<PAGE> 1
HIGHMARK
FUNDS
. Small Cap Value Fund
PROSPECTUS
Retail Shares
September 14, 1998
<PAGE> 2
HIGHMARK FUNDS
SMALL CAP VALUE 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 the Small Cap Value Fund (the "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
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 Investments Distribution Co., 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 Fund. Interested persons who wish to obtain a
prospectus for other Funds and classes 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.
September 14, 1998
Retail Shares
<PAGE> 3
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 Small Cap
Value Fund (the "Fund"). This summary is qualified in its entirety by reference
to the more detailed information provided elsewhere in the Prospectus and in the
Statement of Additional Information.
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES? THE SMALL CAP VALUE FUND seeks to
provide long-term capital appreciation. (See "INVESTMENT OBJECTIVES.")
WHAT ARE THE FUND'S PERMITTED INVESTMENTS? The Fund primarily invests,
consistent with its investment objective, in equity securities, including common
and preferred stocks, convertible securities and rights and to purchase common
stocks, of domestic and foreign "Small Companies." Small Companies are generally
defined as issuers having market capitalization within the range of market
capitalization of issuers comprising the relevant market small capitalization
index. Currently the relevant market indexes used are the S&P 600 (domestically)
and the Financial Times/S&P Actuaries World Indices World Ex. U.S. Medium/Small
Cap (internationally). These indexes may be changed without prior notice to
shareholders. (See "INVESTMENT POLICIES.")
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUND? The investment
policies of the Fund entail certain risks and considerations of which an
investor should be aware. Common stocks and other equity securities of Small
Companies that the Fund invests in are more volatile and may fluctuate in value
more than investments in companies with larger market capitalizations. In
addition, the securities of foreign issuers, including emerging market issuers,
in which the Fund may invest may be less liquid, and subject to more abrupt or
erratic market movements, than securities of larger, more established growth
companies in the U.S. (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? HighMark Capital Management, Inc. serves as the Advisor to
HighMark. (See "The Advisor.")
WHO IS THE SUB-ADVISOR? Brandes Investment Partners, L.P. ("Brandes") serves
as the Sub-Advisor to the Fund responsible for managing the foreign securities
portion of the Fund's assets. (See "The Sub-Advisor.")
WHO IS THE ADMINISTRATOR? SEI Investments 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.")
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WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. 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 the New York Stock Exchange is 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 any applicable sales
charge). 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 Class 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 periodic
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.")
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary..................................................... 2
Fee Table................................................... 5
Fund Description............................................ 6
Investment Objective........................................ 6
Investment Policies......................................... 6
General..................................................... 7
Money Market Instruments.................................. 7
Illiquid and Restricted Securities........................ 7
Lending of Portfolio Securities........................... 8
Other Investments......................................... 8
Risk Factors.............................................. 9
Portfolio Turnover.......................................... 11
How to Purchase Shares...................................... 11
How to Purchase By Mail................................... 12
How to Purchase By Wire................................... 12
How to Purchase Through an Automatic Investment Plan
("AIP")................................................ 12
How to Purchase Through Financial Institutions............ 13
Alternative Sales Charge Options.......................... 13
Class A Shares: Front-End Sales Charges................... 14
Letter of Intent.......................................... 15
Rights of Accumulation.................................... 15
Sales Charge Waivers...................................... 15
Reductions for Qualified Groups........................... 16
Class B Shares............................................ 17
Contingent Deferred Sales Charge.......................... 17
Exchange Privileges......................................... 18
Redemption of Shares........................................ 19
By Mail................................................... 19
Telephone Transactions.................................... 19
Systematic Withdrawal Plan ("SWP")........................ 20
Other Information Regarding Redemptions................... 20
Dividends................................................... 21
Taxes....................................................... 21
Federal Taxation.......................................... 21
Service Arrangements........................................ 23
The Advisor............................................... 23
The Sub-Advisor........................................... 24
Administrator............................................. 24
The Transfer Agent........................................ 25
Shareholder Service Plan.................................. 25
Distributor............................................... 25
The Distribution Plans.................................... 25
Banking Laws.............................................. 26
Custodian................................................. 26
General Information......................................... 27
Description of HighMark & Its Shares...................... 27
Performance Information................................... 27
Miscellaneous............................................. 28
Description of Permitted Investments........................ 29
</TABLE>
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FEE TABLE
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
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<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)........................................... 4.50% 0%
Maximum Sales Load Imposed on Reinvested Dividends (as a
percentage of offering price)............................. 0% 0%
Deferred Sales Load (as a percentage of original purchase
price or redemption proceeds, as applicable)(b)........... 0% 5.00%
Redemption Fees (as a percentage of amount redeemed, if
applicable)(c)............................................ 0% 0%
Exchange Fee(a)............................................. $ 0 $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees........................................... 1.00% 1.00%
12b-1 Fees................................................ 0.25% 0.75%
Other Expenses (after voluntary reduction)(d)............. 0.58% 0.73%
---- ----
Total Fund Operating expenses(e).......................... 1.83% 2.48%
==== ====
</TABLE>
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Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS*
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<S> <C> <C>
Small Cap Value Fund
Class A Shares............................................ $63 $100
Class B Shares (assuming a complete redemption at end of
period)................................................ $75 $107
Class B Shares (assuming no redemption)................... $25 $ 77
</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 Fund 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 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.)
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(d) OTHER EXPENSES are based on estimated amounts for the current fiscal year.
Absent voluntary fee waivers, OTHER EXPENSES are estimated to be 0.73% for
the Class A Shares of the Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be 1.98%
for the Class A Shares of the Fund.
FUND DESCRIPTION
HighMark is an open-end, diversified, registered investment company that
currently offers units of beneficial interest ("Shares") in seventeen separate
investment portfolios ("Funds"). The Fund is advised by HighMark Capital
Management, Inc., a subsidiary of UnionBanCal Corporation (the "Advisor").
Shareholders may purchase Shares of the Fund 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 Investments Distribution Co., 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 OBJECTIVE
The investment objective of the Fund is as follows:
The SMALL CAP VALUE FUND seeks to provide long-term capital appreciation.
The investment objective and certain of the investment limitations of the Fund
may not be changed without a vote of the holders of a majority of the
outstanding Shares of the Fund (as defined under GENERAL
INFORMATION--Miscellaneous below). There can be no assurance that the Fund will
achieve its investment objective.
INVESTMENT POLICIES
Under normal market conditions, the Fund will invest at least 65% of its total
assets in domestic and foreign equity securities, including common stocks,
rights and warrants to purchase common stocks, American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs"), other depositary receipts,
preferred stocks and securities (including debt securities) convertible into or
exercisable for common stocks. The Fund's investments primarily consist of the
equity securities of companies with equity capitalizations within the range
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of market capitalization of issuers comprising the relevant market small
capitalization index, the S&P 600 (domestically) and the Financial Times/S&P
Actuaries World Indices World Ex. U.S. Medium/Small Cap (internationally).
The Advisor and Sub-Advisor will generally invest Fund assets in stocks with
favorable, long-term fundamental characteristics which the Advisor or
Sub-Advisor believes are undervalued in the marketplace. Frequently, these
stocks are out of favor in the financial community and in which investors see
little opportunity for rapid price appreciation. If there are not enough
securities which meet the Advisor's or the Sub-Advisor's value-oriented
investment criteria, the Fund may hold cash reserves temporarily. The Advisor or
the Sub-Advisor may also temporarily reduce equity holdings and hold cash
reserves for defensive purposes in response to adverse market conditions. While
the Fund is not subject to any specific geographic diversification requirements,
it currently intends to diversify its international investments among countries
to reduce currency risks. Under normal market conditions, the Advisor expects
that it will generally allocate approximately 25% of the Fund's total assets to
foreign securities. The Advisor will periodically reallocate the Fund's assets
in order to maintain such allocation. Such reallocation shall be performed in
the Advisor's discretion, but, in any event, such reallocation shall occur not
less frequently than monthly. Equity markets around the world can fluctuate
significantly, but tend not to move in lockstep. Declining prices in one region
may be offset by rising prices in another. Investments will be made primarily in
equity securities of companies domiciled in developed countries, but may be made
in developing countries as well. Typically the Fund will invest no more than 5%
of its total assets in any one security at the time of purchase.
GENERAL
Money Market Instruments
Under normal market conditions, the Fund may invest up to 35% of its total
assets in money market instruments. When market conditions indicate a temporary
"defensive" investment strategy as determined by the Advisor or the Sub-Advisor,
the Fund may invest more than 35% of its total assets in money market
instruments. The Fund will not be pursuing its investment objective to the
extent that a substantial portion of its assets are invested in money market
instruments.
Illiquid and Restricted Securities
The Fund shall limit investment in illiquid securities to 15% or less of its
net assets. Generally, an "illiquid security" is any security that cannot be
disposed of promptly and in the ordinary course of business at approximately the
amount at which the Fund has valued the instrument. The absence of a trading
market can make it difficult to ascertain the market value of illiquid
securities. The Fund may purchase restricted securities which have not been
registered under the Securities Act of 1933 (e.g., Rule 144A Securities and
Section 4(2) commercial paper) subject to policies approved by the Board of
Trustees. See INVESTMENT RESTRICTIONS in the Statement of Additional
Information.
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Lending of Portfolio Securities
In order to generate additional income, the Fund may lend its portfolio
securities to broker-dealers, banks or other institutions. The Fund may lend
portfolio securities in an amount representing up to 33 1/3% of the value of the
Fund's total assets.
Other Investments
The Fund may enter into repurchase agreements and reverse repurchase
agreements.
The Fund may enter into forward commitments or purchase securities on a
"when-issued" basis. The Fund expects that its commitments to enter into forward
commitments or purchase when-issued securities will not exceed 25% of the value
of its total assets under normal market conditions. The Fund does not intend to
purchase when-issued securities or forward commitments for speculative or
leveraging purposes but only for the purpose of acquiring portfolio securities.
The Fund may invest in other registered investment companies with similar
investment objectives. The 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 Securities and
Exchange Commission, 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 the Fund may cause Shareholders to bear duplicative fees. The
Advisor and Sub-Advisor will waive their fees attributable to the assets of the
investing Fund invested in a money market fund advised by the Advisor or
Sub-Advisor, and, to the extent required by applicable law, the Advisor and
Sub-Advisor will waive their fees attributable to the assets of the Fund
invested in any investment company. See "INVESTMENT RESTRICTIONS" in the
Statement of Additional Information.
The 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 and invest in
options, futures contracts and options on futures, unit investment trusts (for
example, SPDRs or Diamonds), and investment grade bonds. 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
enter into futures and options on futures only to the extent that obligations
under such contracts or transactions, together with options on securities,
represent not more than 25% of the Fund's assets. The 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 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."
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Risk Factors
To the extent the Fund invests in equity securities, the Fund's Shares will
fluctuate in value, and thus may be more suitable for long-term investors who
can bear the risk of short-term fluctuations.
Equity Securities include common stocks, preferred stocks, convertible
securities and warrants. Common stocks, which represent an ownership interest in
a company, are probably the most recognized type of equity security. Equity
securities have historically outperformed most other securities, although their
prices can be volatile in the short term. Market conditions, political, economic
and even company-specific news can cause significant changes in the price of a
stock. Smaller companies (as measured by market capitalization), sometimes
called small-cap companies or small-cap stocks, may be especially sensitive to
these factors.
The Fund may invest in securities issued or guaranteed by foreign corporations
or foreign governments, their political subdivisions, agencies or
instrumentalities and obligations of supranational entities such as the World
Bank and the Asian Development Bank, which securities prices in foreign markets
are generally subject to different economic, financial, political and social
factors than are the prices of securities in U.S. markets. 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, limitations on liquidity, 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. Moreover,
securities of foreign issuers generally will not be registered with the SEC, and
such issuers will generally not be subject to the SEC's reporting requirements.
Accordingly, there is likely to be less publicly available information
concerning certain of the foreign issuers of securities held by a Portfolio than
is available concerning U.S. companies. Foreign companies are also generally not
subject to uniform accounting, auditing or financial reporting standards, or to
practices and requirements comparable to those applicable to U.S. companies.
There may also be less government supervision and regulation of foreign
broker-dealers, financial institutions and listed companies than exist in the
U.S. The Fund will not hold foreign currency for investment or hedging purposes.
Investing in emerging market securities involves risks which are in addition
to the usual risks inherent in foreign investments. Some emerging markets
countries may have fixed or managed currencies that are not free-floating
against the U.S. dollar. Further, certain currencies may not be traded
internationally. Certain of these currencies have experienced a steady
devaluation relative to the U.S. dollar. Any devaluation in the currencies in
which the Fund's securities are denominated may have a detrimental impact on the
Fund.
Some countries with emerging securities markets have experienced substantial,
and in some periods extremely high, rates of inflation for many years. Inflation
and rapid fluctuation in inflation rates have had and may continue to have
negative effects on the economies and securities markets of certain countries.
Moreover, the economies of some countries may differ favorably or unfavorably
from the U.S. economy in such respects as rate of growth of gross domestic
product, the rate of inflation, capital reinvestment, resource self-sufficiency,
number and depth of industries forming the economy's base, governmental controls
and investment
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restrictions that are subject to political change and balance of payments
position. Further, there may be greater difficulties or restrictions with
respect to investments made in emerging markets countries.
Emerging markets typically have substantially less volume than U.S. markets.
In addition, securities in many of such markets are less liquid, and their
prices often are more volatile, than securities of comparable U.S. companies.
Such markets often have different clearance and settlement procedures for
securities transactions, and in some markets there have been times when
settlements have been unable to keep pace with the volume of transactions,
making it difficult to conduct transactions. Delays in settlement could result
in temporary periods when assets may be uninvested. Settlement problems in
emerging markets countries also could cause the Fund to miss attractive
investment opportunities. Satisfactory custodial services may not be available
in some emerging markets countries, which may result in the Fund's incurring
additional costs and delays in the transportation and custody of such
securities.
Currency risk is one of the factors considered by the Sub-Advisor in
determining the portion of the Fund's assets to be invested in the securities of
an issuer. However, the Sub-Advisor will not employ currency hedging in the
Fund. The Sub-Advisor believes that for the long-term investor, currency
fluctuations have not historically been a major risk component in a diversified
equity portfolio. It believes that in the long-run the costs of hedging have
outweighed the benefits. In addition, the Sub-Advisor believes that the currency
component of foreign stock returns is an important part of the diversifying
benefit of international investing. Foreign currencies can act as a diversifying
tool within a portfolio to the extent that one currency's depreciation is offset
by another's appreciation.
Convertible securities 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 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.
Given the uncertainty of the future value of companies in which the Fund
invests, the risk of possible decline in value of the Fund's net assets are
significant. Companies in which the 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 such companies may be less liquid, and subject to more abrupt
or erratic market movements than securities of larger, more established growth
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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.
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. Portfolio turnover is estimated not to
exceed 100%. See FEDERAL TAXATION.
HOW TO PURCHASE SHARES
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
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
Investments Distribution Co. 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 the 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 Fund may be made on days on which the New York
Stock Exchange is 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 any applicable sales charge). 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
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Fund's investments and other assets, less any liabilities, by the total number
of outstanding Shares of the Fund. Net asset value per Share is determined daily
as of 1:00 p.m., Pacific time (4:00 p.m. Eastern time), on any Business Day.
Purchases will be made in full and fractional Shares of HighMark calculated to
three decimal places. HighMark reserves the right to reject a purchase order
when the Distributor or the Advisor determines that it is not in the best
interest of HighMark and/or its Shareholders to accept such order.
The securities in 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 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 Fund by completing and signing an Account
Application form and mailing it, along with a check (or other negotiable bank
instrument or money order) payable to "HighMark Funds (Fund Name)," to the
transfer agent at P.O. Box 8416, Boston, Massachusetts 02266-8416. All purchases
made by check should be in U.S. dollars and made payable to "HighMark Funds
(Fund Name)." Third party checks, credit card checks or cash will not be
accepted. You may purchase more Shares at any time by mailing payment also to
the transfer agent at the above address. Orders placed by mail will be executed
on receipt of your payment. If your check does not clear, your purchase will be
canceled and you could be liable for any losses or fees incurred.
You may obtain Account Application Forms for the Fund by calling the
Distributor at 1-800-433-6884.
