<PAGE>
As filed with the Securities and Exchange Commission
on January 28, 2000
Registration Nos. 33-12608 and 811-5059
---------------------------------------
----------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No.
Post-Effective Amendment No. 29 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT /X/
COMPANY ACT OF 1940
Amendment No. 30 /X/
HIGHMARK FUNDS
(Exact Name of Registrant as Specified in Charter)
Oaks, Pennsylvania 19456
------------------------
(Address of principal executive offices)
(800) 433-6884
--------------
(Registrant's telephone number, including area code)
Name and address of agent for service:
-------------------------------------
Martin E. Lybecker, Esq.
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on [date] pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on [date] pursuant to paragraph (a)(i)
/X/ 75 days after filing pursuant to paragraph (a)(ii)
/ / on [date] pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
HIGHMARK FUNDS
CORE EQUITY FUND
PROSPECTUS
RETAIL SHARES
APRIL __, 2000
The Securities and Exchange Commission has not approved or disapproved of these
securities or determined whether this prospectus is accurate or complete. Any
representation to the contrary is unlawful.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
HOW TO READ THIS PROSPECTUS
HighMark Funds is a mutual fund family that offers different classes of Shares
in separate investment portfolios (Funds). The Funds have various investment
goals and strategies. This prospectus gives you important information about the
Class A, Class B and Class C Shares of the HighMark Core Equity Fund that you
should know before investing. The Fund also offers a class of Shares called
Fiduciary Shares, which are offered in a separate prospectus.
Please read this prospectus and keep it for future reference. The prospectus is
arranged into different sections so that you can easily review this important
information. The next column contains general information you should know about
investing in the Fund.
FUND PROFILE
Core Equity Fund................................................... 4
SHAREOWNER GUIDE HOW TO INVEST IN THE FUND
Choosing a Share Class............................................. 7
How Sales Charges Are Calculated................................... 8
Sales Charge Reductions and Waivers................................ 9
Fees for Distribution of Shares....................................11
Opening an Account.................................................11
Buying Shares......................................................12
Selling Shares.....................................................14
Exchanging Shares..................................................16
Transaction Policies...............................................16
Dividends and Distributions........................................17
Taxes..............................................................17
Investor Services..................................................19
MORE ABOUT THE FUND
Investment Management..............................................20
Financial Highlights...............................................20
Investment Practices...............................................20
Glossary of Investment Risks.......................................23
FOR MORE INFORMATION ABOUT HIGHMARK FUNDS, PLEASE SEE THE BACK COVER OF THE
PROSPECTUS
2
<PAGE>
INTRODUCTION
The HighMark Core Equity Fund is a mutual fund. A mutual fund pools
shareholders' money and, using professional investment managers, invests it in
securities such as stocks and bonds. Before you look at the Fund, you should
know a few basics about investing in mutual funds.
The value of your investment in a mutual fund is based on the market prices of
the securities the mutual fund holds. These prices change daily due to economic
trends and other developments that generally affect securities markets, as well
as those that affect particular firms and other types of issuers. These price
movements, also called volatility, vary depending on the types of securities a
mutual fund owns and the markets where these securities trade.
AS WITH OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR INVESTMENT IN A MUTUAL
FUND. YOUR INVESTMENT IN THE HIGHMARK CORE EQUITY FUND IS NOT A DEPOSIT OR AN
OBLIGATION OF UNION BANK OF CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK. IT IS
NOT INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY.
Each HighMark Fund has its own investment goal and strategies for reaching that
goal. There is no guarantee that a Fund will achieve its goal. Before investing,
make sure that the Fund's goal matches your own.
The portfolio manager invests each Fund's assets in a way that he or she
believes will help the Fund achieve its goal. A manager's judgments about the
securities markets, economy and companies, and his or her investment selection,
may cause the Fund to underperform other funds with similar objectives.
FUND SUMMARY PERFORMANCE INFORMATION
INVESTMENT STRATEGY DID YOU KNOW?
WHAT ARE THE MAIN FUND INFORMATION
RISKS OF INVESTINGIN THIS FUND? FEES AND EXPENSES
3
<PAGE>
CORE EQUITY FUND
FUND SUMMARY
INVESTMENT GOAL To seek long-term capital appreciation
INVESTMENT FOCUS U.S. common stocks
PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with
strong earnings growth selling at
attractive values.
SHARE PRICE VOLATILITY Moderate to high
INVESTOR PROFILE Long-term investors seeking capital
appreciation
INVESTMENT STRATEGY
HighMark Core Equity Fund seeks long-term capital appreciation. To pursue this
goal, the Fund invests at least 65% of its assets in the stocks of U.S.
companies with capitalizations similar to the S&P 500 Stock Index.
To choose stocks for the Fund, the portfolio managers follow a stock selection
strategy utilizing a proprietary quantitative methodology and fundamental
analysis. Stock selection focuses on companies that are likely to demonstrate
superior earnings growth relative to their peers, and whose equities are
selling at attractive valuations. As a result, the Portfolio will invest in a
blend of both "growth" and "value" stocks. Further, the Portfolio is
diversified over a broad cross section of economic sectors and industries. To
help control risk, the Advisor compares the Portfolio's economic sector and
industry weightings to a broad index, such as the Standard & Poor's (S&P) 500
Stock Index, and normally avoids extreme overweighting or underweighting
relative to that index.
In addition to those described above, the Fund may invest in other types of
securities, including bonds. In an effort to preserve the value of your
investment under volatile market conditions, the managers may invest more than
35% of the Fund's assets in very short-term debt obligations called money market
securities. Such a strategy could make it more difficult for the Fund to achieve
its goals.
For a more complete description of the securities in which the Fund can invest,
please see "Investment Practices" on page X.
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Your investment in the Fund may be subject to the following risks:
MARKET RISK: The possibility that the Fund's stock holdings may decline in price
because of a broad stock market decline. Markets generally move in cycles, with
periods of rising prices followed by periods of falling prices. The value of
your investment will tend to increase or decrease in response to these
movements.
SMALL COMPANY RISK: Investing in smaller, lesser-known companies involves
greater risk than investing in those that are more established. A small
company's financial well-being may, for example, depend heavily on just a few
products or services. In addition, investors may have limited flexibility to buy
or sell small company stocks compared to those of larger firms.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the amount
of taxes you pay.
For more information about these risks, please see "Glossary of Investment
Risks" on page X.
4
<PAGE>
PERFORMANCE INFORMATION
This section would normally include a bar chart and a table showing how the
Fund has performed and how its performance has varied from year to year.
Because the Fund had not commenced operations prior to the date of this
Prospectus, the bar chart and table are not shown.
FUND INFORMATION
CLASS CUSIP TICKER
----- ----- ------
Class A
Class B
Class C
DID YOU KNOW?
SMALL CAPITALIZATION COMPANIES are those companies with market capitalizations
within the range of those in the S&P 600 Small Cap Index.
MEDIUM CAPITALIZATION COMPANIES are those companies with market capitalization
within the range of those in the S&P 400 Mid-Cap Index.
LARGE CAPITALIZATION COMPANIES are those companies with market capitalization
within the range of those companies in the S&P 500 Index.
FEES AND EXPENSES
The following tables describe the fees and expenses you would pay if you buy and
hold Fund Shares. The first table describes the fees that you would pay directly
from your investment if you purchased or sold Fund Shares. The second table
describes the expenses you would pay indirectly if you held Fund Shares.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price)* 5.50% 0% 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** 0% 5.00% 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)*** 0% 0% 0%
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses+ 0.49% 0.49% 0.24%
----- ----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.34% 1.84% 1.84%
Fee Waivers 0.15% 0% 0%
TOTAL ANNUAL FUND OPERATING EXPENSES++ 1.19% 1.84% 1.84%
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
+Other expenses are based on estimated amounts for the current fiscal year.
++The Fund's Adviser has agreed to contractually waive fees in order to keep
total operating expenses for Class A Shares from exceeding 1.19% for the period
beginning April __, 2000 and ending on November 29, 2000. The Fund's total
actual operating expenses for the current fiscal year are expected to be less
than the amount shown above because additional fees are expected to be waived or
reimbursed in order to keep total operating expenses at a specified level. These
voluntary waivers or reimbursements may be discontinued at any time. With these
fee waivers, the Fund's actual operating expenses are expected to be as follows:
Class A Shares: 1.17%
Class B Shares: 1.82%
Class C Shares: 1.82%
EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C> <C>
CLASS A SHARES $665 $937
CLASS B SHARES
If you do not sell
your shares: $187 $579
If you sell your
shares at the
end of the period: $687 $879
CLASS C SHARES
If you do not sell
your shares: $187 $579
If you sell your
shares at the
end of the period: $287 $579
</TABLE>
6
<PAGE>
SHAREOWNER GUIDE - HOW TO INVEST IN THE HIGHMARK FUNDS
Before you invest, we encourage you to carefully read the Fund profile included
in this prospectus and consider if the Fund is appropriate for your particular
financial situation, risk tolerance and goals. As always, your financial
representative can provide you with valuable assistance in making this decision.
He or she can also help you choose which of the Fund share classes we offer is
right for you.
CHOOSING A SHARE CLASS
The Core Equity Fund offers different classes of Fund Shares, each of which has
different expenses and other characteristics. Three classes of Fund
Shares--Classes A, B and C--are offered in this prospectus. To choose the one
that is best suited to your needs and goals, consider the amount of money you
want to invest, how long you expect to invest it and whether you plan to make
additional investments. The following are some of the main differences between
the Fund's Class A, Class B and Class C Shares:
CLASS A
- - Front-end sales charges, as described below.
- - Distribution and service (12b-1) fees of 0.25%.
- - Because Class A Shares will normally be the better choice if your
investment qualifies for a reduced sales charge:
- Orders for Class B Shares for $250,000 or more normally should be
placed as orders for Class A Shares.
- Orders for Class C Shares for $1 million or more normally should be
placed as orders for Class A Shares.
- Orders for Class B Shares or Class C Shares by an investor eligible to
purchase Class A Shares without a front-end sales charge normally
should be placed as orders for Class A Shares.
CLASS B
- - No front-end sales charge.
- - Distribution and service (12b-1) fees of 0.75%.
- - A deferred sales charge, as described below.
- - Automatic conversion to Class A Shares after eight years, thus reducing
future annual expenses.
CLASS C
- - No front-end sales charge.
- - Distribution and service (12b-1) fees of 1.00%.
- - A deferred sales charge, as described below.
- - No automatic conversion to Class A Shares, so annual expenses continue at
the Class C level throughout the life of your investment.
FOR THE ESTIMATED EXPENSES OF EACH SHARE CLASS FOR THE CURRENT FISCAL YEAR, SEE
THE FUND PROFILE EARLIER IN THIS PROSPECTUS.
7
<PAGE>
BECAUSE 12b-1 FEES ARE PAID ON AN ONGOING BASIS, CLASS B AND CLASS C
SHAREHOLDERS COULD END UP PAYING MORE EXPENSES OVER THE LONG TERM THAN IF THEY
HAD PAID A SALES CHARGE ON THEIR INITIAL INVESTMENT.
FOR INSTITUTIONAL INVESTORS ONLY: THE FUND ALSO OFFERS FIDUCIARY CLASS SHARES
WHICH HAS ITS OWN EXPENSE STRUCTURE. FIDUCIARY CLASS SHARES ARE AVAILABLE ONLY
TO FINANCIAL INSTITUTIONS, FIDUCIARY CLIENTS OF UNION BANK OF CALIFORNIA, N.A.,
AND CERTAIN OTHER QUALIFIED INVESTORS. CALL US AT 1-800-433-6884 FOR MORE
DETAILS.
FOR PURCHASES OF $1 MILLION OR GREATER, THE SALES CHARGE FOR CLASS A SHARES IS
WAIVED. AS A RESULT, IF YOU ARE MAKING AN INITIAL INVESTMENT OF $1 MILLION OR
MORE, THE LOWER OPERATING EXPENSES OF CLASS A SHARES MAY MAKE THEM A BETTER
CHOICE FOR YOU THAN CLASS B OR CLASS C SHARES.
HOW SALES CHARGES ARE CALCULATED
HighMark Funds offers different classes of Fund Shares, each of which has
different expenses and other characteristics. Three classes of Fund
Shares--Classes A, B and C--are offered in this prospectus. To choose the one
that is best suited to your needs and goals, consider the amount of money you
want to invest, how long you expect to invest it and whether you plan to make
additional investments. The following are some of the main differences between
HighMark's Class A, Class B and Class C Shares:
CLASS A SHARES: FRONT-END SALES CHARGE
EQUITY FUNDS
<TABLE>
<CAPTION>
AS A AS A
PERCENTAGE OF PERCENTAGE OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
- --------------- -------------- ---------------
<S> <C> <C>
0 - $49,999 5.50% 5.82%
$50,000 - $99,999. 4.50% 4.71%
$100,000 - $249,999 3.75% 3.90%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and Over 0.00%* 0.00%
</TABLE>
*If you sell Class A Shares within one year of buying them and you bought those
Shares without a sales charge because your initial investment was $1 million or
greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
CLASS B AND CLASS C SHARES: CONTINGENT DEFERRED SALES CHARGE
Class B Shares and Class C Shares are available at their net asset value per
share, without any initial sales charge. If you sell Class B Shares within six
years of buying them or Class C Shares within one year of buying them, you must
pay what is known as a "contingent deferred sales charge" (CDSC). As the tables
below show, the CDSC declines over time and is based on either the original cost
you paid for the Shares or their current market value, whichever is less. We do
not impose a CDSC on Shares you may have acquired by reinvesting your dividends
or capital gains distributions.
THE CDSC ARE AS FOLLOWS:
CLASS B SHARES
<TABLE>
<CAPTION>
IF SOLD WITHIN CDSC ON SHARES BEING SOLD
- -------------- -------------------------
<S> <C>
1st year 5.00%
2nd year 4.00%
8
<PAGE>
<CAPTION>
<S> <C>
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
7th and 8th year 0%
</TABLE>
CLASS C SHARES
<TABLE>
<CAPTION>
IF SOLD WITHIN CDSC ON SHARES BEING SOLD
- -------------- -------------------------
<S> <C>
1st year 1.00%
After 1st year 0%
</TABLE>
Class B Shares will automatically convert to Class A Shares after eight years.
Class C Shares do not convert to Class A Shares.
In addition, we calculate any CDSC you may owe by considering the number of
Shares you are selling, not the value of your account. To keep your CDSC as low
as possible, each time you ask us to sell Shares we will first sell any Shares
in your account that carry no CDSC. If there are not enough of these to meet
your request, we will sell those Shares that have the lowest CDSC next.
CLASS C SHARES
Even though there is no front-end sales charge, the Distributor pays a
commission equal to 1% of your purchase to your broker or financial institution.
The Distributor receives any CDSC imposed when you sell your Class C Shares.
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGES. You can combine multiple purchases of Class
A Shares in several ways to qualify for reduced sales charges. Notify us at the
time of your purchase if you believe you qualify for a reduced sales charge for
any of the following reasons:
- - RIGHT OF ACCUMULATION PRIVILEGE: You may combine the value of Class A
Shares you are presently buying with the current value of any Class A
Shares you bought previously for: (1) your account; (2) your spouse's
account; (3) a joint account with your spouse; or (4) your minor children's
trust or custodial accounts. A fiduciary who is purchasing Shares for the
same fiduciary account, trust or estate may also use this right of
accumulation.
- - COMBINATION PRIVILEGE: You may combine your investment in Class A Shares of
several HighMark Funds sold subject to a comparable sales charge to qualify
for the reduced sales charge.
- - LETTER OF INTENT: If you plan to invest in Class A Shares of one HighMark
Fund and, within a 13-month period, make an additional investment in Class
A Shares of another HighMark Fund, you may be able to receive a reduced
sales charge on your cumulative investment. To take advantage of this
privilege, you must inform us in writing within 90 days of your initial
purchase. Be sure to notify us again when you make your additional
investment in another HighMark Fund.
REDUCTIONS FOR QUALIFIED GROUP(S). If you are investing with, or on behalf
of, a group, your combined purchases of Class A Shares may be eligible for a
reduced sales charge through the accumulation and combination privileges
described above. Each investor will retain an individual account.
CONTACT YOUR FINANCIAL REPRESENTATIVE OR THE DISTRIBUTOR TO FIND OUT HOW TO
QUALIFY, OR CONSULT THE STATEMENT OF ADDITIONAL INFORMATION (SEE THE BACK COVER
OF THIS PROSPECTUS FOR CONTACT INFORMATION).
9
<PAGE>
FRONT-END SALES CHARGE WAIVERS: The front-end sales charge will be waived on
Class A Shares bought:
(1) Through reinvestment of dividend and capital gain distributions
(2) By investment companies advised by HighMark Capital Management, Inc., Union
Bank of California, N.A., or their affiliates; or distributed by SEI Investments
Distribution Co. or their affiliates placing orders on each entity's behalf.
(3) By state and local governments.
(4) By individuals rolling over distributions received from employee benefit
trust accounts administered by Union Bank of California into an individual
retirement account administered by the Bank, or for which the Bank serves as
trustee or custodian. Future purchases will be subject to the appropriate sales
charge.
(5) By individuals investing the proceeds from a required minimum distribution
at age 70 1/2 from their employee benefit qualified plan or an individual
retirement account administered by Union Bank of California.
(6) By individuals investing proceeds received in connection with a distribution
paid from a Union Bank of California trust or agency account.
(7) By investment advisers or financial planners regulated by a federal or state
governmental authority who are purchasing Class A Shares for their own account
or for an account for which they are authorized to make investment decisions
(i.e., a discretionary account) and who charge a management, consulting or other
fee for their services; and clients of such investment advisers or financial
planners who place trades for their own accounts, if the accounts are linked to
the master account of the investment adviser or financial planner on the books
and records of a broker or agent;
(8) By individuals investing proceeds they received from selling Shares of
another mutual fund (other than HighMark Funds) on which they paid a sales
charge. If you believe you qualify for this exemption, you must notify us at the
time you purchase Class A Shares and provide us with evidence such as a
confirmation of your share redemption.
(9) By brokers, dealers and agents (as well as their employees, spouses and
children under the age of 21) who have a sales agreement with the Distributor
and are purchasing Class A Shares for their own account.
(10) By individuals buying Class A Shares on behalf of a qualified prototype
retirement plan (other than an IRA, SEP-IRA or Keogh).
(11) By sponsors of a unit investment trust (UIT) who are buying Class A Shares
of HighMark Growth Fund for deposit into the UIT. This exception may also apply
to you if you hold a UIT and invest distributions you receive from it in Class A
Shares of the HighMark Growth Fund.
(12) By current or retired trustees of HighMark Funds; by directors, officers
and employees (as well as their spouses and children under the age of 21) of
Union Bank of California, SEI Investments Distribution Co. or their affiliated
companies and of Sub-Advisers to the HighMark Funds.
(13) By investors receiving Class A Shares issued in plans of reorganization,
such as mergers, asset acquisitions, and exchange offers, to which HighMark
Funds is a party.
(14) By persons who bought Class A Shares without the assistance of an
investment professional between May 15, 1998 and August 31, 1998. Such
individuals may make future purchases of Class A Shares at no sales charge.
IF YOU THINK YOU MAY ELIGIBLE FOR A SALES CHARGE WAIVER, CONTACT THE DISTRIBUTOR
OR CONSULT THE STATEMENT OF ADDITIONAL INFORMATION (SEE THE BACK COVER OF THIS
PROSPECTUS). FOR CATEGORIES 2 THROUGH 12 AND 14 ABOVE, YOU MUST NOTIFY THE
DISTRIBUTOR AT THE TIME YOU BUY THE SHARES THAT YOUR PURCHASE QUALIFIES FOR A
SALES
10
<PAGE>
CHARGE WAIVER.
CDSC WAIVERS: You may qualify for a CDSC waiver if:
- - you are selling Shares as part of a systematic withdrawal plan.
- - you are taking certain distributions from a retirement plan.
- - the shareholder has died or become disabled.
YOU MUST NOTIFY US THAT YOU ARE ELIGIBLE FOR A WAIVER UNDER THESE CIRCUMSTANCES
AT THE TIME YOU WISH TO SELL SHARES.
IF YOU THINK YOU MAY BE ELIGIBLE FOR A CDSC WAIVER, CONTACT YOUR FINANCIAL
REPRESENTATIVE OF THE DISTRIBUTOR OF CONSULT THE STATEMENT OF ADDITIONAL
INFORMATION (SEE THE BACK COVER OF THIS PROSPECTUS FOR CONTACT INFORMATION).
FEES FOR DISTRIBUTION OF SHARES
HighMark Funds has adopted 12b-1 plans with respect to Class A, Class B and
Class C Shares that allow each Fund to pay distribution and service fees. The
maximum distribution and service fee for each class of Shares is as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
SHARE CLASS DAILY NET ASSETS
- ----------- ----------------
<S> <C>
Class A 0.25%
Class B 0.75%
Class C 1.00%
</TABLE>
Because 12b-1 fees are paid on an ongoing basis, Class B and Class C
shareholders could, over time, end up paying more in expenses than if they had
paid a sales charge on their initial investment.
OPENING AN ACCOUNT
1. Read this prospectus carefully.
2. Determine how much money you want to invest.
The minimum investments for the HighMark Funds are as follows:
- - INITIAL PURCHASE: $1,000
$250 for current and retired trustees of
HighMark Funds and directors, officers and
employees (as well as their spouses and
children under the age of 21) of Union
Bank of California, N.A., SEI Investments
Distribution Co. and their affiliates.
- - ADDITIONAL PURCHASES: $100 for each Fund
We may waive these initial and additional investment minimums for purchases made
in connection with Individual Retirement Accounts, Keoghs, payroll deduction
plans, or 401(k) or similar plans.
3. Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation when
opening trust, corporate or power of attorney accounts. For more information,
please contact your financial representative or call us at 1-800-433-6884.
11
<PAGE>
4. You and your financial representative can initiate any purchase, exchange or
sale of Shares.
WE RESERVE THE RIGHT TO REJECT A PURCHASE ORDER IF THE DISTRIBUTOR OR THE
ADVISER DETERMINES THAT IT IS NOT IN THE BEST INTEREST OF HIGHMARK FUNDS OR ITS
SHAREHOLDERS.
BUYING SHARES
BY CHECK
OPENING AN ACCOUNT
- - Make out a check for the investment amount, payable to "HighMark Funds."
- - Deliver the check and your completed application to your financial
representative, or mail them to our transfer agent (see address below).
ADDING TO AN ACCOUNT
- - Make out a check for the investment amount, payable to "HighMark Funds."
- - Fill out the detachable investment slip from your account statement. If you
do not have a slip, include a note specifying the fund name, your share
class, your account number and the name(s) in which the account is
registered.
- - Deliver the check and your investment slip or note to your financial
representative, or mail them to our transfer agent (address below).
All purchases made by check should be in U.S. dollars.
Third party checks, credit card checks or cash will not be accepted.
BY EXCHANGE
OPENING AN ACCOUNT
- - Call your financial representative or the Distributor at 1-800-433-6884 to
request an exchange.
ADDING TO AN ACCOUNT
- - Call your financial representative or the Distributor at 1-800-433-6884 to
request an exchange.
BY WIRE
OPENING AN ACCOUNT
- - Deliver your completed application to your financial representative, or
mail it to the transfer agent (address below).
- - Obtain your Fund account number by calling your financial representative or
our transfer agent.
12
<PAGE>
- - Instruct your bank to wire the amount of your investment to:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02101
ABA# 011000028
DDA# 9905-194-8
Specify the Fund name, your choice of share class, the new Fund account number
and the name(s) in which the Fund account is registered. Your bank may charge a
fee to wire money.
ADDING TO AN ACCOUNT
- - Call our transfer agent before wiring any funds.
- - Instruct your bank to wire the amount of your investment to:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02101
ABA# 011000028
DDA# 9905-194-8
Specify the Fund name, your share class, your Fund account number and the
name(s) in which the Fund account is registered. Your bank may charge a fee to
wire money.
THROUGH FINANCIAL INSTITUTIONS
OPENING AN ACCOUNT
- - Call your financial institution for information on their procedures for
transmitting orders to HighMark Funds.
ADDING TO AN ACCOUNT
- - Call your financial institution for information on their procedures for
transmitting orders to HighMark Funds.
TRANSFER AGENT ADDRESS:
HighMark Funds
P.O. Box 8416
Boston, MA 02266-8416
Phone Number: 1-800-433-6884
Or contact your financial representative for instructions and assistance.
To add to an account using the Automatic Invest Plan, see "Additional Investor
Services."
13
<PAGE>
SELLING SHARES
BY LETTER
DESIGNED FOR
- - Accounts of any type.
- - Sales of any amount.
TO SELL SOME OF ALL OF YOUR SHARES
- - Write a letter indicating the Fund name, your share class, your Fund
account number, the name(s) in which the account is registered and the
dollar value or number of Shares you wish to sell.
- - Include all signatures and any guarantees that may be required (see next
page).
- - Mail the materials to our transfer agent.
- - We will mail a check to the name(s) and address in which the account is
registered, unless you give us other written instructions.
BY PHONE
DESIGNED FOR
- - Accounts of any type.
- - Sales of any amount.
TO SELL SOME OF ALL OF YOUR SHARES
- - To place your order, contact your financial representative or the
Distributor at 1-800-433-6884 between 8:30 A.M. and 8:00 P.M. Eastern Time
on most business days.
BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT)
DESIGNED FOR
- - Requests by letter to sell at least $500 (accounts of any type).
- - Requests by phone to sell at least $500 (accounts of any type).
TO SELL SOME OR ALL OF YOUR SHARES
- - We will wire amounts of $500 or more on the next business day after we
receive your request.
- - If you have an account with the Fund's transfer agent (a "Fund Direct
Account"), a $15 fee will be deducted from your account. - Shares cannot be
redeemed by wire on Federal holidays restricting wire transfers.
14
<PAGE>
BY EXCHANGE
DESIGNED FOR
- - Accounts of any type.
- - Sales of any amount.
TO SELL SOME OF ALL OF YOUR SHARES
- - Obtain a current prospectus for the Fund into which you are exchanging by
calling the Distributor or your financial representative.
- - Call the Distributor or your financial representative to request an
exchange.
THROUGH FINANCIAL INSTITUTIONS
DESIGNED FOR
- - Accounts set up through financial institutions.
TO SELL SOME OR ALL OF YOUR SHARES
- - Contact your financial institution for information on their procedures for
transmitting orders to HighMark Funds.
TRANSFER AGENT ADDRESS:
HighMark Funds
P.O. Box 8416
Boston, MA 02266-8416
Phone Number: 1-800-433-6884
Or contact your financial representative for instructions and assistance. To add
to an account using the Automatic Invest Plan, see "Additional Investor
Services."
SELLING SHARES IN WRITING. In certain circumstances, you may need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
- - you are selling more than $5,000 worth of Shares.
- - you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s).
You should be able to obtain a signature guarantee from a bank, broker-dealer,
credit union, securities exchange or association, clearing agency or savings
association. A notary public CANNOT provide a signature guarantee.
RECEIVING YOUR MONEY. Normally, we will send you a check for your proceeds as
promptly as possible, at the latest within seven calendar days of receiving your
redemption order. If, however, you recently purchased Shares in the Fund, we may
be unable to fulfill your request if we have not yet received and processed your
payment for the initial purchase. In such a case you may need to resubmit your
redemption request after we have received payment.
REDEMPTION IN KIND. The Funds reserve the right to make payment on redemptions
in securities rather than cash.
15
<PAGE>
INVOLUNTARY SALES OF YOUR SHARES. Due to the relatively high costs of handling
small investments, each Fund reserves the right to redeem your Shares at net
asset value (less any applicable contingent deferred sales charge) if your
account balance in any Fund drops below the minimum initial purchase amount for
any reason other than market fluctuation. This is more likely to occur if you
invest only the minimum amount in a Fund and then sell Shares within a fairly
short period of time. Before any Fund exercises its right to redeem your Shares,
we will notify you in writing at least 60 days in advance to give you time to
bring your account up to or above the minimum.
EXCHANGING SHARES
HOW TO EXCHANGE YOUR SHARES. You may exchange Class A, Class B or Class C Shares
of one HighMark Fund for those of another HighMark Fund (the "new Fund"),
provided that you:
- - Are qualified to invest in the new Fund.
- - Satisfy the initial and additional investment minimums for the new Fund.
- - Invest in the same share class in the new Fund as you did in the previous
Fund.
- - Maintain the minimum account balance for each HighMark Fund in which you
invest.
Your cost for buying Shares in the new Fund is based on the relative net asset
values of the Shares you are exchanging plus any applicable sales charge.
CLASS A SHARES. If you want to exchange Class A Shares of one HighMark Fund for
those of another Fund that has a higher sales charge, you must pay the
difference. The same is true if you want to exchange Class A Shares of a no-load
HighMark Money Market Fund for those of another HighMark Fund with a sales
charge. There is one exception: If you acquired Class A Shares of a HighMark
Money Market Fund in an exchange out of Class A Shares of a non-money market
HighMark Fund, you may, within a 12-month period, exchange your Class A money
market Shares for those of another HighMark Fund without paying any additional
sales charge. To receive a reduced sales charge when exchanging into a Fund, you
must notify us that you originally paid a sales charge and provide us with
information confirming your qualification.
CLASS B SHARES. To calculate the Class B Shares' eight-year conversion period or
contingent deferred sales charge payable upon redemption, we combine the period
you held Class B Shares of the "old" Fund with the period you held Class B
Shares of the "new" Fund.
TRANSACTION POLICIES
VALUATION OF SHARES. The Fund's net asset value is calculated according to the
following formula:
(Total mkt. value of the Fund's investments and other assets - any
Fund liabilities)
DIVIDED BY Total number of the Fund's Shares outstanding
= Fund's net asset value
We determine the net asset value (NAV) of the Fund as of 1:00 p.m. Pacific time
(4:00 p.m. Eastern time) every business day, based on the current market price
of the Fund's securities. If that is not available, we value securities by using
a method that the Funds' Board of Trustees believes accurately reflects fair
value. Although we use the same method to determine the NAV of Class A, Class B
and Class C Shares, the NAV of the Fund's Class B and Class C Shares may be
lower than that of its Class A Shares because Class B and Class C Shares have
higher distribution expenses. For further information about how we determine the
value of the Funds' investments, see the Statement of Additional Information.
BUY AND SELL PRICES. When you buy Shares, you pay the net asset value next
determined after we receive
16
<PAGE>
your order, plus any applicable sales charges. When you sell Shares, you receive
the net asset value next determined after we receive your order, minus any
applicable deferred sales charges.
EXECUTION OF ORDERS. You may buy and sell Shares of the HighMark Funds on any
day when the New York Stock Exchange is open for business (hereafter referred to
as a "business day").
- - PURCHASING SHARES BY MAIL: If you mail us a purchase order, we will execute
it as soon as we have received your payment. (Note: If your check does not
clear, we will be forced to cancel your purchase and may hold you liable
for any losses or fees incurred.)
- - PURCHASING SHARES BY WIRE: If you place a purchase order by wire on any
business day, we will execute it that day, provided that you have wired the
money you wish to invest to the transfer agent prior to 1:00 p.m. PT (4:00
p.m. ET). If the transfer agent does not receive the money you plan to wire
by this deadline, we will execute your order the following business day or
whenever we have received payment.
- - SELLING SHARES: To sell Shares on any business day, you must place your
redemption order before 1:00 p.m. PT (4:00 p.m. ET). Otherwise, we will
execute your order on the following business day.
DIVIDENDS AND DISTRIBUTIONS
As a mutual fund shareholder, you may receive capital gains and/or income from
your investment. The Fund declares and pays income dividends monthly. The Fund
distributes any net capital gains it has realized at least once a year.
