<PAGE> 1
As filed with the Securities and Exchange Commission
on September 20, 1999
Registration Nos. 33-12608 and 811-5059
---------------------------------------
----------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.
Post-Effective Amendment No. 27 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT [X]
COMPANY ACT OF 1940
Amendment No. 28 [X]
HIGHMARK FUNDS
(Exact Name of Registrant as Specified in Charter)
Oaks, Pennsylvania 19456
------------------------
(Address of principal executive offices)
(800) 433-6884
--------------
(Registrant's telephone number, including area code)
Name and address of agent for service:
--------------------------------------
Martin E. Lybecker, Esq.
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b), or
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[X] on November 24, 1999 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
Part A
<TABLE>
<CAPTION>
Form N-1A Item No. Prospectus Caption
- ------------------ ------------------
HIGHMARK FUNDS
--------------
EQUTIY/FIXED INCOME FUNDS - RETAIL SHARES
<S> <C>
1. Front and Back Cover Pages ....................................... Cover Page; Back Page
2. Risk/Return Summary:
Investments, Risks and Performance................................ Individual HighMark Funds Profiles
3. Risk/Return Summary: Fee Table................................... Individual HighMark Funds Profiles
4. Investment Objectives, Principal Investment
Strategies, and Related Risk .................................... Individual HighMark Funds Profiles;
More About the HighMark Fund --
Investment Practices; More About the
HighMark Funds -- Glossary of Investment Risks
5. Management's Discussion of the Fund
Performance....................................................... Inapplicable
6. Management, Organization and Capital
Structure......................................................... More About the HighMark Funds - Investment Management
7. Shareholder Information........................................... Shareowner Guide - How to Invest in the HighMark Funds
8. Distribution Arrangements ........................................ Shareowner Guide - How to Invest in the HighMark Funds
9. Financial Highlights Information.................................. Financial Highlights
</TABLE>
<PAGE> 3
HIGHMARK FUNDS
EQUITY FUNDS
FIXED-INCOME FUNDS
EQUITY FUNDS
Balanced Fund
Growth Fund
Income Equity Fund
International Equity Fund
Small Cap Value Fund
Value Momentum Fund
FIXED-INCOME FUNDS
Bond Fund
California Intermediate Tax-Free Bond Fund
Intermediate-Term Bond Fund
RETAIL SHARES
PROSPECTUS
November 30, 1999
The Securities and Exchange Commission has not approved or disapproved of these
securities or determined whether this prospectus is accurate or complete. Any
representation to the contrary is unlawful.
1
<PAGE> 4
HOW TO READ THIS PROSPECTUS
HighMark Funds is a mutual fund family that offers different classes of Shares
in separate investment portfolios (Funds). The Funds have various investment
goals and strategies. This prospectus gives you important information about the
Class A, Class B and Class C Shares of HighMark's Equity and Fixed-Income funds
that you should know before investing. Each Fund also offers a class of Shares
called Fiduciary Shares, which are offered in a separate prospectus. In
addition, the HighMark Value Momentum Fund offers a class of Shares called Class
I Shares.
Please read this prospectus and keep it for future reference. The prospectus is
arranged into different sections so that you can easily review this important
information. The next page contains general information you should know about
investing in the HighMark Funds.
INDIVIDUAL HIGHMARK FUND PROFILES EQUITY FUNDS
X Balanced Fund
X Growth Fund
X Income Equity Fund
X International Equity Fund
X Small Cap Value Fund
X Value Momentum Fund
FIXED-INCOME FUNDS
X Bond Fund
X California Intermediate Tax-Free Bond
Fund
X Intermediate-Term Bond Fund
SHAREOWNER GUIDE--HOW TO INVEST IN THE HIGHMARK FUNDS
X Choosing a Share Class
X How Sales Charges Are Calculated
X Sales Charge Reductions and Waivers
X Fees for Distribution of Shares
X Opening an Account
X Buying Shares
X Selling Shares
X Exchanging Shares
X Transaction Policies
X Dividends and Distributions
X Taxes
X Investor Services
MORE ABOUT THE HIGHMARK FUNDS
X Investment Management
X Financial Highlights
X Investment Practices
X Glossary of Investment Risks
FOR MORE INFORMATION ABOUT HIGHMARK FUNDS, PLEASE SEE THE BACK COVER OF THE
PROSPECTUS
- --------------------------------------------------------------------------------
[FUND SUMMARY ICON] Fund Summary
[INVESTMENT STRATEGY ICON] Investment Strategy
[WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND? ICON] What Are The Main
Risks Of Investing In This Fund?
[PERFORMANCE INFORMATION ICON] Performance Information
[FEES AND EXPENSES ICON] Fees And Expenses
[YOUR ACCOUNT ICON] Your Account
[INVESTMENT MANAGEMENT ICON] Investment Management
[FINANCIAL HIGHLIGHTS ICON] Financial Highlights
[ADDITIONAL INVESTMENT PRACTICES AND RISKS ICON] Additional Investment Practices
And Risks
November 30, 1999
- --------------------------------------------------------------------------------
2
<PAGE> 5
INTRODUCTION
Each HighMark Fund is a mutual fund. A mutual fund pools shareholders' money
and, using professional investment managers, invests it in securities such as
stocks and bonds. Before you look at specific HighMark Funds, you should know a
few basics about investing in mutual funds.
The value of your investment in a mutual fund is based on the market prices of
the securities the fund holds. These prices change daily due to economic trends
and other developments that generally affect securities markets, as well as
those that affect particular firms and other types of issuers. These price
movements, also called volatility, vary depending on the types of securities a
fund owns and the markets where these securities trade.
AS WITH OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR INVESTMENT IN A MUTUAL
FUND. YOUR INVESTMENT IN THE HIGHMARK FUNDS IS NOT A DEPOSIT OR AN OBLIGATION OF
UNION BANK OF CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK. IT IS NOT INSURED BY
THE FDIC OR ANY GOVERNMENT AGENCY.
Each HighMark Fund has its own investment goal and strategies for reaching that
goal. There is no guarantee that a Fund will achieve its goal. Before investing,
make sure that the Fund's goal matches your own.
The portfolio manager invests each Fund's assets in a way that he or she
believes will help the Fund achieve its goal. A manager's judgments about the
securities markets, economy and companies, and his or her investment selection,
may cause a Fund to underperform other funds with similar objectives.
3
<PAGE> 6
BALANCED FUND
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek capital
appreciation and income;
conservation of capital is
a secondary consideration.
- -----------------------------------------------------------------------------------------------------
Investment Focus U.S. common stocks and investment
grade bonds
- -----------------------------------------------------------------------------------------------------
Principal Investment Strategy Diversifies across market
segments and investment
styles, including value and
growth stocks as well as
various types of bonds.
- -----------------------------------------------------------------------------------------------------
Share Price Volatility Moderate
- -----------------------------------------------------------------------------------------------------
Investor Profile Investors seeking the growth
potential of stocks with the
diversification value of bonds
- -----------------------------------------------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark Balanced Fund seeks capital appreciation and income. Conservation of
capital is a secondary consideration. To pursue these goals, the Fund normally
invests between 50% and 70% of its assets in equity securities, primarily common
stocks, and at least 25% of its assets in fixed-income securities, primarily
bonds. Within these ranges, the Fund's specific allocation among equity
securities and fixed-income securities will vary depending on the portfolio
managers' assessment of business, economic and market conditions.
The Fund may invest in bonds of various maturities and types, including those
issued by U.S. and foreign governments or companies, mortgage-backed securities
and asset-backed securities. At least 90% of the bonds will be investment grade
at the time of purchase.
To select bonds for the Fund, the managers consider such factors as the
potential direction of interest rates and the U.S. economy; the outlook for one
sector of the bond market versus another; and the value that one bond may
represent versus another. They also consider the financial strength of each
issuer and the possibility that its credit rating may be upgraded or downgraded.
The Fund may continue to hold a bond that has been downgraded if the managers
believe it is in shareholders' best interest to do so.
4
<PAGE> 7
To choose stocks for the Fund, the managers employ a dual strategy, focusing on
value stocks in one portion of the Fund's stock portfolio and growth stocks in
the other. Although the managers generally divide the Fund's stock portfolio
evenly between value and growth stocks, they may emphasize one style over the
other depending on economic trends.
The Fund may invest in other types of securities in addition to those described
above. In an effort to preserve the value of your investment under volatile
market conditions, the managers may invest more than 20% of the Fund's assets in
very short-term debt obligations called money market securities. Such a strategy
could make it more difficult for the Fund to achieve its objective of capital
appreciation and income.
(For a more complete description of the various securities in which the Fund can
invest, please see Investment Practices on page X.)
SIDEBAR: Value stocks are those issued by companies that the managers believe
may be undervalued relative to their earnings, financial strength or other
qualities. Growth stocks are those issued by companies that have a record of
achieving consistent earnings and sales growth.
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Market Risk: The possibility that the Fund's stock holdings will
decline in price because of a broad stock market decline. Stock
markets generally move in cycles, with periods of rising prices
followed by periods of falling prices. The value of your investment
will tend to increase or decrease in response to these movements.
Interest Rate Risk: The possibility that the value of the Fund's
investments will decline due to an increase in interest rates.
Generally, the longer the average maturity of the Fund's fixed income
portion, the greater its interest rate risk.
Credit Risk: The possibility that a bond issuer cannot make timely
interest and principal payments on its bonds. The lower a bond's
rating, the greater its credit risk.
Investment Style Risk: The possibility that the types of securities on
which this Fund focuses will underperform other kinds of investments
or the overall market.
If the Fund invests in securities with additional risks, its share-price
volatility accordingly could be greater and its performance lower. In addition,
the Fund may trade securities actively, which could increase its transaction
costs (thereby lowering its performance) and may increase the amount of taxes
that you pay on your investment. For more information about these risks, please
see the Glossary of Investment Risks on page ___.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the Fund's performance from year to year. If
sales charges had been reflected, the Fund's returns would be less than those
shown below.*
5
<PAGE> 8
[INSERT BAR CHART]
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
------- -------
( ) ( )
------ ------
</TABLE>
*The performance information above is based on a calendar year. The Fund's total
return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98, to those of the S&P 500 Index and the Lehman Brothers Aggregate Bond
Index.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (11/13/92)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCED FUND
Class A Shares (with a 4.50% sales charge) % % %
- ------------------------------------------------------------------------------------------------
Class B Shares(1) % % %
- ------------------------------------------------------------------------------------------------
S&P 500 INDEX(2) % % %
- ------------------------------------------------------------------------------------------------
LEHMAN BROTHERS AGGREGATE BOND INDEX(3) % % %
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Class B Shares commenced operations on 2/2/98. The Fund's performance prior
to that date is represented by the performance of its Class A Shares, with an
adjustment for the distribution/service (12b-1) fees of Class B Shares.
(2) The unmanaged S&P 500 Index is generally representative of the performance
of large companies in the U.S. stock market.
(3) The unmanaged Lehman Brothers Aggregate Bond Index is generally
representative of the bond market as a whole.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the shareholder fees that you would pay directly from your
investment if you purchased or sold Fund Shares.
SHAREHOLDER FEES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase 5.50% 0% 1.00%
(as a percentage of offering price)*
Maximum Deferred Sales Charge (Load) 0% 5.00% 0%
(as a percentage of net asset value)**
</TABLE>
6
<PAGE> 9
<TABLE>
<S> <C> <C> <C>
Redemption Fee (as a percentage 0% 0% 0%
of amount redeemed, if applicable)***
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
** If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
The table below describes the expenses that you would pay indirectly if you held
Fund Shares.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution/Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses %* %* %*+
------- ------- -------
Total Annual Fund Operating Expenses %* %* %*
</TABLE>
+Because Class C Shares are new, "Other Expenses" for Class C Shares are based
on estimated amounts for the current fiscal year.
*During the past fiscal year, "Other Expenses" were waived by __% or reimbursed
by ___ % for the Class A Shares and ___ % for Class B Shares. For the current
fiscal year, Other Expenses are expected to be waived by __% or reimbursed by
__% for the Class C Shares. These waivers and reimbursements are voluntary and
may be terminated at any time. Accordingly, the Fund's actual annual operating
expenses for Class A, Class B and Class C Shares were, or are expected to be, as
follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution/Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses % % %
----- ----- -----
Total Annual Fund Operating Expenses % % %
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
7
<PAGE> 10
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A Shares $___ $___ $___ $___
Class B Shares
If you do not sell your Shares: $___ $___ $___ $___
If you sell your Shares at the
end of the period: $___ $___ $___ $___
Class C Shares $___ $___ $___ $___
</TABLE>
8
<PAGE> 11
GROWTH FUND
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<CAPTION>
<S> <C>
Investment Goal To seek long-term capital appreciation
through investments in equity securities;
current income is incidental
- -----------------------------------------------------------------------------------------------------------
Investment Focus U.S. common stocks
- -----------------------------------------------------------------------------------------------------------
Principal Investment Strategy Seeks to invest in companies offering
above-average growth potential
- -----------------------------------------------------------------------------------------------------------
Share Price Volatility Moderate to High
- -----------------------------------------------------------------------------------------------------------
Investor Profile Long-term investors seeking capital
appreciation
- -----------------------------------------------------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark Growth Fund seeks long term capital appreciation through investments in
equity securities. The production of current income is an incidental objective.
To pursue its main goal, the Fund invests at least 65% of its assets in equity
securities, primarily in the stocks of medium to large U.S. growth-oriented
companies that the portfolio managers believe are also financially stable.
"Growth-oriented companies" are those whose earnings are growing at a faster
rate than the market as a whole, or have the potential to do so. Other
attributes the portfolio managers seek in a company include:
- - above-average return on capital (an indication that a firm has employed
its investors' money effectively)
- - free cash flow (an indication that a firm has managed its assets and
liabilities well)
- - recurring revenues (an indication that a firm has a fairly steady source
of income)
- - an attractive share price versus the firm's earnings and other
characteristics
- - competitive advantages such as a solid brand identity and unique products
or services
- - a capable management team
In addition to those described above, the Fund may invest in other types of
securities, including bonds. In an effort to preserve the value of your
investment under volatile market conditions, the managers may invest more than
35% of the Fund's assets in very short-term debt obligations called money market
securities. Such a strategy could make it more difficult for the Fund to achieve
its goals. For a more complete description of the various securities in which
the Fund can invest, please see Investment Practices on page X.
SIDEBAR: Companies are considered to have a medium market capitalization if
their capitalization is within the range of those companies in the S&P 400
Mid-Cap Index. Companies are considered to have a
9
<PAGE> 12
large market capitalization if their capitalization is within the range of those
companies in the S&P 500 Large Cap Index. Growth-oriented companies are those
that have a record of achieving consistent earnings and sales growth or are
expected to grow rapidly in the future.
[YIELD ICON] WHAT ARE THE MAIN
RISKS OF INVESTING IN THIS FUND?
Market Risk: The possibility that the Fund's stock holdings will
decline in price because of a general decline in the stock market.
Markets generally move in cycles, with periods of rising prices
followed by periods of falling prices. The value of your investment
will tend to increase or decrease in response to these movements.
Investment Style Risk: The possibility that the kind of stocks on
which this Fund focuses--those of medium to large U.S. growth
companies--will underperform other types of stock investments or the
market as a whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the amount
of taxes that you pay. For more information about these risks, please see the
Glossary of Investment Risks starting on page ___.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the Fund's performance from year to year. If
sales charges had been reflected, the Fund's returns would be less than those
shown below.*
[INSERT BAR CHART]
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
------- -------
( ) ( )
------ ------
</TABLE>
*The performance information above is based on a calendar year. The Fund's total
return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of the S&P 500 Index.
10
<PAGE> 13
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (6/20/94)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GROWTH FUND
Class A Shares (with a 4.50% sales % % %
charge)
- ---------------------------------------------------------------------------------------------
Class B Shares(1) % % %
- ---------------------------------------------------------------------------------------------
S&P 500 INDEX(2) % % %
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Class B Shares commenced operations on 2/2/98. The Fund's performance prior
to that date is represented by the performance of Class A Shares, with an
adjustment for the distribution/service (12b-1) fees of Class B Shares.
(2) The unmanaged S&P 500 Index generally reflects the performance of large
companies in the U.S. stock market.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the shareholder fees that you would pay directly from your
investment if you purchased or sold Fund Shares.
SHAREHOLDER FEES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase 5.50% 0% 1.00%
(as a percentage of offering price)*
Maximum Deferred Sales Charge (Load) 0% 5.00% 0%
(as a percentage of net asset value)**
Redemption Fee (as a percentage 0% 0% 0%
of amount redeemed, if applicable)***
</TABLE>
*This sales charge may not apply and varies depending upon how much you invest.
See "How Sales Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
11
<PAGE> 14
The table below describes the expenses you would pay indirectly if you held Fund
Shares.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution/Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses %* %* %*+
------- ------- -------
Total Annual Fund Operating Expenses %* %* %*
</TABLE>
+Because Class C Shares are new, "Other Expenses" for Class C Shares are based
on estimated amounts for the current fiscal year.
*During the past fiscal year, Other Expenses were waived by __% or reimbursed by
___% for the Class A Shares and ___% for Class B Shares. For the current fiscal
year, Other Expenses are expected to be waived by __% or reimbursed by __% for
the Class C Shares. These waivers and reimbursements are voluntary and may be
terminated at any time. Accordingly, the Fund's actual annual operating expenses
for Class A, Class B Shares and Class C Shares were, or are expected to be, as
follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution/Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses % % %
------- ------- -------
Total Annual Fund Operating Expenses % % %
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A Shares $___ $___ $___ $___
Class B Shares
If you do not sell your Shares: $___ $___ $___ $___
If you sell your Shares at the
end of the period: $___ $___ $___ $___
Class C Shares $___ $___ $___ $___
</TABLE>
12
<PAGE> 15
INCOME EQUITY FUND
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek total return
on investment, with
dividend income as an
important component of that
return. A secondary goal is
a low level of price
volatility
- -----------------------------------------------------------------------------------------------------
Investment Focus U.S. common stocks
- -----------------------------------------------------------------------------------------------------
Principal Investment Strategy Attempts to identify high dividend
paying, undervalued stocks
- -----------------------------------------------------------------------------------------------------
Share Price Volatility Moderate
- -----------------------------------------------------------------------------------------------------
Investor Profile Investors seeking
current income and capital
appreciation with higher
current income and lower
volatility than the average
stock fund
- -----------------------------------------------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark Income Equity Fund seeks total return on investment, with dividend
income as an important component of that return. A secondary goal is to maintain
a low level of price volatility.
To pursue its primary goal, the Fund invests mostly in dividend-paying stocks
that the managers believe are undervalued or out-of-favor. Specifically, the
managers seek stocks with favorable long-term potential price appreciation whose
dividend yield is near a high relative to one or more of the following:
- - The company's own historical dividend yield
- - The current yields of other companies in the same industry
- - The current yield of the market as a whole
The companies in which the Fund invests are generally mature, major
large-capitalization U.S. corporations.
The managers typically begin to pare down a position when the stock's relative
yield drops to the lower end of its historical range. If a significant
fundamental change impairs a company's ability to pay dividends, or if its
dividend yield dips below that of the general market, the managers may eliminate
the stock from the portfolio.
13
<PAGE> 16
The Fund may invest in convertible bonds and other types of securities in
addition to those described above. In an effort to preserve the value of your
investment under volatile market conditions, the managers may invest more than
35% of the Fund's assets in very short-term debt obligations called money market
securities. Such a strategy could make it more difficult for the Fund to achieve
its goals.
(For a more complete description of the various securities in which the Fund can
invest, please see "Investment Practices" on page __.)
SIDEBAR: A dividend is a distribution of earnings to shareholders. The amount of
the dividend is usually paid quarterly. Dividends must be declared as income in
the year they are received.
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Market Risk: The possibility that the Fund's stock holdings will
decline in price because of a broad stock market decline. Stock
markets generally move in cycles, with periods of rising prices
followed by periods of falling prices. The value of your investment
will tend to increase or decrease in response to these movements.
Investment Style Risk: The possibility that the securities on which
this Fund focuses-- the stocks of undervalued, dividend-paying
companies--will underperform other kinds of investments or market
averages.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The Fund may trade securities actively, which could increase its transaction
costs (thereby lowering its performance) and increase the amount of taxes that
you pay. For more information about these risks, please see the Glossary of
Investment Risks on page __.
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the Fund's performance from year to year. If
sales charges had been reflected, the Fund's returns would be less than those
shown below.*
[INSERT BAR CHART]
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
------- -------
( ) ( )
------ ------
</TABLE>
*The performance information above is based on a calendar year. The Fund's total
return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98, to those of the S&P 500 Index.
14
<PAGE> 17
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (6/20/94)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME EQUITY FUND
Class A Shares (with a 4.50% sales charge) % % %
- --------------------------------------------------------------------------------------------------------
Class B Shares(1) % % %
- --------------------------------------------------------------------------------------------------------
S&P 500 INDEX(2) % % %
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class B Shares commenced operations on 2/2/98. The Fund's performance prior
to that date is represented by the total return of Class A Shares, with an
adjustment for the distribution/service (12b-1) fees of Class B Shares.
(2) The unmanaged S&P 500 Index generally represents the performance of large
companies in the U.S. stock market.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the shareholder fees that you would pay directly from your
investment if you purchased or sold Fund Shares.
SHAREHOLDER FEES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase 4.50% 0% 1.00%
(as a percentage of offering price)*
Maximum Deferred Sales Charge (Load) 0% 5.00% 0%
(as a percentage of net asset value)**
Redemption Fee (as a percentage 0% 0% 0%
of amount redeemed, if applicable)***
</TABLE>
*This sales charge may not apply and varies depending upon how much you invest.
See "How Sales Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable..
15
<PAGE> 18
The table below describes the expenses you would pay indirectly if you held Fund
Shares.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution/Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses %* %* %
------- ------- ------
Total Annual Fund Operating Expenses %* %* %
</TABLE>
+ Because Class C Shares are new, "Other Expenses" for Class C Shares are based
on the estimated amount for the current fiscal year.
* During the past fiscal year, Other Expenses were waived by __% or reimbursed
by ___ % for the Class A Shares and % for Class B Shares. For the current fiscal
year, Other Expenses are expected to be waived by __% or reimbursed by __% for
the Class C Shares. These waivers and reimbursements are voluntary and may be
terminated at any time. Accordingly, the Fund's actual annual operating expenses
for Class A, Class B and Class C were, or are expected to be, as follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution/Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses 0% 0% 0%
------- ------- -------
Total Annual Fund Operating Expenses % % %
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A Shares $___ $___ $___ $___
Class B Shares
If you do not sell your Shares: $___ $___ $___ $___
If you sell your Shares at the
end of the period: $___ $___ $___ $___
Class C Shares $___ $___ $___ $___
</TABLE>
16
<PAGE> 19
INTERNATIONAL EQUITY FUND
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<CAPTION>
<S> <C>
Investment Goal To seek long-term capital
appreciation by investing primarily
in equity securities of foreign
issuers
- -----------------------------------------------------------------------------------------------------
Investment Focus Common stocks of foreign companies
- -----------------------------------------------------------------------------------------------------
Principal Investment Strategy Attempts to identify reasonably
priced foreign stocks with
above-average growth potential
- -----------------------------------------------------------------------------------------------------
Share Price Volatility High
- -----------------------------------------------------------------------------------------------------
Investor Profile Investors who want capital
appreciation, are willing to accept
the increased risks of
international investing for the
possibility of higher returns, and
want exposure to a diversified
portfolio of international stocks
- -----------------------------------------------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark 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. Normally, at least 65% of the Fund's assets will
be invested in the stocks of companies from at least five countries (other than
the United States) that are included in the Morgan Stanley Capital International
Europe and Australia, Far East Index (the "EAFE Index"). The Fund's portfolio
managers intend to focus on companies with a market capitalization of more than
$100 million.
In selecting investments for the Fund, the portfolio managers may over- or
under-weight countries in comparison to the EAFE Index based on the rates of
return they expect from various markets. The Fund's regional and individual
country weightings may therefore vary from those of the EAFE Index. The
portfolio managers will then select individual securities for the Fund on the
basis of their growth opportunities or undervaluation in relation to other
securities.
17
<PAGE> 20
The Fund typically invests in securities that are listed on recognized foreign
exchanges, but it may also invest up to 15% of its assets in securities traded
in over-the-counter markets. In addition, the Fund may buy American Depository
Receipts (ADRs) and European Depository Receipts (EDRs), enter into forward
foreign currency contracts and invest in options on currencies. The Fund may
invest in other investment companies, including closed-end funds that invest in
securities from a single country or region. Additionally, the Fund may invest in
securities of issuers whose principal activities are in emerging markets.
In addition to those described above, the Fund may invest in certain other types
of securities, including investment-grade bonds of U.S. and non-U.S. issuers. In
an effort to preserve the value of your investment under volatile market
conditions, the portfolio managers may invest more than 35% of the Fund's assets
in very short-term debt obligations called money market securities. Such a
strategy could make it more difficult for the Fund to achieve its goal.
(For a more complete description of the various securities in which the Fund can
invest, please see the Glossary of Investment Practices and Risks on page X.)
SIDEBAR: American Depository Receipts (ADRs) and European Depository Receipts
(EDRs) are foreign Shares of a company held by, respectively, a U.S. or a
foreign bank that issues a receipt evidencing ownership.
[WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND? ICON] WHAT ARE THE MAIN
RISKS OF INVESTING IN THIS FUND?
Market Risk: The possibility that the Fund's stock holdings may decline in price
because of a broad stock market decline. Markets generally move in cycles, with
periods of rising prices followed by periods of falling prices. The value of
your investment will tend to increase or decrease in response to these
movements.
Foreign Securities Risk: Investing in foreign markets involves greater risk than
investing in the United States. Foreign securities may be affected by such
factors as fluctuations in currency exchange rates, incomplete or inaccurate
financial information on companies, social upheavals and political actions
ranging from tax code changes to governmental collapse. Emerging market
securities may be even more susceptible to these risks.
Investment Style Risk: The possibility that the securities on which this Fund
focuses--the stocks of foreign companies--may underperform other kinds of
investments or the market as a whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the amount
of taxes that you pay. For more information about these risks, please see the
Glossary of Investment Risks on page ___.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The performance table below illustrate the risks and volatility of an investment
in the Fund. Of course, the Fund's past performance does not necessarily
indicate how the Fund will perform in the future.
18
<PAGE> 21
[INSERT BAR CHART]
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
- ------- -------
( ) ( )
------ ------
</TABLE>
* Because Classes A, B and C Shares are new, these returns reflect the
performance of the Fund's Fiduciary Shares, which are offered in a separate
prospectus. Classes A, B and C Shares will have annual returns substantially
similar to those of the Fiduciary Shares because Classes A, B, C and Fiduciary
Shares each invest in the same portfolio of securities. Their annual returns
will differ only to the extent that they do not have the same expenses. The
performance information above is based on a calendar year. The Fund's total
return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of its benchmark, the MSCI-EAFE Index.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1 Year 5 Years Since Inception
(02/01/95)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTERNATIONAL EQUITY FUND % % %
- --------------------------------------------------------------------------------------
Fiduciary Shares % % %
- --------------------------------------------------------------------------------------
MSCI-EAFE INDEX (1) % % %
- --------------------------------------------------------------------------------------
</TABLE>
(1) The unmanaged Morgan Stanley Capital International Europe and Australia,
Far East Index reflects the performance of securities listed on stock exchanges
in Europe, Australia and the Far East.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the fees that you would pay directly from your investment
if you bought or sold Fund Shares.
SHAREHOLDER FEES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase 4.50% 0% 1.00%
(as a percentage of offering price)*
Maximum Deferred Sales Charge (Load) 0% 5.00% 0%
(as a percentage of net asset value)**
Redemption Fee (as a percentage of amount redeemed,
if applicable)*** 0% 0% 0%
</TABLE>
*This sales charge may not apply and varies depending upon how much you invest.
See "How Sales Charges Are Calculated."
19
<PAGE> 22
**If you sell Class A Shares within one year of buying them and you bought
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you held Fund
Shares.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Investment Advisory Fees 1.00% 1.00% 1.00%
Distribution/Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses %* %* %*
------- ------- -------
Total Annual Fund Operating Expenses %* %* %*
</TABLE>
+Because Class C Shares are new, "Other Expenses" for Class C Shares are based
on estimated amounts for the current fiscal year.
*Other Expenses are based on estimated amounts for the current fiscal year. For
the current fiscal year, we expect Other Expenses to be waived by __% or
reimbursed by __% for the Class A Shares, __% for the Class B Shares and __% for
the Class C Shares. These waivers and reimbursements are voluntary and may be
terminated at any time. Accordingly, we expect the Fund's actual annual
operating expenses for the current fiscal year to be as follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Investment Advisory Fees 1.00% 1.00% 1.00%
Distribution/Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses % % %
---- ---- ----
Total Annual Fund Operating Expenses % % %
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A Shares $___ $___ $___ $___
Class B Shares
If you do not sell your Shares: $___ $___ $___ $___
If you sell your Shares at the
end of the period: $___ $___ $___ $___
Class C Shares $___ $___ $___ $___
</TABLE>
20
<PAGE> 23
SMALL CAP VALUE FUND
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek long-term capital
appreciation.
- -----------------------------------------------------------------------------------------------------
Investment Focus Stocks of small U.S. & foreign
companies
- -----------------------------------------------------------------------------------------------------
Principal Investment Strategy Seeks undervalued small company
stocks
- -----------------------------------------------------------------------------------------------------
Share Price Volatility Moderate to High
- -----------------------------------------------------------------------------------------------------
Investor Profile Risk-tolerant investors seeking
high long-term returns
- -----------------------------------------------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark Small Cap Value Fund seeks to provide long-term capital appreciation.
To pursue this goal, the Fund invests primarily in the stocks of
small-capitalization U.S. and foreign companies that the portfolio managers
believe are undervalued. The Fund typically invests approximately 25% of its
assets in foreign stocks, though the actual percentage may vary.
To reduce the risks associated with any one market, the portfolio managers
normally diversify the Fund's international investments among various countries.
Although the Fund invests primarily in developed economies such as those of
Europe and Japan, it may invest in developing countries to take advantage of
potential opportunities.
The Fund's portfolio managers seek companies that they believe are both
fundamentally strong and undervalued relative to current market averages and/or
the stock's own historic norms. Of these, the managers favor companies
exhibiting positive momentum in their share price or earnings.
In addition to those described above, the Fund may invest in other types of
securities, including bonds. In an effort to preserve the value of your
investment under volatile market conditions, the managers may temporarily invest
a significant amount of the Fund's assets in very short-term debt obligations
called money market securities. They may also do so in situations when there is
not an adequate number of stocks that meet their investment criteria. Such a
strategy could make it more difficult for the Fund to achieve its goals.
(For a more complete description of the various securities in which the Fund can
invest, please see Investment Practices on page X.)
SIDEBAR: Small capitalization stocks are those issued by companies with market
capitalizations within the range of those in the S&P 600/BARRA Value Index
(domestic Investments) and the Financial Times/S&P Actuaries World Indices World
Ex U.S. Medium/Small Cap Index (international investments).
21
<PAGE> 24
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Market Risk: The possibility that the Fund's stock holdings may
decline in price because of a broad stock market decline. Markets
generally move in cycles, with periods of rising prices followed by
periods of falling prices. The value of your investment will tend to
increase or decrease in response to these movements.
Small Company Risk: Investing in smaller, lesser-known companies
involves greater risk than investing in those that are more
established. A small company's financial well-being may, for example,
depend heavily on just a few products or services. In addition,
investors may have limited flexibility to buy or sell small company
stocks, as compared to those of larger firms.
Foreign Securities Risk - Investing in foreign markets involves
greater risk than investing in the United States. Foreign securities
may be affected by fluctuations in currency exchange rates, incomplete
or inaccurate financial information on companies, social upheavals and
political actions ranging from tax code changes to governmental
collapse. These risks are more significant in the emerging markets.
Investment Style Risk: The possibility that the securities on which
this Fund focuses--the stocks of small, undervalued U.S. and foreign
companies--may underperform other kinds of investments or the market
as a whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the amount
of taxes that you pay. For more information about these risks, please see the
Glossary of Investment Risks on page ___.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The performance table below illustrates the risks and volatility of an
investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how it will perform in the future.
This section would normally include a bar chart showing changes in the Fund's
performance from year to year. Because the Fund has not been in operation for a
full calendar year, this bar chart is not shown.
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of its benchmarks, the S&P 600/BARRA Value Index and the
Financial Times/S&P Actuaries World Indices ex US Medium/Small Cap.
22
<PAGE> 25
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
SINCE
INCEPTION
(9/17/98)
- ------------------------------------------------------------------------------------
<S> <C>
SMALL CAP VALUE FUND
Class A Shares (w/5.50% sales charge) %
- ------------------------------------------------------------------------------------
Class B Shares %
- ------------------------------------------------------------------------------------
S&P 600/BARRA VALUE INDEX(1) %
- ------------------------------------------------------------------------------------
FINANCIAL TIMES/S&P ACTUARIES WORLD INDICES EX US %
MEDIUM/SMALL CAP(2)
- ------------------------------------------------------------------------------------
</TABLE>
(1) The unmanaged S&P 600/BARRAValue Index represents the general performance
of stocks in the S&P 600 Small Cap Index with the lowest price/book ratios (an
indication that they are undervalued).
(2) The Financial Times/S&P Actuaries World Indices ex U.S. Medium/Small Cap is
an unmanaged global stock index comprising more than 2,400 stocks in 30
countries, excluding small and mid-size U.S. companies.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the fees that you would pay directly from your investment
if you bought or sold Fund Shares.
SHAREHOLDER FEES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase 5.50% 0% 1.00%
(as a percentage of offering price)*
Maximum Deferred Sales Charge (Load) 0% 5.00% 0%
(as a percentage of net asset value)**
Redemption Fee (as a percentage 0% 0% 0%
of amount redeemed, if applicable)***
</TABLE>
*This sales charge may not apply and varies depending upon how much you invest.
See "How Sales Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you bought
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include an y wire transfer fees, if applicable
23
<PAGE> 26
The table below describes the expenses you would pay indirectly if you held Fund
Shares.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Investment Advisory Fees 1.00% 1.00% 1.00%
Distribution/Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses %* %* %*+
------ ------ -------
Total Annual Fund Operating Expenses %* %* %*
</TABLE>
+Because Class C Shares are new, "Other Expenses" for Class C Shares are based
on estimated amounts for the current fiscal year.
* During the past fiscal year, Other Expenses were waived by __% or reimbursed
by ____% for the Class A Shares and % for Class B Shares. For the current fiscal
year, Other Expenses are expected to be waived by __% or reimbursed by __% for
the Class C Shares. These waivers and reimbursements are voluntary and may be
terminated at any time. Accordingly, the Fund's actual annual operating expenses
for Class A, Class B and Class Shares were, or are expected to be, as follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Investment Advisory Fees 1.00% 1.00% 1.00%
Distribution/Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses % % %
----- ----- -----
Total Annual Fund Operating Expenses % % %
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A Shares $___ $___ $___ $___
Class B Shares
If you do not sell your Shares: $___ $___ $___ $___
If you sell your Shares at the
end of the period: $___ $___ $___ $___
Class C Shares $___ $___ $___ $___
</TABLE>
24
<PAGE> 27
VALUE MOMENTUM FUND
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek long-term capital growth. Current
income is a secondary objective.
- -----------------------------------------------------------------------------------------------------------
Investment Focus U.S. common stocks
- -----------------------------------------------------------------------------------------------------------
Principal Investment Strategy Seeks undervalued stocks
showing signs of improved
momentum.
- -----------------------------------------------------------------------------------------------------------
Share Price Volatility Moderate
- -----------------------------------------------------------------------------------------------------------
Investor Profile Investors seeking the potential for a
long-term increase in the value of their
investment with capital appreciation at
potentially lower volatility than the
average stock fund
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The Value Momentum Fund seeks long-term capital growth with a secondary
objective of income. To pursue this goal, the Fund invests primarily in U.S.
stocks that the portfolio managers believe to be undervalued.
The managers emphasize a value-oriented approach to selecting stocks for the
Fund's portfolio. They first select stocks that they believe are undervalued
relative to the market and to the security's historic valuation. The managers
then screen these stocks for positive price or earnings momentum. The Fund
generally will invest in companies with a medium to large market capitalization
and a majority of them will pay dividends.
In addition to U.S. common stocks, the Fund may invest in other types of
securities. In an effort to preserve the value of your investment under volatile
market conditions, the portfolio managers may invest more than 35% of the Fund's
assets in very short-term debt obligations called money market securities. In
these and other cases, the Fund may not achieve its total return and income
objectives.
(For a more complete description of the various securities the Fund invests in,
please see Investment Practices on page x.)
SIDEBAR: Companies are considered to have a medium market capitalization if
their capitalization is within the range of those companies in the S&P 400
Mid-Cap Index. Companies are considered to have a large market capitalization if
their capitalization is within the range of those companies in the S&P 500 Large
Cap Index
25
<PAGE> 28
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Market Risk: The possibility that the Fund's stock holdings will
decline in price because of broad stock market declines. Stock markets
generally move in cycles, with periods of either rising or falling
prices. The value of your investment will tend to go up or down in
response to these movements.
Investment Style Risk: The possibility that the performance of
undervalued stocks will trail that of other kinds of investments.
You should also know that the Fund may trade securities actively, which could
increase its transaction costs (thereby lowering its performance) and may
increase the amount of taxes that you pay. For more information about these
risks, please see the Glossary of Investment Risks on page ___.
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the Fund's performance from year to year. If
sales charges had been reflected, returns would be less than those shown below.*
[INSERT BAR CHART]
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
------- -------
( ) ( )
------ ------
</TABLE>
*This performance information shown above is based on a calendar year. The
Fund's total return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of the S&P 500 Index.
<TABLE>
<CAPTION>
SINCE
INCEPTION
1 YEAR 5 YEARS (4/2/ 92)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VALUE MOMENTUM FUND
Class A Shares (with a 4.50% sales % % %
charge)
- -----------------------------------------------------------------------------------------------
Class B Shares(1) % % %
- -----------------------------------------------------------------------------------------------
S&P 500 INDEX(2) % % %
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Class B Shares commenced operations on 2/2/98. Performance prior to that
date is represented by the performance of Class A Shares, with an adjustment for
the distribution/service (12b-1) fees of Class B Shares.
(2) The unmanaged S&P 500 Index is generally representative of the performance
of large companies in the U.S. stock market.
26
<PAGE> 29
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the shareholder fees that you would pay directly from your
investment if you purchase or sell Fund Shares.
SHAREHOLDER FEES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase 5.50% 0% 1.00%
(as a percentage of offering price)*
Maximum Deferred Sales Charge (Load) 0% 5.00% 0%
(as a percentage of net asset value)**
Redemption Fee (as a percentage 0% 0% 0%
of amount redeemed, if applicable)***
</TABLE>
*This sales charge may not apply and varies depending upon how much you invest.
See "How Sales Charges Are Calculated."
**A Contingent Deferred Sales Charge of 1.00% is imposed if you sell Class A
Shares within one year of your purchase and you purchased those Shares without a
sales charge because your initial investment was $1 million or greater. See "How
Sales Charges Are Calculated."
***Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you held Fund
Shares.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution/Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses %* %* %*+
------ ------ ------
Total Annual Fund Operating Expenses %* %* %*+
</TABLE>
+Because Class C Shares are new, "Other Expenses" for Class C Shares are based
on estimated amounts for the current fiscal year.
* During the last fiscal year, Other Expenses were waived by __% or reimbursed
by ____% for the Class A Shares and % for Class B Shares. For the current fiscal
year, Other Expenses are expected to be waived by __% or reimbursed by __% for
the Class C Shares. These waivers and reimbursements are voluntary and may be
terminated at any time. Accordingly, actual annual fund operating expenses for
Class A, Class B and Class C Shares were, or are expected to be, as follows:
27
<PAGE> 30
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution/Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses % % %
------ ------ ------
Total Annual Fund Operating % % %
Expenses
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A Shares $___ $___ $___ $___
Class B Shares
If you do not sell your Shares: $___ $___ $___ $___
If you sell your Shares at the
end of the period: $___ $___ $___ $___
Class C Shares $___ $___ $___ $___
</TABLE>
28
<PAGE> 31
HIGHMARK FIXED INCOME FUNDS
BOND FUND
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek total return
through investments in
fixed-income securities.
- ---------------------------------------------------------------------------------------------------------
Investment Focus U.S. Government obligations,
corporate debt securities, mortgage
and other asset-backed securities.
- ---------------------------------------------------------------------------------------------------------
Principal Investment Strategy Focuses on sectors of the
bond market that the
portfolio managers
believe are undervalued.
- ---------------------------------------------------------------------------------------------------------
Share Price Volatility Medium
- ---------------------------------------------------------------------------------------------------------
Investor Profile Investors willing
to accept the risk of
a moderate amount of
fluctuation in the value
of their investment for
the benefit of a higher
total return potential.
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark Bond Fund seeks to provide total return through investments in
fixed-income securities. To pursue this goal, the Fund invests at least 65% of
its assets in bonds which include:
- - Debt obligations issued or guaranteed by the U.S. government or its
agencies.
- - Corporate debt securities issued by U.S., or foreign companies that
nationally recognized rating agencies such as Moody's or Standard &
Poor's recognize as investment-grade.
- - Investment-grade bonds backed by the interest and principal payments of
various types of mortgages, known as mortgage-backed securities.
- - Investment-grade bonds backed by the interest and principal payments on
loans for other types of assets, such as automobiles, houses, or credit
cards, known as asset-backed securities.
The Fund may also invest up to 10% of its assets in issues which are rated below
BBB but have a minimum rating of B by Moody's and/or S&P at the time of
investment.
29
<PAGE> 32
In addition to these, the Fund may invest in other types of debt securities. In
an effort to preserve the value of your investment under volatile market
conditions, the portfolio managers also may invest more than 35% of the Fund's
assets in very short-term investments called money market securities. Such a
defensive strategy could make it more difficult for the Fund to achieve its
income and total return objectives.
The Fund will maintain an average duration of between 3 and 6 years, which the
managers expect to be within one year of the duration of the Lehman Brothers
Aggregate Bond Index.
The portfolio managers consider several factors when selecting securities for
the Fund's portfolio, including:
- - An assessment of the future level of interest rates and inflation
- - Expectations for U.S. and global economic growth
- - Relative yields among securities in various market sectors
- - The yield to maturity, quality, liquidity and capital appreciation
potential of individual securities
The Fund managers also consider the current state of a bond's issuer and the
possibility that an improvement or deterioration in its financial health may
result in, respectively, an upgrade or downgrade of the issuer's credit rating.
The portfolio managers may continue to hold a bond that has been downgraded if
they believe it is in the best interest of the Fund's shareholders.
SIDEBAR: One of the most significant factors affecting the performance of a bond
fund is the rise and fall of interest rates. When interest rates rise, a bond's
value generally declines. When interest rates fall, its value generally
increases. As a result, the greater a fund's exposure to interest rates, the
greater its risk and return potential.
Duration is an indication of how sensitive a bond or mutual fund portfolio may
be to changes in interest rates. Generally speaking, the longer a fund's
duration, the more dramatically it will react to interest rate fluctuations and
the greater its long-term risk/return potential. Due to their high yields
non-investment grade bonds are typically less sensitive to interest rates than
investment grade bonds.
(For a more complete description of the various securities in which the Fund can
invest, please see Investment Practices on page X.)
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Interest Rate Risk: The possibility that the value of the Fund's
investments will decline due to an increase in interest rates or that
the Fund's yield will decrease due to a decrease in interest rates.
Credit Risk: The possibility that a bond issuer cannot make timely
interest and principal payments on its bonds. The lower a bond's
rating, the greater its credit risk.
Prepayment/Call Risk - If a significant number of the mortgages
underlying a mortgage-backed bond are refinanced, the bond may be
"prepaid." Call risk is the possibility that, during periods of
declining interest rates, a bond issuer will "call"--or
repay--higher-yielding bonds before their stated maturity date. In
both cases, investors receive their principal back and are typically
forced to reinvest it in bonds that pay lower interest rates. Rapid
changes in prepayment and call rates can cause bond prices and yields
to be volatile.
If the Fund invests in securities with additional risks, its share-price
volatility accordingly could be greater and its performance lower. The Fund may
trade securities actively, which could increase its transaction costs (thereby
lowering its performance) and may increase the amount of taxes that you pay. For
more
30
<PAGE> 33
information about these risks, please see the Glossary of Investment Risks
on page ___.
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the Fund's performance from year to year. If
sales charges had been reflected, its returns would be less than those shown
below.*
[INSERT BAR CHART]
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
------- -------
( ) ( )
------ ------
</TABLE>
*The performance information shown above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98, to those of the Lehman Brothers Aggregate Bond Index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (6/20/94)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BOND FUND
Class A Shares (with a 3% sales charge) % % %
- ---------------------------------------------------------------------------------------------------
LEHMAN BROTHERS AGGREGATE BOND INDEX(1) % % %
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) The unmanaged Lehman Brothers Aggregate Bond Index is generally
representative of the bond market as a whole.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the shareholder fees that you would pay directly from your
investment if you purchased or sold Fund Shares.
SHAREHOLDER FEES
<TABLE>
<CAPTION>
CLASS A SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 4.25%
(as a percentage of offering price)*
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)**
</TABLE>
31
<PAGE> 34
<TABLE>
<S> <C>
Redemption Fee (as a percentage
of amount redeemed, if applicable)*** 0%
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
**A Contingent Deferred Sales Charge of 1.00% is imposed if you sell Class A
Shares within one year of your purchase and you purchased those Shares without a
sales charge because your initial investment was $1 million or greater. See "How
Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you held Fund
Shares.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES
<S> <C>
Investment Advisory Fees 0.50%
Distribution/Service (12b-1) Fees 0.25%*
Other Expenses %*
-------
Total Annual Fund Operating Expenses %*
</TABLE>
*During the past fiscal year, the Distributor waived 0.25% of its
distribution/service (12b-1) fee. "Other Expenses" were waived by __% or
reimbursed by _____%. These waivers and reimbursements are voluntary and may be
terminated at any time. Accordingly, the Fund's actual annual operating expenses
were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES
<S> <C>
Investment Advisory Fees 0.50%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
-------
Total Annual Fund Operating Expenses %
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A Shares $___ $___ $___ $___
</TABLE>
32
<PAGE> 35
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek high current
income that is exempt from
federal and California
state income taxes
- -----------------------------------------------------------------------------------------------------
Investment Focus California municipal securities
- -----------------------------------------------------------------------------------------------------
Principal Investment Strategy Invests primarily in investment
grade California municipal
securities
- -----------------------------------------------------------------------------------------------------
Share Price Volatility Low to Medium
- -----------------------------------------------------------------------------------------------------
Investor Profile California residents seeking income
exempt from federal and state
income taxes
- -----------------------------------------------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark California Intermediate Tax-Free Bond Fund seeks high current income
that is exempt from federal and State of California income taxes. To pursue this
goal, the Fund invests at least 65% of its assets in investment-grade California
municipal bonds and notes.
Although the Fund will invest primarily in California municipal bonds, it may
also invest in municipal bonds from other states, territories and possessions of
the United States if the income from these bonds is exempt from U.S. federal
income taxes. In addition, the Fund may invest in Shares of money market funds
and other investment companies that have similar investment objectives. Under
certain conditions, the Fund may temporarily invest more than 20% of its assets
in bonds not exempt from California state taxes, which would make it more
difficult for the Fund to achieve its goals. Investors who may be subject to the
alternative minimum tax (AMT) should note that the portfolio managers will
invest at least 80% of the Fund's assets in bonds that pay interest exempt from
the AMT under normal circumstances.
In selecting bonds for the Fund's portfolio, the portfolio managers consider
factors such as:
- - The potential direction of interest rate changes.
- - Their expectations for the U.S. economy in general and California's
economy in particular.
- - The credit rating and stability of the issuer.
33
<PAGE> 36
SIDEBAR: One of the most significant factors affecting the performance of a bond
fund is the rise and fall of interest rates. When interest rates rise, a bond's
value generally declines. When interest rates fall, its value generally
increases. As a result, the greater a fund's exposure to interest rates, the
greater its risk and return potential.
Duration is an indication of how sensitive a bond or mutual fund portfolio may
be to changes in interest rates. Generally speaking, the longer a fund's
duration, the more dramatically it will react to interest rate fluctuations and
the greater its long-term risk/return potential. Due to their high yields
non-investment grade bonds are typically less sensitive to interest rates than
investment grade bonds.
SIDEBAR: Municipal bonds are issued by California and other states, cities and
municipalities to help finance utilities, schools, public works projects and
facilities, among other things. Additionally, the Fund will invest at least 80%
of its assets in investment-grade bonds. Investment-grade bonds are generally
those whose issuers are considered to have fairly solid financial health by
nationally recognized rating agencies such as Standard & Poor's.
(For a more complete description of the various securities in which the Fund can
invest, please see Investment Practices on page x.)
[YIELD ICON] WHAT ARE THE MAIN
RISKS OF INVESTING IN THIS FUND?
State Specific Risk: By concentrating its investments in California,
the Fund may be more vulnerable to unfavorable developments in that
state than funds that are more geographically diversified.
Interest Rate Risk: The possibility that the value of the Fund's
investments will decline due to an increase in interest rates or that
the Fund's yield will decrease due to a decrease in interest rates.
Credit Risk: The possibility that a bond issuer cannot make timely
interest and principal payments on its bonds. The lower a bond's
rating, the greater its credit risk.
Prepayment/Call Risk: If a significant number of the mortgages
underlying a mortgage-backed bond are refinanced, the bond may be
"prepaid." Call risk is the possibility that, during periods of
declining interest rates, a bond issuer will "call"--or
repay--higher-yielding bonds before their stated maturity date. In
both cases, investors receive their principal back and are typically
forced to reinvest it in bonds that pay lower interest rates. Rapid
changes in prepayment and call rates can cause bond prices and yields
to be volatile.
If the Fund invests in securities with additional risks, its share-price
volatility accordingly could be greater and its performance lower. The Fund may
trade securities actively, which could increase its transaction costs and
thereby lower its performance. For more information about these risks, please
see the Glossary of Investment Risks on page ___.
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the Fund's performance from year to year. If
sales charges had been reflected, the Fund's returns would be less than those
shown below.*
34
<PAGE> 37
[INSERT BAR CHART]
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
------- -------
( ) ( )
------ ------
</TABLE>
*The performance information above is based on a calendar year. The Fund's total
return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of the Lehman Brothers 7-Year Municipal Bond Index.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (10/15/93)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
Class A Shares (with a 3% sales charge) % % %
- --------------------------------------------------------------------------------------------------
LEHMAN BROTHERS 7-YEAR MUNICIPAL BOND % % %
INDEX(1)
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) The unmanaged Lehman Brothers 7-Year Municipal Bond Index comprises
intermediate-term, investment grade tax-exempt bonds with maturities between 6
and 8 years.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the shareholder fees you would pay directly from your
investment if you purchased or sold Fund Shares.
SHAREHOLDER FEES
<TABLE>
<CAPTION>
CLASS B SHARES CLASS B SHARES
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase 4.25% 0%
(as a percentage of offering price)*
0% 5.00%
Maximum Deferred Sales Charge (Load)
(as a percentage of net asset value)**
0% 0%
Redemption Fee (as a percentage ____ of amount redeemed, if
applicable)***
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
** If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
35
<PAGE> 38
***If you request a wire transfer, a wire transfer fee of $15 will be deducted
from the amount of your redemption.
The table below describes the expenses you would pay indirectly if you held Fund
Shares.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
<S> <C> <C>
Investment Advisory Fees 0.50%* 0.50%
Distribution/Service (12b-1) Fees 0.25%* 0.75%
Other Expenses %* %
-------- -------
Total Annual Fund Operating Expenses %* %
</TABLE>
* During the past fiscal year, the Adviser waived 0.30% of its investment
Advisory fee and the Distributor waived 0.25% of its distribution/service
(12b-1) fee. "Other Expenses" were waived by __% or reimbursed by __%. These
waivers and reimbursements are voluntary and may be terminated at any time.
Accordingly, the Fund's actual annual operating expenses were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
<S> <C> <C>
Investment Advisory Fees 0.20% 0.20%
Distribution/Service (12b-1) Fees 0.00% 0.50%
Other Expenses % %
----- ------
Total Annual Fund Operating Expenses % %
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A Shares $___ $___ $___ $___
</TABLE>
36
<PAGE> 39
INTERMEDIATE-TERM BOND FUND
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek total return
through investments in
fixed-income securities.
- ---------------------------------------------------------------------------------------------------------
Investment Focus U.S. Government obligations,
corporate debt securities,
mortgage and other asset-backed
securities.
- ---------------------------------------------------------------------------------------------------------
Principal Investment Strategy Focuses on sectors of the
bond market that the
portfolio managers
believe are undervalued.
- ---------------------------------------------------------------------------------------------------------
Share Price Volatility Medium
- ---------------------------------------------------------------------------------------------------------
Investor Profile Investors willing
to accept the risk of a low
to moderate amount of
fluctuation in the value
of their investment for
the benefit of a higher
total return potential.
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark Intermediate Bond Fund seeks total return through investments in
fixed-income securities. To pursue this goal, the Fund invests at least 65% of
its assets in bonds which include:
- - Debt obligations issued or guaranteed by the U.S. government or its
agencies.
- - Corporate debt securities issued by U.S., or foreign companies that
nationally recognized rating agencies such as Moody's or Standard &
Poor's recognize as investment-grade.
- - Investment-grade bonds backed by the interest and principal payments of
various types of mortgages, known as mortgage-backed securities.
- - Investment-grade bonds backed by the interest and principal payments on
loans for other types of assets, such as automobiles, houses, or credit
cards, known as asset-backed securities.
- - The Fund may also invest up to 10% of its assets in issues which are
rated below BBB but have a minimum rating of B by Moody's and/or S&P at
the time of investment.
In addition to these, the Fund may invest in other types of debt securities. In
an effort to preserve the value of your investment under volatile market
conditions, the portfolio managers also may invest more than 35%
37
<PAGE> 40
of the Fund's assets in very short-term investments called money market
securities. Such a defensive strategy could make it more difficult for the Fund
to achieve its income and total return objectives.
The portfolio managers consider several factors when selecting securities for
the Fund's portfolio, including:
- - An assessment of the future level of interest rates and inflation
- - Expectations for U.S. and global economic growth
- - Relative yields among securities in various market sectors
- - The yield to maturity, quality, liquidity and capital appreciation
potential of individual securities
The portfolio managers also consider the current state of a bond's issuer and
the possibility that an improvement or deterioration in its financial health may
result in, respectively, an upgrade or downgrade of the issuer's credit rating.
The portfolio managers may continue to hold a bond that has been downgraded if
they believe it is in the best interest of the Fund's shareholders.
The Intermediate-Term Bond Fund will maintain an average duration of between 2
and 5 years, which the managers expect to be within one year of the duration of
the Lehman Brothers Intermediate Government/Corporate Bond Index.
SIDEBAR: One of the most significant factors affecting the performance of a bond
fund is the rise and fall of interest rates. When interest rates rise, a bond's
value generally declines. When interest rates fall, its value generally
increases. As a result, the greater a fund's exposure to interest rates, the
greater its risk and return potential.
Duration is an indication of how sensitive a bond or mutual fund portfolio may
be to changes in interest rates. Generally speaking, the longer a fund's
duration, the more dramatically it will react to interest rate fluctuations and
the greater its long-term risk/return potential. Due to their high yields
non-investment grade bonds are typically less sensitive to interest rates than
investment grade bonds.
(For a more complete description of the various securities in which the Fund can
invest, please see Investment Practices on page X.)
[YIELD ICON] WHAT ARE THE MAIN
RISKS OF INVESTING IN THIS FUND?
Interest Rate Risk: The possibility that the value of the Fund's
investments will decline due to an increase in interest rates or that
the Fund's yield will decrease due to a decrease in interest rates.
Credit Risk: The possibility that a bond issuer cannot make timely
interest and principal payments on its bonds. The lower a bond's
rating, the greater its credit risk.
Prepayment/Call Risk - If a significant number of the mortgages
underlying a mortgage-backed bond are refinanced, the bond may be
"prepaid." Call risk is the possibility that, during periods of
declining interest rates, a bond issuer will "call"--or
repay--higher-yielding bonds before their stated maturity date. In
both cases, investors receive their principal back and are typically
forced to reinvest it in bonds that pay lower interest rates. Rapid
changes in prepayment and call rates can cause bond prices and yields
to be volatile.
If the Fund invests in securities with additional risks, its share-price
volatility accordingly could be greater and its performance lower. The Fund may
trade securities actively, which could increase its transaction costs (thereby
lowering its performance) and may increase the amount of taxes that you pay. For
more
38
<PAGE> 41
information about these risks, please see the Glossary of Investment Risks on
page ___.
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the Fund's performance from year to year. If
sales charges had been reflected, its returns would be less than those shown
below.*
[INSERT BAR CHART]
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
------- -------
( ) ( )
------ ------
</TABLE>
*The performance information shown above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98, to those of the Lehman Brothers Government/Corporate Bond Index.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (2/3/92)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTERMEDIATE-TERM BOND FUND
Class A Shares (with a 3% sales charge) % % %
- -----------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE % % %
BOND INDEX(1)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index of government and corporate debt securities rated investment
grade or better, with maturities between 1 and 10 years.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the shareholder fees that you would pay directly from your
investment if you purchased or sold Fund Shares.
SHAREHOLDER FEES
<TABLE>
<CAPTION>
CLASS A SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 4.25%
(as a percentage of offering price)*
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)**
</TABLE>
39
<PAGE> 42
<TABLE>
<S> <C>
Redemption Fee (as a percentage of amount redeemed, if applicable)*** 0%
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
**A Contingent Deferred Sales Charge of 1.00% is imposed if you sell Class A
Shares within one year of your purchase and you purchased those Shares without a
sales charge because your initial investment was $1 million or greater. See "How
Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you held Fund
Shares.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES
<S> <C>
Investment Advisory Fees 0.50%
Distribution/Service (12b-1) Fees 0.25%*
Other Expenses %*
-------
Total Annual Fund Operating Expenses %*
</TABLE>
*During the past fiscal year, the Distributor waived 0.25% of its
distribution/service (12b-1) fee. "Other Expenses" were waived by __% or
reimbursed by __%. These waivers and reimbursements are voluntary and may be
terminated at any time. Accordingly, the Fund's actual annual operating expenses
were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES
<S> <C>
Investment Advisory Fees 0.50%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
-----
Total Annual Fund Operating Expenses %
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A Shares $___ $___ $___ $___
</TABLE>
40
<PAGE> 43
SHAREOWNER GUIDE--
HOW TO INVEST IN THE HIGHMARK FUNDS
Before you invest, we encourage you to carefully read the Fund profiles included
in this prospectus and consider which Funds are appropriate for your particular
financial situation, risk tolerance and goals. As always, your financial
representative can provide you with valuable assistance in making this decision.
He or she can also help you choose which of the Fund share classes we offer is
right for you.
CHOOSING A SHARE CLASS
HighMark Funds offers different classes of Fund Shares, each of which has
different expenses and other characteristics. Three classes of Fund
Shares--Classes A, B and C--are offered in this prospectus. To choose the one
that is best suited to your needs and goals, consider the amount of money you
want to invest, how long you expect to invest it and whether you plan to make
additional investments. The following are some of the main differences between
HighMark's Class A, Class B and Class C Shares:
CLASS A
- - Front-end sales charges, as described below.
- - Distribution and service (12b-1) fees of 0.25%.
- - Offered by:
Growth Fund
Income Equity Fund
International Equity Fund
Small Cap Value Fund
Value Momentum Fund
Balanced Fund
Bond Fund
California Intermediate Tax-Free Bond Fund
Intermediate-Term Bond Fund
CLASS B
- - No front-end sales charge.
- - Distribution and service (12b-1) fees of 0.75%.
- - A deferred sales charge, as described below.
- - Automatic conversion to Class A Shares after eight years, thus reducing
future annual expenses.
- - Offered by:
Growth Fund
Income Equity Fund
International Equity Fund
Small Cap Value Fund
Value Momentum Fund
Balanced Fund
California Intermediate Tax-Free Bond Fund
CLASS C
- - Front-end sales charge of 1.00%
- - Distribution and service (12b-1) fees of 1.00%
41
<PAGE> 44
- - No automatic conversion to Class A Shares, so annual expenses continue at
the Class C level throughout the life of your investment.
- - Offered by:
Balanced Fund
Growth Fund
Income Equity Fund
International Equity Fund
Small Cap Value Fund
Value Momentum Fund
For the actual past expenses of each share class, see the individual Fund
profiles earlier in this prospectus.
Because 12b-1 fees are paid on an ongoing basis, Class B and Class C
shareholders could end up paying more expenses over the long term than if they
had paid a sales charge on their initial investment.
FOR INSTITUTIONAL INVESTORS ONLY: Each of the Funds offers Fiduciary Class
Shares; the Value Momentum Fund also offers Class I Shares. Each of these
Classes has its own expense structure. Fiduciary Class Shares are available only
to financial institutions, fiduciary clients of Union Bank of California, N.A.,
and certain other qualified investors. Class I Shares are available only to
government retirement plans investing $70 million or more. Call the Distributor
for more details (see the back cover of this prospectus for contact
information).
For purchases of $1 million or greater, the sales charge for Class A Shares is
waived. As a result, if you are making an initial investment of $1 million or
more, the lower operating expenses of Class A Shares may make them a better
choice for you than Class B or Class C Shares.
42
<PAGE> 45
HOW SALES CHARGES ARE CALCULATED
HighMark Funds offers different classes of Fund Shares, each of which has
different expenses and other characteristics. Three classes of Fund
Shares--Classes A, B and C--are offered in this prospectus. To choose the one
that is best suited to your needs and goals, consider the amount of money you
want to invest, how long you expect to invest it and whether you plan to make
additional investments. The following are some of the main differences between
HighMark's Class A, Class B and Class C Shares: Class A Shares: Front-End Sales
Charge
EQUITY FUNDS
<TABLE>
<CAPTION>
AS A AS A
PERCENTAGE OF PERCENTAGE OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
<S> <C> <C>
0 -- $49,999..................... 5.50% 5.82%
$50,000 -- $99,999............. 4.50% 4.71%
$100,000 -- $249,999.......... 3.75% 3.90%
$250,000 -- $499,999.......... 2.50% 2.56%
$500,000 -- $999,999.......... 2.00% 2.04%
$1,000,000 and Over........... 0.00%* 0.00%
</TABLE>
- ---------------
* If you sell Class A Shares within one year of buying them and you bought those
Shares without a sales charge because your initial investment was $1 million or
greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
FIXED-INCOME FUNDS
<TABLE>
<CAPTION>
AS A AS A
PERCENTAGE OF PERCENTAGE OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
<S> <C> <C>
0 -- $99,000...................... 4.25% 4.44%
$100,000 -- $249,000.............. 3.50% 3.63%
$250,000 -- $499,000.............. 2.50% 2.56%
$500,000 -- $999,999........... 2.00% 2.04%
$1,000,000 and Over............ 0.00%* 0.00%
</TABLE>
- ---------------
* If you sell Class A Shares within one year of buying them and you bought those
Shares without a sales charge because your initial investment was $1 million or
greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
Class B Shares: Contingent Deferred Sales Charge
You may purchase Class B Shares at their net asset value per share, without any
initial sales charge. If you sell those Shares within six years of buying them,
however, you must pay what is known as a "contingent deferred sales charge"
(CDSC). As the tables below show, the charge declines incrementally over time
and is based on the original cost you paid for the Shares OR their current
market value, whichever is less. We do not impose a CDSC on Shares you purchased
by reinvesting dividends.
CDSC on Shares
Years after purchase being sold
43
<PAGE> 46
<TABLE>
<S> <C>
1st year 5.00%
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6th year none
</TABLE>
To determine these CDSCs, we count all purchases made during a calendar month as
having been made on the first day of that month.
In addition, we calculate any CDSC you may owe by considering the number of
Shares you are selling, not the value of your account. To keep your CDSC as low
as possible, each time you ask us to sell Shares we will first sell any Shares
in your account that carry no CDSC. If there are not enough of these to meet
your request, we will sell those Shares that have the lowest CDSC next.
CLASS C SHARES
Class C Shares are offered at their net asset value per share plus a sales
charge of 1.00% of the offering price.
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGES. You can combine multiple purchases of Class
A Shares in several ways to qualify for reduced sales charges. Notify us at the
time of your purchase if you believe you qualify for a reduced sales charge for
any of the following reasons:
- - Right of Accumulation Privilege: You may combine the value of Class A
Shares you are presently buying with the current value of any Class A
Shares you bought previously for: (1) your account; (2) your spouse's
account; (3) a joint account with your spouse; or (4) your minor
children's trust or custodial accounts. A fiduciary who is purchasing
Shares for the same fiduciary account, trust or estate may also use this
right of accumulation.
- - Combination Privilege: You may combine your investment in Class A Shares
of several HighMark Funds sold subject to a comparable sales charge to
qualify for the reduced sales charge.
- - Letter of Intent: If you plan to invest in Class A Shares of one HighMark
Fund and, within a 13-month period, make an additional investment in
Class A Shares of another HighMark Fund, you may be able to receive a
reduced sales charge on your cumulative investment. To take advantage of
this privilege, you must inform us in writing within 90 days of your
initial purchase. Be sure to notify us again when you make your
additional investment in another HighMark Fund.
REDUCTIONS FOR QUALIFIED GROUP(S). If you are investing with, or on behalf of, a
group, your combined purchases of Class A Shares may be eligible for a reduced
sales charge through the accumulation and combination privileges described
above. Each investor will retain an individual account.
Contact your financial representative or the Distributor to find out how to
qualify, or consult the Statement of Additional Information (see the back cover
of this prospectus for contact information).
FRONT-END SALES CHARGE WAIVERS: The front-end sales charge will be waived on
Class A Shares bought:
(1) Through reinvestment of dividend and capital gain distributions
44
<PAGE> 47
(2) By 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) By state and local governments.
(4) By individuals rolling over distributions received from employee
benefit trust accounts administered by Union Bank of California into
an individual retirement account administered by the Bank, or for
which the Bank serves as trustee or custodian. Future purchases will
be subject to the appropriate sales charge.
(5) By individuals investing the 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) By individuals investing proceeds received in connection with a
distribution paid from a Union Bank of California trust or agency
account.
(7) By investment advisers 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 advisers or financial
planners who place trades for their own accounts, if the accounts
are linked to the master account of the investment adviser or
financial planner on the books and records of a broker or agent;
(8) By individuals investing proceeds they received from selling
Shares of another mutual fund (other than HighMark Funds) on which
they paid a sales charge. If you believe you qualify for this
exemption, you must notify us at the time you purchase Class A
Shares and provide us with evidence such as a confirmation of your
share redemption.
(9) By brokers, dealers and agents (as well as their employees,
spouses and children under the age of 21) who have a sales agreement
with the Distributor and are purchasing Class A Shares for their own
account.
(10) By individuals buying Class A Shares on behalf of a qualified
prototype retirement plan (other than an IRA, SEP-IRA or Keogh).
(11) By sponsors of a unit investment trust (UIT) who are buying
Class A Shares of HighMark Growth Fund for deposit into the UIT.
This exception may also apply to you if you hold a UIT and invest
distributions you receive from it in Class A Shares of the HighMark
Growth Fund.
(12) By current or retired trustees of HighMark Funds; by directors,
officers and employees (as well as their spouses and children under
the age of 21) of Union Bank of California, SEI Investments
Distribution Co. or their affiliated companies and of Sub-Advisers
to the HighMark Funds.
(13) By 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.
45
<PAGE> 48
(14) By persons who bought Class A Shares without the assistance of
an investment professional between May 15, 1998 and August 31, 1998.
Such individuals may make future purchases of Class A Shares at no
sales charge.
If you think you may be eligible for a sales charge waiver, contact the
Distributor or consult the Statement of Additional Information (see the back
cover of this prospectus). For categories 2 through 12 and 14 above, you must
notify the Distributor at the time you buy the Shares that your purchase
qualifies for a sales charge waiver.
CDSC WAIVERS: You may qualify for a CDSC waiver if:
you are selling Shares as part of a systematic withdrawal plan.
you are taking certain distributions from a retirement plan.
the shareholder has died or become disabled.
You must notify us that you are eligible for a waiver under these circumstances
at the time you wish to sell Shares.
If you think you may be eligible for a CDSC waiver, contact your financial
representative or the Distributor or consult the Statement of Additional
Information (see the back cover of this prospectus for contact information).
FEES FOR DISTRIBUTION OF SHARES
HighMark Funds has adopted 12b-1 plans with respect to Class A, Class B and
Class C Shares that allow each Fund to pay distribution and service fees. The
maximum distribution and service fee for each class of Shares is as follows:
<TABLE>
<CAPTION>
Percentage of Average
Share Class Daily Net Assets
<S> <C>
Class A 0.25%
Class B 0.75%
Class C 1.00%
</TABLE>
Because 12b-1 fees are paid on an ongoing basis, Class B and Class C
shareholders could, over time, end up paying more in expenses than if they had
paid a sales charge on their initial investment.
46
<PAGE> 49
OPENING AN ACCOUNT
1. Read this prospectus carefully.
2. Determine how much money you want to invest. The minimum investments for
the HighMark Funds are as follows:
- INITIAL PURCHASE: $1,000 for each Fund
- $250 for current and retired trustees of HighMark Funds and
directors, officers and employees (as well as their spouses and
children under the age of 21) of Union Bank of California, N.A.,
SEI Investments Distribution Co. and their affiliates.
- ADDITIONAL PURCHASES: $100 for each Fund
We may waive these initial and additional investment minimums for purchases made
in connection with Individual Retirement Accounts, Keoghs, payroll deduction
plans, or 401(k) or similar plans.
3. Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation when
opening trust, corporate or power of attorney accounts. For more information,
please contact your financial representative or call the Distributor at
1-800-433-6884.
4. Make your initial investment using the table on the next page. You and
your financial representative can initiate any purchase, exchange or sale of
Shares.
We reserve the right to reject a purchase order if the Distributor or the
Adviser determines that it is not in the best interest of HighMark Funds or its
shareholders.
47
<PAGE> 50
BUYING SHARES
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
BY CHECK
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
[LETTER - Make out a check for the investment amount, - Make out a check for the investment amount,
ICON] payable to "HighMark Funds." payable to "HighMark Funds."
- Deliver the check and your completed application - Fill out the detachable investment slip from
to your financial representative, or mail them your account statement. If you do not have a slip,
to our transfer agent (address below). include a note specifying the fund name, your share
class, your account number and the name(s) in which
the account is registered.
- Deliver the check and your investment slip or note
to your financial representative, or mail them to
our transfer agent (address below).
All purchases made by check should be in U.S. dollars.
Third party checks, credit card checks or cash will not be accepted.
- ---------------------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
- ---------------------------------------------------------------------------------------------------------------------------------
[ARROW - Call your financial representative or the Distributor - Call your financial representative or the
ICONS] at 1-800-433-6884 to request an exchange. Distributor at 1-800-433-6884 to request an
exchange.
- ---------------------------------------------------------------------------------------------------------------------------------
BY WIRE
- ---------------------------------------------------------------------------------------------------------------------------------
[ARROW - Deliver your completed application to your financial - Call our transfer agent before wiring any funds.
ICON] representative, or mail it to the transfer agent
(address below).
- Obtain your Fund account number by calling your - Instruct your bank to wire the amount of your
financial representative or our transfer agent. investment to:
- Instruct your bank to wire the amount of your State Street Bank and Trust Company
investment to: 225 Franklin Street
State Street Bank and Trust Company Boston, MA 02101
225 Franklin Street ABA# 011000028
Boston, MA 02101 DDA# 9905-194-8
ABA# 011000028
DDA# 9905-194-8 Specify the Fund name, your share class, your
Fund account number and the name(s) in which the
Fund account is registered. Your bank may charge
a fee to wire money.
Specify the Fund name, your choice of share class, the
new Fund account number and the name(s) in which the
Fund account is registered. Your bank may charge a fee
to wire money.
- ---------------------------------------------------------------------------------------------------------------------------------
THROUGH FINANCIAL INSTITUTIONS
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE> 51
<TABLE>
<S> <C>
- Call your financial institution for information - Call your financial institution for information
on their procedures for transmitting orders to on their procedures for transmitting orders to
HighMark Funds. HighMark Funds.
TRANSFER AGENT
ADDRESS:
State Street Bank and Trust Company
P.O. Box 8416
Boston, MA 02266-8416 To add to an account using the
PHONE NUMBER: 1-800-433-6884 Automatic Invest Plan, see
Or contact your financial representative for "Additional Investor Services."
instructions and assistance.
</TABLE>
49
<PAGE> 52
SELLING SHARES
<TABLE>
<CAPTION>
DESIGNED FOR TO SELL SOME OR ALL OF YOUR SHARES
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------
BY LETTER
- ---------------------------------------------------------------------------------------------------------------------
[LETTER - Accounts of any type. - Write a letter indicating the Fund name, your
ICON] - Sales of any amount. share class, your Fund account number, the name(s)
in which the account is registered and the dollar
value or number of Shares you wish to sell.
- Include all signatures and any guarantees that
may be required (see next page).
- Mail the materials to our transfer agent.
- We will mail a check to the name(s) and address
in which the account is registered, unless you
give us other written instructions.
- ---------------------------------------------------------------------------------------------------------------------
BY PHONE
- ---------------------------------------------------------------------------------------------------------------------
[PHONE - Accounts of any type. - To place your order, contact your financial
ICON] representative or the Distributor at 1-800-433-6884
- Sales of any amount. between 8:30 A.M. and 8:00 P.M. Eastern Time on
most business days.
- ---------------------------------------------------------------------------------------------------------------------
BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT)
- ---------------------------------------------------------------------------------------------------------------------
[ARROW - Requests by letter to sell at least $500 - We will wire amounts of $500 or more on the next
ICON] (accounts of any type). business day after we receive your request.
- Requests by phone to sell at least $500
(accounts of any type). - If you have an account with the Fund's transfer
agent (a "Fund Direct Account"), a $15 fee will
be deducted from your account.
- Shares cannot be redeemed by wire on Federal holidays
restricting wire transfers.
- ---------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
- ---------------------------------------------------------------------------------------------------------------------
[ARROWS - Accounts of any type. - Obtain a current prospectus for the Fund into
ICON] - Sales of any amount. which you are exchanging by calling the Distributor
or your financial representative.
- Call the Distributor or your financial representative
to request an exchange.
</TABLE>
50
<PAGE> 53
<TABLE>
<S> <C>
THROUGH FINANCIAL INSTITUTIONS
- Accounts set up through financial - Contact your financial institution for information
institutions. on their procedures for transmitting orders to
HighMark Funds.
TRANSFER AGENT
ADDRESS:
State Street Bank and Trust Company
P.O. Box 8416
Boston, MA 02266-8416
PHONE NUMBER: 1-800-433-6884
Or contact your financial representative for To add to an account using the Automatic Invest Plan, see
instructions and assistance. "Additional Investor Services."
</TABLE>
SELLING SHARES IN WRITING. In certain circumstances, you may need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
- you are selling more than $5,000 worth of Shares.
- you are requesting payment other than by a check mailed to the
address of record and payable to the registered owner(s).
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. A notary public CANNOT provide a signature guarantee.
RECEIVING YOUR MONEY. Normally, we will send you a check for your proceeds as
promptly as possible, at the latest within seven calendar days of receiving your
redemption order. If, however, you recently purchased Shares in the Fund, we may
be unable to fulfill your request if we have not yet received and processed your
payment for the initial purchase. In such a case you may need to resubmit your
redemption request after we have received payment.
REDEMPTION IN KIND. The Funds reserve the right to make payment on redemptions
in securities rather than cash.
INVOLUNTARY SALES OF YOUR SHARES. 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 balance in any Fund drops below the minimum initial purchase amount for
any reason other than market fluctuation. This is more likely to occur if you
invest only the minimum amount in a Fund and then sell Shares within a fairly
short period of time. Before any Fund exercises its right to redeem your Shares,
we will notify you in writing at least 60 days in advance to give you time to
bring your account up to the minimum or above.
EXCHANGING SHARES
HOW TO EXCHANGE YOUR SHARES. You may exchange Class A, Class B or Class C Shares
of one HighMark Fund for those of another HighMark Fund (the "new Fund"),
provided that you:
- - Are qualified to invest in the new Fund.
- - Satisfy the initial and additional investment minimums for the new Fund.
- - Invest in the same share class in the new Fund as you did in the previous
Fund.
- - Maintain the minimum account balance for each HighMark Fund in which you
invest.
Your cost for buying Shares in the new Fund is based on the relative net asset
values of the Shares you are exchanging plus any applicable sales charge.
CLASS A SHARES. If you want to exchange Class A Shares of one HighMark Fund for
those of another Fund that has a higher sales charge, you must pay the
difference. The same is true if you want to exchange Class
51
<PAGE> 54
A Shares of a no-load HighMark Money Market Fund for those of another HighMark
Fund with a sales charge. There is one exception: If you acquired Class A Shares
of a HighMark Money Market Fund in an exchange out of Class A Shares of a
non-money market HighMark Fund, you may, within a 12-month period, exchange your
Class A money market Shares for those of another HighMark Fund without paying
any additional sales charge. To receive a reduced sales charge when exchanging
into a Fund, you must notify us that you originally paid a sales charge and
provide us with information confirming your qualification.
CLASS B SHARES. To calculate the Class B Shares' eight-year conversion period or
contingent deferred sales charge payable upon redemption, the period you held
Class B Shares of the "old" Fund and the period you held Class B Shares of the
"new" Fund are combined.
TRANSACTION POLICIES
VALUATION OF SHARES. A Fund's net asset value is calculated according to the
following formula:
(Total mkt. value of the Fund's investments and other assets - any
Fund liabilities)
/ Total number of the Fund's Shares outstanding
-----------------------------------------------
= Fund's net asset value
We determine the net asset value (NAV) of each HighMark Fund as of 1:00 p.m.
Pacific time (4:00 p.m. Eastern time) business days, based on the current market
price of the Fund's securities. If that is not available, we value securities by
using a method that the Funds' Board of Trustees believes accurately reflects
fair value. Although we use the same method to determine the NAV of Class A,
Class B and Class C Shares, the NAV of a Fund's Class B and Class C Shares may
be lower than that of its Class A Shares because Class B Shares have higher
distribution expenses. For further information about how we determine the value
of the Funds' investments, see the Statement of Additional Information.
BUY AND SELL PRICES. When you buy Shares, you pay the net asset value next
determined after we receive your order, plus any applicable sales charges. When
you sell Shares, you receive the net asset value next determined after we
receive your order, minus any applicable deferred sales charges.
EXECUTION OF ORDERS. You may buy and sell Shares of the HighMark Funds on any
day when the New York Stock Exchange is open for business (hereafter referred to
as a "business day").
- - Purchasing Shares by Mail: If you mail us a purchase order, we will
execute it as soon as we have received your payment. (Note: If your check
does not clear, we will be forced to cancel your purchase and may hold
you liable for any losses or fees incurred.)
- - Purchasing Shares by Wire: If you place a purchase order by wire on any
business day, we will execute it that day, provided that you have wired
the money you wish to invest 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 money you plan to wire by this deadline, we will execute your
order the following business day or whenever we have received payment.
