<PAGE> 1
As filed with the Securities and Exchange Commission
on June 18, 1997
Registration Nos. 33-12608 and 811-5059
----------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No.
Post-Effective Amendment No. 22 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT /X/
COMPANY ACT OF 1940
Amendment No. 25 /X/
HIGHMARK FUNDS
(Exact Name of Registrant as Specified in Charter)
Oaks, Pennsylvania 19456
------------------------
(Address of principal executive offices)
(800) 433-6884
--------------
(Registrant's telephone number, including area code)
Name and address of agent for service:
--------------------------------------
Martin E. Lybecker, Esq.
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b), or
/ / on [date] pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(i)
/ / on [date] pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on [date] pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for
post-effective amendment No. __ filed on [date].
Pursuant to Rule 24f-2(a) under the Investment Company Act of 1940, the
Registrant has registered an indefinite number or amount of its shares of
beneficial interest under the Securities Act of 1933. The Registrant filed a
Rule 24f-2 Notice with respect to the Registrant's fiscal year ended July 31,
1996 on September 27, 1996.
<PAGE> 2
HighMark Growth Fund-Fiduciary Shares
HighMark Income Equity Fund-Fiduciary Shares
HighMark Balanced Fund-Fiduciary Shares
HighMark Value Momentum Fund-Fiduciary Shares
HighMark Blue Chip Growth Fund-Fiduciary Shares
HighMark Emerging Growth Fund-Fiduciary Shares
HighMark International Equity Fund-Fiduciary Shares
HighMark Bond Fund-Retail and Fiduciary Shares
HighMark Intermediate-Term Bond Fund-Retail and Fiduciary Shares
HighMark Government Securities Fund-Fiduciary Shares
HighMark Convertible Securities Fund-Fiduciary Shares
HighMark California Intermediate Tax-Free Bond Fund-Retail and Fiduciary Shares
HighMark Diversified Money Market Fund-Fiduciary Shares
HighMark U.S. Government Money Market Fund-Fiduciary Shares
HighMark 100% U.S. Treasury Money Market Fund-Fiduciary Shares
HighMark California Tax-Free Money Market Fund-Fiduciary Shares
The information required by Items 1 through 9 for the above-referenced
investment portfolios of HighMark Funds (the "Registrant") is hereby
incorporated by reference to Part A of Post-Effective Amendment No. 20 to the
Registrant's Registration Statement on Form N-1A, filed with the Securities and
Exchange Commission on February 25, 1997.
<PAGE> 3
CROSS REFERENCE SHEET
HIGHMARK BALANCED FUND
<TABLE>
<CAPTION>
FORM N-1A PART A ITEM PROSPECTUS CAPTION
- --------------------- ------------------
<S> <C>
1. Cover Page Cover Page
2. Synopsis Fee Table
3. Condensed Financial Information Financial Highlights; Performance
Information
4. General Description of Registrant Fund Description; Investment Objectives;
Investment Policies; General
Information--Description of HighMark &
Its Shares
5. Management of the Fund Service Arrangements
5A. Management's Discussion of Fund
Performance Inapplicable
6. Capital Stock and Other Securities How to Purchase Shares; Exchange
Privileges; Redemption of Shares;
Dividends; Federal Taxation; Service
Arrangements--Administrator; Distributor;
The Distribution Plan; General
Information--Description of HighMark &
Its Shares; General Information--
Miscellaneous
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
FORM N-1A PART A ITEM PROSPECTUS CAPTION
- --------------------- ------------------
<S> <C>
7. Purchase of Securities Being Offered How to Purchase Shares; Exchange
Privileges; Service Arrangements--
Administrator; Distributor; The
Distribution Plan
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings Inapplicable
</TABLE>
-2-
<PAGE> 5
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 the
Class A and Class B Shares of 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.
August 18, 1997
Retail Shares
-3-
<PAGE> 6
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
Class A and Class B Shares (collectively, "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").
-4-
<PAGE> 7
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 Class A Shares will be executed
at a per Share price equal to the net asset value next determined after the
purchase order is effective, plus a minimum sales charge of 4.50%. Purchase
orders for Class B Shares will be executed at a per Share price equal to the net
asset value next determined after the purchase order is effective, without an
initial sales charge, but B Shares will be subject to a contingent deferred
sales charge if they are redeemed within six years after purchase. 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").
-5-
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY .....................................................................4
BALANCED FUND FEE TABLE......................................................8
BALANCED FUND FEE TABLE.....................................................10
FINANCIAL HIGHLIGHTS........................................................12
FUND DESCRIPTION............................................................14
INVESTMENT OBJECTIVE........................................................14
INVESTMENT POLICIES.........................................................14
GENERAL ....................................................................15
Money Market Instruments ..........................................15
Illiquid and Restricted Securities ................................16
Lending of Portfolio Securities ...................................16
Other Investments .................................................16
Risk Factors ......................................................17
INVESTMENT LIMITATIONS......................................................19
Portfolio Turnover ..........................................20
HOW TO PURCHASE SHARES......................................................20
How to Purchase By Mail ...........................................21
How to Purchase By Wire ...........................................22
How to Purchase through an Automatic Investment Plan ("AIP") ......22
How to Purchase Through Financial Institutions ....................22
Alternative Sales Charge Options ..................................23
Class A Shares ....................................................24
Sales Charges .....................................................24
Letter of Intent ..................................................25
Rights of Accumulation ............................................25
Sales Charge Waivers ..............................................25
Reductions for Qualified Groups ...................................27
Class B Shares ....................................................27
</TABLE>
-6-
<PAGE> 9
<TABLE>
<S> <C>
Contingent Deferred Sales Charge ...................................27
EXCHANGE PRIVILEGES..........................................................29
REDEMPTION OF SHARES.........................................................30
By Mail ............................................................30
Telephone Transactions .............................................30
Systematic Withdrawal Plan ("SWP") .................................31
Other Information Regarding Redemptions ............................31
DIVIDENDS ...................................................................32
FEDERAL TAXATION.............................................................33
SERVICE ARRANGEMENTS.........................................................34
The Advisor ........................................................34
Administrator ......................................................35
The Transfer Agent .................................................36
Shareholder Service Plans ..........................................36
Distributor ........................................................36
The Distribution Plans .............................................36
Banking Laws .......................................................37
Custodian ..........................................................38
GENERAL INFORMATION..........................................................38
Description of HighMark & Its Shares ...............................38
Performance Information ............................................39
Miscellaneous ......................................................40
DESCRIPTION OF PERMITTED INVESTMENTS.........................................40
</TABLE>
-7-
<PAGE> 10
BALANCED FUND FEE TABLE
<TABLE>
<CAPTION>
Balanced Fund
Class A Shares
--------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 4.50%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as
applicable)(b)
Redemption Fees (as a percentage 0%
of amount redeemed, if
applicable)(c)
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.
-8-
<PAGE> 11
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced Fund
Class A 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 Class A 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 Class A 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
Class A Shares of the Balanced Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be
1.33% for the Class A Shares of the Balanced Fund.
-9-
<PAGE> 12
BALANCED FUND FEE TABLE
<TABLE>
<CAPTION>
Balanced Fund
Class B Shares
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 5.00%
percentage of original purchase
price or redemption proceeds, as
applicable)
Redemption Fees (as a percentage 0%
of amount redeemed, if
applicable)(b)
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.60%
12b-1 Fees 0.75%
Other Expenses (after voluntary reduction)(c) 0.46%
Total Fund Operating Expenses(d) 1.81%
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) deduction of the maximum contingent deferred sales
charge applicable.
-10-
<PAGE> 13
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced Fund
Class B Shares (assuming a complete
redemption at end of period ) $68 $87 $118 $187
=== === ==== ====
Class B Shares (assuming no redemptions) $18 $57 $ 98 $187
=== === ==== ====
</TABLE>
*Class B Shares automatically convert to Class A Shares after eight years.
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 HOW
TO PURCHASE SHARES, EXCHANGE PRIVILEGES, REDEMPTION OF SHARES, 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.)
(c) Absent voluntary fee waivers, OTHER EXPENSES would be .48% for the
Class B Shares of the Balanced Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be
1.83% for the Class B Shares of the Balanced Fund.
-11-
<PAGE> 14
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect
to the Class A Shares (formerly Retail Shares) of the Balanced Fund. Upon
reorganizing as a fund of HighMark Funds on April 28, 1997, Stepstone Balanced
Fund became HighMark Balanced Fund. Financial highlights through January 31,
1997 represent the Investment Class Shares (now Class A Shares) of Stepstone
Balanced Fund, and have been derived from financial statements audited by Arthur
Andersen LLP, independent auditors for the Stepstone Funds, whose report thereon
is included in the 1997 Annual Report for the Stepstone Funds, and incorporated
by reference into the Statement of Additional Information.
The Class B Shares had not commenced operations as of January 31, 1997.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Stepstone Funds
For a Share Outstanding Throughout the Period or Year
<TABLE>
<CAPTION>
NET NET
ASSET NET REALIZED ASSET
VALUE, NET AND UNREALIZED NET VALUE,
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN
- --------------------------------------------------------------------------------------------------------------
- -------------
BALANCED FUND
- -------------
INVESTMENT CLASS (**)
FOR THE YEARS ENDED JANUARY 31,:
<S> <C> <C> <C> <C> <C> <C> <C>
1997 13.91 0.464 1.706 (0.455) (0.595) 15.03 16.04%
1996 11.45 0.406 2.825 (0.406) (0.362) 13.91 28.73%
1995 12.21 0.393 (0.758) (0.392) (0.003) 11.45 (2.95%)
1994 11.50 0.397 0.925 (0.391) (0.221) 12.21 11.79%
1993(10) 11.30 0.092 0.404 (0.098) (0.198) 11.50 4.45%*
<CAPTION>
RATE OF
RATIO NET INVESTMENT
NET OF EXPENSES RATIO OF INCOME TO
ASSETS, RATIO TO AVERAGE NET INVESTMENT AVERAGE
END OF EXPENSES NET ASSETS INCOME NET ASSETS PORTFOLIO AVERAGE
OF PERIOD TO AVERAGE EXCLUDING TO AVERAGE EXCLUDING TURNOVER COMMISSION
(000) NET ASSETS FEE WAIVERS NET ASSETS FEE WAIVERS RATE RATE(A)
- --------------------------------------------------------------------------------------------------------------------------
- -------------
BALANCED FUND
- -------------
INVESTMENT CLASS (**)
FOR THE YEARS ENDED JANUARY 31,:
<S> <C> <C> <C> <C> <C> <C> <C>
1997 8,833 1.04% 1.19% 3.22% 3.07% 27% 0.0604
1996 8,422 0.89% 1.20% 3.12% 2.81% 26% n/a
1995 7,128 0.79% 1.19% 3.41% 3.01% 48% n/a
1994 7,292 0.69% 1.19% 3.26% 2.76% 19% n/a
1993(10) 425 0.60%* 1.10%* 3.20%* 2.70%* 68% n/a
</TABLE>
(A) Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for fiscal
years beginning after September 1, 1995.
(10) Commenced operations on November 13, 1992.
* Annualized.
** Total return does not reflect the sales charge.
-12-
<PAGE> 15
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
three separate classes (Class A and Class B (collectively, the "Retail Shares")
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
-13-
<PAGE> 16
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.
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.
-14-
<PAGE> 17
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
portfolio securities in an amount representing up to 331/3% 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
-15-
<PAGE> 18
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 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
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<PAGE> 19
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 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.
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<PAGE> 20
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 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
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<PAGE> 21
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 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 three classes of Shares, Class A, Class
B and Fiduciary. Class A Shares may be purchased at net asset value plus a sales
charge. Class B Shares may be purchased at net asset value without an initial
sales charge, but are subject to a contingent deferred sales charge if they are
redeemed within six years after purchase. 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
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<PAGE> 22
HighMark at 1-800-433-6884. Investors may be charged a fee if they effect
transactions in fund shares through a broker agent.
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, 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 Class A 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 a maximum sales charge of 4.50%. Purchase orders for
Class B Shares will be executed at a per Share price equal to the net asset
value next determined after the receipt of a purchase order by the Distributor,
without an initial sales charge, but B Shares will be subject to a contingent
deferred sales charge if they are redeemed within six years after purchase. 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. Although the
methodology and procedures for determining net asset value are identical for
Class A and Class B Shares, the net asset value per share of such classes may
differ because of the higher distribution expenses charged to B Class Shares.
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
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<PAGE> 23
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.
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.
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<PAGE> 24
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.
ALTERNATIVE SALES CHARGE OPTIONS
THE TWO ALTERNATIVES: OVERVIEW
You may purchase shares of the Balanced Fund at a price equal to their net asset
value per share plus a sales charge which, at your election, may be imposed
either (i) at the time of the purchase (Class A "initial sales charge
alternative"), or (ii) on a contingent deferred basis (the Class B "deferred
sales charge alternative"). Each class represents the Fund's interest in the
portfolio of investments. The classes have the same rights and are identical in
all respects except that (i) Class B shares bear the expenses of the deferred
sales arrangement and distribution and service fees resulting from such sales
arrangement, (ii) each class has exclusive voting rights with respect to
approvals of any Rule 12b-1 distribution plan related to that specific class
(although Class B shareholders may vote on any distribution fees imposed on
Class A shares so long as Class B shares convert into Class A shares), (iii)
only Class B shares carry a conversion feature and (iv) each class has different
exchange privileges. See "Exchange Privileges." Sales personnel of
broker-dealers distributing the Fund's shares, and other persons entitled to
receive compensation for selling such shares, may receive differing compensation
for selling Class A or Class B shares.
The alternative purchase arrangement permits you to choose the method of
purchasing shares that is more beneficial to you. The amount of your purchase,
the length of time you expect to hold the shares, and whether you wish to
receive dividends in cash or in additional shares will all be factors in
determining which sales charge option is best for you. You should consider
whether, over the time you expect to maintain your investment, the accumulated
distribution and service fees and contingent deferred sales charges on Class B
shares prior to conversion would be less than the initial sales charge on Class
A shares, and to what extent such differential would be offset by the expected
higher yield of Class A shares. Class A shares will normally be more beneficial
to you if you qualify for reduced sales charges as described below.
The Trustees of HighMark have determined that currently no conflict of interest
exists between the Class A and Class B shares. On an ongoing basis, the Trustees
of HighMark, pursuant to their fiduciary duties under the Investment Company Act
of 1940, as amended (the "1940 Act") and state laws, will seek to ensure that no
such conflict arises.
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<PAGE> 25
CLASS A SHARES
SALES CHARGES
The following table shows the regular sales charge on Class A 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 A APPROPRIATE COMMISSION AS
PERCENTAGE OF PERCENTAGE OF NET PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
<S> <C> <C> <C>
0-$49,999 4.50% 4.71% 4.05%
$ 50,000-$99,999 4.00% 4.17% 3.60%
$100,000-$249,999 3.50% 3.63% 3.15%
$250,000-$499,999 2.50% 2.56% 2.25%
$500,000-$999,999 1.50% 1.52% 1.35%
$1,000,000 and Over* 0.00% 0.00% 0.00%
</TABLE>
* A contingent deferred sales charge of 1.00% will be assessed against any
proceeds of any redemption of such Class A 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 Class A 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 Class A Shares, a "single purchaser" is entitled to cumulate current
purchases with the net purchase of previously purchased Class A 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
-23-
<PAGE> 26
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
Class A 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 Class A 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 Class A
Shares, a "single purchaser" is entitled to cumulate current purchases with the
current market value of previously purchased Class A 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 Class A 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 Class A Shares of a Fund upon the reinvestment of
dividend and capital gain distributions on those Shares;
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<PAGE> 27
(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 Class A 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 Class A 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 Class A 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 Class A 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 Class A 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 Class A 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
Class A Shares of the Growth Fund that are holders of such unit
investment trusts that invest distributions from such investment trusts
in Class A Shares of the Growth Fund;
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<PAGE> 28
(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 Class A 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
Class A 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.
CLASS B SHARES
CONTINGENT DEFERRED SALES CHARGE
If you redeem your Class B shares within six years of purchase and are not
eligible for a waiver, you will pay a contingent deferred sales charge at the
rates set forth below. You will not be required to pay the contingent deferred
sales charge on exchange of your Class B shares of any Fund for Class B shares
of any other Fund. See "Exchange Privileges." The charge is assessed on an
amount equal to the lesser of the then-current market value
-26-
<PAGE> 29
or the cost of the shares being redeemed. Accordingly, no sales charge is
imposed on increases in net asset value above the initial purchase price. In
addition, no charge is assessed on shares derived from reinvestment of dividends
or capital gain distributions.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGES
AS A PERCENTAGE OF DOLLAR AMOUNT
YEARS SINCE PURCHASE SUBJECT TO CHANGE
-------------------- ---------------------------------
<S> <C>
First 5.00%
Second 4.00%
Third 3.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh None
Eighth None
</TABLE>
In determining whether a particular redemption is subject to a contingent
deferred sales charge, it is assumed that the redemption is first of any Class A
shares in the shareholder's Fund account, second of Class B shares held for over
six years or Class B shares acquired pursuant to reinvestment of dividends or
other distributions and third of Class B shares held longest during the six year
period. This method should result in the lowest possible sales charge.
The contingent deferred sales charge is waived on redemption of shares (i)
following the death or disability (as defined in the Code) of a shareholder, or
(ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70 1/2. A Shareholder, or his or her
representative, must notify the Transfer Agent prior to the time of redemption
if such circumstances exist and the shareholder is eligible for a waiver.
CONVERSION FEATURE. At the end of the period ending eight years after the
beginning of the month in which the shares were issued, Class B shares will
automatically convert to Class A shares and will no longer be subject to the
Class B distribution and service fees. Such conversion will be on the basis of
the relative net asset value of the two classes.
-27-
<PAGE> 30
EXCHANGE PRIVILEGES
As indicated under GENERAL INFORMATION--Description of HighMark & Its Shares,
certain of HighMark's Funds issue three classes of Shares (Class A and Class B
Shares, (collectively, "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 Class A or Class B Shares may be exchanged for Class A or Class B
Shares, respectively, 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
Class A or Class B Shares and satisfies the minimum initial and subsequent
purchase amounts of the Fund into which the Shares are exchanged. Shareholders
may exchange their Class A Shares for Class A Shares of a Fund with the same or
lower sales charge on the basis of the relative net asset value of the Class A
Shares exchanged. Shareholders may exchange their Class A Shares for Class A
Shares of a Fund with a higher sales charge by paying the difference between the
two sales charges. Shareholders may also exchange Class A Shares of a Money
Market Fund for which no sales load was paid for Class A Shares of an Equity
Fund. Under such circumstances, the cost of the acquired Class A Shares will be
the net asset value per share plus the appropriate sales load. If Class A Shares
of the Money Market Fund were acquired in a previous exchange involving Class A
Shares of a non-money market HighMark Fund, then such Class A Shares of the
Money Market Fund may be exchanged for Class A 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.
For purposes of calculating the Class B Shares' eight year conversion period or
contingent deferred sales charge payable upon redemption, the holding period of
Class B Shares of the "old" Fund and the holding period for Class B Shares of
the "new" Fund are aggregated.
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.
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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 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 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 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.
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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 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. The aggregate withdrawals of Class B
Shares in any year pursuant to the SWP will not be subject to the contingent
deferred sales charge in an amount up to 10% of the value of the account at the
time of the establishment of the SWP. Because automatic withdrawals of Class B
Shares in amounts greater than 10% of the initial value of the account will be
subject to the contingent deferred sales charge, it may not be in the best
interest of Class B Shareholders to participate in the SWP for such amounts.
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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, reduced by any applicable contingent
deferred sales charge for Class B Shares. 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
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, less any applicable
contingent deferred sales charge, 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. The
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amount of dividends payable on Class A Shares will be more than the dividends
payable on the Class B Shares because of the higher distribution fees paid by
Class B Shares.
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 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
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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.
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 other 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.
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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 March 31,
1997, UnionBanCal Corporation and its subsidiaries had approximately $29,424
million 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 13.1 billion of assets under
management. The Advisor, with a team of approximately 64 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 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.
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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 PLANS
To support the provision of Shareholder services to all classes of Shares,
HighMark has adopted a Shareholder Service Plan for Fiduciary Class and Class A
Shares and a Shareholder Service Plan for Class B Shares. A description of the
services performed by service providers pursuant to each Shareholder Service
Plan is contained in the Statement of Additional Information. Under these
plans, 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 for Class A Shares.
DISTRIBUTOR
SEI Financial Services Company (the "Distributor") and HighMark are parties to
two distribution agreements, one for Fiduciary Class and Class A Shares, and
one for Class B Shares (collectively, the "Distribution Agreements"). Each
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 PLANS
Pursuant to HighMark's Distribution Plans, the Balanced Fund pays the
Distributor as compensation for its services in connection with the
Distribution Plans 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 Class A Shares, pursuant to the Class A
Distribution Plan, and seventy-five one-hundredths of one percent (0.75%) of
the average daily net assets attributable to the Fund's Class B Shares,
pursuant to the Class B Distribution Plan.
The Distributor may use the distribution fee applicable to the Fund's Class A
and Class B Shares to provide distribution assistance with respect to the sale
of the Fund's Class A and Class B Shares or to provide Shareholder services to
the holders of the Fund's Class A and Class B 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 Class A and
Class B Shares to their
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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 Class A and Class B Shares. All payments by
the Distributor for distribution assistance or Shareholder services under the
Distribution Plans 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 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 fees under the Distribution Plans 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 Plans. The Distributor may from time to time
voluntarily reduce its distribution fees 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 fees 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
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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 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 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 three classes of
Shares in selected Funds, Shares of such Funds have been divided into three
classes, designated Class A and Class B Shares (collectively, "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 May 28, 1997 there was no person who owned of
record or beneficially more than 25% of the Class A or Class B Shares of the
Balanced Fund.
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PERFORMANCE INFORMATION
From time to time, HighMark may advertise the aggregate total return, average
annual total return, yield and distribution rate with respect to the Retail
Shares of the Balanced Fund. Performance information is computed separately for
the Fund's Class A, Class B 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. Average annual total return will reflect deduction
of all charges and expenses, including, as applicable, the maximum sales charge
imposed on Class A Shares or the contingent deferred sales charge imposed on
Class B Shares redeemed at the end of the specified period covered by the total
return figure.
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.
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Because the Class A and Class B Shares of the Fund have different sales charge
structures and differing distribution and shareholder servicing fees, the
performance of each class will differ.
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 other 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,
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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.
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
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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 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
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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, 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.
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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 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
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
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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.
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.
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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 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).
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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.
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.
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<PAGE> 50
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> 51
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, 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
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<PAGE> 52
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HIGHMARK OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY HIGHMARK OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
NOT FDIC INSURED
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<PAGE> 53
[HIGHMARK LOGO]
HIGHMARK FUNDS
TRS-17236(R12/95)
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<PAGE> 54
CROSS REFERENCE SHEET
HIGHMARK EQUITY FUNDS
FORM N-1A PART A ITEM PROSPECTUS CAPTION
1. Cover Page Cover Page
2. Synopsis Fee Table
3. Condensed Financial Information Financial Highlights; Performance
Information
4. General Description of Registrant Fund Description; Investment Objectives;
Investment Policies; General
Information--Description of HighMark &
Its Shares
5. Management of the Fund Service Arrangements
5A. Management's Discussion of Fund
Performance Inapplicable
6. Capital Stock and Other Securities How to Purchase Shares; Exchange
Privileges; Redemption of Shares;
Dividends; Federal Taxation; Service
Arrangements--Administrator; Distributor;
The Distribution Plan; General
Information--Description of HighMark &
Its Shares; General Information--
Miscellaneous
<PAGE> 55
7. Purchase of Securities Being Offered How to Purchase Shares; Exchange
Privileges; Service Arrangements--
Administrator; Distributor; The
Distribution Plan
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings Inapplicable
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<PAGE> 56
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 the
Class A and Class B Shares of 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.
August 18, 1997
Retail Shares
<PAGE> 57
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
Class A and Class B Shares (collectively, "Retail Shares") of the Income Equity,
Value Momentum and Growth Funds, and the Class A Shares of the Emerging Growth
Fund (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.")
-2-
<PAGE> 58
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.")
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 Class A Shares will be executed
at a per Share price equal to the net asset value next determined after the
purchase order is effective, plus a minimum sales charge of 4.50%. Purchase
orders for Class B Shares will be executed at a per Share price equal to the net
asset value next determined after the purchase order is effective, without an
initial sales charge, but B Shares will be subject to a contingent deferred
sales charge if they are redeemed within six years after purchase. 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.")
-3-
<PAGE> 59
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY................................................................. 2
EQUITY FUNDS FEE TABLE.................................................. 7
EQUITY FUNDS FEE TABLE.................................................. 9
FINANCIAL HIGHLIGHTS.................................................... 14
FUND DESCRIPTION........................................................ 14
INVESTMENT OBJECTIVES................................................... 15
INVESTMENT POLICIES..................................................... 15
Income Equity Fund................................................. 15
Value Momentum Fund................................................ 15
Growth Fund........................................................ 16
Emerging Growth Fund............................................... 16
GENERAL................................................................. 16
Money Market Instruments........................................... 17
Illiquid and Restricted Securities................................. 17
Lending of Portfolio Securities.................................... 17
Other Investments.................................................. 18
Risk Factors....................................................... 19
INVESTMENT LIMITATIONS.................................................. 20
Portfolio Turnover................................................. 20
HOW TO PURCHASE SHARES.................................................. 21
How to Purchase By Mail............................................ 22
How to Purchase By Wire............................................ 22
How to Purchase through an Automatic Investment Plan ("AIP")....... 22
How to Purchase Through Financial Institutions..................... 22
Alternative Sales Charge Options................................... 23
Class A Shares..................................................... 23
Sales Charges...................................................... 25
Letter of Intent................................................... 25
Rights of Accumulation............................................. 25
Sales Charge Waivers............................................... 27
Reductions for Qualified Groups ................................... 27
Class B Shares..................................................... 27
Contingent Deferred Sales Charge................................... 28
</TABLE>
-4-
<PAGE> 60
<TABLE>
<S> <C>
EXCHANGE PRIVILEGES....................................................... 29
REDEMPTION OF SHARES...................................................... 30
By Mail.............................................................. 30
Telephone Transactions............................................... 31
Systematic Withdrawal Plan ("SWP")................................... 31
Other Information Regarding Redemptions.............................. 32
DIVIDENDS................................................................. 32
FEDERAL TAXATION.......................................................... 33
SERVICE ARRANGEMENTS...................................................... 33
The Advisor.......................................................... 35
Sub-Advisor.......................................................... 35
Administrator........................................................ 36
The Transfer Agent................................................... 36
Shareholder Service Plans............................................ 36
Distributor.......................................................... 37
The Distribution Plans............................................... 38
Banking Laws......................................................... 38
Custodian............................................................ 38
GENERAL INFORMATION....................................................... 38
Description of HighMark & Its Shares................................. 39
Performance Information.............................................. 40
Miscellaneous........................................................ 41
DESCRIPTION OF PERMITTED INVESTMENTS...................................... 40
</TABLE>
-5-
<PAGE> 61
EQUITY FUNDS FEE TABLE
<TABLE>
<CAPTION>
Income Equity Value Momentum Growth Emerging
Fund Fund Fund Growth Fund
Class A Class A Class A Class A
Shares Shares Shares Shares
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 4.50% 4.50% 4.50% 4.50%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0% 0% 0% 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0% 0% 0% 0%
percentage of original purchase
price or redemption proceeds, as
applicable)(b)
Redemption Fees (as a percentage 0% 0% 0% 0%
of amount redeemed, if
applicable)(c)
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 0.31% 0.21% 0.30% 0.23%
reduction)(d) ----- ----- ----- -----
Total Fund Operating 1.16% 1.06% 1.15% 1.28%
===== ===== ===== =====
Expenses(e)
</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.
-6-
<PAGE> 62
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Income Equity Fund
Class A Shares $56 $80 $106 $180
Value Momentum Fund
Class A Shares $55 $77 $101 $169
Growth Fund
Class A Shares $56 $80 $105 $178
Emerging Growth Fund
Class A 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 Class A 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 Class A 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) 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
Class A Shares of the Income Equity Fund, the Value Momentum Fund, and
the Growth Fund, and 0.50% for the Class A Shares of the Emerging
Growth Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.33% for the Class A Shares of the Income Equity Fund, the Value
Momentum Fund, and the Growth Fund, and 1.55% for the Class A Shares of
the Emerging Growth Fund.
-7-
<PAGE> 63
EQUITY FUNDS FEE TABLE
<TABLE>
<CAPTION>
Growth Income Equity Value Momentum
Fund Fund Fund
Class B Class B Class B
Shares Shares Shares
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0% 0% 0%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0% 0% 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 5.00% 5.00% 5.00%
percentage of original purchase
price or redemption proceeds, as
applicable)
Redemption Fees (as a percentage 0% 0% 0%
of amount redeemed, if
applicable)(b)
Exchange Fee(a) $ 0 $ 0 $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.60% 0.60% 0.60%
12b-1 Fees 0.75% 0.75% 0.75%
Other Expenses (after voluntary 0.46% 0.46% 0.46%
reduction)(c)
----- ----- -----
Total Fund Operating 1.81% 1.81% 1.81%
===== ===== =====
Expenses(d)
</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.
