<PAGE> 1
As filed with the Securities and Exchange Commission
on June 6, 1998
Registration Nos. 33-12608 and 811-5059
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.
Post-Effective Amendment No. 24 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT [X]
COMPANY ACT OF 1940
Amendment No. 27 [X]
HIGHMARK FUNDS
(Exact Name of Registrant as Specified in Charter)
Oaks, Pennsylvania 19456
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(Address of principal executive offices)
(800) 433-6884
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(Registrant's telephone number, including area code)
Name and address of agent for service:
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Martin E. Lybecker, Esq.
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
Approximate Date of Proposed Offering: Continuous
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b), or
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on [date] pursuant to paragraph (a)(i)
[X] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on [date] pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
post-effective amendment No. __ filed on [date].
Tile of Securities Being Registered: Shares of Beneficial Interest
<PAGE> 2
CROSS REFERENCE SHEET
HIGHMARK SMALL CAP VALUE FUND
FIDUCIARY SHARES
<TABLE>
<CAPTION>
FORM N-1A PART A ITEM PROSPECTUS CAPTION
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<S><C> <C>
1. Cover Page Cover Page
2. Synopsis Fee Table
3. Condensed Financial Information Financial Highlights; Performance Information
4. General Description of Registrant Fund Description; Investment Objectives; Investment Policies; General
Information--Description of HighMark & Its Shares
5. Management of the Fund Service Arrangements
5A. Management's Discussion of Fund
Performance Inapplicable
6. Capital Stock and Other Securities How to Purchase Shares; Exchange Privileges; Redemption of Shares;
Dividends; Federal Taxation; Service Arrangements--Administrator;
Distributor; The Distribution Plan; General Information--Description of
HighMark & Its Shares; General Information--Miscellaneous
7. Purchase of Securities Being Offered How to Purchase Shares; Exchange Privileges; Service Arrangements--
Administrator; Distributor; The Distribution Plan
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings Inapplicable
</TABLE>
<PAGE> 3
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
HighMark's:
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.
<PAGE> 4
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.
______________, 1998
Fiduciary Shares
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<PAGE> 5
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 capitalizations of issuers comprising the relevant market small
capitalization index. Currently the relevant market indexes used are the S&P
600 (domestically) and the _____________ (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? The investment advisory division of Union Bank of
California, N.A. serves as the Advisor to HighMark. (See "The Advisor.")
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<PAGE> 6
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.")
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.")
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<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
FEE TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
FUND DESCRIPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
INVESTMENT OBJECTIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
INVESTMENT POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Money Market Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Illiquid and Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Other Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PURCHASE AND REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
EXCHANGE PRIVILEGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Federal Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SERVICE ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
The Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
The Sub-Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Shareholder Service Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Banking Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
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<TABLE>
<S> <C>
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Description of HighMark & Its Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
DESCRIPTION OF PERMITTED INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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<PAGE> 9
FEE TABLE
FIDUCIARY SHARES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0%
percentage of original purchase
price or redemption proceeds, as
applicable)
Redemption Fees (as a percentage 0%
of amount redeemed, if
applicable)(b)
Exchange Fee(a) $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary reduction) 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
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<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) Absent voluntary fee waivers, OTHER EXPENSES would 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.
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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 The Pacific
Alliance division of Union Bank of California, N.A. (the "Adviser").
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 capitalizations of issuers
comprising the relevant market small capitalization index, the S&P 600
(domestically) and the _________________(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
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<PAGE> 11
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. Under
normal markets with respect to its foreign investments, the Fund typically will
invest up to the greater of either (a) 20% of its total assets in any one
industry group or foreign country at the time of purchase or (b) 150% of the
weighting of such country or industry as represented in the Morgan Stanley
Capital International EAFE Index at the time of purchase, provided that the
Fund's investment in any industry will never exceed 25% of the Fund's total
assets at the time of purchase. Exposure to emerging markets in the Fund will
usually be limited so that no more than approximately 20% of the Fund's total
assets will be invested in foreign securities.
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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<PAGE> 12
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 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,
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<PAGE> 13
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.
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
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<PAGE> 14
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 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.
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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 emerging growth companies
and companies in special equity situations, 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 emerging
growth companies may be less liquid, and subject to more abrupt or erratic
market movements than securities of larger, more established growth companies.
Since a "special equity situation" may involve a significant change from a
company's past experiences, the uncertainties in the appraisal of the future
value of the company's equity securities and the risk of a possible decline in
the value of the Fund's investments are significant.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate will not be a factor preventing a
sale or purchase when the Advisor believes investment considerations warrant.
The Fund's portfolio turnover rate may vary greatly from year to year as well
as within a particular year. High portfolio turnover rates generally will
result in correspondingly higher brokerage and other transactions costs to the
Fund and could involve the realization of capital gains that would be taxable
when distributed to Shareholders of the Fund. See FEDERAL TAXATION.
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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 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
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<PAGE> 17
reserves the right to reject a purchase 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.
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<PAGE> 18
Exchanges will be made on the basis of the relative net asset values
of the Shares exchanged plus any applicable sales charge. Exchanges are
subject to the terms and conditions stated herein and the terms and conditions
stated in the respective prospectuses of the Funds.
Certain entities (including participating organizations and Union Bank
of California and its affiliates), however, may charge customers a fee with
respect to exchanges made on the customer's behalf. Information about these
charges, if any, can be obtained by the entity effecting the exchange and this
Prospectus should be read in conjunction with that information.
A Shareholder wishing to exchange Shares in the 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.
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<PAGE> 19
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 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
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<PAGE> 20
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 and hedging activities may
give rise to ordinary income or loss to the extent such income or loss results
from fluctuations in value of the foreign currency concerned. In addition,
such activities will likely produce a difference between book income and
taxable income. This difference may cause a portion of the Fund's income
distributions to constitute a return of capital for tax purposes or require the
Fund to make distributions exceeding book income to qualify as a regulated
investment company for tax purposes.
Investment in an entity that qualifies as a "passive foreign
investment company" under the Code could subject the Fund to a U.S. federal
income tax or other charge on certain "excess distributions" received with
respect to the investment, and on the proceeds from disposition of the
investment.
Additional information regarding federal taxes is contained in the
Statement of Additional Information. However, the foregoing and the material
in the Statement of Additional Information are only brief summaries of some of
the important tax considerations generally affecting the Fund and its
Shareholders. In addition, the foregoing discussion and the federal tax
information in the Statement of Additional Information are based on tax laws
and regulations which are in effect as of the date of this Prospectus; these
laws and regulations may subsequently change, and such changes could be
retroactive.
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Shareholders will be advised at least annually as to the federal
income tax status of distributions made during the year.
SERVICE ARRANGEMENTS
THE ADVISOR
The investment advisory division of Union Bank of California, N.A.,
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:
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Richard Earnest. Mr. Earnest, Senior Vice President of the Advisor,
will serve as team co-leader of the Fund. He has been with Union Bank of
California, N.A., and its predecessor, Union Bank, since 1964.
Elizabeth Pearce. Ms. Pearce, Vice President of the Advisor, will
serve as team co-leader of the Fund. She has been with the Union Bank of
California, N.A., and its predecessor, The Bank of California, N.A., 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 subadvisory
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 assets.
Brandes is entitled to a fee, which is calculated daily and paid
monthly out of the Advisor's fee, at an annual rate of .50% of the average
daily net assets of the Fund that have been allocated to Brandes.
The Fund's assets invested in foreign securities and managed by
Brandes are team-managed by Brandes' 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.
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The Administrator is entitled to a fee, which is calculated daily and
paid monthly, at an annual rate of .20% of the average daily net assets of the
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.
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
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<PAGE> 24
Union Bank of California believes that it may perform the services for
the Fund contemplated by its investment advisory agreement with HighMark
without a violation of applicable banking laws and regulations. Union Bank of
California also believes that it may perform sub-administration and
sub-accounting services on behalf of the Fund, 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.
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
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<PAGE> 25
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 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
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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.
AMERICAN DEPOSITARY RECEIPTS (ADRs) and EUROPEAN DEPOSITARY RECEIPTS
(EDRs)--Receipts, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
include American Depositary Shares and New York Shares. EDRs, which are
sometimes referred to as Continental Depositary Receipts ("CDRs"), are
receipts, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all the costs of
the unsponsored facility. The depositary of an unsponsored facility frequently
is under no obligation to distribute shareholder communications received from
the issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.
