<PAGE> 1
- International Equity
Fund
Prospectus
Fiduciary Shares
March 28, 1997
84827-A(3/97) [LOGO] HIGHMARK(SM)
FUNDS
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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.
March 28, 1997
Fiduciary Shares
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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
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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
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PAGE
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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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INTERNATIONAL EQUITY FUND FEE TABLE
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY FUND
FIDUCIARY
SHARES
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<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%
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</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.
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(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.
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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.
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(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.
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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.
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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
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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.
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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
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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
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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
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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> 14
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> 15
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> 16
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.
15
<PAGE> 17
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.
16
<PAGE> 18
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
17
<PAGE> 19
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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<PAGE> 20
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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<PAGE> 21
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.
20
<PAGE> 22
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
21
<PAGE> 23
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.
22
<PAGE> 24
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
23
<PAGE> 25
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
24
<PAGE> 26
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
25
<PAGE> 27
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
26
<PAGE> 28
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> 29
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> 30
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> 31
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
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> 32
MONEY MARKET FUNDS
- Diversified Money
Market Fund
- U.S. Government Money
Market Fund
- 100% U.S. Treasury
Money Market Fund
- California Tax-Free
Money Market Fund
Prospectus
Fiduciary Shares
March 28, 1997
84822-A(3/97) [LOGO] HIGHMARK(SM)
FUNDS
<PAGE> 33
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.
March 28, 1997
Fiduciary Shares
<PAGE> 34
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> 35
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> 36
<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> 37
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> 38
(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> 39
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> 40
<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> 41
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,
---------------------------------- ----------
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 0.083 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> 42
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> 43
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> 44
<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> 45
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> 46
<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> 47
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> 48
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> 49
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> 50
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> 51
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> 52
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.
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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.
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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.
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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
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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
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<PAGE> 57
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> 58
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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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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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
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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> 62
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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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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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> 65
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.
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<PAGE> 66
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> 67
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> 68
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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<PAGE> 69
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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<PAGE> 70
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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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
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<PAGE> 73
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> 74
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
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<PAGE> 75
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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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 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
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> 78
FIXED INCOME FUNDS
- Intermediate-Term
Bond Fund
- Bond Fund
Prospectus
Retail Shares
March 28, 1997
84824-B(3/97) [LOGO] HIGHMARK(SM)
FUNDS
<PAGE> 79
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
RETAIL SHARES
HighMark's Retail Shares are offered to investors who are not fiduciary
clients of Union Bank of California, N.A., and who are not otherwise eligible
for HighMark's Fiduciary Shares.
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 Retail 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.
March 28, 1997
Retail Shares
<PAGE> 80
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
Retail Shares of the Intermediate-Term Bond and Bond 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.
(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. (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 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
2
<PAGE> 81
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 (plus any applicable sales charge). 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 "HOW TO PURCHASE SHARES 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 Objectives.................................................................. 10
Investment Policies.................................................................... 10
Intermediate-Term Bond Fund.......................................................... 10
Bond Fund............................................................................ 11
General................................................................................ 11
Money Market Instruments............................................................. 11
Illiquid and Restricted Securities................................................... 12
Lending of Portfolio Securities...................................................... 12
Other Investments.................................................................... 12
Risk Factors......................................................................... 13
Investment Limitations................................................................. 14
Portfolio Turnover................................................................... 15
How To Purchase Shares................................................................. 15
How to Purchase By Mail.............................................................. 16
How to Purchase By Wire.............................................................. 17
How to Purchase through an Automatic Investment Plan ("AIP")......................... 17
How to Purchase Through Financial Institutions....................................... 17
Sales Charges........................................................................ 18
Letter of Intent..................................................................... 19
Rights of Accumulation............................................................... 19
Sales Charge Waivers................................................................. 19
Reductions for Qualified Groups...................................................... 21
Exchange Privileges.................................................................... 21
</TABLE>
3
<PAGE> 82
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Redemption of Shares................................................................... 23
By Mail.............................................................................. 23
Telephone Transactions............................................................... 23
Systematic Withdrawal Plan ("SWP")................................................... 24
Other Information Regarding Redemptions.............................................. 24
Dividends.............................................................................. 25
Federal Taxation....................................................................... 25
Service Arrangements................................................................... 27
The Advisor.......................................................................... 27
Administrator........................................................................ 28
The Transfer Agent................................................................... 28
Shareholder Service Plan............................................................. 28
Distributor.......................................................................... 29
The Distribution Plan................................................................ 29
Banking Laws......................................................................... 30
Custodian............................................................................ 31
General Information.................................................................... 31
Description of HighMark & Its Shares................................................. 31
Performance Information.............................................................. 32
Miscellaneous........................................................................ 33
Description of Permitted Investments................................................... 33
</TABLE>
4
<PAGE> 83
FIXED INCOME FUNDS FEE TABLE
<TABLE>
<CAPTION>
INTERMEDIATE-TERM
BOND FUND BOND FUND
RETAIL RETAIL
SHARES SHARES
----------------- ---------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
Maximum Sales Load Imposed on Purchases 3.00% 3.00%
(as a percentage of offering price).............................
Maximum Sales Load Imposed on Reinvested Dividends 0% 0%
(as a percentage of offering price).............................
Deferred Sales Load (as a percentage of original purchase price 0% 0%
or redemption proceeds, as applicable)(b).......................
Redemption Fees (as a percentage of amount redeemed, if 0% 0%
applicable)(c)..................................................
Exchange Fee(a).................................................. $ 0 $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees.................................................. 0.50% 0.50%
12b-1 Fees (after voluntary reduction)(d)........................ 0.00% 0.00%
Other Expenses (after voluntary reduction)(e).................... 0.25% 0.25%
----- ---- -
Total Fund Operating Expenses (after voluntary reduction)(f)..... 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
Retail Shares.................................................. $37 $53 $70 $120
Bond Fund
Retail Shares.................................................. $37 $53 $70 $120
</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.
Long-term shareholders of Retail Shares may pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by rules
of the National Association of Securities Dealers, Inc.
- ---------
(a) Certain entities (including 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 HOW TO PURCHASE
SHARES, EXCHANGE PRIVILEGES, REDEMPTION OF SHARES, and SERVICE ARRANGEMENTS
below.)
5
<PAGE> 84
(b) A Contingent Deferred Sales Charge of 1.00% will be assessed against the
proceeds of any redemption request relating to Retail Shares of the Funds
that were purchased without a sales charge in reliance upon the waiver
accorded to purchases in the amount of $1 million or more, but only where
such redemption request is made within one year of the date the Shares
were purchased.
(c) 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.)
(d) As indicated under SERVICE ARRANGEMENTS--The Distribution Plan below, the
Distributor may voluntarily reduce the 12b-1 fee. Absent voluntary fee
waivers, 12b-1 fees would be 0.25% for each Fund. The Distributor reserves
the right to terminate its waiver at any time in its sole discretion.
(e) OTHER EXPENSES for the Intermediate-Term Bond Fund are based on that
Fund's estimated expenses for the current fiscal year. Absent voluntary
fee waivers, OTHER EXPENSES would be 0.49% for the Retail Shares of the
Intermediate-Term Bond Fund and 0.51% for the Retail Shares of the Bond
Fund.
(f) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.24% for the Retail Shares of the Intermediate-Term Bond Fund, and 1.26%
for the Retail Shares of the Bond Fund.
6
<PAGE> 85
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect to the
Retail 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 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.
7
<PAGE> 86
BOND FUND
<TABLE>
<CAPTION>
JUNE 23,
YEAR ENDED JUNE 20, 1988
JULY 31, 1994 YEAR ENDED JULY 31, TO
--------------- TO JULY 31, --------------------------------------------------------- JULY 31,
1996 1995 1994(A)(B) 1993 1992 1991 1990 1989 1988(F)
------ ------ ----------- --------- --------- --------- --------- --------- ---------
RETAIL RETAIL RETAIL FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY
------ ------ ---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period............ $10.29 $10.04 $ 10.12 $ 11.02 $ 10.29 $ 10.18 $ 10.42 $ 9.86 $ 10.00
------ ------ ------ ------- ------- ------- ------ ------ ------
Investment Activities
Net investment
income............ 0.69 0.66 0.07 0.70 0.67 0.78 0.79 0.82 0.09
Net realized and
unrealized gains
(losses) on
investments....... (0.18) 0.23 (0.05) 0.35 0.77 0.04 (0.25) 0.56 (0.14)
------ ------ ------ ------- ------- ------- ------ ------ ------
Total from
Investment
Activities...... 0.51 0.89 0.02 1.05 1.44 0.82 0.54 1.38 (0.05)
------ ------ ------ ------- ------- ------- ------ ------ ------
Distributions
Net investment
income............ (0.65) (0.64) (0.10) (0.70) (0.67) (0.71) (0.78) (0.82) (0.09)
Net realized
gains............. -- -- -- (0.24) (0.04) -- -- -- --
------ ------ ------ ------- ------- ------- ------ ------ ------
Total
Distributions... (0.65) (0.64) (0.10) (0.94) (0.71) (0.71) (0.78) (0.82) (0.09)
------ ------ ------ ------- ------- ------- ------ ------ ------
Net Asset Value, End
of Period........... $10.15 $10.29 $ 10.04 $ 11.13 $ 11.02 $ 10.29 $ 10.18 $ 10.42 $ 9.86
====== ====== ====== ======= ======= ======= ====== ====== ======
Total Return.......... 4.95% 9.29% (3.81)%(c)(e) 10.07% 14.43% 8.99% 5.52% 14.79% (0.96)%(e)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........ $1,157 $ 558 $ 7 $33,279 $21,651 $10,799 $ 6,974 $ 4,655 $ 3,487
Ratio of expenses to
average net
assets.............. 0.89% 0.92% 0.99%(d) 0.93% 0.91% 0.79% 1.01% 1.18% 1.04%(d)
Ratio of net
investment income to
average net
assets.............. 6.10% 6.29% 5.77%(d) 6.41% 6.23% 7.61% 7.77% 8.24% 8.63%(d)
Ratio of expenses to
average net
assets*............. 1.85% 1.89% 2.96%(d) 1.55% 1.55% 1.59% 1.94% 2.11% 2.06%(d)
Ratio of net
investment income to
average net
assets*............. 5.14% 5.32% 3.80%(d) 5.79% 5.59% 6.81% 6.84% 7.31% 7.61%(d)
Portfolio turnover.... 20.65% 36.20% 44.33% 58.81% 79.56% 65.81% 53.50% 24.83% 0.00%
</TABLE>
- ---------------
(a) Period from commencement of operations.
(b) On June 20, 1994, the Bond Fund commenced offering Investor Shares (now
called "Retail Shares") and designated existing shares as Fiduciary Shares.
(c) Represents total return for the Fiduciary Shares for the period from August
1, 1993 to June 19, 1994 plus the total return for the Investor Shares for
the period from June 20, 1994 to July 31, 1994.
(d) Annualized.
(e) Not annualized.
(f) 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> 87
PER SHARE INCOME AND CAPITAL CHANGES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS)
THE IRA COLLECTIVE INVESTMENT FUND BOND PORTFOLIO
<TABLE>
<CAPTION>
JANUARY 1,
1988 THROUGH YEAR ENDED YEAR ENDED
JUNE 22, 1988 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1987 1986
------------- ------------ ------------
<S> <C> <C> <C>
Investment income...................................... $ 0.503 $ 1.061 $ 1.129
Operating expenses..................................... 0.065 0.128(b) 0.119(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>
JANUARY 1,
1988 THROUGH YEAR ENDED YEAR ENDED
JUNE 22, 1988 DECEMBER 31, DECEMBER 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> 88
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
"Adviser"), 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 Retail Shares, sales charges and the operation
of HighMark's Distribution Plan, see HOW TO PURCHASE
SHARES AND SERVICE ARRANGEMENTS below. (Retail Shares may
be hereinafter referred to as "Shares.")
INVESTMENT The investment objectives of the Funds are as follows:
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 investment objectives and certain of the investment
limitations of the Intermediate-Term Bond Fund and the
Bond Fund may not be changed without a vote of the holders
of a majority of the outstanding Shares of the respective
Fund (as defined under GENERAL INFORMATION--Miscellaneous
below). There can be no assurance that a Fund will achieve
its investment objective.
INVESTMENT Intermediate-Term Bond Fund
POLICIES
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 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
10
<PAGE> 89
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. 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
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.
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, each Fixed Income Fund
may invest up to 35% of its total assets in money market
instruments. When market conditions
11
<PAGE> 90
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 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, 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 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
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<PAGE> 91
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 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.
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<PAGE> 92
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 developments, possible
seizure, nationalization or expropriation of foreign
investments, less stringent disclosure requirements,
changes in foreign currency exchange rates, increased
costs associated with the conversion of foreign currency
into U.S. dollars, the possible establishment of exchange
controls or taxation at the source or the adoption of
other foreign governmental restrictions. To the extent
that a Fund 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 Each 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, 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
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<PAGE> 93
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.
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.
HOW TO As noted above, each Fund is divided into two classes of
PURCHASE SHARES Shares, Retail and Fiduciary. Retail Shares may be
purchased at net asset value plus a sales charge. For a
description of investors who qualify to purchase Fiduciary
Shares, see the Fiduciary Shares prospectus of the Fixed
Income Funds. HighMark's Retail Shares are offered to
investors who are not fiduciary clients of Union Bank of
California, N.A., and who are not otherwise eligible for
HighMark's Fiduciary Class.
Retail Shares are sold on a continuous basis by
HighMark's Distributor, SEI Financial Services Company.
The principal office of the Distributor is Oaks,
Pennsylvania 19456. If you wish to purchase Shares, you
may contact your investment professional or telephone
HighMark at 1-800-433-6884.
The minimum initial investment is generally $1,000 for
each Fund 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
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<PAGE> 94
affiliates, the minimum initial investment is $250 and the
minimum subsequent investment is $50. A Fund's initial and
subsequent minimum purchase amounts may be waived if
purchases are made in connection with Individual
Retirement Accounts, Keoghs, payroll deduction plans,
401(k) or similar programs or accounts. Purchases and
redemption of Shares of the Funds may be made on days on
which both the New York Stock Exchange and the Federal
Reserve wire system are open for business ("Business
Days").
Purchase orders for Shares will be executed at a per
Share price equal to the net asset value next determined
after the receipt of the purchase order by the Distributor
(plus any applicable sales charge). The net asset value
per Share of a Fund is determined by dividing the total
market value of the Fund's investments and other assets,
less any liabilities, by the total number of outstanding
Shares of the Fund. Net asset value per Share is
determined daily as of 1:00 p.m., Pacific time (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 or the
Advisor determines that it is not in the best interest of
HighMark and/or its Shareholders to accept such order.
The securities in each Fund will be valued at market
value. If market quotations are not available, the
securities will be valued by a method that HighMark's
Board of Trustees believes accurately reflects fair value.
For further information about valuation of investments in
the Fixed Income Funds, see the Statement of Additional
Information.
Shares of the Funds are offered only to residents of
states in which the Shares are eligible for purchase.
How to Purchase By Mail
You may purchase Shares of the Intermediate-Term Bond
and Bond Funds by completing and signing an Account
Application form and mailing it, along with a check (or
other negotiable bank instrument or money order) payable
to "HighMark Funds (Fund Name)," to the Transfer agent at
P.O. Box 8416, Boston, Massachusetts 02266-8416. All
purchases made by check should be in U.S. dollars and made
payable to "HighMark Funds (Fund Name)." Third party
checks, credit card checks or cash will not be accepted.
You may purchase more Shares at any time by mailing
payment also to the transfer agent at the above address.
Orders placed by mail will be executed on receipt of your
payment. If your check does not clear, your purchase will
be canceled and you could be liable for any losses or fees
incurred.
You may obtain Account Application Forms for the
Intermediate-Term Bond and Bond Funds by calling the
Distributor at 1-800-433-6884.
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<PAGE> 95
How to Purchase By Wire
You may purchase Shares of the Intermediate-Term Bond
and Bond Funds by wiring Federal funds, provided that your
Account Application has been previously received. You must
wire funds to the transfer agent and the wire instructions
must include your account number. You must call the
transfer agent at 1-800-433-6884 before wiring any funds.
An order to purchase Shares by Federal funds wire will be
deemed to have been received by a Fund on the Business Day
of the wire; provided that the Shareholder wires funds to
the transfer agent prior to 1:00 p.m., Pacific time (4:00
p.m., Eastern time). If the transfer agent does not
receive the wire by 1:00 p.m., Pacific time (4:00 p.m.,
Eastern time), the order will be executed on the next
Business Day.
How to Purchase through an Automatic Investment Plan
("AIP")
You may arrange for periodic additional investments in
the Intermediate-Term Bond and Bond Funds through
automatic deductions by Automated Clearing House ("ACH")
from a checking account by completing this section in the
Account Application form. The minimum pre-authorized
investment amount is $100 per month. The AIP is available
only for additional investments to an existing account.
How to Purchase Through Financial Institutions
Shares of the Funds may be purchased through financial
institutions, including the Advisor, that provide
distribution assistance or Shareholder services. Shares
purchased by persons ("Customers") through financial
institutions may be held of record by the financial
institution. Financial institutions may impose an earlier
cut-off time for receipt of purchase orders directed
through them to allow for processing and transmittal of
these orders to the transfer agent for effectiveness the
same day. Customers should contact their financial
institution for information as to that institution's
procedures for transmitting purchase, exchange or
redemption orders to HighMark.
Customers who desire to transfer the registration of
Shares beneficially owned by them but held of record by a
financial institution should contact the institution to
accomplish such change.
Depending upon the terms of a particular Customer
account, a financial institution may charge a Customer
account fees. Information concerning these services and
any charges will be provided to the Customer by the
financial institution.
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<PAGE> 96
Sales Charges
The following table shows the regular sales charge on
Retail Shares to a "single purchaser" (defined below)
together with the dealer discount paid to dealers and the
agency commission paid to brokers (collectively the
"commission"):
<TABLE>
<CAPTION>
SALES CHARGE AS
SALES CHARGE AS APPROPRIATE COMMISSION AS
A PERCENTAGE OF PERCENTAGE OF NET PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
----------------------------- --------------- ----------------- --------------
<S> <C> <C> <C>
0-$24,999.................... 3.00% 3.09% 2.70%
$25,000-$49,000.............. 2.50% 2.56% 2.25%
$50,000-$99,000.............. 2.00% 2.04% 1.80%
$100,000-$249,999............ 1.50% 1.52% 1.35%
$250,000-$999,999............ 1.00% 1.01% 0.90%
$1,000,000 and Over.......... 0.00%* 0.00% 0.00%
---------
* A contingent deferred sales charge of 1.00% will be assessed against any
proceeds of any redemption of such Retail Shares prior to one year from date of
purchase.
</TABLE>
The commissions shown in the table apply to sales
through authorized dealers and brokers. Under certain
circumstances, the Distributor may use its own funds to
compensate financial institutions and intermediaries in
amounts that are additional to the commissions shown
above. In addition, the Distributor may, from time to time
and at its own expense, provide promotional incentives in
the form of cash or other compensation to certain
financial institutions and intermediaries whose registered
representatives have sold or are expected to sell
significant amounts of the Retail Shares of a Fund. Such
other compensation may take the form of payments for
travel expenses, including lodging, incurred in connection
with trips taken by qualifying registered representatives
to places within or without the United States. Under
certain circumstances, commissions up to the amount of the
entire sales charge may be reallowed to dealers or
brokers, who might then be deemed to be "underwriters"
under the Securities Act of 1933. Commission rates may
vary among the Funds.
In calculating the sales charge rates applicable to
current purchases of a Fund's Shares, a "single purchaser"
is entitled to cumulate current purchases with the net
purchase of previously purchased Shares of a Fund and
other of HighMark's funds (the "Eligible Funds") which are
sold subject to a comparable sales charge.
The term "single purchaser" refers to (i) an individual,
(ii) an individual and spouse purchasing Shares of a Fund
for their own account or for trust or custodial accounts
for their minor children, or (iii) a fiduciary purchasing
for any one trust,
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<PAGE> 97
estate or fiduciary account including employee benefit
plans created under Sections 401, 403(b) or 457 of the
Internal Revenue Code of 1986, as amended (the "Code"),
including related plans of the same employer. To be
entitled to a reduced sales charge based upon Shares
already owned, the investor must ask the Distributor for
such entitlement at the time of purchase and provide the
account number(s) of the investor, the investor and
spouse, and their minor children, and give the age of such
children. A Fund may amend or terminate this right of
accumulation at any time as to subsequent purchases.
Letter of Intent
By initially investing at least $1,000 and submitting a
Letter of Intent (the "Letter") to the Distributor, a
"single purchaser" may purchase Shares of a Fund and the
other Eligible Funds during a 13-month period at the
reduced sales charge rates applicable to the aggregate
amount of the intended purchases stated in the Letter. The
Letter may apply to purchases made up to 90 days before
the date of the Letter. To receive credit for such prior
purchases and later purchases benefitting from the Letter,
the Shareholder must notify the transfer agent at the time
the Letter is submitted that there are prior purchases
that may apply, and, at the time of later purchases,
notify the transfer agent that such purchases are
applicable under the Letter.
Rights of Accumulation
In calculating the sales charge rates applicable to
current purchases of Retail Shares, a "single purchaser"
is entitled to cumulate current purchases with the current
market value of previously purchased Retail Shares of the
Funds sold subject to a comparable sales charge.
To exercise your right of accumulation based upon Shares
you already own, you must ask the Distributor for this
reduced sales charge at the time of your additional
purchase and provide the account number(s) of the
investor, as applicable, the investor and spouse, and
their minor children. The Funds may amend or terminate
this right of accumulation at any time as to subsequent
purchases.
Sales Charge Waivers
The following categories of investors may purchase
Retail Shares of the Funds with no sales charge in the
manner described below (which may be changed or eliminated
at any time by the Distributor):
(1) Existing holders of Retail Shares of a Fund upon
the reinvestment of dividend and capital gain
distributions on those Shares;
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<PAGE> 98
(2) Investment companies advised by Pacific Alliance
Capital Management or distributed by SEI Financial
Services Company or its affiliates placing orders on each
entity's behalf;
(3) State and local governments;
(4) Individuals who have received distributions from
employee benefit trust accounts administered by Union Bank
of California who are rolling over such distributions into
an individual retirement account for which the Bank serves
as trustee or custodian;
(5) Individuals who purchase Shares with proceeds from
a required minimum distribution at age 70 1/2 from their
employee benefit qualified plan or an individual
retirement account administered by Union Bank of
California;
(6) Individuals who purchase Shares with proceeds
received in connection with a distribution paid from a
Union Bank of California trust or agency account;
(7) Investment advisors or financial planners regulated
by a federal or state governmental authority who are
purchasing Shares for their own account or for an account
for which they are authorized to make investment decisions
(i.e., a discretionary account) and who charge a
management, consulting or other fee for their services;
and clients of such investment advisors or financial
planners who place trades for their own accounts if the
accounts are linked to the master account of such
investment advisor or financial planner on the books and
records of a broker or agent;
(8) Investors purchasing Shares with proceeds from a
redemption of Shares of another open-end investment
company (other than The HighMark Funds) on which a sales
charge was paid if such redemption occurred within thirty
(30) days prior to the date of the purchase order.
Satisfactory evidence of the purchaser's eligibility must
be provided at the time of purchase (e.g., a confirmation
of the redemption);
(9) Brokers, dealers and agents who are purchasing for
their own account and who have a sales agreement with the
Distributor, and their employees (and their spouses and
children under the age of 21);
(10) Investors purchasing Shares on behalf of a
qualified prototype retirement plan (other than an IRA,
SEP-IRA or Keogh) sponsored by Union Bank of California;
(11) Purchasers of Retail Shares of the Growth Fund that
are sponsors of other investment companies that are unit
investment trusts for deposit by such
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<PAGE> 99
sponsors into such unit investment trusts, and to
purchasers of Retail Shares of the Growth Fund that are
holders of such unit investment trusts that invest
distributions from such investment trusts in Retail Shares
of the Growth Fund;
(12) 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 or their affiliated companies; and
(13) Investors receiving Shares issued in plans of
reorganization, such as mergers, asset acquisitions, and
exchange offers, to which HighMark is a party.
With regard to categories 2 through 12 above, the
Distributor must be notified that the purchase qualifies
for a sales charge waiver at the time of purchase.
Reductions for Qualified Groups
Reductions in sales charges also apply to purchases by
individual members of a "qualified group." The reductions
are based on the aggregate dollar amount of Shares
purchased by all members of the qualified group. For
purposes of this paragraph, a qualified group consists of
a "company," as defined in the 1940 Act, which has been in
existence for more than six months and which has a primary
purpose other than acquiring Shares of a Fund at a reduced
sales charge, and the "related parties" of such company.
For purposes of this paragraph, a "related party" of a
company is (i) any individual or other company who
directly or indirectly owns, controls or has the power to
vote five percent or more of the outstanding voting
securities of such company; (ii) any other company of
which such company directly or indirectly owns, controls
or has the power to vote five percent or more of its
outstanding voting securities; (iii) any other company
under common control with such company; (iv) any executive
officer, director or partner of such company or of a
related party; and (v) any partnership of which such
company is a partner. Investors seeking to rely on their
membership in a qualified group to purchase Shares at a
reduced sales load must provide evidence satisfactory to
the transfer agent of the existence of a bona fide
qualified group and their membership therein.
All orders from a qualified group will have to be placed
through a single source and identified at the time of
purchase as originating from the same qualified group,
although such orders may be placed into more than one
discrete account that identifies HighMark.
EXCHANGE As indicated under GENERAL INFORMATION--Description of
PRIVILEGES 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,
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<PAGE> 100
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.
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 Retail Shares for Retail
Shares of a Fund with the same or lower sales charge on
the basis of the relative net asset value of the Retail
Shares exchanged. Shareholders may exchange their Retail
Shares for Retail Shares of a Fund with a higher sales
charge by paying the difference between the two sales
charges. Shareholders may also exchange Retail Shares of a
Money Market Fund for which no sales load was paid for
Retail Shares of a Fixed Income Fund. Under such
circumstances, the cost of the acquired Retail Shares will
be the net asset value per share plus the appropriate
sales load. If Retail Shares of the Money Market Fund were
acquired in a previous exchange involving Shares of a
non-money market HighMark Fund, then such Shares of the
Money Market Fund may be exchanged for Shares of a Fixed
Income Fund without payment of any additional sales load
within a twelve month period. In order to receive a
reduced sales charge when exchanging into a Fund, the
Shareholder must notify HighMark that a sales charge was
originally paid and provide sufficient information to
permit confirmation of qualification.
Exchanges will be made on the basis of the relative net
asset values of the Shares exchanged plus any applicable
sales charge. Exchanges are subject to the terms and
conditions stated herein and the terms and conditions
stated in the respective prospectuses of the Funds.
Certain entities (including Participating Organizations
and 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.
22
<PAGE> 101
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.
REDEMPTION You may redeem your Shares of the Intermediate-Term Bond
OF SHARES and Bond Funds without charge on any Business Day. There
is presently a $15 charge for wiring redemption proceeds
to a Shareholder's designated account. Shares may be
redeemed by mail, by telephone or through a pre-arranged
systematic withdrawal plan. Investors who own Shares held
by a financial institution should contact that institution
for information on how to redeem Shares.
By Mail
A written request for redemption of Shares of the
Intermediate-Term Bond and Bond Funds must be received by
the transfer agent, P.O. Box 8416, Boston, Massachusetts
02266-8416 in order to constitute a valid redemption
request.
If the redemption request exceeds $5,000, or if the
request directs the proceeds to be sent or wired to an
address different from that of record, the transfer agent
may require that the signature on the written redemption
request be guaranteed. You should be able to obtain a
signature guarantee from a bank, broker dealer, credit
union, securities exchange or association, clearing agency
or savings association. Notaries public cannot guarantee
signatures. The signature guarantee requirement will be
waived if all of the following conditions apply: (1) the
redemption is for not more than $5,000 worth of Shares,
(2) the redemption check is payable to the shareholder(s)
of record, and (3) the redemption check is mailed to the
shareholder(s) at his or her address of record.
Telephone Transactions
You may redeem your Shares of the Intermediate-Term Bond
and Bond Funds by calling the transfer agent at
1-800-433-6884. Under most circumstances, payments will be
transmitted on the next Business Day following receipt of
a valid request for redemption. You may have the proceeds
mailed to your address or wired to a commercial bank
account previously designated on your Account Application.
There is no charge for having redemption proceeds mailed
to you, but there is a $15 charge for wiring redemption
proceeds.
You may request a wire redemption for redemptions of
Shares of the Intermediate-Term Bond and Bond Funds in
excess of $500 by calling the transfer agent at
1-800-433-6884 who will deduct a wire charge of $15 from
the amount of the wire redemption. Shares cannot be
redeemed by Federal Reserve wire on Federal holidays
restricting wire transfers.
23
<PAGE> 102
Neither the transfer agent nor HighMark will be
responsible for any loss, liability, cost or expense for
acting upon wire or telephone instructions that it
reasonably believes to be genuine. HighMark and the
transfer agent will each employ reasonable procedures to
confirm that instructions communicated by telephone 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 consider placing your order by mail.
Systematic Withdrawal Plan ("SWP")
The Intermediate-Term Bond and Bond Funds offer a
Systematic Withdrawal Plan ("SWP"), which you may use to
receive regular distributions from your account. Upon
commencement of the SWP, your account must have a current
net asset value of $5,000 or more. You may elect to
receive automatic payments via check or ACH of $100 or
more on a monthly, quarterly, semi-annual or annual basis.
You may arrange to receive regular distributions from your
account via check or ACH by completing this section in the
Account Application form.
To participate in the SWP, you must have your dividends
automatically reinvested. You should realize that if your
automatic withdrawals exceed income dividends, your
invested principal in the account will be depleted. Thus,
depending on the frequency and amounts of the withdrawal
payments and/or any fluctuations in the net asset value
per Share, your original investment could be exhausted
entirely. You may change or cancel the SWP at any time on
written notice to the transfer agent. The transfer agent
may require that the signature on the written notice be
guaranteed.
It is generally not in your best interest to be
participating in the SWP at the same time that you are
purchasing additional Shares if you have to pay a sales
load in connection with such purchases.
Other Information Regarding Redemptions
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.
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<PAGE> 103
Payment to the Shareholders for Shares redeemed will be
made within seven days after the transfer agent receives
the valid redemption request. At various times, however, a
Fund may be requested to redeem Shares for which it has
not yet received good payment; collection of payment may
take ten or more days. In such circumstances, the
redemption request will be rejected by the Fund. Once a
Fund has received good payment for the Shares a
Shareholder may submit another request for redemption.
Due to the relatively high costs of handling small
investments, each Fund reserves the right to redeem your
Shares at net asset value if your account in any Fund has
a value of less than the minimum initial purchase amount.
Accordingly, if you purchase Shares of any Fund in only
the minimum investment amount, you may be subject to
involuntary redemption if you redeem any Shares. Before
any Fund exercises its right to redeem such Shares you
will be given notice that the value of the Shares in your
account is less than the minimum amount and will be
allowed 60 days to make an additional investment in such
Fund in an amount which will increase the value of the
account to at least the minimum amount.
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 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 Each Fixed Income Fund intends to qualify for treatment
TAXATION 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
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<PAGE> 104
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 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.
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<PAGE> 105
SERVICE The Advisor
ARRANGEMENTS
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 and the Bond 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 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
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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<PAGE> 106
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.
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 Retail 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% 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 Retail 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
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<PAGE> 107
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 and 0.01% for the Bond 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.
The Distribution Plan
Pursuant to HighMark's Distribution Plan, each Fixed
Income Fund pays the Distributor as compensation for its
services in connection with the Distribution Plan a
distribution fee, computed daily and paid monthly, equal
to twenty-five one-hundredths of one percent (0.25%) of
the average daily net assets attributable to that Fund's
Retail Shares. The Distributor has agreed to waive its
fees to 0.00% of the average daily net assets for each
Fund.
The Distributor may use the distribution fee applicable
to a Fund's Retail Shares to provide distribution
assistance with respect to the sale of the Fund's Retail
Shares or to provide Shareholder services to the holders
of the Fund's Retail Shares. The Distributor may also use
the distribution fee (i) to pay financial institutions and
intermediaries (such as insurance companies and investment
counselors but not including banks and savings and loan
associations), broker-dealers, and the Distributor's
affiliates and subsidiaries compensation for services or
reimbursement of expenses incurred in connection with the
distribution of a Fund's Retail Shares to their customers
or (ii) to pay banks, savings and loan associations, other
financial institutions and intermediaries, broker-dealers,
and the Distributor's affiliates and subsidiaries
compensation for services or reimbursement of expenses
incurred in connection with the provision of Shareholder
services to their customers owning a Fund's Retail Shares.
All payments by the Distributor for distribution
assistance or Shareholder services under the Distribution
Plan will be made pursuant to an agreement between the
Distributor and such bank, savings and loan association,
other financial institution or intermediary,
broker-dealer, or affiliate or subsidiary of the
Distributor (a
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<PAGE> 108
"Servicing Agreement"; banks, savings and loan
associations, other financial institutions and
intermediaries, broker-dealers, and the Distributor's
affiliates and subsidiaries that may enter into a
Servicing Agreement are hereinafter referred to
individually as a "Participating Organization"). A
Participating Organization may include Union Bank of
California, its subsidiaries and its affiliates.
Participating Organizations may charge customers fees in
connection with investments in a Fixed Income Fund on
their customers' behalf. Such fees would be in addition to
any amounts the Participating Organization may receive
pursuant to its Servicing Agreement. Under the terms of
the Servicing Agreements, Participating Organizations are
required to provide their customers with a schedule of
fees charged directly to such customers in connection with
investments in a Fund. Customers of Participating
Organizations should read this Prospectus in light of the
terms governing their accounts with the Participating
Organization.
The distribution fee under the Distribution Plan will be
payable without regard to whether the amount of the fee is
more or less than the actual expenses incurred in a
particular year by the Distributor in connection with
distribution assistance or Shareholder services rendered
by the Distributor itself or incurred by the Distributor
pursuant to the Servicing Agreements entered into under
the Distribution Plan. The Distributor may from time to
time voluntarily reduce its distribution fee with respect
to a Fixed Income Fund in significant amounts for
substantial periods of time pursuant to an agreement with
HighMark. While there can be no assurance that the
Distributor will choose to make such an agreement, any
voluntary reduction in the Distributor's distribution fee
will lower such Fixed Income Fund's expenses, and thus
increase such Fund's yield and total returns, during the
period such voluntary reductions are in effect.
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 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.
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<PAGE> 109
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 Description of HighMark & Its Shares
INFORMATION
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 Fiduciary Shares of
the Fixed Income Funds, interested persons may contact the
Distributor for a prospectus at 1-800-433-6884.
HighMark believes that as of November 22, 1996, there
was no person who owned of record or beneficially more
than 25% of the Retail Shares of the Bond Fund. As of
November 22, 1996, the Intermediate-Term Bond Fund had not
yet commenced operations in HighMark.
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<PAGE> 110
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 Retail 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 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.
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<PAGE> 111
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 The following is a description of permitted investments
PERMITTED for the HighMark Fixed Income Funds.
INVESTMENTS
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,
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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 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
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<PAGE> 113
(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.
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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<PAGE> 114
loan participations is limited, and any such participation
purchased by a Fund may be regarded as illiquid.
MONEY MARKET INSTRUMENTS--Short-term, interest bearing
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
principal. Securities issued or guaranteed by FNMA and
FHLMC are not backed
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<PAGE> 115
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, a series of bonds or certificates is issued
in multiple classes. Each class of CMOs,
37
<PAGE> 116
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, a Fund may buy options on stock indices to
invest cash on an interim basis. Such options will be
listed on a national securities exchange. In
38
<PAGE> 117
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
39
<PAGE> 118
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
Investment Company Act of 1940.
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 enters
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.
40
<PAGE> 119
These securities are recorded as an asset and are subject
to changes in value based upon changes in the general
level of interest rates. The purchase of securities on a
"when-issued" basis or forward commitments may have the
effect of leverage, which 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 agencies' right to
borrow from the Treasury. The issues of other agencies are
supported only by the credit of the instrumentality (e.g.,
FNMA securities).
U.S. TREASURY OBLIGATIONS--Bills, notes, and bonds
issued by the U.S. Treasury, as well as separately traded
interest and principal component parts of
41
<PAGE> 120
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.
42
<PAGE> 121
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 Fixed 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.
43
<PAGE> 122
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
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, PA 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> 123
- Balanced Fund
Prospectus
Fiduciary Shares
March 28, 1997
84821-A(3/97) [LOGO] HIGHMARK(SM)
FUNDS
<PAGE> 124
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.
March 28, 1997
Fiduciary Shares
<PAGE> 125
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> 126
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> 127
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> 128
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>
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(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.
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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.
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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 25% 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 25% 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
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<PAGE> 131
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
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<PAGE> 132
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
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<PAGE> 133
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
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<PAGE> 134
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
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<PAGE> 135
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> 136
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 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 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> 137
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> 138
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
15
<PAGE> 139
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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<PAGE> 140
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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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
29
<PAGE> 153
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
30
<PAGE> 154
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.
31
<PAGE> 155
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
<PAGE> 156
- California
Intermediate
Tax-Free Bond Fund
Prospectus
Fiduciary Shares
March 28, 1997
84825-A(3/97) [LOGO] HIGHMARK(SM)
FUNDS
<PAGE> 157
HIGHMARK FUNDS
CALIFORNIA INTERMEDIATE TAX-FREE BOND 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 California Intermediate Tax-Free Bond 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
California Intermediate Tax-Free Bond 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 California Intermediate Tax-Free Bond 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.
March 28, 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 California Intermediate Tax-Free Bond Fund (the
"California Intermediate Tax-Free Bond 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 to provide high current
income that is exempt from federal and State of California income taxes. (See
"INVESTMENT OBJECTIVE")
WHAT ARE THE FUND'S PERMITTED INVESTMENTS? The Fund invests primarily in
investment grade or better bonds and notes issued by the State of California,
its agencies, instrumentalities and political sub-divisions, the income on which
is exempt from regular federal and State of California personal income taxes
("California Municipal Securities"). (See "INVESTMENT POLICIES")
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUND? The investment
policies of the Fund entail certain risks and considerations of which an
investor should be aware. Shares of the Fund will fluctuate in value with the
value of the Fund's underlying portfolio securities. Values of fixed income
securities in which the Fund invests tend to vary inversely with interest rates,
and may be affected by other market and economic factors affecting the State of
California as well. (See "Risk Factors")
ARE MY INVESTMENTS INSURED? 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 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
2
<PAGE> 159
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
California Intermediate Tax-Free Bond Fund Fee Table.................................. 4
Fund Description...................................................................... 5
Investment Objective.................................................................. 5
Investment Policies................................................................... 5
California Municipal Securities..................................................... 6
General............................................................................... 7
Money Market Instruments............................................................ 7
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................................................................... 11
Dividends............................................................................. 12
Taxes................................................................................. 13
Federal Taxation.................................................................... 13
California Taxes.................................................................... 15
Service Arrangements.................................................................. 16
The Advisor......................................................................... 16
Administrator....................................................................... 17
The Transfer Agent.................................................................. 17
Shareholder Service Plan............................................................ 18
Distributor......................................................................... 18
Banking Laws........................................................................ 18
Custodian........................................................................... 18
General Information................................................................... 19
Description of HighMark & Its Shares................................................ 19
Performance Information............................................................. 19
Miscellaneous....................................................................... 20
Description of Permitted Investments.................................................. 21
</TABLE>
3
<PAGE> 160
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND FEE TABLE
<TABLE>
<CAPTION>
CALIFORNIA
INTERMEDIATE
TAX-FREE
BOND 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
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 (after voluntary reduction)(c)...................................................... 0.00%
12b-1 Fees.......................................................................................... 0.00%
Other Expenses (after voluntary reduction)(d)....................................................... 0.22%
-----
Total Fund Operating Expenses (after voluntary reduction)(e)........................................ 0.22%
=====
</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 3 5 10
YEAR YEARS YEARS YEARS
------ ------ ------ -------
<S> <C> <C> <C> <C>
California Intermediate Tax-Free Bond Fund Fiduciary
Shares.................................................... $2 $7 $ 12 $28
</TABLE>
The purpose of the tables above is to assist an investor in the California
Intermediate Tax-Free Bond 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 California Intermediate Tax-Free Bond 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 0.50% for the
Fiduciary Shares of the California Intermediate Tax-Free Bond Fund.
(d) OTHER EXPENSES for the California Intermediate Tax-Free Bond Fund are based
on that Fund's estimated expenses for the current fiscal year. Absent
voluntary fee waivers, OTHER EXPENSES would be 0.74% for the Fiduciary
Shares of the California Intermediate Tax-Free Bond Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be: 1.24%
for the Fiduciary Shares of the California Intermediate Tax-Free Bond 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 California Intermediate Tax-Free Bond Fund seeks to
provide high current income that is exempt from federal
and State of California income taxes.
The investment objective and certain of the investment
limitations of the California Intermediate Tax-Free Bond
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, the Fund will invest
primarily in bonds and notes issued by the State of
California, its agencies, instrumentalities, and political
sub-divisions, the income on which is exempt from regular
federal and State of California personal income taxes
("California Municipal Securities"). The Fund may also
invest in bonds and notes of other states, territories,
and possessions of the U.S. and their agencies,
authorities, instrumentalities and political sub-divisions
which are exempt from federal income taxes, and in shares
of other investment companies, specifically money market
funds, which have similar investment objectives.
Under normal market conditions, at least 80% of the
Fund's assets will be invested in bonds and notes rated
AAA, AA, A or BBB by Standard & Poor's Corporation
("S&P"), Aaa, Aa, A or Baa by Moody's Investors Service
("Moody's"), or AAA, AA, A or BBB by Fitch Investors
Service ("Fitch") or investment grade by a nationally
recognized rating agency or are deemed by the Advisor to
be of comparable quality at the time of purchase and which
pay interest that is not treated as a preference item for
purposes of the federal alternative minimum tax. In the
event that a security owned by the Fund is
5
<PAGE> 162
downgraded below the stated ratings categories, the
Advisor will take appropriate action with regard to the
security.
Under California law, a mutual fund must have at least
50% of its total assets invested in California Municipal
Securities at the end of each quarter of its taxable year
in order to be eligible to pay California residents
dividends that are wholly or partially exempt from
California personal income taxes. Accordingly, the Fund
intends to maintain at least 65% of its assets in
California Municipal Securities and may invest up to 100%
of its assets in such securities.
The Fund has no restrictions on the maturity of
municipal securities in which it may invest. Under normal
market conditions, the dollar-weighted average portfolio
maturity of the Fund is expected to be from three to ten
years. Accordingly, the Fund seeks to invest in municipal
securities of such maturities which, in the judgment of
the Advisor, will provide a high level of current income
consistent with prudent investment, with consideration
given to market conditions.
California Municipal Securities
The two principal classifications of California
Municipal Securities are "general obligation" and
"revenue" bonds. General obligation bonds are secured by
the issuer's pledge of its full faith, credit, and taxing
power for the payment of principal and interest. Revenue
bonds are payable primarily from the revenues derived from
a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other
specific revenue source. Private activity bonds (formerly
known as industrial revenue bonds) are generally revenue
bonds.
Certain California Municipal Securities are municipal
lease revenue obligations (or certificates of
participation or "COPs"), which typically provide that the
municipality has no obligation to make lease or
installment payments in future years unless money is
appropriated for such purpose. While the risk of non-
appropriation is inherent to COP financing, this risk is
mitigated by the Fund's policy to invest in COPs that are
rated in one of the four highest rating categories used by
Moody's, S&P, or Fitch.
California Municipal Securities also include so-called
Mello-Roos and assessment district bonds, which are
usually unrated instruments issued to finance the building
of roads and other public works and projects that are
primarily secured by real estate taxes levied on property
located in the local community. Most of these bonds do not
seek agency ratings because the issues are too small, and
in most cases, the purchase of these bonds is based upon
the Advisor's determination that it is suitable for the
Fund.
6
<PAGE> 163
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.
GENERAL Money Market Instruments
When market conditions indicate a temporary "defensive"
investment strategy as determined by the Advisor, the Fund
may invest more than 20% of its total assets in municipal
obligations of other states or taxable money market
instruments including repurchase agreements. The Fund will
not be pursuing its investment objective to the extent
that a substantial portion of its assets are invested in
taxable 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) 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.
7
<PAGE> 164
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 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 investments 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 and for
adjusting portfolio duration. The Fund may invest in
futures and related options based on any type of security
or index traded on U.S. or foreign exchanges or over the
counter, as long as the underlying security, or securities
represented by an index, are permitted investments of the
Fund. The Fund may enter into futures contracts and
related options only to the extent that obligations under
such contracts or transactions represent not more than 10%
of the Fund's assets.
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 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.
8
<PAGE> 165
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 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 municipal issuers during the recession
resulted in the credit ratings of certain of their
obligations being downgraded significantly by the major
rating agencies.
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.
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 provided, however, that the Fund
may invest up to 25% of its total assets without regard to
this restriction as permitted by applicable law.
2. Purchase any securities which would cause more than
25% of the total assets of the Fund to be invested in the
securities of one or more issuers conducting their
principal business activities in the same industry,
provided that this limitation does not apply to
investments in the obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities and
repurchase agreements involving such securities, and
provided further, that utilities as a group will not be
considered to be one industry, and wholly-owned
subsidiaries organized to finance the operations of their
parent companies will be considered to be in the same
industries as their parent companies.
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3. Make loans, except the Fund may (a) purchase or hold
debt instruments in accordance with its investment
objective and policies; (b) enter into repurchase
agreements; and (c) lend securities.
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 California Intermediate Tax-Free
Bond 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; 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 California Intermediate Tax-Free Bond Fund.
Purchases and redemptions of Shares of the California
Intermediate Tax-Free Bond 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
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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, or 401(k) or similar programs or
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 California Intermediate Tax-Free Bond 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
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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
California Intermediate Tax-Free Bond 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 California Intermediate Tax-Free
Bond Fund is declared and paid monthly as a dividend to
Shareholders of record at the close of
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business on the day of declaration. Net realized capital
gains, if any, 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.
TAXES Federal Taxation
The California Intermediate Tax-Free Bond 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, if any, so that the Fund is not required to pay
federal taxes on these amounts.
Because all of the Fund's net investment income 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
Fund is not managed to generate any long-term capital
gains and, therefore, does not foresee paying any
significant "capital gains dividends" as described in the
Code.
Exempt-interest dividends from the Fund are excludable
from Shareholders' 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.
Under the Code, interest on indebtedness incurred or
continued by a Shareholder to purchase or carry Shares of
the 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
Fund after holding it for six months or less, any loss on
the sale or exchange of such Share will be
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<PAGE> 170
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 Fund may at times purchase California 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.
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 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 Fund).
Prior to purchasing Shares of the California
Intermediate Tax-Free Bond 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.
Additional information regarding federal taxes is
contained in the Statement of Additional Information.
However, the foregoing and the material in the State-
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<PAGE> 171
ment 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.
California Taxes
The Fund intends to qualify to pay dividends to
Shareholders that are exempt from California personal
income tax ("California exempt-interest dividends"). The
Fund will qualify to pay California exempt-interest
dividends if (1) at the close of each quarter of the
Fund's taxable year, at least 50 percent of the value of
the Fund's total assets consists of obligations the
interest on which would be exempt from California personal
income tax if the obligations were held by an individual
("California Tax Exempt Obligations") and (2) the Fund
continues to qualify as a regulated investment company.
If the Fund qualifies to pay California exempt-interest
dividends, dividends distributed to Shareholders will be
considered California exempt-interest dividends (1) if
they are designated as exempt-interest dividends by the
Fund in a written notice to Shareholders mailed within 60
days of the close of the Fund's taxable year and (2) to
the extent that they are derived from the interest
received by the Fund during the year on California Tax
Exempt Obligations (less related expenses). If the
aggregate dividends so designated exceed the amount that
may be treated as California exempt-interest dividends,
only that percentage of each dividend distribution equal
to the ratio of aggregate California exempt-interest
dividends to aggregate dividends so designated will be
treated as a California exempt-interest dividend. The Fund
will notify Shareholders of the amount of California
exempt-interest dividends each year. Corporations subject
to California franchise tax that invest in the Fund
generally will not be entitled to exclude California
exempt-interest dividends from income.
Dividend distributions that do not qualify for treatment
as California exempt-interest dividends will be taxable to
Shareholders at ordinary income tax rates for California
personal income tax purposes to the extent of the Fund's
earnings and profits.
Interest on indebtedness incurred or continued by a
Shareholder in connection with the purchase of Shares of
the Fund will not be deductible for California personal
income tax purposes if the Fund distributes California
exempt-interest dividends.
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The foregoing is a general, abbreviated summary of
certain of the provisions of the California Revenue and
Taxation Code presently in effect as they directly govern
the taxation of Shareholders subject to California
personal income tax. These provisions are subject to
change by legislative or administrative action, and any
such change may be retroactive with respect to Fund
transactions. Shareholders are advised to consult with
their own tax advisors for more detailed information
concerning California tax matters.
SERVICE
ARRANGEMENTS The Advisor
Pacific Alliance Capital Management, a division of Union
Bank of California, N.A., serves as the California
Intermediate Tax-Free Bond 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 California Intermediate
Tax-Free Bond 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. 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 California Intermediate
Tax-Free Bond 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
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
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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 California Intermediate
Tax-Free Bond Fund are made by a team of investment
professionals, all of whom take an active part in the
decision making process. The team leader for the Fund is
Robert Bigelow. Mr. Bigelow has been with Union Bank of
California, and its predecessor, Union Bank since June
1994. Mr. Bigelow served as a portfolio manager at City
National Bank from January, 1986 to June, 1994.
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
0.15% 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 Fund's average daily net assets. Union Bank
of California has voluntarily agreed to reduce this fee to
0.00%, 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.
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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 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 California
Intermediate Tax-Free Bond Fund. The custodian holds cash
securities and other assets of HighMark as required by the
1940 Act.
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<PAGE> 175
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 of the
California Intermediate Tax-Free Bond Fund, 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 California Intermediate Tax-Free Bond 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 California Intermediate Tax-Free Bond 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
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<PAGE> 176
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.
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 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.
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<PAGE> 177
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 California Intermediate Tax-Free Bond
Fund.
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 Fund may invest in
other asset-backed securities that may be developed in the
future.
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BANKERS' ACCEPTANCES--Bills of exchange or time drafts
drawn on and accepted by commercial banks. They are used
by corporations to finance the shipment and storage of
goods and to furnish dollar exchange. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT--Negotiable interest-bearing
instruments with a specific maturity. Certificates of
deposit are issued by banks and savings and loan
institutions in exchange for the deposit of funds and
normally can be traded in the secondary market prior to
maturity.
COMMERCIAL PAPER--Unsecured short-term promissory notes
issued by corporations and other entities. Maturities on
these issues vary from a few days to nine months. Purchase
of such instruments involves a risk of default by the
issuer.
DERIVATIVES--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.
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
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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
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
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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, 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
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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.
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
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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.
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."
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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 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.
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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
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
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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 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.
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<PAGE> 186
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 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 CALIFORNIA INTERMEDIATE TAX-FREE BOND 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
<PAGE> 188
- Convertible
Securities Fund
Prospectus
Fiduciary Shares
March 28, 1997
84826-A(3/97) [LOGO] HIGHMARK(SM)
FUNDS
<PAGE> 189
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.
March 28, 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 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> 191
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.................................................................... 11
Dividends.............................................................................. 12
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>
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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> 193
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> 194
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> 195
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> 196
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> 197
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> 198
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
10
<PAGE> 199
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
11
<PAGE> 200
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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<PAGE> 201
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.
13
<PAGE> 202
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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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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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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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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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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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
26
<PAGE> 215
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
27
<PAGE> 216
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
28
<PAGE> 217
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
29
<PAGE> 218
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.
30
<PAGE> 219
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> 220
- Equity Funds
- Income Equity Fund
- Value Monentum Fund
- Blue Chip Growth
Fund
- Growth Fund
- Emerging Growth
Fund
Prospectus
Fiduciary Shares
March 28, 1997
84823-A(3/97) [LOGO] HIGHMARK(SM)
FUNDS
<PAGE> 221
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.
March 28, 1997
Fiduciary Shares
<PAGE> 222
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> 223
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> 224
<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> 225
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> 226
(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> 227
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> 228
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> 229
<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> 230
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> 231
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> 232
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.
12
<PAGE> 233
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.
13
<PAGE> 234
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
14
<PAGE> 235
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.
15
<PAGE> 236
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.
16
<PAGE> 237
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
17
<PAGE> 238
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
18
<PAGE> 239
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
19
<PAGE> 240
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
20
<PAGE> 241
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").
33
<PAGE> 254
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
34
<PAGE> 255
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
35
<PAGE> 256
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> 257
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> 258
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
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> 259
- California
Intermediate
Tax-Free Bond Fund
Prospectus
Retail Shares
March 28, 1997
84825-B(3/97) [LOGO] HIGHMARK(SM)
FUNDS
<PAGE> 260
HIGHMARK FUNDS
CALIFORNIA INTERMEDIATE TAX-FREE BOND 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 California Intermediate Tax-Free Bond Fund.
RETAIL SHARES
HighMark's Retail Shares are offered to investors who are not fiduciary
clients of Union Bank of California, N.A., and who are not otherwise eligible
for HighMark's Fiduciary Shares.
This Prospectus sets forth concisely the information about HighMark and the
California Intermediate Tax-Free Bond 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 Retail Shares
of the California Intermediate Tax-Free Bond 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.
March 28, 1997
Retail Shares
<PAGE> 261
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
Retail Shares of the HighMark California Intermediate Tax-Free Bond Fund (the
"California Intermediate Tax-Free Bond 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 to provide high current
income that is exempt from federal and State of California income taxes. (See
"INVESTMENT OBJECTIVE")
WHAT ARE THE FUND'S PERMITTED INVESTMENTS? The Fund invests primarily in
investment grade or better bonds and notes issued by the State of California,
its agencies, instrumentalities and political sub-divisions, the income on which
is exempt from regular federal and State of California personal income taxes
("California Municipal Securities"). (See "INVESTMENT POLICIES")
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUND? The investment
policies of the Fund entail certain risks and considerations of which an
investor should be aware. Shares of the Fund will fluctuate in value with the
value of the Fund's underlying portfolio securities. Values of fixed income
securities in which the Fund invests tend to vary inversely with interest rates,
and may be affected by other market and economic factors affecting the State of
California as well. (See "Risk Factors")
ARE MY INVESTMENTS INSURED? 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 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
2
<PAGE> 262
is effective (plus any applicable sales charge). 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 "HOW TO PURCHASE
SHARES 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
California Intermediate Tax-Free Bond Fund Fee Table.................................. 5
Fund Description...................................................................... 7
Investment Objective.................................................................. 7
Investment Policies................................................................... 7
California Municipal Securities..................................................... 8
General............................................................................... 9
Money Market Instruments............................................................ 9
Illiquid and Restricted Securities.................................................. 9
Lending of Portfolio Securities..................................................... 9
Other Investments................................................................... 9
Risk Factors........................................................................ 10
Investment Limitations................................................................ 11
Portfolio Turnover.................................................................. 12
How to Purchase Shares................................................................ 12
How to Purchase By Mail............................................................. 13
How to Purchase By Wire............................................................. 14
How to Purchase through an Automatic Investment Plan ("AIP")........................ 14
How to Purchase Through Financial Institutions...................................... 14
Sales Charges....................................................................... 15
Letter of Intent.................................................................... 16
Rights of Accumulation.............................................................. 16
Sales Charge Waivers................................................................ 16
Reductions for Qualified Groups..................................................... 18
Exchange Privileges................................................................... 18
Redemption of Shares.................................................................. 20
By Mail............................................................................. 20
Telephone Transactions.............................................................. 20
Systematic Withdrawal Plan ("SWP").................................................. 21
Other Information Regarding Redemptions............................................. 21
Dividends............................................................................. 22
</TABLE>
3
<PAGE> 263
<TABLE>
<CAPTION>
PAGE
--
<S> <C>
Taxes................................................................................. 22
Federal Taxation.................................................................... 22
California Taxes.................................................................... 24
Service Arrangements.................................................................. 25
The Advisor......................................................................... 25
Administrator....................................................................... 26
The Transfer Agent.................................................................. 27
Shareholder Service Plan............................................................ 27
Distributor......................................................................... 27
The Distribution Plan............................................................... 28
Banking Laws........................................................................ 29
Custodian........................................................................... 29
General Information................................................................... 30
Description of HighMark & Its Shares................................................ 30
Performance Information............................................................. 30
Miscellaneous....................................................................... 31
Description of Permitted Investments.................................................. 32
</TABLE>
4
<PAGE> 264
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND FEE TABLE
<TABLE>
<CAPTION>
CALIFORNIA
INTERMEDIATE
TAX-FREE
BOND FUND
RETAIL
SHARES
------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)......................... 3.00%
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
applicable)(b).................................................................................... 0%
Redemption Fees (as a percentage of amount redeemed, if applicable)(c).............................. 0%
Exchange Fee(a)..................................................................................... $ 0
ANNUAL OPERATING EXPENSES (as a percentage of net assets)
Management Fees (after voluntary reduction)(d)...................................................... 0.00%
12b-1 Fees (after voluntary reductions)(e).......................................................... 0.00%
Other Expenses (after voluntary reduction)(f)....................................................... 0.22%
-----
Total Fund Operating Expenses (after voluntary reduction)(g)........................................ 0.22%
=====
</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>
California Intermediate Tax-Free Bond Fund Retail Shares.... $ 32 $ 37 $ 42 $ 57
</TABLE>
The purpose of the tables above is to assist an investor in the California
Intermediate Tax-Free Bond 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.
Long-term shareholders of Retail Shares may pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by rules
of the National Association of Securities Dealers, Inc.
- ---------------
(a) Certain entities (including Union Bank of California and its affiliates)
making investments in the California Intermediate Tax-Free Bond 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 HOW TO PURCHASE SHARES, EXCHANGE PRIVILEGES, REDEMPTION OF SHARES, and
SERVICE ARRANGEMENTS below)
(b) A Contingent Deferred Sales Charge of 1.00% will be assessed against the
proceeds of any redemption request relating to Retail Shares of the Fund
that were purchased without a sales charge in reliance upon the waiver
accorded to purchases in the amount of $1 million or more, but only where
such redemption request is made within one year of the date the Shares were
purchased.
5
<PAGE> 265
(c) 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)
(d) Absent voluntary fee waivers, MANAGEMENT FEES would be 0.50% for the Retail
Shares of the California Intermediate Tax-Free Bond Fund.
(e) As indicated under SERVICE ARRANGEMENTS--the Distribution Plan below, the
Distributor may voluntarily reduce the 12b-1 fee. Absent voluntary fee
waivers, 12b-1 fees would 0.25% for the Fund. The Distributor reserves the
right to terminate its waiver at any time in its sole discretion.
(f) OTHER EXPENSES for the California Intermediate Tax-Free Bond Fund are based
on that Fund's estimated expenses for the current fiscal year. Absent
voluntary fee waivers, OTHER EXPENSES would be 0.74% for the Retail Shares
of the California Intermediate Tax-Free Bond Fund.
(g) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be: 1.49%
for the Retail Shares of the California Intermediate Tax-Free Bond Fund.