We will automatically reinvest any income and capital gains distributions you
are entitled to in additional Shares of your Fund unless you notify our Transfer
Agent that you want to receive your distributions in cash. To do so, send a
letter with your request, including your name and account number to:
HighMark Funds
P.O. Box 8416
Boston, MA 02266-8416
Your request will become effective for distributions having record dates after
our Transfer Agent receives your request. Note that the IRS treats dividends
paid in additional Fund Shares the same as it treats dividends paid in cash. In
general, a Fund's Class A Shares will pay higher dividends than Class B and
Class C Shares, because Class B Shares and Class C Shares have higher
distribution fees.
TAXES
Your mutual fund investments may have a considerable impact on your tax
situation. We've summarized some of the main points you should know below. Note,
however, that the following is general information and will not apply to you if
you are investing through a tax-deferred account such as an IRA or a qualified
employee benefit plan. In addition, if you are not a resident of the United
States, you may have to pay taxes besides those described here, such as U.S.
withholding and estate taxes.
IMPORTANT NOTE: IF YOU HAVE NOT DONE SO ALREADY, BE SURE TO PROVIDE US WITH YOUR
CORRECT TAXPAYER IDENTIFICATION NUMBER OR CERTIFY THAT IS CORRECT. UNLESS WE
HAVE THAT INFORMATION, WE MUST, BY LAW, WITHHOLD 31% OF THE TAXABLE
DISTRIBUTIONS YOU WOULD OTHERWISE BE ENTITLED TO RECEIVE FROM YOUR FUND
INVESTMENTS AS WELL AS ANY PROCEEDS YOU WOULD NORMALLY RECEIVE FROM SELLING FUND
SHARES.
END-OF-YEAR TAX STATEMENTS
We will send you a statement each year showing the tax status of all your
distributions. The laws governing taxes change frequently, however, so please
consult your tax adviser for the most up-to-date information and specific
guidance regarding your particular tax situation. You can find more information
about the
17
<PAGE>
potential tax consequences of mutual fund investing in the Statement of
Additional Information.
TAXES ON FUND DISTRIBUTIONS
- - FEDERAL TAXES: The IRS treats any dividends and short-term capital gains
you receive from the Funds as ordinary income.
- - STATE AND LOCAL TAXES: In addition to federal taxes, you may have to pay
state and local taxes on the dividends or capital gains you receive from
the Fund.
- - TAXATION OF LONG-TERM CAPITAL GAINS: You may have to pay federal and state
taxes on any distributions of net long-term capital gains you receive from
a Fund at the long-term capital gains rate, no matter how long you've owned
Shares in the Fund. (Although some states like California, do not have a
special rate for capital gains.)
- - "BUYING A DIVIDEND": You may owe taxes on Fund distributions even if they
represent income or capital gains the Fund earned before you invested in it
and thus were likely included in the price you paid.
TAX CONSEQUENCES OF SELLING OR EXCHANGING SHARES
If you sell or exchange Fund Shares, you may have to report any capital gain you
realize as income and any capital loss as a deduction on your federal income tax
return (even if the Fund invests primarily in tax-exempt securities.) For more
specific information about your own tax situation, consult your tax adviser.
The portfolio managers of the Funds do not actively consider tax consequences
when making investment decisions. From time to time, the Funds may realize
capital gains as by-products of ordinary investment activities. As a result, the
amount and timing of Fund distributions may vary considerably from year to year.
THE TAX CONSIDERATIONS DESCRIBED ABOVE MAY OR MAY NOT APPLY TO YOU. PLEASE
CONSULT YOUR TAX ADVISER TO HELP DETERMINE WHETHER THESE CONSIDERATIONS ARE
RELEVANT TO YOUR PARTICULAR INVESTMENTS AND TAX SITUATION.
18
<PAGE>
INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN* (AIP): AIP allows you to make regular investments in
the Fund through automatic deductions from your checking account. The monthly
minimum per Fund is $100.** AIP is available only to current shareholders who
wish to make additional investments to their existing account(s). To participate
in AIP, complete the appropriate section on your Account Application form.
*Any shareholders who have established an Automatic Investment Plan on or before
November 30, 1999, and have elected automatic deductions from their checking or
savings accounts, may be eligible for a reduced sales charge. For further
information about the reduced sales charge, see the Statement of Additional
Information.
**There is a $50 monthly minimum for current or retired trustees of the HighMark
Funds and directors, officers, and employees (as well as their spouses and
children under the age of 21) of Union Bank of California, SEI Investments
Distribution Co., and their affiliates who were participating in HighMark's AIP
on or before December 11, 1998.
SYSTEMATIC WITHDRAWAL PLAN (SWP): HighMark's Systematic Withdrawal Plan allows
you to make regular withdrawals from your account. The minimum monthly
withdrawal is $100 per Fund. You can choose to make these withdrawals on a
monthly, quarterly, semi-annual or annual basis. You also have the option of
receiving your withdrawals by check or by automatic deposit into your bank
account.
To participate in SWP, you must:
- - Have at least $5,000 in your HighMark Fund(s) account.
- - Have your dividends automatically reinvested.
BEFORE YOU SIGN UP FOR SWP, PLEASE NOTE THE FOLLOWING IMPORTANT CONSIDERATIONS:
If your automatic withdrawals through SWP exceed the income your Fund normally
pays, your withdrawals may, over time, deplete your original investment--or
exhaust it entirely if you make large and frequent withdrawals. Fluctuations in
the net asset value per share of your Fund may also contribute to the depletion
of your principal.
CLASS A SHAREHOLDERS SHOULD NOTE THE FOLLOWING: If you are currently making
additional purchases of HighMark Shares that carry a sales load, or plan to do
so, it generally would not be in your best interest to participate in SWP.
CLASS B SHAREHOLDERS SHOULD ALSO NOTE THE FOLLOWING: If you expect to withdraw
more than 10% of your account's current value in any single year, it may not be
in your best interest to participate in SWP because you will have to pay a
contingent deferred sales charge on Class B withdrawals of this size.
To take part in SWP, complete the appropriate section on your Account
Application form. You may change or cancel the plan at any time by sending a
written notice to our transfer agent (a signature guarantee may be required).
19
<PAGE>
MORE ABOUT HIGHMARK FUNDS
INVESTMENT MANAGEMENT
INVESTMENT ADVISER
HighMark Capital Management, Inc., serves as investment adviser of the HighMark
Funds and manages their investment portfolios on a day-to-day basis under the
supervision of HighMark Funds' Board of Trustees.
HighMark Capital Management is a subsidiary of UnionBanCal Corporation, the
holding company of Union Bank of California, N.A. UnionBanCal Corporation is a
publicly held corporation, which is principally held by The Bank of
Tokyo-Mitsubishi, Ltd. As of September 30, 1999, UnionBanCal Corporation and its
subsidiaries had approximately $32 billion in consolidated assets. As of the
same date, HighMark Capital Management, had approximately $18.9 billion in
assets under management. HighMark Capital Management (and its predecessors),
with a team of approximately 50 stock and bond research analysts, portfolio
managers and traders, has been providing investment management services to
individuals, institutions and large corporations since 1917.
PORTFOLIO MANAGERS
All investment decisions for the HighMark Funds are made by a team of investment
professionals, all of whom take an active part in the decision making process.
FINANCIAL HIGHLIGHTS
Financial information for the Fiduciary Shares of the Core Equity Fund is not
presented because Shares of the Core Equity Fund were not offered prior to the
date of this Prospectus.
INVESTMENT PRACTICES
The Funds invest in a variety of securities and employ a number of investment
techniques. Each security and technique involves certain risks. The following
table describes the securities and techniques the Funds use, as well as the main
risks they pose. Equity securities are subject mainly to market risk.
Fixed-income securities are subject primarily to market, credit and prepayment
risk. Following the table is a more complete discussion of risk. You may also
consult the Statement of Additional Information for more details about the
securities in which the Funds may invest.
INSTRUMENT RISK TYPE
- ---------- ---------
AMERICAN DEPOSITORY RECEIPTS (ADRS): ADRs Market
are foreign Shares of a company held by a U.S. Political
bank that issues a receipt evidencing ownership. Foreign Investment
ADRs pay dividends in U.S. dollars.
BANKERS' ACCEPTANCES: Bills of exchange or time drafts Credit
drawn on and accepted by a commercial bank. They generally Liquidity
have maturities of six months or less. Market
CALL AND PUT OPTIONS: A call option gives the buyer the Management
right to buy, and obligates the seller of the option to Liquidity
sell, a security at a specified price. A put option gives Credit
the buyer the right to sell, and obligates the seller of the Market
option to buy, a security at a specified price. The Leverage
Funds will sell only covered call and secured put options.
20
<PAGE>
CERTIFICATES OF DEPOSIT: Negotiable instruments Market
with a stated maturity. Credit
Liquidity
COMMERCIAL PAPER: Secured and unsecured short-term Credit
promissory notes issued by corporations and other entities. Liquidity
Their maturities generally vary from a few days to nine Market
months.
COMMON STOCK: Shares of ownership of a company. Market
CONVERTIBLE SECURITIES: Bonds or preferred stock that Market
convert to common stock. Credit
DEMAND FEATURES: Securities that are subject to puts and Market
standby commitments to purchase the securities at a fixed Liquidity
price (usually with accrued interest) within a fixed period Management
of time following demand by a Fund.
DERIVATIVES: Instruments whose value is derived from Management
an underlying contract, index or security, or any Market
combination thereof, including futures, options Credit
(e.g., put and calls), options on futures, swap Liquidity
agreements, and some mortgage-backed securities. Leverage
FUTURES AND RELATED OPTIONS: A contract providing for the Management
future sale and purchase of a specific amount of a Market
specific security, class of securities, or index at a Credit
specified time in the future and at a specified price. Liquidity
The aggregate value of options on securities (long puts Leverage
and calls) will not exceed 10% of a HighMark Equity Fund's
net assets at the time it purchases the options. Each
Equity Fund will limit obligations under futures, options
on futures, and options on securities to no more than 25%
of the Fund's assets. The HighMark Fixed Income Funds may
invest in futures and options on futures for the purpose
of achieving their objectives and for adjusting their
portfolio's duration. Each of these Funds will limit their
obligations under futures contracts and related options
to no more than 10% of its assets.
ILLIQUID SECURITIES: Securities that ordinarily cannot be Liquidity
sold within seven business days at the value the Fund Market
has estimated for them. Each Fund may invest up to
15% of its net assets in illiquid securities.
INDEX-BASED SECURITIES: Index-based securities such as Market
Standard & Poor's Depository Receipts ("SPDRs")
and NASDAQ-100 Index Tracking Stock ("NASDAQ
100s"), represent ownership in a long-term unit investment
trust that holds a portfolio of common stocks designed to
track the price performance and dividend yield of an index,
such as the S&P 500 Index or the NASDAQ-100 Index. Index-
based securities entitle a holder to receive proportionate
quarterly cash distributions corresponding to the dividends
that accrue to the index stocks in the underlying
portfolio, less trust expenses.
21
<PAGE>
INVESTMENT COMPANY SECURITIES: Shares of registered Market
investment companies. These may include HighMark Money
Market Funds and other registered investment companies
for which HighMark, its sub-advisers, or any of their
affiliates serves as investment adviser, administrator or
distributor. Each of the Funds may invest up to 5% of its
assets in the Shares of any one registered investment
company. A Fund may not, however, own more than 3% of the
securities of any one registered investment company or
invest more than 10% of its assets in the Shares of other
registered investment companies. As a shareholder of an
investment company, a Fund will indirectly bear investment
management fees of that investment company, which are in
addition to the management fees the fund pays its own
adviser.
MONEY MARKET INSTRUMENTS: Investment-grade, U.S. Market
dollar-denominated debt securities with remaining Credit
maturities of one year or less. These may include
short-term U.S. government obligations, commercial
paper and other short-term corporate obligations,
repurchase agreements collateralized with U.S.
government securities, certificates of deposit,
bankers' acceptances, and other financial institution
obligations. These securities may carry fixed or
variable interest rates.
PREFERRED STOCKS: Equity securities that generally pay Market
dividends at a specified rate and take precedence over
common stock in the payment of dividends or in the event
of liquidation. Preferred stock generally does not carry
voting rights.
REPURCHASE AGREEMENTS: The purchase of a security Market
and the simultaneous commitment to return the Leverage
security to the seller at an agreed upon price on an
agreed upon date. This is treated as a loan.
REVERSE REPURCHASE AGREEMENTS: The sale of a security Market
and the simultaneous commitment to buy the security back Leverage
at an agreed upon price on an agreed upon date. This is
treated as a borrowing by a Fund.
RESTRICTED SECURITIES: Securities not registered under the Liquidity
Securities Act of 1933, such as privately placed commercial Market
paper and Rule 144A securities.
SECURITIES LENDING: The lending of up to 33 1/3% of the Market
Fund's total assets. In return the Fund will receive Leverage
cash, other securities and/or letters of credit. Liquidity
Credit
TIME DEPOSITS: Non-negotiable receipts issued by a Liquidity
bank in exchange for a deposit of money. Credit
Market
22
<PAGE>
TREASURY RECEIPTS: Treasury receipts, Treasury investment Market
growth receipts, and certificates of accrual of Treasury
securities.
UNIT INVESTMENT TRUSTS: A type of investment vehicle, Market
registered with the Securities and Exchange Commission
under the Investment Company Act of 1940, that purchases
a fixed portfolio of income-producing securities, such
as corporate, municipal, or government bonds,
mortgage-backed securities, or preferred stock. Unit
holders receive an undivided interest in both the principal
and the income portion of the portfolio in proportion to the
amount of capital they invest. The portfolio of securities
remains fixed until all the securities mature and unit
holders have recovered their principal.
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued Market
by agencies and instrumentalities of the U.S. government. Credit
These include Ginnie Mae, Fannie Mae, and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, Market
separately traded registered interest and principal
securities, and coupons under bank entry safekeeping.
WARRANTS: Securities that give the holder the right to buy Market
a proportionate amount of common stock at a specified price. Credit
Warrants are typically issued with preferred stock and
bonds.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: A Market
purchase of, or contract to purchase, securities at a fixed Leverage
price for delivery at a future date. The portfolio managers Liquidity
of each Fund expect that commitments to enter into forward Credit
commitments or purchase when-issued securities will not
exceed 25% of the Fund's total assets.
GLOSSARY OF INVESTMENT RISKS
This section discusses the risks associated with the securities and investment
techniques listed above, as well as the risks mentioned under the heading "What
are the main risks of investing in this Fund?" in each Fund profile. Because of
these risks, the value of the securities held by the Funds may fluctuate, as
will the value of your investment in the Funds. Certain types of investments and
Funds are more susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Generally speaking, the lower a security's credit rating, the higher
its credit risk. If a security's credit rating is downgraded, its price tends to
decline sharply, especially as it becomes more probable that the issuer will
default.
FOREIGN INVESTMENT RISK. Compared with investing in the United States, investing
in foreign markets involves a greater degree and variety of risk. Investors in
foreign markets may face delayed settlements, currency controls and adverse
economic developments as well as higher overall transaction costs. In addition,
fluctuations in the U.S. dollar's value versus other currencies may erode or
reverse gains from investments denominated in foreign currencies or widen
losses. For instance, foreign governments may limit or prevent investors from
transferring their capital out of a country. This may affect the value of your
investment in the country that adopts such currency controls. Exchange rate
fluctuations also may impair an issuer's ability to repay U.S. dollar
denominated debt, thereby increasing credit risk of such debt. Finally, the
value of foreign securities may be affected by incomplete or inaccurate
financial information about their issuers, social upheavals or political actions
ranging from tax code changes to governmental
23
<PAGE>
collapse. These risks are greater in the emerging markets than in the developed
markets of Europe and Japan.
HEDGING. When a derivative (a security whose value is based on that of another
security or index) is used as a hedge against an opposite position that a fund
holds, any loss on the derivative should be substantially offset by gains on the
hedged investment, and vice versa. Although hedging can be an effective way to
reduce a Fund's risk, it may not always be possible to perfectly offset one
position with another. As a result, there is no assurance that a Fund's hedging
transactions will be effective.
INTEREST RATE RISK. The risk that debt prices overall will decline over short or
even long periods due to rising interest rates. Interest rate risk should be
modest for shorter-term securities, moderate for intermediate-term securities,
and high for longer-term securities. Generally, an increase in the average
maturity of a Fund will make it more sensitive to interest rate risk.
LEVERAGE RISK. The risk associated with securities or investment practices that
magnify small index or market movements into large changes in value. Leverage is
often associated with investments in derivatives, but also may be embedded
directly in the characteristics of other securities.
LIQUIDITY RISK. The risk that a security may be difficult or impossible to sell
at the time and price the seller wishes. The seller may have to accept a lower
price for the security, sell other securities instead, or forego a more
attractive investment opportunity. All of this could hamper the management or
performance of a Fund.
MANAGEMENT RISK. The risk that a strategy used by a Fund's portfolio manager may
fail to produce the intended result. This includes the risk that changes in the
value of a hedging instrument will not match those of the asset being hedged.
MARKET RISK. The risk that a security's market value may decline, sometimes
rapidly and unpredictably. These fluctuations may cause a security to be worth
less than the price the investor originally paid for it, or less than it was
worth at an earlier time. Market risk may affect a single issuer, industrial
sector or the market as a whole. For fixed-income securities, market risk is
largely influenced by changes in interest rates. Rising interest rates typically
cause the value of bonds to decrease, while falling rates typically cause the
value of bonds to increase.
POLITICAL RISK. The risk of investment losses attributable to unfavorable
governmental or political actions, seizure of foreign deposits, changes in tax
or trade statutes, and governmental collapse and war.
SMALL-COMPANY STOCK RISK. Investing in small companies is generally more risky
than investing in large companies, for a variety of reasons. Many small
companies are young and have limited track records. They also may have limited
product lines, markets or financial resources. They may, in addition, be more
vulnerable to adverse business or economic developments than larger companies.
Stocks issued by small companies tend to be less liquid and more volatile than
stocks of larger companies or the market averages in general. In addition, small
companies may not be well-known to the investing public, may not have
institutional ownership, and may have only cyclical, static, or moderate growth
prospects. If a fund concentrates on small companies, its performance may be
more volatile than that of a fund that invests primarily in larger companies.
YEAR 2000 RISK. HighMark Funds depends on the smooth functioning of computer
systems in almost every aspect of its business. Like other mutual funds,
businesses and individuals around the world, the HighMark Funds therefore could
be adversely affected if the computer systems used by its service providers do
not properly process dates on and after January 1, 2000, because they cannot
distinguish between the year 2000 and the year 1900. Although the critical
January 1st date has passed largely without incident, Year 2000 date-related
computer problems can still occur throughout the coming year. We are seeking
assurances from each of our service providers that they expect their systems to
accommodate the year 2000 transition without significant adverse consequences to
HighMark Funds. If these assurances prove to be incorrect, HighMark shareholders
may lose money as a result of system failures or year 2000 computer difficulties
experienced by issuers of portfolio securities or custodians, banks,
broker-dealers or others with which we do business.
24
<PAGE>
HIGHMARK FUNDS
445 South Figueroa Street, Suite 306 Los Angeles, CA 90071
www.highmarkfunds.com
HIGHMARK FUNDS SERVICE PROVIDERS:
INVESTMENT ADVISER
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.
1 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
HOW TO OBTAIN MORE INFORMATION:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
More detailed information about the HighMark Funds is included in our SAI. The
SAI has been filed with the SEC and is incorporated by reference into this
prospectus. This means that the SAI, for legal purposes, is a part of this
prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list the Funds' holdings and contain information on the market
conditions and investment strategies that significantly affected the HighMark
Funds' performance during the last year.
To obtain the SAI, the Annual or Semi-Annual Reports free of charge, or for more
information:
BY TELEPHONE: call 1-800-433-6884
BY MAIL: write to us at SEI Investments Distribution Co. 1 Freedom Valley Drive
Oaks, PA 19456
BY INTERNET: www.highmarkfunds.com
FROM THE SEC: You can also obtain the SAI, the Annual and Semi-Annual Reports,
and other information about the HighMark Funds, from the SEC's Web site
(http://www.sec.gov). You may review and copy documents at the SEC Public
Reference Room in Washington, DC (for information call 1-800-SEC-0330).
25
<PAGE>
You may request documents by mail from the SEC, upon payment of a duplicating
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, 450 5th Street, N.W., Washington, DC 20549-6009.
HighMark Funds' Investment Company Act registration number is 811-05059.
26
<PAGE>
HIGHMARK FUNDS
CORE EQUITY FUND
PROSPECTUS
FIDUCIARY SHARES
APRIL __, 2000
The Securities and Exchange Commission has not approved or disapproved of these
securities or determined whether this prospectus is accurate or complete. Any
representation to the contrary is unlawful.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
HOW TO READ THIS PROSPECTUS
HighMark Funds is a mutual fund family that offers different classes of Shares
in separate investment portfolios (Funds). The Funds have various investment
goals and strategies. This prospectus gives you important information about the
Fiduciary Shares of the HighMark Core Equity Fund that you should know before
investing. The Fund also offers Class A, Class B and Class C Shares in a
separate prospectus.
Please read this prospectus and keep it for future reference. The prospectus is
arranged into different sections so that you can easily review this important
information. The next column contains general information you should know about
investing in the Fund.
FUND PROFILE
Core Equity Fund.................................................... 4
SHAREOWNER GUIDE - HOW TO INVEST IN THE FUND
Choosing a Share Class.............................................. 7
Opening an Account.................................................. 7
Buying Shares....................................................... 8
Selling Shares...................................................... 8
Exchanging Shares................................................... 9
Transaction Policies................................................10
Dividends and Distributions.........................................10
Taxes...............................................................11
Investor Services...................................................11
MORE ABOUT THE FUND
Investment Management...............................................13
Financial Highlights................................................14
Investment Practices................................................15
Glossary of Investment Risks........................................19
FOR MORE INFORMATION ABOUT HIGHMARK FUNDS, PLEASE SEE THE BACK COVER OF THE
PROSPECTUS
2
<PAGE>
INTRODUCTION
The HighMark Core Equity Fund is a mutual fund. A mutual fund pools
Shareholders' money and, using professional investment managers, invests it in
securities such as stocks and bonds. Before you look at the Fund, you should
know a few basics about investing in mutual funds.
The value of your investment in a mutual fund is based on the market prices of
the securities the mutual fund holds. These prices change daily due to economic
trends and other developments that generally affect securities markets, as well
as those that affect particular firms and other types of issuers. These price
movements, also called volatility, vary depending on the types of securities a
mutual fund owns and the markets where these securities trade.
AS WITH OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR INVESTMENT IN A MUTUAL
FUND. YOUR INVESTMENT IN THE HIGHMARK CORE EQUITY FUND IS NOT A DEPOSIT OR AN
OBLIGATION OF UNION BANK OF CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK. IT IS
NOT INSURED BY THE FDIC OR ANY GOVERNMENT AGENCY.
Each HighMark Fund has its own investment goal and strategies for reaching that
goal. There is no guarantee that the Fund will achieve its goal. Before
investing, make sure that the Fund's goal matches your own.
The portfolio managers invest the Fund's assets in a way that he or she believes
will help the Fund achieve its goal. A manager's judgments about the securities
markets, economy and companies, and his or her method of investment selection,
may cause the Fund to underperform other funds with similar objectives.
FUND SUMMARY PERFORMANCE INFORMATION
INVESTMENT STRATEGY DID YOU KNOW?
WHAT ARE THE MAIN FUND INFORMATION
RISKS OF INVESTING IN THIS FUND? FEES AND EXPENSES
3
<PAGE>
CORE EQUITY FUND
FUND SUMMARY
INVESTMENT GOAL To seek long-term capital appreciation
INVESTMENT FOCUS U.S. common stocks
PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with
strong earnings growth selling at
attractive values.
SHARE PRICE VOLATILITY Moderate to high
INVESTOR PROFILE Long-term investors seeking capital
appreciation
INVESTMENT STRATEGY
HighMark Core Equity Fund seeks long-term capital appreciation. To pursue this
goal, the Fund invests at least 65% of its assets in the stocks of U.S.
companies with capitalizations similar to the S&P 500 Stock Index.
To choose stocks for the Fund, the portfolio managers follow a stock selection
strategy utilizing a proprietary quantitative methodology and fundamental
analysis. Stock selection focuses on companies that are likely to demonstrate
superior earnings growth relative to their peers, and whose equities are
selling at attractive valuations. As a result, the Portfolio will invest in a
blend of both "growth" and "value" stocks. Further, the Portfolio is
diversified over a broad cross section of economic sectors and industries. To
help control risk, the Advisor compares the Portfolio's economic sector and
industry weightings to a broad index, such as the Standard & Poor's (S&P) 500
Stock Index, and normally avoids extreme overweighting or underweighting
relative to that index.
In addition to those described above, the Fund may invest in other types of
securities, including bonds. In an effort to preserve the value of your
investment under volatile market conditions, the managers may invest more than
35% of the Fund's assets in very short-term debt obligations called money market
securities. Such a strategy could make it more difficult for the Fund to achieve
its goals.
For a more complete description of the securities in which the Fund can invest,
please see "Investment Practices" on page X.
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Your investment in the Fund may be subject to the following risks:
MARKET RISK: The possibility that the Fund's stock holdings may decline in price
because of a broad stock market decline. Markets generally move in cycles, with
periods of rising prices followed by periods of falling prices. The value of
your investment will tend to increase or decrease in response to these
movements.
SMALL COMPANY RISK: Investing in smaller, lesser-known companies involves
greater risk than investing in those that are more established. A small
company's financial well-being may, for example, depend heavily on just a few
products or services. In addition, investors may have limited flexibility to buy
or sell small company stocks compared to those of larger firms.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the amount
of taxes you pay.
4
<PAGE>
For more information about these risks, please see "Glossary of Investment
Risks" on page X.
FUND INFORMATION
CLASS CUSIP TICKER
- ----- ----- ------
Fiduciary
PERFORMANCE INFORMATION
This section would normally include a bar chart and a table showing how the
Fund has performed and how its performance has varied from year to year.
Because the Fund had not commenced operations prior to the date of this
Prospectus, the bar chart and table are not shown.
FEES AND EXPENSES
The following tables describe the fees and expenses you would pay if you buy and
hold Fund Shares. The first table describes the fees that you would pay directly
from your investment if you bought or sold Fund Shares. The second table
describes the expenses you would pay indirectly if you held Fund Shares.
SHAREHOLDER FEES
<TABLE>
<CAPTION>
FIDUCIARY
SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price) 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) 0%
Redemption Fee (as a percentage of amount redeemed, if applicable)* 0%
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
FIDUCIARY
SHARES
<S> <C>
Investment Advisory Fees 0.60%
Distribution and/or Service (12b-1) Fees 0.00%
Other Expenses** 0.49%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.09%
Fee Waiver 0.15%
TOTAL ANNUAL FUND OPERATING EXPENSES+ 0.94%
</TABLE>
*Does not include any wire transfer fees, if applicable.
**Other expenses are based on estimated amounts for the current fiscal year.
+The Fund's Adviser has agreed to contractually waive fees in order to keep
total operating expenses for Fiduciary Shares from exceeding 0.94% for the
period beginning April __, 2000 and ending on November 29, 2000. The Fund's
total actual operating expenses for the current fiscal year are expected to be
less than the amount shown above because additional fees are expected to be
waived or reimbursed in order to keep total operating expenses at a specified
level. These voluntary waivers or reimbursements may be discontinued at any
time. With these fee waivers, the Fund's actual operating expenses are expected
to be as follows:
Fiduciary Shares: 0.92%
EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the
5
<PAGE>
Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
FIDUCIARY SHARES $96 $332
</TABLE>
DID YOU KNOW?
SMALL CAPITALIZATION COMPANIES are those companies with market capitalizations
within the range of those in the S&P 600 Small Cap Index.
MEDIUM CAPITALIZATION COMPANIES are those companies with market capitalization
within the range of those in the S&P 400 Mid-Cap Index.
LARGE CAPITALIZATION COMPANIES are those companies with market capitalization
within the range of those companies in the S&P 500 Index.
6
<PAGE>
SHAREOWNER GUIDE - HOW TO INVEST IN THE HIGHMARK FUNDS
Before you invest, we encourage you to carefully read the Fund profile included
in this prospectus and consider if the Fund is appropriate for your particular
financial situation, risk tolerance and goals. As always, your financial
representative can provide you with valuable assistance in making this decision.
He or she can also help you choose which of the Fund Share classes we offer is
right for you.
CHOOSING A SHARE CLASS
The Core Equity Fund currently offers different classes of Fund Shares, each of
which has different expenses and other characteristics. Only one class of Fund
Shares, Fiduciary Shares, is offered in this prospectus. To choose the one that
is best suited to your needs and goals, consider the amount of money you want to
invest, how long you expect to invest it and whether you plan to make additional
investments. The following are some of the main characteristics of the Fund's
Fiduciary Shares.
FIDUCIARY SHARES
- - No sales charge.
- - No Distribution (12b-1) fees.
- - Available only to the following investors and accounts:
- Fiduciary, advisory, agency, custodial and other similar accounts
maintained with Union Bank of California, N.A., or its affiliates;
- Non-fiduciary IRA accounts investing in a HighMark Equity or Fixed
Income Fund that were established with The Bank of California,
N.A., prior to June 20, 1994, and have remained open since then.
- Investors who currently own Shares of a HighMark Equity or Fixed
Income Funds that they purchased prior to June 20, 1994 within an
account registered in their name with the Funds;
- Current and retired trustees of the HighMark Funds and directors,
officers and employees (and their spouses and children under the
age of 21) of Union Bank of California, N.A., of HighMark Funds'
current or former distributors or of their respective affiliated
companies who currently own Shares of HighMark Funds that they
purchased before April 30, 1997;
- Registered investment advisers who are regulated by a federal or
state governmental authority, or financial planners who are
purchasing Fiduciary Shares for an account for which they are
authorized to make investment decisions (i.e., a discretionary
account) and who are compensated by their clients on the basis of
an ad valorem fee;
- Retirement and other benefit plans sponsored by governmental
entities; and
- Financial Institutions that may buy Shares on their own account or
as record owner on behalf of fiduciary, agency or custodial
accounts, with a minimum investment of $1,000,000 per Fund.
FOR THE ESTIMATED EXPENSES OF THE FIDUCIARY SHARES FOR THE CURRENT FISCAL YEAR,
SEE THE FUND PROFILE EARLIER IN THIS PROSPECTUS. CALL US AT 1-800-433-6884 FOR
MORE DETAILS.
OPENING AN ACCOUNT
1. Read this prospectus carefully.
2. Determine how much money you want to invest. The minimum investments for the
HighMark Funds are as follows:
7
<PAGE>
- - INITIAL PURCHASE: $1,000
$250 for current and retired trustees of
HighMark Funds and directors, officers and
employees (as well as their spouses and children
under the age of 21) of Union Bank of
California, N.A., SEI Investments Distribution
Co. and their affiliates.
- - ADDITIONAL PURCHASES: $100
We may waive these initial and additional investment minimums for purchases made
in connection with Individual Retirement Accounts, Keoghs, payroll deduction
plans or 401(k) or similar plans.
3. Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation when
opening trust, corporate or power of attorney accounts. For more information,
please contact your financial representative or call the Distributor at
1-800-433-6884.
4. You and your financial representative can initiate any purchase, exchange or
sale of Shares.
WE RESERVE THE RIGHT TO REJECT A PURCHASE ORDER IF WE DETERMINE THAT IT IS NOT
IN THE BEST INTEREST OF HIGHMARK FUNDS OR ITS SHAREHOLDERS.
BUYING SHARES
THROUGH FINANCIAL INSTITUTIONS
Call your financial institution for information on their procedures for
transmitting orders to HighMark Funds.
BY EXCHANGE
Call us at 1-800-433-6884 or contact your financial representative to request an
exchange.
SELLING SHARES
THROUGH FINANCIAL INSTITUTIONS
- - Contact your financial institution to find out more about their procedures
for transmitting orders to HighMark Funds.