-8-
<PAGE> 64
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
------ ------- ------- --------
<S> <C> <C> <C> <C>
Income Equity Fund
Class B Shares (assuming a complete redemption
at end of period) $68 $87 $118 $187
Class B Shares (assuming no redemptions) $18 $57 $98 $187
Value Momentum Fund
Class B Shares (assuming a complete redemption
at end of period) $68 $87 $118 $183
Class B Shares (assuming no redemptions) $18 $57 $98 $183
Growth Fund
Class B Shares (assuming a complete redemption
at end of period) $68 $87 $118 $187
Class B Shares (assuming no redemptions) $18 $57 $98 $187
</TABLE>
* Class B Shares automatically convert to Class A Shares after eight
years.
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 HOW
TO PURCHASE SHARES, EXCHANGE PRIVILEGES, REDEMPTION OF SHARES, 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.)
(c) OTHER EXPENSES for the Value Momentum Fund are based on the Fund's
estimated expenses for the current fiscal year. Absent voluntary fee
waivers, OTHER EXPENSES would be: 0.48% for the Class B Shares of the
Income Equity Fund, the Value Momentum Fund, and the Growth Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.83% for the Class B Shares of the Income Equity Fund, the Value
Momentum Fund, and the Growth Fund.
-9-
<PAGE> 65
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information with respect
to the Class A Shares (formerly "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.
Financial highlights for the Income Equity Fund and the Growth Fund for the
period from August 1, 1996 to January 31, 1997 are unaudited. 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 third table below sets forth certain financial information with respect to
the Class A Shares of the Value Momentum Fund. Upon reorganizing as funds of
HighMark Funds on April 28, 1997, Stepstone Value Momentum Fund became HighMark
Value Momentum Fund and Stepstone Emerging Growth Fund became HighMark Emerging
Growth Fund. Financial highlights through January 31, 1997 represent the
Investment Class Shares (now Class A Shares) of Stepstone Value Momentum Fund
and have been derived from financial statements audited by Arthur Andersen LLP,
independent auditors for the Stepstone Funds, whose report thereon is included
in the 1997 Annual Report for the Stepstone Funds, and incorporated by reference
into the Statement of Additional Information. As of the date of the Prospectus,
Retail Class shares were not yet offered in the Emerging Growth Fund.
The Value Momentum Fund, the Emerging Growth Fund and the Class B Shares had not
commenced operations in HighMark as of January 31, 1997.
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.
-10-
<PAGE> 66
INCOME EQUITY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX JUNE 20, 1994
MONTHS ENDED YEAR ENDED JULY 31, TO JULY 31,
JANUARY 31, 1997 1996 1995 1994(A)(B) YEAR ENDED JULY 31,
RETAIL RETAIL RETAIL RETAIL 1993 1992 1991
------ ------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of 14.29 $ 13.03 $ 11.92 $ 11.85 $ 11.42 $ 10.22 $ 10.46
Period -------- -------- ------- ------- --------- -------- --------
Investment Activities
Net investment income 0.18 0.42 0.42 0.04 0.38 0.40 0.46
Net realized and unrealized 2.22 1.92 1.55 0.08 0.71 1.20 0.61
gains (losses) on investments
-------- -------- ------- ------- --------- -------- --------
Total from investment 2.40 2.34 1.97 0.12 1.09 1.60 1.07
Activities -------- -------- ------- ------- --------- -------- --------
Distributions
Net investment income (0.19) (0.42) (0.44) (0.05) (0.38) (0.40) (0.46)
Net realized gains (1.08) (0.66) (0.42) -- -- -- (0.85)
-------- -------- ------- ------- --------- -------- --------
Total Distributions (1.27) (1.08) (0.86) (0.05) (0.38) (0.40) (1.31)
-------- -------- ------- ------- --------- -------- --------
Net Asset Value, End of Period $ 15.42 $ 14.29 $ 13.03 $ 11.92 $ 12.13 $ 11.42 $ 10.22
======== ======== ======= ======= ========= ======== ========
Total Return 17.06%(f) 18.21% 17.52% 4.23%(c) 9.75% 16.04% 12.60%
Ratios/Supplementary Data:
Net Assets at end of period (000) $ 11,750 $ 10,143 $ 3,881 $ 24 $ 104,840 $ 74,478 $ 49,047
Ratio of expenses to average net 1.02%(d) 1.03% 1.06% 1.10%(d) 1.15% 1.16% 1.17%
assets
Ratio of net investment income 2.45%(d) 2.89% 3.06% 0.93%(d) 3.27% 3.76% 4.81%
to average net assets
Ratio of expenses to average 1.50%(d) 1.51% 1.55% 1.33%(d) 1.21% 1.29% 1.40%
net assets*
Ratio of net investment income 1.97%(d) 2.41% 2.57% 0.71%(d) 3.22% 3.64% 4.58%
to average net assets*
Portfolio turnover (g) 23.08% 41.51% 36.64% 33.82% 29.58% 23.05% 33.10%
Average Commission rate paid (h) $ .0595 $ .0662
<CAPTION>
JUNE 23,
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
Net realized and unrealized 0.54 0.49 0.03
gains (losses) on investments (0.62) 2.22 --
Total from investment -------- -------- --------
Activities (0.08) 2.71 0.03
Distributions -------- -------- --------
Net investment income
Net realized gains (0.54) (0.49) (0.03)
(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 ======== ======== ========
Ratios/Supplementary Data: (0.84)% 28.16% 1.31%(f)
Net Assets at end of period (000)
Ratio of expenses to average net $ 41,280 $ 40,027 $ 30,495
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 (g)
Average Commission rate paid (h) 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.
(g) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(h) Represents the dollar amount of commissions paid on Portfolio transactions
divided by the total number of shares purchased and sold for which
commissions were charged and is calculated on the basis of the Portfolio as
a whole without distinguishing between the classes of shares issued.
Disclosure not required for periods prior to fiscal 1996.
* 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.
-11-
<PAGE> 67
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 YEAR ENDED
JUNE 22, DEC. 31, DEC. 31,
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:
-12-
<PAGE> 68
<TABLE>
<CAPTION>
PERIOD FROM
JAN. 1,
1988
THROUGH YEAR ENDED YEAR ENDED
JUNE 22, DEC. 31, DEC. 31,
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>
-13-
<PAGE> 69
GROWTH FUND
[HIGHMARK LOGO]
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 20,
FOR THE 1994 TO
SIX MONTHS ENDED YEAR ENDED YEAR ENDED JULY 31,
JANUARY 31, 1997 JULY 31, 1996 JULY 31, 1995 1994(a)
-------------------- -------------------- -------------------- --------
INVESTOR INVESTOR INVESTOR INVESTOR
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................ $12.60 $11.87 $ 9.77 $ 9.74
------ ------ ------ ------
INVESTMENT ACTIVITIES
Net investment income.............. 0.03 0.11 0.15 --
Net realized and unrealized gains
(losses) on investments.......... 2.88 1.38 2.25 0.04
------ ------ ------ ------
Total from Investment
Activities..................... 2.91 1.49 2.40 0.04
------ ------ ------ ------
DISTRIBUTIONS
From net investment income......... (0.03) (0.12) (0.15) (0.01)
From net realized gains............ (0.99) (0.64) (0.15) --
------ ------ ------ ------
Total Distributions.............. (1.02) (0.76) (0.30) (0.01)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD...... $14.49 $12.60 $11.87 $ 9.77
====== ====== ====== ======
Total Return (excludes sales
charges)........................... 23.47%(e) 12.88% 25.10% (1.77)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000)............................ $3,617 $2,843 $1,218 $ --
Ratio of expenses to average net
assets........................... 0.97%(c) 0.93% 0.84% --
Ratio of net investment income to
average net assets............... 0.41%(c) 0.96% 1.17% --
Ratio of expenses to average net
assets*.......................... 1.80%(c) 1.91% 2.11% --
Ratio of net investment income
(loss) to average net assets*.... (0.42)%(c) (0.02)% (0.10)% --
Portfolio turnover (d)............. 41.37% 78.58% 67.91% 123.26%
Average commission rate paid (f)... $.0598 $.0769
</TABLE>
- ---------------
(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.
(f) Represents the dollar amount of commissions paid on Portfolio transactions
divided by the total number of shares purchased and sold for which
commissions were charged and is calculated on the basis of the Portfolio as
a whole without distinguishing between the classes of shares issued.
Disclosure not required for periods prior to fiscal 1996.
* During the period, certain expenses were voluntarily reduced. If such
voluntary expense reductions had not occurred, the ratios would have been as
indicated.
-14-
<PAGE> 70
VALUE MOMENTUM FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTMENT CLASS (*)
FOR THE YEARS ENDED JANUARY 31,:
Investment Activities Distributions
Net ------------------------------ ----------------------- Net
Asset Net Realized Asset
Value, Net and Unrealized Net Value,
Beginning Investment Gain (Loss) Investment Capital End Total
of Period Income on Investments Income Gains of Period Return
<S> <C> <C> <C> <C> <C> <C> <C>
1997 18.05 0.389 4.368 (0.393) (0.848) 21.57 27.04%
1996 13.40 0.320 5.060 (0.323) (0.408) 18.05 40.77%
1995 14.27 0.321 (0.820) (0.317) (0.054) 13.40 (3.48%)
1994 12.75 0.297 1.543 (0.290) (0.030) 14.27 14.65%
1993(8) 11.52 0.246 1.257 (0.251) (0.022) 12.75 15.97%*
<CAPTION>
Ratio of
Ratio Net Investments
Net of Expenses Ratio of Income to
Assets, Ratio to Average Net Investment Average
End of Expenses Net Assets Income Net Assets Portfolio Average
of Period to Average Excluding to Average Excluding Turnover Commission
(000) Net Assets Fee Waivers Net Assets Fee Waivers Rate Rate(A)
<S> <C> <C> <C> <C> <C> <C> <C>
1997 15,963 1.04% 1.19% 2.01% 1.86% 9% 0.0590
1996 11,801 0.89% 1.20% 2.00% 1.69% 20% n/a
1995 9,777 0.81% 1.21% 2.37% 1.97% 6% n/a
1994 9,346 0.77% 1.20% 2.12% 1.69% 5% n/a
1993(8) 3,162 0.65% 1.15% 2.53% 2.03% 3% n/a
</TABLE>
* Annualized.
(8) Commenced operations on April 2, 1992.
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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
three separate classes (Class A and Class B (collectively, the "Retail Shares")
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.
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INVESTMENT POLICIES
INCOME EQUITY FUND
Under normal market conditions, the Income Equity Fund will invest at least 65%
of its total assets in equity securities, including common stocks, warrants to
purchase common stocks, American Depositary Receipts ("ADRs"), preferred stocks
and securities (including debt securities) convertible into or exercisable for
common stocks. The Income Equity Fund's investments primarily consist of the
common stocks of U.S. corporations that regularly pay dividends, although there
can be no assurance that a corporation will continue to pay dividends.
Investments will be made in an attempt to keep the Income Equity Fund's yield
above the S&P 500's yield by approximately one-third to one-half the difference
between the S&P 500's yield and the yield on long-term U.S. Government bonds.
The Income Equity Fund generally invests in stocks with favorable, long-term
fundamental characteristics when their current relative yields are at the upper
end of their historical yield ranges. Frequently, these stocks are out of favor
in the financial community and 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
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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 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
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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 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
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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.
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
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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 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
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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, the Income Equity, Value Momentum and Growth Funds are divided
into three classes of Shares, Class A, Class B and Fiduciary. The Emerging
Growth Fund is divided into two classes of Shares, Class A and Fiduciary. Class
A Shares may be purchased at net asset value plus a sales charge. Class B Shares
may be purchased at net asset value without an initial sales charge, but are
subject to a contingent deferred sales charge if they are redeemed within six
years after purchase. 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,
Pennsylvania 19456. If you wish to purchase Shares, you may contact your
investment professional or telephone HighMark at 1-800-433-6884. Investors may
be charged a fee if they effect transactions in fund shares through a broker or
agent.
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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 Class A 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 a maximum sales charge of 4.50%. Purchase orders for
Class B Shares will be executed at a per Share price equal to the net asset
value next determined after the receipt of a purchase order by the Distributor,
without an initial sales charge, but B Shares will be subject to a contingent
deferred sales charge if they are redeemed within six years after purchase. 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. Although the
methodology and procedures for determining net asset value are identical for
Class A and Class B Shares, the net asset value per share of such classes may
differ because of the higher distribution expenses charged to B Class Shares.
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 payment also to
the
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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
services and any charges will be provided to the Customer by the financial
institution.
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ALTERNATIVE SALES CHARGE OPTIONS
THE TWO ALTERNATIVES: OVERVIEW
You may purchase shares of the Funds at a price equal to their net asset value
per share plus a sales charge which, at your election, may be imposed either (i)
at the time of the purchase (Class A "initial sales charge alternative"), or
(ii) on a contingent deferred basis (the Class B "deferred sales charge
alternative"). Each class represents a Fund's interest in a portfolio of
investments. The classes have the same rights and are identical in all respects
except that (i) Class B shares bear the expenses of the deferred sales
arrangement and distribution and service fees resulting from such sales
arrangement, (ii) each class has exclusive voting rights with respect to
approvals of any Rule 12b-1 distribution plan related to that specific class
(although Class B shareholders may vote on any distribution fees imposed on
Class A shares so long as Class B shares convert into Class A shares), (iii)
only Class B shares carry a conversion feature and (iv) each class has different
exchange privileges. See "Exchange Privileges." Sales personnel of
broker-dealers distributing the Funds' shares, and other persons entitled to
receive compensation for selling such shares, may receive differing compensation
for selling Class A or Class B shares.
The alternative purchase arrangement permits you to choose the method of
purchasing shares that is more beneficial to you. The amount of your purchase,
the length of time you expect to hold the shares, and whether you wish to
receive dividends in cash or in additional shares will all be factors in
determining which sales charge option is best for you. You should consider
whether, over the time you expect to maintain your investment, the accumulated
distribution and service fees and contingent deferred sales charges on Class B
shares prior to conversion would be less than the initial sales charge on Class
A shares, and to what extent such differential would be offset by the expected
higher yield of Class A shares. Class A shares will normally be more beneficial
to you if you qualify for reduced sales charges as described below.
The Trustees of HighMark have determined that currently no conflict of interest
exists between the Class A and Class B shares. On an ongoing basis, the Trustees
of HighMark, pursuant to their fiduciary duties under the Investment Company Act
of 1940, as amended (the "1940 Act") and state laws, will seek to ensure that no
such conflict arises.
CLASS A SHARES
SALES CHARGES
The following table shows the regular sales charge on Class A 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"):
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<TABLE>
<CAPTION>
SALES CHARGE AS
SALES CHARGE AS A APPROPRIATE COMMISSION AS
PERCENTAGE OF PERCENTAGE OF NET PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
<S> <C> <C> <C>
0-$49,999 4.50% 4.71% 4.05%
$ 50,000-$99,999 4.00% 4.17% 3.60%
$100,000-$249,999 3.50% 3.63% 3.15%
$250,000-$499,999 2.50% 2.56% 2.25%
$500,000-$999,999 1.50% 1.52% 1.35%
$1,000,000 and Over* 0.00% 0.00% 0.00%
</TABLE>
* A contingent deferred sales charge of 1.00% will be assessed against any
proceeds of any redemption of such Class A 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 Class A 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 Class A Shares, a "single purchaser" is entitled to cumulate current
purchases with the net purchase of previously purchased Class A 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, 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 Class A 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.
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<PAGE> 82
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 Class A 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 Class A
Shares, a "single purchaser" is entitled to cumulate current purchases with the
current market value of previously purchased Class A 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 Class A 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 Class A Shares of a Fund upon the reinvestment of
dividend and capital gain distributions on those Shares;
(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;
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<PAGE> 83
(5) Individuals who purchase Class A 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 Class A 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 Class A 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 Class A 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 Class A Shares on behalf of a qualified prototype
retirement plan (other than an IRA, SEP-IRA or Keogh) sponsored by
Union Bank of California or any other parties;
(11) Purchasers of Class A 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
Class A Shares of the Growth Fund that are holders of such unit
investment trusts that invest distributions from such investment trusts
in Class A 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 Class A Shares issued in plans of reorganization,
such as mergers, asset acquisitions, and exchange offers, to which
HighMark is a party.
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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
Class A 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.
CLASS B SHARES
CONTINGENT DEFERRED SALES CHARGE
If you redeem your Class B shares within six years of purchase and are not
eligible for a waiver, you will pay a contingent deferred sales charge at the
rates set forth below. You will not be required to pay the contingent deferred
sales charge on exchange of your Class B shares of any Fund for Class B shares
of any other Fund. See "Exchange Privileges." The charge is assessed on an
amount equal to the lesser of the then-current market value or the cost of the
shares being redeemed. Accordingly, no sales charge is imposed on increases in
net asset value above the initial purchase price. In addition, no charge is
assessed on shares derived from reinvestment of dividends or capital gain
distributions.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGES
AS A PERCENTAGE OF DOLLAR AMOUNT
YEARS SINCE PURCHASE SUBJECT TO CHANGE
<S> <C>
First 5.00%
</TABLE>
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<TABLE>
<S> <C>
Second 4.00%
Third 3.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh None
Eighth None
</TABLE>
In determining whether a particular redemption is subject to a contingent
deferred sales charge, it is assumed that the redemption is first of any Class A
shares in the shareholder's Fund account, second of Class B shares held for over
six years or Class B shares acquired pursuant to reinvestment of dividends or
other distributions and third of Class B shares held longest during the six year
period. This method should result in the lowest possible sales charge.
The contingent deferred sales charge is waived on redemption of shares (i)
following the death or disability (as defined in the Code) of a shareholder, or
(ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70 1/2. A Shareholder, or his or her
representative, must notify the Transfer Agent prior to the time of redemption
if such circumstances exist and the shareholder is eligible for a waiver.
CONVERSION FEATURE. At the end of the period ending eight years after the
beginning of the month in which the shares were issued, Class B shares will
automatically convert to Class A shares and will no longer be subject to the
Class B distribution and service fees. Such conversion will be on the basis of
the relative net asset value of the two classes.
EXCHANGE PRIVILEGES
As indicated under GENERAL INFORMATION--Description of HighMark & Its Shares,
certain of HighMark's Funds issue three classes of Shares (Class A and Class B
Shares (collectively, "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 Class A or Class B Shares may be exchanged for Class A or Class B
Shares, respectively, 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
Class A or Class B Shares and satisfies the minimum initial and
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subsequent purchase amounts of the Fund into which the Shares are exchanged.
Shareholders may exchange their Class A Shares for Class A Shares of a Fund with
the same or lower sales charge on the basis of the relative net asset value of
the Class A Shares exchanged. Shareholders may exchange their Class A Shares for
Class A Shares of a Fund with a higher sales charge by paying the difference
between the two sales charges. Shareholders may also exchange Class A Shares of
a Money Market Fund for which no sales load was paid for Class A Shares of an
Equity Fund. Under such circumstances, the cost of the acquired Class A Shares
will be the net asset value per share plus the appropriate sales load. If Class
A Shares of the Money Market Fund were acquired in a previous exchange involving
Class A Shares of a non-money market HighMark Fund, then such Class A Shares of
the Money Market Fund may be exchanged for Class A 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.
For purposes of calculating the Class B Shares' eight year conversion period or
contingent deferred sales charge payable upon redemption, the holding period of
Class B Shares of the "old" Fund and the holding period for Class B Shares of
the "new" Fund are aggregated.
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.
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.
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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.
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.
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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. The aggregate withdrawals of Class B
Shares in any year pursuant to the SWP will not be subject to the contingent
deferred sale charge in an amount up to 10% of the value of the account at the
time of the establishment of the SWP. Because automatic withdrawals of Class B
Shares in amounts greater than 10% of the initial value of the account will be
subject to the contingent deferred sales charge, it may not be in the best
interest of Class B Shareholders to participate in the SWP for such amounts.
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, reduced by any applicable contingent
deferred sales charge for Class B Shares. 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
times, however, a Fund may be
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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, less any applicable
contingent deferred sales charge, 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. The amount of dividends payable on
Class A Shares will be more than the dividends payable on the Class B Shares
because of the higher distribution fees paid by Class B Shares.
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
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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. 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
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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 other 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 March 31, 1997,
UnionBanCal Corporation and its Subsidiaries had approximately $29,424 million
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 $13.1 billion of assets under management. The Advisor,
with a team of approximately 64 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.
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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.
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.
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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 PLANS
To support the provision of Shareholder services to all classes of Shares,
HighMark has adopted a Shareholder Service Plan for Fiduciary Class and Class A
Shares and a Shareholder Service Plan for Class B Shares. A description of the
services performed by service providers pursuant to each Shareholder Service
Plan is contained in the Statement of Additional Information. Under these
plans, 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 Class A Shares of the Income Equity
Fund, 0.09% for the Class A Shares of the Growth Fund, and 0.00% for the Class
A Shares of the Value Momentum and the Emerging Growth Funds.
DISTRIBUTOR
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SEI Financial Services Company (the "Distributor") and HighMark are parties to
two distribution agreements, one for Fiduciary Class and Class A Shares, and
one for Class B Shares (collectively, the "Distribution Agreements"). Each
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 PLANS
Pursuant to HighMark's Distribution Plans, each Equity Fund pays the
Distributor as compensation for its services in connection with the
Distribution Plans 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 Class A Shares, pursuant to the Class A
Distribution Plan, and seventy-five one-hundredths of one percent (0.75%) of
the average daily net assets attributable to that Fund's Class B Shares,
pursuant to the Class B Distribution Plan.
The Distributor may use the distribution fee applicable to a Fund's Class A and
Class B Shares to provide distribution assistance with respect to the sale of
the Fund's Class A and Class B Shares or to provide Shareholder services to the
holders of the Fund's Class A and Class B 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 Class A and Class B 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 Class A and Class B Shares. All payments by the
Distributor for distribution assistance or Shareholder services under the
Distribution Plans 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 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.
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The distribution fees under the Distribution Plans 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 Plans. The Distributor may from time to
time voluntarily reduce its distribution fees 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 fees 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.
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
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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 three classes of
Shares in selected Funds, Shares of such Funds have been divided into three
classes, designated Class A and Class B Shares (collectively, "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 May 28, 1997, there was no person who owned of
record or beneficially more than 25% of the Class A or Class B Shares of the
Growth Fund, the Income Equity Fund, or the Value Momentum Fund or of the Class
A Shares of the Emerging Growth 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 Class A and
Class B Shares of each Equity Fund. Performance information is computed
separately for a Fund's Class A, Class B 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
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from changes in Share price and reinvestment of dividends and capital gain
distributions. Average annual total return will reflect deduction of all charges
and expenses, including, as applicable, the maximum sales charge imposed on
Class A Shares or the contingent deferred sales charge imposed on Cass B Shares
redeemed at the end of the specified period covered by the total return figure.
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.
Because the Class A and Class B Shares of a Fund have different sales charge
structures and differing distribution and shareholder servicing fees, the
performance of each class will differ.
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.
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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
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.
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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 "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.
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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.
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.
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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 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
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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 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
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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. 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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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 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
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HIGHMARK OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY HIGHMARK OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
NOT FDIC INSURED
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CROSS REFERENCE SHEET
THE HIGHMARK MONEY MARKET FUNDS
FORM N-1A PART A ITEM PROSPECTUS CAPTION
1. Cover Page Cover Page
2. Synopsis Fee Table
3. Condensed Financial Information Financial Highlights; Performance
Information
4. General Description of Registrant Fund Description; Investment
Objectives; Investment Policies;
General Information--Description of
HighMark & Its Shares
5. Management of the Fund Service Arrangements
5A. Management's Discussion of Fund
Performance Inapplicable
6. Capital Stock and Other Securities How to Purchase Shares; Exchange
Privileges; Redemption of Shares;
Dividends; Federal Taxation; Service
Arrangements--Administrator;
Distributor; The Distribution Plan;
General Information--Description of
HighMark & Its Shares; General
Information-- Miscellaneous
7. Purchase of Securities Being Offered How to Purchase Shares; Exchange
Privileges; Service Arrangements--
Administrator; Distributor; The
Distribution Plan
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings Inapplicable
<PAGE> 108
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 the
Class A and Class B Shares of 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.
- --------------------------------------------------------------------------------
August 18, 1997
-------------------
Retail Shares
-2-
<PAGE> 109
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
Class A Shares of the Diversified Money Market, U.S. Government Money Market,
100% U.S. Treasury Money Market, and California Tax-Free Money Market Funds and
the Class B Shares of the U.S. Government Money Market Fund (each a "Fund" and
sometimes referred to in this prospectus as the "Funds.") Class A and Class B
Shares are collectively "Retail Shares." 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")
-3-
<PAGE> 110
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")
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 of Class A Shares
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 Class A
Shares 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). Class B Shares
are only available pursuant to an exchange for Class B Shares of another
HighMark Fund. (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")
-4-
<PAGE> 111
TABLE OF CONTENTS
PAGE
----
SUMMARY.................................................................... 3
MONEY MARKET FUNDS FEE TABLE............................................... 7
FINANCIAL HIGHLIGHTS....................................................... 9
FUND DESCRIPTION........................................................... 18
INVESTMENT OBJECTIVES...................................................... 18
INVESTMENT POLICIES ....................................................... 19
Diversified Money Market Fund........................................... 19
U.S. Government Money Market Fund....................................... 21
The 100% U.S. Treasury Money Market Fund................................ 21
California Tax-Free Money Market Fund................................... 21
Municipal Securities.................................................... 23
GENERAL.................................................................... 24
Illiquid and Restricted Securities...................................... 25
Lending of Portfolio Securities......................................... 25
Other Investments....................................................... 25
Risk Factors............................................................ 26
INVESTMENT LIMITATIONS..................................................... 27
Valuation of Shares ............................................. 29
HOW TO PURCHASE SHARES..................................................... 29
How to Purchase By Mail................................................. 30
How to Purchase By Wire................................................. 31
How to Purchase through an Automatic Investment Plan ("AIP")............ 31
How to Purchase Through Financial Institutions.......................... 31
Alternative Purchase Options............................................ 32
EXCHANGE PRIVILEGES........................................................ 33
REDEMPTION OF SHARES....................................................... 35
By Mail................................................................. 35
Telephone Transactions.................................................. 35
Systematic Withdrawal Plan ("SWP")...................................... 36
Other Information Regarding Redemptions................................. 37
-5-
<PAGE> 112
DIVIDENDS................................................................... 37
FEDERAL TAXATION............................................................ 38
SERVICE ARRANGEMENTS........................................................ 40
The Advisor.............................................................. 40
Administrator............................................................ 41
The Transfer Agent....................................................... 42
Shareholder Service Plans................................................ 42
Distributor.............................................................. 42
The Distribution Plans................................................... 42
Banking Laws............................................................. 43
Custodian................................................................ 44
GENERAL INFORMATION......................................................... 44
Description of HighMark & Its Shares..................................... 44
Performance Information.................................................. 45
Miscellaneous............................................................ 46
DESCRIPTION OF PERMITTED INVESTMENTS........................................ 47
-6-
<PAGE> 113
MONEY MARKET FUNDS FEE TABLE
<TABLE>
<CAPTION>
Diversified U.S. Government 100% U.S. California
Money Market Money Treasury Money Tax-Free Money
Fund Market Fund Market Fund Market Fund
------------ ---------------- -------------- --------------
Class A Class A Class B Class A Class A
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0% 0% 0% 0% 0%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0% 0% 0% 0% 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0% 0% 5.00% 0% 0%
percentage of original purchase
price or redemption proceeds, as
applicable)(b)
Redemption Fees (as a percentage 0% 0% 0% 0% 0%
of amount redeemed, if
applicable)(c)
Exchange Fee(a) $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary reduction) (d) 0.30% 0.29% 0.29% 0.24% 0.09%
12b-1 Fees 0.25% 0.25% 0.75% 0.25% 0.25%
Other Expenses (after voluntary 0.20% 0.21% 0.46% 0.21% 0.21%
reduction)(e) ---- ---- ---- ---- ----
Total Fund Operating 0.75% 0.75% 1.50% 0.70% 0.55%
==== ==== ==== ==== ====
Expenses(f)
</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.
-7-
<PAGE> 114
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years*
------ ------- ------- --------
<S> <C> <C> <C> <C>
Diversified Money Market Fund
Class A Shares $ 8 $24 $ 42 $ 93
U.S. Government Money Market Fund
Class A Shares $ 8 $24 $ 42 $ 93
Class B Shares (assuming a complete redemption
at end of period) $65 $77 $102 $149
Class B Shares (assuming no redemptions) $15 $47 $82 $149
100% U.S. Treasury Money Market Fund
Class A Shares $ 7 $22 $ 39 $ 87
California Tax-Free Money Market Fund
Class A Shares $ 6 $18 $ 31 $ 69
</TABLE>
* Class B Shares automatically convert to Class A Shares after eight years.
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.)
(b) Class B Shares of the U.S. Government Money Market Fund are only available
pursuant to an exchange for Class B Shares of another HighMark Fund. The
deferred sales charge applied to Class B Shares of the U.S. Government
Money Market Fund at the time of redemption will be equal to the deferred
sales charge that would have been applied to the shares of such other
HighMark Fund. Currently, the maximum deferred sales charge on such shares
is 5.00%.
(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 0.30% for the Class
A and Class B 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.
(e) Absent voluntary fee waivers, OTHER EXPENSES would be 0.47% for the Class
A Shares of the Diversified Money Market Fund, 0.48% for the Class A
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
and 0.48% for the Class B Shares of the U.S. Government Money Market Fund.
(f) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.02% for the Class A Shares of the Diversified Money Market Fund, 1.03%
for the Class A 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 and 1.53% for the Class B Shares of the U.S. Government
Money Market Fund.
