HIGHMARK FUNDS /MA/, 497, 1999-08-02

HIGHMARK FUNDS /MA/
497, 1999-08-02

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HIGHMARK FUNDS

MONEY MARKET FUNDS

HighMark Funds is an open-end, diversified, registered investment company
that offers a convenient means of investing in one or more professionally
managed portfolios of securities. This Prospectus relates to the Class S Shares
of HighMark Funds':

- Diversified Money Market Fund
- U.S. Government Money Market Fund
- 100% U.S. Treasury Money Market Fund
- California Tax-Free Money Market Fund

CLASS S SHARES

HighMark Funds' Class S Shares ("Sweep Shares") will be offered effective
October 1, 1999 to investors in Union Bank of California, N.A.'s sweep service.

This Prospectus sets forth concisely the information about HighMark Funds
and the Funds that a prospective investor should know before investing.
Investors are advised to read this Prospectus and retain it for future
reference. A Statement of Additional Information dated the same date as this
Prospectus has been filed with the Securities and Exchange Commission and is
available without charge by writing the Distributor, SEI Investments
Distribution Co., Oaks, Pennsylvania 19456, or by calling 1-800-433-6884. The
SEC maintains a World Wide Web site (http://www.sec.gov) that contains the
Statement of Additional Information, material incorporated by reference and
other information. The Statement of Additional Information is incorporated into
this Prospectus by reference. This Prospectus relates only to the Sweep Shares
of the Money Market Funds. Interested persons who wish to obtain a prospectus
for the other Funds of HighMark Funds may contact the Distributor at the above
address and telephone number.

BECAUSE THE CALIFORNIA TAX-FREE MONEY MARKET FUND MAY INVEST A
SIGNIFICANT PERCENTAGE OF ITS ASSETS IN A SINGLE ISSUER, INVESTMENT
IN THE FUND MAY BE RISKIER THAN INVESTMENT IN OTHER
MONEY MARKET FUNDS.

AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUNDS
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

HIGHMARK FUNDS' SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING UNION BANK OF CALIFORNIA, N.A., THE BANK OF
TOKYO-MITSUBISHI, LTD. OR ANY OF THEIR AFFILIATES OR CORRESPONDENTS. HIGHMARK
FUNDS' SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN HIGHMARK FUNDS
INVOLVES RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.

November 30, 1998, as amended August 2, 1999
Class S Shares

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<PAGE> 3
SUMMARY

HIGHMARK FUNDS is an open-end, diversified, registered investment company
providing a convenient way to invest in professionally managed portfolios of
securities. The following provides basic information about the Class S Shares
("Sweep Shares") of the Diversified Money Market, U.S. Government Money Market,
100% U.S. Treasury Money Market, and California Tax-Free Money Market Funds.
This summary is qualified in its entirety by reference to the more detailed
information provided elsewhere in the Prospectus and in the Statement of
Additional Information.

WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES? The Diversified Money Market
Fund, the U.S. Government Money Market Fund, and the 100% U.S. Treasury Money
Market Fund seek current income with liquidity and stability of principal. The
California Tax-Free Money Market Fund seeks as high a level of current interest
income free from federal income tax and California personal income tax as is
consistent with the preservation of capital and relative stability of principal.
(See "INVESTMENT OBJECTIVES.")

WHAT ARE THE FUNDS' PERMITTED INVESTMENTS? THE DIVERSIFIED MONEY MARKET
FUND invests in obligations with maturities deemed under SEC rules to be 397
days or less ("short-term investments") issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, in high-quality short-term
obligations issued by banks and corporations, and other high-quality rated and
unrated short-term instruments; some of the obligations and short-term
instruments in which the Fund invests may be subject to repurchase agreements.
THE U.S. GOVERNMENT MONEY MARKET FUND invests in short-term obligations issued
or guaranteed by the U.S. Treasury, and additionally invests in obligations
issued or guaranteed by agencies or instrumentalities of the U.S. Government;
some of the obligations in which the Fund invests may be subject to repurchase
agreements. THE 100% U.S. TREASURY MONEY MARKET FUND invests exclusively in
direct U.S. Treasury short-term obligations. THE CALIFORNIA TAX-FREE MONEY
MARKET FUND invests primarily in bonds and notes issued by or on behalf of the
State of California and other states, territories, possessions of the United
States, and the District of Columbia and their respective authorities, agencies,
instrumentalities and political sub-divisions, the interest on which is excluded
from gross income for federal income and California personal income tax purposes
and not treated as a preference item for individuals for purposes of the federal
alternative minimum tax. (See "INVESTMENT POLICIES.")

WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUNDS? Each Fund
seeks to maintain a net asset value of $1.00 per share. There can be no
assurance that a Fund will be able to maintain a net asset value of $1.00 per
share on a continuous basis. The California Tax-Free Money Market Fund
concentrates its investments in California municipal securities, and an
investment in the Fund therefore may be riskier than an investment in other
types of money market funds. (See "Risk Factors.")

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<PAGE> 4
ARE MY INVESTMENTS INSURED? HighMark Funds' Shares are not federally
insured by the FDIC or any other government agency. Any guarantee by the U.S.
Government, its agencies or any instrumentalities of the securities in which any
Fund invests guarantees only the payment of principal and interest on the
guaranteed security, and does not guarantee the yield or value of the security
or yield or value of Shares of that Fund.

WHO IS THE ADVISOR? HighMark Capital Management, Inc. serves as the Advisor
to HighMark Funds. (See "The Advisor.")

WHO IS THE ADMINISTRATOR? SEI Investments Mutual Funds Services serves as
the Administrator of HighMark Funds. (See "The Administrator.")

WHO IS THE CUSTODIAN? Union Bank of California, N.A. (the "Bank") serves as
the Custodian of HighMark Funds' assets. (See "The Custodian.")

WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. acts as
distributor of HighMark Funds' Shares. (See "The Distributor.")

HOW DO I PURCHASE AND REDEEM SHARES? Sweep Shares are designed to provide
convenience through automatic investment of uninvested cash balances of those
investors in Union Bank of California's corporate sweep program (the Sweep
Feature), although shares also may be purchased directly. Purchases and
redemptions of Sweep Shares may be made through the Distributor on days on which
both the New York Stock Exchange and the Federal Reserve wire system are open
for business ("Business Days"). For direct purchases, the minimum initial
investment is generally $1,000 per Fund. In order to be effective on the
Business Day received, orders to purchase Sweep Shares and to redeem Sweep
Shares must be placed prior to 8:00 a.m., Pacific time (11:00 a.m., Eastern
time) for the California Tax-Free Money Market Fund, prior to 9:00 a.m., Pacific
time (12:00 noon, Eastern time) for the 100% U.S. Treasury Money Market Fund;
and prior to 11:00 a.m., Pacific time (2:00 p.m., Eastern time) for the
Diversified Money Market and U.S. Government Money Market Funds on any Business
Day. Otherwise, the order will be effective the next Business Day. In addition,
effectiveness of a purchase is contingent on the Custodian's receipt of Federal
funds before 11:00 a.m., Pacific time (2:00 p.m., Eastern time). (See "HOW TO
PURCHASE SHARES and REDEMPTION OF SHARES.")

HOW ARE DIVIDENDS PAID? The net investment income (exclusive of short-term
capital gains) of the Funds is determined and declared on each Business Day as a
dividend for Shareholders of record as of the close of business on that day.
Dividends are paid monthly in additional shares unless the Shareholder elects to
take the payment in cash. (See "DIVIDENDS.")

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TABLE OF CONTENTS

PAGE

Summary..............................................................
Fee Table............................................................
Financial Highlights ................................................
Fund Description.....................................................
Investment Objectives................................................
Investment Policies..................................................
Diversified Money Market Fund......................................
U.S. Government Money Market Fund..................................
100% U.S. Treasury Money Market Fund...............................
California Tax-Free Money Market Fund..............................
General..............................................................
Illiquid and Restricted Securities.................................
Municipal Securities...............................................
Lending of Portfolio Securities....................................
Other Investments..................................................
Risk Factors.......................................................
Year 2000..........................................................
Valuation of Shares..................................................
How To Purchase Shares...............................................
How to Purchase By Mail............................................
How to Purchase By Wire............................................
How to Purchase Through Financial Institutions.....................
Alternative Purchase Options.......................................
Exchange Privileges..................................................
Redemption of Shares.................................................
By Mail............................................................
Telephone Transactions.............................................
Other Information Regarding Redemptions............................
Dividends............................................................
Federal Taxation.....................................................
Service Arrangements.................................................
The Advisor........................................................
Administrator......................................................
The Transfer Agent.................................................
Distributor........................................................
The Distribution Plan..............................................
Banking Laws.......................................................
Custodian..........................................................

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General Information..................................................
Description of HighMark Funds & Its Shares.........................
Performance Information............................................
Miscellaneous......................................................
Description of Permitted Investments.................................

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MONEY MARKET FUNDS FEE TABLE

<TABLE>
<CAPTION>
100% U.S. CALIFORNIA
DIVERSIFIED U.S. GOVERNMENT TREASURY TAX-FREE
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
---- ---- ---- ----

CLASS S CLASS S CLASS S CLASS S
SHARES SHARES SHARES SHARES
------ ------ ------ ------

<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(a)
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................. 0% 0% 0% 0%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price)........ 0% 0% 0% 0%
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, as applicable)............................. 0% 0% 0% 0%
Redemption Fees (as a percentage of amount
redeemed, if applicable)(b).......................... 0% 0% 0% 0%
Exchange Fee(a)........................................ $0 $0 $0 $0
ANNUAL OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary
reduction)(c)...................................... 0.30% 0.30% 0.25% 0.15%
12b-1 Fees........................................... 0.55% 0.55% 0.55% 0.55%
Other Expenses (after voluntary
reduction)(d)...................................... 0.22% 0.22% 0.22% 0.22%
Total Fund Operating Expenses(e)..................... 1.07% 1.07% 1.02% 0.92%
===== ===== ===== =====
</TABLE>

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Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

<S> <C> <C> <C> <C>
Diversified Money Market Fund ...................... $11 $34 $59 $131
U.S. Government Money Market Fund .................. $11 $34 $59 $131
100% U.S. Treasury Money Market Fund ............... $10 $32 $56 $125
California Tax-Free Money Market Fund .............. $9 $29 $51 $113
</TABLE>

The purpose of the tables above is to assist an investor in the Funds in
understanding the various costs and expenses that a Shareholder will bear
directly or indirectly. For a more complete discussion of each Fund's annual
operating expenses, see SERVICE ARRANGEMENTS below. THE FOREGOING EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.

(a) Certain entities (including Union Bank of California, N.A. and its
affiliates) making investments in the Funds on behalf of their customers
may charge customers fees for services provided in connection with the
investment in, redemption of, and exchange of Shares. (See HOW TO PURCHASE
SHARES, EXCHANGE PRIVILEGES, REDEMPTION OF SHARES, and SERVICE ARRANGEMENTS
below.)

(b) A wire redemption charge of $15 is deducted from the amount of a wire
redemption payment made at the request of a Shareholder. (See REDEMPTION OF
SHARES below.)

(c) Absent voluntary fee waivers, MANAGEMENT FEES would be 0.30% for the 100%
U.S. Treasury Money Market Fund and the California Tax-Free Money Market
Fund.

(d) OTHER EXPENSES are based on estimated amounts for the current fiscal year.
Absent voluntary fee waivers, OTHER EXPENSES would be 0.24% for each of the
Diversified Money Market Fund, the U.S. Government Money Market Fund, the
100% U.S. Treasury Money Market Fund and the California Tax-Free Money
Market Fund.

(e) Absent voluntary fee waivers, TOTAL FUND OPERATING EXPENSES would be 1.09%
for each of the Diversified Money Market Fund, the U.S. Government Money
Market Fund, the 100% U.S. Treasury Money Market Fund, and the California
Tax-Free Money Market Fund.

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FINANCIAL HIGHLIGHTS

Financial information with respect to the Class S Shares of the HighMark
Money Market Funds is not presented because Class S Shares were not offered
prior to the date of this prospectus. Please see "Financial Statements" in the
Statement of Additional Information for financial information regarding other
Share classes of the HighMark Money Market Funds.

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FUND DESCRIPTION

HighMark Funds is an open-end, diversified, registered investment company
that currently offers units of beneficial interest ("Shares") in fourteen
separate investment portfolios ("Funds"). All of the Funds are advised by
HighMark Capital Management, Inc. (the "Advisor"), a subsidiary of UnionBanCal
Corporation. Shareholders may purchase Shares of selected Funds through four
separate classes (Class A and Class B Shares (collectively, the "Retail
Shares"), Fiduciary Shares and Class S Shares ("Sweep Shares")). Only Sweep
Shares are offered in this prospectus. Sweep Shares will be offered for sale
effective October 1, 1999. These classes may have different sales charges and
other expenses, which may affect performance. Information regarding HighMark
Funds' other Funds and other classes is contained in separate prospectuses that
may be obtained from HighMark Funds' Distributor, SEI Investments Distribution
Co., at Oaks, Pennsylvania, 19456, or by calling 1-800-433-6884.

For information concerning those investors who qualify to purchase Sweep
Shares and the operation of HighMark Funds' Distribution Plan, see HOW TO
PURCHASE SHARES and SERVICE ARRANGEMENTS below. (Sweep Shares may be hereinafter
referred to as "Shares.")

INVESTMENT OBJECTIVES

The investment objectives of the Funds are as follows:

The DIVERSIFIED MONEY MARKET FUND, the U.S. GOVERNMENT MONEY MARKET FUND
and the 100% U.S. TREASURY MONEY MARKET FUND each seek current income with
liquidity and stability of principal.

THE CALIFORNIA TAX-FREE MONEY MARKET FUND seeks as high a level of current
interest income free from federal income tax and California personal income tax
as is consistent with the preservation of capital and relative stability of
principal.

There can be no assurance that a Fund will achieve its investment
objective.

The investment objectives and certain of the investment limitations of the
Diversified Money Market Fund, the U.S. Government Money Market Fund, the 100%
U.S. Treasury Money Market Fund, and the California Tax-Free Money Market Fund
may not be changed without a vote of the holders of a majority of the
outstanding Shares of the respective Fund (as defined under GENERAL
INFORMATION--Miscellaneous below). There can be no assurance that a Fund will
achieve its investment objective.

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INVESTMENT POLICIES

While the Diversified Money Market Fund, the U.S. Government Money Market
Fund and the 100% U.S. Treasury Money Market Fund have the same investment
objective, they differ as follows with respect to the types of instruments that
may be purchased. Each Fund may invest only in U.S. dollar-denominated
obligations determined by the Advisor to present minimal credit risks under
guidelines adopted by HighMark Funds' Board of Trustees.

Diversified Money Market Fund

The Diversified Money Market Fund may invest in the following obligations:

(i) obligations issued by the U.S. Government, and backed by its full
faith and credit, and obligations issued or guaranteed as to principal
and interest by the agencies or instrumentalities of the U.S.
Government (e.g., obligations issued by Farmers Home Administration,
Government National Mortgage Association, Federal Farm Credit Bank and
Federal Housing Administration);

(ii) obligations such as bankers' acceptances, bank notes, certificates of
deposit and time deposits of thrift institutions, savings and loans,
U.S. commercial banks (including foreign branches of such banks), and
U.S. and foreign branches of foreign banks, provided that such
institutions (or, in the case of a branch, the parent institution)
have total assets of $1 billion or more as shown on their last
published financial statements at the time of investment;

(iii) short-term promissory notes issued by corporations, including
Canadian Commercial Paper ("CCP"), which is U.S. dollar-denominated
commercial paper issued by a Canadian corporation or a Canadian
counterpart of a U.S. corporation, and Europaper, which is U.S.
dollar-denominated commercial paper of a foreign issuer;

(iv) U.S. dollar-denominated securities issued or guaranteed by foreign
governments, their political subdivisions, agencies or
instrumentalities, and obligations of supranational entities such as
the World Bank and the Asian Development Bank (provided that the Fund
invests no more than 5% of its assets in any such instrument and
invests no more than 25% of its assets in such instruments in the
aggregate);

(v) 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

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that the Fund invests no more than 25% of its assets in any such
industry and invests no more than 35% of its assets in such
instruments in the aggregate);

(vi) Treasury receipts, including TRs, TIGRs and CATs; and

(vii) repurchase agreements involving such obligations.

Certain of the obligations in which the Funds may invest may be variable or
floating rate instruments, may involve a conditional or unconditional demand
feature, and may include variable amount master demand notes.

Subject to the provisions of Rule 2a-7 under the Investment Company Act of
1940 (the "1940 Act"), investments of the Diversified Money Market Fund will
consist of those obligations that, at the time of purchase, possess the highest
short-term rating from at least one nationally recognized statistical rating
organization ("NRSRO") (for example, commercial paper rated "A-1" by Standard &
Poor's Corporation ("S&P") or "P-1" by Moody's Investors Service, Inc.
("Moody's")). Although the Diversified Money Market Fund does not presently
expect to do so, it may also invest up to 5% of its net assets in obligations
that, at the time of purchase, possess one of the two highest short-term ratings
from at least one NRSRO, and in obligations that do not possess an equivalent
short-term rating (i.e., are unrated) but are determined by the Advisor to be of
comparable quality to the rated instruments eligible for purchase by the Fund
under guidelines adopted by the Board of Trustees.

The Diversified Money Market Fund will not invest more than 5% of its total
assets in the securities of any one first tier issuer, except that the Fund may
invest up to 25% of its total assets in the securities of a single first tier
issuer for a period of up to three business days. There is no limit on the
percentage of the Fund's assets that may be invested in obligations issued or
guaranteed by the U.S. Government, its agencies, or instrumentalities and
repurchase agreements fully collateralized by such obligations.

The Fund may concentrate its investments in certain instruments issued by
U.S. banks, U.S. branches of foreign banks, and foreign branches of U.S. banks,
but only so long as the investment risk associated with investing in foreign
branches of U.S. banks is the same as that associated with investing in
instruments issued by the U.S. parent. Domestic certificates of deposit and
bankers' acceptances include those issued by domestic branches of a foreign bank
to the extent permitted by the rules of the Securities and Exchange Commission.
The rules currently permit U.S. branches of foreign banks to be treated as a
domestic bank if it can be demonstrated that they are subject to the same
regulations as domestic banks.

U.S. Government Money Market Fund

As a fundamental policy, the U.S. Government Money Market Fund may not
purchase securities other than U.S. Treasury bills, notes, and other obligations
issued or guaranteed by

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the U.S. Government, its agencies, or instrumentalities (such as obligations
issued by the Government National Mortgage Association and the Export-Import
Bank of the United States) some of which may be subject to repurchase
agreements.

100% U.S. Treasury Money Market Fund

The 100% U.S. Treasury Money Market Fund invests exclusively in direct U.S.
Treasury obligations and separately traded component parts of such obligations
transferable through the Federal Reserve book-entry system ("STRIPs").

California Tax-Free Money Market Fund

The California Tax-Free Money Market Fund invests in obligations issued by
the State of California and its political subdivisions or municipal authorities
and obligations issued by territories or possessions of the United States
("Municipal Securities").

Under normal market conditions and, as a matter of fundamental policy, at
least 80% of the value of the total assets of the California Tax-Free Money
Market Fund will be invested in Municipal Securities, the interest on which, in
the opinion of bond counsel, is excluded from gross income both for federal
income tax purposes and for California personal income tax purposes, and does
not constitute a preference item for individuals for purposes of the federal
alternative minimum tax.

Certain of the obligations in which the Fund may invest may be variable or
floating rate instruments and may involve a conditional or unconditional demand
feature.

Under normal market conditions, up to 20% of the California Tax-Free Money
Market Fund's total assets may be invested in short-term obligations, the
interest on which is treated as a preference item for individuals for purposes
of the federal alternative minimum tax or subject to federal or California
personal income tax ("Taxable Obligations"). These short-term obligations may
include bonds from other states and cash equivalents as described below.

Exempt-interest dividends paid by the California Tax-Free Money Market Fund
that are derived from obligations, the interest on which is exempt from
California taxation when received by an individual ("California Exempt-Interest
Securities"), are excluded from gross income for California personal income tax
purposes. Dividends derived from interest on obligations other than California
Exempt-Interest Securities may be excluded from gross income for federal income
tax purposes but will be subject to California personal income tax.

In order for the California Tax-Free Money Market Fund to pay
exempt-interest dividends, it must continue to qualify as a regulated investment
company and at least 50% of its total assets must be invested in California
Exempt-Interest Securities at the close of each

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quarter of its taxable year. Dividends, regardless of their source, may be
subject to local taxes.

In seeking to achieve its investment objective, the California Tax-Free
Money Market Fund may invest all or any part of its assets in Municipal
Securities that are private activity bonds, including those known as industrial
development bonds under prior federal law. (Any reference herein to private
activity bonds includes industrial development bonds.) Interest on private
activity bonds is excluded from gross income for federal income tax purposes
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified for those respective
categories. However, even if the California Tax-Free Money Market Fund invests
in private activity bonds that fall within these categories, Shareholders may
become subject to the federal alternative minimum tax on that part of such
Fund's distributions derived from interest on such bonds. For further
information, see FEDERAL TAXATION below.

The California Tax-Free Money Market Fund may invest up to 10% of its total
assets in shares of other investment companies with like investment objectives.
As a shareholder of an investment company, a Fund may indirectly bear investment
management fees of that investment company, which are in addition to the
management fees the Fund pays its own Advisor.

Investments of the California Tax-Free Money Market Fund will consist of
those obligations that, at the time of purchase, possess one of the two highest
short-term ratings by a NRSRO, and in obligations that do not possess a rating
(i.e., are unrated) but are determined by the Advisor to be of comparable
quality to the rated instruments eligible for purchase by the Fund under the
guidelines adopted by the Board of Trustees.

The California Tax-Free Money Market Fund may hold uninvested cash reserves
pending investment during temporary "defensive" periods or if, in the opinion of
the Advisor, desirable tax-exempt obligations are unavailable. In accordance
with the Fund's investment objective and subject to its fundamental policies,
investments may be made in Taxable Obligations if, for example, suitable
tax-exempt obligations are unavailable or if acquisition of U.S. Government or
other taxable securities is deemed appropriate for temporary "defensive"
purposes.

As discussed in greater detail in the Statement of Additional Information,
Taxable Obligations may include obligations issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities (some of which may be subject to
repurchase agreements), certificates of deposit, bankers' acceptances, and
commercial paper. As noted above, Taxable Obligations may also include private
activity bonds depending on their tax treatment.

The California Tax-Free Money Market Fund is not intended to constitute a
balanced investment program and is not designed for investors seeking capital
appreciation nor

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maximum tax-exempt income irrespective of fluctuations in principal. Investment
in the California Tax-Free Money Market Fund would not be appropriate for
tax-deferred plans, such as IRA and Keogh plans, and investors should consult a
tax or other financial advisor to determine whether investment in the California
Tax-Free Fund would be appropriate for them.

GENERAL

The Funds intend to comply with Rule 2a-7 under the 1940 Act. Shares of
each Fund are priced pursuant to the amortized cost method whereby HighMark
Funds seeks to maintain each Fund's net asset value per Share at $1.00. There
can be, however, no assurance that a stable net asset value of $1.00 per Share
will be maintained.

Securities or instruments in which each Fund invests have remaining
maturities of 397 days or less, although instruments subject to repurchase
agreements and certain adjustable rate instruments may bear longer maturities.
The dollar-weighted average portfolio maturity of each Fund will not exceed 90
days.

Although the Diversified Money Market Fund, the U.S. Government Money
Market Fund and the 100% U.S. Treasury Money Market Fund have the same
investment advisor and the same investment objective, particular securities held
and respective yields of these Funds may differ due to differences in the types
of permitted investments, cash flow, and the availability of particular
investments.

Additional information concerning each Fund's investments, including
certain investment restrictions that may not be changed with respect to a
particular Fund without a vote of the holders of a majority of the outstanding
Shares of that Fund, is set forth below and in the Statement of Additional
Information. For further information concerning the rating and other
requirements governing the investments (including the treatment of securities
subject to a tender or demand feature or deemed to possess a rating based on
comparable rated securities of the same issuer) of a Fund, see the Statement of
Additional Information. The Statement of Additional Information also identifies
the NRSROs that may be utilized by the Advisor with respect to portfolio
investments for the Funds and provides a description of the relevant ratings
assigned by each such NRSRO.

In the event that a security owned by a Fund is downgraded below the stated
rating categories, the Advisor will take appropriate action with regard to that
security.

Illiquid and Restricted Securities

The Funds shall limit investments in illiquid securities to 10% or less of
their net assets. Generally, an "illiquid security" is any security that cannot
be disposed of promptly and in the ordinary course of business at approximately
the amount at which the Fund has valued the instrument. The absence of a trading
market can make it difficult to ascertain the

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market value of illiquid securities. Each Fund may purchase restricted
securities which have not been registered under the Securities Act of 1933
(e.g., Rule 144A Securities and Section 4(2) commercial paper) subject to
policies approved by the Board of Trustees. See INVESTMENT RESTRICTIONS in the
Statement of Additional Information.

Time deposits, including ETDs and CTDs (but not including certificates of
deposit) and repurchase agreements, which have maturities in excess of seven
days are considered to be illiquid.

Municipal Securities

The two principal classifications of Municipal Securities that may be held
by the California Tax-Free Money Market Fund are "general obligation" securities
and "revenue" securities.

General obligation securities are secured by the issuer's pledge of its
full faith and credit and general taxing power for the payment of principal and
interest.

Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the California Tax-Free
Money Market Fund are in most cases revenue securities and are not payable from
the unrestricted revenues of the issuer. Consequently, the credit quality of
private activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.

In addition, Municipal Securities may include "moral obligation" bonds,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.

Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax or California personal
income tax are rendered at the time of issuance by counsel experienced in
matters relating to the validity of and tax exemption of interest on bonds
issued by states and their political sub-divisions. Neither the California
Tax-Free Money Market Fund nor the Advisor will review the proceedings relating
to the issuance of Municipal Securities or the basis for such opinions.

Municipal Securities purchased by the California Tax-Free Money Market Fund
may include adjustable rate tax-exempt notes which may have a stated maturity in
excess of 397 days, but which will be subject to a demand feature that will
permit the Fund to demand payment of the principal of the note either (i) at any
time upon not more than thirty days'

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notice or (ii) at specified intervals not exceeding 397 days and upon no more
than thirty days' notice. There may be no active secondary market with respect
to a particular adjustable rate note. Nevertheless, as described in greater
detail in the Statement of Additional Information, the adjustable interest rate
feature included in this type of note is intended generally to assure that the
value of the note to the Fund will approximate its par value.

Municipal Securities may include, but are not limited to, short-term
anticipation notes, bond anticipation notes, revenue anticipation notes, and
other forms of short-term tax-exempt securities. These instruments are issued in
anticipation of the receipt of tax funds, the proceeds of bond placements, or
other revenues. In addition, the California Tax-Free Money Market Fund may
purchase tax-exempt commercial paper. Under certain circumstances, and subject
to the limitations described in the Statement of Additional Information, the
California Tax-Free Money Market Fund may invest indirectly in Municipal
Securities by purchasing shares of other tax-exempt money market mutual funds.

The California Tax-Free Money Market Fund may also acquire Municipal
Securities that have "put" features. Under a put feature, the Fund has the right
to sell the Municipal Security within a specified period of time at a specified
price. The put feature cannot be sold, transferred, or assigned separately from
the Municipal Security. Each Fund may buy Municipal Securities with put features
to facilitate portfolio liquidity, shorten the maturity of the underlying
Municipal Securities, or permit investment at a more favorable rate of return.
The aggregate price of a security subject to a put may be higher than the price
that otherwise would be paid for the security without such a feature, thereby
increasing the security's cost and reducing its yield.

Lending of Portfolio Securities

In order to generate additional income, each Fund (except the California
Tax-Free Money Market Fund and the 100% U.S. Treasury Money Market Fund) may
lend its portfolio securities to broker-dealers, banks or other institutions. A
Fund may lend portfolio securities in an amount representing up to 33 1/3% of
the value of the Fund's total assets.

Other Investments

The Diversified Money Market Fund, the U.S. Government Money Market Fund,
and the California Tax-Free Money Market Fund may enter into repurchase
agreements and reverse repurchase agreements. Each Fund intends to limit its
respective activity in reverse repurchase agreements to no more than 10% of the
Fund's total assets.

The Funds may enter into forward commitments or purchase securities on a
"when-issued" basis. Each Fund expects that commitments by a Fund to enter into
forward commitments or purchase when-issued securities will not exceed 25% of
the value of the Fund's total assets under normal market conditions. The Funds
do not intend to purchase

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when-issued securities or enter into forward commitments for speculative or
leveraging purposes but only for the purpose of acquiring portfolio securities.

For further information, see "DESCRIPTION OF PERMITTED INVESTMENTS."

Risk Factors

Investments by the Funds in obligations of certain agencies and
instrumentalities of the U.S. Government may not be guaranteed by the full faith
and credit of the U.S. Treasury, and there can be no assurance that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.

As in the case of mortgage-related securities, certain asset-backed
securities are subject to prepayments and there can be no assurance that the
Diversified Money Market Fund will be able to reinvest the proceeds of any
prepayment at the same interest rate or on the same terms as the original
investment.

Foreign securities which the Diversified Money Market Fund may purchase may
subject the Fund to investment risks that differ in some respects from those
related to investments in obligations of U.S. issuers. These risks include
adverse political and economic developments, possible imposition of withholding
taxes on interest income, possible seizure, nationalization, or expropriation of
foreign investments, possible establishment of exchange controls, or adoption of
other foreign governmental restrictions which might adversely affect the payment
of principal and interest on such obligations. In addition, foreign branches of
U.S. banks and foreign banks may be subject to less stringent reserve
requirements and different accounting, auditing, reporting, and recordkeeping
standards than those applicable to domestic branches of U.S. banks.

Certain risks are inherent in the California Tax-Free Money Market Fund's
concentrated investment in California Municipal Securities, which may make an
investment in the Fund riskier than an investment in other types of money market
funds. Because of the California Tax-Free Money Market Fund's investment
objective, many of the securities in its portfolio are likely to be obligations
of California governmental issuers that rely in whole or in part, directly or
indirectly, on real property taxes as a source of revenue. The ability of the
State of California and its political sub-divisions to generate revenue through
real property and other taxes and to increase spending has been significantly
restricted by various constitutional and statutory amendments and voter-passed
initiatives. Such limitations could affect the ability of California state and
municipal issuers to pay interest or repay principal on their obligations. In
addition, during the first half of the decade, California faced severe economic
and fiscal conditions and experienced recurring budget deficits that caused it
to deplete its available cash resources and to become increasingly dependent
upon external borrowings to meet its cash needs.

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The financial difficulties experienced by the State of California and other
issuers of California Municipal Securities during the recession have resulted in
the credit ratings of certain of their obligations being downgraded
significantly by the major rating agencies.

A more detailed description of special factors affecting investments in
obligations of California governmental issuers of which investors should be
aware is set forth in the Statement of Additional Information.

Year 2000

HighMark Funds depends on the smooth functioning of computer systems in
almost every aspect of its business. Like other mutual funds, businesses and
individuals around the world, HighMark Funds could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. HighMark Funds has made inquiry of its service providers to determine
whether they expect to have their computer systems adjusted for the year 2000
transition, and is seeking assurances from each service provider that it expects
its system to accommodate the year 2000 transition without material adverse
consequences to HighMark Funds. While it is likely that such assurances will be
obtained, HighMark Funds and its shareholders may experience losses if these
assurances prove to be incorrect or as a result of year 2000 computer
difficulties experienced by issuers of portfolio securities or custodians,
banks, broker-dealers or others with which HighMark Funds does business.