- - Selling Shares: To sell Shares on any one business day, you must place
your redemption order before 1:00 p.m. Pacific time (4:00 p.m. Eastern
time). Otherwise, we will execute your order on the following business
day.
DIVIDENDS AND DISTRIBUTIONS
As a mutual fund shareholder, you may receive capital gains and/or income from
your investment. Each of the HighMark Funds declares and pays income dividends
monthly, with the exception of the Small Cap Value Fund, which declares and pays
income dividends periodically. The Funds distribute any capital gains they have
realized at least once a year.
52
<PAGE> 55
We will automatically reinvest any income and capital gains distributions you
are entitled to in additional Shares of your Fund(s) unless you notify our
Transfer Agent that you want to receive your distributions in cash. To do so,
send a letter with your request, including your name and account number to:
HighMark Funds
c/o State Street Bank and Trust Company
P.O. Box 8416
Boston, MA 02266-8416
Your request will become effective for distributions having record dates after
our Transfer Agent receives your request. Note that the IRS treats dividends
paid in additional Fund Shares the same as it treats dividends paid in cash.
In general, a Fund's Class A Shares will pay higher dividends than Class B and
Class C Shares, because Class B Shares and Class C Shares have higher
distribution fees.
TAXES
Your mutual fund investments may have a considerable impact on your tax
situation. We've summarized some of the main points you should know below. Note,
however, that the following is general information and will not apply to you if
you are investing through a tax-deferred account such as an IRA or a qualified
employee benefit plan. In addition, if you are not a resident of the United
States, you may have to pay taxes besides those described here, such as U.S.
withholding and estate taxes.
IMPORTANT NOTE: IF YOU HAVE NOT DONE SO ALREADY, BE SURE TO PROVIDE US WITH YOUR
CORRECT TAXPAYER IDENTIFICATION NUMBER OR CERTIFY THAT IT IS CORRECT. UNLESS WE
HAVE THAT INFORMATION, WE MUST, BY LAW, WITHHOLD 31% OF THE TAXABLE
DISTRIBUTIONS YOU WOULD OTHERWISE BE ENTITLED TO RECEIVE FROM YOUR FUND
INVESTMENTS AS WELL AS ANY PROCEEDS YOU WOULD NORMALLY RECEIVE FROM SELLING FUND
SHARES.
END-OF-YEAR TAX STATEMENTS
We will send you a statement each year showing the tax status of all your
distributions. The laws governing taxes change frequently, however, so please
consult your tax Adviser for the most up-to-date information and specific
guidance regarding your particular tax situation. You can find more information
about the potential tax consequences of mutual fund investing in our Statement
of Additional Information.
TAXES ON FUND DISTRIBUTIONS
- - FEDERAL TAXES: The IRS treats any dividends and short-term capital gains
you receive from the Funds as ordinary income.
- - STATE AND LOCAL TAXES: In addition to federal taxes, you may have to pay
state and local taxes on the dividends or capital gains you receive from
a Fund.
- - TAXATION OF LONG-TERM CAPITAL GAINS: You may have to pay federal and
state taxes on any distributions of net long-term capital gains you
receive from a Fund at the long-term capital gains rate, no matter how
long you've owned Shares in the Fund. (Although some states like
California, do not have a special rate for capital gains.)
- - "BUYING A DIVIDEND": You may owe taxes on Fund distributions even if they
represent income or capital gains the Fund earned before you invested in
it and thus were likely included in the price you paid.
TAX CONSEQUENCES OF SELLING OR EXCHANGING SHARES
If you sell or exchange Fund Shares, you may have to report any capital gain you
realize as income and any capital loss as a deduction on your federal income tax
return (even if the Fund invests primarily in tax-exempt securities.) For more
specific information about your own tax situation, consult your tax adviser.
53
<PAGE> 56
The portfolio managers of the Funds do not actively consider tax consequences
when making investment decisions. From time to time, the Funds may realize
capital gains as by-products of ordinary investment activities. As a result, the
amount and timing of Fund distributions may vary considerably from year to year.
SPECIAL CONSIDERATIONS FOR SHAREHOLDERS OF HIGHMARK CALIFORNIA INTERMEDIATE
TAX-FREE BOND FUND:
The Fund's portfolio managers expect that virtually all of the income the
California Intermediate Tax-Free Fund generates will be exempt from federal and
California state personal income taxes. If, however, you receive Social
Security or railroad retirement benefits, you should consult your tax adviser
to determine whether investing in the Fund could increase federal taxation of
your benefits. In addition, some of the income you received from the Fund may
be included in the computation of federal and state alternative minimum tax.
SPECIAL CONSIDERATIONS FOR SHAREHOLDERS OF FUNDS INVESTING IN FOREIGN
SECURITIES:
If your Fund invests in foreign securities, the income those securities generate
may be subject to foreign withholding taxes, which may decrease their yield.
Foreign governments may also impose taxes on other payments or gains your Fund
earns on these securities. In general, shareholders in these Funds will not be
entitled to claim a credit or deduction for these foreign taxes on their U.S.
tax return. (There are some exceptions, however; please consult your tax adviser
for more information.) In addition, foreign investments may prompt a Fund to
distribute ordinary income more frequently and/or in greater amounts than purely
domestic funds, which could increase your tax liability.
THE TAX CONSIDERATIONS DESCRIBED ABOVE MAY OR MAY NOT APPLY TO YOU. PLEASE
CONSULT YOUR TAX ADVISER TO DETERMINE WHETHER THESE CONSIDERATIONS ARE RELEVANT
TO YOUR PARTICULAR INVESTMENTS AND TAX SITUATION.
INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN (AIP): AIP allows you to make regular investments in
the HighMark Fund(s) of your choice through automatic deductions from your
checking account. The monthly minimum per Fund is $100.* AIP is available only
to current shareholders who wish to make additional investments to their
existing account(s). To participate in AIP, complete the appropriate section on
your Account Application form.
*There is a $50 monthly minimum for current or retired trustees of the HighMark
Funds and directors, officers, and employees (as well as their spouses and
children under the age of 21) of Union Bank of California, SEI Investments
Distribution Co., and their affiliates who were participating in HighMark's AIP
on or before December 11, 1998.
SYSTEMATIC WITHDRAWAL PLAN (SWP): HighMark's Systematic Withdrawal Plan allows
you to make regular withdrawals from your account. The minimum monthly
withdrawal is $100 per Fund. You can opt to make these withdrawals on a monthly,
quarterly, twice yearly or annual basis. You also have the option of receiving
your withdrawals by check or by automatic deposit into your bank account.
To participate in SWP, you must:
- - Have at least $5,000 in your HighMark Fund(s) account.
- - Have your dividends automatically reinvested.
Before you sign up for SWP, please note the following important considerations:
If your automatic withdrawals through SWP exceed the income your Fund(s)
normally pay, your withdrawals may, over time, deplete your original
investment--or exhaust it entirely if you make large and frequent withdrawals.
Fluctuations in the net asset value per share of your Fund(s) may also
contribute to the depletion of your principal.
Class A and Class C shareholders should note the following:
If you are currently making additional purchases of HighMark Shares that carry a
sales load, or plan to do so, it generally would not be in your best interest to
participate in SWP.
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<PAGE> 57
Class B shareholders should also note the following:
If you expect to withdraw more than 10% of your account's current value in any
single year, it may not be in your best interest to participate in SWP because
you will have to pay a contingent deferred sales charge on Class B withdrawals
of this size.
To take part in SWP, complete the appropriate section on your Account
Application form. You may change or cancel the plan at any time by sending a
written notice to our transfer agent (a signature guarantee may be required).
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MORE ABOUT HIGHMARK FUNDS
INVESTMENT MANAGEMENT
INVESTMENT ADVISER
HighMark Capital Management, Inc., serves as investment adviser of the HighMark
Funds and manages their investment portfolios on a day-to-day basis under the
supervision of HighMark Funds' Board of Trustees.
HighMark Capital Management is a subsidiary of UnionBanCal Corporation, the
holding company of Union Bank of California, N.A. UnionBanCal Corporation is a
publicly held corporation, which is principally held by The Bank of
Tokyo-Mitsubishi, Ltd. As of September 30, 1999, UnionBanCal Corporation and its
subsidiaries had approximately $____ billion in consolidated assets. HighMark
Capital Management, as of September 30, 1999, had approximately $____ billion in
assets under management. HighMark Capital Management (and its predecessors),
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.
Over the past fiscal year, the Funds paid the following management fees to
HighMark Capital Management:
<TABLE>
<CAPTION>
Fund % of Net Assets
---- ---------------
<S> <C>
Bond Fund 0.50%
California Intermediate Tax-Free Bond Fund 0.50%
Intermediate-Term Bond Fund 0.50%
Balanced Fund 0.60%
Growth Fund 0.60%
Income Equity Fund 0.60%
International Equity Fund 0.95%*
Value Momentum Fund 0.60%
Small Cap Value Fund 1.00%*
</TABLE>
*A portion of the management fee is used to pay the Fund's subAdviser.
SUB-ADVISERS
INTERNATIONAL EQUITY FUND. AXA Asset Management Partenaires ("AXA") serves as
the subadviser to the International Equity Fund. Under an investment subadvisory
agreement between AXA and HighMark Capital Management, AXA makes day-to-day
investment decisions regarding the Fund, subject to the supervision of, and
policies established by, HighMark Capital Management and the Trustees of
HighMark Funds.
AXA 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, 1999, AXA managed assets in excess of $___ billion.
SMALL CAP VALUE FUND. Brandes Investment Partners, L.P. (Brandes) serves as the
sub-adviser to a portion of the Small Cap Value Fund's assets. Under an
investment sub-Advisory agreement between Brandes and HighMark Capital
Management, Brandes makes day-to-day investment decisions regarding the Fund's
foreign securities, subject to the supervision of, and policies established by,
HighMark Capital Management 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 its various predecessors) has provided investment Advisory services
since 1974. Brandes serves as portfolio manager to mutual funds, employee
benefit funds and other institutional clients. As of September 30, 1999, Brandes
managed approximately $_____ billion in assets.
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PORTFOLIO MANAGERS
All investment decisions for the HighMark Funds are made by a team of investment
professionals, all of whom take an active part in the decision making process.
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<PAGE> 60
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years or, if shorter, the period of the
Fund's operations. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by ,
whose report, along with the Fund's financial statements, are included in the
SAI, which is available upon request.
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<PAGE> 61
INVESTMENT PRACTICES
The Funds invest in a variety of securities and employ a number of investment
techniques. Each security and technique involves certain risks. The following
table describes the securities and techniques the Funds use, as well as the main
risks they pose. Equity securities are subject mainly to market risk.
Fixed-income securities are subject primarily to market, credit and prepayment
risk. Following the table is a more complete discussion of risk. You may also
consult the Statement of Additional Information for more details about the
securities in which the Funds may invest.
<TABLE>
<CAPTION>
FUND NAME FUND CODE
- --------- ---------
<S> <C>
Balanced Fund 1
Growth Fund 2
Income Equity Fund 3
International Equity Fund 4
Value Momentum Fund 5
Small Cap Value Fund 6
Bond Fund 7
California Intermediate Tax-Free Bond Fund 8
Intermediate-Term Bond Fund 9
</TABLE>
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
- ---------- --------- ---------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE LOANS (ARMSs): Loans in a 1,5,7, 9 Pre-payment
mortgage pool which provide for a fixed initial mortgage Market
interest rate for a specified period of time, after which the rate Credit
may be subject to periodic adjustments. Regulatory
AMERICAN DEPOSITORY RECEIPTS (ADRS): ADRs 1-6 Market
are foreign Shares of a company held by a U.S. Political
bank that issues a receipt evidencing ownership. Foreign
Investment ADRs pay dividends in U.S. dollars.
ASSET-BACKED SECURITIES: Securities backed by company 1, 2, 5 Pre-payment
receivables, home equity loans, truck and auto loans, Market
leases, credit card receivables and other securities backed Credit
by other types of receivables or assets. Regulatory
BANKERS' ACCEPTANCES: Bills of exchange or time drafts 1-7, 9 Credit
drawn on and accepted by a commercial bank. They generally have Liquidity
maturities of six months or less. Market
BONDS: Interest-bearing or discounted government or 1, 5-9 Market
corporate securities that obligate the issuer to pay the Credit
bondholder a specified sum of money, usually at specific intervals,
and to repay the principal amount of the loan at maturity.
</TABLE>
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<TABLE>
<S> <C> <C>
CALL AND PUT OPTIONS: A call option gives the buyer the 1-6 Management
right to buy, and obligates the seller of the option to Liquidity
sell, a security at a specified price. A put option gives Credit
the buyer the right to sell, and obligates the seller of the Market
option to buy, a security at a specified price. The Leverage
Funds will sell only covered call and secured put options.
CERTIFICATES OF DEPOSIT: Negotiable instruments 1-7, 9 Market
with a stated maturity. Credit
Liquidity
COMMERCIAL PAPER: Secured and unsecured short-term 1-7, 9 Credit
promissory notes issued by corporations and other entities. Liquidity
Maturities generally vary from a few days to nine months. Market
COMMON STOCK: Shares of ownership of a company. 1-6 Market
CONVERTIBLE SECURITIES: Bonds or preferred stock that 1-6 Market
convert to common stock. Credit
DEMAND FEATURES: Securities that are subject to puts and 1-7, 9 Market
standby commitments to purchase the securities at a fixed Liquidity
price (usually with accrued interest) within a fixed period Management
of time following demand by a Fund.
DERIVATIVES: Instruments whose value is derived from 1-9 Management
an underlying contract, index or security, or any Market
combination thereof, including futures, options Credit
(e.g., put and calls), options on futures, swap Liquidity
agreements, and some mortgage-backed securities. Leverage
FOREIGN SECURITIES: Stocks issued by foreign companies including 4,5 Market
ADRs and Global Depository Receipts (GDRs), as well as Political
Commercial paper of foreign issuers and obligations of foreign Foreign
governments, companies, banks, overseas branches of U.S. banks Liquidity
or supranational entities. Investment
FORWARD FOREIGN CURRENCY CONTRACTS: An obligation 4,5,6 Management
to purchase or sell a specific amount of a currency at a fixed future Liquidity
date and price set by the parties involved at the time the contract is Credit
negotiated. Market
Political
Leverage
Foreign
Investment
FUTURES AND RELATED OPTIONS: A contract providing for the 1-9 Management
future sale and purchase of a specific amount of a Market
specific security, class of securities, or index at a Credit
specified time in the future and at a specified price. Liquidity
The aggregate value of options on securities (long puts Leverage
and calls) will not exceed 10% of a HighMark Equity Fund's net
assets at the time it purchases the options. An Equity
Fund will limit obligations under futures, options on
</TABLE>
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<TABLE>
<S> <C> <C>
futures, and options on securities to no more than 25%
of the Fund's assets. The HighMark Fixed Income Funds may
invest in futures and options on futures for the purpose
of achieving the Fund's objectives and for adjusting their
portfolio's duration. Each of these Funds will limit their
obligations under futures contracts and related options
to no more than 10% of its assets.
HIGH-YIELD/HIGH-RISK/BONDS: Bonds rated below investment grade 1,7-9 Credit Market
by the primary rating agencies (e.g., BB or lower by Standard Liquidity
& Poor's and Ba or lower by Moody's). These securities are
considered speculative and involve greater risk of loss than
investment grade bonds. Also called "lower rated bonds,"
"noninvestment grade bonds" and "junk bonds."
ILLIQUID SECURITIES: Securities that ordinarily cannot be 1-9 Liquidity
sold within seven business days at the value the Fund Market
has estimated for them. Each Fund may invest up to
15% of its net assets in illiquid securities.
INVESTMENT COMPANY SECURITIES: Shares of registered 1-9 Market
investment companies. These may include HighMark Money
Market Funds and other registered investment companies for which
HighMark, its subadvisers, or any of their affiliates serves as
investment adviser, administrator or distributor. Each of the Funds
may invest up to 5% of its assets in the Shares of any one registered
investment company. A Fund may not, however, own more than 3% of
the securities of any one registered investment company or invest
more than 10% of its assets in the Shares of other registered
investment companies. As a shareholder of an investment company,
a Fund will indirectly bear investment management fees of that
investment company, which are in addition to the management fees
the Fund pays its own Adviser.
INVESTMENT GRADE SECURITIES: Securities rated BBB or higher 1, 5-9 Market
by Standard & Poor's; Baa or better by Moody's; similarly Credit
rated by other nationally recognized rating organizations; or, if
not rated, determined to be of comparably high quality by the
Adviser.
MONEY MARKET INSTRUMENTS: Investment-grade, U.S. 1-9 Market
dollar-denominated debt securities with remaining Credit
maturities of one year or less. These may include
short-term U.S. government obligations, commercial
paper and other short-term corporate obligations,
repurchase agreements collateralized with U.S.
government securities, certificates of deposit,
bankers' acceptances, and other financial institution
obligations. These securities may carry fixed or
variable interest rates.
</TABLE>
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<TABLE>
<S> <C> <C>
MORTGAGE-BACKED SECURITIES: Bonds backed by real 1,7,9 Prepayment
estate loans and pools of loans. These include Market
collateralized mortgage obligations (CMOs) and Credit
real estate mortgage investment conduits (REMICs). Regulatory
MUNICIPAL FORWARDS: Forward commitments to 8 Market
purchase tax-exempt bonds with a specific coupon Leverage
to be delivered by an issuer at a future date (typically Liquidity
more than 45 days but less than one year). Municipal Credit
forwards are normally used as a refunding mechanism for bonds that
may be redeemed only on a designated future date. Any Fund that
makes use of municipal forwards 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: Securities issued by a state or 8 Market
political subdivision to obtain funds for various public Credit
purposes. Municipal securities include private activity bonds Political
and industrial development bonds, as well as general Tax
obligation bonds, tax anticipation notes, bond anticipation Regulatory
notes, revenue anticipation notes, project notes, other
short-term tax-exempt obligations, municipal leases, and
obligations of municipal housing authorities (single
family revenue bonds).
There are two general types of municipal bonds: General-obligation
bonds, which are secured by the taxing power of the issuer (and,
in California, have the approval of voters) and revenue bonds,
which take many shapes and forms but are generally backed by revenue
from a specific project or tax. These include, but are not limited
to, certificates of participation (COPs); utility and sales tax
revenues; tax increment or tax allocations; housing and special
tax, including assessment district and community facilities district
(Mello-Roos) issues which are secured by taxes on specific real estate
parcels; hospital revenue; and industrial development bonds that are
secured by the financial resources of a private company.
OBLIGATIONS OF SUPRANATIONAL AGENCIES: Securities issued 2, 5, 8 Credit
by supranational agencies that are chartered to promote Foreign
Investment economic development and are supported by
various governments and government agencies.
OPTIONS ON CURRENCIES: A Fund may buy put options and sell 4,5 Management
covered call options on foreign currencies (traded on U.S. and Liquidity
foreign exchanges or over-the-counter markets). A covered call Credit
option means the Fund will own an equal amount of the underlying Market
foreign currency. Currency options help a Fund manage its exposure Political
to changes in the value of the U.S. dollar relative to other currencies. Leverage
If a Fund sells a put option on a foreign currency, it will establish a Foreign Investment
segregated account with its Custodian consisting of cash, U.S.
government securities or other liquid high-grade bonds in an amount
equal to the amount the Fund would be required to pay if the put is
exercised.
</TABLE>
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<TABLE>
<S> <C> <C>
PARTICIPATION INTERESTS: Interests in municipal 1,8 Market
securities from financial institutions such Liquidity
as commercial and investment banks, savings and loan Credit
associations and insurance companies. These interests Tax
are usually structured as some 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 interests to obtain credit enhancement on demand features
that would be available through direct ownership of the underlying
municipal securities.
PREFERRED STOCKS: Equity securities that generally pay dividends 1-6 Market
at a specified rate and take precedence over common stock in the
payment of dividends or in the event of liquidation. Preferred stock
generally does not carry voting rights.
REPURCHASE AGREEMENTS: The purchase of a security 1-9 Market
and the simultaneous commitment to return the Leverage
security to the seller at an agreed upon price on an agreed
upon date. This is treated as a loan.
REVERSE REPURCHASE AGREEMENTS: The sale of a security 1-9 Market
and the simultaneous commitment to buy the security back Leverage
at an agreed upon price on an agreed upon date. This is
treated as a borrowing by a Fund.
RESTRICTED SECURITIES: Securities not registered under the 1-9 Liquidity
Securities Act of 1933, such as privately placed commercial Market
paper and Rule 144A securities.
SECURITIES LENDING: The lending of up to 33 1/3% of the 1-9 Market
Fund's total assets. In return the Fund will receive Leverage
cash, other securities and/or letters of credit. Liquidity
Credit
INDEX-BASED SECURITIES: Index-based securities such as 1-5 Market
Standard & Poor's Depository Receipts ("SPDRs")
and NASDAQ-100 Index Tracking Stock ("NASDAQ
100s"), represent ownership in a long-term unit investment
trust that holds a portfolio of common stocks designed to
track the price performance and dividend yield of of an index,
such as the S&P 500 Index or the NASDAQ-100 Index. Index-based
securities entitle a holder to receive proportionate quarterly cash
distributions corresponding to the dividends that accrue to the
index stocks in the underlying portfolio, less trust expenses.
TAX-EXEMPT COMMERCIAL PAPER: Commercial paper 8 Credit
issued by governments and political sub-divisions. Liquidity
Market
Tax
TIME DEPOSITS: Non-negotiable receipts issued by a 1,3,5-7,9 Liquidity
bank in exchange for a deposit of money. Credit
Market
</TABLE>
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<TABLE>
<S> <C> <C>
TREASURY RECEIPTS: Treasury receipts, Treasury investment 1-9 Market
growth receipts, and certificates of accrual of Treasury securities.
UNIT INVESTMENT TRUSTS: Investment vehicle, registered 2-7,9 Market
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.
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.
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued 1,2-9 Market
by agencies and instrumentalities of the U.S. government. Credit
These include Ginnie Mae, Fannie Mae, and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, 1,2-9 Market
separately traded registered interest and principal
securities, and coupons under bank entry safekeeping.
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations with 1,2-9 Credit
interest rates that are reset daily, weekly, quarterly or on Liquidity
some other schedule. Such instruments may be payable to a Market
Fund on demand.
WARRANTS: Securities that give the holder the right to buy a 1-6 Market
proportionate amount of common stock at a specified price. Credit
Warrants are typically issued with preferred stock and bonds.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: 1-9 Market
A purchase of, or contract to purchase, securities at a fixed Leverage
price for delivery at a future date. The portfolio managers Liquidity
of each Fund expect that commitments to enter into forward Credit
commitments or purchase when-issued securities will not exceed
25% of the Fund's total assets.
YANKEE BONDS AND SIMILAR DEBT OBLIGATIONS: U.S. dollar 1,5,7-9 Market
denominated bonds issued by foreign corporations or Credit
governments. Sovereign bonds are those issued by the
government of a foreign country. Supranational bonds are
those issued by supranational entities, such as the World Bank
and European Investment Bank. Canadian bonds are those issued by
Canadian provinces.
ZERO-COUPON DEBT OBLIGATIONS: Bonds and other types of 5,6,8 Credit
debt that pay no interest, but are issued at a discount from Market
their value at maturity. When held to maturity, their entire Zero Coupon
return equals the difference between their issue price and
their maturity value.
</TABLE>
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GLOSSARY OF INVESTMENT RISKS
This section discusses the risks associated with the securities and investment
techniques listed above, as well as the risks mentioned under the heading "What
are the main risks of investing in this Fund?" in each Fund profile. Because of
these risks, the value of the securities held by the Funds may fluctuate, as
will the value of your investment in the Funds. Certain types of investments and
Funds are more susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Generally speaking, the lower a security's credit rating, the higher
its credit risk. If a security's credit rating is downgraded, its price tends to
decline sharply, especially as it becomes more probable that the issuer will
default.
FOREIGN INVESTMENT RISK. Compared with investing in the United States, investing
in foreign markets involves a greater degree and variety of risk. Investors in
foreign markets may face delayed settlements, currency controls and adverse
economic developments as well as higher overall transaction costs. In addition,
fluctuations in the U.S. dollar's value versus other currencies may erode or
reverse gains from investments denominated in foreign currencies or widen
losses. Exchange rate fluctuations also may impair an issuer's ability to repay
U.S. dollar denominated debt, thereby increasing credit risk. Finally, foreign
securities may be affected by incomplete or inaccurate financial information
about their issuers, social upheavals or political actions ranging from tax code
changes to governmental collapse. These risks are greater in the emerging
markets than in the developed markets of Europe and Japan.
INTEREST RATE RISK. The risk that debt prices overall will decline over short or
even long periods due to rising interest rates. Interest rate risk should be
modest for shorter-term securities, moderate for intermediate-term securities,
and high for longer-term securities. Generally, an increase in the average
maturity of a Fund will make it more sensitive to interest rate risk.
INVESTMENT STYLE RISK. The risk that the particular type of investment on which
a Fund focuses (such as small-cap value stocks or large-cap growth stocks) may
underperform other asset classes or the overall market. Individual market
segments tend to go through cycles of performing better or worse than other
types of securities. These periods may last as long as several years.
Additionally, a particular market segment could fall out of favor with
investors, causing a Fund that focuses on that market segment to underperform
those that favor other kinds of securities.
LEVERAGE RISK. The risk associated with securities or investment practices that
magnify small index or market movements into large changes in value. Leverage is
often associated with investments in derivatives, but also may be embedded
directly in the characteristics of other securities.
HEDGED. When a derivative (a security whose value is based on that of another
security or index) is used as a hedge against an opposite position that a fund
holds, any loss on the derivative should be substantially offset by gains on the
hedged investment, and vice versa. Although hedging can be an effective way to
reduce a Fund's risk, it may not always be possible to perfectly offset one
position with another. As a result, there is no assurance that a Fund's hedging
transactions will be effective.
SPECULATIVE. In addition to helping reduce risk, derivatives may be used to
magnify a fund's potential gains. This strategy involves substantially greater
risks than more defensive uses of derivatives.
LIQUIDITY RISK. The risk that a security may be difficult or impossible to sell
at the time and price the seller wishes. The seller may have to accept a lower
price for the security, sell other securities instead, or forego a more
attractive investment opportunity. All of this could hamper the management or
performance of a Fund.
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<PAGE> 68
MANAGEMENT RISK. The risk that a strategy used by a Fund's portfolio manager may
fail to produce the intended result. This includes the risk that changes in the
value of a hedging instrument will not match those of the asset being hedged.
MARKET RISK. The risk that a security's market value may decline, sometimes
rapidly and unpredictably. These fluctuations may cause a security to be worth
less than the price the investor originally paid for it, or less than it was
worth at an earlier time. Market risk may affect a single issuer, industrial
sector or the market as a whole. For fixed-income securities, market risk is
largely influenced by changes in interest rates. Rising interest rates typically
cause the value of bonds to decrease, while falling rates typically cause the
value of bonds to increase.
POLITICAL RISK. The risk of investment losses attributable to unfavorable
governmental or political actions, seizure of foreign deposits, changes in tax
or trade statutes, and governmental collapse and war.
PREPAYMENT & CALL RISK. The risk that a security's principal will be repaid at
an unexpected time. Prepayment and call risk are related, but differ somewhat.
Prepayment risk is the chance that a large number of the mortgages underlying a
mortgage-backed security will be refinanced sooner than the investor had
expected. Call risk is the possibility that an issuer will "call"--or repay--a
high-yielding bond before the bond's maturity date.
In both cases, the investor is usually forced to reinvest the proceeds in a
security with a lower yield. This turnover may result in taxable capital gains
and, in addition, may lower a portfolio's income. If an investor paid a premium
for the security, the prepayment may result in an unexpected capital loss.
Prepayment and call risk generally increase when interest rates decline, and can
make a security's yield as well as its market price more volatile. Generally
speaking, the longer a security's maturity, the greater the prepayment and call
risk it poses.
REGULATORY RISK. The risk that federal and state laws may restrict an investor
from seeking recourse when an issuer has defaulted on the interest and/or
principal payments it owes on its obligations. These laws include restrictions
on foreclosures, redemption rights after foreclosure, Federal and state
bankruptcy and debtor relief laws, restrictions on "due on sale" clauses, and
state usury laws.
SMALL-COMPANY STOCK RISK. Investing in small companies is generally more risky
than investing in large companies, for a variety of reasons. Many small
companies are young and have limited track records. They also may have limited
product lines, markets or financial resources. They may, in addition, be more
vulnerable to adverse business or economic developments than larger companies.
Stocks issued by small companies tend to be less liquid and more volatile than
stocks of larger companies or the market averages in general. In addition, small
companies may not be well-known to the investing public, may not have
institutional ownership, and may have only cyclical, static, or moderate growth
prospects. If a fund concentrates on small companies, its performance may be
more volatile than that of a fund that invests primarily in larger companies.
TAX RISK. The risk that the issuer of a security will fail to comply with
certain requirements of the Internal Revenue Code, which would cause adverse tax
consequences for the issuer and potential losses for its investors.
YEAR 2000 RISK. 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, the HighMark Funds therefore could
be adversely affected if the computer systems used by its service providers do
not properly process dates on and after January 1, 2000, because they cannot
distinguish between the year 2000 and the year 1900. We are seeking assurances
from each of our service providers that they expect their systems to accommodate
the year 2000 transition without significant adverse consequences to HighMark
Funds. If these assurances prove to be incorrect, HighMark shareholders may lose
money as a result of
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system failures or year 2000 computer difficulties experienced by issuers of
portfolio securities or custodians, banks, broker-dealers or others with which
we do business.
ZERO COUPON RISK. The market prices of securities structured as zero coupon or
pay-in-kind securities are generally affected to a greater extent by interest
rate changes. These securities tend to be more volatile than securities that pay
interest periodically.
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HOW TO OBTAIN MORE INFORMATION
<TABLE>
<S> <C>
More information about the Funds is available without charge
INVESTMENT ADVISER through the following:
HighMark Capital Management, Inc. STATEMENT OF ADDITIONAL INFORMATION (SAI)
475 Sansome Street
San Francisco, CA 94104 More detailed information about the HighMark Funds is
included in our SAI. The SAI has been filed with the SEC and
SUB ADVISORS is incorporated by reference into this prospectus. This
means that the SAI, for legal purposes, is a part of this
International Equity Fund: prospectus.
AXA Asset Management Partenaires
46, Avenue de la Grande Armee
Paris, 75017, France
International Portion of the Small Cap Value Fund ANNUAL AND SEMI-ANNUAL REPORTS
Brandes Investment Partners, L.P.
12750 High Bluff Drive These reports list the Funds' holdings and contain
SAN DIEGO, CA 90730 information on the market conditions and investment
strategies that significantly affected
the HighMark Funds' performance during the last year.
ADMINISTRATOR AND DISTRIBUTOR
TO OBTAIN THE SAI, ANNUAL OR SEMI-ANNUAL REPORTS, OR MORE INFORMATION:
SEI Investments Distribution Co.
1 Freedom Valley Drive BY TELEPHONE:
Oaks, PA 19456
LEGAL COUNSEL Call 1-800-433-6884
Ropes & Gray By Mail:
1301 K Street, N.W., Suite 800 East
Washington, DC 20005 Write to us c/o
SEI Investments Distribution Co.
1 Freedom Valley Drive
AUDITORS Oaks, PA 19456.
Deloitte & Touche LLP By Internet:
50 Fremont Street
San Francisco, CA 94105-2230 http://www.highmark-funds.com
FROM THE SEC: You can also obtain the
SAI, the Annual and Semiannual Reports,
and other information about the HighMark
Funds, from the SEC's Web site
(http://www.sec.gov). You may review and
copy documents at the SEC Public
Reference Room in Washington, DC (for
information call 1-800-SEC-0330). You
may request documents by mail from the
SEC, upon payment of a duplicating fee,
by writing to: Securities and Exchange
Commission, Public Reference Section,
450 5th Street, N.W., Washington, DC
20549-6009.
HighMark Funds' Investment Company Act
registration number is 811-05059.
</TABLE>
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CROSS REFERENCE SHEET
Part A
<TABLE>
<CAPTION>
Form N-1A Item No. Prospectus Caption
- ------------------ ------------------
HIGHMARK FUNDS
--------------
EQUTIY/FIXED INCOME FUNDS - FIDUCIARY SHARES
<S> <C>
1. Front and Back Cover Pages ....................................... Cover Page; Back Page
2. Risk/Return Summary:
Investments, Risks and Performance................................ Individual HighMark Funds Profiles
3. Risk/Return Summary: Fee Table................................... Individual HighMark Funds Profiles
4. Investment Objectives, Principal Investment
Strategies, and Related Risk .................................... Individual HighMark Funds Profiles;
More About the HighMark Fund --
Investment Practices; More About the
HighMark Funds -- Glossary of Investment Risks
5. Management's Discussion of the Fund
Performance....................................................... Inapplicable
6. Management, Organization and Capital
Structure......................................................... More About the HighMark Funds - Investment Management
7. Shareholder Information........................................... Shareowner Guide - How to Invest in the HighMark Funds
8. Distribution Arrangements ........................................ Shareowner Guide - How to Invest in the HighMark Funds
9. Financial Highlights Information.................................. Financial Highlights
</TABLE>
<PAGE> 72
HIGHMARK FUNDS
EQUITY FUNDS
FIXED-INCOME FUNDS
EQUITY FUNDS
Balanced Fund
Growth Fund
Income Equity Fund
International Equity Fund
Small Cap Value Fund
Value Momentum Fund
FIXED-INCOME FUNDS
Bond Fund
California Intermediate Tax-Free Bond Fund
Intermediate-Term Bond Fund
FIDUCIARY SHARES
PROSPECTUS
November 30, 1999
The Securities and Exchange Commission has not approved or disapproved of these
securities or determined whether this prospectus is accurate or complete. Any
representation to the contrary is unlawful.
<PAGE> 73
HOW TO READ THIS PROSPECTUS
HighMark Funds is a mutual fund family that offers different classes of Shares
in separate investment portfolios (Funds). The Funds have various investment
goals and strategies. This prospectus gives you important information about the
Fiduciary Shares of HighMark's Equity and Fixed-Income funds that you should
know before investing. Certain Funds also offer additional classes of Shares
called Class A, Class B and Class C Shares, which are offered in separate
prospectuses. In addition, the HighMark Value Momentum Fund offers a class of
Shares called Class I Shares.
Please read this prospectus and keep it for future reference. The prospectus is
arranged into different sections so that you can easily review this important
information. The next page contains general information you should know about
investing in the HighMark Funds.
INDIVIDUAL HIGHMARK FUND PROFILES
EQUITY FUNDS
X Balanced Fund
X Growth Fund
X Income Equity Fund
X International Equity Fund
X Small Cap Value Fund
X Value Momentum Fund
FIXED-INCOME FUNDS
X Bond Fund
X California Intermediate Tax-Free Bond
Fund
X Intermediate-Term Bond Fund
SHAREOWNER GUIDE--HOW TO INVEST IN THE HIGHMARK FUNDS
X Choosing a Share Class
X Opening an Account
X Buying Shares
X Selling Shares
X Exchanging Shares
X Transaction Policies
X Dividends and Distributions
X Taxes
X Investor Services
MORE ABOUT THE HIGHMARK FUNDS
X Investment Management
X Financial Highlights
X Investment Practices
X Glossary of Investment Risks
FOR MORE INFORMATION ABOUT HIGHMARK FUNDS, PLEASE SEE THE BACK COVER OF THE
PROSPECTUS
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[FUND SUMMARY ICON] Fund Summary [YOUR ACCOUNT ICON] Your Account
[INVESTMENT STRATEGY ICON] Investment Strategy [INVESTMENT MANAGEMENT ICON] Investment Management
[YIELD ICON] What are the main risks [FINANCIAL HIGHLIGHTS ICON] Financial Highlights
of investing in this Fund? [ADDITIONAL INVESTMENT ICON] Additional Investment
[PERFORMANCE INFORMATION ICON] Performance Information Practices and Risks
[FEES AND EXPENSES ICON] Fees and Expenses
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
November 30, 1999
2
<PAGE> 74
INTRODUCTION
Each HighMark Fund is a mutual fund. A mutual fund pools Shareholders' money
and, using professional investment managers, invests it in securities such as
stocks and bonds. Before you look at specific HighMark Funds, you should know a
few basics about investing in mutual funds.
The value of your investment in a mutual fund is based on the market prices of
the securities the fund holds. These prices change daily due to economic trends
and other developments that generally affect securities markets, as well as
those that affect particular firms and other types of issuers. These price
movements, also called volatility, vary depending on the types of securities a
fund owns and the markets where these securities trade.
AS WITH OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR INVESTMENT IN A MUTUAL
FUND. YOUR INVESTMENT IN THE HIGHMARK FUNDS IS NOT A DEPOSIT OR AN OBLIGATION OF
UNION BANK OF CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK. IT IS NOT INSURED BY
THE FDIC OR ANY GOVERNMENT AGENCY.
Each HighMark Fund has its own investment goal and strategies for reaching that
goal. There is no guarantee that a Fund will achieve its goal. Before
investing, make sure that the Fund's goal matches your own.
The portfolio manager invests each Fund's assets in a way that he or she
believes will help the Fund achieve its goal. A manager's judgments about the
securities markets, economy and companies, and his or her method of investment
selection, may cause a Fund to underperform other funds with similar
objectives.
3
<PAGE> 75
- --------------------------------------------------------------------------------
BALANCED FUND
- --------------------------------------------------------------------------------
[FUND SUMMARY ICON] Fund Summary
<TABLE>
<S> <C>
Investment Goal To seek capital
appreciation and income;
conservation of capital
is a secondary
consideration
- --------------------------------------------------------------
Investment Focus U.S. common stocks and
investment grade bonds
- --------------------------------------------------------------
Principal Investment Diversifies across market
Strategy segments and investment
styles, including value
and growth stocks as well
as various types of bonds
- --------------------------------------------------------------
Share Price Volatility Moderate
- --------------------------------------------------------------
Investor Profile Investors seeking the
growth potential of
stocks with the
diversification value of
bonds
- --------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark Balanced Fund seeks capital appreciation and income. Conservation of
capital is a secondary consideration. To pursue these goals, the Fund normally
invests between 50% and 70% of its assets in equity securities, primarily
common stocks, and at least 25% of its assets in fixed-income securities,
primarily bonds. Within these ranges, the Fund's specific allocation among
stocks, bonds and other securities will vary depending on the portfolio
managers' assessment of business, economic and market conditions.
The Fund may invest in bonds of various maturities and types, including those
issued by U.S. and foreign governments or companies, mortgage-backed securities
and asset-backed securities. At least 90% of the bonds will be investment grade
at the time the Fund purchases them.
To select bonds for the Fund, the managers consider such factors as the
potential direction of interest rates and the U.S. economy; the outlook for one
sector of the bond market versus another; and the value that one bond may
represent versus another. They also consider the financial strength of each
issuer and the possibility that its credit rating may be upgraded or
downgraded. The Fund may continue to hold a bond that has been downgraded if
the managers believe it is in Shareholders' best interest to do so.
4
<PAGE> 76
To choose stocks for the Fund, the managers employ a dual strategy, focusing on
value stocks in one portion of the Fund's stock portfolio and growth stocks in
the other. Although the managers generally divide the Fund's stock portfolio
evenly between value and growth stocks, they may emphasize one style over the
other depending on economic trends.
The Fund may invest in other types of securities in addition to those described
above. In an effort to preserve the value of your investment under volatile
market conditions, the managers may invest more than 20% of the Fund's assets
in very short-term debt obligations called money market securities. Such a
strategy could make it more difficult for the Fund to achieve its objective of
capital appreciation and income.
(For a more complete description of the various securities in which the Fund
can invest, please see "Investment Practices" on page X.)
SIDEBAR: Value stocks are those issued by companies that the managers believe
may be undervalued relative to their earnings, financial strength or other
qualities. Growth stocks are those issued by companies that have a record of
achieving consistent earnings and sales growth.
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Market Risk: The possibility that the Fund's stock holdings will
decline in price because of a broad stock market decline. Stock markets
generally move in cycles, with periods of rising prices followed by
periods of falling prices. The value of your investment will tend to
increase or decrease in response to these movements.
Interest Rate Risk: The possibility that the value of the Fund's
investments will decline due to an increase in interest rates.
Generally, the longer the average maturity of the Fund's fixed-income
portion, the greater its interest rate risk.
Credit Risk: The possibility that a bond issuer cannot make timely
interest and principal payments on its bonds. The lower a bond's
rating, the greater its credit risk.
Investment Style Risk: The possibility that the types of securities on
which this Fund focuses will underperform other kinds of investments or
the overall market.
If the Fund invests in securities with additional risks, its Share-price
volatility accordingly could be greater and its performance lower. In addition,
the Fund may trade securities actively, which could increase its transaction
costs (thereby lowering its performance) and may increase the amount of taxes
that you pay on your investment. For more information about these risks, please
see the Glossary of Investment Risks on page ___.
5
<PAGE> 77
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility
of an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
<TABLE>
<S> <C>
Best Quarter Worst Quarter
-------- --------
(------) (------)
</TABLE>
*The performance information above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of the S&P 500 Index and the Lehman Brothers Aggregate Bond
Index.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (2/1/91)
<S> <C> <C> <C>
BALANCED FUND
Fiduciary Shares % % %
- ---------------------------------- ---------- --------- -----------
S&P 500 INDEX(1) % % %
- ---------------------------------- ---------- --------- -----------
LEHMAN BROTHERS AGGREGATE BOND
INDEX(2) % % %
- ---------------------------------- ---------- --------- -----------
</TABLE>
(1) The unmanaged S&P 500 Index is generally representative of the performance
of large companies in the U.S. stock market.
(2) The unmanaged Lehman Brothers Aggregate Bond Index is generally
representative of the bond market as a whole.
6
<PAGE> 78
$ FEES AND EXPENSES
This table describes the Shareholder fees that you would pay directly from your
investment if you purchased or sold Fund Shares.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)*
</TABLE>
*Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you held
Fund Shares.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.60%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %*
------
Total Annual Fund Operating Expenses %*
</TABLE>
* During the past fiscal year, "Other Expenses" were waived by __% or
reimbursed by % for the Fiduciary Shares. These waivers are voluntary
and may be terminated at any time. Accordingly, the Fund's actual annual
operating expenses were as follows:
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.60%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
------
Total Annual Fund Operating Expenses %
</TABLE>
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
7
<PAGE> 79
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $ $ $ $
----- ----- ----- -----
</TABLE>
8
<PAGE> 80
- --------------------------------------------------------------------------------
GROWTH FUND
- --------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek long-term capital
appreciation through
investments in equity
securities; current income
is incidental
- -------------------------------------------------------------------------------
Investment Focus U.S. common stocks
- -------------------------------------------------------------------------------
Principal Investment Strategy Seeks to invest in companies
offering above-average
growth potential
- -------------------------------------------------------------------------------
Share Price Volatility Moderate to High
- -------------------------------------------------------------------------------
Investor Profile Long-term investors seeking
capital appreciation
- -------------------------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark Growth Fund seeks long-term capital appreciation through investments
in equity securities. The production of current income is an incidental
objective.
To pursue its primary goal, the Fund invests at least 65% of its assets in
equity securities, primarily in the stocks of medium to large U.S.
growth-oriented companies that the portfolio managers believe are also
financially stable. "Growth-oriented companies" are those whose earnings are
growing at a faster rate than the market as a whole, or have the potential to
do so. Other attributes the portfolio managers seek in a company include:
- above-average return on capital (an indication that a firm has employed
its investors' money effectively)
- free cash flow (an indication that a firm has managed its assets and
liabilities well)
- recurring revenues (an indication that a firm has a fairly steady
source of income)
- an attractive Share price relative to the firm's earnings and other
characteristics
- competitive advantages such as a solid brand identity and unique
products or services
- a capable management team
In addition to those described above, the Fund may invest in other types of
securities, including bonds. In an effort to preserve the value of your
investment under volatile market conditions, the managers may invest more than
35% of the Fund's assets in very short-term debt obligations called money
market securities. Such a strategy could make it more difficult for the Fund to
achieve its goals.
(For a more complete description of the various securities in which the Fund
can invest, please see "Investment Practices" on page X.)
9
<PAGE> 81
SIDEBAR: Companies are considered to have a medium market capitalization if
their capitalization is within the range of those companies in the S&P 400
Mid-Cap Index. Companies are considered to have a large market capitalization
if their capitalization is within the range of those companies in the S&P 500
Large Cap Index. Growth-oriented companies are those that have a record to
achieving consistent earnings and sales growth or are expected to grow rapidly
in the future.
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Market Risk: The possibility that the Fund's stock holdings will
decline in price because of a general decline in the stock market.
Markets generally move in cycles, with periods of rising prices
followed by periods of falling prices. The value of your investment
will tend to increase or decrease in response to these movements.
Investment Style Risk: The possibility that the kind of stocks on which
this Fund focuses--those of mid-size to large U.S. growth
companies--will underperform other types of stock investments or the
market as a whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the
amount of taxes that you pay. For more information about these risks, please
see the Glossary of Investment Risks starting on page ___.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility
of an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
-------- --------
(------) (------)
</TABLE>
*The performance information above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of the S&P 500 Index.
10
<PAGE> 82
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS (11/18/93)
- ---------------------------- ---------------- ------------ -------------------
<S> <C> <C> <C>
GROWTH FUND
Fiduciary Shares % % %
- ---------------------------- ---------------- ------------ -------------------
S&P 500 INDEX(1) % % %
- ---------------------------- ---------------- ------------ -------------------
</TABLE>
(1) The unmanaged S&P 500 Index generally reflects the performance of large
companies in the U.S. stock market.
$ FEES AND EXPENSES
This table describes the Shareholder fees that you would pay directly from your
investment if you purchased or sold Fund Shares.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)*
</TABLE>
*Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you held
Fund Shares.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.60%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %*
------
Total Annual Fund Operating Expenses %*
</TABLE>
* During the past fiscal year, "Other Expenses" were waived by __% or
reimbursed by ____% for the Fund's Fiduciary Shares. These waivers are
voluntary and may be terminated at any time. Accordingly, the Fund's actual
annual operating expenses were as follows:
FIDUCIARY SHARES
11
<PAGE> 83
<TABLE>
<S> <C>
Investment Advisory Fees 0.60%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
------
Total Annual Fund Operating Expenses %
</TABLE>
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $ $ $ $
----- ----- ----- -----
</TABLE>
12
<PAGE> 84
INCOME EQUITY FUND
[FUND SUMMARY ICON]FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek total return on
investment, with dividend
income as an important
component of that
return. A secondary goal
is a low level of price
volatility
- -----------------------------------------------------------
Investment Focus U.S. common stocks
- -----------------------------------------------------------
Principal Investment Attempts to identify
Strategy undervalued stocks that
pay high dividends
- -----------------------------------------------------------
Share Price Volatility Moderate
- -----------------------------------------------------------
Investor Profile Investors seeking higher
current income and lower
volatility than the
average stock fund
- -----------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark Income Equity Fund seeks total return on investment, with dividend
income as an important component of that return. A secondary goal is to
maintain a low level of price volatility.
To pursue its primary goal, the Fund invests mostly in dividend-paying stocks
that the managers believe are undervalued or out-of-favor. Specifically, the
managers seek stocks with favorable long-term potential price appreciation
whose dividend yield is near a high relative to one or more of the following:
- The company's own historical dividend yield
- The current yields of other companies in the same industry
- The current yield of the market as a whole
The companies in which the Fund invests are generally mature, major
large-capitalization U.S. corporations.
The managers typically begin to pare down a position when the stock's relative
yield drops to the lower end of its historical range. If a significant
fundamental change impairs a company's ability to pay dividends, or if its
dividend yield dips below that of the general market, the managers may
eliminate the stock from the portfolio.
13
<PAGE> 85
The Fund may invest in convertible bonds and other types of securities in
addition to those described above. In an effort to preserve the value of your
investment under volatile market conditions, the managers may invest more than
35% of the Fund's assets in very short-term debt obligations called money
market securities. Such a strategy could make it more difficult for the Fund to
achieve its goals.
(For a more complete description of the various securities in which the Fund
can invest, please see "Investment Practices" on page XX.)
SIDEBAR: A dividend is a distribution of earnings to Shareholders. The amount
of the dividend is usually paid quarterly. Dividends must be declared as income
in the year they are received.
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
- Market Risk: The possibility that the Fund's stock holdings will
decline in price because of a broad stock market decline. Stock markets
generally move in cycles, with periods of rising prices followed by
periods of falling prices. The value of your investment will tend to
increase or decrease in response to these movements.
- Investment Style Risk: The possibility that the securities on which this
Fund focuses-- the stocks of undervalued, dividend-paying
companies--will underperform other kinds of investments or market
averages.
The Fund may trade securities actively, which could increase its transaction
costs (thereby lowering its performance) and increase the amount of taxes that
you pay. For more information about these risks, please see the Glossary of
Investment Risks on page __.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility
of an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
-------- --------
(------) (------)
</TABLE>
*The performance information above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of the S&P 500 Index.
14
<PAGE> 86
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (2/9/84)
- -------------------------------------- ---------------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
INCOME EQUITY FUND
Fiduciary Shares % % %
- -------------------------------------- ---------------- ------------- ------------- ----------
S&P 500 INDEX(1) % % %
- -------------------------------------- ---------------- ------------- ------------- ----------
</TABLE>
(1) The unmanaged S&P 500 Index generally represents the performance of large
companies in the U.S. stock market.
$ FEES AND EXPENSES
This table describes the Shareholder fees that you would pay directly from your
investment if you purchased or sold Fund Shares.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)*
</TABLE>
*Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you held
Fund Shares.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.60%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
-------
Total Annual Fund Operating Expenses %*
</TABLE>
* During the past fiscal year, "Other Expenses" were waived by __% or reimbursed
by % for the Fiduciary Shares. These waivers are voluntary and may be
terminated at any time. Accordingly, the Fund's actual annual operating
expenses were as follows:
15
<PAGE> 87
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.60%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
------
Total Annual Fund Operating Expenses %
</TABLE>
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $ $ $ $
---- ---- ---- ----
</TABLE>
16
<PAGE> 88
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
[FUND SUMMARY]FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek long-term capital
appreciation by investing
primarily in equity securities of
foreign issuers
- -----------------------------------------------------------------------------
Investment Focus Common stocks of foreign companies
- -----------------------------------------------------------------------------
Principal Investment Strategy Attempts to identify reasonably
priced foreign stocks with
above-average growth potential
- -----------------------------------------------------------------------------
Share Price Volatility High
- -----------------------------------------------------------------------------
Investor Profile Investors who want capital appreciation; are
willing to accept the increased risks of
international investing for the possibility
of higher returns; and want exposure to a
diversified portfolio of international stocks
- -----------------------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark 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. Normally, at least 65% of the Fund's assets
will be invested in the stocks of companies from at least five countries (other
than the United States) that are included in the Morgan Stanley Capital
International Europe and Australasia, Far East Index (the "EAFE Index"). The
Fund's portfolio managers intend to focus on companies with a market
capitalization of more than $100 million.
In selecting investments for the Fund, the portfolio managers may over- or
underweight countries relative to the EAFE Index based on the rates of return
they expect from various markets. The Fund's regional and individual country
weightings may therefore vary from those of the EAFE Index. The portfolio
managers will then select individual securities for the Fund on the basis of
their growth opportunities or undervaluation in relation to other securities.
The Fund typically invests in securities that are listed on recognized foreign
exchanges, but it may also invest up to 15% of its assets in securities traded
in over-the-counter markets. In addition, the Fund may buy American Depository
Receipts (ADRs) and European Depository Receipts (EDRs), enter into forward
foreign currency contracts and invest in options on currencies. The Fund may
invest in other investment
17
<PAGE> 89
companies, including closed-end funds that invest in securities from a single
country or region. Additionally, the Fund may invest in securities of issuers
whose principal activities are in emerging markets.
In addition to those described above, the Fund may invest in other types of
securities, including investment grade bonds of U.S. and non-U.S. issuers. In
an effort to preserve the value of your investment under volatile market
conditions, the portfolio managers may invest more than 35% of the Fund's
assets in very short-term debt obligations called money market securities. Such
a strategy could make it more difficult for the Fund to achieve its goal.
(For a more complete description of the various securities in which the Fund
can invest, please see the Glossary of Investment Practices and Risks on page
X.)
SIDEBAR: American Depository Receipts (ADRs) and European Depository Receipts
(EDRs) are foreign Shares of a company held by, respectively, a U.S. or a
foreign bank that issues a receipt evidencing ownership.
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Market Risk: The possibility that the Fund's stock holdings may decline in
price because of a broad stock market decline. Markets generally move in
cycles, with periods of rising prices followed by periods of falling prices.
The value of your investment will tend to increase or decrease in response to
these movements.
Foreign Securities Risk: Investing in foreign markets involves greater risk
than investing in the United States. Foreign securities may be affected by such
factors as fluctuations in currency exchange rates, incomplete or inaccurate
financial information on companies, social upheavals and political actions
ranging from tax code changes to governmental collapse. Emerging market
securities may be even more susceptible to these risks.
Investment Style Risk: The possibility that the securities on which this Fund
focuses--the stocks of foreign companies--may underperform other kinds of
investments or the market as a whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the
amount of taxes you pay. For more information about these risks, please see the
Glossary of Investment Risks on page ___.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The performance table below illustrate the risks and volatility of an
investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how it will perform in the future.
18
<PAGE> 90
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
- -------- --------
(------) (------)
</TABLE>
* The performance information above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of its benchmark, the MSCI EAFE Index.
<TABLE>
<CAPTION>
SINCE
INCEPTION
1 YEAR (2/1/95)
- ----------------------------------- --------------- ------------------
<S> <C> <C>
INTERNATIONAL EQUITY FUND
Fiduciary Shares % %
- ----------------------------------- --------------- ------------------
MSCI EAFE Index(1) % %
- ----------------------------------- --------------- ------------------
</TABLE>
(1) The unmanaged Morgan Stanley Capital International Europe, Australasia and
Far East Index reflects the performance of securities listed on stock exchanges
in Europe, Australia and the Far East.
$ FEES AND EXPENSES
This table describes the Shareholder fees that you would pay directly from your
investment if you purchased or sold Fund Shares.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)*
</TABLE>
*Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you held
Fund Shares.
19
<PAGE> 91
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.60%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
------
Total Annual Fund Operating Expenses %*
</TABLE>
* During the past fiscal year, "Other Expenses" were waived by __% or
reimbursed by % for the Fiduciary Shares. These waivers are voluntary and may
be terminated at any time. Accordingly, the Fund's actual annual operating
expenses were as follows:
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.60%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
------
Total Annual Fund Operating Expenses %
</TABLE>
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $ $ $ $
---- ---- ---- ----
</TABLE>
20
<PAGE> 92
- --------------------------------------------------------------------------------
SMALL CAP VALUE FUND
- --------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek long-term capital
appreciation.
- -------------------------------- ----------------------------
Investment Focus Stocks of small U.S. &
foreign companies
- -------------------------------- ----------------------------
Principal Investment Strategy Seeks undervalued small
company stocks
- -------------------------------- ----------------------------
Share Price Volatility Moderate to High
- -------------------------------- ----------------------------
Investor Profile Risk-tolerant investors
seeking high long-term
returns
- -------------------------------- ----------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark Small Cap Value Fund seeks to provide long-term capital appreciation.
To pursue this goal, the Fund invests primarily in the stocks of small
capitalization U.S. and foreign companies that the portfolio managers believe
are undervalued. The Fund typically invests approximately 25% of its assets in
foreign stocks, though the actual percentage may vary.
To reduce the risks associated with any one market, the portfolio managers
normally diversify the Fund's international investments among various
countries. Although the Fund invests primarily in developed economies such as
those of Europe and Japan, it may invest in developing countries to take
advantage of potential opportunities.
The Fund's portfolio managers seek companies that they believe are both
fundamentally strong and undervalued relative to current market averages and/or
the stock's own historic norms. Of these, the managers favor companies
exhibiting positive momentum in their Share price or earnings.
Besides those described above, the Fund may invest in other types of
securities, including bonds. In an effort to preserve the value of your
investment under volatile market conditions, the managers may temporarily
invest a significant amount of the Fund's assets in very short-term debt
obligations called money market securities. They may also do so in situations
when there is not an adequate number of stocks that meet their investment
criteria. Such a strategy could make it more difficult for the Fund to achieve
its goals.
(For a more complete description of the various securities in which the Fund
can invest, please see "Investment Practices" on page X.)
SIDEBAR: Small capitalization companies are those issued by companies with
market capitalizations within the range of those in the S&P 600/BARRA Value
Index (domestic investments) and the Financial
21
<PAGE> 93
Times/S&P Actuaries World Indices World ex U.S. Medium/Small Cap Index
(international investments).
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
- Market Risk: The possibility that the Fund's stock holdings may decline
in price because of a broad stock market decline. Markets generally
move in cycles, with periods of rising prices followed by periods of
falling prices. The value of your investment will tend to increase or
decrease in response to these movements.
- Small Company Risk: Investing in smaller, lesser-known companies
involves greater risk than investing in those that are more
established. A small company's financial well-being may, for example,
depend heavily on just a few products or services. In addition,
investors may have limited flexibility to buy or sell small company
stocks compared to those of larger firms.
- Foreign Securities Risk: Investing in foreign markets involves greater
risk than investing in the United States. Foreign securities may be
affected by fluctuations in currency exchange rates, incomplete or
inaccurate financial information on companies, social upheavals and
political actions ranging from tax code changes to governmental
collapse. These risks are more significant in the emerging markets.
- Investment Style Risk: The possibility that the securities on which
this Fund focuses--the stocks of small, undervalued U.S. and foreign
companies--may underperform other kinds of investments or the market as
a whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the
amount of taxes you pay. For more information about these risks, please see the
Glossary of Investment Risks on page ___.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The performance table below illustrates the risks and volatility of an
investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how it will perform in the future.
This section would normally include a bar chart showing changes in the Fund's
performance from year to year. Because the Fund has not been in operation for a
full calendar year, this bar chart is not shown.
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of its benchmarks, the S&P 600/BARRA Value Index and the
Financial Times/S&P Actuaries World Indices ex US Medium/Small Cap.
22
<PAGE> 94
<TABLE>
<CAPTION>
SINCE
INCEPTION
(9/17/98)
- -------------------------------------------------- ------------
<S> <C>
SMALL CAP VALUE FUND
Fiduciary Shares %
- -------------------------------------------------- ------------
S&P 600/BARRA VALUE INDEX(1) %
- -------------------------------------------------- ------------
FINANCIAL TIMES/S&P ACTUARIES WORLD INDICES
EX US MEDIUM/SMALL CAP(2) %
- -------------------------------------------------- ------------
</TABLE>
(1) The unmanaged S&P 600/BARRAValue Index represents the general performance
of stocks in the S&P 600 Small Cap Index with the lowest price/book ratios (an
indication that they are undervalued).
(2) The Financial Times/S&P Actuaries World Indices ex U.S. Medium/Small Cap is
an unmanaged global stock index comprising more than 2,400 stocks in 30
countries, excluding small and mid-size U.S. companies.
$ FEES AND EXPENSES
This table describes the fees that you would pay directly from your investment
if you bought or sold Fund Shares.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)*
</TABLE>
*Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you held
Fund Shares.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 1.00%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %*
-------
</TABLE>
23
<PAGE> 95
<TABLE>
<S> <C>
Total Annual Fund Operating Expenses %*
</TABLE>
* During the past fiscal year, "Other Expenses" were waived by __% or
reimbursed by _____% for the Fund's Fiduciary Shares. These waivers are
voluntary and may be terminated at any time. Accordingly, the Fund's actual
annual operating expenses were as follows:
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 1.00%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
------
Total Annual Fund Operating Expenses %
</TABLE>
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $ $ $ $
---- ---- ---- ----
</TABLE>
24
<PAGE> 96
- --------------------------------------------------------------------------------
VALUE MOMENTUM FUND
- --------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek long-term capital
growth. Current income is a
secondary objective
- ------------------------------------------------------------------------------
Investment Focus U.S. common stocks
- ------------------------------------------------------------------------------
Seeks undervalued stocks
Principal Investment Strategy showing signs of improved
momentum
- ------------------------------------------------------------------------------
Share Price Volatility Moderate
- ------------------------------------------------------------------------------
Investor Profile Investors seeking the
potential for a long-term
increase in the value of
their investment with
capital appreciation at
potentially lower volatility
than the average stock fund
- ------------------------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
The Value Momentum Fund seeks to provide long-term capital growth with a
secondary objective of income. To pursue this goal, the Fund invests primarily
in U.S. stocks that the portfolio managers believe are undervalued.
The managers emphasize a value-oriented approach to selecting stocks for the
Fund's portfolio. They first identify stocks that they believe are undervalued
relative to the market and to their own historic valuations. The managers then
screen these stocks for positive price or earnings momentum. The Fund generally
will invest in companies with a medium to large market capitalization and a
majority of them will pay dividends.
In addition to U.S. common stocks, the Fund may invest in other types of
securities. In an effort to preserve the value of your investment under
volatile market conditions, the portfolio managers may invest more than 35% of
the Fund's assets in very short-term bonds called money market securities. In
these and other cases, the Fund may not achieve its total return and income
objectives.
(For a description of the various securities the Fund invests in, please see
"Investment Practices" on page x.)
SIDEBAR: Companies are considered to have a medium market capitalization if
their capitalization is
25
<PAGE> 97
within the range of those companies in the S&P 400 Mid-Cap Index. Companies are
considered to have a large market capitalization if their capitalization is
within the range of those companies in the S&P 500 Large Cap Index.
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Market Risk: The possibility that the Fund's stock holdings will
decline in price because of a broad stock market decline. Stock markets
generally move in cycles, with periods of either rising or falling
prices. The value of your investment will tend to go up or down in
response to these movements.
Investment Style Risk: The possibility that the securities on which
this Fund focuses--the stocks of mid-size to large undervalued U.S.
companies--may underperform other kinds of investments or the market as
a whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the
amount of taxes that you pay. For more information about these risks, please
see the Glossary of Investment Risks on page ___.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
-------- --------
(------) (------)
</TABLE>
*The performance information above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of the S&P 500 Index.
26
<PAGE> 98
<TABLE>
<CAPTION>
SINCE FUND
INCEPTION
1 YEAR 5 YEARS (2/1/91)
<S> <C> <C> <C>
- ---------------------------------- ----------- ----------- --------------
VALUE MOMENTUM FUND
Fiduciary Shares % % %
- ---------------------------------- ----------- ----------- --------------
S&P 500 INDEX(1) % % %
- ---------------------------------- ----------- ----------- --------------
</TABLE>
(1) The unmanaged S&P 500 Index is generally representative of the performance
of large companies in the U.S. stock market.
$ FEES AND EXPENSES
This table describes the Shareholder fees you would pay directly from your
investment if you bought or sold Fund Shares.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)*
</TABLE>
*Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you held
Fund Shares.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.60%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %*
-------
Total Annual Fund Operating Expenses %*
</TABLE>
* During the past fiscal year, "Other Expenses" were waived by __% or
reimbursed by _____% for the Fund's Fiduciary Shares. These waivers are
voluntary and may be terminated at any time. Accordingly, the Fund's actual
expenses were as follows:
27
<PAGE> 99
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.60%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
-------
Total Annual Fund Operating Expenses %
</TABLE>
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the periods indicated, that each year your investment
has a 5% return and that the Fund's expenses remain the same. Although your
actual costs and returns may be different, your approximate costs of investing
$10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $ $ $ $
---- ---- ---- ----
</TABLE>
28
<PAGE> 100
HIGHMARK FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
BOND FUND
- --------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek total return
through investments in
fixed-income securities
- -----------------------------------------------------------------
Investment Focus U.S. government
obligations, corporate
debt securities, mortgage
and other asset-backed
securities
- -----------------------------------------------------------------
Principal Investment Strategy Focuses on sectors of the
bond market that the
portfolio managers believe
are undervalued
- -----------------------------------------------------------------
Share Price Volatility Medium
- -----------------------------------------------------------------
Investor Profile Investors willing to
accept the risk of a moderate
amount of fluctuation in
the value of their
investment for the benefit of a
higher total return potential
- -----------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark Bond Fund seeks to provide total return through investments in
fixed-income securities. To pursue this goal, the Fund invests at least 65% of
its assets in bonds which include:
- - Debt obligations issued or guaranteed by the U.S. government or its
agencies.
- - Corporate debt securities issued by U.S., or foreign companies that
nationally recognized rating agencies such as Moody's or Standard &
Poor's recognize as investment-grade.
- - Investment-grade bonds backed by the interest and principal payments of
various types of mortgages, known as mortgage-backed securities.
- - Investment-grade bonds backed by the interest and principal payments on
loans for other types of assets, such as automobiles, houses, or credit
cards, known as asset-backed securities.
The Fund may also invest up to 10% of its assets in issues which are rated
below BBB but have a minimum rating of B by Moody's and/or S&P at the time of
investment.
29
<PAGE> 101
In addition to these, the Fund may invest in other types of debt securities. In
an effort to preserve the value of your investment under volatile market
conditions, the portfolio managers also may invest more than 35% of the Fund's
assets in very short-term investments called money market securities. Such a
defensive strategy could make it more difficult for the Fund to achieve its
income and total return objectives.
The Fund will maintain an average duration of between 3 and 6 years, which the
managers expect to be within one year of the duration of the Lehman Brothers
Aggregate Bond Index.
The portfolio managers consider several factors when selecting securities for
the Fund's portfolio, including:
- - An assessment of the future level of interest rates and inflation
- - Expectations for U.S. and global economic growth
- - Relative yields among securities in various market sectors
- - The yield to maturity, quality, liquidity and capital appreciation
potential of individual securities
The Fund managers also consider the current state of a bond's issuer and the
possibility that an improvement or deterioration in its financial health may
result in, respectively, an upgrade or downgrade of the issuer's credit rating.
The portfolio managers may continue to hold a bond that has been downgraded if
they believe it is in the best interest of the Fund's Shareholders.
(For a more complete description of the various securities in which the Fund
can invest, please see Investment Practices on page X.)
SIDEBAR: Typically, the main factor affecting the performance of bond funds is
the rise and fall of interest rates. When interest rates rise, the value of
bonds generally declines. When interest rates fall, the value of bonds
generally increases. As a result, the greater a Fund's exposure to interest
rates, the greater its risk and return potential. A portfolio's level of
interest-rate exposure is commonly indicated by the term duration.
Duration is an indication of how sensitive a bond or mutual fund portfolio may
be to changes in interest rates. Generally speaking, the longer a fund's
duration, the more dramatically it will react to interest rate fluctuations and
the greater its long-term risk/return potential. Due to their high yields
noninvestment grade bonds are typically less sensitive to interest rates than
investment grade bonds.
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Interest Rate Risk: The possibility that the value of the Fund's
investments will decline due to an increase in interest rates or that
the Fund's yield will decrease due to a decrease in interest rates.
Credit Risk: The possibility that a bond issuer cannot make timely
interest and principal payments on its bonds. The lower a bond's
rating, the greater its credit risk.
Prepayment/Call Risk - If a significant number of the mortgages
underlying a mortgage-backed bond are refinanced, the bond may be
"prepaid." Call risk is the possibility that, during periods of
declining interest rates, a bond issuer will "call"--or
repay--higher-yielding bonds before their stated maturity date. In both
cases, investors receive their principal back and are typically forced
to reinvest it in bonds that pay lower interest rates. Rapid changes in
prepayment and call rates can cause bond prices and yields to be
volatile.
If the Fund invests in securities with additional risks, its Share-price
volatility accordingly could be greater
30
<PAGE> 102
and its performance lower. The Fund may trade securities actively, which could
increase its transaction costs (thereby lowering its performance) and may
increase the amount of taxes that you pay. For more information about these
risks, please see the Glossary of Investment Risks on page ___.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
-------- --------
(------) (------)
</TABLE>
*The performance information above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of the Lehman Brothers Aggregate Bond Index.
<TABLE>
<CAPTION>
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (2/15/84)
- --------------------------------- --------------- --------------- ---------------- -------------------
<S> <C> <C> <C> <C>
BOND FUND
Fiduciary Shares % % % %
- --------------------------------- --------------- --------------- ---------------- -------------------
LEHMAN BROTHERS AGGREGATE
BOND INDEX(1) % % % %
- --------------------------------- --------------- --------------- ---------------- -------------------
</TABLE>
(1) The unmanaged Lehman Brothers Aggregate Bond Index is generally
representative of the bond market as a whole.
$ FEES AND EXPENSES
This table describes the Shareholder fees you would pay directly from your
investment if you purchased or sold Fund Shares.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
FIDUCIARY SHARES
31
<PAGE> 103
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)*
</TABLE>
*Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you held
Fund Shares.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.50%
Distribution/Service (12b-1) Fees 0.00%*
Other Expenses %*
------
Total Annual Fund Operating Expenses %*
</TABLE>
* During the past fiscal year, "Other Expenses" were waived by __% or
reimbursed by ____%. These waivers are voluntary and may be terminated at any
time. Accordingly, the Fund's actual annual operating expenses were as follows:
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.50%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
-------
Total Annual Fund Operating Expenses %
</TABLE>
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the periods indicated, that each year your investment
has a 5% return and that the Fund's expenses remain the same. Although your
actual costs and returns may be different, your approximate costs of investing
$10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $ $ $ $
---- ---- ---- ----
</TABLE>
32
<PAGE> 104
- --------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek high current income that is
exempt from federal and California state
income taxes
- --------------------------------------------------------------------------
Investment Focus California municipal securities
- --------------------------------------------------------------------------
Principal Investment Strategy Invests primarily in
investment-grade
California municipal
securities
- --------------------------------------------------------------------------
Share Price Volatility Low to Medium
- --------------------------------------------------------------------------
California residents
seeking income exempt
from federal and state
Investor Profile income taxes
- --------------------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark California Intermediate Tax-Free Bond Fund seeks a high total return
with current income that is exempt from federal and State of California income
taxes. To pursue this goal, the Fund invests at least 65% of its assets in
investment-grade California municipal bonds and notes.
Although the Fund will invest primarily in California municipal bonds, it may
also invest in municipal bonds from other states, territories and possessions
of the United States if the income from these bonds is exempt from U.S. federal
income taxes. In addition, the Fund may invest in Shares of money market funds
and other investment companies that have similar investment objectives. Under
certain conditions, the Fund may temporarily invest more than 20% of its assets
in bonds not exempt from California state taxes, which would make it more
difficult for the Fund to achieve its goals. Investors who may be subject to
the alternative minimum tax (AMT) should note that the portfolio managers will
invest at least 80% of the Fund's assets in bonds that pay interest exempt from
the AMT under normal circumstances.
In selecting bonds for the Fund's portfolio, the portfolio managers consider
factors such as:
- - The potential direction of interest rate changes.
- - Their expectations for the U.S. economy in general and California's
economy in particular.
- - The credit rating and stability of the issuer.
33
<PAGE> 105
(For a more complete description of the various securities in which the Fund
can invest, please see Investment Practices on page X.)
SIDEBAR: Typically, the main factor affecting the performance of bond funds is
the rise and fall of interest rates. When interest rates rise, the value of
bonds generally declines. When interest rates fall, the value of bonds
generally increases. As a result, the greater a Fund's exposure to interest
rates, the greater its risk and return potential. A portfolio's level of
interest-rate exposure is commonly indicated by the term duration.
Duration is an indication of how sensitive a bond or mutual fund portfolio may
be to changes in interest rates. Generally speaking, the longer a fund's
duration, the more dramatically it will react to interest rate fluctuations and
the greater its long-term risk/return potential. Due to their high yields
noninvestment grade bonds are typically less sensitive to interest rates than
investment grade bonds.
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
State Specific Risk: By concentrating its investments in California,
the Fund may be more vulnerable to unfavorable developments in that
state than funds that are more geographically diversified.
Interest Rate Risk: The possibility that the value of the Fund's
investments will decline due to an increase in interest rates or that
the Fund's yield will decrease due to a decrease in interest rates.
Credit Risk: The possibility that a bond issuer cannot make timely
interest and principal payments on its bonds. The lower a bond's
rating, the greater its credit risk.
Prepayment/Call Risk: If a significant number of the mortgages
underlying a mortgage-backed bond are refinanced, the bond may be
"prepaid." Call risk is the possibility that, during periods of
declining interest rates, a bond issuer will "call"--or
repay--higher-yielding bonds before their stated maturity date. In both
cases, investors receive their principal back and are typically forced
to reinvest it in bonds that pay lower interest rates. Rapid changes in
prepayment and call rates can cause bond prices and yields to be
volatile.
If the Fund invests in securities with additional risks, its Share-price
volatility accordingly could be greater and its performance lower. The Fund may
trade securities actively, which could increase its transaction costs and
thereby lower its performance. For more information about these risks, please
see the Glossary of Investment Risks on page ___.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility
of an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
34
<PAGE> 106
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
-------- --------
(------) (------)
</TABLE>
*The performance information above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of the Lehman Brothers 7-Year Municipal Bond Index.
<TABLE>
<CAPTION>
SINCE
INCEPTION
1 YEAR 5 YEARS (10/15/93)
- --------------------------------------------- ---------------- ----------- ----------------
<S> <C> <C> <C>
CALIFORNIA INTERMEDIATE TAX-FREE
BOND FUND
Fiduciary Shares % % %
- --------------------------------------------- ---------------- ----------- ----------------
LEHMAN BROTHERS 7-YEAR MUNICIPAL
BOND INDEX(1) % % %
- --------------------------------------------- ---------------- ----------- ----------------
</TABLE>
(1) The unmanaged Lehman Brothers 7-Year Municipal Bond Index comprises
intermediate-term, investment grade tax-exempt bonds with maturities between 6
and 8 years.
$ FEES AND EXPENSES
This table describes the Shareholder fees you would pay directly from your
investment if you purchased or sold Fund Shares.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)*
</TABLE>
*Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you held
Fund Shares.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
35
<PAGE> 107
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.50%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
-------
Total Annual Fund Operating Expenses %
</TABLE>
* During the past fiscal year, the Adviser waived 0.30% of its investment
Advisory fee. "Other Expenses" were waived by __% or reimbursed by %. These
waivers are voluntary and may be terminated at will. Accordingly, the Fund's
actual annual operating expenses were as follows:
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.20%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
-----
Total Annual Fund Operating Expenses %
</TABLE>
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the periods indicated, that each year your investment
has a 5% return and that the Fund's expenses remain the same. Although your
actual costs and returns may be different, your approximate costs of investing
$10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $ $ $ $
---- ---- ---- ----
</TABLE>
36
<PAGE> 108
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM BOND FUND
- --------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek total return
through investments in
fixed-income securities
- --------------------------------------------------------------
Investment Focus U.S. government
obligations, corporate
debt securities, mortgage
and other asset-backed
securities
- --------------------------------------------------------------
Principal Investment Strategy Focuses on sectors of the
bond market that the
portfolio managers believe
are undervalued
- --------------------------------------------------------------
Share Price Volatility Medium
- --------------------------------------------------------------
Investor Profile Investors willing to
accept the risk of a low to
moderate amount of
fluctuation in the value of
their investment for the
benefit of a higher total
return potential
- --------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark Intermediate Bond Fund seeks total return through investments in
fixed-income securities. To pursue this goal, the Fund invests at least 65% of
its assets in bonds which include:
- - Debt obligations issued or guaranteed by the U.S. government or its
agencies.
- - Corporate debt securities issued by U.S., or foreign companies that
nationally recognized rating agencies such as Moody's or Standard &
Poor's recognize as investment-grade.
- - Investment-grade bonds backed by the interest and principal payments of
various types of mortgages, known as mortgage-backed securities.
- - Investment-grade bonds backed by the interest and principal payments on
loans for other types of assets, such as automobiles, houses, or credit
cards, known as asset-backed securities.
The Fund may also invest up to 10% of its assets in issues which are rated
below BBB but have a minimum rating of B by Moody's and/or S&P at the time of
investment.
37
<PAGE> 109
In addition to these, the Fund may invest in other types of debt securities. In
an effort to preserve the value of your investment under volatile market
conditions, the portfolio managers also may invest more than 35% of the Fund's
assets in very short-term investments called money market securities. Such a
defensive strategy could make it more difficult for the Fund to achieve its
income and total return objectives.
The portfolio managers consider several factors when selecting securities for
the Fund's portfolio, including:
- - An assessment of the future level of interest rates and inflation
- - Expectations for U.S. and global economic growth
- - Relative yields among securities in various market sectors
- - The yield to maturity, quality, liquidity and capital appreciation
potential of individual securities
The portfolio managers also consider the current state of a bond's issuer and
the possibility that an improvement or deterioration in its financial health
may result in, respectively, an upgrade or downgrade of the issuer's credit
rating. The portfolio managers may continue to hold a bond that has been
downgraded if they believe it is in the best interest of the Fund's
Shareholders.
The Intermediate-Term Bond Fund will maintain an average duration of between 2
and 5 years, which the managers expect to be within one year of the duration of
the Lehman Brothers Intermediate Government/Corporate Bond Index.
(For a more complete description of the various securities in which the Fund
can invest, please see Investment Practices on page X.)
SIDEBAR: Typically, the main factor affecting the performance of bond funds is
the rise and fall of interest rates. When interest rates rise, the value of
bonds generally declines. When interest rates fall, the value of bonds
generally increases. As a result, the greater a Fund's exposure to interest
rates, the greater its risk and return potential. A portfolio's level of
interest-rate exposure is commonly indicated by the term duration.
Duration is an indication of how sensitive a bond or mutual fund portfolio may
be to changes in interest rates. Generally speaking, the longer a fund's
duration, the more dramatically it will react to interest rate fluctuations and
the greater its long-term risk/return potential. Due to their high yields
noninvestment grade bonds are typically less sensitive to interest rates than
investment grade bonds.
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Interest Rate Risk: The possibility that the value of the Fund's
investments will decline due to an increase in interest rates or that
the Fund's yield will decrease due to a decrease in interest rates.
Credit Risk: The possibility that a bond issuer cannot make timely
interest and principal payments on its bonds. The lower a bond's
rating, the greater its credit risk.
Prepayment/Call Risk - If a significant number of the mortgages
underlying a mortgage-backed bond are refinanced, the bond may be
"prepaid." Call risk is the possibility that, during periods of
declining interest rates, a bond issuer will "call"--or
repay--higher-yielding bonds before their stated maturity date. In both
cases, investors receive their principal back and are typically forced
to reinvest it in bonds that pay lower interest rates. Rapid changes in
prepayment and call rates can cause bond prices and yields to be
volatile.
38
<PAGE> 110
If the Fund invests in securities with additional risks, its Share-price
volatility accordingly could be greater and its performance lower. The Fund may
trade securities actively, which could increase its transaction costs (thereby
lowering its performance) and may increase the amount of taxes that you pay.
For more information about these risks, please see the Glossary of Investment
Risks on page ___.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
-------- --------
(------) (------)
</TABLE>
*The performance information above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of the Lehman Brothers government/Corporate Bond Index.