-8-
<PAGE> 115
FINANCIAL HIGHLIGHTS
The first two tables below set forth certain financial information with respect
to the Class A Shares (formerly Retail Shares) of the U.S. Government Money
Market Fund and the 100% U.S. Treasury 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. Financial highlights for the U.S. Government Money Market Fund and
the 100% U.S. Treasury Money Market Fund for the period from August 1, 1996
through January 31, 1997 are unaudited. Prior to the fiscal year ended July 31,
1996, Coopers & Lybrand L.L.P. served as independent accountants for HighMark.
The third and fourth tables below set forth certain financial information with
respect to the Class A Shares of the Diversified Money Market Fund and the
California Tax-Free Money Market Fund. Upon reorganizing as funds of HighMark
Funds on April 28, 1997, Stepstone Money Market Fund became HighMark Diversified
Money Market Fund and Stepstone California Tax-Free Money Market Fund became
HighMark California Tax-Free Money Market Fund. Financial highlights through
January 31, 1997 represent the Investment Class Shares (now Class A Shares) of
Stepstone Money Market and Stepstone California Tax-Free Money Market Funds, and
have been derived from financial statements audited by Arthur Andersen LLP,
independent auditors for the Stepstone Funds, whose report thereon is included
in the 1997 Annual Report for the Stepstone Funds, and incorporated by reference
into the Statement of Additional Information.
The Class B Shares of the U.S. Government Money Market Fund had not commenced
operations as of January 31, 1997.
-9-
<PAGE> 116
U.S. GOVERNMENT MONEY MARKET FUND
(FORMERLY U.S. GOVERNMENT OBLIGATIONS FUND)
<TABLE>
<CAPTION>
Year Ended July 31,
---------------------------------------------------------------------------
For the
Six Months Ended
January 31, 1997 1996 1995 1994 1993 1992 1991
---------------- ---- ---- ---- ---- ---- ----
Retail Retail Retail Retail Retail Retail Retail
------ ------ ------ ------ ------ ------ ------
<S> <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
Investment Activities
Net investment income 0.0229 0.048 0.048 0.027 0.027 0.042 0.063
Distributions
Net investment income (0.0229) (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 $ 1.00
Total Return 2.31%(c) 4.86% 4.86% 2.74% 2.72% 4.25% 6.49%
Ratios/Supplementary
Data:
Net Assets at end of period (000) $38,486 $75,714 $48,474 $24,055 $37,332 $12,527 $1,761
Ratio of expenses to
average net assets 0.79%(b) 0.79% 0.78% 0.77% 0.71% 0.73% 0.63%
Ratio of net investment income
to average net assets 4.55%(b) 4.77% 4.82% 2.63% 2.67% 4.15% 6.29%
Ratio of expenses to
average net assets* 1.26%(b) 1.26% 1.27% 1.17% 0.79% 0.99% 0.73%
Ratio of net investment income
to average net assets* 4.08%(b) 4.30% 4.33% 2.23% 2.59% 3.89% 6.19%
</TABLE>
-10-
<PAGE> 117
<TABLE>
<CAPTION>
August 10,
Year Ended July 31, 1987
------------------- to
1990 1989 July 31,
---- ---- --------
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 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.
(c) Not Annualized.
-11-
<PAGE> 118
100% U.S. TREASURY MONEY MARKET FUND
(FORMERLY 100% U.S. Treasury Money Market FUND)
<TABLE>
<CAPTION>
Year Ended July 31,
------------------------------------------------------------------
For The Six
Months Ended
January 31, 1997 1996 1995 1994 1993 1992 1991
---------------- ---- ---- ---- ---- ---- ----
Retail Retail Retail Retail Retail Retail Retail
------ ------ ------ ------ ------ ------ ------
<S> <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
Investment Activities
Net investment income 0.0223 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 (0.0223) (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 $ 1.00
======= ======== ======= ======= ======= ======= =======
Total Return 2.26%(c) 4.74% 4.69% 2.68% 2.64% 4.18% 6.53%
Ratios/Supplementary Data:
Net Assets at end of period (000) $89,129 $100,623 $88,660 $39,157 $32,629 $11,551 $19,187
Ratio of expenses to
average net assets 0.75%(b) 0.74% 0.73% 0.74% 0.67% 0.65% 0.62%
Ratio of net investment income
to average net assets 4.43%(b) 4.64% 4.68% 2.68% 2.60% 3.99% 6.25%
Ratio of expenses to
average net assets* 1.23%(b) 1.23% 1.22% 1.15% 0.75% 0.97% 0.70%
Ratio of net investment income
to average net assets* 3.95%(b) 4.15% 4.19% 2.27% 2.52% 3.67% 6.17%
</TABLE>
-12-
<PAGE> 119
<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 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.
(c) Not Annualized.
-13-
<PAGE> 120
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Stepstone Funds
For a Share Outstanding Throughout the Period or Year
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
NET -------------------------- ---------------------- NET
ASSET NET REALIZED ASSET
VALUE, NET AND UNREALIZED NET CONTRIBUTION VALUE,
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL OF END TOTAL
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS CAPITAL OF PERIOD RETURN
- -------------------------------------------------------------------------------------------------------------------------
- -----------------
MONEY MARKET FUND
- -----------------
INVESTMENT CLASS
FOR THE YEARS ENDED JANUARY 31,:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1.00 0.047 -- (0.047) -- -- 1.00 4.78%
1996 1.00 0.052 -- (0.052) -- -- 1.00 5.31%
1995 1.00 0.037 -- (0.037) -- -- 1.00 3.78%
1994 1.00 0.027 -- (0.027) -- -- 1.00 2.77%
1993 1.00 0.033 -- (0.033) -- -- 1.00 3.36%
1992 (4) 1.00 0.036 -- (0.036) -- -- 1.00 4.74%*
<CAPTION>
RATIO OF
RATIO NET INVESTMENT
NET OF EXPENSES RATIO OF INCOME TO
ASSETS, RATIO TO AVERAGE NET INVESTMENT AVERAGE
END OF EXPENSES NET ASSETS INCOME NET ASSETS
OF PERIOD TO AVERAGE EXCLUDING TO AVERAGE EXCLUDING
(000) NET ASSETS FEE WAIVERS NET ASSETS FEE WAIVERS
- -------------------------------------------------------------------------------------
- -----------------
MONEY MARKET FUND
- -----------------
INVESTMENT CLASS
FOR THE YEARS ENDED JANUARY 31,:
<S> <C> <C> <C> <C> <C>
1997 576,566 0.73% 0.88% 4.69% 4.54%
1996 259,608 0.75% 0.90% 5.16% 5.01%
1995 111,267 0.70% 0.90% 3.79% 3.59%
1994 86,291 0.70% 0.89% 2.71% 2.52%
1993 79,253 0.69% 0.86% 3.41% 3.24%
1992 (4) 144,086 0.67%* 0.70%* 4.95%* 4.92%*
</TABLE>
Amounts designated as " -- " are either $0 or have been rounded to $0.
* Annualized.
(4) Commenced operations on May 28, 1991.
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
NET -------------------------- ---------------------- NET NET
ASSET NET REALIZED ASSET ASSETS,
VALUE, NET AND UNREALIZED NET VALUE, END
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL OF PERIOD
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN (000)
- -----------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- -------------------------------------
INVESTMENT CLASS(**)
FOR THE YEARS ENDED JANUARY 31,:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1.00 0.027 -- (0.027) -- 1.00 2.78% 150,688
1996 1.00 0.031 -- (0.031) -- 1.00 3.14% 81,177
1995 1.00 0.023 -- (0.023) -- 1.00 2.33% 49,494
1994 1.00 0.018 -- (0.018) -- 1.00 1.80% 52,220
1993 1.00 0.022 -- (0.022) -- 1.00 2.27% 8,542
1992 (6) 1.00 0.021 -- (0.021) -- 1.00 3.24%* 8,246
<CAPTION>
RATIO OF
RATIO NET INVESTMENT
OF EXPENSES RATIO OF INCOME TO
RATIO TO AVERAGE NET INVESTMENT AVERAGE
OF EXPENSES NET ASSETS INCOME NET ASSETS
TO AVERAGE EXCLUDING TO AVERAGE EXCLUDING
NET ASSETS FEE WAIVERS NET ASSETS FEE WAIVERS
- -----------------------------------------------------------------------------
- -------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- -------------------------------------
INVESTMENT CLASS(**)
FOR THE YEARS ENDED JANUARY 31,:
<S> <C> <C> <C> <C>
1997 0.60% 0.88% 2.75% 2.47%
1996 0.61% 0.88% 3.09% 2.82%
1995 0.62% 0.90% 2.33% 2.05%
1994 0.63% 0.94% 1.76% 1.45%
1993 0.63% 0.94% 2.21% 1.90%
1992 (6) 0.61%* 0.88%* 3.44%* 3.17%*
</TABLE>
Amounts designated as " -- " are either $0 or have been rounded to $0.
* Annualized.
** Total return does not reflect the sales charge.
(6) Commenced operations on June 25, 1991.
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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
three separate classes (Class A and Class B (collectively, the "Retail Shares")
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.
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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.
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;
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(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 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.
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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.
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 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.
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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.
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.
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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 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, 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 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.
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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);
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
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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.
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
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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, the Diversified Money Market, 100% U.S. Treasury Money Market
and California Tax-Free Money Market Funds are divided into two classes of
Shares, Class A and Fiduciary. The U.S. Government Money Market Fund is divided
into three classes of Shares, Class A, Class B 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. Class B Shares
are only available pursuant to an exchange for Class B Shares of another
HighMark Fund.
Class A 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. Investors may
be charged a fee if they effect transactions in fund shares through a broker or
agent.
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
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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 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 of Class A Shares is the net asset value per Share, which is
expected to remain constant at $1.00. Class B Shares are only available pursuant
to an exchange for Class B Shares of another HighMark Fund. 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. Although the methodology and procedure for determining net asset value
are identical for Class A and Class B Shares, the net asset value per share of
such classes may differ because of the higher distribution expenses charged to B
Class 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 Class A Shares of the Diversified Money Market, U.S. Government
Money Market, 100% U.S. Treasury 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 Class A
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.
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You may obtain Account Application Forms for the Diversified Money Market, U.S.
Government Money Market, 100% U.S. Treasury Money Market, and California
Tax-Free Money Market Funds by calling the Distributor at 1-800-433-6884.
How to Purchase By Wire
You may purchase Class A Shares of the Diversified Money Market, U.S. Government
Money Market, 100% U.S. Treasury 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 Class A 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 Class A Shares of the
Diversified Money Market, U.S. Government Money Market, 100% U.S. Treasury 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
Class A Shares of the Funds may be purchased through financial institutions,
including the Advisor, that provide distribution assistance or Shareholder
services. Class A 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 Class A Shares beneficially
owned by them but held of record by a financial institution should contact the
institution to accomplish such change.
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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.
Alternative Purchase Options
Class A Shares and Class B Shares represent a Fund's interest in the portfolio
of investments. The classes have the same rights and are identical in all
respects except that (i) Class B shares bear the expenses of the deferred sales
arrangement and distribution and service fees resulting from such sales
arrangement, (ii) each class has exclusive voting rights with respect to
approvals of any Rule 12b-1 distribution plan related to that specific class
(although Class B shareholders may vote on any distribution fees imposed on
Class A shares so long as Class B shares convert into Class A shares), (iii)
only Class B shares carry a conversion feature and (iv) each class has different
exchange privileges. See "Exchange Privileges." Sales personnel of
broker-dealers distributing the Funds' shares, and other persons entitled to
receive compensation for selling such shares, may receive differing compensation
for selling Class A or Class B shares.
The Trustees of HighMark have determined that currently no conflict of interest
exists between the Class A and Class B shares. On an ongoing basis, the Trustees
of HighMark, pursuant to their fiduciary duties under the Investment Company Act
of 1940, as amended (the "1940 Act") and state laws, will seek to ensure that no
such conflict arises.
CLASS A SHARES. The Funds' Class A Shares are offered on a continuous basis, at
their next determined offering price, which is net asset value. There is no
initial or contingent deferred sales charge on purchases of Class A Shares.
CLASS B SHARES. Class B Shares are sold at net asset value without any initial
sales charge. Class B Shares are only available for purchase pursuant to an
exchange for Class B Shares of another HighMark Fund (the "Exchange Class
Shares"). Currently, only the Class B Shares of the HighMark Funds assess a
contingent deferred sales charge. If an investor redeems Class B Shares of the
U.S. Government Money Market Fund within six years of purchase of the Exchange
Class Shares and is not eligible for a waiver, he or she will pay a contingent
deferred sales charge in an amount equal to the contingent deferred sales charge
he or she would have paid on the Exchange Class Shares, assuming no exchange had
occurred. Consequently, if a shareholder exchanges Exchange Class Shares for
Class B Shares of the U.S. Government Money Market Fund, the transaction will
not be subject to a contingent deferred sales charge; however, when Class B
Shares acquired through the exchange are redeemed, the shareholder will be
treated as if no exchange took place for the purpose of determining the
contingent deferred sales charge and will be charged a contingent deferred sales
charge at the rates set forth below. This charge is assessed on an amount equal
to the lesser of the then-
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current market value or the cost of the shares being redeemed. Accordingly, no
sales charge is imposed on increases in net asset value above the initial
purchase price. In addition, no charge is assessed on shares derived from
reinvestment of dividends or capital gain distributions.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGES
AS A PERCENTAGE OF DOLLAR AMOUNT
YEARS SINCE PURCHASE SUBJECT TO CHANGE
-------------------- ---------------------------------
<S> <C>
First 5.00%
Second 4.00%
Third 3.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh None
Eighth None
</TABLE>
In determining whether a particular redemption is subject to a contingent
deferred sales charge, it is assumed that the redemption is first of any Class A
shares in the shareholder's Fund account, second of Class B shares held for over
six years or Class B shares acquired pursuant to reinvestment of dividends or
other distributions and third of Class B shares held longest during the six year
period. This method should result in the lowest possible sales charge.
The contingent deferred sales charge is waived on redemption of shares (i)
following the death or disability (as defined in the Code) of a shareholder, or
(ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70 1/2. A Shareholder, or his or her
representative, must notify the Transfer Agent prior to the time of redemption
if such circumstances exist and the shareholder is eligible for a waiver.
CONVERSION FEATURE. At the end of the period ending eight years after the
beginning of the month in which the shares were issued, Class B shares will
automatically convert to Class A shares and will no longer be subject to the
Class B distribution and service fees. Such conversion will be on the basis of
the relative net asset value of the two classes.
EXCHANGE PRIVILEGES
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As indicated under GENERAL INFORMATION--Description of HighMark & Its Shares,
certain of HighMark's Funds issue three classes of Shares (Class A and Class B
Shares (collectively, "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 Class A or Class B Shares may be exchanged for Class A or Class B
Shares, respectively, 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 Class A or Class B Shares and satisfies the minimum initial and subsequent
purchase amounts of the Fund into which the Shares are exchanged. Shareholders
may exchange their Class A Shares for Class A Shares of a Fund with the same or
lower sales charge on the basis of the relative net asset value of the Class A
Shares exchanged. Shareholders may exchange their Class A Shares for Class A
Shares of a Fund with a higher sales charge by paying the difference between the
two sales charges. Shareholders may also exchange Class A Shares of a money
market fund for which no sales load was paid for Class A Shares of another
HighMark Fund. Under such circumstances, the cost of the acquired Class A Shares
will be the net asset value per share plus the appropriate sales load. If Class
A Shares of the money market fund were acquired in a previous exchange involving
Class A Shares of a non-money market HighMark Fund, then such Class A Shares of
the money market fund may be exchanged for Class A 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.
For purposes of calculating the Class B Shares' eight year conversion period or
contingent deferred sales charge payable upon redemption, the holding period of
Class B Shares of the "old" Fund and the holding period for Class B Shares of
the "new" Fund are aggregated.
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
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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.
REDEMPTION OF SHARES
You may redeem your Shares of the Diversified Money Market, U.S. Government
Money Market, 100% U.S. Treasury 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 Money Market, 100% U.S. Treasury 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
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You may redeem your Shares of the Diversified Money Market, U.S. Government
Money Market, 100% U.S. Treasury 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 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 Money Market, 100% U.S. Treasury 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 Money Market, 100% U.S. Treasury
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
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time on written notice to the transfer agent. The transfer agent may require
that the signature on the written notice be guaranteed.
The aggregate withdrawals of Class B Shares in any year pursuant to the SWP will
not be subject to the contingent deferred sales charge in an amount up to 10% of
the value of the account at the time of the establishment of the SWP. Because
automatic withdrawals of Class B Shares in amounts greater than 10% of the
initial value of the account will be subject to the contingent deferred sales
charge, it may not be in the best interests of Class B Shareholders to
participate in the SWP for such amounts.
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), reduced by any applicable contingent deferred sales
charge for Class B Shares.
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, less any applicable
contingent deferred sales charge, 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.
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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). The amount of dividends payable on Class A Shares will be more than the
dividends payable on the Class B Shares because of the higher distribution fee
paid by Class B Shares.
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.
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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.
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,
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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
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
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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 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 March 31, 1997
UnionBanCal Corporation and its subsidiaries had approximately $29,424 million
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 $13.1 billion of assets under management. The
Advisor, with a team of approximately 64 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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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 Plans
To support the provision of Shareholder services to all classes of Shares,
HighMark has adopted a Shareholder Service Plan for Fiduciary Class and Class A
Shares and a Shareholder Service Plan for Class B Shares. A description of the
services performed by service providers pursuant to each Shareholder Service
Plan is contained in the Statement of Additional Information. Under these
plans, 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 for Class A Shares.
Distributor
SEI Financial Services Company (the "Distributor") and HighMark are parties to
two distribution agreements, one for Fiduciary Class and Class A Shares, and
one for Class B Shares (collectively, the "Distribution Agreements"). Each
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 Plans
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Pursuant to HighMark's Distribution Plans, each Fund pays the Distributor as
compensation for its services in connection with the Distribution Plans 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 Class A Shares, pursuant to the Class A
Distribution Plan, and seventy-five-one-hundredths of one percent (0.75%) of
the average daily net assets attributable to the Fund's Class B Shares,
pursuant to the Class B Distribution Plan.
The Distributor may use the distribution fee applicable to a Fund's Class A and
Class B Shares to provide distribution assistance with respect to the sale of
the Fund's Class A and Class B Shares or to provide Shareholder services to the
holders of the Fund's Class A and Class B 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 Class A and Class B 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 Class A and Class B Shares. All payments by the
Distributor for distribution assistance or Shareholder services under the
Distribution Plans 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 fees under the Distribution Plans 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 Plans. The Distributor may from time to
time voluntarily reduce its distribution fees 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
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Distributor will choose to make such an agreement, any voluntary reduction in
the Distributor's distribution fees 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
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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 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 three classes of
Shares in selected Funds, Shares of such Funds have been divided into three
classes, designated Class A and Class B Shares (collectively "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 May 28, 1997, there was no person who owned of
record or beneficially more than 25% of the Class A 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 or of the Class
B Shares of the U.S. Government 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 or Oregon personal
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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. Average annual total return will reflect deduction of all charges
and expenses, including, as applicable, the contingent deferred sales charge
imposed on Class B Shares redeemed at the end of the specified period covered by
the total return figure.
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.
Because the Class A and Class B Shares of the Funds have different sales charge
structures and differing distribution and shareholder servicing fees, the
performance of each class will differ.
Miscellaneous
Shareholders will be sent unaudited semi-annual reports and annual reports
audited by independent public accountants.
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Shareholders are entitled to one vote for each Share held in a Fund as
determined on the record date for any action requiring a vote by the
Shareholders, and a proportionate fractional vote for each fractional Share
held. Shareholders of HighMark will vote in the aggregate and not by series or
class except (i) as otherwise expressly required by law or when HighMark's Board
of Trustees determines that the matter to be voted upon affects only the
interests of the Shareholders of a particular series or particular class, and
(ii) only Retail Shares will be entitled to vote on matters submitted to a
Shareholder vote relating to the Distribution Plan. HighMark is not required to
hold regular annual meetings of Shareholders, but may hold special meetings from
time to time.
HighMark's Trustees are elected by Shareholders, except that vacancies may be
filled by vote of the Board of Trustees. Trustees may be removed by the Board of
Trustees, or by Shareholders at a meeting called for such purpose. For
information about how Shareholders may call such a meeting and communicate with
other Shareholders for that purpose, see ADDITIONAL INFORMATION--Miscellaneous
in the Statement of Additional Information.
Inquiries may be directed in writing to SEI Financial Services Company, Oaks,
Pennsylvania 19456, or by calling toll free 1-800-433-6884.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of permitted investments for the HighMark 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
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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 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
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(such as commercial paper) of such borrower because it may be necessary under
the terms of the loan participation, for the Fund to assert its rights against
the borrower through the intermediary bank. Moreover, under the terms of a loan
participation, the purchasing Fund may be regarded as a creditor of the
intermediary bank (rather than of the underlying corporate borrower), so that a
Fund may also be subject to the risk that the issuing bank may become insolvent.
Further, in the event of the bankruptcy or insolvency of the corporate borrower,
a loan participation may be subject to certain defenses that can be asserted by
such borrower as a result of improper conduct by the issuing bank. The secondary
market, if any, for these loan participations is limited, and any such
participation purchased by 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
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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").
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.
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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 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
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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 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
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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 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
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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
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CROSS REFERENCE SHEET
HIGHMARK FUNDS
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
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FORM N-1A PART B ITEM INFORMATION CAPTION
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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 Financial Statements
</TABLE>
<PAGE> 160
HIGHMARK FUNDS
STATEMENT OF ADDITIONAL INFORMATION
August 18, 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, with the exception of the Retail Prospectuses for the HighMark
Money Market Funds, the HighMark Equity Funds and the HighMark Balanced Fund,
which are dated August 18, 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 1 Freedom Valley
Drive, Oaks, Pennsylvania, 19456, 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> 161
TABLE OF CONTENTS
<TABLE>
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PAGE
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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 .................................................................................. 13
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
Illiquid Securities.................................................................... 31
INVESTMENT RESTRICTIONS.................................................................... 32
Voting Information..................................................................... 39
PORTFOLIO TURNOVER......................................................................... 39
VALUATION.................................................................................. 39
Valuation of the Money Market Funds.................................................... 40
Valuation of the Equity Funds and the Fixed Income Funds............................... 40
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................................. 41
Additional Federal Tax Information..................................................... 41
Additional Tax Information Concerning The California Tax-Free Money Market Fund
and The California Intermediate Tax-Free Bond Fund.............................. 44
Federal Taxation....................................................................... 44
California Taxation.................................................................... 46
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<TABLE>
<S> <C>
Foreign Taxes.......................................................................... 47
MANAGEMENT OF HIGHMARK..................................................................... 48
Trustees and Officers.................................................................. 48
Investment Advisor..................................................................... 51
The Sub-Advisors....................................................................... 53
Portfolio Transactions................................................................. 53
Glass-Steagall Act..................................................................... 55
Administrator and Sub-Administrator.................................................... 56
Shareholder Services Plans............................................................. 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
FINANCIAL STATEMENTS....................................................................... 88
</TABLE>
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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. 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 Government Securities Fund, and the HighMark California
Intermediate Tax-Free Bond Fund commenced operations in HighMark on April 28,
1997, and the HighMark Convertible Securities Fund commenced operations in
HighMark on May 1, 1997. 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
HighMark 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 three classes of Shares (designated Class A and Class B Shares
(collectively "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 Bond, Intermediate-Term Bond, Government Securities,
Convertible Securities, and California Intermediate Tax-Free
<PAGE> 164
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 certificates of deposit and time deposits will be
limited to those (a) of domestic and foreign
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banks 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 or bank
may provide assistance in collecting interest and principal from the borrower
and in enforcing its rights
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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.
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
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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 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
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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 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
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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.
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
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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 rating organization ("NRSRO") or are
determined by the Advisor to be of comparable quality. The California Tax-Free
Money Market Fund 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,
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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 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.
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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 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
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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, 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.
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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.
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,"
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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 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,
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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, 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.
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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 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
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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.
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.
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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 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
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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
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
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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.
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 Options. 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
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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 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
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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.
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
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result in the institution by exchanges of special procedures which may interfere
with the timely execution of customer orders.
To reduce or eliminate a hedge position held by a Fund, the Fund may
seek to close out a position. The ability to establish and close out positions
will be subject to the development and maintenance of a liquid secondary market.
It is not certain that this market will develop or continue to exist for a
particular futures contract. Reasons for the absence of a liquid secondary
market on an exchange include the following: (i) there may be insufficient
trading interest in certain contracts or options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of contracts or options
(or a particular class or series of contracts or options), in which event the
secondary market on that exchange (or in the class or series of contracts or
options) would cease to exist, although outstanding contracts or options on the
exchange that had been issued by a clearing corporation as a result of trades on
that exchange would continue to be exercisable in accordance with their terms.
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
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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 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
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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, 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
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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.
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
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banks) and their customers. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades.
A futures contract is a standardized contract for the future delivery
of a specified amount of a foreign currency at a future date at a price set at
the time of the contract. Futures contracts are designed by and traded on
exchanges. The Fund would enter into futures contracts solely for hedging or
other appropriate risk management purposes as defined in the controlling
regulations.
Forward contracts differ from futures contracts in certain respects.
For example, the maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month. Forward contracts may be in any amounts
agreed upon by the parties rather than predetermined amounts. Also, forward
contracts are traded directly between currency traders so that no intermediary
is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in the futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market in such contracts.
Although the Fund intends to purchase or sell futures contracts only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a secondary market on an exchange or board of
trade will exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures position and, in the event of
adverse price movements, the Fund would continue to be required to make daily
cash payments of variation margin, as described below.
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.
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Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market." These payments are called "variation
margin," and are made as the value of the underlying futures contract
fluctuates. For example, when the Fund sells a futures contract and the price of
the underlying currency rises above the delivery price, the International Equity
Fund's position declines in value. The Fund then pays a broker a variation
margin payment equal to the difference between the delivery price of the futures
contract and the market price of the currency underlying the futures contract.
Conversely, if the price of the underlying currency falls below the delivery
price of the contract, the Fund's futures position increases in value. The
broker then must make a variation margin payment equal to the difference between
the delivery price of the futures contract and the market price of the currency
underlying the futures contract.
When the International Equity Fund terminates a position in a futures
contract, a final determination of variation margin is made, additional cash is
paid by or to the International Equity Fund, and the International Equity Fund
realizes a loss or gain. Such closing transactions involve additional commission
costs.
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
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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.
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
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economic growth. When economic conditions appear to be deteriorating, medium to
lower rated securities may decline in value due to heightened concern over
credit quality, regardless of the prevailing interest rates. Investors should
carefully consider the relative risks of investing in high yield securities and
understand that such securities are not generally meant for short-term
investing.
The high yield market is relatively new and its growth has paralleled a
long period of economic expansion and an increase in merger, acquisition and
leveraged buyout activity. Adverse economic developments can disrupt the market
for high yield securities, and severely affect the ability of issuers,
especially highly leveraged issuers, to service their debt obligations or to
repay their obligations upon maturity which may lead to a higher incidence of
default on such securities. In addition, the secondary market for high yield
securities, which is concentrated in relatively few market makers, may not be as
liquid as the secondary market for more highly rated securities. As a result,
the Convertible Securities Fund could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Furthermore, the Trust may experience
difficulty in valuing certain securities at certain times. Prices realized upon
the sale of such lower rated or unrated securities, under these circumstances,
may be less than the prices used in calculating the Convertible Securities
Fund's net asset value.
Lower rated or unrated debt obligations also present risks based on
payment expectations. If an issuer calls an obligation for redemption, the
Convertible Securities Fund may have to replace the security with a lower
yielding security, resulting in a decreased return for investors. If the
Convertible Securities Fund experiences unexpected net redemptions, it may be
forced to sell its higher rated securities, resulting in a decline in the
overall credit quality of the Convertible Securities Fund's investment portfolio
and increasing the exposure of the Convertible Securities Fund to the risks of
high yield securities.
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,
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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 (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
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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. 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 company's outstanding voting
securities, (ii) securities issued by the acquired company
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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 Fund's total assets at the
time of its borrowing. The Fund will not invest in additional
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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.
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
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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 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
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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.
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.
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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.
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").
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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
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.
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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 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
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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.
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
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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 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.
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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.
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
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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 net long-term capital gain (if any) over its net short-term capital loss,
or the excess of 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 disallowed to
the extent of any exempt-interest dividends paid thereon, and any remaining 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 as ordinary income 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 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.
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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 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
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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 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
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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. Prior to
1323 Encina Drive October 1996, Vice President and
Milbrae, CA 94030 Chief Financial Officer of Bio
Rad Laboratories, Inc.
David A. Goldfarb Trustee Partner, Goldfarb & Simens,
111 Pine Street Certified Public Accountants.
18th Floor
San Francisco, CA 94111
Joseph C. Jaeger Trustee Senior Vice President and Chief
100 First Street Financial Officer, Delta Dental
San Francisco, CA 94105 Plan of California.
</TABLE>
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<PAGE> 211
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH HIGHMARK DURING PAST 5 YEARS
- ---------------- ------------- -------------------
<S> <C> <C>
Frederick J. Long Trustee President and Chief Executive
520 Pike Street Officer, Pettit-Morry Co. and
20th Floor Acordia Northwest Inc. (each an
Seattle, WA 98101 insurance brokerage firm).
David G. Lee President and Chief Executive Senior Vice President of the
530 East Swedesford Road Officer Administrator and Distributor,
Wayne, PA 19087 employee since 1993. Prior to
1993, President for GW Sierra
Trust Funds before 1991.
Robert DellaCroce Controller and Chief Financial CPA, Director of Fund Resources,
530 East Swedesford Road Officer employee since 1994. Prior to
Wayne, PA 19087 1994, senior manager for Arthur
Andersen.
