<PAGE> 1
As filed with the Securities and Exchange Commission
on November 30, 1998
Registration Nos. 33-12608 and 811-5059
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.
Post-Effective Amendment No. 25 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT [X]
COMPANY ACT OF 1940
Amendment No. 28 [X]
</TABLE>
HIGHMARK FUNDS
(Exact Name of Registrant as Specified in Charter)
Oaks, Pennsylvania 19456
------------------------
(Address of principal executive offices)
(800) 433-6884
--------------
(Registrant's telephone number, including area code)
Name and address of agent for service:
--------------------------------------
Martin E. Lybecker, Esq.
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
It is proposed that this filing will become effective (check appropriate box)
[x] 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)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on [date] pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
post-effective amendment No. __ filed on [date].
Pursuant to Rule 24f-2(a) under the Investment Company Act of 1940,
the Registrant has registered an indefinite number or amount of its shares of
beneficial interest under the Securities Act of 1933. The Registrant filed a
Rule 24f-2 Notice with respect to the Registrant's fiscal year ended July 31,
1998 on October 26, 1998.
<PAGE> 2
CROSS REFERENCE SHEET
THE HIGHMARK MONEY MARKET FUNDS
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 Funds & 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 Funds & 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
[LOGO] HIGHMARK(SM)
FUNDS
Money Market Funds
PROSPECTUS
Retail Shares
November 30, 1998
<PAGE> 4
HIGHMARK FUNDS
MONEY MARKET FUNDS
HighMark Funds 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 Funds':
- Diversified Money Market Fund
- U.S. Government Money Market Fund
- 100% U.S. Treasury Money Market Fund
- California Tax-Free Money Market Fund
RETAIL SHARES
HighMark Funds' 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 Funds' Fiduciary Shares.
This Prospectus sets forth concisely the information about HighMark Funds and
the Funds that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated the same date as this Prospectus has
been filed with the Securities and Exchange Commission and is available without
charge by writing the Distributor, SEI Investments Distribution Co., Oaks,
Pennsylvania 19456, or by calling 1-800-433-6884. The SEC maintains a World Wide
Web site (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference and other information. The
Statement of Additional Information is incorporated into this Prospectus by
reference. This Prospectus relates only to the Retail Shares of the Money Market
Funds. Interested persons who wish to obtain a prospectus for the other Funds of
HighMark Funds may contact the Distributor at the above address and telephone
number.
BECAUSE THE CALIFORNIA TAX-FREE MONEY MARKET FUND MAY INVEST A SIGNIFICANT
PERCENTAGE OF ITS ASSETS IN A SINGLE ISSUER, INVESTMENT IN THE FUND MAY BE
RISKIER THAN INVESTMENT IN OTHER MONEY MARKET FUNDS.
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HIGHMARK FUNDS' 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
FUNDS' SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN HIGHMARK FUNDS
INVOLVES RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
November 30, 1998
Retail Shares
<PAGE> 5
SUMMARY
HIGHMARK FUNDS is an open-end, diversified, registered investment company
providing a convenient way to invest in professionally managed portfolios of
securities. The following provides basic information about the Class A Shares of
the Diversified Money Market, U.S. Government Money Market, 100% U.S. Treasury
Money Market, and California Tax-Free Money Market Funds and the Class B Shares
of the U.S. Government Money Market Fund (each a "Fund" and sometimes referred
to in this prospectus as the "Funds.") Class A and Class B Shares are
collectively "Retail Shares." This summary is qualified in its entirety by
reference to the more detailed information provided elsewhere in the Prospectus
and in the Statement of Additional Information.
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES? The Diversified Money Market Fund,
the U.S. Government Money Market Fund, and the 100% U.S. Treasury Money Market
Fund seek current income with liquidity and stability of principal. The
California Tax-Free Money Market Fund seeks as high a level of current interest
income free from federal income tax and California personal income tax as is
consistent with the preservation of capital and relative stability of principal.
(See "INVESTMENT OBJECTIVES")
WHAT ARE THE FUNDS' PERMITTED INVESTMENTS? THE DIVERSIFIED MONEY MARKET FUND
invests in obligations with maturities deemed under SEC rules to be 397 days or
less ("short-term investments") issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, in high-quality short-term obligations issued by
banks and corporations, and other high-quality rated and unrated short-term
instruments; some of the obligations and short-term instruments in which the
Fund invests may be subject to repurchase agreements. THE U.S. GOVERNMENT MONEY
MARKET FUND invests in short-term obligations issued or guaranteed by the U.S.
Treasury, and additionally invests in obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government; some of the obligations in
which the Fund invests may be subject to repurchase agreements. THE 100% U.S.
TREASURY MONEY MARKET FUND invests exclusively in direct U.S. Treasury
short-term obligations. THE CALIFORNIA TAX-FREE MONEY MARKET FUND invests
primarily in bonds and notes issued by or on behalf of the State of California
and other states, territories, possessions of the United States, and the
District of Columbia and their respective authorities, agencies,
instrumentalities and political sub-divisions, the interest on which is excluded
from gross income for federal income and California personal income tax purposes
and not treated as a preference item for individuals for purposes of the federal
alternative minimum tax. (See "INVESTMENT POLICIES")
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUNDS? Each Fund seeks
to maintain a net asset value of $1.00 per share. There can be no assurance that
a Fund will be able to maintain a net asset value of $1.00 per share on a
continuous basis. The California Tax-Free Money Market Fund concentrates its
investments in California municipal securities, and an investment in the Fund
therefore may be riskier than an investment in other types of money market
funds. (See "Risk Factors")
ARE MY INVESTMENTS INSURED? HighMark Funds' Shares are not federally insured
by the FDIC or any other government agency. Any guarantee by the U.S.
Government, its agencies or any instrumentalities of the securities in which any
Fund invests guarantees only the payment of principal and interest on the
guaranteed security, and does not guarantee the yield or value of the security
or yield or value of Shares of that Fund.
2
<PAGE> 6
WHO IS THE ADVISOR? HighMark Capital Management, Inc. serves as the Advisor to
HighMark Funds. (See "The Advisor")
WHO IS THE ADMINISTRATOR? SEI Investments Mutual Funds Services serves as the
Administrator of HighMark Funds. (See "The Administrator")
WHO IS THE CUSTODIAN? Union Bank of California, N.A. (the "Bank") serves as
the Custodian of HighMark Funds' assets. (See "The Custodian")
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. acts as distributor
of HighMark Funds' Shares. (See "The Distributor")
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions of Class A
Shares may be made through the Distributor on days on which both the New York
Stock Exchange and the Federal Reserve wire system are open for business
("Business Days"). The minimum initial investment is generally $1,000 per Fund.
In order to be effective on the Business Day received, orders to purchase Class
A Shares and to redeem Class A and Class B Shares must be placed prior to 8:00
a.m., Pacific time (11:00 a.m., Eastern time) for the California Tax-Free Money
Market Fund, prior to 9:00 a.m., Pacific time (12:00 noon, Eastern time) for the
100% U.S. Treasury Money Market Fund; and prior to 10:00 a.m., Pacific time
(1:00 p.m., Eastern time) for the Diversified Money Market and U.S. Government
Money Market Funds on any Business Day. Otherwise, the order will be effective
the next Business Day. In addition, effectiveness of a purchase is contingent on
the Custodian's receipt of Federal funds before 11:00 a.m., Pacific time (2:00
p.m., Eastern time). Class B Shares are only available pursuant to an exchange
for Class B Shares of another HighMark Fund. (See "HOW TO PURCHASE SHARES and
REDEMPTION OF SHARES")
HOW ARE DIVIDENDS PAID? The net investment income (exclusive of short-term
capital gains) of the Funds is determined and declared on each Business Day as a
dividend for Shareholders of record as of the close of business on that day.
Dividends are paid monthly in additional shares unless the Shareholder elects to
take the payment in cash. (See "DIVIDENDS")
3
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 2
Money Market Funds Fee Table................................ 5
Financial Highlights........................................ 7
Fund Description............................................ 12
Investment Objectives....................................... 12
Investment Policies......................................... 12
Diversified Money Market Fund............................. 13
U.S. Government Money Market Fund......................... 14
100% U.S. Treasury Money Market Fund...................... 14
California Tax-Free Money Market Fund..................... 14
General..................................................... 16
Illiquid and Restricted Securities........................ 17
Municipal Securities...................................... 17
Lending of Portfolio Securities........................... 18
Other Investments......................................... 18
Risk Factors.............................................. 18
Year 2000................................................. 19
Valuation of Shares......................................... 20
How To Purchase Shares...................................... 20
How to Purchase By Mail................................... 21
How to Purchase By Wire................................... 21
How to Purchase Through an Automatic Investment Plan
("AIP")................................................ 22
How to Purchase Through Financial Institutions............ 22
Alternative Purchase Options.............................. 22
Exchange Privileges......................................... 24
Redemption of Shares........................................ 25
By Mail................................................... 25
Telephone Transactions.................................... 25
Redemption By Checkwriting................................ 26
Systematic Withdrawal Plan ("SWP")........................ 26
Other Information Regarding Redemptions................... 27
Dividends................................................... 28
Federal Taxation............................................ 28
Service Arrangements........................................ 30
The Advisor............................................... 30
Administrator............................................. 31
The Transfer Agent........................................ 32
Shareholder Service Plan.................................. 32
Distributor............................................... 32
The Distribution Plans.................................... 32
Banking Laws.............................................. 33
Custodian................................................. 34
General Information......................................... 34
Description of HighMark Funds & Its Shares................ 34
Performance Information................................... 34
Miscellaneous............................................. 36
Description of Permitted Investments........................ 36
</TABLE>
4
<PAGE> 8
MONEY MARKET FUNDS FEE TABLE
<TABLE>
<CAPTION>
100% U.S. CALIFORNIA
DIVERSIFIED U.S. GOVERNMENT TREASURY TAX-FREE
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
------------ ------------------ ------------ ------------
CLASS A CLASS A CLASS B CLASS A CLASS A
SHARES SHARES SHARES SHARES SHARES
------------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......... 0% 0% 0% 0% 0%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price)....................................... 0% 0% 0% 0% 0%
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, as applicable)(b).................. 0% 0% 5.00% 0% 0%
Redemption Fees (as a percentage of amount
redeemed,
if applicable)(c)............................ 0% 0% 0% 0% 0%
Exchange Fee(a)................................ $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL OPERATING EXPENSES(D)
(as a percentage of net assets)
Management Fees (after voluntary
reduction)(e).............................. 0.30% 0.30% 0.30% 0.25% 0.10%
12b-1 Fees................................... 0.25% 0.25% 0.75% 0.25% 0.25%
Other Expenses (after voluntary
reduction)(f).............................. 0.22% 0.22% 0.47% 0.22% 0.22%
----- ----- ----- ----- -----
Total Fund Operating Expenses(g)............. 0.77% 0.77% 1.52% 0.72% 0.57%
===== ===== ===== ===== =====
</TABLE>
- ---------------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
------ ------- ------- ---------
<S> <C> <C> <C> <C>
Diversified Money Market Fund Class A Shares............ $ 8 $25 $ 43 $ 95
U.S. Government Money Market Fund Class A Shares........ $ 8 $25 $ 43 $ 95
Class B Shares (assuming a complete redemption at end
of period)......................................... $65 $78 $103 $161
Class B Shares (assuming no redemptions).............. $15 $48 $ 83 $161
100% U.S. Treasury Money Market Fund Class A Shares..... $ 7 $23 $ 40 $ 89
California Tax-Free Money Market Fund Class A Shares.... $ 6 $18 $ 32 $ 71
</TABLE>
* Class B Shares automatically convert to Class A Shares after eight years.
The purpose of the tables above is to assist an investor in the Funds in
understanding the various costs and expenses that a Shareholder will bear
directly or indirectly. For a more complete discussion of each Fund's annual
operating expenses, see SERVICE ARRANGEMENTS below. THE FOREGOING EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California, N.A. and its
affiliates) making investments in the Funds on behalf of their customers may
charge customers fees for services provided in connection with
5
<PAGE> 9
the investment in, redemption of, and exchange of Shares. (See HOW TO
PURCHASE SHARES, EXCHANGE PRIVILEGES, REDEMPTION OF SHARES, and SERVICE
ARRANGEMENTS below.)
(b) Class B Shares of the U.S. Government Money Market Fund are only available
pursuant to an exchange for Class B Shares of another HighMark Fund. The
deferred sales charge applied to Class B Shares of the U.S. Government Money
Market Fund at the time of redemption will be equal to the deferred sales
charge that would have been applied to the shares of such other HighMark
Fund. Currently, the maximum deferred sales charge on such shares is 5.00%.
(c) A wire redemption charge of $15 is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See REDEMPTION OF
SHARES below.)
(d) Expense information has been restated to reflect current fees.
(e) Absent voluntary fee waivers, MANAGEMENT FEES would be 0.30% for the 100%
U.S. Treasury Money Market Fund and the California Tax-Free Money Market
Fund.
(f) Absent voluntary fee waivers, OTHER EXPENSES would be 0.49% for the Class A
Shares of each of the Diversified Money Market Fund, the U.S. Government
Money Market Fund, the 100% U.S. Treasury Money Market Fund and the
California Tax-Free Money Market Fund and 0.49% for the Class B Shares of
the U.S. Government Money Market Fund.
(g) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be 1.04%
for the Class A Shares of each of the Diversified Money Market Fund, the
U.S. Government Money Market Fund, the 100% U.S. Treasury Money Market Fund,
and the California Tax-Free Money Market Fund and 1.54% for the Class B
Shares of the U.S. Government Money Market Fund.
6
<PAGE> 10
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information with respect to the
Class A Shares (formerly Retail Shares) and Class B Shares of the U.S.
Government Money Market Fund and the Class A Shares of the 100% U.S. Treasury
Money Market Fund, Diversified Money Market Fund and California Tax-Free Money
Market Fund. Financial highlights for the Funds through the year ended July 31,
1998 have been derived from financial statements audited by Deloitte & Touche
LLP, independent auditors for HighMark, whose report thereon is included in the
1998 Annual Report for the HighMark Funds, which in incorporated by reference
into the Statement of Additional Information. Financial highlights for the U.S.
Government Money Market and 100% U.S. Treasury Money Market Funds prior to the
fiscal year ended July 31, 1996 have been derived from financial statements
examined by other auditors whose report thereon is on file with the Securities
and Exchange Commission.
Upon reorganizing as funds of HighMark Funds on April 28, 1997, Stepstone
Money Market Fund became HighMark Diversified Money Market Fund and Stepstone
California Tax-Free Money Market Fund became HighMark California Tax-Free Money
Market Fund. Financial highlights through January 31, 1997 represent the
Investment Class Shares (now Class A Shares) of Stepstone Money Market and
Stepstone California Tax-Free Money Market Funds, and have been derived from
financial statements audited by Arthur Andersen LLP, independent auditors for
the Stepstone Funds.
7
<PAGE> 11
CALIFORNIA TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTH
YEAR ENDED PERIOD ENDED FOR THE YEARS ENDED JANUARY 31,
JULY 31, JULY 31, ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------ ------------ -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Net Asset Value, Beginning
of Period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- ------- ------- -------
Investment Activities
Net investment income... 0.028 0.015 0.027 0.031 0.023 0.018 0.022
Net realized and
unrealized gain
(loss) on
investments.......... -- -- -- -- -- -- --
-------- -------- -------- ------- ------- ------- -------
Distributions
Net investment income... (0.028) (0.015) (0.027) (0.031) (0.023) (0.018) (0.022)
Capital gains........... -- -- -- -- -- -- --
Net Asset Value, End of
Period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= ======= ======= =======
Total Return.............. 2.89% 2.99%* 2.78% 3.14% 2.33% 1.80% 2.27%
Net Assets, end of
period (000)......... $305,260 $217,229 $150,688 $81,177 $49,494 $52,220 $ 8,542
Ratio of expenses to
average net assets... 0.56% 0.55%* 0.60% 0.61% 0.62% 0.63% 0.63%
Ratio of expenses to
average net assets
excluding fee
waivers.............. 1.03% 0.97%* 0.88% 0.88% 0.90% 0.94% 0.94%
Ratio of net investment
income to average net
assets............... 2.84% 3.02%* 2.75% 3.09% 2.33% 1.76% 2.21%
Ratio of net investment
income to average net
assets excluding fee
waivers.............. 2.37% 2.59%* 2.47% 2.82% 2.05% 1.45% 1.90%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
8
<PAGE> 12
100% U.S. TREASURY MONEY MARKET FUND
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
------------------------------------------------------------
1998 1997 1996 1995 1994 1993
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Net Asset Value, Beginning of
Period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- ------- -------
Investment Activities
Net investment income............... 0.047 0.045 0.046 0.046 0.026 0.026
Net realized and unrealized gain
(loss) on investments............ -- -- -- -- -- --
-------- -------- -------- ------- ------- -------
Distributions
Net investment income............... (0.047) (0.045) (0.046) (0.046) (0.026) (0.026)
Capital gains....................... -- -- -- -- -- --
-------- -------- -------- ------- ------- -------
Contribution of capital............... -- -- -- -- -- --
Net Asset Value, End of Period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= ======= =======
Total Return.......................... 4.75% 4.58% 4.74% 4.69% 2.68% 2.64%
Net Assets, end of period (000)....... $727,087 $558,972 $100,623 $88,660 $39,157 $32,629
Ratio of expenses to average net
assets.............................. 0.71% 0.72% 0.74% 0.73% 0.74% 0.67%
Ratio of expenses to average net
assets excluding fee waivers........ 1.03% 1.10% 1.23% 1.22% 1.15% 0.75%
Ratio of net investment income to
average net assets.................. 4.65% 4.55% 4.64% 4.68% 2.68% 2.60%
Ratio of net investment income to
average net assets excluding fee
waivers............................. 4.33% 4.17% 4.15% 4.19% 2.27% 2.52%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
9
<PAGE> 13
DIVERSIFIED MONEY MARKET FUND
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTH
YEAR PERIOD
ENDED ENDED FOR THE YEARS ENDED JANUARY 31,
JULY 31, JULY 31, --------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- --------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Net Asset Value,
Beginning of Period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- -------- ------- -------
Investment Activities
Net investment income... 0.049 0.024 0.047 0.052 0.037 0.027 0.033
Net realized and
unrealized gain
(loss)
on investments....... -- -- -- -- -- -- --
---------- -------- -------- -------- -------- ------- -------
Distributions
Net investment income... (0.049) (0.024) (0.047) (0.052) (0.037) (0.027) (0.033)
Capital gains........... -- -- -- -- -- -- --
---------- -------- -------- -------- -------- ------- -------
Contribution of capital... -- -- -- -- -- -- --
Net Asset Value,
End of Period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ======== ======== ======= =======
Total Return.............. 5.01% 4.86%* 4.78% 5.31% 3.78% 2.77% 3.36%
Net Assets,
end of period (000)..... $1,124,280 $799,657 $576,566 $259,608 $111,267 $86,291 $79,253
Ratio of expenses to
average net assets...... 0.75% 0.72%* 0.73% 0.75% 0.70% 0.70% 0.69%
Ratio of expenses to
average net assets
excluding fee waivers... 1.02% 0.95%* 0.88% 0.90% 0.90% 0.89% 0.86%
Ratio of net investment
income to average
net assets.............. 4.90% 4.82%* 4.69% 5.16% 3.79% 2.71% 3.41%
Ratio of net investment
income to average net
assets excluding fee
waivers................. 4.63% 4.59%* 4.54% 5.01% 3.59% 2.52% 3.24%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
10
<PAGE> 14
U.S. GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
FOR THE
PERIOD ENDED FOR THE YEARS ENDED JULY 31,
JULY 31, -----------------------------------------------------------
1998(1) 1998 1997 1996 1995 1994 1993
------------ -------- -------- ------- ------- ------- -------
CLASS B CLASS A CLASS A CLASS A CLASS B CLASS B CLASS A
<S> <C> <C> <C> <C> <C> <C> <C>
RETAIL SHARES
Net Asset Value, Beginning
of Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- ------- ------- ------- -------
Investment Activities
Net investment income..... 0.021 0.048 0.046 0.048 0.048 0.027 0.027
Net realized and
unrealized gain (loss)
on investments......... -- -- -- -- -- -- --
------- -------- -------- ------- ------- ------- -------
Distributions
Net investment income..... (0.021) (0.048) (0.046) (0.048) (0.048) (0.027) (0.027)
Capital gains............. -- -- -- -- -- -- --
------- -------- -------- ------- ------- ------- -------
Net Asset Value, End of
Period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ======= ======= ======= =======
Total Return................ 4.25%* 4.90% 4.70% 4.86% 4.86% 2.74% 2.72%
Net Assets, end of period
(000).................. $ -- $122,074 $ 42,797 $75,714 $48,474 $24,055 $37,332
Ratio of expenses to
average net assets..... 1.26%* 0.76% 0.78% 0.79% 0.78% 0.77% 0.71%
Ratio of expenses to
average net assets
excluding fee
waivers................ 1.54%* 1.04% 1.22% 1.26% 1.27% 1.17% 0.79%
Ratio of net investment
income to average net
assets................. 4.30%* 4.80% 4.60% 4.77% 4.82% 2.63% 2.67%
Ratio of net investment
income to average net
assets excluding fee
waivers................ 4.02%* 4.52% 4.16% 4.30% 4.33% 2.23% 2.59%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
(1) Commenced operations on February 2, 1998.
* Annualized.
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<PAGE> 15
FUND DESCRIPTION
HighMark Funds is an open-end, diversified, registered investment company that
currently offers units of beneficial interest ("Shares") in seventeen separate
investment portfolios ("Funds"). All of the Funds are advised by HighMark
Capital Management, Inc. (the "Advisor"), a subsidiary of UnionBanCal
Corporation. Shareholders may purchase Shares of selected Funds 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 Funds'
other Funds and other classes is contained in separate prospectuses that may be
obtained from HighMark Funds' Distributor, SEI Investments Distribution Co., at
Oaks, Pennsylvania, 19456, or by calling 1-800-433-6884.
For information concerning those investors who qualify to purchase Retail
Shares and the operation of HighMark Funds' Distribution Plan, see HOW TO
PURCHASE SHARES and SERVICE ARRANGEMENTS below. (Retail Shares may be
hereinafter referred to as "Shares.")
INVESTMENT OBJECTIVES
The investment objectives of the Funds are as follows:
The DIVERSIFIED MONEY MARKET FUND, the U.S. GOVERNMENT MONEY MARKET FUND and
the 100% U.S. TREASURY MONEY MARKET FUND each seek current income with liquidity
and stability of principal.
The CALIFORNIA TAX-FREE MONEY MARKET FUND seeks as high a level of current
interest income free from federal income tax and California personal income tax
as is consistent with the preservation of capital and relative stability of
principal.
There can be no assurance that a Fund will achieve its investment objective.
The investment objectives and certain of the investment limitations of the
Diversified Money Market Fund, the U.S. Government Money Market Fund, the 100%
U.S. Treasury Money Market Fund, and the California Tax-Free Money Market Fund
may not be changed without a vote of the holders of a majority of the
outstanding Shares of the respective Fund (as defined under GENERAL
INFORMATION--Miscellaneous below). There can be no assurance that a Fund will
achieve its investment objective.
INVESTMENT POLICIES
While the Diversified Money Market Fund, the U.S. Government Money Market Fund
and the 100% U.S. Treasury Money Market Fund have the same investment objective,
they differ as follows with respect to the types of instruments that may be
purchased. Each Fund may invest only in U.S. dollar-denominated obligations
determined by the Advisor to present minimal credit risks under guidelines
adopted by HighMark Funds' Board of Trustees.
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<PAGE> 16
Diversified Money Market Fund
The Diversified Money Market Fund may invest in the following obligations:
(i) obligations issued by the U.S. Government, and backed by its full faith
and credit, and obligations issued or guaranteed as to principal and interest by
the agencies or instrumentalities of the U.S. Government (e.g., obligations
issued by Farmers Home Administration, Government National Mortgage Association,
Federal Farm Credit Bank and Federal Housing Administration);
(ii) obligations such as bankers' acceptances, bank notes, certificates of
deposit and time deposits of thrift institutions, savings and loans, U.S.
commercial banks (including foreign branches of such banks), and U.S. and
foreign branches of foreign banks, provided that such institutions (or, in the
case of a branch, the parent institution) have total assets of $1 billion or
more as shown on their last published financial statements at the time of
investment;
(iii) short-term promissory notes issued by corporations, including Canadian
Commercial Paper ("CCP"), which is U.S. dollar-denominated commercial paper
issued by a Canadian corporation or a Canadian counterpart of a U.S.
corporation, and Europaper, which is U.S. dollar-denominated commercial paper of
a foreign issuer;
(iv) U.S. dollar-denominated securities issued or guaranteed by foreign
governments, their political subdivisions, agencies or instrumentalities, and
obligations of supranational entities such as the World Bank and the Asian
Development Bank (provided that the Fund invests no more than 5% of its assets
in any such instrument and invests no more than 25% of its assets in such
instruments in the aggregate);
(v) readily-marketable, short-term asset-backed debt securities, repayment on
which is obtained from an identifiable pool of assets, typically receivables
related to a particular industry, such as credit card receivables, automobile
loan or lease related receivables, trade receivables or diversified financial
assets (provided that the Fund invests no more than 25% of its assets in any
such industry and invests no more than 35% of its assets in such instruments in
the aggregate);
(vi) Treasury receipts, including TRs, TIGRs and CATs; and
(vii) repurchase agreements involving such obligations.
Certain of the obligations in which the Funds may invest may be variable or
floating rate instruments, may involve a conditional or unconditional demand
feature, and may include variable amount master demand notes.
Subject to the provisions of Rule 2a-7 under the Investment Company Act of
1940 (the "1940 Act"), investments of the Diversified Money Market Fund will
consist of those obligations that, at the time of purchase, possess the highest
short-term rating from at least one nationally recognized statistical rating
organization ("NRSRO") (for example, commercial paper rated "A-1" by Standard &
Poor's Corporation ("S&P") or "P-1" by Moody's Investors Service, Inc.
("Moody's")). Although the Diversified Money Market Fund does not presently
expect to do so, it may also invest up to 5% of its net assets in obligations
that, at the time of purchase, possess one of the two highest short-term ratings
from at least one NRSRO, and in obligations that do not possess an equivalent
short-term rating (i.e., are unrated) but are determined by the
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<PAGE> 17
Advisor to be of comparable quality to the rated instruments eligible for
purchase by the Fund under guidelines adopted by the Board of Trustees.
The Diversified Money Market Fund will not invest more than 5% of its total
assets in the securities of any one first tier issuer, except that the Fund may
invest up to 25% of its total assets in the securities of a single first tier
issuer for a period of up to three business days. There is no limit on the
percentage of the Fund's assets that may be invested in obligations issued or
guaranteed by the U.S. Government, its agencies, or instrumentalities and
repurchase agreements fully collateralized by such obligations.
The Fund may concentrate its investments in certain instruments issued by U.S.
banks, U.S. branches of foreign banks, and foreign branches of U.S. banks, but
only so long as the investment risk associated with investing in foreign
branches of U.S. banks is the same as that associated with investing in
instruments issued by the U.S. parent. Domestic certificates of deposit and
bankers' acceptances include those issued by domestic branches of a foreign bank
to the extent permitted by the rules of the Securities and Exchange Commission.
The rules currently permit U.S. branches of foreign banks to be treated as a
domestic bank if it can be demonstrated that they are subject to the same
regulations as domestic banks.
U.S. Government Money Market Fund
As a fundamental policy, the U.S. Government Money Market Fund may not
purchase securities other than U.S. Treasury bills, notes, and other obligations
issued or guaranteed by the U.S. Government, its agencies, or instrumentalities
(such as obligations issued by the Government National Mortgage Association and
the Export-Import Bank of the United States) some of which may be subject to
repurchase agreements.
100% U.S. Treasury Money Market Fund
The 100% U.S. Treasury Money Market Fund invests exclusively in direct U.S.
Treasury obligations and separately traded component parts of such obligations
transferable through the Federal Reserve book-entry system ("STRIPs").
California Tax-Free Money Market Fund
The California Tax-Free Money Market Fund invests in obligations issued by the
State of California and its political subdivisions or municipal authorities and
obligations issued by territories or possessions of the United States
("Municipal Securities").
Under normal market conditions and, as a matter of fundamental policy, at
least 80% of the value of the total assets of the California Tax-Free Money
Market Fund will be invested in Municipal Securities, the interest on which, in
the opinion of bond counsel, is excluded from gross income both for federal
income tax purposes and for California personal income tax purposes, and does
not constitute a preference item for individuals for purposes of the federal
alternative minimum tax.
Certain of the obligations in which the Fund may invest may be variable or
floating rate instruments and may involve a conditional or unconditional demand
feature.
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<PAGE> 18
Under normal market conditions, up to 20% of the California Tax-Free Money
Market Fund's total assets may be invested in short-term obligations, the
interest on which is treated as a preference item for individuals for purposes
of the federal alternative minimum tax or subject to federal or California
personal income tax ("Taxable Obligations"). These short-term obligations may
include bonds from other states and cash equivalents as described below.
Exempt-interest dividends paid by the California Tax-Free Money Market Fund
that are derived from obligations, the interest on which is exempt from
California taxation when received by an individual ("California Exempt-Interest
Securities"), are excluded from gross income for California personal income tax
purposes. Dividends derived from interest on obligations other than California
Exempt-Interest Securities may be excluded from gross income for federal income
tax purposes but will be subject to California personal income tax.
In order for the California Tax-Free Money Market Fund to pay exempt-interest
dividends, it must continue to qualify as a regulated investment company and at
least 50% of its total assets must be invested in California Exempt-Interest
Securities at the close of each quarter of its taxable year. Dividends,
regardless of their source, may be subject to local taxes.
In seeking to achieve its investment objective, the California Tax-Free Money
Market Fund may invest all or any part of its assets in Municipal Securities
that are private activity bonds, including those known as industrial development
bonds under prior federal law. (Any reference herein to private activity bonds
includes industrial development bonds.) Interest on private activity bonds is
excluded from gross income for federal income tax purposes only if the bonds
fall within certain defined categories of qualified private activity bonds and
meet the requirements specified for those respective categories. However, even
if the California Tax-Free Money Market Fund invests in private activity bonds
that fall within these categories, Shareholders may become subject to the
federal alternative minimum tax on that part of such Fund's distributions
derived from interest on such bonds. For further information, see FEDERAL
TAXATION below.
The California Tax-Free Money Market Fund may invest up to 10% of its total
assets in shares of other investment companies with like investment objectives.
As a shareholder of an investment company, a Fund may indirectly bear investment
management fees of that investment company, which are in addition to the
management fees the Fund pays its own Advisor.
Investments of the California Tax-Free Money Market Fund will consist of those
obligations that, at the time of purchase, possess one of the two highest
short-term ratings by a NRSRO, and in obligations that do not possess a rating
(i.e., are unrated) but are determined by the Advisor to be of comparable
quality to the rated instruments eligible for purchase by the Fund under the
guidelines adopted by the Board of Trustees.
The California Tax-Free Money Market Fund may hold uninvested cash reserves
pending investment during temporary "defensive" periods or if, in the opinion of
the Advisor, desirable tax-exempt obligations are unavailable. In accordance
with the Fund's investment objective and subject to its fundamental policies,
investments may be made in Taxable Obligations if, for example, suitable
tax-exempt obligations are unavailable or if acquisition of U.S. Government or
other taxable securities is deemed appropriate for temporary "defensive"
purposes.
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<PAGE> 19
As discussed in greater detail in the Statement of Additional Information,
Taxable Obligations may include obligations issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities (some of which may be subject to
repurchase agreements), certificates of deposit, bankers' acceptances, and
commercial paper. As noted above, Taxable Obligations may also include private
activity bonds depending on their tax treatment.
The California Tax-Free Money Market Fund is not intended to constitute a
balanced investment program and is not designed for investors seeking capital
appreciation nor maximum tax-exempt income irrespective of fluctuations in
principal. Investment in the California Tax-Free Money Market Fund would not be
appropriate for tax-deferred plans, such as IRA and Keogh plans, and investors
should consult a tax or other financial advisor to determine whether investment
in the California Tax-Free Fund would be appropriate for them.
GENERAL
The Funds intend to comply with Rule 2a-7 under the 1940 Act. Shares of each
Fund are priced pursuant to the amortized cost method whereby HighMark Funds
seeks to maintain each Fund's net asset value per Share at $1.00. There can be,
however, no assurance that a stable net asset value of $1.00 per Share will be
maintained.
Securities or instruments in which each Fund invests have remaining maturities
of 397 days or less, although instruments subject to repurchase agreements and
certain adjustable rate instruments may bear longer maturities. The
dollar-weighted average portfolio maturity of each Fund will not exceed 90 days.
Although the Diversified Money Market Fund, the U.S. Government Money Market
Fund and the 100% U.S. Treasury Money Market Fund have the same investment
advisor and the same investment objective, particular securities held and
respective yields of these Funds may differ due to differences in the types of
permitted investments, cash flow, and the availability of particular
investments.
Additional information concerning each Fund's investments, including certain
investment restrictions that may not be changed with respect to a particular
Fund without a vote of the holders of a majority of the outstanding Shares of
that Fund, is set forth below and in the Statement of Additional Information.
For further information concerning the rating and other requirements governing
the investments (including the treatment of securities subject to a tender or
demand feature or deemed to possess a rating based on comparable rated
securities of the same issuer) of a Fund, see the Statement of Additional
Information. The Statement of Additional Information also identifies the NRSROs
that may be utilized by the Advisor with respect to portfolio investments for
the Funds and provides a description of the relevant ratings assigned by each
such NRSRO.
In the event that a security owned by a Fund is downgraded below the stated
rating categories, the Advisor will take appropriate action with regard to that
security.
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<PAGE> 20
Illiquid and Restricted Securities
The Funds shall limit investments in illiquid securities to 10% or less of
their net assets. Generally, an "illiquid security" is any security that cannot
be disposed of promptly and in the ordinary course of business at approximately
the amount at which the Fund has valued the instrument. The absence of a trading
market can make it difficult to ascertain the market value of illiquid
securities. Each Fund may purchase restricted securities which have not been
registered under the Securities Act of 1933 (e.g., Rule 144A Securities and
Section 4(2) commercial paper) subject to policies approved by the Board of
Trustees. See INVESTMENT RESTRICTIONS in the Statement of Additional
Information.
Time deposits, including ETDs and CTDs (but not including certificates of
deposit) and repurchase agreements, which have maturities in excess of seven
days are considered to be illiquid.
Municipal Securities
The two principal classifications of Municipal Securities that may be held by
the California Tax-Free Money Market Fund are "general obligation" securities
and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith and credit and general taxing power for the payment of principal and
interest.
Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the California Tax-Free
Money Market Fund are in most cases revenue securities and are not payable from
the unrestricted revenues of the issuer. Consequently, the credit quality of
private activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
In addition, Municipal Securities may include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from federal income tax or California personal income tax
are rendered at the time of issuance by counsel experienced in matters relating
to the validity of and tax exemption of interest on bonds issued by states and
their political sub-divisions. Neither the California Tax-Free Money Market Fund
nor the Advisor will review the proceedings relating to the issuance of
Municipal Securities or the basis for such opinions.
Municipal Securities purchased by the California Tax-Free Money Market Fund
may include adjustable rate tax-exempt notes which may have a stated maturity in
excess of 397 days, but which will be subject to a demand feature that will
permit the Fund to demand payment of the principal of the note either (i) at any
time upon not more than thirty days' notice or (ii) at specified intervals not
exceeding 397 days and upon no more than thirty days' notice. There may be no
active secondary market with respect to a particular adjustable rate note.
Nevertheless, as described in greater detail in the Statement of Additional
Information, the
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<PAGE> 21
adjustable interest rate feature included in this type of note is intended
generally to assure that the value of the note to the Fund will approximate its
par value.
Municipal Securities may include, but are not limited to, short-term
anticipation notes, bond anticipation notes, revenue anticipation notes, and
other forms of short-term tax-exempt securities. These instruments are issued in
anticipation of the receipt of tax funds, the proceeds of bond placements, or
other revenues. In addition, the California Tax-Free Money Market Fund may
purchase tax-exempt commercial paper. Under certain circumstances, and subject
to the limitations described in the Statement of Additional Information, the
California Tax-Free Money Market Fund may invest indirectly in Municipal
Securities by purchasing shares of other tax-exempt money market mutual funds.
The California Tax-Free Money Market Fund may also acquire Municipal
Securities that have "put" features. Under a put feature, the Fund has the right
to sell the Municipal Security within a specified period of time at a specified
price. The put feature cannot be sold, transferred, or assigned separately from
the Municipal Security. Each Fund may buy Municipal Securities with put features
to facilitate portfolio liquidity, shorten the maturity of the underlying
Municipal Securities, or permit investment at a more favorable rate of return.
The aggregate price of a security subject to a put may be higher than the price
that otherwise would be paid for the security without such a feature, thereby
increasing the security's cost and reducing its yield.
Lending of Portfolio Securities
In order to generate additional income, each Fund (except the California
Tax-Free Money Market Fund and the 100% U.S. Treasury Money Market Fund) may
lend its portfolio securities to broker-dealers, banks or other institutions. A
Fund may lend portfolio securities in an amount representing up to 33 1/3% of
the value of the Fund's total assets.
Other Investments
The Diversified Money Market Fund, the U.S. Government Money Market Fund, and
the California Tax-Free Money Market Fund may enter into repurchase agreements
and reverse repurchase agreements. Each Fund intends to limit its respective
activity in reverse repurchase agreements to no more than 10% of the Fund's
total assets.
The Funds may enter into forward commitments or purchase securities on a
"when-issued" basis. Each Fund expects that commitments by a Fund to enter into
forward commitments or purchase when-issued securities will not exceed 25% of
the value of the Fund's total assets under normal market conditions. The Funds
do not intend to purchase when-issued securities or enter into forward
commitments for speculative or leveraging purposes but only for the purpose of
acquiring portfolio securities.
For further information, see "DESCRIPTION OF PERMITTED INVESTMENTS."
Risk Factors
Investments by the Funds in obligations of certain agencies and
instrumentalities of the U.S. Government may not be guaranteed by the full faith
and credit of the U.S. Treasury, and there can be no assurance that the
18
<PAGE> 22
U.S. Government would provide financial support to U.S. Government-sponsored
agencies or instrumentalities if it is not obligated to do so by law.
As in the case of mortgage-related securities, certain asset-backed securities
are subject to prepayments and there can be no assurance that the Diversified
Money Market Fund will be able to reinvest the proceeds of any prepayment at the
same interest rate or on the same terms as the original investment.
Foreign securities which the Diversified Money Market Fund may purchase may
subject the Fund to investment risks that differ in some respects from those
related to investments in obligations of U.S. issuers. These risks include
adverse political and economic developments, possible imposition of withholding
taxes on interest income, possible seizure, nationalization, or expropriation of
foreign investments, possible establishment of exchange controls, or adoption of
other foreign governmental restrictions which might adversely affect the payment
of principal and interest on such obligations. In addition, foreign branches of
U.S. banks and foreign banks may be subject to less stringent reserve
requirements and different accounting, auditing, reporting, and recordkeeping
standards than those applicable to domestic branches of U.S. banks.
Certain risks are inherent in the California Tax-Free Money Market Fund's
concentrated investment in California Municipal Securities, which may make an
investment in the Fund riskier than an investment in other types of money market
funds. Because of the California Tax-Free Money Market Fund's investment
objective, many of the securities in its portfolio are likely to be obligations
of California governmental issuers that rely in whole or in part, directly or
indirectly, on real property taxes as a source of revenue. The ability of the
State of California and its political sub-divisions to generate revenue through
real property and other taxes and to increase spending has been significantly
restricted by various constitutional and statutory amendments and voter-passed
initiatives. Such limitations could affect the ability of California state and
municipal issuers to pay interest or repay principal on their obligations. In
addition, during the first half of the decade, California faced severe economic
and fiscal conditions and experienced recurring budget deficits that caused it
to deplete its available cash resources and to become increasingly dependent
upon external borrowings to meet its cash needs.
The financial difficulties experienced by the State of California and other
issuers of California Municipal Securities during the recession have resulted in
the credit ratings of certain of their obligations being downgraded
significantly by the major rating agencies.
A more detailed description of special factors affecting investments in
obligations of California governmental issuers of which investors should be
aware is set forth in the Statement of Additional Information.
Year 2000
HighMark Funds depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other mutual funds, businesses and
individuals around the world, HighMark Funds could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. HighMark Funds has made inquiry of its service providers to determine
whether they expect to have their computer systems adjusted for the year 2000
transition, and is seeking assurances from each service provider that it expects
its system to accommodate the year 2000 transition without material adverse
consequences to HighMark Funds. While it is
19
<PAGE> 23
likely that such assurances will be obtained, HighMark Funds and its
shareholders may experience losses if these assurances prove to be incorrect or
as a result of year 2000 computer difficulties experienced by issuers of
portfolio securities or custodians, banks, broker-dealers or others with which
HighMark Funds does business.
VALUATION OF SHARES
Each Fund's net asset value per share is determined by the Administrator as of
1:00 p.m. Eastern Time on days on which both the New York Stock Exchange and the
Federal Reserve wire system are open for business. Net asset value per share for
purposes of pricing sales and redemptions for each of the Funds is calculated by
adding the value of all securities and other assets belonging to a Fund,
subtracting its liabilities, and dividing the result by the total number of the
Fund's outstanding shares, irrespective of class.
The assets in each Fund are valued based upon the amortized cost method
whereby HighMark Funds seeks to maintain a Fund's net asset value per Share at
$1.00, although there can be no assurance that a stable net asset value of $1.00
per Share will be maintained. For further information concerning the use of the
amortized cost method of valuation, see the Statement of Additional Information.
HOW TO PURCHASE SHARES
As noted above, the Diversified Money Market, 100% U.S. Treasury Money Market
and California Tax-Free Money Market Funds are divided into two classes of
Shares, Class A and Fiduciary. The U.S. Government Money Market Fund is divided
into three classes of Shares, Class A, Class B and Fiduciary. For a description
of investors who qualify to purchase Fiduciary Shares, see the Fiduciary Shares
prospectus of the Money Market Funds. HighMark Funds' 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 Funds' Fiduciary class. Class B
Shares are only available pursuant to an exchange for Class B Shares of another
HighMark Fund.
Class A Shares are sold on a continuous basis by HighMark Funds' 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 Funds at 1-800-433-6884. Investors
may be charged a fee if they effect transactions in fund shares through a broker
or agent. Accounts opened directly with HighMark Funds' transfer agent are "Fund
Direct" accounts.
The minimum initial investment is generally $1,000 for each Fund and the
minimum subsequent investment is generally only $100. For present and retired
trustees of the Fund, directors, officers, and employees (and their spouses and
children under the age of 21) of Union Bank of California, N.A., SEI Investments
Distribution Co. 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, 401(k) or
similar programs or accounts. Purchases and redemption of Shares of the Funds
may be made on any Business Day.
Purchase orders will be effective on the Business Day made if the Distributor
receives an order before 8:00 a.m., Pacific time (11:00 a.m., Eastern time) for
the California Tax-Free Money Market Fund, 9:00 a.m.,
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<PAGE> 24
Pacific time (12:00 noon, Eastern time) for the 100% U.S. Treasury Money Market
Fund and 10:00 a.m., Pacific time (1:00 p.m., Eastern time) for the Diversified
Money Market and U.S. Government Money Market Funds, on any Business Day.
Otherwise, the purchase order will be effective the next Business Day.
Effectiveness of a purchase order on any Business Day is contingent on the
Custodian's receipt of Federal funds before 11:00 a.m., Pacific time (2:00 p.m.,
Eastern time), on such day. The purchase price of Class A Shares is the net
asset value per Share, which is expected to remain constant at $1.00. Class B
Shares are only available pursuant to an exchange for Class B Shares of another
HighMark Fund. The net asset value per Share is calculated as of 10:00 a.m.,
Pacific time (1:00 p.m., Eastern time) each Business Day based on the amortized
cost method. The net asset value per Share of a Fund is determined by dividing
the total value of its investments and other assets, less any liabilities, by
the total number of its outstanding Shares. Although the methodology and
procedure for determining net asset value are identical for Class A and Class B
Shares, the net asset value per share of such classes may differ because of the
higher distribution expenses charged to B Class Shares. HighMark Funds 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 Funds and/or
Shareholder(s).
Shares of the Funds are offered only to residents of states in which the
shares are eligible for purchase.
How to Purchase By Mail
You may purchase Class A Shares of the Diversified Money Market, U.S.
Government Money Market, 100% U.S. Treasury Money Market, and California
Tax-Free Money Market Funds by completing and signing an Account Application
form and mailing it, along with a check (or other negotiable bank instrument or
money order) payable to "HighMark Funds," 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." Third party checks, credit
card checks or cash will not be accepted. You may purchase more Class A Shares
at any time by mailing payment also to the transfer agent at the above address.
Orders placed by mail will be executed on receipt of your payment. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred.
You may obtain Account Application Forms for the Diversified Money Market,
U.S. Government Money Market, 100% U.S. Treasury Money Market, and California
Tax-Free Money Market Funds by calling the Distributor at 1-800-433-6884.
How to Purchase By Wire
You may purchase Class A Shares of the Diversified Money Market, U.S.
Government Money Market, 100% U.S. Treasury Money Market, and California
Tax-Free Money Market Funds by wiring Federal funds, provided that your Account
Application has been previously received. You must wire funds to the transfer
agent and the wire instructions must include your account number. You must call
the transfer agent at 1-800-433-6884 before wiring any funds. An order to
purchase Class A Shares by Federal funds wire will be deemed to have been
received by a Fund on the Business Day of the wire; provided that the
Shareholder wires funds to the transfer agent prior to 11:00 a.m., Pacific time
(2:00 p.m., Eastern time). If the transfer agent does not receive the wire by
11:00 a.m., Pacific time (2:00 p.m. Eastern time), the order will be executed on
the next Business Day.
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<PAGE> 25
How to Purchase through an Automatic Investment Plan ("AIP")
You may arrange for periodic additional investments in Class A Shares of the
Diversified Money Market, U.S. Government Money Market, 100% U.S. Treasury Money
Market, and California Tax-Free Money Market Funds through automatic deductions
by Automated Clearing House ("ACH") from a checking account by completing this
section in the Account Application form. The minimum pre-authorized investment
amount is $100 per month. 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.
How to Purchase Through Financial Institutions
Class A Shares of the Funds may be purchased through financial institutions,
including the Advisor, that provide distribution assistance or Shareholder
services. Class A Shares purchased by persons ("Customers") through financial
institutions may be held of record by the financial institution. Financial
institutions may impose an earlier cut-off time for receipt of purchase orders
directed through them to allow for processing and transmittal of these orders to
the transfer agent for effectiveness the same day. Customers should contact
their financial institution for information as to that institution's procedures
for transmitting purchase, exchange or redemption orders to HighMark Funds.
Customers who desire to transfer the registration of Class A Shares
beneficially owned by them but held of record by a financial institution should
contact the institution to accomplish such change.
Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer account fees. Information concerning these
services and any charges will be provided to the Customer by the financial
institution.
Alternative Purchase Options
Class A Shares and Class B Shares represent a Fund's interest in the portfolio
of investments. The classes have the same rights and are identical in all
respects except that (i) Class B shares bear the expenses of the deferred sales
arrangement and distribution and service fees resulting from such sales
arrangement, (ii) each class has exclusive voting rights with respect to
approvals of any Rule 12b-1 distribution plan related to that specific class
(although Class B shareholders may vote on any distribution fees imposed on
Class A shares so long as Class B shares convert into Class A shares), (iii)
only Class B shares carry a conversion feature and (iv) each class has different
exchange privileges. See "Exchange Privileges." Sales personnel of
broker-dealers distributing the Funds' shares, and other persons entitled to
receive compensation for selling such shares, may receive differing compensation
for selling Class A or Class B shares.
The Trustees of HighMark Funds 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 Funds, pursuant to their fiduciary duties under the 1940
Act and state laws, will seek to ensure that no such conflict arises.
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<PAGE> 26
Class A Shares. The Funds' Class A Shares are offered on a continuous basis,
at their next determined offering price, which is net asset value. There is no
initial or contingent deferred sales charge on purchases of Class A Shares.
Class B Shares. Class B Shares are sold at net asset value without any
initial sales charge. Class B Shares are only available for purchase pursuant to
an exchange for Class B Shares of another HighMark Fund (the "Exchange Class
Shares"). Currently, only the Class B Shares of the HighMark Funds assess a
contingent deferred sales charge. If an investor redeems Class B Shares of the
U.S. Government Money Market Fund within six years of purchase of the Exchange
Class Shares and is not eligible for a waiver, he or she will pay a contingent
deferred sales charge in an amount equal to the contingent deferred sales charge
he or she would have paid on the Exchange Class Shares, assuming no exchange had
occurred. Consequently, if a shareholder exchanges Exchange Class Shares for
Class B Shares of the U.S. Government Money Market Fund, the transaction will
not be subject to a contingent deferred sales charge; however, when Class B
Shares acquired through the exchange are redeemed, the shareholder will be
treated as if no exchange took place for the purpose of determining the
contingent deferred sales charge and will be charged a contingent deferred sales
charge at the rates set forth below. This charge is assessed on an amount equal
to the lesser of the then-current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no charge is assessed on
shares derived from reinvestment of dividends or capital gain distributions.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGES
AS A PERCENTAGE OF DOLLAR AMOUNT
YEARS SINCE PURCHASE SUBJECT TO CHANGE
- -------------------- ---------------------------------
<S> <C>
First............................................ 5.00%
Second........................................... 4.00%
Third............................................ 3.00%
Fourth........................................... 3.00%
Fifth............................................ 2.00%
Sixth............................................ 1.00%
Seventh.......................................... None
Eighth........................................... None
</TABLE>
In determining whether a particular redemption is subject to a contingent
deferred sales charge, it is assumed that the redemption is first of any Class A
Shares in the shareholder's Fund account, second of Class B Shares held for over
six years or Class B Shares acquired pursuant to reinvestment of dividends or
other distributions and third of Class B Shares held longest during the six year
period. This method should result in the lowest possible sales charge.
The contingent deferred sales charge is waived on redemption of shares (i)
following the death or disability (as defined in the Code) of a shareholder, or
(ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70 1/2. A Shareholder, or his or her
representative, must notify the Transfer Agent prior to the time of redemption
if such circumstances exist and the shareholder is eligible for a waiver.
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<PAGE> 27
Conversion Feature. At the end of the period ending eight years after the
beginning of the month in which the shares were issued, Class B shares will
automatically convert to Class A Shares and will no longer be subject to the
Class B distribution and service fees. Such conversion will be on the basis of
the relative net asset value of the two classes.
EXCHANGE PRIVILEGES
As indicated under GENERAL INFORMATION--Description of HighMark Funds & Its
Shares, certain Funds of HighMark Funds issue three classes of Shares (Class A
and Class B Shares (collectively, "Retail Shares") and Fiduciary Shares); as of
the date of this Prospectus, the Distribution Plan and distribution fee payable
thereunder are applicable only to such Fund's Retail Shares. A Shareholder's
eligibility to exchange into a particular class of Shares will be determined at
the time of the exchange. The Shareholder must supply, at the time of the
exchange, the necessary information to permit confirmation of qualification.
Each Fund's Class A or Class B Shares may be exchanged for Class A or Class B
Shares, respectively, of the class of the various other Funds of HighMark Funds
which the Shareholder qualifies to purchase directly so long as the Shareholder
maintains the applicable minimum account balance in each Fund in which he or she
owns Class A or Class B Shares and satisfies the minimum initial and subsequent
purchase amounts of the Fund into which the Shares are exchanged. Shareholders
may exchange their Class A Shares for Class A Shares of a Fund with the same or
lower sales charge on the basis of the relative net asset value of the Class A
Shares exchanged. Shareholders may exchange their Class A Shares for Class A
Shares of a Fund with a higher sales charge by paying the difference between the
two sales charges. Shareholders may also exchange Class A Shares of a money
market fund for which no sales load was paid for Class A Shares of another
HighMark Fund. Under such circumstances, the cost of the acquired Class A Shares
will be the net asset value per share plus the appropriate sales load. If Class
A Shares of the money market fund were acquired in a previous exchange involving
Class A Shares of a non-money market HighMark Fund, then such Class A Shares of
the money market fund may be exchanged for Class A Shares of the non-money
market HighMark Fund without payment of any additional sales load within a
twelve month period. In order to receive a reduced sales charge when exchanging
into a Fund, the Shareholder must notify HighMark Funds that a sales charge was
originally paid and provide sufficient information to permit confirmation of
qualification.
For purposes of calculating the Class B Shares' eight year conversion period
or contingent deferred sales charge payable upon redemption, the holding period
of Class B Shares of the "old" Fund and the holding period for Class B Shares of
the "new" Fund are aggregated.
Exchanges will be made on the basis of the relative net asset values of the
Shares exchanged plus any applicable sales charge. Exchanges are subject to the
terms and conditions stated herein and the terms and conditions stated in the
respective prospectuses of the Funds.
Certain entities (including Participating Organizations and Union Bank of
California, N.A. and its affiliates), however, may charge customers a fee with
respect to exchanges made on the customer's behalf. Information about these
charges, if any, can be obtained by the entity effecting the exchange and this
Prospectus should be read in conjunction with that information.
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<PAGE> 28
A Shareholder wishing to exchange Shares in a Fund may do so by contacting the
transfer agent at 1-800-433-6884. Exchanges will be effected on any Business Day
at the net asset value of the Funds involved in the exchange next determined
after the exchange request is received by the transfer agent.
An exchange is considered to be a sale of Shares for federal income tax
purposes on which a Shareholder may realize a capital gain or loss. Exchange
privileges may be exercised only in those states where Shares of such other
Funds of HighMark Funds may legally be sold. HighMark Funds may materially amend
or terminate the exchange privileges described herein upon sixty days' notice.
REDEMPTION OF SHARES
You may redeem your Shares of the Diversified Money Market, U.S. Government
Money Market, 100% U.S. Treasury Money Market, and California Tax-Free Money
Market Funds without charge on any Business Day. There is presently a $15 charge
for wiring redemption proceeds to a Shareholder's designated account. Shares may
be redeemed by mail, by telephone or through a pre-arranged systematic
withdrawal plan. Investors who own Shares held by a financial institution should
contact that institution for information on how to redeem Shares.
By Mail
A written request for redemption of Shares of the Diversified Money Market,
U.S. Government Money Market, 100% U.S. Treasury Money Market, and California
Tax-Free Money Market Funds must be received by the transfer agent, P.O. Box
8416, Boston, Massachusetts 02266-8416 in order to constitute a valid redemption
request.
If the redemption request exceeds $5,000, or if the request directs the
proceeds to be sent or wired to an address different from that of record, the
transfer agent may require that the signature on the written redemption request
be guaranteed. You should be able to obtain a signature guarantee from a bank,
broker dealer, credit union, securities exchange or association, clearing agency
or savings association. Notaries public cannot guarantee signatures. The
signature guarantee requirement will be waived if all of the following
conditions apply: (1) the redemption is for not more than $5,000 worth of
Shares, (2) the redemption check is payable to the shareholder(s) of record, and
(3) the redemption check is mailed to the shareholder(s) at his or her address
of record.
Telephone Transactions
You may redeem your Shares of the Diversified Money Market, U.S. Government
Money Market, 100% U.S. Treasury Money Market, and California Tax-Free Money
Market Funds by calling the transfer agent at 1-800-433-6884. Under most
circumstances, payments will be transmitted on the next Business Day following
receipt of a valid request for redemption. You may have the proceeds mailed to
your address or wired to a commercial bank account previously designated on your
Account Application. There is no charge for having redemption proceeds mailed to
you, but there is a $15 charge for wiring redemption proceeds.
25
<PAGE> 29
You may request a wire redemption for redemptions of Shares of the Diversified
Money Market, U.S. Government Money Market, 100% U.S. Treasury Money Market, and
California Tax-Free Money Market Funds in excess of $500 by calling the transfer
agent at 1-800-433-6884 who will deduct a wire charge of $15 from the amount of
the wire redemption. Shares cannot be redeemed by Federal Reserve wire on
Federal holidays restricting wire transfers.
Neither the transfer agent nor HighMark Funds 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 Funds and the transfer agent
will each employ reasonable procedures to confirm that instructions,
communicated by telephone are genuine. Such procedures may include taping of
telephone conversations.
If market conditions are extraordinarily active or other extraordinary
circumstances exist, and you experience difficulties placing redemption orders
by telephone, you may wish to consider placing your order by mail.
Redemption By Checkwriting
Checkwriting is available to Shareholders of the Funds who have purchased
Retail Shares directly from the Funds without the help of an investment
professional. HighMark Funds will provide Shareholders of record, upon request
and without charge, with checks drawn on the Fund in which they have an account.
Shareholders will be required to sign signature cards and will be subject to any
applicable rules and regulations of the clearing bank relating to check
redemption privileges.
Checks drawn on the Funds may be made payable to the order of any payee in an
amount of $500 or more. Shareholders should be aware that, as in the case with
bank checks, certain banks may not provide cash at the time of deposit, but will
wait until they have received payment from the clearing bank. When a check is
presented to the clearing bank for payment, subject to the Fund's acceptance of
the check, the clearing bank, as agent, causes the Fund to redeem, at the net
asset value next determined after such presentation, a sufficient number of full
and fractional shares in the shareholder's account to cover the amount of the
check. Checks will be returned by the clearing bank if there are insufficient
shares to meet the withdrawal amount. Shareholders of record wishing to use this
method of redemption should check the appropriate box on the Account
Application, obtain a signature card by calling 1-800-433-6884, and mail the
completed form and signature card to the transfer agent at P.O. Box 8416,
Boston, Massachusetts 02266-8416. There is no charge for the clearance of any
checks, although the clearing bank will impose its customary overdraft fee in
connection with returning any checks as to which there are insufficient shares
to meet the withdrawal amount. As of the date of this Supplement, the overdraft
fee was $20. Shareholders are permitted to write a maximum of five checks per
month. A charge of $25 will be assessed to the account of a Shareholder who
writes more than the permitted maximum amount of checks per month. Shareholders
may not use a check to close their account.
Systematic Withdrawal Plan ("SWP")
The Diversified Money Market, U.S. Government Money Market, 100% U.S. Treasury
Money Market, and California Tax-Free Money Market Funds offer a Systematic
Withdrawal Plan ("SWP"), which you may use
26
<PAGE> 30
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 per
Fund. You may elect to receive automatic payments via check or ACH of $100 or
more per Fund 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.
The aggregate withdrawals of Class B Shares in any year pursuant to the SWP
will not be subject to the contingent deferred sales charge in an amount up to
10% of the value of the account at the time of the establishment of the SWP.
Because automatic withdrawals of Class B Shares in amounts greater than 10% of
the initial value of the account will be subject to the contingent deferred
sales charge, it may not be in the best interests of Class B Shareholders to
participate in the SWP for such amounts.
Other Information Regarding Redemptions
HighMark Funds is required to redeem for cash all full and fractional shares
of HighMark Funds. The redemption price is the net asset value per share of a
Fund (normally $1.00 per share), reduced by any applicable contingent deferred
sales charge for Class B Shares.
Redemption orders may be made any time before 8:00 a.m., Pacific time (11:00
a.m., Eastern time) for the California Tax-Free Money Market Fund, 9:00 a.m.,
Pacific time (12:00 noon, Eastern time) for the 100% U.S. Treasury Money Market
Fund and 10:00 a.m., Pacific time (1:00 p.m., Eastern time) for the Diversified
Money Market and U.S. Government Money Market Funds in order to receive that
day's redemption price (i.e., the next determined net asset value per share).
For redemption orders received before such times, payment will be made the same
day by transfer of federal funds. Otherwise, payment will be made on the next
Business Day. Redeemed Shares are not entitled to dividends declared the day the
redemption order is effective. The Funds reserve the right to make payment on
redemptions in securities rather than cash.
Payment to the Shareholders for Shares redeemed will be made within seven days
after the Transfer Agent receives the valid redemption request. At various
times, however, a Fund may be requested to redeem Shares for which it has not
yet received good payment; collection of payment may take ten or more days. In
such circumstances, the redemption request will be rejected by the Fund. Once a
Fund has received good payment for the Shares a Shareholder may submit another
request for redemption.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem your Shares at net asset value, less any applicable
contingent deferred sales charge, if your account in any Fund has a value of
less than the minimum initial purchase amount. Accordingly, if you purchase
Shares of any Fund in only the minimum investment amount, you may be subject to
involuntary redemption if you redeem any Shares. Before any Fund exercises its
right to redeem such Shares you will be given notice that the value of
27
<PAGE> 31
the Shares in your account is less than the minimum amount and will be allowed
60 days to make an additional investment in such Fund in an amount which will
increase the value of the account to at least the minimum amount.
DIVIDENDS
The net income of each Fund is declared daily as a dividend to Shareholders of
record at the close of business on the day of declaration. The net income
attributable to a Fund's Retail Shares and the dividends payable on Retail
Shares will be reduced by the distribution fee assessed against such Shares
under the Distribution Plan (see SERVICE ARRANGEMENTS--The Distribution Plan
below). The amount of dividends payable on Class A Shares will be more than the
dividends payable on the Class B Shares because of the higher distribution fee
paid by Class B Shares.
Dividends with respect to each Fund are paid monthly in additional full and
fractional Shares of the Fund at net asset value as of the date of payment,
unless the Shareholder elects to receive such dividends in cash as described
below. Shareholders will automatically receive all income dividends and capital
gains distributions (if any) paid in respect of a Fund's Shares in additional
full and fractional Shares of the same class. Shareholders wishing to receive
their dividends in cash (or wishing to revoke a previously made election) must
notify the transfer agent at P.O. Box 8416, Boston, MA 02266-8416, and such
election (or revocation thereof) will become effective with respect to dividends
having record dates after notice has been received. Dividends paid in additional
Shares receive the same tax treatment as dividends paid in cash. Dividends are
paid in cash not later than seven Business Days after a Shareholder's complete
redemption of his or her Shares. Net realized capital gains, if any, are
distributed at least annually to Shareholders of record.
FEDERAL TAXATION
Each Fund intends to qualify for treatment as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"), and to
distribute substantially all of its net investment income so that it is not
required to pay federal taxes on these amounts. Because all of the net
investment income of the Diversified Money Market Fund, the U.S. Government
Money Market Fund, the 100% U.S. Treasury Money Market Fund and the California
Tax-Free Money Market Fund is expected to be derived from interest, it is
anticipated that no part of any distribution will be eligible for the federal
dividends received deduction for corporations. The Funds are not managed to
generate any long-term capital gains and, therefore, the Funds do not foresee
paying any significant "capital gains dividends" as described in the Code.
Shareholders will be subject to federal income tax with respect to dividends
paid by the Diversified Money Market Fund, the U.S. Government Money Market Fund
and the 100% U.S. Treasury Money Market Fund (including any capital gains
dividends). Dividends that are attributable to interest on U.S. Government
obligations earned by the Funds may be exempt from state and local tax, and
Shareholders should consult their own tax advisors to determine whether these
dividends are eligible for the state and local tax exemption. Dividends (except
to the extent attributable to gains or securities lending income) paid by the
100% U.S. Treasury Money Market Fund will be exempt from California and Oregon
personal income taxes.
28
<PAGE> 32
HighMark Funds intends to advise Shareholders annually of the proportion of a
Fund's dividends that consists of interest on U.S. Government obligations.
Although it is unlikely that a Shareholder would recognize long-term capital
gains in respect of his or her Fund Shares, such gains are, in the case of
non-corporate Shareholders, generally subject to a tax rate of 20%.
Exempt-interest dividends from the California Tax-Free Money Market Fund are
excludable from gross income for federal income tax purposes. Such dividends may
be taxable to Shareholders under state or local law as ordinary income even
though all or a portion of the amounts may be derived from interest on tax-
exempt obligations which, if realized directly, would be exempt from such taxes.
Shareholders are advised to consult a tax advisor with respect to whether
exempt-interest dividends retain the exclusion if such Shareholder would be
treated as a "substantial user" of a facility financed through certain private
activity bonds or a "related person" to such user under the Code.
Under the Code, interest on indebtedness incurred or continued by a
Shareholder to purchase or carry Shares of the California Tax-Free Money Market
Fund is not deductible for federal income tax purposes to the extent the Fund
distributes exempt-interest dividends during the Shareholder's taxable year.
Under the Code, if a Shareholder sells a Share of the California Tax-Free
Money Market Fund after holding it for six months or less, any loss on the sale
or exchange of such Share will be disallowed to the extent of the amount of any
exempt-interest dividends that the Shareholder has received with respect to the
Share that is sold.
In addition, any loss (not already disallowed as provided in the preceding
sentence) realized upon a taxable disposition of shares held for six months or
less will be treated as long-term, rather than short-term, to the extent of any
long-term capital gain distributions received by the shareholder with respect to
the shares.
The California Tax-Free Money Market Fund may at times purchase Municipal
Securities at a discount from the price at which they were originally issued.
For federal income tax purposes, some or all of this market discount will be
included in the California Tax-Free Money Market Fund's ordinary income and will
be taxable to Shareholders as such when it is distributed to them.
To the extent dividends paid to Shareholders are derived from taxable income
(for example, from interest on certificates of deposit or repurchase
agreements), or from long-term or short-term capital gains, such dividends will
be subject to federal income tax, whether such dividends are paid in the form of
cash or additional Shares. A Shareholder should consult his or her tax advisor
for special advice.
Under the Code, dividends attributable to interest on certain private activity
bonds issued after August 7, 1986 must be included in alternative minimum
taxable income for the purpose of determining liability (if any) for the federal
alternative minimum tax. In addition, exempt-interest dividends will be included
in a corporation's "adjusted current earnings" for purposes of the alternative
minimum tax (except to the extent derived from interest on certain private
activity bonds issued after August 7, 1986, which interest would already be
included in alternative minimum taxable income as a specific item of tax
preference). Shareholders of the California Tax-Free Money Market Fund receiving
social security or railroad retirement benefits may be taxed on a portion of
those benefits as a result of receiving tax-exempt income (including
exempt-interest dividends distributed by the California Tax-Free Money Market
Fund).
29
<PAGE> 33
If, at the close of each quarter of its taxable year, the California Tax-Free
Money Market Fund continues to qualify for the special federal income tax
treatment afforded regulated investment companies and at least 50% of the value
of the Fund's total assets consists of California Exempt-Interest Securities,
then "California-exempt interest dividends" attributable to these securities
will be exempt from California personal income tax. A "California-exempt
interest dividend" is any dividend distributed by the Fund to the extent that it
is derived from the interest received by the Fund on California Exempt-Interest
Securities (less related expenses) and designated as such by written notice to
Shareholders. For further details, see the Statement of Additional Information.
Dividends received by Shareholders subject to California state corporate
franchise tax will be taxed as ordinary dividends notwithstanding that all or a
portion of such dividends are exempt from California personal income tax.
Distributions other than "California-exempt interest dividends" by the Fund to
California residents will be subject to California personal income tax, whether
or not such dividends are reinvested. Interest on indebtedness incurred or
continued by a Shareholder in connection with the purchase of Shares of the
California Tax-Free Money Market Fund will not be deductible for California
personal income tax purposes if the Fund distributes California exempt-interest
dividends.
Additional information regarding federal and California taxes is contained in
the Statement of Additional Information. However, the foregoing and the material
in the Statement of Additional Information are only brief summaries of some of
the important tax considerations generally affecting a money market fund and its
Shareholders. In addition, the foregoing discussion and the federal and
California tax information in the Statement of Additional Information are based
on tax laws and regulations which are in effect as of the date of this
Prospectus; these laws and regulations may subsequently change, and such changes
could be retroactive. Shareholders will be advised at least annually as to the
federal income tax status, and, in the case of Shareholders of the California
Tax-Free Money Market Fund, as to the California income tax status, of
distributions made during the year.
SERVICE ARRANGEMENTS
The Advisor
Prior to September 1, 1998, Pacific Alliance, a division of Union Bank of
California, N.A., served as the Funds' investment advisor. Effective September
1, 1998, Pacific Alliance was reorganized into a subsidiary of UnionBanCal
Corporation, the holding company of Union Bank of California. The new entity,
which is called HighMark Capital Management, Inc. (the "Advisor"), is a
California corporation registered under the Investment Adviser's Act of 1940.
HighMark Capital Management, Inc. now serves as the Funds' investment advisor.
Subject to the general supervision of HighMark Funds' Board of Trustees, the
Advisor manages each Fund in accordance with its investment objective and
policies, makes decisions with respect to and places orders for all purchases
and sales and maintains the Funds' records relating to such purchases and sales.
For the expenses assumed and services provided by the Advisor as each Fund's
investment advisor, the Advisor receives a fee from the Diversified Money Market
Fund, the U.S. Government Money Market Fund, the 100% U.S. Treasury Money Market
Fund and the California Tax-Free Money Market Fund, computed
30
<PAGE> 34
daily and paid monthly, at the annual rate of thirty one-hundredths of one
percent (0.30%) of each Fund's average daily net assets. The Advisor may from
time to time agree to voluntarily reduce its advisory fee. 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.
During HighMark Funds' fiscal year ended July 31, 1998, Union Bank of
California received investment advisory fees from the Diversified Money Market
Fund aggregating 0.30% of the Fund's average daily net assets, from the U.S.
Government Money Market Fund aggregating 0.30% of the Fund's average daily net
assets, from the 100% U.S. Treasury Money Market Fund aggregating 0.25% of the
Fund's average daily net assets, and from the California Tax-Free Money Market
Fund aggregating 0.10% of the Fund's average daily net assets.
UnionBanCal Corporation, the parent of Union Bank of California, N.A., is a
publicly held corporation, but is principally held by the Bank of
Tokyo-Mitsubishi, Limited. As of September 30, 1998, UnionBanCal Corporation and
its subsidiaries had approximately $31.4 billion in consolidated assets.
HighMark Capital Management, Inc., as of September 30, 1998, had approximately
$16 billion of assets under management. The Advisor, with a team of
approximately 43 stock and bond research analysts, portfolio managers and
traders, has been providing investment management services to individuals,
institutions and large corporations since 1917.
On November 19, 1998, UnionBanCal Corporation announced plans for a secondary
offering of $750 million of its common stock owned by The Bank of
Tokyo-Mitsubishi, Ltd. It is anticipated that the offering will occur prior to
the end of the first quarter of 1999. UnionBanCal Corporation also announced
that it would seek to repurchase up to $500 million of its outstanding common
stock. Using the net proceeds from the sale of up to $500 million in trust
preferred securities, UnionBanCal Corporation currently anticipates repurchasing
$250 million of its common stock from The Bank of Tokyo-Mitsubishi, Ltd.,
concurrent with the secondary offering, and up to an additional $250 million of
its common stock from other foreign institutional shareholders. The Bank of
Tokyo-Mitsubishi, Ltd. intends to maintain a majority ownership interest in
UnionBanCal Corporation following the consummation of the transactions.
Administrator
SEI Investments Mutual Funds Services (the "Administrator") and HighMark Funds
are parties to an administration agreement (the "Administration Agreement").
Under the terms of the Administration Agreement, the Administrator provides
HighMark Funds with certain management services, including all necessary office
space, equipment, personnel, and facilities.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of 0.20% of the average daily net assets of the
Funds. The Administrator may waive its fee or reimburse various expenses to the
extent necessary to limit the total operating expenses of a Fund's Retail
Shares. Any such waiver is voluntary and may be terminated at any time in the
Administrator's sole discretion. Currently, the Administrator has agreed to
waive its fee to the rate of 0.18% of the average daily net assets of the Funds.
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<PAGE> 35
Pursuant to a separate agreement with the Administrator, Union Bank of
California, N.A. performs sub-administration services on behalf of each Fund,
for which it receives a fee paid by the Administrator at the annual rate of up
to 0.05% of the average daily net assets of the Funds. A description of the
services performed by Union Bank of California, N.A. 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 Funds, for which services it receives a fee.
Shareholder Service Plan
To support the provision of Shareholder services to all classes of Shares,
HighMark Funds has adopted a Shareholder Service Plan for Fiduciary Class and
Class A Shares and a Shareholder Service Plan for Class B Shares. A description
of the services performed by service providers pursuant to each Shareholder
Service Plan is contained in the Statement of Additional Information. Under
these plans, in consideration of services provided by any service provider,
which may include Union Bank of California, N.A., Bank of Tokyo-Mitsubishi,
Ltd., or their respective affiliates, each Fund may pay a fee at the rate of up
to 0.25% of its average daily net assets to such service provider. The service
provider may waive such fees at any time. Any such waiver is voluntary and may
be terminated at any time. Currently, such fees are being waived to the rate of
0.00% of average daily net assets for Class A Shares.
Distributor
SEI Investments Distribution Co. (the "Distributor") and HighMark Funds 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 Funds upon not more than 60 days
written notice by either party, or upon assignment by the Distributor.
The Distribution Plans
Pursuant to HighMark Funds' Distribution Plans, each Fund pays the Distributor
as compensation for its services in connection with the Distribution Plans a
distribution fee, computed daily and paid monthly, equal to twenty-five
one-hundredths of one percent (0.25%) of the average daily net assets
attributable to that Fund's Class A Shares, pursuant to the Class A Distribution
Plan, and seventy-five-one-hundredths of one percent (0.75%) of the average
daily net assets attributable to the Fund's Class B Shares, pursuant to the
Class B Distribution Plan.
The Distributor may use the distribution fee applicable to a Fund's Class A
and Class B Shares to provide distribution assistance with respect to the sale
of the Fund's Class A and Class B Shares or to provide Shareholder services to
the holders of the Fund's Class A and Class B Shares. The Distributor may also
use
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the distribution fee (i) to pay financial institutions and intermediaries (such
as insurance companies and investment counselors but not including banks and
savings and loan associations), broker-dealers, and the Distributor's affiliates
and subsidiaries compensation for services or reimbursement of expenses incurred
in connection with the distribution of a Fund's Class A and Class B Shares to
their customers or (ii) to pay banks, savings and loan associations, other
financial institutions and intermediaries, broker-dealers, and the Distributor's
affiliates and subsidiaries compensation for services or reimbursement of
expenses incurred in connection with the provision of Shareholder services to
their customers owning a Fund's Class A and Class B Shares. All payments by the
Distributor for distribution assistance or Shareholder services under the
Distribution Plans will be made pursuant to an agreement between the Distributor
and such bank, savings and loan association, other financial institution or
intermediary, broker-dealer, or affiliate or subsidiary of the Distributor (a
"Servicing Agreement"; banks, savings and loan associations, other financial
institutions and intermediaries, broker-dealers, and the Distributor's
affiliates and subsidiaries that may enter into a Servicing Agreement are
hereinafter referred to individually as a "Participating Organization"). A
Participating Organization may include Union Bank of California, N.A., its
subsidiaries and its affiliates.
Participating Organizations may charge customers fees in connection with
investments in a Fund on their customers' behalf. Such fees would be in addition
to any amounts the Participating Organization may receive pursuant to its
Servicing Agreement. Under the terms of the Servicing Agreements, Participating
Organizations are required to provide their customers with a schedule of fees
charged directly to such customers in connection with investments in a Fund.
Customers of Participating Organizations should read this Prospectus in light of
the terms governing their accounts with the Participating Organization.
The distribution fees under the Distribution Plans will be payable without
regard to whether the amount of the fee is more or less than the actual expenses
incurred in a particular year by the Distributor in connection with distribution
assistance or Shareholder services rendered by the Distributor itself or
incurred by the Distributor pursuant to the Servicing Agreements entered into
under the Distribution Plans. The Distributor may from time to time voluntarily
reduce its distribution fees with respect to a Fund in significant amounts for
substantial periods of time pursuant to an agreement with HighMark Funds. While
there can be no assurance that the Distributor will choose to make such an
agreement, any voluntary reduction in the Distributor's distribution fees will
lower such Fund's expenses, and thus increase such Fund's yield and total
returns, during the period such voluntary reductions are in effect.
Banking Laws
HighMark Capital Management, Inc. believes that it may perform the services
for the Funds contemplated by its investment advisory agreement with HighMark
Funds without a violation of applicable banking laws and regulations. Union Bank
of California, N.A. also believes that it may perform sub-administration
services on behalf of each Fund, for which it receives compensation from the
Administrator, 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, N.A. or the Advisor could continue to
perform
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services for the Funds. For a further discussion of applicable banking laws and
regulations, see the Statement of Additional Information.
Custodian
Union Bank of California, N.A. serves as the custodian and as a shareholder
servicing agent for the Funds. The Custodian holds cash, securities and other
assets of HighMark Funds as required by the 1940 Act.
Services performed by Union Bank of California, N.A., as the Funds'
shareholder servicing agent and custodian, as well as the basis of remuneration
for such services, are described in the Statement of Additional Information.
GENERAL INFORMATION
Description of HighMark Funds & Its Shares
HighMark Funds 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 Funds' Growth Fund, Income
Equity Fund, Balanced Fund, Value Momentum Fund, Blue Chip Growth Fund, Emerging
Growth Fund, International Equity Fund, Small Cap Value Fund, Bond Fund,
Intermediate-Term Bond Fund, Government Securities Fund, Convertible Securities
Fund, California Intermediate Tax-Free Bond Fund, Diversified Money Market Fund,
U.S. Government Money Market Fund, 100% U.S. Treasury Money Market Fund and
California Tax-Free Money Market Fund. 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 Funds were liquidated, would
receive the a pro rata share of net assets attributable to that Fund. Shares are
without par value.
As noted above, pursuant to a Multiple Class Plan on file with the Securities
and Exchange Commission permitting the issuance and sale of three classes of
Shares in selected Funds, Shares of such Funds have been divided into three
classes, designated Class A and Class B Shares (collectively "Retail Shares")
and Fiduciary Shares. For information regarding the Fiduciary Shares of the
Funds, interested persons may contact the Distributor for a prospectus at
1-800-433-6884.
HighMark Funds believes that as of November 18, 1998, there was no person who
beneficially owned more than 25% of the Class A Shares of the Diversified Money
Market Fund, the U.S. Government Money Market Fund, the 100% U.S. Treasury Money
Market Fund, or the California Tax-Free Money Market Fund or of the Class B
Shares of the U.S. Government Money Market Fund.
Performance Information
From time to time, HighMark Funds may advertise the "yield" and "effective
yield" with respect to the Retail Shares of each Fund and a "tax-equivalent
yield" and "tax-equivalent effective yield" for federal, California and Oregon
income tax purposes with regard to the Retail Shares of each of the 100% U.S.
Treasury Money Market Fund and the California Tax-Free Money Market Fund.
Performance information is
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computed separately for a Fund's Retail and Fiduciary Shares in accordance with
the formulas described below. Each yield figure is based on historical earnings
and is not intended to indicate future performance.
The "yield" of a Fund's Retail Shares refers to the income generated by an
investment in the class over a seven-day period (which period will be stated in
the advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the class is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
The 100% U.S. Treasury Money Market Fund's tax-equivalent yield and
tax-equivalent effective yield will reflect the amount of income subject to
California or Oregon personal income taxation at the rate specified in the
advertisement that a taxpayer would have to earn in order to obtain the same
after tax income as that derived from the yield and effective yield of the
Retail class. The California Tax-Free Money Market Fund's tax-equivalent yield
and tax-equivalent effective yield reflect the amount of income subject to
federal income taxation and California personal income taxation at the rate
specified in the advertisement that a taxpayer would have to earn in order to
obtain the same after tax income as that derived from the yield and effective
yield of the Retail class.
Tax-equivalent yields and tax-equivalent effective yields with respect to a
class will be significantly higher than the yield and effective yield of that
class.
From time to time, HighMark Funds may advertise the aggregate total return and
average annual total return of the Funds. The aggregate total return and average
annual total return of each Fund may be quoted for the life of each Fund and for
five-year and one-year periods, in each case, through the most recent calendar
quarter. Aggregate total return is determined by calculating the change in the
value of a hypothetical $1,000 investment in a Fund over the applicable period
that would equate the initial amount invested to the ending redeemable value of
the investment. The ending redeemable value includes dividends and capital gain
distributions reinvested at net asset value. Average annual total return is
calculated by annualizing a Fund's aggregate total return over the relevant
number of years. The resulting percentage indicates the positive or negative
investment results that an investor in a Fund would have experienced from
changes in Share price and reinvestment of dividends and capital gain
distributions. Average annual total return will reflect deduction of all charges
and expenses, including, as applicable, the contingent deferred sales charge
imposed on Class B Shares redeemed at the end of the specified period covered by
the total return figure.
Each Fund may periodically compare its performance to the performance of:
other mutual funds tracked by mutual-fund rating services (such as Lipper
Analytical), financial and business publications and periodicals; broad groups
of comparable mutual funds; unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs; or other investment alternatives. Certain Funds may advertise
performance that includes results from periods in which the Fund's assets were
managed in a non-registered predecessor vehicle.
Because the Class A and Class B Shares of the Funds have different sales
charge structures and differing distribution and shareholder servicing fees, the
performance of each class will differ.
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Miscellaneous
Shareholders will be sent unaudited semi-annual reports and annual reports
audited by independent public accountants.
Shareholders are entitled to one vote for each Share held in a Fund as
determined on the record date for any action requiring a vote by the
Shareholders, and a proportionate fractional vote for each fractional Share
held. Shareholders of HighMark Funds will vote in the aggregate and not by
series or class except (i) as otherwise expressly required by law or when
HighMark Funds' 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 Funds is not required to hold regular annual meetings of Shareholders,
but may hold special meetings from time to time.
HighMark Funds' 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 HighMark Money
Market Funds.
ASSET-BACKED SECURITIES (NON-MORTGAGE)--Debt Instruments secured by company
receivables, truck and auto loans, leases, and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning such assets and
issuing such debt. The purchase of non-mortgage asset-backed securities raises
risk considerations peculiar to the financing of the instruments underlying such
securities. Asset-backed securities entail prepayment risk, which may vary
depending on the type of asset, but is generally less than the prepayment risk
associated with mortgage-backed securities.
Like mortgages underlying mortgage-backed securities, underlying automobile
sales contracts or credit card receivables are subject to substantial prepayment
risk, which may reduce the overall return to certificate holders. Nevertheless,
principal prepayment rates tend not to vary as much in response to changes in
interest rates and the short-term nature of the underlying car loans or other
receivables tend to dampen the impact of any change in the prepayment level.
Certificate holders may also experience delays in payment on the certificates if
the full amounts due on underlying sales contracts or receivables are not
realized by the trust because of unanticipated legal or administrative costs of
enforcing the contracts or because of depreciation or damage to the collateral
(usually automobiles) securing certain contracts, or other factors. The credit
quality
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of most asset-backed commercial paper depends primarily on the credit quality of
the assets underlying such securities, no matter how well the entity issuing the
security is insulated from the credit risk of the originator (or any other
affiliated entities), and the amount and quality of any credit support provided
to the securities pool. Asset-backed commercial paper is often backed by a pool
of assets representing the obligations of a number of different parties. To
lessen the effect of failures by obligors on these underlying assets to make
payments, such securities may contain elements of credit support. If consistent
with their investment objectives and policies, the Money Market Funds may invest
in other asset-backed securities that may be developed in the future.
BANKERS' ACCEPTANCES--Bills of exchange or time drafts drawn on and accepted
by commercial banks. They are used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
CERTIFICATES OF DEPOSIT--Negotiable interest-bearing instruments with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity.
COMMERCIAL PAPER--Unsecured short-term promissory notes issued by corporations
and other entities. Maturities on these issues vary from a few days to nine
months. Purchase of such instruments involves a risk of default by the issuer.
DERIVATIVES--Instruments whose value is derived from an underlying contract,
index or security, or any combination thereof, including futures, options (e.g.,
puts and calls), options on futures, swap agreements, and some mortgage-backed
securities (CMOs, REMICs, IOs and POs). See elsewhere in this "DESCRIPTION OF
PERMITTED INVESTMENTS" for discussions of these various instruments, and see
"INVESTMENT OBJECTIVES" and "INVESTMENT POLICIES" for more information about any
policies and limitations applicable to their use.
INVESTMENT GRADE BONDS--Interest-bearing or discounted government or corporate
securities that obligate the issuer to pay the bondholder a specified sum of
money, usually at specific intervals, and to repay the principal amount of the
loan at maturity. Investment grade bonds are those rated BBB or better by S&P or
Baa or better by Moody's or similarly rated by other NRSROs, or, if not rated,
determined to be of comparable quality by the Advisor.
LOAN PARTICIPATIONS--Loan participations are interests in loans to U.S.
corporations (i.e., borrowers) which are administered by the lending bank or
agent for a syndicate of lending banks, and sold by the lending bank or
syndicate member ("intermediary bank"). In a loan participation, the borrower of
the underlying loan will be deemed to be the issuer of the participation
interest (except to the extent a purchasing Fund derives its rights from the
intermediary bank). Because the intermediary bank does not guarantee a loan
participation in any way, a loan participation is subject to the credit risks
associated with the underlying corporate borrower. In addition, in the event the
underlying corporate borrower fails to pay principal and interest when due, a
Fund may encounter delays, expenses and risks that are greater than those that
would have been involved if the Fund had purchased a direct obligation (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
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purchasing Fund may be regarded as a creditor of the intermediary bank (rather
than of the underlying corporate borrower), so that a Fund may also be subject
to the risk that the issuing bank may become insolvent. Further, in the event of
the bankruptcy or insolvency of the corporate borrower, a loan participation may
be subject to certain defenses that can be asserted by such borrower as a result
of improper conduct by the issuing bank. The secondary market, if any, for these
loan participations is limited, and any such participation purchased by a Fund
may be regarded as illiquid.
MUNICIPAL FORWARDS--Municipal Forwards are forward commitments for the
purchase of tax-exempt bonds with a specified coupon to be delivered by an
issuer at a future date, typically exceeding 45 days but normally less than one
year after the commitment date. Municipal forwards are normally used as a
refunding mechanism for bonds that may only be redeemed on a designated future
date. As with forward commitments and when-issued securities, municipal forwards
are subject to market fluctuations due to changes, real or anticipated, in
market interest rates between the commitment date and the settlement date and
will have the effect of leveraging the Fund's assets. Municipal forwards may be
considered to be illiquid investments. The Fund will maintain liquid, high-grade
securities in a segregated account in an amount at least equal to the purchase
price of the municipal forward.
MUNICIPAL SECURITIES--Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
Municipal notes include general obligation notes, tax anticipation notes,
revenue anticipation notes, bond anticipation notes, certificates of
indebtedness, demand notes and construction loan notes. Municipal bonds include
general obligation bonds, revenue or special obligation bonds, private activity
and industrial development bonds. General obligation bonds are backed by the
taxing power of the issuing municipality. Revenue bonds are backed by the
revenues of a project or facility, tolls from a toll bridge, for example. The
payment of principal and interest on private activity and industrial development
bonds generally is dependent solely on the ability of the facility's user to
meet its financial obligations and the pledge, if any, of real and personal
property so financed as security for such payment.
PARTICIPATION INTERESTS--Participation interests are interests in municipal
securities from financial institutions such as commercial and investment banks,
savings and loan associations and insurance companies. These interests may take
the form of participations, beneficial interests in a trust, partnership
interests or any other form of indirect ownership that allows the Fund to treat
the income from the investment as exempt from federal income tax. The Fund
invests in these participation interests in order to obtain credit enhancement
or demand features that would not be available through direct ownership of the
underlying municipal securities.
RECEIPTS--Interests in separately traded interest and principal component
parts of U.S. Treasury obligations that are issued by banks and brokerage firms
and are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's"), "Treasury Investment Growth Receipts" ("TIGR's"),
and "Certifi-
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cates of Accrual on Treasury Securities" ("CATS"). TR's, TIGR's and CATS are
sold as zero coupon securities, which means that they are sold at a substantial
discount and redeemed at face value at their maturity date without interim cash
payments of interest or principal. This discount is accreted over the life of
the security, and such accretion will constitute the income earned on the
security for both accounting and tax purposes. Because of these features, such
securities may be subject to greater interest rate volatility than
interest-paying securities. See also "FEDERAL TAXATION."
REPURCHASE AGREEMENTS--Agreements whereby a Fund will acquire securities from
approved financial institutions or registered broker-dealers that agree to
repurchase the securities at a mutually agreed-upon date and price. The
repurchase agreements entered into by the Funds will provide that the underlying
security at all times shall have a value equal to 102% of the resale price
stated in the agreement. Repurchase agreements involving government securities
are not subject to a Fund's fundamental investment limitation on purchasing
securities of any one issuer. If the seller defaults on its repurchase
obligation or becomes insolvent, the Fund holding such obligations would suffer
a loss to the extent that either the proceeds from a sale of the underlying
portfolio securities were less than the repurchase price or the Fund's
disposition of the securities was delayed pending court action. Securities
subject to repurchase agreements will be held by a qualified custodian or in the
Federal Reserve/Treasury book-entry system. Repurchase agreements are considered
to be loans by a Fund under the Investment Company Act of 1940 (the "1940 Act").
REVERSE REPURCHASE AGREEMENTS--A Fund may borrow funds for temporary purposes
by entering into reverse repurchase agreements, provided such action is
consistent with the Fund's investment objective and fundamental investment
restrictions; as a matter of non-fundamental policy, each Fund intends to limit
such investments to no more than 10% of the value of its total assets. Pursuant
to a reverse repurchase agreement, a Fund will sell portfolio securities to
financial institutions such as banks or to broker-dealers, and agree to
repurchase the securities at a mutually agreed-upon date and price. A Fund
intends to enter into reverse repurchase agreements only to avoid otherwise
selling securities during unfavorable market conditions to meet redemptions. At
the time a Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account assets such as U.S. Government securities or other
liquid, high-quality debt securities consistent with the Fund's investment
objective having a value equal to 102% of the repurchase price (including
accrued interest), and will subsequently monitor the account to ensure that an
equivalent value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by a Fund may decline below the
price at which a Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by a Fund under the 1940
Act.
RULE 144A SECURITIES--Rule 144A Securities are securities that have not been
registered under the Securities Act of 1933, but which may be traded between
certain qualified institutional investors, including investment companies. The
absence of a secondary market may affect the value of the Rule 144A Securities.
The Board of Trustees of the Group has established guidelines and procedures to
be utilized to determine the liquidity of such securities.
SECURITIES ISSUED ON A FORWARD COMMITMENT BASIS OR WHEN-ISSUED
SECURITIES--Securities purchased for delivery beyond the normal settlement date
at a stated price and yield and which thereby involve a risk that the yield
obtained in the transaction will be less than that available in the market when
delivery takes place. When a Fund agrees to purchase when-issued securities or
enter into
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forward commitments, the Group's custodian will be instructed to set aside cash
or liquid portfolio securities equal to the amount of the commitment in a
segregated account. A Fund will generally not pay for such securities and no
income will accrue on the securities until they are received. These securities
are recorded as an asset and are subject to changes in value based upon changes
in the general level of interest rates. Therefore, the purchase of securities on
a "when-issued" basis or forward commitments may increase the risk of
fluctuations in a Fund's net asset value.
SECURITIES LENDING--During the time portfolio securities are on loan from a
Fund, the borrower will pay the Fund any dividends or interest paid on the
securities. In addition, loans will be subject to termination by the Fund or the
borrower at any time and, while a Fund will generally not have the right to vote
securities on loan, it will terminate the loan and regain the right to vote if
that is considered important with respect to the investment. While the lending
of securities may subject a Fund to certain risks, such as delays or an
inability to regain the securities in the event the borrower were to default on
its lending agreement or enter into bankruptcy, a Fund will receive 100%
collateral in the form of cash or U.S. Government securities. This collateral
will be valued daily by the lending agent, with oversight by the Advisor, and,
should the market value of the loaned securities increase, the borrower will be
required to furnish additional collateral to the Fund.
SECURITIES SUBJECT TO A PUT FEATURE--A "put" feature permits a Fund to sell a
fixed income security at a fixed price prior to maturity. The underlying fixed
income securities subject to a put may be sold at any time at the market rates.
However, unless the put was an integral part of the fixed income security as
originally issued, it may not be marketable or assignable. Generally, a premium
is paid for a put feature or a put feature is purchased separately which results
in a lower yield than would otherwise be available for the same fixed income
securities.
TAX-EXEMPT COMMERCIAL PAPER--Commercial paper, which is commercial paper
issued by governments and political sub-divisions.
TIME DEPOSITS--Non-negotiable receipts issued by U.S. or foreign banks in
exchange for the deposit of funds. Like certificates of deposit, they earn a
specified rate of interest over a definite period of time; however, they cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
U.S. GOVERNMENT AGENCY SECURITIES--Certain Federal agencies have been
established as instrumentalities of the U.S. Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the U.S. Government, are either backed by the full faith and
credit of the United States (e.g., GNMA securities) or supported by the issuing
agencies' right to borrow from the U.S. Treasury. The issues of other agencies
are supported only by the credit of the instrumentality (e.g., FNMA securities).
U.S. TREASURY OBLIGATIONS--Bills, notes, and bonds issued by the U.S.
Treasury, as well as separately traded interest and principal component parts of
such obligations known as Separately Traded Registered Interest and Principal
Securities ("STRIPS") that are transferable through the Federal book-entry
system.
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U.S. Government Securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities, although,
as a result, the yields available from U.S. Government Securities are generally
lower than the yields available from otherwise comparable corporate fixed-income
securities. Like other fixed-income securities, however, the values of U.S.
Government Securities change as interest rates fluctuate. Fluctuations in the
value of portfolio securities will in many cases not affect interest income on
existing portfolio securities, but will be reflected in the Fund's net asset
value. Because the magnitude of these fluctuations will generally be greater at
times when a Fund's average maturity is longer, under certain market conditions
the Fund may invest in short-term investments yielding lower current income
rather than investing in higher yielding longer-term securities.
VARIABLE AMOUNT MASTER DEMAND NOTES--Unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between HighMark Funds and the issuer,
they are not normally traded. Although there is no secondary market in these
notes, the Fund may demand payment of principal and accrued interest at
specified intervals. For purposes of the Fund's investment policies, a variable
amount master demand note will be deemed to have a maturity equal to the longer
of the period of time remaining until the next readjustment of its interest rate
or the period of time remaining until the principal amount can be recovered from
the issuer through demand.
VARIABLE AND FLOATING RATE INSTRUMENTS--Obligations that may carry variable or
floating rates of interest, may involve conditional or unconditional demand
features and may include variable amount master demand notes. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
period exceeding seven days may be considered illiquid if there is no secondary
market for such security.
YANKEE BONDS--Dollar-denominated securities issued by foreign-domiciled
issuers that obligate the issuer to pay the bondholder a specified sum of money,
usually semiannually, and to repay the principal amount of the loan at maturity.
Sovereign bonds are bonds issued by the governments of foreign countries.
Supranational bonds are those issued by supranational entities, such as the
World Bank and European Investment Bank. Canadian bonds are bonds issued by
Canadian provinces.
ZERO-COUPON OBLIGATIONS--Non-income producing securities evidencing ownership
of future interest and principal payments on bonds. These obligations pay no
current interest and are typically sold at prices greatly discounted from par
value. The return on a zero-coupon obligation, when held to maturity, equals the
difference between the par value and the original purchase price.
For federal income tax purposes, the difference between the par value and the
original issue price (original issue discount) is included in the income of a
holder of a zero-coupon obligation over the term of the obligation even though
the interest is not paid until maturity. The amount included in income is
determined under a constant interest rate method. In addition, if an obligation
is purchased subsequent to its original issue, a holder such as the Income Funds
may elect to include market discount in income currently on a ratable accrual
method or a constant interest rate method. Market discount is the difference
between the obligation's
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"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.
42
<PAGE> 46
HIGHMARK MONEY MARKET FUNDS
INVESTMENT PORTFOLIOS OF
HIGHMARK FUNDS
For further information (including current
yield, purchase and redemption information),
call 1-800-433-6884
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
FUNDS OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
HIGHMARK FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
NOT FDIC INSURED
<PAGE> 47
HighMark Funds Prospectus
INVESTMENT ADVISOR
HighMark Capital Management, Inc.