<TABLE>
<CAPTION>
SINCE
INCEPTION
1 YEAR 5 YEARS (2/1/91)
- -------------------------------------------- -------------- -------------- --------------------
<S> <C> <C> <C>
INTERMEDIATE-TERM BOND FUND
Fiduciary Shares % % %
- -------------------------------------------- -------------- -------------- --------------------
LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE BOND INDEX(1) % % %
- -------------------------------------------- -------------- -------------- --------------------
</TABLE>
(1) The Lehman Brothers Intermediate government/Corporate Bond Index is an
unmanaged index of government and corporate debt securities rated investment
grade or better, with maturities between 1 and 10 years.
$ FEES AND EXPENSES
This table describes the Shareholder fees that you would pay directly from your
investment if you purchased or sold Fund Shares.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
FIDUCIARY SHARES
39
<PAGE> 111
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)*
</TABLE>
*Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you held
Fund Shares.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.50%
Distribution/Service (12b-1) Fees 0.00%*
Other Expenses %*
------
Total Annual Fund Operating Expenses %*
</TABLE>
* During the past fiscal year, "Other Expenses" were waived by __% or
reimbursed by ____%. These waivers are voluntary and may be terminated at any
time. Accordingly, the Fund's actual annual operating expenses were as follows:
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.50%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
------
Total Annual Fund Operating Expenses %
</TABLE>
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the periods indicated, that each year your investment
has a 5% return and that the Fund's expenses remain the same. Although your
actual costs and returns may be different, your approximate costs of investing
$10,000 in the Fund would be:
40
<PAGE> 112
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $ $ $ $
---- ---- ---- ----
</TABLE>
41
<PAGE> 113
SHAREOWNER GUIDE--HOW TO INVEST IN THE HIGHMARK FUNDS
Before you invest, we encourage you to carefully read the Fund profiles
included in this prospectus and consider which Funds are appropriate for your
particular financial situation, risk tolerance and goals. As always, your
financial representative can provide you with valuable assistance in making
this decision. He or she can also help you choose which of the Fund Share
classes we offer is right for you.
CHOOSING A SHARE CLASS
HighMark Funds offers different classes of Fund Shares, each of which has
different expenses and other characteristics. Only one class of Fund Shares,
Fiduciary Shares, is offered in this prospectus. To choose the one that is best
suited to your needs and goals, consider the amount of money you want to
invest, how long you expect to invest it and whether you plan to make
additional investments. The following are some of the main characteristics of
HighMark's Fiduciary Shares.
FIDUCIARY SHARES
- - No sales charge.
- - No Distribution (12b-1) fees.
- - Available only to the following investors and accounts:
- Fiduciary, advisory, agency, custodial and other similar accounts
maintained with Union Bank of California, N.A., or its affiliates;
- Non-fiduciary IRA accounts investing in a HighMark equity or income
fund that were established with The Bank of California, N.A., prior
to June 20, 1994, and have remained open since then.
- Investors who currently own Shares of a HighMark equity or income
funds that they bought prior to June 20, 1994 within an account
registered in their name with the Funds;
- Current and retired trustees of the HighMark Funds and directors,
officers and employees (and their spouses and children under the age
of 21) of Union Bank of California, N.A., of HighMark Funds' current
or former distributors or of their respective affiliated companies
who currently own Shares of HighMark Funds that they purchased before
April 30, 1997;
- Registered investment advisers who are 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;
- Retirement and other benefit plans sponsored by governmental entities;
and
- Financial Institutions that may buy 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 per Fund.
For the actual past expenses of the Fiduciary Shares, see the individual Fund
profiles earlier in this prospectus.
The Funds also offer Class A, Class B and Class C Shares (collectively "Retail
Shares"). The Value Momentum Fund also offers Class I Shares. Each of these
Classes has its own expense structure. Retail Shares are available to
non-fiduciary clients of Union Bank of California, N.A., who are not otherwise
eligible for Fiduciary Shares. Class I Shares are available only to government
retirement plans investing $70 million or more. Call us at 1-800-433-6884 for
more details.
42
<PAGE> 114
OPENING AN ACCOUNT
1. Read this prospectus carefully.
2. Determine how much money you want to invest. The minimum investments
for the HighMark Funds are as follows:
- INITIAL PURCHASE: $1,000 for each FUND
$250 for current and retired trustees
of HighMark Funds and directors,
officers and employees (as well as
their spouses and children under the
age of 21) of Union Bank of
California, N.A., SEI Investments
Distribution Co. and their
affiliates.
- ADDITIONAL PURCHASES: $100 for each FUND
We may waive these initial and additional investment minimums for
purchases made in connection with Individual Retirement Accounts,
Keoghs, payroll deduction plans or 401(k) or similar plans.
3. Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation when
opening trust, corporate or power of attorney accounts. For more information,
please contact your financial representative or call the Distributor at
1-800-433-6884.
4. Make your initial investment using the table on the next page. You and your
financial representative can initiate any purchase, exchange or sale of Shares.
We reserve the right to reject a purchase order if we determine that it is not
in the best interest of HighMark Funds or its Shareholders.
43
<PAGE> 115
BUY SHARES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
THROUGH FINANCIAL INSTITUTIONS
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
- Call your financial institution for
information on their procedures for
transmitting orders to HighMark Funds.
- --------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
- --------------------------------------------------------------------------------------------------------------------
[GRAPHIC] - Call us at 1-800-433-6884 or contact
[GRAPHIC] your financial representative to
request an exchange.
SELLING SHARES
- --------------------------------------------------------------------------------------------------------------------
THROUGH FINANCIAL INSTITUTIONS
- --------------------------------------------------------------------------------------------------------------------
- Accounts set up through financial - Contact your financial institution
institutions. to find out more about their
procedures for transmitting orders
to HighMark Funds.
- --------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
- --------------------------------------------------------------------------------------------------------------------
[GRAPHIC] - Accounts of any type. - Obtain a current prospectus for the
[GRAPHIC] Fund into which you are exchanging
by calling us or contacting your
financial representative.
- Call us or contact your financial
representative to request an
exchange.
To add to an account using the Automatic
Invest Plan, see "Additional Investor
Services."
</TABLE>
TRANSFER AGENT
ADDRESS:
State Street Bank and Trust Company
P.O. Box 8416
Boston, MA 02266-8416
PHONE NUMBER: 1-800-433-6884
Or contact your financial representative for
instructions and assistance.
SELLING SHARES IN WRITING. In certain circumstances, you may need to include a
signature guarantee, which protects you against fraudulent orders. You will
need a signature guarantee if:
- you are selling more than $5,000 worth of Shares.
- you are requesting payment other than by a check mailed to the address
of record and payable to the registered owner(s).
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. A notary public CANNOT provide a
44
<PAGE> 116
signature guarantee.
RECEIVING YOUR MONEY. Normally, we will send you a check for your proceeds as
promptly as possible, at the latest within seven calendar days of receiving
your redemption order. If, however, you recently bought Shares in the Fund, we
may be unable to fulfill your request if we have not yet received and processed
your payment for the initial purchase. In such a case you may need to resubmit
your redemption request after we have received payment.
REDEMPTION IN KIND. The Funds reserve the right to make payment on redemptions
in securities rather than cash.
INVOLUNTARY SALES OF YOUR SHARES. 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 balance in any Fund drops below the minimum initial purchase amount for
any reason other than market fluctuation. This is more likely to occur if you
invest only the minimum amount in a Fund and then sell some of your Shares soon
after. Before any Fund exercises its right to redeem your Shares, we will
notify you in writing at least 60 days in advance to give you time to bring
your balance up to or above the minimum.
EXCHANGING SHARES
HOW TO EXCHANGE YOUR SHARES. You may exchange Fiduciary Shares of one HighMark
Fund for Fiduciary Shares of another HighMark Fund (the "new Fund"), provided
that you:
- - Are qualified to invest in the new Fund.
- - Meet the initial and additional investment minimums for the new Fund.
- - Invest in the same Share class in the new Fund as you did in the previous
Fund.
- - Maintain the minimum account balance for each HighMark Fund in which
you invest.
Your cost for buying Shares in the new Fund is based on the relative net asset
values of the Shares you are exchanging. You may also exchange your Fiduciary
Shares of a Fund for Class A, Class B or Class C Shares of another HighMark
Fund. In that case, your cost for buying Shares in the new Fund is based on the
relative net asset value of the Shares you are exchanging plus any applicable
sales charge.
TRANSACTION POLICIES
VALUATION OF SHARES. A Fund's net asset value is calculated according to the
following formula:
(Total mkt. value of the Fund's investments and other assets -
any Fund liabilities)
/Total number of the Fund's Shares outstanding
----------------------------------------------
= Fund's net asset value
We determine the net asset value (NAV) of each HighMark Fund as of 1:00 p.m.
Pacific time (4:00 p.m. Eastern time) business days, based on the current
market price of the Fund's securities. If that is not available, we value its
securities by using a method that the Funds' Board of Trustees believes
accurately reflects fair value. For further information about how we determine
the value of the Funds' investments, see the Statement of Additional
Information.
BUY AND SELL PRICES. When you buy Shares, the number of Shares you receive is
based on the net asset value we next determine after receiving your order. When
you sell Shares, the amount of your proceeds are based on the net asset value
we next determine after receiving your order.
EXECUTION OF ORDERS. You may buy and sell Shares of the HighMark Funds on any
day when the New York Stock Exchange is open for business (hereafter referred
to as a "business day").
- - Purchasing Shares by Mail: If you mail us a purchase order, we will
execute it as soon as we have received your payment. (Note: If your check
does not clear, we will be forced to cancel your purchase
45
<PAGE> 117
and may hold you liable for any losses or fees incurred.)
- - Purchasing Shares by Wire: If you place a purchase order by wire on any
business day, we will execute it that day, provided that you have wired
the money you wish to invest to the transfer agent prior to 1:00 p.m. PT
(4:00 p.m. ET). If the transfer agent does not receive the money you plan
to wire by this deadline, we will execute your order the following
business day or whenever we have received your order and/or payment.
- - Selling Shares: To sell Shares on any one business day, you must place
your redemption order before 1:00 p.m. PT (4:00 p.m. ET). Otherwise, we
will execute your order the following business day.
DIVIDENDS AND DISTRIBUTIONS
As a mutual fund Shareholder, you may receive capital gains and/or income from
your investment. Each of the HighMark Funds declares and pays income dividends
monthly, with the exception of the Small Cap Value Fund, which declares and
pays income dividends periodically. The Funds distribute any capital gains they
have realized at least once a year.
We will automatically reinvest any income and capital gains distributions you
are entitled to in additional Shares of your Fund(s) unless you notify our
Transfer Agent that you want to receive your distributions in cash. To do so,
send a letter with your request, including your name and account number to:
HighMark Funds
c/o State Street Bank and Trust Company
P.O. Box 8416
Boston, MA 02266-8416
Your request will become effective for distributions having record dates after
our Transfer Agent receives your request. Note that the IRS treats dividends
paid in additional Fund Shares the same as it treats dividends paid in cash.
TAXES
Your mutual fund investments may have a considerable impact on your tax
situation. We've summarized some of the main points you should know below.
Note, however, that the following is general information and will not apply to
you if you are investing through a tax-deferred account such as an IRA or a
qualified employee benefit plan. In addition, if you are not a resident of the
United States, you may have to pay taxes besides those described here, such as
U.S. withholding and estate taxes.
IMPORTANT NOTE: IF YOU HAVE NOT DONE SO ALREADY, BE SURE TO PROVIDE US WITH
YOUR CORRECT TAXPAYER IDENTIFICATION NUMBER OR CERTIFY THAT IT IS CORRECT.
UNLESS WE HAVE THAT INFORMATION, WE MUST, BY LAW, WITHHOLD 31% OF THE TAXABLE
DISTRIBUTIONS YOU WOULD OTHERWISE BE ENTITLED TO RECEIVE FROM YOUR FUND
INVESTMENTS AS WELL AS ANY PROCEEDS YOU WOULD NORMALLY RECEIVE FROM SELLING
FUND SHARES.
END-OF-YEAR TAX STATEMENTS
We will send you a statement each year showing the tax status of all your
distributions. The laws governing taxes change frequently, however, so please
consult your tax Adviser for the most up-to-date information and specific
guidance regarding your particular tax situation. You can find more information
about the potential tax consequences of mutual fund investing in our Statement
of Additional Information.
46
<PAGE> 118
TAXES ON FUND DISTRIBUTIONS
- - FEDERAL TAXES: The IRS treats any dividends and short-term capital gains
you receive from the Funds as ordinary income.
- - STATE AND LOCAL TAXES: In addition to federal taxes, you may have to pay
state and local taxes on the dividends or capital gains you receive from a
Fund.
- - TAXATION OF LONG-TERM CAPITAL GAINS: You may have to pay federal and state
taxes on any distributions of net long-term capital gains you receive from
a Fund at the long-term capital gains rate, no matter how long you've
owned Shares in the Fund. (Although some states like California, do not
have a special rate for capital gains.)
- - "BUYING A DIVIDEND": You may owe taxes on Fund distributions even if they
represent income or capital gains the Fund earned before you invested in
it and thus were likely included in the price you paid.
TAX CONSEQUENCES OF SELLING OR EXCHANGING SHARES
If you sell or exchange Fund Shares, you may have to report any capital gain
you realize as income and any capital loss as a deduction on your federal
income tax return (even if the Fund invests primarily in tax-exempt
securities.) For more specific information about your own tax situation,
consult your tax adviser.
The portfolio managers of the Funds do not actively consider tax consequences
when making investment decisions. From time to time, the Funds may realize
capital gains as by-products of ordinary investment activities. As a result,
the amount and timing of Fund distributions may vary considerably from year to
year.
SPECIAL CONSIDERATIONS FOR SHAREHOLDERS OF HIGHMARK CALIFORNIA INTERMEDIATE
TAX-FREE BOND FUND: The Fund's portfolio managers expect that virtually all of
the income the California Intermediate Tax-Free Fund generates will be exempt
from federal and California state personal income taxes. If, however, you
receive Social Security or railroad retirement benefits, you should consult your
tax adviser to determine whether investing in the Fund could increase federal
taxation of your benefits. In addition, some of the income you received from the
Fund may be included in the computation of federal and state alternative minimum
tax.
SPECIAL CONSIDERATIONS FOR SHAREHOLDERS OF FUNDS INVESTING IN FOREIGN
SECURITIES: If your Fund invests in foreign securities, the income those
securities generate may be subject to foreign withholding taxes, which may
decrease their yield. Foreign governments may also impose taxes on other
payments or gains your Fund earns on these securities. In general, Shareholders
in these Funds will not be entitled to claim a credit or deduction for these
foreign taxes on their U.S. tax return. (There are some exceptions, however;
please consult your tax adviser for more information.) In addition, foreign
investments may prompt a Fund to distribute ordinary income more frequently
and/or in greater amounts than purely domestic funds, which could increase your
tax liability.
THE TAX CONSIDERATIONS DESCRIBED ABOVE MAY OR MAY NOT APPLY TO YOU. PLEASE
CONSULT YOUR TAX ADVISER TO DETERMINE WHETHER THESE CONSIDERATIONS ARE RELEVANT
TO YOUR PARTICULAR INVESTMENTS AND TAX SITUATION.
INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN (AIP): AIP allows you to make regular investments in
the HighMark Fund(s) of your choice through automatic deductions from your
checking account. The monthly minimum per Fund is $100.* AIP is available only
to current Shareholders who wish to make additional investments to their
existing account(s). To participate in AIP, complete the appropriate section on
your Account Application form.
*There is a $50 monthly minimum for current or retired trustees of the HighMark
Funds and directors, officers, and employees (as well as their spouses and
children under the age of 21) of Union Bank of California, SEI Investments
Distribution Co., and their affiliates who were participating in HighMark's AIP
on or before December 11, 1998.
47
<PAGE> 119
SYSTEMATIC WITHDRAWAL PLAN (SWP): HighMark's Systematic Withdrawal Plan allows
you to make regular withdrawals from your account. The minimum monthly
withdrawal is $100 per Fund. You can opt to make these withdrawals on a
monthly, quarterly, twice yearly or annual basis. You also have the option of
receiving your withdrawals by check or by automatic deposit into your bank
account.
To participate in SWP, you must:
- - Have at least $5,000 in your HighMark Fund(s) account.
- - Have your dividends automatically reinvested.
Before you sign up for SWP, please note the following important considerations:
If your automatic withdrawals through SWP exceed the income your Fund(s)
normally pay, your withdrawals may, over time, deplete your original
investment--or exhaust it entirely if you make large and frequent withdrawals.
Fluctuations in the net asset value per Share of your Fund(s) may also deplete
your principal.
To take part in SWP, complete the appropriate section on your Account
Application form. You may change or cancel the plan at any time by sending a
written notice to our Transfer Agent (which may require a signature guarantee).
MORE ABOUT HIGHMARK FUNDS
- -------------------------------------------------------------------------------
[INVESTMENT MANAGEMENT ICON] INVESTMENT MANAGEMENT
INVESTMENT ADVISER
HighMark Capital Management, Inc., serves as investment adviser of the HighMark
Funds and manages their investment portfolios on a day-to-day basis under the
supervision of HighMark Funds' Board of Trustees.
HighMark Capital Management is a subsidiary of UnionBanCal Corporation, the
holding company of Union Bank of California, N.A. UnionBanCal Corporation is a
publicly held corporation principally owned by The Bank of Tokyo-Mitsubishi,
Ltd. As of September 30, 1999, UnionBanCal Corporation and its subsidiaries had
approximately $____ billion in consolidated assets. As of the same date,
HighMark Capital Management had approximately $____ billion in assets under
management. HighMark Capital Management (and its predecessors), 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.
Over the past fiscal year, the Funds paid the following management fees to
HighMark Capital Management:
<TABLE>
<CAPTION>
Fund % of Net Assets
---- ---------------
<S> <C>
Bond Fund 0.50%
California Intermediate Tax-Free Bond Fund 0.50%
Intermediate-Term Bond Fund 0.50%
Balanced Fund 0.60%
Growth Fund 0.60%
Income Equity Fund 0.60%
International Equity Fund 0.95%*
Value Momentum Fund 0.60%
Small Cap Value Fund 1.00%
</TABLE>
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<PAGE> 120
*A portion of the management fee is used to pay the Fund's subadviser.
SUBADVISER
INTERNATIONAL EQUITY FUND. AXA Asset Management Partenaires ("AXA") serves as
the subadviser to the International Equity Fund. Under an investment
subadvisory agreement between AXA and HighMark Capital Management, AXA makes
day-to-day investment decisions regarding the Fund, subject to the supervision
of, and policies established by, HighMark Capital Management and the Trustees
of HighMark Funds.
AXA 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, 1999, AXA managed assets in excess of $___
billion.
SMALL CAP VALUE FUND. Brandes Investment Partners, L.P., (Brandes) serves as
the subadviser to a portion of the Small Cap Value Fund's assets. Under an
investment subadvisory agreement between Brandes and HighMark Capital
Management, Brandes makes day-to-day investment decisions regarding the Fund's
foreign securities, subject to the supervision of, and policies established by,
HighMark Capital Management 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 its various predecessors) has provided investment advisory services
since 1974. Brandes serves as portfolio manager to mutual funds, employee
benefit funds and other institutional clients. As of September 30, 1999,
Brandes managed approximately $_____ billion in assets.
PORTFOLIO MANAGERS
All investment decisions for the HighMark Funds are made by a team of
investment professionals, all of whom take an active part in the decision
making process.
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<PAGE> 121
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years or, if shorter, the period of the
Fund's operations. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by ,
whose report, along with the Fund's financial statements, are included in the
SAI, which is available upon request.
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<PAGE> 122
INVESTMENT PRACTICES
The Funds invest in a variety of securities and employ a number of investment
techniques. Each security and technique involves certain risks. The following
table describes the securities and techniques the Funds use, as well as the
main risks they pose. Equity securities are subject mainly to market risk.
Fixed-income securities are subject primarily to market, credit and prepayment
risk. Following the table is a more complete discussion of risk. You may also
consult the Statement of Additional Information for more details about the
securities in which the Funds may invest.
<TABLE>
<CAPTION>
FUND NAME FUND CODE
- --------- ---------
<S> <C>
Balanced Fund 1
Growth Fund 2
Income Equity Fund 3
International Equity Fund 4
Value Momentum Fund 5
Small Cap Value Fund 6
Bond Fund 7
California Intermediate Tax-Free Bond Fund 8
Intermediate-Term Bond Fund 9
</TABLE>
<TABLE>
<CAPTION>
FUND
INSTRUMENT CODE RISK TYPE
---------- ---- ---------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE LOANS (ARMS): Loans in 1, 5, 7, 9 Prepayment
a mortgage pool that provide for a fixed initial Market
mortgage interest rate for a specified period of Credit
time, after which the rate may be subject to Regulatory
periodic adjustments.
AMERICAN DEPOSITORY RECEIPTS (ADRS): ADRs are 1-6 Market
foreign Shares of a company held by a U.S. bank Political
that issues a receipt evidencing ownership. Foreign Investment
ADRs pay dividends in U.S. dollars.
ASSET-BACKED SECURITIES: Securities backed by 1, 2, 5 Prepayment
company receivables, home equity loans, truck Market
and auto loans, leases, credit card receivables Credit
and other securities backed by other types of Regulatory
receivables or assets.
BANKERS' ACCEPTANCES: Bills of exchange or time 1-7, 9 Credit
drafts drawn on and accepted by a commercial Liquidity
bank. They generally have maturities of six Market
months or less.
BONDS: Interest-bearing or discounted government 1, 5-9 Market
or corporate securities that obligate the issuer Credit
to pay the bondholder a specified sum of money,
usually at specific intervals, and to repay the
principal amount of the loan at maturity.
</TABLE>
51
<PAGE> 123
<TABLE>
<S> <C> <C>
CALL AND PUT OPTIONS: A call option gives the 1-6 Management
buyer the right to buy, and obligates the seller Liquidity
of the option to sell, a security at a specified Credit
price. A put option gives the buyer the right Market
to sell, and obligates the seller of the option Leverage
to buy, a security at a specified price. The
Funds will sell only covered call and secured
put options.
CERTIFICATES OF DEPOSIT: Negotiable instruments 1-7, 9 Market
with a stated maturity. Credit
Liquidity
COMMERCIAL PAPER: Secured and unsecured 1-7, 9 Credit
short-term promissory notes issued by Liquidity
corporations and other entities. Their Market
maturities generally vary from a few days to
nine months.
COMMON STOCK: Shares of ownership of a company. 1-6 Market
CONVERTIBLE SECURITIES: Bonds or preferred stock 1-6 Market
that convert to common stock. Credit
DEMAND NOTES: Securities that are subject to 1-7, 9 Market
puts and standby commitments to purchase the Liquidity
securities at a fixed price (usually with Management
accrued interest) within a fixed period of time
following demand by a fund.
DERIVATIVES: Instruments whose value is derived 1-9 Management
from an underlying contract, index or security, Market
or any combination thereof, including futures, Credit
options (e.g., puts and calls), options on Liquidity
futures, swap agreements and some Leverage
mortgage-backed securities.
FOREIGN SECURITIES: Stocks issued by foreign 4, 5 Market
companies including ADRs and Global Depository Political
Receipts (GDRs), as well as commercial paper of Foreign
foreign issuers and obligations of foreign Liquidity
governments, companies, banks, overseas branches Investment
of U.S. banks or supranational entities.
</TABLE>
52
<PAGE> 124
<TABLE>
<S> <C> <C>
FORWARD FOREIGN CURRENCY CONTRACTS: An 4, 5, 6 Management
obligation to purchase or sell a specific amount Liquidity
of a currency at a fixed future date and price Credit
set by the parties involved at the time the Market
contract is negotiated. Political
Leverage
Foreign
Investment
FUTURES AND RELATED OPTIONS: A contract 1-9 Management
providing for the future sale and purchase of a Market
specific amount of a specific security, class of Credit
securities or index at a specified time in the Liquidity
future and at a specified price. The aggregate Leverage
value of options on securities (long puts and
calls) will not exceed 10% of a HighMark Equity
Fund's net assets at the time it purchases the
options. An equity fund will limit its
obligations under futures, options on futures,
and options on securities to no more than 25% of
its assets. The HighMark Fixed Income Funds may
invest in futures and options on futures for the
purpose of achieving their objectives and for
adjusting their portfolio's duration. Each of
these Funds will limit its obligations under
futures contracts and related options to no more
than 10% of its assets.
HIGH-YIELD/HIGH-RISK BONDS: Bonds rated below 1, 7-9 Credit Market
investment grade by the primary rating agencies Liquidity
(e.g., BB or lower by Standard & Poor's and Ba
or lower by Moody's). These securities are
considered speculative and involve greater risk
of loss than investment grade bonds. Also
called "lower-rated bonds," "noninvestment grade
bonds" and "junk bonds."
ILLIQUID SECURITIES: Securities that ordinarily 1-9 Liquidity
cannot be sold within seven business days at the Market
value the Fund has estimated for them. Each
Fund may invest up to 15% of its net assets in
illiquid securities.
</TABLE>
53
<PAGE> 125
<TABLE>
<S> <C> <C>
INVESTMENT COMPANY SECURITIES: Shares of 1-9 Market
registered investment companies. These may
include HighMark Money Market Funds and other
registered investment companies for which
HighMark, its subadvisers, or any of their
affiliates, serves as investment Adviser,
administrator or distributor. Each of the Funds
may invest up to 5% of its assets in the Shares
of any one registered investment company. A
Fund may not, however, own more than 3% of the
securities of any one registered investment
company or invest more than 10% of its assets in
the Shares of other registered investment
companies. As a Shareholder of an investment
company, a Fund will indirectly bear investment
management fees of that investment company,
which are in addition to the management fees the
Fund pays its own Adviser.
INVESTMENT GRADE SECURITIES: Securities rated 1, 5-9 Market
BBB or higher by Standard & Poor's; Baa or Credit
better by Moody's; similarly rated by other
nationally recognized rating organizations; or,
if not rated, determined to be of comparably
high quality by the Adviser.
MONEY MARKET INSTRUMENTS: Investment grade, 1-9 Market
U.S. dollar-denominated debt securities with Credit
remaining maturities of one year or less. These
may include short-term U.S. government
obligations, commercial paper and other
short-term corporate obligations, repurchase
agreements collateralized with U.S. government
securities, certificates of deposit, bankers'
acceptances, and other financial institution
obligations. These securities may carry fixed
or variable interest rates.
MORTGAGE-BACKED SECURITIES: Securities backed by 1, 7, 9 Prepayment
real-estate loans and pools of loans. These Market
include collateralized mortgage obligations Credit
(CMOs) and real estate mortgage investment Regulatory
conduits (REMICs).
</TABLE>
54
<PAGE> 126
<TABLE>
<S> <C> <C>
MUNICIPAL FORWARDS: Forward commitments to Market
purchase tax-exempt bonds with a specific coupon Leverage
to be delivered by an issuer at a future date Liquidity
(typically more than 45 days but less than one Credit
year). Municipal forwards are normally used as a
refunding mechanism for bonds that may be redeemed
only on a designated future date. Any Fund that
makes use of municipal forwards 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: Securities issued by a 8 Market
state or political subdivision to obtain money Credit
for various public purposes. Municipal Political
securities include private activity bonds and Tax
industrial development bonds, as well as general Regulatory
obligation bonds, tax anticipation notes, bond
anticipation notes, revenue anticipation notes,
project notes, other short-term tax-exempt
obligations, municipal leases and obligations of
municipal housing authorities (single-family
revenue bonds).
There are two general types of municipal bonds:
General obligation bonds, which are secured by
the taxing power of the issuer (and, in
California, have the approval of voters) and
revenue bonds, which take many shapes and forms
but are generally backed by revenue from a
specific project or tax. These include, but are
not limited to, certificates of participation
(COPs); utility and sales tax revenues; tax
increment or tax allocations; housing and
special tax, including assessment district and
community facilities district (Mello-Roos)
issues which are secured by taxes on specific
real-estate parcels; hospital revenue; and
industrial development bonds that are secured by
the financial resources of a private company.
OBLIGATIONS OF SUPRANATIONAL AGENCIES: 2, 5, 8 Credit
Securities issued by supranational agencies that Foreign Investment
are chartered to promote economic development
and are supported by various governments and
government agencies.
</TABLE>
55
<PAGE> 127
<TABLE>
<S> <C> <C>
OPTIONS ON CURRENCIES: A Fund may buy put 4, 5 Management
options and sell covered call options on foreign Liquidity
currencies (traded on U.S. and foreign exchanges Credit
or over-the-counter markets). A covered call Market
option means the Fund will own an equal amount Political
of the underlying foreign currency. Currency Leverage
options help a Fund manage its exposure to Foreign Investment
changes in the value of the U.S. dollar relative
to other currencies. If a Fund sells a put
option on a foreign currency, it will establish
a segregated account with its Custodian
consisting of cash, U.S. government securities
or other liquid high-grade bonds in an amount
equal to the amount the Fund would be required
to pay if the put is exercised.
PARTICIPATION INTERESTS: Interests in municipal 1, 8 Market
securities from financial institutions such as Liquidity
commercial and investment banks, savings and Credit
loan associations and insurance companies. Tax
These interests are usually structured as some
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 interests to obtain credit
enhancement on demand features that would be
available through direct ownership of the
underlying municipal securities.
PREFERRED STOCKS: Equity securities that 1-6 Market
generally pay dividends at a specified rate and
take precedence over common stock in the payment
of dividends or in the event of liquidation.
Preferred stock generally does not carry voting
rights.
REPURCHASE AGREEMENTS: The purchase of a 1-9 Market
security and the simultaneous commitment to Leverage
return the security to the seller at an agreed
upon price on an agreed upon date. This is
treated as a loan.
REVERSE REPURCHASE AGREEMENTS: The sale of a 1-9 Market
security and the simultaneous commitment to buy Leverage
the security back at an agreed upon price on an
agreed upon date. This is treated as a
borrowing by a Fund.
</TABLE>
56
<PAGE> 128
<TABLE>
<S> <C> <C>
RESTRICTED SECURITIES: Securities not 1-9 Liquidity
registered under the Securities Act of 1933, Market
such as privately placed commercial paper and
Rule 144A securities.
SECURITIES LENDING: The lending of up to 33 1-9 Market
1/3% of a Fund's total assets. In return the Leverage
Fund will receive cash, other securities and/or Liquidity
letters of credit.
STANDARD & POOR'S DEPOSITORY RECEIPTS (SPDRS): 1-5 Market
SPDRs represent ownership in a long-term unit
investment trust that holds a portfolio of
common stocks designed to track the price
performance and dividend yield of the S&P 500
Index. SPDRs entitle a holder to receive
proportionate quarterly cash distributions
corresponding to the dividends that accrue to
the S&P 500 Index stocks in the underlying
portfolio, less trust expenses.
TAX-EXEMPT COMMERCIAL PAPER: Commercial paper 8 Credit
issued by governments and political Liquidity
subdivisions. Market
Tax
TIME DEPOSITS: Non-negotiable receipts issued 1, 3, Liquidity
by a bank in exchange for a deposit of money. 5-7, 9 Credit
TREASURY RECEIPTS: Treasury receipts, Treasury 1-9 Market
investment growth receipts and certificates of
accrual of Treasury securities.
UNIT INVESTMENT TRUSTS: A type of investment 2-7, 9 Market
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. 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.
</TABLE>
57
<PAGE> 129
<TABLE>
<S> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES: Securities 1, 2-9 Market
issued by agencies and instrumentalities of the Credit
U.S. government. These include Ginnie Mae,
Fannie Mae and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, 1, 2-9 Market
separately traded registered interest and
principal securities, and coupons under bank
entry safekeeping.
VARIABLE AND FLOATING RATE INSTRUMENTS: 1, 2-9 Credit
Obligations with interest rates that are reset Liquidity
daily, weekly, quarterly or on some other Market
schedule. Such instruments may be payable to a
Fund on demand.
WARRANTS: Securities that give the holder the 1-6 Market
right to buy a proportionate amount of common Credit
stock at a specified price. Warrants are
typically issued with preferred stock and bonds.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: 1-9 Market
A purchase of, or contract to purchase, Leverage
securities at a fixed price for delivery at a Liquidity
future date. The portfolio managers of each Credit
Fund expect that commitments to enter into
forward commitments or purchase when-issued
securities will not exceed 25% of the Fund's
total assets.
YANKEE BONDS AND SIMILAR DEBT OBLIGATIONS: 1,5,7-9 Market
U.S. dollar-denominated bonds issued by foreign Credit
corporations or governments. Sovereign bonds
are those issued by the government of a foreign
country. Supranational bonds are those issued
by supranational entities, such as the World
Bank and European Investment Bank. Canadian
bonds are those issued by Canadian provinces.
ZERO-COUPON DEBT OBLIGATIONS: Bonds and other 5,6,8 Credit
types of debt that pay no interest, but are Market
issued at a discount from their value at Zero Coupon
maturity. When held to maturity, their entire
return equals the difference between their issue
price and their maturity value.
</TABLE>
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<PAGE> 130
GLOSSARY OF INVESTMENT RISKS
This section discusses the risks associated with the securities and investment
techniques listed above, as well as the risks mentioned under the heading "What
Are the Main Risks of Investing in This Fund?" in each Fund profile. Because of
these risks, the value of the Funds' holdings may fluctuate, as will the value
of your investment in the Funds. Certain types of investments and funds are
more susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Generally speaking, the lower a security's credit rating, the
higher its credit risk. If a security's credit rating is downgraded, its price
tends to decline sharply, especially as it becomes more probable that the
issuer will default.
FOREIGN INVESTMENT RISK. Compared with investing in the United States,
investing in foreign markets involves a greater degree and variety of risk.
Investors in foreign markets may face delayed settlements, currency controls
and adverse economic developments as well as higher overall transaction costs.
In addition, fluctuations in the U.S. dollar's value versus other currencies
may erode or reverse gains from investments denominated in foreign currencies
or widen losses. For instance, foreign governments may limit or prevent
investors from transferring their capital out of a country. This may affect the
value of your investment in the country that adopts such currency controls.
Exchange rate fluctuations also may impair an issuer's ability to repay U.S.
dollar-denominated debt, thereby increasing the credit risk of such debt.
Finally, the value of foreign securities may be seriously harmed by incomplete
or inaccurate financial information about their issuers, social upheavals or
political actions ranging from tax code changes to governmental collapse. These
risks are greater in the emerging markets than in the developed markets of
Europe and Japan.
HEDGING. When a derivative (a security whose value is based on that of another
security or index) is used as a hedge against an opposite position that a fund
holds, any loss on the derivative should be substantially offset by gains on
the hedged investment, and vice versa. Although hedging can be an effective way
to reduce a fund's risk, it may not always be possible to perfectly offset one
position with another. As a result, there is no assurance that a fund's hedging
transactions will be effective.
INTEREST RATE RISK. The risk that debt prices overall will decline over short
or even long periods due to rising interest rates. Interest rate risk should be
modest for shorter-term securities, moderate for intermediate-term securities,
and high for longer-term securities. Generally, an increase in a fund's average
maturity will make it more sensitive to interest rate risk.
INVESTMENT STYLE RISK. The risk that the particular type of investment on which
a fund focuses (such as small-cap value stocks or large-cap growth stocks) may
underperform other asset classes or the overall market. Individual market
segments tend to go through cycles of performing better or worse than other
types of securities. These periods may last as long as several years.
Additionally, a particular market segment could fall out of favor with
investors, causing a fund that focuses on that market segment to underperform
those that favor other kinds of securities.
LEVERAGE RISK. The risk associated with securities or investment practices that
magnify small index or market movements into large changes in value. Leverage
is often created by investing in derivatives, but it may be inherent in other
types of securities as well.
LIQUIDITY RISK. The risk that a security may be difficult or impossible to sell
at the time and price the seller wishes. The seller may have to accept a lower
price for the security, sell other securities instead, or forego a more
attractive investment opportunity. Any or all of these limitations could hamper
the management or performance of a fund.
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<PAGE> 131
MANAGEMENT RISK. The risk that a strategy used by a fund's portfolio manager
may fail to produce the intended result. This includes the risk that changes in
the value of a hedging instrument will not match those of the asset being
hedged.
MARKET RISK. The risk that a security's market value may decline, especially if
it occurs rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price the investor originally paid for it. Market risk
may affect a single issuer, industrial sector or the market as a whole. For
fixed-income securities, market risk is largely influenced by changes in
interest rates. Rising interest rates typically cause the value of bonds to
decrease, while falling rates typically cause the value of bonds to increase.
POLITICAL RISK. The risk of investment losses attributable to unfavorable
governmental or political actions, seizure of foreign deposits, changes in tax
or trade statutes, and governmental collapse and war.
PREPAYMENT & CALL RISK. The risk that an issuer will repay a security's
principal at an unexpected time. Prepayment and call risk are related, but
differ somewhat. Prepayment risk is the chance that a large number of the
mortgages underlying a mortgage-backed security will be refinanced sooner than
the investor had expected. Call risk is the possibility that an issuer will
"call"--or repay--a high-yielding bond before the bond's maturity date. In both
cases, the investor is usually forced to reinvest the proceeds in a security
with a lower yield. This turnover may result in taxable capital gains and, in
addition, may lower a portfolio's income. If an investor paid a premium for the
security, the prepayment may result in an unexpected capital loss.
Prepayment and call risk generally increase when interest rates decline, and
can make a security's yield as well as its market price more volatile.
Generally speaking, the longer a security's maturity, the greater the
prepayment and call risk it poses.
REGULATORY RISK. The risk that federal and state laws may restrict an investor
from seeking recourse when an issuer has defaulted on the interest and/or
principal payments it owes on its obligations. These laws include restrictions
on foreclosures, redemption rights after foreclosure, Federal and state
bankruptcy and debtor relief laws, restrictions on "due on sale" clauses, and
state usury laws.
SMALL-COMPANY STOCK RISK. Investing in small companies is generally more risky
than investing in large companies, for a variety of reasons. Many small
companies are young and have limited track records. They also may have limited
product lines, markets or financial resources. They may, in addition, be more
vulnerable to adverse business or economic developments than larger companies.
Stocks issued by small companies tend to be less liquid and more volatile than
stocks of larger companies or the market averages in general. In addition,
small companies may not be well-known to the investing public, may not have
institutional ownership, and may have only cyclical, static or moderate growth
prospects. If a fund concentrates on small companies, its performance may be
more volatile than that of a fund that invests primarily in larger companies.
SPECULATIVE INVESTMENTS. In addition to helping reduce risk, derivatives may be
used to magnify a fund's potential gains. This strategy involves substantially
greater risks than more defensive uses of derivatives.
TAX RISK. The risk that the issuer of a security will fail to comply with
certain requirements of the Internal Revenue Code, which would cause adverse
tax consequences for the issuer and potential losses for its investors.
YEAR 2000 RISK. 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, the HighMark Funds therefore could
be adversely affected if the computer systems used by its service providers do
not properly process dates on and after January 1, 2000, because they cannot
distinguish between the year 2000 and the year 1900. We are seeking assurances
from each of our service providers that they expect their systems to
accommodate the year 2000 transition without significant adverse consequences
to HighMark
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<PAGE> 132
Funds. If these assurances prove to be incorrect, HighMark Shareholders may
lose money as a result of system failures or year 2000 computer difficulties
experienced by issuers of portfolio securities or custodians, banks,
broker-dealers or others with which we do business.
ZERO COUPON RISK. The market prices of securities structured as zero coupon or
pay-in-kind securities are generally affected to a greater extent by interest
rate changes. These securities tend to be more volatile than securities that
pay interest periodically.
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<PAGE> 133
<TABLE>
<CAPTION>
HOW TO OBTAIN MORE INFORMATION
<S> <C>
INVESTMENT ADVISER More information about the Funds is available without
HighMark Capital Management, Inc. charge through the following:
475 Sansome Street
San Francisco, CA 94104 STATEMENT OF ADDITIONAL INFORMATION (SAI)
More detailed information about the HighMark Funds is
SUBADVISERS included in our SAI. The SAI has been filed with the
International Equity Fund: SEC and is incorporated by reference into this
AXA Asset Management Partenaires prospectus. This means that the SAI, for legal
46, Avenue de la Grande Armee purposes, is a part of this prospectus.
Paris, 75017, France
ANNUAL AND SEMI-ANNUAL REPORTS
International Portion of the Small Cap Value Fund: These reports list the Funds' holdings and contain
Brandes Investment Partners, L.P. information on the market conditions and investment
12750 High Bluff Drive strategies that significantly affected the HighMark
San Diego, CA 90730 Funds' performance during the last year.
ADMINISTRATOR AND DISTRIBUTOR To Obtain the SAI, Annual or Semi-Annual Reports, or
SEI Investments Distribution Co. More Information:
1 Freedom Valley Drive
Oaks, PA 19456 BY TELEPHONE:
LEGAL COUNSEL Call 1-800-433-6884
Ropes & Gray
1301 K Street, N.W., Suite 800 East BY MAIL:
Washington, DC 20005
Write to us c/o
AUDITORS SEI Investments Distribution Co.
Deloitte & Touche LLP 1 Freedom Valley Drive
50 Fremont Street Oaks, PA 19456.
San Francisco, CA 94105-2230
BY INTERNET:
http://www.highmark-funds.com
FROM THE SEC: You can also obtain the SAI, Annual
and Semiannual Reports, and other information about
the HighMark Funds from the SEC's Web site
(http://www.sec.gov). You may review and copy
documents at the SEC Public Reference Room in
Washington, DC (for information call 1-800-SEC-0330).
You may request documents by mail from the SEC, upon
payment of a duplicating fee, by writing to:
Securities and Exchange Commission, Public Reference
Section, 450 5th Street, N.W., Washington, DC
20549-6009.
HighMark Funds' Investment Company Act registration
number is 811-05059.
</TABLE>
62
<PAGE> 134
CROSS REFERENCE SHEET
Part A
<TABLE>
<CAPTION>
Form N-1A Item No. Prospectus Caption
- ------------------ ------------------
HIGHMARK FUNDS
--------------
MONEY MARKET FUNDS - RETAIL SHARES
<S> <C>
1. Front and Back Cover Pages ....................................... Cover Page; Back Page
2. Risk/Return Summary:
Investments, Risks and Performance................................ Individual HighMark Funds Profiles
3. Risk/Return Summary: Fee Table................................... Individual HighMark Funds Profiles
4. Investment Objectives, Principal Investment
Strategies, and Related Risk .................................... Individual HighMark Funds Profiles;
More About the HighMark Fund --
Investment Practices; More About the
HighMark Funds -- Glossary of Investment Risks
5. Management's Discussion of the Fund
Performance....................................................... Inapplicable
6. Management, Organization and Capital
Structure......................................................... More About the HighMark Funds - Investment Management
7. Shareholder Information........................................... Shareowner Guide - How to Invest in the HighMark Funds
8. Distribution Arrangements ........................................ Shareowner Guide - How to Invest in the HighMark Funds
9. Financial Highlights Information.................................. Financial Highlights
</TABLE>
<PAGE> 135
HIGHMARK FUNDS
MONEY MARKET FUNDS
100% U.S. Treasury Money Market Fund
California Tax-Free Money Market Fund
Diversified Money Market Fund
U.S. Government Money Market Fund
RETAIL SHARES
PROSPECTUS
November 30, 1999
The Securities and Exchange Commission has not approved or disapproved of these
securities or determined whether this prospectus is accurate or complete. Any
representation to the contrary is unlawful.
1
<PAGE> 136
HOW TO READ THIS PROSPECTUS
HighMark Funds is a mutual fund family that offers different classes of Shares
in separate investment portfolios (Funds). The Funds have individual investment
goals and strategies. This prospectus gives you important information about the
Class A Shares and the Class B Shares of the Money Market Funds that you should
know before investing. Each Fund also offers two additional classes of Shares
called Fiduciary Shares and Class S Shares, which are offered in separate
prospectuses.
Please read this prospectus and keep it for future reference. The prospectus is
arranged into different sections so that you can easily review this important
information. The next page contains general information you should know about
investing in the HighMark Funds.
INDIVIDUAL HIGHMARK FUND PROFILES
X 100% U.S. Treasury Money Market Fund
X California Tax-Free Money Market Fund
X Diversified Money Market Fund
X U.S Government Money Market Fund
SHAREOWNER GUIDE--HOW TO INVEST IN THE HIGHMARK FUNDS
X Choosing a Share Class
X How Sales Charges Are Calculated
X Sales Charge Reductions and Waivers
X Fees for Distribution of Shares
X Opening an Account
X Buying Shares
X Selling Shares
X Exchanging Shares
X Transaction Policies
X Dividends
X Taxes
X Investor Services
MORE ABOUT THE HIGHMARK FUNDS
X Investment Management
X Financial Highlights
X Investment Practices
X Glossary of Investment Risks
FOR MORE INFORMATION ABOUT
HIGHMARK FUNDS, PLEASE SEE
THE BACK COVER OF THE
PROSPECTUS
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
[FUND SUMMARY ICON] Fund Summary [YOUR ACCOUNT ICON] Your Account
[INVESTMENT STRATEGY ICON] Investment Strategy [INVESTMENT MANAGEMENT ICON] Investment Management
[YIELD ICON] What are the main risks of [FINANCIAL HIGHLIGHTS ICON] Financial Highlights
investing in this Fund?
[PERFORMANCE INFORMATION ICON] Performance Information [ADDITIONAL INVESTMENT ICON] Additional Investment
[FEES AND EXPENSES ICON] Fees and Expenses Practices and Risks
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
November 30, 19999
2
<PAGE> 137
INTRODUCTION
Each HighMark Fund is a mutual fund. A mutual fund pools shareholders' money
and, using professional investment managers, invests it in securities such as
stocks and bonds. Before you look at specific HighMark Funds, you should know a
few basics about investing in mutual funds.
The value of your investment in a mutual fund is based on the market prices of
the securities the fund holds. These prices change daily due to economic trends
and other developments that generally affect securities markets, as well as
those that affect particular firms and other types of issuers. These price
movements, also called volatility, vary depending on the types of securities a
fund owns and the markets where these securities trade.
AS WITH OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR INVESTMENT IN A MUTUAL
FUND. YOUR INVESTMENT IN THE HIGHMARK FUNDS IS NOT A DEPOSIT OR AN OBLIGATION OF
UNION BANK OF CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK. IT IS NOT INSURED BY
THE FDIC OR ANY GOVERNMENT AGENCY.
Each Fund has its own investment goal and strategies for reaching that goal.
There is no guarantee that a Fund will achieve its goal. Before investing, make
sure that the Fund's goal matches your own.
The portfolio manager invests each Fund's assets in a way that he or she
believes will help the Fund achieve its goal. A manager's judgments about the
securities markets, economy and companies, and his or her investment selection,
may cause a Fund to underperform others with similar objectives.
3
<PAGE> 138
- -------------------------------------------------------------------------------
100% U.S. TREASURY MONEY MARKET FUND
- -------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
Investment Goal To seek current income
with liquidity and
stability of principal
- ----------------------------------------------------------------
Investment Focus U.S. Treasury obligations
- ----------------------------------------------------------------
Principal Investment Invests exclusively in
Strategy short-term U.S. Treasury
obligations
- ----------------------------------------------------------------
Share Price Volatility Low
- ----------------------------------------------------------------
Investor Profile Short-term or highly risk
averse investors seeking
current income from a
money market fund that
invests entirely in U.S.
Treasury securities
- ----------------------------------------------------------------
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark 100% U.S. Treasury Money Market Fund seeks current income with
liquidity and stability of principal. The Fund invests exclusively in U.S.
Treasury securities and separately traded components of those securities called
"STRIPs."
To limit the Fund's interest-rate risk, the Fund's managers will maintain an
average weighted portfolio maturity of 90 days or less. In addition, each
individual security in the portfolio will have a maturity of no more than 397
days.
In choosing investments for the Fund, the portfolio managers consider such
factors as:
- - The outlook for interest rates
- - Buying and selling activity in the Treasury market as a whole and/or for
individual Treasury securities in particular
- - Imbalances in the supply of Treasuries relative to demand
- - The appropriateness of particular securities to the Fund's objectives
(For a more complete description of the Treasury securities in which the Fund
can invest, please see "Investment Practices" beginning on page XX.)
4
<PAGE> 139
[SIDEBAR: A portfolio's level of interest rate exposure is commonly indicated
by the term maturity. Generally speaking, the longer a portfolio's maturity,
the greater its level of interest rate exposure and, in turn, its risk/return
potential.]
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Your investment in the Fund may be subject to the following principal risks:
Interest Rate Risk: The possibility that the Fund's investments may
decline in value due to an increase in interest rates, or that the Fund's
yield will decrease due to a decline in interest rates.
For more information about these risks, please see the Glossary of
Investment Risks on page ___.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR AN OBLIGATION OF UNION BANK OF
CALIFORNIA, N.A., ITS AFFILIATES, OR ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1
PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
Best Quarter Worst Quarter
------- -------
(------) (------)
*The performance information above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
This table shows the Fund's average annual total returns for periods ending
12/31/98.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (12/1/90)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
100% U.S. TREASURY
MONEY MARKET FUND
Class A Shares % % %
- --------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 140
YIELD
The income a fund generates is commonly referred to as its "yield." For money
market funds, yield is a more useful indication than total return of how a
portfolio is performing. As a result, advertisements and other communications
about the HighMark 100% U.S. Treasury Money Market Fund will typically mention
the portfolio's yield. There are various types of yield, including current or
7-day yield and effective yield. All mutual funds must use the same formulas to
calculate each of these yields.
The formula for effective yield assumes that investors take advantage of
compounding by reinvesting their dividends; current or seven-day yield does not
make the same assumption. As a result, a portfolio's effective yield typically
will be slightly higher than its current or seven-day yield. Both types of
yield will tend to fluctuate daily due to such factors as a fund's interest
rate exposure as well as the credit quality of its portfolio holdings. For the
period ended 12/31/98, the 7-day yield for Class A Shares was ___%.
To obtain the most current yield information for the Fund, please call
1-800-433-6884.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the fees you would pay directly from your investment if
you buy or sell Fund Shares.
- -------------------------------------------------------------------------------
SHAREHOLDER FEES
- -------------------------------------------------------------------------------
CLASS A SHARES
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage of amount redeemed, if applicable)* 0%
*Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you hold
Fund Shares.
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- -------------------------------------------------------------------------------
CLASS A SHARES
Investment Advisery Fees 0.30%
Distribution/Service (12b-1) Fees 0.25%
Other Expenses %
--------
Total Annual Fund Operating Expenses %
* During the past fiscal year, the Adviser waived 0.05% of its investment
Advisery fee. Other Expenses were waived by ___% or reimbursed by_____ %. These
waivers and reimbursements are voluntary and may be terminated at any time.
Accordingly, the Fund's actual annual operating expenses were as follows:
6
<PAGE> 141
CLASS A SHARES
Investment Advisery Fees 0.25%
Distribution/Service (12b-1) Fees 0.25%
Other Expenses %
--------
Total Annual Fund Operating Expenses %
- -------------------------------------------------------------------------------
EXAMPLE
- -------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A Shares $___ $___ $___ $___
7
<PAGE> 142
- -------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- -------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
Investment Goal
To seek current income
exempt from federal and
California state income taxes
with liquidity and stability of
principal
- -------------------------------------------------------------------
Investment Focus California tax-free
money market securities
- -------------------------------------------------------------------
Principal Investment Attempts to invest in high-
Strategy quality, short-term California
tax-free securities
- -------------------------------------------------------------------
Share Price Volatility Low
- -------------------------------------------------------------------
Investor Profile California residents seeking
income exempt from federal
and California state personal
income taxes
- -------------------------------------------------------------------
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark California Tax-Free Money Market Fund seeks as high a level of current
income exempt from federal and California personal income tax as is consistent
with the preservation of capital and stability of principal.
To pursue this goal, the Fund invests primarily in short-term, high-quality
California municipal securities. It may also invest in nonrated securities that
the portfolio managers judge to be of comparably high quality. At times, the
Fund may also invest up to 10% of its assets in other mutual funds with similar
objectives. The Fund may, in addition, invest up to 20% in short-term
obligations that pay interest which is not exempt from California personal
income taxes, federal income taxes and/or the alternative minimum tax.
To limit the Fund's interest-rate risk, the Fund's managers will maintain an
average weighted portfolio maturity of 90 days or less. In addition, each
individual security in the portfolio will have a maturity of no more than 397
days.
In choosing investments for the Fund, the portfolio managers consider such
factors as:
- - The outlook for interest rates
- - Buying and selling activity in the California municipal securities market
as a whole and/or for individual securities in particular
- - Imbalances in the supply of securities relative to demand
8
<PAGE> 143
- - The appropriateness of particular securities to the Fund's objectives
In an effort to preserve the value of your investment under volatile market
conditions, the managers may temporarily invest a significant amount of the
Fund's assets in very short-term taxable obligations called money market
securities. They may also do so when there is not a sufficient supply of
California municipal securities that meet their investment criteria.
(For a more complete description of the various securities in which the Fund
can invest, please see Investment Practices on page X.)
[SIDEBAR: Municipal securities are issued by California and other states,
cities and municipalities to help finance utilities, schools, public works
projects and facilities, among other things. High-quality securities are those
rated in the top two credit rating categories by nationally recognized rating
agencies such as Standard & Poor's.]
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
State Specific Risk: By concentrating its investments in California, the
Fund may be more vulnerable to unfavorable developments in that state
than funds that are more geographically diversified.
Interest Rate Risk: The possibility that the Fund's investments will
decline in value due to an increase in interest rates, or that the Fund's
yield will decrease due to a decline in interest rates.
Credit Risk: The possibility that an issuer cannot make timely interest
and principal payments on its obligations. The lower a security's rating,
the greater its credit risk.
For more information about these risks please see "Additional Investment
Practices and Risks" starting on page ____ .
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR AN OBLIGATION OF UNION BANK OF
CALIFORNIA, N.A., ITS AFFILIATES, OR ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1
PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
9
<PAGE> 144
[INSERT BAR CHART]
Best Quarter Worst Quarter
------- -------
(------) (------)
*The performance information above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
This table shows the Fund's average annual total returns for periods ending
12/31/98.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (5/28/91)
- --------------------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY
MARKET FUND
<S> <C> <C> <C>
Class A Shares % % %
- --------------------------------------------------------------------------------------------
</TABLE>
YIELD
The income a fund generates is commonly referred to as its "yield." For money
market funds, yield is a more useful indication than total return of how a
portfolio is performing. As a result, advertisements and other communications
about the HighMark California Tax-Free Money Market Fund will typically mention
the portfolio's yield. There are various types of yield, including current or
7-day yield and effective yield. All mutual funds must use the same formulas to
calculate each of these yields.
The formula for effective yield assumes that investors take advantage of
compounding by reinvesting their dividends; current or seven-day yield does not
make the same assumption. As a result, a portfolio's effective yield typically
will be slightly higher than its current or seven-day yield. Both types of
yield will tend to fluctuate daily due to such factors as a fund's interest
rate exposure as well as the credit quality of its portfolio holdings. For the
period ended 12/31/98, the 7-day yield for Class A Shares was ___%.
To obtain the most current yield information for the Fund, please call
1-800-433-6884.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the fees you pay directly from your investment if you buy
or sell Fund Shares.
10
<PAGE> 145
- -------------------------------------------------------------------------------
SHAREHOLDER FEES
- -------------------------------------------------------------------------------
CLASS A SHARES
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage, of amount redeemed, if applicable)* 0%
*Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you hold
Fund Shares.
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- -------------------------------------------------------------------------------
CLASS A SHARES
Investment Advisery Fees 0.30%*
Distribution/Service (12b-1) Fees 0.25%
Other Expenses %*
-----
Total Annual Fund Operating Expenses %*
* During the past fiscal year, the Adviser waived 0.20% of its investment
Advisery fee until 6/1/99 when the waiver was reduced to 0.15%. The waiver was
subsequently reduced to 0.10% on 11/30/99. Other Expenses were waived by __% or
reimbursed by ____%. These waivers and reimbursements are voluntary and may be
terminated at any time. Accordingly, the Fund's actual annual operating
expenses were as follows:
CLASS A SHARES
Investment Advisery Fees 0.15%**
Distribution/Service (12b-1) Fees 0.25%
Other Expenses %
-----
Total Annual Fund Operating Expenses %
**The Adviser received 0.10% until 5/31/99 and 0.15% after 6/1/99.
11
<PAGE> 146
- -------------------------------------------------------------------------------
EXAMPLE
- -------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A Shares $___ $___ $___ $___
12
<PAGE> 147
- -------------------------------------------------------------------------------
DIVERSIFIED MONEY MARKET FUND
- -------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek current income
with liquidity and
stability of principal
- ------------------------------------------------------------------
Investment Focus High-quality,
short-term debt
securities
- ------------------------------------------------------------------
Principal Investment Employs top-down
Strategy analysis of economic
and market factors to
select Fund investments
- ------------------------------------------------------------------
Share Price Volatility Low
- ------------------------------------------------------------------
Investor Profile Short-term or risk
averse investors
seeking our typically
highest-yielding money
market fund.
- ------------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark Diversified Money Market Fund seeks to generate current income with
liquidity and stability of principal. To pursue this goal, the Fund invests
primarily in high-quality, short-term debt securities. High-quality securities
are those that at least one nationally recognized rating agency such as
Standard & Poor's has judged financially strong enough to be included in its
highest credit-quality category for short-term securities. The Fund may also
invest in nonrated securities if the portfolio managers believe they are of
comparably high quality.
In choosing investments for the Fund, the portfolio managers consider several
factors, including:
- - The outlook for interest rates
- - Buying and selling activity in the high-quality short-term securities
market as a whole and/or for individual bonds in particular
- - Imbalances in the supply of high-quality short-term securities relative
to demand
- - The appropriateness of particular securities to the Fund's objectives
To limit the Fund's interest-rate risk, the Fund's managers will maintain an
average weighted portfolio maturity of 90 days or less. In addition, each
individual security in the portfolio will have a maturity of no more than 397
days.
Although the portfolio managers strive to ensure that the Fund is diversified,
from time to time they may concentrate the Fund's assets in certain securities
issued by U.S. banks, U.S. branches of foreign banks, and foreign branches of
U.S. banks, to the extent permitted under applicable SEC guidelines, if they
believe it is in the best interest of the Fund's shareholders.
13
<PAGE> 148
(For a more complete description of the securities in which the Fund can
invest, please see Investment Practices on page X.)
[SIDEBAR: A portfolio's level of interest rate exposure is commonly indicated
by the term maturity. Generally speaking, the longer a portfolio's maturity,
the greater its level of interest rate exposure and, in turn, its risk/return
potential.]
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Interest Rate Risk: The possibility that the value of the Fund's
investments will decline due to an increase in interest rates, or that
the Fund's yield will decrease due to a decline in interest rates.
Credit Risk: The possibility that an issuer cannot make timely interest
and principal payments on its securities. In general, the lower a
security's credit rating, the higher its credit risk.
For more information about these risks, please see the Glossary of
Investment Risks on page ___.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR AN OBLIGATION OF UNION BANK OF
CALIFORNIA, N.A., ITS AFFILIATES, OR ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1
PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
Best Quarter Worst Quarter
------- -------
(------) (------)
*The performance information shown above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
This table shows the Fund's average annual total returns for periods ending
12/3198.
14
<PAGE> 149
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (5/28/91)
- --------------------------------------------------------------------------------------
DIVERSIFIED MONEY
MARKET FUND
<S> <C> <C> <C>
Class A Shares % % %
- --------------------------------------------------------------------------------------
</TABLE>
YIELD
The income a fund generates is commonly referred to as its "yield." For money
market funds, yield is a more useful indication than total return of how a
portfolio is performing. As a result, advertisements and other communications
about HighMark Diversified Money Market Fund will typically mention the
portfolio's yield. There are various types of yield, including current or 7-day
yield and effective yield. All mutual funds must use the same formulas to
calculate each of these yields.
The formula for effective yield assumes that investors take advantage of
compounding by reinvesting their dividends; current or seven-day yield does not
make the same assumption. As a result, a portfolio's effective yield typically
will be slightly higher than its current or seven-day yield. Both types of
yield will tend to fluctuate daily due to such factors as a fund's interest
rate exposure as well as the credit quality of its portfolio holdings. For the
period ended December 31, 1998, the 7-day yield for Class A Shares was ___%.
To obtain the most current yield information for the Fund, please call
1-800-433-6884.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the fees that you would pay directly from your investment
if you bought or sold Fund Shares.
- -------------------------------------------------------------------------------
SHAREHOLDER FEES
- -------------------------------------------------------------------------------
CLASS A SHARES
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage
of amount redeemed, if applicable)* 0%
*Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you held
Fund Shares.
15
<PAGE> 150
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- -------------------------------------------------------------------------------
CLASS A SHARES
Investment Advisery Fees 0.30%
Distribution/Service (12b-1) Fees 0.25%
Other Expenses %*
----
Total Annual Fund Operating Expenses %*
* During the past fiscal year, Other Expenses were waived by ___% or reimbursed
by ___%. These waivers and reimbursements are voluntary and may be terminated
at any time. Accordingly, the Fund's actual annual operating expenses were as
follows:
CLASS A SHARES
Investment Advisery Fees 0.30%
Distribution/Service (12b-1) Fees 0.25%
Other Expenses %
-----
Total Annual Fund Operating Expenses %
- -------------------------------------------------------------------------------
EXAMPLE
- -------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A Shares $___ $___ $___ $___
16
<PAGE> 151
- -------------------------------------------------------------------------------
U.S. GOVERNMENT MONEY MARKET FUND
- -------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek current income
with liquidity and stability
of principal
- -------------------------------------------------------------------------------
Investment Focus Short-term obligations
issued or guaranteed by the
U.S. government and its
agencies
- -------------------------------------------------------------------------------
Principal Investment Employs top-down
Strategy analysis of economic and
market factors to select
Fund investments
- -------------------------------------------------------------------------------
Share Price Volatility Low
- -------------------------------------------------------------------------------
Investor Profile Short-term or risk averse
investors seeking a money
market fund investing
primarily in U.S.
government obligations
- -------------------------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark U.S. Government Money Market Fund seeks current income with liquidity
and stability of principal. To pursue this goal, the Fund invests exclusively
in short-term debt obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, such as the Government National Mortgage
Association ("Ginnie Mae") and the U.S. Export-Import Bank. Some of these debt
obligations may be subject to repurchase agreements.
To limit the Fund's interest-rate risk, the Fund's managers will maintain an
average weighted portfolio maturity of 90 days or less. In addition, each
individual security in the portfolio will have a maturity of no more than 397
days.
In choosing investments for the Fund, the portfolio managers consider such
factors as:
- - The outlook for interest rates
- - Buying and selling activity in the U.S. government securities market as a
whole and/or for individual securities in particular
- - Imbalances in the supply of U.S. government securities relative to demand
- - The appropriateness of particular securities to the Fund's objectives
[SIDEBAR: The Government National Mortgage Association (GNMA or "Ginnie Mae")
is a government-
17
<PAGE> 152
owned corporation that guarantees, with the full faith and credit of the U.S.
Government, full and timely payment of all monthly principal and interest
payments on mortgage-backed securities from certain issuers. The mandate of the
Export-Import Bank is to encourage trade with foreign countries. Among other
things, it grants direct credit to non-U.S. borrowers.]
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Interest Rate Risk: The possibility that the Fund's investments may
decline in value due to an increase in interest rates, or that the Fund's
yield will decrease due to declining interest rates.
Credit Risk: The possibility that an issuer cannot make timely interest
and principal payments on its securities. In general, the lower a
security's credit rating, the higher its credit risk.
For more information about these risks, please see the Glossary of
Investment Risks on page ___.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR AN OBLIGATION OF UNION BANK OF
CALIFORNIA, N.A., ITS AFFILIATES, OR ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1
PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
Best Quarter Worst Quarter
------- -------
(------) (------)
*The performance information above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
18
<PAGE> 153
This table shows the Fund's average annual total returns for periods ending
12/31/98.
<TABLE>
<CAPTION>
SINCE
INCEPTION
1 YEAR 5 YEARS (12/1/90)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT MONEY MARKET
FUND
Class A Shares % % %
- ------------------------------------ ------------- -------------- ----------------
Class B Shares(1) % % %
- ------------------------------------ ------------- -------------- ----------------
</TABLE>
(1) Class B Shares commenced operations on 2/2/98. The Fund's performance prior
to that date is represented by the performance of its Class A Shares, with an
adjustment for the distribution/service (12b-1) fees of Class B Shares.
YIELD
The income a fund generates is commonly referred to as its "yield." For money
market funds in particular, yield is a more useful indication than total return
of how a portfolio is performing. As a result, advertisements and other
communications about HighMark U.S. Government Money Market Fund will typically
mention the portfolio's yield. There are various types of yield, including
current or 7-day yield and effective yield. All mutual funds must use the same
formulas to calculate each of these yields.
The formula for effective yield assumes that investors take advantage of
compounding by reinvesting their dividends; current or seven-day yield does not
make the same assumption. As a result, a portfolio's effective yield typically
will be slightly higher than its current or seven-day yield. Both types of
yield will tend to fluctuate daily due to such factors as a fund's interest
rate exposure as well as the type and credit quality of its portfolio holdings.
For the period ended 12/31/98, the 7-day yield for Class A Shares was ___% and
___% for Class B Shares.
To obtain the most current yield information for the Fund, please call
1-800-433-6884.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the fees you would pay directly from your investment if
you buy or sell Fund Shares.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0% 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0% 5.00%
(as a percentage of net asset value)
Redemption Fee (as a percentage
of amount redeemed, if applicable)* 0% 0%
</TABLE>
*If you request a wire transfer, a wire transfer fee of $15 will be deducted
from the amount of your redemption.
19
<PAGE> 154
The table below describes the expenses you would pay indirectly if you hold
Fund Shares.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
<S> <C> <C>
Investment Advisery Fees 0.30% 0.30%
Distribution/Service (12b-1) Fees 0.25% 0.75%
Other Expenses ____%* ____%*
Total Annual Fund Operating Expenses %* %*
</TABLE>
- - During the past fiscal year, Other Expenses for Class A Shares were
waived by __% or reimbursed by %. Other Expenses for Class B Shares
were waived by __% or reimbursed by __%. These waivers and
reimbursements are voluntary and maybe terminated at any time.
Accordingly, the Fund's actual annual operating expenses were as
follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
<S> <C> <C>
Investment Advisery Fees 0.30% 0.30%
Distribution/Service (12b-1) Fees 0.25% 0.75%
Other Expenses ____% ____%
Total Annual Fund Operating Expenses % %
</TABLE>
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A Shares $ $ $ $
---- ---- ---- ----
Class B Shares
If you do not sell your Shares: $ $ $ $
---- ---- ---- ----
If you sell your Shares at the
end of the period: $ $ $ $
---- ---- ---- ----
</TABLE>
20
<PAGE> 155
SHAREOWNER GUIDE--HOW TO INVEST IN THE HIGHMARK FUNDS
Before you invest, we encourage you to carefully read the HighMark Fund
profiles included in this prospectus and consider which Funds are appropriate
for your particular financial situation, risk tolerance and goals. As always,
your financial representative can provide you with valuable assistance in
making this decision. He or she can also help you choose which of the Fund
share classes we offer is right for you.
CHOOSING A SHARE CLASS
HighMark Funds offers different classes of Fund Shares, which have different
expenses and other characteristics. Two classes of Fund Shares, Class A and
Class B, are offered in this prospectus. To choose the one that is best suited
to your needs and goals, consider the amount of money you want to invest, how
long you expect to invest it and whether you plan to make additional
investments. The following are some of the main differences between HighMark's
Class A and Class B Shares:
CLASS A
- - No sales charge.
- - Distribution and service (12b-1) fees of 0.25%.
- - Offered by:
100% U.S. Treasury Money Market Fund
California Tax-Free Money Market Fund
Diversified Money Market Fund
U.S. Government Money Market Fund
CLASS B
- - Only available through exchange of Class B Shares of another HighMark
Fund.
- - Distribution and service (12b-1) fees of 0.75%.
- - A deferred sales charge, as described below.
- - Automatic conversion to Class A Shares after eight years, thus reducing
future annual expenses.
- - Offered by:
U.S. Government Money Market Fund
For the actual past expenses of each share class, see the individual Fund
profiles earlier in this prospectus.
FOR INSTITUTIONAL INVESTORS ONLY: The Funds also offer Class S and Fiduciary
Class Shares, each of which has its own expense structure. Fiduciary Class
Shares are available only to financial institutions, fiduciary clients of Union
Bank of California, N.A., and certain other qualified investors. Class S Shares
are available only to investors in the Union Bank of California Corporate Sweep
product. Call the Distributor for more details (see the back cover of this
prospectus for contact information).
21
<PAGE> 156
HOW SALES CHARGES ARE CALCULATED
CLASS B SHARES: CONTINGENT DEFERRED SALES CHARGE
Class B Shares are available at their net asset value per share, without an
initial sales charge. (If you are considering an investment in the U.S.
Government Money Market Fund, please see the important note below.)* If you
sell your U.S. Government Money Market Fund Shares within six years of buying
the HighMark Class B Shares you exchanged for the U.S. Government Money Market
Fund Class B Shares, however, you must pay a CDSC. As the table below shows,
the CDSC declines over time and is based either on the original cost you paid
for the Shares or their current market value, whichever is less. We do not
charge a CDSC on Shares you may have acquired by reinvesting your dividends.
The CDSCs are as follows:
<TABLE>
<CAPTION>
CDSC ON SHARES
YEARS AFTER PURCHASE BEING SOLD
<S> <C>
1st year 5.00%
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6th year none
</TABLE>
To determine these CDSCs, we count all purchases made during a calendar month
as having been made on the first day of that month.
In addition, we calculate any CDSC you may owe by considering the number of
Shares you are selling, not the value of your account. To keep your CDSC as low
as possible, each time you ask us to sell Shares we will first sell any Shares
in your account that carry no CDSC. If there are not enough of these to meet
your request, we will sell those Shares that have the lowest CDSC next.
*If you are considering an investment in the HighMark U.S. Government Money
Market Fund, please note: You may purchase Class B Shares of the HighMark U.S.
Government Money Market Fund ONLY by exchanging Class B Shares of another,
non-money market HighMark Fund for them. You can make exchanges into the
HighMark U.S. Government Money Market Fund without paying a contingent deferred
sales charge on your Class B Shares in the previous Fund, even if you held them
for six years or less.
SALES CHARGE REDUCTIONS AND WAIVERS
CDSC WAIVERS: You may qualify for a CDSC waiver if:
- - you are selling Shares as part of a systematic withdrawal plan.
- - you are taking certain distributions from a retirement plan.
- - the shareholder has died or become disabled.
You must notify us that you are eligible for a waiver under these circumstances
at the time you wish to sell Shares.
If you think you may be eligible for a CDSC waiver, contact your financial
representative or the Distributor or consult the SAI (see the back cover of
this prospectus).
FEES FOR DISTRIBUTION OF SHARES
HighMark Funds has adopted 12b-1 plans with respect to Class A and Class B
Shares that allow each Fund to pay distribution and service fees. The maximum
distribution and service fee for each class of Shares is as
22
<PAGE> 157
follows:
<TABLE>
<CAPTION>
Percentage of Average
Share Class Daily Net Assets
----------- ---------------------
<S> <C> <C>
Class A 0.25%
Class B 0.75%
</TABLE>
Because 12b-1 fees are paid on an ongoing basis, Class B shareholders could,
over time, end up paying more in expenses than if they had paid a sales charge
on their initial investment.
23
<PAGE> 158
OPENING AN ACCOUNT
1. Read this prospectus carefully.
2. Determine how much money you want to invest. The minimum investments for
the HighMark Funds are as follows:
- INITIAL PURCHASE: $1,000 for each Fund
$250 for current and retired trustees of HighMark Funds
and directors, officers and employees (as well as their
spouses and children under the age of 21) of Union Bank of
California, N.A., SEI Investments Distribution Co. and
their affiliates.
- ADDITIONAL PURCHASES: $100 for each Fund
We may waive these initial and additional investment minimums for
purchases made in connection with Individual Retirement Accounts,
Keoghs, payroll deduction plans, or 401(k) or similar plans.
3. Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation when
opening trust, corporate or power of attorney accounts. For more
information, please contact your financial representative or call the
Distributor at 1-800-433-6884.
4. Make your initial investment using the table on the next page. You and
your financial representative can initiate any purchase, exchange or sale
of Shares.
We reserve the right to reject a purchase order if the Distributor or the
Adviser determines that it is not in the best interest of HighMark Funds or its
shareholders.
24
<PAGE> 159
.BUYING SHARES
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- --------------------------------------------------------------------------------
BY CHECK
- --------------------------------------------------------------------------------
[GRAPHIC] - Make out a check for the - Make out a check for the
investment amount, payable investment amount, payable to
to "HighMark Funds." "HighMark Funds."
- Deliver the check and your - Fill out the detachable
completed application to investment slip from your
your financial representative, account statement. If you do
or mail them to our transfer not have a slip, include a
agent (address below). note specifying the fund
name, your share class, your
account number and the name(s)
in which the account is
registered.
- Deliver the check and your
investment slip or note to your
financial representative, or
mail them to our transfer agent
(address below).
All purchases made by check should be in U.S. dollars.
Third party checks, credit card checks or cash will not be accepted.
- --------------------------------------------------------------------------------
BY EXCHANGE
- --------------------------------------------------------------------------------
[GRAPHIC] - Call your financial - Call your financial
representative or the representative or the
[GRAPHIC] Distributor at 1-800-433-6884 Distributor at 1-800-433-6884
to request an exchange. to request an exchange.
- --------------------------------------------------------------------------------
BY WIRE
- --------------------------------------------------------------------------------
[GRAPHIC] - Deliver your completed - Call our transfer agent before
application to your financial wiring any funds.
representative, or mail it to
the transfer agent (address - Instruct your bank to wire the
below). amount of your investment to:
- Obtain your Fund account State Street Bank and Trust
number by calling your Company
financial representative or 225 Franklin Street
our transfer agent. Boston, MA 02101
- Instruct your bank to wire the ABA# 011000028
amount of your investment to: DDA# 9905-194-8
State Street Bank and
Trust Company Specify the Fund name, your
225 Franklin Street share class, your Fund account
Boston, MA 02101 number and the name(s) is in
ABA# 011000028 which the Fund account to
DDA# 9905-194-8 registered. Your bank may charge
a fee wire money.
Specify the Fund name, your
choice of share class, the new
Fund account number and the
name(s) in which the Fund
account is registered. Your
bank may charge a fee to wire
money.
- --------------------------------------------------------------------------------
THROUGH FINANCIAL INSTITUTIONS
- --------------------------------------------------------------------------------
25
<PAGE> 160
- Call your financial - Call your financial institution
institution for information on for information on their
their procedures for procedures for transmitting
transmitting orders to orders to HighMark Funds.
HighMark Funds.
TRANSFER AGENT ADDRESS:
State Street Bank and Trust Company
P.O. Box 8416
Boston, MA 02266-8416
PHONE NUMBER: 1-800-433-6884 To add to an account using the
Or contact your financial representative Automatic Invest Plan, see
for instructions and assistance. "Additional Investor Services."
26
<PAGE> 161
SELLING SHARES
DESIGNED FOR TO SELL SOME OR ALL OF YOUR
SHARES
- --------------------------------------------------------------------------------
BY LETTER
- --------------------------------------------------------------------------------
[GRAPHIC] - Accounts of any type. - Write a letter indicating the
- Sales of any amount. Fund name, your share class,
your Fund account number, the
name(s) in which the account is
registered and the dollar value
or number of Shares you wish to
sell.
- Include all signatures and any
guarantees that may be required
(see next page).
- Mail the materials to our
transfer agent.
- We will mail a check to the
name(s) and address in which
the account is registered,
unless you give us other
written instructions.
- --------------------------------------------------------------------------------
BY PHONE
- --------------------------------------------------------------------------------
[GRAPHIC] - Accounts of any type. - To place your order, contact
- Sales of any amount. your financial representative or
the Distributor at
1-800-433-6884 between 8:30 A.M.
and 8:00 P.M. Eastern Time on
most business days.
- --------------------------------------------------------------------------------
BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT)
- --------------------------------------------------------------------------------
[GRAPHIC] - Requests by letter to sell at - We will wire amounts of $500 or
least $500 (accounts of any more on the next business day
type). after we receive your request.
- Requests by phone to sell at - If you have an account with the
least $500 (accounts of any Fund's transfer agent (a "Fund
type). Direct Account"), a $15 fee
will be deducted from your
account.
- Shares cannot be redeemed by
wire on Federal holidays
restricting wire transfers.
- --------------------------------------------------------------------------------
BY EXCHANGE
- --------------------------------------------------------------------------------
[GRAPHIC] - Accounts of any type. - Obtain a current prospectus for
[GRAPHIC] - Sales of any amount. the Fund into which you are
exchanging by calling the
Distributor or your financial
representative.
- Call the Distributor or your
financial representative to
request an exchange.
- --------------------------------------------------------------------------------
THROUGH FINANCIAL INSTITUTIONS
- --------------------------------------------------------------------------------
- Accounts set up through - Contact your financial
financial institutions. institution for information on
their procedures for
transmitting orders to HighMark
Funds.
- --------------------------------------------------------------------------------
27
<PAGE> 162
- --------------------------------------------------------------------------------
BY CHECKWRITING
- --------------------------------------------------------------------------------
- Check the appropriate box on
[GRAPHIC] - Accounts opened directly with the application.
the Funds (not through an
investment professional). - Obtain a signature card by
calling the Distributor at
- Minimum amount of check is 1-800-433-6884.
$500.
- Mail the completed application
- Maximum of five checks per and signature card to the
month. Transfer Agent
TRANSFER AGENT ADDRESS:
State Street Bank and Trust Company
P.O. Box 8416
Boston, MA 02266-8416
PHONE NUMBER: 1-800-433-6884
Or contact your financial representative for instructions and assistance.
28
<PAGE> 163
SELLING SHARES IN WRITING. In certain circumstances, you may need to include a
signature guarantee, which protects you against fraudulent orders. You will
need a signature guarantee if:
- you are selling more than $5,000 worth of Shares.
- you are requesting payment other than by a check mailed to the address
of record and payable to the registered owner(s).
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. A notary public CANNOT provide a signature guarantee.
RECEIVING YOUR MONEY. Normally, we will send you a check for your proceeds as
promptly as possible, at the latest within seven calendar days of receiving
your redemption order. If, however, you recently purchased Shares in the Fund,
we may be unable to fulfill your request if we have not yet received and
processed your payment for the initial purchase. In such a case you may need to
resubmit your redemption request after we have received payment.
INVOLUNTARY SALES OF YOUR SHARES. 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 balance in any Fund drops below the minimum initial purchase amount for
any reason other than market fluctuation. This is more likely to occur if you
invest only the minimum amount in a Fund and then sell Shares within a fairly
short period of time. Before any Fund exercises its right to redeem your
Shares, we will notify you in writing at least 60 days in advance to give you
time to bring your account up to the minimum or above.
EXCHANGING SHARES
HOW TO EXCHANGE YOUR SHARES. You may exchange Class A or Class B Shares of one
HighMark Fund for those of another HighMark Fund (the "new Fund"), provided
that you:
- - Are qualified to invest in the new Fund.
- - Satisfy the initial and additional investment minimums for the new Fund.
- - Invest in the same share class in the new Fund as you did in the previous
Fund.
- - Maintain the minimum account balance for each HighMark Fund in which you
invest.
Your cost for buying Shares in the new Fund is based on the relative net asset
values of the Shares you are exchanging plus any applicable sales charge.