VALUATION OF SHARES

Each Fund's net asset value per share is determined by the Administrator as
of 1:00 p.m. Eastern Time on days on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business. Net asset value per share
for purposes of pricing sales and redemptions for each of the Funds is
calculated by adding the value of all securities and other assets belonging to a
Fund, subtracting its liabilities, and dividing the result by the total number
of the Fund's outstanding shares, irrespective of class.

The assets in each Fund are valued based upon the amortized cost method
whereby HighMark Funds seeks to maintain a Fund's net asset value per Share at
$1.00, although there can be no assurance that a stable net asset value of $1.00
per Share will be maintained. For further information concerning the use of the
amortized cost method of valuation, see the Statement of Additional Information.

HOW TO PURCHASE SHARES

Effective October 1, 1999, Sweep Shares will be sold on a continuous basis
by HighMark Funds' Distributor, SEI Investments Distribution Co. The principal
office of the Distributor is Oaks, Pennsylvania 19456. If you wish to purchase
Shares, you may contact

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your investment professional or telephone HighMark Funds at 1-800-433-6884.
Investors may be charged a fee if they effect transactions in fund shares
through a broker or agent. Accounts opened directly with HighMark Funds'
transfer agent are "Fund Direct" accounts.

Sweep Shares are designed to provide convenience through automatic
investment of uninvested cash balances of those investors in Union Bank of
California's sweep service (the Sweep Feature), although shares also may be
purchased directly. Investors may choose a Fund as their "primary fund" and
uninvested cash balances in their account will be automatically invested in
Sweep Shares of their primary fund, according to the terms and conditions of
their account agreement. Sweep Shares of a primary fund also will be sold to
cover any negative cash balance in their account, according to the terms and
conditions of their 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.

For direct purchases, the minimum initial investment is generally $1,000
for each Fund and the minimum subsequent investment is generally only $100. For
present and retired trustees of the Fund, directors, officers, and employees
(and their spouses and children under the age of 21) of Union Bank of
California, N.A., SEI Investments Distribution Co. and their affiliates, the
minimum initial investment is $250 and the minimum subsequent investment is
$100. A Fund's initial and subsequent minimum purchase amounts may be waived if
purchases are made in connection with Individual Retirement Accounts, Keoghs,
payroll deduction plans, 401(k) or similar programs or accounts. Purchases and
redemption of Shares of the Funds may be made on any Business Day.

Purchase orders will be effective on the Business Day made if the
Distributor receives an order before 8:00 a.m., Pacific time (11:00 a.m.,
Eastern time) for the California Tax-Free Money Market Fund, 9:00 a.m., Pacific
time (12:00 noon, Eastern time) for the 100% U.S. Treasury Money Market Fund and
11:00 a.m., Pacific time (2:00 p.m., Eastern time) for the Diversified Money
Market and U.S. Government Money Market Funds, on any Business Day. Otherwise,
the purchase order will be effective the next Business Day. Effectiveness of a
purchase order on any Business Day is contingent on the Custodian's receipt of
Federal funds before 11:00 a.m., Pacific time (2:00 p.m., Eastern time), on such
day. The purchase price of Class S Shares is the net asset value per Share,
which is expected to remain constant at $1.00. The net asset value per Share is
calculated as of 10:00 a.m., Pacific time (1:00 p.m., Eastern time) each
Business Day based on the amortized cost method. The net asset value per Share
of a Fund is determined by dividing the total value of its investments and other
assets, less any liabilities, by the total number of its outstanding Shares.
HighMark Funds reserves the right to reject a purchase order when the
Distributor or the Advisor determines that it is not in the best interest of
HighMark Funds and/or Shareholder(s).

Shares of the Funds are offered only to residents of states in which the
shares are eligible for purchase.

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How to Purchase By Mail

You may purchase Sweep Shares of the Diversified Money Market, U.S.
Government Money Market, 100% U.S. Treasury Money Market, and California
Tax-Free Money Market Funds by completing and signing an Account Application
form and mailing it, along with a check (or other negotiable bank instrument or
money order) payable to "HighMark Funds," to the transfer agent at P. O. Box
8416, Boston, Massachusetts 02266-8416. All purchases made by check should be in
U.S. dollars and made payable to "HighMark Funds." Third party checks, credit
card checks or cash will not be accepted. You may purchase more Sweep Shares at
any time by mailing payment also to the transfer agent at the above address.
Orders placed by mail will be executed on receipt of your payment. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred.

You may obtain Account Application Forms for the Diversified Money Market,
U.S. Government Money Market, 100% U.S. Treasury Money Market, and California
Tax-Free Money Market Funds by calling the Distributor at 1-800-433-6884.

How to Purchase By Wire

You may purchase Sweep Shares of the Diversified Money Market, U.S.
Government Money Market, 100% U.S. Treasury Money Market, and California
Tax-Free Money Market Funds by wiring Federal funds, provided that your Account
Application has been previously received. You must wire funds to the transfer
agent and the wire instructions must include your account number. You must call
the transfer agent at 1-800-433-6884 before wiring any funds. An order to
purchase Sweep Shares by Federal funds wire will be deemed to have been received
by a Fund on the Business Day of the wire; provided that the Shareholder wires
funds to the transfer agent prior to 11:00 a.m., Pacific time (2:00 p.m.,
Eastern time). If the transfer agent does not receive the wire by 11:00 a.m.,
Pacific time (2:00 p.m. Eastern time), the order will be executed on the next
Business Day.

How to Purchase Through Financial Institutions

Sweep Shares of the Funds may be purchased through financial institutions,
including the Advisor, that provide distribution assistance or Shareholder
services. Sweep 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.

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Customers who desire to transfer the registration of Sweep Shares
beneficially owned by them but held of record by a financial institution should
contact the institution to accomplish such change.

Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer account fees. Information concerning these
services and any charges will be provided to the Customer by the financial
institution.

Alternative Purchase Options

Sweep Shares represent a Fund's interest in the portfolio of investments.
The class has exclusive voting rights with respect to approvals of any Rule
12b-1 distribution plan related to that specific class. Sales personnel of
broker-dealers distributing the Funds' shares, and other persons entitled to
receive compensation for selling such shares, may receive differing compensation
for selling Sweep Shares.

Effective October 1, 1999, the Funds' Class S Shares will be offered on a
continuous basis, at their next determined offering price, which is net asset
value. There is no initial or contingent deferred sales charge on purchases of
Class S Shares.

EXCHANGE PRIVILEGES

As indicated under GENERAL INFORMATION--Description of HighMark Funds & Its
Shares, certain Funds of HighMark Funds issue four classes of Shares (Class A
and Class B Shares (collectively, "Retail Shares"), Class S Shares ("Sweep
Shares") and Fiduciary Shares); as of the date of this Prospectus, the
Distribution Plan and distribution fee payable thereunder are applicable only to
such Fund's Retail and Sweep Shares. A Shareholder's eligibility to exchange
into a particular class of Shares will be determined at the time of the
exchange. The Shareholder must supply, at the time of the exchange, the
necessary information to permit confirmation of qualification.

Each Fund's Class S Shares may be exchanged for Class S Shares of the
various other Funds of HighMark Funds which the Shareholder qualifies to
purchase directly so long as the Shareholder maintains the applicable minimum
account balance in each Fund in which he or she owns Class S Shares and
satisfies the minimum initial and subsequent purchase amounts of the Fund into
which the Shares are exchanged.

Exchanges will be made on the basis of the relative net asset values of the
Shares exchanged plus any applicable sales charge. Exchanges are subject to the
terms and conditions stated herein and the terms and conditions stated in the
respective prospectuses of the Funds.

Certain entities (including Participating Organizations and Union Bank of
California, N.A. and its affiliates), however, may charge customers a fee with
respect to exchanges made

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on the customer's behalf. Information about these charges, if any, can be
obtained by the entity effecting the exchange and this Prospectus should be read
in conjunction with that information.

A Shareholder wishing to exchange Shares in a Fund may do so by contacting
the transfer agent at 1-800-433-6884. Exchanges will be effected on any Business
Day at the net asset value of the Funds involved in the exchange next determined
after the exchange request is received by the transfer agent.

An exchange is considered to be a sale of Shares for federal income tax
purposes on which a Shareholder may realize a capital gain or loss. Exchange
privileges may be exercised only in those states where Shares of such other
Funds of HighMark Funds may legally be sold. HighMark Funds may materially amend
or terminate the exchange privileges described herein upon sixty days' notice.

REDEMPTION OF SHARES

You may redeem your Shares of the Diversified Money Market, U.S. Government
Money Market, 100% U.S. Treasury Money Market, and California Tax-Free Money
Market Funds without charge on any Business Day. There is presently a $15 charge
for wiring redemption proceeds to a Shareholder's designated account. Shares may
be redeemed by mail, by telephone or through a pre-arranged systematic
withdrawal plan. Investors who own Shares held by a financial institution should
contact that institution for information on how to redeem Shares.

By Mail

A written request for redemption of Shares of the Diversified Money Market,
U.S. Government Money Market, 100% U.S. Treasury Money Market, and California
Tax-Free Money Market Funds must be received by the transfer agent, P. O. Box
8416, Boston, Massachusetts 02266-8416 in order to constitute a valid redemption
request.

If the redemption request exceeds $5,000, or if the request directs the
proceeds to be sent or wired to an address different from that of record, the
transfer agent may require that the signature on the written redemption request
be guaranteed. You should be able to obtain a signature guarantee from a bank,
broker dealer, credit union, securities exchange or association, clearing agency
or savings association. Notaries public cannot guarantee signatures. The
signature guarantee requirement will be waived if all of the following
conditions apply: (1) the redemption is for not more than $5,000 worth of
Shares, (2) the redemption check is payable to the shareholder(s) of record, and
(3) the redemption check is mailed to the shareholder(s) at his or her address
of record.

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Telephone Transactions

You may redeem your Shares of the Diversified Money Market, U.S. Government
Money Market, 100% U.S. Treasury Money Market, and California Tax-Free Money
Market Funds by calling the transfer agent at 1-800-433-6884. Under most
circumstances, payments will be transmitted on the next Business Day following
receipt of a valid request for redemption. You may have the proceeds mailed to
your address or wired to a commercial bank account previously designated on your
Account Application. There is no charge for having redemption proceeds mailed to
you, but there is a $15 charge for wiring redemption proceeds.

You may request a wire redemption for redemptions of Shares of the
Diversified Money Market, U.S. Government Money Market, 100% U.S. Treasury Money
Market, and California Tax-Free Money Market Funds in excess of $500 by calling
the transfer agent at 1-800-433-6884 who will deduct a wire charge of $15 from
the amount of the wire redemption. Shares cannot be redeemed by Federal Reserve
wire on Federal holidays restricting wire transfers.

Neither the transfer agent nor HighMark Funds will be responsible for any
loss, liability, cost or expense for acting upon wire or telephone instructions
that it reasonably believes to be genuine. HighMark Funds and the transfer agent
will each employ reasonable procedures to confirm that instructions,
communicated by telephone are genuine. Such procedures may include taping of
telephone conversations.

If market conditions are extraordinarily active or other extraordinary
circumstances exist, and you experience difficulties placing redemption orders
by telephone, you may wish to consider placing your order by mail.

Other Information Regarding Redemptions

HighMark Funds is required to redeem for cash all full and fractional
shares of HighMark Funds. The redemption price is the net asset value per share
of a Fund (normally $1.00 per share).

Redemption orders may be made any time before 8:00 a.m., Pacific time
(11:00 a.m., Eastern time) for the California Tax-Free Money Market Fund, 9:00
a.m., Pacific time (12:00 noon, Eastern time) for the 100% U.S. Treasury Money
Market Fund and 10:00 a.m., Pacific time (1:00 p.m., Eastern time) for the
Diversified Money Market and U.S. Government Money Market Funds in order to
receive that day's redemption price (i.e., the next determined net asset value
per share). For redemption orders received before such times, payment will be
made the same day by transfer of federal funds. Otherwise, payment will be made
on the next Business Day. Redeemed Shares are not entitled to dividends declared
the day the redemption

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order is effective. The Funds reserve the right to make payment on redemptions
in securities rather than cash.

Payment to the Shareholders for Shares redeemed will be made within seven
days after the Transfer Agent receives the valid redemption request. At various
times, however, a Fund may be requested to redeem Shares for which it has not
yet received good payment; collection of payment may take ten or more days. In
such circumstances, the redemption request will be rejected by the Fund. Once a
Fund has received good payment for the Shares a Shareholder may submit another
request for redemption.

Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem your Shares at net asset value, less any applicable
contingent deferred sales charge, if your account in any Fund has a value of
less than the minimum initial purchase amount. Accordingly, if you purchase
Shares of any Fund in only the minimum investment amount, you may be subject to
involuntary redemption if you redeem any Shares. Before any Fund exercises its
right to redeem such Shares you will be given notice that the value of the
Shares in your account is less than the minimum amount and will be allowed 60
days to make an additional investment in such Fund in an amount which will
increase the value of the account to at least the minimum amount.

DIVIDENDS

The net income of each Fund is declared daily as a dividend to Shareholders
of record at the close of business on the day of declaration. The net income
attributable to a Fund's Sweep Shares and the dividends payable on Sweep Shares
will be reduced by the distribution fee assessed against such Shares under the
Distribution Plan (see SERVICE ARRANGEMENTS --The Distribution Plan below).

Dividends with respect to each Fund are paid monthly in additional full and
fractional Shares of the Fund at net asset value as of the date of payment,
unless the Shareholder elects to receive such dividends in cash as described
below. Shareholders will automatically receive all income dividends and capital
gains distributions (if any) paid in respect of a Fund's Shares in additional
full and fractional Shares of the same class. Shareholders wishing to receive
their dividends in cash (or wishing to revoke a previously made election) must
notify the transfer agent at P. O. Box 8416, Boston, MA 02266-8416, and such
election (or revocation thereof) will become effective with respect to dividends
having record dates after notice has been received. Dividends paid in additional
Shares receive the same tax treatment as dividends paid in cash. Dividends are
paid in cash not later than seven Business Days after a Shareholder's complete
redemption of his or her Shares. Net realized capital gains, if any, are
distributed at least annually to Shareholders of record.

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FEDERAL TAXATION

Each Fund intends to qualify for treatment as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"), and
to distribute substantially all of its net investment income so that it is not
required to pay federal taxes on these amounts. Because all of the net
investment income of the Diversified Money Market Fund, the U.S. Government
Money Market Fund, the 100% U.S. Treasury Money Market Fund and the California
Tax-Free Money Market Fund is expected to be derived from interest, it is
anticipated that no part of any distribution will be eligible for the federal
dividends received deduction for corporations. The Funds are not managed to
generate any long-term capital gains and, therefore, the Funds do not anticipate
paying any significant "capital gains dividends" as described in the Code.

Shareholders will be subject to federal income tax with respect to
dividends paid by the Diversified Money Market Fund, the U.S. Government Money
Market Fund and the 100% U.S. Treasury Money Market Fund (including any capital
gains dividends). Dividends that are attributable to interest on U.S. Government
obligations earned by the Funds may be exempt from state and local tax, and
Shareholders should consult their own tax advisors to determine whether these
dividends are eligible for the state and local tax exemption. Dividends (except
to the extent attributable to gains or securities lending income) paid by the
100% U.S. Treasury Money Market Fund will be exempt from California and Oregon
personal income taxes. HighMark Funds intends to advise Shareholders annually of
the proportion of a Fund's dividends that consists of interest on U.S.
Government obligations.

Although it is unlikely that a Shareholder would recognize long-term
capital gains in respect of his or her Fund Shares, such gains are, in the case
of non-corporate Shareholders, generally subject to a tax rate of 20%.

Exempt-interest dividends from the California Tax-Free Money Market Fund
are excludable from gross income for federal income tax purposes. Such dividends
may be taxable to Shareholders under state or local law as ordinary income even
though all or a portion of the amounts may be derived from interest on tax-
exempt obligations which, if realized directly, would be exempt from such taxes.
Shareholders are advised to consult a tax advisor with respect to whether
exempt-interest dividends retain the exclusion if such Shareholder would be
treated as a "substantial user" of a facility financed through certain private
activity bonds or a "related person" to such user under the Code.

Under the Code, interest on indebtedness incurred or continued by a
Shareholder to purchase or carry Shares of the California Tax-Free Money Market
Fund is not deductible for federal income tax purposes to the extent the Fund
distributes exempt-interest dividends during the Shareholder's taxable year.

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Under the Code, if a Shareholder sells a Share of the California Tax-Free
Money Market Fund after holding it for six months or less, any loss on the sale
or exchange of such Share will be disallowed to the extent of the amount of any
exempt-interest dividends that the Shareholder has received with respect to the
Share that is sold.

In addition, any loss (not already disallowed as provided in the preceding
sentence) realized upon a taxable disposition of shares held for six months or
less will be treated as long-term, rather than short-term, to the extent of any
long-term capital gain distributions received by the shareholder with respect to
the shares.

The California Tax-Free Money Market Fund may at times purchase Municipal
Securities at a discount from the price at which they were originally issued.
For federal income tax purposes, some or all of this market discount will be
included in the California Tax-Free Money Market Fund's ordinary income and will
be taxable to Shareholders as such when it is distributed to them.

To the extent dividends paid to Shareholders are derived from taxable
income (for example, from interest on certificates of deposit or repurchase
agreements), or from long-term or short-term capital gains, such dividends will
be subject to federal income tax, whether such dividends are paid in the form of
cash or additional Shares. A Shareholder should consult his or her tax advisor
for special advice.

Under the Code, dividends attributable to interest on certain private
activity bonds issued after August 7, 1986 must be included in alternative
minimum taxable income for the purpose of determining liability (if any) for the
federal alternative minimum tax. In addition, exempt-interest dividends will be
included in a corporation's "adjusted current earnings" for purposes of the
alternative minimum tax (except to the extent derived from interest on certain
private activity bonds issued after August 7, 1986, which interest would already
be included in alternative minimum taxable income as a specific item of tax
preference). Shareholders of the California Tax-Free Money Market Fund receiving
social security or railroad retirement benefits may be taxed on a portion of
those benefits as a result of receiving tax-exempt income (including
exempt-interest dividends distributed by the California Tax-Free Money Market
Fund).

If, at the close of each quarter of its taxable year, the California
Tax-Free Money Market Fund continues to qualify for the special federal income
tax treatment afforded regulated investment companies and at least 50% of the
value of the Fund's total assets consists of California Exempt-Interest
Securities, then "California-exempt interest dividends" attributable to these
securities will be exempt from California personal income tax. A
"California-exempt interest dividend" is any dividend distributed by the Fund to
the extent that it is derived from the interest received by the Fund on
California Exempt-Interest Securities (less related expenses) and designated as
such by written notice to Shareholders. For further details, see the Statement
of Additional Information. Dividends received by Shareholders

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subject to California state corporate franchise tax will be taxed as ordinary
dividends notwithstanding that all or a portion of such dividends are exempt
from California personal income tax. Distributions other than "California-exempt
interest dividends" by the Fund to California residents will be subject to
California personal income tax, whether or not such dividends are reinvested.
Interest on indebtedness incurred or continued by a Shareholder in connection
with the purchase of Shares of the California Tax-Free Money Market Fund will
not be deductible for California personal income tax purposes if the Fund
distributes California exempt-interest dividends.

Additional information regarding federal and California taxes is contained
in the Statement of Additional Information. However, the foregoing and the
material in the Statement of Additional Information are only brief summaries of
some of the important tax considerations generally affecting a money market fund
and its Shareholders. In addition, the foregoing discussion and the federal and
California tax information in the Statement of Additional Information are based
on tax laws and regulations which are in effect as of the date of this
Prospectus; these laws and regulations may subsequently change, and such changes
could be retroactive. Shareholders will be advised at least annually as to the
federal income tax status, and, in the case of Shareholders of the California
Tax-Free Money Market Fund, as to the California income tax status, of
distributions made during the year.

SERVICE ARRANGEMENTS

The Advisor

Prior to September 1, 1998, Pacific Alliance, a division of Union Bank of
California, N.A., served as the Funds' investment advisor. Effective September
1, 1998, Pacific Alliance was reorganized into a subsidiary of UnionBanCal
Corporation, the holding company of Union Bank of California, N.A.. The new
entity, which is called HighMark Capital Management, Inc. (the "Advisor"), is a
California corporation registered under the Investment Adviser's Act of 1940.

HighMark Capital Management, Inc. now serves as the Funds' investment
advisor. Subject to the general supervision of HighMark Funds' Board of
Trustees, the Advisor manages each Fund in accordance with its investment
objective and policies, makes decisions with respect to and places orders for
all purchases and sales and maintains the Funds' records relating to such
purchases and sales.

For the expenses assumed and services provided by the Advisor as each
Fund's investment advisor, the Advisor receives a fee from the Diversified Money
Market Fund, the U.S. Government Money Market Fund, the 100% U.S. Treasury Money
Market Fund and the California Tax-Free Money Market Fund, computed daily and
paid monthly, at the annual rate of thirty one-hundredths of one percent (0.30%)
of each Fund's average daily net assets. The Advisor may from time to time agree
to voluntarily reduce its advisory fee. While there can

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be no assurance that the Advisor will choose to make such an agreement, any
voluntary reductions in the Advisor's advisory fee will lower the Fund's
expenses, and thus increase the Fund's yield and total return, during the period
such voluntary reductions are in effect.

During HighMark Funds' fiscal year ended July 31, 1998, Union Bank of
California, N.A. received investment advisory fees from the Diversified Money
Market Fund aggregating 0.30% of the Fund's average daily net assets, from the
U.S. Government Money Market Fund aggregating 0.30% of the Fund's average daily
net assets, from the 100% U.S. Treasury Money Market Fund aggregating 0.25% of
the Fund's average daily net assets, and from the California Tax-Free Money
Market Fund aggregating 0.10% of the Fund's average daily net assets.

UnionBanCal Corporation, the parent of Union Bank of California, N.A., is a
publicly held corporation, but is principally held by The Bank of
Tokyo-Mitsubishi, Ltd. As of September 30, 1998, UnionBanCal Corporation and its
subsidiaries had approximately $31.4 billion in consolidated assets. HighMark
Capital Management, Inc., as of September 30, 1998, had approximately $16
billion of assets under management. The Advisor (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.

Administrator

SEI Investments Mutual Funds Services (the "Administrator") and HighMark
Funds are parties to an administration agreement (the "Administration
Agreement"). Under the terms of the Administration Agreement, the Administrator
provides HighMark Funds with certain management services, including all
necessary office space, equipment, personnel, and facilities.

The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of 0.20% of the average daily net assets of the
Funds. The Administrator may waive its fee or reimburse various expenses to the
extent necessary to limit the total operating expenses of a Fund's Class S
Shares. Any such waiver is voluntary and may be terminated at any time in the
Administrator's sole discretion. Currently, the Administrator has agreed to
waive its fee to the rate of 0.18% of the average daily net assets of the Funds.

Pursuant to a separate agreement with the Administrator, Union Bank of
California, N.A. performs sub-administration services on behalf of each Fund,
for which it receives a fee paid by the Administrator at the annual rate of up
to 0.05% of the average daily net assets of the Funds. A description of the
services performed by Union Bank of California, N.A. pursuant to this Agreement
is contained in the Statement of Additional Information.

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The Transfer Agent

State Street Bank and Trust Company serves as the transfer agent, dividend
disbursing agent, and as a shareholder servicing agent for the Sweep Shares of
HighMark Funds, for which services it receives a fee.

Distributor

SEI Investments Distribution Co. ("the Distributor") and HighMark Funds are
parties to a distribution agreement for the Sweep Shares. The Distribution
Agreement is renewable annually and may be terminated by the Distributor, by a
majority vote of the Disinterested Trustees or by a majority vote of the
outstanding securities of HighMark Funds upon not more than 60 days written
notice by either party, or upon assignment by the Distributor.

The Distribution Plan

Pursuant to HighMark Funds' Distribution Plan, each Fund pays the
Distributor as compensation for its services in connection with the Distribution
Plan a distribution fee, computed daily and paid monthly, equal to fifty-five
one-hundredths of one percent (0.55%) of the average daily net assets
attributable to that Fund's Sweep Shares.

The Distributor may use the distribution fee applicable to a Fund's Sweep
Shares to provide distribution assistance with respect to the sale of the Fund's
Sweep Shares or to provide Shareholder services to the holders of the Fund's
Sweep 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 Sweep 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 Sweep Shares. All payments by the Distributor for distribution
assistance or Shareholder services under the Distribution Plan will be made
pursuant to an agreement between the Distributor and such bank, savings and loan
association, other financial institution or intermediary, broker-dealer, or
affiliate or subsidiary of the Distributor (a "Servicing Agreement"; banks,
savings and loan associations, other financial institutions and intermediaries,
broker-dealers, and the Distributor's affiliates and subsidiaries that may enter
into a Servicing Agreement are hereinafter referred to individually as a
"Participating Organization"). A Participating Organization may include Union
Bank of California, N.A., its subsidiaries and its affiliates.

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<PAGE> 31
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 fee under the Distribution Plan 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 Plan. The Distributor may from time to time voluntarily
reduce its distribution fees with respect to a Fund in significant amounts for
substantial periods of time pursuant to an agreement with HighMark Funds. While
there can be no assurance that the Distributor will choose to make such an
agreement, any voluntary reduction in the Distributor's distribution fees will
lower such Fund's expenses, and thus increase such Fund's yield and total
returns, during the period such voluntary reductions are in effect.

Banking Laws

HighMark Capital Management, Inc. believes that it may perform the services
for the Funds contemplated by its investment advisory agreement with HighMark
Funds without a violation of applicable banking laws and regulations. Union Bank
of California, N.A. also believes that it may perform sub-administration
services on behalf of each Fund, for which it receives compensation from the
Administrator, without a violation of applicable banking laws and regulations.
Future changes in federal or state statutes and regulations relating to
permissible activities of banks or bank holding companies and their subsidiaries
and affiliates, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could change the
manner in which Union Bank of California, N.A. or the Advisor could continue to
perform services for the Funds. For a further discussion of applicable banking
laws and regulations, see the Statement of Additional Information.

Custodian

Union Bank of California, N.A. serves as the custodian and as a shareholder
servicing agent for the Funds. The Custodian holds cash, securities and other
assets of HighMark Funds as required by the 1940 Act.

Services performed by Union Bank of California, N.A., as the Funds'
shareholder servicing agent and custodian, as well as the basis of remuneration
for such services, are described in the Statement of Additional Information.

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GENERAL INFORMATION

Description of HighMark Funds & Its Shares

HighMark Funds was organized as a Massachusetts business trust on March 10,
1987, and consists of fourteen series of Shares open for investment representing
units of beneficial interest in HighMark Funds' Growth Fund, Income Equity Fund,
Balanced Fund, Value Momentum Fund, Emerging Growth Fund, International Equity
Fund, Small Cap Value Fund, Bond Fund, Intermediate-Term Bond Fund, California
Intermediate Tax-Free Bond Fund, Diversified Money Market Fund, U.S. Government
Money Market Fund, 100% U.S. Treasury Money Market Fund and California Tax-Free
Money Market Fund. Shares of each Fund are freely transferable, are entitled to
distributions from the assets of the Fund as declared by the Board of Trustees,
and, if HighMark Funds were liquidated, would receive the a pro rata share of
net assets attributable to that Fund. Shares are without par value.

As noted above, pursuant to a Multiple Class Plan on file with the
Securities and Exchange Commission permitting the issuance and sale of four
classes of Shares in selected Funds, Shares of such Funds have been divided into
four classes, designated Class A and Class B Shares (collectively "Retail
Shares"), Class S Shares ("Sweep Shares") and Fiduciary Shares. For information
regarding the Retail and Fiduciary Shares of the Funds, interested persons may
contact the Distributor for a prospectus at 1-800-433-6884.

Sweep Shares will be offered effective October 1, 1999, therefore, as of
August 2, 1999, there was no person who beneficially owned more than 25% of the
Class S Shares of the Diversified Money Market Fund, the U.S. Government Money
Market Fund, the 100% U.S. Treasury Money Market Fund, or the California
Tax-Free Money Market Fund.

Performance Information

From time to time, HighMark Funds may advertise the "yield" and "effective
yield" with respect to the Sweep Shares of each Fund and a "tax-equivalent
yield" and "tax-equivalent effective yield" for federal, California and Oregon
income tax purposes with regard to the Sweep Shares of each of the 100% U.S.
Treasury Money Market Fund and the California Tax-Free Money Market Fund.
Performance information is computed separately for a Fund's Sweep and Fiduciary
Shares in accordance with the formulas described below. Each yield figure is
based on historical earnings and is not intended to indicate future performance.

The "yield" of a Fund's Sweep Shares refers to the income generated by an
investment in the class over a seven-day period (which period will be stated in
the advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a

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percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in the class is assumed to
be reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.

The 100% U.S. Treasury Money Market Fund's tax-equivalent yield and
tax-equivalent effective yield will reflect the amount of income subject to
California or Oregon personal income taxation at the rate specified in the
advertisement that a taxpayer would have to earn in order to obtain the same
after tax income as that derived from the yield and effective yield of the Sweep
class. The California Tax-Free Money Market Fund's tax-equivalent yield and
tax-equivalent effective yield reflect the amount of income subject to federal
income taxation and California personal income taxation at the rate specified in
the advertisement that a taxpayer would have to earn in order to obtain the same
after tax income as that derived from the yield and effective yield of the Sweep
class.

Tax-equivalent yields and tax-equivalent effective yields of the California
Tax-Free Fund will be significantly higher than the yield and effective yield of
that Fund.

From time to time, HighMark Funds may advertise the aggregate total return
and average annual total return of the Funds. The aggregate total return and
average annual total return of each Fund may be quoted for the life of each Fund
and for five-year and one-year periods, in each case, through the most recent
calendar quarter. Aggregate total return is determined by calculating the change
in the value of a hypothetical $1,000 investment in a Fund over the applicable
period that would equate the initial amount invested to the ending redeemable
value of the investment. The ending redeemable value includes dividends and
capital gain distributions reinvested at net asset value. Average annual total
return is calculated by annualizing a Fund's aggregate total return over the
relevant number of years. The resulting percentage indicates the positive or
negative investment results that an investor in a Fund would have experienced
from changes in Share price and reinvestment of dividends and capital gain
distributions. Average annual total return will reflect deduction of all charges
and expenses.

Each Fund may periodically compare its performance to the performance of:
other mutual funds tracked by mutual-fund rating services (such as Lipper
Analytical), financial and business publications and periodicals; broad groups
of comparable mutual funds; unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs; or other investment alternatives. Certain Funds may advertise
performance that includes results from periods in which the Fund's assets were
managed in a non-registered predecessor vehicle.

Miscellaneous

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Shareholders will be sent unaudited semi-annual reports and annual reports
audited by independent public accountants.

Shareholders are entitled to one vote for each Share held in 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 Sweep Shares will be entitled to vote on matters
submitted to a Shareholder vote relating to the Distribution Plan. HighMark
Funds is not required to hold regular annual meetings of Shareholders, but may
hold special meetings from time to time.

HighMark Funds' Trustees are elected by Shareholders, except that vacancies
may be filled by vote of the Board of Trustees. Trustees may be removed by the
Board of Trustees, or by Shareholders at a meeting called for such purpose. For
information about how Shareholders may call such a meeting and communicate with
other Shareholders for that purpose, see ADDITIONAL INFORMATION--Miscellaneous
in the Statement of Additional Information.