475 Sansome Street
San Francisco, CA 94104
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
SEI Investments Mutual Funds Services
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456
LEGAL COUNSEL
Ropes & Gray
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
AUDITORS
Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105-2230
For further information call
1-800-433-6884
or visit our web site at
www.highmark-funds.com
[LOGO] HIGHMARK(SM)
FUNDS
84822-B (11/98)
<PAGE> 48
CROSS REFERENCE SHEET
THE HIGHMARK MONEY MARKET FUNDS
FIDUCIARY SHARES
FORM N-1A PART A ITEM PROSPECTUS CAPTION
1. Cover Page Cover Page
2. Synopsis Fee Table
3. Condensed Financial Information Financial Highlights; Performance
Information
4. General Description of Registrant Fund Description; Investment
Objectives; Investment Policies;
General Information--Description
of HighMark Funds & Its Shares
5. Management of the Fund Service Arrangements
5A. Management's Discussion of Fund
Performance Inapplicable
6. Capital Stock and Other Securities Purchase and Redemption of Shares;
Exchange Privileges; Dividends;
Federal Taxation; Service
Arrangements-- Administrator;
Distributor; General Information--
Description of HighMark Funds &
Its Shares; General Information--
Miscellaneous
7. Purchase of Securities Being Offered Purchase and Redemption of Shares;
Exchange Privileges; Service
Arrangements-- Administrator;
Distributor
8. Redemption or Repurchase Purchase and Redemption of Shares
9. Pending Legal Proceedings Inapplicable
<PAGE> 49
[HIGHMARK(SM) FUNDS LOGO]
Money Market Funds
PROSPECTUS
Fiduciary Shares
November 30, 1998
<PAGE> 50
HIGHMARK FUNDS
MONEY MARKET FUNDS
HighMark Funds 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 Funds':
<TABLE>
<C> <S>
- Diversified Money Market Fund
- U.S. Government Money Market Fund
- 100% U.S. Treasury Money Market Fund
- California Tax-Free Money Market Fund
</TABLE>
FIDUCIARY SHARES
HighMark Funds' 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
Funds' 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
(continued on following page)
BECAUSE THE CALIFORNIA TAX-FREE MONEY MARKET FUND MAY INVEST A SIGNIFICANT
PERCENTAGE OF ITS ASSETS IN A SINGLE ISSUER, INVESTMENT IN THE FUND MAY BE
RISKIER THAN INVESTMENT IN OTHER MONEY MARKET FUNDS.
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HIGHMARK FUNDS' 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
FUNDS' SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN HIGHMARK FUNDS
INVOLVES RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
November 30, 1998
Fiduciary Shares
<PAGE> 51
Shares of HighMark Funds' 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 trustees of the Fund and directors, officers and employees
(and their spouses and children under the age of 21) of Union Bank of
California, N.A., HighMark Funds' current or former distributors or their
respective affiliated companies who currently own Shares of HighMark Funds which
were purchased before April 30, 1997; (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; and (vi)
Retirement and other benefit plans sponsored by governmental entities and
Financial Institutions which may acquire shares on their own account as record
owner on behalf of a fiduciary, agency or custodial accounts, with a minimum
investment of $1,000,000.
This Prospectus sets forth concisely the information about HighMark Funds and
the Funds that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated the same date as this Prospectus has
been filed with the Securities and Exchange Commission and is available without
charge by writing the Distributor, SEI Investments Distribution Co., Oaks,
Pennsylvania 19456, or by calling 1-800-433-6884. The SEC maintains a World Wide
Web site (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference and other information. The
Statement of Additional Information is incorporated into this Prospectus by
reference. This Prospectus relates only to the Fiduciary Shares of the Money
Market Funds. Interested persons who wish to obtain a prospectus for the other
Funds of HighMark Funds may contact the Distributor at the above address and
telephone number.
<PAGE> 52
SUMMARY
HIGHMARK FUNDS is an open-end, diversified, registered investment company
providing a convenient way to invest in professionally managed portfolios of
securities. The following provides basic information about the Fiduciary Shares
of the Diversified Money Market, U.S. Government Money Market, 100% U.S.
Treasury Money Market, and California Tax-Free Money Market Funds (each a "Fund"
and sometimes referred to in this prospectus as the "Funds.") This summary is
qualified in its entirety by reference to the more detailed information provided
elsewhere in the Prospectus and in the Statement of Additional Information.
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES? The Diversified Money Market Fund,
the U.S. Government Money Market Fund, and the 100% U.S. Treasury Money Market
Fund seek current income with liquidity and stability of principal. The
California Tax-Free Money Market Fund seeks as high a level of current interest
income free from federal income tax and California personal income tax as is
consistent with the preservation of capital and relative stability of principal.
(See "INVESTMENT OBJECTIVES.")
WHAT ARE THE FUNDS' PERMITTED INVESTMENTS? THE DIVERSIFIED MONEY MARKET FUND
invests in obligations with maturities deemed under SEC rules to be 397 days or
less ("short-term investments") issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, in high-quality short-term obligations issued by
banks and corporations, and in other high-quality rated and unrated short-term
instruments; some of the obligations and short-term instruments in which the
Fund invests may be subject to repurchase agreements. THE U.S. GOVERNMENT MONEY
MARKET FUND invests in short-term obligations issued or guaranteed by the U.S.
Treasury, and additionally invests in obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government; some of the obligations in
which the Fund invests may be subject to repurchase agreements. THE 100% U.S.
TREASURY MONEY MARKET FUND invests exclusively in direct U.S. Treasury
short-term obligations. THE CALIFORNIA TAX-FREE MONEY MARKET FUND invests
primarily in bonds and notes issued by or on behalf of the State of California
and other states, territories, possessions of the United States, and the
District of Columbia and their respective authorities, agencies,
instrumentalities and political sub-divisions, the interest on which is excluded
from gross income for federal income and California personal income tax purposes
and not treated as a preference item for individuals for purposes of the federal
alternative minimum tax. (See "INVESTMENT POLICIES.")
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUNDS? Each Fund seeks
to maintain a net asset value of $1.00 per share. There can be no assurance that
a Fund will be able to maintain a net asset value of $1.00 per share on a
continuous basis. The California Tax-Free Money Market Fund concentrates its
investments in California municipal securities, and an investment in the Fund
therefore may be riskier than an investment in other types of money market
funds. (See "Risk Factors.")
ARE MY INVESTMENTS INSURED? HighMark Funds' Shares are not federally insured
by the FDIC or any other government agency. Any guarantee by the U.S.
Government, its agencies or any instrumentalities of the securities in which any
Fund invests guarantees only the payment of principal and interest on the
guaranteed security, and does not guarantee the yield or value of the security
or yield or value of Shares of that Fund.
WHO IS THE ADVISOR? HighMark Capital Management, Inc. serves as the Advisor to
HighMark Funds. (See "The Advisor.")
2
<PAGE> 53
WHO IS THE ADMINISTRATOR? SEI Investments Mutual Funds Services serves as the
Administrator of HighMark Funds. (See "The Administrator.")
WHO IS THE CUSTODIAN? Union Bank of California, N.A. (the "Bank") serves as
the custodian of HighMark Funds' assets. (See "The Custodian.")
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. acts as distributor
of HighMark Funds' Shares. (See "The Distributor.")
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Distributor on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment is generally $1,000 per Fund. In order to be
effective on the Business Day received, orders to purchase and redeem must be
placed prior to 8:00 a.m., Pacific time (11:00 a.m., Eastern time) for the
California Tax-Free Money Market Fund, prior to 9:00 a.m., Pacific time (12:00
noon, Eastern time) for the 100% U.S. Treasury Money Market Fund and prior to
10:00 a.m., Pacific time (1:00 p.m. Eastern time) for the Diversified Money
Market and U.S. Government Money Market Funds on any Business Day. Otherwise,
the order will be effective the next Business Day. In addition, effectiveness of
a purchase is contingent on the Custodian's receipt of Federal funds before
11:00 a.m., Pacific time (2:00 p.m., Eastern time). (See "PURCHASE AND
REDEMPTION OF SHARES.")
HOW ARE DIVIDENDS PAID? The net investment income (exclusive of short-term
capital gains) of the Funds is determined and declared on each Business Day as a
dividend for Shareholders of record as of the close of business on that day.
Dividends are paid monthly in additional shares unless the Shareholder elects to
take the payment in cash. (See "Dividends.")
3
<PAGE> 54
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 2
Money Market Funds Fee Table................................ 5
Financial Highlights........................................ 7
Fund Description............................................ 12
Investment Objectives....................................... 12
Investment Policies......................................... 12
Diversified Money Market Fund............................. 13
U.S. Government Money Market Fund......................... 14
100% U.S. Treasury Money Market Fund...................... 14
California Tax-Free Money Market Fund..................... 14
General..................................................... 16
Illiquid and Restricted Securities........................ 17
Municipal Securities...................................... 17
Lending of Portfolio Securities........................... 18
Other Investments......................................... 18
Risk Factors.............................................. 18
Year 2000................................................. 19
Valuation of Shares......................................... 20
Purchase and Redemption of Shares........................... 20
Exchange Privileges......................................... 22
Dividends................................................... 22
Federal Taxation............................................ 23
Service Arrangements........................................ 25
The Advisor............................................... 25
Administrator............................................. 26
The Transfer Agent........................................ 27
Shareholder Service Plan.................................. 27
Distributor............................................... 27
Banking Laws.............................................. 27
Custodian................................................. 27
General Information......................................... 28
Description of HighMark Funds & Its Shares................ 28
Performance Information................................... 28
Miscellaneous............................................. 29
Description of Permitted Investments........................ 30
</TABLE>
4
<PAGE> 55
MONEY MARKET FUNDS FEE TABLE
<TABLE>
<CAPTION>
DIVERSIFIED U.S. GOVERNMENT 100% U.S. TREASURY CALIFORNIA
MONEY MARKET MONEY MARKET MONEY MARKET TAX-FREE
FUND FUND FUND MONEY MARKET FUND
FIDUCIARY SHARES FIDUCIARY SHARES FIDUCIARY SHARES FIDUCIARY SHARES
---------------- ---------------- ------------------ -----------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)... 0% 0% 0% 0%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price)................................ 0% 0% 0% 0%
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, as applicable).............. 0% 0% 0% 0%
Redemption Fees (as a percentage of
amount redeemed, if applicable)(b).... 0% 0% 0% 0%
Exchange Fee(a)......................... $ 0 $ 0 $ 0 $ 0
ANNUAL OPERATING EXPENSES(C)
(as a percentage of net assets)
Management Fees (after voluntary
reduction)(d)....................... 0.30% 0.30% 0.25% 0.10%
12b-1 Fees............................ 0.00% 0.00% 0.00% 0.00%
Other Expenses (after voluntary
reduction)(e)....................... 0.22% 0.22% 0.22% 0.22%
---- ---- ---- ----
Total Fund Operating Expenses(f)...... 0.52% 0.52% 0.47% 0.32%
==== ==== ==== ====
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Diversified Money Market Fund Fiduciary Shares........... $5 $17 $29 $65
U.S. Government Money Market Fund Fiduciary Shares....... $5 $17 $29 $65
100% U.S. Treasury Money Market Fund Fiduciary Shares.... $5 $15 $26 $59
California Tax-Free Money Market Fund Fiduciary Shares... $3 $10 $18 $41
</TABLE>
The purpose of the tables above is to assist an investor in the Funds in
understanding the various costs and expenses that a Shareholder will bear
directly or indirectly. For a more complete discussion of each Fund's annual
operating expenses, see SERVICE ARRANGEMENTS below. THE FOREGOING EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ---------------
(a) Certain entities (including Union Bank of California, N.A. and its
affiliates) making investments in the Funds on behalf of their customers may
charge customers fees for services provided in connection with the
investment in, redemption of, and exchange of Shares. (See PURCHASE AND
REDEMPTION OF SHARES, EXCHANGE PRIVILEGES and SERVICE ARRANGEMENTS below.)
(b) A wire redemption charge of $15 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) Expense information has been restated to reflect current fees.
5
<PAGE> 56
(d) Absent voluntary fee waivers, MANAGEMENT FEES would be 0.30% for the
Fiduciary Shares of the 100% U.S. Treasury Money Market Fund and the
California Tax-Free Money Market Fund.
(e) Absent voluntary fee waivers, OTHER EXPENSES would be 0.49% for the
Fiduciary Shares of the Diversified Money Market Fund, the U.S. Government
Money Market Fund, the 100% U.S. Treasury Money Market Fund and the
California Tax-Free Money Market Fund.
(f) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be: 0.79%
for the Fiduciary Shares of the Diversified Money Market Fund, the U.S.
Government Money Market Fund, the 100% U.S. Treasury Money Market Fund, and
the California Tax-Free Money Market Fund.
6
<PAGE> 57
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information with respect to the
Fiduciary Shares of the U.S. Government Money Market Fund, 100% U.S. Treasury
Money Market Fund, Diversified Money Market Fund and the California Tax-Free
Money Market Fund. Financial highlights for the Funds through the year ended
July 31, 1998 have been derived from financial statements audited by Deloitte &
Touche LLP, independent auditors for HighMark, whose report thereon is included
in the 1998 Annual Report for the HighMark Funds, which is incorporated by
reference into the Statement of Additional Information. Financial highlights for
the U.S. Government Money Market and 100% U.S. Treasury Money Market Funds prior
to the fiscal year ended July 31, 1996 have been derived from financial
statements examined by other auditors whose report thereon is on file with the
Securities and Exchange Commission.
Upon reorganizing as funds of HighMark Funds on April 28, 1997, Stepstone
Money Market Fund became HighMark Diversified Money Market Fund and Stepstone
California Tax-Free Money Market Fund became HighMark California Tax-Free Money
Market Fund. Financial highlights through January 31, 1997 represent the
Institutional Class Shares (now Fiduciary Shares) of Stepstone Money Market and
Stepstone California Tax-Free Money Market Funds, and have been derived from
financial statements audited by Arthur Andersen LLP, independent auditors for
the Stepstone Funds.
7
<PAGE> 58
CALIFORNIA TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTH
YEAR ENDED PERIOD ENDED FOR THE YEARS ENDED JANUARY 31,
JULY 31, JULY 31, -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
Net Asset Value, Beginning
of Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- ------- ------- ------- -------
Investment Activities
Net investment income..... 0.031 0.016 0.031 0.034 0.026 0.021 0.025
Net realized and
unrealized gain (loss)
on investments......... -- -- -- -- -- -- --
-------- -------- ------- ------- ------- ------- -------
Distributions
Net investment income..... (0.031) (0.016) (0.031) (0.034) (0.026) (0.021) (0.025)
Capital gains............. -- -- -- -- -- -- --
-------- -------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= ======= ======= ======= =======
Total Return................ 3.14% 3.28%* 3.12% 3.48% 2.67% 2.13% 2.61%
Net assets, end of period
(000).................. $241,487 $159,297 $36,207 $42,923 $52,050 $52,982 $45,521
Ratio of expenses to
average net assets..... 0.31% 0.28%* 0.27% 0.28% 0.29% 0.30% 0.30%
Ratio of expenses to
average net assets
excluding fee
waivers................ 0.78% 0.69%* 0.49% 0.49% 0.50% 0.54% 0.54%
Ratio of net investment
income to average net
assets................. 3.07% 3.36%* 3.08% 3.43% 2.66% 2.09% 2.53%
Ratio of net investment
income to average net
assets excluding fee
waivers................ 2.60% 2.96%* 2.86% 3.22% 2.45% 1.85% 2.29%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
8
<PAGE> 59
100% U.S. TREASURY MONEY MARKET FUND
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
Net Asset Value, Beginning of
Period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Investment Activities
Net investment income............ 0.049 0.046 0.046 0.046 0.026 0.026
Net realized and unrealized gain
(loss) on investments......... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Distributions
Net investment income............ (0.049) (0.046) (0.046) (0.046) (0.026) (0.026)
Capital gains.................... -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total Return....................... 5.02% 4.65% 4.74% 4.69% 2.68% 2.64%
Net Assets, end of period (000).... $227,733 $243,464 $173,340 $190,604 $160,721 $191,946
Ratio of expenses to average net
assets........................... 0.46% 0.64% 0.74% 0.73% 0.74% 0.67%
Ratio of expenses to average net
assets excluding fee waivers..... 0.78% 0.92% 0.97% 0.97% 0.90% 0.72%
Ratio of net investment income to
average net assets............... 4.91% 4.61% 4.64% 4.60% 2.63% 2.60%
Ratio of net investment income to
average net assets excluding fee
waivers.......................... 4.59% 4.33% 4.41% 4.36% 2.48% 2.55%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
9
<PAGE> 60
U.S. GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
Net Asset Value, Beginning of
Period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Investment Activities
Net investment income............ 0.050 0.047 0.048 0.048 0.027 0.027
Net realized and unrealized gain
(loss) on investments......... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Distributions
Net investment income............ (0.050) (0.047) (0.048) (0.048) (0.027) (0.027)
Capital gains.................... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total Return....................... 5.16% 4.78% 4.88% 4.87% 2.74% 2.72%
Net assets, end of period
(000)......................... $283,096 $252,995 $151,483 $159,747 $162,094 $166,182
Ratio of expenses to average net
assets........................ 0.51% 0.70% 0.77% 0.78% 0.78% 0.71%
Ratio of expenses to average net
assets excluding fee
waivers....................... 0.79% 0.95% 1.00% 1.02% 0.94% 0.74%
Ratio of net investment income to
average net assets............ 5.05% 4.69% 4.76% 4.76% 2.70% 2.67%
Ratio of net investment income to
average net assets excluding
fee waivers................... 4.77% 4.44% 4.53% 4.52% 2.54% 2.65%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
10
<PAGE> 61
DIVERSIFIED MONEY MARKET FUND
<TABLE>
<CAPTION>
FOR THE
SIX MONTH
FOR THE PERIOD
YEAR ENDED ENDED
JULY 31, JULY 31, FOR THE YEARS ENDED JANUARY 31,
---------- --------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- -------- -------- --------
Investment Activities
Net investment
income.............. 0.051 0.025 0.049 0.054 0.039 0.029 0.035
Net realized and
unrealized gain
(loss) on
investments......... -- -- -- -- (0.001) -- --
---------- -------- -------- -------- -------- -------- --------
Distributions
Net investment
income.............. (0.051) (0.025) (0.049) (0.054) (0.039) (0.029) (0.035)
Capital gains.......... -- -- -- -- -- -- --
---------- -------- -------- -------- -------- -------- --------
Contribution of
capital................ -- -- -- -- 0.001 -- --
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ======== ======== ======== ========
Total Return............. 5.27% 5.11%* 5.03% 5.57% 3.99% 2.99% 3.61%
Net Assets, end of period
(000).................. $1,180,141 $971,858 $523,571 $503,080 $536,754 $498,795 $521,664
Ratio of expenses to
average net assets..... 0.50% 0.48%* 0.49% 0.50% 0.50% 0.49% 0.46%
Ratio of expenses to
average net assets
excluding fee
waivers................ 0.77% 0.64%* 0.49% 0.50% 0.50% 0.49% 0.46%
Ratio of net investment
income to average net
assets................. 5.15% 5.07%* 4.93% 5.43% 3.93% 2.93% 3.47%
Ratio of net investment
income to average net
assets excluding fee
waivers................ 4.88% 4.90%* 4.93% 5.43% 3.93% 2.93% 3.47%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
11
<PAGE> 62
FUND DESCRIPTION
HighMark Funds is an open-end, diversified, registered investment company that
currently offers units of beneficial interest ("Shares") in seventeen separate
investment portfolios ("Funds"). All of the Funds are advised by HighMark
Capital Management, Inc. (the "Advisor"), a subsidiary of UnionBanCal
Corporation. Shareholders may purchase Shares of selected Funds 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 Funds'
other Funds and other classes is contained in separate prospectuses that may be
obtained from HighMark Funds' 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 OBJECTIVES
The investment objectives of the Funds are as follows:
The Diversified Money Market Fund, the U.S. Government Money Market Fund and
the 100% U.S. Treasury Money Market Fund each seek current income with liquidity
and stability of principal.
The California Tax-Free Money Market Fund seeks as high a level of current
interest income free from federal income tax and California personal income tax
as is consistent with the preservation of capital and relative stability of
principal.
There can be no assurance that a Fund will achieve its investment objective.
The investment objectives and certain of the investment limitations of the
Diversified Money Market Fund, the U.S. Government Money Market Fund, the 100%
U.S. Treasury Money Market Fund, and the California Tax-Free Money Market Fund
may not be changed without a vote of the holders of a majority of the
outstanding Shares of the respective Fund (as defined under GENERAL
INFORMATION--Miscellaneous below).
INVESTMENT POLICIES
While the Diversified Money Market Fund, the U.S. Government Money Market Fund
and the 100% U.S. Treasury Money Market Fund have the same investment objective,
they differ as follows with respect to the types of instruments that may be
purchased. Each Fund may invest only in U.S. dollar-denominated obligations
determined by the Advisor to present minimal credit risks under guidelines
adopted by HighMark Funds' Board of Trustees.
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Diversified Money Market Fund
The Diversified Money Market Fund may invest in the following obligations:
(i) obligations issued by the U.S. Government, and backed by its
full faith and credit, and obligations issued or guaranteed as to principal
and interest by the agencies or instrumentalities of the U.S. Government
(e.g., obligations issued by Farmers Home Administration, Government
National Mortgage Association, Federal Farm Credit Bank and Federal Housing
Administration);
(ii) obligations such as bankers' acceptances, bank notes,
certificates of deposit and time deposits of thrift institutions, savings
and loans, U.S. commercial banks (including foreign branches of such
banks), and U.S. and foreign branches of foreign banks, provided that such
institutions (or, in the case of a branch, the parent institution) have
total assets of $1 billion or more as shown on their last published
financial statements at the time of investment;
(iii) short-term promissory notes issued by corporations, including
Canadian Commercial Paper ("CCP"), which is U.S. dollar-denominated
commercial paper issued by a Canadian corporation or a Canadian counterpart
of a U.S. corporation, and Europaper, which is U.S. dollar-denominated
commercial paper of a foreign issuer;
(iv) U.S. dollar-denominated securities issued or guaranteed by
foreign governments, their political subdivisions, agencies or
instrumentalities, and obligations of supranational entities such as the
World Bank and the Asian Development Bank (provided that the Fund invests
no more than 5% of its assets in any such instrument and invests no more
than 25% of its assets in such instruments in the aggregate);
(v) readily-marketable, short-term asset-backed debt securities,
repayment on which is obtained from an identifiable pool of assets,
typically receivables related to a particular industry, such as credit card
receivables, automobile loan or lease related receivables, trade
receivables or diversified financial assets (provided that the Fund invests
no more than 25% of its assets in any such industry and invests no more
than 35% of its assets in such instruments in the aggregate);
(vi) Treasury receipts, including TRs, TIGRs and CATs; and
(vii) repurchase agreements involving such obligations.
Certain of the obligations in which the Fund may invest may be variable or
floating rate instruments, may involve a conditional or unconditional demand
feature, and may include variable amount master demand notes.
Subject to the provisions of Rule 2a-7 under the Investment Company Act of
1940 (the "1940 Act"), investments of the Diversified Money Market Fund will
consist of those obligations that, at the time of purchase, possess the highest
short-term rating from at least one nationally recognized statistical rating
organization ("NRSRO") (for example, commercial paper rated "A-1" by Standard &
Poor's Corporation ("S&P") or "P-1" by Moody's Investors Service, Inc.
("Moody's")). Although the Diversified Money Market Fund does not presently
expect to do so, it may also invest up to 5% of its net assets in obligations
that, at the time of purchase, possess one of the two highest short-term ratings
from at least one NRSRO, and in
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obligations that do not possess an equivalent short-term rating (i.e., are
unrated) but are determined by the Advisor to be of comparable quality to the
rated instruments eligible for purchase by the Fund under guidelines adopted by
the Board of Trustees.
The Diversified Money Market Fund will not invest more than 5% of its total
assets in the securities of any one first tier issuer, except that the Fund may
invest up to 25% of its total assets in the securities of a single first tier
issuer for a period of up to three business days. There is no limit on the
percentage of the Fund's assets that may be invested in obligations issued or
guaranteed by the U.S. Government, its agencies, or instrumentalities and
repurchase agreements fully collateralized by such obligations.
The Fund may concentrate its investments in certain instruments issued by U.S.
banks, U.S. branches of foreign banks, and foreign branches of U.S. banks, but
only so long as the investment risk associated with investing in foreign
branches of U.S. banks is the same as that associated with investing in
instruments issued by the U.S. parent. Domestic certificates of deposit and
bankers' acceptances include those issued by domestic branches of a foreign bank
to the extent permitted by the rules of the Securities and Exchange Commission.
The rules currently permit U.S. branches of foreign banks to be treated as a
domestic bank if it can be demonstrated that they are subject to the same
regulations as domestic banks.
U.S. Government Money Market Fund
As a fundamental policy, the U.S. Government Money Market Fund may not
purchase securities other than U.S. Treasury bills, notes, and other obligations
issued or guaranteed by the U.S. Government, its agencies, or instrumentalities
(such as obligations issued by the Government National Mortgage Association and
the Export-Import Bank of the United States) some of which may be subject to
repurchase agreements.
100% U.S. Treasury Money Market Fund
The 100% U.S. Treasury Money Market Fund invests exclusively in direct U.S.
Treasury obligations and separately traded component parts of such obligations
transferable through the Federal Reserve book-entry system ("STRIPs").
California Tax-Free Money Market Fund
The California Tax-Free Money Market Fund invests in obligations issued by the
State of California and its political subdivisions or municipal authorities and
obligations issued by territories or possessions of the United States
("Municipal Securities").
Under normal market conditions and, as a matter of fundamental policy, at
least 80% of the value of the total assets of the California Tax-Free Money
Market Fund will be invested in Municipal Securities, the interest on which, in
the opinion of bond counsel, is both excluded from gross income both for federal
income tax purposes and for California personal income tax purposes, and does
not constitute a preference item for individuals for purposes of the federal
alternative minimum tax.
Certain of the obligations in which the Fund may invest may be variable or
floating rate instruments and may involve a conditional or unconditional demand
feature.
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Under normal market conditions, up to 20% of the California Tax-Free Money
Market Fund's total assets may be invested in short-term obligations, the
interest on which is treated as a preference item for individuals for purposes
of the federal alternative minimum tax or subject to federal or California
personal income tax ("Taxable Obligations"). These short-term obligations may
include bonds from other states and cash equivalents as described below.
Exempt-interest dividends paid by the California Tax-Free Money Market Fund
that are derived from obligations, the interest on which is exempt from
California taxation when received by an individual ("California Exempt-Interest
Securities"), are excluded from gross income for California personal income tax
purposes. Dividends derived from interest on obligations other than California
Exempt-Interest Securities may be excluded from gross income for federal income
tax purposes but will be subject to California personal income tax.
In order for the California Tax-Free Money Market Fund to pay exempt-interest
dividends, it must continue to qualify as a regulated investment company and at
least 50% of its total assets must be invested in California Exempt-Interest
Securities at the close of each quarter of its taxable year. Dividends,
regardless of their source, may be subject to local taxes.
In seeking to achieve its investment objective, the California Tax-Free Money
Market Fund may invest all or any part of its assets in Municipal Securities
that are private activity bonds, including those known as industrial development
bonds under prior federal law. (Any reference herein to private activity bonds
includes industrial development bonds.) Interest on private activity bonds is
excluded from gross income for federal income tax purposes only if the bonds
fall within certain defined categories of qualified private activity bonds and
meet the requirements specified for those respective categories. However, even
if the California Tax-Free Money Market Fund invests in private activity bonds
that fall within these categories, Shareholders may become subject to the
federal alternative minimum tax on that part of such Fund's distributions
derived from interest on such bonds. For further information, see FEDERAL
TAXATION below.
The California Tax-Free Money Market Fund may invest up to 10% of its total
assets in shares of other investment companies with like investment objectives.
As a shareholder of an investment company, a Fund may indirectly bear investment
management fees of that investment company, which are in addition to the
management fees the Fund pays its own advisor.
Investments of the California Tax-Free Money Market Fund will consist of those
obligations that, at the time of purchase, possess one of the two highest
short-term ratings by a NRSRO, and in obligations that do not possess a rating
(i.e., are unrated) but are determined by the Advisor to be of comparable
quality to the rated instruments eligible for purchase by the Fund under the
guidelines adopted by the Board of Trustees.
The California Tax-Free Money Market Fund may hold uninvested cash reserves
pending investment during temporary "defensive" periods or if, in the opinion of
the Advisor, desirable tax-exempt obligations are unavailable. In accordance
with the Fund's investment objective and subject to its fundamental policies,
investments may be made in Taxable Obligations if, for example, suitable
tax-exempt obligations are unavailable or if acquisition of U.S. Government or
other taxable securities is deemed appropriate for temporary "defensive"
purposes.
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As discussed in greater detail in the Statement of Additional Information,
Taxable Obligations may include obligations issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities (some of which may be subject to
repurchase agreements), certificates of deposit, bankers' acceptances, and
commercial paper. As noted above, Taxable Obligations may also include private
activity bonds depending on their tax treatment.
The California Tax-Free Money Market Fund is not intended to constitute a
balanced investment program and is not designed for investors seeking capital
appreciation nor maximum tax-exempt income irrespective of fluctuations in
principal. Investment in the California Tax-Free Money Market Fund would not be
appropriate for tax-deferred plans, such as IRA and Keogh plans, and investors
should consult a tax or other financial advisor to determine whether investment
in the California Tax-Free Fund would be appropriate for them.
GENERAL
The Funds intend to comply with Rule 2a-7 under the 1940 Act. Shares of each
Fund are priced pursuant to the amortized cost method whereby HighMark Funds
seeks to maintain each Fund's net asset value per Share at $1.00. There can be,
however, no assurance that a stable net asset value of $1.00 per Share will be
maintained.
Securities or instruments in which each Fund invests have remaining maturities
of 397 days or less, although instruments subject to repurchase agreements and
certain adjustable rate instruments may bear longer maturities. The
dollar-weighted average portfolio maturity of each Fund will not exceed 90 days.
Although the Diversified Money Market Fund, the U.S. Government Money Market
Fund and the 100% U.S. Treasury Money Market Fund have the same investment
advisor and the same investment objective, particular securities held and
respective yields of these Funds may differ due to differences in the types of
permitted investments, cash flow, and the availability of particular
investments.
Additional information concerning each Fund's investments, including certain
investment restrictions that may not be changed with respect to a particular
Fund without a vote of the holders of a majority of the outstanding Shares of
that Fund, is set forth below and in the Statement of Additional Information.
For further information concerning the rating and other requirements governing
the investments (including the treatment of securities subject to a tender or
demand feature or deemed to possess a rating based on comparable rated
securities of the same issuer) of a Fund, see the Statement of Additional
Information. The Statement of Additional Information also identifies the NRSROs
that may be utilized by the Advisor with respect to portfolio investments for
the Funds and provides a description of the relevant ratings assigned by each
such NRSRO.
In the event that a security owned by a Fund is downgraded below the stated
rating categories, the Advisor will take appropriate action with regard to that
security.
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Illiquid and Restricted Securities
The Funds shall limit investments in illiquid securities to 10% or less of
their net assets. Generally, an "illiquid security" is any security that cannot
be disposed of promptly and in the ordinary course of business at approximately
the amount at which the Fund has valued the instrument. The absence of a trading
market can make it difficult to ascertain the market value of illiquid
securities. Each Fund may purchase restricted securities which have not been
registered under the Securities Act of 1933 (e.g., Rule 144A Securities and
Section 4(2) commercial paper) subject to policies approved by the Board of
Trustees. See INVESTMENT RESTRICTIONS in the Statement of Additional
Information.
Time deposits, including ETDs and CTDs (but not including certificates of
deposit) and repurchase agreements, which have maturities in excess of seven
days are considered to be illiquid.
Municipal Securities
The two principal classifications of Municipal Securities that may be held by
the California Tax-Free Money Market Fund are "general obligation" securities
and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith and credit and general taxing power for the payment of principal and
interest.
Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the California Tax-Free
Money Market Fund are in most cases revenue securities and are not payable from
the unrestricted revenues of the issuer. Consequently, the credit quality of
private activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
In addition, Municipal Securities may include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from federal income tax or California personal income tax
are rendered at the time of issuance by counsel experienced in matters relating
to the validity of and tax exemption of interest on bonds issued by states and
their political sub-divisions. Neither the California Tax-Free Money Market Fund
nor the Advisor will review the proceedings relating to the issuance of
Municipal Securities or the basis for such opinions.
Municipal Securities purchased by the California Tax-Free Money Market Fund
may include adjustable rate tax-exempt notes which may have a stated maturity in
excess of 397 days, but which will be subject to a demand feature that will
permit the Fund to demand payment of the principal of the note either (i) at any
time upon not more than thirty days' notice or (ii) at specified intervals not
exceeding 397 days and upon no more than thirty days' notice. There may be no
active secondary market with respect to a particular adjustable rate note.
Nevertheless, as described in greater detail in the Statement of Additional
Information, the
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adjustable interest rate feature included in this type of note is intended
generally to assure that the value of the note to the Fund will approximate its
par value.
Municipal Securities may include, but are not limited to, short-term
anticipation notes, bond anticipation notes, revenue anticipation notes, and
other forms of short-term tax-exempt securities. These instruments are issued in
anticipation of the receipt of tax funds, the proceeds of bond placements, or
other revenues. In addition, the California Tax-Free Money Market Fund may
purchase tax-exempt commercial paper. Under certain circumstances, and subject
to the limitations described in the Statement of Additional Information, the
California Tax-Free Money Market Fund may invest indirectly in Municipal
Securities by purchasing shares of other tax-exempt money market mutual funds.
The California Tax-Free Money Market Fund may also acquire Municipal
Securities that have "put" features. Under a put feature, the Fund has the right
to sell the Municipal Security within a specified period of time at a specified
price. The put feature cannot be sold, transferred, or assigned separately from
the Municipal Security. Each Fund may buy Municipal Securities with put features
to facilitate portfolio liquidity, shorten the maturity of the underlying
Municipal Securities, or permit investment at a more favorable rate of return.
The aggregate price of a security subject to a put may be higher than the price
that otherwise would be paid for the security without such a feature, thereby
increasing the security's cost and reducing its yield.
Lending of Portfolio Securities
In order to generate additional income, each Fund (except the California
Tax-Free Money Market Fund and the 100% U.S. Treasury Money Market Fund) may
lend its portfolio securities to broker-dealers, banks or other institutions. A
Fund may lend portfolio securities in an amount representing up to 33 1/3% of
the value of the Fund's total assets.
Other Investments
The Diversified Money Market Fund, the U.S. Government Money Market Fund, and
the California Tax-Free Money Market Fund may enter into repurchase agreements
and reverse repurchase agreements. Each Fund intends to limit its respective
activity in reverse repurchase agreements to no more than 10% of the Fund's
total assets.
The Funds may enter into forward commitments or purchase securities on a
"when-issued" basis. Each Fund expects that commitments by a Fund to enter into
forward commitments or purchase when-issued securities will not exceed 25% of
the value of the Fund's total assets under normal market conditions. The Funds
do not intend to purchase when-issued securities or enter into forward
commitments for speculative or leveraging purposes but only for the purpose of
acquiring portfolio securities.
For further information, see "DESCRIPTION OF PERMITTED INVESTMENTS."
Risk Factors
Investments by the Funds in obligations of certain agencies and
instrumentalities of the U.S. Government may not be guaranteed by the full faith
and credit of the U.S. Treasury, and there can be no assurance that the
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U.S. Government would provide financial support to U.S. Government-sponsored
agencies or instrumentalities if it is not obligated to do so by law.
As in the case of mortgage-related securities, certain asset-backed securities
are subject to prepayments and there can be no assurance that the Diversified
Money Market Fund will be able to reinvest the proceeds of any prepayment at the
same interest rate or on the same terms as the original investment.
Foreign securities which the Diversified Money Market Fund may purchase may
subject the Fund to investment risks that differ in some respects from those
related to investments in obligations of U.S. issuers. These risks include
adverse political and economic developments, possible imposition of withholding
taxes on interest income, possible seizure, nationalization, or expropriation of
foreign investments, possible establishment of exchange controls, or adoption of
other foreign governmental restrictions which might adversely affect the payment
of principal and interest on such obligations. In addition, foreign branches of
U.S. banks and foreign banks may be subject to less stringent reserve
requirements and different accounting, auditing, reporting, and recordkeeping
standards than those applicable to domestic branches of U.S. banks.
Certain risks are inherent in the California Tax-Free Money Market Fund's
concentrated investment in California Municipal Securities, which may make an
investment in the Fund riskier than an investment in other types of money market
funds. Because of the California Tax-Free Money Market Fund's investment
objective, many of the securities in its portfolio are likely to be obligations
of California governmental issuers that rely in whole or in part, directly or
indirectly, on real property taxes as a source of revenue. The ability of the
State of California and its political sub-divisions to generate revenue through
real property and other taxes and to increase spending has been significantly
restricted by various constitutional and statutory amendments and voter-passed
initiatives. Such limitations could affect the ability of California state and
municipal issuers to pay interest or repay principal on their obligations. In
addition, during the first half of the decade, California faced severe economic
and fiscal conditions and experienced recurring budget deficits that caused it
to deplete its available cash resources and to become increasingly dependent
upon external borrowings to meet its cash needs.
The financial difficulties experienced by the State of California and other
issuers of California Municipal Securities during the recession resulted in the
credit ratings of certain of their obligations being downgraded significantly by
the major rating agencies.
A more detailed description of special factors affecting investments in
obligations of California governmental issuers of which investors should be
aware is set forth in the Statement of Additional Information.
Year 2000
HighMark Funds depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other mutual funds, businesses and
individuals around the world, HighMark Funds could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. HighMark Funds has made inquiry of its service providers to determine
whether they expect to have their computer systems adjusted for the year 2000
transition, and is seeking assurances from each service provider that it expects
its system to accommodate the year 2000 transition without material adverse
consequences to HighMark Funds. While it is
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likely that such assurances will be obtained, HighMark Funds and its
shareholders may experience losses if these assurances prove to be incorrect or
as a result of year 2000 computer difficulties experienced by issuers of
portfolio securities or custodians, banks, broker-dealers or others with which
HighMark Funds does business.
VALUATION OF SHARES
Each Fund's net asset value per share is determined by the Administrator as of
1:00 p.m. Eastern Time on days on which both the New York Stock Exchange and the
Federal Reserve wire system are open for business. Net asset value per share for
purposes of pricing sales and redemptions for each of the Funds is calculated by
adding the value of all securities and other assets belonging to a Fund,
subtracting its liabilities, and dividing the result by the total number of the
Fund's outstanding shares, irrespective of class.
The assets in each Fund are valued based upon the amortized cost method
whereby HighMark Funds seeks to maintain a Fund's net asset value per Share at
$1.00, although there can be no assurance that a stable net asset value of $1.00
per Share will be maintained. For further information concerning the use of the
amortized cost method of valuation, see the Statement of Additional Information.
PURCHASE AND REDEMPTION OF SHARES
As noted above, the Diversified Money Market, 100% U.S. Treasury Money Market
and California Tax-Free Money Market Funds are divided into two classes of
Shares, Class A and Fiduciary. The U.S. Government Money Market Fund is divided
into three classes of Shares, Class A, Class B and Fiduciary. Only the following
investors qualify to purchase the Funds' Fiduciary Shares: (i) fiduciary,
advisory, agency, custodial and other similar accounts maintained with Union
Bank of California, N.A. or its affiliates; (ii) SelectIRA accounts established
with The Bank of California, N.A. and invested in any of HighMark Funds' Equity
or Income Funds prior to June 20, 1994, which have remained continuously open
thereafter and which are not considered to be fiduciary accounts; (iii)
Shareholders who currently own Shares of HighMark Funds' Equity or Income Funds
that were purchased prior to June 20, 1994 within an account registered in their
name with the Funds; (iv) present and retired trustees of the Funds and
directors, officers and employees (and their spouses and children under the age
of 21) of Union Bank of California, N.A., HighMark Funds' current or former
distributors or their respective affiliated companies who currently own Shares
of HighMark Funds which were purchased before April 30, 1997; (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; and
(vi) Retirement and other benefit plans sponsored by governmental entities and
Financial Institutions which may acquire shares for their own account or as
record owner on behalf of fiduciary, agency or custodial accounts with a minimum
investment of $1,000,000. For a description of investors who qualify to purchase
Retail Shares, see the Retail Shares prospectus of the Money Market Funds.
Purchases and redemptions of Shares of the Funds may be made on days on which
both the New York Stock Exchange and Federal Reserve wire system are open for
business ("Business Days"). The minimum
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initial investment is generally $1,000 per Fund and the minimum subsequent
investment is generally $100 per Fund. For present and retired trustees of the
Fund, directors, officers, and employees (and their spouses and children under
the age of 21) of Union Bank of California, N.A., SEI Investments Distribution
Co. and their affiliates, the minimum initial investment is $250 and the minimum
subsequent investment is $50 per Fund. The Fund's initial and subsequent minimum
purchase amounts may be waived, in the Distributor's discretion if purchases are
made in connection with Individual Retirement Accounts, Keoghs, payroll
deduction plans, 401(k) or similar programs or accounts. Shareholders may place
orders by telephone.
Purchase orders will be effective on the Business Day made if the Distributor
receives an order before 8:00 a.m., Pacific time (11:00 a.m., Eastern time) for
the California Tax-Free Money Market Fund, 9:00 a.m., Pacific time (12:00 noon,
Eastern time) for the 100% U.S. Treasury Money Market Fund and 10:00 a.m.,
Pacific time (1:00 p.m., Eastern time) for the Diversified Money Market and U.S.
Government Money Market Funds, on such Business Day. Otherwise, the purchase
order will be effective the next Business Day. Effectiveness of a purchase order
on any Business Day is contingent on the Custodian's receipt of Federal funds
before 11:00 a.m., Pacific time (2:00 p.m., Eastern time), on such day. The
purchase price is the net asset value per Share, which is expected to remain
constant at $1.00. The net asset value per Share is calculated as of 10:00 a.m.,
Pacific time (1:00 p.m., Eastern time), each Business Day based on the amortized
cost method. The net asset value per Share of a Fund is determined by dividing
the total value of its investments and other assets, less any liabilities, by
the total number of its outstanding Shares. HighMark Funds 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 Funds and/or Shareholder(s).
Shares of the Fund are offered only to residents of states in which the shares
are eligible for purchase.
Redemption orders may be made any time before 8:00 a.m., Pacific time (11:00
a.m., Eastern time) for the California Tax-Free Money Market Fund, 9:00 a.m.,
Pacific time (12:00 noon, Eastern time) for the 100% U.S. Treasury Money Market
Fund, and 10:00 a.m., Pacific time (1:00 p.m., Eastern time) for the Diversified
Money Market and U.S. Government Money Market Funds in order to receive that
day's redemption price (i.e. the next determined net asset value per share). For
redemption orders received before such times for such Funds, payment will be
made the same day by transfer of Federal funds. Otherwise, payment will be made
on the next Business Day. Redeemed shares are not entitled to dividends declared
the day the redemption order is effective. The Funds reserve the right to make
payment on redemptions in securities rather than cash.
Neither HighMark Funds' transfer agent nor HighMark Funds will be responsible
for any loss, liability, cost or expense for acting upon wire instructions or
upon telephone instructions that it reasonably believes are genuine. HighMark
Funds and its transfer agent will each employ reasonable procedures to confirm
that telephone instructions are genuine. Such procedures may include taping of
telephone conversations. If market conditions are extraordinarily active or
extraordinary circumstances exist, and you experience difficulties placing
redemption orders by telephone, you may wish to consider placing your order by
other means.
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EXCHANGE PRIVILEGES
As indicated under GENERAL INFORMATION--Description of HighMark Funds & Its
Shares, certain Funds of HighMark Funds issue three classes of Shares (Class A
and Class B Shares (collectively, "Retail Shares") and Fiduciary Shares); as of
the date of this Prospectus, the Distribution Plan and distribution fee payable
thereunder are applicable only to such Fund's Retail Shares. A Shareholder's
eligibility to exchange into a particular class of Shares will be determined at
the time of the exchange. The Shareholder must supply, at the time of the
exchange, the necessary information to permit confirmation of qualification.
Each Fund's Shares may be exchanged for Shares of the class of the various
other Funds of HighMark Funds which the Shareholder qualifies to purchase
directly so long as the Shareholder maintains the applicable minimum account
balance in each Fund in which he or she owns Shares and satisfies the minimum
initial and subsequent purchase amounts of the Fund into which the Shares are
exchanged. Shareholders may exchange their Fiduciary Shares for Fiduciary Shares
of another Fund on the basis of the relative net asset value of the Fiduciary
Shares exchanged. Shareholders may also exchange Fiduciary Shares of a Fund for
Retail Shares of another Fund. Under such circumstances, the cost of the
acquired Retail Shares will be the net asset value per share plus the
appropriate sales load.
Exchanges will be made on the basis of the relative net asset values of the
Shares exchanged plus any applicable sales charge. Exchanges are subject to the
terms and conditions stated herein and the terms and conditions stated in the
respective prospectuses of the Funds.
Certain entities (including Participating Organizations and Union Bank of
California, N.A. and its affiliates), however, may charge customers a fee with
respect to exchanges made on the customer's behalf. Information about these
charges, if any, can be obtained by the entity effecting the exchange and this
Prospectus should be read in conjunction with that information.
A Shareholder wishing to exchange Shares in a Fund may do so by contacting the
transfer agent at 1-800-433-6884. Exchanges will be effected on any Business Day
at the net asset value of the Funds involved in the exchange next determined
after the exchange request is received by the transfer agent.
An exchange is considered to be a sale of Shares for federal income tax
purposes on which a Shareholder may realize a capital gain or loss. Exchange
privileges may be exercised only in those states where Shares of such other
Funds of HighMark Funds may legally be sold. HighMark Funds may materially amend
or terminate the exchange privileges described herein upon sixty days' notice.
DIVIDENDS
The net income of each Fund is declared daily as a dividend to Shareholders of
record at the close of business on the day of declaration.
Dividends with respect to each Fund are paid monthly in additional full and
fractional Shares of the Fund at net asset value as of the date of payment,
unless the Shareholder elects to receive such dividends in cash as described
below. Shareholders will automatically receive all income dividends and capital
gains distributions (if any) paid in respect of a Fund's Shares in additional
full and fractional Shares of the same class.
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Shareholders wishing to receive their dividends in cash (or wishing to revoke a
previously made election) must notify the transfer agent at P.O. Box 8416,
Boston, MA 02266-8416, and such election (or revocation thereof) will become
effective with respect to dividends having record dates after notice has been
received. Dividends paid in additional Shares receive the same tax treatment as
dividends paid in cash. Dividends are paid in cash not later than seven Business
Days after a Shareholder's complete redemption of his or her Shares. Net
realized capital gains, if any, are distributed at least annually to
Shareholders of record.
FEDERAL TAXATION
Each Fund intends to qualify for treatment as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"), and to
distribute substantially all of its net investment income so that it is not
required to pay federal taxes on these amounts. Because all of the net
investment income of the Diversified Money Market Fund, the U.S. Government
Money Market Fund, the 100% U.S. Treasury Money Market Fund and the California
Tax-Free Money Market Fund is expected to be derived from interest, it is
anticipated that no part of any distribution will be eligible for the federal
dividends received deduction for corporations. The Funds are not managed to
generate any long-term capital gains and, therefore, the Funds do not foresee
paying any significant "capital gains dividends" as described in the Code.
Shareholders will be subject to federal income tax with respect to dividends
paid by the Diversified Money Market Fund, the U.S. Government Money Market Fund
and the 100% U.S. Treasury Money Market Fund (including any capital gains
dividends). Dividends that are attributable to interest on U.S. Government
obligations earned by the Funds may be exempt from state and local tax, and
Shareholders should consult their own tax advisors to determine whether these
dividends are eligible for the state and local tax exemption. Dividends (except
to the extent attributable to gains or securities lending income) paid by the
100% U.S. Treasury Money Market Fund will be exempt from California and Oregon
personal income taxes. HighMark Funds intends to advise Shareholders annually of
the proportion of a Fund's dividends that consists of interest on U.S.
Government obligations.
Although it is unlikely that a Shareholder would recognize long-term capital
gain in respect of his or her Fund Shares, such gains are, in the case of
non-corporate Shareholders, generally subject to a tax rate of 20%.
Exempt-interest dividends from the California Tax-Free Money Market Fund are
excludable from gross income for federal income tax purposes. Such dividends may
be taxable to Shareholders under state or local law as ordinary income even
though all or a portion of the amounts may be derived from interest on tax-
exempt obligations which, if realized directly, would be exempt from such taxes.
Shareholders are advised to consult a tax advisor with respect to whether
exempt-interest dividends retain the exclusion if such Shareholder would be
treated as a "substantial user" of a facility financed through certain private
activity bonds or a "related person" to such user under the Code.
Under the Code, interest on indebtedness incurred or continued by a
Shareholder to purchase or carry Shares of the California Tax-Free Money Market
Fund is not deductible for federal income tax purposes to the extent the Fund
distributes exempt-interest dividends during the Shareholder's taxable year.
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Under the Code, if a Shareholder sells a Share of the California Tax-Free
Money Market Fund after holding it for six months or less, any loss on the sale
or exchange of such Share will be disallowed to the extent of the amount of any
exempt-interest dividends that the Shareholder has received with respect to the
Share that is sold.
In addition, any loss (not already disallowed as provided in the preceding
sentence) realized upon a taxable disposition of shares held for six months or
less will be treated as long-term, rather than short-term, to the extent of any
long-term capital gain distributions received by the shareholder with respect to
the shares.
The California Tax-Free Money Market Fund may at times purchase Municipal
Securities at a discount from the price at which they were originally issued.
For federal income tax purposes, some or all of this market discount will be
included in the California Tax-Free Money Market Fund's ordinary income and will
be taxable to Shareholders as such when it is distributed to them.
To the extent dividends paid to Shareholders are derived from taxable income
(for example, from interest on certificates of deposit or repurchase
agreements), or from long-term or short-term capital gains, such dividends will
be subject to federal income tax, whether such dividends are paid in the form of
cash or additional Shares. A Shareholder should consult his or her tax advisor
for special advice.
Under the Code, dividends attributable to interest on certain private activity
bonds issued after August 7, 1986 must be included in alternative minimum
taxable income for the purpose of determining liability (if any) for the federal
alternative minimum tax. In addition, exempt-interest dividends will be included
in a corporation's "adjusted current earnings" for purposes of the alternative
minimum tax (except to the extent derived from interest on certain private
activity bonds issued after August 7, 1986, which interest would already be
included in alternative minimum taxable income as a specific item of tax
preference). Shareholders of the California Tax-Free Money Market Fund receiving
social security or railroad retirement benefits may be taxed on a portion of
those benefits as a result of receiving tax-exempt income (including
exempt-interest dividends distributed by the California Tax-Free Money Market
Fund).
If, at the close of each quarter of its taxable year, the California Tax-Free
Money Market Fund continues to qualify for the special federal income tax
treatment afforded regulated investment companies and at least 50% of the value
of the Fund's total assets consists of California Exempt-Interest Securities,
then "California exempt interest dividends" attributable to these securities
will be exempt from California personal income tax. A "California-exempt
interest dividend" is any dividend distributed by the Fund to the extent that it
is derived from the interest received by the Fund on California Exempt-Interest
Securities (less related expenses) and designated as such by written notice to
Shareholders. For further details, see the Statement of Additional Information.
Dividends received by Shareholders subject to California state corporate
franchise tax will be taxed as ordinary dividends notwithstanding that all or a
portion of such dividends are exempt from California personal income tax.
Distributions other than "California-exempt interest dividends" by the Fund to
California residents will be subject to California personal income tax, whether
or not such dividends are reinvested. Interest on indebtedness incurred or
continued by a Shareholder in connection with the purchase of Shares of the
California Tax-Free Money Market Fund will not be deductible for California
personal income tax purposes if the Fund distributes California exempt-interest
dividends.
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Additional information regarding federal and California taxes is contained in
the Statement of Additional Information. However, the foregoing and the material
in the Statement of Additional Information are only brief summaries of some of
the important tax considerations generally affecting a money market fund and its
Shareholders. In addition, the foregoing discussion and the federal and
California tax information in the Statement of Additional Information are based
on tax laws and regulations which are in effect as of the date of this
Prospectus; these laws and regulations may subsequently change, and such changes
could be retroactive. Shareholders will be advised at least annually as to the
federal income tax status, and, in the case of Shareholders of the California
Tax-Free Money Market Fund, as to the California income tax status, of
distributions made during the year.
SERVICE ARRANGEMENTS
The Advisor
Prior to September 1, 1998, Pacific Alliance, a division of Union Bank of
California, N.A. served as the Funds' investment advisor. Effective September 1,
1998, Pacific Alliance was reorganized into a subsidiary of UnionBanCal
Corporation, the holding company of Union Bank of California. The new entity,
which is called HighMark Capital Management, Inc. (the "Advisor"), is a
California corporation registered under the Investment Adviser's Act of 1940.
HighMark Capital Management, Inc. now serves as the Funds' investment advisor.
Subject to the general supervision of HighMark Funds' Board of Trustees, the
Advisor manages each Fund in accordance with its investment objective and
policies, makes decisions with respect to and places orders for all purchases
and sales and maintains the Funds' records relating to such purchases and sales.
For the expenses assumed and services provided by the Advisor as each Fund's
investment advisor, the Advisor receives a fee from the Diversified Money Market
Fund, the U.S. Government Money Market Fund, the 100% U.S. Treasury Money Market
Fund, and the California Tax-Free Money Market Fund computed daily and paid
monthly, at the annual rate of thirty one-hundredths of one percent (0.30%) of
each Fund's average daily net assets. The Advisor may from time to time agree to
voluntarily reduce its advisory fee. 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.
During HighMark Funds' fiscal year ended July 31, 1998, Union Bank of
California received investment advisory fees from the Diversified Money Market
Fund and the U.S. Government Money Market Fund aggregating 0.30% of each Fund's
average daily net assets, from the 100% U.S. Treasury Money Market Fund
aggregating 0.25% of the Fund's average daily net assets, and from the
California Tax-Free Money Market Fund aggregating 0.10% of the Fund's average
daily net assets.
UnionBanCal Corporation, the parent of Union Bank of California, N.A., is a
publicly held corporation, but is principally held by the Bank of
Tokyo-Mitsubishi, Limited. As of September 30, 1998, UnionBanCal Corporation and
its subsidiaries had approximately $31.4 billion in consolidated assets.
HighMark Capital
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Management, Inc., as of September 30, 1998, had approximately $16 billion of
assets under management. The Advisor, with a team of approximately 43 stock and
bond research analysts, portfolio managers and traders, has been providing
investment management services to individuals, institutions and large
corporations since 1917.
On November 19, 1998, UnionBanCal Corporation announced plans for a secondary
offering of $750 million of its common stock owned by The Bank of
Tokyo-Mitsubishi, Ltd. It is anticipated that the offering will occur prior to
the end of the first quarter of 1999. UnionBanCal Corporation also announced
that it would seek to repurchase up to $500 million of its outstanding common
stock. Using the net proceeds from the sale of up to $500 million in trust
preferred securities, UnionBanCal Corporation currently anticipates repurchasing
$250 million of its common stock from The Bank of Tokyo-Mitsubishi, Ltd.,
concurrent with the secondary offering, and up to an additional $250 million of
its common stock from other foreign institutional shareholders. The Bank of
Tokyo-Mitsubishi, Ltd. intends to maintain a majority ownership interest in
UnionBanCal Corporation following the consummation of the transactions.
On November 19, 1998, UnionBanCal Corporation announced plans for a secondary
offering of $750 million of its common stock owned by The Bank of
Tokyo-Mitsubishi, Ltd. It is anticipated that the offering will occur prior to
the end of the first quarter of 1999. UnionBanCal Corporation also announced
that it would seek to repurchase up to $500 million of its outstanding common
stock. Using the net proceeds from the sale of up to $500 million in trust
preferred securities, UnionBanCal Corporation currently anticipates repurchasing
$250 million of its common stock from The Bank of Tokyo-Mitsubishi, Ltd.,
concurrent with the secondary offering, and up to an additional $250 million of
its common stock from other foreign institutional shareholders. The Bank of
Tokyo-Mitsubishi, Ltd. intends to maintain a majority ownership interest in
UnionBanCal Corporation following the consummation of the transactions.
Administrator
SEI Investments Mutual Funds Services (the "Administrator") and HighMark Funds
are parties to an administration agreement (the "Administration Agreement").
Under the terms of the Administration Agreement, the Administrator provides
HighMark Funds with certain management services, including all necessary office
space, equipment, personnel, and facilities.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of 0.20% of the average daily net assets of the
Funds. The Administrator may waive its fee or reimburse various expenses to the
extent necessary to limit the total operating expenses of a Fund's Fiduciary
Shares. Any such waiver is voluntary and may be terminated at any time in the
Administrator's sole discretion. Currently, the Administrator has agreed to
waive its fee to the rate of 0.18% of the average daily net assets of the Funds.
Pursuant to a separate agreement with the Administrator, Union Bank of
California, N.A. performs sub-administration services on behalf of each Fund,
for which it receives a fee paid by the Administrator at the annual rate of up
to 0.05% of the average daily net assets of the Funds. A description of the
services performed by Union Bank of California, N.A. pursuant to this Agreement
is contained in the Statement of Additional Information.
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The Transfer Agent
State Street Bank and Trust Company serves as the transfer agent, dividend
disbursing agent, and as a shareholder servicing agent for the Fiduciary Shares
of HighMark Funds, for which services it receives a fee.
Shareholder Service Plan
To support the provision of Shareholder services to all classes of Shares,
HighMark Funds 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 the Shareholder
Service Plan is contained in the Statement of Additional Information. In
consideration of services provided by any service provider, which may include
Union Bank of California, N.A., Bank of Tokyo-Mitsubishi, Ltd., or their
respective affiliates, each Fund may pay a fee at the rate of up to 0.25% of its
average daily net assets to such service provider. The service provider may
waive such fees at any time. Any such waiver is voluntary and may be terminated
at any time. Currently, such fees are being waived to the rate of 0.00% of
average daily net assets for Fiduciary Shares.
Distributor
SEI Investments Distribution Co. (the "Distributor") and HighMark Funds 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 Funds upon not more than 60 days written
notice by either party, or upon assignment by the Distributor. Fiduciary Shares
are not subject to HighMark Funds' Distribution Plan or a distribution fee.
Banking Laws
HighMark Capital Management, Inc. believes that it may perform the services
for the Funds contemplated by its investment advisory agreement with HighMark
Funds without a violation of applicable banking laws and regulations. Union Bank
of California, N.A. also believes that it may perform sub-administration
services on behalf of each Fund, for which it receives compensation from the
Administrator 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, N.A. or the Advisor could continue to
perform services for the Funds. For a further discussion of applicable banking
laws and regulations, see the Statement of Additional Information.
Custodian
Union Bank of California, N.A. serves as the custodian and as a shareholder
servicing agent for the Funds. The Custodian holds cash, securities and other
assets of HighMark Funds as required by the 1940 Act.
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Services performed by Union Bank of California, N.A., as the Funds'
shareholder servicing agent and custodian, as well as the basis of remuneration
for such services, are described in the Statement of Additional Information.
GENERAL INFORMATION
Description of HighMark Funds & Its Shares
HighMark Funds 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 Funds' Growth Fund, Income
Equity Fund, Balanced Fund, Value Momentum Fund, Blue Chip Growth Fund, Emerging
Growth Fund, International Equity Fund, Small Cap Value Fund, Bond Fund,
Intermediate-Term Bond Fund, Government Securities Fund, Convertible Securities
Fund, California Intermediate Tax-Free Bond Fund, Diversified Money Market Fund,
U.S. Government Money Market Fund, 100% U.S. Treasury Money Market Fund and
California Tax-Free Money Market Fund. 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 Funds were liquidated, would
receive a pro rata share of the net assets attributable to that Fund. Shares are
without par value.
As noted above, pursuant to a Multiple Class Plan on file with the Securities
and Exchange Commission permitting the issuance and sale of three classes of
Shares in selected Funds, Shares of such Funds have been divided into three
classes, designated Class A and Class B Shares (collectively "Retail Shares")
and Fiduciary Shares. For information regarding the Retail Shares of the Funds,
interested persons may contact the Distributor for a prospectus at
1-800-433-6884.
HighMark Funds believes that as of November 18, 1998, there was no person who
owned of record or beneficially more than 25% of the Fiduciary Shares of any of
the Money Market Funds.
Performance Information
From time to time, HighMark Funds may advertise the "yield" and "effective
yield" with respect to the Fiduciary Shares of each Fund and a "tax-equivalent
yield" and "tax-equivalent effective yield" for federal, California and Oregon
income tax purposes with regard to the Fiduciary Shares of each of the 100% U.S.
Treasury Money Market Fund and the California Tax-Free Money Market Fund.
Performance information is computed separately for a Fund's Retail and Fiduciary
Shares in accordance with the formulas described below. Each yield figure is
based on historical earnings and is not intended to indicate future performance.
The "yield" of a Fund's Fiduciary Shares refers to the income generated by an
investment in the class over a seven-day period (which period will be stated in
the advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the class is assumed to be reinvested.
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The "effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
The 100% U.S. Treasury Money Market Fund's tax-equivalent yield and
tax-equivalent effective yield will reflect the amount of income subject to
California or Oregon personal income taxation at the rate specified in the
advertisement that a taxpayer would have to earn in order to obtain the same
after tax income as that derived from the yield and effective yield of the
Fiduciary class. The California Tax-Free Money Market Fund's tax-equivalent
yield and tax-equivalent effective yield reflect the amount of income subject to
federal income taxation and California personal income taxation at the rate
specified in the advertisement that a taxpayer would have to earn in order to
obtain the same after tax income as that derived from the yield and effective
yield of the Fiduciary class.
Tax-equivalent yields and tax-equivalent effective yields with respect to a
class will be significantly higher than the yield and effective yield of that
class.
From time to time, HighMark Funds may advertise the aggregate total return and
average annual total return of the Funds. The aggregate total return and average
annual total return of each Fund may be quoted for the life of each Fund and for
five-year and one-year periods, in each case, through the most recent calendar
quarter. Aggregate total return is determined by calculating the change in the
value of a hypothetical $1,000 investment in a Fund over the applicable period
that would equate the initial amount invested to the ending redeemable value of
the investment. The ending redeemable value includes dividends and capital gain
distributions reinvested at net asset value. Average annual total return is
calculated by annualizing a Fund's aggregate total return over the relevant
number of years. The resulting percentage indicates the positive or negative
investment results that an investor in a Fund would have experienced from
changes in Share price and reinvestment of dividends and capital gain
distributions.
Each Fund may periodically compare its performance to the performance of:
other mutual funds tracked by mutual-fund rating services (such as Lipper
Analytical), financial and business publications and periodicals; broad groups
of comparable mutual funds; unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs; or other investment alternatives. Certain Funds may advertise
performance that includes results from periods in which the Fund's assets were
managed in a non-registered predecessor vehicle.
Miscellaneous
Shareholders will be sent unaudited semi-annual reports and annual reports
audited by independent public accountants.
Shareholders are entitled to one vote for each Share held in a Fund as
determined on the record date for any action requiring a vote by the
Shareholders, and a proportionate fractional vote for each fractional Share
held. Shareholders of HighMark Funds will vote in the aggregate and not by
series or class except (i) as otherwise expressly required by law or when
HighMark Funds' Board of Trustees determines that the matter to be voted upon
affects only the interests of the Shareholders of a particular series or
particular class, and (ii) only Retail Shares will be entitled to vote on
matters submitted to a Shareholder vote relating to the Distribution Plan.
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HighMark Funds is not required to hold regular annual meetings of Shareholders,
but may hold special meetings from time to time.
HighMark Funds' 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 HighMark Money
Market Funds.
ASSET-BACKED SECURITIES (NON-MORTGAGE)--Debt Instruments secured by company
receivables, truck and auto loans, leases, and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning such assets and
issuing such debt. The purchase of non-mortgage asset-backed securities raises
risk considerations peculiar to the financing of the instruments underlying such
securities. Asset-backed securities entail prepayment risk, which may vary
depending on the type of asset, but is generally less than the prepayment risk
associated with mortgage-backed securities.
Like mortgages underlying mortgage-backed securities, underlying automobile
sales contracts or credit card receivables are subject to substantial prepayment
risk, which may reduce the overall return to certificate holders. Nevertheless,
principal prepayment rates tend not to vary as much in response to changes in
interest rates and the short-term nature of the underlying car loans or other
receivables tend to dampen the impact of any change in the prepayment level.
Certificate holders may also experience delays in payment on the certificates if
the full amounts due on underlying sales contracts or receivables are not
realized by the trust because of unanticipated legal or administrative costs of
enforcing the contracts or because of depreciation or damage to the collateral
(usually automobiles) securing certain contracts, or other factors. The credit
quality of most asset-backed commercial paper depends primarily on the credit
quality of the assets underlying such securities, no matter how well the entity
issuing the security is insulated from the credit risk of the originator (or any
other affiliated entities), and the amount and quality of any credit support
provided to the securities pool. Asset-backed commercial paper is often backed
by a pool of assets representing the obligations of a number of different
parties. To lessen the effect of failures by obligors on these underlying assets
to make payments, such securities may contain elements of credit support. If
consistent with their investment objectives and policies, the Money Market Funds
may invest in other asset-backed securities that may be developed in the future.
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BANKERS' ACCEPTANCES--Bills of exchange or time drafts drawn on and accepted
by commercial banks. They are used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
CERTIFICATES OF DEPOSIT--Negotiable interest-bearing instruments with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity.
COMMERCIAL PAPER--Unsecured short-term promissory notes issued by corporations
and other entities. Maturities on these issues vary from a few days to nine
months. Purchase of such instruments involves a risk of default by the issuer.
DERIVATIVES--Instruments whose value is derived from an underlying contract,
index or security, or any combination thereof, including futures, options (e.g.,
puts and calls), options on futures, swap agreements, and some mortgage-backed
securities (CMOs, REMICs, IOs and POs). See elsewhere in this "DESCRIPTION OF
PERMITTED INVESTMENTS" for discussions of these various instruments, and see
"INVESTMENT OBJECTIVES" and "INVESTMENT POLICIES" for more information about any
policies and limitations applicable to their use.
INVESTMENT GRADE BONDS--Interest-bearing or discounted government or corporate
securities that obligate the issuer to pay the bondholder a specified sum of
money, usually at specific intervals, and to repay the principal amount of the
loan at maturity. Investment grade bonds are those rated BBB or better by S&P or
Baa or better by Moody's or similarly rated by other NRSROs, or, if not rated,
determined to be of comparable quality by the Advisor.
LOAN PARTICIPATIONS--Loan participations are interests in loans to U.S.
corporations (i.e., borrowers) which are administered by the lending bank or
agent for a syndicate of lending banks, and sold by the lending bank or
syndicate member ("intermediary bank"). In a loan participation, the borrower of
the underlying loan will be deemed to be the issuer of the participation
interest (except to the extent a purchasing Fund derives its rights from the
intermediary bank). Because the intermediary bank does not guarantee a loan
participation in any way, a loan participation is subject to the credit risks
associated with the underlying corporate borrower. In addition, in the event the
underlying corporate borrower fails to pay principal and interest when due, a
Fund may encounter delays, expenses and risks that are greater than those that
would have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of such borrower because it may be necessary under the terms
of the loan participation, for the Fund to assert its rights against the
borrower through the intermediary bank. Moreover, under the terms of a loan
participation, the purchasing Fund may be regarded as a creditor of the
intermediary bank (rather than of the underlying corporate borrower), so that a
Fund may also be subject to the risk that the issuing bank may become insolvent.
Further, in the event of the bankruptcy or insolvency of the corporate borrower,
a loan participation may be subject to certain defenses that can be asserted by
such borrower as a result of improper conduct by the issuing bank. The secondary
market, if any, for these loan participations is limited, and any such
participation purchased by a Fund may be regarded as illiquid.
MUNICIPAL FORWARDS--Municipal Forwards are forward commitments for the
purchase of tax-exempt bonds with a specified coupon to be delivered by an
issuer at a future date, typically exceeding 45 days
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but normally less than one year after the commitment date. Municipal forwards
are normally used as a refunding mechanism for bonds that may only be redeemed
on a designated future date. As with forward commitments and when-issued
securities, municipal forwards are subject to market fluctuations due to
changes, real or anticipated, in market interest rates between the commitment
date and the settlement date and will have the effect of leveraging the Fund's
assets. Municipal forwards may be considered to be illiquid investments. The
Fund will maintain liquid, high-grade securities in a segregated account in an
amount at least equal to the purchase price of the municipal forward.
MUNICIPAL SECURITIES--Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
Municipal notes include general obligation notes, tax anticipation notes,
revenue anticipation notes, bond anticipation notes, certificates of
indebtedness, demand notes and construction loan notes. Municipal bonds include
general obligation bonds, revenue or special obligation bonds, private activity
and industrial development bonds. General obligation bonds are backed by the
taxing power of the issuing municipality. Revenue bonds are backed by the
revenues of a project or facility, tolls from a toll bridge, for example. The
payment of principal and interest on private activity and industrial development
bonds generally is dependent solely on the ability of the facility's user to
meet its financial obligations and the pledge, if any, of real and personal
property so financed as security for such payment.
PARTICIPATION INTERESTS--Participation interests are interests in municipal
securities from financial institutions such as commercial and investment banks,
savings and loan associations and insurance companies. These interests may take
the form of participations, beneficial interests in a trust, partnership
interests or any other form of indirect ownership that allows the Fund to treat
the income from the investment as exempt from federal income tax. The Fund
invests in these participation interests in order to obtain credit enhancement
or demand features that would not be available through direct ownership of the
underlying municipal securities.
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-
32
<PAGE> 83
upon date and price. The repurchase agreements entered into by the Funds will
provide that the underlying security at all times shall have a value equal to
102% of the resale price stated in the agreement. Repurchase agreements
involving government securities are not subject to a Fund's fundamental
investment limitation on purchasing securities of any one issuer. If the seller
defaults on its repurchase obligation or becomes insolvent, the Fund holding
such obligations would suffer a loss to the extent that either the proceeds from
a sale of the underlying portfolio securities were less than the repurchase
price or the Fund's disposition of the securities was delayed pending court
action. Securities subject to repurchase agreements will be held by a qualified
custodian or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by a Fund under the Investment Company Act
of 1940 (the "1940 Act").
REVERSE REPURCHASE AGREEMENTS--A Fund may borrow funds for temporary purposes
by entering into reverse repurchase agreements, provided such action is
consistent with the Fund's investment objective and fundamental investment
restrictions; as a matter of non-fundamental policy, each Fund intends to limit
such investments to no more than 10% of the value of its total assets. Pursuant
to a reverse repurchase agreement, a Fund will sell portfolio securities to
financial institutions such as banks or to broker-dealers, and agree to
repurchase the securities at a mutually agreed-upon date and price. A Fund
intends to enter into reverse repurchase agreements only to avoid otherwise
selling securities during unfavorable market conditions to meet redemptions. At
the time a Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account assets such as U.S. Government securities or other
liquid, high-quality debt securities consistent with the Fund's investment
objective having a value equal to 102% of the repurchase price (including
accrued interest), and will subsequently monitor the account to ensure that an
equivalent value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by a Fund may decline below the
price at which a Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by a Fund under the 1940
Act.
RULE 144A SECURITIES--Rule 144A Securities are securities that have not been
registered under the Securities Act of 1933, but which may be traded between
certain qualified institutional investors, including investment companies. The
absence of a secondary market may affect the value of the Rule 144A Securities.
The Board of Trustees of the Group has established guidelines and procedures to
be utilized to determine the liquidity of such securities.
SECURITIES ISSUED ON A FORWARD COMMITMENT BASIS OR WHEN-ISSUED SECURITIES--
Securities purchased for delivery beyond the normal settlement date at a stated
price and yield and which thereby involve a risk that the yield obtained in the
transaction will be less than that available in the market when delivery takes
place. When a Fund agrees to purchase when-issued securities or enter into
forward commitments, the Group's custodian will be instructed to set aside cash
or liquid portfolio securities equal to the amount of the commitment in a
segregated account. A Fund will generally not pay for such securities and no
income will accrue on the securities until they are received. These securities
are recorded as an asset and are subject to changes in value based upon changes
in the general level of interest rates. Therefore, the purchase of securities on
a "when-issued" basis or forward commitments may increase the risk of
fluctuations in a Fund's net asset value.
SECURITIES LENDING--During the time portfolio securities are on loan from a
Fund, the borrower will pay the Fund any dividends or interest paid on the
securities. In addition, loans will be subject to termination
33
<PAGE> 84
by the Fund or the borrower at any time and, while a Fund will generally not
have the right to vote securities on loan, it will terminate the loan and regain
the right to vote if that is considered important with respect to the
investment. While the lending of securities may subject a Fund to certain risks,
such as delays or an inability to regain the securities in the event the
borrower were to default on its lending agreement or enter into bankruptcy, a
Fund will receive 100% collateral in the form of cash or U.S. Government
securities. This collateral will be valued daily by the lending agent, with
oversight by the Advisor, and, should the market value of the loaned securities
increase, the borrower will be required to furnish additional collateral to the
Fund.
SECURITIES SUBJECT TO A PUT FEATURE--A "put" feature permits a Fund to sell a
fixed income security at a fixed price prior to maturity. The underlying fixed
income securities subject to a put may be sold at any time at the market rates.
However, unless the put was an integral part of the fixed income security as
originally issued, it may not be marketable or assignable. Generally, a premium
is paid for a put feature or a put feature is purchased separately which results
in a lower yield than would otherwise be available for the same fixed income
securities.
TAX-EXEMPT COMMERCIAL PAPER--Commercial paper, which is commercial paper
issued by governments and political sub-divisions.
TIME DEPOSITS--Non-negotiable receipts issued by U.S. or foreign banks in
exchange for the deposit of funds. Like certificates of deposit, they earn a
specified rate of interest over a definite period of time; however, they cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
U.S. GOVERNMENT AGENCY SECURITIES--Certain Federal agencies have been
established as instrumentalities of the U.S. Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the U.S. Government, are either backed by the full faith and
credit of the United States (e.g., GNMA securities) or supported by the issuing
agencies' right to borrow from the U.S. Treasury. The issues of other agencies
are supported only by the credit of the instrumentality (e.g., FNMA securities).
U.S. TREASURY OBLIGATIONS--Bills, notes, and bonds issued by the U.S.
Treasury, as well as separately traded interest and principal component parts of
such obligations known as Separately Traded Registered Interest and Principal
Securities ("STRIPS") that are transferable through the Federal book-entry
system.
U.S. Government Securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities, although,
as a result, the yields available from U.S. Government Securities are generally
lower than the yields available from otherwise comparable corporate fixed-income
securities. Like other fixed-income securities, however, the values of U.S.
Government Securities change as interest rates fluctuate. Fluctuations in the
value of portfolio securities will in many cases not affect interest income on
existing portfolio securities, but will be reflected in the Fund's net asset
value. Because the magnitude of these fluctuations will generally be greater at
times when a Fund's average maturity is longer, under certain market conditions
the Fund may invest in short-term investments yielding lower current income
rather than investing in higher yielding longer-term securities.
34
<PAGE> 85
VARIABLE AMOUNT MASTER DEMAND NOTES--Unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between HighMark Funds and the issuer,
they are not normally traded. Although there is no secondary market in these
notes, the Fund may demand payment of principal and accrued interest at
specified intervals. For purposes of the Fund's investment policies, a variable
amount master demand note will be deemed to have a maturity equal to the longer
of the period of time remaining until the next readjustment of its interest rate
or the period of time remaining until the principal amount can be recovered from
the issuer through demand.
VARIABLE AND FLOATING RATE INSTRUMENTS--Obligations that may carry variable or
floating rates of interest, may involve conditional or unconditional demand
features and may include variable amount master demand notes. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
period exceeding seven days may be considered illiquid if there is no secondary
market for such security.
YANKEE BONDS--Dollar-denominated securities issued by foreign-domiciled
issuers that obligate the issuer to pay the bondholder a specified sum of money,
usually semiannually, and to repay the principal amount of the loan at maturity.
Sovereign bonds are bonds issued by the governments of foreign countries.
Supranational bonds are those issued by supranational entities, such as the
World Bank and European Investment Bank. Canadian bonds are bonds issued by
Canadian provinces.
ZERO-COUPON OBLIGATIONS--Non-income producing securities evidencing ownership
of future interest and principal payments on bonds. These obligations pay no
current interest and are typically sold at prices greatly discounted from par
value. The return on a zero-coupon obligation, when held to maturity, equals the
difference between the par value and the original purchase price.
For federal income tax purposes, the difference between the par value and the
original issue price (original issue discount) is included in the income of a
holder of a zero-coupon obligation over the term of the obligation even though
the interest is not paid until maturity. The amount included in income is
determined under a constant interest rate method. In addition, if an obligation
is purchased subsequent to its original issue, a holder such as the Income Funds
may elect to include market discount in income currently on a ratable accrual
method or a constant interest rate method. Market discount is the difference
between the obligation's "adjusted issue price" (the original issue price plus
original issue discount accrued to date) and the holder's purchase price. If no
such election is made, gain on the disposition of a market discount obligation
is treated as ordinary income (rather than capital gain) to the extent it does
not exceed the accrued market discount.
Zero-coupon obligations have greater price volatility than other fixed-income
obligations of similar maturity and such obligations will be purchased when the
yield spread, in light of the obligation's duration, is considered advantageous.
35
<PAGE> 86
HIGHMARK MONEY MARKET FUNDS
INVESTMENT PORTFOLIOS OF
HIGHMARK FUNDS
For further information (including current
yield, purchase and redemption information),
call 1-800-433-6884
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
FUNDS OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
HIGHMARK FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
NOT FDIC INSURED
<PAGE> 87
HighMark Funds Prospectus
INVESTMENT ADVISOR
HighMark Capital Management, Inc.
475 Sansome Street
San Francisco, CA 94104
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
SEI Investments Mutual Funds Services
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456
LEGAL COUNSEL
Ropes & Gray
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
AUDITORS
Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105-2230
For further information call
1-800-433-6884
or visit our web site at
www.highmark-funds.com
[HIGHMARK FUNDS LOGO]
HIGHMARK (SM)
FUNDS
84822-A (11/98)
<PAGE> 88
CROSS REFERENCE SHEET
HIGHMARK FUNDS
<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 Funds & 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 Funds & 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> 89
[HIGHMARK(SM) FUNDS LOGO]
- Equity Funds
- Fixed Income Funds
PROSPECTUS
Retail Shares
November 30, 1998
<PAGE> 90
HIGHMARK FUNDS
EQUITY FUNDS
FIXED INCOME FUNDS
HighMark Funds 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 Funds':
<TABLE>
<S> <C>
- Income Equity Fund - Balanced Fund
- Value Momentum Fund - Intermediate-Term Bond Fund
- Growth Fund - Bond Fund
- Emerging Growth
Fund - California Intermediate Tax-Free Bond Fund
- Small Cap Value
Fund
</TABLE>
RETAIL SHARES
HighMark Funds' 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 Funds' Fiduciary Shares.
This Prospectus sets forth concisely the information about HighMark Funds and
the Funds that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated the same date as this Prospectus has
been filed with the Securities and Exchange Commission and is available without
charge by writing the Distributor, SEI Investments Distribution Co., Oaks,
Pennsylvania 19456, or by calling 1-800-433-6884. The SEC maintains a World Wide
Web site (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference and other information. The
Statement of Additional Information is incorporated into this Prospectus by
reference. This Prospectus relates only to the Retail Shares of the Funds.
Interested persons who wish to obtain a prospectus for other Funds and classes
of HighMark Funds 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 FUNDS' 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
FUNDS' SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN HIGHMARK FUNDS
INVOLVES RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
November 30, 1998
Retail Shares
<PAGE> 91
SUMMARY
HIGHMARK FUNDS is an open-end, diversified, registered investment company
providing a convenient way to invest in professionally managed portfolios of
securities. The following provides basic information about the Class A and Class
B Shares (collectively, "Retail Shares") of the Income Equity, Value Momentum,
Growth, Small Cap Value and Balanced Funds, and the Class A Shares of the
Emerging Growth, Intermediate-Term Bond, Bond, and California Intermediate
Tax-Free Bond Funds (each a "Fund" and together the "Funds"). This summary is
qualified in its entirety by reference to the more detailed information provided
elsewhere in the Prospectus and in the Statement of Additional Information.
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES? THE INCOME EQUITY FUND seeks
investments in equity securities that provide current income through the regular
payment of dividends, with the goal that the Fund will have a high current yield
and a low level of price volatility; opportunity for long-term growth of asset
value is a secondary consideration. THE VALUE MOMENTUM FUND seeks long-term
capital growth with a secondary objective of income. THE GROWTH FUND seeks
long-term capital appreciation through investments in equity securities; the
production of current income is an incidental objective. THE SMALL CAP VALUE
FUND seeks to provide long-term capital appreciation. THE BALANCED FUND seeks
capital appreciation and income, with a secondary investment objective of
conservation of capital. THE EMERGING GROWTH FUND seeks long-term growth of
capital by investing in a diversified portfolio of equity securities of small
capitalization, emerging growth companies (collectively these six Funds are
sometimes referred to in this Prospectus as the "Equity Funds."). THE
INTERMEDIATE-TERM BOND FUND seeks total return through investments in
fixed-income securities. THE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND seeks to
provide high current income that is exempt from federal and State of California
income taxes. THE BOND FUND seeks current income through investments in
long-term, fixed-income securities (together with the Intermediate-Term Bond
Fund and the California Intermediate Tax-Free Bond Fund, the "Fixed Income
Funds"). (See "INVESTMENT OBJECTIVES.")
WHAT ARE THE FUNDS' PERMITTED INVESTMENTS? Each of the Equity Funds primarily
invests, consistent with its investment objective, in equity securities
including common stocks and securities convertible into common stocks. The Small
Cap Value Fund primarily invests, consistent with its investment objective, in
equity securities, including common and preferred stocks, convertible securities
and rights to purchase common stocks, of domestic and foreign "Small Companies."
Small Companies are generally defined as issuers having a market capitalization
within the range of market capitalization of issuers comprising the relevant
market small capitalization index. Currently the relevant market indexes used
are the S&P 600 (domestically) and the Financial Times/S&P Actuaries World
Indices World Ex. U.S. Medium/Small Cap (internationally). These indexes may be
changed without prior notice to shareholders. The Intermediate-Term Bond Fund
primarily invests in bonds. The Bond Fund invests in long-term bonds. Bonds
include debt obligations such as bonds, notes, debentures and securities
convertible into or exercisable for debt obligations that are issued by U.S.
corporations or issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities; investments may also include zero-coupon obligations,
mortgage-related securities and asset-backed securities. The Balanced Fund
primarily invests, consistent with its investment objective, in equity
securities including common stocks and securities convertible into common stocks
and may also invest in fixed income securities. The California Intermediate
Tax-Free Bond Fund invests primarily in investment grade or better
2
<PAGE> 92
bonds and notes issued by the State of California, its agencies,
instrumentalities and political sub-divisions, the income on which is exempt
from regular federal and State of California personal income taxes ("California
Municipal Securities"). Each Fund may also invest in a manner consistent with
its investment objective and investment policies in certain other instruments.
(See "INVESTMENT POLICIES.")
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUNDS? The investment
policies of each Fund entail certain risks and considerations of which an
investor should be aware. Common stocks and other equity securities in which the
Funds invest are volatile and may fluctuate in value more than other types of
investments. Common stocks and other equity securities of small companies in
which the Small Cap Value Fund invests are more volatile and may fluctuate in
value more than investments in companies with larger market capitalizations.
Values of fixed income securities and, correspondingly, share prices of Funds
invested in such securities, tend to vary inversely with interest rates, and may
be affected by other market and economic factors as well. During periods of
falling interest rates, the value of outstanding fixed income securities
generally rises. Conversely, during periods of rising interest rates, the value
of such securities generally declines. Values of fixed income securities in
which the California Intermediate Tax-Free Bond Fund invests may be affected by
other market and economic factors affecting the State of California as well. In
addition, the securities of the emerging growth companies in which the Emerging
Growth Fund may invest may be less liquid, and subject to more abrupt or erratic
market movements, than securities of larger, more established growth companies.
Similarly, the securities of foreign issuers, including emerging market issuers,
in which the International Equity Fund and Small Cap Value 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 Funds' Shares are not federally insured
by the FDIC or any other government agency. Any guarantee by the U.S.
Government, its agencies or any instrumentalities of the securities in which any
Fund invests guarantees only the payment of principal and interest on the
guaranteed security, and does not guarantee the total return or value of the
security or total return or value of Shares of that Fund.
WHO IS THE ADVISOR? HighMark Capital Management, Inc. serves as the Advisor to
HighMark Funds. (See "The Advisor.")
WHO ARE THE SUB-ADVISORS? Bank of Tokyo-Mitsubishi Trust Company serves as the
Sub-Advisor to the Emerging Growth Fund. Brandes Investment Partners, L.P.
serves as the Sub-Advisor to the Small Cap Value Fund. (See "The Sub-Advisors.")
WHO IS THE ADMINISTRATOR? SEI Investments Mutual Funds Services serves as the
Administrator of HighMark Funds. (See "The Administrator.")
WHO IS THE CUSTODIAN? Union Bank of California, N.A. (the "Bank") serves as
the custodian of HighMark Funds' assets. (See "The Custodian.")
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. acts as distributor
of HighMark Funds' Shares. (See "The Distributor.")
3
<PAGE> 93
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 Funds is distributed in the form of monthly
dividends (periodic dividends with respect to the Small Cap Value Fund) 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.")
4
<PAGE> 94
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 2
Class A Fee Table........................................... 7
Class B Fee Table........................................... 9
Financial Highlights........................................ 11
Fund Description............................................ 19
Investment Objectives....................................... 19
Investment Policies......................................... 20
Income Equity Fund........................................ 20
Value Momentum Fund....................................... 20
Growth Fund............................................... 20
Emerging Growth Fund...................................... 21
Small Cap Value Fund...................................... 21
Intermediate-Term Bond Fund............................... 22
Bond Fund................................................. 22
Balanced Fund............................................. 23
California Intermediate Tax-Free Bond Fund................ 23
General..................................................... 24
Money Market Instruments.................................. 24
Illiquid and Restricted Securities........................ 24
California Municipal Securities........................... 25
Lending of Portfolio Securities........................... 25
Other Investments......................................... 25
Risk Factors.............................................. 27
Risks Associated with Securities of Small Companies....... 30
Year 2000................................................. 31
Portfolio Turnover.......................................... 31
How to Purchase Shares...................................... 31
How to Purchase By Mail................................... 32
How to Purchase By Wire................................... 33
How to Purchase Through an Automatic Investment Plan
("AIP")................................................ 33
How to Purchase Through Financial Institutions............ 33
Alternative Sales Charge Options............................ 34
Overview.................................................. 34
Class A Shares: Front-End Sales Charge.................... 35
Letter of Intent.......................................... 36
Rights of Accumulation.................................... 36
Front-End Sales Charge Waivers............................ 37
Reductions for Qualified Groups........................... 38
Class B Shares: Contingent Deferred Sales Charge.......... 38
Exchange Privileges......................................... 39
Redemption of Shares........................................ 40
By Mail................................................... 41
Telephone Transactions.................................... 41
Systematic Withdrawal Plan ("SWP")........................ 41
Other Information Regarding Redemptions................... 42
Dividends................................................... 43
Taxes....................................................... 43
Federal Taxation.......................................... 43
California Taxes.......................................... 46
</TABLE>
5
<PAGE> 95
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Service Arrangements........................................ 47
The Advisor............................................... 47
The Sub-Advisors.......................................... 48
Administrator............................................. 49
The Transfer Agent........................................ 49
Shareholder Service Plan.................................. 50
Distributor............................................... 50
The Distribution Plans.................................... 50
Banking Laws.............................................. 51
Custodian................................................. 51
General Information......................................... 52
Description of HighMark Funds & Its Shares................ 52
Performance Information................................... 52
Miscellaneous............................................. 53
Description of Permitted Investments........................ 54
</TABLE>
6
<PAGE> 96
CLASS A FEE TABLE
<TABLE>
<CAPTION>
INCOME VALUE INTERMEDIATE-
EQUITY MOMENTUM GROWTH EMERGING SMALL CAP TERM BOND BOND BALANCED
FUND FUND FUND GROWTH FUND VALUE FUND FUND FUND FUND
------- -------- ------- ----------- ---------- ------------- ------- --------
CLASS A CLASS A CLASS A CLASS A CLASS A CLASS A CLASS A CLASS A
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- -------- ------- ----------- ---------- ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)................ 4.50% 4.50% 4.50% 4.50% 4.50% 3.00% 3.00% 4.50%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price)......................... 0% 0% 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable)(b).............. 0% 0% 0% 0% 0% 0% 0% 0%
Redemption Fees (as a percentage
of amount redeemed, if
applicable)(c)................. 0% 0% 0% 0% 0% 0% 0% 0%
Exchange Fee(a).................. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL OPERATING EXPENSES(D)
(as a percentage of net assets)
Management Fees (after
voluntary reduction)(e)...... 0.60% 0.60% 0.60% 0.80% 1.00% 0.50% 0.50% 0.60%
12b-1 Fees (after voluntary
reduction)(f)................ 0.25% 0.25% 0.25% 0.25% 0.25% 0.00% 0.00% 0.25%
Other Expenses (after voluntary
reduction)(g)................ 0.32% 0.22% 0.32% 0.23% 0.58% 0.25% 0.25% 0.32%
----- ----- ----- ----- ----- ----- ----- -----
Total Fund Operating
Expenses(h).................. 1.17% 1.07% 1.17% 1.28% 1.83% 0.75% 0.75% 1.17%
===== ===== ===== ===== ===== ===== ===== =====
<CAPTION>
CALIFORNIA
INTERMEDIATE
TAX-FREE
BOND FUND
------------
CLASS A
SHARES
------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)................ 3.00%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price)......................... 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable)(b).............. 0%
Redemption Fees (as a percentage
of amount redeemed, if
applicable)(c)................. 0%
Exchange Fee(a).................. $ 0
ANNUAL OPERATING EXPENSES(D)
(as a percentage of net assets)
Management Fees (after
voluntary reduction)(e)...... 0.20%
12b-1 Fees (after voluntary
reduction)(f)................ 0.00%
Other Expenses (after voluntary
reduction)(g)................ 0.24%
-----
Total Fund Operating
Expenses(h).................. 0.44%
=====
</TABLE>
- ---------------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Income Equity Fund Class A Shares........................ $56 $ 80 $106 $181
Value Momentum Fund Class A Shares....................... $55 $ 78 $101 $170
Growth Fund Class A Shares............................... $56 $ 80 $106 $181
Emerging Growth Fund Class A Shares...................... $57 $ 84 $112 $193
Small Cap Value Fund Class A Shares...................... $63 $100 N/A N/A
Intermediate-Term Bond Fund Class A Shares............... $37 $ 53 $ 70 $120
Bond Fund Class A Shares................................. $37 $ 53 $ 70 $120
Balanced Fund Class A Share.............................. $56 $ 80 $106 $181
California Intermediate Tax-Free Bond Fund Class A
Shares................................................. $34 $ 44 $ 54 $ 84
</TABLE>
The purpose of the tables above is to assist an investor in the Funds in
understanding the various costs and expenses that a Shareholder will bear
directly or indirectly. For a more complete discussion of each Fund's annual
operating expenses, see SERVICE ARRANGEMENTS below. THE FOREGOING EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
7
<PAGE> 97
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 Funds on behalf of their customers may charge
customers fees for services provided in connection with the investment in,
redemption of, and exchange of Shares. (See HOW TO PURCHASE SHARES, EXCHANGE
PRIVILEGES, REDEMPTION OF SHARES, and SERVICE ARRANGEMENTS below.)
(b) A Contingent Deferred Sales Charge of 1.00% will be assessed against the
proceeds of any redemption request relating to Class A Shares of the Funds
that were purchased without a sales charge in reliance upon the waiver
accorded to purchases in the amount of $1 million or more, but only where
such redemption request is made within one year of the date the Shares were
purchased.
(c) A wire redemption charge of $15 is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See REDEMPTION OF
SHARES below.)
(d) Expense information has been restated to reflect current fees for the Value
Momentum Fund, Growth Fund, Balanced Fund and California Intermediate
Tax-Free Bond Fund.
(e) Absent voluntary fee waivers, MANAGEMENT FEES would be 0.50% for the Class A
Shares of the California Intermediate Tax-Free Bond Fund.
(f) As indicated under SERVICE ARRANGEMENTS -- the Distribution Plan below, the
Distributor may voluntarily reduce the 12b-1 fee. Absent voluntary fee
waivers, 12b-1 fees would be 0.25% for the Intermediate-Term Bond Fund, Bond
Fund and California Intermediate Tax-Free Bond Fund. The Distributor
reserves the right to terminate its waiver at any time in its sole
discretion.
(g) Absent voluntary fee waivers, OTHER EXPENSES would be: 0.49% for the Class A
Shares of the Growth Fund, Balanced Fund, Income Equity Fund, Value Momentum
Fund, and Intermediate-Term Bond Fund, 0.50% for the Class A Shares of the
Emerging Growth Fund, 0.75% for the Class A Shares of the Small Cap Value
Fund and 0.51% for the Class A Shares of the Bond and California
Intermediate Tax-Free Bond Fund.
(h) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be: 1.34%
for the Class A Shares of the Growth Fund, Balanced Fund, Income Equity Fund
and the Value Momentum Fund, 1.55% for the Class A Shares of the Emerging
Growth Fund, 1.24% for the Class A Shares of the Intermediate-Term Bond
Fund, 2.00% for the Class A Shares of the Small Cap Value Fund, and 1.26%
for the Class A Shares of the Bond and California Intermediate Tax-Free Bond
Fund.
8
<PAGE> 98
CLASS B FEE TABLE
<TABLE>
<CAPTION>
INCOME VALUE
EQUITY MOMENTUM GROWTH SMALL CAP BALANCED
FUND FUND FUND VALUE FUND FUND
------- -------- ------- ---------- --------
CLASS B CLASS B CLASS B CLASS B CLASS B
SHARES SHARES SHARES SHARES SHARES
------- -------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).... 0% 0% 0% 0% 0%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price)................................. 0% 0% 0% 0% 0%
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, as applicable)............... 5.00% 5.00% 5.00% 5.00% 5.00%
Redemption Fees (as a percentage of
amount redeemed, if applicable)(b)..... 0% 0% 0% 0% 0%
Exchange Fee(a).......................... $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL OPERATING EXPENSES(c) (as a percentage of net assets)
Management Fees........................ 0.60% 0.60% 0.60% 1.00% 0.60%
12b-1 Fees............................. 0.75% 0.75% 0.75% 0.75% 0.75%
Other Expenses (after voluntary
reduction)(d)....................... 0.47% 0.47% 0.47% 0.73% 0.47%
----- ----- ----- ----- -----
Total Fund Operating Expenses.......... 1.82% 1.82% 1.82% 2.48% 1.82%
===== ===== ===== ===== =====
</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.