How to Purchase By Wire
You may purchase Shares of the 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 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. For present and retired
directors, officers, and employees (and their spouses and children under the age
of 21) of Union Bank
12
<PAGE> 14
of California, SEI Investments Distribution Co., and their affiliates the
minimum pre-authorized investment amount is $50 per month. The AIP is available
only for additional investments to an existing account.
How to Purchase through Financial Institutions
Shares of the Fund may be purchased through financial institutions, including
the Advisor, that provide distribution assistance or Shareholder services.
Shares purchased by persons ("Customers") through financial institutions may be
held of record by the financial institution. Financial institutions may impose
an earlier cut-off time for receipt of purchase orders directed through them to
allow for processing and transmittal of these orders to the transfer agent for
effectiveness the same day. Customers should contact their financial institution
for information as to that institution's procedures for transmitting purchase,
exchange or redemption orders to HighMark.
Customers who desire to transfer the registration of Shares beneficially owned
by them but held of record by a financial institution should contact the
institution to accomplish such change.
Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer account fees. Information concerning these
services and any charges will be provided to the Customer by the financial
institution.
Alternative Sales Charge Options
The Two Alternatives: Overview
You may purchase shares of the 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 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 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.
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<PAGE> 15
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: Front-End Sales Charges
<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 my
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 Fund.
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 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
14
<PAGE> 16
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 Fund sold
subject to a comparable sales charge.
To exercise your right of accumulation based upon Shares you already own, you
must ask the Distributor for this reduced sales charge at the time of your
additional purchase and provide the account number(s) of the investor, as
applicable, the investor and spouse, and their minor children. The Fund may
amend or terminate this right of accumulation at any time as to subsequent
purchases.
Sales Charge Waivers
The following categories of investors may purchase Class A Shares of the Fund
with no sales charge in the manner described below (which may be changed or
eliminated at any time by the Distributor):
(1) Existing holders of Class A Shares of the Fund upon the
reinvestment of dividend and capital gain distributions on those Shares;
(2) Investment companies advised by the Adviser or distributed by SEI
Investments Distribution Co. or its affiliates placing orders on each
entity's behalf;
(3) State and local governments;
(4) Individuals who have received distributions from employee benefit
trust accounts administered by Union Bank of California who are rolling
over such distributions into an individual retirement account for which the
Bank serves as trustee or custodian;
(5) Individuals who purchase 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;
15
<PAGE> 17
(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. 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, partners, officers, and employees
(and their spouses and children under the age of 21) of Union Bank of
California, N.A., SEI Investments Distribution Co., Brandes Investment
Partners, L.P. 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 the Fund at a reduced sales
charge, and the "related parties" of such company. For purposes of this
paragraph, a "related party" of a company is (i) any individual or other company
who directly or indirectly owns, controls or has the power to vote five percent
or more of the outstanding voting securities of such company; (ii) any other
company of which such company directly or indirectly owns, controls or has the
16
<PAGE> 18
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 CHARGE
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.
17
<PAGE> 19
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,
the Fund issues 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 the 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.
The 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 the 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 the 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 HighMark Fund for which no sales load was paid for Class A Shares of a
non-money market 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 HighMark 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 HighMark Fund may be
exchanged for Class A Shares of a 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 the 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 Fund.
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.
18
<PAGE> 20
A Shareholder wishing to exchange Shares in the 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 Fund 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
HighMark Funds 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 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 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 Fund by calling the transfer agent at
1-800-433-6884. Under most circumstances, payments will be transmitted on the
next Business Day following receipt of a valid request for redemption. You may
have the proceeds mailed to your address or wired to a commercial bank account
previously designated on your Account Application. There is no charge for having
redemption proceeds mailed to you, but there is a $15 charge for wiring
redemption proceeds.
You may request a wire redemption for redemptions of Shares of the 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.
19
<PAGE> 21
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 wish to consider placing your order by mail.
Systematic Withdrawal Plan ("SWP")
The 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 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 Fund reserves 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, 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
20
<PAGE> 22
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 Fund is declared and paid periodically 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 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.
TAXES
Federal Taxation
The 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.
For the Fund 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. With respect to the
Fund, 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. A corporate Shareholder will only be eligible to
claim a dividends received deduction with respect to a dividend from the Fund if
the corporate Shareholder held its Shares on the ex-
21
<PAGE> 23
dividend date and for at least 45 other days during the 90-day period
surrounding the ex-dividend date. Distributions by the Fund of net gains on
capital assets held for more than one year but not more than 18 months and of
net gains on capital assets held for more than 18 months are taxable to
Shareholders as such, 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 distributions on the Shares.
To the extent dividends paid to Shareholders are derived from taxable income
(for example, from interest on certificates of deposit or repurchase
agreements), or from long-term or short-term capital gains, such dividends will
be subject to federal income tax, whether such dividends are paid in the form of
cash or additional Shares. A Shareholder should consult his or her tax adviser
for special advice.
Under the Code, dividends attributable to interest on certain private activity
bonds issued after August 7, 1986 must be included in alternative minimum
taxable income for the purpose of determining liability (if any) for the federal
alternative minimum tax. In addition, exempt-interest dividends will be included
in a corporation's "adjusted current earnings" for purposes of the alternative
minimum tax (except to the extent derived from interest on certain private
activity bonds issued after August 7, 1986, which interest would already be
included in alternative minimum taxable income as a specific item of tax
preference).
Prior to purchasing Shares of the 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 foreign taxes.
Fund transactions in foreign currencies may give rise to ordinary income or
loss to the extent such income or loss results from fluctuations in value of the
foreign currency concerned. In addition, such activities will likely produce a
difference between book income and taxable income. This difference may cause a
portion of the Fund's income distributions to constitute a return of capital for
tax purposes or require the Fund to make distributions exceeding book income to
qualify as a regulated investment company for tax purposes.
Investment in an entity that qualifies as a "passive foreign investment
company" under the Code could subject the Fund to a U.S. federal income tax or
other charge on certain "excess distributions" received with respect to the
investment, and on the proceeds from disposition of the investment.
Additional information regarding federal taxes is contained in the Statement
of Additional Information. However, the foregoing and the material in the
Statement of Additional Information are only brief summaries of some of the
important tax considerations generally affecting each Fund and its Shareholders.
In addition,
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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
HighMark Capital Management, Inc. serves as the 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. The Advisor oversees the investment advisory services
provided to the Fund and manages the domestic portion of the Fund's assets.
For the expenses assumed and services provided by the Advisor as the Fund's
investment advisor, the Advisor receives a fee from the Fund, computed daily and
paid monthly, at the annual rate of 1.00% of the Fund's average daily net
assets. Depending on the size of the Fund, this fee may be higher than the
advisory fee paid by most mutual funds, although the Board of Trustees believes
it will be comparable to advisory fees paid by many funds having similar
objectives and policies.
The Advisor may from time to time agree to voluntarily reduce its advisory
fee, however, it is not currently doing so for the Fund. While there can be no
assurance that the Advisor will choose to make such an agreement, any voluntary
reductions in the Advisor'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.
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, 1998, UnionBanCal Corporation and its
subsidiaries had approximately $30.9 billion in consolidated assets. The
investment advisory division of Union Bank of California's Trust and Investment
Management Group, as of March 31, 1998, had approximately $16.2 billion of
assets under management. The Advisor, with a team of approximately 45 stock and
bond research analysts, portfolio managers and traders, has been providing
investment management services to individuals, institutions and large
corporations since 1917.
All investment decisions for the Fund are made by a team of investment
professionals, all of whom take an active part in the decision making process.
The team leaders for the Fund are as follows:
Richard Earnest. Mr. Earnest, Senior Vice President of the Advisor, will
serve as team co-leader of the Fund. He has been with Highmark Capital
Management, Inc. and its predecessors since 1964.
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Elizabeth Pearce. Ms. Pearce, Vice President of the Advisor, will serve as
team co-leader of the Fund. She has been with Highmark Capital Management, Inc.
and its predecessor since 1994. From 1988 to 1994 she was employed as the
Director of Research by Anderson Capital Management.
Subject to Board review, the Advisor allocates and, when appropriate,
reallocates the Fund's assets between itself and Brandes, monitors and evaluates
Brandes's performance, and oversees Brandes's compliance with the Fund's
investment objectives, policies and restrictions.
The Sub-Advisor
The Advisor and Brandes have entered into an investment sub-advisory agreement
relating to the Fund (the "Investment Sub-Advisory Agreement"). Under the
Investment Sub-Advisory Agreement, Brandes will make the day-to-day investment
decisions for the foreign securities of the Fund, subject to the supervision of,
and policies established by, the Advisor and the Trustees of HighMark.
Brandes is a California limited partnership organized in May 1996 as the
successor to its general partner, Brandes Investment Partners, Inc., which
(through various predecessor entities) has been providing investment advisory
services since 1974. Brandes serves as portfolio manager to mutual funds,
employee benefit funds and other institutional clients. As of March 31, 1998,
Brandes managed approximately $21 billion in assets.
Brandes is entitled to a fee, payable by the Advisor, calculated and paid
monthly at an annual rate of .50% of the average of the market value of the
assets of the Fund that are allocated to Brandes.
The Fund's assets invested in foreign securities and managed by Brandes are
team-managed by Brandes's Investment Committee, whose members are senior
portfolio management professionals of the firm.
Administrator
SEI Investments 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 Fund.
The Administrator may waive its fee or reimburse various expenses to the extent
necessary to limit the total operating expenses of the Fund's Retail Shares. Any
such waiver is voluntary and may be terminated at any time in the
Administrator's sole discretion. Currently, the Administrator is not waiving any
portion of its fee.
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. 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 Plan
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 Fund.
Distributor
SEI Investments Distribution Co. (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 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 is currently not waiving any portion
of its fee.
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 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
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<PAGE> 27
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 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 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
Fund's expenses, and thus increase the Fund's yield and total returns, during
the period such voluntary reductions are in effect.
Banking Laws
Highmark Capital Management, Inc. believes that it may perform the services
for the Fund contemplated by its investment advisory agreement with HighMark
without a violation of applicable banking laws and regulations. Union Bank of
California also believes that it may perform sub-administration and
sub-accounting services on behalf of the Fund, without a violation of applicable
banking laws and regulations. Future changes in federal or state statutes and
regulations relating to permissible activities of banks or bank holding
companies and their subsidiaries and affiliates, as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations, could change the manner in which Union Bank of California or the
Advisor could continue to perform such services for the Fund. For a further
discussion of applicable banking laws and regulations, see the Statement of
Additional Information.
Custodian
Union Bank of California also serves as the custodian and as a shareholder
servicing agent for the Fund. The Custodian holds cash securities and other
assets of HighMark as required by the 1940 Act.
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Services performed by Union Bank of California, as the 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 seventeen series of Shares open for investment representing
units of beneficial interest in HighMark's Growth Fund, Income Equity Fund,
Balanced Fund, Value Momentum Fund, Blue Chip Growth Fund, Emerging Growth Fund,
International Equity Fund, Bond Fund, Intermediate-Term Bond Fund, Government
Securities Fund, Convertible Securities Fund, California Intermediate Tax-Free
Bond Fund, Diversified Money Market Fund, U.S. Government Obligations Money
Market Fund, 100% U.S. Treasury Obligations Money Market Fund, California
Tax-Free Money Market Fund and Small Cap Value Fund. Shares of each Fund are
freely transferable, are entitled to distributions from the assets of the Fund
as declared by the Board of Trustees, and, if 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
Funds, interested persons may contact the Distributor for a prospectus at
1-800-433-6884.
Performance Information
From time to time, HighMark may advertise the aggregate total return, average
annual total return, yield and distribution rate with respect to the Class A and
Class B Shares of the 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 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
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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 the Fund is determined by annualizing the net investment income
per Share of the Fund during a specified thirty-day period and dividing that
amount by the per Share public offering price of the Fund on the last day of the
period.
The distribution rate of the Fund is determined by dividing the income and
capital gains distributions, or where indicated the income distributions alone,
on a Share of the Fund over a twelve-month period by the per Share public
offering price of the Fund on the last day of the period.
The Fund may periodically compare its performance to the performance of other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; broad groups of comparable
mutual funds; unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs; or
other investment alternatives.
All performance information presented for the Fund is based on past
performance and does not predict future performance.
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 the Fund as
determined on the record date for any action requiring a vote by the
Shareholders, and a proportionate fractional vote for each fractional Share
held. Shareholders of HighMark will vote in the aggregate and not by series or
class except (i) as otherwise expressly required by law or when HighMark's Board
of Trustees determines that the matter to be voted upon affects only the
interests of the Shareholders of a particular series or particular class, and
(ii) only Retail Shares will be entitled to vote on matters submitted to a
Shareholder vote relating to the Distribution Plan. HighMark is not required to
hold regular annual meetings of Shareholders, but may hold special meetings from
time to time.
HighMark's Trustees are elected by Shareholders, except that vacancies may be
filled by vote of the Board of Trustees. Trustees may be removed by the Board 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 Investments Distribution Co.,
Oaks, Pennsylvania 19456, or by calling toll free 1-800-433-6884.
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DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of permitted investments for the 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.
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.
COMMON STOCK--Units of ownership of a public corporation. Owners typically are
entitled to vote on the selection of directors and other important matters as
well as to receive dividends on their holdings. In the event that a corporation
is liquidated, the claims of secured and unsecured creditors and owners of bonds
and preferred stock take precedence over the claims of those who own common
stock. For the most part, common stock has more potential for appreciation.
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.
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FORWARD FOREIGN CURRENCY CONTRACTS--The Fund may conduct its foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market or through entering into forward
currency contracts to protect against uncertainty in the level of future
exchange rates between particular currencies or between foreign currencies in
which the Fund's securities are or may be denominated. A forward contract
involves an obligation to purchase or sell a specific currency amount at a
future date, which may be any fixed number of days from the date of the
contract, agreed upon by the parties, at a price set at the time of the
contract. Under normal circumstances, consideration of the prospect for changes
in currency exchange rates will be incorporated into the Fund's long-term
investment strategies. However, the Advisor and Sub-Advisor believe that it is
important to have the flexibility to enter into forward currency contracts when
it determines that the best interests of the Fund will be served.
When the Advisor and Sub-Advisor believe that the currency of a particular
country may suffer a significant decline against another currency, the Fund may
enter into a currency contract to sell, for the appropriate currency, the amount
of foreign currency approximating the value of some or all of the Fund's
securities denominated in such foreign currency.
At the maturity of a forward contract, the Fund may either sell a fund
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligations to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader,
obligating it to purchase on the same maturity date, the same amount of the
foreign currency. The Fund may realize a gain or loss from currency
transactions.
FUTURES AND OPTIONS ON FUTURES--Some futures strategies, including selling
futures, buying puts and writing calls, reduce a Fund's exposure to price
fluctuations. Other strategies, including buying futures, writing puts and
buying calls, tend to increase market exposure. Futures and options may be
combined with each other in order to adjust the risk and return characteristics
of the overall portfolio.
Options and futures can be volatile instruments, and involve certain risks
that, if applied at an inappropriate time, could negatively impact a Fund's
return.
LOAN PARTICIPATIONS--Loan participations are interests in loans to U.S.
corporations (i.e., borrowers) which are administered by the lending bank or
agent for a syndicate of lending banks, and sold by the lending bank or
syndicate member ("intermediary bank"). In a loan participation, the borrower of
the underlying loan will be deemed to be the issuer of the participation
interest (except to the extent a purchasing Fund derives its rights from the
intermediary bank). Because the intermediary bank does not guarantee a loan
participation in any way, a loan participation is subject to the credit risks
associated with the underlying corporate borrower. In addition, in the event the
underlying corporate borrower fails to pay principal and interest when due, a
Fund may encounter delays, expenses and risks that are greater than those that
would have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of such borrower because it may be necessary under the terms
of the loan participation, for the Fund to assert its rights against the
borrower through the intermediary bank. Moreover, under the terms of a loan
participation, the purchasing Fund may be regarded as a creditor of the
intermediary bank (rather than of the underlying corporate borrower), so that a
Fund may also be subject to the risk that the issuing bank may become insolvent.