CLASS A SHARES. If you want to exchange Class A Shares of one HighMark Fund for
those of another Fund that has a higher sales charge, you must pay the
difference. The same is true if you want to exchange Class A Shares of a
no-load HighMark Money Market Fund for those of another HighMark Fund with a
sales charge. There is one exception: If you acquired Class A Shares of a
HighMark Money Market Fund in an exchange out of Class A Shares of a non-money
market HighMark Fund, you may, within a 12-month period, exchange your Class A
money market Shares for those of another HighMark Fund without paying any
additional sales charge. To receive a reduced sales charge when exchanging into
a fund, you must notify us that you originally paid a sales charge and provide
us with information confirming your qualification.
CLASS B SHARES. To calculate the Class B Shares' eight year conversion period
or contingent deferred sales charge payable upon redemption, we combine the
period you held Class B Shares of the "old" Fund with the period you held Class
B Shares of the "new" Fund.
29
<PAGE> 164
TRANSACTION POLICIES
VALUATION OF SHARES. A Fund's net asset value is calculated according to the
following formula:
(Total mkt. value of the Fund's investments and other assets - any
Fund liabilities)
divided by Total number of the Fund's Shares outstanding
= Fund's net asset value
We determine the net asset value (NAV) of each HighMark Money Market Fund as of
10:00 a.m. Pacific time (1:00 p.m. Eastern time) business days, based on the
amortized cost of the Fund's assets. Amortized cost does not take into account
unrealized capital gains or losses. Each Fund's NAV is expected to remain at a
constant $1.00, although there is no assurance that this will be maintained. If
that is not available, we value securities by using a method that the Funds'
Board of Trustees believes accurately reflects fair value. Although we use the
same method to determine the NAV of Class A and Class B Shares, the NAV of a
Fund's Class B Shares may be lower than that of its Class A Shares because
Class B Shares have higher distribution expenses. For further information about
how we determine the value of the Funds' investments, see the Statement of
Additional Information.
BUY AND SELL PRICES. When you buy Shares, you pay the net asset value next
determined after we receive your order, plus any applicable sales charges. When
you sell Shares, you receive the net asset value next determined after we
receive your order, minus any applicable deferred sales charges.
EXECUTION OF ORDERS. You may buy and sell Shares of the HighMark Money Market
Funds on any day when both the Federal Reserve Wire System and the New York
Stock Exchange are open for business (hereafter referred to as a "business
day").
- - Purchasing Shares by Mail: If you mail us a purchase order, we will
execute it after we have received your payment. (Note: If your check does
not clear, we will be forced to cancel your purchase and may hold you
liable for any losses or fees incurred.)
- - Purchasing Shares by Wire: If you place a purchase order by wire on any
business day, we will execute it that day, provided that we have received
your order by the following times:
- California Tax-Free Money Market Fund: Before 8:00 a.m., Pacific time
(11:00 a.m., Eastern time).
- 100% U.S. Treasury Fund: Before 9:00 a.m., Pacific time (12:00 noon,
Eastern time).
- Diversified Money Market Fund: Before 11:00 a.m., Pacific time (2:00
p.m., Eastern time).
- U.S. Government Money Market Fund: Before 11:00 a.m., Pacific time (2:00
p.m., Eastern time).
In addition, you must wire the money you wish to invest to the transfer agent
prior to 11:00 a.m. Pacific time (2:00 p.m. Eastern time). If we do not receive
your order or the money you plan to wire by these deadlines, we will execute
your order the following business day or whenever we have received payment.
- - Selling Shares: To sell Shares on any one business day, you must place
your redemption order by the following times:
- California Tax-Free Money Market Fund: Before 8:00 a.m., Pacific time
(11:00 a.m., Eastern time).
- 100% U.S. Treasury Fund: Before 9:00 a.m., Pacific time (12:00 noon,
Eastern time).
- Diversified Money Market Fund: Before 11:00 a.m., Pacific time (2:00
p.m., Eastern time).
- U.S. Government Money Market Fund: Before 11:00 a.m., Pacific time (2:00
p.m., Eastern time).
If we do not receive your request by the times listed above, we will execute
your order on the following business day.
DIVIDENDS
We declare each HighMark Money Market Fund's net income at the close of each
business day and pay any dividends to shareholders on a monthly basis.
30
<PAGE> 165
We will automatically reinvest any income and capital gains distributions you
are entitled to in additional Shares of your Fund(s) unless you notify our
Transfer Agent that you want to receive your distributions in cash. To do so,
send a letter with your request, including your name and account number, to:
HighMark Funds
c/o State Street Bank and Trust Company
P.O. Box 8416
Boston, MA 02266-8416
Your request will become effective for distributions having record dates after
our Transfer Agent receives your request. Note that the IRS treats dividends
paid in additional Fund Shares the same as it treats dividends paid in cash. In
general, a Fund's Class A Shares will pay higher dividends than Class B Shares
because Class B Shares have a higher distribution fee.
TAXES
Your mutual fund investments may have a considerable impact on your tax
situation. We've summarized some of the main points you should know below.
Note, however, that the following is general information and will not apply to
you if you are investing through a tax-deferred account such as an IRA or a
qualified employee benefit plan. In addition, if you are not a resident of the
United States, you may have to pay taxes besides those described here, such as
U.S. withholding and estate taxes.
IMPORTANT NOTE: IF YOU HAVE NOT DONE SO ALREADY, BE SURE TO PROVIDE US WITH
YOUR CORRECT TAXPAYER IDENTIFICATION NUMBER OR CERTIFY THAT IT IS CORRECT.
UNLESS WE HAVE THAT INFORMATION, WE MUST, BY LAW, WITHHOLD 31% OF THE TAXABLE
DISTRIBUTIONS YOU WOULD OTHERWISE BE ENTITLED TO RECEIVE FROM YOUR FUND
INVESTMENTS AS WELL AS ANY PROCEEDS YOU WOULD NORMALLY RECEIVE FROM SELLING
FUND SHARES.
END-OF-YEAR TAX STATEMENTS
We will send you a statement each year showing the tax status of all your
distributions. The laws governing taxes change frequently, so please consult
your tax Adviser for the most up-to-date information and specific guidance
about your particular tax situation. You can find more information about the
potential tax consequences of mutual fund investing in our Statement of
Additional Information.
SPECIAL CONSIDERATIONS FOR SHAREHOLDERS OF THE HIGHMARK CALIFORNIA TAX-FREE
MONEY MARKET FUND:
We expect that the income dividends you receive from the Fund will be exempt
from federal and California state personal income taxes. The IRS will tax any
short-term capital gains you receive from the Fund as ordinary income. If you
receive Social Security or railroad retirement benefits, you should consult
your tax Adviser to determine whether investing in the Fund could increase the
federal taxation of your benefits. In addition, some of the income you receive
from the Fund may be included in the computation of federal and state
alternative minimum tax liability.
TAXES ON FUND DISTRIBUTIONS
- - FEDERAL TAXES: The IRS treats any dividends and short-term capital gains
you receive from the Funds as ordinary income.
- - STATE AND LOCAL TAXES: In addition to federal taxes, you may have to pay
state and local taxes on the dividends or capital gains you receive from a
Fund.
- - TAXATION OF LONG-TERM CAPITAL GAINS: You may have to pay federal and state
taxes on any distributions of net long-term capital gains you receive from
a Fund at the long-term capital gains rate, no matter how long you've
owned Shares in the Fund. (Although some states, like California, do not
have a special rate for capital gains).
- - "BUYING A DIVIDEND": You may owe taxes on Fund distributions even if they
represent income or capital gains the Fund earned before you invested in
it and thus were likely included in the price you paid.
THE TAX CONSIDERATIONS DESCRIBED ABOVE MAY OR MAY NOT APPLY TO YOU. PLEASE
CONSULT YOUR TAX ADVISER TO HELP DETERMINE WHETHER THESE CONSIDERATIONS ARE
RELEVANT TO YOUR INVESTMENTS AND TAX SITUATION.
31
<PAGE> 166
INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN (AIP): AIP allows you to make regular investments in
the HighMark Fund(s) of your choice through automatic deductions from your
checking account. The monthly minimum per Fund is $100.* AIP is available only
to current shareholders who wish to make additional investments to their
existing account(s). To participate in AIP, complete the appropriate section on
your Account Application form.
*There is a $50 monthly minimum for current or retired trustees of the HighMark
Funds and directors, officers, and employees (as well as their spouses and
children under the age of 21) of Union Bank of California, SEI Investments
Distribution Co., and their affiliates who were participating in HighMark's AIP
on or before December 11, 1998.
SYSTEMATIC WITHDRAWAL PLAN (SWP): HighMark's Systematic Withdrawal Plan allows
you to make regular withdrawals from your account. The minimum monthly
withdrawal is $100 per Fund. You can opt to make these withdrawals on a
monthly, quarterly, twice yearly or annual basis. You also have the option of
receiving your withdrawals by check or by automatic deposit into your bank
account.
To participate in SWP, you must:
- - Have at least $5,000 in your HighMark Fund(s) account.
- - Have your dividends automatically reinvested.
Before you sign up for SWP, please note the following important considerations:
If your automatic withdrawals through SWP exceed the income your Fund(s)
normally pay, your withdrawals may, over time, deplete your original
investment--or exhaust it entirely if you make large and frequent withdrawals.
Fluctuations in the net asset value per share of your Fund(s) may also
contribute to the depletion of your principal.
Class B shareholders should also note the following:
If you expect to withdraw more than 10% of your account's current value in any
single year, it may not be in your best interest to participate in SWP because
you will have to pay a contingent deferred sales charge on Class B withdrawals
of this size.
To take part in SWP, complete the appropriate section on your Account
Application form. You may change or cancel the plan at any time by sending a
written notice to our transfer agent (a signature guarantee may be required).
32
<PAGE> 167
MORE ABOUT THE HIGHMARK FUNDS INVESTMENT MANAGEMENT
INVESTMENT ADVISER
HighMark Capital Management, Inc., serves as investment adviser of the HighMark
Funds and manages their investment portfolios on a day-to-day basis under the
supervision of the HighMark Funds' Board of Trustees.
HighMark Capital Management is a subsidiary of UnionBanCal Corporation, the
holding company of Union Bank of California, N.A. UnionBanCal Corporation is a
publicly held corporation, which is principally held by The Bank of
Tokyo-Mitsubishi, Ltd. As of September 30, 1999, UnionBanCal Corporation and
its subsidiaries had approximately $____ billion in consolidated assets.
HighMark Capital Management, as of September 30, 1999, had approximately $____
billion in assets under management. HighMark Capital Management (and its
predecessors), 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.
Over the past fiscal year, the Funds paid the following management fees to
HighMark Capital Management:
<TABLE>
<CAPTION>
Fund % of Net Assets
---- ---------------
<S> <C>
100% U.S. Treasury Money Market Fund 0.30%
California Tax-Free Money Market Fund 0.15%*
Diversified Money Market Fund 0.30%
U.S Government Money Market Fund 0.30%
</TABLE>
*From 8/1/98 through 5/31/99, the Adviser was paid 0.10%. From 6/1/99 through
7/31/99, the Adviser was paid 0.15%.
33
<PAGE> 168
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years or, if shorter, the period of the
Fund's operations. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by ____,
whose report, along with the Fund's financial statements, are included in the
SAI, which is available upon request.
34
<PAGE> 169
INVESTMENT PRACTICES
The Funds invest in a variety of securities and employ a number of investment
techniques. Each security and technique involves certain risks. The following
table describes the securities and techniques the Funds use, as well as the
main risks they pose. Fixed-income securities are subject primarily to market,
credit and prepayment risk. Following the table is a more complete discussion
of risk. You may also consult the Statement of Additional Information for more
details about the securities in which the Funds may invest.
<TABLE>
<CAPTION>
FUND NAME FUND CODE
- --------- ---------
<S> <C>
100% U.S. Treasury Money Market Fund 1
California Tax-Free Money Market Fund 2
Diversified Money Market Fund 3
U.S. Government Money Market Fund 4
INSTRUMENT FUND RISK TYPE
---------- ---- ---------
ASSET-BACKED SECURITIES: Securities backed by 1, 4 Pre-payment
Receivables, home equity loans, truck and auto Market
Loans, leases, credit card receivables Credit
and other securities backed by other Regulatory
types of receivables or assets.
BANKERS' ACCEPTANCES: Bills of exchange or time 2, 3 Credit
drafts drawn on and accepted by a commercial bank. Liquidity
They generally have maturities of six months or Market
less.
BONDS: Interest-bearing or discounted government 1-4 Market
or corporate securities that obligate the issuer Political
to pay the bondholder a specified sum of money, Liquidity
usually at specific intervals, and to repay the Foreign Investment
principal amount of the loan at maturity.
CERTIFICATES OF DEPOSIT: Negotiable instruments 2, 3 Market
with a stated maturity. Credit
Liquidity
COMMERCIAL PAPER: Secured and unsecured short-term 2-4 Credit
promissory notes issued by corporations and other Liquidity
entities. Maturities generally vary from a few days Market
to nine months.
DEMAND FEATURES: Securities that are subject to 2-4 Market
puts and standby commitments to purchase the Liquidity
securities at a fixed price (usually with accrued Management
interest) within a fixed period of time following
demand by a Fund.
DERIVATIVES: Instruments whose value is derived from 2-4 Management
an underlying contract, index or security, or any Market
combination thereof, including futures, options Credit
(e.g., put and calls), options on futures, swap Liquidity
agreements, and some mortgage-backed securities. Leverage
FOREIGN SECURITIES: Commercial paper of foreign 3 Market
issuers and obligations of foreign banks, overseas Political
</TABLE>
35
<PAGE> 170
<TABLE>
<S> <C>
branches of U.S. banks and supranational entities. Liquidity
Foreign Investment
ILLIQUID SECURITIES: Securities that ordinarily 1-4 Liquidity
cannot be sold within seven business days at the
value the Fund Market has estimated for them.
Each HighMark Fund may invest up to 10% of its
net assets in illiquid securities.
INVESTMENT COMPANY SECURITIES: Shares of 2-4 Market
registered investment companies. These may
include HighMark Money Market funds and other
registered investment companies for which HighMark,
its subadvisers, or any of their affiliates serves
as investment adviser, administrator or distributor.
Each Fund may invest up to 5% of its assets in the
Shares of any one registered investment company
that has an investment objective similar to the
Fund's. A Fund may not, however, own more than 3%
of the securities of any one registered investment
company or invest more than 10% of its assets in
the Shares of other registered investment
companies. As a shareholder of an investment
company, a Fund will indirectly bear investment
management fees of that investment company, which
are in addition to the management fees the Fund
pays its own Adviser.
INVESTMENT GRADE SECURITIES: Investment grade 2, 3 Market
securities are those rated BBB or better by S&P;
Baa or better Credit by Moody's; similarly rated
by other nationally recognized rating
organizations; or, if not rated, determined to be
of comparably high quality by the Adviser.
MORTGAGE-BACKED SECURITIES: Securities backed by 2, 3 Pre-payment
real estate loans and pools of loans. These include Market
collateralized mortgage obligations (CMOs) and Credit
real estate mortgage investment conduits (REMICs). Regulatory
MUNICIPAL SECURITIES: Securities issued by a state 2 Market
or political subdivision to obtain funds for Credit
various public purposes. Municipal securities Political
include private activity bonds and industrial Tax
development bonds, as well as general obligation Regulatory
bonds, tax anticipation notes, bond anticipation
notes, revenue anticipation notes, project notes,
other short-term tax-exempt obligations, municipal
leases, and obligations of municipal housing
authorities ( single family revenue bonds).
There are two general types of municipal bonds:
General-obligation bonds, which are secured by the taxing
power of the issuer (and, in California, have the approval
of voters) and revenue bonds, which take many shapes and
forms but are generally backed by revenue from a specific
project or tax. These include, but are not limited, to
certificates of participation (COPs); utility and sales tax
revenues; tax increment or tax allocations; housing and
special tax, including assessment district and community
facilities district (Mello-Roos) issues which are secured
by specific real estate parcels; hospital revenue; and
industrial
</TABLE>
36
<PAGE> 171
<TABLE>
<S> <C> <C>
development bonds that are secured by a private company.
PARTICIPATION INTERESTS: Interests in municipal 2 Market
securities from financial institutions such Liquidity
as commercial and investment banks, savings and Credit
loan associations and insurance companies. These Tax
interests are usually structured as some 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
interests to obtain credit enhancement on demand
features that would be available through direct
ownership of the underlying municipal securities.
REPURCHASE AGREEMENTS: The purchase of a security 2-4 Market
and the simultaneous commitment to return the Leverage
security to the seller at an agreed upon price
on an agreed upon date. This is treated as a loan.
REVERSE REPURCHASE AGREEMENT: The sale of a security 2-4 Market
and the simultaneous commitment to buy the security Leverage
back at an agreed upon price on an agreed upon
date. This is treated as a borrowing by a Fund.
RESTRICTED SECURITIES: Securities not registered 1-4 Liquidity
under the Securities Act of 1933, such as Market
privately placed commercial paper and Rule 144A
securities.
SECURITIES LENDING: The lending of up to 33 1/3% 2-4 Market
of the Fund's total assets. In return the Fund Leverage
will receive cash, other securities and/or Liquidity
letters of credit. Credit
TAX-EXEMPT COMMERCIAL PAPER: Commercial paper 2, 3 Credit
issued by governments and political sub-divisions. Liquidity
Market
Tax
TIME DEPOSITS: Non-negotiable receipts issued by a 2, 3 Liquidity
bank in exchange for a deposit of money. Credit
Market
TREASURY RECEIPTS: Treasury receipts, Treasury 3, 4 Market
investment growth receipts, and certificates of
accrual of Treasury securities.
U.S. GOVERNMENT AGENCY SECURITIES: Securities 2-4 Market
issued by agencies and instrumentalities of the Credit
U.S. government. These include Ginnie Mae, Fannie
Mae, and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, 1-4 Market
separately traded registered interest and principal
securities, and coupons under bank entry
safekeeping.
VARIABLE AMOUNT MASTER DEMAND NOTES: Unsecured 2-4 Credit
demand notes that permit the indebtedness to vary
and provide
</TABLE>
37
<PAGE> 172
<TABLE>
<S> <C> <C>
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.
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations with 2-4 Credit
interest rates that are reset daily, weekly, quarterly or on Liquidity
some other schedule. Such instruments may be payable to a Market
Fund on demand.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: 1-4 Market
A purchase of, or contract to purchase, securities at a fixed Leverage
price for delivery at a future date. The portfolio managers of Liquidity
each Fund expect that commitments to enter into forward Credit
commitments or purchase when-issued securities will not
exceed 25% of the Fund's total assets.
YANKEE BONDS AND SIMILAR OBLIGATIONS: U.S. dollar- 3 Market
denominated bonds issued by foreign corporations Credit
or governments. Sovereign bonds are those issued
by the government of a foreign country. Supranational
bonds are those issued by supranational entities, such
as the World Bank and European Investment Bank.
Canadian bonds are those issued by Canadian provinces.
ZERO-COUPON DEBT OBLIGATIONS: Bonds and other types of 1-4 Credit
debt that pay no interest, but are issued at a discount from Market
their value at maturity. When held to maturity, their entire Zero Coupon
return equals the difference between their issue price and
their maturity value.
</TABLE>
GLOSSARY OF INVESTMENT RISKS
This section discusses the risks associated with the securities and investment
techniques listed above, as well as the risks mentioned under the heading "What
are the main risks of investing in this Fund?" in each Fund profile. Because of
these risks, the value of the securities held by the Funds may fluctuate, as
will the value of your investment in the Funds. Certain types of investments
and Funds are more susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Generally speaking, the lower a security's credit rating, the
higher its credit risk. If a security's credit rating is downgraded, its price
tends to decline sharply, especially as it becomes more probable that the
issuer will default.
FOREIGN INVESTMENT RISK. Compared with investing in the United States,
investing in foreign markets involves a greater degree and variety of risk.
Investors in foreign markets may face delayed settlements, currency controls
and adverse economic developments as well as higher overall transaction costs.
In addition, fluctuations in the U.S. dollar's value versus other currencies
may erode or reverse gains from investments denominated in foreign currencies
or widen losses. Exchange rate fluctuations also may impair an issuer's
ability to repay U.S. dollar denominated debt, thereby increasing credit risk.
Finally, foreign securities may be affected by incomplete or inaccurate
financial information about their issuers, social upheavals or political
actions ranging from tax code changes to governmental collapse. These risks
are greater in the emerging markets than in the developed markets of Europe and
Japan.
38
<PAGE> 173
INTEREST RATE RISK. The risk that debt prices overall will decline over short
or even long periods due to rising interest rates. This risk should be modest
for shorter-term securities and high for longer-term securities. Interest-rate
risk also involves the risk that falling interest rates will cause a Fund's
income, and thus its total return, to decline. This risk is generally greater
for shorter-term securities and lower for longer-term securities.
LEVERAGE RISK. The risk associated with securities or investment practices
that magnify small index or market movements into large changes in value.
Leverage is often associated with investments in derivatives, but also may be
embedded directly in the characteristics of other securities.
LIQUIDITY RISK. The risk that a security may be difficult or impossible to
sell at the time and price the seller wishes. The seller may have to accept a
lower price for the security, sell other securities instead, or forego a more
attractive investment opportunity. All of this could hamper the management or
performance of a Fund.
MANAGEMENT RISK. The risk that a strategy used by a Fund's portfolio manager
may fail to produce the intended result. This includes the risk that changes
in the value of a hedging instrument will not match those of the asset being
hedged.
MARKET RISK. The risk that a security's market value may decline, sometimes
rapidly and unpredictably. These fluctuations may cause a security to be worth
less than the price the investor originally paid for it, or less than it was
worth at an earlier time. Market risk may affect a single issuer, industrial
sector or the market as a whole. For fixed-income securities, market risk is
largely influenced by changes in interest rates. Rising interest rates
typically cause the value of bonds to decrease, while falling rates typically
cause the value of bonds to increase.
POLITICAL RISK. The risk of investment losses attributable to unfavorable
governmental or political actions, seizure of foreign deposits, changes in tax
or trade statutes, and governmental collapse and war.
PRE-PAYMENT RISK. The risk that a security's principal will be repaid at an
unexpected time. Prepayment risk is the chance that a large number of the
mortgages underlying a mortgage-backed security will be refinanced sooner than
the investor had expected. The investor is usually forced to reinvest the
proceeds in a security with a lower yield. This turnover may result in taxable
capital gains and, in addition, may lower a portfolio's income. If an investor
paid a premium for the security, the prepayment may result in an unexpected
capital loss.
Prepayment risk generally increases when interest rates decline, and can make a
security's yield as well as its market price more volatile. Generally speaking,
the longer a security's maturity, the greater the prepayment risk it poses.
REGULATORY RISK. The risk that federal and state laws may restrict an investor
from seeking recourse when an issuer has defaulted on the interest and/or
principal payments it owes on its obligations. These laws include restrictions
on foreclosures, redemption rights after foreclosure, Federal and state
bankruptcy and debtor relief laws, restrictions on "due on sale" clauses, and
state usury laws.
TAX RISK. The risk that the issuer of a security will fail to comply with
certain requirements of the Internal Revenue Code, which would cause adverse
tax consequences for the issuer and potential losses for its investors.
YEAR 2000 RISK. 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, the HighMark Funds therefore could
be adversely affected if the computer systems used by its service providers do
not properly process dates on and after January 1, 2000, because they cannot
distinguish between the year 2000 and the year 1900. We are seeking assurances
from each of our service providers that they expect their systems to
accommodate the year 2000 transition without significant
39
<PAGE> 174
adverse consequences to HighMark Funds. If these assurances prove to be
incorrect, HighMark shareholders may lose money as a result of system failures
or year 2000 computer difficulties experienced by issuers of portfolio
securities or custodians, banks, broker-dealers or others with which we do
business.
ZERO COUPON RISK. The market prices of securities structured as zero coupon or
pay-in-kind securities are generally affected to a greater extent by interest
rate changes. These securities tend to be more volatile than securities that
pay interest periodically.
40
<PAGE> 175
<TABLE>
<CAPTION>
HOW TO OBTAIN MORE INFORMATION
<S> <C>
INVESTMENT ADVISER
More information about the Funds is available
HighMark Capital Management, Inc. without charge through the following:
475 Sansome Street
San Francisco, CA 94104 STATEMENT OF ADDITIONAL INFORMATION (SAI)
ADMINISTRATOR AND DISTRIBUTOR More detailed information about the HighMark Funds
is included in our SAI. The SAI has been filed
SEI Investments Distribution Co. with the SEC and is incorporated by reference into
1 Freedom Valley Drive this prospectus. This means that the SAI, for
Oaks, PA 19456 legal purposes, is a part of this prospectus.
LEGAL COUNSEL ANNUAL AND SEMI-ANNUAL REPORTS
Ropes & Gray These reports list the Funds' holdings and contain
1301 K Street, N.W., Suite 800 East information on the market conditions and
Washington, DC 20005 investment strategies that significantly affected
the HighMark Funds' performance during the last
AUDITORS year.
Deloitte & Touche L.L.P.
50 Fremont Street TO OBTAIN THE SAI, ANNUAL OR SEMI-ANNUAL REPORTS,
San Francisco, CA 94105-2230 OR MORE INFORMATION:
BY TELEPHONE:
Call 1-800-433-6884
BY MAIL:
Write to us c/o
SEI Investments Distribution Co.
1 Freedom Valley Drive
Oaks, PA 19456.
BY INTERNET:
FROM THE SEC: You can also obtain the SAI, the
Annual and Semi-Annual Reports, and other
information about the HighMark Funds, from the
SEC's Web site (http://www.sec.gov). You may
review and copy documents at the SEC Public
Reference Room in Washington, DC (for information
call 1-800-SEC-0330). You may request documents
by mail from the SEC, upon payment of a
duplicating fee, by writing to: Securities and
Exchange Commission, Public Reference Section, 450
5th Street, N.W., Washington, DC 20549-6009.
HighMark Funds' Investment Company Act
registration number is 811-05059.
</TABLE>
41
<PAGE> 176
CROSS REFERENCE SHEET
Part A
<TABLE>
<CAPTION>
Form N-1A Item No. Prospectus Caption
- ------------------ ------------------
HIGHMARK FUNDS
--------------
MONEY MARKET FUNDS - FIDUCIARY SHARES
<S> <C>
1. Front and Back Cover Pages ....................................... Cover Page; Back Page
2. Risk/Return Summary:
Investments, Risks and Performance................................ Individual HighMark Funds Profiles
3. Risk/Return Summary: Fee Table................................... Individual HighMark Funds Profiles
4. Investment Objectives, Principal Investment
Strategies, and Related Risk .................................... Individual HighMark Funds Profiles;
More About the HighMark Fund --
Investment Practices; More About the
HighMark Funds -- Glossary of Investment Risks
5. Management's Discussion of the Fund
Performance....................................................... Inapplicable
6. Management, Organization and Capital
Structure......................................................... More About the HighMark Funds - Investment Management
7. Shareholder Information........................................... Shareowner Guide - How to Invest in the HighMark Funds
8. Distribution Arrangements ........................................ Shareowner Guide - How to Invest in the HighMark Funds
9. Financial Highlights Information.................................. Financial Highlights
</TABLE>
<PAGE> 177
HIGHMARK FUNDS
MONEY MARKET FUNDS
100% U.S. Treasury Money Market Fund
California Tax-Free Money Market Fund
Diversified Money Market Fund
U.S. Government Money Market Fund
FIDUCIARY SHARES
PROSPECTUS
November 30, 1999
The Securities and Exchange Commission has not approved or disapproved of these
securities or determined whether this prospectus is accurate or complete. Any
representation to the contrary is unlawful.
1
<PAGE> 178
HOW TO READ THIS PROSPECTUS
HighMark Funds is a mutual fund family that offers different classes of Shares
in separate investment portfolios (Funds). The Funds have individual investment
goals and strategies. This prospectus gives you important information about the
Fiduciary Shares of HighMark's Money Market Funds that you should know before
investing. Each Fund also offers two additional classes of Shares called Class
A Shares and Class S Shares, which are offered in separate prospectuses. In
addition, the HighMark U.S. Government Money Market Fund offers a class of
Shares called Class B Shares.
Please read this prospectus and keep it for future reference. The prospectus is
arranged into different sections so that you can easily review this important
information. The next page contains general information you should know about
investing in the HighMark Funds.
INDIVIDUAL HIGHMARK FUND PROFILES
X 100% U.S. Treasury Money Market Fund
X California Tax-Free Money Market Fund
X Diversified Money Market Fund
X U.S. Government Money Market Fund
SHAREOWNER GUIDE--HOW TO INVEST IN THE HIGHMARK
FUNDS
X Choosing a Share Class
X Opening an Account
X Buying Shares
X Selling Shares
X Exchanging Shares
X Transaction Policies
X Dividends
X Taxes
X Investor Services
MORE ABOUT THE HIGHMARK FUNDS
X Investment Management
X Financial Highlights
X Investment Practices
X Glossary of Investment Risks
FOR MORE INFORMATION ABOUT HIGHMARK FUNDS, PLEASE
SEE THE BACK COVER OF THIS PROSPECTUS
- -----------------------------------------------------------------------------
[FUND SUMMARY ICON] Fund Summary
[INVESTMENT STRATEGY ICON] Investment Strategy
[YIELD ICON] What are the main risks of investing in this Fund?
[PERFORMANCE INFORMATION ICON] Performance Information
[FEES AND EXPENSES ICON] Fees and Expenses
[YOUR ACCOUNT ICON] Your Account
[INVESTMENT MANAGEMENT ICON] Investment Management
[FINANCIAL HIGHLIGHTS ICON] Financial Highlights
[ADDITIONAL INVESTMENT PRACTICES AND RISKS ICON] Additional Investment Practices
and Risk
- -----------------------------------------------------------------------------
November 30, 1999
2
<PAGE> 179
INTRODUCTION
Each HighMark Fund is a mutual fund. A mutual fund pools shareholders' money
and, using professional investment managers, invests it in securities such as
stocks and bonds. Before you look at specific HighMark Funds, you should know a
few basics about investing in mutual funds.
The value of your investment in a mutual fund is based on the market prices of
the securities the fund holds. These prices change daily due to economic trends
and other developments that generally affect securities markets, as well as
those that affect particular firms and other types of issuers. These price
movements, also called volatility, vary depending on the types of securities a
fund owns and the markets where these securities are traded.
AS WITH OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR INVESTMENT IN A MUTUAL
FUND. YOUR INVESTMENT IN THE HIGHMARK FUNDS IS NOT A DEPOSIT OR AN OBLIGATION OF
UNION BANK OF CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK. IT IS NOT INSURED BY
THE FDIC OR ANY GOVERNMENT AGENCY.
Each Fund has its own investment goal and strategies for reaching that goal.
There is no guarantee that a Fund will achieve its goal. Before investing, make
sure that the Fund's goal matches your own.
The portfolio manager invests each Fund's assets in a way that he or she
believes will help the Fund achieve its goal. A manager's judgments about the
securities markets, economy and companies, and his or her investment selection,
may cause a Fund to underperform others with similar objectives.
3
<PAGE> 180
- -------------------------------------------------------------------------------
100% U.S. TREASURY MONEY MARKET FUND
- -------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek current income with
liquidity and stability of
principal
- ----------------------------------------------------------------------------------------------
Investment Focus U.S. Treasury obligations
- ----------------------------------------------------------------------------------------------
Principal Investment Strategy Invests exclusively in short-term
U.S. Treasury obligations
- ----------------------------------------------------------------------------------------------
Share Price Volatility Low
- ----------------------------------------------------------------------------------------------
Investor Profile Highly risk averse investors
seeking current income from a money
market fund that invests entirely
in U.S. Treasury securities
- ----------------------------------------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark 100% U.S. Treasury Money Market Fund seeks current income with
liquidity and stability of principal. The Fund invests exclusively in U.S.
Treasury securities and separately traded components of those securities called
"STRIPs."
To limit the Fund's interest-rate risk, the Fund's managers will maintain an
average weighted portfolio maturity of 90 days or less. In addition, each
individual security in the portfolio will have a maturity of no more than 397
days.
In choosing investments for the Fund, the portfolio managers consider such
factors as:
- - The outlook for interest rates
- - Buying and selling activity in the Treasury market as a whole and/or for
individual Treasury securities
- - Imbalances in the supply of Treasuries relative to demand
- - The appropriateness of particular securities to the Fund's objectives
For a more complete description of the various Treasury securities in which the
Fund can invest, please see "Investment Practices" beginning on page XX.
SIDEBAR: A portfolio's level of interest rate exposure is commonly indicated by
the term maturity. Generally speaking, the longer a portfolio's maturity, the
greater its level of interest rate exposure and, in turn, its risk/return
potential.
4
<PAGE> 181
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Interest-Rate Risk: The possibility that the Fund's investments may decline in
value due to an increase in interest rates, or that the Fund's yield will
decrease due to a decline in interest rates.
For more information about these risks, please see the Glossary of Investment
Risks on page ___.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR AN OBLIGATION OF UNION BANK OF
CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1
PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
Best Quarter Worst Quarter
- ------------ -------------
(______) (______)
*The performance information above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
This table shows the Fund's average annual total returns for periods ending
12/31/98.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (12/1/90)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
100% U.S. TREASURY
MONEY MARKET FUND % % %
Fiduciary Shares
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
YIELD
The income a fund generates is commonly referred to as its yield. For money
market funds, yield is a more useful indication than total return of how a
portfolio is performing. As a result, advertisements and other communications
about the HighMark 100% U.S. Treasury Money Market Fund will typically mention
the portfolio's yield. There are various types of yield, including current or
7-day yield and effective yield. All mutual funds must use the same formulas to
calculate each of these yields.
5
<PAGE> 182
The formula for effective yield assumes that investors take advantage of
compounding by reinvesting their dividends; current or seven-day yield does not
make the same assumption. As a result, a portfolio's effective yield typically
will be slightly higher than its current or seven-day yield. Both types of
yield will tend to fluctuate daily due to such factors as a fund's
interest-rate exposure as well as the credit quality of its portfolio holdings.
For the period ended 12/31/98, the 7-day yield for the Fund's Fiduciary Shares
was ___%.
To obtain the most current yield information for the Fund, please call
1-800-433-6884.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the fees you would pay directly from your investment if
you buy or sell Fund Shares.
- ------------------------------------------------------------------------------
SHAREHOLDER FEES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)*
*Does not include any wire transfer fees, if applicable.
</TABLE>
The table below describes the expenses you would pay indirectly if you hold
Fund Shares.
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.30%*
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %*
-----
Total Annual Fund Operating Expenses %*
</TABLE>
During the past fiscal year, the Adviser waived 0.05% of its investment
Advisory fee. "Other Expenses" were waived by ___% or reimbursed by ____%.
These waivers are voluntary and may be terminated at any time. Accordingly, the
Fund's actual annual operating expenses were as follows:
6
<PAGE> 183
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.25%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
-------
Total Annual Fund Operating Expenses %
</TABLE>
- ------------------------------------------------------------------------------
EXAMPLE
- ------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $___ $___ $___ $___
</TABLE>
7
<PAGE> 184
- ------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- ------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek current income exempt from
federal and California state income
taxes with liquidity and stability
of principal
- ----------------------------------------------------------------------------------------------
Investment Focus California tax-free money market
securities
- ----------------------------------------------------------------------------------------------
Principal Investment Strategy Attempts to invest in high-quality,
short-term California tax-free
securities
- ----------------------------------------------------------------------------------------------
Share Price Volatility Low
- ----------------------------------------------------------------------------------------------
Investor Profile California residents seeking income
exempt from federal and California
state personal income taxes
- ----------------------------------------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark California Tax-Free Money Market Fund seeks as high a level of current
income exempt from federal and California personal income tax as is consistent
with the preservation of capital and stability of principal.
To pursue this goal, the Fund invests primarily in short-term, high-quality
California municipal securities. It may also invest up to 10% of its assets in
other mutual funds with similar objectives. The Fund may, in addition, invest
up to 20% in short-term obligations that pay interest which is not exempt from
California personal income taxes, federal income taxes and/or the alternative
minimum tax.
To limit the Fund's interest-rate risk, the Fund's managers will maintain an
average weighted portfolio maturity of 90 days or less. In addition, each
individual security in the portfolio will have a maturity of no more than 397
days.
In choosing investments for the Fund, the portfolio managers consider such
factors as:
- - The outlook for interest rates
- - Buying and selling activity in the California municipal securities market as
a whole and/or for individual securities
- - Imbalances in the supply of securities relative to demand
- - The appropriateness of particular securities to the Fund's objectives
In an effort to preserve the value of your investment under volatile market
conditions, the managers may temporarily invest a significant amount of the
Fund's assets in very short-term taxable obligations called
8
<PAGE> 185
money market securities. They may also do so when there is not a sufficient
supply of California municipal securities that meet their investment criteria.
(For a more complete description of the various securities in which the Fund
can invest, please see "Investment Practices" on page X.)
SIDEBAR: Municipal securities are issued by California and other states, cities
and municipalities to help finance utilities, schools, public works projects
and facilities, among other things. High-quality securities are those rated in
the top two credit rating categories by nationally recognized rating agencies
such as Standard & Poor's.
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
State Specific Risk: By concentrating its investments in California, the Fund
may be more vulnerable to unfavorable developments in that state than funds
that are more geographically diversified.
Interest-Rate Risk: The possibility that the Fund's investments will decline in
value due to an increase in interest rates, or that the Fund's yield will
decrease due to a decline in interest rates.
Credit Risk: The possibility that an issuer cannot make timely interest and
principal payments on its obligations. The lower a security's rating, the
greater its credit risk.
For more information about these risks, please see "Additional Investment
Practices and Risks" starting on page ____.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR AN OBLIGATION OF UNION BANK OF
CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1
PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
Best Quarter Worst Quarter
- ------------ -------------
(______) (______)
*The performance information above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
9
<PAGE> 186
This table shows the Fund's average annual total returns for periods ending
12/31/98.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Since
INCEPTION
1 YEAR 5 YEARS (6/10/91)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA TAX-FREE MONEY
MARKET FUND % % %
Fiduciary Shares
- ------------------------------------------------------------------------------------
</TABLE>
YIELD
The income a fund generates is commonly referred to as its yield. For money
market funds, yield is a more useful indication than total return of how a
portfolio is performing. As a result, advertisements and other communications
about the HighMark California Tax-Free Money Market Fund will typically mention
the portfolio's yield. There are various types of yield, including current or
7-day yield and effective yield. All mutual funds must use the same formulas to
calculate each of these yields.
The formula for effective yield assumes that investors take advantage of
compounding by reinvesting their dividends; current or seven-day yield does not
make the same assumption. As a result, a portfolio's effective yield typically
will be slightly higher than its current or seven-day yield. Both types of
yield will tend to fluctuate daily due to such factors as a fund's
interest-rate exposure as well as the type and credit quality of its portfolio
holdings. For the period ended 12/31/98, the 7-day yield for the Fund's
Fiduciary Shares was ___%.
To obtain the most current yield information for the Fund, please call
1-800-433-6884.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the fees you pay directly from your investment if you buy
or sell Fund Shares.
- -----------------------------------------------------------------------------
SHAREHOLDER FEES
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)*
</TABLE>
*Does not include any wire transfer fees, if applicable.
10
<PAGE> 187
The table below describes the expenses you would pay indirectly if you hold
Fund Shares.
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.30%*
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %*
-----
Total Annual Fund Operating Expenses %*
</TABLE>
* During the past fiscal year, the Adviser waived 0.20% of its investment
Advisory fee until 6/1/99, when the waiver was reduced to 0.15%. The waiver was
reduced to 1.10% on 11/30/99. "Other Expenses" were waived by __% or
reimbursed by _____%. These waivers are voluntary and may be terminated at any
time. Accordingly, the Fund's actual annual operating expenses were as follows:
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.15% **
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
-----
Total Annual Fund Operating Expenses %
</TABLE>
**The Adviser received 0.10% until 5/31/99 and 0.15% after 6/1/99.
- -------------------------------------------------------------------------------
EXAMPLE
- -------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $___ $___ $___ $___
</TABLE>
11
<PAGE> 188
- -------------------------------------------------------------------------------
DIVERSIFIED MONEY MARKET FUND
- -------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
<TABLE>
<S> <C>
Investment Goal To seek current income with
liquidity and stability of principal
- -------------------------------------------------------------------------------------------------
Investment Focus High-quality, short-term debt
securities
- -------------------------------------------------------------------------------------------------
Principal Investment Strategy Employs top-down analysis of
economic and market factors to
select Fund investments
- -------------------------------------------------------------------------------------------------
Share Price Volatility Low
- -------------------------------------------------------------------------------------------------
Investor Profile Short-term or risk-averse investors
seeking our typically
highest-yielding money market fund.
- -------------------------------------------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark Diversified Money Market Fund seeks to generate current income with
liquidity and stability of principal. To pursue this goal, the Fund invests
primarily in high-quality, short-term debt securities. "High-quality"
securities are those that at least one nationally recognized rating agency such
as Standard & Poor's has judged financially strong enough to be included in its
highest credit-quality category for short-term securities. The Fund may also
invest in nonrated securities if the portfolio managers believe they are of
comparably high quality.
In choosing investments for the Fund, the portfolio managers consider several
factors, including:
- - The outlook for interest rates
- - Buying and selling activity in the high-quality, short-term securities market
as a whole and/or for individual securities
- - Current imbalances in the supply of high-quality, short-term securities
relative to demand
- - The appropriateness of particular securities to the Fund's objectives
To limit the Fund's interest-rate risk, the Fund's managers will maintain an
average weighted portfolio maturity of 90 days or less. In addition, each
individual security in the portfolio will have a maturity of no more than 397
days.
Although the portfolio managers strive to ensure that the Fund is diversified,
from time to time they may concentrate the Fund's assets in certain securities
issued by U.S. banks, U.S. branches of foreign banks and foreign branches of
U.S. banks, to the extent permitted under applicable SEC guidelines, if they
believe it is
12
<PAGE> 189
in the best interest of the Fund's shareholders.
(For a more complete description of the various securities in which the Fund
can invest, please see Investment Practices on page X.)
[SIDEBAR: A portfolio's level of interest rate exposure is commonly indicated
by the term maturity. Generally speaking, the longer a portfolio's maturity,
the greater its level of interest rate exposure and, in turn, its risk/return
potential.]
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Interest-Rate Risk: The possibility that the value of the Fund's investments
will decline due to an increase in interest rates, or that the Fund's yield
will decrease due to a decline in interest rates.
Credit Risk: The possibility that an issuer cannot make timely interest and
principal payments on its securities. In general, the lower a security's credit
rating, the higher its credit risk.
For more information about these risks, please see the Glossary of Investment
Risks on page ____.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR AN OBLIGATION OF UNION BANK OF
CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1
PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
Best Quarter Worst Quarter
- ------------ -------------
(______) (______)
*The performance information shown above is based on a calendar year. The
Fund's total return from 1/1/99 to 7/31/99 was ____%.
13
<PAGE> 190
This table shows the Fund's average annual total returns for periods ending
12/31/98.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (6/10/91)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
DIVERSIFIED MONEY MARKET FUND
Fiduciary Shares % % %
- --------------------------------------------------------------------------------
</TABLE>
YIELD
The income a fund generates is commonly referred to as its yield. For money
market funds, yield is a more useful indication than total return of how a
portfolio is performing. As a result, advertisements and other communications
about the HighMark Diversified Money Market Fund will typically mention the
portfolio's yield. There are various types of yield, including current or 7-day
yield and effective yield. All mutual funds must use the same formulas to
calculate each of these yields.
The formula for effective yield assumes that investors take advantage of
compounding by reinvesting their dividends; current or seven-day yield does not
make the same assumption. As a result, a portfolio's effective yield typically
will be slightly higher than its current or seven-day yield. Both types of
yield will tend to fluctuate daily due to such factors as a fund's
interest-rate exposure as well as the type and credit quality of its portfolio
holdings. For the period ended December 31, 1998, the 7-day yield for the
Fund's Fiduciary Shares was ___%.
To obtain the most current yield information for the Fund, please call
1-800-433-6884.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the fees you would pay directly from your investment if
you buy or sell Fund Shares.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)*
</TABLE>
*Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you hold
Fund Shares.
14
<PAGE> 191
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.30%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %*
--------
Total Annual Fund Operating Expenses %*
</TABLE>
* During the past fiscal year, "Other Expenses" were waived by __% or
reimbursed by _____%. These waivers are voluntary and may be terminated at any
time. Accordingly, the Fund's actual annual operating expenses were as follows:
<TABLE>
<CAPTION>
FIDUCIARY SHARE
<S> <C>
Investment Advisory Fees 0.30%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
-----
Total Annual Fund Operating Expenses %
</TABLE>
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $___ $___ $___ $___
</TABLE>
15
<PAGE> 192
- --------------------------------------------------------------------------------
U.S. GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
[FUND SUMMARY ICON] FUND SUMMARY
<S> <C>
Investment Goal To seek current income with
liquidity and stability of
principal
- --------------------------------------------------------------------------------
Investment Focus Short-term obligations issued or
guaranteed by the U.S. government
and its agencies
- --------------------------------------------------------------------------------
Principal Investment Strategy Employs top-down analysis of
economic and market factors to
select Fund investments
- --------------------------------------------------------------------------------
Share Price Volatility Low
- --------------------------------------------------------------------------------
Investor Profile Short-term or risk-averse
investors seeking a money market
fund investing primarily in U.S.
government obligations
- --------------------------------------------------------------------------------
</TABLE>
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark U.S. Government Money Market Fund seeks current income with liquidity
and stability of principal. To pursue this goal, the Fund invests exclusively
in short-term debt obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, such as the Government National Mortgage
Association ("Ginnie Mae") and the U.S. Export-Import Bank. Some of these debt
obligations may be subject to repurchase agreements.
To limit the Fund's interest-rate risk, the Fund's managers will maintain an
average weighted portfolio maturity of 90 days or less. In addition, each
individual security in the portfolio will have a maturity of no more than 397
days.
In choosing investments for the Fund, the portfolio managers consider such
factors as:
- - The outlook for interest rates
- - Buying and selling activity in the U.S. government securities market as a
whole and/or for individual securities
- - Imbalances in the supply of U.S. government securities relative to demand
- - The appropriateness of particular securities to the Fund's objectives.
16
<PAGE> 193
(For a more complete description of the securities in which the Fund can
invest, please see Investment Practices on page X.)
SIDEBAR: A portfolio's level of interest rate exposure is commonly indicated by
the term maturity. Generally speaking, the longer a portfolio's maturity, the
greater its level of interest rate exposure and, in turn, its risk/return
potential.
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Interest-Rate Risk: The possibility that the Fund's investments may decline in
value due to an increase in interest rates, or that the Fund's yield will
decrease due to declining interest rates.
Credit Risk: The possibility that an issuer cannot make timely interest and
principal payments on its securities. In general, the lower a security's credit
rating, the higher its credit risk.
For more information about these risks, please see the Glossary of Investment
Risks on page ____.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR AN OBLIGATION OF UNION BANK OF
CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1
PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
Best Quarter Worst Quarter
- ------------ -------------
(______) (______)
*The performance information above is based on a calendar year. The Fund's
total return from 1/1/99 to 7/31/99 was ____%.
This table shows the Fund's average annual total returns for periods ending
12/31/98.
17
<PAGE> 194
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (8/10/87)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT MONEY MARKET FUND
Fiduciary Shares % % % %
- -----------------------------------------------------------------------------------------
</TABLE>
YIELD
The income a fund generates is commonly referred to as its yield. For money
market funds in particular, yield is a more useful indication than total return
of how a portfolio is performing. As a result, advertisements and other
communications about the HighMark U.S. Government Money Market Fund will
typically mention the portfolio's yield. There are various types of yield,
including current or 7-day yield and effective yield. All mutual funds must use
the same formulas to calculate each of these yields.
The formula for effective yield assumes that investors take advantage of
compounding by reinvesting their dividends; current or seven-day yield does not
make the same assumption. As a result, a portfolio's effective yield typically
will be slightly higher than its current or seven-day yield. Both types of
yield will tend to fluctuate daily due to such factors as a fund's
interest-rate exposure as well as the type and credit quality of its portfolio
holdings. For the period ended 12/31/98, the 7-day yield for the Fund's
Fiduciary Shares was ___%.
To obtain the most current yield information for the Fund, please call
1-800-433-6884.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the fees you would pay directly from your investment if
you buy or sell Fund Shares.
- -------------------------------------------------------------------------------
SHAREHOLDER FEES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)*
</TABLE>
*Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you hold
Fund Shares.
18
<PAGE> 195
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.30%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses ___ %*
Total Annual Fund Operating Expenses %*
</TABLE>
*During the past fiscal year, "Other Expenses" were waived by __% or reimbursed
by _____%. These waivers are voluntary and may be terminated at any time.
Accordingly, the Fund's actual annual operating expenses were as follows:
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.30%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
-------
Total Annual Fund Operating Expenses %
</TABLE>
- -------------------------------------------------------------------------------
EXAMPLE
- -------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $___ $___ $___ $___
</TABLE>
19
<PAGE> 196
SHAREOWNER GUIDE--HOW TO INVEST IN THE HIGHMARK FUNDS
Before you invest, we encourage you to carefully read the HighMark Fund
profiles included in this prospectus and consider which Funds are appropriate
for your particular financial situation, risk tolerance and goals. As always,
your financial representative can provide you with valuable assistance in
making this decision. He or she can also help you choose which of the Fund
share classes we offer is right for you.
CHOOSING A SHARE CLASS
HighMark Funds offers different classes of Fund Shares, which have different
expenses and other characteristics. Only one class of Fund Shares, Fiduciary
Shares, is offered in this prospectus. To choose the one that is best suited to
your needs and goals, consider the amount of money you want to invest, how long
you expect to invest it and whether you plan to make additional investments.
The following are some of the main characteristics of HighMark's Fiduciary
Shares:
FIDUCIARY SHARES
- - No sales charge.
- - No Distribution (12b-1) fees.
- - Available only to the following investors and accounts:
- Fiduciary, advisory, agency, custodial and other similar accounts
maintained with Union Bank of California, N.A., or its affiliates;
- Non-fiduciary IRA accounts investing in a HighMark Equity or
Fixed-Income Fund that were established with The Bank of California,
N.A., prior to June 20, 1994, and have remained open since then;
- Investors who currently own Shares of a HighMark Equity or
Fixed-Income Fund that they purchased prior to June 20, 1994, within
an account registered in their name with the Funds;
- Current or retired trustees of HighMark Funds and directors, officers
and employees (and their spouses and children under the age of 21) of
Union Bank of California, N.A., of HighMark Funds' current or former
distributors, or of their respective affiliated companies who
currently own Shares of HighMark Funds that they purchased before
April 30, 1997;
- Registered investment advisers who are regulated by a federal or state
governmental authority or financial planners who are buying 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;
- Retirement and other benefit plans sponsored by governmental entities;
and
- Financial institutions that may buy 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 per Fund.
For the actual past expenses of the Fiduciary Shares, see the individual Fund
profiles earlier in this prospectus.
The Funds also offer Class A and Class B Shares (collectively "Retail Shares")
and Class S Shares, each of which has its own expense structure. Retail Shares
are available to non-fiduciary clients of Union Bank of California, N.A., who
are not otherwise eligible for Fiduciary Shares. Class S Shares are available
only to investors in the Union Bank of California Corporate Sweep service. Call
us at 1-800-433-6884 for more details.
20
<PAGE> 197
OPENING AN ACCOUNT
1. Read this prospectus carefully.
2. Determine how much money you want to invest. The minimum investments for
the HighMark Funds are as follows:
- INITIAL PURCHASE: $1,000 for each Fund
$250 for current or retired trustees of HighMark
Funds and directors, officers and employees (as well
as their spouses and children under the age of 21) of
Union Bank of California, N.A., SEI Investments
Distribution Co. and their affiliates.
- ADDITIONAL PURCHASES: $100 for each Fund
We may waive these initial and additional investment minimums
for purchases made in connection with Individual Retirement
Accounts, Keoghs, payroll deduction plans, 401(k) or similar
plans.
3. Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation when
opening trust, corporate or power of attorney accounts. For more
information, please contact your financial representative or call us at
1-800-433-6884.
4. Make your initial investment using the table on the next page. You and your
financial representative can initiate any purchase, exchange or sale of
Shares.
We reserve the right to reject a purchase order if we determine that it is not
in the best interest of HighMark Funds or its shareholders.
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<PAGE> 198
BUYING SHARES
THROUGH FINANCIAL INSTITUTIONS
- Call your financial institution for information on their procedures
for transmitting orders to HighMark Funds.
BY EXCHANGE
[GRAPHIC] - Call us at 1-800-433-6884 or contact your financial representative
to request an exchange.
SELLING SHARES
THROUGH FINANCIAL INSTITUTIONS
- Accounts set up through financial institutions.
- Contact your financial institution to find out more about their
procedures for transmitting orders to HighMark Funds.
BY EXCHANGE
[GRAPHIC] - Accounts of any type.
- Obtain a current prospectus for the Fund into which you are
exchanging by calling us or contacting your financial
representative.
- Call us or contact your financial representative to request an
exchange.
TRANSFER AGENT
ADDRESS:
State Street Bank and Trust Company
P.O. Box 8416
Boston, MA 02266-8416
PHONE NUMBER: 1-800-433-6884
Or contact your financial representative for instructions and assistance.
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RECEIVING YOUR MONEY. Normally we will send you a check for your proceeds as
promptly as possible, at the latest within seven calendar days of receiving
your redemption order. If, however, you recently bought Shares in the Fund, we
may be unable to fulfill your request if we have not yet received and processed
your payment for the initial purchase. In such a case you may need to resubmit
your redemption request after we have received payment.
INVOLUNTARY SALES OF YOUR SHARES. 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 balance in any Fund drops below the minimum initial purchase amount for
any reason other than market fluctuation. This is more likely to occur if you
invest only the minimum amount in a Fund and then sell some of your Shares soon
after. Before any Fund exercises its right to redeem your Shares, we will
notify you in writing at least 60 days in advance to give you time to bring
your account balance up to or above the minimum.
EXCHANGING SHARES
HOW TO EXCHANGE YOUR SHARES. You may exchange Fiduciary Shares of one HighMark
Fund for those of another HighMark Fund (the "new Fund"), provided that you:
- - Are qualified to invest in the new Fund.
- - Meet the initial and additional investment minimums for the new Fund.
- - Invest in the same share class in the new Fund as you did in the previous
Fund.
- - Maintain the minimum account balance for each HighMark Fund in which you
invest.
Your cost for buying Shares in the new Fund is based on the net asset values of
the Shares you are exchanging. You may also exchange your Fiduciary Shares of a
Fund for Class A, Class B or Class C Shares of another HighMark Fund. In that
case, your cost for buying Shares in the new Fund is based on the net asset
value of the Shares you are exchanging plus any applicable sales charge.
TRANSACTION POLICIES
VALUATION OF SHARES. A Fund's net asset value is calculated according to the
following formula:
(Total mkt. value of the Fund's investments and other assets - any
Fund liabilities)
/ Total number of the Fund's Shares outstanding
------------------------------------------------
= Fund's net asset value
We determine the net asset value (NAV) of each HighMark Money Market Fund as of
10:00 a.m. Pacific time (1:00 p.m. Eastern time) every business day, based on
the amortized cost of the Fund's assets. Amortized cost does not take into
account unrealized capital gains or losses. We strive to keep each money market
fund's NAV at a constant $1.00, but there is a remote possibility that you
could lose money by investing in the Funds. If the amortized cost of a Fund's
assets is not available, we value its securities by using a method that the
Funds' Board of Trustees believes accurately reflects fair value. For further
information about how we determine the value of the Funds' investments, see the
Statement of Additional Information.
BUY AND SELL PRICES. When you invest in a Fund, the number of Shares you
receive is based on the net asset value we next determine after receiving your
order. When you sell Shares, you receive proceeds based on the net asset value
we next determine after receiving your order.
EXECUTION OF ORDERS. You may buy and sell Shares of the HighMark Money Market
Funds on any day when both the Federal Reserve Wire System and the New York
Stock Exchange are open for business (hereafter referred to as a "business
day").
- - Purchasing Shares by Mail: If you mail us a purchase order, we will
execute it after we have received your payment. (Note: If your check does
not clear, we will be forced to cancel your purchase and may hold you
liable for any losses or fees incurred.)
- - Purchasing Shares by Wire: If you place a purchase order by wire on any
business day, we will execute it that day, provided that we have received
your order by the following times:
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- California Tax-Free Money Market Fund: Before 8:00 a.m. PT (11:00 a.m.
ET)
- 100% U.S. Treasury Fund: Before 9:00 a.m. PT (12:00 noon ET)
- Diversified Money Market Fund: Before 11:00 a.m. PT (2:00 p.m. ET)
- U.S. Government Money Market Fund: Before 11:00 a.m. PT (2:00 p.m. ET)
In addition, you must wire the money you wish to invest to our Transfer
Agent prior to 11:00 a.m. PT (2:00 p.m. ET). If we do not receive your
order or the money you plan to wire by these deadlines, we will execute
your order the following business day or whenever we have received your
order and/or payment.
- - Selling Shares: To sell Shares on any one business day, you must place your
redemption order by the following times:
- California Tax-Free Money Market Fund: Before 8:00 a.m. PT (11:00 a.m.
ET)
- 100% U.S. Treasury Fund: Before 9:00 a.m. PT (12:00 noon ET)
- Diversified Money Market Fund: Before 11:00 a.m. PT (2:00 p.m. ET)
- U.S. Government Money Market Fund: Before 11:00 a.m. PT (2:00 p.m. ET)
If we do not receive your request by the times listed above, we will execute
your order the following business day.
DIVIDENDS
We declare each HighMark Money Market Fund's net income at the close of each
business day and pay any dividends to shareholders monthly.
We will automatically reinvest any income and capital gains distributions you
are entitled to in additional Shares of your Fund(s), unless you notify our
Transfer Agent that you want to receive your distributions in cash. To do so,
send a letter with your request, including your name and account number, to:
HighMark Funds
c/o State Street Bank and Trust Company
P.O. Box 8416
Boston, MA 02266-8416
Your request will become effective for distributions having record dates after
our Transfer Agent receives your request. Note that the IRS treats dividends
paid in additional Fund Shares the same as it treats dividends paid in cash.
TAXES
Your mutual fund investments may have a considerable impact on your tax
situation. We've summarized some of the main points you should know below.
Note, however, that the following is general information and will not apply to
you if you are investing through a tax-deferred account such as an IRA or a
qualified employee benefit plan. In addition, if you are not a resident of the
United States, you may have to pay taxes besides those described here, such as
U.S. withholding and estate taxes.
IMPORTANT NOTE: IF YOU HAVE NOT DONE SO ALREADY, BE SURE TO PROVIDE US WITH
YOUR CORRECT TAXPAYER IDENTIFICATION NUMBER OR CERTIFY THAT IT IS CORRECT.
UNLESS WE HAVE THAT INFORMATION, WE MUST, BY LAW, WITHHOLD 31% OF THE TAXABLE
DISTRIBUTIONS YOU WOULD OTHERWISE BE ENTITLED TO RECEIVE FROM YOUR FUND
INVESTMENTS AS WELL AS ANY PROCEEDS YOU WOULD NORMALLY RECEIVE FROM SELLING
FUND SHARES.
END-OF-YEAR TAX STATEMENTS
We will send you a statement each year showing the tax status of all your
distributions. The laws governing taxes change frequently, so please consult
your tax Adviser for the most up-to-date information and specific guidance
about your particular tax situation. You can find more
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<PAGE> 201
information about the potential tax consequences of mutual fund investing in
our Statement of Additional Information.
SPECIAL CONSIDERATIONS FOR SHAREHOLDERS OF THE HIGHMARK CALIFORNIA TAX-FREE
MONEY MARKET FUND:
We expect that the income dividends you receive from the
Fund will be exempt from federal and California state personal income taxes.
The IRS will tax any short-term capital gains you receive from the Fund as
ordinary income. If you receive Social Security or railroad retirement
benefits, you should consult your tax Adviser to determine whether investing in
the Fund could increase the federal taxation of your benefits. In addition,
some of the income you receive from the Fund may be included in the computation
of federal and state alternative minimum tax liability.
TAXES ON FUND DISTRIBUTIONS
- - FEDERAL TAXES: The IRS treats any dividends and short-term capital gains
you receive from the Funds as ordinary income.
- - STATE AND LOCAL TAXES: In addition to federal taxes, you may have to pay
state and local taxes on the dividends or capital gains you receive from a
Fund.
- - TAXATION OF LONG-TERM CAPITAL GAINS: You may have to pay federal and state
taxes on any distributions of net long-term capital gains you receive from a
Fund at the long-term capital gains rate, no matter how long you've owned
Shares in the Fund. (Although some states, like California, do not have a
special rate for capital gains).
- - "BUYING A DIVIDEND": You may owe taxes on Fund distributions even if they
represent income or capital gains the Fund earned before you invested in it
and thus were likely included in the price you paid.
THE TAX CONSIDERATIONS DESCRIBED ABOVE MAY OR MAY NOT APPLY TO YOU. PLEASE
CONSULT YOUR TAX ADVISER TO HELP DETERMINE WHETHER THESE CONSIDERATIONS ARE
RELEVANT TO YOUR INVESTMENTS AND TAX SITUATION.
INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN (AIP): AIP allows you to invest regularly in the
HighMark Fund(s) of your choice through automatic deductions from your checking
account. The monthly minimum per Fund is $100.* AIP is available only to
current shareholders who wish to make additional investments to their existing
account(s). To participate in AIP, complete the appropriate section on your
Account Application form. *There is a lower, $50 monthly minimum for current
or retired trustees of the HighMark Funds and directors, officers, and
employees (as well as their spouses and children under the age of 21) of Union
Bank of California, SEI Investments Distribution Co. and their affiliates who
were participating in HighMark's AIP on or before December 11, 1998.
SYSTEMATIC WITHDRAWAL PLAN (SWP): HighMark's Systematic Withdrawal Plan allows
you to make regular withdrawals from your account. The minimum monthly
withdrawal is $100 per Fund. You can opt to make these withdrawals on a
monthly, quarterly, twice yearly or annual basis. You also have the option of
receiving your withdrawals by check or by automatic deposit into your bank
account.
To participate in SWP, you must:
- - Have at least $5,000 in your HighMark Fund(s) account.
- - Have your dividends automatically reinvested.
Before you sign up for SWP, please note the following important considerations:
If your automatic withdrawals through SWP exceed the income your Fund(s)
normally pay, your withdrawals may, over time, deplete your original
investment--or exhaust it entirely if you make large and/or frequent
withdrawals. Fluctuations in the net asset value per share of your Fund(s) may
also deplete your principal.
To take part in SWP, complete the appropriate section on your Account
Application form. You
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may change or cancel the plan at any time by sending a written notice to our
Transfer Agent (which may require a signature guarantee).
MORE ABOUT THE HIGHMARK FUNDS
INVESTMENT MANAGEMENT
INVESTMENT ADVISER
HighMark Capital Management, Inc., serves as investment adviser of the HighMark
Funds and manages their investment portfolios on a day-to-day basis under the
supervision of the HighMark Funds' Board of Trustees.
HighMark Capital Management is a subsidiary of UnionBanCal Corporation, the
holding company of Union Bank of California, N.A. UnionBanCal Corporation is a
publicly held corporation principally owned by The Bank of Tokyo-Mitsubishi,
Ltd. As of September 30, 1999, UnionBanCal Corporation and its subsidiaries had
approximately $____ billion in consolidated assets. As of the same date,
HighMark Capital Management had approximately $____ billion in assets under
management. HighMark Capital Management (and its predecessors), 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.
Over the past fiscal year, the Funds paid the following management fees to
HighMark Capital Management:
<TABLE>
<CAPTION>
Fund % of Net Assets
- ---- ---------------
<S> <C>
100% U.S. Treasury Money Market Fund 0.25%
California Tax-Free Money Market Fund 0.15%*
Diversified Money Market Fund 0.30%
U.S Government Money Market Fund 0.30%
</TABLE>
*From 8/1/98 through 5/31/99, the adviser was paid 0.10%. From 6/1/99 through
7/31/99, the adviser was paid 0.15%.
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FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years or, if shorter, the period of the
Fund's operations. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
____________, whose report, along with the Fund's financial statements, are
included in the SAI, which is available upon request.
[Insert past 5 years' financial highlights from annual report]
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<PAGE> 204
INVESTMENT PRACTICES
The Funds invest in a variety of securities and employ a number of investment
techniques. Each security and technique involves certain risks. Fixed-income
securities are subject primarily to market, credit and prepayment risk. The
table below describes the securities and techniques the Funds use, as well as
the main risks they pose. Following the table is a more complete discussion of
risk. You may also consult the Statement of Additional Information for more
details about the securities in which the Funds may invest.
<TABLE>
<CAPTION>
FUND NAME FUND CODE
- --------- ---------
<S> <C>
100% U.S. Treasury Money Market Fund 1
California Tax-Free Money Market Fund 2
Diversified Money Market Fund 3
U.S. Government Money Market Fund 4
</TABLE>
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
ASSET-BACKED SECURITIES: Securities backed by company 2, 3 Pre-payment
receivables, home equity loans, truck and auto loans, Market
leases, credit card receivables and other securities backed Credit
by other types of receivables or assets. Regulatory
BANKERS' ACCEPTANCES: Bills of exchange or time drafts 2, 3 Credit
drawn on and accepted by a commercial bank. They generally Liquidity
have maturities of six months or less. Market
BONDS: Interest-bearing or discounted government 2, 3 Market
or corporate securities that obligate the issuer to Political
pay the bondholder a specified sum of money, Liquidity
usually at specific intervals, and to repay the Foreign
principal amount of the loan at maturity. Investment
CERTIFICATES OF DEPOSIT: Negotiable instruments 2, 3 Market
with a stated maturity. Credit
Liquidity
COMMERCIAL PAPER: Secured and unsecured short-term 2-4 Credit
promissory notes issued by corporations and other entities. Liquidity
Their maturities generally vary from a few days to nine months. Market
DEMAND NOTES: Securities that are subject to puts and 2-4 Market
standby commitments to purchase the securities at a fixed Liquidity
price (usually with accrued interest) within a fixed period Management
of time following demand by a Fund.
DERIVATIVES: Instruments whose value is derived from 2-4 Management
an underlying contract, index or security, or any Market
combination thereof, including futures, options Credit
(e.g., put and calls), options on futures, swap Liquidity
agreements and some mortgage-backed securities. Leverage
FOREIGN SECURITIES: Commercial paper of foreign 2, 3 Market
issuers and obligations of foreign banks, overseas Political
</TABLE>
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<PAGE> 205
<TABLE>
<S> <C> <C>
branches of U.S. banks and supranational entities. Liquidity
Foreign
Investment
ILLIQUID SECURITIES: Securities that ordinarily cannot be 1-4 Liquidity
sold within seven business days at the value the Fund Market
has estimated for them. Each HighMark Fund may invest
up to 10% of its net assets in illiquid securities.
INVESTMENT COMPANY SECURITIES: Shares of registered 4 Market
investment companies. These may include HighMark money
market funds and other registered investment companies for
which HighMark, its subadvisers, or any of their affiliates
serves as investment Adviser, administrator or distributor.
Each Fund may invest up to 5% of its assets in the Shares
of any one registered investment company that has an
investment objective similar to the Fund's. A Fund may
not, however, own more than 3% of the securities of any
one registered investment company or invest more than
10% of its assets in the Shares of other registered
investment companies. As a shareholder of an investment
company, a Fund will indirectly bear the investment
management fees of that investment company, which are
in addition to the management fees the Fund pays its own
Adviser.
INVESTMENT GRADE SECURITIES: Securities rated BBB or 2, 3 Market
better by Moody's, similarly rated by other nationally Credit
recognized rating organizations, or, if not rated, determined
to be of comparably high quality by the Adviser.
MORTGAGE-BACKED SECURITIES: Securities backed by real- 2, 3 Prepayment
estate loans and pools of loans. These include Market
collateralized mortgage obligations (CMOs) and Credit
real estate mortgage investment conduits (REMICs). Regulatory
MUNICIPAL SECURITIES: Securities issued by a state or 2 Market
political subdivision to obtain money for various public Credit
purposes. Municipal securities include private activity bonds Political
and industrial development bonds, as well as general Tax
obligation bonds, tax anticipation notes, bond anticipation Regulatory
notes, revenue anticipation notes, project notes, other
short-term tax-exempt obligations, municipal leases and
obligations of municipal housing authorities (single
family revenue bonds).
There are two general types of municipal bonds: General-obligation
bonds, which are secured by the taxing power of the issuer (and, in
California, have the approval of voters) and revenue bonds, which
take many shapes and forms but are generally backed by revenue from
a specific project or tax. These include, but are not limited to, certificates
of participation (COPs); utility and sales tax revenues; tax increment or
tax allocations; housing and special tax, including assessment district
and community facilities district (Mello-Roos) issues that are secured
by specific real estate parcels; hospital revenue; and industrial
development bonds that are secured by a private company.
</TABLE>
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<TABLE>
<S> <C>
PARTICIPATION INTERESTS: Interests in municipal 2 Market
securities from financial institutions such as Liquidity
commercial and investment banks, savings and loan Credit
associations and insurance companies. These interests Tax
are usually structured as some 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 interests to obtain credit enhancement on
demand features that would be available through direct
ownership of the underlying municipal securities.
REPURCHASE AGREEMENTS: The purchase of a security 2-4 Market
and the simultaneous commitment to return the Leverage
security to the seller at an agreed-upon price on an
agreed-upon date. This is treated as a loan.
REVERSE REPURCHASE AGREEMENT: The sale of a security 1-4 Market
and the simultaneous commitment to buy the security back Leverage
at an agreed-upon price on an agreed-upon date. This is
treated as a borrowing by a Fund.
RESTRICTED SECURITIES: Securities not registered under the 1-4 Liquidity
Securities Act of 1933, such as privately placed commercial Market
paper and Rule 144A securities.
SECURITIES LENDING: The lending of up to 33 1/3% of the 2, 3 Market
Fund's total assets. In return the Fund receives cash, Leverage
other securities and/or letters of credit. Liquidity
Credit
TAX-EXEMPT COMMERCIAL PAPER: Commercial paper 2, 3 Credit
issued by governments and political subdivisions. Liquidity
Market
Tax
TIME DEPOSITS: Non-negotiable receipts issued by a 2, 3 Liquidity
bank in exchange for a deposit of money. Credit
Market
TREASURY RECEIPTS: Treasury receipts, Treasury investment 3, 4 Market
growth receipts and certificates of accrual of Treasury securities.
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued 2-4 Market
by agencies and instrumentalities of the U.S. government. Credit
These include Ginnie Mae, Fannie Mae and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, 1-4 Market
separately traded registered interest and principal
securities and coupons under bank entry safekeeping.
VARIABLE AMOUNT MASTER DEMAND NOTES: Unsecured 2-4 Credit
demand notes that permit the indebtedness 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,
</TABLE>
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<PAGE> 207
<TABLE>
<S> <C> <C>
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.
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations with 2-4 Credit
interest rates that are reset daily, weekly, quarterly or on Liquidity
some other schedule. Such instruments may be payable to a Market
Fund on demand.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: 1-4 Market
A purchase of, or contract to purchase, securities at a fixed Leverage
price for delivery at a future date. The portfolio managers of Liquidity
each Fund expect that commitments to enter into forward Credit
commitments or to purchase when-issued securities will not
exceed 25% of the Fund's total assets.
YANKEE BONDS AND SIMILAR OBLIGATIONS: U.S. dollar- 3 Market
denominated bonds issued by foreign corporations Credit
or governments. Sovereign bonds are those issued
by the government of a foreign country. Supranational
bonds are those issued by supranational entities, such
as the World Bank and European Investment Bank.
Canadian bonds are those issued by Canadian provinces.
ZERO-COUPON DEBT OBLIGATIONS: Bonds and other types of 1-4 Credit
debt that pay no interest, but are issued at a discount from Market
their value at maturity. When held to maturity, their entire Zero Coupon
return equals the difference between their issue price and
their maturity value.
</TABLE>
GLOSSARY OF INVESTMENT RISKS
This section discusses the risks associated with the securities and investment
techniques listed above, as well as the risks mentioned under the heading "What
Are the Main Risks of Investing in This Fund?" in each Fund profile. Because of
these risks, the value of the securities held by the Funds may fluctuate, as
will the value of your investment in the Funds. Certain types of investments
and Funds are more susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Generally speaking, the lower a security's credit rating, the
higher its credit risk. If a security's credit rating is downgraded, its price
tends to decline sharply, especially as it becomes more probable that the
issuer will default.
FOREIGN INVESTMENT RISK. Compared with investing in the United States,
investing in foreign markets involves a greater degree and variety of risk.
Investors in foreign markets may face delayed settlements, currency controls
and adverse economic developments as well as higher overall transaction costs.
Foreign governments may adopt currency controls or otherwise limit or prevent
investors from transferring their capital out of a country. In addition,
adverse fluctuations in the U.S. dollar's value versus other currencies may
reverse gains or widen losses from investments denominated in foreign
currencies. Exchange rate fluctuations also may impair an issuer's ability to
repay U.S. dollar-denominated debt, thereby increasing the credit risk of such
debt. Finally, the value of foreign securities may be seriously harmed by
incomplete or inaccurate financial information about their issuers, social
upheavals or political actions ranging from tax code changes to governmental
collapse. These risks are generally greater in the emerging markets than in the
developed markets of Europe and Japan.
31
<PAGE> 208
INTEREST-RATE RISK. The risk that debt prices overall will decline over short
or even long periods due to rising interest rates. This risk should be modest
for shorter-term securities and high for longer-term securities. Interest-rate
risk also involves the risk that falling interest rates will cause a Fund's
income, and thus its total return, to decline. This risk is generally greater
for shorter-term securities and lower for longer-term securities.
LEVERAGE RISK. The risk associated with securities or investment practices that
magnify small index or market movements into large changes in value. Leverage
is often created by investing in derivatives, but may be inherent in other
types of securities as well.
LIQUIDITY RISK. The risk that a security may be difficult or impossible to sell
at the time and price the seller wishes. The seller may have to accept a lower
price for the security, sell other securities instead or forego a more
attractive investment opportunity. Any or all of these limitations could
hamper the management or performance of a Fund.
MANAGEMENT RISK. The risk that a strategy used by a Fund's portfolio manager
may fail to produce the intended result. This includes the risk that changes in
the value of a hedging instrument will not match those of the asset being
hedged.
MARKET RISK. The risk that a security's market value may decline, especially
rapidly and unpredictably. These fluctuations may cause a security to be worth
less than the price the investor originally paid for it. Market risk may affect
a single issuer, industrial sector or the market as a whole. For fixed-income
securities, market risk is largely influenced by changes in interest rates.
Rising interest rates typically cause the value of bonds to decrease, while
falling rates typically cause the value of bonds to increase.
POLITICAL RISK. The risk of investment losses attributable to unfavorable
governmental or political actions, seizure of foreign deposits, changes in tax
or trade statutes or even governmental collapse and war.
PREPAYMENT RISK. The risk that an issuer will repay a security's principal at
an unexpected time. Prepayment risk is the chance that a large number of the
mortgages underlying a mortgage-backed security will be refinanced sooner than
the investor had expected. The investor is usually forced to reinvest the
proceeds in a security with a lower yield. This turnover may result in taxable
capital gains and, in addition, may decrease a portfolio's income. If an
investor paid a premium for the security, the prepayment may result in an
unexpected capital loss.
Prepayment risk generally increases when interest rates decline, and can make a
security's yield as well as its market price more volatile. Generally speaking,
the longer a security's maturity, the greater the prepayment risk it poses.
REGULATORY RISK. The risk that federal and state laws may restrict an investor
from seeking recourse when an issuer has defaulted on the interest and/or
principal payments it owes on its obligations. These laws include restrictions
on foreclosures, redemption rights after foreclosure, federal and state
bankruptcy and debtor relief laws, restrictions on "due on sale" clauses and
state usury laws.
TAX RISK. The risk that the issuer of a security will fail to comply with
certain requirements of the Internal Revenue Code, which would cause adverse
tax consequences for the issuer and potential losses for its investors.
ZERO COUPON RISK. The market prices of securities structured as zero coupon or
pay-in-kind securities are generally affected to a greater extent by interest
rate changes. These securities tend to be more volatile than securities that
pay interest periodically.
YEAR 2000 RISK. HighMark Funds depends on the smooth functioning of computer
systems in
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<PAGE> 209
almost every aspect of its business. Like other mutual funds, businesses and
individuals around the world, the HighMark Funds therefore could be adversely
affected if the computer systems used by its service providers do not properly
process dates on and after January 1, 2000, because they cannot distinguish
between the year 2000 and the year 1900. We are seeking assurances from each of
our service providers that they expect their systems to accommodate the year
2000 transition without significant adverse consequences to HighMark Funds. If
these assurances prove to be incorrect, HighMark shareholders may lose money as
a result of system failures or year 2000 computer difficulties experienced by
issuers of portfolio securities or custodians, banks, broker-dealers or others
with which we do business.
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<PAGE> 210
HOW TO OBTAIN MORE INFORMATION
INVESTMENT ADVISER
HighMark Capital Management, Inc.
475 Sansome Street
San Francisco, CA 94104
ADMINISTRATOR AND DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456
LEGAL COUNSEL
Ropes & Gray
1301 K Street, N.W., Suite 800 East
Washington, DC 20005
AUDITORS
Deloitte & Touche L.L.P.
50 Fremont Street
San Francisco, CA 94105-2230
More information about the Funds is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
More detailed information about the HighMark Funds is included in our SAI. We
have filed the SAI with the SEC and have incorporated it, by reference, into
this prospectus. This means that the SAI, for legal purposes, is a part of this
prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list the Funds' holdings and contain information on the market
conditions and investment strategies that significantly affected the HighMark
Funds' performance during the past year.
TO OBTAIN THE SAI, ANNUAL OR SEMI-ANNUAL REPORTS OR MORE INFORMATION:
BY TELEPHONE:
Call 1-800-433-6884
BY MAIL:
Write to us c/o
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456.
BY INTERNET: www.highmark-funds.com
FROM THE SEC: You can obtain our SAI, Annual and Semiannual Reports and other
information about HighMark Funds from the SEC's Web site (http://www.sec.gov).
You also may review and copy documents at the SEC Public Reference Room in
Washington, DC (for information call 1-800-SEC-0330). You may request documents
by mail from the SEC, upon payment of a duplicating fee, by writing to:
Securities and Exchange Commission, Public Reference Section, 450 5th Street,
N.W., Washington, DC 20549-6009.
HighMark Funds' Investment Company Act registration number is 811-05059.
