<PAGE> 1
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
HIGHMARK FUNDS
FIXED INCOME FUNDS
HighMark Funds ("HighMark") is an open-end, diversified, registered investment
company that offers a convenient means of investing in one or more
professionally managed portfolios of securities. This Prospectus relates to
HighMark's:
- Intermediate-Term Bond Fund
- Bond Fund
- Government Securities Fund
FIDUCIARY SHARES
HighMark's Fiduciary Shares are offered to the following investors: (i)
fiduciary, advisory, agency, custodial and other similar accounts maintained
with Union Bank of California, N.A. or its affiliates; (ii) Select IRA accounts
established with The Bank of California, N.A. and invested in any of HighMark's
Equity or Fixed 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 HighMark's Equity or
Fixed 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
Union Bank of California, N.A., HighMark's current or former distributors or
their respective affiliated companies who currently own Shares of HighMark Funds
which were purchased before April 30, 1997.
This Prospectus sets forth concisely the information about HighMark and the
Funds that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated the same date as this Prospectus has been filed
with the Securities and Exchange Commission and is available without charge by
writing the Distributor, SEI Financial Services Company, Oaks, Pennsylvania
19456, or by calling 1-800-433-6884. The Statement of Additional Information is
incorporated into this Prospectus by reference. This Prospectus relates only to
the Fiduciary Shares of the Fixed Income Funds. Interested persons who wish to
obtain a prospectus for the other Funds of HighMark may contact the Distributor
at the above address and telephone number.
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.
HIGHMARK'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, INCLUDING UNION BANK OF CALIFORNIA, N.A., BANK OF
TOKYO-MITSUBISHI, LIMITED OR ANY OF THEIR AFFILIATES OR CORRESPONDENTS.
HIGHMARK'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN HIGHMARK INVOLVES
RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
February 26, 1997
Fiduciary Shares
<PAGE> 2
SUMMARY
HIGHMARK FUNDS ("HighMark") is an open-end, diversified, registered investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Fiduciary Shares of the Intermediate-Term Bond, Bond, and Government Securities
Funds (each a "Fund" and sometimes referred to in this prospectus as the "Fixed
Income Funds.") This summary is qualified in its entirety by reference to the
more detailed information provided elsewhere in the Prospectus and in the
Statement of Additional Information.
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES? THE INTERMEDIATE-TERM BOND FUND seeks
total return through investments in fixed-income securities. THE BOND FUND seeks
current income through investments in long-term, fixed-income securities. THE
GOVERNMENT SECURITIES FUND seeks to achieve total return consistent with the
preservation of capital by investing in a diversified portfolio of obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. (See "INVESTMENT OBJECTIVES")
WHAT ARE THE FUNDS' PERMITTED INVESTMENTS? THE INTERMEDIATE-TERM BOND FUND
primarily invests in bonds. THE BOND FUND invests in long-term bonds. Bonds
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 GOVERNMENT
SECURITIES FUND invests primarily in debt obligations issued or guaranteed by
the U.S. government or its agencies or instrumentalities, including
mortgage-backed securities issued or guaranteed by U.S. government agencies.
(See "INVESTMENT POLICIES")
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUNDS? The investment
policies of each Fund entail certain risks and considerations of which an
investor should be aware. The market value of a Fund's fixed income investments
will change in response to interest rate changes and other factors. During
periods of falling interest rates, the value of outstanding fixed income
securities generally rises. Conversely, during periods of rising interest rates,
the value of such securities generally declines. (See "Risk Factors")
ARE MY INVESTMENTS INSURED? HighMark's Shares are not federally insured by the
FDIC or any other government agency. Any guarantee by the U.S. Government, its
agencies or any instrumentalities of the securities in which any Fund invests
guarantees only the payment of principal and interest on the guaranteed
security, and does not guarantee the total return or value of the security or
total return or value of Shares of that Fund.
WHO IS THE ADVISOR? Pacific Alliance Capital Management, a division of Union
Bank of California, N.A., serves as the Advisor to HighMark. (See "The Advisor")
WHO IS THE SUB-ADVISOR? Bank of Tokyo-Mitsubishi Trust Company serves as the
Sub-Adviser to the Government Securities Fund. (See "The Sub-Advisor")
WHO IS THE ADMINISTRATOR? SEI Fund Resources serves as the Administrator of
HighMark. (See "The Administrator")
2
<PAGE> 3
WHO IS THE CUSTODIAN? Union Bank of California, N.A., (the "Bank") serves as the
Custodian of HighMark's assets. (See "The Custodian")
WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as distributor of
HighMark's Shares. (See "The Distributor")
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment is generally $1,000. A purchase order will be
effective if the Distributor receives an order prior to 1:00 p.m., Pacific time
(4:00 p.m., Eastern time). Purchase orders for Shares will be executed at a per
Share price equal to the asset value next determined after the purchase order is
effective. Redemption orders must be placed prior to 1:00 p.m., Pacific time
(4:00 p.m., Eastern time) on any Business Day for the order to be effective that
day. (See "PURCHASE AND REDEMPTION OF SHARES")
HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gains) of the Funds is distributed in the form of monthly
dividends to Shareholders of record. Any capital gain is distributed at least
annually. Distributions are paid in additional Shares unless the Shareholder
elects to take the payment in cash. (See "DIVIDENDS")
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................................................................... 2
Fixed Income Funds Fee Table.......................................................... 5
Financial Highlights.................................................................. 7
Fund Description...................................................................... 10
Investment Objective.................................................................. 10
Investment Policies................................................................... 10
Intermediate-Term Bond Fund......................................................... 10
Bond Fund........................................................................... 11
Government Securities Fund.......................................................... 11
General............................................................................... 12
Money Market Instruments............................................................ 12
Illiquid and Restricted Securities.................................................. 12
Lending of Portfolio Securities..................................................... 13
Other Investments................................................................... 13
Risk Factors........................................................................ 14
Investment Limitations................................................................ 15
Portfolio Turnover.................................................................. 16
Purchase and Redemption of Shares..................................................... 16
Exchange Privileges................................................................... 17
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Dividends............................................................................. 18
Federal Taxation...................................................................... 19
Service Arrangements.................................................................. 20
The Advisor......................................................................... 20
The Sub-Advisor..................................................................... 21
Administrator....................................................................... 22
The Transfer Agent.................................................................. 23
Shareholder Service Plan............................................................ 23
Distributor......................................................................... 23
Banking Laws........................................................................ 23
Custodian........................................................................... 24
General Information................................................................... 24
Description of HighMark & Its Shares................................................ 24
Performance Information............................................................. 25
Miscellaneous....................................................................... 26
Description of Permitted Investments.................................................. 26
</TABLE>
4
<PAGE> 5
FIXED INCOME FUNDS FEE TABLE
<TABLE>
<CAPTION>
INTERMEDIATE- TERM GOVERNMENT
BOND FUND BOND FUND SECURITIES FUND
FIDUCIARY FIDUCIARY FIDUCIARY
SHARES SHARES SHARES
----------------- --------- ---------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)................................................................ 0.00% 0.00% 0.00%
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(a)......................................................... $ 0 $ 0 $ 0
ANNUAL OPERATING EXPENSES (as a percentage of net assets)
Management Fees......................................................... 0.50% 0.50% 0.50%
12b-1 Fees.............................................................. 0.00% 0.00% 0.00%
Other Expenses (after voluntary reduction)(c)........................... 0.25% 0.25% 0.25%
---- ---- ----
Total Fund Operating Expenses (after voluntary reduction)(d)............ 0.75% 0.75% 0.75%
==== ==== ====
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Intermediate-Term Bond Fund Fiduciary Shares................... $8 $24 $42 $ 93
Bond Fund Fiduciary Shares..................................... $8 $24 $42 $ 93
Government Securities Fund Fiduciary Shares.................... $8 $24 $42 $ 93
</TABLE>
The purpose of the tables above is to assist an investor in the Fixed 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.
- ---------------
(a) Certain entities (including Union Bank of California and its affiliates)
making investments in the Fixed Income Funds on behalf of their customers
may charge customers fees for services provided in connection with the
investment in, redemption of, and exchange of Shares. (See PURCHASE AND
REDEMPTION OF SHARES, EXCHANGE PRIVILEGES, and SERVICE ARRANGEMENTS below.)
(b) A wire redemption charge is deducted from the amount of a wire redemption
payment made at the request of a Shareholder.
(c) OTHER EXPENSES for the Intermediate-Term Bond and Government Securities
Funds are based on each Fund's estimated expenses for the current fiscal
year. Absent voluntary fee waivers, OTHER EXPENSES would be 0.49% for the
Fiduciary Shares of the Intermediate-Term Bond Fund, 0.51% for the Fiduciary
Shares of the Bond Fund, and 0.52% for the Fiduciary Shares of the
Government Securities Fund.
5
<PAGE> 6
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be: 0.99%
for the Fiduciary Shares of the Intermediate-Term Bond Fund, 1.01% for the
Fiduciary Shares of the Bond Fund, and 1.02% for the Fiduciary Shares of the
Government Securities Fund.
6
<PAGE> 7
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect to the
Fiduciary Shares of the Bond Fund. Information prior to fiscal 1994 is for
Fiduciary Shares only. Financial highlights for the Bond Fund for the period
ended July 31, 1996 have been derived from financial statements audited by
Deloitte & Touche LLP, independent auditors for HighMark, whose report thereon
is included in the Statement of Additional Information. Prior to the fiscal year
ended July 31, 1996, Coopers & Lybrand L.L.P. served as independent auditors for
HighMark. 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 HighMark. The Intermediate-Term Bond Fund and the Government
Securities Fund had not commenced operations in HighMark as of July 31, 1996.
The Bond Fund offered a single class of shares (now designated Fiduciary
Shares) throughout the periods shown.
BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------------
1996 1995 1994(A) 1993 1992
--------- --------- ---------- -------- --------
FIDUCIARY FIDUCIARY FIDUCIARY
--------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........ $ 10.38 $ 10.11 $ 11.13 $ 11.02 $ 10.29
-------- -------- -------- -------- --------
Investment Activities
Net investment income..................... 0.66 0.64 0.63 0.70 0.67
Net realized and unrealized gains (losses)
on investments......................... (0.16) 0.27 (0.97) 0.35 0.77
-------- -------- -------- -------- --------
Total from Investment Activities....... 0.50 0.91 (0.34) 1.05 1.44
-------- -------- -------- -------- --------
Distributions
Net investment income..................... (0.65) (0.64) (0.63) (0.70) (0.67)
Net realized gains........................ (0.01) (0.24) (0.04)
In excess of net realized gains........... -- -- (0.04) -- --
-------- -------- -------- -------- --------
Total Distributions.................... (0.65) (0.64) (0.68) (0.94) (0.71)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.............. $ 10.23 $ 10.38 $ 10.11 $ 11.13 $ 11.02
======== ======== ======== ======== ========
Total Return................................ 4.81% 9.43% (3.14)% 10.07% 14.43%
Ratios/Supplementary Data:
Net Assets at end of period (000)........... $ 60,374 $ 59,758 $ 64,185 $ 33,279 $ 21,651
Ratio of expenses to average net assets..... 0.89% 0.92% 0.86% 0.93% 0.91%
Ratio of net investment income to average
net assets................................ 6.10% 6.35% 6.11% 6.41% 6.23%
Ratio of expenses to average net assets*.... 1.61% 1.64% 1.37% 1.55% 1.55%
Ratio of net investment income to average
net assets*............................... 5.38% 5.62% 5.60% 5.79% 5.59%
Portfolio turnover.......................... 20.88% 36.20% 44.33% 58.81% 79.56%
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
JUNE 23, 1988
YEAR ENDED JULY 31, TO JULY 31
------------------------- -------------
1991 1990 1989 1988(D)
------- ------ ------ -------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $ 10.18 $10.42 $ 9.86 $ 10.00
------- ------- ------- -------
Investment Activities
Net investment income.................................. 0.78 0.79 0.82 0.09
Net realized and unrealized gains (losses) on
investments......................................... 0.04 (0.25) 0.56 (0.14)
------- ------- ------- -------
Total from Investment Activities.................... 0.82 0.54 1.38 (0.05)
------- ------- ------- -------
Distributions
Net investment income.................................. (0.71) (0.78) (0.82) (0.09)
Net realized gains
In excess of net realized gains........................ -- -- -- --
------- ------- ------- -------
Total Distributions................................. (0.71) (0.78) (0.82) (0.09)
------- ------- ------- -------
Net Asset Value, End of Period........................... $ 10.29 $10.18 $10.42 $ 9.86
======= ====== ====== =======
Total Return............................................. 8.99% 5.52% 14.79% (0.96)%(c)
Ratios/Supplementary Data:
Net Assets at end of period (000)........................ $10,799 $6,974 $4,655 $ 3,487
Ratio of expenses to average net assets.................. 0.79% 1.01% 1.18% 1.04%(b)
Ratio of net investment income to average net assets..... 7.61% 7.77% 8.24% 8.63%(b)
Ratio of expenses to average net assets*................. 1.59% 1.94% 2.11% 2.06%(b)
Ratio of net investment income to average net assets*.... 6.81% 6.84% 7.31% 7.61%(b)
Portfolio turnover....................................... 65.81% 53.50% 24.83% 0.00%
</TABLE>
- ---------------
(a) On June 20, 1994, the Bond Fund commenced offering Investor Shares (now
called "Retail Shares") and designated existing shares as Fiduciary Shares.
(b) Annualized.
(c) Not annualized.
(d) 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 &
HighMark.
* 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.
8
<PAGE> 9
PER SHARE INCOME AND CAPITAL CHANGES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS)
THE IRA COLLECTIVE INVESTMENT FUND BOND PORTFOLIO
<TABLE>
<CAPTION>
JAN. 1,
1988
THROUGH
JUNE 22, YEAR ENDED YEAR ENDED
1988 DEC. 31, DEC. 31,
(UNAUDITED) 1987 1986
----------- ---------- ----------
<S> <C> <C> <C>
Investment income........................................ $ 0.503 $ 1.061 $ 1.129
Operating expenses....................................... 0.065 0.128(b) 1.119(b)
-------- -------- --------
Net investment income.................................... 0.438 0.933 1.010
Dividends from net investment income..................... (0.438) (0.933) (1.010)
Net realized and unrealized gain (loss) on investments... (0.050) (0.966) 0.947
-------- -------- --------
Increase (decrease) in net asset value................... (0.050) (0.966) 0.947
Net Asset Value:
Beginning of period.................................... 11.281 12.247 11.300
-------- -------- --------
End of period.......................................... $ 11.231 $ 11.281 $ 12.247
======== ======== ========
Ratio of expenses to average net assets(a)(b)............ 1.20% 1.09% 0.92%
Ratio of net investment income to average net
assets(a).............................................. 8.03% 7.93% 7.83%
Portfolio turnover....................................... 0.00% 0.00% 1.61%
Number of Shares/units outstanding at end of period...... 317,633 344,456 206,664
</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>
JAN. 1,
1988
THROUGH
JUNE 22, YEAR ENDED YEAR ENDED
1988 DEC. 31, DEC. 31,
(UNAUDITED) 1987 1986
----------- ---------- ----------
<S> <C> <C> <C>
Expenses................................................... $ 0.240 $ 0.226 $ 0.231
Net investment income...................................... 0.263 0.793 0.779
Net asset value, end of year............................... 11.231 11,281 12.247
Expenses as a percentage of average net asset.............. 2.00%(a) 2.00% 2.00%
</TABLE>
9
<PAGE> 10
FUND
DESCRIPTION HighMark Funds ("HighMark") is an open-end, diversified,
registered investment company that currently offers units
of beneficial interest ("Shares") in sixteen separate
investment portfolios ("Funds"). All of the Funds are
advised by Pacific Alliance Capital Management (the
"Advisor"), a division of Union Bank of California, N.A.
Shareholders may purchase Shares of selected Funds through
two separate classes, (the "Retail" and "Fiduciary"
classes). These classes may have different sales charges
and other expenses, which may affect performance.
Information regarding HighMark's other Funds and other
classes is contained in separate prospectuses that may be
obtained from HighMark's Distributor, SEI Financial
Services Company, at Oaks, Pennsylvania 19456, or by
calling 1-800-433-6884.
For information concerning those investors who qualify
to purchase Fiduciary Shares, see PURCHASE AND REDEMPTION
OF SHARES below. (Fiduciary Shares may be hereinafter
referred to as "Shares.")
INVESTMENT
OBJECTIVES The investment objectives of the Funds are as follows:
The Intermediate-Term Bond Fund seeks total return
through investments in fixed-income securities.
The Bond Fund seeks current income through investments
in long-term, fixed-income securities.
The Government Securities Fund seeks to achieve total
return consistent with the preservation of capital by
investing in a diversified portfolio of obligations issued
or guaranteed by the U.S. government or its agencies or
instrumentalities.
The investment objectives and certain of the investment
limitations of the Intermediate-Term Bond Fund, the Bond
Fund, and the Government Securities 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 no assurance that a Fund will achieve its investment
objective.
INVESTMENT
POLICIES Intermediate-Term Bond Fund
Under normal market conditions, at least 65% of the
Intermediate-Term Bond Fund's assets will be invested in
bonds. For purposes of this policy "bonds" include (i)
corporate bonds and debentures rated at the time of
purchase as "investment grade" (one of the four highest
bond rating categories by a nationally recognized
statistical rating organization ("NRSRO") i.e., AAA, AA,
A, or BBB by Standard & Poor's Corporation ("S&P") or Aaa,
Aa, A, or Baa by Moody's Investors Service ("Moody's")) or
determined by the Advisor to be of comparable quality;
(ii) Yankee Bonds and Eurodollar instruments; (iii) notes
or bonds
10
<PAGE> 11
issued by the U.S. Government and its agencies and
instrumentalities (such as Government National Mortgage
Association ("GNMA") securities); (iv) mortgage-backed
securities, including privately issued mortgage-backed
securities and readily-marketable asset-backed securities,
which must be rated at the time of purchase as investment
grade, or be determined by the Advisor to be of comparable
quality; (v) securities issued or guaranteed by foreign
governments, their political subdivisions, agencies or
instrumentalities; (vi) obligations of supranational
entities such as the World Bank and the Asian Development
Bank; and (vii) zero coupon obligations. The remainder of
the Fund's assets may be invested in money market
instruments.
The dollar-weighted average portfolio maturity of the
Intermediate-Term Bond Fund will be from three to ten
years.
Bond Fund
The Bond Fund invests in fixed-income securities with
maturities in excess of one year, except for amounts held
in money market instruments. 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 bonds and
may invest up to 35% of its total assets in money market
instruments.
For purposes of this policy "bonds" include (i)
corporate bonds and debentures rated at the time of
purchase as investment grade or determined by the Advisor
to be of comparable quality; (ii) Yankee Bonds and
Eurodollar instruments; (iii) notes or bonds issued by the
U.S. Government and its agencies and instrumentalities
(such as GNMA securities); (iv) mortgage-backed
securities, including privately issued mortgage-backed
securities and readily-marketable asset-backed securities,
which must be rated at the time of purchase as investment
grade, or be determined by the Advisor to be of comparable
quality; (v) securities issued or guaranteed by foreign
governments, their political subdivisions, agencies or
instrumentalities; (vi) obligations of supranational
entities such as the World Bank and the Asian Development
Bank; and (vii) zero coupon obligations. The remainder of
the Fund's assets may be invested in money market
instruments.
The dollar-weighted average portfolio maturity of the
Bond Fund will be from five to twenty years.
Government Securities Fund
Under normal market conditions, the Government
Securities Fund will invest at least 80% of its assets in
obligations issued or guaranteed by the U.S. government or
its agencies or instrumentalities, including
mortgage-backed securities issued or guaranteed by U.S.
government agencies such as GNMA, the
11
<PAGE> 12
Federal National Mortgage Association ("FNMA") or the
Federal Home Loan Mortgage Corporation ("FHLMC") and
repurchase agreements backed by such securities. The Fund
may invest any remaining assets in corporate bonds that
are rated at the time of purchase as investment grade or
determined by the Sub-Advisor to be of comparable quality;
Yankee Bonds, including sovereign, supranational and
Canadian bonds; shares of other investment companies with
similar investment objectives; commercial paper; money
market funds; privately issued mortgage-backed and other
readily-marketable asset-backed securities; and money
market instruments and cash.
The Sub-Advisor will seek to enhance the yield of the
Fund by taking advantage of yield disparities or other
factors that occur in the government securities and money
markets. The Fund may dispose of any security prior to its
maturity if such disposition and reinvestment of the
proceeds are expected to enhance its yield consistent with
the Sub-Advisor's judgment as to a desirable maturity
structure or if such disposition is believed to be
advisable due to other circumstances or considerations.
The Fund will seek to achieve capital gains by taking
advantage of price appreciation caused by interest rate
and credit quality changes.
GENERAL In the event that a security owned by the Fund is
downgraded below the stated rating categories, the Advisor
will take appropriate action with regard to that security.
Money Market Instruments
Under normal market conditions, the Intermediate-Term
Bond Fund and the Bond Fund may invest up to 35% of their
total assets in money market instruments, and the
Government Securities Fund may invest up to 20% of its
total assets in money market instruments. When market
conditions indicate a temporary "defensive" investment
strategy as determined by the Advisor, a Fund may invest
more than the above-stated percentages of its total assets
in money market instruments. A Fund will not be pursuing
its investment objective to the extent that a substantial
portion of its assets are invested in money market
instruments.
Illiquid and Restricted Securities
Each Fund shall limit investment in illiquid securities
to 15% or less of its net assets. Generally, an "illiquid
security" is any security that cannot be disposed of
promptly and in the ordinary course of business at
approximately the amount at which the Fund has valued the
instrument. The absence of a trading market can make it
difficult to ascertain the market value of illiquid
securities. The Fund may purchase restricted securities
which have not been registered under the Securities
12
<PAGE> 13
Act of 1933 (e.g., Rule 144A Securities and Section 4(2)
commercial paper) subject to policies approved by the
Board of Trustees. See INVESTMENT RESTRICTIONS in the
Statement of Additional Information.
Lending of Portfolio Securities
In order to generate additional income, a Fund may lend
its portfolio securities to broker-dealers, banks or other
institutions. A Fund may lend portfolio securities in an
amount representing up to 33 1/3% of the value of the
Fund's total assets.
Other Investments
The Funds may enter into repurchase agreements and
reverse repurchase agreements.
The Fixed Income Funds may enter into forward
commitments or purchase securities on a "when-issued"
basis. Each Fixed Income Fund expects that commitments by
a Fund to enter into forward commitments or purchase when-
issued securities will not exceed 25% of the value of the
Fund's total assets under normal market conditions. The
Fixed Income Funds do not intend to purchase when-issued
securities or enter into forward commitments for
speculative or leveraging purposes but only for the
purpose of acquiring portfolio securities.
A Fund may invest up to 5% of its total assets in the
securities of any one registered investment company, but
may not own than 3% of the securities of any one
registered investment company or invest more than 10% of
its assets in the securities of other registered
investment companies. In accordance with an exemptive
order issued to HighMark by the SEC, such other registered
investment company securities may include registered
securities of a money market fund of HighMark, and such
companies may include companies for which the Advisor or a
Sub-Advisor to a Fund of HighMark, or an affiliate of such
Advisor or Sub-Advisor serves as investment advisor,
administrator or distributor. Because other registered
investment companies employ an investment advisor, such
investment by a Fund may cause Shareholders to bear
duplicative fees. The Advisor will waive its fees
attributable to the assets of the investing Fund invested
in a money market fund of HighMark, and, to the extent
required by applicable law, the Advisor will waive its
fees attributable to the assets of the Fund invested in
any investment company. Some Funds are subject to
additional restrictions on investment in other investment
companies. See "INVESTMENT RESTRICTIONS" in the Statement
of Additional Information.
A Fund may invest in futures and options on futures for
the purpose of achieving the Fund's objectives and for
adjusting portfolio duration. The Fund may invest in
futures and related options based on any type of security
or index traded on U.S. or foreign exchanges or over the
counter, as long as the underlying
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<PAGE> 14
security, or securities represented by an index, are
permitted investments of the Fund. The Fund may enter into
futures contracts and related options only to the extent
that obligations under such contracts or transactions
represent not more than 10% of the Fund's assets.
Certain of the obligations in which the Funds may invest
may be variable or floating rate instruments, may involve
a conditional or unconditional demand feature, and may
include variable amount master demand notes.
For further information, see "DESCRIPTION OF PERMITTED
INVESTMENTS."
Risk Factors
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 Fixed 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.
Depending upon prevailing market conditions, the Fixed
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, the
Advisor will consider many factors other than current
yield, including the preservation of capital, the
potential for realizing capital appreciation, maturity,
and yield to maturity.
Securities rated BBB by S&P or Baa by Moody's are
considered investment grade, but are deemed by these
rating services to have some speculative characteristics,
and adverse economic conditions or other circumstances are
more likely to lead to a weakened capacity to make
principal and interest payments than is the case with
higher grade bonds.
Each of the Fixed Income Funds may invest in securities
issued or guaranteed by foreign corporations or foreign
governments, their political subdivisions, agencies or
instrumentalities and obligations of supranational
entities such as the World Bank and the Asian Development
Bank. 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 develop-
14
<PAGE> 15
ments, 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 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 Fixed Income Funds will not hold foreign
currency for investment purposes.
For further information regarding risks of particular
permitted investments, see "DESCRIPTION OF PERMITTED
INVESTMENTS."
INVESTMENT
LIMITATIONS Each 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);
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); and
3) Make loans, except that a Fund may purchase or hold
debt instruments, lend portfolio securities, and enter
into repurchase agreements as permitted by its investment
objective and policies.
The foregoing percentages will apply at the time of the
purchase of a security. The investment limitations listed
above are fundamental policies and may not be changed
without a vote of a majority of the outstanding Shares of
the respective Fund. Additional fundamental and
non-fundamental investment limitations are set forth in
the Statement of Additional Information.
15
<PAGE> 16
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 the Advisor believes investment
considerations warrant. Each of the Fixed Income Fund's
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 Fixed
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.
PURCHASE AND
REDEMPTION
OF SHARES As noted above, each Fund (except the Government
Securities Fund, which is offered in only Fiduciary
Shares) is divided into two classes of Shares, Retail and
Fiduciary. Fiduciary Shares may be purchased at net asset
value. Only the following investors qualify to purchase
the Fixed Income Funds' Fiduciary Shares: (i) fiduciary,
advisory, agency, custodial and other similar accounts
maintained with Union Bank of California, N.A. or its
affiliates; (ii) Select IRA accounts established with The
Bank of California, N.A. and invested in any of HighMark's
Equity or Fixed 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 HighMark's Equity
or Fixed 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 Union Bank of California, N.A.,
HighMark's current or former distributors or their
respective affiliated companies who currently own Shares
of HighMark Funds which were purchased before April 30,
1997. For a description of investors who qualify to
purchase Retail Shares, see the Retail Shares prospectus
of the Fixed Income Funds.
Purchases and redemptions of Shares of the Fixed Income
Funds may be made on days on which both the New York Stock
Exchange and Federal Reserve wire system are open for
business ("Business Days"). The minimum initial investment
is generally $1,000 and the minimum subsequent investment
is generally $100. For present and retired directors,
officers, and employees (and their spouses and children
under the age of 21) of Union Bank of California, SEI
Financial Services Company 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 in the
Distributor's discretion if purchases are made in
connection with Individual Retirement Accounts, Keoghs,
payroll deduction plans, 401(k) or similar programs or
accounts. However, the minimum investment may be waived.
Shareholders may place orders by telephone.
16
<PAGE> 17
Purchase orders will be effective if the Distributor
receives an order before 1:00 p.m., Pacific time (4:00
p.m., Eastern time) and the Custodian receives Federal
funds before the close of business on the next Business
Day. The purchase price of Shares of a Fund is the net
asset value next determined after a purchase order is
received and accepted by HighMark. The net asset value per
Share of a Fund is determined by dividing the total market
value of a Fund's investments and other assets, less any
liabilities, by the total number of outstanding Shares of
a Fund. Net asset value per share is determined daily as
of 1:00 p.m., Pacific time (4:00 p.m., Eastern time) on
any Business Day. Purchases will be made in full and
fractional shares of HighMark calculated to three decimal
places. HighMark reserves the right to reject a purchase
order when the Distributor of the Advisor determines that
it is not in the best interest of HighMark and/or its
Shareholders to accept such order.
Shares of the Funds are offered only to residents of
states in which the Shares are eligible for purchase.
Shareholders who desire to redeem shares of HighMark
must place their redemption orders prior to 1:00 p.m.,
Pacific time (4:00 p.m., Eastern time), on any Business
Day for the order to be accepted on that Business Day. The
redemption price is the net asset value of the Fund next
determined after receipt by the Distributor of the
redemption order. Payment on redemption will be made as
promptly as possible and, in any event, within seven
calendar days after the redemption order is received. The
Funds reserve the right to make payment on redemptions in
securities rather than cash.
Neither HighMark's transfer agent nor HighMark will be
responsible for any loss, liability, cost or expense for
acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine.
HighMark and its transfer agent will each employ
reasonable procedures to confirm that telephone
instructions are genuine. Such procedures may include
taping of telephone conversations. If market conditions
are extraordinarily active or other extraordinary
circumstances exist, and you experience difficulties
placing redemption orders by telephone, you may wish to
consider placing your order by other means.
EXCHANGE
PRIVILEGES As indicated under GENERAL INFORMATION--Description of
HighMark & Its Shares, certain of HighMark's Funds issues
two classes of Shares (Retail 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 Retail 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.
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<PAGE> 18
Each Fund's Shares may be exchanged for Shares of the
class of the various other Funds of HighMark which the
Shareholder qualifies to purchase directly so long as the
Shareholder maintains the applicable minimum account
balance in each Fund in which he or she owns Shares and
satisfies the minimum initial and subsequent purchase
amounts of the Fund into which the Shares are exchanged.
Shareholders may exchange their Fiduciary Shares for
Fiduciary Shares of another Fund on the basis of the
relative net asset value of the Fiduciary Shares
exchanged. Shareholders may also exchange Fiduciary Shares
of a Fund for Retail Shares of another Fund. Under such
circumstances, the cost of the acquired Retail Shares will
be the net asset value per share plus the appropriate
sales load.
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 Union 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 Fixed
Income Fund may do so by contacting the Transfer Agent at
1-800-433-6884. 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 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 HighMark may legally be sold. HighMark may
materially amend or terminate the exchange privileges
described herein upon sixty days' notice.
DIVIDENDS The net income of each of the Fixed 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
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<PAGE> 19
election) must notify the transfer agent at P.O. Box 8416,
Boston, MA 02266-8416, 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 Fixed 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. Because
all of the net investment income of the Fixed Income Funds
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.
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. 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 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 long-term capital gain dividends
on the Shares.
Prior to purchasing Shares of the Fixed 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 the
Shareholder. A Shareholder should consult his or her
advisor for specific advice about the tax consequences to
the Shareholder of investing in a Fund.
Fund investments in foreign securities may be subject to
withholding taxes at the source on dividend or interest
payments. In that case, the Fund's yield on those
securities would be decreased. The Fund does not expect to
be eligible to elect to permit shareholders to claim a
credit or deduction on their income tax return for their
pro rata share of such taxes.
Fund transactions in foreign currencies and hedging
activities may give rise to ordinary income or loss to the
extent such income or loss results from fluctuations in
value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book
income and taxable income. This difference
19
<PAGE> 20
may cause a portion of the Fund's income distributions to
constitute a return of capital for tax purposes or require
the Fund to make distributions exceeding book income to
qualify as a regulated investment company for 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 The Advisor
Pacific Alliance Capital Management, a division of Union
Bank of California, serves as the Fixed Income Funds'
investment advisor. Subject to the general supervision of
HighMark's Board of Trustees, the Advisor 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 the Fund's
investment securities, and maintains the Fund's records
relating to such purchases and sales.
For the expenses assumed and services provided by the
Advisor as each Fund's investment advisor, Union Bank of
California receives a fee from the Intermediate-Term Bond
Fund, the Bond Fund, and the Government Securities Fund
computed daily and paid monthly, at the annual rate of
fifty one-hundredths of one percent (.50%) of the Fund's
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. Union Bank of
California may from time to time agree to voluntarily
reduce its advisory fee, however, it is not currently
doing so. While there can be no assurance that Union Bank
of California will choose to make such an agreement, any
voluntary reductions in Union 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
HighMark's fiscal year ended July 31, 1996, Union Bank of
California received investment advisory fees from the Bond
Fund aggregating 0.45% of the Fund's average daily net
assets. As of the date of this prospectus, the
Intermediate-Term Bond Fund and the Government Securities
Fund had not yet commenced operations in HighMark.
20
<PAGE> 21
On April 1, 1996, The Bank of California, N.A.,
HighMark's then investment advisor, combined with Union
Bank and the resulting bank changed its name to Union Bank
of California, N.A. At the same time, the banks'
investment management divisions were combined. Each of
Union Bank and The Bank of California, N.A. (or their
predecessor banks) has been in banking since the early
1900's and, historically, each has had significant
investment functions within its trust and investment
division. UnionBanCal Corporation, the parent of Union
Bank of California, N.A., is a publicly held corporation,
but is principally held by The Bank of Tokyo-Mitsubishi,
Ltd. As of September 30, 1996, Union Bank of California
and its subsidiaries had approximately $28.7 billion in
commercial assets. Pacific Alliance Capital Management is
a division of Union Bank of California's Trust and
Investment Management Group, which, as of June 30, 1996,
had approximately $13.4 billion of assets under
management. The Advisor, with a team of approximately 45
stock and bond research analysts, portfolio managers and
traders, has been providing investment management services
to individuals, institutions and large corporations since
1917.
All investment decisions for the Fixed Income Funds are
made by a team of investment professionals, all of whom
take an active part in the decision making process. The
team leader for both the Intermediate-Term Bond Fund and
the Bond Fund is E. Jack Montgomery. Mr. Montgomery is a
Vice President of the Advisor and has served as the
portfolio manager of the Bond Fund since June, 1994. Prior
to joining the Advisor, 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.
Investment decisions for the Government Securities Fund
are primarily made by the Sub-Advisor as described below.
The Sub-Advisor
The Advisor and Bank of Tokyo-Mitsubishi Trust Company
(the "Sub-Advisor") have entered into an investment
sub-advisory agreement relating to the Government
Securities Fund (the "Investment Sub-Advisory Agreement").
Under the Investment Sub-Advisory Agreement, the
Sub-Advisor makes the day-to-day investment decisions for
the assets of the Government Securities Fund, subject to
the supervision of and policies established by the Advisor
and the Trustees of HighMark.
Bank of Tokyo-Mitsubishi Trust Company, headquartered at
1251 Avenue of the Americas, New York, New York 10116,
operates as a wholly-owned subsidiary of The Bank of
Tokyo-Mitsubishi, Limited. The Sub-Advisor was formed by
the combination on April 1, 1996 of Bank of Tokyo Trust
Company, a wholly-owned subsidiary of the Bank of Tokyo,
Ltd., and Mitsubishi Bank Trust
21
<PAGE> 22
Company of New York, a wholly-owned subsidiary of The
Mitsubishi Bank, Ltd. Bank of Tokyo Trust Company was the
surviving entity, and changed its name to Bank of
Tokyo-Mitsubishi Trust Company. Bank of Tokyo Trust
Company was established in 1955 and has provided trust
services since that time and management services since
1965.
The Sub-Advisor serves as portfolio manager to bank
common funds, employee benefit funds and personal trust
accounts, managing assets in money market, equity and
fixed income portfolios. As of June 30, 1996, the
Sub-Advisor managed $700 million in individual portfolios
and collective funds. In addition, the Sub-Advisor also
serves as Sub-Advisor to HighMark's Convertible
Securities, Emerging Growth and Blue Chip Growth Funds.
The Sub-Advisor is entitled to a fee, which is
calculated daily and paid monthly out of the Advisor's
fee, at an annual rate of .20% of the average daily net
assets of the Government Securities Fund. As of the date
of this prospectus, the Government Securities Fund had not
yet commenced operations in HighMark.
Stephen W. Blocklin will serve as portfolio manager of
the Government Securities Fund. Mr. Blocklin has been a
Vice President with the Sub-Advisor and its predecessor,
Bank of Tokyo Trust Company since December, 1993. From
September 1988 to December, 1993, he served as a senior
fixed income fund manager in the institutional investment
management group at First Fidelity Bancorporation.
Administrator
SEI Fund Resources (the "Administrator") and HighMark
are parties to an administration agreement (the
"Administration Agreement"). Under the terms of the
Administration Agreement, the Administrator provides
HighMark with certain management services, including all
necessary office space, equipment, personnel, and
facilities.
The Administrator is entitled to a fee, which is
calculated daily and paid monthly, at an annual rate of
.20% of the average daily net assets of the Funds. The
Administrator may waive its fee or reimburse various
expenses to the extent necessary to limit the total
operating expenses of a Fund's Fiduciary Shares. Any such
waiver is voluntary and may be terminated at any time in
the Administrator's sole discretion. Currently, the
Administrator has agreed to waive its fee to the rate of
.18% of the average daily net assets of the Funds.
Pursuant to a separate agreement with the Administrator,
Union Bank of California, N.A. performs sub-administration
services on behalf of each Fund, for which it receives a
fee paid by the Administrator at the annual rate of up to
0.05%
22
<PAGE> 23
of the average daily net assets of the Funds. Union Bank
of California has voluntarily agreed to reduce this fee to
0.03%, but reserves the right to terminate its waiver at
any time in its sole discretion. A description of the
services performed by Union Bank of California pursuant to
this Agreement is contained in the Statement of Additional
Information.
The Transfer Agent
State Street Bank and Trust Company serves as the
transfer agent, dividend disbursing agent, and as a
shareholder servicing agent for the Fiduciary Shares of
HighMark, for which services it receives a fee.
Shareholder Service Plan
To support the provision of Shareholder services to both
classes of Shares, HighMark has adopted a Shareholder
Service Plan. A description of the services performed by
service providers pursuant to the Shareholder Service Plan
is contained in the Statement of Additional Information.
In consideration of services provided by any service
provider, which may include Union Bank of California,
N.A., Bank of Tokyo-Mitsubishi, Ltd., or their respective
affiliates, each Fund may pay a fee at the rate of up to
0.25% of its average daily net assets to such service
provider. The service provider may waive such fees at any
time. Any such waiver is voluntary and may be terminated
at any time. Currently, such fees are being waived to the
rate of 0.03% of average daily net assets for the
Intermediate-Term Bond Fund, 0.01% of the average daily
net assets for the Bond Fund, and 0.00% of the average
daily net assets for the Government Securities Fund.
Distributor
SEI Financial Services Company (the "Distributor") and
HighMark are parties to a distribution agreement
("Distribution Agreement"). The Distribution Agreement is
renewable annually and may be terminated by the
Distributor, by a majority vote of the Disinterested
Trustees or by a majority vote of the outstanding
securities of HighMark upon not more than 60 days written
notice by either party, or upon assignment by the
Distributor. Fiduciary Shares are not subject to
HighMark's Distribution Plan or a distribution fee.
Banking Laws
Union Bank of California believes that it may perform
the services for the Funds contemplated by its investment
advisory agreement with HighMark without a violation of
applicable banking laws and regulations. Union Bank of
California also believes that it may perform
sub-administration and sub-accounting services on behalf
of each Fund, for which it receives compensation from SEI
Fund Resources, without a violation of applicable banking
laws and regulations.
23
<PAGE> 24
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
Union Bank of California or the Advisor 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.
Custodian
Union Bank of California also serves as the custodian
and as a shareholder servicing agent for the Fixed Income
Funds. The Custodian holds cash securities and other
assets of HighMark as required by the 1940 Act.
Services performed by Union Bank of California, as the
Funds' shareholder servicing 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 HighMark & Its Shares
HighMark was organized as a Massachusetts business trust
on March 10, 1987, and consists of sixteen series of
Shares open for investment representing units of
beneficial interest in HighMark's Growth Fund, Income
Equity Fund, Balanced Fund, Value Momentum Fund, Blue Chip
Growth Fund, Emerging Growth Fund, International Equity
Fund, Bond Fund, Intermediate-Term Bond Fund, Government
Securities Fund, Convertible Securities Fund, California
Intermediate Tax-Free Bond Fund, Diversified Money Market
Fund, U.S. Government Obligations Money Market Fund, 100%
U.S. Treasury Obligations Money Market Fund and California
Tax-Free Money Market Fund. As of the date hereof, no
Shares of the Value Momentum Fund, the Blue Chip Growth
Fund, the Emerging Growth Fund, the International Equity
Fund, the Intermediate-Term Bond Fund, the Convertible
Securities Fund, the Government Securities Fund, and the
California Intermediate Tax-Free Bond Fund, had been
offered for sale in HighMark. 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 HighMark were liquidated, would receive
the net assets attributable to that Fund. Shares are
without par value.
As noted above, pursuant to a Multiple Class Plan on
file with the Securities and Exchange Commission
permitting the issuance and sale of two classes of Shares
in selected Funds, Shares of such Funds have been divided
into two classes, designated Retail Shares and Fiduciary
Shares. For information regarding the Retail Shares of the
Fixed Income Funds, interested persons may contact the
Distributor for a prospectus at 1-800-433-6884.
24
<PAGE> 25
HighMark believes that as of November 22, 1996, Union
Bank of California (475 Sansome Street, Post Office Box
45000, San Francisco, CA 94104) was the Shareholder of
record of 88.27% of the Fiduciary Shares of the Bond Fund.
As of November 22, 1996, the Intermediate-Term Bond Fund
and the Government Securities Fund had not yet commenced
operations in HighMark.
Performance Information
From time to time, HighMark may advertise the aggregate
total return, average annual total return, yield and
distribution rate with respect to the Fiduciary Shares of
each Fixed Income Fund. Performance information is
computed separately for a Fund's Retail and Fiduciary
Shares in accordance with the formulas described below.
The aggregate total return and average annual total
return of the Fixed 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. 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 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.