6
<PAGE> 266
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 Retail Shares, sales charges and the operation
of HighMark's Distribution Plan, see HOW TO PURCHASE
SHARES and SERVICE ARRANGEMENTS below. (Retail Shares may
be hereinafter referred to as "Shares.")
INVESTMENT
OBJECTIVE The California Intermediate Tax-Free Bond Fund seeks to
provide high current income that is exempt from federal
and State of California income taxes.
The investment objective and certain of the investment
limitations of the California Intermediate Tax-Free Bond
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, the Fund will invest
primarily in bonds and notes issued by the State of
California, its agencies, instrumentalities, and political
sub-divisions, the income on which is exempt from regular
federal and State of California personal income taxes
("California Municipal Securities"). The Fund may also
invest in bonds and notes of other states, territories,
and possessions of the U.S. and their agencies,
authorities, instrumentalities and political sub-divisions
which are exempt from federal income taxes, and in shares
of other investment companies, specifically money market
funds, which have similar investment objectives.
Under normal market conditions, at least 80% of the
Fund's assets will be invested in bonds and notes rated
AAA, AA, A or BBB by Standard & Poor's Corporation
("S&P"), Aaa, Aa, A or Baa by Moody's Investors Service
("Moody's"), or AAA, AA, A or BBB by Fitch Investors
Service ("Fitch") or investment grade by a nationally
recognized rating agency or are deemed by the Advisor to
be of comparable quality at the time of purchase and which
pay interest that is not treated as a preference item for
purposes of the federal alternative minimum tax. In the
event that a security owned by the Fund is
7
<PAGE> 267
downgraded below the stated ratings categories, the
Advisor will take appropriate action with regard to the
security.
Under California law, a mutual fund must have at least
50% of its total assets invested in California Municipal
Securities at the end of each quarter of its taxable year
in order to be eligible to pay California residents
dividends that are wholly or partially exempt from
California personal income taxes. Accordingly, the Fund
intends to maintain at least 65% of its assets in
California Municipal Securities and may invest up to 100%
of its assets in such securities.
The Fund has no restrictions on the maturity of
municipal securities in which it may invest. Under normal
market conditions, the dollar-weighted average portfolio
maturity of the Fund is expected to be from three to ten
years. Accordingly, the Fund seeks to invest in municipal
securities of such maturities which, in the judgment of
the Advisor, will provide a high level of current income
consistent with prudent investment, with consideration
given to market conditions.
California Municipal Securities
The two principal classifications of California
Municipal Securities are "general obligation" and
"revenue" bonds. General obligation bonds are secured by
the issuer's pledge of its full faith, credit, and taxing
power for the payment of principal and interest. Revenue
bonds are payable primarily from the revenues derived from
a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other
specific revenue source. Private activity bonds (formerly
known as industrial revenue bonds) are generally revenue
bonds.
Certain California Municipal Securities are municipal
lease revenue obligations (or certificates of
participation or "COPs"), which typically provide that the
municipality has no obligation to make lease or
installment payments in future years unless money is
appropriated for such purpose. While the risk of non-
appropriation is inherent to COP financing, this risk is
mitigated by the Fund's policy to invest in COPs that are
rated in one of the four highest rating categories used by
Moody's, S&P, or Fitch.
California Municipal Securities also include so-called
Mello-Roos and assessment district bonds, which are
usually unrated instruments issued to finance the building
of roads and other public works and projects that are
primarily secured by real estate taxes levied on property
located in the local community. Most of these bonds do not
seek agency ratings because the issues are too small, and
in most cases, the purchase of these bonds is based upon
the Advisor's determination that it is suitable for the
Fund.
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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.
GENERAL Money Market Instruments
When market conditions indicate a temporary "defensive"
investment strategy as determined by the Advisor, the Fund
may invest more than 20% of its total assets in municipal
obligations of other states or taxable money market
instruments including repurchase agreements. The Fund will
not be pursuing its investment objective to the extent
that a substantial portion of its assets are invested in
taxable 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) 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.
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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 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.
The Fund may invest in futures and options on futures
for the purpose of achieving the Fund's objectives and for
adjusting portfolio duration. The Fund may invest in
futures and related options related options based on any
type of security or index traded on U.S. or foreign
exchanges or over the counter, as long as the underlying
security, or securities represented by an index, are
permitted investments of the Fund. The Fund may enter into
futures contracts and related options only to the extent
that obligations under such contracts or transactions
represent not more than 10% of the Fund's assets.
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 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.
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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 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 municipal issuers during the recession
resulted in the credit ratings of certain of their
obligations being downgraded significantly by the major
rating agencies.
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.
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 provided, however, that the Fund
may invest up to 25% of its total assets without regard to
this restriction as permitted by applicable law.
2. Purchase any securities which would cause more than
25% of the total assets of the Fund to be invested in the
securities of one or more issuers conducting their
principal business activities in the same industry,
provided that this limitation does not apply to
investments in the obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities and
repurchase agreements involving such securities, and
provided further, that utilities as a group will not be
considered to be one industry, and wholly-owned
subsidiaries organized to finance the operations of their
parent companies will be considered to be in the same
industries as their parent companies.
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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) lend securities.
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.
HOW TO
PURCHASE
SHARES As noted above, the Fund is divided into two classes of
Shares, Retail and Fiduciary. Retail Shares may be
purchased at net asset value plus a sales charge. For a
description of investors who qualify to purchase Fiduciary
Shares, see the Fiduciary Shares prospectus of the
California Intermediate Tax-Free Bond Fund. HighMark's
Retail Shares are offered to investors who are not
fiduciary clients of Union Bank of California, N.A., and
who are not otherwise eligible for HighMark's Fiduciary
Class.
Retail Shares are sold on a continuous basis by
HighMark's Distributor, SEI Financial Services Company.
The principal office of the Distributor is Oaks,
Pennsylvania 19456. If you wish to purchase Shares, you
may contact your investment professional or telephone
HighMark at 1-800-433-6884.
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. Purchases and
redemption of Shares of the Fund may be made on days on
which both the New York Stock Exchange and the Federal
Reserve wire system are open for business ("Business
Days").
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Purchase orders for Shares will be executed at a per
Share price equal to the net asset value next determined
after the receipt of the purchase order by the Distributor
(plus any applicable sales charge). The net asset value
per Share of the Fund is determined by dividing the total
market value of the Fund's investments and other assets,
less any liabilities, by the total number of outstanding
Shares of the Fund. Net asset value per Share is
determined daily as of 1:00 p.m., Pacific time (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.
The securities in the Fund will be valued at market
value. If market quotations are not available, the
securities will be valued by a method that HighMark's
Board of Trustees believes accurately reflects fair value.
For further information about valuation of investments in
the California Intermediate Tax-Free Bond Fund, see the
Statement of Additional Information.
Shares of the Fund are offered only to residents of
states in which the Shares are eligible for purchase.
How to Purchase By Mail
You may purchase Shares of the California Intermediate
Tax-Free Bond Fund by completing and signing an Account
Application form and mailing it, along with a check (or
other negotiable bank instrument or money order) payable
to "HighMark Funds (Fund Name)," to the transfer agent at
P.O. Box 8416, Boston, Massachusetts 02266-8416. All
purchases made by check should be in U.S. dollars and made
payable to "HighMark Funds (Fund Name)." Third party
checks, credit card checks or cash will not be accepted.
You may purchase more Shares at any time by mailing
payment also to the transfer agent at the above address.
Orders placed by mail will be executed on receipt of your
payment. If your check does not clear, your purchase will
be canceled and you could be liable for any losses or fees
incurred.
You may obtain Account Application Forms for the
California Intermediate Tax-Free Bond Fund by calling the
Distributor at 1-800-433-6884.
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<PAGE> 273
How to Purchase By Wire
You may purchase Shares of the California Intermediate
Tax-Free Bond Fund by wiring Federal funds, provided that
your Account Application has been previously received. You
must wire funds to the transfer agent and the wire
instructions must include your account number. You must
call the transfer agent at 1-800-433-6884 before wiring
any funds. An order to purchase Shares by Federal funds
wire will be deemed to have been received by a Fund on the
Business Day of the wire; provided that the Shareholder
wires funds to the transfer agent prior to 1:00 p.m.,
Pacific time (4:00 p.m., Eastern time). If the transfer
agent does not receive the wire by 1:00 p.m., Pacific time
(4:00 p.m., Eastern time), the order will be executed on
the next Business Day.
How to Purchase Through an Automatic Investment Plan
("AIP")
You may arrange for periodic additional investments in
the California Intermediate Tax-Free Bond Fund through
automatic deductions by Automated Clearing House ("ACH")
from a checking account by completing this section in the
Account Application form. The minimum pre-authorized
investment amount is $100 per month. The AIP is available
only for additional investments to an existing account.
How to Purchase Through Financial Institutions
Shares of the Fund may be purchased through financial
institutions, including the Advisor, that provide
distribution assistance or Shareholder services. Shares
purchased by persons ("Customers") through financial
institutions may be held of record by the financial
institution. Financial institutions may impose an earlier
cut-off time for receipt of purchase orders directed
through them to allow for processing and transmittal of
these orders to the transfer agent for effectiveness the
same day. Customers should contact their financial
institution for information as to that institution's
procedures for transmitting purchase, exchange or
redemption orders to HighMark.
Customers who desire to transfer the registration of
Shares beneficially owned by them but held of record by a
financial institution should contact the institution to
accomplish such change.
Depending upon the terms of a particular Customer
account, a financial institution may charge a Customer
account fees. Information concerning these services and
any charges will be provided to the Customer by the
financial institution.
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Sales Charges
The following table shows the regular sales charge on
Retail Shares to a "single purchaser" (defined below)
together with the dealer discount paid to dealers and the
agency commission paid to brokers (collectively the
"commission"):
<TABLE>
<CAPTION>
SALES CHARGE AS COMMISSION AS
SALES CHARGE AS A APPROPRIATE PERCENTAGE OF
PERCENTAGE OF PERCENTAGE OF NET OFFERING
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED PRICE
-------------------- ----------------- ----------------- -------------
<S> <C> <C> <C>
0-$24,999........... 3.00% 3.09% 2.70%
$25,000-$49,000..... 2.50% 2.56% 2.25%
$50,000-$99,000..... 2.00% 2.04% 1.80%
$100,000-$249,999... 1.50% 1.52% 1.35%
$250,000-$999,999... 1.00% 1.01% 0.90%
$1,000,000 and Over. 0.00%* 0.00% 0.00%
</TABLE>
--------------------------------------
* A contingent deferred sales charge of 1.00% will be
assessed against any proceeds of any redemption of such
Retail Shares prior to one year from date of purchase.
The commissions shown in the table apply to sales
through authorized dealers and brokers. Under certain
circumstances, the Distributor may use its own funds to
compensate financial institutions and intermediaries in
amounts that are additional to the commissions shown
above. In addition, the Distributor may, from time to time
and at its own expense, provide promotional incentives in
the form of cash or other compensation to certain
financial institutions and intermediaries whose registered
representatives have sold or are expected to sell
significant amounts of the Retail Shares of the Fund. Such
other compensation may take the form of payments for
travel expenses, including lodging, incurred in connection
with trips taken by qualifying registered representatives
to places within or without the United States. Under
certain circumstances, commissions up to the amount of the
entire sales charge may be reallowed to dealers or
brokers, who might then be deemed to be "underwriters"
under the Securities Act of 1933. Commission rates may
vary among the Funds.
In calculating the sales charge rates applicable to
current purchases of the Fund's Shares, a "single
purchaser" is entitled to cumulate current purchases with
the net purchase of previously purchased Shares of the
Fund and other of HighMark's funds (the "Eligible Funds")
which are sold subject to a comparable sales charge.
The term "single purchaser" refers to (i) an individual,
(ii) an individual and spouse purchasing Shares of the
Fund for their own account or for trust or custodial
accounts for their minor children, or (iii) a fiduciary
purchasing for any
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<PAGE> 275
one trust, estate or fiduciary account including employee
benefit plans created under Sections 401, 403(b) or 457 of
the Internal Revenue Code of 1986, as amended (the
"Code"), including related plans of the same employer. To
be entitled to a reduced sales charge based upon Shares
already owned, the investor must ask the Distributor for
such entitlement at the time of purchase and provide the
account number(s) of the investor, the investor and
spouse, and their minor children, and give the age of such
children. The Fund may amend or terminate this right of
accumulation at any time as to subsequent purchases.
Letter of Intent
By initially investing at least $1,000 and submitting a
Letter of Intent (the "Letter") to the Distributor, a
"single purchaser" may purchase Shares of the Fund and the
other Eligible Funds during a 13-month period at the
reduced sales charge rates applicable to the aggregate
amount of the intended purchases stated in the Letter. The
Letter may apply to purchases made up to 90 days before
the date of the Letter. To receive credit for such prior
purchases and later purchases benefitting from the Letter,
the Shareholder must notify the transfer agent at the time
the Letter is submitted that there are prior purchases
that may apply, and, at the time of later purchases,
notify the transfer agent that such purchases are
applicable under the Letter.
Rights of Accumulation
In calculating the sales charge rates applicable to
current purchases of Retail Shares, a "single purchaser"
is entitled to cumulate current purchases with the current
market value of previously purchased Retail Shares of the
Fund sold subject to a comparable sales charge.
To exercise your right of accumulation based upon Shares
you already own, you must ask the Distributor for this
reduced sales charge at the time of your additional
purchase and provide the account number(s) of the
investor, as applicable, the investor and spouse, and
their minor children. The Fund may amend or terminate this
right of accumulation at any time as to subsequent
purchases.
Sales Charge Waivers
The following categories of investors may purchase
Retail Shares of the Fund with no sales charge in the
manner described below (which may be changed or eliminated
at any time by the Distributor):
(1) Existing holders of Retail Shares of the Fund upon
the reinvestment of dividend and capital gain
distributions on those Shares;
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<PAGE> 276
(2) Investment companies advised by Pacific Alliance
Capital Management or distributed by SEI Financial
Services Company or its affiliates placing orders on each
entity's behalf;
(3) State and local governments;
(4) Individuals who have received distributions from
employee benefit trust accounts administered by Union Bank
of California who are rolling over such distributions into
an individual retirement account for which the Bank serves
as trustee or custodian;
(5) Individuals who purchase Shares with proceeds from a
required minimum distribution at age 70 1/2 from their
employee benefit qualified plan or an individual
retirement account administered by Union Bank of
California;
(6) Individuals who purchase Shares with proceeds
received in connection with a distribution paid from a
Union Bank of California trust or agency account;
(7) Investment advisors or financial planners regulated
by a federal or state governmental authority who are
purchasing Shares for their own account or for an account
for which they are authorized to make investment decisions
(i.e., a discretionary account) and who charge a
management, consulting or other fee for their services;
and clients of such investment advisors or financial
planners who place trades for their own accounts if the
accounts are linked to the master account of such
investment advisor or financial planner on the books and
records of a broker or agent;
(8) Investors purchasing Shares with proceeds from a
redemption of Shares of another open-end investment
company (other than HighMark Funds) on which a sales
charge was paid if such redemption occurred within thirty
(30) days prior to the date of the purchase order.
Satisfactory evidence of the purchaser's eligibility must
be provided at the time of purchase (e.g., a confirmation
of the redemption);
(9) Brokers, dealers and agents who are purchasing for
their own account and who have a sales agreement with the
Distributor, and their employees (and their spouses and
children under the age of 21);
(10) Investors purchasing Shares on behalf of a
qualified prototype retirement plan (other than an IRA,
SEP-IRA or Keogh) sponsored by Union Bank of California;
(11) Purchasers of Retail Shares of the Growth Fund that
are sponsors of other investment companies that are unit
investment trusts for deposit by such sponsors into such
unit investment trusts, and to purchasers of Retail Shares
of
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<PAGE> 277
the Growth Fund that are holders of such unit investment
trusts that invest distributions from such investment
trusts in Retail Shares of the Growth Fund;
(12) 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 or their affiliated companies; and
(13) Investors receiving Shares issued in plans of
reorganization, such as mergers, asset acquisitions, and
exchange offers, to which HighMark is a party.
With regard to categories 2 through 12 above, the
Distributor must be notified that the purchase qualifies
for a sales charge waiver at the time of purchase.
Reductions for Qualified Groups
Reductions in sales charges also apply to purchases by
individual members of a "qualified group." The reductions
are based on the aggregate dollar amount of Shares
purchased by all members of the qualified group. For
purposes of this paragraph, a qualified group consists of
a "company," as defined in the 1940 Act, which has been in
existence for more than six months and which has a primary
purpose other than acquiring Shares of the Fund at a
reduced sales charge, and the "related parties" of such
company. For purposes of this paragraph, a "related party"
of a company is (i) any individual or other company who
directly or indirectly owns, controls or has the power to
vote five percent or more of the outstanding voting
securities of such company; (ii) any other company of
which such company directly or indirectly owns, controls
or has the power to vote five percent or more of its
outstanding voting securities; (iii) any other company
under common control with such company; (iv) any executive
officer, director or partner of such company or of a
related party; and (v) any partnership of which such
company is a partner. Investors seeking to rely on their
membership in a qualified group to purchase Shares at a
reduced sales load must provide evidence satisfactory to
the transfer agent of the existence of a bona fide
qualified group and their membership therein.
All orders from a qualified group will have to be placed
through a single source and identified at the time of
purchase as originating from the same qualified group,
although such orders may be placed into more than one
discrete account that identifies HighMark.
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> 278
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 Retail Shares for Retail
Shares of a Fund with the same or lower sales charge on
the basis of the relative net asset value of the Retail
Shares exchanged. Shareholders may exchange their Retail
Shares for Retail Shares of a Fund with a higher sales
charge by paying the difference between the two sales
charges. Shareholders may also exchange Retail Shares of a
money market fund for which no sales load was paid for
Retail Shares of the California Intermediate Tax-Free Bond
Fund. Under such circumstances, the cost of the acquired
Retail Shares will be the net asset value per share plus
the appropriate sales load. If Retail Shares of the money
market fund were acquired in a previous exchange involving
Shares of a non-money market HighMark Fund, then such
Shares of the money market fund may be exchanged for
Shares of the California Intermediate Tax-Free Bond Fund
without payment of any additional sales load within a
twelve month period. In order to receive a reduced sales
charge when exchanging into a Fund, the Shareholder must
notify HighMark that a sales charge was originally paid
and provide sufficient information to permit confirmation
of qualification.
Exchanges will be made on the basis of the relative net
asset values of the Shares exchanged plus any applicable
sales charge. Exchanges are subject to the terms and
conditions stated herein and the terms and conditions
stated in the respective prospectuses of the Funds.
Certain entities (including Participating Organizations
and 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
California Intermediate Tax-Free Bond 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
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<PAGE> 279
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.
REDEMPTION
OF SHARES You may redeem your Shares of the California
Intermediate Tax-Free Bond Fund without charge on any
Business Day. There is presently a $15 charge for wiring
redemption proceeds to a Shareholder's designated account.
Shares may be redeemed by mail, by telephone or through a
pre-arranged systematic withdrawal plan. Investors who own
Shares held by a financial institution should contact that
institution for information on how to redeem Shares.
By Mail
A written request for redemption of Shares of the
California Intermediate Tax-Free Bond Fund must be
received by the transfer agent, P.O. Box 8416, Boston,
Massachusetts 02266-8416 in order to constitute a valid
redemption request.
If the redemption request exceeds $5,000, or if the
request directs the proceeds to be sent or wired to an
address different from that of record, the transfer agent
may require that the signature on the written redemption
request be guaranteed. You should be able to obtain a
signature guarantee from a bank, broker dealer, credit
union, securities exchange or association, clearing agency
or savings association. Notaries public cannot guarantee
signatures. The signature guarantee requirement will be
waived if all of the following conditions apply: (1) the
redemption is for not more than $5,000 worth of Shares,
(2) the redemption check is payable to the Shareholder(s)
of record, and (3) the redemption check is mailed to the
Shareholder(s) at his or her address of record.
Telephone Transactions
You may redeem your Shares of the California
Intermediate Tax-Free Bond Fund by calling the transfer
agent at 1-800-433-6884. Under most circumstances,
payments will be transmitted on the next Business Day
following receipt of a valid request for redemption. You
may have the proceeds mailed to your address or wired to a
commercial bank account previously designated on your
Account Application. There is no charge for having
redemption proceeds mailed to you, but there is a $15
charge for wiring redemption proceeds.
You may request a wire redemption for redemptions of
Shares of the California Intermediate Tax-Free Bond Fund
in excess of $500 by calling the transfer agent at
1-800-433-6884 who will deduct a wire charge of $15 from
the amount of the wire redemption. Shares cannot be
redeemed by Federal Reserve wire on Federal holidays
restricting wire transfers.
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<PAGE> 280
Neither the transfer agent nor HighMark will be
responsible for any loss, liability, cost or expense for
acting upon wire or telephone instructions that it
reasonably believes to be genuine. HighMark and the
transfer agent will each employ reasonable procedures to
confirm that instructions, communicated by telephone 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 consider placing your order by mail.
Systematic Withdrawal Plan ("SWP")
The California Intermediate Tax-Free Bond Fund offers a
Systematic Withdrawal Plan ("SWP"), which you may use to
receive regular distributions from your account. Upon
commencement of the SWP, your account must have a current
net asset value of $5,000 or more. You may elect to
receive automatic payments via check or ACH of $100 or
more on a monthly, quarterly, semi-annual or annual basis.
You may arrange to receive regular distributions from your
account via check or ACH by completing this section in the
Account Application form.
To participate in the SWP, you must have your dividends
automatically reinvested. You should realize that if your
automatic withdrawals exceed income dividends, your
invested principal in the account will be depleted. Thus,
depending on the frequency and amounts of the withdrawal
payments and/or any fluctuations in the net asset value
per Share, your original investment could be exhausted
entirely. You may change or cancel the SWP at any time on
written notice to the transfer agent. The transfer agent
may require that the signature on the written notice be
guaranteed.
It is generally not in your best interest to be
participating in the SWP at the same time that you are
purchasing additional Shares if you have to pay a sales
load in connection with such purchases.
Other Information Regarding Redemptions
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.
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Payment to the Shareholders for Shares redeemed will be
made within seven days after the transfer agent receives
the valid redemption request. At various times, however,
the Fund may be requested to redeem Shares for which it
has not yet received good payment; collection of payment
may take ten or more days. In such circumstances, the
redemption request will be rejected by the Fund. Once the
Fund has received good payment for the Shares a
Shareholder may submit another request for redemption.
Due to the relatively high costs of handling small
investments, the Fund reserves the right to redeem your
Shares at net asset value if your account in the Fund has
a value of less than the minimum initial purchase amount.
Accordingly, if you purchase Shares of the Fund in only
the minimum investment amount, you may be subject to
involuntary redemption if you redeem any Shares. Before
the Fund exercises its right to redeem such Shares you
will be given notice that the value of the Shares in your
account is less than the minimum amount and will be
allowed 60 days to make an additional investment in the
Fund in an amount which will increase the value of the
account to at least the minimum amount.
DIVIDENDS The net income of the California Intermediate Tax-Free
Bond 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, if any, 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.
TAXES Federal Taxation
The California Intermediate Tax-Free Bond 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, if any, so that the Fund is not required to pay
federal taxes on these amounts.
Because all of the Fund's net investment income is
expected to be derived from interest, it is anticipated
that no part of any distribution will be eligible for the
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federal dividends received deduction for corporations. The
Fund is not managed to generate any long-term capital
gains and, therefore, does not foresee paying any
significant "capital gains dividends" as described in the
Code.
Exempt-interest dividends from the Fund are excludable
from Shareholders' 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.
Under the Code, interest on indebtedness incurred or
continued by a Shareholder to purchase or carry Shares of
the 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
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 Fund may at times purchase California 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.
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
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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
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 Fund).
Prior to purchasing Shares of the California
Intermediate Tax-Free Bond 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.
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.
California Taxes
The Fund intends to qualify to pay dividends to
Shareholders that are exempt from California personal
income tax ("California exempt-interest dividends"). The
Fund will qualify to pay California exempt-interest
dividends if (1) at the close of each quarter of the
Fund's taxable year, at least 50 percent of the value of
the Fund's total assets consists of obligations the
interest on which would be exempt from California personal
income tax if the obligations were held by an individual
("California Tax Exempt Obligations") and (2) the Fund
continues to qualify as a regulated investment company.
If the Fund qualifies to pay California exempt-interest
dividends, dividends distributed to Shareholders will be
considered California exempt-interest dividends (1) if
they are designated as exempt-interest dividends by the
Fund in a written notice to Shareholders mailed within 60
days of the close of the Fund's
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taxable year and (2) to the extent that they are derived
from the interest received by the Fund during the year on
California Tax Exempt Obligations (less related expenses).
If the aggregate dividends so designated exceed the amount
that may be treated as California exempt-interest
dividends, only that percentage of each dividend
distribution equal to the ratio of aggregate California
exempt-interest dividends to aggregate dividends so
designated will be treated as a California exempt-interest
dividend. The Fund will notify Shareholders of the amount
of California exempt-interest dividends each year.
Corporations subject to California franchise tax that
invest in the Fund generally will not be entitled to
exclude California exempt-interest dividends from income.
Dividend distributions that do not qualify for treatment
as California exempt-interest dividends will be taxable to
Shareholders at ordinary income tax rates for California
personal income tax purposes to the extent of the Fund's
earnings and profits.
Interest on indebtedness incurred or continued by a
Shareholder in connection with the purchase of Shares of
the Fund will not be deductible for California personal
income tax purposes if the Fund distributes California
exempt-interest dividends.
The foregoing is a general, abbreviated summary of
certain of the provisions of the California Revenue and
Taxation Code presently in effect as they directly govern
the taxation of Shareholders subject to California
personal income tax. These provisions are subject to
change by legislative or administrative action, and any
such change may be retroactive with respect to Fund
transactions. Shareholders are advised to consult with
their own tax advisors for more detailed information
concerning California tax matters.
SERVICE
ARRANGEMENTS The Advisor
Pacific Alliance Capital Management, a division of Union
Bank of California, N.A., serves as the California
Intermediate Tax-Free Bond 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 California Intermediate
Tax-Free Bond Fund, computed daily and paid monthly, at
the annual rate of fifty one-hundredths of one percent
(.50%) of the Fund's average
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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. 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 California
Intermediate Tax-Free Bond 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
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 California Intermediate
Tax-Free Bond Fund are made by a team of investment
professionals, all of whom take an active part in the
decision making process. The team leader for the Fund is
Robert Bigelow. Mr. Bigelow has been with Union Bank of
California, and its predecessor, Union Bank since June
1994. Mr. Bigelow served as a portfolio manager at City
National Bank from January, 1986 to June, 1994.
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.
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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 Retail 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
0.15% 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 Fund's average daily net assets. Union Bank
of California has voluntarily agreed to reduce this fee to
0.00%, 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 Retail 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.
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The Distribution Plan
Pursuant to HighMark's Distribution Plan, the California
Intermediate Tax-Free Bond Fund pays the Distributor as
compensation for its services in connection with the
Distribution Plan a distribution fee, computed daily and
paid monthly, equal to twenty-five one-hundredths of one
percent (0.25%) of the average daily net assets
attributable to the Fund's Retail Shares. The Distributor
has agreed to waive its fee to the rate of 0.00% of the
Fund's average daily net assets.
The Distributor may use the distribution fee applicable
to the Fund's Retail Shares to provide distribution
assistance with respect to the sale of the Fund's Retail
Shares or to provide Shareholder services to the holders
of the Fund's Retail Shares. The Distributor may also use
the distribution fee (i) to pay financial institutions and
intermediaries (such as insurance companies and investment
counselors but not including banks and savings and loan
associations), broker-dealers, and the Distributor's
affiliates and subsidiaries compensation for services or
reimbursement of expenses incurred in connection with the
distribution of the Fund's Retail Shares to their
customers or (ii) to pay banks, savings and loan
associations, other financial institutions and
intermediaries, broker-dealers, and the Distributor's
affiliates and subsidiaries compensation for services or
reimbursement of expenses incurred in connection with the
provision of Shareholder services to their customers
owning the Fund's Retail Shares. All payments by the
Distributor for distribution assistance or Shareholder
services under the Distribution Plan will be made pursuant
to an agreement between the Distributor and such bank,
savings and loan association, other financial institution
or intermediary, broker-dealer, or affiliate or subsidiary
of the Distributor (a "Servicing Agreement"; banks,
savings and loan associations, other financial
institutions and intermediaries, broker-dealers, and the
Distributor's affiliates and subsidiaries that may enter
into a Servicing Agreement are hereinafter referred to
individually as a "Participating Organization"). A
Participating Organization may include Union Bank of
California, its subsidiaries and its affiliates.
Participating Organizations may charge customers fees in
connection with investments in the California Intermediate
Tax-Free Bond Fund on their customers' behalf. Such fees
would be in addition to any amounts the Participating
Organization may receive pursuant to its Servicing
Agreement. Under the terms of the Servicing Agreements,
Participating Organizations are required to provide their
customers with a schedule of fees charged directly to such
customers in connection with investments in the Fund.
Customers of Participating Organizations should read this
Prospectus in light of the terms governing their accounts
with the Participating Organization.
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The distribution fee under the Distribution Plan will be
payable without regard to whether the amount of the fee is
more or less than the actual expenses incurred in a
particular year by the Distributor in connection with
distribution assistance or Shareholder services rendered
by the Distributor itself or incurred by the Distributor
pursuant to the Servicing Agreements entered into under
the Distribution Plan. The Distributor may from time to
time voluntarily reduce its distribution fee with respect
to the California Intermediate Tax-Free Bond Fund in
significant amounts for substantial periods of time
pursuant to an agreement with HighMark. While there can be
no assurance that the Distributor will choose to make such
an agreement, any voluntary reduction in the Distributor's
distribution fee will lower the California Intermediate
Tax-Free Bond Fund's expenses, and thus increase the
Fund's yield and total returns, during the period such
voluntary reductions are in effect.
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 California
Intermediate Tax-Free Bond 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.
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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 Fiduciary Shares of
the California Intermediate Tax-Free Bond Fund, 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 Retail Shares of the
California Intermediate Tax-Free Bond 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 California Intermediate Tax-Free Bond 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
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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. 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 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
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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 California Intermediate Tax-Free Bond
Fund.
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 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.
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<PAGE> 292
CERTIFICATES OF DEPOSIT--Negotiable interest-bearing
instruments with a specific maturity. Certificates of
deposit are issued by banks and savings and loan
institutions in exchange for the deposit of funds and
normally can be traded in the secondary market prior to
maturity.
COMMERCIAL PAPER--Unsecured short-term promissory notes
issued by corporations and other entities. Maturities on
these issues vary from a few days to nine months. Purchase
of such instruments involves a risk of default by the
issuer.
DERIVATIVES--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.
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
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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
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
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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, 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
35
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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.
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
36
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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.
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
37
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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 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
38
<PAGE> 298
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.
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
39
<PAGE> 299
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 the World
Bank and European Investment Bank. Canadian bonds are
bonds issued by Canadian provinces.
40
<PAGE> 300
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.
41
<PAGE> 301
HighMark CALIFORNIA INTERMEDIATE TAX-FREE BOND 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
<PAGE> 302
- Balanced Fund
Prospectus
Retail Shares
March 28, 1997
84821-B(3/97) [LOGO] HIGHMARK(SM)
FUNDS
<PAGE> 303
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.
RETAIL SHARES
HighMark's Retail Shares are offered to investors who are not fiduciary
clients of Union Bank of California, N.A., and who are not otherwise eligible
for HighMark's Fiduciary Shares.
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 Retail 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.
March 28, 1997
Retail Shares
<PAGE> 304
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
Retail 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 (plus any applicable sales charge). Redemption orders must be placed
prior to 1:00 p.m., Pacific
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<PAGE> 305
time (4:00 p.m., Eastern time) on any Business Day for the order to be effective
that day. (See "HOW TO PURCHASE SHARES" 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
Balanced Fund Fee Table.............................................................. 5
Financial Highlights................................................................. 6
Fund Description..................................................................... 7
Investment Objective................................................................. 7
Investment Policies.................................................................. 7
General.............................................................................. 8
Money Market Instruments........................................................... 8
Illiquid and Restricted Securities................................................. 8
Lending of Portfolio Securities.................................................... 8
Other Investments.................................................................. 9
Risk Factors....................................................................... 10
Investment Limitations............................................................... 12
Portfolio Turnover................................................................. 13
How to Purchase Shares............................................................... 13
How to Purchase By Mail............................................................ 14
How to Purchase By Wire............................................................ 15
How to Purchase through an Automatic Investment Plan ("AIP")....................... 15
How to Purchase Through Financial Institutions..................................... 15
Sales Charges...................................................................... 16
Letter of Intent................................................................... 17
Rights of Accumulation............................................................. 17
Sales Charge Waivers............................................................... 17
Reductions for Qualified Groups.................................................... 19
Exchange Privileges.................................................................. 19
Redemption of Shares................................................................. 21
By Mail............................................................................ 21
Telephone Transactions............................................................. 21
Systematic Withdrawal Plan ("SWP")................................................. 22
Other Information Regarding Redemptions............................................ 22
</TABLE>
3
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<TABLE>
<CAPTION>
PAGE
--
<S> <C>
Dividends............................................................................ 23
Federal Taxation..................................................................... 23
Service Arrangements................................................................. 25
The Advisor........................................................................ 25
Administrator...................................................................... 26
The Transfer Agent................................................................. 26
Shareholder Service Plan........................................................... 26
Distributor........................................................................ 27
The Distribution Plan.............................................................. 27
Banking Laws....................................................................... 28
Custodian.......................................................................... 29
General Information.................................................................. 29
Description of HighMark & Its Shares............................................... 29
Performance Information............................................................ 29
Miscellaneous...................................................................... 30
Description of Permitted Investments................................................. 31
</TABLE>
4
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BALANCED FUND FEE TABLE
<TABLE>
<CAPTION>
BALANCED
FUND
RETAIL
SHARES
--------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................ 4.50%
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)(b)....................................................................................... 0%
Redemption Fees (as a percentage of amount redeemed, if applicable)(c)................................. 0%
Exchange Fee(a)........................................................................................ $ 0
ANNUAL OPERATING EXPENSES (as a percentage of net assets)
Management Fees........................................................................................ 0.60%
12b-1 Fees............................................................................................. 0.25%
Other Expenses (after voluntary reduction)(d).......................................................... 0.30%
Total Fund Operating Expenses(e)....................................................................... 1.15%
=====
</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>
Balanced Fund Retail Shares................................. $ 56 $ 80 $105 $ 178
</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.
Long-term shareholders of Retail Shares may pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by rules
of the National Association of Securities Dealers, Inc.
- ---------------
(a) Certain entities (including 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 HOW TO PURCHASE
SHARES, EXCHANGE PRIVILEGES, REDEMPTION OF SHARES, and SERVICE ARRANGEMENTS
below.)
(b) A Contingent Deferred Sales Charge of 1.00% will be assessed against the
proceeds of any redemption request relating to Retail Shares of the Fund
that were purchased without a sales charge in reliance upon the waiver
accorded to purchases in the amount of $1 million or more, but only where
such redemption request is made within one year of the date the Shares were
purchased.
(c) 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.)
(d) Absent voluntary fee waivers, OTHER EXPENSES would be .48% for the Retail
Shares of the Balanced Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be 1.33%
for the Retail Shares of the Balanced Fund.
5
<PAGE> 308
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect to the
Retail 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>
YEAR ENDED JULY
31,
-----------------
JUNE 20, 1994 TO
1996 1995 JULY 31, 1994(A)
------ ------ ----------------
RETAIL RETAIL RETAIL
------ ------ ----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period...................... $10.79 $ 9.71 $ 9.71
------ ------ ------
Investment Activities
Net investment income................................... 0.40 0.43
Net realized and unrealized gains (losses) on
investments.......................................... 0.77 1.04 0.06
------ ------ ------
Total from Investment Activities................ 1.17 1.47 0.06
------ ------ ------
Distributions
Net investment income................................... (0.40) (0.39) (0.06)
------ ------ ------
Net Asset Value, End of Period............................ $11.56 $10.79 $ 9.71
====== ====== ======
Total Return.................................... 10.94% 15.60% 0.25%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)....................... $ 694 $ 467 --
Ratio of expenses to average net assets................. 0.94% 0.90% --
Ratio of net investment income to average net assets.... 3.48% 3.78% --
Ratio of expenses to average net assets*................ 2.03% 2.05% --
Ratio of net investment income to average net assets*... 2.39% 2.63% --
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) Represents total return for the Fiduciary Shares from commencement of
operations to June 19, 1994 plus the total return for the Retail Shares for
the period from June 20, 1994 to July 31, 1994.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
6
<PAGE> 309
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 Retail Shares, sales charges and the operation
of HighMark's Distribution Plan, see HOW TO PURCHASE
SHARES and SERVICE ARRANGEMENTS below. (Retail 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.
7
<PAGE> 310
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 25% 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 25% 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
8
<PAGE> 311
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
9
<PAGE> 312
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
10
<PAGE> 313
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
11
<PAGE> 314
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
12
<PAGE> 315
(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 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.
HOW TO
PURCHASE
SHARES As noted above, the Fund is divided into two classes of
Shares, Retail and Fiduciary. Retail Shares may be
purchased at net asset value plus a sales charge. For a
description of investors who qualify to purchase Fiduciary
Shares, see the Fiduciary Shares prospectus of the
Balanced Fund. HighMark's Retail Shares are offered to
investors who are not fiduciary clients of Union Bank of
California, N.A., and who are not otherwise eligible for
HighMark's Fiduciary class.
Retail Shares are sold on a continuous basis by
HighMark's Distributor, SEI Financial Services Company.
The principal office of the Distributor is Oaks,
Pennsylvania 19456. If you wish to purchase Shares, you
may contact your investment professional or telephone
HighMark at 1-800-433-6884.
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
13
<PAGE> 316
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,
401(k) or similar plans. Purchases and redemption of
Shares of the Fund may be made on days on which both the
New York Stock Exchange and the Federal Reserve wire
system are open for business ("Business Days").
Purchase orders for Shares will be executed at a per
Share price equal to the net asset value next determined
after the receipt of the purchase order by the Distributor
(plus any applicable sales charge). The net asset value
per Share of the Fund is determined by dividing the total
market value of the Fund's investments and other assets,
less any liabilities, by the total number of outstanding
Shares of the Fund. Net asset value per Share is
determined daily as of 1:00 p.m., Pacific time (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.
The securities in the Fund will be valued at market
value. If market quotations are not available, the
securities will be valued by a method that HighMark's
Board of Trustees believes accurately reflects fair value.
For further information about valuation of investments in
the Balanced Fund, see the Statement of Additional
Information.
Shares of the Fund are offered only to residents of
states in which the Shares are eligible for purchase.
How to Purchase By Mail
You may purchase Shares of the Balanced Fund by
completing and signing an Account Application form and
mailing it, along with a check (or other negotiable bank
instrument or money order) payable to "HighMark Funds
(Fund Name)," to the transfer agent at P.O. Box 8416,
Boston, Massachusetts 02266-8416. All purchases made by
check should be in U.S. dollars and made payable to
"HighMark Funds (Fund Name)." Third party checks, credit
card checks or cash will not be accepted. You may purchase
more Shares at any time by mailing payment also to the
transfer agent at the above address. Orders placed by mail
will be executed on receipt of your payment. If your check
does not clear, your purchase will be canceled and you
could be liable for any losses or fees incurred.
You may obtain Account Application Forms for the
Balanced Fund by calling the Distributor at
1-800-433-6884.
14
<PAGE> 317
How to Purchase By Wire
You may purchase Shares of the Balanced Fund by wiring
Federal funds, provided that your Account Application has
been previously received. You must wire funds to the
transfer agent and the wire instructions must include your
account number. You must call the transfer agent at
1-800-433-6884 before wiring any funds. An order to
purchase Shares by Federal funds wire will be deemed to
have been received by the Fund on the Business Day of the
wire; provided that the Shareholder wires funds to the
transfer agent prior to 1:00 p.m., Pacific time (4:00
p.m., Eastern time). If the transfer agent does not
receive the wire by 1:00 p.m., Pacific time (4:00 p.m.,
Eastern time), the order will be executed on the next
Business Day.
How to Purchase through an Automatic Investment Plan
("AIP")
You may arrange for periodic additional investments in
the Balanced Fund through automatic deductions by
Automated Clearing House ("ACH") from a checking account
by completing this section in the Account Application
form. The minimum pre-authorized investment amount is $100
per month. The AIP is available only for additional
investments to an existing account.
How to Purchase Through Financial Institutions
Shares of the Fund may be purchased through financial
institutions, including the Advisor, that provide
distribution assistance or Shareholder services. Shares
purchased by persons ("Customers") through financial
institutions may be held of record by the financial
institution. Financial institutions may impose an earlier
cut-off time for receipt of purchase orders directed
through them to allow for processing and transmittal of
these orders to the transfer agent for effectiveness the
same day. Customers should contact their financial
institution for information as to that institution's
procedures for transmitting purchase, exchange or
redemption orders to HighMark.
Customers who desire to transfer the registration of
Shares beneficially owned by them but held of record by a
financial institution should contact the institution to
accomplish such change.
Depending upon the terms of a particular Customer
account, a financial institution may charge a Customer
account fees. Information concerning these services and
any charges will be provided to the Customer by the
financial institution.
15
<PAGE> 318
Sales Charges
The following table shows the regular sales charge on
Retail Shares to a "single purchaser" (defined below)
together with the dealer discount paid to dealers and the
agency commission paid to brokers (collectively the
"commission"):
<TABLE>
<CAPTION>
SALES CHARGE AS COMMISSION AS
SALES CHARGE AS A APPROPRIATE PERCENTAGE OF
PERCENTAGE OF PERCENTAGE OF NET OFFERING
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED PRICE
--------------------- ----------------- ----------------- -------------
<S> <C> <C> <C>
0-$49,999 4.50% 4.71% 4.05%
$50,000-$99,000 4.00% 4.17% 3.60%
$100,000-$249,000 3.50% 3.63% 3.15%
$250,000-$499,999 2.50% 2.56% 2.25%
$500,000-$999,999 1.50% 1.52% 1.35%
$1,000,000 and Over* 0.00% 0.00% 0.00%
</TABLE>
------------------------------------
* A contingent deferred sales charge of 1.00% will be
assessed against any proceeds of any redemption of such
Retail Shares prior to one year from date of purchase.
The commissions shown in the table apply to sales
through authorized dealers and brokers. Under certain
circumstances, the Distributor may use its own funds to
compensate financial institutions and intermediaries in
amounts that are additional to the commissions shown
above. In addition, the Distributor may, from time to time
and at its own expense, provide promotional incentives in
the form of cash or other compensation to certain
financial institutions and intermediaries whose registered
representatives have sold or are expected to sell
significant amounts of the Retail Shares of the Fund. Such
other compensation may take the form of payments for
travel expenses, including lodging, incurred in connection
with trips taken by qualifying registered representatives
to places within or without the United States. Under
certain circumstances, commissions up to the amount of the
entire sales charge may be reallowed to dealers or
brokers, who might then be deemed to be "underwriters"
under the Securities Act of 1933. Commission rates may
vary among the Funds.
In calculating the sales charge rates applicable to
current purchases of the Fund's Shares, a "single
purchaser" is entitled to cumulate current purchases with
the net purchase of previously purchased Shares of the
Fund and other of HighMark's funds (the "Eligible Funds")
which are sold subject to a comparable sales charge.
The term "single purchaser" refers to (i) an individual,
(ii) an individual and spouse purchasing Shares of the
Fund for their own account or for trust or custodial
accounts for their minor children, or (iii) a fiduciary
purchasing for any one trust, estate or fiduciary account
including employee benefit plans created
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under Sections 401, 403(b) or 457 of the Internal Revenue
Code of 1986, as amended (the "Code"), including related
plans of the same employer. To be entitled to a reduced
sales charge based upon Shares already owned, the investor
must ask the Distributor for such entitlement at the time
of purchase and provide the account number(s) of the
investor, the investor and spouse, and their minor
children, and give the age of such children. The Fund may
amend or terminate this right of accumulation at any time
as to subsequent purchases.
Letter of Intent
By initially investing at least $1,000 and submitting a
Letter of Intent (the "Letter") to the Distributor, a
"single purchaser" may purchase Shares of the Fund and the
other Eligible Funds during a 13-month period at the
reduced sales charge rates applicable to the aggregate
amount of the intended purchases stated in the Letter. The
Letter may apply to purchases made up to 90 days before
the date of the Letter. To receive credit for such prior
purchases and later purchases benefitting from the Letter,
the Shareholder must notify the Transfer Agent at the time
the Letter is submitted that there are prior purchases
that may apply, and, at the time of later purchases,
notify the Transfer Agent that such purchases are
applicable under the Letter.
Rights of Accumulation
In calculating the sales charge rates applicable to
current purchases of Retail Shares, a "single purchaser"
is entitled to cumulate current purchases with the current
market value of previously purchased Retail Shares of the
Funds sold subject to a comparable sales charge.
To exercise your right of accumulation based upon Shares
you already own, you must ask the Distributor for this
reduced sales charge at the time of your additional
purchase and provide the account number(s) of the
investor, as applicable, the investor and spouse, and
their minor children. The Funds may amend or terminate
this right of accumulation at any time as to subsequent
purchases.
Sales Charge Waivers
The following categories of investors may purchase
Retail Shares of the Funds with no sales charge in the
manner described below (which may be changed or eliminated
at any time by the Distributor):
(1) Existing holders of Retail Shares of a Fund upon the
reinvestment of dividend and capital gain distributions on
those Shares;
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(2) Investment companies advised by Pacific Alliance
Capital Management or distributed by SEI Financial
Services Company or its affiliates placing orders on each
entity's behalf;
(3) State and local governments;
(4) Individuals who have received distributions from
employee benefit trust accounts who are rolling over such
distributions into an individual retirement account for
which the Bank serves as trustee or custodian;
(5) Individuals who purchase Shares with proceeds from a
required minimum distribution at age 70 1/2 from their
employee benefit qualified plan or an individual
retirement account administered by Union Bank of
California;
(6) Individuals who purchase Shares with proceeds
received in connection with a distribution paid from a
Union Bank of California trust or agency account;
(7) Investment advisors or financial planners regulated
by a federal or state governmental authority who are
purchasing Shares for their own account or for an account
for which they are authorized to make investment decisions
(i.e., a discretionary account) and who charge a
management, consulting or other fee for their services;
and clients of such investment advisors or financial
planners who place trades for their own accounts if the
accounts are linked to the master account of such
investment advisor or financial planner on the books and
records of a broker or agent;
(8) Investors purchasing Shares with proceeds from a
redemption of Shares of another open-end investment
company (other than HighMark Funds) on which a sales
charge was paid if such redemption occurred within thirty
(30) days prior to the date of the purchase order.
Satisfactory evidence of the purchaser's eligibility must
be provided at the time of purchase (e.g., a confirmation
of the redemption);
(9) Brokers, dealers and agents who are purchasing for
their own account and who have a sales agreement with the
Distributor, and their employees (and their spouses and
children under the age of 21);
(10) Investors purchasing Shares on behalf of a
qualified prototype retirement plan (other than an IRA,
SEP-IRA or Keogh) sponsored by Union Bank of California;
(11) Purchasers of Retail Shares of the Growth Fund that
are sponsors of other investment companies that are unit
investment trusts for deposit by such sponsors into such
unit investment trusts, and to purchasers of Retail Shares
of the Growth Fund that are holders of such unit
investment trusts that invest distributions from such
investment trusts in Retail Shares of the Growth Fund;
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(12) 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 or their affiliated companies; and
(13) Investors receiving Shares issued in plans of
reorganization, such as mergers, asset acquisitions, and
exchange offers, to which HighMark is a party.
With regard to categories 2 through 12 above, the
Distributor must be notified that the purchase qualifies
for a sales charge waiver at the time of purchase.
Reductions for Qualified Groups
Reductions in sales charges also apply to purchases by
individual members of a "qualified group." The reductions
are based on the aggregate dollar amount of Shares
purchased by all members of the qualified group. For
purposes of this paragraph, a qualified group consists of
a "company," as defined in the 1940 Act, which has been in
existence for more than six months and which has a primary
purpose other than acquiring Shares of a Fund at a reduced
sales charge, and the "related parties" of such company.
For purposes of this paragraph, a "related party" of a
company is (i) any individual or other company who
directly or indirectly owns, controls or has the power to
vote five percent or more of the outstanding voting
securities of such company; (ii) any other company of
which such company directly or indirectly owns, controls
or has the power to vote five percent or more of its
outstanding voting securities; (iii) any other company
under common control with such company; (iv) any executive
officer, director or partner of such company or of a
related party; and (v) any partnership of which such
company is a partner. Investors seeking to rely on their
membership in a qualified group to purchase Shares at a
reduced sales load must provide evidence satisfactory to
the Transfer Agent of the existence of a bona fide
qualified group and their membership therein.
All orders from a qualified group will have to be placed
through a single source and identified at the time of
purchase as originating from the same qualified group,
although such orders may be placed into more than one
discrete account that identifies HighMark.
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 Retail Shares for Retail
Shares of a Fund with the same or lower sales charge on
the basis of the relative net asset value of the Retail
Shares exchanged. Shareholders may exchange their Retail
Shares for Retail Shares of a Fund with a higher sales
charge by paying the difference between the two sales
charges. Shareholders may also exchange Retail Shares of a
Money Market Fund for which no sales load was paid for
Retail Shares of an Equity Fund. Under such circumstances,
the cost of the acquired Retail Shares will be the net
asset value per share plus the appropriate sales load. If
Retail Shares of the Money Market Fund were acquired in a
previous exchange involving Shares of a non-money market
HighMark Fund, then such Shares of the Money Market Fund
may be exchanged for Shares of an Equity Fund without
payment of any additional sales load within a twelve month
period. In order to receive a reduced sales charge when
exchanging into a Fund, the Shareholder must notify
HighMark that a sales charge was originally paid and
provide sufficient information to permit confirmation of
qualification.
Exchanges will be made on the basis of the relative net
asset values of the Shares exchanged plus any applicable
sales charge. Exchanges are subject to the terms and
conditions stated herein and the terms and conditions
stated in the respective prospectuses of the Funds.
Certain entities (including Participating Organizations
and 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 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
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of HighMark may legally be sold. HighMark may materially
amend or terminate the exchange privileges described
herein upon sixty days' notice.
REDEMPTION OF
SHARES You may redeem your Shares of the Balanced Fund without
charge on any Business Day. There is presently a $15
charge for wiring redemption proceeds to a Shareholder's
designated account. Shares may be redeemed by mail, by
telephone or through a prearranged systematic withdrawal
plan. Investors who own Shares held by a financial
institution should contact that institution for
information on how to redeem Shares.
By Mail
A written request for redemption of Shares of the
Balanced Fund must be received by the transfer agent, P.O.
Box 8416, Boston, Massachusetts 02266-8416 in order to
constitute a valid redemption request.
If the redemption request exceeds $5,000, or if the
request directs the proceeds to be sent or wired to an
address different from that of record, the transfer agent
may require that the signature on the written redemption
request be guaranteed. You should be able to obtain a
signature guarantee from a bank, broker dealer, credit
union, securities exchange or association, clearing agency
or savings association. Notaries public cannot guarantee
signatures. The signature guarantee requirement will be
waived if all of the following conditions apply: (1) the
redemption is for not more than $5,000 worth of Shares,
(2) the redemption check is payable to the shareholder(s)
of record, and (3) the redemption check is mailed to the
shareholder(s) at his or her address of record.
Telephone Transactions
You may redeem your Shares of the Balanced Fund by
calling the transfer agent at 1-800-433-6884. Under most
circumstances, payments will be transmitted on the next
Business Day following receipt of a valid request for
redemption. You may have the proceeds mailed to your
address or wired to a commercial bank account previously
designated on your Account Application. There is no charge
for having redemption proceeds mailed to you, but there is
a $15 charge for wiring redemption proceeds.
You may request a wire redemption for redemptions of
Shares of the Balanced Fund in excess of $500 by calling
the transfer agent at 1-800-433-6884 who will deduct a
wire charge of $15 from the amount of the wire redemption.
Shares cannot be redeemed by Federal Reserve wire on
Federal holidays restricting wire transfers.
Neither the transfer agent nor HighMark will be
responsible for any loss, liability, cost or expense for
acting upon wire or telephone instructions that it
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reasonably believes to be genuine. HighMark and transfer
agent will each employ reasonable procedures to confirm
that instructions, communicated by telephone 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 consider placing your order by mail.
Systematic Withdrawal Plan ("SWP")
The Balanced Fund offers a Systematic Withdrawal Plan
("SWP"), which you may use to receive regular
distributions from your account. Upon commencement of the
SWP, your account must have a current net asset value of
$5,000 or more. You may elect to receive automatic
payments via check or ACH of $100 or more on a monthly,
quarterly, semi-annual or annual basis. You may arrange to
receive regular distributions from your account via check
or ACH by completing this section in the Account
Application form.
To participate in the SWP, you must have your dividends
automatically reinvested. You should realize that if your
automatic withdrawals exceed income dividends, your
invested principal in the account will be depleted. Thus,
depending on the frequency and amounts of the withdrawal
payments and/or any fluctuations in the net asset value
per Share, your original investment could be exhausted
entirely. You may change or cancel the SWP at any time on
written notice to the transfer agent. The transfer agent
may require that the signature on the written notice be
guaranteed.
It is generally not in your best interest to be
participating in the SWP at the same time that you are
purchasing additional Shares if you have to pay a sales
load in connection with such purchases.
Other Information Regarding Redemptions
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.
Payment to the Shareholders for Shares redeemed will be
made within seven days after the transfer agent receives
the valid redemption request. At various times, however,
the Fund may be requested to redeem Shares for which it
has not yet received good payment; collection of payment
may take ten or more days. In
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such circumstances, the redemption request will be
rejected by the Fund. Once the Fund has received good
payment for the Shares a Shareholder may submit another
request for redemption.
Due to the relatively high costs of handling small
investments, the Fund reserves the right to redeem your
Shares at net asset value if your account in the Fund has
a value of less than the minimum initial purchase amount.
Accordingly, if you purchase Shares of the Fund in only
the minimum investment amount, you may be subject to
involuntary redemption if you redeem any Shares. Before
the Fund exercises its right to redeem such Shares you
will be given notice that the value of the Shares in your
account is less than the minimum amount and will be
allowed 60 days to make an additional investment in the
Fund in an amount which will increase the value of the
account to at least the minimum amount.
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
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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 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.
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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 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
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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 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 Retail 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 Retail 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
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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 0.09% 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.
The Distribution Plan
Pursuant to HighMark's Distribution Plan, the Balanced
Fund pays the Distributor as compensation for its services
in connection with the Distribution Plan a distribution
fee, computed daily and paid monthly, equal to twenty-five
one-hundredths of one percent (0.25%) of the average daily
net assets attributable to the Fund's Retail Shares.
The Distributor may use the distribution fee applicable
to the Fund's Retail Shares to provide distribution
assistance with respect to the sale of the Fund's Retail
Shares or to provide Shareholder services to the holders
of the Fund's Retail Shares. The Distributor may also use
the distribution fee (i) to pay financial institutions and
intermediaries (such as insurance companies and investment
counselors but not including banks and savings and loan
associations), broker-dealers, and the Distributor's
affiliates and subsidiaries compensation for services or
reimbursement of expenses incurred in connection with the
distribution of the Fund's Retail Shares to their
customers or (ii) to pay banks, savings and loan
associations, other financial institutions and
intermediaries, broker-dealers, and the Distributor's
affiliates and subsidiaries compensation for services or
reimbursement of expenses incurred in connection with the
provision of Shareholder services to their customers
owning the Fund's Retail Shares. All payments by the
Distributor for distribution assistance or Shareholder
services under the Distribution Plan will be made pursuant
to an agreement between the Distributor and such bank,
savings and loan association, other financial institution
or intermediary, broker-dealer, or affiliate or subsidiary
of the Distributor (a "Servicing Agreement"; banks,
savings and loan associations, other financial
institutions and intermediaries, broker-dealers, and the
Distributor's affiliates and
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subsidiaries that may enter into a Servicing Agreement are
hereinafter referred to individually as a "Participating
Organization"). A Participating Organization may include
Union Bank of California, its subsidiaries and its
affiliates.
Participating Organizations may charge customers fees in
connection with investments in the Balanced Fund on their
customers' behalf. Such fees would be in addition to any
amounts the Participating Organization may receive
pursuant to its Servicing Agreement. Under the terms of
the Servicing Agreements, Participating Organizations are
required to provide their customers with a schedule of
fees charged directly to such customers in connection with
investments in the Fund. Customers of Participating
Organizations should read this Prospectus in light of the
terms governing their accounts with the Participating
Organization.
The distribution fee under the Distribution Plan will be
payable without regard to whether the amount of the fee is
more or less than the actual expenses incurred in a
particular year by the Distributor in connection with
distribution assistance or Shareholder services rendered
by the Distributor itself or incurred by the Distributor
pursuant to the Servicing Agreements entered into under
the Distribution Plan. The Distributor may from time to
time voluntarily reduce its distribution fee with respect
to the Balanced Fund in significant amounts for
substantial periods of time pursuant to an agreement with
HighMark. While there can be no assurance that the
Distributor will choose to make such an agreement, any
voluntary reduction in the Distributor's distribution fee
will lower the Balanced Fund's expenses, and thus increase
the Fund's yield and total returns, during the period such
voluntary reductions are in effect.
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.
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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 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 TaxFree
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 Fiduciary 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 there was
no person who owned of record or beneficially more than
25% of the Retail 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 Retail
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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 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 nonregistered
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,
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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 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 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
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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 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
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"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.
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.
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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, 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
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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.
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
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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 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
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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 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.
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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 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.
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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 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
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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 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.
40
<PAGE> 343
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
<PAGE> 344
MONEY MARKET FUNDS
- Diversified Money
Market Fund
- U.S. Government Money
Market Fund
- 100% U.S. Treasury
Money Market Fund
- California Tax-Free
Money Market Fund
Prospectus
Retail Shares
March 28, 1997
84822-B(3/97) [LOGO] HIGHMARK(SM)
FUNDS
<PAGE> 345
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
RETAIL SHARES
HighMark's Retail Shares are offered to investors who are not fiduciary
clients of Union Bank of California, N.A., and who are not otherwise eligible
for HighMark's Fiduciary Shares.
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 Retail 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.