Kevin P. Robins Vice President and Secretary Employee since 1992. Prior to
1 Freedom Valley Drive of the Administrator and Distributor 1992, associate with Morgan Lewis
Oaks, PA 19456 & Bockius since 1988.
Kathryn L. Stanton Vice President and Assistant Employee since 1994. Prior to
1 Freedom Valley Drive Secretary; Secretary 1992, associate with Morgan Lewis
Oaks, PA 19456 & Bockius since 1988.
Sandra K. Orlow Vice President and Assistant Employee since 1983.
1 Freedom Valley Drive Secretary
Oaks, PA 19456
Todd Cipperman Vice President and Assistant Employee since 1995. From 1994
1 Freedom Valley Drive Secretary. to May 1995, associate with Dewey
Oaks, PA 19456 Ballantine. Prior to 1994,
associate with Winston & Strawn.
</TABLE>
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<PAGE> 212
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH HIGHMARK DURING PAST 5 YEARS
- ---------------- ------------- -------------------
<S> <C> <C>
Barbara A. Nugent Vice President and Assistant Employee since 1996. Prior to
1 Freedom Valley Drive Secretary. April 1996, associate with
Oaks, PA 19456 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.
</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.
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)
Pension or
Retirement
Benefits Accrued Total Compensation
Aggregate as Estimated Annual from Fund
Name of Compensation Part of Fund Benefits Upon Complex Paid to
Trustee from Group Expenses Retirement Trustees
------- ------------ ---------------- ---------------- ------------------
<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>
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<PAGE> 213
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 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,
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<PAGE> 214
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 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").
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<PAGE> 215
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.
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.
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<PAGE> 216
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
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
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<PAGE> 217
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
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 Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment 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
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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 Investment Company ("SEI"), was organized as a
Delaware corporation in 1969 and has its principal business offices at 1 Freedom
Valley Drive, Oaks, Pennsylvania 19456. 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, Boston 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., TIP 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.
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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 $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.
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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.
SHAREHOLDER SERVICES PLANS
HighMark has adopted two Shareholder Services Plans, one for Fiduciary
Class and Class A Shares, and one for for Class B Shares (collectively, the
"Services Plans") 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,
pursuant to each plan.
The servicing agreements adopted under the Services Plans (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 Plans, 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
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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
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 a
distribution agreement dated February 15, 1997 between HighMark and the
Distributor for the Fiduciary Class and Class A Shares, and pursuant to a
distribution agreement dated June 18, 1997 between HighMark and the Distributor
for Class B Shares (collectively, the "Distribution Agreements").
Unless terminated, the Distribution Agreements 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 Agreements or
interested persons (as defined in the 1940 Act) of any party to the
Distribution Agreements, cast in person at a meeting called for the purpose of
voting on such approval. The Distribution Agreements are 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 Agreements terminate in the event of their
assignment, as defined in the 1940 Act.
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The Distribution Plans. The operation, the 0.25% fee payable under
HighMark's Distribution Plans to which the Class A Shares of HighMark's Funds
are presently subject and the 0.75% fee to which the Class B Shares are
presently subject are described in each such Fund's Prospectus under "SERVICE
ARRANGEMENTS -The Distribution Plans." 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 Class B Shares had not commenced operations
as of July 31, 1996, "Retail Shares" in this case refer only to Class A Shares.)
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.
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 Class A or
Class B 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.
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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 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
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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.
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 three classes of Shares, designated Class
A and Class B Shares (collectively, "Retail Shares") and Fiduciary Shares.
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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 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.
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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 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,
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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 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
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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 January 31, 1997 (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 4.67% and 4.67%, respectively, and the effective yield of
the Fund's Retail Shares and Fiduciary Shares was 4.78% and 4.78%, respectively;
the yield of the U.S. Government Money Market Fund's Retail Shares and Fiduciary
Shares was 4.54% and 4.56%, respectively, and the effective yield of the Fund's
Retail Shares and Fiduciary Shares was 4.66% and 4.64%, respectively; the yield
of the 100% U.S. Treasury Money Market Fund's Retail Shares and Fiduciary Shares
was 4.45% and 4.45% respectively, and the effective yield of the Fund's Retail
Shares and Fiduciary Shares was 4.55% and 4.55% respectively; and the yield of
the California Tax-Free Money Market Fund's Retail Shares and Fiduciary Shares
was 2.83% and 2.83% respectively, and the effective yield of the Fund's Retail
Shares and Fiduciary Shares was 2.87% and 2.87%, 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 January 31, 1997, the yield of the
Diversified Money Market Fund's Retail Shares and Fiduciary Shares was 4.65% and
4.65% respectively, and the effective yield of the Fund's Retail Shares and
Fiduciary Shares was 4.75% and 4.75%, respectively; the yield of the U.S.
Government Money Market Fund's Retail Shares and Fiduciary Shares was 4.52% and
4.54%, respectively, and the effective yield of the Fund's Retail Shares and
Fiduciary Shares was 4.61% and 4.63%, respectively; the yield of the 100% U.S.
Treasury Money Market Fund's Retail Shares and Fiduciary Shares was 4.43% and
4.43%, respectively, and the effective yield of the Fund's Retail Shares and
Fiduciary Shares was 4.52% and 4.52%, respectively; and the yield of the
California Tax- Free Money Market Fund's Retail Shares and Fiduciary Shares was
2.70% and 2.70%, respectively, and the effective yield of the Fund's Retail
Shares and Fiduciary Shares was 2.73% and 2.73%, 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,
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<PAGE> 229
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 January 31, 1997, the
tax-equivalent yield of the California Tax-Free Money Market Fund's Retail
Shares and Fiduciary Shares was 4.69% and 4.69% respectively (using a federal
income tax rate of 39.6%), and 5.73% and 5.73% 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 4.75% and 4.75%, respectively (using a federal income tax rate of
39.6%), and 5.81% and 5.81%, 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 January 31, 1997, the
tax-equivalent yield of the California Tax-Free Money Market Fund's Retail
Shares and Fiduciary Shares was 4.47% and 4.47%, respectively (using a federal
income tax rate of 39.6%), and 5.47% and 5.47%, 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 4.52% and 4.52%, respectively (using a federal income tax rate of
39.6%), and 5.53% and 5.53%, 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 January 31, 1997, the one-year average annual total
return of the Diversified Money Market Fund Retail and Fiduciary shares was
4.80%, of the U.S. Government Money Market Fund Retail and Fiduciary shares was
4.65% and 4.67%, respectively, of the 100% U.S. Treasury Money Market Fund
Retail and Fiduciary shares was 4.55%, and of the California Tax-Free Money
Market Fund Retail and Fiduciary shares was 2.76%.
For the period ended January 31, 1997, the five-year average annual
total return of the Diversified Money Market Fund's Retail and Fiduciary shares
was 3.98%; of the U.S. Government Money Market Fund's Retail and Fiduciary
shares was 3.86%; of the
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100% U.S. Treasury Money Market Fund's Retail and Fiduciary shares was 3.75%;
and of the California Tax-Free Money Market Fund's Retail and Fiduciary shares
was 2.58%.
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 January 31, 1997, 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 4.35%, 4.17% and 4.08%, respectively. For the period from August 11, 1987
(the date on which the California Tax-Free Money Market Fund commenced
operations) through January 31, 1997, the average annual total return of the
California Tax-Free Money Market Fund Retail and Fiduciary shares was 3.65%.
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 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 January 31, 1997, the average annual
total return of the Retail and Fiduciary Shares of the Income Equity Fund was
11.77% (12.01% without a load) and 17.04%, respectively, and of the Bond Fund
was 1.00% (2.05% without a load) and 2.03%, respectively. For the five-year
period ended January 31, 1997, the average annual total return of the Retail and
Fiduciary Shares of the Income Equity Fund was
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14.07% (15.12% without a load) and 15.08%, respectively, and of the Bond Fund
was 5.69% (6.34% without a load) and 6.49%, respectively. For the ten year
period ended January 31, 1997, the average annual total return of the Retail and
Fiduciary Shares of the Income Equity Fund was 12.16% (12.67% without a load)
and 12.66%, respectively. For the ten year period ended January 31, 1997, the
average annual total return of the Retail and Fiduciary Shares of the Bond Fund
was 6.58% (6.91% without a load) and 6.99%, respectively.
For the one year period ended January 31, 1997, the average annual
total return of the Retail and Fiduciary Shares of the Growth Fund was 19.02%
(24.62% without a load) and 24.84%, respectively and of the Retail and Fiduciary
Shares of the Balanced Fund was 8.86% (14.00% without a load) and 13.89%
respectively.
For the period beginning November 18, 1993 (commencement of operations)
and ending January 31, 1997, the average annual total return of the Retail
Shares and Fiduciary Shares of the Growth Fund was 16.58% (18.26% without a
load) and 18.24%, respectively.
For the period beginning November 14, 1993 (commencement of operations)
and ending January 31, 1997, the aggregate total return of the Retail Shares and
Fiduciary Shares of the Balanced Fund was 10.55% (12.14% without a load) and
12.36%, 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 January 31, 1997, the yield for the
Retail and Fiduciary Shares of the Growth Fund was 0.34% (0.77% without a load)
and 0.36%, respectively; for the Retail and Fiduciary Shares of the Income
Equity Fund was 2.24% (2.99% without a load) and 2.36%, respectively; for the
Retail and Fiduciary Shares of the Balanced Fund was 3.17% (3.57% without a
load) and 3.32%, respectively; and for the Retail and Fiduciary Shares of the
Bond Fund was 5.75% (6.08% without a load) and 5.93%, respectively. The Fund's
"yield" (referred to as "standardized yield") for a given
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<PAGE> 232
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)(6) - 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 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 period ended January 31, 1997, the annualized distribution rate
(including capital gains and excluding a sales charge) of the Income Equity Fund
was 16.30% for Retail Shares and 16.33% for Fiduciary Shares and of the Bond
Fund was 5.78% for Retail Shares and 5.73% for Fiduciary Shares. For the period
ended January 31, 1997, the distribution rate (excluding capital gains and a
sales charge) of the Income Equity Fund was 2.38% for the Retail and Fiduciary
Shares, and of the Bond Fund was 5.78 for the Retail Shares and 5.73% for the
Fiduciary Shares. For the period ended January 31, 1997, the distribution rate
(including capital gains and a sales charge) of the Income Equity Fund was
15.57% and of the Bond Fund was 5.61%. For the period ended January 31, 1997 the
distribution rate (excluding capital gains and including a sales charge) of the
Income Equity Fund was 2.27% and of the Bond Fund was 5.61%. 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 six-month period by the per Share
net asset value of the Fund on the last day of the period and annualized.
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
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<PAGE> 233
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. Because the Class B Shares had not
commenced operations as of January 31, 1997, "Retail Shares" in the preceding
examples refer only to Class A Shares.
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 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.
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<PAGE> 234
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 May 28, 1997, 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 May 28, 1997, HighMark believes that Union Bank of California
was the shareholder of record of 96.60% of the Fiduciary Shares of the Growth
Fund, 74.06% of the Fiduciary Shares of the Income Equity Fund, 80.60% of the
Fiduciary Shares of the Balanced Fund, 90.00% of the Fiduciary Shares of the
Bond Fund, 99.44% of the Fiduciary Shares of the Intermediate-Term Bond Fund,
substantially all of the Fiduciary Shares of the California Intermediate
Tax-Free Bond Fund, 14.50% of the Fiduciary Shares of the Government Securities
Fund, 14.29% of the Fiduciary Shares of the Convertible Securities Fund, 83.49%
of the Fiduciary Shares of the Value Momentum Fund, 28.54% of the Fiduciary
Shares of the Blue Chip Growth Fund, 42.73% of the Fiduciary Shares of the
Emerging Growth Fund, 99.60% of the Fiduciary Shares of the International Equity
Fund, 97.01% of the Fiduciary Shares of the U.S. Government Money Market Fund,
96.19%of the Fiduciary Shares of the Diversified Money Market Fund, 95.59% of
the Fiduciary Shares of the 100% U.S. Treasury Money Market Fund and 99.65% of
the Fiduciary Shares of the California Tax-Free Money Market Fund. As of May 28,
1997, HighMark believes that Bank of Tokyo Trust Company was the shareholder of
record of 85.50% of the Fiduciary Shares of the Government Securities Fund,
85.71% of the Fiduciary Shares of the Convertible Securities Fund, 71.46% of the
Fiduciary Shares of the Blue Chip Growth Fund, and 57.16% of the Fiduciary
Shares of the Emerging Growth Fund. As of May 28, 1997, HighMark believes that
Union Bank of California had voting power with respect to 43.89% of the Growth
Fund Fiduciary Shares, 23.96% of the Income Equity Fund Fiduciary Shares, 37.63%
of the Balanced Fund Fiduciary Shares, 54.48% of the Bond Fund Fiduciary Shares,
46.88% of the Value Momentum Fund Fiduciary Shares, 86.77% of the
Intermediate-Term Bond Fund Fiduciary Shares, 98.91% of the California
Intermediate Tax-Free Bond Fund Fiduciary Shares, 91.77% of the International
Equity Fund Fiduciary Shares, 13.98% of the Diversified Money Market Fund
Fiduciary Shares, 7.98% of the 100% U.S. Treasury Money Market Fund Fiduciary
Shares, 3.52% of the U.S. Government Money Market Fund Fiduciary Shares and
34.20% of the California Tax-Free Money Market Fund Fiduciary Shares.
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 May 28, 1997. Because Class B Shares had not commenced operations as of May
28, 1997, "Retail Shares" in this context refers to Class A Shares only.
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<PAGE> 235
5% OR MORE BENEFICIAL OWNERS
<TABLE>
<CAPTION>
PERCENT OF
BENEFICIAL
NAME AND ADDRESS OWNERSHIP
- ---------------- ----------
<S> <C>
GROWTH FUND
RETAIL SHARES
National Financial Services 37.32%
Corporation for the Exclusive
Benefit of Our Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Post & Co. 15.52%
c/o The Bank of New York
Attn: Bill Sauer - Mutual Funds
Reorganization Department
P.O. Box 1066
Wall Street Station
New York, New York 10268-1066
INCOME EQUITY FUND
RETAIL SHARES
NFSC FEBO #0C3-114383 10.73%
Richard W. Killion
c/o Killion Industries
2811 La Mirada Drive
Vista, CA 92083-8407
BALANCED FUND
RETAIL SHARES
National Financial Services 91.98%
Corporation for the Exclusive
Benefit of Our Customers
P.O. Box 3908
Church Street Station
New York, New York 10008-3908
</TABLE>
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<PAGE> 236
<TABLE>
<CAPTION>
PERCENT OF
BENEFICIAL
NAME AND ADDRESS OWNERSHIP
- ---------------- ----------
<S> <C>
FIDUCIARY SHARES
American Express Trust Company 9.85%
as Agent for NEC Savings and Retirement Plan
Attn: Nancy Jendro Trust Operations
P.O. Box 534
Minneapolis, MN 55440-0534
PFTC: Trustee Nissan Employee Savings Plan 6.00%
Putnam Investments DCPA
Nissan Motor Corporation
Location 31
P.O. Box 9740
Providence, Rhode Island 02940-9740
BOND FUND
RETAIL SHARES
NFSC FEBO # 0C3-180211 26.94%
Stephanie McGowan
3701 East Valley Street
Seattle, WA 98112-4351
NFSC FEBO 0C3-032050 9.27%
Frederick V. Betts
800 Financial Center
1215 Fourth Avenue
Seattle, WA 98161
NFSC FEBO 0L5-328391 7.14%
Union Bank of Calif Cust
IRA of James Harris
1212 Christian Valley Road
Auburn, CA 95602
NFSC FEBO #PC1-038210 6.76%
Marla J. Arata
7108 Oakmont Drive
Modesto, CA 95356-9646
</TABLE>
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<PAGE> 237
<TABLE>
<CAPTION>
PERCENT OF
BENEFICIAL
NAME AND ADDRESS OWNERSHIP
- ---------------- ----------
<S> <C>
NFSC FEBO 0C3-090565 6.68%
Wallace Allred
Norma Allred
2250 N. Broadway No. 48
Escondido, CA 92026
NFSC FEBO #0C3-159069 5.51%
NFSC/FMTC IRA
FBO Domnic N. Lemos
666 4th Avenue
San Francisco, CA 94118-3911
DIVERSIFIED MONEY MARKET FUND
RETAIL SHARES
National Financial Services 99.87%
Corporation for the Benefit of Our Customers
Church Street Station
P.O. Box 3908
New York, NY 10008-3908
U.S. GOVERNMENT MONEY MARKET FUND
RETAIL SHARES
National Financial Services 91.24%
Corporation for the
Benefit of Our Customers
Church Street Station
P.O. Box 3752
New York, NY 10008-3752
City of Compton 5.80%
Sewer Bond
205 S. Willowbrook Avenue
Compton, CA 90220-0000
</TABLE>
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<PAGE> 238
<TABLE>
<S> <C>
100% U.S. TREASURY MONEY MARKET FUND
RETAIL SHARES
National Financial Services 99.98%
Corporation for the
Benefit of Our Customers
Church Street Station
P.O. Box 3908
New York, NY 10008-3908
CALIFORNIA TAX-FREE MONEY MARKET FUND
RETAIL SHARES
National Financial Services 99.07%
Corporation for the
Benefit of Our Customers
Church Street Station
P.O. Box 3752
New York, NY 10008-3752
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
RETAIL SHARES
NFSC FEBO #0BP-354317 42.63%
Tri Cities Broadcasting Inc.
6551 Corte Cisco
Carlsbad, CA 92009-4527
NFSC FEBO #0BP-337900 9.64%
Pacific Research & Engineering
2070 Las Palmas Drive
Carlsbad, CA 92009-1518
</TABLE>
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<PAGE> 239
<TABLE>
<S> <C>
NFSC FEBO #0BP-253499 9.61%
Aaron Belokamen
Lilian Belokamen
11610 Bellagio Road
Los Angeles, CA 90049-2113
VALUE MOMENTUM FUND
FIDUCIARY CLASS
Mellon Bank NA 11.80%
Trustee for Department of
Personnel Admin. of State of CA
Attn: Wally Adebayo
One Cabot Road Mail Zone 028-0031
Medford, MA 02155-5141
INTERMEDIATE-TERM BOND FUND
RETAIL CLASS
National Financial Services Corp. 98.75%
for Exclusive Benefits of our Customers
P.O. Box 3908
Church Street Station
New York, New York 10008-3908
</TABLE>
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.
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<PAGE> 240
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.
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<PAGE> 241
- -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> 242
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> 243
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> 244
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.
-82-
<PAGE> 245
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> 246
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> 247
FINANCIAL STATEMENTS
The Independent Auditors' Report for Highmark Funds for the year ended July 31,
1996, Financial Statements for Highmark Funds for the period ended July 31,
1996, Financial Statements for HighMark Funds for the period ended January 31,
1997, and Financial Statements for Stepstone Funds for the period ended January
31, 1997 are all incorporated by reference to the Annual and Semi-Annual Reports
of HighMark and Stepstone, dated as of such dates, which have been previously
sent to shareholders of each Fund pursuant to the 1940 Act and previously filed
with the Securities and Exchange Commission. A copy of each such report may be
obtained without charge by contacting the Distributor, SEI Financial Services
Company at 1 Freedom Valley Drive, Oaks, Pennsylvania, 19456 or by telephoning
toll-free at 1-800-734-2922.
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<PAGE> 248
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in Part A:
-- Certain Financial Information.
Included in Part B:
The following financial statements have been incorporated into
the Statement of Additional Information by reference to
HighMark's Annual Report to Shareholders, dated July 31, 1996:
-- Report of Independent Certified Public Accountants
for HighMark Funds at July 31, 1996.
-- Statements of Assets and Liabilities for
HighMark Funds at July 31, 1996.
-- Statements of Operations for HighMark Funds
for the year ended July 31, 1996.
-- Statements of Changes in Net Assets for
HighMark Funds for the year ended July 31,
1996.
-- Schedules of Portfolio Investments for
HighMark Funds at July 31, 1996.
-- Notes to Financial Statements for HighMark
Funds dated July 31, 1996.
-- Financial Highlights for HighMark Funds for
the year ended July 31, 1996. All required
financial statements are included in Part B
hereof. All other financial statements and
schedules are inapplicable.
The following financial statements have been incorporated into
the Statement of Additional Information by reference to
HighMark's Semi-Annual Report to Shareholders, dated January
31, 1997:
<PAGE> 249
-- Statements of Assets and Liabilities for
HighMark Funds at January 31, 1997
(unaudited)
-- Statements of Operations for HighMark Funds
for the six months ended January 31, 1997
(unaudited)
-- Statements of Changes in Net Assets for
HighMark Funds for the six months ended
January 31, 1997 (unaudited)
-- Schedules of Portfolio Investments for
HighMark Funds at January 31, 1997
(unaudited)
-- Notes to Financial Statements for HighMark
Funds dated January 31, 1997 (unaudited)
-- Financial Highlights for HighMark Funds for
the six months ended January 31, 1997
(unaudited)
The following financial statements have been incorporated into
the Statement of Additional Information by reference to the
Annual Report of the Stepstone Funds, dated January 31, 1997:
-- Statement of Net Assets for Stepstone Funds
at January 31, 1997
-- Statement of Operations for Stepstone Funds
at January 31, 1997
-- Statement of Changes in Net Assets for
Stepstone Funds at January 31, 1997
-- Financial Highlights for Stepstone Funds at
January 31, 1997
-- Notes to Financial Statements for Stepstone
Funds dated January 31, 1997
(b) Exhibits:
(1) (a) Declaration of Trust, dated March 10, 1987,
is incorporated by reference to Exhibit (1)
(a) of
2
<PAGE> 250
Pre-Effective Amendment No. 1 (filed May 15,
1987) to Registrant's Registration Statement
on Form N-1A.
(b) Amendment to Declaration of Trust, dated
April 13, 1987, is incorporated by reference
to Exhibit (1)(b) of Pre-Effective Amendment
No. 1 (filed May 15, 1987) to Registrant's
Registration Statement on Form N-1A.
(c) Amendment to Declaration of Trust, dated
July 13, 1987, is incorporated by reference
to Exhibit (1)(c) of Pre-Effective Amendment
No. 2 (filed July 24, 1987) to Registrant's
Registration Statement on Form N-1A.
(d) Amendment to Declaration of Trust, dated
July 30, 1987, is incorporated by reference
to Exhibit (1)(d) of Pre-Effective Amendment
No. 3 (filed July 31, 1987) to Registrant's
Registration Statement on Form N-1A.
(e) Amendment to Declaration of Trust, dated
October 18, 1996, is incorporated by
reference to Exhibit (1)(e) of
Post-Effective Amendment No. 18 (filed
November 8, 1996) to Registrant's
Registration Statement on Form N-1A.
(f) Amendment to Declaration of Trust, dated
December 4, 1996, is incorporated by
reference to Exhibit (1)(f) of
Post-Effective Amendment No. 19 (filed
December 13, 1996) to Registrant's
Registration Statement on Form N-1A.
(2) (a) Amended and Restated Code of Regulations,
dated June 5, 1991, is incorporated by
reference to Exhibit 2 of Post-Effective
Amendment No. 7 (filed September 30, 1991)
to Registrant's Registration Statement on
Form N-1A.
(b) Amendment to Amended and Restated Code of
Regulations, dated December 4, 1991, is
incorporated by reference to Exhibit 2(b) of
Post-Effective Amendment No. 8 (filed
September 30, 1992) to Registrant's
Registration Statement on Form N-1A.
(3) None.
3
<PAGE> 251
(4) None.
(5) (a) Investment Advisory Agreement between
Registrant and Union Bank of California,
N.A., dated as of April 1, 1996 (the
"Investment Advisory Agreement"), is
incorporated by reference to Exhibit 5 of
Post-Effective Amendment No. 18 (filed
November 8, 1996) to Registrant's
Registration Statement on Form N-1A.
(b) Amended and Restated Schedule A to the
Investment Advisory Agreement is filed
herewith.
(c) Investment Sub-Advisory Agreement between
Union Bank of California, N.A. and
Tokyo-Mitsubishi Asset Management (UK),
LTD., dated as of April 25, 1997 (the "TMAM
Sub-Advisory Agreement") is filed herewith.
(d) Investment Sub-Advisory Agreement between
Union Bank of California, N.A. and Bank of
Tokyo-Mitsubishi Trust Company, dated as of
April 25, 1997 (the "BOTM Sub-Advisory
Agreement") is filed herewith.
(6) (a) Distribution Agreement between the
Registrant and SEI Financial Services
Company is incorporated by reference to
Exhibit 6 of Post-Effective Amendment No. 20
(filed February 25, 1997) to Registrant's
Registration Statement on Form N-1A.
(6) (b) Form of Distribution and Service Agreement
for Class B Shares between Registrant and
SEI Investments Distribution Co. is filed
herewith.
(7) None.
(8) (a) Custodian Agreement between Registrant and
The Bank of California, N.A., dated as of
December 23, 1991, as amended as of
September 15, 1992 (the "Custodian
Agreement"), is incorporated by reference to
Exhibit 8 of Post-Effective Amendment No. 8
(filed September 30, 1992) to Registrant's
Registration Statement on Form N-1A.
(b) Amended and Restated Schedule A to the
Custodian Agreement is filed herewith.
4
<PAGE> 252
(c) Form of Amended and Restated Schedule B to
the Custodian Agreement is filed herewith.
(d) Form of Securities Lending and Reverse
Repurchase Agreement Services Client
Addendum to Custodian Agreement is filed
herewith.
(9) (a) Administration Agreement between Registrant
and SEI Fund Resources incorporated by
reference to Exhibit 9(a) of Post-Effective
Amendment No. 20 (filed February 25, 1997)
to Registrant's Registration Statement on
Form N-1A.
(b) Form of Sub-Administration Agreement between
SEI Fund Resources and Union Bank of
California, N.A. is incorporated by
reference to Exhibit 9(e) of Post-Effective
Amendment No. 19 (filed December 13, 1996)
to Registrant's Registration Statement on
Form N-1A.
(c) Transfer Agency and Service Agreement
between the Registrant and State Street Bank
and Trust Company is incorporated by
reference to Exhibit 9(c) of Post-Effective
Amendment No. 20 (filed February 25, 1997)
to Registrant's Registration Statement on
Form N-1A.
(d) Form of Shareholder Service Provider
Agreement for the Registrant is incorporated
by reference to Exhibit 9(n) of
Post-Effective Amendment No. 19 (filed
December 13, 1996) to Registrant's
Registration Statement on Form N-1A.
(e) Form of Shareholder Service Plan for the
Registrant is incorporated by reference to
Exhibit 9(q) of Post-Effective Amendment No.
19 (filed December 13, 1996) to Registrant's
Registration Statement on Form N-1A.
(f) Form of Shareholder Service Plan for Class
B for the Registrant is filed herewith.
(10) Opinion and Consent of Counsel as to
legality of shares being registered is filed
herewith.
(11)(a) Consent of Deloitte & Touche LLP is filed
herewith.
(11)(b) Consent of Coopers & Lybrand L.L.P, is filed
herewith.
(11)(c) Consent of Arthur Andersen, LLP is filed
herewith.
(11)(d) Consent of Ropes & Gray, is filed herewith.
5
<PAGE> 253
(12) None.
(13) None.
(14) None.
(15) (a) Registrant's Distribution and Shareholder
Services Plan relating to the Money Market
Funds is incorporated by reference to
Exhibit 15(a) of Post-Effective Amendment
No. 6 (filed September 27, 1990) to
Registrant's Registration Statement on Form
N-1A.
(b) Form of Servicing Agreement With Respect to
Distribution Assistance and Shareholder
Services used in connection with
Registrant's Distribution and Shareholder
Services Plan relating to the Money Market
Funds is incorporated by reference to
Exhibit 15(b) of Post-Effective Amendment
No. 6 (filed September 27, 1990) to
Registrant's Registration Statement on Form
N-1A.
(c) Form of Servicing Agreement With Respect to
Shareholder Services used in connection with
Registrant's Distribution and Shareholder
Services Plan relating to the Money Market
Funds, is incorporated by reference to
Exhibit 15(c) of Post-Effective Amendment
No. 8 (filed September 30, 1992) to
Registrant's Registration Statement on Form
N-1A.
(d) Registrant's Distribution and Shareholder
Services Plan relating to the Class A Shares
of the Income Funds and the Equity Funds is
incorporated by reference to Exhibit 15(d)
of Post-Effective Amendment No. 13 (filed
April 11, 1994) to the Registrant's
Registration Statement on Form N-1A.
(e) Amended and Restated Schedule A to the
Distribution and Shareholder Services Plan
relating to the Class A Shares of the Income
Funds and the Equity Funds is filed
herewith.
6
<PAGE> 254
(f) Form of Distribution and Shareholder
Services Plan relating to the Class B Shares
of the Income Funds and the Equity Funds is
filed herewith.
(16) (a) Performance Calculation Schedules
concerning: the seven-day yield and
effective yield of the Class A and Class B
Shares of the U.S. Government Obligations
Fund, the Diversified Obligations Fund, the
100% U.S. Treasury Obligations Fund, the
Tax-Free Fund, and the California Tax-Free
Fund; the seven-day tax-equivalent yield and
tax-equivalent effective yield of the Class
A and Class B Shares of the Tax-Free Fund
and the California Tax-Free Fund; and the
average annual total return of the Income
Equity Fund and Bond Fund for the one-year,
five-year, and inception-to-date periods are
incorporated by reference to Exhibit 16 of
Post-Effective Amendment No. 6 (filed
September 27, 1990) to Registrant's
Registration Statement on Form N-1A.