BY EXCHANGE
- - Obtain a current prospectus for the Fund into which you are exchanging by
calling us or contacting your financial representative.
- - Call us or contact your financial representative to request an exchange.
TRANSFER AGENT ADDRESS:
HighMark Funds
P.O. Box 8416
Boston, MA 02266-8416
Phone Number: 1-800-433-6884
Or contact your financial representative for instructions and assistance.
8
<PAGE>
To add to an account using the Automatic Investment Plan, see "Additional
Investor Services."
SELLING SHARES IN WRITING. In certain circumstances, you may need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
- - you are selling more than $5,000 worth of Shares.
- - you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s).
You should be able to obtain a signature guarantee from a bank, broker-dealer,
credit union, securities exchange or association, clearing agency or savings
association. A notary public CANNOT provide a signature guarantee.
RECEIVING YOUR MONEY. Normally, we will send you a check for your proceeds as
promptly as possible, at the latest within seven calendar days of receiving your
redemption order. If, however, you recently purchased Shares in the Fund, we may
be unable to fulfill your request if we have not yet received and processed your
payment for the initial purchase. In such a case you may need to resubmit your
redemption request after we have received payment.
REDEMPTION IN KIND. The Fund reserves the right to make payment on redemptions
in securities rather than cash.
INVOLUNTARY SALES OF YOUR SHARES. Due to the relatively high costs of handling
small investments, the Fund reserves the right to redeem your Shares at net
asset value (less any applicable contingent deferred sales charge) if your
account balance in the Fund drops below the minimum initial purchase amount for
any reason other than market fluctuation. This is more likely to occur if you
invest only the minimum amount in the Fund and then sell some of your Shares
soon after. Before the Fund will exercise its right to redeem your Shares, we
will notify you in writing at least 60 days in advance to give you time to bring
your balance up to or above the minimum.
EXCHANGING SHARES
HOW TO EXCHANGE YOUR SHARES. You may exchange Fiduciary Shares of the Fund for
Fiduciary Shares of another HighMark Fund (the "new Fund"), provided that you:
- - Are qualified to invest in the new Fund.
- - Satisfy the initial and additional investment minimums for the new Fund.
- - Invest in the same Share class in the new Fund as you did in the previous
Fund.
- - Maintain the minimum account balance for each HighMark Fund in which you
invest.
Your cost for buying Shares in the new Fund is based on the relative net asset
values of the Shares you are exchanging. You may also exchange your Fiduciary
Shares of a Fund for Class A, Class B or Class C Shares of another HighMark
Fund. In that case, your cost for buying Shares in the new Fund is based on the
relative net asset value of the Shares you are exchanging plus any applicable
sales charge.
9
<PAGE>
TRANSACTION POLICIES
VALUATION OF SHARES. The Fund's net asset value is calculated according to the
following formula:
(Total mkt. value of the Fund's investments and other assets - any Fund
liabilities)
DIVIDED BY Total number of the Fund's Shares outstanding
= Fund's net asset value
We determine the net asset value (NAV) of the Fund as of 1:00 p.m. Pacific time
(4:00 p.m. Eastern time) every business day, based on the current market price
of the Fund's securities. If that is not available, we value its securities by
using a method that the Fund's Board of Trustees believes accurately reflects
fair value. For further information about how we determine the value of the
Fund's investments, see the Statement of Additional Information.
BUY AND SELL PRICES. When you buy Shares, the number of Shares you receive is
based on the net asset value next determined after we receive your order. When
you sell Shares, the amount of your proceeds are based on the net asset value
next determined after we receive your order.
EXECUTION OF ORDERS. You may buy and sell Shares of the Fund on any day when the
New York Stock Exchange is open for business (hereafter referred to as a
"business day").
- - PURCHASING SHARES BY MAIL: If you mail us a purchase order, we will execute
it as soon as we have received your payment. (Note: If your check does not
clear, we will be forced to cancel your purchase and may hold you liable
for any losses or fees incurred.)
- - PURCHASING SHARES BY WIRE: If you place a purchase order by wire on any
business day, we will execute it that day, provided that you have wired the
money you wish to invest to the transfer agent prior to 1:00 p.m. PT (4:00
p.m. ET). If the transfer agent does not receive the money you plan to wire
by this deadline, we will execute your order the following business day or
whenever we have received your order and/or payment.
- - SELLING SHARES: To sell Shares on any one business day, you must place your
redemption order before 1:00 p.m. PT (4:00 p.m. ET). Otherwise, we will
execute your order the following business day.
DIVIDENDS AND DISTRIBUTIONS
As a mutual fund Shareholder, you may receive capital gains and/or income from
your investment. The Fund declares and pays income dividends monthly. The Fund
distributes any net capital gains it has realized at least once a year.
We will automatically reinvest any income and capital gains distributions you
are entitled to in additional Shares of your Fund unless you notify our Transfer
Agent that you want to receive your distributions in cash. To do so, send a
letter with your request, including your name and account number to:
HighMark Funds
P.O. Box 8416
Boston, MA 02266-8416
Your request will become effective for distributions having record dates after
our Transfer Agent receives your request. Note that the IRS treats dividends
paid in additional Fund Shares the same as it treats dividends paid in cash.
10
<PAGE>
TAXES
Your mutual fund investments may have a considerable impact on your tax
situation. We've summarized some of the main points you should know below. Note,
however, that the following is general information and will not apply to you if
you are investing through a tax-deferred account such as an IRA or a qualified
employee benefit plan. In addition, if you are not a resident of the United
States, you may have to pay taxes besides those described here, such as U.S.
withholding and estate taxes.
IMPORTANT NOTE: IF YOU HAVE NOT DONE SO ALREADY, BE SURE TO PROVIDE US WITH YOUR
CORRECT TAXPAYER IDENTIFICATION NUMBER OR CERTIFY THAT IT IS CORRECT. UNLESS WE
HAVE THAT INFORMATION, WE MUST BY LAW, WITHHOLD 31% OF THE TAXABLE DISTRIBUTIONS
YOU WOULD OTHERWISE BE ENTITLED TO RECEIVE FROM YOUR FUND INVESTMENTS AS WELL AS
ANY PROCEEDS YOU WOULD NORMALLY RECEIVE FROM SELLING FUND SHARES.
END-OF-YEAR TAX STATEMENTS
We will send you a statement each year showing the tax status of all your
distributions. The laws governing taxes change frequently, however, so please
consult your tax adviser for the most up-to-date information and specific
guidance regarding your particular tax situation. You can find more information
about the potential tax consequences of mutual fund investing in the Statement
of Additional Information.
TAXES ON FUND DISTRIBUTIONS
FEDERAL TAXES: The IRS treats any dividends and short-term capital gains you
receive from the Funds as ordinary income.
STATE AND LOCAL TAXES: In addition to federal taxes, you may have to pay state
and local taxes on the dividends or capital gains you receive from the Fund.
TAXATION OF LONG-TERM CAPITAL GAINS: You may have to pay federal and state taxes
on any distributions of net long-term capital gains you receive from a Fund at
the long-term capital gains rate, no matter how long you've owned Shares in the
Fund. (Although some states like California, do not have a special rate for
capital gains.)
"BUYING A DIVIDEND": You may owe taxes on Fund distributions even if they
represent income or capital gains the Fund earned before you invested in it and
thus were likely included in the price you paid.
TAX CONSEQUENCES OF SELLING OR EXCHANGING SHARES
If you sell or exchange Fund Shares, you may have to report any capital gain you
realize as income and any capital loss as a deduction on your federal income tax
return. For more specific information about your own tax situation, consult your
tax adviser.
The portfolio managers of the Fund do not actively consider tax consequences
when making investment decisions. From time to time, the Fund may realize
capital gains as by-products of ordinary investment activities. As a result, the
amount and timing of Fund distributions may vary considerably from year to year.
THE TAX CONSIDERATIONS DESCRIBED ABOVE MAY OR MAY NOT APPLY TO YOU. PLEASE
CONSULT YOUR TAX ADVISER TO HELP DETERMINE WHETHER THESE CONSIDERATIONS ARE
RELEVANT TO YOUR PARTICULAR INVESTMENTS AND TAX SITUATION.
INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN (AIP): AIP allows you to make regular investments in
the HighMark Fund(s) of your choice through automatic deductions from your
checking account. The monthly minimum per Fund is $100.* AIP is available only
to current Shareholders who wish to make additional investments to
11
<PAGE>
their existing account(s). To participate in AIP, complete the appropriate
section on your Account Application form.
*There is a $50 monthly minimum for current or retired trustees of the HighMark
Funds and directors, officers, and employees (as well as their spouses and
children under the age of 21) of Union Bank of California, SEI Investments
Distribution Co., and their affiliates who were participating in HighMark's AIP
on or before December 11, 1998.
SYSTEMATIC WITHDRAWAL PLAN (SWP): HighMark's Systematic Withdrawal Plan allows
you to make regular withdrawals from your account. The minimum monthly
withdrawal is $100 per Fund. You can choose to make these withdrawals on a
monthly, quarterly, semi-annual or annual basis. You also have the option of
receiving your withdrawals by check or by automatic deposit into your bank
account.
To participate in SWP, you must:
- - Have at least $5,000 in your HighMark Fund(s) account.
- - Have your dividends automatically reinvested.
BEFORE YOU SIGN UP FOR SWP, PLEASE NOTE THE FOLLOWING IMPORTANT CONSIDERATIONS:
If your automatic withdrawals through SWP exceed the income your Fund(s)
normally pay, your withdrawals may, over time, deplete your original
investment--or exhaust it entirely if you make large and frequent withdrawals.
Fluctuations in the net asset value per Share of your Fund(s) may also deplete
your principal.
To take part in SWP, complete the appropriate section on your Account
Application form. You may change or cancel the plan at any time by sending a
written notice to our Transfer Agent (which may require a signature guarantee).
12
<PAGE>
MORE ABOUT HIGHMARK FUNDS
INVESTMENT MANAGEMENT
INVESTMENT ADVISER
HighMark Capital Management, Inc., serves as investment adviser of the HighMark
Funds and manages their investment portfolios on a day-to-day basis under the
supervision of HighMark Funds' Board of Trustees. HighMark Capital Management is
a subsidiary of UnionBanCal Corporation, the holding company of Union Bank of
California, N.A. UnionBanCal Corporation is a publicly held corporation which is
principally held by The Bank of Tokyo-Mitsubishi, Ltd. As of September 30, 1999,
UnionBanCal Corporation and its subsidiaries had approximately $32 billion in
consolidated assets. As of the same date, HighMark Capital Management had
approximately $18.9 billion in assets under management. HighMark Capital
Management (and its predecessors), with a team of approximately 50 stock and
bond research analysts, portfolio managers and traders, has been providing
investment management services to individuals, institutions and large
corporations since 1917.
PORTFOLIO MANAGER
All investment decisions for the Fund are made by a team of investment
professionals, all of whom take an active part in the decision making process.
13
<PAGE>
FINANCIAL HIGHLIGHTS
Financial information for the Fiduciary Shares of the Core Equity Fund is not
presented because Shares of the Core Equity Fund were not offered prior to the
date of this Prospectus.
14
<PAGE>
INVESTMENT PRACTICES
The Fund invests in a variety of securities and employs a number of investment
techniques. Each security and technique involves certain risks. The following
table describes the securities and techniques the Fund uses, as well as the main
risks they pose. Equity securities are subject mainly to market risk.
Fixed-income securities are subject primarily to market, credit and prepayment
risk. Following the table is a more complete discussion of risk. You may also
consult the Statement of Additional Information for more details about the
securities in which the Fund may invest.
INSTRUMENT RISK TYPE
---------- ---------
AMERICAN DEPOSITORY RECEIPTS (ADRS): ADRs are Market
foreign Shares of a company held by a U.S. bank Political
that issues a receipt evidencing ownership. Foreign Investment
ADRs pay dividends in U.S. dollars.
BANKERS' ACCEPTANCES: Bills of exchange or time Credit
drafts drawn on and accepted by a commercial Liquidity
bank. They generally have maturities of six Market
months or less.
CALL AND PUT OPTIONS: A call option gives the Management
buyer the right to buy, and obligates the seller Liquidity
of the option to sell, a security at a specified Credit
price. A put option gives the buyer the right Market
to sell, and obligates the seller of the option Leverage
to buy, a security at a specified price. The
Funds will sell only covered call and secured
put options.
CERTIFICATES OF DEPOSIT: Negotiable instruments Market
with a stated maturity. Credit
Liquidity
COMMERCIAL PAPER: Secured and unsecured Credit
short-term promissory notes issued by Liquidity
corporations and other entities. Their Market
maturities generally vary from a few days to
nine months.
COMMON STOCK: Shares of ownership of a company. Market
CONVERTIBLE SECURITIES: Bonds or preferred stock Market
that convert to common stock. Credit
DEMAND FEATURES: Securities that are subject to Market
puts and standby commitments to purchase the Liquidity
securities at a fixed price (usually with Management
accrued interest) within a fixed period of time
following demand by a fund.
DERIVATIVES: Instruments whose value is Management
derived from an underlying contract, index or Market
security, or any combination thereof, including Credit
15
<PAGE>
futures, options (e.g., puts and calls), options Liquidity
on futures, swap agreements and some Leverage
mortgage-backed securities.
FUTURES AND RELATED OPTIONS: A contract Management
providing for the future sale and purchase of a Market
specific amount of a specific security, class of Credit
securities or index at a specified time in the Liquidity
future and at a specified price. The aggregate Leverage
value of options on securities (long puts and
calls) will not exceed 10% of a HighMark Equity
Fund's net assets at the time it purchases the
options. Each Equity Fund will limit its
obligations under futures, options on futures,
and options on securities to no more than 25% of
its assets. The HighMark Fixed Income Funds may
invest in futures and options on futures for the
purpose of achieving their objectives and for
adjusting their portfolio's duration. Each of
these Funds will limit its obligations under
futures contracts and related options to no more
than 10% of its assets.
ILLIQUID SECURITIES: Securities that ordinarily Liquidity
cannot be sold within seven business days at the Market
value the Fund has estimated for them. Each
Fund may invest up to 15% of its net assets in
illiquid securities.
INDEX-BASED SECURITIES: Index-based securities, Market
such as Standard & Poor's Depository Receipts
("SPDRs" and NASDAQ-100 Index Tracking Stock
("NASDAQ 100s"), represent ownership in a
long-term unit investment trust that holds a
portfolio of common stocks designed to track the
price performance and dividend yield of an
index, such as the S&P 500 Index or the
NASDAQ-100 Index. Index-based securities
entitle a holder to receive proportionate
quarterly cash distributions corresponding to
the dividends that accrue to the index stocks in
the underlying portfolio, less trust expenses.
INVESTMENT COMPANY SECURITIES: Shares of Market
registered investment companies. These may
include HighMark Money Market Funds and
other registered investment companies for
which HighMark, its sub-advisers, or any of
their affiliates, serves as investment adviser,
administrator or distributor. Each of the Funds
may invest up to 5% of its assets in the Shares
of any one registered investment company. A
Fund may not, however, own more than 3% of
the securities of any one registered investment
company or invest more than 10% of its assets
16
<PAGE>
in the Shares of other registered investment
companies. As a Shareholder of an investment
company, a Fund will indirectly bear
investment management fees of that investment
company, which are in addition to the
management fees the fund pays its own adviser.
MONEY MARKET INSTRUMENTS: Investment grade, Market
U.S. dollar-denominated debt securities with Credit
remaining maturities of one year or less. These
may include short-term U.S. government
obligations, commercial paper and other
short-term corporate obligations, repurchase
agreements collateralized with U.S. government
securities, certificates of deposit, bankers'
acceptances, and other financial institution
obligations. These securities may carry fixed
or variable interest rates.
PREFERRED STOCKS: Equity securities that Market
generally pay dividends at a specified rate and
take precedence over common stock in the payment
of dividends or in the event of liquidation.
Preferred stock generally does not carry voting
rights.
REPURCHASE AGREEMENTS: The purchase of a Market
security and the simultaneous commitment to Leverage
return the security to the seller at an agreed
upon price on an agreed upon date. This is
treated as a loan.
REVERSE REPURCHASE AGREEMENTS: The sale of a Market
security and the simultaneous commitment to buy Leverage
the security back at an agreed upon price on an
agreed upon date. This is treated as a
borrowing by a Fund.
RESTRICTED SECURITIES: Securities not Liquidity
registered under the Securities Act of 1933, Market
such as privately placed commercial paper and
Rule 144A securities.
SECURITIES LENDING: The lending of up to 33 Market
1/3% of a Fund's total assets. In return the Leverage
Fund will receive cash, other securities and/or Liquidity
letters of credit. Credit
TIME DEPOSITS: Non-negotiable receipts issued Liquidity
by a bank in exchange for a deposit of money. Credit
TREASURY RECEIPTS: Treasury receipts, Treasury Market
investment growth receipts and certificates of
accrual of Treasury securities.
17
<PAGE>
UNIT INVESTMENT TRUSTS: A type of investment Market
vehicle, registered with the Securities and
Exchange Commission under the Investment Company
Act of 1940, that purchases a fixed portfolio of
income-producing securities, such as corporate,
municipal, or government bonds, mortgage-backed
securities, or preferred stock. Unit holders
receive an undivided interest in both the
principal and the income portion of the
portfolio in proportion to the amount of capital
they invest. The portfolio of securities
remains fixed until all the securities mature
and unit holders have recovered their principal.
U.S. GOVERNMENT AGENCY SECURITIES: Securities Market
issued by agencies and instrumentalities of the Credit
U.S. government. These include Ginnie Mae,
Fannie Mae and Freddie Mac.
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, Market
separately traded registered interest and
principal securities, and coupons under bank
entry safekeeping.
WARRANTS: Securities that give the holder the Market
right to buy a proportionate amount of common Credit
stock at a specified price. Warrants are
typically issued with preferred stock and bonds.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: Market
A purchase of, or contract to purchase, Leverage
securities at a fixed price for delivery at a Liquidity
future date. The portfolio managers of each Credit
Fund expect that commitments to enter into
forward commitments or purchase when-issued
securities will not exceed 25% of the Fund's
total assets.
18
<PAGE>
GLOSSARY OF INVESTMENT RISKS
This section discusses the risks associated with the securities and investment
techniques listed above, as well as the risks mentioned under the heading "What
Are the Main Risks of Investing in This Fund?" in each Fund profile. Because of
these risks, the value of the Funds' holdings may fluctuate, as will the value
of your investment in the Funds. Certain types of investments and funds are more
susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Generally speaking, the lower a security's credit rating, the higher
its credit risk. If a security's credit rating is downgraded, its price tends to
decline sharply, especially as it becomes more probable that the issuer will
default.
FOREIGN INVESTMENT RISK. Compared with investing in the United States, investing
in foreign markets involves a greater degree and variety of risk. Investors in
foreign markets may face delayed settlements, currency controls and adverse
economic developments as well as higher overall transaction costs. In addition,
fluctuations in the U.S. dollar's value versus other currencies may erode or
reverse gains from investments denominated in foreign currencies or widen
losses. For instance, foreign governments may limit or prevent investors from
transferring their capital out of a country. This may affect the value of your
investment in the country that adopts such currency controls. Exchange rate
fluctuations also may impair an issuer's ability to repay U.S.
dollar-denominated debt, thereby increasing the credit risk of such debt.
Finally, the value of foreign securities may be seriously harmed by incomplete
or inaccurate financial information about their issuers, social upheavals or
political actions ranging from tax code changes to governmental collapse. These
risks are greater in the emerging markets than in the developed markets of
Europe and Japan.
HEDGING. When a derivative (a security whose value is based on that of another
security or index) is used as a hedge against an opposite position that a fund
holds, any loss on the derivative should be substantially offset by gains on the
hedged investment, and vice versa. Although hedging can be an effective way to
reduce a fund's risk, it may not always be possible to perfectly offset one
position with another. As a result, there is no assurance that a fund's hedging
transactions will be effective.
INTEREST RATE RISK. The risk that debt prices overall will decline over short or
even long periods due to rising interest rates. Interest rate risk should be
modest for shorter-term securities, moderate for intermediate-term securities,
and high for longer-term securities. Generally, an increase in a fund's average
maturity will make it more sensitive to interest rate risk.
LEVERAGE RISK. The risk associated with securities or investment practices that
magnify small index or market movements into large changes in value. Leverage is
often created by investing in derivatives, but it may be inherent in other types
of securities as well.
LIQUIDITY RISK. The risk that a security may be difficult or impossible to sell
at the time and price the seller wishes. The seller may have to accept a lower
price for the security, sell other securities instead, or forego a more
attractive investment opportunity. Any or all of these limitations could hamper
the management or performance of a fund.
MANAGEMENT RISK. The risk that a strategy used by a fund's portfolio manager may
fail to produce the intended result. This includes the risk that changes in the
value of a hedging instrument will not match those of the asset being hedged.
MARKET RISK. The risk that a security's market value may decline, especially if
it occurs rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price the investor originally paid for it. Market risk
may affect a single issuer, industrial sector or the market as a whole. For
fixed-income securities, market risk is largely influenced by changes in
interest rates. Rising interest rates typically cause the value of bonds to
decrease, while falling rates typically cause the value of bonds to
19
<PAGE>
increase.
POLITICAL RISK. The risk of investment losses attributable to unfavorable
governmental or political actions, seizure of foreign deposits, changes in tax
or trade statutes, and governmental collapse and war.
SMALL-COMPANY STOCK RISK. Investing in small companies is generally more risky
than investing in large companies, for a variety of reasons. Many small
companies are young and have limited track records. They also may have limited
product lines, markets or financial resources. They may, in addition, be more
vulnerable to adverse business or economic developments than larger companies.
Stocks issued by small companies tend to be less liquid and more volatile than
stocks of larger companies or the market averages in general. In addition, small
companies may not be well-known to the investing public, may not have
institutional ownership, and may have only cyclical, static or moderate growth
prospects. If a fund concentrates on small companies, its performance may be
more volatile than that of a fund that invests primarily in larger companies.
YEAR 2000 RISK. HighMark Funds depends on the smooth functioning of computer
systems in almost every aspect of its business. Like other mutual funds,
businesses and individuals around the world, the HighMark Funds therefore could
be adversely affected if the computer systems used by its service providers do
not properly process dates on and after January 1, 2000, because they cannot
distinguish between the year 2000 and the year 1900. Although the critical
January 1st date has passed largely without incident, Year 2000 date-related
computer problems can still occur throughout the coming year. We are seeking
assurances from each of our service providers that they expect their systems to
accommodate the year 2000 transition without significant adverse consequences to
HighMark Funds. If these assurances prove to be incorrect, HighMark Shareholders
may lose money as a result of system failures or year 2000 computer difficulties
experienced by issuers of portfolio securities or custodians, banks,
broker-dealers or others with which we do business.
20
<PAGE>
HIGHMARK FUNDS
445 South Figueroa Street, Suite 306
Los Angeles, CA 90071
www.highmarkfunds.com
HIGHMARK FUNDS SERVICE PROVIDERS:
INVESTMENT ADVISER
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.
1 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
HOW TO OBTAIN MORE INFORMATION:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
More detailed information about the HighMark Funds is included in our SAI. The
SAI has been filed with the SEC and is incorporated by reference into this
prospectus. This means that the SAI, for legal purposes, is a part of this
prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list the Funds' holdings and contain information on the market
conditions and investment strategies that significantly affected the HighMark
Funds' performance during the last year.
To obtain the SAI, the Annual or Semi-Annual Reports free of charge, or for more
information:
BY TELEPHONE: call 1-800-433-6884
BY MAIL: write to us at SEI Investments Distribution Co. 1 Freedom Valley Drive
Oaks, PA 19456
BY INTERNET: www.highmarkfunds.com
21
<PAGE>
FROM THE SEC: You can also obtain the SAI, the Annual and Semi-Annual Reports,
and other information about the HighMark Funds, from the SEC's Web site
(http://www.sec.gov). You may review and copy documents at the SEC Public
Reference Room in Washington, DC (for information call 1-800-SEC-0330). You may
request documents by mail from the SEC, upon payment of a duplicating fee, by
writing to: Securities and Exchange Commission, Public Reference Section, 450
5th Street, N.W., Washington, DC 20549-6009.
HighMark Funds' Investment Company Act registration number is 811-05059.
<PAGE>
HIGHMARK FUNDS
STATEMENT OF ADDITIONAL INFORMATION
APRIL __, 2000
This Statement of Additional Information is not a Prospectus, but should
be read in conjunction with the Prospectuses of the HighMark Equity and Fixed
Income Funds and the HighMark Money Market Funds, each of which is dated
November 30, 1999, and the HighMark Core Equity Fund, dated April __, 2000,
(collectively, the "Prospectuses") and any of their supplements. This Statement
of Additional Information is incorporated in its entirety into these
Prospectuses. Copies of the Prospectuses may be obtained by writing the
Distributor, SEI Investments Distribution Co., at 1 Freedom Valley Drive, Oaks,
Pennsylvania, 19456, or by telephoning toll free 1-800-433-6884. Capitalized
terms used but not defined in this Statement of Additional Information have the
same meanings as set forth in the Prospectuses.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
HIGHMARK FUNDS ...................................................................................1
INVESTMENT OBJECTIVES AND POLICIES................................................................3
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS...................................................3
Equity Securities........................................................................3
Debt Securities..........................................................................3
Convertible Securities...................................................................4
Asset-Backed Securities (non-mortgage)...................................................4
Bank Instruments.........................................................................5
Commercial Paper and Variable Amount Master Demand Notes.................................6
Lending of Portfolio Securities..........................................................6
Repurchase Agreements....................................................................6
Reverse Repurchase Agreements............................................................7
U.S. Government Obligations..............................................................7
Mortgage-Related Securities..............................................................8
Adjustable Rate Notes...................................................................10
Municipal Securities....................................................................11
Investments in California Municipal Securities by the California Tax-free
Money Market Fund and the California Intermediate Tax-free Bond Fund...........15
Puts....................................................................................18
Shares of Mutual Funds..................................................................19
When-Issued Securities and Forward Commitments..........................................19
Zero-coupon Securities..................................................................20
Options (Puts and Calls) on Securities..................................................20
Covered Call Writing....................................................................20
Purchasing Call Options.................................................................22
Purchasing Put Options..................................................................22
Options in Stock Indices................................................................22
Risk Factors in Options Transactions....................................................23
Futures Contracts on Securities and Related Options.....................................24
Futures Contracts on Securities.........................................................24
Options on Securities' Futures Contracts................................................25
Risk of Transactions in Securities' Futures Contracts and Related Options...............26
Index Futures Contracts.................................................................27
Options on Index Futures Contracts......................................................28
Foreign Investment......................................................................28
-i-
<PAGE>
<CAPTION>
<S> <C>
Foreign Currency Transactions...........................................................29
Transaction Hedging.....................................................................30
Position Hedging........................................................................30
Currency Forward and Futures Contracts..................................................31
General Characteristics of Currency Futures Contracts...................................32
Foreign Currency Options................................................................33
Foreign Currency Conversion.............................................................33
Index-Based Investments.................................................................34
Small Cap/Special Equity Situation Securities...........................................34
High Yield Securities...................................................................35
Money Market Instruments................................................................36
Treasury Receipts.......................................................................36
High Quality Investments with Regard to the Money Market Funds..........................36
Illiquid Securities.....................................................................39
Restricted Securities...................................................................39
INVESTMENT RESTRICTIONS..........................................................................40
Voting Information......................................................................48
PORTFOLIO TURNOVER...............................................................................48
VALUATION........................................................................................49
Valuation of the Money Market Funds.....................................................49
Valuation of the Equity Funds and the Fixed Income Funds................................50
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................50
Purchases through Financial Institutions................................................51
Redemption by Checkwriting..............................................................51
Sales Charges...........................................................................52
Sales Charge Reductions and Waivers.....................................................53
Additional Federal Tax Information......................................................57
Additional Tax Information Concerning the California Tax-Free Money
Market Fund and the California Intermediate Tax-Free Bond Fund.................59
Foreign Taxes...........................................................................62
MANAGEMENT OF HIGHMARK FUNDS.....................................................................63
Trustees and Officers...................................................................63
Investment Adviser......................................................................67
The Sub-Advisers........................................................................69
Portfolio Transactions..................................................................70
Administrator and Sub-Administrator.....................................................72
Glass-Steagall Act......................................................................74
Shareholder Services Plans..............................................................75
-ii-
<PAGE>
<CAPTION>
<S> <C>
Shareholder Servicing Agreement.........................................................76
Expenses................................................................................76
Distributor.............................................................................77
The Distribution Plans..................................................................77
Transfer Agent and Custodian Services...................................................79
Legal Counsel...........................................................................80
ADDITIONAL INFORMATION...........................................................................81
Description of Shares...................................................................81
Shareholder and Trustee Liability.......................................................82
The Reorganization of the IRA Fund and HighMark Funds...................................83
Calculation of Performance Data.........................................................83
Miscellaneous...........................................................................91
APPENDIX........................................................................................106
FINANCIAL STATEMENTS............................................................................112
</TABLE>
-iii-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
HIGHMARK FUNDS
HighMark Funds is a diversified, open-end management investment company.
HighMark Funds was organized as a Massachusetts business trust on March 10, 1987
and presently consists of fourteen series of units of beneficial interest
("Shares"), representing interests in one of the following portfolios:
HighMark Balanced Fund,
HighMark Core Equity Fund,
HighMark Growth Fund,
HighMark Income Equity Fund,
HighMark International Equity Fund,
HighMark Small Cap Value Fund,
HighMark Value Momentum Fund,
HighMark Bond Fund,
HighMark California Intermediate Tax-Free Bond Fund,
HighMark Intermediate-Term Bond Fund,
HighMark 100% U.S. Treasury Money Market Fund,
HighMark California Tax-Free Money Market Fund,
HighMark Diversified Money Market Fund, and
HighMark U.S. Government Money Market Fund, (collectively the "Funds").
HighMark Core Equity Fund commenced operations on April __, 2000. HighMark
Small Cap Value Fund commenced operations on September 17, 1998. HighMark Value
Momentum Fund, HighMark International Equity Fund, HighMark Intermediate-Term
Bond Fund, and HighMark California Intermediate Tax-Free Bond Fund commenced
operations in HighMark Funds on April 28, 1997. HighMark Balanced Fund commenced
operations on November 14, 1993 and HighMark Growth Fund commenced operations on
November 18, 1993. HighMark Income Equity Fund and HighMark Bond Fund commenced
operations on June 23, 1988 as a result of the reorganization of the Income
Equity Portfolio and the Bond Portfolio, respectively, of the IRA Collective
Investment Fund (the "IRA Fund") described under "ADDITIONAL INFORMATION - The
Reorganization of the IRA Fund and HighMark Funds" below. HighMark Diversified
Money Market Fund commenced operations on February 1, 1991. HighMark U.S.
Government Money Market Fund and HighMark 100% U.S. Treasury Money Market Fund
commenced operations on August 10, 1987. HighMark California Tax-Free Money
Market Fund commenced operations on June 10, 1991.
For ease of reference, this Statement of Additional Information sometimes
refers to the Funds as the "Equity Funds," the "Fixed Income Funds" and the
"Money Market Funds."
<PAGE>
The EQUITY FUNDS include:
Balanced Fund
Core Equity Fund
Growth Fund
Income Equity Fund
International Equity Fund
Small Cap Value Fund
Value Momentum Fund
The FIXED INCOME FUNDS include:
Bond Fund
California Intermediate Tax-Free Bond Fund
Intermediate-Term Bond Fund
The MONEY MARKET FUNDS include:
100% U.S. Treasury Money Market Fund
California Tax-Free Money Market Fund
Diversified Money Market Fund
U.S. Government Money Market Fund
The Income Equity Portfolio and the Bond Portfolio of the IRA Fund (which
were reorganized into certain Funds of HighMark Funds as described above) are
sometimes referred to as the "IRA Fund Portfolios."
