assignment" will result in the automatic termination of the investment
advisory agreements, effective at the time of the transaction. Prior to the
transactions, shareholders of each Fund will be asked to approve a
B-38
<PAGE> 208
new investment advisory agreement between that Fund and Union Bank of California
(or a registered investment advisor affiliate), to take effect at the time of
the transactions. A proxy statement describing the terms of the new agreements
will be sent to shareholders of the Group prior to their being asked to vote on
the new agreements.
For the services provided and expenses assumed by MERUS pursuant to the
Investment Advisory Agreement, The Bank of California is entitled to receive
fees from each Fund as described in that Fund's Prospectus. For the fiscal year
ended July 31, 1995, the Bank of California received the following investment
advisory fees: $37,349 from the Growth Fund (an additional $158,716 in fees were
voluntarily reduced); $0 from the Income and Growth Fund (an additional
$56,251 in fees were voluntarily reduced); $1,419,062 from the Income Equity
Fund (an additional $11,439 in fees were voluntarily reduced); $83,790 from the
Balanced Fund (an additional $168,408 in fees were voluntarily reduced);
$271,150 from the Bond Fund (an additional $250,310 in fees were voluntarily
reduced); $0 from the Government Bond Fund (an additional $46,447 in fees were
voluntarily reduced); $1,429,494 from the Diversified Obligations Fund; $729,094
from the U.S. Government Obligations Fund; $920,611 from the 100% U.S. Treasury
Obligations Fund; $267,095 from the California Tax Free fund (an additional
$326,450 in fees were voluntarily reduced); and $157,964 from the Tax-Free Fund
(an additional $33,508 in fees were voluntarily reduced). Because the California
Municipal Bond Fund and the Municipal Bond Fund had not commenced operations as
of July 31, 1995, they paid no investment advisory fees during such fiscal year.
For the fiscal year ended July 31, 1994, The Bank of California
received the following investment advisory fees: $0 from the Growth Fund (an
additional $63,330 in fees were voluntarily reduced); $0 from the Income and
Growth Fund (an additional $37,543 in fees were voluntarily reduced); $1,216,590
from the Income Equity Fund (an additional $40,330 in fees were voluntarily
reduced); $47,972 from the Balanced Fund (an additional $112,239 in fees were
voluntarily reduced); $268,520 from the Bond Fund (an additional $249,371 in
fees were voluntarily reduced); $0 from the Government Bond Fund (an additional
$36,996 in fees were voluntarily reduced); $1,471,655 from the Diversified
Obligations Fund; $825,406 from the U.S. Government Obligations Fund; $833,971
from the 100% U.S. Treasury Obligations Fund; $316,744 from the California
Tax-Free Fund (an additional $387,133 in fees were voluntarily reduced); and
$200,171 from the Tax-Free Fund (an additional $42,460 in fees were voluntarily
reduced). Because the California Municipal Bond Fund and the Municipal Bond Fund
had not commenced operations as of July 31, 1994, they paid no investment
advisory fees during such fiscal year.
For the fiscal year ended July 31, 1993, The Bank of California
received the following investment advisory fees: $652,628 from the Income Equity
Fund (an additional $40,565 in fees were voluntarily reduced); $122,961 from the
Bond Fund (an additional $150,590 in fees were voluntarily reduced); $1,511,824
from the Diversified Obligations Fund (an additional $60,044 in fees were
voluntarily waived); $494,848 from the U.S. Government Obligations Fund (an
additional $28,276 in fees were voluntarily reduced); $853,612 from the 100%
U.S.
B-39
<PAGE> 209
Treasury Obligations Fund (an additional $85,203 in fees were voluntarily
reduced); $240,652 from the California Tax-Free Fund (an additional $361,654 in
fees were voluntarily reduced); and $130,516 from the Tax-Free Fund (an
additional $101,028 in fees were voluntarily reduced). Because the Growth Fund,
the Income and Growth Fund, the Balanced Fund, the Government Bond Fund, the
California Municipal Fund and the Municipal Fund had not commenced operations as
of July 31, 1993, they paid no investment advisory fees during such fiscal year.
[/R]
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, MERUS determines,
subject to the general supervision of the Board of Trustees of the Group and in
accordance with each Fund's investment objective and restrictions, which
securities are to be purchased and sold by a Fund, and which brokers are to be
eligible to execute its portfolio transactions. Purchases and sales of portfolio
securities for the Bond Fund, the Government Bond Fund, the Diversified
Obligations Fund, the U.S. Government Obligations Fund, the 100% U.S. Treasury
Obligations Fund, the California Tax-Free Fund, the Tax Free Fund, the
California Municipal Fund and the Municipal Fund usually are principal
transactions in which portfolio securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. Purchases
from underwriters of portfolio securities include a commission or concession
paid by the issuer to the underwriter and purchases from dealers serving as
market makers may include the spread between the bid and asked price. Securities
purchased by the Growth Fund, the Income and Growth Fund and the Income Equity
Fund will generally involve the payment of a brokerage fee. Portfolio
transactions for the Balanced Fund may be principal transactions or involve the
payment of brokerage commissions. While MERUS generally seeks competitive
spreads or commissions on behalf of each of the Funds, the Group may not
necessarily pay the lowest spread or commission available on each transaction,
for reasons discussed below.
Allocation of transactions, including their frequency, to various
dealers is determined by MERUS in its best judgment and in a manner deemed fair
and reasonable to Shareholders. The primary consideration is prompt execution of
orders in an effective manner at the most favorable price. Subject to this
consideration, dealers who provide supplemental investment research to MERUS may
receive orders for transactions by the Group. Information so received is in
addition to and not in lieu of services required to be performed by MERUS and
does not reduce the advisory fees payable to The Bank of California by the
Group. Such information may be useful to MERUS in serving both the Group and
other clients and, conversely, supplemental information obtained by the
placement of business of other clients may be useful to MERUS in carrying out
its obligations to the Group.
Upon adoption by the Board of Trustees of certain procedures pursuant
to Rule 17e-1 under the Investment Company Act, the Group may execute portfolio
transactions involving the payment of a brokerage fee through The Bank of
California, BISYS Fund Services, and their affiliates in accordance with such
procedures. The Group will not acquire portfolio
B-40
<PAGE> 210
securities issued by, make savings deposits in, or enter repurchase or reverse
repurchase agreements with, The Bank of California, BISYS Fund Services, or
their affiliates, and will not give preference to correspondents of The Bank of
California with respect to such securities, savings deposits, repurchase
agreements and reverse repurchase agreements.
Investment decisions for each Fund of the Group are made independently
from those for the other Funds or any other investment company or account
managed by MERUS or The Bank of California. However, any such other investment
company or account may invest in the same securities as the Group. When a
purchase or sale of the same security is made at substantially the same time on
behalf of a Fund and another Fund, investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner that MERUS and The Bank of California believe to be
equitable to the Fund(s) and such other investment company or account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained by a Fund. To the extent
permitted by law, MERUS and The Bank of California may aggregate the securities
to be sold or purchased for a Fund with those to be sold or purchased for the
other Funds or for other investment companies or accounts in order to obtain
best execution. As provided in the Investment Advisory Agreement, in making
investment recommendations for the Group, MERUS will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
the Group is a customer of MERUS or The Bank of California, its parent or its
subsidiaries or affiliates and, in dealing with its commercial customers, MERUS
and The Bank of California, its parent, subsidiaries, and affiliates will not
inquire or take into consideration whether securities of such customers are held
by the Group.
The following brokerage commissions were paid in the fiscal year ended
July 31, 1995: $57,798 by the Growth Fund, $4,469 by the Income and Growth Fund,
$257,339 by the Income Equity Fund, and $10,757 by the Balanced Fund. The
following brokerage commissions were paid in the fiscal year ended July 31,
1994: $49,878 by the Growth Fund; $10,440 by the Income and Growth Fund;
$212,350 by the Income Equity Fund; and $30,025 by the Balanced Fund. The
brokerage commissions paid by the Income Equity Fund in the fiscal year ended
July 31, 1993 were $118,372.
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such
B-41
<PAGE> 211
an investment company. In 1981, the United States Supreme Court held in Board of
Governors of the Federal Reserve System v. Investment Company Institute that the
Board did not exceed its authority under the Holding Company Act when it adopted
its regulation and interpretation authorizing bank holding companies and their
non-bank affiliates to act as investment advisers to registered closed-end
investment companies. In the Board of Governors case, the Supreme Court also
stated that if a national bank complies with the restrictions imposed by the
Board in its regulation and interpretation authorizing bank holding companies
and their non-bank affiliates to act as investment advisers to investment
companies, a national bank performing investment advisory services for an
investment company would not violate the Glass-Steagall Act.
The Bank of California believes that MERUS possesses the legal
authority to perform the services for the Funds contemplated by the Investment
Advisory Agreement and described in the Prospectuses and this Statement of
Additional Information and has so represented in the Investment Advisory
Agreement. Future changes in either federal or state statutes and regulations
relating to the permissible activities of banks or bank holding companies and
the subsidiaries or affiliates of those entities, as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations could prevent or restrict MERUS from continuing to perform such
services for the Group. Depending upon the nature of any changes in the services
that could be provided by MERUS, the Board of Trustees of the Group would review
the Group's relationship with MERUS and consider taking all action necessary in
the circumstances.
Should further legislative, judicial or administrative action prohibit
or restrict the activities of The Bank of California, its affiliates, and its
correspondent banks in connection with Customer purchases of Shares of the
Group, such Banks might be required to alter materially or discontinue the
services offered by them to Customers. It is not anticipated, however, that any
change in the Group's method of operations would affect its net asset value per
Share or result in financial losses to any Customer.
ADMINISTRATOR AND SUB-ADMINISTRATOR
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS Fund Services") (formerly, The Winsbury Company Limited Partnership
d/b/a The Winsbury Company) serves as administrator to each of the Group's Funds
pursuant to the management and administration agreement dated as of August 1,
1995 between the Group and BISYS Fund Services (the "Administration Agreement").
BISYS Fund Services also serves as the distributor for each of the
Group's Funds. See "Distributor" below. BISYS Fund Services is a broker-dealer
registered with the Securities and Exchange Commission, and is a member of the
National Association of Securities Dealers, Inc. The primary business of BISYS
Fund Services is to act as sponsor, administrator, principal underwriter and
distributor to mutual funds for which financial institutions, principally banks,
act as investment adviser.
B-42
<PAGE> 212
Pursuant to the Administration Agreement, BISYS Fund Services maintains
office facilities for the Group, maintains the Group's financial accounts and
records, and furnishes the Group statistical and research data, data processing,
clerical, accounting and bookkeeping services, and certain other services
required by the Group. In addition, BISYS Fund Services prepares annual and
semi-annual reports to the Securities and Exchange Commission, prepares federal
and state tax returns, prepares filings with state securities commissions, and
generally assists in all aspects of the Group's operations. As described below,
BISYS Fund Services has delegated part of its responsibilities under the
Administration Agreement to The Bank of California.
For its services as administrator and expenses assumed pursuant to the
Administration Agreement, BISYS Fund Services receives a fee from each Fund as
described in that Fund's Prospectus. For the fiscal year ended July 31, 1995,
BISYS Fund Services earned the following administration fees: $23,444 from the
Growth Fund (an additional $15,769 in fees were voluntarily reduced); $0 from
the Income and Growth Fund (an additional $11,250 in fees were voluntarily
reduced); $423,500 from the Income Equity Fund; $50,440 from the Balanced Fund;
$78,332 from the Bond Fund (an additional $42,155 in fees were voluntarily
reduced); $0 from the Government Bond Fund (an additional $9,290 in fees were
voluntarily reduced); $71,474 from the Diversified Obligations Fund; $364,547
from the U.S. Government Obligations Fund; $460,306 from the 100% U.S. Treasury
Obligations Fund; $222,580 from the California Tax-Free Fund (an additional
$74,193 in fees were voluntarily reduced); and $47,869 from the Tax-Free Fund
(an additional $47,867 in fees were voluntarily reduced). Because the California
Municipal Bond Fund and the Municipal Bond Fund had not commenced operations as
of July 31, 1995, they paid no administration fees during such fiscal year.
For the fiscal year ended July 31, 1994, BISYS Fund Services earned the
following administration fees: $0 from the Growth Fund (an additional $12,666 in
fees were voluntarily reduced); $0 from the Income and Growth Fund (an
additional $7,509 in fees were voluntarily reduced); $349,213 from the Income
Equity Fund (an additional $16,429 in fees were voluntarily reduced); $24,823
from the Balanced Fund (an additional $7,219 in fees were voluntarily reduced);
$77,570 from the Bond Fund (an additional $41,725 in fees were voluntarily
reduced); $0 from the Government Bond Fund (an additional $7,399 in fees were
voluntarily reduced); $735,828 from the Diversified Obligations Fund; $412,703
from the U.S. Government Obligations Fund; $416,985 from the 100% U.S. Treasury
Obligations Fund; $263,954 from the California Tax-Free Fund (an additional
$87,985 in fees were voluntarily reduced); and $60,660 from the Tax-Free Fund
(an additional $60,655 in fees were voluntarily reduced). Because the California
Municipal Bond Fund and the Municipal Bond Fund had not commenced operations as
of July 31, 1994, they paid no administration fees during such fiscal year.
For the fiscal year ended July 31, 1993, BISYS Fund Services earned the
following administration fees: $167,172 from the Income Equity Fund (an
additional $10,559 in fees were voluntarily reduced); $35,522 from the Bond Fund
(an additional $19,188 in fees were
B-43
<PAGE> 213
voluntarily reduced); $785,934 from the Diversified Obligations Fund; $261,562
from the U.S. Government Obligations Fund; $449,070 from the 100% U.S. Treasury
Obligations Fund (an additional $20,338 in fees were voluntarily reduced);
$214,568 from the California Tax-Free Fund (an additional $86,585 in fees were
voluntarily reduced); and $41,884 from the Tax-Free Fund (an additional $73,887
in fees were voluntarily reduced). Because the Growth Fund, the Income and
Growth Fund, the Balanced Fund, the California Municipal Fund and the Municipal
Fund had not commenced operations as of July 31, 1993, they paid no
administration fees during such fiscal year.
The Administration Agreement became effective on August 1, 1995, and,
unless sooner terminated as provided in the Administration Agreement (and as
described below), the Administration Agreement, as amended, will continue in
effect until July 31, 1998. The Administration Agreement thereafter shall be
renewed automatically for successive annual terms, unless written notice not to
renew is given by the non-renewing party to the other party at least 60 days
prior to the expiration of the then-current term. The Administration Agreement
is terminable at any time with respect to a particular Fund or the Trust as a
whole by either party without penalty for any reason upon 120 days' written
notice by the party effecting such termination to the other party.
The Administration Agreement provides that BISYS Fund Services shall
not be liable for any error of judgment or mistake of law or any loss suffered
by the Group in connection with the matters to which the Administration
Agreement relates, except a loss resulting from willful misfeasance, bad faith,
or gross negligence in the performance of its duties, or from the reckless
disregard by BISYS Fund Services of its obligations and duties thereunder.
The Administration Agreement permits BISYS Fund Services to subcontract
its services thereunder, provided that BISYS Fund Services will not be relieved
of its obligations under the Administration Agreement by the appointment of a
subcontractor and BISYS Fund Services shall be responsible to the Group for all
acts of the subcontractor as if such acts were its own, except for losses
suffered by any Fund resulting from willful misfeasance, bad faith or gross
negligence by the subcontractor in the performance of its duties or for reckless
disregard by it of its obligations and duties.
SHAREHOLDER SERVICES PLAN
The Group has adopted a Shareholder Services Plan (the "Services Plan")
pursuant to which a Fund is authorized to pay compensation to financial
institutions (each a "Service Organization"), which may include BISYS Fund
Services, that agree to provide certain shareholder support services for their
customers or account holders (collectively, "customers") who are the beneficial
or record owners of Shares of a Fund. In consideration for such services, a
Service Organization is reimbursed by a Fund for the costs of providing these
services, which costs are computed daily and paid monthly, subject to a maximum
annual rate of up to 0.25% of the average daily net asset value of Shares of a
Fund owned of record or beneficially by such Service Organization's customers
for whom the Service Organization
B-44
<PAGE> 214
provides such services.
The servicing agreements adopted under the Services Plan (the
"Servicing Agreements") require the Service Organization receiving such
compensation to perform certain shareholder support services as set forth in the
Servicing Agreements with respect to the beneficial or record owners of Shares
of a Fund.
As authorized by the Services Plan, the Group has entered into a
Servicing Agreement with BISYS Fund Services pursuant to which BISYS Fund
Services has agreed to provide certain shareholder support services in
connection with Shares of one or more of the Group's Funds. Such shareholder
support services may include, but are not limited to, (i) responding to routine
customer inquiries relating to services provided for the Fund; (ii) resolving
Shareholder account problems and complaints; (iii) providing administrative
support regarding Shareholder accounts and Fund features to entities whose
customers are Fund Shareholders; (iv) assisting customers in changing dividend
or distribution options, account designations and addresses; and (v) other
similar services. In consideration of such services, the Group, on behalf of
each Fund, has agreed to reimburse BISYS Fund Services its costs of providing
these services, subject to a maximum annual rate of 0.25% of the average daily
net assets of a Fund's shares, which costs will be computed daily and payable
monthly.
EXPENSES
The Group's service providers bear all expenses in connection with the
performance of their respective services, except that each Fund will bear the
following expenses relating to its operations: taxes, interest, brokerage fees
and commissions, if any, fees and travel expenses of Trustees who are not
partners, officers, directors, shareholders or employees of The Bank of
California, BISYS Fund Services or BISYS Fund Services Ohio, Securities and
Exchange Commission fees and state Blue Sky qualification and renewal fees and
expenses, certain insurance premiums, outside and, to the extent authorized by
the Group, inside auditing and legal fees and expenses, fees charged by rating
agencies in having the Fund's Shares rated, advisory and administration fees,
fees and reasonable out-of-pocket expenses of the custodian and transfer agent,
expenses incurred for pricing securities owned by the Fund, costs of maintenance
of corporate existence, typesetting and printing prospectuses for regulatory
purposes and for distribution to current Shareholders, costs and expenses of
Shareholders' and Trustees' reports and meetings and any extraordinary expenses.
If total expenses of any of the Funds in any fiscal year exceed expense
limitations imposed by applicable state securities regulations, The Bank of
California and BISYS Fund Services will bear that Fund's expenses in an amount
equal to such excess, in proportion to their respective investment advisory and
administration fees. As of the date of this Statement of Additional Information,
the most restrictive expense limitation applicable to the Group's Funds limits
each Fund's aggregate annual expenses, including management and advisory fees
but excluding interest, taxes, brokerage commissions, and certain other
expenses, to 2.5% of the first $30 million of a Fund's average net assets, 2.0%
of the next $70 million of a Fund's
B-45
<PAGE> 215
average net assets, and 1.5% of a Fund's remaining average net assets. Fees
charged to customers by certain entities (including Participating Organizations
in the case of Investor Shares and The Bank of California and its affiliates in
the case of Fiduciary Shares) in connection with investments in a Fund on a
customer's behalf are not included within the Fund's expenses for purposes of
any such expense limitation.
DISTRIBUTOR
BISYS Fund Services serves as distributor to the Group's Funds pursuant
to the distribution agreement dated August 1, 1995 between the Group and BISYS
Fund Services (the "Distribution Agreement"). BISYS Fund Services also serves as
the administrator for each of the Group's Funds. See "Administrator and
Sub-Administrator" above.
Unless terminated, the Distribution Agreement will continue in effect
until July 31, 1997, and from year to year thereafter if approved at least
annually (i) by the Group's Board of Trustees or by the vote of a majority of
the outstanding Shares of the Group, and (ii) by the vote of a majority of the
Trustees of the Group who are not parties to the Distribution Agreement or
interested persons (as defined in the 1940 Act) of any party to the Distribution
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement is terminable without penalty, on not less
than sixty days' notice by the Group's Board of Trustees, by vote of a majority
of the outstanding voting securities of the Group or by the Distributor. The
Distribution Agreement terminates in the event of its assignment, as defined in
the 1940 Act.
The Distribution Plans. The operation and the 0.25% fee payable under
the Group's Distribution Plans to which the Investor Shares of the Group's Funds
are presently subject are described in each such Fund's Prospectus under
"SERVICE ARRANGEMENTS ADMINISTRATOR & DISTRIBUTOR -The Distribution Plan." For
the fiscal year ended July 31, 1995, BISYS Fund Services received in respect of
the sale of Investor Shares distribution fees of: $0 in respect of the Growth
Fund; $0 in respect of the Income and Growth Fund, $0 in respect of the Income
Equity Fund, $0 in respect of the Balanced Fund, $0 in respect of the Bond Fund,
$0 in respect of the Government Bond Fund, $1,054 in respect of the Diversified
Obligations Fund, $1,701 in respect of the U.S. Government Obligations Fund, $0
in respect of the 100% U.S. Treasury Obligations Fund, $0 in respect of the
California Tax-Free Fund, and $0 in respect of the Tax-Free Fund.
For the fiscal year ended July 31, 1994, BISYS Fund Services received
$1,598.65 in distribution fees in respect of the Investor Shares of the
Diversified Obligations Fund. No other distribution fees were paid during such
fiscal year.
For the fiscal year ended July 31, 1993, BISYS Fund Services received
$514 in distribution fees in respect of the Investor Shares of the Diversified
Obligations Fund, no distribution fees in respect of the Investor Shares of the
U.S. Government Obligations Fund, $122 in distribution fees in respect of the
Investor Shares of the 100% U.S. Treasury
B-46
<PAGE> 216
Obligations Fund, $14 in distribution fees in respect of the Investor Shares of
the California Tax-Free Fund, and no distribution fees in respect of the
Investor Shares of the Tax-Free Fund.
In accordance with Rule 12b-1 under the 1940 Act, the Distribution
Plans may be terminated with respect to any Fund by a vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding Investor
Shares of that Fund. The Distribution Plans may be amended by vote of the
Group's Board of Trustees, including a majority of the Independent Trustees,
cast in person at a meeting called for such purpose, except that any change in a
Distribution Plan that would materially increase the distribution fee with
respect to a Fund requires the approval of that Fund's Investor Shareholders.
The Group's Board of Trustees will review on a quarterly and annual basis
written reports of the amounts received and expended under the Distribution
Plans (including amounts expended by the Distributor to Participating
Organizations pursuant to the Servicing Agreements entered into under the
Distribution Plans) indicating the purposes for which such expenditures were
made.
Each Distribution Plan provides that it will continue in effect with
respect to each Fund for successive one-year periods, provided that each such
continuance is specifically approved (i) by the vote of a majority of the
Independent Trustees and (ii) by the vote of the entire Board of Trustees, cast
in person at a meeting called for such purpose. For so long as each of the
Distribution Plans remains in effect, the selection and nomination of those
trustees who are not interested persons of the Group (as defined in the 1940
Act) shall be committed to the discretion of such disinterested persons.
TRANSFER AGENT, CUSTODIAN AND FUND ACCOUNTING SERVICES
BISYS Fund Services Ohio performs transfer agency services for the
Group's Funds pursuant to a transfer agency and shareholder service agreement
with the Group dated as of August 1, 1995 (the "Transfer Agency Agreement"). As
each Fund's transfer agent, BISYS Fund Services Ohio processes purchases and
redemptions of each Fund's Shares and maintains each Fund's Shareholder transfer
and accounting records, such as the history of purchases, redemptions, dividend
distributions, and similar transactions in a Shareholders's account.
Under the Transfer Agency Agreement, the Group has agreed to pay BISYS
Fund Services Ohio an annual minimum fee for each class of each Fund's Shares
outstanding based on the number of shareholder accounts of record of such Class
and whether the class has certain specified features. The annual minimum fee
schedule is $18,000 for the Investor Class and $10,000 for the Fiduciary Class
where the number of shareholder accounts of record is between 1 and 99; $24,000
for the Investor Class and $18,000 for the Fiduciary Class where the number of
shareholder accounts of record is between 100 and 499; and $36,000 for the
Investor class and $24,000 for the Fiduciary Class where the number of
shareholder accounts of record is 500 or more. The annual minimum fee is
increased by specified amounts if a Fund's Class of Shares has certain specified
features. Under the Transfer Agency Agreement, BISYS Fund Services Ohio is also
entitled to receive annual fees based on individual
B-47
<PAGE> 217
shareholder accounts of record equal to $16 per shareholder account of record
with respect to each of the Group's U.S. Government Obligations Fund,
Diversified Obligations Fund, 100% U.S. Treasury Obligations Fund, California
Tax-Free Fund and the Tax-Free Fund, and equal to $14 per shareholder accounts
of record with respect to each of the Group's Growth Fund, Income and Growth
Fund, Income Equity Fund, Balanced Fund, Bond Fund, Government Fund, California
Municipal Fund and the Municipal Fund. The number of accounts for purposes of
determining the annual minimum fee per class of Shares is calculated on a
monthly basis.
The Transfer Agency Agreement also provides that BISYS Fund Services
Ohio is entitled to be reimbursed by the Group for postage, handling fees, and
reasonable costs of supplies used by BISYS Fund Services Ohio in the performance
of its services under the Agreement. BISYS Fund Services Ohio may periodically
voluntarily reduce all or a portion of its transfer agency fee with respect to a
Fund to increase the Fund's net income available for distribution as dividends.
In accordance with its Transfer Agency Agreement with the Group, BISYS
Fund Services Ohio has entered into a sub-transfer agency agreement with The
Bank of California with respect to the Group's Funds dated February 22, 1989, as
amended September 15, 1992 (the "Sub-Transfer Agency Agreement"). Under the
Sub-Transfer Agency Agreement, BISYS Fund Services Ohio has delegated its
transfer agency responsibilities to The Bank of California with respect to
investments in each of the Group's Funds through certain individual retirement
accounts maintained with The Bank of California and its affiliates
("Sub-Accounts"). For its services as sub-transfer agent, BISYS Fund Services
Ohio has agreed to pay The Bank of California with respect to the Group's Growth
Fund, Income and Growth Fund, Income Equity Fund, Balanced Fund, Bond Fund, and
Government Bond Fund an annual base fee of $12.00 per Shareholder Sub-Account
with respect to the first 101 through 2,999 Shareholder Sub-Accounts invested in
a Fund and an annual base fee of $9.00 per Shareholder Sub- Account with respect
to 3,000 or more Shareholder Sub-Accounts invested in a Fund; BISYS Fund
Services Ohio has agreed to pay The Bank of California with respect to the
Group's Diversified Obligations Fund, U.S. Government Obligations Fund, 100%
U.S. Treasury Obligations Fund, California Tax-Free Fund and Tax-Free Fund an
annual base fee of $15.00 per Shareholder Sub-Account with respect to 101 or
more Shareholder Sub-Accounts invested in a Fund. (The number of Shareholder
Sub-Accounts for purposes of determining the base fee is calculated on a monthly
basis and the base fee does not apply when 100 or fewer Shareholder Sub-Accounts
have been invested in a Fund.) The Bank of California is also entitled to be
reimbursed by BISYS Fund Services Ohio for postage, handling fees, and
reasonable costs of supplies used by The Bank of California in the performance
of its services under the Sub-Transfer Agency Agreement.
In addition to its transfer agency services, BISYS Fund Services Ohio
serves as fund accountant for the Group's Funds pursuant to a fund accounting
agreement with the Group dated as of August 1, 1995, as amended (the "Fund
Accounting Agreement").
B-48
<PAGE> 218
As fund accountant for each Fund, BISYS Fund Services Ohio prices each
Fund's Shares, calculates each Fund's net asset value, and maintains the general
ledger accounting records for each Fund. Under the Fund Accounting Agreement,
BISYS Fund Services Ohio is entitled to receive a fee from each Fund at an
annual rate of .03% of the Fund's average daily net assets plus BISYS Fund
Services Ohio out-of-pocket expenses, with a minimum annual fee of $30,000 per
Fund and $10,000 per each additional Class of Shares. BISYS Fund Services Ohio
may periodically voluntarily reduce all or a portion of its fund accounting fee
with respect to a Fund in order to increase the Fund's net income available for
distribution as dividends.
The Bank of California serves as custodian to the Group's Funds
pursuant to a custodian agreement with the Group dated as of December 23, 1991,
as amended (the "Custodian Agreement"). Under the Custodian Agreement, The Bank
of California's responsibilities include safeguarding and controlling each
Fund's cash and securities, handling the receipt and delivery of securities, and
collecting interest and dividends on each Fund's investments.
Under the Custodian Agreement, the Group has agreed to pay The Bank of
California a custodian fee with respect to each Fund at an annual rate of .02%
of the Fund's average daily net assets, with an annual minimum fee of $2,500 per
Fund. In addition, The Bank of California is entitled to receive a flat fee from
each Fund as follows: (i) $17.00 for each purchase or sale of Fund securities
eligible for deposit in a securities depository as defined in Rule 17f-4 under
the 1940 Act (a "securities depository"), with a $25.00 annual holding charge
for such securities; and $40.00 for each purchase or sale of Fund securities
that are not eligible for deposit in a securities depository, with a $40.00
annual holding charge for such securities; and (ii) $10.00 for disbursement
charges. The Bank of California is also entitled to be reimbursed by the Group
for its reasonable out-of-pocket expenses incurred in the performance of its
duties under the Custodian Agreement. The Bank of California may periodically
voluntarily reduce all or a portion of its custodian fee with respect to a Fund
to increase the Fund's net income available for distribution as dividends.
AUDITORS
The financial statements of the Group for the period ended July 31,
1995, appearing in this Statement of Additional Information have been audited by
Coopers & Lybrand L.L.P., independent accountants, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report and on
the authority of such firm as experts in auditing and accounting. For fiscal
1996, Deloitte & Touche LLP will replace Coopers & Lybrand L.L.P. as the Group's
auditors.
B-49
<PAGE> 219
LEGAL COUNSEL
Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800 East,
Washington, D.C. 20005, are counsel to the Group and will pass upon the legality
of the Shares offered hereby.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES
The Group is a Massachusetts business trust. The Group's Declaration of
Trust was originally filed with the Secretary of State of The Commonwealth of
Massachusetts on March 10, 1987. The Declaration of Trust, as amended,
authorizes the Board of Trustees to issue an unlimited number of Shares, which
are units of beneficial interest, without par value. The Group's Declaration of
Trust, as amended, further authorizes the Board of Trustees to establish one or
more series of Shares of the Group, and to classify or reclassify the Shares of
any series into one or more classes by setting or changing in any one or more
respects the preferences, designations, conversion or other rights,
restrictions, limitations as to dividends, conditions of redemption,
qualifications or other terms applicable to the Shares of such class, subject to
those matters expressly provided for in the Declaration of Trust, as amended,
with respect to the Shares of each series of the Group. The Group presently
consists of thirteen series of Shares, representing units of beneficial interest
in the Growth Fund, the Income and Growth Fund, the Income Equity Fund, the
Balanced Fund, the Bond Fund, the Government Bond Fund, the Diversified
Obligations Fund, the U.S. Government Obligations Fund, the 100% U.S. Treasury
Fund, the California Tax-Free Fund, the Tax-Free Fund, the California Municipal
Fund and the Municipal Fund. As described in the Prospectuses, each Fund has
been divided into two classes of Shares, designated Investor Shares and
Fiduciary Shares.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectuses and this
Statement of Additional Information, the Group's Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Group,
Shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund that are available for distribution. Upon
liquidation or dissolution of the Group, Investor and Fiduciary shareholders are
entitled to receive the net assets of the Fund attributable to each class.
As used in the Prospectuses and in this Statement of Additional
Information, "assets belonging to a Fund" means the consideration received by
the Group upon the issuance or sale of Shares in that Fund, together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or payments derived from any reinvestment of such
proceeds, and any general assets of the Group not readily identified as
belonging to a particular Fund that are allocated to that Fund by the Group's
Board of Trustees. Such allocations of general assets
B-50
<PAGE> 220
may be made in any manner deemed fair and equitable, and it is anticipated that
the Board of Trustees will use the relative net asset values of the respective
Funds at the time of allocation. Assets belonging to a particular Fund are
charged with the direct liabilities and expenses of that Fund, and with a share
of the general liabilities and expenses of the Group not readily identified as
belonging to a particular Fund that are allocated to that Fund in proportion to
the relative net asset values of the respective Funds at the time of allocation.
The timing of allocations of general assets and general liabilities and expenses
of the Group to particular Funds will be determined by the Board of Trustees and
will be in accordance with generally accepted accounting principles.
Determinations by the Board of Trustees as to the timing of the allocation of
general liabilities and expenses and as to the timing and allocable portion of
any general assets with respect to a particular Fund are conclusive.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding Shares of
each Fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding Shares of a Fund will be required in
connection with a matter, a Fund will be deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are identical,
or that the matter does not affect any interest of the Fund.
Under Rule 18f-2, the approval of an investment advisory agreement or
any change in investment policy would be effectively acted upon with respect to
a Fund only if approved by a majority of the outstanding Shares of such Fund.
However, Rule 18f-2 also provides that the ratification of independent public
accountants, the approval of principal underwriting contracts, and the election
of Trustees may be effectively acted upon by Shareholders of the Group voting
without regard to series.
Although not governed by Rule 18f-2, Investor Shares of a Fund have
exclusive voting rights with respect to matters pertaining to the Fund's
Distribution Plan.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, holders of units of interest in a business
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. However, the Group's Declaration of Trust, as
amended, provides that Shareholders shall not be subject to any personal
liability for the obligations of the Group, and that every written agreement,
obligation, instrument, or undertaking made by the Group shall contain a
provision to the effect that the Shareholders are not personally liable
thereunder. The Declaration of Trust, as amended, provides for indemnification
out of the trust property of any Shareholder held personally liable solely by
reason of his or her being or having been a Shareholder. The Declaration of
Trust, as amended, also provides that the Group shall, upon request, assume the
defense of any claim made against any Shareholder for any act or obligation of
the Group, and shall satisfy any judgment thereon. Thus, the risk of a
Shareholder incurring financial
B-51
<PAGE> 221
loss on account of Shareholder liability is limited to circumstances in which
the Group itself would be unable to meet its obligations.
The Declaration of Trust, as amended, states further that no Trustee,
officer, or agent of the Group shall be personally liable in connection with the
administration or preservation of the assets of the trust or the conduct of the
Group's business, nor shall any Trustee, officer, or agent be personally liable
to any person for any action or failure to act except for his own bad faith,
willful misfeasance, gross negligence, or reckless disregard of his duties. The
Declaration of Trust, as amended, also provides that all persons having any
claim against the Trustees or the Group shall look solely to the assets of the
trust for payment.
THE REORGANIZATION OF THE IRA FUND AND THE GROUP
As of June 23, 1988, pursuant to an Agreement and Plan of
Reorganization between the IRA Fund, the Group, and The Bank of California,
substantially all of the assets of the IRA Fund's Income Equity Portfolio, and
Bond Portfolio were transferred to the Group's Income Equity Fund, and Bond
Fund, respectively, in exchange for such Fund's Shares, and substantially all of
the assets of the IRA Fund's Short Term Portfolio were transferred to one or
more of the Group's Money Market Funds in exchange for Shares of such Money
Market Fund or Funds. Prior to June 23, 1988, the aggregate total return and
average annual total return of the Bond Fund and Income Equity Fund reflect the
aggregate total return and average annual total return of the IRA Fund Bond
Portfolio and the IRA Fund Income Equity Portfolio, respectively. The IRA Fund
Bond Portfolio and the IRA Fund Income Equity Portfolio both received investment
advice from the same division of The Bank of California now known as MERUS and
had investment objectives, policies and restrictions substantially similar to
those of the Bond Fund and the Income Equity Fund, respectively. However,
potential investors should be aware that both the nature and amount of fees and
expenses of the IRA Fund Bond Portfolio and the Bond Fund and those of the IRA
Fund Income Equity Portfolio and the Income Equity Fund differ.
CALCULATION OF PERFORMANCE DATA
From time to time, articles relating to the performance, rankings, and
other investment characteristics of mutual funds and their investment advisers,
including the Group's Funds and MERUS, may appear in national, regional, and
local publications. In particular, some publications may publish their own
rankings or performance reviews of mutual funds and their investment advisers,
including the Group's Funds and MERUS. Various mutual fund or market indices may
also serve as a basis for comparison of the performance of the Group's Funds
with other mutual funds or mutual fund portfolios with comparable investment
objectives and policies. In addition to the indices prepared by Dow Jones & Co.,
Inc. and Standard & Poor's Corporation, references to or reprints from the
following publications may be used in the Group's promotional literature:
IBC/Donoghue's Money Fund Report, Ibottson Associates of Chicago, MorningStar,
Lipper Analytical Services, Inc., CDA/Wiesenberger Investment Company Services,
SEI Financial Services, Callan Associates, Wilshire Associates,
B-52
<PAGE> 222
MONEY Magazine, Pension and Investment Age, Forbes Magazine, Business Week,
American Banker, Fortune Magazine, Institutional Investor, Barron's National
Business & Financial Weekly, The Wall Street Journal, New York Times, San
Francisco Chronicle and Examiner, Los Angeles Times, U.S.A. Today, Sacramento
Bee, Seattle Times, Seattle Daily Journal of Commerce, Seattle
Post/Intelligence, Seattle Business Journal, Tacoma New Tribune, Bellevue
Journal-American, The Oregonian, Puget Sound Business Journal, Portland Chamber
of Commerce and Portland Daily Journal of Commerce/Portland Business Today.
Shareholders may call toll free (800) 433-6884 for current information
concerning the performance of each of the Group's Funds.
From time to time, the Funds may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of compounding and the benefits of dollar-cost averaging); (2)
discussions of general economic trends; (3) presentations of statistical data to
supplement such discussions; (4) descriptions of past or anticipated portfolio
holdings for one or more of the Funds within the Group; (5) descriptions of
investment strategies for one or more of the Funds; (6) descriptions or
comparisons of various savings and investment products (including, but not
limited to, insured bank products, annuities, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant market or
industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) testimonials
describing the experience of persons that have invested in one or more of the
Funds. The Funds may also include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results in such communications.
Such performance examples will be based on an express set of assumptions and are
not indicative of the performance of any of the Funds. In addition, the
California Tax- Free Fund, the Tax-Free Fund, the California Municipal Fund and
the Municipal Fund may each include charts comparing various tax-free yields
versus taxable yield equivalents at different income levels.
Based on the seven-day period ended July 31, 1995 (the "base period"
for the Diversified Obligations Fund, the U.S. Government Obligations Fund, the
100% U.S. Treasury Obligations Fund, the California Tax Free Fund, and the Tax
Free Fund), the yield of the Diversified Obligations Fund's Investor Shares and
Fiduciary Shares was 5.22% and 5.22%, respectively, and the effective yield of
the Fund's Investor Shares and Fiduciary Shares was 5.36% and 5.36%,
respectively; the yield of the U.S. Government Obligations Fund's Investor
Shares and Fiduciary Shares was 5.08% and 5.11%, respectively, and the effective
yield of the Fund's Investor Shares and Fiduciary Shares was 5.21% and 5.24%,
respectively; the yield of the 100% U.S. Treasury Obligations Fund's Investor
Shares and Fiduciary Shares was 4.94% and 4.94%, respectively, and the effective
yield of the Fund's Investor Shares and Fiduciary Shares was 5.06% and 5.06%,
respectively; the yield of the California Tax-Free Fund's Investor Shares and
Fiduciary Shares was 3.20% and 3.20%, respectively, and the effective yield of
the Fund's Investor Shares and Fiduciary Shares was 3.25% and 3.25%,
respectively; and the yield of the Tax-Free Fund's Investor Shares and Fiduciary
Shares was 3.13% and 3.13%, respectively, and the effective yield of the Fund's
B-53
<PAGE> 223
Investor Shares and Fiduciary Shares was 3.18% and 3.18%, respectively. The
yield of each Fund's Investor Shares and Fiduciary Shares, respectively, was
computed by determining the percentage net change, excluding capital changes, in
the value of an investment in one Share of the Class over the base period, and
multiplying the net change by 365/7 (or approximately 52 weeks). The effective
yield of each Fund's Investor Shares and Fiduciary Shares, respectively,
represents a compounding of the yield of the Class by adding 1 to the number
representing the percentage change in value of the investment during the base
period, raising that sum to a power equal to 365/7, and subtracting 1 from the
result.
Based on the thirty-day period ended July 31, 1995, the yield of the
Diversified Obligations Fund's Investor Shares and Fiduciary Shares was 5.26%
and 5.26%, respectively; the yield of the U.S. Government Obligations Fund's
Investor Shares and Fiduciary Shares was 5.14% and 5.17%, respectively; the
yield of the 100% U.S. Treasury Obligations Fund's Investor Shares and Fiduciary
Shares was 4.99% and 4.99%; the yield of the California Tax- Free Fund's
Investor Shares and Fiduciary Shares was 3.00% and 3.00%; and the yield of the
Tax-Free Fund's Investor Shares and Fiduciary Shares was 2.90% and 2.90%,
respectively. The yield of each Fund's Investor Shares and Fiduciary Shares,
respectively, was computed by determining the percentage net change, excluding
capital changes, in the value of an investment in one Share of the Class over
the thirty-day period, and multiplying the net change by 365/30 (or
approximately twelve months). The effective yield of each Fund's Investor Shares
and Fiduciary Shares, respectively, represents a compounding of the yield of the
Class by adding 1 to the number representing the percentage change in value of
the investment during the thirty-day period, raising that sum to a power equal
to 365/30, and subtracting 1 from the result.
Based on the seven-day period ended July 31, 1995, the tax-equivalent
yield of the California Tax-Free Fund's Investor Shares and Fiduciary Shares was
5.30% and 5.30%, respectively (using a federal income tax rate of 39.6%), and
6.48% and 6.48%, respectively (using a federal income tax rate of 39.6% and a
California personal income tax rate of 11%), and the tax-equivalent effective
yield of the Fund's Investor Shares and Fiduciary Shares was 5.38% and 5.38%,
respectively (using a federal income tax rate of 39.6%), and 6.58% and 6.58%,
respectively (using a federal income tax rate of 39.6% and a California personal
income tax rate of 11%). For the same seven-day period, the tax-equivalent
yield of the Tax- Free Fund's Investor Shares and Fiduciary Shares was 5.18% and
5.18%, respectively, and the tax-equivalent effective yield of the Fund's
Investor Shares and Fiduciary Shares was 5.26% and 5.26%, respectively (in each
case utilizing a federal income tax rate of 39.6%).
Based on the thirty-day period ended July 31, 1995, the tax-equivalent
yield of the California Tax-Free Fund's Investor Shares and Fiduciary Shares was
4.97% and 4.97%, respectively (using a federal income tax rate of 39.6%), and
6.07% and 6.07%, respectively (using a federal income tax rate of 39.6% and a
California personal income tax rate of 11%), and the tax-equivalent effective
yield of the Fund's Investor Shares and Fiduciary Shares was 5.03% and 5.03%,
respectively (using a federal income tax rate of 39.6%), and 6.15% and 6.15%,
respectively (using a federal income tax rate of 39.6% and a California personal
B-54
<PAGE> 224
income tax rate of 11%). Based on the same thirty-day period ended July 31,
1995, the tax- equivalent yield of the Tax-Free Fund's Investor Shares and
Fiduciary Shares was 4.80% and 4.80%, respectively, and the tax-equivalent
effective yield of the Fund's Investor Shares and Fiduciary Shares was 4.87% and
4.87%, respectively (in each case utilizing a federal income tax rate of 39.6%).