(b) Yield Calculation Schedules concerning the
seven-day tax-equivalent yield and
tax-equivalent effective yield (for
California and Oregon income tax purposes)
of the Class A and Class B Shares of the
100% U.S. Treasury Obligations Fund are
incorporated by reference to Exhibit 16(b)
of Post-Effective Amendment No. 7 (filed
September 30, 1991) to Registrant's
Registration Statement on Form N-1A.
(c) Performance Calculation Schedules
concerning: (i) the seven-day and thirty-
day yield and effective yield of the Class A
and Class B Shares of the U.S. Government
Money Market Fund, the Diversified Money
Market Fund, the 100% U.S. Treasury Money
Market Fund, and the California Tax-Free
Money Market Fund; (ii) the seven-day and
thirty-day tax-equivalent yield (using a
Federal income tax rate of 31%) and tax-
equivalent effective yield (using a Federal
income tax rate of 31%) of the Class A and
Class B Shares of the California
7
<PAGE> 255
Tax-Free Fund; (iii) the seven-day and
thirty-day tax-equivalent yield (using a
Federal income tax rate of 31% and a
California income tax rate of 9.3%) and tax-
equivalent effective yield (using a Federal
income tax rate of 31% and a California
income tax rate of 9.3%) of the Class A and
Class B Shares of the California Tax-Free
Fund; (iv) the average annual total return
of the Class A and Class B Shares of the
U.S. Government Money Market Fund, the
Diversified Money Market Fund, the 100% U.S.
Treasury Money Market Fund, and the
California Tax-Free Money Market Fund for
the one-year, three-year and inception-to-
date periods and the aggregate total return
of the Class A and Class B Shares of each
such Fund for the year-to-date, quarterly
and monthly periods; (v) the thirty-day
yield of the Bond Fund; (vi) the average
annual total return of the Bond Fund and the
Income Equity Fund for the one-year,
three-year, five-year and inception-to-date
periods and the aggregate total return of
each such Fund for the year-to-date,
quarterly and monthly periods; and (vii) the
distribution rate (excluding and including
capital gains) over a twelve-month period
for the Bond Fund and Income Equity Fund,
are incorporated by reference to Exhibit
16(c) of Post-Effective Amendment No. 8
(filed September 30, 1992) to Registrant's
Registration Statement on Form N-1A.
(17) Financial Data Schedules.
(18) Form of Amended Multiple Class Plan for
HighMark Funds adopted by the Board of
Trustees on June 18, 1997 is filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
As of the effective date of this Registration Statement, there are no
persons controlled by or under common control with the Registrant.
8
<PAGE> 256
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of May 28, 1997, the number of record holders of the following
series of Shares were:
9
<PAGE> 257
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF SERIES RECORD HOLDERS
- --------------- --------------
<S> <C>
U.S. Government Money Market Fund
Retail Shares 12
Fiduciary Shares 6
Diversified Money Market Fund
Retail Shares 45
Fiduciary Shares 11
100% U.S. Treasury Money Market Fund
Retail Shares 13
Fiduciary Shares 6
California Tax-Free Money Market Fund
Retail Shares 19
Fiduciary Shares 8
Income Equity Fund
Retail Shares 484
Fiduciary Shares 2,781
Bond Fund
Retail Shares 55
Fiduciary Shares 475
Growth Fund
Retail Shares 209
Fiduciary Shares 511
Balanced Fund
Retail Shares 57
Fiduciary Shares 67
Value Momentum Fund
Retail Shares 1,055
Fiduciary Shares 10
Blue Chip Growth Fund
Retail Shares 0
Fiduciary Shares 3
Emerging Growth Fund
Retail Shares 0
Fiduciary Shares 4
International Equity Fund
Fiduciary Shares 4
Intermediate-Term Bond Fund
Retail Shares 5
Fiduciary Shares 5
</TABLE>
10
<PAGE> 258
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF SERIES RECORD HOLDERS
- --------------- --------------
<S> <C>
Government Securities Fund
Retail Shares 0
Fiduciary Shares 3
Convertible Securities Fund
Fiduciary Shares 3
California Intermediate Tax-Free Bond Fund
Retail Shares 108
Fiduciary Shares 4
</TABLE>
ITEM 27. INDEMNIFICATION
Article IX, Section 9.2 of the Registrant's Declaration of Trust, filed
or incorporated by reference as Exhibit (1) hereto, provides for the
indemnification of Registrant's trustees and officers. Indemnification
of the Registrant's principal underwriter, custodian, investment
adviser, administrator, transfer agent, and fund accountant is provided
for, respectively, in Section 6 of the Distribution Agreement, filed or
incorporated by reference as Exhibit 6(a) hereto, Section 16 of the
Custodian Agreement, filed or incorporated by reference as Exhibit 8
hereto, Section 8 of the Investment Advisory Agreement, filed or
incorporated by reference as Exhibit 5 hereto, Section 5 of the
Administration Agreement, filed or incorporated by reference as Exhibit
9(a) hereto, Section 6 of the Transfer Agency and Service Agreement,
filed or incorporated by reference as Exhibit 9 (c) hereto, and Section
7 of the Fund Accounting Agreement, filed or incorporated by reference
as Exhibit 9(e) hereto. Registrant has obtained from a major insurance
carrier a trustees and officers' liability policy covering certain
types of errors and omissions. In no event will Registrant indemnify
any of its trustees, officers, employees or agents against any
liability to which such person would otherwise be subject by reason of
his willful misfeasance, bad faith, or gross negligence in the
performance of his duties, or by reason of his reckless disregard of
the duties involved in the conduct of his office or under his agreement
with Registrant. Registrant will comply with Rule 484 under the
Securities Act of 1933 and Release 11330 under the Investment Company
Act of 1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers, and controlling
persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid by a
trustee, officer, or controlling person of Registrant in the successful
11
<PAGE> 259
defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
Pacific Alliance Capital Management, a division of Union Bank of
California, N.A. (the "Advisor"), performs investment advisory services
for Registrant. Union Bank of California, N.A. ("Union Bank of
California") offers a wide range of commercial and trust management
services to its clients in California, Oregon, and Washington and
around the world. 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 the Bank of Tokyo-Mitsubishi,
Limited.
To the knowledge of Registrant, none of the directors or officers of
Union Bank of California, except those set forth below, is or has been
at any time during the past two fiscal years engaged in any other
business, profession, vocation or employment of a substantial nature,
except that certain directors and officers of The Bank of California
also hold positions with UnionBanCal Corporation, the Bank of
Tokyo-Mitsubishi and/or the Bank of Tokyo-Mitsubishi's other
subsidiaries.
Listed below are the directors and certain principal executive officers
of Union Bank of California, their principal occupations and, for the
prior two fiscal years, any other business, profession, vocation, or
employment of a substantial nature engaged in by such directors and
officers:
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<PAGE> 260
<TABLE>
<CAPTION>
POSITION
WITH UNION
BANK OF PRINCIPAL TYPE OF
CALIFORNIA NAME OCCUPATION BUSINESS
- ---------- ---- ---------- --------
<S> <C> <C> <C>
Director Richard D. Farman President, Chief Operating Officer
and Director
Pacific Enterprises
555 W. Fifth Street, 29th Floor
Los Angeles, CA 90013
Director Stanley F. Farrar, Partner Law Firm
Esquire Sullivan & Cromwell
12th Floor
444 So. Flower St.
Los Angeles, CA 90071
Director Herman E. Gallegos Independent Management Consultant Independent
95 Kings Road Management
Brisbane, CA 94005 Consultant
Director John L. Hancock (retired) EVP Consultant
Pacific Bell
Director and Vice Richard C. Hartnack UnionBanCal Corporation Banking
Chairman Community Union Bank of California, N.A.
Banking Group 445 S. Figueroa Street, 38th Floor
Los Angeles, CA 90071
Director and Roy A. Henderson UnionBanCal Corporation Banking
Vice Chairman Union Bank of California, N.A.
Trust & Private 400 California Street, 19th Floor
Financial Services San Francisco, CA 94104
Director Hon. Harry W. Low (retired) Judicial Arbitration & Mediation Law
Services, Inc.
2 Embarcadero, Suite 1100
San Francisco, CA 94111
Director Dr. Mary S. Metz Dean, University Extension Education
University of California - Berkeley
1995 University Ave.,Third Floor
Berkeley, CA 94720
Director Raymond E. Miles Professor Education
Haas School of Business
University of California - Berkeley
545 Student Services Bldg., #1900
Berkeley, CA 94720
</TABLE>
13
<PAGE> 261
<TABLE>
<CAPTION>
POSITION
WITH UNION
BANK OF PRINCIPAL TYPE OF
CALIFORNIA NAME OCCUPATION BUSINESS
- ---------- ---- ---------- --------
<S> <C> <C> <C>
Director, President Takahiro Moriguchi UnionBanCal Corporation Banking
and Chief Executive Union Bank of California, NA
Officer 350 California Street, 12th Floor
San Francisco, CA 94104-1476
Director Shin Nakahara Chief Executive Officer Banking
North American Headquarters
The Bank of Tokyo-Mitsubishi, Ltd.
1251 Avenue of the Americas, 14th Floor
New York, NY 10020
Director J. Fernando Niebla Chairman & CEO Computer Software
Infotec Commercial Systems and Hardware
3100 S. Harbor Blvd., Suite 100
Santa Ana, CA 92704
Director, Minoru Noda UnionBanCal Corporation Banking
Deputy Chairman, Union Bank of California, N.A.
Chief Financial 400 California Street, 18th Floor
Officer and Chief San Francisco, CA 94104
Credit Officer
Director Sidney R. Peterson (retired) Chairman and Chief Consultant
Executive Officer and Private
Getty Oil Company Investor
Director Carl W. Robertson, Managing Director Real Estate and
Esquire Warland Investments Company Investment
1299 Ocean Avenue, Suite 300 Management
Santa Monica, CA 90401 Company
Director Charles R. Scott Chairman and Corporate
Chief Executive Officer Investor
Leadership Centers USA
365 Kings Road, N.W.
Atlanta, GA 30342
Director Henry T. Swigert Chairman of the Board Equipment
ESCO Corporation Manufacturing
2141 NW 25th Avenue
Portland, OR 97210
Director and Vice Robert M. Walker UnionBanCal Corporation Banking
Chairman of the Union Bank of California, NA
Board Commercial 350 California Street, 12th Floor
Financial Services, San Francisco, CA 94104-1476
Corporate & Real
Estate Banking
Group
</TABLE>
14
<PAGE> 262
<TABLE>
<CAPTION>
POSITION
WITH UNION
BANK OF PRINCIPAL TYPE OF
CALIFORNIA NAME OCCUPATION BUSINESS
- ---------- ---- ---------- --------
<S> <C> <C> <C>
Director Dr. Blenda J. Wilson President Education
California State University
Northridge
18111 Nordhoff Street
Northridge, CA 91330
Director and Tamotsu Yamaguchi UnionBanCal Corporation Banking
Chairman of Union Bank of California, NA
the Board 445 S. Figueroa Street, 38th Floor
Los Angeles, CA 90071
Executive Vice Donald A. Brunell c/o Union Bank of California, N.A. Banking
President, Deputy 350 California Street, 5th Floor
Director of Finance San Francisco, CA 94104
Executive Vice Peter R. Butcher c/o Union Bank of California, N.A. Banking
President, Credit 400 California Street, 18th Floor
Management Group San Francisco, CA 94104
Executive David W. Ehlers c/o Union Bank of California, N.A. Banking
Vice President, 400 California Street, 18th Floor
Director of San Francisco, CA 94104
Finance
Executive Vice Magan C. Patel c/o Union Bank of California, N.A. Banking
President, 400 California Street, 18th Floor
International San Francisco, CA 94104
Banking Group
Executive Vice Charles L. Pedersen c/o Union Bank of California, N.A. Banking
President, Systems 1455 First Avenue
Technology & Item San Diego, CA 92101
Processing Group
Executive Michael A.C. Spilsbury c/o Union Bank of California, N.A. Banking
Vice President, 400 California Street, 19th Floor
Operations & San Francisco, CA 94104
Services Group
Executive Vice Yuji Taniguchi c/o Union Bank of California, N.A. Banking
President, Pacific 777 So. Figueroa Street, 6th Floor
Rim Corporate Group San Francisco, CA 90071
Executive Vice Philip M. Wexler c/o Union Bank of California, N.A. Banking
President, Specialized 445 So. Figueroa Street, 13th Floor
Lending Los Angeles, CA 90071
</TABLE>
15
<PAGE> 263
ITEM 29. PRINCIPAL UNDERWRITER
Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing securities
of the Registrant also acts as a principal underwriter, distributor or
investment advisor.
Registrant's distributor, SEI Investments Distribution Co. (formerly
SEI Financial Services Company), acts as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI International Trust August 10, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds (R) June 1, 1993
The PBHG Funds, Inc. July 16, 1993
Marquis Funds (R) August 17, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
Monitor Funds January 11, 1996
FMB Funds, Inc. March 1, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
16
<PAGE> 264
SEI Institutional Investment Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
ARMADA Funds March 8, 1997
The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These
services include portfolio evaluation, performance measurement and
consulting services ("Funds Evaluation") and automated execution,
clearing and settlement of securities transactions ("MarketLink").
Furnish the information required by the following table with respect to
each director, officer or partner of each principal underwriter named
in the answer to Item 21 of Part B. Unless otherwise noted, the
principal business address of each director or officer is 1 Freedom
Valley Drive, Oaks, PA 19456.
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name With Underwriter With Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief --
Executive Officer
Henry W. Greer Director, President & Chief --
Operating Officer
Carmen V. Romeo Director, Executive Vice --
President, President -
Investment Advisory Group
Gilbert L. Beehover Executive Vice President --
Richard B. Lieb Executive Vice President, --
President-Investment Services
Division
Dennis J. McGonigle Executive Vice President --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
Steven Kramer Senior Vice President --
David G. Lee Senior Vice President President and Chief
Executive Officer
Jack May Senior Vice President --
A. Keith McDowell Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President, Vice President,
General Counsel & Secretary
Secretary
Robert Wagner Senior Vice President --
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
Position and Office Positions and Offices
</TABLE>
17
<PAGE> 265
<TABLE>
<CAPTION>
Name With Underwriter With Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Marc H. Cahn Vice President and Assistant Vice President,
Secretary Assistant Secretary
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President and Assistant Vice President,
Secretary Assistant Secretary
Robert Crudup Vice President and Managing --
Director
Barbara Doyle Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President and Managing --
Director
Kathy Heilig Vice President and Treasurer --
Michael Kantor Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing
Director --
Donald N. Korytowski Vice President --
John Krzeminski Vice President & Managing --
Director
Carolyn McLaurie Vice President & Managing --
Director
W. Kelso Morrill Vice President --
Barbara A. Nugent Vice President & Assistant Secretary Vice President,
Assistant Secretary
Sandra K. Orlow Vice President & Assistant Secretary Vice President,
Assistant Secretary
Donald Pepin Vice President & Managing Director --
Kim Rainey Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary Vice President,
Assistant Secretary
Wayne M. Withrow Vice President & Managing Director --
James Dougherty Director of Brokerage Services --
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
(1) Union Bank of California, N.A., 400 California Street, San
Francisco, CA 94104 (records relating to the Advisor's
functions as investment adviser and Union Bank of California's
functions as custodian and sub-transfer agent).
(2) SEI Fund Resources, Oaks, Pennsylvania 19456 (records relating
to its functions as administrator and distributor).
18
<PAGE> 266
(3) SEI Investments Distribution Co. (formerly SEI Financial
Services Company), Oaks, Pennsylvania 19456 (records relating
to its function as distributor).
(4) State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 (records relating to its functions
as transfer agent).
(5) Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite
800 East, Washington, DC 20005 (the Registrant's Declaration
of Trust, Code of Regulations and Minute Books).
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes to call a meeting of the shareholders for
the purpose of voting upon the question of removal of one or more
trustees when requested to do so by the holders of at least 10% of the
outstanding shares of Registrant and to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940 relating to
shareholder communication.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
19
<PAGE> 267
NOTICE
A copy of the Amended and Restated Agreement and Declaration of Trust
of HighMark Funds is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this instrument is executed on
behalf of the Registrant by an officer of the Registrant as an officer and not
individually and that the obligations of or arising out of this instrument are
not binding upon any of the trustees or shareholders individually but are
binding only upon the assets and property of the Registrant.
20
<PAGE> 268
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 22 to this Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Washington, D.C., on the eighteenth day of June, 1997.
HighMark Funds
By: /s/ David G. Lee
-------------------------
David G. Lee
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 22 has been signed below by the following persons
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ David G. Lee President and June 18, 1997
- ------------------------- Chief Executive Officer
David G. Lee
/s/ Robert DellaCroce Comptroller and Chief June 18, 1997
- ------------------------- Financial Officer
Robert DellaCroce
/s/ Thomas L. Braje Trustee June 18, 1997
- -------------------------
Thomas L. Braje
/s/ David A. Goldfarb Trustee June 18, 1997
- -------------------------
David A. Goldfarb
/s/ Joseph C. Jaeger Trustee June 18, 1997
- -------------------------
Joseph C. Jaeger
/s/ Frederick J. Long Trustee June 18, 1997
- -------------------------
Frederick J. Long
</TABLE>
*By: /s/ Martin E. Lybecker
-------------------------
Martin E. Lybecker
Attorney-In-Fact
22
<PAGE> 269
POWER OF ATTORNEY
The undersigned, each being an Officer of HighMark Funds (the "Funds"),
does hereby constitute and appoint Martin E. Lybecker, Alan G. Priest and
Francoise M. Haan, each individually, his true and lawful attorneys and agents,
with power of substitution or resubstitution, to do any and all acts and things
and to execute any and all instruments that said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
the Funds to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended ("Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, and
in connection with the filing and effectiveness of any registration statement or
statement of the Funds pursuant to said Acts and any and all amendments thereto
(including post-effective amendments), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as an officer of the Funds any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
SIGNATURE CAPACITY DATE
__________________________ President and Chief Executive Officer
David G. Lee
__________________________ Controller and Chief Financial Officer
Robert DellaCroce
__________________________ Vice President and Secretary
Marc H. Cahn
1
<PAGE> 270
POWER OF ATTORNEY
The undersigned, each being a Trustee and, in certain cases, an Officer
of The HighMark Group (the "Fund"), does hereby constitute and appoint Stephen
G. Mintos, Cynthia L. Lindsey, Martin E. Lybecker and John M. Loder, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments that said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable the Fund to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of
the Securities and Exchange Commission in respect thereof, and in connection
with the filing and effectiveness of any registration statement or statement of
the Fund pursuant to said Acts and any and all amendments thereto (including
post-effective amendments), including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a Trustee and/or officer of the Fund any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
Signature Title Date
/s/ Stephen G. Mintos Chairman of the November 22, 1994
- -------------------------- Board, Trustee and
Stephen G. Mintos President
<PAGE> 271
/s/ Cynthia L. Lindsey Vice President November 22, 1994
- ---------------------- and Treasurer
Cynthia L. Lindsey
/s/ Kenneth B. Quintenz Trustee November 22, 1994
- -----------------------
Kenneth B. Quintenz
/s/ Thomas L. Braje Trustee November 22, 1994
- -------------------
Thomas L. Braje
/s/ David A. Goldfarb Trustee November 22, 1994
- ---------------------
David A. Goldfarb
/s/ Joseph C. Jaeger Trustee November 22, 1994
- --------------------
Joseph C. Jaeger
/s/ Frederick J. Long Trustee November 22, 1994
- ---------------------
Frederick J. Long
2
<PAGE> 272
Exhibit Index
EXHIBIT NO. DESCRIPTION PAGE
5(b) Amended and Restated Schedule A to the Investment
Advisory Agreement.
5(c) TMAM Sub-Advisory Agreement.
5(d) BOTM Sub-Advisory Agreement.
6(b) Form of Distribution and Service Agreement for Class B Shares
between Registrant and SEI Investments Distribution Co.
8(b) Amended and Restated Schedule A to the Custodian
Agreement.
8(c) Form of Amended and Restated Schedule B to the Custodian
Agreement.
8(d) Form of Securities Lending and Reverse Repurchase Agreement
Services Client Addendum to Custodian Agreement
9(f) Form of Shareholder Service Plan for Class B
10 Opinion and Consent of Counsel as to legality of shares
being registered.
11(a) Consent of Deloitte & Touche LLP.
11(b) Consent of Coopers & Lybrand L.L.P.
11(c) Consent of Arthur Andersen LLP.
11(d) Consent of Ropes & Gray.
15(e) Amended and Restated Schedule A to the Class A
Distribution and Shareholder Services Plan,
15(f) Form of Class B Distribution and Shareholder Services
Plan
18 Form of Amended Multiple Class Plan.
27 Financial Data Schedules.
3
<PAGE> 1
EXHIBIT 5(B)
Amended and Restated Schedule A to the
Investment Advisory Agreement
4
<PAGE> 2
Dated: As of March 28, 1997
Amended and Restated
Schedule A
to the
Investment Advisory Agreement
between HighMark Funds and
Union Bank of California, N.A.
Name of Fund Compensation*
Balanced Fund Annual rate of sixty one-hundredths of one
percent (.60%) of the Balanced Fund's
average daily net assets.
Growth Fund Annual rate of sixty one-hundredths of one
percent (.60%) of the Growth Fund's average
daily net assets.
Income Equity Fund Annual rate of sixty one-hundredths of one
percent (.60%) of the Income Equity Fund's
average daily net assets.
Value Momentum Fund Annual rate of sixty one-hundredths of one
percent (.60%) of the Value Momentum Fund's
average daily net assets.
Blue Chip Growth Fund Annual rate of sixty one-hundredths of one
percent (.60%) of the Blue Chip Growth
Fund's average daily net assets.
Emerging Growth Fund Annual rate of eighty one-hundredths of one
percent (.80%) of the Emerging Growth Fund's
average daily net assets.
International Equity Fund Annual rate of ninety five one-hundredths of
one percent (.95%) of the International
Equity Fund's average daily net assets.
Bond Fund Annual rate of fifty one-hundredths of one
percent (.50%) of the Bond Fund's average
daily net assets.
Intermediate-Term Bond Fund Annual rate of fifty one-hundredths of one
percent (.50%) of the Intermediate-Term Bond
Fund's average daily net assets.
Government Securities Fund Annual rate of fifty one-hundredths of one
percent (.50%) of the Government Securities
Fund average daily net assets.
Convertible Securities Fund Annual rate of sixty one-hundredths of one
percent (.60%) of the Convertible Securities
Fund's average daily net assets.
5
<PAGE> 3
California Intermediate Tax-Free
Bond Fund Annual rate of fifty one-hundredths of one
percent (.50%) of the California
Intermediate Tax-Free Bond Fund's average
daily net assets.
Diversified Money Market Fund Annual rate of thirty one-hundredths of
one percent (.30%) of the Diversified Money
Market Fund's average daily net assets.
U.S. Government Money
Market Fund Annual rate of thirty one-hundredths of one
percent (.30%) of the U.S. Government Money
Market Fund's average daily net assets.
100% U.S. Treasury
Money Market Fund Annual rate of thirty one-hundredths of one
percent (.30%) of the 100% U.S. Treasury
Money Market Fund's average daily net
assets.
California Tax-Free Money
Market Fund Annual rate of thirty one-hundredths of
one percent (.30%) of the California
Tax-Free Money Market Fund's average daily
net assets.
* All fees are computed daily and paid monthly
6
<PAGE> 4
HIGHMARK FUNDS
By: /s/ Kevin Robins
________________________________
Title: Vice President
_____________________________
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Clark Gates
________________________________
Title: Senior Vice President
_____________________________
7
<PAGE> 1
EXHIBIT 5(c)
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT executed as of April 25, 1997 by and between UNION BANK OF CALIFORNIA,
N.A. (the "Advisor"), and TOKYO-MITSUBISHI ASSET MANAGEMENT (UK), LTD. (the
"SubAdvisor"), a subsidiary of Bank of Tokyo, Ltd.
WHEREAS, Advisor is the investment manager for HighMark Funds (the "Trust"), an
open-end management investment company registered under the Investment Company
Act of 1940, as amended ("1940 Act"); and
WHEREAS, Advisor desires to retain SubAdvisor as its agent to furnish investment
advisory services for the Trust's International Equity investment portfolio (the
"Fund").
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Appointment. Advisor hereby appoints SubAdvisor to provide certain
sub-investment advisory services to the Fund for the period and on the terms set
forth in this Agreement. SubAdvisor accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
2. Delivery of Documents. Advisor has furnished or will furnish SubAdvisor
with copies properly certified or authenticated of each of the following:
(a) the Trust's Agreement and Declaration of Trust, as filed with the
Secretary of State of the Commonwealth of Massachusetts on March 10,
1987, and all amendments thereto or restatements thereof (such
Declaration, as presently in effect and as it shall from time to time
be amended or restated, is herein called the "Declaration of Trust");
(b) the Trust's By-Laws and amendments thereto;
(c) resolutions of the Trust's Board of Trustees authorizing the
appointment of SubAdvisor and approving this Agreement;
(d) the Trust's Notification of Registration of Form N-8A under the
Investment Company Act of 1940 (the "1940 Act") as filed with the
Securities and Exchange Commission (the "SEC") on March 12, 1987 and
all amendments thereto;
(e) the Trust's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended ("1933 Act") (File No. 33-12608) and
under the 1940 Act as filed with the SEC and all amendments thereto
insofar as such Registration Statement and such amendments relate to
the Funds;
1
<PAGE> 2
(f) the Trust's most recent prospectuses and Statement of Additional
Information for the Funds (such prospectuses and Statement of
Additional Information, as presently in effect, and all amendments and
supplements thereto are herein collectively called the "Prospectus");
and
(g) such other materials and documents as SubAdvisor shall reasonably
request.
Advisor will furnish SubAdvisor from time to time with copies of all amendments
of or supplements to the foregoing.
3. Management. Subject always to the supervision of the Trust's Board of
Trustees and Advisor, SubAdvisor will furnish an investment program in respect
of, and make investment decisions for the assets of the Fund entrusted to it
hereunder and place all orders for the purchase and sale of securities, all on
behalf of the Fund. In the performance of its duties, SubAdvisor will satisfy
its fiduciary duties to the Fund (as set forth in Section 8 below), and will
monitor the Fund investments, and will comply with the provisions of the Trust's
Declaration of Trust and By-Laws, as amended from time to time, and the stated
investment objectives, policies and restrictions of the Fund. SubAdvisor and
Advisor will each make its officers and employees available to the other from
time to time at reasonable times to review investment policies of the Fund and
to consult with each other regarding the investment affairs of the Fund.
SubAdvisor shall also make itself reasonably available to the Board of Trustees
at such times as the Board of Trustees shall request.
SubAdvisor represents and warrants that it is in compliance with all applicable
Rules and Regulations of the SEC pertaining to its investment advisory
activities and agrees that it:
(a) will use the same skill and care in providing such services as it
uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(b) will maintain registration with the SEC as an investment adviser
under the Investment Advisers Act of 1940 and will conform with all
applicable Rules and Regulations of the SEC pertaining to its
investment advisory activities;
(c) will place orders pursuant to its investment determinations for
the Fund either directly with the issuer or with any broker or dealer.
In providing the Funds with investment supervision, the SubAdvisor will
give primary consideration to securing the most favorable price and
efficient execution. Within the framework of this policy, the
SubAdvisor may consider the financial responsibility, research and
investment information
2
<PAGE> 3
and other services provided by brokers or dealers who may effect or be
a party to any such transaction or other transactions to which the
SubAdvisor's other clients may be a party. it is understood that it is
desirable for the Fund that the SubAdvisor have access to supplemental
investment and market research and security and economic analysis
provided by brokers who may execute brokerage transactions at a higher
cost to the Fund than may result when allocating brokerage to other
brokers on the basis of seeking the most favorable price and efficient
execution. Therefore, the SubAdvisor is authorized to place orders for
the purchase and sale of securities for the Fund with such brokers,
subject to such guidelines as shall be established by the Advisor and
reviewed by the Trust's Board of Trustees from time to time with
respect to the extent and continuation of this practice. It is
understood that the services provided by such brokers may be useful to
the SubAdvisor in connection with the SubAdvisor's services to other
clients.
On occasions when the SubAdvisor deems the purchase or sale of a
security to be in the best interest of the Fund as well as other clients of the
SubAdvisor, the SubAdvisor, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be so purchased or sold in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the SubAdvisor in the manner it considers to be the
most equitable and consistent with its fiduciary obligations to the Fund and to
such other clients. In no instance will portfolio securities be purchased from
or sold to Advisor, SubAdvisor, SEI Financial Services Company or any affiliated
person of either the Trust, Advisor, SEI Financial Services Company or
SubAdvisor that Advisor has identified to the SubAdvisor in writing, except as
may be permitted under the 1940 Act;
(d) will report regularly to Advisor and will make appropriate persons
available for the purpose of reviewing at reasonable times with
representatives of Advisor and the Board of Trustees the management of
the Fund, including, without limitation, review of the general
investment strategy of the Fund, the performance of the Fund in
relation to standard industry indices and general conditions affecting
the marketplace and will provide various other reports from time to
time as reasonably requested by Advisor;
(e) will maintain books and records with respect to the Trust's
securities transactions required by subparagraphs (b)(5), (6), (7),
(9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act
and will furnish Advisor and the Trust's Board of Trustees such
periodic and special reports as the Board of Trustees may request;
(f) will act upon instructions form Advisor not inconsistent with the
3
<PAGE> 4
fiduciary duties hereunder; and
(g) will treat confidentially and as proprietary information of the
Trust all such records and other information relative to the Trust
maintained by the SubAdvisor, and will not use such records and
information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification
to and approval in writing by the Trust, which approval shall not be
unreasonably withheld and may not be withheld where SubAdvisor may be
exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Trust.