9
<PAGE> 99
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
------ ------- ------- ---------
<S> <C> <C> <C> <C>
Income Equity Fund
Class B Shares (assuming a complete redemption at end of
period)................................................ $68 $ 87 $119 $197
Class B Shares (assuming no redemptions).................. $18 $ 57 $ 99 $197
Value Momentum Fund
Class B Shares (assuming a complete redemption at end of
period)................................................ $68 $ 87 $119 $194
Class B Shares (assuming no redemptions).................. $18 $ 57 $ 99 $194
Growth Fund
Class B Shares (assuming a complete redemption at end of
period)................................................ $68 $ 87 $119 $197
Class B Shares (assuming no redemptions).................. $18 $ 57 $ 99 $197
Small Cap Value Fund
Class B Shares (assuming a complete redemption at end of
period)................................................ $75 $107 N/A N/A
Class B Shares (assuming no redemptions).................. $25 $ 77 N/A N/A
Balanced Fund
Class B Shares (assuming a complete redemption at end of
period)................................................ $68 $ 87 $119 $197
Class B Shares (assuming no redemptions).................. $18 $ 57 $ 99 $197
</TABLE>
- ---------------
* Class B Shares automatically convert to Class A Shares after eight years.
The purpose of the tables above is to assist an investor in the Funds in
understanding the various costs and expenses that a Shareholder will bear
directly or indirectly. For a more complete discussion of each Fund's annual
operating expenses, see SERVICE ARRANGEMENTS below. THE FOREGOING EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its affiliates)
making investments in the Funds on behalf of their customers may charge
customers fees for services provided in connection with the investment in,
redemption of, and exchange of Shares. (See HOW TO PURCHASE SHARES, EXCHANGE
PRIVILEGES, REDEMPTION OF SHARES, and SERVICE ARRANGEMENTS below.)
(b) A wire redemption charge of $15 is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See REDEMPTION OF
SHARES below.)
(c) Expense information has been restated to reflect current fees for the Income
Equity Fund, Value Momentum Fund, Growth Fund and Balanced Fund.
(d) Absent voluntary fee waivers, OTHER EXPENSES would be: 0.49% for the Class B
Shares of the Income Equity Fund, Value Momentum Fund, Growth Fund and
Balanced Fund, and 0.75% for the Class B Shares of the Small Cap Value Fund.
(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be: 1.84%
for the Class B Shares of the Income Equity Fund, Value Momentum Fund,
Growth Fund, and Balanced Fund, and 2.50% for the Class B Shares of the
Small Cap Value Fund.
10
<PAGE> 100
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information with respect to the
Class A Shares of the Small Cap Value Fund, Bond Fund, Intermediate-Term Bond
Fund and California Intermediate Tax-Free Bond Fund and the Class A Shares and
Class B Shares of the Growth Fund, Income Equity Fund, Balanced Fund and the
Value Momentum Fund. Financial highlights for the Funds for the period ended
July 31, 1998 have been derived from financial statements audited by Deloitte &
Touche LLP, independent auditors for HighMark, whose report thereon is included
in the 1998 Annual Report for the HighMark Funds, which is incorporated by
reference into the Statement of Additional Information. Financial highlights for
the Growth, Income Equity and Bond Funds prior to the fiscal year ended July 31,
1996 have been derived from financial statements examined by other auditors
whose report thereon is on file with the Securities and Exchange Commission.
Upon reorganizing as funds of HighMark Funds on April 28, 1997, Stepstone
Intermediate-Term Bond Fund became HighMark Intermediate-Term Bond Fund,
Stepstone California Intermediate Tax-Free Bond Fund became HighMark California
Intermediate Tax-Free Bond Fund, Stepstone Balanced Fund became HighMark
Balanced Fund, and Stepstone Value Momentum Fund became HighMark Value Momentum
Fund. Financial highlights through January 31, 1997 represent the Investment
Class Shares (now Class A Shares) of Stepstone Intermediate-Term Bond, Stepstone
California Intermediate Tax-Free Bond, Stepstone Balanced, and Stepstone Value
Momentum Funds, and have been derived from financial statements audited by
Arthur Andersen LLP, independent auditors for the Stepstone Funds.
11
<PAGE> 101
INTERMEDIATE-TERM BOND FUND
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTH
YEAR ENDED PERIOD ENDED FOR THE YEARS ENDED JANUARY 31,
JULY 31, JULY 31, -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993(1)
---------- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Net Asset Value,
Beginning of
Period............... $ 10.29 $ 10.16 $ 10.61 $ 9.67 $ 10.72 $ 10.57 $ 10.49
------- ------- ------- ------- ------- ------- -------
Investment Activities
Net investment
income............ 0.609 0.309 0.602 0.609 0.589 0.615 0.609
Net realized and
unrealized gain
(loss) on
investments....... 0.031 0.128 (0.462) 0.940 (1.034) 0.335 0.450
------- ------- ------- ------- ------- ------- -------
Distributions
Net investment
income............ (0.616) (0.310) (0.595) (0.609) (0.590) (0.595) (0.636)
Capital gains........ -- -- -- -- (0.015) (0.205) (0.343)
Net Asset Value, End of
Period............... $ 10.31 $ 10.29 $ 10.16 $ 10.61 $ 9.67 $ 10.72 $ 10.57
======= ======= ======= ======= ======= ======= =======
Total** Return......... 6.38% 4.44% 1.54% 16.48% (4.11)% 9.23% 10.59%*
Net Assets, end of
period (000)...... $ 5,120 $ 5,124 $ 5,213 $ 6,417 $ 6,645 $ 9,308 $ 2,897
Ratio of expenses to
average net
assets............ 0.75% 0.69%* 0.67% 0.68% 0.71% 0.69% 0.65%*
Ratio of expenses to
average net assets
excluding fee
waivers........... 1.24% 1.14%* 1.08% 1.09% 1.11% 1.09% 1.05%*
Ratio of net
investment income
to average net
assets............ 5.83% 6.17%* 5.91% 5.99% 5.87% 5.51% 6.01%*
Ratio of net
investment income
to average net
assets excluding
fee waivers....... 5.34% 5.71%* 5.50% 5.58% 5.47% 5.11% 5.61%*
Portfolio turnover
rate................. 51% 58% 106% 147% 95% 72% 88%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
** Total return does not reflect the sales charge.
(1) Commenced operations on February 3, 1992.
12
<PAGE> 102
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTH
YEAR ENDED PERIOD ENDED FOR THE YEARS ENDED JANUARY 31,
JULY 31, JULY 31, -------------------------------------
1998 1997 1997 1996 1995 1994(1)
---------- ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Net Asset Value, Beginning of
Period........................ $ 9.99 $ 9.74 $ 9.84 $ 8.94 $ 10.03 $ 10.00
------- ------- ------- ------- ------- -------
Investment Activities
Net investment income......... 0.423 0.222 0.458 0.470 0.439 0.115
Net realized and unrealized
gain (loss) on
investments................ 0.032 0.240 (0.112) 0.918 (1.077) 0.020
------- ------- ------- ------- ------- -------
Distributions
Net investment income......... (0.435) (0.215) (0.442) (0.487) (0.452) (0.105)
Capital gains................. -- -- -- -- -- --
Net Asset Value, End of
Period........................ $ 10.01 $ 9.99 $ 9.74 $ 9.84 $ 8.94 $ 10.03
======= ======= ======= ======= ======= =======
Total** Return.................. 4.66% 4.85% 3.62% 15.84% (6.33)% 4.67%*
Net Assets, end of period
(000)...................... $12,925 $11,214 $ 5,791 $ 4,266 $ 4,882 $ 2,830
Ratio of expenses to average
net assets................. 0.31% 0.21%* 0.20% 0.23% 0.50% 0.50%*
Ratio of expenses to average
net assets excluding fee
waivers.................... 1.29% 1.22%* 1.25% 1.12% 1.12% 1.13%*
Ratio of net investment income
to average net assets...... 4.37% 4.55%* 4.69% 4.93% 4.92% 4.26%*
Ratio of net investment income
to average net assets
excluding fee waivers...... 3.39% 3.54%* 3.64% 4.04% 4.30% 3.63%*
Portfolio turnover rate......... 23% 5% 6% 30% 22% 19%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
** Total return does not reflect the sales charge.
(1) Commenced operations on October 15, 1993.
13
<PAGE> 103
BOND FUND
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
------- ------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Net Asset Value, Beginning of Period... $ 10.59 $ 10.15 $ 10.29 $ 10.04 $ 10.12
------- ------- ------- ------- -------
Investment Activities
Net investment income................ 0.605 0.642 0.690 0.660 0.070
Net realized and unrealized gain
(loss) on investments............. 0.162 0.403 (0.180) 0.230 (0.050)
------- ------- ------- ------- -------
Distributions
Net investment income................ (0.627) (0.609) (0.650) (0.640) (0.100)
Capital gains........................ -- -- -- -- --
Net Asset Value, End of Period......... $ 10.73 $ 10.59 $ 10.15 $ 10.29 $ 10.04
======= ======= ======= ======= =======
Total** Return......................... 7.47% 10.68% 4.95% 9.29% (3.81)%(1)
Net Assets, end of period (000)...... $ 1,912 $ 606 $ 1,157 $ 558 $ 7
Ratio of expenses to average net
assets............................ 0.75% 0.85% 0.89% 0.92% 0.99%*
Ratio of expenses to average net
assets excluding fee waivers...... 1.26% 1.68% 1.85% 1.89% 2.96%*
Ratio of net investment income to
average net assets................ 5.85% 6.10% 6.10% 6.29% 5.77%*
Ratio of net investment income to
average net assets excluding fee
waivers........................... 5.33% 5.27% 5.14% 5.32% 3.80%*
Portfolio turnover rate................ 16% 14% 21% 36% 44%
</TABLE>
- ---------------
<TABLE>
<C> <S>
Amounts designated as "--" are either $0 or have been rounded to
$0.
(1) Represents total return for the Fiduciary Shares for the
period from August 1, 1993 to June 19, 1994 plus the total
return for the Investor Shares for the period from June 20,
1994 to July 31, 1994.
* Annualized.
** Total return does not reflect the sales charge.
</TABLE>
14
<PAGE> 104
BALANCED FUND
<TABLE>
<CAPTION>
FOR THE
FOR THE FOR THE SIX MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED FOR THE YEARS ENDED JANUARY 31,
JULY 31, JULY 31, JULY 31, -----------------------------------------------
1998 1998 1997 1997 1996 1995 1994 1993(2)
------------ ---------- ------------ ------- ------- ------- ------- -------
CLASS B(1) CLASS A CLASS A CLASS A CLASS A CLASS A CLASS A CLASS A
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL SHARES
Net Asset Value, Beginning of
Period....................... $16.55 $ 16.45 $ 15.03 $ 13.91 $ 11.45 $ 12.21 $ 11.50 $ 11.30
------ ------- ------- ------- ------- ------- ------- -------
Investment Activities
Net investment income........ 0.155 0.402 0.209 0.464 0.406 0.393 0.397 0.092
Net realized and unrealized
gain (loss) on
investments................ 0.197 0.736 1.712 1.706 2.825 (0.758) 0.925 0.404
------ ------- ------- ------- ------- ------- ------- -------
Distributions
Net investment income........ (0.175) (0.416) (0.209) (0.455) (0.406) (0.392) (0.391) (0.098)
Capital gains................ -- (0.442) (0.290) (0.595) (0.362) (0.003) (0.221) (0.198)
Net Asset Value, End of
Period....................... $16.73 $ 16.73 $ 16.45 $ 15.03 $ 13.91 $ 11.45 $ 12.21 $ 11.50
====== ======= ======= ======= ======= ======= ======= =======
Total** Return................. 4.32%** 7.12% 13.22% 16.04% 28.73% (2.95)% 11.79% 4.45%*
Net Assets, end of period
(000)...................... $ 967 $10,629 $ 9,214 $ 8,833 $ 8,422 $ 7,128 $ 7,292 $ 425
Ratio of expenses to average
net assets................. 1.80%* 1.16% 1.07%* 1.04% 0.89% 0.79% 0.69% 0.60%*
Ratio of expenses to average
net assets excluding fee
waivers.................... 1.83%* 1.33% 1.30%* 1.19% 1.20% 1.19% 1.19% 1.10%*
Ratio of net investment
income to average net
assets..................... 1.77%* 2.42% 2.75%* 3.22% 3.12% 3.41% 3.26% 3.20%*
Ratio of net investment
income to average net
assets excluding fee
waivers.................... 1.74%* 2.24% 2.53%* 3.07% 2.81% 3.01% 2.76% 2.70%*
Portfolio turnover rate........ 22% 22% 10% 27% 26% 48% 49% 68%
</TABLE>
- ---------------
<TABLE>
<C> <S>
Amounts designated as "--" are either $0 or have been rounded to
$0.
(1) Commenced operations on February 2, 1998.
* Annualized.
** Total return does not reflect the sales charge.
(2) Commenced operations on November 13, 1992.
</TABLE>
15
<PAGE> 105
GROWTH FUND
<TABLE>
<CAPTION>
FOR THE
PERIOD ENDED FOR THE YEARS ENDED JULY 31,
JULY 31, ---------------------------------------------------
1998(1) 1998 1997 1996 1995 1994
------------ ------- ------- ------- ------- -------
CLASS B CLASS A CLASS A CLASS A CLASS A CLASS A
<S> <C> <C> <C> <C> <C> <C>
RETAIL SHARES
Net Asset Value, Beginning of
Period.......................... $ 14.76 $ 17.39 $ 12.60 $ 11.87 $ 9.77 $ 9.74
------- ------- ------- ------- ------- -------
Investment Activities
Net investment income........... (0.035) (0.018) 0.049 0.110 0.150 --
Net realized and unrealized gain
(loss) on investments......... 2.125 3.100 5.784 1.380 2.250 0.040
------- ------- ------- ------- ------- -------
Distributions
Net investment income........... -- (0.015) (0.048) (0.120) (0.150) (0.010)
Capital gains................... -- (3.532) (0.996) (0.640) (0.150) --
Net Asset Value, End of Period.... $ 16.85 $ 16.93 $ 17.39 $ 12.60 $ 11.87 $ 9.77
======= ======= ======= ======= ======= =======
Total** Return.................... 28.71%* 22.26% 48.49% 12.88% 25.10% (1.77)%(2)
Net Assets, end of period
(000)......................... $ 1,948 $17,173 $ 7,816 $ 2,843 $ 1,218 $ --
Ratio of expenses to average net
assets........................ 1.81%* 1.16% 1.04% 0.93% 0.84% --
Ratio of expenses to average net
assets excluding fee
waivers....................... 1.84%* 1.34% 1.49% 1.91% 2.11% --
Ratio of net investment income
to average net assets......... (0.94)%* (0.17)% 0.28% 0.96% 1.17% --
Ratio of net investment income
to average net assets
excluding fee waivers......... (0.97)%* (0.35)% (0.18)% (0.02)% (0.10)% --
Portfolio turnover rate........... 67% 67% 118% 79% 68% 123%
</TABLE>
- ---------------
<TABLE>
<C> <S>
Amounts designated as "-" are either $0 or have been rounded to
$0.
(1) Commenced operations on February 2, 1998.
(2) Represents total return for the Fiduciary Shares from
commencement of operations to June 19, 1994 plus the total
return for Investor Shares for the period from June 20, 1994
to July 31, 1994.
* annualized
** Total return does not reflect the sales charge.
</TABLE>
16
<PAGE> 106
VALUE MOMENTUM FUND
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD ENDED FOR THE SIX MONTH
JULY 31, YEAR ENDED PERIOD ENDED FOR THE YEARS ENDED JANUARY 31,
1998(1) JULY 31, JULY 31, ------------------------------------------------
CLASS B 1998 1997 1997 1996 1995 1994 1993(2)
------------ ---------- ------------ ------- ------- ------- ------- -------
CLASS A CLASS A CLASS A CLASS A CLASS A CLASS A CLASS A
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL SHARES
Net Asset Value, Beginning
of Period................ $ 26.82 $ 25.48 $ 21.57 $ 18.05 $ 13.40 $ 14.27 $ 12.75 $ 11.52
------- ------- ------- ------- ------- ------- ------- -------
Investment Activities
Net investment income.... 0.046 0.262 0.106 0.389 0.320 0.321 0.297 0.246
Net realized and
unrealized gain (loss)
on investments......... 0.479 2.007 3.953 4.368 5.060 (0.820) 1.543 1.257
------- ------- ------- ------- ------- ------- ------- -------
Distributions
Net investment income.... (0.064) (0.275) (0.147) (0.393) (0.323) (0.317) (0.290) (0.251)
Capital gains............ -- (0.164) -- (0.848) (0.408) (0.054) (0.030) (0.022)
Net Asset Value, End of
Period................... $ 27.28 $ 27.31 $ 25.48 $ 21.57 $ 18.05 $ 13.40 $ 14.27 $ 12.75
======= ======= ======= ======= ======= ======= ======= =======
Total** Return............. 3.94%* 8.96% 18.90% 27.04% 40.77% (3.48)% 14.65% 15.97%*
Net assets, end of period
(000).................. $ 5,202 $35,325 $20,750 $15,963 $11,801 $ 9,777 $ 9,346 $ 3,162
Ratio of expenses to
average net assets..... 1.81%* 1.06% 1.03%* 1.04% 0.89% 0.81% 0.77% 0.65%*
Ratio of expenses to
average net assets
excluding fee
waivers................ 1.84%* 1.33% 1.25%* 1.19% 1.20% 1.21% 1.20% 1.15%*
Ratio of net investment
income to average net
assets................. 0.15%* 0.99% 1.40%* 2.01% 2.00% 2.37% 2.12% 2.53%*
Ratio of net investment
income to average net
assets excluding fee
waivers................ 0.13%* 0.72% 1.17%* 1.86% 1.69% 1.97% 1.69% 2.03%*
Portfolio turnover rate.... 7% 7% 1% 9% 20% 6% 5% 3%
</TABLE>
- ---------------
Amounts designated as "-" are either $0 or have been rounded to $0.
* Annualized.
** Total return does not reflect the sales charge.
(1) Commenced operations on February 2, 1998.
(2) Commenced operations on April 2, 1992.
17
<PAGE> 107
INCOME EQUITY FUND
<TABLE>
<CAPTION>
FOR THE
PERIOD ENDED FOR THE YEARS ENDED JULY 31,
JULY 31, 1998(1) ---------------------------------------------------
CLASS B 1998 1997 1996 1995 1994(2)
---------------- ------- ------- ------- ------- -------
CLASS A CLASS A CLASS A CLASS A CLASS A
<S> <C> <C> <C> <C> <C> <C>
RETAIL SHARES
Net Asset Value, Beginning of
Period......................... $ 16.88 $ 18.24 $ 14.29 $ 13.03 $ 11.92 $ 11.85
------- ------- ------- ------- ------- -------
Investment Activities
Net investment income.......... 0.057 0.262 0.363 0.420 0.420 0.040
Net realized and unrealized
gain (loss) on investments... 1.034 1.486 5.028 1.920 1.550 0.080
------- ------- ------- ------- ------- -------
Distributions
Net investment income.......... (0.072) (0.258) (0.358) (0.420) (0.440) (0.050)
Capital Gains.................. -- (1.776) (1.083) (0.660) (0.420) --
Net Asset Value, End of Period... $ 17.90 $ 17.95 $ 18.24 $ 14.29 $ 13.03 $ 11.92
======= ======= ======= ======= ======= =======
Total** Return................... 13.10% 10.50% 39.97% 18.21% 17.52% 4.23%(3)
Net assets, end of period
(000)........................ $ 1,816 $23,024 $14,152 $10,143 $ 3,881 $ 24
Ratio of expenses to average
net assets................... 1.82%* 1.17% 1.06% 1.03% 1.06% 1.10%*
Ratio of expenses to average
net assets excluding fee
waivers...................... 1.85%* 1.34% 1.46% 1.51% 1.55% 1.33%*
Ratio of net investment income
to average net assets........ 0.38%* 1.39% 2.32% 2.89% 3.06% 0.93%*
Ratio of net investment income
to average net assets
excluding fee waivers........ 0.36%* 1.22% 1.92% 2.41% 2.57% 0.71%*
Portfolio turnover rate.......... 69% 69% 46% 42% 37% 34%
</TABLE>
- ---------------
<TABLE>
<C> <S>
Amounts designated as "--" are either $0 or have been rounded to
$0.
* Annualized.
** Total return does not reflect the sales charge.
(1) Commenced operations on February 2, 1998.
(2) Commenced operations on June 20, 1994.
(3) Represents total return for the Fiduciary Shares for the
period from August 1, 1993 to June 19, 1994 plus the total
return for the Investor Shares for the period from June 20,
1994 to July 31, 1994.
</TABLE>
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<PAGE> 108
FUND DESCRIPTION
HighMark Funds is an open-end, diversified, registered investment company that
currently offers units of beneficial interest ("Shares") in seventeen separate
investment portfolios ("Funds"). All of the Funds are advised by HighMark
Capital Management, Inc. (the "Advisor"), a subsidiary of UnionBanCal
Corporation. Shareholders may purchase Shares of selected Funds 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 Funds'
other Funds and other classes is contained in separate prospectuses that may be
obtained from HighMark Funds' Distributor, SEI Investments Distribution Co., at
Oaks, Pennsylvania 19456, or by calling 1-800-433-6884.
For information concerning those investors who qualify to purchase Retail
Shares, sales charges and the operation of HighMark Funds' Distribution Plan,
see HOW TO PURCHASE SHARES and SERVICE ARRANGEMENTS--Administrator &
Distributor--The Distribution Plan below. (Retail Shares may be hereinafter
referred to as "Shares.")
INVESTMENT OBJECTIVES
The investment objectives of the Funds are as follows:
The INCOME EQUITY FUND seeks investments in equity securities that provide
current income through the regular payment of dividends, with the goal that the
Income Equity Fund will have a high current yield and a low level of price
volatility. Opportunity for long-term growth of asset value is a secondary
consideration.
The VALUE MOMENTUM FUND seeks long-term capital growth with a secondary
objective of income.
The GROWTH FUND seeks long-term capital appreciation through investments in
equity securities. The production of current income is an incidental objective.
The EMERGING GROWTH FUND seeks long-term growth of capital by investing in a
diversified portfolio of equity securities of small capitalization, emerging
growth companies.
The SMALL CAP VALUE FUND seeks to provide long-term capital appreciation.
The INTERMEDIATE-TERM BOND FUND seeks total return through investments in
fixed-income securities.
The BOND FUND seeks current income through investments in long-term,
fixed-income securities.
The BALANCED FUND seeks capital appreciation and income. Conservation of
capital is a secondary consideration.
The CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND seeks to provide high current
income that is exempt from federal and State of California income taxes.
The investment objectives and certain of the investment limitations of the
Funds may not be changed without a vote of the holders of a majority of the
outstanding Shares of the respective Fund (as defined under
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<PAGE> 109
GENERAL INFORMATION--Miscellaneous below). There can be no assurance that a Fund
will achieve its investment objective.
INVESTMENT POLICIES
Income Equity Fund
Under normal market conditions, the Income Equity Fund will invest at least
65% of its total assets in equity securities, including common stocks, warrants
to purchase common stocks, American Depositary Receipts ("ADRs"), preferred
stocks and securities (including debt securities) convertible into or
exercisable for common stocks. The Income Equity Fund's investments primarily
consist of the common stocks of U.S. corporations that regularly pay dividends,
although there can be no assurance that a corporation will continue to pay
dividends. Investments will be made in an attempt to keep the Income Equity
Fund's yield above the S&P 500's yield by approximately one-third to one-half
the difference between the S&P 500's yield and the yield on long-term U.S.
Government bonds.
The Income Equity Fund generally invests in stocks with favorable, long-term
fundamental characteristics when their current relative yields are at the upper
end of their historical yield ranges. Frequently, these stocks are out of favor
in the financial community and in which investors see little opportunity for
price appreciation. The Fund may also invest in major U.S. corporations in a
mature stage of development or operating in slower areas of the economy. While
it is anticipated that a significant part of the total growth in asset value
experienced by the Income Equity Fund will result from companies' improving
prospects (although there can be no assurance that this will in fact occur),
dividends will provide a substantial portion of the Fund's total return. When
yields on stocks held by the Income Equity Fund drop to the lower end of their
historical ranges, the Fund may begin to reduce its holdings. Similarly, if
there is a significant fundamental change that impairs a company's ability to
pay dividends, or if the yield on a stock dips below the yield of the general
market, the Income Equity Fund may eliminate its holdings in these stocks.
Value Momentum Fund
Under normal market conditions, the Value Momentum Fund will invest at least
65% of its total assets in equity securities, including common stocks, warrants
to purchase common stocks, ADRs, preferred stocks and securities (including debt
securities) convertible into or exercisable for common stocks. The Value
Momentum Fund will be invested primarily in securities which the Advisor
believes to be undervalued relative to the market and to the security's historic
valuation. Stocks are then screened for positive price or earnings momentum.
Securities purchased will generally have a medium to high market capitalization.
A majority of the securities in which the Value Momentum Fund invests will be
dividend paying.
Growth Fund
Under normal market conditions, the Growth Fund will invest at least 65% of
its total assets in equity securities, including common stocks, warrants to
purchase common stocks, ADRs, preferred stocks and securities (including debt
securities) convertible into or exercisable for common stocks, of
growth-oriented
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<PAGE> 110
companies. The Growth Fund emphasizes a well diversified portfolio of medium to
large capitalization growth companies (capitalization in excess of $500 million)
with a record of above average growth in earnings. The Fund focuses on companies
that the Advisor believes to have enduring quality and above average earnings
growth. Among the criteria the Fund uses to screen for stock selection are
earnings growth, return on capital, brand identity, recurring revenues, price
and quality of management team.
Emerging Growth Fund
Under normal market conditions, the Emerging Growth Fund will invest at least
65% of its total assets in equity securities, including common stocks, warrants
to purchase common stocks, ADRs, preferred stocks and securities (including debt
securities) convertible into or exercisable for common stocks of small and
medium capitalization companies. Small and medium capitalization companies are
those with capitalization between $50 million and $1 billion and the potential
for growth or those which, in the Advisor's opinion, have potential for
above-average long-term capital appreciation. An emerging growth company is one
which, in the Advisor's judgment, is in the developing stages of its life cycle
and has demonstrated or is expected to achieve rapid growth in earnings and/or
revenues. Emerging growth companies are characterized by opportunities for rapid
growth rates and/or dynamic business changes. Emerging growth companies,
regardless of size, tend to offer the potential for accelerated earnings or
revenue growth because of new products or technologies, new channels of
distribution, revitalized management or industry conditions, or similar
opportunities. A company may or may not yet be profitable at the time the
Emerging Growth Fund invests in its securities. Current income will not be a
criterion of investment selection, and any such income should be considered
incidental. Many of the securities in which the Fund invests will not pay
dividends.
The Emerging Growth Fund may also invest in equity securities of companies in
"special equity situations," meaning companies experiencing unusual and possibly
non-repetitive developments, such as mergers; acquisitions; spin-offs;
liquidations; reorganizations; and new products, technology or management. Since
a special equity situation may involve a significant change from a company's
past experiences, the uncertainties in the appraisal of the future value of the
company's equity securities and the risk of a possible decline in the value of
the Emerging Growth Fund's investments are significant.
Small Cap Value Fund
Under normal market conditions, the Small Cap Value 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, ADRs, Global
Depositary Receipts ("GDRs"), other depositary receipts, preferred stocks and
securities (including debt securities) convertible into or exercisable for
common stocks. The Fund's investments primarily consist of the equity securities
of companies with equity capitalizations within the range of market
capitalization of issuers comprising the relevant market small capitalization
index. Currently the relevant market indexes used are the S&P 600 (domestically)
and the Financial Times/S&P Actuaries World Indices World Ex. U.S. Medium/Small
Cap (internationally).
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
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<PAGE> 111
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 Fund expects that it
will generally allocate approximately 25% of the Fund's total assets to foreign
securities. The Advisor will periodically review and reallocate the Fund's
assets in order to maintain such allocation. Such reallocation shall be
performed in the Advisor's discretion. 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.
Intermediate-Term Bond Fund
Under normal market conditions, at least 65% of the Intermediate-Term Bond
Fund's assets will be invested in bonds. For purposes of this policy "bonds"
include (i) corporate bonds and debentures rated at the time of purchase as
"investment grade" (one of the four highest bond rating categories by a
nationally recognized statistical rating organization ("NRSRO") or determined by
the Advisor to be of comparable quality; (ii) Yankee Bonds and Eurodollar
instruments; (iii) notes or bonds issued by the U.S. Government and its agencies
and instrumentalities (such as Government National Mortgage Association ("GNMA")
securities); (iv) mortgage-backed securities, including privately issued
mortgage-backed securities and readily-marketable asset-backed securities, which
must be rated at the time of purchase as investment grade, or be determined by
the Advisor to be of comparable quality; (v) securities issued or guaranteed by
foreign governments, their political subdivisions, agencies or
instrumentalities; (vi) obligations of supranational entities such as the World
Bank and the Asian Development Bank; and (vii) zero coupon obligations. In the
event that a security owned by the Fund is downgraded below the stated rating
categories, the Advisor will take appropriate action with regard to that
security. The remainder of the Fund's assets may be invested in money market
instruments.
The dollar-weighted average portfolio maturity of the Intermediate-Term Bond
Fund will be from three to ten years.
Bond Fund
The Bond Fund invests in fixed-income securities with maturities in excess of
one year, except for amounts held in money market instruments. Fixed-income
securities can have maturities of up to thirty years or more. Under normal
market conditions, the Bond Fund will invest at least 65% of the value of its
total assets in bonds and may invest up to 35% of its total assets in money
market instruments.
For purposes of this policy "bonds" include (i) corporate bonds and debentures
rated at the time of purchase as investment grade or determined by the Advisor
to be of comparable quality; (ii) Yankee Bonds and Eurodollar instruments; (iii)
notes or bonds issued by the U.S. Government and its agencies and
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<PAGE> 112
instrumentalities (such as GNMA securities); (iv) mortgage-backed securities,
including privately issued mortgage-backed securities and readily-marketable
asset-backed securities, which must be rated at the time of purchase as
investment grade, or be determined by the Advisor to be of comparable quality;
(v) securities issued or guaranteed by foreign governments, their political
subdivisions, agencies or instrumentalities; (vi) obligations of supranational
entities such as the World Bank and the Asian Development Bank; and (vii) zero
coupon obligations. In the event that a security owned by the Fund is downgraded
below the stated rating categories, the Advisor will take appropriate action
with regard to that security. The remainder of the Fund's assets may be invested
in money market instruments.
The dollar-weighted average portfolio maturity of the Bond Fund will be from
five to twenty years.
Balanced Fund
The Balanced Fund may invest in any type or class of security. Under normal
market conditions, the Balanced Fund will invest between 50% and 70% of its
total assets in equity securities. Senior fixed-income securities will normally
constitute at least 25% of the Balanced Fund's net assets.
Equity securities include common stocks, warrants to purchase common stocks,
ADRs, preferred stocks, securities (including debt securities) convertible into
or exercisable for common stocks and Standard & Poor's Depositary Receipts
("SPDRs"). The Balanced Fund's fixed-income investments consist of bonds,
debentures, notes, zero-coupon securities, all forms of mortgage-related
securities (including collateralized mortgage obligations), and obligations
issued or guaranteed by the U.S. or foreign Governments or their agencies or
instrumentalities. Privately issued mortgage-backed securities must be rated in
one of the top two categories by at least one NRSRO as defined below. In
addition to mortgage-backed securities, the Balanced Fund may invest in other
asset-backed securities including, but not limited to, those backed by company
receivables, truck and auto loans, leases, and credit card or other receivables.
The Balanced Fund may invest in bonds, notes and debentures of any maturity
issued by U.S. and foreign corporate and governmental issuers. The Balanced Fund
will invest only in corporate fixed-income securities that are rated at the time
of purchase as investment grade or, if unrated, which the Advisor deems to be
attractive opportunities and of comparable quality.
In the event that a security owned by the Fund is downgraded below the stated
rating categories, the Advisor will take appropriate action with regard to that
security.
The portions of the Balanced Fund's assets invested in equity securities and
fixed-income securities will vary from time to time within the stated ranges,
depending upon the Advisor's assessment of business, economic and market
conditions. The Advisor considers a combination of risk, capital appreciation,
income, and protection of capital value.
California Intermediate Tax-Free Bond Fund
Under normal market conditions, the Fund will invest primarily in bonds and
notes issued by the State of California, its agencies, instrumentalities, and
political sub-divisions, the income on which is exempt from regular federal and
State of California personal income taxes ("California Municipal Securities").
The Fund
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<PAGE> 113
may also invest in bonds and notes of other states, territories, and possessions
of the U.S. and their agencies, authorities, instrumentalities and political
sub-divisions which are exempt from federal income taxes, and in shares of other
investment companies, specifically money market funds, which have similar
investment objectives.
Under normal market conditions, at least 80% of the Fund's assets will be
invested in bonds and notes rated investment grade by a nationally recognized
rating agency or are deemed by the Advisor to be of comparable quality at the
time of purchase and which pay interest that is not treated as a preference item
for purposes of the federal alternative minimum tax. In the event that a
security owned by the Fund is downgraded below the stated ratings categories,
the Advisor will take appropriate action with regard to the security.
Under California law, a mutual fund must qualify as a regulated investment
company and have at least 50% of its total assets invested in California
Municipal Securities at the end of each quarter of its taxable year in order to
be eligible to pay California residents dividends that are wholly or partially
exempt from California personal income taxes. Accordingly, the Fund intends to
maintain at least 65% of its assets in California Municipal Securities and may
invest up to 100% of its assets in such securities.
The Fund has no restrictions on the maturity of municipal securities in which
it may invest. Under normal market conditions, the dollar-weighted average
portfolio maturity of the Fund is expected to be from three to ten years.
Accordingly, the Fund seeks to invest in municipal securities of such maturities
which, in the judgment of the Advisor, will provide a high level of current
income consistent with prudent investment, with consideration given to market
conditions.
GENERAL
Money Market Instruments
Under normal market conditions, each Equity Fund, other than the Balanced
Fund, and Fixed Income Fund may invest up to 35% of its total assets in money
market instruments. The Balanced Fund may invest up to 25% of its total assets
in money market instruments. When market conditions indicate a temporary
"defensive" investment strategy as determined by the Advisor, an Equity Fund,
other than the Balanced Fund, or Fixed Income Fund, other than the California
Intermediate Tax-Free Bond Fund, may invest more than 35% of its total assets in
money market instruments, the Balanced Fund may invest more than 25% of its
total assets in money market instruments, and the California Intermediate
Tax-Free Bond Fund may invest more than 20% of its total assets in municipal
obligations of other states or taxable money market instruments including
repurchase agreements. A Fund will not be pursuing its investment objective to
the extent that a substantial portion of its assets are invested in money market
instruments (or taxable money market instruments for the California Intermediate
Tax-Free Bond Fund).
Illiquid and Restricted Securities
Each Fund shall limit investment in illiquid securities to 15% or less of its
net assets. Generally, an "illiquid security" is any security that cannot be
disposed of promptly and in the ordinary course of business at
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<PAGE> 114
approximately the amount at which the Fund has valued the instrument. The
absence of a trading market can make it difficult to ascertain the market value
of illiquid securities. Each Fund may purchase restricted securities which have
not been registered under the Securities Act of 1933 (e.g., Rule 144A Securities
and Section 4(2) commercial paper) subject to policies approved by the Board of
Trustees. See INVESTMENT RESTRICTIONS in the Statement of Additional
Information.
California Municipal Securities
The two principal classifications of California Municipal Securities are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith, credit, and taxing power for the
payment of principal and interest. Revenue bonds are payable primarily from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source. Private activity bonds (formerly known as industrial revenue bonds) are
generally revenue bonds.
Certain California Municipal Securities are municipal lease revenue
obligations (or certificates of participation or "COPs"), which typically
provide that the municipality has no obligation to make lease or installment
payments in future years unless money is appropriated for such purpose. While
the risk of non-appropriation is inherent to COP financing, this risk is
mitigated by the Fund's policy to invest in COPs that are rated in one of the
four highest rating categories used by Moody's Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P").
California Municipal Securities also include so-called Mello-Roos and
assessment district bonds, which are usually unrated instruments issued to
finance the building of roads and other public works and projects that are
primarily secured by real estate taxes levied on property located in the local
community. Most of these bonds do not seek agency ratings because the issues are
too small, and in most cases, the purchase of these bonds is based upon the
Advisor's determination that it is suitable for the Fund.
Certain of the obligations in which the Fund may invest may be variable or
floating rate instruments and may involve a conditional or unconditional demand
feature.
Lending of Portfolio Securities
In order to generate additional income, a Fund may lend its portfolio
securities to broker-dealers, banks or other institutions. A Fund may lend
portfolio securities in an amount representing up to 33 1/3% of the value of the
Fund's total assets.
Other Investments
The Funds may enter into repurchase agreements and reverse repurchase
agreements.
The Funds may enter into forward commitments or purchase securities on a
"when-issued" basis. Each Fund expects that commitments by a Fund to enter into
forward commitments or purchase when-issued securities will not exceed 25% of
the value of the Fund's total assets under normal market conditions. The
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<PAGE> 115
Funds do not intend to purchase when-issued securities or forward commitments
for speculative or leveraging purposes but only for the purpose of acquiring
portfolio securities.
The Funds, other than the California Intermediate Tax-Free Bond Fund, may also
invest in money market instruments, money market funds, and cash.
Each Fund may invest in other registered investment companies with similar
investment objectives. A Fund may invest up to 5% of its total assets in the
shares of any one registered investment company, but may not own more than 3% of
the securities of any one registered investment company or invest more than 10%
of its assets in the securities of other registered investment companies. In
accordance with an exemptive order issued to HighMark Funds by the Securities
and Exchange Commission, such other registered investment company securities may
include shares of a money market fund of HighMark Funds, and may include
registered investment companies for which the Advisor or Sub-Advisor to a Fund
of HighMark Funds, or an affiliate of such Advisor or Sub-Advisor, serves as
investment advisor, administrator or distributor.
Because other registered investment companies employ an investment advisor,
such investment by a Fund may cause Shareholders to bear duplicative fees. The
Advisor will waive its fees attributable to the assets of the investing Fund
invested in a money market fund of HighMark Funds, and, to the extent required
by applicable law, the Advisor will waive its fees attributable to the assets of
the Fund invested in any investment company. Some Funds are subject to
additional restrictions on investment in other investment companies. See
"INVESTMENT RESTRICTIONS" in the Statement of Additional Information.
Each Equity Fund may write covered calls on its equity securities and enter
into closing transactions with respect to covered call options. The Balanced
Fund may also buy and sell options, futures contracts and options on futures. An
Equity Fund's assets may be invested in options, futures contracts and options
on futures, SPDRs, and investment grade bonds. The aggregate value of options on
securities (long puts and calls) will not exceed 10% of an Equity Fund's net
assets at the time such options are purchased by the Fund. An Equity Fund may
enter into futures and options on futures only to the extent that obligations
under such contracts or transactions, together with options on securities,
represent not more than 25% of the Fund's assets. Each of these Funds 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 these Funds invest
(including foreign securities in the form of ADRs but not including Rule 144A
Securities) are traded on registered exchanges or in the over-the-counter
market.
The Fixed Income Funds may invest in futures and options on futures for the
purpose of achieving the Fund's objectives and for adjusting portfolio duration.
These Funds may invest in futures and related options based on any type of
security or index traded on U.S. or foreign exchanges or over the counter, as
long as the underlying security, or securities represented by an index, are
permitted investments of the Fund. These Funds may enter into futures contracts
and related options only to the extent that obligations under such contracts or
transactions represent not more than 10% of the Fund's assets.
Certain of the obligations in which the Fixed Income Funds, except the
California Intermediate Tax-Free Bond Fund, may invest may be variable or
floating rate instruments, may involve a conditional or unconditional demand
feature, and may include variable amount master demand notes.
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<PAGE> 116
For further information, see "DESCRIPTION OF PERMITTED INVESTMENTS."
Risk Factors
To the extent a Fund invests in equity securities, that 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.
In addition to credit risk which relates to the ability of an issuer to make
payments of principal and interest, all types of bonds are also subject to
market risk. Market risk relates to changes in a security's value as a result of
interest rate changes generally. An increase in interest rates will generally
reduce the value of the fixed income investments in the Funds and a decline in
interest rates will generally increase the value of those investments.
Accordingly, the net asset value of the Fund's shares will vary as a result of
changes in the value of the securities in a Fund's portfolio. Therefore, an
investment in the Funds may decline in value, resulting in a loss of principal.
Because interest rates vary, it is impossible to predict the income or yield of
the Fund for any particular period. Changes in the value of a Fund's
fixed-income securities will not affect cash income received from ownership of
such securities, but will affect a Fund's net asset value.
As described above, the Funds may invest in debt securities within the four
highest rating categories assigned by a NRSRO and comparable unrated securities.
Securities rated BBB by S&P or Baa by Moody's are considered investment grade,
but are deemed by these rating services to have some speculative
characteristics, and adverse economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case with higher-grade bonds. Should subsequent events cause the
rating of a debt security purchased by a Fund to fall below the fourth highest
rating category, the Advisor will consider such an event in determining whether
the Balanced Fund should continue to hold that security. In no event, however,
would a Fund be required to liquidate any such portfolio security where the Fund
would suffer a loss on the sale of such security.
While debt securities normally fluctuate less in price than equity securities,
there have been extended periods of cyclical increases in interest rates that
have caused significant declines in debt securities prices. Certain fixed-income
securities which may be purchased by the Balanced Fund such as zero-coupon
obligations, mortgage-backed and asset-backed securities, and collateralized
mortgage obligations ("CMOs") will have greater price volatility than other
fixed-income obligations. Because declining interest rates may lead to
prepayment of underlying mortgages, automobile sales contracts or credit card
receivables, the prices of mortgage-related and asset-backed securities may not
rise with a decline in interest rates. Mortgage-backed and asset-backed
securities and CMOs are extremely sensitive to the rate of principal prepayment.
Similarly, callable corporate bonds also present risk of prepayment. During
periods of falling interest rates, securities that
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can be called or prepaid may decline in value relative to similar securities
that are not subject to call or prepayment.
Depending upon prevailing market conditions, a Fund may purchase debt
securities at a discount from face value, which produces a yield greater than
the coupon rate. Conversely, if debt securities are purchased at premium over
face value, the yield will be lower than the coupon rate. In making investment
decisions, the Advisor will consider many factors other than current yield,
including the preservation of capital, the potential for realizing capital
appreciation, maturity, and yield to maturity.
From time to time, the equity and debt markets may fluctuate independently of
one another. In other words, a decline in equity markets may in certain
instances be offset by a rise in debt markets, or vice versa. As a result, the
Balanced Fund, with its balance of equity and debt investments, may entail less
investment risk (and a potentially smaller investment return) than a mutual fund
investing primarily in equity securities.
The Balanced Fund, the Small Cap Value Fund and each of the Fixed Income
Funds, except the California Intermediate Tax-Free Bond Fund, may invest in
securities issued or guaranteed by foreign corporations or foreign governments,
their political subdivisions, agencies or instrumentalities and obligations of
supranational entities such as the World Bank and the Asian Development Bank.
Any investments in these securities will be in accordance with a Fund's
investment objective and policies, and are subject to special risks, such as
adverse political and economic developments, possible seizure, nationalization
or expropriation of foreign investments, less stringent disclosure requirements,
changes in foreign currency exchange rates, increased costs associated with the
conversion of foreign currency into U.S. dollars, the possible establishment of
exchange controls or taxation at the source or the adoption of other foreign
governmental restrictions. To the extent that a Fund may invest in securities of
foreign issuers that are not traded on any exchange, there is a further risk
that these securities may not be readily marketable. The Fixed Income Funds and
the Balanced Fund will not hold foreign currency for investment purposes. The
Small Cap Value Fund will not hold foreign currency for investment or hedging
purposes.
On January 1, 1999, the European Monetary Market Union ("EMU") plans to
introduce a new single currency, the euro, which will replace the national
currency for participating member countries. Those countries are Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal and Spain. A new European Central Bank ("ECB") will be created to
manage the monetary policy of the new unified region. On the same day, exchange
rates will be irrevocably fixed between the EMU member countries. National
currencies will continue to circulate until they are replaced by coins and banks
notes by the middle of 2002.
The planned introduction of the euro presents some uncertainties and possible
risks, including whether the payment and operational systems of banks and other
financial institutions will be ready by January 1, 1999; whether exchange rates
for existing currencies and the euro will be adequately established; and whether
suitable clearing and settlement systems for the euro will be in operation.
These and other factors may cause market disruptions before or after January 1,
1999 and could adversely affect the value of certain foreign securities held by
a Fund.
Currency risk is one of the factors considered by the Small Cap Value Fund's
Sub-Advisor in determining the portion of the Small Cap Value Fund's assets to
be invested in the securities of an issuer. However, the
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<PAGE> 118
Sub-Advisor will not employ currency hedging in the Fund. 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.
The Small Cap Value Fund may invest in the securities of emerging market
issuers. 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.
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 Funds will not purchase any convertible debt security or
convertible preferred stock unless it has been rated as investment grade at the
time of acquisition by a NRSRO or that is not rated but is determined to be of
comparable quality by the Advisor.
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<PAGE> 119
Given the uncertainty of the future value of emerging growth companies and
companies in special equity situations, the risk of possible decline in value of
the Emerging Growth Fund's net assets are significant. Companies in which the
Emerging Growth Fund invests may offer greater opportunities for capital
appreciation than larger more established companies, but investment in such
companies may involve certain special risks. These risks may be due to the
greater business risks of small size, limited markets and financial resources,
narrow product lines and frequent lack of depth in management. The securities of
such companies are often traded in the over-the-counter market and may not be
traded in volumes typical on a national securities exchange. Thus, the
securities of emerging growth companies may be less liquid, and subject to more
abrupt or erratic market movements than securities of larger, more established
growth companies. Since a "special equity situation" may involve a significant
change from a company's past experiences, the uncertainties in the appraisal of
the future value of the company's equity securities and the risk of a possible
decline in the value of the Fund's investments are significant.
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 may be exercised, but only the right to buy such securities at a
particular price. The Funds will not purchase any convertible debt security or
convertible preferred stock unless it has been rated as investment grade at the
time of acquisition by a NRSRO or that is not rated but is determined to be of
comparable quality by the Advisor.
The ability of the State of California and its political sub-divisions to
generate revenue through real property and other taxes and to increase spending
has been significantly restricted by various constitutional and statutory
amendments and voter-passed initiatives. Such limitations could affect the
ability of California state and municipal issuers to pay interest or repay
principal on their obligations. In addition, during the first half of the
decade, California faced severe economic and fiscal conditions and experienced
recurring budget deficits that caused it to deplete its available cash resources
and to become increasingly dependent upon external borrowings to meet its cash
needs.
The financial difficulties experienced by the State of California and
municipal issuers during the recession resulted in the credit ratings of certain
of their obligations being downgraded significantly by the major rating
agencies.
Risks Associated with Securities of Small Companies
Given the uncertainty of the future value of companies the Small Cap Value
Fund and the Emerging Growth Fund invest in, the risk of possible decline in
value of the Funds' net assets are significant. Companies in which the Funds
invest may offer greater opportunities for capital appreciation than larger,
more established
30
<PAGE> 120
companies, but investment in such companies may involve certain special risks.
These risks may be due to the greater business risks of small size, limited
markets and financial resources, narrow product lines and frequent lack of depth
in management. The securities of such companies are often traded in the
over-the-counter market and may not be traded in volumes typical on a national
securities exchange. Thus, the securities of such companies may be less liquid,
and subject to more abrupt or erratic market movements than securities of
larger, more established growth companies. Since a "special equity situation"
may involve a significant change from a company's past experiences, the
uncertainties in the appraisal of the future value of the company's equity
securities and the risk of a possible decline in the value of the Funds'
investments are significant.
Year 2000
HighMark Funds depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other mutual funds, businesses and
individuals around the world, HighMark Funds could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. HighMark Funds has made inquiry of its service providers to determine
whether they expect to have their computer systems adjusted for the year 2000
transition, and is seeking assurances from each service provider that it expects
its system to accommodate the year 2000 transition without material adverse
consequences to HighMark Funds. While it is likely that such assurances will be
obtained, HighMark Funds and its shareholders may experience losses if these
assurances prove to be incorrect or as a result of year 2000 computer
difficulties experienced by issuers of portfolio securities or custodians,
banks, broker-dealers or others with which HighMark Funds does business.
PORTFOLIO TURNOVER
A Fund's portfolio turnover rate will not be a factor preventing a sale or
purchase when the Advisor believes investment considerations warrant. The Fixed
Income Funds will not purchase securities solely for the purpose of short-term
trading. Each of the Funds' portfolio turnover rate may vary greatly from year
to year as well as within a particular year. High portfolio turnover rates
generally will result in correspondingly higher brokerage and other transactions
costs to the Funds and could involve the realization of capital gains that would
be taxable when distributed to Shareholders of the relevant Fund. See FEDERAL
TAXATION.
HOW TO PURCHASE SHARES
The Income Equity, Value Momentum, Growth, Small Cap Value and Balanced Funds
are divided into three classes of Shares, Class A, Class B and Fiduciary. The
Emerging Growth, Intermediate-Term Bond, Bond and California Intermediate
Tax-Free Bond Funds are divided into two classes of Shares, Class A and
Fiduciary. Class A Shares may be purchased at net asset value plus a sales
charge. Class B Shares may be purchased at net asset value without an initial
sales charge, but are subject to a contingent deferred sales charge if they are
redeemed within six years after purchase. For a description of investors who
qualify to purchase Fiduciary Shares, see the Fiduciary Shares prospectus of the
Funds. HighMark Funds' 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 Funds' Fiduciary Shares.
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<PAGE> 121
Retail Shares are sold on a continuous basis by HighMark Funds' 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 Funds at 1-800-433-6884. Investors
may be charged a fee if they effect transactions in fund shares through a broker
or agent. Accounts opened directly with HighMark Funds' transfer agent are "Fund
Direct" accounts.
The minimum initial investment is generally $1,000 for each Fund and the
minimum subsequent investment is generally only $100. For present and retired
trustees of the Funds and 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. A Fund's initial and subsequent
minimum purchase amounts may be waived if purchases are made in connection with
Individual Retirement Accounts, Keoghs, payroll deduction plans, or 401(k) or
similar plans. Purchases and redemption of Shares of the Funds may be made on
days on which 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 a Fund is determined by dividing the total market value of
the Fund's investments and other assets, less any liabilities, by the total
number of outstanding Shares of the Fund. Net asset value per Share is
determined daily as of 1:00 p.m., Pacific time (4:00 p.m. Eastern time), on any
Business Day. Purchases will be made in full and fractional Shares of HighMark
Funds calculated to three decimal places. HighMark Funds 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 Funds and/or its Shareholders to accept
such order.
The securities in each Fund will be valued at market value. If market
quotations are not available, the securities will be valued by a method that
HighMark Funds' 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
Funds, see the Statement of Additional Information.
Shares of the Funds are offered only to residents of states in which the
Shares are eligible for purchase.
How to Purchase By Mail
You may purchase Shares of the Funds by completing and signing an Account
Application form and mailing it, along with a check (or other negotiable bank
instrument or money order) payable to "HighMark Funds," 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." 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
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<PAGE> 122
the transfer agent at the above address. Orders placed by mail will be executed
on receipt of your payment. If your check does not clear, your purchase will be
canceled and you could be liable for any losses or fees incurred.
You may obtain Account Application Forms for the Funds by calling the
Distributor at 1-800-433-6884.
How to Purchase By Wire
You may purchase Shares of the Funds by wiring Federal funds, provided that
your Account Application has been previously received. You must wire funds to
the transfer agent and the wire instructions must include your account number.
You must call the transfer agent at 1-800-433-6884 before wiring any funds. An
order to purchase Shares by Federal funds wire will be deemed to have been
received by a Fund on the Business Day of the wire; provided that the
Shareholder wires funds to the transfer agent prior to 1:00 p.m., Pacific time
(4:00 p.m., Eastern time). If the transfer agent does not receive the wire by
1:00 p.m., Pacific time (4:00 p.m., Eastern time), the order will be executed on
the next Business Day.
How to Purchase Through an Automatic Investment Plan ("AIP")
You may arrange for periodic additional investments in the Funds through
automatic deductions by Automated Clearing House ("ACH") from a checking account
by completing this section in the Account Application form. The minimum
pre-authorized investment amount is $100 per month per Fund. For present and
retired trustees of the Funds and 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 per Fund. The AIP is available only for
additional investments to an existing account.
How to Purchase Through Financial Institutions
Shares of the Funds may be purchased through financial institutions, including
the Advisor, that provide distribution assistance or Shareholder services.
Shares purchased by persons ("Customers") through financial institutions may be
held of record by the financial institution. Financial institutions may impose
an earlier cut-off time for receipt of purchase orders directed through them to
allow for processing and transmittal of these orders to the transfer agent for
effectiveness the same day. Customers should contact their financial institution
for information as to that institution's procedures for transmitting purchase,
exchange or redemption orders to HighMark Funds.
Customers who desire to transfer the registration of Shares beneficially owned
by them but held of record by a financial institution should contact the
institution to accomplish such change.
Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer account fees. Information concerning these
services and any charges will be provided to the Customer by the financial
institution.
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<PAGE> 123
ALTERNATIVE SALES CHARGE OPTIONS
Overview
You may purchase shares of the Funds at a price equal to their net asset value
per share plus a sales charge which, at your election, may be imposed either (i)
at the time of the purchase (Class A "initial sales charge alternative"), or
(ii) on a contingent deferred basis (the Class B "deferred sales charge
alternative"). Each class represents a Fund's interest in a portfolio of
investments. The classes have the same rights and are identical in all respects
except that (i) Class B shares bear the expenses of the deferred sales
arrangement and distribution and service fees resulting from such sales
arrangement, (ii) each class has exclusive voting rights with respect to
approvals of any Rule 12b-1 distribution plan related to that specific class
(although Class B shareholders may vote on any distribution fees imposed on
Class A shares so long as Class B shares convert into Class A shares), (iii)
only Class B shares carry a conversion feature and (iv) each class has different
exchange privileges. See "Exchange Privileges." Sales personnel of
broker-dealers distributing the Funds' shares, and other persons entitled to
receive compensation for selling such shares, may receive differing compensation
for selling Class A or Class B shares.
The alternative purchase arrangement permits you to choose the method of
purchasing shares that is more beneficial to you. The amount of your purchase,
the length of time you expect to hold the shares, and whether you wish to
receive dividends in cash or in additional shares will all be factors in
determining which sales charge option is best for you. You should consider
whether, over the time you expect to maintain your investment, the accumulated
distribution and service fees and contingent deferred sales charges on Class B
shares prior to conversion would be less than the initial sales charge on Class
A shares, and to what extent such differential would be offset by the expected
higher yield of Class A shares. Class A shares will normally be more beneficial
to you if you qualify for reduced sales charges as described below.
The Trustees of HighMark Funds 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 Funds, pursuant to their fiduciary duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), and state laws,
will seek to ensure that no such conflict arises.
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<PAGE> 124
Class A Shares: Front-End Sales Charge
The following table shows the regular sales charge on Class A Shares to a
"single purchaser" (defined below) together with the dealer discount paid to
dealers and the agency commission paid to brokers (collectively the
"commission"):
EQUITY FUNDS
<TABLE>
<CAPTION>
SALES CHARGE AS
SALES CHARGE AS A APPROPRIATE COMMISSION AS
PERCENTAGE OF PERCENTAGE OF NET PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------ ----------------- ----------------- --------------
<S> <C> <C> <C>
0 -- $49,999.................................. 4.50% 4.71% 4.05%
$50,000 -- $99,999............................ 4.00% 4.17% 3.60%
$100,000 -- $249,999.......................... 3.50% 3.63% 3.15%
$250,000 -- $499,999.......................... 2.50% 2.56% 2.25%
$500,000 -- $999,999.......................... 1.50% 1.52% 1.35%
$1,000,000 and Over*.......................... 0.00% 0.00% 0.00%
</TABLE>
- ---------------
* A contingent deferred sales charge of 1.00% will be assessed against any
proceeds of any redemption of such Class A Shares prior to one year from date
of purchase.
FIXED INCOME FUNDS
<TABLE>
<CAPTION>
SALES CHARGE AS
SALES CHARGE AS A APPROPRIATE COMMISSION AS
PERCENTAGE OF PERCENTAGE OF NET PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------ ----------------- ----------------- --------------
<S> <C> <C> <C>
0 -- $24,999.................................. 3.00% 3.09% 2.70%
$25,000 -- $49,000............................ 2.50% 2.56% 2.25%
$50,000 -- $99,000............................ 2.00% 2.04% 1.80%
$100,000 -- $249,999.......................... 1.50% 1.52% 1.35%
$250,000 -- $999,999.......................... 1.00% 1.01% 0.90%
$1,000,000 and Over........................... 0.00%* 0.00% 0.00%
</TABLE>
- ---------------
* A contingent deferred sales charge of 1.00% will be assessed against any
proceeds of any redemption of such Retail Shares prior to one year from date
of purchase.
The commissions shown in the table apply to sales through authorized dealers
and brokers. Under certain circumstances, the Distributor may use its own funds
to compensate financial institutions and intermediaries in amounts that are
additional to the commissions shown above. In addition, the Distributor may,
from time to time and at its own expense, provide promotional incentives in the
form of cash or other compensation to certain financial institutions and
intermediaries whose registered representatives have sold or are expected to
35
<PAGE> 125
sell significant amounts of the Class A Shares of a Fund. Such other
compensation may take the form of payments for travel expenses, including
lodging, incurred in connection with trips taken by qualifying registered
representatives to places within or without the United States. Under certain
circumstances, commissions up to the amount of the entire sales charge may be
reallowed to dealers or brokers, who might then be deemed to be "underwriters"
under the Securities Act of 1933. Commission rates may vary among the Funds.
In calculating the sales charge rates applicable to current purchases of a
Fund's Class A Shares, a "single purchaser" is entitled to cumulate current
purchases with the net purchase of previously purchased Class A Shares of a Fund
and other funds of HighMark Funds (the "Eligible Funds") which are sold subject
to a comparable sales charge.
The term "single purchaser" refers to (i) an individual, (ii) an individual
and spouse purchasing Shares of a Fund for their own account or for trust or
custodial accounts for their minor children, or (iii) a fiduciary purchasing for
any one trust, estate or fiduciary account including employee benefit plans
created under Sections 401, 403(b) or 457 of the Internal Revenue Code of 1986,
as amended (the "Code"), including related plans of the same employer. To be
entitled to a reduced sales charge based upon Class A Shares already owned, the
investor must ask the Distributor for such entitlement at the time of purchase
and provide the account number(s) of the investor, the investor and spouse, and
their minor children, and give the age of such children. A Fund may amend or
terminate this right of accumulation at any time as to subsequent purchases.
Letter of Intent
By initially investing at least $1,000 and submitting a Letter of Intent (the
"Letter") to the Distributor, a "single purchaser" may purchase Class A Shares
of a Fund and the other Eligible Funds during a 13-month period at the reduced
sales charge rates applicable to the aggregate amount of the intended purchases
stated in the Letter. The Letter may apply to purchases made up to 90 days
before the date of the Letter. To receive credit for such prior purchases and
later purchases benefitting from the Letter, the Shareholder must notify the
transfer agent at the time the Letter is submitted that there are prior
purchases that may apply, and, at the time of later purchases, notify the
transfer agent that such purchases are applicable under the Letter.
Rights of Accumulation
In calculating the sales charge rates applicable to current purchases of Class
A Shares, a "single purchaser" is entitled to cumulate current purchases with
the current market value of previously purchased Class A Shares of the Funds
sold subject to a comparable sales charge.
To exercise your right of accumulation based upon Shares you already own, you
must ask the Distributor for this reduced sales charge at the time of your
additional purchase and provide the account number(s) of the investor, as
applicable, the investor and spouse, and their minor children. The Funds may
amend or terminate this right of accumulation at any time as to subsequent
purchases.
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<PAGE> 126
Front-End Sales Charge Waivers
The following categories of investors may purchase Class A Shares of the Funds
with no sales charge in the manner described below (which may be changed or
eliminated at any time by the Distributor):
(1) Existing holders of Class A Shares of a Fund upon the reinvestment
of dividend and capital gain distributions on those Shares;
(2) Investment companies advised by HighMark Capital Management, Inc.,
Union Bank of California, N.A. or their affiliates, or distributed by SEI
Investments Distribution Co. or their 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 administered
by or for which the Bank serves as trustee or custodian. All subsequent
purchases into the Funds made by such individuals will be subject to the
appropriate sales charge;
(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. Satisfactory evidence of
the purchaser's eligibility must be provided at the time of purchase (e.g.,
a confirmation of the redemption);
(9) Brokers, dealers and agents who are purchasing for their own
account and who have a sales agreement with the Distributor, and their
employees (and their spouses and children under the age of 21);
(10) Investors purchasing Class A Shares on behalf of a qualified
prototype retirement plan (other than an IRA, SEP-IRA or Keogh) sponsored
by Union Bank of California or any other parties;
(11) Purchasers of Class A Shares of the Growth Fund that are sponsors
of other investment companies that are unit investment trusts for deposit
by such sponsors into such unit investment trusts,
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<PAGE> 127
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 trustees of the Funds and directors,
officers, and employees (and their spouses and children under the age of
21) of Union Bank of California, SEI Investments Distribution Co. 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 Funds is a party.
(14) Investors who purchased Class A Shares without the assistance of
an investment professional (Fund Direct accounts) between May 15, 1998 and
August 31, 1998. All subsequent purchases of Class A Shares may be made
with no sales charge.
With regard to categories 2 through 12 and 14 above, the Distributor must be
notified that the purchase qualifies for a sales charge waiver at the time of
purchase.
Reductions for Qualified Groups
Reductions in sales charges also apply to purchases by individual members of a
"qualified group." The reductions are based on the aggregate dollar amount of
Class A Shares purchased by all members of the qualified group. For purposes of
this paragraph, a qualified group consists of a "company," as defined in the
1940 Act, which has been in existence for more than six months and which has a
primary purpose other than acquiring Shares of a Fund at a reduced sales charge,
and the "related parties" of such company. For purposes of this paragraph, a
"related party" of a company is (i) any individual or other company who directly
or indirectly owns, controls or has the power to vote five percent or more of
the outstanding voting securities of such company; (ii) any other company of
which such company directly or indirectly owns, controls or has the power to
vote five percent or more of its outstanding voting securities; (iii) any other
company under common control with such company; (iv) any executive officer,
director or partner of such company or of a related party; and (v) any
partnership of which such company is a partner. Investors seeking to rely on
their membership in a qualified group to purchase Shares at a reduced sales load
must provide evidence satisfactory to the transfer agent of the existence of a
bona fide qualified group and their membership therein.
All orders from a qualified group will have to be placed through a single
source and identified at the time of purchase as originating from the same
qualified group, although such orders may be placed into more than one discrete
account that identifies HighMark Funds.
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
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<PAGE> 128
net asset value above the initial purchase price. In addition, no charge is
assessed on shares derived from reinvestment of dividends or capital gain
distributions.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGES
AS A PERCENTAGE OF DOLLAR AMOUNT
YEARS SINCE PURCHASE SUBJECT TO CHANGE
- -------------------- ---------------------------------
<S> <C>
First............................................ 5.00%
Second........................................... 4.00%
Third............................................ 3.00%
Fourth........................................... 3.00%
Fifth............................................ 2.00%
Sixth............................................ 1.00%
Seventh.......................................... None
Eighth........................................... None
</TABLE>
In determining whether a particular redemption is subject to a contingent
deferred sales charge, it is assumed that the redemption is first of any Class A
shares in the shareholder's Fund account, second of Class B shares held for over
six years or Class B shares acquired pursuant to reinvestment of dividends or
other distributions and third of Class B shares held longest during the six year
period. This method should result in the lowest possible sales charge.
The contingent deferred sales charge is waived on redemption of shares (i)
following the death or disability (as defined in the Code) of a shareholder, or
(ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70 1/2. A Shareholder, or his or her
representative, must notify the Transfer Agent prior to the time of redemption
if such circumstances exist and the shareholder is eligible for a waiver.
CONVERSION FEATURE. At the end of the period ending eight years after the
beginning of the month in which the shares were issued, Class B shares will
automatically convert to Class A shares and will no longer be subject to the
Class B distribution and service fees. Such conversion will be on the basis of
the relative net asset value of the two classes.
EXCHANGE PRIVILEGES
As indicated under GENERAL INFORMATION--Description of HighMark Funds & Its
Shares, certain Funds of HighMark Funds issue three classes of Shares (Class A
and Class B Shares (collectively, "Retail Shares") and Fiduciary Shares); as of
the date of this Prospectus, the Distribution Plan and distribution fee payable
thereunder are applicable only to such Fund's Retail Shares. A Shareholder's
eligibility to exchange into a particular class of Shares will be determined at
the time of the exchange. The Shareholder must supply, at the time of the
exchange, the necessary information to permit confirmation of qualification.
Each Fund's Class A or Class B Shares may be exchanged for Class A or Class B
Shares, respectively, of the various other Funds of HighMark Funds which the
Shareholder qualifies to purchase directly so long as the Shareholder maintains
the applicable minimum account balance in each Fund in which he or she owns
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Class A or Class B Shares and satisfies the minimum initial and subsequent
purchase amounts of the Fund into which the Shares are exchanged. Shareholders
may exchange their Class A Shares for Class A Shares of a Fund with the same or
lower sales charge on the basis of the relative net asset value of the Class A
Shares exchanged. Shareholders may exchange their Class A Shares for Class A
Shares of a Fund with a higher sales charge by paying the difference between the
two sales charges. Shareholders may also exchange Class A Shares of a Money
Market Fund for which no sales load was paid for Class A Shares of 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 Fund were acquired in a previous exchange
involving Class A Shares of a non-money market HighMark Fund, then such Class A
Shares of the Money Market Fund may be exchanged for Class A Shares of 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 a Fund, the Shareholder must notify HighMark Funds that a sales
charge was originally paid and provide sufficient information to permit
confirmation of qualification.
For purposes of calculating the Class B Shares' eight year conversion period
or contingent deferred sales charge payable upon redemption, the holding period
of Class B Shares of the "old" Fund and the holding period for Class B Shares of
the "new" Fund are aggregated.
Exchanges will be made on the basis of the relative net asset values of the
Shares exchanged plus any applicable sales charge. Exchanges are subject to the
terms and conditions stated herein and the terms and conditions stated in the
respective prospectuses of the Funds.
Certain entities (including Participating Organizations and Union Bank of
California and its affiliates), however, may charge customers a fee with respect
to exchanges made on the customer's behalf. Information about these charges, if
any, can be obtained by the entity effecting the exchange and this Prospectus
should be read in conjunction with that information.
A Shareholder wishing to exchange Shares in an Equity Fund may do so by
contacting the transfer agent at 1-800-433-6884. Exchanges will be effected on
any Business Day at the net asset value of the Funds involved in the exchange
next determined after the exchange request is received by the transfer agent.
An exchange is considered to be a sale of Shares for federal income tax
purposes on which a Shareholder may realize a capital gain or loss. Exchange
privileges may be exercised only in those states where Shares of such other
Funds of HighMark Funds may legally be sold. HighMark Funds may materially amend
or terminate the exchange privileges described herein upon sixty days' notice.
REDEMPTION OF SHARES
You may redeem your Shares of the Funds without charge on any Business Day.
There is presently a $15 charge for wiring redemption proceeds to a
Shareholder's designated account. Shares may be redeemed by mail, by telephone
or through a pre-arranged systematic withdrawal plan. Investors who own Shares
held by a financial institution should contact that institution for information
on how to redeem Shares.
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By Mail
A written request for redemption of Shares of the Funds must be received by
the transfer agent, P.O. Box 8416, Boston, Massachusetts 02266-8416 in order to
constitute a valid redemption request.
If the redemption request exceeds $5,000, or if the request directs the
proceeds to be sent or wired to an address different from that of record, the
transfer agent may require that the signature on the written redemption request
be guaranteed. You should be able to obtain a signature guarantee from a bank,
broker dealer, credit union, securities exchange or association, clearing agency
or savings association. Notaries public cannot guarantee signatures. The
signature guarantee requirement will be waived if all of the following
conditions apply: (1) the redemption is for not more than $5,000 worth of
Shares, (2) the redemption check is payable to the Shareholder(s) of record, and
(3) the redemption check is mailed to the Shareholder(s) at his or her address
of record.
Telephone Transactions
You may redeem your Shares of the Funds by calling the transfer agent at
1-800-433-6884. Under most circumstances, payments will be transmitted on the
next Business Day following receipt of a valid request for redemption. You may
have the proceeds mailed to your address or wired to a commercial bank account
previously designated on your Account Application.
There is no charge for having redemption proceeds mailed to you, but there is
a $15 charge for wiring redemption proceeds.
You may request a wire redemption for redemptions of Shares of the Funds in
excess of $500 by calling the transfer agent at 1-800-433-6884 who will deduct a
wire charge of $15 from the amount of the wire redemption. Shares cannot be
redeemed by Federal Reserve wire on Federal holidays restricting wire transfers.
Neither the transfer agent nor HighMark Funds 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 Funds 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 Funds offer a Systematic Withdrawal Plan ("SWP"), which you may use to
receive regular distributions from your account. Upon commencement of the SWP,
your account must have a current net asset value of $5,000 or more. You may
elect to receive automatic payments via check or ACH of $100 per Fund 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.
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To participate in the SWP, you must have your dividends automatically
reinvested. You should realize that if your automatic withdrawals exceed income
dividends, your invested principal in the account will be depleted. Thus,
depending on the frequency and amounts of the withdrawal payments and/or any
fluctuations in the net asset value per Share, your original investment could be
exhausted entirely. You may change or cancel the SWP at any time on written
notice to the transfer agent. The transfer agent may require that the signature
on the written notice be guaranteed.
It is generally not in your best interest to be participating in the SWP at
the same time that you are purchasing additional Shares if you have to pay a
sales load in connection with such purchases. The aggregate withdrawals of Class
B Shares in any year pursuant to the SWP will not be subject to the contingent
deferred sale charge in an amount up to 10% of the value of the account at the
time of the establishment of the SWP. Because automatic withdrawals of Class B
Shares in amounts greater than 10% of the initial value of the account will be
subject to the contingent deferred sales charge, it may not be in the best
interest of Class B Shareholders to participate in the SWP for such amounts.
Other Information Regarding Redemptions
Shareholders who desire to redeem Shares of HighMark Funds must place their
redemption orders prior to 1:00 p.m., Pacific time (4:00 p.m., Eastern time), on
any Business Day for the order to be accepted on that Business Day. The
redemption price is the net asset value of the Fund next determined after
receipt by the Distributor of the redemption order, reduced by any applicable
contingent deferred sales charge for Class B Shares. Payment on redemption will
be made as promptly as possible and, in any event, within seven calendar days
after the redemption order is received. The Funds reserve the right to make
payment on redemptions in securities rather than cash.
Payment to the Shareholders for Shares redeemed will be made within seven days
after the transfer agent receives the valid redemption request. At various
times, however, a Fund may be requested to redeem Shares for which it has not
yet received good payment; collection of payment may take ten or more days. In
such circumstances, the redemption request will be rejected by the Fund. Once a
Fund has received good payment for the Shares a Shareholder may submit another
request for redemption.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem your Shares at net asset value, less any applicable
contingent deferred sales charge, if your account in any Fund has a value of
less than the minimum initial purchase amount. Accordingly, if you purchase
Shares of any Fund in only the minimum investment amount, you may be subject to
involuntary redemption if you redeem any Shares. Before any Fund exercises its
right to redeem such Shares you will be given notice that the value of the
Shares in your account is less than the minimum amount and will be allowed 60
days to make an additional investment in such Fund in an amount which will
increase the value of the account to at least the minimum amount.
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DIVIDENDS
The net income of each Fund is declared and paid monthly, with the exception
of the Small Cap Value Fund which 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 a Fund at net asset
value as of the date of declaration (which is also the ex-dividend date), unless
the Shareholder elects to receive such dividends or distributions in cash.
Shareholders wishing to receive their dividends in cash (or wishing to revoke a
previously made election) must notify the transfer agent at P.O. Box 8416,
Boston, MA 02266-8416, and such election (or revocation thereof) will become
effective with respect to dividends and distributions having record dates after
notice has been received. Dividends paid in additional Shares receive the same
tax treatment as dividends paid in cash. The amount of dividends payable on
Class A Shares will be more than the dividends payable on the Class B Shares
because of the higher distribution fees paid by Class B Shares.
TAXES
Federal Taxation
Each Fund intends to qualify for treatment as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"), and to
distribute substantially all of its net investment income and realized net
capital gains in a timely manner so that each Fund is not required to pay
federal taxes on these amounts. Because all of the net investment income of the
Fixed Income Funds is expected to be derived from interest, it is anticipated
that no part of any distribution from the Fixed Income Funds will be eligible
for the federal dividends received deduction.
For each Fund, other than the California Intermediate Tax-free Bond 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 Equity Funds, the 70
percent dividends received deduction for corporations generally will apply to
these distributions to the extent the distribution represents amounts that would
qualify for the dividends received deduction when received by a Fund if a Fund
were a regular corporation, and to the extent designated by a Fund as so
qualifying. A corporate Shareholder will only be eligible to claim a dividends
received deduction with respect to a dividend from a 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 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.
The sale, exchange or redemption of Fund Shares may give rise to a gain or
loss. In general, any gain realized upon the taxable disposition of Shares will
be treated as 20% gains if the Shares have been held for more than 12 months.
Otherwise the gain on the sale, exchange or redemption of Fund Shares will be
treated as short-term capital gain. In general, any loss realized upon a taxable
disposition of shares will be treated as
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long-term loss if the Shares have been held for more than 12 months, and
otherwise as short-term capital loss. However, if a Shareholder disposes of
Shares in a Fund at a loss before holding such Shares for longer than six
months, such loss will be treated as a long-term capital loss to the extent the
Shareholder has received long-term capital gain distributions on the Shares. All
or a portion of any loss realized upon a taxable disposition of Fund Shares will
be disallowed if other Shares of the same Fund are purchased within 30 days
before or after the disposition. In such a case, the basis of the newly
purchased Shares will be adjusted to reflect the disallowed loss.
Because all of the California Intermediate Tax-Free Bond Fund's net investment
income is expected to be derived from interest, it is anticipated that no part
of any distribution will be eligible for the federal dividends received
deduction for corporations. The Fund is not managed to generate any long-term
capital gains and, therefore, does not foresee paying any significant "capital
gains dividends" as described in the Code.
Exempt-interest dividends from the California Intermediate Tax-Free Bond Fund
are excludable from Shareholders' gross income for federal income tax purposes.
Such dividends may be taxable to Shareholders under state or local law as
ordinary income even though all or a portion of the amounts may be derived from
interest on tax-exempt obligations which, if realized directly, would be exempt
from such taxes. Shareholders are advised to consult a tax advisor with respect
to whether exempt-interest dividends retain the exclusion if such Shareholder
would be treated as a "substantial user" of a facility financed through certain
private activity bond or a "related person" to such user under the Code.
Under the Code, interest on indebtedness incurred or continued by a
Shareholder to purchase or carry Shares of the California Intermediate Tax-Free
Bond Fund is not deductible for federal income tax purposes to the extent the
Fund distributes exempt-interest dividends during the Shareholder's taxable
year.
Under the Code, if a Shareholder sells a Share of the California Intermediate
Tax-Free Bond Fund after holding it for six months or less, any loss on the sale
or exchange of such Share will be disallowed to the extent of the amount of any
exempt-interest dividends that the Shareholder has received with respect to the
Share that is sold.
In addition, any loss (not already disallowed as provided in the preceding
sentence) realized upon a taxable disposition of shares of the California
Intermediate Tax-Free Bond Fund held for six months or less will be treated as
long-term, rather than short-term, to the extent of any long-term capital gain
distributions received by the shareholder with respect to the shares.
The California Intermediate Tax-Free Bond Fund may at times purchase
California Municipal Securities at a discount from the price at which they were
originally issued. For federal income tax purposes, some or all of this market
discount will be included in the California Tax-Free Money Market Fund's
ordinary income and will be taxable to Shareholders as such when it is
distributed to them.
To the extent dividends paid to Shareholders are derived from taxable income
(for example, from interest on certificates of deposit or repurchase
agreements), or from long-term or short-term capital gains, such dividends will
be subject to federal income tax, whether such dividends are paid in the form of
cash or additional Shares. A Shareholder should consult his or her tax adviser
for special advice.
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Under the Code, dividends attributable to interest on certain private activity
bonds issued after August 7, 1986 must be included in alternative minimum
taxable income for the purpose of determining liability (if any) for the federal
alternative minimum tax. In addition, exempt-interest dividends will be included
in a corporation's "adjusted current earnings" for purposes of the alternative
minimum tax (except to the extent derived from interest on certain private
activity bonds issued after August 7, 1986, which interest would already be
included in alternative minimum taxable income as a specific item of tax
preference). Shareholders of the California Intermediate Tax-Free Bond Fund
receiving social security or railroad retirement benefits may be taxed on a
portion of those benefits as a result of receiving tax-exempt income (including
exempt-interest dividends distributed by the Fund).
Prior to purchasing Shares of the Funds, the impact of dividends or capital
gain distributions that are expected to be declared or have been declared, but
not paid, should be carefully considered. Dividends or capital gain
distributions received after a purchase of Shares are subject to federal income
taxes, although in some circumstances, the dividends or distributions may be, as
an economic matter, a return of capital to the Shareholder. A Shareholder should
consult his or her advisor for specific advice about the tax consequences to the
Shareholder of investing in a Fund.
Fund investments in foreign securities may be subject to withholding taxes at
the source on dividend or interest payments. In that case, the Fund's yield on
those securities would be decreased. No Fund expects to be eligible to elect to
permit shareholders to claim a credit or deduction on their income tax return
for their pro rata share of such taxes.
Fund transactions in foreign currencies and hedging activities may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book income and taxable
income. This difference may cause a portion of the Fund's income distributions
to constitute a return of capital for tax purposes or require the Fund to make
distributions exceeding book income to qualify as a regulated investment company
for tax purposes.
Investment in an entity that qualifies as a "passive foreign investment
company" under the Code could subject the Fund to a U.S. federal income tax or
other charge on certain "excess distributions" received with respect to the
investment, and on the proceeds from disposition of the investment.
Additional information regarding federal taxes is contained in the Statement
of Additional Information. However, the foregoing and the material in the
Statement of Additional Information are only brief summaries of some of the
important tax considerations generally affecting each Fund and its Shareholders.
In addition, the foregoing discussion and the federal tax information in the
Statement of Additional Information are based on tax laws and regulations which
are in effect as of the date of this Prospectus; these laws and regulations may
subsequently change, and such changes could be retroactive.
Shareholders will be advised at least annually as to the federal income tax
status of distributions made during the year.
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California Taxes
The California Intermediate Tax-Free Bond Fund intends to qualify to pay
dividends to Shareholders that are exempt from California personal income tax
("California exempt-interest dividends"). The California Intermediate Tax-Free
Bond Fund will qualify to pay California exempt-interest dividends if (1) at the
close of each quarter of the Fund's taxable year, at least 50 percent of the
value of the Fund's total assets consists of obligations the interest on which
would be exempt from California personal income tax if the obligations were held
by an individual ("California Tax Exempt Obligations") and (2) the Fund
continues to qualify as a regulated investment company.
If the California Intermediate Tax-Free Bond Fund qualifies to pay California
exempt-interest dividends, dividends distributed to Shareholders will be
considered California exempt-interest dividends (1) if they are designated as
exempt-interest dividends by the Fund in a written notice to Shareholders mailed
within 60 days of the close of the Fund's taxable year and (2) to the extent
that they are derived from the interest received by the Fund during the year on
California Tax Exempt Obligations (less related expenses). If the aggregate
dividends so designated exceed the amount that may be treated as California
exempt-interest dividends, only that percentage of each dividend distribution
equal to the ratio of aggregate California exempt-interest dividends to
aggregate dividends so designated will be treated as a California
exempt-interest dividend. The Fund will notify Shareholders of the amount of
California exempt-interest dividends each year.
Corporations subject to California franchise tax that invest in the California
Intermediate Tax-Free Bond Fund generally will not be entitled to exclude
California exempt-interest dividends from income.
Dividend distributions that do not qualify for treatment as California
exempt-interest dividends will be taxable to Shareholders at ordinary income tax
rates for California personal income tax purposes to the extent of the
California Intermediate Tax-Free Bond Fund's earnings and profits.
Interest on indebtedness incurred or continued by a Shareholder in connection
with the purchase of Shares of the California Intermediate Tax-Free Bond Fund
will not be deductible for California personal income tax purposes if the Fund
distributes California exempt-interest dividends.
Additional information regarding California taxes is contained in the
Statement of Additional Information. However, the foregoing and the California
tax information in the Statement of Additional Information is a general,
abbreviated summary of certain of the provisions of the California Revenue and
Taxation Code presently in effect as they directly govern the taxation of
Shareholders subject to California personal income tax. These provisions are
subject to change by legislative or administrative action, and any such change
may be retroactive with respect to Fund transactions. Shareholders are advised
to consult with their own tax advisors for more detailed information concerning
California tax matters.
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SERVICE ARRANGEMENTS
The Advisor
Prior to September 1, 1998, Pacific Alliance, a division of Union Bank of
California, N.A., served as the Funds' investment advisor. Effective September
1, 1998, Pacific Alliance was reorganized into a subsidiary of UnionBanCal
Corporation, the holding company of Union Bank of California. The new entity,
which is called HighMark Capital Management, Inc. (the "Advisor"), is a
California corporation registered under the Investment Adviser's Act of 1940.
HighMark Capital Management, Inc. now serves as the Funds' investment advisor.
Subject to the general supervision of HighMark Funds' Board of Trustees, the
Advisor manages each Fund in accordance with its investment objective and
policies, makes decisions with respect to and places orders for all purchases
and sales and maintains the Funds' records relating to such purchases and sales.
For the expenses assumed and services provided by the Advisor as each Fund's
investment advisor, the Advisor receives a fee from the Intermediate-Term Bond
Fund, the Bond Fund and the California Intermediate Tax-Free Bond Fund, computed
daily and paid monthly, at the annual rate of fifty one-hundredths of one
percent (0.50%) of the Fund's average daily net assets, from the Growth Fund,
Value Momentum Fund, Income Equity Fund and Balanced Fund, computed daily and
paid monthly, at the annual rate of sixty one-hundredths of one percent (0.60%)
of the Fund's average daily net assets, from the Emerging Growth Fund, at the
annual rate of eighty one-hundredths of one percent (0.80%) of the Fund's
average daily net assets, and from the Small Cap Value Fund, computed daily and
paid monthly, at the annual rate of one percent (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
each 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.
During HighMark Funds' fiscal year ended July 31, 1998, Union Bank of
California received investment advisory fees from the Income Equity Fund
aggregating 0.60% of the Fund's average daily net assets, from the Value
Momentum Fund aggregating 0.60% of the Fund's average daily net assets, from the
Growth Fund aggregating 0.60% of the Fund's average daily net assets, from the
Intermediate-Term Bond Fund aggregating 0.50% of the Fund's average daily net
assets, from the Bond Fund aggregating 0.50% of the Fund's average daily net
assets, from the Balanced Fund aggregating 0.60% of the Fund's average daily net
assets, and from the California Intermediate Tax-Free Bond Fund aggregating
0.13% of the Fund's average daily net assets.
UnionBanCal Corporation, the parent of Union Bank of California, N.A., is a
publicly held corporation, but is principally held by The Bank of
Tokyo-Mitsubishi, Ltd. As of September 30, 1998, UnionBanCal Corporation and its
subsidiaries had approximately $31.4 billion in consolidated assets. HighMark
Capital Management, Inc., as of September 30, 1998, had approximately $16
billion of assets under management. The Advisor, with a team of approximately 43
stock and bond research analysts, portfolio managers and traders,
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has been providing investment management services to individuals, institutions
and large corporations since 1917.
On November 19, 1998, UnionBanCal Corporation announced plans for a secondary
offering of $750 million of its common stock owned by The Bank of
Tokyo-Mitsubishi, Ltd. It is anticipated that the offering will occur prior to
the end of the first quarter of 1999. UnionBanCal Corporation also announced
that it would seek to repurchase up to $500 million of its outstanding common
stock. Using the net proceeds from the sale of up to $500 million in trust
preferred securities, UnionBanCal Corporation currently anticipates repurchasing
$250 million of its common stock from The Bank of Tokyo-Mitsubishi, Ltd.,
concurrent with the secondary offering, and up to an additional $250 million of
its common stock from other foreign institutional shareholders. The Bank of
Tokyo-Mitsubishi, Ltd. intends to maintain a majority ownership interest in
UnionBanCal Corporation following the consummation of the transactions.
All investment decisions for each of the Funds are made by a team of
investment professionals, all of whom take an active part in the decision making
process.
The Sub-Advisors
The Advisor and Bank of Tokyo-Mitsubishi Trust Company ("BTMT") have entered
into an investment subadvisory agreement relating to the Emerging Growth Fund
(the "Emerging Growth Fund Investment Sub-Advisory Agreement"). Under the
Emerging Growth Fund Investment Sub-Advisory Agreement, BTMT will make the
day-to-day investment decisions for the assets of the Emerging Growth Fund,
subject to the supervision of, and policies established by, the Advisor and the
Trustees of HighMark Funds.
Bank of Tokyo-Mitsubishi Trust Company, headquartered at 1251 Avenue of the
Americas, New York, New York 10116, operates as a wholly-owned subsidiary of The
Bank of Tokyo-Mitsubishi, Ltd. BTMT was formed by the combination on April 1,
1996, of Bank of Tokyo Trust Company, a wholly-owned subsidiary of The Bank of
Tokyo, Ltd., and Mitsubishi Bank Trust Company of New York, a wholly-owned
subsidiary of The Mitsubishi Bank, Limited. Bank of Tokyo Trust Company was the
surviving entity, and changed its name to Bank of Tokyo-Mitsubishi Trust
Company. Prior to the combination, subadvisory services were provided by Bank of
Tokyo Trust Company. Bank of Tokyo Trust Company was established in 1955, and
has provided trust services since that time and management services since 1965.
BTMT serves as portfolio manager to employee benefit funds and personal trust
accounts, managing assets in money market, equity and fixed income portfolios.
As of September 30, 1998, BTMT managed in excess of $400 million in individual
portfolios.
BTMT is entitled to a fee, which is calculated daily and paid monthly out of
the Advisor's fee, at an annual rate of 0.50% of the average daily net assets of
the Emerging Growth Fund. For the fiscal year ended July 31, 1998, BTMT received
sub-advisory fees from the Advisor for the Emerging Growth Fund aggregating
0.50% of the Fund's average daily net assets.
Stephen M. Riccio serves as portfolio manager of the Emerging Growth Fund. Mr.
Riccio has been a portfolio manager with BTMT and its predecessor, Bank of Tokyo
Trust Company, since December 1994. From January 1994 to December 1994, Mr.
Riccio served as a research analyst for Rochdale Investment
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Management. From December 1989 to January 1994, Mr. Riccio served as a research
analyst for New York Life Insurance Company.
The Advisor and Brandes Investment Partners, L.P. ("Brandes") have entered
into an investment subadvisory agreement relating to the Small Cap Value Fund
(the "Small Cap Value Fund Investment Sub-Advisory Agreement"). Under the Small
Cap Value Fund 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 Funds.
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 September 30,
1998, Brandes managed approximately $20 billion in assets.
Brandes is entitled to a fee, payable by the Advisor, calculated and paid
monthly at an annual rate of 0.50% of the average of the market value of the
assets of the Small Cap Value Fund allocated to Brandes.
The Fund's assets invested in foreign securities and managed by Brandes are
team-managed by an investment committee at Brandes, whose members are senior
portfolio management professionals of the firm.
Administrator
SEI Investments Mutual Funds Services (the "Administrator"), and HighMark
Funds are parties to an administration agreement (the "Administration
Agreement"). Under the terms of the Administration Agreement, the Administrator
provides HighMark Funds with certain management services, including all
necessary office space, equipment, personnel, and facilities.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of 0.20% of the average daily net assets of the
Funds. The Administrator may waive its fee or reimburse various expenses to the
extent necessary to limit the total operating expenses of a Fund's Retail
Shares. Any such waiver is voluntary and may be terminated at any time in the
Administrator's sole discretion. Currently, the Administrator has agreed to
waive its fee to the rate of 0.18% of the average daily net assets of the Funds.
Pursuant to a separate agreement with the Administrator, Union Bank of
California, N.A. performs sub-administration services on behalf of each Fund,
for which it receives a fee paid by the Administrator at the annual rate of up
to 0.05% of the average daily net assets of the Funds. A description of the
services performed by Union Bank of California, N.A., 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 Funds, for which services it receives a fee.
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Shareholder Service Plan
To support the provision of Shareholder services to all classes of Shares,
HighMark Funds has adopted a Shareholder Service Plan for Fiduciary Class and
Class A Shares and a Shareholder Service Plan for Class B Shares. A description
of the services performed by service providers pursuant to each Shareholder
Service Plan is contained in the Statement of Additional Information. Under
these plans, in consideration of services provided by any service provider,
which may include Union Bank of California, N.A., Bank of Tokyo-Mitsubishi,
Ltd., or their respective affiliates, each Fund may pay a fee at the rate of up
to 0.25% of its average daily net assets to such service provider. The service
provider may waive such fees at any time. Any such waiver is voluntary and may
be terminated at any time. Currently, such fees are being waived to the rate of
0.10% of average daily net assets for the Class A Shares of the Income Equity
Fund, Growth Fund, Small Cap Value Fund and Balanced Fund, 0.03% for the Class A
Shares of the Intermediate-Term Bond Fund, 0.01% for the Class A Shares of the
Bond Fund, and 0.00% for the Class A Shares of the Value Momentum Fund, Emerging
Growth Fund and California Intermediate Tax-Free Bond Fund.
Distributor
SEI Investments Distribution Co. (the "Distributor") and HighMark Funds 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 Funds upon not
more than 60 days written notice by either party, or upon assignment by the
Distributor.
The Distribution Plans
Pursuant to HighMark Funds' Distribution Plans, each Equity Fund pays the
Distributor as compensation for its services in connection with the Distribution
Plans a distribution fee, computed daily and paid monthly, equal to twenty-five
one-hundredths of one percent (0.25%) of the average daily net assets
attributable to that Fund's Class A Shares, pursuant to the Class A Distribution
Plan, and seventy-five one-hundredths of one percent (0.75%) of the average
daily net assets attributable to that Fund's Class B Shares, pursuant to the
Class B Distribution Plan. The Distributor has agreed to waive its fees to 0.00%
of the average daily net assets of the Intermediate-Term Bond Fund, the Bond
Fund and the California Intermediate Tax-Free Bond Fund.
The Distributor may use the distribution fee applicable to a Fund's Class A
and Class B Shares to provide distribution assistance with respect to the sale
of the Fund's Class A and Class B Shares or to provide Shareholder services to
the holders of the Fund's Class A and Class B Shares. The Distributor may also
use the distribution fee (i) to pay financial institutions and intermediaries
(such as insurance companies and investment counselors but not including banks
and savings and loan associations), broker-dealers, and the Distributor's
affiliates and subsidiaries compensation for services or reimbursement of
expenses incurred in connection with the distribution of a Fund's Class A and
Class B Shares to their customers or (ii) to pay banks, savings and loan
associations, other financial institutions and intermediaries, broker-dealers,
and the Distributor's affiliates and subsidiaries compensation for services or
reimbursement of expenses incurred in connection with the provision of
Shareholder services to their customers owning a Fund's Class A and Class B
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Shares. All payments by the Distributor for distribution assistance or
Shareholder services under the Distribution Plans will be made pursuant to an
agreement between the Distributor and such bank, savings and loan association,
other financial institution or intermediary, broker-dealer, or affiliate or
subsidiary of the Distributor (a "Servicing Agreement"; banks, savings and loan
associations, other financial institutions and intermediaries, broker-dealers,
and the Distributor's affiliates and subsidiaries that may enter into a
Servicing Agreement are hereinafter referred to individually as a "Participating
Organization"). A Participating Organization may include Union Bank of
California, its subsidiaries and its affiliates.
Participating Organizations may charge customers fees in connection with
investments in a Fund on their customers' behalf. Such fees would be in addition
to any amounts the Participating Organization may receive pursuant to its
Servicing Agreement. Under the terms of the Servicing Agreements, Participating
Organizations are required to provide their customers with a schedule of fees
charged directly to such customers in connection with investments in a Fund.
Customers of Participating Organizations should read this Prospectus in light of
the terms governing their accounts with the Participating Organization.
The distribution fees under the Distribution Plans will be payable without
regard to whether the amount of the fee is more or less than the actual expenses
incurred in a particular year by the Distributor in connection with distribution
assistance or Shareholder services rendered by the Distributor itself or
incurred by the Distributor pursuant to the Servicing Agreements entered into
under the Distribution Plans. The Distributor may from time to time voluntarily
reduce its distribution fees with respect to a Fund in significant amounts for
substantial periods of time pursuant to an agreement with HighMark Funds. While
there can be no assurance that the Distributor will choose to make such an
agreement, any voluntary reduction in the Distributor's distribution fees will
lower such Fund's expenses, and thus increase such Fund's yield and total
returns, during the period such voluntary reductions are in effect.
Banking Laws
HighMark Capital Management, Inc. believes that it may perform the services
for the Funds contemplated by its investment advisory agreement with HighMark
Funds without a violation of applicable banking laws and regulations. Union Bank
of California, N.A. also believes that it may perform sub-administration
services on behalf of each Fund, for which it receives compensation from the
Administrator 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, N.A. or the Advisor could continue to
perform services for the Funds. For a further discussion of applicable banking
laws and regulations, see the Statement of Additional Information.
Custodian
Union Bank of California serves as the custodian and as a shareholder
servicing agent for the Funds. The Custodian holds cash securities and other
assets of HighMark Funds as required by the 1940 Act.
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Services performed by Union Bank of California, as the Funds' shareholder
servicing agent and custodian, as well as the basis of remuneration for such
services, are described in the Statement of Additional Information.
GENERAL INFORMATION
Description of HighMark Funds & Its Shares
HighMark Funds 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 Funds' Growth Fund, Income
Equity Fund, Balanced Fund, Value Momentum Fund, Blue Chip Growth Fund, Emerging
Growth Fund, International Equity Fund, Small Cap Value Fund, Bond Fund,
Intermediate-Term Bond Fund, Government Securities Fund, Convertible Securities
Fund, California Intermediate Tax-Free Bond Fund, Diversified Money Market Fund,
U.S. Government Obligations Money Market Fund, 100% U.S. Treasury Obligations
Money Market Fund, and California Tax-Free Money Market Fund. 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 Funds 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 Funds believes that as of November 18, 1998, there was no person who
beneficially owned more than 25% of the Class A or Class B Shares of any Fund.
Performance Information
From time to time, HighMark Funds may advertise the aggregate total return,
average annual total return, yield and distribution rate with respect to the
Class A and Class B Shares of each Equity Fund. Performance information is
computed separately for a Fund's Class A, Class B and Fiduciary Shares in
accordance with the formulas described below.
The aggregate total return and average annual total return of the Equity Funds
may be quoted for the life of each Fund and for ten-year, five-year, three-year,
and one-year periods, in each case through the most recent calendar quarter (in
the case of the Income Equity Fund, utilizing, when appropriate, the aggregate
total return and average annual total return of the IRA Fund Income Equity
Portfolio prior to June 23, 1988). Aggregate total return is determined by
calculating the change in the value of a hypothetical $1,000 investment in a
Fund over the applicable period that would equate the initial amount invested to
the ending redeemable value of the investment. The ending redeemable value
includes dividends and capital gain distributions reinvested at net asset value.
Average annual total return is calculated by annualizing a Fund's
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aggregate total return over the relevant number of years. The resulting
percentage indicates the average positive or negative investment results that an
investor in a Fund would have experienced on an annual basis from changes in
Share price and reinvestment of dividends and capital gain distributions.
Average annual total return will reflect deduction of all charges and expenses,
including, as applicable, the maximum sales charge imposed on Class A Shares or
the contingent deferred sales charge imposed on Class B Shares redeemed at the
end of the specified period covered by the total return figure.