Inquiries may be directed in writing to SEI Investments Distribution Co.,
Oaks, Pennsylvania 19456, or by calling toll free 1-800-433-6884.

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of permitted investments for the HighMark
Money Market Funds.

ASSET-BACKED SECURITIES (NON-MORTGAGE)--Debt Instruments secured by company
receivables, truck and auto loans, leases, and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning such assets and
issuing such debt. The purchase of non-mortgage asset-backed securities raises
risk considerations peculiar to the financing of the instruments underlying such
securities. Asset-backed securities entail prepayment risk, which may vary
depending on the type of asset, but is generally less than the prepayment risk
associated with mortgage-backed securities.

Like mortgages underlying mortgage-backed securities, underlying
automobile sales contracts or credit card receivables are subject to substantial
prepayment risk, which may reduce the overall return to certificate holders.
Nevertheless, principal prepayment rates tend not to vary as much in response to
changes in interest rates and the short-term nature of the

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underlying car loans or other receivables tend to dampen the impact of any
change in the prepayment level. Certificate holders may also experience delays
in payment on the certificates if the full amounts due on underlying sales
contracts or receivables are not realized by the trust because of unanticipated
legal or administrative costs of enforcing the contracts or because of
depreciation or damage to the collateral (usually automobiles) securing certain
contracts, or other factors. The credit quality of most asset-backed commercial
paper depends primarily on the credit quality of the assets underlying such
securities, no matter how well the entity issuing the security is insulated from
the credit risk of the originator (or any other affiliated entities), and the
amount and quality of any credit support provided to the securities pool.
Asset-backed commercial paper is often backed by a pool of assets representing
the obligations of a number of different parties. To lessen the effect of
failures by obligors on these underlying assets to make payments, such
securities may contain elements of credit support. If consistent with their
investment objectives and policies, the Money Market Funds may invest in other
asset-backed securities that may be developed in the future.

BANKERS' ACCEPTANCES--Bills of exchange or time drafts drawn on and
accepted by commercial banks. They are used by corporations to finance the
shipment and storage of goods and to furnish dollar exchange. Maturities are
generally six months or less.

CERTIFICATES OF DEPOSIT--Negotiable interest-bearing instruments with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity.

COMMERCIAL PAPER--Unsecured short-term promissory notes issued by
corporations and other entities. Maturities on these issues vary from a few days
to nine months. Purchase of such instruments involves a risk of default by the
issuer.

DERIVATIVES--Instruments whose value is derived from an underlying
contract, index or security, or any combination thereof, including futures,
options (e.g., puts and calls), options on futures, swap agreements, and some
mortgage-backed securities (CMOs, REMICs, IOs and POs). See elsewhere in this
"DESCRIPTION OF PERMITTED INVESTMENTS" for discussions of these various
instruments, and see "INVESTMENT OBJECTIVES" and "INVESTMENT POLICIES" for more
information about any policies and limitations applicable to their use.

INVESTMENT GRADE BONDS--Interest-bearing or discounted government or
corporate securities that obligate the issuer to pay the bondholder a specified
sum of money, usually at specific intervals, and to repay the principal amount
of the loan at maturity. Investment grade bonds are those rated BBB or better by
S&P or Baa or better by Moody's or similarly rated by other NRSROs, or, if not
rated, determined to be of comparable quality by the Advisor.

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LOAN PARTICIPATIONS--Loan participations are interests in loans to U.S.
corporations (i.e., borrowers) which are administered by the lending bank or
agent for a syndicate of lending banks, and sold by the lending bank or
syndicate member ("intermediary bank"). In a loan participation, the borrower of
the underlying loan will be deemed to be the issuer of the participation
interest (except to the extent a purchasing Fund derives its rights from the
intermediary bank). Because the intermediary bank does not guarantee a loan
participation in any way, a loan participation is subject to the credit risks
associated with the underlying corporate borrower. In addition, in the event the
underlying corporate borrower fails to pay principal and interest when due, a
Fund may encounter delays, expenses and risks that are greater than those that
would have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of such borrower because it may be necessary under the terms
of the loan participation, for the Fund to assert its rights against the
borrower through the intermediary bank. Moreover, under the terms of a loan
participation, the purchasing Fund may be regarded as a creditor of the
intermediary bank (rather than of the underlying corporate borrower), so that a
Fund may also be subject to the risk that the issuing bank may become insolvent.
Further, in the event of the bankruptcy or insolvency of the corporate borrower,
a loan participation may be subject to certain defenses that can be asserted by
such borrower as a result of improper conduct by the issuing bank. The secondary
market, if any, for these loan participations is limited, and any such
participation purchased by a Fund may be regarded as illiquid.

MUNICIPAL FORWARDS--Municipal Forwards are forward commitments for the
purchase of tax-exempt bonds with a specified coupon to be delivered by an
issuer at a future date, typically exceeding 45 days but normally less than one
year after the commitment date. Municipal forwards are normally used as a
refunding mechanism for bonds that may only be redeemed on a designated future
date. As with forward commitments and when-issued securities, municipal forwards
are subject to market fluctuations due to changes, real or anticipated, in
market interest rates between the commitment date and the settlement date and
will have the effect of leveraging the Fund's assets. Municipal forwards may be
considered to be illiquid investments. The Fund will maintain liquid, high-grade
securities in a segregated account in an amount at least equal to the purchase
price of the municipal forward.

MUNICIPAL SECURITIES--Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
Municipal notes include general obligation notes, tax anticipation notes,
revenue anticipation notes, bond anticipation notes, certificates of
indebtedness, demand notes and construction loan notes. Municipal bonds include
general obligation bonds, revenue or special obligation bonds, private activity
and industrial development bonds. General obligation bonds are backed by the
taxing power of the issuing municipality. Revenue bonds are backed by the
revenues of a project or

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facility, tolls from a toll bridge, for example. The payment of principal and
interest on private activity and industrial development bonds generally is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment.

PARTICIPATION INTERESTS--Participation interests are interests in municipal
securities from financial institutions such as commercial and investment banks,
savings and loan associations and insurance companies. These interests may take
the form of participations, beneficial interests in a trust, partnership
interests or any other form of indirect ownership that allows the Fund to treat
the income from the investment as exempt from federal income tax. The Fund
invests in these participation interests in order to obtain credit enhancement
or demand features that would not be available through direct ownership of the
underlying municipal securities.

RECEIPTS--Interests in separately traded interest and principal component
parts of U.S. Treasury obligations that are issued by banks and brokerage firms
and are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's"), "Treasury Investment Growth Receipts" ("TIGR's"),
and "Certificates of Accrual on Treasury Securities" ("CATS"). TR's, TIGR's and
CATS are sold as zero coupon securities, which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is accreted over
the life of the security, and such accretion will constitute the income earned
on the security for both accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate volatility than
interest-paying securities. See also "FEDERAL TAXATION."

REPURCHASE AGREEMENTS--Agreements whereby a Fund will acquire securities
from approved financial institutions or registered broker-dealers that agree to
repurchase the securities at a mutually agreed-upon date and price. The
repurchase agreements entered into by the Funds will provide that the underlying
security at all times shall have a value equal to 102% of the resale price
stated in the agreement. Repurchase agreements involving government securities
are not subject to a Fund's fundamental investment limitation on purchasing
securities of any one issuer. If the seller defaults on its repurchase
obligation or becomes insolvent, the Fund holding such obligations would suffer
a loss to the extent that either the proceeds from a sale of the underlying
portfolio securities were less than the repurchase price or the Fund's
disposition of the securities was delayed pending court action. Securities
subject to repurchase agreements will be held by a qualified custodian or in the
Federal Reserve/Treasury book-entry system. Repurchase agreements are considered
to be loans by a Fund under the Investment Company Act of 1940 (the "1940 Act").

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REVERSE REPURCHASE AGREEMENTS--A Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements, provided such action is
consistent with the Fund's investment objective and fundamental investment
restrictions; as a matter of non-fundamental policy, each Fund intends to limit
such investments to no more than 10% of the value of its total assets. Pursuant
to a reverse repurchase agreement, a Fund will sell portfolio securities to
financial institutions such as banks or to broker-dealers, and agree to
repurchase the securities at a mutually agreed-upon date and price. A Fund
intends to enter into reverse repurchase agreements only to avoid otherwise
selling securities during unfavorable market conditions to meet redemptions. At
the time a Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account assets such as U.S. Government securities or other
liquid, high-quality debt securities consistent with the Fund's investment
objective having a value equal to 102% of the repurchase price (including
accrued interest), and will subsequently monitor the account to ensure that an
equivalent value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by a Fund may decline below the
price at which a Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by a Fund under the 1940
Act.

RULE 144A SECURITIES--Rule 144A Securities are securities that have not
been registered under the Securities Act of 1933, but which may be traded
between certain qualified institutional investors, including investment
companies. The absence of a secondary market may affect the value of the Rule
144A Securities. The Board of Trustees of the Group has established guidelines
and procedures to be utilized to determine the liquidity of such securities.

SECURITIES ISSUED ON A FORWARD COMMITMENT BASIS OR WHEN-ISSUED
SECURITIES--Securities purchased for delivery beyond the normal settlement date
at a stated price and yield and which thereby involve a risk that the yield
obtained in the transaction will be less than that available in the market when
delivery takes place. When a Fund agrees to purchase when-issued securities or
enter into forward commitments, the Group's custodian will be instructed to set
aside cash or liquid portfolio securities equal to the amount of the commitment
in a segregated account. A Fund will generally not pay for such securities and
no income will accrue on the securities until they are received. These
securities are recorded as an asset and are subject to changes in value based
upon changes in the general level of interest rates. Therefore, the purchase of
securities on a "when-issued" basis or forward commitments may increase the risk
of fluctuations in a Fund's net asset value.

SECURITIES LENDING--During the time portfolio securities are on loan from a
Fund, the borrower will pay the Fund any dividends or interest paid on the
securities. In addition, loans will be subject to termination by the Fund or the
borrower at any time and, while a Fund will generally not have the right to vote
securities on loan, it will terminate the loan and regain the right to vote if
that is considered important with respect to the investment. While the lending
of securities may subject a Fund to certain risks, such as delays or an
inability to

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regain the securities in the event the borrower were to default on its lending
agreement or enter into bankruptcy, a Fund will receive 100% collateral in the
form of cash or U.S. Government securities. This collateral will be valued daily
by the lending agent, with oversight by the Advisor, and, should the market
value of the loaned securities increase, the borrower will be required to
furnish additional collateral to the Fund.

SECURITIES SUBJECT TO A PUT FEATURE--A "put" feature permits a Fund to sell
a fixed income security at a fixed price prior to maturity. The underlying fixed
income securities subject to a put may be sold at any time at the market rates.
However, unless the put was an integral part of the fixed income security as
originally issued, it may not be marketable or assignable. Generally, a premium
is paid for a put feature or a put feature is purchased separately which results
in a lower yield than would otherwise be available for the same fixed income
securities.

TAX-EXEMPT COMMERCIAL PAPER--Commercial paper, which is commercial paper
issued by governments and political sub-divisions.

TIME DEPOSITS--Non-negotiable receipts issued by U.S. or foreign banks in
exchange for the deposit of funds. Like certificates of deposit, they earn a
specified rate of interest over a definite period of time; however, they cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.

U.S. GOVERNMENT AGENCY SECURITIES--Certain Federal agencies have been
established as instrumentalities of the U.S. Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the U.S. Government, are either backed by the full faith and
credit of the United States (e.g., GNMA securities) or supported by the issuing
agencies' right to borrow from the U.S. Treasury. The issues of other agencies
are supported only by the credit of the instrumentality (e.g., FNMA securities).

U.S. TREASURY OBLIGATIONS--Bills, notes, and bonds issued by the U.S.
Treasury, as well as separately traded interest and principal component parts of
such obligations known as Separately Traded Registered Interest and Principal
Securities ("STRIPS") that are transferable through the Federal book-entry
system.

U.S. Government Securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities, although,
as a result, the yields available from U.S. Government Securities are generally
lower than the yields available from otherwise comparable corporate fixed-income
securities. Like other fixed-income securities, however, the values of U.S.
Government Securities change as interest rates fluctuate. Fluctuations in the
value of portfolio securities will in many cases not affect interest income on
existing portfolio securities, but will be reflected in the Fund's net asset
value. Because the magnitude of these fluctuations will generally be greater at
times when a Fund's average maturity is longer, under

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<PAGE> 40
certain market conditions the Fund may invest in short-term investments yielding
lower current income rather than investing in higher yielding longer-term
securities.

VARIABLE AMOUNT MASTER DEMAND NOTES--Unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between HighMark Funds and the issuer,
they are not normally traded. Although there is no secondary market in these
notes, the Fund may demand payment of principal and accrued interest at
specified intervals. For purposes of the Fund's investment policies, a variable
amount master demand note will be deemed to have a maturity equal to the longer
of the period of time remaining until the next readjustment of its interest rate
or the period of time remaining until the principal amount can be recovered from
the issuer through demand.

VARIABLE AND FLOATING RATE INSTRUMENTS--Obligations that may carry variable
or floating rates of interest, may involve conditional or unconditional demand
features and may include variable amount master demand notes. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
period exceeding seven days may be considered illiquid if there is no secondary
market for such security.

YANKEE BONDS--Dollar-denominated securities issued by foreign-domiciled
issuers that obligate the issuer to pay the bondholder a specified sum of money,
usually semiannually, and to repay the principal amount of the loan at maturity.
Sovereign bonds are bonds issued by the governments of foreign countries.
Supranational bonds are those issued by supranational entities, such as the
World Bank and European Investment Bank. Canadian bonds are bonds issued by
Canadian provinces.

ZERO-COUPON OBLIGATIONS--Non-income producing securities evidencing
ownership of future interest and principal payments on bonds. These obligations
pay no current interest and are typically sold at prices greatly discounted from
par value. The return on a zero-coupon obligation, when held to maturity, equals
the difference between the par value and the original purchase price.

For federal income tax purposes, the difference between the par value and
the original issue price (original issue discount) is included in the income of
a holder of a zero-coupon obligation over the term of the obligation even though
the interest is not paid until maturity. The amount included in income is
determined under a constant interest rate method. In addition, if an obligation
is purchased subsequent to its original issue, a holder such as the Income Funds
may elect to include market discount in income currently on a ratable accrual
method or a constant interest rate method. Market discount is the difference
between the

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<PAGE> 41
obligation's "adjusted issue price" (the original issue price plus original
issue discount accrued to date) and the holder's purchase price. If no such
election is made, gain on the disposition of a market discount obligation is
treated as ordinary income (rather than capital gain) to the extent it does not
exceed the accrued market discount.

Zero-coupon obligations have greater price volatility than other
fixed-income obligations of similar maturity and such obligations will be
purchased when the yield spread, in light of the obligation's duration, is
considered advantageous.

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<PAGE> 42
HIGHMARK MONEY MARKET FUNDS

INVESTMENT PORTFOLIOS OF
HIGHMARK FUNDS
For further information (including current
yield, purchase and redemption information),
call 1-800-433-6884

INVESTMENT ADVISOR

HighMark Capital Management, Inc.
475 Sansome Street
San Francisco, CA 94104

CUSTODIAN

Union Bank of California, N.A.
475 Sansome Street
San Francisco, CA 94104

ADMINISTRATOR & DISTRIBUTOR

SEI Investments Mutual Funds Services
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456

LEGAL COUNSEL

Ropes & Gray
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005

AUDITORS

Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105-2230

For further information call 1-800-433-6884
or visit our web site at www.highmark-funds.com

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<PAGE> 43
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HIGHMARK
FUNDS OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
HIGHMARK FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.

NOT FDIC INSURED

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<PAGE> 44

HIGHMARK FUNDS

STATEMENT OF ADDITIONAL INFORMATION

NOVEMBER 30, 1998,

AS AMENDED AUGUST 2, 1999

This Statement of Additional Information is not a Prospectus, but should
be read in conjunction with the Prospectuses of the HighMark Funds and the
HighMark Money Market Funds, each of which is dated November 30, 1998, and the
Prospectus of the HighMark Money Market Funds-Class S Shares, dated November 30,
1998, as amended August 2, 1999 (collectively, the "Prospectuses") and any
supplements thereto. This Statement of Additional Information is incorporated in
its entirety into the Prospectuses. Copies of the Prospectuses may be obtained
by writing the Distributor, SEI Investments Distribution Co., at 1 Freedom
Valley Drive, Oaks, Pennsylvania, 19456, or by telephoning toll free
1-800-433-6884. Capitalized terms used but not defined herein have the same
meanings as set forth in the Prospectuses.

<PAGE> 45

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
HIGHMARK FUNDS.....................................................................................3
INVESTMENT OBJECTIVES AND POLICIES.................................................................4
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS....................................................4
Bank Instruments..............................................................................4
Commercial Paper and Variable Amount Master Demand Notes......................................5
Lending of Portfolio Securities...............................................................5
Repurchase Agreements.........................................................................6
Reverse Repurchase Agreements.................................................................6
U.S. Government Obligations...................................................................7
Mortgage-Related Securities...................................................................7
Adjustable Rate Notes.........................................................................9
Municipal Securities.........................................................................10
Investments in California Municipal Securities by the California Tax-Free Money
Market Fund and the California Intermediate Tax-Free Bond Fund.........................13
Puts.........................................................................................15
Shares of Mutual Funds.......................................................................16
When-Issued Securities and Forward Commitments...............................................16
Zero-Coupon Securities.......................................................................17
Options (Puts and Calls) on Securities.......................................................17
Covered Call Writing.........................................................................17
Purchasing Call Options......................................................................19
Purchasing Put Options.......................................................................19
Options in Stock Indices.....................................................................19
Risk Factors in Options Transactions.........................................................20
Futures Contracts on Securities and Related Options..........................................21
Futures Contracts on Securities..............................................................21
Options on Securities' Futures Contracts.....................................................23
Risk of Transactions in Securities' Futures Contracts and Related Options....................23
Index Futures Contracts......................................................................24
Options on Index Futures Contracts...........................................................25
U.S. Dollar Denominated Obligations of Securities of Foreign Issuers.........................25
Foreign Currency Transactions................................................................26
Transaction Hedging..........................................................................26
Position Hedging.............................................................................26
Currency Forward and Futures Contracts.......................................................27
General Characteristics of Currency Futures Contracts........................................28
Foreign Currency Options.....................................................................29
Foreign Currency Conversion..................................................................29
Standard & Poor's Depository Receipts ("SPDRs")..............................................29
</TABLE>

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<PAGE> 46

<TABLE>
<S> <C>
High Yield Securities........................................................................30
High Quality Investments with Regard to the Money Market Funds...............................31
Illiquid Securities..........................................................................33
INVESTMENT RESTRICTIONS...........................................................................33
Voting Information...........................................................................42
PORTFOLIO TURNOVER................................................................................43
VALUATION.........................................................................................43
VALUATION OF THE MONEY MARKET FUNDS...............................................................43
VALUATION OF THE EQUITY FUNDS AND THE FIXED INCOME FUNDS..........................................44
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION....................................................44
ADDITIONAL FEDERAL TAX INFORMATION...........................................................45
ADDITIONAL TAX INFORMATION CONCERNING THE CALIFORNIA
TAX-FREE MONEY MARKET FUND AND THE CALIFORNIA
INTERMEDIATE TAX-FREE BOND FUND........................................................47
FOREIGN TAXES................................................................................51
MANAGEMENT OF HIGHMARK FUNDS......................................................................51
TRUSTEES AND OFFICERS........................................................................51
INVESTMENT ADVISOR...........................................................................56
THE SUB-ADVISORS.............................................................................58
PORTFOLIO TRANSACTIONS.......................................................................59
GLASS-STEAGALL ACT...........................................................................61
ADMINISTRATOR AND SUB-ADMINISTRATOR..........................................................62
SHAREHOLDER SERVICES PLANS...................................................................65
EXPENSES.....................................................................................66
DISTRIBUTOR..................................................................................66
The Distribution Plans.................................................................66
TRANSFER AGENT AND CUSTODIAN SERVICES........................................................67
AUDITORS.....................................................................................68
LEGAL COUNSEL................................................................................68
ADDITIONAL INFORMATION............................................................................69
DESCRIPTION OF SHARES........................................................................69
SHAREHOLDER AND TRUSTEE LIABILITY............................................................70
THE REORGANIZATION OF THE IRA FUND AND HIGHMARK FUNDS........................................71
CALCULATION OF PERFORMANCE DATA..............................................................71
MISCELLANEOUS................................................................................78
APPENDIX..........................................................................................95
FINANCIAL STATEMENTS.............................................................................101
</TABLE>

<PAGE> 47

STATEMENT OF ADDITIONAL INFORMATION

HIGHMARK FUNDS

HighMark Funds is a diversified, open-end management investment company.
HighMark Funds presently consists of fourteen series of Shares, representing
units of beneficial interest in the HighMark Growth Fund, the HighMark Income
Equity Fund, the HighMark Balanced Fund, the HighMark Value Momentum Fund, the
HighMark Emerging Growth Fund, the HighMark International Equity Fund, the
HighMark Small Cap Value Fund, the HighMark Bond Fund, the HighMark
Intermediate-Term Bond Fund, the HighMark California Intermediate Tax-Free Bond
Fund, the HighMark Diversified Money Market Fund, the HighMark U.S. Government
Money Market Fund, the HighMark 100% U.S. Treasury Money Market Fund, and the
HighMark California Tax-Free Money Market Fund. The HighMark Small Cap Value
Fund commenced operations on September 14, 1998. The HighMark Value Momentum
Fund, the HighMark Emerging Growth Fund, the HighMark International Equity Fund,
the HighMark Intermediate-Term Bond Fund, and the HighMark California
Intermediate Tax-Free Bond Fund commenced operations in HighMark Funds on April
28, 1997. The HighMark Balanced Fund commenced operations on November 14, 1993
and the HighMark Growth Fund commenced operations on November 18, 1993. The
HighMark Income Equity Fund and the HighMark Bond Fund commenced operations on
June 23, 1988 as a result of the reorganization of the Income Equity Portfolio
and the Bond Portfolio, respectively, of the IRA Collective Investment Fund (the
"IRA Fund") described under "ADDITIONAL INFORMATION - The Reorganization of the
IRA Fund and HighMark Funds" below. The HighMark Diversified Money Market Fund,
the HighMark U.S. Government Money Market Fund and the HighMark 100% U.S.
Treasury Money Market Fund commenced operations on August 10, 1987. The HighMark
California Tax-Free Money Market Fund commenced operations on August 11, 1987.

As described in the Prospectuses, selected Funds of HighMark Funds have
been divided into four classes of Shares (designated Class A and Class B Shares
(collectively "Retail Shares") Class S Shares ("Sweep 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, Sweep Shares and Fiduciary Shares are
sometimes herein referred to collectively as "Shares".

The Diversified Money Market Fund, the U.S. Government Money Market Fund,
the 100% U.S. Treasury Money Market Fund, and the California Tax-Free Money
Market Fund are sometimes herein referred to as the "Money Market Funds." The
Growth, Income Equity, Balanced, Value Momentum, Blue Chip Growth, Emerging
Growth, International Equity and Small Cap Value Funds are sometimes referred to
herein as the "Equity Funds." The Bond, Intermediate-Term Bond, Government
Securities, Convertible Securities, and California Intermediate Tax-Free Bond
Funds are sometimes referred to herein as the "Fixed Income Funds." The Income
Equity Portfolio and the Bond Portfolio of the IRA Fund (which were

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<PAGE> 48

reorganized into certain Funds of HighMark Funds as described above) are
sometimes referred to herein as the "IRA Fund Portfolios."

Much of the information contained herein expands upon subjects discussed
in the Prospectuses for the respective Funds. No investment in Shares of a Fund
should be made without first reading that Fund's Prospectus.

INVESTMENT OBJECTIVES AND POLICIES

The following policies supplement the investment objectives and policies
of each Fund of HighMark Funds as set forth in the respective Prospectus for
that Fund.

ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS

1. Bank Instruments. Consistent with its investment objective, policies,
and restrictions, each Fund (other than the U.S. Government Money Market Fund,
the 100% U.S. Treasury Money Market Fund, and the California Tax-Free Money
Market Fund) may invest in bankers' acceptances, certificates of deposit, and
time deposits.

Bankers' acceptances are negotiable drafts or bills of exchange typically
drawn by an importer or exporter to pay for specific merchandise that are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. Investments in bankers'
acceptances will be limited to those guaranteed by domestic and foreign banks
having, at the time of investment, total assets of $1 billion or more (as of the
date of the institution's most recently published financial statements).

Certificates of deposit and time deposits represent funds deposited in a
commercial bank or a savings and loan association for a definite period of time
and earning a specified return.

Investments in certificates of deposit and time deposits may include
Eurodollar Certificates of Deposit, which are U.S. dollar denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States, Yankee Certificates of Deposit, which are
certificates of deposit issued by a U.S. branch of a foreign bank denominated in
U.S. dollars and held in the United States, Eurodollar Time Deposits ("ETDs"),
which are U.S. dollar denominated deposits in a foreign branch of a U.S. bank or
a foreign bank, and Canadian Time Deposits ("CTDs"), which are U.S. dollar
denominated 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.

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<PAGE> 49

There is no limitation on the Diversified Money Market Fund's ability to
invest in domestic certificates of deposit, bankers' acceptances or other bank
instruments in connection with the Fund's fundamental investment restriction
governing concentration in the securities of one or more issuers conducting
their principal business activities in the same industry. For purposes of this
exception to the Fund's fundamental investment restriction, domestic
certificates of deposit and bankers' acceptances include those issued by
domestic branches of foreign banks to the extent permitted by the rules and
regulations of the Securities and Exchange Commission staff. These rules and
regulations currently permit U.S. branches of foreign banks to be considered
domestic banks if it can be demonstrated that they are subject to the same
regulation as U.S. banks.

2. Commercial Paper and Variable Amount Master Demand Notes. Consistent
with its investment objective, policies, and restrictions, each Fund (other than
the U.S. Government Money Market Fund and the 100% U.S. Treasury Money Market
Fund) may invest in commercial paper (including Section 4(2) commercial paper)
and variable amount master demand notes. Commercial paper consists of unsecured
promissory notes issued by corporations normally having maturities of 270 days
or less. These investments may include Canadian Commercial Paper, which is U.S.
dollar denominated commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and Europaper, which is U.S. dollar
denominated commercial paper of a foreign issuer.

Variable amount master demand notes are unsecured demand notes that
permit the indebtedness thereunder to vary and provide for periodic adjustments
in the interest rate according to the terms of the instrument. Because master
demand notes are direct lending arrangements between a Fund and the issuer, they
are not normally traded. Although there is no secondary market in the notes, a
Fund may demand payment of principal and accrued interest at any time. A
variable amount master demand note will be deemed to have a maturity equal to
the longer of the period of time remaining until the next readjustment of its
interest rate or the period of time remaining until the principal amount can be
recovered from the issuer through demand.

3. Lending of Portfolio Securities. In order to generate additional
income, each Fund (other than the California Tax-Free Money Market Fund and the
100% U.S. Treasury Money Market Fund) may lend its portfolio securities to
broker-dealers, banks or other institutions. During the time portfolio
securities are on loan from a Fund, the borrower will pay the Fund any dividends
or interest paid on the securities. In addition, loans will be subject to
termination by the Fund or the borrower at any time. While the lending of
securities may subject a Fund to certain risks, such as delays or an inability
to regain the securities in the event the borrower were to default on its
lending agreement or enter into bankruptcy, a Fund will receive at least 100%
collateral in the form of cash or U.S. Government securities. This collateral
will be valued daily by the lending agent, with oversight by HighMark Capital
Management, Inc. (the "Advisor"), and, should the market value of the loaned
securities increase, the borrower will be required to furnish additional
collateral to the Fund. A Fund

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<PAGE> 50

(other than the California Tax-Free Money Market Fund and the 100% U.S. Treasury
Money Market Fund) may lend portfolio securities in an amount representing up to
33 1/3% of the value of the Fund's total assets.

4. Repurchase Agreements. Securities held by each Fund (other than the
100% U.S. Treasury Money Market Fund) may be subject to repurchase agreements.
As a matter of non-fundamental policy, the California Tax-Free Money Market Fund
intends to limit investments in repurchase agreements to no more than 5% of the
value of its total assets.

Under the terms of a repurchase agreement, a Fund will deal with
financial institutions such as member banks of the Federal Deposit Insurance
Corporation having, at the time of investment, total assets of $100 million or
more and from registered broker-dealers that the Advisor deems creditworthy
under guidelines approved by HighMark Funds' Board of Trustees. Under a
repurchase agreement, the seller agrees to repurchase the securities at a
mutually agreed-upon date and price, and the repurchase price will generally
equal the price paid by the Fund plus interest negotiated on the basis of
current short-term rates, which may be more or less than the rate on the
underlying portfolio securities. The seller under a repurchase agreement will be
required to maintain the value of collateral held pursuant to the agreement at
not less than 102% of the repurchase price (including accrued interest) and the
Custodian, with oversight by the Advisor, will monitor the collateral's value
daily and initiate calls to request that collateral be restored to appropriate
levels. In addition, securities subject to repurchase agreements will be held in
a segregated custodial account.

If the seller were to default on its repurchase obligation or become
insolvent, the Fund holding such obligation would suffer a loss to the extent
that either the proceeds from a sale of the underlying portfolio securities were
less than the repurchase price under the agreement or the Fund's disposition of
the underlying securities was delayed pending court action. Additionally,
although there is no controlling legal precedent confirming that a Fund would be
entitled, as against a claim by the seller or its receiver or trustee in
bankruptcy, to retain the underlying securities, HighMark Funds' Board of
Trustees believes that, under the regular procedures normally in effect for
custody of a Fund's securities subject to repurchase agreements and under
federal laws, a court of competent jurisdiction would rule in favor of the Fund
if presented with the question. Securities subject to repurchase agreements will
be held by HighMark Funds' custodian or another qualified custodian or in the
Federal Reserve/Treasury book-entry system. Repurchase agreements are considered
to be loans by a Fund under the 1940 Act.

5. Reverse Repurchase Agreements. Each Fund (other than the 100% U.S.
Treasury Money Market Fund) may borrow funds for temporary purposes by entering
into reverse repurchase agreements, provided such action is consistent with the
Fund's investment objective and fundamental investment restrictions; as a matter
of non fundamental policy, each Fund intends to limit total borrowings under
reverse repurchase agreements to no more than 10% of the value of its total
assets. Pursuant to a reverse repurchase agreement, a Fund will sell

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<PAGE> 51

portfolio securities to financial institutions such as banks or to
broker-dealers, and agree to repurchase the securities at a mutually agreed-upon
date and price. A Fund intends to enter into reverse repurchase agreements only
to avoid otherwise selling securities during unfavorable market conditions to
meet redemptions. At the time a Fund enters into a reverse repurchase agreement,
it will place in a segregated custodial account assets such as U.S. Government
securities or other liquid, high-quality debt securities consistent with the
Fund's investment objective having a value equal to 102% of the repurchase price
(including accrued interest), and will subsequently monitor the account to
ensure that an equivalent value is maintained. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the price at which a Fund is obligated to repurchase the
securities. Reverse repurchase agreements are considered to be borrowings by a
Fund under the 1940 Act.

6. U.S. Government Obligations. With the exception of the 100% U.S.
Treasury Money Market Fund, which may invest only in direct U.S. Treasury
obligations, each Fund may, consistent with its investment objective, policies,
and restrictions, invest in obligations issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities. Obligations of certain agencies
and instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association and the Export-Import Bank of the United States,
are supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; and still others, such as
those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law.

For information concerning mortgage-related securities issued by certain
agencies or instrumentalities of the U.S. Government, see "Mortgage-Related
Securities" below.