34
<PAGE> 211
CROSS REFERENCE SHEET
Part A
<TABLE>
<CAPTION>
Form N-1A Item No. Prospectus Caption
- ------------------ ------------------
HIGHMARK FUNDS
--------------
MONEY MARKET FUNDS - CLASS S SHARES
<S> <C>
1. Front and Back Cover Pages ....................................... Cover Page; Back Page
2. Risk/Return Summary:
Investments, Risks and Performance................................ Individual HighMark Funds Profiles
3. Risk/Return Summary: Fee Table................................... Individual HighMark Funds Profiles
4. Investment Objectives, Principal Investment
Strategies, and Related Risk .................................... Individual HighMark Funds Profiles;
More About the HighMark Fund --
Investment Practices; More About the
HighMark Funds -- Glossary of Investment Risks
5. Management's Discussion of the Fund
Performance....................................................... Inapplicable
6. Management, Organization and Capital
Structure......................................................... More About the HighMark Funds - Investment Management
7. Shareholder Information........................................... Shareowner Guide - How to Invest in the HighMark Funds
8. Distribution Arrangements ........................................ Shareowner Guide - How to Invest in the HighMark Funds
9. Financial Highlights Information.................................. Financial Highlights
</TABLE>
<PAGE> 212
HIGHMARK FUNDS
MONEY MARKET FUNDS
100% U.S. Treasury Money Market Fund
California Tax-Free Money Market Fund
Diversified Money Market Fund
U.S. Government Money Market Fund
CLASS S SHARES
PROSPECTUS
November 30, 1999
The Securities and Exchange Commission has not approved or disapproved of these
securities or determined whether this prospectus is accurate or complete. Any
representation to the contrary is unlawful.
1
<PAGE> 213
HOW TO READ THIS PROSPECTUS
HighMark Funds is a mutual fund family that offers different classes of Shares
in separate investment portfolios (Funds). The Funds have individual investment
goals and strategies. This prospectus gives you important information about the
Class S Shares of HighMark's Money Market Funds that you should know before
investing. Each Fund also offers two additional classes of Shares called Class A
Shares and Fiduciary Shares, which are offered in separate prospectuses. In
addition, the HighMark U.S. Government Money Market Fund offers a class of
Shares called Class B Shares.
Please read this prospectus and keep it for future reference. The prospectus is
arranged into different sections so that you can easily review this important
information. The next page contains general information you should know about
investing in the HighMark Funds.
INDIVIDUAL HIGHMARK FUND PROFILES
X 100% U.S. Treasury Money Market Fund
X California Tax-Free Money Market Fund
X Diversified Money Market Fund
X U.S. Government Money Market Fund
SHAREOWNER GUIDE--HOW TO INVEST IN THE HIGHMARK FUNDS
X Choosing a Share Class
X Buying and Selling Shares
X Fees for Distribution of Shares
X Transaction Policies
X Dividends
X Taxes
MORE ABOUT THE HIGHMARK FUNDS
X Investment Management
X Financial Highlights
X Investment Practices
X Glossary of Investment Risks
FOR MORE INFORMATION ABOUT HIGHMARK FUNDS, PLEASE SEE THE BACK COVER OF THIS
PROSPECTUS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[FUND SUMMARY ICON] Fund Summary [YOUR ACCOUNT ICON] Your Account
[INVESTMENT STRATEGY ICON] Investment Strategy [INVESTMENT MANAGEMENT ICON] Investment Management
[YIELD ICON] What are the main risks of investing in this [FINANCIAL HIGHLIGHTS ICON] Financial Highlights
Fund?
[PERFORMANCE INFORMATION ICON] Performance Information [ADDITIONAL INVESTMENT PRACTICES AND RISKS ICON]
Additional Investment Practices and Risks
[FEES AND EXPENSES ICON] Fees and Expenses
</TABLE>
- --------------------------------------------------------------------------------
November 30, 1999
2
<PAGE> 214
INTRODUCTION
Each HighMark Fund is a mutual fund. A mutual fund pools shareholders' money
and, using professional investment managers, invests it in securities such as
stocks and bonds. Before you look at specific HighMark Funds, you should know a
few basics about investing in mutual funds.
The value of your investment in a mutual fund is based on the market prices of
the securities the fund holds. These prices change daily due to economic trends
and other developments that generally affect securities markets, as well as
those that affect particular firms and other types of issuers. These price
movements, also called volatility, vary depending on the types of securities a
fund owns and the markets where these securities are traded.
AS WITH OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR INVESTMENT IN A MUTUAL
FUND. YOUR INVESTMENT IN THE HIGHMARK FUNDS IS NOT A DEPOSIT OR AN OBLIGATION OF
UNION BANK OF CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK. IT IS NOT INSURED BY
THE FDIC OR ANY GOVERNMENT AGENCY.
Each Fund has its own investment goal and strategies for reaching that goal.
There is no guarantee that a Fund will achieve its goal. Before investing, make
sure that the Fund's goal matches your own.
The portfolio manager invests each Fund's assets in a way that he or she
believes will help the Fund achieve its goal. A manager's judgments about the
securities markets, economy and companies, and his or her investment selection,
may cause a Fund to underperform others with similar objectives.
3
<PAGE> 215
- --------------------------------------------------------------------------------
100% U.S. TREASURY MONEY MARKET FUND
- --------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
Investment Goal To seek current income with
liquidity and stability of principal
- --------------------------------------------------------------------------------
Investment Focus U.S. Treasury obligations
- --------------------------------------------------------------------------------
Principal Investment Strategy Invests exclusively in short-term
U.S. Treasury obligations
- --------------------------------------------------------------------------------
Share Price Volatility Low
- --------------------------------------------------------------------------------
Investor Profile Short-term or highly risk averse
investors seeking current income
from a money market fund that
invests entirely in U.S. Treasury
securities
- --------------------------------------------------------------------------------
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark 100% U.S. Treasury Money Market Fund seeks current income with
liquidity and stability of principal. The Fund invests exclusively in U.S.
Treasury securities and separately traded components of those securities called
"STRIPs."
To limit the Fund's interest-rate risk, the Fund's managers will maintain an
average weighted portfolio maturity of 90 days or less. In addition, each
individual security in the portfolio will have a maturity of no more than 397
days.
In choosing investments for the Fund, the portfolio managers consider such
factors as:
- - The outlook for interest rates
- - Buying and selling activity in the Treasury market as a whole and/or for
individual Treasury securities
- - Imbalances in the supply of Treasuries relative to demand
- - The appropriateness of particular securities to the Fund's objectives
For a more complete description of the various Treasury securities in which the
Fund can invest, please see "Investment Practices" beginning on page XX.
SIDEBAR: A portfolio's level of interest rate exposure is commonly indicated by
the term maturity. Generally speaking, the longer a portfolio's maturity, the
greater its level of interest rate exposure and, in turn, its risk/return
potential.
4
<PAGE> 216
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Interest-Rate Risk: The possibility that the Fund's investments may
decline in value due to an increase in interest rates, or that the
Fund's yield will decrease due to a decline in interest rates.
For more information about these risks, please see the Glossary of
Investment Risks on page ___.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR AN OBLIGATION OF UNION BANK OF
CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1
PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
Best Quarter Worst Quarter
-------- --------
( ) ( )
------ ------
* Because Class S Shares have only been offered since October 1, 1999, these
returns reflect the performance of the Fund's Fiduciary Shares, which are
offered in a separate prospectus. Class S Shares will have annual returns
substantially similar to those of the Fiduciary Shares because Class S Shares
and Fiduciary Shares each invest in the same portfolio of securities. Their
annual returns will differ only to the extent that they do not have the same
expenses. The performance information above is based on a calendar year. The
Fund's total return from 1/1/99 to 7/31/99 was ____%.
This table shows the Fund's average annual total returns for periods ending
12/31/98.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (12/1/90)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
100% U.S. TREASURY MONEY
MARKET FUND
Fiduciary Shares % % %
- ---------------------------------------------------------------------------------------------
</TABLE>
YIELD
The income a fund generates is commonly referred to as its yield. For money
market funds, yield is a more
5
<PAGE> 217
useful indication than total return of how a portfolio is performing. As a
result, advertisements and other communications about the HighMark 100% U.S.
Treasury Money Market Fund will typically mention the portfolio's yield. There
are various types of yield, including current or 7-day yield and effective
yield. All mutual funds must use the same formulas to calculate each of these
yields.
The formula for effective yield assumes that investors take advantage of
compounding by reinvesting their dividends; current or seven-day yield does not
make the same assumption. As a result, a portfolio's effective yield typically
will be slightly higher than its current or seven-day yield. Both types of yield
will tend to fluctuate daily due to such factors as a fund's interest-rate
exposure as well as the credit quality of its portfolio holdings.
To obtain the most current yield information for the Fund, please call
1-800-433-6884.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the fees you would pay directly from your investment if you
buy or sell Fund Shares.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS S SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)
</TABLE>
The table below describes the expenses you would pay indirectly if you hold Fund
Shares.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- -------------------------------------------------------------------------------------------------------
CLASS S SHARES
<S> <C>
Investment Advisory Fees 0.30%*
Distribution/Service (12b-1) Fees 0.55%
Other Expenses %*
-----
Total Annual Fund Operating Expenses %*
</TABLE>
During the past fiscal year, the Adviser waived 0.05% of its investment
advisory fee. Other Expenses are based on estimated amounts for the current
fiscal year. For the current fiscal year, we expect Other Expenses to be waived
by __% or reimbursed by __%. These waivers and reimbursements are voluntary and
may be terminated at any time. Accordingly, we expect the Fund's actual annual
operating expenses for the current fiscal year to be as follows:
6
<PAGE> 218
<TABLE>
<CAPTION>
CLASS S SHARES
<S> <C>
Investment Advisory Fees 0.25%
Distribution/Service (12b-1) Fees 0.55%
Other Expenses %
-----
Total Annual Fund Operating Expenses %
</TABLE>
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class S Shares $ $ $ $
--- --- --- ---
7
<PAGE> 219
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
Investment Goal
To seek current income exempt from
federal and California state income taxes
with liquidity and stability of principal
- --------------------------------------------------------------------------------
Investment Focus California tax-free money market
securities
- --------------------------------------------------------------------------------
Principal Investment Strategy Attempts to invest in high-quality,
short-term California tax-free securities
- --------------------------------------------------------------------------------
Share Price Volatility Low
- --------------------------------------------------------------------------------
Investor Profile California residents seeking income
exempt from federal and California state
personal income taxes
- --------------------------------------------------------------------------------
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark California Tax-Free Money Market Fund seeks as high a level of current
income exempt from federal and California personal income tax as is consistent
with the preservation of capital and stability of principal.
To pursue this goal, the Fund invests primarily in short-term, high-quality
California municipal securities. It may also invest up to 10% of its assets in
other mutual funds with similar objectives. The Fund may, in addition, invest up
to 20% in short-term obligations that pay interest which is not exempt from
California personal income taxes, federal income taxes and/or the alternative
minimum tax.
To limit the Fund's interest-rate risk, the Fund's managers will maintain an
average weighted portfolio maturity of 90 days or less. In addition, each
individual security in the portfolio will have a maturity of no more than 397
days.
In choosing investments for the Fund, the portfolio managers consider such
factors as:
- - The outlook for interest rates
- - Buying and selling activity in the California municipal securities market
as a whole and/or for individual securities
8
<PAGE> 220
- - Imbalances in the supply of securities relative to demand
- - The appropriateness of particular securities to the Fund's objectives
In an effort to preserve the value of your investment under volatile market
conditions, the managers may temporarily invest a significant amount of the
Fund's assets in very short-term taxable obligations called money market
securities. They may also do so when there is not a sufficient supply of
California municipal securities that meet their investment criteria.
(For a more complete description of the various securities in which the Fund can
invest, please see "Investment Practices" on page X.)
[SIDEBAR Municipal securities are issued by California and other states, cities
and municipalities to help finance utilities, schools, public works projects and
facilities, among other things. High-quality securities are those rated in the
top two credit rating categories by nationally recognized rating agencies such
as Standard & Poor's.
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
State Specific Risk: By concentrating its investments in California, the
Fund may be more
Interest-Rate Risk: The possibility that the Fund's investments will
decline in value due to an increase in interest rates, or that the
Fund's yield will decrease due to a decline in interest rates.
Credit Risk: The possibility that an issuer cannot make timely interest
and principal payments on its obligations. The lower a security's
rating, the greater its credit risk.
For more information about these risks, please see "Additional
Investment Practices and Risks" starting on page __.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR AN OBLIGATION OF UNION BANK OF
CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1
PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
Best Quarter Worst Quarter
-------- --------
( ) ( )
------ ------
9
<PAGE> 221
* Because Class S Shares have only been offered since October 1, 1999, these
returns reflect the performance of the Fund's Fiduciary Shares, which are
offered in a separate prospectus. Class S Shares will have annual returns
substantially similar to those of the Fiduciary Shares because Class S Shares
and Fiduciary Shares each invest in the same portfolio of securities. Their
annual returns will differ only to the extent that they do not have the same
expenses. The performance information above is based on a calendar year. The
Fund's total return from 1/1/99 to 7/31/99 was ____%.
This table shows the Fund's average annual total returns for periods ending
12/31/98.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (6/10/91)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA TAX-FREE MONEY MARKET
FUND
Fiduciary Shares % % %
- ---------------------------------------------------------------------------------------
</TABLE>
YIELD
The income a fund generates is commonly referred to as its yield. For money
market funds, yield is a more useful indication than total return of how a
portfolio is performing. As a result, advertisements and other communications
about the HighMark California Tax-Free Money Market Fund will typically mention
the portfolio's yield. There are various types of yield, including current or
7-day yield and effective yield. All mutual funds must use the same formulas to
calculate each of these yields.
The formula for effective yield assumes that investors take advantage of
compounding by reinvesting their dividends; current or seven-day yield does not
make the same assumption. As a result, a portfolio's effective yield typically
will be slightly higher than its current or seven-day yield. Both types of yield
will tend to fluctuate daily due to such factors as a fund's interest-rate
exposure as well as the type and credit quality of its portfolio holdings.
To obtain the most current yield information for the Fund, please call
1-800-433-6884.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the fees you pay directly from your investment if you buy
or sell Fund Shares.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS S SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)
</TABLE>
10
<PAGE> 222
The table below describes the expenses you would pay indirectly if you hold Fund
Shares.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS S SHARES
<S> <C>
Investment Advisory Fees 0.30%*
Distribution/Service (12b-1) Fees 0.55%
Other Expenses %*
-----
Total Annual Fund Operating Expenses %*
</TABLE>
* During the past fiscal year, the Adviser waived 0.20% of its investment
advisory fee until 6/1/99, when the waiver was reduced to 0.15%. The waiver was
reduced to 1.10% on 11/30/99. Other Expenses are based on estimated amounts for
the current fiscal year. For the current fiscal year, we expect Other Expenses
to be waived by __% or reimbursed by __%. These waivers and reimbursements are
voluntary and may be terminated at any time. Accordingly, we expect the Fund's
actual annual operating expenses for the current fiscal year to be as follows:
<TABLE>
<CAPTION>
CLASS S SHARES
<S> <C>
Investment Advisory Fees 0.15% **
Distribution/Service (12b-1) Fees 0.55%
Other Expenses %
-----
Total Annual Fund Operating Expenses %
</TABLE>
**The Adviser received 0.10% until 5/31/99 and 0.15% after 6/1/99.
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class S Shares $ $ $ $
--- --- --- ---
11
<PAGE> 223
- --------------------------------------------------------------------------------
DIVERSIFIED MONEY MARKET FUND
- --------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
Investment Goal To seek current income with liquidity
and stability of principal
- --------------------------------------------------------------------------------
Investment Focus High-quality, short-term debt securities
- --------------------------------------------------------------------------------
Principal Investment Strategy Employs top-down analysis of economic
and market factors to select Fund
investments
- --------------------------------------------------------------------------------
Share Price Volatility Low
- --------------------------------------------------------------------------------
Investor Profile Short-term or risk-averse investors
seeking our typically highest-yielding
money market fund.
- --------------------------------------------------------------------------------
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark Diversified Money Market Fund seeks to generate current income with
liquidity and stability of principal. To pursue this goal, the Fund invests
primarily in high-quality, short-term debt securities. "High-quality" securities
are those that at least one nationally recognized rating agency such as Standard
& Poor's has judged financially strong enough to be included in its highest
credit-quality category for short-term securities. The Fund may also invest in
nonrated securities if the portfolio managers believe they are of comparably
high quality.
In choosing investments for the Fund, the portfolio managers consider several
factors, including:
- - The outlook for interest rates
- - Buying and selling activity in the high-quality, short-term securities
market as a whole and/or for individual securities
- - Current imbalances in the supply of high-quality, short-term securities
relative to demand
- - The appropriateness of particular securities to the Fund's objectives
To limit the Fund's interest-rate risk, the Fund's managers will maintain an
average weighted portfolio maturity of 90 days or less. In addition, each
individual security in the portfolio will have a maturity of no more than 397
days.
Although the portfolio managers strive to ensure that the Fund is diversified,
from time to time they may concentrate the Fund's assets in certain securities
issued by U.S. banks, U.S. branches of foreign banks and foreign branches of
U.S. banks, to the extent permitted under applicable SEC guidelines, if they
believe it is in the best interest of the Fund's shareholders.
12
<PAGE> 224
(For a more complete description of the various securities in which the Fund can
invest, please see Investment Practices on page X.)
[SIDEBAR: A portfolio's level of interest rate exposure is commonly indicated
by the term maturity. Generally speaking, the longer a portfolio's maturity,
the greater its level of interest rate exposure and, in turn, its risk/return
potential.]
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Interest-Rate Risk: The possibility that the value of the Fund's
investments will decline due to an increase in interest rates, or that
the Fund's yield will decrease due to a decline in interest rates.
Credit Risk: The possibility that an issuer cannot make timely interest
and principal payments on its securities. In general, the lower a
security's credit rating, the higher its credit risk.
For more information about these risks, please see the Glossary of
Investment Risks on page __.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR AN OBLIGATION OF UNION BANK OF
CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1
PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
Best Quarter Worst Quarter
------- -------
( ) ( )
----- -----
* Because Class S Shares have only been offered since October 1, 1999, these
returns reflect the performance of the Fund's Fiduciary Shares, which are
offered in a separate prospectus. Class S Shares will have annual returns
substantially similar to those of the Fiduciary Shares because Class S Shares
and Fiduciary Shares each invest in the same portfolio of securities. Their
annual returns will differ only to the extent that they do not have the same
expenses. The performance information shown above is based on a calendar year.
The Fund's total return from 1/1/99 to 7/31/99 was ____%.
This table shows the Fund's average annual total returns for periods ending
12/31/98.
13
<PAGE> 225
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (6/10/91)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
DIVERSIFIED MONEY MARKET FUND
Fiduciary Shares % %
- --------------------------------------------------------------------------------------
</TABLE>
YIELD
The income a fund generates is commonly referred to as its yield. For money
market funds, yield is a more useful indication than total return of how a
portfolio is performing. As a result, advertisements and other communications
about the HighMark Diversified Money Market Fund will typically mention the
portfolio's yield. There are various types of yield, including current or 7-day
yield and effective yield. All mutual funds must use the same formulas to
calculate each of these yields.
The formula for effective yield assumes that investors take advantage of
compounding by reinvesting their dividends; current or seven-day yield does not
make the same assumption. As a result, a portfolio's effective yield typically
will be slightly higher than its current or seven-day yield. Both types of yield
will tend to fluctuate daily due to such factors as a fund's interest-rate
exposure as well as the type and credit quality of its portfolio holdings. To
obtain the most current yield information for the Fund, please call
1-800-433-6884.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the fees you would pay directly from your investment if you
buy or sell Fund Shares.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS S SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)
</TABLE>
The table below describes the expenses you would pay indirectly if you hold Fund
Shares.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS S SHARES
<S> <C>
Investment Advisory Fees 0.30%
Distribution/Service (12b-1) Fees 0.55%
Other Expenses %*
-----
Total Annual Fund Operating Expenses %*
</TABLE>
14
<PAGE> 226
* Other Expenses are based on estimated amounts for the current fiscal year. For
the current fiscal year, we expect Other Expenses to be waived by __% or
reimbursed by __%. These waivers and reimbursements are voluntary and may be
terminated at any time. Accordingly, we expect the Fund's actual annual
operating expenses for the current fiscal year to be as follows:
<TABLE>
<CAPTION>
CLASS S SHARE
<S> <C>
Investment Advisory Fees 0.30%
Distribution/Service (12b-1) Fees 0.55%
Other Expenses %
-----
Total Annual Fund Operating Expenses %
</TABLE>
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class S Shares $ $ $ $
--- --- --- ---
15
<PAGE> 227
- --------------------------------------------------------------------------------
100% U.S. TREASURY MONEY MARKET FUND
- --------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
Investment Goal To seek current income with liquidity
and stability of principal
- --------------------------------------------------------------------------------
Investment Focus Short-term obligations issued or
guaranteed by the U.S. government and
its agencies
- --------------------------------------------------------------------------------
Principal Investment Strategy Employs top-down analysis of economic
and market factors to select Fund
investments
- --------------------------------------------------------------------------------
Share Price Volatility Low
- --------------------------------------------------------------------------------
Investor Profile Short-term or risk-averse investors
seeking a money market fund investing
primarily in U.S. government
obligations
- --------------------------------------------------------------------------------
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
HighMark U.S. Government Money Market Fund seeks current income with liquidity
and stability of principal. To pursue this goal, the Fund invests exclusively in
short-term debt obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, such as the Government National Mortgage
Association ("Ginnie Mae") and the U.S. Export-Import Bank. Some of these debt
obligations may be subject to repurchase agreements.
To limit the Fund's interest-rate risk, the Fund's managers will maintain an
average weighted portfolio maturity of 90 days or less. In addition, each
individual security in the portfolio will have a maturity of no more than 397
days.
In choosing investments for the Fund, the portfolio managers consider such
factors as:
- - The outlook for interest rates
- - Buying and selling activity in the U.S. government securities market as a
whole and/or for individual securities
- - Imbalances in the supply of U.S. government securities relative to
demand
- - The appropriateness of particular securities to the Fund's objectives.
(For a more complete description of the securities in which the Fund can invest,
please see Investment
16
<PAGE> 228
Practices on page X.)
SIDEBAR: A portfolio's level of interest rate exposure is commonly indicated by
the term maturity. Generally speaking, the longer a portfolio's maturity, the
greater its level of interest rate exposure and, in turn, its risk/return
potential.
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Interest-Rate Risk: The possibility that the Fund's investments may
decline in value due to an increase in interest rates, or that the
Fund's yield will decrease due to declining interest rates.
Credit Risk: The possibility that an issuer cannot make timely interest
and principal payments on its securities. In general, the lower a
security's credit rating, the higher its credit risk.
For more information about these risks, please see the Glossary of
Investment Risks on page __.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OR AN OBLIGATION OF UNION BANK OF
CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK, AND IT IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1
PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
Best Quarter Worst Quarter
------- -------
( ) ( )
----- -----
* Because Class S Shares have only been offered since October 1, 1999, these
returns reflect the performance of the Fund's Fiduciary Shares, which are
offered in a separate prospectus. Class S Shares will have annual returns
substantially similar to those of the Fiduciary Shares because Class S Shares
and Fiduciary Shares each invest in the same portfolio of securities. Their
annual returns will differ only to the extent that they do not have the same
expenses. The performance information above is based on a calendar year. The
Fund's total return from 1/1/99 to 7/31/99 was ____%.
This table shows the Fund's average annual total returns for periods ending
12/31/98.
17
<PAGE> 229
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (8/10/87)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT MONEY MARKET FUND
Fiduciary Shares % % % %
- ----------------------------------------------------------------------------------------------------------
</TABLE>
YIELD
The income a fund generates is commonly referred to as its yield. For money
market funds in particular, yield is a more useful indication than total return
of how a portfolio is performing. As a result, advertisements and other
communications about the HighMark U.S. Government Money Market Fund will
typically mention the portfolio's yield. There are various types of yield,
including current or 7-day yield and effective yield. All mutual funds must use
the same formulas to calculate each of these yields.
The formula for effective yield assumes that investors take advantage of
compounding by reinvesting their dividends; current or seven-day yield does not
make the same assumption. As a result, a portfolio's effective yield typically
will be slightly higher than its current or seven-day yield. Both types of yield
will tend to fluctuate daily due to such factors as a fund's interest-rate
exposure as well as the type and credit quality of its portfolio holdings.
To obtain the most current yield information for the Fund, please call
1-800-433-6884.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the fees you would pay directly from your investment if you
buy or sell Fund Shares.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS S SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)
</TABLE>
The table below describes the expenses you would pay indirectly if you hold Fund
Shares.
18
<PAGE> 230
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS S SHARES
<S> <C>
Investment Advisory Fees 0.30%
Distribution/Service (12b-1) Fees 0.55%
Other Expenses %*
----
Total Annual Fund Operating Expenses %*
</TABLE>
* Other Expenses are based on estimated amounts for the current fiscal year.
For the current fiscal year, we expect Other Expenses to be waived by __% or
reimbursed by __%. These waivers and reimbursements are voluntary and may be
terminated at any time. Accordingly, we expect the Fund's actual annual
operating expenses for the current fiscal year to be as follows:
<TABLE>
<CAPTION>
CLASS S SHARES
<S> <C>
Investment Advisory Fees 0.30%
Distribution/Service (12b-1) Fees 0.55%
Other Expenses %
----
Total Annual Fund Operating Expenses %
</TABLE>
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class S Shares $ $ $ $
--- --- --- ---
19
<PAGE> 231
SHAREOWNER GUIDE--HOW TO INVEST IN
THE HIGHMARK FUNDS
Before you invest, we encourage you to carefully read the HighMark Fund profiles
included in this prospectus and consider which Funds are appropriate for your
particular financial situation, risk tolerance and goals. As always, your
financial representative can provide you with valuable assistance in making this
decision. He or she can also help you choose which of the Fund share classes we
offer is right for you.
CHOOSING A SHARE CLASS
HighMark Funds offers different classes of Fund Shares, which have different
expenses and other characteristics. Only one class of Fund Shares, Class S
Shares, is offered in this prospectus. To choose the one that is best suited to
your needs and goals, consider the amount of money you want to invest, how long
you expect to invest it and whether you plan to make additional investments. The
following are some of the main characteristics of HighMark's Class S Shares:
CLASS S SHARES
- - No sales charge.
- - Distribution (12b-1) fees of 0.55%.
- - Available only to investors in Union Bank of California, N.A.'s Corporate
Sweep service.
For the actual past expenses of the Class S Shares, see the individual Fund
profiles earlier in this prospectus.
The Funds also offer Class A and Class B (collectively "Retail Shares") and
Fiduciary Shares, each of which has its own expense structure. Fiduciary Shares
are available only to financial institutions, fiduciary clients of Union Bank of
California, N.A., and certain other qualified investors. Retail Shares are
available to non-fiduciary clients of Union Bank of California, N.A., who are
not otherwise eligible for Fiduciary Shares. Call us at 1-800-433-6884 for more
details.
20
<PAGE> 232
BUYING AND SELLING SHARES
Class S Shares are designed to provide convenience through automatic investment
of uninvested cash balances of those investors in Union Bank of California's
Corporate Sweep service. If you participate in the sweep service, you may choose
a Fund as your "primary fund" and uninvested cash balances in your account will
be automatically invested in Class S Shares of your primary fund, according to
the terms and conditions of your account agreement with Union Bank of
California. Class S Shares of a primary fund also will be sold to cover any
negative cash balance in your account, according to the terms and conditions of
your account agreement. Union Bank of California will maintain an omnibus
account with the Fund for its sweep customers. Please contact Union Bank of
California for more information.
We reserve the right to reject a purchase order if we determine that it is not
in the best interest of HighMark Funds or its shareholders.
FEES FOR DISTRIBUTION OF SHARES
HighMark Funds has adopted 12b-1 plans with respect to Class S Shares that allow
each Fund to pay distribution and service fees. The maximum distribution and
service fee for Class S Shares is as follows:
Percentage of Average
Share Class Daily Net Assets
----------- ----------------
Class S 0.55%
TRANSACTION POLICIES
VALUATION OF SHARES. A Fund's net asset value is calculated according to the
following formula:
(Total mkt. value of the Fund's investments and other assets - any Fund
liabilities)
divided by Total number of the Fund's Shares outstanding
--------------------------------------------------------
= Fund's net asset value
We determine the net asset value (NAV) of each HighMark Money Market Fund as of
10:00 a.m. Pacific time (1:00 p.m. Eastern time) every business day, based on
the amortized cost of the Fund's assets. Amortized cost does not take into
account unrealized capital gains or losses. We strive to keep each money market
fund's NAV at a constant $1.00, but there is a remote possibility that you could
lose money by investing in the Funds. If the amortized cost of a Fund's assets
is not available, we value its securities by using a method that the Funds'
Board of Trustees believes accurately reflects fair value. For further
information about how we determine the value of the Funds' investments, see the
Statement of Additional Information.
BUY AND SELL PRICES. When you invest in a Fund, the number of Shares you receive
is based on the net asset value we next determine after receiving your order.
When you sell Shares, you receive proceeds based on the net asset value we next
determine after receiving your order.
EXECUTION OF ORDERS. You may buy and sell Shares of the HighMark Money Market
Funds on any day when both the Federal Reserve Wire System and the New York
Stock Exchange are open for business (hereafter referred to as a "business
day").
- - Purchasing Shares by Mail: If you mail us a purchase order, we will
execute it after we have received your payment. (Note: If your check
does not clear, we will be forced to cancel your purchase and may hold
you liable for any losses or fees incurred.)
- - Purchasing Shares by Wire: If you place a purchase order by wire on any
business day, we will execute it that day, provided that we have
received your order by the following times:
- California Tax-Free Money Market Fund: Before 8:00 a.m. PT
(11:00 a.m. ET)
21
<PAGE> 233
- 100% U.S. Treasury Fund: Before 9:00 a.m. PT (12:00 noon
ET)
- Diversified Money Market Fund: Before 11:00 a.m. PT (2:00
p.m. ET)
- U.S. Government Money Market Fund: Before 11:00 a.m. PT
(2:00 p.m. ET)
In addition, you must wire the money you wish to invest to our Transfer
Agent prior to 11:00 a.m. PT (2:00 p.m. ET). If we do not receive your
order or the money you plan to wire by these deadlines, we will execute
your order the following business day or whenever we have received your
order and/or payment.
- - Selling Shares: To sell Shares on any one business day, you must place
your redemption order by the following times:
- California Tax-Free Money Market Fund: Before 8:00 a.m. PT
(11:00 a.m. ET)
- 100% U.S. Treasury Fund: Before 9:00 a.m. PT (12:00 noon
ET)
- Diversified Money Market Fund: Before 11:00 a.m. PT (2:00
p.m. ET)
- U.S. Government Money Market Fund: Before 11:00 a.m. PT
(2:00 p.m. ET)
If we do not receive your request by the times listed above, we will execute
your order the following business day.
DIVIDENDS
We declare each HighMark Money Market Fund's net income at the close of each
business day and pay any dividends to shareholders monthly.
We will automatically reinvest any income and capital gains distributions you
are entitled to in additional Shares of your Fund(s), unless you notify our
Transfer Agent that you want to receive your distributions in cash. To do so,
send a letter with your request, including your name and account number, to:
HighMark Funds
c/o State Street Bank and Trust Company
P.O. Box 8416
Boston, MA 02266-8416
Your request will become effective for distributions having record dates after
our Transfer Agent receives your request. Note that the IRS treats dividends
paid in additional Fund Shares the same as it treats dividends paid in cash.
TAXES
Your mutual fund investments may have a considerable impact on your tax
situation. We've summarized some of the main points you should know below. Note,
however, that the following is general information and will not apply to you if
you are investing through a tax-deferred account such as an IRA or a qualified
employee benefit plan. In addition, if you are not a resident of the United
States, you may have to pay taxes besides those described here, such as U.S.
withholding and estate taxes.
IMPORTANT NOTE: IF YOU HAVE NOT DONE SO ALREADY, BE SURE TO PROVIDE US WITH YOUR
CORRECT TAXPAYER IDENTIFICATION NUMBER OR CERTIFY THAT IT IS CORRECT. UNLESS WE
HAVE THAT INFORMATION, WE MUST, BY LAW, WITHHOLD 31% OF THE TAXABLE
DISTRIBUTIONS YOU WOULD OTHERWISE BE ENTITLED TO RECEIVE FROM YOUR FUND
INVESTMENTS AS WELL AS ANY PROCEEDS YOU WOULD NORMALLY RECEIVE FROM SELLING FUND
SHARES.
END-OF-YEAR TAX STATEMENTS
We will send you a statement each year showing the tax status of all your
distributions. The laws governing taxes change frequently, so please consult
your tax Adviser for the most up-to-date information and specific guidance about
your particular tax situation. You can find more
22
<PAGE> 234
information about the potential tax consequences of mutual fund investing in
our Statement of Additional Information.
SPECIAL CONSIDERATIONS FOR SHAREHOLDERS OF THE HIGHMARK CALIFORNIA TAX-FREE
MONEY MARKET FUND:
We expect that the income dividends you receive from the Fund will be exempt
from federal and California state personal income taxes. The IRS will tax any
short-term capital gains you receive from the Fund as ordinary income. If you
receive Social Security or railroad retirement benefits, you should consult your
tax Adviser to determine whether investing in the Fund could increase the
federal taxation of your benefits. In addition, some of the income you receive
from the Fund may be included in the computation of federal and state
alternative minimum tax liability.
TAXES ON FUND DISTRIBUTIONS
- - FEDERAL TAXES: The IRS treats any dividends and short-term capital gains
you receive from the Funds as ordinary income.
- - STATE AND LOCAL TAXES: In addition to federal taxes, you may have to pay
state and local taxes on the dividends or capital gains you receive from
a Fund.
- - TAXATION OF LONG-TERM CAPITAL GAINS: You may have to pay federal and
state taxes on any distributions of net long-term capital gains you
receive from a Fund at the long-term capital gains rate, no matter how
long you've owned Shares in the Fund. (Although some states, like
California, do not have a special rate for capital gains).
- - "BUYING A DIVIDEND": You may owe taxes on Fund distributions even if
they represent income or capital gains the Fund earned before you
invested in it and thus were likely included in the price you paid.
THE TAX CONSIDERATIONS DESCRIBED ABOVE MAY OR MAY NOT APPLY TO YOU. PLEASE
CONSULT YOUR TAX ADVISER TO HELP DETERMINE WHETHER THESE CONSIDERATIONS ARE
RELEVANT TO YOUR INVESTMENTS AND TAX SITUATION.
MORE ABOUT THE HIGHMARK FUNDS
INVESTMENT MANAGEMENT
INVESTMENT ADVISER
HighMark Capital Management, Inc., serves as investment adviser of the HighMark
Funds and manages their investment portfolios on a day-to-day basis under the
supervision of the HighMark Funds' Board of Trustees.
HighMark Capital Management is a subsidiary of UnionBanCal Corporation, the
holding company of Union Bank of California, N.A. UnionBanCal Corporation is a
publicly held corporation principally owned by The Bank of Tokyo-Mitsubishi,
Ltd. As of September 30, 1999, UnionBanCal Corporation and its subsidiaries had
approximately $____ billion in consolidated assets. As of the same date,
HighMark Capital Management had approximately $____ billion in assets under
management. HighMark Capital Management (and its predecessors), 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.
Over the past fiscal year, the Funds paid the following management fees to
HighMark Capital Management:
Fund % of Net Assets
---- ---------------
100% U.S. Treasury Money Market Fund 0.25%
California Tax-Free Money Market Fund 0.15%*
Diversified Money Market Fund 0.30%
23
<PAGE> 235
U.S Government Money Market Fund 0.30%
*From 8/1/98 through 5/31/99, the adviser was paid 0.10%. From 6/1/99 through
7/31/99, the adviser was paid 0.15%.
24
<PAGE> 236
FINANCIAL HIGHLIGHTS
Financial information for the Class S Shares of the Funds is not
presented because Class S Shares were not offered prior to October 1, 1999.
Please see "Financial Statements" in the Statement of Additional Information
for financial information regarding other share classes of the Funds.
25
<PAGE> 237
INVESTMENT PRACTICES
The Funds invest in a variety of securities and employ a number of investment
techniques. Each security and technique involves certain risks. Fixed-income
securities are subject primarily to market, credit and prepayment risk. The
table below describes the securities and techniques the Funds use, as well as
the main risks they pose. Following the table is a more complete discussion of
risk. You may also consult the Statement of Additional Information for more
details about the securities in which the Funds may invest.
FUND NAME FUND CODE
- --------- ---------
100% U.S. Treasury Money Market Fund 1
California Tax-Free Money Market Fund 2
Diversified Money Market Fund 3
U.S. Government Money Market Fund 4
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
---------- --------- ---------
<S> <C> <C>
ASSET-BACKED SECURITIES: Securities backed by company 2, 3 Pre-payment
receivables, home equity loans, truck and auto loans, Market
leases, credit card receivables and other securities backed Credit
by other types of receivables or assets. Regulatory
BANKERS' ACCEPTANCES: Bills of exchange or time drafts 2, 3 Credit
drawn on and accepted by a commercial bank. They generally Liquidity
have maturities of six months or less. Market
BONDS: Interest-bearing or discounted government 2, 3 Market
or corporate securities that obligate the issuer to Political
pay the bondholder a specified sum of money, Liquidity
usually at specific intervals, and to repay the Foreign
principal amount of the loan at maturity. Investment
CERTIFICATES OF DEPOSIT: Negotiable instruments 2, 3 Market
with a stated maturity. Credit
Liquidity
COMMERCIAL PAPER: Secured and unsecured short-term 2-4 Credit
promissory notes issued by corporations and other entities. Liquidity
Their maturities generally vary from a few days to nine months. Market
DEMAND NOTES: Securities that are subject to puts and 2-4 Market
standby commitments to purchase the securities at a fixed Liquidity
price (usually with accrued interest) within a fixed period Management
of time following demand by a Fund.
DERIVATIVES: Instruments whose value is derived from 2-4 Management
an underlying contract, index or security, or any Market
combination thereof, including futures, options Credit
(e.g., put and calls), options on futures, swap Liquidity
agreements and some mortgage-backed securities. Leverage
FOREIGN SECURITIES: Commercial paper of foreign 2, 3 Market
issuers and obligations of foreign banks, overseas Political
</TABLE>
26
<PAGE> 238
<TABLE>
<S> <C> <C>
branches of U.S. banks and supranational entities. Liquidity
Foreign
Investment
ILLIQUID SECURITIES: Securities that ordinarily cannot be 1-4 Liquidity
sold within seven business days at the value the Fund Market
has estimated for them. Each HighMark Fund may invest
up to 10% of its net assets in illiquid securities.
INVESTMENT COMPANY SECURITIES: Shares of registered 4 Market
investment companies. These may include HighMark money
market funds and other registered investment companies for
which HighMark, its subadvisers, or any of their affiliates
serves as investment Adviser, administrator or distributor.
Each Fund may invest up to 5% of its assets in the Shares
of any one registered investment company that has an
investment objective similar to the Fund's. A Fund may
not, however, own more than 3% of the securities of any
one registered investment company or invest more than
10% of its assets in the Shares of other registered
investment companies. As a shareholder of an investment
company, a Fund will indirectly bear the investment
management fees of that investment company, which are
in addition to the management fees the Fund pays its own
Adviser.
INVESTMENT GRADE SECURITIES: Securities rated BBB or 2, 3 Market
better by Moody's, similarly rated by other nationally Credit
recognized rating organizations, or, if not rated, determined
to be of comparably high quality by the Adviser.
MORTGAGE-BACKED SECURITIES: Securities backed by real- 2, 3 Prepayment
estate loans and pools of loans. These include Market
collateralized mortgage obligations (CMOs) and Credit
real estate mortgage investment conduits (REMICs). Regulatory
MUNICIPAL SECURITIES: Securities issued by a state or 2 Market
political subdivision to obtain money for various public Credit
purposes. Municipal securities include private activity bonds Political
and industrial development bonds, as well as general Tax
obligation bonds, tax anticipation notes, bond anticipation Regulatory
notes, revenue anticipation notes, project notes, other
short-term tax-exempt obligations, municipal leases and
obligations of municipal housing authorities (single
family revenue bonds).
There are two general types of municipal bonds: General-obligation
bonds, which are secured by the taxing power of the issuer (and,
in California, have the approval of voters) and revenue bonds,
which take many shapes and forms but are generally backed by
revenue from a specific project or tax. These include, but are not
limited to, certificates of participation (COPs); utility and
sales tax revenues; tax increment or tax allocations; housing and
special tax, including assessment district and community
facilities district (Mello-Roos) issues that are secured by
specific real estate parcels; hospital revenue; and industrial
development bonds that are secured by a private company.
</TABLE>
27
<PAGE> 239
<TABLE>
<S> <C> <C>
PARTICIPATION INTERESTS: Interests in municipal securities 2 Market
from financial institutions such as commercial and Liquidity
investment banks, savings and loan associations and Credit
insurance companies. These interests are usually structured Tax
as some 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 interests to obtain
credit enhancement on demand features that would be
available through direct ownership of the underlying
municipal securities.
REPURCHASE AGREEMENTS: The purchase of a security 2-4 Market
and the simultaneous commitment to return the Leverage
security to the seller at an agreed-upon price on an agreed-
upon date. This is treated as a loan.
REVERSE REPURCHASE AGREEMENT: The sale of a security 1-4 Market
and the simultaneous commitment to buy the security back Leverage
at an agreed-upon price on an agreed-upon date. This is
treated as a borrowing by a Fund.
RESTRICTED SECURITIES: Securities not registered under the 1-4 Liquidity
Securities Act of 1933, such as privately placed commercial Market
paper and Rule 144A securities.
SECURITIES LENDING: The lending of up to 33 1/3% of the 2, 3 Market
Fund's total assets. In return the Fund receives cash, Leverage
other securities and/or letters of credit. Liquidity
Credit
TAX-EXEMPT COMMERCIAL PAPER: Commercial paper 2, 3 Credit
issued by governments and political subdivisions. Liquidity
Market
Tax
TIME DEPOSITS: Non-negotiable receipts issued by a 2, 3 Liquidity
bank in exchange for a deposit of money. Credit
Market
TREASURY RECEIPTS: Treasury receipts, Treasury investment 3, 4 Market
growth receipts and certificates of accrual of Treasury
securities.
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued 2-4 Market
by agencies and instrumentalities of the U.S. government. Credit
These include Ginnie Mae, Fannie Mae and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, 1-4 Market
separately traded registered interest and principal
securities and coupons under bank entry safekeeping.
VARIABLE AMOUNT MASTER DEMAND NOTES: Unsecured 2-4 Credit
demand notes that permit the indebtedness to vary and provide
for periodic adjustments in the interest rate according to the
terms of the instrument. Because master demand notes are
</TABLE>
28
<PAGE> 240
<TABLE>
<S> <C> <C>
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.
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations with interest rates 2-4 Credit
that are reset daily, weekly, quarterly or on some other schedule. Such Liquidity
instruments may be payable to a Fund on demand. Market
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: purchase of, or contract 1-4 Market
to purchase, securities at a fixed price for delivery at a future date. Leverage
The portfolio managers of each Fund expect that commitments to enter Liquidity
into forward commitments or to purchase when-issued securities will not Credit
exceed 25% of the Fund's total assets.
YANKEE BONDS AND SIMILAR OBLIGATIONS: U.S. dollar- 3 Market
denominated bonds issued by foreign corporations or governments. Credit
Sovereign bonds are those issued by the government of a foreign country.
Supranational bonds are those issued by supranational entities, such as
the World Bank and European Investment Bank. Canadian bonds are those
issued by Canadian provinces.
ZERO-COUPON DEBT OBLIGATIONS: Bonds and other types of debt that pay no 1-4 Credit
interest, but are issued at a discount from their value at maturity. Market
When held to maturity, their entire return equals the difference between Zero Coupon
their issue price and their maturity value.
</TABLE>
GLOSSARY OF INVESTMENT RISKS
This section discusses the risks associated with the securities and investment
techniques listed above, as well as the risks mentioned under the heading "What
Are the Main Risks of Investing in This Fund?" in each Fund profile. Because of
these risks, the value of the securities held by the Funds may fluctuate, as
will the value of your investment in the Funds. Certain types of investments
and Funds are more susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Generally speaking, the lower a security's credit rating, the
higher its credit risk. If a security's credit rating is downgraded, its price
tends to decline sharply, especially as it becomes more probable that the
issuer will default.
FOREIGN INVESTMENT RISK. Compared with investing in the United States,
investing in foreign markets involves a greater degree and variety of risk.
Investors in foreign markets may face delayed settlements, currency controls
and adverse economic developments as well as higher overall transaction costs.
Foreign governments may adopt currency controls or otherwise limit or prevent
investors from transferring their capital out of a country. In addition,
adverse fluctuations in the U.S. dollar's value versus other currencies may
reverse gains or widen losses from investments denominated in foreign
currencies. Exchange rate fluctuations also may impair an issuer's ability to
repay U.S. dollar-denominated debt, thereby increasing the credit risk of such
debt. Finally, the value of foreign securities may be seriously harmed by
incomplete or inaccurate financial information about their issuers, social
upheavals or political actions ranging from tax
29
<PAGE> 241
code changes to governmental collapse. These risks are generally greater in the
emerging markets than in the developed markets of Europe and Japan.
INTEREST-RATE RISK. The risk that debt prices overall will decline over short or
even long periods due to rising interest rates. This risk should be modest for
shorter-term securities and high for longer-term securities. Interest-rate risk
also involves the risk that falling interest rates will cause a Fund's income,
and thus its total return, to decline. This risk is generally greater for
shorter-term securities and lower for longer-term securities.
LEVERAGE RISK. The risk associated with securities or investment practices that
magnify small index or market movements into large changes in value. Leverage is
often created by investing in derivatives, but may be inherent in other types of
securities as well.
LIQUIDITY RISK. The risk that a security may be difficult or impossible to sell
at the time and price the seller wishes. The seller may have to accept a lower
price for the security, sell other securities instead or forego a more
attractive investment opportunity. Any or all of these limitations could hamper
the management or performance of a Fund.
MANAGEMENT RISK. The risk that a strategy used by a Fund's portfolio manager may
fail to produce the intended result. This includes the risk that changes in the
value of a hedging instrument will not match those of the asset being hedged.
MARKET RISK. The risk that a security's market value may decline, especially
rapidly and unpredictably. These fluctuations may cause a security to be worth
less than the price the investor originally paid for it. Market risk may affect
a single issuer, industrial sector or the market as a whole. For fixed-income
securities, market risk is largely influenced by changes in interest rates.
Rising interest rates typically cause the value of bonds to decrease, while
falling rates typically cause the value of bonds to increase.
POLITICAL RISK. The risk of investment losses attributable to unfavorable
governmental or political actions, seizure of foreign deposits, changes in tax
or trade statutes or even governmental collapse and war.
PREPAYMENT RISK. The risk that an issuer will repay a security's principal at an
unexpected time. Prepayment risk is the chance that a large number of the
mortgages underlying a mortgage-backed security will be refinanced sooner than
the investor had expected. The investor is usually forced to reinvest the
proceeds in a security with a lower yield. This turnover may result in taxable
capital gains and, in addition, may decrease a portfolio's income. If an
investor paid a premium for the security, the prepayment may result in an
unexpected capital loss.
Prepayment risk generally increases when interest rates decline, and can make a
security's yield as well as its market price more volatile. Generally speaking,
the longer a security's maturity, the greater the prepayment risk it poses.
REGULATORY RISK. The risk that federal and state laws may restrict an investor
from seeking recourse when an issuer has defaulted on the interest and/or
principal payments it owes on its obligations. These laws include restrictions
on foreclosures, redemption rights after foreclosure, federal and state
bankruptcy and debtor relief laws, restrictions on "due on sale" clauses and
state usury laws.
TAX RISK. The risk that the issuer of a security will fail to comply with
certain requirements of the Internal Revenue Code, which would cause adverse tax
consequences for the issuer and potential losses for its investors.
ZERO COUPON RISK. The market prices of securities structured as zero coupon or
pay-in-kind securities are generally affected to a greater extent by interest
rate changes. These securities tend to
30
<PAGE> 242
be more volatile than securities that pay interest periodically.
YEAR 2000 RISK. 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, the HighMark Funds therefore could
be adversely affected if the computer systems used by its service providers do
not properly process dates on and after January 1, 2000, because they cannot
distinguish between the year 2000 and the year 1900. We are seeking assurances
from each of our service providers that they expect their systems to accommodate
the year 2000 transition without significant adverse consequences to HighMark
Funds. If these assurances prove to be incorrect, HighMark shareholders may lose
money as a result of system failures or year 2000 computer difficulties
experienced by issuers of portfolio securities or custodians, banks,
broker-dealers or others with which we do business.
31
<PAGE> 243
HOW TO OBTAIN MORE INFORMATION
INVESTMENT ADVISER More information about the Funds
is available without charge
through the following:
HighMark Capital Management, Inc.
475 Sansome Street STATEMENT OF ADDITIONAL
San Francisco, CA 94104 INFORMATION (SAI)
ADMINISTRATOR AND DISTRIBUTOR More detailed information about
the HighMark Funds is included
SEI Investments Distribution Co. in our SAI. We have filed the
One Freedom Valley Drive SAI with the SEC and have
Oaks, PA 19456 incorporated it, by reference,
into this prospectus. This means
LEGAL COUNSEL that the SAI, for legal
purposes, is a part of this
Ropes & Gray prospectus.
1301 K Street, N.W., Suite 800 East
Washington, DC 20005 ANNUAL AND SEMI-ANNUAL REPORTS
AUDITORS These reports list the Funds'
Deloitte & Touche L.L.P. holdings and contain information
50 Fremont Street on the market conditions and
San Francisco, CA 94105-2230 investment strategies that
significantly affected the
HighMark Funds' performance
during the past year.
TO OBTAIN THE SAI, ANNUAL OR
SEMI-ANNUAL REPORTS OR MORE
INFORMATION:
BY TELEPHONE:
Call 1-800-433-6884
BY MAIL:
Write to us c/o
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456.
BY INTERNET:
www.highmark-funds.com
FROM THE SEC: You can obtain
our SAI, Annual and Semiannual
Reports and other information
about HighMark Funds from the
SEC's Web site
(http://www.sec.gov). You also
may review and copy documents at
the SEC Public Reference Room in
Washington, DC 20549-6009.
HighMark Funds' Investment Company Act
registration number is 811-05059.
32
<PAGE> 244
CROSS REFERENCE SHEET
Part A
<TABLE>
<CAPTION>
Form N-1A Item No. Prospectus Caption
- ------------------ ------------------
HIGHMARK FUNDS
--------------
MONEY MARKET FUNDS - CLASS I SHARES
<S> <C>
1. Front and Back Cover Pages ....................................... Cover Page; Back Page
2. Risk/Return Summary:
Investments, Risks and Performance................................ Individual HighMark Funds Profiles
3. Risk/Return Summary: Fee Table................................... Individual HighMark Funds Profiles
4. Investment Objectives, Principal Investment
Strategies, and Related Risk .................................... Individual HighMark Funds Profiles;
More About the HighMark Fund --
Investment Practices; More About the
HighMark Funds -- Glossary of Investment Risks
5. Management's Discussion of the Fund
Performance....................................................... Inapplicable
6. Management, Organization and Capital
Structure......................................................... More About the HighMark Funds - Investment Management
7. Shareholder Information........................................... Shareowner Guide - How to Invest in the HighMark Funds
8. Distribution Arrangements ........................................ Shareowner Guide - How to Invest in the HighMark Funds
9. Financial Highlights Information.................................. Financial Highlights
</TABLE>
<PAGE> 245
HIGHMARK FUNDS
VALUE MOMENTUM FUND
CLASS I SHARES
PROSPECTUS
November 30, 1999
The Securities and Exchange Commission has not approved or disapproved of these
securities or determined whether this prospectus is accurate or complete. Any
representation to the contrary is unlawful.
<PAGE> 246
HOW TO READ THIS PROSPECTUS
HighMark Funds is a mutual fund family that offers different classes of Shares
in separate investment portfolios (Funds). The Funds have various investment
goals and strategies. This prospectus gives you important information about the
Class I Shares of the HighMark Value Momentum Fund that you should know before
investing. The Value Momentum Fund also offers additional classes of Shares
called Class A, Class B, Class C and Fiduciary Shares, which are offered in
separate prospectuses.
Please read this prospectus and keep it for future reference. The prospectus is
arranged into different sections so that you can easily review this important
information. The next page contains general information you should know about
investing in the Fund.
FUND PROFILE
SHAREOWNER GUIDE--
HOW TO INVEST IN THE FUND
X Choosing a Share Class
X Opening an Account
X Buying Shares
X Selling Shares
X Exchanging Shares
X Transaction Policies
X Dividends and Distributions
X Taxes
X Investor Services
MORE ABOUT THE FUND
X Investment Management
X Financial Highlights
X Investment Practices
X Glossary of Investment Risks
FOR MORE INFORMATION ABOUT HIGHMARK FUNDS, PLEASE SEE THE BACK COVER OF THE
PROSPECTUS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[FUND SUMMARY ICON] Fund Summary [YOUR ACCOUNT ICON] Your Account
[INVESTMENT STRATEGY ICON] Investment Strategy [INVESTMENT MANAGEMENT ICON] Investment Management
[YIELD ICON] What are the main risks of investing in this [FINANCIAL HIGHLIGHTS ICON] Financial Highlights
Fund?
[PERFORMANCE INFORMATION ICON] Performance Information [ADDITIONAL INVESTMENT PRACTICES AND RISKS ICON]
Additional Investment Practices and Risks
[FEES AND EXPENSES ICON] Fees and Expenses
</TABLE>
- --------------------------------------------------------------------------------
November 30, 1999
2
<PAGE> 247
INTRODUCTION
The HighMark Value Momentum Fund is a mutual fund. A mutual fund pools
Shareholders' money and, using professional investment managers, invests it in
securities such as stocks and bonds. Before you look at the Fund, you should
know a few basics about investing in mutual funds.
The value of your investment in a mutual fund is based on the market prices of
the securities the fund holds. These prices change daily due to economic trends
and other developments that generally affect securities markets, as well as
those that affect particular firms and other types of issuers. These price
movements, also called volatility, vary depending on the types of securities a
fund owns and the markets where these securities trade.
AS WITH OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR INVESTMENT IN A MUTUAL
FUND. YOUR INVESTMENT IN THE HIGHMARK VALUE MOMENTUM FUND IS NOT A DEPOSIT OR AN
OBLIGATION OF UNION BANK OF CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK. IT IS
NOT INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY.
Each HighMark Fund has its own investment goal and strategies for reaching that
goal. There is no guarantee that the Fund will achieve its goal. Before
investing, make sure that the Fund's goal matches your own.
The portfolio managers invest the Fund's assets in a way that he or she believes
will help the Fund achieve its goal. A manager's judgments about the securities
markets, economy and companies, and his or her method of investment selection,
may cause the Fund to underperform other funds with similar objectives.
3
<PAGE> 248
- --------------------------------------------------------------------------------
VALUE MOMENTUM FUND
- --------------------------------------------------------------------------------
[FUND SUMMARY ICON] FUND SUMMARY
Investment Goal To seek long-term capital growth.
Current income is a secondary objective
- ------------------------------------------------------------------------------
Investment Focus U.S. common stocks
- ------------------------------------------------------------------------------
Principal Investment Strategy Seeks undervalued stocks showing signs of
improved momentum
- ------------------------------------------------------------------------------
Share Price Volatility Moderate
- ------------------------------------------------------------------------------
Investor Investors seeking the potential for a
Profile long-term increase in the value of their
investment with capital appreciation at
potentially lower volatility than the
average stock fund
- ------------------------------------------------------------------------------
[INVESTMENT STRATEGY ICON] INVESTMENT STRATEGY
The Value Momentum Fund seeks to provide long-term capital growth with a
secondary objective of income. To pursue this goal, the Fund invests primarily
in U.S. stocks that the portfolio managers believe are undervalued.
The managers emphasize a value-oriented approach to selecting stocks for the
Fund's portfolio. They first identify stocks that they believe are undervalued
relative to the market and to their own historic valuations. The managers then
screen these stocks for positive price or earnings momentum. The Fund generally
will invest in companies with a medium to large market capitalization and a
majority of them will pay dividends.
In addition to U.S. common stocks, the Fund may invest in other types of
securities. In an effort to preserve the value of your investment under volatile
market conditions, the portfolio managers may invest more than 35% of the Fund's
assets in very short-term bonds called money market securities. In these and
other cases, the Fund may not achieve its total return and income objectives.
(For a description of the various securities the Fund invests in, please see
"Investment Practices" on page x.)
4
<PAGE> 249
SIDEBAR: Companies are considered to have a medium market capitalization if
their capitalization is within the range of those companies in the S&P 400
Mid-Cap Index. Companies are considered to have a large market capitalization if
their capitalization is within the range of those companies in the S&P 500 Large
Cap Index.
[YIELD ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Market Risk: The possibility that the Fund's stock holdings will decline
in price because of a broad stock market decline. Stock markets generally
move in cycles, with periods of either rising or falling prices. The
value of your investment will tend to go up or down in response to these
movements.
Investment Style Risk: The possibility that the securities on which this
Fund focuses--the stocks of mid-size to large undervalued U.S.
companies--may underperform other kinds of investments or the market as a
whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the amount
of taxes that you pay. For more information about these risks, please see the
Glossary of Investment Risks on page ___.
[PERFORMANCE INFORMATION ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
[INSERT BAR CHART]
Best Quarter Worst Quarter
-------- --------
( ) ( )
------ ------
*Because Class I Shares have only been offered since October 1, 1999, these
returns reflect the performance of the Fund's Fiduciary Shares, which are
offered in a separate prospectus. Class I Shares will have annual returns
substantially similar to those of the Fiduciary Shares because Class I Shares
and Fiduciary Shares each invest in the same portfolio of securities. Their
annual returns will differ only to the extent that they do not have the same
expenses. The performance information above is based on a calendar year. The
Fund's total return from 1/1/99 to 7/31/99 was ____%.
5
<PAGE> 250
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of the S&P 500 Index.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SINCE
FUND
INCEPTION
1 YEAR 5 YEARS (2/1/91)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
VALUE MOMENTUM FUND
Fiduciary Shares % % %
- --------------------------------------------------------------------------------
S&P 500 INDEX(1) % % %
- --------------------------------------------------------------------------------
</TABLE>
(1) The unmanaged S&P 500 Index is generally representative of the performance
of large companies in the U.S. stock market.
[FEES AND EXPENSES ICON] FEES AND EXPENSES
This table describes the Shareholder fees you would pay directly from your
investment if you bought or sold Fund Shares.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS I SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)
</TABLE>
The table below describes the expenses you would pay indirectly if you held Fund
Shares.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS I SHARES
<S> <C>
Investment Advisoryy Fees 0.60%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %*
-----
Total Annual Fund Operating Expenses %*
</TABLE>
6
<PAGE> 251
* Other Expenses are based on estimated amounts for the current fiscal year. For
the current fiscal year, we expect Other Expenses to be waived by % or
reimbursed by %. These waivers and reimbursements are voluntary and may be
terminated at any time. Accordingly, we expect the Fund's actual annual
operating expenses for the current fiscal year to be as follows:
<TABLE>
<CAPTION>
CLASS I SHARES
<S> <C>
Investment Advisory Fees 0.60%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
-----
Total Annual Fund Operating Expenses %
</TABLE>
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the periods indicated, that each year your investment
has a 5% return and that the Fund's expenses remain the same. Although your
actual costs and returns may be different, your approximate costs of investing
$10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class I Shares $ $ $ $
--- --- --- ---
7
<PAGE> 252
SHAREOWNER GUIDE--
HOW TO INVEST IN THE HIGHMARK FUNDS
Before you invest, we encourage you to carefully read the Fund profile included
in this prospectus and consider if the Fund is appropriate for your particular
financial situation, risk tolerance and goals. As always, your financial
representative can provide you with valuable assistance in making this decision.
He or she can also help you choose which of the Fund Share classes we offer is
right for you.
CHOOSING A SHARE CLASS
The Value Momentum Fund offers different classes of Fund Shares, each of which
has different expenses and other characteristics. Only one class of Fund Shares,
Class I Shares, is offered in this prospectus. To choose the one that is best
suited to your needs and goals, consider the amount of money you want to invest,
how long you expect to invest it and whether you plan to make additional
investments. The following are some of the main characteristics of the Fund's
Class I Shares.
CLASS I SHARES
- - No sales charge.
- - No Distribution (12b-1) fees.
- - Available only to retirement and other benefit plans sponsored by
governmental entities with a minimum investment of $70,000,000.
For the actual past expenses of the Class I Shares, see the individual Fund
profiles earlier in this prospectus.
The Fund also offers Class A, Class B and Class C Shares (collectively "Retail
Shares") and Fiduciary Shares. Each of these Classes has its own expense
structure. Retail Shares are available to non-fiduciary clients of Union Bank of
California, N.A., who are not otherwise eligible for Fiduciary Shares. Fiduciary
Shares are available only to financial institutions, fiduciary clients of Union
Bank of California, N.A., and certain other qualified investors. Call us at
1-800-433-6884 for more details.
8
<PAGE> 253
OPENING AN ACCOUNT
1. Read this prospectus carefully.
2. Determine how much money you want to invest. The minimum investments for
the Class I Shares of the Value Momentum Fund is as follows:
Initial Purchase: $70,000,000
Additional Purchases: $100
We reserve the right to reject a purchase order if we determine that it is not
in the best interest of HighMark Funds or its Shareholders.
9
<PAGE> 254
<TABLE>
<CAPTION>
BUYING SHARES
THROUGH FINANCIAL INSTITUTIONS
<S> <C>
- Call your financial institution for - Call your financial institution to find
information on their procedures for out more about their procedures for
transmitting orders to HighMark Funds. transmitting orders to HighMark Funds.
BY EXCHANGE
[GRAPHIC] - Call us at 1-800-433-6884 or contact - Call us at 1-800-433-6884 or contact
your financial representative to request your financial representative to
an exchange. request an exchange.
SELLING SHARES
THROUGH FINANCIAL INSTITUTIONS
- Accounts set up through financial - Contact your financial institution to
institutions. find out more about their procedures
for transmitting orders to HighMark
Funds.
BY EXCHANGE
[GRAPHIC] - Accounts of any type. - Obtain a current prospectus for the
- Sales of any amount. Fund into which you are exchanging
by calling us or contacting your
financial representative.
- Call us or contact your financial
representative to request an
exchange.
</TABLE>
TRANSFER AGENT
ADDRESS:
State Street Bank and Trust Company
P.O. Box 8416
Boston, MA 02266-8416
PHONE NUMBER: 1-800-433-6884
Or contact your financial representative for
instructions and assistance.
10
<PAGE> 255
RECEIVING YOUR MONEY. Normally, we will send you a check for your proceeds as
promptly as possible, at the latest within seven calendar days of receiving your
redemption order. If, however, you recently bought Shares in the Fund, we may be
unable to fulfill your request if we have not yet received and processed your
payment for the initial purchase. In such a case you may need to resubmit your
redemption request after we have received payment.
REDEMPTION IN KIND. The Fund reserves the right to make payment on redemptions
in securities rather than cash.
INVOLUNTARY SALES OF YOUR SHARES. The Fund reserves the right to convert your
Class I Shares at net asset value to Fiduciary Shares if your account balance in
the Fund drops below the minimum initial purchase amount for any reason other
than market fluctuation. This is more likely to occur if you invest only the
minimum amount in the Fund and then sell some of your Shares soon after. Before
the Fund will exercise its right to convert your Shares, we will notify you in
writing at least 60 days in advance to give you time to bring your balance up to
or above the minimum.
EXCHANGING SHARES
HOW TO EXCHANGE YOUR SHARES. You may exchange Class I Shares of Fund for
Fiduciary Shares of another HighMark Fund (the "new Fund"), provided that you:
- - Are qualified to invest in the new Fund.
- - Meet the initial and additional investment minimums for the new Fund.
- - Maintain the minimum account balance for each HighMark Fund in which you
invest.
Your cost for buying Shares in the new Fund is based on the relative net asset
values of the Shares you are exchanging. You may also exchange your Class I
Shares of the Value Momentum Fund for Class A, Class B or Class C Shares of
another HighMark Fund. In that case, your cost for buying Shares in the new Fund
is based on the relative net asset value of the Shares you are exchanging plus
any applicable sales charge.
TRANSACTION POLICIES
VALUATION OF SHARES. The Fund's net asset value is calculated according to the
following formula:
(Total mkt. value of the Fund's investments and other assets - any
Fund liabilities)
divided by Total number of the Fund's Shares outstanding
--------------------------------------------------------
= Fund's net asset value
We determine the net asset value (NAV) of the Fund as of 1:00 p.m. Pacific time
(4:00 p.m. Eastern time) business days, based on the current market price of the
Fund's securities. If that is not available, we value its securities by using a
method that the Fund's Board of Trustees believes accurately reflects fair
value. For further information about how we determine the value of the Fund's
investments, see the Statement of Additional Information.
BUY AND SELL PRICES. When you buy Shares, the number of Shares you receive is
based on the net asset value we next determine after receiving your order. When
you sell Shares, the amount of your proceeds are based on the net asset value we
next determine after receiving your order.
EXECUTION OF ORDERS. You may buy and sell Shares of the Fund on any day when the
New York Stock Exchange is open for business (hereafter referred to as a
"business day").
- - Purchasing Shares by Mail: If you mail us a purchase order, we will
execute it as soon as we have received your payment. (Note: If your check
does not clear, we will be forced to cancel your purchase
11
<PAGE> 256
and may hold you liable for any losses or fees incurred.)
- - Purchasing Shares by Wire: If you place a purchase order by wire on any
business day, we will execute it that day, provided that you have wired
the money you wish to invest to the transfer agent prior to 1:00 p.m. PT
(4:00 p.m. ET). If the transfer agent does not receive the money you plan
to wire by this deadline, we will execute your order the following
business day or whenever we have received your order and/or payment.
- - Selling Shares: To sell Shares on any one business day, you must place
your redemption order before 1:00 p.m. PT (4:00 p.m. ET). Otherwise, we
will execute your order the following business day.
DIVIDENDS AND DISTRIBUTIONS
As a mutual fund Shareholder, you may receive capital gains and/or income from
your investment. The Fund declares and pays income dividends monthly. The Fund
distributes any capital gains it has realized at least once a year.
We will automatically reinvest any income and capital gains distributions you
are entitled to in additional Shares of your Fund unless you notify our Transfer
Agent that you want to receive your distributions in cash. To do so, send a
letter with your request, including your name and account number to:
HighMark Funds
c/o State Street Bank and Trust Company
P.O. Box 8416
Boston, MA 02266-8416
Your request will become effective for distributions having record dates after
our Transfer Agent receives your request. Note that the IRS treats dividends
paid in additional Fund Shares the same as it treats dividends paid in cash.
TAXES
Your mutual fund investments may have a considerable impact on your tax
situation. We've summarized some of the main points you should know below. Note,
however, that the following is general information and will not apply to you if
you are investing through a tax-deferred account such as an IRA or a qualified
employee benefit plan. In addition, if you are not a resident of the United
States, you may have to pay taxes besides those described here, such as U.S.
withholding and estate taxes.
IMPORTANT NOTE: IF YOU HAVE NOT DONE SO ALREADY, BE SURE TO PROVIDE US WITH YOUR
CORRECT TAXPAYER IDENTIFICATION NUMBER OR CERTIFY THAT IT IS CORRECT. UNLESS WE
HAVE THAT INFORMATION, WE MUST, BY LAW, WITHHOLD 31% OF THE TAXABLE
DISTRIBUTIONS YOU WOULD OTHERWISE BE ENTITLED TO RECEIVE FROM YOUR FUND
INVESTMENTS AS WELL AS ANY PROCEEDS YOU WOULD NORMALLY RECEIVE FROM SELLING FUND
SHARES.
END-OF-YEAR TAX STATEMENTS
We will send you a statement each year showing the tax status of all your
distributions. The laws governing taxes change frequently, however, so please
consult your tax advisory for the most up-to-date information and specific
guidance regarding your particular tax situation. You can find more information
about the potential tax consequences of mutual fund investing in our Statement
of Additional Information.
12
<PAGE> 257
TAXES ON FUND DISTRIBUTIONS
- - FEDERAL TAXES: The IRS treats any dividends and short-term capital gains
you receive from the Funds as ordinary income.
- - STATE AND LOCAL TAXES: In addition to federal taxes, you may have to pay
state and local taxes on the dividends or capital gains you receive from
the Fund.
- - TAXATION OF LONG-TERM CAPITAL GAINS: You may have to pay federal and
state taxes on any distributions of net long-term capital gains you
receive from a Fund at the long-term capital gains rate, no matter how
long you've owned Shares in the Fund. (Although some states like
California, do not have a special rate for capital gains.)
- - "BUYING A DIVIDEND": You may owe taxes on Fund distributions even if they
represent income or capital gains the Fund earned before you invested in
it and thus were likely included in the price you paid.
TAX CONSEQUENCES OF SELLING OR EXCHANGING SHARES
If you sell or exchange Fund Shares, you may have to report any capital gain you
realize as income and any capital loss as a deduction on your federal income tax
return. For more specific information about your own tax situation, consult your
tax advisory.
The portfolio managers of the Fund do not actively consider tax consequences
when making investment decisions. From time to time, the Fund may realize
capital gains as by-products of ordinary investment activities. As a result, the
amount and timing of Fund distributions may vary considerably from year to year.
THE TAX CONSIDERATIONS DESCRIBED ABOVE MAY OR MAY NOT APPLY TO YOU. PLEASE
CONSULT YOUR TAX ADVISORY TO DETERMINE WHETHER THESE CONSIDERATIONS ARE RELEVANT
TO YOUR PARTICULAR INVESTMENTS AND TAX SITUATION.
13
<PAGE> 258
MORE ABOUT HIGHMARK FUNDS
INVESTMENT MANAGEMENT
INVESTMENT ADVISER
HighMark Capital Management, Inc., serves as investment adviser of the HighMark
Funds and manages their investment portfolios on a day-to-day basis under the
supervision of HighMark Funds' Board of Trustees.
HighMark Capital Management is a subsidiary of UnionBanCal Corporation, the
holding company of Union Bank of California, N.A. UnionBanCal Corporation is a
publicly held corporation principally owned by The Bank of Tokyo-Mitsubishi,
Ltd. As of September 30, 1999, UnionBanCal Corporation and its subsidiaries had
approximately $____ billion in consolidated assets. As of the same date,
HighMark Capital Management had approximately $____ billion in assets under
management. HighMark Capital Management (and its predecessors), 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.
Over the past fiscal year, the Fund paid the following management fees to
HighMark Capital Management:
Fund % of Net Assets
---- ---------------
Value Momentum Fund 0.60%
PORTFOLIO MANAGERS
All investment decisions for the Fund are made by a team of investment
professionals, all of whom take an active part in the decision making process.
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FINANCIAL HIGHLIGHTS
Financial information for the Class I Shares of the Value Momentum Fund is not
presented because Class I Shares were not offered prior to October 1, 1999.
Please see "Financial Statements" in the Statement of Additional Information for
financial information regarding other share classes of the Value Momentum Fund.
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INVESTMENT PRACTICES
The Fund invests in a variety of securities and employs a number of investment
techniques. Each security and technique involves certain risks. The following
table describes the securities and techniques the Fund uses, as well as the main
risks they pose. Equity securities are subject mainly to market risk.
Fixed-income securities are subject primarily to market, credit and prepayment
risk. Following the table is a more complete discussion of risk. You may also
consult the Statement of Additional Information for more details about the
securities in which the Fund may invest.
<TABLE>
<CAPTION>
INSTRUMENT RISK TYPE
<S> <C>
ADJUSTABLE RATE MORTGAGE LOANS (ARMS): Loans in a mortgage pool that Prepayment
provide for a fixed initial mortgage interest rate for a specified period Market
of time, after which the rate may be subject to periodic adjustments. Credit
Regulatory
AMERICAN DEPOSITORY RECEIPTS (ADRS): ADRs are foreign Shares of a Market
company held by a U.S. bank that issues a receipt evidencing ownership. Political
ADRs pay dividends in U.S. dollars. Foreign
Investment
ASSET-BACKED SECURITIES: Securities backed by company receivables, home Prepayment
equity loans, truck and auto loans, leases, credit card receivables and Market
other securities backed by other types of receivables or assets. Credit
Regulatory
BANKERS' ACCEPTANCES: Bills of exchange or time drafts drawn on and Credit
accepted by a commercial bank. They generally have maturities of six Liquidity
months or less. Market
BONDS: Interest-bearing or discounted government or corporate securities Market
that obligate the issuer to pay the bondholder a specified sum of money, Credit
usually at specific intervals, and to repay the principal amount of the
loan at maturity.
CALL AND PUT OPTIONS: A call option gives the buyer the right to buy, and Management
obligates the seller of the option to sell, a security at a specified Liquidity
price. A put option gives the buyer the right to sell, and obligates the Credit
seller of the option to buy, a security at a specified price. The Funds Market
will sell only covered call and secured put options. Leverage
</TABLE>
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<TABLE>
<S> <C>
CERTIFICATES OF DEPOSIT: Negotiable instruments with a stated maturity. Market
Credit
Liquidity
COMMERCIAL PAPER: Secured and unsecured short-term promissory notes Credit
issued by corporations and other entities. Their maturities generally Liquidity
vary from a few days to nine months. Market
COMMON STOCK: Shares of ownership of a company. Market
CONVERTIBLE SECURITIES: Bonds or preferred stock that convert to common Market
stock. Credit
DEMAND NOTES: Securities that are subject to puts and standby
commitments to purchase the securities at a fixed price (usually with Market
accrued interest) within a fixed period of time following demand by a Liquidity
fund. Management
DERIVATIVES: Instruments whose value is derived from an underlying Management
contract, index or security, or any combination thereof, including Market
futures, options (e.g., puts and calls), options on futures, swap Credit
agreements and some mortgage-backed securities. Liquidity
Leverage
FOREIGN SECURITIES: Stocks issued by foreign companies including ADRs and Market
Global Depository Receipts (GDRs), as well as commercial paper of foreign Political
issuers and obligations of foreign governments, companies, banks, Foreign
overseas branches of U.S. banks or supranational entities. Liquidity
Investment
FORWARD FOREIGN CURRENCY CONTRACTS: An obligation to purchase or sell a Management
specific amount of a currency at a fixed future date and price set by the Liquidity
parties involved at the time the contract is negotiated. Credit
Market
Political
Leverage
Foreign
Investment
</TABLE>
17
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<TABLE>
<S> <C>
FUTURES AND RELATED OPTIONS: A contract providing for the future sale and Management
purchase of a specific amount of a specific security, class of securities or Market
index at a specified time in the future and at a specified price. The aggregate Credit
value of options on securities (long puts and calls) will not exceed 10% of a Liquidity
HighMark Equity Fund's net assets at the time it purchases the options. An Leverage
equity fund will limit its obligations under futures, options on futures, and
options on securities to no more than 25% of its assets. The HighMark Fixed
Income Funds may invest in futures and options on futures for the purpose of
achieving their objectives and for adjusting their portfolio's duration. Each
of these Funds will limit its obligations under futures contracts and related
options to no more than 10% of its assets.
ILLIQUID SECURITIES: Securities that ordinarily cannot be sold within Liquidity
seven business days at the value the Fund has estimated for them. Each Market
Fund may invest up to 15% of its net assets in illiquid securities.
INDEX-BASED SECURITIES: Index-based securities, such as Standard & Market
Poor's Depository Receipts ("SPDRs" and NASDAQ-100 Index Tracking Stock
("NASDAQ 100s"), represent ownership in a long-term unit investment
trust that holds a portfolio of common stocks designed to track the price
performance and dividend yield of an index, such as the S&P 500 Index or
the NASDAQ-100 Index. Index-based securities entitle a holder to receive
proportionate quarterly cash distributions corresponding to the dividends
that accrue to the index stocks in the underlying portfolio, less trust
expenses.
</TABLE>
18
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<TABLE>
<S> <C>
INVESTMENT COMPANY SECURITIES: Shares of registered investment companies. Market
These may include HighMark Money Market Funds and other registered
investment companies for which HighMark, its subadvisorys, or any of
their affiliates, serves as investment Advisory, administrator or
distributor. Each of the Funds may invest up to 5% of its assets in the
Shares of any one registered investment company. A Fund may not, however,
own more than 3% of the securities of any one registered investment
company or invest more than 10% of its assets in the Shares of other
registered investment companies. As a Shareholder of an investment
company, a Fund will indirectly bear investment management fees of that
investment company, which are in addition to the management fees the Fund
pays its own Advisory.
INVESTMENT GRADE SECURITIES: Securities rated BBB or higher by Standard & Market
Poor's; Baa or better by Moody's; similarly rated by other nationally Credit
recognized rating organizations; or, if not rated, determined to be of
comparably high quality by the Advisory.
MONEY MARKET INSTRUMENTS: Investment grade, U.S. dollar-denominated debt Market
securities with remaining maturities of one year or less. These may Credit
include short-term U.S. government obligations, commercial paper and
other short-term corporate obligations, repurchase agreements
collateralized with U.S. government securities, certificates of deposit,
bankers' acceptances, and other financial institution obligations. These
securities may carry fixed or variable interest rates.
OBLIGATIONS OF SUPRANATIONAL AGENCIES: Securities issued by Credit
supranational agencies that are chartered to promote economic development Foreign Investment
and are supported by various governments and government agencies.
</TABLE>
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<TABLE>
<S> <C>
OPTIONS ON CURRENCIES: A Fund may buy put options and sell covered call Management
options on foreign currencies (traded on U.S. and foreign exchanges or Liquidity
over-the-counter markets). A covered call option means the Fund will own Credit
an equal amount of the underlying foreign currency. Currency options help Market
a Fund manage its exposure to changes in the value of the U.S. dollar Political
relative to other currencies. If a Fund sells a put option on a foreign Leverage
currency, it will establish a segregated account with its Custodian Foreign Investment
consisting of cash, U.S. government securities or other liquid high-grade
bonds in an amount equal to the amount the Fund would be required to pay
if the put is exercised.
PREFERRED STOCKS: Equity securities that generally pay dividends at a Market
specified rate and take precedence over common stock in the payment of
dividends or in the event of liquidation. Preferred stock generally does
not carry voting rights.
REPURCHASE AGREEMENTS: The purchase of a security and the simultaneous Market
commitment to return the security to the seller at an agreed upon price Leverage
on an agreed upon date. This is treated as a loan.
REVERSE REPURCHASE AGREEMENTS: The sale of a security and the Market
simultaneous commitment to buy the security back at an agreed upon price Leverage
on an agreed upon date. This is treated as a borrowing by a Fund.
RESTRICTED SECURITIES: Securities not registered under the Securities Liquidity
Act of 1933, such as privately placed commercial paper and Rule 144A Market
securities.
SECURITIES LENDING: The lending of up to 33 1/3% of a Fund's total Market
assets. In return the Fund will receive cash, other securities and/or Leverage
letters of credit. Liquidity
TIME DEPOSITS: Non-negotiable receipts issued by a bank in exchange for Liquidity
a deposit of money. Credit
TREASURY RECEIPTS: Treasury receipts, Treasury investment growth Market
receipts and certificates of accrual of Treasury securities.
</TABLE>
20
<PAGE> 265
<TABLE>
<S> <C>
UNIT INVESTMENT TRUSTS: A type of investment vehicle, registered with Market
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. 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.
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued by agencies and Market
instrumentalities of the U.S. government. These include Ginnie Mae, Credit
Fannie Mae and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, separately traded Market
registered interest and principal securities, and coupons under bank
entry safekeeping.