As described in the Prospectuses, selected Funds of HighMark Funds have
been divided into six classes of Shares (designated Class A, Class B, Class C
and Class S Shares (collectively "Retail Shares"), Class I Shares and Fiduciary
Shares) for purposes of HighMark Funds' Distribution and Shareholder Services
Plans (the "Distribution Plans"), which Distribution Plans apply only to such
Funds' Retail Shares. Retail Shares and Fiduciary Shares are sometimes referred
to collectively as "Shares".
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectuses for the
respective Funds. No investment in Shares of a Fund should be made without first
reading that Fund's Prospectus.
-2-
<PAGE>
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. EQUITY SECURITIES. Equity Securities include common stocks, preferred
stocks, convertible securities and warrants. Common stocks, which represent an
ownership interest in a company, are probably the most recognized type of equity
security. Equity securities have historically outperformed most other
securities, although their prices can be volatile in the short term. Market
conditions, political, economic and even company-specific news can cause
significant changes in the price of a stock. Smaller companies (as measured by
market capitalization), sometimes called small-cap companies or small-cap
stocks, may be especially sensitive to these factors. To the extent a Fund
invests in equity securities, that Fund's Shares will fluctuate in value, and
thus may be more suitable for long-term investors who can bear the risk of
short-term fluctuations.
2. DEBT SECURITIES. The Funds may invest in debt securities within the
four highest rating categories assigned by a nationally recognized statistical
rating organization ("NRSRO") and comparable unrated securities. Securities
rated BBB by S&P or Baa by Moody's are considered investment grade, but are
deemed by these rating services to have some speculative characteristics, and
adverse economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher-grade bonds. Should subsequent events cause the rating of a debt security
purchased by a Fund to fall below the fourth highest rating category, the
Adviser will consider such an event in determining whether the Fund should
continue to hold that security. In no event, however, would a Fund be required
to liquidate any such portfolio security where the Fund would suffer a loss on
the sale of such security.
Depending upon prevailing market conditions, a Fund may purchase debt
securities at a discount from face value, which produces a yield greater than
the coupon rate. Conversely, if debt securities are purchased at premium over
face value, the yield will be lower than the coupon rate. In making investment
decisions, the Adviser will consider many factors other than current yield,
including the preservation of capital, the potential for realizing capital
appreciation, maturity, and yield to maturity.
From time to time, the equity and debt markets may fluctuate independently
of one another. In other words, a decline in equity markets may in certain
instances be offset by a rise in debt markets, or vice versa. As a result, the
Balanced Fund, with its balance of equity and debt investments, may entail less
investment risk (and a potentially smaller investment return) than a mutual fund
investing primarily in equity securities.
-3-
<PAGE>
3. CONVERTIBLE SECURITIES. Consistent with its objective policies and
restrictions, each Equity Fund may invest in convertible securities. Convertible
securities include corporate bonds, notes or preferred stocks that can be
converted into common stocks or other equity securities. Convertible securities
also include other securities, such as warrants, that provide an opportunity for
equity participation. Convertible Bonds are bonds convertible into a set number
of shares of another form of security (usually common stock) at a prestated
price. Convertible bonds have characteristics similar to both fixed-income and
equity securities. Preferred stock is a class of capital stock that pays
dividends at a specified rate and that has preference over common stock in the
payment of dividends and the liquidation of assets. Convertible preferred stock
is preferred stock exchangeable for a given number of common stock shares, and
has characteristics similar to both fixed-income and equity securities.
Because convertible securities can be converted into common stock, their
values will normally vary in some proportion with those of the underlying common
stock. Convertible securities usually provide a higher yield than the underlying
common stock, however, so that the price decline of a convertible security may
sometimes be less substantial than that of the underlying common stock. The
value of convertible securities that pay dividends or interest, like the value
of all fixed-income securities, generally fluctuates inversely with changes in
interest rates.
Warrants have no voting rights, pay no dividends and have no rights with
respect to the assets of the corporation issuing them. They do not represent
ownership of the securities for which they are exercisable, but only the right
to buy such securities at a particular price.
The Funds will not purchase any convertible debt security or convertible
preferred stock unless it has been rated as investment grade at the time of
acquisition by a NRSRO or that is not rated but is determined to be of
comparable quality by the Adviser.
4. ASSET-BACKED SECURITIES (NON-MORTGAGE). Consistent with its investment
objective, policies and restrictions, certain Funds may invest in asset-backed
securities. Asset-backed securities are instruments secured by company
receivables, truck and auto loans, leases, and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning such assets and
issuing such debt.
The purchase of non-mortgage asset-backed securities raises risk
considerations peculiar to the financing of the instruments underlying such
securities. Like mortgages underlying mortgage-backed securities, underlying
automobile sales contracts or credit card receivables are subject to substantial
prepayment risk, which may reduce the overall return to certificate holders.
Nevertheless, principal prepayment rates tend not to vary as much in response to
changes in interest rates and the short-term nature of the underlying car loans
or other receivables tend to
-4-
<PAGE>
dampen the impact of any change in the prepayment level. Certificate holders may
also experience delays in payment on the certificates if the full amounts due on
underlying sales contracts or receivables are not realized by the trust because
of unanticipated legal or administrative costs of enforcing the contracts or
because of depreciation or damage to the collateral (usually automobiles)
securing certain contracts, or other factors. If consistent with their
investment objectives and policies, the Funds may invest in other asset-backed
securities that may be developed in the future.
5. BANK INSTRUMENTS. Consistent with its investment objective, policies,
and restrictions, each Fund (other than the U.S. Government Money Market Fund
and the 100% U.S. Treasury Money Market Fund) may invest in bankers'
acceptances, certificates of deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically
drawn by an importer or exporter to pay for specific merchandise that are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. Investments in bankers'
acceptances will be limited to those guaranteed by domestic and foreign banks
having, at the time of investment, total assets of $1 billion or more (as of the
date of the institution's most recently published financial statements).
Certificates of deposit and time deposits represent funds deposited in a
commercial bank or a savings and loan association for a definite period of time
and earning a specified return.
Investments in certificates of deposit and time deposits may include
Eurodollar Certificates of Deposit, which are U.S. dollar denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States, Yankee Certificates of Deposit, which are
certificates of deposit issued by a U.S. branch of a foreign bank denominated in
U.S. dollars and held in the United States, Eurodollar Time Deposits ("ETDs"),
which are U.S. dollar denominated deposits in a foreign branch of a U.S. bank or
a foreign bank, and Canadian Time Deposits ("CTDs"), which are U.S. dollar
denominated certificates of deposit issued by Canadian offices of major Canadian
banks. All investments in certificates of deposit and time deposits will be
limited to those (a) of domestic and foreign banks and savings and loan
associations which, at the time of investment, have total assets of $1 billion
or more (as of the date of the institution's most recently published financial
statements) or (b) the principal amount of which is insured by the Federal
Deposit Insurance Corporation.
Although the Diversified Money Market Fund maintains a diversified
portfolio, there are no limitations on its ability to invest in domestic
certificates of deposit, banker's acceptances and other bank instruments.
Extensive investments in such instruments may result from the Fund's
concentration of securities in the financial services industry. Domestic
certificates of deposit and bankers' acceptances include those issued by
domestic branches of foreign banks to the extent permitted by the rules and
regulations of the Securities and Exchange Commission staff. These
-5-
<PAGE>
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.
6. COMMERCIAL PAPER AND VARIABLE AMOUNT MASTER DEMAND NOTES. Consistent
with its investment objective, policies, and restrictions, each Fund (other than
the 100% U.S. Treasury Money Market Fund) may invest in commercial paper
(including Section 4(2) commercial paper) and variable amount master demand
notes. Commercial paper consists of unsecured promissory notes issued by
corporations normally having maturities of 270 days or less. These investments
may include Canadian Commercial Paper, which is U.S. dollar denominated
commercial paper issued by a Canadian corporation or a Canadian counterpart of a
U.S. corporation, and Europaper, which is U.S. dollar denominated commercial
paper of a foreign issuer.
Variable amount master demand notes are unsecured demand notes that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, a Fund
may demand payment of principal and accrued interest at any time. A variable
amount master demand note will be deemed to have a maturity equal to the longer
of the period of time remaining until the next readjustment of its interest rate
or the period of time remaining until the principal amount can be recovered from
the issuer through demand.
7. LENDING OF PORTFOLIO SECURITIES. In order to generate additional
income, each Fund (other than the California Tax-Free Money Market Fund and the
100% U.S. Treasury Money Market Fund) may lend its portfolio securities to
broker-dealers, banks or other institutions. During the time portfolio
securities are on loan from a Fund, the borrower will pay the Fund any dividends
or interest paid on the securities. In addition, loans will be subject to
termination by the Fund or the borrower at any time. While the lending of
securities may subject a Fund to certain risks, such as delays or an inability
to regain the securities in the event the borrower were to default on its
lending agreement or enter into bankruptcy, a Fund will receive at least 100%
collateral in the form of cash or U.S. Government securities. This collateral
will be valued daily by the lending agent, with oversight by HighMark Capital
Management, Inc. (the "Adviser"), and, should the market value of the loaned
securities increase, the borrower will be required to furnish additional
collateral to the Fund. A Fund (other than the California Tax-Free Money Market
Fund and the 100% U.S. Treasury Money Market Fund) may lend portfolio securities
in an amount representing up to 33 1/3% of the value of the Fund's total assets.
8. REPURCHASE AGREEMENTS. Securities held by each Fund (other than the
100% U.S. Treasury Money Market Fund) may be subject to repurchase agreements.
Under the terms of a repurchase agreement, a Fund will deal with financial
institutions such as member banks of the Federal Deposit Insurance Corporation
having, at the time of investment, total assets of $100 million or more and from
registered broker-dealers that the Adviser deems creditworthy under guidelines
approved by HighMark Funds' Board of Trustees. Under a repurchase agreement, the
seller agrees to repurchase the securities at a mutually agreed-upon date and
price, and the
-6-
<PAGE>
repurchase price will generally equal the price paid by the Fund plus interest
negotiated on the basis of current short-term rates, which may be more or less
than the rate on the underlying portfolio securities. The seller under a
repurchase agreement will be required to maintain the value of collateral held
pursuant to the agreement at not less than 100% of the repurchase price
(including accrued interest) and the Custodian, with oversight by the Adviser,
will monitor the collateral's value daily and initiate calls to request that
collateral be restored to appropriate levels. In addition, securities subject to
repurchase agreements will be held in a segregated custodial account.
If the seller were to default on its repurchase obligation or become
insolvent, the Fund holding such obligation would suffer a loss to the extent
that either the proceeds from a sale of the underlying portfolio securities were
less than the repurchase price under the agreement or the Fund's disposition of
the underlying securities was delayed pending court action. Additionally,
although there is no controlling legal precedent confirming that a Fund would be
entitled, as against a claim by the seller or its receiver or trustee in
bankruptcy, to retain the underlying securities, HighMark Funds' Board of
Trustees believes that, under the regular procedures normally in effect for
custody of a Fund's securities subject to repurchase agreements and under
federal laws, a court of competent jurisdiction would rule in favor of the Fund
if presented with the question. Securities subject to repurchase agreements will
be held by HighMark Funds' custodian or another qualified custodian or in the
Federal Reserve/Treasury book-entry system. Repurchase agreements are considered
to be loans by a Fund under the 1940 Act.
9. REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements, provided such action is
consistent with the Fund's investment objective and fundamental investment
restrictions; as a matter of non fundamental policy, each Fund intends to limit
total borrowings under reverse repurchase agreements to no more than 10% of the
value of its total assets. Pursuant to a reverse repurchase agreement, a Fund
will sell portfolio securities to financial institutions such as banks or to
broker-dealers, and agree to repurchase the securities at a mutually agreed-upon
date and price. A Fund intends to enter into reverse repurchase agreements only
to avoid otherwise selling securities during unfavorable market conditions to
meet redemptions. At the time a Fund enters into a reverse repurchase agreement,
it will place in a segregated custodial account assets such as U.S. Government
securities or other liquid, high-quality debt securities consistent with the
Fund's investment objective having a value equal to 100% of the repurchase price
(including accrued interest), and will subsequently monitor the account to
ensure that an equivalent value is maintained. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the price at which a Fund is obligated to repurchase the
securities. Reverse repurchase agreements are considered to be borrowings by a
Fund under the 1940 Act.
10. U.S. GOVERNMENT OBLIGATIONS. With the exception of the 100% U.S.
Treasury Money Market Fund, which may invest only in direct U.S. Treasury
obligations, each Fund may, consistent with its investment objective, policies,
and restrictions, invest in obligations issued or
-7-
<PAGE>
guaranteed by the U.S. Government, its agencies, or instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the Government National Mortgage Association and the
Export-Import Bank of the United States, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Student Loan Marketing Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; and still others, such as those of the Federal Farm
Credit Banks or the Federal Home Loan Mortgage Corporation, are supported only
by the credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.
U.S. Government Securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities, although,
as a result, the yields available from U.S. Government Securities are generally
lower than the yields available from otherwise comparable corporate fixed-income
securities. Like other fixed-income securities, however, the values of U.S.
Government Securities change as interest rates fluctuate. Fluctuations in the
value of portfolio securities will in many cases not affect interest income on
existing portfolio securities, but will be reflected in the Fund's net asset
value. Because the magnitude of these fluctuations will generally be greater at
times when a Fund's average maturity is longer, under certain market conditions
the Fund may invest in short-term investments yielding lower current income
rather than investing in higher yielding longer-term securities.
For information concerning mortgage-related securities issued by certain
agencies or instrumentalities of the U.S. Government, see "Mortgage-Related
Securities" below.
11. MORTGAGE-RELATED SECURITIES. As indicated in the Prospectus, the
Diversified Money Market Fund, the U.S. Government Money Market Fund and the
California Tax-Free Money Market Fund may each invest in mortgage-related
securities issued by the Government National Mortgage Association ("GNMA")
representing GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes"). The Fixed Income Funds and the Balanced Fund may also, consistent with
each such Fund's investment objective and policies, invest in Ginnie Maes and in
mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies, or its instrumentalities or, those issued by nongovernmental entities.
In addition, the Fixed Income Funds and the Balanced Fund may invest in
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs").
Mortgage-related securities represent interests in pools of mortgage loans
assembled for sale to investors. Mortgage-related securities may be assembled
and sold by certain governmental agencies and may also be assembled and sold by
nongovernmental entities such as commercial banks, savings and loan
institutions, mortgage bankers, and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third party or
otherwise similarly secured, the market value of the security, which may
fluctuate, is not
-8-
<PAGE>
so secured. If a Fund purchases a mortgage-related security at a premium, that
portion may be lost if there is a decline in the market value of the security,
whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. As with other interest-bearing securities, the
prices of mortgage-related securities are inversely affected by changes in
interest rates. However, although the value of a mortgage-related security may
decline when interest rates rise, the converse is not necessarily true because
in periods of declining interest rates the mortgages underlying the security are
prone to prepayment. For this and other reasons, a mortgage-related security's
stated maturity may be shortened by unscheduled prepayments on the underlying
mortgages and, therefore, it is not possible to predict accurately the
security's return to the Fund. In addition, regular payments received in respect
of mortgage-related securities include both interest and principal. No assurance
can be given as to the return a Fund will receive when these amounts are
reinvested. As a consequence, mortgage-related securities may be a less
effective means of "locking in" interest rates than other types of debt
securities having the same stated maturity, may have less potential for capital
appreciation and may be considered riskier investments as a result.
Adjustable rate mortgage securities ("ARMS") are pass-through certificates
representing ownership interests in a pool of adjustable rate mortgages and the
resulting cash flow from those mortgages. Unlike conventional debt securities,
which provide for periodic (usually semi-annual) payments of interest and
payments of principal at maturity or on specified call dates, ARMs provide for
monthly payments based on a pro rata share of both periodic interest and
principal payments and prepayments of principal on the underlying mortgage pool
(less GNMA's, FNMA's, or FHLMC's fees and any applicable loan servicing fees).
There are a number of important differences both among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities themselves. As noted above, Ginnie Maes are issued by
GNMA, which is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. Ginnie Maes are guaranteed as to the timely
payment of principal and interest by GNMA and GNMA's guarantee is backed by the
full faith and credit of the U.S. Treasury. In addition, Ginnie Maes are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under GNMA's guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes"), which are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the U.S. Treasury. The FNMA is a government-sponsored organization
owned entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). The FHLMC is
a corporate instrumentality of the U.S. Government, created pursuant to an Act
of Congress, which is owned entirely by the Federal Home Loan 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
-9-
<PAGE>
payment of interest, which is guaranteed by the FHLMC. The FHLMC guarantees
either ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When the FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
CMOs in which the Fixed Income Funds and the Balanced Fund may invest
represent securities issued by a private corporation or a U.S. Government
instrumentality that are backed by a portfolio of mortgages or mortgage-backed
securities held under an indenture. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued with a number of classes or series
that have different maturities and that may represent interests in some or all
of the interest or principal on the underlying collateral or a combination
thereof. CMOs of different classes are generally retired in sequence as the
underlying mortgage loans in the mortgage pool are repaid. In the event of
sufficient early prepayments on such mortgages, the class or series of a CMO
first to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of a CMO held by a Fund would have
the same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security.
One or more classes of CMOs may have coupon rates that reset periodically
based on an index, such as the London Interbank Offered Rate ("LIBOR"). Each
Fund may purchase fixed, adjustable, or "floating" rate CMOs that are
collateralized by fixed rate or adjustable rate mortgages that are guaranteed as
to payment of principal and interest by an agency or instrumentality of the U.S.
government or are directly guaranteed as to payment of principal and interest by
the issuer, which guarantee is collateralized by U.S. government securities or
is collateralized by privately issued fixed rate or adjustable rate mortgages.
Securities such as zero-coupon obligations, mortgage-backed and
asset-backed securities, and collateralized mortgage obligations ("CMOs") will
have greater price volatility than other fixed-income obligations. Because
declining interest rates may lead to prepayment of underlying mortgages,
automobile sales contracts or credit card receivables, the prices of
mortgage-related and asset-backed securities may not rise with a decline in
interest rates. Mortgage-backed and asset-backed securities and CMOs are
extremely sensitive to the rate of principal prepayment. Similarly, callable
corporate bonds also present risk of prepayment. During periods of falling
interest rates, securities that can be called or prepaid may decline in value
relative to similar securities that are not subject to call or prepayment.
REMICs in which the Fixed Income Funds and the Balanced Fund may invest
are private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
12. ADJUSTABLE RATE NOTES. Consistent with its investment objective,
policies, and restrictions, each Fund (other than the 100% U.S. Treasury Money
Market Fund) may invest in
-10-
<PAGE>
"adjustable rate notes," which include variable rate notes and floating rate
notes. For Money Market Fund purposes, a variable rate note is one whose terms
provide for the readjustment of its interest rate on set dates and that, upon
such readjustment, can reasonably be expected to have a market value that
approximates its amortized cost; the degree to which a variable rate note's
market value approximates its amortized cost subsequent to readjustment will
depend on the frequency of the readjustment of the note's interest rate and the
length of time that must elapse before the next readjustment. A floating rate
note is one whose terms provide for the readjustment of its interest rate
whenever a specified interest rate changes and that, at any time, can reasonably
be expected to have a market value that approximates its amortized cost.
Although there may be no active secondary market with respect to a particular
variable or floating rate note purchased by a Fund, the Fund may seek to resell
the note at any time to a third party. The absence of an active secondary
market, however, could make it difficult for the Fund to dispose of a variable
or floating rate note in the event the issuer of the note defaulted on its
payment obligations and the Fund could, as a result or for other reasons, suffer
a loss to the extent of the default. Variable or floating rate notes may be
secured by bank letters of credit. A demand instrument with a demand notice
period exceeding seven days may be considered illiquid if there is no secondary
market for such security. Such security will be subject to a Fund's non
fundamental 15% (10% in the case of the Money Market Funds) limitation governing
investments in "illiquid" securities, unless such notes are subject to a demand
feature that will permit the Fund to receive payment of the principal within
seven days of the Fund's demand. See "INVESTMENT RESTRICTIONS" below.
Maturities for variable and adjustable rate notes held in the Money Market
Funds will be calculated in compliance with the provisions of Rule 2a-7, as it
may be amended from time to time.
As used above, a note is "subject to a demand feature" where the Fund is
entitled to receive the principal amount of the note either at any time on not
more than thirty days' notice or at specified intervals, not exceeding 397 days
and upon not more than thirty days' notice.
13. MUNICIPAL SECURITIES. As defined in the Prospectuses, under normal
market conditions, and as a matter of fundamental policy, at least 80% of the
total assets of the California Tax-Free Money Market Fund will be invested in
Municipal Securities, the interest on which, in the opinion of bond counsel, is
both excluded from gross income for federal income tax purposes and California
personal income tax purposes, and does not constitute a preference item for
individuals for purposes of the federal alternative minimum tax. With respect to
the California Intermediate Tax-Free Bond Fund, under normal market conditions,
at least 65% of its total assets will be invested in Municipal Securities, the
interest on which is both excluded from gross income for federal income tax
purposes and California personal income tax purposes, and at least 80% of its
total assets will be invested in Municipal Securities the interest on which is
excluded from gross income for federal income tax purposes and is not treated as
a preference item for individuals for purposes of the federal alternative
minimum tax. The California Intermediate Tax-Free Bond Fund invests at least 80%
of its total assets in Municipal Securities
-11-
<PAGE>
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 Adviser to be of comparable
quality. The California Tax-Free Money Market Fund invests only in Municipal
Securities with remaining effective maturities of 397 days or less, and
which, at the time of purchase, possess one of the two highest short-term
ratings from at least one NRSRO or are determined by the Adviser to be of
comparable quality.
Municipal Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and public entities. Private activity bonds that are issued
by or on behalf of public authorities to finance various privately operated
facilities are included within the term Municipal Securities if the interest
paid thereon is (i) excluded from gross income for federal income tax purposes
and (ii) not treated as a preference item for individuals for purposes of the
federal alternative minimum tax.
As described in the Prospectuses, the two principal classifications of
Municipal Securities consist of "general obligation" and "revenue" issues. In
general, only general obligation bonds are backed by the full faith and credit
and general taxing power of the issuer. There are, of course, variations in the
quality of Municipal Securities, both within a particular classification and
between classifications, and the yields on Municipal Securities depend upon a
variety of factors, including general market conditions, the financial condition
of the issuer (or other entity whose financial resources are supporting the
Municipal Securities), general conditions of the municipal bond market, the size
of a particular offering, the maturity of the obligation and the rating(s) of
the issue. In this regard, it should be emphasized that the ratings of any NRSRO
are general and are not absolute standards of quality; Municipal Securities with
the same maturity, interest rate and rating(s) may have different yields while
Municipal Securities of the same maturity and interest rate with a different
rating(s) may have the same yield.
In addition, Municipal Securities may include "moral obligation" bonds,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Certain Municipal Securities are municipal lease revenue obligations (or
certificates of participation or "COPs"), which typically provide that the
municipality has no obligation to make lease or installment payments in future
years unless money is appropriated for such purpose. While the risk of
non-appropriation is inherent to COP financing, this risk is mitigated by the
Fund's policy to invest in COPs that are rated in one of the four highest rating
categories used by Moody's Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P").
-12-
<PAGE>
Municipal Securities also include so-called Mello-Roos and assessment
district bonds, which are usually unrated instruments issued to finance the
building of roads and other public works and projects that are primarily secured
by real estate taxes or assessments levied on property located in the local
community. Most of these bonds do not seek agency ratings because the issues are
too small, and in most cases, the purchase of these bonds is based upon the
Adviser's determination that it is suitable for the Fund.
Municipal Securities may also include, but are not limited to, short-term
anticipation notes, bond anticipation notes, revenue anticipation notes, and
other forms of short-term tax-exempt securities. These instruments are issued in
anticipation of the receipt of funds, the proceeds of bond placements, or other
revenues.
An issuer's obligations with respect to its Municipal Securities are
subject to the provisions of bankruptcy, insolvency, and other laws affecting
the rights and remedies of creditors, such as the Federal Bankruptcy Code, and
laws, if any, that may be enacted by Congress or state legislatures extending
the time for payment of principal or interest, or both, or imposing other
constraints upon the enforcement of such obligations or upon the ability of
municipalities to levy taxes or otherwise raise revenues. Certain of the
Municipal Securities may be revenue securities and dependent on the flow of
revenue, generally in the form of fees and charges. The power or ability of an
issuer to meet its obligations for the payment of interest on and principal of
its Municipal Securities may be materially adversely affected by litigation or
other conditions, including a decline in property value or a destruction of
uninsured property due to natural disasters.
In addition, in accordance with its investment objective, each Fund may
invest in private activity bonds, which may constitute Municipal Securities
depending upon the federal income tax treatment of such bonds. Such bonds are
usually revenue bonds because the source of payment and security for such bonds
is the financial resources of the private entity involved; the full faith and
credit and the taxing power of the issuer in normal circumstances will not be
pledged. The payment obligations of the private entity also will be subject to
bankruptcy and similar debtor's rights, as well as other exceptions similar to
those described above. Moreover, the Funds may invest in obligations secured in
whole or in part by a mortgage or deed of trust on real property located in
California that are subject to the "anti-deficiency" legislation discussed
below.
The Funds, in accordance with their investment objective, may also invest
indirectly in Municipal Securities by purchasing the shares of tax-exempt money
market mutual funds. Such investments will be made solely for the purpose of
investing short-term cash on a temporary tax-exempt basis and only in those
funds with respect to which the Adviser believes with a high degree of certainty
that redemption can be effected within seven days of demand. Additional
limitations on investments by the Funds in the shares of other tax-exempt money
market mutual funds are set forth under "Investment Restrictions" below.
-13-
<PAGE>
The Funds may invest in municipal obligations that are payable solely from
the revenues of health care institutions, although the obligations may be
secured by real or personal property of such institutions. Certain provisions
under federal and California law may adversely affect such revenues and,
consequently, payment on those Municipal Securities.
Certain Municipal Securities in which the Funds may invest may be
obligations that are secured in whole or in part by a mortgage or deed of trust
on real property. California has certain statutory provisions, as embellished by
decisional law, that limit the remedies of a creditor secured by a mortgage or
deed of trust. Some of the provisions generally bar a creditor from obtaining a
deficiency judgment for such secured obligations based either on the method of
foreclosure or the type of debt secured. Other antideficiency provisions limit a
creditors deficiency based on the value of the real property security at the
time of the foreclosure sale. Another statutory provision, commonly known as the
"one-action" rule, has two aspects, an "affirmative defense" aspect and a
"sanction" aspect. The "affirmative defense" aspect limits creditors secured by
real property to a single action to enforce the obligation (e.g., a collection
lawsuit or setoff) and under the related "security-first principle," requires
the creditor to foreclose on the security before obtaining a judgment or other
enforcement of the secured obligation. Under the "sanction" aspect, if the real
property secured creditor violates the one-action rule, the creditor loses its
lien on the real property security and, in some instances, the right to recover
on the debt. Under the statutory provisions governing judicial foreclosures, the
debtor has the right to redeem the title to the property for up to one-year
following the foreclosure sale.
Upon the default under a mortgage or deed of trust with respect to
California real property, a creditor's nonjudicial foreclosure rights under the
power of sale contained in the mortgage or deed of trust are subject to certain
procedural requirements whereby the effective minimum period for foreclosing on
a mortgage or deed of trust is generally four to five months after the initial
default and such foreclosure could be further delayed by bankruptcy proceedings
initiated by the debtor. Such time delays in collections could disrupt the flow
of revenues available to an issuer for the payment of debt service on the
outstanding obligations if such defaults occur with respect to a substantial
number of mortgages or deeds of trust securing an issuer's obligations.
Following a creditor's non-judicial foreclosure under a power of sale, no
deficiency judgment is available. This limitation, however, does not apply to
recoveries for bad faith waste, certain kinds of fraud and pursuant to
environmental indemnities. This limitation also does not apply to bonds
authorized or permitted to be issued by the Commissioner of Corporations, or
which are made by a public utility subject to the Public Utilities Act.
Certain Municipal Securities in the Funds may be obligations that finance
the acquisition of mortgages for low and moderate income mortgagors. These
obligations may be payable solely from revenues derived from home mortgages and
are subject to California's statutory limitations applicable to obligations
secured by real property, as described above. Under California anti-deficiency
legislation, there is usually no personal recourse against a 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
-14-
<PAGE>
the creditor chooses judicial or nonjudicial foreclosure. In the event that this
purchase money anti-deficiency rule applies to a loan secured by a mortgage or
deed of trust, and the value of the property subject to that mortgage or deed of
trust has been substantially reduced because of market forces or by an
earthquake or other event for which the mortgagor or trustor carried no
insurance, upon default, the issuer holding that loan nevertheless would
generally be entitled to collect no more on its loan than it could obtain from
the foreclosure sale of the property.
Legislation has been introduced from time to time regarding the California
state personal income tax status of interest paid on Municipal Securities issued
by the State of California and its local governments and held by investment
companies such as the California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund. The Funds can not predict what legislation
relating to Municipal Securities, if any, may be proposed in the future or which
proposals, if any, might be enacted. Such proposals, while pending or if
enacted, might materially adversely affect the availability of Municipal
Securities generally, as well as the availability of Municipal Securities issued
by the State of California and its local governments specifically, for
investment by the Funds and the liquidity and value of their portfolios. In such
an event, each Fund would re-evaluate its investment objective and policies and
consider changes in its structure or possible dissolution. See "Investments in
California Municipal Securities by the California Tax-Free Money Market Fund and
the California Intermediate Tax-Free Bond Fund" below.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax or California personal
income tax are rendered at the time of issuance by counsel experienced in
matters relating to the validity of and tax exemption of interest on bonds
issued by states and their political sub-divisions. Neither the Funds nor the
Adviser will review the proceedings relating to the issuance of Municipal
Securities or the basis for such opinions.
14. INVESTMENTS IN CALIFORNIA MUNICIPAL SECURITIES BY THE CALIFORNIA
TAX-FREE MONEY MARKET FUND AND THE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND.
The following information is a general summary intended to give a recent
historical description, and is not a discussion of any specific factors that may
affect any particular issuer of California Municipal Securities. The information
is not intended to indicate continuing or future trends in the condition,
financial or otherwise, of California.
Because each of these California Funds expects to invest substantially
all of its assets in California Municipal Securities, it will be susceptible
to a number of complex factors affecting the issuers of California Municipal
Securities, including national and local political, economic, social,
environmental, and regulatory policies and conditions. The Funds cannot
predict whether or to what extent such factors or other factors may affect
the issuers of California 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
-15-
<PAGE>
obligations issued by the State of California, and there is no responsibility
on the part of the State of California to make payments on such local
obligations.
During the first half of the 1990's California suffered the most severe
recession in the State since the 1930's, with significant job losses
(particularly in the aerospace, other manufacturing, services and construction
industries). The greatest effects of the recession were felt in Southern
California. Since 1994, California's economy has made a strong recovery, but its
growth has been somewhat unbalanced. In general, the high-technology,
biotechnology, construction, and entertainment and other service industries have
expanded while aerospace and other manufacturing industries have declined.
California's economy can be expected to be particularly sensitive to trends in
these industries.
The financial difficulties experienced by the State of California and
municipal issuers during the recession resulted in the credit ratings of certain
of their obligations being downgraded significantly by the major rating
agencies. While California's economy has made a strong steady recovery and
California's credit ratings have climbed from the lows experienced during the
recession, as of the date of this Statement of Additional Information, rating
agencies, underwriters and investors appear to have some lingering concerns
about California's creditworthiness. Major credit rating agencies often cite,
among other things, concerns about California's lack of contingency planning
(such as adequate reserves), missed budget deadlines and on-going structural
budget impediments.