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<PAGE> 27
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, however, 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.
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
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<PAGE> 28
by the parties, at a price set at the time of the contract. Under normal
circumstances, consideration of the prospect for changes in currency exchanges
rates will be incorporated into the Fund's long-term investment strategies.
However, the Advisor and Sub-Advisor believe that it is important to have the
flexibility to enter into forward currency contracts when it determines that
the best interests of the Fund will be served.
When the Advisor and Sub-Advisor believe that the currency of a
particular country may suffer a significant decline against another currency,
the Fund may enter into a currency contract to sell, for the appropriate
currency, the amount of foreign currency approximating the value of some or all
of the Fund's securities denominated in such foreign currency.
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
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<PAGE> 29
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
"closing purchase transaction"--the purchase of an
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<PAGE> 30
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 [100]% of the
resale price stated in the agreement. Repurchase agreements involving
government securities are not subject to a Fund's fundamental investment
limitation on
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<PAGE> 31
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.
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
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<PAGE> 32
"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 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).
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<PAGE> 33
U.S. TREASURY OBLIGATIONS--Bills, notes, and bonds issued by the U.S.
Treasury, as well as separately traded interest and principal component parts
of such obligations known as Separately Traded Registered Interest and
Principal Securities ("STRIPS") that are transferable through the Federal
book-entry system.
U.S. Government Securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities,
although, as a result, the yields available from U.S. Government Securities are
generally lower than the yields available from otherwise comparable corporate
fixed-income securities. Like other fixed-income securities, however, the
values of U.S. Government Securities change as interest rates fluctuate.
Fluctuations in the value of portfolio securities will in many cases not affect
interest income on existing portfolio securities, but will be reflected in the
Fund's net asset value. Because the magnitude of these fluctuations will
generally be greater at times when a Fund's average maturity is longer, under
certain market conditions the Fund may invest in short-term investments
yielding lower current income rather than investing in higher yielding
longer-term securities.
VARIABLE AND FLOATING RATE INSTRUMENTS--Obligations that may carry
variable or floating rates of interest, may involve conditional or
unconditional demand features and may include variable amount master demand
notes. The interest rates on these securities may be reset daily, weekly,
quarterly or some other reset period, and may have a floor or ceiling on
interest rate changes. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates. A
demand instrument with a demand notice period exceeding seven days may be
considered illiquid if there is no secondary market for such security.
WARRANTS--Securities that entitle the holder to buy a proportionate
amount of common stock at a specified price for a limited or unlimited period
of time. Warrants are often freely transferable and are traded on major stock
exchanges.
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<PAGE> 34
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
Pacific Alliance,
a division of Union Bank of California, N.A.
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
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<PAGE> 35
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HIGHMARK
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
HIGHMARK OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
NOT FDIC INSURED
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<PAGE> 36
CROSS REFERENCE SHEET
HIGHMARK SMALL CAP VALUE FUND
RETAIL SHARES
<TABLE>
<CAPTION>
FORM N-1A PART A ITEM PROSPECTUS CAPTION
- --------------------- ------------------
<S> <C>
1. Cover Page Cover Page
2. Synopsis Fee Table
3. Condensed Financial Information Financial Highlights; Performance
Information
4. General Description of Registrant Fund Description; Investment
Objectives; Investment Policies; General
Information--Description of HighMark &
Its Shares
5. Management of the Fund Service Arrangements
5A. Management's Discussion of Fund
Performance Inapplicable
6. Capital Stock and Other Securities How to Purchase Shares; Exchange
Privileges; Redemption of Shares;
Dividends; Federal Taxation; Service
Arrangements--Administrator; Distributor;
The Distribution Plan; General
Information--Description of HighMark &
Its Shares; General Information--
Miscellaneous
7. Purchase of Securities Being Offered How to Purchase Shares; Exchange
Privileges; Service Arrangements--
Administrator; Distributor; The
Distribution Plan
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings Inapplicable
</TABLE>
<PAGE> 37
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 HighMark's:
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.
______________, 1998
Retail Shares
<PAGE> 38
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 capitalizations of issueres comprising the relevant market small
capitalization index. Currently the relevant market indexes used are the S&P
600 (domestically) and the ______________ (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? The investment advisory division of Union Bank of
California, N.A. serves as the Advisor to HighMark. (See "The Advisor.")
-2-
<PAGE> 39
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.")
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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<PAGE> 40
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY .....................................................................................2
FEE TABLE....................................................................................6
FUND DESCRIPTION.............................................................................8
INVESTMENT OBJECTIVE.........................................................................8
INVESTMENT POLICIES..........................................................................8
GENERAL .....................................................................................9
Money Market Instruments.............................................................9
Illiquid and Restricted Securities...................................................9
Lending of Portfolio Securities......................................................9
Other Investments....................................................................9
Risk Factors........................................................................11
PORTFOLIO TURNOVER..........................................................................13
HOW TO PURCHASE SHARES......................................................................13
How to Purchase By Mail.............................................................14
How to Purchase By Wire.............................................................15
How to Purchase Through an Automatic Investment Plan ("AIP")........................15
How to Purchase Through Financial Institutions......................................15
Alternative Sales Charge Options....................................................16
Class A Shares: Front-End Sales Charges...........................................17
Letter of Intent....................................................................18
Rights of Accumulation..............................................................18
Sales Charge Waivers................................................................18
Reductions for Qualified Groups.....................................................20
Class B Shares......................................................................20
Contingent Deferred Sales Charge....................................................20
EXCHANGE PRIVILEGES.........................................................................21
REDEMPTION OF SHARES........................................................................23
By Mail.............................................................................23
Telephone Transactions..............................................................23
Systematic Withdrawal Plan ("SWP")..................................................24
</TABLE>
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<PAGE> 41
<TABLE>
<S> <C>
DIVIDENDS...................................................................................25
TAXES.......................................................................................26
Federal Taxation....................................................................26
SERVICE ARRANGEMENTS........................................................................27
The Advisor.........................................................................27
The Sub-Advisor.....................................................................28
Administrator.......................................................................29
The Transfer Agent..................................................................29
Shareholder Service Plan............................................................30
Distributor.........................................................................30
The Distribution Plans..............................................................30
Banking Laws........................................................................31
Custodian...........................................................................32
GENERAL INFORMATION.........................................................................32
Description of HighMark & Its Shares................................................32
Performance Information.............................................................32
Miscellaneous.......................................................................33
DESCRIPTION OF PERMITTED INVESTMENTS........................................................34
</TABLE>
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<PAGE> 42
FEE TABLE
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
------- -------
<S> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES(a)
Maximum Sales Load Imposed on 4.50% 0%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0% 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0% 5.00%
percentage of original purchase
price or redemption proceeds, as
applicable)(b)
Redemption Fees (as a percentage 0% 0%
of amount redeemed, if
applicable)(c)
Exchange Fee(a) $ 0 $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary
reduction) 1.00% 1.00%
12b-1 Fees (after voluntary
reduction) (d) 0.25% 0.75%
Other Expenses (after voluntary
reduction)(e) 0.58% 0.73%
----- ----
Total Fund Operating
Expenses(f) 1.83% 2.48%
</TABLE> ===== =====
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<PAGE> 43
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*
------ -------
Small Cap Value Fund
<S> <C> <C>
Class A Shares $63 $100
Class B Shares $75 $107
</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.)
(d) As indicated under SERVICE ARRANGEMENTS -- the Distribution Plan below, the
Distributor may voluntarily reduce the 12b-1 fee.
(e) Absent voluntary fee waivers, OTHER EXPENSES would be: 0.73% for the Class A
Shares of the Fund and 0.73% for the Class B Shares of the Fund.
(f) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be: 2.23%
for the Class A Shares of the Fund and 3.23% for the Class B Shares of the
Fund.
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<PAGE> 44
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 the Pacific Alliance
division of Union Bank of California, N.A. (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 of market capitalizations of issuers
comprising the relevant market small capitalization index, the S&P 600
(domestically) and the _________________________ (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
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<PAGE> 45
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. Under normal markets with
respect to its foreign investments, the Fund typically will invest up to the
greater of either (a) 20% of its total assets in any one industry group or
foreign country at the time of purchase or (b) 150% of the weighting of such
country or industry as represented in the Morgan Stanley Capital International
EAFE Index at the time of purchase, provided that the Fund's investment in any
industry will never exceed 25% of the Fund's total assets at the time of
purchase. Exposure to emerging markets in the Fund will usually be limited so
that no more than approximately 20% of the Fund's total assets will be invested
in foreign securities.