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations with interest rates Credit
that are reset daily, weekly, quarterly or on some other schedule. Such Liquidity
instruments may be payable to a Fund on demand. Market
WARRANTS: Securities that give the holder the right to buy a Market
proportionate amount of common stock at a specified price. Warrants are Credit
typically issued with preferred stock and bonds.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: A purchase of, or Market
contract to purchase, securities at a fixed price for delivery at a Leverage
future date. The portfolio managers of each Fund expect that commitments Liquidity
to enter into forward commitments or purchase when-issued securities will Credit
not exceed 25% of the Fund's total assets.
YANKEE BONDS AND SIMILAR DEBT OBLIGATIONS: U.S. dollar-denominated Market
bonds issued by foreign corporations or governments. Sovereign bonds are Credit
those issued by the government of a foreign country. Supranational bonds
are those issued by supranational entities, such as the World Bank and
European Investment Bank. Canadian bonds are those issued by Canadian
provinces.
</TABLE>
21
<PAGE> 266
<TABLE>
<S> <C>
ZERO-COUPON DEBT OBLIGATIONS: Bonds and other types of debt that pay no Credit
interest, but are issued at a discount from their value at maturity. When Market
held to maturity, their entire return equals the difference between their Zero Coupon
issue price and their maturity value.
</TABLE>
GLOSSARY OF INVESTMENT RISKS
This section discusses the risks associated with the securities and investment
techniques listed above, as well as the risks mentioned under the heading "What
Are the Main Risks of Investing in This Fund?" in each Fund profile. Because of
these risks, the value of the Funds' holdings may fluctuate, as will the value
of your investment in the Funds. Certain types of investments and funds are more
susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Generally speaking, the lower a security's credit rating, the higher
its credit risk. If a security's credit rating is downgraded, its price tends to
decline sharply, especially as it becomes more probable that the issuer will
default.
FOREIGN INVESTMENT RISK. Compared with investing in the United States, investing
in foreign markets involves a greater degree and variety of risk. Investors in
foreign markets may face delayed settlements, currency controls and adverse
economic developments as well as higher overall transaction costs. In addition,
fluctuations in the U.S. dollar's value versus other currencies may erode or
reverse gains from investments denominated in foreign currencies or widen
losses. For instance, foreign governments may limit or prevent investors from
transferring their capital out of a country. This may affect the value of your
investment in the country that adopts such currency controls. Exchange rate
fluctuations also may impair an issuer's ability to repay U.S.
dollar-denominated debt, thereby increasing the credit risk of such debt.
Finally, the value of foreign securities may be seriously harmed by incomplete
or inaccurate financial information about their issuers, social upheavals or
political actions ranging from tax code changes to governmental collapse. These
risks are greater in the emerging markets than in the developed markets of
Europe and Japan.
HEDGING. When a derivative (a security whose value is based on that of another
security or index) is used as a hedge against an opposite position that a fund
holds, any loss on the derivative should be substantially offset by gains on the
hedged investment, and vice versa. Although hedging can be an effective way to
reduce a fund's risk, it may not always be possible to perfectly offset one
position with another. As a result, there is no assurance that a fund's hedging
transactions will be effective.
INTEREST RATE RISK. The risk that debt prices overall will decline over short or
even long periods due to rising interest rates. Interest rate risk should be
modest for shorter-term securities, moderate for intermediate-term securities,
and high for longer-term securities. Generally, an increase in a fund's average
maturity will make it more sensitive to interest rate risk.
INVESTMENT STYLE RISK. The risk that the particular type of investment on which
a fund focuses (such as small-cap value stocks or large-cap growth stocks) may
underperform other asset classes or the overall market. Individual market
segments tend to go through cycles of performing better or worse than other
types of securities. These periods may last as long as several years.
Additionally, a particular market segment could fall out of favor with
investors, causing a fund that focuses on that market segment to underperform
those that favor other kinds of securities.
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<PAGE> 267
LEVERAGE RISK. The risk associated with securities or investment practices that
magnify small index or market movements into large changes in value. Leverage is
often created by investing in derivatives, but it may be inherent in other types
of securities as well.
LIQUIDITY RISK. The risk that a security may be difficult or impossible to sell
at the time and price the seller wishes. The seller may have to accept a lower
price for the security, sell other securities instead, or forego a more
attractive investment opportunity. Any or all of these limitations could hamper
the management or performance of a fund.
MANAGEMENT RISK. The risk that a strategy used by a fund's portfolio manager may
fail to produce the intended result. This includes the risk that changes in the
value of a hedging instrument will not match those of the asset being hedged.
MARKET RISK. The risk that a security's market value may decline, especially if
it occurs rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price the investor originally paid for it. Market risk
may affect a single issuer, industrial sector or the market as a whole. For
fixed-income securities, market risk is largely influenced by changes in
interest rates. Rising interest rates typically cause the value of bonds to
decrease, while falling rates typically cause the value of bonds to increase.
POLITICAL RISK. The risk of investment losses attributable to unfavorable
governmental or political actions, seizure of foreign deposits, changes in tax
or trade statutes, and governmental collapse and war.
PREPAYMENT & CALL RISK. The risk that an issuer will repay a security's
principal at an unexpected time. Prepayment and call risk are related, but
differ somewhat. Prepayment risk is the chance that a large number of the
mortgages underlying a mortgage-backed security will be refinanced sooner than
the investor had expected. Call risk is the possibility that an issuer will
"call"--or repay--a high-yielding bond before the bond's maturity date. In both
cases, the investor is usually forced to reinvest the proceeds in a security
with a lower yield. This turnover may result in taxable capital gains and, in
addition, may lower a portfolio's income. If an investor paid a premium for the
security, the prepayment may result in an unexpected capital loss.
Prepayment and call risk generally increase when interest rates decline, and can
make a security's yield as well as its market price more volatile. Generally
speaking, the longer a security's maturity, the greater the prepayment and call
risk it poses.
REGULATORY RISK. The risk that federal and state laws may restrict an investor
from seeking recourse when an issuer has defaulted on the interest and/or
principal payments it owes on its obligations. These laws include restrictions
on foreclosures, redemption rights after foreclosure, Federal and state
bankruptcy and debtor relief laws, restrictions on "due on sale" clauses, and
state usury laws.
SPECULATIVE INVESTMENTS. In addition to helping reduce risk, derivatives may be
used to magnify a fund's potential gains. This strategy involves substantially
greater risks than more defensive uses of derivatives.
YEAR 2000 RISK. 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, the HighMark Funds therefore could
be adversely affected if the computer systems used by its service providers do
not properly process dates on and after January 1, 2000, because they cannot
distinguish between the year 2000 and the year 1900. We are seeking assurances
from each of our service providers
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<PAGE> 268
that they expect their systems to accommodate the year 2000 transition without
significant adverse consequences to HighMark Funds. If these assurances prove to
be incorrect, HighMark Shareholders may lose money as a result of system
failures or year 2000 computer difficulties experienced by issuers of portfolio
securities or custodians, banks, broker-dealers or others with which we do
business.
ZERO COUPON RISK. The market prices of securities structured as zero coupon or
pay-in-kind securities are generally affected to a greater extent by interest
rate changes. These securities tend to be more volatile than securities that pay
interest periodically.
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<PAGE> 269
HOW TO OBTAIN MORE INFORMATION
INVESTMENT ADVISER More information about the Funds
HighMark Capital Management, Inc. is available without charge
475 Sansome Street through the following:
San Francisco, CA 94104
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
ADMINISTRATOR AND DISTRIBUTOR More detailed information about
SEI Investments Distribution Co. the HighMark Funds is included
One Freedom Valley Drive in our SAI. We have filed the
Oaks, PA 19456 SAI with the SEC and have
incorporated it, by reference,
into this prospectus. This means
LEGAL COUNSEL that the SAI, for legal
Ropes & Gray purposes, is a part of this
1301 K Street, N.W., Suite 800 East prospectus.
Washington, DC 20005
ANNUAL AND SEMI-ANNUAL REPORTS
AUDITORS These reports list the Funds'
Deloitte & Touche L.L.P. holdings and contain information
50 Fremont Street on the market conditions and
San Francisco, CA 94105-2230 investment strategies that
significantly affected the
HighMark Funds' performance
during the past year.
To Obtain the Sai, Annual or
Semi-annual Reports or More
Information:
BY TELEPHONE:
Call 1-800-433-6884
BY MAIL:
Write to us c/o
SEI Investments Distribution Co.
1 Freedom Valley Drive
Oaks, PA 19456.
BY INTERNET:
www.highmark-funds.com
From the SEC: You can obtain
our SAI, Annual and Semiannual
Reports and other information
about HighMark Funds from the
SEC's Web site
(http://www.sec.gov). You may
review and copy documents at
the SEC Public Reference Room in
Washington, DC (for information
call 1-800-SEC-0330). You may
request documents by mail from
the SEC, upon payment of a
duplicating fee, by writing to:
Securities and Exchange
Commission, Public Reference
Section, 450 5th Street, N.W.,
Washington, DC 20549-6009.
HighMark Funds' Investment
Company Act registration number
is 811-05059.
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<PAGE> 270
CROSS REFERENCE SHEET
Part A
<TABLE>
<CAPTION>
Form N-1A Item No. Prospectus Caption
- ------------------ ------------------
HIGHMARK FUNDS
EMERGING GROWTH FUND - FIDUCIARY SHARES
<S> <C>
1. Front and Back Cover Pages ................................ Cover Page; Back Page
2. Risk/Return Summary:
Investments, Risks and Performance....................... Individual HighMark Funds Profiles
3. Risk/Return Summary: Fee Table............................ Individual HighMark Funds Profiles
4. Investment Objectives, Principal Investment
Strategies, and Related Risk ........................... Individual HighMark Funds Profiles;
More About the HighMark Fund --
Investment Practices; More About the
HighMark Funds -- Glossary of
Investment Risks
5. Management's Discussion of the Fund
Performance.............................................. Inapplicable
6. Management, Organization and Capital
Structure................................................ More About the HighMark Funds -
Investment Management
7. Shareholder Information.................................... Shareowner Guide - How to Invest in
the HighMark Funds
8. Distribution Arrangements ................................. Shareowner Guide - How to Invest in
the HighMark Funds
9. Financial Highlights Information........................... Financial Highlights
</TABLE>
<PAGE> 271
HIGHMARK FUNDS
EMERGING GROWTH FUND
FIDUCIARY SHARES
PROSPECTUS
November 30, 1999
The Securities and Exchange Commission has not approved or disapproved of these
securities or determined whether this prospectus is accurate or complete. Any
representation to the contrary is unlawful.
<PAGE> 272
HOW TO READ THIS PROSPECTUS
HighMark Funds is a mutual fund family that offers different classes of Shares
in separate investment portfolios (Funds). The Funds have various investment
goals and strategies. This prospectus gives you important information about the
Fiduciary Shares of the HighMark Emerging Growth Fund that you should know
before investing. The Emerging Growth Fund also offers an additional class of
Shares called Class A Shares, which is offered in a separate prospectus.
THE HIGHMARK EMERGING GROWTH FUND IS CLOSED TO NEW INVESTORS.
Please read this prospectus and keep it for future reference. The prospectus is
arranged into different sections so that you can easily review this important
information. The next page contains general information you should know about
investing in the Fund.
FUND PROFILE
SHAREOWNER GUIDE --
HOW TO INVEST IN THE FUND
X Choosing a Share Class
X Opening an Account
X Buying Shares
X Selling Shares
X Exchanging Shares
X Transaction Policies
X Dividends and Distributions
X Taxes
X Investor Services
MORE ABOUT THE FUND
X Investment Management
X Financial Highlights
X Investment Practices
X Glossary of Investment Risks
FOR MORE INFORMATION ABOUT HIGHMARK FUNDS, PLEASE SEE THE BACK COVER OF THE
PROSPECTUS
[BULLSEYE] Fund Summary
[TEACHER] Investment Strategy
[YIELD SIGN] What are the main risks of investing in this Fund?
[GRAPH] Performance Information
$ Fees and Expenses
[DOLLAR BILL] Your Account
[RECYCLE ARROWS] Investment Management
[FIREWORKS] Financial Highlights
[RIGHT ARROW] Additional Investment Practices and Risks
November 30, 1999
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<PAGE> 273
INTRODUCTION
The HighMark Emerging Growth Fund is a mutual fund. A mutual fund pools
Shareholders' money and, using professional investment managers, invests it in
securities such as stocks and bonds. Before you look at the Fund, you should
know a few basics about investing in mutual funds.
The value of your investment in a mutual fund is based on the market prices of
the securities the fund holds. These prices change daily due to economic trends
and other developments that generally affect securities markets, as well as
those that affect particular firms and other types of issuers. These price
movements, also called volatility, vary depending on the types of securities a
fund owns and the markets where these securities trade.
AS WITH OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR INVESTMENT IN A MUTUAL
FUND. YOUR INVESTMENT IN THE HIGHMARK EMERGING GROWTH FUND IS NOT A DEPOSIT OR
AN OBLIGATION OF UNION BANK OF CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK. IT
IS NOT INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY.
Each HighMark Fund has its own investment goal and strategies for reaching that
goal. There is no guarantee that the Fund will achieve its goal. Before
investing, make sure that the Fund's goal matches your own.
The portfolio managers invest the Fund's assets in a way that he or she believes
will help the Fund achieve its goal. A manager's judgments about the securities
markets, economy and companies, and his or her method of investment selection,
may cause the Fund to underperform other funds with similar objectives.
THE HIGHMARK EMERGING GROWTH FUND IS CLOSED TO NEW INVESTORS.
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<PAGE> 274
EMERGING GROWTH FUND
[BULLSEYE] FUND SUMMARY
Investment Goal To seek long-term capital
appreciation.
Investment Stocks of small to mid-size U.S.
Focus companies
Attempts to identify emerging
Principal Investment growth companies with above-
Strategy average growth potential
Share Price Volatility High
Investors able to tolerate a high
Investor degree of risk in exchange for
Profile potentially high long-term returns
[TEACHER] INVESTMENT STRATEGY
HighMark Emerging Growth Fund seeks long-term growth of capital by investing in
a diversified portfolio of equity securities of small capitalization, emerging
growth companies. To pursue this goal, the Fund invests primarily in the stocks
of rapidly growing, generally small to mid-size U.S. companies*. An "emerging
growth company" is one in the developing stages of its life cycle whose earnings
and/or revenues are growing rapidly or have the potential to do so.
The Fund may also invest in companies with the potential to yield benefits from
what are known as "special situations" such as:
- - mergers, acquisitions, spin-offs, liquidations or reorganizations
- - the development of promising new products, technology or distribution
channels
- - a new or revitalized management team
To choose stocks for the Fund, the portfolio managers conduct an extensive
analysis of individual companies examining their underlying business,
financials, management and valuation, favoring those whose stocks they believe
are reasonably priced and offer above-average growth potential. A company may or
may not yet be profitable at the time the Fund invests in it.
In addition to those described above, the Fund may invest in other types of
securities, including bonds. In an effort to preserve the value of your
investment under volatile market conditions, the managers may invest more than
35% of the Fund's assets in very short-term debt obligations called money market
securities. Such a strategy could make it more difficult for the Fund to achieve
its goals.
SIDEBAR: Small capitalization companies are those companies with market
capitalizations within the range of those in the S&P 600 Small Cap Index.
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<PAGE> 275
Medium Capitalization Companies are those companies with market capitalization
within the range of those in the S&P 400 Mid-Cap Index.
[YIELD SIGN] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Market Risk: The possibility that the Fund's stock holdings may decline
in price because of a broad stock market decline. Markets generally
move in cycles, with periods of rising prices followed by periods of
falling prices. The value of your investment will tend to increase or
decrease in response to these movements.
Small Company Risk: Investing in smaller, lesser-known companies
involves greater risk than investing in those that are more
established. A small company's financial well-being may, for example,
depend heavily on just a few products or services. In addition,
investors may have limited flexibility to buy or sell small company
stocks compared to those of larger firms.
Investment Style Risk: The possibility that the securities on which
this Fund focuses -- the stocks of small to medium-size U.S. growth
companies -- may underperform other kinds of investments or the market
as a whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the amount
of taxes you pay. For more information about these risks, please see the
Glossary of Investment Risks on page ___.
[GRAPH] PERFORMANCE INFORMATION
The performance table below illustrates the risks and volatility of an
investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year. If
sales charges had been reflected, the Fund's returns would be less than those
shown below.*
[INSERT BAR CHART]
Best Quarter Worst Quarter
------- -------
(------) (------)
*The performance information above is based on a calendar year. The Fund's total
return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of the S&P 600 Small Cap Index.
5
<PAGE> 276
<TABLE>
<CAPTION>
SINCE
INCEPTION
1 YEAR (2/1/94)
--------------- ----------
<S> <C> <C>
EMERGING GROWTH FUND
Fiduciary Shares % %
S&P 600 SMALL CAP INDEX(1) % %
</TABLE>
(1) The unmanaged S&P 600 Small Cap Index generally reflects the performance of
U.S. small-company stocks.
[DOLLAR SIGN] FEES AND EXPENSES
This table describes the fees that you would pay directly from your investment
if you bought or sold Fund Shares.
SHAREHOLDER FEES
FIDUCIARY SHARES
Maximum Sales Charge (Load) Imposed on Purchase 0%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)*
*Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you held Fund
Shares.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.80%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %*
----
Total Annual Fund Operating Expenses %*
</TABLE>
* During the past fiscal year, "Other Expenses" were waived by __% or reimbursed
by __% for the Fund's Fiduciary Shares. These waivers are voluntary and may be
terminated at any time. Accordingly, the Fund's actual annual operating expenses
were as follows:
6
<PAGE> 277
<TABLE>
<CAPTION>
FIDUCIARY SHARES
<S> <C>
Investment Advisory Fees 0.80%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses %
----
Total Annual Fund Operating Expenses %
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $___ $___ $___ $______
</TABLE>
7
<PAGE> 278
SHAREOWNER GUIDE--
HOW TO INVEST IN THE HIGHMARK FUNDS
Before you invest, we encourage you to carefully read the Fund profile included
in this prospectus and consider if the Fund is appropriate for your particular
financial situation, risk tolerance and goals. As always, your financial
representative can provide you with valuable assistance in making this decision.
He or she can also help you choose which of the Fund Share classes we offer is
right for you.
CHOOSING A SHARE CLASS
The Emerging Growth Fund offers different classes of Fund Shares, each of which
has different expenses and other characteristics. Only one class of Fund Shares,
Fiduciary Shares, is offered in this prospectus. To choose the one that is best
suited to your needs and goals, consider the amount of money you want to invest,
how long you expect to invest it and whether you plan to make additional
investments. The following are some of the main characteristics of the Fund's
Fiduciary Shares.
FIDUCIARY SHARES
- - No sales charge.
- - No Distribution (12b-1) fees.
- - Available only to the following investors and accounts:
- Fiduciary, advisory, agency, custodial and other similar
accounts maintained with Union Bank of California, N.A., or
its affiliates;
- Non-fiduciary IRA accounts investing in a HighMark equity or
income fund that were established with The Bank of California,
N.A., prior to June 20, 1994, and have remained open since
then.
- Investors who currently own Shares of a HighMark equity or
income funds that they bought prior to June 20, 1994 within an
account registered in their name with the Funds;
- Current and retired trustees of the HighMark Funds and
directors, officers and employees (and their spouses and
children under the age of 21) of Union Bank of California,
N.A., of HighMark Funds' current or former distributors or of
their respective affiliated companies who currently own Shares
of HighMark Funds that they purchased before April 30, 1997;
- Registered investment advisers who are 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;
- Retirement and other benefit plans sponsored by governmental
entities; and
- Financial Institutions that may buy 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
per Fund.
For the actual past expenses of the Class Fiduciary Shares, see the Fund profile
earlier in this prospectus.
The Fund also offers Class A Shares ("Retail Shares"). Retail Shares have their
own expense structure. Retail Shares are available to non-fiduciary clients of
Union Bank of California, N.A., who are not otherwise eligible for Fiduciary
Shares. Call us at 1-800-433-6884 for more details.
8
<PAGE> 279
OPENING AN ACCOUNT
1. Read this prospectus carefully.
2. Determine how much money you want to invest. The minimum investments
for the HighMark Funds are as follows:
- INITIAL PURCHASE: $1,000
$250 for current and retired
trustees of HighMark Funds and
directors, officers and employees
(as well as their spouses and
children under the age of 21) of
Union Bank of California, N.A., SEI
Investments Distribution Co. and
their affiliates.
- ADDITIONAL PURCHASES: $100
We may waive these initial and additional investment minimums
for purchases made in connection with Individual Retirement
Accounts, Keoghs, payroll deduction plans or 401(k) or similar
plans.
3. Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation
when opening trust, corporate or power of attorney accounts. For more
information, please contact your financial representative or call the
Distributor at 1-800-433-6884.
4. Make your initial investment using the table on the next page. You and
your financial representative can initiate any purchase, exchange or
sale of Shares.
We reserve the right to reject a purchase order if we determine that it is not
in the best interest of HighMark Funds or its Shareholders.
9
<PAGE> 280
BUYING SHARES
THROUGH FINANCIAL INSTITUTIONS
- Call your financial institution for information on their
procedures for transmitting orders to HighMark Funds.
BY EXCHANGE
[ARROWS]
- Call us at 1-800-433-6884 or contact your financial
representative to
- request an exchange.
SELLING SHARES
THROUGH FINANCIAL INSTITUTIONS
- - Accounts set up through - Contact your financial institution
financial institutions. to find out more about their
procedures for transmitting orders
to HighMark Funds.
BY EXCHANGE
[ARROWS]
- - Accounts of any type. - Obtain a current prospectus for the
Fund into which you are exchanging
by calling us or contacting your
financial representative.
- Call us or contact your financial
representative to request an
exchange.
TRANSFER AGENT To add to an account using the
ADDRESS: Automatic Invest Plan, see
State Street Bank and Trust Company "Additional Investor Services."
P.O. Box 8416
Boston, MA 02266-8416
PHONE NUMBER: 1-800-433-6884
Or contact your financial representative for
instructions and assistance.
SELLING SHARES IN WRITING. In certain circumstances, you may need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
- you are selling more than $5,000 worth of Shares.
- you are requesting payment other than by a check mailed to the address
of record and payable to the registered owner(s).
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. A notary public CANNOT provide a signature guarantee.
10
<PAGE> 281
RECEIVING YOUR MONEY. Normally, we will send you a check for your proceeds as
promptly as possible, at the latest within seven calendar days of receiving your
redemption order. If, however, you recently bought Shares in the Fund, we may be
unable to fulfill your request if we have not yet received and processed your
payment for the initial purchase. In such a case you may need to resubmit your
redemption request after we have received payment.
REDEMPTION IN KIND. The Fund reserves the right to make payment on redemptions
in securities rather than cash.
INVOLUNTARY SALES OF YOUR SHARES. Due to the relatively high costs of handling
small investments, the Fund reserves the right to redeem your Shares at net
asset value (less any applicable contingent deferred sales charge) if your
account balance in the Fund drops below the minimum initial purchase amount for
any reason other than market fluctuation. This is more likely to occur if you
invest only the minimum amount in the Fund and then sell some of your Shares
soon after. Before the Fund will exercise its right to redeem your Shares, we
will notify you in writing at least 60 days in advance to give you time to bring
your balance up to or above the minimum.
EXCHANGING SHARES
HOW TO EXCHANGE YOUR SHARES. You may exchange Fiduciary Shares of the Fund for
Fiduciary Shares of another HighMark Fund (the "new Fund"), provided that you:
- - Are qualified to invest in the new Fund.
- - Meet the initial and additional investment minimums for the new Fund.
- - Maintain the minimum account balance for each HighMark Fund in which you
invest.
Your cost for buying Shares in the new Fund is based on the relative net asset
values of the Shares you are exchanging. You may also exchange your Fiduciary
Shares of a Fund for Class A, Class B or Class C Shares of another HighMark
Fund. In that case, your cost for buying Shares in the new Fund is based on the
relative net asset value of the Shares you are exchanging plus any applicable
sales charge.
TRANSACTION POLICIES
VALUATION OF SHARES. The Fund's net asset value is calculated according to the
following formula:
(Total mkt. value of the Fund's investments and other assets - any Fund
liabilities)
/ Total number of the Fund's Shares outstanding
---------------------------------------------
= Fund's net asset value
We determine the net asset value (NAV) of the Fund as of 1:00 p.m. Pacific time
(4:00 p.m. Eastern time) business days, based on the current market price of the
Fund's securities. If that is not available, we value its securities by using a
method that the Fund's Board of Trustees believes accurately reflects fair
value. For further information about how we determine the value of the Fund's
investments, see the Statement of Additional Information.
BUY AND SELL PRICES. When you buy Shares, the number of Shares you receive is
based on the net asset value we next determine after receiving your order. When
you sell Shares, the amount of your proceeds are based on the net asset value we
next determine after receiving your order.
EXECUTION OF ORDERS. You may buy and sell Shares of the Fund on any day when the
New York Stock Exchange is open for business (hereafter referred to as a
"business day").
- - Purchasing Shares by Mail: If you mail us a purchase order, we will execute
it as soon as we have received your payment. (Note: If your check does not
clear, we will be forced to cancel your purchase and may hold you liable
for any losses or fees incurred.)
- - Purchasing Shares by Wire: If you place a purchase order by wire on any
business day, we will execute it that day, provided that you have wired the
money you wish to invest to the transfer agent prior to 1:00 p.m. PT (4:00
p.m. ET). If the transfer agent does not receive the money you plan to wire
by this deadline, we will execute your order the following business day or
whenever we have received your order and/or payment.
- - Selling Shares: To sell Shares on any one business day, you must place your
redemption order before 1:00 p.m. PT (4:00 p.m. ET). Otherwise, we will
execute your order the following business day.
11
<PAGE> 282
DIVIDENDS AND DISTRIBUTIONS
As a mutual fund Shareholder, you may receive capital gains and/or income from
your investment. The Fund declares and pays income dividends monthly. The Fund
distributes any capital gains it has realized at least once a year.
We will automatically reinvest any income and capital gains distributions you
are entitled to in additional Shares of your Fund unless you notify our Transfer
Agent that you want to receive your distributions in cash. To do so, send a
letter with your request, including your name and account number to:
HighMark Funds
c/o State Street Bank and Trust Company
P.O. Box 8416
Boston, MA 02266-8416
Your request will become effective for distributions having record dates after
our Transfer Agent receives your request. Note that the IRS treats dividends
paid in additional Fund Shares the same as it treats dividends paid in cash.
TAXES
Your mutual fund investments may have a considerable impact on your tax
situation. We've summarized some of the main points you should know below. Note,
however, that the following is general information and will not apply to you if
you are investing through a tax-deferred account such as an IRA or a qualified
employee benefit plan. In addition, if you are not a resident of the United
States, you may have to pay taxes besides those described here, such as U.S.
withholding and estate taxes.
IMPORTANT NOTE: IF YOU HAVE NOT DONE SO ALREADY, BE SURE TO PROVIDE US WITH YOUR
CORRECT TAXPAYER IDENTIFICATION NUMBER OR CERTIFY THAT IT IS CORRECT. UNLESS WE
HAVE THAT INFORMATION, WE MUST, BY LAW, WITHHOLD 31% OF THE TAXABLE
DISTRIBUTIONS YOU WOULD OTHERWISE BE ENTITLED TO RECEIVE FROM YOUR FUND
INVESTMENTS AS WELL AS ANY PROCEEDS YOU WOULD NORMALLY RECEIVE FROM SELLING FUND
SHARES.
END-OF-YEAR TAX STATEMENTS
We will send you a statement each year showing the tax status of all your
distributions. The laws governing taxes change frequently, however, so please
consult your tax advisory for the most up-to-date information and specific
guidance regarding your particular tax situation. You can find more information
about the potential tax consequences of mutual fund investing in our Statement
of Additional Information.
TAXES ON FUND DISTRIBUTIONS
- - FEDERAL TAXES: The IRS treats any dividends and short-term capital gains
you receive from the Funds as ordinary income.
- - STATE AND LOCAL TAXES: In addition to federal taxes, you may have to pay
state and local taxes on the dividends or capital gains you receive from
the Fund.
- - TAXATION OF LONG-TERM CAPITAL GAINS: You may have to pay federal and state
taxes on any distributions of net long-term capital gains you receive from
a Fund at the long-term capital gains rate, no matter how long you've owned
Shares in the Fund. (Although some states like California, do not have a
special rate for capital gains.)
- - "BUYING A DIVIDEND": You may owe taxes on Fund distributions even if they
represent income or capital gains the Fund earned before you invested in it
and thus were likely included in the price you paid.
TAX CONSEQUENCES OF SELLING OR EXCHANGING SHARES
If you sell or exchange Fund Shares, you may have to report any capital gain you
realize as income and any capital loss as a deduction on your federal income tax
return. For more specific information about your own tax situation, consult your
tax advisory.
12
<PAGE> 283
The portfolio managers of the Fund do not actively consider tax consequences
when making investment decisions. From time to time, the Fund may realize
capital gains as by-products of ordinary investment activities. As a result, the
amount and timing of Fund distributions may vary considerably from year to year.
THE TAX CONSIDERATIONS DESCRIBED ABOVE MAY OR MAY NOT APPLY TO YOU. PLEASE
CONSULT YOUR TAX ADVISORY TO DETERMINE WHETHER THESE CONSIDERATIONS ARE RELEVANT
TO YOUR PARTICULAR INVESTMENTS AND TAX SITUATION.
INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN (AIP): AIP allows you to make regular investments in
the HighMark Fund(s) of your choice through automatic deductions from your
checking account. The monthly minimum per Fund is $100.* AIP is available only
to current Shareholders who wish to make additional investments to their
existing account(s). To participate in AIP, complete the appropriate section on
your Account Application form.
*There is a $50 monthly minimum for current or retired trustees of the HighMark
Funds and directors, officers, and employees (as well as their spouses and
children under the age of 21) of Union Bank of California, SEI Investments
Distribution Co., and their affiliates who were participating in HighMark's AIP
on or before December 11, 1998.
SYSTEMATIC WITHDRAWAL PLAN (SWP): HighMark's Systematic Withdrawal Plan allows
you to make regular withdrawals from your account. The minimum monthly
withdrawal is $100 per Fund. You can opt to make these withdrawals on a monthly,
quarterly, twice yearly or annual basis. You also have the option of receiving
your withdrawals by check or by automatic deposit into your bank account.
To participate in SWP, you must:
- - Have at least $5,000 in your HighMark Fund(s) account.
- - Have your dividends automatically reinvested.
Before you sign up for SWP, please note the following important considerations:
If your automatic withdrawals through SWP exceed the income your Fund(s)
normally pay, your withdrawals may, over time, deplete your original investment
- -- or exhaust it entirely if you make large and frequent withdrawals.
Fluctuations in the net asset value per Share of your Fund(s) may also deplete
your principal.
To take part in SWP, complete the appropriate section on your Account
Application form. You may change or cancel the plan at any time by sending a
written notice to our Transfer Agent (which may require a signature guarantee).
13
<PAGE> 284
MORE ABOUT HIGHMARK FUNDS
INVESTMENT MANAGEMENT
INVESTMENT ADVISER
HighMark Capital Management, Inc., serves as investment adviser of the HighMark
Funds and manages their investment portfolios on a day-to-day basis under the
supervision of HighMark Funds' Board of Trustees.
HighMark Capital Management is a subsidiary of UnionBanCal Corporation, the
holding company of Union Bank of California, N.A. UnionBanCal Corporation is a
publicly held corporation principally owned by The Bank of Tokyo-Mitsubishi,
Ltd. As of September 30, 1999, UnionBanCal Corporation and its subsidiaries had
approximately $____ billion in consolidated assets. As of the same date,
HighMark Capital Management had approximately $____ billion in assets under
management. HighMark Capital Management (and its predecessors), 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.
Over the past fiscal year, the Fund paid the following management fees to
HighMark Capital Management:
<TABLE>
<CAPTION>
Fund % of Net Assets
---- ---------------
<S> <C>
Emerging Growth Fund 0.80%
</TABLE>
SUB-ADVISER
EMERGING GROWTH FUND. Bank of Tokyo-Mitsubishi Trust Company (BTMT) serves as
the sub-adviser to the Emerging Growth Fund. Under an investment sub-advisory
agreement between BTMT and HighMark Capital Management, BTMT makes the
day-to-day investment decisions for the assets of the Emerging Growth Fund,
subject to the supervision of, and policies established by, HighMark Capital
Management 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. The surviving entity was Bank of
Tokyo Trust Company, which changed its name to Bank of Tokyo-Mitsubishi Trust
Company. Prior to the combination, sub-advisory services were provided by Bank
of Tokyo Trust Company. Bank of Tokyo Trust Company was established in 1955, and
has provided trust services since that time and management services since 1965.
PORTFOLIO MANAGER
All investment decisions for the Fund are made by a team of investment
professionals, all of whom take an active part in the decision making process.
14
<PAGE> 285
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years or, if shorter, the period of the
Fund's operations. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by ,
whose report, along with the Fund's financial statements, are included in the
SAI, which is available upon request.
15
<PAGE> 286
INVESTMENT PRACTICES
The Fund invests in a variety of securities and employs a number of investment
techniques. Each security and technique involves certain risks. The following
table describes the securities and techniques the Fund uses, as well as the main
risks they pose. Equity securities are subject mainly to market risk.
Fixed-income securities are subject primarily to market, credit and prepayment
risk. Following the table is a more complete discussion of risk. You may also
consult the Statement of Additional Information for more details about the
securities in which the Fund may invest.
<TABLE>
<CAPTION>
INSTRUMENT RISK TYPE
---------- ---------
<S> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRS): ADRs are foreign Shares Market
of a company held by a U.S. bank that issues a receipt Political
evidencing ownership. ADRs pay dividends in U.S. dollars. Foreign Investment
BANKERS' ACCEPTANCES: Bills of exchange or time drafts drawn Credit
on and accepted by a commercial bank. They generally have Liquidity
maturities of six months or less. Market
CALL AND PUT OPTIONS: A call option gives the buyer the right Management
to buy, and obligates the seller of the option to sell, a Liquidity
security at a specified price. A put option gives the buyer Credit
the right to sell, and obligates the seller of the option to Market
buy, a security at a specified price. The Funds will sell Leverage
only covered call and secured put options.
CERTIFICATES OF DEPOSIT: Negotiable instruments with a stated Market
maturity. Credit
Liquidity
COMMERCIAL PAPER: Secured and unsecured short-term promissory Credit
notes issued by corporations and other entities. Their Liquidity
maturities generally vary from a few days to nine months. Market
COMMON STOCK: Shares of ownership of a company. Market
CONVERTIBLE SECURITIES: Bonds or preferred stock that convert Market
to common stock. Credit
DEMAND NOTES: Securities that are subject to puts and Market
standby commitments to purchase the securities at a fixed Liquidity
price (usually with accrued interest) within a fixed period Management
of time following demand by a fund.
DERIVATIVES: Instruments whose value is derived from an Management
underlying contract, index or security, or any combination Market
thereof, including futures, options (e.g., puts and calls), Credit
options on futures, swap agreements and some mortgage-backed Liquidity
securities. Leverage
FUTURES AND RELATED OPTIONS: A contract providing for the Management
future sale and purchase of a specific amount of a specific Market
</TABLE>
16
<PAGE> 287
<TABLE>
<S> <C>
security, class of securities or index at a specified time in Credit
the future and at a specified price. The aggregate value of Liquidity
options on securities (long puts and calls) will not exceed Leverage
10% of a HighMark Equity Fund's net assets at the time it
purchases the options. An equity fund will limit its
obligations under futures, options on futures, and options on
securities to no more than 25% of its assets. The HighMark
Fixed Income Funds may invest in futures and options on
futures for the purpose of achieving their objectives and for
adjusting their portfolio's duration. Each of these Funds
will limit its obligations under futures contracts and
related options to no more than 10% of its assets.
ILLIQUID SECURITIES: Securities that ordinarily cannot be Liquidity
sold within seven business days at the value the Fund has Market
estimated for them. Each Fund may invest up to 15% of its net
assets in illiquid securities.
INDEX-BASED SECURITIES: Index-based securities, such as Market
Standard & Poor's Depository Receipts ("SPDRs" and NASDAQ-100
Index Tracking Stock ("NASDAQ 100s"), represent ownership in
a long-term unit investment trust that holds a portfolio of
common stocks designed to track the price performance and
dividend yield of an index, such as the S&P 500 Index or the
NASDAQ-100 Index. Index-based securities entitle a holder to
receive proportionate quarterly cash distributions
corresponding to the dividends that accrue to the index
stocks in the underlying portfolio, less trust expenses.
INVESTMENT COMPANY SECURITIES: Shares of registered Market
investment companies. These may include HighMark Money Market
Funds and other registered investment companies for which
HighMark, its subadvisorys, or any of their affiliates,
serves as investment Advisory, administrator or distributor.
Each of the Funds may invest up to 5% of its assets in the
Shares of any one registered investment company. A Fund may
not, however, own more than 3% of the securities of any one
registered investment company or invest more than 10% of its
assets in the Shares of other registered investment
companies. As a Shareholder of an investment company, a Fund
will indirectly bear investment management fees of that
investment company, which are in addition to the management
fees the Fund pays its own Advisory.
MONEY MARKET INSTRUMENTS: Investment grade, U.S. Market
dollar-denominated debt securities with remaining maturities Credit
of one year or less. These may include short-term U.S.
government obligations, commercial paper and other short-term
corporate obligations, repurchase agreements collateralized
with U.S. government securities, certificates of deposit,
bankers' acceptances, and other financial institution
obligations. These securities may carry fixed or variable
interest rates.
PREFERRED STOCKS: Equity securities that generally pay Market
</TABLE>
17
<PAGE> 288
<TABLE>
<S> <C>
dividends at a specified rate and take precedence over common
stock in the payment of dividends or in the event of
liquidation. Preferred stock generally does not carry voting
rights.
REPURCHASE AGREEMENTS: The purchase of a security and the Market
simultaneous commitment to return the security to the seller Leverage
at an agreed upon price on an agreed upon date. This is
treated as a loan.
REVERSE REPURCHASE AGREEMENTS: The sale of a security and the Market
simultaneous commitment to buy the security back at an agreed Leverage
upon price on an agreed upon date. This is treated as a
borrowing by a Fund.
RESTRICTED SECURITIES: Securities not registered under the Liquidity
Securities Act of 1933, such as privately placed commercial Market
paper and Rule 144A securities.
SECURITIES LENDING: The lending of up to 33 1/3% of a Fund's Market
total assets. In return the Fund will receive cash, other Leverage
securities and/or letters of credit. Liquidity
TIME DEPOSITS: Non-negotiable receipts issued by a bank in Liquidity
exchange for a deposit of money. Credit
TREASURY RECEIPTS: Treasury receipts, Treasury investment Market
growth receipts and certificates of accrual of Treasury
securities.
UNIT INVESTMENT TRUSTS: A type of investment vehicle, Market
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. 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.
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued by Market
agencies and instrumentalities of the U.S. government. These Credit
include Ginnie Mae, Fannie Mae and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, separately Market
traded registered interest and principal securities, and
coupons under bank entry safekeeping.
WARRANTS: Securities that give the holder the right to buy a Market
proportionate amount of common stock at a specified price. Credit
Warrants are typically issued with preferred stock and bonds.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: A Market
</TABLE>
18
<PAGE> 289
<TABLE>
<S> <C>
purchase of, or contract to purchase, securities at a fixed price for Leverage
delivery at a future date. The portfolio managers of each Liquidity
Fund expect that commitments to enter into forward Credit
commitments or purchase when-issued securities will not
exceed 25% of the Fund's total assets.
</TABLE>
GLOSSARY OF INVESTMENT RISKS
This section discusses the risks associated with the securities and investment
techniques listed above, as well as the risks mentioned under the heading "What
Are the Main Risks of Investing in This Fund?" in each Fund profile. Because of
these risks, the value of the Funds' holdings may fluctuate, as will the value
of your investment in the Funds. Certain types of investments and funds are more
susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Generally speaking, the lower a security's credit rating, the higher
its credit risk. If a security's credit rating is downgraded, its price tends to
decline sharply, especially as it becomes more probable that the issuer will
default.
FOREIGN INVESTMENT RISK. Compared with investing in the United States, investing
in foreign markets involves a greater degree and variety of risk. Investors in
foreign markets may face delayed settlements, currency controls and adverse
economic developments as well as higher overall transaction costs. In addition,
fluctuations in the U.S. dollar's value versus other currencies may erode or
reverse gains from investments denominated in foreign currencies or widen
losses. For instance, foreign governments may limit or prevent investors from
transferring their capital out of a country. This may affect the value of your
investment in the country that adopts such currency controls. Exchange rate
fluctuations also may impair an issuer's ability to repay U.S. dollar-
denominated debt, thereby increasing the credit risk of such debt. Finally, the
value of foreign securities may be seriously harmed by incomplete or inaccurate
financial information about their issuers, social upheavals or political actions
ranging from tax code changes to governmental collapse. These risks are greater
in the emerging markets than in the developed markets of Europe and Japan.
HEDGING. When a derivative (a security whose value is based on that of another
security or index) is used as a hedge against an opposite position that a fund
holds, any loss on the derivative should be substantially offset by gains on the
hedged investment, and vice versa. Although hedging can be an effective way to
reduce a fund's risk, it may not always be possible to perfectly offset one
position with another. As a result, there is no assurance that a fund's hedging
transactions will be effective.
INTEREST RATE RISK. The risk that debt prices overall will decline over short or
even long periods due to rising interest rates. Interest rate risk should be
modest for shorter-term securities, moderate for intermediate-term securities,
and high for longer-term securities. Generally, an increase in a fund's average
maturity will make it more sensitive to interest rate risk.
INVESTMENT STYLE RISK. The risk that the particular type of investment on which
a fund focuses (such as small-cap value stocks or large-cap growth stocks) may
underperform other asset classes or the overall market. Individual market
segments tend to go through cycles of performing better or worse than other
types of securities. These periods may last as long as several years.
Additionally, a particular market segment could fall out of favor with
investors, causing a fund that focuses on that market segment to underperform
those that favor other kinds of securities.
LEVERAGE RISK. The risk associated with securities or investment practices that
magnify small index or market movements into large changes in value. Leverage is
often created by investing in derivatives, but it may be inherent in other types
of securities as well.
LIQUIDITY RISK. The risk that a security may be difficult or impossible to sell
at the time and price the seller wishes. The seller may have to accept a lower
price for the security, sell other securities instead, or forego a more
19
<PAGE> 290
attractive investment opportunity. Any or all of these limitations could hamper
the management or performance of a fund.
MANAGEMENT RISK. The risk that a strategy used by a fund's portfolio manager may
fail to produce the intended result. This includes the risk that changes in the
value of a hedging instrument will not match those of the asset being hedged.
MARKET RISK. The risk that a security's market value may decline, especially if
it occurs rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price the investor originally paid for it. Market risk
may affect a single issuer, industrial sector or the market as a whole. For
fixed-income securities, market risk is largely influenced by changes in
interest rates. Rising interest rates typically cause the value of bonds to
decrease, while falling rates typically cause the value of bonds to increase.
POLITICAL RISK. The risk of investment losses attributable to unfavorable
governmental or political actions, seizure of foreign deposits, changes in tax
or trade statutes, and governmental collapse and war.
PREPAYMENT & CALL RISK. The risk that an issuer will repay a security's
principal at an unexpected time. Prepayment and call risk are related, but
differ somewhat. Prepayment risk is the chance that a large number of the
mortgages underlying a mortgage-backed security will be refinanced sooner than
the investor had expected. Call risk is the possibility that an issuer will
"call" -- or repay -- a high-yielding bond before the bond's maturity date. In
both cases, the investor is usually forced to reinvest the proceeds in a
security with a lower yield. This turnover may result in taxable capital gains
and, in addition, may lower a portfolio's income. If an investor paid a premium
for the security, the prepayment may result in an unexpected capital loss.
Prepayment and call risk generally increase when interest rates decline, and can
make a security's yield as well as its market price more volatile. Generally
speaking, the longer a security's maturity, the greater the prepayment and call
risk it poses.
REGULATORY RISK. The risk that federal and state laws may restrict an investor
from seeking recourse when an issuer has defaulted on the interest and/or
principal payments it owes on its obligations. These laws include restrictions
on foreclosures, redemption rights after foreclosure, Federal and state
bankruptcy and debtor relief laws, restrictions on "due on sale" clauses, and
state usury laws.
SMALL-COMPANY STOCK RISK. Investing in small companies is generally more risky
than investing in large companies, for a variety of reasons. Many small
companies are young and have limited track records. They also may have limited
product lines, markets or financial resources. They may, in addition, be more
vulnerable to adverse business or economic developments than larger companies.
Stocks issued by small companies tend to be less liquid and more volatile than
stocks of larger companies or the market averages in general. In addition, small
companies may not be well-known to the investing public, may not have
institutional ownership, and may have only cyclical, static or moderate growth
prospects. If a fund concentrates on small companies, its performance may be
more volatile than that of a fund that invests primarily in larger companies.
SPECULATIVE INVESTMENTS. In addition to helping reduce risk, derivatives may be
used to magnify a fund's potential gains. This strategy involves substantially
greater risks than more defensive uses of derivatives.
YEAR 2000 RISK. 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, the HighMark Funds therefore could
be adversely affected if the computer systems used by its service providers do
not properly process dates on and after January 1, 2000, because they cannot
distinguish between the year 2000 and the year 1900. We are seeking assurances
from each of our service providers that they expect their systems to accommodate
the year 2000 transition without significant adverse consequences to HighMark
Funds. If these assurances prove to be incorrect, HighMark Shareholders may lose
money as a result of system failures or year 2000 computer difficulties
experienced by issuers of portfolio securities or custodians, banks,
broker-dealers or others with which we do business.
20
<PAGE> 291
HOW TO OBTAIN MORE INFORMATION
INVESTMENT ADVISER
HighMark Capital Management, Inc.
475 Sansome Street
San Francisco, CA 94104
SUBADVISER
Emerging Growth Fund:
Bank of Tokyo-Mitsubishi Trust Company
1251 Avenue of the Americas
New York, NY 10016
ADMINISTRATOR AND DISTRIBUTOR
SEI Investments Distribution Co.
1 Freedom Valley Drive
Oaks, PA 19456
LEGAL COUNSEL
Ropes & Gray
1301 K Street, N.W., Suite 800 East
Washington, DC 20005
AUDITORS
Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105-2230
More information about the Funds is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
More detailed information about the HighMark Funds is included in our SAI. The
SAI has been filed with the SEC and is incorporated by reference into this
prospectus. This means that the SAI, for legal purposes, is a part of this
prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list the Funds' holdings and contain information on the market
conditions and investment strategies that significantly affected the HighMark
Funds' performance during the last year.
To Obtain the SAI, Annual or Semi-Annual Reports, or More Information:
BY TELEPHONE:
Call 1-800-433-6884
BY MAIL:
Write to us c/o
SEI Investments Distribution Co.
1 Freedom Valley Drive
Oaks, PA 19456.
BY INTERNET:
http://www.highmark-funds.com
FROM THE SEC: You can also obtain the SAI, Annual and Semiannual Reports, and
other information about the HighMark Funds from the SEC's Web site
(http://www.sec.gov). You may review and copy documents at the SEC Public
Reference Room in Washington, DC (for information call 1-800-SEC-0330). You may
request documents by mail from the SEC, upon payment of a duplicating fee, by
writing to: Securities and Exchange Commission, Public Reference Section, 450
5th Street, N.W., Washington, DC 20549-6009.
HighMark Funds' Investment Company Act registration number is 811-05059.
21
<PAGE> 292
CROSS REFERENCE SHEET
Part A
<TABLE>
<CAPTION>
Form N-1A Item No. Prospectus Caption
- ------------------ ------------------
HIGHMARK FUNDS
EMERGING GROWTH FUND - RETAIL SHARES
<S> <C>
1. Front and Back Cover Pages ................................ Cover Page; Back Page
2. Risk/Return Summary:
Investments, Risks and Performance....................... Individual HighMark Funds Profiles
3. Risk/Return Summary: Fee Table............................ Individual HighMark Funds Profiles
4. Investment Objectives, Principal Investment
Strategies, and Related Risk ........................... Individual HighMark Funds Profiles;
More About the HighMark Fund --
Investment Practices; More About the
HighMark Funds -- Glossary of
Investment Risks
5. Management's Discussion of the Fund
Performance.............................................. Inapplicable
6. Management, Organization and Capital
Structure................................................ More About the HighMark Funds -
Investment Management
7. Shareholder Information.................................... Shareowner Guide - How to Invest in
the HighMark Funds
8. Distribution Arrangements ................................. Shareowner Guide - How to Invest in
the HighMark Funds
9. Financial Highlights Information........................... Financial Highlights
</TABLE>
<PAGE> 293
HIGHMARK FUNDS
EMERGING GROWTH FUND
CLASS A SHARES
PROSPECTUS
November 30, 1999
The Securities and Exchange Commission has not approved or disapproved of these
securities or determined whether this prospectus is accurate or complete. Any
representation to the contrary is unlawful.
<PAGE> 294
HOW TO READ THIS PROSPECTUS
HighMark Funds is a mutual fund family that offers different classes of Shares
in separate investment portfolios (Funds). The Funds have various investment
goals and strategies. This prospectus gives you important information about the
Class A Shares of the HighMark Emerging Growth Fund that you should know before
investing. The Emerging Growth Fund also offers an additional class of Shares
called Fiduciary Shares, which is offered in a separate prospectus.
THE HIGHMARK EMERGING GROWTH FUND IS CLOSED TO NEW INVESTORS.
Please read this prospectus and keep it for future reference. The prospectus is
arranged into different sections so that you can easily review this important
information. The next page contains general information you should know about
investing in the Fund.
FUND PROFILE
SHAREOWNER GUIDE --
HOW TO INVEST IN THE FUND
X Choosing a Share Class
X How Sales Charges are Calculated
X Sales Charge Reductions and Waivers
X Fees for Distributions of Shares
X Opening an Account
X Buying Shares
X Selling Shares
X Exchanging Shares
X Transaction Policies
X Dividends and Distributions
X Taxes
X Investor Services
MORE ABOUT THE FUND
X Investment Management
X Financial Highlights
X Investment Practices
X Glossary of Investment Risks
FOR MORE INFORMATION ABOUT HIGHMARK FUNDS, PLEASE SEE THE BACK COVER OF THE
PROSPECTUS
[BULLSEYE] Fund Summary
[TEACHER] Investment Strategy
[YIELD SIGN] What are the main risks of investing in this Fund?
[GRAPH] Performance Information
$ Fees and Expenses
[DOLLAR BILL] Your Account
[RECYCLE ARROWS] Investment Management
[FIREWORKS] Financial Highlights
[RIGHT ARROW] Additional Investment Practices and Risks
November 30, 1999
2
<PAGE> 295
INTRODUCTION
The HighMark Emerging Growth Fund is a mutual fund. A mutual fund pools
Shareholders' money and, using professional investment managers, invests it in
securities such as stocks and bonds. Before you look at the Fund, you should
know a few basics about investing in mutual funds.
The value of your investment in a mutual fund is based on the market prices of
the securities the fund holds. These prices change daily due to economic trends
and other developments that generally affect securities markets, as well as
those that affect particular firms and other types of issuers. These price
movements, also called volatility, vary depending on the types of securities a
fund owns and the markets where these securities trade.
AS WITH OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR INVESTMENT IN A MUTUAL
FUND. YOUR INVESTMENT IN THE HIGHMARK EMERGING GROWTH FUND IS NOT A DEPOSIT OR
AN OBLIGATION OF UNION BANK OF CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK. IT
IS NOT INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY.
Each HighMark Fund has its own investment goal and strategies for reaching that
goal. There is no guarantee that the Fund will achieve its goal. Before
investing, make sure that the Fund's goal matches your own.
The portfolio managers invest the Fund's assets in a way that he or she believes
will help the Fund achieve its goal. A manager's judgments about the securities
markets, economy and companies, and his or her method of investment selection,
may cause the Fund to underperform other funds with similar objectives.
THE HIGHMARK EMERGING GROWTH FUND IS CLOSED TO NEW INVESTORS.
3
<PAGE> 296
EMERGING GROWTH FUND
[BULLSEYE] FUND SUMMARY
Investment Goal To seek long-term capital
appreciation.
Investment Stocks of small to mid-size U.S.
Focus companies
Principal Investment Attempts to identify emerging
Strategy growth companies with above-
average growth potential
Share Price Volatility High
Investors able to tolerate a high
Investor degree of risk in exchange for
Profile potentially high long-term returns
[TEACHER] INVESTMENT STRATEGY
HighMark Emerging Growth Fund seeks long-term growth of capital by investing in
a diversified portfolio of equity securities of small capitalization, emerging
growth companies. To pursue this goal, the Fund invests primarily in the stocks
of rapidly growing, generally small to mid-size U.S. companies*. An "emerging
growth company" is one in the developing stages of its life cycle whose earnings
and/or revenues are growing rapidly or have the potential to do so.
The Fund may also invest in companies with the potential to yield benefits from
what are known as "special situations" such as:
- - mergers, acquisitions, spin-offs, liquidations or reorganizations
- - the development of promising new products, technology or distribution
channels
- - a new or revitalized management team
To choose stocks for the Fund, the portfolio managers conduct an extensive
analysis of individual companies examining their underlying business,
financials, management and valuation, favoring those whose stocks they believe
are reasonably priced and offer above-average growth potential. A company may or
may not yet be profitable at the time the Fund invests in it.
In addition to those described above, the Fund may invest in other types of
securities, including bonds. In an effort to preserve the value of your
investment under volatile market conditions, the managers may invest more than
35% of the Fund's assets in very short-term debt obligations called money market
securities. Such a strategy could make it more difficult for the Fund to achieve
its goals.
SIDEBAR: Small capitalization companies are those companies with market
capitalizations within the range of those in the S&P 600 Small Cap Index.
Medium Capitalization Companies are those companies with market capitalization
within the range of those in the S&P 400 Mid-Cap Index.
4
<PAGE> 297
[YIELD SIGN] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Market Risk: The possibility that the Fund's stock holdings may decline
in price because of a broad stock market decline. Markets generally
move in cycles, with periods of rising prices followed by periods of
falling prices. The value of your investment will tend to increase or
decrease in response to these movements.
Small Company Risk: Investing in smaller, lesser-known companies
involves greater risk than investing in those that are more
established. A small company's financial well-being may, for example,
depend heavily on just a few products or services. In addition,
investors may have limited flexibility to buy or sell small company
stocks compared to those of larger firms.
Investment Style Risk: The possibility that the securities on which
this Fund focuses -- the stocks of small to medium-size U.S. growth
companies -- may underperform other kinds of investments or the market
as a whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the amount
of taxes you pay. For more information about these risks, please see the
Glossary of Investment Risks on page ___.
[GRAPH] PERFORMANCE INFORMATION
The performance table below illustrates the risks and volatility of an
investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how it will perform in the future.
This bar chart shows changes in the Fund's performance from year to year. If
sales charges had been reflected, the Fund's returns would be less than those
shown below.*
[INSERT BAR CHART]
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
------------ -------------
<S> <C>
(------) (------)
</TABLE>
*The performance information above is based on a calendar year. The Fund's total
return from 1/1/99 to 7/31/99 was ____%.
This table compares the Fund's average annual total returns for periods ending
12/31/98 to those of the S&P 600 Small Cap Index.
5
<PAGE> 298
<TABLE>
<CAPTION>
SINCE
INCEPTION
1 YEAR (2/1/94)
--------------- -----------
<S> <C> <C>
EMERGING GROWTH FUND
Class A Shares % %
S&P 600 SMALL CAP INDEX(1) % %
</TABLE>
(1) The unmanaged S&P 600 Small Cap Index generally reflects the performance of
U.S. small-company stocks.
$ FEES AND EXPENSES
This table describes the fees that you would pay directly from your investment
if you bought or sold Fund Shares.
SHAREHOLDER FEES
<TABLE>
<CAPTION>
CLASS A SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase 5.50%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0%
(as a percentage of net asset value)
Redemption Fee (as a percentage 0%
of amount redeemed, if applicable)*
</TABLE>
*Does not include any wire transfer fees, if applicable.
The table below describes the expenses you would pay indirectly if you held Fund
Shares.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES
<S> <C>
Investment Advisory Fees 0.80%
Distribution/Service (12b-1) Fees 0.25%
Other Expenses %*
----
Total Annual Fund Operating Expenses %*
</TABLE>
* During the past fiscal year, "Other Expenses" were waived by __% or reimbursed
by __% for the Fund's Fiduciary Shares. These waivers are voluntary and may be
terminated at any time. Accordingly, the Fund's actual annual operating expenses
were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES
<S> <C>
Investment Advisory Fees 0.80%
Distribution/Service (12b-1) Fees 0.25%
Other Expenses %
----
Total Annual Fund Operating Expenses %
</TABLE>
6
<PAGE> 299
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A Shares $___ $___ $___ $______
</TABLE>
7
<PAGE> 300
SHAREOWNER GUIDE--
HOW TO INVEST IN THE HIGHMARK FUNDS
Before you invest, we encourage you to carefully read the Fund profile included
in this prospectus and consider if the Fund is appropriate for your particular
financial situation, risk tolerance and goals. As always, your financial
representative can provide you with valuable assistance in making this decision.
He or she can also help you choose which of the Fund Share classes we offer is
right for you.
CHOOSING A SHARE CLASS
The Emerging Growth Fund offers different classes of Fund Shares, each of which
has different expenses and other characteristics. Only one class of Fund Shares,
Class A Shares, is offered in this prospectus. To choose the one that is best
suited to your needs and goals, consider the amount of money you want to invest,
how long you expect to invest it and whether you plan to make additional
investments. The following are some of the main characteristics of the Fund's
Class A Shares.
CLASS A SHARES
- - Front-end sales charges, as described below.
- - Distribution and service (12b-1) fees of .25%.
For the actual past expenses of the Class A Shares, see the Fund profile earlier
in this prospectus.
The Fund also offers Class A Shares ("Retail Shares"). Retail Shares have their
own expense structure. Retail Shares are available to non-fiduciary clients of
Union Bank of California, N.A., who are not otherwise eligible for Fiduciary
Shares. Call us at 1-800-433-6884 for more details.
8
<PAGE> 301
HOW SALES CHARGES ARE CALCULATED
HighMark Funds offers different classes of Fund Shares, each of which has
different expenses and other characteristics. Class A Shares are offered in this
prospectus. To choose the one that is best suited to your needs and goals,
consider the amount of money you want to invest, how long you expect to invest
it and whether you plan to make additional investments. The following are some
of the main differences between HighMark's Class A, Class B and Class C Shares:
Class A Shares: Front-End Sales Charge
EQUITY FUNDS
<TABLE>
<CAPTION>
AS A AS A
PERCENTAGE OF PERCENTAGE OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
<S> <C> <C>
0 -- $49,999..................... 5.50% 5.82%
$50,000 -- $99,999............... 4.50% 4.71%
$100,000 -- $249,999............. 3.75% 3.90%
$250,000 -- $499,999............. 2.50% 2.56%
$500,000 -- $999,999............. 2.00% 2.04%
$1,000,000 and Over.............. 0.00%* 0.00%
</TABLE>
- ---------------
* If you sell Class A Shares within one year of buying them and you bought those
Shares without a sales charge because your initial investment was $1 million or
greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGES. You can combine multiple purchases of Class
A Shares in several ways to qualify for reduced sales charges. Notify us at the
time of your purchase if you believe you qualify for a reduced sales charge for
any of the following reasons:
- - Right of Accumulation Privilege: You may combine the value of Class A
Shares you are presently buying with the current value of any Class A
Shares you bought previously for: (1) your account; (2) your spouse's
account; (3) a joint account with your spouse; or (4) your minor children's
trust or custodial accounts. A fiduciary who is purchasing Shares for the
same fiduciary account, trust or estate may also use this right of
accumulation.
- - Combination Privilege: You may combine your investment in Class A Shares of
several HighMark Funds sold subject to a comparable sales charge to qualify
for the reduced sales charge.
- - Letter of Intent: If you plan to invest in Class A Shares of one HighMark
Fund and, within a 13-month period, make an additional investment in Class
A Shares of another HighMark Fund, you may be able to receive a reduced
sales charge on your cumulative investment. To take advantage of this
privilege, you must inform us in writing within 90 days of your initial
purchase. Be sure to notify us again when you make your additional
investment in another HighMark Fund.
REDUCTIONS FOR QUALIFIED GROUP(S). If you are investing with, or on behalf of, a
group, your combined purchases of Class A Shares may be eligible for a reduced
sales charge through the accumulation and combination privileges described
above. Each investor will retain an individual account.
Contact your financial representative or the Distributor to find out how to
qualify, or consult the Statement of Additional Information (see the back cover
of this prospectus for contact information).
FRONT-END SALES CHARGE WAIVERS: The front-end sales charge will be waived on
Class A Shares bought:
(1) Through reinvestment of dividend and capital gain distributions
9
<PAGE> 302
(2) By 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) By state and local governments.
(4) By individuals rolling over distributions received from employee
benefit trust accounts administered by Union Bank of California into an
individual retirement account administered by the Bank, or for which
the Bank serves as trustee or custodian. Future purchases will be
subject to the appropriate sales charge.
(5) By individuals investing the 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) By individuals investing proceeds received in connection with a
distribution paid from a Union Bank of California trust or agency
account.
(7) By investment advisers 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 advisers or financial planners who place
trades for their own accounts, if the accounts are linked to the master
account of the investment adviser or financial planner on the books and
records of a broker or agent;
(8) By individuals investing proceeds they received from selling Shares
of another mutual fund (other than HighMark Funds) on which they paid a
sales charge. If you believe you qualify for this exemption, you must
notify us at the time you purchase Class A Shares and provide us with
evidence such as a confirmation of your share redemption.
(9) By brokers, dealers and agents (as well as their employees, spouses
and children under the age of 21) who have a sales agreement with the
Distributor and are purchasing Class A Shares for their own account.
(10) By individuals buying Class A Shares on behalf of a qualified
prototype retirement plan (other than an IRA, SEP-IRA or Keogh).
(11) By sponsors of a unit investment trust (UIT) who are buying Class
A Shares of HighMark Growth Fund for deposit into the UIT. This
exception may also apply to you if you hold a UIT and invest
distributions you receive from it in Class A Shares of the HighMark
Growth Fund.
(12) By current or retired trustees of HighMark Funds; by directors,
officers and employees (as well as their spouses and children under the
age of 21) of Union Bank of California, SEI Investments Distribution
Co. or their affiliated companies and of Sub-Advisers to the HighMark
Funds.
(13) By 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) By persons who bought Class A Shares without the assistance of an
investment professional between May 15, 1998 and August 31, 1998. Such
individuals may make future purchases of Class A Shares at no sales
charge.
If you think you may be eligible for a sales charge waiver, contact the
Distributor or consult the Statement of Additional Information (see the back
cover of this prospectus). For categories 2 through 12 and 14
10
<PAGE> 303
above, you must notify the Distributor at the time you buy the Shares that your
purchase qualifies for a sales charge waiver.
FEES FOR DISTRIBUTION OF SHARES
HighMark Funds has adopted a 12b-1 plan with respect to Class A Shares that
allows the Fund to pay distribution and service fees. The maximum distribution
and service fee for Class A Shares is as follows:
<TABLE>
<CAPTION>
Percentage of Average
Share Class Daily Net Assets
----------- ----------------
<S> <C>
Class A 0.25%
</TABLE>
11
<PAGE> 304
OPENING AN ACCOUNT
1. Read this prospectus carefully.
2. Determine how much money you want to invest. The minimum investments
for the HighMark Funds are as follows:
- - INITIAL PURCHASE: $1,000
$250 for current and retired
trustees of HighMark Funds and
directors, officers and employees
(as well as their spouses and
children under the age of 21) of
Union Bank of California, N.A., SEI
Investments Distribution Co. and
their affiliates.
- - ADDITIONAL PURCHASES: $100
We may waive these initial and additional investment minimums for
purchases made in connection with Individual Retirement Accounts,
Keoghs, payroll deduction plans or 401(k) or similar plans.
3. Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation
when opening trust, corporate or power of attorney accounts. For more
information, please contact your financial representative or call the
Distributor at 1-800-433-6884.
4. Make your initial investment using the table on the next page. You and
your financial representative can initiate any purchase, exchange or
sale of Shares.
We reserve the right to reject a purchase order if we determine that it is not
in the best interest of HighMark Funds or its Shareholders.
12
<PAGE> 305
BUYING
SHARES
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
BY CHECK
[ENVELOPE]
- - Make out a check for the - Make out a check for the
Investment amount, payable investment amount, payable
to "HighMark Funds." to "HighMark Funds."
- - Deliver the check and your
completed application to your - Fill out the detachable investment
financial representative, or slip from your account statement.
mail them to our transfer If you do not have a slip, include
agent (address below). a note specifying the fund name,
your share class, your account
number and the name(s) in which
the account is registered.
- Deliver the check and your
investment slip or note to your
financial representative, or mail
them to our transfer agent
(address below).
All purchases made by check should be in U.S. dollars.
Third party checks, credit card checks or cash will not be accepted.
BY EXCHANGE
[ARROWS]
- Call your financial - Call your financial representative
representative or the or the Distributor at 1-800-433-6884
Distributor at to request an exchange.
1-800-433-6884
to request an exchange.
BY WIRE
[ARROW]
- Deliver your completed
application - Call our transfer agent before
to your financial wiring any funds.
representative, or mail
it to the transfer agent
(address below). - Instruct your bank to wire the
amount of your investment to:
- Obtain your Fund account
number by calling your State Street Bank and Trust
financial representative or Company
our transfer agent. 225 Franklin Street
Boston, MA 02101
- Instruct your bank to wire ABA# 011000028
the amount of your DDA# 9905-194-8
investment to:
State Street Bank and Trust
Company Specify the Fund name, your share
225 Franklin Street class, your Fund account number
Boston, MA 02101 and the name(s) in which the Fund
ABA# 011000028 account is registered. Your bank may
DDA# 9905-194-8 charge a fee to wire money.
Specify the Fund name, your
choice of share class, the new
Fund account number and the
name(s) in which the Fund account
is registered. Your bank may
charge a fee to wire money.
13
<PAGE> 306
THROUGH FINANCIAL INSTITUTIONS
- - Call your financial institution - Call your financial institution
for information on their for information on their
procedures for transmitting procedures for transmitting
orders to HighMark Funds. orders to HighMark Funds.
TRANSFER AGENT
ADDRESS:
State Street Bank and Trust Company To add to an account using
P.O. Box 8416 the Automatic Invest Plan,
Boston, MA 02266-8416 see "Additional Investor
PHONE NUMBER: 1-800-433-6884 Services."
Or contact your financial
representative for instructions
and assistance.
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<PAGE> 307
SELLING SHARES
DESIGNED FOR TO SELL SOME OR ALL OF YOUR SHARES
BY LETTER
[ENVELOPE]
- - Accounts of any type. - Write a letter indicating the
Fund name, your share class, your
- - Sales of any amount. Fund account number, the name(s)
in which the account is registered
and the dollar value or number of
Shares you wish to sell.
- Include all signatures and any
guarantees that may be
required (see next page).
- Mail the materials to our transfer
agent.
- We will mail a check to the
name(s) and address in which the
account is registered, unless you
give us other written
instructions.
BY PHONE
[TELEPHONE]
- - Accounts of any type. - To place your order, contact
your financial representative or
- - Sales of any amount. the Distributor at 1-800-433-6884
between 8:30 A.M. and 8:00 P.M.
Eastern Time on most business
days.
BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT)
[ARROW]
- - Requests by letter to sell - We will wire amounts of $500 or
at least $500 (accounts of more on the next business day
any type). after we receive your request.
- - Requests by phone to sell at - If you have an account with the
least $500 (accounts of any type). Fund's transfer agent (a "Fund
Direct Account"), a $15 fee will
be deducted from your account.
- Shares cannot be redeemed by wire
on Federal holidays restricting
wire transfers.
BY EXCHANGE
[ARROW] - Accounts of any type. - Obtain a current prospectus for
the Fund into which you are
[ARROW] - Sales of any amount. exchanging by calling the
Distributor or your financial
representative.
- Call the Distributor or your
financial representative to
request an exchange.
15
<PAGE> 308
THROUGH FINANCIAL INSTITUTIONS
- - Accounts set up through
financial institutions. - Contact your financial
institution for information on
their procedures for transmitting
orders to HighMark Funds.
TRANSFER AGENT
ADDRESS:
State Street Bank and Trust Company To add to an account using the
P.O. Box 8416 Automatic Invest Plan, see
Boston, MA 02266-8416 "Additional Investor Services."
PHONE NUMBER: 1-800-433-6884
Or contact your financial representative
for instructions and assistance.
3
<PAGE> 309
SELLING SHARES IN WRITING. In certain circumstances, you may need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
- - you are selling more than $5,000 worth of Shares.
- - you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s).
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. A notary public CANNOT provide a signature guarantee.
RECEIVING YOUR MONEY. Normally, we will send you a check for your proceeds as
promptly as possible, at the latest within seven calendar days of receiving your
redemption order. If, however, you recently bought Shares in the Fund, we may be
unable to fulfill your request if we have not yet received and processed your
payment for the initial purchase. In such a case you may need to resubmit your
redemption request after we have received payment.
REDEMPTION IN KIND. The Fund reserves the right to make payment on redemptions
in securities rather than cash.
INVOLUNTARY SALES OF YOUR SHARES. Due to the relatively high costs of handling
small investments, the Fund reserves the right to redeem your Shares at net
asset value (less any applicable contingent deferred sales charge) if your
account balance in the Fund drops below the minimum initial purchase amount for
any reason other than market fluctuation. This is more likely to occur if you
invest only the minimum amount in the Fund and then sell some of your Shares
soon after. Before the Fund will exercise its right to redeem your Shares, we
will notify you in writing at least 60 days in advance to give you time to bring
your balance up to or above the minimum.
EXCHANGING SHARES
HOW TO EXCHANGE YOUR SHARES. You may exchange Class A Shares of one HighMark
Fund for those of another HighMark Fund (the "new Fund"), provided that you:
- - Are qualified to invest in the new Fund.
- - Satisfy the initial and additional investment minimums for the new Fund.
- - Invest in the same share class in the new Fund as you did in the previous
Fund.
- - Maintain the minimum account balance for each HighMark Fund in which you
invest.
Your cost for buying Shares in the new Fund is based on the relative net asset
values of the Shares you are exchanging plus any applicable sales charge.
CLASS A SHARES. If you want to exchange Class A Shares of one HighMark Fund for
those of another Fund that has a higher sales charge, you must pay the
difference. The same is true if you want to exchange Class A Shares of a no-load
HighMark Money Market Fund for those of another HighMark Fund with a sales
charge. There is one exception: If you acquired Class A Shares of a HighMark
Money Market Fund in an exchange out of Class A Shares of a non-money market
HighMark Fund, you may, within a 12-month period, exchange your Class A money
market Shares for those of another HighMark Fund without paying any additional
sales charge. To receive a reduced sales charge when exchanging into a Fund, you
must notify us that you originally paid a sales charge and provide us with
information confirming your qualification.
TRANSACTION POLICIES
VALUATION OF SHARES. The Fund's net asset value is calculated according to the
following formula:
(Total mkt. value of the Fund's investments and other assets - any Fund
liabilities)
/ Total number of the Fund's Shares outstanding
-----------------------------------------------
= Fund's net asset value
We determine the net asset value (NAV) of the Fund as of 1:00 p.m. Pacific time
(4:00 p.m. Eastern time) business
4
<PAGE> 310
days, based on the current market price of the Fund's securities. If that is not
available, we value its securities by using a method that the Fund's Board of
Trustees believes accurately reflects fair value. For further information about
how we determine the value of the Fund's investments, see the Statement of
Additional Information.
BUY AND SELL PRICES. When you buy Shares, the number of Shares you receive is
based on the net asset value we next determine after receiving your order, plus
any applicable sales charge. When you sell Shares, the amount of your proceeds
are based on the net asset value we next determine after receiving your order,
minus any applicable sales charge.
EXECUTION OF ORDERS. You may buy and sell Shares of the Fund on any day when the
New York Stock Exchange is open for business (hereafter referred to as a
"business day").
- - Purchasing Shares by Mail: If you mail us a purchase order, we will execute
it as soon as we have received your payment. (Note: If your check does not
clear, we will be forced to cancel your purchase and may hold you liable
for any losses or fees incurred.)
- - Purchasing Shares by Wire: If you place a purchase order by wire on any
business day, we will execute it that day, provided that you have wired the
money you wish to invest to the transfer agent prior to 1:00 p.m. PT (4:00
p.m. ET). If the transfer agent does not receive the money you plan to wire
by this deadline, we will execute your order the following business day or
whenever we have received your order and/or payment.
- - Selling Shares: To sell Shares on any one business day, you must place your
redemption order before 1:00 p.m. PT (4:00 p.m. ET). Otherwise, we will
execute your order the following business day.
DIVIDENDS AND DISTRIBUTIONS
As a mutual fund Shareholder, you may receive capital gains and/or income from
your investment. The Fund declares and pays income dividends monthly. The Fund
distributes any capital gains it has realized at least once a year.
We will automatically reinvest any income and capital gains distributions you
are entitled to in additional Shares of your Fund unless you notify our Transfer
Agent that you want to receive your distributions in cash. To do so, send a
letter with your request, including your name and account number to:
HighMark Funds
c/o State Street Bank and Trust Company
P.O. Box 8416
Boston, MA 02266-8416
Your request will become effective for distributions having record dates after
our Transfer Agent receives your request. Note that the IRS treats dividends
paid in additional Fund Shares the same as it treats dividends paid in cash.
TAXES
Your mutual fund investments may have a considerable impact on your tax
situation. We've summarized some of the main points you should know below. Note,
however, that the following is general information and will not apply to you if
you are investing through a tax-deferred account such as an IRA or a qualified
employee benefit plan. In addition, if you are not a resident of the United
States, you may have to pay taxes besides those described here, such as U.S.
withholding and estate taxes.
IMPORTANT NOTE: IF YOU HAVE NOT DONE SO ALREADY, BE SURE TO PROVIDE US WITH YOUR
CORRECT TAXPAYER IDENTIFICATION NUMBER OR CERTIFY THAT IT IS CORRECT. UNLESS WE
HAVE THAT INFORMATION, WE MUST, BY LAW, WITHHOLD 31% OF THE TAXABLE
DISTRIBUTIONS YOU WOULD OTHERWISE BE ENTITLED TO RECEIVE FROM YOUR FUND
INVESTMENTS AS WELL AS ANY PROCEEDS YOU WOULD NORMALLY RECEIVE FROM SELLING FUND
SHARES.
END-OF-YEAR TAX STATEMENTS
5
<PAGE> 311
We will send you a statement each year showing the tax status of all your
distributions. The laws governing taxes change frequently, however, so please
consult your tax advisory for the most up-to-date information and specific
guidance regarding your particular tax situation. You can find more information
about the potential tax consequences of mutual fund investing in our Statement
of Additional Information.
TAXES ON FUND DISTRIBUTIONS
- - FEDERAL TAXES: The IRS treats any dividends and short-term capital gains
you receive from the Funds as ordinary income.
- - STATE AND LOCAL TAXES: In addition to federal taxes, you may have to pay
state and local taxes on the dividends or capital gains you receive from
the Fund.
- - TAXATION OF LONG-TERM CAPITAL GAINS: You may have to pay federal and state
taxes on any distributions of net long-term capital gains you receive from
a Fund at the long-term capital gains rate, no matter how long you've owned
Shares in the Fund. (Although some states like California, do not have a
special rate for capital gains.)
- - "BUYING A DIVIDEND": You may owe taxes on Fund distributions even if they
represent income or capital gains the Fund earned before you invested in it
and thus were likely included in the price you paid.
TAX CONSEQUENCES OF SELLING OR EXCHANGING SHARES
If you sell or exchange Fund Shares, you may have to report any capital gain you
realize as income and any capital loss as a deduction on your federal income tax
return. For more specific information about your own tax situation, consult your
tax advisory.
The portfolio managers of the Fund do not actively consider tax consequences
when making investment decisions. From time to time, the Fund may realize
capital gains as by-products of ordinary investment activities. As a result, the
amount and timing of Fund distributions may vary considerably from year to year.
THE TAX CONSIDERATIONS DESCRIBED ABOVE MAY OR MAY NOT APPLY TO YOU. PLEASE
CONSULT YOUR TAX ADVISORY TO DETERMINE WHETHER THESE CONSIDERATIONS ARE RELEVANT
TO YOUR PARTICULAR INVESTMENTS AND TAX SITUATION.
INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN (AIP): AIP allows you to make regular investments in
the HighMark Fund(s) of your choice through automatic deductions from your
checking account. The monthly minimum per Fund is $100.* AIP is available only
to current Shareholders who wish to make additional investments to their
existing account(s). To participate in AIP, complete the appropriate section on
your Account Application form.
*There is a $50 monthly minimum for current or retired trustees of the HighMark
Funds and directors, officers, and employees (as well as their spouses and
children under the age of 21) of Union Bank of California, SEI Investments
Distribution Co., and their affiliates who were participating in HighMark's AIP
on or before December 11, 1998.
SYSTEMATIC WITHDRAWAL PLAN (SWP): HighMark's Systematic Withdrawal Plan allows
you to make regular withdrawals from your account. The minimum monthly
withdrawal is $100 per Fund. You can opt to make these withdrawals on a monthly,
quarterly, twice yearly or annual basis. You also have the option of receiving
your withdrawals by check or by automatic deposit into your bank account.
To participate in SWP, you must:
- - Have at least $5,000 in your HighMark Fund(s) account.
- - Have your dividends automatically reinvested.
Before you sign up for SWP, please note the following important considerations:
If your automatic withdrawals through SWP exceed the income your Fund(s)
normally pay, your withdrawals may, over time, deplete your original investment
- -- or exhaust it entirely if you make large and frequent withdrawals.
Fluctuations in the net asset value per Share of your Fund(s) may also deplete
your principal.
Class A shareholders should note the following:
If you are currently making additional purchases of HighMark Shares that carry a
sales load, or plan to do
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<PAGE> 312
so, it generally would not be in your best interest to participate in SWP.
To take part in SWP, complete the appropriate section on your Account
Application form. You may change or cancel the plan at any time by sending a
written notice to our Transfer Agent (which may require a signature guarantee).
7
<PAGE> 313
MORE ABOUT HIGHMARK FUNDS
INVESTMENT MANAGEMENT
INVESTMENT ADVISER
HighMark Capital Management, Inc., serves as investment adviser of the HighMark
Funds and manages their investment portfolios on a day-to-day basis under the
supervision of HighMark Funds' Board of Trustees.
HighMark Capital Management is a subsidiary of UnionBanCal Corporation, the
holding company of Union Bank of California, N.A. UnionBanCal Corporation is a
publicly held corporation principally owned by The Bank of Tokyo-Mitsubishi,
Ltd. As of September 30, 1999, UnionBanCal Corporation and its subsidiaries had
approximately $____ billion in consolidated assets. As of the same date,
HighMark Capital Management had approximately $____ billion in assets under
management. HighMark Capital Management (and its predecessors), 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.