SubAdvisor shall have the right to execute and deliver, or cause its nominee to
execute and deliver, all proxies and notices of meetings and other notices
affecting or relating to the securities of the Fund.
4. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, SubAdvisor hereby agrees that all records which it maintains
for the Trust are the property of the Trust and further agrees to surrender
promptly to the Trust any of such records upon the Trust's request. SubAdvisor
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act the records required to be maintained by subparagraphs (b)(5), (6),
(7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act.
SubAdvisor may delegate its responsibilities under this Section to affiliates
that perform custody and/or fund accounting services for the Fund, which
delegation shall not, however, relieve the SubAdvisor of its responsibilities
under this paragraph 4.
5. Expenses. During the terms of this Agreement, SubAdvisor will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commissions, if any)
purchased for the Trust.
6. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, Advisor will pay the SubAdvisor, and the SubAdvisor
agrees to accept as full compensation therefor, a sub-advisory fee, accrued
daily and payable monthly, in accordance with Schedule A hereto. The fee will be
calculated based on the average monthly market value of the assets under the
Sub-Advisor's management and will be paid to the Sub-Advisor monthly. From time
to time, SubAdvisor may agree to waive or reduce some or all of the compensation
to which it is entitled under this Agreement.
7. Services to Others. Advisor understands, and has advised the Trust's
Board of Trustees, that SubAdvisor now acts, and may in the future act, as an
investment adviser to fiduciary and other managed accounts, and as investment
advisor, sub-investment adviser, and/or administrator to other investment
4
<PAGE> 5
companies. Advisor has no objection to SubAdvisor's acts in such capacities, as
long as such services do not impair the services rendered to Advisor or the
Trust. Advisor recognizes, and has advised the Trust's Board of Trustees, that
in some cases this procedure may adversely affect the size of the position that
the Fund may obtain in a particular security. In addition, Advisor understands,
and has advised the Trust's Board of Trustees, that the persons employed by
SubAdvisor to assist in SubAdvisor's duties under this Agreement will not devote
their full time to such service and nothing contained in this Agreement will be
deemed to limit or restrict the right of SubAdvisor or any of its affiliates to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
8. Limitation of Liability. The SubAdvisor shall not be liable for any
error or judgment or for any loss suffered by the Fund or Advisor in connection
with performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be limited
to the period and the amount set forth in Section 36(b) (3) of the 1940 Act), or
a loss resulting from willful misfeasance, bad faith or gross negligence on the
SubAdvisor's part in the performance of its duties or from reckless disregard of
its obligations and duties under this Agreement, except as may otherwise be
provided under provisions or applicable state law which cannot be waived or
modified hereby.
9. Indemnification. Advisor and SubAdvisor each agree to indemnify the
other against any claim against, loss or liability to such other party
(including reasonable attorneys' fees) arising out of any action on the part of
the indemnifying party which constitutes willful misfeasance, bad faith or gross
negligence.
10. Duration of Termination. This Agreement will become effective as of the
date hereof, provided that it has been approved by vote of a majority of the
outstanding voting securities of the Fund in accordance with the requirements
under the 1940 Act, and, unless sooner terminated as provided herein, will
continue in effect for one year.
Thereafter, if not terminated, this Agreement will continue in effect for the
Funds through July 31, 1997 and thereafter from year to year, provided that such
continuation is specifically approved at least annually (a) by the vote of a
majority of those members of the Trust's Board of Trustees who are not
interested persons of the Trust, SubAdvisor, or Advisor, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the vote
of a majority of the Trust's Board of Trustees or by the vote of majority of all
votes attributable to the outstanding Shares of the Fund. Notwithstanding the
foregoing, this Agreement may be terminated as to the Funds at any time, without
the payment of any penalty, on sixty (60) day's written notice by Advisor or by
SubAdvisor. This Agreement will immediately terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities", "interested persons" and "assignment" have the same meaning
of such terms in the
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<PAGE> 6
1940 Act.)
11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
12. SubAdvisor Information. During the terms of this Agreement, Advisor
agrees to furnish the SubAdvisor at SubAdvisor's principal office all
prospectuses, proxy statements, reports to stockholders, sales literature or
other materials prepared for distribution to stockholders of the Fund, the Trust
or the public that refer to the SubAdvisor or its clients in any way prior to
use thereof and not to use material if the SubAdvisor reasonably objects in
writing within five business days (or such other period as may be mutually
agreed) after receipt thereof. The SubAdvisor's right to object to such
materials is limited to the portions of such materials that expressly relate to
the SubAdvisor, its services and its clients. The Advisor agrees to use its
reasonable best efforts to ensure that materials prepared by its employees or
agents or its affiliates that refer to the SubAdvisor or its clients in any way
are consistent with those materials previously approved by the SubAdvisor as
referenced in the first sentence of this paragraph. Sales literature may be
furnished to the SubAdvisor by first-class or overnight mail, facsimile
transmission equipment or hand delivery.
13. Severability. Should any part of this Agreement be held invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
14. Notices. Any notice, advice or report to be given pursuant to this
Agreement shall be delivered or mailed:
To Advisor at:
Pacific Alliance Capital Management
Union Bank of California, N.A.
530 "B" Street
San Diego, CA 92101
Attention: Clark Gates, President
6
<PAGE> 7
To the SubAdvisor at:
Tokyo-Mitsubishi Asset Management (UK), Ltd.
12-15 Finsbury Circus
London, EC2M 7BT
England
Attention: James Wignall, Company Secretary
To the Trust or the Fund at:
HighMark Funds
1 Freedom Valley Road
Oaks, Pennsylvania 19456
Attention: Legal Department
15. Change of Law. Where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is altered by a rule, regulation or
order of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule, regulation or
order.
16. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. if any
provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and will be governed by the
laws of the Commonwealth of Massachusetts.
The name "HighMark Funds" and "Trustees of the HighMark Funds" refer
respectively to the Trust created by, and the Trustees, as trustees but not
individually or personally, acting from time to time under, the Declaration of
the Trust, to which reference is hereby made and copy of which is on file at the
office of the Secretary of State of the Commonwealth of Massachusetts and
elsewhere as required by law, and to any and all amendments thereto so filed or
hereafter filed. The obligations of "HighMark Funds" entered in the name or on
behalf thereof by any of the Trustees, representatives or agents are made not
individually but only in such capacities and are not binding upon any of the
Trustees, Shareholders or representatives of the Trust personally, but bind only
the assets of the Trust, and persons dealing with the Funds must look solely to
the assets of the Trust belonging to such Funds for the enforcement of any
claims against the Trust.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officer designated below as of the day and year first above
written.
UNION BANK OF CALIFORNIA, N.A.
By:________________________________
Name:______________________________
Title:_____________________________
TOKYO-MITSUBISHI ASSET MANAGEMENT (UK),
LTD.
By:________________________________
Name:______________________________
Title:_____________________________
8
<PAGE> 9
SCHEDULE A
HIGHMARK INTERNATIONAL EQUITY FUND
Advisory Fee: 95 b.p. (will waive 20 b.p.)
Subadvisory Fee: 30 b.p.
9
<PAGE> 10
SCHEDULE B
SUBADVISOR PERFORMANCE STANDARDS
1. Outperform the Morgan Stanley EAFE Index.
10
<PAGE> 1
EXHIBIT 5(d)
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT executed as of April 25, 1997 by and between UNION BANK of CALIFORNIA,
N.A. (the "Advisor"), and BANK OF TOKYO-MITSUBISHI TRUST COMPANY (the
"SubAdvisor"), a subsidiary of The Bank of Tokyo-Mitsubishi, Ltd., a New York
state chartered bank.
WHEREAS, Advisor is the investment manager for the HighMark Funds (the "Trust"),
an open-end management investment company registered under the Investment
Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, Advisor desires to retain SubAdvisor as its agent to furnish investment
advisory services for certain of the Trust's diversified investment portfolios
which are listed on Schedule A attached hereto and made a part hereof (the
"Funds").
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Appointment. Advisor hereby appoints SubAdvisor to provide certain
sub-investment advisory services to the Funds for the period and on the terms
set forth in this Agreement. SubAdvisor accepts such appointment and agrees
to furnish the services herein set forth for the compensation herein provided.
2. Delivery of Documents. Advisor has furnished or will furnish
SubAdvisor with copies properly certified or authenticated of each of the
following:
(a) the Trust's Agreement and Declaration of Trust, as filed with the
Secretary of State of the Commonwealth of Massachusetts on March 10,
1987, and all amendments thereto or restatements thereof (such
Declaration, as presently in effect and as it shall from time to time be
amended or restated, is herein called the "Declaration of Trust");
(b) the Trust's By-Laws and amendments thereto;
(c) resolutions of the Trust's Board of Trustees authorizing the
appointment of SubAdvisor and approving this Agreement;
(d) the Trust's Notification of Registration of Form N-8A under the
Investment Company Act of 1940 (the "1940 Act") as filed with the
Securities and Exchange Commission (the "SEC") on March 12, 1987 and all
amendments thereto;
(e) the Trust's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended ("1933 Act") (File No. 33-12608) and under the
1940 Act as filed with the SEC and all amendments thereto insofar as
such Registration Statement and such amendments relate to the Funds;
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<PAGE> 2
(f) the Trust's most recent prospectuses and Statement of Additional
Information for the Funds (such prospectuses and Statement of Additional
Information, as presently in effect, and all amendments and supplements
thereto are herein collectively called the "Prospectus"); and
(g) such other materials and documents as SubAdvisor shall reasonably
request.
Advisor will furnish SubAdvisor from time to time with copies of all amendments
of or supplements to the foregoing.
3. Management. Subject always to the supervision of the Trust's Board of
Trustees and Advisor, SubAdvisor will furnish an investment program in respect
of, and make investment decisions for, all assets of the Funds and place all
orders for the purchase and sale of securities, all on behalf of the Funds. In
the performance of its duties, SubAdvisor will satisfy its fiduciary duties to
the Funds (as set forth in Section 8 below), and will monitor the Funds
investments, and will comply with the provisions of the Trust's Declaration of
Trust and By-Laws, as amended from time to time, and the stated investment
objectives, policies and restrictions of the Funds. SubAdvisor and Advisor will
each make its officers and employees available to the other from time to time at
reasonable times to review investment policies of the Funds and to consult with
each other regarding the investment affairs of the Funds. SubAdvisor shall also
make itself reasonably available to the Board of Trustees at such times as the
Board of Trustees shall request.
SubAdvisor represents and warrants that it is in compliance with all applicable
Rules and Regulations of the SEC pertaining to its investment advisory
activities and agrees that it:
(a) will use the same skill and care in providing such services as it uses
in providing services to fiduciary accounts for which it has investment
responsibilities;
(b) will conform with all applicable Rules and Regulations of the SEC
pertaining to its investment advisory activities;
(c) will place orders pursuant to its investment determinations for the
Funds either directly with the issuer or with any broker or dealer. In
providing the Funds with investment supervision, the SubAdvisor will give
primary consideration to securing the most favorable price and efficient
execution. Within the framework of this policy, the SubAdvisor may
consider the financial responsibility research and investment information
and other services provided by brokers or dealers who may effect or be a
party to any such transaction or other transactions to which the
SubAdvisor's other clients may be a party. It is understood that it is
2
<PAGE> 3
desirable for the Funds that the SubAdvisor have access to supplemental
investment and market research and security and economic analysis provided
by brokers who may execute brokerage transactions at a higher cost to the
Funds than may result when allocating brokerage to other brokers on the
basis of seeking the most favorable price and efficient execution.
Therefore, the SubAdvisor is authorized to place orders for the purchase
and sale of securities for the Funds with such brokers, subject to such
guidelines as shall be established by the Advisor and reviewed by the
Trust's Board of Trustees from time to time with respect to the extent and
continuation of this practice. It is understood that the services provided
by such brokers may be useful to the SubAdvisor in connection with the
SubAdvisor's services to other clients.
On occasions when the SubAdvisor deems the purchase or sale of a security to be
in the best interest of the Funds as well as other clients of the SubAdvisor,
the SubAdvisor, to the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities to be so purchased
or sold in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the transaction, will
be made by the SubAdvisor in the manner it considers to be the most equitable
and consistent with its fiduciary obligations to the Funds and to such other
clients. In no instance will portfolio securities be purchased from or sold to
Advisor, SubAdvisor, SEI Financial Services Company or any affiliated person of
either the Trust, Advisor, SEI Financial services Company or SubAdvisor that
Advisor has identified to the SubAdvisor in writing, except as may be permitted
under the 1940 Act;
(d) will report regularly to Advisor and will make appropriate persons
available for the purpose of reviewing at reasonable times with representatives
of Advisor and the Board of Trustees the management of the Funds, including,
without limitation, review of the general investment strategy of the Funds, the
performance of the Funds in relation to standard industry indices and general
conditions affecting the marketplace and will provide various other reports from
time to time as reasonably requested by Advisor;
(e) will maintain books and records with respect to the Trust's securities
transactions required by subparagraphs (b)(5), (6), (7), (9), (10) and (11) and
paragraph (f) of Rule 31a-1 under the 1940 Act and will furnish Advisor and the
Trust's Board of Trustees such periodic and special reports as the Board of
Trustees may request;
(f) will act upon instructions form Advisor not inconsistent with the
fiduciary duties hereunder; and
(g) will treat confidentially and as proprietary information of the Trust
all such records and other information relative to the Trust maintained by the
3
<PAGE> 4
SubAdvisor, and will not use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Trust, which approval shall
not be unreasonably withheld and may not be withheld where SubAdvisor may be
exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Trust.
SubAdvisor shall have the right to execute and deliver, or cause its nominee to
execute and deliver, all proxies and notices of meetings and other notices
affecting or relating to the securities of the Funds.
4. Books and Records. In compliance with the requirements of Rule 31a-3 under
the 1940 Act, SubAdvisor hereby agrees that all records which it maintains for
the Trust are the property of the Trust and further agrees to surrender promptly
to the Trust any of such records upon the Trust's request. SubAdvisor further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by subparagraphs (b)(5), (6), (7), (9),
(10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act. SubAdvisor may
delegate its responsibilities under this Section to affiliates that perform
custody and/or fund accounting services for the Funds, which delegation shall
not, however, relieve the SubAdvisor of its responsibilities under this
paragraph 4.
5. Expenses. During the terms of this Agreement, SubAdvisor will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commissions, if any)
purchased for the Trust.
6. Compensation. For the services provided and the expenses assumed pursuant to
this Agreement, Advisor will pay the SubAdvisor, and the SubAdvisor agrees to
accept as full compensation therefor, a sub-advisory fee, accrued daily and
payable monthly, in accordance with Schedule B hereto. From time to time,
SubAdvisor may agree to waive or reduce some or all of the compensation to which
it is entitled under this Agreement.
7. Services to Others. Advisor understands, and has advised the Trust's Board of
Trustees, that SubAdvisor now acts, and may in the future act, as an investment
adviser to fiduciary and other managed accounts, and as investment advisor,
sub-investment adviser, and/or administrator to other investment companies.
Advisor has no objection to SubAdvisor's acts in such capacities, as long as
such services do not impair the services rendered to Advisor or the Trust.
Advisor recognizes, and has advised the Trust's Board of Trustees, that in some
cases this procedure may adversely affect the size of the position that the
Funds may obtain in a particular security. In addition, Advisor understands, and
has advised the Trust's Board of Trustees, that the persons employed by
SubAdvisor to assist in SubAdvisor's duties under this Agreement will not devote
their full time to
4
<PAGE> 5
such service and nothing contained in this Agreement will be deemed to limit or
restrict the right of SubAdvisor or any of its affiliates to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.
8. Limitation of Liability. The SubAdvisor shall not be liable for any error or
judgment or for any loss suffered by the Funds or Advisor in connection with
performance of its obligations under this Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages shall be limited to the period and
the amount set forth in Section 36(b)(3) of the 1940 Act), or a loss resulting
from willful misfeasance, bad faith or gross negligence on the SubAdvisor's part
in the performance of its duties or from reckless disregard of its obligations
and duties under this Agreement, except as may otherwise be provided under
provisions or applicable state law which cannot be waived or modified hereby.
9. Indemnification. Advisor and SubAdvisor each agree to indemnify the other
against any claim against, loss or liability to such other party (including
reasonable attorneys' fees) arising out of any action on the part of the
indemnifying party which constitutes willful misfeasance, bad faith or gross
negligence.
10. Duration and Termination. This Agreement will become effective as of the
date hereof, provided that it has been approved by vote of a majority of the
outstanding voting securities of the Funds in accordance with the requirements
under the 1940 Act, and, unless sooner terminated as provided herein, will
continue in effect for one year.
Thereafter, if not terminated, this Agreement will continue in effect for the
Funds through July 31, 1997 and thereafter from year to year, provided that such
continuation is specifically approved at least annually (a) by the vote of a
majority of those members of the Trust's Board of Trustees who are not
interested persons of the Trust, SubAdvisor, or Advisor, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the vote
of a majority of the Trust's Board of Trustees or by the vote of majority of all
votes attributable to the outstanding Shares of the Funds. Notwithstanding the
foregoing, this Agreement may be terminated as to the Funds at any time, without
the payment of any penalty, on sixty (60) day's written notice by Advisor or by
SubAdvisor. This Agreement will immediately terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities", "interested persons" and "assignment" have the same meaning
of such terms in the 1940 Act.)
11. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought.
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<PAGE> 6
12. SubAdvisor Information. During the terms of this Agreement, Advisor agrees
to furnish the SubAdvisor at SubAdvisor's principal office all prospectuses,
proxy statements, reports to stockholders, sales literature or other materials
prepared for distribution to stockholders of the Funds, the Trust or the public
that refer to the SubAdvisor or its clients in any way prior to use thereof and
not to use material if the SubAdvisor reasonably objects in writing within five
business days (or such other period as may be mutually agreed) after receipt
thereof. The SubAdvisor's right to object to such materials is limited to the
portions of such materials that expressly relate to the SubAdvisor, its services
and its clients. The Advisor agrees to use its reasonable best efforts to ensure
that materials prepared by its employees or agents or its affiliates that refer
to the SubAdvisor or its clients in any way are consistent with those materials
previously approved by the SubAdvisor as referenced in the first sentence of
this paragraph. Sales literature may be furnished to the SubAdvisor by
first-class or overnight mail, facsimile transmission equipment or hand
delivery.
13. Severability. Should any part of this Agreement be held invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors.
14. Notices. Any notice, advice or report to be given pursuant to this Agreement
shall be delivered or mailed:
To Advisor at:
Pacific Alliance Capital Management
Union Bank of California, N.A.
530 "B" Street
San Diego, CA 92101
Attention: Clark Gates, President
To the SubAdvisor at:
The Bank of Tokyo-Mitsubishi Trust Company
100 Broadway
New York, NY 10005
Attention: Charles Ryan
6
<PAGE> 7
To the Trust or the Funds at:
HighMark Funds
1 Freedom Valley Road
Oaks, Pennsylvania 19456
Attention: Legal Department
15. Change of Law. Where the effect of a requirement of the 1940 Act reflected
in any provision of this Agreement is altered by a rule, regulation or order of
the Commission, whether of special or general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
16. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Agreement is held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement will not be affected thereby. This
Agreement will be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and will be governed by the laws of the
Commonwealth of Massachusetts.
The name "HighMark Funds" and "Trustees of the HighMark Funds" refer
respectively to the Trust created by, and the Trustees, as trustees but not
individually or personally, acting from time to time under, the Declaration of
the Trust, to which reference is hereby made and copy of which is on file at the
office of the Secretary of State of the Commonwealth of Massachusetts and
elsewhere as required by law, and to any and all amendments thereto so filed or
hereafter filed. The obligations of "HighMark Funds" entered in the name or on
behalf thereof by any of the Trustees, representatives or agents are made not
individually but only in such capacities and are not binding upon any of the
Trustees, Shareholders or representatives of the Trust personally, but bind only
the assets of the Trust, and persons dealing with the Funds must look solely to
the assets of the Trust belonging to such Funds for the enforcement of any
claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officer designated below as of the day and year first above
written.
UNION BANK OF CALIFORNIA, N.A.
By:_________________________________
Name:_______________________________
7
<PAGE> 8
Title:________________________________
THE BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By:_________________________________
Name:_______________________________
Title:________________________________
8
<PAGE> 9
SCHEDULE A
HIGHMARK FUNDS
Blue Chip Growth Fund
Convertible Securities Fund
Emerging Growth Fund
Government Securities Fund
9
<PAGE> 10
SCHEDULE B
SUB ADVISOR COMPENSATION
1. Government Securities Fund
Advisory Fee: 50 b.p.
Subadvisory Fee: 20 b.p.
2. Convertible Securities Fund
Advisory Fee: 60 b.p.
Subadvisory Fee: 30 b.p.
3. Blue Chip Growth Fund
Advisory Fee: 60 b.p.
Subadvisory Fee: 30 b.p.
4. Emerging Growth Fund
Advisory Fee: 80 b.p.
Subadvisory Fee: 50 b.p.
10
<PAGE> 1
Exhibit 6(b)
FORM OF
HIGHMARK FUNDS
DISTRIBUTION AND SERVICE AGREEMENT
FOR
CLASS B SHARES (CONTINGENT DEFERRED SALES CHARGE CLASS)
THIS AGREEMENT is made as of the _____ day of _______, 1997, between
HIGHMARK FUNDS, a Massachusetts business trust (the "Trust"), and SEI
Investments Distribution Co. (the "Distributor"), a Pennsylvania corporation.
WHEREAS, the Trust is registered as an investment company with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended ("1940 Act"), and its shares are registered with the SEC under
the Securities Act of 1933, as amended ("1933 Act"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended;
WHEREAS, the Fund desires to appoint the Distributor to act as distributor
and shareholder servicing agent for the Class B shares of the Fund's portfolios,
as now in existence or hereinafter created from time to time (collectively, the
"Shares"), in accordance with the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the Trust and Distributor hereby agree as follows:
ARTICLE 1. Distribution Activities.
A. Sale of Shares. The Trust grants to the Distributor the exclusive
right to sell Shares of each portfolio of the Trust (each a "Portfolio"), at net
asset value in accordance with the current prospectuses for the Shares, as agent
and on behalf of the Trust, during the term of this Agreement and subject to the
registration requirements of the 1933 Act, the rules and regulations of the SEC
and the laws governing the sale of securities in the various states ("Blue Sky
Laws").
B. Solicitation of Sales. In consideration of these rights granted
to the Distributor, the Distributor agrees to use all reasonable efforts,
consistent with its other business, in connection with the distribution of
Shares; provided, however, that the Distributor shall not be prevented from
entering into like arrangements with other issuers. The provisions of this
paragraph do not obligate the Distributor to register as a broker or dealer
under the Blue Sky Laws of any jurisdiction when it determines it would be
uneconomical for it to do so
<PAGE> 2
or to maintain its registration in any jurisdiction in which it is now
registered nor obligate the Distributor to sell any particular number of Shares.
C. Authorized Representations. The Distributor is not authorized by
the Trust to give any information or to make any representations other than
those contained in the current registration statements and prospectuses of the
Trust with respect to the Shares filed with the SEC or contained in Shareholder
reports or other material that may be prepared by or on behalf of the Trust for
the Distributor's use. The Distributor may prepare and distribute sales
literature and other material as it may deem appropriate, provided that such
literature and materials have been approved by the Trust prior to their use.
D. Registration of Shares. The Trust agrees that it will take all
action necessary to register Shares under the federal and state securities laws
so that there will be available for sale the number of Shares the Distributor
may reasonably be expected to sell and to pay all fees associated with said
registration. The Trust shall make available to the Distributor such number of
copies of its currently effective prospectus and statement of additional
information as the Distributor may reasonably request. The Trust shall furnish
to the Distributor copies of all information, financial statements and other
papers which the Distributor may reasonably request for use in connection with
the distribution of Shares of the Trust.+
ARTICLE 2. Shareholder Servicing Activities.
A. Appointment. The Trust hereby appoints the Distributor as
servicing agent for the Shares of each Portfolio, as agent and on behalf of the
Trust in accordance with and during the term of this Agreement, and the
Distributor hereby accepts such appointment.
B. Shareholder Servicing Activities. As servicing agent for the
Shares of each Portfolio, and in consideration of the compensation payable
pursuant to Article 4 hereof, the Distributor shall provide personal, continuing
services to investors in the Shares of each Portfolio, including but not limited
to providing ongoing servicing and/or maintenance of shareholder accounts with
respect to the Shares of the Portfolios, responding to inquiries of the holders
of Shares regarding their ownership of Shares or their accounts with the Trust,
and providing administrative or accounting services with respect to the Shares
of the Portfolios not otherwise provided by other agents of the Trust.
Notwithstanding the foregoing, if the National Association of Securities
Dealers, Inc. ("NASD") adopts a definition of "service fee" for purposes of
Section 26(d) of the NASD Rules of Fair Practice that differs from the
definition of shareholder servicing activities in this paragraph, or if the NASD
adopts a related definition intended to define the same concept, the definition
of shareholder servicing activities in this paragraph shall be automatically
amended, without further action of the parties, to conform to such NASD
definition.
<PAGE> 3
ARTICLE 3. Compensation for Distribution Activities. (a) As compensation
for providing distribution services pursuant to Article 1 hereof, the
Distributor shall receive:
(1) in respect of the Shares of each Portfolio, pursuant to
the Trust's Plan of Distribution with respect to Class B Shares adopted by each
such class in accordance with Rule 12b-1 under the 1940 Act (the "Distribution
Plan"), a fee in connection with distribution-related services provided in
respect of such class, calculated and payable monthly as soon as practicable
after the end of the calendar month within which such fee accrues, but in any
event prior to the tenth day following the end of such calendar month, at the
annual rate of .75% of the value of the average daily net assets of such class.
(2) All contingent deferred sales charges applied on
redemptions of Shares of such Portfolio, payable at such time as the redemption
proceeds in respect of the redemption giving rise to the contingent deferred
sales charge is paid to the redeeming shareholder; provided that whether and at
what rate a contingent deferred sales charge will be imposed with respect to a
redemption shall be determined in accordance with, and in the manner set forth
in, the Registration Statement registering the Shares then in effect with the
SEC.
(b) Amounts payable to the Distributor under the Distribution Plan
may exceed or be less than the Distributor's actual costs incurred in connection
with the distribution of the Shares of each such class, as described in Article
5 below. In the event such Distribution Expenses (as defined in Article 5)
exceed amounts payable to the Distributor under the Distribution Plan, the
Distributor shall not be entitled to reimbursement by the Trust.
(c) The Distributor may reallow any or all of the distribution fees
and contingent deferred sales charges which it is paid under this Agreement to
such dealers as the Distributor may from time to time determine.
(d) The Distributor may transfer its right to the payments described
in this Article 3 to third persons who provide Trusting to the Distributor,
provided that any such transfer shall not be deemed a transfer of the
Distributor's obligations under this Agreement. Upon receipt of direction from
the Distributor to pay such fees to a transferee, the Trust shall make payment
in accordance with such direction.
ARTICLE 4. Compensation for Shareholder Service Activities.
(a) As compensation for providing shareholder services pursuant to
Article 2 hereof, the Distributor shall receive in respect of the Shares of each
Portfolio, pursuant to the Trust's Service Plan with respect to Class B Shares
adopted by each such class in accordance with the Distributor's multi-class
exemptive order (the "Service Plan"), a fee in connection with shareholder
services provided in respect of such class, calculated and payable monthly, at
<PAGE> 4
the annual rate of .25% of the value of the average daily net assets of such
class.
(b) Amounts payable to the Distributor under the Service Plan may
exceed or be less than the Distributor's actual costs incurred in connection
with the provision of shareholder services for the Shares, as described in
Article 5 below. In the event such Shareholder Servicing Expenses (as defined in
Article 5) exceed amounts payable to the Distributor under the Service Plan, the
Distributor shall not be entitled to reimbursement by the Trust.
(c) The Distributor may reallow all or any part of, or pay
compensation from, the amounts payable to the Distributor under the Service Plan
to such persons, including employees of the Distributor, and institutions who
respond to inquiries of holders of the Shares of the Portfolios or provide other
administrative or accounting services for the Shares, as the Distributor may
from time to time determine.
ARTICLE 5. Expenses. During the period of this Agreement, the Trust shall
pay or cause to be paid all expenses, costs and fees incurred by the Trust which
are not assumed by the Distributor. The Distributor shall pay all of its own
costs incurred in connection with the distribution of the Shares of each
Portfolio pursuant to Article 1 hereof ("Distribution Expenses"). The
Distributor shall also pay all of its own costs incurred in connection with
providing the personal, continuing services to shareholders of the Shares of
each Portfolio pursuant to Article 3 hereof ("Shareholder Servicing Expenses").
Distribution Expenses include, but are not limited to, the following expenses
incurred by the Distributor: initial and ongoing sales compensation (in addition
to sales loads) paid to investment executives of the Distributor and to other
broker-dealers and participating financial institutions which the Distributor
has agreed to pay; expenses incurred in the printing of prospectuses, statements
of additional information and reports used for sales purposes; expenses of
preparation and distribution of sales literature; expenses of advertising of any
type; an allocation of the Distributor's overhead; payments to and expenses of
persons who provide support services in connection with the distribution of
Trust shares; and other distribution-related expenses. Shareholder Servicing
Expenses include all expenses of the Distributor incurred in connection with
providing administrative or accounting services to shareholders of the Shares of
each Portfolio, including, but not limited to, an allocation of the
Distributor's overhead and payments made to persons, including employees of the
Distributor, who respond to inquiries of shareholders regarding their ownership
of Shares, or who provide other administrative or accounting services for the
Shares class not otherwise required to be provided by the applicable Portfolio's
investment adviser, transfer agent or other agent.