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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<PAGE> 46
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 the 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 the Sub-Advisor, and, to the extent required by applicable law, the
Advisor and the 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
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<PAGE> 47
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 smallcap 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.
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<PAGE> 48
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 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
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<PAGE> 49
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 emerging growth companies
and companies in special equity situations, 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 emerging growth companies
may be less liquid, and subject to more abrupt or erratic market movements than
securities of larger, more established growth companies. Since a "special equity
situation" may involve a significant change from a company's past experiences,
the uncertainties in the appraisal of the future value of the company's equity
securities and the risk of a possible decline in the value of the Fund's
investments are significant.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate will not be a factor preventing a
sale or purchase when the Advisor believes investment considerations warrant.
The Fund's portfolio turnover rate may vary greatly from year to year as well as
within a particular year. High portfolio turnover rates generally will result in
correspondingly higher brokerage and other transactions costs to the Fund and
could involve the realization of capital gains that would be taxable when
distributed to Shareholders of the Fund. See FEDERAL TAXATION.
HOW TO PURCHASE SHARES
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
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<PAGE> 50
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 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.
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<PAGE> 51
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 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.
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<PAGE> 52
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
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<PAGE> 53
distribution and service fees and contingent deferred sales charges on Class B
shares prior to conversion would be less than the initial sales charge on Class
A shares, and to what extent such differential would be offset by the expected
higher yield of Class A shares. Class A shares will normally be more beneficial
to you if you qualify for reduced sales charges as described below.
The Trustees of HighMark have determined that currently no conflict of
interest exists between the Class A and Class B shares. On an ongoing basis, the
Trustees of HighMark, pursuant to their fiduciary duties under the Investment
Company Act of 1940, as amended (the "1940 Act"), and state laws, will seek to
ensure that no such conflict arises.
CLASS A SHARES: 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 Price Offering Price Amount Invested Offering
- ------------------------ -------------- --------------- --------
<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
-17-
<PAGE> 54
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 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):
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<PAGE> 55
(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;
(6) Individuals who purchase Class A Shares with proceeds received in
connection with a distribution paid from a Union Bank of California
trust or agency account;
(7) Investment advisors or financial planners regulated by a federal or
state governmental authority who are purchasing Class A Shares for their
own account or for an account for which they are authorized to make
investment decisions (i.e., a discretionary account) and who charge a
management, consulting or other fee for their services; and clients of
such investment advisors or financial planners who place trades for
their own accounts if the accounts are linked to the master account of
such investment advisor or financial planner on the books and records of
a broker or agent;
(8) Investors purchasing Class A Shares with proceeds from a redemption of
Shares of another open-end investment company (other than HighMark
Funds) on which a sales charge was paid if such redemption occurred
within thirty (30) days prior to the date of the purchase order.
Satisfactory evidence of the purchaser's eligibility must be provided at
the time of purchase (e.g., a confirmation of the redemption);
(9) Brokers, dealers and agents who are purchasing for their own account and
who have a sales agreement with the Distributor, and their employees
(and their spouses and children under the age of 21);
(10) Investors purchasing Class A Shares on behalf of a qualified prototype
retirement plan (other than an IRA, SEP-IRA or Keogh) sponsored by Union
Bank of California or any other parties;
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<PAGE> 56
(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 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.
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<PAGE> 57
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.
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
-21-
<PAGE> 58
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.
-22-
<PAGE> 59
Certain entities (including Participating Organizations and Union Bank
of California and its affiliates), however, may charge customers a fee with
respect to exchanges made on the customer's behalf. Information about these
charges, if any, can be obtained by the entity effecting the exchange and this
Prospectus should be read in conjunction with that information.
A Shareholder wishing to exchange Shares in the 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.
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<PAGE> 60
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.
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
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<PAGE> 61
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 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.
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<PAGE> 62
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-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.
-26-
<PAGE> 63
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 and hedging activities may give
rise to ordinary income or loss to the extent such income or loss results from
fluctuations in value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book income and taxable
income. This difference may cause a portion of the Fund's income distributions
to constitute a return of capital for tax purposes or require the Fund to make
distributions exceeding book income to qualify as a regulated investment company
for tax purposes.
Investment in an entity that qualifies as a "passive foreign investment
company" under the Code could subject the Fund to a U.S. federal income tax or
other charge on certain "excess distributions" received with respect to the
investment, and on the proceeds from disposition of the investment.
Additional information regarding federal taxes is contained in the
Statement of Additional Information. However, the foregoing and the material in
the Statement of Additional Information are only brief summaries of some of the
important tax considerations generally affecting each Fund and its Shareholders.
In addition, the foregoing discussion and the federal tax information in the
Statement of Additional Information are based on tax laws and regulations which
are in effect as of the date of this Prospectus; these laws and regulations may
subsequently change, and such changes could be retroactive.
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<PAGE> 64
Shareholders will be advised at least annually as to the federal income
tax status of distributions made during the year.
SERVICE ARRANGEMENTS
THE ADVISOR
The Investment advisory division of Union Bank of California, N.A.,
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:
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<PAGE> 65
Richard Earnest. Mr. Earnest, Senior Vice President of the Advisor, will
serve as team co-leader of the Fund. He has been with Union Bank of California,
N.A., and its predecessor, Union Bank, since 1964.
Elizabeth Pearce. Ms. Pearce, Vice President of the Advisor, will serve
as team co- leader of the Fund. She has been with the Union Bank of California,
N.A., and its predecessor, The Bank of California, N.A., 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 subadvisory
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 assets.
Brandes is entitled to a fee, which is calculated daily and paid monthly
out of the Advisor's fee, at an annual rate of .50% of the average daily net
assets of the Fund that have been allocated to Brandes.
The Fund's assets invested in foreign securities and managed by Brandes
are teammanaged by Brandes' 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.
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The Administrator is entitled to a fee, which is calculated daily and
paid monthly, at an annual rate of .20% of the average daily net assets of the
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.
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.
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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 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
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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
Union Bank of California believes that it may perform the services for
the Fund contemplated by its investment advisory agreement with HighMark without
a violation of applicable banking laws and regulations. Union Bank of California
also believes that it may perform sub-administration and sub-accounting services
on behalf of the Fund, without a violation of applicable banking laws and
regulations. Future changes in federal or state statutes and regulations
relating to permissible activities of banks or bank holding companies and their
subsidiaries and affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could change the manner in which Union Bank of California or the Advisor could
continue to perform such services for the Fund. For a further discussion of
applicable banking laws and regulations, see the Statement of Additional
Information.
CUSTODIAN
Union Bank of California also serves as the custodian and as a
shareholder servicing agent for the 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.
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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.
HighMark believes that as of [ ], 1998, there was no person who owned of
record or beneficially more than 25% of the Class A or Class B Shares of the
Fund.
PERFORMANCE INFORMATION
From time to time, HighMark may advertise the aggregate total return,
average annual total return, yield and distribution rate with respect to the
Class A and Class B Shares of 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
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.
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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, however, 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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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 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
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(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 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
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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.
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
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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 $1000, 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
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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.
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.
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<PAGE> 77
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.
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<PAGE> 78
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
Pacific Alliance,
a division of Union Bank of California, N.A.
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
-42-
<PAGE> 79
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HIGHMARK OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY HIGHMARK OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
NOT FDIC INSURED
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<PAGE> 80
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> 81
HIGHMARK FUNDS
HIGHMARK SMALL CAP VALUE FUND
STATEMENT OF ADDITIONAL INFORMATION
_______________, 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 __________, 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> 82
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-Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Glass-Steagall Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Administrator and Sub-Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Shareholder Services Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
i
<PAGE> 83
<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>
ii
<PAGE> 84
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). The HighMark Small Cap
Value Fund (the "Fund") commenced operations on _______, 1998.
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> 85
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> 86
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 Pacific Alliance, a division of Union Bank of
California, N.A., (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 33a% 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> 87
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> 88
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> 89
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> 90
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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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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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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<PAGE> 102
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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<PAGE> 103
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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<PAGE> 104
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> 105
7. Act as an underwriter of securities of other issuers except as
it may be deemed an underwriter in selling a Fund security.
8. Issue senior securities (as defined in the Investment Company
Act of 1940) except in connection with permitted borrowings as
described above or as permitted by rule, regulation or order
of the Securities and Exchange Commission.