March 28, 1997
Retail Shares
<PAGE> 346
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
Retail 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 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> 347
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 "HOW TO PURCHASE SHARES 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")
3
<PAGE> 348
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
Investment Limitations................................................................ 24
Valuation of Shares................................................................. 26
How to Purchase Shares................................................................ 26
How to Purchase By Mail............................................................. 27
How to Purchase By Wire............................................................. 28
How to Purchase through an Automatic Investment Plan ("AIP")........................ 28
How to Purchase Through Financial Institutions...................................... 28
Exchange Privileges................................................................... 29
Redemption of Shares.................................................................. 30
By Mail............................................................................. 30
Telephone Transactions.............................................................. 30
Systematic Withdrawal Plan ("SWP").................................................. 31
Other Information Regarding Redemptions............................................. 32
Dividends............................................................................. 32
Federal Taxation...................................................................... 33
Service Arrangements.................................................................. 35
The Advisor......................................................................... 35
Administrator....................................................................... 36
The Transfer Agent.................................................................. 37
Shareholder Service Plan............................................................ 37
Distributor......................................................................... 37
The Distribution Plan............................................................... 38
Banking Laws........................................................................ 39
Custodian........................................................................... 39
General Information................................................................... 39
Description of HighMark & Its Shares................................................ 39
Performance Information............................................................. 40
Miscellaneous....................................................................... 41
Description of Permitted Investments.................................................. 42
</TABLE>
4
<PAGE> 349
MONEY MARKET FUNDS FEE TABLE
<TABLE>
<CAPTION>
100% U.S. CALIFORNIA
DIVERSIFIED MONEY U.S. GOVERNMENT TREASURY TAX-FREE
MARKET FUND MONEY MARKET FUND MONEY MARKET FUND MONEY MARKET FUND
RETAIL SHARES RETAIL SHARES RETAIL SHARES RETAIL 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...................... 0.25% 0.25% 0.25% 0.25%
Other Expenses (after voluntary
reduction)(d)................. 0.20% 0.21% 0.21% 0.21%
--- --- --- ---
Total Fund Operating
Expenses(e)................... 0.75% 0.75% 0.70% 0.55%
================== ================== ================== ==================
</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 Retail Shares.............. $8 $24 $42 $ 93
U.S. Government Money Market Fund Retail Shares.......... $8 $24 $42 $ 93
100% U.S. Treasury Money Market Fund Retail Shares....... $7 $22 $39 $ 87
California Tax-Free Money Market Fund Retail Shares...... $6 $18 $31 $ 69
</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 HOW TO PURCHASE SHARES, EXCHANGE
PRIVILEGES, REDEMPTION OF SHARES, and SERVICE ARRANGEMENTS below.)
5
<PAGE> 350
(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.)
(c) Absent voluntary fee waivers, MANAGEMENT FEES would be 0.30% for the Retail
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 Retail
Shares of the Diversified Money Market Fund and 0.48% for the Retail 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: 1.02%
for the Retail Shares of the Diversified Money Market Fund, and 1.03% for
the Retail 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.
6
<PAGE> 351
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information with respect to the
Retail 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 1991
-------- -------- ------- ------- ------- -------
RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL
-------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................................. $ 1.00 $ 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 0.066
-------- -------- ------- ------- ------- -------
Distributions
Net investment income................................ (0.049) (0.049) (0.028) (0.027) (0.043) (0.066)
-------- -------- ------- ------- ------- -------
Net Asset Value, End of Period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= ======= ======= =======
Total Return........................................... 5.01% 4.99% 2.88% 2.75% 4.41% 7.00%
Ratios/Supplementary Data:
Net Assets at end of period (000).................... $185,952 $128,191 $75,725 $77,589 $17,600 $16,618
Ratio of expenses to average net assets.............. 0.75% 0.74% 0.74% 0.72% 0.72% 0.70%
Ratio of net investment income to average net
assets............................................. 4.89% 4.92% 2.83% 2.72% 4.34% 6.71%
Ratio of expenses to average net assets*............. 1.23% 1.23% 1.14% 0.79% 0.97% 0.70%
Ratio of net investment income to average net
assets*............................................ 4.41% 4.43% 2.42% 2.65% 4.09% 6.71%
</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.
7
<PAGE> 352
<TABLE>
<CAPTION>
AUGUST 10,
1987 TO
YEAR ENDED JULY 31, JULY 31
--------------------- ----------
1990 1989 1988(a)
-------- -------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period......................................... $ 1.00 $ 1.00 $ 1.00
Investment Activities
Net investment income...................................................... 0.079 0.085 0.066
Distributions
Net investment income...................................................... (0.079) (0.085) (0.066)
-------- -------- --------
Net Asset Value, End of Period............................................... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return................................................................. 8.23% 8.84% 6.94%
Ratios/Supplementary Data:
Net Assets at end of period (000).......................................... $593,116 $621,462 $350,499
Ratio of expenses to average net assets.................................... 0.66% 0.59% 0.50%(b)
Ratio of net investment income to average net assets....................... 7.92% 8.50% 6.73%(b)
Ratio of expenses to average net assets*................................... 0.69% 0.71% 0.70%(b)
Ratio of net investment income to average net assets*...................... 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> 353
U.S. GOVERNMENT MONEY MARKET FUND
(FORMERLY U.S. GOVERNMENT OBLIGATIONS FUND)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- -------
RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Investment Activities
Net investment income............................ 0.048 0.048 0.027 0.027 0.042 0.063
------- ------- ------- ------- ------- -------
Distributions
Net investment income............................ (0.048) (0.048) (0.027) (0.027) (0.042) (0.063)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total Return....................................... 4.86% 4.86% 2.74% 2.72% 4.25% 6.49%
Ratios/Supplementary Data:
Net Assets at end of period (000)................ $75,714 $48,474 $24,055 $37,332 $12,527 $ 1,761
Ratio of expenses to average net assets.......... 0.79% 0.78% 0.77% 0.71% 0.73% 0.63%
Ratio of net investment income to average net
assets......................................... 4.77% 4.82% 2.63% 2.67% 4.15% 6.29%
Ratio of expenses to average net assets*......... 1.26% 1.27% 1.17% 0.79% 0.99% 0.73%
Ratio of net investment income to average net
assets*........................................ 4.30% 4.33% 2.23% 2.59% 3.89% 6.19%
</TABLE>
9
<PAGE> 354
<TABLE>
<CAPTION>
AUGUST 10,
1987 TO
YEAR ENDED JULY 31, JULY 31,
-------------------- ----------
1990 1989 1988(a)
------- -------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.......................................... $ 1.00 $ 1.00 $ 1.00
Investment Activities
Net investment income....................................................... 0.078 0.083 0.064
------- -------- -------
Distributions
Net investment income....................................................... (0.078) (0.083) (0.064)
------- -------- -------
Net Asset Value, End of Period................................................ $ 1.00 $ 1.00 $ 1.00
======= ======== =======
Total Return.................................................................. 8.09% 8.62% 6.78%
Ratios/Supplementary Data:
Net Assets at end of period (000)........................................... $80,774 $114,945 $131,985
Ratio of expenses to average net assets..................................... 0.65% 0.62% 0.42%(b)
Ratio of net investment income to average net assets........................ 7.80% 8.30% 6.59%(b)
Ratio of expenses to average net assets*.................................... 0.72% 0.75% 0.71%(b)
Ratio of net investment income to average net assets*....................... 7.73% 8.17% 6.30%(b)
</TABLE>
On December 1, 1990, the U.S. Government Obligations Money Market 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> 355
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 1991
-------- ------- ------- ------- ------- -------
RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- ------- -------
Investment Activities
Net investment income........................... 0.046 0.046 0.026 0.026 0.040 0.063
Net realized and unrealized gains on
investments..................................... 0.001
-------- ------- ------- ------- ------- -------
Total from Investment Activities................ 0.046 0.046 0.026 0.026 0.041 0.063
-------- ------- ------- ------- ------- -------
Distributions
Net investment income........................... (0.046) (0.046) (0.026) (0.026) (0.040) (0.063)
Net realized gains.............................. (0.001)
-------- ------- ------- ------- ------- -------
Total Distributions............................. (0.046) (0.046) (0.026) (0.026) (0.041) (0.063)
-------- ------- ------- ------- ------- -------
Net Asset Value, End of Period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ======= =======
Total Return...................................... 4.74% 4.69% 2.68% 2.64% 4.18% 6.53%
Ratios/Supplementary Data:
Net Assets at end of period (000)............... $100,623 $88,660 $39,157 $32,629 $11,551 $19,187
Ratio of expenses to average net assets......... 0.74% 0.73% 0.74% 0.67% 0.65% 0.62%
Ratio of net investment income to average net
assets........................................ 4.64% 4.68% 2.68% 2.60% 3.99% 6.25%
Ratio of expenses to average net assets*........ 1.23% 1.22% 1.15% 0.75% 0.97% 0.70%
Ratio of net investment income to average net
assets*....................................... 4.15% 4.19% 2.27% 2.52% 3.67% 6.17%
</TABLE>
11
<PAGE> 356
<TABLE>
<CAPTION>
AUGUST 10,
1987 TO
YEAR ENDED JULY 31, JULY 31,
--------------------- ----------
1990 1989 1988(a)
-------- -------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period..................................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Investment Activities
Net investment income.................................................. 0.078 0.081 0.063
Total from Investment Activities....................................... 0.078 0.081 0.063
-------- -------- --------
Distributions
Net investment income.................................................. (0.078) (0.081) (0.063)
-------- -------- --------
Total Distributions.................................................... (0.078) (0.081) (0.063)
-------- -------- --------
Net Asset Value, End of Period........................................... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return............................................................. 8.04% 8.43% 6.62%
Ratios/Supplementary Data:
Net Assets at end of period (000)...................................... $205,787 $174,258 $151,854
Ratio of expenses to average net assets................................ 0.65% 0.54% 0.41%(b)
Ratio of net investment income to average net assets................... 7.76% 8.12% 6.45%(b)
Ratio of expenses to average net assets*............................... 0.71% 0.72% 0.72%(b)
Ratio of net investment income average net assets*..................... 7.70% 7.94% 6.14%(b)
</TABLE>
On December 1, 1990, the 100% U.S. Treasury Obligations Money Market 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> 357
CALIFORNIA TAX-FREE MONEY MARKET FUND
(FORMERLY CALIFORNIA TAX-FREE FUND)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- -------
RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............... $ 1.00 $ 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 0.045
------- ------- ------- ------- ------ ------
Distributions
Net investment income............................ (0.029) (0.031) (0.020) (0.021) (0.032) (0.045)
------- ------- ------- ------- ------ ------
Net Asset Value, End of Period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ====== ======
Total Return....................................... 2.91% 3.16% 1.99% 2.13% 3.20% 4.57%
Ratios/Supplementary Data:
Net Assets at end of period (000)................ $53,627 $40,544 $31,521 $44,410 $ 4,609 $ 4,426
Ratio of expenses to average net assets.......... 0.55% 0.50% 0.50% 0.44% 0.54% 0.53%
Ratio of net investment income to average net
assets......................................... 2.89% 3.14% 1.96% 2.08% 3.15% 4.47%
Ratio of expenses to average net assets*......... 1.25% 1.26% 1.18% 0.79% 0.99% 0.72%
Ratio of net investment income to average net
assets*........................................ 2.19% 2.38% 1.28% 1.73% 2.70% 4.28%
</TABLE>
13
<PAGE> 358
<TABLE>
<CAPTION>
AUGUST 10,
1987 TO
YEAR ENDED JULY 31, JULY 31,
----------------------- ----------
1990 1989 1988(a)
-------- -------- ----------
<S> <C> <C> <C>
Net Asset Value, beginning of Period................................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Investment Activities
Net investment income................................................ 0.052 0.054 0.042
-------- -------- --------
Distributions
Net Investment income................................................ (0.052) (0.054) (0.042)
-------- -------- --------
Net Asset Value, End of Period......................................... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return........................................................... 5.28% 5.58% 4.41%
Ratios/Supplementary Data:
Net Assets at end of period (000).................................... $137,308 $147,868 $121,940
Ratio of expenses to average net assets.............................. 0.66% 0.71% 0.70%(b)
Ratio of net investment income to average net assets................. 5.17% 5.45% 4.34%(b)
Ratio of expenses to average net assets*............................. 0.72% 0.76% 0.75%(b)
Ratio of net investment income to average net assets*................ 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> 359
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 Retail Shares and the operation of HighMark's
Distribution Plan, see HOW TO PURCHASE SHARES and SERVICE
ARRANGEMENTS below. (Retail 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> 360
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.
16
<PAGE> 361
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.
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
17
<PAGE> 362
and the Export-Import Bank of the United States) some of
which may be subject to repurchase agreements.
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 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 shortterm 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
18
<PAGE> 363
Exempt-Interest Securities at the close of each quarter of
its taxable year. Dividends, regardless of their source,
may be subject to local taxes.
In seeking to achieve its investment objective, 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.
19
<PAGE> 364
The California Tax-Free Money Market Fund is not
intended to constitute a balanced investment program and
is not designed for investors seeking capital 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
20
<PAGE> 365
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. 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
21
<PAGE> 366
and respective yields of these Funds may differ due to
differences in the types of permitted investments, cash
flow, and the availability of particular investments.
Additional information concerning each 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 repur-
22
<PAGE> 367
chase 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.
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, loan
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
23
<PAGE> 368
foreign governmental restrictions which might adversely
affect the payment of principal and interest on such
obligations. In addition, foreign branches of U.S. banks
and foreign banks may be subject to less stringent reserve
requirements and different accounting, auditing,
reporting, and recordkeeping standards than those
applicable to domestic branches of U.S. banks.
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 have 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);
24
<PAGE> 369
2) Purchase any securities that would cause more than
25% of the value of the Fund's total assets at the time of
purchase to be invested in the securities of one or more
issuers conducting their principal business activities in
the same industry, provided that (a) there is no
limitation with respect to obligations issued or
guaranteed by the U.S. Government, its agencies, or
instrumentalities, domestic bank certificates of deposit
or bankers' acceptances, and repurchase agreements secured
by bank instruments or obligations of the U.S. Government,
its agencies, or instrumentalities; (b) wholly owned
finance companies will be considered to be in the
industries of 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
25
<PAGE> 370
of the respective Fund. Additional fundamental and
non-fundamental investment limitations are set forth in
the Statement of Additional Information.
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.
Valuation of Shares
Each Fund's net asset value per share is determined by
the Administrator as of 1:00 p.m. Eastern Time on days on
which both the New York Stock Exchange and the Federal
Reserve wire system are open for business. Net asset value
per share for purposes of pricing sales and redemptions
for each of the Funds is calculated by adding the value of
all securities and other assets belonging to a Fund,
subtracting its liabilities, and dividing the result by
the total number of the Fund's outstanding shares,
irrespective of class.
The assets in each Fund are valued based upon the
amortized cost method whereby HighMark seeks to maintain a
Fund's net asset value per Share at $1.00, although there
can be no assurance that a stable net asset value of $1.00
per Share will be maintained. For further information
concerning the use of the amortized cost method of
valuation, see the Statement of Additional Information.
HOW TO
PURCHASE SHARES As noted above, each Fund is divided into two classes of
Shares, Retail and Fiduciary. For a description of
investors who qualify to purchase Fiduciary Shares, see
the Fiduciary Shares prospectus of the Money Market Funds.
HighMark's Retail Shares are offered to investors who are
not fiduciary clients of Union Bank of California, N.A.,
and who are not otherwise eligible for HighMark's
Fiduciary class.
Retail Shares are sold on a continuous basis by
HighMark's Distributor, SEI Financial Services Company.
The principal office of the Distributor is Oaks,
Pennsylvania 19456. If you wish to purchase Shares, you
may contact your investment professional or telephone
HighMark at 1-800-433-6884.
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
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Accounts, Keoghs, payroll deduction plans, 401(k) or
similar programs or accounts. Purchases and redemption of
Shares of the Funds may be made on any Business Day.
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 any Business Day.
Otherwise, the purchase order will be effective the next
Business Day. Effectiveness of a purchase order on any
Business Day is contingent on the Custodian's receipt of
Federal funds before 11:00 a.m., Pacific time (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.
How to Purchase By Mail
You may purchase 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 by completing and signing an Account
Application form and mailing it, along with a check (or
other negotiable bank instrument or money order) payable
to "HighMark Funds (Fund Name)," to the transfer agent at
P.O. Box 8416, Boston, Massachusetts 02266-8416. All
purchases made by check should be in U.S. dollars and made
payable to "HighMark Funds (Fund Name)." Third party
checks, credit card checks or cash will not be accepted.
You may purchase more Shares at any time by mailing
payment also to the transfer agent at the above address.
Orders placed by mail will be executed on receipt of your
payment. If your check does not clear, your purchase will
be canceled and you could be liable for any losses or fees
incurred.
You may obtain Account Application Forms for the
Diversified Money Market, U.S. Government Obligations
Money Market, 100% U.S. Treasury Obligations Money Market,
and California Tax-Free Money Market Funds by calling the
Distributor at 1-800-433-6884.
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How to Purchase By Wire
You may purchase 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 by wiring Federal funds, provided that
your Account Application has been previously received. You
must wire funds to the transfer agent and the wire
instructions must include your account number. You must
call the transfer agent at 1-800-433-6884 before wiring
any funds. An order to purchase Shares by Federal funds
wire will be deemed to have been received by a Fund on the
Business Day of the wire; provided that the Shareholder
wires funds to the transfer agent prior to 11:00 a.m.,
Pacific time (2:00 p.m., Eastern time). If the transfer
agent does not receive the wire by 11:00 a.m., Pacific
time (2:00 p.m. Eastern time), the order will be executed
on the next Business Day.
How to Purchase through an Automatic Investment Plan
("AIP")
You may arrange for periodic additional investments in
the Diversified Money Market, U.S. Government Obligations
Money Market, 100% U.S. Treasury Obligations Money Market,
and California Tax-Free Money Market Funds through
automatic deductions by Automated Clearing House ("ACH")
from a checking account by completing this section in the
Account Application form. The minimum pre-authorized
investment amount is $100 per month. The AIP is available
only for additional investments to an existing account.
How to Purchase Through Financial Institutions
Shares of the Funds may be purchased through financial
institutions, including the Advisor, that provide
distribution assistance or Shareholder services. Shares
purchased by persons ("Customers") through financial
institutions may be held of record by the financial
institution. Financial institutions may impose an earlier
cut-off time for receipt of purchase orders directed
through them to allow for processing and transmittal of
these orders to the transfer agent for effectiveness the
same day. Customers should contact their financial
institution for information as to that institution's
procedures for transmitting purchase, exchange or
redemption orders to HighMark.
Customers who desire to transfer the registration of
Shares beneficially owned by them but held of record by a
financial institution should contact the institution to
accomplish such change.
Depending upon the terms of a particular Customer
account, a financial institution may charge a Customer
account fees. Information concerning these services and
any charges will be provided to the Customer by the
financial institution.
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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 Retail Shares for Retail
Shares of a Fund with the same or lower sales charge on
the basis of the relative net asset value of the Retail
Shares exchanged. Shareholders may exchange their Retail
Shares for Retail Shares of a Fund with a higher sales
charge by paying the difference between the two sales
charges. Shareholders may also exchange Retail Shares of a
money market fund for which no sales load was paid for
Retail Shares of another HighMark Fund. Under such
circumstances, the cost of the acquired Retail Shares will
be the net asset value per share plus the appropriate
sales load. If Retail Shares of the money market fund were
acquired in a previous exchange involving Shares of a
non-money market HighMark Fund, then such Shares of the
money market fund may be exchanged for Shares of the
non-money market HighMark Fund without payment of any
additional sales load within a twelve month period. In
order to receive a reduced sales charge when exchanging
into a Fund, the Shareholder must notify HighMark that a
sales charge was originally paid and provide sufficient
information to permit confirmation of qualification.
Exchanges will be made on the basis of the relative net
asset values of the Shares exchanged plus any applicable
sales charge. Exchanges are subject to the terms and
conditions stated herein and the terms and conditions
stated in the respective prospectuses of the Funds.
Certain entities (including Participating Organizations
and 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
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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.
REDEMPTION
OF SHARES You may redeem your 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 without charge on any Business
Day. There is presently a $15 charge for wiring redemption
proceeds to a Shareholder's designated account. Shares may
be redeemed by mail, by telephone or through a
pre-arranged systematic withdrawal plan. Investors who own
Shares held by a financial institution should contact that
institution for information on how to redeem Shares.
By Mail
A written request for redemption of 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 must be
received by the transfer agent, P.O. Box 8416, Boston,
Massachusetts 02266-8416 in order to constitute a valid
redemption request.
If the redemption request exceeds $5,000, or if the
request directs the proceeds to be sent or wired to an
address different from that of record, the transfer agent
may require that the signature on the written redemption
request be guaranteed. You should be able to obtain a
signature guarantee from a bank, broker dealer, credit
union, securities exchange or association, clearing agency
or savings association. Notaries public cannot guarantee
signatures. The signature guarantee requirement will be
waived if all of the following conditions apply: (1) the
redemption is for not more than $5,000 worth of Shares,
(2) the redemption check is payable to the shareholder(s)
of record, and (3) the redemption check is mailed to the
shareholder(s) at his or her address of record.
Telephone Transactions
You may redeem your 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 by calling the transfer agent
at 1-800-433-6884. Under most circumstances, payments will
be transmitted on the next Business Day following receipt
of a valid request for redemption. You may have the
proceeds mailed to your address or wired to a
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commercial bank account previously designated on your
Account Application. There is no charge for having
redemption proceeds mailed to you, but there is a $15
charge for wiring redemption proceeds.
You may request a wire redemption for redemptions of
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
in excess of $500 by calling the transfer agent at
1-800-433-6884 who will deduct a wire charge of $15 from
the amount of the wire redemption. Shares cannot be
redeemed by Federal Reserve wire on Federal holidays
restricting wire transfers.
Neither the transfer agent nor HighMark will be
responsible for any loss, liability, cost or expense for
acting upon wire or telephone instructions that it
reasonably believes to be genuine. HighMark and the
transfer agent will each employ reasonable procedures to
confirm that instructions, communicated by telephone 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 consider placing your order by mail.
Systematic Withdrawal Plan ("SWP")
The Diversified Money Market, U.S. Government
Obligations Money Market, 100% U.S. Treasury Obligations
Money Market, and California Tax-Free Money Market Funds
offer a Systematic Withdrawal Plan ("SWP"), which you may
use to receive regular distributions from your account.
Upon commencement of the SWP, your account must have a
current net asset value of $5,000 or more. You may elect
to receive automatic payments via check or ACH of $100 or
more on a monthly, quarterly, semi-annual or annual basis.
You may arrange to receive regular distributions from your
account via check or ACH by completing this section in the
Account Application form.
To participate in the SWP, you must have your dividends
automatically reinvested. You should realize that if your
automatic withdrawals exceed income dividends, your
invested principal in the account will be depleted. Thus,
depending on the frequency and amounts of the withdrawal
payments and/or any fluctuations in the net asset value
per Share, your original investment could be exhausted
entirely. You may change or cancel the SWP at any time on
written notice to the transfer agent. The transfer agent
may require that the signature on the written notice be
guaranteed.
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Other Information Regarding Redemptions
HighMark is required to redeem for cash all full and
fractional shares of HighMark. The redemption price is the
net asset value per share of a Fund (normally $1.00 per
share).
Redemption orders may be made any time before 8:00 a.m.,
Pacific time (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, 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.
Payment to the Shareholders for Shares redeemed will be
made within seven days after the Transfer Agent receives
the valid redemption request. At various times, however, a
Fund may be requested to redeem Shares for which it has
not yet received good payment; collection of payment may
take ten or more days. In such circumstances, the
redemption request will be rejected by the Fund. Once a
Fund has received good payment for the Shares a
Shareholder may submit another request for redemption.
Due to the relatively high costs of handling small
investments, each Fund reserves the right to redeem your
Shares at net asset value if your account in any Fund has
a value of less than the minimum initial purchase amount.
Accordingly, if you purchase Shares of any Fund in only
the minimum investment amount, you may be subject to
involuntary redemption if you redeem any Shares. Before
any Fund exercises its right to redeem such Shares you
will be given notice that the value of the Shares in your
account is less than the minimum amount and will be
allowed 60 days to make an additional investment in such
Fund in an amount which will increase the value of the
account to at least the minimum amount.
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. The net income
attributable to a Fund's Retail Shares and the dividends
payable on Retail Shares will be reduced by the
distribution fee assessed against such Shares under the
Distribution Plan (see SERVICE ARRANGEMENTS--The
Distribution Plan below).
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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 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
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<PAGE> 378
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.
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
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<PAGE> 379
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 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, 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.
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<PAGE> 380
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 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.
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<PAGE> 381
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 Retail 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% 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 Retail 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.
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The Distribution Plan
Pursuant to HighMark's Distribution Plan, each Fund pays
the Distributor as compensation for its services in
connection with the Distribution Plan a distribution fee,
computed daily and paid monthly, equal to twenty-five
one-hundredths of one percent (0.25%) of the average daily
net assets attributable to that Fund's Retail Shares.
The Distributor may use the distribution fee applicable
to a Fund's Retail Shares to provide distribution
assistance with respect to the sale of the Fund's Retail
Shares or to provide Shareholder services to the holders
of the Fund's Retail Shares. The Distributor may also use
the distribution fee (i) to pay financial institutions and
intermediaries (such as insurance companies and investment
counselors but not including banks and savings and loan
associations), broker-dealers, and the Distributor's
affiliates and subsidiaries compensation for services or
reimbursement of expenses incurred in connection with the
distribution of a Fund's Retail Shares to their customers
or (ii) to pay banks, savings and loan associations, other
financial institutions and intermediaries, broker-dealers,
and the Distributor's affiliates and subsidiaries
compensation for services or reimbursement of expenses
incurred in connection with the provision of Shareholder
services to their customers owning a Fund's Retail Shares.
All payments by the Distributor for distribution
assistance or Shareholder services under the Distribution
Plan will be made pursuant to an agreement between the
Distributor and such bank, savings and loan association,
other financial institution or intermediary,
broker-dealer, or affiliate or subsidiary of the
Distributor (a "Servicing Agreement"; banks, savings and
loan associations, other financial institutions and
intermediaries, broker-dealers, and the Distributor's
affiliates and subsidiaries that may enter into a
Servicing Agreement are hereinafter referred to
individually as a "Participating Organization"). A
Participating Organization may include Union Bank of
California, its subsidiaries and its affiliates.
Participating Organizations may charge customers fees in
connection with investments in a Fund on their customers'
behalf. Such fees would be in addition to any amounts the
Participating Organization may receive pursuant to its
Servicing Agreement. Under the terms of the Servicing
Agreements, Participating Organizations are required to
provide their customers with a schedule of fees charged
directly to such customers in connection with investments
in a Fund. Customers of Participating Organizations should
read this Prospectus in light of the terms governing their
accounts with the Participating Organization.
The distribution fee under the Distribution Plan will be
payable without regard to whether the amount of the fee is
more or less than the actual expenses incurred in a
particular year by the Distributor in connection with
distribution assistance or Shareholder services rendered
by the Distributor itself or incurred by the
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Distributor pursuant to the Servicing Agreements entered
into under the Distribution Plan. The Distributor may from
time to time voluntarily reduce its distribution fee with
respect to a Fund in significant amounts for substantial
periods of time pursuant to an agreement with HighMark.
While there can be no assurance that the Distributor will
choose to make such an agreement, any voluntary reduction
in the Distributor's distribution fee will lower such
Fund's expenses, and thus increase such Fund's yield and
total returns, during the period such voluntary reductions
are in effect.
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 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 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
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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 a pro rata share of 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 Fiduciary Shares of
the Funds, interested persons may contact the Distributor
for a prospectus at 1-800-433-6884.
HighMark believes that as of November 22, 1996, there
was no person who owned of record or beneficially more
than 25% of the Retail Shares of the Diversified Money
Market Fund, the U.S. Government Money Market Fund, the
100% U.S. Treasury Money Market Fund, or 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 Retail 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 Retail 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 Retail 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
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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 Retail 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 Retail class.
Tax-equivalent yields and tax-equivalent effective
yields with respect to a class will be significantly
higher than the yield and effective yield of that class.
From time to time, 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
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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 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
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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 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
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paper) of such borrower because it may be necessary under
the terms of the loan participation, for the Fund to
assert its rights against the borrower through the
intermediary bank. Moreover, under the terms of a loan
participation, the purchasing Fund may be regarded as a
creditor of the intermediary bank (rather than of the
underlying corporate borrower), so that a Fund may also be
subject to the risk that the issuing bank may become
insolvent. Further, in the event of the bankruptcy or
insolvency of the corporate borrower, a loan participation
may be subject to certain defenses that can be asserted by
such borrower as a result of improper conduct by the
issuing bank. The secondary market, if any, for these loan
participations is limited, and any such participation
purchased by 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.
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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.
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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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 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
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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.
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.
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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 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.
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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 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, PA 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 THE GROUP OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
NOT FDIC INSURED
<PAGE> 395
FIXED INCOME FUNDS
- Intermediate-Term
Bond Fund
- Bond Fund
- Government Securities
Fund
Prospectus
Fiduciary Shares
March 28, 1997
84824-A(3/97) [LOGO] HIGHMARK(SM)
FUNDS
<PAGE> 396
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.
March 28, 1997
Fiduciary Shares
<PAGE> 397
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> 398
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> 399
<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> 400
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> 401
(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> 402
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> 403
<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> 404
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> 405
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> 406
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> 407
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
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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> 409
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-
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<PAGE> 410
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.
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<PAGE> 411
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.
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<PAGE> 412
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> 413
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> 414
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
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<PAGE> 415
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.
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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> 417
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%
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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.
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<PAGE> 419
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.
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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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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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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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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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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> 432
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
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> 433
EQUITY FUNDS
- Income Equity Fund
- Value Momentum Fund
- Growth Fund
- Emerging Growth Fund
Prospectus
Retail Shares
March 28, 1997
84823-B(3/97) [LOGO] HIGHMARK(SM)
FUNDS
<PAGE> 434
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
- Growth Fund
- Emerging Growth Fund
RETAIL SHARES
HighMark's Retail Shares are offered to investors who are not fiduciary
clients of Union Bank of California, N.A., and who are not otherwise eligible
for HighMark's Fiduciary Shares.
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 Retail 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 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.
March 28, 1997
Retail Shares
<PAGE> 435
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
Retail Shares of the Income Equity, Value Momentum, 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 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 Fund. (See "The Sub-Advisor.")
WHO IS THE ADMINISTRATOR? SEI Fund Resources serves as the Administrator of
HighMark. (See "The Administrator.")
2
<PAGE> 436
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 (plus any applicable sales charge). 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 "HOW TO PURCHASE SHARES" 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.................................................................... 12
Income Equity Fund.................................................................... 12
Value Momentum Fund................................................................... 13
Growth Fund........................................................................... 13
Emerging Growth Fund.................................................................. 14
General................................................................................ 14
Money Market Instruments.............................................................. 14
Illiquid and Restricted Securities.................................................... 15
Lending of Portfolio Securities....................................................... 15
Other Investments..................................................................... 15
Risk Factors.......................................................................... 16
Investment Limitations................................................................. 17
Portfolio Turnover.................................................................... 18
How To Purchase Shares................................................................. 18
How to Purchase By Mail............................................................... 19
How to Purchase By Wire............................................................... 20
How to Purchase through an Automatic Investment Plan ("AIP").......................... 20
</TABLE>
3
<PAGE> 437
<TABLE>
<CAPTION>
PAGE
--
<S> <C>
How to Purchase Through Financial Institutions........................................ 20
Sales Charges......................................................................... 21
Letter of Intent...................................................................... 22
Rights of Accumulation................................................................ 22
Sales Charge Waivers.................................................................. 22
Reductions for Qualified Groups....................................................... 24
Exchange Privileges.................................................................... 24
Redemption of Shares................................................................... 26
By Mail............................................................................... 26
Telephone Transactions................................................................ 26
Systematic Withdrawal Plan ("SWP").................................................... 27
Other Information Regarding Redemptions............................................... 27
Dividends.............................................................................. 28
Federal Taxation....................................................................... 28
Service Arrangements................................................................... 29
The Advisor........................................................................... 29
Sub-Advisor........................................................................... 31
Administrator......................................................................... 32
The Transfer Agent.................................................................... 32
Shareholder Service Plan.............................................................. 32
Distributor........................................................................... 33
The Distribution Plan................................................................. 33
Banking Laws.......................................................................... 34
Custodian............................................................................. 34
General Information.................................................................... 35
Description of HighMark & Its Shares.................................................. 35
Performance Information............................................................... 35
Miscellaneous......................................................................... 36
Description of Permitted Investments................................................... 37
</TABLE>
4
<PAGE> 438
EQUITY FUNDS FEE TABLE
<TABLE>
<CAPTION>
INCOME VALUE EMERGING
EQUITY MOMENTUM GROWTH GROWTH
FUND FUND FUND FUND
RETAIL RETAIL RETAIL RETAIL
SHARES SHARES SHARES SHARES
------ -------- ------ --------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)..................................................................... 4.50% 4.50% 4.50% 4.50%
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)(b)..................................... 0% 0% 0% 0%
Redemption Fees (as a percentage of amount redeemed, if applicable)(c)...... 0% 0% 0% 0%
Exchange Fee(a)............................................................. $ 0 $ 0 $ 0 $ 0
ANNUAL OPERATING EXPENSES (as a percentage of net assets)
Management Fees............................................................. 0.60% 0.60% 0.60% 0.80%
12b-1 Fees.................................................................. 0.25% 0.25% 0.25% 0.25%
Other Expenses (after voluntary reduction)(d)............................... 0.31% 0.21% 0.30% 0.23%
----- ---- - ---- - ---- -
Total Fund Operating Expenses(e)............................................ 1.16% 1.06% 1.15% 1.28%
===== ===== ===== =====
</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>
Income Equity Fund Retail Shares............................... $ 56 $80 $ 106 $180
Value Momentum Fund Retail Shares.............................. $ 55 $77 $ 101 $169
Growth Fund Retail Shares...................................... $ 56 $80 $ 105 $178
Emerging Growth Fund Retail Shares............................. $ 57 $84 $ 112 $193
</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.
Long-term shareholders of Retail Shares may pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by rules
of the National Association of Securities Dealers, Inc.
- ---------------
(a) Certain entities (including 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 HOW TO PURCHASE
SHARES, EXCHANGE PRIVILEGES, REDEMPTION OF SHARES, and SERVICE ARRANGEMENTS
below.)
(b) A Contingent Deferred Sales Charge of 1.00% will be assessed against the
proceeds of any redemption request relating to Retail Shares of the Funds
that were purchased without a sales charge in reliance upon
5
<PAGE> 439
the waiver accorded to purchases in the amount of $1 million or more, but
only where such redemption request is made within one year of the date the
Shares were purchased.
(c) 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.)
(d) OTHER EXPENSES for the Value Momentum and Emerging 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 Retail Shares of the
Income Equity Fund, the Value Momentum Fund, and the Growth Fund, and 0.50%
for the Retail Shares of the Emerging Growth Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be: 1.33%
for the Retail Shares of the Income Equity Fund, the Value Momentum Fund,
and the Growth Fund, and 1.55% for the Retail Shares of the Emerging Growth
Fund.
6
<PAGE> 440
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information with respect to the
Retail 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 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> 441
INCOME EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, JUNE 20,
------------------- 1994 TO
JULY 31,
1996 1995 1994(A)(B) YEAR ENDED JULY 31,
------- ------ ------------- ----------------------------
RETAIL RETAIL RETAIL 1993 1992 1991
------- ------ ------------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $ 13.03 $11.92 $ 11.85 $ 11.42 $ 10.22 $ 10.46
------- ------ ------------- -------- ------- -------
Investment Activities
Net investment income............... 0.42 0.42 0.04 0.38 0.40 0.46
Net realized and unrealized gains
(losses) on investments.......... 1.92 1.55 0.08 0.71 1.20 0.61
------- ------ ------------- -------- ------- -------
Total from investment Activities...... 2.34 1.97 0.12 1.09 1.60 1.07
------- ------ ------------- -------- ------- -------
Distributions
Net investment income............... (0.42) (0.44) (0.05) (0.38) (0.40) (0.46)
Net realized gains.................. (0.66) (0.42) -- -- -- (0.85)
------- ------ ------------- -------- ------- -------
Total Distributions................... (1.08) (0.86) (0.05) (0.38) (0.40) (1.31)
------- ------ ------------- -------- ------- -------
Net Asset Value, End of Period........ $ 14.29 $13.03 $ 11.92 $ 12.13 $ 11.42 $ 10.22
======= ====== ============ ======== ======= =======
Total Return.......................... 18.21% 17.52% 4.23%(c) 9.75% 16.04% 12.60%
Ratios/Supplementary Data:
Net Assets at end of period (000)... $10,143 $3,881 $ 24 $104,840 $74,478 $49,047
Ratio of expenses to average net
assets........................... 1.03% 1.06% 1.10%(d) 1.15% 1.16% 1.17%
Ratio of net investment income to
average net assets............... 2.89% 3.06% 0.93%(d) 3.27% 3.76% 4.81%
Ratio of expenses to average net
assets*.......................... 1.51% 1.55% 1.33%(d) 1.21% 1.29% 1.40%
Ratio of net investment income to
average net assets*.............. 2.41% 2.57% 0.71%(d) 3.22% 3.64% 4.58%
Portfolio turnover.................... 41.51% 36.64% 33.82% 29.58% 23.05% 33.10%
</TABLE>
8
<PAGE> 442
<TABLE>
<CAPTION>
JUNE 23,
YEAR ENDED JULY 31, 1988 TO
------------------ JULY 31,
1990 1989 1988(E)
------- ------- --------
<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%(f)
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%(d)
Ratio of net investment income to average net assets........ 4.82% 4.61% 2.56%(d)
Ratio of expenses to average net assets*.................... 1.41% 1.41% 1.41%(d)
Ratio of net investment income to average net assets*....... 4.56% 4.39% 2.14%(d)
Portfolio turnover............................................ 37.11% 28.83% 3.12%
</TABLE>
- ---------------
(a) Period from commencement of operations.
(b) On June 20, 1994, the Income Equity Fund commenced offering Investor Shares
(now called "Retail Shares") and designated existing Shares as Fiduciary
Shares.
(c) Represents total return for the Fiduciary Shares for the period from August
1, 1993 to June 19, 1994 plus the total return for the Retail Shares for the
period from June 20, 1994 to July 31, 1994.
(d) Annualized.
(e) The Income Equity Fund commenced operations on June 23, 1988 as a result of
the reorganization involving the Income Equity Portfolio of the IRA
collective Investment Fund described under GENERAL
INFORMATION--Reorganization of The IRA Fund & HighMark.
(f) Not annualized.
* During the period the investment advisory and administration fees were
voluntarily reduced. If such voluntary fee reductions had not occurred, the
ratios would have been as indicated.
9
<PAGE> 443
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 for 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> 444
GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------- JUNE 20, 1994 TO
1996 1995 JULY 31, 1994(A)
------ ------ ----------------
RETAIL RETAIL RETAIL
------ ------ ----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period....................... $11.87 $ 9.77 $ 9.74
------ ------ ------
Investment Activities
Net investment income...................................... 0.11 0.15 --
Net realized and unrealized gains (losses) on
investments.............................................. 1.38 2.25 0.04
------ ------ ------
Total from Investment Activities................. 1.49 2.40 0.04
------ ------ ------
Distributions
Net investment income...................................... (0.12) (0.15) (0.01)
Net realized gains......................................... (0.64) (0.15) --
------ ------ ------
Total Distributions.............................. (0.76) (0.30) (0.01)
------ ------ ------
Net Asset Value, End of Period............................. $12.60 $11.87 $ 9.77
====== ====== ======
Total Return............................................... 12.88% 25.10% (1.77)%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)........................ $2,843 $1,218 --
Ratio of expenses to average net assets.................. 0.93% 0.84% --
Ratio of net investment income to average net assets..... 0.96% 1.17% --
Ratio of expenses to average net assets*................. 1.91% 2.11% --
Ratio of net investment (loss) to average net assets*.... (0.02)% (0.10)% --
Portfolio turnover......................................... 78.58% 67.91% 123.26%
</TABLE>
- ---------------
(a) Period from commencement of operations.
(b) Represents total return for the Fiduciary Shares from commencement of
operations to June 19, 1994, plus the total return for the Investor Shares
(now called "Retail Shares") for the period from June 20, 1994 to July 31,
1994.
* 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> 445
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 Retail Shares, sales charges and the operation
of HighMark's Distribution Plan, see HOW TO PURCHASE
SHARES and SERVICE ARRANGEMENTS--Administrator &
Distributor--The Distribution Plan below. (Retail 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 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.
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
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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 in which
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.
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
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<PAGE> 447
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 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
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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 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.
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
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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.
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.
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.
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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 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
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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 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.
HOW TO
PURCHASE SHARES As noted above, each Fund is divided into two classes of
Shares, Retail and Fiduciary. Retail Shares may be
purchased at net asset value plus a sales charge. For a
description of investors who qualify to purchase Fiduciary
Shares, see the Fiduciary Shares prospectus of the Equity
Funds. HighMark's Retail Shares are offered to investors
who are not fiduciary clients of Union Bank of California,
N.A., and who are not otherwise eligible for HighMark's
Fiduciary Shares.
Retail Shares are sold on a continuous basis by
HighMark's Distributor, SEI Financial Services Company.
The principal office of the Distributor is Oaks,
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Pennsylvania 19456. If you wish to purchase Shares, you
may contact your investment professional or telephone
HighMark at 1-800-433-6884.
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. Purchases and redemption of
Shares of the Funds may be made on days on which both the
New York Stock Exchange and the Federal Reserve wire
system are open for business ("Business Days").
Purchase orders for Shares will be executed at a per
Share price equal to the net asset value next determined
after the receipt of the purchase order by the Distributor
(plus any applicable sales charge). The net asset value
per Share of a Fund is determined by dividing the total
market value of the Fund's investments and other assets,
less any liabilities, by the total number of outstanding
Shares of the Fund. Net asset value per Share is
determined daily as of 1:00 p.m., Pacific time (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.
The securities in each Fund will be valued at market
value. If market quotations are not available, the
securities will be valued by a method that HighMark's
Board of Trustees believes accurately reflects fair value.
For further information about valuation of investments in
the Equity Funds, see the Statement of Additional
Information.
Shares of the Funds are offered only to residents of
states in which the Shares are eligible for purchase.
How to Purchase By Mail
You may purchase Shares of the Funds by completing and
signing an Account Application form and mailing it, along
with a check (or other negotiable bank instrument or money
order) payable to "HighMark Funds (Fund Name)," to the
transfer agent at P.O. Box 8416, Boston, Massachusetts
02266-8416. All purchases made by check should be in U.S.
dollars and made payable to "HighMark Funds (Fund Name)."
Third party checks, credit card checks or cash will not be
accepted. You may purchase more Shares at any time by
mailing
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payment also to the transfer agent at the above address.
Orders placed by mail will be executed on receipt of your
payment. If your check does not clear, your purchase will
be canceled and you could be liable for any losses or fees
incurred.
You may obtain Account Application Forms for the Funds
by calling the Distributor at 1-800-433-6884.
How to Purchase By Wire
You may purchase Shares of the Funds by wiring Federal
funds, provided that your Account Application has been
previously received. You must wire funds to the transfer
agent and the wire instructions must include your account
number. You must call the transfer agent at 1-800-433-6884
before wiring any funds. An order to purchase Shares by
Federal funds wire will be deemed to have been received by
a Fund on the Business Day of the wire; provided that the
Shareholder wires funds to the transfer agent prior to
1:00 p.m., Pacific time (4:00 p.m., Eastern time) . If the
transfer agent does not receive the wire by 1:00 p.m.,
Pacific time (4:00 p.m. Eastern time), the order will be
executed on the next Business Day.
How to Purchase through an Automatic Investment Plan
("AIP")
You may arrange for periodic additional investments in
the Funds through automatic deductions by Automated
Clearing House ("ACH") from a checking account by
completing this section in the Account Application form.
The minimum pre-authorized investment amount is $100 per
month. The AIP is available only for additional
investments to an existing account.
How to Purchase Through Financial Institutions
Shares of the Funds may be purchased through financial
institutions, including the Advisor, that provide
distribution assistance or Shareholder services. Shares
purchased by persons ("Customers") through financial
institutions may be held of record by the financial
institution. Financial institutions may impose an earlier
cut-off time for receipt of purchase orders directed
through them to allow for processing and transmittal of
these orders to the transfer agent for effectiveness the
same day. Customers should contact their financial
institution for information as to that institution's
procedures for transmitting purchase, exchange or
redemption orders to HighMark.
Customers who desire to transfer the registration of
Shares beneficially owned by them but held of record by a
financial institution should contact the institution to
accomplish such change.
Depending upon the terms of a particular Customer
account, a financial institution may charge a Customer
account fees. Information concerning these
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services and any charges will be provided to the Customer
by the financial institution.
Sales Charges
The following table shows the regular sales charge on
Retail Shares to a "single purchaser" (defined below)
together with the dealer discount paid to dealers and the
agency commission paid to brokers (collectively the
"commission"):
<TABLE>
<CAPTION>
COMMISSION AS
SALES CHARGE AS SALES CHARGE AS PERCENTAGE OF
A PERCENTAGE OF APPROPRIATE PERCENTAGE OF OFFERING
AMOUNT OF PURCHASE OFFERING PRICE NET AMOUNT INVESTED PRICE
------------------------ --------------- ------------------------- -------------
<S> <C> <C> <C>
0-$49,999............... 4.51% 4.71% 4.05%
$50,000-$99,000......... 4.00% 4.17% 3.60%
$100,000-$249,000....... 3.50% 3.63% 3.15%
$250,000-$499,999....... 2.50% 2.56% 2.25%
$500,000-$999,999....... 1.50% 1.52% 1.35%
$1,000,000 and Over*.... 0.00% 0.00% 0.00%
</TABLE>
*A contingent deferred sales charge of 1.00% will be
assessed against any proceeds of any redemption of such
Retail Shares prior to one year from date of purchase.
The commissions shown in the table apply to sales
through authorized dealers and brokers. Under certain
circumstances, the Distributor may use its own funds to
compensate financial institutions and intermediaries in
amounts that are additional to the commissions shown
above. In addition, the Distributor may, from time to time
and at its own expense, provide promotional incentives in
the form of cash or other compensation to certain
financial institutions and intermediaries whose registered
representatives have sold or are expected to sell
significant amounts of the Retail Shares of a Fund. Such
other compensation may take the form of payments for
travel expenses, including lodging, incurred in connection
with trips taken by qualifying registered representatives
to places within or without the United States. Under
certain circumstances, commissions up to the amount of the
entire sales charge may be reallowed to dealers or
brokers, who might then be deemed to be "underwriters"
under the Securities Act of 1933. Commission rates may
vary among the Funds.
In calculating the sales charge rates applicable to
current purchases of a Fund's Shares, a "single purchaser"
is entitled to cumulate current purchases with the net
purchase of previously purchased Shares of a Fund and
other of HighMark's funds (the "Eligible Funds") which are
sold subject to a comparable sales charge.
The term "single purchaser" refers to (i) an individual,
(ii) an individual and spouse purchasing Shares of a Fund
for their own account or for trust or custodial
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accounts for their minor children, or (iii) a fiduciary
purchasing for any one trust, estate or fiduciary account
including employee benefit plans created under Sections
401, 403(b) or 457 of the Internal Revenue Code of 1986,
as amended (the "Code"), including related plans of the
same employer. To be entitled to a reduced sales charge
based upon Shares already owned, the investor must ask the
Distributor for such entitlement at the time of purchase
and provide the account number(s) of the investor, the
investor and spouse, and their minor children, and give
the age of such children. A Fund may amend or terminate
this right of accumulation at any time as to subsequent
purchases.
Letter of Intent
By initially investing at least $1,000 and submitting a
Letter of Intent (the "Letter") to the Distributor, a
"single purchaser" may purchase Shares of a Fund and the
other Eligible Funds during a 13-month period at the
reduced sales charge rates applicable to the aggregate
amount of the intended purchases stated in the Letter. The
Letter may apply to purchases made up to 90 days before
the date of the Letter. To receive credit for such prior
purchases and later purchases benefitting from the Letter,
the Shareholder must notify the transfer agent at the time
the Letter is submitted that there are prior purchases
that may apply, and, at the time of later purchases,
notify the transfer agent that such purchases are
applicable under the Letter.
Rights of Accumulation
In calculating the sales charge rates applicable to
current purchases of Retail Shares, a "single purchaser"
is entitled to cumulate current purchases with the current
market value of previously purchased Retail Shares of the
Funds sold subject to a comparable sales charge.
To exercise your right of accumulation based upon Shares
you already own, you must ask the Distributor for this
reduced sales charge at the time of your additional
purchase and provide the account number(s) of the
investor, as applicable, the investor and spouse, and
their minor children. The Funds may amend or terminate
this right of accumulation at any time as to subsequent
purchases.
Sales Charge Waivers
The following categories of investors may purchase
Retail Shares of the Funds with no sales charge in the
manner described below (which may be changed or eliminated
at any time by the Distributor):
(1) Existing holders of Retail Shares of a Fund upon
the reinvestment of dividend and capital gain
distributions on those Shares;
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(2) Investment companies advised by Pacific Alliance
Capital Management or distributed by SEI Financial
Services Company or its affiliates placing orders on each
entity's behalf;
(3) State and local governments;
(4) Individuals who have received distributions from
employee benefit trust accounts administered by Union Bank
of California who are rolling over such distributions into
an individual retirement account for which the Bank serves
as trustee or custodian;
(5) Individuals who purchase Shares with proceeds from
a required minimum distribution at age 70 1/2 from their
employee benefit qualified plan or an individual
retirement account administered by Union Bank of
California;
(6) Individuals who purchase Shares with proceeds
received in connection with a distribution paid from a
Union Bank of California trust or agency account;
(7) Investment advisors or financial planners regulated
by a federal or state governmental authority who are
purchasing Shares for their own account or for an account
for which they are authorized to make investment decisions
(i.e., a discretionary account) and who charge a
management, consulting or other fee for their services;
and clients of such investment advisors or financial
planners who place trades for their own accounts if the
accounts are linked to the master account of such
investment advisor or financial planner on the books and
records of a broker or agent;
(8) Investors purchasing Shares with proceeds from a
redemption of Shares of another open-end investment
company (other than The HighMark Group) on which a sales
charge was paid if such redemption occurred within thirty
(30) days prior to the date of the purchase order.
Satisfactory evidence of the purchaser's eligibility must
be provided at the time of purchase (e.g., a confirmation
of the redemption);
(9) Brokers, dealers and agents who are purchasing for
their own account and who have a sales agreement with the
Distributor, and their employees (and their spouses and
children under the age of 21);
(10) Investors purchasing Shares on behalf of a
qualified prototype retirement plan (other than an IRA,
SEP-IRA or Keogh) sponsored by Union Bank of California;
(11) Purchasers of Retail Shares of the Growth Fund that
are sponsors of other investment companies that are unit
investment trusts for deposit by such sponsors into such
unit investment trusts, and to purchasers of Retail Shares
of
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the Growth Fund that are holders of such unit investment
trusts that invest distributions from such investment
trusts in Retail Shares of the Growth Fund;
(12) 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 or their affiliated companies; and
(13) Investors receiving Shares issued in plans of
reorganization, such as mergers, asset acquisitions, and
exchange offers, to which HighMark is a party.
With regard to categories 2 through 12 above, the
Distributor must be notified that the purchase qualifies
for a sales charge waiver at the time of purchase.
Reductions for Qualified Groups
Reductions in sales charges also apply to purchases by
individual members of a "qualified group." The reductions
are based on the aggregate dollar amount of Shares
purchased by all members of the qualified group. For
purposes of this paragraph, a qualified group consists of
a "company," as defined in the 1940 Act, which has been in
existence for more than six months and which has a primary
purpose other than acquiring Shares of a Fund at a reduced
sales charge, and the "related parties" of such company.
For purposes of this paragraph, a "related party" of a
company is (i) any individual or other company who
directly or indirectly owns, controls or has the power to
vote five percent or more of the outstanding voting
securities of such company; (ii) any other company of
which such company directly or indirectly owns, controls
or has the power to vote five percent or more of its
outstanding voting securities; (iii) any other company
under common control with such company; (iv) any executive
officer, director or partner of such company or of a
related party; and (v) any partnership of which such
company is a partner. Investors seeking to rely on their
membership in a qualified group to purchase Shares at a
reduced sales load must provide evidence satisfactory to
the Transfer Agent of the existence of a bona fide
qualified group and their membership therein.
All orders from a qualified group will have to be placed
through a single source and identified at the time of
purchase as originating from the same qualified group,
although such orders may be placed into more than one
discrete account that identifies HighMark.
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 Retail Shares for Retail
Shares of a Fund with the same or lower sales charge on
the basis of the relative net asset value of the Retail
Shares exchanged. Shareholders may exchange their Retail
Shares for Retail Shares of a Fund with a higher sales
charge by paying the difference between the two sales
charges. Shareholders may also exchange Retail Shares of a
Money Market Fund for which no sales load was paid for
Retail Shares of an Equity Fund. Under such circumstances,
the cost of the acquired Retail Shares will be the net
asset value per share plus the appropriate sales load. If
Retail Shares of the Money Market Fund were acquired in a
previous exchange involving Shares of a non-money market
HighMark Fund, then such Shares of the Money Market Fund
may be exchanged for Shares of an Equity Fund without
payment of any additional sales load within a twelve month
period. In order to receive a reduced sales charge when
exchanging into a Fund, the Shareholder must notify
HighMark that a sales charge was originally paid and
provide sufficient information to permit confirmation of
qualification.
Exchanges will be made on the basis of the relative net
asset values of the Shares exchanged plus any applicable
sales charge. Exchanges are subject to the terms and
conditions stated herein and the terms and conditions
stated in the respective prospectuses of the Funds.
Certain entities (including Participating Organizations
and 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
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of HighMark may legally be sold. HighMark may materially
amend or terminate the exchange privileges described
herein upon sixty days' notice.
REDEMPTION
OF SHARES You may redeem your Shares of the Funds without charge
on any Business Day. There is presently a $15 charge for
wiring redemption proceeds to a Shareholder's designated
account. Shares may be redeemed by mail, by telephone or
through a pre-arranged systematic withdrawal plan.
Investors who own Shares held by a financial institution
should contact that institution for information on how to
redeem Shares.
By Mail
A written request for redemption of Shares of the Funds
must be received by the transfer agent, P.O. Box 8416,
Boston, Massachusetts 02266-8416 in order to constitute a
valid redemption request.
If the redemption request exceeds $5,000, or if the
request directs the proceeds to be sent or wired to an
address different from that of record, the transfer agent
may require that the signature on the written redemption
request be guaranteed. You should be able to obtain a
signature guarantee from a bank, broker dealer, credit
union, securities exchange or association, clearing agency
or savings association. Notaries public cannot guarantee
signatures. The signature guarantee requirement will be
waived if all of the following conditions apply: (1) the
redemption is for not more than $5,000 worth of Shares,
(2) the redemption check is payable to the shareholder(s)
of record, and (3) the redemption check is mailed to the
shareholder(s) at his or her address of record.
Telephone Transactions
You may redeem your Shares of the Growth, Value
Momentum, Emerging Growth and Income Equity Funds by
calling the transfer agent at 1-800-433-6884. Under most
circumstances, payments will be transmitted on the next
Business Day following receipt of a valid request for
redemption. You may have the proceeds mailed to your
address or wired to a commercial bank account previously
designated on your Account Application. There is no charge
for having redemption proceeds mailed to you, but there is
a $15 charge for wiring redemption proceeds.
You may request a wire redemption for redemptions of
Shares of the Growth, Value Momentum, Emerging Growth and
Income Equity Funds in excess of $500 by calling the
Transfer Agent at 1-800-433-6884 who will deduct a wire
charge of $15 from the amount of the wire redemption.
Shares cannot be redeemed by Federal Reserve wire on
Federal holidays restricting wire transfers.
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Neither the transfer agent nor HighMark will be
responsible for any loss, liability, cost or expense for
acting upon wire or telephone instructions that it
reasonably believes to be genuine. HighMark and transfer
agent will each employ reasonable procedures to confirm
that instructions, communicated by telephone 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 consider placing your order by mail.
Systematic Withdrawal Plan ("SWP")
The Funds offer a Systematic Withdrawal Plan ("SWP"),
which you may use to receive regular distributions from
your account. Upon commencement of the SWP, your account
must have a current net asset value of $5,000 or more. You
may elect to receive automatic payments via check or ACH
of $100 or more on a monthly, quarterly, semi-annual or
annual basis. You may arrange to receive regular
distributions from your account via check or ACH by
completing this section in the Account Application form.
To participate in the SWP, you must have your dividends
automatically reinvested. You should realize that if your
automatic withdrawals exceed income dividends, your
invested principal in the account will be depleted. Thus,
depending on the frequency and amounts of the withdrawal
payments and/or any fluctuations in the net asset value
per Share, your original investment could be exhausted
entirely. You may change or cancel the SWP at any time on
written notice to the transfer agent. The transfer agent
may require that the signature on the written notice be
guaranteed.
It is generally not in your best interest to be
participating in the SWP at the same time that you are
purchasing additional Shares if you have to pay a sales
load in connection with such purchases.
Other Information Regarding Redemptions
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.
Payment to the Shareholders for Shares redeemed will be
made within seven days after the transfer agent receives
the valid redemption request. At various
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times, however, a Fund may be requested to redeem Shares
for which it has not yet received good payment; collection
of payment may take ten or more days. In such
circumstances, the redemption request will be rejected by
the Fund. Once a Fund has received good payment for the
Shares a Shareholder may submit another request for
redemption.
Due to the relatively high costs of handling small
investments, each Fund reserves the right to redeem your
Shares at net asset value if your account in any Fund has
a value of less than the minimum initial purchase amount.
Accordingly, if you purchase Shares of any Fund in only
the minimum investment amount, you may be subject to
involuntary redemption if you redeem any Shares. Before
any Fund exercises its right to redeem such Shares you
will be given notice that the value of the Shares in your
account is less than the minimum amount and will be
allowed 60 days to make an additional investment in such
Fund in an amount which will increase the value of the
account to at least the minimum amount.
DIVIDENDS The net income of each of the Equity Funds is declared
and paid monthly as a dividend to Shareholders of record
at the close of business on the day of declaration. Net
realized capital gains are distributed at least annually
to Shareholders of record.
Shareholders will automatically receive all income
dividends and capital gains distributions in additional
full and fractional Shares of a Fund at net asset value as
of the date of declaration (which is also the ex-dividend
date), unless the Shareholder elects to receive such
dividends or distributions in cash. Shareholders wishing
to receive their dividends in cash (or wishing to revoke a
previously made election) must notify the 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
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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. 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 and the Income Equity Fund, computed daily
and paid monthly, at the annual rate of sixty
one-hundredths of one percent (.60%) of
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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
and the Emerging Growth 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
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.
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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 Fund
(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 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, 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, Convertible 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 .50% of the average daily net
assets of the Emerging Growth Fund. As of the date of this
prospectus, the Emerging Growth Fund had not yet commenced
operations in HighMark.
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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.
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 Retail 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% 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 Retail 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
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fees are being waived to the rate of 0.10% of average
daily net assets for the Retail Shares of the Income
Equity Fund, 0.09% for the Retail Shares of the Growth
Fund, and 0.00% for the Retail Shares of the Value
Momentum and the 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.
The Distribution Plan
Pursuant to HighMark's Distribution Plan, each Equity
Fund pays the Distributor as compensation for its services
in connection with the Distribution Plan a distribution
fee, computed daily and paid monthly, equal to twenty-five
one-hundredths of one percent (0.25%) of the average daily
net assets attributable to that Fund's Retail Shares.
The Distributor may use the distribution fee applicable
to a Fund's Retail Shares to provide distribution
assistance with respect to the sale of the Fund's Retail
Shares or to provide Shareholder services to the holders
of the Fund's Retail Shares. The Distributor may also use
the distribution fee (i) to pay financial institutions and
intermediaries (such as insurance companies and investment
counselors but not including banks and savings and loan
associations), broker-dealers, and the Distributor's
affiliates and subsidiaries compensation for services or
reimbursement of expenses incurred in connection with the
distribution of a Fund's Retail Shares to their customers
or (ii) to pay banks, savings and loan associations, other
financial institutions and intermediaries, broker-dealers,
and the Distributor's affiliates and subsidiaries
compensation for services or reimbursement of expenses
incurred in connection with the provision of Shareholder
services to their customers owning a Fund's Retail Shares.