The tax-equivalent yield of the Investor Shares and Fiduciary Shares,
respectively, of the California Tax-Free Fund and the Tax-Free Fund was computed
by dividing that portion of the yield of the Class that is tax-exempt by 1 minus
the stated income tax rate (or rates) and adding the product to that portion, if
any, of the yield of the Class that is not tax-exempt. The tax-equivalent
effective yield of each Fund's Investor Shares and Fiduciary Shares,
respectively, was computed by dividing that portion of the effective yield of
the Class which is tax-exempt by 1 minus the stated income tax rate (or rates)
and adding to that portion, if any, of the effective yield of the Class that is
not tax-exempt.
For the year ended July 31, 1995, the one-year average annual total
return of the Diversified Obligations Fund Investor and Fiduciary shares was
4.99%, of the U.S. Government Obligations Fund Investor and Fiduciary shares was
4.86% and 4.87%, respectively, of the 100% U.S. Treasury Obligations Fund
Investor and Fiduciary shares was 4.69%, of the California Tax-Free Fund
Investor and Fiduciary shares was 3.16%, and of the Tax-Free Fund Investor and
Fiduciary shares was 3.00%.
For the period ended July 31, 1995, the five-year average annual total
return of the Diversified Obligations Fund's Investor and Fiduciary shares was
4.39%; of the U.S. Government Obligations Fund's Investor and Fiduciary shares
was 4.20%; of the 100% U.S. Treasury Obligations Fund's Investor and Fiduciary
shares was 4.13%; of the California Tax- Free Fund's Investor and Fiduciary
shares was 3.01%; and of the Tax-Free Fund's Investor and Fiduciary shares was
3.08%.
For the period from August 10, 1987 (the date on which the Diversified
Obligations Fund, the U.S. Government Obligations Fund and the 100% U.S.
Treasury Obligations Fund commenced operations) through July 31, 1995, the
average annual total return of the Diversified Obligations Fund Investor and
Fiduciary shares, the U.S. Government Obligations Fund Investor and Fiduciary
shares and the 100% U.S. Treasury Obligations Fund Investor and Fiduciary shares
was 5.75%, 5.56% and 5.47%, respectively. For the period from August 11, 1987
(the date on which the California Tax-Free Fund commenced operations) through
July 31, 1995, the average annual total return of the California Tax-Free Fund
Investor and Fiduciary shares was 3.79%. For the period from August 22, 1988
(the date on which the Tax-Free Fund commenced operations) through July 31,
1995, the average annual total return of the Tax-Free Fund Investor and
Fiduciary shares was 3.86%.
[/R]
Prior to June 23, 1988 (the date on which the Income Equity Fund and
the Bond Fund commenced operations as a result of the reorganization involving
the IRA Fund Income Equity Portfolio and the IRA Fund Bond Portfolio,
respectively, as described under "ADDITIONAL
B-55
<PAGE> 225
INFORMATION - The Reorganization of the IRA Fund and the Group" above), the
total return and average annual total return of the Income Equity Fund and the
Bond Fund reflects the total return and average annual total return of the IRA
Fund Income Equity Portfolio, and the IRA Fund Bond Portfolio, respectively.
Each IRA Fund Portfolio received investment advice from the same division of The
Bank of California now known as MERUS and had substantially similar investment
objectives, policies, and restrictions of the Fund into which it was
reorganized. However, potential investors in the Income Equity Fund, and the
Bond Fund should be aware that both the nature and amount of fees and expenses
of the IRA Fund Income Equity Portfolio, and the IRA Fund Bond Portfolio differ
from the Fund into which the respective IRA Fund Portfolios were reorganized.
See "Management of the Group Investment Adviser" and the Statements of
Operations in the Financial Statements with respect to the Income Equity Fund,
and the Bond Fund and the IRA Fund Income Equity Portfolio, and the IRA Fund
Bond Portfolio for the applicable period ended July 31, 1989 and June 22, 1988
contained in this Statement of Additional Information.
Each Equity Fund and Income Fund offered a single class of shares
throughout the periods shown below. The performance figures relating to the
Investor Shares have been adjusted, however, to give effect to the sales charge
and distribution fee to which the Investor Shares are subject. Because only
Investor Shares bear the expense of the fee, if any, under the Distribution Plan
and a sales charge, total return and yield relating to a Fund's Investor Shares
will be lower than that relating to the Funds' Fiduciary Shares.
For the one year period ended July 31, 1995, the average annual total
return of the Investor and Fiduciary Shares of the Income Equity Fund was 12.24%
(17.52% without a load) and 17.26%, respectively, and of the Bond Fund was 6.02%
(9.29% without a load) and 9.43%, respectively. For the five-year period ended
July 31, 1995, the average annual total return of the Investor and Fiduciary
Shares of the Income Equity Fund was 10.91% (11.93% without a load) and 11.88%,
respectively, and of the Bond Fund was 6.97% (7.61% without a load) and 7.79%,
respectively. For the ten year period ended July 31, 1995, the average annual
total return of the Investor and Fiduciary Shares of the Income Equity Fund was
13.03% (13.55% without a load) and 13.52%, respectively. For the ten year period
ended July 31, 1995, the average annual total return of the Investor and
Fiduciary Shares of the Bond Fund was 8.72% (9.06% without a load) and 9.15%,
respectively.
For the one year period ended July 31, 1995, the average annual total
return of the Investor and Fiduciary Shares of the Growth Fund was 19.48%
(25.10% without a load) and 25.23%, respectively, of the Investor and Fiduciary
Shares of the Income and Growth Fund was 15.23% (20.67% without a load) and
20.68%, respectively, of the Investor and Fiduciary Shares of the Balanced Fund
was 10.37% (15.60% without a load) and 15.62%, respectively, and of the
Government Bond Fund was 4.24% (7.47% without a load) and 7.30%, respectively.
For the period beginning November 18, 1993 (commencement of operations)
and ending July 31, 1995, the average annual total return of the Investor Shares
and Fiduciary Shares of the Growth Fund was 9.87% (12.88% without a load) and
12.88%, respectively.
B-56
<PAGE> 226
For the period beginning November 14, 1993 (commencement of operations) and
ending July 31, 1995, the aggregate total return of the Investor Shares and
Fiduciary Shares of the Income and Growth Fund was 9.74% (12.72% without a load)
and 12.66%, respectively. For the period beginning November 14, 1993
(commencement of operations) and ending July 31, 1995, the aggregate total
return of the Investor Shares and Fiduciary Shares of the Balanced Fund was
5.80% (8.67% without a load) and 9.01%, respectively. For the period beginning
November 14, 1993 (commencement of operations) and ending July 31, 1995, the
aggregate total return of the Investor Shares and Fiduciary Shares of the
Government Bond Fund was 1.00% (2.82% without a load) and 3.23%, respectively.
Each Fund's respective average annual total return and/or aggregate
total return was calculated by determining the change in the value of a
hypothetical $1,000 investment in the Fund over the applicable period
(utilizing, when appropriate, performance information from the applicable IRA
Fund Portfolio prior to June 23, 1988) that would equate the initial amount
invested to the ending redeemable value of the investment; in the case of the
average annual total return, this amount (representing the Fund's total return)
was then averaged over the relevant number of years. The ending redeemable value
includes dividends and capital gain distributions reinvested at net asset value.
The resulting percentages indicate the positive or negative investment results
that an investor would have experienced from changes in Share price and
reinvestment of dividends and capital gains distributions.
For the thirty-day period ended July 31, 1995, the yield for the
Investor and Fiduciary Shares of the Growth Fund was 1.05% (1.10% without a
load) and 1.10%, respectively; for the Investor and Fiduciary Shares of the
Income and Growth Fund was 2.11% (2.21% without a load) and 2.14%, respectively;
for the Investor and Fiduciary Shares of the Income Equity Fund was 3.13% (3.27%
without a load) and 3.35%, respectively; for the Investor and Fiduciary Shares
of the Balanced Fund was 3.26% (3.42% without a load) and 3.53%, respectively;
for the Investor and Fiduciary Shares of the Bond Fund was 5.56% (5.74% without
a load) and 5.75%, respectively; and for the Investor and Fiduciary Shares of
the Government Bond Fund was 5.37% (5.54% without a load) and 5.54%,
respectively. The yield of the Growth Fund, the Income and Growth Fund, the
Income Equity Fund, the Balanced Fund, the Bond Fund and the Government Bond is
determined by annualizing the Fund's net investment income per Share during a
specified thirty-day period ending on the last day of the most recent calendar
quarter, and dividing that amount by the Fund's per Share net asset value on the
last day of the period.
For the one year period ended July 31, 1995, the distribution rate
(including capital gains and excluding a sales charge) of the Income Equity Fund
was 6.58% for Investor Shares and 6.60% for Fiduciary Shares and of the Bond
Fund was 6.23% for Investor Shares and 6.17% for Fiduciary Shares. For the one
year period ended July 31, 1995, the distribution rate (excluding capital gains
and a sales charge) of the Income Equity Fund was 3.34% and of the Bond Fund was
6.17%. For the one year period ended July 31, 1995, the distribution rate
(including capital gains and a sales load) of the Income Equity Fund was 6.29%
and of the Bond Fund was 6.04%. For the one year period ended July 31, 1995 the
distribution rate (excluding capital gains and including a load) of the Income
Equity Fund was 3.19% and of
B-57
<PAGE> 227
the Bond Fund was 6.04%. The distribution rate for each Fund is determined by
dividing the income distributions and, where the distribution rate includes
capital gains distributions, capital gains distributions on a Share of the Fund
over a twelve-month period by the per Share net asset value of the Fund on the
last day of the period and annualized in the case of Funds which have not had a
full year of results.
All performance information presented is based on past performance and
does not predict future performance.
MISCELLANEOUS
The Group is not required to hold meetings of Shareholders for the
purpose of electing Trustees except that (i) the Group is required to hold a
Shareholders' meeting for the election of Trustees at such time as less than a
majority of the Trustees holding office have been elected by Shareholders and
(ii) if, as a result of a vacancy on the Board of Trustees, less than two-thirds
of the Trustees holding office have been elected by the Shareholders, that
vacancy may be filled only by a vote of the Shareholders. In addition, Trustees
may be removed from office by a written consent signed by the holders of Shares
representing two-thirds of the outstanding Shares of the Group at a meeting duly
called for the purpose, which meeting shall be held upon the written request of
the holders of Shares representing not less than 10% of the outstanding Shares
of the Group. Upon written request by the holders of Shares representing 1% of
the outstanding Shares of the Group stating that such Shareholders wish to
communicate with the other Shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a Trustee, the
Group will provide a list of Shareholders or disseminate appropriate materials
(at the expense of the requesting Shareholders). Except as set forth above, the
Trustees may continue to hold office and may appoint successor Trustees.
The Group is registered with the Securities and Exchange Commission as
a management investment company. Such registration does not involve supervision
by the Securities and Exchange Commission of the management or policies of the
Group.
The Prospectuses and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Securities and Exchange Commission. Copies of such information may be
obtained from the Securities and Exchange Commission upon payment of the
prescribed fee.
The 1995 Annual Report to Shareholders of the Group is incorporated
herein by reference. This Report includes audited financial statements for the
fiscal year ended July 31, 1995. Upon the incorporation by reference herein of
such Annual Report, the opinion in such Annual Report of independent accountants
is incorporated herein by reference and such Annual Report's financial
statements are incorporated by reference herein in reliance upon the authority
of such accountants as experts in auditing and accounting.
The Prospectuses and this Statement of Additional Information are not
an offering of the securities herein described in any state in which such
offering may not lawfully be made.
B-58
<PAGE> 228
No salesperson, dealer, or other person is authorized to give any information or
make any representation other than those contained in the Prospectuses and this
Statement of Additional Information.
As of November 17, 1995, the Group believes that the trustees and
officers of the Group, as a group, owned less than one percent of the Shares of
any Fund of the Group. As of November 17, 1995, the Group believes that the Bank
of California was the shareholder of record of 30.65% of the Investor Shares and
97.65% of the Fiduciary Shares of the Growth Fund, 25.58% of the Investor Shares
and 97.55% of the Fiduciary Shares of the Income and Growth Fund, 29.04% of the
Investor Shares and 95.03% of the Fiduciary Shares of the Income Equity Fund,
8.19% of the Investor Shares and 98.60% of the Fiduciary Shares of the Balanced
Fund, 67.81% of the Investor Shares and 94.51% of the Fiduciary Shares of the
Bond Fund, 84.28% of the Fiduciary Shares of the Government Bond Fund, 97.97% of
the Fiduciary Shares of the Tax-Free Fund, and substantially all of the
Fiduciary Shares of the U.S. Government Obligations Fund, the Diversified
Obligations Fund, the 100% U.S. Treasury Obligations Fund and the California
Tax-Free Fund. There were no shareholders of the California Municipal Fund and
the Municipal Fund as of November 17, 1995. As of November 17, 1995, the Group
believes that the Bank of California had voting power with respect to 60.61% of
the Growth Fund Fiduciary Shares, 42.96% of the Income Equity Fund Fiduciary
Shares, 41.09% of the Balanced Fund Fiduciary Shares, 46.20% of the Bond Fund
Fiduciary Shares, 13.88% of the Government Bond Fund Fiduciary Shares, 15.80% of
the Diversified Obligations Fund Fiduciary Shares, 6.87% of the U.S. Government
Obligation Fund Fiduciary Shares, 22.84% of the 100% U.S. Treasury Fund
Fiduciary Shares, 17.90% of the California Tax-Free Fund Fiduciary Shares,
44.87% of the Tax-Free Fund Fiduciary Shares and 7.94% of the Income and Growth
Fund Fiduciary Shares.
The table below indicates each additional person known by the Group to
own beneficially 5% or more of the Shares of the following Funds of the Group as
of November 17, 1995:
5% or More Beneficial Owners
----------------------------
Percent of
Beneficial
Name and Address Ownership
---------------- ----------
Growth Fund
-----------
Investor Shares
---------------
Richard Ormsby 5.31%
13004 Abra Rd
San Diego, CA 92128
John A Dito 11.00%
650 South Hope St. #2800
Los Angeles, CA 92621
Fiduciary Shares
----------------
B-59
<PAGE> 229
The Bank of California, N.A. 32.38%
Capital Accumulation Plan
400 California St.
San Francisco, CA 94104
The Bank of California N.A. 18.14%
Personal Retirement Option Plan
400 California St.
San Francisco, CA 94104
B-60
<PAGE> 230
Income and Growth Fund
----------------------
Investor Shares
---------------
Sharon K. Clark 7.94%
29036 Miller Rd.
Valley Center, CA 92082
Fiduciary Shares
----------------
Control Master Products Inc. PS 9.05%
1065 Shary Circle
Concord, CA 94518
United Alloys Inc. Profit Sharing Plan 7.36%
900 East Slauson Ave.
Los Angeles, CA 90011
Dick's Towing & Road Service 6.57%
2012 South 146th Street
Seattle, WA 98168
Newport Adhesive & Composites Inc. 5.93%
Qualified Retirement Plan
1822 Reynolds Ave.
Irvine, CA 92714
Decker Communications Inc. 401(k) Plan 12.47%
44 Montgomery, 17th Floor
San Francisco, CA 94104
Economy Foods, Inc. 6.88%
Attn: John Keith Berkley
941 E. Charleston Rd.
POB 50548
Palo Alto, CA 94303
Liebman, Reiner, Nachison & Walsh 6.14%
Attn: Helen Champion
3255 Wilshire Blvd., 12th Floor
Los Angeles, CA 90010
Income Equity Fund
------------------
Investor Shares
---------------
John A. Dito 6.47%
650 Itope St., #2800
Los Angeles, CA 90071
B-61
<PAGE> 231
Fiduciary Shares
----------------
The Bank of California N.A. 17.02%
Capital Accumulation Plan
400 California St.
San Francisco, CA 94104
The Bank of California 7.83%
Personal Retirement Option Plan
400 California St.
San Francisco, CA 94104
Balanced Fund
-------------
Investor Shares
---------------
[None]
Fiduciary Shares
----------------
The Bank of California N.A. 25.74%
Capital Accumulation Plan
400 California St.
San Francisco, CA 94104
The Bank of California N.A. 13.10%
Personal Retirement Options Plan
400 California St.
San Francisco, CA 94104
Milligan New Company 5.12%
Attn: Jack Gillis
150 N. Autumn St.
San Jose, CA 95110
Sound Floor Coverings, Inc. 5.24%
Attn: Peter Chick
18375 Olympic Ave. South
Tukwila, WA 98188
Virgil V. Miller 6.28%
Tumac Lumber Co., Inc.
529 SW Third Ave.
Portland, OR 97204
B-62
<PAGE> 232
Bond Fund
---------
Investor Shares
---------------
James Harris 6.28%
121 Christian Valley Rd.
Auburn, CA 95602
George L. Jacobs 39.24%
60 Ironwood
Upland, CA 94605
Fiduciary Shares
----------------
The Bank of California N.A. 11.25%
Capital Accumulation Plan
400 California St.
San Francisco, CA 94104
The Bank of California N.A. 5.78%
Personal Retirement Options Plan
400 California St.
San Francisco, CA 94104
B-63
<PAGE> 233
Government Bond Fund
--------------------
Investor Shares
---------------
[None]
Fiduciary Shares
----------------
United Alloys Inc. Profit Sharing Plan
900 East Slauson Ave.
Los Angeles, CA 90011 10.71%
Fisher Implement Co. Profit Sharing Plan
P.O. Box 159
Albany, OR 97321 6.49%
Jose G. Bautista
20480 View Point Road
Cistro Valley, CA 94592 7.44%
Douglas T. Frederighi
4 Quail Run
Lafayette, CA 94549 5.29%
Michela Rizzuto
1975 E. Heather Circle
Brea, CA 92621 10.48%
Riverview Savings Bank
Attn: Ronald Wysake
P.O. Box 1068
Carma, WA 98607 5.15%
Diversified Obligations Fund
----------------------------
Investor Shares
---------------
[None.]
Fiduciary Shares
----------------
[None.]
B-64
<PAGE> 234
U.S. Government Obligations Fund
--------------------------------
Investor Shares
---------------
[None.]
Fiduciary Shares
----------------
Spitzel/Anderson Escrow 10.04%
3700 Wilshire Blvd. #820
Los Angeles, CA 90010
Lakeside Foundation 6.05%
50 Fremont St., Ste 3520
San Francisco, CA 94105
100% U.S. Treasury Fund
-----------------------
Investor Shares
---------------
[None.]
Fiduciary Shares
----------------
The Bank of California, N.A. Capital 6.16%
Accumulation Plan
400 California Street
San Francisco, CA 94104
Louise Laverne Kohlstaedt 5.63%
c/o Emilie J. Rubright
3742 Forest Gate Drive N.E.
Iowa City, IA 52240
California Tax Free Fund
------------------------
Investor Shares
---------------
[None.]
Fiduciary Shares
----------------
[None.]
[/R]
Tax Free Fund
-------------
Investor Shares
---------------
[None.]
Fiduciary Shares
----------------
Michael S. Engl
Attn: Kitty Willard
P.O. Box 2500
Sun Valley, ID 83353 16.59%
Neil Anderson 5.99%
2915 E. Madison St., #200
Seattle, WA 98112
B-65
<PAGE> 235
California Municipal Fund
-------------------------
Investor Shares
---------------
[None.]
Fiduciary Shares
----------------
[None.]
Municipal Fund
--------------
Investor Shares
---------------
[None.]
Fiduciary Shares
----------------
[None.]
The table below indicates each additional person other than The Bank of
California and the beneficial owners listed above who own as of record 5% or
more of the Investor Shares of the following Funds of the Group as of November
17, 1995. As of November 17, 1995, the Lutheran Services Foundation, 2424 S.
Fremont Ave., Alhambra, CA 91803 owned 10.33% of the Fiduciary Shares of the
Government Bond Fund. No person other than the Bank of California and the
beneficial owners listed above own as of record more than 5% of the Fiduciary
Shares of a Fund.
Percent of
Name and Address Record Ownership
---------------- ----------------
Growth Fund
-----------
Guy Paquet
951 S. Beach Blvd. 6.63%
La Habra, CA 90631
Bill and Yuriko Tsutagawa
2242 Valley Rd. 6.00%
Oceanside, CA 92056
Layne Hamilton
11479 Round House Ct. 6.08%
Gold River, CA 95670-7714
National Financial Services Corp.
FBO Gary Frankosky 27.24%
One World Financial Center
200 Liberty St. 4th Fl.
New York, NY 10281-0000
Income and Growth Fund
----------------------
National Financial Services Corp.
For the Exclusive Benefit of Customers 9.67%
200 Liberty St.
New York, NY 10281
Bill and Yuriko Tsutagawa
2242 Valley Rd. 44.15%
Oceanside, CA 92056
Income Equity Fund
------------------
Guy Paquet
951 S. Beach Blvd. 7.86%
La Habra, CA 90631
National Financial Services Corp.
FBO Gary Frankosky 29.56%
One World Financial Center
200 Liberty St., 4th Fl.
New York, NY 10281
B-66
<PAGE> 236
Balanced Fund
-------------
John F. Roach 67.73%
587 Perugia Way
Los Angeles, CA 90077
Yoko Fujii 6.33%
and Tadashi Fujii
Trst Tadashi & Yoko Fujii 1992 Trst
DTD 11/27/92
1405 Lamont Ave.
Thousand Oaks, CA 91748
Rosalind Fahmy 8.87%
2691 Pocatello
Bolland Heights, CA 91748
Bond Fund
---------
Wallace Allred 6.02%
and Norma Allred
JT WROS
2250 N. Broadway No. 48
Escondido, CA 92026
National Financial Services Corp. 12.81%
One World Financial Center
200 Liberty St. 4th Fl.
New York, NY
Government Bond Fund
--------------------
Chapa-De Indian Health Program, Inc. 91.81%
11670 Atwood Rd.
Auburn, CA 95603
Diversified Obligations Fund
----------------------------
National Financial Services Corp. 10.65%
For the Benefit of our Customers
One World Financial Center
200 Liberty St 4th Fl.
New York, NY 10281
Managed Business Assets 5.45%
Ushio America Inc.
10550 Camchere Drive
Cypress, CA 90630
B-67
<PAGE> 237
U.S. Government Obligations Fund
--------------------------------
Managed Business Assets 6.49%
Phyxis Corporation
9380 Carroll Park Drive
San Diego, CA 92121
National Financial Services Corp. 18.51%
For The Benefit of our Customers
One World Financial Center
200 Liberty St., 4th Fl.
New York, NY 10281
Saperstein Mayeda and Goldstein 30.84%
Dennys Class Settlement Fund
Attn: Helen Thompson
1300 Clay St., 11th Fl.
Oakland, CA 94612
Tulare County Treasurer 5.49%
c/o Gerald Fields
Civic Center Room 103E
Visalia, CA 93291
100% U.S. Treasury Fund
-----------------------
National Financial Services Corp. 5.96%
For the Benefit of our Customers
One World Financial Center
200 Liberty St 4th Fl
New York, NY 10281
Daniel S. Coelho, Sr. 8.83%
300 S. Harbor Blvd. 1000
Anaheim, CA 92805
Liquor Barn Inc. 6.89%
7392 Trade St.
San Diego, CA 92121
California Tax Free Fund
------------------------
National Financial Services Corp. 41.16%
For the Benefit of Our Customers
One World Financial Center
200 Liberty St., 4th Fl.
New York, NY 10281-0000
B-68
<PAGE> 238
Tax Free Fund
-------------
Sally Skinner Behnke 5.72%
c/o REB Enterprises
1326 5th Ave., Suite 711
Seattle, WA 98101
National Financial Services Corp. 30.67%
For the Benefit of our Customers
One World Financial Center
200 Liberty St., 4th Fl.
New York, NY 10281
DYK Incorporated 20.80%
Attn: Bob Dykmin
P.O. Box 696
El Cajon, CA 92022
Valley Concereto Company 7.23%
c/o L.P. Hughes
P.O. Box 55099
Seattle, WA 98155
California Municipal Fund
-------------------------
[None.]
Municipal Fund
--------------
[None.]
[/R]
B-69
<PAGE> 239
APPENDIX
The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by MERUS with regard to portfolio investments for
the Funds include Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Corporation ("S&P"), Duff & Phelps, Inc. ("Duff"), Fitch Investors Service, Inc.
("Fitch"), IBCA Limited and its affiliate, IBCA Inc. (collectively, "IBCA"), and
Thomson BankWatch, Inc. ("Thomson"). Set forth below is a description of the
relevant ratings of each such NRSRO. The NRSROs that may be utilized by MERUS
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 three 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.
-Description of the three 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 Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse
B-70
<PAGE> 240
effects of changes in circumstances and economic conditions
than debt in higher rated categories.
Description of the three highest long-term debt ratings by Duff:
AAA Highest credit quality. The risk factors are negligible being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality . Protection factors are strong.
AA Risk is modest but may vary slightly from time to time
A- because of economic conditions.
A+ Protection factors are average but adequate. However,
A risk factors are more variable and greater in periods
A- of economic stress.
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.
IBCA's description of its three highest long-term debt ratings:
AAA Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial such that adverse changes in
business, economic or financial conditions are unlikely to
increase investment risk significantly.
AA Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial. Adverse changes in business,
economic, or financial conditions may increase investment risk
albeit not very significantly.
A Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest
is strong, although adverse changes in business, economic or
financial conditions may lead to increased investment risk.
B-71
<PAGE> 241
Thomson's description of its three highest long-term debt ratings (Thomson
may include a plus (+) or minus (-) designation to indicate where within the
respective category the issue is placed):
AAA The highest category; indicates ability to repay principal and
interest on a timely basis is very high.
AA The second highest category; indicates a superior ability to
repay principal and interest on a timely basis with limited
incremental risk versus issues rated in the highest category.
A The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be
more vulnerable to adverse developments (both internal and
external) than obligations 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
characteris tics:
-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 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
B-72
<PAGE> 242
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.
Duff's description of its three highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Duff 1+ Highest certainty of timely payment. Short-term
liquidity, including internal operating factors
and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity
factors are excellent and supported by good
fundamental protection factors. Risk factors are
minor.
Duff 1- High certainty of timely payment. Liquidity
factors are strong and supported by good fundamental
protection factors.
Risk factors are very small.
Duff 2 Good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing
requirements, access to capital markets is good. Risk
factors are small.
Duff 3 Satisfactory liquidity and other protection factors
qualify issue as to investment grade. Risk factors
are larger and subject to more variation.
Nevertheless, timely payment is expected.
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
B-73
<PAGE> 243
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.
IBCA's description of its three highest short-term debt ratings:
A+ Obligations supported by the highest capacity for timely
repayment.
A1 Obligations supported by a very strong capacity for timely
repayment.
A2 Obligations supported by a strong capacity for timely
repayment, although such capacity may be susceptible to
adverse changes in business, economic or financial conditions.
Thomson's description of its three highest short-term ratings:
TBW-1 The highest category; indicates a very high degree of
likelihood that principal and interest will be paid on a
timely basis.
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as for
issues rated "TBW-1".
TBW-3 The lowest investment grade category; indicates that while
more susceptible to adverse developments (both internal and
external) than obligations with higher ratings, capacity to
service principal and interest in a timely fashion is
considered adequate.
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.
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.
B-74
<PAGE> 244
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
The HighMark Group
We have audited the accompanying statements of assets and liabilities of The
HighMark Group (comprising, respectively, the Diversified Obligations Fund, U.S.
Government Obligations Fund, 100% U.S. Treasury Obligations Fund, California
Tax-Free Fund, Tax-Free Fund, Bond Fund, Government Bond Fund, Income Equity
Fund, Balanced Fund, Growth Fund, and Income & Growth Fund), including the
schedules of portfolio investments, as of July 31, 1995, and the related
statements of operations, statements of changes in net assets, and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of The HighMark Group'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 July
31, 1995 by correspondence with the custodian and brokers or other auditing
procedures where confirmations from brokers were not received. 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 each
of the respective funds comprising The HighMark Group as of July 31, 1995, and
the results of their operations and the changes in their net assets and the
financial highlights for the periods referred to above in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
September 22, 1995
F-1
<PAGE> 245
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
100% U.S.
DIVERSIFIED U.S. GOVERNMENT TREASURY CALIFORNIA
OBLIGATIONS OBLIGATIONS OBLIGATIONS TAX-FREE TAX-FREE
FUND FUND FUND FUND FUND
----------- --------------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value...................................... $ 336,499 $ 141,781 $ 278,918 $ 146,801 $45,374
Repurchase agreements...................................... 62,817 66,855
-------- -------- -------- --------- -------
399,316 208,636 278,918 146,801 45,374
Cash....................................................... 378 795
Interest receivable........................................ 1,322 186 882 458 215
Prepaid expenses........................................... 3 13 6
-------- -------- -------- --------- -------
Total Assets........................................... 400,641 209,213 280,595 147,265 45,589
-------- -------- -------- -------- -------
LIABILITIES:
Cash overdraft............................................. 31 1,935
Dividends payable.......................................... 1,731 863 1,163 382 111
Payable to brokers for investments purchased............... 500
Accrued expenses and other payables:
Investment advisory fees................................. 132 67 94 23 13
Administration fees...................................... 24 12 17 7 1
Shareholder services fees................................ 2 1 1 1
Custodian, accounting and transfer agent fees............ 16 11 9 8 6
Other.................................................... 69 38 47 27 8
-------- -------- -------- --------- -------
Total Liabilities...................................... 1,974 992 1,331 979 2,074
-------- -------- -------- --------- -------
NET ASSETS:
Capital.................................................... 399,053 208,412 279,208 146,335 43,531
Accumulated undistributed net realized gains (losses) on
investment transactions.................................. (386) (191) 56 (49) (16)
-------- -------- -------- --------- -------
Net Assets............................................. $ 398,667 $ 208,221 $ 279,264 $ 146,286 $43,515
======== ======== ======== ========= =======
Net Assets
Investor................................................. 128,191 48,474 88,660 40,544 12,702
Fiduciary................................................ 270,476 159,747 190,604 105,742 30,813
-------- -------- -------- --------- -------
Total.................................................. $ 398,667 $ 208,221 $ 279,264 $ 146,286 $43,515
======== ======== ======== ========= =======
Outstanding units of beneficial interest (shares)
Investor................................................. 128,276 48,492 88,644 40,556 12,707
Fiduciary................................................ 270,777 159,920 190,564 105,779 30,824
-------- -------- -------- --------- -------
Total.................................................. 399,053 208,412 279,208 146,335 43,531
======== ======== ======== ========= =======
Net asset value--offering and redemption price per share
Investor................................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Fiduciary................................................ 1.00 1.00 1.00 1.00 1.00
======== ======== ======== ========= =======
Investments, at cost....................................... $ 399,316 $ 208,636 $ 278,918 $ 146,801 $45,374
======== ======== ======== ========= =======
</TABLE>
See notes to financial statements.
F-2
<PAGE> 246
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
INCOME
BOND GOVERNMENT EQUITY
FUND BOND FUND FUND
------- ---------- ----------
<S> <C> <C> <C>
ASSETS:
Investments, at value............................................................ $59,183 $3,893 $ 217,199
Repurchase agreements............................................................ 597 29 7,942
------- ------ --------
59,780 3,922 225,141
Interest and dividends receivable................................................ 894 75 627
Receivable for capital shares issued............................................. 54
Prepaid expenses................................................................. 2 11 4
------- ------ --------
Total Assets................................................................. 60,676 4,008 225,826
------- ------ --------
LIABILITIES:
Dividends payable................................................................ 312 20 408
Accrued expenses and other payables:
Investment advisory fees....................................................... 23 127
Administration fees............................................................ 2 14
Shareholder services fees...................................................... 1
Custodian, accounting and transfer agent fees.................................. 7 2 16
Other.......................................................................... 16 2 54
------- ------ --------
Total Liabilities............................................................ 360 24 620
------- ------ --------
NET ASSETS:
Capital.......................................................................... 63,172 4,254 197,622
Net unrealized appreciation (depreciation) on investments........................ (90) 28 20,438
Accumulated undistributed net realized gains (losses) on investment
transactions................................................................... (2,766) (298) 7,146
------- ------ --------
Net Assets................................................................... $60,316 $3,984 $ 225,206
======= ====== ========
Net Assets
Investor....................................................................... 558 68 3,881
Fiduciary...................................................................... 59,758 3,916 221,325
------- ------ --------
Total........................................................................ $60,316 $3,984 $ 225,206
======= ====== ========
Outstanding units of beneficial interest (shares)
Investor....................................................................... 54 7 298
Fiduciary...................................................................... 5,758 412 17,023
------- ------ --------
Total........................................................................ 5,812 419 17,321
======= ====== ========
Net asset value
Investor--redemption price per share........................................... $ 10.29 $ 9.43 $ 13.03
Fiduciary--offering and redemption price per share............................. 10.38 9.50 13.00
======= ====== ========
Maximum Sales Charge (Investor Shares)........................................... 3.00% 3.00% 4.50%
======= ====== ========
Maximum Offering Price (100%/100%-Maximum Sales Charge) of net asset value
adjusted to nearest cent) per share (Investor Shares).......................... $ 10.61 $ 9.72 $ 13.64
======= ====== ========
Investments, at cost............................................................. $59,870 $3,894 $ 204,703
======= ====== ========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 247
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
INCOME &
BALANCED GROWTH GROWTH
FUND FUND FUND
-------- ------- --------
<S> <C> <C> <C>
ASSETS:
Investments, at value............................................................... $26,438 $25,309 $6,535
Repurchase agreements............................................................... 3,881 1,158 348
-------- -------- -------
30,319 26,467 6,883
Interest and dividends receivable................................................... 205 23 10
Receivable from brokers for investments sold........................................ 118
Prepaid expenses.................................................................... 1
-------- -------- -------
Total Assets.................................................................... 30,525 26,608 6,893
-------- -------- -------
LIABILITIES:
Dividends payable................................................................... 72 10 6
Payable to brokers for investments purchased........................................ 266
Accrued expenses and other payables:
Investment advisory fees.......................................................... 10 7
Administration fees............................................................... 2 2
Custodian, accounting and transfer agent fees..................................... 2 2 2
Other............................................................................. 11 7 1
-------- -------- -------
Total Liabilities............................................................... 97 294 9
-------- -------- -------
NET ASSETS:
Capital............................................................................. 28,222 21,790 5,933
Net unrealized appreciation on investments.......................................... 2,398 3,762 997
Accumulated undistributed net realized gains (losses) on investment transactions.... (192) 762 (46)
-------- -------- -------
Net Assets........................................................................ $30,428 $26,314 $6,884
======= ======= =======
Net Assets
Investor.......................................................................... 467 1,218 215
Fiduciary......................................................................... 29,961 25,096 6,669
-------- -------- -------
Total........................................................................... $30,428 $26,314 $6,884
======= ======= =======
Outstanding units of beneficial interest (shares)
Investor.......................................................................... 43 103 18
Fiduciary......................................................................... 2,760 2,114 568
-------- -------- -------
Total........................................................................... 2,803 2,217 586
======= ======= =======
Net asset value
Investor--redemption price per share.............................................. $ 10.79 $ 11.87 $11.75
Fiduciary--offering and redemption price per share................................ 10.85 11.87 11.74
======= ======= =======
Maximum Sales Charge (Investor Shares).............................................. 4.50% 4.50% 4.50%
======= ======= =======
Maximum Offering Price (100%/100%-Maximum Sales Charge) of net asset value adjusted
to nearest cent) per share (Investor Shares)...................................... $ 11.30 $ 12.43 $12.30
======= ======= =======
Investments, at cost................................................................ $27,921 $22,705 $5,886
======= ======== =======
</TABLE>
See notes to financial statements.
F-4
<PAGE> 248
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
U.S. 100% U.S.
DIVERSIFIED GOVERNMENT TREASURY CALIFORNIA
OBLIGATIONS OBLIGATIONS OBLIGATIONS TAX-FREE TAX-FREE
FUND FUND FUND FUND FUND
----------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income....................................... $20,131 $ 10,113 $12,323 $5,358 $1,754
------- ------- ------- ------ ------
Total Income...................................... 20,131 10,113 12,323 5,358 1,754
------- ------- ------- ------ ------
EXPENSES:
Investment advisory fees.............................. 1,430 729 921 593 191
Administration fees................................... 715 365 460 297 94
Distribution fees (Investor shares)................... 280 108 145 87 37
Shareholder services fees............................. 893 456 575 371 120
Custodian and accounting fees......................... 233 146 137 115 81
Legal and audit fees.................................. 82 45 52 41 10
Trustees' fees and expenses........................... 15 8 10 6 2
Transfer agent fees................................... 68 37 43 44 32
Registration and filing fees.......................... 22 5 2 5 7
Printing costs........................................ 39 54 26 16 4
Other................................................. 12 7 9 6 3
Expenses voluntarily reduced.......................... (1,134) (544) (697) (842) (232)
------- ------- ------- ------ ------
Total Expenses.................................... 2,655 1,416 1,683 739 349
------- ------- ------- ------ ------
Net Investment Income................................. 17,476 8,697 10,640 4,619 1,405
------- ------- ------- ------ ------
REALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) on investment
transactions........................................ (29) 34 57 (23) (13)
------- ------- ------- ------ ------
Change in net assets resulting from operations........ $17,447 $ 8,731 $10,697 $4,596 $1,392
======= ======= ======= ====== ======
</TABLE>
See notes to financial statements.
F-5
<PAGE> 249
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
GOVERNMENT INCOME
BOND BOND EQUITY
FUND FUND FUND
------- ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income......................................................... $ 4,376 $333 $ 544
Dividend income......................................................... 9,295
------- ---- -------
Total Income........................................................ 4,376 333 9,839
------- ---- -------
EXPENSES:
Investment advisory fees................................................ 523 46 1,430
Administration fees..................................................... 121 9 423
Distribution fees (Investor shares)..................................... 1 3
Shareholder services fees............................................... 151 12 529
Custodian and accounting fees........................................... 85 57 153
Legal and audit fees.................................................... 15 2 47
Trustees' fees and expenses............................................. 3 9
Transfer agent fees..................................................... 53 30 103
Registration and filing fees............................................ 8 1 19
Printing costs.......................................................... 29 2 41
Other................................................................... 1 9
Expenses voluntarily reduced............................................ (438) (82) (522)
------- ---- -------
Total expenses before reimbursement by adviser...................... 552 77 2,244
Reimbursement of expenses by adviser................................ (38)
------- ---- -------
Total Expenses...................................................... 552 39 2,244
------- ---- -------
Net Investment Income................................................... 3,824 294 7,595
------- ---- -------
REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) on investment transactions.................. (1,512) (55) 8,944
Net change in unrealized appreciation on investments.................... 3,052 79 17,456
------- ---- -------
Net realized/unrealized gains on investments............................ 1,540 24 26,400
------- ---- -------
Change in net assets resulting from operations.......................... $ 5,364 $318 $ 33,995
======= ==== =======
</TABLE>
See notes to financial statements.
F-6
<PAGE> 250
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
INCOME &
BALANCED GROWTH GROWTH
FUND FUND FUND
-------- ------ --------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income........................................................... $ 776 $ 46 $ 20
Dividend income........................................................... 441 381 168
------ ------ ------
Total Income.......................................................... 1,217 427 188
------ ------ ------
EXPENSES:
Investment advisory fees.................................................. 252 196 56
Administration fees....................................................... 50 39 11
Distribution fees (Investor shares)....................................... 1
Shareholder services fees................................................. 63 49 14
Custodian and accounting fees............................................. 71 79 70
Legal and audit fees...................................................... 6 5 2
Trustees' fees and expenses............................................... 1 1
Transfer agent fees....................................................... 32 34 31
Registration and filing fees.............................................. 1 2 1
Printing costs............................................................ 5 5 2
Other..................................................................... 1 1
Expenses voluntarily reduced.............................................. (257) (257 ) (107)
------ ------ ------
Total expenses before reimbursement by adviser........................ 225 155 80
Reimbursement of expenses by adviser.................................. (25)
------ ------ ------
Total Expenses........................................................ 225 155 55
------ ------ ------
Net Investment Income................................................. 992 272 133
------ ------ ------
REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions............................. 21 915 42
Net change in unrealized appreciation on investments...................... 2,804 3,752 961
------ ------ ------
Net realized/unrealized gains on investments.............................. 2,825 4,667 1,003
------ ------ ------
Change in net assets resulting from operations............................ $3,817 $4,939 $1,136
====== ====== ======
</TABLE>
See notes to financial statements.
F-7
<PAGE> 251
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Amounts in Thousands
<TABLE>
<CAPTION>
DIVERSIFIED U.S. GOVERNMENT
OBLIGATIONS FUND OBLIGATIONS FUND
-------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994 1995 1994
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................. $ 17,476 $ 10,399 $ 8,697 $ 5,541
Net realized gains (losses) on investment
transactions.................................... (29) (355) 34 (224)
----------- ----------- ----------- ---------
Change in net assets resulting from operations...... 17,447 10,044 8,731 5,317
----------- ----------- ----------- ---------
DISTRIBUTIONS TO INVESTOR SHAREHOLDERS:
From net investment income........................ (5,516) (2,073) (2,084) (901)
DISTRIBUTIONS TO FIDUCIARY SHAREHOLDERS:
From net investment income........................ (11,960) (8,326) (6,613) (4,640)
----------- ----------- ----------- ---------
Change in net assets from shareholder
distributions..................................... (17,476) (10,399) (8,697) (5,541)
----------- ----------- ----------- ---------
CAPITAL TRANSACTIONS:
Proceeds from shares issued....................... 1,562,243 1,262,302 1,760,626 921,086
Dividends reinvested.............................. 4,915 2,036 1,950 902
Cost of shares redeemed........................... (1,473,121) (1,290,947) (1,740,538) (939,129)
----------- ----------- ----------- ---------
Change in net assets from share transactions........ 94,037 (26,609) 22,038 (17,141)
----------- ----------- ----------- ---------
Change in net assets................................ 94,008 (26,964) 22,072 (17,365)
NET ASSETS:
Beginning of period............................... 304,659 331,623 186,149 203,514
----------- ----------- ----------- ---------
End of period..................................... $ 398,667 $ 304,659 $ 208,221 $ 186,149
=========== =========== =========== =========
</TABLE>
See notes to financial statements.