9. Purchase or retain securities of an issuer if, to the
knowledge of HighMark, an officer, trustee, partner or
director of HighMark or the Advisor or Sub-Advisors of
HighMark owns beneficially more than 1/2 or 1% of the shares
or securities or such issuer and all such officers, trustees,
partners and directors owning more than 1/2 or 1% of such
shares or securities together own more than 5% of such shares
or securities.
10. Invest in interest in oil, gas, or other mineral exploration
or development programs and oil, gas or mineral leases.
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 [___%]. 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> 106
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> 107
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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<PAGE> 108
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> 110
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> 111
<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> 112
<TABLE>
<S> <C> <C>
Kathryn L. Stanton Vice President and Assistant Employee since 1994. Prior to 1992,
1 Freedom Valley Drive Secretary; 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.
Barbara A. Nugent Vice President and Assistant Employee since 1996. Prior to April
1 Freedom Valley Drive Secretary. 1996, associate with Drinker, Biddle &
Oaks, PA 19456 Reath from 1994 to 1996. Prior to 1996,
Assistant Vice President/Administration
for Delaware Service Company, Inc. from
1992 to 1993 and Assistant
Vice-Operations of Delaware Service
Company, Inc. from 1988 to 1992.
</TABLE>
The Trustees of HighMark receive quarterly retainer fees and fees and
expenses for each meeting of the Board of Trustees attended. No employee,
officer or stockholder of SEI Fund Resources and/or SEI 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, and Lee, and Ms. Stanton, Ms. Orlow, and Ms. Nugent are employees
and officers of SEI Investments Company. While SEI Fund Resources is a
distinct legal entity from SEI 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 $___________.
For the disinterested Trustees, the
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<PAGE> 113
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 None None
David A. Goldfarb None None
William R. Howell None None
Joseph C. Jaeger None None
Frederick J. Long None None
Paul L. Smith None None
Michael L. Noel* None None
Robert M. Whitler* None None
</TABLE>
*Members of Advisory Board.
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 Union Bank
of California 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> 114
of that Fund, or by Union Bank of California. The Investment Advisory Agreement
terminates automatically in the event of any assignment, as defined in the 1940
Act.
The Investment Advisory Agreement provides that Union Bank of
California will not be liable for any error of judgment or mistake of law or
for any loss suffered by HighMark in connection with the Advisor's services
under the Investment Advisory Agreement, except a loss resulting from a breach
of fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith, or gross negligence on the
part of the Advisor in the performance of its duties, or from reckless
disregard by the Advisor of its duties and obligations thereunder.
On April 1, 1996, the Bank of California, N.A., HighMark's
then-investment advisor, combined with Union Bank and the resulting bank
changed its name to Union Bank of California, N.A. At the same time, the
banks' investment management divisions were combined. Each of the Bank of
California and Union Bank (or its predecessor bank) has been in banking since
the early 1900's, and historically, each has had significant investment
functions within its trust and investment division. Union Bank of California,
N.A. is a subsidiary of UnionBanCal Corporation, a publicly traded corporation,
a majority of the shares of which are owned by Bank of Tokyo - Mitsubishi,
Limited.
For the services provided and expenses assumed by the Advisor pursuant
to the Investment Advisory Agreement, Union Bank of California is entitled to
receive fees from the Fund as described in the Fund's Prospectus.
THE SUB-ADVISORS
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 daily and paid monthly at an annual rate of .50% of the average
daily net assets of the Fund. 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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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-Advisors in their best judgment
and in a manner deemed fair and reasonable to Shareholders. The primary
consideration is prompt execution of orders in an effective manner at the most
favorable price. Subject to this consideration, dealers who provide
supplemental investment research to the Advisor or the Sub-Advisors may receive
orders for transactions by HighMark. Information so received is in addition to
and not in lieu of services required to be performed by the Advisor or the
Sub-Advisors and does not reduce the advisory fees payable to Union Bank of
California by HighMark. Such information may be useful to the Advisor or the
Sub-Advisors in serving both HighMark and other clients and, conversely,
supplemental information obtained by the placement of business of other clients
may be useful to the Advisor in carrying out its obligations to HighMark.
Upon adoption by the Board of Trustees of certain procedures pursuant
to Rule 17e-1 under the Investment Company Act, HighMark may execute portfolio
transactions involving the payment of a brokerage fee through Union Bank of
California, SEI 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, Union Bank of California, or their affiliates, and will not
give preference to correspondents of Union Bank of California with respect to
such securities, savings deposits, repurchase agreements and reverse repurchase
agreements.
Investment decisions for the Fund of HighMark are made independently
from those for the other Funds or any other investment company or account
managed by the Advisor, the Sub-Advisors or Union Bank of California. However,
any such other investment company or account may invest in the same securities
as HighMark. When a purchase or sale of the same security is made at
substantially the same time on behalf of 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-Advisors and Union Bank of California believe to be equitable to the
Fund(s) and such other investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by the
Fund or the size of the position obtained by the Fund. To the
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extent permitted by law, the Advisor, or the Sub-Advisors and Union Bank of
California may aggregate the securities to be sold or purchased for 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 Agreements, in making
investment recommendations for HighMark, the Advisor or the Sub-Advisors will
not inquire or take into consideration whether an issuer of securities proposed
for purchase or sale by HighMark is a customer of the Advisor, the Sub-Advisors
or Union Bank of California, their parent or its subsidiaries or affiliates
and, in dealing with its commercial customers, the Advisor, the Sub-Advisors
and Union Bank of California, their parent, subsidiaries, and affiliates will
not inquire or take into consideration whether securities of such customers are
held by HighMark.
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation
and interpretation to the effect that the Glass-Steagall Act and such decision:
(a) forbid a bank holding company registered under the Federal Bank Holding
Company Act of 1956 (the "Holding Company Act") or any non-bank affiliate
thereof from sponsoring, organizing, or controlling a registered, open-end
investment company continuously engaged in the issuance of its shares, but (b)
do not prohibit such a holding company or affiliate from acting as investment
advisor, transfer agent, and custodian to such an investment company. In 1981,
the United States Supreme Court held in Board of Governors of the Federal
Reserve System v. Investment Company Institute that the Board did not exceed
its authority under the Holding Company Act when it adopted its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisors to registered closed-end investment companies. In
the Board of Governors case, the Supreme Court also stated that if a national
bank complies with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisors to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
Union Bank of California believes that the Advisor and the
Sub-Advisors possess the legal authority to perform the services for the Fund
contemplated by the Investment Advisory Agreement and the Sub-Advisory
Agreements and described in the Prospectuses and this Statement of Additional
Information and has so represented in the Investment Advisory Agreement and the
Sub-Advisory Agreements. Future changes in either federal or state statutes and
regulations relating to the permissible activities of banks or bank holding
companies and the subsidiaries or affiliates of those entities, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations could prevent or restrict the Advisor from
continuing to perform such services for HighMark. Depending upon
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the nature of any changes in the services that could be provided by the
Advisor, or the Sub-Advisors, the Board of Trustees of HighMark would review
HighMark's relationship with the Advisor and the Sub-Advisors and consider
taking all action necessary in the circumstances.
Should further legislative, judicial or administrative action prohibit
or restrict the activities of Union Bank of California, its affiliates, and its
correspondent banks in connection with Customer purchases of Shares of
HighMark, such Banks might be required to alter materially or discontinue the
services offered by them to Customers. It is not anticipated, however, that any
change in HighMark's method of operations would affect its net asset value per
Share or result in financial losses to any Customer.
ADMINISTRATOR AND SUB-ADMINISTRATOR
SEI Fund Resources (the "Administrator") serves as administrator to
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,
CoreFunds, Inc., First American Funds, Inc., First American Investment Funds,
Inc., The Arbor Fund, Marquis Funds(R), Morgan Grenfell Investment Trust, The
PBHG Funds, Inc., The Achievement Funds Trust, Bishop Street Funds, CrestFunds,
Inc., STI Classic Variable Trust, Monitor Funds, FMB Funds, Inc., TIP Funds,
ARK Funds, SEI Asset Allocation Trust, and SEI Institutional Investments Trust.
Pursuant to the Administration Agreement, the Administrator provides
the Group with administrative services, regulatory reporting, fund accounting
and related portfolio accounting services, all necessary office space,
equipment, personnel, compensation and facilities for handling the affairs of
the Group. As described below, the Administrator has delegated part of its
responsibilities under the Administration Agreement to Union Bank of
California, N.A.