All payments by the Distributor for distribution
assistance or Shareholder services under the Distribution
Plan will be made pursuant to an agreement between the
Distributor and such bank, savings and loan association,
other financial institution or intermediary,
broker-dealer, or affiliate or subsidiary of the
Distributor (a "Servicing Agreement"; banks, savings and
loan associations, other financial institutions and
intermediaries, broker-dealers, and the Distributor's
affiliates and subsidiaries that may enter into a
Servicing Agreement are hereinafter referred to
individually as a "Participating Organization"). A
Participating Organization may include Union Bank of
California, its subsidiaries and its affiliates.
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<PAGE> 467
Participating Organizations may charge customers fees in
connection with investments in an Equity Fund on their
customers' behalf. Such fees would be in addition to any
amounts the Participating Organization may receive
pursuant to its Servicing Agreement. Under the terms of
the Servicing Agreements, Participating Organizations are
required to provide their customers with a schedule of
fees charged directly to such customers in connection with
investments in a Fund. Customers of Participating
Organizations should read this Prospectus in light of the
terms governing their accounts with the Participating
Organization.
The distribution fee under the Distribution Plan will be
payable without regard to whether the amount of the fee is
more or less than the actual expenses incurred in a
particular year by the Distributor in connection with
distribution assistance or Shareholder services rendered
by the Distributor itself or incurred by the Distributor
pursuant to the Servicing Agreements entered into under
the Distribution Plan. The Distributor may from time to
time voluntarily reduce its distribution fee with respect
to an Equity Fund in significant amounts for substantial
periods of time pursuant to an agreement with HighMark.
While there can be no assurance that the Distributor will
choose to make such an agreement, any voluntary reduction
in the Distributor's distribution fee will lower such
Equity Fund's expenses, and thus increase such Fund's
yield and total returns, during the period such voluntary
reductions are in effect.
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, 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.
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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 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 Fiduciary 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, there
was no person who owned of record or beneficially more
than 25% of the Retail Shares of the Growth Fund or the
Income Equity Fund. As of November 22, 1996, the Value
Momentum and Emerging 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 Retail 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.
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<PAGE> 469
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 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,
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<PAGE> 470
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 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
37
<PAGE> 471
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.
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
38
<PAGE> 472
"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.
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.
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<PAGE> 473
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.
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."
40
<PAGE> 474
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 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.
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<PAGE> 475
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 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.
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<PAGE> 476
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 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.
43
<PAGE> 477
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 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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<PAGE> 478
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, PA 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> 479
CROSS REFERENCE SHEET
HIGHMARK FUNDS
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Form N-1A Part B Item Information Caption
- --------------------- -------------------
<S> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Additional Information--Description of Shares
13. Investment Objectives and Policies Investment Objectives and Policies; Additional Information
on Portfolio Instruments
14. Management of HighMark Management of HighMark
15. Control Persons and Principal
Holders of Securities Additional Information-- Miscellaneous
16. Investment Advisory and Other
Services Management of HighMark
17. Brokerage Allocation Management of HighMark-- Portfolio Transactions
18. Capital Stock and Other Securities Valuation; Additional Purchase and Redemption
Information; Management of HighMark-- Distributor; The
Distribution Plans; Additional Information
19. Purchase, Redemption and Valuation; Additional Purchase and Redemption
Pricing of Securities Being Information; Management of HighMark
Offered
20. Tax Status Additional Purchase and Redemption Information--
Additional Federal Tax Information; Additional Tax
Information Concerning the California Tax-Free
Money Market Fund and the California Intermediate
Tax-Free Bond Fund
21. Underwriters Management of HighMark -- Distributor
22. Calculation of Performance Data Additional Information -- Calculation of Performance Data
23. Financial Statements Independent Auditors' Report for HighMark Funds
for the Year Ended July 31, 1996/Financial
Statements for HighMark Funds for the Periods
Ended July 31, 1996
</TABLE>
<PAGE> 480
HIGHMARK FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MARCH 28, 1997
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectuses of the HighMark Equity Funds, the HighMark
Fixed Income Funds and the HighMark Money Market Funds, each of which is dated
March 28, 1997 (collectively, the "Prospectuses") and any supplements thereto.
This Statement of Additional Information is incorporated in its entirety into
the Prospectuses. Copies of the Prospectuses may be obtained by writing the
Distributor, SEI Financial Services Company, at 680 East Swedesford Road, Wayne,
Pennsylvania, 19087-1658, or by telephoning toll free 1-800-734-2922.
Capitalized terms used but not defined herein have the same meanings as set
forth in the Prospectuses.
<PAGE> 481
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
HIGHMARK FUNDS.................................................................................... 1
INVESTMENT OBJECTIVES AND POLICIES................................................................. 2
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS.................................................... 2
Bank Instruments.......................................................................... 2
Commercial Paper and Variable Amount Master Demand Notes.................................. 3
Loan Participations....................................................................... 3
Lending of Portfolio Securities........................................................... 4
Repurchase Agreements..................................................................... 4
Reverse Repurchase Agreements............................................................. 5
U.S. Government Obligations............................................................... 5
Mortgage-Related Securities............................................................... 6
Adjustable Rate Notes.................................................................... 7
Municipal Securities...................................................................... 8
Investments in California Municipal Securities by the California Tax-Free Money
Market Fund and the California Intermediate Tax-Free Bond Fund............................ 11
Puts .................................................................................. 14
Shares of Mutual Funds.................................................................... 14
When-Issued Securities and Forward Commitments........................................... 15
Zero-Coupon Securities.................................................................... 15
High Quality Investments with Regard to the Money Market Funds............................ 29
INVESTMENT RESTRICTIONS............................................................................ 31
Illiquid Securities....................................................................... 37
Voting Information........................................................................ 38
PORTFOLIO TURNOVER................................................................................. 38
VALUATION.......................................................................................... 39
Valuation of the Money Market Funds....................................................... 39
Valuation of the Equity Funds and the Fixed Income Funds.................................. 39
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..................................................... 40
Additional Federal Tax Information........................................................ 40
Additional Tax Information Concerning The California Tax-Free Money
Market Fund and The California Intermediate Tax-Free Bond Fund................... 43
Federal Taxation.......................................................................... 43
</TABLE>
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<PAGE> 482
<TABLE>
<S> <C>
California Taxation.................................................................................... 45
Foreign Taxes.......................................................................................... 46
MANAGEMENT OF HIGHMARK......................................................................................... 47
Trustees and Officers.................................................................................. 47
Investment Advisor.................................................................................... 51
The Sub-Advisors....................................................................................... 53
Portfolio Transactions................................................................................. 54
Glass-Steagall Act..................................................................................... 55
Administrator and Sub-Administrator.................................................................... 56
Shareholder Services Plan.............................................................................. 58
Expenses .............................................................................................. 59
Distributor............................................................................................ 60
The Distribution Plans................................................................................. 60
Transfer Agent and Custodian Services................................................................. 61
Auditors .............................................................................................. 62
Legal Counsel.......................................................................................... 62
ADDITIONAL INFORMATION.......................................................................................... 62
Description of Shares.................................................................................. 62
Shareholder and Trustee Liability...................................................................... 64
The Reorganization of the IRA Fund and HighMark....................................................... 65
Calculation of Performance Data........................................................................ 65
Miscellaneous.......................................................................................... 71
APPENDIX ....................................................................................................... 80
INDEPENDENT AUDITORS' REPORT FOR HIGHMARK FUNDS FOR
THE YEAR ENDED JULY 31, 1996........................................................................... 87
FINANCIAL STATEMENTS FOR HIGHMARK FUNDS FOR
THE PERIODS ENDED JULY 31, 1996........................................................................ 88
</TABLE>
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<PAGE> 483
STATEMENT OF ADDITIONAL INFORMATION
HIGHMARK FUNDS
HighMark Funds ("HighMark") is a diversified, open-end management
investment company. HighMark presently consists of sixteen series of Shares,
representing units of beneficial interest in the HighMark Growth Fund, the
HighMark Income Equity Fund, the HighMark Balanced Fund, the HighMark Value
Momentum Fund, the HighMark Blue Chip Growth Fund, the HighMark Emerging Growth
Fund, the HighMark International Equity Fund, the HighMark Bond Fund, the
HighMark Intermediate-Term Bond Fund, the HighMark Government Securities Fund,
the HighMark Convertible Securities Fund, the HighMark California Intermediate
Tax-Free Bond Fund, the HighMark Diversified Money Market Fund, the HighMark
U.S. Government Money Market Fund, the HighMark 100% U.S. Treasury Money Market
Fund, and the HighMark California Tax-Free Money Market Fund. As of the date
hereof, the HighMark Value Momentum Fund, the HighMark Blue Chip Growth Fund,
the HighMark Emerging Growth Fund, the HighMark International Equity Fund, the
HighMark Intermediate-Term Bond Fund, the HighMark Convertible Securities Fund,
the HighMark Government Securities Fund, and the HighMark California
Intermediate Tax-Free Bond Fund have not yet commenced operations in HighMark.
The HighMark Balanced Fund commenced operations on November 14, 1993 and the
HighMark Growth Fund commenced operations on November 18, 1993. The HighMark
Income Equity Fund and the HighMark Bond Fund commenced operations on June 23,
1988 as a result of the reorganization of the Income Equity Portfolio and the
Bond Portfolio, respectively, of the IRA Collective Investment Fund (the "IRA
Fund") described under "Additional Information - The Reorganization of the IRA
Fund and HighMark" below. The HighMark Diversified Money Market Fund, the
HighMark U.S. Government Money Market Fund and the 100% U.S. Treasury Money
Market Fund commenced operations on August 10, 1987. The HighMark California
Tax-Free Money Market Fund commenced operations on August 11, 1987.
As described in the Prospectuses, selected Funds of HighMark have been
divided into two classes of Shares (designated Retail Shares and Fiduciary
Shares) for purposes of HighMark's Distribution and Shareholder Services Plans
(the "Distribution Plans"), which Distribution Plans apply only to such Funds'
Retail Shares. Retail Shares and Fiduciary Shares are sometimes herein referred
to collectively as "Shares".
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 are sometimes herein referred to as the "Money Market Funds."
The Growth, Income Equity, Balanced, Value Momentum, Blue Chip Growth, Emerging
Growth, and International Equity Funds are sometimes referred to herein as the
"Equity Funds." The
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Bond, Intermediate-Term Bond, Government Securities, Convertible Securities, and
California Intermediate Tax-Free Bond Funds are sometimes referred to herein as
the "Fixed Income Funds." The Income Equity Portfolio and the Bond Portfolio of
the IRA Fund (which were reorganized into HighMark's Funds as described above)
are sometimes referred to herein as the "IRA Fund Portfolios."
Much of the information contained herein expands upon subjects
discussed in the Prospectuses for the respective Funds. No investment in Shares
of a Fund should be made without first reading that Fund's Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the investment objectives and
policies of each Fund of HighMark as set forth in the respective Prospectus for
that Fund.
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
1. Bank Instruments. Consistent with its investment objective,
policies, and restrictions, each Fund (other than the U.S. Government Money
Market Fund, the 100% U.S. Treasury Money Market Fund, and the California
Tax-Free Money Market Fund) may invest in bankers' acceptances, certificates of
deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise that
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity. Investments in
bankers' acceptances will be limited to those guaranteed by domestic and foreign
banks having, at the time of investment, total assets of $1 billion or more (as
of the date of the institution's most recently published financial statements).
Certificates of deposit and time deposits represent funds deposited in
a commercial bank or a savings and loan association for a definite period of
time and earning a specified return.
Investments in certificates of deposit and time deposits may include
Eurodollar Certificates of Deposit, which are U.S. dollar denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States, Yankee Certificates of Deposit, which are
certificates of deposit issued by a U.S. branch of a foreign bank denominated in
U.S. dollars and held in the United States, Eurodollar Time Deposits ("ETDs"),
which are U.S. dollar denominated deposits in a foreign branch of a U.S. bank or
a foreign bank, and Canadian Time Deposits ("CTDs"), which are U.S. dollar
denominated certificates of deposit issued by Canadian offices of major
Canadian banks. All investments in
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certificates of deposit and time deposits will be limited to those (a) of
domestic and foreignbanks and savings and loan associations which, at the time
of investment, have total assets of $1 billion or more (as of the date of the
institution's most recently published financial statements) or (b) the
principal amount of which is insured in full by the Federal Deposit Insurance
Corporation.
There is no limitation on the Diversified Money Market Fund's ability
to invest in domestic certificates of deposit , bankers' acceptances or other
bank instruments in connection with the Fund's fundamental investment
restriction governing concentration in the securities of one or more issuers
conducting their principal business activities in the same industry. For
purposes of this exception to the Fund's fundamental investment restriction,
domestic certificates of deposit and bankers' acceptances include those issued
by domestic branches of foreign banks to the extent permitted by the rules and
regulations of the Securities and Exchange Commission staff. These rules and
regulations currently permit U.S. branches of foreign banks to be considered
domestic banks if it can be demonstrated that they are subject to the same
regulation as U.S. banks.
2. Commercial Paper and Variable Amount Master Demand Notes. Consistent
with its investment objective, policies, and restrictions, each Fund (other than
the U.S. Government Money Market Fund and the 100% U.S. Treasury Money Market
Fund) may invest in commercial paper (including Section 4(2) commercial paper)
and variable amount master demand notes. Commercial paper consists of unsecured
promissory notes issued by corporations normally having maturities of 270 days
or less. These investments may include Canadian Commercial Paper, which is U.S.
dollar denominated commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and Europaper, which is U.S. dollar
denominated commercial paper of a foreign issuer.
Variable amount master demand notes are unsecured demand notes that
permit the indebtedness thereunder to vary and provide for periodic adjustments
in the interest rate according to the terms of the instrument. Because master
demand notes are direct lending arrangements between a Fund and the issuer, they
are not normally traded. Although there is no secondary market in the notes, a
Fund may demand payment of principal and accrued interest at any time. A
variable amount master demand note will be deemed to have a maturity equal to
the longer of the period of time remaining until the next readjustment of its
interest rate or the period of time remaining until the principal amount can be
recovered from the issuer through demand.
3. Loan Participations. As indicated in the Money Market Funds'
Prospectus, the Diversified Money Market Fund may invest in loan participations
pursuant to which the Fund acquires a portion of a bank or other lending
institution's interest in a secured or unsecured loan to a corporate borrower.
Although the Fund's ability to receive payments of principal and interest in
connection with a particular loan participation is primarily dependent on the
financial condition of the underlying borrower, the lending institution
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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. Loans in which the Fund may purchase loan participations may be made to
finance a variety of corporate purposes, but will not be made to finance highly
leveraged activities such as "leveraged buy-outs." Loan participations will be
subject to the Fund's non fundamental limitation governing investments in
"illiquid" securities. See "Investment Restrictions" below.
4. Lending of Portfolio Securities. In order to generate additional
income, each Fund (other than the California Tax-Free Money Market Fund) may
lend its portfolio securities to broker-dealers, banks or other institutions.
During the time portfolio securities are on loan from a Fund, the borrower will
pay the Fund any dividends or interest paid on the securities. In addition,
loans will be subject to termination by the Fund or the borrower at any time.
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 at least 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 Pacific Alliance Capital Management (the "Advisor"), and, should
the market value of the loaned securities increase, the borrower will be
required to furnish additional collateral to the Fund. A Fund (other than the
California Tax-Free Money Market Fund) may lend portfolio securities in an
amount representing up to 331/3% of the value of the Fund's total assets.
5. Repurchase Agreements. Securities held by each Fund (other than the
100% U.S. Treasury Money Market Fund) may be subject to repurchase agreements.
As a matter of non fundamental policy, the California Tax-Free Money Market Fund
intends to limit investments in repurchase agreements to no more than 5% of the
value of its total assets.
Under the terms of a repurchase agreement, a Fund will deal with
financial institutions such as member banks of the Federal Deposit Insurance
Corporation having, at the time of investment, total assets of $100 million or
more and from registered broker-dealers that the Advisor deems creditworthy
under guidelines approved by HighMark's Board of Trustees. Under a repurchase
agreement, the seller agrees to repurchase the securities at a mutually
agreed-upon date and price, and the repurchase price will generally equal the
price paid by the Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
portfolio securities. The seller under a repurchase agreement will be required
to maintain the value of collateral held pursuant to the agreement at not less
than 102% of the repurchase price (including accrued interest) and the
Custodian, with oversight by the Advisor, will monitor the collateral's value
daily and initiate calls to request that collateral be restored to appropriate
levels. In addition, securities subject to repurchase agreements will be held in
a segregated custodial account.
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If the seller were to default on its repurchase obligation or become
insolvent, the Fund holding such obligation would suffer a loss to the extent
that either the proceeds from a sale of the underlying portfolio securities were
less than the repurchase price under the agreement or the Fund's disposition of
the underlying securities was delayed pending court action. Additionally,
although there is no controlling legal precedent confirming that a Fund would be
entitled, as against a claim by the seller or its receiver or trustee in
bankruptcy, to retain the underlying securities, HighMark's Board of Trustees
believes that, under the regular procedures normally in effect for custody of a
Fund's securities subject to repurchase agreements and under federal laws, a
court of competent jurisdiction would rule in favor of the Fund if presented
with the question. Securities subject to repurchase agreements will be held by
HighMark's custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the 1940 Act.
6. Reverse Repurchase Agreements. Each Fund (other than the 100% U.S.
Treasury Money Market 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 total borrowings under
reverse repurchase agreements 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.
7. U.S. Government Obligations. With the exception of the 100% U.S.
Treasury Money Market Fund, which may invest only in direct U.S. Treasury
obligations, each Fund may, consistent with its investment objective, policies,
and restrictions, invest in obligations issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities. Obligations of certain agencies
and instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association and the Export-Import Bank of the United States,
are supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's
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obligations; and still others, such as those of the Federal Farm Credit Banks or
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law.
For information concerning mortgage-related securities issued by
certain agencies or instrumentalities of the U.S. Government, see
"Mortgage-Related Securities" below.
8. Mortgage-Related Securities. As indicated in the Money Market Funds'
Prospectus, the Diversified Money Market Fund and the U.S. Government Money
Market Fund may each invest in mortgage-related securities issued by the
Government National Mortgage Association ("GNMA") representing GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes"). The Fixed Income Funds
and the Balanced Fund may also, consistent with each such Fund's investment
objective and policies, invest in Ginnie Maes and in mortgage-related securities
issued or guaranteed by the U.S. Government, its agencies, or its
instrumentalities or, those issued by nongovernmental entities. In addition, the
Fixed Income Funds and the Balanced Fund may invest in collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs").
Mortgage-related securities represent interests in pools of mortgage
loans assembled for sale to investors. Mortgage-related securities may be
assembled and sold by certain governmental agencies and may also be assembled
and sold by nongovernmental entities such as commercial banks, savings and loan
institutions, mortgage bankers, and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third party or
otherwise similarly secured, the market value of the security, which may
fluctuate, is not so secured. If a Fund purchases a mortgage-related security at
a premium, that portion may be lost if there is a decline in the market value of
the security, whether resulting from changes in interest rates or prepayments in
the underlying mortgage collateral. As with other interest-bearing securities,
the prices of mortgage-related securities are inversely affected by changes in
interest rates. However, although the value of a mortgage-related security may
decline when interest rates rise, the converse is not necessarily true because
in periods of declining interest rates the mortgages underlying the security are
prone to prepayment. For this and other reasons, a mortgage-related security's
stated maturity may be shortened by unscheduled prepayments on the underlying
mortgages and, therefore, it is not possible to predict accurately the
security's return to the Fund. In addition, regular payments received in respect
of mortgage-related securities include both interest and principal. No assurance
can be given as to the return a Fund will receive when these amounts are
reinvested.
There are a number of important differences both among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities themselves. As noted above, Ginnie Maes are issued by
GNMA, which is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban
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Development. Ginnie Maes are guaranteed as to the timely payment of principal
and interest by GNMA and GNMA's guarantee is backed by the full faith and credit
of the U.S. Treasury. In addition, Ginnie Maes are supported by the authority of
GNMA to borrow funds from the U.S. Treasury to make payments under GNMA's
guarantee. Mortgage-related securities issued by the Federal National Mortgage
Association ("FNMA") include FNMA Guaranteed Mortgage Pass-Through Certificates
(also known as "Fannie Maes"), which are solely the obligations of the FNMA and
are not backed by or entitled to the full faith and credit of the U.S. Treasury.
The FNMA is a government-sponsored organization owned entirely by private
stockholders. Fannie Maes are guaranteed as to timely payment of principal and
interest by FNMA. Mortgage-related securities issued by the Federal Home Loan
Mortgage Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates
(also known as "Freddie Macs" or "PCs"). The FHLMC is a corporate
instrumentality of the U.S. Government, created pursuant to an Act of Congress,
which is owned entirely by the Federal Home Loan Banks. Freddie Macs are not
guaranteed by the U.S. Treasury or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the U.S. Government or of any Federal Home
Loan Bank. Freddie Macs entitle the holder to timely payment of interest, which
is guaranteed by the FHLMC. The FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying mortgage loans. When
the FHLMC does not guarantee timely payment of principal, FHLMC may remit the
amount due on account of its guarantee of ultimate payment of principal at any
time after default on an underlying mortgage, but in no event later than one
year after it becomes payable.
CMOs in which the Fixed Income Funds and the Balanced Fund may invest
represent securities issued by a private corporation or a U.S. Government
instrumentality that are backed by a portfolio of mortgages or mortgage-backed
securities held under an indenture. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued with a number of classes or series
that have different maturities and that may represent interests in some or all
of the interest or principal on the underlying collateral or a combination
thereof. CMOs of different classes are generally retired in sequence as the
underlying mortgage loans in the mortgage pool are repaid. In the event of
sufficient early prepayments on such mortgages, the class or series of a CMO
first to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of a CMO held by a Fund would have
the same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security.
REMICs in which the Fixed Income Funds and the Balanced Fund may
invest 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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9. Adjustable Rate Notes. Consistent with its investment objective,
policies, and restrictions, each Fund (other than the 100% U.S. Treasury Money
Market Fund) may invest in "adjustable rate notes," which include variable rate
notes and floating rate notes. For Money Market Fund purposes, a variable rate
note is one whose terms provide for the readjustment of its interest rate on set
dates and that, upon such readjustment, can reasonably be expected to have a
market value that approximates its amortized cost; the degree to which a
variable rate note's market value approximates its amortized cost subsequent to
readjustment will depend on the frequency of the readjustment of the note's
interest rate and the length of time that must elapse before the next
readjustment. A floating rate note is one whose terms provide for the
readjustment of its interest rate whenever a specified interest rate changes and
that, at any time, can reasonably be expected to have a market value that
approximates its amortized cost. Although there may be no active secondary
market with respect to a particular variable or floating rate note purchased by
a Fund, the Fund may seek to resell the note at any time to a third party. The
absence of an active secondary market, however, could make it difficult for the
Fund to dispose of a variable or floating rate note in the event the issuer of
the note defaulted on its payment obligations and the Fund could, as a result or
for other reasons, suffer a loss to the extent of the default. Variable or
floating rate notes may be secured by bank letters of credit. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security. Such security will
be subject to a Fund's non fundamental 15% (10% in the case of the Money Market
Funds) limitation governing investments in "illiquid" securities, unless such
notes are subject to a demand feature that will permit the Fund to receive
payment of the principal within seven days of the Fund's demand. See "Investment
Restrictions" below.
Maturities for variable and adjustable rate notes held in the Money
Market Funds will be calculated in compliance with the provisions of Rule 2a-7,
as it may be amended from time to time.
As used above, a note is "subject to a demand feature" where the Fund
is entitled to receive the principal amount of the note either at any time on
not more than thirty days' notice or at specified intervals, not exceeding 397
days and upon not more than thirty days' notice.
10. Municipal Securities. As defined in the Prospectuses, under normal
market conditions, at least 80% of the total assets of the California Tax-Free
Money Market Fund and 80% of the total assets of the California Intermediate
Tax-Free Bond Fund will be invested in Municipal Securities, the interest on
which is both excluded from gross income for federal income tax and California
personal income tax purposes and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax. The California
Intermediate Tax-Free Bond Fund invests in Municipal Securities of varying
maturities, which are rated in one of the four highest rating categories by at
least one nationally recognized statistical organization ("NRSRO") or are
determined by the Advisor to be of comparable quality. The California Tax-Free
Money Market Fund
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invests only in Municipal Securities with remaining maturities of 397 days or
less, and which, at the time of purchase, possess the highest short-term rating
from at least one NRSRO or are determined by the Advisor to be of comparable
quality.
Municipal Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and public entities. Private activity bonds that are issued
by or on behalf of public authorities to finance various privately operated
facilities are included within the term Municipal Securities if the interest
paid thereon is (i) excluded from gross income for federal income tax purposes
and (ii) not treated as a preference item for individuals for purposes of the
federal alternative minimum tax.
As described in the Prospectuses, the two principal classifications of
Municipal Securities consist of "general obligation" and "revenue" issues. In
general, only general obligation bonds are backed by the full faith and credit
and general taxing power of the issuer. There are, of course, variations in the
quality of Municipal Securities, both within a particular classification and
between classifications, and the yields on Municipal Securities depend upon a
variety of factors, including general market conditions, the financial condition
of the issuer (or other entity whose financial resources are supporting the
Municipal Securities), general conditions of the municipal bond market, the size
of a particular offering, the maturity of the obligation and the rating(s) of
the issue. In this regard, it should be emphasized that the ratings of any NRSRO
are general and are not absolute standards of quality; Municipal Securities with
the same maturity, interest rate and rating(s) may have different yields while
Municipal Securities of the same maturity and interest rate with a different
rating(s) may have the same yield.
An issuer's obligations with respect to its Municipal Securities are
subject to the provisions of bankruptcy, insolvency, and other laws affecting
the rights and remedies of creditors, such as the Federal Bankruptcy Code, and
laws, if any, that may be enacted by Congress or state legislatures extending
the time for payment of principal or interest, or both, or imposing other
constraints upon the enforcement of such obligations or upon the ability of
municipalities to levy taxes or otherwise raise revenues. Certain of the
Municipal Securities may be revenue securities and dependent on the flow of
revenue, generally in the form of fees and charges. The power or ability of an
issuer to meet its obligations for the payment of interest on and principal of
its Municipal Securities may be materially adversely affected by litigation or
other conditions, including a decline in property value or a destruction of
uninsured property due to natural disasters.
In addition, in accordance with its investment objective, each Fund may
invest in private activity bonds, which may constitute Municipal Securities
depending upon the federal income tax treatment of such bonds. Such bonds are
usually revenue bonds because the source of payment and security for such bonds
is the financial resources of the private entity
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involved; the full faith and credit and the taxing power of the issuer in normal
circumstances will not be pledged. The payment obligations of the private entity
also will be subject to bankruptcy and similar debtor's rights, as well as other
exceptions similar to those described above. Moreover, the Funds may invest in
obligations secured in whole or in part by a mortgage or deed of trust on real
property located in California that are subject to the "anti-deficiency"
legislation discussed below.
The Funds may also invest indirectly in Municipal Securities by
purchasing the shares of tax-exempt money market mutual funds. Such investments
will be made solely for the purpose of investing short-term cash on a temporary
tax-exempt basis and only in those funds with respect to which the Advisor
believes with a high degree of certainty that redemption can be effected within
seven days of demand. Additional limitations on investments by the Funds in the
shares of other tax-exempt money market mutual funds are set forth under
"Investment Restrictions" below.
Certain Municipal Securities in the Funds may be obligations that are
payable solely from the revenues of health care institutions, although the
obligations may be secured by real or personal property of such institutions.
Certain provisions under federal and California law may adversely affect such
revenues and, consequently, payment on those Municipal Securities.
Certain Municipal Securities in which the Funds may invest may be
obligations that are secured in whole or in part by a mortgage or deed of trust
on real property. California has certain statutory provisions that limit the
remedies of a creditor secured by a mortgage or deed of trust. Two of the
provisions limit a creditor's right to obtain a deficiency judgment, one
limitation being based on the method of foreclosure and the other on the type of
debt secured. A third statutory provision, commonly known as the "single action"
rule, has two aspects, an "affirmative defense aspect" and a "sanction aspect."
The "affirmative defense" aspect limits creditors secured by real property to a
single legal action for recovery of their debt, and that single action must be a
judicial foreclosure action against their real property security. Under the
"sanction" aspect, if the real estate-secured creditor proceeds by legal action
other than judicial foreclosure, the creditor loses its lien on the real
property security and, in some instances, the right to recover its debt. Another
statutory provision gives the debtor the right to redeem the real property from
any judicial foreclosure sale.
Upon the default under a mortgage or deed of trust with respect to
California real property, a creditor's nonjudicial foreclosure rights under the
power of sale contained in the mortgage or deed of trust are subject to certain
procedural requirements whereby the effective minimum period for foreclosing on
a mortgage or deed of trust is generally four to five months after the initial
default and such foreclosure could be further delayed by bankruptcy proceedings
initiated by the debtor. Such time delays in collections could disrupt the flow
of revenues available to an issuer for the payment of debt service on the
outstanding obligations if such defaults occur with respect to a substantial
number of mortgages or deeds of trust securing an issuer's obligations.
Following a creditor's non-judicial foreclosure under
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a power of sale, no deficiency judgment is available. This limitation, however,
does not apply to bonds authorized or permitted to be issued by the Commissioner
of Corporations, or which are made by a public utility subject to the Public
Utilities Act.
Certain Municipal Securities in the Funds may be obligations that
finance the acquisition of mortgages for low and moderate income mortgagors.
These obligations may be payable solely from revenues derived from home
mortgages and are subject to California's statutory limitations applicable to
obligations secured by real property, as described above. Under California
anti-deficiency legislation, there is no personal recourse against a mortgagor
of a dwelling of no more than four units, at least one of which is occupied by
such a mortgagor, where the dwelling has been purchased with the loan that is
secured by the mortgage, regardless of whether the creditor chooses judicial or
nonjudicial foreclosure. In the event that this purchase money anti-deficiency
rule applies to a loan secured by a mortgage or deed of trust, and the value of
the property subject to that mortgage or deed of trust has been substantially
reduced because of market forces or by an earthquake or other event for which
the mortgagor or trustor carried no insurance, upon default, the issuer holding
that loan nevertheless would be entitled to collect no more on its loan than it
could obtain from the foreclosure sale of the property.
Legislation has been introduced from time to time regarding the
California state personal income tax status of interest paid on Municipal
Securities issued by the State of California and its local governments and held
by investment companies such as the California Tax-Free Money Market Fund and
the California Intermediate Tax-Free Bond Fund. The Funds can not predict what
legislation relating to Municipal Securities, if any, may be proposed in the
future or which proposals, if any, might be enacted. Such proposals, while
pending or if enacted, might materially adversely affect the availability of
Municipal Securities generally, as well as the availability of Municipal
Securities issued by the State of California and its local governments
specifically, for investment by the Funds and the liquidity and value of their
portfolios. In such an event, each Fund would re-evaluate its investment
objective and policies and consider changes in its structure or possible
dissolution. See "Investments in California Municipal Securities by the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund" below.
11. Investments in California Municipal Securities by the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund.
The following information is a general summary intended to give a recent
historical description, and is not a discussion of any specific factors that may
affect any particular issuer of California Municipal Securities. The information
is not intended to indicate continuing or future trends in the condition,
financial or otherwise, of California.
Because each Fund expects to invest substantially all of its assets in
California Municipal Securities, it will be susceptible to a number of complex
factors affecting the issuers of California Municipal Securities, including
national and local political, economic, social,
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<PAGE> 494
environmental, and regulatory policies and conditions. The Funds cannot predict
whether or to what extent such factors or other factors may affect the issuers
of California Municipal Securities, the market value or marketability of such
securities or the ability of the respective issuers of such securities to pay
interest on, or principal of, such securities. The creditworthiness of
obligations issued by a local California issuer may be unrelated to the
creditworthiness of obligations issued by the State of California, and there is
no responsibility on the part of the State of California to make payments on
such local obligations.
From mid-1990 to late 1993, California suffered the most severe
recession in the State since the 1930's, with significant job losses
(particularly in the aerospace, other manufacturing, services and construction
sectors). The greatest effects of the recession were felt in Southern
California. While a steady recovery has been underway since 1994, pre-recession
employment levels are not expected to be reached until later in the decade.
The recession severely affected State revenues while the State's
health, welfare and education costs were increasing. The State's ability to
raise revenues and reduce expenditures to the extent necessary to balance the
budget for any year depends upon numerous factors, including economic conditions
in the State and the nation, the accuracy of the State's revenue predictions, as
well as the impact of budgetary restrictions imposed by voter-passed
initiatives.
During the recession that began in 1990, the State depleted its
available cash resources and became increasingly dependent on external
borrowings to meet its cash needs. For over a decade, California has issued
revenue anticipation notes (which must be issued and repaid during the same
fiscal year) to fund its operating budget during the fiscal year. Beginning in
1992, the State expanded its external borrowing to include revenue anticipation
warrants (which can be issued and redeemed in different fiscal years). The State
was severely criticized by the major credit rating agencies for the State's
reliance upon such external borrowings during the recession. In 1996, the State
fully repaid $4 billion of revenue anticipation warrants issued in 1994. The
State anticipates that it will not need to use such "cross-year" borrowing
during the 1996-97 fiscal year. It is not presently possible, however, to
determine the extent to which California will issue additional revenue
anticipation warrants, short-term interest-bearing notes or other instruments in
future fiscal years.
Certain of the securities in the California Tax-Free Money Market Fund
and the California Intermediate Tax-Free Bond Fund may be obligations of issuers
that rely in whole or in part, directly or indirectly, on ad valorem real
property taxes as a source of revenue. Article XIII A of the California
Constitution, adopted by the voters in 1978, limits ad valorem taxes on real
property, and restricts the ability of taxing entities to increase real property
and other taxes. Constitutional challenges to Article XIII A to date have been
unsuccessful.
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Article XIII B of the California Constitution limits significantly
spending by state government and by "local governments". Article XIII B
generally limits the amount of the appropriations of the State and of local
governments to the amount of appropriations of the entity for the prior year,
adjusted for changes in the cost of living, population, and the services that
the government entity is financially responsible for providing. To the extent
that the"proceeds of taxes" of the State or a local government exceed its
"appropriations limit," the excess revenues must be rebated. One of the
exclusions from these limitations for any entity of government is the debt
service costs of bonds existing or legally authorized as of January 1, 1979 or
on bonded indebtedness thereafter approved by the voters. Although Article XIII
B states that it shall not "be construed to impair the ability of the state or
of any local government to meet its obligations with respect to existing or
future bonded indebtedness," concern has been expressed with respect to the
combined effect of such constitutionally imposed spending limits on the ability
of California state and local governments to utilize bond financing.
Article XIII B was modified substantially by Propositions 98 and 111 of
1988 and 1990, respectively. These initiatives changed the State's Article XIII
B appropriations limit to require that the State set aside a prudent reserve
fund for public education, and guarantee a minimum level of State funding for
public elementary and secondary schools as well as community colleges. Such
guaranteed spending is often cited as one of the causes of the State's recurring
budget problems.
The effect of Article XIII A, Article XIII B and other constitutional
and statutory changes and of budget developments on the ability of California
issuers to pay interest and principal on their obligations remains unclear, and
may depend on whether a particular bond is a general obligation or limited
obligation bond (limited obligation bonds being generally less affected).
There is no assurance that any California issuer will make full or
timely payments of principal or interest or remain solvent. For example, in
December 1994, Orange County filed for bankruptcy. In June 1995, Orange County
negotiated a rollover of its short-term debt originally due at that time; the
major rating agencies considered the rollover a default. The Orange County
bankruptcy and such default have had a serious effect upon the market for
California municipal obligations.
Reductions in federal funding may adversely affect the State and
municipal economies. Welfare reform enacted in 1996 is expected to result in the
loss of approximately $6.8 billion in federal assistance available to the State
over the next six years; $5.8 billion of this amount relates to assistance for
resident noncitizens.
In addition, it is impossible to predict the time, magnitude, or
location of a natural catastrophe, such as a major earthquake, or its effect on
the California economy. In January 1994, a major earthquake struck the Los
Angeles area, causing significant damage in a
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four-county area. The possibility exists that another such earthquake could
create a major dislocation of the California economy.
The Funds' concentration in California Municipal Securities provides a
greater level of risk than funds that are diversified across numerous states and
municipal entities.
12. Puts. The California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund may acquire "puts" with respect to the Municipal
Securities held in their respective portfolios. A put is a right to sell a
specified security (or securities) within a specified period of time at a
specified exercise price. These Funds may sell, transfer, or assign a put only
in conjunction with the sale, transfer, or assignment of the underlying security
or securities.
The amount payable to a Fund upon its exercise of a "put" is normally
(i) the Fund's acquisition cost of the securities (excluding any accrued
interest that the Fund paid on the acquisition), less any amortized market
premium or plus any amortized market or original issue discount during the
period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.
Puts may be acquired by a Fund to facilitate the liquidity of the
Fund's portfolio assets. Puts may also be used to facilitate the reinvestment of
a Fund's assets at a rate of return more favorable than that of the underlying
security. Under certain circumstances, puts may be used to shorten the maturity
of underlying adjustable rate notes for purposes of calculating the remaining
maturity of those securities and the dollar-weighted average portfolio maturity
of the California Tax-Free Money Market Fund's assets pursuant to Rule 2a-7
under the 1940 Act.
The California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund will generally acquire puts only where the puts
are available without the payment of any direct or indirect consideration.
However, if necessary or advisable, a Fund may pay for puts either separately in
cash or by paying a higher price for portfolio securities that are acquired
subject to the puts (thus reducing the yield to maturity otherwise available for
the same securities).
13. Shares of Mutual Funds. Each of the California Tax-Free Money
Market Fund, the Fixed Income Funds and the Equity Funds may invest up to 5% of
its total assets in the shares of any one 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 investment
companies. In accordance with an exemptive order issued to HighMark by the
Securities and Exchange Commission, such other registered investment companies
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,
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serves as investment advisor, administrator or distributor or provides other
services. 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 advisory 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. Additional restrictions on the
Fund's investments in the securities of a money market mutual fund are set forth
under "Investment Restrictions" below.
Investments by the California Tax-Free Money Market Fund in the shares
of other tax-exempt money market mutual funds are described under "Municipal
Securities" above.
14. When-Issued Securities and Forward Commitments. Each Fund may enter
into forward commitments or purchase securities on a "when-issued" basis, which
means that the securities will be purchased for delivery beyond the normal
settlement date at a stated price and yield and thereby involve the risk that
the yield obtained in the transaction will be less than that available in the
market when delivery takes place. A Fund will generally not pay for such
securities and no interest accrues on the securities until they are received by
the Fund. These securities are recorded as an asset and are subject to changes
in value based upon changes in the general level of interest rates. Therefore,
the purchase of securities on a "when-issued" basis may increase the risk of
fluctuations in a Fund's net asset value.
When a Fund agrees to purchase securities on a "when-issued" basis 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 separate account. Normally, the custodian will set aside portfolio
securities to satisfy the purchase commitment, and in such a case, the Fund may
be required subsequently to place additional assets in the separate account in
order to assure that the value of the account remains equal to the amount of the
Fund's commitment.
The Funds expect that commitments to enter into forward commitments or
purchase "when-issued" securities will not exceed 25% of the value of their
respective total assets under normal market conditions; in the event any Fund
exceeded this 25% threshold, the Fund's liquidity and the Advisor's ability to
manage it might be adversely affected. In addition, the Funds do not intend to
purchase "when-issued" securities or enter into forward commitments for
speculative or leveraging purposes but only in furtherance of such Fund's
investment objective.
15. Zero-Coupon Securities. Consistent with its objectives, a Fund may
invest in zero-coupon securities, which are debt securities that do not pay
interest, but instead are issued at a deep discount from par. The value of the
security increases over time to reflect the interest accreted. The value of
these securities may fluctuate more than similar securities that are issued at
par and pay interest periodically. Although these securities pay no interest to
holders
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prior to maturity, interest on these securities is reported as income to the
Fund and distributed to its shareholders. These distributions must be made from
the Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. The Fund will not be able to purchase additional income producing
securities with cash used to make such distributions and its current income
ultimately may be reduced as a result
16. Options (Puts and Calls) on Securities. Each Equity Fund may buy
and sell options (puts and calls), and write call options on a covered basis.
17. Covered Call Writing. Each Equity Fund may write covered call
options from time to time on such portion of its assets, without limit, as the
Advisor determines is appropriate in seeking to obtain its investment objective.
A Fund will not engage in option writing strategies for speculative purposes. A
call option gives the purchaser of such option the right to buy, and the writer,
in this case the Fund, has the obligation to sell the underlying security at the
exercise price during the option period. The advantage to the Fund of writing
covered calls is that the Fund receives a premium which is additional income.
However, if the value of the security rises, the Fund may not fully participate
in the market appreciation.
During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option was sold,
which requires the writer to deliver the underlying security against payment of
the exercise price. This obligation is terminated upon the expiration of the
option period or at such earlier time in which the writer effects a closing
purchase transaction. A closing purchase transaction is one in which a Fund,
when obligated as a writer of an option, terminates its obligation by purchasing
an option of the same series as the option previously written. A closing
purchase transaction cannot be effected with respect to an option once the
option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security, or to enable the
Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Fund may realize a net
gain or loss from a closing purchase transaction, depending upon whether the net
amount of the original premium received on the call option is more or less than
the cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be partially or entirely offset by the premium
received from a sale of a different call option on the same underlying security.
Such a loss may also be wholly or partially offset by unrealized appreciation in
the market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
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If a call option expires unexercised, the Fund will realize a short
term capital gain in the amount of the premium on the option, less the
commission paid. Such a gain, however, may be offset by depreciation in the
market value of the underlying security during the option period. If a call
option is exercised, the Fund will realize a gain or loss from the sale of the
underlying security equal to the difference between the cost of the underlying
security, and the proceeds of the sale of the security plus the amount of the
premium on the option, less the commission paid.
The market value of a call option generally reflects the market price
of an underlying security. Other principal factors affecting market value
include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.
The Fund will write call options only on a covered basis, which means
that the Fund will own the underlying security subject to a call option at all
times during the option period or will own the right to acquire the underlying
security at a price equal to or below the option's strike price. Unless a
closing purchase transaction is effected the Fund would be required to continue
to hold a security which it might otherwise wish to sell, or deliver a security
it would want to hold. Options written by the Fund will normally have expiration
dates between one and nine months from the date written. The exercise price of a
call option may be below, equal to or above the current market value of the
underlying security at the time the option is written.
18. Purchasing Call Options. The Equity Funds may purchase call options
to hedge against an increase in the price of securities that the Fund wants
ultimately to buy. Such hedge protection is provided during the life of the call
option since the Fund, as holder of the call option, is able to buy the
underlying security at the exercise price regardless of any increase in the
underlying security's market price. In order for a call option to be profitable,
the market price of the underlying security must rise sufficiently above the
exercise price to cover the premium and transaction costs. These costs will
reduce any profit the Fund might have realized had it bought the underlying
security at the time it purchased the call option. The Funds may sell, exercise
or close out positions as the Advisor deems appropriate.
19. Purchasing Put Options. Each Equity Fund may purchase put options
to protect its portfolio holdings in an underlying security against a decline in
market value. Such hedge protection is provided during the life of the put
option since the Fund, as holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. For a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, a Fund will reduce any profit it might otherwise have realized
from
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appreciation of the underlying security by the premium paid for the put option
and by transaction costs.
20. Options in Stock Indices. The Equity Funds may engage in options
on stock indices. A stock index assigns relative values to the common stock
included in the index with the index fluctuating with changes in the market
values of the underlying common stock.
Options on stock indices are similar to options on stocks but have
different delivery requirements. Stock options provide the right to take or make
delivery of the underlying stock at a specified price. A stock index option
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the amount by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (ii) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return of the
premium received, to make delivery of this amount. Gain or loss to a Fund on
transactions in stock index options will depend on price movements in the stock
market generally (or in a particular industry or segment of the market) rather
than price movements of individual securities.
As with stock options, a Fund may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.
A stock index fluctuates with changes in the market values of the stock
so included. Some stock index options are based on a broad market index, such as
the Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower market index such as the Standard & Poor's 100. Indices are also based
on an industry or market segment such as the AMEX Oil and Gas Index or the
Computer and Business Equipment Index. Options on stock indices are currently
traded on the following exchanges among others: The Chicago Board Options
Exchange, New York Stock Exchange, American Stock Exchange and London Stock
Exchange.
A Fund's ability to hedge effectively all or a portion of its
securities through transactions in options on stock indices depends on the
degree to which price movements in the underlying index correlate with price
movements in the Fund's portfolio securities. Since a Fund's portfolio will not
duplicate the components of an index, the correlation will not be exact.
Consequently, a Fund bears the risk that the prices of the securities being
hedged will not move in the same amount as the hedging instrument. It is also
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possible that there may be a negative correlation between the index or other
securities underlying the hedging instrument and the hedged securities which
would result in a loss on both such securities and the hedging instrument.
A Fund will enter into an option position only if there appears to be a
liquid secondary market for such options.
A Fund will not engage in transactions in options on stock indices for
speculative purposes but only to protect appreciation attained, to offset
capital losses and to take advantage of the liquidity available in the option
markets. The aggregate premium paid on all options on stock indices will not
exceed 20% of a Fund's total assets.
21. Risk Factors in Options Transactions. The successful use of
options strategies depends on the ability of the Advisor or, where applicable,
the Sub-Advisor to forecast interest rate and market movements correctly.
When it purchases an option, a Fund runs the risk that it will lose its
entire investment in the option in a relatively short period of time, unless the
Fund exercises the option or enters into a closing sale transaction with respect
to the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, a Fund
will lose part or all of its investment in the option. This contrasts with an
investment by a Fund in the underlying securities, since the Fund may continue
to hold its investment in those securities notwithstanding the lack of a change
in price of those securities.
The effective use of options also depends on a Fund's ability to
terminate option positions at times when the Advisor or, where applicable, the
Sub-Advisor deems it desirable to do so. Although a Fund will take an option
position only if its Advisor or, where applicable, the Sub-Advisor believes
there is liquid secondary market for the option, there is no assurance that a
Fund will be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, a
Fund could no longer engage in closing transactions. Lack of investor interest
might adversely affect the liquidity of the market for particular options or
series of options. A marketplace may discontinue trading of a particular option
or options generally. In addition, a market could become temporarily unavailable
if unusual events such as volume in excess of trading or clearing capability,
were to interrupt normal market operations. A marketplace may at times find it
necessary to impose restrictions on particular types of options transactions,
which may limit a Fund's ability to realize its profits or limit its losses.
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Disruptions in the markets for securities underlying options purchased
or sold by a Fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, a Fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets, such as the London Options Clearing House, may
impose exercise restrictions. If a prohibition on exercise is imposed at the
time when trading in the option has also been halted, a Fund as purchaser or
writer of an option will be locked into its position until one of the two
restrictions has been lifted. If a prohibition on exercise remains in effect
until an option owned by a Fund has expired, the Fund could lose the entire
value of its option.
22. Futures Contracts on Securities and Related Otpions. A 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 the securities represented by the future or index are
permitted investments of the Fund. Futures and options can be combined with each
other in order to adjust the risk and return parameters of a Fund.
23. Futures Contracts on Securities. A Fund will enter into futures
contracts on securities only when, in compliance with the SEC's requirements,
cash or equivalents equal in value to the securities' value (less any applicable
margin deposits) have been deposited in a segregated account of the Fund's
custodian.
A futures contract sale creates an obligation by the seller to deliver
the type of instrument called for in the contract in a specified delivery month
for a stated price. A futures contract purchase creates an obligation by the
purchaser to take delivery of the type of instrument called for in the contract
in a specified delivery month at a stated price. The specific instruments
delivered or taken at settlement date are not determined until on or near that
date. The determination is made in accordance with the rules of the exchanges on
which the futures contract was made. Futures contracts are traded in the United
States only on the commodity exchange or boards of trade, known as "contract
markets," approved for such trading by the Commodity Futures Trading Commission
(CFTC), and must be executed through a futures commission merchant or brokerage
firm which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument with the same
delivery date. If the price of the initial sale of the futures contract exceeds
the price of the offsetting purchase, the seller is paid the
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difference and realizes a gain. Similarly, the closing out of a futures contract
purchase is effected by the purchaser's entering into a futures contract sale.
If the offsetting sale price exceeds the purchase price, the purchaser realizes
a gain, and if the purchase price exceeds the offsetting sale price, the
purchaser realizes a loss.
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract, although
the Fund is required to deposit with its custodian in a segregated account in
the name of the futures broker an amount of cash and/or U.S. Government
securities. This amount is known as "initial margin." The nature of initial
margin in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the Fund to finance the transactions. Rather, initial margin is in the
nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts also involve
brokerage costs.
Subsequent payments, called "variation margin," to and from the broker
(or the custodian) are made on a daily basis as the price of the underlying
security fluctuates, making the long and short positions in the futures contract
more or less valuable, a process known as "marking to market."
A Fund may elect to close some or all of its futures positions at any
time prior to their expiration. The purpose of making such a move would be to
reduce or eliminate the hedge position then currently held by the Fund. A Fund
may close its positions by taking opposite positions which will operate to
terminate the Fund's position in the futures contracts. Final determinations of
variation margin are then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain. Such closing
transactions involve additional commission costs.
24. Options on Securities' Futures Contracts. A Fund will enter into
written options on securities' futures contracts only when in compliance with
the SEC's requirements, cash or equivalents equal in value to the securities'
value (less any applicable margin deposits) have been deposited in a segregated
account of the Fund's custodian. A Fund may purchase and write call and put
options on the futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions. A
Fund may use such options on futures contracts in lieu of writing options
directly on the underlying securities or purchasing and selling the underlying
futures contracts. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may
terminate his or her position by selling or purchasing an offsetting option.
There is no guarantee that such closing transactions can be effected.
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A Fund will be required to deposit initial margin and maintenance
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above. Aggregate
initial margin deposits for futures contracts (including futures contracts on
securities, indices and currency) and premiums paid for related options may not
exceed 5% of a Fund's total assets.
25. Risk of Transactions in Securities' Futures Contracts and Related
Options. Successful use of securities' futures contracts by a Fund is subject to
the ability of the Advisor or, where applicable, the Sub-Advisor to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less risk to a Fund because
the maximum amount at risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of a call or put
option on a futures contract would result in a loss to a Fund when the purchase
or sale of a futures contract would not, such as when there is no movement in
the price of the hedged investments. The writing of an option on a futures
contract involves risks similar to those risks relating to the sale of futures
contracts.
There is no assurance that higher than anticipated trading activity or
other unforeseen events will not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.
To reduce or eliminate a hedge position held by a Fund, the Fund may
seek to close out a position. The ability to establish and close out positions
will be subject to the development and maintenance of a liquid secondary market.
It is not certain that this market will develop or continue to exist for a
particular futures contract. Reasons for the absence of a liquid secondary
market on an exchange include the following: (i) there may be insufficient
trading interest in certain contracts or options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of contracts or options
(or a particular class or series of contracts or options), in which event the
secondary market on that exchange (or in the class or series of contracts or
options) would cease to exist, although outstanding contracts or options on the
exchange that had
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been issued by a clearing corporation as a result of trades on that exchange
would continue to be exercisable in accordance with their terms.
26. Index Futures Contracts. A Fund may enter into stock index futures
contracts, debt index futures contracts, or other index futures contracts
appropriate to its objective, and may purchase and sell options on such index
futures contracts. A Fund will not enter into any index futures contract for the
purpose of speculation, and will only enter into contracts traded on securities
exchanges with standardized maturity dates.
An index futures contract is a bilateral agreement pursuant to which
two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the index value at the
close of trading of the contracts and the price at which the futures contract is
originally struck. No physical delivery of the securities comprising the index
is made; generally contracts are closed out prior to the expiration date of the
contract. No price is paid upon entering into index futures contracts. When a
Fund purchases or sells an index futures contract, it is required to make an
initial margin deposit in the name of the futures broker and to make variation
margin deposits as the value of the contract fluctuates, similar to the deposits
made with respect to futures contracts on securities. Positions in index futures
contracts may be closed only on an exchange or board of trade providing a
secondary market for such index futures contracts. The value of the contract
usually will vary in direct proportion to the total face value.
A Fund's ability to effectively utilize index futures contracts depends
on several factors. First, it is possible that there will not be a perfect price
correlation between the index futures contracts and their underlying index.
Second, it is possible that a lack of liquidity for index futures contracts
could exist in the secondary market, resulting in the Fund's inability to close
a futures position prior to its maturity date. Third, the purchase of an index
futures contract involves the risk that the Fund could lose more than the
original margin deposit required to initiate a futures transaction. In order to
avoid leveraging and related risks, when a Fund purchases an index futures
contract, it will collateralize its position by depositing an amount of cash or
cash equivalents, equal to the market value of the index futures positions held,
less margin deposits, in a segregated account with the Fund's custodian.
Collateral equal to the current market value of the index futures position will
be maintained only a daily basis.
The extent to which a Fund may enter into transactions involving index
futures contracts may be limited by the Internal Revenue Code's requirements for
qualification as a regulated investment company and the Funds' intention to
qualify as such.
27. Options on Index Futures Contracts. Options on index futures
contracts are similar to options on securities except that options on index
futures contracts gives the purchaser the right, in return for the premium paid,
to assume a position in an index
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futures contract (a long position if the option is a call and a short position
if the option is a put), at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
index futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the index
futures contract. If an option is exercised on the last trading day prior to
the expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the
closing level of the index on which the future is based on the expiration date.
Purchasers of options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
28. U.S. Dollar Denominated Obligations of Securities of Foreign
Issuers. Certain of the Funds may invest in U.S. dollar denominated obligations
of securities of foreign issuers. Permissible investments may consist of
obligations of foreign branches of U.S. banks and foreign or domestic branches
of foreign banks, including European Certificates of Deposit, European Time
Deposits, Canadian Time Deposits and Yankee Certificates of Deposits, and
investments in Canadian Commercial Paper, foreign securities and Europaper. In
addition, the Equity Funds, the Government Securities Fund and Convertible
Securities Fund may invest in American Depositary Receipts. These instruments
may subject the Fund to investment risks that differ in some respects from those
related to investments in obligations of U.S. domestic issuers. Such risks
include future adverse political and economic developments, the possible
imposition of withholding taxes on interest or other income, possible seizure,
nationalization, or expropriation of foreign deposits, the possible
establishment of exchange controls or taxation at the source, greater
fluctuations in value due to changes in exchange rates, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. Such investments may also entail
higher custodial fees and sales commissions than domestic investments. Foreign
issuers of securities or obligations are often subject to accounting treatment
and engage in business practices different from those respecting domestic
issuers of similar securities or obligations. Foreign branches of U.S. banks and
foreign banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.
29. Foreign Currency Transactions. Under normal market conditions, the
International Equity Fund may engage in foreign currency exchange transactions
to project against uncertainty in the level of future exchange rates. The
International Equity Fund expects to engage in foreign currency exchange
transactions in connection with the purchase and sale of portfolio securities
("transaction hedging"), and to protect the value of specific portfolio
positions ("position hedging"). The Fund may purchase or sell a foreign currency
on a spot (or cash) basis at the prevailing spot rate in connection with the
settlement of transactions in portfolio securities denominated in that foreign
currency,
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and may also enter into contracts to purchase or sell foreign currencies at a
future date ("forward contracts") and purchase or sell foreign currency futures
contracts ("futures contracts"). The Fund may also purchase domestic and foreign
exchange-listed and over-the-counter call and put options on foreign currencies
and futures contracts. Hedging transactions involve costs and may result in
losses, and the Fund's ability to engage in hedging and related options
transactions may be limited by tax considerations.
30. Transaction Hedging. When it engages in transaction hedging, the
International Equity Fund enters into foreign currency transactions with respect
to specific receivables or payables of the International Equity Fund generally
arising in connection with the purchase or sale of its portfolio securities. The
International Equity Fund will engage in transaction hedging when it desires to
"lock in" the U.S. dollar price of a security it has agreed to purchase or sell,
or the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging, the Fund will attempt to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Although there is no current intention to do so, the International
Equity Fund reserves the right to purchase and sell foreign currency futures
contracts which are traded in the United States and are subject to regulation by
the CFTC.
For transaction hedging purposes the International Equity Fund may also
purchase exchange-listed call and put options on foreign currency futures
contracts and on foreign currencies. A put option on a futures contract gives
the International Equity Fund the right to assume a short position in the
futures contract until expiration of the option. A put option on currency gives
the International Equity Fund the right to sell a currency at an exercise price
until the expiration of the option. A call option on a futures contract gives
the Fund the right to assume a long position in the futures contract until the
expiration of the option. A call option on currency gives the Fund the right to
purchase a currency at the exercise price until the expiration of the option.
31. Position Hedging. When it engages in position hedging, the
International Equity Fund enters into foreign currency exchange transactions to
protect against a decline in the values of the foreign currencies in which its
portfolio securities are denominated (or an increase in the value of currency
for securities which the Sub-Advisor expects to purchase, when the Fund holds
cash or short-term investments). In connection with the position hedging, the
Fund may purchase or sell foreign currency forward contracts or foreign currency
on a spot basis.
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The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the value of such securities in foreign currencies
will change as a consequence of market movements in the value of those
securities between the dates the currency exchange transactions are entered into
and the dates they mature.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward contract or
futures contract. Accordingly, it may be necessary for the International Equity
Fund to purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security or securities
being hedged is less than the amount of foreign currency the Fund is obligated
to deliver and if a decision is made to sell the security or securities and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the portfolio
security or securities if the market value of such security or securities
exceeds the amount of foreign currency the International Equity Fund is
obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the International Equity Fund owns or
expects to purchase or sell. They simply establish a rate of exchange which one
can achieve at some future point in time. Additionally, although these
techniques tend to minimize the risk of loss due to a decline in the value of
the hedged currency, they tend to limit any potential gain which might result
from the increase in the value of such currency.
32. Currency Forward and Futures Contracts. A forward contract involves
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract as agreed by the
parties, at a price set at the time of the contract. In the case of a cancelable
forward contract, the holder has the unilateral right to cancel the contract at
maturity by paying a specified fee. Forward contracts are trades in the
interbank markets conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
A futures contract is a standardized contract for the future delivery
of a specified amount of a foreign currency at a future date at a price set at
the time of the contract. Futures contracts are designed by and traded on
exchanges. The Fund would enter into futures contracts solely for hedging or
other appropriate risk management purposes as defined in the controlling
regulations.
Forward contracts differ from futures contracts in certain respects.
For example, the maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month. Forward contracts may be in any amounts
agreed upon by the parties rather
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than predetermined amounts. Also, forward contracts are traded directly between
currency traders so that no intermediary is required. A forward contract
generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in the futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market in such contracts.
Although the Fund intends to purchase or sell futures contracts only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a secondary market on an exchange or board of
trade will exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures position and, in the event of
adverse price movements, the Fund would continue to be required to make daily
cash payments of variation margin, as described below.