The yield of a Fund is determined by annualizing the net investment income per
Share of the Fund during a specified thirty-day period and dividing that amount
by the per Share public offering price of the Fund on the last day of the
period.
The distribution rate of a Fund is determined by dividing the income and
capital gains distributions, or where indicated the income distributions alone,
on a Share of the Fund over a twelve-month period by the per Share public
offering price of the Fund on the last day of the period.
Each Fund may periodically compare its performance to the performance of other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; broad groups of comparable
mutual funds; unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs; or
other investment alternatives. Certain Funds may advertise performance that
includes results from periods in which the Fund's assets were managed in a
non-registered predecessor vehicle.
All performance information presented for a Fund is based on past performance
and does not predict future performance.
Because the Class A and Class B Shares of a Fund have different sales charge
structures and differing distribution and shareholder servicing fees, the
performance of each class will differ.
Miscellaneous
Shareholders will be sent unaudited semi-annual reports and annual reports
audited by independent public accountants.
Shareholders are entitled to one vote for each Share held in a Fund as
determined on the record date for any action requiring a vote by the
Shareholders, and a proportionate fractional vote for each fractional Share
held. Shareholders of HighMark Funds will vote in the aggregate and not by
series or class except (i) as otherwise expressly required by law or when
HighMark Funds' 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 Funds is not required to hold regular annual meetings of Shareholders,
but may hold special meetings from time to time.
HighMark Funds' 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
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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 HighMark
Equity Funds and, in some cases, the HighMark Fixed Income Funds (see
"INVESTMENT POLICIES" and "GENERAL" to identify which investments are permitted
for the Fixed Income Funds).
AMERICAN DEPOSITARY RECEIPTS (ADRs)--ADRs are receipts typically issued by a
U.S. financial institution that evidence ownership of underlying securities
issued by a foreign issuer.
ASSET-BACKED SECURITIES (NON-MORTGAGE)--Instruments secured by company
receivables, truck and auto loans, leases, and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning such assets and
issuing such debt. The purchase of non-mortgage asset-backed securities raises
risk considerations peculiar to the financing of the instruments underlying such
securities. Asset-backed securities entail prepayment risk, which may vary
depending on the type of asset, but is generally less than the prepayment risk
associated with mortgage-backed securities.
Like mortgages underlying mortgage-backed securities, underlying automobile
sales contracts or credit card receivables are subject to substantial prepayment
risk, which may reduce the overall return to certificate holders. Nevertheless,
principal prepayment rates tend not to vary as much in response to changes in
interest rates and the short-term nature of the underlying car loans or other
receivables tend to dampen the impact of any change in the prepayment level.
Certificate holders may also experience delays in payment on the certificates if
the full amounts due on underlying sales contracts or receivables are not
realized by the trust because of unanticipated legal or administrative costs of
enforcing the contracts or because of depreciation or damage to the collateral
(usually automobiles) securing certain contracts, or other factors. If
consistent with their investment objectives and policies, the Funds may invest
in other asset-backed securities that may be developed in the future.
BANKERS' ACCEPTANCES--Bills of exchange or time drafts drawn on and accepted
by commercial banks. They are used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
CERTIFICATES OF DEPOSIT--Negotiable interest-bearing instruments with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity.
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COMMERCIAL PAPER--Unsecured short-term promissory notes issued by corporations
and other entities. Maturities on these issues vary from a few days to nine
months. Purchase of such instruments involves a risk of default by the issuer.
COMMON STOCK--Units of ownership of a public corporation. Owners typically are
entitled to vote on the selection of directors and other important matters as
well as to receive dividends on their holdings. In the event that a corporation
is liquidated, the claims of secured and unsecured creditors and owners of bonds
and preferred stock take precedence over the claims of those who own common
stock. For the most part, common stock has more potential for appreciation.
CONVERTIBLE BONDS AND CONVERTIBLE PREFERRED STOCK--Convertible Bonds are bonds
convertible into a set number of shares of another form of security (usually
common stock) at a prestated price. Convertible bonds have characteristics
similar to both fixed-income and equity securities. Convertible preferred stock
is a class of capital stock that pays dividends at a specified rate and that has
preference over common stock in the payment of dividends and the liquidation of
assets. Convertible preferred stock is preferred stock exchangeable for a given
number of common stock shares, and has characteristics similar to both
fixed-income and equity securities. Because of the conversion feature, the
market value of convertible bonds and convertible preferred stock tend to move
together with the market value of the underlying stock. As a result, a Fund's
selection of convertible bonds and convertible preferred stock is based, to a
great extent, on the potential for capital appreciation that may exist in the
underlying stock. The value of convertible bonds and convertible preferred stock
is also affected by prevailing interest rates, the credit quality of the issuer
and any call provisions.
DERIVATIVES--Instruments whose value is derived from an underlying contract,
index or security, or any combination thereof, including futures, options (e.g.,
puts and calls), options on futures, swap agreements, and some mortgage-backed
securities (CMOs, REMICs, IOs and POs). See elsewhere in this "DESCRIPTION OF
PERMITTED INVESTMENTS" for discussions of these various instruments, and see
"INVESTMENT OBJECTIVES" and "INVESTMENT POLICIES" for more information about any
policies and limitations applicable to their use.
FORWARD FOREIGN CURRENCY CONTRACTS--The Small Cap Value Fund may conduct its
foreign currency exchange transactions on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market or through entering into
forward currency contracts to protect against uncertainty in the level of future
exchange rates between particular currencies or between foreign currencies in
which the Fund's securities are or may be denominated. A forward contract
involves an obligation to purchase or sell a specific currency amount at a
future date, which may be any fixed number of days from the date of the
contract, agreed upon by the parties, at a price set at the time of the
contract. Under normal circumstances, consideration of the prospect for changes
in currency exchange rates will be incorporated into the Fund's long-term
investment strategies. However, the Advisor and Sub-Advisor believe that it is
important to have the flexibility to enter into forward currency contracts when
it determines that the best interests of the Fund will be served.
When the Advisor and Sub-Advisor believe that the currency of a particular
country may suffer a significant decline against another currency, the Fund may
enter into a currency contract to sell, for the appropriate
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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.
INVESTMENT GRADE BONDS--Interest-bearing or discounted government or corporate
securities that obligate the issuer to pay the bondholder a specified sum of
money, usually at specific intervals, and to repay the principal amount of the
loan at maturity. Investment grade bonds are those rated BBB or better by S&P or
Baa or better by Moody's or similarly rated by other NRSROs, or, if not rated,
determined to be of comparable quality by the Advisor.
LOAN PARTICIPATIONS--Loan participations are interests in loans to U.S.
corporations (i.e., borrowers) which are administered by the lending bank or
agent for a syndicate of lending banks, and sold by the lending bank or
syndicate member ("intermediary bank"). In a loan participation, the borrower of
the underlying loan will be deemed to be the issuer of the participation
interest (except to the extent a purchasing Fund derives its rights from the
intermediary bank). Because the intermediary bank does not guarantee a loan
participation in any way, a loan participation is subject to the credit risks
associated with the underlying corporate borrower. In addition, in the event the
underlying corporate borrower fails to pay principal and interest when due, a
Fund may encounter delays, expenses and risks that are greater than those that
would have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of such borrower because it may be necessary under the terms
of the loan participation, for the Fund to assert its rights against the
borrower through the intermediary bank. Moreover, under the terms of a loan
participation, the purchasing Fund may be regarded as a creditor of the
intermediary bank (rather than of the underlying corporate borrower), so that a
Fund may also be subject to the risk that the issuing bank may become insolvent.
Further, in the event of the bankruptcy or insolvency of the corporate borrower,
a loan participation may be subject to certain defenses that can be asserted by
such borrower as a result of improper conduct by the issuing bank. The secondary
market, if any, for these 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,
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savings and loans, U.S. commercial banks (including foreign branches of such
banks), and U.S. and foreign branches of foreign banks, provided that such
institutions (or, in the case of a branch, the parent institution) have total
assets of $1 billion or more as shown on their last published financial
statements at the time of investment; (iii) short-term corporate obligations
rated within the three highest rating categories by a NRSRO (e.g., at least A by
S&P or A by Moody's) at the time of investment, or, if not rated, determined by
the Advisor to be of comparable quality; (iv) general obligations issued by the
U.S. Government and backed by its full faith and credit, and obligations issued
or guaranteed as to principal and interest by agencies or instrumentalities of
the U.S. Government (e.g., obligations issued by Farmers Home Administration,
Government National Mortgage Association, Federal Farm Credit Bank and Federal
Housing Administration); (v) receipts, including TRs, TIGRs and CATS; (vi)
repurchase agreements involving such obligations; (vii) loan participations
issued by a bank in the United States with assets exceeding $1 billion and for
which the underlying loan is issued by borrowers in whose obligations the fund
may invest; (viii) money market funds and (ix) foreign commercial paper. Certain
of the obligations in which a Fund may invest may be variable or floating rate
instruments, may involve conditional or unconditional demand features and may
include variable amount master demand notes.
MORTGAGE-BACKED SECURITIES--Securities generally issued or guaranteed by U.S.
government agencies such as GNMA, FNMA, or FHLMC. GNMA mortgage-backed
certificates are mortgage-backed securities of the modified pass-through type,
which means that both interest and principal payments (including prepayments)
are passed through monthly to the holder of the certificate. Each GNMA
certificate evidences an interest in a specific pool of mortgage loans insured
by the Federal Housing Administration or the Farmers Home Administration or
guaranteed by the Veterans Administration. FNMA, a federally-chartered and
stockholder-owned corporation, issues pass-through certificates which are
guaranteed as to payment of principal and interest by FNMA. FHLMC, a corporate
instrumentality of the United States, issues participation certificates which
represent an interest in mortgages held in FHLMC's portfolio. FHLMC guarantees
the timely payment of interest and the ultimate collection of principal.
Securities issued or guaranteed by FNMA and FHLMC are not backed by the full
faith and credit of the United States. There can be no assurance that the U.S.
government would provide financial support to FNMA or FHLMC if necessary in the
future.
Although payments on certain mortgage-related securities may be guaranteed by
a third party or otherwise similarly secured, the market value of such
securities is not secured and may fluctuate significantly because of changes in
interest rates and changes in prepayment levels. Thus, for example, if a Fund
purchases a mortgage-related security at a premium, that portion may be lost if
there is a decline in the market value of the security whether due to changes in
interest rates or prepayments of the underlying mortgage collateral. As with
other interest-bearing securities, the prices of mortgage-related securities are
inversely affected by changes in interest rates. However, although the value of
a mortgage-related security may decline when interest rates rise, the converse
is not necessarily true because in periods of declining interest rates the
mortgages underlying the securities are prone to prepayment which results in
amounts being available for reinvestment which are likely to be invested at a
lower interest rate. For this and other reasons, the stated maturity of a
mortgage-related security may be shortened by unscheduled prepayments on the
underlying mortgages and, accordingly, it is not possible to predict accurately
the security's return to a Fund. In addition, regular payments received on
mortgage-related securities include both interest and principal. No assurance
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can be given as to the return a Fund will receive when these amounts are
reinvested. As a consequence, mortgage-related securities may be a less
effective means of "locking in" interest rates than other types of debt
securities having the same stated maturity, may have less potential for capital
appreciation and may be considered riskier investments as a result.
Adjustable rate mortgage securities ("ARMS") are pass-through certificates
representing ownership interests in a pool of adjustable rate mortgages and the
resulting cash flow from those mortgages. Unlike conventional debt securities,
which provide for periodic (usually semi-annual) payments of interest and
payments of principal at maturity or on specified call dates, ARMs provide for
monthly payments based on a pro rata share of both periodic interest and
principal payments and prepayments of principal on the underlying mortgage pool
(less GNMA's, FNMA's, or FHLMC's fees and any applicable loan servicing fees).
Collateralized mortgage obligations ("CMOs") are bonds generally issued by
single purpose, stand-alone finance subsidiaries or trusts established by
financial institutions, government agencies, investment banks, or other similar
institutions, and collateralized by pools of mortgage loans. Payments of
principal and interest on the collateral mortgages are used to pay debt service
on the CMO. In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche," is issued at a
specific coupon rate and has a stated maturity or final distribution date. The
principal and interest payment on the underlying mortgages may be allocated
among the classes of CMOs in several ways. Typically, payments of principal,
including any prepayments, on the underlying mortgages would be applied to the
classes in the order of their respective stated maturities or final distribution
dates, so that no payment of principal will be made on CMOs of a class until all
CMOs of other classes having earlier stated maturities or final distribution
dates have been paid in full.
One or more classes of CMOs may have coupon rates that reset periodically
based on an index, such as the London Interbank Offered Rate ("LIBOR"). Each
Fund may purchase fixed, adjustable, or "floating" rate CMOs that are
collateralized by fixed rate or adjustable rate mortgages that are guaranteed as
to payment of principal and interest by an agency or instrumentality of the U.S.
government or are directly guaranteed as to payment of principal and interest by
the issuer, which guarantee is collateralized by U.S. government securities or
is collateralized by privately issued fixed rate or adjustable rate mortgages.
Securities such as zero-coupon obligations, mortgage-backed and asset-backed
securities, and collateralized mortgage obligations ("CMOs") will have greater
price volatility than other fixed-income obligations. Because declining interest
rates may lead to prepayment of underlying mortgages, automobile sales contracts
or credit card receivables, the prices of mortgage-related and asset-backed
securities may not rise with a decline in interest rates. Mortgage-backed and
asset-backed securities and CMOs are extremely sensitive to the rate of
principal prepayment. Similarly, callable corporate bonds also present risk of
prepayment. During periods of falling interest rates, securities that can be
called or prepaid may decline in value relative to similar securities that are
not subject to call or prepayment.
Real Estate Mortgage Investment Conduits ("REMICs") are private entities
formed for the purpose of holding a fixed pool of mortgages secured by an
interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
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MUNICIPAL FORWARDS--Municipal Forwards are forward commitments for the
purchase of tax-exempt bonds with a specified coupon to be delivered by an
issuer at a future date, typically exceeding 45 days but normally less than one
year after the commitment date. Municipal forwards are normally used as a
refunding mechanism for bonds that may only be redeemed on a designated future
date. As with forward commitments and when-issued securities, municipal forwards
are subject to market fluctuations due to changes, real or anticipated, in
market interest rates between the commitment date and the settlement date and
will have the effect of leveraging the Fund's assets. Municipal forwards may be
considered to be illiquid investments. The Fund will maintain liquid, high-grade
securities in a segregated account in an amount at least equal to the purchase
price of the municipal forward.
MUNICIPAL SECURITIES--Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
Municipal notes include general obligation notes, tax anticipation notes,
revenue anticipation notes, bond anticipation notes, certificates of
indebtedness, demand notes and construction loan notes. Municipal bonds include
general obligation bonds, revenue or special obligation bonds, private activity
and industrial development bonds. General obligation bonds are backed by the
taxing power of the issuing municipality. Revenue bonds are backed by the
revenues of a project or facility, tolls from a toll bridge, for example. The
payment of principal and interest on private activity and industrial development
bonds generally is dependent solely on the ability of the facility's user to
meet its financial obligations and the pledge, if any, of real and personal
property so financed as security for such payment.
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.
PARTICIPATION INTERESTS--Participation interests are interests in municipal
securities from financial institutions such as commercial and investment banks,
savings and loan associations and insurance companies.
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These interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that allows
the Fund to treat the income from the investment as exempt from federal income
tax. The Fund invests in these participation interests in order to obtain credit
enhancement or demand features that would not be available through direct
ownership of the underlying municipal securities.
RECEIPTS--Interests in separately traded interest and principal component
parts of U.S. Treasury obligations that are issued by banks and brokerage firms
and are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's"), "Treasury Investment Growth Receipts" ("TIGR's"),
and "Certificates of Accrual on Treasury Securities" ("CATS"). TR's, TIGR's and
CATS are sold as zero coupon securities, which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is accreted over
the life of the security, and such accretion will constitute the income earned
on the security for both accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate volatility than
interest-paying securities. See also "Federal Taxation."
REPURCHASE AGREEMENTS--Agreements whereby a Fund will acquire securities from
approved financial institutions or registered broker-dealers that agree to
repurchase the securities at a mutually agreed-upon date and price. The
repurchase agreements entered into by the Funds will provide that the underlying
security at all times shall have a value equal to 102% of the resale price
stated in the agreement. Repurchase agreements involving government securities
are not subject to a Fund's fundamental investment limitation on purchasing
securities of any one issuer. If the seller defaults on its repurchase
obligation or becomes insolvent, the Fund holding such obligations would suffer
a loss to the extent that either the proceeds from a sale of the underlying
portfolio securities were less than the repurchase price or the Fund's
disposition of the securities was delayed pending court action. Securities
subject to repurchase agreements will be held by a qualified custodian or in the
Federal Reserve/Treasury book-entry system. Repurchase agreements are considered
to be loans by a Fund under the Investment Company Act of 1940 (the "1940 Act").
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
60
<PAGE> 150
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 Funds 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 Funds' 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.
61
<PAGE> 151
TAX-EXEMPT COMMERCIAL PAPER--Commercial paper, which is commercial paper
issued by governments and political sub-divisions.
TIME DEPOSITS--Non-negotiable receipts issued by U.S. or foreign banks in
exchange for the deposit of funds. Like certificates of deposit, they earn a
specified rate of interest over a definite period of time; however, they cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
UNIT INVESTMENT TRUST--Investment vehicle, registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, that purchases a
fixed Portfolio of income-producing securities, such as corporate, municipal, or
government bonds, mortgage-backed securities, or Preferred Stock. Units in the
trust, which usually cost at least $1,000, are sold to investors by brokers, for
a Load charge of about 4%. Unit holders receive an undivided interest in both
the principal and the income portion of the portfolio in proportion to the
amount of capital they invest. The portfolio of securities remains fixed until
all the securities mature and unit holders have recovered their principal. Most
brokerage firms maintain a Secondary Market in the trusts they sell, so that
units can be resold if necessary.
U.S. GOVERNMENT AGENCY SECURITIES--Certain Federal agencies have been
established as instrumentalities of the U.S. Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the U.S. Government, are either backed by the full faith and
credit of the United States (e.g., GNMA securities) or supported by the issuing
agencies' right to borrow from the U.S. Treasury. The issues of other agencies
are supported only by the credit of the instrumentality (e.g., FNMA securities).
U.S. TREASURY OBLIGATIONS--Bills, notes, and bonds issued by the U.S.
Treasury, as well as separately traded interest and principal component parts of
such obligations known as Separately Traded Registered Interest and Principal
Securities ("STRIPS") that are transferable through the Federal book-entry
system.
U.S. Government Securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities, although,
as a result, the yields available from U.S. Government Securities are generally
lower than the yields available from otherwise comparable corporate fixed-income
securities. Like other fixed-income securities, however, the values of U.S.
Government Securities change as interest rates fluctuate. Fluctuations in the
value of portfolio securities will in many cases not affect interest income on
existing portfolio securities, but will be reflected in the Fund's net asset
value. Because the magnitude of these 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
62
<PAGE> 152
demand notice period exceeding seven days may be considered illiquid if there is
no secondary market for such security.
WARRANTS--Securities that entitle the holder to buy a proportionate amount of
common stock at a specified price for a limited or unlimited period of time.
Warrants are often freely transferable and are traded on major stock exchanges.
YANKEE BONDS--Dollar denominated securities issued by foreign-domiciled
issuers that obligate the issuer to pay the bondholder a specified sum of money,
usually semiannually, and to repay the principal amount of the loan at maturity.
Sovereign bonds are bonds issued by the governments of foreign countries.
Supranational bonds are those issued by supranational entities, such as the
World Bank and European Investment Bank. Canadian bonds are bonds issued by
Canadian provinces.
ZERO-COUPON OBLIGATIONS--Non-income producing securities evidencing ownership
of future interest and principal payments on bonds. These obligations pay no
current interest and are typically sold at prices greatly discounted from par
value. The return on a zero-coupon obligation, when held to maturity, equals the
difference between the par value and the original purchase price.
For federal income tax purposes, the difference between the par value and the
original issue price (original issue discount) is included in the income of a
holder of a zero-coupon obligation over the term of the obligation even though
the interest is not paid until maturity. The amount included in income is
determined under a constant interest rate method. In addition, if an obligation
is purchased subsequent to its original issue, a holder such as the 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.
63
<PAGE> 153
HIGHMARK EQUITY AND
FIXED INCOME FUNDS
INVESTMENT PORTFOLIOS OF
HIGHMARK FUNDS
For further information (including current
yield, purchase and redemption information),
call 1-800-433-6884
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
FUNDS OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
HIGHMARK FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
NOT FDIC INSURED
<PAGE> 154
HighMark Funds Prospectus
INVESTMENT ADVISOR
HighMark Capital Management, Inc.
475 Sansome Street
San Francisco, CA 94104
SUB-ADVISOR (Emerging Growth Fund)
Bank of Tokyo Mitsubishi Trust Company
1251 Avenue of the Americas
New York, NY 10116
SUB-ADVISOR (International portion of
Small Cap Value Fund only)
Brandes Investment Partners, L.P.
12750 High Bluff Drive
San Diego, CA 90730
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
SEI Investments Mutual Funds Services
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456
LEGAL COUNSEL
Ropes & Gray
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
AUDITORS
Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105-2230
For further information call
1-800-433-6884
or visit our web site at
www.highmark-funds.com
[HIGHMARK(SM) FUNDS LOGO]
84823 B (11/98)
<PAGE> 155
CROSS REFERENCE SHEET
THE HIGHMARK FUNDS
FIDUCIARY 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 Funds & Its Shares
5. Management of the Fund Service Arrangements
5A. Management's Discussion of Fund
Performance Inapplicable
6. Capital Stock and Other Securities Purchase and Redemption of Shares; Exchange
Privileges; Dividends; Federal Taxation; Service
Arrangements--Administrator; Distributor; The
Distribution Plan; General Information--Description
of HighMark Funds & Its Shares; General Information--
Miscellaneous
7. Purchase of Securities Being Offered Purchase and Redemption of Shares; Exchange
Privileges; Service Arrangements-- Administrator;
Distributor
8. Redemption or Repurchase Purchase and Redemption of Shares
9. Pending Legal Proceedings Inapplicable
</TABLE>
<PAGE> 156
[LOGO] HIGHMARK(SM) FUNDS
- Equity Funds
- Fixed Income Funds
PROSPECTUS
Fiduciary Shares
November 30, 1998
<PAGE> 157
HIGHMARK FUNDS
EQUITY FUNDS
FIXED INCOME FUNDS
HighMark Funds 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 Funds':
<TABLE>
<S> <C>
- Income Equity Fund - Small Cap Value Fund
- Value Momentum Fund - Balanced Fund
- Growth Fund - Intermediate-Term Bond Fund
- Emerging Growth Fund - Bond Fund
- International Equity Fund - California Intermediate Tax-Free Bond Fund
</TABLE>
FIDUCIARY SHARES
HighMark Funds' 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
Funds' Equity or Income Funds prior to June 20, 1994, which have remained
continuously open thereafter and which are not considered to be fiduciary
accounts; (iii) Shareholders who currently own Shares of HighMark Funds' Equity
or Income Funds that were purchased prior to June 20, 1994 within an account
registered in their name with the Funds; (iv) present and retired trustees of
the Funds and directors, officers and employees (and their spouses and children
under the age of 21) of Union Bank of California, N.A., HighMark Funds' current
or former distributors or their respective affiliated companies who currently
own Shares of HighMark Funds which were purchased before April 30, 1997; (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; and (vi) Retirement and other benefit plans sponsored by
governmental entities and Financial Institutions, which may purchase shares on
their own account or as record owner on behalf of fiduciary, agency or custodial
accounts, with a minimum investment of $1,000,000.
This Prospectus sets forth concisely the information about HighMark Funds and
the Funds that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated the same date as this Prospectus has
been filed with the Securities and Exchange Commission and is available without
charge by writing the Distributor, SEI Investments Distribution Co., Oaks,
Pennsylvania 19456, or by calling 1-800-433-6884. The SEC maintains a World Wide
Web site (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference and other information. The
Statement of Additional Information is incorporated into this Prospectus by
reference. This Prospectus relates only to the Fiduciary Shares of the Funds.
Interested persons who wish to obtain a prospectus for other Funds and classes
of HighMark Funds 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 FUNDS' 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
FUNDS' SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN HIGHMARK FUNDS
INVOLVES RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
November 30, 1998
Fiduciary Shares
<PAGE> 158
SUMMARY
HIGHMARK FUNDS is an open-end, diversified, registered investment company
providing a convenient way to invest in professionally managed portfolios of
securities. The following provides basic information about the Fiduciary Shares
of the Income Equity, Value Momentum, Growth, Emerging Growth, International
Equity, Small Cap Value, Intermediate-Term Bond, Bond, Balanced, and California
Intermediate Tax-Free Bond Funds (each a "Fund" and together the "Funds"). This
summary is qualified in its entirety by reference to the more detailed
information provided elsewhere in the Prospectus and in the Statement of
Additional Information.
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES? THE INCOME EQUITY FUND seeks
investments in equity securities that provide current income through the regular
payment of dividends, with the goal that the Fund will have a high current yield
and a low level of price volatility; opportunity for long-term growth of asset
value is a secondary consideration. THE VALUE MOMENTUM FUND seeks long-term
capital growth with a secondary objective of income. THE BALANCED FUND seeks
capital appreciation and income, with a secondary investment objective of
conservation of capital. THE GROWTH FUND seeks long-term capital appreciation
through investments in equity securities; the production of current income is an
incidental objective. THE INTERNATIONAL EQUITY FUND seeks to provide long-term
capital appreciation by investing primarily in a diversified portfolio of equity
securities of non-U.S. issuers. THE EMERGING GROWTH FUND seeks long-term growth
of capital by investing in a diversified portfolio of equity securities of small
capitalization, emerging growth companies. THE SMALL CAP VALUE FUND seeks to
provide long-term capital appreciation (collectively these seven Funds are
sometimes referred to in this Prospectus as the "Equity Funds"). THE
INTERMEDIATE-TERM BOND FUND seeks total return through investments in
fixed-income securities. THE BOND FUND seeks current income through investments
in long-term, fixed-income securities. THE CALIFORNIA INTERMEDIATE TAX-FREE BOND
FUND seeks to provide high current income that is exempt from federal and State
of California income taxes (collectively, these three Funds are sometimes
referred to in this Prospectus as "Fixed Income Funds"). (See "INVESTMENT
OBJECTIVES.")
WHAT ARE THE FUNDS' PERMITTED INVESTMENTS? Each of the Equity Funds primarily
invests, consistent with its investment objective, in equity securities
including common stocks and securities convertible into common stocks. The
International Equity Fund primarily invests, consistent with its investment
objective, in equity securities including common stocks and securities
convertible into common stocks of non-U.S. issuers. The Small Cap Value 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 of
within the range of market capitalization of issuers comprising the relevant
market small capitalization index. Currently the relevant market indexes used
are the S&P 600 (domestically) and the Financial Times/S&P Actuaries World
Indices World Ex. U.S. Medium/Small Cap (internationally). These indexes may be
changed without prior notice to shareholders. The Intermediate-Term Bond Fund
primarily invests in bonds. The Bond Fund invests in long-term bonds. Bonds
include debt obligations such as bonds, notes, debentures and securities
convertible into or exercisable for debt obligations that are issued by U.S.
corporations or issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities; investments may also include zero-coupon obligations,
mortgage-related securities and asset-backed securi-
2
<PAGE> 159
ties. The Balanced Fund primarily invests, consistent with its investment
objective, in equity securities including common stocks and securities
convertible into common stocks and may also invest in fixed income securities.
The California Intermediate Tax-Free Bond Fund invests primarily in investment
grade or better bonds and notes issued by the State of California, its agencies,
instrumentalities and political sub-divisions, the income on which is exempt
from regular federal and State of California personal income taxes ("California
Municipal Securities"). Each Fund may also invest in a manner consistent with
its investment objective and investment policies in certain other instruments.
(See "INVESTMENT POLICIES.")
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUNDS? The investment
policies of each Fund entail certain risks and considerations of which an
investor should be aware. Common stocks and other equity securities in which the
Funds invest are volatile and may fluctuate in value more than other types of
investments. Common stocks and other equity securities of small companies in
which the Small Cap Value Fund invests are more volatile and may fluctuate in
value more than investments in companies with larger market capitalizations.
Values of fixed income securities and, correspondingly, share prices of Funds
invested in such securities, tend to vary inversely with interest rates, and may
be affected by other market and economic factors as well. During periods of
falling interest rates, the value of outstanding fixed income securities
generally rises. Conversely, during periods of rising interest rates, the value
of such securities generally declines. Values of fixed income securities in
which the California Intermediate Tax-Free Bond Fund invests may be affected by
other market and economic factors affecting the State of California as well. The
International Equity Fund will invest in securities of foreign companies that
involve special risks and considerations not typically associated with investing
in U.S. companies. In addition, the securities of the emerging growth companies
in which the Emerging Growth Fund may invest may be less liquid, and subject to
more abrupt or erratic market movements, than securities of larger, more
established growth companies. Similarly, the securities of foreign issuers,
including emerging market issuers, in which the International Equity Fund and
the Small Cap Value 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 Funds' Shares are not federally insured
by the FDIC or any other government agency. Any guarantee by the U.S.
Government, its agencies or any instrumentalities of the securities in which any
Fund invests guarantees only the payment of principal and interest on the
guaranteed security, and does not guarantee the total return or value of the
security or total return or value of Shares of that Fund.
WHO IS THE ADVISOR? HighMark Capital Management, Inc. serves as the Advisor to
HighMark Funds. (See "The Advisor.")
WHO ARE THE SUB-ADVISORS? Bank of Tokyo-Mitsubishi Trust Company serves as the
Sub-Advisor to the Emerging Growth Fund. AXA Asset Management Partenaires serves
as the Sub-Advisor to the International Equity Fund. Brandes Investment
Partners, L.P. serves as the Sub-Advisor to the Small Cap Value Fund. (See "The
Sub-Advisors.")
WHO IS THE ADMINISTRATOR? SEI Investments Mutual Funds Services serves as the
Administrator of HighMark Funds. (See "The Administrator.")
3
<PAGE> 160
WHO IS THE CUSTODIAN? Union Bank of California, N.A. (the "Bank") serves as
the custodian of HighMark Funds' assets. (See "The Custodian.")
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. acts as distributor
of HighMark Funds' 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) 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 net asset
value next determined after the purchase order is effective. Redemption orders
must be placed prior to 1:00 p.m., Pacific time (4:00 p.m., Eastern time) on any
Business Day for the order to be effective that day. (See "PURCHASE AND
REDEMPTION OF SHARES.")
HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gains) of the Funds is distributed in the form of monthly
dividends (periodic dividends with respect to the International Equity Fund and
the Small Cap Value Fund) 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.")
4
<PAGE> 161
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 2
Fee Table................................................... 6
Financial Highlights........................................ 8
Fund Description............................................ 18
Investment Objectives....................................... 18
Investment Policies......................................... 19
Income Equity Fund........................................ 19
Value Momentum Fund....................................... 19
Growth Fund............................................... 19
Emerging Growth Fund...................................... 20
International Equity Fund................................. 20
Small Cap Value Fund...................................... 21
Intermediate-Term Bond Fund............................... 22
Bond Fund................................................. 22
Balanced Fund............................................. 23
California Intermediate Tax-Free Bond Fund................ 23
General..................................................... 24
Money Market Instruments.................................. 24
Illiquid and Restricted Securities........................ 24
California Municipal Securities........................... 25
Lending of Portfolio Securities........................... 25
Other Investments......................................... 25
Risk Factors.............................................. 27
Risks Associated with Convertible Securities.............. 30
Risks Associated with Securities of Small Companies....... 31
Year 2000................................................. 31
Portfolio Turnover.......................................... 31
Purchase and Redemption of Shares........................... 32
Exchange Privileges......................................... 33
Dividends................................................... 34
Taxes....................................................... 34
Federal Taxation.......................................... 34
California Taxes.......................................... 37
Service Arrangements........................................ 38
The Advisor............................................... 38
The Sub-Advisors.......................................... 39
Administrator............................................. 41
The Transfer Agent........................................ 41
Shareholder Service Plan.................................. 41
Distributor............................................... 42
Banking Laws.............................................. 42
Custodian................................................. 42
General Information......................................... 43
Description of HighMark Funds & Its Shares................ 43
Performance Information................................... 43
Miscellaneous............................................. 44
Description of Permitted Investments........................ 45
</TABLE>
5
<PAGE> 162
FEE TABLE
<TABLE>
<CAPTION>
INCOME VALUE EMERGING INTERNATIONAL SMALL CAP INTERMEDIATE-
EQUITY MOMENTUM GROWTH GROWTH EQUITY VALUE TERM BOND BOND
FUND FUND FUND FUND FUND FUND FUND FUND
FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY FIDUCIARY
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES(a)
Maximum Sales Load
Imposed on
Purchases (as a
percentage of
offering
price)........... 0% 0% 0% 0% 0% 0% 0% 0%
Maximum Sales Load
Imposed on
Reinvested
Dividends (as a
percentage of
offering
price)........... 0% 0% 0% 0% 0% 0% 0% 0%
Deferred Sales
Load (as a
percentage of
original purchase
price or
redemption
proceeds, as
applicable)...... 0% 0% 0% 0% 0% 0% 0% 0%
Redemption Fees (as
a percentage of
amount redeemed,
if
applicable)(b)... 0% 0% 0% 0% 0% 0% 0% 0%
Exchange Fee(a).... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL OPERATING
EXPENSES(c)(as a
percentage of net
assets)
Management Fees
(after voluntary
reduction)(d).... 0.60% 0.60% 0.60% 0.80% 0.95% 1.00% 0.50% 0.50%
12b-1 Fees......... 0% 0% 0% 0% 0% 0.00% 0% 0%
Other Expenses
(after voluntary
reduction)(e).... 0.32% 0.22% 0.32% 0.23% 0.41% 0.58% 0.25% 0.25%
---- ---- ---- ---- ---- ---- ---- ----
Total Fund
Operating
Expenses (after
voluntary
reduction)(f).... 0.92% 0.82% 0.92% 1.03% 1.36% 1.58% 0.75% 0.75%
==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
CALIFORNIA
INTERMEDIATE
BALANCED TAX-FREE
FUND BOND FUND
FIDUCIARY FIDUCIARY
SHARES SHARES
---- ----
<S> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES(a)
Maximum Sales Load
Imposed on
Purchases (as a
percentage of
offering
price)........... 0% 0%
Maximum Sales Load
Imposed on
Reinvested
Dividends (as a
percentage of
offering
price)........... 0% 0%
Deferred Sales
Load (as a
percentage of
original purchase
price or
redemption
proceeds, as
applicable)...... 0% 0%
Redemption Fees (as
a percentage of
amount redeemed,
if
applicable)(b)... 0% 0%
Exchange Fee(a).... $ 0 $ 0
ANNUAL OPERATING
EXPENSES(c)(as a
percentage of net
assets)
Management Fees
(after voluntary
reduction)(d).... 0.60% 0.20%
12b-1 Fees......... 0% 0%
Other Expenses
(after voluntary
reduction)(e).... 0.32% 0.24%
---- ----
Total Fund
Operating
Expenses (after
voluntary
reduction)(f).... 0.92% 0.44%
==== ====
</TABLE>
- ---------------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period.
6
<PAGE> 163
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Income Equity Fund Fiduciary Shares...................... $ 9 $29 $51 $113
Value Momentum Fund Fiduciary Shares..................... $ 8 $26 $46 $101
Growth Fund Fiduciary Shares............................. $ 9 $29 $51 $113
Emerging Growth Fund Fiduciary Shares.................... $11 $33 $57 $126
International Equity Fund Fiduciary Shares............... $14 $43 $74 $164
Small Cap Value Fund Fiduciary Shares.................... $16 $50 N/A N/A
Intermediate-Term Bond Fund Fiduciary Shares............. $ 8 $24 $42 $ 93
Bond Fund Fiduciary Shares............................... $ 8 $24 $42 $ 93
Balanced Fund Fiduciary Shares........................... $ 9 $29 $51 $113
California Intermediate Tax-Free Bond Fund Fiduciary
Shares................................................. $ 5 $14 $25 $ 55
</TABLE>
The purpose of the tables above is to assist an investor in the Funds in
understanding the various costs and expenses that a Shareholder will bear
directly or indirectly. For a more complete discussion of each Fund's annual
operating expenses, see SERVICE ARRANGEMENTS below. THE FOREGOING EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its affiliates)
making investments in the Funds on behalf of their customers may charge
customers fees for services provided in connection with the investment in,
redemption of, and exchange of Shares. (See PURCHASE AND REDEMPTION OF
SHARES, EXCHANGE PRIVILEGES, and SERVICE ARRANGEMENTS below.)
(b) A wire redemption charge of $15 is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See REDEMPTION OF
SHARES below.)
(c) Expense information has been restated to reflect current fees for the Income
Equity Fund, Growth Fund, Value Momentum Fund, Balanced Fund and California
Intermediate Tax-Free Bond Fund.
(d) Absent voluntary fee waivers, MANAGEMENT FEES would be 0.50% for the
Fiduciary Shares of the California Intermediate Tax-Free Bond Fund.
(e) Absent voluntary fee waivers, OTHER EXPENSES would be 0.49% for the
Fiduciary Shares of the Growth, Value Momentum, Balanced and
Intermediate-Term Bond Funds, 0.50% for the Fiduciary Shares of the Emerging
Growth Fund, 0.68% for the Fiduciary Shares of the International Equity
Fund, 0.85% for the Fiduciary Shares of the Small Cap Value Fund, and 0.51%
for the Fiduciary Shares of the Bond and California Intermediate Tax-Free
Bond Funds.
(f) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be: 1.09%
for the Fiduciary Shares of the Income Equity, Growth, Value Momentum and
Balanced Funds, 1.30% for the Fiduciary Shares of the Emerging Growth Fund,
1.63% for the Fiduciary Shares of the International Equity Fund, 1.75% for
the Fiduciary Shares of the Small Cap Value Fund, 0.99% for the Fiduciary
Shares of the Intermediate-Term Bond Fund, and 1.01% for the Fiduciary
Shares of the Bond and California Intermediate Tax-Free Bond Funds.
7
<PAGE> 164
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information with respect to the
Fiduciary Shares for the Growth Fund, Income Equity Fund, Small Cap Value Fund,
Bond Fund, Intermediate-Term Bond Fund, California Intermediate Tax-Free Bond
Fund, Balanced Fund, Value Momentum Fund, Emerging Growth Fund and International
Equity Fund. Financial highlights for the Funds through the year ended July 31,
1998 have been derived from financial statements audited by Deloitte & Touche
LLP, independent auditors for HighMark, whose report thereon is included in the
1998 Annual Report for the HighMark Funds, which is incorporated by reference
into the Statement of Additional Information. Financial highlights for the Bond,
Growth and Income Equity Funds prior to the fiscal year ended July 31, 1996 have
been derived from financial statements examined by other auditors whose report
thereon is on file with the Securities and Exchange Commission.
Upon reorganizing as funds of HighMark Funds on April 28, 1997, Stepstone
Intermediate-Term Bond Fund became HighMark Intermediate-Term Bond Fund,
Stepstone California Intermediate Tax-Free Bond Fund became HighMark California
Intermediate Tax-Free Bond Fund, Stepstone Balanced Fund became HighMark
Balanced Fund, Stepstone Value Momentum Fund became HighMark Value Momentum
Fund, Stepstone Emerging Growth Fund became HighMark Emerging Growth Fund, and
Stepstone International Equity Fund became HighMark International Equity Fund.
Financial highlights through January 31, 1997 represent the Institutional Class
Shares (now Fiduciary Shares) of Stepstone Intermediate-Term Bond, Stepstone
California Intermediate Tax-Free Bond, Stepstone Balanced, Stepstone Value
Momentum, Stepstone Emerging Growth, and Stepstone International Equity Funds,
and have been derived from financial statements audited by Arthur Andersen LLP,
independent auditors for the Stepstone Funds.
8
<PAGE> 165
INTERMEDIATE-TERM BOND FUND
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTH
YEAR ENDED PERIOD ENDED FOR THE YEARS ENDED JANUARY 31,
JULY 31, JULY 31, ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
Net Asset Value,
Beginning of
Period............... $ 10.30 $ 10.16 $ 10.62 $ 9.67 $ 10.72 $ 10.57 $ 10.49
-------- -------- -------- -------- -------- -------- --------
Investment Activities
Net investment
income............. 0.613 0.309 0.599 0.609 0.589 0.598 0.650
Net realized and
unrealized gain
(loss) on
investments........ 0.021 0.138 (0.460) 0.951 (1.034) 0.352 0.409
-------- -------- -------- -------- -------- -------- --------
Distributions
Net investment
income............. (0.616) (0.310) (0.595) (0.609) (0.590) (0.595) (0.636)
Capital gains........ -- -- -- -- (0.015) (0.205) (0.343)
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period............... $ 10.32 $ 10.30 $ 10.16 $ 10.62 $ 9.67 $ 10.72 $ 10.57
======== ======== ======== ======== ======== ======== ========
Total Return........... 6.37% 4.54% 1.43% 16.58% (4.11)% 9.22% 10.47%
Net assets, end of
period (000)....... $249,520 $152,676 $150,411 $132,942 $109,848 $130,308 $112,806
Ratio of expenses to
average net
assets............. 0.75% 0.69%* 0.67% 0.68% 0.71% 0.69% 0.67%
Ratio of expenses to
average net assets
excluding fee
waivers............ 0.99% 0.82%* 0.68% 0.68% 0.71% 0.69% 0.67%
Ratio of net
investment income
to average net
assets............. 5.86% 6.17%* 5.93% 5.97% 5.89% 5.56% 6.16%
Ratio of net
investment income
to average net
assets excluding
fee waivers........ 5.61% 6.04%* 5.92% 5.97% 5.89% 5.56% 6.16%
Portfolio turnover
rate................. 51% 58% 106% 147% 95% 72% 88%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
9
<PAGE> 166
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTH
YEAR ENDED PERIOD ENDED FOR THE YEARS ENDED JANUARY 31,
JULY 31, JULY 31, --------------------------------------
1998 1997 1997 1996 1995 1994(1)
---------- ------------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
Net Asset Value, Beginning
of Period................. $ 10.01 $ 9.76 $ 9.85 $ 8.95 $ 10.04 $ 10.00
-------- ------- ------ ------ ------- -------
Investment Activities
Net investment income..... 0.457 0.206 0.430 0.518 0.460 0.117
Net realized and
unrealized gain (loss)
on investments......... 0.008 0.256 (0.078) 0.873 (1.098) 0.028
-------- ------- ------ ------ ------- -------
Distributions
Net investment income..... (0.435) (0.215) (0.442) (0.487) (0.452) (0.105)
Capital Gains............. -- -- -- -- -- --
-------- ------- ------ ------ ------- -------
Net Asset Value, End
of Period................. $ 10.04 $ 10.01 $ 9.76 $ 9.85 $ 8.95 $ 10.04
======== ======= ====== ====== ======= =======
Total Return................ 4.75% 4.84% 3.72% 15.83% (6.33)% 5.01%*
Net assets, end of period
(000).................. $157,062 $11,292 $7,435 $4,196 $12,793 $22,197
Ratio of expenses to
average net assets..... 0.42% 0.21%* 0.20% 0.24% 0.50% 0.50%*
Ratio of expenses to
average net assets
excluding fee
waivers................ 1.04% 0.91%* 0.85% 0.71% 0.72% 0.73%*
Ratio of net investment
income to average net
assets................. 4.46% 4.56%* 4.69% 4.97% 4.84% 4.31%*
Ratio of net investment
income to average net
assets excluding fee
waivers................ 3.84% 3.85%* 4.04% 4.50% 4.62% 4.08%
Portfolio turnover rate..... 23% 5% 6% 30% 22% 19%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized
(1) Commenced operations on October 15, 1993.
10
<PAGE> 167
BOND FUND
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994 1993
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
Net Asset Value, Beginning of
Period.......................... $ 10.67 $ 10.23 $ 10.38 $ 10.11 $ 11.13 $ 11.02
-------- ------- ------- ------- ------- -------
Investment Activities
Net investment income........... 0.615 0.628 0.660 0.640 0.630 0.700
Net realized and unrealized gain
(loss) on investments........ 0.150 0.421 (0.160) 0.270 (0.970) 0.350
-------- ------- ------- ------- ------- -------
Distributions
Net investment income........... (0.627) (0.609) (0.650) (0.640) (0.630) (0.700)
Capital gains................... -- -- -- -- -- --
-------- ------- ------- ------- ------- -------
Net Asset Value, End of Period.... $ 10.81 $ 10.67 $ 10.23 $ 10.38 $ 10.11 $ 11.13
======== ======= ======= ======= ======= =======
Total Return...................... 7.41% 10.59% 4.81% 9.43% (3.14)% 10.07%
Net assets, end of period
(000)........................ $206,125 $71,571 $60,374 $59,758 $64,185 $33,279
Ratio of expenses to average net
assets....................... 0.75% 0.85% 0.89% 0.92% 0.86% 0.93%
Ratio of expenses to average net
assets excluding fee
waivers...................... 1.02% 1.42% 1.61% 1.64% 1.37% 1.55%
Ratio of net investment income
to average net assets........ 5.86% 6.11% 6.10% 6.35% 6.11% 6.41%
Ratio of net investment income
to average net assets
excluding fee waivers........ 5.60% 5.54% 5.38% 5.62% 5.60% 5.79%
Portfolio turnover rate........... 16% 14% 21% 36% 44% 59%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
11
<PAGE> 168
BALANCED FUND
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTH
YEAR ENDED PERIOD ENDED FOR THE YEARS ENDED JANUARY 31,
JULY 31, JULY 31, -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
Net Asset Value, Beginning of
Period...................... $ 16.46 $ 15.04 $ 13.92 $ 11.45 $ 12.21 $ 11.50 $ 11.15
-------- -------- -------- -------- -------- -------- --------
Investment Activities
Net investment income....... 0.446 0.228 0.422 0.415 0.390 0.394 0.413
Net realized and unrealized
gain (loss) on
investments............... 0.724 1.712 1.699 2.831 (0.756) 0.928 0.543
-------- -------- -------- -------- -------- -------- --------
Distributions
Net investment income....... (0.458) (0.228) (0.409) (0.417) (0.391) (0.391) (0.408)
Capital gains............... (0.442) (0.290) (0.595) (0.362) (0.003) (0.221) (0.198)
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period...................... $ 16.73 $ 16.46 $ 15.04 $ 13.92 $ 11.45 $ 12.21 $ 11.50
======== ======== ======== ======== ======== ======== ========
Total Return.................. 7.31% 13.35% 16.30% 28.93% (2.95)% 11.79% 8.86%
Net assets, end of period
(000)..................... $448,783 $400,442 $307,531 $233,878 $167,434 $152,189 $100,474
Ratio of expenses to average
net assets................ 0.91% 0.83%* 0.79% 0.80% 0.80% 0.69% 0.69%
Ratio of expenses to average
net assets excluding fee
waivers................... 1.08% 0.98%* 0.79% 0.80% 0.80% 0.79% 0.79%
Ratio of net investment
income to average net
assets.................... 2.67% 2.99%* 3.48% 3.20% 3.41% 3.35% 3.72%
Ratio of net investment
income to average net
assets excluding fee
waivers................... 2.50% 2.85%* 3.48% 3.20% 3.41% 3.25% 3.62%
Portfolio turnover rate....... 22% 10% 27% 26% 48% 49% 68%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
12
<PAGE> 169
GROWTH FUND
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
-------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
Net Asset Value, Beginning of Period........... $ 17.36 $ 12.58 $ 11.87 $ 9.76 $ 10.00
-------- -------- ------- ------- -------
Investment Activities
Net investment income........................ 0.017 0.057 0.120 0.150 0.050
Net realized and unrealized gain (loss) on
investments............................... 3.108 5.773 1.350 2.260 (0.240)
-------- -------- ------- ------- -------
Distributions
Net investment income........................ (0.033) (0.053) (0.120) (0.150) (0.050)
Capital gains................................ (3.532) (0.996) (0.640) (0.150) --
-------- -------- ------- ------- -------
Net Asset Value, end of period................. $ 16.92 $ 17.36 $ 12.58 $ 11.87 $ 9.76
======== ======== ======= ======= =======
Total Return................................... 22.59% 48.54% 12.72% 25.23% (1.87)%
Net assets, end of period (000).............. $499,060 $297,879 $41,495 $25,096 $15,254
Ratio of expenses to average net assets...... 0.91% 0.92% 0.93% 0.79% 0.77%
Ratio of expenses to average net assets
excluding fee waivers..................... 1.08% 1.24% 1.67% 1.92% 2.61%
Ratio of net investment income to average net
assets.................................... 0.08% 0.39% 0.98% 1.40% 0.86%
Ratio of net investment income to average net
assets excluding fee waivers.............. (0.09)% 0.07% 0.23% 0.26% (0.98)%
Portfolio turnover rate........................ 67% 118% 79% 68% 123%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
13
<PAGE> 170
VALUE MOMENTUM FUND
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTH
YEAR ENDED PERIOD ENDED FOR THE YEARS ENDED JANUARY 31,
JULY 31, JULY 31, ---------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ------------ -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
Net Asset Value, Beginning of
Period...................... $ 25.48 $ 21.57 $ 18.05 $ 13.40 $ 11.27 $ 12.76 $ 11.68
-------- -------- -------- -------- -------- -------- -------
Investment Activities
Net investment income....... 0.332 0.132 0.436 0.331 0.318 0.292 0.310
Net realized and unrealized
gain (loss) on
investments............... 2.003 3.955 4.371 5.063 (0.817) 1.538 1.103
-------- -------- -------- -------- -------- -------- -------
Distributions
Net investment income....... (0.341) (0.176) (0.438) (0.337) (0.317) (0.290) (0.311)
Capital gains............... (0.164) -- (0.848) (0.408) (0.054) (0.030) (0.022)
-------- -------- -------- -------- -------- -------- -------
Net Asset Value, End of
Period...................... $ 27.31 $ 25.48 $ 21.57 $ 18.05 $ 13.40 $ 14.27 $ 12.76
======== ======== ======== ======== ======== ======== =======
Total Return.................. 9.22% 19.06% 27.33% 40.88% (3.48)% 14.56% 12.33%
Net assets, end of period
(000)..................... $863,627 $463,433 $317,482 $222,065 $150,138 $140,609 $92,636
Ratio of expenses to average
net assets................ 0.81% 0.78%* 0.79% 0.80% 0.81% 0.77% 0.68%
Ratio of expenses to average
net assets excluding fee
waivers................... 1.08% 0.94%* 0.79% 0.80% 0.81% 0.79% 0.78%
Ratio of net investment
income to average net
assets.................... 1.25% 1.65%* 2.26% 2.07% 2.36% 2.19% 2.59%
Ratio of net investment
income to average net
assets excluding fee
waivers................... 0.98% 1.49%* 2.26% 2.07% 2.36% 2.17% 2.49%
Portfolio turnover rate....... 7% 1% 9% 20% 6% 5% 3%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
14
<PAGE> 171
INCOME EQUITY FUND
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
Net Asset Value, Beginning of
Period............................ $ 18.21 $ 14.27 $ 13.00 $ 11.92 $ 12.13 $ 11.42
-------- -------- -------- -------- -------- --------
Investment Activities
Net investment income............. 0.305 0.372 0.420 0.440 0.390 0.380
Net realized and unrealized gain
(loss) on investments.......... 1.486 5.019 1.930 1.500 0.120 0.710
-------- -------- -------- -------- -------- --------
Distributions
Net investment income............. (0.302) (0.368) (0.420) (0.440) (0.390) (0.380)
Capital gains..................... (1.776) (1.083) (0.660) (0.420) (0.330) --
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period...... $ 17.92 $ 18.21 $ 14.27 $ 13.00 $ 11.92 $ 12.13
======== ======== ======== ======== ======== ========
Total Return........................ 10.79% 40.13% 18.25% 17.26% 4.23% 9.75%
Net assets, end of period (000)... $670,298 $352,725 $262,660 $221,325 $213,328 $104,840
Ratio of expenses to average net
assets......................... 0.92% 0.99% 1.03% 1.06% 1.06% 1.15%
Ratio of expenses to average net
assets excluding fee waivers... 1.09% 1.21% 1.27% 1.30% 1.10% 1.21%
Ratio of net investment income to
average net assets............. 1.63% 2.39% 2.95% 3.59% 3.29% 3.27%
Ratio of net investment income to
average net assets excluding
fee waivers.................... 1.45% 2.17% 2.71% 3.34% 3.24% 3.22%
Portfolio turnover rate............. 69% 46% 42% 37% 34% 30%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
15
<PAGE> 172
EMERGING GROWTH FUND
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTH
YEAR ENDED PERIOD ENDED FOR THE YEARS ENDED JANUARY 31,
JULY 31, JULY 31, --------------------------------
1998 1997 1997 1996 1995(1)
---------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
Net Asset Value, Beginning of
Period............................. $ 14.39 $ 13.50 $ 11.94 $ 9.42 $ 10.00
------- ------- ------- ------- -------
Investment Activities
Net investment income.............. 0.006 0.014 0.008 0.026 0.086
Net realized and unrealized gain
(loss) on investments........... 0.432 0.888 2.556 2.807 (0.535)
------- ------- ------- ------- -------
Distributions
Net investment income.............. (0.008) (0.012) (0.009) (0.033) (0.080)
Capital gains...................... (2.033) -- (0.991) (0.277) (0.051)
------- ------- ------- ------- -------
Net Asset Value, End of Period....... $ 12.79 $ 14.39 $ 13.50 $ 11.94 $ 9.42
======= ======= ======= ======= =======
Total Return......................... 3.37% 6.70% 21.79% 30.24% (4.48)%
Net assets, end of period (000).... $68,579 $66,336 $57,156 $41,770 $23,928
Ratio of expenses to average net
assets.......................... 1.03% 1.01%* 1.04% 1.05% 1.05%
Ratio of expenses to average net
assets excluding fee waivers.... 1.30% 1.16%* 1.04% 1.05% 1.05%
Ratio of net investment income to
average net assets.............. 0.05% 0.26%* 0.06% 0.22% 1.01%
Ratio of net investment income to
average net assets excluding fee
waivers......................... (0.22)% 0.10%* 0.06% 0.22% 1.01%
Portfolio turnover rate.............. 289% 116% 134% 131% 123%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
(1) Commenced operations on February 1, 1994.
16
<PAGE> 173
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTH FOR THE YEARS ENDED
YEAR ENDED PERIOD ENDED JANUARY 31,
JULY 31. JULY 31, --------------------
1998 1997 1997 1996(1)
---------- ------------ -------- --------
<S> <C> <C> <C> <C>
FIDUCIARY SHARES
Net Asset Value, Beginning of Period........... $ 38.69 $ 34.52 $ 37.49 $ 33.51
------- ------- ------- -------
Investment Activities
Net investment income........................ 0.767 0.212 0.220 0.447
Net realized and unrealized gain (loss) on
investments............................... (1.178) 3.958 (0.965) 4.084
------- ------- ------- -------
Distributions
Net investment income........................ (0.592) -- (0.812) (0.446)
Capital gains................................ (0.367) -- (1.416) (0.105)
------- ------- ------- -------
Net Asset Value, End of Period................. $ 37.32 $ 38.69 $ 34.52 $ 37.49
======= ======= ======= =======
Total Return................................... (0.82)% 12.08% (2.14)% 13.56%
Net Assets, end of period (000).............. $91,970 $52,467 $46,373 $44,188
Ratio of expenses to average net assets...... 1.34% 1.22%* 1.18% 1.16%
Ratio of expenses to average net assets
excluding fee waivers..................... 1.61% 1.41%* 1.28% 1.36%
Ratio of net investment income to average net
assets.................................... 0.71% 1.16%* 0.60% 1.31%
Ratio of net investment income to average net
assets excluding fee waivers.............. 0.44% 0.97%* 0.50% 1.11%
Portfolio turnover rate........................ 72% 18% 29% 21%
</TABLE>
- ---------------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
(1) Commenced operations on February 1, 1995.
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FUND DESCRIPTION
HighMark Funds is an open-end, diversified, registered investment company that
currently offers units of beneficial interest ("Shares") in seventeen investment
portfolios ("Funds"). All of the Funds are advised by HighMark Capital
Management, Inc. (the "Advisor"), a subsidiary of UnionBanCal Corporation.
Shareholders may purchase Shares of selected Funds through three separate
classes (Class A and Class B (collectively, the "Retail Shares") and Fiduciary
Shares). These classes may have different sales charges and other expenses,
which may affect performance. Information regarding HighMark Funds' other Funds
and other classes is contained in separate prospectuses that may be obtained
from HighMark Funds' 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 OBJECTIVES
The investment objectives of the Funds are as follows:
The INCOME EQUITY FUND seeks investments in equity securities that provide
current income through the regular payment of dividends, with the goal that the
Income Equity Fund will have a high current yield and a low level of price
volatility. Opportunity for long-term growth of asset value is a secondary
consideration.
The VALUE MOMENTUM FUND seeks long-term capital growth with a secondary
objective of income.
The GROWTH FUND seeks long-term capital appreciation through investments in
equity securities. The production of current income is an incidental objective.
The EMERGING GROWTH FUND seeks long-term growth of capital by investing in a
diversified portfolio of equity securities of small capitalization, emerging
growth companies.
The INTERNATIONAL EQUITY FUND seeks to provide long-term capital appreciation
by investing primarily in a diversified portfolio of equity securities of
non-U.S. issuers.
The SMALL CAP VALUE FUND seeks to provide long-term capital appreciation.
The INTERMEDIATE-TERM BOND FUND seeks total return through investments in
fixed-income securities.
The BOND FUND seeks current income through investments in long-term,
fixed-income securities.
The BALANCED FUND seeks capital appreciation and income. Conservation of
capital is a secondary consideration.
The CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND seeks to provide high current
income that is exempt from federal and State of California income taxes.
The investment objectives and certain of the investment limitations of the
Funds may not be changed without a vote of the holders of a majority of the
outstanding Shares of the respective Fund (as defined under GENERAL
INFORMATION--Miscellaneous below). There can be no assurance that a Fund will
achieve its investment objective.
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INVESTMENT POLICIES
Income Equity Fund
Under normal market conditions, the Income Equity Fund will invest at least
65% of its total assets in equity securities, including common stocks, warrants
to purchase common stocks, American Depositary Receipts ("ADRs"), preferred
stocks and securities (including debt securities) convertible into or
exercisable for common stocks. The Income Equity Fund's investments primarily
consist of the common stocks of U.S. corporations that regularly pay dividends,
although there can be no assurance that a corporation will continue to pay
dividends. Investments will be made in an attempt to keep the Income Equity
Fund's yield above the S&P 500's yield by approximately one-third to one-half
the difference between the S&P 500's yield and the yield on long-term U.S.
Government bonds.
The Income Equity Fund generally invests in stocks with favorable, long-term
fundamental characteristics when their current relative yields are at the upper
end of their historical yield ranges. Frequently, these stocks are out of favor
in the financial community and investors see little opportunity for price
appreciation. The Fund may also invest in major U.S. corporations in a mature
stage of development or operating in slower areas of the economy. While it is
anticipated that a significant part of the total growth in asset value
experienced by the Income Equity Fund will result from companies' improving
prospects (although there can be no assurance that this will in fact occur),
dividends will provide a substantial portion of the Fund's total return. When
yields on stocks held by the Income Equity Fund drop to the lower end of their
historical ranges, the Fund may begin to reduce its holdings. Similarly, if
there is a significant fundamental change that impairs a company's ability to
pay dividends, or if the yield on a stock dips below the yield of the general
market, the Income Equity Fund may eliminate its holdings in these stocks.
Value Momentum Fund
Under normal market conditions, the Value Momentum Fund will invest at least
65% of its total assets in equity securities, including common stocks, warrants
to purchase common stocks, ADRs, preferred stocks and securities (including debt
securities) convertible into or exercisable for common stocks. The Value
Momentum Fund will be invested primarily in securities which the Advisor
believes to be undervalued relative to the market and to the security's historic
valuation. Stocks are then screened for positive price or earnings momentum.
Securities purchased will generally have a medium to high market capitalization.
A majority of the securities in which the Value Momentum Fund invests will be
dividend paying.
Growth Fund
Under normal market conditions, the Growth Fund will invest at least 65% of
its total assets in equity securities, including common stocks, warrants to
purchase common stocks, ADRs, preferred stocks and securities (including debt
securities) convertible into or exercisable for common stocks, of
growth-oriented companies. The Growth Fund emphasizes a well-diversified
portfolio of medium to large capitalization growth companies (capitalization in
excess of $500 million) with a record of above average growth in earnings. The
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Fund focuses on companies that the Advisor believes to have enduring quality and
above average earnings growth. Among the criteria the Fund uses to screen for
stock selection are earnings growth, return on capital, brand identity,
recurring revenues, price and quality of management team.
Emerging Growth Fund
Under normal market conditions, the Emerging Growth Fund will invest at least
65% of its total assets in equity securities, including common stocks, warrants
to purchase common stocks, ADRs, preferred stocks and securities (including debt
securities) convertible into or exercisable for common stocks of small and
medium capitalization companies. Small and medium capitalization companies are
those with capitalization between $50 million and $1 billion and the potential
for growth or those which, in the Advisor's opinion, have potential for
above-average long-term capital appreciation. An emerging growth company is one
which, in the Advisor's judgment, is in the developing stages of its life cycle
and has demonstrated or is expected to achieve rapid growth in earnings and/or
revenues. Emerging growth companies are characterized by opportunities for rapid
growth rates and/or dynamic business changes. Emerging growth companies,
regardless of size, tend to offer the potential for accelerated earnings or
revenue growth because of new products or technologies, new channels of
distribution, revitalized management or industry conditions, or similar
opportunities. A company may or may not yet be profitable at the time the
Emerging Growth Fund invests in its securities. Current income will not be a
criterion of investment selection, and any such income should be considered
incidental. Many of the securities in which the Fund invests will not pay
dividends.
The Emerging Growth Fund may also invest in equity securities of companies in
"special equity situations," meaning companies experiencing unusual and possibly
non-repetitive developments, such as mergers; acquisitions; spin-offs;
liquidations; reorganizations; and new products, technology or management. Since
a special equity situation may involve a significant change from a company's
past experiences, the uncertainties in the appraisal of the future value of the
company's equity securities and the risk of a possible decline in the value of
the Emerging Growth Fund's investments are significant.
International Equity Fund
Under normal market conditions, at least 65% of the International Equity
Fund's assets will be invested in the following equity securities of non-U.S.
issuers: common stocks, securities convertible into common stocks, preferred
stocks, warrants and rights to purchase common stock. Under normal market
conditions, at least 65% of the Fund's total assets will be invested in
securities of issuers organized under the laws of at least five countries other
than the United States that are included in the Morgan Stanley Capital
International Europe, Australia and Far East Index (the "EAFE
Index").(1)Countries may be over- or under-weighted in comparison to the EAFE
Index based upon the Advisor's and Sub-Advisors's view of forecasted rates of
returns. Regional and individual country weightings, therefore, may vary from
the EAFE Index benchmark. The Advisor and
- ---------------
(1) "MSCI-EAFE Index" is a registered service mark of Morgan Stanley Capital
International which does not sponsor and is in no way affiliated with the
International Equity Fund.
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Sub-Advisor will select individual securities for the Fund on the basis of
their growth opportunities or undervaluation in relation to other securities.
The Fund expects its investments to emphasize companies with market
capitalizations in excess of $100,000,000.
The Fund will typically invest in equity securities listed on recognized
foreign exchanges, but may also invest up to 15% of its total assets in
securities traded in over-the-counter markets. Equity securities of non-U.S.
issuers may also be purchased in the form of sponsored or unsponsored ADRs and
sponsored or unsponsored European Depositary Receipts ("EDRs").
The Fund may enter into forward foreign currency contracts as a hedge against
possible variations in foreign exchange rates. A forward foreign currency
contract is a commitment to purchase or sell a specified currency at a specified
date, at a specified price. The Fund may enter into forward foreign currency
contracts to hedge a specific security transaction or to hedge a portfolio
position. These contracts may be bought and sold to protect the Fund, to some
degree, against a possible loss resulting from an adverse change in the
relationship between foreign currencies. The Fund may also invest in options on
currencies.
The premium paid on options on securities positions will not exceed 10% of the
Fund's net assets at the time such options are entered into by the Fund. The
aggregate premium paid on all options on stock indices will not exceed 20% of
the Fund's total assets.
The Fund's remaining assets may be invested in investment grade bonds and
debentures issued by non-U.S. or U.S. companies, obligations of supranational
entities, securities issued or guaranteed by foreign and U.S. governments, and
foreign and U.S. commercial paper. Certain of these instruments may have
floating or variable interest rate provisions. In addition, the Fund may invest
in securities of issuers whose principal activities are in countries with
emerging markets. The Fund defines an emerging market country as any country
whose economy and market the World Bank or the United Nations considers to be
emerging or developing. The Fund may also purchase shares of closed-end
investment companies that invest in the securities of issuers in a single
country or region and shares of open-end management investment companies.
Small Cap Value Fund
Under normal market conditions, the Small Cap Value 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, ADRs, Global
Depositary Receipts ("GDRs"), other depositary receipts, preferred stocks and
securities (including debt securities) convertible into or exercisable for
common stocks. The Fund's investments primarily consist of the equity securities
of companies with equity capitalizations within the range of market
capitalization of issuers comprising the relevant market small capitalization
index. Currently the relevant market indexes used are the S&P 600 (domestically)
and the Financial Times/S&P Actuaries World Indices World Ex. U.S. Medium/Small
Cap (internationally).
The Advisor and Sub-Advisor will generally invest Fund assets in stocks with
favorable, long-term fundamental characteristics which the Advisor or
Sub-Advisor believes are undervalued in the marketplace. Frequently, these
stocks are out of favor in the financial community and in which investors see
little opportunity for rapid price appreciation. If there are not enough
securities which meet the Advisor's or the Sub-Advisor's value-oriented
investment criteria, the Fund may hold cash reserves temporarily. The Advisor
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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 review and reallocate the
Fund's assets in order to maintain such allocation. Such reallocation shall be
performed in the Advisor's discretion. 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.
Intermediate-Term Bond Fund
Under normal market conditions, at least 65% of the Intermediate-Term Bond
Fund's assets will be invested in bonds. For purposes of this policy "bonds"
include (i) corporate bonds and debentures rated at the time of purchase as
"investment grade" (one of the four highest bond rating categories by a
nationally recognized statistical rating organization ("NRSRO") or determined by
the Advisor to be of comparable quality; (ii) Yankee Bonds and Eurodollar
instruments; (iii) notes or bonds issued by the U.S. Government and its agencies
and instrumentalities (such as Government National Mortgage Association ("GNMA")
securities); (iv) mortgage-backed securities, including privately issued
mortgage-backed securities and readily-marketable asset-backed securities, which
must be rated at the time of purchase as investment grade, or be determined by
the Advisor to be of comparable quality; (v) securities issued or guaranteed by
foreign governments, their political subdivisions, agencies or
instrumentalities; (vi) obligations of supranational entities such as the World
Bank and the Asian Development Bank; and (vii) zero coupon obligations. In the
event that a security owned by the Fund is downgraded below the stated rating
categories, the Advisor will take appropriate action with regard to that
security. The remainder of the Fund's assets may be invested in money market
instruments.
The dollar-weighted average portfolio maturity of the Intermediate-Term Bond
Fund will be from three to ten years.
Bond Fund
The Bond Fund invests in fixed-income securities with maturities in excess of
one year, except for amounts held in money market instruments. Fixed-income
securities can have maturities of up to thirty years or more. Under normal
market conditions, the Bond Fund will invest at least 65% of the value of its
total assets in bonds and may invest up to 35% of its total assets in money
market instruments.
For purposes of this policy "bonds" include (i) corporate bonds and debentures
rated at the time of purchase as investment grade or determined by the Advisor
to be of comparable quality; (ii) Yankee Bonds and Eurodollar instruments; (iii)
notes or bonds issued by the U.S. Government and its agencies and
instrumentalities (such as GNMA securities); (iv) mortgage-backed securities,
including privately issued mortgage-backed securities and readily-marketable
asset-backed securities, which must be rated at the time of
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purchase as investment grade, or be determined by the Advisor to be of
comparable quality; (v) securities issued or guaranteed by foreign governments,
their political subdivisions, agencies or instrumentalities; (vi) obligations of
supranational entities such as the World Bank and the Asian Development Bank;
and (vii) zero coupon obligations. In the event that a security owned by the
Fund is downgraded below the stated rating categories, the Advisor will take
appropriate action with regard to that security. The remainder of the Fund's
assets may be invested in money market instruments.
The dollar-weighted average portfolio maturity of the Bond Fund will be from
five to twenty years.
Balanced Fund
The Balanced Fund may invest in any type or class of security. Under normal
market conditions, the Balanced Fund will invest between 50% and 70% of its
total assets in equity securities. Senior fixed-income securities will normally
constitute at least 25% of the Balanced Fund's net assets.
Equity securities include common stocks, warrants to purchase common stocks,
ADRs, preferred stocks, securities (including debt securities) convertible into
or exercisable for common stocks and Standard & Poor's Depository Receipts
("SPDRs"). The Balanced Fund's fixed-income investments consist of bonds,
debentures, notes, zero-coupon securities, all forms of mortgage-related
securities (including collateralized mortgage obligations), and obligations
issued or guaranteed by the U.S. or foreign Governments or their agencies or
instrumentalities. Privately issued mortgage-backed securities must be rated in
one of the top two categories by at least one NRSRO as defined below. In
addition to mortgage-backed securities, the Balanced Fund may invest in other
asset-backed securities including, but not limited to, those backed by company
receivables, truck and auto loans, leases, and credit card or other receivables.
The Balanced Fund may invest in bonds, notes and debentures of any maturity
issued by U.S. and foreign corporate and governmental issuers. The Balanced Fund
will invest only in corporate fixed-income securities that are rated at the time
of purchase as investment grade or, if unrated, which the Advisor deems to be
attractive opportunities and of comparable quality.
In the event that a security owned by the Fund is downgraded below the stated
rating categories, the Advisor will take appropriate action with regard to that
security.
The portions of the Balanced Fund's assets invested in equity securities and
fixed-income securities will vary from time to time within the stated ranges,
depending upon the Advisor's assessment of business, economic and market
conditions. The Advisor considers a combination of risk, capital appreciation,
income, and protection of capital value.
California Intermediate Tax-Free Bond Fund
Under normal market conditions, the Fund will invest primarily in bonds and
notes issued by the State of California, its agencies, instrumentalities, and
political sub-divisions, the income on which is exempt from regular federal and
State of California personal income taxes ("California Municipal Securities").
The Fund may also invest in bonds and notes of other states, territories, and
possessions of the U.S. and their agencies, authorities, instrumentalities and
political sub-divisions which are exempt from federal income taxes, and in
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shares of other investment companies, specifically money market funds, which
have similar investment objectives.
Under normal market conditions, at least 80% of the Fund's assets will be
invested in bonds and notes rated investment grade by a nationally recognized
rating agency or are deemed by the Advisor to be of comparable quality at the
time of purchase and which pay interest that is not treated as a preference item
for purposes of the federal alternative minimum tax. In the event that a
security owned by the Fund is downgraded below the stated ratings categories,
the Advisor will take appropriate action with regard to the security.
Under California law, a mutual fund must qualify as a regulated investment
company and have at least 50% of its total assets invested in California
Municipal Securities at the end of each quarter of its taxable year in order to
be eligible to pay California residents dividends that are wholly or partially
exempt from California personal income taxes. Accordingly, the Fund intends to
maintain at least 65% of its assets in California Municipal Securities and may
invest up to 100% of its assets in such securities.
The Fund has no restrictions on the maturity of municipal securities in which
it may invest. Under normal market conditions, the dollar-weighted average
portfolio maturity of the Fund is expected to be from three to ten years.
Accordingly, the Fund seeks to invest in municipal securities of such maturities
which, in the judgment of the Advisor, will provide a high level of current
income consistent with prudent investment, with consideration given to market
conditions.
GENERAL
Money Market Instruments
Under normal market conditions, money market instruments may comprise up to
35% of the total assets of each Equity Fund, other than the Balanced Fund, the
Intermediate-Term Bond Fund and the Bond Fund, and up to 25% of the Balanced
Fund's total assets. When market conditions indicate a temporary "defensive"
investment strategy as determined by the Advisor, a Fund may invest more than
the above stated amount of its total assets in money market instruments, and the
California Intermediate Tax-Free Bond Fund may invest more than 20% of its total
assets in municipal obligations of other states or taxable money market
instruments including repurchase agreements. A Fund will not be pursuing its
investment objective to the extent that a substantial portion of its assets are
invested in money market instruments (or taxable money market instruments for
the California Intermediate Tax-Free Bond Fund).
Illiquid and Restricted Securities
Each Fund shall limit investment in illiquid securities to 15% or less of its
net assets. Generally, an "illiquid security" is any security that cannot be
disposed of promptly and in the ordinary course of business at approximately the
amount at which the Fund has valued the instrument. The absence of a trading
market can make it difficult to ascertain the market value of the illiquid
securities. Each Fund may purchase restricted securities which have not been
registered under the Securities Act of 1933 (e.g., Rule 144A Securities and
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Section 4(2) commercial paper) subject to policies approved by the Board of
Trustees. See INVESTMENT RESTRICTIONS in the Statement of Additional
Information.
California Municipal Securities
The two principal classifications of California Municipal Securities are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith, credit, and taxing power for the
payment of principal and interest. Revenue bonds are payable primarily from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source.
Private activity bonds (formerly known as industrial revenue bonds) are
generally revenue bonds.
Certain California Municipal Securities are municipal lease revenue
obligations (or certificates of participation or "COPs"), which typically
provide that the municipality has no obligation to make lease or installment
payments in future years unless money is appropriated for such purpose. While
the risk of non-appropriation is inherent to COP financing, this risk is
mitigated by the Fund's policy to invest in COPs that are rated in one of the
four highest rating categories used by Moody's Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P").
California Municipal Securities also include so-called Mello-Roos and
assessment district bonds, which are usually unrated instruments issued to
finance the building of roads and other public works and projects that are
primarily secured by real estate taxes levied on property located in the local
community. Most of these bonds do not seek agency ratings because the issues are
too small, and in most cases, the purchase of these bonds is based upon the
Advisor's determination that it is suitable for the Fund.
Certain of the obligations in which the Fund may invest may be variable or
floating rate instruments and may involve a conditional or unconditional demand
feature.
Lending of Portfolio Securities
In order to generate additional income, a Fund may lend its portfolio
securities to broker-dealers, banks or other institutions. A Fund may lend
portfolio securities in an amount representing up to 33 1/3% of the value of the
Fund's total assets.
Other Investments
The Funds may enter into repurchase agreements and reverse repurchase
agreements.
The Funds may enter into forward commitments or purchase securities on a
"when-issued" basis. Each Fund expects that commitments by a Fund to enter into
forward commitments or purchase when-issued securities will not exceed 25% of
the value of the Fund's total assets under normal market conditions. The Funds
do not intend to purchase when-issued securities or forward commitments for
speculative or leveraging purposes but only for the purpose of acquiring
portfolio securities.
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The Funds, other than the California Intermediate Tax-Free Bond fund, may also
invest in money market instruments, money market funds, and cash.
Each Fund may invest in other registered investment companies with similar
investment objectives. A Fund may invest up to 5% of its total assets in the
shares of any one registered investment company, but may not own more than 3% of
the securities of any one registered investment company or invest more than 10%
of its assets in the securities of other registered investment companies. In
accordance with an exemptive order issued to HighMark Funds by the Securities
and Exchange Commission, such other registered investment company securities may
include shares of a money market fund of HighMark Funds, and may include
registered investment companies for which the Advisor or Sub-Advisor to a Fund
of HighMark Funds, or an affiliate of such Advisor or Sub-Advisor, serves as
investment advisor, administrator or distributor.
Because other registered investment companies employ an investment advisor,
such investment by a Fund may cause Shareholders to bear duplicative fees. The
Advisor will waive its fees attributable to the assets of the investing Fund
invested in a money market fund of HighMark Funds, and, to the extent required
by applicable law, the Advisor will waive its fees attributable to the assets of
the Fund invested in any investment company. Some Funds are subject to
additional restrictions on investments in other investment companies. See
"INVESTMENT RESTRICTIONS" in the Statement of Additional Information.
Each Equity Fund may write covered calls on its equity securities and enter
into closing transactions with respect to covered call options. The Balanced
Fund may also buy and sell options, futures contracts and options on futures. An
Equity Fund's assets may be invested in options, futures contracts and options
on futures, SPDRs, and investment grade bonds. The aggregate value of options on
securities (long puts and calls) will not exceed 10% of an Equity Fund's net
assets at the time such options are purchased by the Fund. An Equity Fund may
enter into futures and options on futures only to the extent that obligations
under such contracts or transactions, together with options on securities,
represent not more than 25% of the Fund's assets. Each of these Funds 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 these Funds invest
(including foreign securities in the form of ADRs but not including Rule 144A
Securities) are traded on registered exchanges or in the over-the-counter
market.
The International Equity Fund and the Fixed Income Funds may invest in futures
and options on futures for the purpose of achieving the Fund's objectives and
for adjusting portfolio duration. These Funds may invest in futures and related
options based on any type of security or index traded on U.S. or foreign
exchanges or over the counter, as long as the underlying security, or securities
represented by an index, are permitted investments of the Fund. The
International Equity Fund may enter into index contracts and contracts for
foreign currencies. These Funds may enter into futures contracts and related
options only to the extent that obligations under such contracts or transactions
represent not more than 10% of the Fund's assets.
Certain of the obligations in which the Fixed Income Funds, except the
California Intermediate Tax-Free Bond Fund, may invest may be variable or
floating rate instruments, may involve a conditional or unconditional demand
feature, and may include variable amount master demand notes.
For further information, see "DESCRIPTION OF PERMITTED INVESTMENTS."
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Risk Factors
To the extent a Fund invests in equity securities, that 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.
In addition to credit risk which relates to the ability of an issuer to make
payments of principal and interest, all types of bonds are also subject to
market risk. Market risk relates to changes in a security's value as a result of
interest rate changes generally. An increase in interest rates will generally
reduce the value of the fixed income investments in the Funds and a decline in
interest rates will generally increase the value of those investments.
Accordingly, the net asset value of the Fund's shares will vary as a result of
changes in the value of the securities in a Fund's portfolio. Therefore, an
investment in the Funds may decline in value, resulting in a loss of principal.
Because interest rates vary, it is impossible to predict the income or yield of
the Fund for any particular period. Changes in the value of a Fund's
fixed-income securities will not affect cash income received from ownership of
such securities, but will affect a Fund's net asset value.
As described above, the Funds may invest in debt securities within the four
highest rating categories assigned by a NRSRO and comparable unrated securities.
Securities rated BBB by S&P or Baa by Moody's are considered investment grade,
but are deemed by these rating services to have some speculative
characteristics, and adverse economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case with higher-grade bonds. Should subsequent events cause the
rating of a debt security purchased by a Fund to fall below the fourth highest
rating category, the Advisor will consider such an event in determining whether
the Balanced Fund should continue to hold that security. In no event, however,
would a Fund be required to liquidate any such portfolio security where the Fund
would suffer a loss on the sale of such security.
While debt securities normally fluctuate less in price than equity securities,
there have been extended periods of cyclical increases in interest rates that
have caused significant declines in debt securities prices. Certain fixed-income
securities which may be purchased by a Fund such as zero-coupon obligations,
mortgage-backed and asset-backed securities, and collateralized mortgage
obligations ("CMOs") will have greater price volatility then other fixed-income
obligations. Because declining interest rates may lead to prepayment of
underlying mortgages, automobile sales contracts or credit card receivables, the
prices of mortgage-related and asset-backed securities may not rise with a
decline in interest rates. Mortgage-backed and asset-backed securities and CMOs
are extremely sensitive to the rate of principal prepayment. Similarly, callable
corporate bonds also present risk of prepayment.
During periods of falling interest rates, securities that can be called or
prepaid may decline in value relative to similar securities that are not subject
to call or prepayment.
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Depending upon prevailing market conditions, a Fund may purchase debt
securities at a discount from face value, which produces a yield greater than
the coupon rate. Conversely, if debt securities are purchased at premium over
face value, the yield will be lower than the coupon rate. In making investment
decisions, the Advisor will consider many factors other than current yield,
including the preservation of capital, the potential for realizing capital
appreciation, maturity, and yield to maturity.
From time to time, the equity and debt markets may fluctuate independently of
one another. In other words, a decline in equity markets may in certain
instances be offset by a rise in debt markets, or vice versa. As a result, the
Balanced Fund, with its balance of equity and debt investments, may entail less
investment risk (and a potentially smaller investment return) than a mutual fund
investing primarily in equity securities.
Each of the International Equity Fund, the Balanced Fund, the Small Cap Value
Fund and the Fixed Income Funds, except the California Tax-Free Bond 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. There may be certain risks connected with investing in foreign
securities, including risks of adverse political and economic developments
(including possible governmental seizure or nationalization of assets), the
possible imposition of exchange controls or other governmental restrictions,
including less uniformity in accounting and reporting requirements, the
possibility that there will be less information on such securities and their
issuers available to the public, the difficulty of obtaining or enforcing court
judgments abroad, restrictions on foreign investments in other jurisdictions,
difficulties in effecting repatriation of capital invested abroad, and
difficulties in transaction settlements and the effect of delay on shareholder
equity. Foreign securities may be subject to foreign taxes, which reduce yield,
and may be less marketable than comparable U.S. securities. The value of the
Fund's investments denominated in foreign currencies will depend on the relative
strengths of those currencies and the U.S. dollar, and the Fund may be affected
favorably or unfavorably by changes in the exchange rates or exchange control
regulations between foreign currencies and the U.S. dollar. Changes in foreign
currency exchange rates may also affect the value of dividends and interest
earned, gains and losses realized on the sale of securities, and net investment
income and gains, if any, to be distributed to Shareholders by the Fund. To the
extent that a Fund may invest in securities of foreign issuers that are not
traded on any exchange, there is a further risk that these securities may not be
readily marketable. The Fixed Income Funds and the Balanced Fund will not hold
foreign currency for investment purposes. The Small Cap Value Fund will not hold
foreign currency for investment or hedging purposes. The International Equity
Fund, on the other hand, may hold foreign currency for both investment and
hedging purposes.
On January 1, 1999, the European Monetary Market Union ("EMU") plans to
introduce a new single currency, the euro, which will replace the national
currency for participating member countries. Those countries are Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal and Spain. A new European Central Bank ("ECB") will be created to
manage the monetary policy of the new unified region. On the same day, exchange
rates will be irrevocably fixed between the EMU member countries. National
currencies will continue to circulate until they are replaced by coins and banks
notes by the middle of 2002.
The planned introduction of the euro presents some uncertainties and possible
risks, including whether the payment and operational systems of banks and other
financial institutions will be ready by January 1, 1999;
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whether exchange rates for existing currencies and the euro will be adequately
established; and whether suitable clearing and settlement systems for the euro
will be in operation. These and other factors may cause market disruptions
before or after January 1, 1999 and could adversely affect the value of certain
foreign securities held by a Fund.
After January 1, 1999, the introduction of the euro is expected to impact
European capital markets in ways that it is impossible to quantify at this time.
For example, investors may begin to view EMU countries as a single market, and
that may impact future investment decisions for a Fund. As the euro is
implemented, there may be changes in the relative strength and value of the U.S.
dollar and other major currencies, as well as possible adverse tax consequences.
The euro transition by EMU countries--present and future--may impact the fiscal
and monetary policies of those participating countries. There may be increased
levels of price competition among business firms within EMU countries and
between businesses in EMU and non-EMU countries. The outcome of these
uncertainties could have unpredictable effects on trade and commerce and result
in increased volatility for all financial markets.
Forward foreign currency contracts do not eliminate fluctuations in the
underlying prices of securities. Rather, they simply establish a rate of
exchange which one can achieve at some future point in time. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency at the same time, they tend to limit any
potential gain which might result, should the value of such currency increase.
Currency risk is one of the factors considered by the Small Cap Value Fund's
Sub-Advisor in determining the portion of the Small Cap Value 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 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.
Given the uncertainty of the future value of emerging growth companies and
companies in special equity situations, the risk of possible decline in value of
the Emerging Growth Fund's net assets are significant. Companies in which the
Emerging Growth Fund invests may offer greater opportunities for capital
appreciation than larger more established companies, but investment in such
companies may involve certain special risks. These risks may be due to the
greater business risks of small size, limited markets and financial resources,
narrow product lines and frequent lack of depth in management. The securities of
such companies are often traded in the over-the-counter market and may not be
traded in volumes typical on a national securities exchange. Thus, the
securities of emerging growth companies may be less liquid, and subject to more
abrupt or erratic market movements than securities of larger, more established
growth companies. Since a "special equity situation" may involve a significant
change from a company's past experiences, the uncertainties in the appraisal of
the future value of the company's equity securities and the risk of a possible
decline in the value of the Fund's investments are significant.
The International Equity Fund and Small Cap Value Fund may also invest in the
securities of emerging market issuers. 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.
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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.
The ability of the State of California and its political sub-divisions to
generate revenue through real property and other taxes and to increase spending
has been significantly restricted by various constitutional and statutory
amendments and voter-passed initiatives. Such limitations could affect the
ability of California state and municipal issuers to pay interest or repay
principal on their obligations. In addition, during the first half of the
decade, California faced severe economic and fiscal conditions and experienced
recurring budget deficits that caused it to deplete its available cash resources
and to become increasingly dependent upon external borrowings to meet its cash
needs.
The financial difficulties experienced by the State of California and
municipal issuers during the recession resulted in the credit ratings of certain
of their obligations being downgraded significantly by the major rating
agencies.
Risks Associated with Convertible Securities
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
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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
may be exercised but only the right to buy such securities at a particular
price. The Funds will not purchase any convertible debt security or convertible
preferred stock unless it has been rated as investment grade at the time of
acquisition by a NRSRO or that is not rated but is determined to be of
comparable quality by the Advisor.
Risks Associated with Securities of Small Companies
Given the uncertainty of the future value of companies the Small Cap Value
Fund and the Emerging Growth Fund invest in, the risk of possible decline in
value of the Funds' net assets are significant. Companies in which the Funds
invest may offer greater opportunities for capital appreciation than larger,
more established companies, but investment in such companies may involve certain
special risks. These risks may be due to the greater business risks of small
size, limited markets and financial resources, narrow product lines and frequent
lack of depth in management. The securities of such companies are often traded
in the over-the-counter market and may not be traded in volumes typical on a
national securities exchange. Thus, the securities of such companies may be less
liquid, and subject to more abrupt or erratic market movements than securities
of larger, more established growth companies. Since a "special equity situation"
may involve a significant change from a company's past experiences, the
uncertainties in the appraisal of the future value of the company's equity
securities and the risk of a possible decline in the value of the Funds'
investments are significant.
Year 2000
HighMark Funds depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other mutual funds, businesses and
individuals around the world, HighMark Funds could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. HighMark Funds has made inquiry of its service providers to determine
whether they expect to have their computer systems adjusted for the year 2000
transition, and is seeking assurances from each service provider that it expects
its system to accommodate the year 2000 transition without material adverse
consequences to HighMark Funds. While it is likely that such assurances will be
obtained, HighMark Funds and its shareholders may experience losses if these
assurances prove to be incorrect or as a result of year 2000 computer
difficulties experienced by issuers of portfolio securities or custodians,
banks, broker-dealers or others with which HighMark Funds does business.
PORTFOLIO TURNOVER
A Fund's portfolio turnover rate will not be a factor preventing a sale or
purchase when the Advisor believes investment considerations warrant. Each of
the Funds' portfolio turnover rate may vary greatly from year to year as well as
within a particular year. High portfolio turnover rates generally will result in
correspondingly higher brokerage and other transactions costs to the Funds and
could involve the realization of capital gains that would be taxable when
distributed to Shareholders of the relevant Fund. See FEDERAL TAXATION.
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PURCHASE AND REDEMPTION OF SHARES
The Income Equity, Value Momentum, Growth, Small Cap Value and Balanced Funds
are divided into three classes of Shares, Class A, Class B and Fiduciary. The
Emerging Growth, Intermediate-Term Bond, Bond and California Intermediate
Tax-Free Bond Funds are divided into two classes of Shares, Class A and
Fiduciary, and the International Equity Fund is only offered in a single class
of Shares, 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 Funds' Equity or Income Funds prior to June 20, 1994, which have
remained continuously open thereafter and which are not considered to be
fiduciary accounts; (iii) Shareholders who currently own Shares of HighMark
Funds' Equity or Income Funds that were purchased prior to June 20, 1994 within
an account registered in their name with the Funds; (iv) present and retired
trustees of the Funds and directors, officers and employees (and their spouses
and children under the age of 21) of Union Bank of California, N.A., HighMark
Funds' current or former distributors or their respective affiliated companies
who currently own Shares of HighMark Funds which were purchased before April 30,
1997; (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; and (vi) Retirement and other benefit plans
sponsored by governmental entities and Financial Institutions, which may
purchase shares on their own account or as record owner on behalf of fiduciary,
agency or custodial accounts, with a minimum investment of $1,000,000. 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 Funds may be made on days on which
the New York Stock Exchange is open for business ("Business Days"). The minimum
initial investment is generally $1,000 per Fund and the minimum subsequent
investment is generally only $100 per Fund. For present and retired trustees of
the Funds and 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 per Fund and
the minimum subsequent investment is $50 per Fund. A Fund's initial and
subsequent minimum purchase amounts may be waived if purchases are made in
connection with Individual Retirement Accounts, Keoghs, payroll deduction plans,
or 401(k) or similar plans. However, the minimum investment may be waived in the
Distributor's discretion. Shareholders may place orders by telephone.
Purchase orders will be effective if the Distributor receives an order before
1:00 p.m., Pacific time (4:00 p.m., Eastern time) and the custodian receives
Federal funds before the close of business on the next Business Day. The
purchase price of Shares of a Fund is the net asset value next determined after
a purchase order is received and accepted by HighMark Funds. The net asset value
per Share of a Fund is determined by dividing the total market value of a Fund's
investments and other assets, less any liabilities, by the total number of
outstanding Shares of a Fund. Net asset value per share is determined daily as
of 1:00 p.m., Pacific time (4:00 p.m., Eastern time) on any Business Day.
Purchases will be made in full and fractional Shares of HighMark Funds
calculated to three decimal places. HighMark Funds reserves the right to reject
a purchase
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order when the Distributor or Advisor determines that it is not in the best
interest of HighMark Funds and/or its Shareholders to accept such order.
Shares of the Funds are offered only to residents of states in which the
Shares are eligible for purchase.
Shareholders who desire to redeem shares of HighMark Funds must place their
redemption orders prior to 1:00 p.m., Pacific time (4:00 p.m., Eastern time), on
any Business Day for the order to be accepted on that Business Day. The
redemption price is the net asset value of the Fund next determined after
receipt by the Distributor of the redemption order. Payment on redemption will
be made as promptly as possible and, in any event, within seven calendar days
after the redemption order is received. The Funds reserve the right to make
payment for redemptions in securities rather than cash.
Neither HighMark Funds' transfer agent nor HighMark Funds 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
Funds 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 Funds & Its
Shares, certain Funds of HighMark Funds issue three classes of Shares (Class A
and Class B Shares (collectively, "Retail Shares") and Fiduciary Shares); as of
the date of this Prospectus, the Distribution Plan and distribution fee payable
thereunder are applicable only to such Fund's Retail Shares. A Shareholder's
eligibility to exchange into a particular class of Shares will be determined at
the time of the exchange. The Shareholder must supply, at the time of the
exchange, the necessary information to permit confirmation of qualification.
Each Fund's Shares may be exchanged for Shares of the class of the various
other Funds of HighMark Funds which the Shareholder qualifies to purchase
directly so long as the Shareholder maintains the applicable minimum account
balance in each Fund in which he or she owns Shares and satisfies the minimum
initial and subsequent purchase amounts of the Fund into which the Shares are
exchanged. Shareholders may exchange their Fiduciary Shares for Fiduciary Shares
of another Fund on the basis of the relative net asset value of the Fiduciary
Shares exchanged. Shareholders may also exchange Fiduciary Shares of a Fund for
Retail Shares of another Fund. Under such circumstances, the cost of the
acquired Retail Shares will be the net asset value per share plus the
appropriate sales load.
Exchanges will be made on the basis of the relative net asset values of the
Shares exchanged plus any applicable sales charge. Exchanges are subject to the
terms and conditions stated herein and the terms and conditions stated in the
respective prospectuses of the Funds.
Certain entities (including participating organizations and Union Bank of
California and its affiliates), however, may charge customers a fee with respect
to exchanges made on the customer's behalf. Information about these charges, if
any, can be obtained by the entity effecting the exchange and this Prospectus
should be read in conjunction with that information.
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A Shareholder wishing to exchange Shares in an Equity Fund may do so by
contacting the transfer agent at 1-800-433-6884. Exchanges will be effected on
any Business Day at the net asset value of the Funds involved in the exchange
next determined after the exchange request is received by the transfer agent.
An exchange is considered to be a sale of Shares for federal income tax
purposes on which a Shareholder may realize a capital gain or loss. Exchange
privileges may be exercised only in those states where Shares of such other
Funds of HighMark Funds may legally be sold. HighMark Funds may materially amend
or terminate the exchange privileges described herein upon sixty days' notice.
DIVIDENDS
The net investment income of each of the Funds is declared and paid monthly,
with the exception of the International Equity Fund and Small Cap Value Fund
which are 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 a Fund at net asset
value as of the date of declaration (which is also the ex-dividend date), unless
the Shareholder elects to receive such dividends or distributions in cash.
Shareholders wishing to receive their dividends in cash (or wishing to revoke a
previously made election) must notify the transfer agent at P.O. Box 8416,
Boston, MA 02266-8416, and such election (or revocation thereof) will become
effective with respect to dividends and distributions having record dates after
notice has been received. Dividends paid in additional Shares receive the same
tax treatment as dividends paid in cash.
TAXES
Federal Taxation
Each Fund intends to qualify for treatment as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"), and to
distribute substantially all of its net investment income and realized net
capital gains in a timely manner so that each Fund is not required to pay
federal taxes on these amounts. Because all of the net investment income of the
Fixed Income Funds is expected to be derived from interest, it is anticipated
that no part of any distribution will be eligible for the federal dividends
received deduction.
For each Fund, other than the California Intermediate Tax-Free Bond 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 Equity Funds, the 70
percent dividends received deduction for corporations generally will apply to
these distributions to the extent the distribution represents amounts that would
qualify for the dividends received deduction when received by a Fund if a Fund
were a regular corporation, and to the extent designated by a Fund as so
qualifying. A corporate Shareholder will only be eligible to claim a dividends
received deduction with respect to a dividend from a Fund if the corporate
Shareholder held its Shares on the ex-dividend date and for at least 45 other
days
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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 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.
The sale, exchange or redemption of Fund Shares may give rise to a gain or
loss. In general, any gain realized upon the taxable disposition of Shares will
be treated as 20% gains if the Shares have been held for more than 12 months.
Otherwise the gain on the sale, exchange or redemption of Fund Shares will be
treated as short-term capital gain. In general, any loss realized upon a taxable
disposition of shares will be treated as long-term loss if the Shares have been
held for more than 12 months, and otherwise as short-term capital loss. However,
if a Shareholder disposes of Shares in a Fund at a loss before holding such
Shares for longer than six months, such loss will be treated as a long-term
capital loss to the extent the Shareholder has received long-term capital gain
distributions on the Shares. All or a portion of any loss realized upon a
taxable disposition of Fund Shares will be disallowed if other Shares of the
same Fund are purchased within 30 days before or after the disposition. In such
a case, the basis of the newly purchased Shares will be adjusted to reflect the
disallowed loss.