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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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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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 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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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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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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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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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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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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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> 126
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 _____________, 1998, HighMark believes that the trustees and
officers of HighMark, as a group, owned less than one percent of the Shares of
the Fund. As of ___________, 1998, HighMark believes that Union Bank of
California was the shareholder of record of 100% of the Shares of the Fund. As
of ___________, 1998, HighMark believes that Union Bank of California had
voting power with respect to 100% of the Fund's Shares.
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<PAGE> 127
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in Part A:
-- Certain Financial Information.
Included in Part B:
The following financial statements have been
incorporated into the Statement of Additional
Information by reference to HighMark's Annual
Report to Shareholders, dated July 31, 1997:
-- Report of Independent Certified
Public Accountants for HighMark
Funds at July 31, 1997.
-- Statements of Assets and Liabilities
for HighMark Funds at July 31, 1997.
-- Statements of Operations for
HighMark Funds for the year ended
July 31, 1997.
-- Statements of Changes in Net
Assets for HighMark Funds for
the year ended July 31, 1997.
-- Schedules of Portfolio Investments
for HighMark Funds at July 31, 1997.
-- Notes to Financial Statements
for HighMark Funds dated July 31,
1997.
-- Financial Highlights for HighMark
Funds for the year ended July 31,
1997. All required financial
statements are included in Part B
hereof. All other financial
statements and schedules are
inapplicable.
(b) Exhibits:
(1) (a) Declaration of Trust, dated
March 10, 1987, is
incorporated by reference to
Exhibit (1)(a) of
<PAGE> 128
Pre-Effective Amendment No. 1
(filed May 15, 1987) to
Registrant's Registration
Statement on Form N-1A.
(b) Amendment to Declaration of
Trust, dated April 13, 1987,
is incorporated by reference
to Exhibit (1)(b) of
Pre-Effective Amendment No. 1
(filed May 15, 1987) to
Registrant's Registration
Statement on Form N-1A.
(c) Amendment to Declaration of
Trust, dated July 13, 1987,
is incorporated by reference
to Exhibit (1)(c) of
Pre-Effective Amendment No. 2
(filed July 24, 1987) to
Registrant's Registration
Statement on Form N-1A.
(d) Amendment to Declaration of
Trust, dated July 30, 1987,
is incorporated by reference
to Exhibit (1)(d) of
Pre-Effective Amendment No. 3
(filed July 31, 1987) to
Registrant's Registration
Statement on Form N-1A.
(e) Amendment to Declaration of
Trust, dated October 18,
1996, is incorporated by
reference to Exhibit (1)(e)
of Post-Effective Amendment
No. 18 (filed November 8,
1996) to Registrant's
Registration Statement on
Form N-1A.
(f) Amendment to Declaration of
Trust, dated December 4,
1996, is incorporated by
reference to Exhibit (1)(f)
of Post-Effective Amendment
No. 19 (filed December 13,
1996) to Registrant's
Registration Statement on
Form N-1A.
(2) (a) Amended and Restated Code of
Regulations, dated June 5,
1991, is incorporated by
reference to Exhibit 2 of
Post-Effective Amendment No.
7 (filed September 30, 1991)
to Registrant's Registration
Statement on Form N-1A.
(b) Amendment to Amended and
Restated Code of Regulations,
dated December 4, 1991, is
incorporated by reference to
Exhibit 2(b) of
Post-Effective Amendment No.
8 (filed September 30, 1992)
to Registrant's Registration
Statement on Form N-1A.
(3) None.
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<PAGE> 129
(4) None.
(5) (a) Investment Advisory
Agreement between Registrant
and Union Bank of California,
N.A., dated as of April 1,
1996 (the "Investment
Advisory Agreement"), is
incorporated by reference to
Exhibit 5 of Post-Effective
Amendment No. 18 (filed
November 8, 1996) to
Registrant's Registration
Statement on Form N-1A.
(b) Amended and Restated Schedule A
to the Investment Advisory
Agreement is incorporated by
reference to Exhibit (5)(b)
of Post-Effective Amendment
No. 22 (filed June 18, 1997)
to Registrant's Registration
Statement on Form N-1A.
(c) Investment Sub-Advisory
Agreement between Union Bank
of California, N.A. and
Tokyo-Mitsubishi Asset
Management (UK), LTD., dated
as of April 25, 1997 (the
"TMAM Sub-Advisory
Agreement") is incorporated
by reference to Exhibit
(5)(c) of Post-Effective
Amendment No. 22 (filed June
18, 1997) to Registrant's
Registration Statement on
Form N-1A.
(d) Investment Sub-Advisory
Agreement between Union Bank
of California, N.A. and Bank
of Tokyo-Mitsubishi Trust
Company, dated as of April
25, 1997 (the "BOTM Sub-
Advisory Agreement") is
incorporated by reference to
Exhibit (5)(d) of
Post-Effective Amendment No.
22 (filed June 18, 1997) to
Registrant's Registration
Statement on Form N-1A.
(6) (a) Distribution Agreement
between the Registrant and
SEI Financial Services
Company is incorporated by
reference to Exhibit 6 of
Post-Effective Amendment No.
20 (filed February 25, 1997)
to Registrant's Registration
Statement on Form N-1A.
(b) Form of Distribution and
Service Agreement for Class B
Shares between Registrant and
SEI Investments Distribution
Co. incorporated by reference
to Exhibit (6)(b) of
Post-Effective Amendment No.
22 (filed June 18, 1997) to
Registrant's Registration
Statement on Form N-1A.
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<PAGE> 130
(7) None.
(8) (a) Custodian Agreement between
Registrant and The Bank of
California, N.A., dated as of
December 23, 1991, as amended
as of September 15, 1992 (the
"Custodian Agreement"), is
incorporated by reference to
Exhibit 8 of Post-Effective
Amendment No. 8 (filed
September 30, 1992) to
Registrant's Registration
Statement on Form N-1A.
(b) Amended and Restated Schedule A
to the Custodian Agreement is
incorporated by reference to
Exhibit (8)(b) of
Post-Effective Amendment No.
22 (filed June 18, 1997) to
Registrant's Registration
Statement on Form N-1A.
(c) Form of Amended and Restated
Schedule B to the Custodian
Agreement is incorporated by
reference to Exhibit (8)(c)
of Post-Effective Amendment
No. 22 (filed June 18, 1997)
to Registrant's Registration
Statement on Form N-1A.
(d) Form of Securities Lending and
Reverse Repurchase Agreement
Services Client Addendum to
Custodian Agreement is
incorporated by reference to
Exhibit (8)(d) of
Post-Effective Amendment No.
22 (filed June 18, 1997) to
Registrant's Registration
Statement on Form N-1A.
(9) (a) Administration Agreement
between Registrant and SEI
Fund Resources incorporated
by reference to Exhibit 9(a)
of Post-Effective Amendment
No. 20 (filed February 25,
1997) to Registrant's
Registration Statement on
Form N-1A.
(b) Form of Sub-Administration
Agreement between SEI Fund
Resources and Union Bank of
California, N.A. is
incorporated by reference to
Exhibit 9(e) of
Post-Effective Amendment No.
19 (filed December 13, 1996)
to Registrant's Registration
Statement on Form N-1A.
(c) Transfer Agency and Service
Agreement between the
Registrant and State Street
Bank and Trust Company is
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<PAGE> 131
incorporated by reference to
Exhibit 9(c) of Post-Effective
Amendment No. 20 (filed
February 25, 1997) to
Registrant's Registration
Statement on Form N-1A.
(d) Form of Shareholder Service
Provider Agreement for the
Registrant is incorporated by
reference to Exhibit 9(n) of
Post-Effective Amendment No.
19 (filed December 13, 1996)
to Registrant's Registration
Statement on Form N-1A.
(e) Form of Shareholder Service
Plan for the Registrant is
incorporated by reference to
Exhibit 9(q) of
Post-Effective Amendment No.
19 (filed December 13, 1996)
to Registrant's Registration
Statement on Form N-1A.
(f) Form of Shareholder Service
Plan for Class B for the
Registrant is incorporated by
reference to Exhibit (9)(f)
of Post-Effective Amendment
No. 22 (filed June 18, 1997)
to Registrant's Registration
Statement on Form N-1A.
(10) Opinion and Consent of
Counsel as to legality of
shares being registered is
filed herewith.