The recession severely affected State revenues while the State's health,
welfare and education costs were increasing. As a result, throughout the first
half of the decade, California had a period of budget imbalance and multibillion
dollar year-end deficits. However, in recent years, California has generally
experienced positive or close to break-even operating results due, in part, to
more conservative budgeting, improved economic conditions and, most recently,
higher-than-expected tax receipts paid on capital gains realizations. The
State's ability to raise revenues and reduce expenditures to the extent
necessary to balance the budget for any year depends upon numerous factors,
including economic conditions in the State and the nation, the accuracy of the
State's revenue predictions, as well as the impact of budgetary restrictions
imposed by voter-passed initiatives.
The ability of the State of California and its political sub-divisions to
generate revenue through real property and other taxes and to increase spending
has been significantly restricted by various constitutional and statutory
amendments and voter-passed initiatives. Such limitations could affect the
ability of California state and municipal issuers to pay interest or repay
principal on their obligations.
During the recession that began in 1990, the State depleted its available
cash resources and became increasingly dependent on external borrowings to meet
its cash needs. For nearly a decade and a half, California has issued revenue
anticipation notes (which must be issued and repaid during the same fiscal year)
to fund its operating budget during the fiscal year. Beginning
-16-
<PAGE>
in 1992, the State expanded its external borrowing to include revenue
anticipation warrants (which can be issued and redeemed in different fiscal
years). The State was severely criticized by the major credit rating agencies
for the State's reliance upon such external borrowings during the recession. In
1996, the State fully repaid $4 billion of revenue anticipation warrants issued
in 1994. The State has not needed to use such "cross-year" borrowing since 1996.
It is not presently possible, however, to determine the extent to which
California will issue additional revenue anticipation warrants, short-term
interest-bearing notes or other instruments in future fiscal years.
Certain of the securities in the California Tax-Free Money Market Fund and
the California Intermediate Tax-Free Bond Fund may be obligations of issuers
that rely in whole or in part, directly or indirectly, on ad valorem real
property taxes as a source of revenue. Article XIII A of the California
Constitution, adopted by the voters in 1978, limits ad valorem taxes on real
property, and restricts the ability of taxing entities to increase real property
and other taxes.
Article XIII B of the California Constitution, originally adopted in 1979,
limits significantly spending by state government and by "local governments".
Article XIII B generally limits the amount of the appropriations of the State
and of local governments to the amount of appropriations of the entity for the
prior year, adjusted for changes in the cost of living, population, and the
services that the government entity is financially responsible for providing. To
the extent that the "proceeds of taxes" of the State or a local government
exceed its "appropriations limit," the excess revenues must be rebated. One of
the exclusions from these limitations for any entity of government is the debt
service costs of bonds existing or legally authorized as of January 1, 1979 or
on bonded indebtedness thereafter approved by the voters. Although Article XIII
B states that it shall not "be construed to impair the ability of the state or
of any local government to meet its obligations with respect to existing or
future bonded indebtedness," concern has been expressed with respect to the
combined effect of such constitutionally imposed spending limits on the ability
of California state and local governments to utilize bond financing.
Article XIII B was modified substantially by Propositions 98 and 111 of
1988 and 1990, respectively. These initiatives changed the State's Article XIII
B appropriations limit to require that the State set aside a prudent reserve
fund for public education, and guarantee a minimum level of State funding for
public elementary and secondary schools as well as 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).
-17-
<PAGE>
There is no assurance that any California issuer will make full or timely
payments of principal or interest or remain solvent. For example, in December
1994, Orange County filed for bankruptcy. In June 1995, Orange County negotiated
a rollover of its short-term debt originally due at that time; the major rating
agencies considered the rollover a default. In June 1996, the investors in such
overdue notes were paid and the Orange County bankruptcy ended. However, the
Orange County bankruptcy and such default had a serious effect upon the market
for California municipal obligations.
Numerous factors may adversely affect the State and municipal economies.
For example, limits on federal funding could result in the loss of federal
assistance otherwise available to the State.
In addition, it is impossible to predict the time, magnitude, or location
of a natural catastrophe, such as a major earthquake, or its effect on the
California economy. In January 1994, a major earthquake struck the Los Angeles
area, causing significant damage in a four-county area. The possibility exists
that another natural disaster such as an earthquake could create a major
dislocation of the California economy.
The Funds' concentration in California Municipal Securities provides a
greater level of risk than funds that are diversified across numerous states and
municipal entities.
15. PUTS. The California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund may acquire "puts" with respect to the Municipal
Securities held in their respective portfolios. A put is a right to sell a
specified security (or securities) within a specified period of time at a
specified exercise price. These Funds may sell, transfer, or assign a put only
in conjunction with the sale, transfer, or assignment of the underlying security
or securities.
The amount payable to a Fund upon its exercise of a "put" is normally (i)
the Fund's acquisition cost of the securities (excluding any accrued interest
that the Fund paid on the acquisition), less any amortized market premium or
plus any amortized market or original issue discount during the period the Fund
owned the securities, plus (ii) all interest accrued on the securities since the
last interest payment date during that period.
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
-18-
<PAGE>
either separately in cash or by paying a higher price for portfolio securities
that are acquired subject to the puts (thus reducing the yield to maturity
otherwise available for the same securities).
16. SHARES OF MUTUAL FUNDS. Each Fund may invest in the securities of
other investment companies to the extent permitted by the 1940 Act. Currently,
the 1940 Act permits a Fund to invest up to 5% of its total assets in the shares
of any one investment company, but it may not own more than 3% of the securities
of any one registered investment company or invest more than 10% of its assets
in the securities of other investment companies. In accordance with an exemptive
order issued to HighMark Funds by the Securities and Exchange Commission, such
other registered investment companies securities may include shares of a money
market fund of HighMark Funds, and may include registered investment companies
for which the Adviser or Sub-Adviser to a Fund of HighMark Funds, or an
affiliate of such Adviser or Sub-Adviser, serves as investment adviser,
administrator or distributor or provides other services. Because other
investment companies employ an investment adviser, such investment by a Fund may
cause Shareholders to bear duplicative fees. The Adviser will waive its advisory
fees attributable to the assets of the investing Fund invested in a money market
fund of HighMark Funds, and, to the extent required by applicable law, the
Adviser will waive its fees attributable to the assets of the Fund invested in
any investment company. Additional restrictions on the Fund's investments in the
securities of a money market mutual fund are set forth under "Investment
Restrictions" below.
Investments by the California Tax-Free Money Market Fund in the shares of
other tax-exempt money market mutual funds are described under "Municipal
Securities" above.
17. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may enter
into forward commitments or purchase securities on a "when-issued" basis, which
means that the securities will be purchased for delivery beyond the normal
settlement date at a stated price and yield and thereby involve the risk that
the yield obtained in the transaction will be less than that available in the
market when delivery takes place. A Fund will generally not pay for such
securities and no interest accrues on the securities until they are received by
the Fund. These securities are recorded as an asset and are subject to changes
in value based upon changes in the general level of interest rates. Therefore,
the purchase of securities on a "when-issued" basis may increase the risk of
fluctuations in a Fund's net asset value.
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
-19-
<PAGE>
normal market conditions; in the event any Fund exceeded this 25% threshold, the
Fund's liquidity and the Adviser's ability to manage it might be adversely
affected. In addition, the Funds do not intend to purchase "when-issued"
securities or enter into forward commitments for speculative or leveraging
purposes but only in furtherance of such Fund's investment objective.
18. ZERO-COUPON SECURITIES. Consistent with its objectives, a Fund may
invest in zero-coupon securities, which are debt securities that do not pay
interest, but instead are issued at a deep discount from par. The value of the
security increases over time to reflect the interest accrued. The value of these
securities may fluctuate more than similar securities that are issued at par and
pay interest periodically. Although these securities pay no interest to holders
prior to maturity, interest on these securities is reported as income to the
Fund and distributed to its shareholders. These distributions must be made from
the Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. The Fund will not be able to purchase additional income producing
securities with cash used to make such distributions and its current income
ultimately may be reduced as a result. The amount included in income is
determined under a constant interest rate method. In addition, if an obligation
is purchased subsequent to its original issue, a holder such as the Fixed Income
Funds may elect to include market discount in income currently on a ratable
accrual method or a constant interest rate method. Market discount is the
difference between the obligation's "adjusted issue price" (the original issue
price plus original issue discount accrued to date) and the holder's purchase
price. If no such election is made, gain on the disposition of a market discount
obligation is treated as ordinary income (rather than capital gain) to the
extent it does not exceed the accrued market discount.
19. OPTIONS (PUTS AND CALLS) ON SECURITIES. Each Equity Fund may buy and
sell options (puts and calls), and write call options on a covered basis. Under
a call option, the purchaser of the option has the right to purchase, and the
writer (the Fund) the obligation to sell, the underlying security at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to purchase, the underlying
security at the exercise price during the option period.
There are risks associated with such investments including the following:
(1) the success of a hedging strategy may depend on the ability of the Adviser
or Sub-Adviser to predict movements in the prices of individual securities,
fluctuations in markets and movements in interest rates; (2) there may be an
imperfect correlation between the movement in prices of securities held by a
Fund and the price of options; (3) there may not be a liquid secondary market
for options; and (4) while a Fund will receive a premium when it writes covered
call options, it may not participate fully in a rise in the market value of the
underlying security.
20. COVERED CALL WRITING. Each Equity Fund may write covered call options
from time to time on such portion of its assets, without limit, as the Adviser
determines is appropriate in seeking to obtain its investment objective. A Fund
will not engage in option writing strategies for speculative purposes. A call
option gives the purchaser of such option the right to buy, and the writer, in
this case the Fund, has the obligation to sell the underlying security at the
exercise
-20-
<PAGE>
price during the option period. The advantage to the Fund of writing covered
calls is that the Fund receives a premium which is additional income. However,
if the value of the security rises, the Fund may not fully participate in the
market appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker/dealer through whom such call option was sold,
which requires the writer to deliver the underlying security against payment of
the exercise price. This obligation is terminated upon the expiration of the
option period or at such earlier time in which the writer effects a closing
purchase transaction. A closing purchase transaction is one in which a Fund,
when obligated as a writer of an option, terminates its obligation by purchasing
an option of the same series as the option previously written. A closing
purchase transaction cannot be effected with respect to an option once the
option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security, or to enable the
Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Fund may realize a net
gain or loss from a closing purchase transaction, depending upon whether the net
amount of the original premium received on the call option is more or less than
the cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be partially or entirely offset by the premium
received from a sale of a different call option on the same underlying security.
Such a loss may also be wholly or partially offset by unrealized appreciation in
the market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
If a call option expires unexercised, the Fund will realize a short term
capital gain in the amount of the premium on the option, less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
the Fund will realize a gain or loss from the sale of the underlying security
equal to the difference between the cost of the underlying security, and the
proceeds of the sale of the security plus the amount of the premium on the
option, less the commission paid.
The market value of a call option generally reflects the market price of
an underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security and the time remaining until the expiration date.
The Fund will write call options only on a covered basis, which means that
the Fund will own the underlying security subject to a call option at all times
during the option period or will own the right to acquire the underlying
security at a price equal to or below the option's 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
-21-
<PAGE>
hold. Options written by the Fund will normally have expiration dates between
one and nine months from the date written. The exercise price of a call option
may be below, equal to or above the current market value of the underlying
security at the time the option is written.
21. PURCHASING CALL OPTIONS. The Equity Funds may purchase call options to
hedge against an increase in the price of securities that the Fund wants
ultimately to buy. Such hedge protection is provided during the life of the call
option since the Fund, as holder of the call option, is able to buy the
underlying security at the exercise price regardless of any increase in the
underlying security's market price. In order for a call option to be profitable,
the market price of the underlying security must rise sufficiently above the
exercise price to cover the premium and transaction costs. These costs will
reduce any profit the Fund might have realized had it bought the underlying
security at the time it purchased the call option. The Funds may sell, exercise
or close out positions as the Adviser deems appropriate.
22. PURCHASING PUT OPTIONS. Each Equity Fund may purchase put options to
protect its portfolio holdings in an underlying security against a decline in
market value. Such hedge protection is provided during the life of the put
option since the Fund, as holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. For a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, a Fund will reduce any profit it might otherwise have realized
from appreciation of the underlying security by the premium paid for the put
option and by transaction costs.
23. OPTIONS IN STOCK INDICES. The Equity Funds may engage in options on
stock indices. A stock index assigns relative values to the common stock
included in the index with the index fluctuating with changes in the market
values of the underlying common stock.
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.
-22-
<PAGE>
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.
24. RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of options
strategies depends on the ability of the Adviser or, where applicable, the
Sub-Adviser to forecast interest rate and market movements correctly.
When it purchases an option, a Fund runs the risk that it will lose its
entire investment in the option in a relatively short period of time, unless the
Fund exercises the option or enters into a closing sale transaction with respect
to the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, a Fund
will lose part or all of its investment in the option. This contrasts with an
investment by a Fund in the underlying securities, since the Fund may continue
to hold its investment in those securities notwithstanding the lack of a change
in price of those securities.
-23-
<PAGE>
The effective use of options also depends on a Fund's ability to terminate
option positions at times when the Adviser or, where applicable, the Sub-Adviser
deems it desirable to do so. Although a Fund will take an option position only
if its Adviser or, where applicable, the Sub-Adviser believes there is liquid
secondary market for the option, there is no assurance that a Fund will be able
to effect closing transactions at any particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable, a
Fund could no longer engage in closing transactions. Lack of investor interest
might adversely affect the liquidity of the market for particular options or
series of options. A marketplace may discontinue trading of a particular option
or options generally. In addition, a market could become temporarily unavailable
if unusual events such as volume in excess of trading or clearing capability,
were to interrupt normal market operations. A marketplace may at times find it
necessary to impose restrictions on particular types of options transactions,
which may limit a Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for securities underlying options purchased or
sold by a Fund could result in losses on the options. If trading is interrupted
in an underlying security, the trading of options on that security is normally
halted as well. As a result, a Fund as purchaser or writer of an option will be
unable to close out its positions until options trading resumes, and it may be
faced with losses if trading in the security reopens at a substantially
different price. In addition, the Options Clearing Corporation (OCC) or other
options markets, such as the London Options Clearing House, may impose exercise
restrictions. If a prohibition on exercise is imposed at the time when trading
in the option has also been halted, a Fund as purchaser or writer of an option
will be locked into its position until one of the two restrictions has been
lifted. If a prohibition on exercise remains in effect until an option owned by
a Fund has expired, the Fund could lose the entire value of its option.
25. FUTURES CONTRACTS ON SECURITIES AND RELATED OPTIONS. The Equity Funds
and Fixed Income Funds may invest in futures and related options based on any
type of security or index traded on U.S. or foreign exchanges, or over the
counter as long as the underlying security or the securities represented by the
future or index are permitted investments of the Fund. Futures and options can
be combined with each other in order to adjust the risk and return parameters of
a Fund.
26. FUTURES CONTRACTS ON SECURITIES. The Equity Funds and Fixed Income
Funds will enter into futures contracts on securities only when, in compliance
with the SEC's requirements, cash or equivalents equal in value to the
securities' value (less any applicable margin deposits) have been deposited in a
segregated account of the Fund's custodian.
A futures contract sale creates an obligation by the seller to deliver the
type of instrument called for in the contract in a specified delivery month for
a stated price. A futures contract purchase creates an obligation by the
purchaser to take delivery of the type of instrument called for in the contract
in a specified delivery month at a stated price. The specific instruments
-24-
<PAGE>
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.
27. OPTIONS ON SECURITIES' FUTURES CONTRACTS. The Equity Funds and Fixed
Income Funds will enter into written options on securities' futures contracts
only when in compliance with the SEC's requirements, cash or equivalents equal
in value to the securities' value (less any
-25-
<PAGE>
applicable margin deposits) have been deposited in a segregated account of the
Fund's custodian. A Fund may purchase and write call and put options on the
futures contracts it may buy or sell and enter into closing transactions with
respect to such options to terminate existing positions. A Fund may use such
options on futures contracts in lieu of writing options directly on the
underlying securities or purchasing and selling the underlying futures
contracts. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may
terminate his or her position by selling or purchasing an offsetting option.
There is no guarantee that such closing transactions can be effected.
A Fund will be required to deposit initial margin and maintenance margin
with respect to put and call options on futures contracts written by it pursuant
to brokers' requirements similar to those described above.
Aggregate initial margin deposits for futures contracts (including futures
contracts on securities, indices and currency) and premiums paid for related
options may not exceed 5% of a Fund's total assets.
28. RISK OF TRANSACTIONS IN SECURITIES' FUTURES CONTRACTS AND RELATED
OPTIONS. Successful use of securities' futures contracts by a Fund is subject to
the ability of the Adviser or, where applicable, the Sub-Adviser to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less risk to a Fund because
the maximum amount at risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of a call or put
option on a futures contract would result in a loss to a Fund when the purchase
or sale of a futures contract would not, such as when there is no movement in
the price of the hedged investments. The writing of an option on a futures
contract involves risks similar to those risks relating to the sale of futures
contracts.
There is no assurance that higher than anticipated trading activity or
other unforeseen events will not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.
To reduce or eliminate a hedge position held by a Fund, the Fund may seek
to close out a position. The ability to establish and close out positions will
be subject to the development and maintenance of a liquid secondary market. It
is not certain that this market will develop or continue to exist for a
particular futures contract. Reasons for the absence of a liquid secondary
market on an exchange include the following: (i) there may be insufficient
trading interest in
-26-
<PAGE>
certain contracts or options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
29. INDEX FUTURES CONTRACTS. The Equity Funds may enter into stock index
futures contracts, debt index futures contracts, or other index futures
contracts appropriate to its objective, and may purchase and sell options on
such index futures contracts. A Fund will not enter into any index futures
contract for the purpose of speculation, and will only enter into contracts
traded on securities exchanges with standardized maturity dates.
An index futures contract is a bilateral agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the index value at the close of
trading of the contracts and the price at which the futures contract is
originally struck. No physical delivery of the securities comprising the index
is made; generally contracts are closed out prior to the expiration date of the
contract. No price is paid upon entering into index futures contracts. When a
Fund purchases or sells an index futures contract, it is required to make an
initial margin deposit in the name of the futures broker and to make variation
margin deposits as the value of the contract fluctuates, similar to the deposits
made with respect to futures contracts on securities. Positions in index futures
contracts may be closed only on an exchange or board of trade providing a
secondary market for such index futures contracts. The value of the contract
usually will vary in direct proportion to the total face value.
A Fund's ability to effectively utilize index futures contracts depends on
several factors. First, it is possible that there will not be a perfect price
correlation between the index futures contracts and their underlying index.
Second, it is possible that a lack of liquidity for index futures contracts
could exist in the secondary market, resulting in the Fund's inability to close
a futures position prior to its maturity date. Third, the purchase of an index
futures contract involves the risk that the Fund could lose more than the
original margin deposit required to initiate a futures transaction. In order to
avoid leveraging and related risks, when a Fund purchases an index futures
contract, it will collateralize its position by depositing an amount of cash or
cash equivalents, equal to the market value of the index futures positions held,
less margin deposits, in a segregated account with the Fund's custodian.
Collateral equal to the current market value of the index futures position will
be maintained only a daily basis.
-27-
<PAGE>
The extent to which a Fund may enter into transactions involving index
futures contracts may be limited by the Internal Revenue Code's requirements for
qualification as a regulated investment company and the Funds' intention to
qualify as such.
30. OPTIONS ON INDEX FUTURES CONTRACTS. Options on index futures contracts
are similar to options on securities except that options on index futures
contracts gives the purchaser the right, in return for the premium paid, to
assume a position in an index futures contract (a long position if the option is
a call and a short position if the option is a put), at a specified exercise
price at any time during the period of the option. Upon exercise of the option,
the delivery of the futures position by the writer of the option to the holder
of the option will be accompanied by delivery of the accumulated balance in the
writer's futures margin account which represents the amount by which the market
price of the index futures contract, at exercise, exceeds (in the case of a
call) or is less than (in the case of a put) the exercise price of the option on
the index futures contract. If an option is exercised on the last trading day
prior to the expiration date of the option, the settlement will be made entirely
in cash equal to the difference between the exercise price of the option and the
closing level of the index on which the future is based on the expiration date.
Purchasers of options who fail to exercise their options prior to the exercise
date suffer a loss of the premium.
31. FOREIGN INVESTMENT. Certain of the Funds may invest in U.S. dollar
denominated obligations of securities of foreign issuers. Permissible
investments may consist of obligations of foreign branches of U.S. banks and
foreign or domestic branches of foreign banks, including European Certificates
of Deposit, European Time Deposits, Canadian Time Deposits and Yankee
Certificates of Deposits, and investments in Canadian Commercial Paper, foreign
securities and Europaper. In addition, the Equity Funds may invest in American
Depositary Receipts. The Equity Funds and Fixed Income Funds may also invest in
securities issued or guaranteed by foreign corporations or foreign governments,
their political subdivisions, agencies or instrumentalities and obligations of
supranational entities such as the World Bank and the Asian Development Bank.
Any investments in these securities will be in accordance with a Fund's
investment objective and policies, and are subject to special risks that differ
in some respects from those related to investments in obligations of U.S.
domestic issuers. Such risks include future adverse political and economic
developments, the possible imposition of withholding taxes on interest or other
income, possible seizure, nationalization, or expropriation of foreign deposits,
the possible establishment of exchange controls or taxation at the source,
greater fluctuations in value due to changes in exchange rates, or the adoption
of other foreign governmental restrictions which might adversely affect the
payment of principal and interest on such obligations. Such investments may also
entail higher custodial fees and sales commissions than domestic investments. To
the extent that a Fund may invest in securities of foreign issuers that are not
traded on any exchange, there is a further risk that these securities may not be
readily marketable. Foreign issuers of securities or obligations are often
subject to accounting treatment and engage in business practices different from
those respecting domestic issuers of similar securities or obligations. Foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements than those applicable to domestic branches of U.S. banks.
-28-
<PAGE>
On January 1, 1999, the European Monetary Market Union ("EMU") introduced
a new single currency, the euro, which replaced the national currency for
participating member countries. Those countries are Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and
Spain. A new European Central Bank ("ECB") was created to manage the monetary
policy of the new unified region. On the same day, exchange rates were
irrevocably fixed between the EMU member countries. National currencies will
continue to circulate until they are replaced by coins and banks notes by the
middle of 2002.
The Small Cap Value Fund and International Equity Fund may invest in the
securities of emerging market issuers. Investing in emerging market securities
involves risks which are in addition to the usual risks inherent in foreign
investments. Some emerging markets countries may have fixed or managed
currencies that are not free-floating against the U.S. dollar. Further, certain
currencies may not be traded internationally. Certain of these currencies have
experienced a steady devaluation relative to the U.S. dollar. Any devaluation in
the currencies in which the Fund's securities are denominated may have a
detrimental impact on the Fund.
Some countries with emerging securities markets have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuation in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some countries may differ
favorably or unfavorably from the U.S. economy in such respects as rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency, number and depth of industries forming the economy's
base, governmental controls and investment restrictions that are subject to
political change and balance of payments position. Further, there may be greater
difficulties or restrictions with respect to investments made in emerging
markets countries.
Emerging markets typically have substantially less volume than U.S.
markets. In addition, securities in many of such markets are less liquid, and
their prices often are more volatile, than securities of comparable U.S.
companies. Such markets often have different clearance and settlement procedures
for securities transactions, and in some markets there have been times when
settlements have been unable to keep pace with the volume of transactions,
making it difficult to conduct transactions. Delays in settlement could result
in temporary periods when assets may be uninvested. Settlement problems in
emerging markets countries also could cause the Fund to miss attractive
investment opportunities. Satisfactory custodial services may not be available
in some emerging markets countries, which may result in the Fund's incurring
additional costs and delays in the transportation and custody of such
securities.
32. FOREIGN CURRENCY TRANSACTIONS. Under normal market conditions, the
International Equity Fund may engage in foreign currency exchange transactions
to protect 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
-29-
<PAGE>
hedging"). The Fund may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign currency, and
may also enter into contracts to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase or sell foreign currency futures
contracts ("futures contracts"). The Fund may also purchase domestic and foreign
exchange-listed and over-the-counter call and put options on foreign currencies
and futures contracts. Hedging transactions involve costs and may result in
losses, and the Fund's ability to engage in hedging and related options
transactions may be limited by tax considerations.
33. TRANSACTION HEDGING. When it engages in transaction hedging, the
International Equity Fund enters into foreign currency transactions with respect
to specific receivables or payables of the International Equity Fund, generally
arising in connection with the purchase or sale of its portfolio securities. The
International Equity Fund will engage in transaction hedging when it desires to
"lock in" the U.S. dollar price of a security it has agreed to purchase or sell,
or the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging, the Fund will attempt to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Although there is no current intention to do so, the International Equity
Fund reserves the right to purchase and sell foreign currency futures contracts
which are traded in the United States and are subject to regulation by the CFTC.
For transaction hedging purposes the International Equity Fund may also
purchase exchange-listed call and put options on foreign currency futures
contracts and on foreign currencies. A put option on a futures contract gives
the Fund the right to assume a short position in the futures contract until
expiration of the option. A put option on currency gives the Fund the right to
sell a currency at an exercise price until the expiration of the option. A call
option on a futures contract gives the Fund the right to assume a long position
in the futures contract until the expiration of the option. A call option on
currency gives the Fund the right to purchase a currency at the exercise price
until the expiration of the option.
34. POSITION HEDGING. When it engages in position hedging, the
International Equity Fund enters into foreign currency exchange transactions to
protect against a decline in the values of the foreign currencies in which its
portfolio securities are denominated (or an increase in the value of currency
for securities which the Sub-Adviser expects to purchase, when the Fund holds
cash or short-term investments). In connection with the position hedging, the
Fund may purchase or sell foreign currency forward contracts or foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the value of such securities in foreign currencies
will change as a consequence of market movements in the value
-30-
<PAGE>
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.
35. CURRENCY FORWARD AND FUTURES CONTRACTS. Consistent with its investment
objective and policies, the International Equity Fund and Small Cap Value Fund
may invest in currency forward and futures contracts. A forward contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract as agreed by
the parties, at a price set at the time of the contract. In the case of a
cancelable forward contract, the holder has the unilateral right to cancel the
contract at maturity by paying a specified fee. Forward contracts are trades in
the interbank markets conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
A futures contract is a standardized contract for the future delivery of a
specified amount of a foreign currency at a future date at a price set at the
time of the contract. Futures contracts are designed by and traded on exchanges.
The Fund would enter into futures contracts solely for hedging or other
appropriate risk management purposes as defined in the controlling regulations.
Forward contracts differ from futures contracts in certain respects. For
example, the maturity date of a forward contract may be any fixed number of days
from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month. Forward contracts may be in any amounts
agreed upon by the parties rather than predetermined amounts. Also, forward
contracts are traded directly between currency traders so that no intermediary
is required. A forward contract generally requires no margin or other deposit.
-31-
<PAGE>
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.
A Fund may conduct its foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market or through entering into forward currency contracts to protect against
uncertainty in the level of future exchange rates between particular currencies
or between foreign currencies in which the Fund's securities are or may be
denominated. Under normal circumstances, consideration of the prospect for
changes in currency exchange rates will be incorporated into the Fund's
long-term investment strategies. However, the Adviser and Sub-Adviser believe
that it is important to have the flexibility to enter into forward currency
contracts when it determines that the best interests of the Fund will be served.
When the Adviser and Sub-Adviser believe that the currency of a particular
country may suffer a significant decline against another currency, the Fund may
enter into a currency contract to sell, for the appropriate currency, the amount
of foreign currency approximating the value of some or all of the Fund's
securities denominated in such foreign currency. The Fund may realize a gain or
loss from currency transactions.
36. GENERAL CHARACTERISTICS OF CURRENCY FUTURES CONTRACTS. When the
International Equity Fund or Small Cap Value Fund purchases or sells a futures
contract, it is required to deposit with its custodian an amount of cash or U.S.
Treasury bills up to 5% of the amount of the futures contract. This amount is
known as "initial margin." The nature of initial margin is different from that
of margin in security transactions in that it does not involve borrowing money
to finance transactions. Rather, initial margin is similar to a performance bond
or good faith deposit that is returned to a Fund upon termination of the
contract, assuming a Fund satisfies its contractual obligation.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market." These payments are called "variation
margin," and are made as the value of
-32-
<PAGE>
the underlying futures contract fluctuates. For example, when a Fund sells a
futures contract and the price of the underlying currency rises above the
delivery price, the International Fund's position declines in value. The Fund
then pays a broker a variation margin payment equal to the difference between
the delivery price of the futures contract and the market price of the currency
underlying the futures contract. Conversely, if the price of the underlying
currency falls below the delivery price of the contract, the Fund's futures
position increases in value. The broker then must make a variation margin
payment equal to the difference between the delivery price of the futures
contract and the market price of the currency underlying the futures contract.
When a Fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Fund, and the Fund realizes a loss or gain. Such closing transactions involve
additional commission costs.
37. FOREIGN CURRENCY OPTIONS. Options on foreign currencies operate
similarly to options on securities, and are traded primarily in the
over-the-counter market, although options on foreign currencies have recently
been listed on several exchanges. Such options will be purchased or written only
when the International Equity or Small Cap Value Fund's Sub-Adviser believes
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specific time. Options on foreign currencies are affected by all of those
factors which influence foreign exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealer or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market, and thus may not reflect relatively
smaller transactions (less than $1 million), where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock market.
38. FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
International Equity Fund or the Small Cap Value Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
-33-
<PAGE>
39. INDEX-BASED INVESTMENTS. Index-Based Investments, such as Standard &
Poor's Depository Receipts ("SPDRs"), NASDAQ-100 Index Tracking Stock ("NASDAQ
100s") and Dow Jones DIAMONDS ("Diamonds"), are interests in a unit investment
trust ("UIT") that may be obtained from the UIT or purchased in the secondary
market. SPDRs, NASDAQ 100s and DIAMONDS are listed on the American Stock
Exchange.
A UIT will generally issue Index-Based Investments in aggregations of
50,000 known as "Creation Units" in exchange for a "Portfolio Deposit"
consisting of (a) a portfolio of securities substantially similar to the
component securities ("Index Securities") of the applicable index (the "Index"),
(b) a cash payment equal to a pro rata portion of the dividends accrued on the
UIT's portfolio securities since the last dividend payment by the UIT, net of
expenses and liabilities, and (c) a cash payment or credit ("Balancing Amount")
designed to equalize the net asset value of the Index and the net asset value of
a Portfolio Deposit.
Index-Based Investments are not individually redeemable, except upon
termination of the UIT. To redeem, the portfolio must accumulate enough
Index-Based Investments to reconstitute a Creation Unit (large aggregations of a
particular Index-Based Investment). The liquidity of small holdings of
Index-Based Investments, therefore, will depend upon the existence of a
secondary market. Upon redemption of a Creation Unit, the portfolio will receive
Index Securities and cash identical to the Portfolio Deposit required of an
investor wishing to purchase a Creation Unit that day.
The price of Index-Based Investments is derived and based upon the
securities held by the UIT. Accordingly, the level of risk involved in the
purchase or sale of Index-Based Investments is similar to the risk involved in
the purchase or sale of traditional common stock, with the exception that the
pricing mechanism for Index-Based Investments is based on a basket of stocks.
Disruptions in the markets for the securities underlying Index-Based Investments
purchased or sold by the Portfolio could result in losses on Index-Based
Investments. Trading in Index-Based Investments involves risks similar to those
risks, described above under "Options," involved in the writing of options on
securities.