Further, in the event of the bankruptcy or insolvency of the corporate borrower,
a loan participation
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may be subject to certain defenses that can be asserted by such borrower as a
result of improper conduct by the issuing bank. The secondary market, if any,
for these loan participations is limited, and any such participation purchased
by a Fund may be regarded as illiquid.
MONEY MARKET INSTRUMENTS--Short-term, debt instruments or deposits and may
include, for example, (i) commercial paper rated within the highest rating
category by a NRSRO at the time of investment, or, if not rated, determined by
the Advisor to be of comparable quality; (ii) obligations (certificates of
deposit, time deposits, bank master notes, and bankers' acceptances) of thrift
institutions, savings and loans, U.S. commercial banks (including foreign
branches of such banks), and U.S. and foreign branches of foreign banks,
provided that such institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown on their last
published financial statements at the time of investment; (iii) short-term
corporate obligations rated within the three highest rating categories by a
NRSRO (e.g., at least A by S&P or A by Moody's) at the time of investment, or,
if not rated, determined by the Advisor to be of comparable quality; (iv)
general obligations issued by the U.S. Government and backed by its full faith
and credit, and obligations issued or guaranteed as to principal and interest by
agencies or instrumentalities of the U.S. Government (e.g., obligations issued
by Farmers Home Administration, Government National Mortgage Association,
Federal Farm Credit Bank and Federal Housing Administration); (v) receipts,
including TRs, TIGRs and CATS; (vi) repurchase agreements involving such
obligations; (vii) loan participations issued by a bank in the United States
with assets exceeding $1 billion and for which the underlying loan is issued by
borrowers in whose obligations the Fund may invest; (viii) money market funds
and (ix) foreign commercial paper.
Certain of the obligations in which a Fund may invest may be variable or
floating rate instruments, may involve conditional or unconditional demand
features and may include variable amount master demand notes.
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
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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 which a Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by a Fund under the 1940
Act.
RULE 144A SECURITIES--Rule 144A Securities are securities that have not been
registered under the Securities Act of 1933, but which may be traded between
certain qualified institutional investors, including investment companies. The
absence of a secondary market may affect the value of the Rule 144A Securities.
The Board of Trustees of HighMark has established guidelines and procedures to
be utilized to determine the liquidity of such securities.
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SECURITIES ISSUED ON A FORWARD COMMITMENT BASIS OR WHEN-ISSUED
SECURITIES--Securities purchased for delivery beyond the normal settlement date
at a stated price and yield and which thereby involve a risk that the yield
obtained in the transaction will be less than that available in the market when
delivery takes place. When a Fund agrees to purchase when-issued securities or
enter into forward commitments, HighMark's custodian will be instructed to set
aside cash or liquid portfolio securities equal to the amount of the commitment
in a segregated account. A Fund will generally not pay for such securities and
no income will accrue on the securities until they are received. These
securities are recorded as an asset and are subject to changes in value based
upon changes in the general level of interest rates. Therefore, the purchase of
securities on a "when-issued" basis or forward commitments may increase the risk
of fluctuations in a Fund's net asset value.
SECURITIES LENDING--During the time portfolio securities are on loan from a
Fund, the borrower will pay the Fund any dividends or interest paid on the
securities. In addition, loans will be subject to termination by the Fund or the
borrower at any time and, while a Fund will generally not have the right to vote
securities on loan, it will terminate the loan and regain the right to vote if
that is considered important with respect to the investment. While the lending
of securities may subject a Fund to certain risks, such as delays or an
inability to regain the securities in the event the borrower were to default on
its lending agreement or enter into bankruptcy, a Fund will receive 100%
collateral in the form of cash or U.S. Government securities. This collateral
will be valued daily by the lending agent, with oversight by the Advisor, and,
should the market value of the loaned securities increase, the borrower will be
required to furnish additional collateral to the Fund.
SECURITIES SUBJECT TO A PUT FEATURE--A "put" feature permits a Fund to sell a
fixed income security at a fixed price prior to maturity. The underlying fixed
income securities subject to a put may be sold at any time at the market rates.
However, unless the put was an integral part of the fixed income security as
originally issued, it may not be marketable or assignable. Generally, a premium
is paid for a put feature or a put feature is purchased separately which results
in a lower yield than would otherwise be available for the same fixed income
securities.
STANDARD & POOR'S DEPOSITARY RECEIPTS (SPDRs)--SPDRs are interests in a unit
investment trust holding a portfolio of securities linked to the S&P 500 Index.
SPDRs closely track the underlying portfolio of securities, trade like a share
of common stock and pay periodic dividends proportionate to those paid by the
portfolio of stocks that constitutes the S&P 500 Index. For further information
regarding SPDRs, see the Statement of Additional Information.
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.
UNIT INVESTMENT TRUST--Investment vehicle, registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, that purchases a
fixed portfolio of income-producing securities, such as corporate, municipal, or
government bonds, mortgage-backed securities, or preferred stock. Units in the
trust, which usually cost at least $1,000, are sold to investors by brokers, for
a load charge of about
33
<PAGE> 35
4%. Unit holders receive an undivided interest in both the principal and the
income portion of the portfolio in proportion to the amount of capital they
invest. The portfolio of securities remains fixed until all the securities
mature and unit holders have recovered their principal. Most brokerage firms
maintain a Secondary Market in the trusts they sell, so that units can be resold
if necessary.
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.
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.
34
<PAGE> 36
For federal income tax purposes, the difference between the par value and the
original issue price (original issue discount) is included in the income of a
holder of a zero-coupon obligation over the term of the obligation even though
the interest is not paid until maturity. The amount included in income is
determined under a constant interest rate method. In addition, if an obligation
is purchased subsequent to its original issue, a holder such as the Fixed Income
Funds may elect to include market discount in income currently on a ratable
accrual method or a constant interest rate method. Market discount is the
difference between the obligation's "adjusted issue price" (the original issue
price plus original issue discount accrued to date) and the holder's purchase
price. If no such election is made, gain on the disposition of a market discount
obligation is treated as ordinary income (rather than capital gain) to the
extent it does not exceed the accrued market discount.
Zero-coupon obligations have greater price volatility than other fixed-income
obligations of similar maturity and such obligations will be purchased when the
yield spread, in light of the obligation's duration, is considered advantageous.
35
<PAGE> 37
HIGHMARK FUNDS PROSPECTUS
HIGHMARK SMALL CAP VALUE FUND
INVESTMENT PORTFOLIOS OF
HIGHMARK FUNDS
For further information (including current
yield, purchase and redemption information),
call 1-800-433-6884
or visit our Web site at www.highmark-funds.com
INVESTMENT ADVISOR
HighMark Capital Management, Inc.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
SUB-ADVISOR
Brandes Investment Partners, L.P.
12750 High Bluff Drive
San Diego, CA 92130
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
SEI Investments Fund Resources and
SEI Investments Distribution Co.
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
50 Fremont Street
San Francisco, CA 94105-2230
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
84849-B (9/98)
<PAGE> 38
[COMPANY LOGO] HIGHMARK(SM)
FUNDS
Thank you for
your investment.
No person has been authorized to give any information or to make
any representations not contained in this prospectus in connection
with the offering made by this prospectus and, if given or made, such
information or representations must not be relied upon as having been
authorized by HighMark or its distributor. This prospectus does not
constitute an offering by HighMark or by the Distributor in any
jurisdiction in which such offering may not lawfully be made.
NOT FDIC INSURED
<PAGE> 39
HIGHMARK FUNDS PROSPECTUS
INVESTMENT ADVISOR
HighMark Capital Management, Inc.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
SUB-ADVISOR
Brandes Investment Partners, L.P.
12750 High Bluff Drive
San Diego, CA 90730
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 Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
For further information call AUDITORS
1-800-433-6884 Deloitte & Touche LLP
or visit our web site at 50 Fremont Street
www.highmark-funds.com San Francisco, CA 94105-2230
[COMPANY LOGO] HIGHMARK(SM)
FUNDS
84849-B (9/98)
<PAGE> 40
HIGHMARK
FUNDS
- Small Cap Value Fund
PROSPECTUS
Fiduciary Shares
September 14, 1998
<PAGE> 41
HIGHMARK FUNDS
SMALL CAP VALUE 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
Fiduciary Shares of the Small Cap Value Fund (the "Fund").
FIDUCIARY SHARES
HighMark's Fiduciary Shares are offered to the following investors: (i)
fiduciary, advisory, agency, custodial and other similar accounts maintained
with Union Bank of California, N.A. or its affiliates; (ii) SelectIRA accounts
established with The Bank of California, N.A. and invested in any of HighMark's
Equity or Fixed Income Funds prior to June 20, 1994, which have remained
continuously open thereafter and which are not considered to be fiduciary
accounts; (iii) Shareholders who currently own Shares of HighMark's Equity or
Fixed Income Funds that were purchased prior to June 20, 1994 within an account
registered in their name with the Funds; (iv) present and retired directors,
officers and employees (and their spouses and children under the age of 21) of
Union Bank of California, N.A., HighMark's current or former distributors or
their respective affiliated companies who currently own Shares of HighMark Funds
which were purchased before April 30, 1997; and (v) Registered investment
advisors, regulated by a federal or state governmental authority, or financial
planners who are purchasing Fiduciary Shares for an account for which they are
authorized to make investment decisions (i.e., a discretionary account) and who
are compensated by their clients on the basis of an ad valorem fee.
This Prospectus sets forth concisely the information about HighMark and the
Fund that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated the same date as this Prospectus has been filed
with the Securities and Exchange Commission and is available without charge by
writing the Distributor, SEI Investments Distribution Co., Oaks, Pennsylvania
19456, or by calling 1-800-433-6884. The Statement of Additional Information is
incorporated into this Prospectus by reference. This Prospectus relates only to
the Fiduciary Shares of the Fund. Interested persons who wish to obtain a
prospectus for other Funds and classes 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
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.
September 14, 1998
Fiduciary Shares
<PAGE> 42
SUMMARY
HIGHMARK FUNDS ("HighMark") is an open-end, diversified, registered investment
company providing a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Fiduciary Shares of the Small Cap Value Fund (the "Fund"). This summary is
qualified in its entirety by reference to the more detailed information provided
elsewhere in the Prospectus and in the Statement of Additional Information.
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES? THE SMALL CAP VALUE FUND seeks to
provide long-term capital appreciation. (See "INVESTMENT OBJECTIVES.")
WHAT ARE THE FUND'S PERMITTED INVESTMENTS? The Fund primarily invests,
consistent with its investment objective, in equity securities, including common
and preferred stocks, convertible securities and rights and to purchase common
stocks, of domestic and foreign "Small Companies." Small Companies are generally
defined as issuers having market capitalization within the range of market
capitalization of issuers comprising the relevant market small capitalization
index. Currently the relevant market indexes used are the S&P 600 (domestically)
and the Financial Times/S&P Actuaries World Indices World Ex. U.S. Medium/Small
Cap (internationally). These indexes may be changed without prior notice to
shareholders. (See "INVESTMENT POLICIES.")
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUND? The investment
policies of the Fund entail certain risks and considerations of which an
investor should be aware. Common stocks and other equity securities of Small
Companies that the Fund invests in are more volatile and may fluctuate in value
more than investments in companies with larger market capitalizations. In
addition, the securities of foreign issuers, including emerging market issuers,
in which the Fund may invest may be less liquid, and subject to more abrupt or
erratic market movements, than securities of larger, more established growth
companies in the U.S. (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? HighMark Capital Management, Inc. serves as the Advisor to
HighMark. (See "The Advisor.")
WHO IS THE SUB-ADVISOR? Brandes Investment Partners, L.P. serves as the
Sub-Advisor to the Fund responsible for managing the foreign securities portion
of the Fund's assets. (See "The Sub-Advisor.")
WHO IS THE ADMINISTRATOR? SEI Investments 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.")
2
<PAGE> 43
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. 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 the New York Stock Exchange
("Exchange") is 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) and the Custodian receives Federal Funds before the close of
business on the next Business Day. Purchase orders for Shares will be executed
at a per Share price equal to the asset value next determined after the purchase
order is effective. Redemption orders must be placed prior to 1:00 p.m., Pacific
time (4:00 p.m., Eastern time) on any Business Day for the order to be effective
that day. (See "PURCHASE AND REDEMPTION OF SHARES.")
HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gains) of the Fund is distributed in the form of periodic
dividends to Shareholders of record. Any capital gain is distributed at least
annually. Distributions are paid in additional Shares unless the Shareholder
elects to take the payment in cash. (See "DIVIDENDS.")
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 2
Fee Table................................................... 5
Fund Description............................................ 6
Investment Objective........................................ 6
Investment Policies......................................... 6
General..................................................... 7
Money Market Instruments.................................. 7
Illiquid and Restricted Securities........................ 7
Lending of Portfolio Securities........................... 7
Other Investments......................................... 7
Risk Factors.............................................. 8
Portfolio Turnover.......................................... 10
Purchase and Redemption of Shares........................... 11
Exchange Privileges......................................... 12
Dividends................................................... 13
Taxes....................................................... 13
Federal Taxation.......................................... 13
Service Arrangements........................................ 15
The Advisor............................................... 15
The Sub-Advisor........................................... 16
Administrator............................................. 16
The Transfer Agent........................................ 17
Shareholder Service Plan.................................. 17
</TABLE>
3
<PAGE> 44
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Distributor............................................... 17
Banking Laws.............................................. 17
Custodian................................................. 18
General Information......................................... 18
Description of HighMark & Its Shares...................... 18
Performance Information................................... 18
Miscellaneous............................................. 19
Description of Permitted Investments........................ 19
</TABLE>
4
<PAGE> 45
FEE TABLE
FIDUCIARY SHARES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on Purchases (as a percentage
of offering price)..................................... 0%
Maximum Sales Load Imposed on Reinvested Dividends (as a
percentage of offering price).......................... 0%
Deferred Sales Load (as a percentage of original purchase
price or redemption proceeds, as applicable)........... 0%
Redemption Fees (as a percentage of amount redeemed, if
applicable)(b)......................................... 0%
Exchange Fee(a)........................................... $ 0
ANNUAL OPERATING EXPENSES (as a percentage of net assets)
Management Fees........................................... 1.00%
12b-1 Fees................................................ 0.00%
Other Expenses (after voluntary reduction)(c)............. 0.58%
-----
Total Fund Operating Expenses(d).......................... 1.58%
=====
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Small Cap Value Fund Fiduciary Shares....................... $16 $50
</TABLE>
The purpose of the tables above is to assist an investor in the 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 Fund on behalf of their customers may charge
customers fees for services provided in connection with the investment in,
redemption of, and exchange of Shares. (See PURCHASE AND REDEMPTION OF
SHARES, EXCHANGE PRIVILEGES and SERVICE ARRANGEMENTS below.)
(b) A wire redemption charge is deducted from the amount of a wire redemption
payment made at the request of a Shareholder. (See PURCHASE AND REDEMPTION
OF SHARES below.)
(c) OTHER EXPENSES are based on estimated amounts for the current fiscal year.
Absent voluntary fee waivers, OTHER EXPENSES are estimated to be 0.73% for
the Fiduciary Shares of the Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be 1.73%
for the Fiduciary Shares of the Fund.
5
<PAGE> 46
FUND DESCRIPTION
HighMark is an open-end, diversified, registered investment company that
currently offers units of beneficial interest ("Shares") in seventeen separate
investment portfolios ("Funds"). The Fund is advised by HighMark Capital
Management, Inc., a subsidiary of UnionBanCal Corporation (the "Advisor").
Shareholders may purchase Shares of the Fund through three separate classes
(Class A and Class B Shares (collectively, the "Retail Shares") and Fiduciary
Shares). 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 Investments Distribution Co., Oaks, Pennsylvania
19456, or by calling 1-800-433-6884.
For information concerning those investors who qualify to purchase Fiduciary
Shares, see PURCHASE AND REDEMPTION OF SHARES below. (Fiduciary Shares may be
hereinafter referred to as "Shares.")
INVESTMENT OBJECTIVE
The investment objective of the Fund is as follows:
The SMALL CAP VALUE FUND seeks to provide long-term capital appreciation.
The investment objective and certain of the investment limitations of the Fund
may not be changed without a vote of the holders of a majority of the
outstanding Shares of the Fund (as defined under GENERAL
INFORMATION--Miscellaneous below). There can be no assurance that the Fund will
achieve its investment objective.