(11) Consent of Ropes & Gray, is
filed herewith.
(12) None.
(13) None.
(14) None.
(15) (a) Registrant's Distribution
and Shareholder Services Plan
relating to the Money Market
Funds is incorporated by
reference to Exhibit 15(a) of
Post-Effective Amendment No.
6 (filed September 27, 1990)
to Registrant's Registration
Statement on Form N-1A.
(b) Form of Servicing Agreement
With Respect to Distribution
Assistance and Shareholder
Services used in
-5-
<PAGE> 132
connection with Registrant's
Distribution and Shareholder
Services Plan relating to the
Money Market Funds is
incorporated by reference to
Exhibit 15(b) of
Post-Effective Amendment No.
6 (filed September 27, 1990)
to Registrant's Registration
Statement on Form N-1A.
(c) Form of Servicing Agreement
With Respect to Shareholder
Services used in connection
with Registrant's
Distribution and Shareholder
Services Plan relating to the
Money Market Funds, is
incorporated by reference to
Exhibit 15(c) of Post-
Effective Amendment No. 8
(filed September 30, 1992) to
Registrant's Registration
Statement on Form N-1A.
(d) Registrant's Distribution and
Shareholder Services Plan
relating to the Class A
Shares of the Income Funds
and the Equity Funds is
incorporated by reference to
Exhibit 15(d) of
Post-Effective Amendment No.
13 (filed April 11, 1994) to
the Registrant's Registration
Statement on Form N-1A.
(e) Amended and Restated Schedule A
to the Distribution and
Shareholder Services Plan
relating to the Class A
Shares of the Income Funds
and the Equity Funds is
incorporated by reference to
Exhibit (15)(e) of
Post-Effective Amendment No.
22 (filed June 18, 1997) to
Registrant's Registration
Statement on Form N-1A.
(f) Form of Distribution and
Shareholder Services Plan
relating to the Class B
Shares of the Income Funds
and the Equity Funds is
incorporated by reference to
Exhibit (15)(f) of
Post-Effective Amendment No.
22 (filed June 18, 1997) to
Registrant's Registration
Statement on Form N-1A.
(16) (a) Performance Calculation
Schedules concerning: the
seven-day yield and effective
yield of the Class A and
Class B Shares of the U.S.
Government Obligations Fund,
the Diversified Obligations
Fund, the 100% U.S. Treasury
Obligations Fund, the
Tax-Free Fund, and the
California Tax-Free Fund; the
seven-day tax-equivalent
yield and tax-equivalent
effective yield of the Class
A and Class B Shares of the
Tax-Free Fund and the
California
-6-
<PAGE> 133
Tax-Free Fund; and the average
annual total return of the
Income Equity Fund and Bond
Fund for the one-year,
five-year, and
inception-to-date periods are
incorporated by reference to
Exhibit 16 of Post-Effective
Amendment No. 6 (filed
September 27, 1990) to
Registrant's Registration
Statement on Form N-1A.
(b) Yield Calculation Schedules
concerning the seven-day
tax-equivalent yield and
tax-equivalent effective
yield (for California and
Oregon income tax purposes)
of the Class A and Class B
Shares of the 100% U.S.
Treasury Obligations Fund are
incorporated by reference to
Exhibit 16(b) of Post-
Effective Amendment No. 7
(filed September 30, 1991) to
Registrant's Registration
Statement on Form N-1A.
(c) Performance Calculation
Schedules concerning: (i) the
seven-day and thirty- day
yield and effective yield of
the Class A and Class B
Shares of the U.S.
Government Money Market Fund,
the Diversified Money Market
Fund, the 100% U.S. Treasury
Money Market Fund, and the
California Tax-Free Money
Market Fund; (ii) the
seven-day and thirty-day
tax-equivalent yield (using a
Federal income tax rate of
31%) and tax- equivalent
effective yield (using a
Federal income tax rate of
31%) of the Class A and Class
B Shares of the California
Tax-Free Fund; (iii) the
seven-day and thirty-day
tax-equivalent yield (using a
Federal income tax rate of
31% and a California income
tax rate of 9.3%) and tax-
equivalent effective yield
(using a Federal income tax
rate of 31% and a California
income tax rate of 9.3%) of
the Class A and Class B
Shares of the California
Tax-Free Fund; (iv) the
average annual total return
of the Class A and Class B
Shares of the U.S. Government
Money Market Fund, the
Diversified Money Market
Fund, the 100% U.S. Treasury
Money Market Fund, and the
California Tax-Free Money
Market Fund for the one-year,
three-year and
inception-to-date periods and
the aggregate total return of
the Class A and Class B
Shares of each such Fund for
the year-to-date, quarterly
and monthly periods; (v) the
thirty-day yield of the Bond
Fund; (vi) the average annual
total return of the Bond Fund
and the Income Equity Fund
for the one-year, three-year,
five-year and
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<PAGE> 134
inception-to-date periods and
the aggregate total return of
each such Fund for the
year-to-date, quarterly and
monthly periods; and (vii) the
distribution rate (excluding
and including capital gains)
over a twelve-month period for
the Bond Fund and Income Equity
Fund, are incorporated by
reference to Exhibit 16(c) of
Post-Effective Amendment No. 8
(filed September 30, 1992) to
Registrant's Registration
Statement on Form N-1A.
(17) Financial Data Schedules.
(18) Form of Amended Multiple
Class Plan for HighMark Funds
adopted by the Board of
Trustees on June 18, 1997 is
incorporated by reference to
Exhibit (18) of Post-
Effective Amendment No. 22
(filed June 18, 1997) to
Registrant's Registration
Statement on Form N-1A.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
As of the filing date of this Registration Statement, there are
no persons controlled by or under common control with the
Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of , , the number of record holders of the
following series of Shares were:
-8-
<PAGE> 135
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF SERIES RECORD HOLDERS
- --------------- --------------
<S> <C>
U.S. Government Money Market Fund
Retail Shares 12
Fiduciary Shares 6
Diversified Money Market Fund
Retail Shares 45
Fiduciary Shares 11
100% U.S. Treasury Money Market Fund
Retail Shares 13
Fiduciary Shares 6
California Tax-Free Money Market Fund
Retail Shares 19
Fiduciary Shares 8
Income Equity Fund
Retail Shares 484
Fiduciary Shares 2,781
Bond Fund
Retail Shares 55
Fiduciary Shares 475
Growth Fund
Retail Shares 209
Fiduciary Shares 511
Balanced Fund
Retail Shares 57
Fiduciary Shares 67
Value Momentum Fund
Retail Shares 1,055
Fiduciary Shares 10
Blue Chip Growth Fund
Retail Shares 0
Fiduciary Shares 3
Emerging Growth Fund
Retail Shares 0
Fiduciary Shares 4
International Equity Fund
Fiduciary Shares 4
Intermediate-Term Bond Fund
Retail Shares 5
Fiduciary Shares 5
</TABLE>
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<PAGE> 136
<TABLE>
<S> <C>
Government Securities Fund
Retail Shares 0
Fiduciary Shares 3
Convertible Securities Fund
Fiduciary Shares 3
California Intermediate Tax-Free Bond Fund
Retail Shares 108
Fiduciary Shares 4
</TABLE>
ITEM 27. INDEMNIFICATION
Article IX, Section 9.2 of the Registrant's Declaration of
Trust, filed or incorporated by reference as Exhibit (1)
hereto, provides for the indemnification of Registrant's
trustees and officers. Indemnification of the Registrant's
principal underwriter, custodian, investment adviser,
administrator, transfer agent, and fund accountant is provided
for, respectively, in Section 6 of the Distribution Agreement,
filed or incorporated by reference as Exhibit 6(a) hereto,
Section 16 of the Custodian Agreement, filed or incorporated
by reference as Exhibit 8 hereto, Section 8 of the Investment
Advisory Agreement, filed or incorporated by reference as
Exhibit 5 hereto, Section 5 of the Administration Agreement,
filed or incorporated by reference as Exhibit 9(a) hereto,
Section 6 of the Transfer Agency and Service Agreement, filed
or incorporated by reference as Exhibit 9 (c) hereto, and
Section 7 of the Fund Accounting Agreement, filed or
incorporated by reference as Exhibit 9(e) hereto. Registrant
has obtained from a major insurance carrier a trustees and
officers' liability policy covering certain types of errors
and omissions. In no event will Registrant indemnify any of
its trustees, officers, employees or agents against any
liability to which such person would otherwise be subject by
reason of his willful misfeasance, bad faith, or gross
negligence in the performance of his duties, or by reason of
his reckless disregard of the duties involved in the conduct
of his office or under his agreement with Registrant.