40. SMALL CAP/SPECIAL EQUITY SITUATION SECURITIES. Certain Funds may
invest in the securities of small capitalization companies and companies in
special equity situations. Companies are considered to have a small market
capitalization if their capitalization is within the range of those companies in
the S&P 600 Small Cap Index. Companies are considered to be experiencing special
equity situations if they are experiencing unusual and possibly non-repetitive
developments, such as mergers; acquisitions; spin-offs; liquidations;
reorganizations; and new products, technology or management. These companies may
offer greater opportunities for capital appreciation than larger, more
established companies, but investment in such companies may involve certain
special risks. These risks may be due to the greater business risks of small
size, limited markets and financial resources, narrow product lines and frequent
lack of depth in management. The securities of such companies are often traded
in the over-the-counter market and may not be traded in volumes typical on a
national securities exchange. Thus, the
-34-
<PAGE>
securities of such companies may be less liquid, and subject to more abrupt or
erratic market movements than securities of larger, more established growth
companies. Since a "special equity situation" may involve a significant change
from a company's past experiences, the uncertainties in the appraisal of the
future value of the company's equity securities and the risk of a possible
decline in the value of the Funds' investments are significant.
41. HIGH YIELD SECURITIES. The Small Cap Value Fund and the Fixed Income
Funds 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 such securities. In addition, the secondary market for high yield
securities, which is concentrated in relatively few market makers, may not be as
liquid as the secondary market for more highly rated securities. As a result, a
Fund could find it more difficult to sell these securities or may be able to
sell the securities only at prices lower than if such securities were widely
traded. Furthermore, the Trust may experience difficulty in valuing certain
securities at certain times. Prices realized upon the sale of such lower rated
or unrated securities, under these circumstances, may be less than the prices
used in calculating a Fund's net asset value.
Lower rated or unrated debt obligations also present risks based on
payment expectations. If an issuer calls an obligation for redemption, a Fund
may have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If a Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Fund's investment portfolio and
increasing the exposure of the Fund to the risks of high yield securities.
-35-
<PAGE>
A Fund may choose, at its expense or in conjunction with others, to pursue
litigation or otherwise exercise its rights as a security holder to seek to
protect the interest of security holders if it determines this to be in the
interest of its Shareholders.
42. MONEY MARKET INSTRUMENTS. Each Fund, subject to its own investment
limitations, may invest in money market instruments which are short-term, debt
instruments or deposits and may include, for example, (i) commercial paper rated
within the highest rating category by a NRSRO at the time of investment, or, if
not rated, determined by the Adviser to be of comparable quality; (ii)
obligations (certificates of deposit, time deposits, bank master notes, and
bankers' acceptances) of thrift institutions, savings and loans, U.S. commercial
banks (including foreign branches of such banks), and U.S. and foreign branches
of foreign banks, provided that such institutions (or, in the case of a branch,
the parent institution) have total assets of $1 billion or more as shown on
their last published financial statements at the time of investment; (iii)
short-term corporate obligations rated within the three highest rating
categories by a NRSRO (e.g., at least A by S&P or A by Moody's) at the time of
investment, or, if not rated, determined by the Adviser to be of comparable
quality; (iv) general obligations issued by the U.S. Government and backed by
its full faith and credit, and obligations issued or guaranteed as to principal
and interest by agencies or instrumentalities of the U.S. Government (e.g.,
obligations issued by Farmers Home Administration, Government National Mortgage
Association, Federal Farm Credit Bank and Federal Housing Administration); (v)
receipts, including TRs, TIGRs and CATS; (vi) repurchase agreements involving
such obligations; (vii) money market funds and (viii) foreign commercial paper.
Certain of the obligations in which a Fund may invest may be variable or
floating rate instruments, may involve conditional or unconditional demand
features and may include variable amount master demand notes.
43. TREASURY RECEIPTS. Consistent with its investment objective, policies
and restrictions, each Fund may invest in Treasury receipts. Treasury receipts
are interests in separately traded interest and principal component parts of
U.S. Treasury obligations that are issued by banks and brokerage firms and are
created by depositing Treasury notes and Treasury bonds into a special account
at a custodian bank. The custodian holds the interest and principal payments for
the benefit of the registered owners of the certificates of such receipts. The
custodian arranges for the issuance of the certificates or receipts evidencing
ownership and maintains the register. Receipts include "Treasury Receipts"
("TR's"), "Treasury Investment Growth Receipts" ("TIGR's"), and "Certificates of
Accrual on Treasury Securities" ("CATS"). TR's, TIGR's and CATS are sold as zero
coupon securities, which means that they are sold at a substantial discount and
redeemed at face value at their maturity date without interim cash payments of
interest or principal. This discount is accrued over the life of the security,
and such accretion will constitute the income earned on the security for both
accounting and tax purposes. Because of these features, such securities may be
subject to greater interest rate volatility than interest-paying securities.
44. HIGH QUALITY INVESTMENTS WITH REGARD TO THE MONEY MARKET FUNDS. As
noted in the Prospectuses for the Money Market Funds, each such Fund may invest
only in obligations
-36-
<PAGE>
determined by the Adviser to present minimal credit risks under guidelines
adopted by HighMark Funds' Board of Trustees.
With regard to the Diversified Money Market Fund and the California
Tax-Free Money Market Fund, investments will be limited to "Eligible
Securities." Eligible Securities include First Tier Securities and Second Tier
Securities. First Tier Securities include those that possess at least one rating
in the highest category and, if the securities do not possess a rating, those
that are determined to be of comparable quality by the Adviser pursuant to
guidelines adopted by the Board of Trustees. Second Tier Securities are all
other Eligible Securities.
A security subject to a tender or demand feature will be considered an
Eligible Security only if both the demand feature and the underlying security
possess a high quality rating or, if such do not possess a rating, are
determined by the Adviser to be of comparable quality; provided, however, that
where the demand feature would be readily exercisable in the event of a default
in payment of principal or interest on the underlying security, the obligation
may be acquired based on the rating possessed by the demand feature or, if the
demand feature does not possess a rating, a determination of comparable quality
by the Adviser. In applying the above-described investment policies, a security
that has not received a short-term rating will be deemed to possess the rating
assigned to an outstanding class of the issuer's short-term debt obligations if
determined by the Adviser to be comparable in priority and security to the
obligation selected for purchase by the Fund, or, if not available, the issuer's
long-term obligations, but only in accordance with the requirements of Rule
2a-7. A security that at the time of issuance had a maturity exceeding 397 days
but, at the time of purchase, has a remaining maturity of 397 days or less, is
considered an Eligible Security if it possesses a long-term rating, within the
two highest rating categories.
Certain of the obligations in which the Funds may invest may be variable
or floating rate instruments, may involve a conditional or unconditional demand
feature, and may include variable amount master demand notes.
In the case of the Diversified Money Market Fund, Eligible Securities
include those obligations that, at the time of purchase, possess the highest
short-term rating from at least one NRSRO (the Diversified Money Market Fund may
also invest up to 5% of its net assets in obligations that, at the time of
purchase, possess one of the two highest short-term ratings from at least one
NRSRO, and in obligations that do not possess a short-term rating (i.e., are
unrated) but are determined by the Adviser to be of comparable quality to the
rated instruments eligible for purchase by the Fund under guidelines adopted by
the Board of Trustees). In the case of the California Tax-Free Money Market
Fund, Eligible Securities include those obligations that, at the time of
purchase, possess one of the two highest short-term ratings by at least one
NRSRO or do not possess a short-term rating (i.e., are unrated) but are
determined by the Adviser to be of comparable quality to the rated obligations
eligible for purchase by the Fund under guidelines adopted by the Board of
Trustees.
-37-
<PAGE>
Specific obligations that the Diversified Money Market Fund may invest in
include:
(i) obligations issued by the U.S. Government, and backed by its full
faith and credit, and obligations issued or guaranteed as to
principal and interest by the agencies or instrumentalities of the
U.S. Government (e.g., obligations issued by Farmers Home
Administration, Government National Mortgage Association, Federal
Farm Credit Bank and Federal Housing Administration);
(ii) obligations such as bankers' acceptances, bank notes, certificates
of deposit and time deposits of thrift institutions, savings and
loans, U.S. commercial banks (including foreign branches of such
banks), and U.S. and foreign branches of foreign banks, provided
that such institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown on
their last published financial statements at the time of
investment;
(iii) short-term promissory notes issued by corporations, including
Canadian Commercial Paper ("CCP"), which is U.S.
dollar-denominated commercial paper issued by a Canadian
corporation or a Canadian counterpart of a U.S. corporation, and
Europaper, which is U.S. dollar-denominated commercial paper of a
foreign issuer;
(iv) U.S. dollar-denominated securities issued or guaranteed by foreign
governments, their political subdivisions, agencies or
instrumentalities, and obligations of supranational entities such
as the World Bank and the Asian Development Bank (provided that
the Fund invests no more than 5% of its assets in any such
instrument and invests no more than 25% of its assets in such
instruments in the aggregate);
(v) readily-marketable, short-term asset-backed debt securities,
repayment on which is obtained from an identifiable pool of
assets, typically receivables related to a particular industry,
such as credit card receivables, automobile loan or lease related
receivables, trade receivables or diversified financial assets
(provided that the Fund invests no more than 25% of its assets in
any such industry and invests no more than 35% of its assets in
such instruments in the aggregate);
(vi) Treasury receipts, including TRs, TIGRs and CATs; and
(vii) repurchase agreements involving such obligations.
The Diversified Money Market Fund will not invest more than 5% of its
total assets in the First Tier Securities of any one issuer, except that the
Fund may invest up to 25% of its total assets in First Tier Securities of a
single issuer for a period of up to three business days. (This three day "safe
harbor" provision will not be applicable to the California Tax-Free Money Market
-38-
<PAGE>
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 Adviser may be
required to promptly take appropriate action with respect to an obligation held
in a Fund's portfolio in the event of certain developments that indicate a
diminishment of the instrument's credit quality, such as where an NRSRO
downgrades an obligation below the second highest rating category, or in the
event of a default relating to the financial condition of the issuer.
The Appendix to this Statement of Additional Information identifies each
NRSRO that may be utilized by the Adviser with regard to portfolio investments
for the Funds and provides a description of relevant ratings assigned by each
such NRSRO. A rating by a NRSRO may be utilized only where the NRSRO is neither
controlling, controlled by, or under common control with the issuer of, or any
issuer, guarantor, or provider of credit support for, the instrument.
45. ILLIQUID SECURITIES. Each Fund has adopted a non-fundamental policy
(which may be changed without shareholder approval) prohibiting the Fund from
investing more than 15% (in the case of each of the Money Market Funds, not more
than 10%) of its total assets in "illiquid" securities, which include securities
with legal or contractual restrictions on resale or for which no readily
available market exists but exclude such securities if resalable pursuant to
Rule 144A under the Securities Act ("Rule 144A Securities"). Pursuant to this
policy, the Funds may purchase Rule 144A Securities only in accordance with
liquidity guidelines established by the Board of Trustees of HighMark Funds and
only if the investment would be permitted under applicable state securities
laws.
46. RESTRICTED SECURITIES. Each Fund has adopted a nonfundamental policy
(which may be changed without Shareholder approval) permitting the Fund to
invest in restricted securities provided the Fund complies with the illiquid
securities policy described above. Restricted securities are securities that may
not be sold to the public without registration under the Securities Act of 1933
("1933 Act") and may be either liquid or illiquid. The Adviser will determine
the liquidity of restricted securities in accordance with guidelines established
by HighMark Funds' Board of Trustees. Restricted securities purchased by the
Funds may include
-39-
<PAGE>
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.
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);
-40-
<PAGE>
3. Invest in any issuer for purposes of exercising control or
management;
4. Purchase or retain securities of any issuer if the officers or
Trustees of HighMark Funds or the officers or directors of its investment
adviser owning beneficially more than one-half of 1% of the securities of
such issuer together own beneficially more than 5% of such securities;
5. Borrow money or issue senior securities, except that a Fund may
borrow from banks or enter into reverse repurchase agreements for
temporary emergency purposes in amounts up to 10% of the value of its
total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with permissible borrowings
and in amounts not in excess of the lesser of the dollar amounts borrowed
or 10% of the value of the Fund's total assets at the time of its
borrowing. A Fund will not invest in additional securities until all its
borrowings (including reverse repurchase agreements) have been repaid. For
purposes of this restriction, the deposit of securities and other
collateral arrangements with respect to options and financial and currency
futures contracts, and payments of initial and variation margin in
connection therewith, are not considered a pledge of a Fund's assets; and
THE DIVERSIFIED MONEY MARKET FUND, THE U.S. GOVERNMENT MONEY MARKET FUND AND THE
100% U.S. TREASURY MONEY MARKET FUND MAY NOT:
1. Buy common stocks or voting securities, or state, municipal or
private activity bonds;
2. Write or purchase put or call options; or
3. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities, if, immediately after the purchase, more than 5% of the
value of the Fund's total assets would be invested in such issuer (except
that up to 25% of the value of the Fund's total assets may be invested
without regard to the 5% limitation). (As indicated below, the Funds have
adopted a non-fundamental investment policy that is more restrictive than
this fundamental investment limitation);
4. Purchase any securities that would cause more than 25% of the
value of the Fund's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation
with respect to obligations issued or guaranteed by the U.S. Government,
its agencies, or instrumentalities, domestic bank certificates of deposit
or bankers' acceptances, and repurchase agreements secured by bank
instruments or obligations of the U.S. Government, its agencies, or
instrumentalities; (b) wholly owned finance companies will be considered
to be in the industries of their parents if their
-41-
<PAGE>
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).
5. Make loans, except that a Fund may purchase or hold debt
instruments, lend portfolio securities, and enter into repurchase
agreements as permitted by its individual investment objective and
policies.
The Diversified Money Market Fund, the U.S. Government 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 (3). above shall apply to 100% of each Fund's
assets. Notwithstanding, each such Fund may invest up to 25% of its assets
in First Tier qualified securities of a single issuer for up to three
business days.
EACH OF THE EQUITY AND FIXED INCOME FUNDS, OTHER THAN THE CALIFORNIA
INTERMEDIATE TAX-FREE BOND FUND, MAY NOT:
1. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities, (and, with respect to the International Equity Fund
only, repurchase agreements involving such securities) if, immediately
after the purchase, more than 5% of the value of such Fund's total assets
would be invested in the issuer or the Fund would hold more than 10% of
any class of securities of the issuer or more than 10% of the issuer's
outstanding voting securities (except that up to 25% of the value of the
Fund's total assets may be invested without regard to these limitations).
With respect to the International Equity Fund, for purposes of this
investment limitation, each foreign governmental issuer is deemed a
separate issuer;
2. Purchase any securities that would cause more than 25% of such
Fund's total assets at the time of purchase to be invested in securities
of one or more issuers conducting their principal business activities in
the same industry, provided that (a) there is no limitation with respect
to obligations issued or guaranteed by the U.S. or foreign governments or
their agencies or instrumentalities and repurchase agreements secured by
obligations of the U.S. Government or its agencies or instrumentalities;
(b) wholly owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of their parents; and (c) utilities will be
divided according to their services (for example, gas, gas transmission,
electric and gas, electric, and telephone will each be considered a
separate industry); and
3. Make loans, except that a Fund may purchase or hold debt
instruments, lend portfolio securities, and enter into repurchase
agreements in accordance with its investment objective and policies.
-42-
<PAGE>
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;
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. 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;
-43-
<PAGE>
6. 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;
7. 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;
8. Acquire a put, if, immediately after the acquisition, more than
5% of the total amortized cost value of the Fund's assets would be subject
to puts from the same institution (except that (i) up to 25% of the value
of the Fund's total assets may be subject to puts without regard to the 5%
limitation and (ii) the 5% limitation is inapplicable to puts that, by
their terms, would be readily exercisable in the event of a default in
payment of principal or interest on the underlying securities). In
applying the above-described limitation, the Fund will aggregate
securities subject to puts from any one institution with the Fund's
investments, if any, in securities issued or guaranteed by that
institution. In addition, for the purpose of this investment restriction
and investment restriction No. 10 below, a put will be considered to be
from the party to whom the Fund will look for payment of the exercise
price;
9. 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
10. 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;
11. 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
-44-
<PAGE>
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.
12. Make loans; except that the Fund may purchase or hold debt
instruments, lend portfolio securities and enter into repurchase
agreements as permitted by its investment objective and policies.
EACH OF THE BALANCED FUND, INCOME EQUITY FUND, GROWTH FUND, BOND FUND, 100% U.S.
TREASURY MONEY MARKET FUND, CALIFORNIA TAX-FREE MONEY MARKET FUND, DIVERSIFIED
MONEY MARKET FUND AND U.S. GOVERNMENT MONEY MARKET FUND:
1. May not purchase securities of other investment companies, except
as permitted by the 1940 Act.
EACH OF THE VALUE MOMENTUM FUND, THE CORE EQUITY FUND, THE INTERNATIONAL EQUITY
FUND, THE SMALL CAP VALUE FUND, THE INTERMEDIATE-TERM BOND FUND, AND THE
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND:
1. May purchase securities of any issuer only when consistent with
the maintenance of its status as a diversified company under the
Investment Company Act of 1940, or the rules or regulations thereunder, as
such statute, rules or regulations may be amended from time to time.
2. Concentrate investments in a particular industry or group of
industries, or within any one state (except that the limitation as to
investments in any one state or its political subdivision shall not apply
to the California Intermediate Tax-Free Bond Fund), as concentration is
defined under the Investment Company Act of 1940, or the rules and
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.
-45-
<PAGE>
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 Core Equity
Fund, the International Equity Fund, the Small Cap Value Fund, the
Intermediate-Term Bond Fund, and the California Intermediate Tax-Free Bond Fund
have been adopted to avoid wherever possible the necessity of shareholder
meetings otherwise required by the 1940 Act. This recognizes the need to react
quickly to changes in the law or new investment opportunities in the securities
markets and the cost and time involved in obtaining shareholder approvals for
diversely held investment companies. However, the Funds also have adopted
nonfundamental limitations, set forth below, which in some instances may be more
restrictive than their fundamental limitations. Any changes in a Fund's
nonfundamental limitations will be communicated to the Fund's shareholders prior
to effectiveness.
1940 ACT RESTRICTIONS. Under the 1940 Act, and the rules, regulations and
interpretations thereunder, a "diversified company," as to 75% of its totals
assets, may not purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. Government, its agencies or its instrumentalities) if,
as a result, more than 5% of the value of its total assets would be invested in
the securities of such issuer or more than 10% of the issuer's voting securities
would be held by the fund. "Concentration" is generally interpreted under the
1940 Act to be investing more than 25% of net assets in an industry or group of
industries. The 1940 Act limits the ability of investment companies to borrow
and lend money and to underwrite securities. The 1940 Act currently prohibits an
open-end fund from issuing senior securities, as defined in the 1940 Act, except
under very limited circumstances.
The 1940 Act also limits the amount that the Funds may invest in other
investment companies prohibiting each Fund in the aggregate (with each other and
with all other mutual funds in the HighMark Funds) from: (i) owning more than 3%
of the total outstanding voting stock of a single other investment company; (ii)
investing more than 5% of its total assets in the securities of a single other
investment company; and (iii) investing more than 10% of its total assets in
securities of all other investment companies. The SEC rules applicable to money
market funds also govern and place certain quality restrictions on these
investments.
-46-
<PAGE>
THE FOLLOWING INVESTMENT LIMITATIONS OF THE VALUE MOMENTUM FUND, THE Core Equity
FUND, THE INTERNATIONAL EQUITY FUND, THE SMALL CAP VALUE FUND, THE
INTERMEDIATE-TERM BOND FUND, AND THE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
ARE NON-FUNDAMENTAL POLICIES. EACH FUND MAY NOT:
1. Acquire more than 10% of the voting securities of any one issuer.
This limitation applies to only 75% of a Fund's assets.
2. Invest in companies for the purpose of exercising control.
3. Borrow money, except for temporary or emergency purposes and then
only in an amount not exceeding one-third of the value of total assets and
except that a Fund may borrow from banks or enter into reverse repurchase
agreements for temporary emergency purposes in amounts up to 10% of the
value of its total assets at the time of such borrowing. To the extent
that such borrowing exceeds 5% of the value of the Fund's assets, asset
coverage of at least 300% is required. In the event that such asset
coverage shall at any time fall below 300%, the Fund shall, within three
days thereafter or such longer period as the Securities and Exchange
Commission may prescribe by rules and regulations, reduce the amount of
its borrowings to such an extent that the asset coverage of such borrowing
shall be at least 300%. This borrowing provision is included solely to
facilitate the orderly sale of portfolio securities to accommodate heavy
redemption requests if they should occur and is not for investment
purposes. All borrowings will be repaid before making additional
investments and any interest paid on such borrowings will reduce income.
4. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed 10%
of total assets taken at current value at the time of the incurrence of
such loan, except as permitted with respect to securities lending.
5. Purchase or sell real estate, real estate limited partnership
interest, commodities or commodities contracts (except that the Core
Equity 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.
-47-
<PAGE>
7. Act as an underwriter of securities of other issuers except as it
may be deemed an underwriter in selling a Fund security.
8. Issue senior securities (as defined in the Investment Company Act
of 1940) except in connection with permitted borrowings as described above
or as permitted by rule, regulation or order of the Securities and
Exchange Commission.
9. Purchase or retain securities of an issuer if, to the knowledge
of HighMark Funds, an officer, trustee, partner or director of HighMark
Funds or the Adviser or Sub-Advisers of HighMark Funds owns beneficially
more than 1/2 or 1% of the shares or securities or such issuer and all
such officers, trustees, partners and directors owning more than 1/2 or 1%
of such shares or securities together own more than 5% of such shares or
securities.
10. Invest in interest in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
VOTING INFORMATION. As used in this Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of HighMark Funds or a particular
Fund or a particular Class of Shares of HighMark Funds or a Fund means the
affirmative vote of the lesser of (a) more than 50% of the outstanding Shares of
HighMark Funds or such Fund or such Class, or (b) 67% or more of the Shares of
HighMark Funds or such Fund or such Class present at a meeting at which the
holders of more than 50% of the outstanding Shares of HighMark Funds or such
Fund or such Class are represented in person or by proxy.
PORTFOLIO TURNOVER
A Fund's turnover rate is calculated by dividing the lesser of a Fund's
purchases or sales of portfolio securities for the year by the monthly average
value of the portfolio securities. The calculation excludes all securities whose
maturities at the time of acquisition were one year or less. Thus, for
regulatory purposes, the portfolio turnover rate with respect to each of the
Money Market Funds was zero percent for each of the last two fiscal years, and
is expected to remain zero percent.
For HighMark Funds' fiscal years ended July 31, 1999 and July 31, 1998,
each Funds' portfolio turnover rate was as follows:
<TABLE>
<CAPTION>
FUND 1999 1998
---- ---- ----
<S> <C> <C>
Balanced Fund 34% 22%
Growth Fund 52% 67%
Income Equity Fund 71% 69%
International Equity Fund 87% 72%
-48-
<PAGE>
Small Cap Value Fund 74% N/A
Value Momentum Fund 9% 7%
Bond Fund 39% 16%
California Intermediate Tax-Free Bond Fund 11% 23%
Intermediate-Term Bond Fund 19% 51%
</TABLE>
IT IS CURRENTLY EXPECTED THAT THE CORE EQUITY FUND'S PORTFOLIO TURNOVER
RATE WILL NOT EXCEED __%.
The portfolio turnover rate may vary greatly from year to year as well as
within a particular year, and may also be affected by cash requirements for
redemption of Shares.
VALUATION
As disclosed in the 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
11:00 a.m. Pacific Time (2:00 p.m. Eastern Time) on days on which both the New
York Stock Exchange and the Federal Reserve wire system are open for business
("Business Days"). As disclosed in the Prospectuses, each Equity Fund's and
Fixed Income Fund's net asset value per share for purposes of pricing purchase
and redemption orders is determined by the administrator as of 1:00 p.m.,
Pacific Time (4:00 p.m. Eastern Time) on days on which the New York Stock
Exchange is open for business (also "Business Days").
VALUATION OF THE MONEY MARKET FUNDS
The Money Market Funds have elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. The amortized cost method
involves valuing an instrument at its cost initially and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. This
method may result in periods during which value, as determined by amortized
cost, is higher or lower than the price a Fund would receive if it sold the
instrument. The value of securities in a Fund can be expected to vary inversely
with changes in prevailing interest rates.
HighMark Funds' Board of Trustees has undertaken to establish procedures
reasonably designed, taking into account current market conditions and a Fund's
investment objective, to stabilize the net asset value per Share of each Money
Market Fund for purposes of sales and redemptions at $l.00. These procedures
include review by the Trustees, at such intervals as they deem appropriate, to
determine the extent, if any, to which the net asset value per Share of each
Fund calculated by using available market quotations deviates from $1.00 per
Share. In the event such deviation exceeds one-half of one percent, Rule 2a-7
requires that the Board promptly consider what action, if any, should be
initiated. If the Trustees believe that the extent of any
-49-
<PAGE>
deviation from a Fund's $1.00 amortized cost price per Share may result in
material dilution or other unfair results to new or existing investors, the
Trustees will take such steps as they consider appropriate to eliminate or
reduce to the extent reasonably practicable any such dilution or unfair results.
These steps may include selling portfolio instruments prior to maturity,
shortening the average portfolio maturity of a Fund, withholding or reducing
dividends, reducing the number of a Fund's outstanding Shares without monetary
consideration, or utilizing a net asset value per Share based on available
market quotations.
VALUATION OF THE EQUITY FUNDS AND THE FIXED INCOME FUNDS
Except as noted below, investments by the Equity Funds and the Fixed
Income Funds in securities traded on a national exchange (or exchanges) are
valued based upon their last sale price on the principal exchange on which such
securities are traded. With regard to each such Fund, securities the principal
market for which is not a securities exchange are valued based upon the latest
bid price in such principal market. Securities and other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of HighMark Funds' Board of Trustees. With the
exception of short-term securities as described below, the value of each Fund's
investments may be based on valuations provided by a pricing service. Short-term
securities (i.e., securities with remaining maturities of 60 days or less) may
be valued at amortized cost, which approximates current value.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases and redemptions of shares of the Money Market Funds may be made
on days on which both the New York Stock Exchange and the Federal Reserve wire
systems are open for business. Purchases and redemptions of shares of the Equity
Funds and Fixed Income Funds may be made on days on which the New York Stock
Exchange is open for business. Purchases will be made in full and fractional
Shares of HighMark Funds calculated to three decimal places.
It is currently HighMark Funds' policy to pay redemptions in cash.
HighMark Funds retains the right, however, to alter this policy to provide
for redemptions in whole or in part by a distribution in-kind of securities
held by the Funds other than the Money Market Funds in lieu of cash.
Shareholders may incur brokerage charges on the sale of any such securities
so received in payment of redemptions. However, a Shareholder will at all
times be entitled to aggregate cash redemptions from all Funds of HighMark
Funds during any 90-day period of up to the lesser of $250,000 or 1% of
HighMark Funds' net assets.
HighMark Funds reserves the right to suspend the right of redemption
and/or to postpone the date of payment upon redemption for any period on which
trading on the New York Stock Exchange is restricted, or during the existence of
an emergency (as determined by 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
-50-
<PAGE>
suspend sales of Shares of the Funds for any period and to reject a purchase
order when the Distributor or the Adviser determines that it is not in the best
interest of HighMark Funds and/or its Shareholders to accept such order.
If a Fund holds portfolio securities listed on foreign exchanges which
trade on Saturdays or other customary United States national business holidays,
the portfolio will trade and the net assets of the Fund's redeemable securities
may be significantly affected on days when the investor has no access to the
Fund.
Neither the transfer agent nor HighMark Funds will be responsible for any
loss, liability, cost or expense for acting upon wire or telephone instructions
that it reasonably believes to be genuine. HighMark Funds and transfer agent
will each employ reasonable procedures to confirm that instructions,
communicated by telephone are genuine. Such procedures may include taping of
telephone conversations.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
Shares of the Funds may be purchased through financial institutions,
including the Adviser, that provide distribution assistance or Shareholder
services. Shares purchased by persons ("Customers") through financial
institutions may be held of record by the financial institution. Financial
institutions may impose an earlier cut-off time for receipt of purchase orders
directed through them to allow for processing and transmittal of these orders to
the transfer agent for effectiveness the same day. Customers should contact
their financial institution for information as to that institution's procedures
for transmitting purchase, exchange or redemption orders to HighMark Funds.
Customers who desire to transfer the registration of Shares beneficially
owned by them but held of record by a financial institution should contact the
institution to accomplish such change.
Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer account fees. Information concerning these
services and any charges will be provided to the Customer by the financial
institution. Additionally, certain entities (including Participating
Organizations and Union Bank of California and its affiliates), may charge
customers a fee with respect to exchanges made on the customer's behalf.
Information about these charges, if any, can be obtained by the entity effecting
the exchange.
REDEMPTION BY CHECKWRITING
Checkwriting is available to Shareholders of the Money Market Funds who
have purchased Retail Shares directly from the Funds without the help of an
investment professional. HighMark Funds will provide Shareholders of record,
upon request and without charge, with checks drawn on the Fund in which they
have an account. Shareholders will be required to sign
-51-
<PAGE>
signature cards and will be subject to any applicable rules and regulations of
the clearing bank relating to check redemption privileges.
Checks drawn on the Money Market Funds may be made payable to the order of
any payee in an amount of $500 or more. Shareholders should be aware that, as in
the case with bank checks, certain banks may not provide cash at the time of
deposit, but will wait until they have received payment from the clearing bank.
When a check is presented to the clearing bank for payment, subject to the
Fund's acceptance of the check, the clearing bank, as agent, causes the Fund to
redeem, at the net asset value next determined after such presentation, a
sufficient number of full and fractional shares in the shareholder's account to
cover the amount of the check. Checks will be returned by the clearing bank if
there are insufficient shares to meet the withdrawal amount. Shareholders of
record wishing to use this method of redemption should check the appropriate box
on the Account Application, obtain a signature card by calling 1-800-433-6884,
and mail the completed form and signature card to the transfer agent at P.O. Box
8416, Boston, Massachusetts 02266-8416. There is no charge for the clearance of
any checks, although the clearing bank will impose its customary overdraft fee
in connection with returning any checks as to which there are insufficient
shares to meet the withdrawal amount. As of the date of this Supplement, the
overdraft fee was $20. Shareholders are permitted to write a maximum of five
checks per month. A charge of $25 will be assessed to the account of a
Shareholder who writes more than the permitted maximum amount of checks per
month. Shareholders may not use a check to close their account.
SALES CHARGES
FRONT-END SALES CHARGES. The commissions shown in the Prospectuses apply
to sales through authorized dealers and brokers. Under certain circumstances,
the Distributor may use its own funds to compensate financial institutions and
intermediaries in amounts that are additional to the commissions shown in the
Prospectuses. In addition, the Distributor may, from time to time and at its own
expense, provide promotional incentives in the form of cash or other
compensation to certain financial institutions and intermediaries whose
registered representatives have sold or are expected to sell significant amounts
of the Class A Shares of a Fund. Such other compensation may take the form of
payments for travel expenses, including lodging, incurred in connection with
trips taken by qualifying registered representatives to places within or without
the United States. Under certain circumstances, commissions up to the amount of
the entire sales charge may be reallowed to dealers or brokers, who might then
be deemed to be "underwriters" under the Securities Act of 1933. Commission
rates may vary among the Funds.
CONTINGENT DEFERRED SALES CHARGES ("CDSC"). In determining whether a
particular redemption is subject to a contingent deferred sales charge, it is
assumed that the redemption is first of any Class A shares in the shareholder's
Fund account, second of Class B shares held for over six years or Class B shares
acquired pursuant to reinvestment of dividends or other distributions and third
of Class B shares held longest during the six year period. This method should
result in the lowest possible sales charge.
-52-
<PAGE>
SALES CHARGE REDUCTIONS AND WAIVERS
In calculating the sales charge rates applicable to current purchases of a
Fund's Class A Shares, a "single purchaser" is entitled to cumulate current
purchases with the net purchase of previously purchased Class A Shares of a Fund
and other funds of HighMark Funds (the "Eligible Funds") which are sold subject
to a comparable sales charge.