Because all of the California Intermediate Tax-Free Bond Fund's net investment
income is expected to be derived from interest, it is anticipated that no part
of any distribution will be eligible for the federal dividends received
deduction for corporations. The Fund is not managed to generate any long-term
capital gains and, therefore, does not foresee paying any significant "capital
gains dividends" as described in the Code.
Exempt-interest dividends from the California Intermediate Tax-Free Bond Fund
are excludable from Shareholders' gross income for federal income tax purposes.
Such dividends may be taxable to Shareholders under state or local law as
ordinary income even though all or a portion of the amounts may be derived from
interest on tax-exempt obligations which, if realized directly, would be exempt
from such taxes. Shareholders are advised to consult a tax advisor with respect
to whether exempt-interest dividends retain the exclusion if such Shareholder
would be treated as a "substantial user" or a "related person" to such user
under the Code.
Under the Code, interest on indebtedness incurred or continued by a
Shareholder to purchase or carry Shares of the California Intermediate Tax-Free
Bond Fund is not deductible for federal income tax purposes to the extent the
Fund distributes exempt-interest dividends during the Shareholder's taxable
year.
Under the Code, if a Shareholder sells a Share of the California Intermediate
Tax-Free Bond Fund after holding it for six months or less, any loss on the sale
or exchange of such Share will be disallowed to the extent of the amount of any
exempt-interest dividends that the Shareholder has received with respect to the
Share that is sold.
In addition, any loss (not already disallowed as provided in the preceding
sentence) realized upon a taxable disposition of shares of the California
Intermediate Tax-Free Bond Fund held for six months or less will be treated as
long-term, rather than short-term, to the extent of any long-term capital gain
distributions received by the shareholder with respect to the shares.
The California Intermediate Tax-Free Bond Fund may at times purchase
California Municipal Securities at a discount from the price at which they were
originally issued. For federal income tax purposes, some or all of
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this market discount will be included in the California Intermediate Tax-Free
Bond Fund's ordinary income and will be taxable to Shareholders as such when it
is distributed to them.
To the extent dividends paid to Shareholders are derived from taxable income
(for example, from interest on certificates of deposit or repurchase
agreements), or from long-term or short-term capital gains, such dividends will
be subject to federal income tax, whether such dividends are paid in the form of
cash or additional Shares. A Shareholder should consult his or her tax advisor
for special advice.
Under the Code, dividends attributable to interest on certain private activity
bonds issued after August 7, 1986 must be included in alternative minimum
taxable income for the purpose of determining liability (if any) for the federal
alternative minimum tax. In addition, exempt-interest dividends will be included
in a corporation's "adjusted current earnings" for purposes of the alternative
minimum tax (except to the extent derived from interest on certain private
activity bonds issued after August 7, 1986, which interest would already be
included in alternative minimum taxable income as a specific item of tax
preference). Shareholders of the California Intermediate Tax-Free Bond Fund
receiving social security or railroad retirement benefits may be taxed on a
portion of those benefits as a result of receiving tax-exempt income (including
exempt-interest dividends distributed by the Fund).
Prior to purchasing Shares of the Funds, the impact of dividends or capital
gain distributions that are expected to be declared or have been declared, but
not paid, should be carefully considered. Dividends or capital gain
distributions received after a purchase of Shares are subject to federal income
taxes, although in some circumstances, the dividends or distributions may be, as
an economic matter, a return of capital to the Shareholder. A Shareholder should
consult his or her advisor for specific advice about the tax consequences to the
Shareholder of investing in a Fund.
Fund investments in foreign securities may be subject to withholding taxes at
the source on dividend or interest payments. In that case, the Fund's yield on
those securities would be decreased. If at the end of a 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 fax credit for their share of these taxes. The Funds, other than the
International Equity Fund, do 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
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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.
Shareholders will be advised at least annually as to the federal income tax
status of distributions made during the year.
California Taxes
The California Intermediate Tax-Free Bond Fund intends to qualify to pay
dividends to Shareholders that are exempt from California personal income tax
("California exempt-interest dividends"). The California Intermediate Tax-Free
Bond Fund will qualify to pay California exempt-interest dividends if (1) at the
close of each quarter of the Fund's taxable year, at least 50 percent of the
value of the Fund's total assets consists of obligations the interest on which
would be exempt from California personal income tax if the obligations were held
by an individual ("California Tax Exempt Obligations") and (2) the Fund
continues to qualify as a regulated investment company.
If the California Intermediate Tax-Free Bond Fund qualifies to pay California
exempt-interest dividends, dividends distributed to Shareholders will be
considered California exempt-interest dividends (1) if they are designated as
exempt-interest dividends by the Fund in a written notice to Shareholders mailed
within 60 days of the close of the Fund's taxable year and (2) to the extent
that they are derived from the interest received by the Fund during the year on
California Tax Exempt Obligations (less related expenses). If the aggregate
dividends so designated exceed the amount that may be treated as California
exempt-interest dividends, only that percentage of each dividend distribution
equal to the ratio of aggregate California exempt-interest dividends to
aggregate dividends so designated will be treated as a California
exempt-interest dividend. The Fund will notify Shareholders of the amount of
California exempt-interest dividends each year.
Corporations subject to California franchise tax that invest in the California
Intermediate Tax-Free Bond Fund generally will not be entitled to exclude
California exempt-interest dividends from income.
Dividend distributions that do not qualify for treatment as California
exempt-interest dividends will be taxable to Shareholders at ordinary income tax
rates for California personal income tax purposes to the extent of the
California Intermediate Tax-Free Bond Fund's earnings and profits.
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Interest on indebtedness incurred or continued by a Shareholder in connection
with the purchase of Shares of the California Intermediate Tax-Free Bond Fund
will not be deductible for California personal income tax purposes if the Fund
distributes California exempt-interest dividends.
Additional information regarding California taxes is contained in the
Statement of Additional Information. However, the foregoing and the California
tax information in the Statement of Additional Information is a general,
abbreviated summary of certain of the provisions of the California Revenue and
Taxation Code presently in effect as they directly govern the taxation of
Shareholders subject to California personal income tax. These provisions are
subject to change by legislative or administrative action, and any such change
may be retroactive with respect to Fund transactions. Shareholders are advised
to consult with their own tax advisors for more detailed information concerning
California tax matters.
SERVICE ARRANGEMENTS
The Advisor
Prior to September 1, 1998, Pacific Alliance, a division of Union Bank of
California, N.A. served as the Funds' investment advisor. Effective September 1,
1998, Pacific Alliance was reorganized into a subsidiary of UnionBanCal
Corporation, the holding company of Union Bank of California. The new entity,
which is called HighMark Capital Management, Inc. (the "Advisor"), is a
California corporation registered under the Investment Adviser's Act of 1940.
HighMark Capital Management, Inc. now serves as the Funds' investment advisor.
Subject to the general supervision of HighMark Funds' Board of Trustees, the
Advisor manages each Fund in accordance with its investment objective and
policies, makes decisions with respect to and places orders for all purchases
and sales and maintains the Funds' records relating to such purchases and sales.
For the expenses assumed and services provided by the Advisor as each Fund's
investment advisor, the Advisor receives a fee from the Fixed Income Funds and
the California Intermediate Tax-Free Bond Fund, computed daily and paid monthly,
at the annual rate of fifty one-hundredths of one percent (0.50%) of the Fund's
average daily net assets, from the Growth Fund, Value Momentum Fund, Income
Equity Fund and Balanced Fund, computed daily and paid monthly, at the annual
rate of sixty one-hundredths of one percent (0.60%) of the Fund's average daily
net assets, from the Emerging Growth Fund, computed daily and paid monthly, at
the annual rate of eighty one-hundredths of one percent (0.80%) of the Fund's
average daily net assets, from the International Equity Fund, computed daily and
paid monthly, at the annual rate of ninety-five one-hundredths of one percent
(0.95%) of the Fund's average daily net assets, and from the Small Cap Value
Fund, computed daily and paid monthly, at the annual rate of one percent (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. 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
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Fund's expenses, and thus increase the Fund's yield and total return, during the
period such voluntary reductions are in effect.
During HighMark Funds' fiscal year ended July 31, 1998, Union Bank of
California received investment advisory fees from the Income Equity Fund
aggregating 0.60% of the Fund's average daily net assets, from the Value
Momentum Fund aggregating 0.60% of the Fund's average daily net assets, from the
Growth Fund aggregating 0.60% of the Fund's average daily net assets, from the
Emerging Growth Fund aggregating 0.80% of the Fund's average daily net assets,
from the International Equity Fund aggregating 0.95% of the Fund's average daily
net assets, from the Intermediate-Term Bond Fund aggregating 0.50% of the Fund's
average daily net assets, from the Bond Fund aggregating 0.50% of the Fund's
average daily net assets, from the Balanced Fund aggregating 0.60% of the Fund's
average daily net assets, and from the California Intermediate Tax-Free Bond
Fund aggregating 0.13% of the Fund's average daily net assets.
UnionBanCal Corporation, the parent of Union Bank of California, N.A., is a
publicly held corporation, but is principally held by The Bank of
Tokyo-Mitsubishi, Ltd. As of September 30, 1998, UnionBanCal Corporation and its
subsidiaries had approximately $31.4 billion in consolidated assets. HighMark
Capital Management, Inc., as of September 30, 1998, had approximately $16
billion of assets under management. The Advisor, with a team of approximately 43
stock and bond research analysts, portfolio managers and traders, has been
providing investment management services to individuals, institutions and large
corporations since 1917.
On November 19, 1998, UnionBanCal Corporation announced plans for a secondary
offering of $750 million of its common stock owned by The Bank of
Tokyo-Mitsubishi, Ltd. It is anticipated that the offering will occur prior to
the end of the first quarter of 1999. UnionBanCal Corporation also announced
that it would seek to repurchase up to $500 million of its outstanding common
stock. Using the net proceeds from the sale of up to $500 million in trust
preferred securities, UnionBanCal Corporation currently anticipates repurchasing
$250 million of its common stock from The Bank of Tokyo-Mitsubishi, Ltd.,
concurrent with the secondary offering, and up to an additional $250 million of
its common stock from other foreign institutional shareholders. The Bank of
Tokyo-Mitsubishi, Ltd. intends to maintain a majority ownership interest in
UnionBanCal Corporation following the consummation of the transactions.
All investment decisions for each of the Funds are made by a team of
investment professionals, all of whom take an active part in the decision making
process.
The Sub-Advisors
The Advisor and Bank of Tokyo-Mitsubishi Trust Company ("BTMT") have entered
into an investment subadvisory agreement relating to the Emerging Growth Fund
(the "Emerging Growth Fund Investment Sub-Advisory Agreement"). Under the
Emerging Growth Fund Investment Sub-Advisory Agreement, BTMT will make the
day-to-day investment decisions for the assets of the Emerging Growth Fund
subject to the supervision of, and policies established by, the Advisor and the
Trustees of HighMark Funds.
Bank of Tokyo-Mitsubishi Trust Company, headquartered at 1251 Avenue of the
Americas, New York, New York 10116, operates as a wholly-owned subsidiary of The
Bank of Tokyo-Mitsubishi, Ltd. BTMT was formed by the combination on April 1,
1996, of Bank of Tokyo Trust Company, a wholly-owned subsidiary of
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The Bank of Tokyo, Ltd., and Mitsubishi Bank Trust Company of New York, a
wholly-owned subsidiary of The Mitsubishi Bank, Limited. Bank of Tokyo Trust
Company was the surviving entity, and changed its name to Bank of
Tokyo-Mitsubishi Trust Company. Prior to the combination, subadvisory services
were provided by Bank of Tokyo Trust Company. Bank of Tokyo Trust Company was
established in 1955, and has provided trust services since that time and
management services since 1965.
BTMT serves as portfolio manager to employee benefit funds and personal trust
accounts, managing assets in money market, equity and fixed income portfolios.
As of September 30, 1998, BTMT managed in excess of $400 million in individual
portfolios.
BTMT is entitled to a fee, which is calculated daily and paid monthly out of
the Advisor's fee, at an annual rate of 0.50% of the average daily net assets of
the Emerging Growth Fund. For the fiscal year ended July 31, 1998, BTMT received
sub-advisory fees from the Advisor for the Emerging Growth Fund aggregating
0.50% of the Fund's average daily net assets.
Stephen M. Riccio became portfolio manager of the Emerging Growth Fund in June
1998. Mr. Riccio has been a portfolio manager with BTMT and its predecessor,
Bank of Tokyo Trust Company, since December 1994. From January 1994 to December
1994, Mr. Riccio served as a research analyst for Rochdale Investment
Management. From December 1989 to January 1994, Mr. Riccio served as a research
analyst for New York Life Insurance Company.
The Advisor and AXA Asset Management Partenaires ("AXA"), have entered into an
investment sub-advisory agreement relating to the International Equity Fund (the
"International Equity Fund Investment Sub-Advisory Agreement"). Under the
International Equity Fund Investment Sub-Advisory Agreement, AXA makes the
day-to-day investment decisions for the assets of the Fund, subject to the
supervision of, and policies established by, the Advisor and the Trustees of
HighMark Funds. Prior to January 1, 1998, Tokyo-Mitsubishi Asset Management
(U.K.), Ltd., ("TMAM"), served as the Fund's Sub-Advisor.
AXA, 46 Avenue de la Grande Armee, Paris, France 75017, operates as a
subsidiary of the AXA Group. Established in 1994, AXA provides active global
investment services for U.S. mutual funds and foreign mutual funds. As of June
30, 1998, AXA managed assets in excess of $600 billion.
AXA is entitled to a fee, which is calculated daily and paid monthly out of
the Advisor's fee, at an annual rate of 0.50% of the average daily net assets of
the International Equity Fund. For the period from January 1, 1998 to January
31, 1998, AXA received sub-advisory fees from the Advisor for the Fund
aggregating 0.30% of the Fund's average daily net assets. For the period from
February 1, 1998 to July 31, 1998, AXA received sub-advisory fees from the
Advisor aggregating 0.50% of the Fund's average daily net assets. For the period
from August 1, 1997 to December 31, 1997, TMAM received sub-advisory fees from
the Advisor aggregating 0.30% of the Fund's average daily net assets.
Robert de Guigne serves as portfolio manager of the Fund. Mr. de Guigne has
been a portfolio manager with AXA and the AXA Group since 1996. From 1991 to
1996, Mr. de Guigne was an equity and fixed income manager with State Street
Bank.
The Advisor and Brandes Investment Partners, L.P. ("Brandes") have entered
into an investment subadvisory agreement relating to the Small Cap Value Fund
(the "Small Cap Value Fund Investment Sub-
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Advisory Agreement"). Under the Small Cap Value Fund 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 Funds.
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 September 30,
1998, Brandes managed approximately $20 billion in assets.
Brandes is entitled to a fee, payable by the Advisor, calculated and paid
monthly at an annual rate of 0.50% of the average of the market value of the
assets of the Small Cap Value Fund allocated to Brandes.
The Fund's assets invested in foreign securities and managed by Brandes are
team-managed by an investment committee at Brandes, whose members are senior
portfolio management professionals of the firm.
Administrator
SEI Investments Mutual Funds Services (the "Administrator") and HighMark Funds
are parties to an administration agreement (the "Administration Agreement").
Under the terms of the Administration Agreement, the Administrator provides
HighMark Funds with certain management services, including all necessary office
space, equipment, personnel, and facilities.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of 0.20% of the average daily net assets of the
Funds. The Administrator may waive its fee or reimburse various expenses to the
extent necessary to limit the total operating expenses of a Fund's Fiduciary
Shares. Any such waiver is voluntary and may be terminated at any time in the
Administrator's sole discretion. Currently, the Administrator has agreed to
waive its fee to the rate of 0.18% of the average daily net assets of the Funds.
Pursuant to a separate agreement with the Administrator, Union Bank of
California, N.A. performs sub-administration services on behalf of each Fund,
for which it receives a fee paid by the Administrator at the annual rate of up
to 0.05% of the average daily net assets of the Funds. 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 Funds for which services it receives a fee.
Shareholder Service Plan
To support the provision of Shareholder services to all classes of Shares,
HighMark Funds has adopted a Shareholder Service Plan for Fiduciary Shares and
Class A Shares and a Shareholder Service Plan for Class B Shares. 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
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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 0.01% of average daily net assets for the Fiduciary Shares
of the Bond Fund, 0.03% of the daily net assets for the Fiduciary Shares of the
Intermediate-Term Bond Fund, 0.10% of the average daily net assets of the
Balanced Fund, Income Equity Fund, Small Cap Value Fund, and Growth Fund, and
0.00% of the average daily net assets for the Fiduciary Shares of each of the
other Funds.
Distributor
SEI Investments Distribution Co. (the "Distributor") and HighMark Funds 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 Funds upon not more than 60 days written
notice by either party, or upon assignment by the Distributor. Fiduciary Shares
are not subject to HighMark Funds' Distribution Plan or a distribution fee.
Banking Laws
HighMark Capital Management, Inc. believes that it may perform the services
for the Funds contemplated by its investment advisory agreement with HighMark
Funds without a violation of applicable banking laws and regulations. Union Bank
of California, N.A. also believes that it may perform sub-administration
services on behalf of each Fund, for which it receives compensation from the
Administrator 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, N.A. or the Advisor could continue to
perform services for the Funds. For a further discussion of applicable banking
laws and regulations, see the Statement of Additional Information.
Custodian
Union Bank of California serves as the custodian and as a shareholder
servicing agent for the Funds. The Custodian holds cash securities and other
assets of HighMark Funds as required by the 1940 Act.
Services performed by Union Bank of California, as the Funds' shareholder
servicing agent and custodian, as well as the basis of remuneration for such
services, are described in the Statement of Additional Information.
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GENERAL INFORMATION
Description of HighMark Funds & Its Shares
HighMark Funds 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 Funds' Growth Fund, Income
Equity Fund, Balanced Fund, Value Momentum Fund, Blue Chip Growth Fund, Emerging
Growth Fund, International Equity Fund, Small Cap Value Fund, Bond Fund,
Intermediate-Term Bond Fund, Government Securities Fund, Convertible Securities
Fund, California Intermediate Tax-Free Bond Fund, Diversified Money Market Fund,
U.S. Government Obligations Money Market Fund, 100% U.S. Treasury Obligations
Money Market Fund, and California Tax-Free Money Market Fund. 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 Funds were
liquidated, would receive a pro rata share of the net assets attributable to
that Fund. Shares are without par value.
As noted above, pursuant to a Multiple Class Plan on file with the Securities
and Exchange Commission permitting the issuance and sale of three classes of
Shares in selected Funds, Shares of such Funds have been divided into three
classes, designated Class A and Class B Shares (collectively, "Retail Shares")
and Fiduciary Shares. For information regarding the Retail Shares of the Funds,
interested persons may contact the Distributor for a prospectus at
1-800-433-6884.
As of November 18, 1998, HighMark Funds believes that Union Bank of
California, N.A. (350 California Street, San Francisco, CA 94104) was the
Shareholder of record of 35.28% of the Fiduciary Shares of the Growth Fund,
99.02% of the Fiduciary Shares of the Small Cap Value Fund and 57.14% of the
Fiduciary Shares of the International Equity Fund.
Performance Information
From time to time, HighMark Funds may advertise the aggregate total return,
average annual total return, yield and distribution rate with respect to the
Fiduciary Shares of each Fund. Performance information is computed separately
for a Fund's Retail and Fiduciary Shares in accordance with the formulas
described below.
The aggregate total return and average annual total return of the Funds may be
quoted for the life of each Fund and for ten-year, five-year, three-year, and
one-year periods, in each case through the most recent calendar quarter (in the
case of the Income Equity Fund, utilizing, when appropriate, the aggregate total
return and average annual total return of the IRA Fund Income Equity Portfolio
prior to June 23, 1988). Aggregate total return is determined by calculating the
change in the value of a hypothetical $1,000 investment in a Fund over the
applicable period that would equate the initial amount invested to the ending
redeemable value of the investment. The ending redeemable value includes
dividends and capital gain distributions reinvested at net asset value. Average
annual total return is calculated by annualizing a Fund's aggregate total return
over the relevant number of years. The resulting percentage indicates the
average positive or negative investment results that an investor in a Fund would
have experienced on an annual basis from changes in Share price and reinvestment
of dividends and capital gain distributions.
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The yield of a Fund is determined by annualizing the net investment income per
Share of the Fund during a specified thirty-day period and dividing that amount
by the per Share public offering price of the Fund on the last day of the
period.
The distribution rate of a Fund is determined by dividing the income and
capital gains distributions, or where indicated the income distributions alone,
on a Share of the Fund over a twelve-month period by the per Share public
offering price of the Fund on the last day of the period.
Each Fund may periodically compare its performance to the performance of other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical);
financial and business publications and periodicals; broad groups of comparable
mutual funds; unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs; or
other investment alternatives. Certain Funds may advertise performance that
includes results from periods in which the Fund's assets were managed in a
non-registered predecessor vehicle.
All performance information presented for a Fund is based on past performance
and does not predict future performance.
Miscellaneous
Shareholders will be sent unaudited semi-annual reports and annual reports
audited by independent public accountants.
Shareholders are entitled to one vote for each Share held in a Fund as
determined on the record date for any action requiring a vote by the
Shareholders, and a proportionate fractional vote for each fractional Share
held. Shareholders of HighMark Funds will vote in the aggregate and not by
series or class except (i) as otherwise expressly required by law or when
HighMark Funds' 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 Funds is not required to hold regular annual meetings of Shareholders,
but may hold special meetings from time to time.
HighMark Funds' 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 HighMark
Equity Funds and, in some cases, the HighMark Fixed Income Funds (see
"INVESTMENT POLICIES" and "GENERAL" to identify which investments are permitted
for the Fixed Income Funds):
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.
ASSET-BACKED SECURITIES (NON-MORTGAGE)--Instruments secured by company
receivables, truck and auto loans, leases, and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning such assets and
issuing such debt. The purchase of non-mortgage asset-backed securities raises
risk considerations peculiar to the financing of the instruments underlying such
securities. Asset-backed securities entail prepayment risk, which may vary
depending on the type of asset, but is generally less than the prepayment risk
associated with mortgage-backed securities.
Like mortgages underlying mortgage-backed securities, underlying automobile
sales contracts or credit card receivables are subject to substantial prepayment
risk, which may reduce the overall return to certificate holders. Nevertheless,
principal prepayment rates tend not to vary as much in response to changes in
interest rates and the short-term nature of the underlying car loans or other
receivables tend to dampen the impact of any change in the prepayment level.
Certificate holders may also experience delays in payment on the certificates if
the full amounts due on underlying sales contracts or receivables are not
realized by the trust because of unanticipated legal or administrative costs of
enforcing the contracts or because of depreciation or damage to the collateral
(usually automobiles) securing certain contracts, or other factors. If
consistent with their investment objectives and policies, the Equity Funds may
invest in other asset-backed securities that may be developed in the future.
BANKERS' ACCEPTANCES--Bills of exchange or time drafts drawn on and accepted
by commercial banks. They are used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
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CERTIFICATES OF DEPOSIT--Negotiable interest-bearing instruments with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity.
COMMERCIAL PAPER--Unsecured short-term promissory notes issued by corporations
and other entities. Maturities on these issues vary from a few days to nine
months. Purchase of such instruments involves a risk of default by the issuer.
COMMON STOCK--Units of ownership of a public corporation. Owners typically are
entitled to vote on the selection of directors and other important matters as
well as to receive dividends on their holdings. In the event that a corporation
is liquidated, the claims of secured and unsecured creditors and owners of bonds
and preferred stock take precedence over the claims of those who own common
stock. For the most part, common stock has more potential for appreciation.
CONVERTIBLE BONDS AND CONVERTIBLE PREFERRED STOCK--Convertible Bonds are bonds
convertible into a set number of shares of another form of security (usually
common stock) at a prestated price. Convertible bonds have characteristics
similar to both fixed-income and equity securities. Convertible preferred stock
is a class of capital stock that pays dividends at a specified rate and that has
preference over common stock in the payment of dividends and the liquidation of
assets. Convertible preferred stock is preferred stock exchangeable for a given
number of common stock shares, and has characteristics similar to both
fixed-income and equity securities. Because of the conversion feature, the
market value of convertible bonds and convertible preferred stock tend to move
together with the market value of the underlying stock. As a result, a Fund's
selection of convertible bonds and convertible preferred stock is based, to a
great extent, on the potential for capital appreciation that may exist in the
underlying stock. The value of convertible bonds and convertible preferred stock
is also affected by prevailing interest rates, the credit quality of the issuer
and any call provisions.
DERIVATIVES--Instruments whose value is derived from an underlying contract,
index or security, or any combination thereof, including futures, options (e.g.,
puts and calls), options on futures, swap agreements, and some mortgage-backed
securities (CMOs, REMICs, IOs and POs). See elsewhere in this "DESCRIPTION OF
PERMITTED INVESTMENTS" for discussions of these various instruments, and see
"INVESTMENT OBJECTIVES" and "INVESTMENT POLICIES" for more information about any
policies and limitations applicable to their use.
FORWARD FOREIGN CURRENCY CONTRACTS--The International Equity Fund and Small
Cap Value Fund may conduct their 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 a Fund's securities are or may
be denominated. A forward contract involves an obligation to purchase or sell a
specific currency amount at a future date, which may be any fixed number of days
from the date of the contract, agreed upon by the parties, at a price set at the
time of the contract. Under normal circumstances, consideration of the prospect
for changes in currency exchanges rates will be incorporated into a Fund's
long-term investment strategies. However, the Advisor and Sub-Advisor believe
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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, a 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 a Fund's
securities denominated in such foreign currency.
At the maturity of a forward contract, a 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.
A Fund may realize a gain or loss from currency transactions.
FUTURES AND OPTIONS ON FUTURES--Some futures strategies, including selling
futures, buying puts and writing calls, reduce a Fund's exposure to price
fluctuations. Other strategies, including buying futures, writing puts and
buying calls, tend to increase market exposure. Futures and options may be
combined with each other in order to adjust the risk and return characteristics
of the overall portfolio.
Options and futures can be volatile instruments, and involve certain risks
that, if applied at an inappropriate time, could negatively impact a Fund's
return.
INVESTMENT GRADE BONDS--Interest-bearing or discounted government or corporate
securities that obligate the issuer to pay the bondholder a specified sum of
money, usually at specific intervals, and to repay the principal amount of the
loan at maturity. Investment grade bonds are those rated BBB or better by S&P or
Baa or better by Moody's or similarly rated by other NRSROs, or, if not rated,
determined to be of comparable quality by the Advisor.
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.
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LOWER-RATED, HIGHER-YIELDING, HIGH-RISK DEBT SECURITIES--High-yield, high-risk
securities consist of securities rated Ba or lower by Moody's or BB or lower by
S&P. Lower-rated debt securities are considered speculative and involve greater
risk of loss than investment grade debt securities, and are more sensitive to
changes in the issuer's capacity to pay. For a description of the debt
securities ratings, see the "Appendix."
MONEY MARKET INSTRUMENTS--Short-term, debt instruments or deposits and may
include, for example, (i) commercial paper rated within the highest rating
category by a NRSRO at the time of investment, or, if not rated, determined by
the Advisor to be of comparable quality; (ii) obligations (certificates of
deposit, time deposits, bank master notes, and bankers' acceptances) of thrift
institutions, savings and loans, U.S. commercial banks (including foreign
branches of such banks), and U.S. and foreign branches of foreign banks,
provided that such institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown on their last
published financial statements at the time of investment; (iii) short-term
corporate obligations rated within the three highest rating categories by a
NRSRO (e.g., at least A by S&P or A by Moody's) at the time of investment, or,
if not rated, determined by the Advisor to be of comparable quality; (iv)
general obligations issued by the U.S. Government and backed by its full faith
and credit, and obligations issued or guaranteed as to principal and interest by
agencies or instrumentalities of the U.S. Government (e.g., obligations issued
by Farmers Home Administration, Government National Mortgage Association,
Federal Farm Credit Bank and Federal Housing Administration); (v) receipts,
including TRs, TIGRs and CATS; (vi) repurchase agreements involving such
obligations; (vii) loan participations issued by a bank in the United States
with assets exceeding $1 billion and for which the underlying loan is issued by
borrowers in whose obligations the Fund may invest; (viii) money market funds
and (ix) foreign commercial paper.
Certain of the obligations in which a Fund may invest may be variable or
floating rate instruments, may involve conditional or unconditional demand
features and may include variable amount master demand notes.
MORTGAGE-BACKED SECURITIES--Securities generally issued or guaranteed by U.S.
government agencies such as GNMA, the Federal National Mortgage Association
("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC"). GNMA
mortgage-backed certificates are mortgage-backed securities of the modified
pass-through type, which means that both interest and principal payments
(including prepayments) are passed through monthly to the holder of the
certificate. Each GNMA certificate evidences an interest in a specific pool of
mortgage loans insured by the Federal Housing Administration or the Farmers Home
Administration or guaranteed by the Veterans Administration. FNMA, a federally-
chartered and stockholder-owned corporation, issues pass-through certificates
which are guaranteed as to payment of principal and interest by FNMA. FHLMC, a
corporate instrumentality of the United States, issues participation
certificates which represent an interest in mortgages held in FHLMC's portfolio.
FHLMC guarantees the timely payment of interest and the ultimate collection of
principal. Securities issued or guaranteed by FNMA and FHLMC are not backed by
the full faith and credit of the United States. There can be no assurance that
the U.S. government would provide financial support to FNMA or FHLMC if
necessary in the future.
Although payments on certain mortgage-related securities may be guaranteed by
a third party or otherwise similarly secured, the market value of such
securities is not secured and may fluctuate significantly because of
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changes in interest rates and changes in prepayment levels. Thus, for example,
if a Fund purchases a mortgage-related security at a premium, that portion may
be lost if there is a decline in the market value of the security whether due to
changes in interest rates or prepayments of the underlying mortgage collateral.
As with other interest-bearing securities, the prices of mortgage-related
securities are inversely affected by changes in interest rates. However,
although the value of a mortgage-related security may decline when interest
rates rise, the converse is not necessarily true because in periods of declining
interest rates the mortgages underlying the securities are prone to prepayment
which results in amounts being available for reinvestment which are likely to be
invested at a lower interest rate. For this and other reasons, the stated
maturity of a mortgage-related security may be shortened by unscheduled
prepayments on the underlying mortgages and, accordingly, it is not possible to
predict accurately the security's return to a Fund. In addition, regular
payments received on mortgage-related securities include both interest and
principal. No assurance can be given as to the return a Fund will receive when
these amounts are reinvested. As a consequence, mortgage-related securities may
be a less effective means of "locking in" interest rates than other types of
debt securities having the same stated maturity, may have less potential for
capital appreciation and may be considered riskier investments as a result.
Adjustable rate mortgage securities ("ARMS") are pass-through certificates
representing ownership interests in a pool of adjustable rate mortgages and the
resulting cash flow from those mortgages. Unlike conventional debt securities,
which provide for periodic (usually semi-annual) payments of interest and
payments of principal at maturity or on specified call dates, ARMs provide for
monthly payments based on a pro rata share of both periodic interest and
principal payments and prepayments of principal on the underlying mortgage pool
(less GNMA's, FNMA's, or FHLMC's fees and any applicable loan servicing fees).
Collateralized mortgage obligations ("CMOs") are bonds generally issued by
single purpose, stand-alone finance subsidiaries or trusts established by
financial institutions, government agencies, investment banks, or other similar
institutions, and collateralized by pools of mortgage loans. Payments of
principal and interest on the collateral mortgages are used to pay debt service
on the CMO. In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche," is issued at a
specific coupon rate and has a stated maturity or final distribution date. The
principal and interest payment on the underlying mortgages may be allocated
among the classes of CMOs in several ways. Typically, payments of principal,
including any prepayments, on the underlying mortgages would be applied to the
classes in the order of their respective stated maturities or final distribution
dates, so that no payment of principal will be made on CMOs of a class until all
CMOs of other classes having earlier stated maturities or final distribution
dates have been paid in full.
One or more classes of CMOs may have coupon rates that reset periodically
based on an index, such as the London Interbank Offered Rate ("LIBOR"). Each
Fund may purchase fixed, adjustable, or "floating" rate CMOs that are
collateralized by fixed rate or adjustable rate mortgages that are guaranteed as
to payment of principal and interest by an agency or instrumentality of the U.S.
government or are directly guaranteed as to payment of principal and interest by
the issuer, which guarantee is collateralized by U.S. government securities or
is collateralized by privately issued fixed rate or adjustable rate mortgages.
Securities such as zero-coupon obligations, mortgage-backed and asset-backed
securities, and collateralized mortgage obligations ("CMOs") will have greater
price volatility then other fixed-income obligations.
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Because declining interest rates may lead to prepayment of underlying mortgages,
automobile sales contracts or credit card receivables, the prices of
mortgage-related and asset-backed securities may not rise with a decline in
interest rates. Mortgage-backed and asset-backed securities and CMOs are
extremely sensitive to the rate of principal prepayment. Similarly, callable
corporate bonds also present risk of prepayment.
During periods of falling interest rates, securities that can be called or
prepaid may decline in value relative to similar securities that are not subject
to call or prepayment.
Real Estate Mortgage Investment Conduits ("REMICs") are private entities
formed for the purpose of holding a fixed pool of mortgages secured by an
interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
MUNICIPAL FORWARDS--Municipal Forwards are forward commitments for the
purchase of tax-exempt bonds with a specified coupon to be delivered by an
issuer at a future date, typically exceeding 45 days but normally less than one
year after the commitment date. Municipal forwards are normally used as a
refunding mechanism for bonds that may only be redeemed on a designated future
date. As with forward commitments and when-issued securities, municipal forwards
are subject to market fluctuations due to changes, real or anticipated, in
market interest rates between the commitment date and the settlement date and
will have the effect of leveraging the Fund's assets. Municipal forwards may be
considered to be illiquid investments. The Fund will maintain liquid, high-grade
securities in a segregated account in an amount at least equal to the purchase
price of the municipal forward.
MUNICIPAL SECURITIES--Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
Municipal notes include general obligation notes, tax anticipation notes,
revenue anticipation notes, bond anticipation notes, certificates of
indebtedness, demand notes and construction loan notes.
Municipal bonds include general obligation bonds, revenue or special
obligation bonds, private activity and industrial development bonds. General
obligation bonds are backed by the taxing power of the issuing municipality.
Revenue bonds are backed by the revenues of a project or facility, tolls from a
toll bridge, for example. The payment of principal and interest on private
activity and industrial development bonds generally is dependent solely on the
ability of the facility's user to meet its financial obligations and the pledge,
if any, of real and personal property so financed as security for such payment.
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
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option gives the purchaser the right to sell, and the writer the obligation to
purchase, the underlying security at the exercise price during the option
period.
In addition, certain Funds may buy options on stock indices to invest cash on
an interim basis. Such options will be listed on a national securities exchange.
In order to close out an option position, a Fund may enter into a "closing
purchase transaction"--the purchase of an option on the same security with the
same exercise price and expiration date as the option contract previously
written on any particular security. When the security is sold, a Fund effects a
closing purchase transaction so as to close out any existing option on that
security.
There are risks associated with such investments including the following: (1)
the success of a hedging strategy may depend on the ability of the Advisor or
Sub-Advisor to predict movements in the prices of individual securities,
fluctuations in markets and movements in interest rates; (2) there may be an
imperfect correlation between the movement in prices of securities held by a
Fund and the price of options; (3) there may not be a liquid secondary market
for options; and (4) while a Fund will receive a premium when it writes covered
call options, it may not participate fully in a rise in the market value of the
underlying security.
OPTIONS ON CURRENCIES--The International Equity 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 a 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 a 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.
PARTICIPATION INTERESTS--Participation interests are interests in municipal
securities from financial institutions such as commercial and investment banks,
savings and loan associations and insurance companies. These interests may take
the form of participations, beneficial interests in a trust, partnership
interests or any other form of indirect ownership that allows the Fund to treat
the income from the investment as exempt from federal income tax. The Fund
invests in these participation interests in order to obtain credit enhancement
or demand features that would not be available through direct ownership of the
underlying municipal securities.
RECEIPTS--Interests in separately traded interest and principal component
parts of U.S. Treasury obligations that are issued by banks and brokerage firms
and are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's"), "Treasury Investment Growth Receipts" ("TIGR's"),
and "Certificates of Accrual on Treasury Securities" ("CATS"). TR's, TIGR's and
CATS are sold as zero coupon securities, which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is accreted over
the life of the security, and such accretion will constitute the income earned
on the security for both accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate volatility than
interest-paying securities. See also "FEDERAL TAXATION."
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REPURCHASE AGREEMENTS--Agreements whereby a Fund will acquire securities from
approved financial institutions or registered broker-dealers that agree to
repurchase the securities at a mutually agreed-upon date and price. The
repurchase agreements entered into by the Funds will provide that the underlying
security at all times shall have a value equal to 102% of the resale price
stated in the agreement. Repurchase agreements involving government securities
are not subject to a Fund's fundamental investment limitation on purchasing
securities of any one issuer. If the seller defaults on its repurchase
obligation or becomes insolvent, the Fund holding such obligations would suffer
a loss to the extent that either the proceeds from a sale of the underlying
portfolio securities were less than the repurchase price or the Fund's
disposition of the securities was delayed pending court action. Securities
subject to repurchase agreements will be held by a qualified custodian or in the
Federal Reserve/Treasury book-entry system. Repurchase agreements are considered
to be loans by a Fund under the Investment Company Act of 1940 (the "1940 Act").
REVERSE REPURCHASE AGREEMENTS--A Fund may borrow funds for temporary purposes
by entering into reverse repurchase agreements, provided such action is
consistent with the Fund's investment objective and fundamental investment
restrictions; as a matter of non-fundamental policy, each Fund intends to limit
such investments to no more than 10% of the value of its total assets. Pursuant
to a reverse repurchase agreement, a Fund will sell portfolio securities to
financial institutions such as banks or to broker-dealers, and agree to
repurchase the securities at a mutually agreed-upon date and price. A Fund
intends to enter into reverse repurchase agreements only to avoid otherwise
selling securities during unfavorable market conditions to meet redemptions. At
the time a Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account assets such as U.S. Government securities or other
liquid, high-quality debt securities consistent with the Fund's investment
objective having a value equal to 102% of the repurchase price (including
accrued interest), and will subsequently monitor the account to ensure that an
equivalent value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by a Fund may decline below the
price at which a Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by a Fund under the 1940
Act.
RULE 144A SECURITIES--Rule 144A Securities are securities that have not been
registered under the Securities Act of 1933, but which may be traded between
certain qualified institutional investors, including investment companies. The
absence of a secondary market may affect the value of the Rule 144A Securities.
The Board of Trustees of HighMark Funds 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 Funds' custodian will be instructed to
set aside cash or liquid portfolio securities equal to the amount of the
commitment in a segregated account. A Fund will generally not pay for such
securities and no income will accrue on the securities until they are received.
These securities are recorded as an asset and are subject to changes in value
based upon changes in the general level of interest rates. Therefore, the
purchase of securities on a "when-issued" basis or forward commitments may
increase the risk of fluctuations in a Fund's net asset value.
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SECURITIES LENDING--During the time portfolio securities are on loan from a
Fund, the borrower will pay the Fund any dividends or interest paid on the
securities. In addition, loans will be subject to termination by the Fund or the
borrower at any time and, while a Fund will generally not have the right to vote
securities on loan, it will terminate the loan and regain the right to vote if
that is considered important with respect to the investment. While the lending
of securities may subject a Fund to certain risks, such as delays or an
inability to regain the securities in the event the borrower were to default on
its lending agreement or enter into bankruptcy, a Fund will receive 100%
collateral in the form of cash or U.S. Government securities. This collateral
will be valued daily by the lending agent, with oversight by the Advisor, and,
should the market value of the loaned securities increase, the borrower will be
required to furnish additional collateral to the Fund.
SECURITIES SUBJECT TO A PUT FEATURE--A "put" feature permits a Fund to sell a
fixed income security at a fixed price prior to maturity. The underlying fixed
income securities subject to a put may be sold at any time at the market rates.
However, unless the put was an integral part of the fixed income security as
originally issued, it may not be marketable or assignable. Generally, a premium
is paid for a put feature or a put feature is purchased separately which results
in a lower yield than would otherwise be available for the same fixed income
securities.
STANDARD & POOR'S DEPOSITARY RECEIPTS (SPDRs)--SPDRs are interests in a unit
investment trust holding a portfolio of securities linked to the S&P 500 Index.
SPDRs closely track the underlying portfolio of securities, trade like a share
of common stock and pay periodic dividends proportionate to those paid by the
portfolio of stocks that constitutes the S&P 500 Index. For further information
regarding SPDRs, see the Statement of Additional Information.
TAX-EXEMPT COMMERCIAL PAPER--Commercial paper, which is commercial paper
issued by governments and political sub-divisions.
TIME DEPOSITS--Non-negotiable receipts issued by U.S. or foreign banks in
exchange for the deposit of funds. Like certificates of deposit, they earn a
specified rate of interest over a definite period of time; however, they cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
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
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U.S. Treasury. The issues of other agencies are supported only by the credit of
the instrumentality (e.g., FNMA securities).
U.S. TREASURY OBLIGATIONS--Bills, notes, and bonds issued by the U.S.
Treasury, as well as separately traded interest and principal component parts of
such obligations known as Separately Traded Registered Interest and Principal
Securities ("STRIPS") that are transferable through the Federal book-entry
system.
U.S. Government Securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities, although,
as a result, the yields available from U.S. Government Securities are generally
lower than the yields available from otherwise comparable corporate fixed-income
securities. Like other fixed-income securities, however, the values of U.S.
Government Securities change as interest rates fluctuate. Fluctuations in the
value of portfolio securities will in many cases not affect interest income on
existing portfolio securities, but will be reflected in the Fund's net asset
value. Because the magnitude of these fluctuations will generally be greater at
times when a Fund's average maturity is longer, under certain market conditions
the Fund may invest in short-term investments yielding lower current income
rather than investing in higher yielding longer-term securities.
VARIABLE AND FLOATING RATE INSTRUMENTS--Obligations that may carry variable or
floating rates of interest, may involve conditional or unconditional demand
features and may include variable amount master demand notes. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
period exceeding seven days may be considered illiquid if there is no secondary
market for such security.
WARRANTS--Securities that entitle the holder to buy a proportionate amount of
common stock at a specified price for a limited or unlimited period of time.
Warrants are often freely transferable and are traded on major stock exchanges.
YANKEE BONDS--Dollar denominated securities issued by foreign-domiciled
issuers that obligate the issuer to pay the bondholder a specified sum of money,
usually semiannually, and to repay the principal amount of the loan at maturity.
Sovereign bonds are bonds issued by the governments of foreign countries.
Supranational bonds are those issued by supranational entities, such as the
World Bank and European Investment Bank. Canadian bonds are bonds issued by
Canadian provinces.
ZERO-COUPON OBLIGATIONS--Non-income producing securities evidencing ownership
of future interest and principal payments on bonds. These obligations pay no
current interest and are typically sold at prices greatly discounted from par
value. The return on a zero-coupon obligation, when held to maturity, equals the
difference between the par value and the original purchase price.
For federal income tax purposes, the difference between the par value and the
original issue price (original issue discount) is included in the income of a
holder of a zero-coupon obligation over the term of the obligation even though
the interest is not paid until maturity. The amount included in income is
determined under a constant interest rate method. In addition, if an obligation
is purchased subsequent to its original issue, a holder such as the Income Funds
may elect to include market discount in income currently on a ratable accrual
method or a constant interest rate method. Market discount is the difference
between the obligation's
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"adjusted issue price" (the original issue price plus original issue discount
accrued to date) and the holder's purchase price. If no such election is made,
gain on the disposition of a market discount obligation is treated as ordinary
income (rather than capital gain) to the extent it does not exceed the accrued
market discount.
Zero-coupon obligations have greater price volatility than other fixed-income
obligations of similar maturity and such obligations will be purchased when the
yield spread, in light of the obligation's duration, is considered advantageous.
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HIGHMARK EQUITY AND
FIXED INCOME FUNDS
INVESTMENT PORTFOLIOS OF
HIGHMARK FUNDS
For further information (including current
yield, purchase and redemption information),
call 1-800-433-6884
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
FUNDS OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
HIGHMARK FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
NOT FDIC INSURED
<PAGE> 213
HighMark Funds Prospectus
INVESTMENT ADVISOR
HighMark Capital Management, Inc.
475 Sansome Street
San Francisco, CA 94104
SUB-ADVISOR (Emerging Growth Fund)
Bank of Tokyo Mitsubishi Trust Company
1251 Avenue of the Americas
New York, NY 10116
SUB-ADVISOR (International Equity Fund)
AXA Asset Management Partenaires
46, Avenue de la Grande Armee
Paris, 75017, France
SUB-ADVISOR (International portion of
Small Cap Value Fund only)
Brandes Investment Partners, L.P.
12750 High Bluff Drive
San Diego, CA 90730
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
SEI Investments Mutual Funds Services
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456
LEGAL COUNSEL
Ropes & Gray
1301 K. Street, N.W., Suite 800 East
Washington, D.C. 20005
AUDITORS
Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105-2230
For further information call
1-800-433-6884
or visit our web site at
www.highmark-funds.com
[HIGHMARK(SM) FUNDS LOGO]
84823-A (11/98)
<PAGE> 214
CROSS REFERENCE SHEET
HIGHMARK FUNDS
<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 Funds & Its Shares
5. Management of the Fund Service Arrangements
5A. Management's Discussion of Fund
Performance Inapplicable
6. Capital Stock and Other Securities Purchase and Redemption of Shares;
Exchange Privileges; Dividends; Federal
Taxation; Service Arrangements--
Administrator; Distributor; General
Information--Description of HighMark
Funds & Its Shares; General Information--
Miscellaneous
7. Purchase of Securities Being Offered Purchase and Redemption of Shares;
Exchange Privileges; Service Arrangements--
Administrator; Distributor
8. Redemption or Repurchase Purchase and Redemption of Shares
9. Pending Legal Proceedings Inapplicable
</TABLE>
<PAGE> 215
HIGHMARK FUNDS
EQUITY FUNDS
FIXED INCOME FUNDS
HighMark Funds 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 Funds':
- Blue Chip Growth Fund
- Convertible Securities Fund
- Government Securities Fund
FIDUCIARY SHARES
HighMark Funds' 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
Funds' Equity or Income Funds prior to June 20, 1994, which have remained
continuously open thereafter and which are not considered to be fiduciary
accounts; (iii) Shareholders who currently own Shares of HighMark Funds' Equity
or Income Funds that were purchased prior to June 20, 1994 within an account
registered in their name with the Funds; (iv) present and retired trustees of
the Funds and directors, officers and employees (and their spouses and children
under the age of 21) of Union Bank of California, N.A., HighMark Funds' current
or former distributors or their respective affiliated companies who currently
own Shares of HighMark Funds which were purchased before April 30, 1997; (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; and (vi) Retirement and other benefit plans sponsored by
governmental entities and Financial Institutions, which may purchase shares on
their own account or as record owner on behalf of fiduciary, agency or custodial
accounts, with a minimum investment of $1,000,000. The Blue Chip Growth Fund,
Convertible Securities Fund and Government Securities Fund are closed to new
investors.
This Prospectus sets forth concisely the information about HighMark Funds and
the Funds that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated the same date as this Prospectus has
been filed with the Securities and Exchange Commission and is available without
charge by writing the Distributor, SEI Investments Distribution Co., Oaks,
Pennsylvania 19456, or by calling 1-800-433-6884. The SEC maintains a World Wide
Web site (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference and other information. The
Statement of Additional Information is incorporated into this Prospectus by
reference. This Prospectus relates only to the Fiduciary Shares of the Funds.
Interested persons who wish to obtain a prospectus for other Funds and classes
of HighMark Funds 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 FUNDS' 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 FUNDS' SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN
HIGHMARK FUNDS INVOLVES RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
<PAGE> 216
November 30, 1998
Fiduciary Shares
<PAGE> 217
SUMMARY
HIGHMARK FUNDS 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 Blue Chip Growth, Convertible Securities, and Government Securities Funds
(each a "Fund" and together the "Funds"). This summary is qualified in its
entirety by reference to the more detailed information provided elsewhere in the
Prospectus and in the Statement of Additional Information.
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES? THE BLUE CHIP GROWTH FUND seeks
long-term capital growth by investing in a diversified portfolio of common
stocks and other equity securities of seasoned, large capitalization companies.
THE CONVERTIBLE SECURITIES FUND seeks a high level of current income and capital
appreciation by investing in convertible securities. THE GOVERNMENT SECURITIES
FUND seeks to achieve total return consistent with the preservation of capital
by investing in a diversified portfolio of obligations issued or guaranteed by
the U.S. government or its agencies or instrumentalities (collectively, these
two Funds are sometimes referred to in this Prospectus as "Fixed Income Funds").
(See "INVESTMENT OBJECTIVES.")
WHAT ARE THE FUNDS' PERMITTED INVESTMENTS? The Blue Chip Growth Fund primarily
invests, consistent with its investment objective, in equity securities
including common stocks and securities convertible into common stocks. The
Convertible Securities Fund invests primarily in convertible securities,
including bonds, debentures, notes and preferred stocks convertible into common
stock. The Government Securities Fund invests primarily in debt obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities, including mortgage-backed securities issued or guaranteed by
U.S. government agencies. Bonds include debt obligations such as bonds, notes,
debentures and securities convertible into or exercisable for debt obligations
that are issued by U.S. corporations or issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities; investments may also include
zero-coupon obligations, mortgage-related securities and asset-backed
securities. (See "INVESTMENT POLICIES.")
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUNDS? The investment
policies of each Fund entail certain risks and considerations of which an
investor should be aware. Common stocks and other equity securities that the
Funds invest in are volatile and may fluctuate in value more than other types of
investments. Values of fixed income securities and, correspondingly, share
prices of Funds invested in such securities, tend to vary inversely with
interest rates, and may be affected by other market and economic factors as
well. During periods of falling interest rates, the value of outstanding fixed
income securities generally rises. Conversely, during periods of rising interest
rates, the value of such securities generally declines. The Convertible
Securities Fund may invest up to 35% of its assets in convertible bonds rated
lower than Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard
& Poor's Corporation ("S&P") and as low as Caa by Moody's or CCC by S&P, which
are lower-quality, higher-yielding, high-risk debt securities. (See "Risk
Factors.")
<PAGE> 218
ARE MY INVESTMENTS INSURED? HighMark Funds' Shares are not federally insured by
the FDIC or any other government agency. Any guarantee by the U.S. Government,
its agencies or any instrumentalities of the securities in which any Fund
invests guarantees only the payment of principal and interest on the guaranteed
security, and does not guarantee the total return or value of the security or
total return or value of Shares of that Fund.
WHO IS THE ADVISOR? HighMark Capital Management, Inc. serves as the Advisor to
HighMark Funds. (See "The Advisor.")
WHO IS THE SUB-ADVISOR? Bank of Tokyo-Mitsubishi Trust Company serves as the
Sub- Advisor to the Convertible Securities Fund.
WHO IS THE ADMINISTRATOR? SEI Investments Mutual Funds Services serves as the
Administrator of HighMark Funds. (See "The Administrator.")
WHO IS THE CUSTODIAN? Union Bank of California, N.A. (the "Bank") serves as the
custodian of HighMark Funds' assets. (See "The Custodian.")
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. acts as distributor of
HighMark Funds' 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) 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 net 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.") The Funds are closed to new investors. (See "GENERAL
INFORMATION Future of the Funds")
HOW ARE DIVIDENDS PAID? Substantially all of the net investment income
(exclusive of capital gains) of the Funds is distributed in the form of monthly
dividends to Shareholders of record. Any capital gain is distributed at least
annually. Distributions are paid in additional Shares unless the Shareholder
elects to take the payment in cash. ( See "DIVIDENDS.")
<PAGE> 219
TABLE OF CONTENTS
PAGE
----
SUMMARY
FEE TABLE
FINANCIAL HIGHLIGHTS
FUND DESCRIPTION
INVESTMENT OBJECTIVES
INVESTMENT POLICIES
Blue Chip Growth Fund
Convertible Securities Fund
Government Securities Fund
GENERAL
Money Market Instruments
Illiquid and Restricted Securities
Lending of Portfolio Securities
Other Investments
Risk Factors
Risks Associated with Convertible Securities
Year 2000
PORTFOLIO TURNOVER
PURCHASE AND REDEMPTION OF SHARES
EXCHANGE PRIVILEGES
DIVIDENDS
TAXES
Federal Taxation
SERVICE ARRANGEMENTS
The Advisor
The Sub-Advisor
Administrator
The Transfer Agent
<PAGE> 220
Shareholder Service Plan
Distributor
Banking Laws
Custodian
GENERAL INFORMATION
Description of HighMark Funds & Its Shares
Future of the Funds
Performance Information
Miscellaneous
DESCRIPTION OF PERMITTED INVESTMENTS
<PAGE> 221
FEE TABLE
<TABLE>
<CAPTION>
Blue Chip Convertible Government
Growth Securities Securities
Fund Fund Fund
--------- ----------- ----------
Fiduciary Fiduciary Fiduciary
Shares Shares Shares
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on 0% 0% 0%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on 0% 0% 0%
Reinvested Dividends (as a
percentage of offering price)
Deferred Sales Load (as a 0% 0% 0%
percentage of original purchase
price or redemption proceeds, as
applicable)
Redemption Fees (as a percentage 0% 0% 0%
of amount redeemed, if
applicable)(b)
Exchange Fee(a) $ 0 $ 0 $ 0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees
(after voluntary reduction) 0.60% 0.60% 0.50%
12b-1 Fees 0% 0% 0%
Other Expenses (after voluntary
reduction)(c) 0.22% 0.25% 0.25%
Total Fund Operating Expenses (after
voluntary reduction)(d) 0.82% 0.85% 0.75%
===== ===== =====
</TABLE>
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period.
<PAGE> 222
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Blue Chip Growth Fund
Fiduciary Shares $8 $26 $46 $101
Convertible Securities Fund
Fiduciary Shares $9 $27 $47 $105
Government Securities Fund
Fiduciary Shares $8 $24 $42 $ 93
</TABLE>
The purpose of the tables above is to assist an investor in the Funds
in understanding the various costs and expenses that a Shareholder will bear
directly or indirectly. For a more complete discussion of each Fund's annual
operating expenses, see SERVICE ARRANGEMENTS below. THE FOREGOING EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
(a) Certain entities (including Union Bank of California and its
affiliates) making investments in the Funds on behalf of their
customers may charge customers fees for services provided in connection
with the investment in, redemption of, and exchange of Shares. (See
PURCHASE AND REDEMPTION OF SHARES, EXCHANGE PRIVILEGES, and SERVICE
ARRANGEMENTS below.)
(b) A wire redemption charge of $15 is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See
Redemption of Shares below.)
(c) Absent voluntary fee waivers, OTHER EXPENSES would be 0.49% for the
Fiduciary Shares of the Blue Chip Growth Fund, and 0.52% for the
Fiduciary Shares of the Convertible Securities Fund and the Government
Securities Fund.
(d) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be:
1.09% for the Fiduciary Shares of the Blue Chip Growth Fund, 1.12% for
the Fiduciary Shares of the Convertible Securities Fund and 1.02% for
the Fiduciary Shares of the Government Securities Fund.
<PAGE> 223
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information with respect to
the Fiduciary Shares of the Convertible Securities Fund, Government Securities
Fund and Blue Chip Growth Fund. Financial highlights for the Funds through the
year ended July 31, 1998 have been derived from financial statements audited by
Deloitte & Touche LLP, independent auditors for HighMark, whose report thereon
is included in the 1998 Annual Report for the HighMark Funds, which is
incorporated by reference into the Statement of Additional Information.
Upon reorganizing as funds of HighMark Funds on April 28, 1997, Stepstone
Convertible Securities Fund became HighMark Convertible Securities Fund,
Stepstone Government Securities Fund became HighMark Government Securities Fund,
and Stepstone Blue Chip Growth Fund became HighMark Blue Chip Growth Fund.
Financial highlights through January 31, 1997 represent the Institutional Class
Shares (now Fiduciary Shares) of Stepstone Convertible Securities, Stepstone
Government Securities, and Stepstone Blue Chip Growth Funds, and have been
derived from financial statements audited by Arthur Andersen LLP, independent
auditors for the Stepstone Funds.
<PAGE> 224
BLUE CHIP GROWTH FUND
<TABLE>
<CAPTION>
For the Year For the Six
Ended Month Period For the Years Ended January 31,
July 31, Ended July 31, -------------------------------
1998 1997 1997 1996 1995(1)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
Net Asset Value, Beginning of Period $ 17.32 $ 14.50 $ 12.63 $ 9.53 $ 10.00
------------ ------------ ------------ ------------ ------------
Investment Activities
Net investment income 0.073 0.081 0.160 0.174 0.167
Net realized and unrealized gain
(loss) on investments 1.143 2.818 2.449 3.311 (0.479)
------------ ------------ ------------ ------------ ------------
Distributions
Net investment income (0.075) (0.078) (0.162) (0.180) (0.158)
Capital Gains (2.425) -- (0.574) (0.203) --
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 16.04 $ 17.32 $ 14.50 $ 12.63 $ 9.53
============ ============ ============ ============ ============
Total Return 8.67% 20.08% 21.11% 36.95% (3.10)%
Net assets, end of period (000) $ 127,295 $ 96,883 $ 80,682 $ 63,410 $ 39,319
Ratio of expenses to average net assets 0.82% 0.80%* 0.84% 0.83% 0.85%
Ratio of expenses to average net assets
excluding fee waivers 1.09% 0.95%* 0.84% 0.83% 0.85%
Ratio of net investment income to
average net assets 0.46% 1.09%* 1.21% 1.54% 1.84%
Ratio of net investment income to
average net assets excluding fee
waivers 0.19% 0.94%* 1.21% 1.54% 1.84%
Portfolio turnover rate 168% 54% 80% 69% 89%
</TABLE>
- ---------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
(1) Commenced operations on February 1, 1994.
<PAGE> 225
FINANCIAL HIGHLIGHTS
CONVERTIBLE SECURITIES FUND
<TABLE>
<CAPTION>
For the Year For the Six
Ended Month Period For the Years Ended January 31,
July 31, Ended July 31, -------------------------------
1998 1997 1997 1996 1995(1)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
Net Asset Value, Beginning of Period $ 12.41 $ 11.58 $ 10.43 $ 9.08 $ 10.00
------------ ------------ ------------ ------------ ------------
Investment Activities
Net investment income 0.382 0.183 0.376 0.407 0.354
Net realized and unrealized gain
(loss) on investments (0.065) 0.833 1.423 1.350 (0.930)
------------ ------------ ------------ ------------ ------------
Distributions
Net investment income (0.369) (0.186) (0.378) (0.404) (0.343)
Capital Gains (0.822) -- (0.270) -- --
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 11.54 $ 12.41 $ 11.58 $ 10.43 $ 9.08
============ ============ ============ ============ ============
Total Return 3.02% 8.92% 17.72% 19.67% (5.83)%
Net assets, end of period (000) $ 33,008 $ 25,338 $ 21,129 $ 16,668 $ 10,297
Ratio of expenses to average net assets 0.85% 0.85%* 0.85% 0.85% 0.85%
Ratio of expenses to average net assets
excluding fee waivers 1.12% 1.00%* 0.85% 0.85% 0.85%
Ratio of net investment income to
average net assets 3.28% 3.25%* 3.47% 4.14% 3.87%
Ratio of net investment income to
average net assets excluding fee
waivers 3.01% 3.10%* 3.47% 4.14% 3.87%
Portfolio turnover rate 50% 33% 89% 46% 36%
</TABLE>
- ---------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
(1) Commenced operations on February 1, 1994.
<PAGE> 226
FINANCIAL HIGHLIGHTS
GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
For the Year For the Six
Ended Month Period For the Years Ended January 31,
July 31, Ended July 31, -------------------------------
1998 1997 1997 1996 1995(1)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.64 $ 9.44 $ 9.94 $ 9.07 $ 10.00
------------ ------------ ------------ ------------ ------------
Investment Activities
Net investment income 0.523 0.268 0.524 0.556 0.491
Net realized and unrealized gain
(loss) on investments 0.142 0.203 (0.505) 0.870 (0.950)
------------ ------------ ------------ ------------ ------------
Distributions
Net investment income (0.533) (0.269) (0.520) (0.556) (0.475)
Capital Gains -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 9.77 $ 9.64 $ 9.44 $ 9.94 $ 9.07
============ ============ ============ ============ ============
Total Return 7.08% 5.08% 0.34 % 16.16% (4.49)%
Net assets, end of period (000) $ 113,948 $ 57,256 $ 51,382 $ 46,725 $ 32,178
Ratio of expenses to average net assets 0.75% 0.73%* 0.74% 0.75% 0.75%
Ratio of expenses to average net assets
excluding fee waivers 1.02% 0.88%* 0.74% 0.75% 0.75%
Ratio of net investment income to
average net assets 5.39% 5.79%* 5.59% 5.89% 5.46%
Ratio of net investment income to
average net assets excluding fee
waivers 5.12% 5.64%* 5.59% 5.89% 5.46%
Portfolio turnover rate 62% 40% 186% 239% 184%
</TABLE>
- ---------
Amounts designated as "--" are either $0 or have been rounded to $0.
* Annualized.
(1) Commenced operations on February 1, 1994.
<PAGE> 227
FUND DESCRIPTION
HighMark Funds is an open-end, diversified, registered investment company that
currently offers units of beneficial interest ("Shares") in seventeen investment
portfolios ("Funds"). All of the Funds are advised by HighMark Capital
Management, Inc. (the "Advisor"), a subsidiary of UnionBanCal Corporation.
Shareholders may purchase Shares of selected Funds through three separate
classes (Class A and Class B (collectively, the "Retail Shares") and Fiduciary
Shares). These classes may have different sales charges and other expenses,
which may affect performance. Information regarding HighMark Funds' other Funds
and other classes is contained in separate prospectuses that may be obtained
from HighMark Funds' 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 OBJECTIVES
The investment objectives of the Funds are as follows:
The BLUE CHIP GROWTH FUND seeks long-term capital growth by investing in a
diversified portfolio of common stocks and other equity securities of seasoned,
large capitalization companies.
The CONVERTIBLE SECURITIES FUND seeks a high level of current income and capital
appreciation by investing in convertible securities.
The GOVERNMENT SECURITIES FUND seeks to achieve total return consistent with the
preservation of capital by investing in a diversified portfolio of obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities.
The investment objectives and certain of the investment limitations of the Funds
may not be changed without a vote of the holders of a majority of the
outstanding Shares of the respective Fund (as defined under GENERAL
INFORMATION--Miscellaneous below). There can be no assurance that a Fund will
achieve its investment objective.
INVESTMENT POLICIES
BLUE CHIP GROWTH FUND
Under normal market conditions, the Blue Chip Growth Fund will invest at least
65% of its total assets in equity securities, including common stocks, warrants
to purchase
<PAGE> 228
common stocks, American Depository Receipts ("ADRs"), preferred stocks and
securities (including debt securities) convertible into or exercisable for
common stocks. The Fund primarily invests in equity securities of seasoned,
large capitalization companies. A seasoned company is generally a company with
an operating history of 3 years or more. A large capitalization company is
generally a company with capitalization in excess of $1.0 billion. A majority of
the Fund's equity investments ordinarily will consist of dividend-paying
securities.
CONVERTIBLE SECURITIES FUND
Under normal market conditions, at least 65% of the Convertible Securities
Fund's assets will be invested in convertible securities consisting of bonds,
debentures, notes and preferred stocks each of which are convertible into common
stock. In general, a convertible security is a fixed-income security such as a
bond (which typically pays a fixed annual rate of interest) or preferred stock
(which typically pays a fixed dividend), that may be converted at a stated price
within a specified period of time into a specified number of shares of common
stock of the issuing company, or of a different company. A convertible security
may be subject to redemption by the issuer, but only after a particular date and
under certain circumstances (including a specified price) established upon
issue. If a convertible security held by the Fund is called for redemption, the
Fund could be required to tender it for redemption, convert it into the
underlying common stock, or sell it to a third party. Common stock received upon
conversion will be sold when, in the opinion of the Sub-Advisor, it is advisable
to do so.
Because of its conversion feature, the market value of convertible preferred
stock tends to move together with the market value of the underlying common
stock. As a result, the Fund's selection of convertible securities is based, to
a great extent, on the potential for capital appreciation that may exist in the
underlying common stocks. The value of convertible securities is also affected
by prevailing interest rates, the credit quality of the issuer and any call
provisions. Investments in convertible securities generally entail less
volatility than investments in the common stocks of the same issuers.
Nevertheless, it is the fixed income component of these securities that is often
deemed by the ratings agencies to be high risk or speculative. The Fund may
invest up to 35% of its assets in convertible bonds rated lower than Baa by
Moody's or BBB by S&P and as low as Caa by Moody's or CCC by S&P, which are
lower-quality, higher-yielding, high-risk debt securities (commonly known as
"junk bonds"). The Fund may also invest in unrated convertible securities which,
in the Sub-Advisor's opinion, are of comparable quality to such rated
securities. See "Risk Factors."
In the event that a security owned by the Fund is downgraded below the stated
ratings categories, the Advisor or Sub-Advisor will take appropriate action with
regard to the security.
The Fund may invest any remaining assets in common stocks; securities issued or
<PAGE> 229
guaranteed by the U.S. government or its agencies or instrumentalities;
corporate bonds rated Baa or better by Moody's or BBB or better by S&P
(investment grade bonds); shares of other investment companies with similar
investment objectives; high grade commercial paper; money market funds; money
market instruments and cash; floating and variable rate notes; repurchase
agreements; dollar-denominated securities of foreign issuers; and Standard and
Poor's Depositary Receipts ("SPDRs").
GOVERNMENT SECURITIES FUND
Under normal market conditions, the Government Securities Fund will invest at
least 80% of its assets in obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities, including mortgage-backed
securities issued or guaranteed by U.S. government agencies such as the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC") and
repurchase agreements backed by such securities. The Fund may invest any
remaining assets in corporate bonds that are rated at the time of purchase as
investment grade or determined by the Sub-Advisor to be of comparable quality;
Yankee Bonds, including sovereign, supranational and Canadian bonds; shares of
other investment companies with similar investment objectives; commercial paper;
money market funds; privately issued mortgage-backed and other
readily-marketable asset-backed securities; and money market instruments and
cash.
The Sub-Advisor will seek to enhance the yield of the Fund by taking advantage
of yield disparities or other factors that occur in the government securities
and money markets. The Fund may dispose of any security prior to its maturity if
such disposition and reinvestment of the proceeds are expected to enhance its
yield consistent with the Sub-Advisor's judgment as to a desirable maturity
structure or if such disposition is believed to be advisable due to other
circumstances or considerations. The Fund will seek to achieve capital gains by
taking advantage of price appreciation caused by interest rate and credit
quality changes.
GENERAL
MONEY MARKET INSTRUMENTS
Under normal market conditions, money market instruments may comprise up to 35%
of the total assets of the Blue Chip Growth Fund and the Convertible Securities,
and up to 20% of the Government Securities Fund's total assets. When market
conditions indicate a temporary "defensive" investment strategy as determined by
the Advisor, a Fund may invest more than the above stated amount of its total
assets in money market instruments. A Fund will not be pursuing its investment
objective to the extent that a substantial portion of its assets are invested in
money market instruments.
<PAGE> 230
ILLIQUID AND RESTRICTED SECURITIES
Each Fund shall limit investment in illiquid securities to 15% or less of its
net assets. Generally, an "illiquid security" is any security that cannot be
disposed of promptly and in the ordinary course of business at approximately the
amount at which the Fund has valued the instrument. The absence of a trading
market can make it difficult to ascertain the market value of the illiquid
securities. Each Fund may purchase restricted securities which have not been
registered under the Securities Act of 1933 (e.g., Rule 144A Securities and
Section 4(2) commercial paper) subject to policies approved by the Board of
Trustees. See INVESTMENT RESTRICTIONS in the Statement of Additional
Information.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, a Fund may lend its portfolio securities
to broker-dealers, banks or other institutions. A Fund may lend portfolio
securities in an amount representing up to 33 1/3% of the value of the Fund's
total assets.
OTHER INVESTMENTS
The Funds may enter into repurchase agreements and reverse repurchase
agreements.
The Funds may enter into forward commitments or purchase securities on a
"when-issued" basis. Each Fund expects that commitments by a Fund to enter into
forward commitments or purchase when-issued securities will not exceed 25% of
the value of the Fund's total assets under normal market conditions. The Funds
do not intend to purchase when-issued securities or forward commitments for
speculative or leveraging purposes but only for the purpose of acquiring
portfolio securities.
The Funds may also invest in money market instruments, money market funds, and
cash.
Each Fund may invest in other registered investment companies with similar
investment objectives. A Fund may invest up to 5% of its total assets in the
shares of any one registered investment company, but may not own more than 3% of
the securities of any one registered investment company or invest more than 10%
of its assets in the securities of other registered investment companies. In
accordance with an exemptive order issued to HighMark Funds by the Securities
and Exchange Commission, such other registered investment company securities may
include shares of a money market fund of HighMark Funds, and may include
registered investment companies for which the Advisor or Sub-Advisor to a Fund
of HighMark Funds, or an affiliate of such Advisor or Sub-Advisor, serves as
investment advisor, administrator or distributor.
Because other registered investment companies employ an investment advisor, such
investment by a Fund may cause Shareholders to bear duplicative fees. The
Advisor will
<PAGE> 231
waive its fees attributable to the assets of the investing Fund invested in a
money market fund of HighMark Funds, and, to the extent required by applicable
law, the Advisor will waive its fees attributable to the assets of the Fund
invested in any investment company. Some Funds are subject to additional
restrictions on investments in other investment companies. See "INVESTMENT
RESTRICTIONS" in the Statement of Additional Information.
The Blue Chip Growth Fund may write covered calls on its equity securities and
enter into closing transactions with respect to covered call options. The Blue
Chip Growth Fund's assets may be invested in options, futures contracts and
options on futures, SPDRs, and investment grade bonds. The aggregate value of
options on securities (long puts and calls) will not exceed 10% of the Blue Chip
Growth Fund's net assets at the time such options are purchased by the Fund. The
Blue Chip Growth Fund may enter into futures and options on futures only to the
extent that obligations under such contracts or transactions, together with
options on securities, represent not more than 25% of the Fund's assets. The
Fund may purchase options in stock indices to invest cash on an interim basis.
The aggregate premium paid on all options on stock indices cannot exceed 20% of
the Fund's total assets. All of the common stocks in which the Fund invests
(including foreign securities in the form of ADRs but not including Rule 144A
Securities) are traded on registered exchanges or in the over-the-counter
market.
The Fixed Income Funds may invest in futures and options on futures for the
purpose of achieving the Fund's objectives and for adjusting portfolio duration.
These Funds may invest in futures and related options based on any type of
security or index traded on U.S. or foreign exchanges or over the counter, as
long as the underlying security, or securities represented by an index, are
permitted investments of the Fund. These Funds may enter into futures contracts
and related options only to the extent that obligations under such contracts or
transactions represent not more than 10% of the Fund's assets.
For further information, see "DESCRIPTION OF PERMITTED INVESTMENTS."
RISK FACTORS
To the extent a Fund invests in equity securities, that 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.
<PAGE> 232
In addition to credit risk which relates to the ability of an issuer to make
payments of principal and interest, all types of bonds are also subject to
market risk. Market risk relates to changes in a security's value as a result of
interest rate changes generally. An increase in interest rates will generally
reduce the value of the fixed income investments in the Funds and a decline in
interest rates will generally increase the value of those investments.
Accordingly, the net asset value of the Fund's shares will vary as a result of
changes in the value of the securities in a Fund's portfolio. Therefore, an
investment in the Funds may decline in value, resulting in a loss of principal.
Because interest rates vary, it is impossible to predict the income or yield of
the Fund for any particular period. Changes in the value of a Fund's
fixed-income securities will not affect cash income received from ownership of
such securities, but will affect a Fund's net asset value.
As described above, the Funds may invest in debt securities within the four
highest rating categories assigned by a nationally recognized statistical rating
organization ("NRSRO") and comparable unrated securities. Securities rated BBB
by S&P or Baa by Moody's are considered investment grade, but are deemed by
these rating services to have some speculative characteristics, and adverse
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with
higher-grade bonds. Should subsequent events cause the rating of a debt security
purchased by a Fund to fall below the fourth highest rating category, the
Advisor will consider such an event in determining whether the Fund should
continue to hold that security. In no event, however, would a Fund be required
to liquidate any such portfolio security where the Fund would suffer a loss on
the sale of such security.
While debt securities normally fluctuate less in price than equity securities,
there have been extended periods of cyclical increases in interest rates that
have caused significant declines in debt securities prices. Certain fixed-income
securities which may be purchased by a Fund such as zero-coupon obligations,
mortgage-backed and asset-backed securities, and collateralized mortgage
obligations ("CMOs") will have greater price volatility then other fixed-income
obligations. Because declining interest rates may lead to prepayment of
underlying mortgages, automobile sales contracts or credit card receivables, the
prices of mortgage-related and asset-backed securities may not rise with a
decline in interest rates. Mortgage-backed and asset-backed securities and CMOs
are extremely sensitive to the rate of principal prepayment. Similarly, callable
corporate bonds also present risk of prepayment.
During periods of falling interest rates, securities that can be called or
prepaid may decline in value relative to similar securities that are not subject
to call or prepayment.
Depending upon prevailing market conditions, a Fund may purchase debt securities
at a discount from face value, which produces a yield greater than the coupon
rate. Conversely, if debt securities are purchased at premium over face value,
the yield will be lower than the coupon rate. In making investment decisions,
the Advisor will consider many factors other than current yield, including the
preservation of capital, the potential
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for realizing capital appreciation, maturity, and yield to maturity.
The Fixed Income Funds may invest in securities issued or guaranteed by foreign
corporations or foreign governments, their political subdivisions, agencies or
instrumentalities and obligations of supranational entities such as the World
Bank and the Asian Development Bank. There may be certain risks connected with
investing in foreign securities, including risks of adverse political and
economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, including less uniformity in accounting and
reporting requirements, the possibility that there will be less information on
such securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, which reduce yield, and may be less marketable than comparable
U.S. securities. The value of the Fund's investments denominated in foreign
currencies will depend on the relative strengths of those currencies and the
U.S. dollar, and the Fund may be affected favorably or unfavorably by changes in
the exchange rates or exchange control regulations between foreign currencies
and the U.S. dollar. Changes in foreign currency exchange rates may also affect
the value of dividends and interest earned, gains and losses realized on the
sale of securities, and net investment income and gains, if any, to be
distributed to Shareholders by the Fund. To the extent that a Fund may invest in
securities of foreign issuers that are not traded on any exchange, there is a
further risk that these securities may not be readily marketable. The Fixed
Income Funds will not hold foreign currency for investment purposes.
On January 1, 1999, the European Monetary Market Union ("EMU") plans to
introduce a new single currency, the euro, which will replace the national
currency for participating member countries. Those countries are Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal and Spain. A new European Central Bank ("ECB") will be created to
manage the monetary policy of the new unified region. On the same day, exchange
rates will be irrevocably fixed between the EMU member countries. National
currencies will continue to circulate until they are replaced by coins and banks
notes by the middle of 2002.
The planned introduction of the euro presents some uncertainties and possible
risks, including whether the payment and operational systems of banks and other
financial institutions will be ready by January 1, 1999; whether exchange rates
for existing currencies and the euro will be adequately established; and whether
suitable clearing and settlement systems for the euro will be in operation.
These and other factors may cause market disruptions before or after January 1,
1999 and could adversely affect the value of certain foreign securities held by
a Fund.
<PAGE> 234
Forward foreign currency contracts do not eliminate fluctuations in the
underlying prices of securities. Rather, they simply establish a rate of
exchange which one can achieve at some future point in time. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency at the same time, they tend to limit any
potential gain which might result, should the value of such currency increase.
RISKS ASSOCIATED WITH CONVERTIBLE SECURITIES
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 Funds, other than the Convertible Securities 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.
Investments in lower-rated debt securities (i.e., securities rated lower than
BBB by S&P or Baa by Moody's), in which the Fund may invest, bear certain risks,
including the risk that such securities may be thinly traded, which can
adversely affect the price at which these securities can be sold and can result
in high transaction costs. Market quotations may not be available, and
therefore, judgment plays a greater role in valuing lower-rated debt securities
than securities for which more extensive quotations and last sale information
are available. Adverse publicity and changing investor perceptions may affect
the ability of outside pricing services to value lower-rated debt securities,
and the Fund's ability to dispose of these securities.
The market price of lower-rated debt securities may decline significantly in
periods of general economic difficulty which may follow periods of rising
interest rates. During an economic downturn or a prolonged period of rising
interest rates, the ability of issuers of lower-rated debt to meet their payment
obligation on these securities may be impaired.
The Convertible Securities Fund may invest in securities which are rated as low
as 'Caa' by Moody's or 'CCC' by S&P. Securities rated 'Caa' by Moody's are of
poor standing
<PAGE> 235
and may be in default or may present elements of danger with respect to
principal or interest. Debt rated 'CCC' by S&P is regarded as having speculative
characteristics with respect to capacity to pay interest and repay principal. In
the event of adverse business, financial, and economic conditions, debt rated
'CCC' is not likely to have the capacity to repay principal.
YEAR 2000
HighMark Funds depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other mutual funds, businesses and
individuals around the world, HighMark Funds could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. HighMark Funds has made inquiry of its service providers to determine
whether they expect to have their computer systems adjusted for the year 2000
transition, and is seeking assurances from each service provider that it expects
its system to accommodate the year 2000 transition without material adverse
consequences to HighMark Funds. While it is likely that such assurances will be
obtained, HighMark Funds and its shareholders may experience losses if these
assurances prove to be incorrect or as a result of year 2000 computer
difficulties experienced by issuers of portfolio securities or custodians,
banks, broker-dealers or others with which HighMark Funds does business.
PORTFOLIO TURNOVER
A Fund's portfolio turnover rate will not be a factor preventing a sale or
purchase when the Advisor believes investment considerations warrant. Each of
the Funds' portfolio turnover rate may vary greatly from year to year as well as
within a particular year. High portfolio turnover rates generally will result in
correspondingly higher brokerage and other transactions costs to the Funds and
could involve the realization of capital gains that would be taxable when
distributed to Shareholders of the relevant Fund. See Federal Taxation.
PURCHASE AND REDEMPTION OF SHARES
The Blue Chip Growth, Convertible Securities and Government Securities Funds are
only offered in a single class of Shares, 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 Funds' Equity
or Income Funds prior to June 20, 1994, which have remained continuously open
thereafter and which are not considered to be fiduciary accounts; (iii)
Shareholders who currently own Shares of HighMark Funds' Equity or Income Funds
<PAGE> 236
that were purchased prior to June 20, 1994 within an account registered in their
name with the Funds; (iv) present and retired trustees of the Funds and
directors, officers and employees (and their spouses and children under the age
of 21) of Union Bank of California, N.A., HighMark Funds' current or former
distributors or their respective affiliated companies who currently own Shares
of HighMark Funds which were purchased before April 30, 1997; (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; and
(vi) Retirement and other benefit plans sponsored by governmental entities and
Financial Institutions, which may purchase shares on their own account or as
record owner on behalf of fiduciary, agency or custodial accounts, with a
minimum investment of $1,000,000. 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 Funds may be made on days on which
the New York Stock Exchange is open for business ("Business Days"). The minimum
initial investment is generally $1,000 per Fund and the minimum subsequent
investment is generally only $100 per Fund. For present and retired trustees of
the Funds and 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 per Fund and
the minimum subsequent investment is $50 per Fund. A Fund's initial and
subsequent minimum purchase amounts may be waived if purchases are made in
connection with Individual Retirement Accounts, Keoghs, payroll deduction plans,
or 401(k) or similar plans. However, the minimum investment may be waived in the
Distributor's discretion. Shareholders may place orders by telephone.
Purchase orders will be effective if the Distributor receives an order before
1:00 p.m., Pacific time (4:00 p.m., Eastern time) and the custodian receives
Federal funds before the close of business on the next Business Day. The
purchase price of Shares of a Fund is the net asset value next determined after
a purchase order is received and accepted by HighMark Funds. The net asset value
per Share of a Fund is determined by dividing the total market value of a Fund's
investments and other assets, less any liabilities, by the total number of
outstanding Shares of a Fund. Net asset value per share is determined daily as
of 1:00 p.m., Pacific time (4:00 p.m., Eastern time) on any Business Day.
Purchases will be made in full and fractional Shares of HighMark Funds
calculated to three decimal places. HighMark Funds reserves the right to reject
a purchase order when the Distributor or Advisor determines that it is not in
the best interest of HighMark Funds and/or its Shareholders to accept such
order.
Shares of the Funds are offered only to residents of states in which the Shares
are eligible for purchase.
Shareholders who desire to redeem shares of HighMark Funds 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
<PAGE> 237
the net asset value of the Fund next determined after receipt by the Distributor
of the redemption order. Payment on redemption will be made as promptly as
possible and, in any event, within seven calendar days after the redemption
order is received. The Funds reserve the right to make payment for redemptions
in securities rather than cash.
Neither HighMark Funds' transfer agent nor HighMark Funds 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
Funds 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.
The Funds are closed to new investors. See "GENERAL INFORMATION - Future of the
Funds."
EXCHANGE PRIVILEGES
As indicated under GENERAL INFORMATION--Description of HighMark Funds & Its
Shares, certain Funds of HighMark Funds issue three classes of Shares (Class A
and Class B Shares (collectively, "Retail Shares") and Fiduciary Shares); as of
the date of this Prospectus, the Distribution Plan and distribution fee payable
thereunder are applicable only to such Fund's Retail Shares. A Shareholder's
eligibility to exchange into a particular class of Shares will be determined at
the time of the exchange. The Shareholder must supply, at the time of the
exchange, the necessary information to permit confirmation of qualification.
Each Fund's Shares may be exchanged for Shares of the class of the various other
Funds of HighMark Funds which the Shareholder qualifies to purchase directly so
long as the Shareholder maintains the applicable minimum account balance in each
Fund in which he or she owns Shares and satisfies the minimum initial and
subsequent purchase amounts of the Fund into which the Shares are exchanged.
Shareholders may exchange their Fiduciary Shares for Fiduciary Shares of another
Fund on the basis of the relative net asset value of the Fiduciary Shares
exchanged. Shareholders may also exchange Fiduciary Shares of a Fund for Retail
Shares of another Fund. Under such circumstances, the cost of the acquired
Retail Shares will be the net asset value per share plus the appropriate sales
load.
Exchanges will be made on the basis of the relative net asset values of the
Shares exchanged plus any applicable sales charge. Exchanges are subject to the
terms and conditions stated herein and the terms and conditions stated in the
respective prospectuses of the Funds.
<PAGE> 238
Certain entities (including participating organizations and Union Bank of
California and its affiliates), however, may charge customers a fee with respect
to exchanges made on the customer's behalf. Information about these charges, if
any, can be obtained by the entity effecting the exchange and this Prospectus
should be read in conjunction with that information.
A Shareholder wishing to exchange Shares in an Equity Fund may do so by
contacting the transfer agent at 1-800-433-6884. Exchanges will be effected on
any Business Day at the net asset value of the Funds involved in the exchange
next determined after the exchange request is received by the transfer agent.
An exchange is considered to be a sale of Shares for federal income tax purposes
on which a Shareholder may realize a capital gain or loss. Exchange privileges
may be exercised only in those states where Shares of such other Funds of
HighMark Funds may legally be sold. HighMark Funds may materially amend or
terminate the exchange privileges described herein upon sixty days' notice.
DIVIDENDS
The net investment income of each of the Funds is declared and paid monthly as a
dividend to Shareholders of record at the close of business on the day of
declaration. Net realized capital gains are distributed at least annually to
Shareholders of record.
Shareholders will automatically receive all income dividends and capital gains
distributions in additional full and fractional Shares of a Fund at net asset
value as of the date of declaration (which is also the ex-dividend date), unless
the Shareholder elects to receive such dividends or distributions in cash.
Shareholders wishing to receive their dividends in cash (or wishing to revoke a
previously made election) must notify the transfer agent at P.O. Box 8416,
Boston, MA 02266-8416, and such election (or revocation thereof) will become
effective with respect to dividends and distributions having record dates after
notice has been received. Dividends paid in additional Shares receive the same
tax treatment as dividends paid in cash.
TAXES
FEDERAL TAXATION
Each Fund intends to qualify for treatment as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"), and to
distribute substantially all of its net investment income and realized net
capital gains in a timely manner so that each Fund is not required to pay
federal taxes on these amounts. Because
<PAGE> 239
all of the net investment income of the Fixed Income Funds is expected to be
derived from interest, it is anticipated that no part of any distribution will
be eligible for the federal dividends received deduction.
For each 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 Blue
Chip Growth 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 a Fund of net gains on capital assets held
for more than one year are taxable to Shareholders as such, regardless of how
long the Shareholder has held Shares of a Fund. Such distributions are not
eligible for the dividends received deduction.
The sale, exchange or redemption of Fund Shares may give rise to a gain or loss.
In general, any gain realized upon the taxable disposition of Shares will be
treated as 20% gains if the Shares have been held for more than 12 months.
Otherwise the gain on the sale, exchange or redemption of Fund Shares will be
treated as short-term capital gain. In general, any loss realized upon a taxable
disposition of shares will be treated as long-term loss if the Shares have been
held for more than 12 months, and otherwise as short-term capital loss. However,
if a Shareholder disposes of Shares in a Fund at a loss before holding such
Shares for longer than six months, such loss will be treated as a long-term
capital loss to the extent the Shareholder has received long-term capital gain
distributions on the Shares. All or a portion of any loss realized upon a
taxable disposition of Fund Shares will be disallowed if other Shares of the
same Fund are purchased within 30 days before or after the disposition. In such
a case, the basis of the newly purchased Shares will be adjusted to reflect the
disallowed loss. 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
<PAGE> 240
would already be included in alternative minimum taxable income as a specific
item of tax preference).
Prior to purchasing Shares of the Funds, the impact of dividends or capital gain
distributions that are expected to be declared or have been declared, but not
paid, should be carefully considered. Dividends or capital gain distributions
received after a purchase of Shares are subject to federal income taxes,
although in some circumstances, the dividends or distributions may be, as an
economic matter, a return of capital to the Shareholder. A Shareholder should
consult his or her advisor for specific advice about the tax consequences to the
Shareholder of investing in a Fund.
Fund investments in foreign securities may be subject to withholding taxes at
the source on dividend or interest payments. In that case, the Fund's yield on
those securities would be decreased. If at the end of a 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 fax credit for their share of these taxes. The Funds, other than the
International Equity Fund, do 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
<PAGE> 241
tax laws and regulations which are in effect as of the date of this Prospectus;
these laws and regulations may subsequently change, and such changes could be
retroactive.
Shareholders will be advised at least annually as to the federal income tax
status of distributions made during the year.
SERVICE ARRANGEMENTS
THE ADVISOR
Prior to September 1, 1998, Pacific Alliance, a division of Union Bank of
California, N.A. served as the Funds' investment advisor. Effective September 1,
1998, Pacific Alliance was reorganized into a subsidiary of UnionBanCal
Corporation, the holding company of Union Bank of California. The new entity,
which is called HighMark Capital Management, Inc. (the "Advisor"), is a
California corporation registered under the Investment Adviser's Act of 1940.
HighMark Capital Management, Inc. now serves as the Funds' investment advisor.
Subject to the general supervision of HighMark Funds' Board of Trustees, the
Advisor manages each Fund in accordance with its investment objective and
policies, makes decisions with respect to and places orders for all purchases
and sales and maintains the Funds' records relating to such purchases and sales.
For the expenses assumed and services provided by the Advisor as each Fund's
investment advisor, the Advisor receives a fee from the Government Securities
Fund, computed daily and paid monthly, at the annual rate of fifty
one-hundredths of one percent (0.50%) of the Fund's average daily net assets,
and from the Convertible Securities Fund and Blue Chip Growth Fund, computed
daily and paid monthly, at the annual rate of sixty one-hundredths of one
percent (0.60%) of each 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. 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.
During HighMark Funds' fiscal year ended July 31, 1998, Union Bank of California
received investment advisory fees from the Blue Chip Growth Fund aggregating
0.60% of the Fund's average daily net assets, from the Convertible Securities
Fund aggregating 0.60% of the Fund's average daily net assets, and from the
Government Securities Fund aggregating 0.50% of the Fund's average daily net
assets.
<PAGE> 242
UnionBanCal Corporation, the parent of Union Bank of California, N.A., is a
publicly held corporation, but is principally held by The Bank of
Tokyo-Mitsubishi, Ltd. As of September 30, 1998, UnionBanCal Corporation and its
subsidiaries had approximately $31.4 billion in consolidated assets. HighMark
Capital Management, Inc., as of September 30, 1998, had approximately $16
billion of assets under management. The Advisor, with a team of approximately 43
stock and bond research analysts, portfolio managers and traders, has been
providing investment management services to individuals, institutions and large
corporations since 1917.
On November 19, 1998, UnionBanCal Corporation announced plans for a secondary
offering of $750 million of its common stock owned by The Bank of
Tokyo-Mitsubishi, Ltd. It is anticipated that the offering will occur prior to
the end of the first quarter of 1999. UnionBanCal Corporation also announced
that it would seek to repurchase up to $500 million of its outstanding common
stock. Using the net proceeds from the sale of up to $500 million in trust
preferred securities, UnionBanCal Corporation currently anticipates
repurchasing $250 million of its common stock from The Bank of
Tokyo-Mitsubishi, Ltd., concurrent with the secondary offering, and up to an
additional $250 million of its common stock from other foreign institutional
shareholders. The Bank of Tokyo-Mitsubishi, Ltd. intends to maintain a majority
ownership interest in UnionBanCal Corporation following the consummation of the
transactions.
All investment decisions for each of the Funds are made by a team of investment
professionals, all of whom take an active part in the decision making process.
THE SUB-ADVISOR
The Advisor and Bank of Tokyo-Mitsubishi Trust Company ("BTMT") have entered
into an investment subadvisory agreement relating to the Convertible Securities
Fund (the "Investment Sub-Advisory Agreement"). Prior to July 28, 1998, BTMT
also served as the Sub-Advisor to the Blue Chip Growth Fund and Government
Securities Fund. Under the Investment Sub- Advisory Agreement, BTMT will make
the day-to-day investment decisions for the assets of the Convertible Securities
Fund, subject to the supervision of, and policies established by, the Advisor
and the Trustees of HighMark Funds.
Bank of Tokyo-Mitsubishi Trust Company, headquartered at 1251 Avenue of the
Americas, New York, New York 10116, operates as a wholly-owned subsidiary of The
Bank of Tokyo- Mitsubishi, Ltd. BTMT was formed by the combination on April 1,
1996, of Bank of Tokyo Trust Company, a wholly-owned subsidiary of The Bank of
Tokyo, Ltd., and Mitsubishi Bank Trust Company of New York, a wholly-owned
subsidiary of The Mitsubishi Bank, Limited. Bank of Tokyo Trust Company was the
surviving entity, and changed its name to Bank of Tokyo-Mitsubishi Trust
Company. Prior to the combination, subadvisory services were provided by Bank of
Tokyo Trust Company. Bank of Tokyo Trust Company was established in 1955, and
has provided trust services since that time and management services since 1965.
BTMT serves as portfolio manager to employee benefit funds and personal trust
accounts, managing assets in money market, equity and fixed income portfolios.
As of September 30, 1998, BTMT managed in excess of $400 million in individual
portfolios.
BTMT is entitled to a fee, which is calculated daily and paid monthly out of the
Advisor's fee, at an annual rate of 0.30% of the average daily net assets of the
Convertible Securities Fund. For the fiscal year ended July 31, 1998, BTMT
received sub-investment advisory fees from the Advisor for the Blue Chip Growth
Fund aggregating 0.30% of the Fund's average daily net assets, for the
Convertible Securities Fund aggregating 0.30% of the Fund's average daily net
assets, and for the Government
<PAGE> 243
Securities Fund aggregating 0.20% of the Fund's average daily net assets.
Robert Freund serves as portfolio manager for the Convertible Securities Fund.
Mr. Freund has been an analyst and portfolio manager with BTMT and its
predecessor, Bank of Tokyo Trust Company, since 1982.
ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator") and HighMark Funds
are parties to an administration agreement (the "Administration Agreement").
Under the terms of the Administration Agreement, the Administrator provides
HighMark Funds with certain management services, including all necessary office
space, equipment, personnel, and facilities.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of 0.20% of the average daily net assets of the
Funds. The Administrator may waive its fee or reimburse various expenses to the
extent necessary to limit the total operating expenses of a Fund's Fiduciary
Shares. Any such waiver is voluntary and may be terminated at any time in the
Administrator's sole discretion. Currently, the Administrator has agreed to
waive its fee to the rate of 0.18% of the average daily net assets of the Funds.
Pursuant to a separate agreement with the Administrator, Union Bank of
California, N.A. performs sub-administration services on behalf of each Fund,
for which it receives a fee paid by the Administrator at the annual rate of up
to 0.05% of the average daily net assets of the Funds. 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 Funds for which services it receives a fee.
SHAREHOLDER SERVICE PLAN
To support the provision of Shareholder services to the Fiduciary Shares and
Class A Shares, HighMark Funds has adopted a Shareholder Service Plan. A
description of the services performed by service providers pursuant to the
Shareholder Service Plan is contained in the Statement of Additional
Information. In consideration of services provided by any service provider,
which may include Union Bank of California, N.A., Bank of Tokyo-Mitsubishi,
Ltd., or their respective affiliates, each Fund may pay a fee at the rate of up
to 0.25% of its average daily net assets to such service provider. The service
provider may waive such fees at any time. Any such waiver is voluntary and may
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be terminated at any time. Currently, these fees are being waived to the rate of
0.00% of average daily net assets.
DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor") and HighMark Funds 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 Funds upon not more than 60 days written
notice by either party, or upon assignment by the Distributor. Fiduciary Shares
are not subject to HighMark Funds' Distribution Plan or a distribution fee.
BANKING LAWS
HighMark Capital Management, Inc. believes that it may perform the services for
the Funds contemplated by its investment advisory agreement with HighMark Funds
without a violation of applicable banking laws and regulations. Union Bank of
California also believes that it may perform sub-administration services on
behalf of each Fund, for which it receives compensation from the Administrator
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 services for
the Funds. For a further discussion of applicable banking laws and regulations,
see the Statement of Additional Information.
CUSTODIAN
Union Bank of California serves as the custodian and as a shareholder servicing
agent for the Funds. The Custodian holds cash securities and other assets of
HighMark Funds as required by the 1940 Act.
Services performed by Union Bank of California, as the Funds' shareholder
servicing agent and custodian, as well as the basis of remuneration for such
services, are described in the Statement of Additional Information.
GENERAL INFORMATION
DESCRIPTION OF HIGHMARK FUNDS & ITS SHARES
HighMark Funds was organized as a Massachusetts business trust on March 10,
1987,
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and consists of seventeen series of Shares open for investment representing
units of beneficial interest in HighMark Funds' Growth Fund, Income Equity Fund,
Balanced Fund, Value Momentum Fund, Blue Chip Growth Fund, Emerging Growth Fund,
International Equity Fund, Small Cap Value Fund, Bond Fund, Intermediate-Term
Bond Fund, Government Securities Fund, Convertible Securities Fund, California
Intermediate Tax-Free Bond Fund, Diversified Money Market Fund, U.S. Government
Obligations Money Market Fund, 100% U.S. Treasury Obligations Money Market Fund,
and California Tax-Free Money Market Fund. 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 Funds were liquidated, would
receive a pro rata share of the net assets attributable to that Fund. Shares are
without par value.