Each Fund may periodically compare its performance to
the performance of other mutual funds tracked by mutual
fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; broad
groups of comparable mutual funds; unmanaged indices which
may assume investment of dividends but generally do not
reflect deductions for administrative and management
costs; or other investment alternatives. Certain Funds may
advertise
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performance that includes results from periods in which
the Fund's assets were managed in a non-registered
predecessor vehicle.
All performance information presented for a Fund is
based on past performance and does not predict future
performance.
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 HighMark will vote in the aggregate
and not by series or class except (i) as otherwise
expressly required by law or when HighMark'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
Retail Shares will be entitled to vote on matters
submitted to a Shareholder vote relating to the
Distribution Plan. HighMark is not required to hold
regular annual meetings of Shareholders, but may hold
special meetings from time to time.
HighMark'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 SEI Financial
Services Company, Oaks, Pennsylvania 19456, or by calling
toll free 1-800-433-6884.
DESCRIPTION OF
PERMITTED
INVESTMENTS The following is a description of permitted investments
for the HighMark Fixed Income Funds.
ASSET-BACKED SECURITIES (NON-MORTGAGE)--Debt Instruments
secured by company receivables, truck and auto loans,
leases, and credit card receivables. Such securities are
generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the
underlying pools of assets. Such securities also may be
debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a
special purpose entity, such as a trust, organized solely
for the purpose of owning such assets and issuing such
debt. The purchase of non-mortgage asset-backed securities
raises risk considerations peculiar to the financing of
the instruments underlying such securities. Asset-backed
securities entail prepayment risk, which may vary
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depending on the type of asset, but is generally less than
the prepayment risk associated with mortgage-backed
securities.
Like mortgages underlying mortgage-backed securities,
underlying automobile sales contracts or credit card
receivables are subject to substantial prepayment risk,
which may reduce the overall return to certificate
holders. Nevertheless, principal prepayment rates tend not
to vary as much in response to changes in 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 their
investment objectives and policies, the Fixed Income Funds
may invest in other asset-backed securities that may be
developed in the future.
BANKERS' ACCEPTANCES--Bills of exchange or time drafts
drawn on and accepted by commercial banks. They are used
by corporations to finance the shipment and storage of
goods and to furnish dollar exchange. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT--Negotiable interest-bearing
instruments with a specific maturity. Certificates of
deposit are issued by banks and savings and loan
institutions in exchange for the deposit of funds and
normally can be traded in the secondary market prior to
maturity.
COMMERCIAL PAPER--Unsecured short-term promissory notes
issued by corporations and other entities. Maturities on
these issues vary from a few days to nine months. Purchase
of such instruments involves a risk of default by the
issuer.
CONVERTIBLE BONDS AND CONVERTIBLE PREFERRED
STOCK--Convertible Bonds are bonds convertible into a set
number of shares of another form of security (usually
common stock) at a prestated price. Convertible bonds have
characteristics similar to both fixed-income and equity
securities. Convertible preferred stock is a class of
capital stock that pays dividends at a specified rate and
that has preference over common stock in the payment of
dividends and the liquidation of assets. Convertible
preferred stock is preferred stock exchangeable for a
given number of common stock shares, and has
characteristics similar to both fixed-income and equity
securities. Because of the conversion feature, the market
value of convertible bonds and convertible preferred stock
tend to move together with the market value of the
underlying stock. As a result, a Fund's selection of
convertible bonds and convertible preferred stock is
based, to a great extent, on the potential for capital
appreciation that may
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exist in the underlying stock. The value of convertible
bonds and convertible preferred stock is also affected by
prevailing interest rates, the credit quality of the
issuer and any call provisions.
DERIVATIVES--Instruments whose value is derived from an
underlying contract, index or security, or any combination
thereof, including futures, options (e.g., puts and
calls), options on futures, swap agreements, and some
mortgage-backed securities (CMOs, REMICs, IOs and POs).
See elsewhere in this "DESCRIPTION OF PERMITTED
INVESTMENTS" for discussions of these various instruments,
and see "INVESTMENT OBJECTIVES" and "INVESTMENT POLICIES"
for more information about any policies and limitations
applicable to their use.
FUTURES AND OPTIONS ON FUTURES--Some futures strategies,
including selling futures, buying puts and writing calls,
reduce a Fund's exposure to price fluctuations. Other
strategies, including buying futures, writing puts and
buying calls, tend to increase market exposure. Futures
and options may be combined with each other in order to
adjust the risk and return characteristics of the overall
portfolio.
Options and futures can be volatile instruments, and
involve certain risks that, if applied at an inappropriate
time, could negatively impact a Fund's return.
INVESTMENT GRADE BONDS--Interest-bearing or discounted
government or corporate securities that obligate the
issuer to pay the bondholder a specified sum of money,
usually at specific intervals, and to repay the principal
amount of the loan at maturity. Investment grade bonds are
those rated BBB or better by S&P or Baa or better by
Moody's or similarly rated by other NRSROs, or, if not
rated, determined to be of comparable quality by the
Advisor.
LOAN PARTICIPATIONS--Loan participations are interests
in loans to U.S. corporations (i.e., borrowers) which are
administered by the lending bank or agent for a syndicate
of lending banks, and sold by the lending bank or
syndicate member ("intermediary bank"). In a loan
participation, the borrower of the underlying loan will be
deemed to be the issuer of the participation interest
(except to the extent a purchasing Fund derives its rights
from the intermediary bank). Because the intermediary bank
does not guarantee a loan participation in any way, a loan
participation is subject to the credit risks associated
with the underlying corporate borrower. In addition, in
the event the underlying corporate borrower fails to pay
principal and interest when due, a Fund may encounter
delays, expenses and risks that are greater than those
that would have been involved if the Fund had purchased a
direct obligation (such as commercial paper) of such
borrower because it may be necessary under the terms of
the loan participation, for the Fund to assert its rights
against the borrower through the
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intermediary bank. Moreover, under the terms of a loan
participation, the purchasing Fund may be regarded as a
creditor of the intermediary bank (rather than of the
underlying corporate borrower), so that a Fund may also be
subject to the risk that the issuing bank may become
insolvent. Further, in the event of the bankruptcy or
insolvency of the corporate borrower, a loan participation
may be subject to certain defenses that can be asserted by
such borrower as a result of improper conduct by the
issuing bank. The secondary market, if any, for these loan
participations is limited, and any such participation
purchased by a Fund may be regarded as illiquid.
MONEY MARKET INSTRUMENTS--Short-term, debt instruments
or deposits and may include, for example, (i) commercial
paper rated within the highest rating category by a NRSRO
at the time of investment, or, if not rated, determined by
the Advisor to be of comparable quality; (ii) obligations
(certificates of deposit, time deposits, bank master
notes, and bankers' acceptances) of thrift institutions,
savings and loans, U.S. commercial banks (including
foreign branches of such banks), and U.S. and foreign
branches of foreign banks, provided that such institutions
(or, in the case of a branch, the parent institution) have
total assets of $1 billion or more as shown on their last
published financial statements at the time of investment;
(iii) short-term corporate obligations rated within the
three highest rating categories by a NRSRO (e.g., at least
A by S&P or A by Moody's) at the time of investment, or,
if not rated, determined by the Advisor to be of
comparable quality; (iv) general obligations issued by the
U.S. Government and backed by its full faith and credit,
and obligations issued or guaranteed as to principal and
interest by agencies or instrumentalities of the U.S.
Government (e.g., obligations issued by Farmers Home
Administration, Government National Mortgage Association,
Federal Farm Credit Bank and Federal Housing
Administration); (v) receipts, including TRs, TIGRs and
CATS; (vi) repurchase agreements involving such
obligations; (vii) loan participations issued by a bank in
the United States with assets exceeding $1 billion and for
which the underlying loan is issued by borrowers in whose
obligations the Fund may invest; (viii) money market funds
and (ix) foreign commercial paper.
Certain of the obligations in which a Fund may invest
may be variable or floating rate instruments, may involve
conditional or unconditional demand features and may
include variable amount master demand notes.
MORTGAGE-BACKED SECURITIES--Securities generally issued
or guaranteed by U.S. government agencies such as GNMA,
FNMA, or FHLMC. GNMA mortgage-backed certificates are
mortgage-backed securities of the modified pass-through
type, which means that both interest and principal
payments (including prepayments) are passed through
monthly to the holder of the certificate. Each GNMA
certificate evidences an interest in a specific pool of
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<PAGE> 30
mortgage loans insured by the Federal Housing
Administration or the Farmers Home Administration or
guaranteed by the Veterans Administration. FNMA, a
federally-chartered and stockholder-owned corporation,
issues pass-through certificates which are guaranteed as
to payment of principal and interest by FNMA. FHLMC, a
corporate instrumentality of the United States, issues
participation certificates which represent an interest in
mortgages held in FHLMC's portfolio. FHLMC guarantees the
timely payment of interest and the ultimate collection of
principal. Securities issued or guaranteed by FNMA and
FHLMC are not backed by the full faith and credit of the
United States. There can be no assurance that the U.S.
government would provide financial support to FNMA or
FHLMC if necessary in the future.
Although payments on 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.
Adjustable rate mortgage securities ("ARMS") are
pass-through certificates representing ownership interests
in a pool of adjustable rate mortgages and the resulting
cash flow from those mortgages. Unlike conventional debt
securities, which provide for periodic (usually
semi-annual) payments of interest and payments of
principal at maturity or on specified call dates, ARMs
provide for monthly payments based on a pro rata share of
both periodic interest and principal payments and
prepayments of principal on the underlying mortgage pool
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(less GNMA's, FNMA's, or FHLMC's fees and any applicable
loan servicing fees).
Collateralized mortgage obligations ("CMOs") are bonds
generally issued by single purpose, stand-alone finance
subsidiaries or trusts established by financial
institutions, government agencies, investment banks, or
other similar institutions, and collateralized by pools of
mortgage loans. Payments of principal and interest on the
collateral mortgages are used to pay debt service on the
CMO. In a CMO, a series of bonds or certificates is issued
in multiple classes. Each class of CMOs, often referred to
as a "tranche," is issued at a specific coupon rate and
has a stated maturity or final distribution date. The
principal and interest payment on the underlying mortgages
may be allocated among the classes of CMOs in several
ways. Typically, payments of principal, including any
prepayments, on the underlying mortgages would be applied
to the classes in the order of their respective stated
maturities or final distribution dates, so that no payment
of principal will be made on CMOs of a class until all
CMOs of other classes having earlier stated maturities or
final distribution dates have been paid in full.
One or more classes of CMOs may have coupon rates that
reset periodically based on an index, such as the London
Interbank Offered Rate ("LIBOR"). Each Fund may purchase
fixed, adjustable, or "floating" rate CMOs that are
collateralized by fixed rate or adjustable rate mortgages
that are guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S.
government or are directly guaranteed as to payment of
principal and interest by the issuer, which guarantee is
collateralized by U.S. government securities or is
collateralized by privately issued fixed rate or
adjustable rate mortgages.
Securities such as zero-coupon obligations,
mortgage-backed and asset-backed securities, and
collateralized mortgage obligations ("CMOs") will have
greater price volatility then other fixed-income
obligations. Because declining interest rates may lead to
prepayment of underlying mortgages, automobile sales
contracts or credit card receivables, the prices of
mortgage-related and asset-backed securities may not rise
with a decline in interest rates. Mortgage-backed and
asset-backed securities and CMOs are extremely sensitive
to the rate of principal prepayment. Similarly, callable
corporate bonds also present risk of prepayment.
During periods of falling interest rates, securities
that can be called or prepaid may decline in value
relative to similar securities that are not subject to
call or prepayment.
Real Estate Mortgage Investment Conduits ("REMICs") are
private entities formed for the purpose of holding a fixed
pool of mortgages secured by an interest in real property.
REMICs are similar to CMOs in that they issue multiple
classes of securities.
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OPTIONS--Under a call option, the purchaser of the
option has the right to purchase, and the writer (the
Fund) the obligation to sell, the underlying security at
the exercise price during the option period. A put option
gives the purchaser the right to sell, and the writer the
obligation to purchase, the underlying security at the
exercise price during the option period.
In addition, certain Funds may buy options on stock
indices to invest cash on an interim basis. Such options
will be listed on a national securities exchange. In order
to close out an option position, a Fund may enter into a
"closing purchase transaction" -- the purchase of an
option on the same security with the same exercise price
and expiration date as the option contract previously
written on any particular security. When the security is
sold, a Fund effects a closing purchase transaction so as
to close out any existing option on that security.
There are risks associated with such investments
including the following: (1) the success of a hedging
strategy may depend on the ability of the Advisor or
Sub-Advisor to predict movements in the prices of
individual securities, fluctuations in markets and
movements in interest rates; (2) there may be an imperfect
correlation between the movement in prices of securities
held by a Fund and the price of options; (3) there may not
be a liquid secondary market for options; and (4) while a
Fund will receive a premium when it writes covered call
options, it may not participate fully in a rise in the
market value of the underlying security.
RECEIPTS--Interests in separately traded interest and
principal component parts of U.S. Treasury obligations
that are issued by banks and brokerage firms and are
created by depositing Treasury notes and Treasury bonds
into a special account at a custodian bank. The custodian
holds the interest and principal payments for the benefit
of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and
maintains the register. Receipts include "Treasury
Receipts" ("TR's"), "Treasury Investment Growth Receipts"
("TIGR's"), and "Certificates of Accrual on Treasury
Securities" ("CATS"). TR's, TIGR's and CATS are sold as
zero coupon securities, which means that they are sold at
a substantial discount and redeemed at face value at their
maturity date without interim cash payments of interest or
principal. This discount is accreted over the life of the
security, and such accretion will constitute the income
earned on the security for both accounting and tax
purposes. Because of these features, such securities may
be subject to greater interest rate volatility than
interest-paying securities. See also "FEDERAL TAXATION."
REPURCHASE AGREEMENTS--Agreements whereby a 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 agreements entered into by the Funds will
provide that the underlying
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security at all times shall have a value equal to 102% of
the resale price stated in the agreement. Repurchase
agreements involving government securities are not subject
to a Fund's fundamental investment limitation on
purchasing securities of any one issuer. 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").
REVERSE REPURCHASE AGREEMENTS--A 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 10%
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 102% of 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 1940
Act.
RULE 144A SECURITIES--Rule 144A Securities are
securities that have not been registered under the
Securities Act of 1933, but which may be traded between
certain qualified institutional investors, including
investment companies. The absence of a secondary market
may affect the value of the Rule 144A Securities. The
Board of Trustees of the Group has established guidelines
and procedures to be utilized to determine the liquidity
of such securities.
SECURITIES ISSUED ON A FORWARD COMMITMENT BASIS OR
WHEN-ISSUED SECURITIES--Securities 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
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<PAGE> 34
market when delivery takes place. When a Fund agrees to
purchase when-issued securities or enter into forward
commitments, the Group's custodian will be instructed to
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. Therefore, the purchase of
securities on a "when-issued" basis or forward commitments
may increase the risk of fluctuations in a Fund's net
asset value.
SECURITIES LENDING--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 the lending agent, with oversight by the Advisor,
and, should the market value of the loaned securities
increase, the borrower will be required to furnish
additional collateral to the Fund.
SECURITIES SUBJECT TO A PUT FEATURE--A "put" feature
permits a Fund to sell a fixed income security at a fixed
price prior to maturity. The underlying fixed income
securities subject to a put may be sold at any time at the
market rates. However, unless the put was an integral part
of the fixed income security as originally issued, it may
not be marketable or assignable. Generally, a premium is
paid for a put feature or a put feature is purchased
separately which results in a lower yield than would
otherwise be available for the same fixed income
securities.
TIME DEPOSITS--Non-negotiable receipts issued by U.S. or
foreign banks in exchange for the deposit of funds. Like
certificates of deposit, they earn a specified rate of
interest over a definite period of time; however, they
cannot be traded in the secondary market. Time deposits
with a withdrawal penalty are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCY SECURITIES--Certain Federal
agencies have been established as instrumentalities of the
U.S. Government to supervise and finance certain types of
activities. Issues of these agencies, while not direct
obligations of the U.S. Government, are either backed by
the full faith and credit of the United States (e.g., GNMA
securities) or supported by the issuing
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<PAGE> 35
agencies' right to borrow from the U.S. Treasury. The
issues of other agencies are supported only by the credit
of the instrumentality (e.g., FNMA securities).
U.S. TREASURY OBLIGATIONS--Bills, notes, and bonds
issued by the U.S. Treasury, as well as separately traded
interest and principal component parts of such obligations
known as Separately Traded Registered Interest and
Principal Securities ("STRIPS") that are transferable
through the Federal book-entry system.
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 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 a
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.
VARIABLE AND FLOATING RATE INSTRUMENTS--Obligations that
may carry variable or floating rates of interest, may
involve conditional or unconditional demand features and
may include variable amount master demand notes. The
interest rates on these securities may be reset daily,
weekly, quarterly or some other reset period, and may have
a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations
may not accurately reflect existing market interest rates.
A demand instrument with a demand notice period exceeding
seven days may be considered illiquid if there is no
secondary market for such security.
WARRANTS--Securities that entitle the holder to buy a
proportionate amount of common stock at a specified price
for a limited or unlimited period of time. Warrants are
often freely transferable and are traded on major stock
exchanges.
YANKEE BONDS--Dollar denominated securities issued by
foreign-domiciled issuers that obligate the issuer to pay
the bondholder a specified sum of money, usually
semiannually, and to repay the principal amount of the
loan at maturity. Sovereign bonds are bonds issued by the
governments of foreign countries. Supranational bonds are
those issued by supranational entities, such as the World
Bank and European Investment Bank. Canadian bonds are
bonds issued by Canadian provinces.
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<PAGE> 36
ZERO-COUPON OBLIGATIONS--Non-income producing securities
evidencing ownership of future interest and principal
payments on bonds. 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.
36
<PAGE> 37
HighMark FIXED INCOME FUNDS
INVESTMENT PORTFOLIOS OF
HighMark FUNDS
For further information (including current
yield, purchase and redemption information),
call 1-800-433-6884
INVESTMENT ADVISOR
Pacific Alliance Capital Management,
a division of Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
SUB-ADVISOR
Bank of Tokyo-Mitsubishi Trust Company
1251 Avenue of the Americas
New York, New York 10116
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
SEI Fund Resources and
SEI Financial Services Company
Oaks, Pennsylvania 19456
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
<PAGE> 38
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 HIGHMARK OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY HIGHMARK OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
NOT FDIC INSURED
<PAGE> 39
[HIGHMARK LOGO]
HIGHMARK FUNDS
TRS-17236(R12/95)
<PAGE> 40
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
HIGHMARK FUNDS
EQUITY FUNDS
HighMark Funds ("HighMark") is an open-end, diversified, registered investment
company that offers a convenient means of investing in one or more
professionally managed portfolios of securities. This Prospectus relates to
HighMark's:
- Income Equity Fund
- Value Momentum Fund
- Blue Chip Growth Fund
- Growth Fund
- Emerging Growth Fund
FIDUCIARY SHARES
HighMark's Fiduciary Shares are offered to the following investors: (i)
fiduciary, advisory, agency, custodial and other similar accounts maintained
with Union Bank of California, N.A. or its affiliates; (ii) Select IRA accounts
established with The Bank of California, N.A. and invested in any of HighMark'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 HighMark'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 Union Bank of
California, N.A., HighMark's current or former distributors or their respective
affiliated companies who currently own Shares of HighMark Funds which were
purchased before April 30, 1997.
This Prospectus sets forth concisely the information about HighMark and the
Funds that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated the same date as this Prospectus has been filed
with the Securities and Exchange Commission and is available without charge by
writing the Distributor, SEI Financial Services Company, Oaks, Pennsylvania
19456, or by calling 1-800-433-6884. The Statement of Additional Information is
incorporated into this Prospectus by reference. This Prospectus relates only to
the Fiduciary Shares of the Equity Funds. Interested persons who wish to obtain
a prospectus for the other Funds of HighMark may contact the Distributor at the
above address and telephone number.
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 COM MISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HIGHMARK'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, INCLUDING UNION BANK OF CALIFORNIA, N.A., BANK OF
TOKYO-MITSUBISHI, LIMITED OR ANY OF THEIR AFFILIATES OR CORRESPONDENTS. HIGHMARK
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT IN HIGHMARK INVOLVES RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
February 26, 1997
Fiduciary Shares
<PAGE> 41
SUMMARY
HIGHMARK FUNDS ("HighMark") is an open-end, diversified, registered investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Fiduciary Shares of the Income Equity, Value Momentum, Blue Chip Growth, Growth,
and Emerging Growth Funds (each a "Fund" and sometimes referred to in this
prospectus as the "Equity Funds.") This summary is qualified in its entirety by
reference to the more detailed information provided elsewhere in the Prospectus
and in the Statement of Additional Information.
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES? THE INCOME EQUITY FUND seeks
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 VALUE MOMENTUM FUND seeks long-term
capital growth with a secondary objective of income. THE BLUE CHIP GROWTH FUND
seeks long-term capital growth by investing in a diversified portfolio of common
stocks and other equity securities of seasoned, large capitalization companies.
THE GROWTH FUND seeks long-term capital appreciation through investments in
equity securities; the production of current income is an incidental objective.
THE EMERGING GROWTH FUND seeks long-term growth of capital by investing in a
diversified portfolio of equity securities of small capitalization, emerging
growth companies. (See "INVESTMENT OBJECTIVES.")
WHAT ARE THE FUNDS' PERMITTED INVESTMENTS? Each of the Funds primarily invests,
consistent with its investment objective, in equity securities including common
stocks and securities convertible into common stocks. Each Fund may also invest
consistent with its investment objective and investment policies in certain
other instruments. (See "INVESTMENT POLICIES.")
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUNDS? The investment
policies of each Fund entail certain risks and considerations of which an
investor should be aware. Each of the Funds may purchase common stocks and other
equity securities that are volatile and which may fluctuate in value more than
other types of investments. Values of fixed income securities and,
correspondingly, share prices of Funds invested in such securities, tend to vary
inversely with interest rates, and may be affected by other market and economic
factors as well. In addition, the securities of the emerging growth companies in
which the Emerging Growth Fund may invest may be less liquid, and subject to
more abrupt or erratic market movements, than securities of larger, more
established growth companies. (See "Risk Factors.")
ARE MY INVESTMENTS INSURED? HighMark's Shares are not federally insured by the
FDIC or any other government agency. Any guarantee by the U.S. Government, its
agencies or any instrumentalities of the securities in which any Fund invests
guarantees only the payment of principal and interest on the guaranteed
security, and does not guarantee the total return or value of the security or
total return or value of Shares of that Fund.
WHO IS THE ADVISOR? Pacific Alliance Capital Management, a division of Union
Bank of California, N.A., serves as the Advisor to HighMark. (See "The
Advisor.")
WHO IS THE SUB-ADVISOR? Bank of Tokyo-Mitsubishi Trust Company serves as the
Sub-Advisor to the Emerging Growth and Blue Chip Growth Funds. (See "The
Sub-Advisor.")
2
<PAGE> 42
WHO IS THE ADMINISTRATOR? SEI Fund Resources serves as the Administrator of
HighMark. (See "The Administrator.")
WHO IS THE CUSTODIAN? Union Bank of California, N.A. (the "Bank") serves as the
custodian of HighMark's assets. (See "The Custodian.")
WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as distributor of
HighMark's Shares. (See "The Distributor.")
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment is generally $1,000. A purchase order will be
effective if the Distributor receives an order prior to 1:00 p.m., Pacific time
(4:00 p.m., Eastern time). Purchase orders for Shares will be executed at a per
Share price equal to the asset value next determined after the purchase order is
effective. Redemption orders must be placed prior to 1:00 p.m., Pacific time
(4:00 p.m., Eastern time) on any Business Day for the order to be effective that
day. (See "PURCHASE AND REDEMPTION OF SHARES.")
HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gains) of the Funds is distributed in the form of monthly
dividends to Shareholders of record. Any capital gain is distributed at least
annually. Distributions are paid in additional Shares unless the Shareholder
elects to take the payment in cash. ( See "DIVIDENDS.")
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................................................................... 2
Equity Funds Fee Table................................................................ 5
Financial Highlights.................................................................. 7
Fund Description...................................................................... 12
Investment Objectives................................................................. 12
Investment Policies................................................................... 13
Income Equity Fund.................................................................. 13
Value Momentum Fund................................................................. 13
Blue Chip Growth Fund............................................................... 14
Growth Fund......................................................................... 14
Emerging Growth Fund................................................................ 14
General............................................................................... 15
Money Market Instruments............................................................ 15
Illiquid and Restricted Securities.................................................. 15
Lending of Portfolio Securities..................................................... 15
Other Investments................................................................... 15
Risk Factors........................................................................ 17
Investment Limitations................................................................ 18
Portfolio Turnover.................................................................. 19
Purchase and Redemption of Shares..................................................... 19
</TABLE>
3
<PAGE> 43
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Exchange Privileges................................................................... 20
Dividends............................................................................. 21
Federal Taxation...................................................................... 22
Service Arrangements.................................................................. 23
The Advisor......................................................................... 23
Sub-Advisor......................................................................... 24
Administrator....................................................................... 25
The Transfer Agent.................................................................. 26
Shareholder Service Plan............................................................ 26
Distributor......................................................................... 26
Banking Laws........................................................................ 27
Custodian........................................................................... 27
General Information................................................................... 27
Description of HighMark & Its Shares................................................ 27
Performance Information............................................................. 28
Miscellaneous....................................................................... 29
Description of Permitted Investments.................................................. 30
</TABLE>
4
<PAGE> 44
EQUITY FUNDS FEE TABLE
<TABLE>
<CAPTION>
INCOME VALUE BLUE CHIP EMERGING
EQUITY MOMENTUM GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND
FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY
SHARES SHARES SHARES SHARES SHARES
--------- -------- --------- --------- ----------
<S> <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%
Maximum Sales Load Imposed on Reinvested Dividends (as a
percentage of offering price)............................ 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%
Redemption Fees (as a percentage of amount redeemed, if
applicable)(b)........................................... 0% 0% 0% 0% 0%
Exchange Fee(a)............................................ $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL OPERATING EXPENSES (as a percentage of net assets)
Management Fees............................................ 0.60% 0.60% 0.60% 0.60% 0.80%
12b-1 Fees................................................. 0% 0% 0% 0% 0%
Other Expenses (after voluntary reduction)(c).............. 0.31% 0.21% 0.22% 0.30% 0.23%
Total Fund Operating Expenses(d)........................... 0.91% 0.81% 0.82% 0.90% 1.03%
==== ==== ==== ==== ====
</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>
3 5 10
1 YEAR YEARS YEARS YEARS
------ ------ ------ -------
<S> <C> <C> <C> <C>
Income Equity Fund Fiduciary Shares......................... $ 9 $ 29 $ 50 $ 112
Value Momentum Fund Fiduciary Shares........................ $ 8 $ 26 $ 45 $ 100
Blue Chip Growth Fund Fiduciary Shares...................... $ 8 $ 26 $ 46 $ 101
Growth Fund Fiduciary Shares................................ $ 9 $ 29 $ 50 $ 111
Emerging Growth Fund Fiduciary Shares....................... $ 11 $ 33 $ 57 $ 126
</TABLE>
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.
- ---------------
(a) Certain entities (including Union 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 in, redemption of, and exchange of Shares. (See PURCHASE AND
REDEMPTION OF SHARES, EXCHANGE PRIVILEGES, and SERVICE ARRANGEMENTS--below.)
(b) A wire redemption charge is deducted from the amount of a wire redemption
payment made at the request of a Shareholder. (See REDEMPTION OF SHARES
below.)
5
<PAGE> 45
(c) OTHER EXPENSES for the Value Momentum, Emerging Growth and Blue Chip Growth
Funds are based on each Fund's estimated expenses for the current fiscal
year. Absent voluntary fee waivers, OTHER EXPENSES would be 0.48% for the
Fiduciary Shares of the Income Equity, Value Momentum and Growth Funds,
0.49% for the Fiduciary Shares of the Blue Chip Growth Fund and 0.50% for
the Fiduciary Shares of the Emerging Growth Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be: 1.08%
for the Fiduciary Shares of the Income Equity, Value Momentum and Growth
Funds, 1.09% for the Fiduciary Shares of the Blue Chip Growth Fund, and
1.30% for the Fiduciary Shares of the Emerging Growth Fund.
6
<PAGE> 46
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information with respect to the
Fiduciary Shares of the Income Equity Fund and the Growth Fund. Financial
highlights for the Income Equity Fund and the Growth Fund for the period ended
July 31, 1996 have been derived from financial statements audited by Deloitte &
Touche LLP, independent auditors for HighMark, whose report thereon is included
in the Statement of Additional Information. Prior to the fiscal year ended July
31, 1996, Coopers & Lybrand L.L.P. served as independent accountants for
HighMark. 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 HighMark.
The Value Momentum Fund, the Blue Chip Growth Fund and the Emerging Growth
Fund had not commenced operations in HighMark as of July 31, 1996.
Prior to June 20, 1994, the Income Equity Fund and the Growth Fund offered a
single class of Shares (now designated Fiduciary Shares) throughout the periods
shown.
7
<PAGE> 47
INCOME EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------------------------------
1996 1995 1994(A)
--------- --------- ---------
FIDUCIARY FIDUCIARY FIDUCIARY 1993 1992 1991
--------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 13.00 $ 11.92 $ 12.13 $ 11.42 $ 10.22 $ 10.46
-------- -------- -------- -------- -------- --------
Investment Activities
Net investment income............ 0.42 0.44 0.39 0.38 0.40 0.46
Net realized and unrealized gains
(losses) on investments....... 1.93 1.50 0.12 0.71 1.20 0.61
-------- -------- -------- -------- -------- --------
Total from Investment Activities... 2.35 1.94 0.51 1.09 1.60 1.07
-------- -------- -------- -------- -------- --------
Distributions
Net investment income............ (0.42) (0.44) (0.39) (0.38) (0.40) (0.46)
Net realized gains............... (0.66) (0.42) (0.33) (0.85)
-------- -------- -------- -------- -------- --------
Total Distributions................ (1.08) (0.86) (0.72) (0.38) (0.40) (1.31)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period..... $ 14.27 $ 13.00 $ 11.92 $ 12.13 $ 11.42 $ 10.22
======== ======== ======== ======== ======== ========
Total Return....................... 18.25% 17.26% 4.23% 9.75% 16.04% 12.60%
Ratios/Supplementary Data:
Net Assets at end of period
(000)......................... $ 262,660 $ 221,325 $ 213,328 $104,840 $ 74,478 $ 49,047
Ratio of expenses to average net
assets........................ 1.03% 1.06% 1.06% 1.15% 1.16% 1.17%
Ratio of net investment income to
average net assets............ 2.95% 3.59% 3.29% 3.27% 3.76% 4.81%
Ratio of expenses to average net
assets*....................... 1.27% 1.30% 1.10% 1.21% 1.29% 1.40%
Ratio of net investment income to
average net assets*........... 2.71% 3.34% 3.24% 3.22% 3.64% 4.58%
Portfolio turnover................. 41.51% 36.64% 33.82% 29.58% 23.05% 33.10%
</TABLE>
8
<PAGE> 48
<TABLE>
<CAPTION>
JUNE 23,
1988 TO
YEAR ENDED JULY 31, JULY 31,
------------------- --------
1990 1989 1988(C)
------- ------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.......................... $ 12.12 $ 10.00 $ 10.00
------- ------- -------
Investment Activities
Net investment income....................................... 0.54 0.49 0.03
Net realized and unrealized gains (losses) on investments... (0.62) 2.22
------- ------- -------
Total from investment Activities.............................. (0.08) 2.71 0.03
------- ------- -------
Distributions
Net Investment income....................................... (0.54) (0.49) (0.03)
Net realized gains.......................................... (1.04) (0.10)
------- ------- -------
Total Distributions........................................... (1.58) (0.59) (0.03)
------- ------- -------
Net Asset Value, End of Period................................ $ 10.46 $ 12.12 $ 10.00
======= ======= =======
Total Return.................................................. (0.84)% 28.16% 1.31%(d)
Ratios/Supplementary Data:
Net Assets at end of period (000)........................... $41,280 $40,027 $ 30,495
Ratio of expenses to average net assets..................... 1.15% 1.19% 0.99%(b)
Ratio of net investment income to average net assets........ 4.82% 4.61% 2.56%(b)
Ratio of expenses to average net assets*.................... 1.41% 1.41% 1.41%(b)
Ratio of net investment income to average net assets*....... 4.56% 4.39% 2.14%(b)
Portfolio turnover............................................ 37.11% 28.83% 3.12%(b)
</TABLE>
- ---------------
(a) On June 20, 1994, the Income Equity Fund commenced offering Investor Shares
(now called "Retail Shares") and designated existing Shares as Fiduciary
Shares.
(b) Annualized.
(c) 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 & HighMark.
(d) 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.
9
<PAGE> 49
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
JAN. 1,
1988
THROUGH YEAR ENDED DEC. 31,
JUNE 22, -------------------------
1988(A)(B) 1987(A) 1986(A)
(UNAUDITED) (AUDITED) (AUDITED)
----------- ---------- ----------
<S> <C> <C> <C>
Investment income...................................... $ 0.440 $ 0.927 $ 0.944
Operating expenses..................................... 0.102 0.185(d) 0.154(d)
Net investment income.................................. 0.338 0.742 0.790
Dividends from net investment income................... (0.338) (0.742) (0.790)
Net realized and unrealized gain (loss) on
investments.......................................... 1.884 (0.564) 1.934
---------- ---------- ----------
Increase (decrease) in net asset value................. 1.884 (0.564) 1.934
Net Asset Value:
Beginning of period.................................. 14.059 14.623 12.689
---------- ---------- ----------
End of period........................................ $ 15.943 $ 14.059 $ 14.623
========== ========== ==========
Ratio of expenses to average net assets(c)(d).......... 1.41% 1.12% 0.97%
Ratio of net investment income to average net
assets(c)............................................ 5.45% 4.50% 4.96%
Portfolio turnover..................................... 5.83% 20.88% 12.07%
Number of Shares/units outstanding at end of period.... 1,940,573 1,978,920 1,416,327
</TABLE>
- ---------------
(a) The per share amount is calculated using weighted-average Shares
outstanding.
(b) 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.
(c) Annualized based on the period of which assets were held.
(d) 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>
PERIOD FROM
JAN. 1,
1988
THROUGH YEAR ENDED DEC. 31,
JUNE 22, -------------------------
1988 1987 1986
(UNAUDITED) (AUDITED) (AUDITED)
----------- ---------- ----------
<S> <C> <C> <C>
Expenses................................................. $ 0.257 $ 0.260 $ 0.248
Net investment income.................................... 0.183 0.612 0.557
Net asset value, end of year............................. 15.943 14.059 14.623
Expenses as a percentage of average net assets........... 2.00%(c) 1.67% 2.00%
</TABLE>
10
<PAGE> 50
GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------
NOV. 18, 1993 TO
1996 1995 JULY 31, 1994(A)
--------- --------- ----------------
FIDUCIARY FIDUCIARY FIDUCIARY
--------- --------- ----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period......................... $ 11.87 $ 9.76 $ 10.00
------ ------ ------
Investment Activities
Net investment income........................................ 0.12 0.15 0.05
Net realized and unrealized gains (losses) on investments.... 1.35 2.26 (0.24)
------ ------ ------
Total from Investment Activities................... 1.47 2.41 (0.19)
------ ------ ------
Distributions
Net investment income........................................ (0.12) (0.15) (0.05)
Net realized gains........................................... (0.64) (0.15) --
------ ------ ------
Total Distributions................................ (0.76) (0.30) (0.05)
------ ------ ------
Net Asset Value, End of Period............................... $ 12.58 $ 11.87 $ 9.76
====== ====== ======
Total Return................................................. 12.72% 25.23% (1.87)%(c)
Ratios/Supplementary Data:
Net Assets at end of period (000).......................... $ 41,495 $ 25,096 $ 15,254
Ratio of expenses to average net assets.................... 0.93% 0.79% 0.77%(b)
Ratio of net investment income to average net assets....... 0.98% 1.40% 0.86%(b)
Ratio of expenses to average net assets*................... 1.67% 1.92% 2.61%(b)
Ratio of net investment income loss to average net
assets*................................................. 0.23% 0.26% (0.98)%(b)
Portfolio turnover........................................... 78.58% 67.91% 123.26%
</TABLE>
- ---------------
(a) Period from commencement of operations. On June 20, 1994, the Growth Fund
commenced offering Investor Shares (now called "Retail Shares") and
designated existing shares as Fiduciary Shares.
(b) Annualized.
(c) 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.
11
<PAGE> 51
FUND
DESCRIPTION HighMark Funds ("HighMark") is an open-end, diversified,
registered investment company that currently offers units
of beneficial interest ("Shares") in sixteen separate
investment portfolios ("Funds"). All of the Funds are
advised by Pacific Alliance Capital Management (the
"Advisor"), a division of Union Bank of California, N.A.
Shareholders may purchase Shares of selected Funds through
two separate classes (the "Retail" and "Fiduciary"
classes). These classes may have different sales charges
and other expenses, which may affect performance.
Information regarding HighMark's other Funds and other
classes is contained in separate prospectuses that may be
obtained from HighMark's Distributor, SEI Financial
Services Company, at Oaks, Pennsylvania 19456, or by
calling 1-800-433-6884.
For information concerning those investors who qualify
to purchase Fiduciary Shares, see PURCHASE AND REDEMPTION
OF SHARES below. (Fiduciary Shares may be hereinafter
referred to as "Shares.")
INVESTMENT
OBJECTIVES The investment objectives of the Funds are as follows:
The Income Equity Fund seeks 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 Value Momentum Fund seeks long-term capital growth
with a secondary objective of income.
The Blue Chip Growth Fund seeks long-term capital growth
by investing in a diversified portfolio of common stocks
and other equity securities of seasoned, large
capitalization companies.
The Growth Fund seeks long-term capital appreciation
through investments in equity securities. The production
of current income is an incidental objective.
The Emerging Growth Fund seeks long-term growth of
capital by investing in a diversified portfolio of equity
securities of small capitalization, emerging growth
companies.
The investment objectives and certain of the investment
limitations of the Funds 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 no
assurance that a Fund will achieve its investment
objective.
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INVESTMENT
POLICIES Income Equity Fund
Under normal market conditions, the Income Equity Fund
will invest at least 65% of its total assets in equity
securities, including common stocks, warrants to purchase
common stocks, American Depositary Receipts ("ADRs"),
preferred stocks and securities (including debt
securities) convertible into or exercisable for common
stocks. 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 the S&P 500's yield and the yield on long-term
U.S. Government bonds.
The Income Equity Fund generally invests in stocks with
favorable, long-term fundamental characteristics when
their current relative yields are at the upper end of
their historical yield ranges. Frequently, these stocks
are out of favor in the financial community and investors
see little opportunity for price appreciation. The Fund
may also invest in 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 companies' improving
prospects (although there can be no assurance that this
will in fact occur), dividends will provide a substantial
portion 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 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.
Value Momentum Fund
Under normal market conditions, the Value Momentum Fund
will invest at least 65% of its total assets in equity
securities, including common stocks, warrants to purchase
common stocks, ADRs, preferred stocks and securities
(including debt securities) convertible into or
exercisable for common stocks. The Value Momentum Fund
will be invested primarily in securities which the Advisor
believes to be undervalued relative to the market and to
the security's historic valuation. Stocks are then
screened for positive price or earnings momentum.
Securities purchased will generally have a medium to high
market capitalization. A majority of the securities in
which the Value Momentum Fund invests will be dividend
paying.
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Blue Chip Growth Fund
Under normal market conditions, the Blue Chip Growth
Fund will invest at least 65% of its total assets in
equity securities, including common stocks, warrants to
purchase common stocks, ADRs, preferred stocks and
securities (including debt securities) convertible into or
exercisable for common stocks. The Fund primarily invests
in equity securities of seasoned, large capitalization
companies. A seasoned company is generally a company with
an operating history of 3 years or more. A large
capitalization company is generally a company with
capitalization in excess of $1.0 billion. A majority of
the Fund's equity investments ordinarily will consist of
dividend-paying securities.
Growth Fund
Under normal market conditions, the Growth Fund will
invest at least 65% of its total assets in equity
securities, including common stocks, warrants to purchase
common stocks, ADRs, preferred stocks and securities
(including debt securities) convertible into or
exercisable for common stocks, of growth-oriented
companies. The Growth Fund emphasizes a well-diversified
portfolio of medium to large capitalization growth
companies (capitalization in excess of $500 million) with
a record of above average growth in earnings. The Fund
focuses on companies that the Advisor believes to have
enduring quality and above average earnings growth. Among
the criteria the Fund uses to screen for stock selection
are earnings growth, return on capital, brand identity,
recurring revenues, price and quality of management team.
Emerging Growth Fund
Under normal market conditions, the Emerging Growth Fund
will invest at least 65% of its total assets in equity
securities, including common stocks, warrants to purchase
common stocks, ADRs, preferred stocks and securities
(including debt securities) convertible into or
exercisable for common stocks of small and medium
capitalization companies. Small and medium capitalization
companies are those with capitalization between $50
million and $1 billion and the potential for growth or
those which, in the Advisor's opinion, have potential for
above-average long-term capital appreciation. An emerging
growth company is one which, in the Advisor's judgment, is
in the developing stages of its life cycle and has
demonstrated or is expected to achieve rapid growth in
earnings and/or revenues. Emerging growth companies are
characterized by opportunities for rapid growth rates
and/or dynamic business changes. Emerging growth
companies, regardless of size, tend to offer the potential
for accelerated earnings or revenue growth because of new
products or technologies, new channels of distribution,
revitalized management or industry conditions, or similar
opportunities. A company may or may not yet be profitable
at the time the Emerging
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Growth Fund invests in its securities. Current income will
not be a criterion of investment selection, and any such
income should be considered incidental. Many of the
securities in which the Fund invests will not pay
dividends.