Registrant will comply with Rule 484 under the Securities Act
of 1933 and Release 11330 under the Investment Company Act of
1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers,
and controlling persons of Registrant pursuant to the
foregoing provisions or otherwise, Registrant has been advised
that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than
the payment by Registrant of expenses incurred or paid by a
trustee, officer, or controlling person of Registrant in the
successful defense of
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<PAGE> 137
any action, suit, or proceeding) is asserted by such trustee,
officer, or controlling person in connection with the
securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by
it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
Pacific Alliance Capital Management, a division of Union Bank
of California, N.A. (the "Advisor"), performs investment
advisory services for Registrant. Union Bank of California,
N.A. ("Union Bank of California") offers a wide range of
commercial and trust management services to its clients in
California, Oregon, and Washington and around the world.
Union Bank of California, N.A. is a subsidiary of UnionBanCal
Corporation, a publicly traded corporation, a majority of the
shares of which are owned by the Bank of Tokyo-Mitsubishi,
Limited.
To the knowledge of Registrant, none of the directors or
officers of Union Bank of California, except those set forth
below, is or has been at any time during the past two fiscal
years engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain
directors and officers of The Bank of California also hold
positions with UnionBanCal Corporation, the Bank of
Tokyo-Mitsubishi and/or the Bank of Tokyo-Mitsubishi's other
subsidiaries.
Listed below are the directors and certain principal executive
officers of Union Bank of California, their principal
occupations and, for the prior two fiscal years, any other
business, profession, vocation, or employment of a substantial
nature engaged in by such directors and officers:
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<PAGE> 138
<TABLE>
<CAPTION>
POSITION
WITH UNION
BANK OF PRINCIPAL TYPE OF
CALIFORNIA NAME OCCUPATION BUSINESS
---------- ---- ---------- --------
<S> <C> <C> <C>
Director Richard D. Farman President, Chief Operating Officer
and Director
Pacific Enterprises
555 W. Fifth Street, 29th Floor
Los Angeles, CA 90013
Director Stanley F. Farrar, Partner Law Firm
Esquire Sullivan & Cromwell
12th Floor
444 So. Flower St.
Los Angeles, CA 90071
Director Herman E. Gallegos Independent Management Consultant Independent
95 Kings Road Management
Brisbane, CA 94005 Consultant
Director John L. Hancock (retired) EVP Consultant
Pacific Bell
Director and Vice Richard C. Hartnack UnionBanCal Corporation Banking
Chairman Community Union Bank of California, N.A.
Banking Group 445 S. Figueroa Street, 38th Floor
Los Angeles, CA 90071
Director and Roy A. Henderson UnionBanCal Corporation Banking
Vice Chairman Union Bank of California, N.A.
Trust & Private 400 California Street, 19th Floor
Financial Services San Francisco, CA 94104
Director Hon. Harry W. Low (retired) Judicial Arbitration & Law
Mediation Services, Inc.
2 Embarcadero, Suite 1100
San Francisco, CA 94111
Director Dr. Mary S. Metz Dean, University Extension Education
University of California - Berkeley
1995 University Ave.,Third Floor
Berkeley, CA 94720
Director Raymond E. Miles Professor Education
Haas School of Business
University of California - Berkeley
545 Student Services Bldg., #1900
Berkeley, CA 94720-1900
</TABLE>
-12-
<PAGE> 139
<TABLE>
<CAPTION>
POSITION
WITH UNION
BANK OF PRINCIPAL TYPE OF
CALIFORNIA NAME OCCUPATION BUSINESS
---------- ---- ---------- --------
<S> <C> <C> <C>
Director, President Takahiro Moriguchi UnionBanCal Corporation Banking
and Chief Executive Union Bank of California, NA
Officer 400 California Street, 19th Floor
San Francisco, CA 94104-1476
Director J. Fernando Niebla Chairman & CEO Computer Software
Infotec Commercial Systems and Hardware
3100 S. Harbor Blvd., Suite 100
Santa Ana, CA 92704
Director, Minoru Noda UnionBanCal Corporation Banking
Deputy Chairman, Union Bank of California, N.A.
Chief Financial 400 California Street, 19th Floor
Officer and Chief San Francisco, CA 94104
Credit Officer
Director Sidney R. Peterson (retired) Chairman and Chief Consultant
Executive Officer and Private
Getty Oil Company Investor
Director Carl W. Robertson, Managing Director Real Estate and
Esquire Warland Investments Company Investment
1299 Ocean Avenue, Suite 300 Management
Santa Monica, CA 90401 Company
Director Charles R. Scott Chairman and Corporate
Chief Executive Officer Investor
Leadership Centers USA
365 King Road, N.W.
Atlanta, GA 30342-4007
Director Tetsuo Shimura Chief Executive Officer Banking
North American Headquarters
The Bank of Tokyo-Mitsubishi, Ltd.
1251 Avenue of the Americas, 14th Floor
New York, NY 10020
Director Henry T. Swigert Chairman of the Board Equipment
ESCO Corporation Manufacturing
2141 NW 25th Avenue
Portland, OR 97210
Director and Vice Robert M. Walker UnionBanCal Corporation Banking
Chairman of the Union Bank of California, NA
Board Commercial 350 California Street, 12th Floor
Financial Services San Francisco, CA 94104-1476
Group
</TABLE>
-13-
<PAGE> 140
<TABLE>
<CAPTION>
POSITION
WITH UNION
BANK OF PRINCIPAL TYPE OF
CALIFORNIA NAME OCCUPATION BUSINESS
---------- ---- ---------- --------
<S> <C> <C> <C>
Director Dr. Blenda J. Wilson President Education
California State University
Northridge
18111 Nordhoff Street
Northridge, CA 91330
Director and Tamotsu Yamaguchi UnionBanCal Corporation Banking
Chairman of Union Bank of California, NA
the Board 445 S. Figueroa Street, 38th Floor
Los Angeles, CA 90071
Executive Vice Donald A. Brunell c/o Union Bank of California, N.A. Banking
President, Deputy 350 California Street, 5th Floor
Director of Finance San Francisco, CA 94104
Executive Vice Peter R. Butcher c/o Union Bank of California, N.A. Banking
President, Credit 400 California Street, 18th Floor
Management Group San Francisco, CA 94104
Executive Richard C. Hartnack c/o Union Bank of California, N.A. Banking
Vice President, 400 California Street, 18th Floor
Vice Chairman San Francisco, CA 94104
Executive Yoichi Kambara c/o Union Bank of California, N.A. Banking
Vice President, 400 California Street, 18th Floor
Vice Chairman San Francisco, CA 94104
Executive David I. Matson c/o Union Bank of California, N.A. Banking
Vice President 400 California Street, 18th Floor
San Francisco, CA 94104
President and Takahiro Moriguchi c/o Union Bank of California, N.A. Banking
Chief Executive 400 California Street, 18th Floor
Officer San Francisco, CA 94104
Chief Financial Minoru Noda c/o Union Bank of California, N.A. Banking
Officer and Chief 400 California Street, 18th Floor
Credit Officer San Francisco, CA 94104
Executive Vice Magan C. Patel c/o Union Bank of California, N.A. Banking
President, 400 California Street, 18th Floor
International San Francisco, CA 94104
Banking Group
Executive Vice Charles L. Pedersen c/o Union Bank of California, N.A. Banking
President, Systems 1455 First Avenue
Technology & Item San Diego, CA 92101
Processing Group
</TABLE>
-14-
<PAGE> 141
<TABLE>
<CAPTION>
POSITION
WITH UNION
BANK OF PRINCIPAL TYPE OF
CALIFORNIA NAME OCCUPATION BUSINESS
---------- ---- ---------- --------
<S> <C> <C> <C>
Executive Michael A.C. Spilsbury c/o Union Bank of California, N.A. Banking
Vice President, 400 California Street, 19th Floor
Operations & San Francisco, CA 94104
Services Group
Executive Ikuzo Sugiyama c/o Union Bank of California, N.A. Banking
Vice President 400 California Street, 18th Floor
San Francisco, CA 94104
Vice Chairman Robert M. Walker c/o Union Bank of California, N.A. Banking
400 California Street, 18th Floor
San Francisco, CA 94104
Executive Vice Philip M. Wexler c/o Union Bank of California, N.A. Banking
President, 445 So. Figueroa Street, 13th Floor
Specialized Lending Los Angeles, CA 90071
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITER
Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently
distributing securities of the Registrant also acts as a
principal underwriter, distributor or investment advisor.