The term "single purchaser" refers to (i) an individual, (ii) an
individual and spouse purchasing Shares of a Fund for their own account or for
trust or custodial accounts for their minor children, or (iii) a fiduciary
purchasing for any one trust, estate or fiduciary account including employee
benefit plans created under Sections 401, 403(b) or 457 of the Internal Revenue
Code of 1986, as amended (the "Code"), including related plans of the same
employer. To be entitled to a reduced sales charge based upon Class A Shares
already owned, the investor must ask the Distributor for such entitlement at the
time of purchase and provide the account number(s) of the investor, the investor
and spouse, and their minor children, and give the age of such children. A Fund
may amend or terminate this right of accumulation at any time as to subsequent
purchases.
LETTER OF INTENT. By initially investing at least $1,000 and submitting a
Letter of Intent (the "Letter") to the Distributor, a "single purchaser" may
purchase Class A Shares of a Fund and the other Eligible Funds during a 13-month
period at the reduced sales charge rates applicable to the aggregate amount of
the intended purchases stated in the Letter. The Letter may apply to purchases
made up to 90 days before the date of the Letter. To receive credit for such
prior purchases and later purchases benefitting from the Letter, the Shareholder
must notify the transfer agent at the time the Letter is submitted that there
are prior purchases that may apply, and, at the time of later purchases, notify
the transfer agent that such purchases are applicable under the Letter.
RIGHTS OF ACCUMULATION. In calculating the sales charge rates applicable
to current purchases of Class A Shares, a "single purchaser" is entitled to
cumulate current purchases with the current market value of previously purchased
Class A Shares of the Funds sold subject to a comparable sales charge.
To exercise your right of accumulation based upon Shares you already own,
you must ask the Distributor for this reduced sales charge at the time of your
additional purchase and provide the account number(s) of the investor, as
applicable, the investor and spouse, and their minor children. The Funds may
amend or terminate this right of accumulation at any time as to subsequent
purchases.
FRONT-END SALES CHARGE WAIVERS. The following categories of investors may
purchase Class A Shares of the Funds with no sales charge in the manner
described below (which may be changed or eliminated at any time by the
Distributor):
-53-
<PAGE>
(1) Existing holders of Class A Shares of a Fund upon the
reinvestment of dividend and capital gain distributions on those Shares;
(2) Investment companies advised by HighMark Capital Management,
Inc., Union Bank of California, N.A. or their affiliates, or distributed
by SEI Investments Distribution Co. or their affiliates placing orders on
each entity's behalf;
(3) State and local governments;
(4) Individuals who have received distributions from employee
benefit trust accounts administered by Union Bank of California who are
rolling over such distributions into an individual retirement account
administered by or for which the Bank serves as trustee or custodian. All
subsequent purchases into the Funds made by such individuals will be
subject to the appropriate sales charge;
(5) Individuals who purchase Class A Shares with proceeds from a
required minimum distribution at age 70 1/2 from their employee benefit
qualified plan or an individual retirement account administered by Union
Bank of California;
(6) Individuals who purchase Class A Shares with proceeds received
in connection with a distribution paid from a Union Bank of California
trust or agency account;
(7) Investment advisers or financial planners regulated by a federal
or state governmental authority who are purchasing Class A Shares for
their own account or for an account for which they are authorized to make
investment decisions (i.e., a discretionary account) and who charge a
management, consulting or other fee for their services; and clients of
such investment advisers or financial planners who place trades for their
own accounts if the accounts are linked to the master account of such
investment adviser or financial planner on the books and records of a
broker or agent;
(8) Investors purchasing Class A Shares with proceeds from a
redemption of Shares of another open-end investment company (other than
HighMark Funds) on which a sales charge was paid. Satisfactory evidence of
the purchaser's eligibility must be provided at the time of purchase
(e.g., a confirmation of the redemption);
(9) Brokers, dealers and agents who are purchasing for their own
account and who have a sales agreement with the Distributor, and their
employees (and their spouses and children under the age of 21);
(10) Investors purchasing Class A Shares on behalf of a qualified
prototype retirement plan (other than an IRA, SEP-IRA or Keogh) sponsored
by Union Bank of California or any other parties;
-54-
<PAGE>
(11) Purchasers of Class A Shares of the Growth Fund that are
sponsors of other investment companies that are unit investment trusts for
deposit by such sponsors into such unit investment trusts, and to
purchasers of Class A Shares of the Growth Fund that are holders of such
unit investment trusts that invest distributions from such investment
trusts in Class A Shares of the Growth Fund;
(12) Present and retired trustees of the Funds and directors,
officers, and employees (and their spouses and children under the age of
21) of Union Bank of California, SEI Investments Distribution Co. or their
affiliated companies and of Sub-Advisers to the HighMark Funds; and
(13) Investors receiving Class A Shares issued in plans of
reorganization, such as mergers, asset acquisitions, and exchange offers,
to which HighMark Funds is a party.
(14) Investors who purchased Class A Shares without the assistance
of an investment professional (Fund Direct accounts) between May 15, 1998
and August 31, 1998. All subsequent purchases of Class A Shares may be
made with no sales charge.
With regard to categories 2 through 12 and 14 above, the Distributor must
be notified that the purchase qualifies for a sales charge waiver at the time of
purchase.
REDUCTIONS FOR QUALIFIED GROUPS. Reductions in sales charges also apply to
purchases by individual members of a "qualified group." The reductions are based
on the aggregate dollar amount of Class A Shares purchased by all members of the
qualified group. For purposes of this paragraph, a qualified group consists of a
"company," as defined in the 1940 Act, which has been in existence for more than
six months and which has a primary purpose other than acquiring Shares of a Fund
at a reduced sales charge, and the "related parties" of such company. For
purposes of this paragraph, a "related party" of a company is (i) any individual
or other company who directly or indirectly owns, controls or has the power to
vote five percent or more of the outstanding voting securities of such company;
(ii) any other company of which such company directly or indirectly owns,
controls or has the power to vote five percent or more of its outstanding voting
securities; (iii) any other company under common control with such company; (iv)
any executive officer, director or partner of such company or of a related
party; and (v) any partnership of which such company is a partner. Investors
seeking to rely on their membership in a qualified group to purchase Shares at a
reduced sales load must provide evidence satisfactory to the transfer agent of
the existence of a bona fide qualified group and their membership therein.
All orders from a qualified group will have to be placed through a single
source and identified at the time of purchase as originating from the same
qualified group, although such orders may be placed into more than one discrete
account that identifies HighMark Funds.
-55-
<PAGE>
REDUCTIONS FOR AUTOMATIC INVESTMENT PLAN ("AIP") PARTICIPANTS. Any
shareholders that have established an AIP on or before November 30, 1999 may be
eligible for a reduced sales charge through automatic deductions from their
checking or savings account as described in the tables below:
EQUITY FUNDS
<TABLE>
<CAPTION>
Sales Charge as
Sales Charge Appropriate Commission as
As Percentage Percentage of Net Percentage of
Amount of Purchase of Offering Price Amount Invested Offering Price
------------------ ----------------- --------------- --------------
<S> <C> <C> <C>
0 - $49,999 4.50% 4.71% 4.05%
$50,000 -- $99,999 4.00% 4.17% 3.60%
$100,000 -- $249,999 3.50% 3.63% 3.15%
$250,000 -- $499,999 2.50% 2.56% 2.25%
$500,000 -- $999,999 1.50% 1.52% 1.35%
$1,000,000 and Over* 0.00% 0.00% 0.00%
</TABLE>
* A contingent deferred sales charge of 1.00% will be assessed against any
proceeds of any redemption of such Class A Shares prior to one year from date of
purchase.
FIXED INCOME FUNDS
<TABLE>
<CAPTION>
Sales Charge as
Sales Charge Appropriate Commission as
As Percentage Percentage of Net Percentage of
Amount of Purchase of Offering Price Amount Invested Offering Price
- ------------------ ----------------- --------------- --------------
<S> <C> <C> <C>
0 - $24,999 3.00% 3.09% 2.70%
$25,000 -- $49,000 2.50% 2.56% 2.25%
$50,000 -- $99,999 2.00% 2.04% 1.80%
$100,000 -- $249,999 1.50% 1.52% 1.35%
$250,000 -- $999,999 1.00% 1.01% 0.90%
$1,000,000 and Over* 0.00% 0.00% 0.00%
</TABLE>
* A contingent deferred sales charge of 1.00% will be assessed against any
proceeds of any redemption of such Retail Shares prior to one year from date of
purchase.
CDSC WAIVERS. The contingent deferred sales charge is waived on redemption
of shares (i) following the death or disability (as defined in the Code) of a
shareholder, or (ii) to the extent that the redemption represents a minimum
required distribution from an individual retirement account or other retirement
plan to a shareholder who has attained the age of 70 1/2. A Shareholder, or his
or her representative, must notify the Transfer Agent prior to the time of
redemption if such circumstances exist and the shareholder is eligible for a
waiver.
-56-
<PAGE>
ADDITIONAL FEDERAL TAX INFORMATION
Each Fund intends to qualify annually as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order to so qualify and to qualify for the special tax treatment
accorded regulated investment companies and their Shareholders, a Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale of stock, securities, and foreign currencies, or other income (including
but not limited to gains from options, futures, or forward contracts) derived
with respect to its business of investing in such stock, securities, or
currencies; (b) each year distribute at least 90% of its dividends, interest
(including tax-exempt interest), certain other income and the excess, if any, of
its net short-term capital gains over its net long-term capital losses; and (c)
diversify its holdings so that, at the end of each fiscal quarter (i) at least
50% of the market value of the Fund's assets is represented by cash, cash items,
U.S. Government securities, securities of other regulated investment companies,
and other securities, limited in respect of any one issuer to a value not
greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities (other than those of the U.S.
Government or other regulated investment companies) of any one issuer or of two
or more issuers that the Fund controls and that are engaged in the same,
similar, or related trades or businesses.
If a Fund qualifies as a regulated investment company that is accorded
special tax treatment, the Fund will not be subject to federal income tax on
income paid to its shareholders in the form of dividends (including capital gain
dividends). If a Fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Fund would be subject to
tax on its taxable income at corporate rates, and all distributions from
earnings and profits, including any distributions of net tax-exempt income and
net long-term capital gains, would be taxable to shareholders as ordinary
income.
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
-57-
<PAGE>
the holding periods of the Fund's securities, or convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
Certain of a Fund's hedging activities (including its transactions, if
any, in foreign currencies or foreign currency-denominated instruments) are
likely to produce a difference between its book income and its taxable income.
If a Fund's book income exceeds its taxable income, the distribution (if any) of
such excess will be treated as (i) a dividend to the extent of the Fund's
remaining earnings and profits (including earnings and profits arising from
tax-exempt income), (ii) thereafter as a return of capital to the extent of the
recipient's basis in the shares, and (iii) thereafter as gain from the sale or
exchange of a capital asset. If the Fund's book income is less than its taxable
income, the Fund could be required to make distributions exceeding book income
to qualify as a regulated investment company that is accorded special tax
treatment.
If a Fund makes a distribution in excess of its current and accumulated
"earnings and profits" in any taxable year, the excess distribution will be
treated as a return of capital to the extent of a Shareholder's tax basis in
Fund shares, and thereafter as capital gain. A return of capital is not taxable,
but it reduces the Shareholder's tax basis in the shares, thus reducing any loss
or increasing any gain on a subsequent taxable disposition of those shares.
A Fund's investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a discount may)
require the Fund to accrue and distribute income not yet received. In order to
generate sufficient cash to make the requisite distributions, a Fund may be
required to sell securities in its portfolio that it otherwise would have
continued to hold.
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends and other distributions paid to
any Shareholder who has provided either an incorrect tax identification number
or no number at all, or who is subject to withholding by the Internal Revenue
Service for failure to properly include on his or her tax return payments of
interest or dividends.
The foregoing discussion and the one below regarding the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund
under "Federal Taxation" is only a summary of some of the important Federal tax
considerations generally affecting purchasers of the Funds' Shares. No attempt
has been made to present a detailed explanation of the Federal income tax
treatment of the Funds, and this discussion is not intended as a substitute for
careful tax planning. Accordingly, potential purchasers of the Funds' Shares are
urged to consult their tax advisers with specific reference to their own tax
situation. Foreign Shareholders should consult their tax advisers regarding the
U.S. and foreign tax consequences of an investment in the Funds. In addition,
this discussion is based on tax laws and regulations that are in effect on the
date of this Statement of Additional Information; such laws and regulations may
be changed by legislative, judicial or administrative action, and such changes
may be retroactive.
-58-
<PAGE>
ADDITIONAL TAX INFORMATION CONCERNING THE CALIFORNIA TAX-FREE MONEY MARKET FUND
AND THE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
FEDERAL TAXATION. As indicated in their respective Prospectuses, the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund are designed to provide individual Shareholders with current
tax-exempt interest income. Neither of these Funds is intended to constitute a
balanced investment program or is designed for investors seeking capital
appreciation. Nor are the California Tax-Free Money Market Fund or the
California Intermediate Tax-Free Bond Fund designed for investors seeking
maximum tax-exempt income irrespective of fluctuations in principal. Shares of
the Funds may not be suitable for tax-exempt institutions, retirement plans
qualified under Section 401 of the Code, H.R. 10 plans, and individual
retirement accounts because such institutions, plans and accounts are generally
tax-exempt and, therefore, would not gain any additional benefit from the Funds'
dividends being tax-exempt, and such dividends would ultimately be taxable to
the plan and account beneficiaries when distributed to them.
The Code permits a regulated investment company that invests at least 50%
of its total assets in tax-free Municipal Securities (at the close of each
quarter of the Fund's taxable year) to pass through to its investors, tax-free,
net Municipal Securities interest income to the extent such interest would be
exempt if earned directly. Because the California Tax-Free Money Market Fund and
the California Intermediate Tax-Free Bond Fund intend to be qualified to pay
such exempt-interest dividends, these Funds will be limited in their ability to
enter into taxable transactions, such as forward commitments, repurchase
agreements, securities lending transactions, financial futures and options
contracts on financial futures, tax-exempt bond indices and other assets. The
policy of the California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund is to pay each year as dividends substantially
all of such Fund's Municipal Securities interest income net of certain
deductions. An exempt-interest dividend is any dividend or part thereof derived
from interest excludable from gross income and designated as an exempt-interest
dividend in a written notice mailed to Shareholders after the close of such
Fund's taxable year, but the aggregate of such dividends may not exceed the net
Municipal Securities interest received by the Fund during the taxable year. In
the case of each of the California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund the percentage of the dividends paid for any
taxable year that qualifies as federal exempt-interest dividends will be the
same for all Shareholders receiving dividends during such year, regardless of
the period for which the Shares were held.
Exempt-interest dividends may be treated by Shareholders of the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund as
items of interest excludable from their gross income. However, each such
Shareholder is advised to consult his or her tax adviser with respect to whether
exempt-interest dividends would remain excludable if such Shareholder were
treated as a "substantial user" or a "related person" to such user with respect
to facilities financed through any of the tax-exempt obligations held by the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund. In addition,
-59-
<PAGE>
exempt-interest dividends may be taxable for federal alternative minimum tax
purposes and for state and local purposes.
The California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund will distribute substantially all of any investment company
taxable income for each taxable year. In general, a Fund's investment company
taxable income will be its taxable income subject to certain adjustments and
excluding the excess of any net long-term capital gains for the taxable year
over the net short-term capital loss, if any, for such year. Distributions of
such income will be taxable to Shareholders as ordinary income. The
dividends-received deduction for corporations is not expected to apply to such
distributions.
Distributions designated by the California Tax-Free Money Market Fund and
the California Intermediate Tax-Free Bond Fund as deriving from net gains on
securities held for more than one year will be taxable to a Fund Shareholder as
such, regardless of how long a time the Shareholder held the Fund's Shares. Such
distributions will not be eligible for the dividends-received deduction. If a
Shareholder disposes of Shares in a Fund at a loss before holding such Shares
for longer than six months, such loss will be disallowed to the extent of any
exempt-interest dividends paid thereon, and any remaining loss will be treated
as a long-term capital loss to the extent the Shareholder has received a capital
gain dividend on the Shares.
Shareholders receiving social security or railroad retirement benefits may
be taxed on a portion of those benefits as a result of receiving tax-exempt
income (including exempt-interest dividends distributed by the Fund).
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
-60-
<PAGE>
Information on Portfolio Instruments - Puts" in this Statement of Additional
Information. The policy of each Fund is to limit its acquisition of puts to
those under which the Fund will be treated for Federal income tax purposes as
the owner of the Municipal Securities acquired subject to the put and the
interest on such Municipal Securities will be tax-exempt to the Fund. There is
currently no guidance available from the Internal Revenue Service that
definitively establishes the tax consequences that may result from the
acquisition of many of the types of puts that the California Tax-Free Money
Market Fund or the California Intermediate Tax-Free Bond Fund could acquire
under the 1940 Act. Therefore, although they will only acquire a put after
concluding that it will have the tax consequences described above, the Internal
Revenue Service could reach a different conclusion from that of the relevant
Fund.
CALIFORNIA TAXATION. Under existing California law, if the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund
continue to qualify for the special federal income tax treatment afforded
regulated investment companies and if at the end of each quarter of each such
Fund's taxable year at least 50% of the value of that Fund's assets consists of
obligations that, if held by an individual, would pay interest exempt from
California taxation ("California Exempt-Interest Securities"), Shareholders of
that Fund will be able to exclude from income, for California personal income
tax purposes, "California exempt-interest dividends" received from that Fund
during that taxable year. A "California exempt-interest dividend" is any
dividend or portion thereof of the California Tax-Free Money Market Fund or the
California Intermediate Tax-Free Bond Fund not exceeding the interest received
by the Fund during the taxable year on California Exempt-Interest Securities
(less direct and allocated 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
-61-
<PAGE>
and the California Intermediate Tax-Free Bond Fund for any taxable year of a
Shareholder during which the Fund distributes "California exempt-interest
dividends."
A statement setting forth the amount of "California exempt-interest
dividends" distributed during each calendar year will be sent to Shareholders
annually.
The foregoing is only a summary of some of the important California
personal income tax considerations generally affecting the Shareholders of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund. This summary does not describe the California tax treatment of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund. In addition, no attempt has been made to present a detailed
explanation of the California personal income tax treatment of the Fund's
Shareholders. Accordingly, this discussion is not intended as a substitute for
careful planning. Further, "California exempt-interest dividends" are excludable
from income for California personal income tax purposes only. Any dividends paid
to Shareholders subject to California corporate franchise tax will be taxed as
ordinary dividends to such Shareholders, notwithstanding that all or a portion
of such dividends is exempt from California personal income tax. Accordingly,
potential investors in the California Tax-Free Money Market Fund and the
California Intermediate Tax-Free Bond Fund including, in particular, corporate
investors which may be subject to either California franchise tax or California
corporate income tax, should consult their tax advisers with respect to the
application of such taxes to the receipt of Fund dividends and as to their own
California tax situation, in general.
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.
-62-
<PAGE>
MANAGEMENT OF HIGHMARK FUNDS
TRUSTEES AND OFFICERS
Overall responsibility for management of each Fund rests with the Trustees
of HighMark Funds, who are elected by HighMark Funds' Shareholders. There are
currently six Trustees, all of whom are not "interested persons" of HighMark
Funds within the meaning of that term under the 1940 Act.
The Trustees, in turn, elect the officers of HighMark Funds to supervise
actively its day-to-day operations.
The Trustees and officers of HighMark Funds, their addresses and principal
occupations during the past five years are set forth below.
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH HIGHMARK FUNDS DURING PAST 5 YEARS
- ---------------- ------------------- -------------------
<S> <C> <C>
Thomas L. Braje Trustee, Vice Chairman Prior to retirement in October 1996,
1 Freedom Valley Dr. Vice President and Chief Financial
Oaks, PA 19087 Officer of Bio Rad Laboratories, Inc.
Date of Birth: 6/7/43
David A. Goldfarb Trustee, Chairman Partner, Goldfarb & Simens, Certified
1 Freedom Valley Dr. Public Accountants.
Oaks, PA 19087
Date of Birth: 8/2/42
Joseph C. Jaeger Trustee Prior to retirement in June 1998, Senior
1 Freedom Valley Dr. Vice President and Chief Financial
Oaks, PA 19087 Officer, Delta Dental Plan of California.
Date of Birth: 8/21/35
Frederick J. Long Trustee Prior to retirement in December 1999,
1 Freedom Valley Dr. Chairman, Acordia West and Acordia
Oaks, PA 19087 Northwest Inc. (each an insurance
Date of Birth: 9/17/35 brokerage firm).
-63-
<PAGE>
<CAPTION>
<S> <C> <C>
Michael L. Noel Trustee President, Noel Consulting Company since
1 Freedom Valley Dr. 1998. From 1991 to 1997, Member of the
Oaks, PA 19087 Board of Trustees of Stepstone Funds.
Date of Birth: 4/5/41 Prior to retirement in December 1994,
Senior Vice President and Chief Financial
Officer, Southern California Edison Company;
Director of Amervest Company, and SCAN Health
Plan; Chairman of the Board of Directors of
Current Income Shares, Inc. From April 1997 to
December 1998, Member of HighMark Funds Advisory
Board.
Robert M. Whitler Trustee Director, Current Income Shares, Inc.
1 Freedom Valley Dr. From April 1997 to December 1998, Member
Oaks, PA 19087 of HighMark Funds Advisory Board. Prior
Date of Birth: 9/11/38 to retirement in 1996, Executive Vice
President and head of Union Bank's Trust
and Investment Group.
Paul L. Smith Member Advisory Board Member of the Board of Trustees of
1 Freedom Valley Dr. Stepstone Funds from 1991 to 1997. From
Oaks, PA 19087 April 1997 to December 1998, Trustee of
Date of Birth: 4/25/18 HighMark Funds.
William R. Howell Member Advisory Board Director, Current Income Shares, Inc.
1 Freedom Valley Dr. from 1973 until retirement in 1998.
Oaks, PA 19087 Chairman of the Board of Trustees of
Date of Birth: 2/28/22 Stepstone Funds from 1991 to 1997. From
April 1997 to December 1998, Trustee of HighMark
Funds.
-64-
<PAGE>
<CAPTION>
<S> <C> <C>
Mark E. Nagle President and Chief Executive Vice President and Controller, Funds
530 East Swedesford Road Officer Account, Vice President of the
Wayne, PA 19087 Administrator and Distributor, employee
Date of Birth: 10/20/59 since November 1996. From 1995 to 1996,
Vice President of Fund Accounting of
BISYS Fund Services. Prior to 1995,
Senior Vice President for Fidelity
Investments since 1981.
Robert DellaCroce Controller and Chief Financial CPA, Director of Fund Resources,
530 East Swedesford Road Officer employee since 1994. Prior to 1994,
Wayne, PA 19087 senior manager for Arthur Andersen.
Date of Birth: 12/17/63
Kevin P. Robins Vice President and Assistant Employee since 1992. Prior to 1992,
1 Freedom Valley Drive Secretary associate with Morgan Lewis & Bockius
Oaks, PA 19456 since 1988.
Date of Birth: 4/15/61
Todd Cipperman Vice President and Assistant Employee since 1995. From 1994 to May
1 Freedom Valley Drive Secretary 1995, associate with Dewey Ballantine.
Oaks, PA 19456 Prior to 1994, associate with Winston &
Date of Birth: 2/14/66 Strawn.
Lydia A. Gavalis Vice President and Assistant Vice President and Assistant Secretary
1 Freedom Valley Drive Secretary of SEI Investments Company, employee
Oaks, PA 19456 since 1998. Prior to 1998, Assistant
Date of Birth: 10/30/48 General Counsel and Director of
Arbitration, Philadelphia Stock Exchange.
-65-
<PAGE>
<CAPTION>
<S> <C> <C>
Lynda J. Striegel Vice President and Secretary Vice President and Assistant Secretary
1 Freedom Valley Drive of SEI Investments Company, employee
Oaks, PA 19456 since 1998. From 1997 to 1998, Senior
Date of Birth: 10/30/48 Assets Management Counsel, Barnett
Banks, Inc. From 1996 to 1997, Partner,
Groom and Nordberg, Chartered. Prior to
1995, Associate General Counsel, Riggs
Bank, N.A.
Kathy Heilig Vice President and Assistant Treasurer of SEI Investments Company,
1 Freedom Valley Drive Secretary employee since 1987.
Oaks, PA 19456
Date of Birth: 12/21/58
James R. Foggo Vice President and Assistant Vice President and Assistant Secretary
1 Freedom Valley Drive Secretary of the Administrator and the
Oaks, PA 19456 Distributor, employee since 1998. In
Date of Birth: 6/30/64 1998, associate Paul Weiss, Rifkind,
Wharton & Garrison. From 1995 to 1998,
associate, Baker & McKenzie. Prior to
1995, associate, Battle Fowler, L.L.P.
</TABLE>
The Trustees of HighMark Funds receive quarterly retainer fees and fees
and expenses for each meeting of the Board of Trustees attended. No employee,
officer or stockholder of SEI Investments Mutual Funds Services and/or SEI
Investments Distribution Co. receives any compensation directly from HighMark
Funds for serving as a Trustee and/or officer. SEI Investments Mutual Funds
Services and/or SEI Investments Distribution Co. receive administration, fund
accounting servicing and distribution fees from each of the Funds. See "Manager
and Administrator" and "Distributor" below. Messrs. Nagle, Robins, Cipperman,
DellaCroce and Foggo, and Ms. Striegel, Ms. Gavalis and Ms. Heilig are employees
and officers of SEI Investments Company. While SEI Investments Mutual Funds
Services is a distinct legal entity from SEI Investments Distribution Co., SEI
Investments Mutual Funds Services is considered to be an affiliated person of
SEI Investments Distribution Co. under the 1940 Act due to, among other things,
the fact that SEI Investments Distribution Co. and SEI Investments Mutual Funds
Services are both controlled by the same ultimate parent company, SEI
Investments Company.
During the fiscal year ended July 31, 1999, fees paid to the disinterested
Trustees for their services as Trustees aggregated $137,000. For the
disinterested Trustees, the following table sets
-66-
<PAGE>
forth information concerning fees paid and retirement benefits accrued during
the fiscal year ended July 31, 1999:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Annual Total Compensation
Trustee Compensation Retirement Benefits Upon from Fund
from Group Benefits Accrued Retirement Complex Paid to
as Part of Fund Trustees
Expenses
------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Thomas L. Braje $17,000 None None $17,000
David A. Goldfarb $18,000 None None $18,000
Joseph C. Jaeger $17,000 None None $17,000
Frederick J. Long $17,000 None None $17,000
Michael L. Noel $17,000 None None $17,000
Robert M. Whitler $17,000 None None $17,000
William R. Howell* $17,000 None None $17,000
Paul L. Smith* $17,000 None None $17,000
</TABLE>
*Members of Advisory Board.
The Advisory Board to the Board of Trustees is responsible for providing
monitoring services and evaluating issues affecting the HighMark Funds pursuant
to the direction of the Board of Trustees, and consulting and providing advice
to the Board of Trustees regarding those issues.
INVESTMENT ADVISER
Investment advisory and management services are provided to each of the
Funds by HighMark Capital Management, Inc. (the "Adviser"), pursuant to an
investment advisory agreement between the Adviser and HighMark Funds dated
September 1, 1998 (the "Investment Advisory Agreement"). Prior to September 1,
1998, Pacific Alliance, a division of Union Bank of California, N.A., served as
the Funds' investment adviser. On September 1, 1998, Pacific Alliance was
reorganized into a subsidiary of UnionBanCal Corporation, the holding company of
Union Bank of California, creating HighMark Capital Management, Inc. HighMark
Capital Management is a California corporation registered under the Investment
Adviser's Act of 1940. Union Bank of California serves as custodian for each of
the Funds. See "Transfer Agent, Custodian and Fund Accounting Services" below.
Union Bank of California also serves as sub-administrator to each of the Funds
pursuant to an agreement with SEI Investments Mutual Funds Services. See
"Manager and Administrator" below.
Unless sooner terminated, the Investment Advisory Agreement will continue
in effect as to each particular Fund from year to year if such continuance is
approved at least annually by HighMark Funds' Board of Trustees or by vote of a
majority of the outstanding Shares of such Fund (as defined above under
INVESTMENT RESTRICTIONS - Voting Information), and a majority of the Trustees
who are not parties to the Investment Advisory Agreement or interested persons
(as defined in the 1940 Act) of any party to the Investment Advisory Agreement
by votes cast in person at a meeting called for such purpose. The Investment
Advisory Agreement is
-67-
<PAGE>
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 Adviser. The Investment Advisory Agreement terminates
automatically in the event of any assignment, as defined in the 1940 Act.
Depending on the size of the Fund, fees payable under the Investment
Advisory Agreement may be higher than the advisory fee paid by most mutual
funds, although the Board of Trustees believes it will be comparable to advisory
fees paid by many funds having similar objectives and policies. The Adviser may
from time to time agree to voluntarily reduce its advisory fee, however, it is
not currently doing so for each Fund. While there can be no assurance that the
Adviser will choose to make such an agreement, any voluntary reductions in the
Adviser's advisory fee will lower the Fund's expenses, and thus increase the
Fund's yield and total return, during the period such voluntary reductions are
in effect.
The Investment Advisory Agreement provides that the Adviser will not be
liable for any error of judgment or mistake of law or for any loss suffered by
HighMark Funds in connection with the Adviser's services under the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Adviser
in the performance of its duties, or from reckless disregard by the Adviser of
its duties and obligations thereunder.
On April 1, 1996, The Bank of California, N.A., HighMark Funds'
then-investment adviser, combined with Union Bank and the resulting bank changed
its name to Union Bank of California, N.A. At the same time, the banks'
investment management divisions were combined. Each of The Bank of California
and Union Bank (or its predecessor bank) has been in banking since the early
1900's, and historically, each has had significant investment functions within
its trust and investment division. Union Bank of California, N.A. is a
subsidiary of UnionBanCal Corporation, a publicly traded corporation, a majority
of the shares of which are owned by The Bank of Tokyo - Mitsubishi, Ltd.
For the services provided and expenses assumed by the Adviser pursuant to
the Investment Advisory Agreement, Union Bank of California is entitled to
receive fees from each Fund as described in that Fund's Prospectus.
-68-
<PAGE>
For the fiscal years ended July 31, 1999, July 31, 1998, July 31, 1997,
and January 1, 1997, HighMark Capital Management, Inc., or its predecessors,
received the following investment advisory fees:
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31, 1999 July 31, 1998 July 31, 1997 January 31, 1997(1)
--------------------- --------------------- --------------------- ---------------------
Additional Additional Additional Additional
Amount Amount Amount Amount
Paid Waived Paid Waived Paid Waived Paid Waived
---- ------ ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund $2,751,956 N/A $2,602,642 N/A $1,025,689 N/A $1,630,000 N/A
Growth Fund $3,746,604 $162,470 $2,265,301 N/A $666,964 $121,712 N/A N/A
Income Equity Fund $3,971,713 N/A $2,825,963 N/A $1,986,575 $658 N/A N/A
International Equity Fund $903,234 N/A $629,025 N/A $218,664 $9,751 $413,000 $49,000
Value Momentum Fund $5,115,840 $82,551 $3,952,110 N/A $1,158,537 N/A $1,599,000 N/A
Bond Fund $1,434,828 N/A $593,291 N/A $294,637 $188,247 N/A N/A
California Intermediate Tax-Free Bond
Fund $340,650 $510,975 $87,732 $245,284 $506 $41,978 $1,000 $49,000
Intermediate-Term Bond Fund $1,327,581 N/A $863,851 N/A $388,609 N/A $711,000 N/A
100% U.S. Treasury Money Market Fund $2,877,943 $575,589 $2,383,235 $476,647 $1,377,080 $129,101 N/A N/A
California Tax-Free Money Market Fund $622,870 $1,245,740 $462,600 $925,201 $124,611 $266,840 $126,000 $265,000(2)
Diversified Money Market Fund $7,834,593 N/A $6,250,527 N/A $2,181,976 N/A $2,773,000 N/A
U.S. Government Money Market Fund $1,380,558 N/A $906,618 N/A $838,857 N/A N/A N/A
</TABLE>
(1) See "ADDITIONAL INFORMATION - Miscellaneous" for an explanation of the
different fiscal year ends for each Fund.