(b) In each year during which this Agreement remains in effect, the
Distributor will prepare and furnish to the Board of Trustees of the Trust, on a
quarterly basis, written reports complying with the requirements of Rule 12b-1
under the 1940 Act that set forth (i) the amounts expended under this Agreement
and the Distribution Agreement as Distribution Expenses for the Shares of each
Portfolio and the purposes for which those expenditures were
<PAGE> 5
made, and (ii) the amounts expended under this Agreement and the Service
Agreement as Shareholder Servicing Expenses for the Shares of each Portfolio and
the purposes for which those expenditures were made.
ARTICLE 6. Indemnification of Distributor. The Trust agrees to indemnify
and hold harmless the Distributor and each of its directors and officers and
each person, if any, who controls the Distributor within the meaning of Section
15 of the 1933 Act against any loss, liability, claim, damages or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, claim, damages, or expense and reasonable counsel fees and
disbursements incurred in connection therewith), arising by reason of any person
acquiring any Shares, based upon the ground that the registration statement,
prospectuses, Shareholder reports or other information filed or made public by
the Trust (as from time to time amended) included an untrue statement of a
material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements made not misleading. However, the
Trust does not agree to indemnify the Distributor or hold it harmless to the
extent that the statements or omission was made in reliance upon, and in
conformity with, information furnished to the Trust by or on behalf of the
Distributor.
In no case (i) is the indemnity of the Trust to be deemed to protect the
Distributor against any liability to the Trust or its Shareholders to which the
Distributor or such person otherwise would be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties or by
reason of its reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Trust to be liable to the Distributor under the
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any person indemnified unless the Distributor or
other person shall have notified the Trust in writing of the claim within a
reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon the
Distributor or such other person (or after the Distributor or the person shall
have received notice of service on any designated agent). However, failure to
notify the Trust of any claim shall not relieve the Trust from any liability
which it may have to the Distributor or any person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph.
The Trust shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the Trust elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Trust and satisfactory to the indemnified defendants in the suit
whose approval shall not be unreasonably withheld. In the event that the Trust
elects to assume the defense of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any additional counsel retained
by them. If the Trust does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable fees and expenses of any
counsel retained by the indemnified defendants.
<PAGE> 6
The Trust agrees to notify the Distributor promptly of the commencement of
any litigation or proceedings against it or any of its officers or Directors in
connection with the issuance or sale of any of its Shares.
ARTICLE 7. Indemnification of Trust. The Distributor covenants and agrees
that it will indemnify and hold harmless the Trust and each of its Trustees and
officers and each person, if any, who controls the Trust within the meaning of
Section 15 of the 1933 Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense and reasonable counsel fees incurred
in connection therewith) based upon the 1933 Act or any other statute or common
law and arising by reason of any person acquiring any Shares, and alleging a
wrongful act of the Distributor or any of its employees or alleging that the
registration statement, prospectus, Shareholder reports or other information
filed or made public by the Trust (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact required
to be stated or necessary in order to make the statements not misleading,
insofar as the statement or omission was made in reliance upon and in conformity
with information furnished to the Trust by or on behalf of the Distributor.
In no case (i) is the indemnity of the Distributor in favor of the Trust
or any other person indemnified to be deemed to protect the Trust or any other
person against any liability to which the Trust or such other person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement, or (ii) is the
Distributor to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Trust or any person
indemnified unless the Trust or person, as the case may be, shall have notified
the Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the nature of
the claim shall have been served upon the Trust or upon any person (or after the
Trust or such person shall have received notice of service on any designated
agent). However, failure to notify the Distributor of any claim shall not
relieve the Distributor from any liability which it may have to the Trust or any
person against whom the action is brought otherwise than on account of its
indemnity agreement contained in this paragraph.
The Distributor shall be entitled to participate, at its own expense, in
the defense or, if it so elects, to assume the defense of any suit brought to
enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by the Distributor and satisfactory
to the indemnified defendants whose approval shall not be unreasonably withheld.
In the event that the Distributor elects to assume the defense of any suit and
retain counsel, the defendants in the suit shall bear the fees and expenses of
any additional counsel retained by them. If the Distributor does not elect to
assume the defense of any suit, it will reimburse the indemnified defendants in
the suit for the reasonable fees and expenses of any counsel retained by them.
<PAGE> 7
The Distributor agrees to notify the Trust promptly of the commencement of
any litigation or proceedings against it in connection with the issue and sale
of any of the Trust's Shares.
ARTICLE 8. Effective Date. This Agreement shall be effective upon its
execution, and unless terminated as provided, shall continue in force for one
year from the effective date and thereafter from year to year, provided that
such annual continuance is approved by (i) either the vote of a majority of the
Trustees of the Trust, or the vote of a majority of the outstanding voting
securities of the Shares of each Portfolio, and (ii) the vote of a majority of
those Trustees of the Trust who are not parties to this Agreement or the Trust's
Distribution Plan or Shareholder Service Plan or interested persons of any such
party ("Qualified Trustees"), cast in person at a meeting called for the purpose
of voting on the approval. This Agreement shall automatically terminate in the
event of its assignment. As used in this paragraph the terms "vote of a majority
of the outstanding voting securities", "assignment" and "interested person"
shall have the respective meanings specified in the 1940 Act. In addition, this
Agreement may at any time be terminated without penalty by the Distributor, by a
vote of a majority of Qualified Trustees or by vote of a majority of the
outstanding voting securities of the Shares class of any Portfolio upon not less
than sixty days prior written notice to the other party.
ARTICLE 9. Notices. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the other party
at the last address furnished by the other party to the party giving notice: if
to the Trust, at c/o Kevin P. Robins, General Counsel, SEI Investments
Distribution Co., 1 Freedom Valley Drive, Oaks, PA 19456; and to its Secretary
at the following address: Martin J. Lybecker, Esq., Ropes & Gray, One Franklin
Square, 1301 K Street, N.W., Suite 800 East, Washington, D.C. 20005-3333; and if
to the Distributor, 1 Freedom Valley Drive, Oaks, Pennsylvania 19456.
ARTICLE 10. Governing Law. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Massachusetts and the applicable provisions
of the 1940 Act. To the extent that the applicable laws of the Commonwealth of
Massachusetts, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
<PAGE> 8
ARTICLE 11. Multiple Originals. This Agreement may be executed in two or
more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS, the Trust and Distributor have each duly executed this
Agreement, as of the day and year above written.
HIGHMARK FUNDS
By:
Attest:
SEI INVESTMENTS DISTRIBUTION CO.
By:
Attest:
<PAGE> 1
EXHIBIT 8(b)
Amended and Restated
Schedule A to the Custodian Agreement
<PAGE> 2
Dated: As of March 28, 1997
Amended and Restated
Schedule A
to the Custodian Agreement
between HighMark Funds and
Union Bank of California, N.A.
Name of Fund
California Tax-Free Money Market Fund (Fiduciary and Retail Shares)
Diversified Money Market Fund (Fiduciary and Retail Shares)
U.S. Government Money Market Fund (Fiduciary and Retail Shares)
100% U.S. Treasury Money Market Fund (Fiduciary and Retail Shares)
Balanced Fund (Fiduciary and Retail Shares)
Growth Fund (Fiduciary and Retail Shares)
Income Equity Fund (Fiduciary and Retail Shares)
Bond Fund (Fiduciary and Retail Shares)
Intermediate-Term Bond Fund (Fiduciary and Retail Shares)
Government Securities Fund (Fiduciary Shares only)
Convertible Securities Fund (Fiduciary Shares only)
Value Momentum Fund (Fiduciary and Retail Shares)
Blue Chip Growth Fund (Fiduciary Shares only)
Emerging Growth Fund (Fiduciary and Retail Shares)
International Equity Fund (Fiduciary Shares only)
California Intermediate Tax-Free Bond Fund (Fiduciary and Retail Shares)
[SEAL] UNION BANK OF CALIFORNIA, N.A.
By: /s/ Toni Sarrica
________________________________
Title: Vice President and Manager
_____________________________
[SEAL] HIGHMARK FUNDS
By: /s/ Kevin Robins
________________________________
Title: Vice President
_____________________________
<PAGE> 1
Exhibit 8(c)
FORM OF
SCHEDULE B
FEES
1. For all Domestic Assets (assets held within the United States) the Custodian
shall be entitled to a fee of one one hundredths of one percent (.0001) of
average daily net assets, computed daily and payable monthly in arrears.
2. For International Assets (assets held outside the United States) fees shall
be payable as set forth on the attached Global Custody fee matrix.
All fees shall be accrued daily and paid monthly in arrears. In addition to the
fees set forth, Fund shall pay expenses of administration.
Any compensation agreed to hereunder may be adjusted from time-to-time by not
less than 60 days advance written notice of such fee increase from Bank to
Trust.
The Bank will bill the Trust as soon as practicable after the end of each month,
and said billings will be detailed in accordance with the Fee Schedule. The
Trust will promptly pay to the Bank the amount of such billing. The Bank may
bill the Trust for any expenses incurred by the Bank in the performance of its
duties pursuant to such agreement. The Bank shall also be entitled to bill the
Trust for the amount of any loss, damage, liability or expense incurred with
respect to such Trust, including counsel fees, for which it shall be entitled to
reimbursement under the provision of this Agreement.
The expenses for which the Bank charge include, but are not limited to, the
expenses of Sub-Custodians and foreign branches of the Bank incurred in settling
transactions outside of San Francisco or New York City involving the purchase
and sale of Securities of the Trust.
<PAGE> 2
THE HIGHMARK GROUP
CONFIDENTIAL
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
TRANSACTION CUSTODY
FEES FEES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
.01% .02% .03% .10% .15% .20% .30% .40%
- ------------------------------------------------------------------------------------------------------------------------------
USA
- ------------------------------------------------------------------------------------------------------------------------------
$25 CEDEL
Eurobonds
Euroclear
- ------------------------------------------------------------------------------------------------------------------------------
$35 Canada Japan
- ------------------------------------------------------------------------------------------------------------------------------
$50 United Austria Netherlands China
Kingdom Mexico Republic of
Korea
- ------------------------------------------------------------------------------------------------------------------------------
$75 Belgium Ireland Australia Finland
France Sweden New Zealand Singapore
Germany South Africa
Norway
Switzerland
- ------------------------------------------------------------------------------------------------------------------------------
$100 Denmark Hong Kong Indonesia Malaysia Argentina
Thailand Italy Brazil
Portugal Chile
- ------------------------------------------------------------------------------------------------------------------------------
$125 Philippines Spain
Taiwan
- ------------------------------------------------------------------------------------------------------------------------------
$200 *India
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
UNION BANK OF CALIFORNIA
GLOBAL CUSTODY
*India $300.00 Monthly Subaccount Fee, $35.00 Corporate Actions Fee
Federal Reserve System wires $15.00
<PAGE> 1
Exhibit 8(d)
FORM OF
SECURITIES LENDING AND REVERSE REPURCHASE AGREEMENT SERVICES
CLIENT ADDENDUM
(CUSTODIAN AGREEMENT: DECEMBER 23, 1991, AS AMENDED)
THIS ADDENDUM for securities lending and/or reverse repurchase agreement
services is made, effective as of 1 January, 19 97, by and between THE HIGHMARK
FUNDS ("Principal") and UNION BANK OF CALIFORNIA, NATIONAL ASSOCIATION ("Bank").
This Addendum is an addendum to the Custody Agreement by and between Principal
and Bank dated as of December 23, 1991, ("Custodian Agreement").
Principal and Bank agree as follows:
I. APPOINTMENT OF BANK; ELIGIBLE COUNTERPARTIES
1. Appointment of Bank as Agent. Principal hereby authorizes Bank to act as
agent for Principal in securities lending and reverse repurchase agreement
transactions with respect to securities deposited with or held by Bank pursuant
to the Custodian Agreement. Bank's duties and responsibilities shall be only
those set forth in this Addendum and the Custodian Agreement, or as otherwise
agreed to by Bank in writing. Further, Principal authorizes Bank to delegate
Bank's duties as agent hereunder to a sub-agent(s).
2. Eligible Borrowers/Buyers. Bank may lend securities only to such securities
brokers and dealers or other person or entities as are listed in the attached
Exhibit A, as amended from time to time ("Borrowers"), unless and until
otherwise instructed in writing by Principal. Bank may engage in reverse
repurchase agreement transactions on Principal's behalf with only those brokers
and dealers or other person or entities as are listed on the attached Exhibit A,
as amended from time to time ("Buyers"), unless and until otherwise instructed
in writing by Principal. All securities lending transactions and reverse
repurchase agreement transactions entered into by Bank hereunder shall be
entered into pursuant to related agreements between the Borrowers or Buyers, as
the case may be, and Bank on behalf of Principal. Principal's execution of
Exhibits A, B, and C or any amendment to Exhibits A, B, or C shall constitute
Principal's representation and agreement that it has received, read, and
understood the terms of each such agreement in respect of each Borrower or
Buyer, as the case may be, listed thereon. Principal hereby (i) represents and
warrants to Bank (which representations shall be deemed repeated at and as of
all times when this Addendum is in effect) that Principal has the power and
authority, and has taken all necessary action, to enter into this Addendum and
each such agreement, and to perform the obligations of a lender or seller, as
the case may be, under such transactions, and to authorize Bank to execute and
deliver each such agreement on Principal's behalf and to enter into such
transactions and to perform the obligations of a lender or seller, as the case
may be, under such transactions on behalf of Principal, and (ii) authorizes Bank
to
<PAGE> 2
execute and deliver each such agreement on Principal's behalf and to enter into
any transaction of a nature contemplated by any such agreement on behalf of
Principal and to perform the obligations of a lender or seller, as the case may
be, under such transactions on behalf of Principal and (iii) has furnished or
will furnish Bank with evidence satisfactory to Bank that Principal has all
necessary authority to enter into this Addendum and each of the transactions
contemplated hereby.
Bank shall have full unlimited power and authority to perform and each and every
act or thing it may in its discretion deem necessary or appropriate in respect
of any Securities Lending Agreement or Reverse Repurchase Agreement or any
securities loan or any reverse repurchase agreement transaction. Bank shall be
fully protected in engaging in repurchase agreement and securities lending
transactions on behalf of Principal, with respect to any or all securities
deposited with or held by Bank with any one or more of such brokers or dealers
or other person or entities until otherwise instructed in writing by Principal.
II. SECURITIES LENDING TRANSACTIONS
1. Loans; Securities Loan Agreement. Principal hereby authorizes Bank, as agent
for Principal, to lend, from time to time in its discretion, securities of
Principal at any time on deposit with or held by Bank. Principal acknowledges
and agrees that any securities lending agreement (each, a "Securities Lending
Agreement") may take the form of a master agreement covering a series of
securities loan transactions between a borrower and Bank as lender on behalf of
Principal and other accounts administered through Bank's Trust Department. There
can be no assurance that the activities of any such other account pursuant to
any such agreement, or by Bank in respect of any such other account, will not
have an adverse effect on Principal or on the rights of Principal in respect of
any securities loan.
Bank shall not in any event be liable to Principal or anyone else in respect of
any delay or failure of any other person (including Borrower or any other
lender) to comply with the provisions of the Securities Lending Agreement unless
such failure is the result of circumstances reasonably likely to result in such
failure and which were known to Bank at the time at which the loan was made.
2. Marking to Market. Bank's responsibilities in this regard shall be to monitor
the need for additional Collateral, and to use all reasonable efforts to demand
additional Collateral (as defined in the Securities Lending Agreement) in
accordance with the terms of the Securities Lending Agreement in the event
additional Collateral is required under the terms of such Securities Lending
Agreement, and to notify Principal in the event a Borrower has refused to
provide such additional Collateral in accordance with the Securities Lending
Agreement.
3. Collateral. Collateral received by Bank in connection with a loan of
securities hereunder shall be held separate and apart from Bank's own funds and
securities. The amount of
-2-
<PAGE> 3
Collateral (as such term is defined in the Securities Lending Agreements)
transferred to Bank by any Borrower at any time may be an amount calculated to
meet the obligations of such Borrower in respect of any or all loans to Borrower
by Principal and any one or more other clients of Bank, whether entered into
pursuant to the same loan or Securities Lending agreement or more than one such
loan or agreement, and may be an amount calculated net of amounts of Collateral
required at the time to be delivered by Principal and any one or more such other
clients to such Borrower pursuant to any such Securities Lending Agreements. In
addition, the amount of Collateral transferred by Bank to any Borrower at any
time may be an amount calculated to meet the obligations of Principal and any
one or more other clients of Bank to such Borrower in respect of any or all
loans to Borrower, whether entered into pursuant to the same Securities Lending
Agreement or more than one such agreement, and may be an amount calculated net
of amounts of Collateral required at the time to be delivered by such Borrower
to Principal or one or more such other clients pursuant to any such Securities
Lending Agreements. Bank shall in good faith allocate or reallocate (including
without limitation in respect of any return of Collateral to any Borrower) any
Collateral held by it or received by it from any Borrower among Principal and
Bank's clients and in respect of any or all of such loans in such manner and on
such bases as Bank in its discretion may from time to time determine, and shall
be fully protected in doing so. As a result of the foregoing, the nature or
amount of Collateral credited to the account of Principal in respect of any
Borrower or any securities loan or loans will vary and may be different from or
less than the nature or amount of Collateral which might have been held by it or
credited to its account if it had entered into such loan or loans directly with
such Borrower or if Bank had entered into such loan or loans with such Borrower
as agent solely for Principal, provided that in no event shall any allocation be
permitted to give rise to the Market Value (as defined in the Securities Lending
Agreement) of the Collateral being less than 100% of the Market Value of the
loaned securities on any particular loan.
Bank may, in its discretion, invest and reinvest any Cash Collateral for the
benefit and at the risk of Principal in investments specified in Exhibit D as it
may be amended from time to time.. Bank may invest any or all of such Cash
Collateral in any one or more of such investments, on any basis Bank determines
appropriate. Bank shall be entitled to pay or retain from any amounts held by
Bank on Principal's account from time to time in respect of any securities loan
(i) all Cash Collateral Fees and other sums required to be paid in accordance
with the Securities Lending Agreement, and (ii) Bank's compensation or other
amounts incurred by it or owed to it in respect of its services in lending
securities hereunder.
4. Distributions on Loaned Securities. Bank shall pay to or for the account of
Principal, in accordance with Principal's instructions, any amounts it receives
from a Borrower which represent interest, dividends, and other distributions
made with respect to any Loaned Securities (as defined in the Securities Lending
Agreement) and which are credited by Bank to Principal's account.
-3-
<PAGE> 4
5. Term of Loans; Termination of Loans; Default. Bank shall have full discretion
to determine the term of any securities lending transaction entered into by Bank
on Principal's behalf hereunder subject to any guidelines provided to it in
writing by the Principal, and shall in no event incur any liability for entering
into any such transaction on behalf of Principal for a term equal to the maximum
available (or permitted pursuant to such guidelines), regardless of any change
in market conditions or in the financial condition of the Borrower or any other
person. Bank may in its discretion terminate any loan of securities pursuant to
the provisions of the Securities Lending Agreement based on such factors as it
in its discretion deems relevant, but shall in no event have any liability for
its failure to take steps to terminate any transaction on any date or at any
time unless instructed by Principal. Bank shall in no event have any
responsibility for taking steps to terminate any securities lending transaction
before its maturity (unless instructed to do so by Principal), regardless of any
change in market conditions or in the financial condition of the Borrower or any
other person. In the event Bank receives actual notice of an Event of Default by
a Borrower under the Securities Lending Agreement, it shall notify Principal
thereof as soon as reasonably practicable and may in its discretion (but shall
in no event be obligated to) exercise any rights or remedies given the Lender
under the Securities Lending Agreement until instructed by Principal otherwise,
provided that Bank shall in no event incur any liability for its exercise or its
failure to exercise any such rights or remedies under any circumstances.
6. Termination of Lending Authority. Principal may terminate Bank's authority to
lend securities by fifteen (15) days' written notice to Bank and may direct Bank
to terminate any outstanding securities loans, which Bank shall do in accordance
with provisions of the Securities Lending Agreement. In the event Principal
terminates Bank's authority to lend securities hereunder, the provisions of this
Agreement relating to securities loans, including provisions relating to Bank's
compensation, shall remain in effect with respect to all securities loans
outstanding on the effective date of termination, until termination thereof in
accordance with the Securities Lending Agreement.
III. REVERSE REPURCHASE AGREEMENT TRANSACTIONS
1. Reverse Repurchase Agreement Transactions; Reverse Repurchase Agreements.
Principal hereby authorizes Bank, as agent for Principal, to engage from time to
time, in its discretion, in reverse repurchase agreement transactions with
Buyers with respect to securities of Principal at anytime on deposit with or
held by Bank. Principal acknowledges and agrees that any reverse repurchase
agreement (each a "Master Repurchase Agreement") may take the form of a master
agreement covering a series of reverse repurchase agreement transactions between
a Buyer and Bank as seller on behalf of Principal and other accounts
administered through Bank's Trust Department. There can be no assurance that the
activities of any other such account pursuant to any such agreement, or by Bank
in respect of any such other account, will not have an adverse effect on
Principal or on the rights of Principal with respect to any such reverse
repurchase agreement transaction.
-4-
<PAGE> 5
Bank shall not in any event be liable to Principal or anyone else in respect of
any delay or failure of any other person (including any Buyer or any other
seller) to comply with the provisions of the Master Repurchase Agreement unless
such failure is the result of circumstances reasonably likely to result in such
failure and which were known to Bank at the time at which the repurchase
agreement transaction was entered into.
2. Marking to Market. Bank's responsibilities in this regard shall be to monitor
the need for margin maintenance under the Master Repurchase Agreement, and to
use all reasonable efforts to require margin maintenance in accordance with the
terms of the Master Repurchase Agreement in the event such margin maintenance is
required under the terms of the Master Repurchase Agreement, and to notify
Principal in the event a Buyer has refused to provide such margin maintenance in
accordance with the Master Repurchase Agreement.
3. Investment of Cash. Cash received by Bank in connection with reverse
repurchase agreement transactions shall be held separate and apart from Bank's
own funds and securities.
The amount of the Purchase Price or any amount with respect to a Margin Excess
(as such terms are defined in the Master Repurchase Agreements) transferred to
Bank by any Buyer at any time may be an amount calculated to meet the
obligations of such Buyer in respect of any or all sales to Buyer by Principal
and any one or more other clients of Bank, whether entered into pursuant to the
same reverse repurchase agreement transaction or Master Repurchase agreement,
and may be an amount calculated net of amounts of the Repurchase Price (as such
term is defined in the Master Repurchase Agreements) required at the time to be
delivered by Principal and any one or more such other clients to such Buyer
pursuant to any such Master Repurchase Agreements. In addition, the amount of
the Repurchase Price or any amount with respect to a Margin Deficit (as such
term is defined in the Master Repurchase Agreement) transferred by Bank to any
Buyer at any time may be an amount calculated to meet the obligations of
Principal and any one or more other clients of Bank to such Buyer in respect of
any or all sales to such Buyer, whether entered into pursuant to the same Master
Repurchase Agreement or more than one such agreement, and may be an amount
calculated net of amounts of the Purchase Price required at the time to be
delivered by such Buyer to Principal or one or more such other clients pursuant
to any such Master Repurchase Agreements. Bank shall in good faith allocate or
reallocate (including without limitation in respect of any payment of any
Repurchase Price to any Buyer) any Purchase Price and any amount with respect to
a Margin Excess held by it or received by it from any Buyer among Principal and
Bank's clients and in respect of any or all of such reverse repurchase agreement
transactions in such manner and on such bases as Bank in its discretion may from
time to time determine, and shall be fully protected in doing so. As a result of
the foregoing, the nature or amount of the Purchase Price and any amount with
respect to a Margin Excess credited to the account of Principal in respect of
any Buyer or any reverse repurchase agreement transaction or transactions will
vary and may be different from or less than the nature or amount of the Purchase
Price and any amount with respect to a Margin Excess which might have been held
by it or credited to its account if it had
-5-
<PAGE> 6
entered into such reverse repurchase transaction or transactions directly with
such Buyer or if Bank had entered into such loan or loans with such Buyer as
agent solely for Principal in no event, however, shall any allocation and
reallocation be permitted to give rise to the Margin Amount (as defined in the
Master Repurchase Agreement) being less than 100% of the Market Value of the
Purchased Securities (as defined in the Master Repurchase Agreement) on any
particular Repurchase Agreement transaction.
Bank may in its discretion invest and reinvest cash received by Bank on behalf
of Principal in connection with reverse repurchase agreement transactions in
investments specified in Exhibit D, as it may be amended from time to time...
Bank may invest any or all of such cash in any one or more of such investments
on any basis Bank determines appropriate. Bank shall be entitled to pay or
retain from any amounts held by Bank for Principal's account from time to time
in respect of any reverse repurchase agreement transaction (i) the Repurchase
Price, any amount necessary to correct a Margin Deficit, and other sums required
to be paid in accordance with the Master Repurchase Agreement, and (ii) Bank's
compensation and other amounts incurred by it or owed to it in respect of
services with respect to reverse repurchase agreement transactions hereunder.
4. Distributions on Securities Subject to Reverse Repurchase Agreements. Bank
shall pay to or for the account of Principal, in accordance with Principal's
instructions, any amounts received from a Buyer or its agent which represent
interest, dividends or other distributions on Purchased Securities (as such term
is defined in the Master Repurchase Agreement) and which are credited by Bank to
Principal's account.
5. Term of Reverse Repurchase Agreement Transactions; Termination of Reverse
Repurchase Agreement Transactions; Default. Bank shall have full discretion to
determine the term of any reverse repurchase agreement transaction entered into
by Bank on Principal's behalf hereunder subject to any guidelines provided to it
in writing by Principal, and shall in no event incur any liability for entering
into any such reverse repurchase agreement transaction on behalf of Principal
for a term equal to the maximum available (or permitted pursuant to such
guidelines), regardless of any change in market conditions or in the financial
condition of the Buyer or any other person. Bank may in its discretion terminate
any reverse repurchase agreement transaction pursuant to the provisions of the
Master Repurchase Agreement based on such factors as it in its discretion deems
relevant, but shall in no event have any liability for its failure to terminate
any transaction on any date or at any time unless instructed by Principal. Bank
shall in no event have any responsibility for taking steps to terminate any
reverse repurchase agreement transaction before its maturity (unless instructed
to do so by Principal), regardless of any change in market conditions or in the
financial condition of the Buyer or any other person. In the event Bank receives
actual notice of an Event of Default by a Buyer under the Master Repurchase
Agreement, it shall notify Principal thereof as soon as reasonably practicable
and may in its discretion (but shall in no event be obligated to) exercise any
rights or remedies given the Seller under the Master Repurchase Agreement until
instructed by Principal
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<PAGE> 7
otherwise, provided that Bank shall in no event incur any liability for its
failure to exercise any such rights or remedies under any circumstances.
6. Termination of Authority to Enter into Reverse Repurchase Agreements.
Principal may terminate Bank's authority to enter into reverse repurchase
agreement transactions by fifteen (15) days' written notice to Bank and may
direct Bank to terminate any outstanding reverse repurchase agreement
transaction, which Bank shall do in accordance with provisions of the Master
Repurchase Agreement. In the event Principal terminates Bank's authority to
enter into reverse repurchase agreement transactions hereunder, the provisions
of this Addendum relating to reverse repurchase agreements, including,
provisions relating to Bank's compensation, shall remain in effect with respect
to all reverse repurchase agreement transactions outstanding on the effective
date of termination, until termination thereof in accordance with the Master
Repurchase Agreement.
IV. GENERAL
1. Principal's Representations and Warranties. In addition to any other
representation and warranty of Principal hereunder, Principal represents and
warrants (which representations shall be deemed repeated at and as of all times
when this Addendum is in effect) that:
(a) Lending Principal's securities and/or entering into reverse repurchase
agreement transactions as provided in this Addendum, and the appointment
of Bank as Principal's agent as contemplated hereby, will not violate any
law, regulation, charter, by-law, or other restriction applicable to
Principal.
(b) Principal will not sell any securities subject to this Addendum unless and
until Principal shall have first obtained confirmation from Bank that the
securities Principal intends to sell are not subject to an outstanding
loan or reverse repurchase agreement transaction. Principal will notify
Bank in writing, or cause written notice to be given to Bank, that
Principal intends to sell securities which are subject to this Addendum,
such notice to be provided on or before the second Business Day
immediately prior to the trade date on which Principal intends to sell
such securities.
(c) Principal acknowledges and agrees that there can be no assurance, during
the term of any securities loan or reverse repurchase agreement
transaction, that (notwithstanding any provision of any Securities Lending
Agreement or Master Repurchase Agreement) Principal will be able to
participate in, or the full benefit of, any corporate action, dividend or
principal payment, or any other right or privilege accruing in respect of
any securities subject to any such Agreement. Without limiting the
generality of the foregoing, Principal hereby waives the right to vote or
to provide any consent or to take any similar action with respect to any
securities loaned or which are subject to any reverse repurchase agreement
transaction during the term of such loan, and/or reverse repurchase
agreement transaction.