33. General Characteristics of Currency Futures Contracts. When the
Fund purchases or sells a futures contract, it is required to deposit with its
custodian an amount of cash or U.S. Treasury bills up to 5% of the amount of the
futures contract. This amount is known as "initial margin." The nature of
initial margin is different from that of margin in security transactions in that
it does not involve borrowing money to finance transactions. Rather, initial
margin is similar to a performance bond or good faith deposit that is returned
to the International Equity Fund upon termination of the contract, assuming the
Fund satisfies its contractual obligation.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market." These payments are called "variation
margin," and are made as the value of the underlying futures contract
fluctuates. For example, when the Fund sells a futures contract and the price of
the underlying currency rises above the delivery price, the International Equity
Fund's position declines in value. The Fund then pays a broker a variation
margin payment equal to the difference between the delivery price of the futures
contract and the market price of the currency underlying the futures contract.
Conversely, if the price of the underlying currency falls below the delivery
price of the contract, the Fund's futures position increases in value. The
broker then must make a variation margin payment equal to the difference between
the delivery price of the futures contract and the market price of the currency
underlying the futures contract.
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When the International Equity Fund terminates a position in a futures
contract, a final determination of variation margin is made, additional cash is
paid by or to the International Equity Fund, and the International Equity Fund
realizes a loss or gain. Such closing transactions involve additional commission
costs.
34. Foreign Currency Options. Options on foreign currencies operate
similarly to options on securities, and are traded primarily in the
over-the-counter market, although options on foreign currencies have recently
been listed on several exchanges. Such options will be purchased or written only
when the Fund's Sub-Advisor believes that a liquid secondary market exists for
such options. There can be no assurance that a liquid secondary market will
exist for a particular option at any specific time. Options on foreign
currencies are affected by all of those factors which influence foreign exchange
rates and investments generally.
The value of a foreign currency option is dependent upon the value of
the foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealer or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market, and thus may not reflect relatively
smaller transactions (less than $1 million), where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock market.
35. Foreign Currency Conversion. Although foreign exchange dealers do
not charge a fee for currency conversion, the do realize a profit based on the
difference (the "spread") between prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to an
International Equity Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.
36. Standard & Poor's Depositary Receipts ("SPDRs"). SPDRs are
interests in a unit investment trust ("UIT") that may be obtained from the UIT
or purchased in the secondary market as SPDRs are listed on the American Stock
Exchange.
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The UIT will issue SPDRs in aggregations of 50,000 known as "Creation
Units" in exchange for a "Portfolio Deposit" consisting of (a) a portfolio of
securities substantially similar to the component securities ("Index
Securities") of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
Index"), (b) a cash payment equal to a pro rata portion of the dividends accrued
on the UIT's portfolio securities since the last dividend payment by the UIT,
net of expenses and liabilities, and (c) a cash payment or credit ("Balancing
Amount") designed to equalize the net asset value of the S&P Index and the net
asset value of a Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the
UIT. To redeem, the portfolio must accumulate enough SPDRs to reconstitute a
Creation Unit. The liquidity of small holdings of SPDRs, therefore, will depend
upon the existence of a secondary market. Upon redemption of a Creation Unit,
the portfolio will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived and based upon the securities held by the
UIT. Accordingly, the level of risk involved in the purchase or sale of a SPDR
is similar to the risk involved in the purchase or sale of traditional common
stock, with the exception that the pricing mechanism for SPDRs is based on a
basket of stocks. Disruptions in the markets for the securities underlying SPDRs
purchased or sold by the Portfolio could result in losses on SPDRs. Trading in
SPDRs involves risks similar to those risks, described above under "Options,"
involved in the writing of options on securities.
37. High Yield Securities
The Convertible Securities Fund may invest in lower rated securities.
Fixed income securities are subject to the risk of an issuer's ability to meet
principal and interest payments on the obligation (credit risk), and may also be
subject to price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market
liquidity (market risk). Lower rated or unrated (i.e., high yield) securities
are more likely to react to developments affecting market and credit risk than
are more highly rated securities, which primarily react to movements in the
general level of interest rates. The market values of fixed-income securities
tend to vary inversely with the level of interest rates. Yields and market
values of high yield securities will fluctuate over time, reflecting not only
changing interest rates but the market's perception of credit quality and the
outlook for economic growth. When economic conditions appear to be
deteriorating, medium to lower rated securities may decline in value due to
heightened concern over credit quality, regardless of the prevailing interest
rates. Investors should carefully consider the relative risks of investing in
high yield securities and understand that such securities are not generally
meant for short-term investing.
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The high yield market is relatively new and its growth has paralleled a
long period of economic expansion and an increase in merger, acquisition and
leveraged buyout activity. Adverse economic developments can disrupt the market
for high yield securities, and severely affect the ability of issuers,
especially highly leveraged issuers, to service their debt obligations or to
repay their obligations upon maturity which may lead to a higher incidence of
default on such securities. In addition, the secondary market for high yield
securities, which is concentrated in relatively few market makers, may not be as
liquid as the secondary market for more highly rated securities. As a result,
the Convertible Securities Fund could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Furthermore, the Trust may experience
difficulty in valuing certain securities at certain times. Prices realized upon
the sale of such lower rated or unrated securities, under these circumstances,
may be less than the prices used in calculating the Convertible Securities
Fund's net asset value.
Lower rated or unrated debt obligations also present risks based on
payment expectations. If an issuer calls an obligation for redemption, the
Convertible Securities Fund may have to replace the security with a lower
yielding security, resulting in a decreased return for investors. If the
Convertible Securities Fund experiences unexpected net redemptions, it may be
forced to sell its higher rated securities, resulting in a decline in the
overall credit quality of the Convertible Securities Fund's investment portfolio
and increasing the exposure of the Convertible Securities Fund to the risks of
high yield securities.
The Convertible Securities Fund may choose, at its expense or in
conjunction with others, to pursue litigation or otherwise exercise its rights
as a security holder to seek to protect the interest of security holders if it
determines this to be in the interest of the Convertible Securities Fund's
Shareholders.
38. High Quality Investments with Regard to the Money Market Funds. As
noted in the Prospectuses for the Money Market Funds, each such Fund may invest
only in obligations determined by the Advisor to present minimal credit risks
under guidelines adopted by HighMark's Board of Trustees.
With regard to the Diversified Money Market Fund and the California
Tax-Free Money Market Fund, investments will be limited to "Eligible Securities"
that (i) in the case of the Diversified Money Market Fund, include those
obligations that, at the time of purchase, possess the highest short-term rating
from at least one NRSRO (the Diversified Money Market Fund 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 a 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) and
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(ii) in the case of the California Tax-Free Money Market Fund, include those
obligations that, at the time of purchase, possess one of the two highest
short-term ratings by at least one NRSRO or do not possess a short-term rating
(i.e., are unrated) but are determined by the Advisor to be of comparable
quality to the rated obligations eligible for purchase by the Fund under
guidelines adopted by the Board of Trustees.
A security subject to a tender or demand feature will be considered an
Eligible Security only if both the demand feature and the underlying security
possess a high quality rating or, if such do not possess a rating, are
determined by the Advisor to be of comparable quality; provided, however, that
where the demand feature would be readily exercisable in the event of a default
in payment of principal or interest on the underlying security, the obligation
may be acquired based on the rating possessed by the demand feature or, if the
demand feature does not possess a rating, a determination of comparable quality
by the Advisor. In applying the above-described investment policies, a security
that has not received a short-term rating will be deemed to possess the rating
assigned to an outstanding class of the issuer's short-term debt obligations if
determined by the Advisor to be comparable in priority and security to the
obligation selected for purchase by the Fund, or, if not available, the issuer's
long-term obligations, but only in accordance with the requirements of Rule
2a-7. A security that at the time of issuance had a maturity exceeding 397 days
but, at the time of purchase, has a remaining maturity of 397 days or less, is
considered an Eligible Security if it possesses a long-term rating, within the
two highest rating categories.
Eligible Securities include First Tier Securities and Second Tier
Securities. First Tier Securities include those that possess at least one rating
in the highest category and, if the securities do not possess a rating, those
that are determined to be of comparable quality by the Advisor pursuant to
guidelines adopted by the Board of Trustees. Second Tier Securities are all
other Eligible Securities.
The Diversified Money Market Fund will not invest more than 5% of its
total assets in the First Tier Securities of any one issuer, except that the
Fund may invest up to 25% of its total assets in First Tier Securities of a
single issuer for a period of up to three business days. (This three day "safe
harbor" provision will not be applicable to the California Tax-Free Money Market
Fund, because single state funds are specifically excluded from this Rule 2a-7
provision.) In addition, the Diversified Money Market Fund may not invest more
than 5% of its total assets in Second Tier Securities, with investments in the
Second Tier Securities of any one issuer further limited to the greater of 1% of
the Fund's total assets or $1.0 million. If a percentage limitation is satisfied
at the time of purchase, a later increase in such percentage resulting from a
change in the Diversified Money Market Fund's net asset value or a subsequent
change in a security's qualification as a First Tier or Second Tier Security
will not constitute a violation of the limitation. In addition, there is no
limit on the percentage of the Diversified Money Market Fund's assets that may
be invested in obligations issued or guaranteed by the U.S.
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Government, its agencies, or instrumentalities and repurchase agreements fully
collateralized by such obligations.
Under the guidelines adopted by HighMark's Board of Trustees, in
accordance with Rule 2a-7 under the Investment Company Act of 1940 (the "1940
Act"), when in the best interests of the Shareholders, the Advisor may be
required to promptly take appropriate action with respect to an obligation held
in a Fund's portfolio in the event of certain developments that indicate a
diminishment of the instrument's credit quality, such as where an NRSRO
downgrades an obligation below the second highest rating category, or in the
event of a default relating to the financial condition of the issuer.
The Appendix to this Statement of Additional Information identifies
each NRSRO that may be utilized by the Advisor with regard to portfolio
investments for the Funds and provides a description of relevant ratings
assigned by each such NRSRO. A rating by a NRSRO may be utilized only where the
NRSRO is neither controlling, controlled by, or under common control with the
issuer of, or any issuer, guarantor, or provider of credit support for, the
instrument.
Illiquid Securities. Each Fund has adopted a non-fundamental policy
(which may be changed without shareholder approval) prohibiting the Fund from
investing more than 15% (in the case of each of the Money Market Funds, not more
than 10%) of its total assets in "illiquid" securities, which include securities
with legal or contractual restrictions on resale or for which no readily
available market exists but exclude such securities if resalable pursuant to
Rule 144A under the Securities Act ("Rule 144A Securities"). Pursuant to this
policy, the Funds may purchase Rule 144A Securities only in accordance with
liquidity guidelines established by the Board of Trustees of HighMark and only
if the investment would be permitted under applicable state securities laws.
Restricted Securities. Each Fund has adopted a nonfundamental policy
(which may be changed without Shareholder approval) prohibiting the Fund from
investing more than 25% of its total assets in restricted securities. Restricted
securities are securities that may not be sold to the public without
registration under the Securities Act of 1933 ("1933 Act"). Restricted
Securities may be liquid or illiquid. The Advisor will determine the liquidity
of restricted securities in accordance with guidelines established by HighMark's
Board of Trustees. Restricted securities purchased by the Funds may include Rule
144A securities and commercial paper issued in reliance upon the "private
placement" exemption from registration under Section 4(2) of the 1933 Act
(whether or not such paper is a Rule 144A security).
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INVESTMENT RESTRICTIONS
Unless otherwise indicated, the following investment restrictions are
fundamental and, as such, may be changed with respect to a particular Fund only
by a vote of a majority of the outstanding Shares of that Fund (as defined
below). Except with respect to a Fund's restriction governing the borrowing of
money, if a percentage restriction is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in asset
value will not constitute a violation of the restriction.
100% U.S. Treasury Money Market Fund
The 100% U.S. Treasury Money Market Fund may not purchase
securities other than short-term obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the
U.S. Treasury.
Each of the Growth Fund, the Income Equity Fund, the Balanced Fund, the Bond
Fund, 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 on margin (except that, with respect to
the Growth Fund, the Income Equity Fund, the Balanced Fund and the Bond
Fund only, such Funds may make margin payments in connection with
transactions in options and financial and currency futures contracts),
sell securities short, participate on a joint or joint and several
basis in any securities trading account, or underwrite the securities
of other issuers, except to the extent that a Fund may be deemed to be
an underwriter under certain securities laws in the disposition of
"restricted securities" acquired in accordance with the investment
objectives and policies of such Fund;
2. Purchase or sell commodities, commodity contracts
(excluding, with respect to the Growth Fund, the Income Equity Fund,
the Balanced Fund, and the Bond Fund , options and financial and
currency futures contracts), oil, gas or mineral exploration leases or
development programs, or real estate (although investments by the
Growth Fund, the Income Equity Fund, the Balanced Fund, the Bond Fund,
and the Diversified Money Market Fund in marketable securities of
companies engaged in such activities and investments by the Growth
Fund, the Income Equity Fund, the Balanced Fund, and the Bond Fund in
securities secured by real estate or interests therein, are not hereby
precluded to the extent the investment is appropriate to such Fund's
investment objective and policies);
3. Invest in any issuer for purposes of exercising control or
management;
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4. Purchase or retain securities of any issuer if the officers or
Trustees of HighMark or the officers or directors of its investment
advisor owning beneficially more than one-half of 1% of the securities
of such issuer together own beneficially more than 5% of such
securities;
5. Borrow money or issue senior securities, except that a Fund
may borrow from banks or enter into reverse repurchase agreements for
temporary emergency purposes in amounts up to 10% of the value of its
total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with permissible
borrowings and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Fund's total assets at the
time of its borrowing. A Fund will not invest in additional securities
until all its borrowings (including reverse repurchase agreements)
have been repaid. For purposes of this restriction, the deposit of
securities and other collateral arrangements with respect to options
and financial and currency futures contracts, and payments of initial
and variation margin in connection therewith, are not considered a
pledge of a Fund's assets; and
The Diversified Money Market Fund, the U.S. Government Money Market Fund and
the 100% U.S. Treasury Money Market Fund may not:
1. Buy common stocks or voting securities, or state, municipal or
private activity bonds;
2. Invest in securities of other investment companies, except as
they may be acquired as part of a merger, consolidation,
reorganization, or acquisition of assets;
3. Write or purchase put or call options; or
4. Invest more than 10% of total assets in the securities of
issuers that together with any predecessors have a record of less than
three years' continuous operation.
The Growth Fund, the Income Equity Fund, the Balanced Fund, and the Bond Fund
may not:
1. Invest in securities of other investment companies except as
they may be acquired as part of a merger, consolidation,
reorganization, or acquisition of assets, provided, however, that each
of the Funds may purchase securities of a money market fund, if,
immediately after such purchase, the acquiring Fund does not own in
the aggregate (i) more than 3% of the acquired
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company's outstanding voting securities, (ii) securities issued by the
acquired company having an aggregate value in excess of 5% of the
value of the total assets of the acquiring Fund, or (iii) securities
issued by the acquired company and all other investment companies
(other than treasury stock of the acquiring Fund) having an aggregate
value in excess of 10% of the value of the acquiring Fund's total
assets; and
The California Tax-Free Money Market Fund may not:
1. Purchase or sell real estate; provided, however, that the Fund
may, to the extent appropriate to its investment objective, purchase
Municipal Securities secured by real estate or interests therein or
securities issued by companies investing in real estate or interests
therein;
2. Purchase securities on margin, make short sales of securities
or maintain a short position;
3. Underwrite the securities of other issuers;
4. Purchase securities of companies for the purpose of exercising
control or management;
5. Invest in private activity bonds where the payment of
principal and interest are the responsibility of a company (including
its predecessors) with less than three years of continuous operation;
6. Purchase or sell commodities or commodity contracts, or invest
in oil, gas or mineral exploration leases or development programs;
provided, however, the Fund may, to the extent appropriate to the
Fund's investment objective, purchase publicly traded obligations of
companies engaging in whole or in part in such activities;
7. Acquire any other investment company or investment company
security except in connection with a merger, consolidation,
reorganization or acquisition of assets;
8. Borrow money or issue senior securities, except that the Fund
may borrow from banks or enter into reverse repurchase agreements for
temporary emergency purposes in amounts up to 10% of the value of its
total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with permissible
borrowings and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the
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Fund's total assets at the time of its borrowing. The Fund will not
invest in additional securities until all its borrowings (including
reverse repurchase agreements) have been repaid;
9. Write or sell puts, calls, straddles, spreads, or combinations
thereof, except that the Fund may acquire puts with respect to
Municipal Securities in its portfolio and sell the puts in conjunction
with a sale of the underlying Municipal Securities;
10. Acquire a put, if, immediately after the acquisition, more
than 5% of the total amortized cost value of the Fund's assets would
be subject to puts from the same institution (except that (i) up to
25% of the value of the Fund's total assets may be subject to puts
without regard to the 5% limitation and (ii) the 5% limitation is
inapplicable to puts that, by their terms, would be readily
exercisable in the event of a default in payment of principal or
interest on the underlying securities). In applying the
above-described limitation, the Fund will aggregate securities subject
to puts from any one institution with the Fund's investments, if any,
in securities issued or guaranteed by that institution. In addition,
for the purpose of this investment restriction and investment
restriction No. 11 below, a put will be considered to be from the
party to whom the Fund will look for payment of the exercise price;
11. Acquire a put that, by its terms, would be readily
exercisable in the event of a default in payment of principal and
interest on the underlying security or securities if, immediately
after the acquisition, the amortized cost value of the security or
securities underlying the put, when aggregated with the amortized cost
value of any other securities issued or guaranteed by the issuer of
the put, would exceed 10% of the total amortized cost value of the
Fund's assets; and
12. Invest in securities of other investment companies except as
they may be acquired as part of a merger, consolidation,
reorganization, or acquisition of assets, provided, however, that the
Fund may purchase securities of a tax-exempt money market fund if,
immediately after such purchase, the acquiring Fund does not own in
the aggregate (i) more than 3% of the acquired company's outstanding
voting securities, (ii) securities issued by the acquired company
having an aggregate value in excess of 5% of the value of the total
assets of the acquiring Fund, or (iii) securities issued by the
acquired company and all other investment companies (other than
treasury stock of the acquiring Fund) having an aggregate value in
excess of 10% of the value of the acquiring Fund's total assets.
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Each of the Value Momentum Fund, the Blue Chip Growth Fund, the Emerging Growth
Fund, the International Equity Fund, the Intermediate-Term Bond Fund, the
Government Securities Fund, the Convertible Securities Fund, and the California
Intermediate Tax-Free Bond Fund:
1. May purchase securities of any issuer only when consistent
with the maintenance of its status as a diversified company
under the Investment Company Act of 1940, or the rules or
regulations thereunder, as such statute, rules or regulations
may be amended from time to time.
2. May not concentrate investments in a particular industry or
group of industries, or within any one state (except that the
limitation as to investments in any one state or its political
subdivision shall not apply to the California Intermediate
Tax-Free Bond Fund), as concentration is defined under the
Investment Company Act of 1940, or the rules or regulations
thereunder, as such statute, rules or regulations may be
amended from time to time.
3. May issue senior securities to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations
thereunder, as such statute, rules or regulations may be
amended from time to time.
4. May lend or borrow money to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations
thereunder, as such statute, rules or regulations may be
amended from time to time.
5. May purchase or sell commodities, commodities contracts,
futures contracts, or real estate to the extent permitted by
the Investment Company Act of 1940, or the rules or
regulations thereunder, as such statute, rules or regulations
may be amended from time to time.
6. May underwrite securities to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations
thereunder, as such statute, rules or regulations may be
amended from time to time.
7. May pledge, mortgage or hypothecate any of its assets to the
extent permitted by the Investment Company Act of 1940, or the
rules or regulations thereunder, as such statute, rules or
regulations may be amended from time to time.
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The fundamental limitations of the Value Momentum Fund, the
Blue Chip Growth Fund, the Emerging Growth Fund, the International
Equity Fund, the International Equity Fund, the Intermediate-Term Bond
Fund, the Government Securities Fund, the Convertible Securities Fund,
and the California Intermediate Tax-Free Bond Fund have been adopted to
avoid wherever possible the necessity of shareholder meetings
otherwise required by the 1940 Act. This recognizes the need to react
quickly to changes in the law or new investment opportunities in the
securities markets and the cost and time involved in obtaining
shareholder approvals for diversely held investment companies.
However, the Funds also have adopted nonfundamental limitations, set
forth below, which in some instances may be more restrictive than
their fundamental limitations. Any changes in a Fund's nonfundamental
limitations will be communicated to the Fund's shareholders prior to
effectiveness.
1940 Act Restrictions. Under the 1940 Act, and the rules,
regulations and interpretations thereunder, a "diversified company," as
to 75% of its totals assets, may not purchase securities of any issuer
(other than obligations of, or guaranteed by, the U.S. Government, its
agencies or its instrumentalities) if, as a result, more than 5% of the
value of its total assets would be invested in the securities of such
issuer or more than 10% of the issuer's voting securities would be held
by the fund. "Concentration" is generally interpreted under the 1940
Act to be investing more than 25% of net assets in an industry or group
of industries. The 1940 Act limits the ability of investment companies
to borrow and lend money and to underwrite securities. The 1940 Act
currently prohibits an open-end fund from issuing senior securities, as
defined in the 1940 Act, except under very limited circumstances.
The following investment limitations of the Value Momentum Fund, the Blue Chip
Growth Fund, the Emerging Growth Fund, the International Equity Fund, the
Intermediate-Term Bond Fund, the Government Securities Fund, the Convertible
Securities Fund, and the California Intermediate Tax-Free Bond Fund are
nonfundamental policies. Each Fund may not:
1. Acquire more than 10% of the voting securities of any one issuer.
This limitation applies to only 75% of a Fund's assets.
2. Invest in companies for the purpose of exercising control.
3. Borrow money, except for temporary or emergency purposes and then
only in an amount not exceeding one-third of the value of total
assets and except that a Fund may borrow from banks or enter into
reverse repurchase
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agreements for temporary emergency purposes in amounts up to 10%
of the value of its total assets at the time of such borrowing.
To the extent that such borrowing exceeds 5% of the value of the
Fund's assets, asset coverage of at least 300% is required. In
the event that such asset coverage shall at any time fall below
300%, the Fund shall, within three days thereafter or such longer
period as the Securities and Exchange Commission may prescribe by
rules and regulations, reduce the amount of its borrowings to
such an extent that the asset coverage of such borrowing shall be
at least 300%. This borrowing provision is included solely to
facilitate the orderly sale of portfolio securities to
accommodate heavy redemption requests if they should occur and is
not for investment purposes. All borrowings will be repaid before
making additional investments and any interest paid on such
borrowings will reduce income.
4. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to
exceed 10% of total assets taken at current value at the time of
the incurrence of such loan, except as permitted with respect to
securities lending.
5. Purchase or sell real estate, real estate limited partnership
interest, commodities or commodities contracts (except that the
Government Securities Fund, the Blue Chip Growth Fund, the
Emerging Growth Fund, the International Equity Fund, the Value
Momentum Fund, the Intermediate-Term Bond Fund and the California
Intermediate Tax-Free Bond Fund may invest in futures contracts
and options on futures contracts, as disclosed in the
prospectuses) and interest in a pool of securities that are
secured by interests in real estate. However, subject to their
permitted investments, any Fund may invest in companies which
invest in real estate, commodities or commodities contracts.
6. Make short sales of securities, maintain a short position or
purchase securities on margin, except that HighMark may obtain
short-term credits as necessary for the clearance of security
transactions.
7. Act as an underwriter of securities of other issuers except as it
may be deemed an underwriter in selling a Fund security.
8. Issue senior securities (as defined in the Investment Company Act
of 1940) except in connection with permitted borrowings as
described above or as permitted by rule, regulation or order of
the Securities and Exchange Commission.
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9. Purchase or retain securities of an issuer if, to the knowledge
of HighMark, an officer, trustee, partner or director of HighMark
or the Advisor or Sub-Advisors of HighMark owns beneficially
more than 1/2 or 1% of the shares or securities or such issuer
and all such officers, trustees, partners and directors owning
more than 1/2 or 1% of such shares or securities together own
more than 5% of such shares or securities.
10. Invest in interest in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
Voting Information. As used in this Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of HighMark or a
particular Fund or a particular Class of Shares of HighMark or a Fund means the
affirmative vote of the lesser of (a) more than 50% of the outstanding Shares of
HighMark or such Fund or such Class, or (b) 67% or more of the Shares of
HighMark or such Fund or such Class present at a meeting at which the holders of
more than 50% of the outstanding Shares of HighMark or such Fund or such Class
are represented in person or by proxy.
PORTFOLIO TURNOVER
A Fund's turnover rate is calculated by dividing the lesser of a Fund's
purchases or sales of portfolio securities for the year by the monthly average
value of the portfolio securities. The calculation excludes all securities whose
maturities at the time of acquisition were one year or less. Thus, for
regulatory purposes, the portfolio turnover rate with respect to each of the
Money Market Funds was zero percent from the commencement of their respective
operations to July 31, 1996, and is expected to remain zero percent. For
HighMark's fiscal year ended July 31, 1996, the portfolio turnover rate of the
Growth Fund was 78.58%, for the Income Equity Fund was 41.51%, for the Balanced
Fund was [12.84%] for the equity portion of its portfolio and [_____%] for the
fixed income portion of its portfolio, and for the Bond Fund was 20.88%. For
HighMark's fiscal year ended July 31, 1995, the portfolio turnover rate of the
Growth Fund was 67.91%, for the Income Equity Fund was 36.64%, for the Balanced
Fund was [20.70%] for the equity portion of its portfolio and [_____%] for the
fixed income portion of its portfolio, and for the Bond Fund was 36.20%. It is
currently estimated that the rate of portfolio turnover for each of the Value
Momentum, Blue Chip Growth, Emerging Growth, International Equity,
Intermediate-Term Bond, Government Securities, Convertible Securities and
California Intermediate Tax-Free Bond Funds will not exceed 100%. The portfolio
turnover rate may vary greatly from year to year as well as within a particular
year, and may also be affected by cash requirements for redemption of Shares
and, in the case of the California Tax-Free Money Market Fund, by requirements
that enable them to receive certain favorable tax treatment.
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VALUATION
As disclosed in the Prospectuses, each Fund's net asset value per share
for purposes of pricing purchase and redemption orders is determined by the
administrator as of 1:00 p.m., Pacific Time (4:00 p.m. Eastern Time) (and 10:00
a.m. Pacific Time (1:00 p.m. Eastern Time) in the case of the Money Market
Funds) on days on which both the New York Stock Exchange and the Federal Reserve
wire system are open for business ("Business Days").
Valuation of the Money Market Funds
The Money Market Funds have elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. The amortized cost method
involves valuing an instrument at its cost initially and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. This
method may result in periods during which value, as determined by amortized
cost, is higher or lower than the price a Fund would receive if it sold the
instrument. The value of securities in a Fund can be expected to vary inversely
with changes in prevailing interest rates.
HighMark's Board of Trustees has undertaken to establish procedures
reasonably designed, taking into account current market conditions and a Fund's
investment objective, to stabilize the net asset value per Share of each Money
Market Fund for purposes of sales and redemptions at $l.00. These procedures
include review by the Trustees, at such intervals as they deem appropriate, to
determine the extent, if any, to which the net asset value per Share of each
Fund calculated by using available market quotations deviates from $1.00 per
Share. In the event such deviation exceeds one-half of one percent, Rule 2a-7
requires that the Board promptly consider what action, if any, should be
initiated. If the Trustees believe that the extent of any deviation from a
Fund's $1.00 amortized cost price per Share may result in material dilution or
other unfair results to new or existing investors, the Trustees will take such
steps as they consider appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity, shortening the average
portfolio maturity of a Fund, withholding or reducing dividends, reducing the
number of a Fund's outstanding Shares without monetary consideration, or
utilizing a net asset value per Share based on available market quotations.
Valuation of the Equity Funds and the Fixed Income Funds
Except as noted below, investments by the Equity Funds and the Fixed
Income Funds in securities traded on a national exchange (or exchanges) are
valued based upon their last sale price on the principal exchange on which such
securities are traded. With regard to each such Fund, securities the principal
market for which is not a securities exchange are valued based upon the latest
bid price in such principal market. Securities and other assets for which
market quotations are not readily available are valued at their fair value as
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determined in good faith under consistently applied procedures established by
and under the general supervision of HighMark's Board of Trustees. With the
exception of short-term securities as described below, the value of each Fund's
investments may be based on valuations provided by a pricing service. Short-term
securities (i.e., securities with remaining maturities of 60 days or less) may
be valued at amortized cost, which approximates current value.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases and redemptions of shares of the Funds may be made on days
on which both the New York Stock Exchange and the Federal Reserve wire systems
are open for business.
It is currently HighMark's policy to pay redemptions in cash. HighMark
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Funds other
than the Money Market Funds in lieu of cash. Shareholders may incur brokerage
charges on the sale of any such securities so received in payment of
redemptions. However, a Shareholder will at all times be entitled to aggregate
cash redemptions from all Funds of HighMark during any 90-day period of up to
the lesser of $250,000 or 1% of HighMark's net assets.
HighMark reserves the right to suspend the right of redemption and/or
to postpone the date of payment upon redemption for any period on which trading
on the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the Securities and Exchange Commission by rule or
regulation) as a result of which disposal or valuation of the Fund's securities
is not reasonably practicable, or for such other periods as the Securities and
Exchange Commission has by order permitted. HighMark also reserves the right to
suspend sales of Shares of the Funds for any period.
If a Fund holds portfolio securities listed on foreign exchanges which
trade on Saturdays or other customary United States national business holidays,
the portfolio will trade and the net assets of the Fund's redeemable securities
may be significantly affected on days when the investor has no access to the
Fund.
Additional Federal Tax Information
Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order so to qualify and to qualify for the special tax treatment
accorded regulated investment companies and their Shareholders, a Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale of stock, securities, and foreign currencies, or other income (including
but not
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limited to gains from options, futures, or forward contracts) derived with
respect to its business of investing in such stock, securities, or currencies;
(b) derive less than 30% of its gross income from the sale or other disposition
of certain assets (including stocks and securities) held for less than three
months; (c) each year distribute at least 90% of its dividends, interest
(including tax-exempt interest), certain other income and the excess, if any, of
its net short-term capital gains over its net long-term capital losses; and (d)
diversify its holdings so that, at the end of each fiscal quarter (i) at least
50% of the market value of the Fund's assets is represented by cash, cash items,
U.S. Government securities, securities of other regulated investment companies,
and other securities, limited in respect of any one issuer to a value not
greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities (other than those of the U.S.
Government or other regulated investment companies) of any one issuer or of two
or more issuers that the Fund controls and that are engaged in the same,
similar, or related trades or businesses. The 30% of gross income test described
above may restrict a Fund's ability to sell certain assets held (or considered
under Code rules to have been held) for less than three months.
If a Fund qualifies as a regulated investment company that is accorded
special tax treatment, the Fund will not be subject to federal income tax on
income paid to its shareholders in the form of dividends (including capital gain
dividends). If a Fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Fund would be subject to
tax on its taxable income at corporate rates, and all distributions from
earnings and profits, including any distributions of net tax-exempt income and
net long-term capital gains, would be taxable to shareholders as ordinary
income.
If a Fund fails to distribute in a calendar year substantially all of
its ordinary income for the year and substantially all its capital gain net
income for the one-year period ending October 31 of the year (and any retained
amount from the prior calendar year), the Fund will be subject to a
non-deductible 4% excise tax on the undistributed amounts.
Any dividend declared by a Fund to Shareholders of record on a date in
October, November or December generally is deemed to have been received by its
Shareholders on December 31 of such year (and paid by the Fund on or before such
time) provided that the dividend actually is paid during January of the
following year.
If a Fund engages in hedging transactions, including hedging
transactions in options, futures contracts, and straddles, or other similar
transactions, it will be subject to special tax rules (including mark-to-market,
straddle, wash sale, and short sale rules), the effect of which may be to
accelerate income to the Fund, defer losses to the Fund, cause adjustments in
the holding periods of the Fund's securities, or convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
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Under the 30% of gross income test described above, a Fund will be
restricted in selling assets held or considered to have been held for less than
three months, and in engaging in certain hedging transactions (including hedging
transactions in options and futures) that in some circumstances could cause
certain Fund assets to be treated as held for less than three months.
Certain of a Fund's hedging activities (including its transactions, if
any, in foreign currencies or foreign currency-denominated instruments) are
likely to produce a difference between its book income and its taxable income.
If a Fund's book income exceeds its taxable income, the distribution (if any) of
such excess will be treated as (i) a dividend to the extent of the Fund's
remaining earnings and profits (including earnings and profits arising from
tax-exempt income), (ii) thereafter as a return of capital to the extent of the
recipient's basis in the shares, and (iii) thereafter as gain from the sale or
exchange of a capital asset. If the Fund's book income is less than its taxable
income, the Fund could be required to make distributions exceeding book income
to qualify as a regulated investment company that is accorded special tax
treatment.
If a Fund makes a distribution in excess of its current and accumulated
"earnings and profits" in any taxable year, the excess distribution will be
treated as a return of capital to the extent of a Shareholder's tax basis in
Fund shares, and thereafter as capital gain. A return of capital is not taxable,
but it reduces the Shareholder's tax basis in the shares, thus reducing any loss
or increasing any gain on a subsequent taxable disposition of those shares.
A Fund's investment in securities issued at a discount and certain
other obligations will (and investments in securities purchased at a discount
may) require the Fund to accrue and distribute income not yet received. In order
to generate sufficient cash to make the requisite distributions, a Fund may be
required to sell securities in its portfolio that it otherwise would have
continued to hold.
The Funds will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends and other distributions paid
to any Shareholder who has provided either an incorrect tax identification
number or no number at all, or who is subject to withholding by the Internal
Revenue Service for failure to properly include on his or her tax return
payments of interest or dividends.
The foregoing discussion and the one below regarding the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund
under "Federal Taxation" is only a summary of some of the important Federal tax
considerations generally affecting purchasers of the Funds' Shares. No attempt
has been made to present a detailed explanation of the Federal income tax
treatment of the Funds, and this discussion is not
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intended as a substitute for careful tax planning. Accordingly, potential
purchasers of the Funds' Shares are urged to consult their tax advisors with
specific reference to their own tax situation. Foreign Shareholders should
consult their tax advisors regarding the U.S. and foreign tax consequences of an
investment in the Funds. In addition, this discussion is based on tax laws and
regulations that are in effect on the date of this Statement of Additional
Information; such laws and regulations may be changed by legislative, judicial
or administrative action, and such changes may be retroactive.
Additional Tax Information Concerning The California Tax-Free Money Market Fund
and The California Intermediate Tax-Free Bond Fund
Federal Taxation. As indicated in their respective Prospectuses, the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund are designed to provide individual Shareholders with current
tax-exempt interest income. None of these Funds is intended to constitute a
balanced investment program or is designed for investors seeking capital
appreciation. Nor are the California Tax-Free Money Market Fund or the
California Intermediate Tax-Free Bond Fund designed for investors seeking
maximum tax-exempt income irrespective of fluctuations in principal. Shares of
the Funds may not be suitable for tax-exempt institutions and may not be
suitable for retirement plans qualified under Section 401 of the Code, H.R. 10
plans, and individual retirement accounts because such plans and accounts are
generally tax-exempt and, therefore, would not gain any additional benefit from
the Funds' dividends being tax-exempt, and such dividends would ultimately be
taxable to the beneficiaries when distributed to them.
The Code permits a regulated investment company that invests at least
50% of its total assets in tax-free Municipal Securities to pass through to its
investors, tax-free, net Municipal Securities interest income to the extent such
interest would be exempt if earned directly. Because the California Tax-Free
Money Market Fund and the California Intermediate Tax-Free Bond Fund intend to
be qualified to pay such exempt-interest dividends, these Funds will be limited
in their ability to enter into taxable transactions, such as forward
commitments, repurchase agreements, securities lending transactions, financial
futures and options contracts on financial futures, tax-exempt bond indices and
other assets. The policy of the California Tax-Free Money Market Fund and the
California Intermediate Tax-Free Bond Fund is to pay each year as dividends
substantially all of such Fund's Municipal Securities interest income net of
certain deductions. An exempt-interest dividend is any dividend or part thereof
derived from interest excludable from gross income and designated as an
exempt-interest dividend in a written notice mailed to Shareholders after the
close of such Fund's taxable year, but the aggregate of such dividends may not
exceed the net Municipal Securities interest received by the Fund during the
taxable year. In the case of each of the California Tax-Free Money Market Fund
and the California Intermediate Tax-Free Bond Fund the percentage of the
dividends paid for any taxable year that qualifies as federal exempt-interest
dividends will be the same for all Shareholders receiving dividends during such
year, regardless of the period for which the Shares were held.
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Exempt-interest dividends may be treated by Shareholders of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund as items of interest excludable from their gross income under Section
103(a) of the Code. However, each such Shareholder is advised to consult his or
her tax advisor with respect to whether exempt-interest dividends would retain
the exclusion under Section 103(a) if such Shareholder were treated as a
"substantial user" or a "related person" to such user under Section 147(a) with
respect to facilities financed through any of the tax-exempt obligations held by
the California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund.
The California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund will distribute substantially all of any
investment company taxable income for each taxable year. In general, a Fund's
investment company taxable income will be its taxable income subject to certain
adjustments and excluding the excess of any net long-term capital gains for the
taxable year over the net short-term capital loss, if any, for such year.
Distributions of such income will be taxable to Shareholders as ordinary income.
The dividends-received deduction for corporations is not expected to apply to
such distributions.
Distribution of the excess of the California Tax-Free Money Market
Fund's and the California Intermediate Tax-Free Bond Fund's net long-term
capital gain (if any) over its net short-term capital loss will be taxable to
the Fund's Shareholders as a long-term capital gain in the year in which
received, regardless of how long a time the Shareholder held the Fund's Shares
and such distributions will not be eligible for the dividends received
deduction. If a Shareholder disposes of Shares in a Fund at a loss before
holding such Shares for longer than six months, such loss will be treated as a
long-term capital loss to the extent the Shareholder has received a capital gain
dividend on the Shares.
Shareholders receiving social security or railroad retirement benefits
may be taxed on a portion of those benefits as a result of receiving tax-exempt
income (including exempt-interest dividends distributed by the Fund).
Like the other Funds, if for any taxable year the California Tax-Free
Money Market Fund or the California Intermediate Tax-Free Bond Fund does not
qualify for the special tax treatment afforded regulated investment companies,
all of such Fund's taxable income will be subject to tax at regular corporate
rates (without any deduction for distributions to Shareholders), and Municipal
Securities interest income, although not taxable to the California Tax-Free
Money Market Fund or the California Intermediate Tax-Free Bond Fund would be
taxable to Shareholders when distributed as dividends.
Depending upon the extent of its activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located or in which it is otherwise deemed to be conducting business, the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund may be subject to the tax laws of such
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states or localities. For a summary of certain California tax considerations
affecting the California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund, see "California Taxation" below.
As indicated in their Prospectuses, the California Tax-Free Money
Market Fund and the California Intermediate Tax-Free Bond Fund may acquire
rights regarding specified portfolio securities under puts. See "Investment
Objectives and Policies - Additional Information on Portfolio Instruments -
Puts" in this Statement of Additional Information. The policy of each Fund is to
limit its acquisition of puts to those under which the Fund will be treated for
Federal income tax purposes as the owner of the Municipal Securities acquired
subject to the put and the interest on such Municipal Securities will be
tax-exempt to the Fund. There is currently no guidance available from the
Internal Revenue Service that definitively establishes the tax consequences that
may result from the acquisition of many of the types of puts that the California
Tax-Free Money Market Fund or the California Intermediate Tax-Free Bond Fund
could acquire under the 1940 Act. Therefore, although they will only acquire a
put after concluding that it will have the tax consequences described above, the
Internal Revenue Service could reach a different conclusion from that of the
relevant Fund.
California Taxation. Under existing California law, if the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund
continue to qualify for the special federal income tax treatment afforded
regulated investment companies and if at the end of each quarter of each such
Fund's taxable year at least 50% of the value of that Fund's assets consists of
obligations that, if held by an individual, would pay interest exempt from
California taxation ("California Exempt-Interest Securities"), Shareholders of
that Fund will be able to exclude from income, for California personal income
tax purposes, "California exempt-interest dividends" received from that Fund
during that taxable year. A "California exempt-interest dividend" is any
dividend or portion thereof of the California Tax-Free Money Market Fund or the
California Intermediate Tax-Free Bond Fund not exceeding the interest received
by the Fund during the taxable year on obligations that, if held by an
individual, would pay interest exempt from California taxation (less direct and
allocated expenses, which includes amortization of acquisition premium) and so
designated by written notice to Shareholders within 60 days after the close of
that taxable year.
Distributions, other than of "California exempt-interest dividends," by
the California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund to California residents will be subject to California
personal income taxation. Gains realized by California residents from a
redemption or sale of Shares of the California Tax-Free Money Market Fund and
the California Intermediate Tax-Free Bond Fund will also be subject to
California personal income taxation. In general, California nonresidents, other
than certain dealers, will not be subject to California personal income taxation
on distributions by, or on gains from the redemption or sale of, Shares of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund unless those Shares have acquired a California "business situs." (Such
California nonresidents may, however, be subject to other
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state or local income taxes on such distributions or gains, depending on their
residence.) Short-term capital losses realized by shareholders from a redemption
of shares of the California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund within six months from the date of their
purchase will not be allowed for California personal income tax purposes to the
extent of any tax-exempt dividends received with respect to such Shares during
such period. No deduction will be allowed for California personal income tax
purposes for interest on indebtedness incurred or continued in order to purchase
or carry Shares of the California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund for any taxable year of a Shareholder during
which the Fund distributes "California exempt-interest dividends."
A statement setting forth the amount of "California exempt-interest
dividends" distributed during each calendar year will be sent to Shareholders
annually.
The foregoing is only a summary of some of the important California
personal income tax considerations generally affecting the Shareholders of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund. This summary does not describe the California tax treatment of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund, in addition, no attempt has been made to present a detailed
explanation of the California personal income tax treatment of the Fund's
Shareholders. Accordingly, this discussion is not intended as a substitute for
careful planning. Further, "California exempt-interest dividends" are excludable
from income for California personal income tax purposes only. Any dividends paid
to Shareholders subject to California corporate franchise tax will be taxed as
ordinary dividends to such Shareholders, notwithstanding that all or a portion
of such dividends is exempt from California personal income tax. Accordingly,
potential investors in the California Tax-Free Money Market Fund and the
California Intermediate Tax-Free Bond Fund including, in particular, corporate
investors which may be subject to either California franchise tax or California
corporate income tax, should consult their tax advisors with respect to the
application of such taxes to the receipt of Fund dividends and as to their own
California tax situation, in general.
Foreign Taxes
Dividends and interest received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on the Fund's securities. Tax conventions between
certain countries and the United States may reduce or eliminate these taxes.
Foreign countries generally do not impose taxes on capital gains with respect to
investments by foreign investors. If a Fund meets the Distribution Requirement
and if more than 50% of the value of the Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, the Fund will be
eligible to file an election with the Internal Revenue Service that will enable
Shareholders, in effect, to receive the benefit of the foreign tax credit with
respect to any foreign and U.S. possessions income taxes paid by the Fund.
Pursuant to the election, the
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Fund will treat those taxes as dividends paid to its Shareholders. Each
Shareholder will be required to include a proportionate share of those taxes in
gross income as income received from a foreign source and must treat the amount
so included as if the Shareholder had paid the foreign tax directly. The
Shareholder may then either deduct the taxes deemed paid by him or her in
computing his or her taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against the Shareholder's
federal income tax. If a Fund makes the election, it will report annually to its
Shareholders the respective amounts per share of the Fund's income from sources
within, and taxes paid to, foreign countries and U.S. possessions.
MANAGEMENT OF HIGHMARK
Trustees and Officers
Overall responsibility for management of each Fund rests with the
Trustees of HighMark, who are elected by HighMark's Shareholders. There are
currently four Trustees, all of whom are not "interested persons" of HighMark
within the meaning of that term under the 1940 Act.
The Trustees, in turn, elect the officers of HighMark to supervise
actively its day-to-day operations.
The Trustees and officers of HighMark, their addresses and principal
occupations during the past five years are set forth below.
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name and Address With HighMark During Past 5 Years
- ---------------- ------------- -------------------
<S> <C> <C>
Thomas L. Braje Trustee Retired October, 1996.
100 Alfred Nobel Drive Prior to October 1996,
Hercules, CA 94517 Vice President and Chief
Financial Officer of Bio
Rad Laboratories, Inc.
David A. Goldfarb Trustee Partner, Goldfarb &
111 Pine Street Simens, Certified Public
18th Floor Accountants.
San Francisco, CA 94105
Joseph C. Jaeger Trustee Senior Vice President and
100 First Street Chief Financial Officer,
San Francisco, CA 94105 Delta Dental Plan of
California.
Frederick J. Long Trustee President and Chief
520 Pike Street Executive Officer,
20th Floor Pettit-Morry Co. and
Seattle, WA 98101 Acordia Northwest Inc.
(each and insurance
brokerage firm).
David G. Lee President and Chief Senior Vice President of
680 East Swedesford Road Executive Officer Administrator and
Wayne, PA 19087 Distributor, employee since
1993. Prior to 1993,
President for GW Sierra
Trust Funds before 1991.
Robert DellaCroce Controller and Assistant CPA, Director of Fund
680 East Swedesford Road Secretary Resources, employee since
Wayne, PA 19087 1994. Prior to 1994, senior
manager for Arthur
Andersen.
</TABLE>
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<PAGE> 532
<TABLE>
<S> <C> <C>
Kevin P. Robins Vice President and Assistant Employee since 1992. Prior
680 East Swedesford Road Secretary; Senior Vice to 1992, associate with
Wayne, PA 19087 President, General Counsel Morgan Lewis & Bockius
and Secretary since 1988.
Kathryn L. Stanton Vice President and Assistant Employee since 1994. Prior
680 East Swedesford Road Secretary; Secretary to 1992, associate with
Wayne, PA 19087 Morgan Lewis & Bockius
since 1988.
Sandra K. Orlow Vice President and Assistant Employee since 1983.
680 East Swedesford Road Secretary
Wayne, PA 19087
Todd Cipperman Vice President and Assistant Employee since 1995. From
680 East Swedesford Road Secretary. 1994 to May 1995, associate
Wayne, PA 19087 with Dewey Ballantine.
Prior to 1994, associate with
Winston & Strawn.
</TABLE>
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<TABLE>
<S> <C> <C>
Barbara A. Nugent Vice President and Assistant Employee since 1996. Prior
680 East Swedesford Road Secretary. to April 1996, associate with
Wayne, PA 19087 Drinker, Biddle & Reath
from 1994 to 1996. Prior to
1996, Assistant Vice
President/Administration for
Delaware Service Company,
Inc. from 1992 to 1993 and
Assistant Vice-Operations of
Delaware Service Company,
Inc. from 1988 to 1992.
Marc H. Cahn Vice President and Assistant Employee since 1996. Prior
680 East Swedesford Road Secretary to May 1996, Associate
Wayne, PA 19087 General Counsel for
Barclays Bank PLC from
May 1995 to May 1996.
Prior to 1996, ERISA
counsel for First Fidelity
Bancorporation from 1994 to
1995. Prior to 1994,
Associate with Morgan
Lewis & Bockius from 1989
to 1994.
</TABLE>
The Trustees of HighMark receive quarterly retainer fees and fees and
expenses for each meeting of the Board of Trustees attended. No employee,
officer or stockholder of SEI Fund Resources and/or SEI Financial Services
Company receives any compensation directly from HighMark for serving as a
Trustee and/or officer. SEI Fund Resources and/or SEI Financial Services Company
receive administration, fund accounting servicing and distribution fees from
each of HighMark's Funds. See "Manager and Administrator" and "Distributor"
below. Messrs. Robins, Cipperman, Cahn, DellaCroce, and Lee, and Ms. Stanton,
Ms. Orlow, and Ms. Nugent are employees and officers of SEI Investments Company.
While SEI Fund Resources is a distinct legal entity from SEI Financial Services
Company, SEI Fund Resources is considered to be an affiliated person of SEI
Financial Services Company under the 1940 Act due to, among other things, the
fact that SEI Financial Services Company and SEI Fund Resources are both
controlled by the same ultimate parent company, SEI Investments Company.
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<PAGE> 534
During the fiscal year ended July 31, 1996, fees paid to the
disinterested Trustees for their services as Trustees aggregated $36,000. For
the disinterested Trustees, the following table sets forth information
concerning fees paid and retirement benefits accrued during the fiscal year
ended July 31, 1996:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Annual Total Compensation
Trustee Compensation Retirement Benefits Upon from Fund
from Group Benefits Accrued Retirement Complex Paid to
as Trustees
Part of Fund
Expenses
------- ------------ ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Thomas L. Braje $9,000 None None $9,000
David A. Goldfarb $9,000 None None $9,000
Joseph C. Jaeger $9,000 None None $9,000
Frederick J. Long $9,000 None None $9,000
</TABLE>
Investment Advisor
Investment advisory and management services are provided to each of
HighMark's Funds by Pacific Alliance Capital Management, formerly MERUS-UCA
Capital Management (the "Advisor"), pursuant to an investment advisory agreement
between Union Bank of California and HighMark dated as of April 1, 1996 (the
"Investment Advisory Agreement"). Union Bank of California serves as custodian
for each of HighMark's Funds. See "Transfer Agent, Custodian and Fund Accounting
Services" below. Union Bank of California also serves as sub-administrator to
each of HighMark's Funds pursuant to an agreement with SEI Fund Resources. See
"Manager and Administrator" below.
Unless sooner terminated, the Investment Advisory Agreement will
continue in effect as to each particular Fund from year to year if such
continuance is approved at least annually by HighMark's Board of Trustees or by
vote of a majority of the outstanding Shares of such Fund (as defined under
General Information - Miscellaneous in the Prospectuses), and a majority of the
Trustees who are not parties to the Investment Advisory Agreement or interested
persons (as defined in the 1940 Act) of any party to the Investment Advisory
Agreement by votes cast in person at a meeting called for such purpose. The
Investment Advisory Agreement is terminable as to a particular Fund at any time
on 60 days' written notice without penalty by the Trustees, by vote of a
majority of the outstanding Shares of that Fund, or by Union Bank of California.
The Investment Advisory Agreement terminates automatically in the event of any
assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that Union Bank of
California will not be liable for any error of judgment or mistake of law or for
any loss suffered by HighMark in connection with the Advisor's services under
the Investment Advisory Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith, or gross negligence on the
part
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<PAGE> 535
of the Advisor in the performance of its duties, or from reckless disregard by
the Advisor of its duties and obligations thereunder.
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 the Bank of California
and Union Bank (or its predecessor bank) has been in banking since the early
1900's, and historically, each has had significant investment functions within
its trust and investment division. Union Bank of California, N.A. is a
subsidiary of UnionBanCal Corporation, a publicly traded corporation, a majority
of the shares of which are owned by Bank of Tokyo - Mitsubishi, Limited.
For the services provided and expenses assumed by the Advisor pursuant
to the Investment Advisory Agreement, Union Bank of California is entitled to
receive fees from each Fund as described in that Fund's Prospectus. For the
fiscal year ended July 31, 1996, Union Bank of California received the following
investment advisory fees: $180,047 from the Growth Fund (an additional $182,161
in fees were voluntarily reduced); $1,722,014 from the Income Equity Fund (an
additional $33,207 in fees were voluntarily reduced); $187,523 from the Balanced
Fund (an additional $160,670 in fees were voluntarily reduced); $277,708 from
the Bond Fund (an additional $256,561 in fees were voluntarily reduced);
$1,590,719 from the Diversified Money Market Fund; $944,226 from the U.S.
Government Money Market Fund; $1,203,300 from the 100% U.S. Treasury Money
Market Obligations Fund; and $352,464 from the California Tax Free Money Market
Fund (an additional $265,714 in fees were voluntarily reduced). Because the
Value Momentum Fund, the Blue Chip Growth Fund, the Emerging Growth Fund, the
International Equity Fund, the Intermediate-Term Bond Fund, the Government
Securities Fund, the Convertible Securities Fund and the California Intermediate
Tax-Free Bond Fund had not commenced operations in HighMark as of July 31, 1996,
they paid no investment advisory fees during such fiscal year.
For the fiscal year ended July 31, 1995, the Bank of California
received the following investment advisory fees: $37,349 from the Growth Fund
(an additional $158,716 in fees were voluntarily reduced); $1,419,062 from the
Income Equity Fund (an additional $11,439 in fees were voluntarily reduced);
$83,790 from the Balanced Fund (an additional $168,408 in fees were voluntarily
reduced); $271,150 from the Bond Fund (an additional $250,310 in fees were
voluntarily reduced); $1,429,494 from the Diversified Money Market Fund;
$729,094 from the U.S. Government Money Market Fund; $920,611 from the 100% U.S.
Treasury Money Market Fund; and $267,095 from the California Tax Free Money
Market Fund (an additional $326,450 in fees were voluntarily reduced).
For the fiscal year ended July 31, 1994, the Bank of California
received the following investment advisory fees: $0 from the Growth Fund (an
additional $63,330 in fees were voluntarily reduced); $1,216,590 from the Income
Equity Fund (an additional $40,330 in fees
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<PAGE> 536
were voluntarily reduced); $47,972 from the Balanced Fund (an additional
$112,239 in fees were voluntarily reduced); $268,520 from the Bond Fund (an
additional $249,371 in fees were voluntarily reduced); $1,471,655 from the
Diversified Money Market Fund; $825,406 from the U.S. Government Money Market
Fund; $833,971 from the 100% U.S. Treasury Money Market Fund; and $316,744 from
the California Tax-Free Money Market Fund (an additional $387,133 in fees were
voluntarily reduced).
The Sub-Advisors
The Advisor and Bank of Tokyo-Mitsubishi Trust Company have entered
into a sub-advisory agreement which relates to the Emerging Growth, Blue Chip
Growth, Convertible Securities and Government Securities Funds. The Advisor and
Tokyo-Mitsubishi Asset Management (UK) Ltd. have entered into a sub-advisory
agreement which relates to the International Equity Fund (the Bank of
Tokyo-Mitsubishi Trust Company, together with Tokyo-Mitsubishi Asset Management
(UK) Ltd., are hereafter collectively, the "Sub-Advisors").
Under its sub-advisory agreement, Bank of Tokyo-Mitsubishi Trust
Company is entitled to a fee which is calculated daily and paid monthly at an
annual rate of .20% of the average daily net assets of the Government Securities
Fund, .30% of the average daily net assets of the Blue Chip Growth Fund and
Convertible Securities Fund and .50% of the average daily net assets of the
Emerging Growth Fund. Such fee is paid by the Advisor, and Bank of
Tokyo-Mitsubishi Trust Company receives no fees directly from a Fund. Because
the Government Securities Fund, the Blue Chip Growth Fund, the Convertible
Securities Fund and the Emerging Growth Fund had not commenced operations as of
July 31, 1996, Bank of Tokyo-Mitsubishi Trust Company received no sub-advisory
fees.
Bank of Tokyo-Mitsubishi Trust Company operates as a subsidiary of The
Bank of Tokyo-Mitsubishi, Ltd. Bank of Tokyo-Mitsubishi Trust Company was
established in 1955 and has been providing asset management services since 1965.
Under its sub-advisory agreement, Tokyo-Mitsubishi Asset Management
(UK), Ltd. is entitled to a fee which is calculated daily and paid monthly at an
annual rate of .30% of the average daily net assets of the International Equity
Fund. Such a fee is paid by the Advisor, and Tokyo-Mitsubishi Asset Management
(UK), Ltd. receives no fees directly from the International Equity Fund. Because
the International Equity Fund had not commenced operations as of July 31, 1996,
Tokyo-Mitsubishi Asset Management (UK), Ltd. received no sub-advisory fees.
Tokyo-Mitsubishi Asset Management (UK), Ltd. operates as a subsidiary
of The Bank of Tokyo-Mitsubishi, Ltd. Tokyo-Mitsubishi Asset Management (UK),
Ltd was established in 1989.
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<PAGE> 537
Portfolio Transactions
Pursuant to the Investment Advisory Agreement, the Advisor determines,
subject to the general supervision of the Board of Trustees of HighMark and in
accordance with each Fund's investment objective and restrictions, which
securities are to be purchased and sold by a Fund, and which brokers are to be
eligible to execute its portfolio transactions. Purchases and sales of portfolio
securities for the Bond Fund, the Intermediate-Term Bond Fund, the Government
Securities Fund, the Convertible Securities Fund, the California Intermediate
Tax-Free Bond Fund, 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 usually are principal transactions in which portfolio
securities are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from underwriters of
portfolio securities include a commission or concession paid by the issuer to
the underwriter and purchases from dealers serving as market makers may include
the spread between the bid and asked price. Securities purchased by the Growth
Fund, the Income Equity Fund, the Value Momentum Fund, the Blue Chip Growth
Fund, the Emerging Growth Fund and the International Equity Fund will generally
involve the payment of a brokerage fee. Portfolio transactions for the Balanced
Fund may be principal transactions or involve the payment of brokerage
commissions. While the Advisor generally seeks competitive spreads or
commissions on behalf of each of the Funds, HighMark may not necessarily pay the
lowest spread or commission available on each transaction, for reasons discussed
below.
Allocation of transactions, including their frequency, to various
dealers is determined by the Advisor or the Sub-Advisors in their best judgment
and in a manner deemed fair and reasonable to Shareholders. The primary
consideration is prompt execution of orders in an effective manner at the most
favorable price. Subject to this consideration, dealers who provide supplemental
investment research to the Advisor or the Sub-Advisors may receive orders for
transactions by HighMark. Information so received is in addition to and not in
lieu of services required to be performed by the Advisor or the Sub-Advisors and
does not reduce the advisory fees payable to Union Bank of California by
HighMark. Such information may be useful to the Advisor or the Sub-Advisors in
serving both HighMark and other clients and, conversely, supplemental
information obtained by the placement of business of other clients may be useful
to the Advisor in carrying out its obligations to HighMark.
Upon adoption by the Board of Trustees of certain procedures pursuant
to Rule 17e-1 under the Investment Company Act, HighMark may execute portfolio
transactions involving the payment of a brokerage fee through Union Bank of
California, SEI Financial Services Company, and their affiliates in accordance
with such procedures. HighMark will not acquire portfolio securities issued by,
make savings deposits in, or enter repurchase or reverse repurchase agreements
with, Union Bank of California, or their affiliates, and will not give
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<PAGE> 538
preference to correspondents of Union Bank of California with respect to such
securities, savings deposits, repurchase agreements and reverse repurchase
agreements.
Investment decisions for each Fund of HighMark are made independently
from those for the other Funds or any other investment company or account
managed by the Advisor, the Sub-Advisors or Union Bank of California. However,
any such other investment company or account may invest in the same securities
as HighMark. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund and another Fund, investment
company or account, the transaction will be averaged as to price, and available
investments allocated as to amount, in a manner that the Advisor or the
Sub-Advisors and Union Bank of California believe to be equitable to the Fund(s)
and such other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained by a Fund. To the extent permitted by law, the Advisor,
or the Sub-Advisors and Union Bank of California may aggregate the securities to
be sold or purchased for a Fund with those to be sold or purchased for the other
Funds or for other investment companies or accounts in order to obtain best
execution. As provided in the Investment Advisory Agreement and the Sub-Advisory
Agreements, in making investment recommendations for HighMark, the Advisor or
the Sub-Advisors will not inquire or take into consideration whether an issuer
of securities proposed for purchase or sale by HighMark is a customer of the
Advisor, the Sub-Advisors or Union Bank of California, their parent or its
subsidiaries or affiliates and, in dealing with its commercial customers, the
Advisor, the Sub-Advisors and Union Bank of California, their parent,
subsidiaries, and affiliates will not inquire or take into consideration whether
securities of such customers are held by HighMark.