F-8
<PAGE> 252
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Amounts in Thousands
<TABLE>
<CAPTION>
100% U.S. TREASURY CALIFORNIA
OBLIGATIONS FUND TAX-FREE FUND TAX-FREE FUND
---------------------- ---------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994 1995 1994 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................... $ 10,640 $ 5,505 $ 4,619 $ 3,451 $ 1,405 $ 1,177
Net realized gains (losses) on
investment transactions............... 57 (1) (23) (25) (13) (9)
--------- --------- --------- --------- --------- ---------
Change in net assets resulting from
operations.............................. 10,697 5,504 4,596 3,426 1,392 1,168
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS TO INVESTOR SHAREHOLDERS:
From net investment income.............. (2,706) (842) (1,089) (766) (422) (613)
DISTRIBUTIONS TO FIDUCIARY SHAREHOLDERS:
From net investment income.............. (7,934) (4,663) (3,530) (2,685) (983) (564)
--------- --------- --------- --------- --------- ---------
Change in net assets from shareholder
distributions........................... (10,640) (5,505) (4,619) (3,451) (1,405) (1,177)
--------- --------- --------- --------- --------- ---------
CAPITAL TRANSACTIONS:
Proceeds from shares issued............. 736,668 447,577 354,814 468,967 156,974 141,026
Dividends reinvested.................... 2,106 662 1,035 758 429 645
Cost of shares redeemed................. (659,445) (472,935) (356,054) (510,535) (164,192) (161,154)
--------- --------- --------- --------- --------- ---------
Change in net assets from share
transactions............................ 79,329 (24,696) (205) (40,810) (6,789) (19,483)
--------- --------- --------- --------- --------- ---------
Change in net assets...................... 79,386 (24,697) (228) (40,835) (6,802) (19,492)
NET ASSETS:
Beginning of period..................... 199,878 224,575 146,514 187,349 50,317 69,809
--------- --------- --------- --------- --------- ---------
End of period........................... $ 279,264 $ 199,878 $ 146,286 $ 146,514 $ 43,515 $ 50,317
========= ========= ========= ========= ========= =========
</TABLE>
See notes to financial statements.
F-9
<PAGE> 253
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Amounts in Thousands
<TABLE>
<CAPTION>
BOND FUND GOVERNMENT BOND FUND INCOME EQUITY FUND
---------------------- ----------------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED NOVEMBER 14, 1993 YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, TO JULY 31, JULY 31, JULY 31,
1995 1994 1995 1994 (a) 1995 1994
---------- ---------- ---------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............. $ 3,824 $ 3,643 $ 294 $ 216 $ 7,595 $ 6,016
Net realized gains (losses) on
investment transactions......... (1,512) (1,181) (55) (243) 8,944 8,501
Net change in unrealized
appreciation (depreciation) on
investments..................... 3,052 (4,334) 79 (51) 17,456 (10,529)
-------- -------- ------- -------- -------- --------
Change in net assets resulting from
operations........................ 5,364 (1,872) 318 (78) 33,995 3,988
-------- -------- ------- -------- -------- --------
DISTRIBUTIONS TO INVESTOR
SHAREHOLDERS:
From net investment income........ (18) (3) (43)
From net realized gains on
investments..................... (16)
DISTRIBUTIONS TO FIDUCIARY
SHAREHOLDERS:
From net investment income........ (3,806) (3,643) (291) (216) (7,552) (6,016)
From net realized gains on
investments..................... (74) (7,309) (5,447)
In excess of net realized gains on
investments..................... (274)
-------- -------- ------- -------- -------- --------
Change in net assets from
shareholder distributions......... (3,824) (3,991) (294) (216) (14,920) (11,463)
-------- -------- ------- -------- -------- --------
CAPITAL TRANSACTIONS:
Proceeds from shares issued....... 11,393 57,144 1,376 6,588 36,043 145,957
Dividends reinvested.............. 3,125 3,171 297 188 13,535 10,378
Cost of shares redeemed........... (19,934) (23,539) (2,884) (1,311) (56,799) (40,348)
-------- -------- ------- -------- -------- --------
Change in net assets from share
transactions...................... (5,416) 36,776 (1,211) 5,465 (7,221) 115,987
-------- -------- ------- -------- -------- --------
Change in net assets................ (3,876) 30,913 (1,187) 5,171 11,854 108,512
NET ASSETS:
Beginning of period............... 64,192 33,279 5,171 213,352 104,840
-------- -------- ------- -------- -------- --------
End of period..................... $ 60,316 $ 64,192 $ 3,984 $ 5,171 $225,206 $213,352
======== ======== ======= ======== ======== ========
</TABLE>
- ------------
(a) Period from commencement of operations.
See notes to financial statements.
F-10
<PAGE> 254
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Amounts in Thousands
<TABLE>
<CAPTION>
BALANCED FUND GROWTH FUND INCOME & GROWTH FUND
------------------------ ------------------------ ------------------------
NOVEMBER 14, NOVEMBER 18, NOVEMBER 14,
YEAR ENDED 1993 TO YEAR ENDED 1993 TO YEAR ENDED 1993 TO
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994 (a) 1995 1994 (a) 1995 1994 (a)
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.............. $ 992 $ 604 $ 272 $ 54 $ 133 $ 107
Net realized gains (losses) on
investment transactions.......... 21 (213) 915 90 42 (88)
Net change in unrealized
appreciation (depreciation) on
investments...................... 2,804 (406) 3,752 10 961 36
------- ------- ------- ------- ------ -------
Change in net assets resulting from
operations......................... 3,817 (15) 4,939 154 1,136 55
------- ------- ------- ------- ------ -------
DISTRIBUTIONS TO INVESTOR
SHAREHOLDERS:
From net investment income......... (3) (5) (1)
From net realized gains on
investments...................... (3)
DISTRIBUTIONS TO FIDUCIARY
SHAREHOLDERS:
From net investment income......... (989) (604) (267) (54) (132) (107)
From net realized gains on
investments...................... (240)
------- ------- ------- ------- ------ -------
Change in net assets from shareholder
distributions...................... (992) (604) (515) (54) (133) (107)
------- ------- ------- ------- ------ -------
CAPITAL TRANSACTIONS:
Proceeds from shares issued........ 10,356 30,704 9,727 15,837 1,771 8,339
Dividends reinvested............... 986 534 503 49 127 102
Cost of shares redeemed............ (9,590) (4,768) (3,594) (732) (788) (3,618)
------- ------- ------- ------- ------ -------
Change in net assets from share
transactions....................... 1,752 26,470 6,636 15,154 1,110 4,823
------- ------- ------- ------- ------ -------
Change in net assets................. 4,577 25,851 11,060 15,254 2,113 4,771
NET ASSETS:
Beginning of period................ 25,851 15,254 4,771
------- ------- ------- ------- ------ -------
End of period...................... $ 30,428 $ 25,851 $ 26,314 $ 15,254 $6,884 $ 4,771
======= ======= ======= ======= ====== =======
</TABLE>
- ------------
(a) Period from commencement of operations.
See notes to financial statements.
F-11
<PAGE> 255
- --------------------------------------------------------------------------------
DIVERSIFIED OBLIGATIONS FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ------------------------------- --------
<S> <C>
BANKERS ACCEPTANCES (0.7%):
3,000 NationsBank, North Carolina
5.90%, 11/14/95.............. $ 2,948
--------
Total Bankers Acceptances 2,948
--------
CERTIFICATES OF DEPOSIT (18.8%):
5,000 Abbey National Treasury
Services, 5.77%, 10/12/95.... 5,000
5,000 ABN-Amro, 5.56%, 6/5/96........ 4,993
5,000 Banque Paribas, 6.32%,
9/27/95...................... 5,000
5,000 Canadian Imperial Bank of
Commerce, 7.36%, 1/17/96..... 5,032
5,000 National Westminster Bank Ltd.,
5.88%, 10/4/95............... 5,000
5,000 National Westminster Bank Ltd.,
6.13%, 11/8/95............... 5,001
10,000 Sanwa Bank, 6.00%, 8/10/95..... 10,000
5,000 Sanwa Bank, 5.79%, 10/12/95.... 5,000
5,000 Societe Generale, 6.03%,
8/11/95...................... 5,000
5,000 Societe Generale, 6.44%,
12/15/95..................... 5,005
5,000 Societe Generale, 6.03%,
2/26/96...................... 5,010
10,000 Sumitomo Bank, 6.04%,
8/15/95...................... 10,000
5,000 Westdeutsche Landesbank
Girozentrale, 6.22%,
5/16/96...................... 5,022
--------
Total Certificates Of Deposit 75,063
--------
COMMERCIAL PAPER/MASTER DEMAND NOTES (60.1%):
Automotive (3.7%):
5,000 Daimler-Benz North America
Corp., 5.90%, 11/7/95........ 4,920
5,000 Daimler-Benz North America
Corp., 5.65%, 2/13/96........ 4,846
5,000 Ford Motor Credit Corp., 5.72%,
8/14/95...................... 4,990
--------
14,756
--------
Banking (12.4%):
5,000 ANZ, Inc., 5.99%, 8/1/95....... 5,000
10,000 ANZ, Inc., 5.88%, 8/21/95...... 9,967
10,000 Abbey National, North America,
5.85%, 9/21/95............... 9,917
5,000 CommerzBank U.S. Finance, Inc.,
5.95%, 8/9/95................ 4,993
4,800 CommerzBank U.S. Finance, Inc.,
5.88%, 9/12/95............... 4,767
5,000 CommerzBank U.S. Finance, Inc.,
5.77%, 9/25/95............... 4,956
5,000 National Australia Funding
Corp., 5.61%, 10/5/95........ 4,949
5,000 Westpac Capital Corp., 5.80%,
11/21/95..................... 4,910
--------
49,459
--------
Business Credit Institutions (10.0%):
10,100 Apreco, Inc., 5.95%, 8/7/95.... 10,090
5,000 Assets Securitization Co-Op
Finance Corp., 5.95%,
8/11/95...................... 4,992
5,000 Assets Securitization Co-Op
Finance Corp., 5.67%,
9/6/95....................... 4,972
10,000 Ciesco, Inc., 5.70%, 9/22/95... 9,918
5,000 Ciesco, Inc., 5.60%,
10/13/95..................... 4,943
5,000 CXC, Inc., 5.85%, 8/23/95...... 4,982
--------
39,897
--------
Chemicals (1.2%):
5,000 U.S. Borax Chemical Corp.,
5.88%, 11/9/95............... 4,918
--------
Diversified (2.5%):
5,000 General Electric Credit Corp.,
5.92%, 8/7/95................ 4,995
</TABLE>
Continued
F-12
<PAGE> 256
- --------------------------------------------------------------------------------
DIVERSIFIED OBLIGATIONS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------- ---------
<S> <C>
COMMERCIAL PAPER/MASTER DEMAND NOTES, CONTINUED:
Diversified, continued:
5,000 General Electric Credit Corp.,
5.92%, 8/8/95................ $ 4,994
--------
9,989
--------
Education (2.0%):
8,000 Stanford University, 6.08%,
8/21/95...................... 7,973
--------
Financial Services (5.0%):
10,000 American Express Credit Corp.,
5.62%, 10/18/95.............. 9,878
10,000 TransAmerica Finance Corp.,
5.92%, 9/12/95............... 9,931
--------
19,809
--------
Foreign Governments (7.5%):
5,000 Province of British Columbia,
6.12%, 8/28/95............... 4,977
5,000 Swedish Export Credit Bank,
5.81%, 8/31/95............... 4,976
5,000 Swedish Export Credit Bank,
5.67%, 9/11/95............... 4,968
5,000 Swedish Export Credit Bank,
5.59%, 10/6/95............... 4,949
5,000 Tasmanian Public Finance Corp.,
5.71%, 8/17/95............... 4,987
5,000 Tasmanian Public Finance Corp.,
6.15%, 9/25/95............... 4,953
--------
29,810
--------
Industrial Goods & Services (3.1%):
7,400 Akzo Nobel, Inc., 5.95%,
8/15/95...................... 7,383
5,000 Akzo Nobel, Inc., 5.96%,
8/22/95...................... 4,983
--------
12,366
--------
Multiple Industry (2.5%):
5,000 Hanson Finance, Inc., 5.88%,
8/24/95...................... 4,981
5,000 Hanson Finance, Inc., 5.82%,
9/18/95...................... 4,961
--------
9,942
--------
Real Estate (3.0%):
5,000 Embarcadero Center Venture,
5.75%, 9/5/95................ 4,972
7,111 Embarcadero Center Venture,
5.78%, 9/15/95............... 7,060
--------
12,032
--------
Trading Company (2.4%):
5,000 Cargill Financial Services
Corp., 5.85%, 12/8/95........ 4,895
5,000 Wool International, 5.67%,
9/13/95...................... 4,966
--------
9,861
--------
Utilities (4.8%):
5,000 National Rural Utilities Co-Op
Finance Corp., 5.95%,
08/10/95..................... 4,993
10,000 National Rural Utilities Co-Op
Finance Corp., 5.90%,
8/11/95...................... 9,984
4,000 Southern California Edison,
5.92%, 10/16/95.............. 3,950
--------
18,927
--------
Total Commercial Paper/Master Demand Notes 239,739
--------
CORPORATE BONDS (4.7%):
Banking (1.3%):
5,000 PNC Bank Corp., 6.48%,
12/11/95..................... 5,001
--------
Beverages (2.5%):
10,000 Pepsico, Inc., 6.90%,
2/16/96...................... 10,054
--------
</TABLE>
Continued
F-13
<PAGE> 257
- --------------------------------------------------------------------------------
DIVERSIFIED OBLIGATIONS FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ------------------------------- --------
<S> <C>
CORPORATE BONDS, CONTINUED:
Multiple Industry (0.9%):
3,700 Hanson Overseas B.V., 5.50%,
1/15/96...................... $ 3,694
--------
Total Corporate Bonds 18,749
--------
Total Investments 336,499
--------
REPURCHASE AGREEMENTS (15.8%):
32,817 First Boston, 5.83%, 8/1/95
(Collateralized by 23,712
U.S. Treasury Bonds, 11.75%,
2/15/10, market value--$33,689).. 32,817
30,000 Hong Kong Shanghi Banc Corp.,
5.83%, 8/1/95 (Collateralized
by 29,575 U.S. Treasury
Notes, 4.63%-8.88%,
2/15/96-3/31/96, market
value--$30,600).............. 30,000
--------
Total Repurchase Agreements 62,817
--------
Total (Cost--$399,316)(a) $399,316
--------
</TABLE>
- ------------
Percentages indicated are based on total net assets of $398,667.
(a) Cost for federal income tax and financial reporting purposes are the same.
See notes to financial statements.
F-14
<PAGE> 258
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] U.S. GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- -------- ----------------------------- ---------
<S> <C>
U.S. GOVERNMENT AGENCIES (68.1%):
Federal Farm Credit Banks:
1,790 5.83%, 12/21/95.............. $ 1,790
Federal Home Loan Banks:
2,000 5.88%, 8/4/95................ 1,999
2,000 5.93%, 8/23/95............... 1,993
2,000 4.77%, 9/15/95............... 1,997
1,000 6.04%, 9/28/95............... 991
1,000 6.05%, 9/28/95............... 990
2,000 6.59%, 11/22/95.............. 2,002
3,000 7.13%, 2/9/96................ 3,021
Federal Home Loan Mortgage Corp.:
5,000 5.80%, 8/1/95................ 5,000
2,000 5.86%, 8/10/95............... 1,997
3,000 5.87%, 8/18/95............... 2,992
5,000 5.82%, 8/28/95............... 4,978
10,000 5.58%, 9/25/95............... 9,915
3,000 5.54%, 10/3/95............... 2,971
3,000 5.56%, 10/10/95.............. 2,968
5,000 5.58%, 10/20/95.............. 4,938
10,000 5.59%, 10/20/95.............. 9,876
2,000 5.83%, 10/23/95.............. 1,973
Federal National Mortgage Assoc.:
2,000 5.92%, 8/2/95................ 2,000
5,000 5.84%, 8/10/95............... 4,993
3,000 5.89%, 8/14/95............... 2,994
5,000 5.84%, 8/21/95............... 4,984
2,000 5.90%, 8/28/95............... 1,991
5,000 5.78%, 8/29/95............... 4,977
3,000 5.79%, 9/1/95................ 2,985
7,000 5.62%, 9/12/95............... 6,954
5,000 5.78%, 9/14/95............... 4,965
5,000 6.04%, 9/21/95............... 4,958
10,000 5.61%, 9/22/95............... 9,919
2,000 5.91%, 9/22/95............... 1,983
2,000 6.01%, 9/25/95............... 1,982
3,000 6.02%, 9/26/95............... 2,972
1,000 6.03%, 9/27/95............... 990
5,000 5.72%, 9/28/95............... 4,954
5,000 5.59%, 10/12/95.............. 4,945
2,000 5.80%, 10/24/95.............. 1,973
5,000 5.56%, 10/25/95.............. 4,934
3,000 5.55%, 12/15/95.............. 2,937
--------
Total U.S. Government Agencies 141,781
--------
Total Investments 141,781
--------
REPURCHASE AGREEMENTS (32.1%):
34,855 First Boston, 5.83%, 8/1/95
(Collateralized by 25,185
U.S. Treasury Bonds,
11.75%, 2/15/10, market
value--$35,782)............ 34,855
32,000 Hong Kong Shanghai Banc
Corp., 5.83%, 8/1/95
(Collateralized by 31,646
various U.S. Government
securities, 4.00%-11.75%,
1/15/96-11/15/14 market
value--$32,643)............ 32,000
--------
Total Repurchase Agreements 66,855
--------
Total (Cost--$208,636)(a) $208,636
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $208,221.
(a) Cost for federal income tax and financial reporting purposes are the same.
See notes to financial statements.
F-15
<PAGE> 259
- --------------------------------------------------------------------------------
100% U.S. TREASURY OBLIGATIONS FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- -------- -------------------------- --------
<S> <C>
U.S. TREASURY BILLS (79.3%):
12,077 5.71%, 8/3/95............. $ 12,073
501 5.65%, 8/10/95............ 500
4,794 5.70%, 8/10/95............ 4,787
816 5.40%, 8/17/95............ 814
1,352 5.41%, 8/17/95............ 1,349
6,932 5.46%, 8/17/95............ 6,915
860 5.57%, 8/17/95............ 858
5,000 5.68%, 8/17/95............ 4,987
4,000 5.43%, 8/24/95............ 3,986
5,000 5.46%, 8/24/95............ 4,983
2,500 5.71%, 8/24/95............ 2,491
8,210 5.58%, 8/31/95............ 8,172
2,640 5.97%, 8/31/95............ 2,627
624 5.42%, 9/7/95............. 621
4,000 5.43%, 9/7/95............. 3,978
5,000 5.50%, 9/7/95............. 4,972
2,500 6.00%, 9/7/95............. 2,485
3,000 5.33%, 9/14/95............ 2,980
4 5.39%, 9/14/95............ 4
645 5.45%, 9/14/95............ 641
3,403 5.47%, 9/14/95............ 3,380
3,000 5.58%, 9/14/95............ 2,980
13,216 5.92%, 9/14/95............ 13,127
15,305 5.33%, 9/21/95............ 15,190
3,000 5.36%, 9/21/95............ 2,977
2,221 5.40%, 9/21/95............ 2,204
2,700 5.43%, 9/21/95............ 2,679
2,500 5.82%, 9/21/95............ 2,479
2,000 5.89%, 9/21/95............ 1,983
5,000 5.35%, 10/5/95............ 4,952
3,248 5.41%, 10/5/95............ 3,217
3,144 5.49%, 10/5/95............ 3,113
7,569 5.50%, 10/5/95............ 7,493
3,000 5.53%, 10/5/95............ 2,970
4,075 5.55%, 10/5/95............ 4,034
2,500 5.87%, 10/5/95............ 2,474
2,500 5.37%, 10/12/95........... 2,473
3,492 5.38%, 10/12/95........... 3,454
6,449 5.41%, 10/12/95........... 6,379
827 5.43%, 10/12/95........... 818
4,126 5.55%, 10/12/95........... 4,080
2,500 5.78%, 10/12/95........... 2,471
2,825 5.43%, 10/19/95........... 2,791
2,500 5.70%, 10/19/95........... 2,469
2,000 5.92%, 10/19/95........... 1,974
3,295 5.40%, 10/26/95........... 3,253
3,000 5.73%, 10/26/95........... 2,959
1,820 5.78%, 10/26/95........... 1,795
9,575 5.41%, 11/2/95............ 9,441
3,058 5.42%, 11/2/95............ 3,015
2,500 5.68%, 11/9/95............ 2,461
5,000 5.75%, 11/9/95............ 4,920
2,000 5.64%, 11/16/95........... 1,966
2,500 5.68%, 11/24/95........... 2,455
3,000 5.56%, 12/14/95........... 2,937
2,500 5.40%, 12/21/95........... 2,447
2,637 5.28%, 1/4/96............. 2,577
4,000 5.29%, 1/4/96............. 3,908
2,500 5.29%, 1/11/96............ 2,440
2,500 5.35%, 1/11/96............ 2,440
--------
Total U.S. Treasury Bills 221,398
--------
U.S. TREASURY NOTES (20.6%):
42,595 3.88%, 8/31/95............ 42,528
10,000 3.88%, 10/31/95........... 9,956
5,000 8.50%, 11/15/95........... 5,036
--------
Total U.S. Treasury Notes 57,520
--------
Total (Cost--$278,918)(a) $278,918
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $279,264.
(a) Cost for federal income tax and financial reporting purposes are the same.
See notes to financial statements.
F-16
<PAGE> 260
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] CALIFORNIA TAX-FREE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
OR OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- --------- ------------------------------------------------------------------------------- --------
<S> <C> <C>
MUNICIPAL SECURITIES (95.3%):
California (95.3%):
7,600 California Health Facilities Financing Authority, Catholic HealthCare West,
3.65%*, 7/1/05**............................................................. $ 7,600
2,000 California Health Facilities Financing Authority, Enloe Memorial Hospital,
Series A, 3.90%*, 1/1/16**................................................... 2,000
6,900 California Health Facilities Financing Authority, Kaiser Permanente, Series B,
3.65%*, 5/1/28**............................................................. 6,900
6,900 California Health Facilities Financing Authority, Memorial Health Services,
3.70%*, 10/1/24**............................................................ 6,900
1,700 California Health Facilities Financing Authority, Pool Program, Series 1990 A,
3.70%*, 9/1/20**............................................................. 1,700
2,500 California Health Facilities Financing Authority, Pooled Loan Program, Series
B, 3.65%*, 10/1/10**......................................................... 2,500
1,000 California Health Facilities Financing Authority, Santa Barbara Cottage
Hospital, Series B, 3.75%*, 9/1/05**......................................... 1,000
2,200 California Health Facilities Financing Authority, Santa Barbara Cottage
Hospital, Series C, 3.75%*, 9/1/15**......................................... 2,200
800 California Pollution Control Finance Authority Revenue, Pacific Gas & Electric,
Series A, 4.15%, 12/1/16**................................................... 800
2,650 California Pollution Control Finance Authority Revenue, Pacific Gas & Electric,
Series A, 3.45%, 10/1/20**................................................... 2,650
1,550 California Pollution Control Finance Authority Revenue, Pacific Gas & Electric,
Series C, 3.65%, 10/1/20**................................................... 1,550
4,800 California Pollution Control Finance Authority Revenue, Resource
Recovery-Wadham Energy, Series B, 4.00%*, 11/1/17**.......................... 4,800
1,200 California Pollution Control Finance Authority Revenue, Resource
Recovery-Wadham Energy, Series C, 4.00%*, 11/1/17**.......................... 1,200
5,400 California Pollution Control Finance Authority Revenue, Southern California
Edison, Series A, 4.15%*, 2/28/08**.......................................... 5,400
1,500 California Pollution Control Finance Authority Revenue, Southern California
Edison, Series B, 4.15%*, 2/28/08**.......................................... 1,500
</TABLE>
Continued
F-17
<PAGE> 261
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
OR OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- --------- ------------------------------------------------------------------------------- --------
<S> <C> <C>
MUNICIPAL SECURITIES, CONTINUED:
California, continued:
700 California Pollution Control Finance Authority Revenue, Southern California
Edison, Series C, 4.15%*, 2/28/08**.......................................... $ 700
700 California Pollution Control Finance Authority Revenue, Southern California
Edison, Series D, 4.15%*, 2/28/08**.......................................... 700
1,500 California Pollution Control Finance Authority Revenue, Southern California
Edison, Series C, 3.00%, 3/1/08**............................................ 1,500
2,400 California Pollution Control Finance Authority Revenue, Southern California
Edison, Series C, 3.15%, 3/1/08**............................................ 2,400
3,000 California Pollution Control Finance Authority Revenue, Southern California
Edison, Series C, 3.30%, 3/1/08**............................................ 3,000
4,000 California Pollution Control Finance Authority Revenue, Southern California
Edison, Series C, 3.35%, 3/1/08**............................................ 4,000
2,200 California Pollution Control Finance Authority Revenue, Southern California
Edison, Series C, 3.45%, 3/1/08**............................................ 2,200
1,600 California Pollution Control Finance Authority Revenue, Southern California
Edison, Series C, 3.60%, 3/1/08**............................................ 1,600
1,500 California Pollution Control Finance Authority Revenue, Southern California
Edison, Series C, 4.10%, 3/1/08**............................................ 1,500
1,500 California Pollution Control Finance Authority Revenue, Southern California
Edison, Series D, 3.30%, 3/1/08**............................................ 1,500
1,000 California Pollution Control Finance Authority Revenue, Southern California
Edison, Series D, 3.35%, 3/1/08**............................................ 1,000
7,500 California Pollution Control Finance Authority, Resource Recovery Revenue,
Burney Forest Products Project, Series A, 3.90%*, 9/1/20**................... 7,500
3,000 California Pollution Control Finance Authority, Resource Recovery Revenue,
Delano Project, 4.00%*, 8/1/19**............................................. 3,000
1,100 California Pollution Control Finance Authority, Resource Recovery Revenue,
Honey Lake Power Project, 4.00%*, 9/1/18**................................... 1,100
1,700 California Pollution Control Finance Authority, Solid Waste Disposal Revenue,
North County Recycling Center, Series B, 3.65%, 7/1/17**..................... 1,700
</TABLE>
Continued
F-18
<PAGE> 262
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] CALIFORNIA TAX-FREE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
OR OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- --------- ------------------------------------------------------------------------------- --------
<S> <C> <C>
MUNICIPAL SECURITIES, CONTINUED:
California, continued:
7,500 California State Department, Water Resources, 3.65%*, 12/1/25**................ $ 7,500
7,300 California Statewide Community Development Authority, 3.65%*, 5/15/25**........ 7,300
5,000 Contra Costa County, California Multi-Family Housing Revenue, Park Regency,
Series A, 3.90%*, 8/1/32**................................................... 5,000
900 Golden Empire Schools Finance Authority, California, 3.70%*, 11/1/19**......... 900
1,200 Kern County Public Facilities Authority, Series B, 3.65%*, 8/1/06**............ 1,200
2,300 Lancaster, California Redevelopment Agency, Multi-Family Housing Revenue,
Westwood Park Apartments, Series K, 3.80%*, 12/1/07**........................ 2,300
7,400 Los Angeles County, California Metro Transportation Authority, Union Station
Gateway, Series A, 3.75%*, 7/1/25**.......................................... 7,400
7,600 Los Angeles County, Multi-Family Housing, Series K, 3.70%*, 7/1/10**........... 7,600
7,705 Los Angeles, California Redevelopment Agency, Multi-Family Housing Revenue,
Skyline at Southpark, 3.85%*, 12/1/05**...................................... 7,705
4,685 Oakland, California Health Facilities, Revenue Bonds--Childrens Hospital,
Series A, 3.70%*, 7/1/08**................................................... 4,685
2,800 Oxnard, California Housing Authority, Multi-Family Housing Revenue, Seawind
Apartments Project, 3.90%*, 12/1/20**........................................ 2,800
1,500 San Jose, California Mortgage Revenue, Somerset Park, 3.90%*, 11/1/17**........ 1,500
700 Vacaville, California Multi-Family Housing Revenue, Western Properties,
Sycamores Apartments Project, 3.80%*, 4/1/05**............................... 700
700 Walnut Creek, California Multi-Family Housing Revenue, Creekside Drive
Apartments, 3.80%*, 4/1/07**................................................. 700
--------
Total Municipal Securities 139,390
--------
</TABLE>
Continued
F-19
<PAGE> 263
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
OR OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- --------- ------------------------------------------------------------------------------- --------
<S> <C> <C>
INVESTMENT COMPANIES (5.1%):
2,169 Goldman Sachs California Tax-Exempt Money Market Fund.......................... $ 2,169
5,242 Provident California Money Market Fund......................................... 5,242
--------
Total Investment Companies 7,411
--------
Total (Cost--$146,801)(a) $146,801
========
</TABLE>
- ------------
Percentages indicated are based on total net assets of $146,286.
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate securities collateralized by bank letters of credit or other
bank credit agreements. The interest rate, which will change periodically,
is based upon bank prime rates or an index of market interest rates. The
rate reflected on the Schedule of Portfolio Investments is the rate in
effect at July 31, 1995.
** Put and demand features exist allowing the Fund to require the repurchase of
the instrument within variable time periods of less than one year.
See notes to financial statements.
F-20
<PAGE> 264
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] TAX-FREE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
OR OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ------------- ----------------------------------------------------------------------------------- ---------
<S> <C>
MUNICIPAL SECURITIES (100.2%):
Alaska (5.8%):
2,500 Anchorage, Alaska, Tax Anticipation Notes, 5.00%, 12/7/95.......................... $ 2,503
-------
Arizona (0.9%):
400 Maricopa County, Arizona Pollution Control Corp., Southern California Edison, Palo
Verde Project, 4.15%, 12/1/09**.................................................. 400
-------
California (20.3%):
100 California Pollution Control Finance Authority Revenue, Pacific Gas & Electric,
Series C, 3.45%, 10/1/20**....................................................... 100
2,000 California Pollution Control Finance Authority Revenue, Southern California Edison,
Series C, 3.15%, 3/1/08**........................................................ 2,000
1,000 California Pollution Control Finance Authority Revenue, Southern California Edison,
Series C, 3.65%, 3/1/08**........................................................ 1,000
750 California Pollution Control Finance Authority Revenue, Southern California Edison,
Series D, 3.30%, 3/1/08**........................................................ 750
300 California State Department of Water Resources, Central Valley Project Revenue,
3.65%*, 12/1/25**................................................................ 300
1,000 California Health Facilities Finance Authority Revenue, Kaiser Permanente, Series
B, 3.65%*, 5/1/28**.............................................................. 1,000
1,600 Los Angeles County, California Metro Transportation Authority Revenue, Union
Station Gateway, Series A, 3.75%*, 7/1/25**...................................... 1,600
2,100 Los Angeles Multi-Family Housing, Series K, 3.70%*, 7/1/10**....................... 2,100
-------
8,850
-------
Colorado (4.6%):
2,000 Colorado Regional Transportation, Special Passenger Fare Revenue, Series A, 3.95%*,
6/1/99**......................................................................... 2,000
-------
</TABLE>
Continued
F-21
<PAGE> 265
- -------------------------------------------------------------------------------
TAX-FREE FUND [HIGHMARK LOGO]
- -------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
OR OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
---------- ----------------------------------------------------------------------------------- ---------
<S> <C>
MUNICIPAL SECURITIES, CONTINUED:
Florida (6.2%):
800 Broward County, Florida Housing Finance Authority, Multi-Family Housing Revenue,
Welleby Apartments Project, 3.95%*, 12/1/06**.................................... $ 800
1,900 Indian Trace Community Development, Basin 1 Water Management, Series A, 3.75%*,
11/1/99**........................................................................ 1,900
-------
2,700
-------
Illinois (3.4%):
1,500 Illinois Housing Development Authority, Multi-Family Housing--Hyde Park, 4.05%*,
2/1/24**......................................................................... 1,500
-------
Indiana (5.8%):
500 Jasper County, Indiana Pollution Control Revenue, Northern Indiana Public Services,
Series C, 3.40%, 11/1/16**....................................................... 500
1,000 Jasper County, Indiana Pollution Control Revenue, Northern Indiana Public Services,
Series C, 3.45%, 11/1/16**....................................................... 1,000
600 City of Sullivan, Indiana Pollution Control Revenue, National Rural Utilities,
Hoosier Electric Co., 3.45%, 12/1/14**........................................... 600
410 City of Sullivan, Indiana Pollution Control Revenue, National Rural Utilities,
Hoosier Electric Co., 3.60%, 12/1/14**........................................... 410
-------
2,510
-------
Kentucky (6.0%):
1,000 Clark County, Kentucky Pollution Control Revenue, East Kentucky Power Co-Op,
National Rural Utilities, 4.15%, 10/15/14**...................................... 1,000
1,600 Davies County, Kentucky Solid Waste Disposal Facility Revenue, Scott Paper Co.
Project, Series B, 4.05%*, 5/1/24**.............................................. 1,600
-------
2,600
-------
Louisiana (4.6%):
2,000 Louisiana Public Facilities Authority, Industrial Development--Kenner Hotel Ltd.,
4.00%*, 12/1/15**................................................................ 2,000
-------
</TABLE>
Continued
F-22
<PAGE> 266
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] TAX-FREE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
OR OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------------------------------------------------------------- ---------
<S> <C>
MUNICIPAL SECURITIES, CONTINUED:
Michigan (4.4%):
400 Michigan State Housing Development Authority, Rental Housing Revenue, Series 1992
B, 3.90%*, 10/1/23**............................................................. $ 400
1,500 Michigan State Underground Storage, Storage Tank Assurance Authority, Series I,
3.90%*, 12/1/04**................................................................ 1,500
-------
1,900
-------
Minnesota (0.2%):
100 Hubbard County, Minnesota Solid Waste Disposal Revenue, Potlatch Corp. Project,
3.95%*, 8/1/14**................................................................. 100
-------
Missouri (2.8%):
1,200 St. Charles, Missouri, Sun River Village Apartments, 3.85%*, 12/1/07**............. 1,200
-------
Nevada (4.4%):
1,900 Clark County, Nevada Airport, Improvement Revenue Bonds, Series A-1, 3.75%*,
7/1/25**......................................................................... 1,900
-------
New Mexico (4.1%):
1,800 Albuquerque, New Mexico Airport Revenue, Sub Lien Revenue Bonds, 3.75%*,
7/1/14**......................................................................... 1,800
-------
New York (4.8%):
200 New York, General Obligation Bonds, Series B, 4.25%*, 10/1/20**.................... 200
400 New York, General Obligation Bonds, Series B, 4.25%*, 10/1/22**.................... 400
1,500 Triborough Bridge & Tunnel Authority, New York Special Obligation, 3.50%*,
1/1/24**......................................................................... 1,500
-------
2,100
-------
Oregon (2.2%):
955 Port Morrow, Oregon, Revenue Bond, Portland General Electric Co., Series A, 3.90%*,
10/1/13**........................................................................ 955
-------
Pennsylvania (0.5%):
200 LeHigh County, Pennsylvania, Industrial Development Authority, Pollution Control
Revenue, Allegheny Electric Co-Op, Inc., Series A, 3.95%*, 12/1/15**............. 200
-------
</TABLE>
Continued
F-23
<PAGE> 267
- --------------------------------------------------------------------------------
TAX-FREE FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
OR OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------------------------------------------------------------- ---------
<S> <C>
MUNICIPAL SECURITIES, CONTINUED:
Rhode Island (3.2%):
1,400 Rhode Island State Student Loan Authority, Student Loan Revenue Bonds, Series 1,
4.00%*, 7/1/19**................................................................. $ 1,400
-------
Texas (4.6%):
2,000 Gulf Coast Waste Disposal Authority, Texas, Pollution Control Revenue, Amoco Oil
Co. Project, 3.80%*, 10/12/17**.................................................. 2,000
-------
Utah (2.3%):
1,000 Emery County, Utah, Pollution Control Revenue, PacifiCorp. Project, 3.65%,
7/1/15**......................................................................... 1,000
-------
Virginia (8.0%):
Virginia, continued:
2,100 Alexandria, Virginia Redevelopment & Housing Authority, Multi-Family Housing
Revenue, Crystal City Apartments Project, Series A, 3.85%*, 12/15/18**........... 2,100
100 Amelia County, Virginia Industrial Development Authority, Chambers Waste System
Virginia Inc., 4.05%*, 7/1/07**.................................................. 100
1,300 Charles City County, Virginia Industrial Development Authority, Chambers
Development of Virginia, Inc. Project, 4.05%*, 10/1/04**......................... 1,300
-------
3,500
-------
Wyoming (1.1%):
500 Sweetwater County, Wyoming Pollution Control Revenue, PacifiCorp Project, Series A,
3.85%*, 7/1/15**................................................................. 500
-------
Total Municipal Securities 43,618
-------
</TABLE>
Continued
F-24
<PAGE> 268
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] TAX-FREE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
OR OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------------------------------------------------------------- ---------
<S> <C>
INVESTMENT COMPANIES (4.0%):
211 Goldman Sachs Tax Exempt National Fund............................................. $ 211
1,545 SEI Institutional Tax Exempt Money Market Fund..................................... 1,545
-------
Total Investment Companies 1,756
-------
Total (Cost--$45,374)(a) $45,374
=======
</TABLE>
- ------------
Percentages indicated are based on total net assets of $43,515.
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate securities collateralized by bank letters of credit or other
bank credit agreements. The interest rate, which will change periodically, is
based upon bank prime rates or an index of market interest rates. The rate
reflected on the Schedule of Portfolio Investments is the rate in effect at
July 31, 1995.
** Put and demand features exist allowing the Fund to require the repurchase of
the instrument within variable time periods of less than one year.
See notes to financial statements.
F-25
<PAGE> 269
- --------------------------------------------------------------------------------
BOND FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- -------------------------------- -------
<S> <C>
ASSET BACKED SECURITIES (18.8%):
400 Advanta Mortgage Loan Trust,
7.90%, 3/25/07................ $ 405
860 Carco Auto Loan, 7.88%
3/15/98....................... 875
1,000 Carco 94-2, 7.88%, 8/15/97...... 1,030
1,125 Contimortgage Home Equity Loan
Trust, 8.09%, 9/15/09......... 1,150
1,000 Contimortgage Home Equity Loan
Trust, 8.05%, 7/15/12......... 1,024
1,200 EQCC Home Equity Loan Trust,
7.80%, 12/15/10............... 1,218
500 MBNA Credit Card, 7.25%,
6/15/99....................... 508
767 MBNA Credit Card Trust, 8.25%,
6/30/98....................... 768
786 Mid State Trust, 8.33%,
4/1/30........................ 821
1,109 Premier Auto Receivable Trust,
4.90%, 10/15/98............... 1,097
1,000 Standard Credit Card Master
Trust, 4.65%., 3/7/99......... 979
600 UCFC Home Equity Loan, 7.78%,
12/10/06...................... 609
845 UFSB Grantor Trust, 5.08%,
5/15/00....................... 831
-------
Total Asset Backed Securities 11,315
-------
COLLATERALIZED MORTGAGE OBLIGATIONS (15.8%):
Bear Stearns Secured Investors:
500 7.50%, 1/20/99.................. 505
Country Wide Mortgage:
1,180 6.75%, 3/25/08.................. 1,158
Federal Home Loan Mortgage Corp.:
1,500 6.25%, 1/15/24.................. 1,370
Federal National Mortgage Assoc.:
507 7.00%, 7/25/00.................. 506
2,000 6.20%, 9/25/02.................. 1,936
1,500 6.50%, 3/25/13.................. 1,425
GE Capital Mortgage Service, Inc.:
1,850 6.50%, 1/25/24.................. 1,751
Residential Funding Mortgage:
950 6.75%, 11/25/07................. 898
-------
Total Collateralized Mortgage Obligations 9,549
-------
CORPORATE BONDS (27.0%):
Automotive (8.0%):
2,270 Ford Capital, 9.38%, 1/1/98..... 2,417
2,290 General Motors Acceptance Corp.,
8.00%, 10/1/99................ 2,387
-------
4,804
-------
Banking (2.9%):
1,785 Bank of America, 6.00%,
7/15/97....................... 1,772
-------
Computer Hardware (1.4%):
800 IBM Corp., 8.38%, 11/1/19....... 870
-------
</TABLE>
Continued
F-26
<PAGE> 270
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] BOND FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------- ------
<S> <C>
CORPORATE BONDS, CONTINUED:
Financial Services (1.1%):
650 Golden West Financial, 6.70%,
7/1/02........................ $ 638
-------
Foreign Governments (2.8%):
825 Hydro-Quebec, 8.05%, 7/7/24..... 883
785 Norske Hydro, 7.75%, 6/15/23.... 792
-------
1,675
-------
Industrial Goods & Services (1.3%):
860 Caterpillar Tractor Co., 6.00%,
5/1/07........................ 786
-------
Retail Stores (6.0%):
980 J.C. Penney, Inc., 6.00%,
5/1/06........................ 902
900 Sears Roebuck Co., 9.25%,
8/1/97........................ 948
1,850 Wal Mart Stores, Inc., 6.38%,
3/1/03........................ 1,799
-------
3,649
-------
Telecommunications (3.5%):
1,500 Bell Atlantic-Maryland, 8.00%,
10/15/29...................... 1,588
500 New England Telephone &
Telegraph, 7.88%, 11/15/29.... 527
-------
2,115
-------
Total Corporate Bonds 16,309
-------
U.S. GOVERNMENT AGENCIES (14.0%):
Federal Home Loan Bank:
300 8.38%, 10/25/99................. 322
Federal National Mortgage Assoc.:
1,000 9.05%, 4/10/00.................. 1,105
1,752 6.50%, 3/1/24................... 1,673
Government National Mortgage Assoc.:
1,981 6.50%, 6/15/23.................. 1,885
639 6.50%, 12/15/23................. 608
1,416 7.50%, 1/15/24.................. 1,416
525 7.50%, 2/15/24.................. 525
942 7.00%, 4/15/24.................. 920
-------
Total U.S. Government Agencies 8,454
-------
U.S. TREASURY BONDS (13.6%):
1,500 10.38%, 11/15/12................ 1,947
500 7.25%, 5/15/16.................. 518
2,360 8.75%, 8/15/20.................. 2,859
2,800 7.13%, 2/15/23.................. 2,868
-------
Total U.S. Treasury Bonds 8,192
-------
</TABLE>
Continued
F-27
<PAGE> 271
- --------------------------------------------------------------------------------
BOND FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- -------------------------------- -------
<S> <C>
U.S. TREASURY NOTES (8.9%):
275 6.25%, 1/31/97.................. $ 277
1,868 8.13%, 2/15/98.................. 1,960
430 9.00%, 5/15/98.................. 462
2,420 8.50%, 11/15/00................. 2,665
-------
Total U.S. Treasury Notes 5,364
-------
Total Investments, at value 59,183
-------
REPURCHASE AGREEMENTS (1.0%):
597 First Boston, 5.83%, 8/1/95
(Collateralized by 462 U.S.
Treasury Bonds, 11.63%,
11/15/02, market
value--$612).................. 597
-------
Total Repurchase Agreements 597
-------
Total (Cost--$59,870)(a) $59,780
=======
</TABLE>
- ------------
Percentages indicated are based on net assets of $60,316.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation........................................... $ 1,211
Unrealized depreciation........................................... (1,301)
-------
Net unrealized depreciation....................................... $ (90)
=======
</TABLE>
See notes to financial statements.