The Emerging Growth Fund may also invest in equity
securities of companies in "special equity situations,"
meaning companies experiencing unusual and possibly
non-repetitive developments, such as mergers;
acquisitions; spin-offs; liquidations; reorganizations;
and new products, technology or management. Since a
special equity situation may involve a significant change
from a company's past experiences, the uncertainties in
the appraisal of the future value of the company's equity
securities and the risk of a possible decline in the value
of the Emerging Growth Fund's investments are significant.
GENERAL Money Market Instruments
Under normal market conditions, each Equity Fund may
invest up to 35% of its total assets in money market
instruments. When market conditions indicate a temporary
"defensive" investment strategy as determined by the
Advisor, a Fund may invest more than 35% of its total
assets in money market instruments. A Fund will not be
pursuing its investment objective to the extent that a
substantial portion of its assets are invested in money
market instruments.
Illiquid and Restricted Securities
Each Fund shall limit investment in illiquid securities
to 15% or less of its net assets. Generally, an "illiquid
security" is any security that cannot be disposed of
promptly and in the ordinary course of business at
approximately the amount at which the Fund has valued the
instrument. The absence of a trading market can make it
difficult to ascertain the market value of the illiquid
securities. Each Fund may purchase restricted securities
which have not been registered under the Securities Act of
1933 (e.g., Rule 144A Securities and Section 4(2)
commercial paper) subject to policies approved by the
Board of Trustees. See INVESTMENT RESTRICTIONS in the
Statement of Additional Information.
Lending of Portfolio Securities
In order to generate additional income, a Fund may lend
its portfolio securities to broker-dealers, banks or other
institutions. A Fund may lend portfolio securities in an
amount representing up to 33 1/3% of the value of the
Fund's total assets.
Other Investments
The Funds may enter into repurchase agreements and
reverse repurchase agreements.
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The Equity Funds may enter into forward commitments or
purchase securities on a "when-issued" basis. Each Equity
Fund expects that commitments by a Fund to enter into
forward commitments or purchase when-issued securities
will not exceed 25% of the value of the Fund's total
assets under normal market conditions. The Equity Funds do
not intend to purchase when-issued securities or forward
commitments for speculative or leveraging purposes but
only for the purpose of acquiring portfolio securities.
The Funds may also invest in money market instruments,
money market funds, and in cash, and may invest in other
registered investment companies with similar investment
objectives.
A Fund may invest up to 5% of its total assets in the
shares of any one registered investment company, but may
not own more than 3% of the securities of any one
registered investment company or invest more than 10% of
its assets in the securities of other registered
investment companies. In accordance with an exemptive
order issued to HighMark by the SEC, such other registered
investment company securities may include shares of a
money market fund of HighMark, and may include registered
investment companies for which the Advisor or Sub-Advisor
to a Fund of HighMark, or an affiliate of such Advisor or
Sub-Advisor, serves as investment advisor, administrator
or distributor. Because other registered investment
companies employ an investment advisor, such investment by
a Fund may cause Shareholders to bear duplicative fees.
The Advisor will waive its fees attributable to the assets
of the investing Fund invested in a money market fund of
HighMark, and, to the extent required by applicable law,
the Advisor will waive its fees attributable to the assets
of the Fund invested in any investment company. Some Funds
are subject to additional restrictions on investments in
other investment companies. See "INVESTMENT RESTRICTIONS"
in the Statement of Additional Information.
Each Fund may write covered calls on its equity
securities and enter into closing transactions with
respect to covered call options.
A Fund's assets may be invested in options, futures
contracts and options on futures, Standard & Poor's
Depositary Receipts ("SPDRs"), and investment grade bonds.
The aggregate value of options on securities (long puts
and calls) will not exceed 10% of a Fund's net assets at
the time such options are purchased by the Fund.
A Fund may enter into futures and options on futures
only to the extent that obligations under such contracts
or transactions, together with options on securities,
represent not more than 25% of the Fund's assets.
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Each Fund may purchase options in stock indices to
invest cash on an interim basis. The aggregate premium
paid on all options on stock indices cannot exceed 20% of
the Fund's total assets.
All of the common stocks in which the Funds invest
(including foreign securities in the form of ADRs, but not
including Rule 144A Securities) are traded on registered
exchanges or in the over-the-counter market.
For further information, see "DESCRIPTION OF PERMITTED
INVESTMENTS."
Risk Factors
Since the Equity Funds invest in equity securities, each
Fund's Shares will fluctuate in value, and thus may be
more suitable for long-term investors who can bear the
risk of short-term fluctuations. In addition, the market
value of the fixed-income securities bears an inverse
relationship to changes in market interest rates, which
may affect the net asset value of Shares. The longer the
remaining maturity of a security, the greater is the
effect of interest rate changes on its market value.
Changes in the value of a Fund's fixed-income securities
will not affect cash income received from ownership of
such securities, but will affect a Fund's net asset value.
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 as investment
grade at the time of acquisition by a NRSRO or that is not
rated but is determined to be of comparable quality by the
Advisor.
Given the uncertainty of the future value of emerging
growth companies and companies in special equity
situations, the risk of possible decline in value of the
Emerging Growth Fund's net assets are significant.
Companies in which the
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Emerging Growth Fund invests may offer greater
opportunities for capital appreciation than larger more
established companies, but investment in such companies
may involve certain special risks. These risks may be due
to the greater business risks of small size, limited
markets and financial resources, narrow product lines and
frequent lack of depth in management. The securities of
such companies are often traded in the over-the-counter
market and may not be traded in volumes typical on a
national securities exchange. Thus, the securities of
emerging growth companies may be less liquid, and subject
to more abrupt or erratic market movements than securities
of larger, more established growth companies. Since a
"special equity situation" may involve a significant
change from a company's past experiences, the
uncertainties in the appraisal of the future value of the
company's equity securities and the risk of a possible
decline in the value of the Fund's investments are
significant.
INVESTMENT
LIMITATIONS Each Fund may not:
1) Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government,
its agencies, or instrumentalities, if, immediately after
the purchase, more than 5% of the value of such Fund's
total assets would be invested in the issuer or the Fund
would hold more than 10% of any class of securities of the
issuer or more than 10% of the issuer's outstanding voting
securities (except that up to 25% of the value of the
Fund's total assets may be invested without regard to
these limitations).
2) Purchase any securities that would cause more than
25% of such Fund's total assets at the time of purchase to
be invested in securities of one or more issuers
conducting their principal business activities in the same
industry, provided that (a) there is no limitation with
respect to obligations issued or guaranteed by the U.S. or
foreign governments or their agencies or instrumentalities
and repurchase agreements secured by obligations of the
U.S. Government or its agencies or instrumentalities; (b)
wholly owned finance companies will be considered to be in
the industries of their parents if their activities are
primarily related to financing the activities of their
parents; and (c) utilities will be divided according to
their services (for example, gas, gas transmission,
electric and gas, electric, and telephone will each be
considered a separate industry);
3) Make loans, except that a Fund may purchase or hold
debt instruments, lend portfolio securities, and enter
into repurchase agreements in accordance with its
investment objective and policies.
The foregoing percentages will apply at the time of the
purchase of a security. The investment limitations listed
above are fundamental policies the substance of which may
not be changed without a vote of a majority of the
outstanding Shares
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of the respective Fund. Additional fundamental and
non-fundamental investment limitations are set forth in
the Statement of Additional Information.
Portfolio Turnover
A Fund's portfolio turnover rate will not be a factor
preventing a sale or purchase when the Advisor 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
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.
PURCHASE AND
REDEMPTION OF
SHARES As noted above, each Fund (except the Blue Chip Growth
Fund, which is offered only in Fiduciary Shares) is
divided into two classes of Shares, Retail and Fiduciary.
Fiduciary Shares may be purchased at net asset value. Only
the following investors qualify to purchase an Equity
Fund's Fiduciary Shares: (i) fiduciary, advisory, agency,
custodial and other similar accounts maintained with Union
Bank of California, N.A. or its affiliates; (ii) Select
IRA accounts established with The Bank of California, N.A.
and invested in any of HighMark'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 HighMark'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 Union Bank of
California, N.A., HighMark's current or former
distributors or their respective affiliated companies who
currently own Shares of HighMark Funds which were
purchased before April 30, 1997. For a description of
investors who qualify to purchase Retail Shares, see the
Retail Shares prospectus of the Equity Funds.
Purchases and redemptions of Shares of the Funds may be
made on days on which both the New York Stock Exchange and
Federal Reserve wire system are open for business
("Business Days"). The minimum initial investment 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 Union Bank of California,
SEI Financial Services Company 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, or
401(k) or similar plans. However, the minimum investment
may be
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waived in the Distributor's discretion. Shareholders may
place orders by telephone.
Purchase orders will be effective if the Distributor
receives an order before 1:00 p.m., Pacific time (4:00
p.m., Eastern time) and the custodian receives Federal
funds before the close of business on the next Business
Day. The purchase price of Shares of a Fund is the net
asset value next determined after a purchase order is
received and accepted by HighMark. The net asset value per
Share of a Fund is determined by dividing the total market
value of a Fund's investments and other assets, less any
liabilities, by the total number of outstanding Shares of
a Fund. Net asset value per share is determined daily as
of 1:00 p.m., Pacific time (4:00 p.m., Eastern time) on
any Business Day. Purchases will be made in full and
fractional Shares of HighMark calculated to three decimal
places. HighMark reserves the right to reject a purchase
order when the Distributor determines that it is not in
the best interest of HighMark and/or its Shareholders to
accept such order.
Shares of the Funds are offered only to residents of
states in which the Shares are eligible for purchase.
Shareholders who desire to redeem shares of HighMark
must place their redemption orders prior to 1:00 p.m.,
Pacific time (4:00 p.m., Eastern time), on any Business
Day for the order to be accepted on that Business Day. The
redemption price is the net asset value of the Fund next
determined after receipt by the Distributor of the
redemption order. Payment on redemption will be made as
promptly as possible and, in any event, within seven
calendar days after the redemption order is received. The
Funds reserve the right to make payment for redemptions in
securities rather than cash.
Neither HighMark's transfer agent nor HighMark will be
responsible for any loss, liability, cost or expense for
acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine.
HighMark and its transfer agent will each employ
reasonable procedures to confirm that telephone
instructions are genuine. Such procedures may include
taping of telephone conversations. If market conditions
are extraordinarily active or other extraordinary
circumstances exist, and you experience difficulties
placing redemption orders by telephone, you may wish to
consider placing your order by other means.
EXCHANGE
PRIVILEGES As indicated under GENERAL INFORMATION--Description of
HighMark & Its Shares, certain of HighMark's Funds issue
two classes of Shares (Retail Shares and Fiduciary
Shares); as of the date of this Prospectus, the
Distribution Plan and distribution fee payable thereunder
are applicable only to such Fund's Retail 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
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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 HighMark which the
Shareholder qualifies to purchase directly so long as the
Shareholder maintains the applicable minimum account
balance in each Fund in which he or she owns Shares and
satisfies the minimum initial and subsequent purchase
amounts of the Fund into which the Shares are exchanged.
Shareholders may exchange their Fiduciary Shares for
Fiduciary Shares of another Fund on the basis of the
relative net asset value of the Fiduciary Shares
exchanged. Shareholders may also exchange Fiduciary Shares
of a Fund for Retail Shares of another Fund. Under such
circumstances, the cost of the acquired Retail Shares will
be the net asset value per share plus the appropriate
sales load.
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 Union 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 transfer agent at
1-800-433-6884. 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 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 HighMark may legally be sold. HighMark may
materially amend or terminate the exchange privileges
described herein upon sixty days' notice.
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
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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 transfer agent at P.O. Box
8416, Boston, MA 02266-8416, 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"), 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 when received by a Fund 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 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 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
advisor for specific advice about the tax consequences to
the Shareholder of investing in a 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.
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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 The Advisor
Pacific Alliance Capital Management, a division of Union
Bank of California, N.A. serves as the Equity Funds'
investment advisor. Subject to the general supervision of
HighMark's Board of Trustees, the Advisor 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 the Fund's
investment securities, and maintains the Fund's records
relating to such purchases and sales.
For the expenses assumed and services provided by the
Advisor as each Fund's investment advisor, Union Bank of
California receives a fee from the Growth Fund, Value
Momentum Fund, Income Equity Fund and Blue Chip Growth
Fund, computed daily and paid monthly, at the annual rate
of sixty one-hundredths of one percent (.60%) of the
Fund's average daily net assets, and from the Emerging
Growth Fund, at the annual rate of eighty one-hundredths
of one percent (.80%) of the Fund's average daily net
assets. 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. Union
Bank of California may from time to time agree to
voluntarily reduce its advisory fee, however, it is not
currently doing so. While there can be no assurance that
Union Bank of California will choose to make such an
agreement, any voluntary reductions in Union 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 HighMark's fiscal year ended July 31, 1996, Union
Bank of California received investment advisory fees from
the Growth Fund aggregating 0.50% of the Fund's average
daily net assets, and from the Income Equity Fund
aggregating 0.66% of the Fund's average daily net assets.
As of the date of this prospectus, the Value Momentum
Fund, the Emerging Growth Fund, and the Blue Chip Equity
Fund had not yet commenced operations in HighMark.
On April 1, 1996, the Bank of California, N.A.,
HighMark's then investment advisor, combined with Union
Bank and the resulting bank changed its name to Union Bank
of California, N.A. At the same time, the banks'
investment management divisions were combined. Each of
Union Bank and The Bank of California, N.A. (or their
predecessor banks) has been in banking since the early
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1900's and, historically, each has had significant
investment functions within its trust and investment
division. UnionBanCal Corporation, the parent of Union
Bank of California, N.A., is a publicly held corporation,
but is principally held by The Bank of Tokyo-Mitsubishi,
Ltd. As of September 30, 1996, Union Bank of California
and its subsidiaries had approximately $28.7 billion in
commercial assets. Pacific Alliance Capital Management is
a division of Union Bank of California's Trust and
Investment Management Group which, as of June 30, 1996,
had approximately $13.4 billion of assets under
management. The Advisor, with a team of approximately 45
stock and bond research analysts, portfolio managers and
traders, has been providing investment management services
to individuals, institutions and large corporations since
1917.
All investment decisions for the Equity Funds are made
by a team of investment professionals, all of whom take an
active part in the decision making process. The team
leaders for each Fund are as follows:
Growth Fund -- The team leader for the Growth Fund is
Scott Chapman. Mr. Chapman has been Growth Fund team
leader for the Advisor since 1993. He began working
for the Advisor as an equity security analyst in
1991.
Value Momentum Fund -- The team leader for the Value
Momentum Fund is Richard Earnest. Mr. Earnest, a
Senior Vice President of the Advisor, has served as
team leader of the Stepstone Value Momentum Fund
since its inception, and has been with the Advisor
and its predecessor, Union Bank, since 1964.
Income Equity Fund -- The team leader for the Income
Equity Fund is Thomas Arrington. Mr. Arrington began
working for the Advisor as a Business Administration
Manager in 1990. From 1991 to 1994 Mr. Arrington was
a Securities Research Analyst. In 1994 Mr. Arrington
became team leader for the Income Equity Fund.
Sub-Advisor
The Advisor and Bank of Tokyo-Mitsubishi Trust Company
(the "Sub-Advisor") have entered into an investment
subadvisory agreement relating to the Emerging Growth and
Blue Chip Growth Funds (the "Investment Sub-Advisory
Agreement"). Under the Investment Sub-Advisory Agreement,
the Sub-Advisor will make the day-to-day investment
decisions for the assets of the Emerging Growth and Blue
Chip Growth Funds, subject to the supervision of, and
policies established by, the Advisor and the Trustees of
HighMark.
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Bank of Tokyo-Mitsubishi Trust Company, headquartered at
1251 Avenue of the Americas, New York, New York 10116,
operates as a wholly-owned subsidiary of The Bank of
Tokyo-Mitsubishi, Ltd. The Sub-Advisor was formed by the
combination on April 1, 1996, of Bank of Tokyo Trust
Company, a wholly-owned subsidiary of The Bank of Tokyo,
Ltd., and Mitsubishi Bank Trust Company of New York, a
wholly-owned subsidiary of The Mitsubishi Bank, Limited.
Bank of Tokyo Trust Company was the surviving entity, and
changed its name to Bank of Tokyo-Mitsubishi Trust
Company. Prior to the combination, subadvisory services
were provided by Bank of Tokyo Trust Company. Bank of
Tokyo Trust Company was established in 1955, and has
provided trust services since that time and management
services since 1965.
The Sub-Advisor serves as portfolio manger to bank
common funds, employee benefit funds and personal trust
accounts, managing assets in money market, equity and
fixed income portfolios. As of June 30, 1996, the
Sub-Advisor managed $700 million in individual portfolios
and collective funds. In addition, the Sub-Advisor will
also serve as Sub-Advisor to HighMark's Government
Securities and Convertible Securities Funds.
The Sub-Advisor is entitled to a fee, which is
calculated daily and paid monthly out of the Advisor's
fee, at an annual rate of .50% of the average daily net
assets of the Emerging Growth Fund and .30% of the average
daily net assets of the Blue Chip Growth Fund. As of the
date of this prospectus, the Emerging Growth Fund and the
Blue Chip Growth Fund had not yet commenced operations in
HighMark.
Seth E. Shalov will serve as portfolio manager to the
Emerging Growth Fund. Mr. Shalov has been a Senior
Portfolio Manager with the Sub-Advisor and its
predecessor, Bank of Tokyo Trust Company, since October,
1987.
The day-to-day management of the Blue Chip Growth Fund's
investments is the responsibility of a team of investment
professionals.
Administrator
SEI Fund Resources (the "Administrator") and HighMark
are parties to an administration agreement (the
"Administration Agreement"). Under the terms of the
Administration Agreement, the Administrator provides
HighMark with certain management services, including all
necessary office space, equipment, personnel, and
facilities.
The Administrator is entitled to a fee, which is
calculated daily and paid monthly, at an annual rate of
.20% of the average daily net assets of the Funds. The
Administrator may waive its fee or reimburse various
expenses to the extent necessary to limit the total
operating expenses of a Fund's Fiduciary Shares. Any
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such waiver is voluntary and may be terminated at any time
in the Administrator's sole discretion. Currently, the
Administrator has agreed to waive its fee to the rate of
.18% of the average daily net assets of the Funds.
Pursuant to a separate agreement with the Administrator,
Union Bank of California, N.A. performs sub-administration
services on behalf of each Fund, for which it receives a
fee paid by the Administrator at the annual rate of up to
0.05% of the average daily net assets of the Funds. Union
Bank of California has voluntarily agreed to reduce this
fee to 0.03%, but reserves the right to terminate its
waiver at any time in its sole discretion. A description
of the services performed by Union Bank of California
pursuant to this Agreement is contained in the Statement
of Additional Information.
The Transfer Agent
State Street Bank and Trust Company serves as the
transfer agent, dividend disbursing agent, and as a
shareholder servicing agent for the Fiduciary Shares of
HighMark for which services it receives a fee.
Shareholder Service Plan
To support the provision of Shareholder services to both
classes of Shares, HighMark has adopted a Shareholder
Service Plan. A description of the services performed by
service providers pursuant to the Shareholder Service Plan
is contained in the Statement of Additional Information.
In consideration of services provided by any service
provider, which may include Union Bank of California,
N.A., Bank of Tokyo-Mitsubishi, Ltd., or their respective
affiliates, each Fund may pay a fee at the rate of up to
0.25% of its average daily net assets to such service
provider. The service provider may waive such fees at any
time. Any such waiver is voluntary and may be terminated
at any time. Currently, such fees are being waived to the
rate of 0.10% of average daily net assets for the
Fiduciary Shares of the Income Equity Fund, 0.09% for the
Fiduciary Shares of the Growth Fund and 0.00% for the
Fiduciary Shares of the Value Momentum, Blue Chip Growth
and Emerging Growth Funds.
Distributor
SEI Financial Services Company (the "Distributor") and
HighMark are parties to a distribution agreement
("Distribution Agreement"). The Distribution Agreement is
renewable annually and may be terminated by the
Distributor, by a majority vote of the Disinterested
Trustees or by a majority vote of the outstanding
securities of HighMark upon not more than 60 days written
notice by either party, or upon assignment by the
Distributor. Fiduciary Shares are not subject to
HighMark's Distribution Plan or a distribution fee.
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Banking Laws
Union Bank of California believes that it may perform
the services for the Funds contemplated by its investment
advisory agreement with HighMark without a violation of
applicable banking laws and regulations. Union Bank of
California also believes that it may perform
sub-administration and sub-accounting services on behalf
of each Fund, for which it receives compensation from SEI
Fund Resources without a violation of applicable banking
laws and regulations. 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 Union Bank of California or the Advisor
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.
Custodian
Union Bank of California also serves as the custodian
and as a shareholder servicing agent for the Equity Funds.
The Custodian holds cash securities and other assets of
HighMark as required by the 1940 Act.
Services performed by Union Bank of California, as the
Funds' shareholder servicing 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 Highmark & Its Shares
HighMark was organized as a Massachusetts business trust
on March 10, 1987, and consists of sixteen series of
Shares open for investment representing units of
beneficial interest in HighMark's Growth Fund, Income
Equity Fund, Balanced Fund, Value Momentum Fund, Blue Chip
Growth Fund, Emerging Growth Fund, International Equity
Fund, Bond Fund, Intermediate-Term Bond Fund, Government
Securities Fund, Convertible Securities Fund, California
Intermediate Tax-Free Bond Fund, Diversified Money Market
Fund, U.S. Government Obligations Money Market Fund, 100%
U.S. Treasury Obligations Money Market Fund, and
California Tax-Free Money Market Fund. As of the date
hereof, no Shares of the Value Momentum Fund, the Blue
Chip Growth Fund, the Emerging Growth Fund, the
International Equity Fund, the Intermediate-Term Bond
Fund, the Convertible Securities Fund, the Government
Securities Fund, and the California Intermediate Tax-Free
Bond Fund had been offered for sale in the HighMark Group.
Shares of each Fund are freely transferable, are entitled
to distributions from the assets of the Fund as declared
by the Board of
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Trustees, and, if HighMark were liquidated, would receive
a pro rata share of the net assets attributable to that
Fund. Shares are without par value.
As noted above, pursuant to a Multiple Class Plan on
file with the Securities and Exchange Commission
permitting the issuance and sale of two classes of Shares
in selected Funds, Shares of such Funds have been divided
into two classes, designated Retail Shares and Fiduciary
Shares. For information regarding the Retail Shares of the
Equity Funds, interested persons may contact the
Distributor for a prospectus at 1-800-433-6884.
HighMark believes that as of November 22, 1996, Union
Bank of California (475 Sansome Street, Post Office Box
45000, San Francisco, CA 94104) was the Shareholder of
record of 85.57% of the Fiduciary Shares of the Growth
Fund and 73.24% of the Fiduciary Shares of the Income
Equity Fund. As of November 22, 1996, the Value Momentum,
Emerging Growth and Blue Chip Growth Funds had not yet
commenced operations in HighMark.
Performance Information
From time to time, HighMark may advertise the aggregate
total return, average annual total return, yield and
distribution rate with respect to the Fiduciary Shares of
each Equity Fund. Performance information is computed
separately for a Fund's Retail and Fiduciary Shares in
accordance with the formulas described below.
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, three-year, and
one-year periods, in each case through the most recent
calendar quarter (in the case of the Income Equity Fund,
utilizing, when appropriate, 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 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
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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.
Each Fund may periodically compare its performance to
the performance of other mutual funds tracked by mutual
fund rating services (such as Lipper Analytical);
financial and business publications and periodicals; broad
groups of comparable mutual funds; unmanaged indices which
may assume investment of dividends but generally do not
reflect deductions for administrative and management
costs; or other investment alternatives. Certain Funds may
advertise performance that includes results from periods
in which the Fund's assets were managed in a
non-registered predecessor vehicle.
All performance information presented for a Fund is
based on past performance and does not predict future
performance.
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 HighMark will vote in the aggregate
and not by series or class except (i) as otherwise
expressly required by law or when HighMark'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
Retail Shares will be entitled to vote on matters
submitted to a Shareholder vote relating to the
Distribution Plan. HighMark is not required to hold
regular annual meetings of Shareholders, but may hold
special meetings from time to time.
HighMark'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 SEI Financial
Services Company,Oaks, Pennsylvania 19456, or by calling
toll free 1-800-433-6884.
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DESCRIPTION OF
PERMITTED
INVESTMENTS The following is a description of permitted investments
for the HighMark Equity Funds.
AMERICAN DEPOSITARY RECEIPTS (ADRs)--ADRs are receipts
typically issued by a U.S. financial institution that
evidence ownership of underlying securities issued by a
foreign issuer.
ASSET-BACKED SECURITIES (NON-MORTGAGE)--Instruments
secured by company receivables, truck and auto loans,
leases, and credit card receivables. Such securities are
generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the
underlying pools of assets. Such securities also may be
debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a
special purpose entity, such as a trust, organized solely
for the purpose of owning such assets and issuing such
debt. The purchase of non-mortgage asset-backed securities
raises risk considerations peculiar to the financing of
the instruments underlying such securities. Asset-backed
securities entail prepayment risk, which may vary
depending on the type of asset, but is generally less than
the prepayment risk associated with mortgage-backed
securities.
Like mortgages underlying mortgage-backed securities,
underlying automobile sales contracts or credit card
receivables are subject to substantial prepayment risk,
which may reduce the overall return to certificate
holders. Nevertheless, principal prepayment rates tend not
to vary as much in response to changes in 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 their
investment objectives and policies, the Equity Funds may
invest in other asset-backed securities that may be
developed in the future.
BANKERS' ACCEPTANCES--Bills of exchange or time drafts
drawn on and accepted by commercial banks. They are used
by corporations to finance the shipment and storage of
goods and to furnish dollar exchange. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT--Negotiable interest-bearing
instruments with a specific maturity. Certificates of
deposit are issued by banks and savings and loan
institutions in exchange for the deposit of funds and
normally can be traded in the secondary market prior to
maturity.
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COMMERCIAL PAPER--Unsecured short-term promissory notes
issued by corporations and other entities. Maturities on
these issues vary from a few days to nine months. Purchase
of such instruments involves a risk of default by the
issuer.
CONVERTIBLE BONDS AND CONVERTIBLE PREFERRED
STOCK--Convertible Bonds are bonds convertible into a set
number of shares of another form of security (usually
common stock) at a prestated price. Convertible bonds have
characteristics similar to both fixed-income and equity
securities. Convertible preferred stock is a class of
capital stock that pays dividends at a specified rate and
that has preference over common stock in the payment of
dividends and the liquidation of assets. Convertible
preferred stock is preferred stock exchangeable for a
given number of common stock shares, and has
characteristics similar to both fixed-income and equity
securities. Because of the conversion feature, the market
value of convertible bonds and convertible preferred stock
tend to move together with the market value of the
underlying stock. As a result, a Fund's selection of
convertible bonds and convertible preferred stock is
based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The
value of convertible bonds and convertible preferred stock
is also affected by prevailing interest rates, the credit
quality of the issuer and any call provisions.
DERIVATIVES--Instruments whose value is derived from an
underlying contract, index or security, or any combination
thereof, including futures, options (e.g., puts and
calls), options on futures, swap agreements, and some
mortgage-backed securities (CMOs, REMICs, IOs and POs).
See elsewhere in this "DESCRIPTION OF PERMITTED
INVESTMENTS" for discussions of these various instruments,
and see "INVESTMENT OBJECTIVES" and "INVESTMENT POLICIES"
for more information about any policies and limitations
applicable to their use.
FUTURES AND OPTIONS ON FUTURES--Some futures strategies,
including selling futures, buying puts and writing calls,
reduce a Fund's exposure to price fluctuations. Other
strategies, including buying futures, writing puts and
buying calls, tend to increase market exposure. Futures
and options may be combined with each other in order to
adjust the risk and return characteristics of the overall
portfolio.
Options and futures can be volatile instruments, and
involve certain risks that, if applied at an inappropriate
time, could negatively impact a Fund's return.
INVESTMENT GRADE BONDS--Interest-bearing or discounted
government or corporate securities that obligate the
issuer to pay the bondholder a specified sum of money,
usually at specific intervals, and to repay the principal
amount of the loan at maturity. Investment grade bonds are
those rated BBB or better by
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S&P or Baa or better by Moody's or similarly rated by
other NRSROs, or, if not rated, determined to be of
comparable quality by the Advisor.
MONEY MARKET INSTRUMENTS--Short-term, debt instruments
or deposits and may include, for example, (i) commercial
paper rated within the highest rating category by a NRSRO
at the time of investment, or, if not rated, determined by
the Advisor to be of comparable quality; (ii) obligations
(certificates of deposit, time deposits, bank master
notes, and bankers' acceptances) of thrift institutions,
savings and loans, U.S. commercial banks (including
foreign branches of such banks), and U.S. and foreign
branches of foreign banks, provided that such institutions
(or, in the case of a branch, the parent institution) have
total assets of $1 billion or more as shown on their last
published financial statements at the time of investment;
(iii) short-term corporate obligations rated within the
three highest rating categories by a NRSRO (e.g., at least
A by S&P or A by Moody's) at the time of investment, or,
if not rated, determined by the Advisor to be of
comparable quality; (iv) general obligations issued by the
U.S. Government and backed by its full faith and credit,
and obligations issued or guaranteed as to principal and
interest by agencies or instrumentalities of the U.S.
Government (e.g., obligations issued by Farmers Home
Administration, Government National Mortgage Association,
Federal Farm Credit Bank and Federal Housing
Administration); (v) receipts, including TRs, TIGRs and
CATS; (vi) repurchase agreements involving such
obligations; (vii) loan participations issued by a bank in
the United States with assets exceeding $1 billion and for
which the underlying loan is issued by borrowers in whose
obligations the Fund may invest; (viii) money market funds
and (ix) foreign commercial paper.
Certain of the obligations in which a Fund may invest
may be variable or floating rate instruments, may involve
conditional or unconditional demand features and may
include variable amount master demand notes.
OPTIONS--Under a call option, the purchaser of the
option has the right to purchase, and the writer (the
Fund) the obligation to sell, the underlying security at
the exercise price during the option period. A put option
gives the purchaser the right to sell, and the writer the
obligation to purchase, the underlying security at the
exercise price during the option period.
In addition, certain Funds may buy options on stock
indices to invest cash on an interim basis. Such options
will be listed on a national securities exchange. In order
to close out an option position, a Fund may enter into a
"closing purchase transaction" -- the purchase of an
option on the same security with the same exercise price
and expiration date as the option contract previously
written on any particular security. When the security is
sold, a Fund effects a closing purchase transaction so as
to close out any existing option on that security.
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There are risks associated with such investments
including the following: (1) the success of a hedging
strategy may depend on the ability of the Advisor or
Sub-Advisor to predict movements in the prices of
individual securities, fluctuations in markets and
movements in interest rates; (2) there may be an imperfect
correlation between the movement in prices of securities
held by a Fund and the price of options; (3) there may not
be a liquid secondary market for options; and (4) while a
Fund will receive a premium when it writes covered call
options, it may not participate fully in a rise in the
market value of the underlying security.
RECEIPTS--Interests in separately traded interest and
principal component parts of U.S. Treasury obligations
that are issued by banks and brokerage firms and are
created by depositing Treasury notes and Treasury bonds
into a special account at a custodian bank. The custodian
holds the interest and principal payments for the benefit
of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and
maintains the register. Receipts include "Treasury
Receipts" ("TR's"), "Treasury Investment Growth Receipts"
("TIGR's"), and "Certificates of Accrual on Treasury
Securities" ("CATS"). TR's, TIGR's and CATS are sold as
zero coupon securities, which means that they are sold at
a substantial discount and redeemed at face value at their
maturity date without interim cash payments of interest or
principal. This discount is accreted over the life of the
security, and such accretion will constitute the income
earned on the security for both accounting and tax
purposes. Because of these features, such securities may
be subject to greater interest rate volatility than
interest-paying securities. See also "FEDERAL TAXATION."
REPURCHASE AGREEMENTS--Agreements whereby a 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 agreements entered into by the Funds will
provide that the underlying security at all times shall
have a value equal to 102% of the resale price stated in
the agreement. Repurchase agreements involving government
securities are not subject to a Fund's fundamental
investment limitation on purchasing securities of any one
issuer. 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").
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<PAGE> 73
REVERSE REPURCHASE AGREEMENTS--A 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 10%
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 102% of 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 1940
Act.
RULE 144A SECURITIES--Rule 144A Securities are
securities that have not been registered under the
Securities Act of 1933, but which may be traded between
certain qualified institutional investors, including
investment companies. The absence of a secondary market
may affect the value of the Rule 144A Securities. The
Board of Trustees of HighMark has established guidelines
and procedures to be utilized to determine the liquidity
of such securities.
SECURITIES ISSUED ON A FORWARD COMMITMENT BASIS OR
WHEN-ISSUED SECURITIES--Securities 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 or enter
into forward commitments, HighMark's custodian will be
instructed to 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. Therefore,
the purchase of securities on a "when-issued" basis or
forward commitments may increase the risk of fluctuations
in a Fund's net asset value.
SECURITIES LENDING--During the time portfolio securities
are on loan from a Fund, the borrower will pay the Fund
any dividends or interest paid on the
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<PAGE> 74
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 the lending agent, with
oversight by the Advisor, and, should the market value of
the loaned securities increase, the borrower will be
required to furnish additional collateral to the Fund.
SECURITIES SUBJECT TO A PUT FEATURE--A "put" feature
permits a Fund to sell a fixed income security at a fixed
price prior to maturity. The underlying fixed income
securities subject to a put may be sold at any time at the
market rates. However, unless the put was an integral part
of the fixed income security as originally issued, it may
not be marketable or assignable. Generally, a premium is
paid for a put feature or a put feature is purchased
separately which results in a lower yield than would
otherwise be available for the same fixed income
securities.
STANDARD & POOR'S DEPOSITARY RECEIPTS (SPDRs)--SPDRs are
interests in a unit investment trust holding a portfolio
of securities linked to the S&P 500 Index. SPDRs closely
track the underlying portfolio of securities, trade like a
share of common stock and pay periodic dividends
proportionate to those paid by the portfolio of stocks
that constitutes the S&P 500 Index. For further
information regarding SPDRs, see the Statement of
Additional Information.
TIME DEPOSITS--Non-negotiable receipts issued by U.S. or
foreign banks in exchange for the deposit of funds. Like
certificates of deposit, they earn a specified rate of
interest over a definite period of time; however, they
cannot be traded in the secondary market. Time deposits
with a withdrawal penalty are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCY SECURITIES--Certain Federal
agencies have been established as instrumentalities of the
U.S. Government to supervise and finance certain types of
activities. Issues of these agencies, while not direct
obligations of the U.S. Government, are either backed by
the full faith and credit of the United States (e.g., GNMA
securities) or supported by the issuing agencies' right to
borrow from the U.S. Treasury. The issues of other
agencies are supported only by the credit of the
instrumentality (e.g., FNMA securities).
U.S. TREASURY OBLIGATIONS--Bills, notes, and bonds
issued by the U.S. Treasury, as well as separately traded
interest and principal component parts of
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<PAGE> 75
such obligations known as Separately Traded Registered
Interest and Principal Securities ("STRIPS") that are
transferable through the Federal book-entry system.
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 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 a
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.
VARIABLE AND FLOATING RATE INSTRUMENTS--Obligations that
may carry variable or floating rates of interest, may
involve conditional or unconditional demand features and
may include variable amount master demand notes. The
interest rates on these securities may be reset daily,
weekly, quarterly or some other reset period, and may have
a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations
may not accurately reflect existing market interest rates.
A demand instrument with a demand notice period exceeding
seven days may be considered illiquid if there is no
secondary market for such security.
WARRANTS--Securities that entitle the holder to buy a
proportionate amount of common stock at a specified price
for a limited or unlimited period of time. Warrants are
often freely transferable and are traded on major stock
exchanges.
YANKEE BONDS--Dollar denominated securities issued by
foreign-domiciled issuers that obligate the issuer to pay
the bondholder a specified sum of money, usually
semiannually, and to repay the principal amount of the
loan at maturity. Sovereign bonds are bonds issued by the
governments of foreign countries. Supranational bonds are
those issued by supranational entities, such as the World
Bank and European Investment Bank. Canadian bonds are
bonds issued by Canadian provinces.
ZERO-COUPON OBLIGATIONS--Non-income producing securities
evidencing ownership of future interest and principal
payments on bonds. 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.
36
<PAGE> 76
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.
37
<PAGE> 77
HighMark EQUITY FUNDS
INVESTMENT PORTFOLIOS OF
HighMark FUNDS
For further information (including current
yield, purchase and redemption information),
call 1-(800) 433-6884
INVESTMENT ADVISOR
Pacific Alliance Capital Management,
a division of Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
SUB-ADVISOR
Bank of Tokyo-Mitsubishi Trust Company
1251 Avenue of the Americas
New York, New York 10116
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
SEI Fund Resources and
SEI Financial Services Company
Oaks, Pennsylvania 19456
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
<PAGE> 78
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 HIGHMARK OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY HIGHMARK OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
NOT FDIC INSURED
<PAGE> 79
[HIGHMARK LOGO]
HIGHMARK FUNDS
TRS-17236(R12/95)
<PAGE> 80
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
HIGHMARK FUNDS
MONEY MARKET FUNDS
HighMark Funds ("HighMark") is an open-end, diversified, registered investment
company that offers a convenient means of investing in one or more
professionally managed portfolios of securities. This Prospectus relates to
HighMark's:
- Diversified Money Market Fund
- U.S. Government Money Market Fund
- 100% U.S. Treasury Money Market Fund
- California Tax-Free Money Market Fund
FIDUCIARY SHARES
HighMark's Fiduciary Shares are offered to the following investors: (i)
fiduciary, advisory, agency, custodial and other similar accounts maintained
with Union Bank of California, N.A. or its affiliates; (ii) Select IRA accounts
established with The Bank of California, N.A. and invested in any of HighMark's
Equity or Fixed 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 HighMark's Equity or
Fixed 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
Union Bank of California, N.A., HighMark's current or former distributors or
their respective affiliated companies who currently own Shares of HighMark Funds
which were purchased before April 30, 1997.
This Prospectus sets forth concisely the information about HighMark and the
Funds that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated the same date as this Prospectus has been filed
with the Securities and Exchange Commission and is available without charge by
writing the Distributor, SEI Financial Services Company, Oaks, Pennsylvania
19456, or by calling 1-800-433-6884. The Statement of Additional Information is
incorporated into this Prospectus by reference. This Prospectus relates only to
the Fiduciary Shares of the Money Market Funds. Interested persons who wish to
obtain a prospectus for the other Funds of HighMark may contact the Distributor
at the above address and telephone number.
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
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.
HIGHMARK'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, INCLUDING UNION BANK OF CALIFORNIA, N.A., BANK OF TOKYO-
MITSUBISHI, LIMITED OR ANY OF THEIR AFFILIATES OR CORRESPONDENTS. HIGHMARK'S
SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN HIGHMARK INVOLVES RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
February 26, 1997
Fiduciary Shares
<PAGE> 81
SUMMARY
HIGHMARK FUNDS ("HighMark") is an open-end, diversified, registered investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Fiduciary Shares of the Diversified Money Market, U.S. Government Obligations
Money Market, 100% U.S. Treasury Obligations Money Market, and California
Tax-Free Money Market Funds (each a "Fund" and sometimes referred to in this
prospectus as the "Funds.") This summary is qualified in its entirety by
reference to the more detailed information provided elsewhere in the Prospectus
and in the Statement of Additional Information.
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES? The Diversified Money Market Fund,
the U.S. Government Money Market Fund, and the 100% U.S. Treasury Money Market
Fund seek current income with liquidity and stability of principal. The
California Tax-Free Money Market Fund seeks as high a level of current interest
income free from federal income tax and California personal income tax as is
consistent with the preservation of capital and relative stability of principal.
(See "INVESTMENT OBJECTIVES")
WHAT ARE THE FUNDS' PERMITTED INVESTMENTS? THE DIVERSIFIED MONEY MARKET FUND
invests in obligations with maturities deemed under SEC rules to be 397 days or
less ("short-term investments") issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, in high-quality short-term obligations issued by
banks and corporations, and in other high-quality rated and unrated short-term
instruments; some of the obligations and short-term instruments in which the
Fund invests may be subject to repurchase agreements. THE U.S. GOVERNMENT MONEY
MARKET FUND invests in short-term 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 MONEY MARKET FUND invests exclusively in direct U.S. Treasury
short-term obligations. THE CALIFORNIA TAX-FREE MONEY MARKET 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. (See "INVESTMENT POLICIES")
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUNDS? Each Fund seeks to
maintain a net asset value of $1.00 per share. There can be no assurance that a
Fund will be able to maintain a net asset value of $1.00 per share on a
continuous basis. The California Tax-Free Money Market Fund concentrates its
investments in California municipal securities, and an investment in the Fund
therefore may be riskier than an investment in other types of money market
funds. (See "Risk Factors")
ARE MY INVESTMENTS INSURED? HighMark's Shares are not federally insured by the
FDIC or any other government agency. Any guarantee by the U.S. Government, its
agencies or any instrumentalities of the securities in which any Fund invests
guarantees only the payment of principal and interest on the guaranteed
security, and does not guarantee the yield or value of the security or yield or
value of Shares of that Fund.
WHO IS THE ADVISOR? Pacific Alliance Capital Management, a division of Union
Bank of California, N.A., serves as the Advisor to HighMark. (See "The Advisor")
2
<PAGE> 82
WHO IS THE ADMINISTRATOR? SEI Fund Resources serves as the Administrator of
HighMark. (See "The Administrator")
WHO IS THE CUSTODIAN? Union Bank of California, N.A. (the "Bank") serves as the
custodian of HighMark's assets. (See "The Custodian")
WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as distributor of
HighMark's Shares. (See "The Distributor")
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment is generally $1,000. In order to be effective on the
Business Day received, orders to purchase and redeem must be placed prior to
8:00 a.m., Pacific time (11:00 a.m., Eastern time) for the California Tax-Free
Money Market Fund, prior to 9:00 a.m., Pacific time (12:00 noon, Eastern time)
for the 100% U.S. Treasury Money Market Fund and prior to 10:00 a.m., Pacific
time (1:00 p.m. Eastern time) for the Diversified Money Market and U.S.