The following brokerage commissions were paid in the fiscal year ended
July 31, 1996: $104,127 by the Growth Fund, $318,261 by the Income Equity Fund,
and $13,043 by the Balanced Fund. The following brokerage commissions were paid
in the fiscal year ended July 31, 1995: $57,798 by the Growth Fund, $257,339 by
the Income Equity Fund, and $10,757 by the Balanced Fund. The following
brokerage commissions were paid in the fiscal year ended July 31, 1994: $49,878
by the Growth Fund; $212,350 by the Income Equity Fund; and $30,025 by the
Balanced Fund.
Glass-Steagall Act
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
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<PAGE> 539
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment advisor, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governorsof the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisors to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complies with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisors to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
Union Bank of California believes that the Advisor and the Sub-Advisors
possess the legal authority to perform the services for the Funds contemplated
by the Investment Advisory Agreement and the Sub-Advisory Agreements and
described in the Prospectuses and this Statement of Additional Information and
has so represented in the Investment Advisory Agreement and the Sub-Advisory
Agreements. Future changes in either federal or state statutes and regulations
relating to the permissible activities of banks or bank holding companies and
the subsidiaries or affiliates of those entities, as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations could prevent or restrict the Advisor from continuing to perform
such services for HighMark. Depending upon the nature of any changes in the
services that could be provided by the Advisor, or the Sub-Advisors, the Board
of Trustees of HighMark would review HighMark's relationship with the Advisor
and the Sub-Advisors and consider taking all action necessary in the
circumstances.
Should further legislative, judicial or administrative action prohibit
or restrict the activities of Union Bank of California, its affiliates, and its
correspondent banks in connection with Customer purchases of Shares of HighMark,
such Banks might be required to alter materially or discontinue the services
offered by them to Customers. It is not anticipated, however, that any change in
HighMark's method of operations would affect its net asset value per Share or
result in financial losses to any Customer. Administrator and Sub-Administrator
SEI Fund Resources (the "Administrator") serves as administrator to
each of HighMark's Funds pursuant to the administration agreement dated as of
February 15, 1997 between HighMark and the Administrator (the "Administration
Agreement").
SEI Fund Resources is a Delaware business trust whose sole beneficiary
is SEI Financial Management Corporation. SEI Financial Management Corporation, a
wholly owned subsidiary of SEI Corporation ("SEI"), was organized as a Delaware
corporation in 1969 and has its principal business offices at 680 East
Swedesford Road, Wayne,
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<PAGE> 540
Pennsylvania 19087-1658. SEI and its subsidiaries are leading providers of funds
evaluation services, trust accounting systems, and brokerage and information
services to financial institutions, institutional investors and money managers.
The Administrator and its affiliates also serve as administrator to the
following other institutional mutual funds: SEI Daily Income Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, SEI Index Funds, SEI International Trust, SEI
Institutional Managed Trust, 1784(R) Funds, The Advisors' Inner Circle Fund, The
Pillar Funds, CUFund, STI Classic Funds, CoreFunds, Inc., First American Funds,
Inc., First American Investment Funds, Inc., The Arbor Fund, Marquis Funds(R),
Morgan Grenfell Investment Trust, The PBHG Funds, Inc., The Achievement Funds
Trust, Bishop Street Funds, CrestFunds, Inc., STI Classic Variable Trust,
Monitor Funds, FMB Funds, Inc., Turner Funds, ARK Funds, SEI Asset Allocation
Trust, and SEI Institutional Investments Trust.
Pursuant to the Administration Agreement, the Administrator provides
the Group with administrative services, regulatory reporting, fund accounting
and related portfolio accounting services, all necessary office space,
equipment, personnel, compensation and facilities for handling the affairs of
the Group. As described below, the Administrator has delegated part of its
responsibilities under the Administration Agreement to Union Bank of California,
N.A.
Through the fiscal year ended July 31, 1996 BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services ("BISYS Fund Services") served as
HighMark's administrator. For its services as administrator and expenses assumed
pursuant to the administration agreement between BISYS Fund Services and
HighMark, BISYS Fund Services received a fee from each Fund as described in that
Fund's Prospectus. For the fiscal year ended July 31, 1996, BISYS Fund Services
earned the following administration fees: $72,337 from the Growth Fund; $520,671
from the Income Equity Fund; $69,581 from the Balanced Fund; $80,226 from the
Bond Fund (an additional $43,205 in fees were voluntarily reduced); $795,393
from the Diversified Money Market Fund; $472,171 from the U.S. Government Money
Market Fund; $601,680 from the 100% U.S. Treasury Money Market Fund; and
$231,814 from the California Tax-Free Money Market Fund (an additional $77,275
in fees were voluntarily reduced). Because the Value Momentum Fund, the Blue
Chip Growth Fund, the Emerging Growth Fund, the International Equity Fund, the
Intermediate-Term Bond Fund, the Government Securities Fund, the Convertible
Securities Fund and the California Intermediate Tax-Free Bond Fund had not
commenced operations as of July 31, 1996, they paid no administration fees
during such fiscal year.
For the fiscal year ended July 31, 1995, BISYS Fund Services earned the
following administration fees: $23,444 from the Growth Fund (an additional
$15,769 in fees were voluntarily reduced); $423,500 from the Income Equity Fund;
$50,440 from the Balanced Fund; $78,332 from the Bond Fund (an additional
$42,155 in fees were voluntarily reduced); $71,474 from the Diversified Money
Market Fund; $364,547 from the U.S. Government Money Market Fund; $460,306 from
the 100% U.S. Treasury Money Market Fund; and
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<PAGE> 541
$222,580 from the California Tax-Free Money Market Fund (an additional $74,193
in fees were voluntarily reduced).
For the fiscal year ended July 31, 1994, BISYS Fund Services earned the
following administration fees: $0 from the Growth Fund (an additional $12,666 in
fees were voluntarily reduced); $349,213 from the Income Equity Fund (an
additional $16,429 in fees were voluntarily reduced); $24,823 from the Balanced
Fund (an additional $7,219 in fees were voluntarily reduced); $77,570 from the
Bond Fund (an additional $41,725 in fees were voluntarily reduced); $735,828
from the Diversified Money Market Fund; $412,703 from the U.S. Government Money
Market Fund; $416,985 from the 100% U.S. Treasury Money Market Fund; and
$263,954 from the California Tax-Free Money Market Fund (an additional $87,985
in fees were voluntarily reduced).
The Administration Agreement became effective on February 15, 1997,
unless sooner terminated as provided in the Administration Agreement (and as
described below), the Administration Agreement, as amended, will continue in
effect until July 31, 1999. The Administration Agreement thereafter shall be
renewed automatically for successive annual terms. The Administration Agreement
is terminable at any time with respect to a particular Fund or HighMark as a
whole by either party without penalty for any reason upon 90 days' written
notice by the party effecting such termination to the other party.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
HighMark in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or from the reckless disregard by
the Administrator of its obligations and duties thereunder.
The Administration Agreement permits the Administrator to subcontract
its services thereunder, provided that the Administrator will not be relieved of
its obligations under the Administration Agreement by the appointment of a
subcontractor and the Administrator shall be responsible to HighMark for all
acts of the subcontractor as if such acts were its own, except for losses
suffered by any Fund resulting from willful misfeasance, bad faith or gross
negligence by the subcontractor in the performance of its duties or for reckless
disregard by it of its obligations and duties. Pursuant to a sub-administration
agreement between the Administrator and Union Bank of California, N.A., Union
Bank of California, N.A. will perform services which may include clerical,
bookkeeping, accounting, stenographic and administrative services, for which it
will receive a fee, paid by the Administrator, at the annual rate of up to 0.05%
of each Fund's average daily net assets.
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<PAGE> 542
Shareholder Services Plan
HighMark has adopted a Shareholder Services Plan (the "Services Plan")
pursuant to which a Fund is authorized to pay compensation to financial
institutions (each a "Service Provider"), which may include Bank of
Tokyo-Mitsubishi, Ltd., Union Bank of California, N.A., or their respective
affiliates, that agree to provide certain shareholder support services for their
customers or account holders (collectively, "customers") who are the beneficial
or record owners of Shares of a Fund. In consideration for such services, a
Service Provider is compensated by a Fund at a maximum annual rate of up to
0.25% of the average daily net asset value of Shares of a Fund.
The servicing agreements adopted under the Services Plan (the
"Servicing Agreements") require the Service Provider receiving such compensation
to perform certain shareholder support services as set forth in the Servicing
Agreements with respect to the beneficial or record owners of Shares of a Fund.
As authorized by the Services Plan, HighMark may enter into a Servicing
Agreement with a Service Provider pursuant to which the Service Provider has
agreed to provide certain shareholder support services in connection with Shares
of one or more of HighMark's Funds. Such shareholder support services may
include, but are not limited to, (i) maintaining Shareholder accounts; (ii)
providing information periodically to Shareholders showing their positions in
Shares; (iii) arranging for bank wires; (iv) responding to Shareholder inquiries
relating to the services performed by the Service Provider; (v) responding to
inquiries from Shareholders concerning their investments in Shares; (vi)
forwarding Shareholder communications from HighMark (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Shareholders; (vii) processing purchase,
exchange and redemption requests from Shareholders and placing such orders with
HighMark or its service providers; (viii) assisting Shareholders in changing
dividend options, account designations, and addresses; (ix) providing
subaccounting with respect to Shares beneficially owned by Shareholders; (x)
processing dividend payments from HighMark on behalf of the Shareholders; and
(xi) providing such other similar services as HighMark may reasonably request to
the extent that the service provider is permitted to do so under applicable laws
or regulations.
Expenses
HighMark's service providers bear all expenses in connection with the
performance of their respective services, except that each Fund will bear the
following expenses relating to its operations: taxes, interest, brokerage fees
and commissions, if any, fees and travel expenses of Trustees who are not
partners, officers, directors, shareholders or employees of Union Bank of
California, SEI Fund Resources or SEI Financial Services Company, Securities and
Exchange Commission fees and state fees and expenses, certain insurance
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premiums, outside and, to the extent authorized by HighMark, inside auditing and
legal fees and expenses, fees charged by rating agencies in having the Fund's
Shares rated, advisory and administration fees, fees and reasonable
out-of-pocket expenses of the custodian and transfer agent, expenses incurred
for pricing securities owned by the Fund, costs of maintenance of corporate
existence, typesetting and printing prospectuses for regulatory purposes and for
distribution to current Shareholders, costs and expenses of Shareholders' and
Trustees' reports and meetings and any extraordinary expenses.
Distributor
SEI Financial Services Company (the "Distributor"), a wholly-owned
subsidiary of SEI, serves as distributor to HighMark's Funds pursuant to the
distribution agreement dated February 15, 1997 between HighMark and the
Distributor (the "Distribution Agreement").
Unless terminated, the Distribution Agreement will continue in effect
until July 31, 1999 and from year to year thereafter if approved at least
annually (i) by HighMark's Board of Trustees or by the vote of a majority of the
outstanding Shares of HighMark, and (ii) by the vote of a majority of the
Trustees of HighMark who are not parties to the Distribution Agreement or
interested persons (as defined in the 1940 Act) of any party to the Distribution
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement is terminable without penalty, on not less
than sixty days' notice by HighMark's Board of Trustees, by vote of a majority
of the outstanding voting securities of HighMark or by the Distributor. The
Distribution Agreement terminates in the event of its assignment, as defined in
the 1940 Act.
The Distribution Plans. The operation and the 0.25% fee payable under
HighMark's Distribution Plans to which the Retail Shares of HighMark's Funds are
presently subject are described in each such Fund's Prospectus under "SERVICE
ARRANGEMENTS -The Distribution Plan." Through the fiscal year ended July 31,
1996, BISYS Fund Services served as HighMark's distributor. For the fiscal year
ended July 31, 1996, BISYS Fund Services received in respect of the sale of
Retail Shares distribution fees of: $236 in respect of the Growth Fund; $1,166
in respect of the Income Equity Fund, $87 in respect of the Balanced Fund, $183
in respect of the Bond Fund, $672 in respect of the Diversified Money Market
Fund, $14,879 in respect of the U.S. Government Money Market Fund, $0 in respect
of the 100% U.S. Treasury Money Market Fund, and $0 in respect of the California
Tax-Free Money Market Fund. Because the Value Momentum Fund, the Blue Chip
Growth Fund, the Emerging Growth Fund, the International Equity Fund, the
Intermediate-Term Bond Fund, the Government Securities Fund, the Convertible
Securities Fund and the California Intermediate Tax-Free Bond Fund had not
commenced operations as of July 31, 1996, they paid no distribution fees during
such fiscal year.
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For the fiscal year ended July 31, 1995, BISYS Fund Services received
in respect of the sale of Retail Shares distribution fees of: $0 in respect of
the Growth Fund; $0 in respect of the Income Equity Fund, $0 in respect of the
Balanced Fund, $0 in respect of the Bond Fund, $1,054 in respect of the
Diversified Money Market Fund, $1,701 in respect of the U.S. Government Money
Market Fund, $0 in respect of the 100% U.S. Treasury Money Market Fund, and $0
in respect of the California Tax-Free Money Market Fund.
For the fiscal year ended July 31, 1994, BISYS Fund Services received
$1,598.65 in distribution fees in respect of the Retail Shares of the
Diversified Money Market Fund. No other distribution fees were paid during such
fiscal year.
In accordance with Rule 12b-1 under the 1940 Act, the Distribution
Plans may be terminated with respect to any Fund by a vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding Retail
Shares of that Fund. The Distribution Plans may be amended by vote of HighMark's
Board of Trustees, including a majority of the Independent Trustees, cast in
person at a meeting called for such purpose, except that any change in a
Distribution Plan that would materially increase the distribution fee with
respect to a Fund requires the approval of that Fund's Retail Shareholders.
HighMark's Board of Trustees will review on a quarterly and annual basis written
reports of the amounts received and expended under the Distribution Plans
(including amounts expended by the Distributor to Participating Organizations
pursuant to the Servicing Agreements entered into under the Distribution Plans)
indicating the purposes for which such expenditures were made.
Each Distribution Plan provides that it will continue in effect with
respect to each Fund for successive one-year periods, provided that each such
continuance is specifically approved (i) by the vote of a majority of the
Independent Trustees and (ii) by the vote of the entire Board of Trustees, cast
in person at a meeting called for such purpose. For so long as each of the
Distribution Plans remains in effect, the selection and nomination of those
trustees who are not interested persons of HighMark (as defined in the 1940 Act)
shall be committed to the discretion of such disinterested persons.
Transfer Agent and Custodian Services
State Street Bank and Trust Company performs transfer agency services
for HighMark's Funds pursuant to a transfer agency and shareholder service
agreement with HighMark dated as of February 15, 1997 (the "Transfer Agency
Agreement"). As each Fund's transfer agent, State Street Bank and Trust Company
processes purchases and redemptions of each Fund's Shares and maintains each
Fund's Shareholder transfer and accounting records, such as the history of
purchases, redemptions, dividend distributions, and similar transactions in a
Shareholders's account.
Under the Transfer Agency Agreement, HighMark has agreed to pay State
Street Bank and Trust Company annual fees at the rate of $18,000 per Retail
class/per Fund. The Distributor has agreed to pay State Street Bank and Trust
Company annual fees at
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the rate of $15,000 per Fiduciary class/per Fund. In addition, there will be an
annual account maintenance fee of $25.00 per account and IRA Custodial fees
totalling $15.00 per account, as well as out-of-pocket expenses as defined in
the Transfer Agency Agreement. HighMark intends to charge transfer agency fees
across the HighMark Funds as a whole. State Street Bank and Trust Company may
periodically voluntarily reduce all or a portion of its transfer agency fee with
respect to a Fund to increase the Fund's net income available for distribution
as dividends.
Union Bank of California, N.A. serves as custodian to HighMark's Funds
pursuant to a custodian agreement with HighMark dated as of December 23, 1991,
as amended (the "Custodian Agreement"). Under the Custodian Agreement, Union
Bank of California's responsibilities include safeguarding and controlling each
Fund's cash and securities, handling the receipt and delivery of securities, and
collecting interest and dividends on each Fund's investments.
Under the Custodian Agreement, HighMark has agreed to pay Union Bank of
California a domestic custodian fee with respect to each Fund at an annual rate
of .01% of the Fund's average daily net assets, with an annual minimum fee of
$2,500 per Fund, plus certain transaction fees. Union Bank of California is also
entitled to be reimbursed by HighMark for its reasonable out-of-pocket expenses
incurred in the performance of its duties under the Custodian Agreement. Global
custody fees shall be determined on a transaction basis. Union Bank of
California may periodically voluntarily reduce all or a portion of its custodian
fee with respect to a Fund to increase the Fund's net income available for
distribution as dividends.
Auditors
The financial statements of HighMark for the period ended July 31,
1996, appearing in this Statement of Additional Information have been audited by
Deloitte & Touche LLP, independent accountants, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report and on
the authority of such firm as experts in auditing and accounting.
Legal Counsel
Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800 East,
Washington, D.C. 20005, are counsel to HighMark and will pass upon the legality
of the Shares offered hereby.
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ADDITIONAL INFORMATION
Description of Shares
HighMark is a Massachusetts business trust. HighMark's Declaration of
Trust was originally filed with the Secretary of State of The Commonwealth of
Massachusetts on March 10, 1987. The Declaration of Trust, as amended,
authorizes the Board of Trustees to issue an unlimited number of Shares, which
are units of beneficial interest, without par value. HighMark's Declaration of
Trust, as amended, further authorizes the Board of Trustees to establish one or
more series of Shares of HighMark, and to classify or reclassify the Shares of
any series into one or more classes by setting or changing in any one or more
respects the preferences, designations, conversion or other rights,
restrictions, limitations as to dividends, conditions of redemption,
qualifications or other terms applicable to the Shares of such class, subject to
those matters expressly provided for in the Declaration of Trust, as amended,
with respect to the Shares of each series of HighMark. HighMark presently
consists of sixteen series of Shares, representing units of beneficial interest
in the Growth Fund, the Income Equity Fund, the Balanced Fund, the Value
Momentum Fund, the Blue Chip Growth Fund, the Emerging Growth Fund, the
International Equity Fund, the Bond Fund, the Intermediate-Term Bond Fund, the
Government Securities Fund, the Convertible Securities Fund, the California
Intermediate Tax-Free Bond Fund, 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. As described in the Prospectuses,
selected Funds have been divided into two classes of Shares, designated Retail
Shares and Fiduciary Shares.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectuses and this
Statement of Additional Information, HighMark's Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of HighMark,
Shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund that are available for distribution. Upon
liquidation or dissolution of HighMark, Retail and Fiduciary shareholders are
entitled to receive the net assets of the Fund attributable to each class.
As used in the Prospectuses and in this Statement of Additional
Information, "assets belonging to a Fund" means the consideration received by
HighMark upon the issuance or sale of Shares in that Fund, together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or payments derived from any reinvestment of such
proceeds, and any general assets of HighMark not readily identified as belonging
to a particular Fund that are allocated to that Fund by HighMark's Board of
Trustees. Such allocations of
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general assets may be made in any manner deemed fair and equitable, and it is
anticipated that the Board of Trustees will use the relative net asset values of
the respective Funds at the time of allocation. Assets belonging to a particular
Fund are charged with the direct liabilities and expenses of that Fund, and with
a share of the general liabilities and expenses of HighMark not readily
identified as belonging to a particular Fund that are allocated to that Fund in
proportion to the relative net asset values of the respective Funds at the time
of allocation. The timing of allocations of general assets and general
liabilities and expenses of HighMark to particular Funds will be determined by
the Board of Trustees and will be in accordance with generally accepted
accounting principles. Determinations by the Board of Trustees as to the timing
of the allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to a particular Fund are
conclusive.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as HighMark shall not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding Shares of each
Fund affected by the matter. For purposes of determining whether the approval of
a majority of the outstanding Shares of a Fund will be required in connection
with a matter, a Fund will be deemed to be affected by a matter unless it is
clear that the interests of each Fund in the matter are identical, or that the
matter does not affect any interest of the Fund.
Under Rule 18f-2, the approval of an investment advisory agreement or
any change in fundamental investment policy would be effectively acted upon with
respect to a Fund only if approved by a majority of the outstanding Shares of
such Fund. However, Rule 18f-2 also provides that the ratification of
independent public accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
Shareholders of HighMark voting without regard to series.
Although not governed by Rule 18f-2, Retail Shares of a Fund have
exclusive voting rights with respect to matters pertaining to the Fund's
Distribution Plan.
Shareholder and Trustee Liability
Under Massachusetts law, holders of units of interest in a business
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. However, HighMark's Declaration of Trust, as
amended, provides that Shareholders shall not be subject to any personal
liability for the obligations of HighMark, and that every written agreement,
obligation, instrument, or undertaking made by HighMark shall contain a
provision to the effect that the Shareholders are not personally liable
thereunder. The Declaration of Trust, as amended, provides for indemnification
out of the trust property of any Shareholder held personally liable solely by
reason of his or her being or having been a Shareholder. The Declaration of
Trust, as amended, also provides that HighMark shall, upon request, assume the
defense of any claim made against any Shareholder for any act or
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obligation of HighMark, and shall satisfy any judgment thereon. Thus, the risk
of a Shareholder incurring financial loss on account of Shareholder liability is
limited to circumstances in which HighMark itself would be unable to meet its
obligations.
The Declaration of Trust, as amended, states further that no Trustee,
officer, or agent of HighMark shall be personally liable in connection with the
administration or preservation of the assets of the trust or the conduct of
HighMark's business, nor shall any Trustee, officer, or agent be personally
liable to any person for any action or failure to act except for his own bad
faith, willful misfeasance, gross negligence, or reckless disregard of his
duties.
The Declaration of Trust, as amended, also provides that all persons
having any claim against the Trustees or HighMark shall look solely to the
assets of the trust for payment.
The Reorganization of the IRA Fund and HighMark
As of June 23, 1988, pursuant to an Agreement and Plan of
Reorganization between the IRA Fund, HighMark, and the Bank of California,
substantially all of the assets of the IRA Fund's Income Equity Portfolio, and
Bond Portfolio were transferred to HighMark's Income Equity Fund, and Bond Fund,
respectively, in exchange for such Fund's Shares, and substantially all of the
assets of the IRA Fund's Short Term Portfolio were transferred to one or more of
HighMark's Money Market Funds in exchange for Shares of such Money Market Fund
or Funds. Prior to June 23, 1988, the aggregate total return and average annual
total return of the Bond Fund and Income Equity Fund reflect the aggregate total
return and average annual total return of the IRA Fund Bond Portfolio and the
IRA Fund Income Equity Portfolio, respectively. The IRA Fund Bond Portfolio and
the IRA Fund Income Equity Portfolio both received investment advice from the
same division of the Bank of California now known as Pacific Alliance Capital
Management and had investment objectives, policies and restrictions
substantially similar to those of the Bond Fund and the Income Equity Fund,
respectively. However, potential investors should be aware that both the nature
and amount of fees and expenses of the IRA Fund Bond Portfolio and the Bond Fund
and those of the IRA Fund Income Equity Portfolio and the Income Equity Fund
differ.
Calculation of Performance Data
From time to time, articles relating to the performance, rankings, and
other investment characteristics of mutual funds and their investment advisors,
including HighMark's Funds and the Advisor, may appear in national, regional,
and local publications. In particular, some publications may publish their own
rankings or performance reviews of mutual funds and their investment advisors,
including HighMark's Funds and the Advisor. Various mutual fund or market
indices may also serve as a basis for comparison of the performance of
HighMark's Funds with other mutual funds or mutual fund portfolios with
comparable investment objectives and policies. In addition to the indices
prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation, references
to or reprints from the following publications may be used in HighMark's
promotional literature: IBC/Donoghue's Money
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Fund Report, Ibbotson Associates of Chicago, MorningStar, Lipper Analytical
Services, Inc., CDA/Wiesenberger Investment Company Services, SEI Financial
Services, Callan Associates, Wilshire Associates, MONEY Magazine, Pension and
Investment Age, Forbes Magazine, Business Week, American Banker, Fortune
Magazine, Institutional Investor, Barron's National Business & Financial Weekly,
The Wall Street Journal, New York Times, San Francisco Chronicle and Examiner,
Los Angeles Times, U.S.A. Today, Sacramento Bee, Seattle Times, Seattle Daily
Journal of Commerce, Seattle Post/Intelligence, Seattle Business Journal, Tacoma
New Tribune, Bellevue Journal-American, The Oregonian, Puget Sound Business
Journal, Portland Chamber of Commerce and Portland Daily Journal of
Commerce/Portland Business Today. Shareholders may call toll free 1-800-433-6884
for current information concerning the performance of each of HighMark's Funds.
From time to time, the Funds may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of compounding and the benefits of dollar-cost averaging); (2)
discussions of general economic trends; (3) presentations of statistical data to
supplement such discussions; (4) descriptions of past or anticipated portfolio
holdings for one or more of the Funds within HighMark; (5) descriptions of
investment strategies for one or more of the Funds; (6) descriptions or
comparisons of various savings and investment products (including, but not
limited to, insured bank products, annuities, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant market or
industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) testimonials
describing the experience of persons that have invested in one or more of the
Funds. The Funds may also include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results in such communications.
Such performance examples will be based on an express set of assumptions and are
not indicative of the performance of any of the Funds. In addition, the
California Tax-Free Fund may include charts comparing various tax-free yields
versus taxable yield equivalents at different income levels.
Based on the seven-day period ended July 31, 1996 (the "base period"
for 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), the yield of the Diversified Money Market Fund's Retail Shares and
Fiduciary Shares was 4.76% and 4.76%, respectively, and the effective yield of
the Fund's Retail Shares and Fiduciary Shares was 4.87% and 4.87%, respectively;
the yield of the U.S. Government Money Market Fund's Retail Shares and Fiduciary
Shares was 4.60% and 4.61%, respectively, and the effective yield of the Fund's
Retail Shares and Fiduciary Shares was 4.71% and 4.72%, respectively; the yield
of the 100% U.S. Treasury Money Market Fund's Retail Shares and Fiduciary Shares
was 4.46% and 4.46% respectively, and the effective yield of the Fund's Retail
Shares and Fiduciary Shares was 4.56% and 4.56% respectively; and the yield of
the California Tax-Free Money Market Fund's Retail Shares
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and Fiduciary Shares was 2.71% and 2.71% respectively, and the effective yield
of the Fund's Retail Shares and Fiduciary Shares was 2.75% and 2.75%,
respectively. The yield of each Fund's Retail Shares and Fiduciary Shares,
respectively, was computed by determining the percentage net change, excluding
capital changes, in the value of an investment in one Share of the Class over
the base period, and multiplying the net change by 365/7 (or approximately 52
weeks). The effective yield of each Fund's Retail Shares and Fiduciary Shares,
respectively, represents a compounding of the yield of the Class by adding 1 to
the number representing the percentage change in value of the investment during
the base period, raising that sum to a power equal to 365/7, and subtracting 1
from the result.
Based on the thirty-day period ended July 31, 1996, the yield of the
Diversified Money Market Fund's Retail Shares and Fiduciary Shares was 4.73% and
4.73% respectively, and the effective yield of the Fund's Retail Shares and
Fiduciary Shares was 4.83% and 4.83%, respectively; the yield of the U.S.
Government Money Market Fund's Retail Shares and Fiduciary Shares was 4.59% and
4.60%, respectively, and the effective yield of the Fund's Retail Shares and
Fiduciary Shares was 4.69% and 4.70%, respectively; the yield of the 100% U.S.
Treasury Money Market Fund's Retail Shares and Fiduciary Shares was 4.47% and
4.47%, respectively, and the effective yield of the Fund's Retail Shares and
Fiduciary Shares was 4.56% and 4.56%, respectively; and the yield of the
California Tax- Free Money Market Fund's Retail Shares and Fiduciary Shares was
2.31% and 2.31%, respectively, and the effective yield of the Fund's Retail
Shares and Fiduciary Shares was 2.33% and 2.33%, respectively. The yield of each
Fund's Retail Shares and Fiduciary Shares, respectively, was computed by
determining the percentage net change, excluding capital changes, in the value
of an investment in one Share of the Class over the thirty-day period, and
multiplying the net change by 365/30 (or approximately twelve months). The
effective yield of each Fund's Retail Shares and Fiduciary Shares, respectively,
represents a compounding of the yield of the Class by adding 1 to the number
representing the percentage change in value of the investment during the
thirty-day period, raising that sum to a power equal to 365/30, and subtracting
1 from the result.
Based on the seven-day period ended July 31, 1996, the tax-equivalent
yield of the California Tax-Free Money Market Fund's Retail Shares and Fiduciary
Shares was 4.49% and 4.49% respectively (using a federal income tax rate of
39.6%), and 5.49% and 5.49% respectively (using a federal income tax rate of
39.6% and a California personal income tax rate of 11%), and the tax-equivalent
effective yield of the Fund's Retail Shares and Fiduciary Shares was 4.55% and
4.55%, respectively (using a federal income tax rate of 39.6%), and 5.57% and
5.57%, respectively (using a federal income tax rate of 39.6% and a California
personal income tax rate of 11%).
Based on the thirty-day period ended July 31, 1996, the tax-equivalent
yield of the California Tax-Free Money Market Fund's Retail Shares and Fiduciary
Shares was 3.82% and 3.82%, respectively (using a federal income tax rate of
39.6%), and 4.68% and 4.68%, respectively (using a federal income tax rate of
39.6% and a California personal income tax
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rate of 11%), and the tax-equivalent effective yield of the Fund's Retail Shares
and Fiduciary Shares was 3.86% and 3.86%, respectively (using a federal income
tax rate of 39.6%), and 4.72% and 4.72%, respectively (using a federal income
tax rate of 39.6% and a California personal income tax rate of 11%).
The tax-equivalent yield of the Retail Shares and Fiduciary Shares,
respectively, of the California Tax-Free Fund was computed by dividing that
portion of the yield of the Class that is tax-exempt by 1 minus the stated
income tax rate (or rates) and adding the product to that portion, if any, of
the yield of the Class that is not tax-exempt. The tax-equivalent effective
yield of the Fund's Retail Shares and Fiduciary Shares, respectively, was
computed by dividing that portion of the effective yield of the Class which is
tax-exempt by 1 minus the stated income tax rate (or rates) and adding to that
portion, if any, of the effective yield of the Class that is not tax-exempt.
For the year ended July 31, 1996, the one-year average annual total
return of the Diversified Money Market Fund Retail and Fiduciary shares was
5.01%, of the U.S. Government Money Market Fund Retail and Fiduciary shares was
4.86% and 4.88%, respectively, of the 100% U.S. Treasury Money Market Fund
Retail and Fiduciary shares was 4.74%, and of the California Tax-Free Money
Market Fund Retail and Fiduciary shares was 2.91%.
For the period ended July 31, 1996, the five-year average annual total
return of the Diversified Money Market Fund's Retail and Fiduciary shares was
4.00%; of the U.S. Government Money Market Fund's Retail and Fiduciary shares
was 3.88%; of the 100% U.S. Treasury Money Market Fund's Retail and Fiduciary
shares was 3.78%; and of the California Tax-Free Money Market Fund's Retail and
Fiduciary shares was 2.68%.
For the period from August 10, 1987 (the date on which the Diversified
Money Market Fund, the U.S. Government Money Market Fund and the 100% U.S.
Treasury Money Market Fund commenced operations) through July 31, 1996, the
average annual total return of the Diversified Money Market Fund Retail and
Fiduciary shares, the U.S. Government Money Market Fund Retail and Fiduciary
shares and the 100% U.S. Treasury Money Market Fund Retail and Fiduciary shares
was 5.66%, 5.48% and 5.38%, respectively. For the period from August 11, 1987
(the date on which the California Tax-Free Money Market Fund commenced
operations) through July 31, 1996, the average annual total return of the
California Tax-Free Money Market Fund Retail and Fiduciary shares was 3.69%.
Prior to June 23, 1988 (the date on which the Income Equity Fund and
the Bond Fund commenced operations as a result of the reorganization involving
the IRA Fund Income Equity Portfolio and the IRA Fund Bond Portfolio,
respectively, as described under "Additional Information - The Reorganization of
the IRA Fund and HighMark" above), the total return
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and average annual total return of the Income Equity Fund and the Bond Fund
reflects the total return and average annual total return of the IRA Fund Income
Equity Portfolio, and the IRA Fund Bond Portfolio, respectively. Each IRA Fund
Portfolio received investment advice from the same division of the Bank of
California now known as Pacific Alliance Capital Management and had
substantially similar investment objectives, policies, and restrictions of the
Fund into which it was reorganized. However, potential investors in the Income
Equity Fund, and the Bond Fund should be aware that both the nature and amount
of fees and expenses of the IRA Fund Income Equity Portfolio, and the IRA Fund
Bond Portfolio differ from the Fund into which the respective IRA Fund
Portfolios were reorganized. See "Management of HighMark Investment Advisor" and
the Statements of Operations in the Financial Statements with respect to the
Income Equity Fund, and the Bond Fund and the IRA Fund Income Equity Portfolio,
and the IRA Fund Bond Portfolio for the applicable period ended July 31, 1989
and June 22, 1988 contained in this Statement of Additional Information.
Each Equity Fund and Fixed Income Fund offered a single class of shares
throughout the periods shown below. The performance figures relating to the
Retail Shares have been adjusted, however, to give effect to the sales charge
and distribution fee to which the Retail Shares are subject. Because only Retail
Shares bear the expense of the fee, if any, under the Distribution Plan and a
sales charge, total return and yield relating to a Fund's Retail Shares will be
lower than that relating to the Funds' Fiduciary Shares.
For the one year period ended July 31, 1996, the average annual total
return of the Retail and Fiduciary Shares of the Income Equity Fund was 12.93%
(18.21% without a load) and 18.25%, respectively, and of the Bond Fund was 1.79%
(4.95% without a load) and 4.81%, respectively. For the five-year period ended
July 31, 1996, the average annual total return of the Retail and Fiduciary
Shares of the Income Equity Fund was 11.99% (13.02% without a load) and 12.98%,
respectively, and of the Bond Fund was 6.15% (6.80% without a load) and 6.95%,
respectively. For the ten year period ended July 31, 1996, the average annual
total return of the Retail and Fiduciary Shares of the Income Equity Fund was
12.17% (13.02% without a load) and 12.66%, respectively. For the ten year period
ended July 31, 1996, the average annual total return of the Retail and Fiduciary
Shares of the Bond Fund was 6.71% (7.03% without a load) and 7.10%,
respectively.
For the one year period ended July 31, 1996, the average annual total
return of the Retail and Fiduciary Shares of the Growth Fund was 7.80% (12.88%
without a load) and 12.72%, respectively and of the Retail and Fiduciary Shares
of the Balanced Fund was 5.93% (10.94% without a load) and 11.06% respectively.
For the period beginning November 18, 1993 (commencement of operations)
and ending July 31, 1996, the average annual total return of the Retail Shares
and Fiduciary Shares of the Growth Fund was 10.97% (12.87% without a load) and
12.81%, respectively.
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For the period beginning November 14, 1993 (commencement of operations)
and ending July 31, 1996, the aggregate total return of the Retail Shares and
Fiduciary Shares of the Balanced Fund was 7.66% (9.49% without a load) and
9.75%, respectively.
Each Fund's respective average annual total return and/or aggregate
total return was calculated by determining the change in the value of a
hypothetical $1,000 investment in the Fund over the applicable period
(utilizing, when appropriate, performance information from the applicable IRA
Fund Portfolio prior to June 23, 1988) that would equate the initial amount
invested to the ending redeemable value of the investment; in the case of the
average annual total return, this amount (representing the Fund's total return)
was then averaged over the relevant number of years. The ending redeemable value
includes dividends and capital gain distributions reinvested at net asset value.
The resulting percentages indicate the positive or negative investment results
that an investor would have experienced from changes in Share price and
reinvestment of dividends and capital gains distributions.
For the thirty-day period ended July 31, 1996, the yield for the Retail
and Fiduciary Shares of the Growth Fund was 0.74% (0.77% without a load) and
0.77%, respectively; for the Retail and Fiduciary Shares of the Income Equity
Fund was 2.86% (2.99% without a load) and 2.80%, respectively; for the Retail
and Fiduciary Shares of the Balanced Fund was 3.41% (3.57% without a load) and
3.57%, respectively; and for the Retail and Fiduciary Shares of the Bond Fund
was 5.90% (6.08% without a load) and 6.08%, respectively. The Fund's "yield"
(referred to as "standardized yield") for a given 30-day period for a class of
shares is calculated using the following formula set forth in rules adopted by
the Commission that apply to all funds that quote yields:
Standardized Yield = 2 [( a-b + 1)to the 6th power - 1]
---
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares of that class outstanding during
the 30-day period that were entitled to receive dividends.
d = the maximum offering price per share of the class on the last day of
the period, adjusted for undistributed net investment income.
The standardized yield of a class of shares for a 30-day period may
differ from its yield for any other period. The Commission formula assumes that
the standardized yield for a 30-day period occurs at a constant rate for a
six-month period and is annualized at the end of the six-month period. This
standardized yield is not based on actual distributions paid by the Fund to
shareholders in the 30-day period, but is a hypothetical yield based upon the
net investment income from the Fund's portfolio investments calculated for that
period. Because
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<PAGE> 554
each class of shares is subject to different expenses, it is likely that the
standardized yields of the Fund classes of shares will differ.
For the one year period ended July 31, 1996, the distribution rate
(including capital gains and excluding a sales charge) of the Income Equity Fund
was 7.57% for Retail Shares and 7.58% for Fiduciary Shares and of the Bond Fund
was 6.37% for Retail Shares and 6.32% for Fiduciary Shares. For the one year
period ended July 31, 1996, the distribution rate (excluding capital gains and a
sales charge) of the Income Equity Fund was 2.94% for the Retail and Fiduciary
Shares, and of the Bond Fund was 6.37 for the Retail Shares and 6.32% for the
Fiduciary Shares. For the one year period ended July 31, 1996, the distribution
rate (including capital gains and a sales load) of the Income Equity Fund was
7.23% and of the Bond Fund was 6.18%. For the one year period ended July 31,
1996 the distribution rate (excluding capital gains and including a load) of the
Income Equity Fund was 2.80% and of the Bond Fund was 6.18%. The distribution
rate for each Fund is determined by dividing the income distributions and, where
the distribution rate includes capital gains distributions, capital gains
distributions on a Share of the Fund over a twelve-month period by the per Share
net asset value of the Fund on the last day of the period and annualized in the
case of Funds which have not had a full year of results.
All performance information presented is based on past performance and
does not predict future performance. No performance information is presented for
the Value Momentum, Blue Chip Growth, Emerging Growth, International Equity,
Intermediate-Term Bond, Government Securities, Convertible Securities and
California Intermediate Tax-Free Bond Funds because they had not commenced
operations as of the date of this Statement of Additional Information.
Miscellaneous
HighMark is not required to hold meetings of Shareholders for the
purpose of electing Trustees except that (i) HighMark is required to hold a
Shareholders' meeting for the election of Trustees at such time as less than a
majority of the Trustees holding office have been elected by Shareholders and
(ii) if, as a result of a vacancy on the Board of Trustees, less than two-thirds
of the Trustees holding office have been elected by the Shareholders, that
vacancy may be filled only by a vote of the Shareholders. In addition, Trustees
may be removed from office by a written consent signed by the holders of Shares
representing two-thirds of the outstanding Shares of HighMark at a meeting duly
called for the purpose, which meeting shall be held upon the written request of
the holders of Shares representing not less than 10% of the outstanding Shares
of HighMark. Upon written request by the holders of Shares representing 1% of
the outstanding Shares of HighMark stating that such Shareholders wish to
communicate with the other Shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a Trustee,
HighMark will provide a list of Shareholders or disseminate appropriate
materials (at the expense of the
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<PAGE> 555
requesting Shareholders). Except as set forth above, the Trustees may continue
to hold office and may appoint successor Trustees.
HighMark is registered with the Securities and Exchange Commission as
a management investment company. Such registration does not involve supervision
by the Securities and Exchange Commission of the management or policies of
HighMark.
The Prospectuses and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Securities and Exchange Commission. Copies of such information may be
obtained from the Securities and Exchange Commission upon payment of the
prescribed fee.
The 1996 Annual Report to Shareholders of HighMark is incorporated
herein by reference. This Report includes audited financial statements for the
fiscal year ended July 31, 1996. Upon the incorporation by reference herein of
such Annual Report, the opinion in such Annual Report of independent accountants
is incorporated herein by reference and such Annual Report's financial
statements are incorporated by reference herein in reliance upon the authority
of such accountants as experts in auditing and accounting.
The Prospectuses and this Statement of Additional Information are not
an offering of the securities herein described in any state in which such
offering may not lawfully be made.
No salesperson, dealer, or other person is authorized to give any
information or make any representation other than those contained in the
Prospectuses and this Statement of Additional Information.
As of November 22, 1996, HighMark believes that the trustees and
officers of HighMark, as a group, owned less than one percent of the Shares of
any Fund of HighMark. As of November 22, 1996, HighMark believes that Union Bank
of California was the shareholder of record of 87.57% of the Fiduciary Shares of
the Growth Fund, 73.24% of the Fiduciary Shares of the Income Equity Fund,
97.91% of the Fiduciary Shares of the Balanced Fund, 88.27% of the Fiduciary
Shares of the Bond Fund, 93.46% of the Fiduciary Shares of the U.S. Government
Money Market Fund, 98.42%of the Fiduciary Shares of the Diversified 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. As of November 22, 1996, HighMark believes that Union Bank of
California had voting power with respect to 61.00% of the Growth Fund Fiduciary
Shares, 43.30% of the Income Equity Fund Fiduciary Shares, 38.89% of the
Balanced Fund Fiduciary Shares, 47.51% of the Bond Fund Fiduciary Shares, 15.46%
of the Diversified Money Market Fund Fiduciary Shares, 19.96% of the 100% U.S.
Treasury Money Market Fund Fiduciary Shares, and 18.12% of the California
Tax-Free Money Market Fund Fiduciary Shares.
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<PAGE> 556
The table below indicates each additional person known by HighMark to
own beneficially 5% or more of the Shares of the following Funds of HighMark as
of November 22, 1996:
<TABLE>
<CAPTION>
5% or More Beneficial Owners
----------------------------
Percent of
Beneficial
Name and Address Ownership
- ---------------- ---------
Growth Fund
-----------
Retail Shares
-------------
<S> <C>
National Financial Services 7.67%
Corporation for the Exclusive
Benefit of Our Customers and
Bill S. Tsutagawa
Yuriko Tsutagawa
2242 Valley Rd.
Oceanside, CA 92056
National Financial Services 5.55%
Corporation for the Exclusive
Benefit of Our Customers and
IRA of John A. Dito
550 S. Hope St. 2000
Los Angeles, CA 90071
National Financial Services 5.92%
Corporation for the Exclusive
Benefit of Our Customers and
Douglas S. Querin
4228 SW Selling Court
Portland, OR 97221
National Financial Services 7.31%
Corporation for the Exclusive
Benefit of Our Customers and
IRA of John A. Dito
550 S. Hope St. 2000
Los Angeles, CA 90071
</TABLE>
-75-
<PAGE> 557
<TABLE>
<S> <C> <C>
Fiduciary Shares
----------------
Union Bank of California, N.A. 32.39%
Capital Accumulation Plan
400 California St.
San Francisco, CA 94104
Union Bank of California N.A. 17.51%
Personal Retirement Options Plan
400 California St.
San Francisco, CA 94104
Income Equity Fund
------------------
Retail Shares
-------------
National Financial Services 9.76%
Corporation for the Exclusive
Benefit of Our Customers and
Richard W. Killion
c/o Killion Industries
2811 La Mirada Dr.
Vista, CA 92083
Fiduciary Shares
----------------
Union Bank of California N.A. 18.07%
Capital Accumulation Plan
400 California St.
San Francisco, CA 94104
Union Bank of California N.A. 8.57%
Personal Retirement Options Plan
400 California St.
San Francisco, CA 94104
Balanced Fund
-------------
Retail Shares
-------------
National Financial Services 7.75%
</TABLE>
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<PAGE> 558
<TABLE>
<S> <C> <C>
Corporation for the Exclusive
Benefit of Our Customers and
Rosalind Fahmy
2691 Pocatello
Rolland Heights, CA 91748
National Financial Services 44.99%
Corporation for the Exclusive
Benefit of Our Customers and
John F. Roach
587 Perugia Way
Los Angeles, CA 90077
National Financial Services 5.53%
Corporation for the Exclusive
Benefit of Our Customers and
Yoko Fujii, Trustee
Tadashi Yoko Fujii
1405 Lamont Ave.
Thousand Oaks, CA 91362
Fiduciary Shares
----------------
Union Bank of California N.A. 25.13%
Capital Accumulation Plan
400 California St.
San Francisco, CA 94104
Union Bank of California N.A. 12.45%
Personal Retirement Options Plan
400 California St.
San Francisco, CA 94104
EBT/Employee Benefits 6.63%
Accounting
Attn: Joyce Carroll
475 Sansome Street, 12th Floor
San Francisco, CA 94111
</TABLE>
-77-
<PAGE> 559
<TABLE>
<S> <C> <C>
Bond Fund
---------
Retail Shares
-------------
National Financial Services 22.01%
Corporation for the Exclusive
Benefit of Our Customers and
Mildred Walsh
Stephanie McGowan
3701 E. Valley St.
Seattle, WA 98112
National Financial Services 6.00%
Corporation for the Exclusive
Benefit of Our Customers and
Union Bank of California, Cust.
IRA of Charles L. Masingill
2218 Windward Lane
Newport, CA 92660
National Financial Services 5.50%
Corporation for the Exclusive
Benefit of Our Customers and
Wallace Allred
Norma Allred
2250 N. Broadway, No. 48
Escondido, CA 92026
National Financial Services 5.88%
Corporation for the Exclusive
Benefit of Our Customers and
Union Bank of California, Cust.
IRA of James Harris
1212 Christian Valley Rd.
Auburn, CA 95602
</TABLE>
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<PAGE> 560
<TABLE>
<S> <C> <C>
National Financial Services 7.64%
Corporation for the Exclusive
Benefit of Our Customers and
Union Bank of California, Cust.
Frederick V. Betts
800 Financial Center
1215 Fourth Ave.
Seattle, WA 98161
National Financial Services 5.52%
Corporation for the Exclusive
Benefit of Our Customers and
Marla J. Arata
7801 Oakmont Drive
Modesto, CA 95356
National Financial Services Corporation 5.63%
for the Exclusive Benefit of Our Customers and
C. Dan Hunter
Irene W. Hunter
9335 N.E. 30th Street
Bellevue, WA 98004
Fiduciary Shares
----------------
Union Bank of California N.A. 11.88%
Capital Accumulation Plan
400 California St.
San Francisco, CA 94104
Union Bank of California N.A. 5.88%
Personal Retirement Options Plan
400 California St.
San Francisco, CA 94104
</TABLE>
-79-
<PAGE> 561
<TABLE>
<S> <C> <C>
Diversified Money Market Fund
-----------------------------
Retail Shares
-------------
National Financial Services 95.89%
Corporation for the Exclusive
Benefit of Our Customers
Church Street Station
P.O. Box 3908
New York, NY 10008-3908
Fiduciary Shares
----------------
Oregon Laborers Employers Trust 5.14%
Gary Case, Plan Administrator
2929 N.W. 31st Street
Portland, OR 97210
U.S. Government Money Market Fund
---------------------------------
Retail Shares
-------------
National Financial Services 89.26%
Corporation for the Exclusive
Benefit of Our Customers
Church Street Station
P.O. Box 3908
New York, NY 10008-3908
Fiduciary Shares
----------------
Spitzel/Anderson Escrow 8.21%
3700 Wilshire Blvd. #820
Los Angeles, CA 90010
The Macneal-Schwendler Corp. 5.99%
815 Colorado Blvd.
Los Angeles, CA 90041
</TABLE>
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<PAGE> 562
<TABLE>
<S> <C> <C>
Joseph A. Brislin 14.61%
6825 S.W. Sandburg Street
Tigard, OR 97223
100% U.S. Treasury Money Market Fund
------------------------------------
Retail Shares
-------------
National Financial Services 98.98%
Corporation for the Exclusive
Benefit of Our Customers
Church Street Station
P.O. Box 3908
New York, NY 10008-3908
Fiduciary Shares
----------------
EBT/Employee Benefits Accounting 5.70%
Attn: Joyce Carroll
475 Sansome Street, 12th Floor
San Francisco, CA 94111
California Tax-Free Money Market Fund
-------------------------------------
Retail Shares
-------------
National Financial Services 94.81%
Corporation for the Exclusive
Benefit of Our Customers
Church Street Station
P.O. Box 3908
New York, NY 10008-3908
</TABLE>
-81-
<PAGE> 563
<TABLE>
<S> <C> <C>
Fiduciary Shares
----------------
Charles and Mary Page 5.28%
Revocable Trust
501 Via Casitas - #225
Kenfield, CA 94904
<FN>
No person other than Union Bank of California and the beneficial owners
listed above own as of record more than 5% of the Fiduciary or Retail Shares of
a Fund.
</TABLE>
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<PAGE> 564
APPENDIX
The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by the Advisor with regard to portfolio
investments for the Funds include Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("S&P"), Duff & Phelps, Inc. ("Duff"), Fitch
Investors Service, Inc. ("Fitch"), IBCA Limited and its affiliate, IBCA Inc.
(collectively, "IBCA"), and Thomson BankWatch, Inc. ("Thomson"). Set forth below
is a description of the relevant ratings of each such NRSRO. The NRSROs that may
be utilized by the Advisor and the description of each NRSRO's ratings is as of
the date of this Statement of Additional Information, and may subsequently
change.
Long-Term Debt Ratings (may be assigned, for example, to corporate and municipal
bonds)
Description of the four highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edged." Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the
future.
Baa Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor
poorly secured). Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
-83-
<PAGE> 565
- -Description of the four highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Description of the four highest long-term debt ratings by Duff:
AAA Highest credit quality. The risk factors are negligible being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. AA Risk
is modest but may vary slightly from time to time A- because
of economic conditions.
A+ Protection factors are average but adequate. However, A risk
factors are more variable and greater in periods A- of
economic stress.
BBB Below average protection factors. Still considered sufficient
for prudent investment.
Description of the four highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely
to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not
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<PAGE> 566
quite as strong as bonds rated "AAA." Because bonds rated in
the "AAA" and "AA" categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these
issues is generally rated "F-1+."
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more
likely to have an adverse impact on thee bonds and therefore,
impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than
for bonds with higher ratings.
IBCA's description of its four highest long-term debt ratings:
AAA Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial such that adverse changes in
business, economic or financial conditions are unlikely to
increase investment risk significantly.
AA Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial. Adverse changes in business,
economic, or financial conditions may increase investment risk
albeit not very significantly.
A Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest
is strong, although adverse changes in business, economic or
financial conditions may lead to increased investment risk.
BBB Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal
and interest is adequate, although adverse changes in
business, economic or financial conditions are more likely to
lead to increased investment risk than for obligations in
higher categories.
Thomson's description of its four highest long-term debt ratings (Thomson may
include a plus (+) or minus (-) designation to indicate where within the
respective category the issue is placed):
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<PAGE> 567
AAA The highest category: indicates ability to repay principal and
interest on a timely basis is very high.
AA The second highest category: indicates a superior ability to
repay principal and interest on a timely basis with limited
incremental risk versus issues rated in the highest category.
A The third highest category: indicates the ability to repay
principal and interest is strong. Issues rated "A" could be
more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
BBB Lowest investment grade category: indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB"
are, however, more vulnerable to adverse developments (both
internal and external) than obligations with higher ratings.
Short-Term Debt Ratings (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
Prime-1 Issuers rated Prime-1 (or supporting institutions)
have a superior capacity for repayment of senior
short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by many of the
following characteristics:
- Leading market positions in well-established
industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well-established access to a range of financial
markets and assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions)
have a strong capacity for repayment of senior
short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more
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<PAGE> 568
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations.
The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may
result in changes in the level of debt protection measurements and
may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1 This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have
extremely strong safety characteristics are denoted with a plus
sign (+).
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher
designations.
Duff's description of its three highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors
are very small.
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<PAGE> 569
Duff 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good.
Risk factors are small.
Duff 3 Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is
expected.
Fitch's description of its three highest short-term debt ratings:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less
in degree than issues rated F-1+.
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned F-1+
or F-1 ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment grade.
IBCA's description of its three highest short-term debt ratings:
A+ Obligations supported by the highest capacity for timely
repayment.
A1 Obligations supported by a very strong capacity for timely
repayment.
A2 Obligations supported by a strong capacity for timely
repayment, although such capacity may be susceptible
to adverse changes in business, economic or financial
conditions.
Thomson's description of its three highest short-term ratings:
TBW-1 The highest category; indicates a very high degree of
likelihood that principal and interest will be paid on a
timely basis.
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<PAGE> 570
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as
for issues rated "TBW-1".
TBW-3 The lowest investment grade category; indicates that while
more susceptible to adverse developments (both internal and
external) than obligations with higher ratings, capacity to
service principal and interest in a timely fashion is
considered adequate.
SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS
Moody's description of its two highest short-term loan/municipal note
ratings:
MIG-1/VMIG-1 This designation denotes best quality. There is present
strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG-2/VMIG-2 This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
S&P's description of its two highest municipal note ratings:
SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
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<PAGE> 571
INDEPENDENT AUDITORS' REPORT FOR HIGHMARK FUNDS FOR
THE YEAR ENDED JULY 31, 1996
-90-
<PAGE> 572
FINANCIAL STATEMENTS FOR HIGHMARK FUNDS FOR
THE PERIODS ENDED JULY 31, 1996
-91-
<PAGE> 573
[LOGO]
REPORT OF INDEPENDENT AUDITORS'
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
THE HIGHMARK GROUP
We have audited the accompanying statements of assets and liabilities including
the schedules of portfolio investments of The HighMark Group (the "Funds"),
including Diversified Obligations Fund, U.S. Government Obligations Fund, 100%
U.S. Treasury Obligations Fund, California Tax-Free Fund, Bond Fund, Income
Equity Fund, Balanced Fund, and Growth Fund, as of July 31, 1996, the related
statements of operations, statements of changes in net assets and the financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements based on our audits. The
financial highlights for the other years presented and the statement of changes
in net assets for the year ended July 31, 1995 were audited by other auditors
whose report, dated September 22, 1995, expressed an unqualified opinion on
those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1996 by correspondence with the Funds' custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Funds at July 31, 1996, the results of
their operations, the changes in their net assets, and the financial highlights
for the year then ended, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
September 13, 1996
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24
<PAGE> 574
[LOGO]
STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
100% U.S.
DIVERSIFIED U.S. GOVERNMENT TREASURY CALIFORNIA
OBLIGATIONS OBLIGATIONS OBLIGATIONS TAX-FREE
FUND FUND FUND FUND
----------- --------------- ----------- -----------
<C> <C> <C> <C>
ASSETS:
Investments in securities, at amortized cost............ $ 413,900 $ 188,438 $ 274,306 $ 148,504
Repurchase agreements, at cost.......................... 21,502 39,183 -- --
-------- -------- -------- --------
Total Investments..................................... 435,402 227,621 274,306 148,504
Cash.................................................... 3 16 -- 897
Interest receivable..................................... 2,256 557 910 432
Receivable from brokers for investments sold............ -- -- -- 2,500
Prepaid expenses and other assets....................... 14 17 12 10
-------- -------- -------- --------
Total Assets........................................ 437,675 228,211 275,228 152,343
-------- -------- -------- --------
LIABILITIES:
Distributions payable................................... 1,690 863 1,088 287
Payable to brokers for investments purchased............ 5,000 -- -- --
Accrued expenses and other payables:
Investment advisory fees.............................. 143 76 98 31
Administration fees................................... 19 10 12 5
Shareholder services fees............................. 1 1 1 1
Custodian, accounting and transfer agent fees......... 26 26 13 14
Other................................................. 69 38 53 26
-------- -------- -------- --------
Total Liabilities................................... 6,948 1,014 1,265 364
-------- -------- -------- --------
NET ASSETS:
Capital................................................. 431,097 227,373 273,958 152,028
Accumulated undistributed net realized gains (losses) on
investment transactions............................... (370) (176) 5 (49)
-------- -------- -------- --------
Net Assets.......................................... $ 430,727 $ 227,197 $ 273,963 $ 151,979
======== ======== ======== ========
Net Assets
Investor.............................................. $ 185,952 $ 75,714 $ 100,623 $ 53,627
Fiduciary............................................. 244,775 151,483 173,340 98,352
-------- -------- -------- --------
Total............................................... $ 430,727 $ 227,197 $ 273,963 $ 151,979
======== ======== ======== ========
Outstanding units of beneficial interest (shares)
Investor.............................................. 186,031 75,727 100,626 53,639
Fiduciary............................................. 245,066 151,646 173,332 98,389
-------- -------- -------- --------
Total............................................... 431,097 227,373 273,958 152,028
======== ======== ======== ========
Net asset value -- offering and redemption price per
share
Investor.............................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
Fiduciary............................................. 1.00 1.00 1.00 1.00
======== ======== ======== ========
</TABLE>
See notes to financial statements.
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25
<PAGE> 575
[LOGO]
STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
INCOME
BOND EQUITY
FUND FUND
-------- ---------
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $59,354 and $232,422,
respectively)............................................................... $ 58,799 $ 266,771
Repurchase agreements, at cost................................................ 2,237 4,858
------- --------
Total Investments......................................................... 61,036 271,629
Interest and dividends receivable............................................. 912 796
Receivable from brokers for investments sold.................................. -- 2,930
Prepaid expenses and other assets............................................. 2 6
------- --------
Total Assets.............................................................. 61,950 275,361
------- --------
LIABILITIES:
Distributions payable......................................................... 319 586
Payable for capital shares redeemed........................................... 42 --
Payable to brokers for investments purchased.................................. -- 1,726
Accrued expenses and other payables:
Investment advisory fees.................................................... 23 154
Administration fees......................................................... 2 12
Custodian, accounting and transfer agent fees............................... 15 21
Other....................................................................... 18 59
------- --------
Total Liabilities......................................................... 419 2,558
------- --------
NET ASSETS:
Capital....................................................................... 65,254 223,480
Net unrealized appreciation (depreciation) on investments..................... (555) 34,349
Undistributed net investment income........................................... 32 --
Accumulated undistributed net realized gains (losses) on investment
transactions................................................................ (3,200) 14,974
------- --------
Net Assets................................................................ $ 61,531 272,803
======= ========
Net Assets
Investor.................................................................... $ 1,157 $ 10,143
Fiduciary................................................................... 60,374 262,660
------- --------
Total..................................................................... $ 61,531 $ 272,803
======= ========
Outstanding units of beneficial interest (shares)
Investor.................................................................... 114 710
Fiduciary................................................................... 5,900 18,413
------- --------
Total..................................................................... 6,014 19,123
======= ========
Net asset value
Investor -- redemption price per share...................................... $ 10.15 $ 14.29
Fiduciary -- offering and redemption price per share........................ 10.23 14.27
======= ========
Maximum Sales Charge (Investor Shares)........................................ 3.00% 4.50%
======= ========
Maximum Offering Price (100%/(100%-Maximum Sales Charge) of net asset value
adjusted to nearest cent) per share (Investor Shares)....................... $ 10.46 $ 14.96
======= ========
</TABLE>
See notes to financial statements.