F-28
<PAGE> 272
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- -------- ---------------------------- ------
<S> <C>
U.S. GOVERNMENT AGENCIES (93.1%):
Federal Home Loan Bank:
8.25%, 9/25/96.............. $ 246
240
6.33%, 5/27/97.............. 753
750
9.30%, 1/25/99.............. 219
200
5.43%, 2/25/99.............. 49
50
6.31%, 4/6/99............... 659
660
5.88%, 3/22/00.............. 244
250
Federal National Mortgage Assoc.:
8.45%, 10/21/96............. 308
300
4.88%, 10/15/98............. 244
255
9.55%, 3/10/99.............. 165
150
8.55%, 8/30/99.............. 215
200
9.05%, 4/10/00.............. 354
320
Student Loan Marketing Assoc.:
5.50%, 3/2/98............... 98
100
Tennessee Valley Authority:
8.25%, 11/15/96............. 154
150
------
Total U.S. Government Agencies 3,708
------
U.S. TREASURY NOTES (14.6%):
7.50%, 1/31/97.............. $ 72
70
7.50%, 10/31/99............. 113
108
------
Total U.S. Treasury Notes 185
------
Total Investments, at value 3,893
------
REPURCHASE AGREEMENTS (0.7%):
First Boston, 5.83%, 8/1/95
(Collateralized by 24 U.S.
Treasury Bonds, 11.63%,
11/15/02, market
value--$32)............... 29
29
------
Total Repurchase Agreements 29
------
Total (Cost--$3,894)(a) $3,922
======
</TABLE>
- ------------
Percentages indicated are based on net assets of $3,984.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation............................................. $ 70
Unrealized depreciation............................................. (42)
----
Net unrealized appreciation......................................... $ 28
====
</TABLE>
See notes to financial statements.
F-29
<PAGE> 273
- --------------------------------------------------------------------------------
INCOME EQUITY FUND [HIGHMARK FUND]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1995
Amounts in Thousands, Except for Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- --------
<S> <C>
COMMON STOCKS (96.4%):
Aerospace (2.6%):
107,700 B.F. Goodrich................ $ 5,843
--------
Banks (9.8%):
94,000 Banc One Corp. .............. 2,985
52,300 BankAmerica Corp. ........... 2,824
83,700 Fleet Financial Group,
Inc. ...................... 2,982
86,600 J. P. Morgan & Co. .......... 6,333
75,900 National City Corp. ......... 2,324
87,250 U.S. Bancorp of Oregon....... 2,280
60,200 Wachovia Corp. .............. 2,295
--------
22,023
--------
Beverages (0.6%):
23,300 Anheuser-Busch Co. .......... 1,296
--------
Business Equipment & Services (2.2%):
87,000 Dun & Bradstreet Corp. ...... 4,894
--------
Chemicals--Petroleum & Inorganic (3.1%):
28,200 Dow Chemical Co. ............ 2,090
21,900 E. I. Dupont De Nemours
Co. ....................... 1,467
36,800 Monsanto Corp. .............. 3,427
--------
6,984
--------
Chemicals--Specialty (1.5%):
106,100 Witco Corp. ................. 3,448
--------
Commercial Goods & Services (1.0%):
80,100 National Services Industries,
Inc. ...................... 2,363
--------
Consumer Goods & Services (1.0%):
33,500 Clorox Co. .................. 2,198
--------
Electrical Equipment (1.7%):
29,200 General Electric Co. ........ 1,723
<S> <C>
COMMON STOCKS, CONTINUED:
Electrical Equipment, continued:
32,900 Thomas & Betts Corp. ........ 2,225
--------
3,948
--------
Financial Services (6.7%):
142,600 American General Corp. ...... 5,187
35,700 Beneficial Corp. ............ 1,691
24,300 Federal National Mortgage
Assoc. .................... 2,275
150,900 Great Western Financial
Corp. ..................... 3,226
117,956 H.F. Ahmanson & Co. ......... 2,639
--------
15,018
--------
Food & Related (1.5%):
22,000 General Mills, Inc. ......... 1,150
49,100 H. J. Heinz Co. ............. 2,130
--------
3,280
--------
Forest & Paper Products (1.5%):
19,700 Kimberly Clark Corp. ........ 1,248
44,000 Weyerhaeuser Co. ............ 2,057
--------
3,305
--------
Health Care (7.8%):
39,500 American Home Products
Corp. ..................... 3,121
95,400 Bristol Myers Squibb Co. .... 6,606
21,900 Eli Lilly & Co. ............. 1,714
70,200 Merck & Co., Inc. ........... 3,624
52,500 Schering Plough Corp. ....... 2,441
--------
17,506
--------
Insurance--Life (0.7%):
27,750 Jefferson Pilot Corp. ....... 1,551
--------
</TABLE>
Continued
F-30
<PAGE> 274
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] INCOME EQUITY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands, Except for Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
-------- ----------- --------
<S> <C>
COMMON STOCKS, CONTINUED:
Insurance--Multiline (1.4%):
39,800 Marsh & Mclennan Co.,
Inc. ...................... $ 3,144
--------
Insurance--Property & Casualty (3.6%):
50,600 Lincoln National Corp. ...... 2,081
35,800 SAFECO Corp. ................ 2,094
80,400 Saint Paul Cos., Inc. ....... 3,920
--------
8,095
--------
Machinery & Equipment (0.5%):
27,500 Cooper Industries, Inc. ..... 1,028
--------
Manufacturing (1.8%):
70,100 Minnesota Mining &
Manufacturing.............. 3,969
--------
Medical Equipment & Supplies (0.6%):
35,800 Baxter International,
Inc. ...................... 1,334
--------
Petroleum--Domestic (2.3%):
35,200 Atlantic Richfield Co. ...... 4,057
47,400 Dresser Industries, Inc. .... 1,090
--------
5,147
--------
Petroleum--Internationals (8.3%):
96,300 Amoco Corp. ................. 6,476
86,000 Chevron Corp. ............... 4,246
48,700 Exxon Corp. ................. 3,531
67,200 Texaco, Inc. ................ 4,469
--------
18,722
--------
Publishing (0.7%):
19,400 McGraw Hill, Inc. ........... 1,491
--------
Railroad (0.5%):
18,800 Union Pacific Corp. ......... 1,224
--------
Retail--General Merchandise (4.2%):
99,777 K-Mart Corp. ................ 1,571
54,000 May Department Stores Co. ... 2,342
116,100 J.C. Penney, Inc. ........... 5,616
--------
9,529
--------
<S> <C>
COMMON STOCKS, CONTINUED:
Retail--Specialty Stores (0.9%):
29,700 Brown Group, Inc. ........... 739
39,200 Melville Corp. .............. 1,411
--------
2,150
--------
Telecommunications (11.6%):
45,600 Ameritech Corp. ............. 2,206
85,700 Bell Atlantic Corp. ......... 4,906
50,900 Bellsouth Corp. ............. 3,448
195,100 GTE Corp. ................... 6,926
92,400 Nynex Corp. ................. 3,812
115,970 U.S. West, Inc. ............. 4,972
--------
26,270
--------
Tobacco (6.5%):
111,400 American Brands, Inc. ....... 4,442
101,900 Philip Morris Cos., Inc. .... 7,299
108,100 UST, Inc. ................... 2,946
--------
14,687
--------
Utilities--Electric (9.6%):
113,500 Baltimore Gas & Electric
Co. ....................... 2,823
60,500 Dominion Resources........... 2,155
66,800 Florida Progress Corp. ...... 2,054
139,300 PacifiCorp................... 2,560
125,772 Public Service Enterprise
Group, Inc. ............... 3,490
89,100 Teco Energy, Inc. ........... 1,916
</TABLE>
Continued
F-31
<PAGE> 275
- --------------------------------------------------------------------------------
INCOME EQUITY FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands, Except for Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------- --------
<S> <C>
COMMON STOCKS, CONTINUED:
Utilities--Electric, continued:
125,100 Texas Utilities Co. ......... $ 4,238
89,800 Wisconsin Energy Corp. ...... 2,514
--------
21,750
--------
Utilities--Gas & Pipeline (2.2%):
106,100 Consolidated Natural Gas
Co. ....................... 3,979
40,300 Nicor, Inc. ................. 1,023
--------
5,002
--------
Total Common Stocks 217,199
--------
Total Investments, at value 217,199
--------
REPURCHASE AGREEMENTS (3.5%):
7,942,113 First Boston, 5.83%, 8/1/95
(Collateralized by
5,739,000 U.S. Treasury
Bonds, 11.75%, 2/15/10,
market value-- $8,154)..... 7,942
--------
Total Repurchase Agreements 7,942
--------
Total (Cost--$204,703)(a) $225,141
========
</TABLE>
- ------------
Percentages indicated are based on total net assets of $225,206.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of
approximately $160. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation........................................... $23,388
Unrealized depreciation........................................... (3,110)
-------
Net unrealized appreciation....................................... $20,278
=======
</TABLE>
See notes to financial statements.
F-32
<PAGE> 276
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] BALANCED FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1995
Amounts in Thousands, Except for Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------ -------
<S> <C>
ASSET BACKED SECURITIES (4.5%):
205,000 Carco Auto Loan,
7.88%, 3/15/98.............. $ 209
190,000 Carco 94-2, 7.88%, 8/15/97.... 196
200,000 Contimortgage Home Equity Loan
Trust, 8.09%, 9/15/09....... 204
83,333 MBNA Credit Card Trust, 8.25%,
6/30/98..................... 84
400,000 Standard Credit Card Master
Trust, 4.65%., 3/7/99....... 392
281,818 UFSB Grantor Trust, 5.08%,
5/15/00..................... 277
-------
Total Asset Backed Securities 1,362
-------
COLLATERALIZED MORTGAGE OBLIGATIONS (3.4%):
Country Wide Mortgage:
100,000 6.75%, 3/25/08................ 98
Federal Home Loan Mortgage Corp.:
500,000 6.25%, 1/15/24................ 457
Federal National Mortgage Assoc.:
76,486 7.00%, 7/25/00................ 76
GE Capital Mortgage Service, Inc.:
250,000 6.50%., 1/25/24............... 237
Residential Funding Mortgage:
175,000 6.75%, 11/25/07............... 165
-------
Total Collateralized Mortgage Obligations 1,033
-------
COMMON STOCKS (54.5%):
Air Transportation (0.5%):
1,200 Federal Express Corp. (b)..... 81
2,200 Southwest Airlines Co. ....... 63
-------
144
-------
Banks (2.9%):
1,900 Banc One Corp. ............... 60
3,300 BankAmerica Corp. ............ 178
5,400 Fleet Financial Group,
Inc. ....................... 192
2,200 J. P. Morgan & Co. ........... 161
2,300 National City Corp. .......... 70
4,800 Norwest Corp. ................ 136
2,000 Wachovia Corp. ............... 76
-------
873
-------
Beverages (2.0%):
4,200 Anheuser-Busch Co. ........... 234
2,800 Coca Cola Co. ................ 184
4,100 PepsiCo, Inc. ................ 192
-------
610
-------
Broadcasting (0.3%):
1,090 CBS, Inc. .................... 85
-------
Building Materials (0.5%):
5,600 Masco Corp. .................. 146
-------
Business Equipment & Services (0.4%):
2,800 Pitney Bowes, Inc. ........... 112
-------
Chemicals--Petroleum & Inorganics (1.8%):
900 Dow Chemical Co. ............. 67
2,300 E. I. Dupont De Nemours
Co. ........................ 154
3,600 Monsanto Corp. ............... 335
-------
556
-------
Chemicals--Specialty (1.0%):
3,000 Betz Labs, Inc. .............. 135
3,200 B.F. Goodrich................. 174
-------
309
-------
</TABLE>
Continued
F-33
<PAGE> 277
- --------------------------------------------------------------------------------
BALANCED FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands, Except for Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------ -------
<S> <C>
COMMON STOCKS, CONTINUED:
Commercial Goods & Services (0.5%):
5,300 National Services Industries,
Inc. ....................... $ 156
-------
Computers--Main & Mini (0.7%):
2,000 International Business
Machines.................... 218
-------
Computer Software (0.8%):
1,300 Microsoft Corp. (b)........... 118
2,900 Shared Medical Systems
Corp. ...................... 121
-------
239
-------
Consumer Goods & Services (0.3%):
1,300 Clorox Co. ................... 85
-------
Construction Materials (0.3%):
4,200 Fleetwood Enterprises......... 87
-------
Cosmetics & Toiletries (0.3%):
1,600 International Flavors &
Fragrances.................. 84
-------
Defense (0.7%):
2,700 Raytheon Co. ................. 223
-------
Electrical Equipment (4.2%):
7,600 AMP, Inc. .................... 328
2,000 Emerson Electric.............. 141
7,000 General Electric Co. ......... 413
4,400 Intel Corp. .................. 286
1,650 Thomas & Betts Corp. ......... 112
-------
1,280
-------
Electronic Instruments (0.9%):
3,800 Motorola, Inc. ............... 291
-------
Environmental Services (0.6%):
4,900 Browning Ferris Industries,
Inc. ....................... 189
-------
Financial Services (1.4%):
6,600 American General Corp. ....... 240
1,900 Federal National Mortgage
Assoc. ..................... 178
-------
418
-------
Food & Related (1.5%):
1,600 Campbell Soup Co. ............ 75
1,200 General Mills, Inc. .......... 63
3,800 H. J. Heinz Co. .............. 165
1,200 Hershey Foods................. 69
1,400 Ralston Purina Co. ........... 75
-------
447
-------
Forest & Paper Products (1.7%):
1,800 Georgia Pacific Corp. ........ 155
900 International Paper Co. ...... 76
1,500 Kimberly Clark Corp. ......... 95
4,000 Weyerhaeuser Co. ............. 187
-------
513
-------
Health Care--General (1.8%):
2,800 Bristol Myers Squibb Co. ..... 194
2,700 Johnson & Johnson............. 194
3,800 Schering Plough Corp. ........ 177
-------
565
-------
Hospital Supply & Management (0.6%):
4,100 Columbia HCA Healthcare
Corp. ...................... 201
-------
Household Products (0.7%):
4,400 Rubbermaid, Inc. ............. 131
5,000 Sunbeam Corp. ................ 82
-------
213
-------
</TABLE>
Continued
F-34
<PAGE> 278
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] BALANCED FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands, Except for Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------ -------
<S> <C>
COMMON STOCKS, CONTINUED:
Insurance--Life (0.2%):
1,100 Jefferson Pilot Corp. ........ $ 61
-------
Insurance--Multiline (0.8%):
1,761 Allstate Corp. ............... 55
2,200 Marsh & Mclennan Cos.,
Inc. ....................... 174
-------
229
-------
Insurance--Property & Casualty (1.2%):
1,500 General Re.................... 199
1,700 Hartford Steam Boiler......... 76
1,600 Saint Paul Cos., Inc. ........ 78
-------
353
-------
Machinery & Equipment (0.8%):
2,700 Ingersol Rand Co. ............ 113
3,300 Snap-On, Inc. ................ 138
-------
251
-------
Manufacturing (0.3%):
2,500 Service Corp. International... 85
-------
Medical Equipment & Supplies (0.6%):
5,000 Baxter International, Inc. ... 186
-------
Motor Vehicle Parts (0.3%):
2,200 Genuine Parts Co. ............ 83
-------
Motor Vehicles (0.4%):
4,400 Ford Motor Co. ............... 127
-------
Multiple Industry (1.7%):
8,800 Corning Glass................. 282
4,400 Minnesota Mining &
Manufacturing............... 249
-------
531
-------
Petroleum--Domestic (1.0%):
1,400 Atlantic Richfield Co. ....... 161
4,300 Phillips Petroleum Co. ....... 152
-------
313
-------
Petroleum--Internationals (3.2%):
3,900 Amoco Corp. .................. 262
4,400 Chevron Corp. ................ 217
2,200 Exxon Corp. .................. 160
2,000 Mobil Corp. .................. 196
1,900 Texaco, Inc. ................. 126
-------
961
-------
Petroleum--Services (0.9%):
9,300 Baker Hughes, Inc. ........... 206
2,000 Halliburton Co. .............. 81
-------
287
-------
Pharmaceuticals (2.1%):
2,200 Abbott Laboratories........... 88
3,800 Merck & Company, Inc. ........ 196
4,000 Pfizer, Inc. ................. 202
1,700 Warner Lambert Co. ........... 143
-------
629
-------
Photographic Equipment (0.3%):
1,600 Eastman Kodak Co. ............ 92
-------
</TABLE>
Continued
F-35
<PAGE> 279
- --------------------------------------------------------------------------------
BALANCED FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands, Except for Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------ -------
<S> <C>
COMMON STOCKS, CONTINUED:
Publishing (0.9%):
1,900 Dun & Bradstreet Corp. ....... $ 107
3,100 Gannett Co., Inc. ............ 170
-------
277
-------
Railroad (1.2%):
3,100 Burlington Northern, Inc. .... 215
2,100 Union Pacific Corp. .......... 137
-------
352
-------
Restaurants (0.2%):
3,000 Brinker International, Inc.
(b)......................... 53
1,200 Darden Restaurants, Inc.
(b)......................... 13
-------
66
-------
Retail--General Merchandise (1.8%):
3,200 J.C. Penney, Inc. ............ 155
9,100 K-Mart Corp. ................. 143
1,900 Sears Roebuck & Co. .......... 62
6,900 Wal Mart Stores, Inc. ........ 184
-------
544
-------
Retail--Specialty Stores (0.5%):
2,000 Brown Group, Inc. ............ 50
2,700 Melville Corp. ............... 97
-------
147
-------
Telecommunications (5.0%):
6,600 Airtouch (b).................. 208
3,800 Ameritech Corp. .............. 184
4,500 A T & T Corp. ................ 237
2,300 Bellsouth Corp. .............. 156
4,900 DSC Communications Corp. (b).. 263
5,700 GTE Corp. .................... 202
3,500 MCI Telecommunications
Corp. ...................... 84
4,200 U.S. West, Inc. .............. 180
-------
1,514
-------
Tobacco (1.1%):
2,500 Philip Morris Cos., Inc. ..... 179
6,200 UST, Inc. .................... 169
-------
348
-------
Tools (0.4%):
3,100 Stanley Works................. 123
-------
Utilities--Electric (2.6%):
4,300 FPL Group, Inc. .............. 164
6,800 Pacific Gas & Electric Co. ... 201
9,000 PacifiCorp.................... 165
5,000 Public Service Enterprise
Group, Inc. ................ 139
3,900 Texas Utilities Co. .......... 132
-------
801
-------
Utilities--Gas (0.6%):
2,600 Consolidated Natural Gas
Co. ........................ 98
1,600 Tenneco, Inc. ................ 79
-------
177
-------
Total Common Stocks 16,581
-------
</TABLE>
Continued
F-36
<PAGE> 280
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] BALANCED FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands, Except for Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------ -------
<S> <C>
CORPORATE BONDS (8.6%):
Automotive (2.1%):
300,000 Ford Capital, 9.38%, 1/1/98... $ 319
305,000 General Motors Acceptance
Corp., 8.00%, 10/1/99....... 318
-------
637
-------
Banking (1.0%):
215,000 Bank of America, 6.00%,
7/15/97..................... 213
100,000 Citicorp, 6.75%, 8/15/05...... 97
-------
310
-------
Beverages (0.3%):
95,000 Bass America, Inc., 6.75%,
8/1/99...................... 95
-------
Computer Hardware (0.7%):
200,000 IBM Corp., 8.38%, 11/1/19..... 218
-------
Financial Services (0.3%):
100,000 Golden West Financial, 6.70%,
7/1/02...................... 98
-------
Foreign Governments (1.1%):
100,000 Hydro-Quebec, 8.05%, 7/7/24... 107
215,000 Norske Hydro, 7.75%,
6/15/23..................... 217
-------
324
-------
Industrial Goods & Services (0.6%):
205,000 Caterpillar Tractor Co.,
6.00%, 5/1/07............... 187
-------
Retail Stores (1.5%):
100,000 J.C. Penney, Inc., 6.00%,
5/1/06...................... 92
150,000 Sears Roebuck Co., 9.25%,
8/1/97...................... 158
200,000 Wal Mart Stores, Inc., 6.38%,
3/1/03...................... 194
-------
444
-------
Telecommunications (1.0%):
175,000 Bell Atlantic Maryland, 8.00%,
10/15/29.................... 185
125,000 New England Telephone &
Telegraph 7.88%, 11/15/29... 132
-------
317
-------
Total Corporate Bonds 2,630
-------
U.S. GOVERNMENT AGENCIES (3.0%):
Federal National Mortgage Assoc.:
340,660 6.50%, 3/1/24................. 325
Government National Mortgage Assoc.:
100,840 6.50%, 2/15/24, Pool
#388599..................... 96
488,834 7.50%, 5/15/24, Pool
#386494..................... 489
-------
Total U.S. Government Agencies 910
-------
U.S. TREASURY BONDS (4.6%):
205,000 8.75%, 8/15/20................ 248
1,125,000 7.13%, 2/15/23................ 1,152
-------
Total U.S. Treasury Bonds 1,400
-------
</TABLE>
Continued
F-37
<PAGE> 281
- --------------------------------------------------------------------------------
BALANCED FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands, Except for Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------ -------
<S> <C>
U.S. TREASURY NOTES (8.3%):
300,000 7.88%, 7/15/96................ $ 306
200,000 8.13%, 2/15/98................ 210
1,000,000 5.50%, 4/15/00................ 974
500,000 8.50%, 11/15/00............... 551
500,000 5.88%, 2/15/04................ 481
-------
Total U.S. Treasury Notes 2,522
-------
Total Investments, at value 26,438
-------
REPURCHASE AGREEMENTS (12.8%):
3,880,604 First Boston, 5.83%, 8/1/95
(Collateralized by 2,805,000
U.S. Treasury Bonds, 11.75%,
2/15/10, market
value--$3,985).............. 3,881
-------
Total Repurchase Agreements 3,881
-------
Total (Cost--$27,921)(a) $30,319
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $30,428.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of
approximately $20. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation............................................ $2,821
Unrealized depreciation............................................ (443)
------
Net unrealized appreciation........................................ $2,378
======
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
F-38
<PAGE> 282
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] GROWTH FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1995
Amounts in Thousands, Except for Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- --------
<S> <C>
COMMON STOCKS (96.2%):
Aerospace (2.6%):
12,755 B.F. Goodrich................ $ 692
-------
Banks (2.6%):
1,900 Banc One Corp. .............. 60
7,210 BankAmerica Corp. ........... 389
6,795 Fleet Financial Group,
Inc. ...................... 242
-------
691
-------
Beverages (2.4%):
2,310 Anheuser-Busch Co. .......... 128
3,980 Coca Cola Co. ............... 262
5,290 PepsiCo, Inc. ............... 248
-------
638
-------
Broadcasting (2.5%):
3,300 Capital Cities/ABC, Inc. .... 385
13,435 Comcast Corp. ............... 272
-------
657
-------
Business Equipment & Services (1.4%):
13,785 Officemax, Inc. (b).......... 310
1,570 Pitney Bowes, Inc. .......... 63
-------
373
-------
Business Services (1.6%):
4,388 CUC International, Inc.
(b)........................ 132
3,120 First Financial Management
Corp. ..................... 273
-------
405
-------
Computers--Main & Mini (5.2%):
6,490 Hewlett Packard Co. ......... 505
4,915 International Business
Machines................... 535
7,480 Silicon Graphics, Inc. (b)... 314
-------
1,354
-------
Computer Software (3.2%):
1,155 Automatic Data Processing,
Inc. ...................... 74
5,345 Computer Associates
International, Inc. ....... 392
2,085 Computer Software Corp.
(b)........................ 123
1,330 Microsoft Corp. (b).......... 120
3,065 Oracle Systems Corp. (b)..... 128
-------
837
-------
Consumer Goods & Services (1.0%):
5,865 General Motors Corp., Class
E.......................... 258
-------
Cosmetics & Toiletries (0.7%):
4,265 Gillette Co. ................ 187
-------
Durable Goods (1.1%):
7,950 Coleman, Inc. (b)............ 294
-------
Electrical Equipment (7.6%):
5,835 AMP, Inc. ................... 252
2,510 Duracell International,
Inc. ...................... 115
8,750 General Electric Co. ........ 516
6,375 General Instrument Corp. .... 235
8,105 Intel Corp. ................. 527
13,470 National Semiconductor
Corp. (b).................. 364
-------
2,009
-------
Electronics (2.8%):
9,455 Motorola, Inc. .............. 724
-------
</TABLE>
Continued
F-39
<PAGE> 283
- --------------------------------------------------------------------------------
GROWTH FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands, Except for Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
----------- ----------- -------
<S> <C>
COMMON STOCKS, CONTINUED:
Electronic Instruments (2.9%):
4,290 Loral Corp. ................. $ 240
3,375 Texas Instruments, Inc. ..... 527
-------
767
-------
Entertainment (1.3%):
8,495 Circus Circus Enterprises,
Inc. (b)................... 253
3,125 Harrah's
Entertainment, Inc. (b).... 84
-------
337
-------
Environmental Services (0.7%):
4,800 Browning Ferris Industries,
Inc. ...................... 185
-------
Financial Services (9.3%):
14,230 American Express Co. ........ 548
1,365 Beneficial Corp. ............ 65
5,700 Federal Home Loan Mortgage
Corp. ..................... 373
8,340 Federal National Mortgage
Association................ 781
2,500 Green Tree Financial
Corp. ..................... 135
1,265 Household International,
Inc. ...................... 66
6,520 Mercury Finance Co. ......... 129
1,780 Mutual Risk Management
Limited.................... 63
4,915 Reuters Holdings............. 248
-------
2,408
-------
Food & Related (2.1%):
1,150 Campbell Soup Co. ........... 54
1,240 General Mills, Inc. ......... 65
2,625 H. J. Heinz Co. ............. 114
1,995 Hershey Foods................ 115
3,592 Ralston Purina Co. .......... 192
-------
540
-------
Forest & Paper Products (2.2%):
2,280 Georgia Pacific Corp. ....... 197
8,225 Weyerhaeuser Co. ............ 385
-------
582
-------
Healthcare--General (6.9%):
5,965 Abbott Laboratories.......... 239
3,168 Amgen, Inc. (b).............. 270
19,985 Horizon/CMS Healthcare Corp.
(b)........................ 452
3,640 Johnson & Johnson............ 261
3,655 Merck & Co., Inc. ........... 189
2,070 Pfizer, Inc. ................ 105
6,250 Schering Plough Corp. ....... 291
-------
1,807
-------
Hospital Supply & Management (1.3%):
5,886 Columbia HCA Healthcare
Corp. ..................... 288
3,205 Humana, Inc. (b)............. 62
-------
350
-------
Hotels & Gaming (0.1%):
1,562 Promus Hotel Corp. (b)....... 38
-------
Household--General Products (0.9%):
1,555 Procter & Gamble Co. ........ 107
1,800 Rubbermaid, Inc. ............ 54
</TABLE>
Continued
F-40
<PAGE> 284
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] GROWTH FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands, Except for Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------- -------
<S> <C>
COMMON STOCKS, CONTINUED:
Household--General Products, continued:
4,210 Sunbeam Corp. ............... $ 69
-------
230
-------
Insurance--Multiline (1.8%):
982 Allstate Corp. .............. 31
2,500 Marsh & Mclennan Cos.,
Inc. ...................... 198
10,185 Security-Conn Corp. A........ 253
-------
482
-------
Insurance--Property & Casualty (1.9%):
3,345 American International Group,
Inc. ...................... 251
3,860 MBIA, Inc. .................. 262
-------
513
-------
Leisure Time Industry (1.3%):
5,745 The Walt Disney Co. ......... 337
-------
Machinery & Equipment (0.9%):
6,370 Cooper Industries, Inc. ..... 238
-------
Manufacturing (1.4%):
1,805 Minnesota Mining &
Manufacturing.............. 102
8,080 Service Corp.
International.............. 276
-------
378
-------
Medical Equipment & Supplies (0.6%):
1,929 Chiron Corp. (b)............. 152
-------
Motor Vehicle Parts (0.5%):
3,600 Echlin, Inc. ................ 140
-------
Multiple Industry (0.4%):
3,440 Corning Glass................ 110
-------
Natural Gas (0.4%):
4,540 El Paso Natural Gas Co. ..... 115
-------
Petroleum--Domestic (1.4%):
5,110 Dresser Industries, Inc. .... 118
7,445 Phillips Petroleum Co. ...... 263
-------
381
-------
Petroleum--Internationals (1.2%):
4,435 Exxon Corp. ................. 322
-------
Petroleum--Services (3.4%):
11,235 Baker Hughes, Inc. .......... 249
7,780 Halliburton Co. ............. 316
4,785 Schlumberger Limited......... 321
-------
886
-------
Pharmaceuticals (0.5%):
1,545 Warner Lambert Co. .......... 130
-------
Publishing (2.0%):
9,685 Gannett Company, Inc. ....... 530
-------
Railroad (0.5%):
1,850 Burlington Northern, Inc. ... 128
-------
Restaurants (1.9%):
3,475 Brinker International, Inc.
(b)........................ 62
11,410 McDonald's Corp. ............ 441
-------
503
-------
</TABLE>
Continued
F-41
<PAGE> 285
- --------------------------------------------------------------------------------
GROWTH FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands, Except for Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------ -------
<S> <C>
COMMON STOCKS, CONTINUED:
Retail--General Merchandise (2.5%):
1,890 Dillard Department Stores.... $ 59
1,300 J.C. Penney, Inc. ........... 63
7,485 K-Mart Corp. ................ 118
11,050 Price/Costco, Inc. (b)....... 198
1,060 Sears Roebuck & Co. ......... 35
6,900 Wal Mart Stores, Inc. ....... 184
-------
657
-------
Retail--Specialty Stores (1.7%):
1,825 Fred Meyer, Inc. (b)......... 45
16,570 Tech Data Corp. (b).......... 228
6,645 Toys R Us (b)................ 186
-------
459
-------
Security & Commissions Brokers (0.2%):
1,605 Salomon, Inc. ............... 59
-------
Steel (0.4%):
5,230 Worthington Industries....... 109
-------
Telecommunications (3.3%):
6,475 Airtouch (b)................. 204
6,900 A T & T Corp. ............... 364
3,175 GTE Corp. ................... 113
3,805 SBC Communications, Inc. .... 183
-------
864
-------
Telecommunications--Equipment (1.1%):
5,220 DSC Communications Corp.
(b)........................ 281
-------
Tires & Rubber Products (0.3%):
1,520 Goodyear Tire & Rubber
Co. ....................... 66
-------
Tobacco (3.4%):
10,065 Philip Morris Cos., Inc. .... 721
6,805 UST.......................... 185
-------
906
-------
</TABLE>
Continued
F-42
<PAGE> 286
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] GROWTH FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands, Except for Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- --------
<S> <C>
COMMON STOCKS, CONTINUED:
Utilities--Gas & Pipeline (0.8%):
4,050 Tenneco, Inc. ............... $ 200
-------
Total Common Stocks 25,309
-------
Total Investments, at value 25,309
-------
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- --------
<S> <C>
REPURCHASE AGREEMENTS (4.4%):
1,158,382 First Boston, 5.83%, 8/1/95
(Collateralized by 927,000
U.S. Treasury Bonds,
10.75%, 5/15/03, market
value--$1,188)............. $ 1,158
-------
Total Repurchase Agreements 1,158
-------
Total (Cost--$22,705)(a) $ 26,467
=======
</TABLE>
- ------------
Percentages indicated are based on net assets of $26,314.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of
approximately $180. Cost for federal income tax purposes differs from value
by net unrealized appreciation of securities as follows (amounts in
thousands):
<TABLE>
<S> <C>
Unrealized appreciation............................................ $3,848
Unrealized depreciation............................................ (266)
------
Net unrealized appreciation........................................ $3,582
======
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
F-43
<PAGE> 287
- --------------------------------------------------------------------------------
INCOME & GROWTH FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1995
Amounts in Thousands, Except Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------- ------
<S> <C>
COMMON STOCKS (94.9%):
Aerospace (1.0%):
1,300 B.F. Goodrich.................. $ 70
------
Air Transportation (0.8%):
500 Federal Express Corp. (b)...... 34
800 Southwest Airlines Co. ........ 23
------
57
------
Banks (6.1%):
800 Banc One Corp. ................ 25
1,900 BankAmerica Corp. ............. 102
2,600 Fleet Financial Group, Inc. ... 92
900 J. P. Morgan & Co. ............ 66
1,200 National City Corp. ........... 37
2,300 Norwest Corp. ................. 65
800 Wachovia Corp. ................ 31
------
418
------
Beverages (3.4%):
1,600 Anheuser-Busch Co. ............ 89
1,100 Coca Cola Co. ................. 72
1,600 PepsiCo, Inc. ................. 75
------
236
------
Broadcasting (0.4%):
365 CBS, Inc. ..................... 28
------
Building Materials (0.9%):
2,300 Masco Corp. ................... 60
Business Equipment & Services (1.0%):
600 Dun & Bradstreet Corp. ........ 34
800 Pitney Bowes, Inc. ............ 32
------
66
------
Chemicals--Petroleum & Inorganic (3.0%):
500 Dow Chemical Co. .............. 37
1,000 E. I. Dupont De Nemours Co. ... 67
1,100 Monsanto Corp. ................ 102
------
206
------
Chemicals--Specialty (0.7%):
1,100 Betz Labs, Inc. ............... 50
------
Commercial Goods & Services (0.9%):
2,200 National Services Industries,
Inc. ........................ 65
------
Computers--Main & Mini (1.3%):
800 International Business
Machines..................... 87
------
Computer Software (1.4%):
600 Microsoft Corp. (b)............ 54
1,000 Shared Medical Systems
Corp. ....................... 42
------
96
------
Construction Materials (0.4%):
1,300 Fleetwood Enterprises.......... 27
------
Consumer Goods & Services (0.5%):
500 Clorox Co. .................... 33
------
Cosmetics & Toiletries (0.5%):
600 International Flavors &
Fragrances................... 31
------
Defense (1.2%):
1,000 Raytheon Co. .................. 83
------
</TABLE>
Continued
F-44
<PAGE> 288
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] INCOME & GROWTH FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands, Except Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------- ------
<S> <C>
COMMON STOCKS, CONTINUED:
Electrical Equipment (7.0%):
2,400 AMP, Inc. ..................... $ 103
1,000 Emerson Electric............... 71
2,700 General Electric Co. .......... 159
1,600 Intel Corp. ................... 104
650 Thomas & Betts Corp. .......... 44
------
481
------
Electronics (1.7%):
1,500 Motorola, Inc. ................ 115
------
Environmental Services (1.1%):
1,900 Browning Ferris Industries,
Inc. ........................ 73
------
Financial Services (2.2%):
2,000 American General Corp. ........ 73
800 Federal National Mortgage
Assoc. ...................... 75
------
148
------
Food & Related (2.9%):
600 Campbell Soup Co. ............. 28
700 General Mills, Inc. ........... 36
600 Hershey Foods.................. 35
1,500 H. J. Heinz Co. ............... 65
700 Ralston Purina Co. ............ 37
------
201
------
Forest & Paper Products (3.0%):
800 Georgia Pacific Corp. ......... 69
400 International Paper Co. ....... 34
500 Kimberly Clark Corp. .......... $ 32
1,500 Weyerhaeuser Co. .............. 70
------
205
------
Health Care--General (3.5%):
1,000 Bristol Myers Squibb Co. ...... 69
1,200 Johnson & Johnson.............. 86
1,800 Schering Plough Corp. ......... 84
------
239
------
Hospital Supply & Management (1.0%):
1,400 Columbia HCA Healthcare
Corp. ....................... 68
------
Household--General Products (1.4%):
2,200 Rubbermaid, Inc. .............. 65
2,000 Sunbeam Corp. ................. 33
------
98
------
Insurance--Life (0.5%):
550 Jefferson Pilot Corp. ......... 31
------
Insurance--Multiline (1.5%):
556 Allstate Corp. ................ 17
1,100 Marsh & Mclennan Cos., Inc. ... 87
------
104
------
Insurance--Property & Casual (1.9%):
500 General Re..................... 66
800 Hartford Steam Boiler.......... 36
600 Saint Paul Companies, Inc. .... 29
------
131
------
</TABLE>
Continued
F-45
<PAGE> 289
- --------------------------------------------------------------------------------
INCOME & GROWTH FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands, Except Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------ ------
<S> <C>
COMMON STOCKS, CONTINUED:
Machinery & Equipment (1.6%):
900 Ingersol Rand Co. ............. $ 38
1,900 Snap-On Inc. .................. 79
------
117
------
Medical Equipment & Supplies (1.2%):
2,300 Baxter International, Inc. .... 86
------
Motor Vehicle Parts (0.4%):
750 Genuine Parts Co. ............. 28
------
Motor Vehicles (0.7%):
1,600 Ford Motor Co. ................ 46
------
Multiple Industry (3.5%):
3,600 Corning Glass.................. 115
1,650 Minnesota Mining &
Manufacturing................ 93
------
1,000 Service Corp. International.... 34
------
242
Petroleum--Domestic (1.8%):
500 Atlantic Richfield Co. ........ 58
1,800 Phillips Petroleum Co. ........ 64
------
122
------
Petroleum--Internationals (5.8%):
1,600 Amoco Corp. ................... 108
2,000 Chevron Corp. ................. 99
900 Exxon Corp. ................... 65
700 Mobil Corp. ................... 68
900 Texaco, Inc. .................. 60
------
400
------
Petroleum--Services (1.5%):
3,100 Baker Hughes, Inc. ............ $ 69
800 Halliburton Co. ............... 33
------
102
------
Pharmaceuticals (3.8%):
800 Abbott Laboratories............ 32
1,400 Merck & Co., Inc. ............. 72
1,800 Pfizer, Inc. .................. 91
800 Warner Lambert Co. ............ 67
------
262
------
Photographic Equipment (0.4%):
500 Eastman Kodak Co. ............. 29
------
Publishing (0.9%):
1,100 Gannett Co., Inc. ............. 60
------
Railroad (1.9%):
900 Burlington Northern, Inc. ..... 62
1,100 Union Pacific Corp. ........... 72
------
134
------
Restaurants (0.5%):
700 Darden Restaurants, Inc. (b)... 8
1,500 Brinker International, Inc.
(b).......................... 27
------
35
------
Retail--General Merchandise (2.9%):
1,200 J.C. Penney, Inc. ............. 58
3,400 K-Mart Corp. .................. 54
600 Sears Roebuck & Co. ........... 20
2,500 Wal Mart Stores, Inc. ......... 67
------
199
------
</TABLE>
Continued
F-46
<PAGE> 290
- --------------------------------------------------------------------------------
[HIGHMARK LOGO] INCOME & GROWTH FUND
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands, Except Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------------------------------------------------------
<S> <C>
COMMON STOCKS, CONTINUED:
Retail--Specialty Stores (0.8%):
1,000 Brown Group, Inc. ............. $ 25
800 Melville Corp. ................ 29
------
54
------
Telecommunications (6.7%):
1,800 A T & T Corp. ................. 95
2,200 Airtouch (b)................... 69
1,400 Ameritech Corp. ............... 67
1,000 Bellsouth Corp. ............... 68
2,000 General Telephone Electric
Corp. ....................... 71
------
1,200 MCI Telecommunications
Corp. ....................... 29
1,500 U.S. West, Inc. ............... 64
------
463
------
Telecommunications--Equipment (1.3%):
1,700 DSC Communications Corp. (b)... 91
------
Tobacco (1.8%):
1,000 Phillip Morris Co., Inc. ...... $ 72
2,000 UST, Inc. ..................... 55
------
127
------
Tools (0.9%):
1,600 Stanley Works.................. 63
------
Utilities--Electric (4.4%):
1,600 FPL Group, Inc. ............... 61
3,100 PacifiCorp..................... 57
2,300 Pacific Gas & Electric Co. .... 68
2,000 Public Service Enterprise
Group, Inc. ................. 56
1,800 Texas Utilities Co. ........... 61
------
303
------
</TABLE>
Continued
F-47
<PAGE> 291
- --------------------------------------------------------------------------------
INCOME & GROWTH FUND [HIGHMARK LOGO]
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands, Except Shares or Principal Amount
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------- ------
<S> <C>
COMMON STOCKS, CONTINUED:
Utilities--Gas & Pipeline (0.9%):
800 Consolidated Natural Gas
Co. ......................... $ 30
700 Tenneco, Inc. ................. 35
------
65
------
Total Common Stocks 6,535
------
Total Investments, at value 6,535
------
REPURCHASE AGREEMENTS (5.1%):
348,006 First Boston, 5.83%, 8/1/95
(Collateralized by 279,000
U.S. Treasury Bonds, 10.75%,
5/15/03, market
value--$357,467)............. $ 348
Total Repurchase Agreements 348
Total (Cost--$5,886)(a) $6,883
</TABLE>
- ------------
Percentages indicated are based on net assets of $6,884.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation........................................... $1,076
Unrealized depreciation........................................... (79)
------
Net unrealized appreciation....................................... $ 997
======
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
F-48
<PAGE> 292
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995
1. ORGANIZATION:
The HighMark Group (the "Group") was organized on March 10, 1987 and is
registered under the Investment Company Act of 1940 (the "1940 Act"), as
amended, as a diversified, open-end investment company established as a
Massachusetts business trust.
The Group is authorized to issue an unlimited number of shares which are
units of beneficial interest without par value. The Group presently offers
shares in the Diversified Obligations Fund, the U.S. Government Obligations
Fund, the 100% U.S. Treasury Obligations Fund, the California Tax-Free Fund,
the Tax-Free Fund, the Bond Fund, the Government Bond Fund, the Income
Equity Fund, the Balanced Fund, the Growth Fund and the Income & Growth Fund
(collectively, "the Funds" and individually, "a Fund"). Sales of shares may
be made to customers of The Bank of California, N.A. ("The Bank of
California") and to its affiliates, to all accounts of its correspondent
banks, to institutional investors, and to the general public. Merus Capital
Management ("Merus"), a division of The Bank of California, serves as
investment adviser to the Group.
On December 1, 1990, the Diversified Obligations Fund, the U.S. Government
Obligations Fund, the 100% U.S. Treasury Obligations Fund, the California
Tax-Free Fund, and the Tax-Free Fund (collectively, "the money market
funds") divided and commenced offering of two classes of shares (Investor
Shares and Fiduciary Shares). On June 20, 1994, the Bond Fund, the
Government Bond Fund, the Income Equity Fund, the Balanced Fund, the Growth
Fund and the Income & Growth Fund (collectively, "the variable net asset
value funds") also commenced offering of Investor and Fiduciary Shares.
Investor and Fiduciary Shares represent interests in the same portfolio
investments of a Fund and are identical in all respects except that Investor
Shares bear the expense, if any, of the distribution fee under the Group's
Distribution and Shareholder Services Plan (the "Distribution Plan"), which
will cause the Investor Shares to have a higher expense ratio and to pay
lower dividends than those related to Fiduciary Shares, and Investor Shares
have certain exclusive voting rights with respect to the Group's
Distribution Plan. In addition, Investor Shares of the variable net asset
value funds are subject to initial sales charges imposed at the time of
purchase, in accordance with the Funds' prospectuses.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Group in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles.