7. Mortgage-Related Securities. As indicated in the Money Market Funds'
Prospectus, the Diversified Money Market Fund and the U.S. Government Money
Market Fund may each invest in mortgage-related securities issued by the
Government National Mortgage Association ("GNMA") representing GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes"). The Fixed Income Funds
and the Balanced Fund may also, consistent with each such Fund's investment
objective and policies, invest in Ginnie Maes and 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").

-7-
<PAGE> 52

Mortgage-related securities represent interests in pools of mortgage
loans assembled for sale to investors. Mortgage-related securities may be
assembled and sold by certain governmental agencies and may also be assembled
and sold by nongovernmental entities such as commercial banks, savings and loan
institutions, mortgage bankers, and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third party or
otherwise similarly secured, the market value of the security, which may
fluctuate, is not so secured. If a Fund purchases a mortgage-related security at
a premium, that portion may be lost if there is a decline in the market value of
the security, whether resulting from changes in interest rates or prepayments in
the underlying mortgage collateral. As with other interest-bearing securities,
the prices of mortgage-related securities are inversely affected by changes in
interest rates. However, although the value of a mortgage-related security may
decline when interest rates rise, the converse is not necessarily true because
in periods of declining interest rates the mortgages underlying the security are
prone to prepayment. For this and other reasons, a mortgage-related security's
stated maturity may be shortened by unscheduled prepayments on the underlying
mortgages and, therefore, it is not possible to predict accurately the
security's return to the Fund. In addition, regular payments received in respect
of mortgage-related securities include both interest and principal. No assurance
can be given as to the return a Fund will receive when these amounts are
reinvested.

There are a number of important differences both among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities themselves. As noted above, Ginnie Maes are issued by
GNMA, which is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. Ginnie Maes are guaranteed as to the timely
payment of principal and interest by GNMA and GNMA's guarantee is backed by the
full faith and credit of the U.S. Treasury. In addition, Ginnie Maes are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under GNMA's guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes"), which are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the U.S. Treasury. The FNMA is a government-sponsored organization
owned entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). The FHLMC is
a corporate instrumentality of the U.S. Government, created pursuant to an Act
of Congress, which is owned entirely by the Federal Home Loan Banks. Freddie
Macs are not guaranteed by the U.S. Treasury or by any Federal Home Loan Banks
and do not constitute a debt or obligation of the U.S. Government or of any
Federal Home 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

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<PAGE> 53

its guarantee of ultimate payment of principal at any time after default on an
underlying mortgage, but in no event later than one year after it becomes
payable.

CMOs in which the Fixed Income Funds and the Balanced Fund may invest
represent securities issued by a private corporation or a U.S. Government
instrumentality that are backed by a portfolio of mortgages or mortgage-backed
securities held under an indenture. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued with a number of classes or series
that have different maturities and that may represent interests in some or all
of the interest or principal on the underlying collateral or a combination
thereof. CMOs of different classes are generally retired in sequence as the
underlying mortgage loans in the mortgage pool are repaid. In the event of
sufficient early prepayments on such mortgages, the class or series of a CMO
first to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of a CMO held by a Fund would have
the same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security.

REMICs in which the Fixed Income Funds and the Balanced Fund may invest
are private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.

8. Adjustable Rate Notes. Consistent with its investment objective,
policies, and restrictions, each Fund (other than the 100% U.S. Treasury Money
Market Fund) may invest in "adjustable rate notes," which include variable rate
notes and floating rate notes. For Money Market Fund purposes, a variable rate
note is one whose terms provide for the readjustment of its interest rate on set
dates and that, upon such readjustment, can reasonably be expected to have a
market value that approximates its amortized cost; the degree to which a
variable rate note's market value approximates its amortized cost subsequent to
readjustment will depend on the frequency of the readjustment of the note's
interest rate and the length of time that must elapse before the next
readjustment. A floating rate note is one whose terms provide for the
readjustment of its interest rate whenever a specified interest rate changes and
that, at any time, can reasonably be expected to have a market value that
approximates its amortized cost. Although there may be no active secondary
market with respect to a particular variable or floating rate note purchased by
a Fund, the Fund may seek to resell the note at any time to a third party. The
absence of an active secondary market, however, could make it difficult for the
Fund to dispose of a variable or floating rate note in the event the issuer of
the note defaulted on its payment obligations and the Fund could, as a result or
for other reasons, suffer a loss to the extent of the default. Variable or
floating rate notes may be secured by bank 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

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to a demand feature that will permit the Fund to receive payment of the
principal within seven days of the Fund's demand. See "INVESTMENT RESTRICTIONS"
below.

Maturities for variable and adjustable rate notes held in the Money
Market Funds will be calculated in compliance with the provisions of Rule 2a-7,
as it may be amended from time to time.

As used above, a note is "subject to a demand feature" where the Fund is
entitled to receive the principal amount of the note either at any time on not
more than thirty days' notice or at specified intervals, not exceeding 397 days
and upon not more than thirty days' notice.

9. Municipal Securities. As defined in the Prospectuses, under normal
market conditions, at least 80% of the total assets of the California Tax-Free
Money Market Fund and 80% of the total assets of the California Intermediate
Tax-Free Bond Fund will be invested in Municipal Securities, the interest on
which is both excluded from gross income for federal income tax and California
personal income tax purposes and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax. The California
Intermediate Tax-Free Bond Fund invests in Municipal Securities of varying
maturities, which are rated in one of the four highest rating categories by at
least one nationally recognized statistical rating organization ("NRSRO") or are
determined by the Advisor to be of comparable quality. The California Tax-Free
Money Market Fund invests only in Municipal Securities with remaining maturities
of 397 days or less, and which, at the time of purchase, possess the highest
short-term rating from at least one NRSRO or are determined by the Advisor to be
of comparable quality.

Municipal Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and public entities. Private activity bonds that are issued
by or on behalf of public authorities to finance various privately operated
facilities are included within the term Municipal Securities if the interest
paid thereon is (i) excluded from gross income for federal income tax purposes
and (ii) not treated as a preference item for individuals for purposes of the
federal alternative minimum tax.

As described in the Prospectuses, the two principal classifications of
Municipal Securities consist of "general obligation" and "revenue" issues. In
general, only general obligation bonds are backed by the full faith and credit
and general taxing power of the issuer. There are, of course, variations in the
quality of Municipal Securities, both within a particular classification and
between classifications, and the yields on Municipal Securities depend upon a
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

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<PAGE> 55

ratings of any NRSRO are general and are not absolute standards of quality;
Municipal Securities with the same maturity, interest rate and rating(s) may
have different yields while Municipal Securities of the same maturity and
interest rate with a different rating(s) may have the same yield.

An issuer's obligations with respect to its Municipal Securities are
subject to the provisions of bankruptcy, insolvency, and other laws affecting
the rights and remedies of creditors, such as the Federal Bankruptcy Code, and
laws, if any, that may be enacted by Congress or state legislatures extending
the time for payment of principal or interest, or both, or imposing other
constraints upon the enforcement of such obligations or upon the ability of
municipalities to levy taxes or otherwise raise revenues. Certain of the
Municipal Securities may be revenue securities and dependent on the flow of
revenue, generally in the form of fees and charges. The power or ability of an
issuer to meet its obligations for the payment of interest on and principal of
its Municipal Securities may be materially adversely affected by litigation or
other conditions, including a decline in property value or a destruction of
uninsured property due to natural disasters.

In addition, in accordance with its investment objective, each Fund may
invest in private activity bonds, which may constitute Municipal Securities
depending upon the federal income tax treatment of such bonds. Such bonds are
usually revenue bonds because the source of payment and security for such bonds
is the financial resources of the private entity involved; the full faith and
credit and the taxing power of the issuer in normal circumstances will not be
pledged. The payment obligations of the private entity also will be subject to
bankruptcy and similar debtor's rights, as well as other exceptions similar to
those described above. Moreover, the Funds may invest in obligations secured in
whole or in part by a mortgage or deed of trust on real property located in
California that are subject to the "anti-deficiency" legislation discussed
below.

The Funds may also invest indirectly in Municipal Securities by
purchasing the shares of tax-exempt money market mutual funds. Such investments
will be made solely for the purpose of investing short-term cash on a temporary
tax-exempt basis and only in those funds with respect to which the Advisor
believes with a high degree of certainty that redemption can be effected within
seven days of demand. Additional limitations on investments by the Funds in the
shares of other tax-exempt money market mutual funds are set forth under
"Investment Restrictions" below.

Certain Municipal Securities in the Funds may be obligations that are
payable solely from the revenues of health care institutions, although the
obligations may be secured by real 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

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<PAGE> 56

certain statutory provisions that limit the remedies of a creditor secured by a
mortgage or deed of trust. Two of the provisions limit a creditor's right to
obtain a deficiency judgment, one limitation being based on the method of
foreclosure and the other on the type of debt secured. A third statutory
provision, commonly known as the "single action" rule, has two aspects, an
"affirmative defense aspect" and a "sanction aspect." The "affirmative defense"
aspect limits creditors secured by real property to a single legal action for
recovery of their debt, and that single action must be a judicial foreclosure
action against their real property security. Under the "sanction" aspect, if the
real estate-secured creditor proceeds by legal action other than judicial
foreclosure, the creditor loses its lien on the real property security and, in
some instances, the right to recover its debt. Another statutory provision gives
the debtor the right to redeem the real property from any judicial foreclosure
sale.

Upon the default under a mortgage or deed of trust with respect to
California real property, a creditor's nonjudicial foreclosure rights under the
power of sale contained in the mortgage or deed of trust are subject to certain
procedural requirements whereby the effective minimum period for foreclosing on
a mortgage or deed of trust is generally four to five months after the initial
default and such foreclosure could be further delayed by bankruptcy proceedings
initiated by the debtor. Such time delays in collections could disrupt the flow
of revenues available to an issuer for the payment of debt service on the
outstanding obligations if such defaults occur with respect to a substantial
number of mortgages or deeds of trust securing an issuer's obligations.
Following a creditor's non-judicial foreclosure under a power of sale, no
deficiency judgment is available. This limitation, however, does not apply to
bonds authorized or permitted to be issued by the Commissioner of Corporations,
or which are made by a public utility subject to the Public Utilities Act.

Certain Municipal Securities in the Funds may be obligations that finance
the acquisition of mortgages for low and moderate income mortgagors. These
obligations may be payable solely from revenues derived from home mortgages and
are subject to California's statutory limitations applicable to obligations
secured by real property, as described above. Under California anti-deficiency
legislation, there is no personal recourse against a mortgagor of a dwelling of
no more than four units, at least one of which is occupied by such a mortgagor,
where the dwelling has been purchased with the loan that is secured by the
mortgage, regardless of whether the creditor chooses judicial or nonjudicial
foreclosure. In the event that this purchase money anti-deficiency rule applies
to a loan secured by a mortgage or deed of trust, and the value of the property
subject to that mortgage or deed of trust has been substantially reduced because
of market forces or by an earthquake or other event for which the mortgagor or
trustor carried no insurance, upon default, the issuer holding that loan
nevertheless would be entitled to collect no more on its loan than it could
obtain from the foreclosure sale of the property.

Legislation has been introduced from time to time regarding the
California state personal income tax status of interest paid on Municipal
Securities issued by the State of California and its local governments and held
by investment companies such as the California Tax-Free

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<PAGE> 57

Money Market Fund and the California Intermediate Tax-Free Bond Fund. The Funds
can not predict what legislation relating to Municipal Securities, if any, may
be proposed in the future or which proposals, if any, might be enacted. Such
proposals, while pending or if enacted, might materially adversely affect the
availability of Municipal Securities generally, as well as the availability of
Municipal Securities issued by the State of California and its local governments
specifically, for investment by the Funds and the liquidity and value of their
portfolios. In such an event, each Fund would re-evaluate its investment
objective and policies and consider changes in its structure or possible
dissolution. See "Investments in California Municipal Securities by the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund" below.

10. Investments in California Municipal Securities by the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund.
The following information is a general summary intended to give a recent
historical description, and is not a discussion of any specific factors that may
affect any particular issuer of California Municipal Securities. The information
is not intended to indicate continuing or future trends in the condition,
financial or otherwise, of California.

Because each Fund expects to invest substantially all of its assets in
California Municipal Securities, it will be susceptible to a number of complex
factors affecting the issuers of California Municipal Securities, including
national and local political, economic, social, environmental, and regulatory
policies and conditions. The Funds cannot predict whether or to what extent such
factors or other factors may affect the issuers of California Municipal
Securities, the market value or marketability of such securities or the ability
of the respective issuers of such securities to pay interest on, or principal
of, such securities. The creditworthiness of obligations issued by a local
California issuer may be unrelated to the creditworthiness of obligations issued
by the State of California, and there is no responsibility on the part of the
State of California to make payments on such local obligations.

During the first half of the 1990's California suffered the most severe
recession in the State since the 1930's, with significant job losses
(particularly in the aerospace, other manufacturing, services and construction
sectors). The greatest effects of the recession were felt in Southern
California. While California's economy has made a strong steady recovery since
1994 and California's credit rating has climbed from the lows experienced during
the recession, as of the date of this Statement of Additional Information,
rating agencies, underwriters and investors appear to have some lingering
concerns about California's creditworthiness. Major credit rating agencies
continue to cite, among other things, 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

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<PAGE> 58

years, California appears to have ended its fiscal years with a surplus in the
general fund. The State's ability to raise revenues and reduce expenditures to
the extent necessary to balance the budget for any year depends upon numerous
factors, including economic conditions in the State and the nation, the accuracy
of the State's revenue predictions, as well as the impact of budgetary
restrictions imposed by voter-passed initiatives.

During the recession that began in 1990, the State depleted its available
cash resources and became increasingly dependent on external borrowings to meet
its cash needs. For nearly a decade and a half, California has issued revenue
anticipation notes (which must be issued and repaid during the same fiscal year)
to fund its operating budget during the fiscal year. Beginning in 1992, the
State expanded its external borrowing to include revenue anticipation warrants
(which can be issued and redeemed in different fiscal years). The State was
severely criticized by the major credit rating agencies for the State's reliance
upon such external borrowings during the recession. In 1996, the State fully
repaid $4 billion of revenue anticipation warrants issued in 1994. The State did
not need to use such "cross-year" borrowing during the 1996-1997 fiscal year or
the 1997-1998 fiscal year. It is not presently possible, however, to determine
the extent to which California will issue additional revenue anticipation
warrants, short-term interest-bearing notes or other instruments in future
fiscal years.

Certain of the securities in the California Tax-Free Money Market Fund
and the California Intermediate Tax-Free Bond Fund may be obligations of issuers
that rely in whole or in part, directly or indirectly, on ad valorem real
property taxes as a source of revenue. Article XIII A of the California
Constitution, adopted by the voters in 1978, limits ad valorem taxes on real
property, and restricts the ability of taxing entities to increase real property
and other taxes. Constitutional challenges to Article XIII A to date have been
unsuccessful.

Article XIII B of the California Constitution, originally adopted in
1979, limits significantly spending by state government and by "local
governments". Article XIII B generally limits the amount of the appropriations
of the State and of local governments to the amount of appropriations of the
entity for the prior year, adjusted for changes in the cost of living,
population, and the services that the government entity is financially
responsible for providing. To the extent that the "proceeds of taxes" of the
State or a local government exceed its "appropriations limit," the excess
revenues must be rebated. One of the exclusions from these limitations for any
entity of government is the debt service costs of bonds existing or legally
authorized as of January 1, 1979 or on bonded indebtedness thereafter approved
by the voters. Although Article XIII B states that it shall not "be construed to
impair the ability of the 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.

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<PAGE> 59

Article XIII B was modified substantially by Propositions 98 and 111 of
1988 and 1990, respectively. These initiatives changed the State's Article XIII
B appropriations limit to require that the State set aside a prudent reserve
fund for public education, and guarantee a minimum level of State funding for
public elementary and secondary schools as well as community colleges. Such
guaranteed spending was often cited as one of the causes of the State's earlier
budget problems.

The effect of Article XIII A, Article XIII B and other constitutional and
statutory changes and of budget developments on the ability of California
issuers to pay interest and principal on their obligations remains unclear, and
may depend on whether a particular bond is a general obligation or limited
obligation bond (limited obligation bonds being generally less affected).

There is no assurance that any California issuer will make full or timely
payments of principal or interest or remain solvent. For example, in December
1994, Orange County filed for bankruptcy. In June 1995, Orange County negotiated
a rollover of its short-term debt originally due at that time; the major rating
agencies considered the rollover a default. In June 1996, the investors in such
overdue notes were paid and the Orange County bankruptcy ended. However, the
Orange County bankruptcy and such default had a serious effect upon the market
for California municipal obligations.

Numerous factors may adversely affect the State and municipal economies.
For example, limits on federal funding could result in the loss of federal
assistance otherwise available to the State.

In addition, it is impossible to predict the time, magnitude, or location
of a natural catastrophe, such as a major earthquake, or its effect on the
California economy. In January 1994, a major earthquake struck the Los Angeles
area, causing significant damage in a four-county area. The possibility exists
that another natural disaster such as an earthquake could create a major
dislocation of the California economy.

The Funds' concentration in California Municipal Securities provides a
greater level of risk than funds that are diversified across numerous states and
municipal entities.

11. Puts. The California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund may acquire "puts" with respect to the Municipal
Securities held in their respective portfolios. A put is a right to sell a
specified security (or securities) within a specified period of time at a
specified exercise price. These Funds may sell, transfer, 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

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<PAGE> 60

acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Fund owned the securities, plus
(ii) all interest accrued on the securities since the last interest payment date
during that period.

Puts may be acquired by a Fund to facilitate the liquidity of the Fund's
portfolio assets. Puts may also be used to facilitate the reinvestment of a
Fund's assets at a rate of return more favorable than that of the underlying
security. Under certain circumstances, puts may be used to shorten the maturity
of underlying adjustable rate notes for purposes of calculating the remaining
maturity of those securities and the dollar-weighted average portfolio maturity
of the California Tax-Free Money Market Fund's assets pursuant to Rule 2a-7
under the 1940 Act.

The California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund will generally acquire puts only where the puts are available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for puts either separately in cash or by
paying a higher price for portfolio securities that are acquired subject to the
puts (thus reducing the yield to maturity otherwise available for the same
securities).

12. Shares of Mutual Funds. Each of the California Tax-Free Money Market
Fund, the Fixed Income Funds and the Equity Funds may invest up to 5% of its
total assets in the shares of any one investment company, but may not own more
than 3% of the securities of any one registered investment company or invest
more than 10% of its assets in the securities of other investment companies. In
accordance with an exemptive order issued to HighMark Funds by the Securities
and Exchange Commission, such other registered investment companies securities
may include shares of a money market fund of HighMark Funds, and may include
registered investment companies for which the Advisor or Sub-Advisor to a Fund
of HighMark Funds, or an affiliate of such Advisor or Sub-Advisor, serves as
investment advisor, administrator or distributor or provides other services.
Because other investment companies employ an investment advisor, such investment
by a Fund may cause Shareholders to bear duplicative fees. The Advisor will
waive its advisory fees attributable to the assets of the investing Fund
invested in a money market fund of HighMark Funds, and, to the extent required
by applicable law, the Advisor will waive its fees attributable to the assets of
the Fund invested in any investment company. Additional restrictions on the
Fund's investments in the securities of a money market mutual fund are set forth
under "Investment Restrictions" below.

Investments by the California Tax-Free Money Market Fund in the shares of
other tax-exempt money market mutual funds are described under "Municipal
Securities" above.

13. When-Issued Securities and Forward Commitments. Each Fund may enter
into forward commitments or purchase securities on a "when-issued" basis, which
means that the securities will be purchased for delivery beyond the normal
settlement date at a stated price and yield and thereby involve the risk that
the yield obtained in the transaction will be less than that available in the
market when delivery takes place. A Fund will generally not pay for such

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<PAGE> 61

securities and no interest accrues on the securities until they are received by
the Fund. These securities are recorded as an asset and are subject to changes
in value based upon changes in the general level of interest rates. Therefore,
the purchase of securities on a "when-issued" basis may increase the risk of
fluctuations in a Fund's net asset value.

When a Fund agrees to purchase securities on a "when-issued" basis or
enter into forward commitments, HighMark Funds' custodian will be instructed to
set aside cash or liquid portfolio securities equal to the amount of the
commitment in a separate account. The Fund may be required subsequently to place
additional assets in the separate account in order to assure that the value of
the account remains equal to the amount of the Fund's commitment.

The Funds expect that commitments to enter into forward commitments or
purchase "when-issued" securities will not exceed 25% of the value of their
respective total assets under normal market conditions; in the event any Fund
exceeded this 25% threshold, the Fund's liquidity and the Advisor's ability to
manage it might be adversely affected. In addition, the Funds do not intend to
purchase "when-issued" securities or enter into forward commitments for
speculative or leveraging purposes but only in furtherance of such Fund's
investment objective.

14. Zero-Coupon Securities. Consistent with its objectives, a Fund may
invest in zero-coupon securities, which are debt securities that do not pay
interest, but instead are issued at a deep discount from par. The value of the
security increases over time to reflect the interest accreted. The value of
these securities may fluctuate more than similar securities that are issued at
par and pay interest periodically. Although these securities pay no interest to
holders prior to maturity, interest on these securities is reported as income to
the Fund and distributed to its shareholders. These distributions must be made
from the Fund's cash assets or, if necessary, from the proceeds of sales of
portfolio securities. The Fund will not be able to purchase additional income
producing securities with cash used to make such distributions and its current
income ultimately may be reduced as a result.

15. Options (Puts and Calls) on Securities. Each Equity Fund may buy and
sell options (puts and calls), and write call options on a covered basis.

16. Covered Call Writing. Each Equity Fund may write covered call options
from time to time on such portion of its assets, without limit, as the Advisor
determines is appropriate in seeking to obtain its investment objective. A Fund
will not engage in option writing strategies for speculative purposes. A call
option gives the purchaser of such option the right to buy, and the writer, in
this case the Fund, has the obligation to sell the underlying 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.

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<PAGE> 62

During the option period, a covered call option writer may be assigned an
exercise notice by the broker/dealer through whom such call option was sold,
which requires the writer to deliver the underlying security against payment of
the exercise price. This obligation is terminated upon the expiration of the
option period or at such earlier time in which the writer effects a closing
purchase transaction. A closing purchase transaction is one in which a Fund,
when obligated as a writer of an option, terminates its obligation by purchasing
an option of the same series as the option previously written. A closing
purchase transaction cannot be effected with respect to an option once the
option writer has received an exercise notice for such option.

Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security, or to enable the
Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Fund may realize a net
gain or loss from a closing purchase transaction, depending upon whether the net
amount of the original premium received on the call option is more or less than
the cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be partially or entirely offset by the premium
received from a sale of a different call option on the same underlying security.
Such a loss may also be wholly or partially offset by unrealized appreciation in
the market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.

If a call option expires unexercised, the Fund will realize a short term
capital gain in the amount of the premium on the option, less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
the Fund will realize a gain or loss from the sale of the underlying security
equal to the difference between the cost of the underlying security, and the
proceeds of the sale of the security plus the amount of the premium on the
option, less the commission paid.

The market value of a call option generally reflects the market price of
an underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security and the time remaining until the expiration date.

The Fund will write call options only on a covered basis, which means
that the Fund will own the underlying security subject to a call option at all
times during the option period or will own the right to acquire the underlying
security at a price equal to or below the option's 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,

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<PAGE> 63

equal to or above the current market value of the underlying security at the
time the option is written.

17. Purchasing Call Options. The Equity Funds may purchase call options
to hedge against an increase in the price of securities that the Fund wants
ultimately to buy. Such hedge protection is provided during the life of the call
option since the Fund, as holder of the call option, is able to buy the
underlying security at the exercise price regardless of any increase in the
underlying security's market price. In order for a call option to be profitable,
the market price of the underlying security must rise sufficiently above the
exercise price to cover the premium and transaction costs. These costs will
reduce any profit the Fund might have realized had it bought the underlying
security at the time it purchased the call option. The Funds may sell, exercise
or close out positions as the Advisor deems appropriate.

18. Purchasing Put Options. Each Equity Fund may purchase put options to
protect its portfolio holdings in an underlying security against a decline in
market value. Such hedge protection is provided during the life of the put
option since the Fund, as holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. For a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, a Fund will reduce any profit it might otherwise have realized
from appreciation of the underlying security by the premium paid for the put
option and by transaction costs.

19. Options in Stock Indices. The Equity Funds may engage in options on
stock indices. A stock index assigns relative values to the common stock
included in the index with the index fluctuating with changes in the market
values of the underlying common stock.

Options on stock indices are similar to options on stocks but have
different delivery requirements. Stock options provide the right to take or make
delivery of the underlying stock at a specified price. A stock index option
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the amount by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (ii) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return of the
premium received, to make delivery of this amount. Gain or loss to a Fund on
transactions in stock 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.

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<PAGE> 64

As with stock options, a Fund may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.

A stock index fluctuates with changes in the market values of the stock
so included. Some stock index options are based on a broad market index, such as
the Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower market index such as the Standard & Poor's 100. Indices are also based
on an industry or market segment such as the AMEX Oil and Gas Index or the
Computer and Business Equipment Index. Options on stock indices are currently
traded on the following exchanges among others: The Chicago Board Options
Exchange, New York Stock Exchange, American Stock Exchange and London Stock
Exchange.

A Fund's ability to hedge effectively all or a portion of its securities
through transactions in options on stock indices depends on the degree to which
price movements in the underlying index correlate with price movements in the
Fund's portfolio securities. Since a Fund's portfolio will not duplicate the
components of an index, the correlation will not be exact. Consequently, a Fund
bears the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. It is also possible that there may be
a negative correlation between the index or other securities underlying the
hedging instrument and the hedged securities which would result in a loss on
both such securities and the hedging instrument.

A Fund will enter into an option position only if there appears to be a
liquid secondary market for such options.

A Fund will not engage in transactions in options on stock indices for
speculative purposes but only to protect appreciation attained, to offset
capital losses and to take advantage of the liquidity available in the option
markets. The aggregate premium paid on all options on stock indices will not
exceed 20% of a Fund's total assets.

20. Risk Factors in Options Transactions. The successful use of options
strategies depends on the ability of the Advisor or, where applicable, the
Sub-Advisor to forecast interest rate and market movements correctly.

When it purchases an option, a Fund runs the risk that it will lose its
entire investment in the option in a relatively short period of time, unless the
Fund exercises the option or enters into a closing sale transaction with respect
to the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, a Fund
will lose part 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.

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<PAGE> 65

The effective use of options also depends on a Fund's ability to
terminate option positions at times when the Advisor or, where applicable, the
Sub-Advisor deems it desirable to do so. Although a Fund will take an option
position only if its Advisor or, where applicable, the Sub-Advisor believes
there is liquid secondary market for the option, there is no assurance that a
Fund will be able to effect closing transactions at any particular time or at an
acceptable price.

If a secondary trading market in options were to become unavailable, a
Fund could no longer engage in closing transactions. Lack of investor interest
might adversely affect the liquidity of the market for particular options or
series of options. A marketplace may discontinue trading of a particular option
or options generally. In addition, a market could become temporarily unavailable
if unusual events such as volume in excess of trading or clearing capability,
were to interrupt normal market operations. A marketplace may at times find it
necessary to impose restrictions on particular types of options transactions,
which may limit a Fund's ability to realize its profits or limit its losses.

Disruptions in the markets for securities underlying options purchased or
sold by a Fund could result in losses on the options. If trading is interrupted
in an underlying security, the trading of options on that security is normally
halted as well. As a result, a Fund as purchaser or writer of an option will be
unable to close out its positions until options trading resumes, and it may be
faced with losses if trading in the security reopens at a substantially
different price. In addition, the Options Clearing Corporation (OCC) or other
options markets, such as the London Options Clearing House, may impose exercise
restrictions. If a prohibition on exercise is imposed at the time when trading
in the option has also been halted, a Fund as purchaser or writer of an option
will be locked into its position until one of the two restrictions has been
lifted. If a prohibition on exercise remains in effect until an option owned by
a Fund has expired, the Fund could lose the entire value of its option.

21. Futures Contracts on Securities and Related Options. A Fund may
invest in futures and related options based on any type of security or index
traded on U.S. or foreign exchanges, or over the counter as long as the
underlying security or the securities represented by the future or index are
permitted investments of the Fund. Futures and options can be combined with each
other in order to adjust the risk and return parameters of a Fund.

22. Futures Contracts on Securities. A Fund will enter into futures
contracts on securities only when, in compliance with the SEC's requirements,
cash or equivalents equal in value to the securities' value (less any applicable
margin deposits) have been deposited in a segregated account of the Fund's
custodian.

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

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<PAGE> 66

specific instruments delivered or taken at settlement date are not determined
until on or near that date. The determination is made in accordance with the
rules of the exchanges on which the futures contract was made. Futures contracts
are traded in the United States only on the commodity exchange or boards of
trade, known as "contract markets," approved for such trading by the Commodity
Futures Trading Commission (CFTC), and must be executed through a futures
commission merchant or brokerage firm which is a member of the relevant contract
market.

Although futures contracts by their terms call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument with the same
delivery date. If the price of the initial sale of the futures contract exceeds
the price of the offsetting purchase, the seller is paid the difference and
realizes a gain. Similarly, the closing out of a futures contract purchase is
effected by the purchaser's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes a gain,
and if the purchase price exceeds the offsetting sale price, the purchaser
realizes a loss.

Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract, although
the Fund is required to deposit with its custodian in a segregated account in
the name of the futures broker an amount of cash and/or U.S. Government
securities. This amount is known as "initial margin." The nature of initial
margin in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the Fund to finance the transactions. Rather, initial margin is in the
nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts also involve
brokerage costs.

Subsequent payments, called "variation margin," to and from the broker
(or the custodian) are made on a daily basis as the price of the underlying
security fluctuates, making the long and short positions in the futures contract
more or less valuable, a process known as "marking to market."

A Fund may elect to close some or all of its futures positions at any
time prior to their expiration. The purpose of making such a move would be to
reduce or eliminate the hedge position then currently held by the Fund. A Fund
may close its positions by taking opposite positions which will operate to
terminate the Fund's position in the futures contracts. Final determinations of
variation margin are then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain. Such closing
transactions involve additional commission costs.

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<PAGE> 67

23. Options on Securities' Futures Contracts. A Fund will enter into
written options on securities' futures contracts only when in compliance with
the SEC's requirements, cash or equivalents equal in value to the securities'
value (less any applicable margin deposits) have been deposited in a segregated
account of the Fund's custodian. A Fund may purchase and write call and put
options on the futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions. A
Fund may use such options on futures contracts in lieu of writing options
directly on the underlying securities or purchasing and selling the underlying
futures contracts. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.

As with options on securities, the holder or writer of an option may
terminate his or her position by selling or purchasing an offsetting option.
There is no guarantee that such closing transactions can be effected.

A Fund will be required to deposit initial margin and maintenance margin
with respect to put and call options on futures contracts written by it pursuant
to brokers' requirements similar to those described above.

Aggregate initial margin deposits for futures contracts (including
futures contracts on securities, indices and currency) and premiums paid for
related options may not exceed 5% of a Fund's total assets.

24. Risk of Transactions in Securities' Futures Contracts and Related
Options. Successful use of securities' futures contracts by a Fund is subject to
the ability of the Advisor or, where applicable, the Sub-Advisor to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.

Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less risk to a Fund because
the maximum amount at risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of a call or put
option on a futures contract would result in a loss to a Fund when the purchase
or sale of a futures contract would not, such as when there is no movement in
the price of the hedged investments. The writing of an option on a futures
contract involves risks similar to those risks relating to the sale of futures
contracts.