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26
<PAGE> 576
[LOGO]
STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
BALANCED GROWTH
FUND FUND
-------- -------
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $32,159 and $39,610,
respectively).................................................................. $36,273 $43,527
Repurchase agreements, at cost................................................... 3,787 900
--------- ---------
Total Investments............................................................ 40,060 44,427
Interest and dividends receivable................................................ 278 55
Receivable from brokers for investments sold..................................... -- 216
Prepaid expenses................................................................. 9 5
--------- ---------
Total Assets................................................................. 40,347 44,703
--------- ---------
LIABILITIES:
Distributions payable............................................................ 118 28
Payable to brokers for investments purchased..................................... -- 301
Accrued expenses and other payables:
Investment advisory fees....................................................... 20 21
Administration fees............................................................ 2 2
Custodian, accounting and transfer agent fees.................................. 5 5
Other.......................................................................... 6 8
--------- ---------
Total Liabilities............................................................ 151 365
--------- ---------
NET ASSETS:
Capital.......................................................................... 35,830 38,047
Net unrealized appreciation on investments....................................... 4,114 3,917
Undistributed net investment income.............................................. 1 --
Accumulated undistributed net realized gains on investment transactions.......... 251 2,374
--------- ---------
Net Assets................................................................... $40,196 $44,338
========= =========
Net Assets
Investor....................................................................... $ 694 $ 2,843
Fiduciary...................................................................... 39,502 41,495
--------- ---------
Total........................................................................ $40,196 $44,338
========= =========
Outstanding units of beneficial interest (shares)
Investor....................................................................... 60 226
Fiduciary...................................................................... 3,392 3,300
--------- ---------
Total........................................................................ 3,452 3,526
========= =========
Net asset value
Investor -- redemption price per share......................................... $ 11.56 $ 12.60
Fiduciary -- offering and redemption price per share........................... 11.64 12.58
========= =========
Maximum Sales Charge (Investor Shares)........................................... 4.50% 4.50%
========= =========
Maximum Offering Price (100%/(100%-Maximum Sales Charge) of net asset value
adjusted to nearest cent) per share (Investor Shares).......................... $ 12.10 $ 13.19
========= =========
</TABLE>
See notes to financial statements.
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27
<PAGE> 577
[LOGO]
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
U.S. 100% U.S.
DIVERSIFIED GOVERNMENT TREASURY CALIFORNIA
OBLIGATIONS OBLIGATIONS OBLIGATIONS TAX-FREE
FUND FUND FUND FUND
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income.................................. $22,468 $ 13,070 $16,193 $5,301
------- ------- ------- ------
Total Income................................. 22,468 13,070 16,193 5,301
------- ------- ------- ------
EXPENSES:
Investment advisory fees......................... 1,591 944 1,203 618
Administration fees.............................. 795 472 602 309
Distribution fees (Investor shares).............. 396 194 267 122
Shareholder services fees........................ 994 590 752 386
Custodian and accounting fees.................... 264 181 177 121
Legal and audit fees............................. 63 37 52 29
Trustees' fees and expenses...................... 11 7 9 5
Transfer agent fees.............................. 89 44 50 47
Registration and filing fees..................... 47 16 28 5
Printing costs................................... 51 69 42 23
Other............................................ 13 7 9 4
------- ------- ------- ------
Total Expenses............................... 4,314 2,561 3,191 1,669
Expenses voluntarily reduced..................... (1,327) (739) (978) (824)
------- ------- ------- ------
Net Expenses................................. 2,987 1,822 2,213 845
------- ------- ------- ------
Net Investment Income............................ 19,481 11,248 13,980 4,456
------- ------- ------- ------
REALIZED GAINS ON INVESTMENTS:
Net realized gains (losses) on investments....... 16 15 (51) --
------- ------- ------- ------
Change in net assets resulting from operations... $19,497 $ 11,263 $13,929 $4,456
======= ======= ======= ======
</TABLE>
See notes to financial statements.
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28
<PAGE> 578
[LOGO]
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
INCOME
BOND EQUITY
FUND FUND
------ ---------
<S> <C> <C>
INVESTMENT INCOME:
Interest income...................................................... $4,316 $ 425
Dividend income...................................................... -- 9,943
------ -------
Total Income....................................................... 4,316 10,368
------ -------
EXPENSES:
Investment advisory fees............................................. 534 1,755
Administration fees.................................................. 123 521
Distribution fees (Investor shares).................................. 2 20
Shareholder services fees............................................ 154 651
Custodian and accounting fees........................................ 85 174
Legal and audit fees................................................. 10 44
Trustees' fees and expenses.......................................... 2 7
Transfer agent fees.................................................. 54 106
Registration and filing fees......................................... 6 19
Printing costs....................................................... 22 47
Other................................................................ 3 8
------ -------
Total Expenses................................................... 995 3,352
Expenses voluntarily reduced......................................... (445) (666)
------ -------
Total expenses before expense reimbursements..................... 550 2,686
Expense reimbursements........................................... -- --
------ -------
Net Expenses..................................................... 550 2,686
------ -------
Net Investment Income................................................ 3,766 7,682
------ -------
REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) on investment transactions............... (369) 19,384
Net change in unrealized appreciation (depreciation) on
investments........................................................ (465) 13,911
------ -------
Net realized/unrealized gains (losses) on investments................ (834) 33,295
------ -------
Change in net assets resulting from operations....................... $2,932 $ 40,977
====== =======
</TABLE>
See notes to financial statements.
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29
<PAGE> 579
LOGO
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
BALANCED GROWTH
FUND FUND
-------- ------
<S> <C> <C>
INVESTMENT INCOME:
Interest income........................................................ $ 996 $ 82
Dividend income........................................................ 549 607
------ ------
Total Income......................................................... 1,545 689
------ ------
EXPENSES:
Investment advisory fees............................................... 348 362
Administration fees.................................................... 70 72
Distribution fees (Investor shares).................................... 2 5
Shareholder services fees.............................................. 87 90
Custodian and accounting fees.......................................... 64 78
Legal and audit fees................................................... 6 6
Trustees' fees and expenses............................................ 1 1
Transfer agent fees.................................................... 33 42
Registration and filing fees........................................... 3 4
Printing costs......................................................... 6 6
Other.................................................................. 1 2
------ ------
Total Expenses..................................................... 621 668
Expenses voluntarily reduced........................................... (293) (333 )
------ ------
Total expenses before expense reimbursements....................... 328 335
Expense reimbursements............................................. -- --
------ ------
Net Expenses....................................................... 328 335
------ ------
Net Investment Income.................................................. 1,217 354
------ ------
REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investment transactions.......................... 446 3,272
Net change in unrealized appreciation on investments................... 1,716 155
------ ------
Net realized/unrealized gains on investments........................... 2,162 3,427
------ ------
Change in net assets resulting from operations......................... $3,379 $3,781
====== ======
</TABLE>
See notes to financial statements.
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30
<PAGE> 580
LOGO
STATEMENTS OF CHANGES IN NET ASSETS
Amounts in Thousands
<TABLE>
<CAPTION>
DIVERSIFIED U.S. GOVERNMENT
OBLIGATIONS FUND OBLIGATIONS FUND
-------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.......................... $ 19,481 $ 17,476 $ 11,248 $ 8,697
Net realized gains (losses) on investment
transactions................................. 16 (29) 15 34
----------- ----------- ----------- -----------
Change in net assets resulting from operations... 19,497 17,447 11,263 8,731
----------- ----------- ----------- -----------
DISTRIBUTIONS TO INVESTOR SHAREHOLDERS:
From net investment income..................... (7,738) (5,516) (3,707) (2,084)
DISTRIBUTIONS TO FIDUCIARY SHAREHOLDERS:
From net investment income..................... (11,743) (11,960) (7,541) (6,613)
----------- ----------- ----------- -----------
Change in net assets from shareholder
distributions.................................. (19,481) (17,476) (11,248) (8,697)
----------- ----------- ----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued.................... 1,943,043 1,562,243 1,933,728 1,760,626
Dividends reinvested........................... 7,326 4,915 3,487 1,950
Cost of shares redeemed........................ (1,918,325) (1,473,121) (1,918,254) (1,740,538)
----------- ----------- ----------- -----------
Change in net assets from share transactions..... 32,044 94,037 18,961 22,038
----------- ----------- ----------- -----------
Change in net assets............................. 32,060 94,008 18,976 22,072
NET ASSETS:
Beginning of period............................ 398,667 304,659 208,221 186,149
----------- ----------- ----------- -----------
End of period.................................. $ 430,727 $ 398,667 $ 227,197 $ 208,221
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
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31
<PAGE> 581
LOGO
STATEMENTS OF CHANGES IN NET ASSETS
Amounts in Thousands
<TABLE>
<CAPTION>
100% U.S. TREASURY CALIFORNIA
OBLIGATIONS FUND TAX-FREE FUND
----------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1996 1995 1996 1995
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........... $ 13,980 $ 10,640 $ 4,456 $ 4,619
Net realized gains (losses) on
investment transactions....... (51) 57 -- (23)
---------- --------- --------- ---------
Change in net assets resulting
from operations................. 13,929 10,697 4,456 4,596
---------- --------- --------- ---------
DISTRIBUTIONS TO INVESTOR
SHAREHOLDERS:
From net investment income...... (4,948) (2,706) (1,404) (1,089)
DISTRIBUTIONS TO FIDUCIARY
SHAREHOLDERS:
From net investment income...... (9,032) (7,934) (3,052) (3,530)
---------- --------- --------- ---------
Change in net assets from
shareholder distributions....... (13,980) (10,640) (4,456) (4,619)
---------- --------- --------- ---------
CAPITAL TRANSACTIONS:
Proceeds from shares issued..... 1,004,680 736,668 343,893 354,814
Dividends reinvested............ 4,571 2,106 1,425 1,035
Cost of shares redeemed......... (1,014,501) (659,445) (339,625) (356,054)
---------- --------- --------- ---------
Change in net assets from share
transactions.................... (5,250) 79,329 5,693 (205)
---------- --------- --------- ---------
Change in net assets.............. (5,301) 79,386 5,693 (228)
NET ASSETS:
Beginning of period............. 279,264 199,878 146,286 146,514
---------- --------- --------- ---------
End of period................... $ 273,963 $ 279,264 $ 151,979 $ 146,286
========== ========= ========= =========
</TABLE>
See notes to financial statements.
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32
<PAGE> 582
LOGO
STATEMENTS OF CHANGES IN NET ASSETS
Amounts in Thousands
<TABLE>
<CAPTION>
BOND FUND INCOME EQUITY FUND
---------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............ $ 3,766 $ 3,824 $ 7,682 $ 7,595
Net realized gains (losses) on
investment transactions........ (369) (1,512) 19,384 8,944
Net change in unrealized
appreciation (depreciation) on
investments.................... (465) 3,052 13,911 17,456
-------- -------- -------- --------
Change in net assets resulting from
operations....................... 2,932 5,364 40,977 33,995
-------- -------- -------- --------
DISTRIBUTIONS TO INVESTOR
SHAREHOLDERS:
From net investment income....... (63) (18) (239) (43)
From net realized gains on
investments.................... (1) -- (277) (16)
DISTRIBUTIONS TO FIDUCIARY
SHAREHOLDERS:
From net investment income....... (3,703) (3,806) (7,443) (7,552)
From net realized gains on
investments.................... (32) -- (11,279) (7,309)
-------- -------- -------- --------
Change in net assets from
shareholder distributions........ (3,799) (3,824) (19,238) (14,920)
-------- -------- -------- --------
CAPITAL TRANSACTIONS:
Proceeds from shares issued...... 15,630 11,393 63,282 36,043
Dividends reinvested............. 3,043 3,125 17,495 13,535
Cost of shares redeemed.......... (16,591) (19,934) (54,919) (56,799)
-------- -------- -------- --------
Change in net assets from share
transactions..................... 2,082 (5,416) 25,858 (7,221)
-------- -------- -------- --------
Change in net assets............... 1,215 (3,876) 47,597 11,854
NET ASSETS:
Beginning of period.............. 60,316 64,192 225,206 213,352
-------- -------- -------- --------
End of period.................... $ 61,531 $ 60,316 $272,803 $225,206
======== ======== ======== ========
</TABLE>
See notes to financial statements.
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33
<PAGE> 583
LOGO
STATEMENTS OF CHANGES IN NET ASSETS
Amounts in Thousands
<TABLE>
<CAPTION>
BALANCED FUND GROWTH FUND
---------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............ $ 1,217 $ 992 $ 354 $ 272
Net realized gains on investment
transactions................... 446 21 3,272 915
Net change in unrealized
appreciation on investments.... 1,716 2,804 155 3,752
------- ------- ------- -------
Change in net assets resulting from
operations....................... 3,379 3,817 3,781 4,939
------- ------- ------- -------
DISTRIBUTIONS TO INVESTOR
SHAREHOLDERS:
From net investment income....... (23) (3) (21) (5)
From net realized gains on
investments.................... -- -- (94) (3)
DISTRIBUTIONS TO FIDUCIARY
SHAREHOLDERS:
From net investment income....... (1,194) (989) (333) (267)
From net realized gains on
investments.................... (2) -- (1,566) (240)
------- ------- ------- -------
Change in net assets from
shareholder distributions........ (1,219) (992) (2,014) (515)
------- ------- ------- -------
CAPITAL TRANSACTIONS:
Proceeds from shares issued...... 15,840 10,356 19,239 9,727
Dividends reinvested............. 1,172 986 1,965 503
Cost of shares redeemed.......... (9,404) (9,590) (4,947) (3,594)
------- ------- ------- -------
Change in net assets from share
transactions..................... 7,608 1,752 16,257 6,636
------- ------- ------- -------
Change in net assets............... 9,768 4,577 18,024 11,060
NET ASSETS:
Beginning of period.............. 30,428 25,851 26,314 15,254
------- ------- ------- -------
End of period.................... $ 40,196 $ 30,428 $ 44,338 $ 26,314
======= ======= ======= =======
</TABLE>
See notes to financial statements.
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34
<PAGE> 584
LOGO DIVERSIFIED OBLIGATIONS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------- ---------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT (23.4%):
Euro Certificates of Deposit (3.7%):
$ 5,000 Abbey National Treasury
Services, 5.72%, 9/11/96... $ 5,000
6,000 Abbey National Treasury
Services, 5.22%, 3/4/97 5,983
5,000 Bayerische Vereinsbank,
5.49%, 11/13/96 5,001
--------
15,984
--------
Yankee Certificates of Deposit (19.7%):
10,000 ABN-AMRO Bank N.V., 5.53%,
3/18/97.................... 9,996
5,000 Commerzbank, 5.66%, 4/24/97.. 4,997
10,000 Dresdner Bank, 5.05%,
2/26/97.................... 9,999
10,000 Deutsche Bank, 5.57%,
3/31/97.................... 10,001
5,000 Rabobank Nederland N.V.,
5.82% 8/14/96.............. 5,000
10,000 Sanwa Bank Ltd., 5.62%,
10/16/96................... 10,002
10,000 Society Generale, 5.65%,
4/1/97..................... 9,993
5,000 Society Generale, 5.80%,
4/15/97.................... 5,002
10,000 Sumitomo Bank Ltd., 5.48%,
8/26/96.................... 10,000
5,000 Sumitomo Bank Ltd., 5.46%,
9/3/96..................... 5,000
5,000 Sumitomo Bank Ltd., 6.01%,
10/30/96................... 5,000
--------
84,990
--------
Total Certificates of Deposit 100,974
--------
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------
<S> <C> <C> <C>
COMMERCIAL PAPER/MASTER DEMAND NOTES (67.5%):
Automotive (6.9%):
$ 5,000 Daimler-Benz North America
Corp., 5.35%, 1/6/97....... $ 4,876
5,000 Daimler-Benz North America
Corp., 5.53%, 1/13/97...... 4,873
5,000 Ford Motor Credit Corp.,
5.27%, 8/13/96............. 4,991
10,000 Ford Motor Credit Corp.,
5.34%, 8/15/96............. 9,979
5,000 Ford Motor Credit Corp.,
5.42%, 9/6/96.............. 4,973
--------
29,692
--------
Banking (9.2%):
5,000 ANZ (De) Inc., 5.38%,
9/10/96.................... 4,970
5,000 ANZ (De) Inc., 5.40%,
9/9/96..................... 4,971
5,000 ANZ (De) Inc., 5.47%,
10/9/96.................... 4,948
5,000 Abbey National North America
Inc., 5.54%, 9/25/96....... 4,958
5,000 Abbey National North America
Inc., 5.40%, 12/4/96....... 4,906
5,000 Commerzbank U.S. Finance
Inc., 5.35%, 8/8/96........ 4,995
5,000 Den Danske Corporation Inc.,
5.38%, 8/6/96.............. 4,996
5,000 Den Danske Corporation Inc.,
5.42%, 10/1/96............. 4,954
--------
39,698
--------
</TABLE>
Continued
LOGO
35
<PAGE> 585
LOGO
DIVERSIFIED OBLIGATIONS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------- ---------
<S> <C> <C> <C>
COMMERCIAL PAPER/MASTER DEMAND NOTES,
CONTINUED:
Business Credit Institutions (21.9%):
$10,000 Alpha Finance Corp., 5.48%,
10/11/96................... $ 9,892
10,000 Assets Securitization
Cooperative Corp., 5.37%,
8/5/96..................... 9,994
5,000 Assets Securitization
Cooperative Corp., 5.40%,
9/17/96.................... 4,965
5,000 Beta Finance Inc., 5.53%,
1/3/97..................... 4,881
10,000 Ciesco, L.P., 5.26%,
8/16/96.................... 9,978
5,000 Ciesco, L.P., 5.32%,
9/9/96..................... 4,971
5,200 Corporate Receivables Corp.,
5.35%, 8/22/96............. 5,184
10,000 Corporate Receivables Corp.,
5.40%, 9/12/96............. 9,937
5,000 Corporate Receivables Corp.,
5.42%, 10/8/96............. 4,949
5,000 CXC, Inc., 5.38%, 8/1/96..... 5,000
10,000 CXC, Inc., 5.40%, 9/3/96..... 9,950
5,000 Falcon Asset Securitization
Corp., 5.40%, 8/19/96...... 4,986
5,000 Falcon Asset Securitization
Corp., 5.55%, 1/21/97...... 4,867
5,000 Jet Funding Corp., 5.50%,
9/30/96.................... 4,954
---------
94,508
---------
Electronic & Electrical--General (4.6%):
10,000 Panasonic Finance Inc.,
5.38%, 9/9/96.............. 9,942
10,000 Panasonic Finance Inc.,
5.34%, 9/17/96............. 9,930
---------
19,872
---------
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------- ---------
COMMERCIAL PAPER/MASTER DEMAND NOTES,
CONTINUED:
Insurance (1.2%):
$ 5,000 TransAmerica Corp., 5.36%,
8/9/96..................... $ 4,994
---------
Mining (1.1%):
5,000 RTZ America Inc., 5.30%,
8/22/96.................... 4,985
---------
Multiple Industry (6.9%):
10,000 BTR Dunlop Finance Inc.,
5.37%, 8/7/96.............. 9,991
5,000 BTR Dunlop Finance Inc.,
5.27%, 8/26/96............. 4,982
5,000 BTR Dunlop Finance Inc.,
5.40%, 9/16/96............. 4,965
10,000 General Electric Capital
Corp., 5.29%, 9/5/96....... 9,949
---------
29,887
---------
Retail (3.5%):
5,000 J.C. Penney Funding Corp.,
5.38%, 8/7/96.............. 4,996
10,000 J.C. Penney Funding Corp.,
5.34%, 8/29/96............. 9,958
---------
14,954
---------
Technology (1.7%):
7,200 Hewlett Packard Co., 5.29%,
8/27/96.................... 7,172
---------
Tobacco & Tobacco Products (1.2%):
5,000 B.A.T. Capital Corp., 5.33%,
8/16/96.................... 4,989
---------
</TABLE>
Continued
LOGO
36
<PAGE> 586
LOGO
DIVERSIFIED OBLIGATIONS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------- ---------
<S> <C> <C> <C>
COMMERCIAL PAPER/MASTER DEMAND NOTES,
CONTINUED:
Trading Company (3.5%):
$10,000 Cargill Financial Services
Corp. 5.33%, 8/16/96....... $ 9,978
5,000 Cargill Inc., 5.35%,
8/2/96..................... 4,999
---------
14,977
---------
Telecommunications (3.5%):
10,000 AT&T Corp., 5.30%, 8/8/96.... 9,990
5,000 AT&T Corp., 5.42%, 9/18/96... 4,964
---------
14,954
---------
Utility (2.3%):
10,000 National Rural Utilities
Co-op. Finance Corp.,
5.37%, 8/9/96.............. 9,988
---------
Total Commercial Paper / Master Demand
Notes 290,670
---------
MEDIUM TERM NOTES/CORPORATE BONDS (2.9%):
Banking (2.3%):
10,000 Sanwa Business Credit Corp.,
5.56%, 12/4/96 *........... 10,000
---------
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------- ---------
Manufacturing--Consumer Goods (0.6%):
$ 2,500 Gillette Co., 4.75%,
8/15/96.................... $ 2,499
---------
Total Medium Term Notes/Corporate Bonds
12,499
---------
U.S. TREASURY BILLS (2.3%):
10,000 4.62%, 2/6/97................ 9,757
---------
Total U.S. Treasury Bills 9,757
---------
Total Investments, at value 413,900
---------
REPURCHASE AGREEMENTS (5.0%);
21,502 C.S. First Boston Corp.,
5.62%, 8/1/96
(Collateralized by 18,006
U.S. Treasury Bonds, 8.75%,
8/15/20, market value
$21,970)................... 21,502
---------
Total Repurchase Agreements 21,502
---------
Total $435,402 (a)
==========
</TABLE>
- ------------
Percentages indicated are based on net assets of $430,727.
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate securities having liquidity sources through bank letters of
credit or other credit and/or liquidity arrangements. The interest rate, which
will change periodically, is based upon bank prime rates or an index of market
interest rates. The rate reflected on the Schedule of Portfolio Investments is
the rate in effect on July 31, 1996.
See notes to financial statements.
LOGO
37
<PAGE> 587
LOGO
U.S. GOVERNMENT OBLIGATIONS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ------------- ----------------------------- ---------
<S> <C> <C> <C>
U.S. TREASURY BILLS (4.3%):
$10,000 4.62%, 2/6/97................ $ 9,757
--------
Total U.S. Treasury Bills 9,757
--------
U.S. GOVERNMENT AGENCIES (78.6%):
Federal Home Loan Bank:
7,500 Discount note, 5.32%,
8/14/96.................... 7,486
5,000 Discount note, 5.22%,
8/20/96.................... 4,986
5,000 Discount note, 5.31%,
9/25/96.................... 4,959
5,000 Discount note, 5.19%,
10/15/96................... 4,946
5,000 Discount note, 5.37%,
11/1/96.................... 4,931
5,000 Discount note, 5.25%,
11/4/96.................... 4,931
5,000 Discount note, 5.19%,
1/14/97.................... 4,881
5,000 Discount note, 5.21%,
1/21/97.................... 4,875
4,610 5.26%, 1/29/97............... 4,610
Federal Home Loan Mortgage Corp.:
5,000 Discount note, 5.34%,
9/16/96.................... 4,966
Federal National Mortgage Assoc.:
5,000 Discount note, 5.30%,
8/1/96..................... 5,000
5,000 Discount note, 5.25%,
8/15/96.................... 4,990
5,000 Discount note, 5.24%,
8/21/96.................... 4,985
5,000 Discount note, 5.33%,
9/9/96..................... 4,971
5,000 Discount note, 5.35%,
9/10/96.................... 4,970
5,000 Discount note, 5.34%,
9/11/96.................... 4,970
10,000 Discount note, 5.27%,
9/17/96.................... 9,931
5,000 Discount note, 5.26%,
9/23/96.................... 4,961
5,540 Discount note, 5.30%,
9/24/96.................... 5,496
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ------------- ----------------------------- ---------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES, CONTINUED:
Federal National Mortgage Assoc., continued:
$ 5,000 Discount note, 5.38%,
10/15/96................... $ 4,944
5,000 Discount note, 5.29%,
12/6/96.................... 4,907
6,940 7.60%, 1/10/97............... 6,999
20,000 5.30%, 5/5/97 *.............. 19,987
Overseas Private Investment Corp.:
20,000 5.40%, 1/15/09 *............. 20,000
Student Loan Marketing Assoc.:
10,000 5.57%, 9/23/96 *............. 9,999
10,000 5.49%, 7/18/97 *............. 10,000
--------
Total U.S. Government Agencies 178,681
--------
Total Investments, at value 188,438
--------
REPURCHASE AGREEMENTS (17.2%):
39,183 C. S. First Boston Corp.,
5.62%, 8/1/96
(Collateralized by 32,811
U.S. Treasury Bonds,
8.75%, 8/15/20, market
value--$40,034).............. 39,183
--------
Total Repurchase Agreements 39,183
--------
Total $227,621 (a)
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $227,197.
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate securities having liquidity sources through bank letters of
credit or other credit and/or liquidity agreements. The interest rate, which
will change periodically, is based upon bank prime rates or an index of market
interest rates. The rate reflected on the Schedule of Portfolio Investments is
the rate in effect at July 31, 1996.
See notes to financial statements.
LOGO
38
<PAGE> 588
LOGO 100% U.S. TREASURY OBLIGATIONS FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------- ---------
<S> <C> <C> <C>
U.S. TREASURY BILLS (85.5%):
$ 1,355 4.99%, 8/1/96*............... $ 1,355
15,000 5.00%, 8/8/96*............... 14,985
2,303 5.01%, 8/8/96*............... 2,301
2,226 5.02%, 8/8/96*............... 2,224
5,000 5.03%, 8/8/96*............... 4,995
5,000 5.04%, 8/8/96*............... 4,995
10,192 4.96%, 8/15/96*.............. 10,172
7,425 5.01%, 8/15/96*.............. 7,411
5,000 5.03%, 8/15/96*.............. 4,990
2,777 5.04%, 8/15/96*.............. 2,772
1,067 4.95%, 8/22/96*.............. 1,064
10,000 4.98%, 8/22/96*.............. 9,971
10,000 5.02%, 8/22/96*.............. 9,971
2,000 5.48%, 8/22/96*.............. 1,993
2,500 5.50%, 8/22/96*.............. 2,492
4,744 4.98%, 8/29/96*.............. 4,725
10,000 5.05%, 8/29/96*.............. 9,961
2,023 5.04%, 9/5/96*............... 2,013
312 5.06%, 9/5/96*............... 310
4,572 5.07%, 9/5/96*............... 4,550
865 5.08%, 9/5/96*............... 861
15,000 5.10%, 9/5/96*............... 14,925
3,640 5.04%, 9/12/96*.............. 3,618
892 5.07%, 9/12/96*.............. 887
5,000 5.10%, 9/12/96*.............. 4,970
7,703 5.11%, 9/12/96*.............. 7,657
5,225 5.12%, 9/12/96*.............. 5,193
385 5.07%, 9/19/96*.............. 382
6,651 5.09%, 9/19/96*.............. 6,605
5,410 5.11%, 9/19/96*.............. 5,373
4,828 5.13%, 9/19/96*.............. $ 4,794
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------- ----------------------------- ---------
<S> <C> <C> <C>
U.S. TREASURY BILLS, CONTINUED:
$ 5,936 5.14%, 9/19/96*.............. 5,895
5,000 5.04%, 10/3/96*.............. 4,956
1,227 5.09%, 10/3/96*.............. 1,216
3,162 5.11%, 10/3/96*.............. 3,134
3,077 5.11%, 10/10/96*............. 3,046
5,000 5.15%, 10/10/96*............. 4,950
5,000 5.05%, 10/17/96*............. 4,946
2,034 5.09%, 10/17/96*............. 2,012
7,639 5.11%, 10/17/96*............. 7,556
4,000 5.07%, 10/24/96*............. 3,953
5,000 5.12%, 10/24/96*............. 4,940
5,000 5.34%, 1/9/97*............... 4,881
5,000 5.24%, 1/23/97*.............. 4,873
5,000 4.91%, 2/6/97*............... 4,871
5,000 5.11%, 2/6/97*............... 4,866
5,000 5.16%, 4/3/97*............... 4,825
5,000 5.32%, 4/3/97*............... 4,819
--------
Total U.S. Treasury Bills 234,254
--------
U.S. TREASURY NOTES (12.8%):
10,000 7.25%, 8/31/96............... 10,013
10,000 7.25%, 8/31/96............... 10,011
10,000 6.63%, 3/31/97............... 10,072
5,000 6.50%, 4/30/97............... 5,031
--------
Total U.S. Treasury Notes 35,127
--------
U.S. TREASURY STRIPS (1.8%):
5,000 5.12%, 11/15/96*............. 4,925
--------
Total U.S. Treasury Strips 4,925
--------
Total $274,306 (a)
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $273,963.
(a) Cost for federal income tax and financial reporting purposes are the same.
* Discount yield at date of purchase.
See notes to financial statements.
LOGO
39
<PAGE> 589
LOGO
CALIFORNIA TAX-FREE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- --------- ----------------------------------------------------------------------------------- ---------
<C> <S> <C>
MUNICIPAL SECURITIES $(90.1%):
California (90.1%)
$ 5,025 Contra Costa County, Park Regency, Series 1992, 3.70%, 8/1/32, AMT*................ $ 5,025
2,500 Department of Water Resources, 3.35%, 11/29/96..................................... 2,500
3,300 Health Facilities Authority, Enloe Memorial Hospital, 3.00%, 1/1/16*............... 3,300
6,800 Health Facilities Authority, Memorial Health Services, 3.25%, 10/1/24*............. 6,800
6,600 Health Finance Authority, Catholic Healthcare West, 3.25%, 7/1/05*................. 6,600
900 Health Finance Authority, Catholic Healthcare West, 3.25%, 7/1/09*................. 900
6,900 Health Finance Authority, Kaiser Permanente Series, 3.25%, 5/1/28*................. 6,900
1,700 Health Finance Authority, Pooled Program, Series 1990 A, 3.40%, 9/1/20*............ 1,700
2,400 Health Finance Authority, Pooled Program, Series B, 3.40%, 10/1/10*................ 2,400
1,200 Health Finance Authority, Santa Barbara Cottage, 3.25%, 9/1/15*.................... 1,200
1,000 Health Finance Authority, Santa Barbara Cottage, Series B, 3.25%, 9/1/05*.......... 1,000
1,200 Kern County Public Facilities, Project Series B, 3.35%, 8/1/06*.................... 1,200
1,700 Lancaster Multi-Family Housing, Westwood Park Apartments, 3.40%, 12/1/07*.......... 1,700
6,800 Los Angeles County Metro Transportation Authority, Union Station Gateway Project, 6,800
3.25%, 7/2/25*...................................................................
4,700 Los Angeles County Transportation, 3.40%, 7/1/12*.................................. 4,700
700 Los Angeles Multi-Family Housing, Crescent Gardens, 3.40%, 7/1/14*................. 700
3,700 Los Angeles Multi-Family Housing, Series K, 3.25%, 7/1/10*......................... 3,700
7,500 Los Angeles Multi-Family Housing, Southpark Apartment Project, 3.55%, 12/1/05*..... 7,500
3,700 Metropolitan Water District of Southern California, 3.25%, 6/1/23.................. 3,700
2,800 Oxnard Housing Authority, Seawood Apartments Project, 3.65%, 12/1/20, AMT*......... 2,800
7,200 Pollution Control Finance Authority, Burney Forest 1988, 3.70%, 9/1/20, AMT*....... 7,200
1,900 Pollution Control Finance Authority, Delano Project 1989, 3.65%, 8/1/19, AMT*...... 1,900
2,310 Pollution Control Finance Authority, Delano Project 1990, 3.65%, 8/1/19, AMT*...... 2,310
3,000 Pollution Control Finance Authority, Delano Project 1991, 3.65%, 8/1/19, AMT*...... 3,000
2,600 Pollution Control Finance Authority, Honey Lake Power Project, Series 88, 3.65%,
9/1/18, AMT...................................................................... 2,600
1,700 Pollution Control Finance Authority, North County Recycling Center, Series B,
3.40%, 7/1/17*................................................................... 1,700
500 Pollution Control Finance Authority, Pacific Gas & Electric, Series 88C, 3.35%,
8/15/96.......................................................................... 500
</TABLE>
Continued
LOGO
40
<PAGE> 590
LOGO
CALIFORNIA TAX-FREE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
--------
<C> <S> <C>
MUNICIPAL SECURITIES, CONTINUED:
California, continued:
$ 3,200 Pollution Control Finance Authority, Southern California Edison, Series 85C, 3.55%, $ 3,200
9/24/96..........................................................................
1,000 Pollution Control Finance Authority, Southern California Edison, Series 85D, 3.35%, 1,000
9/10/96..........................................................................
2,600 Pollution Control Finance Authority, Southern California Edison, Series 85C, 3.55%, 2,600
9/6/96...........................................................................
500 Pollution Control Finance Authority, Southern California Edison, Series 85C, 3.60%, 500
1/15/97..........................................................................
1,550 Pollution Control Finance Authority, Southern California Edison, Series 85C, 3.15%, 1,550
8/1/96...........................................................................
500 Pollution Control Finance Authority, Southern California Edison, Series 85C, 3.20%, 500
9/10/96..........................................................................
4,000 Pollution Control Finance Authority, Southern California Edison, Series 85C, 3.35%, 4,000
10/1/96..........................................................................
1,200 Pollution Control Finance Authority, Southern California Edison, Series 85C, 3.45%, 1,200
11/14/96.........................................................................
1,100 Pollution Control Finance Authority, Southern California Edison, Series 86A, 3.40%, 1,100
2/28/08*.........................................................................
1,400 Pollution Control Finance Authority, Southern California Edison, Series 86B, 3.40%, 1,400
2/28/08*.........................................................................
2,000 Pollution Control Finance Authority, Southern California Edison, Series 86C, 3.40%, 2,000
2/28/08..........................................................................
2,200 Pollution Control Finance Authority, Southern California Edison, Series 86D, 3.40%, 2,200
2/28/08..........................................................................
2,200 Sacramento County Multi-Family Housing Authority, River Oaks Apartments, 3.55%, 2,200
9/15/07*.........................................................................
5,000 San Bernardino County, TRANs, 4.50%, 6/30/97....................................... 5,027
500 San Jose, Multi-Family Housing, Somerset Park, 3.55%, 11/1/17, AMT*................ 500
2,900 SCAPPA, Revenue, 91 Refunding Series, 3.40%, 7/1/19*............................... 2,900
3,000 State of California, Tax Exempt Commercial Paper, 3.10%, 8/7/96.................... 3,000
1,000 State of California, Tax Exempt Commercial Paper, 3.35%, 11/14/96.................. 1,000
2,000 State of California, Tax Exempt Commercial Paper, 3.55%, 9/13/96................... 2,000
6,865 Statewide Community Development Authority, Series 95A, 3.45%, 5/15/25*............. 6,866
900 Vacaville Multi-Family Housing, The Sycamores Apartments, 3.40%, 4/1/05*........... 900
1,000 Walnut Creek Multi-Family Housing, Creekside Drive Apartments, 3.40%, 4/1/07*...... 1,000
--------
Total Municipal Securities 136,978
--------
</TABLE>
Continued
LOGO
41
<PAGE> 591
LOGO CALIFORNIA TAX-FREE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- --------- ----------------------------------------------------------------------------------- ---------
INVESTMENT COMPANIES $(7.6%):
<C> <S> <C>
5,214 Goldman Sachs California Tax-Exempt Money Market Fund.............................. $ 5,214
6,312 Provident California Money Market Fund............................................. 6,312
--------
Total Investment Companies 11,526
--------
Total $148,504 (a)
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $151,979.
<TABLE>
<C> <S>
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate securities having liquidity sources through bank letters of credit or other credit and/or
liquidity agreements. The interest rate, which will change periodically, is based upon bank prime rates or an
index of market interest rates. The rate reflected on the Schedule of Portfolio Investments is the rate in
effect at July 31, 1996.
AMT Alternative Minimum Tax Paper
TRANs Tax Revenue Anticipation Notes
</TABLE>
See notes to financial statements.
LOGO
42
<PAGE> 592
LOGO BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- ------------------------------- -------
<S> <C> <C> <C>
ASSET BACKED SECURITIES (17.4%):
$ 374 Advanta Mortgage Loan Trust,
7.90%, 3/25/07............... $ 375
1,000 Carco Auto Loan Master Trust,
Series 1994-2, 7.88%,
8/15/97...................... 1,018
860 Carco Auto Loan Master Trust,
Series 1991-3,
7.88%,3/15/98................ 869
1,125 Contimortgage Home Equity Loan
Trust, 8.09%, 9/15/09........ 1,144
1,000 Contimortgage Home Equity Loan
Trust, 8.05%, 7/15/12........ 1,016
1,200 EQCC Home Equity Loan Trust,
7.80%, 12/15/10.............. 1,196
1,250 Green Tree Financial Corp.,
6.80%, 1/15/26............... 1,221
500 MBNA Credit Card, 7.25%,
6/15/99...................... 502
738 Mid State Trust 4, 8.33%,
4/1/30....................... 765
531 Premier Auto Receivable Trust,
4.90%, 10/15/98.............. 525
1,000 Standard Credit Card Master
Trust, 4.65%, 3/7/99......... 987
600 UCFC Home Equity Loan, 7.78%,
12/10/06..................... 608
496 UFSB Grantor Trust, 5.08%,
5/15/00...................... 489
-------
Total Asset Backed Securities 10,715
-------
COLLATERALIZED MORTGAGE OBLIGATIONS (14.4%):
Bear Stearns Secured Investors:
500 7.50%, 1/20/99................. 504
Country Wide Mortgage:
1,021 6.75%, 3/25/08................. 995
Federal Home Loan Mortgage Corp.:
1,500 6.25%, 1/15/24................. 1,347
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- ------------------------------- -------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS, CONTINUED:
Federal National Mortgage Assoc.:
$ 2,000 6.20%, 9/25/02................. $ 1,928
1,500 6.50%, 3/25/13................. 1,421
GE Capital Mortgage Service, Inc.:
1,850 6.50%, 1/25/24................. 1,740
Residential Funding Mortgage:
950 6.75%, 11/25/07................ 910
-------
Total Collateralized Mortgage Obligations 8,845
-------
CORPORATE BONDS (24.7%):
Automotive (3.9%):
2,290 General Motors Acceptance
Corp., 8.00%, 10/1/99........ 2,364
-------
Banking (5.2%):
1,785 Bank of America, 6.00%,
7/15/97...................... 1,779
600 Citicorp, 6.75%, 8/15/05....... 572
900 U.S. Bancorp, 6.75%,
10/15/05..................... 858
-------
3,209
-------
Computer Hardware (1.4%):
800 IBM Corp., 8.38%, 11/1/19...... 861
-------
Financial Services (1.0%):
650 Golden West Financial, 6.70%,
7/1/02....................... 634
-------
Governments (Foreign) (2.7%):
825 Hydro-Quebec, 8.05, 7/7/24..... 869
785 Norske Hydro, 7.75, 6/15/23.... 786
-------
1,655
-------
Industrial Goods & Services (1.3%):
860 Caterpillar Tractor Co., 6.00%,
5/1/07....................... 772
-------
Retail Stores (5.8%):
980 J.C. Penney Inc., 6.00%,
5/1/06....................... 883
900 Sears Roebuck Co., 9.25%,
8/1/97....................... 925
</TABLE>
Continued
LOGO
43
<PAGE> 593
LOGO BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
Amounts in Thousands
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- ------------------------------- -------
<S> <C> <C> <C>
CORPORATE BONDS, CONTINUED:
Retail Stores, continued:
$ 1,850 Wal-Mart Stores, 6.38,
3/1/03....................... $ 1,785
-------
3,593
-------
Telecommunications (3.4%):
1,500 Bell Atlantic-Maryland, 8.00%,
10/15/29..................... 1,581
500 New England Telephone &
Telegraph, 7.88%, 11/15/29... 524
-------
2,105
-------
Total Corporate Bonds 15,193
-------
U.S. GOVERNMENT AGENCIES (19.6%):
Federal Home Loan Bank:
300 8.38%, 10/25/99................ 315
Federal National Mortgage Assoc.:
1,000 9.05%, 4/10/00................. 1,074
1,750 5.45%, 10/10/03................ 1,610
1,625 6.50%, 3/1/24, Pool # 276510... 1,526
1,659 8.50%, 5/1/25, Pool # 303300... 1,696
1,018 6.50%, 5/1/26, Pool # 342718... 950
Government National Mortgage Association:
1,836 6.50%, 6/15/23, Pool #
354601....................... 1,717
616 6.50%, 12/15/23, Pool #
369270....................... 574
823 7.50%, 1/15/24, Pool #
352844....................... 811
157 7.50%, 1/15/24, Pool #
360285....................... 154
34 7.50%, 1/15/24, Pool #
362734....................... 34
299 7.50%, 1/15/24, Pool #
368677....................... 294
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- ------------------------------- -------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES, CONTINUED:
Government National Mortgage Assoc., continued:
$ 371 7.50%, 2/15/24, Pool #
353297....................... $ 366
70 7.50%, 2/15/24, Pool #
336245....................... 69
906 7.00%, 4/15/24, Pool #
392055....................... 869
-------
Total U.S. Government Agencies 12,059
-------
U.S. TREASURY BONDS (16.4%):
1,500 10.38%, 11/15/12............... 1,894
2,500 7.25%, 5/15/16................. 2,546
2,360 8.75%, 8/15/20................. 2,804
2,800 7.13%, 2/15/23................. 2,813
-------
Total U.S. Treasury Bonds 10,057
-------
U.S. TREASURY NOTES (3.1%):
1,000 8.13%, 2/15/98................. 1,029
430 9.00%, 5/15/98................. 450
420 8.50%, 11/15/00................ 451
-------
Total U.S. Treasury Notes 1,930
-------
Total Investments, at value 58,799
-------
REPURCHASE AGREEMENTS (3.6%):
2,237 C.S. First Boston Corp., 5.62%,
8/1/96 (Collateralized by
2,046 U.S. Treasury Bonds,
8.75%, 11/15/08, market
value--$2,287)............... 2,237
-------
Total Repurchase Agreements 2,237
-------
Total (Cost--$61,591)(a) $61,036
=======
</TABLE>
- ------------
Percentages indicated are based on net assets of $61,531.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation............................................ $ 816
Unrealized depreciation............................................ (1,371)
------
Net unrealized depreciation........................................ $ (555)
======
</TABLE>
See notes to financial statements.
LOGO
44
<PAGE> 594
LOGO INCOME EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
COMMON STOCKS (97.8%):
Aerospace (2.0%):
153,100 B.F. Goodrich Co........... $ 5,550
--------
Banks (12.7%):
213,650 Banc One Corp.............. 7,398
82,200 BankAmerica Corp........... 6,555
122,800 Fleet Financial Group,
Inc...................... 4,973
77,900 J. P. Morgan & Co.......... 6,699
82,700 National City Corp......... 2,864
95,050 U.S. Bancorp............... 3,256
64,700 Wachovia Corp.............. 2,863
--------
34,608
--------
Beverages (2.0%):
72,000 Anheuser-Busch Co.......... 5,382
--------
Business Equipment & Services (0.6%):
34,600 Pitney Bowes, Inc.......... 1,678
--------
Chemicals-Petroleum & Inorganic (2.1%):
77,200 Dow Chemical Co............ 5,742
--------
Chemicals-Specialty (1.8%):
55,200 Betz Labs, Inc............. 2,505
83,500 Witco Corp................. 2,421
--------
4,926
--------
Commercial Goods & Services (1.2%):
87,000 National Services
Industries, Inc.......... 3,317
--------
Consumer Goods & Services (1.2%):
36,600 Clorox Co.................. 3,326
--------
Cosmetics & Toiletries (0.9%):
56,300 International Flavors &
Fragrances, Inc.......... 2,407
--------
Electrical Equipment (1.0%):
70,800 Thomas & Betts Corp........ 2,584
--------
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Environmental Services (0.3%):
37,700 Browning-Ferris Industries,
Inc...................... $ 844
--------
Financial Services (3.2%):
105,100 American General Corp...... 3,652
33,800 Beneficial Corp............ 1,825
106,700 Federal National Mortgage
Assoc.................... 3,388
--------
8,865
--------
Food & Related (2.6%):
94,300 General Mills, Inc......... 5,116
63,150 H.J. Heinz Co.............. 2,092
--------
7,208
--------
Forest & Paper Products (4.8%):
43,700 Georgia-Pacific Corp....... 3,267
92,470 International Paper Co..... 3,502
154,700 Weyerhaeuser Co............ 6,459
--------
13,228
--------
Health Care (5.9%):
77,000 Bristol-Myers Squibb Co.... 6,670
102,000 Pharmacia & Upjohn Co...... 4,208
48,800 SmithKline Beecham PLC
ADR...................... 2,623
44,100 Warner-Lambert Co.......... 2,403
--------
15,904
--------
Insurance-Life (0.8%):
45,125 Jefferson Pilot Corp....... 2,369
--------
Insurance-Multiline (1.8%):
53,600 Marsh & McLennan Cos.,
Inc...................... 4,857
--------
</TABLE>
Continued
LOGO
45
<PAGE> 595
LOGO
INCOME EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- ------------------------------- -------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Insurance-Property & Casualty (3.1%):
42,500 Lincoln National Corp...... $ 1,812
78,300 SAFECO Corp................ 2,696
70,800 St. Paul Cos., Inc......... 3,664
--------
8,172
--------
Machinery & Equipment (1.2%):
80,900 Cooper Industries, Inc..... 3,185
--------
Medical Equipment & Supplies (0.6%):
39,000 Baxter International,
Inc...................... 1,623
--------
Motor Vehicle Parts (0.9%):
58,500 Genuine Parts Co........... 2,479
--------
Motor Vehicles (0.9%):
86,600 Chrysler Corp.............. 2,457
--------
Multiple Industry (3.1%):
43,300 General Electric Co........ 3,567
76,000 Minnesota Mining &
Manufacturing Co......... 4,940
--------
8,507
Petroleum-Domestic (4.5%):
73,200 Atlantic Richfield Co...... 8,491
83,400 Dresser Industries Inc..... 2,252
41,700 Phillips Petroleum Co...... 1,647
--------
12,390
--------
Petroleum-Internationals (7.3%):
95,300 Amoco Corp................. 6,373
58,300 Chevron Corp............... 3,374
52,300 Exxon Corp................. 4,302
68,500 Texaco, Inc................ 5,822
--------
19,871
--------
Publishing (0.9%):
61,400 McGraw-Hill, Inc........... 2,395
--------
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- ------------------------------- -------
COMMON STOCKS, CONTINUED:
Railroad (0.5%):
20,500 Union Pacific Corp......... $ 1,404
--------
Retail-General Merchandise (4.1%):
173,100 J.C. Penney, Inc........... 8,612
59,000 May Department Stores
Co....................... 2,647
--------
11,259
--------
Telecommunications (7.2%):
25,600 Ameritech Corp............. 1,421
67,300 Bell Atlantic Corp......... 3,979
63,400 BellSouth Corp............. 2,599
118,500 GTE Corp................... 4,888
91,300 Nynex Corp................. 4,097
86,170 U.S. West, Inc............. 2,618
--------
19,602
--------
Tobacco (6.5%):
94,500 American Brands, Inc....... 4,300
85,400 Phillip Morris Cos.,
Inc...................... 8,935
139,400 UST, Inc................... 4,635
--------
17,870
--------
Utilities-Electric (8.3%):
123,400 Baltimore Gas & Electric
Co....................... 3,178
115,400 Central & South West
Corp..................... 3,087
36,600 Dominion Resources......... 1,377
72,500 Florida Progress Corp...... 2,429
70,000 PacifiCorp................. 1,461
118,900 Teco Energy, Inc........... 2,764
102,400 Texas Utilities Co......... 4,301
147,200 Wisconsin Energy Corp...... 3,919
--------
22,516
--------
</TABLE>
Continued
LOGO
46
<PAGE> 596
LOGO
INCOME EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Utilities--Gas & Pipeline (3.8%):
128,200 Consolidated Natural Gas
Co....................... $ 6,458
44,100 Nicor, Inc................. 1,251
51,500 Tenneco, Inc............... 2,537
--------
10,246
--------
Total Common Stocks 266,771
--------
Total Investments, at value 266,771
--------
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
REPURCHASE AGREEMENTS (1.8%):
$4,857,527 C. S. First Boston Corp.,
5.62%, 8/1/96
(Collateralized by 3,888
U.S. Treasury Bonds,
10.38%, 11/15/12, market
value--$4,961)........... $ 4,858
--------
Total Repurchase Agreements 4,858
--------
Total (Cost--$237,280)(a) $271,629
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $272,803.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of
approximately $64 (amount in thousands). Cost for federal income tax
purposes differs from value by net unrealized appreciation of securities as
follows (amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation.......................................... $ 38,217
Unrealized depreciation.......................................... (3,932)
--------
Net unrealized appreciation...................................... $ 34,285
=======
</TABLE>
ADR -- American Depository Receipt
PLC -- Public Limited Company
See notes to financial statements.
LOGO
47
<PAGE> 597
LOGO
BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
ASSET BACKED SECURITIES (4.0%)
$ 205,000 Carco Auto Loan Master
Trust, Series 1994-2,
7.88%, 3/15/98........... $ 207
190,000 Carco Auto Loan Master
Trust, Series 1991-3,
7.88%, 8/15/97........... 194
200,000 Contimortgage Home Equity
Loan Trust, 8.09%,
9/15/09.................. 203
200,000 Contimortgage Home Equity
Loan Trust, 7.44%,
9/15/12.................. 197
250,000 Green Tree Financial Corp.,
6.80%, 1/15/26........... 244
400,000 Standard Credit Card
MasterTrust, 4.65%,
3/7/99................... 395
165,324 UFSB Grantor Trust, 5.08%,
5/15/00.................. 163
--------
Total Asset Backed Securities 1,603
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (2.3%):
86,516 Country Wide Mortgage,
6.75%, 3/25/08........... 84
500,000 Federal Home Loan Mortgage
Corp., 6.25%, 1/15/24.... 449
250,000 GE Capital Mortgage
Service, Inc., 1994-1,
6.50%, 1/25/24........... 235
175,000 Residential Funding
Mortgage, 6.75%,
11/25/07................. 168
--------
Total Collateralized Mortgage Obligations
936
--------
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
COMMON STOCKS (52.6%):
Aerospace (0.5%):
5,800 B.F. Goodrich Co........... $ 210
--------
Air Transportation (0.4%):
1,300 Federal Express Corp.
(b)...................... 101
2,200 Southwest Airlines Co...... 55
--------
156
--------
Banks (3.9%):
2,970 Banc One Corp.............. 103
4,800 BankAmerica Corp........... 383
3,300 Chase Manhattan Corp....... 229
8,000 Fleet Financial Group,
Inc...................... 324
1,300 J.P. Morgan & Co........... 112
3,300 National City Corp......... 114
6,000 Norwest Corp............... 213
2,400 Wachovia Corp.............. 106
--------
1,584
--------
Beverages (2.5%):
6,200 Anheuser-Busch Co.......... 463
5,600 Coca-Cola Co............... 263
8,200 PepsiCo, Inc............... 259
--------
985
--------
Building Materials (0.4%):
5,600 Masco Corp................. 156
--------
Business Equipment & Services (0.6%):
1,900 Dun & Bradstreet Corp...... 109
2,800 Pitney Bowes, Inc.......... 136
--------
245
--------
</TABLE>
Continued
LOGO
48
<PAGE> 598
LOGO
BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Chemicals--Petroleum & Inorganic (0.9%):
1,400 Dow Chemical Co............ $ 104
1,400 duPont, (E.I.) de Nemours
Co....................... 113
5,000 Monsanto Corp.............. 156
--------
373
--------
Chemicals--Specialty (0.3%):
3,000 Betz Labs, Inc............. 136
--------
Commercial Goods & Services (0.3%):
3,000 National Services
Industries, Inc.......... 114
--------
Computers--Main & Mini (0.5%):
2,000 International Business
Machines Corp............ 216
--------
Computers (0.3%):
2,800 Seagate Technology, Inc.
(b)...................... 136
--------
Computer Software (1.0%):
1,900 Electronic Data Systems
Corp. (b)................ 101
1,300 Microsoft Corp. (b)........ 153
2,400 Shared Medical Systems
Corp..................... 132
--------
386
--------
Construction Materials (0.3%):
3,700 Fleetwood Enterprises,
Inc...................... 112
--------
Cosmetics & Toiletries (0.8%):
2,900 Colgate-Palmolive Co....... 228
2,600 International Flavors &
Fragrances, Inc.......... 111
--------
339
--------
Defense (0.7%):
5,400 Raytheon Co................ 262
--------
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
COMMON STOCKS, CONTINUED:
Electrical Equipment (4.5%):
7,600 AMP, Inc................... $ 294
2,600 Duracell International,
Inc...................... 117
2,500 Emerson Electric Co........ 211
7,700 General Electric Co........ 634
5,600 Intel Corp................. 421
3,300 Thomas & Betts Corp........ 120
--------
1,797
--------
Electronics (0.6%):
4,800 Motorola, Inc.............. 259
--------
Electronic Instruments (0.4%):
4,100 Texas Instruments, Inc..... 177
--------
Environmental Services (0.3%):
6,000 Browning-Ferris Industries,
Inc...................... 134
--------
Financial Services (1.2%):
6,600 American General Corp...... 230
7,600 Federal National Mortgage
Assoc.................... 241
--------
471
--------
Food & Related (1.6%):
3,700 General Mills, Inc......... 201
6,450 H. J. Heinz Co............. 213
1,500 Hershey Foods Corp......... 123
1,700 Ralston-Purina Co.......... 107
--------
644
--------
Forest & Paper Products (1.4%):
2,700 Georgia Pacific Corp....... 202
2,200 International Paper Co..... 83
</TABLE>
Continued
LOGO
49
<PAGE> 599
LOGO
BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Forest & Paper Products, continued:
1,500 Kimberly Clark Corp........ $ 114
4,000 Weyerhaeuser Co............ 167
--------
566
--------
Health Care--General (1.1%):
2,500 Bristol-Myers Squibb Co.... 217
5,000 Johnson & Johnson.......... 239
--------
456
--------
Hospital Supply & Management (0.5%):
4,100 Columbia/HCA Healthcare
Corp..................... 210
--------
Household--General Products (0.4%):
6,100 Rubbermaid, Inc............ 175
--------
Insurance--Life (0.3%):
2,250 Jefferson Pilot Corp....... 118
--------
Insurance--Multiline (0.9%):
1,761 Allstate Corp.............. 79
3,300 Marsh & McLennan
Cos., Inc................ 299
--------
378
--------
Insurance--Property & Casualty (1.0%):
1,500 General Re Corp............ 220
2,100 Hartford Steam Boiler
Inspection & Insurance
Co....................... 92
1,900 St. Paul Cos., Inc......... 98
--------
410
--------
Machinery & Equipment (0.5%):
4,300 Snap-On, Inc............... 191
--------
Manufacturing (0.7%):
500 Imation Corp. (b).......... 11
2,700 Ingersoll-Rand Co.......... 115
2,500 Service Corp.
International............ 138
--------
264
--------
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
COMMON STOCKS, CONTINUED:
Medical Equipment & Supplies (0.5%):
5,000 Baxter International,
Inc...................... $ 208
--------
Motor Vehicle Parts (0.3%):
2,400 Genuine Parts Co........... 102
--------
Motor Vehicles (0.5%):
5,900 Ford Motor Co.............. 192
--------
Multiple Industry (1.8%):
10,800 Corning, Inc............... 398
5,000 Minnesota Mining &
Manufacturing Co......... 325
--------
723
--------
Petroleum--Domestic (1.2%):
1,900 Atlantic Richfield Co...... 220
6,700 Phillips Petroleum Co...... 265
--------
485
--------
Petroleum--Internationals (3.2%):
4,600 Amoco Corp................. 308
5,600 Chevron Corp............... 324
2,700 Exxon Corp................. 222
2,000 Mobil Corp................. 221
2,400 Texaco, Inc................ 204
--------
1,279
--------
Petroleum--Services (0.9%):
9,300 Baker Hughes, Inc.......... 273
2,000 Halliburton Co............. 104
--------
377
--------
</TABLE>
Continued
LOGO
50
<PAGE> 600
LOGO
BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Pharmaceuticals (2.3%):
2,600 Abbott Laboratories........ $ 114
3,800 Merck & Co., Inc........... 244
3,300 Pfizer, Inc................ 231
1,800 Schering-Plough Corp....... 99
4,600 Warner Lambert Co.......... 251
--------
939
--------
Photographic Equipment (0.3%):
1,600 Eastman Kodak Co........... 120
--------
Publishing (0.6%):
3,500 Gannett Co., Inc........... 230
--------
Railroad (1.0%):
3,100 Burlington Northern Santa
Fe....................... 245
2,100 Union Pacific Corp......... 144
--------
389
--------
Restaurants (0.2%):
6,800 Brinker International,
Inc. (b)................. 89
--------
Retail--General Merchandise (1.3%):
4,400 J.C. Penney, Inc........... 219
2,800 Sears Roebuck & Co......... 115
6,900 Wal-Mart Stores, Inc....... 165
--------
499
--------
Retail--Specialty Stores (0.5%):
5,500 Albany International, Class
A........................ 102
2,200 Home Depot, Inc............ 111
--------
213
--------
Tobacco (1.2%):
2,500 Phillip Morris Cos.,
Inc...................... 262
6,200 UST, Inc................... 206
--------
468
--------
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
COMMON STOCKS, CONTINUED:
Tools (0.3%):
3,800 Stanley Works.............. $ 108
--------
Toys (0.3%):
4,250 Mattel, Inc................ 105
--------
Utilities--Electric (2.5%):
4,600 FPL Group, Inc............. 209
9,500 PacifiCorp................. 198
9,000 Potomac Electric Power
Co. (b).................. 217
6,500 Public Service Enterprise
Group, Inc............... 170
5,100 Texas Utilities Co......... 214
--------
1,008
--------
Utilities--Gas & Pipeline (0.9%):
2,600 Consolidated Natural Gas
Co....................... 131
4,100 Pacific Enterprises........ 121
1,900 Tenneco, Inc............... 94
--------
346
--------
Utilities--Telephone (4.0%):
11,400 AirTouch Communications,
Inc. (b)................. 313
3,800 Ameritech Corp............. 211
4,500 AT&T Corp.................. 235
5,000 BellSouth Corp............. 205
2,100 DSC Communications
Corp. (b)................ 63
5,700 GTE Corp................... 235
400 Lucent Technologies,
Inc...................... 15
3,500 MCI Telecommunications
Corp..................... 86
</TABLE>
Continued
LOGO
51
<PAGE> 601
LOGO
BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Utilities--Telephone, continued:
4,000 Network Equipment
Technologies, Inc. (b)... $ 53
6,100 U.S. West, Inc............. 185
--------
1,601
--------
Total Common Stocks 21,141
--------
CORPORATE BONDS (6.8%):
Automotive (1.6%):
$ 300,000 Ford Capital, 9.38%,
1/1/98................... 312
305,000 General Motors Acceptance
Corp., 8.00%, 10/1/99.... 315
--------
627
--------
Banking (1.1%):
215,000 Bank of America, 6.00%,
7/15/97.................. 214
100,000 Citicorp, 6.75%, 8/15/05... 96
150,000 U.S. Bancorp, 6.75%,
10/15/05................. 143
--------
453
--------
Beverages (0.2%):
95,000 Bass America, Inc., 6.75%,
8/1/99................... 95
--------
Computer Hardware (0.5%):
200,000 IBM Corp., 8.38%,11/1/19... 215
--------
Financial Services (0.2%):
100,000 Golden West Financial
Corp., 6.70%, 7/1/02..... 97
--------
Governments (Foreign) (0.8%):
$ 100,000 Hydro-Quebec, 8.05%,
7/7/24................... 106
215,000 Norske Hydro, 7.75%,
6/15/23.................. 215
--------
321
--------
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
CORPORATE BONDS, CONTINUED:
Industrial Goods & Services (0.5%):
205,000 Caterpillar Tractor Co.,
6.00%, 5/1/07............ $ 184
--------
Retail Stores (1.1%):
100,000 J.C. Penney, Inc., 6.00%,
5/1/06................... 90
150,000 Sears Roebuck Co., 9.25%,
8/1/97................... 154
200,000 Wal-Mart Stores, Inc.,
6.38%, 3/1/03............ 193
--------
437
--------
Telecommunications (0.8%):
175,000 Bell Atlantic Maryland,
8.00%,10/15/29........... 184
125,000 New England Telephone &
Telegraph Co., 7.88%,
11/15/29................. 131
--------
315
--------
Total Corporate Bonds 2,744
--------
U.S. GOVERNMENT AGENCIES (10.2%):
Federal National Mortgage Assoc.:
1,350,000 5.45%, 10/10/03............ 1,242
316,003 6.50%, 3/1/24, Pool
#276510.................. 297
999,999 8.00%, 7/1/26.............. 1,006
</TABLE>
Continued
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52
<PAGE> 602
LOGO
BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES, CONTINUED:
Government National Mortgage Assoc.