As noted above, pursuant to a Multiple Class Plan on file with the Securities
and Exchange Commission permitting the issuance and sale of three classes of
Shares in selected Funds, Shares of such Funds have been divided into three
classes, designated Class A and Class B Shares (collectively, "Retail Shares")
and Fiduciary Shares. For information regarding the Retail Shares of the Funds,
interested persons may contact the Distributor for a prospectus at
1-800-433-6884.
As of November 18, 1998, HighMark Funds believes that Bank of Tokyo Trust
Company (1251 Avenue of the Americas, New York, NY 11020) was the Shareholder of
record of 33.16% of the Fiduciary Shares of the Convertible Securities Fund.
FUTURE OF THE FUNDS
On September 23, 1998, the Board of Trustees of HighMark Funds approved, subject
to shareholder approval, the reorganization of the Blue Chip Growth Fund into
the Growth Fund and the Government Securities Fund into the Bond Fund. Under the
terms of a Plan of Reorganization, the Growth and Bond Funds would acquire all
of the assets and stated liabilities of the Blue Chip Growth and Government
Securities Funds, respectively. The proposed reorganization is expected to take
place on or about January 8, 1999. The Board also approved, subject to
shareholder approval, the liquidation of the assets of the Convertible
Securities Fund. It is expected that the Convertible Securities Fund will cease
operations on or about December 31, 1998.
PERFORMANCE INFORMATION
From time to time, HighMark Funds may advertise the aggregate total return,
average annual total return, yield and distribution rate with respect to the
Fiduciary Shares of each Fund. Performance information is computed separately
for a Fund's Retail and Fiduciary Shares in accordance with the formulas
described below.
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The aggregate total return and average annual total return of the Funds may be
quoted for the life of each Fund and for ten-year, five-year, three-year, and
one-year periods, in each case through the most recent calendar quarter.
Aggregate total return is determined by calculating the change in the value of a
hypothetical $1,000 investment in a Fund over the applicable period that would
equate the initial amount invested to the ending redeemable value of the
investment. The ending redeemable value includes dividends and capital gain
distributions reinvested at net asset value. Average annual total return is
calculated by annualizing a Fund's aggregate total return over the relevant
number of years. The resulting percentage indicates the average positive or
negative investment results that an investor in a Fund would have experienced on
an annual basis from changes in Share price and reinvestment of dividends and
capital gain distributions.
The yield of a Fund is determined by annualizing the net investment income per
Share of the Fund during a specified thirty-day period and dividing that amount
by the per Share public offering price of the Fund on the last day of the
period.
The distribution rate of a Fund is determined by dividing the income and capital
gains distributions, or where indicated the income distributions alone, on a
Share of the Fund over a twelve-month period by the per Share public offering
price of the Fund on the last day of the period.
Each Fund may periodically compare its performance to the performance of other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical);
financial and business publications and periodicals; broad groups of comparable
mutual funds; unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs; or
other investment alternatives. Certain Funds may advertise performance that
includes results from periods in which the Fund's assets were managed in a
non-registered predecessor vehicle.
All performance information presented for a Fund is based on past performance
and does not predict future performance.
MISCELLANEOUS
Shareholders will be sent unaudited semi-annual reports and annual reports
audited by independent public accountants.
Shareholders are entitled to one vote for each Share held in a Fund as
determined on the record date for any action requiring a vote by the
Shareholders, and a proportionate fractional vote for each fractional Share
held. Shareholders of HighMark Funds will vote in the aggregate and not by
series or class except (i) as otherwise expressly required by law or when
HighMark Funds' 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
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Shareholder vote relating to the Distribution Plan. HighMark Funds is not
required to hold regular annual meetings of Shareholders, but may hold special
meetings from time to time.
HighMark Funds' 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 Blue Chip Growth
Fund and, in some cases, the Convertible Securities and Government Securities
Funds (see "INVESTMENT POLICIES" and "GENERAL" to identify which investments are
permitted for the Convertible Securities and Government Securities Funds).
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.
ASSET-BACKED SECURITIES (NON-MORTGAGE) -- Instruments secured by company
receivables, truck and auto loans, leases, and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally
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issued as the debt of a special purpose entity, such as a trust, organized
solely for the purpose of owning such assets and issuing such debt. The purchase
of non-mortgage asset-backed securities raises risk considerations peculiar to
the financing of the instruments underlying such securities. Asset-backed
securities entail prepayment risk, which may vary depending on the type of
asset, but is generally less than the prepayment risk associated with
mortgage-backed securities.
Like mortgages underlying mortgage-backed securities, underlying automobile
sales contracts or credit card receivables are subject to substantial prepayment
risk, which may reduce the overall return to certificate holders. Nevertheless,
principal prepayment rates tend not to vary as much in response to changes in
interest rates and the short-term nature of the underlying car loans or other
receivables tend to dampen the impact of any change in the prepayment level.
Certificate holders may also experience delays in payment on the certificates if
the full amounts due on underlying sales contracts or receivables are not
realized by the trust because of unanticipated legal or administrative costs of
enforcing the contracts or because of depreciation or damage to the collateral
(usually automobiles) securing certain contracts, or other factors. If
consistent with their investment objectives and policies, the Equity Funds may
invest in other asset-backed securities that may be developed in the future.
BANKERS' ACCEPTANCES -- Bills of exchange or time drafts drawn on and accepted
by commercial banks. They are used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
CERTIFICATES OF DEPOSIT -- Negotiable interest-bearing instruments with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity.
COMMERCIAL PAPER -- Unsecured short-term promissory notes issued by corporations
and other entities. Maturities on these issues vary from a few days to nine
months. Purchase of such instruments involves a risk of default by the issuer.
COMMON STOCK--Units of ownership of a public corporation. Owners typically are
entitled to vote on the selection of directors and other important matters as
well as to receive dividends on their holdings. In the event that a corporation
is liquidated, the claims of secured and unsecured creditors and owners of bonds
and preferred stock take precedence over the claims of those who own common
stock. For the most part, common stock has more potential for appreciation.
CONVERTIBLE BONDS AND CONVERTIBLE PREFERRED STOCK -- Convertible Bonds
are bonds convertible into a set number of shares of another form of security
(usually common stock) at a prestated price. Convertible bonds have
characteristics similar to both fixed-income and equity securities. Convertible
preferred stock is a class
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of capital stock that pays dividends at a specified rate and that has preference
over common stock in the payment of dividends and the liquidation of assets.
Convertible preferred stock is preferred stock exchangeable for a given number
of common stock shares, and has characteristics similar to both fixed-income and
equity securities. Because of the conversion feature, the market value of
convertible bonds and convertible preferred stock tend to move together with the
market value of the underlying stock. As a result, a Fund's selection of
convertible bonds and convertible preferred stock is based, to a great extent,
on the potential for capital appreciation that may exist in the underlying
stock. The value of convertible bonds and convertible preferred stock is also
affected by prevailing interest rates, the credit quality of the issuer and any
call provisions.
DERIVATIVES -- Instruments whose value is derived from an underlying contract,
index or security, or any combination thereof, including futures, options (e.g.,
puts and calls), options on futures, swap agreements, and some mortgage-backed
securities (CMOs, REMICs, IOs and POs). See elsewhere in this "DESCRIPTION OF
PERMITTED INVESTMENTS" for discussions of these various instruments, and see
"INVESTMENT OBJECTIVES" and "INVESTMENT POLICIES" for more information about any
policies and limitations applicable to their use.
FUTURES AND OPTIONS ON FUTURES -- Some futures strategies, including selling
futures, buying puts and writing calls, reduce a Fund's exposure to price
fluctuations. Other strategies, including buying futures, writing puts and
buying calls, tend to increase market exposure. Futures and options may be
combined with each other in order to adjust the risk and return characteristics
of the overall portfolio.
Options and futures can be volatile instruments, and involve certain risks that,
if applied at an inappropriate time, could negatively impact a Fund's return.
INVESTMENT GRADE BONDS -- Interest-bearing or discounted government or corporate
securities that obligate the issuer to pay the bondholder a specified sum of
money, usually at specific intervals, and to repay the principal amount of the
loan at maturity. Investment grade bonds are those rated BBB or better by S&P or
Baa or better by Moody's or similarly rated by other NRSROs, or, if not rated,
determined to be of comparable quality by the Advisor.
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
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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.
LOWER-RATED, HIGHER-YIELDING, HIGH-RISK DEBT SECURITIES -- High-yield,
high-risk securities consist of securities rated Ba or lower by Moody's or BB or
lower by S&P. Lower-rated debt securities are considered speculative and involve
greater risk of loss than investment grade debt securities, and are more
sensitive to changes in the issuer's capacity to pay. For a description of the
debt securities ratings, see the "Appendix."
MONEY MARKET INSTRUMENTS -- Short-term, debt instruments or deposits and may
include, for example, (i) commercial paper rated within the highest rating
category by a NRSRO at the time of investment, or, if not rated, determined by
the Advisor to be of comparable quality; (ii) obligations (certificates of
deposit, time deposits, bank master notes, and bankers' acceptances) of thrift
institutions, savings and loans, U.S. commercial banks (including foreign
branches of such banks), and U.S. and foreign branches of foreign banks,
provided that such institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown on their last
published financial statements at the time of investment; (iii) short-term
corporate obligations rated within the three highest rating categories by a
NRSRO (e.g., at least A by S&P or A by Moody's) at the time of investment, or,
if not rated, determined by the Advisor to be of comparable quality; (iv)
general obligations issued by the U.S. Government and backed by its full faith
and credit, and obligations issued or guaranteed as to principal and interest by
agencies or instrumentalities of the U.S. Government (e.g., obligations issued
by Farmers Home Administration, Government National Mortgage Association,
Federal Farm Credit Bank and 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.
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MORTGAGE-BACKED SECURITIES -- Securities generally issued or guaranteed by U.S.
government agencies such as GNMA, FNMA, or FHLMC. GNMA mortgage-backed
certificates are mortgage-backed securities of the modified pass-through type,
which means that both interest and principal payments (including prepayments)
are passed through monthly to the holder of the certificate. Each GNMA
certificate evidences an interest in a specific pool of mortgage loans insured
by the Federal Housing Administration or the Farmers Home Administration or
guaranteed by the Veterans Administration. FNMA, a federally-chartered and
stockholder-owned corporation, issues pass-through certificates which are
guaranteed as to payment of principal and interest by FNMA. FHLMC, a corporate
instrumentality of the United States, issues participation certificates which
represent an interest in mortgages held in FHLMC's portfolio. FHLMC guarantees
the timely payment of interest and the ultimate collection of principal.
Securities issued or guaranteed by FNMA and FHLMC are not backed by the full
faith and credit of the United States. There can be no assurance that the U.S.
government would provide financial support to FNMA or FHLMC if necessary in the
future.
Although payments on certain mortgage-related securities may be guaranteed by a
third party or otherwise similarly secured, the market value of such securities
is not secured and may fluctuate significantly because of changes in interest
rates and changes in prepayment levels. Thus, for example, if a Fund purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether due to changes in interest
rates or prepayments of the underlying mortgage collateral. As with other
interest-bearing securities, the prices of mortgage-related securities are
inversely affected by changes in interest rates. However, although the value of
a mortgage-related security may decline when interest rates rise, the converse
is not necessarily true because in periods of declining interest rates the
mortgages underlying the securities are prone to prepayment which results in
amounts being available for reinvestment which are likely to be invested at a
lower interest rate. For this and other reasons, the stated maturity of a
mortgage-related security may be shortened by unscheduled prepayments on the
underlying mortgages and, accordingly, it is not possible to predict accurately
the security's return to a Fund. In addition, regular payments received on
mortgage-related securities include both interest and principal. No assurance
can be given as to the return a Fund will receive when these amounts are
reinvested. As a consequence, mortgage-related securities may be a less
effective means of "locking in" interest rates than other types of debt
securities having the same stated maturity, may have less potential for capital
appreciation and may be considered riskier investments as a result.
Adjustable rate mortgage securities ("ARMS") are pass-through certificates
representing ownership interests in a pool of adjustable rate mortgages and the
resulting cash flow from those mortgages. Unlike conventional debt securities,
which provide for periodic (usually semi-annual) payments of interest and
payments of principal at maturity or on
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specified call dates, ARMs provide for monthly payments based on a pro rata
share of both periodic interest and principal payments and prepayments of
principal on the underlying mortgage pool (less GNMA's, FNMA's, or FHLMC's fees
and any applicable loan servicing fees).
Collateralized mortgage obligations ("CMOs") are bonds generally issued by
single purpose, stand-alone finance subsidiaries or trusts established by
financial institutions, government agencies, investment banks, or other similar
institutions, and collateralized by pools of mortgage loans. Payments of
principal and interest on the collateral mortgages are used to pay debt service
on the CMO. In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche," is issued at a
specific coupon rate and has a stated maturity or final distribution date. The
principal and interest payment on the underlying mortgages may be allocated
among the classes of CMOs in several ways. Typically, payments of principal,
including any prepayments, on the underlying mortgages would be applied to the
classes in the order of their respective stated maturities or final distribution
dates, so that no payment of principal will be made on CMOs of a class until all
CMOs of other classes having earlier stated maturities or final distribution
dates have been paid in full.
One or more classes of CMOs may have coupon rates that reset periodically based
on an index, such as the London Interbank Offered Rate ("LIBOR"). Each Fund may
purchase fixed, adjustable, or "floating" rate CMOs that are collateralized by
fixed rate or adjustable rate mortgages that are guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S. government or
are directly guaranteed as to payment of principal and interest by the issuer,
which guarantee is collateralized by U.S. government securities or is
collateralized by privately issued fixed rate or adjustable rate mortgages.
Securities such as zero-coupon obligations, mortgage-backed and asset-backed
securities, and collateralized mortgage obligations ("CMOs") will have greater
price volatility then other fixed-income obligations. Because declining interest
rates may lead to prepayment of underlying mortgages, automobile sales contracts
or credit card receivables, the prices of mortgage-related and asset-backed
securities may not rise with a decline in interest rates. Mortgage-backed and
asset-backed securities and CMOs are extremely sensitive to the rate of
principal prepayment. Similarly, callable corporate bonds also present risk of
prepayment.
During periods of falling interest rates, securities that can be called or
prepaid may decline in value relative to similar securities that are not subject
to call or prepayment.
Real Estate Mortgage Investment Conduits ("REMICs") are private entities formed
for the purpose of holding a fixed pool of mortgages secured by an interest in
real property. REMICs are similar to CMOs in that they issue multiple classes of
securities.
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MUNICIPAL FORWARDS -- Municipal Forwards are forward commitments for the
purchase of tax-exempt bonds with a specified coupon to be delivered by an
issuer at a future date, typically exceeding 45 days but normally less than one
year after the commitment date. Municipal forwards are normally used as a
refunding mechanism for bonds that may only be redeemed on a designated future
date. As with forward commitments and when-issued securities, municipal forwards
are subject to market fluctuations due to changes, real or anticipated, in
market interest rates between the commitment date and the settlement date and
will have the effect of leveraging the Fund's assets. Municipal forwards may be
considered to be illiquid investments. The Fund will maintain liquid, high-grade
securities in a segregated account in an amount at least equal to the purchase
price of the municipal forward.
MUNICIPAL SECURITIES -- Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
Municipal notes include general obligation notes, tax anticipation notes,
revenue anticipation notes, bond anticipation notes, certificates of
indebtedness, demand notes and construction loan notes. Municipal bonds include
general obligation bonds, revenue or special obligation bonds, private activity
and industrial development bonds. General obligation bonds are backed by the
taxing power of the issuing municipality. Revenue bonds are backed by the
revenues of a project or facility, tolls from a toll bridge, for example. The
payment of principal and interest on private activity and industrial development
bonds generally is dependent solely on the ability of the facility's user to
meet its financial obligations and the pledge, if any, of real and personal
property so financed as security for such payment.
OBLIGATIONS OF SUPRANATIONAL ENTITIES -- Obligations of supranational entities
are established through the joint participation of several governments, and
include the Asian Development Bank, the Inter-American Development Bank,
International Bank for Reconstruction and Development (World Bank), African
Development Bank, European Economic Community, European Investment Bank and the
Nordic Investment Bank.
OPTIONS -- Under a call option, the purchaser of the option has the right to
purchase, and the writer (the Fund) the obligation to sell, the underlying
security at the exercise price during the option period. A put option gives the
purchaser the right to sell, and the writer the obligation to purchase, the
underlying security at the exercise price during the option period.
In addition, certain Funds may buy options on stock indices to invest cash on an
interim basis. Such options will be listed on a national securities exchange. In
order to close out
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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.
PARTICIPATION INTERESTS -- Participation interests are interests in municipal
securities from financial institutions such as commercial and investment banks,
savings and loan associations and insurance companies. These interests may take
the form of participations, beneficial interests in a trust, partnership
interests or any other form of indirect ownership that allows the Fund to treat
the income from the investment as exempt from federal income tax. The Fund
invests in these participation interests in order to obtain credit enhancement
or demand features that would not be available through direct ownership of the
underlying municipal securities.
RECEIPTS -- Interests in separately traded interest and principal component
parts of U.S. Treasury obligations that are issued by banks and brokerage firms
and are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's"), "Treasury Investment Growth Receipts" ("TIGR's"),
and "Certificates of Accrual on Treasury Securities" ("CATS"). TR's, TIGR's and
CATS are sold as zero coupon securities, which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is accreted over
the life of the security, and such accretion will constitute the income earned
on the security for both accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate volatility than
interest-paying securities. See also "FEDERAL TAXATION."
REPURCHASE AGREEMENTS -- Agreements whereby a Fund will acquire securities from
approved financial institutions or registered broker-dealers that agree to
repurchase the securities at a mutually agreed-upon date and price. The
repurchase agreements entered into by the Funds will provide that the underlying
security at all times shall have
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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 Funds 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 Funds' 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
<PAGE> 256
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.
TAX-EXEMPT COMMERCIAL PAPER -- Commercial paper, which is commercial paper
issued by governments and political sub-divisions.
TIME DEPOSITS -- Non-negotiable receipts issued by U.S. or foreign banks in
exchange for the deposit of funds. Like certificates of deposit, they earn a
specified rate of interest over a definite period of time; however, they cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
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,
<PAGE> 257
which usually cost at least $1,000, are sold to investors by brokers, for a Load
charge of about 4%. Unit holders receive an undivided interest in both the
principal and the income portion of the portfolio in proportion to the amount of
capital they invest. The portfolio of securities remains fixed until all the
securities mature and unit holders have recovered their principal. Most
brokerage firms maintain a Secondary Market in the trusts they sell, so that
units can be resold if necessary.
U.S. GOVERNMENT AGENCY SECURITIES -- Certain Federal agencies have been
established as instrumentalities of the U.S. Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the U.S. Government, are either backed by the full faith and
credit of the United States (e.g., GNMA securities) or supported by the issuing
agencies' right to borrow from the U.S. Treasury. The issues of other agencies
are supported only by the credit of the instrumentality (e.g., FNMA securities).
U.S. TREASURY OBLIGATIONS -- Bills, notes, and bonds issued by the U.S.
Treasury, as well as separately traded interest and principal component parts of
such obligations known as Separately Traded Registered Interest and Principal
Securities ("STRIPS") that are transferable through the Federal book-entry
system.
U.S. Government Securities generally do not involve the credit risks associated
with investments in other types of fixed-income securities, although, as a
result, the yields available from U.S. Government Securities are generally lower
than the yields available from otherwise comparable corporate fixed-income
securities. Like other fixed-income securities, however, the values of U.S.
Government Securities change as interest rates fluctuate. Fluctuations in the
value of portfolio securities will in many cases not affect interest income on
existing portfolio securities, but will be reflected in the Fund's net asset
value. Because the magnitude of these 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.
<PAGE> 258
YANKEE BONDS -- Dollar denominated securities issued by foreign-domiciled
issuers that obligate the issuer to pay the bondholder a specified sum of money,
usually semiannually, and to repay the principal amount of the loan at maturity.
Sovereign bonds are bonds issued by the governments of foreign countries.
Supranational bonds are those issued by supranational entities, such as the
World Bank and European Investment Bank. Canadian bonds are bonds issued by
Canadian provinces.
ZERO-COUPON OBLIGATIONS -- Non-income producing securities evidencing ownership
of future interest and principal payments on bonds. These obligations pay no
current interest and are typically sold at prices greatly discounted from par
value. The return on a zero-coupon obligation, when held to maturity, equals the
difference between the par value and the original purchase price.
For federal income tax purposes, the difference between the par value and the
original issue price (original issue discount) is included in the income of a
holder of a zero-coupon obligation over the term of the obligation even though
the interest is not paid until maturity. The amount included in income is
determined under a constant interest rate method. In addition, if an obligation
is purchased subsequent to its original issue, a holder such as the Income Funds
may elect to include market discount in income currently on a ratable accrual
method or a constant interest rate method. Market discount is the difference
between the obligation's "adjusted issue price" (the original issue price plus
original issue discount accrued to date) and the holder's purchase price. If no
such election is made, gain on the disposition of a market discount obligation
is treated as ordinary income (rather than capital gain) to the extent it does
not exceed the accrued market discount.
Zero-coupon obligations have greater price volatility than other fixed-income
obligations of similar maturity and such obligations will be purchased when the
yield spread, in light of the obligation's duration, is considered advantageous.
<PAGE> 259
HIGHMARK EQUITY AND FIXED INCOME FUNDS
INVESTMENT PORTFOLIOS OF
HIGHMARK FUNDS
FOR FURTHER INFORMATION (INCLUDING CURRENT
YIELD, PURCHASE AND REDEMPTION INFORMATION),
CALL 1-800-433-6884
INVESTMENT ADVISOR
HighMark Capital Management, Inc.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
SUB-ADVISOR
(Convertible Securities Fund Only)
Bank of Tokyo-Mitsubishi Trust Company
1251 Avenue of the Americas
New York, New York 10116
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
SEI Investments Mutual Funds Services and
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
AUDITORS
<PAGE> 260
Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105-2230
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HIGHMARK
FUNDS OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
HIGHMARK FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
NOT FDIC INSURED
<PAGE> 261
CROSS REFERENCE SHEET
HIGHMARK FUNDS
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
FORM N-1A PART B ITEM INFORMATION CAPTION
<S> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Additional Information -- Description of Shares
13. Investment Objectives and Policies Investment Objectives and Policies; Additional Information
on Portfolio Instruments
14. Management of HighMark Funds Management of HighMark Funds
15. Control Persons and Principal
Holders of Securities Additional Information -- Miscellaneous
16. Investment Advisory and Other
Services Management of HighMark Funds
17. Brokerage Allocation Management of HighMark Funds -- Portfolio Transactions
18. Capital Stock and Other Securities Valuation; Additional Purchase and Redemption
Information; Management of HighMark Funds -- Distributor;
The Distribution Plans; Additional Information
19. Purchase, Redemption and Valuation; Additional Purchase and Redemption
Pricing of Securities Being Information; Management of HighMark Funds
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 Funds -- Distributor
22. Calculation of Performance Data Additional Information -- Calculation of Performance Data
23. Financial Statements Financial Statements
</TABLE>
<PAGE> 262
HIGHMARK FUNDS
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 30, 1998
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectuses of the HighMark Funds and the HighMark
Money Market Funds, each of which is dated November 30, 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> 263
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.................................................3
Lending of Portfolio Securities..........................................................................4
Repurchase Agreements....................................................................................4
Reverse Repurchase Agreements............................................................................5
U.S. Government Obligations..............................................................................5
Mortgage-Related Securities..............................................................................6
Adjustable Rate Notes....................................................................................7
Municipal Securities.....................................................................................8
Investments in California Municipal Securities by the California Tax-Free Money
Market Fund and the California Intermediate Tax-Free Bond Fund.................................11
Puts....................................................................................................14
Shares of Mutual Funds..................................................................................14
When-Issued Securities and Forward Commitments..........................................................15
Zero-Coupon Securities..................................................................................15
High Quality Investments with Regard to the Money Market Funds..........................................29
Illiquid Securities.....................................................................................31
INVESTMENT RESTRICTIONS..........................................................................................32
Voting Information......................................................................................42
PORTFOLIO TURNOVER...............................................................................................42
VALUATION........................................................................................................43
VALUATION OF THE MONEY MARKET FUNDS.....................................................................43
VALUATION OF THE EQUITY FUNDS AND THE FIXED INCOME FUNDS................................................43
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................44
ADDITIONAL FEDERAL TAX INFORMATION......................................................................44
ADDITIONAL TAX INFORMATION CONCERNING THE CALIFORNIA TAX-
FREE MONEY MARKET FUND AND THE CALIFORNIA
INTERMEDIATE TAX-FREE BOND FUND................................................................47
FOREIGN TAXES...........................................................................................50
</TABLE>
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<TABLE>
<S> <C>
MANAGEMENT OF HIGHMARK FUNDS.....................................................................................51
TRUSTEES AND OFFICERS...................................................................................51
INVESTMENT ADVISOR......................................................................................54
THE SUB-ADVISORS........................................................................................57
PORTFOLIO TRANSACTIONS..................................................................................58
GLASS-STEAGALL ACT......................................................................................60
ADMINISTRATOR AND SUB-ADMINISTRATOR.....................................................................61
SHAREHOLDER SERVICES PLANS..............................................................................64
EXPENSES ...............................................................................................65
DISTRIBUTOR.............................................................................................65
The Distribution Plans.........................................................................66
TRANSFER AGENT AND CUSTODIAN SERVICES...................................................................66
AUDITORS ...............................................................................................67
LEGAL COUNSEL...........................................................................................67
ADDITIONAL INFORMATION...........................................................................................68
DESCRIPTION OF SHARES...................................................................................68
SHAREHOLDER AND TRUSTEE LIABILITY.......................................................................69
THE REORGANIZATION OF THE IRA FUND AND HIGHMARK FUNDS...................................................70
CALCULATION OF PERFORMANCE DATA.........................................................................70
MISCELLANEOUS...........................................................................................76
APPENDIX ........................................................................................................85
FINANCIAL STATEMENTS.............................................................................................92
</TABLE>
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<PAGE> 265
STATEMENT OF ADDITIONAL INFORMATION
HIGHMARK FUNDS
HighMark Funds is a diversified, open-end management investment
company. HighMark Funds 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 Small Cap Value Fund,
the HighMark Bond Fund, the HighMark Intermediate-Term Bond Fund, the HighMark
Government Securities Fund, the HighMark Convertible Securities Fund, the
HighMark California Intermediate Tax-Free Bond Fund, the HighMark Diversified
Money Market Fund, the HighMark U.S. Government Money Market Fund, the HighMark
100% U.S. Treasury Money Market Fund, and the HighMark California Tax-Free Money
Market Fund. The HighMark Small Cap Value Fund commenced operations on September
14, 1998. The HighMark Value Momentum Fund, the HighMark Blue Chip Growth Fund,
the HighMark Emerging Growth Fund, the HighMark International Equity Fund, the
HighMark Intermediate-Term Bond Fund, the HighMark Government Securities Fund,
and the HighMark California Intermediate Tax-Free Bond Fund commenced operations
in HighMark Funds on April 28, 1997, and the HighMark Convertible Securities
Fund commenced operations in HighMark Funds on May 1, 1997. The HighMark
Balanced Fund commenced operations on November 14, 1993 and the HighMark Growth
Fund commenced operations on November 18, 1993. The HighMark Income Equity Fund
and the HighMark Bond Fund commenced operations on June 23, 1988 as a result of
the reorganization of the Income Equity Portfolio and the Bond Portfolio,
respectively, of the IRA Collective Investment Fund (the "IRA Fund") described
under "ADDITIONAL INFORMATION - The Reorganization of the IRA Fund and HighMark
Funds" below. The HighMark Diversified Money Market Fund, the HighMark U.S.
Government Money Market Fund and the HighMark 100% U.S. Treasury Money Market
Fund commenced operations on August 10, 1987. The HighMark California Tax-Free
Money Market Fund commenced operations on August 11, 1987.
As described in the Prospectuses, selected Funds of HighMark Funds have
been divided into three classes of Shares (designated Class A and Class B Shares
(collectively "Retail Shares") and Fiduciary Shares) for purposes of HighMark
Funds' Distribution and Shareholder Services Plans (the "Distribution Plans"),
which Distribution Plans apply only to such Funds' Retail Shares. Retail Shares
and Fiduciary Shares are sometimes herein referred to collectively as "Shares".
The Diversified Money Market Fund, the U.S. Government Money Market
Fund, the 100% U.S. Treasury Money Market Fund, and the California Tax-Free
Money Market Fund are sometimes herein referred to as the "Money Market Funds."
The Growth, Income Equity, Balanced, Value Momentum, Blue Chip Growth, Emerging
Growth, International Equity
<PAGE> 266
and Small Cap Value Funds are sometimes referred to herein as the "Equity
Funds." The Bond, Intermediate-Term Bond, Government Securities, Convertible
Securities, and California Intermediate Tax-Free Bond Funds are sometimes
referred to herein as the "Fixed Income Funds." The Income Equity Portfolio and
the Bond Portfolio of the IRA Fund (which were reorganized into certain Funds of
HighMark Funds as described above) are sometimes referred to herein as the "IRA
Fund Portfolios."
Much of the information contained herein expands upon subjects
discussed in the Prospectuses for the respective Funds. No investment in Shares
of a Fund should be made without first reading that Fund's Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the investment objectives and
policies of each Fund of HighMark Funds as set forth in the respective
Prospectus for that Fund.
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
1. Bank Instruments. Consistent with its investment objective,
policies, and restrictions, each Fund (other than the U.S. Government Money
Market Fund, the 100% U.S. Treasury Money Market Fund, and the California
Tax-Free Money Market Fund) may invest in bankers' acceptances, certificates of
deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise that
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity. Investments in
bankers' acceptances will be limited to those guaranteed by domestic and foreign
banks having, at the time of investment, total assets of $1 billion or more (as
of the date of the institution's most recently published financial statements).
Certificates of deposit and time deposits represent funds deposited in
a commercial bank or a savings and loan association for a definite period of
time and earning a specified return.
Investments in certificates of deposit and time deposits may include
Eurodollar Certificates of Deposit, which are U.S. dollar denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States, Yankee Certificates of Deposit, which are
certificates of deposit issued by a U.S. branch of a foreign bank denominated in
U.S. dollars and held in the United States, Eurodollar Time Deposits ("ETDs"),
which are U.S. dollar denominated deposits in a foreign branch of a U.S. bank or
a foreign bank, and Canadian Time Deposits ("CTDs"), which are U.S. dollar
denominated
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<PAGE> 267
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.
There is no limitation on the Diversified Money Market Fund's ability
to invest in domestic certificates of deposit, bankers' acceptances or other
bank instruments in connection with the Fund's fundamental investment
restriction governing concentration in the securities of one or more issuers
conducting their principal business activities in the same industry. For
purposes of this exception to the Fund's fundamental investment restriction,
domestic certificates of deposit and bankers' acceptances include those issued
by domestic branches of foreign banks to the extent permitted by the rules and
regulations of the Securities and Exchange Commission staff. These rules and
regulations currently permit U.S. branches of foreign banks to be considered
domestic banks if it can be demonstrated that they are subject to the same
regulation as U.S. banks.
2. Commercial Paper and Variable Amount Master Demand Notes. Consistent
with its investment objective, policies, and restrictions, each Fund (other than
the U.S. Government Money Market Fund and the 100% U.S. Treasury Money Market
Fund) may invest in commercial paper (including Section 4(2) commercial paper)
and variable amount master demand notes. Commercial paper consists of unsecured
promissory notes issued by corporations normally having maturities of 270 days
or less. These investments may include Canadian Commercial Paper, which is U.S.
dollar denominated commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and Europaper, which is U.S. dollar
denominated commercial paper of a foreign issuer.
Variable amount master demand notes are unsecured demand notes that
permit the indebtedness thereunder to vary and provide for periodic adjustments
in the interest rate according to the terms of the instrument. Because master
demand notes are direct lending arrangements between a Fund and the issuer, they
are not normally traded. Although there is no secondary market in the notes, a
Fund may demand payment of principal and accrued interest at any time. A
variable amount master demand note will be deemed to have a maturity equal to
the longer of the period of time remaining until the next readjustment of its
interest rate or the period of time remaining until the principal amount can be
recovered from the issuer through demand.
3. Lending of Portfolio Securities. In order to generate additional
income, each Fund (other than the California Tax-Free Money Market Fund and the
100% U.S. Treasury Money Market Fund) may lend its portfolio securities to
broker-dealers, banks or other institutions. During the time portfolio
securities are on loan from a Fund, the borrower will pay the Fund any dividends
or interest paid on the securities. In addition, loans will be subject
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<PAGE> 268
to termination by the Fund or the borrower at any time. While the lending of
securities may subject a Fund to certain risks, such as delays or an inability
to regain the securities in the event the borrower were to default on its
lending agreement or enter into bankruptcy, a Fund will receive at least 100%
collateral in the form of cash or U.S. Government securities. This collateral
will be valued daily by the lending agent, with oversight by HighMark Capital
Management, Inc. (the "Advisor"), and, should the market value of the loaned
securities increase, the borrower will be required to furnish additional
collateral to the Fund. A Fund (other than the California Tax-Free Money Market
Fund and the 100% U.S. Treasury Money Market Fund) may lend portfolio securities
in an amount representing up to 33 1/3% of the value of the Fund's total assets.
4. Repurchase Agreements. Securities held by each Fund (other than the
100% U.S. Treasury Money Market Fund) may be subject to repurchase agreements.
As a matter of non-fundamental policy, the California Tax-Free Money Market Fund
intends to limit investments in repurchase agreements to no more than 5% of the
value of its total assets.
Under the terms of a repurchase agreement, a Fund will deal with
financial institutions such as member banks of the Federal Deposit Insurance
Corporation having, at the time of investment, total assets of $100 million or
more and from registered broker-dealers that the Advisor deems creditworthy
under guidelines approved by HighMark Funds' 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 a Fund would be
entitled, as against a claim by the seller or its receiver or trustee in
bankruptcy, to retain the underlying securities, HighMark Funds' Board of
Trustees believes that, under the regular procedures normally in effect for
custody of a Fund's securities subject to repurchase agreements and under
federal laws, a court of competent jurisdiction would rule in favor of the Fund
if presented with the question. Securities subject to repurchase agreements will
be held by HighMark Funds' custodian or another qualified custodian or in the
Federal Reserve/Treasury book-entry system. Repurchase agreements are considered
to be loans by a Fund under the 1940 Act.
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<PAGE> 269
5. Reverse Repurchase Agreements. Each Fund (other than the 100% U.S.
Treasury Money Market Fund) may borrow funds for temporary purposes by entering
into reverse repurchase agreements, provided such action is consistent with the
Fund's investment objective and fundamental investment restrictions; as a matter
of non fundamental policy, each Fund intends to limit total borrowings under
reverse repurchase agreements to no more than 10% of the value of its total
assets. Pursuant to a reverse repurchase agreement, a Fund will sell portfolio
securities to financial institutions such as banks or to broker-dealers, and
agree to repurchase the securities at a mutually agreed-upon date and price. A
Fund intends to enter into reverse repurchase agreements only to avoid otherwise
selling securities during unfavorable market conditions to meet redemptions. At
the time a Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account assets such as U.S. Government securities or other
liquid, high-quality debt securities consistent with the Fund's investment
objective having a value equal to 102% of the repurchase price (including
accrued interest), and will subsequently monitor the account to ensure that an
equivalent value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by a Fund may decline below the
price at which a Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by a Fund under the 1940
Act.
6. U.S. Government Obligations. With the exception of the 100% U.S.
Treasury Money Market Fund, which may invest only in direct U.S. Treasury
obligations, each Fund may, consistent with its investment objective, policies,
and restrictions, invest in obligations issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities. Obligations of certain agencies
and instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association and the Export-Import Bank of the United States,
are supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; and still others, such as
those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
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. Mortgage-Related Securities. As indicated in the Money Market Funds'
Prospectus, the Diversified Money Market Fund and the U.S. Government Money
Market Fund may each invest in mortgage-related securities issued by the
Government National Mortgage Association ("GNMA") representing GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes"). The Fixed Income Funds
and the Balanced Fund may also, consistent with each such Fund's investment
objective and policies, invest in Ginnie Maes and
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<PAGE> 270
in mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies, or its instrumentalities or, those issued by nongovernmental entities.
In addition, the Fixed Income Funds and the Balanced Fund may invest in
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs").
Mortgage-related securities represent interests in pools of mortgage
loans assembled for sale to investors. Mortgage-related securities may be
assembled and sold by certain governmental agencies and may also be assembled
and sold by nongovernmental entities such as commercial banks, savings and loan
institutions, mortgage bankers, and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third party or
otherwise similarly secured, the market value of the security, which may
fluctuate, is not so secured. If a Fund purchases a mortgage-related security at
a premium, that portion may be lost if there is a decline in the market value of
the security, whether resulting from changes in interest rates or prepayments in
the underlying mortgage collateral. As with other interest-bearing securities,
the prices of mortgage-related securities are inversely affected by changes in
interest rates. However, although the value of a mortgage-related security may
decline when interest rates rise, the converse is not necessarily true because
in periods of declining interest rates the mortgages underlying the security are
prone to prepayment. For this and other reasons, a mortgage-related security's
stated maturity may be shortened by unscheduled prepayments on the underlying
mortgages and, therefore, it is not possible to predict accurately the
security's return to the Fund. In addition, regular payments received in respect
of mortgage-related securities include both interest and principal. No assurance
can be given as to the return a Fund will receive when these amounts are
reinvested.
There are a number of important differences both among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities themselves. As noted above, Ginnie Maes are issued by
GNMA, which is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. Ginnie Maes are guaranteed as to the timely
payment of principal and interest by GNMA and GNMA's guarantee is backed by the
full faith and credit of the U.S. Treasury. In addition, Ginnie Maes are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under GNMA's guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes"), which are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the U.S. Treasury. The FNMA is a government-sponsored organization
owned entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). The FHLMC is
a corporate instrumentality of the U.S. Government, created pursuant to an Act
of Congress, which is owned entirely by the Federal Home Loan Banks. Freddie
Macs are not guaranteed by the U.S. Treasury or by any Federal Home Loan Banks
and do not constitute a debt or obligation of the U.S. Government or of any
Federal Home
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Loan Bank. Freddie Macs entitle the holder to timely payment of interest, which
is guaranteed by the FHLMC. The FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying mortgage loans. When
the FHLMC does not guarantee timely payment of principal, FHLMC may remit the
amount due on account of its guarantee of ultimate payment of principal at any
time after default on an underlying mortgage, but in no event later than one
year after it becomes payable.
CMOs in which the Fixed Income Funds and the Balanced Fund may invest
represent securities issued by a private corporation or a U.S. Government
instrumentality that are backed by a portfolio of mortgages or mortgage-backed
securities held under an indenture. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued with a number of classes or series
that have different maturities and that may represent interests in some or all
of the interest or principal on the underlying collateral or a combination
thereof. CMOs of different classes are generally retired in sequence as the
underlying mortgage loans in the mortgage pool are repaid. In the event of
sufficient early prepayments on such mortgages, the class or series of a CMO
first to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of a CMO held by a Fund would have
the same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security.
REMICs in which the Fixed Income Funds and the Balanced Fund may invest
are private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
8. Adjustable Rate Notes. Consistent with its investment objective,
policies, and restrictions, each Fund (other than the 100% U.S. Treasury Money
Market Fund) may invest in "adjustable rate notes," which include variable rate
notes and floating rate notes. For Money Market Fund purposes, a variable rate
note is one whose terms provide for the readjustment of its interest rate on set
dates and that, upon such readjustment, can reasonably be expected to have a
market value that approximates its amortized cost; the degree to which a
variable rate note's market value approximates its amortized cost subsequent to
readjustment will depend on the frequency of the readjustment of the note's
interest rate and the length of time that must elapse before the next
readjustment. A floating rate note is one whose terms provide for the
readjustment of its interest rate whenever a specified interest rate changes and
that, at any time, can reasonably be expected to have a market value that
approximates its amortized cost. Although there may be no active secondary
market with respect to a particular variable or floating rate note purchased by
a Fund, the Fund may seek to resell the note at any time to a third party. The
absence of an active secondary market, however, could make it difficult for the
Fund to dispose of a variable or floating rate note in the event the issuer of
the note defaulted on its payment obligations and the Fund could, as a result or
for other reasons, suffer a loss to the extent of the default. Variable or
floating rate notes may be secured by bank
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letters of credit. A demand instrument with a demand notice period exceeding
seven days may be considered illiquid if there is no secondary market for such
security. Such security will be subject to a Fund's non fundamental 15% (10% in
the case of the Money Market Funds) limitation governing investments in
"illiquid" securities, unless such notes are subject to a demand feature that
will permit the Fund to receive payment of the principal within seven days of
the Fund's demand. See "INVESTMENT RESTRICTIONS" below.
Maturities for variable and adjustable rate notes held in the Money
Market Funds will be calculated in compliance with the provisions of Rule 2a-7,
as it may be amended from time to time.
As used above, a note is "subject to a demand feature" where the Fund
is entitled to receive the principal amount of the note either at any time on
not more than thirty days' notice or at specified intervals, not exceeding 397
days and upon not more than thirty days' notice.
9. Municipal Securities. As defined in the Prospectuses, under normal
market conditions, at least 80% of the total assets of the California Tax-Free
Money Market Fund and 80% of the total assets of the California Intermediate
Tax-Free Bond Fund will be invested in Municipal Securities, the interest on
which is both excluded from gross income for federal income tax and California
personal income tax purposes and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax. The California
Intermediate Tax-Free Bond Fund invests in Municipal Securities of varying
maturities, which are rated in one of the four highest rating categories by at
least one nationally recognized statistical rating organization ("NRSRO") or are
determined by the Advisor to be of comparable quality. The California Tax-Free
Money Market Fund invests only in Municipal Securities with remaining maturities
of 397 days or less, and which, at the time of purchase, possess the highest
short-term rating from at least one NRSRO or are determined by the Advisor to be
of comparable quality.
Municipal Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and public entities. Private activity bonds that are issued
by or on behalf of public authorities to finance various privately operated
facilities are included within the term Municipal Securities if the interest
paid thereon is (i) excluded from gross income for federal income tax purposes
and (ii) not treated as a preference item for individuals for purposes of the
federal alternative minimum tax.
As described in the Prospectuses, the two principal classifications of
Municipal Securities consist of "general obligation" and "revenue" issues. In
general, only general obligation bonds are backed by the full faith and credit
and general taxing power of the issuer. There are, of course, variations in the
quality of Municipal Securities, both within a particular classification and
between classifications, and the yields on Municipal Securities depend upon a
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variety of factors, including general market conditions, the financial condition
of the issuer (or other entity whose financial resources are supporting the
Municipal Securities), general conditions of the municipal bond market, the size
of a particular offering, the maturity of the obligation and the rating(s) of
the issue. In this regard, it should be emphasized that the ratings of any NRSRO
are general and are not absolute standards of quality; Municipal Securities with
the same maturity, interest rate and rating(s) may have different yields while
Municipal Securities of the same maturity and interest rate with a different
rating(s) may have the same yield.
An issuer's obligations with respect to its Municipal Securities are
subject to the provisions of bankruptcy, insolvency, and other laws affecting
the rights and remedies of creditors, such as the Federal Bankruptcy Code, and
laws, if any, that may be enacted by Congress or state legislatures extending
the time for payment of principal or interest, or both, or imposing other
constraints upon the enforcement of such obligations or upon the ability of
municipalities to levy taxes or otherwise raise revenues. Certain of the
Municipal Securities may be revenue securities and dependent on the flow of
revenue, generally in the form of fees and charges. The power or ability of an
issuer to meet its obligations for the payment of interest on and principal of
its Municipal Securities may be materially adversely affected by litigation or
other conditions, including a decline in property value or a destruction of
uninsured property due to natural disasters.
In addition, in accordance with its investment objective, each Fund may
invest in private activity bonds, which may constitute Municipal Securities
depending upon the federal income tax treatment of such bonds. Such bonds are
usually revenue bonds because the source of payment and security for such bonds
is the financial resources of the private entity involved; the full faith and
credit and the taxing power of the issuer in normal circumstances will not be
pledged. The payment obligations of the private entity also will be subject to
bankruptcy and similar debtor's rights, as well as other exceptions similar to
those described above. Moreover, the Funds may invest in obligations secured in
whole or in part by a mortgage or deed of trust on real property located in
California that are subject to the "anti-deficiency" legislation discussed
below.
The Funds may also invest indirectly in Municipal Securities by
purchasing the shares of tax-exempt money market mutual funds. Such investments
will be made solely for the purpose of investing short-term cash on a temporary
tax-exempt basis and only in those funds with respect to which the Advisor
believes with a high degree of certainty that redemption can be effected within
seven days of demand. Additional limitations on investments by the Funds in the
shares of other tax-exempt money market mutual funds are set forth under
"Investment Restrictions" below.
Certain Municipal Securities in the Funds may be obligations that are
payable solely from the revenues of health care institutions, although the
obligations may be secured by real
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or personal property of such institutions. Certain provisions under federal and
California law may adversely affect such revenues and, consequently, payment on
those Municipal Securities.
Certain Municipal Securities in which the Funds may invest may be
obligations that are secured in whole or in part by a mortgage or deed of trust
on real property. California has certain statutory provisions that limit the
remedies of a creditor secured by a mortgage or deed of trust. Two of the
provisions limit a creditor's right to obtain a deficiency judgment, one
limitation being based on the method of foreclosure and the other on the type of
debt secured. A third statutory provision, commonly known as the "single action"
rule, has two aspects, an "affirmative defense aspect" and a "sanction aspect."
The "affirmative defense" aspect limits creditors secured by real property to a
single legal action for recovery of their debt, and that single action must be a
judicial foreclosure action against their real property security. Under the
"sanction" aspect, if the real estate-secured creditor proceeds by legal action
other than judicial foreclosure, the creditor loses its lien on the real
property security and, in some instances, the right to recover its debt. Another
statutory provision gives the debtor the right to redeem the real property from
any judicial foreclosure sale.
Upon the default under a mortgage or deed of trust with respect to
California real property, a creditor's nonjudicial foreclosure rights under the
power of sale contained in the mortgage or deed of trust are subject to certain
procedural requirements whereby the effective minimum period for foreclosing on
a mortgage or deed of trust is generally four to five months after the initial
default and such foreclosure could be further delayed by bankruptcy proceedings
initiated by the debtor. Such time delays in collections could disrupt the flow
of revenues available to an issuer for the payment of debt service on the
outstanding obligations if such defaults occur with respect to a substantial
number of mortgages or deeds of trust securing an issuer's obligations.
Following a creditor's non-judicial foreclosure under a power of sale, no
deficiency judgment is available. This limitation, however, does not apply to
bonds authorized or permitted to be issued by the Commissioner of Corporations,
or which are made by a public utility subject to the Public Utilities Act.
Certain Municipal Securities in the Funds may be obligations that
finance the acquisition of mortgages for low and moderate income mortgagors.
These obligations may be payable solely from revenues derived from home
mortgages and are subject to California's statutory limitations applicable to
obligations secured by real property, as described above. Under California
anti-deficiency legislation, there is no personal recourse against a mortgagor
of a dwelling of no more than four units, at least one of which is occupied by
such a mortgagor, where the dwelling has been purchased with the loan that is
secured by the mortgage, regardless of whether the creditor chooses judicial or
nonjudicial foreclosure. In the event that this purchase money anti-deficiency
rule applies to a loan secured by a mortgage or deed of trust, and the value of
the property subject to that mortgage or deed of trust has been substantially
reduced because of market forces or by an earthquake or other event for which
the mortgagor or trustor carried no insurance, upon default, the issuer holding
that loan
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nevertheless would be entitled to collect no more on its loan than it could
obtain from the foreclosure sale of the property.
Legislation has been introduced from time to time regarding the
California state personal income tax status of interest paid on Municipal
Securities issued by the State of California and its local governments and held
by investment companies such as the California Tax-Free Money Market Fund and
the California Intermediate Tax-Free Bond Fund. The Funds can not predict what
legislation relating to Municipal Securities, if any, may be proposed in the
future or which proposals, if any, might be enacted. Such proposals, while
pending or if enacted, might materially adversely affect the availability of
Municipal Securities generally, as well as the availability of Municipal
Securities issued by the State of California and its local governments
specifically, for investment by the Funds and the liquidity and value of their
portfolios. In such an event, each Fund would re-evaluate its investment
objective and policies and consider changes in its structure or possible
dissolution. See "Investments in California Municipal Securities by the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund" below.
10. Investments in California Municipal Securities by the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund.
The following information is a general summary intended to give a recent
historical description, and is not a discussion of any specific factors that may
affect any particular issuer of California Municipal Securities. The information
is not intended to indicate continuing or future trends in the condition,
financial or otherwise, of California.
Because each Fund expects to invest substantially all of its assets in
California Municipal Securities, it will be susceptible to a number of complex
factors affecting the issuers of California Municipal Securities, including
national and local political, economic, social, environmental, and regulatory
policies and conditions. The Funds cannot predict whether or to what extent such
factors or other factors may affect the issuers of California Municipal
Securities, the market value or marketability of such securities or the ability
of the respective issuers of such securities to pay interest on, or principal
of, such securities. The creditworthiness of obligations issued by a local
California issuer may be unrelated to the creditworthiness of obligations issued
by the State of California, and there is no responsibility on the part of the
State of California to make payments on such local obligations.
During the first half of the 1990's California suffered the most severe
recession in the State since the 1930's, with significant job losses
(particularly in the aerospace, other manufacturing, services and construction
sectors). The greatest effects of the recession were felt in Southern
California. While California's economy has made a strong steady recovery since
1994 and California's credit rating has climbed from the lows experienced during
the recession, as of the date of this Statement of Additional Information,
rating agencies, underwriters and investors appear to have some lingering
concerns about California's creditworthiness. Major credit rating agencies
continue to cite, among other things,
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concerns about California's lack of contingency planning (such as adequate
reserves), missed budget deadlines and on-going structural budget impediments.
The recession severely affected State revenues while the State's
health, welfare and education costs were increasing. As a result, throughout the
first half of the decade, California had a period of budget imbalance and
multibillion dollar year-end deficits. However, in recent years, California
appears to have ended its fiscal years with a surplus in the general fund. The
State's ability to raise revenues and reduce expenditures to the extent
necessary to balance the budget for any year depends upon numerous factors,
including economic conditions in the State and the nation, the accuracy of the
State's revenue predictions, as well as the impact of budgetary restrictions
imposed by voter-passed initiatives.
During the recession that began in 1990, the State depleted its
available cash resources and became increasingly dependent on external
borrowings to meet its cash needs. For nearly a decade and a half, California
has issued revenue anticipation notes (which must be issued and repaid during
the same fiscal year) to fund its operating budget during the fiscal year.
Beginning in 1992, the State expanded its external borrowing to include revenue
anticipation warrants (which can be issued and redeemed in different fiscal
years). The State was severely criticized by the major credit rating agencies
for the State's reliance upon such external borrowings during the recession. In
1996, the State fully repaid $4 billion of revenue anticipation warrants issued
in 1994. The State did not need to use such "cross-year" borrowing during the
1996-1997 fiscal year or the 1997-1998 fiscal year. It is not presently
possible, however, to determine the extent to which California will issue
additional revenue anticipation warrants, short-term interest-bearing notes or
other instruments in future fiscal years.
Certain of the securities in the California Tax-Free Money Market Fund
and the California Intermediate Tax-Free Bond Fund may be obligations of issuers
that rely in whole or in part, directly or indirectly, on ad valorem real
property taxes as a source of revenue. Article XIII A of the California
Constitution, adopted by the voters in 1978, limits ad valorem taxes on real
property, and restricts the ability of taxing entities to increase real property
and other taxes. Constitutional challenges to Article XIII A to date have been
unsuccessful.
Article XIII B of the California Constitution, originally adopted in
1979, limits significantly spending by state government and by "local
governments". Article XIII B generally limits the amount of the appropriations
of the State and of local governments to the amount of appropriations of the
entity for the prior year, adjusted for changes in the cost of living,
population, and the services that the government entity is financially
responsible for providing. To the extent that the "proceeds of taxes" of the
State or a local government exceed its "appropriations limit," the excess
revenues must be rebated. One of the exclusions from these limitations for any
entity of government is the debt service costs of bonds existing or legally
authorized as of January 1, 1979 or on bonded indebtedness thereafter approved
by the voters. Although Article XIII B states that it shall not "be construed to
impair the ability of the
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state or of any local government to meet its obligations with respect to
existing or future bonded indebtedness," concern has been expressed with respect
to the combined effect of such constitutionally imposed spending limits on the
ability of California state and local governments to utilize bond financing.
Article XIII B was modified substantially by Propositions 98 and 111 of
1988 and 1990, respectively. These initiatives changed the State's Article XIII
B appropriations limit to require that the State set aside a prudent reserve
fund for public education, and guarantee a minimum level of State funding for
public elementary and secondary schools as well as community colleges. Such
guaranteed spending was often cited as one of the causes of the State's earlier
budget problems.
The effect of Article XIII A, Article XIII B and other constitutional
and statutory changes and of budget developments on the ability of California
issuers to pay interest and principal on their obligations remains unclear, and
may depend on whether a particular bond is a general obligation or limited
obligation bond (limited obligation bonds being generally less affected).
There is no assurance that any California issuer will make full or
timely payments of principal or interest or remain solvent. For example, in
December 1994, Orange County filed for bankruptcy. In June 1995, Orange County
negotiated a rollover of its short-term debt originally due at that time; the
major rating agencies considered the rollover a default. In June 1996, the
investors in such overdue notes were paid and the Orange County bankruptcy
ended. However, the Orange County bankruptcy and such default had a serious
effect upon the market for California municipal obligations.
Numerous factors may adversely affect the State and municipal
economies. For example, limits on federal funding could result in the loss of
federal assistance otherwise available to the State.
In addition, it is impossible to predict the time, magnitude, or
location of a natural catastrophe, such as a major earthquake, or its effect on
the California economy. In January 1994, a major earthquake struck the Los
Angeles area, causing significant damage in a four-county area. The possibility
exists that another natural disaster such as an earthquake could create a major
dislocation of the California economy.
The Funds' concentration in California Municipal Securities provides a
greater level of risk than funds that are diversified across numerous states and
municipal entities.
11. Puts. The California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund may acquire "puts" with respect to the Municipal
Securities held in their respective portfolios. A put is a right to sell a
specified security (or securities) within a specified period of time at a
specified exercise price. These Funds may sell, transfer,
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or assign a put only in conjunction with the sale, transfer, or assignment of
the underlying security or securities.
The amount payable to a Fund upon its exercise of a "put" is normally
(i) the Fund's acquisition cost of the securities (excluding any accrued
interest that the Fund paid on the acquisition), less any amortized market
premium or plus any amortized market or original issue discount during the
period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.
Puts may be acquired by a Fund to facilitate the liquidity of the
Fund's portfolio assets. Puts may also be used to facilitate the reinvestment of
a Fund's assets at a rate of return more favorable than that of the underlying
security. Under certain circumstances, puts may be used to shorten the maturity
of underlying adjustable rate notes for purposes of calculating the remaining
maturity of those securities and the dollar-weighted average portfolio maturity
of the California Tax-Free Money Market Fund's assets pursuant to Rule 2a-7
under the 1940 Act.
The California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund will generally acquire puts only where the puts
are available without the payment of any direct or indirect consideration.
However, if necessary or advisable, a Fund may pay for puts either separately in
cash or by paying a higher price for portfolio securities that are acquired
subject to the puts (thus reducing the yield to maturity otherwise available for
the same securities).
12. Shares of Mutual Funds. Each of the California Tax-Free Money
Market Fund, the Fixed Income Funds and the Equity Funds may invest up to 5% of
its total assets in the shares of any one investment company, but may not own
more than 3% of the securities of any one registered investment company or
invest more than 10% of its assets in the securities of other investment
companies. In accordance with an exemptive order issued to HighMark Funds by the
Securities and Exchange Commission, such other registered investment companies
securities may include shares of a money market fund of HighMark Funds, and may
include registered investment companies for which the Advisor or Sub-Advisor to
a Fund of HighMark Funds, or an affiliate of such Advisor or Sub-Advisor, serves
as investment advisor, administrator or distributor or provides other services.
Because other investment companies employ an investment advisor, such investment
by a Fund may cause Shareholders to bear duplicative fees. The Advisor will
waive its advisory fees attributable to the assets of the investing Fund
invested in a money market fund of HighMark Funds, and, to the extent required
by applicable law, the Advisor will waive its fees attributable to the assets of
the Fund invested in any investment company. Additional restrictions on the
Fund's investments in the securities of a money market mutual fund are set forth
under "Investment Restrictions" below.
Investments by the California Tax-Free Money Market Fund in the shares
of other tax-exempt money market mutual funds are described under "Municipal
Securities" above.
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13. When-Issued Securities and Forward Commitments. Each Fund may enter
into forward commitments or purchase securities on a "when-issued" basis, which
means that the securities will be purchased for delivery beyond the normal
settlement date at a stated price and yield and thereby involve the risk that
the yield obtained in the transaction will be less than that available in the
market when delivery takes place. A Fund will generally not pay for such
securities and no interest accrues on the securities until they are received by
the Fund. These securities are recorded as an asset and are subject to changes
in value based upon changes in the general level of interest rates. Therefore,
the purchase of securities on a "when-issued" basis may increase the risk of
fluctuations in a Fund's net asset value.
When a Fund agrees to purchase securities on a "when-issued" basis or
enter into forward commitments, HighMark Funds' 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 Funds expect that commitments to enter into forward commitments or
purchase "when-issued" securities will not exceed 25% of the value of their
respective total assets under normal market conditions; in the event any Fund
exceeded this 25% threshold, the Fund's liquidity and the Advisor's ability to
manage it might be adversely affected. In addition, the Funds do not intend to
purchase "when-issued" securities or enter into forward commitments for
speculative or leveraging purposes but only in furtherance of such Fund's
investment objective.
14. Zero-Coupon Securities. Consistent with its objectives, a Fund may
invest in zero-coupon securities, which are debt securities that do not pay
interest, but instead are issued at a deep discount from par. The value of the
security increases over time to reflect the interest accreted. The value of
these securities may fluctuate more than similar securities that are issued at
par and pay interest periodically. Although these securities pay no interest to
holders prior to maturity, interest on these securities is reported as income to
the Fund and distributed to its shareholders. These distributions must be made
from the Fund's cash assets or, if necessary, from the proceeds of sales of
portfolio securities. The Fund will not be able to purchase additional income
producing securities with cash used to make such distributions and its current
income ultimately may be reduced as a result.
15. Options (Puts and Calls) on Securities. Each Equity Fund may buy
and sell options (puts and calls), and write call options on a covered basis.
16. Covered Call Writing. Each Equity Fund may write covered call
options from time to time on such portion of its assets, without limit, as the
Advisor determines is appropriate in seeking to obtain its investment objective.
A Fund will not engage in option writing strategies for speculative purposes. A
call option gives the purchaser of such option the right to buy, and the writer,
in this case the Fund, has the obligation to sell the underlying
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security at the exercise price during the option period. The advantage to the
Fund of writing covered calls is that the Fund receives a premium which is
additional income. However, if the value of the security rises, the Fund may not
fully participate in the market appreciation.
During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option was sold,
which requires the writer to deliver the underlying security against payment of
the exercise price. This obligation is terminated upon the expiration of the
option period or at such earlier time in which the writer effects a closing
purchase transaction. A closing purchase transaction is one in which a Fund,
when obligated as a writer of an option, terminates its obligation by purchasing
an option of the same series as the option previously written. A closing
purchase transaction cannot be effected with respect to an option once the
option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security, or to enable the
Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Fund may realize a net
gain or loss from a closing purchase transaction, depending upon whether the net
amount of the original premium received on the call option is more or less than
the cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be partially or entirely offset by the premium
received from a sale of a different call option on the same underlying security.
Such a loss may also be wholly or partially offset by unrealized appreciation in
the market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
If a call option expires unexercised, the Fund will realize a short
term capital gain in the amount of the premium on the option, less the
commission paid. Such a gain, however, may be offset by depreciation in the
market value of the underlying security during the option period. If a call
option is exercised, the Fund will realize a gain or loss from the sale of the
underlying security equal to the difference between the cost of the underlying
security, and the proceeds of the sale of the security plus the amount of the
premium on the option, less the commission paid.
The market value of a call option generally reflects the market price
of an underlying security. Other principal factors affecting market value
include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.
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
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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.
17. Purchasing Call Options. The Equity Funds may purchase call options
to hedge against an increase in the price of securities that the Fund wants
ultimately to buy. Such hedge protection is provided during the life of the call
option since the Fund, as holder of the call option, is able to buy the
underlying security at the exercise price regardless of any increase in the
underlying security's market price. In order for a call option to be profitable,
the market price of the underlying security must rise sufficiently above the
exercise price to cover the premium and transaction costs. These costs will
reduce any profit the Fund might have realized had it bought the underlying
security at the time it purchased the call option. The Funds may sell, exercise
or close out positions as the Advisor deems appropriate.
18. Purchasing Put Options. Each Equity Fund may purchase put options
to protect its portfolio holdings in an underlying security against a decline in
market value. Such hedge protection is provided during the life of the put
option since the Fund, as holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. For a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, a Fund will reduce any profit it might otherwise have realized
from appreciation of the underlying security by the premium paid for the put
option and by transaction costs.
19. Options in Stock Indices. The Equity Funds may engage in options on
stock indices. A stock index assigns relative values to the common stock
included in the index with the index fluctuating with changes in the market
values of the underlying common stock.
Options on stock indices are similar to options on stocks but have
different delivery requirements. Stock options provide the right to take or make
delivery of the underlying stock at a specified price. A stock index option
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the amount by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (ii) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return of the
premium received, to make delivery of this amount. Gain or loss to a Fund on
transactions in stock
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index options will depend on price movements in the stock market generally (or
in a particular industry or segment of the market) rather than price movements
of individual securities.
As with stock options, a Fund may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.
A stock index fluctuates with changes in the market values of the stock
so included. Some stock index options are based on a broad market index, such as
the Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower market index such as the Standard & Poor's 100. Indices are also based
on an industry or market segment such as the AMEX Oil and Gas Index or the
Computer and Business Equipment Index. Options on stock indices are currently
traded on the following exchanges among others: The Chicago Board Options
Exchange, New York Stock Exchange, American Stock Exchange and London Stock
Exchange.
A Fund's ability to hedge effectively all or a portion of its
securities through transactions in options on stock indices depends on the
degree to which price movements in the underlying index correlate with price
movements in the Fund's portfolio securities. Since a Fund's portfolio will not
duplicate the components of an index, the correlation will not be exact.
Consequently, a Fund bears the risk that the prices of the securities being
hedged will not move in the same amount as the hedging instrument. It is also
possible that there may be a negative correlation between the index or other
securities underlying the hedging instrument and the hedged securities which
would result in a loss on both such securities and the hedging instrument.
A Fund will enter into an option position only if there appears to be a
liquid secondary market for such options.
A Fund will not engage in transactions in options on stock indices for
speculative purposes but only to protect appreciation attained, to offset
capital losses and to take advantage of the liquidity available in the option
markets. The aggregate premium paid on all options on stock indices will not
exceed 20% of a Fund's total assets.
20. Risk Factors in Options Transactions. The successful use of options
strategies depends on the ability of the Advisor or, where applicable, the
Sub-Advisor to forecast interest rate and market movements correctly.
When it purchases an option, a Fund runs the risk that it will lose its
entire investment in the option in a relatively short period of time, unless the
Fund exercises the option or enters into a closing sale transaction with respect
to the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, a Fund
will lose part
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or all of its investment in the option. This contrasts with an investment by a
Fund in the underlying securities, since the Fund may continue to hold its
investment in those securities notwithstanding the lack of a change in price of
those securities.
The effective use of options also depends on a Fund's ability to
terminate option positions at times when the Advisor or, where applicable, the
Sub-Advisor deems it desirable to do so. Although a Fund will take an option
position only if its Advisor or, where applicable, the Sub-Advisor believes
there is liquid secondary market for the option, there is no assurance that a
Fund will be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, a
Fund could no longer engage in closing transactions. Lack of investor interest
might adversely affect the liquidity of the market for particular options or
series of options. A marketplace may discontinue trading of a particular option
or options generally. In addition, a market could become temporarily unavailable
if unusual events such as volume in excess of trading or clearing capability,
were to interrupt normal market operations. A marketplace may at times find it
necessary to impose restrictions on particular types of options transactions,
which may limit a Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for securities underlying options purchased
or sold by a Fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, a Fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets, such as the London Options Clearing House, may
impose exercise restrictions. If a prohibition on exercise is imposed at the
time when trading in the option has also been halted, a Fund as purchaser or
writer of an option will be locked into its position until one of the two
restrictions has been lifted. If a prohibition on exercise remains in effect
until an option owned by a Fund has expired, the Fund could lose the entire
value of its option.
21. Futures Contracts on Securities and Related Options. A Fund may
invest in futures and related options based on any type of security or index
traded on U.S. or foreign exchanges, or over the counter as long as the
underlying security or the securities represented by the future or index are
permitted investments of the Fund. Futures and options can be combined with each
other in order to adjust the risk and return parameters of a Fund.
22. Futures Contracts on Securities. A Fund will enter into futures
contracts on securities only when, in compliance with the SEC's requirements,
cash or equivalents equal in value to the securities' value (less any applicable
margin deposits) have been deposited in a segregated account of the Fund's
custodian.
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A futures contract sale creates an obligation by the seller to deliver
the type of instrument called for in the contract in a specified delivery month
for a stated price. A futures contract purchase creates an obligation by the
purchaser to take delivery of the type of instrument called for in the contract
in a specified delivery month at a stated price. The specific instruments
delivered or taken at settlement date are not determined until on or near that
date. The determination is made in accordance with the rules of the exchanges on
which the futures contract was made. Futures contracts are traded in the United
States only on the commodity exchange or boards of trade, known as "contract
markets," approved for such trading by the Commodity Futures Trading Commission
(CFTC), and must be executed through a futures commission merchant or brokerage
firm which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument with the same
delivery date. If the price of the initial sale of the futures contract exceeds
the price of the offsetting purchase, the seller is paid the difference and
realizes a gain. Similarly, the closing out of a futures contract purchase is
effected by the purchaser's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes a gain,
and if the purchase price exceeds the offsetting sale price, the purchaser
realizes a loss.
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract, although
the Fund is required to deposit with its custodian in a segregated account in
the name of the futures broker an amount of cash and/or U.S. Government
securities. This amount is known as "initial margin." The nature of initial
margin in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the Fund to finance the transactions. Rather, initial margin is in the
nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts also involve
brokerage costs.
Subsequent payments, called "variation margin," to and from the broker
(or the custodian) are made on a daily basis as the price of the underlying
security fluctuates, making the long and short positions in the futures contract
more or less valuable, a process known as "marking to market."
A Fund may elect to close some or all of its futures positions at any
time prior to their expiration. The purpose of making such a move would be to
reduce or eliminate the hedge position then currently held by the Fund. A Fund
may close its positions by taking opposite positions which will operate to
terminate the Fund's position in the futures contracts. Final determinations of
variation margin are then made, additional cash is required to be paid by or
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released to the Fund, and the Fund realizes a loss or a gain. Such closing
transactions involve additional commission costs.
23. Options on Securities' Futures Contracts. A Fund will enter into
written options on securities' futures contracts only when in compliance with
the SEC's requirements, cash or equivalents equal in value to the securities'
value (less any applicable margin deposits) have been deposited in a segregated
account of the Fund's custodian. A Fund may purchase and write call and put
options on the futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions. A
Fund may use such options on futures contracts in lieu of writing options
directly on the underlying securities or purchasing and selling the underlying
futures contracts. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may
terminate his or her position by selling or purchasing an offsetting option.
There is no guarantee that such closing transactions can be effected.
A Fund will be required to deposit initial margin and maintenance
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above.
Aggregate initial margin deposits for futures contracts (including
futures contracts on securities, indices and currency) and premiums paid for
related options may not exceed 5% of a Fund's total assets.
24. Risk of Transactions in Securities' Futures Contracts and Related
Options. Successful use of securities' futures contracts by a Fund is subject to
the ability of the Advisor or, where applicable, the Sub-Advisor to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less risk to a Fund because
the maximum amount at risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of a call or put
option on a futures contract would result in a loss to a Fund when the purchase
or sale of a futures contract would not, such as when there is no movement in
the price of the hedged investments. The writing of an option on a futures
contract involves risks similar to those risks relating to the sale of futures
contracts.
There is no assurance that higher than anticipated trading activity or
other unforeseen events will not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.
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To reduce or eliminate a hedge position held by a Fund, the Fund may
seek to close out a position. The ability to establish and close out positions
will be subject to the development and maintenance of a liquid secondary market.
It is not certain that this market will develop or continue to exist for a
particular futures contract. Reasons for the absence of a liquid secondary
market on an exchange include the following: (i) there may be insufficient
trading interest in certain contracts or options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of contracts or options
(or a particular class or series of contracts or options), in which event the
secondary market on that exchange (or in the class or series of contracts or
options) would cease to exist, although outstanding contracts or options on the
exchange that had been issued by a clearing corporation as a result of trades on
that exchange would continue to be exercisable in accordance with their terms.
25. Index Futures Contracts. A Fund may enter into stock index futures
contracts, debt index futures contracts, or other index futures contracts
appropriate to its objective, and may purchase and sell options on such index
futures contracts. A Fund will not enter into any index futures contract for the
purpose of speculation, and will only enter into contracts traded on securities
exchanges with standardized maturity dates.
An index futures contract is a bilateral agreement pursuant to which
two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the index value at the
close of trading of the contracts and the price at which the futures contract is
originally struck. No physical delivery of the securities comprising the index
is made; generally contracts are closed out prior to the expiration date of the
contract. No price is paid upon entering into index futures contracts. When a
Fund purchases or sells an index futures contract, it is required to make an
initial margin deposit in the name of the futures broker and to make variation
margin deposits as the value of the contract fluctuates, similar to the deposits
made with respect to futures contracts on securities. Positions in index futures
contracts may be closed only on an exchange or board of trade providing a
secondary market for such index futures contracts. The value of the contract
usually will vary in direct proportion to the total face value.
A Fund's ability to effectively utilize index futures contracts depends
on several factors. First, it is possible that there will not be a perfect price
correlation between the index futures contracts and their underlying index.
Second, it is possible that a lack of liquidity for index futures contracts
could exist in the secondary market, resulting in the Fund's inability to close
a futures position prior to its maturity date. Third, the purchase of an index
futures contract involves the risk that the Fund could lose more than the
original margin deposit required to
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initiate a futures transaction. In order to avoid leveraging and related risks,
when a Fund purchases an index futures contract, it will collateralize its
position by depositing an amount of cash or cash equivalents, equal to the
market value of the index futures positions held, less margin deposits, in a
segregated account with the Fund's custodian. Collateral equal to the current
market value of the index futures position will be maintained only a daily
basis.
The extent to which a Fund may enter into transactions involving index
futures contracts may be limited by the Internal Revenue Code's requirements for
qualification as a regulated investment company and the Funds' intention to
qualify as such.
26. Options on Index Futures Contracts. Options on index futures
contracts are similar to options on securities except that options on index
futures contracts gives the purchaser the right, in return for the premium paid,
to assume a position in an index futures contract (a long position if the option
is a call and a short position if the option is a put), at a specified exercise
price at any time during the period of the option. Upon exercise of the option,
the delivery of the futures position by the writer of the option to the holder
of the option will be accompanied by delivery of the accumulated balance in the
writer's futures margin account which represents the amount by which the market
price of the index futures contract, at exercise, exceeds (in the case of a
call) or is less than (in the case of a put) the exercise price of the option on
the index futures contract. If an option is exercised on the last trading day
prior to the expiration date of the option, the settlement will be made entirely
in cash equal to the difference between the exercise price of the option and the
closing level of the index on which the future is based on the expiration date.
Purchasers of options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
27. U.S. Dollar Denominated Obligations of Securities of Foreign
Issuers. Certain of the Funds may invest in U.S. dollar denominated obligations
of securities of foreign issuers. Permissible investments may consist of
obligations of foreign branches of U.S. banks and foreign or domestic branches
of foreign banks, including European Certificates of Deposit, European Time
Deposits, Canadian Time Deposits and Yankee Certificates of Deposits, and
investments in Canadian Commercial Paper, foreign securities and Europaper. In
addition, the Equity Funds, the Government Securities Fund and Convertible
Securities Fund may invest in American Depositary Receipts. These instruments
may subject the Fund to investment risks that differ in some respects from those
related to investments in obligations of U.S. domestic issuers. Such risks
include future adverse political and economic developments, the possible
imposition of withholding taxes on interest or other income, possible seizure,
nationalization, or expropriation of foreign deposits, the possible
establishment of exchange controls or taxation at the source, greater
fluctuations in value due to changes in exchange rates, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. Such investments may also entail
higher custodial fees and sales commissions than domestic investments. Foreign
issuers of securities or obligations are often subject to accounting treatment
and engage in business practices different from those respecting domestic
issuers of similar securities or obligations. Foreign branches
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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.
28. Foreign Currency Transactions. Under normal market conditions, the
International Equity Fund may engage in foreign currency exchange transactions
to project against uncertainty in the level of future exchange rates. The
International Equity Fund expects to engage in foreign currency exchange
transactions in connection with the purchase and sale of portfolio securities
("transaction hedging"), and to protect the value of specific portfolio
positions ("position hedging"). The Fund may purchase or sell a foreign currency
on a spot (or cash) basis at the prevailing spot rate in connection with the
settlement of transactions in portfolio securities denominated in that foreign
currency, and may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and purchase or sell foreign
currency futures contracts ("futures contracts"). The Fund may also purchase
domestic and foreign exchange-listed and over-the-counter call and put options
on foreign currencies and futures contracts. Hedging transactions involve costs
and may result in losses, and the Fund's ability to engage in hedging and
related options transactions may be limited by tax considerations.
29. Transaction Hedging. When it engages in transaction hedging, the
International Equity Fund enters into foreign currency transactions with respect
to specific receivables or payables of the International Equity Fund, generally
arising in connection with the purchase or sale of its portfolio securities. The
International Equity Fund will engage in transaction hedging when it desires to
"lock in" the U.S. dollar price of a security it has agreed to purchase or sell,
or the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging, the Fund will attempt to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Although there is no current intention to do so, the International
Equity Fund reserves the right to purchase and sell foreign currency futures
contracts which are traded in the United States and are subject to regulation by
the CFTC.
For transaction hedging purposes the International Equity Fund may also
purchase exchange-listed call and put options on foreign currency futures
contracts and on foreign currencies. A put option on a futures contract gives
the 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.
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30. Position Hedging. When it engages in position hedging, the
International Equity Fund enters into foreign currency exchange transactions to
protect against a decline in the values of the foreign currencies in which its
portfolio securities are denominated (or an increase in the value of currency
for securities which the Sub-Advisor expects to purchase, when the Fund holds
cash or short-term investments). In connection with the position hedging, the
Fund may purchase or sell foreign currency forward contracts or foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the value of such securities in foreign currencies
will change as a consequence of market movements in the value of those
securities between the dates the currency exchange transactions are entered into
and the dates they mature.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward contract or
futures contract. Accordingly, it may be necessary for the International Equity
Fund to purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security or securities
being hedged is less than the amount of foreign currency the Fund is obligated
to deliver and if a decision is made to sell the security or securities and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the portfolio
security or securities if the market value of such security or securities
exceeds the amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the International Equity Fund owns or
expects to purchase or sell. They simply establish a rate of exchange which one
can achieve at some future point in time. Additionally, although these
techniques tend to minimize the risk of loss due to a decline in the value of
the hedged currency, they tend to limit any potential gain which might result
from the increase in the value of such currency.
31. 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
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contracts solely for hedging or other appropriate risk management purposes as
defined in the controlling regulations.
Forward contracts differ from futures contracts in certain respects.
For example, the maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month. Forward contracts may be in any amounts
agreed upon by the parties rather than predetermined amounts. Also, forward
contracts are traded directly between currency traders so that no intermediary
is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in the futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market in such contracts.
Although the Fund intends to purchase or sell futures contracts only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a secondary market on an exchange or board of
trade will exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures position and, in the event of
adverse price movements, the Fund would continue to be required to make daily
cash payments of variation margin, as described below.
32. General Characteristics of Currency Futures Contracts. When the
International Equity 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 International Equity
Fund's position declines in value. The Fund then pays a broker a variation
margin payment equal to the difference between the delivery price of the futures
contract and the market price of the currency underlying the futures contract.
Conversely, if the price of the underlying currency falls below the delivery
price of the contract, the Fund's
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futures position increases in value. The broker then must make a variation
margin payment equal to the difference between the delivery price of the futures
contract and the market price of the currency underlying the futures contract.
When the International Equity Fund terminates a position in a futures
contract, a final determination of variation margin is made, additional cash is
paid by or to the Fund, and the Fund realizes a loss or gain. Such closing
transactions involve additional commission costs.
33. Foreign Currency Options. Options on foreign currencies operate
similarly to options on securities, and are traded primarily in the
over-the-counter market, although options on foreign currencies have recently
been listed on several exchanges. Such options will be purchased or written only
when the Fund's Sub-Advisor believes that a liquid secondary market exists for
such options. There can be no assurance that a liquid secondary market will
exist for a particular option at any specific time. Options on foreign
currencies are affected by all of those factors which influence foreign exchange
rates and investments generally.
The value of a foreign currency option is dependent upon the value of
the foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealer or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market, and thus may not reflect relatively
smaller transactions (less than $1 million), where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock market.
34. Foreign Currency Conversion. Although foreign exchange dealers do
not charge a fee for currency conversion, they 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 the
International Equity Fund or the Small Cap Value Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
35. 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.
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The UIT will issue SPDRs in aggregations of 50,000 known as "Creation
Units" in exchange for a "Portfolio Deposit" consisting of (a) a portfolio of
securities substantially similar to the component securities ("Index
Securities") of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
Index"), (b) a cash payment equal to a pro rata portion of the dividends accrued
on the UIT's portfolio securities since the last dividend payment by the UIT,
net of expenses and liabilities, and (c) a cash payment or credit ("Balancing
Amount") designed to equalize the net asset value of the S&P Index and the net
asset value of a Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the
UIT. To redeem, the portfolio must accumulate enough SPDRs to reconstitute a
Creation Unit. The liquidity of small holdings of SPDRs, therefore, will depend
upon the existence of a secondary market. Upon redemption of a Creation Unit,
the portfolio will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived and based upon the securities held by the
UIT. Accordingly, the level of risk involved in the purchase or sale of a SPDR
is similar to the risk involved in the purchase or sale of traditional common
stock, with the exception that the pricing mechanism for SPDRs is based on a
basket of stocks. Disruptions in the markets for the securities underlying SPDRs
purchased or sold by the Portfolio could result in losses on SPDRs. Trading in
SPDRs involves risks similar to those risks, described above under "Options,"
involved in the writing of options on securities.
36. High Yield Securities
The Convertible Securities Fund may invest in lower rated securities.
Fixed income securities are subject to the risk of an issuer's ability to meet
principal and interest payments on the obligation (credit risk), and may also be
subject to price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market
liquidity (market risk). Lower rated or unrated (i.e., high yield) securities
are more likely to react to developments affecting market and credit risk than
are more highly rated securities, which primarily react to movements in the
general level of interest rates. The market values of fixed-income securities
tend to vary inversely with the level of interest rates. Yields and market
values of high yield securities will fluctuate over time, reflecting not only
changing interest rates but the market's perception of credit quality and the
outlook for economic growth. When economic conditions appear to be
deteriorating, medium to lower rated securities may decline in value due to
heightened concern over credit quality, regardless of the prevailing interest
rates. Investors should carefully consider the relative risks of investing in
high yield securities and understand that such securities are not generally
meant for short-term investing.
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The high yield market is relatively new and its growth has paralleled a
long period of economic expansion and an increase in merger, acquisition and
leveraged buyout activity. Adverse economic developments can disrupt the market
for high yield securities, and severely affect the ability of issuers,
especially highly leveraged issuers, to service their debt obligations or to
repay their obligations upon maturity which may lead to a higher incidence of
default on such securities. In addition, the secondary market for high yield
securities, which is concentrated in relatively few market makers, may not be as
liquid as the secondary market for more highly rated securities. As a result,
the Convertible Securities Fund could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Furthermore, the Trust may experience
difficulty in valuing certain securities at certain times. Prices realized upon
the sale of such lower rated or unrated securities, under these circumstances,
may be less than the prices used in calculating the Convertible Securities
Fund's net asset value.
Lower rated or unrated debt obligations also present risks based on
payment expectations. If an issuer calls an obligation for redemption, the
Convertible Securities Fund may have to replace the security with a lower
yielding security, resulting in a decreased return for investors. If the
Convertible Securities Fund experiences unexpected net redemptions, it may be
forced to sell its higher rated securities, resulting in a decline in the
overall credit quality of the Convertible Securities Fund's investment portfolio
and increasing the exposure of the Convertible Securities Fund to the risks of
high yield securities.
The Convertible Securities Fund may choose, at its expense or in
conjunction with others, to pursue litigation or otherwise exercise its rights
as a security holder to seek to protect the interest of security holders if it
determines this to be in the interest of the Convertible Securities Fund's
Shareholders.
37. High Quality Investments with Regard to the Money Market Funds. As
noted in the Prospectuses for the Money Market Funds, each such Fund may invest
only in obligations determined by the Advisor to present minimal credit risks
under guidelines adopted by HighMark Funds' Board of Trustees.
With regard to the Diversified Money Market Fund and the California
Tax-Free Money Market Fund, investments will be limited to "Eligible Securities"
that (i) in the case of the Diversified Money Market Fund, include those
obligations that, at the time of purchase, possess the highest short-term rating
from at least one NRSRO (the Diversified Money Market Fund may also invest up to
5% of its net assets in obligations that, at the time of purchase, possess one
of the two highest short-term ratings from at least one NRSRO, and in
obligations that do not possess a short-term rating (i.e., are unrated) but are
determined by the Advisor to be of comparable quality to the rated instruments
eligible for purchase by the Fund under guidelines adopted by the Board of
Trustees) and (ii) in the case of the California Tax-Free Money Market Fund,
include those obligations that, at the time of purchase, possess one of the two
highest short-term ratings by at least one NRSRO or do not possess a short-term
rating
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(i.e., are unrated) but are determined by the Advisor to be of comparable
quality to the rated obligations eligible for purchase by the Fund under
guidelines adopted by the Board of Trustees.
A security subject to a tender or demand feature will be considered an
Eligible Security only if both the demand feature and the underlying security
possess a high quality rating or, if such do not possess a rating, are
determined by the Advisor to be of comparable quality; provided, however, that
where the demand feature would be readily exercisable in the event of a default
in payment of principal or interest on the underlying security, the obligation
may be acquired based on the rating possessed by the demand feature or, if the
demand feature does not possess a rating, a determination of comparable quality
by the Advisor. In applying the above-described investment policies, a security
that has not received a short-term rating will be deemed to possess the rating
assigned to an outstanding class of the issuer's short-term debt obligations if
determined by the Advisor to be comparable in priority and security to the
obligation selected for purchase by the Fund, or, if not available, the issuer's
long-term obligations, but only in accordance with the requirements of Rule
2a-7. A security that at the time of issuance had a maturity exceeding 397 days
but, at the time of purchase, has a remaining maturity of 397 days or less, is
considered an Eligible Security if it possesses a long-term rating, within the
two highest rating categories.
Eligible Securities include First Tier Securities and Second Tier
Securities. First Tier Securities include those that possess at least one rating
in the highest category and, if the securities do not possess a rating, those
that are determined to be of comparable quality by the Advisor pursuant to
guidelines adopted by the Board of Trustees. Second Tier Securities are all
other Eligible Securities.
The Diversified Money Market Fund will not invest more than 5% of its
total assets in the First Tier Securities of any one issuer, except that the
Fund may invest up to 25% of its total assets in First Tier Securities of a
single issuer for a period of up to three business days. (This three day "safe
harbor" provision will not be applicable to the California Tax-Free Money Market
Fund, because single state funds are specifically excluded from this Rule 2a-7
provision.) In addition, the Diversified Money Market Fund may not invest more
than 5% of its total assets in Second Tier Securities, with investments in the
Second Tier Securities of any one issuer further limited to the greater of 1% of
the Fund's total assets or $1.0 million. If a percentage limitation is satisfied
at the time of purchase, a later increase in such percentage resulting from a
change in the Diversified Money Market Fund's net asset value or a subsequent
change in a security's qualification as a First Tier or Second Tier Security
will not constitute a violation of the limitation. In addition, there is no
limit on the percentage of the Diversified Money Market Fund's assets that may
be invested in obligations issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities and repurchase agreements fully collateralized by
such obligations.
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Under the guidelines adopted by HighMark Funds' Board of Trustees, in
accordance with Rule 2a-7 under the Investment Company Act of 1940 (the "1940
Act"), when in the best interests of the Shareholders, the Advisor may be
required to promptly take appropriate action with respect to an obligation held
in a Fund's portfolio in the event of certain developments that indicate a
diminishment of the instrument's credit quality, such as where an NRSRO
downgrades an obligation below the second highest rating category, or in the
event of a default relating to the financial condition of the issuer.
The Appendix to this Statement of Additional Information identifies
each NRSRO that may be utilized by the Advisor with regard to portfolio
investments for the Funds and provides a description of relevant ratings
assigned by each such NRSRO. A rating by a NRSRO may be utilized only where the
NRSRO is neither controlling, controlled by, or under common control with the
issuer of, or any issuer, guarantor, or provider of credit support for, the
instrument.
Illiquid Securities. Each Fund has adopted a non-fundamental policy
(which may be changed without shareholder approval) prohibiting the Fund from
investing more than 15% (in the case of each of the Money Market Funds, not more
than 10%) of its total assets in "illiquid" securities, which include securities
with legal or contractual restrictions on resale or for which no readily
available market exists but exclude such securities if resalable pursuant to
Rule 144A under the Securities Act ("Rule 144A Securities"). Pursuant to this
policy, the Funds may purchase Rule 144A Securities only in accordance with
liquidity guidelines established by the Board of Trustees of HighMark Funds and
only if the investment would be permitted under applicable state securities
laws.
Restricted Securities. Each Fund has adopted a nonfundamental policy
(which may be changed without Shareholder approval) prohibiting the Fund from
investing more than 25% of its total assets in restricted securities. Restricted
securities are securities that may not be sold to the public without
registration under the Securities Act of 1933 ("1933 Act"). Restricted
Securities may be liquid or illiquid. The Advisor will determine the liquidity
of restricted securities in accordance with guidelines established by HighMark
Funds' Board of Trustees. Restricted securities purchased by the Funds may
include Rule 144A securities and commercial paper issued in reliance upon the
"private placement" exemption from registration under Section 4(2) of the 1933
Act (whether or not such paper is a Rule 144A security).
INVESTMENT RESTRICTIONS
Unless otherwise indicated, the following investment restrictions are
fundamental and, as such, may be changed with respect to a particular Fund only
by a vote of a majority of the outstanding Shares of that Fund (as defined
below). Except with respect to a Fund's restriction governing the borrowing of
money, if a percentage restriction is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in asset
value will not constitute a violation of the restriction.
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100% U.S. TREASURY MONEY MARKET FUND
The 100% U.S. Treasury Money Market Fund may not purchase
securities other than short-term obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the
U.S. Treasury.
EACH OF THE GROWTH FUND, THE INCOME EQUITY FUND, THE BALANCED FUND, the Bond
Fund, the Diversified Money Market Fund, the U.S. Government Money Market Fund,
and the 100% U.S. Treasury Money Market Fund may not:
1. Purchase securities on margin (except that, with respect to
the Growth Fund, the Income Equity Fund, the Balanced Fund and the Bond
Fund only, such Funds may make margin payments in connection with
transactions in options and financial and currency futures contracts),
sell securities short, participate on a joint or joint and several
basis in any securities trading account, or underwrite the securities
of other issuers, except to the extent that a Fund may be deemed to be
an underwriter under certain securities laws in the disposition of
"restricted securities" acquired in accordance with the investment
objectives and policies of such Fund;
2. Purchase or sell commodities, commodity contracts
(excluding, with respect to the Growth Fund, the Income Equity Fund,
the Balanced Fund, and the Bond Fund, options and financial and
currency futures contracts), oil, gas or mineral exploration leases or
development programs, or real estate (although investments by the
Growth Fund, the Income Equity Fund, the Balanced Fund, the Bond Fund,
and the Diversified Money Market Fund in marketable securities of
companies engaged in such activities and investments by the Growth
Fund, the Income Equity Fund, the Balanced Fund, and the Bond Fund in
securities secured by real estate or interests therein, are not hereby
precluded to the extent the investment is appropriate to such Fund's
investment objective and policies);
3. Invest in any issuer for purposes of exercising control or
management;
4. Purchase or retain securities of any issuer if the officers
or Trustees of HighMark Funds or the officers or directors of its
investment advisor owning beneficially more than one-half of 1% of the
securities of such issuer together own beneficially more than 5% of
such securities;
5. Borrow money or issue senior securities, except that a Fund
may borrow from banks or enter into reverse repurchase agreements for
temporary emergency purposes in amounts up to 10% of the value of its
total assets at the
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time of such borrowing; or mortgage, pledge, or hypothecate any assets,
except in connection with permissible borrowings and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of the value
of the Fund's total assets at the time of its borrowing. A Fund will
not invest in additional securities until all its borrowings (including
reverse repurchase agreements) have been repaid. For purposes of this
restriction, the deposit of securities and other collateral
arrangements with respect to options and financial and currency futures
contracts, and payments of initial and variation margin in connection
therewith, are not considered a pledge of a Fund's assets; and
THE DIVERSIFIED MONEY MARKET FUND, THE U.S. GOVERNMENT MONEY MARKET FUND AND THE
100% U.S. TREASURY MONEY MARKET FUND MAY NOT:
1. Buy common stocks or voting securities, or state, municipal
or private activity bonds;
2. Invest in securities of other investment companies, except
as they may be acquired as part of a merger, consolidation,
reorganization, or acquisition of assets;
3. Write or purchase put or call options; or
4. Invest more than 10% of total assets in the securities of
issuers that together with any predecessors have a record of less than
three years' continuous operation.
5. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities, if, immediately after the purchase, more than 5% of the value
of the Fund's total assets would be invested in such issuer (except that up to
25% of the value of the Fund's total assets may be invested without regard to
the 5% limitation). (As indicated below, the Funds have adopted a
non-fundamental investment policy that is more restrictive than this fundamental
investment limitation);
6. Purchase any securities that would cause more than 25% of
the value of the Fund's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities, domestic bank certificates of deposit or
bankers' acceptances, and repurchase agreements secured by bank instruments or
obligations of the U.S. Government, its agencies, or instrumentalities; (b)
wholly owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of their parents; and (c) utilities will be divided according to
their
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services (for example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry).
7. Make loans, except that a Fund may purchase or hold debt
instruments, lend portfolio securities, and enter into repurchase agreements as
permitted by its individual investment objective and policies.
The Diversified Money Market Fund, the Government Obligations
Money Market Fund, and the 100% U.S. Treasury Money Market Fund have each
adopted, in accordance with Rule 2a-7, a non-fundamental policy providing that
the 5% limit noted in limitation 5. above shall apply to 100% of each Fund's
assets. Notwithstanding, each such Fund may invest up to 25% of its assets in
First Tier qualified securities of a single issuer for up to three business
days.
THE GROWTH FUND, THE INCOME EQUITY FUND, THE BALANCED FUND, AND THE BOND FUND
MAY NOT:
1. Invest in securities of other investment companies except
as they may be acquired as part of a merger, consolidation,
reorganization, or acquisition of assets, provided, however, that each
of the Funds may purchase securities of a money market fund, if,
immediately after such purchase, the acquiring Fund does not own in the
aggregate (i) more than 3% of the acquired company's outstanding voting
securities, (ii) securities issued by the acquired company having an
aggregate value in excess of 5% of the value of the total assets of the
acquiring Fund, or (iii) securities issued by the acquired company and
all other investment companies (other than treasury stock of the
acquiring Fund) having an aggregate value in excess of 10% of the value
of the acquiring Fund's total assets; and
EACH OF THE EQUITY AND FIXED INCOME FUNDS, OTHER THAN THE CONVERTIBLE SECURITIES
FUND AND THE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND, MAY NOT:
1. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies,
or instrumentalities, (and, with respect to the International Equity
Fund only, repurchase agreements involving such securities) if,
immediately after the purchase, more than 5% of the value of such
Fund's total assets would be invested in the issuer or the Fund would
hold more than 10% of any class of securities of the issuer or more
than 10% of the issuer's outstanding voting securities (except that up
to 25% of the value of the Fund's total assets may be invested without
regard to these limitations). With respect to the International Equity
Fund, for purposes of this investment limitation, each foreign
governmental issuer is deemed a separate issuer;
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2. Purchase any securities that would cause more than 25% of
such Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
or foreign governments or their agencies or instrumentalities and
repurchase agreements secured by obligations of the U.S. Government or
its agencies or instrumentalities; (b) wholly owned finance companies
will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents; and (c) utilities will be divided according to their services
(for example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry); and
3. Make loans, except that a Fund may purchase or hold debt
instruments, lend portfolio securities, and enter into repurchase
agreements in accordance with its investment objective and policies.
THE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND MAY NOT:
1. Purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving such securities)
if as a result more than 5% of the total assets of the Fund would be
invested in securities of such issuer provided, however, that the Fund
may invest up to 25% of its total assets without regard to this
restriction as permitted by applicable law;
2. Purchase any securities which would cause more than 25% of
the total assets of the Fund to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry, provided that this limitation does not apply to investments
in the obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities and repurchase agreements involving such
securities, and provided further, that utilities as a group will not be
considered to be one industry, and wholly-owned subsidiaries organized
to finance the operations of their parent companies will be considered
to be in the same industries as their parent companies; and
3. Make loans, except that the Fund may (a) purchase or hold
debt instruments in accordance with its investment objective and
policies; (b) enter into repurchase agreements; and (c) lend
securities.
THE CONVERTIBLE SECURITIES FUND MAY NOT:
1. Purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements
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involving such securities) if as a result more than 5% of the total
assets of the Fund would be invested in the securities of such issuer.
This restriction applies to 75% of the Fund's assets.
2. Purchase any securities which would cause more than 25% of
the total assets of the Fund to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry, provided that this limitation does not apply to investments
in the obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities and repurchase agreements involving such
securities, and provided further, that utilities as a group will not be
considered to be one industry, and wholly-owned subsidiaries organized
to finance the operations of their parent companies will be considered
to be in the same industries as their parent companies; and
3. Make loans, except that the Fund may (a) purchase or hold
debt instruments in accordance with its investment objective and
policies; (b) enter into repurchase agreements; and (c) engage in
securities lending as described in this Prospectus and in the Statement
of Additional Information.