There is no assurance that higher than anticipated trading activity or
other unforeseen events will not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.

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

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<PAGE> 68

continue to exist for a particular futures contract. Reasons for the absence of
a liquid secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain contracts or options; (ii) restrictions
may be imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of contracts or options
(or a particular class or series of contracts or options), in which event the
secondary market on that exchange (or in the class or series of contracts or
options) would cease to exist, although outstanding contracts or options on the
exchange that had been issued by a clearing corporation as a result of trades on
that exchange would continue to be exercisable in accordance with their terms.

25. Index Futures Contracts. A Fund may enter into stock index futures
contracts, debt index futures contracts, or other index futures contracts
appropriate to its objective, and may purchase and sell options on such index
futures contracts. A Fund will not enter into any index futures contract for the
purpose of speculation, and will only enter into contracts traded on securities
exchanges with standardized maturity dates.

An index futures contract is a bilateral agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the index value at the close of
trading of the contracts and the price at which the futures contract is
originally struck. No physical delivery of the securities comprising the index
is made; generally contracts are closed out prior to the expiration date of the
contract. No price is paid upon entering into index futures contracts. When a
Fund purchases or sells an index futures contract, it is required to make an
initial margin deposit in the name of the futures broker and to make variation
margin deposits as the value of the contract fluctuates, similar to the deposits
made with respect to futures contracts on securities. Positions in index futures
contracts may be closed only on an exchange or board of trade providing a
secondary market for such index futures contracts. The value of the contract
usually will vary in direct proportion to the total face value.

A Fund's ability to effectively utilize index futures contracts depends
on several factors. First, it is possible that there will not be a perfect price
correlation between the index futures contracts and their underlying index.
Second, it is possible that a lack of liquidity for index futures contracts
could exist in the secondary market, resulting in the Fund's inability to close
a futures position prior to its maturity date. Third, the purchase of an index
futures contract involves the risk that the Fund could lose more than the
original margin deposit required to 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

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<PAGE> 69

margin deposits, in a segregated account with the Fund's custodian. Collateral
equal to the current market value of the index futures position will be
maintained only a daily basis.

The extent to which a Fund may enter into transactions involving index
futures contracts may be limited by the Internal Revenue Code's requirements for
qualification as a regulated investment company and the Funds' intention to
qualify as such.

26. Options on Index Futures Contracts. Options on index futures
contracts are similar to options on securities except that options on index
futures contracts gives the purchaser the right, in return for the premium paid,
to assume a position in an index futures contract (a long position if the option
is a call and a short position if the option is a put), at a specified exercise
price at any time during the period of the option. Upon exercise of the option,
the delivery of the futures position by the writer of the option to the holder
of the option will be accompanied by delivery of the accumulated balance in the
writer's futures margin account which represents the amount by which the market
price of the index futures contract, at exercise, exceeds (in the case of a
call) or is less than (in the case of a put) the exercise price of the option on
the index futures contract. If an option is exercised on the last trading day
prior to the expiration date of the option, the settlement will be made entirely
in cash equal to the difference between the exercise price of the option and the
closing level of the index on which the future is based on the expiration date.
Purchasers of options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.

27. U.S. Dollar Denominated Obligations of Securities of Foreign Issuers.
Certain of the Funds may invest in U.S. dollar denominated obligations of
securities of foreign issuers. Permissible investments may consist of
obligations of foreign branches of U.S. banks and foreign or domestic branches
of foreign banks, including European Certificates of Deposit, European Time
Deposits, Canadian Time Deposits and Yankee Certificates of Deposits, and
investments in Canadian Commercial Paper, foreign securities and Europaper. In
addition, the Equity Funds may invest in American Depositary Receipts. These
instruments may subject the Fund to investment risks that differ in some
respects from those related to investments in obligations of U.S. domestic
issuers. Such risks include future adverse political and economic developments,
the possible imposition of withholding taxes on interest or other income,
possible seizure, nationalization, or expropriation of foreign deposits, the
possible establishment of exchange controls or taxation at the source, greater
fluctuations in value due to changes in exchange rates, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. Such investments may also entail
higher custodial fees and sales commissions than domestic investments. Foreign
issuers of securities or obligations are often subject to accounting treatment
and engage in business practices different from those respecting domestic
issuers of similar securities or obligations. Foreign branches 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.

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<PAGE> 70

28. Foreign Currency Transactions. Under normal market conditions, the
International Equity Fund may engage in foreign currency exchange transactions
to project against uncertainty in the level of future exchange rates. The
International Equity Fund expects to engage in foreign currency exchange
transactions in connection with the purchase and sale of portfolio securities
("transaction hedging"), and to protect the value of specific portfolio
positions ("position hedging"). The Fund may purchase or sell a foreign currency
on a spot (or cash) basis at the prevailing spot rate in connection with the
settlement of transactions in portfolio securities denominated in that foreign
currency, and may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and purchase or sell foreign
currency futures contracts ("futures contracts"). The Fund may also purchase
domestic and foreign exchange-listed and over-the-counter call and put options
on foreign currencies and futures contracts. Hedging transactions involve costs
and may result in losses, and the Fund's ability to engage in hedging and
related options transactions may be limited by tax considerations.

29. Transaction Hedging. When it engages in transaction hedging, the
International Equity Fund enters into foreign currency transactions with respect
to specific receivables or payables of the International Equity Fund, generally
arising in connection with the purchase or sale of its portfolio securities. The
International Equity Fund will engage in transaction hedging when it desires to
"lock in" the U.S. dollar price of a security it has agreed to purchase or sell,
or the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging, the Fund will attempt to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.

Although there is no current intention to do so, the International Equity
Fund reserves the right to purchase and sell foreign currency futures contracts
which are traded in the United States and are subject to regulation by the CFTC.

For transaction hedging purposes the International Equity Fund may also
purchase exchange-listed call and put options on foreign currency futures
contracts and on foreign currencies. A put option on a futures contract gives
the Fund the right to assume a short position in the futures contract until
expiration of the option. A put option on currency gives the Fund the right to
sell a currency at an exercise price until the expiration of the option. A call
option on a futures contract gives the Fund the right to assume a long position
in the futures contract until the expiration of the option. A call option on
currency gives the Fund the right to purchase a currency at the exercise price
until the expiration of the option.

30. Position Hedging. When it engages in position hedging, the
International Equity Fund enters into foreign currency exchange transactions to
protect against a decline in the values of the foreign currencies in which its
portfolio securities are denominated (or an

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<PAGE> 71

increase in the value of currency for securities which the Sub-Advisor expects
to purchase, when the Fund holds cash or short-term investments). In connection
with the position hedging, the Fund may purchase or sell foreign currency
forward contracts or foreign currency on a spot basis.

The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the value of such securities in foreign currencies
will change as a consequence of market movements in the value of those
securities between the dates the currency exchange transactions are entered into
and the dates they mature.

It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward contract or futures
contract. Accordingly, it may be necessary for the International Equity Fund to
purchase additional foreign currency on the spot market (and bear the expense of
such purchase) if the market value of the security or securities being hedged is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities if the market value of such security or securities exceeds the amount
of foreign currency the Fund is obligated to deliver.

Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the International Equity Fund owns or
expects to purchase or sell. They simply establish a rate of exchange which one
can achieve at some future point in time. Additionally, although these
techniques tend to minimize the risk of loss due to a decline in the value of
the hedged currency, they tend to limit any potential gain which might result
from the increase in the value of such currency.

31. Currency Forward and Futures Contracts. A forward contract involves
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract as agreed by the
parties, at a price set at the time of the contract. In the case of a cancelable
forward contract, the holder has the unilateral right to cancel the contract at
maturity by paying a specified fee. Forward contracts are trades in the
interbank markets conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.

A futures contract is a standardized contract for the future delivery of
a specified amount of a foreign currency at a future date at a price set at the
time of the contract. Futures contracts are designed by and traded on exchanges.
The Fund would enter into futures contracts solely for hedging or other
appropriate risk management purposes as defined in the controlling regulations.

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<PAGE> 72

Forward contracts differ from futures contracts in certain respects. For
example, the maturity date of a forward contract may be any fixed number of days
from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month. Forward contracts may be in any amounts
agreed upon by the parties rather than predetermined amounts. Also, forward
contracts are traded directly between currency traders so that no intermediary
is required. A forward contract generally requires no margin or other deposit.

At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.

Positions in the futures contracts may be closed out only on an exchange
or board of trade which provides a secondary market in such contracts. Although
the Fund intends to purchase or sell futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may not
be possible to close a futures position and, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin, as described below.

32. General Characteristics of Currency Futures Contracts. When the
International Equity Fund purchases or sells a futures contract, it is required
to deposit with its custodian an amount of cash or U.S. Treasury bills up to 5%
of the amount of the futures contract. This amount is known as "initial margin."
The nature of initial margin is different from that of margin in security
transactions in that it does not involve borrowing money to finance
transactions. Rather, initial margin is similar to a performance bond or good
faith deposit that is returned to the Fund upon termination of the contract,
assuming the Fund satisfies its contractual obligation.

Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market." These payments are called "variation
margin," and are made as the value of the underlying futures contract
fluctuates. For example, when the Fund sells a futures contract and the price of
the underlying currency rises above the delivery price, the International Equity
Fund's position declines in value. The Fund then pays a broker a variation
margin payment equal to the difference between the delivery price of the futures
contract and the market price of the currency underlying the futures contract.
Conversely, if the price of the underlying currency falls below the delivery
price of the contract, the Fund's futures position increases in value. The
broker then must make a variation margin payment

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equal to the difference between the delivery price of the futures contract and
the market price of the currency underlying the futures contract.

When the International Equity Fund terminates a position in a futures
contract, a final determination of variation margin is made, additional cash is
paid by or to the Fund, and the Fund realizes a loss or gain. Such closing
transactions involve additional commission costs.

33. Foreign Currency Options. Options on foreign currencies operate
similarly to options on securities, and are traded primarily in the
over-the-counter market, although options on foreign currencies have recently
been listed on several exchanges. Such options will be purchased or written only
when the Fund's Sub-Advisor believes that a liquid secondary market exists for
such options. There can be no assurance that a liquid secondary market will
exist for a particular option at any specific time. Options on foreign
currencies are affected by all of those factors which influence foreign exchange
rates and investments generally.

The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.

There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealer or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market, and thus may not reflect relatively
smaller transactions (less than $1 million), where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock market.

34. Foreign Currency Conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
International Equity Fund or the Small Cap Value Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.

35. Standard & Poor's Depository Receipts ("SPDRs"). SPDRs are interests
in a unit investment trust ("UIT") that may be obtained from the UIT or
purchased in the secondary market as SPDRs are listed on the American Stock
Exchange.

The UIT will issue SPDRs in aggregations of 50,000 known as "Creation
Units" in exchange for a "Portfolio Deposit" consisting of (a) a portfolio of
securities substantially

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similar to the component securities ("Index Securities") of the Standard &
Poor's 500 Composite Stock Price Index (the "S&P Index"), (b) a cash payment
equal to a pro rata portion of the dividends accrued on the UIT's portfolio
securities since the last dividend payment by the UIT, net of expenses and
liabilities, and (c) a cash payment or credit ("Balancing Amount") designed to
equalize the net asset value of the S&P Index and the net asset value of a
Portfolio Deposit.

SPDRs are not individually redeemable, except upon termination of the
UIT. To redeem, the portfolio must accumulate enough SPDRs to reconstitute a
Creation Unit. The liquidity of small holdings of SPDRs, therefore, will depend
upon the existence of a secondary market. Upon redemption of a Creation Unit,
the portfolio will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.

The price of SPDRs is derived and based upon the securities held by the
UIT. Accordingly, the level of risk involved in the purchase or sale of a SPDR
is similar to the risk involved in the purchase or sale of traditional common
stock, with the exception that the pricing mechanism for SPDRs is based on a
basket of stocks. Disruptions in the markets for the securities underlying SPDRs
purchased or sold by the Portfolio could result in losses on SPDRs. Trading in
SPDRs involves risks similar to those risks, described above under "Options,"
involved in the writing of options on securities.

36. High Yield Securities. The Convertible Securities Fund may invest in
lower rated securities. Fixed income securities are subject to the risk of an
issuer's ability to meet principal and interest payments on the obligation
(credit risk), and may also be subject to price volatility due to such factors
as interest rate sensitivity, market perception of the creditworthiness of the
issuer and general market liquidity (market risk). Lower rated or unrated (i.e.,
high yield) securities are more likely to react to developments affecting market
and credit risk than are more highly rated securities, which primarily react to
movements in the general level of interest rates. The market values of
fixed-income securities tend to vary inversely with the level of interest rates.
Yields and market values of high yield securities will fluctuate over time,
reflecting not only changing interest rates but the market's perception of
credit quality and the outlook for economic growth. When economic conditions
appear to be deteriorating, medium to lower rated securities may decline in
value due to heightened concern over credit quality, regardless of the
prevailing interest rates. Investors should carefully consider the relative
risks of investing in high yield securities and understand that such securities
are not generally meant for short-term investing.

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

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<PAGE> 75

such securities. In addition, the secondary market for high yield securities,
which is concentrated in relatively few market makers, may not be as liquid as
the secondary market for more highly rated securities. As a result, the
Convertible Securities Fund could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Furthermore, the Trust may experience
difficulty in valuing certain securities at certain times. Prices realized upon
the sale of such lower rated or unrated securities, under these circumstances,
may be less than the prices used in calculating the Convertible Securities
Fund's net asset value.

Lower rated or unrated debt obligations also present risks based on
payment expectations. If an issuer calls an obligation for redemption, the
Convertible Securities Fund may have to replace the security with a lower
yielding security, resulting in a decreased return for investors. If the
Convertible Securities Fund experiences unexpected net redemptions, it may be
forced to sell its higher rated securities, resulting in a decline in the
overall credit quality of the Convertible Securities Fund's investment portfolio
and increasing the exposure of the Convertible Securities Fund to the risks of
high yield securities.

The Convertible Securities Fund may choose, at its expense or in
conjunction with others, to pursue litigation or otherwise exercise its rights
as a security holder to seek to protect the interest of security holders if it
determines this to be in the interest of the Convertible Securities Fund's
Shareholders.

37. High Quality Investments with Regard to the Money Market Funds. As
noted in the Prospectuses for the Money Market Funds, each such Fund may invest
only in obligations determined by the Advisor to present minimal credit risks
under guidelines adopted by HighMark Funds' Board of Trustees.

With regard to the Diversified Money Market Fund and the California
Tax-Free Money Market Fund, investments will be limited to "Eligible Securities"
that (i) in the case of the Diversified Money Market Fund, include those
obligations that, at the time of purchase, possess the highest short-term rating
from at least one NRSRO (the Diversified Money Market Fund may also invest up to
5% of its net assets in obligations that, at the time of purchase, possess one
of the two highest short-term ratings from at least one NRSRO, and in
obligations that do not possess a short-term rating (i.e., are unrated) but are
determined by the Advisor to be of comparable quality to the rated instruments
eligible for purchase by the Fund under guidelines adopted by the Board of
Trustees) and (ii) in the case of the California Tax-Free Money Market Fund,
include those obligations that, at the time of purchase, possess one of the two
highest short-term ratings by at least one NRSRO or do not possess a short-term
rating (i.e., are unrated) but are determined by the Advisor to be of comparable
quality to the rated obligations eligible for purchase by the Fund under
guidelines adopted by the Board of Trustees.

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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 Advisor to be of comparable quality; provided, however, that
where the demand feature would be readily exercisable in the event of a default
in payment of principal or interest on the underlying security, the obligation
may be acquired based on the rating possessed by the demand feature or, if the
demand feature does not possess a rating, a determination of comparable quality
by the Advisor. In applying the above-described investment policies, a security
that has not received a short-term rating will be deemed to possess the rating
assigned to an outstanding class of the issuer's short-term debt obligations if
determined by the Advisor to be comparable in priority and security to the
obligation selected for purchase by the Fund, or, if not available, the issuer's
long-term obligations, but only in accordance with the requirements of Rule
2a-7. A security that at the time of issuance had a maturity exceeding 397 days
but, at the time of purchase, has a remaining maturity of 397 days or less, is
considered an Eligible Security if it possesses a long-term rating, within the
two highest rating categories.

Eligible Securities include First Tier Securities and Second Tier
Securities. First Tier Securities include those that possess at least one rating
in the highest category and, if the securities do not possess a rating, those
that are determined to be of comparable quality by the Advisor pursuant to
guidelines adopted by the Board of Trustees. Second Tier Securities are all
other Eligible Securities.

The Diversified Money Market Fund will not invest more than 5% of its
total assets in the First Tier Securities of any one issuer, except that the
Fund may invest up to 25% of its total assets in First Tier Securities of a
single issuer for a period of up to three business days. (This three day "safe
harbor" provision will not be applicable to the California Tax-Free Money Market
Fund, because single state funds are specifically excluded from this Rule 2a-7
provision.) In addition, the Diversified Money Market Fund may not invest more
than 5% of its total assets in Second Tier Securities, with investments in the
Second Tier Securities of any one issuer further limited to the greater of 1% of
the Fund's total assets or $1.0 million. If a percentage limitation is satisfied
at the time of purchase, a later increase in such percentage resulting from a
change in the Diversified Money Market Fund's net asset value or a subsequent
change in a security's qualification as a First Tier or Second Tier Security
will not constitute a violation of the limitation. In addition, there is no
limit on the percentage of the Diversified Money Market Fund's assets that may
be invested in obligations issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities and repurchase agreements fully collateralized by
such obligations.

Under the guidelines adopted by HighMark Funds' Board of Trustees, in
accordance with Rule 2a-7 under the Investment Company Act of 1940 (the "1940
Act"), when in the best interests of the Shareholders, the Advisor may be
required to promptly take appropriate action with respect to an obligation held
in a Fund's portfolio in the event of certain developments that indicate a
diminishment of the instrument's credit quality, such as where an NRSRO

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downgrades an obligation below the second highest rating category, or in the
event of a default relating to the financial condition of the issuer.

The Appendix to this Statement of Additional Information identifies each
NRSRO that may be utilized by the Advisor with regard to portfolio investments
for the Funds and provides a description of relevant ratings assigned by each
such NRSRO. A rating by a NRSRO may be utilized only where the NRSRO is neither
controlling, controlled by, or under common control with the issuer of, or any
issuer, guarantor, or provider of credit support for, the instrument.

Illiquid Securities. Each Fund has adopted a non-fundamental policy
(which may be changed without shareholder approval) prohibiting the Fund from
investing more than 15% (in the case of each of the Money Market Funds, not more
than 10%) of its total assets in "illiquid" securities, which include securities
with legal or contractual restrictions on resale or for which no readily
available market exists but exclude such securities if resalable pursuant to
Rule 144A under the Securities Act ("Rule 144A Securities"). Pursuant to this
policy, the Funds may purchase Rule 144A Securities only in accordance with
liquidity guidelines established by the Board of Trustees of HighMark Funds and
only if the investment would be permitted under applicable state securities
laws.

Restricted Securities. Each Fund has adopted a nonfundamental policy
(which may be changed without Shareholder approval) 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 Advisor will determine
the liquidity of restricted securities in accordance with guidelines established
by HighMark Funds' Board of Trustees. Restricted securities purchased by the
Funds may include Rule 144A securities and commercial paper issued in reliance
upon the "private placement" exemption from registration under Section 4(2) of
the 1933 Act (whether or not such paper is a Rule 144A security).

INVESTMENT RESTRICTIONS

Unless otherwise indicated, the following investment restrictions are
fundamental and, as such, may be changed with respect to a particular Fund only
by a vote of a majority of the outstanding Shares of that Fund (as defined
below). Except with respect to a Fund's restriction governing the borrowing of
money, if a percentage restriction is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in asset
value will not constitute a violation of the restriction.

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100% U.S. TREASURY MONEY MARKET FUND

The 100% U.S. Treasury Money Market Fund may not purchase securities
other than short-term obligations issued or guaranteed as to payment of
principal and interest by the full faith and credit of the U.S. Treasury.

EACH OF THE GROWTH FUND, THE INCOME EQUITY FUND, THE BALANCED FUND, THE BOND
FUND, THE DIVERSIFIED MONEY MARKET FUND, THE U.S. GOVERNMENT MONEY MARKET FUND,
AND THE 100% U.S. TREASURY MONEY MARKET FUND MAY NOT:

1. Purchase securities on margin (except that, with respect to the
Growth Fund, the Income Equity Fund, the Balanced Fund and the Bond Fund
only, such Funds may make margin payments in connection with transactions
in options and financial and currency futures contracts), sell securities
short, participate on a joint or joint and several basis in any
securities trading account, or underwrite the securities of other
issuers, except to the extent that a Fund may be deemed to be an
underwriter under certain securities laws in the disposition of
"restricted securities" acquired in accordance with the investment
objectives and policies of such Fund;

2. Purchase or sell commodities, commodity contracts (excluding,
with respect to the Growth Fund, the Income Equity Fund, the Balanced
Fund, and the Bond Fund, options and financial and currency futures
contracts), oil, gas or mineral exploration leases or development
programs, or real estate (although investments by the Growth Fund, the
Income Equity Fund, the Balanced Fund, the Bond Fund, and the Diversified
Money Market Fund in marketable securities of companies engaged in such
activities and investments by the Growth Fund, the Income Equity Fund,
the Balanced Fund, and the Bond Fund in securities secured by real estate
or interests therein, are not hereby precluded to the extent the
investment is appropriate to such Fund's investment objective and
policies);

3. Invest in any issuer for purposes of exercising control or
management;

4. Purchase or retain securities of any issuer if the officers or
Trustees of HighMark Funds or the officers or directors of its investment
advisor owning beneficially more than one-half of 1% of the securities of
such issuer together own beneficially more than 5% of such securities;

5. Borrow money or issue senior securities, except that a Fund may
borrow from banks or enter into reverse repurchase agreements for
temporary emergency purposes in amounts up to 10% of the value of its
total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with

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permissible borrowings and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of the Fund's total assets at
the time of its borrowing. A Fund will not invest in additional
securities until all its borrowings (including reverse repurchase
agreements) have been repaid. For purposes of this restriction, the
deposit of securities and other collateral arrangements with respect to
options and financial and currency futures contracts, and payments of
initial and variation margin in connection therewith, are not considered
a pledge of a Fund's assets; and

THE DIVERSIFIED MONEY MARKET FUND, THE U.S. GOVERNMENT MONEY MARKET FUND AND THE
100% U.S. TREASURY MONEY MARKET FUND MAY NOT:

1. Buy common stocks or voting securities, or state, municipal or
private activity bonds;

2. Invest in securities of other investment companies, except as
they may be acquired as part of a merger, consolidation, reorganization,
or acquisition of assets;

3. Write or purchase put or call options; or

4. Invest more than 10% of total assets in the securities of
issuers that together with any predecessors have a record of less than
three years' continuous operation.

5. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities, if, immediately after the purchase, more than 5% of
the value of the Fund's total assets would be invested in such issuer
(except that up to 25% of the value of the Fund's total assets may be
invested without regard to the 5% limitation). (As indicated below, the
Funds have adopted a non-fundamental investment policy that is more
restrictive than this fundamental investment limitation);

6. Purchase any securities that would cause more than 25% of the
value of the Fund's total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their principal
business activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities, domestic bank
certificates of deposit or bankers' acceptances, and repurchase
agreements secured by bank instruments or obligations of the U.S.
Government, its agencies, or instrumentalities; (b) wholly owned finance
companies will be considered to be in the industries of their parents if
their activities are primarily related to financing the activities of
their parents; and (c) utilities will be divided according to their
services (for example, gas, gas transmission, electric and gas, electric
and telephone will each be considered a separate industry).

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<PAGE> 80

7. Make loans, except that a Fund may purchase or hold debt
instruments, lend portfolio securities, and enter into repurchase
agreements as permitted by its individual investment objective and
policies.

The Diversified Money Market Fund, the Government Obligations
Money Market Fund, and the 100% U.S. Treasury Money Market Fund have each
adopted, in accordance with Rule 2a-7, a non-fundamental policy providing
that the 5% limit noted in limitation 5. above shall apply to 100% of
each Fund's assets. Notwithstanding, each such Fund may invest up to 25%
of its assets in First Tier qualified securities of a single issuer for
up to three business days.

THE GROWTH FUND, THE INCOME EQUITY FUND, THE BALANCED FUND, AND THE BOND FUND
MAY NOT:

1. Invest in securities of other investment companies except as
they may be acquired as part of a merger, consolidation, reorganization,
or acquisition of assets, provided, however, that each of the Funds may
purchase securities of a money market fund, if, immediately after such
purchase, the acquiring Fund does not own in the aggregate (i) more than
3% of the acquired company's outstanding voting securities, (ii)
securities issued by the acquired company having an aggregate value in
excess of 5% of the value of the total assets of the acquiring Fund, or
(iii) securities issued by the acquired company and all other investment
companies (other than treasury stock of the acquiring Fund) having an
aggregate value in excess of 10% of the value of the acquiring Fund's
total assets; and

EACH OF THE EQUITY AND FIXED INCOME FUNDS, OTHER THAN THE 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

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<PAGE> 81

foreign governments or their agencies or instrumentalities and repurchase
agreements secured by obligations of the U.S. Government or its agencies
or instrumentalities; (b) wholly owned finance companies will be
considered to be in the industries of their parents if their activities
are primarily related to financing the activities of their parents; and
(c) utilities will be divided according to their services (for example,
gas, gas transmission, electric and gas, electric, and telephone will
each be considered a separate industry); and

3. Make loans, except that a Fund may purchase or hold debt
instruments, lend portfolio securities, and enter into repurchase
agreements in accordance with its investment objective and policies.

THE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND MAY NOT:

1. Purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government or its agencies and instrumentalities
and repurchase agreements involving such securities) if as a result more
than 5% of the total assets of the Fund would be invested in securities
of such issuer provided, however, that the Fund may invest up to 25% of
its total assets without regard to this restriction as permitted by
applicable law;

2. Purchase any securities which would cause more than 25% of the
total assets of the Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same
industry, provided that this limitation does not apply to investments in
the obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities and repurchase agreements involving such
securities, and provided further, that utilities as a group will not be
considered to be one industry, and wholly-owned subsidiaries organized to
finance the operations of their parent companies will be considered to be
in the same industries as their parent companies; and

3. Make loans, except that the Fund may (a) purchase or hold debt
instruments in accordance with its investment objective and policies; (b)
enter into repurchase agreements; and (c) lend securities.

THE 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;

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<PAGE> 82

2. Purchase securities on margin, make short sales of securities
or maintain a short position;

3. Underwrite the securities of other issuers;

4. Purchase securities of companies for the purpose of exercising
control or management;

5. Invest in private activity bonds where the payment of principal
and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operation;

6. Purchase or sell commodities or commodity contracts, or invest
in oil, gas or mineral exploration leases or development programs;
provided, however, the Fund may, to the extent appropriate to the Fund's
investment objective, purchase publicly traded obligations of companies
engaging in whole or in part in such activities;

7. Acquire any other investment company or investment company
security except in connection with a merger, consolidation,
reorganization or acquisition of assets;

8. Borrow money or issue senior securities, except that the Fund
may borrow from banks or enter into reverse repurchase agreements for
temporary emergency purposes in amounts up to 10% of the value of its
total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with permissible borrowings
and in amounts not in excess of the lesser of the dollar amounts borrowed
or 10% of the value of the Fund's total assets at the time of its
borrowing. The Fund will not invest in additional securities until all
its borrowings (including reverse repurchase agreements) have been
repaid;

9. Write or sell puts, calls, straddles, spreads, or combinations
thereof, except that the Fund may acquire puts with respect to Municipal
Securities in its portfolio and sell the puts in conjunction with a sale
of the underlying Municipal Securities;

10. Acquire a put, if, immediately after the acquisition, more
than 5% of the total amortized cost value of the Fund's assets would be
subject to puts from the same institution (except that (i) up to 25% of
the value of the Fund's total assets may be subject to puts without
regard to the 5% limitation and (ii) the 5% limitation is inapplicable to
puts that, by their terms, would be readily exercisable in the event of a
default in payment of principal or interest on the underlying
securities). In applying the above-described limitation, the Fund will
aggregate securities subject to puts from any one institution with the
Fund's investments, if any, in securities issued or guaranteed by that
institution. In addition, for the purpose of this investment restriction
and

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<PAGE> 83

investment restriction No. 11 below, a put will be considered to be from
the party to whom the Fund will look for payment of the exercise price;

11. Acquire a put that, by its terms, would be readily exercisable
in the event of a default in payment of principal and interest on the
underlying security or securities if, immediately after the acquisition,
the amortized cost value of the security or securities underlying the
put, when aggregated with the amortized cost value of any other
securities issued or guaranteed by the issuer of the put, would exceed
10% of the total amortized cost value of the Fund's assets; and

12. Invest in securities of other investment companies except as
they may be acquired as part of a merger, consolidation, reorganization,
or acquisition of assets, provided, however, that the Fund may purchase
securities of a tax-exempt money market fund if, immediately after such
purchase, the acquiring Fund does not own in the aggregate (i) more than
3% of the acquired company's outstanding voting securities, (ii)
securities issued by the acquired company having an aggregate value in
excess of 5% of the value of the total assets of the acquiring Fund, or
(iii) securities issued by the acquired company and all other investment
companies (other than treasury stock of the acquiring Fund) having an
aggregate value in excess of 10% of the value of the acquiring Fund's
total assets.

13. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities, if, immediately after the purchase, more than 5% of
the value of its total assets would be invested in such issuer (except
that up to 25% of the value of the Fund's total assets may be invested
without regard to the 5% limitation). For purposes of this investment
restriction, a security is considered to be issued by the government
entity (or entities) whose assets and revenues back the security or, with
respect to be private activity bond that is backed only by the assets and
revenues of non-governmental user, by the non-governmental user;

14. Purchase any securities that would cause 25% or more of such
Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry; provided that this limitation shall not
apply to securities of the U.S. Government, its agencies or
instrumentalities or Municipal Securities or governmental guarantees of
Municipal Securities; and provided, further, that for the purpose of this
limitation, private activity bonds that are backed only by the assets and
revenues of a non-governmental user shall not be deemed to by Municipal
Securities.

15. Make loans; except that the Fund may purchase or hold debt
instruments, lend portfolio securities and enter into repurchase
agreements as permitted by its investment objective and policies.

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<PAGE> 84

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. May not concentrate investments in a particular industry or
group of industries, or within any one state (except that the limitation
as to investments in any one state or its political subdivision shall not
apply to the California Intermediate Tax-Free Bond Fund), as
concentration is defined under the Investment Company Act of 1940, or the
rules or regulations thereunder, as such statute, rules or regulations
may be amended from time to time.

3. May issue senior securities to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.

4. May lend or borrow money to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.

5. May purchase or sell commodities, commodities contracts,
futures contracts, or real estate to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.

6. May underwrite securities to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.

7. May pledge, mortgage or hypothecate any of its assets to the
extent permitted by the Investment Company Act of 1940, or the rules or
regulations thereunder, as such statute, rules or regulations may be
amended from time to time.

The fundamental limitations of the Value Momentum Fund, the 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.

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<PAGE> 85

This recognizes the need to react quickly to changes in the law or new
investment opportunities in the securities markets and the cost and time
involved in obtaining shareholder approvals for diversely held investment
companies. However, the Funds also have adopted nonfundamental limitations, set
forth below, which in some instances may be more restrictive than their
fundamental limitations. Any changes in a Fund's nonfundamental limitations will
be communicated to the Fund's shareholders prior to effectiveness.