$ 95,076 6.50%, 2/15/24, Pool
#388599.................. $ 88
484,019 7.50%, 5/15/24, Pool
#386494.................. 476
1,016,375 7.00%, 2/15/26............. 972
--------
Total U.S. Government Agencies 4,081
--------
U.S. TREASURY BONDS (6.3%):
1,150,000 7.25%, 5/15/16............. 1,171
205,000 8.75%, 8/15/20............. 244
1,125,000 7.13%, 2/15/23............. 1,130
--------
Total U.S. Treasury Bonds 2,545
--------
U.S. TREASURY NOTES (8.0%):
200,000 8.13%, 2/15/98............. 206
1,000,000 8.25%, 7/15/98............. 1,037
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- --------------------------- --------
<S> <C> <C> <C>
U.S. TREASURY NOTES, CONTINUED:
$1,000,000 5.50%, 4/15/00............. $ 969
500,000 8.50%, 11/15/00............ 536
500,000 5.88%, 2/15/04............. 475
--------
Total U.S. Treasury Notes 3,223
--------
Total Investments, at value 36,273
--------
REPURCHASE AGREEMENTS (9.4%):
3,786,776 C.S. First Boston Corp.,
Repurchase Agreement,
5.62%, 8/1/96
(Collateralized by 3,033
U.S. Treasury Bonds,
10.38%, 11/15/12 , market
value $3,870)............ 3,787
--------
Total Repurchase Agreements 3,787
--------
Total (Cost--$35,946)(a) $ 40,060
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $40,196.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of
approximately $14 (amount in thousands). Cost for federal income tax
purposes differs from value by net unrealized appreciation of securities as
follows (amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation.......................................... $ 4,702
Unrealized depreciation.......................................... (602)
--------
Net unrealized appreciation...................................... $ 4,100
=======
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
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53
<PAGE> 603
LOGO
GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ------
<S> <C> <C> <C>
COMMON STOCKS (98.2%):
Aerospace (2.0%):
24,565 B.F. Goodrich................ $ 890
--------
Banks (8.4%):
10,365 BankAmerica Corp............. 827
3,280 Barnett Banks, Inc........... 201
16,030 Chase Manhattan.............. 1,114
16,830 Fleet Financial Group,
Inc........................ 681
3,825 Wells Fargo & Co............. 891
--------
3,714
--------
Beverages (5.4%):
8,985 Anheuser-Busch Co............ 672
19,215 Coca-Cola Co................. 901
26,390 PepsiCo, Inc................. 834
--------
2,407
--------
Business Equipment & Services (0.3%):
9,080 OfficeMax, Inc. (b).......... 120
--------
Capital Equipment (0.5%):
3,240 Illinois Tool Works.......... 209
--------
Chemicals--Petroleum & Inorganic (0.4%):
3,750 Hercules, Inc................ 188
--------
Computers--Main & Mini (4.0%):
9,610 Ceridan Corp. (b)............ 418
14,660 Hewlett Packard Co........... 645
4,375 International Business
Machines................... 472
4,685 Silicon Graphics, Inc. (b)... 110
2,140 Sun Microsystems, Inc. (b)... 117
--------
1,762
--------
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Computer Software (10.6%):
2,885 Automatic Data Processing,
Inc........................ $ 114
17,005 Cisco Systems (b)............ 880
11,888 Computer Associates
International, Inc......... 605
3,355 Computer Sciences (b)........ 228
17,770 Electronic Data Systems
Corp. (b).................. 940
11,588 First Data Corp.............. 899
3,705 Microsoft Corp. (b).......... 437
10,045 Oracle Systems Corp. (b)..... 393
5,350 Parametric Technology Corp.
(b)........................ 223
--------
4,719
--------
Computers (2.0%):
5,840 Digital Equipment (b)........ 207
14,390 Seagate Technology (b)....... 696
--------
903
--------
Consumer Goods & Services (1.6%):
21,715 Xilinx, Inc. (b)............. 703
--------
Cosmetics & Toiletries (4.1%):
4,720 Avon Products................ 208
5,485 Colgate-Palmolive Co......... 430
15,360 Gillette Co.................. 977
5,110 Ingersoll-Rand Co............ 218
--------
1,833
--------
Durable Goods (0.6%):
15,870 Coleman, Inc. (b)............ 282
--------
Electronics (0.6%):
5,170 Motorola, Inc................ 279
--------
</TABLE>
Continued
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54
<PAGE> 604
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GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Electrical Equipment (6.5%):
5,480 AMP, Inc..................... $ 212
10,640 Duracell International,
Inc........................ 480
11,860 General Electric Co.......... 977
13,275 Intel Corp................... 997
14,810 National Semiconductor
Corp. (b).................. 209
--------
2,875
--------
Electronic Components (0.2%):
3,245 Applied Materials, Inc.
(b)........................ 77
--------
Electronic Instruments (0.4%):
4,220 Texas Instruments, Inc....... 183
--------
Entertainment (0.8%):
7,080 Circus Circus Enterprises,
Inc. (b)................... 217
6,715 Harrah's Entertainment (b)... 148
--------
365
--------
Financial Services (7.2%):
14,835 American Express Co.......... 649
5,745 Federal Home Loan Mortgage
Corp....................... 484
30,635 Federal National Mortgage
Assoc...................... 973
1,405 Household International,
Inc........................ 105
10,926 Mutual Risk Management
Ltd........................ 307
15,935 Travelers Corp. (b).......... 673
--------
3,191
--------
Food & Related (1.6%):
2,550 General Mills, Inc........... 138
2,950 Hershey Foods................ 242
5,397 Ralston-Purina Co............ 339
--------
719
--------
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ------
COMMON STOCKS, CONTINUED:
Forest & Paper Products (1.1%):
5,605 Albany International Corp.,
Class A.................... $ 104
1,220 Georgia Pacific Corp......... 91
2,340 International Paper Co....... 89
5,280 Weyerhaeuser Co.............. 220
--------
504
--------
Healthcare--Drugs (8.1%):
4,962 Abbott Laboratories.......... 218
3,820 American Home Products
Corp....................... 217
8,501 Amgen, Inc. (b).............. 464
7,240 Merck & Co................... 465
9,090 Pfizer, Inc.................. 635
15,850 Pharmacia & Upjohn Co........ 654
11,240 Schering Plough Corp......... 620
6,270 Warner-Lambert Co............ 342
--------
3,615
--------
Healthcare--General (2.0%):
18,230 Johnson & Johnson............ 870
--------
Hospital Supply & Management (0.5%):
4,081 Columbia/HCA Healthcare
Corp....................... 209
--------
Hotel Management & Related Services (0.4%):
7,392 Promus Hotel Corp. (b)....... 202
--------
Household-General Products (0.5%):
2,270 Proctor & Gamble Co.......... 203
--------
Insurance--Multiline (0.5%):
2,547 Allstate Corp................ 114
1,400 Marsh & McLennan Cos.,
Inc........................ 127
--------
241
--------
</TABLE>
Continued
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55
<PAGE> 605
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GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Insurance--Property & Casualty (2.3%):
5,955 American International Group,
Inc........................ $ 560
1,560 General Re Corp.............. 229
2,985 MBIA, Inc.................... 226
--------
1,015
--------
Leisure Time Industry (2.2%):
17,405 The Walt Disney Co........... 968
--------
Machinery & Equipment (0.4%):
5,275 Deere & Co................... 189
--------
Manufacturing (1.1%):
8,480 Service Corp.
International.............. 468
--------
Medical Equipment & Supplies (1.3%):
6,469 Chiron Corp. (b)............. 569
--------
Petroleum--Internationals (2.1%):
7,515 Amoco Corp................... 503
5,305 Exxon Corp................... 436
--------
939
--------
Petroleum--Services (1.3%):
4,835 Baker Hughes, Inc............ 142
3,655 Dresser Industries Inc....... 99
4,520 Halliburton Co............... 236
1,215 Schlumberger Ltd............. 97
--------
574
--------
Pharmaceuticals (2.0%):
17,370 ALZA Corp., Class A (b)...... 430
4,900 Astra AB, Class A (b)........ 207
4,500 SmithKline Beecham
PLC-ADR.................... 242
--------
879
--------
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ------
COMMON STOCKS, CONTINUED:
Publishing (2.0%):
13,535 Gannett Co., Inc............. $ 888
--------
Restaurants (2.5%):
23,720 McDonald's Corp.............. 1,100
--------
Retail--Food Stores (0.8%):
9,425 Safeway, Inc. (b)............ 339
--------
Retail--General Merchandise (1.5%):
11,480 Price/Costco, Inc. (b)....... 235
10,625 Sears Roebuck & Co........... 436
--------
671
--------
Retail--Speciality Stores (1.4%):
8,190 Home Depot, Inc.............. 414
7,215 Toys R Us (b)................ 190
--------
604
--------
Telecommunications (1.3%):
12,585 Airtouch (b)................. 346
6,555 Lucent Technologies, Inc..... 243
--------
589
--------
Telecommunications--Equipment (0.2%):
5,115 Network Equipment
Technologies (b)........... 68
--------
Tobacco (2.3%):
8,700 Phillip Morris Cos., Inc..... 910
3,105 UST.......................... 103
--------
1,013
--------
Toys (1.4%):
25,040 Mattel, Inc.................. 620
--------
Utilities--Gas & Pipeline (0.3%):
2,305 Tenneco, Inc................. 114
--------
</TABLE>
Continued
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56
<PAGE> 606
LOGO
GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
JULY 31, 1996
(Amounts in Thousands, Except for Shares or Principal Amount)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED:
Utilities--Telephone (1.5%):
3,550 Ameritech Corp............... $ 197
5,260 AT&T Corp.................... 274
4,500 GTE Corp..................... 186
--------
657
--------
Total Common Stocks 43,527
--------
Total Investments, at value 43,527
--------
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------- ---------
REPURCHASE AGREEMENTS (2.0%):
$ 899,983 C. S. First Boston Corp.,
5.62%, 8/1/96
(Collateralized by 825 U.S.
Treasury Bonds, 8.75%,
11/15/08, market
value--$922)............... $ 900
--------
Total Repurchase Agreements 900
--------
Total (Cost -- $40,510)(a) $ 44,427
========
</TABLE>
- ------------
Percentages indicated are based on net assets of $44,338.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of
approximately $208 (amount in thousands). Cost for federal income tax
purposes differs from value by net unrealized appreciation of securities as
follows (amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation.......................................... $ 5,175
Unrealized depreciation.......................................... (1,466)
--------
Net unrealized appreciation...................................... $ 3,709
=======
</TABLE>
(b) Represents non-income producing securities.
ADR -- American Depository Receipt
PLC -- Public Limited Company
See notes to financial statements.
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57
<PAGE> 607
LOGO
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996
1. ORGANIZATION:
The HighMark Group (the "Group") was organized on March 10, 1987 and is
registered under the Investment Company Act of 1940 as amended (the "1940
Act"), as a diversified, open-end investment company established as a
Massachusetts business trust.
The Group is authorized to issue an unlimited number of shares which are
units of beneficial interest without par value. The Group presently offers
shares in the Diversified Obligations Fund, the U.S. Government Obligations
Fund, the 100% U.S. Treasury Obligations Fund, the California Tax-Free Fund,
the Bond Fund, the Income Equity Fund, the Balanced Fund, and the Growth
Fund (collectively, "the Funds" and individually, "a Fund"). Sales of
shares may be made to customers of Union Bank of California, NA ("Union
Bank of California") and to its affiliates, to all accounts of its
correspondent banks, to institutional investors, and to the general public.
MERUS-UCA Capital Management, ("MERUS-UCA"), a division of Union Bank of
California, serves as investment adviser to the Group.
The investment objective of the Diversified Obligations Fund, the U.S.
Government Obligations Fund, and the 100% U.S. Treasury Obligations Fund is
to seek current income with liquidity and stability of principal. The
Diversified Obligations Fund invests in obligations issued or guaranteed by
the U.S. Government, its agencies, or instrumentalities, and additionally
invests in other high-quality money market instruments and other unrated
instruments deemed to be of comparable high quality by the investment
adviser pursuant to guidelines established by the Group's Board of Trustees.
Some of the obligations and money market instruments in which the
Diversified Obligations Fund invests may be subject to repurchase
agreements. The U.S. Government Obligations Fund invests in obligations
issued or guaranteed by the U.S. Treasury, and additionally invests in
obligations issued or guaranteed by agencies or instrumentalities of the
U.S. Government. Some of the obligations in which the U.S. Government
Obligations Fund invests may be subject to repurchase agreements. The 100%
U.S. Treasury Obligations Fund invests exclusively in direct U.S. Treasury
obligations guaranteed as to timely payment of principal and interest by the
full faith and credit of the U.S. Treasury. The California Tax-Free Fund's
investment objective is to seek as high a level of current interest income
free from federal income tax and California personal income tax as is
consistent with the preservation of capital and relative stability of
principal. The California Tax-Free Fund invests primarily in bonds and
notes issued by or on behalf of states (primarily, in the case of the
California Tax-Free Fund, the State of California), territories and
possessions of the United States, and the District of Columbia and their
respective authorities, agencies, instrumentalities and political
sub-divisions ("Municipal Securities"). The investment objective of the
Bond Fund is to seek current income through investments in long-term,
fixed-income securities.
Continued
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58
<PAGE> 608
LOGO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1996
The investment objective of the Income Equity Fund is to seek investments
in equity securities that provide current income through the regular
payment of dividends, with the goal that the Fund will have a high current
yield and a low level of price volatility. Opportunities for long-term
growth of asset value is a secondary consideration. The primary investment
objective of the Balanced Fund is to seek total return. Conservation of
capital is a secondary objective. The investment objective of the Growth
Fund is to seek investments in equity securities that provide opportunity
for long-term capital appreciation. The production of current income is an
incidental objective. There can, however, be no assurance that any of the
funds' investment objectives will be achieved.
On December 1, 1990, the Diversified Obligations Fund, the U.S. Government
Obligations Fund, the 100% U.S. Treasury Obligations Fund, and the
California Tax-Free Fund (collectively, "the money market funds")
commenced offering Class A Shares and designated existing shares as Class B
Shares. As of June 20, 1994, Class A and Class B Shares were designated as
"Investor" and "Fiduciary" Shares, respectively. On June 20, 1994, the Bond
Fund, the Income Equity Fund, the Balanced Fund, and the Growth Fund
(collectively, "the variable net asset value funds") commenced offering
Investor Shares and designated existing shares as Fiduciary Shares.
Investor and Fiduciary Shares represent interests in the same portfolio
investments of a Fund and are identical in all respects except that
Investor Shares bear the expense, if any, of the distribution fee under the
Group's Distribution Plan (the "Distribution Plan"), which will cause the
Investor Shares to have a higher expense ratio and to pay lower dividends
than Fiduciary Shares. Investor Shares have certain exclusive voting rights
with respect to the Distribution Plan.
In addition, Investor Shares of the variable net asset value funds are
subject to initial sales charges imposed at the time of purchase, in
accordance with the Funds' prospectuses.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Group in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation
of financial statements requires management to make estimates and
assumptions which affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Continued
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59
<PAGE> 609
LOGO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1996
SECURITIES VALUATION:
Investments in the money market funds are valued at either amortized cost,
which approximates market value, or at original cost, which when combined
with accrued interest, approximates market value. Under the amortized cost
valuation method, discount or premium is amortized on a constant basis to
the maturity of the security. In addition, the money market funds may not a)
purchase any instrument with a remaining maturity greater than thirteen
months unless such investment is subject to a demand feature, or b) maintain
a dollar weighted average portfolio maturity which exceeds 90 days.
Investments in common stocks and preferred stocks, corporate notes,
commercial paper, and U.S. Government securities of the variable net asset
value funds are valued at their market values determined on the basis of the
mean of the latest available bid prices in the principal market (closing
sales prices if the principal market is an exchange) in which such
securities are normally traded. Investments in investment companies are
valued at their net asset values as reported by such companies. Securities,
including restricted securities, for which market quotations are not readily
available, are valued at fair market value under the supervision of the
Fund's Board of Trustees. The differences between cost and market values of
investments held by the variable net asset value funds are reflected as
either unrealized appreciation or depreciation.
SECURITIES TRANSACTIONS AND RELATED INCOME:
Securities transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the accrual
basis and includes, where applicable for the money market funds, the pro
rata amortization of premium. The Funds accrete discounts of securities on
the same basis for both financial reporting and federal income tax purposes,
with the applicable portion of market discount recognized as ordinary income
upon disposition or maturity. Dividend income is recorded on the ex-dividend
date. Gains or losses realized on sales of securities are determined by
comparing the identified cost of the security lot sold with the net sales
proceeds.
REPURCHASE AGREEMENTS:
The Funds may enter into repurchase agreements with financial institutions,
such as banks and broker-dealers, which MERUS-UCA deems creditworthy under
guidelines approved by the Group's Board of Trustees, subject to the
seller's agreement to repurchase such securities at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by a
Fund plus interest negotiated on the basis of current short-term rates,
which may be more or less than the rate on the underlying portfolio
securities. The seller, under a repurchase agreement, is required to pledge
securities as collateral pursuant to the agreement at not less than 102% of
the repurchase price (including accrued interest). Securities subject to
repurchase agreements are held by the Funds' custodian in
Continued
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60
<PAGE> 610
LOGO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1996
the Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered to be loans by a Fund under the 1940 Act.
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income are declared daily and paid monthly
for the money market funds. Distributions from net investment income are
declared and paid monthly for the variable net asset value funds.
Distributable net realized capital gains, if any, are declared and
distributed at least annually for each of the Funds.
Distributions from net investment income and from net realized capital gains
are determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
primarily due to differing treatments for expiring capital loss
carryforwards and deferrals of certain losses for income tax purposes.
FEDERAL INCOME TAXES:
It is the policy of each of the Funds to continue to qualify as a regulated
investment company by complying with the provisions available to certain
investment companies, as defined in applicable sections of the Internal
Revenue Code, and to make distributions of net investment income and net
realized capital gains sufficient to relieve it from all, or substantially
all, federal income taxes. Accordingly, no provision for federal income tax
is required.
OTHER:
Expenses that are directly related to one of the Funds are charged directly
to that Fund and are allocated to each class of shares based on the relative
net assets of each class. Other operating expenses of the Group are prorated
to the Funds on the basis of relative net assets.
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term securities) for the
year ended July 31, 1996 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Bond Fund..................................................... $ 12,838,463 $ 12,390,087
Income Equity Fund............................................ $120,339,920 $104,047,894
Balanced Fund................................................. $ 11,733,334 $ 4,060,963
Growth Fund................................................... $ 42,228,828 $ 27,423,180
</TABLE>
Continued
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61
<PAGE> 611
LOGO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1996
4. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares for the Group for the years ended July 31,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS
DIVERSIFIED OBLIGATIONS FUND FUND
------------------------------ ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1996 JULY 31, 1995 JULY 31, 1996 JULY 31, 1995
------------- ------------- ------------- -------------
Amounts in Thousands
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
INVESTOR SHARES:
Proceeds from shares issued............................... $ 1,099,638 $ 646,263 $ 712,337 $ 394,176
Dividends reinvested...................................... 7,260 4,895 3,476 1,948
Shares redeemed........................................... (1,049,143) (598,685) (688,578) (371,715)
------------- ------------- ------------- -------------
Change in net assets from Investor Share transactions..... $ 57,755 $ 52,473 $ 27,235 $ 24,409
============ ============ ============ ============
FIDUCIARY SHARES:
Proceeds from shares issued............................... $ 843,405 $ 915,980 $ 1,221,391 $ 1,366,450
Dividends reinvested...................................... 66 20 11 2
Shares redeemed........................................... (869,182) (874,436) (1,229,676) (1,368,823)
------------- ------------- ------------- -------------
Change in net assets from Fiduciary Share transactions.... $ (25,711) $ 41,564 $ (8,274) $ (2,371)
============ ============ ============ ============
SHARE TRANSACTIONS:
INVESTOR SHARES:
Issued.................................................... 1,099,638 646,263 712,337 394,176
Reinvested................................................ 7,260 4,895 3,476 1,948
Redeemed.................................................. (1,049,143) (598,685) (688,578) (371,715)
------------- ------------- ------------- -------------
Change in Investor Shares................................. 57,755 52,473 27,235 24,409
============ ============ ============ ============
FIDUCIARY SHARES:
Issued.................................................... 843,405 915,980 1,221,391 1,366,450
Reinvested................................................ 66 20 11 2
Redeemed.................................................. (869,182) (874,436) (1,229,676) (1,368,823)
------------- ------------- ------------- -------------
Change in Fiduciary Shares................................ (25,711) 41,564 (8,274) (2,371)
============ ============ ============ ============
</TABLE>
Continued
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62
<PAGE> 612
LOGO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1996
<TABLE>
<CAPTION>
100% U.S. TREASURY CALIFORNIA
OBLIGATIONS FUND TAX-FREE FUND
------------------------------ ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1996 JULY 31, 1995 JULY 31, 1996 JULY 31, 1995
------------- ------------- ------------- -------------
Amounts in Thousands
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
INVESTOR SHARES:
Proceeds from shares
issued..................... $ 463,343 $ 310,873 $ 120,369 $ 99,160
Dividends reinvested......... 4,526 2,090 1,419 1,027
Shares redeemed.............. (455,887) (263,475) (108,705) (91,159)
------------- ------------- ------------- -------------
Change in net assets from
Investor Share
transactions............... $ 11,982 $ 49,488 $ 13,083 $ 9,028
============ ============ ============ ============
FIDUCIARY SHARES:
Proceeds from shares
issued..................... $ 541,337 $ 425,795 $ 223,524 $ 255,654
Dividends reinvested......... 45 16 6 8
Shares redeemed.............. (558,614) (395,970) (230,920) (264,895)
------------- ------------- ------------- -------------
Change in net assets from
Fiduciary Share
transactions............... $ (17,232) $ 29,841 $ (7,390) $ (9,233)
============ ============ ============ ============
SHARE TRANSACTIONS:
INVESTOR SHARES:
Issued....................... 463,343 310,873 120,369 99,160
Reinvested................... 4,526 2,090 1,419 1,027
Redeemed..................... (455,887) (263,475) (108,705) (91,159)
------------- ------------- ------------- -------------
Change in Investor Shares.... 11,982 49,488 13,083 9,028
============ ============ ============ ============
FIDUCIARY SHARES:
Issued....................... 541,337 425,795 223,524 255,654
Reinvested................... 45 16 6 8
Redeemed..................... (558,614) (395,970) (230,920) (264,895)
------------- ------------- ------------- -------------
Change in Fiduciary Shares... (17,232) 29,841 (7,390) (9,233)
============ ============ ============ ============
</TABLE>
Continued
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63
<PAGE> 613
LOGO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1996
<TABLE>
<CAPTION>
BOND FUND INCOME EQUITY FUND
------------------------------ ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1996 JULY 31, 1995 JULY 31, 1996 JULY 31, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
INVESTOR SHARES:
Proceeds from shares
issued..................... $ 754 $ 626 $ 10,342 $ 4,131
Dividends reinvested......... 60 14 501 52
Shares redeemed.............. (177) (113) (5,008) (506)
------------- ------------- ------------- -------------
Change in net assets from
Investor Share
transactions............... $ 637 $ 527 $ 5,835 $ 3,677
============ ============ ============ ============
FIDUCIARY SHARES:
Proceeds from shares
issued..................... $ 14,876 $ 10,767 $ 52,940 $ 31,913
Dividends reinvested......... 2,983 3,111 16,994 13,482
Shares redeemed.............. (16,414) (19,821) (49,911) (56,293)
------------- ------------- ------------- -------------
Change in net assets from
Fiduciary Share
transactions............... $ 1,445 $ (5,943) $ 20,023 $ (10,898)
============ ============ ============ ============
SHARE TRANSACTIONS:
INVESTOR SHARES:
Issued....................... 71 63 721 331
Reinvested................... 6 1 35 5
Redeemed..................... (17) (11) (344) (40)
------------- ------------- ------------- -------------
Change in Investor Shares.... 60 53 412 296
============ ============ ============ ============
FIDUCIARY SHARES:
Issued....................... 1,421 1,074 3,719 2,625
Reinvested................... 284 311 1,200 1,154
Redeemed..................... (1,563) (1,974) (3,529) (4,658)
------------- ------------- ------------- -------------
Change in Fiduciary Shares... 142 (589) 1,390 (879)
============ ============ ============ ============
</TABLE>
Continued
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64
<PAGE> 614
LOGO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1996
<TABLE>
<CAPTION>
BALANCED FUND GROWTH FUND
------------------------------ ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1996 JULY 31, 1995 JULY 31, 1996 JULY 31, 1995
------------- ------------- ------------- -------------
Amounts in Thousands
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
INVESTOR SHARES:
Proceeds from shares
issued..................... $ 526 $ 480 $ 1,796 $ 1,230
Dividends reinvested......... 22 2 107 5
Shares redeemed.............. (358) (20) (370) (144)
------------- ------------- ------------- -------------
Change in net assets from
Investor Share
transactions............... $ 190 $ 462 $ 1,533 $ 1,091
============ ============ ============ ============
FIDUCIARY SHARES:
Proceeds from shares
issued..................... $ 15,314 $ 9,876 $ 17,443 $ 8,497
Dividends reinvested......... 1,150 984 1,858 498
Shares redeemed.............. (9,046) (9,570) (4,577) (3,450)
------------- ------------- ------------- -------------
Change in net assets from
Fiduciary Share
transactions............... $ 7,418 $ 1,290 $ 14,724 $ 5,545
============ ============ ============ ============
SHARE TRANSACTIONS:
INVESTOR SHARES:
Issued....................... 46 45 143 115
Reinvested................... 2 -- 9 1
Redeemed..................... (31) (2) (29) (13)
------------- ------------- ------------- -------------
Change in Investor Shares.... 17 43 123 103
============ ============ ============ ============
FIDUCIARY SHARES:
Issued....................... 1,321 976 1,397 836
Reinvested................... 100 99 154 50
Redeemed..................... (789) (964) (365) (334)
------------- ------------- ------------- -------------
Change in Fiduciary Shares... 632 111 1,186 552
============ ============ ============ ============
</TABLE>
Continued
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65
<PAGE> 615
LOGO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1996
5. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Group by MERUS-UCA. Under
the terms of the investment advisory agreement, Union Bank of California, of
which MERUS-UCA is a division, is entitled to receive fees based on a
percentage of the average net assets of each of the Funds. Union Bank of
California also serves as custodian, sub-transfer agent and
sub-administrator for the Group.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
an Ohio Limited Partnership, and BISYS Fund Services Ohio, Inc. ("BISYS
Ohio") are subsidiaries of The BISYS Group, Inc.
BISYS, with whom certain officers and trustees of the Group are affiliated,
serves the Group as administrator. Such officers and trustees are paid no
fees directly by the Funds for serving as officers and trustees of the
Group. Under the terms of the administration agreement, BISYS' fees are
computed daily as a percentage of the average net assets of the Funds. BISYS
also serves as the Group's distributor. As distributor, BISYS is entitled to
receive fees from the Funds for providing distribution services. For the
year ended July 31, 1996, BISYS received $212,765 for commissions earned on
sales of shares of the Group's variable net asset value funds, of which
$23,664 was reallowed to affiliated parties. BISYS Ohio, serves the Group as
transfer agent and mutual fund accountant. Transfer agent fees are computed
on a sliding scale, based upon the number of shareholders.
The Group has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act pursuant to which each Fund may pay the Distributor as compensation
for its services in connection with the Distribution Plan a distribution
fee, computed daily and paid monthly, at a maximum annual rate of
twenty-five one-hundredths of one percent (0.25%) of the average daily net
assets attributable to the Funds' Investor Shares. A Fund's Fiduciary Shares
are not subject to the Distribution Plan or a distribution fee. The
Distributor has agreed to voluntarily reduce payments to be received
pursuant to the Distribution Plan with respect to a money market fund to the
extent necessary to ensure that such payments do not exceed the income
attributable to such Fund's shares on any day.
The Group has also adopted a Shareholder Services Plan permitting payment of
compensation to financial institutions that agree to provide certain
administrative support services for their customers who are Fund
shareholders. Each Fund has entered into a specific arrangement with BISYS
for the provision of such services and reimburses BISYS for its cost of
providing these services, subject to a maximum annual rate of twenty-five
one-hundredths of one percent (0.25%) of each Fund's average daily net
assets.
Fees may be voluntarily reduced or reimbursed to assist the Funds in
maintaining competitive expense ratios. Such fees are permanently waived.
Continued
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66
<PAGE> 616
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NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1996
Information regarding these transactions is as follows for the year ended
July 31, 1996: (amounts in thousands)
<TABLE>
<CAPTION>
DIVERSIFIED U.S. GOVERNMENT 100% U.S. TREASURY
OBLIGATIONS FUND OBLIGATIONS FUND OBLIGATIONS FUND
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee (percentage of
average net assets)................ 0.40% 1st $500 million 0.40% 1st $500 million 0.40% 1st $500 million
0.35% next $500 million 0.35% next $500 million 0.35% next $500 million
0.30% remaining 0.30% remaining 0.30% remaining
ADMINISTRATION FEES:
Annual fee (percentage of
average net assets)................ 0.20% 0.20% 0.20%
DISTRIBUTION FEES (INVESTOR SHARES):
Annual fee before voluntary
fee reductions (percentage of
average net assets)................ 0.25% 0.25% 0.25%
Voluntary fee reductions............. $ 395 $ 179 $ 267
SHAREHOLDER SERVICES FEES:
Annual fee before voluntary
fee reductions (percentage of
average net assets)................ 0.25% 0.25% 0.25%
Voluntary fee reductions............. $ 932 $ 560 $ 711
CUSTODIAN FEES: (percentage of
average net assets) 0.02% (minimum $2,500) 0.02% (minimum $2,500) 0.02% (minimum $2,500)
ACCOUNTING FEES: (percentage of
average net assets) 0.03% (minimum $40,000) 0.03% (minimum $40,000) 0.03% (minimum $40,000)
</TABLE>
Continued
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67
<PAGE> 617
LOGO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1996
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE FUND
-----------------------
<S> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)........................... 0.40% 1st $500 million
0.35% next $500 million
0.30% remaining
Voluntary fee reductions....................................... $ 266
ADMINISTRATION FEES:
Annual fee (percentage of average net assets).................. 0.20%
Voluntary fee reductions....................................... $ 77
DISTRIBUTION FEES (INVESTOR SHARES):
Annual fee before voluntary fee reductions
(percentage of average net assets)........................... 0.25%
Voluntary fee reductions....................................... $ 122
SHAREHOLDER SERVICES FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)........................... 0.25%
Voluntary fee reductions....................................... $ 359
CUSTODIAN FEES: (percentage of average net assets) 0.02% (minimum $2,500)
ACCOUNTING FEES: (percentage of average net assets) 0.03% (minimum $40,000)
</TABLE>
Continued
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68
<PAGE> 618
LOGO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1996
<TABLE>
<CAPTION>
BOND FUND INCOME EQUITY FUND
----------------------- -----------------------
<S> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee
reductions (percentage of
average net assets)................ 1.00% 1st $40 million 1.00% 1st $40 million
0.60% remaining 0.60% remaining
Voluntary fee reductions............. $ 257 $ 33
ADMINISTRATION FEES:
Annual fee (percentage of
average net assets)................ 0.20% 0.20%
Voluntary fee reductions............. $ 43 --
DISTRIBUTION FEES (INVESTOR SHARES):
Annual fee before voluntary fee
reductions (percentage of
average net assets)................ 0.25% 0.25%
Voluntary fee reductions............. $ 2 $ 20
SHAREHOLDER SERVICES FEES:
Annual fee before voluntary fee
reductions (percentage of
average net assets)................ 0.25% 0.25%
Voluntary fee reductions............. $ 143 $ 613
CUSTODIAN FEES: (percentage of
average net assets) 0.02% (minimum $2,500) 0.02% (minimum $2,500)
Voluntary fee reductions
ACCOUNTING FEES: (percentage of
average net assets) 0.03% (minimum $40,000) 0.03% (minimum $40,000)
</TABLE>
Continued
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69
<PAGE> 619
LOGO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1996
<TABLE>
<CAPTION>
BALANCED FUND GROWTH FUND
----------------------- -----------------------
<S> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee
reductions (percentage of
average net assets)................ 1.00% 1st $40 million 1.00% 1st $40 million
0.60% remaining 0.60% remaining
Voluntary fee reductions............. $ 161 $ 182
ADMINISTRATION FEES:
Annual fee (percentage of
average net assets)................ 0.20% 0.20%
Voluntary fee reductions............. -- --
DISTRIBUTION FEES (INVESTOR SHARES):
Annual fee before voluntary fee
reductions (percentage of
average net assets)................ 0.25% 0.25%
Voluntary fee reductions............. $ 2 $ 5
SHAREHOLDER SERVICES FEES:
Annual fee before voluntary fee
reductions (percentage of
average net assets)................ 0.25% 0.25%
Voluntary fee reductions............. $ 82 $ 87
CUSTODIAN FEES: (percentage of
average net assets) 0.02% (minimum $2,500) 0.02% (minimum $2,500)
Voluntary fee reductions............. $ 29 $ 40
ACCOUNTING FEES: (percentage of
average net assets) 0.03% (minimum $40,000) 0.03% (minimum $40,000)
Voluntary fee reductions............. $ 19 $ 19
</TABLE>
Continued
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70
<PAGE> 620
LOGO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1996
6. CONCENTRATION OF CREDIT RISK:
The California Tax-Free Fund invests substantially all of its assets in a
diversified portfolio of tax-exempt debt obligations primarily consisting of
securities issued by the State of California, its municipalities, counties,
and other taxing districts. The issuers' abilities to meet their obligations
may be affected by domestic and foreign or California economic, regional and
political developments.
At July 31, 1996, The California Tax-Free Fund had the following
concentrations by industry sector (as a percentage of total investments):
<TABLE>
<CAPTION>
TAX-EXEMPT CALIFORNIA
INDUSTRY CLASS TAX-FREE FUND
--------------------------------------------------------------------- -------------
<S> <C>
Utilities -- Electric................................................ 23.2%
Housing.............................................................. 22.1%
Hospitals............................................................ 20.7%
Pollution Control.................................................... 10.6%
Governments.......................................................... 8.2%
Money Markets........................................................ 7.8%
Utilities -- Water & Sewer........................................... 4.2%
Transportation & Shipping............................................ 3.2%
------
100.0%
</TABLE>
7. ELIGIBLE DISTRIBUTIONS (UNAUDITED):
The Group designates the following eligible distributions for the dividends
received deduction for corporations for the Fund's taxable year ended July
31, 1996:
<TABLE>
<CAPTION>
INCOME BALANCED GROWTH
EQUITY FUND FUND FUND
----------- -------- ------
<S> <C> <C> <C>
Dividend Income (in thousands)...... $ 9.943 $ 549 $ 607
Dividend Income Per Share........... $ 0.402 $0.142 $0.107
</TABLE>
Continued
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71
<PAGE> 621
LOGO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1996
8. EXEMPT-INTEREST INCOME DESIGNATION (UNAUDITED):
The Group designates the following exempt-interest dividends for the Fund's
taxable year ended July 31, 1996.
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE FUND
-------------
<S> <C>
Exempt-interest dividends........................... $ 5.255
Exempt-interest dividends per share................. 0.028
</TABLE>
The following information indicates by state the percentage of income earned
by the California Tax-Free Fund for the year ended July 31, 1996:
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE FUND
-------------
<S> <C>
Alaska..............................................
Arizona.............................................
California.......................................... 100.0%
Colorado............................................
Florida.............................................
Hawaii..............................................
Illinois............................................
Indiana.............................................
Kentucky............................................
Louisiana...........................................
Michigan............................................
Minnesota...........................................
Missouri............................................
Nevada..............................................
New Mexico..........................................
New York............................................
Oregon..............................................
Pennsylvania........................................
Rhode Island........................................
Texas...............................................
Utah................................................
Virginia............................................
Wyoming.............................................
Other Territories...................................
------
100.0%
==============
</TABLE>
Continued
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72
<PAGE> 622
LOGO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1996
For the year ended July 31, 1996, 16.9% of the income earned by the
California Tax-Free Fund may be subject to the alternative minimum tax.
For California residents, 100.0% of the income earned by the California
Tax-Free Fund for the year ended July 31, 1996 is designated as tax-exempt
income.
The following information indicates by type the percentage of income earned
by the 100% U.S. Treasury Obligations Fund for the year ended July 31, 1996:
<TABLE>
<CAPTION>
100% U.S. TREASURY
TYPE OBLIGATIONS FUND
---------------------------------------------------------------- ------------------
<S> <C>
Federal obligations (such as U.S. Treasury bills, notes,
bonds)........................................................ 100.0%
===================
</TABLE>
For California residents, the 100% U.S. Treasury Obligations Fund met the
quarterly diversification tests for each fiscal quarter ended during the
year ended July 31, 1996. In addition, for California residents, 100% of the
income earned by the 100% U.S. Treasury Obligations Fund for the year ended
July 31, 1996 is designated as tax-exempt income.
Please consult your tax advisor for the proper treatment of the information
reflected in Notes 7 and 8.
9. FEDERAL INCOME TAXES:
For federal income tax purposes, the following funds have capital loss
carryforwards as of July 31, 1996, which are available to offset future
capital gains, if any:
<TABLE>
<CAPTION>
AMOUNT EXPIRES
---------- -------
<S> <C> <C>
Diversified Obligations Fund................................. $ 341,422 2001
29,246 2002
U.S. Government Obligations Fund............................. 174,662 2001
100% U.S. Treasury Obligations Fund.......................... 6,637 2004
California Tax-Free Fund..................................... 24,741 2002
22,777 2003
13,234 2003
Bond Fund.................................................... 2,766,351 2003
54,397 2004
</TABLE>
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73
<PAGE> 623
LOGO
DIVERSIFIED OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------- -------------------- -------------------- -------------------- --------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
INVESTMENT
ACTIVITIES
Net
investment
income..... 0.049 0.049 0.049 0.049 0.028 0.028 0.027 0.027 0.043 0.043
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
DISTRIBUTIONS
From net
investment
income..... (0.049) (0.049 ) (0.049) (0.049 ) (0.028) (0.028 ) (0.027) (0.027 ) (0.043) (0.043 )
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
NET ASSET
VALUE, END OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== =========== ========== =========== ========== =========== ========== =========== ========== ===========
Total
Return....... 5.01% 5.01% 4.99% 4.99% 2.88% 2.88% 2.75% 2.75% 4.41% 4.41%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at
end of
period
(000)...... $185,952 $244,775 $128,191 $270,476 $ 75,725 $228,934 $ 77,589 $254,034 $ 17,600 $337,485
Ratio of
expenses to
average net
assets..... 0.75% 0.75% 0.74% 0.74% 0.74% 0.74% 0.72% 0.72% 0.72% 0.72%
Ratio of net
investment
income to
average net
assets..... 4.89% 4.91% 4.92% 4.88% 2.83% 2.83% 2.72% 2.72% 4.34% 4.34%
Ratio of
expenses to
average net
assets*.... 1.23% 0.99% 1.23% 0.98% 1.14% 0.89% 0.79% 0.73% 0.97% 0.72%
Ratio of net
investment
income to
average net
assets*.... 4.41% 4.67% 4.43% 4.64% 2.42% 2.67% 2.65% 2.71% 4.09% 4.34%
</TABLE>
- ---------------
*During the period, certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
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74
<PAGE> 624
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U.S. GOVERNMENT OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------- -------------------- -------------------- -------------------- --------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
INVESTMENT
ACTIVITIES
Net
investment
income..... 0.048 0.048 0.048 0.048 0.027 0.027 0.027 0.027 0.042 0.042
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
DISTRIBUTIONS
From net
investment
income..... (0.048) (0.048 ) (0.048) (0.048 ) (0.027) (0.027 ) (0.027) (0.027 ) (0.042) (0.042 )
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
NET ASSET
VALUE, END OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== =========== ========== =========== ========== =========== ========== =========== ========== ===========
Total
Return....... 4.86% 4.88% 4.86% 4.87% 2.74% 2.74% 2.72% 2.72% 4.25% 4.25%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at
end of
period
(000)...... $ 75,714 $151,483 $ 48,474 $159,747 $ 24,055 $162,094 $ 37,332 $166,182 $ 12,527 $ 94,252
Ratio of
expenses to
average net
assets..... 0.79% 0.77% 0.78% 0.78% 0.77% 0.78% 0.71% 0.71% 0.73% 0.73%
Ratio of net
investment
income to
average net
assets..... 4.77% 4.76% 4.82% 4.76% 2.63% 2.70% 2.67% 2.67% 4.15% 4.15%
Ratio of
expenses to
average net
assets*.... 1.26% 1.00% 1.27% 1.02% 1.17% 0.94% 0.79% 0.74% 0.99% 0.74%
Ratio of net
investment
income to
average net
assets*.... 4.30% 4.53% 4.33% 4.52% 2.23% 2.54% 2.59% 2.65% 3.89% 4.14%
</TABLE>
- ---------------
*During the period, certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
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75
<PAGE> 625
LOGO
100% U.S. TREASURY OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------- -------------------- -------------------- -------------------- --------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
INVESTMENT
ACTIVITIES
Net
investment
income..... 0.046 0.046 0.046 0.046 0.026 0.026 0.026 0.026 0.040 0.040
Net realized
and
unrealized
gains on
investments... -- -- -- -- -- -- -- -- 0.001 0.001
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
Total from
Investment
Activities.. 0.046 0.046 0.046 0.046 0.026 0.026 0.026 0.026 0.041 0.041
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
DISTRIBUTIONS
From net
investment
income..... (0.046) (0.046 ) (0.046) (0.046 ) (0.026) (0.026 ) (0.026) (0.026 ) (0.040) (0.040 )
From net
investment
income..... -- -- -- -- -- -- -- -- (0.001) (0.001 )
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
Total
Distributions... (0.046) (0.046 ) (0.046) (0.046 ) (0.026) (0.026 ) (0.026) (0.026 ) (0.041) (0.041 )
========== =========== ========== =========== ========== =========== ========== =========== ========== ===========
NET ASSET
VALUE, END OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== =========== ========== =========== ========== =========== ========== =========== ========== ===========
Total
Return....... 4.74% 4.74% 4.69% 4.69% 2.68% 2.68% 2.64% 2.64% 4.18% 4.18%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at
end of
period
(000)...... $100,623 $173,340 $ 88,660 $190,604 $ 39,157 $160,721 $ 32,629 $191,946 $ 11,551 $219,451
Ratio of
expenses to
average net
assets..... 0.74% 0.74% 0.73% 0.73% 0.74% 0.74% 0.67% 0.67% 0.65% 0.65%
Ratio of net
investment
income to
average net
assets..... 4.64% 4.64% 4.68% 4.60% 2.68% 2.63% 2.60% 2.60% 3.99% 3.99%
Ratio of
expenses to
average net
assets*.... 1.23% 0.97% 1.22% 0.97% 1.15% 0.90% 0.75% 0.72% 0.97% 0.72%
Ratio of net
investment
income to
average net
assets*.... 4.15% 4.41% 4.19% 4.36% 2.27% 2.48% 2.52% 2.55% 3.67% 3.92%
</TABLE>
- ---------------
*During the period, certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
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76
<PAGE> 626
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CALIFORNIA TAX-FREE FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------- -------------------- -------------------- -------------------- --------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
INVESTMENT
ACTIVITIES
Net
investment
income..... 0.029 0.029 0.031 0.031 0.020 0.020 0.021 0.021 0.032 0.032
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
DISTRIBUTIONS
From net
investment
income..... (0.029) (0.029 ) (0.031) (0.031 ) (0.020) (0.020 ) (0.021) (0.021 ) (0.032) (0.032 )
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
NET ASSET
VALUE, END OF
PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== =========== ========== =========== ========== =========== ========== =========== ========== ===========
Total
Return....... 2.91% 2.91% 3.16% 3.16% 1.99% 1.99% 2.13% 2.13% 3.20% 3.20%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at
end of
period
(000)...... $ 53,627 $ 98,352 $ 40,544 $105,742 $ 31,521 $114,993 $ 44,410 $142,939 $ 4,609 $116,062
Ratio of
expenses to
average net
assets..... 0.55% 0.55% 0.50% 0.50% 0.50% 0.50% 0.44% 0.44% 0.54% 0.54%
Ratio of net
investment
income to
average net
assets..... 2.89% 2.88% 3.14% 3.11% 1.96% 1.96% 2.08% 2.08% 3.15% 3.15%
Ratio of
expenses to
average net
assets*.... 1.25% 1.00% 1.26% 1.01% 1.18% 0.93% 0.79% 0.73% 0.99% 0.74%
Ratio of net
investment
income to
average net
assets*.... 2.19% 2.43% 2.38% 2.60% 1.28% 1.53% 1.73% 1.78% 2.70% 2.95%
</TABLE>
- ---------------
*During the period, certain fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
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77
<PAGE> 627
LOGO
BOND FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 20, YEAR
1994 TO ENDED
YEAR ENDED YEAR ENDED JULY 31, JULY 31, YEAR ENDED JULY 31,
JULY 31, 1996 JULY 31, 1995 1994(A)(B) 1994(B)
---------------------- ---------------------- ---------- --------- -------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY 1993 1992
-------- --------- -------- --------- ---------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $10.29 $ 10.38 $10.04 $ 10.11 $10.12 $ 11.13 $ 11.02 $ 10.29
-------- --------- -------- --------- ---------- --------- ------- -------
INVESTMENT ACTIVITIES
Net investment
income............... 0.69 0.66 0.66 0.64 0.07 0.63 0.70 0.67
Net realized and
unrealized gains
(losses) on
investments.......... (0.18) (0.16) 0.23 0.27 (0.05) (0.97) 0.35 0.77
-------- --------- -------- --------- ---------- --------- ------- -------
Total from Investment
Activities......... 0.51 0.50 0.89 0.91 0.02 (0.34) 1.05 1.44
-------- --------- -------- --------- ---------- --------- ------- -------
DISTRIBUTIONS
From net investment
income............... (0.65) (0.65) (0.64) (0.64) (0.10) (0.63) (0.70) (0.67)
From net realized
gains................ -- -- -- -- -- (0.01) (0.24) (0.04)
In excess of net
realized gains....... -- -- -- -- -- (0.04) -- --
-------- --------- -------- --------- ---------- --------- ------- -------
Total
Distributions...... (0.65) (0.65) (0.64) (0.64) (0.10) (0.68) (0.94) (0.71)
-------- --------- -------- --------- ---------- --------- ------- -------
NET ASSET VALUE, END OF
PERIOD................. $10.15 $ 10.23 $10.29 $ 10.38 $10.04 $ 10.11 $ 11.13 $ 11.02
========= =========== ========= =========== =============== =========== ======== ========
Total Return (excludes
sales charges)......... 4.95% 4.81% 9.29% 9.43% (3.81)%(c) (3.14)% 10.07% 14.43%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of
period (000)......... $1,157 $60,374 $ 558 $59,758 $ 7 $64,185 $33,279 $21,651
Ratio of expenses to
average net assets... 0.89% 0.89% 0.92% 0.92% 0.99%(d) 0.86% 0.93% 0.91%
Ratio of net investment
income to average net
assets............... 6.10% 6.10% 6.29% 6.35% 5.77%(d) 6.11% 6.41% 6.23%
Ratio of expenses to
average net
assets*.............. 1.85% 1.61% 1.89% 1.64% 2.96%(d) 1.37% 1.55% 1.55%
Ratio of net investment
income to average net
assets*.............. 5.14% 5.38% 5.32% 5.62% 3.80%(d) 5.60% 5.79% 5.59%
Portfolio turnover..... 20.65%(e) 20.88%(e) 36.20%(e) 36.20%(e) 44.33%(e) 44.33%(e) 58.81% 79.56%
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) Period from commencement of operations.
(b) On June 20, 1994, the Bond Fund commenced offering Investor Shares and designated existing shares as Fiduciary Shares.
(c) Represents total return for the Fiduciary shares for the period from August 1, 1993 to June 19, 1994 plus the total return
for the Investor Shares for the period from June 20, 1994 to July 31, 1994.
(d) Annualized.
(e) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
*During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
</TABLE>
See notes to financial statements.
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78
<PAGE> 628
LOGO
INCOME EQUITY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 20, YEAR
1994 TO ENDED
YEAR ENDED YEAR ENDED JULY 31, JULY 31, YEAR ENDED JULY 31,
JULY 31, 1996 JULY 31, 1995 1994(A)(B) 1994(B)
----------------------- ---------------------- ---------- --------- --------------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY 1993 1992
-------- --------- -------- --------- ---------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............... $ 13.03 $ 13.00 $11.92 $ 11.92 $11.85 $ 12.13 $ 11.42 $ 10.22
-------- --------- -------- --------- ---------- --------- -------- -------
INVESTMENT ACTIVITIES
Net investment
income............. 0.42 0.42 0.42 0.44 0.04 0.39 0.38 0.40
Net realized and
unrealized gains on
investments........ 1.92 1.93 1.55 1.50 0.08 0.12 0.71 1.20
-------- --------- -------- --------- ---------- --------- -------- -------
Total from
Investment
Activities....... 2.34 2.35 1.97 1.94 0.12 0.51 1.09 1.60
-------- --------- -------- --------- ---------- --------- -------- -------
DISTRIBUTIONS
From net investment
income............. (0.42 ) (0.42 ) (0.44) (0.44 ) (0.05) (0.39 ) (0.38) (0.40)
From net realized
gains.............. (0.66 ) (0.66 ) (0.42) (0.42 ) -- (0.33 ) -- --
-------- --------- -------- --------- ---------- --------- -------- -------
Total
Distributions.... (1.08 ) (1.08 ) (0.86) (0.86 ) (0.05) (0.72 ) (0.38) (0.40)
-------- --------- -------- --------- ---------- --------- -------- -------
NET ASSET VALUE, END
OF PERIOD............ $ 14.29 $ 14.27 $13.03 $ 13.00 $11.92 $ 11.92 $ 12.13 $ 11.42
========= =========== ========= =========== =============== =========== ========== ========
Total Return (excludes
sales charges)....... 18.21 % 18.25 % 17.52% 17.26 % 4.23%(c) 4.23 % 9.75% 16.04%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of
period (000)....... $10,143 $262,660 $3,881 $221,325 $ 24 $213,328 $104,840 $74,478
Ratio of expenses to
average net
assets............. 1.03 % 1.03 % 1.06% 1.06 % 1.10%(d) 1.06 % 1.15% 1.16%
Ratio of net
investment income
to average net
assets............. 2.89 % 2.95 % 3.06% 3.59 % 0.93%(d) 3.29 % 3.27% 3.76%
Ratio of expenses to
average net
assets*............ 1.51 % 1.27 % 1.55% 1.30 % 1.33%(d) 1.10 % 1.21% 1.29%
Ratio of net
investment income
to average net
assets*............ 2.41 % 2.71 % 2.57% 3.34 % 0.71%(d) 3.24 % 3.22% 3.64%
Portfolio turnover... 41.51 %(e) 41.51 %(e) 36.64%(e) 36.64 %(e) 33.82%(e) 33.82 %(e) 29.58% 23.05%
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) Period from commencement of operations.
(b) On June 20, 1994, the Income Equity Fund commenced offering Investor Shares and designated existing shares as Fiduciary
Shares.
(c) Represents total return for the Fiduciary Shares for the period from August 1, 1993 to June 19, 1994 plus the total return
for the Investor Shares for the period from June 20, 1994 to July 31, 1994.
(d) Annualized.
(e) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
*During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
</TABLE>
See notes to financial statements.
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79
<PAGE> 629
LOGO
BALANCED FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 20, NOVEMBER 14,
1994 TO 1993 TO
YEAR ENDED YEAR ENDED JULY 31, JULY 31,
JULY 31, 1996 JULY 31, 1995 1994(A) 1994(A)
---------------------- ---------------------- --------- ------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $10.79 $ 10.85 $ 9.71 $ 9.76 $ 9.71 $ 10.00
-------- --------- -------- --------- --------- ------------
INVESTMENT ACTIVITIES
Net investment income....................... 0.40 0.40 0.43 0.39 -- 0.26
Net realized and unrealized gains (losses)
on investments............................ 0.77 0.79 1.04 1.09 0.06 (0.24)
-------- --------- -------- --------- --------- ------------
Total from Investment Activities.......... 1.17 1.19 1.47 1.48 0.06 0.02
-------- --------- -------- --------- --------- ------------
DISTRIBUTIONS
From net investment income.................. (0.40) (0.40) (0.39) (0.39) (0.06) (0.26)
-------- --------- -------- --------- --------- ------------
NET ASSET VALUE, END OF PERIOD............... $11.56 $ 11.64 $10.79 $ 10.85 $ 9.71 $ 9.76(e)
========= =========== ========= =========== ========== ============
Total Return (excludes sales charges)........ 10.94% 11.06% 15.60% 15.62% (0.25)%(b) (0.26)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)........... $ 694 $39,502 $ 467 $29,961 -- $ 25,851
Ratio of expenses to average net assets..... 0.94% 0.94% 0.90% 0.89% -- 0.87%(c)
Ratio of net investment income to average
net assets................................ 3.48% 3.49% 3.78% 3.93% -- 3.77%(c)
Ratio of expenses to average net assets*.... 2.03% 1.78% 2.05% 1.80% -- 1.79%(c)
Ratio of net investment income to average
net assets*............................... 2.39% 2.65% 2.63% 3.02% -- 2.85%(c)
Portfolio turnover (d)...................... 12.84% 12.84% 20.70% 20.70% 44.14% 44.14%
- ---------------
(a) Period from commencement of operations. On June 20, 1994, the Balanced Fund commenced offering Investor Shares and designated
existing shares as Fiduciary Shares.
(b) Represents total return for the Fiduciary Shares from commencement of operations to June 19, 1994 plus the total return for
the Investor Shares for the period from June 20, 1994 to July 31, 1994.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
(e) Not annualized.
*During the period, certain fees were voluntarily reduced. If such voluntary fee reductions and expense reimbursements had
not occurred, the ratios would have been as indicated.
</TABLE>
See notes to financial statements.
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80
<PAGE> 630
LOGO
GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 20, NOVEMBER 18,
1994 TO 1993 TO
YEAR ENDED YEAR ENDED JULY 31, JULY 31,
JULY 31, 1996 JULY 31, 1995 1994(A) 1994(A)
---------------------- ---------------------- --------- ------------
INVESTOR FIDUCIARY INVESTOR FIDUCIARY INVESTOR FIDUCIARY
-------- --------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $11.87 $ 11.87 $ 9.77 $ 9.76 $ 9.74 $ 10.00
-------- --------- -------- --------- --------- ------------
INVESTMENT ACTIVITIES
Net investment income....................... 0.11 0.12 0.15 0.15 -- 0.05
Net realized and unrealized gains (losses)
on investments............................ 1.38 1.35 2.25 2.26 0.04 (0.24)
-------- --------- -------- --------- --------- ------------
Total from Investment Activities.......... 1.49 1.47 2.40 2.41 0.04 (0.19)
-------- --------- -------- --------- --------- ------------
DISTRIBUTIONS
From net investment income.................. (0.12) (0.12) (0.15) (0.15) (0.01) (0.05)
From net realized gains..................... (0.64) (0.64) (0.15) (0.15) -- --
-------- --------- -------- --------- --------- ------------
Total Distributions....................... (0.76) (0.76) (0.30) (0.30) (0.01) (0.05)
-------- --------- -------- --------- --------- ------------
NET ASSET VALUE, END OF PERIOD............... $12.60 $ 12.58 11.87 $ 11.87 $ 9.77 $ 9.76
========= =========== ========= =========== ========== ============
Total Return (excludes sales charges)........ 12.88% 12.72% 25.10% 25.23% (1.77)%(b) (1.87)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)........... $2,843 $41,495 $1,218 $25,096 -- $ 15,254
Ratio of expenses to average net assets..... 0.93% 0.93% 0.84% 0.79% -- 0.77%(c)
Ratio of net investment income to average
net assets................................ 0.96% 0.98% 1.17% 1.40% -- 0.86%(c)
Ratio of expenses to average net assets*.... 1.91% 1.67% 2.11% 1.92% -- 2.61%(c)
Ratio of net investment income (loss) to
average net assets*....................... (0.02)% 0.23% (0.10)% 0.26% -- (0.98)%(c)
Portfolio turnover (d)...................... 78.58% 78.58% 67.91% 67.91% 123.26% 123.26%
- ---------------
<FN>
(a) Period from commencement of operations. On June 20, 1994, the Growth Fund commenced offering Investor Shares and designated
existing shares as Fiduciary Shares.
(b) Represents total return for the Fiduciary Shares from commencement of operations to June 19, 1994 plus the total return for
the Investor Shares for the period from June 20, 1994 to July 31, 1994.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
(e) Not annualized.
*During the period, certain fees were voluntarily reduced. In addition, certain expenses were reimbursed. If such voluntary
fee reductions and expense reimbursements had not occurred, the ratios would have been as indicated.
</TABLE>
See notes to financial statements.
LOGO
81