Government Money Market Funds on any Business Day. Otherwise, the order will be
effective the next Business Day. In addition, effectiveness of a purchase is
contingent on the Custodian's receipt of Federal funds before 11:00 a.m.,
Pacific time (2:00 p.m., Eastern time). (See "PURCHASE AND REDEMPTION OF
SHARES")
HOW ARE DIVIDENDS PAID? The net investment income (exclusive of short-term
capital gains) of the Funds is determined and declared on each Business Day as a
dividend for Shareholders of record as of the close of business on that day.
Dividends are paid monthly in additional shares unless the Shareholder elects to
take the payment in cash. (See "DIVIDENDS")
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................................................................... 2
Money Market Funds Fee Table.......................................................... 5
Financial Highlights.................................................................. 7
Fund Description...................................................................... 15
Investment Objectives................................................................. 15
Investment Policies................................................................... 15
Diversified Money Market Fund....................................................... 16
U.S. Government Money Market Fund................................................... 17
The 100% U.S. Treasury Money Market Fund............................................ 18
California Tax-Free Money Market Fund............................................... 18
Municipal Securities.................................................................. 20
General............................................................................... 21
Illiquid and Restricted Securities.................................................. 22
Lending of Portfolio Securities..................................................... 22
Other Investments................................................................... 22
Risk Factors........................................................................ 23
</TABLE>
3
<PAGE> 83
<TABLE>
<CAPTION>
PAGE
--
<S> <C>
Investment Limitations................................................................ 24
Purchase and Redemption of Shares..................................................... 26
Exchange Privileges................................................................... 27
Dividends............................................................................. 28
Federal Taxation...................................................................... 29
Service Arrangements.................................................................. 31
The Advisor......................................................................... 31
Administrator....................................................................... 32
The Transfer Agent.................................................................. 33
Shareholder Service Plan............................................................ 33
Distributor......................................................................... 33
Banking Laws........................................................................ 33
Custodian........................................................................... 34
General Information................................................................... 34
Description of HighMark & Its Shares................................................ 34
Performance Information............................................................. 35
Miscellaneous....................................................................... 36
Description of Permitted Investments.................................................. 37
</TABLE>
4
<PAGE> 84
MONEY MARKET FUNDS FEE TABLE
<TABLE>
<CAPTION>
100% U.S. CALIFORNIA
DIVERSIFIED U.S. GOVERNMENT TREASURY TAX-FREE
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
FIDUCIARY FIDUCIARY FIDUCIARY 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)...................................... 0% 0% 0% 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(a)........................................... $ 0 $ 0 $ 0 $ 0
ANNUAL OPERATING EXPENSES (as a percentage of net assets)
Management Fees (after voluntary reduction)(c)............ 0.30% 0.29% 0.24% 0.09%
12b-1 Fees................................................ 0.00% 0.00% 0.00% 0.00%
Other Expenses (after voluntary reduction)(d)............. 0.20% 0.21% 0.21% 0.21%
---- ---- ---- ----
Total Fund Operating Expenses(e).......................... 0.50% 0.50% 0.45% 0.30%
==== ==== ==== ====
</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 Money Market Fund Fiduciary Shares................. $5 $16 $28 $ 63
U.S. Government Money Market Fund Fiduciary Shares............. $5 $16 $28 $ 63
100% U.S. Treasury Money Market Fund Fiduciary Shares.......... $5 $14 $25 $ 57
California Tax-Free Money Market Fund Fiduciary Shares......... $3 $10 $17 $ 38
</TABLE>
The purpose of the tables above is to assist an investor in the 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 Union Bank of California and its affiliates)
making investments in the Funds on behalf of their customers may charge
customers fees for services provided in connection with the investment in,
redemption of, and exchange of Shares. (See PURCHASE AND REDEMPTION OF
SHARES, EXCHANGE PRIVILEGES and SERVICE ARRANGEMENTS below.)
(b) A wire redemption charge is deducted from the amount of a wire redemption
payment made at the request of a Shareholder. (See PURCHASE AND REDEMPTION
OF SHARES below.)
5
<PAGE> 85
(c) Absent voluntary fee waivers, MANAGEMENT FEES would be 0.30% for the
Fiduciary Shares of the U.S. Government Money Market Fund, the 100% U.S.
Treasury Money Market Fund, and the California Tax-Free Money Market Fund.
(d) Absent voluntary fee waivers, OTHER EXPENSES would be 0.47% for the
Fiduciary Shares of the Diversified Money Market Fund, and 0.48% for the
Fiduciary Shares of each of the U.S. Government Money Market Fund, the 100%
U.S. Treasury Money Market Fund and the California Tax-Free Money Market
Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be: 0.77%
for the Fiduciary Shares of the Diversified Money Market Fund, 0.78% for the
Fiduciary Shares of the U.S. Government Money Market Fund, the 100% U.S.
Treasury Money Market Fund, and the California Tax-Free Money Market Fund.
6
<PAGE> 86
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information with respect to the
Fiduciary Shares of the Diversified Money Market Fund, U.S. Government Money
Market Fund, 100% U.S. Treasury Money Market Fund, and California Tax-Free Money
Market Fund. Financial highlights for the Funds for the period ended July 31,
1996 have been derived from financial statements audited by Deloitte & Touche
LLP, independent auditors for HighMark, whose report thereon is included in the
Statement of Additional Information. Prior to the fiscal year ended July 31,
1996, Coopers & Lybrand L.L.P. served as independent accountants for HighMark.
DIVERSIFIED MONEY MARKET FUND
(FORMERLY DIVERSIFIED OBLIGATIONS FUND)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Investment Activities
Net investment income..................... 0.049 0.049 0.028 0.027 0.043
-------- -------- -------- -------- --------
Distributions
Net investment income..................... (0.049) (0.049) (0.028) (0.027) (0.043)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return................................ 5.01% 4.99% 2.88% 2.75% 4.41%
Ratios/Supplementary Data:
Net Assets at end of period (000)......... $ 244,775 $ 270,476 $ 228,934 $ 254,034 $ 337,485
Ratio of expenses to average net assets... 0.75% 0.74% 0.74% 0.72% 0.72%
Ratio of net investment income to average
net assets............................. 4.91% 4.88% 2.83% 2.72% 4.34%
Ratio of expenses to average net
assets*................................ 0.99% 0.98% 0.89% 0.73% 0.72%
Ratio of net investment income to average
net assets*............................ 4.67% 4.64% 2.67% 2.71% 4.34%
</TABLE>
7
<PAGE> 87
<TABLE>
<CAPTION>
AUGUST 10,
1987 TO
YEAR ENDED JULY 31, JULY 31,
------------------------------- ----------
1991 1990 1989 1988(A)
--------- -------- -------- ----------
FIDUCIARY
---------
<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, now renamed the
Diversified Money Market 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" (now called "Retail") and "Fiduciary"
Shares, respectively.
- ---------------
* During each period the investment advisory, administration and distribution
fees (Retail 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> 88
U.S. GOVERNMENT MONEY MARKET FUND
(FORMERLY U.S. GOVERNMENT OBLIGATIONS FUND)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------
Investment Activities
Net investment income.............. 0.048 0.048 0.027 0.027 0.042
-------- -------- -------- -------- -------
Distributions
Net investment income.............. (0.048) (0.048) (0.027) (0.027) (0.042)
-------- -------- -------- -------- -------
Net Asset Value, End of Period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== =======
Total Return......................... 4.88% 4.87% 2.74% 2.72% 4.25%
Ratios/Supplementary Data:
Net Assets at end of period
(000)........................... $ 151,483 $ 159,747 $ 162,094 $ 166,182 $ 94,252
Ratio of expenses to average net
assets.......................... 0.77% 0.78% 0.78% 0.71% 0.73%
Ratio of net investment income to
average net assets.............. 4.76% 4.76% 2.70% 2.67% 4.15%
Ratio of expenses to average net
assets*......................... 1.00% 1.02% 0.94% 0.74% 0.74%
Ratio of net investment income to
average net assets*............. 4.53% 4.52% 2.54% 2.65% 4.14%
</TABLE>
<TABLE>
<CAPTION>
AUGUST 10,
1987 TO
YEAR ENDED JULY 31, JULY 31,
---------------------------------- ----------
1990 1989 1988(A)
------- -------- ----------
1991
---------
FIDUCIARY
---------
<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>
9
<PAGE> 89
On December 1, 1990, the U.S. Government Obligations Fund (now renamed the
U.S. Government Money Market 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" (now called "Retail") and
"Fiduciary" Shares, respectively.
- ---------------
* During each period the investment advisory, administration and distribution
fees (Retail 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> 90
100% U.S. TREASURY MONEY MARKET FUND
(FORMERLY 100% U.S. TREASURY OBLIGATIONS FUND)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Investment Activities
Net investment income....................... 0.046 0.046 0.026 0.026 0.040
Net realized and unrealized gains on
investments............................... 0.001
-------- -------- -------- -------- --------
Total from Investment
Activities...................... 0.046 0.046 0.026 0.026 0.041
-------- -------- -------- -------- --------
Distributions
Net investment income..................... (0.046) (0.046) (0.026) (0.026) (0.040)
Net realized gains.......................... (0.001)
-------- -------- -------- -------- --------
Total Distributions............... (0.046) (0.046) (0.026) (0.026) (0.041)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return................................ 4.74% 4.69% 2.68% 2.64% 4.18%
Ratios/Supplementary Data:
Net Assets at end of period (000)......... $ 173,340 $ 190,604 $ 160,721 $ 191,946 $ 219,451
Ratio of expenses to average net assets... 0.74% 0.73% 0.74% 0.67% 0.65%
Ratio of net investment income to average
net assets............................. 4.64% 4.60% 2.63% 2.60% 3.99%
Ratio of expenses to average net
assets*................................ 0.97% 0.97% 0.90% 0.72% 0.72%
Ratio of net investment income average net
assets*................................ 4.41% 4.36% 2.48% 2.55% 3.92%
</TABLE>
11
<PAGE> 91
<TABLE>
<CAPTION>
AUGUST 10,
1987 TO
YEAR ENDED JULY 31, JULY 31,
--------------------------------- ----------
1991 1990 1989 1988(A)
--------- -------- -------- ----------
FIDUCIARY
---------
<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
-------- -------- -------- --------
Distributions
Net investment income.......................... (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 (now renamed the
100% U.S. Treasury Money Market 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" (now called "Retail") and
"Fiduciary" Shares, respectively.
- ---------------
* During each period the investment advisory, administration and distribution
fees (Retail 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.
12
<PAGE> 92
CALIFORNIA TAX-FREE MONEY MARKET FUND
(FORMERLY CALIFORNIA TAX-FREE FUND)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment Activities
Net investment income...................... 0.029 0.031 0.020 0.021 0.032
------- -------- -------- -------- --------
Distributions
Net Investment income...................... (0.029) (0.031) (0.020) (0.021) (0.032)
------- -------- -------- -------- --------
Net Asset Value, End of Period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ======== ========
Total Return................................. 2.91% 3.16% 1.99% 2.13% 3.20%
Ratios/Supplementary Data:
Net Assets at end of period (000).......... $ 98,352 $ 105,742 $ 114,993 $ 142,939 $ 116,062
Ratio of expenses to average net assets.... 0.55% 0.50% 0.50% 0.44% 0.54%
Ratio of net investment income to average
net assets.............................. 2.88% 3.11% 1.96% 2.08% 3.15%
Ratio of expenses to average net assets*... 1.00% 1.01% 0.93% 0.73% 0.74%
Ratio of net investment income to average
net assets*............................. 2.43% 2.60% 1.53% 1.78% 2.95%
</TABLE>
13
<PAGE> 93
<TABLE>
<CAPTION>
AUGUST 10,
1987 TO
YEAR ENDED JULY 31, JULY 31,
----------------------------------- ----------
1991 1990 1989 1988(A)
--------- -------- -------- ----------
FIDUCIARY
---------
<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) (0.054) (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 (now renamed the California
Tax-Free Money Market 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" (now called "Retail") and "Fiduciary"
Shares, respectively.
- ---------------
* During each period the investment advisory, administration and distribution
fees (Retail 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.
14
<PAGE> 94
FUND
DESCRIPTION HighMark Funds ("HighMark") is an open-end, diversified,
registered investment company that currently offers units
of beneficial interest ("Shares") in sixteen separate
investment portfolios ("Funds"). All of the Funds are
advised by Pacific Alliance Capital Management (the
"Advisor"), a division of Union Bank of California, N.A.
Shareholders may purchase Shares of selected Funds through
two separate classes (the "Retail" and "Fiduciary"
classes). These classes may have different sales charges
and other expenses, which may affect performance.
Information regarding HighMark's other Funds and other
classes is contained in separate prospectuses that may be
obtained from HighMark's Distributor, SEI Financial
Services Company, at Oaks, Pennsylvania 19456, or by
calling 1-800-433-6884.
For information concerning those investors who qualify
to purchase Fiduciary Shares, see PURCHASE AND REDEMPTION
OF SHARES below. (Fiduciary Shares may be hereinafter
referred to as "Shares.")
INVESTMENT
OBJECTIVES The investment objectives of the Funds are as follows:
The Diversified Money Market Fund, the U.S. Government
Money Market Fund and the 100% U.S. Treasury Money Market
Fund each seek current income with liquidity and stability
of principal.
The California Tax-Free Money Market Fund seeks as high
a level of current interest income free from federal
income tax and California personal income tax as is
consistent with the preservation of capital and relative
stability of principal.
The investment objectives and certain of the investment
limitations of the Diversified Money Market Fund, the U.S.
Government Money Market Fund, the 100% U.S. Treasury Money
Market Fund, and the California Tax-Free Money Market 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 no assurance that a Fund will achieve
its investment objective.
INVESTMENT
POLICIES While the Diversified Money Market Fund, the U.S.
Government Money Market Fund and the 100% U.S. Treasury
Money Market Fund have the same investment objective, they
differ as follows with respect to the types of instruments
that may be purchased. Each Fund may invest only in U.S.
dollar denominated obligations determined by the Advisor
to present minimal credit risks under guidelines adopted
by HighMark's Board of Trustees.
15
<PAGE> 95
Diversified Money Market Fund
The Diversified Money Market Fund may invest in the
following obligations:
(i) obligations issued by the U.S. Government, and
backed by its full faith and credit, and obligations
issued or guaranteed as to principal and interest by the
agencies or instrumentalities of the U.S. Government
(e.g., obligations issued by Farmers Home Administration,
Government National Mortgage Association, Federal Farm
Credit Bank and Federal Housing Administration);
(ii) obligations such as bankers' acceptances, bank
notes, certificates of deposit and time deposits of thrift
institutions, savings and loans, U.S. commercial banks
(including foreign branches of such banks), and U.S. and
foreign branches of foreign banks, provided that such
institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as
shown on their last published financial statements at the
time of investment;
(iii) short-term promissory notes issued by
corporations, including 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;
(iv) U.S. dollar denominated securities issued or
guaranteed by foreign governments, their political
subdivisions, agencies or instrumentalities, and
obligations of supranational entities such as the World
Bank and the Asian Development Bank (provided that the
Fund invests no more than 5% of its assets in any such
instrument and invests no more than 25% of its assets in
such instruments in the aggregate);
(v) up to 5% of its total assets in loan participations
issued by a bank in the U.S. with assets exceeding $1
billion where the underlying loan is made to a borrower in
whose obligations the Fund may invest and the underlying
loan has a remaining maturity of 397 days or less;
(vi) readily-marketable, short-term debt securities
including, but not limited to, those backed by company
receivables, truck and auto loans, leases, and credit card
loans;
(vii) Treasury receipts, including TRs, TIGRs and CATs;
and
(viii) repurchase agreements involving such obligations.
Certain of the obligations in which the Fund may invest
may be variable or floating rate instruments, may involve
a conditional or unconditional demand feature, and may
include variable amount master demand notes.
16
<PAGE> 96
Subject to the provisions of Rule 2a-7 under the
Investment Company Act of 1940 (the "1940 Act"),
investments of the Diversified Money Market Fund will
consist of those obligations that, at the time of
purchase, possess the highest short-term rating from at
least one nationally recognized statistical rating
organization ("NRSRO") (for example, commercial paper
rated "A-1" by Standard & Poor's Corporation ("S&P") or
"P-1" by Moody's Investors Service, Inc. ("Moody's")).
Although the Diversified Money Market Fund does not
presently expect to do so, it may also invest up to 5% of
its net assets in obligations that, at the time of
purchase, possess one of the two highest short-term
ratings from at least one NRSRO, and in obligations that
do not possess an equivalent short-term rating (i.e., are
unrated) but are determined by the Advisor to be of
comparable quality to the rated instruments eligible for
purchase by the Fund under guidelines adopted by the Board
of Trustees.
The Diversified Money Market Fund will not invest more
than 5% of its total assets in the securities of any one
first tier issuer, except that the Fund may invest up to
25% of its total assets in the securities of a single
first tier issuer for a period of up to three 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.
The Fund may concentrate its investments in certain
instruments issued by U.S. Banks, U.S. branches of foreign
banks, and foreign branches of U.S. banks, but only so
long as the investment risk associated with investing in
foreign branches of U.S. banks is the same as that
associated with investing in instruments issued by the
U.S. parent. Domestic certificates of deposit and bankers'
acceptances include those issued by domestic branches of a
foreign bank to the extent permitted by the rules of the
Securities and Exchange Commission. The rules currently
permit U.S. branches of foreign banks to be treated as a
domestic bank if it can be demonstrated that they are
subject to the same regulations as domestic banks.
U.S. Government Money Market Fund
As a fundamental policy, the U.S. Government Money
Market 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 (such as obligations issued by the
Government National Mortgage Association and the
Export-Import Bank of the United States) some of which may
be subject to repurchase agreements.
17
<PAGE> 97
The 100% U.S. Treasury Money Market Fund
The 100% U.S. Treasury Money Market Fund invests
exclusively in direct U.S. Treasury obligations and
separately traded component parts of such obligations
transferable through the Federal Reserve book-entry system
("STRIPs").
California Tax-Free Money Market Fund
The California Tax-Free Money Market Fund invests in
obligations issued by the State of California and its
political subdivisions or municipal authorities and
obligations issued by territories or possessions of the
United States ("Municipal Securities").
Under normal market conditions and, as a matter of
fundamental policy, at least 80% of the value of the total
assets of the California Tax-Free Money Market Fund will
be invested in Municipal Securities, the interest on
which, in the opinion of bond counsel, is both excluded
from gross income both for federal income tax purposes and
for California personal income tax purposes, and does not
constitute a preference item for individuals for purposes
of the federal alternative minimum tax.
Certain of the obligations in which the Fund may invest
may be variable or floating rate instruments and may
involve a conditional or unconditional demand feature.
Under normal market conditions, up to 20% of the
California Tax-Free Money Market 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 California personal income tax ("Taxable
Obligations"). These short-term obligations may include
bonds from other states and cash equivalents as described
below.
Dividends paid by the California Tax-Free Money Market
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 tax 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 Money Market 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.
18
<PAGE> 98
In seeking to achieve its investment objective, the
California Tax-Free Money Market 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 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 Money
Market Fund invests in private activity bonds that fall
within these categories, Shareholders may become subject
to the federal alternative minimum tax on that part of
such Fund's distributions derived from interest on such
bonds. For further information, see FEDERAL TAXATION
below.
The California Tax-Free Money Market Fund may invest up
to 10% of its total assets in shares of other investment
companies with like investment objectives. 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 advisor.
Investments of the California Tax-Free Money Market Fund
will consist of those obligations that, at the time of
purchase, possess one of the two highest short-term
ratings by a NRSRO, and in obligations that do not possess
a rating (i.e., are unrated) but are determined by the
Advisor to be of comparable quality to the rated
instruments eligible for purchase by the Fund under the
guidelines adopted by the Board of Trustees.
The California Tax-Free Money Market Fund may hold
uninvested cash reserves pending investment during
temporary "defensive" periods or if, in the opinion of the
Advisor, desirable tax-exempt obligations are unavailable.
In accordance with the Fund's investment objective and
subject to its fundamental policies, investments may be
made in Taxable Obligations if, for example, suitable
tax-exempt obligations are unavailable or if acquisition
of U.S. Government or other taxable securities is deemed
appropriate for temporary "defensive" purposes.
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, and commercial paper. As
noted above, Taxable Obligations may also include private
activity bonds depending on their tax treatment.
The California Tax-Free Money Market Fund is not
intended to constitute a balanced investment program and
is not designed for investors seeking capital
19
<PAGE> 99
appreciation nor maximum tax-exempt income irrespective of
fluctuations in principal. Investment in the California
Tax-Free Money Market Fund would not be appropriate for
tax-deferred plans, such as IRA and Keogh plans, and
investors should consult a tax or other financial advisor
to determine whether investment in the California Tax-Free
Fund would be appropriate for them.
MUNICIPAL
SECURITIES The two principal classifications of Municipal
Securities that may be held by the California Tax-Free
Money Market 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 California Tax-Free Money Market 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. Neither the California Tax-Free Money
Market Fund nor the Advisor 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 Money Market Fund may include adjustable rate
tax-exempt notes which may have a stated maturity in
excess of 397 days, but which will be subject to a demand
feature that will permit the 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 397 days and upon no more than thirty days'
notice. There may be no active secondary market with
respect to a particular adjustable rate note.
20
<PAGE> 100
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.
Municipal Securities may include, but are not limited
to, 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 Money Market 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 Money Market Fund may invest indirectly in
Municipal Securities by purchasing shares of other
tax-exempt money market mutual funds.
The California Tax-Free Money Market 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.
GENERAL The Funds intend to comply with Rule 2a-7 under the 1940
Act. Shares of each Fund are priced pursuant to the
amortized cost method whereby HighMark seeks to maintain
each Fund's net asset value per Share at $1.00. There can
be, however, no assurance that a stable net asset value of
$1.00 per Share will be maintained.
Securities or instruments in which each Fund invests
have remaining maturities of 397 days or less, although
instruments subject to repurchase agreements and certain
adjustable rate instruments may bear longer maturities.
The dollar-weighted average portfolio maturity of each
Fund will not exceed 90 days.
Although the Diversified Money Market Fund, the U.S.
Government Money Market Fund and the 100% U.S. Treasury
Money Market Fund have the same investment advisor and the
same investment objective, particular securities held 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.
21
<PAGE> 101
Additional information concerning each 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 below and in
the Statement of Additional Information. 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 a Fund, see the Statement of
Additional Information. The Statement of Additional
Information also identifies the NRSROs that may be
utilized by the Advisor with respect to portfolio
investments for the Funds and provides a description of
the relevant ratings assigned by each such NRSRO.
In the event that a security owned by a Fund is
downgraded below the stated rating categories, the Advisor
will take appropriate action with regard to that security.
Illiquid and Restricted Securities
The Funds shall limit investments in illiquid securities
to 10% or less of their net assets. Generally, an
"illiquid security" is any security that cannot be
disposed of promptly and in the ordinary course of
business at approximately the amount at which the Fund has
valued the instrument. The absence of a trading market can
make it difficult to ascertain the market value of
illiquid securities. Each Fund may purchase restricted
securities which have not been registered under the
Securities Act of 1933 (e.g., Rule 144A Securities and
Section 4(2) commercial paper) subject to policies
approved by the Board of Trustees. See INVESTMENT
RESTRICTIONS in the Statement of Additional Information.
Time deposits, including ETDs and CTDs but not including
certificates of deposit and repurchase agreements, which
have maturities in excess of seven days are considered to
be illiquid.
Lending of Portfolio Securities
In order to generate additional income, each Fund
(except the California Tax-Free Money Market Fund) may
lend its portfolio securities to broker-dealers, banks or
other institutions. A Fund may lend portfolio securities
in an amount representing up to 33 1/3% of the value of
the Fund's total assets.
Other Investments
The Diversified Money Market Fund, the U.S. Government
Money Market Fund, and the California Tax-Free Money
Market Fund may enter into repurchase agreements and
reverse repurchase agreements. Each Fund intends to limit
its respective activity in reverse repurchase agreements
to no more than 10% of the Fund's total assets.
22
<PAGE> 102
The Funds may enter into forward commitments or purchase
securities on a "when-issued" basis. Each Fund expects
that commitments by a Fund to enter into forward
commitments or purchase when-issued securities will not
exceed 25% of the value of the Fund's total assets under
normal market conditions. The Funds do not intend to
purchase when-issued securities or enter into forward
commitments for speculative or leveraging purposes but
only for the purpose of acquiring portfolio securities.
For further information, see "DESCRIPTION OF PERMITTED
INVESTMENTS."
Risk Factors
Investments by the Funds in obligations of certain
agencies and instrumentalities of the U.S. Government may
not be guaranteed by the full faith and credit of the U.S.
Treasury, and there can be no assurance that the U.S.
Government would provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it
is not obligated to do so by law.
As in the case of mortgage-related securities,
participations and certain asset-backed securities are
subject to prepayments and there can be no assurance that
the Diversified Money Market Fund will be able to reinvest
the proceeds of any prepayment at the same interest rate
or on the same terms as the original investment.
With regard to loan participations, although a Fund's
ability to receive payments of principal and interest in
connection with a particular loan is primarily dependent
on the financial condition of the underlying borrower, the
lending institution or bank may provide assistance in
collecting interest and principal from the borrower and in
enforcing its rights against the borrower in the event of
a default. In selecting loan participations on behalf of a
Fund, the Advisor will evaluate the creditworthiness of
both the borrower and the loan originator and will treat
both as an "issuer" of the loan participation for purposes
of the Fund's investment policies and restrictions (see
INVESTMENT RESTRICTIONS in the Statement of Additional
Information).
Foreign securities which the Diversified Money Market
Fund may purchase may subject the Fund to investment risks
that differ in some respects from those related to
investments in obligations of U.S. 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
23
<PAGE> 103
different accounting, auditing, reporting, and
recordkeeping standards than those applicable to domestic
branches of U.S. banks.
Certain risks are inherent in the California Tax-Free
Money Market Fund's concentrated investment in California
Municipal Securities, which may make an investment in the
Fund riskier than an investment in other types of money
market funds. Because of the California Tax-Free Money
Market 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. The ability of the State of California
and its political sub-divisions to generate revenue
through real property and other taxes and to increase
spending has been significantly restricted by various
constitutional and statutory amendments and voter-passed
initiatives. Such limitations could affect the ability of
California state and municipal issuers to pay interest or
repay principal on their obligations. In addition, during
the first half of the decade, California faced severe
economic and fiscal conditions and experienced recurring
budget deficits that caused it to deplete its available
cash resources and to become increasingly dependent upon
external borrowings to meet its cash needs.
The financial difficulties experienced by the State of
California and other issuers of California Municipal
Securities during the recession resulted in the credit
ratings of certain of their obligations being downgraded
significantly by the major rating agencies.
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.
INVESTMENT
LIMITATIONS The Diversified Money Market Fund, the U.S. Government
Money Market Fund and the 100% U.S. Treasury Money Market
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). (As
indicated below, the Funds have adopted a non-fundamental
investment policy that is more restrictive than this
fundamental investment limitation);
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
24
<PAGE> 104
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 their parents if their activities are
primarily related to financing the activities of their
parents; and (c) utilities will be divided according to
their services (for example, gas, gas transmission,
electric and gas, electric and telephone will each be
considered a separate industry).
3) Make loans, except that a Fund may purchase or hold
debt instruments, lend portfolio securities, and enter
into repurchase agreements as permitted by its individual
investment objective and policies.
The California Tax-Free Money Market Fund may not:
4) 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;
5) 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.
6) Make loans; except that the Fund may purchase or hold
debt instruments, lend portfolio securities and enter into
repurchase agreements as permitted by its investment
objective and policies.
The foregoing percentages will apply at the time of the
purchase of a security. The investment limitations listed
above are fundamental policies the substance of which may
not be changed without a vote of a majority of the
outstanding Shares of the respective Fund. Additional
fundamental and non-fundamental investment limitations are
set forth in the Statement of Additional Information.
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<PAGE> 105
The Diversified Money Market Fund, the Government
Obligations Money Market Fund, and the 100% U.S. Treasury
Money Market Fund have each adopted, in accordance with
Rule 2a-7, a non-fundamental policy providing that the 5%
limit noted in limitation (1) above shall apply to 100% of
each Fund's assets. Notwithstanding, each such Fund may
invest up to 25% of its assets in First Tier qualified
securities of a single issuer for up to three business
days.
PURCHASE AND
REDEMPTION
OF SHARES As noted above, the Funds are divided into two classes
of Shares, Retail and Fiduciary. Only the following
investors qualify to purchase the Funds' Fiduciary Shares:
(i) fiduciary, advisory, agency, custodial and other
similar accounts maintained with Union Bank of California,
N.A. or its affiliates; (ii) SelectIRA accounts
established with The Bank of California, N.A. and invested
in any of HighMark'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 HighMark'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 Union Bank of California, N.A.,
HighMark's current or former distributors or their
respective affiliated companies who currently own Shares
of HighMark Funds which were purchased before April 30,
1997. For a description of investors who qualify to
purchase Retail Shares, see the Retail Shares prospectus
of the Money Market Funds.
Purchases and redemptions of Shares of the Funds may be
made on days on which both the New York Stock Exchange and
Federal Reserve wire system are open for business
("Business Days"). The minimum initial investment is
generally $1,000 and the minimum subsequent investment is
generally $100. For present and retired directors,
officers, and employees (and their spouses and children
under the age of 21) of Union Bank of California, SEI
Financial Services Company and their affiliates, the
minimum initial investment is $250 and the minimum
subsequent investment is $50. The Fund's initial and
subsequent minimum purchase amounts may be waived, in the
Distributor's discretion if purchases are made in
connection with Individual Retirement Accounts, Keoghs,
payroll deduction plans, 401(k) or similar programs or
accounts. Shareholders may place orders by telephone.
Purchase orders will be effective on the Business Day
made if the Distributor receives an order before 8:00
a.m., Pacific time (11:00 a.m., Eastern time) for the
California Tax-Free Money Market Fund, 9:00 a.m., Pacific
time (12:00 noon, Eastern time) for the 100% U.S. Treasury
Money Market Fund and 10:00 a.m., Pacific time (1:00 p.m.,
Eastern time) for the Diversified Money Market and U.S.
Government Money Market Funds, on such Business Day.
Otherwise, the
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<PAGE> 106
purchase order will be effective the next Business Day.
Effectiveness of a purchase order on any Business Day is
contingent on the Custodian's receipt of Federal funds
before 11:00 a.m., Pacific time (2:00 p.m., Eastern time),
on such day. The purchase price is the net asset value per
Share, which is expected to remain constant at $1.00. The
net asset value per Share is calculated as of 10:00 a.m.,
Pacific time (1:00 p.m., Eastern time), each Business Day
based on the amortized cost method. The net asset value
per Share of a Fund is determined by dividing the total
value of its investments and other assets, less any
liabilities, by the total number of its outstanding
Shares. HighMark reserves the right to reject a purchase
order when the Distributor or the Advisor determines that
it is not in the best interest of HighMark and/or
Shareholder(s).
Shares of the Fund are offered only to residents of
states in which the shares are eligible for purchase.
Redemption orders may be made any time before 8:00 a.m.,
Pacific time (11:00 a.m., Eastern time) for the California
Tax-Free Money Market Fund, 9:00 a.m., Pacific time (12:00
noon, Eastern time) for the 100% U.S. Treasury Money
Market Fund, and 10:00 a.m., Pacific time (1:00 p.m.,
Eastern time) for the Diversified Money Market and U.S.
Government Money Market Funds in order to receive that
day's redemption price (i.e. the next determined net asset
value per share). For redemption orders received before
such times for such Funds, payment will be made the same
day by transfer of Federal funds. Otherwise, payment will
be made on the next Business Day. Redeemed shares are not
entitled to dividends declared the day the redemption
order is effective. The Funds reserve the right to make
payment on redemptions in securities rather than cash.
Neither HighMark's transfer agent nor HighMark will be
responsible for any loss, liability, cost or expense for
acting upon wire instructions or upon telephone
instructions that it reasonably believes are genuine.
HighMark and its transfer agent will each employ
reasonable procedures to confirm that telephone
instructions are genuine. Such procedures may include
taping of telephone conversations. If market conditions
are extraordinarily active or extraordinary circumstances
exist, and you experience difficulties placing redemption
orders by telephone, you may wish to consider placing your
order by other means.
EXCHANGE
PRIVILEGES As indicated under GENERAL INFORMATION--Description of
HighMark & Its Shares, certain of HighMark's Funds issue
two classes of Shares (Retail Shares and Fiduciary
Shares); as of the date of this Prospectus, the
Distribution Plan and distribution fee payable thereunder
are applicable only to such Fund's Retail 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
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<PAGE> 107
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 HighMark which the
Shareholder qualifies to purchase directly so long as the
Shareholder maintains the applicable minimum account
balance in each Fund in which he or she owns Shares and
satisfies the minimum initial and subsequent purchase
amounts of the Fund into which the Shares are exchanged.
Shareholders may exchange their Fiduciary Shares for
Fiduciary Shares of another Fund on the basis of the
relative net asset value of the Fiduciary Shares
exchanged. Shareholders may also exchange Fiduciary Shares
of a Fund for Retail Shares of another Fund. Under such
circumstances, the cost of the acquired Retail Shares will
be the net asset value per share plus the appropriate
sales load.
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 Union 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 Fund may
do so by contacting the transfer agent at 1-800-433-6884.
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
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 HighMark may legally be sold. HighMark may
materially amend or terminate the exchange privileges
described herein upon sixty days' notice.
DIVIDENDS The net income of each Fund is declared daily as a
dividend to Shareholders of record at the close of
business on the day of declaration.
Dividends with respect to each 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
28
<PAGE> 108
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 transfer agent
at P.O. Box 8416, Boston, MA 02266-8416, 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.
FEDERAL
TAXATION Each 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 Money Market Fund, the U.S. Government Money
Market Fund, the 100% U.S. Treasury Money Market Fund and
the California Tax-Free Money Market 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 Funds
are not managed to generate any long-term capital gains
and, therefore, the Funds do not foresee paying any
significant "capital gains dividends" as described in the
Code.
Shareholders will be subject to federal income tax with
respect to dividends paid by the Diversified Money Market
Fund, the U.S. Government Money Market Fund and the 100%
U.S. Treasury Money Market 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 advisors to
determine whether these dividends are eligible for the
state and local tax exemption. Dividends (except to the
extent attributable to gains or securities lending income)
paid by the 100% U.S. Treasury Money Market Fund will be
exempt from California and Oregon personal income taxes.
HighMark 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
Money Market 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 advisor 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.
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<PAGE> 109
Under the Code, interest on indebtedness incurred or
continued by a Shareholder to purchase or carry Shares of
the California Tax-Free Money Market Fund is not
deductible for federal income tax purposes to the extent
the 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 Money Market 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.
In addition, any loss (not already disallowed as
provided in the preceding sentence) realized upon a
taxable disposition of shares held for six months or less
will be treated as long-term, rather than short-term, to
the extent of any long-term capital gain distributions
received by the shareholder with respect to the shares.
The California Tax-Free Money Market 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 Money Market 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 additional Shares. A
Shareholder should consult his or her tax advisor 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 Money Market 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 Money Market Fund).
If, at the close of each quarter of its taxable year,
the California Tax-Free Money Market Fund continues to
qualify for the special federal income tax
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<PAGE> 110
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 to the extent that it is
derived from 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 corporate franchise tax will
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 Tax-Free Money Market Fund,
as to the California income tax status, of distributions
made during the year.
SERVICE
ARRANGEMENTS The Advisor
Pacific Alliance Capital Management, a division of Union
Bank of California, N.A. serves as the Funds' investment
advisor. Subject to the general supervision of HighMark's
Board of Trustees, the Advisor 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 the Fund's investment securities,
and maintains the Fund's records relating to such
purchases and sales.
For the expenses assumed and services provided by the
Advisor as each Fund's investment advisor, Union Bank of
California receives a fee from the Diversified Money
Market Fund, the U.S. Government Money Market Fund, the
100% U.S. Treasury Money Market Fund, and the California
Tax-Free Money Market Fund computed daily and paid
monthly, at the annual rate of thirty one-hundredths of
one percent (.30%) of each Fund's average daily net
assets. Union Bank of
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<PAGE> 111
California may from time to time agree to voluntarily
reduce its advisory fee. While there can be no assurance
that Union Bank of California will choose to make such an
agreement, any voluntary reductions in Union 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 HighMark's fiscal year ended July 31, 1996, Union
Bank of California received investment advisory fees from
the Diversified Money Market Fund, the U.S. Government
Money Market Fund, and the 100% U.S. Treasury Money Market
Fund aggregating 0.40% of each Fund's average daily net
assets and from the California Tax-Free Money Market Fund
aggregating 0.23% of the Fund's average daily net assets.
On April 1, 1996, The Bank of California, N.A.,
HighMark's then investment advisor, combined with Union
Bank and the resulting bank changed its name to Union Bank
of California, N.A. At the same time, the banks'
investment management divisions were combined. Each of
Union Bank and The Bank of California, N.A. (or their
predecessor banks) has been in banking since the early
1900's and, historically, each has had significant
investment functions within its trust and investment
division. UnionBanCal Corporation, the parent of Union
Bank of California, N.A., is a publicly held corporation,
but is principally held by the Bank of Tokyo-Mitsubishi,
Limited. As of September 30, 1996, Union Bank of
California and its subsidiaries had approximately $28.7
billion in commercial assets. Pacific Alliance Capital
Management is a division of Union Bank of California's
Trust and Investment Management Group, which, as of June
30, 1996, had approximately $13.4 billion of assets under
management. The Advisor, with a team of approximately 45
stock and bond research analysts, portfolio managers and
traders, has been providing investment management services
to individuals, institutions and large corporations since
1917.
Administrator
SEI Fund Resources (the "Administrator") and HighMark
are parties to an administration agreement (the
"Administration Agreement"). Under the terms of the
Administration Agreement, the Administrator provides
HighMark with certain management services, including all
necessary office space, equipment, personnel, and
facilities.
The Administrator is entitled to a fee, which is
calculated daily and paid monthly, at an annual rate of
.20% of the average daily net assets of the Funds. The
Administrator may waive its fee or reimburse various
expenses to the extent necessary to limit the total
operating expenses of a Fund's Fiduciary Shares. Any such
waiver is voluntary and may be terminated at any time in
the Administrator's sole discretion. Currently, the
Administrator has agreed to waive its fee to the rate of
.18% of the average daily net assets of the Funds.
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<PAGE> 112
Pursuant to a separate agreement with the Administrator,
Union Bank of California, N.A. performs sub-administration
services on behalf of each Fund, for which it receives a
fee paid by the Administrator at the annual rate of up to
0.05% of the average daily net assets of the Funds. Union
Bank of California has voluntarily agreed to reduce this
fee to 0.03%, but reserves the right to terminate its
waiver at any time in its sole discretion. A description
of the services performed by Union Bank of California
pursuant to this Agreement is contained in the Statement
of Additional Information.
The Transfer Agent
State Street Bank and Trust Company serves as the
transfer agent, dividend disbursing agent, and as a
shareholder servicing agent for the Fiduciary Shares of
HighMark, for which services it receives a fee.
Shareholder Service Plan
To support the provision of Shareholder services to both
classes of Shares, HighMark has adopted a Shareholder
Service Plan. A description of the services performed by
service providers pursuant to the Shareholder Service Plan
is contained in the Statement of Additional Information.
In consideration of services provided by any service
provider, which may include Union Bank of California,
N.A., Bank of Tokyo-Mitsubishi, Ltd., or their respective
affiliates, each Fund may pay a fee at the rate of up to
0.25% of its average daily net assets to such service
provider. The service provider may waive such fees at any
time. Any such waiver is voluntary and may be terminated
at any time. Currently, such fees are being waived to the
rate of 0.00% of average daily net assets.
Distributor
SEI Financial Services Company (the "Distributor") and
HighMark are parties to a distribution agreement
("Distribution Agreement"). The Distribution Agreement is
renewable annually and may be terminated by the
Distributor, by a majority vote of the Disinterested
Trustees or by a majority vote of the outstanding
securities of HighMark upon not more than 60 days written
notice by either party, or upon assignment by the
Distributor. Fiduciary Shares are not subject to
HighMark's Distribution Plan or a distribution fee.
Banking Laws
Union Bank of California believes that it may perform
the services for the Funds contemplated by its investment
advisory agreement with HighMark without a violation of
applicable banking laws and regulations. Union Bank of
California also believes that it may perform
sub-administration and sub-accounting services on behalf
of each Fund, for which it receives compensation from SEI
Fund Resources without a violation of applicable banking
laws and regulations.
33
<PAGE> 113
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
Union Bank of California or the Advisor 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.
Custodian
Union Bank of California also serves as the custodian
and as a shareholder servicing agent for the Funds. The
Custodian holds cash, securities and other assets of
HighMark as required by the 1940 Act.
Services performed by Union Bank of California, as the
Funds' shareholder servicing 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 HighMark & Its Shares
HighMark was organized as a Massachusetts business trust
on March 10, 1987, and consists of sixteen series of
Shares open for investment representing units of
beneficial interest in HighMark's Growth Fund, Income
Equity Fund, Balanced Fund, Value Momentum Fund, Blue Chip
Growth Fund, Emerging Growth Fund, International Equity
Fund, Bond Fund, Intermediate-Term Bond Fund, Government
Securities Fund, Convertible Securities Fund, California
Intermediate Tax-Free Bond Fund, Diversified Money Market
Fund, U.S. Government Money Market Fund, 100% U.S.
Treasury Money Market Fund and California Tax-Free Money
Market Fund. As of the date hereof, no Shares of the Value
Momentum Fund, the Blue Chip Growth Fund, the Emerging
Growth Fund, the International Equity Fund, the
Intermediate-Term Bond Fund, the Convertible Securities
Fund, the Government Securities Fund and the California
Intermediate Tax-Free Bond Fund had been offered for sale
in HighMark. 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 HighMark
were liquidated, would receive a pro rata share of the net
assets attributable to that Fund. Shares are without par
value.