INVESTMENT POLICIES
Under normal market conditions, the Fund will invest at least 65% of its total
assets in domestic and foreign equity securities, including common stocks,
rights and warrants to purchase common stocks, American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs"), other depositary receipts,
preferred stocks and securities (including debt securities) convertible into or
exercisable for common stocks. The Fund's investments primarily consist of the
equity securities of companies with equity capitalizations within the range of
market capitalization of issuers comprising the relevant market small
capitalization index, the S&P 600 (domestically) and the Financial Times/S&P
Actuaries World Indices World Ex. U.S. Medium/Small Cap (internationally).
The Advisor and Sub-Advisor will generally invest Fund assets in stocks with
favorable, long-term fundamental characteristics which the Advisor or
Sub-Advisor believes are undervalued in the marketplace. Frequently, these
stocks are out of favor in the financial community and in which investors see
little opportunity for rapid price appreciation. If there are not enough
securities which meet the Advisor's or the Sub-Advisor's value-oriented
investment criteria, the Fund may hold cash reserves temporarily. The Advisor or
the Sub-Advisor may also temporarily reduce equity holdings and hold cash
reserves for defensive purposes in response to adverse market conditions. While
the Fund is not subject to any specific geographic diversification requirements,
it currently intends to diversify its international investments among countries
to
6
<PAGE> 47
reduce currency risks. Under normal market conditions, the Advisor expects that
it will generally allocate approximately 25% of the Fund's total assets to
foreign securities. The Advisor will periodically reallocate the Fund's assets
in order to maintain such allocation. Such reallocation shall be performed in
the Advisor's discretion, but, in any event, such reallocation shall occur not
less frequently than monthly. Equity markets around the world can fluctuate
significantly, but tend not to move in lockstep. Declining prices in one region
may be offset by rising prices in another. Investments will be made primarily in
equity securities of companies domiciled in developed countries, but may be made
in developing countries as well. Typically the Fund will invest no more than 5%
of its total assets in any one security at the time of purchase.
GENERAL
Money Market Instruments
Under normal market conditions, the Fund may invest up to 35% of its total
assets in money market instruments. When market conditions indicate a temporary
"defensive" investment strategy as determined by the Advisor or the Sub-Advisor,
the Fund may invest more than 35% of its total assets in money market
instruments. The Fund will not be pursuing its investment objective to the
extent that a substantial portion of its assets are invested in money market
instruments.
Illiquid and Restricted Securities
The Fund shall limit investment in illiquid securities to 15% or less of its
net assets. Generally, an "illiquid security" is any security that cannot be
disposed of promptly and in the ordinary course of business at approximately the
amount at which the Fund has valued the instrument. The absence of a trading
market can make it difficult to ascertain the market value of illiquid
securities. The Fund may purchase restricted securities which have not been
registered under the Securities Act of 1933 (e.g., Rule 144A Securities and
Section 4(2) commercial paper) subject to policies approved by the Board of
Trustees. See INVESTMENT RESTRICTIONS in the Statement of Additional
Information.
Lending of Portfolio Securities
In order to generate additional income, the Fund may lend its portfolio
securities to broker-dealers, banks or other institutions. The Fund may lend
portfolio securities in an amount representing up to 33 1/3% of the value of the
Fund's total assets.
Other Investments
The Fund may enter into repurchase agreements and reverse repurchase
agreements.
The Fund may enter into forward commitments or purchase securities on a
"when-issued" basis. The Fund expects that its commitments to enter into forward
commitments or purchase when-issued securities will not exceed 25% of the value
of its total assets under normal market conditions. The Fund does not intend to
7
<PAGE> 48
purchase when-issued securities or forward commitments for speculative or
leveraging purposes but only for the purpose of acquiring portfolio securities.
The Fund may invest in other registered investment companies with similar
investment objectives. The 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 Securities and
Exchange Commission, 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 the Fund may cause Shareholders to bear duplicative fees. The
Advisor and Sub-Advisor will waive their fees attributable to the assets of the
investing Fund invested in a money market fund advised by the Advisor or
Sub-Advisor, and, to the extent required by applicable law, the Advisor and
Sub-Advisor will waive their fees attributable to the assets of the Fund
invested in any investment company. See "INVESTMENT RESTRICTIONS" in the
Statement of Additional Information.
The 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 and invest in
options, futures contracts and options on futures, unit investment trusts (for
example, SPDRs and Diamonds), and investment grade bonds. 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
enter into futures and options on futures only to the extent that obligations
under such contracts or transactions, together with options on securities,
represent not more than 25% of the Fund's assets. The 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 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
To the extent the Fund invests in equity securities, the Fund's Shares will
fluctuate in value, and thus may be more suitable for long-term investors who
can bear the risk of short-term fluctuations.
Equity Securities include common stocks, preferred stocks, convertible
securities and warrants. Common stocks, which represent an ownership interest in
a company, are probably the most recognized type of equity security. Equity
securities have historically outperformed most other securities, although their
prices can be volatile in the short term. Market conditions, political, economic
and even company-specific news can cause significant changes in the price of a
stock. Smaller companies (as measured by market capitalization), sometimes
called small-cap companies or small-cap stocks, may be especially sensitive to
these factors.
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The Fund may invest in securities issued or guaranteed by foreign corporations
or foreign governments, their political subdivisions, agencies or
instrumentalities and obligations of supranational entities such as the World
Bank and the Asian Development Bank, which securities prices in foreign markets
are generally subject to different economic, financial, political and social
factors than are the prices of securities in U.S. markets. 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, limitations on liquidity, 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. Moreover,
securities of foreign issuers generally will not be registered with the SEC, and
such issuers will generally not be subject to the SEC's reporting requirements.
Accordingly, there is likely to be less publicly available information
concerning certain of the foreign issuers of securities held by a Portfolio than
is available concerning U.S. companies. Foreign companies are also generally not
subject to uniform accounting, auditing or financial reporting standards, or to
practices and requirements comparable to those applicable to U.S. companies.
There may also be less government supervision and regulation of foreign
broker-dealers, financial institutions and listed companies than exist in the
U.S. The Fund will not hold foreign currency for investment or hedging purposes.
Investing in emerging market securities involves risks which are in addition
to the usual risks inherent in foreign investments. Some emerging markets
countries may have fixed or managed currencies that are not free-floating
against the U.S. dollar. Further, certain currencies may not be traded
internationally. Certain of these currencies have experienced a steady
devaluation relative to the U.S. dollar. Any devaluation in the currencies in
which the Fund's securities are denominated may have a detrimental impact on the
Fund.
Some countries with emerging securities markets have experienced substantial,
and in some periods extremely high, rates of inflation for many years. Inflation
and rapid fluctuation in inflation rates have had and may continue to have
negative effects on the economies and securities markets of certain countries.
Moreover, the economies of some countries may differ favorably or unfavorably
from the U.S. economy in such respects as rate of growth of gross domestic
product, the rate of inflation, capital reinvestment, resource self-sufficiency,
number and depth of industries forming the economy's base, governmental controls
and investment restrictions that are subject to political change and balance of
payments position. Further, there may be greater difficulties or restrictions
with respect to investments made in emerging markets countries.
Emerging markets typically have substantially less volume than U.S. markets.
In addition, securities in many of such markets are less liquid, and their
prices often are more volatile, than securities of comparable U.S. companies.
Such markets often have different clearance and settlement procedures for
securities transactions, and in some markets there have been times when
settlements have been unable to keep pace with the volume of transactions,
making it difficult to conduct transactions. Delays in settlement could result
in temporary periods when assets may be uninvested. Settlement problems in
emerging markets countries also could cause the Fund to miss attractive
investment opportunities. Satisfactory custodial services may not be
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<PAGE> 50
available in some emerging markets countries, which may result in the Fund's
incurring additional costs and delays in the transportation and custody of such
securities.
Currency risk is one of the factors considered by the Sub-Advisor in
determining the portion of the Fund's assets to be invested in the securities of
an issuer. However, the Sub-Advisor will not employ currency hedging in the
Fund. The Sub-Advisor believes that for the long-term investor, currency
fluctuations have not historically been a major risk component in a diversified
equity portfolio. It believes that in the long-run the costs of hedging have
outweighed the benefits. In addition, the Sub-Advisor believes that the currency
component of foreign stock returns is an important part of the diversifying
benefit of international investing. Foreign currencies can act as a diversifying
tool within a portfolio to the extent that one currency's depreciation is offset
by another's appreciation.
Convertible securities 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 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.
Given the uncertainty of the future value of companies in which the Fund
invests, the risk of possible decline in value of the Fund's net assets are
significant. Companies in which the 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 such 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.
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
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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. Portfolio turnover is estimated not to exceed 100%.
See FEDERAL TAXATION.
PURCHASE AND REDEMPTION OF SHARES
The Fund is divided into three classes of Shares, Class A, Class B and
Fiduciary. Only the following investors qualify to purchase a Fund's Fiduciary
Shares: (i) fiduciary, advisory, agency, custodial and other similar accounts
maintained with Union Bank of California, N.A. or its affiliates; (ii) SelectIRA
accounts established with The Bank of California, N.A. and invested in any of
HighMark's Equity or Fixed Income Funds prior to June 20, 1994, which have
remained continuously open thereafter and which are not considered to be
fiduciary accounts; (iii) Shareholders who currently own Shares of HighMark's
Equity or Fixed Income Funds that were purchased prior to June 20, 1994 within
an account registered in their name with the Funds; (iv) present and retired
directors, officers and employees (and their spouses and children under the age
of 21) of Union Bank of California, N.A., HighMark's current or former
distributors or their respective affiliated companies who currently own Shares
of HighMark Funds which were purchased before April 30, 1997; and (v) Registered
investment advisors, regulated by a federal or state governmental authority, or
financial planners who are purchasing Fiduciary Shares for an account for which
they are authorized to make investment decisions (i.e., a discretionary account)
and who are compensated by their clients on the basis of an ad valorem fee. For
a description of investors who qualify to purchase Retail Shares, see the Retail
Shares prospectus of the Funds.
Purchases and redemptions of Shares of the Fund may be made on days on which
the Exchange is open for business ("Business Days"). The minimum initial
investment is generally $1,000 for the 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 Investments Distribution Co. and their affiliates, the
minimum initial investment is $250 and the minimum subsequent investment is $50.
The Fund's initial and subsequent minimum purchase amounts may be waived if
purchases are made in connection with Individual Retirement Accounts, Keoghs,
payroll deduction plans, or 401(k) or similar plans. However, the minimum
investment may be waived in the Distributor's discretion. Shareholders may place
orders by telephone.
Purchase orders will be effective if the Distributor receives an order before
1:00 p.m., Pacific time (4:00 p.m., Eastern time) and the custodian receives
Federal funds before the close of business on the next Business Day. The
purchase price of Shares of the Fund is the net asset value next determined
after a purchase order is received and accepted by HighMark. The net asset value
per Share of 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) as of the close of
regular trading on the Exchange on any Business Day. Purchases will be made in
full and fractional Shares of HighMark calculated to three decimal places.
Purchase or redemption orders received after the net asset value per share has
been determined will be priced at the next Business Day's net asset value per
share. HighMark reserves the right to reject a purchase
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order when the Distributor or Advisor determines that it is not in the best
interest of HighMark and/or its Shareholders to accept such order.
Shares of the Fund are offered only to residents of states in which the Shares
are eligible for purchase.
Shareholders who desire to redeem shares of HighMark must place their
redemption orders prior to 1:00 p.m., Pacific time (4:00 p.m., Eastern time), on
any Business Day for the order to be accepted on that Business Day. The
redemption price is the net asset value of the Fund next determined after
receipt by the Distributor of the redemption order. Payment on redemption will
be made as promptly as possible and, in any event, within seven calendar days
after the redemption order is received. The Fund reserves the right to make
payment for redemptions in securities rather than cash.
Neither HighMark's transfer agent nor HighMark will be responsible for any
loss, liability, cost or expense for acting upon wire instructions or upon
telephone instructions that it reasonably believes to be genuine. HighMark and
its transfer agent will each employ reasonable procedures to confirm that
telephone instructions are genuine. Such procedures may include taping of
telephone conversations. If market conditions are extraordinarily active or
other extraordinary circumstances exist, and you experience difficulties placing
redemption orders by telephone, you may wish to consider placing your order by
other means.
EXCHANGE PRIVILEGES
As indicated under GENERAL INFORMATION--Description of HighMark & Its Shares,
certain of HighMark's Funds issue 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.
The Fund's Shares may be exchanged for Shares of the class of the various
other Funds of HighMark which the Shareholder qualifies to purchase directly so
long as the Shareholder maintains the applicable minimum account balance in the
Fund in which he or she owns Shares and satisfies the minimum initial and
subsequent purchase amounts of the Fund into which the Shares are exchanged.
Shareholders may exchange their Fiduciary Shares for Fiduciary Shares of another
Fund on the basis of the relative net asset value of the Fiduciary Shares
exchanged. Shareholders may also exchange Fiduciary Shares of the Fund for
Retail Shares of another Fund. Under such circumstances, the cost of the
acquired Retail Shares will be the net asset value per share plus the
appropriate sales load.
Exchanges will be made on the basis of the relative net asset values of the
Shares exchanged plus any applicable sales charge. Exchanges are subject to the
terms and conditions stated herein and the terms and conditions stated in the
respective prospectuses of the Funds.
Certain entities (including participating organizations and Union Bank of
California and its affiliates), however, may charge customers a fee with respect
to exchanges made on the customer's behalf. Information
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<PAGE> 53
about these charges, if any, can be obtained by the entity effecting the
exchange and this Prospectus should be read in conjunction with that
information.
A Shareholder wishing to exchange Shares in the Fund may do so by contacting
the transfer agent at 1-800-433-6884. Exchanges will be effected on any Business
Day at the net asset value of the Funds involved in the exchange next determined
after the exchange request is received by the transfer agent.
An exchange is considered to be a sale of Shares for federal income tax
purposes on which a Shareholder may realize a capital gain or loss. Exchange
privileges may be exercised only in those states where Shares of such other
Funds of HighMark may legally be sold. HighMark may materially amend or
terminate the exchange privileges described herein upon sixty days' notice.
DIVIDENDS
The net income of the Fund is declared and paid periodically 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.
TAXES
Federal Taxation
The 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.
For the Fund 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. With respect to the
Fund, 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. A corporate Shareholder will only be eligible to
claim a dividends received deduction with respect to a dividend from the Fund if
the corporate Shareholder held its Shares on the ex-dividend date and for at
least 45 other days during the 90-day period surrounding the ex-dividend date.
Distributions by the Fund of net gains on capital assets held for more than one
year but not more than
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18 months and of net gains on capital assets held for more than 18 months are
taxable to Shareholders as such, 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 distributions on the Shares.
To the extent dividends paid to Shareholders are derived from taxable income
(for example, from interest on certificates of deposit or repurchase
agreements), or from long-term or short-term capital gains, such dividends will
be subject to federal income tax, whether such dividends are paid in the form of
cash or additional Shares. A Shareholder should consult his or her tax advisor
for special advice.
Under the Code, dividends attributable to interest on certain private activity
bonds issued after August 7, 1986 must be included in alternative minimum
taxable income for the purpose of determining liability (if any) for the federal
alternative minimum tax. In addition, exempt-interest dividends will be included
in a corporation's "adjusted current earnings" for purposes of the alternative
minimum tax (except to the extent derived from interest on certain private
activity bonds issued after August 7, 1986, which interest would already be
included in alternative minimum taxable income as a specific item of tax
preference).
Prior to purchasing Shares of the 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. If at the end of the Fund's fiscal year
more than 50% of the value of its total assets represents securities of foreign
corporations, the Fund intends to make an election permitted by the Internal
Revenue Code to treat any foreign taxes paid by it in respect of foreign
securities the Fund has held for at least the minimum period specified in the
Code as paid by its Shareholders. In this case, Shareholders who are U.S.
citizens, U.S. corporations and, in some cases, U.S. residents generally will be
required to include in U.S. taxable income their pro rata share of such taxes,
but may then generally be entitled to deduct their share of such taxes.
Alternatively, such Shareholders who hold Shares (without protection from risk
of loss) on the ex-dividend date and for at least 15 other days during the
30-day period surrounding the ex-dividend date will be entitled to claim a
foreign tax credit for their share of these taxes. 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 foreign taxes.