THE CALIFORNIA TAX-FREE MONEY MARKET FUND MAY NOT:
1. Purchase or sell real estate; provided, however, that the
Fund may, to the extent appropriate to its investment objective,
purchase Municipal Securities secured by real estate or interests
therein or securities issued by companies investing in real estate or
interests therein;
2. Purchase securities on margin, make short sales of
securities or maintain a short position;
3. Underwrite the securities of other issuers;
4. Purchase securities of companies for the purpose of
exercising control or management;
5. Invest in private activity bonds where the payment of
principal and interest are the responsibility of a company (including
its predecessors) with less than three years of continuous operation;
6. Purchase or sell commodities or commodity contracts, or
invest in oil, gas or mineral exploration leases or development
programs; provided, however, the Fund may, to the extent appropriate to
the Fund's investment objective, purchase publicly traded obligations
of companies engaging in whole or in part in such activities;
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7. Acquire any other investment company or investment company
security except in connection with a merger, consolidation,
reorganization or acquisition of assets;
8. Borrow money or issue senior securities, except that the
Fund may borrow from banks or enter into reverse repurchase agreements
for temporary emergency purposes in amounts up to 10% of the value of
its total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with permissible
borrowings and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Fund's total assets at the
time of its borrowing. The Fund will not invest in additional
securities until all its borrowings (including reverse repurchase
agreements) have been repaid;
9. Write or sell puts, calls, straddles, spreads, or
combinations thereof, except that the Fund may acquire puts with
respect to Municipal Securities in its portfolio and sell the puts in
conjunction with a sale of the underlying Municipal Securities;
10. Acquire a put, if, immediately after the acquisition, more
than 5% of the total amortized cost value of the Fund's assets would be
subject to puts from the same institution (except that (i) up to 25% of
the value of the Fund's total assets may be subject to puts without
regard to the 5% limitation and (ii) the 5% limitation is inapplicable
to puts that, by their terms, would be readily exercisable in the event
of a default in payment of principal or interest on the underlying
securities). In applying the above-described limitation, the Fund will
aggregate securities subject to puts from any one institution with the
Fund's investments, if any, in securities issued or guaranteed by that
institution. In addition, for the purpose of this investment
restriction and investment restriction No. 11 below, a put will be
considered to be from the party to whom the Fund will look for payment
of the exercise price;
11. Acquire a put that, by its terms, would be readily
exercisable in the event of a default in payment of principal and
interest on the underlying security or securities if, immediately after
the acquisition, the amortized cost value of the security or securities
underlying the put, when aggregated with the amortized cost value of
any other securities issued or guaranteed by the issuer of the put,
would exceed 10% of the total amortized cost value of the Fund's
assets; and
12. Invest in securities of other investment companies except
as they may be acquired as part of a merger, consolidation,
reorganization, or acquisition of assets, provided, however, that the
Fund may purchase securities of a tax-exempt money market fund if,
immediately after such purchase, the acquiring Fund does not own in
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the aggregate (i) more than 3% of the acquired company's outstanding
voting securities, (ii) securities issued by the acquired company
having an aggregate value in excess of 5% of the value of the total
assets of the acquiring Fund, or (iii) securities issued by the
acquired company and all other investment companies (other than
treasury stock of the acquiring Fund) having an aggregate value in
excess of 10% of the value of the acquiring Fund's total assets.
13. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies,
or instrumentalities, if, immediately after the purchase, more than 5%
of the value of its total assets would be invested in such issuer
(except that up to 25% of the value of the Fund's total assets may be
invested without regard to the 5% limitation). For purposes of this
investment restriction, a security is considered to be issued by the
government entity (or entities) whose assets and revenues back the
security or, with respect to be private activity bond that is backed
only by the assets and revenues of non-governmental user, by the
non-governmental user;
14. Purchase any securities that would cause 25% or more of
such Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry; provided that this limitation shall
not apply to securities of the U.S. Government, its agencies or
instrumentalities or Municipal Securities or governmental guarantees of
Municipal Securities; and provided, further, that for the purpose of
this limitation, private activity bonds that are backed only by the
assets and revenues of a non-governmental user shall not be deemed to
by Municipal Securities.
15. Make loans; except that the Fund may purchase or hold debt
instruments, lend portfolio securities and enter into repurchase
agreements as permitted by its investment objective and policies.
EACH OF THE VALUE MOMENTUM FUND, THE BLUE CHIP GROWTH FUND, THE EMERGING GROWTH
FUND, THE INTERNATIONAL EQUITY FUND, THE SMALL CAP VALUE FUND, THE
INTERMEDIATE-TERM BOND FUND, THE GOVERNMENT SECURITIES FUND, THE CONVERTIBLE
SECURITIES FUND, AND THE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND:
1. May purchase securities of any issuer only when consistent
with the maintenance of its status as a diversified company
under the Investment Company Act of 1940, or the rules or
regulations thereunder, as such statute, rules or regulations
may be amended from time to time.
2. May not concentrate investments in a particular industry or
group of industries, or within any one state (except that the
limitation as to investments in any one
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state or its political subdivision shall not apply to the
California Intermediate Tax-Free Bond Fund), as concentration
is defined under the Investment Company Act of 1940, or the
rules or regulations thereunder, as such statute, rules or
regulations may be amended from time to time.
3. May issue senior securities to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations
thereunder, as such statute, rules or regulations may be
amended from time to time.
4. May lend or borrow money to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations
thereunder, as such statute, rules or regulations may be
amended from time to time.
5. May purchase or sell commodities, commodities contracts,
futures contracts, or real estate to the extent permitted by
the Investment Company Act of 1940, or the rules or
regulations thereunder, as such statute, rules or regulations
may be amended from time to time.
6. May underwrite securities to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations
thereunder, as such statute, rules or regulations may be
amended from time to time.
7. May pledge, mortgage or hypothecate any of its assets to the
extent permitted by the Investment Company Act of 1940, or the
rules or regulations thereunder, as such statute, rules or
regulations may be amended from time to time.
The fundamental limitations of the Value Momentum Fund, the
Blue Chip Growth Fund, the Emerging Growth Fund, the International
Equity Fund, the Small Cap Value Fund, the Intermediate-Term Bond Fund,
the Government Securities Fund, the Convertible Securities Fund, and
the California Intermediate Tax-Free Bond Fund have been adopted to
avoid wherever possible the necessity of shareholder meetings otherwise
required by the 1940 Act. This recognizes the need to react quickly to
changes in the law or new investment opportunities in the securities
markets and the cost and time involved in obtaining shareholder
approvals for diversely held investment companies. However, the Funds
also have adopted nonfundamental limitations, set forth below, which in
some instances may be more restrictive than their fundamental
limitations. Any changes in a Fund's nonfundamental limitations will be
communicated to the Fund's shareholders prior to effectiveness.
1940 ACT RESTRICTIONS. Under the 1940 Act, and the rules,
regulations and interpretations thereunder, a "diversified company," as
to 75% of its totals assets, may not purchase securities of any issuer
(other than obligations of, or
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guaranteed by, the U.S. Government, its agencies or its
instrumentalities) if, as a result, more than 5% of the value of its
total assets would be invested in the securities of such issuer or more
than 10% of the issuer's voting securities would be held by the fund.
"Concentration" is generally interpreted under the 1940 Act to be
investing more than 25% of net assets in an industry or group of
industries. The 1940 Act limits the ability of investment companies to
borrow and lend money and to underwrite securities. The 1940 Act
currently prohibits an open-end fund from issuing senior securities, as
defined in the 1940 Act, except under very limited circumstances.
THE FOLLOWING INVESTMENT LIMITATIONS OF THE VALUE MOMENTUM FUND, THE BLUE CHIP
GROWTH FUND, THE EMERGING GROWTH FUND, THE INTERNATIONAL EQUITY FUND, THE SMALL
CAP VALUE FUND, THE INTERMEDIATE-TERM BOND FUND, THE GOVERNMENT SECURITIES FUND,
THE CONVERTIBLE SECURITIES FUND, AND THE CALIFORNIA INTERMEDIATE TAX-FREE BOND
FUND ARE NONFUNDAMENTAL POLICIES. EACH FUND MAY NOT:
1. Acquire more than 10% of the voting securities of any one
issuer. This limitation applies to only 75% of a Fund's
assets.
2. Invest in companies for the purpose of exercising control.
3. Borrow money, except for temporary or emergency purposes and
then only in an amount not exceeding one-third of the value of
total assets and except that a Fund may borrow from banks or
enter into reverse repurchase agreements for temporary
emergency purposes in amounts up to 10% of the value of its
total assets at the time of such borrowing. To the extent that
such borrowing exceeds 5% of the value of the Fund's assets,
asset coverage of at least 300% is required. In the event that
such asset coverage shall at any time fall below 300%, the
Fund shall, within three days thereafter or such longer period
as the Securities and Exchange Commission may prescribe by
rules and regulations, reduce the amount of its borrowings to
such an extent that the asset coverage of 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.
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5. Purchase or sell real estate, real estate limited partnership
interest, commodities or commodities contracts (except that
the Government Securities Fund, the Blue Chip Growth Fund, the
Emerging Growth Fund, the International Equity Fund, the Value
Momentum Fund, the Intermediate-Term Bond Fund and the
California Intermediate Tax-Free Bond Fund may invest in
futures contracts and options on futures contracts, as
disclosed in the prospectuses) and interest in a pool of
securities that are secured by interests in real estate.
However, subject to their permitted investments, any Fund may
invest in companies which invest in real estate, commodities
or commodities contracts.
6. Make short sales of securities, maintain a short position or
purchase securities on margin, except that HighMark Funds may
obtain short-term credits as necessary for the clearance of
security transactions.
7. Act as an underwriter of securities of other issuers except as
it may be deemed an underwriter in selling a Fund security.
8. Issue senior securities (as defined in the Investment Company
Act of 1940) except in connection with permitted borrowings as
described above or as permitted by rule, regulation or order
of the Securities and Exchange Commission.
9. Purchase or retain securities of an issuer if, to the
knowledge of HighMark Funds, an officer, trustee, partner or
director of HighMark Funds or the Advisor or Sub-Advisors of
HighMark Funds 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 Funds
or a particular Fund or a particular Class of Shares of HighMark Funds or a Fund
means the affirmative vote of the lesser of (a) more than 50% of the outstanding
Shares of HighMark Funds or such Fund or such Class, or (b) 67% or more of the
Shares of HighMark Funds or such Fund or such Class present at a meeting at
which the holders of more than 50% of the outstanding Shares of HighMark Funds
or such Fund or such Class are represented in person or by proxy.
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PORTFOLIO TURNOVER
A Fund's turnover rate is calculated by dividing the lesser of a Fund's
purchases or sales of portfolio securities for the year by the monthly average
value of the portfolio securities. The calculation excludes all securities whose
maturities at the time of acquisition were one year or less. Thus, for
regulatory purposes, the portfolio turnover rate with respect to each of the
Money Market Funds was zero percent for each of the last two fiscal years, and
is expected to remain zero percent. For HighMark Funds' fiscal years ended July
31, 1998 and July 31, 1997, each Funds' portfolio turnover rate was: 67% and
118% for the HighMark Growth Fund; 69% and 46% for the HighMark Income Equity
Fund; and 16% and 14% for the HighMark Bond Fund. For each of the following
Funds, the portfolio turnover rate for the fiscal year ended July 31, 1998, the
six-month period ended July 31, 1997 and the prior year ended January 31, 1997
was: 22%, 10% and 27% for the HighMark Balanced Fund; 7%, 1% and 9% for the
HighMark Value Momentum Fund; 168%, 54% and 80% for the HighMark Blue Chip
Growth Fund; 289%, 116% and 134% for the HighMark Emerging Growth Fund; 72%, 18%
and 29% for the HighMark International Equity Fund; 51%, 58% and 106% for the
HighMark Intermediate-Term Bond Fund; 62%, 40% and 186% for the HighMark
Government Securities Fund; 50%, 33% and 89% for the HighMark Convertible
Securities Fund; and 23%, 5% and 6% for the HighMark California Intermediate
Tax-Free Bond Fund. It is currently expected that the Small Cap Value Fund's
portfolio turnover rate will not exceed 100%. The portfolio turnover rate may
vary greatly from year to year as well as within a particular year, and may also
be affected by cash requirements for redemption of Shares and, in the case of
the California Tax-Free Money Market Fund, by requirements that enable them to
receive certain favorable tax treatment.
VALUATION
As disclosed in the Prospectuses, each Money Market Fund's net asset
value per share for purposes of pricing purchase and redemption orders is
determined by the administrator as of 1:00 p.m., Pacific Time (4:00 p.m. Eastern
Time) and 10:00 a.m. Pacific Time (1:00 p.m. Eastern Time) on days on which both
the New York Stock Exchange and the Federal Reserve wire system are open for
business ("Business Days"). As disclosed in the Prospectuses, each Equity Fund's
and Fixed Income Fund's net asset value per share for purposes of pricing
purchase and redemption orders is determined by the administrator as of 1:00
p.m., Pacific Time (4:00 p.m. Eastern Time) on days on which the New York Stock
Exchange is open for business (also "Business Days").
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VALUATION OF THE MONEY MARKET FUNDS
The Money Market Funds have elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. The amortized cost method
involves valuing an instrument at its cost initially and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. This
method may result in periods during which value, as determined by amortized
cost, is higher or lower than the price a Fund would receive if it sold the
instrument. The value of securities in a Fund can be expected to vary inversely
with changes in prevailing interest rates.
HighMark Funds' Board of Trustees has undertaken to establish
procedures reasonably designed, taking into account current market conditions
and a Fund's investment objective, to stabilize the net asset value per Share of
each Money Market Fund for purposes of sales and redemptions at $l.00. These
procedures include review by the Trustees, at such intervals as they deem
appropriate, to determine the extent, if any, to which the net asset value per
Share of each Fund calculated by using available market quotations deviates from
$1.00 per Share. In the event such deviation exceeds one-half of one percent,
Rule 2a-7 requires that the Board promptly consider what action, if any, should
be initiated. If the Trustees believe that the extent of any deviation from a
Fund's $1.00 amortized cost price per Share may result in material dilution or
other unfair results to new or existing investors, the Trustees will take such
steps as they consider appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity, shortening the average
portfolio maturity of a Fund, withholding or reducing dividends, reducing the
number of a Fund's outstanding Shares without monetary consideration, or
utilizing a net asset value per Share based on available market quotations.
VALUATION OF THE EQUITY FUNDS AND THE FIXED INCOME FUNDS
Except as noted below, investments by the Equity Funds and the Fixed
Income Funds in securities traded on a national exchange (or exchanges) are
valued based upon their last sale price on the principal exchange on which such
securities are traded. With regard to each such Fund, securities the principal
market for which is not a securities exchange are valued based upon the latest
bid price in such principal market. Securities and other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of HighMark Funds' Board of Trustees. With the
exception of short-term securities as described below, the value of each Fund's
investments may be based on valuations provided by a pricing service. Short-term
securities (i.e., securities with remaining maturities of 60 days or less) may
be valued at amortized cost, which approximates current value.
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases and redemptions of shares of the Money Market Funds may be
made on days on which both the New York Stock Exchange and the Federal Reserve
wire systems are open for business. Purchases and redemptions of shares of the
Equity Funds and Fixed Income Funds may be made on days on which the New York
Stock Exchange is open for business.
It is currently HighMark Funds' policy to pay redemptions in cash.
HighMark Funds retains the right, however, to alter this policy to provide for
redemptions in whole or in part by a distribution in-kind of securities held by
the Funds other than the Money Market Funds in lieu of cash. Shareholders may
incur brokerage charges on the sale of any such securities so received in
payment of redemptions. However, a Shareholder will at all times be entitled to
aggregate cash redemptions from all Funds of HighMark Funds during any 90-day
period of up to the lesser of $250,000 or 1% of HighMark Funds' net assets.
HighMark Funds 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 Funds also reserves the
right to suspend sales of Shares of the Funds for any period.
If a Fund holds portfolio securities listed on foreign exchanges which
trade on Saturdays or other customary United States national business holidays,
the portfolio will trade and the net assets of the Fund's redeemable securities
may be significantly affected on days when the investor has no access to the
Fund.
ADDITIONAL FEDERAL TAX INFORMATION
Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order so to qualify and to qualify for the special tax treatment
accorded regulated investment companies and their Shareholders, a Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale of stock, securities, and foreign currencies, or other income (including
but not limited to gains from options, futures, or forward contracts) derived
with respect to its business of investing in such stock, securities, or
currencies; (b) 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
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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.
If a Fund qualifies as a regulated investment company that is accorded
special tax treatment, the Fund will not be subject to federal income tax on
income paid to its shareholders in the form of dividends (including capital gain
dividends). If a Fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Fund would be subject to
tax on its taxable income at corporate rates, and all distributions from
earnings and profits, including any distributions of net tax-exempt income and
net long-term capital gains, would be taxable to shareholders as ordinary
income.
If a Fund fails to distribute in a calendar year substantially all of
its ordinary income for the year and substantially all its net capital gain
income for the one-year period ending October 31 of the year (and any retained
amount from the prior calendar year), the Fund will be subject to a
non-deductible 4% excise tax on the undistributed amounts.
Any dividend declared by a Fund to Shareholders of record on a date in
October, November or December generally is deemed to have been received by its
Shareholders on December 31 of such year (and paid by the Fund on or before such
time) provided that the dividend actually is paid during January of the
following year.
If a Fund engages in hedging transactions, including hedging
transactions in options, futures contracts, and straddles, or other similar
transactions, it will be subject to special tax rules (including 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.
Certain of a Fund's hedging activities (including its transactions, if
any, in foreign currencies or foreign currency-denominated instruments) are
likely to produce a difference between its book income and its taxable income.
If a Fund's book income exceeds its taxable income, the distribution (if any) of
such excess will be treated as (i) a dividend to the extent of the Fund's
remaining earnings and profits (including earnings and profits arising from
tax-exempt income), (ii) thereafter as a return of capital to the extent of the
recipient's basis in the shares, and (iii) thereafter as gain from the sale or
exchange of a capital asset. If the Fund's
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book income is less than its taxable income, the Fund could be required to make
distributions exceeding book income to qualify as a regulated investment company
that is accorded special tax treatment.
If a Fund makes a distribution in excess of its current and accumulated
"earnings and profits" in any taxable year, the excess distribution will be
treated as a return of capital to the extent of a Shareholder's tax basis in
Fund shares, and thereafter as capital gain. A return of capital is not taxable,
but it reduces the Shareholder's tax basis in the shares, thus reducing any loss
or increasing any gain on a subsequent taxable disposition of those shares.
A Fund's investment in securities issued at a discount and certain
other obligations will (and investments in securities purchased at a discount
may) require the Fund to accrue and distribute income not yet received. In order
to generate sufficient cash to make the requisite distributions, a Fund may be
required to sell securities in its portfolio that it otherwise would have
continued to hold.
The Funds will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends and other distributions paid
to any Shareholder who has provided either an incorrect tax identification
number or no number at all, or who is subject to withholding by the Internal
Revenue Service for failure to properly include on his or her tax return
payments of interest or dividends.
The foregoing discussion and the one below regarding the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund
under "Federal Taxation" is only a summary of some of the important Federal tax
considerations generally affecting purchasers of the Funds' Shares. No attempt
has been made to present a detailed explanation of the Federal income tax
treatment of the Funds, and this discussion is not intended as a substitute for
careful tax planning. Accordingly, potential purchasers of the Funds' Shares are
urged to consult their tax advisors with specific reference to their own tax
situation. Foreign Shareholders should consult their tax advisors regarding the
U.S. and foreign tax consequences of an investment in the Funds. In addition,
this discussion is based on tax laws and regulations that are in effect on the
date of this Statement of Additional Information; such laws and regulations may
be changed by legislative, judicial or administrative action, and such changes
may be retroactive.
ADDITIONAL TAX INFORMATION CONCERNING THE CALIFORNIA TAX-FREE
MONEY MARKET FUND AND THE CALIFORNIA INTERMEDIATE TAX-FREE
BOND FUND
Federal Taxation. As indicated in their respective Prospectuses, the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund are designed to provide individual Shareholders with current
tax-exempt interest income. Neither of these Funds is intended to constitute a
balanced investment program or is designed for
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investors seeking capital appreciation. Nor are the California Tax-Free Money
Market Fund or the California Intermediate Tax-Free Bond Fund designed for
investors seeking maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Funds may not be suitable for tax-exempt institutions
and may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans, and individual retirement accounts because such plans and
accounts are generally tax-exempt and, therefore, would not gain any additional
benefit from the Funds' dividends being tax-exempt, and such dividends would
ultimately be taxable to the beneficiaries when distributed to them.
The Code permits a regulated investment company that invests at least
50% of its total assets in tax-free Municipal Securities (at the close of each
quarter of the Fund's taxable year) to pass through to its investors, tax-free,
net Municipal Securities interest income to the extent such interest would be
exempt if earned directly. Because the California Tax-Free Money Market Fund and
the California Intermediate Tax-Free Bond Fund intend to be qualified to pay
such exempt-interest dividends, these Funds will be limited in their ability to
enter into taxable transactions, such as forward commitments, repurchase
agreements, securities lending transactions, financial futures and options
contracts on financial futures, tax-exempt bond indices and other assets. The
policy of the California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund is to pay each year as dividends substantially
all of such Fund's Municipal Securities interest income net of certain
deductions. An exempt-interest dividend is any dividend or part thereof derived
from interest excludable from gross income and designated as an exempt-interest
dividend in a written notice mailed to Shareholders after the close of such
Fund's taxable year, but the aggregate of such dividends may not exceed the net
Municipal Securities interest received by the Fund during the taxable year. In
the case of each of the California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund the percentage of the dividends paid for any
taxable year that qualifies as federal exempt-interest dividends will be the
same for all Shareholders receiving dividends during such year, regardless of
the period for which the Shares were held.
Exempt-interest dividends may be treated by Shareholders of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund as items of interest excludable from their gross income. However, each
such Shareholder is advised to consult his or her tax advisor with respect to
whether exempt-interest dividends would remain excludable if such Shareholder
were treated as a "substantial user" or a "related person" to such user with
respect to facilities financed through any of the tax-exempt obligations held by
the California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund. In addition, exempt-interest dividends may be taxable for
federal alternative minimum tax purposes and for state and local purposes.
The California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund will distribute substantially all of any
investment company taxable income for each taxable year. In general, a Fund's
investment company taxable income will be its taxable income subject to certain
adjustments and excluding the excess of any net long-term capital
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gains for the taxable year over the net short-term capital loss, if any, for
such year. Distributions of such income will be taxable to Shareholders as
ordinary income. The dividends-received deduction for corporations is not
expected to apply to such distributions.
Distributions designated by the California Tax-Free Money Market Fund
and the California Intermediate Tax-Free Bond Fund as deriving from net gains on
securities held for more than one year will be taxable to a Fund Shareholder as
such, regardless of how long a time the Shareholder held the Fund's Shares. Such
distributions will not be eligible for the dividends-received deduction. If a
Shareholder disposes of Shares in a Fund at a loss before holding such Shares
for longer than six months, such loss will be disallowed to the extent of any
exempt-interest dividends paid thereon, and any remaining loss will be treated
as a long-term capital loss to the extent the Shareholder has received a capital
gain dividend on the Shares.
Shareholders receiving social security or railroad retirement benefits
may be taxed on a portion of those benefits as a result of receiving tax-exempt
income (including exempt-interest dividends distributed by the Fund).
Like the other Funds, if for any taxable year the California Tax-Free
Money Market Fund or the California Intermediate Tax-Free Bond Fund does not
qualify for the special tax treatment afforded regulated investment companies,
all of such Fund's taxable income will be subject to tax at regular corporate
rates (without any deduction for distributions to Shareholders), and Municipal
Securities interest income, although not taxable to the California Tax-Free
Money Market Fund or the California Intermediate Tax-Free Bond Fund, would be
taxable to Shareholders as ordinary income when distributed as dividends.
Depending upon the extent of its activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located or in which it is otherwise deemed to be conducting business, the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund may be subject to the tax laws of such states or localities. For a
summary of certain California tax considerations affecting the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund,
see "California Taxation" below.
As indicated in their Prospectuses, the California Tax-Free Money
Market Fund and the California Intermediate Tax-Free Bond Fund may acquire
rights regarding specified portfolio securities under puts. See "INVESTMENT
OBJECTIVES AND POLICIES Additional Information on Portfolio Instruments - Puts"
in this Statement of Additional Information. The policy of each Fund is to limit
its acquisition of puts to those under which the Fund will be treated for
Federal income tax purposes as the owner of the Municipal Securities acquired
subject to the put and the interest on such Municipal Securities will be
tax-exempt to the Fund. There is currently no guidance available from the
Internal Revenue Service that definitively establishes the tax consequences that
may result from the acquisition of many of
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the types of puts that the California Tax-Free Money Market Fund or the
California Intermediate Tax-Free Bond Fund could acquire under the 1940 Act.
Therefore, although they will only acquire a put after concluding that it will
have the tax consequences described above, the Internal Revenue Service could
reach a different conclusion from that of the relevant Fund.
California Taxation. Under existing California law, if the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund
continue to qualify for the special federal income tax treatment afforded
regulated investment companies and if at the end of each quarter of each such
Fund's taxable year at least 50% of the value of that Fund's assets consists of
obligations that, if held by an individual, would pay interest exempt from
California taxation ("California Exempt-Interest Securities"), Shareholders of
that Fund will be able to exclude from income, for California personal income
tax purposes, "California exempt-interest dividends" received from that Fund
during that taxable year. A "California exempt-interest dividend" is any
dividend or portion thereof of the California Tax-Free Money Market Fund or the
California Intermediate Tax-Free Bond Fund not exceeding the interest received
by the Fund during the taxable year on California Exempt-Interest Securities
(less direct and allocated expenses, which includes amortization of acquisition
premium) and so designated by written notice to Shareholders within 60 days
after the close of that taxable year.
Distributions, other than of "California exempt-interest dividends," by
the California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund to California residents will be subject to California
personal income taxation. Gains realized by California residents from a
redemption or sale of Shares of the California Tax-Free Money Market Fund and
the California Intermediate Tax-Free Bond Fund will also be subject to
California personal income taxation. In general, California nonresidents, other
than certain dealers, will not be subject to California personal income taxation
on distributions by, or on gains from the redemption or sale of, Shares of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund unless those Shares have acquired a California "business situs." (Such
California nonresidents may, however, be subject to other state or local income
taxes on such distributions or gains, depending on their residence.) Short-term
capital losses realized by shareholders from a redemption of shares of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund within six months from the date of their purchase will not be allowed
for California personal income tax purposes to the extent of any tax-exempt
dividends received with respect to such Shares during such period. No deduction
will be allowed for California personal income tax purposes for interest on
indebtedness incurred or continued in order to purchase or carry Shares of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund for any taxable year of a Shareholder during which the Fund
distributes "California exempt-interest dividends."
A statement setting forth the amount of "California exempt-interest
dividends" distributed during each calendar year will be sent to Shareholders
annually.
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The foregoing is only a summary of some of the important California
personal income tax considerations generally affecting the Shareholders of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund. This summary does not describe the California tax treatment of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund. In addition, no attempt has been made to present a detailed
explanation of the California personal income tax treatment of the Fund's
Shareholders. Accordingly, this discussion is not intended as a substitute for
careful planning. Further, "California exempt-interest dividends" are excludable
from income for California personal income tax purposes only. Any dividends paid
to Shareholders subject to California corporate franchise tax will be taxed as
ordinary dividends to such Shareholders, notwithstanding that all or a portion
of such dividends is exempt from California personal income tax. Accordingly,
potential investors in the California Tax-Free Money Market Fund and the
California Intermediate Tax-Free Bond Fund including, in particular, corporate
investors which may be subject to either California franchise tax or California
corporate income tax, should consult their tax advisors with respect to the
application of such taxes to the receipt of Fund dividends and as to their own
California tax situation, in general.
FOREIGN TAXES
Dividends and interest received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on the Fund's securities. Tax conventions between
certain countries and the United States may reduce or eliminate these taxes.
Foreign countries generally do not impose taxes on capital gains with respect to
investments by foreign investors. If at the end of a 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 a Fund makes the election, it will report annually to its
Shareholders the respective amounts per share of the Fund's income from sources
within, and taxes paid to, foreign countries and U.S. possessions.
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MANAGEMENT OF HIGHMARK FUNDS
TRUSTEES AND OFFICERS
Overall responsibility for management of each Fund rests with the
Trustees of HighMark Funds, who are elected by HighMark Funds' Shareholders.
There are currently six Trustees, all of whom are not "interested persons" of
HighMark Funds within the meaning of that term under the 1940 Act.
The Trustees, in turn, elect the officers of HighMark Funds to
supervise actively its day-to-day operations.
The Trustees and officers of HighMark Funds, 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 FUNDS DURING PAST 5 YEARS
- ---------------- ------------------- -------------------
<S> <C> <C>
Thomas L. Braje Trustee Retired October, 1996. Prior to
1323 Encina Drive October 1996, Vice President and
Milbrae, CA 94030 Chief Financial Officer of Bio Rad
Age: Laboratories, Inc.
David A. Goldfarb Trustee Partner, Goldfarb & Simens,
111 Pine Street Certified Public Accountants.
18th Floor
San Francisco, CA 94111
Age:
Joseph C. Jaeger Trustee Retired June, 1998. Prior to June,
100 First Street 1998, Senior Vice President and
San Francisco, CA 94105 Chief Financial Officer, Delta
Age: Dental Plan of California.
Frederick J. Long Trustee President and Chief Executive
520 Pike Street Officer, Acordia West and
20th Floor Acordia Northwest Inc. (each an
Seattle, WA 98101 insurance brokerage firm).
Age:
Paul L. Smith Trustee Retired. Member of the Board of
422 Gordon Terrace Trustees of Stepstone Funds from
Pasadena, CA 91105 1991 to 1997.
Age: 80
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
William R. Howell Trustee Retired. Director, Current Income
73-350 Calliandra Avenue Shares, Inc. from 1973 to 1998;
Palm Desert, CA 92260 Chairman of the Board of Trustees
Age: 76 of Stepstone Funds from 1991 to
1997.
Michael L. Noel Member Advisory Board President, Noel Consulting
1107 Pine Country Court Company since 1998. From 1991
Prescott, AZ 86303-6405 to 1997, Member of the Board of
Age: 57 Trustees of Stepstone Funds.
Prior to retirement, Senior Vice
President and Chief Financial
Officer, Southern California Edison
Company; Director of Amerwest Company,
Current Income Shares, Inc. and SCAN
Health Plan.
Robert M. Whitler Member Advisory Board Retired since 1996. Prior to 1996, Director,
336 Running Spring Drive Current Income Shares, Inc. Executive
Vice President and head of Union Bank's Financial
Management and Trust Services
Group and a member of the bank-wide
Executive Policy Committee.
Mark E. Nagle President and Chief Executive Vice President and Controller,
530 East Swedesford Road Officer Funds Account, Vice President of
Wayne, PA 19087 the Administrator and Distributor,
employee since November 1996.
From 1995 to 1996, Vice President
of Fund Accounting of BISYS
Fund Services. Prior to 1995,
Senior Vice President for Fidelity
Investments since 1981.
Robert DellaCroce Controller and Chief Financial CPA, Director of Fund Resources,
530 East Swedesford Road Officer employee since 1994. Prior to
Wayne, PA 19087 1994, senior manager for Arthur
Andersen.
Kevin P. Robins Vice President and Secretary Employee since 1992. Prior to
1 Freedom Valley Drive 1992, associate with Morgan Lewis
Oaks, PA 19456 & Bockius since 1988.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
Sandra K. Orlow Vice President and Assistant Employee since 1983
1 Freedom Valley Drive Secretary
Oaks, PA 19456
Todd Cipperman Vice President and Assistant Employee since 1995. From 1994
1 Freedom Valley Drive Secretary. to May 1995, associate with Dewey
Oaks, PA 19456 Ballantine. Prior to 1994, associate
with Winston & Strawn.
Joseph M. O'Donnell Vice President and Assistant Employee since 1998. From
1 Freedom Valley Drive Secretary. March, 1993 to December, 1997,
Oaks, PA 19456 Vice President and General
Counsel with FPS Services, Inc.
Lydia A. Gavalis Vice President and Assistant Vice President and Assistant
1 Freedom Valley Drive Secretary Secretary of SEI Investments
Oaks, PA 19456 Company, employee since 1998.
Prior to 1998, Assistant General
Counsel and Director of
Arbitration, Philadelphia Stock
Exchange.
Lynda J. Striegel Vice President and Assistant Vice President and Assistant
1 Freedom Valley Drive Secretary Secretary of SEI Investments
Oaks, PA 19456 Company, employee since 1998.
From 1997 to 1998, Senior Assets
Management Counsel, Barnett
Banks, Inc. From 1996 to 1997,
Partner, Groom and Nordberg,
Chartered. Prior to 1995, Associate
General Counsel, Riggs Bank, N.A.
Kathy Heilig Vice President and Assistant Treasurer of SEI Investments
1 Freedom Valley Drive Secretary Company, employee since 1987.
Oaks, PA 19456
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
James R. Foggo Vice President and Assistant Vice President and Assistant
1 Freedom Valley Drive Secretary Secretary of the Administrator and
Oaks, PA 19456 the Distributor, employee since
1998. In 1998, associate Paul
Weiss, Rifkind, Wharton &
Garrison. From 1995 to 1998,
associate, Baker & McKenzie.
Prior to 1995, associate, Battle
Fowler, L.L.P.
</TABLE>
The Trustees of HighMark Funds receive quarterly retainer fees and fees
and expenses for each meeting of the Board of Trustees attended. No employee,
officer or stockholder of SEI Investments Mutual Funds Services and/or SEI
Investments Distribution Co. receives any compensation directly from HighMark
Funds for serving as a Trustee and/or officer. SEI Investments Mutual Funds
Services and/or SEI Investments Distribution Co. receive administration, fund
accounting servicing and distribution fees from each of the Funds. See "Manager
and Administrator" and "Distributor" below. Messrs. Nagle, Robins, Cipperman,
DellaCroce, O'Donnell and Foggo, and Ms. Orlow, Ms. Striegel, Ms. Gavalis and
Ms. Heilig are employees and officers of SEI Investments Company. While SEI
Investments Mutual Funds Services is a distinct legal entity from SEI
Investments Distribution Co., SEI Investments Mutual Funds Services 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 Investments Mutual Funds Services are both controlled
by the same ultimate parent company, SEI Investments Company.
During the fiscal year ended July 31, 1998, fees paid to the
disinterested Trustees for their services as Trustees aggregated $102,000. For
the disinterested Trustees, the
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following table sets forth information concerning fees paid and retirement
benefits accrued during the fiscal year ended July 31, 1998:
<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 $17,000 None None $17,000
David A. Goldfarb $17,000 None None $17,000
William R. Howell $17,000 None None $17,000
Joseph C. Jaeger $17,000 None None $17,000
Frederick J. Long $17,000 None None $17,000
Paul L. Smith $17,000 None None $17,000
Michael L. Noel* $17,000 None None $17,000
Robert M. Whitler* $17,000 None None $17,000
</TABLE>
*Members of Advisory Board.
The Advisory Board to the Board of Trustees is responsible for
providing monitoring services and evaluating issues affecting the HighMark Funds
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 each of the
Funds by HighMark Capital Management, Inc. (the "Advisor"), (formerly Pacific
Alliance Capital Management, a division of Union Bank of California), pursuant
to an investment advisory agreement between the Advisor and HighMark Funds dated
as of September 1, 1998 (the "Investment Advisory Agreement"). Union Bank of
California serves as custodian for each of the Funds. See "Transfer Agent,
Custodian and Fund Accounting Services" below. Union Bank of California also
serves as sub-administrator to each of the Funds pursuant to an agreement with
SEI Investments Mutual Funds Services. See "Manager and Administrator" below.
Unless sooner terminated, the Investment Advisory Agreement will
continue in effect as to each particular Fund from year to year if such
continuance is approved at least annually by HighMark Funds' 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
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Investment Advisory Agreement is terminable as to a particular Fund at any
time on 60 days' written notice without penalty by the Trustees, by vote of a
majority of the outstanding Shares of that Fund, or by the Advisor. The
Investment Advisory Agreement terminates automatically in the event of any
assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Advisor will not be
liable for any error of judgment or mistake of law or for any loss suffered by
HighMark Funds in connection with the Advisor's services under the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Advisor
in the performance of its duties, or from reckless disregard by the Advisor of
its duties and obligations thereunder.
On September 1, 1998, the investment management unit at Union Bank of
California, N.A., Pacific Alliance Capital Management was reorganized into a
subsidiary of UnionBanCal Corporation. The new entity, HighMark Capital
Management, Inc., is a California corporation registered under the 1940 Act.
On April 1, 1996, the Bank of California, N.A., HighMark Funds'
then-investment advisor, combined with Union Bank and the resulting bank changed
its name to Union Bank of California, N.A. At the same time, the banks'
investment management divisions were combined. Each of the Bank of California
and Union Bank (or its predecessor bank) has been in banking since the early
1900's, and historically, each has had significant investment functions within
its trust and investment division. Union Bank of California, N.A. is a
subsidiary of UnionBanCal Corporation, a publicly traded corporation, a majority
of the shares of which are owned by Bank of Tokyo - Mitsubishi, Limited.
For the services provided and expenses assumed by the Advisor pursuant
to the Investment Advisory Agreement, Union Bank of California is entitled to
receive fees from each Fund as described in that Fund's Prospectus. For the
fiscal year ended July 31, 1998, Union Bank of California received the following
investment advisory fees: $2,265,301 from the Growth Fund; $2,825,963 from the
Income Equity Fund; $2,602,642 from the Balanced Fund; $3,952,110 from the Value
Momentum Fund; $680,108 from the Blue Chip Growth Fund; $577,471 from the
Emerging Growth Fund; $629,025 from the International Equity Fund; $593,291 from
the Bond Fund; $863,851 from the Intermediate-Term Bond Fund; $402,773 from the
Government Securities Fund; $176,340 from the Convertible Securities Fund;
$87,732 from the California Intermediate Tax-Free Bond Fund (an additional
$245,284 in fees were voluntarily reduced); $6,250,527 from the Diversified
Money Market Fund; $906,618 from the U.S. Government Money Market Fund;
$2,383,235 from the 100% U.S. Treasury Money Market Fund (an additional $476,647
in fees were voluntarily reduced); and $462,600 from the California Tax-Free
Money Market Fund (an additional $925,201 in fees were voluntarily reduced).
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For the fiscal year ended July 31, 1997, Union Bank of California
received the following investment advisory fees: $666,964 from the Growth Fund
(an additional $121,712 in fees were voluntarily reduced); $1,986,575 from the
Income Equity Fund (an additional $658 in fees were voluntarily reduced);
$1,025,689 from the Balanced Fund; $1,158,537 from the Value Momentum Fund;
$254,574 from the Blue Chip Growth Fund; $229,671 from the Emerging Growth Fund;
$218,664 from the International Equity Fund (an additional $9,751 in fees were
voluntarily reduced); $294,637 from the Bond Fund (an additional $188,247 in
fees were voluntarily reduced); $388,609 from the Intermediate-Term Bond Fund;
$137,014 from the Government Securities Fund; $67,657 from the Convertible
Securities Fund; $506 from the California Intermediate Tax-Free Bond Fund (an
additional $41,978 in fees were voluntarily reduced); $2,181,976 from the
Diversified Money Market Fund; $838,857 from the U.S. Government Money Market
Fund; $1,377,080 from the 100% U.S. Treasury Money Market Fund (an additional
$129,101 in fees were voluntarily reduced); and $124,611 from the California
Tax-Free Money Market Fund (an additional $266,840 in fees were voluntarily
reduced).
For the fiscal year ended January 31, 1997,(1) Union Bank of
California, N.A. received the following investment advisory fees: $1,630,000
from the Balanced Fund; $1,599,000 from the Value Momentum Fund; $437,000 from
the Blue Chip Growth Fund; $428,000 from the Emerging Growth Fund; $413,000 from
the International Equity Fund (an additional $49,000 in fees were voluntarily
waived); $711,000 from the Intermediate-Term Bond Fund; $243,000 from the
Government Securities Fund; $116,000 from the Convertible Securities Fund;
$1,000 from the California Intermediate Tax-Free Bond Fund (an additional
$49,000 in fees were voluntarily waived); $2,773,000 from the HighMark
Diversified Money Market Fund; and $126,000 from the California Tax-Free Money
Market Fund (an additional $265,000 in fees were voluntarily waived).(2)
For the fiscal year ended July 31, 1996, Union Bank of California
received the following investment advisory fees: $180,047 from the Growth Fund
(an additional $182,161 in fees were voluntarily reduced); $1,722,014 from the
Income Equity Fund (an additional $33,207 in fees were voluntarily reduced);
$277,708 from the Bond Fund (an additional $256,561 in fees were voluntarily
reduced); $944,226 from the U.S. Government Money Market Fund; and $1,203,300
from the 100% U.S. Treasury Money Market Obligations Fund.
For the fiscal year ended January 31, 1996, the Adviser's predecessor
received the following investment advisory fees: $1,238,970 from the Balanced
Fund; $1,169,765 from the
- --------
(1) See "ADDITIONAL INFORMATION - Miscellaneous" for an explanation of
the different fiscal year ends for each Fund.
(2) Each of these Funds is the accounting survivor of a reorganization
of two mutual funds. All fees paid by these Funds (or sub-advisory fees paid
with respect to these Funds) for a fiscal year end of January 31 represent the
fees paid by the accounting survivor prior to the reorganization.
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<PAGE> 322
Value Momentum Fund; $288,983 from the Blue Chip Growth Fund; $255,357 from the
Emerging Growth Fund; $300,582 from the International Equity Fund (an additional
$76,243 in fees were voluntarily waived); $648,012 from the Intermediate-Term
Bond Fund; $185,894 from the Government Securities Fund; $77,050 from the
Convertible Securities Fund; $3,065 from the California Intermediate Tax-Free
Bond Fund (an additional $61,451 in fees were voluntarily waived); $2,002,595
from the HighMark Diversified Money Market Fund; and $113,705 from the
California Tax-Free Money Market Fund (an additional $237,331 in fees were
voluntarily waived).
THE SUB-ADVISORS
The Advisor and Bank of Tokyo-Mitsubishi Trust Company ("BTMT") have
entered into a sub-advisory agreement which relates to the Emerging Growth and
Convertible Securities Funds. Prior to July 28, 1998, BTMT also served as the
Sub-Advisor to the Blue Chip Growth Fund and Government Securities Fund. The
Advisor and AXA Asset Management Partenaires ("AXA") have entered into a
sub-advisory agreement which relates to the International Equity Fund. Prior to
January 1, 1998, Tokyo-Mitsubishi Asset Management (U.K.), Ltd. ("TMAM") served
as the International Equity Fund's Sub-Advisor. The Advisor and Brandes
Investment Partners LP ("Brandes") have entered into a sub-advisory agreement
which relates to the Small Cap Value Fund (BTMT, together with AXA and Brandes,
are hereafter collectively, the "Sub-Advisors").
Under its sub-advisory agreement, BTMT is entitled to a fee which is
calculated daily and paid monthly at an annual rate of .30% of the average
daily net assets of the Convertible Securities Fund and .50% of the average
daily net assets of the Emerging Growth Fund. Such fee is paid by the Advisor,
and BTMT receives no fees directly from a Fund. For the fiscal year ended July
31, 1998, BTMT received sub-advisory fees of $336,872 with respect to the Blue
Chip Growth Fund (for the period August 1, 1997 to July 27, 1998); $36,920 with
respect to the Emerging Growth Fund; $159,228 with respect to the Government
Securities Fund (for the period August 1, 1997 to December 31, 1997); and
$88,170 with respect to the Convertible Securities Fund. For the period ended
July 31, 1997, BTMT received sub-advisory fees of $127,287 with respect to the
Blue Chip Growth Fund; $143,545 with respect to the Emerging Growth Fund;
$54,805 with respect to the Government Securities Fund; and $33,828 with
respect to the Convertible Securities Fund. For the fiscal years ended January
31, 1997 and 1996, BTMT, or its predecessor, Bank of Tokyo Trust Company
received sub-advisory fees of: $218,366 and $144,472, respectively, with
respect to the Blue Chip Growth Fund; $267,497 and $159,198, respectively, with
respect to the Emerging Growth Fund; $97,150 and $74,358, respectively, with
respect to the Government Securities Fund; and $58,100 and $37,745,
respectively, with respect to the Convertible Securities Fund.
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<PAGE> 323
BTMT operates as a subsidiary of The Bank of Tokyo-Mitsubishi, Ltd.
BTMT was established in 1955 and has been providing asset management services
since 1965.
Under its sub-advisory agreement, AXA is entitled to a fee which is
calculated daily and paid monthly at an annual rate of 0.50% of the average
daily net assets of the International Equity Fund. Such a fee is paid by the
Advisor, and AXA receives no fees directly from the International Equity Fund.
For the period from January 1, 1998 to July 31, 1998, AXA received sub-advisory
fees of $192,406. For the period from August 1, 1997 to December 31, 1997, TMAM
received sub-advisory fees of $59,319. For the period ended July 31, 1997 and
the fiscal year ended January 31, 1997, TMAM received sub-advisory fees of
$72,131 and $145,865, respectively, with respect to the International Equity
Fund.
AXA operates as a subsidiary of the AXA Group. AXA was established in
1994.
Under its sub-advisory agreement, Brandes is entitled to a fee which is
calculated and paid monthly at the annual rate of .50% of the average of the
market value of the assets of the Small Cap Value Fund allocated to Brandes.
Such fee is paid by the Advisor, and Brandes receives no fees directly from the
Small Cap Value Fund.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Advisor determines,
subject to the general supervision of the Board of Trustees of HighMark Funds
and in accordance with each Fund's investment objective and restrictions, which
securities are to be purchased and sold by a Fund, and which brokers are to be
eligible to execute its portfolio transactions. Purchases and sales of portfolio
securities for the Bond Fund, the Intermediate-Term Bond Fund, the Government
Securities Fund, the Convertible Securities Fund, the California Intermediate
Tax-Free Bond Fund, the Diversified Money Market Fund, the U.S. Government Money
Market Fund, the 100% U.S. Treasury Money Market Fund and the California
Tax-Free Money Market Fund usually are principal transactions in which portfolio
securities are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from underwriters of
portfolio securities include a commission or concession paid by the issuer to
the underwriter and purchases from dealers serving as market makers may include
the spread between the bid and asked price. Securities purchased by the Growth
Fund, the Income Equity Fund, the Value Momentum Fund, the Blue Chip Growth
Fund, the Emerging Growth Fund, the International Equity Fund and the Small Cap
Value Fund will generally involve the payment of a brokerage fee. Portfolio
transactions for the Balanced Fund may be principal transactions or involve the
payment of brokerage commissions. While the Advisor generally seeks competitive
spreads or commissions on behalf of each of the Funds, HighMark Funds may not
necessarily pay the lowest spread or commission available on each transaction,
for reasons discussed below.
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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 Funds. 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 the Advisor by
HighMark Funds. Such information may be useful to the Advisor or the
Sub-Advisors in serving both HighMark Funds 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 Funds.
Upon adoption by the Board of Trustees of certain procedures pursuant
to Rule 17e-1 under the 1940 Act, HighMark Funds may execute portfolio
transactions involving the payment of a brokerage fee through the Advisor, SEI
Investments Distribution Co., and their affiliates in accordance with such
procedures. HighMark Funds will not acquire portfolio securities issued by, make
savings deposits in, or enter repurchase or reverse repurchase agreements with,
Union Bank of California, or their affiliates, and will not give preference to
correspondents of Union Bank of California with respect to such securities,
savings deposits, repurchase agreements and reverse repurchase agreements.
Investment decisions for each Fund of HighMark Funds are made
independently from those for the other Funds or any other investment company or
account managed by the Advisor or the Sub-Advisors. However, any such other
investment company or account may invest in the same securities as HighMark
Funds. When a purchase or sale of the same security is made at substantially the
same time on behalf of a Fund and another Fund, investment company or account,
the transaction will be averaged as to price, and available investments
allocated as to amount, in a manner that the Advisor or the Sub-Advisors believe
to be equitable to the Fund(s) and such other investment company or account. In
some instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained by a Fund. To the extent
permitted by law, the Advisor or the Sub-Advisors may aggregate the securities
to be sold or purchased for a Fund with those to be sold or purchased for the
other Funds or for other investment companies or accounts in order to obtain
best execution. As provided in the Investment Advisory Agreement and the
Sub-Advisory Agreements, in making investment recommendations for HighMark
Funds, 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 Funds is a customer of the Advisor, the Sub-Advisors, their parent or
its subsidiaries or affiliates and, in dealing with its commercial customers,
the Advisor and the Sub-Advisors, their parent, subsidiaries, and affiliates
will not inquire or take into consideration whether securities of such customers
are held by HighMark Funds.
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During the fiscal year ended July 31, 1998, the following Funds paid
the following aggregate brokerage commissions: Balanced Fund: $205,232; Blue
Chip Growth Fund: $351,904; Emerging Growth Fund: $447,405; Growth Fund:
$465,576; Income Equity Fund: $638,230; Value Momentum Fund: $248,933;
Convertible Securities Fund: $8,338; and International Equity Fund: $389,285. No
brokerage was directed for any of the Funds. The following brokerage commissions
were paid in the period ended July 31, 1997: Balanced Fund: $64,473; Blue Chip
Growth Fund: $80,454; Emerging Growth Fund: $170,553; Growth Fund: $334,472;
Income Equity Fund: $97,957; Value Momentum Fund: $118,620; Convertible
Securities Fund: $990; and International Equity Fund: $58,381. The following
brokerage commissions were paid in the fiscal year ended January 31, 1997:
$5,607 by the Convertible Securities Fund, $122,239 by the Value Momentum Fund,
$133,907 by the Blue Chip Growth Fund, $159,120 by the Balanced Fund, $206,286
by the Emerging Growth Fund and $107,379 by the International Equity Fund. The
following brokerage commissions were paid in the fiscal year ended July 31,
1996: $104,127 by the Growth Fund and $318,261 by the Income Equity Fund.
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment advisor, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisors to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complies with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisors to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
The Advisor and the Sub-Advisors believe that they possess the legal
authority to perform the services for the Funds contemplated by the Investment
Advisory Agreement and the Sub-Advisory Agreements and described in the
Prospectuses and this Statement of Additional Information and has so represented
in the Investment Advisory Agreement and the Sub-Advisory Agreements. Future
changes in either federal or state statutes and regulations relating to the
permissible activities of banks or bank holding companies and the subsidiaries
or affiliates of those entities, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations
could prevent or restrict the Advisor from continuing to perform such services
for HighMark Funds. Depending upon the nature of any changes in the services
that could be provided by the Advisor, or the Sub-Advisors, the Board of
Trustees of HighMark Funds would review HighMark Funds'
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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, the Advisor, its
affiliates, and its correspondent banks in connection with Customer purchases of
Shares of HighMark Funds, 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 Funds' method of operations would affect
its net asset value per Share or result in financial losses to any Customer.
ADMINISTRATOR AND SUB-ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator") serves as
administrator to each of the Funds pursuant to the administration agreement
dated as of February 15, 1997 between HighMark Funds and the Administrator (the
"Administration Agreement").
SEI Investments Mutual Funds Services is a Delaware business trust
whose sole beneficiary is SEI Investments Management Corporation. SEI
Investments 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 Institutional International Trust, SEI Institutional
Managed Trust, Boston 1784(R) Funds, The Advisors' Inner Circle Fund, The Pillar
Funds, CUFund, STI Classic Funds, First American Funds, Inc., First American
Investment Funds, Inc., The Arbor Fund, Morgan Grenfell Investment Trust, The
PBHG Funds, Inc., The Achievement Funds Trust, Bishop Street Funds, CrestFunds,
Inc., STI Classic Variable Trust, Monitor Funds, TIP Funds, ARK Funds, SEI Asset
Allocation Trust, SEI Institutional Investments Trust, TIP Institutional Funds,
ARMADA Funds, The Expedition Funds and Oak Associates Funds.
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.
For the fiscal year ended July 31, 1998 for its services as
administrator and expenses assumed pursuant to the Administration Agreement, the
Administrator received the following fees: $669,261 from the Growth Fund (an
additional $85,839 in fees were voluntarily
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reduced); $847,789 from the Income Equity Fund (an additional $94,199 in fees
were voluntarily reduced); $767,123 from the Balanced Fund (an additional
$100,424 in fees were voluntarily reduced); $1,185,633 from the Value Momentum
Fund (an additional $131,737 in fees were voluntarily reduced); $204,032 from
the Blue Chip Growth Fund (an additional $22,670 in fees were voluntarily
reduced); $129,931 from the Emerging Growth Fund (an additional $14,437 in fees
were voluntarily reduced); $119,187 from the International Equity Fund (an
additional $13,243 in fees were voluntarily reduced); $213,585 from the Bond
Fund (an additional $23,732 in fees were voluntarily reduced); $310,986 from the
Intermediate-Term Bond Fund (an additional $34,554 in fees were voluntarily
reduced); $144,998 from the Government Securities Fund (an additional $16,111 in
fees were voluntarily reduced); $52,902 from the Convertible Securities Fund (an
additional $5,878 in fees were voluntarily reduced); $117,410 from the
California Intermediate Tax-Free Bond Fund (an additional $15,796 in fees were
voluntarily reduced); $3,750,316 from the Diversified Money Market Fund (an
additional $416,702 in fees were voluntarily reduced); $543,971 from the U.S.
Government Money Market Fund (an additional $60,441 in fees were voluntarily
reduced); $1,715,929 from the 100% U.S. Treasury Money Market Fund (an
additional $190,659 in fees were voluntarily reduced); and $832,681 from the
California Tax-Free Money Market Fund (an additional $92,520 in fees were
voluntarily reduced).
For the fiscal year ended July 31, 1997, for its services as
administrator and expenses assumed pursuant to the Administration Agreement, the
Administrator received the following fees: $204,315 from the Growth Fund (an
additional $22,032 in fees were voluntarily reduced); $605,282 from the Income
Equity Fund (an additional $17,907 in fees were voluntarily reduced); $255,346
from the Balanced Fund (an additional $29,410 in fees were voluntarily reduced);
$298,886 from the Value Momentum Fund (an additional $22,063 in fees were
voluntarily reduced); $65,190 from the Blue Chip Growth Fund (an additional
$4,683 in fees were voluntarily reduced); $44,080 from the Emerging Growth Fund
(an additional $3,159 in fees were voluntarily reduced); $36,978 from the
International Equity Fund (an additional $3,072 in fees were voluntarily
reduced); $101,712 from the Bond Fund (an additional $25,352 in fees were
voluntarily reduced); $118,137 from the Intermediate-Term Bond Fund (an
additional $8,143 in fees were voluntarily reduced); $41,994 from the Government
Securities Fund (an additional $2,987 in fees were voluntarily reduced); $17,347
from the Convertible Securities Fund (an additional $1,252 in fees were
voluntarily reduced); $11,833 from the California Intermediate Tax-Free Bond
Fund (an additional $2,604 in fees were voluntarily reduced); $1,141,740 from
the Diversified Money Market Fund (an additional $88,254 in fees were
voluntarily reduced); $439,141 from the U.S. Government Money Market Fund (an
additional $14,294 in fees were voluntarily reduced); $815,457 from the 100%
U.S. Treasury Money Market Fund (an additional $45,215 in fees were voluntarily
reduced); and $207,633 from the California Tax-Free Money Market Fund (an
additional $15,291 in fees were voluntarily reduced).
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For the fiscal year ended January 31, 1997, the Administrator received
the following fees: $342,000 from the Balanced Fund; $336,000 from the Value
Momentum Fund; $92,000 from the Blue Chip Growth Fund; $67,000 from the Emerging
Growth Fund; $60,000 from the International Equity Fund; $179,000 from the
Intermediate-Term Bond Fund; $61,000 from the Government Securities Fund;
$24,000 from the Convertible Securities Fund; $13,000 from the California
Intermediate Tax-Free Bond Fund; $1,163,000 from the HighMark Diversified Money
Market Fund; and $164,00 from the California Tax-Free Money Market Fund.
Through the fiscal year ended July 31, 1996 BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services ("BISYS Fund Services") served as HighMark
Funds' administrator. For its services as administrator and expenses assumed
pursuant to the administration agreement between BISYS Fund Services and
HighMark Funds, BISYS Fund Services received a fee from each Fund as described
in that Fund's Prospectus. For the fiscal year ended July 31, 1996, BISYS Fund
Services earned the following administration fees: $72,337 from the Growth Fund;
$520,671 from the Income Equity Fund; $80,226 from the Bond Fund (an additional
$43,205 in fees were voluntarily reduced); $472,171 from the U.S. Government
Money Market Fund; and $601,680 from the 100% U.S. Treasury Money Market Fund.
For the fiscal year ended January 31, 1996, the Administrator received
the following fees: $276,935 from the Balanced Fund; $261,423 from the Value
Momentum Fund; $288,983 from the Blue Chip Growth Fund; $42,746 from the
Emerging Growth Fund; $54,149 from the International Equity Fund; $173,915 from
the Intermediate-Term Bond Fund; $49,832 from the Government Securities Fund;
$17,197 from the Convertible Securities Fund; $17,405 from the California
Intermediate Tax-Free Bond Fund; $895,102 from the HighMark Diversified Money
Market Fund; and $157,204 from the California Tax-Free Money Market Fund.
The Administration Agreement became effective on February 15, 1997,
unless sooner terminated as provided in the Administration Agreement (and as
described below), the Administration Agreement, as amended, will continue in
effect until July 31, 1999. The Administration Agreement thereafter shall be
renewed automatically for successive annual terms. The Administration Agreement
is terminable at any time with respect to a particular Fund or HighMark Funds 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 Funds 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
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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 Funds for
all acts of the subcontractor as if such acts were its own, except for losses
suffered by any Fund resulting from willful misfeasance, bad faith or gross
negligence by the subcontractor in the performance of its duties or for reckless
disregard by it of its obligations and duties. Pursuant to a sub-administration
agreement between the Administrator and Union Bank of California, N.A., Union
Bank of California, N.A. will perform services which may include clerical,
bookkeeping, accounting, stenographic and administrative services, for which it
will receive a fee, paid by the Administrator, at the annual rate of up to 0.05%
of each Fund's average daily net assets.
SHAREHOLDER SERVICES PLANS
HighMark Funds 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 a Fund is authorized to pay compensation
to financial institutions (each a "Service Provider"), which may include Bank of
Tokyo-Mitsubishi, Ltd., Union Bank of California, N.A., or their respective
affiliates, that agree to provide certain shareholder support services for their
customers or account holders (collectively, "customers") who are the beneficial
or record owners of Shares of a Fund. In consideration for such services, a
Service Provider is compensated by a Fund at a maximum annual rate of up to
0.25% of the average daily net asset value of Shares of a Fund, pursuant to each
plan.
The servicing agreements adopted under the Services Plans (the
"Servicing Agreements") require the Service Provider receiving such compensation
to perform certain shareholder support services as set forth in the Servicing
Agreements with respect to the beneficial or record owners of Shares of a Fund.
As authorized by the Services Plans, HighMark Funds 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 the Funds. Such shareholder support
services may include, but are not limited to, (i) maintaining Shareholder
accounts; (ii) providing information periodically to Shareholders showing their
positions in Shares; (iii) arranging for bank wires; (iv) responding to
Shareholder inquiries relating to the services performed by the Service
Provider; (v) responding to inquiries from Shareholders concerning their
investments in Shares; (vi) forwarding Shareholder communications from HighMark
Funds (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
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such orders with HighMark Funds 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 Funds on behalf of
the Shareholders; and (xi) providing such other similar services as HighMark
Funds may reasonably request to the extent that the service provider is
permitted to do so under applicable laws or regulations.
EXPENSES
HighMark Funds' service providers bear all expenses in connection with
the performance of their respective services, except that each Fund will bear
the following expenses relating to its operations: taxes, interest, brokerage
fees and commissions, if any, fees and travel expenses of Trustees who are not
partners, officers, directors, shareholders or employees of HighMark Capital
Management, Inc., Union Bank of California, SEI Investments Mutual Funds
Services 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 Funds, 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 Funds pursuant to a distribution
agreement dated February 15, 1997 between HighMark Funds and the Distributor for
the Fiduciary Class and Class A Shares, and pursuant to a distribution agreement
dated June 18, 1997 between HighMark Funds 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 Funds' Board of Trustees or by the vote of a majority
of the outstanding Shares of HighMark Funds, and (ii) by the vote of a majority
of the Trustees of HighMark Funds who are not parties to the Distribution
Agreements or interested persons (as defined in the 1940 Act) of any party to
the Distribution Agreements, cast in person at a meeting called for the purpose
of voting on such approval. The Distribution Agreements are terminable without
penalty, on not less than sixty days' notice by HighMark Funds' Board of
Trustees, by vote of a majority of the outstanding voting securities of HighMark
Funds or by the Distributor. The Distribution Agreements terminate in the event
of their assignment, as defined in the 1940 Act.
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The Distribution Plans. The operation of the Distribution Plans, the
0.25% fee payable under HighMark Funds' Distribution Plans to which the Class A
Shares of the Funds are presently subject and the 0.75% fee to which the Class B
Shares are presently subject are described in each such Fund's Prospectus under
"SERVICE ARRANGEMENTS -The Distribution Plans." For the fiscal year ended July
31, 1998, the Distributor received in respect of the sale of Class A Shares
distribution fees of: $26,261 from the Growth Fund; $46,119 from the Income
Equity Fund; $24,891 from the Balanced Fund; $72,706 from the Value Momentum
Fund; $2,480,819 from the Diversified Money Market Fund; $171,678 from the U.S.
Government Money Market Fund; $1,720,731 from the 100% U.S. Treasury Money
Market Fund; and $651,837 from the California Tax-Free Money Market Fund. For
the fiscal year ended July 31, 1998, the Distributor received in respect of the
sale of Class B Shares distribution fees of: $1 from the U.S. Government Money
Market Fund; $3,364 from the Income Equity Fund; $10,778 from the Value Momentum
Fund; $3,192 from the Growth Fund; and $1,282 from the Balanced Fund.
In accordance with Rule 12b-1 under the 1940 Act, the Distribution
Plans may be terminated with respect to any Fund by a vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding Class A or
Class B Shares of that Fund. The Distribution Plans may be amended by vote of
HighMark Funds' Board of Trustees, including a majority of the Independent
Trustees, cast in person at a meeting called for such purpose, except that any
change in a Distribution Plan that would materially increase the distribution
fee with respect to a Fund requires the approval of that Fund's Retail
Shareholders. HighMark Funds' Board of Trustees will review on a quarterly and
annual basis written reports of the amounts received and expended under the
Distribution Plans (including amounts expended by the Distributor to
Participating Organizations pursuant to the Servicing Agreements entered into
under the Distribution Plans) indicating the purposes for which such
expenditures were made.
Each Distribution Plan provides that it will continue in effect with
respect to each Fund for successive one-year periods, provided that each such
continuance is specifically approved (i) by the vote of a majority of the
Independent Trustees and (ii) by the vote of the entire Board of Trustees, cast
in person at a meeting called for such purpose. For so long as each of the
Distribution Plans remains in effect, the selection and nomination of those
trustees who are not interested persons of HighMark Funds (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 Funds pursuant to a transfer agency and shareholder service agreement
with HighMark Funds dated as of February 15, 1997 (the "Transfer Agency
Agreement"). As each Fund's transfer agent, State Street Bank and Trust Company
processes purchases and redemptions of each Fund's Shares and maintains each
Fund's Shareholder transfer and accounting records, such as
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the history of purchases, redemptions, dividend distributions, and similar
transactions in a Shareholders's account.
Under the Transfer Agency Agreement, HighMark Funds has agreed to pay
State Street Bank and Trust Company annual fees at the rate of $18,000 per
Retail class/per Fund. The Distributor has agreed to pay State Street Bank and
Trust Company annual fees at the rate of $15,000 per Fiduciary class/per Fund.
In addition, there will be an annual account maintenance fee of $25.00 per
account and IRA Custodial fees totaling $15.00 per account, as well as
out-of-pocket expenses as defined in the Transfer Agency Agreement. HighMark
Funds intends to charge transfer agency fees across the HighMark Funds as a
whole. State Street Bank and Trust Company may periodically voluntarily reduce
all or a portion of its transfer agency fee with respect to a Fund to increase
the Fund's net income available for distribution as dividends.
Union Bank of California, N.A. serves as custodian to the Funds
pursuant to a custodian agreement with HighMark Funds dated as of December 23,
1991, as amended (the "Custodian Agreement"). Under the Custodian Agreement,
Union Bank of California's responsibilities include safeguarding and controlling
each Fund's cash and securities, handling the receipt and delivery of
securities, and collecting interest and dividends on each Fund's investments.
Under the Custodian Agreement, HighMark Funds has agreed to pay Union
Bank of California a domestic custodian fee with respect to each Fund at an
annual rate of .01% of the Fund's average daily net assets, with an annual
minimum fee of $2,500 per Fund, plus certain transaction fees. Union Bank of
California is also entitled to be reimbursed by HighMark Funds for its
reasonable out-of-pocket expenses incurred in the performance of its duties
under the Custodian Agreement. Global custody fees shall be determined on a
transaction basis. Union Bank of California may periodically voluntarily reduce
all or a portion of its custodian fee with respect to a Fund to increase the
Fund's net income available for distribution as dividends.
AUDITORS
The financial statements of HighMark Funds for the period ended July
31, 1998, incorporated by reference into this Statement of Additional
Information have been audited by Deloitte & Touche LLP, independent accountants,
as set forth in their report also incorporated by reference into this Statement
of Additional Information, and are included in reliance upon such report and on
the authority of such firm as experts in auditing and accounting.
LEGAL COUNSEL
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Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800 East,
Washington, D.C. 20005, are counsel to HighMark Funds and will pass upon the
legality of the Shares offered hereby.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES
HighMark Funds is a Massachusetts business trust. HighMark Funds'
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
Funds' Declaration of Trust, as amended, further authorizes the Board of
Trustees to establish one or more series of Shares of HighMark Funds, and to
classify or reclassify the Shares of any series into one or more classes by
setting or changing in any one or more respects the preferences, designations,
conversion or other rights, restrictions, limitations as to dividends,
conditions of redemption, qualifications or other terms applicable to the Shares
of such class, subject to those matters expressly provided for in the
Declaration of Trust, as amended, with respect to the Shares of each series of
HighMark Funds. HighMark Funds 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 Small Cap Value Fund,
the Bond Fund, the Intermediate-Term Bond Fund, the Government Securities Fund,
the Convertible Securities Fund, the California Intermediate Tax-Free Bond Fund,
the Diversified Money Market Fund, the U.S. Government Money Market Fund, the
100% U.S. Treasury Money Market Fund, and the California Tax-Free Money Market
Fund. As described in the Prospectuses, selected Funds have been divided into
three classes of Shares, designated Class A and Class B Shares (collectively,
"Retail Shares") and Fiduciary Shares.
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 Funds' Shares will be fully paid
and non-assessable. In the event of a liquidation or dissolution of HighMark
Funds, Shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund that are available for distribution. Upon
liquidation or dissolution of HighMark Funds, Retail and Fiduciary shareholders
are entitled to receive the net assets of the Fund attributable to each class.
As used in the Prospectuses and in this Statement of Additional
Information, "assets belonging to a Fund" means the consideration received by
HighMark Funds upon the issuance
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or sale of Shares in that Fund, together with all income, earnings, profits, and
proceeds derived from the investment thereof, including any proceeds from the
sale, exchange, or liquidation of such investments, and any funds or payments
derived from any reinvestment of such proceeds, and any general assets of
HighMark Funds not readily identified as belonging to a particular Fund that are
allocated to that Fund by HighMark Funds' 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 Funds 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 Funds to particular Funds will be
determined by the Board of Trustees and will be in accordance with generally
accepted accounting principles. Determinations by the Board of Trustees as to
the timing of the allocation of general liabilities and expenses and as to the
timing and allocable portion of any general assets with respect to a particular
Fund are conclusive.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as HighMark Funds shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
Shares of each Fund affected by the matter. For purposes of determining whether
the approval of a majority of the outstanding Shares of a Fund will be required
in connection with a matter, a Fund will be deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are identical,
or that the matter does not affect any interest of the Fund.
Under Rule 18f-2, the approval of an investment advisory agreement or
any change in fundamental investment policy would be effectively acted upon with
respect to a Fund only if approved by a majority of the outstanding Shares of
such Fund. However, Rule 18f-2 also provides that the ratification of
independent public accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
Shareholders of HighMark Funds voting without regard to series.
Although not governed by Rule 18f-2, Retail Shares of a Fund have
exclusive voting rights with respect to matters pertaining to the Fund's
Distribution Plan.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, holders of units of interest in a business
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. However, HighMark Funds' Declaration of Trust,
as amended, provides that Shareholders shall not be subject to any personal
liability for the obligations of HighMark Funds, and that
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every written agreement, obligation, instrument, or undertaking made by HighMark
Funds 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 Funds shall, upon
request, assume the defense of any claim made against any Shareholder for any
act or obligation of HighMark Funds, 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 Funds itself
would be unable to meet its obligations.
The Declaration of Trust, as amended, states further that no Trustee,
officer, or agent of HighMark Funds shall be personally liable in connection
with the administration or preservation of the assets of the trust or the
conduct of HighMark Funds' 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 Funds shall look solely to the
assets of the trust for payment.
THE REORGANIZATION OF THE IRA FUND AND HIGHMARK FUNDS
As of June 23, 1988, pursuant to an Agreement and Plan of
Reorganization between the IRA Fund, HighMark Funds, and the Bank of California,
substantially all of the assets of the IRA Fund's Income Equity Portfolio, and
Bond Portfolio were transferred to HighMark Funds' Income Equity Fund, and Bond
Fund, respectively, in exchange for such Fund's Shares, and substantially all of
the assets of the IRA Fund's Short Term Portfolio were transferred to one or
more of HighMark Funds' Money Market Funds in exchange for Shares of such Money
Market Fund or Funds. Prior to June 23, 1988, the aggregate total return and
average annual total return of the Bond Fund and Income Equity Fund reflect the
aggregate total return and average annual total return of the IRA Fund Bond
Portfolio and the IRA Fund Income Equity Portfolio, respectively. The IRA Fund
Bond Portfolio and the IRA Fund Income Equity Portfolio both received investment
advice from the same division of the Bank of California subsequently known as
Pacific Alliance Capital Management and eventually reorganized as HighMark
Capital Management, Inc. and had investment objectives, policies and
restrictions substantially similar to those of the Bond Fund and the Income
Equity Fund, respectively. However, potential investors should be aware that
both the nature and amount of fees and expenses of the IRA Fund Bond Portfolio
and the Bond Fund and those of the IRA Fund Income Equity Portfolio and the
Income Equity Fund differ.
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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 the 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 the
Funds and the Advisor. Various mutual fund or market indices may also serve as a
basis for comparison of the performance of the 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 Funds' 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 the Funds.
From time to time, the Funds may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of compounding and the benefits of dollar-cost averaging); (2)
discussions of general economic trends; (3) presentations of statistical data to
supplement such discussions; (4) descriptions of past or anticipated portfolio
holdings for one or more of the Funds within HighMark Funds; (5) descriptions of
investment strategies for one or more of the Funds; (6) descriptions or
comparisons of various savings and investment products (including, but not
limited to, insured bank products, annuities, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant market or
industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) testimonials
describing the experience of persons that have invested in one or more of the
Funds. The Funds may also include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results in such communications.
Such performance examples will be based on an express set of assumptions and are
not indicative of the performance of any of the Funds. In addition, the
California Tax- Free Fund may include charts comparing various tax-free yields
versus taxable yield equivalents at different income levels.
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Based on the seven-day period ended July 31, 1998 (the "base period"
for the Diversified Money Market Fund, the U.S. Government Money Market Fund,
the 100% U.S. Treasury Money Market Fund, and the California Tax-Free Money
Market Fund), the yield of the Diversified Money Market Fund's Class A Shares
and Fiduciary Shares was 4.91% and 5.15%, respectively, and the effective yield
of the Fund's Class A Shares and Fiduciary Shares was 5.03% and 5.29%,
respectively; the yield of the U.S. Government Money Market Fund's Class A
Shares, Class B Shares and Fiduciary Shares was 4.76%, 4.32% and 5.01%,
respectively, and the effective yield of the Fund's Class A Shares, Class B
Shares and Fiduciary Shares was 4.88%, 4.42% and 5.14%, respectively; the yield
of the 100% U.S. Treasury Money Market Fund's Class A Shares and Fiduciary
Shares was 4.57% and 4.82% respectively, and the effective yield of the Fund's
Class A Shares and Fiduciary Shares was 4.67% and 4.93% respectively; and the
yield of the California Tax-Free Money Market Fund's Class A Shares and
Fiduciary Shares was 2.71% and 2.96% respectively, and the effective yield of
the Fund's Class A Shares and Fiduciary Shares was 2.74% and 3.00%,
respectively. The yield of each Fund's Class A Shares and Fiduciary Shares,
respectively, was computed by determining the percentage net change, excluding
capital changes, in the value of an investment in one Share of the Class over
the base period, and multiplying the net change by 365/7 (or approximately 52
weeks). The effective yield of each Fund's Class A Shares, Class B Shares and
Fiduciary Shares, respectively, represents a compounding of the yield of the
Class by adding 1 to the number representing the percentage change in value of
the investment during the base period, raising that sum to a power equal to
365/7, and subtracting 1 from the result.
Based on the thirty-day period ended July 31, 1998, the yield of the
Diversified Money Market Fund's Class A Shares and Fiduciary Shares was 4.88%
and 5.12% respectively, and the effective yield of the Fund's Class A Shares and
Fiduciary Shares was 5.00% and 5.26%, respectively; the yield of the U.S.
Government Money Market Fund's Class A Shares, Class B Shares and Fiduciary
Shares was 4.76%, 4.32% and 5.00%, respectively, and the effective yield of the
Fund's Class A Shares, Class B Shares and Fiduciary Shares was 4.87%, 4.42% and
5.13%, respectively; the yield of the 100% U.S. Treasury Money Market Fund's
Class A Shares and Fiduciary Shares was 4.55% and 4.80%, respectively, and the
effective yield of the Fund's Class A Shares and Fiduciary Shares was 4.65% and
4.92%, respectively; and the yield of the California Tax-Free Money Market
Fund's Class A Shares and Fiduciary Shares was 2.49% and 2.73%, respectively,
and the effective yield of the Fund's Class A Shares and Fiduciary Shares was
2.51% and 2.77%, respectively. The yield of each Fund's Class A Shares, Class B
Shares and Fiduciary Shares, respectively, was computed by determining the
percentage net change, excluding capital changes, in the value of an investment
in one Share of the Class over the thirty-day period, and multiplying the net
change by 365/30 (or approximately twelve months). The effective yield of each
Fund's Class A Shares, Class B Shares and Fiduciary Shares, respectively,
represents a compounding of the yield of the Class by adding 1 to the number
representing the percentage change in value of the investment during the
thirty-day period, raising that sum to a power equal to 365/30, and subtracting
1 from the result.
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Based on the seven-day period ended July 31, 1998, the tax-equivalent
yield of the California Tax-Free Money Market Fund's Class A Shares and
Fiduciary Shares was 4.49% and 4.90% respectively (using a federal income tax
rate of 39.6%), and 5.49% and 5.99% respectively (using a federal income tax
rate of 39.6% and a California personal income tax rate of 11%), and the
tax-equivalent effective yield of the Fund's Class A Shares and Fiduciary Shares
was 4.54% and 4.97%, respectively (using a federal income tax rate of 39.6%),
and 5.55% and 6.07%, respectively (using a federal income tax rate of 39.6% and
a California personal income tax rate of 11%).
Based on the thirty-day period ended July 31, 1998, the tax-equivalent
yield of the California Tax-Free Money Market Fund's Class A Shares and
Fiduciary Shares was 4.12% and 4.52%, respectively (using a federal income tax
rate of 39.6%), and 5.04% and 5.53%, respectively (using a federal income tax
rate of 39.6% and a California personal income tax rate of 11%), and the
tax-equivalent effective yield of the Fund's Class A Shares and Fiduciary Shares
was 4.16% and 4.59%, respectively (using a federal income tax rate of 39.6%),
and 5.08% and 5.61%, respectively (using a federal income tax rate of 39.6% and
a California personal income tax rate of 11%).
The tax-equivalent yield of the Class A Shares and Fiduciary Shares,
respectively, of the California Tax-Free Fund was computed by dividing that
portion of the yield of the Class that is tax-exempt by 1 minus the stated
income tax rate (or rates) and adding the product to that portion, if any, of
the yield of the Class that is not tax-exempt. The tax-equivalent effective
yield of the Fund's Class A Shares and Fiduciary Shares, respectively, was
computed by dividing that portion of the effective yield of the Class which is
tax-exempt by 1 minus the stated income tax rate (or rates) and adding to that
portion, if any, of the effective yield of the Class that is not tax-exempt.
For the year ended July 31, 1998, the one-year average annual total
return of the Diversified Money Market Fund's Class A and Fiduciary Shares was
5.01% and 5.27%, respectively; of the U.S. Government Money Market Fund's
Class A and Fiduciary Shares was 4.90% and 5.16%, respectively; of the 100%
U.S. Treasury Money Market Fund's Class A and Fiduciary Shares was 4.75% and
5.02%, respectively; and of the California Tax-Free Money Market Fund's Class A
and Fiduciary Shares was 2.89% and 3.14%, respectively.
For the period ended July 31, 1998, the five-year average annual total
return of the Diversified Money Market Fund's Class A and Fiduciary Shares was
4.54% and 4.78%, respectively; of the U.S. Government Money Market Fund's Class
A and Fiduciary Shares was 4.41% and 4.48%, respectively; of the 100% U.S.
Treasury Money Market Fund's Class A and Fiduciary Shares was 4.29% and 4.35%,
respectively; and of the California Tax-Free Money Market Fund's Class A and
Fiduciary Shares was 2.72% and 3.04%, respectively.
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<PAGE> 339
For the period since commencement of operations of each class of
shares of the Funds through July 31, 1998, the average annual total return of
the Diversified Money Market Fund's Class A Shares (class inception on May 28,
1991) and Fiduciary Shares (commencement of operations on February 2, 1991) was
4.33% and 4.65%, respectively; of the U.S. Government Money Market Fund's Class
A Shares (class inception on December 1, 1990), Class B Shares (class inception
on February 2, 1998) and Fiduciary Shares (commencement of operations on August
10, 1987) was 5.35%, 5.35% (annualized) and 5.36%, respectively; of the 100%
U.S. Treasury Money Market Fund's Class A Shares (class inception on December
1, 1990) and Fiduciary Shares (commencement of operations on August 10, 1987)
was 5.26% and 5.29%, respectively; and of the California Tax-Free Money Market
Fund's Class A Shares (class inception on June 25, 1991) and Fiduciary Shares
(commencement of operations on June 10, 1991) was 2.66% and 2.98%, respectively.
Prior to June 23, 1988 (the date on which the Income Equity Fund and
the Bond Fund commenced operations as a result of the reorganization involving
the IRA Fund Income Equity Portfolio and the IRA Fund Bond Portfolio,
respectively, as described under "ADDITIONAL INFORMATION - The Reorganization of
the IRA Fund and HighMark Funds" above), the total return and average annual
total return of the Income Equity Fund and the Bond Fund reflects the total
return and average annual total return of the IRA Fund Income Equity Portfolio,
and the IRA Fund Bond Portfolio, respectively. Each IRA Fund Portfolio received
investment advice from the same division of the Bank of California subsequently
known as Pacific Alliance Capital Management and then reorganized as HighMark
Capital Management, Inc, and had substantially similar investment objectives,
policies, and restrictions of the Fund into which it was reorganized. However,
potential investors in the Income Equity Fund, and the Bond Fund should be aware
that both the nature and amount of fees and expenses of the IRA Fund Income
Equity Portfolio, and the IRA Fund Bond Portfolio differ from the Fund into
which the respective IRA Fund Portfolios were reorganized. See "Management of
HighMark Funds - Investment Advisor" and the Statements of Operations in the
Financial Statements with respect to the Income Equity Fund, and the Bond Fund
and the IRA Fund Income Equity Portfolio, and the IRA Fund Bond Portfolio for
the applicable period ended July 31, 1989 and June 22, 1988 contained in this
Statement of Additional Information.
The performance figures relating to the Class A Shares and Class B
Shares reflect the sales charge and distribution fees to which each Class is
subject. Because only Class A Shares and Class B Shares bear the expense of the
fee, if any, under the Distribution Plan and a sales charge, total return and
yield relating to a Fund's Class A Shares and Class B Shares will be lower than
that relating to the Funds' Fiduciary Shares.
With respect to Fiduciary Shares, for the one-year period ended July
31, 1998, average annual total returns were as follows: for the Income Equity --
10.79%, Value Momentum -- 9.22%, Growth -- 22.59%, Emerging Growth -- 3.37%,
Blue Chip Growth -- 8.67%, Balanced -- 7.31%, International Equity -- (0.82)%,
Convertible Securities -- 3.02%, Government Securities -- 7.08%,
Intermediate-Term Bond -- 6.37%, Bond -- 7.41% and California Intermediate
Tax-Free Bond Funds -- 4.75%.
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<PAGE> 340
With respect to Class A Shares, for the one-year period ended July 31,
1998, average annual total returns (with maximum sales load) were as follows:
for the Income Equity -- 5.53%, Value Momentum -- 4.06%, Growth -- 16.76%,
Balanced -- 2.27%, Intermediate- Term Bond -- 3.17%, Bond -- 4.22% and
California Intermediate Tax-Free Bond Funds -- 1.51%. For the same period,
average annual total returns (without sales load) were as follows: for the
Income Equity -- 10.50%, Value Momentum -- 8.96%, Growth -- 22.26%, Balanced --
7.12%, Intermediate-Term Bond -- 6.38%, Bond -- 7.47%, California Intermediate
Tax-Free Bond Funds -- 4.66%.
With respect to Fiduciary Shares, for the five year period through July
31, 1998, average annual total returns were as follows: for the Income Equity --
17.54%, Value Momentum -- 19.73%, Balanced -- 13.75%, Intermediate-Term Bond --
5.52% and Bond Funds -- 5.70%.
With respect to Class A Shares, for the five year period through July
31, 1998, average annual total returns (with maximum sales load) were as
follows: for the Value Momentum -- 18.48%, Balanced -- 12.56% and
Intermediate-Term Bond Funds -- 4.87%. For the same period, average annual total
returns (without sales load) were as follows: for the Value Momentum -- 19.57%,
Balanced -- 13.59% and Intermediate-Term Bond -- 5.50%.
With respect to Fiduciary Shares, for the ten year period through July
31, 1998, average annual total returns were as follows: for the Income Equity --
15.12% and Bond Funds -- 8.17%.
With respect to Fiduciary Shares, for the period since commencement of
operations of each of the Funds through July 31, 1998, average annual total
returns were as follows: for the Income Equity -- 15.88% (commencement of
operations on February 9, 1984), Value Momentum -- 18.12% (commencement of
operations on February 1, 1991), Growth -- 21.76% (commencement of operations on
November 18, 1993), Emerging Growth -- 12.11% (commencement of operations on
February 1, 1994), Blue Chip Growth -- 17.92% (commencement of operations on
February 1, 1994), Balanced -- 13.21% (commencement of operations on February 1,
1991), International Equity -- 6.24% (commencement of operations on February 1,
1995), Convertible Securities -- 9.26% (commencement of operations on February
1, 1994), Government Securities -- 5.14% (commencement of operations on February
1, 1994), Intermediate-Term Bond -- 7.63% (commencement of operations on
February 1, 1991), Bond -- 9.34% (commencement of operations on February 15,
1984) and California Intermediate Tax-Free Bond Funds -- 4.84% (commencement of
operations on October 15, 1993).
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<PAGE> 341
With respect to Class A Shares, for the period since commencement of
operations of each of the Funds through July 31, 1998, average annual total
returns (with maximum sales load) were as follows: for the Income Equity --
19.38% (class inception on June 20, 1994), Value Momentum -- 17.49% (class
inception on April 2, 1994), Growth -- 24.46% (class inception on June 20,
1994), Balanced -- 12.51% (class inception on November 13, 1992),
Intermediate-Term Bond -- 6.18% (class inception on February 3, 1992), Bond --
7.12% (class inception on June 20, 1994) and California Intermediate Tax-Free
Bond Funds -- 4.12% (class inception on October 15, 1993). For the same period,
average annual total returns (without sales load) were as follows: for the
Income Equity -- 20.73%, Value Momentum -- 18.34%, Growth -- 25.87%, Balanced --
13.42%, Intermediate-Term Bond -- 6.67%, Bond -- 7.91% and California
Intermediate Tax-Free Bond Funds -- 4.78%.
With respect to Class B Shares, for the period since commencement of
operations (class inception on February 2, 1998) of each of the Funds through
July 31, 1998, average annual total returns (annualized), with maximum sales
load, were as follows: for the Income Equity -- 8.10%, Value Momentum --
(1.06)%, Growth -- 23.71% and Balanced Funds -- (0.68)%. For the same period,
average annual total returns, without sales load, were as follows: for the
Income Equity -- 13.10%, Value Momentum -- 3.94%, Growth -- 28.71% and Balanced
Funds -- 11.32%.
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<PAGE> 342
Each Fund's respective average annual total return and/or aggregate
total return was calculated by determining the change in the value of a
hypothetical $1,000 investment in the Fund over the applicable period
(utilizing, when appropriate, performance information from the applicable IRA
Fund Portfolio prior to June 23, 1988) that would equate the initial amount
invested to the ending redeemable value of the investment; in the case of the
average annual total return, this amount (representing the Fund's total return)
was then averaged over the relevant number of years. The ending redeemable value
includes dividends and capital gain distributions reinvested at net asset value.
The resulting percentages indicate the positive or negative investment results
that an investor would have experienced from changes in Share price and
reinvestment of dividends and capital gains distributions.
For the thirty-day period ended July 31, 1998, the yield for the Class
A, Class B and Fiduciary Shares of the Growth Fund was 0%, 0% and 0%,
respectively; for the Class A, Class B and Fiduciary Shares of the Income Equity
Fund was 1.00%, 0.41% and 1.34%, respectively; for the Class A, Class B and
Fiduciary Shares of the Balanced Fund was 2.25%, 1.75% and 2.61%, respectively;
for the Class A, Class B and Fiduciary Shares of the Value Momentum Fund was
0.89%, 0.18% and 1.19%, respectively; for the Fiduciary Shares of the Emerging
Growth Fund was 0.29%, respectively; for the Class A and Fiduciary Shares of the
Intermediate-Term Bond Fund was 5.30% and 5.47%, respectively; for the Class A
and Fiduciary Shares of the California Intermediate Tax-Free Bond Fund was 3.83%
and 3.95%, respectively; for the Class A and Fiduciary Shares of the Bond Fund
was 5.48% and 5.68%, respectively; for the Fiduciary Shares of the Blue Chip
Growth Fund was 0.14%; for the Fiduciary Shares of the International Equity Fund
was 0%; for the Fiduciary Shares of the Convertible Securities Fund was 2.89%;
and for the Government Securities Fund was 5.02%. The Fund's "yield" (referred
to as "standardized yield") for a given 30-day period for a class of shares is
calculated using the following formula set forth in rules adopted by the
Commission that apply to all funds that quote yields:
Standardized Yield = 2 [(a-b + 1)(6) - 1]
---
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares of that class outstanding during
the 30-day period that were entitled to receive dividends.
d = the maximum offering price per share of the class on the last day of
the period, adjusted for undistributed net investment income.
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<PAGE> 343
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.
All performance information presented is based on past performance and
does not predict future performance.
MISCELLANEOUS
Prior to April 28, 1997, the California Tax-Free Money Market Fund, the
HighMark Value Momentum Fund, the Blue Chip Growth Fund, the Emerging Growth
Fund, the International Equity Fund, the Intermediate-Term Bond Fund, the
Government Securities Fund, and the California Intermediate Tax-Free Bond Fund
and, prior to May 1, 1997, the Convertible Securities Fund did not yet operate
as HighMark Funds. Prior to operating as HighMark Funds, each Fund had a fiscal
year end of January 31 (rather than July 31). Most of the financial and
investment information (e.g., fees paid to service providers and portfolio
turnover) presented in this Statement of Additional Information and in the
Prospectuses is based on a Fund's fiscal year end. Each of these Funds is the
accounting survivor of a
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<PAGE> 344
reorganization of two mutual funds. All fees paid by these Funds (or
sub-advisory fees paid with respect to these Funds) for a fiscal year end of
January 31 represent the fees paid by the accounting survivor prior to the
reorganization. As a result, for each of these Funds, and for the Diversified
Money Market Fund and the Balanced Fund, for the fiscal year ended July 31,
1997, the financial and investment information is provided for the period
February 1, 1997 through July 31, 1997. Therefore, for these Funds for each
prior fiscal year, the financial and investment information is provided for the
period February 1 through January 31.
For all of the other Funds information for a fiscal year is provided
for the period August 1 through July 31 (or such other shorter period if the
Fund began operations after August 1).
HighMark Funds is not required to hold meetings of Shareholders for the
purpose of electing Trustees except that (i) HighMark Funds is required to hold
a Shareholders' meeting for the election of Trustees at such time as less than a
majority of the Trustees holding office have been elected by Shareholders and
(ii) if, as a result of a vacancy on the Board of Trustees, less than two-thirds
of the Trustees holding office have been elected by the Shareholders, that
vacancy may be filled only by a vote of the Shareholders. In addition, Trustees
may be removed from office by a written consent signed by the holders of Shares
representing two-thirds of the outstanding Shares of HighMark Funds 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 Funds. Upon written request by the holders of
Shares representing 1% of the outstanding Shares of HighMark Funds 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 Funds 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 Funds 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 Funds.
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 1998 Annual Report to Shareholders of HighMark Funds is
incorporated herein by reference. This Report includes audited financial
statements for the fiscal year ended July 31, 1998. Upon the incorporation by
reference herein of such Annual Report, the opinion in such Annual Report of
independent accountants is incorporated herein by reference and such
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<PAGE> 345
Annual Report's financial statements are incorporated by reference herein in
reliance upon the authority of such accountants as experts in auditing and
accounting.
The Prospectuses and this Statement of Additional Information are not
an offering of the securities herein described in any state in which such
offering may not lawfully be made.
No salesperson, dealer, or other person is authorized to give any
information or make any representation other than those contained in the
Prospectuses and this Statement of Additional Information.
As of November 18, 1998, HighMark Funds believes that the trustees and
officers of HighMark Funds, as a group, owned less than one percent of the
Shares of any Fund of HighMark Funds. As of November 18, 1998, HighMark Funds
believes that Union Bank of California was the shareholder of record of 97.95%
of the Fiduciary Shares of the Growth Fund, 84.03% of the Fiduciary Shares of
the Income Equity Fund, 78.98% of the Fiduciary Shares of the Balanced Fund,
97.29% of the Fiduciary Shares of the Bond Fund, 99.69% of the Fiduciary Shares
of the Intermediate-Term Bond Fund, 94.99% of the Fiduciary Shares of the
California Intermediate Tax-Free Bond Fund, 8.59% of the Fiduciary Shares of the
Government Securities Fund, 17.61% of the Fiduciary Shares of the Convertible
Securities Fund, 84.76% of the Fiduciary Shares of the Value Momentum Fund,
39.68% of the Fiduciary Shares of the Blue Chip Growth Fund, 51.38% of the
Fiduciary Shares of the Emerging Growth Fund, 97.47% of the Fiduciary Shares of
the U.S. Government Money Market Fund, 97.16% of the Fiduciary Shares of the
Diversified Money Market Fund, 95.20% of the Fiduciary Shares of the 100% U.S.
Treasury Money Market Fund and 99.84% of the Fiduciary Shares of the California
Tax-Free Money Market Fund. As of November 18, 1998, HighMark Funds believes
that Bank of Tokyo Trust Company was the shareholder of record of 87.07% of the
Fiduciary Shares of the Government Securities Fund, 82.37% of the Fiduciary
Shares of the Convertible Securities Fund, 60.31% of the Fiduciary Shares of the
Blue Chip Growth Fund, and 48.26% of the Fiduciary Shares of the Emerging Growth
Fund.
As of November 18, 1998, HighMark Funds believes that Union Bank of
California had voting power with respect to 35.28% of the Growth Fund Fiduciary
Shares, 11.91% of the Income Equity Fund Fiduciary Shares, 11.85% of the
Balanced Fund Fiduciary Shares, 6.77% of the Bond Fund Fiduciary Shares, 19.13%
of the Value Momentum Fund Fiduciary Shares, and 57.14% of the International
Equity Fund Fiduciary Shares.
-81-
<PAGE> 346
The table below indicates each additional person known by HighMark
Funds to own of record or beneficially 5% or more of the Shares of the following
Funds of HighMark Funds as of November 18, 1998.
-82-
<PAGE> 347
5% OR MORE OWNERS
INCOME EQUITY FUND - CLASS A SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
The Kendall Jackson Fndtn. Inc. 5.48%
Wendy Petersen
421 Aviation Blvd.
Santa Rosa, CA 95403-1069
</TABLE>
INCOME EQUITY FUND - CLASS B SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Sergey Tikhomirov 6.03%
c/o Gary Dunn CPA
1690 West Shaw, Suite 210
Fresno, CA 93711-3516
</TABLE>
INCOME EQUITY FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Lane & Company 50.36%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
Union Bank 33.67%
Lane & Co. Reinvest
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>
<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
<S> <C>
Union Bank of California 401(k) Plan 11.91%
350 California Street
San Francisco, CA 94104
</TABLE>
VALUE MOMENTUM FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Mellon Bank NA Trustee for Dept. 10.41%
of Personnel Admin. of State of California
Attn: Wally Adebayo
One Cabot Road, Mail Zone 028-003I
Medford, MA 02155-5141
Lane & Company 84.76%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>
<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
<S> <C>
Union Bank of California Retirement Plan 9.79%
350 California Street
San Francisco, CA 94104
Union Bank of California 401(k) Plan 9.34%
350 California Street
San Francisco, CA 94104
</TABLE>
GROWTH FUND - CLASS A SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
The Kendall Jackson Fndtn. Inc. 6.16%
Wendy Petersen
421 Aviation Blvd.
Santa Rosa, CA 95403-1069
</TABLE>
GROWTH FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Lane & Company 97.95%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>
<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
<S> <C>
Union Bank of California Retirement Plan 17.78%
350 California Street
San Francisco, CA 94104
Union Bank of California 401(k) Plan 17.50%
350 California Street
San Francisco, CA 94104
</TABLE>
BALANCED FUND - CLASS A SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Ty Yeh 7.50%
Yeh Family Trust
U/A 9/11/91
2048 Studebaker Rd.
Long Beach, CA 90815-3539
</TABLE>
BALANCED FUND - CLASS B SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Union Bank of California Cust. 5.73%
IRA of Joji Yoshida
Rollover
5218 Carmen St.
Torrance, CA 90503-6318
</TABLE>
<PAGE> 348
BALANCED FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
American Express Trust Company 9.58%
As Agent for NBC Savings and Retirement Plan
Attn: Nancy Jendro Trust Operations
P.O. Box 534
Minneapolis, MN 55440-0534
PFTC. Trustee Nissan Empl. Sav. Pln. 5.20%
Putnam Investments DCPA
Nissan Motor Corporation
Location 31
P.O. Box 9740
Providence, RI 02940-9740
Lane & Company 78.98%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>
<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
<S> <C>
Nissan Motor Corp USA 5.20%
P.O. Box 191
Gardena, Ca 90248-0191
Nummi Savings Plan 9.32%
45500 Fremont Blvd.
Fremont, CA 94538
NEC America, Inc 9.58%
8 Old Sod Farm Road
Melville, NY 11747
Union Bank of California 401(k) Plan 11.85%
350 California Street
San Francisco, CA 94104
</TABLE>
SMALL CAP VALUE FUND - CLASS A SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Elizabeth Pearce 7.48%
135 Driftwood
Marina Del Ray, CA 90292-5734
Charles J. Bommarito 11.84%
1101 Chardonnay Way
Modesto, CA 95351-5113
Union Bank TTBE. 16.32%
IRA of Clark R. Gates
Rollover IRA
2090 Pacific Ave., #404
San Francisco, CA 94109-2248
Small Business Plan P.S. 41.11%
Union Bank of California TTBE.
Thomas J. Gram, Prof. Corp. P/Adm.