As noted above, pursuant to a Multiple Class Plan on
file with the Securities and Exchange Commission
permitting the issuance and sale of two classes of Shares
in selected Funds, Shares of such Funds have been divided
into two classes, designated Retail Shares and Fiduciary
Shares. For information regarding the Retail Shares of the
Funds, interested persons may contact the Distributor for
a prospectus at 1-800-433-6884.
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<PAGE> 114
HighMark believes that as of November 22, 1996 Union
Bank of California (475 Sansome Street, Post Office Box
45000, San Francisco, CA 94104) was the Shareholder of
record of 98.42% of the Fiduciary Shares of the
Diversified Money Market Fund, 93.46% of the Fiduciary
Shares of the U.S. Government Money Market Fund, 95.03% of
the Fiduciary Shares of the 100% U.S. Treasury Money
Market Fund, and substantially all of the Fiduciary Shares
of the California Tax-Free Money Market Fund.
Performance Information
From time to time, HighMark may advertise the "yield"
and "effective yield" with respect to the Fiduciary Shares
of each Fund and a "tax-equivalent yield" and
"tax-equivalent effective yield" for federal, California
and Oregon income tax purposes with regard to the
Fiduciary Shares of each of the 100% U.S. Treasury Money
Market Fund and the California Tax-Free Money Market Fund.
Performance information is computed separately for a
Fund's Retail and Fiduciary Shares in accordance with the
formulas described below. Each yield figure is based on
historical earnings and is not intended to indicate future
performance.
The "yield" of a Fund's Fiduciary Shares 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 Money Market 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 of the Fiduciary class.
The California Tax-Free Money Market 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 of the Fiduciary 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.
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<PAGE> 115
From time to time, HighMark may advertise the aggregate
total return and average annual total return of the 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 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.
Each Fund may periodically compare its performance to
the performance of: other mutual funds tracked by
mutual-fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; broad
groups of comparable mutual funds; unmanaged indices which
may assume investment of dividends but generally do not
reflect deductions for administrative and management
costs; or other investment alternatives. Certain Funds may
advertise performance that includes results from periods
in which the Fund's assets were managed in a
non-registered predecessor vehicle.
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 HighMark will vote in the aggregate
and not by series or class except (i) as otherwise
expressly required by law or when HighMark'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
Retail Shares will be entitled to vote on matters
submitted to a Shareholder vote relating to the
Distribution Plan. HighMark is not required to hold
regular annual meetings of Shareholders, but may hold
special meetings from time to time.
HighMark'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
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with other Shareholders for that purpose, see ADDITIONAL
INFORMATION--Miscellaneous in the Statement of Additional
Information.
Inquiries may be directed in writing to SEI Financial
Services Company, Oaks, Pennsylvania 19456, or by calling
toll free 1-800-433-6884.
DESCRIPTION OF
PERMITTED
INVESTMENTS The following is a description of permitted investments
for the HighMark Money Market Funds.
ASSET-BACKED SECURITIES (NON-MORTGAGE)--Debt Instruments
secured by company receivables, truck and auto loans,
leases, and credit card receivables. Such securities are
generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the
underlying pools of assets. Such securities also may be
debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a
special purpose entity, such as a trust, organized solely
for the purpose of owning such assets and issuing such
debt. The purchase of non-mortgage asset-backed securities
raises risk considerations peculiar to the financing of
the instruments underlying such securities. Asset-backed
securities entail prepayment risk, which may vary
depending on the type of asset, but is generally less than
the prepayment risk associated with mortgage-backed
securities.
Like mortgages underlying mortgage-backed securities,
underlying automobile sales contracts or credit card
receivables are subject to substantial prepayment risk,
which may reduce the overall return to certificate
holders. Nevertheless, principal prepayment rates tend not
to vary as much in response to changes in 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 their
investment objectives and policies, the Money Market Funds
may invest in other asset-backed securities that may be
developed in the future.
BANKERS' ACCEPTANCES--Bills of exchange or time drafts
drawn on and accepted by commercial banks. They are used
by corporations to finance the shipment and storage of
goods and to furnish dollar exchange. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT--Negotiable interest-bearing
instruments with a specific maturity. Certificates of
deposit are issued by banks and savings
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and loan institutions in exchange for the deposit of funds
and normally can be traded in the secondary market prior
to maturity.
COMMERCIAL PAPER--Unsecured short-term promissory notes
issued by corporations and other entities. Maturities on
these issues vary from a few days to nine months. Purchase
of such instruments involves a risk of default by the
issuer.
DERIVATIVES--Instruments whose value is derived from an
underlying contract, index or security, or any combination
thereof, including futures, options (e.g., puts and
calls), options on futures, swap agreements, and some
mortgage-backed securities (CMOs, REMICs, IOs and POs).
See elsewhere in this "DESCRIPTION OF PERMITTED
INVESTMENTS" for discussions of these various instruments,
and see "INVESTMENT OBJECTIVES" and "INVESTMENT POLICIES"
for more information about any policies and limitations
applicable to their use.
INVESTMENT GRADE BONDS--Interest-bearing or discounted
government or corporate securities that obligate the
issuer to pay the bondholder a specified sum of money,
usually at specific intervals, and to repay the principal
amount of the loan at maturity. Investment grade bonds are
those rated BBB or better by S&P or Baa or better by
Moody's or similarly rated by other NRSROs, or, if not
rated, determined to be of comparable quality by the
Advisor.
LOAN PARTICIPATIONS--Loan participations are interests
in loans to U.S. corporations (i.e., borrowers) which are
administered by the lending bank or agent for a syndicate
of lending banks, and sold by the lending bank or
syndicate member ("intermediary bank"). In a loan
participation, the borrower of the underlying loan will be
deemed to be the issuer of the participation interest
(except to the extent a purchasing Fund derives its rights
from the intermediary bank). Because the intermediary bank
does not guarantee a loan participation in any way, a loan
participation is subject to the credit risks associated
with the underlying corporate borrower. In addition, in
the event the underlying corporate borrower fails to pay
principal and interest when due, a Fund may encounter
delays, expenses and risks that are greater than those
that would have been involved if the Fund had purchased a
direct obligation (such as commercial paper) of such
borrower because it may be necessary under the terms of
the loan participation, for the Fund to assert its rights
against the borrower through the intermediary bank.
Moreover, under the terms of a loan participation, the
purchasing Fund may be regarded as a creditor of the
intermediary bank (rather than of the underlying corporate
borrower), so that a Fund may also be subject to the risk
that the issuing bank may become insolvent. Further, in
the event of the bankruptcy or insolvency of the corporate
borrower, a loan participation may be subject to certain
defenses that can be asserted by such borrower as a result
of improper conduct by the issuing bank. The secondary
market, if any, for these
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loan participations is limited, and any such participation
purchased by a Fund may be regarded as illiquid.
MUNICIPAL FORWARDS--Municipal Forwards are forward
commitments for the purchase of tax-exempt bonds with a
specified coupon to be delivered by an issuer at a future
date, typically exceeding 45 days but normally less than
one year after the commitment date. Municipal forwards are
normally used as a refunding mechanism for bonds that may
only be redeemed on a designated future date. As with
forward commitments and when-issued securities, municipal
forwards are subject to market fluctuations due to
changes, real or anticipated, in market interest rates
between the commitment date and the settlement date and
will have the effect of leveraging the Fund's assets.
Municipal forwards may be considered to be illiquid
investments. The Fund will maintain liquid, high-grade
securities in a segregated account in an amount at least
equal to the purchase price of the municipal forward.
MUNICIPAL SECURITIES--Municipal securities consist of
(i) debt obligations issued by or on behalf of public
authorities to obtain funds to be used for various public
facilities, for refunding outstanding obligations, for
general operating expenses and for lending such funds to
other public institutions and facilities, and (ii) certain
private activity and industrial development bonds issued
by or on behalf of public authorities to obtain funds to
provide for the construction, equipment, repair or
improvement of privately operated facilities. Municipal
notes include general obligation notes, tax anticipation
notes, revenue anticipation notes, bond anticipation
notes, certificates of indebtedness, demand notes and
construction loan notes. Municipal bonds include general
obligation bonds, revenue or special obligation bonds,
private activity and industrial development bonds. General
obligation bonds are backed by the taxing power of the
issuing municipality. Revenue bonds are backed by the
revenues of a project or facility, tolls from a toll
bridge, for example. The payment of principal and interest
on private activity and industrial development bonds
generally is dependent solely on the ability of the
facility's user to meet its financial obligations and the
pledge, if any, of real and personal property so financed
as security for such payment.
PARTICIPATION INTERESTS--Participation interests are
interests in municipal securities from financial
institutions such as commercial and investment banks,
savings and loan associations and insurance companies.
These interests may take the form of participations,
beneficial interests in a trust, partnership interests or
any other form of indirect ownership that allows the Fund
to treat the income from the investment as exempt from
federal income tax. The Fund invests in these
participation interests in order to obtain credit
enhancement or demand features that would not be available
through direct ownership of the underlying municipal
securities.
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<PAGE> 119
RECEIPTS--Interests in separately traded interest and
principal component parts of U.S. Treasury obligations
that are issued by banks and brokerage firms and are
created by depositing Treasury notes and Treasury bonds
into a special account at a custodian bank. The custodian
holds the interest and principal payments for the benefit
of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and
maintains the register. Receipts include "Treasury
Receipts" ("TR's"), "Treasury Investment Growth Receipts"
("TIGR's"), and "Certificates of Accrual on Treasury
Securities" ("CATS"). TR's, TIGR's and CATS are sold as
zero coupon securities, which means that they are sold at
a substantial discount and redeemed at face value at their
maturity date without interim cash payments of interest or
principal. This discount is accreted over the life of the
security, and such accretion will constitute the income
earned on the security for both accounting and tax
purposes. Because of these features, such securities may
be subject to greater interest rate volatility than
interest-paying securities. See also "FEDERAL TAXATION."
REPURCHASE AGREEMENTS--Agreements whereby a 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 agreements entered into by the Funds will
provide that the underlying security at all times shall
have a value equal to 102% of the resale price stated in
the agreement. Repurchase agreements involving government
securities are not subject to a Fund's fundamental
investment limitation on purchasing securities of any one
issuer. 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").
REVERSE REPURCHASE AGREEMENTS--A 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 10%
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
40
<PAGE> 120
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 102% of 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 1940
Act.
RULE 144A SECURITIES--Rule 144A Securities are
securities that have not been registered under the
Securities Act of 1933, but which may be traded between
certain qualified institutional investors, including
investment companies. The absence of a secondary market
may affect the value of the Rule 144A Securities. The
Board of Trustees of the Group has established guidelines
and procedures to be utilized to determine the liquidity
of such securities.
SECURITIES ISSUED ON A FORWARD COMMITMENT BASIS OR
WHEN-ISSUED SECURITIES--Securities 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 or enter
into forward commitments, the Group's custodian will be
instructed to 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. Therefore,
the purchase of securities on a "when-issued" basis or
forward commitments may increase the risk of fluctuations
in a Fund's net asset value.
SECURITIES LENDING--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 the lending agent, with oversight by the Advisor,
and, should the market value
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<PAGE> 121
of the loaned securities increase, the borrower will be
required to furnish additional collateral to the Fund.
SECURITIES SUBJECT TO A PUT FEATURE--A "put" feature
permits a Fund to sell a fixed income security at a fixed
price prior to maturity. The underlying fixed income
securities subject to a put may be sold at any time at the
market rates. However, unless the put was an integral part
of the fixed income security as originally issued, it may
not be marketable or assignable. Generally, a premium is
paid for a put feature or a put feature is purchased
separately which results in a lower yield than would
otherwise be available for the same fixed income
securities.
TAX-EXEMPT COMMERCIAL PAPER--Commercial paper, which is
commercial paper issued by governments and political
sub-divisions.
TIME DEPOSITS--Non-negotiable receipts issued by U.S. or
foreign banks in exchange for the deposit of funds. Like
certificates of deposit, they earn a specified rate of
interest over a definite period of time; however, they
cannot be traded in the secondary market. Time deposits
with a withdrawal penalty are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCY SECURITIES--Certain Federal
agencies have been established as instrumentalities of the
U.S. Government to supervise and finance certain types of
activities. Issues of these agencies, while not direct
obligations of the U.S. Government, are either backed by
the full faith and credit of the United States (e.g., GNMA
securities) or supported by the issuing agencies' right to
borrow from the U.S. Treasury. The issues of other
agencies are supported only by the credit of the
instrumentality (e.g., FNMA securities).
U.S. TREASURY OBLIGATIONS--Bills, notes, and bonds
issued by the U.S. Treasury, as well as separately traded
interest and principal component parts of such obligations
known as Separately Traded Registered Interest and
Principal Securities ("STRIPS") that are transferable
through the Federal book-entry system.
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 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 a
Fund's average maturity is longer, under certain market
conditions the Fund may invest
42
<PAGE> 122
in short-term investments yielding lower current income
rather than investing in higher yielding longer-term
securities.
VARIABLE AMOUNT MASTER DEMAND NOTES--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
HighMark and the issuer, they are not normally traded.
Although there is no secondary market in these notes, the
Fund may demand payment of principal and accrued interest
at specified intervals. 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.
VARIABLE AND FLOATING RATE INSTRUMENTS--Obligations that
may carry variable or floating rates of interest, may
involve conditional or unconditional demand features and
may include variable amount master demand notes. The
interest rates on these securities may be reset daily,
weekly, quarterly or some other reset period, and may have
a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations
may not accurately reflect existing market interest rates.
A demand instrument with a demand notice period exceeding
seven days may be considered illiquid if there is no
secondary market for such security.
YANKEE BONDS--Dollar denominated securities issued by
foreign-domiciled issuers that obligate the issuer to pay
the bondholder a specified sum of money, usually
semiannually, and to repay the principal amount of the
loan at maturity. Sovereign bonds are bonds issued by the
governments of foreign countries. Supranational bonds are
those issued by supranational entities, such as the World
Bank and European Investment Bank. Canadian bonds are
bonds issued by Canadian provinces.
ZERO-COUPON OBLIGATIONS--Non-income producing securities
evidencing ownership of future interest and principal
payments on bonds. 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
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<PAGE> 123
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.
44
<PAGE> 124
HighMark MONEY MARKET FUNDS
INVESTMENT PORTFOLIOS OF
HighMark FUNDS
For further information (including current
yield, purchase and redemption information),
call 1-800-433-6884
INVESTMENT ADVISOR
Pacific Alliance Capital Management,
a division of Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
SEI Fund Resources and
SEI Financial Services Company
Oaks, Pennsylvania 19456
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
<PAGE> 125
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 HIGHMARK OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY HIGHMARK OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
NOT FDIC INSURED
<PAGE> 126
[HIGHMARK LOGO]
HIGHMARK FUNDS
TRS-17236(R12/95)
<PAGE> 127
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
HIGHMARK FUNDS
INTERNATIONAL EQUITY FUND
HighMark Funds ("HighMark") is an open-end, diversified, registered investment
company that offers a convenient means of investing in one or more
professionally managed portfolios of securities. This Prospectus relates to
HighMark's International Equity Fund.
FIDUCIARY SHARES
HighMark's Fiduciary Shares are offered to the following investors: (i)
fiduciary, advisory, agency, custodial and other similar accounts maintained
with Union Bank of California, N.A. or its affiliates; (ii) SelectIRA accounts
established with The Bank of California, N.A. and invested in any of HighMark'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 HighMark'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 Union Bank of
California, N.A., HighMark's current or former distributors or their respective
affiliated companies who currently own Shares of HighMark Funds which were
purchased before April 30, 1997.
This Prospectus sets forth concisely the information about HighMark and the
International Equity Fund that a prospective investor should know before
investing. Investors are advised to read this Prospectus and retain it for
future reference. A Statement of Additional Information dated the same date as
this Prospectus has been filed with the Securities and Exchange Commission and
is available without charge by writing the Distributor, SEI Financial Services
Company, Oaks, Pennsylvania 19456, or by calling 1-800-433-6884. The Statement
of Additional Information is incorporated into this Prospectus by reference.
This Prospectus relates only to the Fiduciary Shares of the International Equity
Fund. Interested persons who wish to obtain a prospectus for the other Funds of
HighMark may contact the Distributor at the above address and telephone number.
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.
HIGHMARK'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, INCLUDING UNION BANK OF CALIFORNIA, N.A., BANK OF
TOKYO-MITSUBISHI, LIMITED OR ANY OF THEIR AFFILIATES OR CORRESPONDENTS.
HIGHMARK'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN HIGHMARK INVOLVES
RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
February 26, 1997
Fiduciary Shares
<PAGE> 128
SUMMARY
HIGHMARK FUNDS ("HighMark") is an open-end, diversified, registered investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Fiduciary Shares of the HighMark International Equity Fund (the "International
Equity Fund" or the "Fund"). This summary is qualified in its entirety by
reference to the more detailed information provided elsewhere in the Prospectus
and in the Statement of Additional Information.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The International Equity Fund seeks to
provide long-term capital appreciation by investing primarily in a diversified
portfolio of equity securities of non-U.S. issuers. (See "INVESTMENT OBJECTIVE")
WHAT ARE THE FUND'S PERMITTED INVESTMENTS? The Fund primarily invests,
consistent with its investment objective, in equity securities including common
stocks and securities convertible into common stocks of non-U.S. issuers. The
Fund may also invest consistent with its investment objective and policies in
certain other instruments. (See "INVESTMENT POLICIES")
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE INTERNATIONAL EQUITY FUND?
The investment policies of the Fund entail certain risks and considerations of
which an investor should be aware. The Fund may purchase common stocks and other
equity securities that are volatile and which may fluctuate in value more than
other types of investments. In addition, the Fund will invest in securities of
foreign companies that involve special risks and considerations not typically
associated with investing in U.S. companies. (See "Risk Factors")
ARE MY INVESTMENTS INSURED? HighMark's Shares are not federally insured by the
FDIC or any other government agency. Any guarantee by the U.S. Government, its
agencies or any instrumentalities of the securities in which the Fund invests
guarantees only the payment of principal and interest on the guaranteed
security, and does not guarantee the total return or value of the security or
total return or value of Shares of the Fund.
WHO IS THE ADVISOR? Pacific Alliance Capital Management, a division of Union
Bank of California, N.A., serves as the Advisor to HighMark. (See "The Advisor")
WHO IS THE SUB-ADVISOR? Tokyo-Mitsubishi Asset Management (U.K.), Ltd. serves as
the Sub-Advisor to the Fund. (See "The Sub-Advisor")
WHO IS THE ADMINISTRATOR? SEI Fund Resources serves as the Administrator of
HighMark. (See "The Administrator")
WHO IS THE CUSTODIAN? Union Bank of California, N.A. (the "Bank") serves as the
custodian of HighMark's assets. (See "The Custodian")
WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as distributor of
HighMark's Shares. (See "The Distributor")
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment is generally $1,000. A purchase order will be
effective if
2
<PAGE> 129
the Distributor receives an order prior to 1:00 p.m., Pacific time (4:00 p.m.,
Eastern time) and the Custodian receives Federal funds before the close of
business on the next Business Day. Purchase orders for Shares will be executed
at a per Share price equal to the asset value next determined after the purchase
order is received and accepted by HighMark. Redemption orders must be placed
prior to 1:00 p.m., Pacific time (4:00 p.m., Eastern time) on any Business Day
for the order to be effective that day. (See "PURCHASE AND REDEMPTION OF
SHARES")
HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gains) of the Fund is periodically declared and paid as a
dividend to Shareholders of record. Any capital gain is distributed at least
annually. Distributions are paid in additional shares unless the Shareholder
elects to take the payment in cash. (See "DIVIDENDS")
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................................. 2
International Equity Fund Fee Table..................................................... 4
Fund Description........................................................................ 5
Investment Objective.................................................................... 5
Investment Policies..................................................................... 5
General................................................................................. 6
Money Market Instruments.............................................................. 6
Illiquid and Restricted Securities.................................................... 7
Lending of Portfolio Securities....................................................... 7
Other Investments..................................................................... 7
Risk Factors.......................................................................... 8
Investment Limitations.................................................................. 9
Portfolio Turnover.................................................................... 10
Purchase and Redemption of Shares....................................................... 10
Exchange Privileges..................................................................... 12
Dividends............................................................................... 13
Federal Taxation........................................................................ 13
Service Arrangements.................................................................... 15
The Advisor........................................................................... 15
The Sub-Advisor....................................................................... 16
Administrator......................................................................... 16
The Transfer Agent.................................................................... 17
Shareholder Service Plan.............................................................. 17
Distributor........................................................................... 17
Banking Laws.......................................................................... 17
Custodian............................................................................. 18
General Information..................................................................... 18
Description of HighMark & Its Shares.................................................. 18
Performance Information............................................................... 19
Miscellaneous......................................................................... 19
Description of Permitted Investments.................................................... 20
</TABLE>
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<PAGE> 130
INTERNATIONAL EQUITY FUND FEE TABLE
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY FUND
FIDUCIARY
SHARES
-------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)......................... 0%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).............. 0%
Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as
applicable)....................................................................................... 0%
Redemption Fees (as a percentage of amount redeemed, if applicable)(b).............................. 0%
Exchange Fee(a)..................................................................................... $ 0
ANNUAL OPERATING EXPENSES (as a percentage of net assets)
Management Fees..................................................................................... 0.95%
12b-1 Fees.......................................................................................... 0.00%
Other Expenses (after voluntary reduction)(c)....................................................... 0.31%
Total Fund Operating Expenses(d).................................................................... 1.26%
=====
</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>
3 5 10
1 YEAR YEARS YEARS YEARS
------ ------ ------ -------
<S> <C> <C> <C> <C>
International Equity Fund Fiduciary Shares.................. $ 13 $ 40 $ 69 $ 152
</TABLE>
The purpose of the table above is to assist an investor in the International
Equity Fund in understanding the various costs and expenses that a Shareholder
will bear directly or indirectly. For a more complete discussion of the Fund's
annual operating expenses, see SERVICE ARRANGEMENTS below. THE FOREGOING EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ---------------
(a) Certain entities (including Union Bank of California and its affiliates)
making investments in the International Equity Fund on behalf of their
customers may charge customers fees for services provided in connection with
the investment in, redemption of, and exchange of Shares. (See PURCHASE AND
REDEMPTION OF SHARES, EXCHANGE PRIVILEGES, and SERVICE ARRANGEMENTS--
below.)
(b) A wire redemption charge is deducted from the amount of a wire redemption
payment made at the request of a Shareholder. (See PURCHASE AND REDEMPTION
OF SHARES below.)
(c) OTHER EXPENSES are based on the Fund's estimated expenses for the current
fiscal year. Absent voluntary fee waivers, OTHER EXPENSES would be 0.58% for
the Fiduciary Shares of the International Equity Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be 1.53%
for the Fiduciary Shares of the International Equity Fund.
4
<PAGE> 131
FUND
DESCRIPTION HighMark Funds ("HighMark") is an open-end, diversified,
registered investment company that currently offers units
of beneficial interest ("Shares") in sixteen separate
investment portfolios ("Funds"). All of the Funds are
advised by Pacific Alliance Capital Management (the
"Advisor"), a division of Union Bank of California, N.A.
Shareholders may purchase Shares of selected Funds through
two separate classes (the "Retail" and "Fiduciary"
classes). These classes may have different sales charges
and other expenses, which may affect performance.
Information regarding HighMark's other Funds and other
classes is contained in separate prospectuses that may be
obtained from HighMark's Distributor, SEI Financial
Services Company, at Oaks, Pennsylvania 19456, or by
calling 1-800-433-6884.
For information concerning those investors who qualify
to purchase Fiduciary Shares, see PURCHASE AND REDEMPTION
OF SHARES below. (Fiduciary Shares may be hereinafter
referred to as "Shares.")
INVESTMENT
OBJECTIVE The International Equity Fund seeks to provide long-term
capital appreciation by investing primarily in a
diversified portfolio of equity securities of non-U.S.
issuers.
The investment objective and certain of the investment
limitations of the International Equity Fund may not be
changed without a vote of the holders of a majority of the
outstanding Shares of the Fund (as defined under GENERAL
INFORMATION--Miscellaneous below). There can be no
assurance that the Fund will achieve its investment
objective.
INVESTMENT
POLICIES Under normal market conditions, at least 65% of the
Fund's assets will be invested in the following equity
securities of non-U.S. issuers: common stocks, securities
convertible into common stocks, preferred stocks, warrants
and rights to purchase common stock. Under normal market
conditions, at least 65% of the Fund's total assets will
be invested in securities of issuers organized under the
laws of at least five countries other than the United
States that are included in the Morgan Stanley Capital
International Europe, Australia and Far East Index (the
"EAFE Index").(1) Countries may be over- or under-weighted
in comparison to the EAFE Index based upon the Advisor's
and Sub-Advisors's view of forecasted rates of returns.
Regional and individual country weightings, therefore, may
vary from the EAFE Index benchmark. The Advisor and
Sub-Advisor will select individual securities for the Fund
on the basis of their growth opportunities or
undervaluation in relation to other securities. The Fund
expects its investments to emphasize companies with market
capitalizations in excess of $100,000,000.
- ---------------
(1)"MSCI-EAFE Index" is a registered service mark of Morgan Stanley Capital
International which does not sponsor and is in no way affiliated with the
International Equity Fund.
5
<PAGE> 132
The Fund will typically invest in equity securities
listed on recognized foreign exchanges, but may also
invest up to 15% of its total assets in securities traded
in over-the-counter markets. Equity securities of non-U.S.
issuers may also be purchased in the form of sponsored or
unsponsored American Depositary Receipts ("ADRs") and
sponsored or unsponsored European Depositary Receipts
("EDRs").
The Fund may enter into forward foreign currency
contracts as a hedge against possible variations in
foreign exchange rates. A forward foreign currency
contract is a commitment to purchase or sell a specified
currency at a specified date, at a specified price. The
Fund may enter into forward foreign currency contracts to
hedge a specific security transaction or to hedge a
portfolio position. These contracts may be bought and sold
to protect the Fund, to some degree, against a possible
loss resulting from an adverse change in the relationship
between foreign currencies. The Fund may also invest in
options on currencies.
The premium paid on options on securities positions will
not exceed 10% of the Fund's net assets at the time such
options are entered into by the Fund. The aggregate
premium paid on all options on stock indices will not
exceed 20% of the Fund's total assets.
The Fund's remaining assets may be invested in
investment grade bonds and debentures issued by non-U.S.
or U.S. companies, obligations of supranational entities,
securities issued or guaranteed by foreign and U.S.
governments, and foreign and U.S. commercial paper.
Certain of these instruments may have floating or variable
interest rate provisions. In addition, the Fund may invest
in securities of issuers whose principal activities are in
countries with emerging markets. The Fund defines an
emerging market country as any country whose economy and
market the World Bank or the United Nations considers to
be emerging or developing. The Fund may also purchase
shares of closed-end investment companies that invest in
the securities of issuers in a single country or region
and shares of open-end management investment companies.
GENERAL Money Market Instruments
Under normal market conditions, the International Equity
Fund may invest up to 35% of its total assets in money
market instruments. When market conditions indicate a
temporary "defensive" investment strategy as determined by
the Advisor, the Fund may invest more than 35% of its
total assets in money market instruments. The Fund will
not be pursuing its investment objective to the extent
that a substantial portion of its assets are invested in
money market instruments.
6
<PAGE> 133
Illiquid and Restricted Securities
The International Equity Fund shall limit investment in
illiquid securities to 15% or less of its net assets.
Generally, an "illiquid security" is any security that
cannot be disposed of promptly and in the ordinary course
of business at approximately the amount at which the Fund
has valued the instrument. The absence of a trading market
can make it difficult to ascertain the market value of
illiquid securities. The Fund may purchase restricted
securities which have not been registered under the
Securities Act of 1933 (e.g., Rule 144A Securities and
Section 4(2) commercial paper) subject to policies
approved by the Board of Trustees. See INVESTMENT
RESTRICTIONS in the Statement of Additional Information.
Lending of Portfolio Securities
In order to generate additional income, the Fund may
lend its portfolio securities to broker-dealers, banks or
other institutions. The Fund may lend portfolio securities
in an amount representing up to 33 1/3% of the value of
the Fund's total assets.
Other Investments
The Fund may enter into repurchase agreements and
reverse repurchase agreements.
The International Equity Fund may enter into forward
commitments or purchase securities on a "when-issued"
basis. The International Equity Fund expects that
commitments by it to enter into forward commitments or
purchase when-issued securities will not exceed 25% of the
value of the Fund's total assets under normal market
conditions. The Fund does not intend to purchase when-
issued securities or forward commitments for speculative
or leveraging purposes but only for the purpose of
acquiring portfolio securities.
The International Equity Fund may invest up to 5% of its
total assets in the shares of any one registered
investment company, but may not own more than 3% of the
securities of any one registered investment company or
invest more than 10% of its assets in the securities of
other registered investment companies. In accordance with
an exemptive order issued to HighMark by the SEC, such
other registered investment company securities may include
shares of a money market fund of HighMark, and may include
registered investment companies for which the Advisor or
Sub-Advisor to a Fund of HighMark, or an affiliate of such
Advisor or Sub-Advisor, serves as investment advisor,
administrator or distributor. Because other investment
companies employ an investment advisor, such investment by
a Fund may cause Shareholders to bear duplicative fees.
The Advisor will waive its fees attributable to the assets
of the investing Fund invested
7
<PAGE> 134
in a money market fund of HighMark, and, to the extent
required by applicable law, the Advisor will waive its
fees attributable to the assets of the Fund invested in
any investment company. Some Funds are subject to
additional restrictions on investment in other investment
companies. See "INVESTMENT RESTRICTIONS" in the Statement
of Additional Information.
The Fund may invest in futures and options on futures
for the purpose of achieving the Fund's objectives. The
Fund may invest in futures and related options based on
any type of security or index traded on U.S. or foreign
exchanges or over the counter, as long as the underlying
security or securities represented by an index, are
permitted investments of the Fund. Such futures contracts
may include index contracts and contracts for foreign
currencies. The Fund may enter into futures contracts and
options on futures only to the extent that its obligations
under such contracts or transactions, together with
options on securities or indices represent not more than
25% of the Fund's assets.
For further information, see "DESCRIPTION OF PERMITTED
INVESTMENTS."
Risk Factors
Since the Fund invests in equity securities, the Fund's
Shares will fluctuate in value, and thus may be more
suitable for long-term investors who can bear the risk of
short-term fluctuations.
There may be certain risks connected with investing in
foreign securities, including risks of adverse political
and economic developments (including possible governmental
seizure or nationalization of assets), the possible
imposition of exchange controls or other governmental
restrictions, including less uniformity in accounting and
reporting requirements, the possibility that there will be
less information on such securities and their issuers
available to the public, the difficulty of obtaining or
enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in
effecting repatriation of capital invested abroad, and
difficulties in transaction settlements and the effect of
delay on shareholder equity. Foreign securities may be
subject to foreign taxes, which reduce yield, and may be
less marketable than comparable U.S. securities. The value
of the Fund's investments denominated in foreign
currencies will depend on the relative strengths of those
currencies and the U.S. dollar, and the Fund may be
affected favorably or unfavorably by changes in the
exchange rates or exchange control regulations between
foreign currencies and the U.S. dollar. Changes in foreign
currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized
on the sale of securities, and net investment income and
gains, if any, to be distributed to Shareholders by the
Fund.
8
<PAGE> 135
Forward foreign currency contracts do not eliminate
fluctuations in the underlying prices of securities.
Rather, they simply establish a rate of exchange which one
can achieve at some future point in time. Additionally,
although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency at
the same time, they tend to limit any potential gain which
might result, should the value of such currency increase.
The Fund's investments in emerging markets can be
considered speculative, and therefore, may offer higher
potential for gains and losses than developed markets of
the world. With respect to any emerging country, there is
the greater potential for nationalization, expropriation
or confiscatory taxation, political changes, government
regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies
of such countries or investments in such countries. In
addition, it may be difficult to obtain and enforce a
judgment in the courts of such countries. The economies of
developing countries generally are heavily dependent upon
international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers,
exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed
or negotiated by the countries with which they trade.
Securities rated BBB by Standard & Poor's Corporation
("S&P") or Baa by Moody's Investors Service, Inc.
("Moody's") are deemed by these ratings services to have
some speculative characteristics and adverse economic
conditions or other circumstances are more likely to lead
to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds.
INVESTMENT The International Equity Fund may not:
LIMITATIONS
1) Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government,
its agencies, or instrumentalities, and repurchase
agreements involving such securities if, immediately after
the purchase, more than 5% of the value of the 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). For purposes of this investment
limitation, each foreign governmental issuer is deemed a
separate issuer.
2) Purchase any securities that would cause more than
25% of the 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
9
<PAGE> 136
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) Make loans, except that the Fund may purchase or hold
debt instruments, lend portfolio securities, and enter
into repurchase agreements in accordance with its
investment objective and policies.
The foregoing percentages will apply at the time of the
purchase of a security. The investment limitations listed
above are fundamental policies the substance of which may
not be changed without a vote of a majority of the
outstanding Shares of the Fund. Additional fundamental and
non-fundamental investment limitations are set forth in
the Statement of Additional Information.
Portfolio Turnover
The Fund's portfolio turnover rate will not be a factor
preventing a sale or purchase when the Advisor believes
investment considerations warrant. The Fund's 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 Fund and could involve
the realization of capital gains that would be taxable
when distributed to Shareholders of the Fund. See FEDERAL
TAXATION.
PURCHASE AND
REDEMPTION
OF SHARES Fiduciary Shares may be purchased at net asset value.
Only the following investors qualify to purchase the
International Equity Fund's Fiduciary Shares: (i)
fiduciary, advisory, agency, custodial and other similar
accounts maintained with Union Bank of California, N.A. or
its affiliates; (ii) Select IRA accounts established with
The Bank of California, N.A. and invested in any of
HighMark'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 HighMark'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 Union Bank of California, N.A., HighMark's current
or former distributors or their respective affiliated
companies who currently own Shares of HighMark Funds which
were purchased before April 30, 1997.
Purchases and redemptions of Shares of the International
Equity Fund may be made on days on which both the New York
Stock Exchange and Federal Reserve
10
<PAGE> 137
wire system are open for business ("Business Days"). The
minimum initial investment is generally $1,000 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
Union Bank of California, SEI Financial Services Company
and their affiliates, the minimum initial investment is
$250 and the minimum subsequent investment is $50. The
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, or 401(k) or similar plans. However, the minimum
investment may be waived in the Distributor's discretion.
Shareholders may place orders by telephone.
Purchase orders will be effective if the Distributor
receives an order before 1:00 p.m., Pacific time (4:00
p.m., Eastern time) and the custodian receives Federal
funds before the close of business on the next Business
Day. The purchase price of Shares of a Fund is the net
asset value next determined after a purchase order is
received and accepted by HighMark. The net asset value per
Share of a Fund is determined by dividing the total market
value of a Fund's investments and other assets, less any
liabilities, by the total number of outstanding Shares of
a Fund. Net asset value per share is determined daily as
of 1:00 p.m., Pacific time (4:00 p.m., Eastern time) on
any Business Day. Purchases will be made in full and
fractional shares of HighMark calculated to three decimal
places. HighMark reserves the right to reject a purchase
order when the Distributor determines that it is not in
the best interest of HighMark and/or its Shareholders to
accept such order.
Shares of the International Equity Fund are offered only
to residents of states in which the shares are eligible
for purchase.
Shareholders who desire to redeem shares of HighMark
must place their redemption orders prior to 1:00 p.m.,
Pacific time (4:00 p.m., Eastern time), on any Business
Day for the order to be accepted on that Business Day. The
redemption price is the net asset value of the Fund next
determined after receipt by the Distributor of the
redemption order. Payment on redemption will be made as
promptly as possible and, in any event, within seven
calendar days after the redemption order is received. The
Fund reserves the right to make payment for redemptions in
securities rather than cash.
Neither HighMark's transfer agent nor HighMark will be
responsible for any loss, liability, cost or expense for
acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine.
HighMark and its transfer agent will each employ
reasonable procedures to confirm that telephone
instructions are genuine. Such procedures may include
taping of telephone conversations. If market conditions
are extraordinarily active or other extraordinary
11
<PAGE> 138
circumstances exist, and you experience difficulties
placing redemption orders by telephone, you may wish to
consider placing your order by other means.
EXCHANGE
PRIVILEGES As indicated under GENERAL INFORMATION--Description of
HighMark & Its Shares, certain of HighMark's Funds issue
two classes of Shares (Retail Shares and Fiduciary
Shares); as of the date of this Prospectus, the
Distribution Plan and distribution fee payable thereunder
are applicable only to such Fund's Retail 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 HighMark which the
Shareholder qualifies to purchase directly so long as the
Shareholder maintains the applicable minimum account
balance in each Fund in which he or she owns Shares and
satisfies the minimum initial and subsequent purchase
amounts of the Fund into which the Shares are exchanged.
Shareholders may exchange their Fiduciary Shares for
Fiduciary Shares of another Fund on the basis of the
relative net asset value of the Fiduciary Shares
exchanged. Shareholders may also exchange Fiduciary Shares
of a Fund for Retail Shares of another Fund. Under such
circumstances, the cost of the acquired Retail Shares will
be the net asset value per share plus the appropriate
sales load.
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 Union 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 the
International Equity Fund may do so by contacting the
transfer agent at 1-800-433-6884. 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 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
12
<PAGE> 139
of HighMark may legally be sold. HighMark may materially
amend or terminate the exchange privileges described
herein upon sixty days' notice.
DIVIDENDS Substantially all of the net investment income
(exclusive of capital gains) of the Fund is periodically
declared and paid as a dividend to Shareholders of record.
Currently, capital gains of the Fund, if any, will be
distributed at least annually.
Shareholders will automatically receive all income
dividends and capital gains distributions in additional
full and fractional Shares of the Fund at net asset value
as of the date of declaration (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 transfer agent at P.O. Box 8416, Boston, MA
02266-8416, 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 The International Equity 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 the 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 when received by the Fund if the Fund were a
regular corporation, and to the extent designated by the
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 International Equity
Fund, the impact of dividends or capital gain
distributions that are expected to be declared or have
13
<PAGE> 140
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 advisor for specific advice
about the tax consequences to the Shareholder of investing
in the Fund.
Fund investments in foreign securities may be subject to
withholding taxes at the source on dividend or interest
payments. In that case, the Fund's yield on those
securities would be decreased. If at the end of the Fund's
fiscal year more than 50% of the value of its total assets
represents securities of foreign corporations, the Fund
intends to make an election permitted by the Internal
Revenue Code to treat any foreign taxes paid by it as paid
by its Shareholders. In this case, Shareholders who are
U.S. citizens, U.S. corporations and, in some cases, U.S.
residents generally will be required to include in U.S.
taxable income their pro rata share of such taxes, but may
then generally be entitled to claim a foreign tax credit
or deduction (but not both) for their share of such taxes.
Fund transactions in foreign currencies and hedging
activities may give rise to ordinary income or loss to the
extent such income or loss results from fluctuations in
value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book
income and taxable income. This difference may cause a
portion of the Fund's income distributions to constitute a
return of capital for tax purposes or require the Fund to
make distributions exceeding book income to qualify as a
regulated investment company for tax purposes.
Investment in an entity that qualifies as a "passive
foreign investment company" under the Code could subject
the Fund to a U.S. federal income tax or other charge on
certain "excess distributions" received with respect to
the investment, and on the proceeds from disposition of
the investment.
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
the 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.
14
<PAGE> 141
SERVICE
ARRANGEMENTS The Advisor
Pacific Alliance Capital Management, a division of Union
Bank of California, N.A., serves as the International
Equity Fund's investment advisor. Subject to the general
supervision of HighMark's Board of Trustees, the Advisor
manages the Fund in accordance with its investment
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.
For the expenses assumed and services provided by the
Advisor as the Fund's investment advisor, Union Bank of
California receives a fee from the International Equity
Fund, computed daily and paid monthly, at the annual rate
of ninety-five one-hundredths of one percent (.95%) of the
Fund's average daily net assets. 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. Union Bank of California may from time to
time agree to voluntarily reduce its advisory fee,
however, it is not currently doing so. While there can be
no assurance that Union Bank of California will choose to
make such an agreement, any voluntary reductions in Union
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.
On April 1, 1996, the Bank of California, N.A.,
HighMark's then investment advisor, combined with Union
Bank and the resulting bank changed its name to Union Bank
of California, N.A. At the same time, the banks'
investment management divisions were combined. Each of
Union Bank and The Bank of California, N.A. (or their
predecessor banks) has been in banking since the early
1900's and, historically, each has had significant
investment functions within its trust and investment
division. UnionBanCal Corporation, the parent of Union
Bank of California, N.A., is a publicly held corporation,
but is principally held by The Bank of Tokyo-Mitsubishi,
Ltd. As of September 30, 1996, Union Bank of California
and its subsidiaries had approximately $28.7 billion in
commercial assets. Pacific Alliance Capital Management is
a division of Union Bank of California's Trust and
Investment Management Group which, as of June 30 1996, had
approximately $13.4 billion of assets under management.
The Advisor, with a team of approximately 45 stock and
bond research analysts, portfolio managers and traders,
has been providing investment management services to
individuals, institutions and large corporations since
1917.
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The Sub-Advisor
The Advisor and Tokyo-Mitsubishi Asset Management
(U.K.), Ltd. (the "Sub-Advisor"), have entered into an
investment subadvisory agreement relating to the Fund (the
"Investment Sub-Advisory Agreement"). Under the Investment
Sub-Advisory Agreement, the Sub-Advisor makes the
day-to-day investment decisions for the assets of the
Fund, subject to the supervision of, and policies
established by, the Advisor and the Trustees of HighMark.
HighMark's Shares are not sponsored, endorsed or
guaranteed by and do not constitute obligations or
deposits of the Sub-Advisor and are not guaranteed by the
FDIC or any other governmental agency.
Tokyo-Mitsubishi Asset Management (U.K.), Ltd., 12-15
Finsbury Circus, London EC2 M7BT operates as a subsidiary
of The Bank of Tokyo-Mitsubishi, Ltd. Established in 1989,
the Sub-Advisor provides active global investment services
for segregated funds and specialist fund management.