Fund transactions in foreign currencies may give rise to ordinary income or
loss to the extent such income or loss results from fluctuations in value of the
foreign currency concerned. In addition, such activities will likely produce a
difference between book income and taxable income. This difference may cause a
portion of the Fund's income distributions to constitute a return of capital for
tax purposes or require the Fund to make distributions exceeding book income to
qualify as a regulated investment company for tax purposes.
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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
HighMark Capital Management, Inc. serves as the 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. The Advisor oversees the investment advisory services
provided to the Fund and manages the domestic portion of the Fund's assets.
For the expenses assumed and services provided by the Advisor as the Fund's
investment advisor, the Advisor receives a fee from the Fund, computed daily and
paid monthly, at the annual rate of 1.00% of the Fund's average daily net
assets. Depending on the size of the Fund, this fee may be higher than the
advisory fee paid by most mutual funds, although the Board of Trustees believes
it will be comparable to advisory fees paid by many funds having similar
objectives and policies.
The Advisor may from time to time agree to voluntarily reduce its advisory
fee, however, it is not currently doing so for the Fund. While there can be no
assurance that the Advisor will choose to make such an agreement, any voluntary
reductions in the Advisor'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.
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, 1998, UnionBanCal Corporation and its
subsidiaries had approximately $30.9 billion in consolidated assets. The
investment advisory division of Union Bank of California's Trust and Investment
Management Group, as of March 31, 1998, had approximately $16.2 billion of
assets under management. The Advisor, with a team of approximately 45 stock and
bond research analysts, portfolio managers and traders, has been providing
investment management services to individuals, institutions and large
corporations since 1917.
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All investment decisions for the Fund are made by a team of investment
professionals, all of whom take an active part in the decision making process.
The team leaders for the Fund are as follows:
Richard Earnest. Mr. Earnest, Senior Vice President of the Advisor, will
serve as team co-leader of the Fund. He has been with Highmark Capital
Management, Inc., and its predecessors, since 1964.
Elizabeth Pearce. Ms. Pearce, Vice President of the Advisor, will serve as
team co-leader of the Fund. She has been with Highmark Capital Management, Inc.,
and its predecessor, since 1994. From 1988 to 1994 she was employed as the
Director of Research by Anderson Capital Management.
Subject to Board review, the Advisor allocates and, when appropriate,
reallocates the Fund's assets between itself and Brandes, monitors and evaluates
Brandes's performance, and oversees Brandes's compliance with the Fund's
investment objectives, policies and restrictions.
The Sub-Advisor
The Advisor and Brandes have entered into an investment sub-advisory agreement
relating to the Fund (the "Investment Sub-Advisory Agreement"). Under the
Investment Sub-Advisory Agreement, Brandes will make the day-to-day investment
decisions for the foreign securities of the Fund, subject to the supervision of,
and policies established by, the Advisor and the Trustees of HighMark.
Brandes is a California limited partnership organized in May 1996 as the
successor to its general partner, Brandes Investment Partners, Inc., which
(through various predecessor entities) has been providing investment advisory
services since 1974. Brandes serves as portfolio manager to mutual funds,
employee benefit funds and other institutional clients. As of March 31, 1998,
Brandes managed approximately $21 billion in assets.
Brandes is entitled to a fee, payable by the Advisor, calculated and paid
monthly at an annual rate of .50% of the average of the market value of the
assets of the Fund that are allocated to Brandes.
The Fund's assets invested in foreign securities and managed by Brandes are
team-managed by Brandes's Investment Committee, whose members are senior
portfolio management professionals of the firm.
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 Fund.
The Administrator may waive its fee or reimburse various expenses to the extent
necessary to limit the total operating expenses of the Fund's Fiduciary Shares.
Any such waiver is voluntary and may be terminated at any time in the
Administrator's sole discretion. The Administrator is not currently waiving any
portion of its fee.
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Pursuant to a separate agreement with the Administrator, Union Bank of
California, N.A. performs sub-administration services on behalf of the Fund, for
which it receives a fee paid by the Administrator at the annual rate of up to
0.05% of the average daily net assets of the Fund. A description of the services
performed by Union Bank of California pursuant to this Agreement is contained in
the Statement of Additional Information.
The Transfer Agent
State Street Bank and Trust Company serves as the transfer agent, dividend
disbursing agent, and as a shareholder servicing agent for the Fiduciary Shares
of HighMark for which services it receives a fee.
Shareholder Service Plan
To support the provision of Shareholder services to both classes of Shares,
HighMark has adopted a Shareholder Service Plan. A description of the services
performed by service providers pursuant to the Shareholder Service Plan is
contained in the Statement of Additional Information. In consideration of
services provided by any service provider, which may include Union Bank of
California, N.A., Bank of Tokyo-Mitsubishi, Ltd., or their respective
affiliates, the Fund may pay a fee at the rate of up to 0.25% of its average
daily net assets to such service provider. The service provider may waive such
fees at any time. Any such waiver is voluntary and may be terminated at any
time. Currently, such fees are being waived to the rate of 0.10% of the average
daily net assets for the Fund.
Distributor
SEI Investments Distribution Co. (the "Distributor") and HighMark are parties
to a distribution agreement ("Distribution Agreement"). The Distribution
Agreement is renewable annually and may be terminated by the Distributor, by a
majority vote of the Disinterested Trustees or by a majority vote of the
outstanding securities of HighMark upon not more than 60 days written notice by
either party, or upon assignment by the Distributor. Fiduciary Shares are not
subject to HighMark's Distribution Plan or a distribution fee.
Banking Laws
Highmark Capital Management, Inc. 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, for which it receives
compensation from SEI Fund Resources without a violation of applicable banking
laws and regulations. Future changes in federal or state statutes and
regulations relating to permissible activities of banks or bank holding
companies and their subsidiaries and affiliates, as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations, could change the manner in which Union Bank of California or the
Advisor could continue to perform such services for the Fund. For a further
discussion of applicable banking laws and regulations, see the Statement of
Additional Information.
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Custodian
Union Bank of California also serves as the custodian and as a shareholder
servicing agent for the 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 seventeen series of Shares open for investment representing
units of beneficial interest in HighMark's Growth Fund, Income Equity Fund,
Balanced Fund, Value Momentum Fund, Blue Chip Growth Fund, Emerging Growth Fund,
International Equity Fund, Bond Fund, Intermediate-Term Bond Fund, Government
Securities Fund, Convertible Securities Fund, California Intermediate Tax-Free
Bond Fund, Diversified Money Market Fund, U.S. Government Obligations Money
Market Fund, 100% U.S. Treasury Obligations Money Market Fund, California
Tax-Free Money Market Fund, and Small Cap Value Fund. Shares of each Fund are
freely transferable, are entitled to distributions from the assets of the Fund
as declared by the Board of Trustees, and, if 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 Retail Shares of the Funds,
interested persons may contact the Distributor for a prospectus at
1-800-433-6884.
Performance Information
From time to time, HighMark may advertise the aggregate total return, average
annual total return, yield and distribution rate with respect to the Fiduciary
Shares of the Fund. Performance information is computed separately for the
Fund's Retail and Fiduciary Shares in accordance with the formulas described
below.
The aggregate total return and average annual total return of the Fund may be
quoted for the life of the Fund and for ten-year, five-year, three-year, and
one-year periods, in each case through the most recent calendar quarter.
Aggregate total return is determined by calculating the change in the value of a
hypothetical $1,000 investment in the Fund over the applicable period that would
equate the initial amount invested to the ending redeemable value of the
investment. The ending redeemable value includes dividends and capital gain
distributions reinvested at net asset value. Average annual total return is
calculated by annualizing the Fund's aggregate total return over the relevant
number of years. The resulting percentage indicates the average
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<PAGE> 59
positive or negative investment results that an investor in the Fund would have
experienced on an annual basis from changes in Share price and reinvestment of
dividends and capital gain distributions.
The yield of the Fund is determined by annualizing the net investment income
per Share of the Fund during a specified thirty-day period and dividing that
amount by the per Share public offering price of the Fund on the last day of the
period.
The distribution rate of the Fund is determined by dividing the income and
capital gains distributions, or where indicated the income distributions alone,
on a Share of the Fund over a twelve-month period by the per Share public
offering price of the Fund on the last day of the period.
The Fund may periodically compare its performance to the performance of other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical);
financial and business publications and periodicals; broad groups of comparable
mutual funds; unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs; or
other investment alternatives.
All performance information presented for the Fund is based on past
performance and does not predict future performance.
Miscellaneous
Shareholders will be sent unaudited semi-annual reports and annual reports
audited by independent public accountants.
Shareholders are entitled to one vote for each Share held in the Fund as
determined on the record date for any action requiring a vote by the
Shareholders, and a proportionate fractional vote for each fractional Share
held. Shareholders of HighMark will vote in the aggregate and not by series or
class except (i) as otherwise expressly required by law or when HighMark's Board
of Trustees determines that the matter to be voted upon affects only the
interests of the Shareholders of a particular series or particular class, and
(ii) only Retail Shares will be entitled to vote on matters submitted to a
Shareholder vote relating to the Distribution Plan. HighMark is not required to
hold regular annual meetings of Shareholders, but may hold special meetings from
time to time.
HighMark's Trustees are elected by Shareholders, except that vacancies may be
filled by vote of the Board of Trustees. Trustees may be removed by the Board 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 Investments Distribution Co.,
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 Fund.
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<PAGE> 60
AMERICAN DEPOSITARY RECEIPTS (ADRs) and EUROPEAN DEPOSITARY RECEIPTS
(EDRs)--Receipts, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
include American Depositary Shares and New York Shares. EDRs, which are
sometimes referred to as Continental Depositary Receipts ("CDRs"), are receipts,
typically issued by a non-U.S. financial institution, that evidence ownership
interests in a security or a pool of securities issued by either a U.S. or
foreign issuer. ADRs, EDRs and CDRs may be available for investment through
"sponsored" or "unsponsored" facilities. A sponsored facility is established
jointly by the issuer of the security underlying the receipt and a depositary,
whereas an unsponsored facility may be established by a depositary without
participation by the issuer of the receipt's underlying security. Holders of an
unsponsored depositary receipt generally bear all the costs of the unsponsored
facility. The depositary of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through to the holders of the receipts voting
rights with respect to the deposited securities.
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.
COMMON STOCK--Units of ownership of a public corporation. Owners typically are
entitled to vote on the selection of directors and other important matters as
well as to receive dividends on their holdings. In the event that a corporation
is liquidated, the claims of secured and unsecured creditors and owners of bonds
and preferred stock take precedence over the claims of those who own common
stock. For the most part, common stock has more potential for appreciation.
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.
20
<PAGE> 61
DERIVATIVES--Instruments whose value is derived from an underlying contract,
index or security, or any combination thereof, including futures, options (e.g.,
puts and calls), options on futures, swap agreements, and some mortgage-backed
securities (CMOs, REMICs, IOs and POs). See elsewhere in this "DESCRIPTION OF
PERMITTED INVESTMENTS" for discussions of these various instruments, and see
"INVESTMENT OBJECTIVES" and "INVESTMENT POLICIES" for more information about any
policies and limitations applicable to their use.
FORWARD FOREIGN CURRENCY CONTRACTS--The Fund may conduct its foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market or through entering into forward
currency contracts to protect against uncertainty in the level of future
exchange rates between particular currencies or between foreign currencies in
which the Fund's securities are or may be denominated. A forward contract
involves an obligation to purchase or sell a specific currency amount at a
future date, which may be any fixed number of days from the date of the
contract, agreed upon by the parties, at a price set at the time of the
contract. Under normal circumstances, consideration of the prospect for changes
in currency exchange rates will be incorporated into the Fund's long-term
investment strategies. However, the Advisor and Sub-Advisor believe that it is
important to have the flexibility to enter into forward currency contracts when
it determines that the best interests of the Fund will be served.
When the Advisor and Sub-Advisor believe that the currency of a particular
country may suffer a significant decline against another currency, the Fund may
enter into a currency contract to sell, for the appropriate currency, the amount
of foreign currency approximating the value of some or all of the Fund's
securities denominated in such foreign currency.
At the maturity of a forward contract, the Fund may either sell a fund
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligations to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader,
obligating it to purchase on the same maturity date, the same amount of the
foreign currency. The Fund may realize a gain or loss from currency
transactions.
FUTURES AND OPTIONS ON FUTURES--Some futures strategies, including selling
futures, buying puts and writing calls, reduce a Fund's exposure to price
fluctuations. Other strategies, including buying futures, writing puts and
buying calls, tend to increase market exposure. Futures and options may be
combined with each other in order to adjust the risk and return characteristics
of the overall portfolio.
Options and futures can be volatile instruments, and involve certain risks
that, if applied at an inappropriate time, could negatively impact a Fund's
return.
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
21
<PAGE> 62
have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of such borrower because it may be necessary under the terms
of the loan participation, for the Fund to assert its rights against the
borrower through the intermediary bank. Moreover, under the terms of a loan
participation, the purchasing Fund may be regarded as a creditor of the
intermediary bank (rather than of the underlying corporate borrower), so that a
Fund may also be subject to the risk that the issuing bank may become insolvent.
Further, in the event of the bankruptcy or insolvency of the corporate borrower,
a loan participation may be subject to certain defenses that can be asserted by
such borrower as a result of improper conduct by the issuing bank. The secondary
market, if any, for these loan participations is limited, and any such
participation purchased by a Fund may be regarded as illiquid.
MONEY MARKET INSTRUMENTS--Short-term, debt instruments or deposits and may
include, for example, (i) commercial paper rated within the highest rating
category by a NRSRO at the time of investment, or, if not rated, determined by
the Advisor to be of comparable quality; (ii) obligations (certificates of
deposit, time deposits, bank master notes, and bankers' acceptances) of thrift
institutions, savings and loans, U.S. commercial banks (including foreign
branches of such banks), and U.S. and foreign branches of foreign banks,
provided that such institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown on their last
published financial statements at the time of investment; (iii) short-term
corporate obligations rated within the three highest rating categories by a
NRSRO (e.g., at least A by S&P or A by Moody's) at the time of investment, or,
if not rated, determined by the Advisor to be of comparable quality; (iv)
general obligations issued by the U.S. Government and backed by its full faith
and credit, and obligations issued or guaranteed as to principal and interest by
agencies or instrumentalities of the U.S. Government (e.g., obligations issued
by Farmers Home Administration, Government National Mortgage Association,
Federal Farm Credit Bank and Federal Housing Administration); (v) receipts,
including TRs, TIGRs and CATS; (vi) repurchase agreements involving such
obligations; (vii) loan participations issued by a bank in the United States
with assets exceeding $1 billion and for which the underlying loan is issued by
borrowers in whose obligations the Fund may invest; (viii) money market funds
and (ix) foreign commercial paper.
Certain of the obligations in which a Fund may invest may be variable or
floating rate instruments, may involve conditional or unconditional demand
features and may include variable amount master demand notes.
OBLIGATIONS OF SUPRANATIONAL ENTITIES--Obligations of supranational entities
are established through the joint participation of several governments, and
include the Asian Development Bank, the Inter-American Development Bank,
International Bank for Reconstruction and Development (World Bank), African
Development Bank, European Economic Community, European Investment Bank and the
Nordic Investment Bank.
OPTIONS--Under a call option, the purchaser of the option has the right to
purchase, and the writer (the Fund) the obligation to sell, the underlying
security at the exercise price during the option period. A put option gives the
purchaser the right to sell, and the writer the obligation to purchase, the
underlying security at the exercise price during the option period.
In addition, the Fund may buy options on stock indices to invest cash on an
interim basis. Such options will be listed on a national securities exchange. In
order to close out an option position, a Fund may enter into a
22
<PAGE> 63
"closing purchase transaction" -- the purchase of an option on the same security
with the same exercise price and expiration date as the option contract
previously written on any particular security. When the security is sold, a Fund
effects a closing purchase transaction so as to close out any existing option on
that security.