-7-
<PAGE> 8
By its signature hereunder, Principal acknowledges that it has been apprised of
the fact that:
NOTWITHSTANDING ANY OTHER PROVISION TO THE CONTRARY, IN THE EVENT OF THE
DEFAULT OF A BORROWER AND/OR BUYER, THE PROVISIONS OF THE SECURITIES
INVESTOR PROTECTION ACT OF 1970 MAY NOT PROTECT PRINCIPAL'S ACCOUNT WITH
RESPECT TO SECURITIES LOAN OR REVERSE REPURCHASE AGREEMENT TRANSACTIONS AND
IN SUCH EVENT, THE COLLATERAL DELIVERED TO LENDER IN CONNECTION WITH SUCH
LOANS AND REVERSE REPURCHASE AGREEMENTS MAY BE THE ONLY SOURCE OF
SATISFACTION OF THE BORROWER'S OR BUYER'S OBLIGATIONS IN THE EVENT THE
BORROWER/BUYER FAILS TO RETURN THE LOANED SECURITIES AND OR SECURITIES
SUBJECT TO REVERSE REPURCHASE AGREEMENTS.
2. Instructions of Principal. All instructions of Principal to Bank shall be
provided as set forth in the Custodian Agreement.
Bank shall be entitled to accept and rely on any written instruction Bank
reasonably believes to have been authorized by Principal. Bank shall have no
obligation to act in the absence of instructions. If at anytime the
circumstances require immediate action and Bank endeavors to obtain instructions
from Principal, but is unable to so obtain them, Bank may act and is fully
protected in acting in such manner as it considers appropriate hereunder.
3. Reports. Bank shall provide Principal with periodic reports at such intervals
as Principal and Bank should agree, reflecting a schedule of property, statement
of transactions recording principal and income receipts and disbursements,
outstanding loans and reverse repurchase agreements transactions, income, and
schedule of property detailing investments made hereunder.
4. Duties of Bank. Bank's duties and responsibilities shall be only those
expressly set forth in this Addendum, or as otherwise agreed by Bank in writing.
Bank shall not be liable for acting or failing to act in accordance with the
instructions of Principal under this Addendum or otherwise in accordance with
this Addendum or within the scope of its actual or apparent authority. Bank
shall not be required to appear in or defend any legal proceedings with respect
to the property subject to this Addendum unless Bank has been indemnified to its
satisfaction against loss and expense (including reasonable attorneys' fees).
Bank may consult with counsel acceptable to it concerning its duties and
responsibilities under this Addendum, and shall not be liable for any action
taken or not taken on the advice of such counsel.
Principal acknowledges that Bank and its agents, if any, act as agent for other
repurchase agreement and securities lending clients and accordingly, that other
clients' securities may be used prior to Principal's. Principal agrees that each
of Bank and any such agent has full
-8-
<PAGE> 9
discretion to allocate the use of Principal's securities as it deems
appropriate, and that Bank may make available securities lending and/or reverse
repurchase agreement opportunities to clients other than Principal for any
reason, and that Bank will have no obligation to make any securities lending
and/or reverse repurchase agreement opportunities available to Principal.
5. Expenses; Compensation of Bank. Principal shall be responsible for payment of
all expenses and charges incurred in connection with the administration of this
Addendum, including Bank's compensation for its services hereunder as determined
in accordance with the attached Exhibit E, and Bank may in its discretion charge
the assets subject to this Addendum therefor.
6. Indemnification. Principal shall indemnify, keep indemnified, defend and hold
harmless the Bank and any of its directors, officers, employees or agents
against any cost, expense, damage, loss or liability whatsoever (including
without limitation attorneys' fees and expenses) which may be suffered or
incurred by any of them directly or indirectly as a result of, or in connection
with, or arising out of, this Addendum or any loan of securities or reverse
repurchase agreement transaction involving Principal's securities provided,
however, that Principal shall not indemnify the Bank for any cost, expense,
damage, loss or liability whatsoever which is attributable to the negligence or
intentional misconduct of the Bank or any of its directors, officers, employees
or agents. This provision shall survive any termination of this Addendum and
shall be binding on Principal's successors and assigns.
7. Tax Consequences. Bank makes no representations regarding tax treatment by
federal, state, or local authorities of the lending or placing in reverse
repurchase agreements of securities under this Addendum, the receipt of any
income or profit inuring to Principal as the result of receipt of any loan
premium, dividends, interest, distributions or other amounts on securities
loaned and/or the subject of reverse repurchase agreements hereunder, or the
investment by Bank of any Collateral received in connection with such loans or
cash received in connection with such reverse repurchase agreements (including
without limitation the characterization for tax purposes of any such amount as
taxable income.
8. Financial Condition. Upon reasonable request by Bank, and at least annually,
Principal shall provide Bank with its most recent available audited statement of
its financial condition, and its most recent unaudited statement of its
financial condition if more recent than the audited statement. Principal
represents and warrants that to the best of its knowledge and belief such
statement(s) fairly represent its financial condition and net capital as of the
dates of such statements and have been prepared in accordance with generally
accepted accounting principles of the jurisdiction in which Principal is
organized or located, as the case may be. Principal acknowledges and agrees that
Bank may provide Borrowers and Buyers with copies of such financial statements
and that Principal will cooperate with Bank in providing such other financial
information to Borrowers and Buyers as such Borrowers and Buyers may reasonably
request.
-9-
<PAGE> 10
9. Other Borrower Relationships. Principal acknowledges and agrees that Bank
may, through its commercial, trust or other departments, be a creditor for its
own account or represent in a fiduciary capacity other Borrowers/Buyers (or its
or their affiliates, creditors or customers) to which securities are loaned or
sold under this Addendum, even though any of such relationships may potentially
be in conflict with those of Principal.
10. Termination. This Addendum may be terminated at any time by either party
upon fifteen (15) days' written notice to the other. In the event of
termination, Bank shall deliver to Principal all funds, securities, and other
property held by it under this Addendum for the account of Principal or to such
other person or persons as Principal shall designate in writing on Exhibit F or
shall continue to hold such property pursuant to the Custodian Agreement;
provided however, that this Addendum shall remain in effect with respect to all
securities loan transactions or reverse repurchase agreement transactions
outstanding on the effective date of termination, until consummation or
completion thereof.
11. Amendments. This Addendum may be amended only in writing executed by both
parties. Amendments to any Exhibit or Attachment hereto shall be effective only
if executed by all the parties required to execute the initial
Attachment/Exhibit, and then, only after received by Bank and Principal by the
party to whom notices are to be sent hereunder.
12. Notices. All notices hereunder shall be given and deemed received as set
forth in the Custodian Agreement.
13. Governing Law. The validity, construction, and administration of this
Addendum shall be governed by the laws of the State of California from time to
time in force and effect.
Dated:______________________________
The HighMark Funds ("PRINCIPAL")
By:_________________________________
By:_________________________________
Dated:______________________________
Union Bank of California, National Association ("BANK")
-10-
<PAGE> 11
By:_________________________________
By:_________________________________
-11-
<PAGE> 12
EXHIBIT A
BORROWERS/BUYERS
FOR
SECURITIES LENDING/REVERSE REPURCHASE AGREEMENT TRANSACTIONS
Dated:______________________________
The HighMark Funds ("PRINCIPAL")
By:_________________________________
By:_________________________________
-12-
<PAGE> 13
Dated:______________________________
Union Bank of California, National Association ("BANK")
By:_________________________________
By:_________________________________
-13-
<PAGE> 14
EXHIBIT B
SECURITIES LENDING AGREEMENT
Dated:______________________________
The HighMark Funds ("PRINCIPAL")
By:_________________________________
By:_________________________________
-14-
<PAGE> 15
Dated:______________________________
Union Bank of California, National Association ("BANK")
By:_________________________________
By:_________________________________
-15-
<PAGE> 16
EXHIBIT C
PUBLIC SECURITIES ASSOCIATION PROTOTYPE
MASTER REPURCHASE AGREEMENT
Dated:______________________________
The HighMark Funds ("PRINCIPAL")
By:_________________________________
By:_________________________________
-16-
<PAGE> 17
Dated:______________________________
Union Bank of California, National Association ("BANK")
By:_________________________________
By:_________________________________
-17-
<PAGE> 18
EXHIBIT D
AUTHORIZED INVESTMENTS
Dated:______________________________
The HighMark Funds ("PRINCIPAL")
By:_________________________________
By:_________________________________
-18-
<PAGE> 19
Dated:______________________________
Union Bank of California, National Association ("BANK")
By:_________________________________
By:_________________________________
-19-
<PAGE> 20
EXHIBIT E
SCHEDULE OF FEES AND CHARGES
Dated:______________________________
The HighMark Funds ("PRINCIPAL")
By:_________________________________
By:_________________________________
-20-
<PAGE> 21
Dated:______________________________
Union Bank of California, National Association ("BANK")
By:_________________________________
By:_________________________________
-21-
<PAGE> 22
EXHIBIT F
PRINCIPAL'S DESIGNATED AGENT
FOR RECEIPT OF FUNDS, SECURITIES AND OTHER
PROPERTY IN THE EVENT OF TERMINATION OF THIS ADDENDUM
Dated:______________________________
The HighMark Funds ("PRINCIPAL")
By:_________________________________
By:_________________________________
-22-
<PAGE> 23
Dated:______________________________
Union Bank of California, National Association ("BANK")
By:_________________________________
By:_________________________________
-23-
<PAGE> 1
Exhibit 9(f)
FORM OF
SHAREHOLDER SERVICE PLAN
HIGHMARK FUNDS
CLASS B
HighMark Funds (the "Fund") is an open-end investment company registered
under the Investment Company Act of 1940, as amended, and currently consisting
of a number of separately managed portfolios (the "Portfolios"). The Fund
desires to retain financial institutions and intermediaries to provide some or
all of the services described herein to clients (the "Clients") who from time to
time beneficially own Class B shares ("Shares") of any Portfolio of the Fund.
The Fund is willing to itself provide or to compensate service providers for
providing, such shareholder services in accordance with the terms and conditions
of this Agreement.
SECTION 1. The Fund will provide, or will enter into written agreements in the
form attached hereto with service providers pursuant to which the service
providers will provide, one or more of the following shareholder services to
Clients who may from time to time beneficially own Shares:
(i) maintaining accounts relating to Clients that invest in Shares;
(ii) providing information periodically to Clients showing their
positions in Shares;
(iii) arranging for bank wires;
(iv) responding to Client inquiries relating to the services
performed by the Distributor or any service provider;
(v) responding to inquiries from Clients concerning their
investments in Shares;
(vi) forwarding shareholder communications from the Fund (such as
proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to Clients;
(vii) processing purchase, exchange and redemption requests from
Clients and placing such orders with the Fund or its service
providers;
(viii) assisting Clients in changing dividend options, account
designations, and addresses;
(ix) providing subaccounting with respect to Shares beneficially
owned by Clients;
<PAGE> 2
(x) processing dividend payments from the Fund on behalf of Clients;
and
(xi) providing such other similar services as the Fund may
reasonably request to the extent that the Distributor and/or the
service provider is permitted to do so under applicable laws or
regulations.
SECTION 2. In consideration of the services and facilities to be provided by any
service provider, each Portfolio will pay to the service provider, and the
service provider will accept as full payment therefor, a fee, as agreed from
time to time, at an annual rate of up to .25% (twenty-five basis points) of the
average net asset value of a class of each Portfolio, which fee will be computed
daily and paid monthly. The Fund may, in its discretion and without notice,
suspend or withdraw the sale of Shares of any Portfolio, including the sale of
Shares to any service provider for the account of any Client or Clients.
SECTION 3. This Plan is terminable with respect to the Shares of any Portfolio,
without penalty, at any time by the Trustees of the Fund.
SECTION 4. This Agreement will be construed in accordance with the laws of the
Commonwealth of Massachusetts.
SECTION 5. References to the "Fund," and the "Trustees" of the Fund refer
respectively to the Trust created and the Trustees as trustees, but not
individually or personally, acting from time to time under the Declaration of
Trust of the Fund dated March 10, 1987, a copy of which is on file with the
Secretary of the Commonwealth of Massachusetts and at the Fund's principal
office. The obligations of the Fund entered into in the name or on behalf
thereof by any of the Trustees, officers, representatives, or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders, officers, representatives, or agents of the Fund
personally. Further, any obligations of the Fund with respect to any one
Portfolio shall not be binding upon any other Portfolio.
<PAGE> 1
EXHIBIT 10
Opinion and Consent of Counsel
as to legality of shares being registered
<PAGE> 2
[ROPES & GRAY LETTERHEAD]
WRITER'S DIRECT DIAL NUMBER: (202) 626-3923
June 13, 1997
HighMark Funds
Oaks, Pennsylvania 19456
Ladies and Gentlemen:
You have registered under the Securities Act of 1933, as amended (the
"1933 Act") an indefinite number of shares of beneficial interest ("Shares") of
the HighMark Funds ("Trust"), as permitted by Rule 24f-2 under the Investment
Company Act of 1940, as amended (the "1940 Act"). You propose to file a
post-effective amendment on Form N-1A (the "Post-Effective Amendment") to your
Registration Statement as required by Section 10(a)(3) in order to register
under the 1933 Act Retail and Fiduciary Shares of each Fund of the Trust (the
"Series").
We have examined your Agreement and Declaration of Trust on file in the
office of the Secretary of The Commonwealth of Massachusetts and the Clerk of
the City of Boston. We have also examined a copy of your Bylaws and such other
documents, receipts and records as we have deemed necessary for the purpose of
this opinion.
Based upon the foregoing, we are of the opinion that the issue and sale
of the authorized but unissued Retail and Fiduciary Shares of the Series have
been duly authorized under Massachusetts law. Upon the original issue and sale
of your authorized but unissued Retail and Fiduciary Shares and upon receipt of
the authorized consideration therefor in an amount not less than the net asset
value of the Retail and Fiduciary Shares established and in force at the time of
their sale, the Retail and Fiduciary Shares issued will be validly issued, fully
paid and non-assessable.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust provides for indemnification out
of the property of a particular series of Shares for all loss and expenses of
any shareholder of that series held personally liable solely by reason of his
being or having been a shareholder. Thus, the risk of shareholder liability is
limited to circumstances in which that series of Shares itself would be unable
to meet its obligations.
<PAGE> 3
HighMark Funds
June 13, 1997
Page 2
We understand that this opinion is to be used in connection with the
filing of the Post-Effective Amendment. We consent to the filing of this opinion
with and as part of your Post-Effective Amendment.
Sincerely,
/s/ Ropes & Gray
Ropes & Gray
<PAGE> 1
EXHIBIT 11(a)
Consent of Deloitte & Touche LLP
<PAGE> 2
EXHIBIT 11(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 22 to Registration
Statement under the Securities Act of 1933, filed under Registration Statement
No. 033-12608 of our report dated September 13, 1996, relating to The HighMark
Group, 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, incorporated by reference in
such Registration Statement and to the reference to us under the headings
"Financial Highlights" and "Auditors" in such Registration Statement.
DELOITTE & TOUCHE LLP
Dayton, Ohio
June 16, 1997
<PAGE> 1
EXHIBIT 11(b)
Consent of Coopers & Lybrand L.L.P.
<PAGE> 2
EXHIBIT 11(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our Firm under the caption "Financial
Highlights" in the Prospectuses for Retail Shares of the Money Market Funds
(the U.S. Government Obligations Money Market Fund and 100% U.S. Treasury
Obligations Money Market Fund) and the Equity Funds (Income Equity Fund and
Growth Fund) included in this Post-Effective Amendment No. 22 to the
Registration Statement on Form N-1A of The Highmark Group (File No. 33-12608).
/s/ COOPERS & LYBRAND L.L.P.
____________________________
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
June 17, 1997
<PAGE> 1
EXHIBIT 11(c)
Consent of Arthur Andersen LLP
<PAGE> 2
EXHIBIT 11(c)
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated March 15, 1997, on the January 31, 1997 financial
statements of the Stepstone Funds, incorporated by reference in the
Post-Effective Amendment No. 22 to the Registration Statement on Form N-1A of
the Highmark Funds (File Nos. 33-12608 and 811-5059), and to all references to
our firm included in or made part of Post-Effective Amendment No. 22 to the
Registration Statement File No. 33-12608 and 811-5059.
/s/ ARTHUR ANDERSEN LLP
Philadelphia
June 16, 1997
<PAGE> 1
EXHIBIT 11(d)
Consent of Ropes & Gray
<PAGE> 2
CONSENT OF COUNSEL
We hereby consent to the use of our name and the references to our firm
under the caption "Legal Counsel" included in or made a part of Post-Effective
Amendment No. 22 to the Registration Statement (Nos. 33-12608 and 811-5059) of
HighMark Funds on Form N-1A under the Securities Act of 1933, as amended.
Ropes & Gray
Washington, D.C.
June 17, 1997
<PAGE> 1
EXHIBIT 15(e)
Amended and Restated Schedule A to the Class A
Distribution and Shareholder Services Plan
<PAGE> 2
SCHEDULE A TO THE DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
BETWEEN HIGHMARK FUNDS
AND SEI FINANCIAL SERVICES COMPANY
DATED AS MARCH 28, 1997
NAME OF FUND
Income Equity Fund
Value Momentum Fund
Emerging Growth Fund
Intermediate-Term Bond Fund
Government Securities Fund
Convertible Securities Fund
Blue Chip Growth Fund
International Equity Fund
Bond Fund
Balanced Fund
Growth Fund
California Intermediate Tax-Free Bond Fund
HIGHMARK FUNDS
By: /s/ Kevin Robins
________________________________
Title: Vice President
_____________________________
SEI FINANCIAL SERVICES COMPANY
By: /s/ Marc Cahn
________________________________
Title: Vice President
_____________________________
<PAGE> 1
EXHIBIT 15(f)
CLASS B DISTRIBUTION PLAN
[CONTINGENT DEFERRED SALES CHARGE CLASS]
HIGHMARK FUNDS
WHEREAS, HIGHMARK FUNDS (the "Trust") is engaged in business as an
open-end investment company registered under the Investment Company Act of 1940,
as amended ("1940 Act"); and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that the following Distribution Plan will benefit the
Trust and the owners of Class B shares of beneficial interest ("Shareholders")
in the Trust;
NOW, THEREFORE, the Trustees of the Trust hereby adopt this Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act.
SECTION 1. The Trust has adopted this Class B Distribution Plan ("Plan")
to enable the Trust to directly or indirectly bear expenses relating to the
distribution and sale of Class B shares (collectively, "Shares") of the
portfolios of the Trust, as now in existence or hereinafter created from time to
time (each a "Portfolio").
SECTION 2. The Shares of each Portfolio are authorized to pay the
principal underwriter of the Shares (the "Distributor") a total fee in
connection with distribution-related services provided in respect of such class,
calculated and payable monthly, at the annual rate of .75% of the value of the
average daily net assets of such class.
SECTION 3.
(a) The fee paid pursuant to Section 2 may be used by the Distributor
to provide initial and ongoing sales compensation to its
investment executives and to other broker-dealers in respect of
sales of Shares of the applicable Portfolios and to pay for other
advertising and promotional expenses in connection with the
distribution of the Shares. These advertising and promotional
expenses include, by way of example but not by way of limitation,
costs of printing and mailing prospectuses, statements of
additional information and shareholder reports to prospective
investors; preparation and distribution of sales literature;
advertising of any type; an allocation of overhead and other
expenses of the Distributor related to the distribution of the
Shares; and payments to, and expenses of, officers, employees
or representatives of the Distributor, of other broker-dealers,
banks or other financial institutions, and of any other persons
who provide support services in connection with the distribution
of the Shares, including travel, entertainment, and telephone
expenses.
(b) Payments under the Plan are not tied exclusively to the expenses
for distribution related activities actually incurred by the
Distributor, so that such payments may exceed expenses actually
incurred by the Distributor. The Trust's Board of Trustees will
evaluate the appropriateness of the Plan and its payment terms on
a continuing basis and in doing so will consider all relevant
factors, including
1
<PAGE> 2
expenses borne by the Distributor and amounts it receives under the
Plan.
(c) The Trust's investment adviser and the Distributor may, at their
option and in their sole discretion, make payments from their own
resources to cover costs of additional distribution.
SECTION 4. This Plan shall not take effect with respect to a Portfolio
until it has been approved (a) by a vote of at least a majority of the
outstanding voting securities of the Class B shares of such Portfolio; and (b)
together with any related agreements, by votes of the majority of both (i) the
Trustees of the Trust and (ii) the Qualified Trustees, cast in person at a Board
of Trustees meeting called for the purpose of voting on this Plan or such
agreement.
SECTION 5. This Plan shall continue in effect for a period of more than
one year after it takes effect only for so long as such continuance is
specifically approved at least annually in the manner provided in Part (b) of
Section 4 herein for the approval of this Plan.
SECTION 6. Any person authorized to direct the disposition of monies paid
or payable by the Trust pursuant to this Plan or any related agreement shall
provide to the Trustees of the Trust, at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures were made.
SECTION 7. This Plan may be terminated at any time with respect to any
Portfolio by the vote of a majority of the Qualified Trustees or by vote of a
majority of the Portfolio's outstanding Class B shares.
SECTION 8. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide (a) that such agreement may be terminated at any time with respect to
any Portfolio, without payment of any penalty, by the vote of a majority of the
Qualified Trustees or by the vote of shareholders holding a majority of the
Portfolio's outstanding Class B shares, on not more than 60 days written notice
to any other party to the agreement; and (b) that such agreement shall terminate
automatically in the event of its assignment.
SECTION 9. This Plan may not be amended to increase materially the amount
of distribution expenses permitted pursuant to Section 2 hereof without the
approval of shareholders holding a majority of the outstanding Class B shares of
the applicable Portfolio, and all material amendments to this Plan shall be
approved in the manner provided in Part (b) of Section 4 herein for the approval
of this Plan.
SECTION 10. As used in this Plan, (a) the term "Qualified Trustees" shall
mean those Trustees of the Trust who are not interested persons of the Trust,
and have no direct or indirect financial interest in the operation of this Plan
or any agreements related to it, and (b) the terms "assignment" and "interested
person" shall have the respective meanings specified in the 1940 Act and the
rules and regulations thereunder, subject to such exemptions as may be granted
by the Securities and Exchange Commission.
SECTION 11. While this Plan is in effect, the selection and nomination of
those Trustees who are not interested persons of the Trust within the meaning of
Section 2(a) (19) of the 1940 Act shall be committed to the discretion of the
Trustees then in office who are not interested persons of the Trust.
2
<PAGE> 3
SECTION 12. This Plan shall not obligate the Trust or any other party to
enter into an agreement with any particular person.
3
<PAGE> 1
EXHIBIT 18
HIGHMARK FUNDS
AMENDED MULTIPLE CLASS PLAN
This constitutes a MULTIPLE CLASS PLAN (the "Plan") of HighMark Funds,
a Massachusetts business trust (the "Trust"), adopted pursuant to Rule 18f-3(d)
under the Investment Company Act of 1940, as amended (the "1940 Act"). The Plan
is applicable to the Trust's investment portfolio(s) identified on Schedule A
hereto, as such Schedule may be amended from time to time (each a "Fund",
collectively the "Funds").
WHEREAS, it is desirable to enable the Trust to have flexibility in
meeting the investment and shareholder servicing needs of its current and future
investors; and
WHEREAS, the Board of Trustees of the Trust (the "Board of Trustees"),
including a majority of the Trustees who are not "interested persons" of the
Trust, as such term is defined by the 1940 Act, mindful of the requirements
imposed by Rule 18f-3(d) under the 1940 Act, has determined to adopt this Plan
to enable the Fund to provide appropriate services to certain designated classes
of shareholders of the Fund;
NOW, THEREFORE, the Trust designates the Plan as follows:
1. Designation of Classes. The Fund shall offer its units of beneficial
interest ("Shares") in three classes: Retail Class A Shares, Retail Class B
Shares (collectively "Retail Shares") and Fiduciary Shares.
2. Purchases. Retail Shares are distributed to the general public
pursuant to procedures outlined in the Trust's Registration Statement. Fiduciary
Shares may only be purchased by certain investors listed in the Registration
Statement. Procedures for purchasing Fiduciary Shares are outlined in the
Registration Statement.
3. Shareholder Services. Retail and Fiduciary Shares may be purchased
by check or money order, by Federal Funds wire, by telephone or through the
Automatic Investment Plan, pursuant to procedures outlined in the Trust's
Registration Statement. Holders of Retail and Fiduciary Shares may also make
regular exchanges and redemptions of their Shares as described in the
Registration Statement.
4. Sales Charges.
Fiduciary Shares.
Fiduciary Shares are not subject to a sales charge at the time of
purchase or upon redemption.
<PAGE> 2
Retail Shares.
Retail Class A Shares, except Retail Class A Shares of any money
market funds, are subject to a sales charge at the time of purchase. The sales
charge is based on a percentage of the offering price and may vary based on the
amount of purchase. Retail Class B Shares are subject to a contingent deferred
sales charge if they are redeemed within six years after purchase. Sales charges
applicable to Retail Class A Shares and Retail Class B Shares may be waived in
accordance with the current Registration Statement.
5. Distribution and Shareholder Services Fee.
Fiduciary Shares.
Fiduciary Shares are subject to a shareholder service fee assessed
in accordance with the shareholder service plan adopted by the Trust.
Retail Shares.
Retail Shares are subject to a shareholder service fee assessed in
accordance with the shareholder service plan adopted by the Trust and Retail
Class A Shares and Retail Class B Shares are each subject to a distribution fee
in accordance with the respective distribution plans adopted by the Trust for
Retail Class A Shares and for Retail Class B Shares.
6. Minimum Transaction Requirements. The minimum initial investment
and subsequent investment requirements applicable to Retail Shares and Fiduciary
Shares shall be the same, as outlined in the Trust's Registration Statement.
7. Exchange Privilege. Retail Shares and Fiduciary Shares shall be
exchangeable for Shares of the class of the various other Funds of the Trust
which the Shareholder qualifies to purchase directly, provided that the minimum
investment and any other requirements of the Fund for which the shares are
exchanged are satisfied.
8. Expense Allocation. Each class shall pay the expenses associated
with its different distribution and shareholder services arrangement. Each class
may, at the Board's discretion, also pay a different share of other expenses,
not including advisory or custodial fees or other expenses related to the
management of the Trust's assets, if these expenses are actually incurred in a
different amount by that class, or if the class receives services of a different
kind or to a different degree than other classes. All other expenses will be
allocated to each class on the basis of the relative net asset value of that
class in relation to the net asset value of the Fund.
9. Voting Rights. Each Share held entitles the Shareholder of record
to one vote. Each Fund will vote separately on matters relating solely to that
Fund. Each class of a Fund shall have
<PAGE> 3
exclusive voting rights on any matter submitted to Shareholders that relates
solely to that class, and shall have separate voting rights on any matter
submitted to Shareholders in which the interests of one class differ from the
interests of any other class. However, all Fund Shareholders will have equal
voting rights on matters that affect all Fund Shareholders equally.
10. Dividends. The amount of dividends payable on Fiduciary Shares
may be more than the dividends payable on Retail Class A Shares because of the
distribution and shareholder services fee charged to Retail Class A Shares
pursuant to the Plan. Dividends on Retail Class B Shares will be lower than the
dividends paid on Retail Class A Shares due to higher distribution fees.
Dividends will be declared and paid monthly.
11. Termination and Amendment. This Plan may be terminated or
amended pursuant to the requirements of Rule 18f-3(d) under the 1940 Act.
The names "HighMark Funds" and "Board of Trustees" refer respectively
to the Trust created and the Trustees, as Trustees but not individually or
personally, acting from time to time under a Declaration of Trust dated March
10, 1987, as amended July 30, 1987, to which reference is hereby made and a copy
of which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of the HighMark Funds
entered into in the name or on behalf thereof by any of the Trust,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, Shareholders or representatives of the
Trust personally, but bind only the assets of the Trust, and all persons dealing
with any series and/or class of Shares of the Trust must look solely to the
assets of the Trust belonging to such series and/or class for the enforcement of
any claims against the Trust.
HIGHMARK FUNDS
Signature:____________________________
Name:_________________________________
Title:________________________________
Date: March 20, 1996
As amended: June 18,1997
-3-
<PAGE> 4
SCHEDULE A
MULTIPLE CLASS PLAN OF
HIGHMARK FUNDS
Name of Fund
HighMark Growth Fund (Fiduciary and Retail Class A and Class B Shares)
HighMark Income Equity Fund (Fiduciary and Retail Class A and Class B Shares)
HighMark Balanced Fund (Fiduciary and Retail Class A and Class B Shares)
HighMark Bond Fund (Fiduciary and Retail Class A Shares)
HighMark Diversified Money Market Fund (Fiduciary and Retail Class A Shares)
HighMark U.S. Government Money Market Fund (Fiduciary and Retail Class A and
Class B Shares)
HighMark 100% U.S. Treasury Money Market Fund (Fiduciary and Retail Class A
Shares)
HighMark California Tax-Free Money Market Fund (Fiduciary and Retail Shares)
HighMark California Intermediate Tax-Free Bond Fund (Fiduciary and Retail Class
A Shares)
HighMark Intermediate - Term Bond Fund (Fiduciary and Retail Class A Shares)
HighMark Government Securities Fund (Fiduciary Shares)
HighMark Convertible Securities Fund (Fiduciary Shares)
HighMark Value Momentum Fund (Fiduciary and Retail Class A and Class B Shares)
HighMark Blue Chip Growth Fund (Fiduciary and Retail Class A Shares)
HighMark Emerging Growth Fund (Fiduciary and Retail Class A Shares)
HighMark International Equity Fund (Fiduciary Class A Shares)
HIGHMARK FUNDS
Signature:______________________________
Name: ______________________________
Title: ______________________________
Date: March 20, 1996
As amended: June 18,1997
-4-
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> STEPSTONE
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> STEPSTONE
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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