Continued
F-49
<PAGE> 293
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995
SECURITIES VALUATION:
Investments in the money market funds are valued at either amortized
cost, which approximates market value, or at original cost, which when
combined with accrued interest, approximates market value. Under the
amortized cost valuation method, discount or premium is amortized on a
constant basis to the maturity of the security. In addition, the money
market funds may not: a) purchase any instrument with a remaining
maturity greater than thirteen months unless such investment is subject
to a demand feature, or b) maintain a dollar weighted average portfolio
maturity which exceeds 90 days.
Investments in common stocks and preferred stocks, corporate notes,
commercial paper, and U.S. Government securities of the variable net
asset value funds are valued at their market values determined on the
basis of the mean of the latest available bid prices in the principal
market (closing sales prices if the principal market is an exchange) in
which such securities are normally traded. Investments in investment
companies are valued at their net asset values as reported by such
companies. The differences between cost and market values of investments
held by the variable net asset value funds are reflected as either
unrealized appreciation or depreciation. Securities, including restricted
securities, for which market quotations are not readily available, are
valued at fair market value under the supervision of the Fund's Board of
Trustees.
Although the California Tax-Free Fund has a diversified investment
portfolio, all of its investments are in the securities of issuers in
California. Such concentration may subject the Fund to the effects of
economic changes occurring within that state.
SECURITIES TRANSACTIONS AND RELATED INCOME:
Securities transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the
accrual basis and includes, where applicable, the pro rata amortization
of premium or accretion of discount. Dividend income is recorded on the
ex-dividend date. Gains or losses realized on sales of securities are
determined by comparing the identified cost of the security lot sold with
the net sales proceeds.
REPURCHASE AGREEMENTS:
The Funds may acquire repurchase agreements from financial institutions
such as banks and broker-dealers which Merus deems creditworthy under
guidelines approved by the Group's Board of
Continued
F-50
<PAGE> 294
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995
Trustees, subject to the seller's agreement to repurchase such securities
at a mutually agreed-upon date and price. The repurchase price generally
equals the price paid by a Fund plus interest negotiated on the basis of
current short-term rates, which may be more or less than the rate on the
underlying portfolio securities. The seller, under a repurchase
agreement, is required to maintain the value of collateral held pursuant
to the agreement at not less than 102% of the repurchase price (including
accrued interest). Securities subject to repurchase agreements are held
by the Funds' custodian in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by a Fund under
the 1940 Act.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income are declared daily and paid monthly
for the money market funds. Dividends from net investment income are
declared and paid monthly for the variable net asset value funds.
Distributable net realized capital gains, if any, are declared and
distributed at least annually for each of the Funds.
During the year ended July 31, 1994, the Group adopted Statement of
Position 93-2, Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions
by Investment Companies. Accordingly, timing differences relating to
shareholder distributions are reflected in the components of net assets
and permanent book and tax basis differences relating to shareholder
distributions have been reclassified to additional paid-in capital. Net
investment income, net realized gains and net assets were not affected by
this change.
Dividends from net investment income and from net realized capital gains
are determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
primarily due to differing treatments for expiring capital loss
carryforwards and deferrals of certain losses.
FEDERAL INCOME TAXES:
It is the policy of each of the Funds to continue to qualify as a
regulated investment company by complying with the provisions available
to certain investment companies, as defined in applicable sections of the
Internal Revenue Code, and to make distributions of net investment income
and net realized capital gains sufficient to relieve it from all, or
substantially all, federal income taxes.
Continued
F-51
<PAGE> 295
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995
OTHER:
Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses of the Group are prorated
to the Funds on the basis of relative net assets.
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term securities) for the
year ended July 31, 1995 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Bond Fund....................................................... $21,335,382 $26,359,489
Government Bond Fund............................................ $ 3,077,830 $ 4,305,097
Income Equity Fund.............................................. $74,076,561 $82,207,448
Balanced Fund................................................... $ 5,650,402 $ 4,834,549
Growth Fund..................................................... $18,938,438 $12,786,983
Income & Growth Fund............................................ $ 1,638,157 $ 797,200
</TABLE>
4. CAPITAL SHARE TRANSACTIONS
On June 20, 1994, the Group commenced offering of two classes of shares of
each of the variable net asset value funds: Investor Shares and Fiduciary
Shares. The Group designated the existing shares of the funds as Fiduciary
Shares. For the year ended July 31, 1994, Investor Share transactions for
each of the Government Bond Fund, the Balanced Fund, the Growth Fund and the
Income & Growth Fund consisted solely of the purchase of one share.
On May 23, 1994, the Growth Fund acquired all the net assets of the HighMark
Special Growth Fund ("the Special Growth Fund") pursuant to a plan of
reorganization approved by the shareholders of the Special Growth Fund. The
acquisition was accomplished by a tax-free exchange of 449,505 shares of the
Growth Fund for 337,365 shares of the Special Growth Fund outstanding on May
23, 1994. These share transactions are included in the summary below. The
Special Growth Fund's net assets at May 23, 1994 of approximately
$4,387,000, including $648,899 of unrealized appreciation were combined with
those of the Growth Fund. The combined net assets immediately after the
acquisition were approximately $14,668,000.
Continued
F-52
<PAGE> 296
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands
Transactions in capital shares for the Group were as follows:
<TABLE>
<CAPTION>
DIVERSIFIED U.S. GOVERNMENT
OBLIGATIONS FUND OBLIGATIONS FUND
------------------------ -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994 1995 1994
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
INVESTOR SHARES:
Proceeds from shares issued...................... $ 646,263 $ 603,013 $ 394,176 $ 601,137
Dividends reinvested............................. 4,895 1,029 1,948 558
Shares redeemed.................................. (598,685) (605,828) (371,715) (614,944)
--------- --------- ----------- ---------
Change in net assets from Investor Share
transactions................................... $ 52,473 $ (1,786) $ 24,409 $ (13,249)
========= ========= =========== =========
FIDUCIARY SHARES:
Proceeds from shares issued...................... $ 915,980 $ 659,289 $ 1,366,450 $ 319,949
Dividends reinvested............................. 20 1,007 2 344
Shares redeemed.................................. (874,436) (685,119) (1,368,823) (324,185)
--------- --------- ----------- ---------
Change in net assets from Fiduciary Share
transactions................................... $ 41,564 $ (24,823) $ (2,371) $ (3,892)
========= ========= =========== =========
SHARE TRANSACTIONS:
INVESTOR SHARES:
Issued........................................... 646,263 603,013 394,176 601,137
Reinvested....................................... 4,895 1,029 1,948 558
Redeemed......................................... (598,685) (605,828) (371,715) (614,944)
--------- --------- ----------- ---------
Change in Investor Shares........................ 52,473 (1,786) 24,409 (13,249)
========= ========= =========== =========
FIDUCIARY SHARES:
Issued........................................... 915,980 659,289 1,366,450 319,949
Reinvested....................................... 20 1,007 2 344
Redeemed......................................... (874,436) (685,119) (1,368,823) (324,185)
--------- --------- ----------- ---------
Change in Fiduciary Shares....................... 41,564 (24,823) (2,371) (3,892)
========= ========= =========== =========
</TABLE>
Continued
F-53
<PAGE> 297
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
100% U.S. TREASURY CALIFORNIA TAX-FREE
OBLIGATIONS FUND FUND TAX-FREE FUND
----------------------- ----------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994 1995 1994 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
INVESTOR SHARES:
Proceeds from shares issued... $ 310,873 $ 187,747 $ 99,160 $ 233,421 $ 44,420 $ 72,898
Dividends reinvested.......... 2,090 318 1,027 391 412 361
Shares redeemed............... (263,475) (181,538) (91,159) (246,694) (52,158) (93,231)
--------- --------- --------- --------- --------- --------
Change in net assets from
Investor Share
transactions................ $ 49,488 $ 6,527 $ 9,028 $ (12,882) $ (7,326) $(19,972)
========= ========= ========= ========= ========= ========
FIDUCIARY SHARES:
Proceeds from shares issued... $ 425,795 $ 259,830 $ 255,654 $ 235,546 $ 112,554 $ 68,128
Dividends reinvested.......... 16 344 8 367 17 284
Shares redeemed............... (395,970) (291,397) (264,895) (263,841) (112,034) (67,923)
--------- --------- --------- --------- --------- --------
Change in net assets from
Fiduciary Share
transactions................ $ 29,841 $ (31,223) $ (9,233) $ (27,928) $ 537 $ 489
========= ========= ========= ========= ========= ========
SHARE TRANSACTIONS:
INVESTOR SHARES:
Issued........................ 310,873 187,747 99,160 233,421 44,420 72,898
Reinvested.................... 2,090 318 1,027 391 412 361
Redeemed...................... (263,475) (181,538) (91,159) (246,694) (52,158) (93,231)
--------- --------- --------- --------- --------- --------
Change in Investor Shares..... 49,488 6,527 9,028 (12,882) (7,326) (19,972)
========= ========= ========= ========= ========= ========
FIDUCIARY SHARES:
Issued........................ 425,795 259,830 255,654 235,546 112,554 68,128
Reinvested.................... 16 344 8 367 17 284
Redeemed...................... (395,970) (291,397) (264,895) (263,841) (112,034) (67,923)
--------- --------- --------- --------- --------- --------
Change in Fiduciary Shares.... 29,841 (31,223) (9,233) (27,928) 537 489
========= ========= ========= ========= ========= ========
</TABLE>
Continued
F-54
<PAGE> 298
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
BOND FUND GOVERNMENT BOND FUND INCOME EQUITY FUND
---------------------- ----------------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED NOVEMBER 14, 1993 YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, TO JULY 31, JULY 31, JULY 31,
1995 1994 1995 1994 (a) 1995 1994
---------- ---------- ---------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
INVESTOR SHARES:
Proceeds from shares issued.... $ 626 $ 14 $ 97 $ 4,131 $ 25
Dividends reinvested........... 14 2 52
Shares redeemed................ (113) (32) (506)
-------- -------- ------- ------- -------- --------
Change in net assets from
Investor Share
transactions................. $ 527 $ 14 $ 67 $ 3,677 $ 25
======== ======== ======= ======= ======== ========
FIDUCIARY SHARES:
Proceeds from shares issued.... $ 10,767 $ 57,130 $ 1,279 $ 6,588 $ 31,913 $145,932
Dividends reinvested........... 3,111 3,171 295 188 13,482 10,378
Shares redeemed................ (19,821) (23,539) (2,852) (1,311) (56,293) (40,348)
-------- -------- ------- ------- -------- --------
Change in net assets from
Fiduciary Share
transactions................. $ (5,943) $ 36,762 $ (1,278) $ 5,465 $(10,898) $115,962
======== ======== ======= ======= ======== ========
SHARE TRANSACTIONS:
INVESTOR SHARES:
Issued......................... 63 1 11 331 2
Reinvested..................... 1 5
Redeemed....................... (11) (4) (40)
-------- -------- ------- ------- -------- --------
Change in Investor Shares...... 53 1 7 296 2
======== ======== ======= ======= ======== ========
FIDUCIARY SHARES:
Issued......................... 1,074 5,288 137 664 2,625 11,781
Reinvested..................... 311 299 32 19 1,154 864
Redeemed....................... (1,974) (2,230) (305) (135) (4,658) (3,385)
-------- -------- ------- ------- -------- --------
Change in Fiduciary Shares..... (589) 3,357 (136) 548 (879) 9,260
======== ======== ======= ======= ======== ========
</TABLE>
- ------------
(a) Period from commencement of operations.
Continued
F-55
<PAGE> 299
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995
Amounts in Thousands
<TABLE>
<CAPTION>
BALANCED FUND GROWTH FUND INCOME & GROWTH FUND
------------------------- ------------------------- -------------------------
NOVEMBER 14, NOVEMBER 18, NOVEMBER 14,
YEAR ENDED 1993 TO YEAR ENDED 1993 TO YEAR ENDED 1993 TO
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994 (a) 1995 1994 (A) 1995 1994 (A)
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
INVESTOR SHARES:
Proceeds from shares
issued.................. $ 480 $ 1,230 $ 205
Dividends reinvested...... 2 5 1
Shares redeemed........... (20) (144)
------- ------- ------- ------- ------ -------
Change in net assets from
Investor Share
transactions............ $ 462 $ 1,091 $ 206
======= ======= ======= ======= ====== =======
FIDUCIARY SHARES:
Proceeds from shares
issued.................. $ 9,876 $ 30,704 $ 8,497 $ 15,837 $1,566 $ 8,339
Dividends reinvested...... 984 534 498 49 126 102
Shares redeemed........... (9,570) (4,768) (3,450) (732) (788) (3,618)
------- ------- ------- ------- ------ -------
Change in net assets from
Fiduciary Share
transactions............ $ 1,290 $ 26,470 $ 5,545 $ 15,154 $ 904 $ 4,823
======= ======= ======= ======= ====== =======
SHARE TRANSACTIONS:
INVESTOR SHARES:
Issued.................... 45 115 18
Reinvested................ 1
Redeemed.................. (2) (13)
------- ------- ------- ------- ------ -------
Change in Investor
Shares.................. 43 103 18
======= ======= ======= ======= ====== =======
FIDUCIARY SHARES:
Issued.................... 976 3,080 836 1,632 150 834
Reinvested................ 99 55 50 5 12 10
Redeemed.................. (964) (486) (334) (75) (73) (365)
------- ------- ------- ------- ------ -------
Change in Fiduciary
Shares.................. 111 2,649 552 1,562 89 479
======= ======= ======= ======= ====== =======
</TABLE>
- ------------
(a) Period from commencement of operations.
Continued
F-56
<PAGE> 300
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995
5. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Group by Merus. Under the
terms of the investment advisory agreement, The Bank of California, of which
Merus is a division, is entitled to receive fees based on a percentage of
the average net assets of each of the Funds. The Bank of California also
serves as custodian, sub-transfer agent and sub-administrator for the Group.
During the year ended July 31, 1995, BancCal Tri-state Corp. ("BancCal"),
the holding company of The Bank of California, purchased securities for
$2,000,000 from the Tax-Free Fund and $9,505,000 from the California
Tax-Free Fund. The market value of these securities at the date of the sale
to BancCal approximated the sale price.
The Winsbury Company Limited Partnership d/b/a The Winsbury Company
("Winsbury") is an Ohio limited partnership. The sole general partner of
Winsbury is BISYS Fund Services, Inc. The sole limited partner of Winsbury
is WC Subsidiary Corporation. BISYS Fund Services, Inc., BISYS Fund Services
Ohio, Inc. and WC Subsidiary Corporation are all subsidiaries of The BISYS
Group, Inc. On or about October 1, 1995, Winsbury will change its name to
BISYS Fund Services Limited Partnership, d/b/a BISYS Fund Services.
Winsbury, with whom certain officers and trustees of the Group are
affiliated, serves the Group as administrator. Such officers and trustees
are paid no fees directly by the Funds for serving as officers and trustees
of the Group. Under the terms of the administration agreement, Winsbury's
fees are computed daily as a percentage of the average net assets of the
Funds. The Winsbury Company also serves as the Group's distributor. As
distributor, Winsbury is entitled to receive fees from the Funds for
providing distribution services. For the year ended July 31, 1995 Winsbury
received $138,513 for commissions earned on sales of shares of the Group's
variable net asset value funds, of which $44,136 was reallowed to affiliated
parties. BISYS Fund Services Ohio, Inc., an affiliate of Winsbury, serves
the Group as transfer agent and mutual fund accountant.
The Group has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act pursuant to which each Fund may pay the Distributor as compensation
for its services in connection with the Distribution Plan a distribution
fee, computed daily and paid monthly, at a maximum rate of twenty-five one-
hundredths of one percent (0.25%) of the average daily net assets
attributable to the Funds' Investor Shares. A Fund's Fiduciary Shares are
not subject to the Distribution Plan or a distribution fee. The
Continued
F-57
<PAGE> 301
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995
Distributor has agreed to voluntarily reduce payments to be received
pursuant to the Distribution Plan with respect to a money market fund to the
extent necessary to ensure that such payments do not exceed the income
attributable to such Fund's shares on any day.
The Group has also adopted a Shareholder Services Plan permitting payment of
compensation to financial institutions that agree to provide certain
administrative support services for their customers who are Fund
shareholders. Each Fund has entered into a specific arrangement with
Winsbury for the provision of such services and reimburses Winsbury for its
cost of providing these services, subject to a maximum annual rate of
twenty-five one-hundredths of one percent (0.25%) of each Fund's average
daily net assets.
Fees may be voluntarily reduced or reimbursed to assist the Funds in
maintaining competitive expense ratios.
Information regarding these transactions is as follows for the year ended
July 31, 1995:
<TABLE>
<CAPTION>
DIVERSIFIED U.S. GOVERNMENT 100% U.S. TREASURY
OBLIGATIONS OBLIGATIONS OBLIGATIONS
FUND FUND FUND
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee (percentage of average net
assets)............................... 0.40% 1st $500 million 0.40% 1st $500 million 0.40% 1st $500 million
0.35% next $500 million 0.35% next $500 million 0.35% next $500 million
0.30% remaining 0.30% remaining 0.30% remaining
ADMINISTRATION FEES:
Annual fee (percentage of average net
assets)............................... 0.20% 0.20% 0.20%
DISTRIBUTION FEES (INVESTOR SHARES):
Annual fee before voluntary fee
reductions (percentage of average net
assets)............................... 0.25% 0.25% 0.25%
Voluntary fee reductions................ $279,121 $106,431 $144,577
SHAREHOLDER SERVICES FEES:
Annual fee before voluntary fee
reductions (percentage of average net
assets)............................... 0.25% 0.25% 0.25%
Voluntary fee reductions................ $854,516 $437,413 $552,152
CUSTODIAN FEES: $111,937 $78,529 $56,901
TRANSFER AGENT AND ACCOUNTING FEES: $189,263 $105,218 $123,037
</TABLE>
Continued
F-58
<PAGE> 302
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE TAX-FREE
FUND FUND
----------------------- -----------------------
<S> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions (percentage of
average net assets).......................................... 0.40% 1st $500 million 0.40% 1st $500 million
0.35% next $500 million 0.35% next $500 million
0.30% remaining 0.30% remaining
Voluntary fee reductions....................................... $326,450 $33,508
ADMINISTRATION FEES:
Annual fee before voluntary fee reductions (percentage of
average net assets).......................................... 0.20% 0.20%
Voluntary fee reductions....................................... $74,193 $47,867
DISTRIBUTION FEES (INVESTOR SHARES):
Annual fee before voluntary fee reductions (percentage of
average net assets).......................................... 0.25% 0.25%
Voluntary fee reductions....................................... $86,790 $36,419
SHAREHOLDER SERVICES FEES:
Annual fee before voluntary fee reductions (percentage of
average net assets).......................................... 0.25% 0.25%
Voluntary fee reductions....................................... $354,827 $114,700
CUSTODIAN FEES: $58,008 $38,800
TRANSFER AGENT AND ACCOUNTING FEES: $100,324 $73,812
</TABLE>
Continued
F-59
<PAGE> 303
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995
<TABLE>
<CAPTION>
GOVERNMENT INCOME
BOND BOND EQUITY
FUND FUND FUND
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)......... 1.00% 1st $40 million 1.00% 1st $40 million 1.00% 1st $40 million
0.60% remaining 0.60% remaining .60% remaining
Voluntary fee reductions..................... $250,310 $46,447 $11,439
ADMINISTRATION FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)......... 0.20% 0.20% .20%
Voluntary fee reductions..................... $42,155 $9,290
DISTRIBUTION FEES (INVESTOR SHARES):
Annual fee before voluntary fee reductions
(percentage of average net assets)......... 0.25% 0.25% 0.25%
Voluntary fee reductions..................... $694 $96 $2,894
SHAREHOLDER SERVICES FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)......... 0.25% 0.25% .25%
Voluntary fee reductions..................... $144,358 $11,180 $507,621
CUSTODIAN FEES: $37,760 $76,450
Voluntary fee reductions..................... $14,584
TRANSFER AGENT AND ACCOUNTING FEES: $99,780 $72,868 $179,585
</TABLE>
Continued
F-60
<PAGE> 304
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995
<TABLE>
<CAPTION>
BALANCED GROWTH INCOME &
FUND FUND GROWTH FUND
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)......... 1.00% 1st $40 million 1.00% 1st $40 million 1.00% 1st $40 million
0.60% remaining 0.60% remaining 0.60% remaining
Voluntary fee reductions..................... $168,408 $158,716 $56,251
ADMINISTRATION FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)......... 0.20% 0.20% 0.20%
Voluntary fee reductions..................... $15,769 $11,250
DISTRIBUTION FEES (INVESTOR SHARES):
Annual fee before voluntary fee reductions
(percentage of average net assets)......... 0.25% 0.25% 0.25%
Voluntary fee reductions..................... $115 $980 $123
SHAREHOLDER SERVICES FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)......... 0.25% 0.25% 0.25%
Voluntary fee reductions..................... $60,539 $47,273 $13,451
CUSTODIAN FEES:
Voluntary fee reductions..................... $28,297 $34,541 $25,817
TRANSFER AGENT AND ACCOUNTING FEES: $74,357 $78,383 $74,440
</TABLE>
Continued
F-61
<PAGE> 305
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995
6. ELIGIBLE DISTRIBUTIONS (UNAUDITED):
The Highmark Group designates the following eligible distributions for the
dividends received deduction for corporations for the Fund's taxable year
ended July 31, 1995:
<TABLE>
<CAPTION>
INCOME INCOME &
EQUITY BALANCED GROWTH GROWTH
FUND FUND FUND FUND
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Dividend Income............................. $9,295,437 $441,468 $381,399 $167,655
Dividend Income Per Share--Investor......... 0.416 0.141 0.134 0.223
Dividend Income Per-Share--Fiduciary........ 0.416 0.141 0.134 0.223
</TABLE>
7. EXEMPT-INTEREST INCOME DESIGNATION (UNAUDITED):
The Highmark Group designates the following exempt-interest dividends for
the Fund's taxable year ended July 31, 1995.
<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE
TAX-FREE FUND FUND
------------- -------------
<S> <C> <C>
Exempt-interest dividends................................... $ 4,566,271 $ 1,394,841
Exempt-interest dividends per share--Investor............... 0.031 0.030
Exempt-interest dividends per share--Fiduciary.............. 0.031 0.030
</TABLE>
Continued
F-62
<PAGE> 306
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995
The following information indicates by state the percentage of income earned
by the California Tax-Free Fund and the Tax-Free Fund for the year ended
July 31, 1995:
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE TAX-FREE
FUND FUND
---------- --------
<S> <C> <C>
Alabama................................................................ 2.9%
Alaska................................................................. 4.3%
Arizona................................................................ 2.3%
California............................................................. 95.4% 34.5%
Colorado............................................................... 1.6%
Florida................................................................ 4.8%
Georgia................................................................ 0.7%
Illinois............................................................... 3.6%
Indiana................................................................ 4.3%
Kansas................................................................. 0.3%
Kentucky............................................................... 1.1%
Louisiana.............................................................. 0.9%
Michigan............................................................... 1.0%
Minnesota.............................................................. 1.3%
Missouri............................................................... 1.2%
Nevada................................................................. 1.5%
New Jersey............................................................. 0.3%
New Mexico............................................................. 1.0%
New York............................................................... 3.2%
Oregon................................................................. 0.2%
Pennsylvania........................................................... 5.0%
Rhode Island........................................................... 1.4%
Tennessee.............................................................. 1.1%
Texas.................................................................. 6.9%
Utah................................................................... 2.2%
Virginia............................................................... 9.5%
West Virginia.......................................................... 0.4%
Wyoming................................................................ 0.4%
Other Territories...................................................... 4.6% 2.1%
---------- --------
100.0% 100.0%
========= ========
</TABLE>
Continued
F-63
<PAGE> 307
- --------------------------------------------------------------------------------
[HIGHMARK LOGO]
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1995
For the year ended July 31, 1995, 18.9% of the income earned by the Tax-Free
Fund and 16.9% of the income earned by the California Tax-Free Fund may be
subject to the alternative minimum tax.
For California residents, 100.0% of the income earned by the California
Tax-Free Fund for the year ended July 31, 1995 is designated as tax-exempt
income.
The following information indicates by type the percentage of income earned
by the 100% U.S. Treasury Obligations Fund for the year ended July 31, 1995:
<TABLE>
<CAPTION>
100% U.S.
TREASURY
OBLIGATIONS
TYPE FUND
---- -----------
<S> <C>
Federal obligations (such as U.S. Treasury bills, notes, bonds).............. 100.0%
==========
</TABLE>
For California residents, the 100% U.S. Treasury Obligations Fund met the
quarterly diversification tests for each fiscal quarter ended during the
year ended July 31, 1995. In addition, for California residents, 100% of the
income earned by the 100% U.S. Treasury Obligations Fund for the year ended
July 31, 1995 is designated as tax-exempt income.
Please consult your tax advisor for the proper treatment of the information
reflected in Notes 6 and 7.
8. FEDERAL INCOME TAXES (UNAUDITED):
For federal income tax purposes, the following funds have capital loss
carryforwards as of July 31, 1995, which are available to offset future
capital gains, if any:
<TABLE>
<CAPTION>
AMOUNT EXPIRES
---------- -------
<S> <C> <C>
Diversified Obligations Fund........................................ $ 2,908 2002
383,012 2003
U.S. Government Obligations Fund.................................... 5,621 2002
185,335 2003
100% U.S. Treasury Obligations Fund................................. 1,538 2002
California Tax Free Fund............................................ 12,171 2002
13,895 2003
Tax Free Fund....................................................... 3,637 2002
Bond Fund........................................................... 2,015,446 2003
Government Bond Fund................................................ 273,529 2003
Balanced Fund....................................................... 172,093 2003
Income & Growth Fund................................................ 45,776 2003
</TABLE>
F-64
<PAGE> 308
- --------------------------------------------------------------------------------
DIVERSIFIED OBLIGATIONS FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 (A)
------------------ ----------------- ----------------- ----------------- -----------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- -------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- -------- ------- -------- ------- -------- ------- --------
INVESTMENT ACTIVITIES
Net investment income.......... 0.049 0.049 0.028 0.028 0.027 0.027 0.043 0.043 0.066 0.066
-------- -------- ------- -------- ------- -------- ------- -------- ------- --------
DISTRIBUTIONS
Net investment income.......... (0.049) (0.049) (0.028) (0.028) (0.027) (0.027) (0.043) (0.043) (0.066) (0.066)
-------- -------- ------- -------- ------- -------- ------- -------- ------- --------
NET ASSET VALUE, END OF PERIOD... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= ======== ======= ======== ======= ======== ======= ========
Total Return..................... 4.99% 4.99% 2.88% 2.88% 2.75% 2.75% 4.41% 4.41% 7.00% 7.00%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000)................. $128,191 $270,476 $75,725 $228,934 $77,589 $254,034 $17,600 $337,485 $16,618 $405,447
Ratio of expenses to average
net assets................... 0.74% 0.74% 0.74% 0.74% 0.72% 0.72% 0.72% 0.72% 0.70% 0.70%
Ratio of net investment income
to average net assets........ 4.92% 4.88% 2.83% 2.83% 2.72% 2.72% 4.34% 4.34% 6.71% 6.71%
Ratio of expenses to average
net assets*.................. 1.23% 0.98% 1.14% 0.89% 0.79% 0.73% 0.97% 0.72% 0.70% 0.70%
Ratio of net investment income
to average net assets*....... 4.43% 4.64% 2.42% 2.67% 2.65% 2.71% 4.09% 4.34% 6.71% 6.71%
</TABLE>
- ------------
(a) On December 1, 1990, the Diversified Obligations Fund commenced offering
Class A Shares and designated existing shares as Class B Shares. As of June
20, 1994, Class A and Class B Shares were designated as "Investor" and
"Fiduciary" Shares, respectively.
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
F-65
<PAGE> 309
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 (A)
----------------- ----------------- ----------------- ------------------ --------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
------- -------- ------- -------- ------- -------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- ------- -------- ------- -------- ------- --------- --------- ---------
INVESTMENT ACTIVITIES
Net investment income........ 0.048 0.048 0.027 0.027 0.027 0.027 0.042 0.042 0.063 0.063
------- -------- ------- -------- ------- -------- ------- --------- --------- ---------
DISTRIBUTIONS
Net investment income........ (0.048) (0.048) (0.027) (0.027) (0.027) (0.027) (0.042) (0.042) (0.063) (0.063)
------- -------- ------- -------- ------- -------- ------- --------- --------- ---------
NET ASSET VALUE, END OF
PERIOD....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======= ======== ======= ======== ======= ======== ======= ========
Total Return................... 4.86% 4.87% 2.74% 2.74% 2.72% 2.72% 4.25% 4.25% 6.49% 6.49%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000)...................... $48,474 $159,747 $24,055 $162,094 $37,332 $166,182 $12,527 $94,252 $ 1,761 $ 103,725
Ratio of expenses to average
net assets................. 0.78% 0.78% 0.77% 0.78% 0.71% 0.71% 0.73% 0.73% 0.63% 0.63%
Ratio of net investment
income to average net
assets..................... 4.82% 4.76% 2.63% 2.70% 2.67% 2.67% 4.15% 4.15% 6.29% 6.29%
Ratio of expenses to average
net assets*................ 1.27% 1.02% 1.17% 0.94% 0.79% 0.74% 0.99% 0.74% 0.73% 0.73%
Ratio of net investment
income to average net
assets*.................... 4.33% 4.52% 2.23% 2.54% 2.59% 2.65% 3.89% 4.14% 6.19% 6.19%
</TABLE>
- ------------
(a) On December 1, 1990, the U.S. Government Obligations Fund commenced offering
Class A Shares and designated existing shares as Class B Shares. As of June
20, 1994, Class A and Class B Shares were designated as "Investor" and
"Fiduciary" Shares, respectively.
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
F-66
<PAGE> 310
- --------------------------------------------------------------------------------
100% U.S. TREASURY OBLIGATIONS FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 (A)
----------------- ----------------- ----------------- ----------------- -----------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
INVESTMENT ACTIVITIES
Net investment income........... 0.046 0.046 0.026 0.026 0.026 0.026 0.040 0.040 0.063 0.063
Net realized and unrealized
gains on investments.......... 0.001 0.001
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
Total from Investment
Activities................ 0.046 0.046 0.026 0.026 0.026 0.026 0.041 0.041 0.063 0.063
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
DISTRIBUTIONS
Net investment income........... (0.046) (0.046) (0.026) (0.026) (0.026) (0.026) (0.040) (0.040) (0.063) (0.063)
Net realized gains.............. (0.001) (0.001)
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
Total Distributions......... (0.046) (0.046) (0.026) (0.026) (0.026) (0.026) (0.041) (0.041) (0.063) (0.063)
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
NET ASSET VALUE, END OF
PERIOD.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======= ======== ======= ======== ======= ======== ======= ========
Total Return...................... 4.69% 4.69% 2.68% 2.68% 2.64% 2.64% 4.18% 4.18% 6.53% 6.53%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000)......................... $88,660 $190,604 $39,157 $160,721 $32,629 $191,946 $11,551 $219,451 $19,187 $265,528
Ratio of expenses to average
net assets.................... 0.73% 0.73% 0.74% 0.74% 0.67% 0.67% 0.65% 0.65% 0.62% 0.62%
Ratio of net investment income
to average net assets......... 4.68% 4.60% 2.68% 2.63% 2.60% 2.60% 3.99% 3.99% 6.25% 6.25%
Ratio of expenses to average
net assets*................... 1.22% 0.97% 1.15% 0.90% 0.75% 0.72% 0.97% 0.72% 0.70% 0.70%
Ratio of net investment income
to average net assets*........ 4.19% 4.36% 2.27% 2.48% 2.52% 2.55% 3.67% 3.92% 6.17% 6.17%
</TABLE>
- ------------
(a) On December 1, 1990, the 100% U.S. Treasury Fund commenced offering Class A
Shares and designated existing shares as Class B Shares. As of June 20,
1994, Class A and Class B Shares were designated as "Investor" and
"Fiduciary" Shares, respectively.
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
F-67
<PAGE> 311
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 (A)
----------------- ----------------- ----------------- ----------------- -----------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
INVESTMENT ACTIVITIES
Net investment income........... 0.031 0.031 0.020 0.020 0.021 0.021 0.032 0.032 0.045 0.045
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
DISTRIBUTIONS
Net investment income........... (0.031) (0.031) (0.020) (0.020) (0.021) (0.021) (0.032) (0.032) (0.045) (0.045)
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
NET ASSET VALUE, END OF
PERIOD.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======= ======== ======= ======== ======= ======== ======= ========
Total Return...................... 3.16% 3.16% 1.99% 1.99% 2.13% 2.13% 3.20% 3.20% 4.57% 4.57%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000)......................... $40,544 $105,742 $31,521 $114,993 $44,410 $142,939 $ 4,609 $116,062 $ 4,426 $142,365
Ratio of expenses to average
net assets.................... 0.50% 0.50% 0.50% 0.50% 0.44% 0.44% 0.54% 0.54% 0.53% 0.53%
Ratio of net investment income
to average net assets......... 3.14% 3.11% 1.96% 1.96% 2.08% 2.08% 3.15% 3.15% 4.47% 4.47%
Ratio of expenses to average
net assets*................... 1.26% 1.01% 1.18% 0.93% 0.79% 0.73% 0.99% 0.74% 0.72% 0.72%
Ratio of net investment income
to average net assets*........ 2.38% 2.60% 1.28% 1.53% 1.73% 1.78% 2.70% 2.95% 4.28% 4.28%
</TABLE>
- ------------
(a) On December 1, 1990, the California Tax-Free Fund commenced offering Class A
Shares and designated existing shares as Class B Shares. As of June 20,
1994, Class A and Class B Shares were designated as "Investor" and
"Fiduciary" Shares, respectively.
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
F-68
<PAGE> 312
- --------------------------------------------------------------------------------
TAX-FREE FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 (A)
------------------ -------------------- -------------------- -------------------- --------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING
OF PERIOD........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
INVESTMENT ACTIVITIES
Net investment
income............ 0.030 0.030 0.019 0.019 0.021 0.021 0.033 0.033 0.049 0.049
------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
DISTRIBUTIONS
Net investment
income............ (0.030) (0.030) (0.019) (0.019) (0.021) (0.021) (0.033) (0.033) (0.049) (0.049)
------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END
OF PERIOD.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======= ======== ======= ======== ======= ======== ======= ========
Total Return.......... 3.00% 3.00% 1.96% 1.96% 2.16% 2.16% 3.35% 3.35% 4.97% 4.97%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end
of period (000)... $12,702 $30,813 $ 20,032 $30,285 $ 40,010 $29,799 $ 23,780 $27,136 $ 9,549 $49,558
Ratio of expenses
to average net
assets............ 0.73% 0.73% 0.69% 0.69% 0.53% 0.53% 0.57% 0.57% 0.62% 0.62%
Ratio of net
investment income
to average net
assets............ 2.90% 2.95% 1.93% 1.95% 2.12% 2.12% 3.31% 3.31% 4.80% 4.80%
Ratio of expenses
to average net
assets*........... 1.39% 1.14% 1.27% 1.02% 0.96% 0.84% 1.09% 0.84% 0.77% 0.77%
Ratio of net
investment income
to average net
assets*........... 2.24% 2.54% 1.36% 1.62% 1.69% 1.82% 2.79% 3.05% 4.65% 4.65%
</TABLE>
- ------------
(a) On December 1, 1990, the Tax-Free Fund commenced offering Class A Shares and
designated existing shares as Class B Shares. As of June 20, 1994, Class A
and Class B Shares were designated as "Investor" and "Fiduciary" Shares,
respectively.
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
F-69
<PAGE> 313
- --------------------------------------------------------------------------------
BOND FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 20, YEAR
YEAR ENDED 1994 TO ENDED
JULY 31, JULY 31, JULY 31,
1995 1994 (A)(B) 1994 (B) YEAR ENDED JULY 31,
--------------------- ----------- --------- ---------------------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY 1993 1992 1991
-------- --------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $10.04 $ 10.11 $ 10.12 $ 11.13 $ 11.02 $ 10.29 $ 10.18
-------- --------- ----------- --------- --------- --------- ---------
INVESTMENT ACTIVITIES
Net investment income................... 0.66 0.64 0.07 0.63 0.70 0.67 0.78
Net realized and unrealized gains
(losses) on investments............... 0.23 0.27 (0.05) (0.97) 0.35 0.77 0.04
-------- --------- ----------- --------- --------- --------- ---------
Total from Investment Activities.... 0.89 0.91 0.02 (0.34) 1.05 1.44 0.82
-------- --------- ----------- --------- --------- --------- ---------
DISTRIBUTIONS
Net investment income................... (0.64) (0.64) (0.10) (0.63) (0.70) (0.67) (0.71)
Net realized gains...................... (0.01) (0.24) (0.04)
In excess of net realized gains......... (0.04)
-------- --------- ----------- --------- --------- --------- ---------
Total Distributions................. (0.64) (0.64) (0.10) (0.68) (0.94) (0.71) (0.71)
-------- --------- ----------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD............ $10.29 $ 10.38 $ 10.04 $ 10.11 $ 11.13 $ 11.02 $ 10.29
====== ======= ========== ======= ======= ======= =======
Total Return (excludes sales charges)..... 9.29% 9.43% (3.81)%(c) (3.14)% 10.07% 14.43% 8.99%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)....... $ 558 $59,758 $ 7 $64,185 $ 33,279 $ 21,651 $ 10,799
Ratio of expenses to average net
assets................................ 0.92% 0.92% 0.99%(d) 0.86% 0.93% 0.91% 0.79%
Ratio of net investment income to
average net assets.................... 6.29% 6.35% 5.77%(d) 6.11% 6.41% 6.23% 7.61%
Ratio of expenses to average net
assets*............................... 1.89% 1.64% 2.96%(d) 1.37% 1.55% 1.55% 1.59%
Ratio of net investment income to
average net assets*................... 5.32% 5.62% 3.80%(d) 5.60% 5.79% 5.59% 6.81%
Portfolio turnover...................... 36.20%(e) 36.20%(e) 44.33%(e) 44.33%(e) 58.81% 79.56% 65.81%
</TABLE>
- ------------
(a) Period from commencement of operations.
(b) On June 20, 1994, the Bond Fund commenced offering Investor Shares and
designated existing shares as Fiduciary Shares.
(c) Represents total return for the Fiduciary shares for the period from August
1, 1993 to June 19, 1994 plus the total return for the Investor Shares for
the period from June 20, 1994 to July 31, 1994.
(d) Annualized.
(e) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
F-70
<PAGE> 314
- --------------------------------------------------------------------------------
GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 20, NOVEMBER 14,
YEAR ENDED 1994 TO 1993 TO
JULY 31, JULY 31, JULY 31,
1995 1994 (A) 1994 (A)
------------------------- -------- ------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 9.36 $ 9.44 $ 9.47 $ 10.00
-------- --------- -------- ------------
INVESTMENT ACTIVITIES
Net investment income..................... 0.66 0.60 0.01 0.40
Net realized and unrealized gains (losses)
on investments.......................... 0.01 0.06 (0.02) (0.56)
-------- --------- -------- ------------
Total from Investment Activities...... 0.67 0.66 (0.01) (0.16)
-------- --------- -------- ------------
DISTRIBUTIONS
Net investment income..................... (0.60) (0.60) (0.10) (0.40)
-------- --------- -------- ------------
Total Distributions................... (0.60) (0.60) (0.10) (0.40)
-------- --------- -------- ------------
NET ASSET VALUE, END OF PERIOD.............. $ 9.43 $ 9.50 9.36 $ 9.44
======= ======== ======== ============
Total Return (excludes sales charges)....... 7.47% 7.30% (2.42)%(b)(e) (1.59)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......... $ 68 $ 3,916 $ 5,171
Ratio of expenses to average net assets... 0.85% 0.85% 0.87%(c) 0.85%(c)
Ratio of net investment income to average
net assets.............................. 6.25% 6.32% 4.37%(c) 5.84%(c)
Ratio of expenses to average net
assets*................................. 2.54% 2.29% 0.87%(c) 3.09%(c)
Ratio of net investment income to average
net assets*............................. 4.56% 4.88% 4.37%(c) 3.60%(c)
Portfolio turnover (d).................... 67.49% 67.49% 176.26% 176.26%
</TABLE>
- ------------
(a) Period from commencement of operations. On June 20, 1994, the Government
Bond Fund commenced offering Investor Shares and designated existing shares
as Fiduciary Shares.
(b) Represents total return for the Fiduciary Shares from commencement of
operations to June 19, 1994, plus the total return for the Investor Shares
for the period from June 20, 1994 to July 31, 1994.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(e) Not annualized.
* During the period, certain fees were voluntarily reduced. In addition,
certain expenses were reimbursed. If such voluntary fee reductions and
expense reimbursements had not occurred, the ratios would have been as
indicated.
See notes to financial statements.
F-71
<PAGE> 315
- --------------------------------------------------------------------------------
INCOME EQUITY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 20, YEAR
YEAR ENDED 1994 TO ENDED
JULY 31, JULY 31, JULY 31,
1995 1994 (A)(B) 1994 (B) YEAR ENDED JULY 31,
--------------------- ----------- ----------- -----------------------------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY 1993 1992 1991
-------- --------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD...................... $11.92 $ 11.92 $ 11.85 $ 12.13 $ 11.42 $ 10.22 $ 10.46
-------- --------- ----------- ----------- ----------- ----------- -----------
INVESTMENT ACTIVITIES
Net investment income....... 0.42 0.44 0.04 0.39 0.38 0.40 0.46
Net realized and unrealized
gains on investments...... 1.55 1.50 0.08 0.12 0.71 1.20 0.61
-------- --------- ----------- ----------- ----------- ----------- -----------
Total from Investment
Activities............ 1.97 1.94 0.12 0.51 1.09 1.60 1.07
-------- --------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS
Net investment income....... (0.44) (0.44) (0.05) (0.39) (0.38) (0.40) (0.46)
Net realized gains.......... (0.42) (0.42) (0.33) (0.85)
-------- --------- ----------- ----------- ----------- ----------- -----------
Total Distributions..... (0.86) (0.86) (0.05) (0.72) (0.38) (0.40) (1.31)
-------- --------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD...................... $13.03 $ 13.00 $ 11.92 $ 11.92 $ 12.13 $ 11.42 $ 10.22
====== ======== ========== ======== ======== ======= =======
Total Return (excludes sales
charges).................... 17.52% 17.26% 4.23%(c) 4.23% 9.75% 16.04% 12.60%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000)..................... $3,881 $ 221,325 $ 24 $ 213,328 $ 104,840 $ 74,478 $ 49,047
Ratio of expenses to average
net assets................ 1.06% 1.06% 1.10%(d) 1.06% 1.15% 1.16% 1.17%
Ratio of net investment
income to average net
assets.................... 3.06% 3.59% 0.93%(d) 3.29% 3.27% 3.76% 4.81%
Ratio of expenses to average
net assets*............... 1.55% 1.30% 1.33%(d) 1.10% 1.21% 1.29% 1.40%
Ratio of net investment
income to average net
assets*................... 2.57% 3.34% 0.71%(d) 3.24% 3.22% 3.64% 4.58%
Portfolio turnover.......... 36.64%(e) 36.64%(e) 33.82%(e) 33.82%(e) 29.58% 23.05% 33.10%
</TABLE>
- ------------
(a) Period from commencement of operations.