There are risks associated with such investments including the following: (1)
the success of a hedging strategy may depend on the ability of the Advisor or
Sub-Advisor to predict movements in the prices of individual securities,
fluctuations in markets and movements in interest rates; (2) there may be an
imperfect correlation between the movement in prices of securities held by a
Fund and the price of options; (3) there may not be a liquid secondary market
for options; and (4) while a Fund will receive a premium when it writes covered
call options, it may not participate fully in a rise in the market value of the
underlying security.
OPTIONS ON CURRENCIES--The Fund may purchase options and write covered call
options on foreign currencies (traded on U.S. and foreign exchanges or
over-the-counter markets) to manage the Fund's exposure to changes in dollar
exchange rates. Call options on foreign currency written by the Fund will be
"covered" which means that the Fund will own an equal amount of the underlying
foreign currency. With respect to put options on foreign currency written by the
Fund, the Fund will establish a segregated account with its Custodian consisting
of cash, U.S. government securities or other liquid high grade debt securities
in an amount of equal to the amount the Fund would be required to pay upon
exercise of the put.
RECEIPTS--Interests in separately traded interest and principal component
parts of U.S. Treasury obligations that are issued by banks and brokerage firms
and are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's"), "Treasury Investment Growth Receipts" ("TIGR's"),
and "Certificates of Accrual on Treasury Securities" ("CATS"). TR's, TIGR's and
CATS are sold as zero coupon securities, which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is accreted over
the life of the security, and such accretion will constitute the income earned
on the security for both accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate volatility than
interest-paying securities. See also "FEDERAL TAXATION."
REPURCHASE AGREEMENTS--Agreements whereby a Fund will acquire securities from
approved financial institutions or registered broker-dealers that agree to
repurchase the securities at a mutually agreed-upon date and price. The
repurchase agreements entered into by the Fund will provide that the underlying
security at all times shall have a value equal to 102% of the resale price
stated in the agreement. Repurchase agreements involving government securities
are not subject to a Fund's fundamental investment limitation on purchasing
securities of any one issuer. If the seller defaults on its repurchase
obligation or becomes insolvent, the Fund holding such obligations would suffer
a loss to the extent that either the proceeds from a sale of the underlying
portfolio securities were less than the repurchase price or the Fund's
disposition of the securities was delayed pending court action. Securities
subject to repurchase agreements will be held by a qualified custodian or in the
Federal Reserve/Treasury book-entry system. Repurchase agreements are considered
to be loans by a Fund under the Investment Company Act of 1940 (the "1940 Act").
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<PAGE> 64
REVERSE REPURCHASE AGREEMENTS--A Fund may borrow funds for temporary purposes
by entering into reverse repurchase agreements, provided such action is
consistent with the Fund's investment objective and fundamental investment
restrictions; as a matter of non-fundamental policy, each Fund intends to limit
such investments to no more than 10% of the value of its total assets. Pursuant
to a reverse repurchase agreement, a Fund will sell portfolio securities to
financial institutions such as banks or to broker-dealers, and agree to
repurchase the securities at a mutually agreed-upon date and price. A Fund
intends to enter into reverse repurchase agreements only to avoid otherwise
selling securities during unfavorable market conditions to meet redemptions. At
the time a Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account assets such as U.S. Government securities or other
liquid, high-quality debt securities consistent with the Fund's investment
objective having a value equal to 102% of the repurchase price (including
accrued interest), and will subsequently monitor the account to ensure that an
equivalent value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by a Fund may decline below the
price at which a Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by a Fund under the 1940
Act.
RULE 144A SECURITIES--Rule 144A Securities are securities that have not been
registered under the Securities Act of 1933, but which may be traded between
certain qualified institutional investors, including investment companies. The
absence of a secondary market may affect the value of the Rule 144A Securities.
The Board of Trustees of HighMark has established guidelines and procedures to
be utilized to determine the liquidity of such securities.
SECURITIES ISSUED ON A FORWARD COMMITMENT BASIS OR WHEN-ISSUED
SECURITIES--Securities purchased for delivery beyond the normal settlement date
at a stated price and yield and which thereby involve a risk that the yield
obtained in the transaction will be less than that available in the market when
delivery takes place. When a Fund agrees to purchase when-issued securities or
enter into forward commitments, HighMark's custodian will be instructed to set
aside cash or liquid portfolio securities equal to the amount of the commitment
in a segregated account. A Fund will generally not pay for such securities and
no income will accrue on the securities until they are received. These
securities are recorded as an asset and are subject to changes in value based
upon changes in the general level of interest rates. Therefore, the purchase of
securities on a "when-issued" basis or forward commitments may increase the risk
of fluctuations in a Fund's net asset value.
SECURITIES LENDING--During the time portfolio securities are on loan from a
Fund, the borrower will pay the Fund any dividends or interest paid on the
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.
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<PAGE> 65
SECURITIES SUBJECT TO A PUT FEATURE--A "put" feature permits a Fund to sell a
fixed income security at a fixed price prior to maturity. The underlying fixed
income securities subject to a put may be sold at any time at the market rates.
However, unless the put was an integral part of the fixed income security as
originally issued, it may not be marketable or assignable. Generally, a premium
is paid for a put feature or a put feature is purchased separately which results
in a lower yield than would otherwise be available for the same fixed income
securities.
STANDARD & POOR'S DEPOSITARY RECEIPTS (SPDRs)--SPDRs are interests in a unit
investment trust holding a portfolio of securities linked to the S&P 500 Index.
SPDRs closely track the underlying portfolio of securities, trade like a share
of common stock and pay periodic dividends proportionate to those paid by the
portfolio of stocks that constitutes the S&P 500 Index. For further information
regarding SPDRs, see the Statement of Additional Information.
TIME DEPOSITS--Non-negotiable receipts issued by U.S. or foreign banks in
exchange for the deposit of funds. Like certificates of deposit, they earn a
specified rate of interest over a definite period of time; however, they cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
UNIT INVESTMENT TRUST--Investment vehicle, registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, that purchases a
fixed portfolio of income-producing securities, such as corporate, municipal, or
government bonds, mortgage-backed securities, or preferred stock. Units in the
trust, which usually cost at least $1,000, are sold to investors by brokers, for
a Load charge of about 4%. Unit holders receive an undivided interest in both
the principal and the income portion of the portfolio in proportion to the
amount of capital they invest. The portfolio of securities remains fixed until
all the securities mature and unit holders have recovered their principal. Most
brokerage firms maintain a Secondary Market in the trusts they sell, so that
units can be resold if necessary.
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
25
<PAGE> 66
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.
26
<PAGE> 67
HIGHMARK SMALL CAP VALUE FUND PROSPECTUS
INVESTMENT PORTFOLIO OF HIGHMARK FUNDS
For further information (including current
yield, purchase and redemption information),
call 1-800-433-6884
or visit our Web site at
www.highmark-funds.com
INVESTMENT ADVISOR
HighMark Capital Management, Inc.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
SUB-ADVISOR
Brandes Investment Partners, L.P.
12750 High Bluff Drive
San Diego, CA 92130
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
SEI Investments Fund Resources and
SEI Investments Distribution Co.
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
50 Fremont Street
San Francisco, CA 94105-2230
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
84849-A (9/98)
<PAGE> 68
[COMPANY LOGO] HIGHMARK(SM)
FUNDS
Thank you for
your investment.
No person has been authorized to give any information or to make
any representations not contained in this prospectus in connection
with the offering made by this prospectus and, if given or made, such
information or representations must not be relied upon as having been
authorized by HighMark or its distributor. This prospectus does not
constitute an offering by HighMark or by the Distributor in any
jurisdiction in which such offering may not lawfully be made.
NOT FDIC INSURED
<PAGE> 69
HIGHMARK FUNDS PROSPECTUS
INVESTMENT ADVISOR
HighMark Capital Management, Inc.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
SUB-ADVISOR
Brandes Investment Partners, L.P.
12750 High Bluff Drive
San Diego, CA 90730
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 Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
For further information call AUDITORS
1-800-433-6884 Deloitte & Touche LLP
or visit our web site at 50 Fremont Street
www.highmark-funds.com San Francisco, CA 94105-2230
[COMPANY LOGO] HIGHMARK(SM)
FUNDS
84849-A (9/98)
<PAGE> 70
CROSS REFERENCE SHEET
HIGHMARK FUNDS
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
FORM N-1A PART B ITEM INFORMATION CAPTION
- --------------------- -------------------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Additional Information--Description of Shares
13. Investment Objectives and Policies Investment Objectives and Policies; Additional Information on Portfolio
Instruments
14. Management of HighMark Management of HighMark
15. Control Persons and Principal
Holders of Securities Additional Information--Miscellaneous
16. Investment Advisory and Other
Services Management of HighMark
17. Brokerage Allocation Management of HighMark-- Portfolio Transactions
18. Capital Stock and Other Securities Valuation; Additional Purchase and Redemption
Information; Management of HighMark--Distributor; The
Distribution Plans; Additional Information
19. Purchase, Redemption and Valuation; Additional Purchase and Redemption
Pricing of Securities Being Information; Management of HighMark
Offered
20. Tax Status Additional Purchase and Redemption Information--
Additional Federal Tax Information; Additional Tax
Information Concerning the California Tax-Free Money
Market Fund and the California Intermediate Tax-Free Bond Fund
21. Underwriters Management of HighMark -- Distributor
22. Calculation of Performance Data Additional Information -- Calculation of Performance Data
23. Financial Statements Financial Statements
</TABLE>
<PAGE> 71
HIGHMARK FUNDS
HIGHMARK SMALL CAP VALUE FUND
STATEMENT OF ADDITIONAL INFORMATION
September 14, 1998
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectuses of the HighMark Small Cap Value Fund, which
is dated September 14, 1998, (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 Investments Distribution Co., at 1 Freedom
Valley Drive, Oaks, Pennsylvania, 19456, or by telephoning toll free 1-800-
433-6884. Capitalized terms used but not defined herein have the same meanings
as set forth in the Prospectuses.
<PAGE> 72
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGHMARK FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Bank Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Commercial Paper and Variable Amount Master Demand Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Reverse Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
U.S. Government Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Adjustable Rate Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Shares of Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
When-Issued Securities and Forward Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Zero-Coupon Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Illiquid Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Voting Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Valuation of the Money Market Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Additional Federal Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Foreign Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
MANAGEMENT OF HIGHMARK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Investment Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
The Sub-Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Glass-Steagall Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Administrator and Sub-Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Shareholder Services Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
i
<PAGE> 73
<TABLE>
<S> <C>
The Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Transfer Agent and Custodian Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Description of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Calculation of Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
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<PAGE> 74
STATEMENT OF ADDITIONAL INFORMATION
HIGHMARK FUNDS
HighMark Funds ("HighMark") is a diversified, open-end management
investment company. HighMark presently consists of seventeen 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, the HighMark California Tax-Free Money Market Fund, and the HighMark
Small Cap Value Fund (the "Funds" as appropriate).
As described in the Prospectuses, the Fund has 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 the Fund's Retail Shares. Retail Shares and Fiduciary Shares are
sometimes herein referred to collectively as "Shares".
The Fund is sometimes referred to herein as an "Equity Fund."
Much of the information contained herein expands upon subjects
discussed in the Prospectuses for the Fund. No investment in Shares of the Fund
should be made without first reading the Fund's Prospectus for those Shares.
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the investment objectives and
policies of the Fund as set forth in the Prospectus.
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
1. Bank Instruments. Consistent with its investment objective,
policies, and restrictions, the Fund may invest in bankers' acceptances,
certificates of deposit, and time deposits.
<PAGE> 75
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 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 by the
Federal Deposit Insurance Corporation.
2. Commercial Paper and Variable Amount Master Demand Notes.
Consistent with its investment objective, policies, and restrictions, the 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 the Fund and the issuer,
they are not normally traded. Although there is no secondary market in the
notes, the 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.
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<PAGE> 76
3. Lending of Portfolio Securities. In order to generate additional
income, the Fund may lend its portfolio securities to broker-dealers, banks or
other institutions. During the time portfolio securities are on loan from the
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 the Fund to
certain risks, such as delays or an inability to regain the securities in the
event the borrower were to default on its lending agreement or enter into
bankruptcy, the Fund will receive 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 Highmark Capital Management, Inc. (the
"Advisor"), and, should the market value of the loaned securities increase,
the borrower will be required to furnish additional collateral to the Fund.
The Fund may lend portfolio securities in an amount representing up to 33 1/3%
of the value of the Fund's total assets.
4. Repurchase Agreements. Securities held by the Fund may be subject
to repurchase agreements.
Under the terms of a repurchase agreement, the 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 the Fund's
disposition of the underlying securities was delayed pending court action.
Additionally, although there is no controlling legal precedent confirming that
the 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 the 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
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<PAGE> 77
book-entry system. Repurchase agreements are considered to be loans by the Fund
under the 1940 Act.
5. Reverse Repurchase Agreements. The 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, the 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, the 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. The Fund intends to enter
into reverse repurchase agreements only to avoid otherwise selling securities
during unfavorable market conditions to meet redemptions. At the time the 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 the Fund may decline below the
price at which the Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by the Fund under the
1940 Act.
6. U.S. Government Obligations. The Fund may, consistent with its
investment objective, policies, and restrictions, invest in obligations issued
or guaranteed by the U.S. Government, its agencies, or instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the Government National Mortgage Association and the
Export-Import Bank of the United States, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Student Loan Marketing Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; and still others, such as those of the Federal Farm
Credit Banks or the Federal Home Loan Mortgage Corporation, are supported only
by the credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
agencies or instrumentalities if it is not obligated to do so by law.
For information concerning mortgage-related securities issued by
certain agencies or instrumentalities of the U.S. Government, see
"Mortgage-Related Securities" below.
7. Adjustable Rate Notes. Consistent with its investment objective,
policies, and restrictions, the Fund may invest in "adjustable rate notes,"
which include variable rate notes and floating rate notes. 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
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<PAGE> 78
be no active secondary market with respect to a particular variable or floating
rate note purchased by the 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 the Fund's non fundamental 15%
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.
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.
8. Shares of Mutual Funds. The Fund 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 the 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 the
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.
9. When-Issued Securities and Forward Commitments. The 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. The 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 the Fund's net asset value.
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<PAGE> 79
When the 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. 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 Fund expects 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 the Fund
exceeded this 25% threshold, the Fund's liquidity and the Advisor's ability to
manage it might be adversely affected. In addition, the Fund does 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.
10. Zero-Coupon Securities. Consistent with its objectives, the 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.
11. Options (Puts and Calls) on Securities. The Fund may buy and
sell options (puts and calls), and write call options on a covered basis.
12. Covered Call Writing. The 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. The
Fund will not engage in option writing strategies for speculative purposes. A
call option gives the purchaser of such option the right to buy, and the
writer, in this case the Fund, has the obligation to sell the underlying
security at the exercise price during the option period. The advantage to the
Fund of writing covered calls is that the Fund receives a premium which is
additional income. However, if the value of the security rises, the Fund may
not fully participate in the market appreciation.
During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option was sold,
which requires the writer to deliver the underlying security against payment of
the exercise price. This obligation is terminated upon the expiration of the
option period or at such earlier time in which the writer effects a closing
purchase transaction. A closing purchase transaction is one in which the Fund,
when obligated as a writer of an option, terminates its obligation by
purchasing an
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<PAGE> 80
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.
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.
13. Purchasing Call Options. The Fund 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
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<PAGE> 81
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 Fund may
sell, exercise or close out positions as the Advisor deems appropriate.
14. Purchasing Put Options. The 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, the 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.
15. Options in Stock Indices. The Fund may engage in options on
stock indices. A stock index assigns relative values to the common stock
included in the index with the index fluctuating with changes in the market
values of the underlying common stock.
Options on stock indices are similar to options on stocks but have
different delivery requirements. Stock options provide the right to take or
make delivery of the underlying stock at a specified price. A stock index
option gives the holder the right to receive a cash "exercise settlement
amount" equal to (i) the amount by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by
(ii) a fixed "index multiplier." Receipt of this cash amount will depend upon
the closing level of the stock index upon which the option is based being
greater than (in the case of a call) or less than (in the case of a put) the
exercise price of the option. The amount of cash received will be equal to
such difference between the closing price of the index and exercise price of
the option expressed in dollars times a specified multiple. The writer of the
option is obligated, in return of the premium received, to make delivery of
this amount. Gain or loss to the 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, the 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
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<PAGE> 82
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.
The 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 the Fund's portfolio will
not duplicate the components of an index, the correlation will not be exact.