Prior to February 1995 the Sub-Advisor had not
previously served as the investment advisor to mutual
funds. As of April 1, 1996 Tokyo-Mitsubishi Asset
Management (U.K.), Ltd., managed assets of $2.2 billion in
individual portfolios and collective funds.
The Sub-Advisor is entitled to a fee, which is
calculated daily and paid monthly out of the Advisor's
fee, at an annual rate of .30% of the average daily net
assets of the Fund.
Andrew Richmond has served as portfolio manager of the
Fund since its inception. Mr. Richmond has been with the
SubAdvisor and its predecessor, Bank of Tokyo Asset
Management (U.K.), Ltd., since 1990, and has served as
senior equity investment manager since June, 1992.
Administrator
SEI Fund Resources (the "Administrator") and HighMark
are parties to an administration agreement (the
"Administration Agreement"). Under the terms of the
Administration Agreement, the Administrator provides
HighMark with certain management services, including all
necessary office space, equipment, personnel, and
facilities.
The Administrator is entitled to a fee, which is
calculated daily and paid monthly, at an annual rate of
.20% of the average daily net assets of the Funds. The
Administrator may waive its fee or reimburse various
expenses to the extent necessary to limit the total
operating expenses of a Fund's Fiduciary Shares. Any such
waiver is voluntary and may be terminated at any time in
the Administrator's sole discretion. Currently, the
Administrator has agreed to waive its fee to the rate of
.18% of the average daily net assets of the Funds.
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Pursuant to a separate agreement with the Administrator,
Union Bank of California, N.A. performs sub-administration
services on behalf of the Fund, for which it receives a
fee paid by the Administrator at the annual rate of up to
0.05% of the average daily net assets of the Fund. Union
Bank of California has voluntarily agreed to reduce this
fee to 0.03%, but reserves the right to terminate its
waiver at any time in its sole discretion. A description
of the services performed by Union Bank of California
pursuant to this Agreement is contained in the Statement
of Additional Information.
The Transfer Agent
State Street Bank and Trust Company serves as the
transfer agent, dividend disbursing agent, and as a
shareholder servicing agent for the Fiduciary Shares of
HighMark, for which services it receives a fee.
Shareholder Service Plan
To support the provision of Shareholder services to both
classes of Shares, HighMark has adopted a Shareholder
Service Plan. A description of the services performed by
service providers pursuant to the Shareholder Service Plan
is contained in the Statement of Additional Information.
In consideration of services provided by any service
provider, which may include Union Bank of California,
N.A., Bank of Tokyo-Mitsubishi, Ltd., or their respective
affiliates, the Fund may pay a fee at the rate of up to
0.25% of its average daily net assets to such service
provider. The service provider may waive such fees at any
time. Any such waiver is voluntary and may be terminated
at any time. Currently, such fees are being waived to the
rate of 0.00% of average daily net assets.
Distributor
SEI Financial Services Company (the "Distributor") and
HighMark are parties to a distribution agreement
("Distribution Agreement"). The Distribution Agreement is
renewable annually and may be terminated by the
Distributor, by a majority vote of the Disinterested
Trustees or by a majority vote of the outstanding
securities of HighMark upon not more than 60 days written
notice by either party, or upon assignment by the
Distributor. Fiduciary Shares are not subject to
HighMark's Distribution Plan or a distribution fee.
Banking Laws
Union Bank of California believes that it may perform
the services for the Fund contemplated by its investment
advisory agreement with HighMark without a violation of
applicable banking laws and regulations. Union Bank of
California also believes that it may perform
sub-administration and sub-accounting services on behalf
of the Fund without a violation of applicable banking laws
and regulations. Future changes in federal or state
statutes and regulations relating to
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<PAGE> 144
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 Union Bank of California or the
Advisor could continue to perform such services for the
Fund. For a further discussion of applicable banking laws
and regulations, see the Statement of Additional
Information.
Custodian
Union Bank of California also serves as the custodian
and as a shareholder servicing agent for the International
Equity Fund. The custodian holds cash, securities and
other assets of HighMark as required by the 1940 Act.
Services performed by Union Bank of California, as the
Fund's shareholder servicing 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 HighMark & Its Shares
HighMark was organized as a Massachusetts business trust
on March 10, 1987, and consists of sixteen series of
Shares open for investment representing units of
beneficial interest in HighMark's Growth Fund, Income
Equity Fund, Balanced Fund, Value Momentum Fund, Blue Chip
Growth Fund, Emerging Growth Fund, International Equity
Fund, Bond Fund, Intermediate-Term Bond Fund, Government
Securities Fund, Convertible Securities Fund, California
Intermediate Tax-Free Bond Fund, Diversified Money Market
Fund, U.S. Government Obligations Money Market Fund, 100%
U.S. Treasury Obligations Money Market Fund, and
California Tax-Free Money Market Fund. As of the date
hereof, no Shares of the Value Momentum Fund, the Blue
Chip Growth Fund, the Emerging Growth Fund, the
International Equity Fund, the Intermediate-Term Bond
Fund, the Convertible Securities Fund, the Government
Securities Fund and the California Intermediate Tax-Free
Bond Fund had been offered for sale in HighMark. 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 HighMark were liquidated,
would receive a pro rata share of the net assets
attributable to that Fund. Shares are without par value.
As noted above, pursuant to a Multiple Class Plan on
file with the Securities and Exchange Commission
permitting the issuance and sale of two classes of Shares
in selected Funds, Shares of such Funds have been divided
into two classes, designated Retail Shares and Fiduciary
Shares. For information regarding the Retail Shares,
interested persons may contact the Distributor at
1-800-433-6884.
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Performance Information
From time to time, HighMark may advertise the aggregate
total return, average annual total return, yield and
distribution rate with respect to the Fiduciary Shares of
the International Equity Fund.
The aggregate total return and average annual total
return of the Fund may be quoted for the life of the Fund
and for ten-year, five-year, three-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 the 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 the
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 the Fund would have experienced on an annual basis from
changes in Share price and reinvestment of dividends and
capital gain distributions.
The yield of the 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 the 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.
Each Fund may periodically compare its performance to
the performance of other mutual funds tracked by mutual
fund rating services (such as Lipper Analytical);
financial and business publications and periodicals; broad
groups of comparable mutual funds; unmanaged indices which
may assume investment of dividends but generally do not
reflect deductions for administrative and management
costs, or other investment alternatives. Certain Funds may
advertise performance that includes results from periods
in which the Fund's assets were managed in a
non-registered predecessor vehicle.
All performance information presented for the Fund is
based on past performance and does not predict future
performance.
Miscellaneous
Shareholders will be sent unaudited semi-annual reports
and annual reports audited by independent public
accountants.
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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 HighMark will vote in the aggregate
and not by series or class except (i) as otherwise
expressly required by law or when HighMark'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
Retail Shares will be entitled to vote on matters
submitted to a Shareholder vote relating to the
Distribution Plan. HighMark is not required to hold
regular annual meetings of Shareholders, but may hold
special meetings from time to time.
HighMark'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 SEI Financial Services Company,
Oaks, Pennsylvania 19456, or by calling toll free
1-800-433-6884.
DESCRIPTION OF
PERMITTED
INVESTMENTS The following is a description of permitted investments
for the HighMark International Equity Fund.
AMERICAN DEPOSITARY RECEIPTS (ADRs) and EUROPEAN
DEPOSITARY RECEIPTS ("EDRs")--Receipts, typically issued
by a U.S. financial institution (a "depositary"), that
evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with
the depositary. ADRs include American Depositary Shares
and New York Shares. EDRs, which are sometimes referred to
as Continental Depositary Receipts ("CDRs'), are receipts,
typically issued by a non-U.S. financial institution, that
evidence ownership interests in a security or a pool of
securities issued by either a U.S. or foreign issuer.
ADRs, EDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A
sponsored facility is established jointly by the issuer of
the security underlying the receipt and a depositary,
whereas an unsponsored facility may be established by a
depositary without participation by the issuer of the
receipt's underlying security. Holders of an unsponsored
depositary receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored
facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the
deposited security or to pass through to the holders of
the receipts voting rights with respect to the deposited
securities.
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<PAGE> 147
ASSET-BACKED SECURITIES (NON-MORTGAGE)--Instruments
secured by company receivables, truck and auto loans,
leases, and credit card receivables. Such securities are
generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the
underlying pools of assets. Such securities also may be
debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a
special purpose entity, such as a trust, organized solely
for the purpose of owning such assets and issuing such
debt. The purchase of non-mortgage assetbacked securities
raises risk considerations peculiar to the financing of
the instruments underlying such securities. Asset-backed
securities entail prepayment risk, which may vary
depending on the type of asset, but is generally less than
the prepayment risk associated with mortgage-backed
securities.
Like mortgages underlying mortgage-backed securities,
underlying automobile sales contracts or credit card
receivables are subject to substantial prepayment risk,
which may reduce the overall return to certificate
holders. Nevertheless, principal prepayment rates tend not
to vary as much in response to changes in 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 their
investment objectives and policies, the Fund may invest in
other asset-backed securities that may be developed in the
future.
BANKERS' ACCEPTANCES--Bills of exchange or time drafts
drawn on and accepted by commercial banks. They are used
by corporations to finance the shipment and storage of
goods and to furnish dollar exchange. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT--Negotiable interest-bearing
instruments with a specific maturity. Certificates of
deposit are issued by banks and savings and loan
institutions in exchange for the deposit of funds and
normally can be traded in the secondary market prior to
maturity.
COMMERCIAL PAPER--Unsecured short-term promissory notes
issued by corporations and other entities. Maturities on
these issues vary from a few days to nine months. Purchase
of such instruments involves a risk of default by the
issuer.
CONVERTIBLE BONDS AND CONVERTIBLE PREFERRED STOCK--
Convertible Bonds are bonds convertible into a set number
of shares of another form of security (usually common
stock) at a prestated price. Convertible bonds
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have characteristics similar to both fixed-income and
equity securities. Convertible preferred stock is a class
of capital stock that pays dividends at a specified rate
and that has preference over common stock in the payment
of dividends and the liquidation of assets. Convertible
preferred stock is preferred stock exchangeable for a
given number of common stock shares, and has
characteristics similar to both fixed-income and equity
securities. Because of the conversion feature, the market
value of convertible bonds and convertible preferred stock
tend to move together with the market value of the
underlying stock. As a result, a Fund's selection of
convertible bonds and convertible preferred stock is
based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The
value of convertible bonds and convertible preferred stock
is also affected by prevailing interest rates, the credit
quality of the issuer and any call provisions.
DERIVATIVES--Instruments whose value is derived from an
underlying contract, index or security, or any combination
thereof, including futures, options (e.g., puts and
calls), options on futures, swap agreements, and some
mortgage-backed securities (CMOs, REMICs, IOs and POs).
See elsewhere in this "DESCRIPTION OF PERMITTED
INVESTMENTS" for discussions of these various instruments,
and see "INVESTMENT OBJECTIVES" and "INVESTMENT POLICIES"
for more information about any policies and limitations
applicable to their use.
FORWARD FOREIGN CURRENCY CONTRACTS--The Fund may conduct
its foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through entering into
forward currency contracts to protect against uncertainty
in the level of future exchange rates between particular
currencies or between foreign currencies in which the
Fund's securities are or may be denominated. A forward
contract involves an obligation to purchase or sell a
specific currency amount at a future date, which may be
any fixed number of days from the date of the contract,
agreed upon by the parties, at a price set at the time of
the contract. Under normal circumstances, consideration of
the prospect for changes in currency exchanges rates will
be incorporated into the Fund's long-term investment
strategies. However, the Advisor and Sub-Advisor believe
that it is important to have the flexibility to enter into
forward currency contracts when it determines that the
best interests of the Fund will be served.
When the Advisor and Sub-Advisor believe that the
currency of a particular country may suffer a significant
decline against another currency, the Fund may enter into
a currency contract to sell, for the appropriate currency,
the amount of foreign currency approximating the value of
some or all of the Fund's securities denominated in such
foreign currency.
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<PAGE> 149
At the maturity of a forward contract, the Fund may
either sell a fund security and make delivery of the
foreign currency, or it may retain the security and
terminate its contractual obligations to deliver the
foreign currency by purchasing an "offsetting" contract
with the same currency trader, obligating it to purchase
on the same maturity date, the same amount of the foreign
currency. The Fund may realize a gain or loss from
currency transactions.
FUTURES AND OPTIONS ON FUTURES--Some futures strategies,
including selling futures, buying puts and writing calls,
reduce a Fund's exposure to price fluctuations. Other
strategies, including buying futures, writing puts and
buying calls, tend to increase market exposure. Futures
and options may be combined with each other in order to
adjust the risk and return characteristics of the overall
portfolio.
Options and futures can be volatile instruments, and
involve certain risks that, if applied at an inappropriate
time, could negatively impact a Fund's return.
INVESTMENT GRADE BONDS--Interest-bearing or discounted
government or corporate securities that obligate the
issuer to pay the bondholder a specified sum of money,
usually at specific intervals, and to repay the principal
amount of the loan at maturity. Investment grade bonds are
those rated BBB or better by S&P or Baa or better by
Moody's or similarly rated by other NRSROs, or, if not
rated, determined to be of comparable quality by the
Advisor.
MONEY MARKET INSTRUMENTS--Short-term, debt instruments
or deposits and may include, for example, (i) commercial
paper rated within the highest rating category by a NRSRO
at the time of investment, or, if not rated, determined by
the Advisor to be of comparable quality; (ii) obligations
(certificates of deposit, time deposits, bank master
notes, and bankers' acceptances) of thrift institutions,
savings and loans, U.S. commercial banks (including
foreign branches of such banks), and U.S. and foreign
branches of foreign banks, provided that such institutions
(or, in the case of a branch, the parent institution) have
total assets of $1 billion or more as shown on their last
published financial statements at the time of investment;
(iii) short-term corporate obligations rated within the
three highest rating categories by a NRSRO (e.g., at least
A by S&P or A by Moody's) at the time of investment, or,
if not rated, determined by the Advisor to be of
comparable quality; (iv) general obligations issued by the
U.S. Government and backed by its full faith and credit,
and obligations issued or guaranteed as to principal and
interest by agencies or instrumentalities of the U.S.
Government (e.g., obligations issued by Farmers Home
Administration, Government National Mortgage Association,
Federal Farm Credit Bank and Federal Housing
Administration); (v) receipts, including TRs, TIGRs and
CATS; (vi) repurchase agreements involving such
obligations; (vii) loan participations issued by a bank in
the United States with assets exceeding $1 billion and for
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<PAGE> 150
which the underlying loan is issued by borrowers in whose
obligations the Fund may invest; (viii) money market funds
and (ix) foreign commercial paper.
Certain of the obligations in which a Fund may invest
may be variable or floating rate instruments, may involve
conditional or unconditional demand features and may
include variable amount master demand notes.
OBLIGATIONS OF SUPRANATIONAL ENTITIES--Obligations of
supranational entities are established through the joint
participation of several governments, and include the
Asian Development Bank, the Inter-American Development
Bank, International Bank for Reconstruction and
Development (World Bank), African Development Bank,
European Economic Community, European Investment Bank and
the Nordic Investment Bank.
OPTIONS--Under a call option, the purchaser of the
option has the right to purchase, and the writer (the
Fund) the obligation to sell, the underlying security at
the exercise price during the option period. A put option
gives the purchaser the right to sell, and the writer the
obligation to purchase, the underlying security at the
exercise price during the option period.
In addition, certain Funds may buy options on stock
indices to invest cash on an interim basis. Such options
will be listed on a national securities exchange. In order
to close out an option position, a Fund may enter into a
"closing purchase transaction"--the purchase of an option
on the same security with the same exercise price and
expiration date as the option contract previously written
on any particular security. When the security is sold, a
Fund effects a closing purchase transaction so as to close
out any existing option on that security.
There are risks associated with such investments
including the following: (1) the success of a hedging
strategy may depend on the ability of the Advisor or
Sub-Advisor to predict movements in the prices of
individual securities, fluctuations in markets and
movements in interest rates; (2) there may be an imperfect
correlation between the movement in prices of securities
held by a Fund and the price of options; (3) there may not
be a liquid secondary market for options; and (4) while a
Fund will receive a premium when it writes covered call
options, it may not participate fully in a rise in the
market value of the underlying security.
OPTIONS ON CURRENCIES--The Fund may purchase options and
write covered call options on foreign currencies (traded
on U.S. and foreign exchanges or over-the-counter markets)
to manage the Fund's exposure to changes in dollar
exchange rates. Call options on foreign currency written
by the Fund will be "covered" which means that the Fund
will own an equal amount of the underlying foreign
currency. With respect to put options on foreign currency
written by the Fund, the Fund will establish a segregated
account with its Custodian consisting of cash, U.S.
government securities or other liquid high
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<PAGE> 151
grade debt securities in an amount of equal to the amount
the Fund would be required to pay upon exercise of the
put.
RECEIPTS--Interests in separately traded interest and
principal component parts of U.S. Treasury obligations
that are issued by banks and brokerage firms and are
created by depositing Treasury notes and Treasury bonds
into a special account at a custodian bank. The custodian
holds the interest and principal payments for the benefit
of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and
maintains the register. Receipts include "Treasury
Receipts" ("TR's"), "Treasury Investment Growth Receipts"
("TIGR's"), and "Certificates of Accrual on Treasury
Securities" ("CATS"). TR's, TIGR's and CATS are sold as
zero coupon securities, which means that they are sold at
a substantial discount and redeemed at face value at their
maturity date without interim cash payments of interest or
principal. This discount is accreted over the life of the
security, and such accretion will constitute the income
earned on the security for both accounting and tax
purposes. Because of these features, such securities may
be subject to greater interest rate volatility than
interest-paying securities. See also "FEDERAL TAXATION."
REPURCHASE AGREEMENTS--Agreements whereby a 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 agreements entered into by the Funds will
provide that the underlying security at all times shall
have a value equal to 102% of the resale price stated in
the agreement. Repurchase agreements involving government
securities are not subject to a Fund's fundamental
investment limitation on purchasing securities of any one
issuer. 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").
REVERSE REPURCHASE AGREEMENTS--A 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 10%
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
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<PAGE> 152
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 102% of 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 1940 Act.
RULE 144A SECURITIES--Rule 144A Securities are
securities that have not been registered under the
Securities Act of 1933, but which may be traded between
certain qualified institutional investors, including
investment companies. The absence of a secondary market
may affect the value of the Rule 144A Securities. The
Board of Trustees of HighMark has established guidelines
and procedures to be utilized to determine the liquidity
of such securities.
SECURITIES ISSUED ON A FORWARD COMMITMENT BASIS OR
WHEN-ISSUED SECURITIES--Securities 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 or enter
into forward commitments, HighMark's custodian will be
instructed to 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. Therefore,
the purchase of securities on a "when-issued" basis or
forward commitments may increase the risk of fluctuations
in a Fund's net asset value.
SECURITIES LENDING--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
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<PAGE> 153
form of cash or U.S. Government securities. This
collateral will be valued daily by the lending agent, with
oversight by the Advisor, and, should the market value of
the loaned securities increase, the borrower will be
required to furnish additional collateral to the Fund.
SECURITIES SUBJECT TO A PUT FEATURE--A "put" feature
permits a Fund to sell a fixed income security at a fixed
price prior to maturity. The underlying fixed income
securities subject to a put may be sold at any time at the
market rates. However, unless the put was an integral part
of the fixed income security as originally issued, it may
not be marketable or assignable. Generally, a premium is
paid for a put feature or a put feature is purchased
separately which results in a lower yield than would
otherwise be available for the same fixed income
securities.
STANDARD & POOR'S DEPOSITARY RECEIPTS (SPDRs)--SPDRs are
interests in a unit investment trust holding a portfolio
of securities linked to the S&P 500 Index. SPDRs closely
track the underlying portfolio of securities, trade like a
share of common stock and pay periodic dividends
proportionate to those paid by the portfolio of stocks
that constitutes the S&P 500 Index. For further
information regarding SPDRs, see the Statement of
Additional Information.
TIME DEPOSITS--Non-negotiable receipts issued by U.S. or
foreign banks in exchange for the deposit of funds. Like
certificates of deposit, they earn a specified rate of
interest over a definite period of time; however, they
cannot be traded in the secondary market. Time deposits
with a withdrawal penalty are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCY SECURITIES--Certain Federal
agencies have been established as instrumentalities of the
U.S. Government to supervise and finance certain types of
activities. Issues of these agencies, while not direct
obligations of the U.S. Government, are either backed by
the full faith and credit of the United States (e.g., GNMA
securities) or supported by the issuing agencies' right to
borrow from the U.S. Treasury. The issues of other
agencies are supported only by the credit of the
instrumentality (e.g., FNMA securities).
U.S. TREASURY OBLIGATIONS--Bills, notes, and bonds
issued by the U.S. Treasury, as well as separately traded
interest and principal component parts of such obligations
known as Separately Traded Registered Interest and
Principal Securities ("STRIPS") that are transferable
through the Federal book-entry system.
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 yields available from otherwise comparable
corporate fixed-income securities.
27
<PAGE> 154
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 a
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.
VARIABLE AND FLOATING RATE INSTRUMENTS--Obligations that
may carry variable or floating rates of interest, may
involve conditional or unconditional demand features and
may include variable amount master demand notes. The
interest rates on these securities may be reset daily,
weekly, quarterly or some other reset period, and may have
a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations
may not accurately reflect existing market interest rates.
A demand instrument with a demand notice period exceeding
seven days may be considered illiquid if there is no
secondary market for such security.
WARRANTS--Securities that entitle the holder to buy a
proportionate amount of common stock at a specified price
for a limited or unlimited period of time. Warrants are
often freely transferable and are traded on major stock
exchanges.
YANKEE BONDS--Dollar denominated securities issued by
foreign-domiciled issuers that obligate the issuer to pay
the bondholder a specified sum of money, usually
semiannually, and to repay the principal amount of the
loan at maturity. Sovereign bonds are bonds issued by the
governments of foreign countries. Supranational bonds are
those issued by supranational entities, such as the World
Bank and European Investment Bank. Canadian bonds are
bonds issued by Canadian provinces.
ZERO-COUPON OBLIGATIONS--Non-income producing securities
evidencing ownership of future interest and principal
payments on bonds. 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
28
<PAGE> 155
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.
29
<PAGE> 156
HighMark INTERNATIONAL EQUITY FUND
INVESTMENT PORTFOLIO OF
HighMark FUNDS
For further information (including current
yield, purchase and redemption information),
call 1-(800) 433-6884
INVESTMENT ADVISOR
Pacific Alliance Capital Management,
a division of Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
SUB-ADVISOR
Tokyo-Mitsubishi Asset Management (U.K.), Ltd.
12-15 Finsbury Circus
London EC2 M7BT
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
SEI Fund Resources and
SEI Financial Services Company
Oaks, Pennsylvania 19456
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
<PAGE> 157
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
HIGHMARK FUNDS
CONVERTIBLE SECURITIES FUND
HighMark Funds ("HighMark") is an open-end, diversified, registered investment
company that offers a convenient means of investing in one or more
professionally managed portfolios of securities. This Prospectus relates to
HighMark's Convertible Securities Fund.
FIDUCIARY SHARES
HighMark's Fiduciary Shares are offered to the following investors: (i)
fiduciary, advisory, agency, custodial and other similar accounts maintained
with Union Bank of California, N.A. or its affiliates; (ii) SelectIRA accounts
established with The Bank of California, N.A. and invested in any of HighMark's
Equity or Fixed 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 HighMark's Equity or
Fixed 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
Union Bank of California, N.A., HighMark's current or former distributors or
their respective affiliated companies who currently own Shares of HighMark Funds
which were purchased before April 30, 1997.
This Prospectus sets forth concisely the information about HighMark and the
Convertible Securities Fund that a prospective investor should know before
investing. Investors are advised to read this Prospectus and retain it for
future reference. A Statement of Additional Information dated the same date as
this Prospectus has been filed with the Securities and Exchange Commission and
is available without charge by writing the Distributor, SEI Financial Services
Company, Oaks, Pennsylvania 19456, or by calling 1-800-433-6884. The Statement
of Additional Information is incorporated into this Prospectus by reference.
This Prospectus relates only to the Fiduciary Shares of the Convertible
Securities Fund. Interested persons who wish to obtain a prospectus for the
other Funds of HighMark may contact the Distributor at the above address and
telephone number.
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.
HIGHMARK'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, INCLUDING UNION BANK OF CALIFORNIA, N.A., BANK OF
TOKYO-MITSUBISHI, LIMITED OR ANY OF THEIR AFFILIATES OR CORRESPONDENTS.
HIGHMARK'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN HIGHMARK INVOLVES
RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
February 26, 1997
Fiduciary Shares
<PAGE> 158
SUMMARY
HIGHMARK FUNDS ("HIGHMARK") is an open-end, diversified, registered investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Fiduciary Shares of the HighMark Convertible Securities Fund (the "Convertible
Securities Fund" or the "Fund"). This summary is qualified in its entirety by
reference to the more detailed information provided elsewhere in the Prospectus
and in the Statement of Additional Information.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks a high level of current
income and capital appreciation by investing in convertible securities. (See
"INVESTMENT OBJECTIVE")
WHAT ARE THE FUND'S PERMITTED INVESTMENTS? The Fund invests primarily in
convertible securities, including bonds, debentures, notes and preferred stocks
convertible into common stock. (See "INVESTMENT POLICIES")
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUND? The investment
policies of the Fund entail certain risks and considerations of which an
investor should be aware. The market value of the Fund's fixed income
investments will change in response to interest rate changes and other factors.
During periods of falling interest rates, the value of outstanding fixed income
securities generally rise. Conversely, during periods of rising interest rates,
the values of such securities generally decline. The Fund may invest up to 35%
of its assets in convertible bonds rated lower than Baa by Moody's Investors
Service, Inc. ("Moody's") or BBB by Standard & Poor's Corporation ("S&P") and as
low as Caa by Moody's or CCC by S&P, which are lower-quality, higher-yielding,
high-risk debt securities. (See "Risk Factors")
ARE MY INVESTMENTS INSURED? HighMark's Shares are not federally insured by the
FDIC or any other government agency. Any guarantee by the U.S. Government, its
agencies or any instrumentalities of the securities in which any Fund invests
guarantees only the payment of principal and interest on the guaranteed
security, and does not guarantee the total return or value of the security or
total return or value of Shares of that Fund.
WHO IS THE ADVISOR? Pacific Alliance Capital Management, a division of Union
Bank of California, N.A., serves as the Advisor to HighMark. (See "The Advisor")
WHO IS THE SUB-ADVISOR? Bank of Tokyo-Mitsubishi Trust Company serves as the
Sub-Advisor to the Convertible Securities Fund. (See "The Sub-Advisor")
WHO IS THE ADMINISTRATOR? SEI Fund Resources serves as the Administrator of
HighMark. (See "The Administrator")
WHO IS THE CUSTODIAN? Union Bank of California, N.A., (the "Bank") serves as the
custodian of HighMark's assets. (See "The Custodian")
WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as distributor of
HighMark's Shares. (See "The Distributor")
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for
2
<PAGE> 159
business ("Business Days"). The minimum initial investment is generally $1,000.
A purchase order will be effective if the Distributor receives an order prior to
1:00 p.m., Pacific time (4:00 p.m., Eastern time). Purchase orders for Shares
will be executed at a per Share price equal to the asset value next determined
after the purchase order is effective. Redemption orders must be placed prior to
1:00 p.m., Pacific time (4:00 p.m., Eastern time) on any Business Day for the
order to be effective that day. (See "PURCHASE AND REDEMPTION OF SHARES")
HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gains) of the Fund is distributed in the form of monthly
dividends to Shareholders of record. Any capital gain is distributed at least
annually. Distributions are paid in additional Shares unless the Shareholder
elects to take the payment in cash. (See "DIVIDENDS")
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................................ 2
Convertible Securities Fund Fee Table.................................................. 4
Fund Description....................................................................... 5
Investment Objective................................................................... 5
Investment Policies.................................................................... 5
General................................................................................ 6
Money Market Instruments.............................................................. 6
Illiquid and Restricted Securities.................................................... 6
Lending of Portfolio Securities....................................................... 7
Other Investments..................................................................... 7
Risk Factors.......................................................................... 8
Risks Associated with Convertible Securities.......................................... 9
Investment Limitations................................................................. 9
Portfolio Turnover.................................................................... 10
Purchase and Redemption of Shares...................................................... 10
Exchange Privileges.................................................................... 12
Dividends.............................................................................. 13
Federal Taxation....................................................................... 13
Service Arrangements................................................................... 14
The Advisor........................................................................... 14
The Sub-Advisor....................................................................... 15
Administrator......................................................................... 16
The Transfer Agent.................................................................... 17
Shareholder Service Plan.............................................................. 17
Distributor........................................................................... 17
Banking Laws.......................................................................... 17
Custodian............................................................................. 18
General Information.................................................................... 18
Description of Highmark & Its Shares................................................. 18
Performance Information.............................................................. 18
Miscellaneous........................................................................ 19
Description of Permitted Investments................................................... 20
</TABLE>
3
<PAGE> 160
CONVERTIBLE SECURITIES FUND FEE TABLE
<TABLE>
<CAPTION>
CONVERTIBLE
SECURITIES FUND
FIDUCIARY
SHARES
---------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)...................... 0.00%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)........... 0%
Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as 0%
applicable)....................................................................................
Redemption Fees (as a percentage of amount redeemed, if applicable)(b)........................... 0%
Exchange Fee(a).................................................................................. $ 0
ANNUAL OPERATING EXPENSES (as a percentage of net assets)
Management Fees (after voluntary reduction)(c)................................................... 0.59%
12b-1 Fees....................................................................................... 0.00%
Other Expenses (after voluntary reduction)(d).................................................... 0.26%
---
Total Fund Operating Expenses (after voluntary reduction)(e)..................................... 0.85%
==============
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Convertible Securities Fund Fiduciary Shares.................... $9 $27 $47 $105
</TABLE>
The purpose of the tables above is to assist an investor in the Convertible
Securities Fund in understanding the various costs and expenses that a
Shareholder will bear directly or indirectly. For a more complete discussion of
the Fund's annual operating expenses, see SERVICE ARRANGEMENTS below. THE
FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ---------
(a) Certain entities (including Union Bank of California and its affiliates)
making investments in the Convertible Securities Fund on behalf of their
customers may charge customers fees for services provided in connection
with the investment in, redemption of, and exchange of Shares. (See
PURCHASE AND REDEMPTION OF SHARES, EXCHANGE PRIVILEGES, and SERVICE
ARRANGEMENTS below)
(b) A wire redemption charge is deducted from the amount of a wire redemption
payment made at the request of a Shareholder.
(c) Absent voluntary fee waivers, MANAGEMENT FEES would be .60% for the
Fiduciary Shares of the Convertible Securities Fund.
(d) OTHER EXPENSES for the Convertible Securities Fund are based on the Fund's
estimated expenses for the current fiscal year. Absent voluntary fee
waivers, OTHER EXPENSES would be .53% for the Fiduciary Shares of the
Convertible Securities Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be: 1.13%
for the Fiduciary Shares of the Convertible Securities Fund.
4
<PAGE> 161
FUND
DESCRIPTION HighMark Funds ("HighMark") is an open-end, diversified,
registered investment company that currently offers units
of beneficial interest ("Shares") in sixteen separate
investment portfolios ("Funds"). All of the Funds are
advised by Pacific Alliance Capital Management (the
"Advisor"), a division of Union Bank of California, N.A.
Shareholders may purchase Shares of selected Funds through
two separate classes (the "Retail" and "Fiduciary"
classes). These classes may have different sales charges
and other expenses, which may affect performance.
Information regarding HighMark's other Funds and other
classes is contained in separate prospectuses that may be
obtained from HighMark's Distributor, SEI Financial
Services Company, at Oaks, Pennsylvania 19456, or by
calling 1-800-433-6884.
For information concerning those investors who qualify
to purchase Fiduciary Shares, see PURCHASE AND REDEMPTION
OF SHARES below. (Fiduciary Shares may be hereinafter
referred to as "Shares.")
INVESTMENT
OBJECTIVE The Convertible Securities Fund seeks a high level of
current income and capital appreciation by investing in
convertible securities.
The investment objective and certain of the investment
limitations of the Convertible Securities Fund may not be
changed without a vote of the holders of a majority of the
outstanding Shares of the Fund (as defined under GENERAL
INFORMATION--Miscellaneous below). There can be no
assurance that the Fund will achieve its investment
objective.
INVESTMENT
POLICIES Under normal market conditions, at least 65% of the
Convertible Securities Fund's assets will be invested in
convertible securities consisting of bonds, debentures,
notes and preferred stocks each of which are convertible
into common stock. In general, a convertible security is a
fixed-income security such as a bond (which typically pays
a fixed annual rate of interest) or preferred stock (which
typically pays a fixed dividend), that may be converted at
a stated price within a specified period of time into a
specified number of shares of common stock of the issuing
company, or of a different company. A convertible security
may be subject to redemption by the issuer, but only after
a particular date and under certain circumstances
(including a specified price) established upon issue. If a
convertible security held by the Fund is called for
redemption, the Fund could be required to tender it for
redemption, convert it into the underlying common stock,
or sell it to a third party. Common stock received upon
conversion will be sold when, in the opinion of the
Sub-Advisor, it is advisable to do so.
Because of its conversion feature, the market value of
convertible preferred stock tends to move together with
the market value of the underlying common stock. As a
result, the Fund's selection of convertible securities is
based, to a great extent, on the potential for capital
appreciation that may exist in the underlying
5
<PAGE> 162
common stocks. The value of convertible securities is also
affected by prevailing interest rates, the credit quality
of the issuer and any call provisions. Investments in
convertible securities generally entail less volatility
than investments in the common stocks of the same issuers.
Nevertheless, it is the fixed income component of these
securities that is often deemed by the ratings agencies to
be high risk or speculative. The Fund may invest up to 35%
of its assets in convertible bonds rated lower than Baa by
Moody's or BBB by S&P and as low as Caa by Moody's or CCC
by S&P, which are lower-quality, higher-yielding, high-
risk debt securities (commonly known as "junk bonds"). The
Fund may also invest in unrated convertible securities
which, in the Sub-Advisor's opinion, are of comparable
quality to such rated securities. See "Risk Factors."
In the event that a security owned by the Fund is
downgraded below the stated ratings categories, the
Advisor or SubAdvisor will take appropriate action with
regard to the security.
The Fund may invest any remaining assets in common
stocks; securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities; corporate
bonds rated Baa or better by Moody's or BBB or better by
S&P (investment grade bonds); shares of other investment
companies with similar investment objectives; high grade
commercial paper; money market funds; money market
instruments and cash; floating and variable rate notes;
repurchase agreements; dollardenominated securities of
foreign issuers; and Standard and Poor's Depositary
Receipts ("SPDRs").
GENERAL Money Market Instruments
Under normal market conditions, the Fund may invest up
to 35% of its total assets in money market instruments.
When market conditions indicate a temporary "defensive"
investment strategy as determined by the Advisor or Sub-
Advisor, the Fund may invest more than 35% of its total
assets in money market instruments. The Fund will not be
pursuing its investment objective to the extent that a
substantial portion of its assets are invested in money
market instruments.
Illiquid and Restricted Securities
The Fund shall limit investment in illiquid securities
to 15% or less of its net assets. Generally, an "illiquid
security" is any security that cannot be disposed of
promptly and in the ordinary course of business at
approximately the amount at which the Fund has valued the
instrument. The absence of a trading market can make it
difficult to ascertain the market value of illiquid
securities. The Fund may purchase restricted securities
which have not been registered under the Securities Act of
1933 (e.g., Rule 144A Securities and Section 4(2)
commercial paper)
6
<PAGE> 163
subject to policies approved by the Board of Trustees. See
INVESTMENT RESTRICTIONS in the Statement of Additional
Information.
Lending of Portfolio Securities
In order to generate additional income, the Fund may
lend its portfolio securities to broker-dealers, banks or
other institutions. The Fund may lend portfolio securities
in an amount representing up to 33 1/3% of the value of
the Fund's total assets.
Other Investments
The Fund may enter into repurchase agreements and
reverse repurchase agreements.
The Fund may enter into forward commitments or purchase
securities on a "when-issued" basis. The Fund expects that
commitments by it to enter into forward commitments or
purchase when-issued securities will not exceed 25% of the
value of the Fund's total assets under normal market
conditions. The Fund does not intend to purchase
when-issued securities or forward commitments for
speculative or leveraging purposes but only for the
purpose of acquiring portfolio securities.
The Fund may invest up to 5% of its total assets in the
securities of any one registered investment company, but
may not own more than 3% of the securities of any one
registered investment company or invest more than 10% of
its assets in the securities of other registered
investment companies. In accordance with an exemptive
order issued to HighMark by the SEC, such other registered
investment company securities may include securities of a
money market fund of HighMark, and such companies may
include registered investment companies for which the
Advisor or a Sub-Advisor to a Fund of HighMark, or an
affiliate of such Advisor or Sub-Advisor serves as
investment advisor, administrator or distributor. Because
other registered investment companies employ an investment
advisor, such investment by the Fund may cause
Shareholders to bear duplicative fees. The Advisor will
waive its fees attributable to the assets of the investing
Fund invested in a money market fund of HighMark, and, to
the extent required by applicable law, the Advisor will
waive its fees attributable to the assets of the Fund
invested in any investment company. Some Funds are subject
to additional restrictions on investment in other
investment companies. See "INVESTMENT RESTRICTIONS" in the
Statement of Additional Information.
For further information, see "DESCRIPTION OF PERMITTED
INVESTMENTS."
7
<PAGE> 164
Risk Factors
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 Fund 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 the Fund's portfolio. Therefore, an investment in the
Fund 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.
The Fund's shares will fluctuate in value with the value
of the underlying securities in its portfolio. Because of
their fixed income features, however, convertible
securities are expected to fluctuate in value to a lesser
degree than the common stock into which they are
convertible.
Changes by recognized rating agencies in the rating of
any fixed income security and in the ability of an issuer
to make payments of interest and principal also affect the
value of these investments. Changes in the value of Fund
securities will not affect cash income derived from these
securities, but will affect the Fund's net asset value.
The Fund may invest in securities issued or guaranteed
by foreign corporations or foreign governments, their
political subdivisions, agencies or instrumentalities and
obligations of supranational entities such as the World
Bank and the Asian Development Bank. 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 the Fund 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 Convertible Securities
Fund will not hold foreign currency for investment
purposes.
Securities rated BBB by S&P or Fitch or Baa by Moody's
are considered investment grade, but are deemed by these
rating services to have some speculative characteristics,
and adverse economic conditions or other circumstances are
more likely to lead to a weakened capacity to make
principal and interest payments than is the case with
higher grade bonds.
8
<PAGE> 165
Risks Associated with Convertible Securities
Investments in lower-rated debt securities (i.e.,
securities rated lower than BBB by S&P or Baa by Moody's),
in which the Fund may invest, bear certain risks,
including the risk that such securities may be thinly
traded, which can adversely affect the price at which
these securities can be sold and can result in high
transaction costs. Market quotations may not be available,
and therefore, judgment plays a greater role in valuing
lower-rated debt securities than securities for which more
extensive quotations and last sale information are
available. Adverse publicity and changing investor
perceptions may affect the ability of outside pricing
services to value lower-rated debt securities, and the
Fund's ability to dispose of these securities.
The market price of lower-rated debt securities may
decline significantly in periods of general economic
difficulty which may follow periods of rising interest
rates. During an economic downturn or a prolonged period
of rising interest rates, the ability of issuers of
lower-rated debt to meet their payment obligation on these
securities may be impaired.
The Fund may invest in securities which are rated as low
as 'Caa' by Moody's or 'CCC' by S&P. Securities rated
'Caa' by Moody's are of poor standing and may be in
default or may present elements of danger with respect to
principal or interest. Debt rated 'CCC' by S&P is regarded
as having speculative characteristics with respect to
capacity to pay interest and repay principal. In the event
of adverse business, financial, and economic conditions,
debt rated 'CCC' is not likely to have the capacity to
repay principal.
INVESTMENT
LIMITATIONS The Fund may not:
1) Purchase securities of any issuer (except securities
issued or guaranteed by the U.S. Government or its
agencies and instrumentalities and repurchase agreements
involving such securities) if as a result more than 5% of
the total assets of the Fund would be invested in the
securities of such issuer. This restriction applies to 75%
of the Fund's assets.
2) Purchase any securities which would cause more than
25% of the total assets of the Fund to be invested in the
securities of one or more issuers conducting their
principal business activities in the same industry,
provided that this limitation does not apply to
investments in the obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities and
repurchase agreements involving such securities, and
provided further, that utilities as a group will not be
considered to be one industry, and wholly-owned
subsidiaries organized to finance the operations of their
parent companies will be considered to be in the same
industries as their parent companies.
9
<PAGE> 166
3) Make loans, except that the Fund may (a) purchase or
hold debt instruments in accordance with its investment
objective and policies, (b) enter into repurchase
agreements, and (c) engage in securities lending as
described in this Prospectus and in the Statement of
Additional Information.
The foregoing percentages will apply at the time of the
purchase of a security. The investment limitations listed
above are fundamental policies the substance of which may
not be changed without a vote of a majority of the
outstanding Shares of the Fund. Additional fundamental and
non-fundamental investment limitations are set forth in
the Statement of Additional Information.
Portfolio Turnover
The Fund's portfolio turnover rate be a factor
preventing a sale or purchase when the Advisor or
Sub-Advisor believes investment considerations warrant.
The Fund's 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 Fund and could involve the realization of
capital gains that would be taxable when distributed to
Shareholders of the Fund. See "FEDERAL TAXATION."
PURCHASE AND
REDEMPTION
OF SHARES Fiduciary Shares may be purchased at net asset value.