1940 ACT RESTRICTIONS. Under the 1940 Act, and the rules, regulations and
interpretations thereunder, a "diversified company," as to 75% of its totals
assets, may not purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. Government, its agencies or its instrumentalities) if,
as a result, more than 5% of the value of its total assets would be invested in
the securities of such issuer or more than 10% of the issuer's voting securities
would be held by the fund. "Concentration" is generally interpreted under the
1940 Act to be investing more than 25% of net assets in an industry or group of
industries. The 1940 Act limits the ability of investment companies to borrow
and lend money and to underwrite securities. The 1940 Act currently prohibits an
open-end fund from issuing senior securities, as defined in the 1940 Act, except
under very limited circumstances.

THE FOLLOWING INVESTMENT LIMITATIONS OF THE VALUE MOMENTUM FUND, THE 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 NONFUNDAMENTAL POLICIES. EACH FUND MAY NOT:

1. Acquire more than 10% of the voting securities of any one
issuer. This limitation applies to only 75% of a Fund's assets.

2. Invest in companies for the purpose of exercising control.

3. Borrow money, except for temporary or emergency purposes and
then only in an amount not exceeding one-third of the value of total
assets and except that a Fund may borrow from banks or enter into reverse
repurchase agreements for temporary emergency purposes in amounts up to
10% of the value of its total assets at the time of such borrowing. To
the extent that such borrowing exceeds 5% of the value of the Fund's
assets, asset coverage of at least 300% is required. In the event that
such asset coverage shall at any time fall below 300%, the Fund shall,
within three days thereafter or such longer period as the Securities and
Exchange Commission may prescribe by rules and regulations, reduce the
amount of its borrowings to such an extent that the asset coverage of
such borrowing shall be at least 300%. This borrowing provision is
included solely to facilitate the orderly sale of portfolio securities to
accommodate heavy redemption requests if they should occur and is not for
investment purposes. All borrowings will be repaid before making
additional investments and any interest paid on such borrowings will
reduce income.

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<PAGE> 86

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.

6. Make short sales of securities, maintain a short position or
purchase securities on margin, except that HighMark Funds may obtain
short-term credits as necessary for the clearance of security
transactions.

7. Act as an underwriter of securities of other issuers except as
it may be deemed an underwriter in selling a Fund security.

8. Issue senior securities (as defined in the Investment Company
Act of 1940) except in connection with permitted borrowings as described
above or as permitted by rule, regulation or order of the Securities and
Exchange Commission.

9. Purchase or retain securities of an issuer if, to the knowledge
of HighMark Funds, an officer, trustee, partner or director of HighMark
Funds or the Advisor or Sub-Advisors of HighMark Funds owns beneficially
more than 1/2 or 1% of the shares or securities or such issuer and all
such officers, trustees, partners and directors owning more than 1/2 or
1% of such shares or securities together own more than 5% of such shares
or securities.

10. Invest in interest in oil, gas, or other mineral exploration
or development programs and oil, gas or mineral leases.

Voting Information. As used in this Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of HighMark Funds or a
particular Fund or a particular Class of Shares of HighMark Funds or a Fund
means the affirmative vote of the lesser of (a) more than 50% of the outstanding
Shares of HighMark Funds or such Fund or such Class, or (b) 67% or more of the
Shares of HighMark Funds or such Fund or such Class present at a meeting at
which the holders of more than 50% of the outstanding Shares of HighMark Funds
or such Fund or such Class are represented in person or by proxy.

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<PAGE> 87

PORTFOLIO TURNOVER

A Fund's turnover rate is calculated by dividing the lesser of a Fund's
purchases or sales of portfolio securities for the year by the monthly average
value of the portfolio securities. The calculation excludes all securities whose
maturities at the time of acquisition were one year or less. Thus, for
regulatory purposes, the portfolio turnover rate with respect to each of the
Money Market Funds was zero percent for each of the last two fiscal years, and
is expected to remain zero percent. For HighMark Funds' fiscal years ended July
31, 1998 and July 31, 1997, each Funds' portfolio turnover rate was: 67% and
118% for the HighMark Growth Fund; 69% and 46% for the HighMark Income Equity
Fund; and 16% and 14% for the HighMark Bond Fund. For each of the following
Funds, the portfolio turnover rate for the fiscal year ended July 31, 1998, the
six-month period ended July 31, 1997 and the prior year ended January 31, 1997
was: 22%, 10% and 27% for the HighMark Balanced Fund; 7%, 1% and 9% for the
HighMark Value Momentum Fund; 289%, 116% and 134% for the HighMark Emerging
Growth Fund; 72%, 18% and 29% for the HighMark International Equity Fund; 51%,
58% and 106% for the HighMark Intermediate-Term Bond Fund; and 23%, 5% and 6%
for the HighMark California Intermediate Tax-Free Bond Fund. It is currently
expected that the Small Cap Value Fund's portfolio turnover rate will not exceed
100%. The portfolio turnover rate may vary greatly from year to year as well as
within a particular year, and may also be affected by cash requirements for
redemption of Shares and, in the case of the California Tax-Free Money Market
Fund, by requirements that enable them to receive certain favorable tax
treatment.

VALUATION

As disclosed in the Prospectuses, each Money Market Fund's net asset
value per share for purposes of pricing purchase and redemption orders is
determined by the administrator as of 1:00 p.m., Pacific Time (4:00 p.m. Eastern
Time) and 10:00 a.m. Pacific Time (1:00 p.m. Eastern Time) on days on which both
the New York Stock Exchange and the Federal Reserve wire system are open for
business ("Business Days"). As disclosed in the Prospectuses, each Equity Fund's
and Fixed Income Fund's net asset value per share for purposes of pricing
purchase and redemption orders is determined by the administrator as of 1:00
p.m., Pacific Time (4:00 p.m. Eastern Time) on days on which the New York Stock
Exchange is open for business (also "Business Days").

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

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by amortized cost, is higher or lower than the price a Fund would receive if it
sold the instrument. The value of securities in a Fund can be expected to vary
inversely with changes in prevailing interest rates.

HighMark Funds' Board of Trustees has undertaken to establish procedures
reasonably designed, taking into account current market conditions and a Fund's
investment objective, to stabilize the net asset value per Share of each Money
Market Fund for purposes of sales and redemptions at $l.00. These procedures
include review by the Trustees, at such intervals as they deem appropriate, to
determine the extent, if any, to which the net asset value per Share of each
Fund calculated by using available market quotations deviates from $1.00 per
Share. In the event such deviation exceeds one-half of one percent, Rule 2a-7
requires that the Board promptly consider what action, if any, should be
initiated. If the Trustees believe that the extent of any deviation from a
Fund's $1.00 amortized cost price per Share may result in material dilution or
other unfair results to new or existing investors, the Trustees will take such
steps as they consider appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity, shortening the average
portfolio maturity of a Fund, withholding or reducing dividends, reducing the
number of a Fund's outstanding Shares without monetary consideration, or
utilizing a net asset value per Share based on available market quotations.

VALUATION OF THE EQUITY FUNDS AND THE FIXED INCOME FUNDS

Except as noted below, investments by the Equity Funds and the Fixed
Income Funds in securities traded on a national exchange (or exchanges) are
valued based upon their last sale price on the principal exchange on which such
securities are traded. With regard to each such Fund, securities the principal
market for which is not a securities exchange are valued based upon the latest
bid price in such principal market. Securities and other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of HighMark Funds' Board of Trustees. With the
exception of short-term securities as described below, the value of each Fund's
investments may be based on valuations provided by a pricing service. Short-term
securities (i.e., securities with remaining maturities of 60 days or less) may
be valued at amortized cost, which approximates current value.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Purchases and redemptions of shares of the Money Market Funds may be made
on days on which both the New York Stock Exchange and the Federal Reserve wire
systems are open for business. Purchases and redemptions of shares of the Equity
Funds and Fixed Income Funds may be made on days on which the New York Stock
Exchange is open for business.

It is currently HighMark Funds' policy to pay redemptions in cash.
HighMark Funds retains the right, however, to alter this policy to provide for
redemptions in whole or in part by

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<PAGE> 89

a distribution in-kind of securities held by the Funds other than the Money
Market Funds in lieu of cash. Shareholders may incur brokerage charges on the
sale of any such securities so received in payment of redemptions. However, a
Shareholder will at all times be entitled to aggregate cash redemptions from all
Funds of HighMark Funds during any 90-day period of up to the lesser of $250,000
or 1% of HighMark Funds' net assets.

HighMark Funds reserves the right to suspend the right of redemption
and/or to postpone the date of payment upon redemption for any period on which
trading on the New York Stock Exchange is restricted, or during the existence of
an emergency (as determined by the Securities and Exchange Commission by rule or
regulation) as a result of which disposal or valuation of the Fund's securities
is not reasonably practicable, or for such other periods as the Securities and
Exchange Commission has by order permitted. HighMark Funds also reserves the
right to suspend sales of Shares of the Funds for any period.

If a Fund holds portfolio securities listed on foreign exchanges which
trade on Saturdays or other customary United States national business holidays,
the portfolio will trade and the net assets of the Fund's redeemable securities
may be significantly affected on days when the investor has no access to the
Fund.

ADDITIONAL FEDERAL TAX INFORMATION

Each Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order so to qualify and to qualify for the special tax treatment
accorded regulated investment companies and their Shareholders, a Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale of stock, securities, and foreign currencies, or other income (including
but not limited to gains from options, futures, or forward contracts) derived
with respect to its business of investing in such stock, securities, or
currencies; (b) each year distribute at least 90% of its dividends, interest
(including tax-exempt interest), certain other income and the excess, if any, of
its net short-term capital gains over its net long-term capital losses; and (c)
diversify its holdings so that, at the end of each fiscal quarter (i) at least
50% of the market value of the Fund's assets is represented by cash, cash items,
U.S. Government securities, securities of other regulated investment companies,
and other securities, limited in respect of 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

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<PAGE> 90

regulated investment company accorded special tax treatment in any taxable year,
the Fund would be subject to tax on its taxable income at corporate rates, and
all distributions from earnings and profits, including any distributions of net
tax-exempt income and net long-term capital gains, would be taxable to
shareholders as ordinary income.

If a Fund fails to distribute in a calendar year substantially all of its
ordinary income for the year and substantially all its net capital gain income
for the one-year period ending October 31 of the year (and any retained amount
from the prior calendar year), the Fund will be subject to a non-deductible 4%
excise tax on the undistributed amounts.

Any dividend declared by a Fund to Shareholders of record on a date in
October, November or December generally is deemed to have been received by its
Shareholders on December 31 of such year (and paid by the Fund on or before such
time) provided that the dividend actually is paid during January of the
following year.

If a Fund engages in hedging transactions, including hedging transactions
in options, futures contracts, and straddles, or other similar transactions, it
will be subject to special tax rules (including constructive sales,
mark-to-market, straddle, wash sale, and short sale rules), the effect of which
may be to accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund's securities, or convert
short-term capital losses into long-term capital losses. These rules could
therefore affect the amount, timing and character of distributions to
shareholders.

Certain of a Fund's hedging activities (including its transactions, if
any, in foreign currencies or foreign currency-denominated instruments) are
likely to produce a difference between its book income and its taxable income.
If a Fund's book income exceeds its taxable income, the distribution (if any) of
such excess will be treated as (i) a dividend to the extent of the Fund's
remaining earnings and profits (including earnings and profits arising from
tax-exempt income), (ii) thereafter as a return of capital to the extent of the
recipient's basis in the shares, and (iii) thereafter as gain from the sale or
exchange of a capital asset. If the Fund's 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

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<PAGE> 91

distributions, a Fund may be required to sell securities in its portfolio that
it otherwise would have continued to hold.

The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends and other distributions paid to
any Shareholder who has provided either an incorrect tax identification number
or no number at all, or who is subject to withholding by the Internal Revenue
Service for failure to properly include on his or her tax return payments of
interest or dividends.

The foregoing discussion and the one below regarding the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund
under "Federal Taxation" is only a summary of some of the important Federal tax
considerations generally affecting purchasers of the Funds' Shares. No attempt
has been made to present a detailed explanation of the Federal income tax
treatment of the Funds, and this discussion is not intended as a substitute for
careful tax planning. Accordingly, potential purchasers of the Funds' Shares are
urged to consult their tax advisors with specific reference to their own tax
situation. Foreign Shareholders should consult their tax advisors regarding the
U.S. and foreign tax consequences of an investment in the Funds. In addition,
this discussion is based on tax laws and regulations that are in effect on the
date of this Statement of Additional Information; such laws and regulations may
be changed by legislative, judicial or administrative action, and such changes
may be retroactive.

ADDITIONAL TAX INFORMATION CONCERNING THE CALIFORNIA TAX-FREE MONEY MARKET FUND
AND THE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND

Federal Taxation. As indicated in their respective Prospectuses, the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund are designed to provide individual Shareholders with current
tax-exempt interest income. Neither of these Funds is intended to constitute a
balanced investment program or is designed for investors seeking capital
appreciation. Nor are the California Tax-Free Money Market Fund or the
California Intermediate Tax-Free Bond Fund designed for investors seeking
maximum tax-exempt income irrespective of fluctuations in principal. Shares of
the Funds may not be suitable for tax-exempt institutions and may not be
suitable for retirement plans qualified under Section 401 of the Code, H.R. 10
plans, and individual retirement accounts because such plans and accounts are
generally tax-exempt and, therefore, would not gain any additional benefit from
the Funds' dividends being tax-exempt, and such dividends would ultimately be
taxable to the beneficiaries when distributed to them.

The Code permits a regulated investment company that invests at least 50%
of its total assets in tax-free Municipal Securities (at the close of each
quarter of the Fund's taxable year) to pass through to its investors, tax-free,
net Municipal Securities interest income to the extent such interest would be
exempt if earned directly. Because the California Tax-Free Money

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<PAGE> 92

Market Fund and the California Intermediate Tax-Free Bond Fund intend to be
qualified to pay such exempt-interest dividends, these Funds will be limited in
their ability to enter into taxable transactions, such as forward commitments,
repurchase agreements, securities lending transactions, financial futures and
options contracts on financial futures, tax-exempt bond indices and other
assets. The policy of the California Tax-Free Money Market Fund and the
California Intermediate Tax-Free Bond Fund is to pay each year as dividends
substantially all of such Fund's Municipal Securities interest income net of
certain deductions. An exempt-interest dividend is any dividend or part thereof
derived from interest excludable from gross income and designated as an
exempt-interest dividend in a written notice mailed to Shareholders after the
close of such Fund's taxable year, but the aggregate of such dividends may not
exceed the net Municipal Securities interest received by the Fund during the
taxable year. In the case of each of the California Tax-Free Money Market Fund
and the California Intermediate Tax-Free Bond Fund the percentage of the
dividends paid for any taxable year that qualifies as federal exempt-interest
dividends will be the same for all Shareholders receiving dividends during such
year, regardless of the period for which the Shares were held.

Exempt-interest dividends may be treated by Shareholders of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund as items of interest excludable from their gross income. However, each
such Shareholder is advised to consult his or her tax advisor with respect to
whether exempt-interest dividends would remain excludable if such Shareholder
were treated as a "substantial user" or a "related person" to such user with
respect to facilities financed through any of the tax-exempt obligations held by
the California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund. In addition, exempt-interest dividends may be taxable for
federal alternative minimum tax purposes and for state and local purposes.

The California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund will distribute substantially all of any investment company
taxable income for each taxable year. In general, a Fund's investment company
taxable income will be its taxable income subject to certain adjustments and
excluding the excess of any net long-term capital 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.

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<PAGE> 93

Shareholders receiving social security or railroad retirement benefits
may be taxed on a portion of those benefits as a result of receiving tax-exempt
income (including exempt-interest dividends distributed by the Fund).

Like the other Funds, if for any taxable year the California Tax-Free
Money Market Fund or the California Intermediate Tax-Free Bond Fund does not
qualify for the special tax treatment afforded regulated investment companies,
all of such Fund's taxable income will be subject to tax at regular corporate
rates (without any deduction for distributions to Shareholders), and Municipal
Securities interest income, although not taxable to the California Tax-Free
Money Market Fund or the California Intermediate Tax-Free Bond Fund, would be
taxable to Shareholders as ordinary income when distributed as dividends.

Depending upon the extent of its activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located or in which it is otherwise deemed to be conducting business, the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund may be subject to the tax laws of such states or localities. For a
summary of certain California tax considerations affecting the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund,
see "California Taxation" below.

As indicated in their Prospectuses, the California Tax-Free Money Market
Fund and the California Intermediate Tax-Free Bond Fund may acquire rights
regarding specified portfolio securities under puts. See "INVESTMENT OBJECTIVES
AND POLICIES Additional Information on Portfolio Instruments - Puts" in this
Statement of Additional Information. The policy of each Fund is to limit its
acquisition of puts to those under which the Fund will be treated for Federal
income tax purposes as the owner of the Municipal Securities acquired subject to
the put and the interest on such Municipal Securities will be tax-exempt to the
Fund. There is currently no guidance available from the Internal Revenue Service
that definitively establishes the tax consequences that may result from the
acquisition of many of 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

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<PAGE> 94

the California Intermediate Tax-Free Bond Fund not exceeding the interest
received by the Fund during the taxable year on California Exempt-Interest
Securities (less direct and allocated expenses, which includes amortization of
acquisition premium) and so designated by written notice to Shareholders within
60 days after the close of that taxable year.

Distributions, other than of "California exempt-interest dividends," by
the California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund to California residents will be subject to California
personal income taxation. Gains realized by California residents from a
redemption or sale of Shares of the California Tax-Free Money Market Fund and
the California Intermediate Tax-Free Bond Fund will also be subject to
California personal income taxation. In general, California nonresidents, other
than certain dealers, will not be subject to California personal income taxation
on distributions by, or on gains from the redemption or sale of, Shares of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund unless those Shares have acquired a California "business situs." (Such
California nonresidents may, however, be subject to other state or local income
taxes on such distributions or gains, depending on their residence.) Short-term
capital losses realized by shareholders from a redemption of shares of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund within six months from the date of their purchase will not be allowed
for California personal income tax purposes to the extent of any tax-exempt
dividends received with respect to such Shares during such period. No deduction
will be allowed for California personal income tax purposes for interest on
indebtedness incurred or continued in order to purchase or carry Shares of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund for any taxable year of a Shareholder during which the Fund
distributes "California exempt-interest dividends."

A statement setting forth the amount of "California exempt-interest
dividends" distributed during each calendar year will be sent to Shareholders
annually.

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

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<PAGE> 95

income tax, should consult their tax advisors with respect to the application of
such taxes to the receipt of Fund dividends and as to their own California tax
situation, in general.

FOREIGN TAXES

Dividends and interest received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on the Fund's securities. Tax conventions between
certain countries and the United States may reduce or eliminate these taxes.
Foreign countries generally do not impose taxes on capital gains with respect to
investments by foreign investors. If at the end of a Fund's fiscal year more
than 50% of the value of its total assets represents securities of foreign
corporations, the Fund will be eligible to make an election permitted by the
Code to treat any foreign taxes paid by it on securities it has held for at
least the minimum period specified in the Code as having been paid directly by
the Fund's Shareholders in connection with the Fund's dividends received by
them. In this case, Shareholders generally will be required to include in U.S.
taxable income their pro rata share of such taxes, and those Shareholders who
are U.S. citizens, U.S. corporations and, in some cases, U.S. residents will be
entitled to deduct their share of such taxes. Alternatively, such Shareholders
who hold Fund Shares (without protection from risk of loss) on the ex-dividend
date and for at least 15 other days during the 30-day period surrounding the
ex-dividend date will be entitled to claim a foreign tax credit for their share
of these taxes. If a Fund makes the election, it will report annually to its
Shareholders the respective amounts per share of the Fund's income from sources
within, and taxes paid to, foreign countries and U.S. possessions.

MANAGEMENT OF HIGHMARK FUNDS

TRUSTEES AND OFFICERS

Overall responsibility for management of each Fund rests with the
Trustees of HighMark Funds, who are elected by HighMark Funds' Shareholders.
There are currently six Trustees, all of whom are not "interested persons" of
HighMark Funds within the meaning of that term under the 1940 Act.

The Trustees, in turn, elect the officers of HighMark Funds to supervise
actively its day-to-day operations.

The Trustees and officers of HighMark Funds, their addresses and
principal occupations during the past five years are set forth below.

<TABLE>
<S> <C> <C>
POSITION(s) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH HIGHMARK FUNDS DURING PAST 5 YEARS
- ---------------- ------------------- -------------------
</TABLE>

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<PAGE> 96

<TABLE>
<S> <C> <C>
Thomas L. Braje Trustee Prior to retirement in October
1323 Encina Drive 1996, Vice President and Chief
Milbrae, CA 94030 Financial Officer of Bio Rad
Date of Birth: 6/7/43 Laboratories, Inc.

David A. Goldfarb Trustee Partner, Goldfarb & Simens,
111 Pine Street Certified Public Accountants.
18th Floor
San Francisco, CA 94111
Date of Birth: 8/2/42

Joseph C. Jaeger Trustee Prior to retirement in June 1998,
19 Crest Road Senior Vice President and Chief
Lafayette, CA 94549 Financial Officer, Delta Dental
Date of Birth: 8/21/35 Plan of California.

Frederick J. Long Trustee President and Chief Executive
520 Pike Street Officer, Acordia West and
20th Floor Acordia Northwest Inc. (each an
Seattle, WA 98101 insurance brokerage firm).
Date of Birth: 9/17/35

Paul L. Smith Trustee Member of the Board of Trustees
422 Gordon Terrace of Stepstone Funds from 1991 to
Pasadena, CA 91105 1997.
Date of Birth: 4/25/18

William R. Howell Trustee Director, Current Income Shares,
73-350 Calliandra Avenue Inc. from 1973 until retirement in
Palm Desert, CA 92260 1998. Chairman of the Board of
Date of Birth: 2/28/22 Trustees of Stepstone Funds from
1991 to 1997.
</TABLE>

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<PAGE> 97

<TABLE>
<S> <C> <C>
Michael L. Noel Member Advisory Board President, Noel Consulting
1107 Pine Country Court Company since 1998. From 1991
Prescott, AZ 86303-6405 to 1997, Member of the Board of
Date of Birth: 4/5/41 Trustees of Stepstone Funds.
Prior to retirement in December
1994, Senior Vice President and
Chief Financial Officer, Southern
California Edison Company;
Director of Amerwest Company,
Current Income Shares, Inc. and
SCAN Health Plan.

Robert M. Whitler Member Advisory Board Director, Current Income Shares,
336 Running Spring Drive Inc. Prior to retirement in 1996,
Palm Desert, CA 92211-3240 Executive Vice President and head
Date of Birth: 9/11/38 of Union Bank's Financial
Management and Trust Services
Group and a member of the
bank-wide Executive Policy
Committee.

Mark E. Nagle President and Chief Vice President and Controller,
530 East Swedesford Road Executive Officer Funds Account, Vice President of
Wayne, PA 19087 the Administrator and Distributor,
employee since November 1996.
From 1995 to 1996, Vice
President of Fund Accounting of
BISYS Fund Services. Prior to
1995, Senior Vice President for
Fidelity Investments since 1981.

Robert DellaCroce Controller and Chief CPA, Director of Fund
530 East Swedesford Road Financial Officer Resources, employee since 1994.
Wayne, PA 19087 Prior to 1994, senior manager
for Arthur Andersen.

Kevin P. Robins Vice President and Employee since 1992. Prior to
1 Freedom Valley Drive Secretary 1992, associate with Morgan
Oaks, PA 19456 Lewis & Bockius since 1988.

Sandra K. Orlow Vice President and Employee since 1983.
1 Freedom Valley Drive Assistant Secretary
Oaks, PA 19456
</TABLE>

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<PAGE> 98

<TABLE>
<S> <C> <C>
Todd Cipperman Vice President and Employee since 1995. From 1994
1 Freedom Valley Drive Assistant Secretary to May 1995, associate with
Oaks, PA 19456 Dewey Ballantine. Prior to 1994,
associate with Winston & Strawn.

Joseph M. O'Donnell Vice President and Employee since 1998. From
1 Freedom Valley Drive Assistant Secretary March, 1993 to December, 1997,
Oaks, PA 19456 Vice President and General
Counsel with FPS Services, Inc.

Lydia A. Gavalis Vice President and Vice President and Assistant
1 Freedom Valley Drive Assistant Secretary Secretary of SEI Investments
Oaks, PA 19456 Company, employee since 1998.
Prior to 1998, Assistant General
Counsel and Director of
Arbitration, Philadelphia Stock
Exchange.

Lynda J. Striegel Vice President and Vice President and Assistant
1 Freedom Valley Drive Assistant Secretary Secretary of SEI Investments
Oaks, PA 19456 Company, employee since 1998.
From 1997 to 1998, Senior Assets
Management Counsel, Barnett
Banks, Inc. From 1996 to 1997,
Partner, Groom and Nordberg,
Chartered. Prior to 1995,
Associate General Counsel, Riggs
Bank, N.A.

Kathy Heilig Vice President and Treasurer of SEI Investments
1 Freedom Valley Drive Assistant Secretary Company, employee since 1987.
Oaks, PA 19456

James R. Foggo Vice President and Vice President and Assistant
1 Freedom Valley Drive Assistant Secretary Secretary of the Administrator and
Oaks, PA 19456 the Distributor, employee since
1998. In 1998, associate Paul
Weiss, Rifkind, Wharton &
Garrison. From 1995 to 1998,
associate, Baker & McKenzie.
Prior to 1995, associate, Battle
Fowler, L.L.P.
</TABLE>

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<PAGE> 99

The Trustees of HighMark Funds receive quarterly retainer fees and fees
and expenses for each meeting of the Board of Trustees attended. No employee,
officer or stockholder of SEI Investments Mutual Funds Services and/or SEI
Investments Distribution Co. receives any compensation directly from HighMark
Funds for serving as a Trustee and/or officer. SEI Investments Mutual Funds
Services and/or SEI Investments Distribution Co. receive administration, fund
accounting servicing and distribution fees from each of the Funds. See "Manager
and Administrator" and "Distributor" below. Messrs. Nagle, Robins, Cipperman,
DellaCroce, O'Donnell and Foggo, and Ms. Orlow, Ms. Striegel, Ms. Gavalis and
Ms. Heilig are employees and officers of SEI Investments Company. While SEI
Investments Mutual Funds Services is a distinct legal entity from SEI
Investments Distribution Co., SEI Investments Mutual Funds Services is
considered to be an affiliated person of SEI Investments Distribution Co. under
the 1940 Act due to, among other things, the fact that SEI Investments
Distribution Co. and SEI Investments Mutual Funds Services are both controlled
by the same ultimate parent company, SEI Investments Company.

During the fiscal year ended July 31, 1998, fees paid to the
disinterested Trustees for their services as Trustees aggregated $102,000. For
the disinterested Trustees, the following table sets forth information
concerning fees paid and retirement benefits accrued during the fiscal year
ended July 31, 1998:

<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Annual Total Compensation
Trustee Compensation Retirement Benefits Upon from Fund
from Group Benefits Accrued Retirement Complex Paid to
as Trustees
Part of Fund
Expenses
------- ------- -------- -------- ------

<S> <C> <C> <C> <C>
Thomas L. Braje $17,000 None None $17,000
David A. Goldfarb $17,000 None None $17,000
William R. Howell $17,000 None None $17,000
Joseph C. Jaeger $17,000 None None $17,000
Frederick J. Long $17,000 None None $17,000
Paul L. Smith $17,000 None None $17,000
Michael L. Noel* $17,000 None None $17,000
Robert M. Whitler* $17,000 None None $17,000
</TABLE>

*Members of Advisory Board.

The Advisory Board to the Board of Trustees is responsible for providing
monitoring services and evaluating issues affecting the HighMark Funds pursuant
to the direction of the Board of Trustees, and consulting and providing advice
to the Board of Trustees regarding those issues.

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<PAGE> 100

INVESTMENT ADVISOR

Investment advisory and management services are provided to each of the
Funds by HighMark Capital Management, Inc. (the "Advisor"), (formerly Pacific
Alliance Capital Management, a division of Union Bank of California), pursuant
to an investment advisory agreement between the Advisor and HighMark Funds dated
as of September 1, 1998 (the "Investment Advisory Agreement"). Union Bank of
California serves as custodian for each of the Funds. See "Transfer Agent,
Custodian and Fund Accounting Services" below. Union Bank of California also
serves as sub-administrator to each of the Funds pursuant to an agreement with
SEI Investments Mutual Funds Services. See "Manager and Administrator" below.

Unless sooner terminated, the Investment Advisory Agreement will continue
in effect as to each particular Fund from year to year if such continuance is
approved at least annually by HighMark Funds' Board of Trustees or by vote of a
majority of the outstanding Shares of such Fund (as defined under GENERAL
INFORMATION - Miscellaneous in the Prospectuses), and a majority of the Trustees
who are not parties to the Investment Advisory Agreement or interested persons
(as defined in the 1940 Act) of any party to the Investment Advisory Agreement
by votes cast in person at a meeting called for such purpose. The Investment
Advisory Agreement is terminable as to a particular Fund at any time on 60 days'
written notice without penalty by the Trustees, by vote of a majority of the
outstanding Shares of that Fund, or by the Advisor. The Investment Advisory
Agreement terminates automatically in the event of any assignment, as defined in
the 1940 Act.

The Investment Advisory Agreement provides that the Advisor will not be
liable for any error of judgment or mistake of law or for any loss suffered by
HighMark Funds in connection with the Advisor's services under the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Advisor
in the performance of its duties, or from reckless disregard by the Advisor of
its duties and obligations thereunder.

On September 1, 1998, the investment management unit at Union Bank of
California, N.A., Pacific Alliance Capital Management was reorganized into a
subsidiary of UnionBanCal Corporation. The new entity, HighMark Capital
Management, Inc., is a California corporation registered under the 1940 Act.

On April 1, 1996, the Bank of California, N.A., HighMark Funds'
then-investment advisor, combined with Union Bank and the resulting bank changed
its name to Union Bank of California, N.A. At the same time, the banks'
investment management divisions were combined. Each of the Bank of California
and Union Bank (or its predecessor bank) has been in banking since the early
1900's, and historically, each has had significant investment

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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 Advisor pursuant to
the Investment Advisory Agreement, Union Bank of California is entitled to
receive fees from each Fund as described in that Fund's Prospectus. For the
fiscal year ended July 31, 1998, Union Bank of California received the following
investment advisory fees: $2,265,301 from the Growth Fund; $2,825,963 from the
Income Equity Fund; $2,602,642 from the Balanced Fund; $3,952,110 from the Value
Momentum Fund; $577,471 from the Emerging Growth Fund; $629,025 from the
International Equity Fund; $593,291 from the Bond Fund; $863,851 from the
Intermediate-Term Bond Fund; $87,732 from the California Intermediate Tax-Free
Bond Fund (an additional $245,284 in fees were voluntarily reduced); $6,250,527
from the Diversified Money Market Fund; $906,618 from the U.S. Government Money
Market Fund; $2,383,235 from the 100% U.S. Treasury Money Market Fund (an
additional $476,647 in fees were voluntarily reduced); and $462,600 from the
California Tax-Free Money Market Fund (an additional $925,201 in fees were
voluntarily reduced).