Consequently, the 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.
The Fund will enter into an option position only if there appears to
be a liquid secondary market for such options.
The 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 the Fund's total assets.
16. 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, the Fund runs the risk that it will lose
its entire investment in the option in a relatively short period of time,
unless the Fund exercises the option or enters into a closing sale transaction
with respect to the option during the life of the option. If the price of the
underlying security does not rise (in the case of a call) or fall (in the case
of a put) to an extent sufficient to cover the option premium and transaction
costs, the Fund will lose part or all of its investment in the option. This
contrasts with an investment by the 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 the 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 the 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 the
Fund will be able to effect closing transactions at any particular time or at
an acceptable price.
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If a secondary trading market in options were to become unavailable,
the 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 the Fund's ability to realize
its profits or limit its losses.
Disruptions in the markets for securities underlying options purchased
or sold by the 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, the 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, the 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 the Fund has expired, the Fund could lose the entire
value of its option.
17. Futures Contracts on Securities and Related Options. The Fund
may invest in futures and related options based on any type of security or
index traded on U.S. or foreign exchanges, or over the counter as long as the
underlying security or 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 the Fund.
18. Futures Contracts on Securities. The Fund will enter into
futures contracts on securities only when, in compliance with the SEC's
requirements, cash or equivalents equal in value to the securities' value (less
any applicable margin deposits) have been deposited in a segregated account of
the Fund's custodian.
A futures contract sale creates an obligation by the seller to deliver
the type of instrument called for in the contract in a specified delivery month
for a stated price. A futures contract purchase creates an obligation by the
purchaser to take delivery of the type of instrument called for in the contract
in a specified delivery month at a stated price. The specific instruments
delivered or taken at settlement date are not determined until on or near that
date. The determination is made in accordance with the rules of the exchanges
on which the futures contract was made. Futures contracts are traded in the
United States only on the commodity exchange or boards of trade, known as
"contract markets," approved for such trading by the Commodity Futures Trading
Commission (CFTC), and must be executed through a futures commission merchant
or brokerage firm which is a member of the relevant contract market.
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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 the 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."
The Fund may elect to close some or all of its futures positions at
any time prior to their expiration. The purpose of making such a move would be
to reduce or eliminate the hedge position then currently held by the Fund. The
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.
19. Options on Securities' Futures Contracts. The 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. The 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. The 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.
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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.
The 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 the Fund's total assets.
20. Risk of Transactions in Securities' Futures Contracts and Related
Options. Successful use of securities' futures contracts by the 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 the 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 the Fund
when the purchase or sale of a futures contract would not, such as when there
is no movement in the price of the hedged investments. The writing of an
option on a futures contract involves risks similar to those risks relating to
the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or
other unforeseen events will not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.
To reduce or eliminate a hedge position held by the 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
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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.
21. Index Futures Contracts. The 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. The 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 the 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.
The Fund's ability to effectively utilize index futures contracts
depends on several factors. First, it is possible that there will not be a
perfect price correlation between the index futures contracts and their
underlying index. Second, it is possible that a lack of liquidity for index
futures contracts could exist in the secondary market, resulting in the Fund's
inability to close a futures position prior to its maturity date. Third, the
purchase of an index futures contract involves the risk that the Fund could
lose more than the original margin deposit required to initiate a futures
transaction. In order to avoid leveraging and related risks, when the 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 the 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 Fund's
intention to qualify as such.
22. 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
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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.
23. U.S. Dollar Denominated Obligations of Securities of Foreign
Issuers. The Fund 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, American
Depositary Receipts, European Time Deposits, Canadian Time Deposits and Yankee
Certificates of Deposits, and investments in Canadian Commercial Paper, foreign
securities and Europaper. These instruments may subject the Fund to investment
risks that differ in some respects from those related to investments in
obligations of U.S. domestic issuers. Such risks include future adverse
political and economic developments, the possible imposition of withholding
taxes on interest or other income, possible seizure, nationalization, or
expropriation of foreign deposits, the possible establishment of exchange
controls or taxation at the source, greater fluctuations in value due to
changes in exchange rates, or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on such obligations. Such investments may also entail higher custodial fees
and sales commissions than domestic investments. Foreign issuers of securities
or obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar
securities or obligations. Foreign branches of U.S. banks and foreign banks
may be subject to less stringent reserve requirements than those applicable to
domestic branches of U.S. banks.
24. Foreign Currency Transactions. Under normal market conditions,
the Fund may engage in foreign currency exchange transactions to project
against uncertainty in the level of future exchange rates. The 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
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and may result in losses, and the Fund's ability to engage in hedging and
related options transactions may be limited by tax considerations.
25. Transaction Hedging. When it engages in transaction hedging, the
Fund enters into foreign currency transactions with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities. The 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 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 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 Fund the
right to assume a short position in the futures contract until expiration of
the option. A put option on currency gives the Fund the right to sell a
currency at an exercise price until the expiration of the option. A call
option on a futures contract gives the Fund the right to assume a long position
in the futures contract until the expiration of the option. A call option on
currency gives the Fund the right to purchase a currency at the exercise price
until the expiration of the option.
26. Position Hedging. When it engages in position hedging, the 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 Fund to purchase
additional foreign currency on the spot market (and bear
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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 Fund is obligated to
deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the 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.
27. Currency Forward and Futures Contracts. A forward contract
involves an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract as
agreed by the parties, at a price set at the time of the contract. In the case
of a cancelable forward contract, the holder has the unilateral right to cancel
the contract at maturity by paying a specified fee. Forward contracts are
trades in the interbank markets conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades.
A futures contract is a standardized contract for the future delivery
of a specified amount of a foreign currency at a future date at a price set at
the time of the contract. Futures contracts are designed by and traded on
exchanges. The Fund would enter into futures contracts solely for hedging or
other appropriate risk management purposes as defined in the controlling
regulations.
Forward contracts differ from futures contracts in certain respects.
For example, the maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month. Forward contracts may be in any amounts
agreed upon by the parties rather than predetermined amounts. Also, forward
contracts are traded directly between currency traders so that no intermediary
is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
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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.
28. 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 Fund upon termination of the contract, assuming the Fund
satisfies its contractual obligation.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market." These payments are called "variation
margin," and are made as the value of the underlying futures contract
fluctuates. For example, when the Fund sells a futures contract and the price
of the underlying currency rises above the delivery price, the 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 Fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Fund, and the Fund realizes a loss or gain. Such closing transactions
involve additional commission costs.
29. 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
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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.
30. Foreign Currency Conversion. Although foreign exchange dealers
do not charge a fee for currency conversion, the do realize a profit based on
the difference (the "spread") between prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign
currency to an Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.
31. Standard & Poor's Depository 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
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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.
Illiquid Securities. The Fund has adopted a non-fundamental policy
(which may be changed without shareholder approval) prohibiting the Fund from
investing more than 15% 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 Fund 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. The 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 Fund 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).
INVESTMENT RESTRICTIONS
Unless otherwise indicated, the following investment restrictions are
fundamental and, as such, may be changed with respect to the Fund only by a
vote of a majority of the outstanding Shares of the Fund (as defined below).
Except with respect to the Fund's restriction governing the borrowing of money,
if a percentage restriction is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in asset value
will not constitute a violation of the restriction.
THE 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, as concentration
is defined under the Investment
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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 Fund have been adopted to
avoid wherever possible the necessity of shareholder meetings
otherwise required by the 1940 Act. This recognizes the need to react
quickly to changes in the law or new investment opportunities in the
securities markets and the cost and time involved in obtaining
shareholder approvals for diversely held investment companies.
However, the Fund also has adopted nonfundamental limitations, set
forth below, which in some instances may be more restrictive than
their fundamental limitations. Any changes in the 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
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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 FUND ARE NONFUNDAMENTAL POLICIES.
THE FUND MAY NOT:
1. Acquire more than 10% of the voting securities of any one
issuer. This limitation applies to only 75% of the Fund's
assets.
2. Invest in companies for the purpose of exercising control.
3. Borrow money, except for temporary or emergency purposes and
then only in an amount not exceeding one-third of the value of
total assets and 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. To the extent
that such borrowing exceeds 5% of the value of the Fund's
assets, asset coverage of at least 300% is required. In the
event that such asset coverage shall at any time fall below
300%, the Fund shall, within three days thereafter or such
longer period as the Securities and Exchange Commission may
prescribe by rules and regulations, reduce the amount of its
borrowings to such an extent that the asset coverage of such
borrowing shall be at least 300%. This borrowing provision is
included solely to facilitate the orderly sale of portfolio
securities to accommodate heavy redemption requests if they
should occur and is not for investment purposes. All
borrowings will be repaid before making additional investments
and any interest paid on such borrowings will reduce income.
4. Pledge, mortgage or hypothecate assets except to secure
temporary borrowings permitted by (3) above in aggregate
amounts not to exceed 10% of total assets taken at current
value at the time of the incurrence of such loan, except as
permitted with respect to securities lending.
5. Purchase or sell real estate, real estate limited partnership
interest, commodities or commodities contracts and interest in
a pool of securities that are secured by interests in real
estate. However, subject to their permitted investments, the
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.
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<PAGE> 95
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-Advisor of
HighMark owns beneficially more than 1/2 or 1% of the shares
or securities or such issuer and all such officers, trustees,
partners and directors owning more than 1/2 or 1% of such
shares or securities together own more than 5% of such shares
or securities.
10. Invest in interest in oil, gas, or other mineral exploration
or development programs and oil, gas or mineral leases.
Voting Information. As used in this Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of HighMark or a
particular Fund or a particular Class of Shares of HighMark or a particular
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
The Fund's turnover rate is calculated by dividing the lesser of the
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. It
is currently expected that the Fund's portfolio turnover rate 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.
VALUATION
As disclosed in the Prospectus, the 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.,
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<PAGE> 96
Pacific Time (4:00 p.m. Eastern Time) on days on which the New York Stock
Exchange is open for business ("Business Days").
Except as noted below, investments by the Fund in securities traded on
a national exchange (or exchanges) are valued based upon their last sale price
on the principal exchange on which such securities are traded. 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 the Fund's investments may be based on valuations provided by a
pricing service. Short-term securities (i.e., securities with remaining
maturities of 60 days or less) may be valued at amortized cost, which
approximates current value.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases and redemptions of shares of the Fund may be made on days on
which the New York Stock Exchange is 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 Fund 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
the Fund 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 Fund for any period.
If the 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.
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<PAGE> 97
ADDITIONAL FEDERAL TAX INFORMATION
The 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, the
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; 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 (c) diversify its holdings so that, at the end of
each fiscal quarter (i) at least 50% of the market value of the Fund's assets
is represented by cash, cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities, limited in respect
of any one issuer to a value not greater than 5% of the value of the Fund's
total assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
(other than those of the U.S. Government or other regulated investment
companies) of any one issuer or of two or more issuers that the Fund controls
and that are engaged in the same, similar, or related trades or businesses.
In addition, until the start of the Fund's first tax year beginning
after August 5, 1997, the Fund must 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. This 30% of gross income test
described above may restrict the Fund's ability to sell certain assets held (or
considered under Code rules to have been held) for less than three months.
If the 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 the 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 the 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.
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Any dividend declared by the 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 the 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 constructive
sales, 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, the 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 the 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 the Fund's book income exceeds its taxable income, the distribution (if any)
of such excess will be treated as (i) a dividend to the extent of the Fund's
remaining earnings and profits (including earnings and profits arising from
tax-exempt income), (ii) thereafter as a return of capital to the extent of the
recipient's basis in the shares, and (iii) thereafter as gain from the sale or
exchange of a capital asset. If the Fund's book income is less than its
taxable income, the Fund could be required to make distributions exceeding book
income to qualify as a regulated investment company that is accorded special
tax treatment.
If the 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.
The 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, the Fund
may be required to sell securities in its portfolio that it otherwise would
have continued to hold.
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The Fund 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 is only a summary of some of the important
Federal tax considerations generally affecting purchasers of the Fund's Shares.
No attempt has been made to present a detailed explanation of the Federal
income tax treatment of the Fund, and this discussion is not intended as a
substitute for careful tax planning. Accordingly, potential purchasers of the
Fund's 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 Fund. 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.
FOREIGN TAXES
Dividends and interest received by the 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 at the end of the Fund's fiscal year
more than 50% of the value of its total assets represents securities of foreign
corporations, the Fund will be eligible to make an election permitted by the
Code to treat any foreign taxes paid by it on securities it has held for at
least the minimum period specified in the Code as having been paid directly by
the Fund's Shareholders in connection with the Fund's dividends received by
them. In this case, Shareholders generally will be required to include in U.S.
taxable income their pro rata share of such taxes, and those Shareholders who
are U.S. citizens, U.S. corporations and, in some cases, U.S. residents will be
entitled to deduct their share of such taxes. Alternatively, such Shareholders
who hold Fund Shares (without protection from risk of loss) on the ex-dividend
date and for at least 15 other days during the 30-day period surrounding the
ex-dividend date will be entitled to claim a foreign tax credit for their share
of these taxes. If the 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.
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<PAGE> 100
MANAGEMENT OF HIGHMARK
TRUSTEES AND OFFICERS
Overall responsibility for management of the Fund rests with the
Trustees of HighMark, who are elected by HighMark's Shareholders. There are
currently six 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 October
1323 Encina Drive 1996, Vice President and Chief Financial
Milbrae, CA 94030 Officer of Bio Rad Laboratories, Inc.
David A. Goldfarb Trustee Partner, Goldfarb & Simens, Certified
111 Pine Street Public Accountants.
18th Floor
San Francisco, CA 94111
Joseph C. Jaeger Trustee Senior Vice President and Chief
100 First Street Financial Officer, Delta Dental Plan of
San Francisco, CA 94105 California.
Frederick J. Long Trustee President and Chief Executive Officer,
520 Pike Street Pettit-Morry Co. and Acordia Northwest
20th Floor Inc. (each an insurance brokerage firm).
Seattle, WA 98101
</TABLE>
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<PAGE> 101
<TABLE>
<S> <C> <C>
Paul L. Smith Trustee Member of the Board of Trustees of
422 Gordon Terrace Stepstone Funds since 2/1991 - 4/1997;
Pasadena, CA 91105 Retired. Prior to retirement Director
of Union Bank; Vice Chairman and member
of the Office of the Chief Executive of
Security Pacific Corporation; and Former
Director and officer of numerous
subsidiaries of Security Pacific
Corporation and Security Pacific
National Bank.
William R. Howell Trustee Chairman of the Board of Trustees of
73-350 Calliandra Avenue Stepstone Funds 1991 - 4/1997; Director,
Palm Desert, CA 92260 Current Income Shares, Inc.
Michael L. Noel Member Advisory Board Member of the Board of Trustees of
1107 Pine Country Court Stepstone Funds 1990 - 4/1997.
Prescott, AZ 86303-6405
Robert M. Whitler Member Advisory Board Retired. Prior to retirement Executive
336 Running Spring Drive Vice President and head of Union Bank's
Palm Desert, CA 92211-3240 Financial Management and Trust Services
Group.
Robert DellaCroce Controller and Chief CPA, Director of Fund Resources,
530 East Swedesford Road Financial Officer employee since 1994. Prior to 1994,
Wayne, PA 19087 senior manager for Arthur Andersen.
Kevin P. Robins Vice President and Secretary Employee since 1992. Prior to 1992,
1 Freedom Valley Drive of the Administrator and associate with Morgan Lewis & Bockius
Oaks, PA 19456 Distributor since 1988.
</TABLE>
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<PAGE> 102
<TABLE>
<S> <C> <C>
Kathryn L. Stanton Vice President and Assistant Employee since 1994. Prior to 1992,
1 Freedom Valley Drive Secretary associate with Morgan Lewis & Bockius
Oaks, PA 19456 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 to May
1 Freedom Valley Drive Secretary. 1995, associate with Dewey Ballantine.
Oaks, PA 19456 Prior to 1994, associate with Winston &
Strawn.
Joseph M. O'Donnell Vice President and Assistant Employee since 1998. From March, 1993
1 Freedom Valley Drive Secretary. to December, 1997, Vice President and
Oaks, PA 19456 General Counsel with FPS Services, Inc.