Only the following investors qualify to purchase the
Convertible Securities Fund's Fiduciary Shares: (i)
fiduciary, advisory, agency, custodial and other similar
accounts maintained with Union Bank of California, N.A. or
its affiliates; (ii) SelectIRA accounts established with
The Bank of California, N.A. and invested in any of
HighMark's Equity or Fixed 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 HighMark's Equity
or Fixed 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 Union Bank of California, N.A.,
HighMark's current or former distributors or their
respective affiliated companies who currently own Shares
of HighMark Funds which were purchased before April 30,
1997.
Purchases and redemptions of Shares of the Convertible
Securities Fund may be made on days on which the New York
Stock Exchange and the Federal Reserve wire system are
open for business ("Business Days"). The minimum initial
investment is generally $1,000 and the minimum subsequent
investment is generally $100. For present and retired
directors, officers, and employees (and their spouses and
children under the age of 21) of Union Bank of California,
SEI Financial Services Company and their affiliates, the
minimum initial investment is $250 and the minimum
subsequent investment is $50. The Fund's initial and
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subsequent minimum purchase amounts may be waived in the
Distributor's discretion if purchases are made in
connection with Individual Retirement Accounts, Keoghs,
payroll deduction plans, or 401(k) or similar program
accounts. Shareholders may place orders by telephone.
Purchase orders will be effective if the Distributor
receives an order before 1:00 p.m., Pacific time (4:00
p.m., Eastern time) and the custodian receives Federal
funds before the close of business on the next Business
Day. The purchase price of Shares of a Fund is the net
asset value next determined after a purchase order is
received and accepted by HighMark. The net asset value per
Share of a Fund is determined by dividing the total market
value of a Fund's investments and other assets, less any
liabilities, by the total number of outstanding Shares of
a Fund. Net asset value per Share is determined daily as
of 1:00 p.m., Pacific time (4:00 p.m., Eastern time) on
any Business Day. Purchases will be made in full and
fractional Shares of HighMark calculated to three decimal
places. HighMark reserves the right to reject a purchase
order when the Distributor determines that it is not in
the best interest of HighMark and/or its Shareholders to
accept such order.
Shares of the Convertible Securities Fund are offered
only to residents of states in which the Shares are
eligible for purchase.
Shareholders who desire to redeem shares of HighMark
must place their redemption orders prior to 1:00 p.m.,
Pacific time (4:00 p.m., Eastern time), on any Business
Day for the order to be accepted on that Business Day. The
redemption price is the net asset value of the Fund next
determined after receipt by the Distributor of the
redemption order. Payment on redemption will be made as
promptly as possible and, in any event, within seven
calendar days after the redemption order is received. The
Fund reserves the right to make payment on redemptions in
securities rather than cash.
Neither HighMark's transfer agent nor HighMark will be
responsible for any loss, liability, cost or expense for
acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine.
HighMark and its transfer agent will each employ
reasonable procedures to confirm that telephone
instructions are genuine. Such procedures may include
taping of telephone conversations. If market conditions
are extraordinarily active or other extraordinary
circumstances exist, and you experience difficulties
placing redemption orders by telephone, you may wish to
consider placing your order by other means.
EXCHANGE
PRIVILEGES As indicated under GENERAL INFORMATION--Description of
HighMark & Its Shares, certain of HighMark's Funds issue
two classes of Shares (Retail Shares and Fiduciary
Shares); as of the date of this Prospectus, the
Distribution Plan and distribution fee payable thereunder
are applicable only to such Fund's
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Retail 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 HighMark which the
Shareholder qualifies to purchase directly so long as the
Shareholder maintains the applicable minimum account
balance in each Fund in which he or she owns Shares and
satisfies the minimum initial and subsequent purchase
amounts of the Fund into which the Shares are exchanged.
Shareholders may exchange their Fiduciary Shares for
Fiduciary Shares of another Fund on the basis of the
relative net asset value of the Fiduciary Shares
exchanged. Shareholders may also exchange Fiduciary Shares
of a Fund for Retail Shares of another Fund. Under such
circumstances, the cost of the acquired Retail Shares will
be the net asset value per Share plus the appropriate
sales load.
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 Union 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 the
Convertible Securities Fund may do so by contacting the
transfer agent at 1-800-433-6884. 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 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 HighMark may legally be sold. HighMark may
materially amend or terminate the exchange privileges
described herein upon sixty days' notice.
DIVIDENDS The net income of the Convertible Securities Fund 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.
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Shareholders will automatically receive all income
dividends and capital gains distributions in additional
full and fractional Shares of the Fund at net asset value
as of the date of declaration (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 transfer agent at P.O. Box 8416, Boston, MA
02266-8416, 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 The Convertible Securities 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 the 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 when received by the Fund if the Fund were a
regular corporation, and to the extent designated by the
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 Convertible Securities
Fund, 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 advisor for specific advice
about the tax consequences to the Shareholder of investing
in the Fund.
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Fund investments in foreign securities may be subject to
withholding taxes at the source on dividend or interest
payments. In that case, the Fund's yield on those
securities would be decreased. The Fund does not expect to
be eligible to elect to permit shareholders to claim a
credit or deduction on their income tax return for their
pro rata share of such taxes.
Fund transactions in foreign currencies and hedging
activities may give rise to ordinary income or loss to the
extent such income or loss results from fluctuations in
value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book
income and taxable income. This difference may cause a
portion of the Fund's income distributions to constitute a
return of capital for tax purposes or require the Fund to
make distributions exceeding book income to qualify as a
regulated investment company for tax purposes.
Investments in an entity that qualifies as a "passive
foreign investment company" under the Code could subject
the Fund to a U.S. federal income tax or other charge on
certain "excess distributions" received with respect to
the investment, and on the proceeds from disposition of
the investment.
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
the 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 The Advisor
Pacific Alliance Capital Management, a division of Union
Bank of California, N.A., serves as the Convertible
Securities Fund's investment advisor. Subject to the
general supervision of HighMark's Board of Trustees, the
Advisor manages the Fund in accordance with its investment
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.
For the expenses assumed and services provided by the
Advisor as the Fund's investment advisor, Union Bank of
California receives a fee from the Convertible Securities
Fund, computed daily and paid monthly, at the annual rate
of sixty one-hundredths of one percent (.60%) of the
Fund's average daily net assets.
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<PAGE> 171
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. Union Bank of California may from time to
time agree to voluntarily reduce its advisory fee. While
there can be no assurance that Union Bank of California
will choose to make such an agreement, any voluntary
reductions in Union 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. As of the date of this
Prospectus, the Convertible Securities Fund had not yet
commenced operations.
On April 1, 1996, The Bank of California, N.A.,
HighMark's then investment advisor, combined with Union
Bank and the resulting bank changed its name to Union Bank
of California, N.A. At the same time, the banks'
investment management divisions were combined. Each of
Union Bank and The Bank of California, N.A. (or their
predecessor banks) has been in banking since the early
1900's and, historically, each has had significant
investment functions within its trust and investment
division. UnionBanCal Corporation, the parent of Union
Bank of California, N.A., is a publicly held corporation,
but is principally held by The Bank of Tokyo-Mitsubishi,
Ltd. As of September 30, 1996, Union Bank of California
and its subsidiaries had approximately $28.7 billion in
commercial assets. Pacific Alliance Capital Management is
a division of Union Bank of California's Trust and
Investment Management Group, which, as of June 30, 1996,
had approximately $13.4 billion of assets under
management. The Advisor, with a team of approximately 45
stock and bond research analysts, portfolio managers and
traders, has been providing investment management services
to individuals, institutions and large corporations since
1917.
The Sub-Advisor
The Advisor and Bank of Tokyo-Mitsubishi Trust Company
(the "Sub-Advisor") have entered into an investment
sub-advisory agreement relating to the Convertible
Securities Fund (the "Investment Sub-Advisory Agreement").
Under the Investment Sub-Advisory Agreement, the
Sub-Advisor makes the day-to-day investment decisions for
the assets of the Fund, subject to the supervision of, and
policies established by the Advisor and the Trustees of
HighMark.
Bank of Tokyo-Mitsubishi Trust Company, headquartered at
1251 Avenue of the Americas, New York, New York 10116, and
with offices at 100 Broadway, New York, New York 10005,
operates as a wholly-owned subsidiary of The Bank of
Tokyo-Mitsubishi, Ltd. The Sub-Advisor was formed by the
combination on April 1, 1996, of Bank of Tokyo Trust
Company, a wholly-owned subsidiary of The Bank of Tokyo,
Ltd., and Mitsubishi Bank Trust Company of New York, a
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wholly-owned subsidiary of The Mitsubishi Bank, Ltd. Bank
of Tokyo Trust Company was the surviving entity, and
changed its name to Bank of Tokyo-Mitsubishi Trust
Company. Prior to the combination, sub-advisory services
were provided by Bank of Tokyo Trust Company. Bank of
Tokyo Trust Company was established in 1955, and has
provided trust services since that time and management
services since 1965.
The Sub-Advisor serves as portfolio manager to bank
common funds, employee benefit funds and personal trust
accounts, managing assets in money market, equity and
fixed income portfolios. As of June 30, 1996, Bank of
Tokyo-Mitsubishi Trust Company managed $700 million in
individual portfolios and collective funds. In addition,
the Sub-Advisor also serves as the Sub-Advisor to
HighMark's Emerging Growth, Government Securities and Blue
Chip Growth Funds.
The Sub-Advisor is entitled to a fee, which is
calculated daily and paid monthly out of the Advisor's
fee, at an annual rate of .30% of the average daily net
assets of the Convertible Securities Fund.
The day-to-day management of the Convertible Securities
Fund's investments is the responsibility of a team of
investment professionals. Seth E. Shalov will be the team
leader for the Convertible Securities Fund. Mr. Shalov has
been a Senior Portfolio Manager with the Sub-Advisor and
its predecessor, Bank of Tokyo Trust Company since 1987.
Administrator
SEI Fund Resources (the "Administrator") and HighMark
are parties to an administration agreement (the
"Administration Agreement"). Under the terms of the
Administration Agreement, the Administrator provides
HighMark with certain management services, including all
necessary office space, equipment, personnel and
facilities.
The Administrator is entitled to a fee, which is
calculated daily and paid monthly, at an annual rate of
.20% of the Fund's average daily net assets. The
Administrator may waive its fee or reimburse various
expenses to the extent necessary to limit the total
operating expenses of the Fund's Fiduciary Shares. Any
such waiver is voluntary and may be terminated at any time
in the Administrator's sole discretion. Currently, the
Administrator has agreed to waive its fee to the rate of
.18% of the average daily net assets of the Fund.
Pursuant to a separate agreement with the Administrator,
Union Bank of California, N.A. performs sub-administration
services on behalf of the Fund, for which it receives a
fee paid by the Administrator at the annual rate of up to
0.05% of the Fund's average daily net assets. Union Bank
of California has voluntarily
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agreed to reduce this fee to 0.03%, but reserves the right
to terminate its waiver at any time in its sole
discretion. A description of the services performed by
Union Bank of California pursuant to this Agreement is
contained in the Statement of Additional Information.
The Transfer Agent
State Street Bank and Trust Company serves as the
transfer agent, dividend disbursing agent, and as a
shareholder servicing agent for the Fiduciary Shares of
HighMark, for which services it receives a fee.
Shareholder Service Plan
To support the provision of Shareholder services to both
classes of Shares, HighMark has adopted a Shareholder
Service Plan. A description of the services performed by
service providers pursuant to the Shareholder Service Plan
is contained in the Statement of Additional Information.
In consideration of services provided by any service
provider, which may include Union Bank of California,
N.A., Bank of Tokyo-Mitsubishi, Ltd., or their respective
affiliates, the Fund may pay a fee at the rate of up to
0.25% of its average daily net assets to such service
provider. The service provider may waive such fees at any
time. Any such waiver is voluntary and may be terminated
at any time. Currently, such fees are being waived to the
rate of 0.00% of average daily net assets.
Distributor
SEI Financial Services Company (the "Distributor") and
HighMark are parties to a distribution agreement
("Distribution Agreement"). The Distribution Agreement is
renewable annually and may be terminated by the
Distributor, by a majority vote of the Disinterested
Trustees or by a majority vote of the outstanding
securities of HighMark upon not more than 60 days written
notice by either party, or upon assignment by the
Distributor. Fiduciary Shares are not subject to
HighMark's Distribution Plan or a distribution fee.
Banking Laws
Union Bank of California believes that it may perform
the services for the Fund contemplated by its investment
advisory agreement with HighMark without a violation of
applicable banking laws and regulations. Union Bank of
California also believes that it may perform
sub-administration and sub-accounting services on behalf
of the Fund without a violation of applicable banking laws
and regulations. 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 Union Bank of California or the Advisor
could continue to perform such
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<PAGE> 174
services for the Fund. For a further discussion of
applicable banking laws and regulations, see the Statement
of Additional Information.
Custodian
Union Bank of California also serves as the custodian
and as a shareholder servicing agent for the Convertible
Securities Fund. The custodian holds cash securities and
other assets of HighMark as required by the 1940 Act.
Services performed by Union Bank of California, as the
Fund's shareholder servicing 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 HighMark & Its Shares
HighMark was organized as a Massachusetts business trust
on March 10, 1987, and consists of sixteen series of
Shares open for investment representing units of
beneficial interest in HighMark's Growth Fund, Income
Equity Fund, Balanced Fund, Value Momentum Fund, Blue Chip
Growth Fund, Emerging Growth Fund, International Equity
Fund, Bond Fund, Intermediate-Term Bond Fund, Government
Securities Fund, Convertible Securities Fund, California
Intermediate Tax-Free Bond Fund, Diversified Money Market
Fund, U.S. Government Obligations Money Market Fund, 100%
U.S. Treasury Obligations Money Market Fund, and
California Tax-Free Money Market Fund. As of the date
hereof, no Shares of the Value Momentum Fund, the Blue
Chip Growth Fund, the Emerging Growth Fund, the
International Equity Fund, the Intermediate-Term Bond
Fund, the Convertible Securities Fund, the Government
Securities Fund, and the California Intermediate Tax-Free
Bond Fund, had been offered for sale in HighMark. 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 HighMark were liquidated,
would receive a pro rata share of the net assets
attributable to that Fund. Shares are without par value.
As noted above, pursuant to a Multiple Class Plan on
file with the Securities and Exchange Commission
permitting the issuance and sale of two classes of Shares
in selected Funds, Shares of such Funds have been divided
into two classes, designated Retail Shares and Fiduciary
Shares. For information regarding the Retail Shares,
interested persons may contact the Distributor for a
prospectus at 1-800-433-6884.
Performance Information
From time to time, HighMark may advertise the aggregate
total return, average annual total return, yield and
distribution rate with respect to the Fiduciary Shares of
the Convertible Securities Fund.
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<PAGE> 175
The aggregate total return and average annual total
return of the Convertible Securities Fund may be quoted
for the life of the 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 the 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 the
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 the Fund would have experienced on an annual basis from
changes in Share price and reinvestment of dividends and
capital gain distributions.
The yield of the 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 the 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.
The Fund may periodically compare its performance to the
performance of other mutual funds tracked by mutual fund
rating services (such as Lipper Analytical), financial and
business publications and periodicals; broad groups of
comparable mutual funds; unmanaged indices which may
assume investment of dividends but generally do not
reflect deductions for administrative and management
costs; or other investment alternatives. The Fund may
advertise performance that includes results from periods
in which the Fund's assets were managed in a
non-registered predecessor vehicle.
All performance information presented for the Fund is
based on past performance and does not predict future
performance.
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 the 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 HighMark will vote in the aggregate
and not by series or class except (i) as
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<PAGE> 176
otherwise expressly required by law or when HighMark'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
Retail Shares will be entitled to vote on matters
submitted to a Shareholder vote relating to the
Distribution Plan. HighMark is not required to hold
regular annual meetings of Shareholders, but may hold
special meetings from time to time.
HighMark'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 SEI Financial
Services Company, Oaks, Pennsylvania 19456, or by calling
toll free 1-800-433-6884.
DESCRIPTION OF
PERMITTED
INVESTMENTS The following is a description of permitted investments
for the HighMark Convertible Securities Fund.
AMERICAN DEPOSITARY RECEIPTS (ADRs)--ADRs are receipts
typically issued by a U.S. financial institution that
evidence ownership of underlying securities issued by a
foreign issuer.
ASSET-BACKED SECURITIES (NON-MORTGAGE)--Debt Instruments
secured by company receivables, truck and auto loans,
leases, and credit card receivables. Such securities are
generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the
underlying pools of assets. Such securities also may be
debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a
special purpose entity, such as a trust, organized solely
for the purpose of owning such assets and issuing such
debt. The purchase of non-mortgage asset-backed securities
raises risk considerations peculiar to the financing of
the instruments underlying such securities. Asset-backed
securities entail prepayment risk, which may vary
depending on the type of asset, but is generally less than
the prepayment risk associated with mortgage-backed
securities.
Like mortgages underlying mortgage-backed securities,
underlying automobile sales contracts or credit card
receivables are subject to substantial prepayment risk,
which may reduce the overall return to certificate
holders. Nevertheless, principal prepayment rates tend not
to vary as much in response to changes in 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
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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 their
investment objectives and policies, the Fund may invest in
other asset-backed securities that may be developed in the
future.
BANKERS' ACCEPTANCES--Bills of exchange or time drafts
drawn on and accepted by commercial banks. They are used
by corporations to finance the shipment and storage of
goods and to furnish dollar exchange. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT--Negotiable interest-bearing
instruments with a specific maturity. Certificates of
deposit are issued by banks and savings and loan
institutions in exchange for the deposit of funds and
normally can be traded in the secondary market prior to
maturity.
COMMERCIAL PAPER--Unsecured short-term promissory notes
issued by corporations and other entities. Maturities on
these issues vary from a few days to nine months. Purchase
of such instruments involves a risk of default by the
issuer.
CONVERTIBLE BONDS AND CONVERTIBLE PREFERRED STOCK--
Convertible Bonds are bonds convertible into a set number
of shares of another form of security (usually common
stock) at a prestated price. Convertible bonds have
characteristics similar to both fixed-income and equity
securities. Convertible preferred stock is a class of
capital stock that pays dividends at a specified rate and
that has preference over common stock in the payment of
dividends and the liquidation of assets. Convertible
preferred stock is preferred stock exchangeable for a
given number of common stock shares, and has
characteristics similar to both fixed-income and equity
securities. Because of the conversion feature, the market
value of convertible bonds and convertible preferred stock
tend to move together with the market value of the
underlying stock. As a result, a Fund's selection of
convertible bonds and convertible preferred stock is
based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The
value of convertible bonds and convertible preferred stock
is also affected by prevailing interest rates, the credit
quality of the issuer and any call provisions.
DERIVATIVES--Instruments whose value is derived from an
underlying contract, index or security, or any combination
thereof, including futures, options (e.g., puts and
calls), options on futures, swap agreements, and some
mortgage-backed securities (CMOs, REMICs, IOs and POs).
See elsewhere in this "DESCRIPTION OF PERMITTED
INVESTMENTS" for discussions of these various instruments,
and see "INVESTMENT OBJECTIVES" and "INVEST-
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<PAGE> 178
MENT POLICIES" for more information about any policies and
limitations applicable to their use.
FUTURES AND OPTIONS ON FUTURES--Some futures strategies,
including selling futures, buying puts and writing calls,
reduce a Fund's exposure to price fluctuations. Other
strategies, including buying futures, writing puts and
buying calls, tend to increase market exposure. Futures
and options may be combined with each other in order to
adjust the risk and return characteristics of the overall
portfolio.
Options and futures can be volatile instruments, and
involve certain risks that, if applied at an inappropriate
time, could negatively impact a Fund's return.
INVESTMENT GRADE BONDS--Interest-bearing or discounted
government or corporate securities that obligate the
issuer to pay the bondholder a specified sum of money,
usually at specific intervals, and to repay the principal
amount of the loan at maturity. Investment grade bonds are
those rated BBB or better by S&P or Baa or better by
Moody's or similarly rated by other NRSROs, or, if not
rated, determined to be of comparable quality by the
Advisor.
LOWER-RATED, HIGHER-YIELDING, HIGH-RISK DEBT
SECURITIES--High-yield, high-risk securities consist of
securities rated Ba or lower by Moody's or BB or lower by
S&P. Lower-rated debt securities are considered
speculative and involve greater risk of loss than
investment grade debt securities, and are more sensitive
to changes in the issuer's capacity to pay. For a
description of the debt securities ratings, see the
"Appendix."
MONEY MARKET INSTRUMENTS--Short-term, debt instruments
or deposits and may include, for example, (i) commercial
paper rated within the highest rating category by a NRSRO
at the time of investment, or, if not rated, determined by
the Advisor to be of comparable quality; (ii) obligations
(certificates of deposit, time deposits, bank master
notes, and bankers' acceptances) of thrift institutions,
savings and loans, U.S. commercial banks (including
foreign branches of such banks), and U.S. and foreign
branches of foreign banks, provided that such institutions
(or, in the case of a branch, the parent institution) have
total assets of $1 billion or more as shown on their last
published financial statements at the time of investment;
(iii) short-term corporate obligations rated within the
three highest rating categories by a NRSRO (e.g., at least
A by S&P or A by Moody's) at the time of investment, or,
if not rated, determined by the Advisor to be of
comparable quality; (iv) general obligations issued by the
U.S. Government and backed by its full faith and credit,
and obligations issued or guaranteed as to principal and
interest by agencies or instrumentalities of the U.S.
Government (e.g., obligations issued by Farmers Home
Administration, Government National Mortgage Association,
Federal Farm Credit Bank and
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Federal Housing Administration); (v) receipts, including
TRs, TIGRs and CATS; (vi) repurchase agreements involving
such obligations; (vii) loan participations issued by a
bank in the United States with assets exceeding $1 billion
and for which the underlying loan is issued by borrowers
in whose obligations the Fund may invest; (viii) money
market funds and (ix) foreign commercial paper.
Certain of the obligations in which a Fund may invest
may be variable or floating rate instruments, may involve
conditional or unconditional demand features and may
include variable amount master demand notes.
MORTGAGE-BACKED SECURITIES--Securities generally issued
or guaranteed by U.S. government agencies such as GNMA,
FNMA, or FHLMC. GNMA mortgage-backed certificates are
mortgage-backed securities of the modified pass-through
type, which means that both interest and principal
payments (including prepayments) are passed through
monthly to the holder of the certificate. Each GNMA
certificate evidences an interest in a specific pool of
mortgage loans insured by the Federal Housing
Administration or the Farmers Home Administration or
guaranteed by the Veterans Administration. FNMA, a
federally-chartered and stockholder-owned corporation,
issues pass-through certificates which are guaranteed as
to payment of principal and interest by FNMA. FHLMC, a
corporate instrumentality of the United States, issues
participation certificates which represent an interest in
mortgages held in FHLMC's portfolio. FHLMC guarantees the
timely payment of interest and the ultimate collection of
principal. Securities issued or guaranteed by FNMA and
FHLMC are not backed by the full faith and credit of the
United States. There can be no assurance that the U.S.
government would provide financial support to FNMA or
FHLMC if necessary in the future.
Although payments on 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,
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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.
Adjustable rate mortgage securities ("ARMS") are
pass-through certificates representing ownership interests
in a pool of adjustable rate mortgages and the resulting
cash flow from those mortgages. Unlike conventional debt
securities, which provide for periodic (usually
semi-annual) payments of interest and payments of
principal at maturity or on specified call dates, ARMs
provide for monthly payments based on a pro rata share of
both periodic interest and principal payments and
prepayments of principal on the underlying mortgage pool
(less GNMA's, FNMA's, or FHLMC's fees and any applicable
loan servicing fees).
Collateralized mortgage obligations ("CMOs") are bonds
generally issued by single purpose, stand-alone finance
subsidiaries or trusts established by financial
institutions, government agencies, investment banks, or
other similar institutions, and collateralized by pools of
mortgage loans. Payments of principal and interest on the
collateral mortgages are used to pay debt service on the
CMO. In a CMO, a series of bonds or certificates is issued
in multiple classes. Each class of CMOs, often referred to
as a "tranche," is issued at a specific coupon rate and
has a stated maturity or final distribution date. The
principal and interest payment on the underlying mortgages
may be allocated among the classes of CMOs in several
ways. Typically, payments of principal, including any
prepayments, on the underlying mortgages would be applied
to the classes in the order of their respective stated
maturities or final distribution dates, so that no payment
of principal will be made on CMOs of a class until all
CMOs of other classes having earlier stated maturities or
final distribution dates have been paid in full.
One or more classes of CMOs may have coupon rates that
reset periodically based on an index, such as the London
Interbank Offered Rate ("LIBOR"). Each Fund may purchase
fixed, adjustable, or "floating" rate CMOs that are
collateralized by fixed rate or adjustable rate mortgages
that are guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S.
government or are directly guaranteed as to payment of
principal and interest by the issuer, which guarantee is
collateralized by U.S. government securities or is
collateralized by privately issued fixed rate or
adjustable rate mortgages.
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Securities such as zero-coupon obligations,
mortgage-backed and asset-backed securities, and
collateralized mortgage obligations ("CMOs") will have
greater price volatility then other fixed-income
obligations. Because declining interest rates may lead to
prepayment of underlying mortgages, automobile sales
contracts or credit card receivables, the prices of
mortgage-related and asset-backed securities may not rise
with a decline in interest rates. Mortgage-backed and
asset-backed securities and CMOs are extremely sensitive
to the rate of principal prepayment. Similarly, callable
corporate bonds also present risk of prepayment. During
periods of falling interest rates, securities that can be
called or prepaid may decline in value relative to similar
securities that are not subject to call or prepayment.
Real Estate Mortgage Investment Conduits ("REMICs") are
private entities formed for the purpose of holding a fixed
pool of mortgages secured by an interest in real property.
REMICs are similar to CMOs in that they issue multiple
classes of securities.
OPTIONS--Under a call option, the purchaser of the
option has the right to purchase, and the writer (the
Fund) the obligation to sell, the underlying security at
the exercise price during the option period. A put option
gives the purchaser the right to sell, and the writer the
obligation to purchase, the underlying security at the
exercise price during the option period.
In addition, certain Funds may buy options on stock
indices to invest cash on an interim basis. Such options
will be listed on a national securities exchange. In order
to close out an option position, a Fund may enter into a
"closing purchase transaction"--the purchase of an option
on the same security with the same exercise price and
expiration date as the option contract previously written
on any particular security. When the security is sold, a
Fund effects a closing purchase transaction so as to close
out any existing option on that security.
There are risks associated with such investments
including the following: (1) the success of a hedging
strategy may depend on the ability of the Advisor or
Sub-Advisor to predict movements in the prices of
individual securities, fluctuations in markets and
movements in interest rates; (2) there may be an imperfect
correlation between the movement in prices of securities
held by a Fund and the price of options; (3) there may not
be a liquid secondary market for options; and (4) while a
Fund will receive a premium when it writes covered call
options, it may not participate fully in a rise in the
market value of the underlying security.
RECEIPTS--Interests in separately traded interest and
principal component parts of U.S. Treasury obligations
that are issued by banks and brokerage firms and are
created by depositing Treasury notes and Treasury bonds
into a special account at a custodian bank. The custodian
holds the interest and principal
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payments for the benefit of the registered owners of the
certificates of such receipts. The custodian arranges for
the issuance of the certificates or receipts evidencing
ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's"), "Treasury Investment Growth
Receipts" ("TIGR's"), and "Certificates of Accrual on
Treasury Securities" ("CATS"). TR's, TIGR's and CATS are
sold as zero coupon securities, which means that they are
sold at a substantial discount and redeemed at face value
at their maturity date without interim cash payments of
interest or principal. This discount is accreted over the
life of the security, and such accretion will constitute
the income earned on the security for both accounting and
tax purposes. Because of these features, such securities
may be subject to greater interest rate volatility than
interest-paying securities. See also "FEDERAL TAXATION."
REPURCHASE AGREEMENTS--Agreements whereby a 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 agreements entered into by the Funds will
provide that the underlying security at all times shall
have a value equal to 102% of the resale price stated in
the agreement. Repurchase agreements involving government
securities are not subject to a Fund's fundamental
investment limitation on purchasing securities of any one
issuer. 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").
REVERSE REPURCHASE AGREEMENTS--A 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 10%
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 102% of the repurchase price
(including accrued interest), and will
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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 1940 Act.
RULE 144A SECURITIES--Rule 144A Securities are
securities that have not been registered under the
Securities Act of 1933, but which may be traded between
certain qualified institutional investors, including
investment companies. The absence of a secondary market
may affect the value of the Rule 144A Securities. The
Board of Trustees of the Group has established guidelines
and procedures to be utilized to determine the liquidity
of such securities.
SECURITIES ISSUED ON A FORWARD COMMITMENT BASIS OR
WHEN-ISSUED SECURITIES--Securities 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 or enter
into forward commitments, the Group's custodian will be
instructed to 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. Therefore,
the purchase of securities on a "when-issued" basis or
forward commitments may increase the risk of fluctuations
in a Fund's net asset value.
SECURITIES LENDING--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 the lending agent, with oversight by the Advisor,
and, should the market value of the loaned securities
increase, the borrower will be required to furnish
additional collateral to the Fund.
SECURITIES SUBJECT TO A PUT FEATURE--A "put" feature
permits a Fund to sell a fixed income security at a fixed
price prior to maturity. The underlying fixed income
securities subject to a put may be sold at any time at the
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market rates. However, unless the put was an integral part
of the fixed income security as originally issued, it may
not be marketable or assignable. Generally, a premium is
paid for a put feature or a put feature is purchased
separately which results in a lower yield than would
otherwise be available for the same fixed income
securities.
STANDARD & POOR'S DEPOSITARY RECEIPTS (SPDRs)--SPDRs are
interests in a unit investment trust holding a portfolio
of securities linked to the S&P 500 Index. SPDRs closely
track the underlying portfolio of securities, trade like a
share of common stock and pay periodic dividends
proportionate to those paid by the portfolio of stocks
that constitutes the S&P 500 Index. For further
information regarding SPDRs, see the Statement of
Additional Information.
TAX-EXEMPT COMMERCIAL PAPER--Commercial paper, which is
commercial paper issued by governments and political
subdivisions.
TIME DEPOSITS--Non-negotiable receipts issued by U.S. or
foreign banks in exchange for the deposit of funds. Like
certificates of deposit, they earn a specified rate of
interest over a definite period of time; however, they
cannot be traded in the secondary market. Time deposits
with a withdrawal penalty are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCY SECURITIES--Certain Federal
agencies have been established as instrumentalities of the
U.S. Government to supervise and finance certain types of
activities. Issues of these agencies, while not direct
obligations of the U.S. Government, are either backed by
the full faith and credit of the United States (e.g., GNMA
securities) or supported by the issuing agencies' right to
borrow from the U.S. Treasury. The issues of other
agencies are supported only by the credit of the
instrumentality (e.g., FNMA securities).
U.S. TREASURY OBLIGATIONS--Bills, notes, and bonds
issued by the U.S. Treasury, as well as separately traded
interest and principal component parts of such obligations
known as Separately Traded Registered Interest and
Principal Securities ("STRIPS") that are transferable
through the Federal book-entry system.
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 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 a
Fund's
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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.
VARIABLE AND FLOATING RATE INSTRUMENTS--Obligations that
may carry variable or floating rates of interest, may
involve conditional or unconditional demand features and
may include variable amount master demand notes. The
interest rates on these securities may be reset daily,
weekly, quarterly or some other reset period, and may have
a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations
may not accurately reflect existing market interest rates.
A demand instrument with a demand notice period exceeding
seven days may be considered illiquid if there is no
secondary market for such security.
WARRANTS--Securities that entitle the holder to buy a
proportionate amount of common stock at a specified price
for a limited or unlimited period of time. Warrants are
often freely transferable and are traded on major stock
exchanges.
YANKEE BONDS--Dollar denominated securities issued by
foreign-domiciled issuers that obligate the issuer to pay
the bondholder a specified sum of money, usually
semiannually, and to repay the principal amount of the
loan at maturity. Sovereign bonds are bonds issued by the
governments of foreign countries. Supranational bonds are
those issued by supranational entities, such as the World
Bank and European Investment Bank. Canadian bonds are
bonds issued by Canadian provinces.
ZERO-COUPON OBLIGATIONS--Non-income producing securities
evidencing ownership of future interest and principal
payments on bonds. 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
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<PAGE> 186
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.
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HighMark CONVERTIBLE SECURITIES
FUND
INVESTMENT PORTFOLIO OF
HighMark FUNDS
For further information (including current
yield, purchase and redemption information),
call (800) 433-6884
INVESTMENT ADVISOR
Pacific Alliance Capital Management,
a division of Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
SUB-ADVISOR
Bank of Tokyo-Mitsubishi Trust Company
1251 Avenue of the Americas
New York, New York 10116
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
SEI Fund Resources and
SEI Financial Services Company
Oaks, Pennsylvania 19456
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 HIGHMARK OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY HIGHMARK OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
NOT FDIC INSURED
<PAGE> 188
[HIGHMARK LOGO]
HIGHMARK FUNDS
TRS-17236(R12/95)
<PAGE> 189
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
HIGHMARK FUNDS
BALANCED FUND
HighMark Funds ("HighMark") is an open-end, diversified, registered investment
company that offers a convenient means of investing in one or more
professionally managed portfolios of securities. This Prospectus relates to
HighMark's Balanced Fund.
FIDUCIARY SHARES
HighMark's Fiduciary Shares are offered to the following investors: (i)
fiduciary, advisory, agency, custodial and other similar accounts maintained
with Union Bank of California, N.A. or its affiliates; (ii) SelectIRA accounts
established with The Bank of California, N.A. and invested in any of HighMark'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 HighMark'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 Union Bank of
California, N.A., HighMark's current or former distributors or their respective
affiliated companies who currently own Shares of HighMark Funds which were
purchased before April 30, 1997.
This Prospectus sets forth concisely the information about HighMark and the
Balanced Fund that a prospective investor should know before investing.
Investors are advised to read this Prospectus and retain it for future
reference. A Statement of Additional Information dated the same date as this
Prospectus has been filed with the Securities and Exchange Commission and is
available without charge by writing the Distributor, SEI Financial Services
Company, Oaks, Pennsylvania 19456, or by calling 1-800-433-6884. The Statement
of Additional Information is incorporated into this Prospectus by reference.
This Prospectus relates only to the Fiduciary Shares of the Balanced Fund.
Interested persons who wish to obtain a prospectus for the other Funds of
HighMark may contact the Distributor at the above address and telephone number.
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.
HIGHMARK'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, INCLUDING UNION BANK OF CALIFORNIA, N.A., BANK OF
TOKYO-MITSUBISHI, LIMITED OR ANY OF THEIR AFFILIATES OR CORRESPONDENTS.
HIGHMARK'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN HIGHMARK INVOLVES
RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
February 26, 1997
Fiduciary Shares
<PAGE> 190
SUMMARY
HIGHMARK FUNDS ("HighMark") is an open-end, diversified, registered investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Fiduciary Shares of HighMark Balanced Fund (the "Balanced Fund" or the "Fund").
This summary is qualified in its entirety by reference to the more detailed
information provided elsewhere in the Prospectus and in the Statement of
Additional Information.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Balanced Fund seeks capital
appreciation and income, with a secondary investment objective of conservation
of capital. (See "INVESTMENT OBJECTIVE").
WHAT ARE THE FUND'S PERMITTED INVESTMENTS? The Fund primarily invests,
consistent with its investment objective, in equity securities including common
stocks and securities convertible into common stocks. The Fund may also invest
consistent with its investment objective and investment policies in fixed-income
securities. (See "INVESTMENT POLICIES").
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE BALANCED FUND? The
investment policies of the Fund entail certain risks and considerations of which
an investor should be aware. The Fund may purchase common stocks and other
equity securities that are volatile and which may fluctuate in value more than
other types of investments. Values of fixed income securities and,
correspondingly, share prices of Funds invested in such securities, tend to vary
inversely with interest rates, and may be affected by other market and economic
factors as well. (See "Risk Factors").
ARE MY INVESTMENTS INSURED? HighMark's Shares are not federally insured by the
FDIC or any other government agency. Any guarantee by the U.S. Government, its
agencies or any instrumentalities of the securities in which the Fund invests
guarantees only the payment of principal and interest on the guaranteed
security, and does not guarantee the total return or value of the security or
total return or value of Shares of the Fund.
WHO IS THE ADVISOR? Pacific Alliance Capital Management, a division of Union
Bank of California, N.A., serves as the Advisor to HighMark. (See "The
Advisor").
WHO IS THE ADMINISTRATOR? SEI Fund Resources serves as the Administrator of
HighMark. (See "The Administrator").
WHO IS THE CUSTODIAN? Union Bank of California, N.A. (the "Bank") serves as the
custodian of HighMark's assets. (See "The Custodian").
WHO IS THE DISTRIBUTOR? SEI Financial Services Company acts as distributor of
HighMark's Shares. (See "The Distributor").
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment is generally $1,000. A purchase order will be
effective if the Distributor receives an order prior to 1:00 p.m., Pacific time
(4:00 p.m., Eastern time). Purchase orders for Shares will be executed at a per
Share price equal to the asset value next determined after the purchase order is
effective. Redemption orders must be placed prior to 1:00 p.m., Pacific time
(4:00 p.m., Eastern time) on any Business Day for the order to be effective that
day. (See "PURCHASE AND REDEMPTION OF SHARES").
2
<PAGE> 191
HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gains) of the Fund is distributed in the form of monthly
dividends to Shareholders of record. Any capital gain is distributed at least
annually. Distributions are paid in additional Shares unless the Shareholder
elects to take the payment in cash. (See "DIVIDENDS").
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................................................................... 2
Balanced Fund Fee Table............................................................... 4
Financial Highlights.................................................................. 5
Fund Description...................................................................... 6
Investment Objective.................................................................. 6
Investment Policies................................................................... 6
General............................................................................... 7
Money Market Instruments............................................................ 7
Illiquid and Restricted Securities.................................................. 7
Lending of Portfolio Securities..................................................... 7
Other Investments................................................................... 8
Risk Factors........................................................................ 9
Investment Limitations................................................................ 11
Portfolio Turnover.................................................................. 12
Purchase and Redemption of Shares..................................................... 12
Exchange Privileges................................................................... 14
Dividends............................................................................. 15
Federal Taxation...................................................................... 15
Service Arrangements.................................................................. 17
The Advisor......................................................................... 17
Administrator....................................................................... 18
The Transfer Agent.................................................................. 18
Shareholder Service Plan............................................................ 18
Distributor......................................................................... 19
Banking Laws........................................................................ 19
Custodian........................................................................... 19
General Information................................................................... 19
Description of HighMark & Its Shares................................................ 19
Performance Information............................................................. 20
Miscellaneous....................................................................... 21
Description of Permitted Investments.................................................. 22
</TABLE>
3
<PAGE> 192
BALANCED FUND FEE TABLE
<TABLE>
<CAPTION>
BALANCED FUND
FIDUCIARY
SHARES
-------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)....................... 0%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)............ 0%
Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as 0%
applicable).....................................................................................
Redemption Fees (as a percentage of amount redeemed, if applicable)(b)............................ 0%
Exchange Fee(a)................................................................................... $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees................................................................................... 0.60%
12b-1 Fees........................................................................................ 0.00%
Other Expenses (after voluntary reduction)(c)..................................................... 0.30%
--------
Total Fund Operating Expenses(d).................................................................. 0.90%
========
</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>
Balanced Fund Fiduciary Shares.................................. $9 $29 $50 $111
</TABLE>
The purpose of the table above is to assist an investor in the Balanced Fund
in understanding the various costs and expenses that a Shareholder will bear
directly or indirectly. For a more complete discussion of the Fund's annual
operating expenses, see SERVICE ARRANGEMENTS below. THE FOREGOING EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ---------------
(a) Certain entities (including Union Bank of California and its affiliates)
making investments in the Balanced Fund on behalf of their customers may
charge customers fees for services provided in connection with the
investment in, redemption of, and exchange of Shares. (See PURCHASE AND
REDEMPTION OF SHARES, EXCHANGE PRIVILEGES, and SERVICE ARRANGEMENTS--
below.)
(b) A wire redemption charge is deducted from the amount of a wire redemption
payment made at the request of a Shareholder. (See PURCHASE AND REDEMPTION
OF SHARES below.)
(c) Absent voluntary fee waivers, OTHER EXPENSES would be 0.48% for the
Fiduciary Shares of the Balanced Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be 1.08%
for the Fiduciary Shares of the Balanced Fund.
4
<PAGE> 193
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect to the
Fiduciary Shares of the Balanced Fund. Financial highlights for the Fund for the
period ended July 31, 1996 have been derived from financial statements audited
by Deloitte & Touche LLP, independent auditors for HighMark, whose report
thereon is included in the Statement of Additional Information. Prior to the
fiscal year ended July 31, 1996, Coopers & Lybrand L.L.P. served as independent
accountants for HighMark.
Prior to June 20, 1994, the Balanced Fund offered a single class of Shares
(now designated Fiduciary Shares) throughout the periods shown.
BALANCED FUND
<TABLE>
<CAPTION>
NOV. 14,
1993 TO
YEAR ENDED JULY 31, JULY 31,
------------------------- ---------
1996 1995 1994(A)
FIDUCIARY FIDUCIARY FIDUCIARY
--------- --------- ---------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period.............................. $ 10.85 $ 9.76 $ 10.00
------- ------- -------
Investment Activities
Net investment income............................ 0.40 0.39 0.26
Net realized and unrealized gains (losses) on
investments................................... 0.79 1.09 (0.24)
------- ------- -------
Total from Investment Activities.............. 1.19 1.48 0.02
------- ------- -------
Distributions
Net investment income............................ (0.40) (0.39) (0.26)
------- ------- -------
Net Asset Value, End of Period..................... $ 11.64 $ 10.85 $ 9.76
======= ======= =======
Total Return....................................... 11.06% 15.62% (0.26)%(d)
Ratios/Supplementary Data:
Net Assets at end of period (000).................. $39,502 $29,961 $25,851
Ratio of expenses to average net assets............ 0.94% 0.89% 0.87%(b)
Ratio of net investment income to average net
assets........................................... 3.49% 3.93% 3.77%(b)
Ratio of expenses to average net assets*........... 1.78% 1.80% 1.79%(b)
Ratio of net investment income to average net
assets*.......................................... 2.65% 3.02% 2.85%(b)
Portfolio turnover (c)............................. 12.84% 20.70% 44.14%
</TABLE>
- ---------
(a) Period from commencement of operations. On June 20, 1994, the Balanced Fund
commenced offering Investor Shares (now called "Retail Shares") and
designated existing shares as Fiduciary Shares.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(d) Not annualized.