(b) On June 20, 1994, the Income Equity Fund commenced offering Investor Shares
and designated existing shares as Fiduciary Shares.
(c) Represents total return for the Fiduciary Shares for the period from August
1, 1993 to June 19, 1994 plus the total return for the Investor Shares for
the period from June 20, 1994 to July 31, 1994.
(d) Annualized.
(e) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
F-72
<PAGE> 316
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
BALANCED FUND GROWTH FUND
---------------------------------------------------- ----------------------
JUNE 20, NOVEMBER 14,
YEAR ENDED 1994 TO 1993 TO YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994(A) 1994(A) 1995
---------------------- -------- ------------ ----------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $ 9.71 $ 9.76 $ 9.71 $ 10.00 $ 9.77 $ 9.76
-------- --------- -------- ------------ -------- ---------
INVESTMENT ACTIVITIES
Net investment income................. 0.43 0.39 0.26 0.15 0.15
Net realized and unrealized gains
(losses) on investments............. 1.04 1.09 0.06 (0.24) 2.25 2.26
-------- --------- -------- ------------ -------- ---------
Total from Investment Activities.... 1.47 1.48 0.06 0.02 2.40 2.41
-------- --------- -------- ------------ -------- ---------
DISTRIBUTIONS
Net investment income................. (0.39) (0.39) (0.06) (0.26) (0.15) (0.15)
Net realized gains.................... (0.15) (0.15)
-------- --------- -------- ------------ -------- ---------
Total Distributions................. (0.39) (0.39) (0.06) (0.26) (0.30) (0.30)
-------- --------- -------- ------------ -------- ---------
NET ASSET VALUE, END OF PERIOD......... $10.79 $ 10.85 $ 9.71 $ 9.76 $11.87 $ 11.87
======= ======== ======= ============ ======= ========
Total Return (excludes sales
charges)............................. 15.60% 15.62% (0.25)%(b) 0.26%(e) 25.10% 25.23%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)..... $ 467 $29,961 $ 25,851 $1,218 $25,096
Ratio of expenses to average net
assets.............................. 0.90% 0.89% 0.87%(c) 0.84% 0.79%
Ratio of net investment income to
average net assets.................. 3.78% 3.93% 3.77%(c) 1.17% 1.40%
Ratio of expenses to average net
assets*............................. 2.05% 1.80% 1.79%(c) 2.11% 1.92%
Ratio of net investment income to
average net assets*................. 2.63% 3.02% 2.85%(c) (0.10)% 0.26%
Portfolio turnover (d)................ 20.70% 20.70% 44.14% 44.14% 67.91% 67.91%
<CAPTION>
JUNE 20, NOVEMBER 18,
1994 TO 1993 TO
JULY 31, JULY 31,
1994(A) 1994(A)
-------- ------------
INVESTOR FIDUCIARY
-------- ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $ 9.74 $ 10.00
-------- ------------
INVESTMENT ACTIVITIES
Net investment income................. 0.05
Net realized and unrealized gains
(losses) on investments............. 0.04 (0.24)
-------- ------------
Total from Investment Activities.... 0.04 (0.19)
-------- ------------
DISTRIBUTIONS
Net investment income................. (0.01) (0.05)
Net realized gains....................
-------- ------------
Total Distributions................. (0.01) (0.05)
-------- ------------
NET ASSET VALUE, END OF PERIOD......... $ 9.77 $ 9.76
======= ============
Total Return (excludes sales
charges)............................. (1.77)%(b) (1.87)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)..... $ 15,254
Ratio of expenses to average net
assets.............................. 0.77%(c)
Ratio of net investment income to
average net assets.................. 0.86%(c)
Ratio of expenses to average net
assets*............................. 2.61%(c)
Ratio of net investment income to
average net assets*................. (0.98)%(c)
Portfolio turnover (d)................ 123.26% 123.26%
</TABLE>
- ------------
(a) Period from commencement of operations. On June 20, 1994, the Balanced Fund,
Growth Fund and Income & Growth Fund each commenced offering Investor Shares
and designated existing shares as Fiduciary Shares.
(b) Represents total return for the Fiduciary Shares from commencement of
operations to June 19, 1994 plus the total return for the Investor Shares
for the period from June 20, 1994 to July 31, 1994.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(e) Not annualized.
* During the period, certain fees were voluntarily reduced. In addition,
certain expenses were reimbursed. If such voluntary fee reductions and
expense reimbursements had not occurred, the ratios would have been as
indicated.
See notes to financial statements.
F-73
<PAGE> 317
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INCOME & GROWTH FUND
----------------------------------------------
JUNE 20, NOVEMBER 14,
YEAR ENDED 1994 TO 1993 TO
JULY 31, JULY 31, JULY 31,
1995 1994(A) 1994(A)
-------------------- -------- ------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $ 9.97 $ 9.96 $ 9.86 $ 10.00
-------- --------- -------- ------------
INVESTMENT ACTIVITIES
Net investment income................. 0.27 0.25 0.20
Net realized and unrealized gains
(losses) on investments............. 1.76 1.78 0.14 (0.04)
-------- --------- -------- ------------
Total from Investment Activities.... 2.03 2.03 0.14 0.16
-------- --------- -------- ------------
DISTRIBUTIONS
Net investment income................. (0.25) (0.25) (0.03) (0.20)
Net realized gains....................
-------- --------- -------- ------------
Total Distributions................. (0.25) (0.25) (0.03) (0.20)
-------- --------- -------- ------------
NET ASSET VALUE, END OF PERIOD......... $11.75 $ 11.74 $ 9.97 $ 9.96
======= ======== ======= ============
Total Return (excludes sales
charges)............................. 20.67% 20.68% 1.73%(b) 1.63%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)..... $ 215 $ 6,669 $ 4,771
Ratio of expenses to average net
assets.............................. 0.97% 0.97% 0.88%(c) 0.95%(c)
Ratio of net investment income to
average net assets.................. 2.23% 2.37% 0.88%(c) 2.86%(c)
Ratio of expenses to average net
assets*............................. 2.66% 2.41% 0.88%(c) 3.27%(c)
Ratio of net investment income to
average net assets*................. 0.54% 0.93% 0.88%(c) 0.54%(c)
Portfolio turnover (d)................ 15.01% 15.01% 97.24% 97.24%
</TABLE>
- ------------
(a) Period from commencement of operations. On June 20, 1994, the Balanced Fund,
Growth Fund and Income & Growth Fund each commenced offering Investor Shares
and designated existing shares as Fiduciary Shares.
(b) Represents total return for the Fiduciary Shares from commencement of
operations to June 19, 1994 plus the total return for the Investor Shares
for the period from June 20, 1994 to July 31, 1994.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(e) Not annualized.
* During the period, certain fees were voluntarily reduced. In addition,
certain expenses were reimbursed. If such voluntary fee reductions and
expense reimbursements had not occurred, the ratios would have been as
indicated.
See notes to financial statements.
[/R]
F-74
<PAGE> 318
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
-- Certain Financial Information.
Included in Part B:
-- Report of Independent Certified Public
Accountants for The HighMark Group at July 31,
1995.
-- Statements of Assets and Liabilities for
The HighMark Group at July 31, 1995.
-- Statements of Operations for The HighMark
Group for the year ended July 31, 1995.
-- Statements of Changes in Net Assets for
The HighMark Group for the year ended July
31, 1995.
-- Schedules of Portfolio Investments for
The HighMark Group at July 31, 1995.
-- Notes to Financial Statements for The
HighMark Group dated July 31, 1995.
-- Financial Highlights for The HighMark
Group for the year ended July 31, 1995.
<PAGE> 319
All required financial statements are
included in Part B hereof. All other
financial statements and schedules are
inapplicable.
(b) Exhibits:
(1) (a) Declaration of Trust, dated March 10,
1987, is incorporated by reference to
Exhibit (1)(a) of Pre-Effective Amendment
No. 1 (filed May 15, 1987) to Registrant's
Registration Statement on Form N-1A.
(b) Amendment to Declaration of Trust, dated
April 13, 1987, is incorporated by reference
to Exhibit (1)(b) of Pre- Effective
Amendment No. 1 (filed May 15, 1987) to
Registrant's Registration Statement on Form
N-1A.
(c) Amendment to Declaration of Trust, dated
July 13, 1987, is incorporated by reference
to Exhibit (1)(c) of Pre- Effective
Amendment No. 2 (filed July 24, 1987) to
Registrant's Registration Statement on Form
N-1A.
(d) Amendment to Declaration of Trust, dated
July 30, 1987, is incorporated by reference
to Exhibit (1)(d) of Pre- Effective
Amendment No. 3 (filed July 31, 1987) to
Registrant's Registration Statement on Form
N-1A.
(2) (a) Amended and Restated Code of Regulations,
dated June 5, 1991, is incorporated by
reference to Exhibit 2 of Post-Effective
Amendment No. 7 (filed September 30,
1991) to Registrant's Registration
Statement on Form N-1A.
C-2
<PAGE> 320
(b) Amendment to Amended and Restated Code of
Regulations, dated December 4, 1991, is
incorporated by reference to Exhibit 2(b) of
Post-Effective Amendment No. 8 (filed
September 30, 1992) to Registrant's
Registration Statement on Form N-1A.
(3) None.
(4) None.
(5) (a) Investment Advisory Agreement between
Registrant and The Bank of California,
N.A., dated as of May 8, 1992 (the
"Investment Advisory Agreement"), as
amended as of September 15, 1992, is
incorporated by reference to Exhibit 5 of
Post-Effective Amendment No. 8 (filed
September 30, 1992) to Registrant's
Registration Statement on Form N-1A.
(b) Form of amended and restated Schedule A to
the Investment Advisory Agreement is
incorporated by reference to Exhibit 5(b) of
Post-Effective Amendment No. 14 (filed June
17, 1994) to Registrant's Registration
Statement on Form N-1A.
(6) Distribution Agreement, dated August
1, 1995, between Registrant and The
Winsbury Company (the "Distribution
Agreement") filed herewith.
(7) None.
(8) (a) Custodian Agreement between Registrant
and The Bank of California, N.A., dated
as of December 23, 1991, as amended as of
September 15, 1992 (the "Custodian
Agreement"), is incorporated by reference
to Exhibit 8 of Post-Effective Amendment
No. 8 (filed September 30, 1992) to
C-3
<PAGE> 321
Registrant's Registration Statement on
Form N-1A.
(b) Form of amended and restated Schedule A to
the Custodian Agreement is incorporated by
reference to Exhibit 8(b) of Post-Effective
Amendment No. 14 (filed June 17, 1994) to
Registrant's Registration Statement on Form
N-1A.
(9) (a) Management and Administration Agreement
between Registrant and The Winsbury Company,
dated as of August 1, 1995 (the "Management
and Administration Agreement")filed
herewith.
(b) Transfer Agency and Shareholder Services
Agreement between Registrant and The
Winsbury Service Corporation, dated August
1, 1995 (the "Transfer Agency
Agreement")filed herewith.
(c) Sub-Transfer Agency Agreement between The
Winsbury Service Corporation and The Bank
of California, N.A., dated February 22,
1989, as amended as of September 15, 1992
(the "Sub-Transfer Agency Agreement"), is
incorporated by reference to Exhibit 9(d)
of Post-Effective Amendment No. 8 (filed
September 30, 1992) to Registrant's
Registration Statement on Form N-1A.
(d) Fund Accounting Agreement between
Registrant and The Winsbury Service
Corporation, dated as of August 1, 1995
(the "Fund Accounting Agreement") filed
herewith.
(e) Form of amended and restated Schedules A
and D to the Sub-Transfer Agency
Agreement is incorporated by reference to
Exhibit 9(g) of Post-Effective Amendment
No. 14 (filed June 17, 1994) to
C-4
<PAGE> 322
Registrant's Registration Statement on
Form N-1A.
(f) Form of Shareholder Services Agreement
("Shareholder Services Agreement")
between Registrant and The Winsbury
Company dated December 1, 1993 is
incorporated by reference to Exhibit 9(m)
of Post-Effective Amendment No. 12 (filed
October 1, 1993) to Registrant's
Registration Statement on Form N-1A.
(g) Form of amended and restated Appendix A to
the Shareholder Services Agreement is
incorporated by reference to Exhibit 9(j) of
Post-Effective Amendment No. 14 (filed June
17, 1994) to Registrant's Registration
Statement on Form N-1A.
(h) Shareholder Services Plan is incorporated
by reference to Exhibit 9(n) of Post-
Effective Amendment No. 12 (filed
October 1, 1993) to the Registrant's
Registration Statement on Form N-1A.
(10) Inapplicable.
(11) Consent of Coopers & Lybrand, filed
herewith.
(12) None.
(13) None.
(14) None.
(15) (a) Registrant's Distribution and Shareholder
Services Plan relating to the Money
Market Funds is incorporated by reference
to Exhibit 15(a) of Post-Effective
Amendment No. 6 (filed September 27,
1990) to Registrant's Registration
Statement on Form N-1A.
C-5
<PAGE> 323
(b) Form of Servicing Agreement With Respect
to Distribution Assistance and
Shareholder Services used in connection
with Registrant's Distribution and
Shareholder Services Plan relating to the
Money Market Funds is incorporated by
reference to Exhibit 15(b) of Post-
Effective Amendment No. 6 (filed
September 27, 1990) to Registrant's
Registration Statement on Form N-1A.
(c) Form of Servicing Agreement With Respect
to Shareholder Services used in
connection with Registrant's Distribution
and Shareholder Services Plan relating to
the Money Market Funds, is incorporated
by reference to Exhibit 15(c) of Post-
Effective Amendment No. 8 (filed
September 30, 1992) to Registrant's
Registration Statement on Form N-1A.
(d) Registrant's Distribution and Shareholder
Services Plan relating to the Income
Funds, the Equity Funds and the Municipal
Funds is incorporated by reference to
Exhibit 15(d) of Post-Effective Amendment
No. 13 (filed April 11, 1994) to the
Registrant's Registration Statement on
Form N-1A.
(e) Form of amended and restated Schedule A
to the Distribution and Shareholder
Services Plan relating to the Income
Funds, the Equity Funds and the Municipal
Funds is incorporated by reference to
Exhibit 15(c) of Post-Effective Amendment
No. 14 (filed June 17, 1994) to
Registrant's Registration Statement on
Form N-1A.
(16) (a) Performance Calculation Schedules
concerning: the seven-day yield and
effective yield of the Class A and Class
C-6
<PAGE> 324
B Shares of the U.S. Government Obligations
Fund, the Diversified Obligations Fund, the
100% U.S. Treasury Obligations Fund, the
Tax-Free Fund, and the California Tax-Free
Fund; the seven-day tax-equivalent yield and
tax- equivalent effective yield of the Class
A and Class B Shares of the Tax-Free Fund
and the California Tax-Free Fund; and the
average annual total return of the Income
Equity Fund and Bond Fund for the one-year,
five-year, and inception-to-date periods are
incorporated by reference to Exhibit 16 of
Post-Effective Amendment No. 6 (filed
September 27, 1990) to Registrant's
Registration Statement on Form N-1A.
(b) Yield Calculation Schedules concerning
the seven-day tax-equivalent yield and
tax-equivalent effective yield (for
California and Oregon income tax
purposes) of the Class A and Class B
Shares of the 100% U.S. Treasury
Obligations Fund are incorporated by
reference to Exhibit 16(b) of Post-
Effective Amendment No. 7 (filed
September 30, 1991) to Registrant's
Registration Statement on Form N-1A.
(c) Performance Calculation Schedules
concerning: (i) the seven-day and thirty-
day yield and effective yield of the
Class A and Class B Shares of the U.S.
Government Obligations Fund, the
Diversified Obligations Fund, the 100%
U.S. Treasury Obligations Fund, the Tax-
Free Fund and the California Tax-Free
Fund; (ii) the seven-day and thirty-day
tax-equivalent yield (using a Federal
income tax rate of 31%) and tax-
equivalent effective yield (using a
Federal income tax rate of 31%) of the
C-7
<PAGE> 325
Class A and Class B Shares of the Tax- Free
Fund and the California Tax-Free Fund;
(iii) the seven-day and thirty-day
tax-equivalent yield (using a Federal
income tax rate of 31% and a California
income tax rate of 9.3%) and tax-
equivalent effective yield (using a Federal
income tax rate of 31% and a California
income tax rate of 9.3%) of the Class A and
Class B Shares of the California Tax-Free
Fund; (iv) the average annual total return
of the Class A and Class B Shares of the
U.S. Government Obligations Fund, the
Diversified Obligations Fund, the 100% U.S.
Treasury Obligations Fund, the Tax- Free
Fund and the California Tax-Free Fund for
the one-year, three-year and
inception-to-date periods and the aggregate
total return of the Class A and Class B
Shares of each such Fund for the
year-to-date, quarterly and monthly
periods; (v) the thirty-day yield of the
Bond Fund; (vi) the average annual total
return of the Bond Fund and the Income
Equity Fund for the one-year, three-year,
five-year and inception-to-date periods and
the aggregate total return of each such
Fund for the year-to-date, quarterly and
monthly periods; and (vii) the distribution
rate (excluding and including capital
gains) over a twelve-month period for the
Bond Fund and Income Equity Fund, are
incorporated by reference to Exhibit 16(c)
of Post- Effective Amendment No. 8 (filed
September 30, 1992) to Registrant's
Registration Statement on Form N-1A.
(17) Financial Data Schedule.
C-8
<PAGE> 326
<PAGE> 327
(18) Powers of Attorney of Stephen G. Mintos,
Cynthia L. Lindsey, Thomas L. Braje,
David A. Goldfarb, Joseph C. Jaeger and
Frederick J. Long each dated November 22,
1994 are incorporated by reference to
Exhibit 17 of Post-Effective Amendment
No. 15 (filed December 1, 1994).
Item 25. Persons Controlled By or Under Common Control with
Registrant
As of the effective date of this Registration Statement,
there are no persons controlled by or under common control
with the U.S. Government Obligations Fund, the Diversified
Obligations Fund, the 100% U.S. Treasury Obligations Fund,
the Income Equity Fund, the Bond Fund, the Balanced Fund,
the Growth Fund, the Government Bond Fund, the Income and
Growth Fund, the Tax-Free Fund and the California Tax-Free
Fund of the Registrant.
C-9
<PAGE> 328
Item 26. Number of Holders of Securities
As of November 17, 1995, the number of record holders of the
following series of Shares were:
<TABLE>
<CAPTION>
Number of
Title of Series Record Holders
--------------- --------------
<S> <C>
U.S. Government Obligations Fund
Investor Shares.................... 185
Fiduciary Shares................... 12
Diversified Obligations Fund
Investor Shares.................... 872
Fiduciary Shares................... 105
100% U.S. Treasury Obligations Fund
Investor Shares.................... 399
Fiduciary Shares................... 27
Tax-Free Fund
Investor Shares.................... 66
Fiduciary Shares................... 10
California Tax-Free Fund
Investor Shares.................... 306
Fiduciary Shares................... 24
Income Equity Fund
Investor Shares.................... 83
Fiduciary Shares................... 511
Bond Fund
Investor Shares.................... 17
Fiduciary Shares................... 125
Income and Growth Fund
Investor Shares.................... 13
Fiduciary Shares................... 35
Growth Fund
Investor Shares.................... 28
Fiduciary Shares................... 97
Government Bond Fund
Investor Shares.................... 10
Fiduciary Shares................... 13
Balanced Fund
Investor Shares.................... 10
Fiduciary Shares................... 26
</TABLE>
C-10
<PAGE> 329
<TABLE>
<S> <C>
California Municipal Fund
Investor Shares.................... 0
Fiduciary Shares................... 0
Municipal Fund
Investor Shares.................... 0
Fiduciary Shares................... 0
</TABLE>
Item 27. Indemnification
Article IX, Section 9.2 of the Registrant's Declaration of
Trust, filed or incorporated by reference as Exhibit (1)
hereto, provides for the indemnification of Registrant's
trustees and officers. Indemnification of the Registrant's
principal underwriter, custodian, investment adviser,
manager and administrator, transfer agent, and fund
accountant is provided for, respectively, in Section 1.11 of
the Distribution Agreement, filed or incorporated by
reference as Exhibit 6 hereto, Section 16 of the Custodian
Agreement, filed or incorporated by reference as Exhibit 8
hereto, Section 8 of the Investment Advisory Agreement,
filed or incorporated by reference as Exhibit 5 hereto,
Section 4 of the Management and Administration Agreement,
filed or incorporated by reference as Exhibit 9(a) hereto,
Section 11 of the Transfer Agency and Shareholder Service
Agreement, filed or incorporated by reference as Exhibit 9
(c) hereto, and Section 7 of the Fund Accounting Agreement,
filed or incorporated by reference as Exhibit 9(e) hereto.
Registrant has obtained from a major insurance carrier a
trustees and officers' liability policy covering certain
types of errors and omissions. In no event will Registrant
indemnify any of its trustees, officers, employees or agents
against any liability to which such person would otherwise
be subject by reason of his willful misfeasance, bad faith,
or gross negligence in the performance of his duties, or by
reason of his reckless disregard of the duties involved in
the conduct of his office or under his agreement with
Registrant. Registrant will comply with Rule 484 under the
C-11
<PAGE> 330
Securities Act of 1933 and Release 11330 under the
Investment Company Act of 1940 in connection with any
indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees,
officers, and controlling persons of Registrant pursuant to
the foregoing provisions or otherwise, Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of
expenses incurred or paid by a trustee, officer, or
controlling person of Registrant in the successful defense
of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with
the securities being registered, Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by
it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment
Adviser
MERUS Capital Management, a division of The Bank of
California, N.A. ("MERUS"), performs investment advisory
services for Registrant. The Bank of California, N.A. ("The
Bank of California") offers a wide range of commercial and
trust management services to its clients in California,
Oregon, and Washington and around the world. The Mitsubishi
Bank, Limited ("Mitsubishi"), a Japanese bank with principal
offices in Tokyo, owns either directly or indirectly through
its wholly owned subsidiary (BanCal Tri-State Corporation)
all of the outstanding stock of The Bank of California.
C-12
<PAGE> 331
To the knowledge of Registrant, none of the directors or
officers of The Bank of California, except those set forth
below, is or has been at any time during the past two fiscal
years engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain
directors and officers of The Bank of California also hold
positions with BanCal Tri- State Corporation, Mitsubishi
and/or Mitsubishi's other subsidiaries.
Listed below are the directors and certain principal
executive officers of The Bank of California, their
principal occupations and, for the prior two fiscal years,
any other business, profession, vocation, or employment of a
substantial nature engaged in by such directors and
officers:
<TABLE>
<CAPTION>
THE BANK OF CALIFORNIA, N.A.
Position
with The
Bank of Principal Type of
California Name Occupation Business
- ---------- ---- ---------- --------
<S> <C> <C> <C>
Director Stanley F. Farrar, Partner Law Firm
Esquire Sullivan & Cromwell
12th Floor
444 So. Flower St.
Los Angeles, CA
90071
Director and Roy A. Henderson c/o Bank of California Banking
Vice Chairman 400 California Street
Regional Banking San Francisco, CA 94145
Director Yasuyuki Hirai Chief Executive Officer Clothing Manufacturer
MBL North American Headquarters
Two World Financial Center
225 Liberty St.
New York, NY 10281
Director Kazuo Ibuki c/o Bank of California Banking
400 California Street
San Francisco, CA
94145
</TABLE>
C-13
<PAGE> 332
<TABLE>
<S> <C> <C> <C>
Director Raymond E. Miles Professor, Haas School of Education
Business
University of California
350 Barrows Hall
Berkeley, CA
94720
Director J. Fernando Niebla Chairman & CEO Computer Software
Infotec Development, Inc. and Hardware
3611 S. Harbor Blvd.
Suite 260
Santa Ana, CA 92704
Director Minoru Noda c/o Bank of California Banking
and Vice- 400 California Street
Chairman, San Francisco, CA
Credit and 94145
Finance
Chairman of Hiroo Nozawa c/o Bank of California Banking
the Board, 400 California Street
President and San Francisco, CA
Chief Execu- 94145
tive Officer
Director Carl W. Robertson, Managing Director Real Estate and
Esquire Warland Investments Company Investment
Suite 300 Management
1299 Ocean Avenue Company
Santa Monica, CA
90401
Director Charles R. Scott President and Corporate
Chief Executive Officer Investor
Fuqua Industries
4900 Georgia Pacific Center
Atlanta, GA
30303
Director Paul W. Steere, Partner Law Firm
Esquire Bogle & Gates
Two Union Square
601 Union Street
Seattle, WA
98101-2322
Director Henry T. Swigert Chairman of the Board Equipment
ESCO Corporation Manufacturing
2141 NW 25th Avenue
Portland, OR
97210
Executive Peter R. Butcher c/o Bank of California Banking
Vice President 400 California Street
and Chief San Francisco, CA
Credit Officer 94145
Executive David W. Ehlers c/o Bank of California Banking
Vice President 400 California Street
and Chief San Francisco, CA
Financial Officer 94145
Executive Michael Spilsbury c/o Bank of California Banking
Vice President 400 California Street
San Francisco, CA
94145
Executive William R. Sweet c/o Bank of California Banking
Vice President 400 California Street
San Francisco, CA
94145
Executive Mayer C. Patel c/o Bank of California Banking
Vice President 400 California Street
San Francisco, CA
94145
Secretary James M. Castro c/o Bank of California Banking
400 California Street
San Francisco, CA
94145
</TABLE>
C-14
<PAGE> 333
Item 29. Principal Underwriter
(a) BISYS Fund Series Limited Partnership ("BISYS Fund Services")
(formerly known as The Winsbury Company Limited Partnership)
acts as distributor and administrator for Registrant. BISYS
Fund Services also distributes the securities of The Victory
Funds, The Coventry Group, The Parkstone Group of Funds, The
Sessions Group, the AmSouth Mutual Funds, the American
Performance Funds, The ARCH Fund, Inc., the Pacific Capital
Funds, the MMA Praxis Mutual Funds, the MarketWatch Funds, The
Riverfront Funds, Inc., the Summit Investment Trust, the
Qualivest Funds and the BB&T Mutual Funds Group, each of which
are management investment companies.
(b) Partners of The BISYS Fund Services, as of November 1, 1995,
were as follows:
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with The Offices with
Business Addresses Winsbury Company Registrant
- ------------------ ---------------- ------------
<S> <C> <C>
The BISYS Group, Inc. Sole Shareholder of None
150 Clove Road BISYS Fund Services, Inc.
Little Falls, NJ 07424
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road BISYS Fund Services, Inc.
Columbus, OH 43219
WC Subsidiary Corporation Limited Partner None
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
Item 30. Location of Accounts and Records
(1) The Bank of California, N.A., 400 California
Street, San Francisco, CA 94104 (records
relating to MERUS's functions as investment
adviser and The Bank of California's functions
as custodian and
sub-transfer agent).
(2) BISYS Fund Services, 3435 Stelzer Road,
Columbus, Ohio 43219 (records relating to its
functions as administrator and distributor and
the Registrant's
C-15
<PAGE> 334
Declaration of Trust, Code of Regulations and
Minute Books).
(3) BISYS Fund Services Ohio, Inc.,3435 Stelzer
Road, Columbus, Ohio 43219 (records relating to
its functions as transfer agent and fund
accountant).
Item 31. Management Services
None.
Item 32. Undertakings
Registrant hereby undertakes to call a meeting of the
shareholders for the purpose of voting upon the question of
removal of one or more trustees when requested to do so by
the holders of at least 10% of the outstanding shares of
Registrant and to comply with the provisions of Section
16(c) of the Investment Company Act of 1940 relating to
shareholder communication.
Registrant hereby undertakes to furnish each person to whom
a prospectus is delivered with a copy of the Registrant's
latest annual report to shareholders, upon request and
without charge.
Registrant hereby undertakes to file a post-effective
amendment, using financial statements which need not be
certified, within four to six months from the effective date
of Registrant's 1933 Act Registration Statement.
C-16
<PAGE> 335
NOTICE
A copy of the Amended and Restated Agreement and Declaration of The
HighMark Group 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 Registrant by an officer of the Registrant as an officer and not
individually and that the obligations of or arising out of this instrument are
not binding upon any of the trustees or shareholders individually but are
binding only upon the assets and property of the Registrant.
<PAGE> 336
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 16 to this Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of Boston,
and the Commonwealth of Massachusetts on the 28 day of November, 1995.
THE HIGHMARK GROUP
By:/s/Stephen G. Mintos
-----------------------
Stephen G. Mintos
President and Trustee
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 16 has been signed below by the following persons
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/Stephen G. Mintos Chairman of the November 28, 1995
- ------------------------ Board, Trustee and
Stephen G. Mintos President (Principal
Executive Officer)
/s/Martin R. Dean Treasurer (Principal November 30, 1995
- ------------------------ Financial and
Martin R. Dean Accounting Officer)
/s/Thomas L. Braje Trustee November 21, 1995
- ------------------------
Thomas L. Braje
/s/David A. Goldfarb Trustee November 3, 1995
- ------------------------
David A. Goldfarb
/s/Joseph C. Jaeger Trustee November 30, 1995
- ------------------------
Joseph C. Jaeger
/s/Frederick J. Long Trustee November 2, 1995
- ------------------------
Frederick J. Long
</TABLE>
<PAGE> 337
<TABLE>
<CAPTION>
Exhibit Index
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
6 Distribution Agreement
9(a) Management and Administration
Agreement
9(b) Transfer Agency and
Shareholder Services Agreement
9(d) Fund Accounting Agreement
11 Consent of Coopers & Lybrand L.L.P.
17 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 6
DISTRIBUTION AGREEMENT
August 1, 1995
The Winsbury Company Limited Partnership
d/b/a The Winsbury Company
1900 East Dublin-Granville Road
Columbus, Ohio 43229
Gentlemen:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, The HighMark Group (the "Trust"), a Massachusetts
business trust, has agreed that The Winsbury Company Limited Partnership d/b/a
The Winsbury Company ("Distributor") shall be, for the period of this Agreement,
the distributor of the units of beneficial interest of each of the investment
portfolios of the Trust identified on Schedule A hereto (the "Funds"). Such
units of beneficial interest are hereinafter called "Shares."
1. Services as Distributor.
1.1 Distributor will act as agent for the distribution of the Shares
covered by the registration statement and prospectus of the Trust then in effect
under the Securities Act of 1933.
1.2 Distributor agrees to use appropriate efforts to solicit orders for
the sale of the Shares and will undertake such advertising and promotion as it
believes reasonable in connection with such solicitation. The Trust understands
that Distributor may, in the future, be the distributor of the shares of several
investment companies or series (together, "Companies") including Companies
having investment objectives similar to those of the Trust. The Trust further
understands that investors and potential investors in the Trust may invest in
shares of such other Companies. The Trust agrees that Distributor's duties to
such Companies shall not be deemed in conflict with its duties to the Trust
under this paragraph 1.2.
Distributor shall, at its own expense, finance appropriate activities
which it deems reasonable which are primarily intended to result in the sale of
Shares, including, but not limited to, advertising, compensation of
underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current Shareholders, and the printing and mailing of
sales literature.
<PAGE> 2
1.3 On an annual basis, Distributor shall provide the Trust with a
detailed written marketing plan in respect of the Funds. Such marketing plan
shall be furnished to the trustees of the Trust prior to their last regularly
scheduled meeting of each calendar year.
1.4 All activities by Distributor and its partners, agents and
employees as distributor of Shares shall comply with all applicable laws, rules
and regulations, including, without limitation, all rules and regulations made
or adopted pursuant to the Investment Company Act of 1940 by the Securities and
Exchange Commission or any securities association registered under the
Securities Exchange Act of 1934.
1.5 Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Trust.
1.6 Distributor will transmit any orders received by it for purchase or
redemption of Shares to the transfer agent and custodian for the Funds.
1.7 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Trust's officers may decline to accept any orders for, or make any
sales of, Shares until such time as those officers deem it advisable to accept
such orders and to make such sales.
1.8 Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others.
1.9 The Trust agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
Shares for sale in such states as Distributor may designate.
1.10 The Trust shall furnish from time to time, for use in connection
with the sale of Shares, such information with respect to the Funds and the
Shares as Distributor may reasonably request; and the Trust warrants that the
statements contained in any such information shall fairly show or represent what
they purport to show or represent. The Trust shall also furnish Distributor upon
request with: (a) unaudited semi-annual statements of the Funds' books and
accounts prepared by the Trust, (b) quarterly earnings statements prepared by
the Trust, (c) a monthly itemized list of the securities in the Funds, (d)
monthly balance sheets as soon as practicable after the end of each month, and
(e) from time to time such additional information regarding the financial
condition of the Funds as Distributor may reasonably request.
1.11 The Trust represents to Distributor that all registration
statements and prospectuses filed by the Trust with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Shares have been carefully prepared in conformity with
-2-
<PAGE> 3
the requirements of said Act and rules and regulations of the Securities and
Exchange Commission thereunder. As used in this agreement the terms
"registration statement" and "prospectus" shall mean any registration statement
and any prospectus and Statement of Additional Information relating to the Funds
filed with the Securities and Exchange Commission and any amendments and
supplements thereto which at any time shall have been filed with the same
Commission. The Trust represents and warrants to Distributor that any
registration statement and prospectus, when such registration statement becomes
effective, will contain all statements required to be stated therein in
conformity with said Act and the rules and regulations of said Commission; that
all statements of fact contained in any such registration statement and
prospectus will be true and correct when such registration statement becomes
effective; and that neither any registration statement nor any prospectus when
such registration statement becomes effective will include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of Shares. The Trust may but shall not be obligated to propose from
time to time such amendment or amendments to any registration statement and such
supplement or supplements to any prospectus as, in the light of future
developments, may, in the opinion of the Trust's counsel, be necessary or
advisable. If the Trust shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by the Trust of a
written request from Distributor to do so, Distributor may, at its option,
terminate this agreement. The Trust shall not file any amendment to any
registration statement or supplement to any prospectus without giving
Distributor reasonable notice thereof in advance; provided, however, that
nothing contained in this agreement shall in any way limit the Trust's right to
file at any time such amendments to any registration statement and/or
supplements to any prospectus, of whatever character, as the Trust may deem
advisable, such right being in all respects absolute and unconditional.
1.12 The Trust authorizes Distributor and dealers to use any prospectus
in the form furnished from time to time in connection with the sale of Shares.
The Trust agrees to indemnify, defend and hold Distributor, its several partners
and employees, and any person who controls Distributor within the meaning of
Section 15 of the Securities Act of 1933, as amended, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which Distributor, its partners
and employees, or any such controlling person, may incur under the Securities
Act of 1933, as amended, or under common law or otherwise, arising out of or
based upon any untrue statement, or alleged untrue statement, of a material fact
contained in any registration statement or any prospectus or arising out of or
based upon any omission, or alleged omission, to state a material fact required
to be stated in either any registration statement or any prospectus or necessary
to make the statements in either thereof not misleading; provided, however, that
the Trust's agreement to indemnify Distributor, its partners or employees, and
any such controlling person shall not be deemed to cover any claims, demands,
liabilities or expenses arising out of any statements or representations as are
contained in any prospectus and in such financial and other statements as are
furnished in writing to the Trust by Distributor and used in the answers
-3-
<PAGE> 4
to the registration statement or in the corresponding statements made in the
prospectus, or arising out of or based upon any omission or alleged omission to
state a material fact in connection with the giving of such information required
to be stated in such answers or necessary to make the answers not misleading;
and further provided that the Trust's agreement to indemnify Distributor and the
Trust's representations and warranties hereinbefore set forth in paragraph 1.11
shall not be deemed to cover any liability to the Trust or its Shareholders to
which Distributor would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties, or by reason of
Distributor's reckless disregard of its obligations and duties under this
agreement. The Trust's agreement to indemnify Distributor, its partners and
employees, and any such controlling person, as aforesaid, is expressly
conditioned upon the Trust's being notified of any action brought against
Distributor, its partners or employees, or any such controlling person, such
notification to be given by letter or by telegram addressed to the Trust at its
principal office in Columbus, Ohio and sent to the Trust by the person against
whom such action is brought, within 10 days after the summons or other first
legal process shall have been served. The failure to so notify the Trust of any
such action shall not relieve the Trust from any liability which the Trust may
have to the person against whom such action is brought by reason of any such
untrue, or allegedly untrue, statement or omission, or alleged omission,
otherwise than on account of the Trust's indemnity agreement contained in this
paragraph 1.12. The Trust will be entitled to assume the defense of any suit
brought to enforce any such claim, demand or liability, but, in such case, such
defense shall be conducted by counsel of good standing chosen by the Trust and
approved by Distributor, which approval shall not be unreasonably withheld. In
the event the Trust elects to assume the defense of any such suit and retain
counsel of good standing approved by Distributor, the defendant or defendants in
such suit shall bear the fees and expenses of any additional counsel retained by
any of them; but in case the Trust does not elect to assume the defense of any
such suit, or in case Distributor reasonably does not approve of counsel chosen
by the Trust, the Trust will reimburse Distributor, its partners and employees,
or the controlling person or persons named as defendant or defendants in such
suit, for the fees and expenses of any counsel retained by Distributor or them.
The Trust's indemnification agreement contained in this paragraph 1.12 and the
Trust's representations and warranties in this agreement shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of Distributor, its partners and employees, or any controlling person,
and shall survive the delivery of any Shares. This agreement of indemnity will
inure exclusively to Distributor's benefit, to the benefit of its several
partners and employees, and their respective estates, and to the benefit of the
controlling persons and their successors. The Trust agrees promptly to notify
Distributor of the commencement of any litigation or proceedings against the
Trust or any of its officers or Trustees in connection with the issue and sale
of any Shares.
1.13 Distributor agrees to indemnify, defend and hold the Trust, its
several officers and Trustees and any person who controls the Trust within the
meaning of Section 15 of the Securities Act of 1933, as amended, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Trust,
-4-
<PAGE> 5
its officers or Trustees or any such controlling person, may incur under the
Securities Act of 1933, as amended, or under common law or otherwise, but only
to the extent that such liability or expense incurred by the Trust, its officers
or Trustees or such controlling person resulting from such claims or demands,
shall arise out of or be based upon any untrue, or alleged untrue, statement of
a material fact contained in information furnished in writing by Distributor to
the Trust and used in the answers to any of the items of the registration
statement or in the corresponding statements made in the prospectus, or shall
arise out of or be based upon any omission, or alleged omission, to state a
material fact in connection with such information furnished in writing by
Distributor to the Trust required to be stated in such answers or necessary to
make such information not misleading. Distributor's agreement to indemnify the
Trust, its officers and Trustees, and any such controlling person, as aforesaid,
is expressly conditioned upon Distributor's being notified of any action brought
against the Trust, its officers or Trustees, or any such controlling person,
such notification to be given by letter or telegram addressed to Distributor at
its principal office in Columbus, Ohio, and sent to Distributor by the person
against whom such action is brought, within 10 days after the summons or other
first legal process shall have been served. Distributor shall have the right of
first control of the defense of such action, with counsel of its own choosing,
satisfactory to the Trust, if such action is based solely upon such alleged
misstatement or omission on Distributor's part, and in any other event the
Trust, its officers or Trustees or such controlling person shall each have the
right to participate in the defense or preparation of the defense of any such
action. The failure to so notify Distributor of any such action shall not
relieve Distributor from any liability which Distributor may have to the Trust,
its officers or Trustees, or to such controlling person by reason of any such
untrue or alleged untrue statement, or omission or alleged omission, otherwise
than on account of Distributor's indemnity agreement contained in this paragraph
1.13.
1.14 No Shares shall be offered by either Distributor or the Trust
under any of the provisions of this Agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act of 1933, as amended, or if and so long as a current prospectus as
required by Section 10(b)(2) of said Act, as amended, is not on file with the
Securities and Exchange Commission; provided, however, that nothing contained in
this paragraph 1.14 shall in any way restrict or have an application to or
bearing upon the Trust's obligation to repurchase Shares from any Shareholder in
accordance with the provisions of the Trust's prospectus, Declaration of Trust,
or Code of Regulations.
1.15 The Trust agrees to advise Distributor as soon as reasonably
practical by a notice in writing delivered to Distributor or its counsel:
(a) of any request by the Securities and Exchange Commission for amendments
to the registration statement or prospectus then in effect or for
additional information;
-5-
<PAGE> 6
(b) in the event of the issuance by the Securities and Exchange Commission
of any stop order suspending the effectiveness of the registration
statement or prospectus then in effect or the initiation by service of
process on the Trust of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement of a
material fact made in the registration statement or prospectus then in
effect or which requires the making of a change in such registration
statement or prospectus in order to make the statements therein not
misleading; and
(d) of all action of the Securities and Exchange Commission with respect to
any amendment to any registration statement or prospectus which may
from time to time be filed with the Securities and Exchange Commission.
For purposes of this section, informal requests by or acts of the Staff
of the Securities and Exchange Commission shall not be deemed actions of or
requests by the Securities and Exchange Commission.
1.16 Distributor agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and its prior, present
or potential Shareholders, and not to 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
Distributor 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.
1.17 This agreement shall be governed by the laws of the Commonwealth
of Massachusetts.
2. Sale and Payment.
Under this Agreement, the following provisions shall apply with respect
to the sale of and payment of those Shares sold at an offering price which
includes a sales load as described in the prospectuses of the Funds identified
on Schedule B hereto (collectively, the "Load Funds"; each individually, a "Load
Fund"):
(a) The Distributor shall have the right, as principal, to purchase
Shares from the Load Funds at their net asset value and to sell such Shares to
the public against orders therefor at the applicable public offering price, as
defined in Section 3 below. The Distributor shall also have the right, as
principal, to sell Shares to dealers against orders therefor at the public
offering price less a concession determined by the Distributor, which concession
shall not exceed the amount of the sales charge or underwriting discount, if
any, referred to in Section 3 below.
-6-
<PAGE> 7
(b) Prior to the time of delivery of any Shares by a Load Fund to, or
on the order of, the Distributor, the Distributor shall pay or cause to be paid
to the Load Fund or to its order an amount in Boston or New York clearing house
funds equal to the applicable net asset value of such Shares. The Distributor
may retain so much of any sales charge or underwriting discount as is not
allowed by the Distributor as a concession to dealers.
3. Public Offering Price.
The public offering price shall be the net asset value of Shares, plus
any applicable sales charge, all as set forth in the current prospectus of the
Load Fund. In no event shall the public offering price exceed 1000/960 of such
net asset value, and in no event shall any applicable sales charge or
underwriting discount exceed 4.00% of the public offering price. The net asset
value of Shares shall be determined in accordance with the provisions of the
Declaration of Trust and Code of Regulations of the Trust and the then current
prospectus of the Load Fund.
4. Issuance of Shares.
The Load Funds reserve the right to issue, transfer or sell Shares at
net asset value (a) in connection with the merger or consolidation of the Trust
or the Load Fund(s) with any other investment company or the acquisition by the
Trust or the Load Fund(s) of all or substantially all of the assets or of the
outstanding shares of any other investment company; (b) in connection with a pro
rata distribution directly to the holders of the Shares in the nature of a stock
dividend or split; (c) upon the exercise of subscription rights granted to the
holders of Shares on a pro rata basis; (d) in connection with the issuance of
Shares pursuant to any exchange and reinvestment privileges described in any
then current prospectus of the Load Fund; and (e) otherwise in accordance with
any then current prospectus of the Load Fund.