For the fiscal year ended July 31, 1997, Union Bank of California
received the following investment advisory fees: $666,964 from the Growth Fund
(an additional $121,712 in fees were voluntarily reduced); $1,986,575 from the
Income Equity Fund (an additional $658 in fees were voluntarily reduced);
$1,025,689 from the Balanced Fund; $1,158,537 from the Value Momentum Fund;
$229,671 from the Emerging Growth Fund; $218,664 from the International Equity
Fund (an additional $9,751 in fees were voluntarily reduced); $294,637 from the
Bond Fund (an additional $188,247 in fees were voluntarily reduced); $388,609
from the Intermediate-Term Bond Fund; $506 from the California Intermediate
Tax-Free Bond Fund (an additional $41,978 in fees were voluntarily reduced);
$2,181,976 from the Diversified Money Market Fund; $838,857 from the U.S.
Government Money Market Fund; $1,377,080 from the 100% U.S. Treasury Money
Market Fund (an additional $129,101 in fees were voluntarily reduced); and
$124,611 from the California Tax-Free Money Market Fund (an additional $266,840
in fees were voluntarily reduced).

For the fiscal year ended January 31, 1997,(1) Union Bank of California,
N.A. received the following investment advisory fees: $1,630,000 from the
Balanced Fund; $1,599,000 from the Value Momentum Fund; $428,000 from the
Emerging Growth Fund; $413,000 from the International Equity Fund (an additional
$49,000 in fees were voluntarily waived); $711,000 from the Intermediate-Term
Bond Fund; $1,000 from the California Intermediate Tax-Free Bond Fund (an
additional $49,000 in fees were voluntarily waived); $2,773,000 from the
HighMark Diversified Money Market Fund; and $126,000 from the California
Tax-Free Money Market Fund (an additional $265,000 in fees were voluntarily
waived). (2)

For the fiscal year ended July 31, 1996, Union Bank of California
received the following investment advisory fees: $180,047 from the Growth Fund
(an additional $182,161

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in fees were voluntarily reduced); $1,722,014 from the Income Equity Fund (an
additional $33,207 in fees were voluntarily reduced); $277,708 from the Bond
Fund (an additional $256,561 in fees were voluntarily reduced); $944,226 from
the U.S. Government Money Market Fund; and $1,203,300 from the 100% U.S.
Treasury Money Market Obligations Fund.

For the fiscal year ended January 31, 1996, the Adviser's predecessor
received the following investment advisory fees: $1,238,970 from the Balanced
Fund; $1,169,765 from the Value Momentum Fund; $255,357 from the Emerging Growth
Fund; $300,582 from the International Equity Fund (an additional $76,243 in fees
were voluntarily waived); $648,012 from the Intermediate-Term Bond Fund; $3,065
from the California Intermediate Tax-Free Bond Fund (an additional $61,451 in
fees were voluntarily waived); $2,002,595 from the HighMark Diversified Money
Market Fund; and $113,705 from the California Tax-Free Money Market Fund (an
additional $237,331 in fees were voluntarily waived).

- ----------
(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-ADVISORS

The Advisor and Bank of Tokyo-Mitsubishi Trust Company ("BTMT") have
entered into a sub-advisory agreement which relates to the Emerging Growth Fund.
The Advisor and AXA Asset Management Partenaires ("AXA") have entered into a
sub-advisory agreement which relates to the International Equity Fund. Prior to
January 1, 1998, Tokyo-Mitsubishi Asset Management (U.K.), Ltd. ("TMAM") served
as the International Equity Fund's Sub-Advisor. The Advisor and Brandes
Investment Partners LP ("Brandes") have entered into a sub-advisory agreement
which relates to the Small Cap Value Fund (BTMT, together with AXA and Brandes,
are hereafter collectively, the "Sub-Advisors").

Under its sub-advisory agreement, BTMT is entitled to a fee which is
calculated daily and paid monthly at an annual rate of .50% of the average daily
net assets of the Emerging Growth Fund. Such fee is paid by the Advisor, and
BTMT receives no fees directly from a Fund. For the fiscal year ended July 31,
1998, BTMT received sub-advisory fees of $36,920 with respect to the Emerging
Growth Fund. For the fiscal years ended January 31, 1997 and 1996, BTMT, or its
predecessor, Bank of Tokyo Trust Company received sub-advisory fees of: $267,497
and $159,198, respectively, with respect to the Emerging Growth Fund.

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BTMT operates as a subsidiary of The Bank of Tokyo-Mitsubishi, Ltd. BTMT
was established in 1955 and has been providing asset management services since
1965.

Under its sub-advisory agreement, AXA is entitled to a fee which is
calculated daily and paid monthly at an annual rate of 0.50% of the average
daily net assets of the International Equity Fund. Such a fee is paid by the
Advisor, and AXA receives no fees directly from the International Equity Fund.
For the period from January 1, 1998 to July 31, 1998, AXA received sub-advisory
fees of $192,406. For the period from August 1, 1997 to December 31, 1997, TMAM
received sub-advisory fees of $59,319. For the period ended July 31, 1997 and
the fiscal year ended January 31, 1997, TMAM received sub-advisory fees of
$72,131 and $145,865, respectively, with respect to the International Equity
Fund.

AXA operates as a subsidiary of the AXA Group. AXA was established in
1994.

Under its sub-advisory agreement, Brandes is entitled to a fee which is
calculated and paid monthly at the annual rate of .50% of the average of the
market value of the assets of the Small Cap Value Fund allocated to Brandes.
Such fee is paid by the Advisor, and Brandes receives no fees directly from the
Small Cap Value Fund.

PORTFOLIO TRANSACTIONS

Pursuant to the Investment Advisory Agreement, the Advisor determines,
subject to the general supervision of the Board of Trustees of HighMark Funds
and in accordance with each Fund's investment objective and restrictions, which
securities are to be purchased and sold by a Fund, and which brokers are to be
eligible to execute its portfolio transactions. Purchases and sales of portfolio
securities for the Bond Fund, the Intermediate-Term Bond Fund, the 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 Advisor generally seeks competitive
spreads or commissions on behalf of each of the Funds, HighMark Funds may not
necessarily pay the lowest spread or commission available on each transaction,
for reasons discussed below.

Allocation of transactions, including their frequency, to various dealers
is determined by the Advisor or the Sub-Advisors in their best judgment and in a
manner deemed fair and

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reasonable to Shareholders. The primary consideration is prompt execution of
orders in an effective manner at the most favorable price. Subject to this
consideration, dealers who provide supplemental investment research to the
Advisor or the Sub-Advisors may receive orders for transactions by HighMark
Funds. Information so received is in addition to and not in lieu of services
required to be performed by the Advisor or the Sub-Advisors and does not reduce
the advisory fees payable to the Advisor by HighMark Funds. Such information may
be useful to the Advisor or the Sub-Advisors in serving both HighMark Funds and
other clients and, conversely, supplemental information obtained by the
placement of business of other clients may be useful to the Advisor in carrying
out its obligations to HighMark Funds.

Upon adoption by the Board of Trustees of certain procedures pursuant to
Rule 17e-1 under the 1940 Act, HighMark Funds may execute portfolio transactions
involving the payment of a brokerage fee through the Advisor, SEI Investments
Distribution Co., and their affiliates in accordance with such procedures.
HighMark Funds will not acquire portfolio securities issued by, make savings
deposits in, or enter repurchase or reverse repurchase agreements with, Union
Bank of California, or their affiliates, and will not give preference to
correspondents of Union Bank of California with respect to such securities,
savings deposits, repurchase agreements and reverse repurchase agreements.

Investment decisions for each Fund of HighMark Funds are made
independently from those for the other Funds or any other investment company or
account managed by the Advisor or the Sub-Advisors. However, any such other
investment company or account may invest in the same securities as HighMark
Funds. When a purchase or sale of the same security is made at substantially the
same time on behalf of a Fund and another Fund, investment company or account,
the transaction will be averaged as to price, and available investments
allocated as to amount, in a manner that the Advisor or the Sub-Advisors believe
to be equitable to the Fund(s) and such other investment company or account. In
some instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained by a Fund. To the extent
permitted by law, the Advisor or the Sub-Advisors may aggregate the securities
to be sold or purchased for a Fund with those to be sold or purchased for the
other Funds or for other investment companies or accounts in order to obtain
best execution. As provided in the Investment Advisory Agreement and the
Sub-Advisory Agreements, in making investment recommendations for HighMark
Funds, the Advisor or the Sub-Advisors will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
HighMark Funds is a customer of the Advisor, the Sub-Advisors, their parent or
its subsidiaries or affiliates and, in dealing with its commercial customers,
the Advisor and the Sub-Advisors, their parent, subsidiaries, and affiliates
will not inquire or take into consideration whether securities of such customers
are held by HighMark Funds.

During the fiscal year ended July 31, 1998, the following Funds paid the
following aggregate brokerage commissions: Balanced Fund: $205,232; Emerging
Growth Fund: $447,405; Growth Fund: $465,576; Income Equity Fund: $638,230;
Value Momentum Fund:

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$248,933; and International Equity Fund: $389,285. No brokerage was directed for
any of the Funds. The following brokerage commissions were paid in the period
ended July 31, 1997: Balanced Fund: $64,473; Emerging Growth Fund: $170,553;
Growth Fund: $334,472; Income Equity Fund: $97,957; Value Momentum Fund:
$118,620; and International Equity Fund: $58,381. The following brokerage
commissions were paid in the fiscal year ended January 31, 1997: $122,239 by the
Value Momentum Fund, $159,120 by the Balanced Fund, $206,286 by the Emerging
Growth Fund and $107,379 by the International Equity Fund. The following
brokerage commissions were paid in the fiscal year ended July 31, 1996: $104,127
by the Growth Fund and $318,261 by the Income Equity Fund.

GLASS-STEAGALL ACT

In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment advisor, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisors to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complies with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisors to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.

The Advisor and the Sub-Advisors believe that they possess the legal
authority to perform the services for the Funds contemplated by the Investment
Advisory Agreement and the Sub-Advisory Agreements and described in the
Prospectuses and this Statement of Additional Information and has so represented
in the Investment Advisory Agreement and the Sub-Advisory Agreements. Future
changes in either federal or state statutes and regulations relating to the
permissible activities of banks or bank holding companies and the subsidiaries
or affiliates of those entities, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations
could prevent or restrict the Advisor from continuing to perform such services
for HighMark Funds. Depending upon the nature of any changes in the services
that could be provided by the Advisor, or the

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Sub-Advisors, the Board of Trustees of HighMark Funds would review HighMark
Funds' relationship with the Advisor and the Sub-Advisors and consider taking
all action necessary in the circumstances.

Should further legislative, judicial or administrative action prohibit or
restrict the activities of Union Bank of California, the Advisor, its
affiliates, and its correspondent banks in connection with Customer purchases of
Shares of HighMark Funds, such Banks might be required to alter materially or
discontinue the services offered by them to Customers. It is not anticipated,
however, that any change in HighMark Funds' method of operations would affect
its net asset value per Share or result in financial losses to any Customer.

ADMINISTRATOR AND SUB-ADMINISTRATOR

SEI Investments Mutual Funds Services (the "Administrator") serves as
administrator to each of the Funds pursuant to the administration agreement
dated as of February 15, 1997 between HighMark Funds and the Administrator (the
"Administration Agreement").

SEI Investments Mutual Funds Services is a Delaware business trust whose
sole beneficiary is SEI Investments Management Corporation. SEI Investments
Management Corporation, a wholly owned subsidiary of SEI Investment Company
("SEI"), was organized as a Delaware corporation in 1969 and has its principal
business offices at 1 Freedom Valley Drive, Oaks, Pennsylvania 19456. SEI and
its subsidiaries are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors and money managers. The Administrator and
its affiliates also serve as administrator to the following other institutional
mutual funds: SEI Daily Income Trust, SEI Liquid Asset Trust, SEI Tax Exempt
Trust, SEI Index Funds, SEI Institutional International Trust, SEI Institutional
Managed Trust, Boston 1784(R) Funds, The Advisors' Inner Circle Fund, The Pillar
Funds, CUFund, STI Classic Funds, First American Funds, Inc., First American
Investment Funds, Inc., The Arbor Fund, Morgan Grenfell Investment Trust, The
PBHG Funds, Inc., The Achievement Funds Trust, Bishop Street Funds, CrestFunds,
Inc., STI Classic Variable Trust, Monitor Funds, TIP Funds, ARK Funds, SEI Asset
Allocation Trust, SEI Institutional Investments Trust, TIP Institutional Funds,
ARMADA Funds, The Expedition Funds and Oak Associates Funds.

Pursuant to the Administration Agreement, the Administrator provides the
Group with administrative services, regulatory reporting, fund accounting and
related portfolio accounting services, all necessary office space, equipment,
personnel, compensation and facilities for handling the affairs of the Group. As
described below, the Administrator has delegated part of its responsibilities
under the Administration Agreement to Union Bank of California, N.A.

For the fiscal year ended July 31, 1998 for its services as administrator
and expenses assumed pursuant to the Administration Agreement, the Administrator
received the following fees: $669,261 from the Growth Fund (an additional
$85,839 in fees were voluntarily

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reduced); $847,789 from the Income Equity Fund (an additional $94,199 in fees
were voluntarily reduced); $767,123 from the Balanced Fund (an additional
$100,424 in fees were voluntarily reduced); $1,185,633 from the Value Momentum
Fund (an additional $131,737 in fees were voluntarily reduced); $129,931 from
the Emerging Growth Fund (an additional $14,437 in fees were voluntarily
reduced); $119,187 from the International Equity Fund (an additional $13,243 in
fees were voluntarily reduced); $213,585 from the Bond Fund (an additional
$23,732 in fees were voluntarily reduced); $310,986 from the Intermediate-Term
Bond Fund (an additional $34,554 in fees were voluntarily reduced); $117,410
from the California Intermediate Tax-Free Bond Fund (an additional $15,796 in
fees were voluntarily reduced); $3,750,316 from the Diversified Money Market
Fund (an additional $416,702 in fees were voluntarily reduced); $543,971 from
the U.S. Government Money Market Fund (an additional $60,441 in fees were
voluntarily reduced); $1,715,929 from the 100% U.S. Treasury Money Market Fund
(an additional $190,659 in fees were voluntarily reduced); and $832,681 from the
California Tax-Free Money Market Fund (an additional $92,520 in fees were
voluntarily reduced).

For the fiscal year ended July 31, 1997, for its services as
administrator and expenses assumed pursuant to the Administration Agreement, the
Administrator received the following fees: $204,315 from the Growth Fund (an
additional $22,032 in fees were voluntarily reduced); $605,282 from the Income
Equity Fund (an additional $17,907 in fees were voluntarily reduced); $255,346
from the Balanced Fund (an additional $29,410 in fees were voluntarily reduced);
$298,886 from the Value Momentum Fund (an additional $22,063 in fees were
voluntarily reduced); $44,080 from the Emerging Growth Fund (an additional
$3,159 in fees were voluntarily reduced); $36,978 from the International Equity
Fund (an additional $3,072 in fees were voluntarily reduced); $101,712 from the
Bond Fund (an additional $25,352 in fees were voluntarily reduced); $118,137
from the Intermediate-Term Bond Fund (an additional $8,143 in fees were
voluntarily reduced); $11,833 from the California Intermediate Tax-Free Bond
Fund (an additional $2,604 in fees were voluntarily reduced); $1,141,740 from
the Diversified Money Market Fund (an additional $88,254 in fees were
voluntarily reduced); $439,141 from the U.S. Government Money Market Fund (an
additional $14,294 in fees were voluntarily reduced); $815,457 from the 100%
U.S. Treasury Money Market Fund (an additional $45,215 in fees were voluntarily
reduced); and $207,633 from the California Tax-Free Money Market Fund (an
additional $15,291 in fees were voluntarily reduced).

For the fiscal year ended January 31, 1997, the Administrator received
the following fees: $342,000 from the Balanced Fund; $336,000 from the Value
Momentum Fund; $67,000 from the Emerging Growth Fund; $60,000 from the
International Equity Fund; $179,000 from the Intermediate-Term Bond Fund;
$13,000 from the California Intermediate Tax-Free Bond Fund; $1,163,000 from the
HighMark Diversified Money Market Fund; and $164,00 from the California Tax-Free
Money Market Fund.

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Through the fiscal year ended July 31, 1996 BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services ("BISYS Fund Services") served as HighMark
Funds' administrator. For its services as administrator and expenses assumed
pursuant to the administration agreement between BISYS Fund Services and
HighMark Funds, BISYS Fund Services received a fee from each Fund as described
in that Fund's Prospectus. For the fiscal year ended July 31, 1996, BISYS Fund
Services earned the following administration fees: $72,337 from the Growth Fund;
$520,671 from the Income Equity Fund; $80,226 from the Bond Fund (an additional
$43,205 in fees were voluntarily reduced); $472,171 from the U.S. Government
Money Market Fund; and $601,680 from the 100% U.S. Treasury Money Market Fund.

For the fiscal year ended January 31, 1996, the Administrator received
the following fees: $276,935 from the Balanced Fund; $261,423 from the Value
Momentum Fund; $42,746 from the Emerging Growth Fund; $54,149 from the
International Equity Fund; $173,915 from the Intermediate-Term Bond Fund; from
the California Intermediate Tax-Free Bond Fund; $895,102 from the HighMark
Diversified Money Market Fund; and $157,204 from the California Tax-Free Money
Market Fund.

The Administration Agreement became effective on February 15, 1997 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 Union Bank of California, N.A., Union
Bank of California, N.A. will perform services which may include clerical,
bookkeeping, accounting, stenographic and

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administrative services, for which it will receive a fee, paid by the
Administrator, at the annual rate of up to 0.05% of each Fund's average daily
net assets.

SHAREHOLDER SERVICES PLANS

HighMark Funds has adopted two Shareholder Services Plans, one for
Fiduciary Class and Class A Shares and one for Class B Shares (collectively, the
"Services Plans") pursuant to which a Fund is authorized to pay compensation to
financial institutions (each a "Service Provider"), which may include Bank of
Tokyo-Mitsubishi, Ltd., Union Bank of California, N.A., or their respective
affiliates, that agree to provide certain shareholder support services for their
customers or account holders (collectively, "customers") who are the beneficial
or record owners of Shares of a Fund. In consideration for such services, a
Service Provider is compensated by a Fund at a maximum annual rate of up to
0.25% of the average daily net asset value of Shares of a Fund, pursuant to each
plan. A Shareholder Services Plan has not been adopted for the Class S Shares.

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.

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EXPENSES

HighMark Funds' service providers bear all expenses in connection with
the performance of their respective services, except that each Fund will bear
the following expenses relating to its operations: taxes, interest, brokerage
fees and commissions, if any, fees and travel expenses of Trustees who are not
partners, officers, directors, shareholders or employees of HighMark Capital
Management, Inc., Union Bank of California, SEI Investments Mutual Funds
Services or SEI Investments Distribution Co., Securities and Exchange Commission
fees and state fees and expenses, certain insurance premiums, outside and, to
the extent authorized by HighMark Funds, inside auditing and legal fees and
expenses, fees charged by rating agencies in having the Fund's Shares rated,
advisory and administration fees, fees and reasonable out-of-pocket expenses of
the custodian and transfer agent, expenses incurred for pricing securities owned
by the Fund, costs of maintenance of corporate existence, typesetting and
printing prospectuses for regulatory purposes and for distribution to current
Shareholders, costs and expenses of Shareholders' and Trustees' reports and
meetings and any extraordinary expenses.

DISTRIBUTOR

SEI Investments Distribution Co. (the "Distributor"), a wholly-owned
subsidiary of SEI, serves as distributor to the Funds pursuant to a distribution
agreement dated February 15, 1997 between HighMark Funds and the Distributor for
the Fiduciary Class and Class A Shares, pursuant to a distribution agreement
dated June 18, 1997 between HighMark Funds and the Distributor for Class B
Shares and pursuant to a distribution agreement between HighMark Funds and the
Distributor for Class S Shares (collectively, the "Distribution Agreements").

Unless terminated, the Distribution Agreements will continue in effect
until July 31, 2000 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. The operation of the Distribution Plans, the
0.25% fee payable under HighMark Funds' Distribution Plans to which the Class A
Shares of the Funds are presently subject, the 0.75% fee to which the Class B
Shares are presently subject and the 0.55% fee to which the Class S Shares will
be subject to effective October 1, 1999 are

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described in each such Fund's Prospectus under "SERVICE ARRANGEMENTS -The
Distribution Plans." For the fiscal year ended July 31, 1998, the Distributor
received in respect of the sale of Class A Shares distribution fees of: $26,261
from the Growth Fund; $46,119 from the Income Equity Fund; $24,891 from the
Balanced Fund; $72,706 from the Value Momentum Fund; $2,480,819 from the
Diversified Money Market Fund; $171,678 from the U.S. Government Money Market
Fund; $1,720,731 from the 100% U.S. Treasury Money Market Fund; and $651,837
from the California Tax-Free Money Market Fund. For the fiscal year ended July
31, 1998, the Distributor received in respect of the sale of Class B Shares
distribution fees of: $1 from the U.S. Government Money Market Fund; $3,364 from
the Income Equity Fund; $10,778 from the Value Momentum Fund; $3,192 from the
Growth Fund; and $1,282 from the Balanced Fund.

In accordance with Rule 12b-1 under the 1940 Act, the Distribution Plans
may be terminated with respect to any Fund by a vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding Class A or
Class B Shares of that Fund. The Distribution Plans may be amended by vote of
HighMark Funds' Board of Trustees, including a majority of the Independent
Trustees, cast in person at a meeting called for such purpose, except that any
change in a Distribution Plan that would materially increase the distribution
fee with respect to a Fund requires the approval of that Fund's Retail
Shareholders. HighMark Funds' Board of Trustees will review on a quarterly and
annual basis written reports of the amounts received and expended under the
Distribution Plans (including amounts expended by the Distributor to
Participating Organizations pursuant to the Servicing Agreements entered into
under the Distribution Plans) indicating the purposes for which such
expenditures were made.

Each Distribution Plan provides that it will continue in effect with
respect to each Fund for successive one-year periods, provided that each such
continuance is specifically approved (i) by the vote of a majority of the
Independent Trustees and (ii) by the vote of the entire Board of Trustees, cast
in person at a meeting called for such purpose. For so long as each of the
Distribution Plans remains in effect, the selection and nomination of those
trustees who are not interested persons of HighMark Funds (as defined in the
1940 Act) shall be committed to the discretion of such disinterested persons.

TRANSFER AGENT AND CUSTODIAN SERVICES

State Street Bank and Trust Company performs transfer agency services for
the Funds pursuant to a transfer agency and shareholder service agreement with
HighMark Funds dated as of February 15, 1997 (the "Transfer Agency Agreement").
As each Fund's transfer agent, State Street Bank and Trust Company processes
purchases and redemptions of each Fund's Shares and maintains each Fund's
Shareholder transfer and accounting records, such as the history of purchases,
redemptions, dividend distributions, and similar transactions in a
Shareholders's account.

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Under the Transfer Agency Agreement, HighMark Funds has agreed to pay
State Street Bank and Trust Company annual fees at the rate of $18,000 per
Retail class/per Fund. The Distributor has agreed to pay State Street Bank and
Trust Company annual fees at the rate of $15,000 per Fiduciary class/per Fund.
In addition, there will be an annual account maintenance fee of $25.00 per
account and IRA Custodial fees totaling $15.00 per account, as well as
out-of-pocket expenses as defined in the Transfer Agency Agreement. HighMark
Funds intends to charge transfer agency fees across the HighMark Funds as a
whole. State Street Bank and Trust Company may periodically voluntarily reduce
all or a portion of its transfer agency fee with respect to a Fund to increase
the Fund's net income available for distribution as dividends.

Union Bank of California, N.A. serves as custodian to the Funds pursuant
to a custodian agreement with HighMark Funds dated as of December 23, 1991, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, Union Bank
of California's responsibilities include safeguarding and controlling each
Fund's cash and securities, handling the receipt and delivery of securities, and
collecting interest and dividends on each Fund's investments.

Under the Custodian Agreement, HighMark Funds has agreed to pay Union
Bank of California a domestic custodian fee with respect to each Fund at an
annual rate of .01% of the Fund's average daily net assets, with an annual
minimum fee of $2,500 per Fund, plus certain transaction fees. Union Bank of
California is also entitled to be reimbursed by HighMark Funds for its
reasonable out-of-pocket expenses incurred in the performance of its duties
under the Custodian Agreement. Global custody fees shall be determined on a
transaction basis. Union Bank of California may periodically voluntarily reduce
all or a portion of its custodian fee with respect to a Fund to increase the
Fund's net income available for distribution as dividends.

AUDITORS

The financial statements of HighMark Funds for the period ended July 31,
1998, incorporated by reference into this Statement of Additional Information
have been audited by Deloitte & Touche LLP, independent accountants, as set
forth in their report also incorporated by reference into this Statement of
Additional Information, and are included in reliance upon such report and on the
authority of such firm as experts in auditing and accounting.

LEGAL COUNSEL

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.

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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. Treasury Money Market Fund, and the California Tax-Free Money Market Fund.
As described in the Prospectuses, selected Funds have been divided into four
classes of Shares, designated Class A and Class B Shares (collectively, "Retail
Shares"), Class S Shares ("Sweep Shares") and Fiduciary Shares.

Shares have no subscription or preemptive rights and only such conversion
or exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectuses and this Statement of
Additional Information, HighMark Funds' Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of HighMark Funds,
Shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund that are available for distribution. Upon
liquidation or dissolution of HighMark Funds, Retail, Sweep 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.

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Such allocations of general assets may be made in any manner deemed fair and
equitable, and it is anticipated that the Board of Trustees will use the
relative net asset values of the respective Funds at the time of allocation.
Assets belonging to a particular Fund are charged with the direct liabilities
and expenses of that Fund, and with a share of the general liabilities and
expenses of HighMark Funds not readily identified as belonging to a particular
Fund that are allocated to that Fund in proportion to the relative net asset
values of the respective Funds at the time of allocation. The timing of
allocations of general assets and general liabilities and expenses of HighMark
Funds to particular Funds will be determined by the Board of Trustees and will
be in accordance with generally accepted accounting principles. Determinations
by the Board of Trustees as to the timing of the allocation of general
liabilities and expenses and as to the timing and allocable portion of any
general assets with respect to a particular Fund are conclusive.

Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as HighMark Funds shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
Shares of each Fund affected by the matter. For purposes of determining whether
the approval of a majority of the outstanding Shares of a Fund will be required
in connection with a matter, a Fund will be deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are identical,
or that the matter does not affect any interest of the Fund.

Under Rule 18f-2, the approval of an investment advisory agreement or any
change in fundamental investment policy would be effectively acted upon with
respect to a Fund only if approved by a majority of the outstanding Shares of
such Fund. However, Rule 18f-2 also provides that the ratification of
independent public accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
Shareholders of HighMark Funds voting without regard to series.

Although not governed by Rule 18f-2, Retail Shares and Sweep 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

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HighMark Funds shall, upon request, assume the defense of any claim made against
any Shareholder for any act or obligation of HighMark Funds, and shall satisfy
any judgment thereon. Thus, the risk of a Shareholder incurring financial loss
on account of Shareholder liability is limited to circumstances in which
HighMark Funds itself would be unable to meet its obligations.

The Declaration of Trust, as amended, states further that no Trustee,
officer, or agent of HighMark Funds shall be personally liable in connection
with the administration or preservation of the assets of the trust or the
conduct of HighMark Funds' business, nor shall any Trustee, officer, or agent be
personally liable to any person for any action or failure to act except for his
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties. The Declaration of Trust, as amended, also provides that all persons
having any claim against the Trustees or HighMark Funds shall look solely to the
assets of the trust for payment.

THE REORGANIZATION OF THE IRA FUND AND HIGHMARK FUNDS

As of June 23, 1988, pursuant to an Agreement and Plan of Reorganization
between the IRA Fund, HighMark Funds, and the Bank of California, substantially
all of the assets of the IRA Fund's Income Equity Portfolio, and Bond Portfolio
were transferred to HighMark Funds' Income Equity Fund, and Bond Fund,
respectively, in exchange for such Fund's Shares, and substantially all of the
assets of the IRA Fund's Short Term Portfolio were transferred to one or more of
HighMark Funds' Money Market Funds in exchange for Shares of such Money Market
Fund or Funds. Prior to June 23, 1988, the aggregate total return and average
annual total return of the Bond Fund and Income Equity Fund reflect the
aggregate total return and average annual total return of the IRA Fund Bond
Portfolio and the IRA Fund Income Equity Portfolio, respectively. The IRA Fund
Bond Portfolio and the IRA Fund Income Equity Portfolio both received investment
advice from the same division of the Bank of California subsequently known as
Pacific Alliance Capital Management and eventually reorganized as HighMark
Capital Management, Inc. and had investment objectives, policies and
restrictions substantially similar to those of the Bond Fund and the Income
Equity Fund, respectively. However, potential investors should be aware that
both the nature and amount of fees and expenses of the IRA Fund Bond Portfolio
and the Bond Fund and those of the IRA Fund Income Equity Portfolio and the
Income Equity Fund differ.

CALCULATION OF PERFORMANCE DATA

From time to time, articles relating to the performance, rankings, and
other investment characteristics of mutual funds and their investment advisors,
including the Funds and the Advisor, may appear in national, regional, and local
publications. In particular, some publications may publish their own rankings or
performance reviews of mutual funds and their investment advisors, including the
Funds and the Advisor. Various mutual fund or market indices may also serve as a
basis for comparison of the performance of the Funds with other mutual funds or
mutual fund portfolios with comparable investment objectives and policies. In

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addition to the indices prepared by Dow Jones & Co., Inc. and Standard & Poor's
Corporation, references to or reprints from the following publications may be
used in HighMark Funds' promotional literature: IBC/Donoghue's Money Fund
Report, Ibbotson Associates of Chicago, MorningStar, Lipper Analytical Services,
Inc., CDA/Wiesenberger Investment Company Services, SEI Financial Services,
Callan Associates, Wilshire Associates, MONEY Magazine, Pension and Investment
Age, Forbes Magazine, Business Week, American Banker, Fortune Magazine,
Institutional Investor, Barron's National Business & Financial Weekly, The Wall
Street Journal, New York Times, San Francisco Chronicle and Examiner, Los
Angeles Times, U.S.A. Today, Sacramento Bee, Seattle Times, Seattle Daily
Journal of Commerce, Seattle Post/Intelligence, Seattle Business Journal, Tacoma
New Tribune, Bellevue Journal-American, The Oregonian, Puget Sound Business
Journal, Portland Chamber of Commerce and Portland Daily Journal of
Commerce/Portland Business Today. Shareholders may call toll free 1-800-433-6884
for current information concerning the performance of each of the Funds.

From time to time, the Funds may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of compounding and the benefits of dollar-cost averaging); (2)
discussions of general economic trends; (3) presentations of statistical data to
supplement such discussions; (4) descriptions of past or anticipated portfolio
holdings for one or more of the Funds within HighMark Funds; (5) descriptions of
investment strategies for one or more of the Funds; (6) descriptions or
comparisons of various savings and investment products (including, but not
limited to, insured bank products, annuities, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant market or
industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) testimonials
describing the experience of persons that have invested in one or more of the
Funds. The Funds may also include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results in such communications.
Such performance examples will be based on an express set of assumptions and are
not indicative of the performance of any of the Funds. In addition, the
California Tax-Free Fund may include charts comparing various tax-free yields
versus taxable yield equivalents at different income levels.