</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 Investments
Distribution Co. receives any compensation directly from HighMark for serving
as a Trustee and/or officer. SEI Fund Resources and/or SEI Investments
Distribution Co. 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, Lee, and O'Donnell and Ms. Stanton and Ms. Orlow, are employees and
officers of SEI Investments Company. While SEI Fund Resources is a distinct
legal entity from SEI Investments Distribution Co., SEI Fund Resources is
considered to be an affiliated person of SEI Investments Distribution Co. under
the 1940 Act due to, among other things, the fact that SEI Investments
Distribution Co. and SEI Fund Resources are both controlled by the same ultimate
parent company, SEI Investments Company.
During the fiscal year ended July 31, 1997, fees paid to the
disinterested Trustees for their services as Trustees aggregated $42,500.
For the disinterested Trustees, the
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following table sets forth information concerning fees paid and retirement
benefits accrued during the fiscal year ended July 31, 1997:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Annual Total Compensation
Trustee Compensation Retirement Benefits Upon from Fund
from Group Benefits Accrued Retirement Complex Paid to
as Trustees
Part of Fund
Expenses
- ---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Thomas L. Braje $8,500 None None $8,500
David A. Goldfarb $8,500 None None $8,500
William R. Howell* $4,250 None None $4,250
Joseph C. Jaeger $8,500 None None $8,500
Frederick J. Long $8,500 None None $8,500
Paul L. Smith* $4,250 None None $4,250
Michael L. Noel*+ N/A None None N/A
Robert M. Whitler+ N/A None None N/A
</TABLE>
+Members of Advisory Board.
*Prior to April 1997, Messrs. Smith, Howell, and Noel were members of the
Board of Trustees of Stepstone Funds. For their services to Stepstone
Funds, they received $9,500, $9,500, and $8,500 respectively.
The Advisory Board to the Board of Trustees is responsible for
providing monitoring services and evaluating issues affecting HighMark pursuant
to the direction of the Board of Trustees, and consulting and providing advice
to the Board of Trustees regarding those issues.
INVESTMENT ADVISOR
Investment advisory and management services are provided to the Fund by
the Advisor, pursuant to an investment advisory agreement between the Advisor
and HighMark dated as of April 1, 1996 (the "Investment Advisory Agreement").
Union Bank of California serves as custodian for the Fund. See "Transfer Agent,
Custodian and Fund Accounting Services" below. Union Bank of California also
serves as sub-administrator to the Fund 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 HighMark 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
HighMark Fund at any time on 60 days' written notice without penalty by the
Trustees, by vote of a majority of the outstanding Shares
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<PAGE> 104
of that Fund, or by the Advisor. The Investment Advisory Agreement terminates
automatically in the event of any assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Advisor 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 September 1, 1998, the investment management unit at Union Bank of
California, N.A., was reorganized into a subsidiary of UnionBanCal
Corporation. The new entity, Highmark Capital Management, Inc., is a California
corporation registered under the Investment Advisers Act of 1940.
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, the Advisor is entitled to receive fees
from the Fund as described in the Fund's Prospectus.
THE SUB-ADVISOR
The Advisor and Brandes Investment Partners LP ("Brandes") have
entered into a sub-advisory agreement which relates to the Fund.
Under its sub-advisory agreement, Brandes is entitled to a fee which is
calculated and paid monthly at the annual rate of .50% of the average of the
market value of the assets of the Fund allocated to Brandes. Such fee is paid
by the Advisor, and Brandes receives no fees directly from the Fund.
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 the Fund's investment objective and restrictions, which
securities are to be purchased and sold by the 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
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<PAGE> 105
Market Fund usually are principal transactions in which portfolio securities
are normally purchased directly from the issuer or from an underwriter or
market maker for the securities. Purchases from underwriters of portfolio
securities include a commission or concession paid by the issuer to the
underwriter and purchases from dealers serving as market makers may include the
spread between the bid and asked price. Securities purchased by the Growth
Fund, the Income Equity Fund, the Value Momentum Fund, the Blue Chip Growth
Fund, the Emerging Growth Fund and the International Equity Fund will generally
involve the payment of a brokerage fee. Portfolio transactions for the
Balanced Fund may be principal transactions or involve the payment of brokerage
commissions. While the Advisor generally seeks competitive spreads or
commissions on behalf of the Fund, 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-Advisor 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-Advisor 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-Advisor and
does not reduce the advisory fees payable to the Advisor by HighMark. Such
information may be useful to the Advisor or the Sub-Advisor 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 the Advisor, SEI
Investments Distribution Co., 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
the Advisor, or their affiliates, and will not give preference to correspondents
of the Advisor with respect to such securities, savings deposits, repurchase
agreements and reverse repurchase agreements.
Investment decisions for the Fund are made independently from those for the
other Funds or any other investment company or account managed by the Advisor or
the Sub-Advisor. 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 the 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-Advisor 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 the Fund or the size of the
position obtained by the Fund. To the
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<PAGE> 106
extent permitted by law, the Advisor or the Sub-Advisor and may aggregate the
securities to be sold or purchased for one of the Funds 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 Agreement, in making investment recommendations for
HighMark, the Advisor or the Sub-Advisor 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 or the Sub-Advisor or their parent or its
subsidiaries or affiliates and, in dealing with its commercial customers, the
Advisor and the Sub-Advisor, their parent, subsidiaries, and affiliates will not
inquire or take into consideration whether securities of such customers are held
by HighMark.
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.
The Advisor and the Sub-Advisor believe that they possess the legal
authority to perform the services for the Fund contemplated by the Investment
Advisory Agreement and the Sub-Advisory Agreement and described in the
Prospectuses and this Statement of Additional Information and has so represented
in the Investment Advisory Agreement and the Sub-Advisory Agreement. Future
changes in either federal or state statutes and regulations relating to the
permissible activities of banks or bank holding companies and the subsidiaries
or affiliates of those entities, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations
could prevent or restrict the Advisor from continuing to perform such services
for HighMark. Depending upon
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<PAGE> 107
the nature of any changes in the services that could be provided by the
Advisor, or the Sub-Advisor, the Board of Trustees of HighMark would review
HighMark's relationship with the Advisor and the Sub-Advisor 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, the Advisor, 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
the Fund 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,
First American Funds, Inc., First American Investment Funds, Inc., The Arbor
Fund, Morgan Grenfell Investment Trust, The PBHG Funds, Inc., The Achievement
Funds Trust, Bishop Street Funds, CrestFunds, Inc., STI Classic Variable Trust,
Monitor Funds, 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.
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
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<PAGE> 108
terms. The Administration Agreement is terminable at any time with respect to a
particular Fund or HighMark as a whole by either party without penalty for any
reason upon 90 days' written notice by the party effecting such termination to
the other party.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
HighMark in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or from the reckless disregard by
the Administrator of its obligations and duties thereunder.
The Administration Agreement permits the Administrator to subcontract
its services thereunder, provided that the Administrator will not be relieved
of its obligations under the Administration Agreement by the appointment of a
subcontractor and the Administrator shall be responsible to HighMark for all
acts of the subcontractor as if such acts were its own, except for losses
suffered by the 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 the 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 Class B Shares (collectively, the
"Services Plans") pursuant to which the 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 the Fund. In consideration for such
services, a Service Provider is compensated by the Fund at a maximum annual
rate of up to 0.25% of the average daily net asset value of Shares of the 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 the 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
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<PAGE> 109
Shareholder accounts; (ii) providing information periodically to Shareholders
showing their positions in Shares; (iii) arranging for bank wires; (iv)
responding to Shareholder inquiries relating to the services performed by the
Service Provider; (v) responding to inquiries from Shareholders concerning
their investments in Shares; (vi) forwarding Shareholder communications from
HighMark (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to
Shareholders; (vii) processing purchase, exchange and redemption requests from
Shareholders and placing such orders with HighMark or its service providers;
(viii) assisting Shareholders in changing dividend options, account
designations, and addresses; (ix) providing subaccounting with respect to
Shares beneficially owned by Shareholders; (x) processing dividend payments
from HighMark on behalf of the Shareholders; and (xi) providing such other
similar services as HighMark may reasonably request to the extent that the
service provider is permitted to do so under applicable laws or regulations.
EXPENSES
HighMark's service providers bear all expenses in connection with the
performance of their respective services, except that each of the Funds 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 Highmark
Capital Management, Inc., Union Bank of California, SEI Fund Resources or SEI
Investments Distribution Co., 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 Investments Distribution Co. (the "Distributor"), a wholly-owned
subsidiary of SEI, serves as distributor to the Fund 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
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<PAGE> 110
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.
The Distribution Plans. The operation of the Distribution Plans, the
0.25% fee payable under HighMark's Distribution Plans to which the Class A
Shares of the Fund are presently subject and the 0.75% fee to which the Class B
Shares are presently subject are described in the Fund's Prospectus under
"SERVICE ARRANGEMENTS -The Distribution Plans."
In accordance with Rule 12b-1 under the 1940 Act, the Distribution
Plans may be terminated with respect to any of the HighMark Funds 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 the 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 the Fund requires the approval of the
Fund's Retail Shareholders. HighMark's Board of Trustees will review on a
quarterly and annual basis written reports of the amounts received and expended
under the Distribution Plans (including amounts expended by the Distributor to
Participating Organizations pursuant to the Servicing Agreements entered into
under the Distribution Plans) indicating the purposes for which such
expenditures were made.
Each Distribution Plan provides that it will continue in effect with
respect to the 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 the Fund pursuant to a transfer agency and shareholder service agreement
with HighMark dated as of February 15, 1997 (the "Transfer Agency Agreement").
As the Fund's transfer agent, State Street Bank and Trust Company processes
purchases and redemptions of the Fund's Shares and maintains the Fund's
Shareholder transfer and accounting records, such as the history of purchases,
redemptions, dividend distributions, and similar transactions in a
Shareholders's account.
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<PAGE> 111
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. The Distributor has agreed to pay State Street Bank and Trust Company
annual fees at the rate of $15,000 per Fiduciary class. In addition, there
will be an annual account maintenance fee of $25.00 per account and IRA
Custodial fees totaling $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 the Fund to increase the Fund's net income
available for distribution as dividends.
Union Bank of California, N.A. serves as custodian to the Fund
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 the
Fund's cash and securities, handling the receipt and delivery of securities,
and collecting interest and dividends on the Fund's investments.
Under the Custodian Agreement, HighMark has agreed to pay Union Bank
of California a domestic custodian fee with respect to the Fund at an annual
rate of .01% of the Fund's average daily net assets, with an annual minimum fee
of $2,500, plus certain transaction fees. Union Bank of California is also
entitled to be reimbursed by HighMark for its reasonable out-of-pocket expenses
incurred in the performance of its duties under the Custodian Agreement. Global
custody fees shall be determined on a transaction basis. Union Bank of
California may periodically voluntarily reduce all or a portion of its
custodian fee with respect to the Fund to increase the Fund's net income
available for distribution as dividends.
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,
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<PAGE> 112
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 seventeen 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, the California Tax-Free Money Market Fund, and
the Small Cap Value 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.
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 the Fund are entitled to receive the assets available for
distribution belonging to the 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 the Fund" means the consideration received by
HighMark upon the issuance or sale of Shares in the 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 the 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.
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<PAGE> 113
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 the Fund will be required
in connection with a matter, the 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 the Fund only if approved by a majority of the outstanding
Shares of such Fund. However, Rule 18f-2 also provides that the ratification of
independent public accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
Shareholders of HighMark voting without regard to series.
Although not governed by Rule 18f-2, Retail Shares of the 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.
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<PAGE> 114
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 Fund 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 Fund may also include calculations, such as
hypothetical compounding examples, which describe hypothetical investment
results in such communications. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of any of
the Fund.
The 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
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<PAGE> 115
Fund over the applicable period 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.
(6)
Standardized Yield = 2 [( a-b + 1) - 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.
The distribution rate for the 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.
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
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<PAGE> 116
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 Prospectuses and this Statement of Additional Information are not
an offering of the securities herein described in any state in which such
offering may not lawfully be made.
No salesperson, dealer, or other person is authorized to give any
information or make any representation other than those contained in the
Prospectuses and this Statement of Additional Information.
As of September 8, 1998, HighMark believes that the trustees and
officers of HighMark, as a group, owned less than 1% of the Shares of
the Fund. As of September 8, 1998, HighMark believes that Union Bank of
California was the shareholder of record of 100% of the Shares of the Fund. As
of September 8, 1998, HighMark believes that Union Bank of California had voting
power with respect to 100% of the Fund's 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 September 8, 1998.
<TABLE>
<CAPTION>
5% OR MORE BENEFICIAL OWNERS
----------------------------
PERCENT OF
BENEFICIAL
NAME AND ADDRESS OWNERSHIP
- ---------------- ----------
GROWTH FUND
-----------
FIDUCIARY SHARES
----------------
<S> <C> <C>
Union Bank of California Retirement Plan 18.66%
350 California Street
San Francisco, CA 94104
Union Bank of California 401(k) Plan 17.17%
350 California Street
San Francisco, CA 94104
INCOME EQUITY FUND
------------------
FIDUCIARY SHARES
----------------
Union Bank of California 401(k) Plan 11.47%
350 California Street
San Francisco, CA 94104
BALANCED FUND
-------------
FIDUCIARY SHARES
----------------
Union Bank of California 401(k) Plan 11.88%
350 California Street
San Francisco, CA 94104
NEC Savings Plan 9.45%
8 Old Sod Farm Road
Melville, NY 11747
Union Bank of California Retirement Plan 8.44%
350 California Street
San Francisco, CA 94104
Nissan 401(k) Plan 5.17%
P.O. Box 191
Gardena, CA 90248
</TABLE>
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<PAGE> 117
<TABLE>
<CAPTION>
5% OR MORE BENEFICIAL OWNERS
----------------------------
PERCENT OF
BENEFICIAL
NAME AND ADDRESS OWNERSHIP
- ---------------- ----------
BOND FUND
---------
FIDUCIARY SHARES
----------------
<S> <C> <C>
Union Bank of California 401(k) Plan 6.55%
350 California Street
San Francisco, CA 94104
100% U.S. TREASURY MONEY MARKET FUND
------------------------------------
FIDUCIARY SHARES
----------------
Spitzer Escrow 5.82%
c/o C & S Wilshire Park Place
3700 Wilshire Blvd., Suite 820
Los Angeles, CA 90010-3085
VALUE MOMENTUM FUND
-------------------
FIDUCIARY SHARES
----------------
Union Bank of California Retirement Plan 13.09%
350 California Street
San Francisco, CA 94104
Union Bank of California 401(k) Plan 9.05%
350 California Street
San Francisco, CA 94104
EMERGING GROWTH FUND
--------------------
FIDUCIARY SHARES
----------------
The Bank of Tokyo-Mitsubishi, Ltd. 401(k) Plan 5.06%
1251 Avenue of the Americas
New York, NY 10020
INTERNATIONAL EQUITY FUND
-------------------------
FIDUCIARY SHARES
----------------
Union Bank of California Retirement Plan 56.64%
350 California Street
San Francisco, CA 94104
BLUE CHIP GROWTH FUND
---------------------
FIDUCIARY CLASS
---------------
Bank of Tokyo-Mitsubishi Trust Co. 15.88%
1251 Avenue of the Americas
New York, NY 10020
TDK USA Pension Plan 6.42%
12 Harbor Park Drive
Port Washington, NY 11050
CONVERTIBLE SECURITIES FUND
---------------------------
FIDUCIARY CLASS
---------------
Bank of Tokyo-Mitsubishi Trust Co. 28.25%
1251 Avenue of the Americas
New York, NY 10020
Mitsui & Co. Pension Plan 7.79%
c/o Bank of Tokyo-Mitsubishi Trust Co.
1251 Avenue of the Americas
New York, NY 10020
GOVERNMENT SECURITIES FUND
--------------------------
FIDUCIARY CLASS
---------------
Bank of Tokyo-Mitsubishi Trust Co. 14.56%
1251 Avenue of the Americas
New York, NY 10020
Marubeni America Retirement Plan 8.25%
450 Lexington Avenue
New York, NY 10017
TDK USA Pension Plan 7.07%
12 Harbor Park Drive
Port Washington, NY 11050
Tokio Marine Retirement Plan 6.09%
101 Park Avenue
New York, NY 10178
</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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