5
<PAGE> 194
FUND
DESCRIPTION HighMark Funds ("HighMark") is an open-end, diversified,
registered investment company that currently offers units
of beneficial interest ("Shares") in sixteen separate
investment portfolios ("Funds"). All of the Funds are
advised by Pacific Alliance Capital Management (the
"Advisor"), a division of Union Bank of California, N.A.
Shareholders may purchase Shares of selected Funds through
two separate classes (the "Retail" and "Fiduciary"
classes). These classes may have different sales charges
and other expenses, which may affect performance.
Information regarding HighMark's other Funds and other
classes is contained in separate prospectuses that may be
obtained from HighMark's Distributor, SEI Financial
Services Company, at Oaks, Pennsylvania 19456, or by
calling 1-800-433-6884.
For information concerning those investors who qualify
to purchase Fiduciary Shares, see PURCHASE AND REDEMPTION
OF SHARES below. (Fiduciary Shares may be hereinafter
referred to as "Shares.")
INVESTMENT
OBJECTIVE The Balanced Fund seeks capital appreciation and income.
Conservation of capital is a secondary consideration.
The investment objective and certain of the investment
limitations of the Balanced Fund may not be changed
without a vote of the holders of a majority of the
outstanding Shares of the Fund (as defined under GENERAL
INFORMATION--Miscellaneous below). There can be no
assurance that the Fund will achieve its investment
objective.
INVESTMENT
POLICIES The Balanced Fund may invest in any type or class of
security. Under normal market conditions, the Balanced
Fund will invest between 50% and 70% of its total assets
in equity securities. Senior fixed-income securities will
normally constitute at least 25% of the Balanced Fund's
net assets.
Equity securities include common stocks, warrants to
purchase common stocks, American Depositary Receipts
("ADRs"), preferred stocks, securities (including debt
securities) convertible into or exercisable for common
stocks and Standard & Poor's Depositary Receipts
("SPDRs"). 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), and
obligations issued or guaranteed by the U.S. or foreign
Governments or their agencies or instrumentalities.
Privately issued mortgage-backed securities must be rated
in one of the top two categories by at least one NRSRO as
defined below. In addition to mortgage-backed securities,
the Balanced Fund may invest in other asset-backed
securities including, but not limited to, those backed by
company receivables, truck and auto loans, leases, and
credit card or other receivables.
6
<PAGE> 195
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 as investment grade by a
nationally recognized statistical rating organization
("NRSRO") (e.g., at least Baa from Moody's Investors
Service, Inc. ("Moody's") or BBB from Standard & Poor's
Corporation ("S&P")) or, if unrated, which the Advisor
deems to be attractive opportunities and of comparable
quality. For a description of the rating symbols of the
NRSROs utilized by the Advisor, see the Appendix to the
Statement of Additional Information.
In the event that a security owned by the Fund is
downgraded below the stated rating categories, the Advisor
will take appropriate action with regard to that security.
The portions of the Balanced Fund's assets invested in
equity securities and fixed-income securities will vary
from time to time within the stated ranges, depending upon
the Advisor's assessment of business, economic and market
conditions. The Advisor considers a combination of risk,
capital appreciation, income, and protection of capital
value.
GENERAL Money Market Instruments
Under normal market conditions, the Balanced Fund may
invest up to 35% of its total assets in money market
instruments. When market conditions indicate a temporary
"defensive" investment strategy as determined by the
Advisor, the Fund may invest more than 35% of its total
assets in money market instruments. The Fund will not be
pursuing its investment objective to the extent that a
substantial portion of its assets are invested in money
market instruments.
Illiquid and Restricted Securities
The Balanced Fund shall limit investment in illiquid
securities to 15% or less of its net assets. Generally, an
"illiquid security" is any security that cannot be
disposed of promptly and in the ordinary course of
business at approximately the amount at which the Fund has
valued the instrument. The absence of a trading market can
make it difficult to ascertain the market value of
illiquid securities. The Fund may purchase restricted
securities which have not been registered under the
Securities Act of 1933 (e.g., Rule 144A Securities and
Section 4(2) commercial paper) subject to policies
approved by the Board of Trustees. See INVESTMENT
RESTRICTIONS in the Statement of Additional Information.
Lending of Portfolio Securities
In order to generate additional income, the Fund may
lend its portfolio securities to broker-dealers, banks or
other institutions. The Fund may lend
7
<PAGE> 196
portfolio securities in an amount representing up to
33 1/3% of the value of the Fund's total assets.
Other Investments
The Fund may enter into repurchase agreements and
reverse repurchase agreements.
The Balanced Fund may enter into forward commitments or
purchase securities on a "when-issued" basis. The Balanced
Fund expects that commitments by it to enter into forward
commitments or purchase when-issued securities will not
exceed 25% of the value of the Fund's total assets under
normal market conditions. The Fund does not intend to
purchase when-issued securities or forward commitments for
speculative or leveraging purposes but only for the
purpose of acquiring portfolio securities.
The Fund may also invest in money market instruments,
money market funds, and in cash, and may invest in other
registered investment companies with similar investment
objectives.
The Balanced Fund may invest up to 5% of its total
assets in the shares of any one registered investment
company, but may not own more than 3% of the securities of
any one registered investment company or invest more than
10% of its assets in the securities of other registered
investment companies. In accordance with an exemptive
order issued to HighMark by the SEC, such other registered
investment company securities may include shares of a
money market fund of HighMark, and may include registered
investment companies for which the Advisor or Sub-Advisor
to a Fund of HighMark, or an affiliate of such Advisor or
Sub-Advisor, serves as investment advisor, administrator
or distributor. Because other registered investment
companies employ an investment advisor, such investment by
a Fund may cause Shareholders to bear duplicative fees.
The Advisor will waive its fees attributable to the assets
of the investing Fund invested in a money market fund of
HighMark, and, to the extent required by applicable law,
the Advisor will waive its fees attributable to the assets
of the Fund invested in any investment company. Some Funds
are subject to additional restrictions on investment in
other investment companies. See "INVESTMENT RESTRICTIONS"
in the Statement of Additional Information.
The Balanced Fund may write covered calls on its equity
securities and enter into closing transactions with
respect to covered call options.
The Fund may also buy and sell options, futures
contracts and options on futures. The Fund may enter into
futures contracts and options on futures only to the
extent that obligations under such contracts or
transactions, together with options on securities,
represent not more than 25% of the Fund's assets. The
8
<PAGE> 197
aggregate value of options on securities (long puts and
calls) will not exceed 10% of the Fund's net assets at the
time such options are purchased by the Fund.
The Fund may purchase options in stock indices to invest
cash on an interim basis. The aggregate premium paid on
all options on stock indices cannot exceed 20% of the
Fund's total assets.
All of the common stocks in which the Balanced Fund
invests (including foreign securities in the form of ADRs
but not including Rule 144A Securities) are traded on
registered exchanges or in the over-the-counter market.
For further information, see "DESCRIPTION OF PERMITTED
INVESTMENTS."
Risk Factors
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. Since the Fund's shares will fluctuate
in value, the Fund may be more suitable for long-term
investors who can bear the risk of short-term
fluctuations. In addition, the market value of
fixed-income securities bears an inverse relationship to
changes in market interest rates, which may affect the net
asset value of Shares. The longer the remaining maturity
of a security, the greater is the effect of interest rate
changes on its market value. Generally, because of their
fixed-income features, convertible securities will
fluctuate in value to a lesser degree than the common
stocks into which they are convertible. Changes in the
value of a Fund's fixed-income securities will not affect
cash income received from ownership of such securities,
but will affect a Fund's net asset value.
Because the Balanced Fund also invests in debt
securities, investors in the Balanced Fund are also
exposed to credit risk, which relates to the ability of an
issuer to make payments of principal and interest, and
market risk, which relates to changes in a security's
value as a result of interest rate changes generally. An
increase in interest rates will generally reduce the value
of the investments in the Balanced Fund 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 the Fund's portfolio.
Therefore, an investment in the Fund 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. 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
9
<PAGE> 198
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. 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
Balanced Fund 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, the
Advisor will consider many factors other than current
yield, including the preservation of capital, the
potential for realizing capital appreciation, maturity,
and yield to maturity. From time to time, the equity and
debt markets may fluctuate independently of one another.
In other words, a decline in equity markets may in certain
instances be offset by a rise in debt markets, or vice
versa. As a result, 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 four highest rating categories
assigned by a NRSRO and comparable unrated securities.
Securities rated BBB by S&P or Baa by Moody's are
considered investment grade, but are deemed by these
rating services to have some speculative characteristics,
and adverse economic conditions or other circumstances are
more likely to lead to a weakened capacity to make
principal and interest payments than is the case with
higher-grade bonds. Should subsequent events cause the
rating of a debt security purchased by the Balanced Fund
to fall below the fourth highest rating category, the
Advisor 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.
The Balanced 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
10
<PAGE> 199
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 Balanced Fund will
not purchase any convertible debt security or convertible
preferred stock unless it has been rated as investment
grade at the time of acquisition by a NRSRO or that is not
rated but is determined to be of comparable quality by the
Advisor.
The Balanced Fund may invest in securities issued or
guaranteed by foreign corporations or foreign governments,
their political subdivisions, agencies or
instrumentalities and obligations of supranational
entities such as the World Bank and the Asian Development
Bank. Any investments in these securities will be in
accordance with the 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 the Fund 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 Balanced Fund will not hold foreign currency for
investment purposes.
INVESTMENT
LIMITATIONS The Balanced 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 the issuer or the Fund
would hold more than 10% of any class of securities of the
issuer or more than 10% of the issuer's outstanding voting
securities (except that up to 25% of the value of the
Fund's total assets may be invested without regard to
these limitations);
2) Purchase any securities that would cause more than
25% of the 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
11
<PAGE> 200
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) Make loans, except that the Fund may purchase or hold
debt instruments, lend portfolio securities, and enter
into repurchase agreements in accordance with its
investment objective and policies.
The foregoing percentages will apply at the time of the
purchase of a security. The investment limitations listed
above are fundamental policies the substance of which may
not be changed without a vote of a majority of the
outstanding Shares of the Fund. Additional fundamental and
non-fundamental investment limitations are set forth in
the Statement of Additional Information.
Portfolio Turnover
The Fund's portfolio turnover rate will not be a factor
preventing a sale or purchase when the Advisor believes
investment considerations warrant. The Fund's 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 Fund and could involve
the realization of capital gains that would be taxable
when distributed to Shareholders of the Fund. See FEDERAL
TAXATION.
PURCHASE AND
REDEMPTION
OF SHARES As noted above, the Fund is divided into two classes of
Shares, Retail and Fiduciary. Fiduciary Shares may be
purchased at net asset value. Only the following investors
qualify to purchase the Balanced Fund's Fiduciary Shares:
(i) fiduciary, advisory, agency, custodial and other
similar accounts maintained with Union Bank of California,
N.A. or its affiliates; (ii) SelectIRA accounts
established with The Bank of California, N.A. and invested
in any of HighMark'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 HighMark's
Equity or Income Funds that were purchased prior to June
20, 1994 within an account registered in their name with
the Funds. For a description of investors who qualify to
purchase Retail Shares, see the Retail Shares prospectus
of the Balanced Fund; and (iv) present and retired
directors, officers and employees (and their spouses and
children under the age of 21 of Union Bank of California,
N.A., HighMark's current or former distributors or their
respective affiliated companies who cur-
12
<PAGE> 201
rently own Shares of HighMark Funds which were purchased
before April 30, 1997.
Purchases and redemptions of Shares of the Balanced Fund
may be made on days on which both the New York Stock
Exchange and Federal Reserve wire system are open for
business ("Business Days"). The minimum initial investment
is generally $1,000 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 Union Bank of California, SEI
Financial Services Company and their affiliates, the
minimum initial investment is $250 and the minimum
subsequent investment is $50. The 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, or
401(k) or similar plans. However, the minimum investment
may be waived in the Distributor's discretion.
Shareholders may place orders by telephone.
Purchase orders will be effective if the Distributor
receives an order before 1:00 p.m., Pacific time (4:00
p.m., Eastern time) and the custodian receives Federal
funds before the close of business on the next Business
Day. The purchase price of Shares of a Fund is the net
asset value next determined after a purchase order is
received and accepted by HighMark. The net asset value per
Share of a Fund is determined by dividing the total market
value of a Fund's investments and other assets, less any
liabilities, by the total number of out-
standing Shares of a Fund. Net asset value per share is
determined daily as of 1:00 p.m., Pacific time (4:00 p.m.,
Eastern time) on any Business Day. Purchases will be made
in full and fractional shares of HighMark calculated to
three decimal places. HighMark reserves the right to
reject a purchase order when the Distributor determines
that it is not in the best interest of HighMark and/or its
Shareholders to accept such order.
Shares of the Balanced Fund are offered only to
residents of states in which the shares are eligible for
purchase.
Shareholders who desire to redeem shares of HighMark
must place their redemption orders prior to 1:00 p.m.,
Pacific time (4:00 p.m., Eastern time), on any Business
Day for the order to be accepted on that Business Day. The
redemption price is the net asset value of the Fund next
determined after receipt by the Distributor of the
redemption order. Payment on redemption will be made as
promptly as possible and, in any event, within seven
calendar days after the redemption order is received. The
Fund reserves the right to make payment for redemptions in
securities rather than cash.
13
<PAGE> 202
Neither HighMark's transfer agent nor HighMark will be
responsible for any loss, liability, cost or expense for
acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine.
HighMark and its transfer agent will each employ
reasonable procedures to confirm that telephone
instructions are genuine. Such procedures may include
taping of telephone conversations. If market conditions
are extraordinarily active or other extraordinary
circumstances exist, and you experience difficulties
placing redemption orders by telephone, you may wish to
consider placing your order by other means.
EXCHANGE
PRIVILEGES As indicated under GENERAL INFORMATION--Description of
HighMark & Its Shares, certain of HighMark's Funds issue
two classes of Shares (Retail Shares and Fiduciary
Shares); as of the date of this Prospectus, the
Distribution Plan and distribution fee payable thereunder
are applicable only to such Fund's Retail 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 HighMark which the
Shareholder qualifies to purchase directly so long as the
Shareholder maintains the applicable minimum account
balance in each Fund in which he or she owns Shares and
satisfies the minimum initial and subsequent purchase
amounts of the Fund into which the Shares are exchanged.
Shareholders may exchange their Fiduciary Shares for
Fiduciary Shares of another Fund on the basis of the
relative net asset value of the Fiduciary Shares
exchanged. Shareholders may also exchange Fiduciary Shares
of a Fund for Retail Shares of another Fund. Under such
circumstances, the cost of the acquired Retail Shares will
be the net asset value per share plus the appropriate
sales load.
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 Union 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 the Balanced
Fund may do so by contacting the transfer agent at
1-800-433-6884. Exchanges will be effected on
14
<PAGE> 203
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 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 HighMark may legally be sold. HighMark may
materially amend or terminate the exchange privileges
described herein upon sixty days' notice.
DIVIDENDS The net income of the Balanced Fund 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 the 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 transfer agent at P.O. Box 8416, Boston, MA
02266-8416, 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 The Balanced 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 the 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 when received by the Fund if the Fund were a
regular corporation, and to the extent designated by the
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
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loss to the extent the Shareholder has received long-term
capital gain dividends on the Shares.
Prior to purchasing Shares of the Balanced Fund, 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
advisor for specific advice about the tax consequences to
the Shareholder of investing in the Fund.
Fund investments in foreign securities may be subject to
withholding taxes at the source on dividend or interest
payments. In that case, the Fund's yield on those
securities would be decreased. The Fund does not expect to
be eligible to elect to permit shareholders to claim a
credit or deduction on their income tax return for their
pro rata share of such taxes.
Fund transactions in foreign currencies and hedging
activities may give rise to ordinary income or loss to the
extent such income or loss results from fluctuations in
value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book
income and taxable income. This difference may cause a
portion of the Fund's income distributions to constitute a
return of capital for tax purposes or require the Fund to
make distributions exceeding book income to qualify as a
regulated investment company for tax purposes.
Investment in an entity that qualifies as a "passive
foreign investment company" under the Code could subject
the Fund to a U.S. federal income tax or other charge on
certain "excess distributions" received with respect to
the investment, and on the proceeds from disposition of
the investment.
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
the 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.
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SERVICE
ARRANGEMENTS The Advisor
Pacific Alliance Capital Management, a division of Union
Bank of California, N.A. serves as the Balanced Fund's
investment advisor. Subject to the general supervision of
HighMark's Board of Trustees, the Advisor manages the Fund
in accordance with its investment 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.
For the expenses assumed and services provided by the
Advisor as the Fund's investment advisor, Union Bank of
California receives a fee from the Balanced Fund, computed
daily and paid monthly, at the annual rate of sixty one-
hundredths of one percent (.60%) of the Fund's average
daily net assets. 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.
Union Bank of California may from time to time agree to
voluntarily reduce its advisory fee, however, it is not
currently doing so. While there can be no assurance that
Union Bank of California will choose to make such an
agreement, any voluntary reductions in Union 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 HighMark's fiscal year ended July 31, 1996, Union
Bank of California received investment advisory fees from
the Balanced Fund aggregating 0.54% of the Fund's average
daily net assets.
On April 1, 1996, the Bank of California, N.A.,
HighMark's then investment advisor, combined with Union
Bank and the resulting bank changed its name to Union Bank
of California, N.A. At the same time, the banks'
investment management divisions were combined. Each of
Union Bank and The Bank of California, N.A. (or their
predecessor banks) has been in banking since the early
1900's and, historically, each has had significant
investment functions within its trust and investment
division. UnionBanCal Corporation, the parent of Union
Bank of California, N.A., is a publicly held corporation,
but is principally held by The Bank of Tokyo-Mitsubishi,
Ltd. As of September 30, 1996, Union Bank of California
and its subsidiaries had approximately $28.7 billion in
commercial assets. Pacific Alliance Capital Management is
a division of Union Bank of California's Trust and
Investment Management Group which, as of June 30, 1996,
had approximately $13.4 billion of assets under
management. The Advisor, with a team of approximately 45
stock and bond research analysts, portfolio managers and
traders, has been providing investment management services
to individuals, institutions and large corporations since
1917.
All investment decisions for the Balanced Fund are made
by a team of investment professionals, all of whom take an
active part in the decision making
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process. The team leader for the Balanced Fund is Carl J.
Colombo. Mr. Colombo is a Vice-President of the Advisor,
and has served as team leader for the Stepstone Balanced
and Growth Equity Funds. Mr. Colombo has been with the
Advisor and its predecessor, Union Bank, since 1985.
Administrator
SEI Fund Resources (the "Administrator") and HighMark
are parties to an administration agreement (the
"Administration Agreement"). Under the terms of the
Administration Agreement, the Administrator provides
HighMark with certain management services, including all
necessary office space, equipment, personnel, and
facilities.
The Administrator is entitled to a fee, which is
calculated daily and paid monthly, at an annual rate of
.20% of the average daily net assets of the Funds. The
Administrator may waive its fee or reimburse various
expenses to the extent necessary to limit the total
operating expenses of a Fund's Fiduciary Shares. Any such
waiver is voluntary and may be terminated at any time in
the Administrator's sole discretion. Currently, the
Administrator has agreed to waive its fee to the rate of
.18% of the average daily net assets of the Funds.
Pursuant to a separate agreement with the Administrator,
Union Bank of California, N.A. performs sub-administration
services on behalf of the Fund, for which it receives a
fee paid by the Administrator at the annual rate of up to
0.05% of the average daily net assets of the Fund. Union
Bank of California has voluntarily agreed to reduce this
fee to 0.03%, but reserves the right to terminate its
waiver at any time in its sole discretion. A description
of the services performed by Union Bank of California
pursuant to this Agreement is contained in the Statement
of Additional Information.
The Transfer Agent
State Street Bank and Trust Company serves as the
transfer agent, dividend disbursing agent, and as a
shareholder servicing agent for the Fiduciary Shares of
HighMark, for which services it receives a fee.
Shareholder Service Plan
To support the provision of Shareholder services to both
classes of Shares, HighMark has adopted a Shareholder
Service Plan. A description of the services performed by
service providers pursuant to the Shareholder Service Plan
is contained in the Statement of Additional Information.
In consideration of services provided by any service
provider, which may include Union Bank of California,
N.A., Bank of Tokyo-Mitsubishi, Ltd., or their respective
affiliates, the Fund may pay a fee at the rate of up to
0.25% of its average daily net assets to such service
provider. The service provider may waive such fees at any
time. Any
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such waiver is voluntary and may be terminated at any
time. Currently, such fees are being waived to the rate of
0.09% of average daily net assets.
Distributor
SEI Financial Services Company (the "Distributor") and
HighMark are parties to a distribution agreement
("Distribution Agreement"). The Distribution Agreement is
renewable annually and may be terminated by the
Distributor, by a majority vote of the Disinterested
Trustees or by a majority vote of the outstanding
securities of HighMark upon not more than 60 days written
notice by either party, or upon assignment by the
Distributor. Fiduciary Shares are not subject to
HighMark's Distribution Plan or a distribution fee.
Banking Laws
Union Bank of California believes that it may perform
the services for the Fund contemplated by its investment
advisory agreement with HighMark without a violation of
applicable banking laws and regulations. Union Bank of
California also believes that it may perform
sub-administration and sub-accounting services on behalf
of the Fund without a violation of applicable banking laws
and regulations. 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 Union Bank of California or the Advisor
could continue to perform such services for the Fund. For
a further discussion of applicable banking laws and
regulations, see the Statement of Additional Information.
Custodian
Union Bank of California also serves as the custodian
and as a shareholder servicing agent for the Balanced
Fund. The Custodian holds cash, securities and other
assets of HighMark as required by the 1940 Act.
Services performed by Union Bank of California, as the
Fund's shareholder servicing 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 HighMark & Its Shares
HighMark was organized as a Massachusetts business trust
on March 10, 1987, and consists of sixteen series of
Shares open for investment representing units of
beneficial interest in HighMark's Growth Fund, Income
Equity Fund, Balanced Fund, Value Momentum Fund, Blue Chip
Growth Fund, Emerging Growth Fund, International Equity
Fund, Bond Fund, Intermediate-Term Bond Fund, Government
Securities Fund, Convertible Securities Fund, California
Intermediate Tax-Free Bond Fund, Diversified Money Market
Fund, U.S. Government
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Obligations Money Market Fund, 100% U.S. Treasury
Obligations Money Market Fund, and California Tax-Free
Money Market Fund. As of the date hereof, no Shares of the
Value Momentum Fund, the Blue Chip Growth Fund, the
Emerging Growth Fund, the International Equity Fund, the
Intermediate-Term Bond Fund, the Convertible Securities
Fund, the Government Securities Fund and the California
Intermediate Tax-Free Bond Fund had been offered for sale
in HighMark Funds. 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 HighMark were liquidated, would receive a pro rata
share of the net assets attributable to that Fund. Shares
are without par value.
As noted above, pursuant to a Multiple Class Plan on
file with the Securities and Exchange Commission
permitting the issuance and sale of two classes of Shares
in selected Funds, Shares of such Funds have been divided
into two classes, designated Retail Shares and Fiduciary
Shares. For information regarding the Retail Shares of the
Balanced Fund, interested persons may contact the
Distributor for a prospectus at 1-800-433-6884.
HighMark believes that as of November 22, 1996, Union
Bank of California (475 Sansome Street, Post Office Box
45000, San Francisco, CA 94104) was the Shareholder of
record of 97.91% of the Fiduciary Shares of the Balanced
Fund.
Performance Information
From time to time, HighMark may advertise the aggregate
total return, average annual total return, yield and
distribution rate with respect to the Fiduciary Shares of
the Balanced Fund. Performance information is computed
separately for the Fund's Retail and Fiduciary Shares in
accordance with the formulas described below.
The aggregate total return and average annual total
return of the Fund may be quoted for the life of the Fund
and for ten-year, five-year, three-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 the 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 the
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 the Fund would have experienced on an annual basis from
changes in Share price and reinvestment of dividends and
capital gain distributions.
The yield of the Fund is determined by annualizing the
net investment income per Share of the Fund during a
specified thirty-day period and dividing that
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amount by the per Share public offering price of the Fund
on the last day of the period.
The distribution rate of the 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.
Each Fund may periodically compare its performance to
the performance of other mutual funds tracked by mutual
fund rating services (such as Lipper Analytical);
financial and business publications and periodicals; broad
groups of comparable mutual funds; unmanaged indices which
may assume investment of dividends but generally do not
reflect deductions for administrative and management
costs; or other investment alternatives. Certain Funds may
advertise performance that includes results from periods
in which the Fund's assets were managed in a
non-registered predecessor vehicle.
All performance information presented for the Fund is
based on past performance and does not predict future
performance.
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 HighMark will vote in the aggregate
and not by series or class except (i) as otherwise
expressly required by law or when HighMark'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
Retail Shares will be entitled to vote on matters
submitted to a Shareholder vote relating to the
Distribution Plan. HighMark is not required to hold
regular annual meetings of Shareholders, but may hold
special meetings from time to time.
HighMark'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 SEI Financial
Services Company, Oaks, Pennsylvania 19456, or by calling
toll free 1-800-433-6884.
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<PAGE> 210
DESCRIPTION OF
PERMITTED
INVESTMENTS The following is a description of permitted investments
for the HighMark Balanced Fund.
AMERICAN DEPOSITARY RECEIPTS (ADRs) -- ADRs are receipts
typically issued by a U.S. financial institution that
evidence ownership of underlying securities issued by a
foreign issuer.
ASSET-BACKED SECURITIES (NON-MORTGAGE) -- Instruments
secured by company receivables, truck and auto loans,
leases, and credit card receivables. Such securities are
generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the
underlying pools of assets. Such securities also may be
debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a
special purpose entity, such as a trust, organized solely
for the purpose of owning such assets and issuing such
debt. The purchase of non-mortgage assetbacked securities
raises risk considerations peculiar to the financing of
the instruments underlying such securities. Assetbacked
securities entail prepayment risk, which may vary
depending on the type of asset, but is generally less than
the prepayment risk associated with mortgage-backed
securities.
Like mortgages underlying mortgage-backed securities,
underlying automobile sales contracts or credit card
receivables are subject to substantial prepayment risk,
which may reduce the overall return to certificate
holders. Nevertheless, principal prepayment rates tend not
to vary as much in response to changes in 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 their
investment objectives and policies, the Fund may invest in
other asset-backed securities that may be developed in the
future.
BANKERS' ACCEPTANCES -- Bills of exchange or time drafts
drawn on and accepted by commercial banks. They are used
by corporations to finance the shipment and storage of
goods and to furnish dollar exchange. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT -- Negotiable interest-bearing
instruments with a specific maturity. Certificates of
deposit are issued by banks and savings and loan
institutions in exchange for the deposit of funds and
normally can be traded in the secondary market prior to
maturity.
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COMMERCIAL PAPER -- Unsecured short-term promissory
notes issued by corporations and other entities.
Maturities on these issues vary from a few days to nine
months. Purchase of such instruments involves a risk of
default by the issuer.
CONVERTIBLE BONDS AND CONVERTIBLE PREFERRED
STOCK -- Convertible Bonds are bonds convertible into a
set number of shares of another form of security (usually
common stock) at a prestated price. Convertible bonds have
characteristics similar to both fixed-income and equity
securities. Convertible preferred stock is a class of
capital stock that pays dividends at a specified rate and
that has preference over common stock in the payment of
dividends and the liquidation of assets. Convertible
preferred stock is preferred stock exchangeable for a
given number of common stock shares, and has
characteristics similar to both fixed-income and equity
securities. Because of the conversion feature, the market
value of convertible bonds and convertible preferred stock
tend to move together with the market value of the
underlying stock. As a result, a Fund's selection of
convertible bonds and convertible preferred stock is
based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The
value of convertible bonds and convertible preferred stock
is also affected by prevailing interest rates, the credit
quality of the issuer and any call provisions.
DERIVATIVES -- Instruments whose value is derived from
an underlying contract, index or security, or any
combination thereof, including futures, options (e.g.,
puts and calls), options on futures, swap agreements, and
some mortgage-backed securities (CMOs, REMICs, IOs and
POs). See elsewhere in this "DESCRIPTION OF PERMITTED
INVESTMENTS" for discussions of these various instruments,
and see "INVESTMENT OBJECTIVES" and "INVESTMENT POLICIES"
for more information about any policies and limitations
applicable to their use.
FUTURES AND OPTIONS ON FUTURES -- Some futures
strategies, including selling futures, buying puts and
writing calls, reduce a Fund's exposure to price
fluctuations. Other strategies, including buying futures,
writing puts and buying calls, tend to increase market
exposure. Futures and options may be combined with each
other in order to adjust the risk and return
characteristics of the overall portfolio.
Options and futures can be volatile instruments, and
involve certain risks that, if applied at an inappropriate
time, could negatively impact a Fund's return.
INVESTMENT GRADE BONDS -- Interest-bearing or discounted
government or corporate securities that obligate the
issuer to pay the bondholder a specified sum of money,
usually at specific intervals, and to repay the principal
amount of the loan at maturity. Investment grade bonds are
those rated BBB or
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better by S&P or Baa or better by Moody's or similarly
rated by other NRSROs, or, if not rated, determined to be
of comparable quality by the Advisor.
MONEY MARKET INSTRUMENTS -- Short-term, debt instruments
or deposits and may include, for example, (i) commercial
paper rated within the highest rating category by a NRSRO
at the time of investment, or, if not rated, determined by
the Advisor to be of comparable quality; (ii) obligations
(certificates of deposit, time deposits, bank master
notes, and bankers' acceptances) of thrift institutions,
savings and loans, U.S. commercial banks (including
foreign branches of such banks), and U.S. and foreign
branches of foreign banks, provided that such institutions
(or, in the case of a branch, the parent institution) have
total assets of $1 billion or more as shown on their last
published financial statements at the time of investment;
(iii) short-term corporate obligations rated within the
three highest rating categories by a NRSRO (e.g., at least
A by S&P or A by Moody's) at the time of investment, or,
if not rated, determined by the Advisor to be of
comparable quality; (iv) general obligations issued by the
U.S. Government and backed by its full faith and credit,
and obligations issued or guaranteed as to principal and
interest by agencies or instrumentalities of the U.S.
Government (e.g., obligations issued by Farmers Home
Administration, Government National Mortgage Association,
Federal Farm Credit Bank and Federal Housing
Administration); (v) receipts, including TRs, TIGRs and
CATS; (vi) repurchase agreements involving such
obligations; (vii) loan participations issued by a bank in
the United States with assets exceeding $1 billion and for
which the underlying loan is issued by borrowers in whose
obligations the Fund may invest; (viii) money market funds
and (ix) foreign commercial paper.
Certain of the obligations in which a Fund may invest
may be variable or floating rate instruments, may involve
conditional or unconditional demand features and may
include variable amount master demand notes.
MORTGAGE-BACKED SECURITIES -- Securities generally
issued or guaranteed by U.S. government agencies such as
GNMA, FNMA, or FHLMC. GNMA mortgage-backed certificates
are mortgage-backed securities of the modified
pass-through type, which means that both interest and
principal payments (including prepayments) are passed
through monthly to the holder of the certificate. Each
GNMA certificate evidences an interest in a specific pool
of mortgage loans insured by the Federal Housing
Administration or the Farmers Home Administration or
guaranteed by the Veterans Administration. FNMA, a
federally-chartered and stockholder-owned corporation,
issues pass-through certificates which are guaranteed as
to payment of principal and interest by FNMA. FHLMC, a
corporate instrumentality of the United States, issues
participation certificates which represent an interest in
mortgages held in FHLMC's portfolio. FHLMC guarantees the
timely payment of interest and the ultimate collection of
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principal. Securities issued or guaranteed by FNMA and
FHLMC are not backed by the full faith and credit of the
United States. There can be no assurance that the U.S.
government would provide financial support to FNMA or
FHLMC if necessary in the future.
Although payments on 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.
Adjustable rate mortgage securities ("ARMS") are
pass-through certificates representing ownership interests
in a pool of adjustable rate mortgages and the resulting
cash flow from those mortgages. Unlike conventional debt
securities, which provide for periodic (usually
semi-annual) payments of interest and payments of
principal at maturity or on specified call dates, ARMs
provide for monthly payments based on a pro rata share of
both periodic interest and principal payments and
prepayments of principal on the underlying mortgage pool
(less GNMA's, FNMA's, or FHLMC's fees and any applicable
loan servicing fees).
Collateralized mortgage obligations ("CMOs") are bonds
generally issued by single purpose, stand-alone finance
subsidiaries or trusts established by financial
institutions, government agencies, investment banks, or
other similar institutions, and collateralized by pools of
mortgage loans. Payments of principal and interest on the
collateral mortgages are used to pay debt service on the
CMO. In a CMO,
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a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a
"tranche," is issued at a specific coupon rate and has a
stated maturity or final distribution date. The principal
and interest payment on the underlying mortgages may be
allocated among the classes of CMOs in several ways.
Typically, payments of principal, including any
prepayments, on the underlying mortgages would be applied
to the classes in the order of their respective stated
maturities or final distribution dates, so that no payment
of principal will be made on CMOs of a class until all
CMOs of other classes having earlier stated maturities or
final distribution dates have been paid in full.
One or more classes of CMOs may have coupon rates that
reset periodically based on an index, such as the London
Interbank Offered Rate ("LIBOR"). Each Fund may purchase
fixed, adjustable, or "floating" rate CMOs that are
collateralized by fixed rate or adjustable rate mortgages
that are guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S.
government or are directly guaranteed as to payment of
principal and interest by the issuer, which guarantee is
collateralized by U.S. government securities or is
collateralized by privately issued fixed rate or
adjustable rate mortgages.
Securities such as zero-coupon obligations,
mortgage-backed and asset-backed securities, and
collateralized mortgage obligations ("CMOs") will have
greater price volatility then other fixed-income
obligations. Because declining interest rates may lead to
prepayment of underlying mortgages, automobile sales
contracts or credit card receivables, the prices of
mortgage-related and asset-backed securities may not rise
with a decline in interest rates. Mortgage-backed and
asset-backed securities and CMOs are extremely sensitive
to the rate of principal prepayment. Similarly, callable
corporate bonds also present risk of prepayment. During
periods of falling interest rates, securities that can be
called or prepaid may decline in value relative to similar
securities that are not subject to call or prepayment.
Real Estate Mortgage Investment Conduits ("REMICs") are
private entities formed for the purpose of holding a fixed
pool of mortgages secured by an interest in real property.
REMICs are similar to CMOs in that they issue multiple
classes of securities.
OPTIONS -- Under a call option, the purchaser of the
option has the right to purchase, and the writer (the
Fund) the obligation to sell, the underlying security at
the exercise price during the option period. A put option
gives the purchaser the right to sell, and the writer the
obligation to purchase, the underlying security at the
exercise price during the option period.
In addition, certain Funds may buy options on stock
indices to invest cash on an interim basis. Such options
will be listed on a national securities exchange. In
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order to close out an option position, a Fund may enter
into a "closing purchase transaction" -- the purchase of
an option on the same security with the same exercise
price and expiration date as the option contract
previously written on any particular security. When the
security is sold, a Fund effects a closing purchase
transaction so as to close out any existing option on that
security.
There are risks associated with such investments
including the following: (1) the success of a hedging
strategy may depend on the ability of the Advisor or
Sub-Advisor to predict movements in the prices of
individual securities, fluctuations in markets and
movements in interest rates; (2) there may be an imperfect
correlation between the movement in prices of securities
held by a Fund and the price of options; (3) there may not
be a liquid secondary market for options; and (4) while a
Fund will receive a premium when it writes covered call
options, it may not participate fully in a rise in the
market value of the underlying security.
RECEIPTS -- Interests in separately traded interest and
principal component parts of U.S. Treasury obligations
that are issued by banks and brokerage firms and are
created by depositing Treasury notes and Treasury bonds
into a special account at a custodian bank. The custodian
holds the interest and principal payments for the benefit
of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and
maintains the register. Receipts include "Treasury
Receipts" ("TR's"), "Treasury Investment Growth Receipts"
("TIGR's"), and "Certificates of Accrual on Treasury
Securities" ("CATS"). TR's, TIGR's and CATS are sold as
zero coupon securities, which means that they are sold at
a substantial discount and redeemed at face value at their
maturity date without interim cash payments of interest or
principal. This discount is accreted over the life of the
security, and such accretion will constitute the income
earned on the security for both accounting and tax
purposes. Because of these features, such securities may
be subject to greater interest rate volatility than
interest-paying securities. See also "FEDERAL TAXATION."
REPURCHASE AGREEMENTS -- Agreements whereby a 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 agreements entered into by the Funds will
provide that the underlying security at all times shall
have a value equal to 102% of the resale price stated in
the agreement. Repurchase agreements involving government
securities are not subject to a Fund's fundamental
investment limitation on purchasing securities of any one
issuer. 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
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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").
REVERSE REPURCHASE AGREEMENTS -- A 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 10%
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 102% of 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 1940
Act.
RULE 144A SECURITIES -- Rule 144A Securities are
securities that have not been registered under the
Securities Act of 1933, but which may be traded between
certain qualified institutional investors, including
investment companies. The absence of a secondary market
may affect the value of the Rule 144A Securities. The
Board of Trustees of HighMark has established guidelines
and procedures to be utilized to determine the liquidity
of such securities.
SECURITIES ISSUED ON A FORWARD COMMITMENT BASIS OR
WHEN-ISSUED SECURITIES -- Securities 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 or enter
into forward commitments, HighMark's custodian will be
instructed to 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. Therefore,
the purchase of
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securities on a "when-issued" basis or forward commitments
may increase the risk of fluctuations in a Fund's net
asset value.
SECURITIES LENDING -- 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 the lending agent, with oversight by the Advisor,
and, should the market value of the loaned securities
increase, the borrower will be required to furnish
additional collateral to the Fund.
SECURITIES SUBJECT TO A PUT FEATURE -- A "put" feature
permits a Fund to sell a fixed income security at a fixed
price prior to maturity. The underlying fixed income
securities subject to a put may be sold at any time at the
market rates. However, unless the put was an integral part
of the fixed income security as originally issued, it may
not be marketable or assignable. Generally, a premium is
paid for a put feature or a put feature is purchased
separately which results in a lower yield than would
otherwise be available for the same fixed income
securities.
STANDARD & POOR'S DEPOSITARY RECEIPTS (SPDRs) -- SPDRs
are interests in a unit investment trust holding a
portfolio of securities linked to the S&P 500 Index. SPDRs
closely track the underlying portfolio of securities,
trade like a share of common stock and pay periodic
dividends proportionate to those paid by the portfolio of
stocks that constitutes the S&P 500 Index. For further
information regarding SPDRs, see the Statement of
Additional Information.
TAX-EXEMPT COMMERCIAL PAPER -- Commercial paper, which
is commercial paper issued by governments and political
subdivisions.
TIME DEPOSITS -- Non-negotiable receipts issued by U.S.
or foreign banks in exchange for the deposit of funds.
Like certificates of deposit, they earn a specified rate
of interest over a definite period of time; however, they
cannot be traded in the secondary market. Time deposits
with a withdrawal penalty are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCY SECURITIES -- Certain Federal
agencies have been established as instrumentalities of the
U.S. Government to supervise and finance certain types of
activities. Issues of these agencies, while not direct
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obligations of the U.S. Government, are either backed by
the full faith and credit of the United States (e.g., GNMA
securities) or supported by the issuing agencies' right to
borrow from the U.S. Treasury. The issues of other
agencies are supported only by the credit of the
instrumentality (e.g., FNMA securities).
U.S. TREASURY OBLIGATIONS -- Bills, notes, and bonds
issued by the U.S. Treasury, as well as separately traded
interest and principal component parts of such obligations
known as Separately Traded Registered Interest and
Principal Securities ("STRIPS") that are transferable
through the Federal book-entry system.
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 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 a
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.
VARIABLE AND FLOATING RATE INSTRUMENTS -- Obligations
that may carry variable or floating rates of interest, may
involve conditional or unconditional demand features and
may include variable amount master demand notes. The
interest rates on these securities may be reset daily,
weekly, quarterly or some other reset period, and may have
a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations
may not accurately reflect existing market interest rates.
A demand instrument with a demand notice period exceeding
seven days may be considered illiquid if there is no
secondary market for such security.
WARRANTS -- Securities that entitle the holder to buy a
proportionate amount of common stock at a specified price
for a limited or unlimited period of time. Warrants are
often freely transferable and are traded on major stock
exchanges.
YANKEE BONDS -- Dollar denominated securities issued by
foreign-domiciled issuers that obligate the issuer to pay
the bondholder a specified sum of money, usually
semiannually, and to repay the principal amount of the
loan at maturity. Sovereign bonds are bonds issued by the
governments of foreign countries. Supranational bonds are
those issued by supranational entities, such as
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the World Bank and European Investment Bank. Canadian
bonds are bonds issued by Canadian provinces.
ZERO-COUPON OBLIGATIONS -- Non-income producing
securities evidencing ownership of future interest and
principal payments on bonds. 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.
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HighMark BALANCED FUND
INVESTMENT PORTFOLIO OF
HighMark FUNDS
For further information (including current
yield, purchase and redemption information),
call 1-(800) 433-6884
INVESTMENT ADVISOR
Pacific Alliance Capital Management,
a division of Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
SEI Fund Resources and
SEI Financial Services Company
Oaks, Pennsylvania 19456
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 HIGHMARK OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY HIGHMARK OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
NOT FDIC INSURED
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[HIGHMARK LOGO]
HIGHMARK FUNDS
TRS-17236(R12/95)