5. Term and Matters Relating to the Trust as a Massachusetts
Business Trust.
This agreement shall become effective on August 1, 1995 and, unless
sooner terminated as provided herein, shall continue until July 31, 1997 and
thereafter shall continue automatically for successive annual periods ending on
July 31st of each year, provided such continuance is specifically approved at
least annually by (i) the Trust's Board of Trustees or (ii) by vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Trust, provided, however, that in either event the continuance is also
approved by a majority of the Trust's Trustees who are not parties to this
Agreement or interested persons (as defined in the 1940 Act) of any party to
this Agreement, by vote cast in person at a meeting called for the purpose of
voting on such approval. This Agreement is terminable without penalty, on not
less than sixty days' notice, by the Trust's Board of Trustees, by vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Trust or by Distributor. This Agreement will also terminate automatically in
the event of its assignment (as defined in the 1940 Act).
-7-
<PAGE> 8
The names "The HighMark Group" and "Trustees of The HighMark Group"
refer respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated as of March 10, 1987 to which reference is hereby made and a copy of
which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "The HighMark Group"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but 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 all persons dealing
with any series of Shares of the Trust must look solely to the assets of the
Trust belonging to such series for the enforcement of any claims against the
Trust.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Yours very truly,
Seal THE HIGHMARK GROUP
By: /s/ Cynthia L. Lindsey
------------------------
Name: Cynthia L.Lindsey
Title: Vice President
Accepted:
THE WINSBURY COMPANY LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By: /s/ Stephen G. Mintos
------------------------
Name: Stephen G. Mintos
Title: Executive Vice President
-8-
<PAGE> 9
Dated: As of August 1, 1995
Amended and Restated
Schedule A
to the
Distribution Agreement between
The HighMark Group and
The Winsbury Company Limited Partnership
Name of Fund
The U.S. Government Obligations Fund
The Diversified Obligations Fund
The 100% U.S. Treasury Obligations Fund
The Balanced Fund
The Growth Fund
The Income Equity Fund
The Bond Fund
The Tax-Free Fund
The California Tax-Free Fund
The Government Bond Fund
The Income and Growth Fund
The Municipal Bond Fund
The California Municipal Bond Fund
THE HIGHMARK GROUP
By:/s/ Cynthia L. Lindsey
-------------------------------------
Name: Cynthia L. Lindsey
Title: Vice President
THE WINSBURY COMPANY LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By:/s/ Stephen G. Mintos
--------------------------------------
Name: Stephen G. Mintos
Title: Executive Vice President
-9-
<PAGE> 10
Dated: As of August 1, 1995
Amended and Restated
Schedule B
to the Distribution Agreement between
The HighMark Group and
The Winsbury Company Limited Partnership
Name of Load Fund
The Balanced Fund
The Growth Fund
The Income Equity Fund
The Bond Fund
The Government Bond Fund
The Income and Growth Fund
The Municipal Bond Fund
The California Municipal Bond Fund
THE HIGHMARK GROUP
By:/s/ Cynthia L. Lindsey
-------------------------------------
Name: Cynthia L. Lindsey
Title: Vice President
THE WINSBURY COMPANY LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By:/s/ Stephen G. Mintos
--------------------------------------
Name: Stephen G. Mintos
Title: Executive Vice President
-10-
<PAGE> 1
EXHIBIT 9a
MANAGEMENT AND ADMINISTRATION AGREEMENT
As of August 1, 1995
The Winsbury Company Limited Partnership
1900 East Dublin-Granville Road
Columbus, OH 43229
Gentlemen:
The HighMark Group, a Massachusetts business trust (the "Trust"),
herewith confirms its Agreement with The Winsbury Company Limited Partnership,
d/b/a The Winsbury Company (the "Administrator") as follows:
The Trust desires to employ a portion of its capital by investing and
reinvesting the same in investments of the type and in accordance with the
limitations specified in its Declaration of Trust and in the Prospectuses and
Statements of Additional Information relating to each of the investment
portfolios and any additional investment portfolios of the Trust, as each are or
will be identified on Schedule A hereto (such investment portfolios and any
additional investment portfolios together called the "Funds"), copies of which
have been or will be submitted to the Administrator, and in the resolutions of
the Trust's Board of Trustees.
1. SERVICES AS MANAGER AND ADMINISTRATOR. Subject to the direction and
control of the Board of Trustees of the Trust, the Administrator will assist in
supervising all aspects of the operations of the Funds except those performed by
the investment adviser for the Funds under its Investment Advisory Agreement,
the custodian for the Funds under its Custodial Services Agreement, the transfer
agent for the Funds under its Transfer Agency Agreement and the fund accountant
for the Funds under its Fund Accounting Agreement.
The Administrator will maintain office facilities (which may be in the
offices of the Administrator or an affiliate but shall be in such location as
the Trust shall reasonably determine); furnish statistical and research data,
clerical and certain bookkeeping services and stationery and office supplies;
prepare the periodic reports to the Securities and Exchange Commission (the
"Commission") on Form N-SAR or any replacement forms therefor; compile data for,
prepare for execution by the Funds and file all the Funds' federal and state tax
returns and required tax filings other than those required to be made by the
Funds' custodian and transfer agent; prepare compliance filings pursuant to
state securities laws with the advice of the Trust's counsel; assist to the
extent requested by the Trust with the Trust's preparation of its Annual and
Semi-Annual Reports to Shareholders and its Registration Statements (on Form
N-1A or any replacement therefor); compile data for, prepare and file timely
Notices to the Commission required pursuant to Rule 24f-2 under the Investment
Company Act of 1940 (the "1940 Act"); keep and maintain the financial accounts
and records of the Funds, including calculation of daily expense accruals; in
the case of money
- --------------------------------------------------------------------------------
<PAGE> 2
THE HIGHMARK GROUP MANAGEMENT AND ADMINISTRATION AGREEMENT
- --------------------------------------------------------------------------------
market funds, determine the actual variance from $1.00 of the Fund's net asset
value per share; and generally assist in all aspects of the operations of the
Funds. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Administrator 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. The Administrator further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-1 under the 1940 Act. The
Administrator may delegate some or all of its responsibilities under this
Agreement.
The Administrator may, at its expense, subcontract with any entity or
person concerning the provisions of the services contemplated hereunder;
provided, however, that the Administrator shall not be relieved of any of its
obligations under this Agreement by the appointment of such subcontractor and
provided further, that the Administrator shall be responsible, to the extent
provided in Section 4 hereof, for all acts of such subcontractor as if such acts
were its own.
2. FEES; EXPENSES; EXPENSE REIMBURSEMENT. In consideration of services
rendered and expenses assumed pursuant to this Agreement, each of the Funds will
pay the Administrator on the first business day of each month, or at such
time(s) as the Administrator shall request and the parties hereto shall agree, a
fee computed daily and paid as specified below equal to the lesser of (a) the
fee calculated at the applicable annual rate set forth on Schedule A hereto or
(b) such other fee as may from time to time be agreed upon in writing by the
Trust and the Administrator. The fee for the period from the day of the month
this Agreement is entered into until the end of that month shall be prorated
according to the proportion which such period bears to the full monthly period.
Upon any termination of this Agreement before the end of any month, the fee for
such part of a month shall be prorated according to the proportion which such
period bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.
For the purpose of determining fees payable to the Administrator, the
value of the net assets of a particular Fund shall be computed in the manner
described in the Trust's Declaration of Trust or in the Prospectus or Statement
of Additional Information respecting that Fund as from time to time is in effect
for the computation of the value of such net assets in connection with the
determination of the liquidating value of the shares of such Fund.
The Administrator will from time to time employ or associate with
itself such person or persons as the Administrator may believe to be
particularly fitted to assist it in the performance of this Agreement. Such
person or persons may be partners, officers or employees who are employed by
both the Administrator and the Trust. The compensation of such person or persons
shall be paid by the Administrator and no obligation may be incurred on behalf
of the Funds in such respect. Other expenses to be incurred in the operation of
the Funds including taxes, interest, brokerage fees and commissions, if any,
fees of Trustees who are not partners, officers, directors, shareholders or
- --------------------------------------------------------------------------------
2
<PAGE> 3
THE HIGHMARK GROUP MANAGEMENT AND ADMINISTRATION AGREEMENT
- --------------------------------------------------------------------------------
employees of the Administrator or the investment adviser or distributor for the
Funds, commission fees and state Blue Sky qualification and renewal fees and
expenses, investment advisory fees, custodian fees, transfer and dividend
disbursing agents' fees, fund accounting fees including pricing of portfolio
securities, certain insurance premiums, outside and, to the extent authorized by
the Trust, inside auditing and legal fees and expenses, costs of maintenance of
corporate existence, typesetting and printing prospectuses for regulatory
purposes and for distribution to current Shareholders of the Funds, costs of
Shareholders' and Trustees' reports and meetings and any extraordinary expense
will be borne by the Funds; provided, however, that the Funds will not bear,
directly or indirectly, the cost of any activity which is primarily intended to
result in the distribution of shares of the Funds.
If in any fiscal year the aggregate expenses of a particular Fund (as
defined under the securities regulations of any state having jurisdiction over
the Trust) exceed the expense limitations of any such state, the Administrator
will reimburse such Fund for a portion of such excess expenses equal to such
excess times the ratio of the fees respecting such Fund otherwise payable to the
Administrator hereunder to the aggregate fees respecting such Fund otherwise
payable to the Administrator hereunder and to The Bank of California, N.A. (the
"Bank"), under the Investment Advisory Agreements between the Bank and the
Trust. The expense reimbursement obligation of the Administrator is limited to
the amount of its fees hereunder for such fiscal year, provided, however, that
notwithstanding the foregoing, the Administrator shall reimburse a particular
Fund for such proportion of such excess expenses regardless of the amount of
fees paid to it during such fiscal year to the extent that the securities
regulations of any state having jurisdiction over the Trust so require. Such
expense reimbursement, if any, will be estimated daily and reconciled and paid
on a monthly basis.
3. PROPRIETARY AND CONFIDENTIAL INFORMATION. The Administrator agrees
on behalf of itself and its partners and employees to treat confidentially and
as proprietary information of the Trust all records and other information
relative to the Trust and prior, present or potential Shareholders, and not to
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 the Administrator 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.
4. LIMITATION OF LIABILITY. The Administrator shall not be liable for
any loss suffered by the Funds in connection with the matters to which this
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement. Any
person, even though also a partner, employee or agent of the Administrator, who
may be or become an officer, Trustee, employee or agent of the Trust or the
Funds shall be deemed, when rendering services to
- --------------------------------------------------------------------------------
3
<PAGE> 4
THE HIGHMARK GROUP MANAGEMENT AND ADMINISTRATION AGREEMENT
- --------------------------------------------------------------------------------
the Trust or Funds, or acting on any business of that party, to be rendering
such services to or acting solely for that party and not as a partner, employee
or agent or one under the control or direction of the Administrator even though
paid by it.
5. TERM. This Agreement shall become effective as of the date first
written above (or, if a particular Fund is not in existence on the date, on the
date an amendment to Schedule A to this Agreement relating to that Fund is
executed) and shall continue until July 31, 1998, and unless sooner terminated
as provided herein, thereafter shall be renewed automatically for successive
one-year terms, unless written notice not to renew is given by the non-renewing
party to the other party at least 60 days prior to the expiration of the
then-current term. This Agreement is terminable at any time with respect to a
particular Fund or the Trust as a whole by either party without penalty for any
reason upon 120 days' written notice by the party effecting such termination to
the other party.
6. GOVERNING LAW AND MATTERS RELATING TO THE TRUST AS A MASSACHUSETTS
BUSINESS TRUST. This Agreement shall be governed by the laws of the Commonwealth
of Massachusetts. The names "The HighMark Group" and "Trustees of The HighMark
Group" refer respectively to the Trust created and the trustees, as trustees but
not individually or personally, acting from time to time under the Declaration
of Trust dated as of March 10, 1987, to which reference is hereby made and a
copy of which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "The HighMark Group"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but 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 all persons dealing
with any series of shares of the Trust must look solely to the assets of the
Trust belonging to such series for the enforcement of any claims against the
Trust.
- --------------------------------------------------------------------------------
4
<PAGE> 5
THE HIGHMARK GROUP MANAGEMENT AND ADMINISTRATION AGREEMENT
- --------------------------------------------------------------------------------
If the foregoing is in accordance with your understanding, kindly so
indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
THE HIGHMARK GROUP
By: /s/ Cynthia L. Lindsey
-------------------------
Name: Cynthia L. Lindsey
Title: Vice President
Accepted:
THE WINSBURY COMPANY LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By: /s/ Stephen G. Mintos
-------------------------------------
Name: Stephen G. Mintos
Title: Executive Vice President
- --------------------------------------------------------------------------------
5
<PAGE> 6
THE HIGHMARK GROUP SCHEDULE A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME OF FUND COMPENSATION(1)
<S> <C>
The HighMark California Tax-Free Fund Annual Rate of twenty one-
The HighMark Diversified Obligations Fund hundredths of one percent (.20%)
The HighMark Tax-Free Fund of each such Fund's average daily
The HighMark U.S. Government Obligations Fund net assets
The HighMark 100% U.S. Treasury Obligations Fund
The HighMark Balanced Fund
The HighMark Growth Fund
The HighMark Income Equity Fund
The HighMark Bond Fund
The HighMark Government Bond Fund
The HighMark Income and Growth Fund
The HighMark Municipal Bond Fund
The HighMark California Municipal Bond Fund
</TABLE>
THE HIGHMARK GROUP
By:/s/ Cynthia L. Lindsey
-------------------------------------
Name: Cynthia L. Lindsey
Title: Vice President
THE WINSBURY COMPANY LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By:/s/ Stephen G. Mintos
-------------------------------------
Name: Stephen G. Mintos
Title: Executive Vice President
(1) All fees are computed daily and paid
periodically.
- -------------------------
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 9b
TRANSFER AGENCY AND SHAREHOLDER SERVICES AGREEMENT
AGREEMENT made as of the 1st day of August, 1995 between THE HIGHMARK
GROUP (the "Trust"), a Massachusetts business trust having its principal place
of business at 1900 East Dublin-Granville Road, Columbus, OH 43229, and BISYS
FUND SERVICES OHIO, INC. ("BISYS Fund Services"), a corporation organized under
the laws of the State of Ohio and having its principal place of business at 1900
East Dublin-Granville Road, Columbus, OH 43229.
WHEREAS, the Trust desires that BISYS Fund Services perform certain
services for the Trust, and for its series denominated as funds and whose shares
of beneficial interest currently comprise the shares of the Trust identified on
Schedule A hereto (individually referred to herein as a "Fund" and collectively
as the "Funds"); and
WHEREAS, BISYS Fund Services is willing to perform such services on the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. SERVICES; USE OF SUBTRANSFER AGENTS. BISYS Fund Services shall
perform for the Trust the services set forth in Schedule B hereto, including
services as Transfer Agent and Shareholder Servicing Agent.
BISYS Fund Services also agrees to perform for the Trust such special
services incidental to the performance of the services enumerated herein as
agreed to by the parties from time to time. BISYS Fund Services shall perform
such additional services as are provided on an amendment to Schedule B hereof,
in consideration of such fees as the parties hereto may agree.
BISYS Fund Services may, in its discretion, appoint in writing other
parties qualified to perform transfer agency and shareholder services
(individually, a "Subtransfer Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a Fund; provided, however,
that the Subtransfer Agent shall be the agent of BISYS Fund Services and not the
agent of the Trust or such Fund, and that BISYS Fund Services shall be fully
responsible for the acts of such Subtransfer Agent and shall not be relieved of
any of its responsibilities hereunder by the appointment of such Subtransfer
Agent.
2. FEES. The Trust shall pay BISYS Fund Services for the services to
be provided by BISYS Fund Services under this Agreement in accordance with, and
in the manner set forth in, Schedule D hereto. BISYS Fund Services will not
change the fees it charges pursuant to the fee schedule until the expiration of
one year from the Effective Date of this Agreement (as defined below), unless
the Trust otherwise agrees to such change in writing; thereafter, BISYS Fund
Services may change its fees only upon the written consent of the Trust. Fees
for any additional
- --------------------------------------------------------------------------------
<PAGE> 2
THE HIGHMARK GROUP TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENT
- --------------------------------------------------------------------------------
services to be provided by BISYS Fund Services pursuant to an amendment to
Schedule B hereto shall be subject to mutual agreement at the time such
amendment to Schedule B is proposed.
3. REIMBURSEMENT OF EXPENSES. In addition to paying BISYS Fund
Services the fees described in Section 2 hereof, the Trust agrees to reimburse
BISYS Fund Services for BISYS Fund Services's out-of-pocket expenses in
providing services hereunder, including without limitation the following:
a. All freight and other delivery and bonding charges incurred by
BISYS Fund Services in delivering materials to and from the Trust
and in delivering all materials to shareholders;
b. All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by BISYS Fund
Services in communication with the Trust, the Trust's investment
adviser or custodian, dealers, shareholders, or others as
required for BISYS Fund Services to perform the services to be
provided hereunder;
c. Costs of postage, couriers, stock computer paper, statements,
labels, envelopes, checks, reports, letters, tax forms, proxies,
notices or other form of printed material which shall be required
by BISYS Fund Services for the performance of the services to be
provided hereunder;
d. The cost of microfilm or microfiche of records or other
materials; and
e. Any expenses BISYS Fund Services shall incur at the written
direction of an officer of the Trust thereunto duly authorized.
4. EFFECTIVE DATE. This Agreement shall become effective with
respect to a Fund as of the date first written above (the "Effective Date").
5. TERM. This Agreement shall continue in effect with respect to a
Fund, unless earlier terminated by either party hereto as provided hereunder,
for an initial term of one year from the Effective Date. Thereafter, this
Agreement shall continue in effect unless either party hereto terminates this
Agreement with respect to a Fund by giving 90 days' written notice to the other
party, whereupon this Agreement with respect to that Fund shall terminate
automatically upon the expiration of said 90 days; provided, however, that after
such termination, for so long as BISYS Fund Services, with the written consent
of the Trust, in fact continues to perform any one or more of the services
contemplated by this Agreement or any Schedule or exhibit hereto, the provisions
of this Agreement, including without limitation the provisions dealing with
indemnification, shall continue in full force and effect. Fees and out-of-pocket
expenses incurred by BISYS Fund
- --------------------------------------------------------------------------------
2
<PAGE> 3
THE HIGHMARK GROUP TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENT
- --------------------------------------------------------------------------------
Services but unpaid by the Trust upon such termination shall be immediately due
and payable upon and notwithstanding such termination. BISYS Fund Services shall
be entitled to collect from the Trust, in addition to the fees and disbursements
provided by Paragraphs 2 and 3 hereof, the amount of all of BISYS Fund Services'
cash disbursements and a reasonable fee (which fee shall be not less than the
sum of the actual costs incurred by BISYS Fund Services in performing such
service and 2 percent of such costs) for services in connection with BISYS Fund
Services' activities in effecting such termination, including without
limitation, the delivery to the Trust and/or its distributors or investment
advisers and/or other parties, of the Trust's property, records, instruments and
documents, or any copies thereof. Subsequent to such termination for a
reasonable fee, BISYS Fund Services will provide the Trust with reasonable
access to any Trust documents or records remaining in its possession.
6. BISYS FUND SERVICES' RELIANCE ON RECORDS AND INSTRUCTIONS. BISYS
Fund Services may rely on any written records or instructions provided to it by
the Trust or the investment adviser and on any written records provided by any
prior transfer agent or custodian thereof, and a Fund agrees to indemnify BISYS
Fund Services and hold it, its employees, officers, directors and agents
harmless from and against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, counsel fees and other
expenses of every nature arising out of or in any way relating to any actions
taken by BISYS Fund Services with respect to such Fund in reasonable reliance
upon such records or instructions.
7. UNCONTROLLABLE EVENTS. BISYS Fund Services assumes no
responsibility hereunder, and shall not be liable, for any damage, loss of data,
delay or any other loss whatsoever caused by events beyond its reasonable
control.
8. STANDARD OF CARE. BISYS Fund Services shall use its best efforts
to ensure the accuracy of all services performed under this Agreement, but shall
not be liable to the Trust for any action taken or omitted by BISYS Fund
Services in the absence of bad faith, willful misconduct or gross negligence.
9. LEGAL ADVICE. BISYS Fund Services shall notify the Trust at any
time BISYS Fund Services believes that it is in need of the advice of counsel
(other than counsel in the regular employ of BISYS Fund Services or any
affiliated companies) with regard to BISYS Fund Services' responsibilities and
duties pursuant to this Agreement; and after so notifying the Trust, BISYS Fund
Services, at its discretion, shall be entitled to seek, receive and act upon
advice of legal counsel of its choosing, such advice to be at the expense of the
Trust or the Fund involved unless such advice relates to a matter involving
BISYS Fund Services' willful misconduct or gross negligence with respect to
BISYS Fund Services' responsibilities and duties hereunder, and BISYS Fund
Services shall in no event be liable to the Trust or the Fund involved or any
shareholder or
- --------------------------------------------------------------------------------
3
<PAGE> 4
THE HIGHMARK GROUP TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENT
- --------------------------------------------------------------------------------
beneficial owner of the Trust or such Fund for any action reasonably taken
pursuant to such advice.
10. INSTRUCTIONS. Whenever BISYS Fund Services is requested or
authorized to take action hereunder pursuant to instructions from a shareholder
concerning an account in the Trust, BISYS Fund Services shall be entitled to
rely upon any certificate, letter or other instrument or communication, whether
in writing or by electronic or telephone transmission, believed by BISYS Fund
Services to be genuine and to have been properly made, signed or authorized by
an officer or other authorized agent of the Trust or by the shareholder, as the
case may be, and shall be entitled to receive as conclusive proof of any fact or
matter required to be ascertained by it hereunder a certificate signed by an
officer of the Trust or any other person authorized by the Trust's Board of
Trustees or by the shareholder, as the case may be.
As to the services to be provided hereunder, BISYS Fund Services may
rely conclusively upon the terms of the Prospectus of a Fund and the Statement
of Additional Information of the Trust to the extent that such services are
described therein unless BISYS Fund Services receives written instructions to
the contrary in a timely manner from the Trust.
11. INDEMNIFICATION. A Fund agrees to indemnify and hold harmless
BISYS Fund Services, its employees, agents, directors, officers and nominees
from and against any and all claims, demands, actions and suits, whether
groundless or otherwise, and from and against any and all judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character arising out of or in any way relating to BISYS Fund
Services' actions taken or non-actions with respect to the performance of
services under this Agreement with respect to such Fund or based, if applicable,
upon information, instructions or requests with respect to such Fund given or
made to BISYS Fund Services by an officer of the Trust thereunto duly
authorized; provided that this indemnification shall not apply to actions or
omissions of BISYS Fund Services in cases of its own willful misconduct or
negligence, and further provided that prior to confessing any claim against it
which may be the subject of this indemnification, BISYS Fund Services shall give
the Trust written notice of and reasonable opportunity to defend against said
claim in its own name or in the name of BISYS Fund Services.
12. RECORD RETENTION AND CONFIDENTIALITY. BISYS Fund Services shall
keep and maintain on behalf of the Trust all records which the Trust or BISYS
Fund Services is, or may be, required to keep and maintain pursuant to any
applicable statutes, rules and regulations, including without limitation Rules
31a-1 and 31a-2 under the Investment Company Act of 1940, relating to the
maintenance of records in connection with the services to be provided hereunder.
BISYS Fund Services agrees to make such records available for inspection by the
Trust or by the Securities and Exchange Commission at reasonable times and
otherwise to keep confidential all records and other information relative to the
Trust and its shareholders; except when requested
- --------------------------------------------------------------------------------
4
<PAGE> 5
THE HIGHMARK GROUP TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENT
- --------------------------------------------------------------------------------
to divulge such information by duly constituted authorities or court process, or
requested by a shareholder with respect to information concerning an account as
to which such shareholder has either a legal or beneficial interest or when
requested by the Trust, the shareholder, or the dealer of record as to such
account.
13. REPORTS. BISYS Fund Services will furnish to the Trust and to its
properly authorized auditors, investment advisers, examiners, distributors,
dealers, underwriters, salesman, insurance companies and others designated by
the Trust in writing, such reports at such times as are prescribed in Schedule C
attached hereto, or as subsequently agreed upon by the parties pursuant to an
amendment to Schedule C. The Trust agrees to examine each such report or copy
promptly and will report or cause to be reported any errors or discrepancies
therein no later than three business days from the receipt thereof. In the event
that errors or discrepancies, except such errors and discrepancies as may not
reasonably be expected to be discovered by the recipient within three days after
conducting a diligent examination, are not so reported within the aforesaid
period of time, a report will for all purposes be accepted by and binding upon
the Trust and any other recipient, and BISYS Fund Services shall have no
liability for errors or discrepancies therein and shall have no further
responsibility with respect to such report except to perform reasonable
corrections of such errors and discrepancies within a reasonable time after
requested to do so by the Trust.
14. RIGHTS OF OWNERSHIP. All computer programs and procedures
developed to perform services required to be provided by BISYS Fund Services
under this Agreement are the property of BISYS Fund Services. All records and
other data except such computer programs and procedures are the exclusive
property of the Trust and all such other records and data will be furnished to
the Trust in appropriate form as soon as practicable after termination of this
Agreement for any reason.
15. RETURN OF RECORDS. BISYS Fund Services may at its option at any
time, and shall promptly upon the Trust's demand, turn over to the Trust and
cease to retain BISYS Fund Services' files, records and documents created and
maintained by BISYS Fund Services pursuant to this Agreement which are no longer
needed by BISYS Fund Services in the performance of its services or for its
legal protection. If not so turned over to the Trust, such documents and records
will be retained by BISYS Fund Services for six years from the year of creation.
At the end of such six-year period, such records and documents will be turned
over to the Trust unless the Trust authorizes in writing the destruction of such
records and documents.
16. BANK ACCOUNTS. The Trust and a Fund shall establish and maintain
such bank accounts with such bank or banks as are selected by the Trust, as are
necessary in order that BISYS Fund Services may perform the services required to
be performed hereunder. To the extent that the performance of such services
shall require BISYS Fund Services directly to disburse amounts for payment of
dividends, redemption proceeds or other purposes, the Trust and a Fund shall
provide
- --------------------------------------------------------------------------------
5
<PAGE> 6
THE HIGHMARK GROUP TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENT
- --------------------------------------------------------------------------------
such bank or banks with all instructions and authorizations necessary for BISYS
Fund Services to effect such disbursements.
17. REDEMPTION OF SHARES. BISYS Fund Services shall process
instructions from the shareholders of the Trust to redeem shares of the Trust as
the agent for the Trust.
18. REPRESENTATIONS OF THE TRUST. The Trust certifies to BISYS Fund
Services that: (1) as of the close of business on the Effective Date, each Fund
has authorized unlimited shares and (2) by virtue of its Declaration of Trust,
shares of each Fund which are redeemed by the Trust may be sold by the Trust
from its treasury and (3) this Agreement has been duly authorized by the Trust
and, when executed and delivered by the Trust, will constitute a legal, valid
and binding obligation of the Trust, enforceable against the Trust in accordance
with its terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting the rights and remedies of
creditors and secured parties.
19. REPRESENTATIONS OF BISYS FUND SERVICES. BISYS Fund Services
represents and warrants that the various procedures and systems which BISYS Fund
Services has implemented with regard to safeguarding from loss or damage
attributable to fire, theft, or any other cause of the blank checks, records,
and other data of the Trust and BISYS Fund Services' records, data, equipment
facilities and other property used in the performance of its obligations
hereunder are adequate and that it will make such changes therein from time to
time as are required for the secure performance of its obligations hereunder.
20. INSURANCE. BISYS Fund Services shall use reasonable efforts to
obtain insurance covering the services to be performed by it under this
Agreement and shall notify the Trust in the event it is unable to do so within
90 days after the Effective Date of this Agreement. Thereafter, BISYS Fund
Services shall notify the Trust should any of its insurance coverage be changed
for any reason. Such notification shall include the date of change and the
reasons therefor. BISYS Fund Services shall notify the Trust of any material
claims against it with respect to services performed under this Agreement,
whether or not they may be covered by insurance, and shall notify the Trust from
time to time as may be appropriate of the total outstanding claims made by BISYS
Fund Services under its insurance coverage.
21. INFORMATION TO BE FURNISHED BY THE TRUST. The Trust has furnished
to BISYS Fund Services the following:
a. Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the state
in which such Declaration has been filed.
b. Copies of the following documents:
- --------------------------------------------------------------------------------
6
<PAGE> 7
THE HIGHMARK GROUP TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENT
- --------------------------------------------------------------------------------
(i) The Trust's Code of Regulations and amendments thereto.
(ii) Certified copies of resolutions of the Board of Trustees
covering the following matters:
(A) Approval of this Agreement, authorization of a
specified officer of the Trust to execute and
deliver this Agreement and authorization for
specified officers of the Trust to instruct BISYS
Fund Services hereunder; and
(B) Authorization of BISYS Fund Services to act as
Registrar, Transfer Agent and Dividend Disbursing
Agent for the Trust.
c. A list of all the officers of the Trust, together with specimen
signatures of those officers who are authorized to instruct BISYS
Fund Services in all matters.
d. Two copies of the following (if such documents are employed by
the Trust):
(i) Prospectuses for each Fund and the Statement of
Additional Information of the Trust;
(ii) Distribution Agreement;
(iii) Investment Advisory Contract; and
(iv) All other forms commonly used by the Trust or its
Distributor with regard to their relationships and
transactions with shareholders of the Trust.
e. A certificate as to shares of beneficial interest of the Trust
authorized, issued, and outstanding as of the Effective Date of
BISYS Fund Services' appointment as Transfer Agent (or as of the
date on which BISYS Fund Services' services are commenced,
whichever is the later date) and as to receipt of full
consideration by the Trust for all shares outstanding, such
statement to be certified by the Treasurer of the Trust.
22. INFORMATION FURNISHED BY BISYS FUND SERVICES. BISYS Fund Services
has furnished to the Trust the following:
a. BISYS Fund Services' Articles of Incorporation.
- --------------------------------------------------------------------------------
7
<PAGE> 8
THE HIGHMARK GROUP TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENT
- --------------------------------------------------------------------------------
b. BISYS Fund Services' By-Laws and any amendments thereto.
c. Certified copies of actions of BISYS Fund Services covering the
following matters:
(i) Approval of this Agreement, and authorization of a
specified officer of BISYS Fund Services to execute and
deliver this Agreement; and
(ii) Authorization of BISYS Fund Services to act as Transfer
Agent and Shareholder Servicing Agent for the Trust.
23. AMENDMENTS TO DOCUMENTS. The Trust shall furnish BISYS Fund
Services written copies of any amendments to, and changes in, any of the items
referred to in Section 21 hereof forthwith upon such amendments and changes
becoming effective. In addition, the Trust agrees that no amendments will be
made to the Prospectus of a Fund or the Statement of Additional Information of
the Trust which might have the effect of changing the procedures employed by
BISYS Fund Services in providing the services agreed to hereunder or which
amendment might affect the duties of BISYS Fund Services hereunder unless the
Trust first obtains BISYS Fund Services' approval of such amendments or changes.
24. RELIANCE ON AMENDMENTS. BISYS Fund Services may rely on any
amendments to or changes in any of the documents and other items to be provided
by the Trust pursuant to Sections 21 and 23 of this Agreement and a Fund will
indemnify and hold harmless BISYS Fund Services from and against any and all
claims, demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, counsel fees and other expenses of every nature and character which may
result from actions or omissions on the part of BISYS Fund Services with respect
to such Fund in reliance upon such amendments and/or changes. Although BISYS
Fund Services is authorized to rely on the above-mentioned amendments to and
changes in the documents and other items to be provided pursuant to Sections 21
and 23 hereof, BISYS Fund Services shall be under no duty to comply with or take
any action as a result of any of such amendments or changes unless the Trust
first obtains BISYS Fund Services' written consent to and approval of such
amendments or changes.
25. COMPLIANCE WITH LAW. Except for the obligations of BISYS Fund
Services set forth in Section 12 hereof, the Trust assumes full responsibility
for the preparation, contents and distribution of each Prospectus of the Trust
as to compliance with all applicable requirements of the Securities Act of 1933,
as amended (the "Securities Act"), the Investment Company Act of 1940, as
amended, (the "1940 Act") and any other laws, rules and regulations of
governmental authorities having jurisdiction. BISYS Fund Services shall have no
obligation to take cognizance of any laws relating to the sale of the Trust's
shares. The Trust represents and warrants that no shares of the Trust will be
offered to the public until the Trust's registration statement under the
Securities Act and the 1940 Act has been declared or has become effective.
- --------------------------------------------------------------------------------
8
<PAGE> 9
THE HIGHMARK GROUP TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENT
- --------------------------------------------------------------------------------
26. NOTICES. Any notice provided hereunder shall be sufficiently
given when sent by registered or certified mail to the party required to be
served with such notice, at the following address:
1900 East Dublin-Granville Road
Columbus, OH 43229
or at such other address as such party may from time to time specify in writing
to the other party pursuant to this Section.
27. HEADINGS. Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
28. ASSIGNMENT. This Agreement and the rights and duties hereunder
shall not be assignable with respect to a Fund by either of the parties hereto
except by the specific written consent of the other party. This Section 28 shall
not limit or in any way affect BISYS Fund Services' right to appoint a
Subtransfer Agent pursuant to Section 1 hereof.
29. GOVERNING LAW. This Agreement shall be governed by and provisions
shall be construed in accordance with the laws of the Commonwealth of
Massachusetts.
30. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS. 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 or shareholders individually but are binding only upon the
assets and property of the Trust.
- --------------------------------------------------------------------------------
9
<PAGE> 10
THE HIGHMARK GROUP TRANSFER AGENCY AND SHAREHOLDER SERVICE AGREEMENT
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
[SEAL]
THE HIGHMARK GROUP
By:/s/ Cynthia L. Lindsey
---------------------------
Name: Cynthia L. Lindsey
Title: Vice President
BISYS FUND SERVICES OHIO, INC.
By:/s/ Stephen G. Mintos
---------------------------
Name: Stephen G. Mintos
Title: Executive Vice President
- --------------------------------------------------------------------------------
10
<PAGE> 11
THE HIGHMARK GROUP SCHEDULE A
- --------------------------------------------------------------------------------
NAME OF FUND
The HighMark California Tax-Free Fund
The HighMark Diversified Obligations Fund
The HighMark Tax-Free Fund
The HighMark U.S. Government Obligations Fund
The HighMark 100% U.S. Treasury Obligations Fund
The HighMark Balanced Fund
The HighMark Growth Fund
The HighMark Income Equity Fund
The HighMark Bond Fund
The HighMark Government Bond Fund
The HighMark Income and Growth Fund
The HighMark Municipal Bond Fund
The HighMark California Municipal Bond Fund
THE HIGHMARK GROUP
By: /s/ Cynthia L. Lindsey
--------------------------
Name: Cynthia L. Lindsey
Title: Vice President
BISYS FUND SERVICES OHIO, INC.
By: /s/ Stephen G. Mintos
--------------------------
Name: Stephen G. Mintos
Title: Executive Vice President
Dated: As of August 1, 1995
- --------------------------------------------------------------------------------
<PAGE> 12
THE HIGHMARK GROUP SCHEDULE B
- --------------------------------------------------------------------------------
TRANSFER AGENCY SERVICES
I. RECORD MAINTENANCE.
BISYS Fund Services shall provide full maintenance of all shareholder records
for each account in the Trust. Such records will include:
A. Share balances;
B. Account transaction history, including dividends paid and the date and
price for all transactions;
C. Name and address of the record shareholder, including zip codes and tax
identification numbers (but shall not include responsibility for obtaining
certified tax identification numbers or impending backup withholding);
D. Records of distributions and dividend payments;
E. Transfer records; and
F. Overall control records.
II. REGULAR DAILY OPERATIONS.
BISYS Fund Services shall perform the following functions:
A. Process new accounts on the shareholder file by processing directly from
the dealer;
B. Process additional purchases to the records of accounts already on the
shareholder file. In such instances, on the dealer's instructions, allocate
investor payments among the Funds;
C. Transfer of shares upon the receipt of proper instructions from dealer; and
D. Process changes of dealer/representative on accounts.
- --------------------------------------------------------------------------------
<PAGE> 13
THE HIGHMARK GROUP SCHEDULE B
- --------------------------------------------------------------------------------
III. PERIODIC OPERATIONS.
A. Upon receipt of instructions as to payment of dividends and distributions,
which may be standing instructions, compute distributions and inform the
Trust of the amount to be reinvested in additional shares;
B. Process redemptions as instructed by dealer;
C. Mail semi-annual and annual Trust and/or Fund reports and prospectuses;
D. Produce transcripts of account history as requested by the Trust or by the
dealer; and
E. Prepare and file Forms 1099 with Internal Revenue Service.
IV. CONTROLS.
A. Maintain all balance controls daily and produce monthly summaries expressed
in:
1. shares; and
2. dollar amounts.
V. SPECIAL SERVICES INCLUDED.
A. Prepare envelopes/labels (from address data supplied by dealer as to
transmission accounts) and mail proxy statements; tabulate and certify
votes from returned ballots.
THE HIGHMARK GROUP
By: /s/ Cynthia L. Lindsey
--------------------------
Name: Cynthia L. Lindsey
Title: Vice President
BISYS FUND SERVICES OHIO, INC.
By: /s/ Stephen G. Mintos
--------------------------
Name: Stephen G. Mintos
Title: Executive Vice President
Dated: As of August 1, 1995
- --------------------------------------------------------------------------------
<PAGE> 14
THE HIGHMARK GROUP SCHEDULE C
- --------------------------------------------------------------------------------
REPORTS
I. Daily Activity Report (liquidations processed that day)
II. Daily Share Summary Report (by Fund)
A. Beginning balance
B. Liquidations
C. Payments
D. Exchanges
E. Adjustments
F. Ending balance
III. Daily Proof Sheet Summary and Transaction Register
IV. Daily Share Reconciliation Report (reconciling Share Summary Report to
Daily Proof Summary Sheet)
V. Weekly Position Reports (showing all account balances)
VI. Monthly Dividend Reports
- --------------------------------------------------------------------------------
<PAGE> 15
THE HIGHMARK GROUP SCHEDULE C
- --------------------------------------------------------------------------------
VII. Report by independent public accountants concerning BISYS Fund
Services' accounting system and internal accounting controls, at such times as
the Trust may reasonably require. These reports shall be of sufficient detail
and scope to provide reasonable accuracy that any material inadequacies would be
disclosed by such examination and, if there are no such inadequacies, shall so
state.
THE HIGHMARK GROUP
By: /s/ Cynthia L. Lindsey
---------------------------
Name: Cynthia L. Lindsey
Title: Vice President
BISYS FUND SERVICES OHIO, INC.
By: /s/ Stephen G. Mintos
---------------------------
Name: Stephen G. Mintos
Title: Executive Vice President
Dated: As of August 1, 1995
- --------------------------------------------------------------------------------
<PAGE> 16
THE HIGHMARK GROUP SCHEDULE D
- --------------------------------------------------------------------------------
TRANSFER AGENT FEES
ANNUAL FEES:
<TABLE>
<S> <C>
Daily dividend base fee................... $16 per shareholder
Non-daily dividend base fee............... $14 per shareholder
</TABLE>
ANNUAL MINIMUMS:
INSTITUTIONAL TRANSFER AGENT SERVICES:
<TABLE>
<S> <C>
Per class for less than 100 shareholders....... $ 10,000
Per class for 100 to 499 shareholders.......... $ 18,000
Per class for 500 or more shareholders......... $ 24,000
</TABLE>
RETAIL TRANSFER AGENT SERVICES:
This schedule applies to any portfolio or class with any of the following
features: combined statementing, 12b-1 fees, load features, check
writing, auto-invest or auto- withdrawal processing or special database
reports.
<TABLE>
<S> <C>
Per class for less than 100 shareholders.............. $ 18,000
Per class for 100 to 499 shareholders................. $ 24,000
Per class for 500 or more shareholders................ $ 36,000
</TABLE>
MULTIPLE CLASSES OF SHARES:
Classes of shares which have different net asset values or pay different
daily dividends will be treated as separate classes, and the fee schedule
above, including the appropriate minimums, will be charged for each
separate class.
ADDITIONAL SERVICES:
Additional services such as IRA processing are subject to additional fees
which will be quoted upon request. Programming costs or database
management fees for special reports or specialized processing will be
quoted upon request.
OUT-OF-POCKET CHARGES:
Out-of-pocket costs, including postage, Tymnet charges, statement/confirm
paper and forms, and microfiche, will be added to the transfer agent
fees.
- --------------------------------------------------------------------------------
<PAGE> 17
THE HIGHMARK GROUP SCHEDULE D
- --------------------------------------------------------------------------------
The term "Accounts" refers to shareholder accounts of record. The number of
Accounts for purposes of determining the Annual Minimum Fee Per Class of Shares
is calculated on a monthly basis.
THE HIGHMARK GROUP
By: /s/ Cynthia L. Lindsey
--------------------------
Name: Cynthia L. Lindsey
Title: Vice President
BISYS FUND SERVICES OHIO, INC.
By: /s/ Stephen G. Mintos
--------------------------
Name: Stephen G. Mintos
Title: Executive Vice President
Dated: As of August 1, 1995
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 9d
FUND ACCOUNTING AGREEMENT
AGREEMENT made as of the 1st day of August, 1995 between THE HIGHMARK
GROUP (the "Trust"), a Massachusetts business trust having its principal place
of business at 1900 East Dublin-Granville Road, Columbus, OH 43229, and BISYS
FUND SERVICES OHIO, INC. ("BISYS Fund Services"), a corporation organized under
the laws of the State of Ohio and having its principal place of business at 1900
East Dublin-Granville Road, Columbus, OH 43229.
WHEREAS, the Trust desires that BISYS Fund Services perform certain
fund accounting services for each investment portfolio of the Trust identified
on Schedule A hereto, as such Schedule shall be amended from time to time
(individually referred to herein as the "Fund" and collectively the "Funds");
and
WHEREAS, BISYS Fund Services is willing to perform such services on the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. SERVICES AS FUND ACCOUNTANT. BISYS Fund Services will keep and
maintain the following books and records of each Fund pursuant to Rule 31a-1
under the Investment Company Act of 1940 (the "Rule"):
a. Journals containing an itemized daily record in detail of all
purchases and sales of securities, all receipts and disbursements of
cash and all other debits and credits, as required by subsection
(b)(1) of the Rule;
b. General and auxiliary ledgers reflecting all asset, liability,
reserve, capital, income and expense accounts, including interest
accrued and interest received, as required by subsection (b)(2)(i)
of the Rule;
c. Separate ledger accounts required by subsection (b)(2)(ii) and (iii)
of the Rule; and
d. A monthly trial balance of all ledger accounts (except shareholder
accounts) as required by subsection (b)(8) of the Rule.