Over the past fiscal year, the Fund paid the following management fees to
HighMark Capital Management:
<TABLE>
<CAPTION>
Fund % of Net Assets
---- ---------------
<S> <C>
Emerging Growth Fund 0.80%
</TABLE>
SUB-ADVISER
EMERGING GROWTH FUND. Bank of Tokyo-Mitsubishi Trust Company (BTMT) serves as
the sub-adviser to the Emerging Growth Fund. Under an investment sub-advisory
agreement between BTMT and HighMark Capital Management, BTMT makes the
day-to-day investment decisions for the assets of the Emerging Growth Fund,
subject to the supervision of, and policies established by, HighMark Capital
Management 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. The surviving entity was Bank of
Tokyo Trust Company, which changed its name to Bank of Tokyo-Mitsubishi Trust
Company. Prior to the combination, sub-advisory services were provided by Bank
of Tokyo Trust Company. Bank of Tokyo Trust Company was established in 1955, and
has provided trust services since that time and management services since 1965.
PORTFOLIO MANAGER
All investment decisions for the Fund are made by a team of investment
professionals, all of whom take an active part in the decision making process.
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<PAGE> 314
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years or, if shorter, the period of the
Fund's operations. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by ,
whose report, along with the Fund's financial statements, are included in the
SAI, which is available upon request.
9
<PAGE> 315
INVESTMENT PRACTICES
The Fund invests in a variety of securities and employs a number of investment
techniques. Each security and technique involves certain risks. The following
table describes the securities and techniques the Fund uses, as well as the main
risks they pose. Equity securities are subject mainly to market risk.
Fixed-income securities are subject primarily to market, credit and prepayment
risk. Following the table is a more complete discussion of risk. You may also
consult the Statement of Additional Information for more details about the
securities in which the Fund may invest.
<TABLE>
<CAPTION>
INSTRUMENT RISK TYPE
---------- ---------
<S> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRS): ADRs are foreign Shares Market
of a company held by a U.S. bank that issues a receipt Political
evidencing ownership. ADRs pay dividends in U.S. dollars. Foreign Investment
BANKERS' ACCEPTANCES: Bills of exchange or time drafts drawn Credit
on and accepted by a commercial bank. They generally have Liquidity
maturities of six months or less. Market
CALL AND PUT OPTIONS: A call option gives the buyer the right Management
to buy, and obligates the seller of the option to sell, a Liquidity
security at a specified price. A put option gives the buyer Credit
the right to sell, and obligates the seller of the option to Market
buy, a security at a specified price. The Funds will sell Leverage
only covered call and secured put options.
CERTIFICATES OF DEPOSIT: Negotiable instruments with a stated Market
maturity. Credit
Liquidity
COMMERCIAL PAPER: Secured and unsecured short-term promissory Credit
notes issued by corporations and other entities. Their Liquidity
maturities generally vary from a few days to nine months. Market
COMMON STOCK: Shares of ownership of a company. Market
CONVERTIBLE SECURITIES: Bonds or preferred stock that convert Market
to common stock. Credit
DEMAND NOTES: Securities that are subject to puts and Market
standby commitments to purchase the securities at a fixed Liquidity
price (usually with accrued interest) within a fixed period Management
of time following demand by a fund.
DERIVATIVES: Instruments whose value is derived from an Management
underlying contract, index or security, or any combination Market
thereof, including futures, options (e.g., puts and calls), Credit
options on futures, swap agreements and some mortgage-backed Liquidity
securities. Leverage
FUTURES AND RELATED OPTIONS: A contract providing for the Management
future sale and purchase of a specific amount of a specific Market
</TABLE>
10
<PAGE> 316
<TABLE>
<S> <C>
security, class of securities or index at a specified time in Credit
the future and at a specified price. The aggregate value of Liquidity
options on securities (long puts and calls) will not exceed Leverage
10% of a HighMark Equity Fund's net assets at the time it
purchases the options. An equity fund will limit its
obligations under futures, options on futures, and options on
securities to no more than 25% of its assets. The HighMark
Fixed Income Funds may invest in futures and options on
futures for the purpose of achieving their objectives and for
adjusting their portfolio's duration. Each of these Funds
will limit its obligations under futures contracts and
related options to no more than 10% of its assets.
ILLIQUID SECURITIES: Securities that ordinarily cannot be Liquidity
sold within seven business days at the value the Fund has Market
estimated for them. Each Fund may invest up to 15% of its net
assets in illiquid securities.
INDEX-BASED SECURITIES: Index-based securities, such as Market
Standard & Poor's Depository Receipts ("SPDRs" and NASDAQ-100
Index Tracking Stock ("NASDAQ 100s"), represent ownership in
a long-term unit investment trust that holds a portfolio of
common stocks designed to track the price performance and
dividend yield of an index, such as the S&P 500 Index or the
NASDAQ-100 Index. Index-based securities entitle a holder to
receive proportionate quarterly cash distributions
corresponding to the dividends that accrue to the index
stocks in the underlying portfolio, less trust expenses.
INVESTMENT COMPANY SECURITIES: Shares of registered Market
investment companies. These may include HighMark Money Market
Funds and other registered investment companies for which
HighMark, its subadvisorys, or any of their affiliates,
serves as investment Advisory, administrator or distributor.
Each of the Funds may invest up to 5% of its assets in the
Shares of any one registered investment company. A Fund may
not, however, own more than 3% of the securities of any one
registered investment company or invest more than 10% of its
assets in the Shares of other registered investment
companies. As a Shareholder of an investment company, a Fund
will indirectly bear investment management fees of that
investment company, which are in addition to the management
fees the Fund pays its own Advisory.
MONEY MARKET INSTRUMENTS: Investment grade, U.S. Market
dollar-denominated debt securities with remaining maturities Credit
of one year or less. These may include short-term U.S.
government obligations, commercial paper and other short-term
corporate obligations, repurchase agreements collateralized
with U.S. government securities, certificates of deposit,
bankers' acceptances, and other financial institution
obligations. These securities may carry fixed or variable
interest rates.
PREFERRED STOCKS: Equity securities that generally pay Market
</TABLE>
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<PAGE> 317
<TABLE>
<S> <C>
dividends at a specified rate and take precedence over common
stock in the payment of dividends or in the event of
liquidation. Preferred stock generally does not carry voting
rights.
REPURCHASE AGREEMENTS: The purchase of a security and the Market
simultaneous commitment to return the security to the seller Leverage
at an agreed upon price on an agreed upon date. This is
treated as a loan.
REVERSE REPURCHASE AGREEMENTS: The sale of a security and the Market
simultaneous commitment to buy the security back at an agreed Leverage
upon price on an agreed upon date. This is treated as a
borrowing by a Fund.
RESTRICTED SECURITIES: Securities not registered under the Liquidity
Securities Act of 1933, such as privately placed commercial Market
paper and Rule 144A securities.
SECURITIES LENDING: The lending of up to 33 1/3% of a Fund's Market
total assets. In return the Fund will receive cash, other Leverage
securities and/or letters of credit. Liquidity
TIME DEPOSITS: Non-negotiable receipts issued by a bank in Liquidity
exchange for a deposit of money. Credit
TREASURY RECEIPTS: Treasury receipts, Treasury investment Market
growth receipts and certificates of accrual of Treasury
securities.
UNIT INVESTMENT TRUSTS: A type of investment vehicle, Market
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. 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.
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued by Market
agencies and instrumentalities of the U.S. government. These Credit
include Ginnie Mae, Fannie Mae and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, separately Market
traded registered interest and principal securities, and
coupons under bank entry safekeeping.
WARRANTS: Securities that give the holder the right to buy a Market
proportionate amount of common stock at a specified price. Credit
Warrants are typically issued with preferred stock and bonds.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: A Market
</TABLE>
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<PAGE> 318
<TABLE>
<S> <C>
purchase of, or contract to purchase, securities at a fixed price for Leverage
delivery at a future date. The portfolio managers of each Liquidity
Fund expect that commitments to enter into forward Credit
commitments or purchase when-issued securities will not
exceed 25% of the Fund's total assets.
</TABLE>
GLOSSARY OF INVESTMENT RISKS
This section discusses the risks associated with the securities and investment
techniques listed above, as well as the risks mentioned under the heading "What
Are the Main Risks of Investing in This Fund?" in each Fund profile. Because of
these risks, the value of the Funds' holdings may fluctuate, as will the value
of your investment in the Funds. Certain types of investments and funds are more
susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Generally speaking, the lower a security's credit rating, the higher
its credit risk. If a security's credit rating is downgraded, its price tends to
decline sharply, especially as it becomes more probable that the issuer will
default.
FOREIGN INVESTMENT RISK. Compared with investing in the United States, investing
in foreign markets involves a greater degree and variety of risk. Investors in
foreign markets may face delayed settlements, currency controls and adverse
economic developments as well as higher overall transaction costs. In addition,
fluctuations in the U.S. dollar's value versus other currencies may erode or
reverse gains from investments denominated in foreign currencies or widen
losses. For instance, foreign governments may limit or prevent investors from
transferring their capital out of a country. This may affect the value of your
investment in the country that adopts such currency controls. Exchange rate
fluctuations also may impair an issuer's ability to repay U.S. dollar-
denominated debt, thereby increasing the credit risk of such debt. Finally,
the value of foreign securities may be seriously harmed by incomplete or
inaccurate financial information about their issuers, social upheavals or
political actions ranging from tax code changes to governmental collapse. These
risks are greater in the emerging markets than in the developed markets of
Europe and Japan.
HEDGING. When a derivative (a security whose value is based on that of another
security or index) is used as a hedge against an opposite position that a fund
holds, any loss on the derivative should be substantially offset by gains on the
hedged investment, and vice versa. Although hedging can be an effective way to
reduce a fund's risk, it may not always be possible to perfectly offset one
position with another. As a result, there is no assurance that a fund's hedging
transactions will be effective.
INTEREST RATE RISK. The risk that debt prices overall will decline over short or
even long periods due to rising interest rates. Interest rate risk should be
modest for shorter-term securities, moderate for intermediate-term securities,
and high for longer-term securities. Generally, an increase in a fund's average
maturity will make it more sensitive to interest rate risk.
INVESTMENT STYLE RISK. The risk that the particular type of investment on which
a fund focuses (such as small-cap value stocks or large-cap growth stocks) may
underperform other asset classes or the overall market. Individual market
segments tend to go through cycles of performing better or worse than other
types of securities. These periods may last as long as several years.
Additionally, a particular market segment could fall out of favor with
investors, causing a fund that focuses on that market segment to underperform
those that favor other kinds of securities.
LEVERAGE RISK. The risk associated with securities or investment practices that
magnify small index or market movements into large changes in value. Leverage is
often created by investing in derivatives, but it may be inherent in other types
of securities as well.
LIQUIDITY RISK. The risk that a security may be difficult or impossible to sell
at the time and price the seller wishes. The seller may have to accept a lower
price for the security, sell other securities instead, or forego a more
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<PAGE> 319
attractive investment opportunity. Any or all of these limitations could hamper
the management or performance of a fund.
MANAGEMENT RISK. The risk that a strategy used by a fund's portfolio manager may
fail to produce the intended result. This includes the risk that changes in the
value of a hedging instrument will not match those of the asset being hedged.
MARKET RISK. The risk that a security's market value may decline, especially if
it occurs rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price the investor originally paid for it. Market risk
may affect a single issuer, industrial sector or the market as a whole. For
fixed-income securities, market risk is largely influenced by changes in
interest rates. Rising interest rates typically cause the value of bonds to
decrease, while falling rates typically cause the value of bonds to increase.
POLITICAL RISK. The risk of investment losses attributable to unfavorable
governmental or political actions, seizure of foreign deposits, changes in tax
or trade statutes, and governmental collapse and war.
PREPAYMENT & CALL RISK. The risk that an issuer will repay a security's
principal at an unexpected time. Prepayment and call risk are related, but
differ somewhat. Prepayment risk is the chance that a large number of the
mortgages underlying a mortgage-backed security will be refinanced sooner than
the investor had expected. Call risk is the possibility that an issuer will
"call" -- or repay -- a high-yielding bond before the bond's maturity date. In
both cases, the investor is usually forced to reinvest the proceeds in a
security with a lower yield. This turnover may result in taxable capital gains
and, in addition, may lower a portfolio's income. If an investor paid a premium
for the security, the prepayment may result in an unexpected capital loss.
Prepayment and call risk generally increase when interest rates decline, and can
make a security's yield as well as its market price more volatile. Generally
speaking, the longer a security's maturity, the greater the prepayment and call
risk it poses.
REGULATORY RISK. The risk that federal and state laws may restrict an investor
from seeking recourse when an issuer has defaulted on the interest and/or
principal payments it owes on its obligations. These laws include restrictions
on foreclosures, redemption rights after foreclosure, Federal and state
bankruptcy and debtor relief laws, restrictions on "due on sale" clauses, and
state usury laws.
SMALL-COMPANY STOCK RISK. Investing in small companies is generally more risky
than investing in large companies, for a variety of reasons. Many small
companies are young and have limited track records. They also may have limited
product lines, markets or financial resources. They may, in addition, be more
vulnerable to adverse business or economic developments than larger companies.
Stocks issued by small companies tend to be less liquid and more volatile than
stocks of larger companies or the market averages in general. In addition, small
companies may not be well-known to the investing public, may not have
institutional ownership, and may have only cyclical, static or moderate growth
prospects. If a fund concentrates on small companies, its performance may be
more volatile than that of a fund that invests primarily in larger companies.
SPECULATIVE INVESTMENTS. In addition to helping reduce risk, derivatives may be
used to magnify a fund's potential gains. This strategy involves substantially
greater risks than more defensive uses of derivatives.
YEAR 2000 RISK. 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, the HighMark Funds therefore could
be adversely affected if the computer systems used by its service providers do
not properly process dates on and after January 1, 2000, because they cannot
distinguish between the year 2000 and the year 1900. We are seeking assurances
from each of our service providers that they expect their systems to accommodate
the year 2000 transition without significant adverse consequences to HighMark
Funds. If these assurances prove to be incorrect, HighMark Shareholders may lose
money as a result of system failures or year 2000 computer difficulties
experienced by issuers of portfolio securities or custodians, banks,
broker-dealers or others with which we do business.
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HOW TO OBTAIN MORE INFORMATION
INVESTMENT ADVISER
HighMark Capital Management, Inc.
475 Sansome Street
San Francisco, CA 94104
SUBADVISER
Emerging Growth Fund:
Bank of Tokyo-Mitsubishi Trust Company
1251 Avenue of the Americas
New York, NY 10016
ADMINISTRATOR AND DISTRIBUTOR
SEI Investments Distribution Co.
1 Freedom Valley Drive
Oaks, PA 19456
LEGAL COUNSEL
Ropes & Gray
1301 K Street, N.W., Suite 800 East
Washington, DC 20005
AUDITORS
Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105-2230
More information about the Funds is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
More detailed information about the HighMark Funds is included in our SAI. The
SAI has been filed with the SEC and is incorporated by reference into this
prospectus. This means that the SAI, for legal purposes, is a part of this
prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list the Funds' holdings and contain information on the market
conditions and investment strategies that significantly affected the Highmark
Funds' performance during the last year.
To Obtain the SAI, Annual or Semi-Annual Reports, or More Information:
BY TELEPHONE:
Call 1-800-433-6884
BY MAIL:
Write to us c/o
SEI Investments Distribution Co.
1 Freedom Valley Drive
Oaks, PA 19456.
BY INTERNET:
http://www.highmark-funds.com
FROM THE SEC: You can also obtain the SAI, Annual and Semiannual Reports, and
other information about the HighMark Funds from the SEC's Web site
(http://www.sec.gov). You may review and copy documents at the SEC Public
Reference Room in Washington, DC (for information call 1-800-SEC-0330). You may
request documents by mail from the SEC, upon payment of a duplicating fee, by
writing to: Securities and Exchange Commission, Public Reference Section, 450
5th Street, N.W., Washington, DC 20549-6009.
HighMark Funds' Investment Company Act registration number is 811-05059.
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CROSS REFERENCE SHEET
HIGHMARK FUNDS
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
FORM N-1A PART B ITEM INFORMATION CAPTION
<S> <C>
10. Cover Page and Table of Contents Cover Page; Table of Contents
11. Fund History HighMark Funds; Additional Information
12. Description of the Funds and the Investment Objectives and Policies; Additional
Investments and Risks Information on Portfolio Instruments; Investment
Restrictions; Portfolio Turnover
13. Management of HighMark Funds Management of HighMark Funds
14. Control Persons and Principal
Holders of Securities Additional Information -- Miscellaneous
15. Investment Advisory and Other
Services Management of HighMark Funds
16. Brokerage Allocation Management of HighMark Funds -- Portfolio
Transactions
17. Capital Stock and Other Securities Valuation; Additional Purchase and Redemption
Information; Management of HighMark Funds --
Distributor; The Distribution Plans; Additional
Information
18. Purchase, Redemption and Valuation; Additional Purchase and Redemption
Pricing of Securities Being Information; Management of HighMark Funds
Offered
19. Taxation of the Trust 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
</TABLE>
<PAGE> 322
<TABLE>
<S> <C>
20. Underwriters Management of HighMark Funds -- Distributor
21. Calculation of Performance Data Additional Information -- Calculation of
Performance Data
22. Financial Statements Financial Statements
</TABLE>
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HIGHMARK FUNDS
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 30, 1999
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Prospectuses of the HighMark Equity and
Fixed Income Funds and the HighMark Money Market Funds, each of which is dated
November 30, 1999, (collectively, the "Prospectuses") and any of their
supplements. This Statement of Additional Information is incorporated in its
entirety into these 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 in this Statement of Additional
Information have the same meanings as set forth in the Prospectuses.
<PAGE> 324
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
HIGHMARK FUNDS..........................................................................................1
INVESTMENT OBJECTIVES AND POLICIES......................................................................2
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS.........................................................3
Equity Securities............................................................................3
Debt Securities..............................................................................3
Convertible Securities.......................................................................3
Asset-Backed Securities (non-mortgage).......................................................4
Bank Instruments.............................................................................5
Commercial Paper and Variable Amount Master Demand Notes.....................................6
Lending of Portfolio Securities..............................................................6
Repurchase Agreements........................................................................6
Reverse Repurchase Agreements................................................................7
U.S. Government Obligations..................................................................7
Mortgage-Related Securities..................................................................8
Adjustable Rate Notes.......................................................................11
Municipal Securities........................................................................11
Investments in California Municipal Securities by the California Tax-Free Money
Market Fund and the California Intermediate Tax-Free Bond Fund.......................15
Puts........................................................................................18
Shares of Mutual Funds......................................................................19
When-Issued Securities and Forward Commitments..............................................19
Zero-Coupon Securities......................................................................20
Options (Puts and Calls) on Securities......................................................20
Covered Call Writing........................................................................21
Purchasing Call Options.....................................................................22
Purchasing Put Options......................................................................22
Options in Stock Indices....................................................................22
Risk Factors in Options Transactions........................................................24
Futures Contracts on Securities and Related Options.........................................25
Futures Contracts on Securities.............................................................25
Options on Securities' Futures Contracts....................................................26
Risk of Transactions in Securities' Futures Contracts and Related Options...................26
Index Futures Contracts.....................................................................27
Options on Index Futures Contracts..........................................................28
Foreign Investment..........................................................................28
Foreign Currency Transactions...............................................................30
Transaction Hedging.........................................................................30
Position Hedging............................................................................31
</TABLE>
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<TABLE>
<S> <C>
Currency Forward and Futures Contracts......................................................32
General Characteristics of Currency Futures Contracts.......................................33
Foreign Currency Options....................................................................34
Foreign Currency Conversion.................................................................34
Index-Based Investments.....................................................................34
Small Cap/Special Equity Situation Securities...............................................35
High Yield Securities.......................................................................35
Money Market Instruments....................................................................36
Treasury Receipts...........................................................................37
High Quality Investments with Regard to the Money Market Funds..............................37
Illiquid Securities.........................................................................40
Restricted Securities.......................................................................40
INVESTMENT RESTRICTIONS................................................................................40
Voting Information..........................................................................49
PORTFOLIO TURNOVER.....................................................................................49
VALUATION..............................................................................................50
Valuation of the Money Market Funds.........................................................50
Valuation of the Equity Funds and the Fixed Income Funds....................................51
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.........................................................51
Purchases through Financial Institutions....................................................52
Redemption by Checkwriting..................................................................52
Sales Charges...............................................................................53
Sales Charge Reductions and Waivers.........................................................54
Additional Federal Tax Information..........................................................57
Additional Tax Information Concerning the California Tax-Free Money Market Fund
and the California Intermediate Tax-Free Bond Fund..................................59
Foreign Taxes...............................................................................63
MANAGEMENT OF HIGHMARK FUNDS...........................................................................63
Trustees and Officers.......................................................................63
Investment Adviser..........................................................................67
The Sub-Advisers............................................................................69
Portfolio Transactions......................................................................70
Administrator and Sub-Administrator.........................................................72
Glass-Steagall Act..........................................................................73
Shareholder Services Plans..................................................................74
Shareholder Servicing Agreement.............................................................75
Expenses....................................................................................76
Distributor.................................................................................76
The Distribution Plans............................................................77
Transfer Agent and Custodian Services.......................................................79
Auditors....................................................................................80
Legal Counsel...............................................................................80
</TABLE>
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<TABLE>
<S> <C>
ADDITIONAL INFORMATION.................................................................................80
Description of Shares.......................................................................80
Shareholder and Trustee Liability ..........................................................82
The Reorganization of the IRA Fund and HighMark Funds.......................................82
Calculation of Performance Data.............................................................83
Miscellaneous...............................................................................89
APPENDIX...............................................................................................94
FINANCIAL STATEMENTS..................................................................................100
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
HIGHMARK FUNDS
HighMark Funds is a diversified, open-end management investment
company. HighMark Funds was organized as a Massachusetts business trust on
March 10, 1987 and presently consists of fourteen series of units of beneficial
interest ("Shares"), representing interests in one of the following portfolios:
HighMark Balanced Fund,
HighMark Emerging Growth Fund,
HighMark Growth Fund,
HighMark Income Equity Fund,
HighMark International Equity Fund,
HighMark Small Cap Value Fund,
HighMark Value Momentum Fund,
HighMark Bond Fund,
HighMark California Intermediate Tax-Free Bond Fund,
HighMark Intermediate-Term Bond Fund,
HighMark 100% U.S. Treasury Money Market Fund,
HighMark California Tax-Free Money Market Fund,
HighMark Diversified Money Market Fund, and
HighMark U.S. Government Money Market Fund, (collectively the "Funds").
HighMark Small Cap Value Fund commenced operations on September 17,
1998. HighMark Value Momentum Fund, HighMark Emerging Growth Fund, HighMark
International Equity Fund, HighMark Intermediate-Term Bond Fund, and HighMark
California Intermediate Tax-Free Bond Fund commenced operations in HighMark
Funds on April 28, 1997. HighMark Balanced Fund commenced operations on
November 14, 1993 and HighMark Growth Fund commenced operations on November 18,
1993. HighMark Income Equity Fund and 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. HighMark Diversified
Money Market Fund, HighMark U.S. Government Money Market Fund and HighMark 100%
U.S. Treasury Money Market Fund commenced operations on August 10, 1987.
HighMark California Tax-Free Money Market Fund commenced operations on August
11, 1987.
For ease of reference, this Statement of Additional Information
sometimes refers to the Funds as the "Equity Funds," the "Fixed Income Funds"
and the "Money Market Funds."
<PAGE> 328
The EQUITY FUNDS include:
Balanced Fund
Emerging Growth Fund
Growth Fund
Income Equity Fund
International Equity Fund
Small Cap Value Fund
Value Momentum Fund
The FIXED INCOME FUNDS include:
Bond Fund
California Intermediate Tax-Free Bond Fund
Intermediate-Term Bond Fund
The MONEY MARKET FUNDS include:
100% U.S. Treasury Money Market Fund
California Tax-Free Money Market Fund
Diversified Money Market Fund
U.S. Government Money Market Fund
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 as the "IRA Fund Portfolios."
As described in the Prospectuses, selected Funds of HighMark Funds have
been divided into six classes of Shares (designated Class A, Class B, Class C
and Class S Shares (collectively "Retail Shares"), Class I 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 referred
to collectively as "Shares".
Much of the information contained in this Statement of Additional
Information 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.
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ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
1. Equity Securities. 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. 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.
2. Debt Securities. 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 Adviser 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.
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 Adviser 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.
3. Convertible Securities. Consistent with its objective policies
and restrictions, each Equity Fund may invest in 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. Convertible Bonds are bonds convertible
into a set
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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. 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 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 Adviser.
4. Asset-Backed Securities (non-mortgage). Consistent with its
investment objective, policies and restrictions, certain Funds may invest in
asset-backed securities. Asset-backed securities are 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. 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
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with their investment objectives and policies, the Funds may invest in other
asset-backed securities that may be developed in the future.
5. Bank Instruments. 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
bankers' acceptances, certificates of deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise that
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity. Investments in
bankers' acceptances will be limited to those guaranteed by domestic and
foreign banks having, at the time of investment, total assets of $1 billion or
more (as of the date of the institution's most recently published financial
statements).
Certificates of deposit and time deposits represent funds deposited
in a commercial bank or a savings and loan association for a definite period of
time and earning a specified return.
Investments in certificates of deposit and time deposits may include
Eurodollar Certificates of Deposit, which are U.S. dollar denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States, Yankee Certificates of Deposit, which are
certificates of deposit issued by a U.S. branch of a foreign bank denominated
in U.S. dollars and held in the United States, Eurodollar Time Deposits
("ETDs"), which are U.S. dollar denominated deposits in a foreign branch of a
U.S. bank or a foreign bank, and Canadian Time Deposits ("CTDs"), which are
U.S. dollar denominated certificates of deposit issued by Canadian offices of
major Canadian banks. All investments in certificates of deposit and time
deposits will be limited to those (a) of domestic and foreign 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.
Although the Diversified Money Market Fund maintains a diversified
portfolio, there are no limitations on its ability to invest in domestic
certificates of deposit, banker's acceptances and other bank instruments.
Extensive investments in such instruments may result from the Fund's
concentration of securities in the financial services industry. 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.
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<PAGE> 332
6. Commercial Paper and Variable Amount Master Demand Notes.
Consistent with its investment objective, policies, and restrictions, each Fund
(other than 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.
7. 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 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 "Adviser"), 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.
8. Repurchase Agreements. Securities held by each Fund (other than
the 100% U.S. Treasury Money Market Fund) may be subject to repurchase
agreements.
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 Adviser deems creditworthy
under guidelines approved by HighMark Funds' Board of Trustees. Under a
repurchase agreement, the seller agrees to repurchase the securities at a
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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 100% of the repurchase price (including accrued interest) and
the Custodian, with oversight by the Adviser, 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.
9. Reverse Repurchase Agreements. Each 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 100% 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.
10. 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
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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.
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.
For information concerning mortgage-related securities issued by
certain agencies or instrumentalities of the U.S. Government, see
"Mortgage-Related Securities" below.
11. Mortgage-Related Securities. As indicated in the Prospectus, the
Diversified Money Market Fund, the U.S. Government Money Market Fund and the
California Tax-Free Money Market Fund may each invest in mortgage-related
securities issued by the Government National Mortgage Association ("GNMA")
representing GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes"). The Fixed Income Funds and the Balanced Fund may also, consistent with
each such Fund's investment objective and policies, invest in Ginnie Maes and
in mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies, or its instrumentalities or, those issued by nongovernmental
entities. In addition, the Fixed Income Funds and the Balanced Fund may invest
in collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs").
Mortgage-related securities represent interests in pools of mortgage
loans assembled for sale to investors. Mortgage-related securities may be
assembled and sold by certain governmental agencies and may also be assembled
and sold by nongovernmental entities such as commercial banks, savings and loan
institutions, mortgage bankers, and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third
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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. 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).
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
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Banks. Freddie Macs are not guaranteed by the U.S. Treasury or by any Federal
Home Loan Banks and do not constitute a debt or obligation of the U.S.
Government or of any Federal Home Loan Bank. Freddie Macs entitle the holder to
timely payment of interest, which is guaranteed by the FHLMC. The FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When the FHLMC does not guarantee
timely payment of principal, FHLMC may remit the amount due on account of its
guarantee of ultimate payment of principal at any time after default on an
underlying mortgage, but in no event later than one year after it becomes
payable.
CMOs in which the Fixed Income Funds and the Balanced Fund may
invest represent securities issued by a private corporation or a U.S.
Government instrumentality that are backed by a portfolio of mortgages or
mortgage-backed securities held under an indenture. The issuer's obligation to
make interest and principal payments is secured by the underlying portfolio of
mortgages or mortgage-backed securities. CMOs are issued with a number of
classes or series that have different maturities and that may represent
interests in some or all of the interest or principal on the underlying
collateral or a combination thereof. CMOs of different classes are generally
retired in sequence as the underlying mortgage loans in the mortgage pool are
repaid. In the event of sufficient early prepayments on such mortgages, the
class or series of a CMO first to mature generally will be retired prior to its
maturity. Thus, the early retirement of a particular class or series of a CMO
held by a Fund would have the same effect as the prepayment of mortgages
underlying a mortgage-backed pass-through security.
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.
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
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interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
12 Adjustable Rate Notes. Consistent with its investment objective,
policies, and restrictions, each Fund (other than the 100% U.S. Treasury Money
Market Fund) may invest in "adjustable rate notes," which include variable rate
notes and floating rate notes. For Money Market Fund purposes, a variable rate
note is one whose terms provide for the readjustment of its interest rate on
set dates and that, upon such readjustment, can reasonably be expected to have
a market value that approximates its amortized cost; the degree to which a
variable rate note's market value approximates its amortized cost subsequent to
readjustment will depend on the frequency of the readjustment of the note's
interest rate and the length of time that must elapse before the next
readjustment. A floating rate note is one whose terms provide for the
readjustment of its interest rate whenever a specified interest rate changes
and that, at any time, can reasonably be expected to have a market value that
approximates its amortized cost. Although there may be no active secondary
market with respect to a particular variable or floating rate note purchased by
a Fund, the Fund may seek to resell the note at any time to a third party. The
absence of an active secondary market, however, could make it difficult for the
Fund to dispose of a variable or floating rate note in the event the issuer of
the note defaulted on its payment obligations and the Fund could, as a result
or for other reasons, suffer a loss to the extent of the default. Variable or
floating rate notes may be secured by bank letters of credit. A demand
instrument with a demand notice period exceeding seven days may be considered
illiquid if there is no secondary market for such security. Such security will
be subject to a Fund's non fundamental 15% (10% in the case of the Money Market
Funds) limitation governing investments in "illiquid" securities, unless such
notes are subject to a demand feature that will permit the Fund to receive
payment of the principal within seven days of the Fund's demand. See
"INVESTMENT RESTRICTIONS" below.
Maturities for variable and adjustable rate notes held in the Money
Market Funds will be calculated in compliance with the provisions of Rule 2a-7,
as it may be amended from time to time.
As used above, a note is "subject to a demand feature" where the
Fund is entitled to receive the principal amount of the note either at any time
on not more than thirty days' notice or at specified intervals, not exceeding
397 days and upon not more than thirty days' notice.
13 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
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statistical rating organization ("NRSRO") or are determined by the Adviser 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 one of the two highest short-term
ratings from at least one NRSRO or are determined by the Adviser to be of
comparable quality.
Municipal Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and public entities. Private activity bonds that are issued
by or on behalf of public authorities to finance various privately operated
facilities are included within the term Municipal Securities if the interest
paid thereon is (i) excluded from gross income for federal income tax purposes
and (ii) not treated as a preference item for individuals for purposes of the
federal alternative minimum tax.
As described in the Prospectuses, the two principal classifications
of Municipal Securities consist of "general obligation" and "revenue" issues.
In general, only general obligation bonds are backed by the full faith and
credit and general taxing power of the issuer. There are, of course, variations
in the quality of Municipal Securities, both within a particular classification
and between classifications, and the yields on Municipal Securities depend upon
a variety of factors, including general market conditions, the financial
condition of the issuer (or other entity whose financial resources are
supporting the Municipal Securities), general conditions of the municipal bond
market, the size of a particular offering, the maturity of the obligation and
the rating(s) of the issue. In this regard, it should be emphasized that the
ratings of any NRSRO are general and are not absolute standards of quality;
Municipal Securities with the same maturity, interest rate and rating(s) may
have different yields while Municipal Securities of the same maturity and
interest rate with a different rating(s) may have the same yield.
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.
Certain 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").
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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 or assessments 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 Adviser's determination that it is suitable for the
Fund.
Municipal Securities may also 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.
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, in accordance with their investment objective, 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 Adviser 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.
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The Funds may invest in municipal obligations that are payable
solely from the revenues of health care institutions, although the obligations
may be secured by real or personal property of such institutions. Certain
provisions under federal and California law may adversely affect such revenues
and, consequently, payment on those Municipal Securities.
Certain Municipal Securities in which the Funds may invest may be
obligations that are secured in whole or in part by a mortgage or deed of trust
on real property. California has certain statutory provisions, as embellished
by decisional law, that limit the remedies of a creditor secured by a mortgage
or deed of trust. Some of the provisions generally bar a creditor from
obtaining a deficiency judgment for such secured obligations based either on
the method of foreclosure or the type of debt secured. Other antideficiency
provisions limit a creditors deficiency based on the value of the real property
security at the time of the foreclosure sale. Another statutory provision,
commonly known as the "one-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 action to enforce the
obligation (e.g., a collection lawsuit or setoff) and under the related
"security-first principle," requires the creditor to foreclose on the security
before obtaining a judgment or other enforcement of the secured obligation.
Under the "sanction" aspect, if the real property secured creditor violates the
one-action rule, the creditor loses its lien on the real property security and,
in some instances, the right to recover on the debt. Under the statutory
provisions governing judicial foreclosures, the debtor has the right to redeem
the title to the property for up to one-year following the 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
recoveries for bad faith waste, certain kinds of fraud and pursuant to
environmental indemnities. This limitation also 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 usually no personal recourse against a
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mortgagor of a dwelling of no more than four units, at least one of which is
occupied by such a mortgagor, where the dwelling has been purchased with the
loan that is secured by the mortgage, regardless of whether the creditor
chooses judicial or nonjudicial foreclosure. In the event that this purchase
money anti-deficiency rule applies to a loan secured by a mortgage or deed of
trust, and the value of the property subject to that mortgage or deed of trust
has been substantially reduced because of market forces or by an earthquake or
other event for which the mortgagor or trustor carried no insurance, upon
default, the issuer holding that loan nevertheless would generally 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.
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 Funds nor the
Adviser will review the proceedings relating to the issuance of Municipal
Securities or the basis for such opinions.
14 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 of these California Funds 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
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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
industries). The greatest effects of the recession were felt in Southern
California. Since 1994, California's economy has made a strong recovery, but
its growth has been somewhat unbalanced. In general, the high-technology.
biotechnology, construction and entertainment and other service industries have
expanded while aerospace and other manufacturing industries have declined.
California's economy can be expected to be particularly sensitive to trends in
these industries.
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. While California's economy has made a strong steady recovery and
California's credit ratings have 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 often cite,
among other things, 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 has
generally experienced positive or close to break-even operating results due, in
part, to more conservative budgeting, improved economic conditions and, most
recently, higher-than-expected tax receipts paid on capital gains realizations.
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.
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
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limitations could affect the ability of California state and municipal issuers
to pay interest or repay principal on their obligations.
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 has not needed to use such "cross-year" borrowing since
1996. 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.
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 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
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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.
15 Puts. The California Tax-Free Money Market Fund and the
California Intermediate Tax-Free Bond Fund may acquire "puts" with respect to
the Municipal Securities held in their respective portfolios. A put is a right
to sell a specified security (or securities) within a specified period of time
at a specified exercise price. These Funds may sell, transfer, or assign a put
only in conjunction with the sale, transfer, or assignment of the underlying
security or securities.
The amount payable to a Fund upon its exercise of a "put" is
normally (i) the Fund's acquisition cost of the securities (excluding any
accrued interest that the Fund paid on the acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.
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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).
16 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 Adviser or
Sub-Adviser to a Fund of HighMark Funds, or an affiliate of such Adviser or
Sub-Adviser, serves as investment adviser, administrator or distributor or
provides other services. Because other investment companies employ an
investment adviser, such investment by a Fund may cause Shareholders to bear
duplicative fees. The Adviser 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 Adviser 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.
17 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.
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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 Adviser'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.
18 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 accrued. 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. 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.
19 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.
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.
There are risks associated with such investments including the
following: (1) the success of a hedging strategy may depend on the ability of
the Adviser or Sub-Adviser to
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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.
20 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
Adviser determines is appropriate in seeking to obtain its investment
objective. A Fund will not engage in option writing strategies for speculative
purposes. A call option gives the purchaser of such option the right to buy,
and the writer, in this case the Fund, has the obligation to sell the
underlying security at the exercise price during the option period. The
advantage to the Fund of writing covered calls is that the Fund receives a
premium which is additional income. However, if the value of the security
rises, the Fund may not fully participate in the market appreciation.
During the option period, a covered call option writer may be
assigned an exercise notice by the broker/dealer through whom such call option
was sold, which requires the writer to deliver the underlying security against
payment of the exercise price. This obligation is terminated upon the
expiration of the option period or at such earlier time in which the writer
effects a closing purchase transaction. A closing purchase transaction is one
in which a Fund, when obligated as a writer of an option, terminates its
obligation by purchasing an option of the same series as the option previously
written. A closing purchase transaction cannot be effected with respect to an
option once the option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize
a profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security, or to enable the
Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Fund may realize a net
gain or loss from a closing purchase transaction, depending upon whether the
net amount of the original premium received on the call option is more or less
than the cost of effecting the closing purchase transaction. Any loss incurred
in a closing purchase transaction may be partially or entirely offset by the
premium received from a sale of a different call option on the same underlying
security. Such a loss may also be wholly or partially offset by unrealized
appreciation in the market value of the underlying security. Conversely, a gain
resulting from a closing purchase transaction could be offset in whole or in
part by a decline in the market value of the underlying security.
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
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underlying security equal to the difference between the cost of the underlying
security, and the proceeds of the sale of the security plus the amount of the
premium on the option, less the commission paid.
The market value of a call option generally reflects the market
price of an underlying security. Other principal factors affecting market value
include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.
The Fund will write call options only on a covered basis, which
means that the Fund will own the underlying security subject to a call option
at all times during the option period or will own the right to acquire the
underlying security at a price equal to or below the option's strike price.
Unless a closing purchase transaction is effected the Fund would be required to
continue to hold a security which it might otherwise wish to sell, or deliver a
security it would want to hold. Options written by the Fund will normally have
expiration dates between one and nine months from the date written. The
exercise price of a call option may be below, equal to or above the current
market value of the underlying security at the time the option is written.
21 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 Adviser deems appropriate.
22 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.
23 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.
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Options on stock indices are similar to options on stocks but have
different delivery requirements. Stock options provide the right to take or
make delivery of the underlying stock at a specified price. A stock index
option gives the holder the right to receive a cash "exercise settlement
amount" equal to (i) the amount by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by
(ii) a fixed "index multiplier." Receipt of this cash amount will depend upon
the closing level of the stock index upon which the option is based being
greater than (in the case of a call) or less than (in the case of a put) the
exercise price of the option. The amount of cash received will be equal to such
difference between the closing price of the index and exercise price of the
option expressed in dollars times a specified multiple. The writer of the
option is obligated, in return of the premium received, to make delivery of
this amount. Gain or loss to a Fund on transactions in stock index options will
depend on price movements in the stock market generally (or in a particular
industry or segment of the market) rather than price movements of individual
securities.
As with stock options, a Fund may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.
A stock index fluctuates with changes in the market values of the
stock so included. Some stock index options are based on a broad market index,
such as the Standard & Poor's 500 or the New York Stock Exchange Composite
Index, or a narrower market index such as the Standard & Poor's 100. Indices
are also based on an industry or market segment such as the AMEX Oil and Gas
Index or the Computer and Business Equipment Index. Options on stock indices
are currently traded on the following exchanges among others: The Chicago Board
Options Exchange, New York Stock Exchange, American Stock Exchange and London
Stock Exchange.
A Fund's ability to hedge effectively all or a portion of its
securities through transactions in options on stock indices depends on the
degree to which price movements in the underlying index correlate with price
movements in the Fund's portfolio securities. Since a Fund's portfolio will not
duplicate the components of an index, the correlation will not be exact.
Consequently, a Fund bears the risk that the prices of the securities being
hedged will not move in the same amount as the hedging instrument. It is also
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
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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.
24 Risk Factors in Options Transactions. The successful use of
options strategies depends on the ability of the Adviser or, where applicable,
the Sub-Adviser to forecast interest rate and market movements correctly.
When it purchases an option, a Fund runs the risk that it will lose
its entire investment in the option in a relatively short period of time,
unless the Fund exercises the option or enters into a closing sale transaction
with respect to the option during the life of the option. If the price of the
underlying security does not rise (in the case of a call) or fall (in the case
of a put) to an extent sufficient to cover the option premium and transaction
costs, a Fund will lose part or all of its investment in the option. This
contrasts with an investment by a Fund in the underlying securities, since the
Fund may continue to hold its investment in those securities notwithstanding
the lack of a change in price of those securities.
The effective use of options also depends on a Fund's ability to
terminate option positions at times when the Adviser or, where applicable, the
Sub-Adviser deems it desirable to do so. Although a Fund will take an option
position only if its Adviser or, where applicable, the Sub-Adviser 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.
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25 Futures Contracts on Securities and Related Options. The Equity
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 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.
26 Futures Contracts on Securities. The Equity Funds will enter into
futures contracts on securities only when, in compliance with the SEC's
requirements, cash or equivalents equal in value to the securities' value (less
any applicable margin deposits) have been deposited in a segregated account of
the Fund's custodian.
A futures contract sale creates an obligation by the seller to
deliver the type of instrument called for in the contract in a specified
delivery month for a stated price. A futures contract purchase creates an
obligation by the purchaser to take delivery of the type of instrument called
for in the contract in a specified delivery month at a stated price. The
specific instruments delivered or taken at settlement date are not determined
until on or near that date. The determination is made in accordance with the
rules of the exchanges on which the futures contract was made. Futures
contracts are traded in the United States only on the commodity exchange or
boards of trade, known as "contract markets," approved for such trading by the
Commodity Futures Trading Commission (CFTC), and must be executed through a
futures commission merchant or brokerage firm which is a member of the relevant
contract market.
Although futures contracts by their terms call for actual delivery
or acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument with the same
delivery date. If the price of the initial sale of the futures contract exceeds
the price of the offsetting purchase, the seller is paid the 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,
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assuming all contractual obligations have been satisfied. Futures contracts
also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the
broker (or the custodian) are made on a daily basis as the price of the
underlying security fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as "marking to market."
A Fund may elect to close some or all of its futures positions at
any time prior to their expiration. The purpose of making such a move would be
to reduce or eliminate the hedge position then currently held by the Fund. A
Fund may close its positions by taking opposite positions which will operate to
terminate the Fund's position in the futures contracts. Final determinations of
variation margin are then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain. Such closing
transactions involve additional commission costs.
27 Options on Securities' Futures Contracts. The Equity Funds 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.
28 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 Adviser or, where applicable, the Sub-Adviser to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.
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Compared to the purchase or sale of futures contracts, the purchase
of call or put options on futures contracts involves less risk to a Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to a Fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the price of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity
or other unforeseen events will not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.
To reduce or eliminate a hedge position held by a Fund, the Fund may
seek to close out a position. The ability to establish and close out positions
will be subject to the development and maintenance of a liquid secondary
market. It is not certain that this market will develop or continue to exist
for a particular futures contract. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain contracts or options; (ii)
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other restrictions
may be imposed with respect to particular classes or series of contracts or
options, or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange
or a clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of contracts or options (or a particular class or series of contracts or
options), in which event the secondary market on that exchange (or in the class
or series of contracts or options) would cease to exist, although outstanding
contracts or options on the exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
29 Index Futures Contracts. The Equity Funds 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
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purchases or sells an index futures contract, it is required to make an initial
margin deposit in the name of the futures broker and to make variation margin
deposits as the value of the contract fluctuates, similar to the deposits made
with respect to futures contracts on securities. Positions in index futures
contracts may be closed only on an exchange or board of trade providing a
secondary market for such index futures contracts. The value of the contract
usually will vary in direct proportion to the total face value.
A Fund's ability to effectively utilize index futures contracts
depends on several factors. First, it is possible that there will not be a
perfect price correlation between the index futures contracts and their
underlying index. Second, it is possible that a lack of liquidity for index
futures contracts could exist in the secondary market, resulting in the Fund's
inability to close a futures position prior to its maturity date. Third, the
purchase of an index futures contract involves the risk that the Fund could
lose more than the original margin deposit required to initiate a futures
transaction. In order to avoid leveraging and related risks, when a Fund
purchases an index futures contract, it will collateralize its position by
depositing an amount of cash or cash equivalents, equal to the market value of
the index futures positions held, less margin deposits, in a segregated account
with the Fund's custodian. Collateral equal to the current market value of the
index futures position will be maintained only a daily basis.
The extent to which a Fund may enter into transactions involving
index futures contracts may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the Funds'
intention to qualify as such.
30. 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.
31 Foreign Investment. 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 may invest in American
Depositary
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Receipts. The Balanced Fund, Small Cap Value Fund, International Equity Fund,
Growth Fund and each of the Fixed Income Funds may also 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 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. 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. Foreign issuers of
securities or obligations are often subject to accounting treatment and engage
in business practices different from those respecting domestic issuers of
similar securities or obligations. Foreign branches of U.S. banks and foreign
banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.
On January 1, 1999, the European Monetary Market Union ("EMU")
introduced a new single currency, the euro, which replaced 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") was created to manage
the monetary policy of the new unified region. On the same day, exchange rates
were 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 Small Cap Value Fund and International Equity 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
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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.
32. 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.
33. 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,
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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.
34. 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-Adviser 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.
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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.
35. Currency Forward and Futures Contracts. Consistent with its
investment objective and policies, the International Equity Fund and Small Cap
Value Fund may invest in currency forward and futures contracts. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the
contract as agreed by the parties, at a price set at the time of the contract.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. Forward
contracts are trades in the interbank markets conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
A futures contract is a standardized contract for the future
delivery of a specified amount of a foreign currency at a future date at a
price set at the time of the contract. Futures contracts are designed by and
traded on exchanges. The Fund would enter into futures contracts solely for
hedging or other appropriate risk management purposes as defined in the
controlling regulations.
Forward contracts differ from futures contracts in certain respects.
For example, the maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month. Forward contracts may be in any amounts
agreed upon by the parties rather than predetermined amounts. Also, forward
contracts are traded directly between currency traders so that no intermediary
is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may
either accept or make delivery of the currency specified in the contract, or at
or prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
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,
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the Fund would continue to be required to make daily cash payments of variation
margin, as described below.
A 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. 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 Adviser and Sub-Adviser 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 Adviser and Sub-Adviser believe that the currency of a
particular country may suffer a significant decline against another currency,
the Fund may enter into a currency contract to sell, for the appropriate
currency, the amount of foreign currency approximating the value of some or all
of the Fund's securities denominated in such foreign currency. The Fund may
realize a gain or loss from currency transactions.
36. General Characteristics of Currency Futures Contracts. When the
International Equity Fund or Small Cap Value 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 a Fund upon
termination of the contract, assuming a 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 a Fund sells a futures contract and the price of
the underlying currency rises above the delivery price, the International
Fund's position declines in value. The Fund then pays a broker a variation
margin payment equal to the difference between the delivery price of the
futures contract and the market price of the currency underlying the futures
contract. Conversely, if the price of the underlying currency falls below the
delivery price of the contract, the Fund's futures position increases in value.
The broker then must make a variation margin payment equal to the difference
between the delivery price of the futures contract and the market price of the
currency underlying the futures contract.
When a 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.
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37. 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 International Equity or Small Cap Value Fund's Sub-Adviser
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.
38. 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.
39. Index-Based Investments. Index-Based Investments, such as
Standard & Poor's Depository Receipts ("SPDRs"), NASDAQ-100 Index Tracking
Stock ("NASDAQ 100s") and Dow Jones DIAMONDS ("Diamonds"), are interests in a
unit investment trust ("UIT") that may be obtained from the UIT or purchased in
the secondary market. SPDRs, NASDAQ 100s and DIAMONDS are listed on the
American Stock Exchange.
A UIT will generally issue Index-Based Investments 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 applicable index (the
"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
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expenses and liabilities, and (c) a cash payment or credit ("Balancing Amount")
designed to equalize the net asset value of the Index and the net asset value
of a Portfolio Deposit.
Index-Based Investments are not individually redeemable, except upon
termination of the UIT. To redeem, the portfolio must accumulate enough
Index-Based Investments to reconstitute a Creation Unit (large aggregations of
a particular Index-Based Investment). The liquidity of small holdings of
Index-Based Investments, 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 Index-Based Investments is derived and based upon the
securities held by the UIT. Accordingly, the level of risk involved in the
purchase or sale of Index-Based Investments is similar to the risk involved in
the purchase or sale of traditional common stock, with the exception that the
pricing mechanism for Index-Based Investments is based on a basket of stocks.
Disruptions in the markets for the securities underlying Index-Based
Investments purchased or sold by the Portfolio could result in losses on
Index-Based Investments. Trading in Index-Based Investments involves risks
similar to those risks, described above under "Options," involved in the
writing of options on securities.
40. Small Cap/Special Equity Situation Securities. Certain Funds may
invest in the securities of small capitalization companies and companies in
special equity situations. Companies are considered to have a small market
capitalization if their capitalization is within the range of those companies
in the S&P 600 Small Cap Index. Companies are considered to be experiencing
special equity situations if they are experiencing unusual and possibly
non-repetitive developments, such as mergers; acquisitions; spin-offs;
liquidations; reorganizations; and new products, technology or management.
These companies 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.
41. High Yield Securities. The Small Cap Value Fund and the
California Intermediate Tax-Free Bond 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
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(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.
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, a 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 a 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, a Fund
may have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If a 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 Fund's investment portfolio and
increasing the exposure of the Fund to the risks of high yield securities.
A 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 its Shareholders.
42. Money Market Instruments. Each Fund may invest in money market
instruments which are 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 Adviser 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
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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 Adviser 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.
43. Treasury Receipts. Consistent with its investment objective, policies and
restrictions, each Fund may invest in Treasury receipts. Treasury receipts are
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 accrued 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.
44. 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 Adviser 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." 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 Adviser pursuant
to guidelines adopted by the Board of Trustees. Second Tier Securities are all
other Eligible Securities.
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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 Adviser 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 Adviser. 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 Adviser 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.
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.
In the case of the Diversified Money Market Fund, Eligible
Securities 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 Adviser to be of comparable
quality to the rated instruments eligible for purchase by the Fund under
guidelines adopted by the Board of Trustees). In the case of the California
Tax-Free Money Market Fund, Eligible Securities include those obligations that,
at the time of purchase, possess one of the two highest short-term ratings by
at least one NRSRO or do not possess a short-term rating (i.e., are unrated)
but are determined by the Adviser to be of comparable quality to the rated
obligations eligible for purchase by the Fund under guidelines adopted by the
Board of Trustees.
Specific obligations that the Diversified Money Market Fund may
invest in include:
(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);
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(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.
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
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Diversified Money Market Fund's assets that may be invested in obligations
issued or guaranteed by the U.S. Government, its agencies, or instrumentalities
and repurchase agreements fully collateralized by such obligations.
Under the guidelines adopted by HighMark 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 Adviser 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 Adviser 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.
45. 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.
46. Restricted Securities. Each Fund has adopted a nonfundamental
policy (which may be changed without Shareholder approval) permitting the Fund
to invest in restricted securities provided the Fund complies with the illiquid
securities policy described above. Restricted securities are securities that
may not be sold to the public without registration under the Securities Act of
1933 ("1933 Act") and may be either liquid or illiquid. The Adviser 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
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outstanding Shares of that Fund (as defined below). Except with respect to a
Fund's restriction governing the borrowing of money, if a percentage
restriction is satisfied at the time of investment, a later increase or
decrease in such percentage resulting from a change in asset value will not
constitute a violation of the restriction.
100% U.S. TREASURY MONEY MARKET FUND
The 100% U.S. Treasury Money Market Fund may not purchase securities
other than short-term obligations issued or guaranteed as to payment
of principal and interest by the full faith and credit of the U.S.
Treasury.
EACH OF THE GROWTH FUND, THE INCOME EQUITY FUND, THE BALANCED FUND, THE BOND
FUND, THE DIVERSIFIED MONEY MARKET FUND, THE U.S. GOVERNMENT MONEY MARKET FUND,
AND THE 100% U.S. TREASURY MONEY MARKET FUND MAY NOT:
1. Purchase securities on margin (except that, with
respect to the Growth Fund, the Income Equity Fund, the Balanced
Fund and the Bond Fund only, such Funds may make margin payments in
connection with transactions in options and financial and currency
futures contracts), sell securities short, participate on a joint or
joint and several basis in any securities trading account, or
underwrite the securities of other issuers, except to the extent
that a Fund may be deemed to be an underwriter under certain
securities laws in the disposition of "restricted securities"
acquired in accordance with the investment objectives and policies
of such Fund;
2. Purchase or sell commodities, commodity contracts
(excluding, with respect to the Growth Fund, the Income Equity Fund,
the Balanced Fund, and the Bond Fund, options and financial and
currency futures contracts), oil, gas or mineral exploration leases
or development programs, or real estate (although investments by the
Growth Fund, the Income Equity Fund, the Balanced Fund, the Bond
Fund, and the Diversified Money Market Fund in marketable securities
of companies engaged in such activities and investments by the
Growth Fund, the Income Equity Fund, the Balanced Fund, and the Bond
Fund in securities secured by real estate or interests therein, are
not hereby precluded to the extent the investment is appropriate to
such Fund's investment objective and policies);
3. Invest in any issuer for purposes of exercising control
or management;
4. Purchase or retain securities of any issuer if the
officers or Trustees of HighMark Funds or the officers or directors
of its investment adviser owning beneficially more than one-half of
1% of the securities of such issuer together own beneficially more
than 5% of such securities;
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5. Borrow money or issue senior securities, except that a
Fund may borrow from banks or enter into reverse repurchase
agreements for temporary emergency purposes in amounts up to 10% of
the value of its total assets at the time of such borrowing; or
mortgage, pledge, or hypothecate any assets, except in connection
with permissible borrowings and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the
Fund's total assets at the time of its borrowing. A Fund will not
invest in additional securities until all its borrowings (including
reverse repurchase agreements) have been repaid. For purposes of
this restriction, the deposit of securities and other collateral
arrangements with respect to options and financial and currency
futures contracts, and payments of initial and variation margin in
connection therewith, are not considered a pledge of a Fund's
assets; and
THE DIVERSIFIED MONEY MARKET FUND, THE U.S. GOVERNMENT MONEY MARKET FUND AND
THE 100% U.S. TREASURY MONEY MARKET FUND MAY NOT:
1. Buy common stocks or voting securities, or state,
municipal or private activity bonds;
2. Write or purchase put or call options; or
3. 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);
4. Purchase any securities that would cause more than 25%
of the value of the Fund's total assets at the time of purchase to
be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided
that (a) there is no limitation with respect to obligations issued
or guaranteed by the U.S. Government, its agencies, or
instrumentalities, domestic bank certificates of deposit or bankers'
acceptances, and repurchase agreements secured by bank instruments
or obligations of the U.S. Government, its agencies, or
instrumentalities; (b) wholly owned finance companies will be
considered to be in the industries of their parents if their
activities are primarily related to financing the activities of
their parents; and (c) utilities will be divided according to their
services (for example, gas, gas transmission, electric and gas,
electric and telephone will each be considered a separate industry).
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5. 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 4. 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.
EACH OF THE EQUITY AND FIXED INCOME FUNDS, OTHER THAN 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;
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:
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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 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
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may, to the extent appropriate to the Fund's investment objective,
purchase publicly traded obligations of companies engaging in whole
or in part in such activities;
7. 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;
8. 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;
9. 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. 10 below, a put will be
considered to be from the party to whom the Fund will look for
payment of the exercise price;
10. 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
11. 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
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that is backed only by the assets and revenues of non-governmental
user, by the non-governmental user;
12. 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.
13. 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 BALANCED FUND, INCOME EQUITY FUND, GROWTH FUND, BOND FUND, 100%
U.S. TREASURY MONEY MARKET FUND, CALIFORNIA TAX-FREE MONEY MARKET FUND,
DIVERSIFIED MONEY MARKET FUND AND U.S. GOVERNMENT MONEY MARKET FUND:
1. May not purchase securities of other investment
companies, except as permitted by the 1940 Act.
EACH OF THE VALUE MOMENTUM FUND, THE EMERGING GROWTH FUND, THE INTERNATIONAL
EQUITY FUND, THE SMALL CAP VALUE FUND, THE INTERMEDIATE-TERM BOND 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. Concentrate investments in a particular industry or
group of industries, or within any one state (except that the
limitation as to investments in any one state or its political
subdivision shall not apply to the California Intermediate Tax-Free
Bond Fund), as concentration is defined under the Investment Company
Act of 1940, or the rulesr 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.
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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 Emerging
Growth Fund, the International Equity Fund, the Small Cap Value Fund, the
Intermediate-Term Bond Fund, and the California Intermediate Tax-Free Bond Fund
have been adopted to avoid wherever possible the necessity of shareholder
meetings otherwise required by the 1940 Act. This recognizes the need to react
quickly to changes in the law or new investment opportunities in the securities
markets and the cost and time involved in obtaining shareholder approvals for
diversely held investment companies. However, the Funds also have adopted
nonfundamental limitations, set forth below, which in some instances may be
more restrictive than their fundamental limitations. Any changes in a Fund's
nonfundamental limitations will be communicated to the Fund's shareholders
prior to effectiveness.
1940 ACT RESTRICTIONS. Under the 1940 Act, and the rules,
regulations and interpretations thereunder, a "diversified company," as to 75%
of its totals assets, may not purchase securities of any issuer (other than
obligations of, or guaranteed by, the U.S. Government, its agencies or its
instrumentalities) if, as a result, more than 5% of the value of its total
assets would be invested in the securities of such issuer or more than 10% of
the issuer's voting securities would be held by the fund. "Concentration" is
generally interpreted under the 1940 Act to be investing more than 25% of net
assets in an industry or group of industries. The 1940 Act limits the ability
of investment companies to borrow and lend money and to underwrite securities.
The 1940 Act currently prohibits an open-end fund from issuing senior
securities, as defined in the 1940 Act, except under very limited
circumstances.
The 1940 Act also limits the amount that the Funds may invest in
other investment companies prohibiting each Fund in the aggregate (with each
other and with all other mutual funds in the HighMark Funds) from: (i) owning
more than 3% of the total outstanding voting stock of a single other investment
company; (ii) investing more than 5% of its total assets in
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the securities of a single other investment company; and (iii) investing more
than 10% of its total assets in securities of all other investment companies.
The SEC rules applicable to money market funds also govern and place certain
quality restrictions on these investments.
THE FOLLOWING INVESTMENT LIMITATIONS OF THE VALUE MOMENTUM FUND, THE EMERGING
GROWTH FUND, THE INTERNATIONAL EQUITY FUND, THE SMALL CAP VALUE FUND, THE
INTERMEDIATE-TERM BOND FUND, AND THE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
ARE NON-FUNDAMENTAL 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.
5. Purchase or sell real estate, real estate limited
partnership interest, commodities or commodities contracts (except
that 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.
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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 Adviser or Sub-Advisers 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.
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, 1999 and July 31,
1998, each Funds' portfolio turnover rate was as follows:
<TABLE>
<CAPTION>
Fund 1999 1998
---- ---- ----
<S> <C> <C>
Balanced Fund % 22%
</TABLE>
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<TABLE>
<S> <C> <C>
Emerging Growth Fund % 289%
Growth Fund % 67%
Income Equity Fund % 69%
International Equity Fund % 72%
Small Cap Value Fund % N/A
Value Momentum Fund % 7%
Bond Fund % 16%
California Intermediate Tax-Free Bond Fund % 23%
Intermediate-Term Bond Fund % 51%
</TABLE>
The portfolio turnover rate may vary greatly from year to year as
well as within a particular year, and may also be affected by cash requirements
for redemption of Shares.
VALUATION
As disclosed in the 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").
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
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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.
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. Purchases will be made in full and
fractional Shares of HighMark Funds calculated to three decimal places.
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
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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 and to reject a purchase
order when the Distributor or the Adviser determines that it is not in the best
interest of HighMark Funds and/or its Shareholders to accept such order.
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.
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.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
Shares of the Funds may be purchased through financial institutions,
including the Adviser, 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. Additionally, certain entities (including
Participating Organizations and Union Bank of California and its affiliates),
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.
REDEMPTION BY CHECKWRITING
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Checkwriting is available to Shareholders of the Money Market 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 Money Market 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.
SALES CHARGES
FRONT-END SALES CHARGES. The commissions shown in the Prospectuses
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 in the Prospectuses. In addition, the Distributor may, from
time to time and at its own expense, provide promotional incentives in the form
of cash or other compensation to certain financial institutions and
intermediaries whose registered representatives have sold or are expected to
sell significant amounts of the Class A Shares of a Fund. Such other
compensation may take the form of payments for travel expenses, including
lodging, incurred in connection with trips taken by qualifying registered
representatives to places within or without the United States. Under certain
circumstances, commissions up to the amount of the entire sales charge may be
reallowed to dealers or brokers, who might then be deemed to be "underwriters"
under the Securities Act of 1933. Commission rates may vary among the Funds.
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CONTINGENT DEFERRED SALES CHARGES ("CDSC"). 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.
SALES CHARGE REDUCTIONS AND WAIVERS
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
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minor children. The Funds may amend or terminate this right of accumulation at
any time as to subsequent purchases.
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 advisers 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 advisers or financial
planners who place trades for their own accounts if the accounts are
linked to the master account of such investment adviser 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);
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(9) Brokers, dealers and agents who are purchasing for
their own account and who have a sales agreement with the
Distributor, and their employees (and their spouses and children
under the age of 21);
(10) Investors purchasing Class A Shares on behalf of a
qualified prototype retirement plan (other than an IRA, SEP-IRA or
Keogh) sponsored by Union Bank of California or any other parties;
(11) Purchasers of Class A Shares of the Growth Fund that
are sponsors of other investment companies that are unit investment
trusts for deposit by such sponsors into such unit investment
trusts, and to purchasers of Class A Shares of the Growth Fund that
are holders of such unit investment trusts that invest distributions
from such investment trusts in Class A Shares of the Growth Fund;
(12) Present and retired 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 of Sub-Advisers
to the HighMark Funds; 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.
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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.
CDSC WAIVERS. 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.
ADDITIONAL FEDERAL TAX INFORMATION
Each Fund intends to qualify annually as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). In order to so 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 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.
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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 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.
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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 advisers with specific reference to their own
tax situation. Foreign Shareholders should consult their tax advisers 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 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, retirement plans
qualified under Section 401 of the Code, H.R. 10 plans, and individual
retirement accounts because such institutions, 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 plan and account 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
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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 adviser 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 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).
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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 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
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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.
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
advisers with respect to the application of such taxes to the receipt of Fund
dividends and as to their own California tax situation, in general.
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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.
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, one of whom is an "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.
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<TABLE>
<CAPTION>
POSITION(s) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH HIGHMARK FUNDS DURING PAST 5 YEARS
- ---------------- ------------------- -------------------
<S> <C> <C>
Thomas L. Braje Trustee, Vice Chairman Prior to retirement in October 1996,
One Freedom Valley Dr. Vice President and Chief Financial
Oaks, PA 19087 Officer of Bio Rad Laboratories, Inc.
Date of Birth: 6/7/43
David A. Goldfarb Trustee, Chairman Partner, Goldfarb & Simens, Certified
One Freedom Valley Dr. Public Accountants.
Oaks, PA 19087
Date of Birth: 8/2/42
Joseph C. Jaeger Trustee Prior to retirement in June 1998, Senior
One Freedom Valley Dr. Vice President and Chief Financial
Oaks, PA 19087 Officer, Delta Dental Plan of
Date of Birth: 8/21/35 California.
Frederick J. Long Trustee President and Chief Executive Officer,
One Freedom Valley Dr. Acordia West and Acordia Northwest Inc.
Oaks, PA 19087 (each an insurance brokerage firm).
Date of Birth: 9/17/35
Michael L. Noel Trustee President, Noel Consulting Company since
One Freedom Valley Dr. 1998. From 1991 to 1997, Member of the
Oaks, PA 19087 Board of Trustees of Stepstone Funds.
Date of Birth: 4/5/41 Prior to retirement in December 1994,
Senior Vice President and Chief
Financial Officer, Southern California
Edison Company; Director of Amerwest
Company, and SCAN Health Plan; Chairman
of the Board of Directors of Current
Income Shares, Inc.
Robert M. Whitler* Trustee Director, Current Income Shares, Inc.
One Freedom Valley Dr. Prior to retirement in 1996, Executive
Oaks, PA 19087 Vice President and head of Union Bank's
Date of Birth: 9/11/38 Financial Management and Trust Services
Group and a member of the bank-wide
Executive Policy Committee.
Paul L. Smith Member Advisory Board Member of the Board of Trustees of
One Freedom Valley Dr. Stepstone Funds from 1991 to
</TABLE>
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<PAGE> 391
<TABLE>
<S> <C> <C>
Oaks, PA 19087 1997.
Date of Birth: 4/25/18
William R. Howell Member Advisory Board Director, Current Income Shares, Inc.
One Freedom Valley Dr. from 1973 until retirement in 1998.
Oaks, PA 19087 Chairman of the Board of Trustees of
Date of Birth: 2/28/22 Stepstone Funds from 1991 to 1997.
Mark E. Nagle President and Chief Executive Vice President and Controller, Funds
530 East Swedesford Road Officer Account, Vice President of the
Wayne, PA 19087 Administrator and Distributor, employee
Date of Birth: 10/20/59 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 CPA, Director of Fund Resources,
530 East Swedesford Road Financial Officer employee since 1994. Prior to 1994,
Wayne, PA 19087 senior manager for Arthur Andersen.
Date of Birth: 12/17/63
Kevin P. Robins Vice President and Secretary Employee since 1992. Prior to 1992,
1 Freedom Valley Drive associate with Morgan Lewis & Bockius
Oaks, PA 19456 since 1988.
Date of Birth: 4/15/61
*Indicates an "interested person" of HighMark Funds as defined in the 1940 Act.
Todd Cipperman Vice President and Assistant Employee since 1995. From 1994 to May
1 Freedom Valley Drive Secretary 1995, associate with Dewey Ballantine.
Oaks, PA 19456 Prior to 1994, associate with Winston &
Date of Birth: 2/14/66 Strawn.
Lydia A. Gavalis Vice President and Assistant Vice President and Assistant Secretary
1 Freedom Valley Drive Secretary of SEI Investments Company, employee
Oaks, PA 19456 since 1998. Prior to 1998, Assistant
Date of Birth: 10/30/48 General Counsel and Director of
Arbitration, Philadelphia Stock
Exchange.
</TABLE>
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<PAGE> 392
<TABLE>
<S> <C> <C>
Lynda J. Striegel Vice President and Assistant Vice President and Assistant Secretary
1 Freedom Valley Drive Secretary of SEI Investments Company, employee
Oaks, PA 19456 since 1998. From 1997 to 1998, Senior
Date of Birth: 10/30/48 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 Company,
1 Freedom Valley Drive Secretary employee since 1987.
Oaks, PA 19456
Date of Birth: 12/21/58
James R. Foggo Vice President and Assistant Vice President and Assistant Secretary
1 Freedom Valley Drive Secretary of the Administrator and the
Oaks, PA 19456 Distributor, employee since 1998. In
Date of Birth: 6/30/64 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 and Foggo, and 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, 1999, fees paid to the
disinterested Trustees for their services as Trustees aggregated $_______. For
the disinterested Trustees, the following
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table sets forth information concerning fees paid and retirement benefits
accrued during the fiscal year ended July 31, 1999:
<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 Part of Fund Trustees
Expenses
------ --------- -------- ---------- --------
<S> <C> <C> <C> <C>
Thomas L. Braje $ None None $
David A. Goldfarb $ None None $
Joseph C. Jaeger $ None None $
Frederick J. Long $ None None $
Michael L. Noel $ None None $
Robert M. Whitler $ None None $
William R. Howell* $ None None $
Paul L. Smith* $ None None $
*Members of Advisory Board.
</TABLE>
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 ADVISER
Investment advisory and management services are provided to each of
the Funds by HighMark Capital Management, Inc. (the "Adviser"), pursuant to an
investment advisory agreement between the Adviser and HighMark Funds dated
September 1, 1998 (the "Investment Advisory Agreement"). Prior to September 1,
1998, Pacific Alliance, a division of Union Bank of California, N.A., served as
the Funds' investment adviser. On September 1, 1998, Pacific Alliance was
reorganized into a subsidiary of UnionBanCal Corporation, the holding company
of Union Bank of California, creating HighMark Capital Management, Inc.
HighMark Capital Management is a California corporation registered under the
Investment Adviser's Act of 1940. 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
above under INVESTMENT RESTRICTIONS - Voting Information), and a majority of
the Trustees who are not parties to the Investment Advisory Agreement or
interested persons (as defined in the 1940 Act) of any party to the Investment
Advisory Agreement by votes cast in person at a meeting called for such
purpose. The Investment Advisory Agreement is terminable as to a particular
Fund at any time on 60 days' written notice without penalty by the Trustees, by
vote of a majority of the outstanding Shares of that
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<PAGE> 394
Fund, or by the Adviser. The Investment Advisory Agreement terminates
automatically in the event of any assignment, as defined in the 1940 Act.
Depending on the size of the Fund, fees payable under the Investment
Advisory Agreement 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
Adviser 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 Adviser will choose to make such an agreement, any voluntary
reductions in the Adviser'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.
The Investment Advisory Agreement provides that the Adviser 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 Adviser'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 Adviser in the performance of its duties, or from reckless
disregard by the Adviser of its duties and obligations thereunder.
On April 1, 1996, the Bank of California, N.A., HighMark Funds'
then-investment adviser, 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 The Bank of Tokyo - Mitsubishi,
Ltd.
For the services provided and expenses assumed by the Adviser
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 years ended July 31, 1999, July 31, 1998, July 31,
1997, and January 1, 1997, HighMark Capital Management, Inc., or its
predecessors, received the following investment advisory fees:
Fiscal Year Ended
<TABLE>
<CAPTION>
July 31, 1999 July 31, 1998 July 31, 1997 January 31,
------------------- ------------------ ------------------ --------------
1997(1)
- --------
Additional Additional Additional Additional
Amount Amount Amount Amount
Paid Waived Paid Waived Paid Waived Paid Waived
----------- --------- -------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund $2,602,642 N/A $1,025,689 N/A $1,630,000 N/A
Emerging Growth Fund $577,471 N/A $229,671 N/A $428,000 N/A
Growth Fund $2,265,301 N/A $666,964 $121,712 N/A N/A
Income Equity Fund $2,825,963 N/A $1,986,575 $658 N/A N/A
International Equity Fund $629,025 N/A $218,664 $9,751 $413,000 $49,000
</TABLE>
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<PAGE> 395
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Value Momentum Fund $3,952,110 N/A $1,158,537 N/A $1,599,000 N/A
Bond Fund $593,291 N/A $294,637 $188,247 N/A N/A
California Intermediate Tax-Free Bond Fund $87,732 $245,284 $506 $41,978 $1,000 $49,000
Intermediate-Term Bond Fund $863,851 N/A $388,609 N/A $711,000 N/A
100% U.S. Treasury Money Market Fund $2,383,235 $476,647 $1,377,080 $129,101 N/A N/A
California Tax-Free Money Market Fund $462,600 $925,201 $124,611 $266,840 $126,000 $265,000(2)
Diversified Money Market Fund $6,250,527 N/A $2,181,976 N/A $2,773,000 N/A
U.S. Government Money Market Fund $906,618 N/A $838,857 N/A N/A N/A
</TABLE>
(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.
THE SUB-ADVISERS
EMERGING GROWTH FUND. The Adviser and Bank of Tokyo-Mitsubishi Trust
Company ("BTMT") have entered into a sub-advisory agreement which relates to
the Emerging Growth Fund. The Adviser 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-Adviser. The Adviser 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-Advisers").
Under its sub-advisory agreement, BTMT 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 Emerging Growth Fund. Such fee is paid by the Adviser,
and BTMT receives no fees directly from a Fund. For the fiscal years ended July
31, 1999, July 31, 1998, and July 31, 1997, BTMT received the following
sub-advisory fees:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
$_________ $36,920 $143,545
</TABLE>
For the fiscal year ended January 31, 1997, BTMT, or its
predecessor, Bank of Tokyo Trust Company received sub-advisory fees of
$267,497.
INTERNATIONAL EQUITY FUND. 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 Adviser, and AXA receives no fees directly from the
International Equity Fund. For the fiscal year ended July 31, 1999 and for the
period from January 1, 1998 to July 31, 1998, AXA received sub-advisory fees of
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<PAGE> 396
$__________ and $192,406, respectively. 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.
SMALL CAP VALUE FUND. Under its sub-advisory agreement, Brandes is
entitled to a fee which is calculated and paid monthly at the annual rate of
.50% of the average of the market value of the assets of the Small Cap Value
Fund allocated to Brandes. Such fee is paid by the Adviser, and Brandes
receives no fees directly from the Small Cap Value Fund. For the fiscal year
ended July 31, 1999, Brandes received sub-advisory fees of $__________.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Adviser
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 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 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 Adviser 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.
Allocation of transactions, including their frequency, to various
dealers is determined by the Adviser or the Sub-Advisers 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 Adviser or the Sub-Advisers 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 Adviser
or the Sub-Advisers and does not reduce the advisory fees payable to the
Adviser by HighMark Funds. Such information may be useful to the Adviser or the
Sub-Advisers in serving both HighMark Funds and other clients
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<PAGE> 397
and, conversely, supplemental information obtained by the placement of business
of other clients may be useful to the Adviser 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 Adviser, 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 Adviser or the Sub-Advisers. 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 Adviser or the
Sub-Advisers 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 Adviser or the
Sub-Advisers 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 Adviser or the Sub-Advisers
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 Adviser,
the Sub-Advisers, their parent or its subsidiaries or affiliates and, in
dealing with its commercial customers, the Adviser and the Sub-Advisers, their
parent, subsidiaries, and affiliates will not inquire or take into
consideration whether securities of such customers are held by HighMark Funds.
During the following fiscal years, the Funds listed below paid the
following aggregate brokerage commissions:
Fiscal Year Ended
<TABLE>
<CAPTION>
July 31, 1999 July 31, 1998 July 31, 1997 January 31, 1997
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Balanced Fund $205,232 $64,473 $159,120
Emerging Growth Fund $447,405 $170,553 $206,286
Growth Fund $465,576 $334,472 N/A
Income Equity Fund $638,230 $97,957 N/A
International Equity Fund $389,285 $58,381 $107,379
Value Momentum Fund $248,933 $118,620 $122,239
</TABLE>
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<PAGE> 398
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 Advisers' 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.
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.
For its services as administrator and expenses assumed pursuant to
the Administration Agreement, the Administrator received the following fees:
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<PAGE> 399
Fiscal Year Ended
<TABLE>
<CAPTION>
July 31, 1999 July 31, 1998
---------------------- -------------------
Additional Additional
Amount Amount
<S> <C> <C> <C>
Balanced Fund $767,123 $100,424 $255,346
Emerging Growth Fund $129,931 $14,437 $36,978
Growth Fund $669,261 $85,839 $204,315
Income Equity Fund $847,789 $94,199 $605,282
International Equity Fund $119,187 $13,243 N/A
Value Momentum Fund $1,185,633 $131,737 $298,886
Bond Fund $213,585 $23,732 $101,712
California Intermediate Tax-Free Bond Fund $117,410 $15,796 $11,833
Intermediate-Term Bond Fund $310,986 $34,554 $118,137
100% U.S. Treasury Money Market Fund $1,715,929 $190,659 $815,457
California Tax-Free Money Market Fund $832,681 $92,520 $207,633
Diversified Money Market Fund $3,750,316 $416,702 $1,141,740
U.S. Government Money Market Fund $543,971 $60,441 $439,141
</TABLE>
<TABLE>
<CAPTION>
July 31, 1997 January 31, 1997
------------------ -------------------
Additional Additional
Amount Amount Pa
------
<S> <C> <C> <C> <C>
Balanced Fund $29,410 $342,000 N/A
Emerging Growth Fund $3,072 $67,000 N/A
Growth Fund $22,032 N/A N/A
Income Equity Fund $17,907 N/A N/A
International Equity Fund N/A $60,000 N/A
Value Momentum Fund $22,063 $336,000 N/A
Bond Fund $25,352 N/A N/A
California Intermediate Tax-Free Bond Fund $2,604 $13,000 N/A
Intermediate-Term Bond Fund $8,143 $179,000 N/A
100% U.S. Treasury Money Market Fund $45,215 N/A N/A
California Tax-Free Money Market Fund $15,291 $164,000 N/A
Diversified Money Market Fund $88,254 $1,163,000 N/A
U.S. Government Money Market Fund $14,294 N/A N/A
</TABLE>
The Administration Agreement became effective on February 15, 1997
and was automatically renewed for a one year term on July 31, 1999. 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, 2000. 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 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 HighMark Capital
Management, Inc., HighMark Capital Management, Inc. 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.
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
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<PAGE> 400
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 adviser, 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 advisers 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 advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
The Adviser and the Sub-Advisers 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. 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 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 Adviser 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 Adviser, or
the Sub-Advisers, the Board of Trustees of HighMark Funds would review HighMark
Funds' relationship with the Adviser and the Sub-Advisers 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 Adviser,
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.
SHAREHOLDER SERVICES PLANS
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<PAGE> 401
HighMark Funds has adopted two Shareholder Services Plans, one for
Fiduciary Class and Class A Shares, 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. A 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.
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 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.
SHAREHOLDER SERVICING AGREEMENT
HighMark Capital Management, Inc., HighMark Funds and the California
Department of Personnel have entered into a shareholder servicing agreement
pursuant to which HighMark Capital Management is to pay compensation to the
California Department of Personnel for providing certain shareholder support
services to plan participants in the State of California
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<PAGE> 402
Savings Plus Program ("Plan Participants") who are the beneficial or record
owners of Shares of the Fund. In consideration for such services, the
California Department of Personnel is compensated by the Advisor at an annual
rate of 0.10% on net assets of the Value Momentum Fund held in the Thrift Plan
and Deferred Compensation Plan in the State of California Savings Plus Program.
The servicing agreement adopted requires the California Department
of Personnel to perform certain shareholder support services as set forth in
the Servicing Agreement with respect to the beneficial or record owners of
Class I Shares of the Value Momentum Fund.
California Department of Personnel has agreed to provide certain
shareholder support services in connection with the Class I Shares of the Value
Momentum Fund. Such shareholder support services may include, but are not
limited to, (i) maintaining separate records for each Plan Participant with
respect to the Value Momentum Fund, which records shall reflect shares
purchased and redeemed and share balances, (ii) transmitting to the Value
Momentum Fund purchase and redemption orders on behalf of Plan Participants,
(iii) preparing and transmitting to Plan Participants periodic account
statements showing the total number of shares owned by them as of the statement
closing date, purchases and redemptions of Fund shares by the plan participant
during the period covered by the statement and the dividends and other
distributions paid to the plan participant during the statement period (whether
paid in case or reinvested in Fund shares), and (iv) transmitting to plan
participants proxy materials, reports and other information required to be sent
to shareholders under the federal securities laws received by the California
Department of Personnel from the Value Momentum Fund.