Based on the seven-day period ended July 31, 1998 (the "base period" for
the Diversified Money Market Fund, the U.S. Government Money Market Fund, the
100% U.S. Treasury Money Market Fund, and the California Tax-Free Money Market
Fund), the yield of the Diversified Money Market Fund's Class A Shares and
Fiduciary Shares was 4.91% and 5.15%, respectively, and the effective yield of
the Fund's Class A Shares and Fiduciary Shares was 5.03% and 5.29%,
respectively; the yield of the U.S. Government Money Market Fund's Class A
Shares, Class B Shares and Fiduciary Shares was 4.76%, 4.32% and 5.01%,
respectively, and the effective yield of the Fund's Class A Shares, Class B
Shares and Fiduciary Shares was 4.88%, 4.42% and 5.14%, respectively; the yield
of the 100% U.S.

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Treasury Money Market Fund's Class A Shares and Fiduciary Shares was 4.57% and
4.82% respectively, and the effective yield of the Fund's Class A Shares and
Fiduciary Shares was 4.67% and 4.93% respectively; and the yield of the
California Tax-Free Money Market Fund's Class A Shares and Fiduciary Shares was
2.71% and 2.96% respectively, and the effective yield of the Fund's Class A
Shares and Fiduciary Shares was 2.74% and 3.00%, respectively. The yield of each
Fund's Class A Shares and Fiduciary Shares, respectively, was computed by
determining the percentage net change, excluding capital changes, in the value
of an investment in one Share of the Class over the base period, and multiplying
the net change by 365/7 (or approximately 52 weeks). The effective yield of each
Fund's Class A Shares, Class B Shares and Fiduciary Shares, respectively,
represents a compounding of the yield of the Class by adding 1 to the number
representing the percentage change in value of the investment during the base
period, raising that sum to a power equal to 365/7, and subtracting 1 from the
result.

Based on the thirty-day period ended July 31, 1998, the yield of the
Diversified Money Market Fund's Class A Shares and Fiduciary Shares was 4.88%
and 5.12% respectively, and the effective yield of the Fund's Class A Shares and
Fiduciary Shares was 5.00% and 5.26%, respectively; the yield of the U.S.
Government Money Market Fund's Class A Shares, Class B Shares and Fiduciary
Shares was 4.76%, 4.32% and 5.00%, respectively, and the effective yield of the
Fund's Class A Shares, Class B Shares and Fiduciary Shares was 4.87%, 4.42% and
5.13%, respectively; the yield of the 100% U.S. Treasury Money Market Fund's
Class A Shares and Fiduciary Shares was 4.55% and 4.80%, respectively, and the
effective yield of the Fund's Class A Shares and Fiduciary Shares was 4.65% and
4.92%, respectively; and the yield of the California Tax-Free Money Market
Fund's Class A Shares and Fiduciary Shares was 2.49% and 2.73%, respectively,
and the effective yield of the Fund's Class A Shares and Fiduciary Shares was
2.51% and 2.77%, respectively. The yield of each Fund's Class A Shares, Class B
Shares and Fiduciary Shares, respectively, was computed by determining the
percentage net change, excluding capital changes, in the value of an investment
in one Share of the Class over the thirty-day period, and multiplying the net
change by 365/30 (or approximately twelve months). The effective yield of each
Fund's Class A Shares, Class B Shares and Fiduciary Shares, respectively,
represents a compounding of the yield of the Class by adding 1 to the number
representing the percentage change in value of the investment during the
thirty-day period, raising that sum to a power equal to 365/30, and subtracting
1 from the result.

Based on the seven-day period ended July 31, 1998, the tax-equivalent
yield of the California Tax-Free Money Market Fund's Class A Shares and
Fiduciary Shares was 4.49% and 4.90% respectively (using a federal income tax
rate of 39.6%), and 5.49% and 5.99% respectively (using a federal income tax
rate of 39.6% and a California personal income tax rate of 11%), and the
tax-equivalent effective yield of the Fund's Class A Shares and Fiduciary Shares
was 4.54% and 4.97%, respectively (using a federal income tax rate of 39.6%),
and 5.55% and 6.07%, respectively (using a federal income tax rate of 39.6% and
a California personal income tax rate of 11%).

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Based on the thirty-day period ended July 31, 1998, the tax-equivalent
yield of the California Tax-Free Money Market Fund's Class A Shares and
Fiduciary Shares was 4.12% and 4.52%, respectively (using a federal income tax
rate of 39.6%), and 5.04% and 5.53%, respectively (using a federal income tax
rate of 39.6% and a California personal income tax rate of 11%), and the
tax-equivalent effective yield of the Fund's Class A Shares and Fiduciary Shares
was 4.16% and 4.59%, respectively (using a federal income tax rate of 39.6%),
and 5.08% and 5.61%, respectively (using a federal income tax rate of 39.6% and
a California personal income tax rate of 11%).

The tax-equivalent yield of the Class A Shares and Fiduciary Shares,
respectively, of the California Tax-Free Fund was computed by dividing that
portion of the yield of the Class that is tax-exempt by 1 minus the stated
income tax rate (or rates) and adding the product to that portion, if any, of
the yield of the Class that is not tax-exempt. The tax-equivalent effective
yield of the Fund's Class A Shares and Fiduciary Shares, respectively, was
computed by dividing that portion of the effective yield of the Class which is
tax-exempt by 1 minus the stated income tax rate (or rates) and adding to that
portion, if any, of the effective yield of the Class that is not tax-exempt.

For the year ended July 31, 1998, the one-year average annual total
return of the Diversified Money Market Fund's Class A and Fiduciary Shares was
5.01% and 5.27%, respectively; of the U.S. Government Money Market Fund's Class
A and Fiduciary Shares was 4.90% and 5.16%, respectively; of the 100% U.S.
Treasury Money Market Fund's Class A and Fiduciary Shares was 4.75% and 5.02%,
respectively; and of the California Tax-Free Money Market Fund's Class A and
Fiduciary Shares was 2.89% and 3.14%, respectively.

For the period ended July 31, 1998, the five-year average annual total
return of the Diversified Money Market Fund's Class A and Fiduciary Shares was
4.54% and 4.78%, respectively; of the U.S. Government Money Market Fund's Class
A and Fiduciary Shares was 4.41% and 4.48%, respectively; of the 100% U.S.
Treasury Money Market Fund's Class A and Fiduciary Shares was 4.29% and 4.35%,
respectively; and of the California Tax-Free Money Market Fund's Class A and
Fiduciary Shares was 2.72% and 3.04%, respectively.

For the period since commencement of operations of each class of shares
of the Funds through July 31, 1998, the average annual total return of the
Diversified Money Market Fund's Class A Shares (class inception on May 28, 1991)
and Fiduciary Shares (commencement of operations on February 2, 1991) was 4.33%
and 4.65%, respectively; of the U.S. Government Money Market Fund's Class A
Shares (class inception on December 1, 1990), Class B Shares (class inception on
February 2, 1998) and Fiduciary Shares (commencement of operations on August 10,
1987) was 5.35%, 5.35% (annualized) and 5.36%, respectively; of the 100% U.S.
Treasury Money Market Fund's Class A Shares (class inception on December 1,
1990) and Fiduciary Shares (commencement of operations on August 10, 1987) was
5.26% and 5.29%, respectively; and of the California Tax-Free Money

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Market Fund's Class A Shares (class inception on June 25, 1991) and Fiduciary
Shares (commencement of operations on June 10, 1991) was 2.66% and 2.98%,
respectively.

Prior to June 23, 1988 (the date on which the Income Equity Fund and the
Bond Fund commenced operations as a result of the reorganization involving the
IRA Fund Income Equity Portfolio and the IRA Fund Bond Portfolio, respectively,
as described under "ADDITIONAL INFORMATION - The Reorganization of the IRA Fund
and HighMark Funds" above), the total return and average annual total return of
the Income Equity Fund and the Bond Fund reflects the total return and average
annual total return of the IRA Fund Income Equity Portfolio, and the IRA Fund
Bond Portfolio, respectively. Each IRA Fund Portfolio received investment advice
from the same division of the Bank of California subsequently known as Pacific
Alliance Capital Management and then reorganized as HighMark Capital Management,
Inc, and had substantially similar investment objectives, policies, and
restrictions of the Fund into which it was reorganized. However, potential
investors in the Income Equity Fund, and the Bond Fund should be aware that both
the nature and amount of fees and expenses of the IRA Fund Income Equity
Portfolio, and the IRA Fund Bond Portfolio differ from the Fund into which the
respective IRA Fund Portfolios were reorganized. See "Management of HighMark
Funds - Investment Advisor" and the Statements of Operations in the Financial
Statements with respect to the Income Equity Fund, and the Bond Fund and the IRA
Fund Income Equity Portfolio, and the IRA Fund Bond Portfolio for the applicable
period ended July 31, 1989 and June 22, 1988 contained in this Statement of
Additional Information.

The performance figures relating to the Class A Shares and Class B Shares
reflect the sales charge and distribution fees to which each Class is subject.
Because only Class A Shares and Class B Shares bear the expense of the fee, if
any, under the Distribution Plan and a sales charge, total return and yield
relating to a Fund's Class A Shares and Class B Shares will be lower than that
relating to the Funds' Fiduciary Shares.

With respect to Fiduciary Shares, for the one-year period ended July 31,
1998, average annual total returns were as follows: for the Income Equity --
10.79%, Value Momentum --9.22%, Growth -- 22.59%, Emerging Growth -- 3.37%, Blue
Chip Growth -- 8.67%, Balanced -- 7.31%, International Equity -- (0.82)%,
Convertible Securities -- 3.02%, Government Securities -- 7.08%,
Intermediate-Term Bond -- 6.37%, Bond -- 7.41% and California Intermediate
Tax-Free Bond Funds -- 4.75%.

With respect to Class A Shares, for the one-year period ended July 31,
1998, average annual total returns (with maximum sales load) were as follows:
for the Income Equity --5.53%, Value Momentum -- 4.06%, Growth -- 16.76%,
Balanced -- 2.27%, Intermediate-Term Bond -- 3.17%, Bond -- 4.22% and California
Intermediate Tax-Free Bond Funds --1.51%. For the same period, average annual
total returns (without sales load) were as follows: for the Income Equity --
10.50%, Value Momentum -- 8.96%, Growth -- 22.26%, Balanced --7.12%,
Intermediate-Term Bond -- 6.38%, Bond -- 7.47%, California Intermediate Tax-Free
Bond Funds -- 4.66%.

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With respect to Fiduciary Shares, for the five year period through July
31, 1998, average annual total returns were as follows: for the Income Equity --
17.54%, Value Momentum -- 19.73%, Balanced -- 13.75%, Intermediate-Term Bond --
5.52% and Bond Funds -- 5.70%.

With respect to Class A Shares, for the five year period through July 31,
1998, average annual total returns (with maximum sales load) were as follows:
for the Value Momentum --18.48%, Balanced -- 12.56% and Intermediate-Term Bond
Funds -- 4.87%. For the same period, average annual total returns (without sales
load) were as follows: for the Value Momentum -- 19.57%, Balanced -- 13.59% and
Intermediate-Term Bond -- 5.50%.

With respect to Fiduciary Shares, for the ten year period through July
31, 1998, average annual total returns were as follows: for the Income Equity --
15.12% and Bond Funds --8.17%.

With respect to Fiduciary Shares, for the period since commencement of
operations of each of the Funds through July 31, 1998, average annual total
returns were as follows: for the Income Equity -- 15.88% (commencement of
operations on February 9, 1984), Value Momentum -- 18.12% (commencement of
operations on February 1, 1991), Growth -- 21.76% (commencement of operations on
November 18, 1993), Emerging Growth -- 12.11% (commencement of operations on
February 1, 1994), Blue Chip Growth -- 17.92% (commencement of operations on
February 1, 1994), Balanced -- 13.21% (commencement of operations on February 1,
1991), International Equity -- 6.24% (commencement of operations on February 1,
1995), Convertible Securities -- 9.26% (commencement of operations on February
1, 1994), Government Securities -- 5.14% (commencement of operations on February
1, 1994), Intermediate-Term Bond -- 7.63% (commencement of operations on
February 1, 1991), Bond -- 9.34% (commencement of operations on February 15,
1984) and California Intermediate Tax-Free Bond Funds -- 4.84% (commencement of
operations on October 15, 1993).

With respect to Class A Shares, for the period since commencement of
operations of each of the Funds through July 31, 1998, average annual total
returns (with maximum sales load) were as follows: for the Income Equity --
19.38% (class inception on June 20, 1994), Value Momentum -- 17.49% (class
inception on April 2, 1994), Growth -- 24.46% (class inception on June 20,
1994), Balanced -- 12.51% (class inception on November 13, 1992),
Intermediate-Term Bond -- 6.18% (class inception on February 3, 1992), Bond --
7.12% (class inception on June 20, 1994) and California Intermediate Tax-Free
Bond Funds -- 4.12% (class inception on October 15, 1993). For the same period,
average annual total returns (without sales load) were as follows: for the
Income Equity -- 20.73%, Value Momentum -- 18.34%, Growth -- 25.87%, Balanced --
13.42%, Intermediate-Term Bond -- 6.67%, Bond -- 7.91% and California
Intermediate Tax-Free Bond Funds -- 4.78%.

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With respect to Class B Shares, for the period since commencement of
operations (class inception on February 2, 1998) of each of the Funds through
July 31, 1998, average annual total returns (annualized), with maximum sales
load, were as follows: for the Income Equity --8.10%, Value Momentum -- (1.06)%,
Growth -- 23.71% and Balanced Funds -- (0.68)%. For the same period, average
annual total returns, without sales load, were as follows: for the Income Equity
- -- 13.10%, Value Momentum -- 3.94%, Growth -- 28.71% and Balanced Funds --
11.32%.

Each Fund's respective average annual total return and/or aggregate total
return was calculated by determining the change in the value of a hypothetical
$1,000 investment in the Fund over the applicable period (utilizing, when
appropriate, performance information from the applicable IRA Fund Portfolio
prior to June 23, 1988) that would equate the initial amount invested to the
ending redeemable value of the investment; in the case of the average annual
total return, this amount (representing the Fund's total return) was then
averaged over the relevant number of years. The ending redeemable value includes
dividends and capital gain distributions reinvested at net asset value. The
resulting percentages indicate the positive or negative investment results that
an investor would have experienced from changes in Share price and reinvestment
of dividends and capital gains distributions.

For the thirty-day period ended July 31, 1998, the yield for the Class A,
Class B and Fiduciary Shares of the Growth Fund was 0%, 0% and 0%, respectively;
for the Class A, Class B and Fiduciary Shares of the Income Equity Fund was
1.00%, 0.41% and 1.34%, respectively; for the Class A, Class B and Fiduciary
Shares of the Balanced Fund was 2.25%, 1.75% and 2.61%, respectively; for the
Class A, Class B and Fiduciary Shares of the Value Momentum Fund was 0.89%,
0.18% and 1.19%, respectively; for the Fiduciary Shares of the Emerging Growth
Fund was 0.29%, respectively; for the Class A and Fiduciary Shares of the
Intermediate-Term Bond Fund was 5.30% and 5.47%, respectively; for the Class A
and Fiduciary Shares of the California Intermediate Tax-Free Bond Fund was 3.83%
and 3.95%, respectively; for the Class A and Fiduciary Shares of the Bond Fund
was 5.48% and 5.68%, respectively; for the Fiduciary Shares of the International
Equity Fund was 0%. 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> 122

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.

All performance information presented is based on past performance and
does not predict future performance. No performance information is presented for
the Small Cap Value Fund because it had not commenced operations as of July 31,
1998.

MISCELLANEOUS

Prior to April 28, 1997, the California Tax-Free Money Market Fund, the
HighMark Value Momentum Fund, the Emerging Growth Fund, the International Equity
Fund, the Intermediate-Term Bond Fund, and the California Intermediate Tax-Free
Bond Fund did not yet operate as HighMark Funds. Prior to operating as HighMark
Funds, each Fund had a fiscal year end of January 31 (rather than July 31). Most
of the financial and investment information (e.g., fees paid to service
providers and portfolio turnover) presented in this Statement of Additional
Information and in the Prospectuses is based on a Fund's fiscal year end. Each
of these Funds is the accounting survivor of a reorganization of two mutual
funds. All fees paid by these Funds (or sub-advisory fees paid with respect to
these Funds) for a fiscal year end of January 31 represent the fees paid by the
accounting survivor prior to the reorganization. As a result, for each of these
Funds, and for the Diversified Money Market Fund and the Balanced Fund, for the
fiscal year ended July 31, 1997, the financial and investment information is
provided for the period February 1, 1997 through July 31, 1997. Therefore, for
these Funds for each prior fiscal year, the financial and investment information
is provided for the period February 1 through January 31.

For all of the other Funds information for a fiscal year is provided for
the period August 1 through July 31 (or such other shorter period if the Fund
began operations after August 1).

HighMark Funds is not required to hold meetings of Shareholders for the
purpose of electing Trustees except that (i) HighMark Funds is required to hold
a Shareholders' meeting for the election of Trustees at such time as less than a
majority of the Trustees holding office

-78-
<PAGE> 123

have been elected by Shareholders and (ii) if, as a result of a vacancy on the
Board of Trustees, less than two-thirds of the Trustees holding office have been
elected by the Shareholders, that vacancy may be filled only by a vote of the
Shareholders. In addition, Trustees may be removed from office by a written
consent signed by the holders of Shares representing two-thirds of the
outstanding Shares of HighMark Funds at a meeting duly called for the purpose,
which meeting shall be held upon the written request of the holders of Shares
representing not less than 10% of the outstanding Shares of HighMark Funds. Upon
written request by the holders of Shares representing 1% of the outstanding
Shares of HighMark Funds stating that such Shareholders wish to communicate with
the other Shareholders for the purpose of obtaining the signatures necessary to
demand a meeting to consider removal of a Trustee, HighMark Funds will provide a
list of Shareholders or disseminate appropriate materials (at the expense of the
requesting Shareholders). Except as set forth above, the Trustees may continue
to hold office and may appoint successor Trustees.

HighMark Funds is registered with the Securities and Exchange Commission
as a management investment company. Such registration does not involve
supervision by the Securities and Exchange Commission of the management or
policies of HighMark Funds.

The Prospectuses and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Securities and Exchange Commission. Copies of such information may be
obtained from the Securities and Exchange Commission upon payment of the
prescribed fee.

The 1998 Annual Report to Shareholders of HighMark Funds is incorporated
herein by reference. This Report includes audited financial statements for the
fiscal year ended July 31, 1998. Upon the incorporation by reference herein of
such Annual Report, the opinion in such Annual Report of independent accountants
is incorporated herein by reference and such Annual Report's financial
statements are incorporated by reference herein in reliance upon the authority
of such accountants as experts in auditing and accounting.

The Prospectuses and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made.

No salesperson, dealer, or other person is authorized to give any
information or make any representation other than those contained in the
Prospectuses and this Statement of Additional Information.

As of November 18, 1998, HighMark Funds believes that the trustees and
officers of HighMark Funds, as a group, owned less than one percent of the
Shares of any Fund of HighMark Funds. As of November 18, 1998, HighMark Funds
believes that Union Bank of California was the shareholder of record of 97.95%
of the Fiduciary Shares of the Growth Fund, 84.03% of the Fiduciary Shares of
the Income Equity Fund, 78.98% of the Fiduciary Shares of the Balanced Fund,
97.29% of the Fiduciary Shares of the Bond Fund, 99.69% of

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<PAGE> 124

the Fiduciary Shares of the Intermediate-Term Bond Fund, 94.99% of the Fiduciary
Shares of the California Intermediate Tax-Free Bond Fund, 84.76% of the
Fiduciary Shares of the Value Momentum Fund, 51.38% of the Fiduciary Shares of
the Emerging Growth Fund, 97.47% of the Fiduciary Shares of the U.S. Government
Money Market Fund, 97.16% of the Fiduciary Shares of the Diversified Money
Market Fund, 95.20% of the Fiduciary Shares of the 100% U.S. Treasury Money
Market Fund and 99.84% of the Fiduciary Shares of the California Tax-Free Money
Market Fund. As of November 18, 1998, HighMark Funds believes that Bank of Tokyo
Trust Company was the shareholder of record of 48.26% of the Fiduciary Shares of
the Emerging Growth Fund.

As of November 18, 1998, HighMark Funds believes that Union Bank of
California had voting power with respect to 35.28% of the Growth Fund Fiduciary
Shares, 11.91% of the Income Equity Fund Fiduciary Shares, 11.85% of the
Balanced Fund Fiduciary Shares, 6.77% of the Bond Fund Fiduciary Shares, 19.13%
of the Value Momentum Fund Fiduciary Shares, and 57.14% of the International
Equity Fund Fiduciary Shares.

The table below indicates each additional person known by HighMark Funds
to own of record or beneficially 5% or more of the Shares of the following Funds
of HighMark Funds as of November 18, 1998.

-80-
<PAGE> 125

5% OR MORE OWNERS

INCOME EQUITY FUND - CLASS A SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
The Kendall Jackson Fndtn. Inc. 5.48%
Wendy Petersen
421 Aviation Blvd.
Santa Rosa, CA 95403-1069
</TABLE>

INCOME EQUITY FUND - CLASS B SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Sergey Tikhomirov 6.03%
c/o Gary Dunn CPA
1690 West Shaw, Suite 210
Fresno, CA 93711-3516
</TABLE>

INCOME EQUITY FUND - FIDUCIARY SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Lane & Company 50.36%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109

Union Bank 33.67%
Lane & Co. Reinvest
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109

<CAPTION>
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------

<S> <C>
Union Bank of California 401(k) Plan 11.91%
350 California Street
San Francisco, CA 94104
</TABLE>

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<PAGE> 126

VALUE MOMENTUM FUND - FIDUCIARY SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Mellon Bank NA Trustee for Dept. 10.41%
of Personnel Admin. of State of California
Attn: Wally Adebayo
One Cabot Road, Mail Zone 028-003I
Medford, MA 02155-5141

Lane & Company 84.76%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109

<CAPTION>
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------

<S> <C>
Union Bank of California Retirement Plan 9.79%
350 California Street
San Francisco, CA 94104

Union Bank of California 401(k) Plan 9.34%
350 California Street
San Francisco, CA 94104
</TABLE>

GROWTH FUND - CLASS A SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
The Kendall Jackson Fndtn. Inc. 6.16%
Wendy Petersen
421 Aviation Blvd.
Santa Rosa, CA 95403-1069
</TABLE>

GROWTH FUND - FIDUCIARY SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Lane & Company 97.95%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>

-82-
<PAGE> 127

<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------

<S> <C>
Union Bank of California Retirement Plan 17.78%
350 California Street
San Francisco, CA 94104

Union Bank of California 401(k) Plan 17.50%
350 California Street
San Francisco, CA 94104
</TABLE>

BALANCED FUND - CLASS A SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Ty Yeh 7.50%
Yeh Family Trust
U/A 9/11/91
2048 Studebaker Rd.
Long Beach, CA 90815-3539
</TABLE>

BALANCED FUND - CLASS B SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Union Bank of California Cust. 5.73%
IRA of Joji Yoshida
Rollover
5218 Carmen St.
Torrance, CA 90503-6318
</TABLE>

BALANCED FUND - FIDUCIARY SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
American Express Trust Company 9.58%
As Agent for NBC Savings and Retirement Plan
Attn: Nancy Jendro Trust Operations
P.O. Box 534
Minneapolis, MN 55440-0534
</TABLE>

-83-
<PAGE> 128

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
PFTC. Trustee Nissan Empl. Sav. Pln. 5.20%
Putnam Investments DCPA
Nissan Motor Corporation
Location 31
P.O. Box 9740
Providence, RI 02940-9740

Lane & Company 78.98%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109

<CAPTION>
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------

<S> <C>
Nissan Motor Corp USA 5.20%
P.O. Box 191
Gardena, CA 90248-0191

Nummi Savings Plan 9.32%
45500 Fremont Blvd.
Fremont, CA 94538

NEC America, Inc 9.58%
8 Old Sod Farm Road
Melville, NY 11747

Union Bank of California 401(k) Plan 11.85%
350 California Street
San Francisco, CA 94104
</TABLE>

SMALL CAP VALUE FUND - CLASS A SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Elizabeth Pearce 7.48%
135 Driftwood
Marina Del Ray, CA 90292-5734

Charles J. Bommarito 11.84%
1101 Chardonnay Way
Modesto, CA 95351-5113
</TABLE>

-84-
<PAGE> 129

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Union Bank TTBE. 16.32%
IRA of Clark R. Gates
Rollover IRA
2090 Pacific Ave., #404
San Francisco, CA 94109-2248

Small Business Plan P.S. 41.11%
Union Bank of California TTBE.
Thomas J. Gram, Prof. Corp. P/Adm.
5800 Shellmound St., Suite 210
Emeryville, CA 94608-1931

Union Bank TTBE. 8.22%
IRA of Janice Anderson Gram
Rollover IRA
8 Venado Drive
Tiburon, CA 94920-1626
</TABLE>

SMALL CAP VALUE FUND - CLASS B SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Hayakawa Trust 31.43%
William N. Hayakawa
U/A 03/09/1995
4805 Terra Granada Dr., #1B
Walnut Creek, CA 94595-4088

David Benvenuti MD TTBE. 63.91%
The Ret. Tr. David Benvenuti MD Inc.
106 Linda Isle
Newport Beach, CA 92660-7210
</TABLE>

SMALL CAP VALUE FUND - FIDUCIARY SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Lane & Company 99.27%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>

-85-
<PAGE> 130

<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------

<S> <C>
Union Bank of California Retirement Plan 99.02%
350 California Street
San Francisco, CA 94104
</TABLE>

EMERGING GROWTH FUND - FIDUCIARY SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
BOTT Pension 48.26%
c/o Bank of Tokyo Trust Company
Attn: Dennis Demetropoulos
1251 Avenue of the Americas, Fl. 10
New York, NY 10020-1104

Lane & Company 51.38%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>

BOND FUND - CLASS A SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Northwestern Trst. & Advisory Co. TTBE 6.98%
1201 3rd Ave., Suite 2010
Seattle, WA 98101-3026

Exchange Bank TTBE 6.00%
FBO Helen Kelly Trust
P.O. Box 208
Santa Rosa, CA 95402-0208

Alice A. Swenning Trust 6.51%
The Swenning Fam. TTBE
U/A 9/23/91
1447 21st Ave.
Kingsburg, CA 93631-2027

P&H Metal Products Corp. 9.80%
George Paikos David Long TTBE
U/A 07/01/93
</TABLE>

-86-
<PAGE> 131

<TABLE>
<S> <C>
27795 Avenue Hopkins
Valencia, CA 91355-1223
</TABLE>

BOND FUND - FIDUCIARY SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Lane & Company 59.84%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109

Union Bank 37.45%
Lane & Co. Reinvest
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>

-87-
<PAGE> 132

<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------

<S> <C>
Union Bank of California 401(k) Plan 6.77%
350 California Street
San Francisco, CA 94104

Nummi Hourly Retirement Plan 5.18%
45500 Fremont Blvd.
Fremont, CA 94538
</TABLE>

INTERMEDIATE-TERM BOND FUND - CLASS A SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
National Financial Services Corp. 91.76%
for Exclusive Benefit of Our Cust.
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
</TABLE>

INTERMEDIATE-TERM BOND FUND - FIDUCIARY SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Lane & Company 99.69%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>

-88-
<PAGE> 133

CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND - CLASS A SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Henry & Marcy Tenenblatt Trust 12.74%
Henry Tenenblatt
U/A 08/03/87
16323 Shadow Mountain
Pacific Palisades, CA 90272-2353

Bill S. Tsutagawa 6.28%
Yuriko Tsutagawa
2242 Valley Rd.
Oceanside, CA 92056-3107

Peter Johnson 21.10%
10350 N. Torrey Pines Rd., #100
La Jolla, CA 92037-1018

Larry Strasbaugh 6.16%
2555 W. Poza Road
Santa Margarita, CA 93453-9621

The Featherston Trust 6.11%
Lawrence H. Featherston
U/A 10/19/95
1300 S. Montezuma Way
West Covina, CA 91791-3738

Aaron Belokamen 6.62%
Lilian Belokamen
11610 Bellagio Rd.
Los Angeles, CA 90049-2113
</TABLE>

-89-
<PAGE> 134

CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND - FIDUCIARY SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Lane & Company 94.99%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>

INTERNATIONAL EQUITY FUND - FIDUCIARY SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------

<S> <C>
Nummi Hourly Retirement Plan 5.72%
45500 Fremont Blvd
Fremont, CA 94538

Union Bank of California Retirement Plan 57.14%
350 California Street
San Francisco, CA 94104
</TABLE>

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<PAGE> 135

DIVERSIFIED MONEY MARKET FUND - CLASS A SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
National Financial Services Corp 99.38%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
</TABLE>

DIVERSIFIED MONEY MARKET FUND - FIDUCIARY SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Union Bank 78.98%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602

Union Bank 18.18%
Lane & Co Reinvest
Attn: Kathleen Heilman
PO Box 120109
San Diego, CA 92112-0109
</TABLE>

U.S. GOVERNMENT MONEY MARKET FUND - CLASS A SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
National Financial Services Corp 98.48%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
</TABLE>

-91-
<PAGE> 136

U.S GOVERNMENT MONEY MARKET FUND - CLASS B SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Zenadia F. Loreto 43.01%
18225 Camino Bello #2
Rowland Heights, CA 91748-2642

Kendall Cho Cust 18.88%
Andrew Cho UTMA CA
12110 Rivera
Tustin, CA 92782-1207

Kendall Cho Cust 18.88%
Addison Cho UTMA CA
12110 Rivera
Tustin, CA 92782-1207

Kendall Cho Cust 18.88%
Austin Cho UTMA CA
12110 Rivera
Tustin, CA 92782-1207
</TABLE>

U.S GOVERNMENT MONEY MARKET FUND - FIDUCIARY SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Union Bank 97.47%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602

<CAPTION>
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------

<S> <C>
RCM Capital Management 5.28%
7200 Wisconsin Avenue # 1001
Bethesda, MD 20814-4813

City of Hope National Medical Center 8.26%
1500 East Duarte Road
Duarte, CA 91010-0269
</TABLE>

-92-
<PAGE> 137

100% U.S TREASURY MONEY MARKET FUND - CLASS A SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
National Financial Services Corp 99.68%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
</TABLE>

100% U.S TREASURY MONEY MARKET FUND - FIDUCIARY SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Union Bank 95.20%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602

<CAPTION>
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------

<S> <C>
Weber Metals, Inc. 5.84%
P.O. Box 318
Paramount, CA 90723-0318
</TABLE>

CALIFORNIA TAX-FREE MONEY MARKET FUND - CLASS A SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
National Financial Services Corp 99.19%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
</TABLE>

-93-
<PAGE> 138

CALIFORNIA TAX-FREE MONEY MARKET FUND - FIDUCIARY SHARES

<TABLE>
<CAPTION>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------

<S> <C>
Union Bank 99.84%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
</TABLE>

-94-
<PAGE> 139

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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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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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.

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

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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.

D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.

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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.

Short-Term Debt Ratings

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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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FINANCIAL STATEMENTS

The Independent Auditors' Report for HighMark Funds for the fiscal year
ended July 31, 1998, audited Financial Statements for HighMark Funds for the
fiscal year ended July 31, 1998, and unaudited Financial Statements for HighMark
Funds for the period ended January 31, 1998 are all incorporated by reference to
the Annual and Semi-Annual Reports of HighMark Funds, dated as of such dates,
which have been previously sent to shareholders of each Fund pursuant to the
1940 Act and previously filed with the Securities and Exchange Commission. A
copy of each such report may be obtained without charge by contacting the
Distributor, SEI Investments Distribution Co. at 1 Freedom Valley Drive, Oaks,
Pennsylvania, 19456 or by telephoning toll-free at 1-800-734-2922.

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