5800 Shellmound St., Suite 210
Emeryville, CA 94608-1931
Union Bank TTBE. 8.22%
IRA of Janice Anderson Gram
Rollover IRA
8 Venado Drive
Tiburon, CA 94920-1626
</TABLE>
SMALL CAP VALUE FUND - CLASS B SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Hayakawa Trust 31.43%
William N. Hayakawa
U/A 03/09/1995
4805 Terra Granada Dr., #1B
Walnut Creek, CA 94595-4088
David Benvenuti MD TTBE. 63.91%
The Ret. Tr. David Benvenuti MD Inc.
106 Linda Isle
Newport Beach, CA 92660-7210
</TABLE>
SMALL CAP VALUE FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Lane & Company 99.27%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>
<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
<S> <C>
Union Bank of California Retirement Plan 99.02%
350 California Street
San Francisco, CA 94104
</TABLE>
EMERGING GROWTH FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
BOTT Pension 48.26%
c/o Bank of Tokyo Trust Company
Attn: Dennis Demetropoulos
1251 Avenue of the Americas, Fl. 10
New York, NY 10020-1104
Lane & Company 51.38%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>
<PAGE> 349
BLUE CHIP GROWTH FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
BOTT Pension 60.31%
c/o Bank of Tokyo Trust Company
Attn: Dennis Demetropoulos
1251 Avenue of the Americas, Fl. 10
New York, NY 10020-1104
Lane & Company 39.68%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>
<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
<S> <C>
TDK USA Pension Plan 6.43%
12 Harbor Park Drive
Port Washington, NY 11050
BTM U.S. Agency Retirement Plan 15.91%
1251 Avenue of the Americas
New York, NY 11020
</TABLE>
CONVERTIBLE SECURITIES FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
BOTT Pension 82.37%
c/o Bank of Tokyo Trust Company
Attn: Dennis Demetropoulos
1251 Avenue of the Americas, Fl. 10
New York, NY 10020-1104
Lane & Company 17.61%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>
<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
<S> <C>
BTM U.S. Agency Retirement Plan 33.16%
1251 Avenue of the Americas
New York, NY 11020
TDK USA Pension Plan 5.61%
12 Harbor Park Drive
Port Washington, NY 11050
</TABLE>
GOVERNMENT SECURITIES FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
BOTT Pension 87.07%
c/o Bank of Tokyo Trust Company
Attn: Dennis Demetropoulos
1251 Avenue of the Americas, Fl. 10
New York, NY 10020-1104
Lane & Company 8.59%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>
<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
<S> <C>
BTM U.S. Agency Retirement Plan 14.21%
1251 Avenue of the Americas
New York, NY 10020
Marubeni America Retirement Plan 7.95%
450 Lexington Avenue
New York, NY 10017
Tokio Marine Retirement Plan 7.04%
101 Park Avenue
New York, NY 10178
TDK USA Pension Plan 6.89%
12 Harbor Park Drive
Port Washington, NY 11050
</TABLE>
BOND FUND - CLASS A SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Northwestern Trst. & Advisory Co. TTBE 6.98%
1201 3rd Ave., Suite 2010
Seattle, WA 98101-3026
Exchange Bank TTBE 6.00%
FBO Helen Kelly Trust
P.O. Box 208
Santa Rosa, CA 95402-0208
Alice A. Swenning Trust 6.51%
The Swenning Fam. TTBE
U/A 9/23/91
1447 21st Ave.
Kingsburg, CA 93631-2027
P&H Metal Products Corp. 9.80%
George Paikos David Long TTBE
U/A 07/01/93
27795 Avenue Hopkins
Valencia, CA 91355-1223
</TABLE>
BOND FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Lane & Company 59.84%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
Union Bank 37.45%
Lane & Co. Reinvest
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>
<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
<S> <C>
Union Bank of California 401(k) Plan 6.77%
350 California Street
San Francisco, CA 94104
Nummi Hourly Retirement Plan 5.18%
45500 Fremont Blvd.
Fremont, CA 94538
</TABLE>
INTERMEDIATE-TERM BOND FUND - CLASS A SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
National Financial Services Corp. 91.76%
for Exclusive Benefit of Our Cust.
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
</TABLE>
<PAGE> 350
INTERMEDIATE-TERM BOND FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Lane & Company 99.69%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND - CLASS A SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Henry & Marcy Tenenblatt Trust 12.74%
Henry Tenenblatt
U/A 08/03/87
16323 Shadow Mountain
Pacific Palisades, CA 90272-2353
Bill S. Tsutagawa 6.28%
Yuriko Tsutagawa
2242 Valley Rd.
Oceanside, CA 92056-3107
Peter Johnson 21.10%
10350 N. Torrey Pines Rd., #100
La Jolla, CA 92037-1018
Larry Strasbaugh 6.16%
2555 W. Poza Road
Santa Margarita, CA 93453-9621
The Featherston Trust 6.11%
Lawrence H. Featherston
U/A 10/19/95
1300 S. Montezuma Way
West Covina, CA 91791-3738
Aaron Belokamen 6.62%
Lilian Belokamen
11610 Bellagio Rd.
Los Angeles, CA 90049-2113
</TABLE>
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Lane & Company 94.99%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>
INTERNATIONAL EQUITY FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
<S> <C>
Nummi Hourly Retirement Plan 5.72%
45500 Fremont Blvd
Fremont, CA 94538
Union Bank of California Retirement Plan 57.14%
350 California Street
San Francisco, CA 94104
</TABLE>
DIVERSIFIED MONEY MARKET FUND - CLASS A SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
National Financial Services Corp 99.38%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
</TABLE>
DIVERSIFIED MONEY MARKET FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Union Bank 78.98%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
Union Bank 18.18%
Lane & Co Reinvest
Attn: Kathleen Heilman
PO Box 120109
San Diego, CA 92112-0109
</TABLE>
<PAGE> 351
U.S GOVERNMENT MONEY MARKET FUND - CLASS A SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
National Financial Services Corp 98.48%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
</TABLE>
U.S GOVERNMENT MONEY MARKET FUND - CLASS B SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Zenadia F. Loreto 43.01%
18225 Camino Bello #2
Rowland Heights, CA 91748-2642
Kendall Cho Cust 18.88%
Andrew Cho UTMA CA
12110 Rivera
Tustin, CA 92782-1207
Kendall Cho Cust 18.88%
Addison Cho UTMA CA
12110 Rivera
Tustin, CA 92782-1207
Kendall Cho Cust 18.88%
Austin Cho UTMA CA
12110 Rivera
Tustin, CA 92782-1207
</TABLE>
U.S GOVERNMENT MONEY MARKET FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Union Bank 97.47%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
</TABLE>
<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
<S> <C>
RCM Capital Management 5.28%
7200 Wisconsin Avenue # 1001
Bethesda, MD 20814-4813
City of Hope National Medical Center 8.26%
1500 East Duarte Road
Duarte, CA 91010-0269
</TABLE>
100% U.S TREASURY MONEY MARKET FUND - CLASS A SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
National Financial Services Corp 99.68%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
</TABLE>
100% U.S TREASURY MONEY MARKET FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Union Bank 95.20%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
</TABLE>
<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
<S> <C>
Weber Metals, Inc. 5.84%
P.O. Box 318
Paramount, CA 90723-0318
</TABLE>
CALIFORNIA TAX-FREE MONEY MARKET FUND - CLASS A SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
National Financial Services Corp 99.19%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
</TABLE>
CALIFORNIA TAX-FREE MONEY MARKET FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
<S> <C>
Union Bank 99.84%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
</TABLE>
<PAGE> 352
APPENDIX
The nationally recognized statistical rating organizations
(individually, an "NRSRO") that may be utilized by the Funds with regard to
portfolio investments for the Funds include Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P"), Duff & Phelps, Inc.
("Duff"), Fitch IBCA, and Thomson BankWatch, Inc. ("Thomson"). Set forth below
is a description of the relevant ratings of each such NRSRO. The NRSROs that may
be utilized by the Funds and the description of each NRSRO's ratings is as of
the date of this Statement of Additional Information, and may subsequently
change.
Long-Term Debt Ratings (may be assigned, for example, to corporate and municipal
bonds)
Description of the five highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edged." Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the
future.
Baa Bonds which are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected nor
poorly secured). Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
-88-
<PAGE> 353
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both
good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA An obligation rated AAA has the highest rating assigned by
S&P. The obligor's capacity to meet its financial commitment
on the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated
obligations only in small degree. The obligor's capacity to
meet its financial commitment on the obligation is very
strong.
A An obligation rated A is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories.
However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity
of the obligor to meet its financial commitment on the
obligation.
Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the
least degree of speculation and C the highest. While such
obligations will likely have some quality and protective
characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the
obligation.
Description of the three highest long-term debt ratings by Duff:
-89-
<PAGE> 354
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong.
AA Risk is modest but may vary slightly from time to
AA- time because of economic conditions.
A+ Protection factors are average but adequate. However,
A risk factors are more variable and greater in periods
A- of economic stress.
Description of the three highest long-term debt ratings by Fitch IBCA (plus or
minus signs are used with a rating symbol to indicate the relative position of
the credit within the rating category):
AAA Obligations which have the highest rating assigned by Fitch
IBCA. Capacity for timely repayment principal and interest is
extremely strong relative to other obligors in the same
country.
AA Obligations for which capacity for timely repayment of
principal and interest is very strong relative to other
obligors in the same country. The risk attached to these
obligations differs only slightly from the country's highest
rated debt.
A Obligations for which capacity for timely repayment of
principal and interest is strong relative to other obligors in
the same country. However, adverse changes in business,
economic or financial conditions are more likely to affect the
capacity for timely repayment than for obligations in higher
rated categories.
Short-Term Debt Ratings (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have
a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often
be evidenced by many of the following characteristics:
- Leading market positions in well-established
industries.
- High rates of return on funds employed.
-90-
<PAGE> 355
-Conservative capitalization structures with
moderate reliance on debt and ample asset
protection.
-Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
-Well-established access to a range of
financial markets and assured sources of
alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have
a strong ability for repayment of senior short-term
debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while
sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate
liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have
an acceptable ability for repayment of senior
short-term obligations. The effect of industry
characteristics and market compositions may be more
pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection
measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1 A short-term obligation rated A-1 is rated in the highest
category by S&P. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category,
certain obligations are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its
financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity
of the obligor to meet its financial commitment on the
obligation.
-91-
<PAGE> 356
Duff's description of its three highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
D-1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection
factors. Risk factors are minor.
D-1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk
factors are very small.
D-2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs
may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
D-3 Satisfactory liquidity and other protection factors qualify
issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is
expected.
Fitch IBCA's description of its three highest short-term debt ratings:
Fl Obligations assigned this rating have the highest capacity for
timely repayment under Fitch IBCA's national rating scale for
that country, relative to other obligations in the same
country. Where issues possess a particularly strong credit
feature, a "+" is added to the assigned rating.
F2 Obligations supported by a strong capacity for timely
repayment relative to other obligors in the same country.
However, the relative degree of risk is slightly higher than
for issues classified as 'Al' and capacity for timely
repayment may be susceptible to adverse changes in business,
economic, or financial conditions.
F3 Obligations supported by an adequate capacity for timely
repayment relative to other obligors in the same country. Such
capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in
higher categories.
-92-
<PAGE> 357
Short-Term Loan/Municipal Note Ratings
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIG-1 This designation denotes best quality. There is present
strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to
the market for refinancing.
MIG-2/VMIG-2 This designation denotes high quality. Margins of
protection are ample although not so large as in the
preceding group.
Short-Term Debt Ratings
Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch(TM) Ratings do not constitute a recommendation to buy or sell
securities of any of these companies. Further, BankWatch does not suggest
specific investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that have a
maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an untimely
payment of principal or interest.
TBW-1 The highest category; indicates a very high likelihood
that principal and interest will be paid on a timely
basis.
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as
for issues rated "TBW-1".
TBW-3 The lowest investment-grade category; indicates that
while the obligation is more susceptible to adverse
developments (both internal and external) than those
with higher ratings, capacity to service principal and
interest in a timely fashion is considered adequate.
-93-
<PAGE> 358
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
-94-
<PAGE> 359
FINANCIAL STATEMENTS
The Independent Auditors' Report for HighMark Funds for the fiscal year ended
July 31, 1998, audited Financial Statements for HighMark Funds for the fiscal
year ended July 31, 1998, and unaudited Financial Statements for HighMark Funds
for the period ended January 31, 1998 are all incorporated by reference to the
Annual and Semi-Annual Reports of HighMark Funds, dated as of such dates, which
have been previously sent to shareholders of each Fund pursuant to the 1940 Act
and previously filed with the Securities and Exchange Commission. A copy of each
such report may be obtained without charge by contacting the Distributor, SEI
Investments Distribution Co. at 1 Freedom Valley Drive, Oaks, Pennsylvania,
19456 or by telephoning toll-free at 1-800-734-2922.
-95-
<PAGE> 360
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 Funds' Annual Report to Shareholders, dated July 31,
1998:
-- Report of Independent Certified Public Accountants
for HighMark Funds at July 31, 1998.
-- Statements of Assets and Liabilities for
HighMark Funds at July 31, 1998.
-- Statements of Operations for HighMark Funds
for the year ended July 31, 1998.
-- Statements of Changes in Net Assets for
HighMark Funds for the year ended July 31,
1998.
-- Schedules of Portfolio Investments for
HighMark Funds at July 31, 1998.
-- Notes to Financial Statements for HighMark
Funds dated July 31, 1998.
-- Financial Highlights for HighMark Funds for
the year ended July 31, 1998. 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
Pre-Effective Amendment No. 1 (filed May 15, 1987)
to Registrant's
<PAGE> 361
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.
(4) None.
(5) (a) Investment Advisory Agreement between
Registrant and
<PAGE> 362
HighMark Capital Management, Inc., dated as of
September 1, 1998 (the "Investment Advisory
Agreement"), is filed herewith.
(b) Investment Sub-Advisory Agreement between
HighMark Capital Management, Inc. and Bank
of Tokyo-Mitsubishi Trust Company, dated as
of September 1, 1998 (the "BOTM Sub-Advisory
Agreement") is filed herewith.
(c) Investment Sub-Advisory Agreement between
HighMark Capital Management, Inc. and AXA
Asset Management Partenaires dated as of
September 1, 1998 (the "AXA Sub-Advisory
Agreement") is filed herewith.
(d) Investment Sub-Advisory Agreement between
HighMark Capital Management, Inc. and
Brandes Investment Partners, L.P. (the
"Brandes Sub-Advisory Agreement") dated as
of September 1, 1998 is filed herewith.
(6) (a) Distribution Agreement between the
Registrant and SEI Financial Services Company is
incorporated by reference to Exhibit 6 of
Post-Effective Amendment No. 20 (filed February 25,
1997) to Registrant's Registration Statement on Form
N-1A.
(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.
(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.
<PAGE> 363
(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 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
<PAGE> 364
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)(a) Consent of Deloitte & Touche LLP is filed herewith.
(11)(b) Consent of Ropes & Gray, is filed herewith.
(12) None.
(13) None.
(14) None.
(15) (a) Restated Shareholder Services Plan with
respect to the Fiduciary Shares is filed herewith.
(b) Restated Distribution and Shareholder
Services Plan with respect to the Class A
Shares is filed herewith.
(c) 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
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
<PAGE> 365
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
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.
<PAGE> 366
(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 effective 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
Omitted per instruction of letter from Barry D. Miller,
Associate Director, United States Securities and Exchange
Commission, to Craig S. Tyle, General Counsel, Investment
Company Institute (October 2, 1998).
<PAGE> 367
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 any action, suit, or proceeding) is
asserted by such trustee, officer, or controlling person in
connection with the securities being registered, Registrant
<PAGE> 368
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
HighMark Capital Management, Inc. (the "Advisor") performs
investment advisory services for Registrant. The Advisor
offers a wide range of investment management services to its
clients in California, Oregon, and Washington and around the
world. The Advisor 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 the Advisor, 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 Advisor 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 the Advisor, 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:
<TABLE>
<CAPTION>
Position with Type of
the Advisor Name Principal Occupation Business
- ----------- ---- -------------------- --------
<S> <C> <C> <C>
Director, Chairman of the Susumu Hanada Deputy Group Head Banking
Board, and Chief Trust & Private Financial Services
Executive Officer Group
Union Bank of California
475 Sansome Street
San Francisco, CA 94104
Director, President, and Clark R. Gates President and COO Investment
Chief Operating Officer HighMark Capital Management Management
475 Sansome Street
San Francisco, CA 94104
</TABLE>
<PAGE> 369
<TABLE>
<S> <C> <C> <C>
Director Yoshihiko Someya Deputy Chairman, Credit and Banking
Administration
Head of Trust & Private Financial
Services Group
Union Bank of California
Director, UnionBanCal Corp.
400 California Street
San Francisco, CA 94104
Director Tsutomu Nakagawa Executive Vice President and Manager, Banking
Office of the President
Union Bank of California
400 California Street
San Francisco, CA 94104
Director and Chief Patrick G. Dodson Senior Vice President Banking
Financial Officer Trust & Private Financial Services
Group Systems and Operations
Union Bank of California
475 Sansome Street
San Francisco, CA 94104
Secretary Olga J. Sanchez Vice President and Senior Counsel Banking
Union Bank of California
400 California Street
San Francisco, CA 94104
Managing Director, Chief Luke C. Mazur c/o HighMark Capital Management Investment
Investment Officer 475 Sansome Street Management
San Francisco, CA 94104
Managing Director, Mutual R. Gregory Knopf c/o HighMark Capital Management Investment
Funds 445 S. Figueroa Street Management
Los Angeles, CA 90071
Managing Director, Sales Terry L. Chambless c/o HighMark Capital Management Investment
and Marketing 445 S. Figueroa Street Management
Los Angeles, CA 90071
Managing Director, Support Milton M. Fukuda c/o HighMark Capital Management Investment
Services 475 Sansome Street Management
San Francisco, CA 94104
Managing Director, Kevin A. Rogers c/o HighMark Capital Management Investment
Portfolio Management 18300 Von Karman Avenue Management
Group Irvine, CA 92715
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITER
<PAGE> 370
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.
acts as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional 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
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds (R) June 1, 1993
The PBHG Funds, Inc. July 16, 1993
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
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
ARMADA Funds March 8, 1997
TIP Institutional Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Funds, Inc. June 29, 1998
The Parkstone Group of Funds September 14, 1998
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").
<PAGE> 371
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 of the Board --
of Directors
Henry W. Greer Director --
Carmen V. Romeo Director --
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
</TABLE>
<PAGE> 372
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name With Underwriter With Registrant
---- ---------------- ---------------
<S> <C> <C>
Jack May 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
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President and Assistant Vice President,
Secretary Assistant Secretary
Robert Crudup Vice President and Managing --
Director
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President and Managing --
Director
Lydia A. Gavalis Vice President & Assistant Vice President,
Secretary Assistant Secretary
Greg Gettinger Vice President & Assistant --
Secretary
Kathy Heilig Vice President --
Jeff Jacobs Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing
Director --
John Krzeminski Vice President & Managing --
Director
Carolyn McLaurin Vice President & Managing --
Director
W. Kelso Morrill Vice President --
Mark Nagle Vice President President
Joanne Nelson Vice President --
Joseph M. O'Donnell Vice President & Assistant Vice President,
Secretary Assistant Secretary
Sandra K. Orlow Vice President & Secretary Vice President,
Assistant Secretary
Cynthia M. Parrish Vice President & Assistant Secretary --
Kim Rainey Vice President --
Rob Redican Vice President --
Maria Rinehart Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant --
Secretary
Lynda J. Striegel Vice President & Assistant Vice President,
Secretary Assistant Secretary
Lori L. White Vice President & Assistant --
</TABLE>
<PAGE> 373
<TABLE>
<S> <C> <C>
Secretary
Wayne M. Withrow Vice President & Managing Director --
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
(1) HighMark Capital Management, Inc., 475 Sansome
Street, San Francisco, CA 94104 (records relating to
its function as investment advisor).
(2) Union Bank of California, N.A., 400 California
Street, San Francisco, CA 94104 (records relating to
its functions as custodian, sub-administrator and
sub-transfer agent).
(3) SEI Investments Mutual Funds Services, Oaks,
Pennsylvania 19456 (records relating to its functions
as administrator).
(4) SEI Investments Distribution Co. (formerly SEI
Financial Services Company), Oaks, Pennsylvania 19456
(records relating to its function as distributor).
(5) State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110 (records relating
to its functions as transfer agent).
(6) 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.
<PAGE> 374
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.
<PAGE> 375
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of the registration statement pursuant to
Rule 485(b) under the 1933 Act and the Registrant has duly caused this
Post-Effective Amendment No. 25 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 30th day of November, 1998.
HighMark Funds
By: */s/ Mark E. Nagle
---------------------------
Mark E. Nagle
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 25 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/ Mark E. Nagle President and November 30, 1998
-----------------
Mark E. Nagle Chief Executive Officer
*/s/ Robert DellaCroce Comptroller and Chief November 30, 1998
---------------------
Robert DellaCroce Financial Officer
*/s/ Thomas L. Braje Trustee November 30, 1998
----------------------
Thomas L. Braje
*/s/ David A. Goldfarb Trustee November 30, 1998
---------------------
David A. Goldfarb
*/s/ Joseph C. Jaeger Trustee November 30, 1998
-----------------------
Joseph C. Jaeger
*/s/ Frederick J. Long Trustee November 30, 1998
----------------------
Frederick J. Long
*/s/ William R. Howell Trustee November 30, 1998
----------------------
William R. Howell
*/s/ Paul Smith Trustee November 30, 1998
----------------------
Paul Smith
</TABLE>
*By: /s/ Martin E. Lybecker
----------------------------
Martin E. Lybecker
Attorney-In-Fact
<PAGE> 376
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
5(a) Investment Advisory Agreement between Registrant and
HighMark Capital Management, Inc.
5(b) Investment Sub-Advisory Agreement between HighMark Capital
Management, Inc. and Bank of Tokyo-Mitsubishi Trust Company
5(c) Investment Sub-Advisory Agreement between HighMark Capital
Management, Inc. and AXA Asset Management Partenaires
5(d) Investment Sub-Advisory Agreement between HighMark Capital
Management, Inc. and Brandes Investment Partners, L.P.
10 Opinion and Consent of Counsel as to legality of shares being
registered
11(a) Consent of Deloitte & Touche LLP.
11(b) Consent of Ropes & Gray.
15(a) Restated Shareholder Services Plan with respect to the
Fiduciary Shares.
15(b) Restated Distribution and Shareholder Services Plan with
respect to the Class A Shares
27 Financial Data Schedules.
</TABLE>
<PAGE> 1
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of September 1, 1998 between HIGHMARK FUNDS
(formerly, THE HIGHMARK GROUP), a Massachusetts business trust (herein called
the "Trust"), and HighMark Capital Management, Inc., a California corporation
registered under the Investment Adviser's Act of 1940 with its principal offices
in San Francisco, California (herein called the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended ("1940 Act"); and
WHEREAS, the Trust desires to retain the Investment Adviser to furnish
investment advisory and administrative services to certain investment portfolios
of the Trust (the "Funds") and the Investment Adviser represents that it is
willing and possesses legal authority to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints the Investment Adviser to act
as investment adviser to the Funds identified on Schedule A hereto for the
period and on the terms set forth in this Agreement. The Investment Adviser
accepts such appointment and agrees to furnish the services herein set forth for
the compensation herein provided.
2. Delivery of Documents. The Trust has furnished the Investment
Adviser with copies properly certified or authenticated of each of the
following:
(a) the Trust's Declaration of Trust, as filed with the
Secretary of State of the Commonwealth of Massachusetts on March 10,
1987, and all amendments thereto or restatements thereof (such
Declaration, as presently in effect and as it shall from time to time
be amended or restated, is herein called the "Declaration of Trust");
(b) the Trust's Code of Regulations and amendments thereto;
(c) resolutions of the Trust's Board of Trustees authorizing
the appointment of the Investment Adviser and approving this Agreement;
(d) the Trust's Notification of Registration on Form N-8A
under the 1940 Act as filed with the Securities and Exchange Commission
on March 12, 1987 and all amendments thereto;
(e) the Trust's Registration Statement on Form N-1A under the
Securities Act
<PAGE> 2
of 1933, as amended ("1933 Act"), (File No. 33-12608) and under the
1940 Act as filed with the Securities and Exchange Commission and all
amendments thereto; and
(f) the Trust's most recent prospectuses and Statement of
Additional Information (such prospectuses and Statement of Additional
Information, as presently in effect, and all amendments and supplements
thereto are herein collectively called the "Prospectus").
The Trust will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing.
3. Management. Subject to the supervision of the Trust's Board of
Trustees, the Investment Adviser will provide a continuous investment program
for each Fund, including investment research and management with respect to all
securities and investments and cash equivalents in said Funds. The Investment
Adviser will determine from time to time what securities and other investments
will be purchased, retained or sold by the Trust with respect to the Funds. The
Investment Adviser will provide the services under this Agreement in accordance
with each Fund's investment objective, policies, and restrictions as stated in
the Prospectus and resolutions of the Trust's Board of Trustees. The Investment
Adviser further agrees that it:
(a) will use the same skill and care in providing such
services as it uses in providing services to fiduciary accounts for
which it has investment responsibilities;
(b) will conform with all applicable Rules and Regulations of
the Securities and Exchange Commission and in addition will conduct its
activities under this Agreement in accordance with any applicable
regulations of any governmental authority pertaining to the investment
advisory activities of the Investment Adviser;
(c) will not make loans to any person to purchase or carry
units of beneficial interest in the Trust or make loans to the Trust;
(d) will place orders pursuant to its investment
determinations for the Trust either directly with the issuer or with
any broker or dealer. In placing orders with brokers and dealers, the
Investment Adviser will attempt to obtain prompt execution of orders in
an effective manner at the most favorable price. Consistent with this
obligation, when the execution and price offered by two or more brokers
or dealers are comparable, the Investment Adviser may, in its
discretion, purchase and sell portfolio securities to and from brokers
and dealers who provide the Investment Adviser with research advice and
other services. Unless and until appropriate procedures are adopted by
the Trustees of the Trust under Rule 17e-1 of the 1940 Act and unless
the provisions of such Rule are complied with, portfolio securities
will not be purchased from or sold through SEI Investments Distribution
Co., HighMark Capital Management, Inc., or any affiliated person of
either the Trust, SEI Investments
<PAGE> 3
Distribution Co., or HighMark Capital Management, Inc.;
(e) will maintain all books and records with respect to the
Trust's securities transactions and will furnish the Trust's Board of
Trustees such periodic and special reports as the Board may request;
(f) will treat confidentially and as proprietary information
of the Trust all records and other information relative to the Trust
and prior, present or potential interestholders; and will not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification
to and approval in writing by the Trust, which approval shall not be
unreasonably withheld and may not be withheld where the Investment
Adviser may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust; and
(g) will maintain its policy and practice of conducting its
fiduciary functions independently. In making investment recommendations
for the Trust, the Investment Adviser's personnel will not inquire or
take into consideration whether the issuers of securities proposed for
purchase or sale for the Trust's account are customers of the
Investment Adviser or of its parent or its subsidiaries or affiliates.
In dealing with such customers, the Investment Adviser and its parent,
subsidiaries, and affiliates will not inquire or take into
consideration whether securities of those customers are held by the
Trust.
4. Services Not Exclusive. The investment management services furnished
by the Investment Adviser hereunder are not to be deemed exclusive, and the
Investment Adviser shall be free to furnish similar services to others so long
as its services under this Agreement are not impaired thereby.
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Investment Adviser hereby agrees that all records which
it maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's request.
The Investment Adviser further agrees to preserve for the periods prescribed by
Rule 31a-3 under the 1940 Act the records required to be maintained by Rule
31a-1 under the 1940 Act.
6. Expenses. During the term of this Agreement, the Investment Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Trust.
7. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, each of the Funds will pay the Investment Adviser
and the Investment Adviser will accept as full compensation therefor a fee
computed daily and paid monthly at the applicable
<PAGE> 4
annual rate set forth on Schedule A hereto. Each Fund's obligation to pay the
above-described fee to the Investment Adviser will begin as of the date of the
initial public sale of shares in that Fund.
If in any fiscal year the aggregate expenses of any of the Funds (as
defined under the securities regulations of any state having jurisdiction over
the Trust) exceed the expense limitations of any such state, the Investment
Adviser will reimburse the Fund for a portion of such excess expenses equal to
such excess times the ratios of the fees otherwise payable by the Fund to the
Investment Adviser hereunder to the aggregate fees otherwise payable by the Fund
to the Investment Adviser hereunder and to SEI Investments Mutual Funds Services
under the Administration Agreement between SEI Investments Mutual Funds Services
and the Trust. The obligation of the Investment Adviser to reimburse the Funds
hereunder is limited in any fiscal year to the amount of its fee hereunder for
such fiscal year, provided, however, that notwithstanding the foregoing, the
Investment Adviser shall reimburse the Funds for such proportion of such excess
expenses regardless of the amount of fees paid to it during such fiscal year to
the extent that the securities regulations of any state having jurisdiction over
the Trust so require. Such expense reimbursement, if any, will be estimated
daily and reconciled and paid on a monthly basis.
8. Limitation of Liability. The Investment Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Funds in connection with the performance of this 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 Investment Adviser in the
performance of its duties or from reckless disregard by the Investment Adviser
of its obligations and duties under this Agreement.
9. Duration and Termination. This Agreement will become effective as to
a particular Fund as of the date first written above, provided that it shall
have been approved by vote of a majority of the outstanding voting securities of
such Fund, in accordance with the requirements under the 1940 Act, and, unless
sooner terminated as provided herein, shall continue in effect until October 31,
1999.
Thereafter, if not terminated, this Agreement shall continue in effect
as to a particular Fund for successive periods of twelve months each ending on
October 31st of each year, provided such continuance is specifically approved at
least annually (a) by the vote of a majority of those members of the Trust's
Board of Trustees who are not parties to this Agreement or interested persons of
any party to this Agreement, cast in person at a meeting called for the purpose
of voting on such approval, and (b) by the vote of a majority of the Trust's
Board of Trustees or by the vote of a majority of the outstanding voting
securities of such Fund. Notwithstanding the foregoing, this Agreement may be
terminated as to a particular Fund at any time on sixty days' written notice,
without the payment of any penalty, by the Trust (by vote of the Trust's Board
of Trustees or by vote of a majority of the outstanding voting securities of
such Fund) or by the Investment Adviser. This Agreement
<PAGE> 5
will immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meaning of such terms
in the 1940 Act.)
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the law of the Commonwealth of Massachusetts.
The names "HighMark Funds" and "Trustees of the HighMark Funds" refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated as of March 10, 1987 to which reference is hereby made and a copy of
which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "The HighMark Funds"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, interestholders or representatives of
the Trust personally, but bind only the assets of the Trust, and all persons
dealing with any Fund of the Trust must look solely to the assets of the Trust
belonging to such Fund for the enforcement of any claims against the Trust.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
HIGHMARK FUNDS
Seal By:________________________
Title: President
HIGHMARK CAPITAL MANAGEMENT, INC.
Seal By:________________________
Title: President
<PAGE> 7
Schedule A
to the
Investment Advisory Agreement
between the HighMark Funds and
HighMark Capital Management, Inc.
dated September 1, 1998
Name of Fund Compensation*
The U.S. Government Money Market Fund Annual rate of thirty
one-hundredths of one
percent (.30%) of the U.S.
Government Obligations Money
Market Fund's average daily
net assets.
The Diversified Money Market Fund Annual rate of thirty
one-hundredths of one
percent (.30%) of the
Diversified Money Market
Fund's average daily net
assets.
The 100% U.S. Treasury Money Market Fund Annual rate of thirty one-
hundredths of one percent
(.30%) of the 100% U.S.
Treasury Money Market Fund's
average daily net assets.
The Income Equity Fund Annual rate of sixty
one-hundredths of one
percent (.60%) of the Income
Equity Fund's average daily
net assets.
The Bond Fund Annual rate of fifty
one-hundredths of one
percent (.50%) of the Bond
Fund's average daily net
assets.
* All fees are computed daily and paid monthly.
<PAGE> 8
Schedule A (Con't.)
to the
Investment Advisory Agreement
Between the HighMark Funds and
HighMark Capital Management, Inc.
dated September 1, 1998
Name of Fund Compensation*
- ------------ -------------
The California Tax-Free Money Market Fund Annual rate of thirty one-
hundredths of one percent
(.30%) of the California
Tax-Free Money Market Fund's
average daily net assets.
The Growth Fund Annual rate of sixty
one-hundredths of one
percent (.60%) of the Growth
Fund's average daily net
assets.
The Balanced Fund Annual rate of sixty
one-hundredths of one
percent (.60%) of the
Balanced Fund's average
daily net assets.
The Value Momentum Fund Annual rate of sixty
one-hundredths of one
percent (.60%) of the Value
Momentum Fund's average
daily net assets.
The Blue Chip Growth Fund Annual rate of sixty
one-hundredths of one
percent (.60%) of the Blue
Chip Growth Fund's average
daily net assets.
The Emerging Growth Fund Annual rate of eighty
one-hundredths of one
percent (.80%) of the
Emerging Growth Fund's
average daily net assets.
* All fees are computed daily and paid monthly.
<PAGE> 9
Schedule A (Con't.)
to the
Investment Advisory Agreement
Between the HighMark Funds and
HighMark Capital Management, Inc.
dated September 1, 1998
Name of Fund Compensation*
The International Equity Fund Annual rate of ninety-five
one-hundredths of one
percent (.95%) of the
International Equity Fund's
average daily net assets.
The Intermediate-Term Bond Fund Annual rate of fifty
one-hundredths of one
percent (.50%) of the
Intermediate-Term Bond
Fund's average daily net
assets.
The Government Securities Fund Annual rate of fifty
one-hundredths of one
percent (.50%) of the
Government Securities Fund's
average daily net assets.
The Convertible Securities Fund Annual rate of sixty
one-hundredths of one
percent (.60%) of the
Convertible Securities
Fund's average daily net
assets.
The California Intermediate Tax-Free Bond Fund Annual rate of fifty
one-hundredths of one
percent (.50%) of the
California Intermediate
Tax-Free Bond Fund's average
daily net assets.
The Small Cap Value Fund Annual rate of one hundred
one-hundredths of one
percent (1.00%) of the Small
Cap Value Fund's average
daily net assets.
<PAGE> 10
* All fees are computed daily and paid monthly.
<PAGE> 11
HIGHMARK FUNDS
By:______________________
Title:___________________
Date:____________________
HIGHMARK CAPITAL MANAGEMENT,
INC.
By:______________________
Title:___________________
Date:____________________
<PAGE> 1
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT executed as of September 1, 1998 by and between HighMark
Capital Management, Inc. (the "Advisor"), and Bank of Tokyo-Mitsubishi Trust
Company (the "SubAdvisor"), a subsidiary of The Bank of Tokyo, Ltd., a New York
state chartered bank.
WHEREAS, Advisor is the investment manager for HighMark Funds (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, Advisor desires to retain SubAdvisor as its agent to furnish
investment advisory services for certain of the Trust's diversified investment
portfolios which are listed on Schedule A attached hereto and made a part hereof
(the "Funds").
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Appointment. Advisor hereby appoints SubAdvisor to provide certain
sub-investment advisory services to the Funds for the period and on the terms
set forth in this Agreement. SubAdvisor accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
2. Delivery of Documents. Advisor has furnished or will furnish SubAdvisor with
copies properly certified or authenticated of each of the following:
(a) the Trust's Agreement and Declaration of Trust, as filed with the
Secretary of State of the Commonwealth of Massachusetts on March 10,
1987, and all amendments thereto or restatements thereof (such
Declaration, as presently in effect and as it shall from time to time
be amended or restated, is herein called the "Declaration of Trust");
(b) the Trust's By-Laws and amendments thereto;
(c) resolutions of the Trust's Board of Trustees authorizing the
appointment of SubAdvisor and approving this Agreement;
(d) the Trust's Notification of Registration of Form N-8A under the
Investment Company Act of 1940 (the "1940 Act") as filed with the
Securities and Exchange Commission (the "SEC") on March 12, 1987 and
all amendments thereto;
(e) the Trust's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended ("1933 Act") (File No. 33-12608) and
under the 1940 Act as filed with the
<PAGE> 2
SEC and all amendments thereto insofar as such Registration Statement
and such amendments relate to the Funds;
(f) the Trust's most recent prospectuses and Statement of Additional
Information for the Funds (such prospectuses and Statement of
Additional Information, as presently in effect, and all amendments and
supplements thereto are herein collectively called the "Prospectus");
and
(g) such other materials and documents as SubAdvisor shall reasonably
request.
Advisor will furnish SubAdvisor from time to time with copies of all amendments
of or supplements to the foregoing.
3. Management. Subject always to the supervision of the Trust's Board of
Trustees and Advisor, SubAdvisor will furnish an investment program in respect
of, and make investment decisions for, all assets of the Funds and place all
orders for the purchase and sale of securities, all on behalf of the Funds. In
the performance of its duties, SubAdvisor will satisfy its fiduciary duties to
the Funds (as set forth in Section 8 below), and will monitor the Funds
investments, and will comply with the provisions of the Trust's Declaration of
Trust and By-Laws, as amended from time to time, and the stated investment
objectives, policies and restrictions of the Funds. SubAdvisor and Advisor will
each make its officers and employees available to the other from time to time at
reasonable times to review investment policies of the Funds and to consult with
each other regarding the investment affairs of the Funds. SubAdvisor shall also
make itself reasonably available to the Board of Trustees at such times as the
Board of Trustees shall request.
SubAdvisor represents and warrants that it is in compliance with all applicable
Rules and Regulations of the SEC pertaining to its investment advisory
activities and agrees that it:
(a) will use the same skill and care in providing such services as it
uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(b) will conform with all applicable Rules and Regulations of the SEC
pertaining to its investment advisory activities;
(c) will place orders pursuant to its investment determinations for the
Funds either directly with the issuer or with any broker or dealer. In
providing the Funds with investment supervision, the SubAdvisor will
give primary consideration to securing the most favorable price and
efficient execution. Within the framework of this policy, the
SubAdvisor may consider the financial responsibility, research and
investment information and other services provided by brokers or
dealers who may effect or be a party to any such transaction or other
transactions to which the SubAdvisor's other clients may be a party. It
is understood that it is desirable for the Funds that the SubAdvisor
have access to supplemental investment and market research and security
and economic analysis provided by brokers who may execute brokerage
transactions at
<PAGE> 3
a higher cost to the Funds than may result when allocating brokerage to
other brokers on the basis of seeking the most favorable price and
efficient execution. Therefore, the SubAdvisor is authorized to place
orders for the purchase and sale of securities for the Funds with such
brokers, subject to such guidelines as shall be established by the
Advisor and reviewed by the Trust's Board of Trustees from time to time
with respect to the extent and continuation of this practice. It is
understood that the services provided by such brokers may be useful to
the SubAdvisor in connection with the SubAdvisor's services to other
clients.
On occasions when the SubAdvisor deems the purchase or sale of a
security to be in the best interest of the Funds as well as other
clients of the SubAdvisor, the SubAdvisor, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation
to, aggregate the securities to be so purchased or sold in order to
obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction,
will be made by the SubAdvisor in the manner it considers to be the
most equitable and consistent with its fiduciary obligations to the
Funds and to such other clients. In no instance will portfolio
securities be purchased from or sold to Advisor, SubAdvisor, SEI
Financial Services Company or any affiliated person of either the
Trust, Advisor, SEI Financial Services Company or SubAdvisor that
Advisor has identified to the SubAdvisor in writing, except as may be
permitted under the 1940 Act;
(d) will report regularly to Advisor and will make appropriate persons
available for the purpose of reviewing at reasonable times with
representatives of Advisor and the Board of Trustees the management of
the Funds, including, without limitation, review of the general
investment strategy of the Funds, the performance of the Funds in
relation to standard industry indices and general conditions affecting
the marketplace and will provide various other reports from time to
time as reasonably requested by Advisor;
(e) will maintain books and records with respect to the Trust's
securities transactions required by subparagraphs (b)(5), (6), (7),
(9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act
and will furnish Advisor and the Trust's Board of Trustees such
periodic and special reports as the Board of Trustees may request;
(f) will act upon instructions form Advisor not inconsistent with the
fiduciary duties hereunder; and
(g) will treat confidentially and as proprietary information of the
Trust all such records and other information relative to the Trust
maintained by the SubAdvisor, and will not use such records and
information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification
to and approval in writing by the Trust, which approval shall not be
unreasonably withheld and may not be withheld where SubAdvisor may be
exposed to civil or criminal contempt
<PAGE> 4
proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by
the Trust.
SubAdvisor shall have the right to execute and deliver, or cause its
nominee to execute and deliver, all proxies and notices of meetings and
other notices affecting or relating to the securities of the Funds.
4. Books and Records. In compliance with the requirements of Rule 31a-3 under
the 1940 Act, SubAdvisor hereby agrees that all records which it maintains for
the Trust are the property of the Trust and further agrees to surrender promptly
to the Trust any of such records upon the Trust's request. SubAdvisor further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by subparagraphs (b)(5), (6), (7), (9),
(10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act. SubAdvisor may
delegate its responsibilities under this Section to affiliates that perform
custody and/or fund accounting services for the Funds, which delegation shall
not, however, relieve the SubAdvisor of its responsibilities under this
paragraph 4.
5. Expenses. During the terms of this Agreement, SubAdvisor will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commissions, if any)
purchased for the Trust.
6. Compensation. For the services provided and the expenses assumed pursuant to
this Agreement, Advisor will pay the SubAdvisor, and the SubAdvisor agrees to
accept as full compensation therefor, a sub-advisory fee, accrued daily and
payable monthly, in accordance with Schedule B hereto. From time to time,
SubAdvisor may agree to waive or reduce some or all of the compensation to which
it is entitled under this Agreement.
7. Services to Others. Advisor understands, and has advised the Trust's Board of
Trustees, that SubAdvisor now acts, and may in the future act, as an investment
adviser to fiduciary and other managed accounts, and as investment advisor,
sub-investment adviser, and/or administrator to other investment companies.
Advisor has no objection to SubAdvisor's acts in such capacities, as long as
such services do not impair the services rendered to Advisor or the Trust.
Advisor recognizes, and has advised the Trust's Board of Trustees, that in some
cases this procedure may adversely affect the size of the position that the
Funds may obtain in a particular security. In addition, Advisor understands, and
has advised the Trust's Board of Trustees, that the persons employed by
SubAdvisor to assist in SubAdvisor's duties under this Agreement will not devote
their full time to such service and nothing contained in this Agreement will be
deemed to limit or restrict the right of SubAdvisor or any of its affiliates to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
8. Limitation of Liability. The SubAdvisor shall not be liable for any error or
judgment or for any loss suffered by the Funds or Advisor in connection with
performance of its obligations under this Agreement, except a loss resulting
from a breach of fiduciary duty with respect to
<PAGE> 5
the receipt of compensation for services (in which case any award of damages
shall be limited to the period and the amount set forth in Section 36(b)(3) of
the 1940 Act), or a loss resulting from willful misfeasance, bad faith or gross
negligence on the SubAdvisor's part in the performance of its duties or from
reckless disregard of its obligations and duties under this Agreement, except as
may otherwise be provided under provisions or applicable state law which cannot
be waived or modified hereby.
9. Indemnification. Advisor and SubAdvisor each agree to indemnify the other
against any claim against, loss or liability to such other party (including
reasonable attorneys' fees) arising out of any action on the part of the
indemnifying party which constitutes willful misfeasance, bad faith or gross
negligence.
10. Duration of Termination. This Agreement will become effective as of the date
hereof, provided that it has been approved by vote of a majority of the
outstanding voting securities of the Funds in accordance with the requirements
under the 1940 Act, and, unless sooner terminated as provided herein, will
continue in effect for one year.
Thereafter, if not terminated, this Agreement will continue in effect for the
Funds through July 31, 1999 and thereafter from year to year, provided that such
continuation is specifically approved at least annually (a) by the vote of a
majority of those members of the Trust's Board of Trustees who are not
interested persons of the Trust, SubAdvisor, or Advisor, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the vote
of a majority of the Trust's Board of Trustees or by the vote of majority of all
votes attributable to the outstanding Shares of the Funds. Notwithstanding the
foregoing, this Agreement may be terminated as to the Funds at any time, without
the payment of any penalty, on sixty (60) day's written notice by Advisor or by
SubAdvisor. This Agreement will immediately terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities", "interested persons" and "assignment" have the same meaning
of such terms in the 1940 Act.)
11. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought.
12. SubAdvisor Information. During the terms of this Agreement, Advisor agrees
to furnish the SubAdvisor at SubAdvisor's principal office all prospectuses,
proxy statements, reports to stockholders, sales literature or other materials
prepared for distribution to stockholders of the Funds, the Trust or the public
that refer to the SubAdvisor or its clients in any way prior to use thereof and
not to use material if the SubAdvisor reasonably objects in writing within five
business days (or such other period as may be mutually agreed) after receipt
thereof. The SubAdvisor's right to object to such materials is limited to the
portions of such materials that expressly relate to the SubAdvisor, its services
and its clients. The Advisor agrees to use its reasonable best efforts to ensure
that materials prepared by its employees or agents or its affiliates that refer
to the SubAdvisor or its clients in any way are consistent with
<PAGE> 6
those materials previously approved by the SubAdvisor as referenced in the first
sentence of this paragraph. Sales literature may be furnished to the SubAdvisor
by first-class or overnight mail, facsimile transmission equipment or hand
delivery.
13. Severability. Should any part of this Agreement be held invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors.
14. Notices. Any notice, advice or report to be given pursuant to this Agreement
shall be delivered or mailed:
To Advisor at:
HighMark Capital Management, Inc.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
Attention: Clark Gates, President
To the SubAdvisor at:
The Bank of Tokyo-Mitsubishi Trust Company
1251 Avenue of the Americas
New York, NY 10116
Attention: Charles Ryan
To the Trust or the Fund at:
HighMark Funds
1 Freedom Valley Road
Oaks, Pennsylvania 19456
Attention: Legal Department
15. Change of Law. Where the effect of a requirement of the 1940 Act reflected
in any provision of this Agreement is altered by a rule, regulation or order of
the Commission, whether of special or general application, such provision shall
be deemed to incorporate the
<PAGE> 7
effect of such rule, regulation or order.
16. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Agreement is held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement will not be affected thereby. This
Agreement will be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and will be governed by the laws of the
Commonwealth of Massachusetts.
The name "HighMark Funds" and "Trustees of the HighMark Funds" refer
respectively to the Trust created by, and the Trustees, as trustees but not
individually or personally, acting from time to time under, the Declaration of
the Trust, to which reference is hereby made and copy of which is on file at the
office of the Secretary of State of the Commonwealth of Massachusetts and
elsewhere as required by law, and to any and all amendments thereto so filed or
hereafter filed. The obligations of "HighMark Funds" entered in the name or on
behalf thereof by any of the Trustees, representatives or agents are made not
individually but only in such capacities and are not binding upon any of the
Trustees, Shareholders or representatives of the Trust personally, but bind only
the assets of the Trust, and persons dealing with the Funds must look solely to
the assets of the Trust belonging to such Funds for the enforcement of any
claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officer designated below as of the day and year first above
written.
HIGHMARK CAPITAL MANAGEMENT, INC.
By:________________________________
Name:______________________________
Title:_____________________________
THE BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By:________________________________
<PAGE> 8
Name:______________________________
Title:_____________________________
<PAGE> 9
SCHEDULE A
HIGHMARK FUNDS
Convertible Securities Fund
Emerging Growth Fund
<PAGE> 10
SCHEDULE B
SUBADVISOR COMPENSATION
1. Convertible Securities Fund
Advisory Fee: 60 b.p.
Subadvisory Fee: 30 b.p.
2. Emerging Growth Fund
Advisory Fee: 80 b.p.
Subadvisory Fee: 50 b.p.
<PAGE> 1
HIGHMARK INTERNATIONAL EQUITY FUND
SUB-ADVISORY AGREEMENT
AGREEMENT executed as of September 1, 1998 by and between HIGHMARK
CAPITAL MANAGEMENT, INC. (the "Adviser") and AXA ASSET MANAGEMENT PARTENAIRES, a
French corporation with registration number Paris B392 846 747, with its
registered office at Paris, 75017, France, 46 Avenue de La Grande Armee which is
an investment adviser registered under the laws of the United States as an
investment adviser under the Investment Advisers Act of 1940 ("Sub-Adviser").
WHEREAS, Adviser is the investment adviser for the HighMark Funds (the
"Trust"), an open-end diversified management investment company registered under
the Investment Company Act of 1940, as amended (" '40 Act");
WHEREAS, Adviser's affiliate, Union Bank of California, N.A. serves as
custodian for the HighMark Funds and provides certain other services for the
Funds;
WHEREAS, SEI Investments Fund Resources is administrator and SEI
Investments Distribution Co. is Distributor of the HighMark Funds; and
WHEREAS, Adviser desires to retain Sub-Adviser as its agent to furnish
investment sub- advisory services for certain assets of the Trust's
International Equity Fund (the "Fund").
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. DEFINITIONS. As used herein the following terms shall have the
meanings set forth:
1.1 "33 Act" shall mean the Securities Act of 1933, the rules and
regulations issued thereunder, as they may be amended from time to time.
1.2 "40 Act" shall mean the Investment Company Act of 1940, the rules
and regulations issued thereunder, as they may be amended from time to time.
1.3 "Administrator" and "Distributor" shall mean SEI Investments Fund
Resources and SEI Investments Distribution Co., respectively.
1.4 "Adviser" shall mean HighMark Capital Management, Inc.
1.5 "Adviser's Act" shall mean the Investment Adviser's Act of 1940 and
the rules and regulations thereunder, as they may be amended from time to time.
<PAGE> 2
1.6 "Bank" shall mean Union Bank of California, N.A., a national
banking association organized under the laws of the United States.
1.7 "Sub-Adviser" shall mean AXA Asset Management Partenaires, a
company incorporated in France and registered as an investment adviser under the
Investment Advisers Act of 1940.
2. APPOINTMENT. Adviser hereby appoints Sub-Adviser to provide certain
sub- advisory services to the Fund for the period and on the terms set forth in
this Agreement. Sub- Adviser accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided.
3. DELIVERY OF DOCUMENTS. Adviser has furnished or will furnish
Sub-Adviser with copies property certified or authenticated of each of the
following:
(a) Copies of the Declarations of Trust establishing the
HighMark Funds and the By-Laws of the Trust;
(b) Resolutions of the Trust's Board of Trustees authorizing the
appointment of Sub-Adviser and approving this Agreement;
(c) The Trust's Registration Statement on Form N-lA under the
'33 Act (File No. 33-37687) and the '40 Act as filed with the SEC and all
amendments thereto insofar as such Registration Statement and such
amendments relate to the Funds;
(d) The Trust's most recent prospectus and Statement of
Additional Information for the International Equity Fund (such prospectus
and Statement of Additional Information, as presently in effect, and all
amendments and supplements thereto are herein collectively called the
"Prospectus"); and
(e) Such other materials and documents as Sub-Adviser shall
reasonably request.
Adviser will furnish Sub-Adviser with copies of all amendments of or
supplements to the foregoing promptly following adoption of such amendments or
supplements.
4. MANAGEMENT:
4.1 Subject always to the supervision of the Trust's Board of Trustees
and of Adviser, Sub-Adviser will furnish an investment program in respect of,
and make investment decisions for the assets of the Fund entrusted to it
hereunder. Sub-Adviser may place all orders for the purchase and sale of
securities, on behalf of the Fund. Sub-Adviser is also authorized, subject to
periodic approvals of authorized persons by the Board of Trustees, to instruct
Custodian to settle trades executed on behalf of Fund. In the performance of its
duties, Sub-Adviser will
<PAGE> 3
satisfy its fiduciary duties to the Fund, will monitor the Fund investments, and
will comply with the provisions of the Trust's Declaration of Trust and By-Laws,
as amended from time to time, and with the investment objectives, policies and
restrictions of the Fund stated in the Fund Prospectus and compliance policies
and procedures furnished to the Sub-Adviser by Adviser from time to time.
4.2 Sub-Adviser and Adviser will each make its officers and employees
available to the other from time to time at reasonable times to review
investment policies of the Fund and to consult with each other regarding the
investment affairs of the Fund. Sub-Adviser shall also make itself reasonably
available to the Board of Trustees at such times as the Board of Trustees shall
request.
4.3 Sub-Adviser represents and warrants that it is and shall remain in
compliance with all applicable Rules and Regulations of the SEC pertaining to
its investment advisory activities and agrees that it:
(a) will use at least the same skill and care in providing
such services as it uses in providing services to fiduciary accounts in
the United States for which it has investment responsibilities;
(b) will maintain registration with the SEC as an investment
adviser under the Advisers Act and will conform with all applicable
laws, rules and regulations pertaining to its investment advisory
activities;
(c) will place orders pursuant to its investment
determinations for the Fund either directly with the issuer or with any
broker or dealer. In providing the Funds with investment supervision,
the Sub-Adviser will give primary consideration to securing the most
favorable price and efficient execution. Within the framework of this
policy, the Sub-Adviser may consider the financial responsibility,
research and investment information and other services provided by
brokers or dealers who may effect or be a party to any such transaction
or other transactions to which the SubAdviser's other clients may be a
party. It is understood that it is desirable for the Fund that the
Sub-Adviser have access to supplemental investment and market research
and security and economic analysis provided by brokers who may execute
brokerage transactions at a higher cost to the Fund than may result
when allocating brokerage to other brokers on the basis of seeking the
most favorable price and efficient execution. Therefore, the
Sub-Adviser is authorized to place orders for the purchase and sale of
securities for the Fund with such brokers, subject to such guidelines
as shall be established by the Adviser and reviewed by the Trust's
Board of Trustees from time to time with respect to the extent and
continuation of this practice. It is understood that the services
provided by such brokers may be useful to the Sub-Adviser in connection
with the Sub-Adviser's services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale
of a security to
<PAGE> 4
be in the best interest of the Fund as well as other clients of the
Sub-Adviser, the Sub- Adviser, to the extent permitted by applicable
laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be so purchased or sold in order to obtain
the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will be made
by the Sub-Adviser in the manner it considers to be the most equitable
and consistent with its fiduciary obligations to the Fund and to such
other clients. In no instance will portfolio securities be purchased
from or sold to Adviser, Sub-Adviser, SEI Financial Services Company or
any affiliated person of either the Trust, Adviser, SEI Financial
Services Company or Sub-Adviser that Adviser has identified to the
Sub-Adviser in writing, except as may be permitted under the '40 Act.
(d) will report regularly to Adviser and will make appropriate
persons available for the purpose of reviewing at reasonable times with
representatives of Adviser and the Board of Trustees the management of
the Fund, including, without limitation, review of the general
investment strategy of the Fund, the performance of the Fund in
relation to standard industry indices which have been agreed upon
between Adviser and Sub-Adviser and general conditions affecting the
marketplace and will provide various other reports from time to time as
reasonably requested by Adviser;
(e) will maintain books and records with respect to the
Trust's securities transactions required by subparagraphs (b)(5), (6),
(7), (9), (10) and (11) and paragraph (f) of Rule 3la-1 under the '40
Act and wilt furnish Adviser and the Trust's Board of Trustees such
periodic and special reports as the Adviser or Board of Trustees may
request;
(f) will act upon instructions from Adviser not inconsistent
with the fiduciary duties hereunder; and
(g) will treat confidentially and as proprietary information
of the Trust all such records and other information relative to the
Trust maintained by the Sub-Adviser, and will not use such records and
information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification
to and approval in writing by the Trust, which approval shall not be
unreasonably withheld and may not be withheld where Sub-Adviser may be
exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duty constituted
authorities, or when so requested by the Trust.
Sub-Adviser shall have the right to execute and deliver, or
cause its nominee to execute and deliver, all proxies and notices of
meetings and other notices affecting or relating to the securities of
the Fund.
4.4 Sub-Advisor will diligently perform services as defined under this
Agreement.
<PAGE> 5
However, Sub-Advisor makes no representations or guarantees whatsoever that the
objective of the Fund will be achieved or that the Fund will outperform its
benchmark as set forth in Schedule B.
5. BOOKS AND RECORDS. In compliance with the requirements of Rule 3la-3
under the '40 Act, Sub-Adviser hereby agrees that all records which it maintains
for the Trust are the property of the Trust and further agrees to surrender
promptly to the Trust any of such records upon the Trust's request. Sub-Adviser
further agrees to preserve for the periods prescribed by Rule 3la-2 under the
'40 Act the records required to be maintained by subparagraphs (b)(5), (6), (7),
(9), (10) and (11) and paragraph (f) of Rule 3la-1 under the '40 Act for the
Fund. Sub-Adviser may delegate its responsibilities under this Section to
affiliates that perform custody and/or fund accounting services for the Fund,
which delegation shall not, however, relieve the Sub-Adviser of its
responsibilities under this paragraph 4.
6. EXPENSES. During the terms of this Agreement, Sub-Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities (including brokerage commissions, if
any) purchased for the Trust, unless otherwise stated in this Agreement.
7. COMPENSATION. For the services provided and the expenses assumed
pursuant to this Agreement, Adviser will pay the Sub-Adviser, and the
Sub-Adviser agrees to accept as full compensation therefor, a sub-advisory fee,
accrued daily and payable monthly, in accordance with Schedule A hereto. From
time to time, Sub-Adviser may, in its sole discretion, agree to waive or reduce
some or all of the compensation to which it is entitled under this Agreement.
8. SERVICES TO OTHERS. Adviser understands, and has advised the Trust's
Board of Trustees, that Sub-Adviser now acts and may in the future act, as an
investment adviser to fiduciary and other managed accounts, and as investment
adviser, sub-investment adviser, and/or administrator to other investment
companies. Adviser has no objection to Sub-Adviser's acting in such capacities,
as long as such services do not impair the services rendered to Adviser or the
Trust. Adviser recognizes, and has advised the Trust's Board of Trustees, that
in some cases this procedure may adversely affect the size of the position that
the Fund may obtain in a particular security. In addition, Adviser understands,
and has advised the Trust's Board of Trustees, that the persons employed by
Sub-Adviser to assist in Sub-Adviser's duties under this Agreement will not
devote their full time to such service and nothing contained in this Agreement
will be deemed to limit or restrict the right of Sub-Adviser or any of its
affiliates to engage in and devote time and attention to other businesses or to
render services of whatever kind or nature.
9. LIMITATION OF LIABILITY. The Sub-Adviser shall not be liable for any
error or judgment or for any loss suffered by the Fund or Adviser in connection
with performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages
<PAGE> 6
shall be limited to the period and the amount set forth in Section 36(b)(3) of
the '40 Act), or a loss resulting from willful misfeasance, bad faith or gross
negligence on the Sub-Adviser's part in the performance of its obligations or in
failing to perform its obligations under this Agreement, except as may otherwise
be provided under provisions of applicable state or federal law which cannot be
waived or modified hereby.
10. INDEMNIFICATION. Adviser and Sub-Adviser each agree to indemnify
the other against any claim against, loss or liability to such other party
(including reasonable attorneys' fees) arising out of any action on the part of
the indemnifying party which constitutes willful misfeasance, bad faith or gross
negligence.
11. DURATION AND TERMINATION. This Agreement will become effective as
of the date hereof, provided that it has been approved by vote of a majority of
the outstanding voting securities of the Fund in accordance with the
requirements under the '40 Act, and, unless sooner terminated as provided
therein, will continue in effect for two (2) years.
Thereafter, if not terminated, this Agreement will continue in effect
for the Funds for successive periods of 12 months, each ending on the day
preceding the anniversary of the Agreement's effective date of each year,
provided that such continuation is specifically approved at least annually (a)
by the vote of a majority of those members of the Trust's Board of Trustees who
are not interested persons of the Trust, Sub-Adviser, or Adviser, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by the
vote of a majority of the Trust's Board of Trustees or by the vote of majority
of all votes attributable to the outstanding Shares of the Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to
the Funds at any time, without the payment of any penalty, on sixty (60) day's
written notice by the Adviser to Sub-Adviser to the other party. This Agreement
may be terminated at any time, without the payment of any penalty, on 120 day's
written notice by the Sub-Adviser to Adviser. This Agreement will immediately
terminate in the event of its assignment. (As used in this Agreement, the terms
"majority of the outstanding voting securities", "interested persons" and
"assignment" have the same meaning of such terms in the '40 Act.)
12. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
13. SUB-ADVISER INFORMATION:
13.1 During the terms of this Agreement, Adviser agrees to furnish the
Sub-Adviser at Sub-Adviser's principal office all prospectuses, proxy
statements, reports to stockholders, sales literature or other materials
prepared for distribution to stockholders of the Fund, the Trust or the public
that refer to the Sub-Adviser or its clients in any way prior to use thereof and
not to use material if the Sub-Adviser reasonably objects in writing within five
business days (or such
<PAGE> 7
other period as may be mutually agreed) after receipt thereof. The Sub-Adviser's
right to object to such materials is limited to the portions of such materials
that expressly relate to the Sub-Adviser, its services and its clients. The
Adviser agrees to use its reasonable best efforts to ensure that materials
prepared by its employees or agents or its affiliates that refer to the Sub-
Adviser or its clients in any way are consistent with those materials previously
approved by the Sub-Adviser as referenced in the first sentence of this
paragraph. Sales literature may be furnished to the Sub-Adviser by first-class
or overnight mail, facsimile transmission equipment or hand delivery.
14. SEVERABILITY. Should any part of this Agreement be held invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
15. NOTICES. Any notice, advice or report to be given pursuant to this
Agreement shall be delivered or mailed as set forth below:
To Adviser at:
HighMark Capital Management, Inc.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
Attention: Clark Gates, President
To the Sub-Adviser at:
AXA Asset Management Partenaires
46, Avenue de La Grande Armee
Paris, 75017, France
Attention: Kevin C. Dolan
Chief Executive Officer
To the Trust or the Fund at:
HighMark Funds
c/o SEI Fund Resources
One Freedom Valley Drive
Oaks, Pennsylvania 19456
Attention: Legal Department
Parties agree that they shall not be bound by the terms of any changes
in policies, procedures, or contracts until notice has been received as set
forth in this Agreement.
16. CHANGE OF LAW. Where the effect of a requirement of the '40 Act
reflected in
<PAGE> 8
any provision of this Agreement is altered by a rule, regulation or order of the
Commission, whether of special or general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
17. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and will be governed by the
laws of the Commonwealth of Massachusetts.
The name "HighMark Funds" and "Trustees of the HighMark Funds" refer
respectively to the Trust created by, and the Trustees, as trustees but not
individually or personally, acting from time to time under, the Declaration of
the Trust, to which reference is hereby made and copy of which is on file at the
office of the Secretary of State of the Commonwealth of Massachusetts and
elsewhere as required by law, and to any and all amendments thereto so filed or
hereafter filed. The obligations of "HighMark Funds" entered in the name or on
behalf thereof by any of the Trustees, representatives or agents are made not
individually but only in such capacities and are not binding upon any of the
Trustees, Shareholders or representatives of the trust personally, but bind only
the assets of the Trust, and persons dealing with the Funds must look solely to
the assets of the Trust belonging to such Funds for the enforcement of any
claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officer designated below as of the day and year first above
written.
<PAGE> 9
HIGHMARK CAPITAL MANAGEMENT, INC. AXA ASSET MANAGEMENT PARTENAIRES
By:__________________________ By:_______________________________
Name:________________________ Name:____________________________
Title:_______________________ Title:_____________________________
<PAGE> 10
SCHEDULE A
HIGHMARK INTERNATIONAL EQUITY FUND
Advisory Fee: 95 b.p.
Sub-Advisory Fee: 50 b.p.
The Sub-Advisory fee shall be payable out of the Advisory fee.
<PAGE> 11
SCHEDULE B
SUB-ADVISER PERFORMANCE STANDARDS
Outperform the MSCI Europe, Australia, Far East Index ("MSCI EAFE
Index")* and perform in the top 40% of non-U.S. equity mutual fund universe
(MSCI EAFE benchmark) as measured by Lipper Analytical Services.
Sub-Advisor will diligently perform services as defined under this
Agreement. However, Sub-Advisor makes no representations or guarantees
whatsoever that the objective of the Fund will be achieved or that the Fund will
outperform its benchmark as set forth above.
* The MSCI EAFE Index is an arithmetic, market value-weighted average of the
performance of over 900 securities listed on the stock exchanges of the
following countries in Europe, Australia, and the Far East: Australia, Austria,
Belgium, Denmark, Finland, France, Hong Kong, Ireland, Italy, Japan, Malaysia,
Netherlands, New Zealand. The index is calculated on a total return basis in
U.S. dollars, which includes reinvestment of gross dividends before deduction of
withholding taxes.
<PAGE> 1
HIGHMARK SMALL CAP VALUE FUND
SUB-ADVISORY AGREEMENT
AGREEMENT executed as of August 26, 1998 by HIGHMARK CAPITAL MANAGEMENT, INC.
("HCM"), a California Corporation as an investment adviser registered under the
laws of the United States as an investment adviser under the Investment Advisers
Act of 1940 ("Sub-Adviser") and BRANDES INVESTMENT PARTNERS, L.P. ("Brandes") an
investment adviser registered under the laws of the United States as an
investment adviser under the Investment Advisers Act of 1940 ("Sub-Adviser").
WHEREAS, HCM is the investment adviser for the HighMark Funds (the "Trust"), an
open-end diversified management investment company registered under the
Investment Company Act of 1940, as amended ("40 Act");
WHEREAS, Union Bank of California, N.A. ("Bank"), an affiliate of HCM, serves
as Custodian for the HighMark Funds and provides certain other services for the
Funds;
WHEREAS, SEI Financial Services Company is Administrator and Distributor of the
HighMark Funds; and
WHEREAS, to the provisions of its Advisory Agreement HCM desires to retain
Sub-Adviser as its agent to furnish investment sub-advisory services for
certain assets of the Trust's Small Cap Value Fund (the "Fund").
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. DEFINITIONS. As used herein the following terms shall have the meanings set
forth:
1.1 "33 Act" shall mean the Securities Act of 1933 and the rules and
regulations issued thereunder, as they may be amended from time to time.
1.2 "40 Act" shall mean the Investment Company Act of 1940 and the rules and
regulations issued thereunder, as they may be amended from time to time.
1.3 "Administrator" and "Distributor" shall mean SEI Financial Services
Company.
1.4 "HCM" shall mean HighMark Capital Management, Inc., a California
corporation registered as an investment adviser under the Investment Adviser's
Act of 1940 and which is a wholly owned subsidiary of UnionBanCal Corporation
and an affiliate of Union Bank of California, N.A.
1.5 "Adviser's Act" shall mean the Investment Adviser's Act of 1940 and the
rules and regulations thereunder, as they may be amended from time to time.
-1-
<PAGE> 2
1.6 "Bank" shall mean Union Bank of California, N.A., a national banking
association organized under the laws of the United States.
1.7 "Sub-Adviser" shall mean Brandes Investment Partners, L.P., a California
Partnership registered as an investment adviser under the Investment Adviser's
Act of 1940.
2. APPOINTMENT. Pursuant to the power given to it in its advisory contract
with the HighMark Funds, HCM hereby appoints Sub-Adviser to provide certain
sub-advisory services to the Fund for the period and on the terms set forth in
this Agreement. Sub-Adviser accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided.
3. DELIVERY OF DOCUMENTS. HCM has furnished or will furnish Sub-Adviser with
copies properly certified or authenticated of each of the following:
(a) Copies of the Declarations of Trust establishing the HighMark Funds
and the Bylaws of the Trust;
(b) Resolutions of the Trust's Board of Trustees authorizing the
appointment of Sub-Adviser and approving this Agreement;
(b) The Trust's Registration Statement on Form N-1A under the '33 Act
(File No. 33-37687) and the '40 Act as filed with the SEC and all amendments
thereto insofar as such Registration Statement and such amendments relate to
the Fund;
(c) The Trust's most recent prospectus and Statement of Additional
Information for the Small Cap Value Fund (such prospectus and Statement of
Additional Information, as presently in effect, and all amendments and
supplements thereto are herein collectively called the "Prospectus"); and
(d) Such other materials and documents as Sub-Adviser shall reasonably
request.
HCM will furnish Sub-Adviser with copies of all amendments of or supplements to
the foregoing promptly following adoption of such amendments or supplements.
4. MANAGEMENT:
4.1 Subject always to the supervision of the Trust's Board of Trustees and of
HCM, Sub-Adviser will, without prior consultation with the Trustees or the
Adviser, exercise investment discretion with respect to that portion of the
assets of the Fund allocated to it by Adviser for investment in non-U.S.
securities pursuant to the terms of the Fund's prospectus. Sub-adviser shall
have no authority with respect to the allocation of assets between U.S. and
non-U.S. securities and is therefore indemnified by the Advisor from and against
any losses or damages associated with such allocation by Advisor. Sub-Adviser
may place all orders for the purchase and sale of securities on behalf of the
Fund. Sub-Adviser is also authorized, subject to periodic approvals of
authorized persons by the Board of Trustees, to instruct Custodian to settle
trades executed on behalf of Fund. In the performance of its duties, Sub-Adviser
will satisfy its fiduciary duties to the Fund, will monitor the Fund
investments, and will comply with the provisions of the Trust's Declaration of
Trust and Bylaws, as amended from time to time, with the investment objectives,
policies and restrictions of the Fund stated in the Fund Prospectus,
-2-
<PAGE> 3
and compliance policies and procedures furnished to the Sub-Adviser by HCM from
time to time.
4.2 Sub-Adviser and HCM will each make its officers and employees available to
the other from time to time at reasonable times to review investment policies
of the Fund and to consult with each other regarding the investment affairs of
the Fund. Sub-Adviser shall also make itself reasonably available to the Board
of Trustees at such times as the Board of Trustees shall request.
4.3 Sub-Adviser represents and warrants that it is and shall remain in
compliance with all applicable Rules and Regulations of the SEC pertaining to
its investment advisory activities and agrees that it:
(a) will use at least the same skill and care in providing such services
as it uses in providing services to other investment companies and fiduciary
accounts in the United States for which it has investment responsibilities;
(b) will maintain registration with the SEC as an investment adviser
under the Advisers Act and will conform with all applicable laws, rules and
regulations pertaining to its investment advisory activities;
(c) will place orders pursuant to its investment determinations for the
Fund either directly with the issuer or with any broker or dealer. In providing
the Funds with investment supervision, the Sub-Adviser will give primary
consideration to securing the most favorable price and efficient execution.
Within the framework of this policy, the Sub-Adviser may consider the financial
responsibility, research and investment information and other services provided
by brokers or dealers who may effect or be a party to any such transaction or
other transactions to which the Sub-Adviser's other clients may be a party. It
is understood that it is desirable for the Fund that the Sub-Adviser have access
to supplemental investment and market research and security and economic
analysis provided by brokers who may execute brokerage transactions at a higher
cost to the Fund than may result when allocating brokerage to other brokers on
the basis of seeking the most favorable price and efficient execution.
Therefore, the Sub-Adviser is authorized to place orders for the purchase and
sale of securities for the Fund with such brokers, subject to such guidelines as
shall be established by HCM and reviewed by the Trust's Board of Trustees from
time to time with respect to the extent and continuation of this practice. It is
understood that the services provided by such brokers may be useful to the
Sub-Adviser in connection with the Sub-Adviser's services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale of a security
to be in the best interest of the Fund as well as other clients of the
Sub-Advisers, the Sub-Adviser, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be so purchased or sold in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Sub-Adviser in the manner it considers to be
the most equitable and consistent with its fiduciary obligations to the Fund and
to such other clients. In no instance will portfolio securities be purchased
from or sold to HCM, Sub-Adviser, SEI Financial Services Company or any
affiliated person of either the Trust, HCM, SEI Financial Services Company or
Sub-Adviser
-3-
<PAGE> 4
that HCM has identified to the Sub-Adviser in writing, except as may be
permitted under the '40 Act.
(d) will report regularly to HCM and will make appropriate persons
available for the purpose of reviewing at reasonable times with representatives
of HCM and the Board of Trustees the management of the Fund, including, without
limitation, review of the general investment strategy of the Fund, the
performance of the Fund in relation to standard industry indices which have been
agreed upon between HCM and Sub-Adviser and general conditions affecting the
marketplace and will provide various other reports from time to time as
reasonably requested by HCM;
(e) will maintain books and records with respect to the Trust's securities
transactions required by subparagraphs (b)(5), (6), (7), (9), (10) and (11) and
paragraph (f) of Rule 31a-1 under the '40 Act and will furnish HCM and the
Trust's Board of Trustees such periodic and special reports as HCM or Board of
Trustees may request;
(f) will act upon instructions from HCM so long as such instructions are
not considered by sub-advisor to be inconsistent with its fiduciary duties; and
provided that HCM shall have the right to authorize transactions for the portion
of the Fund over which sub-adviser has investment discretion when necessary for
the protection of the shareholders of the Fund or if HCM believes that
Sub-adviser has breached its obligations under the Agreement;
(g) will treat confidentially and as proprietary information of the Trust
all such records and other information relative to the Trust maintained by the
Sub-Adviser, and will not use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Trust, which approval shall
not be unreasonably withheld and may not be withheld where Sub-Adviser may be
exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Trust.
Sub-Adviser shall have the right to execute and deliver, or cause its nominee
to execute and deliver, all proxies and notices of meetings and other notices
affecting or relating to the securities of the Fund.
4.4 Sub-Advisor will diligently perform services as defined under this
Agreement; however, Sub-Advisor makes no representations or guarantees
whatsoever that the portion of the Fund over which it has discretion will
outperform its benchmark as set forth in Schedule B.
4.5 HCM represents and warrants that it is and shall remain in compliance with
all applicable Rules and Regulations of the SEC pertaining to its investment
advisory activities and agrees that it:
(a) will treat confidentially and as proprietary information of Sub-Advisor all
information relative to the Sub-Advisor's trading, and will not use such records
and information for any purpose other than performance of its responsibilities
and duties the Trust, except after prior notification to and approval in writing
which approval shall not be unreasonably withheld and may not be withheld where
HCM may be exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Trust.
-4-
<PAGE> 5
with Schedule A hereto. From time to time, Sub-Adviser may, in its sole
discretion, agree to waive or reduce some or all of the compensation to which
it is entitled under this Agreement.
8. SERVICES TO OTHERS. HCM understands, and has advised the Trust's Board of
Trustees, that Sub-Adviser now acts and may in the future act, as an investment
adviser to fiduciary and other managed accounts, and as investment adviser,
sub-investment adviser, and/or administrator to other investment companies.
HCM has no objection to Sub-Adviser's acting in such capacities, as long as
such services do not impair the services rendered to HCM or the Trust. HCM
recognizes, and has advised the Trust's Board of Trustees, that in some cases
this procedure may adversely affect the size of the position that the Fund may
obtain in a particular security. In addition, HCM understands, and has advised
the Trust's Board of Trustees, that the persons employed by Sub-Adviser to
assist in Sub-Adviser's duties under this Agreement will not devote their full
time to such service and nothing contained in this Agreement will be deemed to
limit or restrict the right of Sub-Adviser or any of its affiliates to engage
in and devote time and attention to other businesses or to render services of
whatever kind or nature.
9. LIMITATION OF LIABILITY. The Sub-Adviser shall not be liable for any error or
judgment or for any loss suffered by the Fund or HCM in connection with
performance of its obligations under this Agreement or for having executed
Advisor's instructions, except a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services (in which case any
award of damages shall be limited to the period and the amount set forth in
Section 36(b)(3) of the '40 Act), or a loss resulting from willful misfeasance,
bad faith or gross negligence on the Sub-Adviser's part in the performance of
its obligations or in failing to perform its obligations under this Agreement,
except as may otherwise be provided under provisions of applicable state or
federal law which cannot be waived or modified hereby.
10. INDEMNIFICATION.
(a) HCM and Sub-Adviser each agree to indemnify the other against any claim
against, loss or liability to such other party (including reasonable attorneys'
fees) arising out of any action on the part of the indemnifying party which
constitutes willful misfeasance, bad faith or gross negligence.
(b) HCM acknowledges that Sub-Adviser has no authority or responsibility with
respect to the structure of the Fund, the promotion, marketing or sale of the
Fund's shares, the Fund's relations or dealings with investors and shareholders,
the disclosure provided to investors and shareholders or the supervision of the
day-to-day activities of HCM, any custodian, other investment advisers, or any
administrator. HCM agrees to indemnify and hold harmless Sub-Adviser and each
person who controls or is controlled by Sub-Adviser against any and all losses,
claims, damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses) and any amount paid in settlement of
any action, suit or proceeding or any claim asserted, as incurred, to which any
of them may become subject under any applicable law or otherwise, insofar as
such losses, claims, damages or liabilities arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Fund's prospectus or any amendment thereof, or any omission or alleged
omission to state therein a material fact required by any applicable law to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading under applicable law;
(ii) the issue, sale and distribution of the Fund's shares; (iii) any action
taken or omitted to be taken by Sub-Adviser with the written consent of,
-6-
<PAGE> 6
pursuant to the written instructions given by, or in reliance on written
information provided by, HCM; (iv) any action taken or omitted to be taken by
the Adviser to the Fund; (v) any breach by the Adviser of any representation or
warranty, or any failure by the Adviser to comply with any agreement contained
in this Agreement or (vi) any action taken or omitted to be taken by
administrator or custodian (A) without or contrary to instructions given by
Sub-Adviser, (B) with the consent of or pursuant to instructions given by the
Adviser. The indemnification obligations under this Section 10 will be in
addition to any liability that the Adviser may otherwise have.
11. DURATION AND TERMINATION. This Agreement will become effective as of the
date hereof, provided that it has been approved by vote of a majority of the
outstanding voting securities of the Fund in accordance with the requirements
under the '40 Act, and, unless sooner terminated as provided therein, will
continue in effect for two (2) years.
Thereafter, if not terminated, this Agreement will continue in effect for the
Funds for successive periods of 12 months, each ending on the day preceding the
anniversary of the Agreement's effective date of each year, provided that such
continuation is specifically approved at least annually (a) by the vote of a
majority of those members of the Trust's Board of Trustees who are not
interested persons of the Trust, Sub-Adviser, or HCM, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the vote
of a majority of the Trust's Board of Trustees or by the vote of majority of all
votes attributable to the outstanding Shares of the Fund.
Notwithstanding anything to the contrary, this Agreement may be terminated as to
the Fund at any time, without the payment of any penalty, on sixty (60) day's
written notice by HCM to Sub-Adviser. This Agreement may be terminated at any
time, without the payment of any penalty, on 60 day's written notice by the
Sub-Adviser to HCM. This Agreement will immediately terminate in the event of
its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities", "interested persons" and "assignment" have the
same meaning of such terms in the '40 Act.)
12. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought.
13. SUB-ADVISER INFORMATION. During the terms of this Agreement, HCM agrees to
furnish the Sub-Adviser at Sub-Adviser's principal office all prospectuses,
proxy statements, reports to stockholders, sales literature or other materials
prepared for distribution to stockholders of the Fund, the Trust or the public
that refer to the Sub-Adviser or its clients in any way prior to use thereof and
not to use material if the Sub-Adviser reasonably objects in writing within five
business days (or such other period as may be mutually agreed) after receipt
thereof. The Sub-Adviser's right to object to such materials is limited to the
portions of such materials that expressly relate to the Sub-Adviser, its
services and its clients. HCM agrees to use its reasonable best efforts to
ensure that materials prepared by its employees or agents or its affiliates that
refer to the Sub-Adviser or its clients in any way are consistent with those
materials previously approved by the Sub-Adviser as referenced in the first
sentence of this paragraph. Sales literature may be furnished to the Sub-Adviser
by first-class or overnight mail, facsimile transmission equipment or hand
delivery.
14. SEVERABILITY. Should any part of this Agreement be held invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This
-7-
<PAGE> 7
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors.
15. NOTICES. Any notice, advice or report to be given pursuant to this Agreement
shall be delivered or mailed as set forth below:
To HCM at:
HighMark Capital Management, Inc.
475 Sansome Street, 14th Fl.
San Francisco, CA 94111
Attention: Clark Gates, President
To the Sub-Adviser at:
Brandes Investment Partners, LP
12750 High Bluff Drive
San Diego, CA 92130
Attn: General Counsel
Fax: 619-755-0916
To the Trust or the Fund at:
HighMark Funds
c/o SEI Fund Resources
One Freedom Valley Rd.
Oaks, Pennsylvania 19456
Attention: Legal Department
Parties agree that they shall not be bound by the terms of any changes in
policies, procedures, or contracts until notice has been received as set forth
in this Agreement.
16. CHANGE OF LAW. Where the effect of a requirement of the '40 Act reflected in
any provision of this Agreement is altered by a rule, regulation or order of the
Commission, whether of special or general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
17. MISCELLANEOUS.
This Agreement shall be effective July 1, 1998 or such later date that the Fund
is activated. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement is held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement will not be affected thereby. This
Agreement will be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and will be governed by the laws of the
Commonwealth of Massachusetts.
The name "HighMark Funds" and "Trustees of the HighMark Funds" refer
respectively to the Trust created by, and the Trustees, as trustees but not
individually or personally, acting from time to time under, the Declaration of
the Trust, to which reference is hereby made and copy of
-8-
<PAGE> 8
which is on file at the office of the Secretary of State of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "HighMark Funds" entered
in the name or on behalf thereof by any of the Trustees, representatives or
agents are made not individually but only in such capacities and are not binding
upon any of the Trustees, Shareholders or representatives of the trust
personally, but bind only the assets of the Trust, and persons dealing with the
Funds must look solely to the assets of the Trust belonging to such Funds for
the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officer designated below as of the day and year first above
written.
HighMark Capital Management, Inc. BRANDES Investment Partners, LP
By: /s/ Milton Fukuda By: /s/ Jeffrey A. Busby
----------------- --------------------
Name: Milton Fukuda Name: Jeffrey A. Busby
Title: Managing Director Title: Managing Partner
-9-
<PAGE> 9
SCHEDULE A
HIGHMARK SMALL CAP VALUE FUND
Advisory Fee to HCM: 1% of the average daily net assets of the Fund
Sub-Advisory Fee: 50 b.p. of the average daily net assets of that portion of
the Fund subject to Brandes' management
The Sub-Advisory fee shall be payable out of HCM's management fee
-10-
<PAGE> 10
SCHEDULE B
SUB-ADVISER PERFORMANCE STANDARDS
Outperform the Goldman Sachs Financial Times/S&P Actuaries World Ex-U.S. Index
This benchmark is subject to change by written agreement of the parties
-11-
<PAGE> 1
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, D.C. 20005-3333
WRITER'S DIRECT DIAL NUMBER: (202)626-3915
November 30, 1998
HighMark Funds
Oaks, Pennsylvania 19456
Ladies and Gentlemen:
You have registered under the Securities Act of 1933, as amended (the
"1933 Act") an indefinite number of shares of beneficial interest ("Shares") of
the HighMark Funds ("Trust"), as permitted by Rule 24f-2 under the Investment
Company Act of 1940, as amended (the "1940 Act"). You propose to file a
post-effective amendment on Form N-1A (the "Post-Effective Amendment") to your
Registration Statement as required by Section 10(a)(3) in order to update
certain financial information and file the annual amendment required by the 1940
Act.
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 Class A, Class B and Fiduciary Shares of the Series
have been duly authorized under Massachusetts law. Upon the original issue and
sale of your authorized but unissued Class A, Class B and Fiduciary Shares and
upon receipt of the authorized consideration therefor in an amount not less than
the net asset value of the Class A, Class B and Fiduciary Shares established and
in force at the time of their sale, the Class A, Class B and Fiduciary Shares
issued will be validly issued, fully paid and non-assessable.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust provides for indemnification out
of the property of a particular series of Shares for all loss and expenses of
any shareholder of that series held personally liable solely by reason of his
being or having been a shareholder. Thus, the risk of shareholder liability is
limited to
<PAGE> 2
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,
/s/ Ropes & Gray
Ropes & Gray
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 25 to Registration
Statement under the Securities Act of 1933, filed under Registration Statement
No. 033-12608 of our report dated September 14, 1998, relating to The HighMark
Funds, including Diversified Money Market Fund, U.S. Government Money Market
Fund, 100% U.S. Treasury Money Market Fund, California Tax-Free Money Market
Fund, Bond Fund, Income Equity Fund, Intermediate-Term Bond Fund, California
Intermediate Tax-Free Bond Fund, Convertible Securities Fund, Government
Securities Fund, Value Momentum Fund, Blue Chip Growth Fund, Emerging Growth
Fund, International Equity Fund, Balanced Fund, and Growth Fund, incorporated by
reference in such Registration Statement and to the references to us under the
headings "Financial Highlights" and "Auditors" in such Registration Statement.
DELOITTE & TOUCHE LLP
San Francisco, California
November 24, 1998
<PAGE> 1
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. 25 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.
November 30, 1998
<PAGE> 1
RESTATED SHAREHOLDER SERVICES PLAN
HIGHMARK FUNDS
This Plan (the "Plan") constitutes the Restated Shareholder Services Plan
of HighMark Funds, a Massachusetts business trust (the "Trust"). The Plan
relates solely to the Fiduciary units of beneficial interest ("Fiduciary
Shares") of the Trust's investment portfolios identified on Schedule A hereto
and as such may be amended from time to time (individually, a "Fund").
WHEREAS, it is desirable to enable the Trust to have flexibility in
meeting the investment and shareholder servicing needs of its future
investors: and
NOW, THEREFORE, the Trust and SEI Investments Distribution Co. hereby
agree as follows:
SECTION 1. Any officer of the Trust is authorized to execute and deliver,
in the name and on behalf of the Trust written agreements ("Servicing
Agreements") with financial institutions which are shareholders of record or
which have a servicing relationship ("Service Organizations") with the
beneficial owners of a class of the Trust's shares of beneficial interest
("Shares") of one or more of the Funds. Such Servicing Agreements shall require
the Service Organizations to provide support services as set forth therein and
as described in the Trust's applicable Prospectuses to their customers who own
of record or beneficially Shares in consideration for fee, computed daily and
paid monthly in the manner set forth in the Servicing Agreements, at the annual
rate of .25% of the average daily net asset value of Shares owned of record or
beneficially by such customers. Any bank, trust company, thrift institution,
broker-dealer (including SEI Investments Distribution Co., the Distributor) or
other financial institution is eligible to become a Service Organization and to
receive fees under this Plan. All expenses incurred by the Trust with respect to
Shares of a particular Fund in connection with the Servicing Agreements and the
implementation of this Plan shall be borne entirely by the holders of Shares of
the Fund.
SECTION 2. The Plan shall not take effect until it has been approved,
together with any related agreements, by vote of a majority of the Trustees who
are not "interested persons" of the Trust (as defined in the Investment Company
Act of 1940) and who have no direct or indirect financial interest in the
operation of this Plan (the "Disinterested Trustees"), cast in person at a
meeting called for the purpose of voting on the Plan or such Servicing
Agreement, provided , however, that the Plan shall not be implemented for a
particular Fund prior to the effective date of the post-effective amendment to
the Trust's registration statement describing the Plan and its implementation
with respect to that Fund.
SECTION 3. This Plan shall continue in effect for a period of more than
one year after it takes effect only for so long as such continuance is
specifically approved at least annually in the manner provided in Section 2
herein for the approval of this Plan.
SECTION 4. Any person authorized to direct the disposition of monies paid
or payable
<PAGE> 2
by a Fund pursuant to this Plan or any related agreement shall provide to the
Trustees of the Trust, and the Trustees shall review, at least quarterly, a
written report of the amounts so expended and the purposes for which such
expenditures were made.
SECTION 5. This Plan may be terminated with respect to a Fund at any time
by vote of a majority of the Independent Trustees.
SECTION 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time with respect to a
Fund at any time, without payment of any penalty, by vote of a majority of the
Independent Trustees on not more than 60 days' written notice; and
B. That such agreement shall terminate automatically in the event of its
assignment.
SECTION 7. This Agreement will be construed in accordance with the laws of
the Commonwealth of Massachusetts.
SECTION 8. References to the "Trust" and the "Trustees" of the Trust refer
respectively to the Trust created and the Trustees as trustees, but not
individually or personally, acting from time to time under the Declaration of
Trust of the Trust dated March 10, 1987, a copy of which is on file with the
Secretary of the Commonwealth of Massachusetts and at the Trust's principal
office. The obligations of the Trust entered into in the name or on behalf
thereof by any of the Trustees, officers, representatives, or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders, officers, representatives, or agents of the Trust
personally. Further, any obligations of the Trust with respect to any one Fund
shall not be binding upon any other Fund.
HIGHMARK FUNDS
BY: ___________________
TITLE: _________________
SEI INVESTMENTS DISTRIBUTION CO.
BY: ________________________
TITLE: ______________________
Adopted June 17, 1998.
<PAGE> 3
Schedule A to the Restated Shareholder Services Plan
between HighMark Funds and
SEI Investments Distribution Co.
Dated as of June 17, 1998
NAME OF FUND
Diversified Money Market Fund
U.S. Government Money Market Fund
100% U.S. Treasury Money Market Fund
California Tax-Free Money Market Fund
Income Equity Fund
Value Momentum Fund
Emerging Growth Fund
Intermediate-Term Bond Fund
Government Securities Fund
Convertible Securities Fund
Blue Chip Growth Fund
International Equity Fund
Bond Fund Balanced Fund
Growth Fund
California Intermediate Tax-Free Bond Fund
Small-Cap Value Fund
HIGHMARK FUNDS
By: _________________
Title: ________________
SEI INVESTMENTS DISTRIBUTION CO.
By: ____________________________
Title: ___________________________
A-1
<PAGE> 1
RESTATED DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
HIGHMARK FUNDS
This Plan (the "Plan") constitutes the Restated Distribution and
Shareholder Services Plan of HighMark Funds, a Massachusetts business trust (the
"Trust"), adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act"). The Plan relates solely to the Class A units of
beneficial interest ("Class A Shares") of the Trust's investment portfolios
identified on Schedule A hereto and as such may be amended from time to time
(individually, a "Plan Fund").
WHEREAS, it is desirable to enable the Trust to have flexibility in
meeting the investment and shareholder servicing needs of its future
investors: and
WHEREAS, the Board of Trustees, mindful of the requirements imposed by
Rule 12b-1 under the 1940 Act, as determined to effect the Plan for the
provision of distribution assistance with respect to the Class A Shares of each
Plan Fund and for the provision of shareholder services with respect to the
holders of the Class A Shares of each Plan Fund;
NOW, THEREFORE, the Trust and SEI Investments Distribution Co. hereby
agree as follows:
SECTION 1. A Plan Fund shall pay out of the assets attributable to its
Class A Shares a distribution fee to SEI Investments Distribution Co. (the
"Distributor") at an annual rate equal to .25% of the average daily net assets
of the Plan Fund's Class A Shares (the "Distribution Fee"). The Distributor may
apply the Distribution Fee toward the following: (i) compensation for its
services in connection with distribution assistance with respect to the Plan
Fund's Class A Shares; (ii) payments to financial institutions and
intermediaries (such as savings and loan associations, insurance companies, and
investment counselors but not including banks), broker-dealers, and the
Distributor's affiliates or subsidiaries as compensation for services or
reimbursement of expenses incurred in connection with distribution assistance
with respect to the Plan Fund's Class A Shares; (iii) or payments to banks,
other financial institutions and intermediaries, broker-dealers, and the
Distributor's affiliates or subsidiaries as compensation for services or
reimbursement of expenses incurred with the provision of shareholder services to
the holders of the Plan Fund's Class A Shares.
SECTION 2. The Distribution Fee shall be accrued daily and payable
monthly, and shall be paid by each Plan Fund to the Distributor irrespective of
whether such fee exceeds the amounts paid (or payable) by the Distributor
pursuant to Section 1.
SECTION 3. Any officer of the Trust is authorized to execute and deliver,
in the name and on behalf of the Trust written agreements ("Servicing
Agreements") with financial institutions which are shareholders of record or
which have a servicing relationship ("Service Organizations") with the
beneficial owners of a class of the Trust's shares of beneficial interest
("Shares") of one or more of the Plan Funds. Such Servicing Agreements shall
require the
<PAGE> 2
Service Organizations to provide support services as set forth therein and as
described in the Trust's applicable Prospectuses to their customers who own of
record or beneficially Shares in consideration for fee, computed daily and paid
monthly in the manner set forth in the Servicing Agreements, at the annual rate
of .25% of the average daily net asset value of Shares owned of record or
beneficially by such customers. Any bank, trust company, thrift institution,
broker-dealer (including the Distributor) or other financial institution is
eligible to become a Service Organization and to receive fees under this Plan.
All expenses incurred by the Trust with respect to Shares of a particular Plan
Fund in connection with the Servicing Agreements and the implementation of this
Plan shall be borne entirely by the holders of Shares of the Plan Fund.
SECTION 4. The Plan shall not take effect with respect to a Plan Fund
until it has been approved by a vote of at least a majority of the Plan Fund's
Shares.
SECTION 5. The Plan shall not take effect until it has been approved,
together with any related agreements, by votes of the majority (or whatever
greater percentage may, from time to time, be required by Section 12 (b) of the
1940 Act or the rules and regulations thereunder) of both (a) the Trustees of
the Trust and (b) the Independent Trustees of the Trust cast in person at a
meeting called for the purpose of voting on the Plan or such agreement.
SECTION 6. This Plan shall continue in effect for a period of more than
one year after it takes effect only for so long as such continuance is
specifically approved at least annually in the manner provided in Part (b) of
Section 5 herein for the approval of this Plan.
SECTION 7. Any person authorized to direct the disposition of monies paid
or payable by a Plan Fund pursuant to this Plan or any related agreement shall
provide to the Trustees of the Trust, and the Trustees shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
SECTION 8. This Plan may be terminated with respect to a Plan Fund at any
time by vote of a majority of the Independent Trustees, or by vote of a majority
of the Plan Fund's outstanding Shares.
SECTION 9. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time with respect to a
Plan Fund at any time, without payment of any penalty, by vote of a majority of
the Independent Trustees, or by vote of a majority of the Shares of such Plan
Fund subject to the agreement, on not more than 60 days' written notice; and
B. That such agreement shall terminate automatically in the event of its
assignment.
SECTION 10. This Plan may not be amended to increase materially the amount
of the
<PAGE> 3
Distribution Fee with respect to a Plan Fund without approval in the manner
provided in
-2-
<PAGE> 4
Sections 5 and 6 hereof, and all material amendments to the Plan with respect to
a Plan Fund shall be approved in the manner provided for approval of the Plan in
Section 5.
SECTION 11. As used in the Plan, (a) the term "Independent Trustees" shall
mean those Trustees of the Trust who are not interested persons of the Trust,
and have no direct or indirect financial interest in the operation of this Plan
or any agreements related to it, and (b) the terms "assignment" and "interested
person," and "majority of the outstanding voting securities" shall have the
respective meanings specified in the 1940 Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.
HIGHMARK FUNDS
BY: ___________________
TITLE: _________________
SEI INVESTMENTS DISTRIBUTION CO.
BY: ________________________
TITLE: ______________________
Adopted June 17, 1998.
-3-
<PAGE> 5
Schedule A to the Restated Distribution and Shareholder Services Plan
between HighMark Funds and
SEI Investments Distribution Co.
Dated as of June 17, 1998
NAME OF FUND
Diversified Money Market Fund
U.S. Government Money Market Fund
100% U.S. Treasury Money Market Fund
California Tax-Free Money Market Fund
Income Equity Fund
Value Momentum Fund
Emerging Growth Fund
Intermediate-Term Bond Fund
Government Securities Fund
Convertible Securities Fund
Blue Chip Growth Fund
International Equity Fund
Bond Fund Balanced Fund
Growth Fund
California Intermediate Tax-Free Bond Fund
Small-Cap Value Fund
HIGHMARK FUNDS
By: _________________
Title: ________________
SEI INVESTMENTS DISTRIBUTION CO.
By: ____________________________
Title: ___________________________
A-1
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