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
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SEI Investments Distribution Co. (the "Distributor"), a wholly-owned
subsidiary of SEI Investments Company, 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.
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 that Fund's
Class B Shares, pursuant to the Class B Distribution Plan, seventy-five
one-hundredths of one percent (0.75%) of the average daily net assets
attributable to that Fund's Class C Shares, pursuant to the Class C
Distribution Plan and fifty-five one-hundredths of one percent (0.55%) of the
average daily net assets attributable to that Fund's Class S Shares, pursuant
to the Class S 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.
For the fiscal year ended July 31, 1999, the Distributor received
the following distribution fees with respect to the sale of Class A Shares and
Class B Shares from the following Funds:
<TABLE>
<CAPTION>
Fund Class A Shares Class B Shares
- ---- -------------- --------------
<S> <C> <C>
Balanced Fund $ $
Growth Fund $ $
Income Equity Fund $ $
Value Momentum Fund $ $
100% U.S. Treasury Money Market Fund $ $
California Tax-Free Money Market Fund $ $
Diversified Money Market Fund $ $
U.S. Government Money Market Fund $ $
</TABLE>
*Class C and Class S Shares were not offered as of July 31, 1999.
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<PAGE> 404
The Distributor may use the distribution fee applicable to a Fund's
Class A, Class B, Class C and Class S Shares to provide distribution assistance
with respect to the sale of the Fund's Class A, Class B, Class C and Class S
Shares or to provide Shareholder services to the holders of the Fund's Class A,
Class B, Class C and Class S 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,
Class B, Class C and Class S 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,
Class B, Class C and Class S 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.
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,
Class B, Class C or Class S Shares of that
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<PAGE> 405
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 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.
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<PAGE> 406
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 0.01% 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, 1999, 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
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 fourteen series of Shares,
representing units of beneficial interest in the Growth Fund, the Income Equity
Fund, the Balanced Fund, the Value Momentum Fund, the Emerging Growth Fund, the
International Equity Fund, the Small Cap Value Fund, the Bond Fund, the
Intermediate-Term Bond Fund, the California Intermediate Tax-Free Bond Fund,
the Diversified Money Market Fund, the U.S. Government Money Market Fund, the
100% U.S.
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<PAGE> 407
Treasury Money Market Fund, and the California Tax-Free Money Market Fund.
Pursuant to a Multiple Class Plan on file with the Securities and Exchange
Commission permitting the issuance and sale of six classes of Shares in
selected Funds, Shares of such Funds have been divided into six classes of
Shares, designated Class A, Class B, Class C and Class S Shares (collectively,
"Retail Shares"), Class I Shares and Fiduciary Shares. The Trustees of HighMark
Funds have determined that currently no conflict of interest exists between the
Class A, Class B, Class C and Class S 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.
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 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
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<PAGE> 408
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 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
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<PAGE> 409
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.
CALCULATION OF PERFORMANCE DATA
From time to time, articles relating to the performance, rankings,
and other investment characteristics of mutual funds and their investment
advisers, including the Funds and the Adviser, 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
advisers, including the Funds and the Adviser. 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, Inc., CDA/Wiesenberger Investment Company Services, SEI
Investments, Callan Associates, Wilshire Associates, MONEY Magazine, Pension
and Investment Age, Forbes, BusinessWeek, Smart Money, American Banker, Fortune
Magazine, Worth, Institutional Investor, Barron's National Business & Financial
Weekly, Investor's Business Daily, Barron's, Pensions and Investments,
Investment News, America Online, The Wall Street Journal, New York Times, San
Francisco Chronicle and Examiner, Los Angeles Times, USA. 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
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<PAGE> 410
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.
The 7-day yield of each class of Shares of a Fund was computed by
determining the percentage net change, excluding capital changes, in the value
of an investment in one Share of that class over the base period, and
multiplying the net change by 365/7 (or approximately 52 weeks). The 7-day
effective yield of each class of Shares of a Fund represents a compounding of
the yield of that 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.
The yield and effective yield for the seven-day period ending July
31, 1997, for the Money Market Funds are shown below:
<TABLE>
<CAPTION>
Yield Effective Yield
----------------------------- ------------------------------
Class A Class B Fiduciary Class A Class B Fiduciary
------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
100% U.S. Treasury Money Market Fund % % % % % %
California Intermediate Tax-Free % % % % % %
Money Market Fund
Diversified Money Market Fund % % % % % %
U.S. Government Money Market Fund % % % % % %
</TABLE>
*No performance information is presented for Class S Shares because they had
commenced operations as of July 31, 1999.
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).
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<PAGE> 411
c= the average daily number of shares of that class outstanding during
the 30-day period that were entitled to receive dividends.
d= the maximum offering price per share of the class on the last day of
the period, adjusted for undistributed net investment income.
The standardized yield of a class of shares for a 30-day period may
differ from its yield for any other period. The Commission formula assumes that
the standardized yield for a 30-day period occurs at a constant rate for a
six-month period and is annualized at the end of the six-month period. This
standardized yield is not based on actual distributions paid by the Fund to
shareholders in the 30-day period, but is a hypothetical yield based upon the
net investment income from the Fund's portfolio investments calculated for that
period. Because each class of shares is subject to different expenses, it is
likely that the standardized yields of the Fund classes of shares will differ.
The yield and effective yield for the 30-day period ending July 31,
1999, for the Money Market Funds and Fixed Income Funds are shown below:
<TABLE>
<CAPTION>
Yield Effective Yield
----------------------------------- -------------------------
Class A Class B Fiduciary Class A Class B Fiduciary
------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
100% U.S. Treasury Money Market Fund % % % % % %
California Intermediate Tax-Free Money % % % % % %
Market Fund
Diversified Money Market Fund % % % % % %
U.S. Government Money Market Fund % % % % % %
Bond Fund
California Intermediate Tax-Free Bond Fund % % % % % %
Intermediate Term Bond Fund % % % % % %
</TABLE>
The tax-equivalent yield of each class of Shares of the California
Tax-Free Fund was computed by dividing that portion of the yield of that 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 each class of Shares was
computed by dividing that portion of the effective yield of that 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 that class that is not tax-exempt.
The tax-equivalent yield and tax-equivalent effective yield for the
California Tax-Free Money Market Fund for the 7-day and 30-day periods ended
July 31, 1999 are shown below:
<TABLE>
<CAPTION>
Tax-Equivalent Tax-Equivalent
Yield Yield
--------------- ---------------
Class A Fiduciary Class A Fiduciary
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Using a 39.6% Fed. Income Tax Rate
- ----------------------------------
a. 7-day % % % %
b. 30-day % % % %
Using a 39.6% Fed. Income Tax
Rate and 11% Cal. Personal
Income Tax Rate
- ----------------------------------
a. 7-day % % % %
</TABLE>
-85-
<PAGE> 412
<TABLE>
<S> <C> <C> <C> <C>
b. 30-day % % % %
</TABLE>
The tax-equivalent yield and tax-equivalent effective yield for the
California Intermediate Tax-Free Bond Fund for the 30-day period ended July 31,
1999 are shown below:
<TABLE>
<CAPTION>
Tax-Equivalent Tax-Equivalent
Yield Yield
-------------- --------------
Class A Fiduciary Class A Fiduciary
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Using a 39.6% Fed. Income Tax Rate % % % %
Using a 39.6% Fed. Income Tax
Rate and 11% Cal. Personal
Income Tax Rate % % % %
</TABLE>
Each Fund's respective average annual total return over periods of
1, 5 and 10 years (up to the life of Fund or Class) 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. Specifically, these rates of return are calculated pursuant to
the following formula: P(1 + T)n = ERV (where P = a hypothetical initial
payment of $1,000, T = the average annual total return, n = the number of years
and ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period). All total return figures reflect the deduction o
a proportional share of Fund expenses on an annual basis, and assume that all
dividends and distributions are reinvested when paid. 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.
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. No performance information for
Class C Shares and Class I Shares is presented because they had not commenced
operations as of July 31, 1999.
The average total return for the Class A Shares of each Fund, computed as of
July 31, 1999, is shown in the table below:
-86-
<PAGE> 413
Average Annual Total Return - Class A Shares
<TABLE>
<CAPTION>
Fund/Class
Commencement One Five Ten Life of
Fund Name of Operations Year Years Years Fund
- --------- ------------- ---- ----- ----- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
With Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales Sales
Load* Load Load* Load Load* Load Load* Load
----- ---- ----- ---- ----- ---- ----- ----
Balanced Fund 11/13/92 % % % % % % % %
Emerging Growth Fund % % % % % % % %
Growth Fund 06/20/94 %% % % % % % % %
Income Equity Fund 06/20/94 % % % % % % % %
Small Cap Value Fund 09/17/98 % % % % % % % %
Value Momentum Fund 04/02/94 % % % % % % % %
Bond Fund 06/20/94 % % % % % % % %
California Intermediate 10/15/93 % % % % % % % %
Tax-Free Bond Fund
Intermediate-Term Bond 02/03/92 % % % % % % % %
Fund
100% U.S Treasury 12/01/90 % % % % % % % %
Money Market Fund
California Tax-Free 06/25/91 % % % % % % % %
Money Market Fund
Diversified Money Market 05/28/91 % % % % % % % %
Fund
U.S. Government Money 12/01/90 % % % % % % % %
Market Fund
</TABLE>
* Reflects maximum sales charge (4.50% for the Equity Funds and 3.00% for the
Fixed Income Funds).
The average total return for the Class B Shares of each Fund, computed as of
July 31, 1999, is shown in the table below:
Average Annual Total Return - Class B Shares
<TABLE>
<CAPTION>
Fund/Class
Commencement One Five Ten Life of
Fund Name of Operations Year Years Years Fund
- --------- ------------- ---------------- ---------------- --------------- ---------------
With Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales Sales
Load* Load Load* Load Load* Load Load* Load
----- ---- ----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund 02/02/98 % % % % % % % %
Growth Fund 02/02/98 % % % % % % % %
Income Equity Fund 02/02/98 % % % % % % % %
Small Cap Value Fund 02/02/98 % % % % % % % %
Value Momentum Fund 02/02/98 % % % % % % % %
</TABLE>
The average total return for the Fiduciary Shares of each Fund, computed as of
July 31, 1999, is shown in the table below:
* Reflects maximum CDSC of 5.00%.
-87-
<PAGE> 414
Average Annual Total Return - Fiduciary Shares
<TABLE>
<CAPTION>
Fund/Class
Commencement One Five Ten Life of
Fund Name of Operations Year Years Years Fund
- --------- ------------- ---- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Balanced Fund 02/01/91 % % % %
Emerging Growth Fund 02/01/91 % % % %
Growth Fund 11/18/93 % % % %
Income Equity Fund 02/09/84 % % % %
International Equity Fund 02/01/95 % % % %
Small Cap Value Fund % % % %
Value Momentum Fund 02/01/91 % % % %
Bond Fund 02/15/84 % % % %
California Intermediate 10/15/93 % % % %
Tax-Free Bond Fund
Intermediate-Term Bond 02/01/91 % % % %
Fund
100% U.S Treasury 08/10/87 % % % %
Money Market Fund
California Tax-Free 06/10/91 % % % %
Money Market Fund
Diversified Money Market 02/02/91 % % % %
Fund
U.S. Government Money 08/10/87 % % % %
Market Fund
</TABLE>
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 Adviser" 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.
Because each class of Shares of a Fund has different sales charge
structures and differing distribution and shareholder servicing fees, the
performance of each class will differ. All performance information presented is
based on past performance and does not predict future performance.
-88-
<PAGE> 415
MISCELLANEOUS
Prior to April 28, 1997, the California Tax-Free Money Market Fund,
the Value Momentum Fund, the Emerging Growth Fund, the International Equity
Fund, the Intermediate-Term Bond Fund, and the California Intermediate Tax-Free
Bond Fund were Stepstone 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 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).
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. 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
-89-
<PAGE> 416
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 1999 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, 1999. Upon the incorporation by
reference herein of such Annual Report, the opinion in such Annual Report of
independent accountants is incorporated herein by reference and such Annual
Report's financial statements are incorporated by reference herein in reliance
upon the authority of such accountants as experts in auditing and accounting.
The Prospectuses and this Statement of Additional Information are
not an offering of the securities herein described in any state in which such
offering may not lawfully be made.
No salesperson, dealer, or other person is authorized to give any
information or make any representation other than those contained in the
Prospectuses and this Statement of Additional Information.
As of August 20, 1999, 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 August 20, 1999, HighMark Funds
believes that there was no person who beneficially owned more than 25% of the
Class A, Class B or Class C Shares of any Fund.
As of August 20, 1999, HighMark Funds believes that Union Bank of
California was the shareholder of record of 81.91% of the Fiduciary Shares of
the Growth Fund, 86.02% of the Fiduciary Shares of the Income Equity Fund,
79.43% of the Fiduciary Shares of the Balanced Fund, 61.77% of the Fiduciary
Shares of the Bond Fund, 94.75% of the Fiduciary Shares of the
Intermediate-Term Bond Fund, 100% of the Fiduciary Shares of the California
Intermediate Tax-Free Bond Fund, 76.50% of the Fiduciary Shares of the Value
Momentum Fund, 55.71% of the Fiduciary Shares of the Emerging Growth Fund,
96.50% of the Fiduciary Shares of the U.S. Government Money Market Fund, 98.37%
of the Fiduciary Shares of the Diversified Money Market Fund, 94.94% of the
Fiduciary Shares of the 100%
-90-
<PAGE> 417
U.S. Treasury Money Market Fund and 99.88% of the Fiduciary Shares of the
California Tax-Free Money Market Fund.
As of August 20, 1999, HighMark Funds believes that Bank of Tokyo
Trust Company had investment authority with respect to 33.54% of the Fiduciary
Shares of the Emerging Growth Fund.
As of August 20, 1999 HighMark Funds believes that Union Bank of
California had investment authority with respect to 39.10% of the Growth Fund
Fiduciary Shares, 54.45% of the Income Equity Fund Fiduciary Shares, 48.05% of
the Balanced Fund Fiduciary Shares, 51.80% of the Bond Fund Fiduciary Shares,
9.88% of the Value Momentum Fund Fiduciary Shares, and 74.95% of the
International Equity Fund Fiduciary Shares.
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 August 20, 1999.
-91-
<PAGE> 418
BALANCED FUND - CLASS A SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Ty & Wei Chen Yeh TTEE 7.86%
Yeh Family Trust
U/A 9/11/91 2048
Studebaker Rd.
Long Beach, CA 90815-3539
<CAPTION>
BALANCED FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
<S> <C>
Nissan 401k Plan 5.45%
Attn: Virginia King
P.O. Box 191
Gardena, CA 90248-0191
Nummi Hourly Retirement Plan 10.18%
Attn: Paige Kanisberg
45500 Fremont Blvd.
Fremont, CA 94538
NEC Savings Plan 9.60%
8 Old Sod Farm Road
Melville, NY 11747
Union Bank of California Retirement Plan 10.48%
350 California Street
San Francisco, CA 94104
Union Bank of California Retirement Plan 11.54%
Controllers Division
P.O. Box 45000
San Francisco, CA 94145
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
American Express Trust Company 9.34%
As Agent for NEC Savings and Retirement Plan
</TABLE>
<PAGE> 419
<TABLE>
<S> <C>
Attn: Nancy Jendro Trust Operations
P.O. Box 534
Minneapolis, MN 55440-0534
PFTC. Trustee Nissan Empl. Sav. Pln. 5.31%
Putnam Investments DCPA
Nissan Motor Corporation
Location 31
P.O. Box 9740
Providence, RI 02940-9740
Lane & Company 79.43%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
<CAPTION>
EMERGING GROWTH FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
<S> <C>
Bank of Tokyo Mitsubishi 40.89%
International Securities and Investments
Attn: Takoshi Chino, Manager
7-1 Marunouchi 2-Chome
Tokyo 100 Japan
Brother International 8.84%
Attn: Diane Razillard
100 Somerset Corporate Circle
Somerset, NJ 08807
American Matsushita Electronics Corp. 6.79%
1400 West Market Street
Troy, OH 45373
BOT Financial Corporation 6.53%
Attn: Karen Hurst
125 Summer Street
Boston, MA 02110
Kaneka Texas Corporation 5.06%
Attn: R.L. Coughran
</TABLE>
-2-
<PAGE> 420
<TABLE>
<S> <C>
5161 Underwood Road
Pasadena, TX 77507
Tokio Marine Retirement 5.29%
1101 Park Avenue
New York, NY 10178
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
BOTT Pension 44.45%
c/o Bank of Tokyo Trust Company
Attn: Dennis Demetropoulos
1251 Avenue of the Americas, Fl. 10
New York, NY 10020-1104
Lane & Company 55.71%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
<CAPTION>
GROWTH FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Pembroke Fund Limited 12.60%
Craigmuir Chambers Box 71
Road Town Tortola
British Virgin Islands
</TABLE>
-3-
<PAGE> 421
GROWTH FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
<S> <C>
Union Bank of California Retirement Plan 12.93%
350 California Street
San Francisco, CA 94104
Union Bank of California 401(k) Plan 16.05%
350 California Street
San Francisco, CA 94104
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Lane & Company 81.91%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
BOTT Pension
c/o Union Bank of Tokyo Trust Company 10.28%
Attn: Dennis Demetropoulos
1251 Avenue of the Americas FL 10
New York, NY 10020-1104
<CAPTION>
INCOME EQUITY FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
The Jackson Family Foundation 5.89%
Attn: Claire Grabowski
421 Aviation Blvd.
Santa Rosa, CA 95403-1069
<CAPTION>
INCOME EQUITY FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ---------------------------------
<S> <C>
Union Bank of California 401(k) Plan 14.30%
350 California Street
San Francisco, CA 94104
</TABLE>
-4-
<PAGE> 422
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Lane & Company 86.02%
c/o Union Bank
Attn: Kathleen Heilman
PO Box 120109
San Diego, CA 92112-0109
<CAPTION>
INTERNATIONAL EQUITY FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
<S> <C>
UBOC Retirement Plan 74.95%
350 California Street
San Francisco, CA 94104
Nummi Hourly Retirement Plan 9.28%
Attn: Paige Kenisberg
45500 Fremont Blvd.
Fremont, CA 94538
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
The Equitable Life Assurance 5.50%
Society of the United States
1290 Avenue of the Americas
12th Floor
Attn: Rosemarie Shomstein
New York, NY 10104-0101
Axa Banque 7.42%
372 Rue Saint Honore
75040 Paris Cedex 01 France
Lane & Company 61.27%
c/o Union Bank
Attn: Linda Brown
P. O. Box 85484
San Diego, CA 92186-5484
Lane & Company 17.79%
c/o Union Bank of California
Attn: Kathleen Heilman
</TABLE>
-5-
<PAGE> 423
<TABLE>
<S> <C>
P. O. Box 85484
San Diego, CA 92186-5484
<CAPTION>
SMALL CAP VALUE FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
State Street Bank & Trust 9.35%
Cust for the IRA of
Harold A. Hunter
480 Oak Grove Drive, Apt. 104
Santa Clara, CA 95054-3531
Donaldson Lufkin Jenrette 51.51%
Securities Corporation Inc.
P. O. Box 2052
Jersey City, NJ 07303-2052
<CAPTION>
SMALL CAP VALUE FUND - CLASS B SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
State Street Bank & Trust Co. 6.34%
Cust for the Rollover IRA of
Regina L. Tilley
12698 Eagle Court
Groveland, CA 95321-9529
State Street Bank & Trust Co. 5.05%
Cust for the IRA R/O
FBO Marie L. Guerrero
1688 Yosemite Drive
Milpitas, CA 95035-6550
Donaldson Lufkin Jenrette 16.54%
Securities Corporation Inc.
P. O. Box 2052
Jersey City, NJ 07303-2052
<CAPTION>
SMALL CAP VALUE FUND - FIDUCIARY SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
</TABLE>
-6-
<PAGE> 424
<TABLE>
<S> <C>
UBOC Retirement Plan 93.34%
350 California Street
San Francisco, CA 94104
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Lane & Company 94.67%
c/o Union Bank of CA
Attn: Kathleen Heilman
P. O. Box 85484
San Diego, CA 92186-5484
<CAPTION>
VALUE MOMENTUM FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
<S> <C>
UBOC Retirement Plan 9.88%
350 California Street
San Francisco, CA 94104
UBOC 401k Plan 10.89%
350 California Street
San Francisco, CA 94104
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Mellon Bank NA Trustee for Dept 5.86%
of Personnel Admin of St of CA
Attn: Wally Adebayo
135 Santilli Highway
Everett, MA 02149-1906
Lane & Company 76.58%
c/o Union Bank of California
Attn: Kathleen Heilman
P. O. Box 85484
San Diego, CA 92186-5484
<CAPTION>
BOND FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Northwestern Trst. & Advisory Co. TTBE 7.00%
</TABLE>
-7-
<PAGE> 425
<TABLE>
<S> <C>
1201 3rd Ave., Suite 2010
Seattle, WA 98101-3026
Alice A. Swenning Trust 6.53%
The Swenning Fam. TTBE
U/A 9/23/91
1447 21st Ave.
Kingsburg, CA 93631-2027
<CAPTION>
BOND FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
<S> <C>
BTM U.S. Agency Retirement Plan 7.99%
1251 Avenue of the Americas
New York, NY 10020
Union Bank of California Retirement Plan 5.68%
350 California Street
San Francisco, CA 94104
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Lane & Company 61.77%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
BOTT Pension 31.90%
c/o Bank of Tokyo Trust Company
Attn: Dennis Demetropoulos
1251 Avenue of the Americas FL 10
New York, NY 10020-1104
<CAPTION>
CALIFORNIA INTERMEDIATE TERM BOND FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Peter Johnson 16.75%
10350 N Torrey Pines Rd #100
La Jolla, CA 92037-1018
</TABLE>
-8-
<PAGE> 426
<TABLE>
<S> <C>
Larry Strasbaugh 5.61%
1240 Bur Clover Way
Arroyo Grande, CA 93420-4949
The Featherston Trust 5.39%
Lawrence H. Featherston
U/A 10/19/95
1300 S Montezuma Way
West Covina, CA 91791-3738
Marcelino Estrada Muniz Ytee 11.16%
Marcelino Estrada Muniz Living
TR of 1998 U/A 11/23/98
2840 D Street
Selma, CA 93662-2903
The Warne Family Trust 5.55%
Thomas W. Warne
U/A of 6/18/1981
10200 Bolsa Ave Space 130
Westminster, CA 92683-6748
Linda C. Ragland 5.56%
Ronald E. Ragland
P. O. Box 324
Rancho Santa Fe, CA 92067-0324
Aaron Belokamen 5.83%
Lilian Belokamen
11610 Bellagio Road
Los Angeles, CA 90049-2113
</TABLE>
CALIFORNIA INTERMEDIATE-TERM BOND FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Lane & Company 100.00%
c/o Union Bank of California
Attn: Kathleen Heilman
P. O. Box 85484
San Diego, CA 92186-5484
</TABLE>
-9-
<PAGE> 427
INTERMEDIATE-TERM BOND FUND - CLASS A SHARES
<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
National Financial Services Corp. 91.03%
for Exclusive Benefit of our Cust
P. O. Box 3908
Church Street Station
New York, NY 10008-3908
<CAPTION>
INTERMEDIATE-TERM BOND FUND - FIDUCIARY SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Lane & Company 94.75%
c/o Union Bank of California
Attn: Kathleen Heilman
P. O. Box 85484
San Diego, CA 92186-5484
<CAPTION>
100% U.S. TREASURY MONEY MARKET FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
National Financial Services Corp 99.74%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
<CAPTION>
100% U.S. TREASURY MONEY MARKET FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
<S> <C>
Sprint Settlement 16.39%
Saperstein, Goldstein
c/o Ms. Kristin Turner Link
1300 Clay Street, 11th Floor
Oakland, CA 94612
</TABLE>
-10-
<PAGE> 428
<TABLE>
<S> <C>
Muni of Anchorage 11.92%
City of Anchorage
Attn: Ellen Braden, Treasurer
632 W. Sixth Avenue
Anchorage, AK 99501
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Union Bank 94.94%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
<CAPTION>
CALIFORNIA TAX-FREE MONEY MARKET FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
National Financial Services Corp 99.95%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
<CAPTION>
CALIFORNIA TAX-FREE MONEY MARKET FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
<S> <C>
Van Daele Development Corp. 6.70%
Attn: Jeff Hack
2900 Adams Street
Riverside, CA 92504
Mary Ellen Weaver 15.27%
Matthew Moschetti
3612 Courtside Circle
Huntington Beach, CA 92649
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Union Bank 99.88%
Lane & Co Cash
Attn: Fund Accounting
</TABLE>
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<TABLE>
<S> <C>
PO Box 85602
San Diego, CA 92186-5602
<CAPTION>
DIVERSIFIED MONEY MARKET FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
National Financial Services Corp 99.85%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
<CAPTION>
DIVERSIFIED MONEY MARKET FUND - FIDUCIARY SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Union Bank of California 401(k) Plan 5.68%
350 California Street
San Francisco, CA 94104
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Union Bank 80.54%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
Lane & Company 17.83%
c/o Union Bank
Attn: Kathleen Heilman
PO Box 120109
San Diego, CA 92112-0109
<CAPTION>
U.S. GOVERNMENT MONEY MARKET FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
National Financial Services Corp 98.78%
For the Benefit of our Customers
Church Street Station
PO Box 3908
</TABLE>
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<PAGE> 430
<TABLE>
<S> <C>
New York, NY 10008-3908
<CAPTION>
U.S. GOVERNMENT MONEY MARKET FUND - CLASS B SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Lakeside Business Center 34.15%
Sole Proprietorship
Ronald E. Soderling
1400 N Bristol Street Suite #150
Newport Beach, CA 97660-2957
Laguna Ridge Business Center 22.77%
Sole Proprietorship
Ronald E. Soderling
1400 N. Bristol St. Suite 150
Newport Beach, CA 92650-2957
Park Laguna Hills 22.77%
Sole Proprietorship
Ronald B. Soderling
1400 N. Bristol St. Suite 150
Newport Beach, CA 92660-2957
<CAPTION>
U.S. GOVERNMENT MONEY MARKET FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
<S> <C>
IC/RCM Capital Management 13.81%
Dresdner RCM Global Investors
Attn: Louise McCormack
4 Embarcadero Center, Suite 28
San Francisco, CA 94111
ELIC 98 Part CU 8.16%
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
<S> <C>
Union Bank 96.50%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
</TABLE>
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<PAGE> 431
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.
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
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<PAGE> 432
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:
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.
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<PAGE> 433
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.
- 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.
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<PAGE> 434
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.
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.
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<PAGE> 435
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.
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.
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<PAGE> 436
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.
TBW-4 The lowest rating category; this rating is
regarded as non-investment grade and therefore
speculative.
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<PAGE> 437
FINANCIAL STATEMENTS
The Independent Auditors' Report for HighMark Funds for the fiscal
year ended July 31, 1999, audited Financial Statements for HighMark Funds for
the fiscal year ended July 31, 1999, and unaudited Financial Statements for
HighMark Funds for the period ended January 31, 1999 will be incorporated by
reference to the Annual and Semi-Annual Reports of HighMark Funds, dated as of
such dates, which will be sent to shareholders of each Fund pursuant to the 1940
Act and will be filed with the Securities and Exchange Commission, by subsequent
amendment prior to the effectiveness of this amendment to High Mark Funds'
registration statement. 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.
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<PAGE> 438
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
(a) (1) 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 Registration
Statement on Form N-1A.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(b) (1) 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.
(2) 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.
<PAGE> 439
8 (filed September 30, 1992) to Registrant's Registration
Statement on Form N-1A.
(c) Rights of Shareholders
The following portions of Registrant's Declaration of Trust
incorporated as Exhibit (a) hereto, define the rights of
shareholders:
5.1 Shares in the Series of the Trust.
A. The Trustees shall have full power and authority, in their
sole discretion, without obtaining the prior approval of the
Shareholders (either with respect to the Trust as a whole or
with respect to any series of the Trust) by vote or otherwise,
to establish one or more series of Shares of the Trust. The
establishment of any such series shall be effective upon the
adoption by a majority of the Trustees then in office of a
resolution establishing such series and setting the voting
rights, preferences, designations, conversion or other rights,
restrictions, limitations as to distributions, conditions of
redemption, qualifications, or other terms of the Shares of
such series. The beneficial interest in each series of the
Trust shall at all times be divided into full and fractional
transferable Shares without par value. There is no numerical
limitation on the number of Shares of a series that may be
issued. The investment objective, policies, and restrictions
governing the management and operations of each series of the
Trust, including the management of assets belonging to any
particular series, may from time to time be changed or
supplemented by the Trustees, subject to the requirements of
the Act. The Trustees may from time to time divide or combine
the outstanding Shares of any one or more series of the Trust
into a greater or lesser number without thereby changing their
proportionate beneficial interests in the Trust assets
allocated or belonging to such series.
Subject to the respective voting rights, preferences,
participating or other special rights and qualifications,
restrictions, and limitations expressly provided for in this
Declaration of Trust or the Code of Regulations with respect to
Shares of each series of the Trust, the Trustees have the power
to classify or reclassify Shares of any series of the Trust
into one or more classes by setting or changing in any one or
more respects, from time to time, the
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<PAGE> 440
preferences, designations, conversion or other rights,
restrictions, limitations as to dividends, conditions of
redemption, qualifications, or other terms applicable to Shares
of such class. All references in this Declaration of Trust to
Shares of any series of the Trust shall include and refer to
the Shares of any class thereof.
B. Shares of each series of the Trust shall have the following
preferences, participating or other special rights,
qualifications, restrictions and limitations:
(1) Assets Belonging to a Series. All consideration
received by the Trust for the issue or sale of Shares of any
series, together with all assets in which such consideration is
invested or reinvested, including any proceeds derived from the
sale, exchange, or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall be referred to as "assets
belonging to" that series. In addition, any assets,
income,.earnings, profits or proceeds thereof, or funds or
payments which are not readily identifiable as belonging to a
particular series shall be allocated by the Trustees to one or
more series (such allocation to be conclusive and binding upon
the Shareholders of all series for all purposes) in such manner
as they, in their sole discretion, deem fair and equitable, and
shall also be referred to as "assets belonging to" such series.
Such assets belonging to a particular series shall irrevocably
belong for all purposes to the Shares of the series, and shall
be so handled upon the books of account of the Trust. Such
assets and the income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange, or
liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds in whatever form, are herein
referred to as "assets belonging to" such a series.
Shareholders of any series shall have no right, title or
interest in or to the assets belonging to any other series.
(2) Liabilities Belonging to a Series. The assets belonging
to any series of the Trust shall be charged with the direct
liabilities in respect of such series and with all expenses,
costs, charges, and reserves attributable to such series, and
shall also be charged with the share of such series of the
general liabilities, expenses, costs, charges, and reserves of
the Trust which are not readily identifiable as belonging to a
particular series in proportion to the relative net assets of
the respective series, as determined at
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<PAGE> 441
such time or times as may be authorized by the Trustees. Any
such determination by the Trustees shall be conclusive and
binding upon the Shareholders of all series for all purposes;
provided, however, that under no circumstances shall the assets
allocated or belonging to any series of the Trust be charged
with liabilities directly attributable to any other series. The
liabilities so charged to a series are herein referred to as
"liabilities belonging to" such series. All persons who may
have extended credit to a particular series or who have
contracts or claims with respect to a particular series shall
look only to the assets of that particular series for payment
of such contracts or claims.
(3) Liquidating Distributions. In the event of the
termination of the Trust or a particular series thereof and the
winding up of its affairs, the Shareholders of the Trust or
such particular series shall be entitled to receive out of the
assets of the Trust or belonging to the particular series, as
the case may be, available for distribution to Shareholders,
but other than general assets not belonging to any particular
series of the Trust, the assets belonging to such series; and
the assets so distributable to the Shareholders of any series
shall be distributed among such Shareholders in proportion to
the number of Shares of such series held by them and recorded
in their names on the books of the-Trust. In the event that
there are any general assets not belonging to any particular
series of the Trust available for distribution, such
distribution shall be made to the Shareholders of all series
subject to such termination and winding up in proportion to the
relative net assets of the respective series determined as
hereinafter provided and the number of Shares of such series
held by them and recorded in their names on the books of the
Trust.
(4) Dividends and Distributions. Shares of each series
shall be entitled to such dividends and distributions in Shares
or in cash or both, as may be declared from time to time by the
Trustees, acting in their sole discretion, with respect to such
series, provided, however, that dividends and distributions on
Shares of a particular series shall be paid only out of the
lawfully available "assets belonging to" such series as such
term is defined in this Declaration of Trust.
5.2 Purchase of Shares. The Trustees may accept investments in each
series of the Trust from such Persons for such consideration and on
such other terms as they may from time to time authorize. The Trust
may reject
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<PAGE> 442
any order for, or refuse to give effect on the books of the Trust to
the transfer of, any Shares as permitted under the Act. Each such
investment shall be credited to the Shareholder's account in the
form of full and fractional Shares of the appropriate series of the
Trust, at the net asset value per Share next computed after receipt
of the investment.
5.3 Net Asset Value Per Share. The net asset value per Share of
each series of the Trust shall be computed at such time or times as
the Trustees may specify pursuant to the Act. Assets shall be valued
and net asset value per Share shall be determined by such Person or
Persons as the Trustees may appoint under the supervision of the
Trustees in such manner not inconsistent with the Act and any orders
of the Securities and Exchange Commission received by the Trust, as
the Trustees may determine.
5.4 Ownership of Shares. The ownership of Shares shall be recorded
separately with respect to each series on the record books of the
Trust. Certificates for Shares shall be issued to holders of such
Shares only upon the authorization of the Trustees, in their
discretion, to issue such certificates, and shall be issued, if at
all, subject to such rules and regulations as the Trustees may
determine. The Trustees may make such rules as they consider
appropriate for the transfer of Shares and similar matters. The
record books of the Trust shall be conclusive as to the identity of
holders of Shares and as to the number of Shares of each series held
by each Shareholder.
5.5 Preemptive Rights. Shareholders shall have no preemptive or
other rights to subscribe to any additional Shares or other
securities issued by the Trust or by the Trustees.
5.6 Redemption of Shares. To the extent of the assets of the Trust
legally available for such redemption, a Shareholder of any series
of the Trust shall have the right, subject to the provisions of
Section 5.7 hereof, to require the Trust to redeem his full and
fractional Shares of any series out of assets belonging to such
series at a redemption price equal to the net asset value per Share
next determined after receipt of a request to redeem in proper form
as determined by the Trustees. The Trustees shall establish such
rules and procedures as they deem appropriate for redemption of
Shares; provided, however, that all redemptions shall be in
accordance with the Act. Without limiting the generality of the
foregoing, the Trust shall, to the extent permitted by applicable
law, have the right at any time to redeem the Shares owned by any
holder thereof (i) if the value of such Shares in an account
maintained by the Trust or its transfer agent for any
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<PAGE> 443
Shareholder with respect to any series of the Trust is less than the
amount specified by resolution of the Trustees; provided, however,
that any such Shareholder shall be notified that the value of his
account is less than such amount, and shall be allowed such period
of time as specified by resolution of the Trustees to make
additional purchases of Shares of the appropriate series so that the
value of his account may be increased before any such involuntary
redemption is processed by the Trust; or (ii) if the net income with
respect to any particular series of the Trust should be negative or
it should otherwise be appropriate to carry out the Trust's
responsibilities under the Act, in each case subject to such further
terms and conditions as the Board of Trustees of the Trust may from
time to time adopt. The redemption price of Shares of any series of
the Trust shall, except as otherwise provided in this section, be
the net asset value thereof as determined by the Board of Trustees
of the Trust from time to time in accordance with the provisions of
applicable law, less such redemption fee or other charge, if any, as
may be fixed by resolution of the Board of Trustees of the Trust.
When the net income with respect to any particular series of the
Trust is negative or whenever deemed appropriate by the Board of
Trustees of the Trust in order to carry out the Trust's
responsibilities under the Act, any series of the Trust may, without
payment of compensation but in consideration of the interests of the
Trust or a particular series thereof and of the Shareholders of the
Trust or of such series in maintaining a constant net asset value
per Share with respect to such series, redeem pro rata from each
holder of record on such day, such number of full and fractional
Shares of such series as may be necessary to reduce the aggregate
number of outstanding Shares of such series in order to permit the
net asset value thereof to remain constant. Payment of the
redemption price, if any, shall be made in cash by the appropriate
series of the Trust at such time and in such manner as may be
determined from time to time by the Board of Trustees of the Trust
unless, in the opinion of the Board of Trustees, which shall be
conclusive and binding upon the Shareholders for all purposes,
conditions exist which make payment wholly in cash unwise or
undesirable; in such event the appropriate series of the Trust may
make payment in the assets belonging or allocable to such series,
the value of which shall be determined as provided herein.
5.7 Suspension of Right of Redemption. The Trustees may suspend the
right of redemption by Shareholders or postpone the date of payment
or the recordation of transfer of Shares of any series, as permitted
under the Act or applicable law. Such suspension or postponement
shall take effect at such time as the Trustees shall specify but not
later than the close of business of the business day following the
declaration of suspension or
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<PAGE> 444
postponement, and thereafter there shall be no right of redemption
or payment or transfer until the Trustees shall declare the
suspension at an end. In case of suspension of the right of
redemption, a Shareholder may either withdraw his request for
redemption or receive payment based on the net asset value existing
after the termination of the suspension.
5.8 Conversion Rights. The Trustees shall have the authority to
provide from time to time that the holders of Shares of any series
shall have the right to convert or exchange said Shares for or into
Shares of one or more other series in accordance with such
requirements and procedures as may be established from time to time
by the Trustees.
8. Shareholder's Voting Powers and Meetings. Shareholders shall
have such power to vote as is provided in, and may hold meetings and
take actions pursuant to the provisions of this Declaration of Trust
or the Code of Regulations.
9.4 Limitation of Shareholder Liability. Shareholders shall not be
subject to any personal liability in connection with the assets of
the Trust for the acts or obligations of the Trust. The Trustees
shall have no power to bind any Shareholder personally or to call
upon any Shareholder for the payment of any sum of money or
assessment whatsoever other than such as the Shareholder may at any
time, personally agree to pay by way of subscription to any Share or
otherwise. Every obligation, contract, instrument, certificate,
Share, other security or undertaking of the Trust, and every other
act whatsoever executed in connection with the Trust shall be
conclusively presumed to have been executed or done by the executors
thereof only in their capacities as Trustees under this Declaration
of Trust or in their capacity as officers, employees, or agents of
the Trust, and not individually. Every note, bond, contract, order,
or other undertaking issued by or on behalf of the Trust or the
Trustees relating to the Trust or to any series of the Trust, and
the stationery used by the Trust, shall include a recitation
limiting the obligation represented thereby to the Trust and its
assets (but the omission of such a recitation shall not operate to
bind any Shareholder), as follows:
"The names 'HighMark Funds' and 'Trustees of HighMark Funds' refer
respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under this
Declaration of Trust dated 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
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<PAGE> 445
of 'The Merus Group' 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, Shareholders or representatives of the Trust
personally, but bind only the assets of the Trust, and all persons
dealing with any series of Shares of the Trust must look solely to
the assets of the Trust belonging to such series for the enforcement
of any claims against the Trust."
The rights accruing to a Shareholder under this Section 9.4 shall
not exclude any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained restrict the
right of the Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided for
herein provided, however, that a Shareholder of any series of the
Trust shall be indemnified only from assets belonging to that
series.
9.5 Indemnification of Shareholders. In case any Shareholder or
former Shareholder shall be held to be personally liable solely by
reason of his being or having been a Shareholder and not because of
his acts or omissions or for some other reason, the Shareholder or
former Shareholder (or his heirs, executors, administrators, or
other legal representatives, or, in the case of a corporation or
other entity, its corporate or other general successor) shall be
entitled out of the Trust estate to be held harmless from and
indemnified against all loss and expense arising from such
liability. The Trust shall, upon request by the Shareholder, assume
the defense of any claim made against any Shareholder for any act or
obligations of the Trust, and shall satisfy any judgment thereon.
9.6 Liabilities of a Series. Liabilities belonging to any series of
the Trust, including, without limitation, expenses, fees, charges,
taxes, and liabilities incurred or arising in connection with a
particular series, or in connection with the management thereof,
shall be paid only from the assets belonging to that series.
10.3 Termination of Trust. This Trust shall continue without
limitation of time; provided, however, that:
A. The Trustees, with the vote of a majority of the
outstanding Shares of any series of the Trust, may sell and
convey the assets belonging to such series to another I trust
or corporation organized under the laws of any state of the
United States, which is a management investment company as
defined in the Act, for an adequate consideration which may
include the assumption of all
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<PAGE> 446
outstanding obligations, taxes, and other liabilities, accrued
or contingent, of the series and which may include beneficial
interests of such trust or stock of such corporation. Upon
making provision for the payment of all such liabilities, by
such assumption or otherwise, the Trustees shall distribute the
remaining proceeds ratably among the holders of the Shares of
the series then outstanding.
B. The Trustees, with the vote of a majority, of the
outstanding Shares of any series of the Trust, may sell and
convert into money all the assets belonging to such series.
Upon making provision for the payment of all outstanding
obligations, taxes, and other liabilities, accrued or
contingent, of the series, the Trustees shall distribute the
remaining assets belonging to such series ratably among the
holders of the outstanding Shares of the series.
C. Without the vote of a majority of the outstanding Shares of
any series of the Trust (unless Shareholder approval is
otherwise required by applicable law), the Trustees may combine
the assets belonging to any two or more series into a single
series if the Trustees reasonably determine that such
combination will not have a material adverse effect on the
Shareholders of each series affected thereby.
D. After the effective date of the determination of the
Trustees under paragraph A or B above,
(1) The Trust shall carry on no business relating to the
assets of such series except for the purpose of winding up
the affairs of such series.
(2) The Trustees shall proceed to wind up the affairs of
such series and all of the powers of the Trustees under
this Declaration of Trust shall continue until the affairs
of such series shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust
relating to such series, to collect assets of such series,
to sell, convey, assign, exchange, transfer, or otherwise
dispose of all or any part of the remaining assets of such
class to one or more Persons at public or private sale for
consideration that may consist in whole or in part of cash,
securities, or other property of any kind, to discharge or
pay its liabilities, and
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<PAGE> 447
to do all other acts appropriate to liquidate the business
of such series.
Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in paragraphs
A and B of this section, the Trustees may authorize the
termination of that series of the Trust. Such termination
shall be effective upon filing with the State Secretary of
the Commonwealth of Massachusetts of an instrument setting
forth such termination, at which time the Trustees shall be
discharged of any and all further liabilities and duties
hereunder relating to such series and the right, title and
interest of all parties shall be cancelled and discharged
with respect to such series. Such instrument shall
constitute an amendment to this Declaration of Trust when
filed with the State Secretary of the Commonwealth of
Massachusetts as provided in this Title X.
10.8 Amendment Procedure.
A. Subject to the provisions of subsections B and C of this
Section 10.8, this Declaration of Trust may be amended by the
affirmative vote of the holders of not less than a majority of
the outstanding Shares (except that an amendment which shall
affect the holders of one or more series of Shares but not the
holders of all outstanding series shall be authorized by vote
of the Shareholders holding a majority of the Shares entitled
to vote of each series affected and no vote of Shareholders of
a series not affected shall be required) or by any larger vote
as may be required by any provisions of applicable law.
B. Notwithstanding any other provisions hereof, until such
time as a Registration Statement under the Securities Act of
1933, as amended, covering the first public offering of
securities of the Trust shall have become effective, this
Declaration of Trust may be terminated or amended in any
respect by the affirmative vote of a majority of the Trustees.
C. The Trustees may also amend this Declaration without the
vote of Shareholders to cure any error or ambiguity or to
change the name of the Trust or, if they.deem it necessary, to
conform this Declaration of Trust to the requirements of
applicable state or federal laws or.regulations or the
requirements of the regulated
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<PAGE> 448
investment company provisions of the Internal Revenue Code of
1986, but the Trustees shall not be liable for failing to do
so.
The following portions of Registrant's Code of Regulations
incorporated as Exhibit (b) hereto, define the rights of
shareholders:
1.1 Voting Powers. The Shareholders shall have power to vote
(a) for the election of Trustees as provided in Section 6.2 and
Section 6.5 of the Declaration of Trust; (b) with respect to
any amendment of the Declaration of Trust to the extent and as
provided in Section 10.8 of the Declaration of Trust; (c) with
respect to any restrictions, or amendments thereto, upon the
investment of the assets of the Trust to the extent and as
provided in Article V of these Regulations; (d) with respect to
the approval of investment advisory agreements (as provided in
Section 7.1 of the Declaration of Trust), and with respect to
distribution agreements entered into on behalf of the Trust or
one or more series thereof, to the extent required by the
Investment Company Act of 1940; (e) with respect to matters
relating to any termination of the Trust or to incorporation to
the extent and as provided in Section 10.3 and Section 10.4,
respectively, of the Declaration of Trust; (f) with respect to
such additional matters relating to the Trust as may be
required by law, the Declaration of Trust, these Regulations,
or by any requirements applicable to or agreement of the Trust,
or as the Trustees may consider desirable; and (g) to the same
extent as the stockholders of a Massachusetts business
corporation, when considering whether a court action,
proceeding, or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the
Trust or the Shareholders; provided, however, that no
Shareholder of a particular series shall be entitled to bring,
or to vote in respect of, any class or derivative action not on
behalf of the series of the Trust in respect of which the
Shareholder owns Shares. Each whole Share shall be entitled to
one vote as to any matter on which it is entitled to vote and
each fractional Share shall be entitled to a proportionate
fractional vote. There shall be no cumulative voting. Shares
may be voted in person or by proxy. The authorization for a
proxy to act may be obtained by written authorization or by
telephone, facsimile or alternative transmission, provided that
such telephone or facsimile transmission is performed in
accordance with Telephonic and Facsimile Voting Procedures
adopted by the Board of Trustees. On any matter submitted to a
vote of the
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<PAGE> 449
Shareholders, all Shares shall be voted in the aggregate and
not by individual series, except (i) where required law, Shares
shall be voted by individual series, and (ii) if the Trustees
shall have determined that a matter affects the interests only
of one or more series, then only the Shareholders of such
affected series shall be entitled to vote thereon. Until Shares
are issued, the Trustees may exercise all rights of
Shareholders and may take any action required or permitted by
law, the Declaration of Trust, or these Regulations to be taken
by Shareholders.
1.2 Meetings. Meetings of Shareholders of the Trust may be
called by the Trustees, and shall be called by the Trustees
whenever required by law or upon the written request of holders
of at least twenty percent of all the outstanding Shares
entitled to vote.
1.3 Quorum and Required Vote. At any meeting of the
Shareholders, a quorum for the transaction of business shall
consist of a majority represented in person or by proxy of the
outstanding Shares (without regard to individual series)
entitled to vote with respect to a matter; provided, however,
that at any meeting at which the only actions to be taken are
actions required by law, to be taken by vote of the
Shareholders of an individual series, a quorum shall consist of
a majority of the outstanding Shares of such individual series
entitled to vote thereon, and that at any meeting at which the
only actions to be taken shall have been determined by the
Board of Trustees to affect the rights and interests of one or
more but not all series of the Trust, a quorum shall consist of
a majority of the outstanding Shares of the series so affected;
and provided, further, that any reasonable adjournments of such
meeting until a quorum is obtained may be made by a vote of the
Shares present in person or by proxy. A majority of the votes
shall decide any question and a plurality shall elect a
Trustee, subject to any applicable requirements of law or of
the Declaration of Trust or these Regulations; provided,
however, that when any provision of law or of the Declaration
of Trust or these Regulations requires the holders of Shares of
any particular series to vote by series and not in the
aggregate with respect to a matter, then a majority of the
outstanding Shares of that series shall decide such matter
insofar as that particular series shall be concerned. As used
in these Regulations, the term "vote of a majority of the
outstanding Shares" (the 67% or 50% requirement of the third
sentence of Section 2(a)(42) of the Investment Company Act of
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<PAGE> 450
1940) shall have the same meaning given such term in the
Investment Company Act of 1940; provided, however, that such
term may be used herein with respect to Shares of the Trust as
a whole, or with respect to Shares of a particular series of
the Trust, as the context may require.
1.4 Notice. Written notice, stating the place, day, and hour of
each meeting of Shareholders and the general nature of the
business to be transacted, shall be given by, or at the
direction of, the person calling the meeting to each
Shareholder of record entitled to vote at the meeting at least
ten days prior to the day named for the meeting, unless in a
particular case a longer period of notice is required by law.
Any adjournments of a meeting of Shareholders may be held,
within a reasonable time after the date set for the original
meeting, without the necessity of further notice.
1.5 Shareholders' List. The officer or agent having charge of
the transfer books for Shares of the Trust shall make, at least
five days before each meeting of Shareholders, a complete list
of the Shareholders entitled to vote at the meeting, arranged
in alphabetical order with the address of and the number of
Shares held by each such Shareholder. The list shall be kept on
file at the office of the Trust and shall be subject to
inspection by any Shareholders at any time during usual
business hours, and shall also be produced and kept open at the
time and place of each meeting of Shareholders and shall be
subject to the inspection of any Shareholder during each
meeting of Shareholders.
1.6 Record Date. The Trustees may fix a time (during which they
may close the Share transfer books of the Trust) not more than
ninety (90) days prior to the date of any meeting of
Shareholders as a record date for the determination of the
Shareholders entitled to notice of, or to vote at, any such
meeting; only such Shareholders as shall be Shareholders of
record at the close of business on the date so fixed shall be
entitled to notice of, or to vote at, such meeting,
notwithstanding any transfer of any Shares on the books of the
Trust after any record date fixed, as aforesaid. The Trustees
may also fix a time (during which they may close the Share
transfer books of the Trust) not more than fifty (50) days
prior to the payment of any dividend, or the date of the
allotment of rights or the date when any change or conversion
or exchange of Shares shall go into effect, as a record date
for the determination of the Shareholders entitled to receive
payment of any such dividend, or
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<PAGE> 451
to receive any such allotment of rights, or to exercise such
rights, as the case may be; only such Shareholders as shall be
Shareholders of record at the close of business on the date so
fixed shall be entitled to receive payment of such dividend, or
to receive such allotment of rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of any
Shares on the books of the Trust after any record date fixed,
as aforesaid.
1.7 Shareholder Action by Written Consent. Any action taken by
Shareholders may be taken without a meeting if a majority of
Shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express
provision of law or the Declaration of Trust or these
Regulations) consent to the action in writing and such written
consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
3.1 Form. Notices to Shareholders shall be in writing and
delivered personally or mailed to the Shareholders at their
addresses appearing on the books of the Trust. Notices to
Trustees shall be oral or by telephone or telegram or in
writing delivered personally or mailed to the trustees at their
addresses appearing on the books of the Trust. Oral notice
shall be deemed to be given when given directly to the person
required to be notified and notice by mail shall be deemed to
be given when deposited in the United States mail or with a
telegraph office or courier service for transmission. Notices
to Trustees need not state the purpose of a Regular or Special
Meeting.
3.2 Waiver. Whenever any notice of the time, place, or purpose
of any meeting of Shareholders, Trustees, or committee is
required to be given under the provisions of Massachusetts law
or under the provisions of the Declaration of Trust or these
Regulations, a wavier thereof in writing, signed by the person
or persons entitled to such notice and filed with the records
of the meeting, whether before or after the holding thereof, or
actual attendance at the meeting of Shareholders in person or
by proxy, or at the meeting of Trustees or committee in person,
shall be deemed equivalent to the giving of such notice to such
persons.
(d) (1) Investment Advisory Agreement between Registrant and
HighMark Capital Management, Inc., dated as of
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<PAGE> 452
September 1, 1998 (the "Investment Advisory Agreement"), is
incorporated by reference to Exhibit 5(a) of Post-Effective
Amendment No. 25 (filed November 30, 1998) to Registrant's
Registration Statement on Form N-1A.
(2) 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 incorporated by reference to
Exhibit 5(b) of Post-Effective Amendment No. 25 (filed
November 30, 1998) to Registrant's Registration Statement
on Form N-1A.
(3) 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 incorporated by reference to Exhibit 5(c) of
Post-Effective Amendment No. 25 (filed November 30, 1998)
to Registrant's Registration Statement on Form N-1A.
(4) 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 incorporated by reference to Exhibit 5(d) of
Post-Effective Amendment No. 25 (filed November 30, 1998)
to Registrant's Registration Statement on Form N-1A.
(e) (1) 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.
(2) 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.
(f) None.
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<PAGE> 453
(g) (1) 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.
(2) 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.
(3) 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.
(4) 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.
(h) (1) 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.
(2) 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.
(3) 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.
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(4) 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.
(5) 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.
(6) Form of Shareholder Service Plan for Class B for the
Registrant is incorporated by reference to Exhibit (9)(f)
of Post-Effective Amendment No. 22 (filed June 18, 1997) to
Registrant's Registration Statement on Form N-1A.
(7) Form of Shareholder Servicing Agreement between the
California Department of Personnel, HighMark Capital
Management, Inc. and Registrant with respect to the Class I
Shares is incorporated by reference to Exhibit (9)(f) of
Post-Effective Amendment No. 26 (filed August 2, 1999) to
Registrant's Registration Statement on Form N-1A.
(i) Opinion and Consent of Counsel as to legality of shares
being registered is filed herewith.
(j) (1) Consent of Ropes & Gray, is filed herewith.
(k) None.
(l) None.
(m) (1) Restated Shareholder Services Plan with respect to the
Fiduciary Shares is incorporated by reference to Exhibit
15(a) of Post-Effective Amendment No. 25 (filed November
30, 1998) to Registrant's Registration Statement on Form
N-1A.
(2) Restated Distribution and Shareholder Services Plan with
respect to the Class A Shares is incorporated by reference
to Exhibit 15(b) of Post-Effective Amendment No. 25 (filed
November 30, 1998) to Registrant's Registration Statement
on Form N-1A.
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(3) 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.
(4) Distribution Plan with respect to the Class C Shares is
filed herewith.
(5) Distribution Plan with respect to the Class S Shares is
filed herewith.
(n) Amended Multiple Class Plan for HighMark Funds adopted by
the Board of Trustees on September 17, 1999 is filed
herewith.
ITEM 24. 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 25. 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
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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 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
HighMark Capital Management, Inc. (the "Adviser") performs investment
advisory services for Registrant. The Adviser offers a wide range of
investment management services to its clients in California, Oregon,
and Washington and around the world. The Adviser 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 Adviser, 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 Adviser 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 Adviser, 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 Adviser Name Principal Occupation Business
- ----------- ---- -------------------- --------
<S> <C> <C> <C>
Director, Chairman of the Susumu Hanada Deputy Group Head Banking
Board, and Chief Executive Trust & Private Financial Services Group
</TABLE>
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<PAGE> 457
<TABLE>
<CAPTION>
Position with Type of
the Adviser Name Principal Occupation Business
- ----------- ---- -------------------- --------
<S> <C> <C> <C>
Officer Union Bank of California
475 Sansome Street
San Francisco, CA 94104
Director, President, and Clark R. Gates President and COO Investment
Chief Operating HighMark Capital Management Management
Officer 475 Sansome Street
San Francisco, CA 94104
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 Financial Patrick G. Dodson Senior Vice President Banking
Officer Trust & Private Financial Services Group
Systems and Operations
Union Bank of California
475 Sansome Street
San Francisco, CA 94104
Secretary John J. King Vice President and Associate General Banking
Counsel
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, Support Milton M. Fukuda c/o HighMark Capital Management Investment
Services 475 Sansome Street Management
San Francisco, CA 94104
</TABLE>
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<PAGE> 458
<TABLE>
<CAPTION>
Position with Type of
the Adviser Name Principal Occupation Business
- ----------- ---- -------------------- --------
<S> <C> <C> <C>
Managing Director, Portfolio Kevin A. Rogers c/o HighMark Capital Management Investment
Management Group 18300 Von Karman Avenue Management
Irvine, CA 92715
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITER
Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing securities
of the Registrant also acts as a principal underwriter, distributor or
investment adviser.
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
PBHG Insurance Series Fund, Inc. April 1, 1999
-21-
<PAGE> 459
The Expedition Funds June 9, 1999
Alpha Select January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Funds, Inc. June 29, 1998
The Parkstone Group of Funds September 14, 1998
CNJ Chester Funds April 1, 1999
The Parkstone Advantage Funds May 1, 1999
Amerindo Funds, Inc. July 13, 1999
The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These
services include portfolio evaluation, performance measurement and
consulting services ("Funds Evaluation") and automated execution,
clearing and settlement of securities transactions ("MarketLink").
Furnish the information required by the following table with respect to
each director, officer or partner of each principal underwriter named
in the answer to Item 20 of Part B. Unless otherwise noted, the
principal business address of each director or officer is 1 Freedom
Valley Drive, Oaks, PA 19456.
-22-
<PAGE> 460
<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 --
Carmen V. Romeo Director --
Mark J. Held President: Chief Operating Officer --
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Director: 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 --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Kevin P. Robins Senior Vice President, Vice President,
General Counsel & Assistant 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
S. Courtney Collier Vice President and Assistant Vice President,
Secretary Assistant Secretary
Robert Crudup Vice President and Managing --
Director
Richard A. Deak Vice President and Assistant Vice President,
Secretary Assistant Secretary
Barbara Doyne Vice President --
Jeff Drennen Vice President --
James R. Foggo Vice President and Assistant Vice President,
Secretary Assistant Secretary
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
Mark Nagle Vice President President
Position and Office Positions and Offices
</TABLE>
-23-
<PAGE> 461
<TABLE>
<CAPTION>
Name With Underwriter With Registrant
---- ---------------- -----------------------
<S> <C> <C>
Joanne Nelson Vice President --
Cynthia M. Parrish Vice President & Assistant Secretary --
Kim Rainey Vice President --
Rob Redican Vice President --
Maria Rinehart Vice President --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant --
Secretary
Lynda J. Striegel Vice President & Assistant Vice President,
Secretary Secretary
Lori L. White Vice President & Assistant --
Secretary
Wayne M. Withrow Vice President & Managing Director --
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
(1) HighMark Capital Management, Inc., 475 Sansome Street, San
Francisco, CA 94104 (records relating to its function as
investment adviser).
(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 29. MANAGEMENT SERVICES
None.
ITEM 30. UNDERTAKINGS
-24-
<PAGE> 462
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.
-25-
<PAGE> 463
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 27 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 20th day of September, 1999.
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. 27 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 September 20, 1999
----------------- Chief Executive Officer
Mark E. Nagle
*/s/ Robert DellaCroce Comptroller and Chief September 20, 1999
--------------------- Financial Officer
Robert DellaCroce
*/s/ Thomas L. Braje Trustee September 20, 1999
-----------------------
Thomas L. Braje
*/s/ David A. Goldfarb Trustee September 20, 1999
---------------------
David A. Goldfarb
*/s/ Joseph C. Jaeger Trustee September 20, 1999
-----------------------
Joseph C. Jaeger
*/s/ Frederick J. Long Trustee September 20, 1999
----------------------
Frederick J. Long
*/s/Michael L. Noel Trustee September 20, 1999
- -------------------
Michael L. Noel
*/s/ Robert M. Whitlow Trustee September 20, 1999
- ----------------------
Robert M. Whitlow
*By: /s/ Martin E. Lybecker
----------------------
Martin E. Lybecker
Attorney-In-Fact, pursuant to powers
of attorney filed herewith.
</TABLE>
<PAGE> 464
POWER OF ATTORNEY
The undersigned, being a Trustee of the HighMark Funds, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest and Alyssa Albertelli
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments that said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable HighMark Funds to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of
the Securities and Exchange Commission in respect thereof, and in connection
with the filing and effectiveness of any registration statement or statement of
HighMark Funds pursuant to said Acts and any and all amendments thereto
(including post-effective amendments), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a Trustee of HighMark Funds any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Mark E. Nagle President October 10, 1998
- ---------------------
Mark E. Nagle
</TABLE>
-27-
<PAGE> 465
POWER OF ATTORNEY
The undersigned, being a Trustee of the HighMark Funds, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest and Alyssa Albertelli
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments that said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable HighMark Funds to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of
the Securities and Exchange Commission in respect thereof, and in connection
with the filing and effectiveness of any registration statement or statement of
HighMark Funds pursuant to said Acts and any and all amendments thereto
(including post-effective amendments), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a Trustee of HighMark Funds any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert J. DellaCroce Treasurer and October 10, 1998
- ------------------------------ Chief Financial Officer
Robert J. DellaCroce
</TABLE>
-28-
<PAGE> 466
POWER OF ATTORNEY
The undersigned, being a Trustee of the HighMark Funds, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest and Alyssa Albertelli
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments that said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable HighMark Funds to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of
the Securities and Exchange Commission in respect thereof, and in connection
with the filing and effectiveness of any registration statement or statement of
HighMark Funds pursuant to said Acts and any and all amendments thereto
(including post-effective amendments), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a Trustee of HighMark Funds any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Thomas L. Braje Trustee
- ------------------------
Thomas L. Braje
/s/ David A. Goldfarb Trustee
- ------------------------
David A. Goldfarb
/s/ William R. Howell Trustee
- ------------------------
William R. Howell
/s/ Joseph C. Jaeger Trustee
- ------------------------
Joseph C. Jaeger
/s/ Frederick J. Long Trustee
- ------------------------
Frederick J. Long
/s/ Paul L. Smith Trustee
- ------------------------
Paul L. Smith
</TABLE>
-29-
<PAGE> 467
POWER OF ATTORNEY
The undersigned, being a Trustee of the HighMark Funds, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest and Alyssa Albertelli
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments that said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable HighMark Funds to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of
the Securities and Exchange Commission in respect thereof, and in connection
with the filing and effectiveness of any registration statement or statement of
HighMark Funds pursuant to said Acts and any and all amendments thereto
(including post-effective amendments), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a Trustee of HighMark Funds any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Michael L. Noel Trustee September 9, 1999
- ----------------------
Michael L. Noel
</TABLE>
-30-
<PAGE> 468
POWER OF ATTORNEY
The undersigned, being a Trustee of the HighMark Funds, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest and Alyssa Albertelli
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments that said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable HighMark Funds to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of
the Securities and Exchange Commission in respect thereof, and in connection
with the filing and effectiveness of any registration statement or statement of
HighMark Funds pursuant to said Acts and any and all amendments thereto
(including post-effective amendments), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a Trustee of HighMark Funds any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert M. Whitler Trustee September 9, 1999
- -----------------------
Robert M. Whitler
</TABLE>
-31-
<PAGE> 469
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
(i) Opinion and Consent of Counsel as to legality of shares being
registered.
(j)(1) Consent of Ropes & Gray.
(m)(4) Distribution Plan with respect to Class C Shares.
(m)(5) Distribution Plan with respect to Class S Shares.
(n) Amended Multiple Class Plan for HighMark Funds.
</TABLE>
-32-
<PAGE> 1
ROPES & GRAY
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, DC 20005
September 16, 1999
WRITER'S DIRECT DIAL NUMBER: (202) 626-3915
September 17, 1999
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 Shares of the Series have been duly authorized
under Massachusetts law. Upon the original issue and sale of your authorized but
unissued Shares and upon receipt of the authorized consideration therefor in an
amount not less than the net asset value of the Shares established and in force
at the time of their sale, the 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
<PAGE> 2
HighMark Funds
September 17, 1999
Page 2
provides for indemnification out of the property of a particular series of
Shares for all loss and expenses of any shareholder of that series held
personally liable solely by reason of his being or having been a shareholder.
Thus, the risk of shareholder liability is limited to circumstances in which
that series of Shares itself would be unable to meet its obligations.
We understand that this opinion is to be used in connection with the
filing of the Post-Effective Amendment. We consent to the filing of this opinion
with and as part of your Post-Effective Amendment.
Sincerely,
/s/ Ropes & Gray
Ropes & Gray
<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. 27 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.
September 17, 1999
<PAGE> 1
DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
HIGHMARK FUNDS
CLASS C SHARES
This Plan (the "Plan") constitutes the 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 C units of beneficial interest
("Class C Shares") of the portfolios of the Trust, as now in existence or
hereinafter created from time to time (each a "Portfolio).
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 C Shares of each
Portfolio and for the provision of shareholder services with respect to the
holders of the Class C Shares of each Portfolio;
NOW, THEREFORE, the Trust and SEI Investments Distribution Co. hereby
agree as follows:
SECTION 1. A Portfolio is authorized pay out of the assets attributable
to its Class C Shares a distribution and shareholder services fee to the
principal underwriter of the Class C Shares (the "Distributor") at an annual
rate equal to 1.00% of the average daily net assets of the Portfolio's Class C
Shares (the "Distribution and Service Fee"). The Distributor may apply the
Distribution and Service Fee toward the following: (i ) compensation for its
services in connection with distribution assistance with respect to the
Portfolio's Class C 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 Portfolio's Class C 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 in connection with shareholder services with
respect to the Portfolio's Class C Shares. The maximum amount of the
Distribution and Service Fee that may be payable by the Portfolio for the
aforementioned services and expenses other than services and/or reimbursement of
expenses incurred in connection with shareholder services is 0.75% of the
average daily net assets of such Portfolio's Class C Shares. The remaining
portion of the Distribution and Service Fee is payable by the Portfolio's Class
C Shares only as compensation for services and/or reimbursement of expenses
incurred in connection with shareholder services with respect to such
Portfolio's Class C Shares.
<PAGE> 2
SECTION 2. The Distribution and Service Fee shall be accrued daily and
payable monthly, and shall be paid by each Portfolio to the Distributor
irrespective of whether such fee exceeds the amounts paid (or payable) by the
Distributor pursuant to Section 1.
SECTION 3. The Plan shall not take effect with respect to a Portfolio
until it has been approved by a vote of at least a majority of the Portfolio's
Shares.
SECTION 4. 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 5. This Plan shall continue in effect for a period of more than
one year after it takes effect only for so long as such continuance is
specifically approved at least annually in the manner provided in Part (b) of
Section 5 herein for the approval of this Plan.
SECTION 6. Any person authorized to direct the disposition of monies paid
or payable by a Portfolio 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 7. This Plan may be terminated with respect to a Portfolio at any
time by vote of a majority of the Independent Trustees, or by vote of a majority
of the Portfolio's outstanding Shares.
SECTION 8. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time with respect to a
Portfolio 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
Portfolio 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 9. This Plan may not be amended to increase materially the amount
of the Distribution and Service Fee with respect to a Portfolio without approval
in the manner provided in Sections 4 and 5 hereof, and all material amendments
to the Plan with respect to a Portfolio shall be approved in the manner provided
for approval of the Plan in Section 5.
<PAGE> 3
SECTION 10. 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.
SECTION 11. This Plan shall not obligate the trust or any other party to
enter into an agreement with any particular person.
Adopted September 17, 1999.
<PAGE> 1
DISTRIBUTION PLAN
HIGHMARK FUNDS
CLASS S SHARES
WHEREAS, HIGHMARK FUNDS (the "Trust") is engaged in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended ("1940 Act"); and
WHEREAS, the Trustees of the Trust have determined that there is a reasonable
likelihood that the following Distribution Plan will benefit the Trust and the
owners of Class S shares (the "Shares") of the Trust;
NOW, THEREFORE, the Trustees of the Trust hereby adopt this Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act.
SECTION 1. The Trust has adopted this Class S Distribution Plan ("Plan")
to enable the Trust to directly or indirectly bear expenses relating to the
distribution of the Shares of the portfolios of the Trust, as now in existence
or hereinafter created from time to time (each a "Portfolio").
SECTION 2. A Portfolio is authorized to pay out of the assets
attributable to its Shares a distribution fee to the principal underwriter of
the Shares (the "Distributor") at an annual rate of .55% of the value of the
average daily net assets of the Portfolio's Shares (the "Distribution Fee"). The
Distributor may use the Distribution Fee toward (i) compensation for its
services in connection with distribution assistance or provision of shareholder
services with respect to the Portfolio's Shares; or (ii) payments to financial
institutions and intermediaries such as banks, savings and loan associations,
insurance companies and investment counselors, broker-dealers and the
Distributor's affiliates and subsidiaries as compensation for services or
reimbursement of expenses incurred in connection with distribution assistance or
provision of shareholder services with respect to the Portfolio's Shares.
SECTION 3. The Distribution Fee shall be accrued daily and payable
monthly, and shall be paid by each Portfolio to the Distributor irrespective of
whether such fee exceeds the amounts paid (or payable) by the Distributor
pursuant to Section 2
SECTION 4. This Plan shall not take effect with respect to any Portfolio
until it has been approved (a) by a vote of at least a majority of the
outstanding voting securities of the Shares of such Portfolio; and (b) together
with any related agreements, by votes of the majority of both (i) the Trustees
of the Trust and (ii) the Qualified Trustees, cast in person at a Board of
Trustees meeting called for the purpose of voting on this Plan or such
agreement.
SECTION 5. This Plan shall continue in effect for a period of more than
one year after it takes effect only for so long as such continuance is
specifically approved at least annually in the manner provided in Part (b) of
Section 4 herein for the approval of this Plan.
<PAGE> 2
SECTION 6. Any person authorized to direct the disposition of monies paid
or payable by the Trust pursuant to this Plan or any related agreement shall
provide to the Trustees of the Trust, at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures were made.
SECTION 7. This Plan may be terminated at any time by the vote of a
majority of the Qualified Trustees or by vote of a majority of the outstanding
voting securities of the Shares of the Portfolios.
SECTION 8. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide (a) that such agreement may be terminated at any time, without payment
of any penalty, by the vote of a majority of the Qualified Trustees or by the
vote of a majority of the Trust's outstanding voting securities of the Shares of
the Portfolios, on not more than 60 days written notice to any other party to
the agreement; and (b) that such agreement shall terminate automatically in the
event of its assignment.
SECTION 9. This Plan may not be amended to increase materially the amount
of distribution expenses permitted pursuant to Section 2 hereof without the
approval of Shareholders holding a majority of the outstanding voting securities
of the Shares of the Portfolios, and all material amendments to this Plan shall
be approved in the manner provided in Part (b) of Section 4 herein for the
approval of this Plan.
SECTION 10. As used in this Plan, (a) the term "Qualified Trustees" shall
mean those Trustees of the Trust who are not interested persons of the Trust,
and have no direct or indirect financial interest in the operation of this Plan
or any agreements related to it, and (b) the terms "assignment" and "interested
person" shall have the respective meanings specified in the 1940 Act and the
rules and regulations thereunder, subject to such exemptions as may be granted
by the Securities and Exchange Commission.
SECTION 11. While this Plan is in effect, the selection and nomination of
those Trustees who are not interested persons of the Trust within the meaning of
Section 2(a)(19) of the 1940 Act shall be committed to the discretion of the
Trustees then in office who are not interested persons of the Trust.
SECTION 12. This Plan shall not obligate the Trust or any other party to
enter into an agreement with any particular person.
Adopted: September 8, 1999
<PAGE> 1
HIGHMARK FUNDS
AMENDED MULTIPLE CLASS PLAN
This constitutes a MULTIPLE CLASS PLAN (the "Plan") of HighMark Funds, a
Massachusetts business trust (the "Trust"), adopted pursuant to Rule 18f-3(d)
under the Investment Company Act of 1940, as amended (the "1940 Act"). The Plan
is applicable to the Trust's investment portfolio(s) identified on Schedule A
hereto, as such Schedule may be amended from time to time (each a "Fund",
collectively the "Funds").
WHEREAS, it is desirable to enable the Trust to have flexibility in
meeting the investment and shareholder servicing needs of its current and future
investors; and
WHEREAS, the Board of Trustees of the Trust (the "Board of Trustees"),
including a majority of the Trustees who are not "interested persons" of the
Trust, as such term is defined by the 1940 Act, mindful of the requirements
imposed by Rule 18f-3(d) under the 1940 Act, has determined to adopt this Plan
to enable the Fund to provide appropriate services to certain designated classes
of shareholders of the Fund;
NOW, THEREFORE, the Trust designates the Plan as follows:
1. Designation of Classes. The Fund shall offer its units of beneficial
interest ("Shares") in six classes: Retail Class A Shares, Retail Class B
Shares, Retail Class C Shares (collectively "Retail Shares"), Class I Shares,
Class S Shares and Fiduciary Shares.
2. Purchases. Retail Shares and Class S Shares are distributed to the
general public pursuant to procedures outlined in the Trust's Registration
Statement. Fiduciary Shares and Class I Shares may only be purchased by certain
investors listed in the Registration Statement. Procedures for purchasing
Fiduciary Shares and Class I Shares are outlined in the Registration Statement.
3. Shareholder Services. Retail Shares, Class I Shares, Class S Shares
and Fiduciary Shares may be purchased by check or money order, by Federal Funds
wire, by telephone or through the Automatic Investment Plan, pursuant to
procedures outlined in the Trust's Registration Statement. Holders of Retail
Shares, Class I Shares, Class S Shares and Fiduciary Shares may also make
regular exchanges and redemptions of their Shares as described in the
Registration Statement.
4. Sales Charges.
Fiduciary Shares, Class I Shares and Class S Shares.
<PAGE> 2
Fiduciary Shares, Class I Shares, Class S Shares are not subject to a
sales charge at the time of purchase or upon redemption.
Retail Shares.
Retail Class A Shares and Retail Class C Shares, except Retail Class A
Shares of any money market funds, are subject to a sales charge at the time of
purchase. The sales charge is based on a percentage of the offering price and,
for Class A Shares, may vary based on the amount of purchase. Retail Class B
Shares are subject to a contingent deferred sales charge if they are redeemed
within six years after purchase. Sales charges applicable to Retail Class A
Shares, Retail Class B Shares and Retail Class C Shares may be waived in
accordance with the current Registration Statement.
5. Distribution and Shareholder Services Fee.
Fiduciary Shares.
Fiduciary Shares are subject to a shareholder service fee assessed in
accordance with the shareholder service plan adopted by the Trust.
Retail Shares.
Retail Shares are subject to a shareholder service fee assessed in
accordance with the shareholder service plan adopted by the Trust and Retail
Class A Shares, Retail Class B Shares and Retail Class C Shares are each subject
to a distribution fee in accordance with the respective distribution plans
adopted by the Trust for Retail Class A Shares, for Retail Class B Shares and
for Retail Class C Shares.
Class S Shares.
Class S Shares are subject to a distribution fee in accordance with the
distribution plan adopted by the Trust for the Class S Shares.
Class I Shares.
Class I Shares are not subject to either a shareholder service fee or
distribution fee.
6. Minimum Transaction Requirements. The minimum initial investment and
subsequent investment requirements applicable to Retail Shares, Class S Shares
and Fiduciary Shares shall be the same, as outlined in the Trust's Registration
Statement.
<PAGE> 3
7. Exchange Privilege. Retail Shares, Class I Shares, Class S Shares and
Fiduciary Shares shall be exchangeable for Shares of the class of the various
other Funds of the Trust which the Shareholder qualifies to purchase directly,
provided that the minimum investment and any other requirements of the Fund for
which the shares are exchanged are satisfied.
8. Expense Allocation. Each class shall pay the expenses associated with
its different distribution and shareholder services arrangement. Each class may,
at the Board's discretion, also pay a different share of other expenses, not
including advisory or custodial fees or other expenses related to the management
of the Trust's assets, if these expenses are actually incurred in a different
amount by that class, or if the class receives services of a different kind or
to a different degree than other classes. All other expenses will be allocated
to each class on the basis of the relative net asset value of that class in
relation to the net asset value of the Fund.
9. Voting Rights. Each Share held entitles the Shareholder of record to
one vote. Each Fund will vote separately on matters relating solely to that
Fund. Each class of a Fund shall have exclusive voting rights on any matter
submitted to Shareholders that relates solely to that class, and shall have
separate voting rights on any matter submitted to Shareholders in which the
interests of one class differ from the interests of any other class. However,
all Fund Shareholders will have equal voting rights on matters that affect all
Fund Shareholders equally.
10. Dividends. The amount of dividends payable on Class I Shares may be
more than the dividends payable on Fiduciary Shares because of the shareholder
services fee charged to Fiduciary Shares pursuant to the Plan. The amount of
dividends payable on Fiduciary Shares may be more than the dividends payable on
Retail Class A Shares because of the distribution and shareholder services fee
charged to Retail Class A Shares pursuant to the Plan. Dividends on Retail Class
B Shares will be lower than the dividends paid on Retail Class A Shares due to
higher distribution fees. The dividends paid on Retail Class C Shares will be
lower than the dividends paid on Retail Class B Shares due to higher
distribution fees. The dividends paid on Class S Shares will be lower than the
dividends paid on Retail Class A Shares due to higher distribution fees.
Dividends will be declared and paid monthly.
11. Termination and Amendment. This Plan may be terminated or amended
pursuant to the requirements of Rule 18f-3(d) under the 1940 Act.
The names "HighMark Funds" and "Board of Trustees" refer respectively to
the Trust created and the Trustees, as Trustees but not individually or
personally, acting from time to time under a Declaration of Trust dated March
10, 1987, as amended July 30, 1987, to which reference is hereby made and a copy
of which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of the HighMark Funds
entered into in the name or on behalf thereof by any of the Trust,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees,
<PAGE> 4
Shareholders or representatives of the Trust personally, but bind only the
assets of the Trust, and all persons dealing with any series and/or class of
Shares of the Trust must look solely to the assets of the Trust belonging to
such series and/or class for the enforcement of any claims against the Trust.
HIGHMARK FUNDS
Signature:
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Name:
----------------------------------
Title:
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Date: March 20, 1996
As amended: September 17, 1999
<PAGE> 5
SCHEDULE A
MULTIPLE CLASS PLAN OF
HIGHMARK FUNDS
Name of Fund
HighMark Growth Fund (Fiduciary and Retail Class A, Class B and Class C Shares)
HighMark Income Equity Fund (Fiduciary and Retail Class A, Class B and Class C
Shares)
HighMark Balanced Fund (Fiduciary and Retail Class A and Class B Shares)
HighMark Bond Fund (Fiduciary and Retail Class A Shares)
HighMark Diversified Money Market Fund (Fiduciary and Retail Class A and Class S
Shares)
HighMark U.S. Government Money Market Fund (Fiduciary and Retail Class A and
Class B and Class S Shares)
HighMark 100% U.S. Treasury Money Market Fund (Fiduciary and Retail Class A and
Class S Shares)
HighMark California Tax-Free Money Market Fund (Fiduciary and Retail Class A and
Class S Shares) HighMark
California Intermediate Tax-Free Bond Fund (Fiduciary and Retail Class A and
Class B Shares)
HighMark Intermediate - Term Bond Fund (Fiduciary and Retail Class A Shares)
HighMark Value Momentum Fund (Fiduciary and Retail Class A, Class B and Class C
and Class I Shares)
HighMark Emerging Growth Fund (Fiduciary and Retail Class A Shares)
HighMark International Equity Fund (Fiduciary and Retail Class A, Class B and
Class C Shares)
HIGHMARK FUNDS
Signature:
----------------------
Name:
----------------------
Title:
----------------------
Date: March 20, 1996
As amended:_____, 1999