In addition to the maintenance of the books and records specified
above, BISYS Fund Services shall perform the following accounting services daily
for each Fund:
a. Calculate the net asset value per Share;
b. Calculate the dividend and capital gain distribution, if any;
- --------------------------------------------------------------------------------
<PAGE> 2
THE HIGHMARK GROUP FUND ACCOUNTING AGREEMENT
- --------------------------------------------------------------------------------
c. Calculate the yield;
d. Reconcile cash movements with the Fund's custodian;
e. Affirm to the Fund's custodian all portfolio trades and cash
movements;
f. Verify and reconcile with the Fund's custodian all daily trade
activity;
g. Provide the following reports:
(i) A current security position report;
(ii) A summary report of transactions and pending maturities
(including the principal, cost, and accrued interest on
each portfolio security in maturity date order); and
(iii) A current cash position report (including cash available
from portfolio sales and maturities and sales of a Fund's
Shares less cash needed for redemptions and settlement of
portfolio purchases);
h. Such other similar services with respect to a Fund as may be
reasonably requested by the Trust.
BISYS Fund Services shall perform the following accounting services for
each Fund:
a. Obtain at least daily for variable net asset value funds and
weekly for money market funds actual dealer quotations, prices
from a pricing service, or matrix prices on all portfolio
securities (including those with less than 60 days to maturity) in
order to mark the entire portfolio to the market; and
b. Prepare an interim balance sheet, statement of income and expense,
and statement of changes in net assets for the Fund as of each
month-end.
2. SUBCONTRACTING. BISYS Fund Services may, at its expense, subcontract
with any entity or person concerning the provision of the services contemplated
hereunder; provided, however, that BISYS Fund Services shall not be relieved of
any of its obligations under this Agreement by the appointment of such
subcontractor and provided further that BISYS Fund Services shall be
responsible, to the extent provided in Section 7 hereof, for all acts of such
subcontractor as if such acts were its own.
- --------------------------------------------------------------------------------
2
<PAGE> 3
THE HIGHMARK GROUP FUND ACCOUNTING AGREEMENT
- --------------------------------------------------------------------------------
3. COMPENSATION. The Trust shall pay BISYS Fund Services for the
services to be provided by BISYS Fund Services under this Agreement in
accordance with, and in the manner set forth in, Schedule B hereto.
4. REIMBURSEMENT OF EXPENSES. In addition to paying BISYS Fund Services
the fees described in Section 3 hereof, the Trust agrees to reimburse BISYS Fund
Services for BISYS Fund Services' out-of-pocket expenses in providing the
services hereunder, including without limitation the following:
a. All freight and other delivery and bonding charges incurred by
BISYS Fund Services in delivering materials to and from the Trust;
b. All direct telephone, telephone transmission and telecopy or other
electronic transmission expenses incurred by BISYS Fund Services
in communication with the Trust, the Trust's investment advisor or
custodian, dealers or others as required for BISYS Fund Services
to perform the services to be provided hereunder;
c. Costs of pricing the portfolio securities of each Fund;
d. The cost of microfilm or microfiche of records or other materials;
and
e. Any expenses BISYS Fund Services shall incur at the written
direction of an officer of the Trust thereunto duly authorized.
5. EFFECTIVE DATE. This Agreement shall become effective with respect
to a Fund as of the date first written above (or, if a particular Fund is not in
existence on that date, on the date an amendment to Schedule A to this Agreement
relating to the Fund is executed) (the "Effective Date").
6. TERM. This Agreement shall continue in effect with respect to a
Fund, unless earlier terminated by either party hereto as provided hereunder,
until July 31, 1998, and thereafter shall be renewed automatically for
successive one-year terms unless written notice not to renew is given by the
non-renewing party to the other party at least 60 days prior to the expiration
of the then-current term; provided, however, that after such termination for so
long as BISYS Fund Services, with the written consent of the Trust, in fact
continues to perform any one or more of the services contemplated by this
Agreement or any schedule or exhibit hereto, the provisions of this Agreement,
including without limitation the provisions dealing with indemnification, shall
continue in full force and effect. Compensation due BISYS Fund Services and
unpaid by the Trust upon such termination shall be immediately due and payable
upon and notwithstanding such termination. BISYS Fund Services shall be entitled
to collect from the Trust, in addition to the compensation described under
Section 3 hereof, the amount of all of BISYS Fund Services' cash disbursements
for services in
- --------------------------------------------------------------------------------
3
<PAGE> 4
THE HIGHMARK GROUP FUND ACCOUNTING AGREEMENT
- --------------------------------------------------------------------------------
connection with BISYS Fund Services' activities in effecting such termination,
including without limitation, the delivery to the Trust and/or its designees of
the Trust's property, records, instruments and documents, or any copies thereof.
Subsequent to such termination, for a reasonable fee, BISYS Fund Services will
provide the Trust with reasonable access to any Trust documents or records
remaining in its possession. This Agreement is terminable at any time with
respect to a particular Fund or the Trust as a whole by either party without
penalty for any reason only upon 120 days' prior written notice by the party
effecting said termination to the other party..
7. STANDARD OF CARE; RELIANCE ON RECORDS AND INSTRUCTIONS;
INDEMNIFICATION. BISYS Fund Services shall use its best efforts to ensure the
accuracy of all services performed under this Agreement, but shall not be liable
to the Trust for any action taken or omitted by BISYS Fund Services in the
absence of bad faith, willful misfeasance, negligence or from reckless disregard
by it of its obligations and duties. A Fund agrees to indemnify and hold
harmless BISYS Fund Services, its employees, agents, directors, officers and
nominees from and against any and all claims, demands, actions and suits,
whether groundless or otherwise, and from and against any and all judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character arising out of or in any way relating to BISYS Fund
Services' actions taken or nonactions with respect to the performance of
services under this Agreement with respect to such Fund or based, if applicable,
upon reasonable reliance on information, records, instructions or requests with
respect to such Fund given or made to BISYS Fund Services by a duly authorized
representative of the Trust; provided that this indemnification shall not apply
to actions or omissions of BISYS Fund Services in cases of its own bad faith,
willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties, and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, BISYS Fund Services
shall give the Trust written notice of and reasonable opportunity to defend
against said claim in its own name or in the name of BISYS Fund Services.
8. RECORD RETENTION AND CONFIDENTIALITY. BISYS Fund Services shall keep
and maintain on behalf of the Trust all books and records which the Trust and
BISYS Fund Services is, or may be, required to keep and maintain pursuant to any
applicable statutes, rules and regulations, including without limitation Rules
31a-1 and 31a-2 under the Investment Company Act of 1940, as amended (the "1940
Act"), relating to the maintenance of books and records in connection with the
services to be provided hereunder. BISYS Fund Services further agrees that all
such books and records shall be the property of the Trust and to make such books
and records available for inspection by the Trust or by the Securities and
Exchange Commission at reasonable times and otherwise to keep confidential all
books and records and other information relative to the Trust and its
shareholders; except when requested to divulge such information by
duly-constituted authorities or court process.
- --------------------------------------------------------------------------------
4
<PAGE> 5
THE HIGHMARK GROUP FUND ACCOUNTING AGREEMENT
- --------------------------------------------------------------------------------
9. UNCONTROLLABLE EVENTS. BISYS Fund Services assumes no responsibility
hereunder, and shall not be liable, for any damage, loss of data, delay or any
loss whatsoever caused by events beyond its reasonable control.
10. REPORTS. BISYS Fund Services will furnish to the trust and to its
properly authorized auditors, investment advisors, examiners, distributors,
dealers, underwriters, salesman, insurance companies and others designated by
the Trust in writing, such reports and at such times as are prescribed pursuant
to the terms and conditions of this Agreement to be provided or completed by
BISYS Fund Services, or as subsequently agreed upon by the parties pursuant to
an amendment hereto. The Trust agrees to examine each such report or copy
promptly and will report or cause to be reported any errors or discrepancies
therein no later than three business days from the receipt thereof. In the event
that errors or discrepancies, except such errors and discrepancies as may not
reasonably be expected to be discovered by the recipient within three days after
conducting a diligent examination, are not so reported within the aforesaid
period of time, a report will for all purposes be accepted by and binding upon
the trust and any other recipient, and BISYS Fund Services shall have no
liability for errors or discrepancies therein and shall have no further
responsibility with respect to such report except to perform reasonable
corrections of such errors and discrepancies within a reasonable time after
requested to do so by the Trust.
11. RIGHTS OF OWNERSHIP. All computer programs and procedures developed
to perform services required to be provided by BISYS Fund Services under this
Agreement are the property of BISYS Fund Services. All records and other data
except such computer programs and procedures are the exclusive property of the
Trust and all such other records and data will be furnished to the Trust in
appropriate form as soon as practicable after termination of this Agreement for
any reason.
12. RETURN OF RECORDS. BISYS Fund Services may at its option at any
time, and shall promptly upon the Trust's demand, turn over to the Trust and
cease to retain BISYS Fund Services' files, records and documents created and
maintained by BISYS Fund Services pursuant to this Agreement which are no longer
needed by BISYS Fund Services in the performance of its services or for its
legal protection. If not so turned over to the Trust, such documents and records
will be retained by BISYS Fund Services for six years from the year of creation.
At the end of such six-year period, such records and documents will be turned
over to the Trust unless the Trust authorizes in writing the destruction of such
records and documents.
13. REPRESENTATIONS OF THE TRUST. The Trust certifies to BISYS Fund
Services that: (1) as of the close of business on the Effective Date, each Fund
that is in existence as of the Effective Date has authorized unlimited shares,
and (2) this Agreement has been duly authorized by the Trust and, when executed
and delivered by the Trust, will constitute a legal, valid and binding
obligation of the Trust, enforceable against the Trust in accordance with its
terms, subject to bankruptcy,
- --------------------------------------------------------------------------------
5
<PAGE> 6
THE HIGHMARK GROUP FUND ACCOUNTING AGREEMENT
- --------------------------------------------------------------------------------
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
14. REPRESENTATIONS OF BISYS FUND SERVICES. BISYS Fund Services
represents and warrants that: (1) the various procedures and systems which BISYS
Fund Services has implemented with regard to safeguarding from loss or damage
attributable to fire, theft, or any other cause of the records, and other data
of the Trust and BISYS Fund Services' records, data, equipment facilities and
other property used in the performance of its obligations hereunder are adequate
and that it will make such changes therein from time to time as are required for
the secure performance of its obligations hereunder, and (2) this Agreement has
been duly authorized by BISYS Fund Services and, when executed and delivered by
BISYS Fund Services, will constitute a legal, valid and binding obligation of
BISYS Fund Services, enforceable against BISYS Fund Services in accordance with
its terms, subject to bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting the rights and remedies of creditors
and secured parties.
15. INSURANCE. BISYS Fund Services shall notify the Trust should any of
its insurance coverage be canceled or reduced. Such notification shall include
the data of change and the reasons therefor. BISYS Fund Services shall notify
the Trust of nay material claims against it with respect to services performed
under this Agreement, whether or not they may be covered by insurance, and shall
notify the Trust from time to time as may be appropriate of the total
outstanding claims made by BISYS Fund Services under its insurance coverage.
16. INFORMATION TO BE FURNISHED BY THE TRUST AND FUNDS. The Trust has
furnished to BISYS Fund Services the following:
a. Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the state
in which such Declaration has been filed.
b. Copies of the following documents:
(i) The Trust's Code of Regulations and any amendments
thereto;
(ii) Certified copies of resolutions of the Board of Trustees
covering the approval of this Agreement, authorization of
a specified officer of the Trust to execute and deliver
this Agreement and authorization for specified officers of
the Trust to instruct BISYS Fund Services thereunder.
c. A list of all the officers of the Trust, together with specimen
signatures of those officers who are authorized to instruct BISYS
Fund Services in all matters.
- --------------------------------------------------------------------------------
6
<PAGE> 7
THE HIGHMARK GROUP FUND ACCOUNTING AGREEMENT
- --------------------------------------------------------------------------------
d. Two copies of the following (if such documents are employed by the
Trust):
(i) Prospectuses and Statements of Additional Information for
each Fund.
17. INFORMATION FURNISHED BY BISYS FUND SERVICES. BISYS Fund Services
has furnished to the Trust the following:
a. BISYS Fund Services' Articles of Incorporation.
b. BISYS Fund Services' Code of Regulations and any amendments
thereto.
c. Certified copies of actions of BISYS Fund Services covering the
following matters:
(i) Approval of this Agreement, and authorization of a
specified officer of BISYS Fund Services of BISYS Fund
Services to execute and deliver this Agreement;
(ii) Authorization of BISYS Fund Services to act as fund
accountant for the Trust and to provide accounting
services for the Trust.
18. AMENDMENTS TO DOCUMENTS. The Trust shall furnish BISYS Fund
Services written copies of any amendments to, or changes in, any of the items
referred to in Section 16 hereof forthwith upon such amendments or changes
becoming effective. In addition, the Trust agrees that no amendments will be
made to the Prospectuses or Statements of Additional Information of the Trust
which might have the effect of changing the procedures employed by BISYS Fund
Services in providing the services agreed to hereunder or which amendment might
affect the duties of BISYS Fund Services hereunder unless the Trust first
obtains BISYS Fund Services' approval of such amendments or changes.
19. COMPLIANCE WITH LAW. Except for the obligations of BISYS Fund
Services set forth in Section 8 hereof, the Trust assumes full responsibility
for the preparation, contents and distribution of each prospectus of the Trust
as to compliance with all applicable requirements of the Securities Act of 1933,
as amended (the "Securities Act"), the 1940 Act and any other laws, rules and
regulations of governmental authorities having jurisdiction. BISYS Fund Services
shall have no obligation to take cognizance of any laws relating to the sale of
the Trust's shares. The Trust represents and warrants that no shares of the
Trust will be offered to the public until the Trust's registration statement
under the Securities Act and the 1940 Act has been declared or becomes
effective.
- --------------------------------------------------------------------------------
7
<PAGE> 8
THE HIGHMARK GROUP FUND ACCOUNTING AGREEMENT
- --------------------------------------------------------------------------------
20. NOTICES. Any notice provided hereunder shall be sufficiently given
when sent by registered or certified mail to the party required to be served
with such notice, at the following address:
1900 East Dublin-Granville Road
Columbus, OH 43229
or at such other address as such party may from time to time specify in writing
to the other party pursuant to this Section.
21. HEADINGS. Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
22. ASSIGNMENT. This Agreement and the rights and duties hereunder
shall not be assignable with respect to a Fund by either of the parties hereto
except by the specific written consent of the other party.
23. GOVERNING LAW. This Agreement shall be governed by and provisions
shall be construed in accordance with the laws of the Commonwealth of
Massachusetts.
24. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS. The names
"The HighMark Group" and "Trustees of The HighMark Group" refer respectively to
the Trust created and the Trustees, as trustees but not individually or
personally, acting from time to time under a Declaration of Trust dated as of
March 10, 1987, to which reference is hereby made and a copy of which is on file
at the office of the Secretary of the Commonwealth of Massachusetts and
elsewhere as required by haw, and to any and all amendments thereto so filed or
hereafter filed. The obligations of "The HighMark Group" entered into in the
name or on behalf thereof by any of the Trustees, representatives or agents are
made not individually, but in such capacities, and are not binding upon
- --------------------------------------------------------------------------------
8
<PAGE> 9
THE HIGHMARK GROUP FUND ACCOUNTING AGREEMENT
- --------------------------------------------------------------------------------
any of the Trustees, Shareholders or representatives of the Trust personally,
but bind only the assets of the Trust, and all persons dealing with any series
of shares of the Trust must look solely to the assets of the Trust belonging to
such series for the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
[SEAL] THE HIGHMARK GROUP
By:/s/ Cynthia L. Lindsey
----------------------
Name: Cynthia L. Lindsey
Title: Vice President
BISYS FUND SERVICES
OHIO, INC.
By:/s/ Stephen G. Mintos
---------------------
Name: Stephen G. Mintos
Title: Executive Vice President
- --------------------------------------------------------------------------------
9
<PAGE> 10
THE HIGHMARK GROUP SCHEDULE A
- --------------------------------------------------------------------------------
NAME OF FUND
The HighMark California Tax-Free Fund
The HighMark Diversified Obligations Fund
The HighMark Tax-Free Fund
The HighMark U.S. Government Obligations Fund
The HighMark 100% U.S. Treasury Obligations Fund
The HighMark Balanced Fund
The HighMark Growth Fund
The HighMark Income Equity Fund
The HighMark Bond Fund
The HighMark Government Bond Fund
The HighMark Income and Growth Fund
The HighMark Municipal Bond Fund
The HighMark California Municipal Bond Fund
THE HIGHMARK GROUP
By: /s/ Cynthia L. Lindsey
------------------------
Name: Cynthia L. Lindsey
Title: Vice President
BISYS FUND SERVICES
OHIO, INC.
By: /s/ Stephen G. Mintos
-----------------------
Name: Stephen G. Mintos
Title: Executive Vice President
Dated: As of August 1, 1995
- --------------------------------------------------------------------------------
<PAGE> 11
THE HIGHMARK GROUP SCHEDULE B
- --------------------------------------------------------------------------------
FEES
BISYS Fund Services shall be entitled to receive a fee from each Fund
at the annual rate of three one-hundredths of one percent (.03%) of each Fund's
average daily net assets plus BISYS Fund Services' reasonable out-of-pocket
expenses incurred in the performance of its services as provided in Section 4 of
the Fund Accounting Agreement to which this Schedule B is attached, with a
minimum annual fee of $30,000 per Fund.
THE HIGHMARK GROUP
By: /s/ Cynthia L. Lindsey
------------------------------
Name: Cynthia L. Lindsey
Title: Vice President
BISYS FUND SERVICES
OHIO, INC.
By: /s/ Stephen G. Mintos
------------------------------
Name: Stephen G. Mintos
Title: Executive Vice President
Dated: As of August 1, 1995
- --------------------------------------------------------------------------------
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A (file No. 33-12608) of the The HighMark
Group, of our report dated September 22, 1995 on our audits of the financial
statements and financial highlights of the Diversified Obligations Fund, U.S.
Government Obligations Fund, 100% U.S. Treasury Obligations Fund, California
Tax-Free Fund, Tax-Free Fund, Bond Fund, Government Bond Fund, Income Equity
Fund, Balanced Fund, Growth Fund, and Income and Growth Fund constituting The
HighMark Group which report is included in the Annual Report to Shareholders for
the year ended July 31, 1995 which is included in this Registration Statement.
We also consent to the reference to our Firm under the caption "Auditors" in the
Statement of Additional Information relating to The HighMark Group in this
Post-Effective Amendment No. 16 to the Registration Statement on Form N-1A. We
also consent to the reference to our Firm under the caption "Financial
Highlights" in the prospectuses relating to The HighMark Group in this
Post-Effective Amendment No. 16 to the Registration Statement on Form N-1A.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
November 27, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 011
<NAME> DIVERSIFIED OBLIGATIONS FUND
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 399,316
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 1,322
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 400,641
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,974
<TOTAL-LIABILITIES> 1,974
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 399,053
<SHARES-COMMON-STOCK> 399,053
<SHARES-COMMON-PRIOR> 305,016
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 386
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 398,667
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20,131
<OTHER-INCOME> 0
<EXPENSES-NET> 2,655
<NET-INVESTMENT-INCOME> 17,476
<REALIZED-GAINS-CURRENT> (29)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 17,447
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17,476
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,562,243
<NUMBER-OF-SHARES-REDEEMED> 1,473,121
<SHARES-REINVESTED> 4,915
<NET-CHANGE-IN-ASSETS> 94,008
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 357
<GROSS-ADVISORY-FEES> 1,430
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,789
<AVERAGE-NET-ASSETS> 359,288
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.049
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.049
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 012
<NAME> DIVERSIFIED OBLIGATIONS FUND
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 399,316
<INVESTMENTS-AT-VALUE> 399,316
<RECEIVABLES> 1,322
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 400,641
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,974
<TOTAL-LIABILITIES> 1,974
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 399,053
<SHARES-COMMON-STOCK> 399,053
<SHARES-COMMON-PRIOR> 305,016
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 386
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 398,667
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20,131
<OTHER-INCOME> 0
<EXPENSES-NET> 2,655
<NET-INVESTMENT-INCOME> 17,476
<REALIZED-GAINS-CURRENT> (29)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 17,447
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17,476
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,562,243
<NUMBER-OF-SHARES-REDEEMED> 1,473,121
<SHARES-REINVESTED> 4,915
<NET-CHANGE-IN-ASSETS> 94,008
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 357
<GROSS-ADVISORY-FEES> 1,430
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,789
<AVERAGE-NET-ASSETS> 359,288
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.049
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.049
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 021
<NAME> U.S. GOVERNMENT OBLIGATIONS
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 208,636
<INVESTMENTS-AT-VALUE> 208,636
<RECEIVABLES> 186
<ASSETS-OTHER> 391
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 209,213
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 992
<TOTAL-LIABILITIES> 992
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 208,412
<SHARES-COMMON-STOCK> 208,412
<SHARES-COMMON-PRIOR> 186,374
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 191
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 208,221
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,113
<OTHER-INCOME> 0
<EXPENSES-NET> 1,416
<NET-INVESTMENT-INCOME> 8,697
<REALIZED-GAINS-CURRENT> 34
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,731
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,697
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,760,626
<NUMBER-OF-SHARES-REDEEMED> 1,740,538
<SHARES-REINVESTED> 1,950
<NET-CHANGE-IN-ASSETS> 22,072
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 225
<GROSS-ADVISORY-FEES> 729
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,960
<AVERAGE-NET-ASSETS> 178,439
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .048
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .048
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 022
<NAME> U.S. GOVERNMENT OBLIGATIONS
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 208,636
<INVESTMENTS-AT-VALUE> 208,636
<RECEIVABLES> 186
<ASSETS-OTHER> 391
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 209,213
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 992
<TOTAL-LIABILITIES> 992
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 208,412
<SHARES-COMMON-STOCK> 208,412
<SHARES-COMMON-PRIOR> 186,374
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 191
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 208,221
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,113
<OTHER-INCOME> 0
<EXPENSES-NET> 1,416
<NET-INVESTMENT-INCOME> 8,697
<REALIZED-GAINS-CURRENT> 34
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,731
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,697
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,760,626
<NUMBER-OF-SHARES-REDEEMED> 1,740,538
<SHARES-REINVESTED> 1,950
<NET-CHANGE-IN-ASSETS> 22,072
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 225
<GROSS-ADVISORY-FEES> 729
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,960
<AVERAGE-NET-ASSETS> 178,439
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .048
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .048
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 031
<NAME> 100% U.S. TREASURY OBLIGATIONS FUND
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 278,918
<INVESTMENTS-AT-VALUE> 278,918
<RECEIVABLES> 882
<ASSETS-OTHER> 795
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 280,595
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,331
<TOTAL-LIABILITIES> 1,331
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 279,208
<SHARES-COMMON-STOCK> 279,208
<SHARES-COMMON-PRIOR> 199,879
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 56
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 279,264
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,323
<OTHER-INCOME> 0
<EXPENSES-NET> 1,683
<NET-INVESTMENT-INCOME> 10,640
<REALIZED-GAINS-CURRENT> 57
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 10,697
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,640
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 736,668
<NUMBER-OF-SHARES-REDEEMED> 659,445
<SHARES-REINVESTED> 2,106
<NET-CHANGE-IN-ASSETS> 79,386
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1
<GROSS-ADVISORY-FEES> 921
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,683
<AVERAGE-NET-ASSETS> 220,661
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.046
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.046
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 032
<NAME> 100% U.S. TREASURY OBLIGATIONS FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 278,918
<INVESTMENTS-AT-VALUE> 278,918
<RECEIVABLES> 882
<ASSETS-OTHER> 795
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 280,595
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,331
<TOTAL-LIABILITIES> 1,331
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 279,208
<SHARES-COMMON-STOCK> 279,208
<SHARES-COMMON-PRIOR> 199,879
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 56
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 279,264
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,323
<OTHER-INCOME> 0
<EXPENSES-NET> 1,683
<NET-INVESTMENT-INCOME> 10,640
<REALIZED-GAINS-CURRENT> 57
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 10,697
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,640
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 736,668
<NUMBER-OF-SHARES-REDEEMED> 659,445
<SHARES-REINVESTED> 2,106
<NET-CHANGE-IN-ASSETS> 79,386
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1
<GROSS-ADVISORY-FEES> 921
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,683
<AVERAGE-NET-ASSETS> 220,661
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.046
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.046
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 041
<NAME> CALIFORNIA TAX-FREE FUND
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 146,801
<INVESTMENTS-AT-VALUE> 146,801
<RECEIVABLES> 458
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 147,265
<PAYABLE-FOR-SECURITIES> 500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 479
<TOTAL-LIABILITIES> 979
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 146,335
<SHARES-COMMON-STOCK> 146,335
<SHARES-COMMON-PRIOR> 146,540
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 49
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 146,286
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,358
<OTHER-INCOME> 0
<EXPENSES-NET> 739
<NET-INVESTMENT-INCOME> 4,619
<REALIZED-GAINS-CURRENT> (23)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,596
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,619
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 354,814
<NUMBER-OF-SHARES-REDEEMED> 356,054
<SHARES-REINVESTED> 1,035
<NET-CHANGE-IN-ASSETS> (228)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 26
<GROSS-ADVISORY-FEES> 593
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,581
<AVERAGE-NET-ASSETS> 151,150
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.31
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 042
<NAME> CALIFORNIA TAX-FREE FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 146,801
<INVESTMENTS-AT-VALUE> 146,801
<RECEIVABLES> 458
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 147,265
<PAYABLE-FOR-SECURITIES> 500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 479
<TOTAL-LIABILITIES> 979
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 146,335
<SHARES-COMMON-STOCK> 146,335
<SHARES-COMMON-PRIOR> 146,540
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 49
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 146,286
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,358
<OTHER-INCOME> 0
<EXPENSES-NET> 739
<NET-INVESTMENT-INCOME> 4,619
<REALIZED-GAINS-CURRENT> (23)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,596
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,619
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 354,814
<NUMBER-OF-SHARES-REDEEMED> 356,054
<SHARES-REINVESTED> 1,035
<NET-CHANGE-IN-ASSETS> (228)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 26
<GROSS-ADVISORY-FEES> 593
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,581
<AVERAGE-NET-ASSETS> 151,150
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.31
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 051
<NAME> TAX-FREE FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-31-1995
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 45,374
<INVESTMENTS-AT-VALUE> 45,374
<RECEIVABLES> 215
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45,589
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,074
<TOTAL-LIABILITIES> 2,074
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,531
<SHARES-COMMON-STOCK> 43,531
<SHARES-COMMON-PRIOR> 50,320
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 16
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 43,515
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,754
<OTHER-INCOME> 0
<EXPENSES-NET> 349
<NET-INVESTMENT-INCOME> 1,405
<REALIZED-GAINS-CURRENT> (13)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,405
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 156,974
<NUMBER-OF-SHARES-REDEEMED> 164,192
<SHARES-REINVESTED> 429
<NET-CHANGE-IN-ASSETS> (6,802)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 3
<GROSS-ADVISORY-FEES> 191
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 581
<AVERAGE-NET-ASSETS> 52,557
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.030
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 052
<NAME> TAX-FREE FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-31-1995
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 45,374
<INVESTMENTS-AT-VALUE> 45,374
<RECEIVABLES> 215
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45,589
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,074
<TOTAL-LIABILITIES> 2,074
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,531
<SHARES-COMMON-STOCK> 43,531
<SHARES-COMMON-PRIOR> 50,320
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 16
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 43,515
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,754
<OTHER-INCOME> 0
<EXPENSES-NET> 349
<NET-INVESTMENT-INCOME> 1,405
<REALIZED-GAINS-CURRENT> (13)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,405
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 156,974
<NUMBER-OF-SHARES-REDEEMED> 164,192
<SHARES-REINVESTED> 429
<NET-CHANGE-IN-ASSETS> (6,802)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 3
<GROSS-ADVISORY-FEES> 191
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 581
<AVERAGE-NET-ASSETS> 52,557
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.030
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 061
<NAME> BOND FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 59,870
<INVESTMENTS-AT-VALUE> 59,780
<RECEIVABLES> 894
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60,676
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 360
<TOTAL-LIABILITIES> 360
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 63,172
<SHARES-COMMON-STOCK> 5,812
<SHARES-COMMON-PRIOR> 6,348
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 2,766
<ACCUM-APPREC-OR-DEPREC> (90)
<NET-ASSETS> 60,316
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,376
<OTHER-INCOME> 0
<EXPENSES-NET> 552
<NET-INVESTMENT-INCOME> 3,824
<REALIZED-GAINS-CURRENT> (1,512)
<APPREC-INCREASE-CURRENT> 3,052
<NET-CHANGE-FROM-OPS> 5,364
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,824
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,137
<NUMBER-OF-SHARES-REDEEMED> 1,985
<SHARES-REINVESTED> 312
<NET-CHANGE-IN-ASSETS> (3,876)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,254
<GROSS-ADVISORY-FEES> 523
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 990
<AVERAGE-NET-ASSETS> 59,815
<PER-SHARE-NAV-BEGIN> 10.04
<PER-SHARE-NII> 0.66
<PER-SHARE-GAIN-APPREC> 0.23
<PER-SHARE-DIVIDEND> 0.64
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.29
<EXPENSE-RATIO> .92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 062
<NAME> BOND FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 59,870
<INVESTMENTS-AT-VALUE> 59,780
<RECEIVABLES> 894
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60,676
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 360
<TOTAL-LIABILITIES> 360
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 63,172
<SHARES-COMMON-STOCK> 5,812
<SHARES-COMMON-PRIOR> 6,348
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 2,766
<ACCUM-APPREC-OR-DEPREC> (90)
<NET-ASSETS> 60,316
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,376
<OTHER-INCOME> 0
<EXPENSES-NET> 552
<NET-INVESTMENT-INCOME> 3,824
<REALIZED-GAINS-CURRENT> (1,512)
<APPREC-INCREASE-CURRENT> 3,052
<NET-CHANGE-FROM-OPS> 5,364
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,824
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,137
<NUMBER-OF-SHARES-REDEEMED> 1,985
<SHARES-REINVESTED> 312
<NET-CHANGE-IN-ASSETS> (3,876)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,254
<GROSS-ADVISORY-FEES> 523
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 990
<AVERAGE-NET-ASSETS> 59,815
<PER-SHARE-NAV-BEGIN> 10.11
<PER-SHARE-NII> 0.64
<PER-SHARE-GAIN-APPREC> 0.27
<PER-SHARE-DIVIDEND> 0.64
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.38
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 071
<NAME> INCOME EQUITY FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 204,703
<INVESTMENTS-AT-VALUE> 225,141
<RECEIVABLES> 681
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 225,826
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 620
<TOTAL-LIABILITIES> 620
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 197,622
<SHARES-COMMON-STOCK> 17,321
<SHARES-COMMON-PRIOR> 17,904
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,146
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,438
<NET-ASSETS> 225,206
<DIVIDEND-INCOME> 9,295
<INTEREST-INCOME> 544
<OTHER-INCOME> 0
<EXPENSES-NET> 2,244
<NET-INVESTMENT-INCOME> 7,595
<REALIZED-GAINS-CURRENT> 8,944
<APPREC-INCREASE-CURRENT> 17,456
<NET-CHANGE-FROM-OPS> 33,995
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,595
<DISTRIBUTIONS-OF-GAINS> 7,325
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,956
<NUMBER-OF-SHARES-REDEEMED> 4,698
<SHARES-REINVESTED> 1,159
<NET-CHANGE-IN-ASSETS> 11,854
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,527
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,430
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,766
<AVERAGE-NET-ASSETS> 208,338
<PER-SHARE-NAV-BEGIN> 11.92
<PER-SHARE-NII> 0.42
<PER-SHARE-GAIN-APPREC> 1.55
<PER-SHARE-DIVIDEND> 0.44
<PER-SHARE-DISTRIBUTIONS> 0.42
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.03
<EXPENSE-RATIO> 1.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 072
<NAME> INCOME EQUITY FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 204,703
<INVESTMENTS-AT-VALUE> 225,141
<RECEIVABLES> 681
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 225,826
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 620
<TOTAL-LIABILITIES> 620
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 197,622
<SHARES-COMMON-STOCK> 17,321
<SHARES-COMMON-PRIOR> 17,904
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,146
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,438
<NET-ASSETS> 225,206
<DIVIDEND-INCOME> 9,295
<INTEREST-INCOME> 544
<OTHER-INCOME> 0
<EXPENSES-NET> 2,244
<NET-INVESTMENT-INCOME> 7,595
<REALIZED-GAINS-CURRENT> 8,944
<APPREC-INCREASE-CURRENT> 17,456
<NET-CHANGE-FROM-OPS> 33,995
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,595
<DISTRIBUTIONS-OF-GAINS> 7,325
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,956
<NUMBER-OF-SHARES-REDEEMED> 4,698
<SHARES-REINVESTED> 1,159
<NET-CHANGE-IN-ASSETS> 11,854
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,527
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,430
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,766
<AVERAGE-NET-ASSETS> 208,338
<PER-SHARE-NAV-BEGIN> 11.92
<PER-SHARE-NII> 0.44
<PER-SHARE-GAIN-APPREC> 1.50
<PER-SHARE-DIVIDEND> 0.44
<PER-SHARE-DISTRIBUTIONS> 0.42
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.00
<EXPENSE-RATIO> 1.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 081
<NAME> BALANCED FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 27,921
<INVESTMENTS-AT-VALUE> 30,319
<RECEIVABLES> 205
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,525
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 97
<TOTAL-LIABILITIES> 97
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,222
<SHARES-COMMON-STOCK> 2,803
<SHARES-COMMON-PRIOR> 2,649
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 192
<ACCUM-APPREC-OR-DEPREC> 2,398
<NET-ASSETS> 30,428
<DIVIDEND-INCOME> 441
<INTEREST-INCOME> 776
<OTHER-INCOME> 0
<EXPENSES-NET> 225
<NET-INVESTMENT-INCOME> 992
<REALIZED-GAINS-CURRENT> 21
<APPREC-INCREASE-CURRENT> 2,804
<NET-CHANGE-FROM-OPS> 3,817
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 992
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,021
<NUMBER-OF-SHARES-REDEEMED> 966
<SHARES-REINVESTED> 99
<NET-CHANGE-IN-ASSETS> 4,577
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 213
<GROSS-ADVISORY-FEES> 252
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 482
<AVERAGE-NET-ASSETS> 23,984
<PER-SHARE-NAV-BEGIN> 9.71
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> 1.04
<PER-SHARE-DIVIDEND> 0.39
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.79
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 082
<NAME> BALANCED FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 27,921
<INVESTMENTS-AT-VALUE> 30,319
<RECEIVABLES> 205
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,525
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 97
<TOTAL-LIABILITIES> 97
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,222
<SHARES-COMMON-STOCK> 2,803
<SHARES-COMMON-PRIOR> 2,649
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 192
<ACCUM-APPREC-OR-DEPREC> 2,398
<NET-ASSETS> 30,428
<DIVIDEND-INCOME> 441
<INTEREST-INCOME> 776
<OTHER-INCOME> 0
<EXPENSES-NET> 225
<NET-INVESTMENT-INCOME> 992
<REALIZED-GAINS-CURRENT> 21
<APPREC-INCREASE-CURRENT> 2,804
<NET-CHANGE-FROM-OPS> 3,817
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 992
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,021
<NUMBER-OF-SHARES-REDEEMED> 966
<SHARES-REINVESTED> 99
<NET-CHANGE-IN-ASSETS> 4,577
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 213
<GROSS-ADVISORY-FEES> 252
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 482
<AVERAGE-NET-ASSETS> 23,984
<PER-SHARE-NAV-BEGIN> 9.76
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 1.09
<PER-SHARE-DIVIDEND> 0.39
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.85
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 091
<NAME> GROWTH FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 22,705
<INVESTMENTS-AT-VALUE> 26,467
<RECEIVABLES> 141
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,608
<PAYABLE-FOR-SECURITIES> 266
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28
<TOTAL-LIABILITIES> 294
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,790
<SHARES-COMMON-STOCK> 2,217
<SHARES-COMMON-PRIOR> 1,562
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 762
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,762
<NET-ASSETS> 26,314
<DIVIDEND-INCOME> 381
<INTEREST-INCOME> 46
<OTHER-INCOME> 0
<EXPENSES-NET> 155
<NET-INVESTMENT-INCOME> 272
<REALIZED-GAINS-CURRENT> 915
<APPREC-INCREASE-CURRENT> 3,752
<NET-CHANGE-FROM-OPS> 4,939
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 272
<DISTRIBUTIONS-OF-GAINS> 243
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 951
<NUMBER-OF-SHARES-REDEEMED> 347
<SHARES-REINVESTED> 51
<NET-CHANGE-IN-ASSETS> 11,060
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 90
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 196
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 412
<AVERAGE-NET-ASSETS> 16,440
<PER-SHARE-NAV-BEGIN> 9.77
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 2.25
<PER-SHARE-DIVIDEND> 0.15
<PER-SHARE-DISTRIBUTIONS> 0.15
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.87
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 092
<NAME> GROWTH FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 22,705
<INVESTMENTS-AT-VALUE> 26,467
<RECEIVABLES> 141
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,608
<PAYABLE-FOR-SECURITIES> 266
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28
<TOTAL-LIABILITIES> 294
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,790
<SHARES-COMMON-STOCK> 2,217
<SHARES-COMMON-PRIOR> 1,562
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 762
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,762
<NET-ASSETS> 26,314
<DIVIDEND-INCOME> 381
<INTEREST-INCOME> 46
<OTHER-INCOME> 0
<EXPENSES-NET> 155
<NET-INVESTMENT-INCOME> 272
<REALIZED-GAINS-CURRENT> 915
<APPREC-INCREASE-CURRENT> 3,752
<NET-CHANGE-FROM-OPS> 4,939
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 272
<DISTRIBUTIONS-OF-GAINS> 243
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 951
<NUMBER-OF-SHARES-REDEEMED> 347
<SHARES-REINVESTED> 51
<NET-CHANGE-IN-ASSETS> 11,060
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 90
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 196
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 412
<AVERAGE-NET-ASSETS> 16,440
<PER-SHARE-NAV-BEGIN> 9.76
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 2.26
<PER-SHARE-DIVIDEND> 0.15
<PER-SHARE-DISTRIBUTIONS> 0.15
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.87
<EXPENSE-RATIO> 0.79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 101
<NAME> INCOME & GROWTH FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 5,886
<INVESTMENTS-AT-VALUE> 6,883
<RECEIVABLES> 10
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,893
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9
<TOTAL-LIABILITIES> 9
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,933
<SHARES-COMMON-STOCK> 586
<SHARES-COMMON-PRIOR> 479
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 46
<ACCUM-APPREC-OR-DEPREC> 997
<NET-ASSETS> 6,884
<DIVIDEND-INCOME> 168
<INTEREST-INCOME> 20
<OTHER-INCOME> 0
<EXPENSES-NET> 55
<NET-INVESTMENT-INCOME> 133
<REALIZED-GAINS-CURRENT> 42
<APPREC-INCREASE-CURRENT> 961
<NET-CHANGE-FROM-OPS> 1,136
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 133
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 168
<NUMBER-OF-SHARES-REDEEMED> 73
<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> 2,113
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 88
<GROSS-ADVISORY-FEES> 56
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 187
<AVERAGE-NET-ASSETS> 5,019
<PER-SHARE-NAV-BEGIN> 9.97
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> 1.76
<PER-SHARE-DIVIDEND> 0.25
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.75
<EXPENSE-RATIO> 0.97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 102
<NAME> INCOME & GROWTH FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 5,886
<INVESTMENTS-AT-VALUE> 6,883
<RECEIVABLES> 10
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,893
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9
<TOTAL-LIABILITIES> 9
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,933
<SHARES-COMMON-STOCK> 586
<SHARES-COMMON-PRIOR> 479
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 46
<ACCUM-APPREC-OR-DEPREC> 997
<NET-ASSETS> 6,884
<DIVIDEND-INCOME> 168
<INTEREST-INCOME> 20
<OTHER-INCOME> 0
<EXPENSES-NET> 55
<NET-INVESTMENT-INCOME> 133
<REALIZED-GAINS-CURRENT> 42
<APPREC-INCREASE-CURRENT> 961
<NET-CHANGE-FROM-OPS> 1,136
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 133
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 168
<NUMBER-OF-SHARES-REDEEMED> 73
<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> 2,113
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 88
<GROSS-ADVISORY-FEES> 56
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 187
<AVERAGE-NET-ASSETS> 5,019
<PER-SHARE-NAV-BEGIN> 9.96
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 1.78
<PER-SHARE-DIVIDEND> 0.25
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.74
<EXPENSE-RATIO> 0.97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 111
<NAME> GOVERNMENT BOND FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 3,894
<INVESTMENTS-AT-VALUE> 3,922
<RECEIVABLES> 75
<ASSETS-OTHER> 11
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,008
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24
<TOTAL-LIABILITIES> 24
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,254
<SHARES-COMMON-STOCK> 419
<SHARES-COMMON-PRIOR> 548
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 298
<ACCUM-APPREC-OR-DEPREC> 28
<NET-ASSETS> 3,984
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 333
<OTHER-INCOME> 0
<EXPENSES-NET> 39
<NET-INVESTMENT-INCOME> 294
<REALIZED-GAINS-CURRENT> (55)
<APPREC-INCREASE-CURRENT> 79
<NET-CHANGE-FROM-OPS> 318
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 294
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 148
<NUMBER-OF-SHARES-REDEEMED> 309
<SHARES-REINVESTED> 32
<NET-CHANGE-IN-ASSETS> (1,187)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 243
<GROSS-ADVISORY-FEES> 46
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 159
<AVERAGE-NET-ASSETS> 4,925
<PER-SHARE-NAV-BEGIN> 9.36
<PER-SHARE-NII> 0.66
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> 0.60
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.43
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811527
<NAME> THE HIGHMARK GROUP
<SERIES>
<NUMBER> 112
<NAME> GOVERNMENT BOND FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 3,894
<INVESTMENTS-AT-VALUE> 3,922
<RECEIVABLES> 76
<ASSETS-OTHER> 11
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,008
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24
<TOTAL-LIABILITIES> 24
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,254
<SHARES-COMMON-STOCK> 419
<SHARES-COMMON-PRIOR> 548
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 298
<ACCUM-APPREC-OR-DEPREC> 28
<NET-ASSETS> 3,984
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 333
<OTHER-INCOME> 0
<EXPENSES-NET> 39
<NET-INVESTMENT-INCOME> 294
<REALIZED-GAINS-CURRENT> (55)
<APPREC-INCREASE-CURRENT> 79
<NET-CHANGE-FROM-OPS> 318
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 294
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 148
<NUMBER-OF-SHARES-REDEEMED> 309
<SHARES-REINVESTED> 32
<NET-CHANGE-IN-ASSETS> (1,187)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 243
<GROSS-ADVISORY-FEES> 46
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 159
<AVERAGE-NET-ASSETS> 4,925
<PER-SHARE-NAV-BEGIN> 9.44
<PER-SHARE-NII> 0.60
<PER-SHARE-GAIN-APPREC> 0.06
<PER-SHARE-DIVIDEND> 0.60
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.50
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