Registrant's distributor, SEI Investments Distribution Co.
(formerly SEI Financial Services Company), acts as distributor
for:
<TABLE>
<S> <C>
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI International Trust August 10, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds (R) June 1, 1993
</TABLE>
-15-
<PAGE> 142
<TABLE>
<S> <C>
The PBHG Funds, Inc. July 16, 1993
Marquis Funds (R) August 17, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
Monitor Funds January 11, 1996
FMB Funds, Inc. March 1, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investment Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
ARMADA Funds March 8, 1997
</TABLE>
The Distributor provides numerous financial services to
investment managers, pension plan sponsors, and bank trust
departments. These services include portfolio evaluation,
performance measurement and consulting services ("Funds
Evaluation") and automated execution, clearing and settlement
of securities transactions ("MarketLink").
Furnish the information required by the following table with
respect to each director, officer or partner of each principal
underwriter named in the answer to Item 21 of Part B. Unless
otherwise noted, the principal business address of each
director or officer is 1 Freedom Valley Drive, Oaks, PA
19456.
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name With Underwriter With Registrant
---- ---------------- -----------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief --
Executive Officer
Henry W. Greer Director, President & Chief --
Operating Officer
Carmen V. Romeo Director, Executive Vice --
President, President -
Investment Advisory Group
Gilbert L. Beehover Executive Vice President --
Richard B. Lieb Executive Vice President, --
President-Investment Services
Division
Dennis J. McGonigle Executive Vice President --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
</TABLE>
-16-
<PAGE> 143
<TABLE>
<S> <C>
Steven Kramer Senior Vice President --
David G. Lee Senior Vice President President and Chief
Executive Officer
Jack May Senior Vice President --
A. Keith McDowell Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President, Vice President,
General Counsel & Secretary
Secretary
Robert Wagner Senior Vice President --
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
Marc H. Cahn Vice President and Assistant Vice President,
Secretary Assistant Secretary
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President and Assistant Vice President,
Secretary Assistant Secretary
Robert Crudup Vice President and Managing --
Director
Barbara Doyle Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President and Managing --
Director
Kathy Heilig Vice President and Treasurer --
Michael Kantor Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing
Director --
Donald N. Korytowski Vice President --
John Krzeminski Vice President & Managing --
Director
Carolyn McLaurie Vice President & Managing --
Director
W. Kelso Morrill Vice President --
Barbara A. Nugent Vice President & Assistant Secretary Vice President,
Assistant Secretary
Sandra K. Orlow Vice President & Assistant Secretary Vice President,
Assistant Secretary
Donald Pepin Vice President & Managing Director --
Kim Rainey Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary Vice President,
Assistant Secretary
Wayne M. Withrow Vice President & Managing Director --
James Dougherty Director of Brokerage Services --
</TABLE>
-17-
<PAGE> 144
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
(1) Union Bank of California, N.A., 400 California
Street, San Francisco, CA 94104 (records relating to
the Advisor's functions as investment adviser and
Union Bank of California's functions as custodian and
sub-transfer agent).
(2) SEI Fund Resources, Oaks, Pennsylvania 19456 (records
relating to its functions as administrator and
distributor).
(3) SEI Investments Distribution Co. (formerly SEI
Financial Services Company), Oaks, Pennsylvania 19456
(records relating to its function as distributor).
(4) State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110 (records
relating to its functions as transfer agent).
(5) Ropes & Gray, One Franklin Square, 1301 K Street,
N.W., Suite 800 East, Washington, DC 20005 (the
Registrant's Declaration of Trust, Code of
Regulations and Minute Books).
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes to call a meeting of the
shareholders for the purpose of voting upon the question of
removal of one or more trustees when requested to do so by the
holders of at least 10% of the outstanding shares of
Registrant and to comply with the provisions of Section 16(c)
of the Investment Company Act of 1940 relating to shareholder
communication.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without
charge.
-18-
<PAGE> 145
NOTICE
A copy of the Amended and Restated Agreement and Declaration of Trust
of HighMark Funds is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this instrument is executed on
behalf of the Registrant by an officer of the Registrant as an officer and not
individually and that the obligations of or arising out of this instrument are
not binding upon any of the trustees or shareholders individually but are
binding only upon the assets and property of the Registrant.
-19-
<PAGE> 146
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that the Registrant
has duly caused this Post-Effective Amendment No. 24 to this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Washington, D.C., on the 6th day of June, 1998.
HighMark Funds
By: /s/ David G. Lee
----------------
David G. Lee
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 24 has been signed below by the following persons
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ David G. Lee President and June 4, 1998
- ---------------- Chief Executive Officer
David G. Lee
/s/ Robert DellaCroce Comptroller and Chief June 4, 1998
- --------------------- Financial Officer
Robert DellaCroce
/s/ Thomas L. Braje Trustee June 4, 1998
- ----------------------
Thomas L. Braje
/s/ David A. Goldfarb Trustee June 4, 1998
- ---------------------
David A. Goldfarb
/s/ William R. Howell Trustee June 4, 1998
- ---------------------
William R. Howell
/s/ Joseph C. Jaeger Trustee June 4, 1998
- -----------------------
Joseph C. Jaeger
/s/ Frederick J. Long Trustee June 4, 1998
- ----------------------
Frederick J. Long
/s/ Paul L. Smith Trustee June 4, 1998
- ---------------------
Paul L. Smith
*By: /s/ Martin E. Lybecker
----------------------
Martin E. Lybecker
Attorney-In-Fact
</TABLE>
-20-
<PAGE> 147
Exhibit Index
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------ ----------- ----
<S> <C>
10 Opinion of Counsel.
11 Consent of Ropes & Gray.
</TABLE>
<PAGE> 1
June 5, 1998
HighMark Funds
Oaks, Pennsylvania
Gentlemen:
You have registered under the Securities Act of 1933, as amended (the "1933
Act") an indefinite number of shares of beneficial interest ("Shares") of
HighMark Funds ("HighMark"), as permitted by Rule 24f-2 under the Investment
Company Act of 1940, as amended (the "1940 Act"). You propose to file a
post-effective amendment on Form N-1A (the "Post-Effective Amendment") to your
Registration Statement as required by Section 10(a)(3) of the 1933 Act and the
Rules thereunder and Section 8(b) of the 1940 Act and the rules thereunder.
We have examined your Agreement and Declaration of Trust on file in the
office of the Secretary of The Commonwealth of Massachusetts and the Clerk of
the City of Boston. We have also examined a copy of your Bylaws and such other
documents, receipts and records as we have deemed necessary for the purpose of
this opinion.
Based upon the foregoing, we are of the opinion that the issue and sale of
the authorized but unissued Shares of HighMark have been duly authorized under
Massachusetts law. Upon the original issue and sale of your authorized but
unissued Shares of HighMark and upon receipt of the authorized consideration
therefor in an amount not less than the net asset value of the Shares of
HighMark established and in force at the time of their sale (plus any applicable
sales charge), the Shares of HighMark issued will be validly issued, fully paid
and non-assessable.
HighMark is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of HighMark.
However, the Agreement and Declaration of Trust provides for indemnification out
of the property of a particular series of shares for all loss and expenses of
any shareholder of that series held personally liable solely by reason of his
being or having been a shareholder. Thus, the risk of shareholder liability is
limited to circumstances in which that series of shares itself would be unable
to meet its obligations.
We understand that this opinion is to be used in connection with the filing
of the Post-Effective Amendment. We consent to the filing of this opinion with
and as part of your Post-Effective Amendment.
Sincerely,
Ropes & Gray
<PAGE> 1
EXHIBIT 11
Consent of Ropes & Gray
<PAGE> 2
CONSENT OF COUNSEL
We hereby consent to the use of our name and the references to our
firm under the caption "Legal Counsel" included in or made a part of
Post-Effective Amendment No. 24 to the Registration Statement (Nos. 33-12608
and 811-5059) of HighMark Funds on Form N-1A under the Securities Act of 1933,
as amended.
/s/ Ropes & Gray
Ropes & Gray
Washington, D.C.
June 4, 1998