(2) Each of these Funds is the accounting survivor of a reorganization of
two mutual funds. All fees paid by these Funds (or sub-advisory fees paid with
respect to these Funds) for a fiscal year end of January 31 represent the fees
paid by the accounting survivor prior to the reorganization.
THE SUB-ADVISERS
The Adviser and AXA Investment Managers GS Ltd. ("AXA") have entered into
a sub-advisory agreement which relates to the International Equity Fund. Prior
to October 1, 1999, AXA Asset Management Partenaires served as the International
Equity Fund's Sub-Adviser. Prior to January 1, 1998, Tokyo-Mitsubishi Asset
Management (U.K.), Ltd. ("TMAM") was the Fund's Sub-Adviser. The Adviser and
Brandes Investment Partners LP ("Brandes") have entered into a sub-advisory
agreement which relates to the Small Cap Value Fund (BTMT, together with AXA and
Brandes, are hereafter collectively, the "Sub-Advisers").
INTERNATIONAL EQUITY FUND. Under its sub-advisory agreement, AXA is
entitled to a fee which is calculated daily and paid monthly at an annual rate
of 0.50% of the average daily net assets of the International Equity Fund. Such
a fee is paid by the Adviser, and AXA receives no fees directly from the
International Equity Fund. For the fiscal year ended July 31, 1999 and for the
period from January 1, 1998 to July 31, 1998, AXA received sub-advisory fees of
$471,338 and $192,406, respectively. For the period from August 1, 1997 to
December 31, 1997, TMAM received sub-advisory fees of $59,319. For the period
ended July 31, 1997 and the fiscal year
-69-
<PAGE>
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
1998.
SMALL CAP VALUE FUND. Under its sub-advisory agreement, Brandes is
entitled to a fee which is calculated and paid monthly at the annual rate of
.50% of the average of the market value of the assets of the Small Cap Value
Fund allocated to Brandes. Such fee is paid by the Adviser, and Brandes receives
no fees directly from the Small Cap Value Fund. For the fiscal year ended July
31, 1999, Brandes received sub-advisory fees of $921,269.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Adviser determines,
subject to the general supervision of the Board of Trustees of HighMark Funds
and in accordance with each Fund's investment objective and restrictions, which
securities are to be purchased and sold by a Fund, and which brokers are to be
eligible to execute its portfolio transactions. Purchases and sales of portfolio
securities for the Bond Fund, the Intermediate-Term Bond Fund, the California
Intermediate Tax-Free Bond Fund, the Diversified Money Market Fund, the U.S.
Government Money Market Fund, the 100% U.S. Treasury Money Market Fund and the
California Tax-Free Money Market Fund usually are principal transactions in
which portfolio securities are normally purchased directly from the issuer or
from an underwriter or market maker for the securities. Purchases from
underwriters of portfolio securities include a commission or concession paid by
the issuer to the underwriter and purchases from dealers serving as market
makers may include the spread between the bid and asked price. Securities
purchased by the Growth Fund, the Income Equity Fund, the Value Momentum Fund,
the Core Equity Fund, the International Equity Fund and the Small Cap Value Fund
will generally involve the payment of a brokerage fee. Portfolio transactions
for the Balanced Fund may be principal transactions or involve the payment of
brokerage commissions. While the Adviser generally seeks competitive spreads or
commissions on behalf of each of the Funds, HighMark Funds may not necessarily
pay the lowest spread or commission available on each transaction, for reasons
discussed below.
Allocation of transactions, including their frequency, to various dealers
is determined by the Adviser or the Sub-Advisers in their best judgment and in a
manner deemed fair and reasonable to Shareholders. The primary consideration is
prompt execution of orders in an effective manner at the most favorable price.
Subject to this consideration, dealers who provide supplemental investment
research to the Adviser or the Sub-Advisers may receive orders for transactions
by HighMark Funds. Information so received is in addition to and not in lieu of
services required to be performed by the Adviser or the Sub-Advisers and does
not reduce the advisory fees payable to the Adviser by HighMark Funds. Such
information may be useful to the Adviser or the Sub-Advisers in serving both
HighMark Funds and other clients and, conversely, supplemental information
obtained by the placement of business of other clients may be useful to the
Adviser in carrying out its obligations to HighMark Funds.
-70-
<PAGE>
Upon adoption by the Board of Trustees of certain procedures pursuant to
Rule 17e-1 under the 1940 Act, HighMark Funds may execute portfolio transactions
involving the payment of a brokerage fee through the Adviser, SEI Investments
Distribution Co., and their affiliates in accordance with such procedures.
HighMark Funds will not acquire portfolio securities issued by, make savings
deposits in, or enter repurchase or reverse repurchase agreements with, Union
Bank of California, or their affiliates, and will not give preference to
correspondents of Union Bank of California with respect to such securities,
savings deposits, repurchase agreements and reverse repurchase agreements.
Investment decisions for each Fund of HighMark Funds are made
independently from those for the other Funds or any other investment company or
account managed by the Adviser or the Sub-Advisers. However, any such other
investment company or account may invest in the same securities as HighMark
Funds. When a purchase or sale of the same security is made at substantially the
same time on behalf of a Fund and another Fund, investment company or account,
the transaction will be averaged as to price, and available investments
allocated as to amount, in a manner that the Adviser or the Sub-Advisers believe
to be equitable to the Fund(s) and such other investment company or account. In
some instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained by a Fund. To the extent
permitted by law, the Adviser or the Sub-Advisers may aggregate the securities
to be sold or purchased for a Fund with those to be sold or purchased for the
other Funds or for other investment companies or accounts in order to obtain
best execution. As provided in the Investment Advisory Agreement and the
Sub-Advisory Agreements, in making investment recommendations for HighMark
Funds, the Adviser or the Sub-Advisers will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
HighMark Funds is a customer of the Adviser, the Sub-Advisers, their parent or
its subsidiaries or affiliates and, in dealing with its commercial customers,
the Adviser and the Sub-Advisers, their parent, subsidiaries, and affiliates
will not inquire or take into consideration whether securities of such customers
are held by HighMark Funds.
During the following fiscal years, the Funds listed below paid the
following aggregate brokerage commissions:
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31, 1999 July 31, 1998 July 31, 1997 January 31, 1997
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Balanced Fund $343,762 $205,232 $64,473 $159,120
Growth Fund $696,665 $465,576 $334,472 N/A
Income Equity Fund $1,266,837 $638,230 $97,957 N/A
International Equity Fund $413,403 $389,285 $58,381 $107,379
Small Cap Value Fund $303,124 N/A N/A N/A
Value Momentum Fund $371,708 $248,933 $118,620 $122,239
</TABLE>
-71-
<PAGE>
ADMINISTRATOR AND SUB-ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator") serves as
administrator to each of the Funds pursuant to the administration agreement
dated as of February 15, 1997 between HighMark Funds and the Administrator (the
"Administration Agreement").
SEI Investments Mutual Funds Services is a Delaware business trust whose
sole beneficiary is SEI Investments Management Corporation. SEI Investments
Management Corporation, a wholly owned subsidiary of SEI Investment Company
("SEI"), was organized as a Delaware corporation in 1969 and has its principal
business offices at 1 Freedom Valley Drive, Oaks, Pennsylvania 19456. SEI and
its subsidiaries are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors and money managers. The Administrator and
its affiliates also serve as administrator to the following other institutional
mutual funds: SEI Daily Income Trust, SEI Liquid Asset Trust, SEI Tax Exempt
Trust, SEI Index Funds, SEI Institutional International Trust, SEI Institutional
Managed Trust, Boston 1784(R) Funds, The Advisers' Inner Circle Fund, The Pillar
Funds, CUFund, STI Classic Funds, First American Funds, Inc., First American
Investment Funds, Inc., The Arbor Fund, Morgan Grenfell Investment Trust, The
PBHG Funds, Inc., The Achievement Funds Trust, Bishop Street Funds, CrestFunds,
Inc., STI Classic Variable Trust, Monitor Funds, TIP Funds, ARK Funds, SEI Asset
Allocation Trust, SEI Institutional Investments Trust, TIP Institutional Funds,
ARMADA Funds, The Expedition Funds and Oak Associates Funds.
Pursuant to the Administration Agreement, the Administrator provides the
Group with administrative services, regulatory reporting, fund accounting and
related portfolio accounting services, all necessary office space, equipment,
personnel, compensation and facilities for handling the affairs of the Group. As
described below, the Administrator has delegated part of its responsibilities
under the Administration Agreement to Union Bank of California, N.A.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of 0.20% of the average daily net assets of the
Funds. The Administrator may waive its fee or reimburse various expenses to the
extent necessary to limit the total operating expenses of a Fund's Retail
Shares. Any such waiver is voluntary and may be terminated at any time in the
Administrator's sole discretion. Currently, the Administrator has agreed to
waive its fee to the rate of 0.18% of the average daily net assets of the Funds.
-72-
<PAGE>
For its services as administrator and expenses assumed pursuant to the
Administration Agreement, the Administrator received the following fees:
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31, 1999 July 31, 1998 July 31, 1997 January 31, 1997(1)
--------------------- ------------------- ------------------- -------------------
Additional Additional Additional Additional
Amount Amount Amount Amount
Waived Paid Waived Paid Waived Paid Waived Paid
---------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund $759,593 $91,732 $767,123 $100,424 $255,346 $29,410 $342,000 N/A
Growth Fund $1,104,261 $130,302 $669,261 $85,839 $204,315 $22,032 N/A N/A
Income Equity Fund $882,395 $347,294 $847,789 $94,199 $605,282 $17,907 N/A N/A
International Equity Fund $158,476 $19,015 $119,187 $13,243 N/A N/A $60,000 N/A
Value Momentum Fund $1,442,857 $173,280 $1,185,633 $131,737 $298,886 $22,063 $336,000 N/A
Bond Fund $483,115 $57,393 $213,585 $23,732 $101,712 $25,352 N/A N/A
California Intermediate Tax-Free Bond
Fund $280,016 $34,065 $117,410 $15,796 $11,833 $2,604 $13,000 N/A
Intermediate-Term Bond Fund $437,519 $53,103 $310,986 $34,554 $118,137 $8,143 $179,000 N/A
100% U.S. Treasury Money Market Fund $1,904,751 $230,235 $1,715,929 $190,659 $815,457 $45,215 N/A N/A
California Tax-Free Money Market Fund $1,030,037 $124,574 $832,681 $92,520 $207,633 $15,291 $164,000 N/A
Diversified Money Market Fund $4,312,435 $522,306 $3,750,316 $416,702 $1,141,740 $88,254 $1,163,000 N/A
U.S. Government Money Market Fund $769,550 $92,037 $543,971 $60,441 $439,141 $14,294 N/A N/A
</TABLE>
The Administration Agreement became effective on February 15, 1997 and was
automatically renewed for a one year term on July 31, 1999. Unless sooner
terminated as provided in the Administration Agreement (and as described below),
the Administration Agreement, as amended, will continue in effect until July 31,
2000. The Administration Agreement thereafter shall be renewed automatically for
successive annual terms. The Administration Agreement is terminable at any time
with respect to a particular Fund or HighMark Funds as a whole by either party
without penalty for any reason upon 90 days' written notice by the party
effecting such termination to the other party.
The Administration Agreement provides that the Administrator shall not be
liable for any error of judgment or mistake of law or any loss suffered by
HighMark Funds in connection with the matters to which the Administration
Agreement relates, except a loss resulting from willful misfeasance, bad faith,
or gross negligence in the performance of its duties, or from the reckless
disregard by the Administrator of its obligations and duties thereunder.
The Administration Agreement permits the Administrator to subcontract its
services thereunder, provided that the Administrator will not be relieved of its
obligations under the Administration Agreement by the appointment of a
subcontractor and the Administrator shall be responsible to HighMark Funds for
all acts of the subcontractor as if such acts were its own, except for losses
suffered by any Fund resulting from willful misfeasance, bad faith or gross
negligence by the subcontractor in the performance of its duties or for reckless
disregard by it of its obligations and duties. Pursuant to a sub-administration
agreement between the Administrator and HighMark Capital Management, Inc.,
HighMark Capital Management, Inc. will perform services which may include
clerical, bookkeeping, accounting, stenographic and administrative services, for
which it will receive a fee, paid by the Administrator, at the annual rate of up
to 0.05% of each Fund's average daily net assets.
-73-
<PAGE>
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 adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complies with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
The Adviser and the Sub-Advisers believe that they possess the legal
authority to perform the services for the Funds contemplated by the Investment
Advisory Agreement and the Sub-Advisory Agreements and described in the
Prospectuses and this Statement of Additional Information and has so represented
in the Investment Advisory Agreement and the Sub-Advisory Agreements. Union Bank
of California, N.A. also believes that it may perform sub-administration
services on behalf of each Fund, for which it receives compensation from the
Administrator without a violation of applicable banking laws and regulations.
Future changes in either federal or state statutes and regulations relating to
the permissible activities of banks or bank holding companies and the
subsidiaries or affiliates of those entities, as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations could prevent or restrict the Adviser from continuing to perform
such services for HighMark Funds. Depending upon the nature of any changes in
the services that could be provided by the Adviser, or the Sub-Advisers, the
Board of Trustees of HighMark Funds would review HighMark Funds' relationship
with the Adviser and the Sub-Advisers and consider taking all action necessary
in the circumstances.
Should further legislative, judicial or administrative action prohibit or
restrict the activities of Union Bank of California, the Adviser, its
affiliates, and its correspondent banks in connection with Customer purchases of
Shares of HighMark Funds, such Banks might be required to alter materially or
discontinue the services offered by them to Customers. It is not
-74-
<PAGE>
anticipated, however, that any change in HighMark Funds' method of operations
would affect its net asset value per Share or result in financial losses to any
Customer.
SHAREHOLDER SERVICES PLANS
HighMark Funds has adopted two Shareholder Services Plans, one for
Fiduciary Class and Class A Shares, one for Class B Shares (collectively, the
"Services Plans") pursuant to which a Fund is authorized to pay compensation to
financial institutions (each a "Service Provider"), which may include Bank of
Tokyo-Mitsubishi Trust Company, Union Bank of California, N.A., or their
respective affiliates, that agree to provide certain shareholder support
services for their customers or account holders (collectively, "customers") who
are the beneficial or record owners of Shares of a Fund. In consideration for
such services, a Service Provider is compensated by a Fund at a maximum annual
rate of up to 0.25% of the average daily net asset value of Shares of a Fund,
pursuant to each plan. A service provider may waive such fees at any time. Any
such waiver is voluntary and may be terminated at any time. Currently, such fees
are being waived to the rate of 0.10% of average daily net assets for the
Fiduciary and Class A Shares of the Income Equity Fund, Growth Fund,
International Equity Fund, Small Cap Value Fund, Balanced Fund, and Value
Momentum Fund, 0.03% for the Class A Shares of the Intermediate-Term Bond Fund,
0.01% for the Fiduciary and Class A Shares of the Bond Fund, and 0.00% for the
Class A Shares of the California Intermediate Tax-Free Bond Fund and 0.00% for
the Fiduciary and Class A Shares of the 100% U.S. Treasury Money Market Fund,
California Tax-Free Money Market Fund, Diversified Money Market Fund and U.S.
Government Money Market Fund.
The servicing agreements adopted under the Services Plans (the "Servicing
Agreements") require the Service Provider receiving such compensation to perform
certain shareholder support services as set forth in the Servicing Agreements
with respect to the beneficial or record owners of Shares of a Fund.
As authorized by the Services Plans, HighMark Funds may enter into a
Servicing Agreement with a Service Provider pursuant to which the Service
Provider has agreed to provide certain shareholder support services in
connection with Shares of one or more of the Funds. Such shareholder support
services may include, but are not limited to, (i) maintaining Shareholder
accounts; (ii) providing information periodically to Shareholders showing their
positions in Shares; (iii) arranging for bank wires; (iv) responding to
Shareholder inquiries relating to the services performed by the Service
Provider; (v) responding to inquiries from Shareholders concerning their
investments in Shares; (vi) forwarding Shareholder communications from HighMark
Funds (such as proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to Shareholders; (vii)
processing purchase, exchange and redemption requests from Shareholders and
placing such orders with HighMark Funds or its service providers; (viii)
assisting Shareholders in changing dividend options, account designations, and
addresses; (ix) providing subaccounting with respect
-75-
<PAGE>
to Shares beneficially owned by Shareholders; (x) processing dividend payments
from HighMark Funds on behalf of the Shareholders; and (xi) providing such other
similar services as HighMark Funds may reasonably request to the extent that the
service provider is permitted to do so under applicable laws or regulations.
SHAREHOLDER SERVICING AGREEMENT
HighMark Capital Management, Inc., HighMark Funds and the California
Department of Personnel have entered into a shareholder servicing agreement
pursuant to which HighMark Capital Management is to pay compensation to the
California Department of Personnel for providing certain shareholder support
services to plan participants in the State of California Savings Plus Program
("Plan Participants") who are the beneficial or record owners of Shares of the
Fund. In consideration for such services, the California Department of Personnel
is compensated by the Adviser at an annual rate of 0.10% on net assets of the
Value Momentum Fund held in the Thrift Plan and Deferred Compensation Plan in
the State of California Savings Plus Program.
The servicing agreement adopted requires the California Department of
Personnel to perform certain shareholder support services as set forth in the
Servicing Agreement with respect to the beneficial or record owners of Class I
Shares of the Value Momentum Fund.
California Department of Personnel has agreed to provide certain
shareholder support services in connection with the Class I Shares of the Value
Momentum Fund. Such shareholder support services may include, but are not
limited to, (i) maintaining separate records for each Plan Participant with
respect to the Value Momentum Fund, which records shall reflect shares purchased
and redeemed and share balances, (ii) transmitting to the Value Momentum Fund
purchase and redemption orders on behalf of Plan Participants, (iii) preparing
and transmitting to Plan Participants periodic account statements showing the
total number of shares owned by them as of the statement closing date, purchases
and redemptions of Fund shares by the plan participant during the period covered
by the statement and the dividends and other distributions paid to the plan
participant during the statement period (whether paid in case or reinvested in
Fund shares), and (iv) transmitting to plan participants proxy materials,
reports and other information required to be sent to shareholders under the
federal securities laws received by the California Department of Personnel from
the Value Momentum Fund.
EXPENSES
HighMark Funds' service providers bear all expenses in connection with the
performance of their respective services, except that each Fund will bear the
following expenses relating to its operations: taxes, interest, brokerage fees
and commissions, if any, fees and travel expenses of Trustees who are not
partners, officers, directors, shareholders or employees of HighMark Capital
Management, Inc., Union Bank of California, SEI Investments Mutual Funds
Services or SEI Investments Distribution Co., Securities and Exchange Commission
fees and state fees and
-76-
<PAGE>
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 Investments Company, serves as distributor to the Funds
pursuant to a distribution agreement dated February 15, 1997 between HighMark
Funds and the Distributor for the Fiduciary Class and Class A Shares, and
pursuant to a distribution agreement dated June 18, 1997 between HighMark Funds
and the Distributor for Class B Shares (collectively, the "Distribution
Agreements").
Unless terminated, the Distribution Agreements will continue in effect
until July 31, 1999 and from year to year thereafter if approved at least
annually (i) by HighMark Funds' Board of Trustees or by the vote of a majority
of the outstanding Shares of HighMark Funds, and (ii) by the vote of a majority
of the Trustees of HighMark Funds who are not parties to the Distribution
Agreements or interested persons (as defined in the 1940 Act) of any party to
the Distribution Agreements, cast in person at a meeting called for the purpose
of voting on such approval. The Distribution Agreements are terminable without
penalty, on not less than sixty days' notice by HighMark Funds' Board of
Trustees, by vote of a majority of the outstanding voting securities of HighMark
Funds or by the Distributor. The Distribution Agreements terminate in the event
of their assignment, as defined in the 1940 Act.
THE DISTRIBUTION PLANS . Pursuant to HighMark Funds' Distribution Plans,
each Fund pays the Distributor as compensation for its services in connection
with the Distribution Plans a distribution fee, computed daily and paid monthly,
equal to twenty-five one-hundredths of one percent (0.25%) of the average daily
net assets attributable to that Fund's Class A Shares, pursuant to the Class A
Distribution Plan, and seventy-five one-hundredths of one percent (0.75%) of the
average daily net assets attributable to that Fund's Class B Shares, pursuant to
the Class B Distribution Plan, seventy-five one-hundredths of one percent
(0.75%) of the average daily net assets attributable to that Fund's Class C
Shares, pursuant to the Class C Distribution Plan and fifty-five one-hundredths
of one percent (0.55%) of the average daily net assets attributable to that
Fund's Class S Shares, pursuant to the Class S Distribution Plan. The
Distributor has agreed to waive its fees to 0.00% of the average daily net
assets of the Intermediate-Term Bond Fund, the Bond Fund and the California
Intermediate Tax-Free Bond Fund.
-77-
<PAGE>
For the fiscal year ended July 31, 1999, the Distributor received the
following distribution fees with respect to the sale of Class A Shares and Class
B Shares from the following Funds:
<TABLE>
<CAPTION>
Fund Class A Shares Class B Shares
- ---- -------------- --------------
<S> <C> <C>
Balanced Fund $27,356 $14,665
Growth Fund $44,934 $39,007
Income Equity Fund $50,117 $20,020
Value Momentum Fund $85,954 $42,427
Small Cap Value $576 $1,312
100% U.S. Treasury Money Market Fund $2,205,542 $N/A
California Tax-Free Money Market Fund $902,153 $N/A
Diversified Money Market Fund $3,351,109 $N/A
U.S. Government Money Market Fund $336,568 $468
</TABLE>
*Class C and Class S Shares were not offered as of July 31, 1999.
The Distributor may use the distribution fee applicable to a Fund's Class
A, Class B, Class C and Class S Shares to provide distribution assistance with
respect to the sale of the Fund's Class A, Class B, Class C and Class S Shares
or to provide Shareholder services to the holders of the Fund's Class A, Class
B, Class C and Class S Shares. The Distributor may also use the distribution fee
(i) to pay financial institutions and intermediaries (such as insurance
companies and investment counselors but not including banks and savings and loan
associations), broker-dealers, and the Distributor's affiliates and subsidiaries
compensation for services or reimbursement of expenses incurred in connection
with the distribution of a Fund's Class A, Class B, Class C and Class S Shares
to their customers or (ii) to pay banks, savings and loan associations, other
financial institutions and intermediaries, broker-dealers, and the Distributor's
affiliates and subsidiaries compensation for services or reimbursement of
expenses incurred in connection with the provision of Shareholder services to
their customers owning a Fund's Class A, Class B, Class C and Class S Shares.
All payments by the Distributor for distribution assistance or Shareholder
services under the Distribution Plans will be made pursuant to an agreement
between the Distributor and such bank, savings and loan association, other
financial institution or intermediary, broker-dealer, or affiliate or subsidiary
of the Distributor (a "Servicing Agreement"; banks, savings and loan
associations, other financial institutions and intermediaries, broker-dealers,
and the Distributor's affiliates and subsidiaries that may enter into a
Servicing Agreement are hereinafter referred to individually as a "Participating
Organization"). A Participating Organization may include Union Bank of
California, its subsidiaries and its affiliates.
Participating Organizations may charge customers fees in connection with
investments in a Fund on their customers' behalf. Such fees would be in addition
to any amounts the Participating Organization may receive pursuant to its
Servicing Agreement. Under the terms of the Servicing Agreements, Participating
Organizations are required to provide their customers with a schedule of fees
charged directly to such customers in connection with investments in a Fund.
Customers of Participating Organizations should read this Prospectus in light of
the terms governing their accounts with the Participating Organization.
-78-
<PAGE>
The distribution fees under the Distribution Plans will be payable without
regard to whether the amount of the fee is more or less than the actual expenses
incurred in a particular year by the Distributor in connection with distribution
assistance or Shareholder services rendered by the Distributor itself or
incurred by the Distributor pursuant to the Servicing Agreements entered into
under the Distribution Plans. The Distributor may from time to time voluntarily
reduce its distribution fees with respect to a Fund in significant amounts for
substantial periods of time pursuant to an agreement with HighMark Funds. While
there can be no assurance that the Distributor will choose to make such an
agreement, any voluntary reduction in the Distributor's distribution fees will
lower such Fund's expenses, and thus increase such Fund's yield and total
returns, during the period such voluntary reductions are in effect.
In accordance with Rule 12b-1 under the 1940 Act, the Distribution Plans
may be terminated with respect to any Fund by a vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding Class A,
Class B, Class C or Class S Shares of that 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 Shareholder's
account.
-79-
<PAGE>
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 0.01% of the Fund's average daily net assets, with an annual minimum fee
of $2,500 per Fund, plus certain transaction fees. Union Bank of California is
also entitled to be reimbursed by HighMark Funds for its reasonable
out-of-pocket expenses incurred in the performance of its duties under the
Custodian Agreement. Global custody fees shall be determined on a transaction
basis. Union Bank of California may periodically voluntarily reduce all or a
portion of its custodian fee with respect to a Fund to increase the Fund's net
income available for distribution as dividends.
AUDITORS
The financial statements of HighMark Funds for the period ended July 31,
1999, incorporated by reference into this Statement of Additional Information
have been audited by Deloitte & Touche LLP, independent accountants, as set
forth in their report also incorporated by reference into this Statement of
Additional Information, and are included in reliance upon such report and on the
authority of such firm as experts in auditing and accounting.
LEGAL COUNSEL
Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800 East,
Washington, D.C. 20005, are counsel to HighMark Funds and will pass upon the
legality of the Shares offered hereby.
-80-
<PAGE>
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 Core Equity 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.
Pursuant to a Multiple Class Plan on file with the Securities and Exchange
Commission permitting the issuance and sale of six classes of Shares in selected
Funds, Shares of such Funds have been divided into six classes of Shares,
designated Class A, Class B, Class C and Class S Shares (collectively, "Retail
Shares"), Class I Shares and Fiduciary Shares. The Trustees of HighMark Funds
have determined that currently no conflict of interest exists between the Class
A, Class B, Class C and Class S shares. On an ongoing basis, the Trustees of
HighMark Funds, pursuant to their fiduciary duties under the Investment Company
Act of 1940, as amended (the "1940 Act"), and state laws, will seek to ensure
that no such conflict arises.
Shares have no subscription or preemptive rights and only such conversion
or exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectuses and this Statement of
Additional Information, HighMark Funds' Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of HighMark Funds,
Shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund that are available for distribution. Upon
liquidation or dissolution of HighMark Funds, Retail and Fiduciary shareholders
are entitled to receive the net assets of the Fund attributable to each class.
As used in the Prospectuses and in this Statement of Additional
Information, "assets belonging to a Fund" means the consideration received by
HighMark Funds upon the issuance or
-81-
<PAGE>
sale of Shares in that Fund, together with all income, earnings, profits, and
proceeds derived from the investment thereof, including any proceeds from the
sale, exchange, or liquidation of such investments, and any funds or payments
derived from any reinvestment of such proceeds, and any general assets of
HighMark Funds not readily identified as belonging to a particular Fund that are
allocated to that Fund by HighMark Funds' Board of Trustees. Such allocations of
general assets may be made in any manner deemed fair and equitable, and it is
anticipated that the Board of Trustees will use the relative net asset values of
the respective Funds at the time of allocation. Assets belonging to a particular
Fund are charged with the direct liabilities and expenses of that Fund, and with
a share of the general liabilities and expenses of HighMark Funds not readily
identified as belonging to a particular Fund that are allocated to that Fund in
proportion to the relative net asset values of the respective Funds at the time
of allocation. The timing of allocations of general assets and general
liabilities and expenses of HighMark Funds to particular Funds will be
determined by the Board of Trustees and will be in accordance with generally
accepted accounting principles. Determinations by the Board of Trustees as to
the timing of the allocation of general liabilities and expenses and as to the
timing and allocable portion of any general assets with respect to a particular
Fund are conclusive.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as HighMark Funds shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
Shares of each Fund affected by the matter. For purposes of determining whether
the approval of a majority of the outstanding Shares of a Fund will be required
in connection with a matter, a Fund will be deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are identical,
or that the matter does not affect any interest of the Fund.
Under Rule 18f-2, the approval of an investment advisory agreement or any
change in fundamental investment policy would be effectively acted upon with
respect to a Fund only if approved by a majority of the outstanding Shares of
such Fund. However, Rule 18f-2 also provides that the ratification of
independent public accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
Shareholders of HighMark Funds voting without regard to series.
Although not governed by Rule 18f-2, Retail Shares of a Fund have
exclusive voting rights with respect to matters pertaining to the Fund's
Distribution Plan.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, holders of units of interest in a business trust
may, under certain circumstances, be held personally liable as partners for the
obligations of the trust. However, HighMark Funds' Declaration of Trust, as
amended, provides that Shareholders shall not be subject to any personal
liability for the obligations of HighMark Funds, and that every written
agreement, obligation, instrument, or undertaking made by HighMark Funds shall
contain
-82-
<PAGE>
a provision to the effect that the Shareholders are not personally
liable thereunder. The Declaration of Trust, as amended, provides for
indemnification out of the trust property of any Shareholder held personally
liable solely by reason of his or her being or having been a Shareholder. The
Declaration of Trust, as amended, also provides that HighMark Funds shall, upon
request, assume the defense of any claim made against any Shareholder for any
act or obligation of HighMark Funds, and shall satisfy any judgment thereon.
Thus, the risk of a Shareholder incurring financial loss on account of
Shareholder liability is limited to circumstances in which HighMark Funds itself
would be unable to meet its obligations.
The Declaration of Trust, as amended, states further that no Trustee,
officer, or agent of HighMark Funds shall be personally liable in connection
with the administration or preservation of the assets of the trust or the
conduct of HighMark Funds' business, nor shall any Trustee, officer, or agent be
personally liable to any person for any action or failure to act except for his
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties. The Declaration of Trust, as amended, also provides that all persons
having any claim against the Trustees or HighMark Funds shall look solely to the
assets of the trust for payment.
THE REORGANIZATION OF THE IRA FUND AND HIGHMARK FUNDS
As of June 23, 1988, pursuant to an Agreement and Plan of Reorganization
between the IRA Fund, HighMark Funds, and The Bank of California, substantially
all of the assets of the IRA Fund's Income Equity Portfolio, and Bond Portfolio
were transferred to HighMark Funds' Income Equity Fund, and Bond Fund,
respectively, in exchange for such Fund's Shares, and substantially all of the
assets of the IRA Fund's Short Term Portfolio were transferred to one or more of
HighMark Funds' Money Market Funds in exchange for Shares of such Money Market
Fund or Funds. Prior to June 23, 1988, the aggregate total return and average
annual total return of the Bond Fund and Income Equity Fund reflect the
aggregate total return and average annual total return of the IRA Fund Bond
Portfolio and the IRA Fund Income Equity Portfolio, respectively. The IRA Fund
Bond Portfolio and the IRA Fund Income Equity Portfolio both received investment
advice from the same division of the Bank of California subsequently known as
Pacific Alliance Capital Management and eventually reorganized as HighMark
Capital Management, Inc. and had investment objectives, policies and
restrictions substantially similar to those of the Bond Fund and the Income
Equity Fund, respectively. However, potential investors should be aware that
both the nature and amount of fees and expenses of the IRA Fund Bond Portfolio
and the Bond Fund and those of the IRA Fund Income Equity Portfolio and the
Income Equity Fund differ.
CALCULATION OF PERFORMANCE DATA
From time to time, articles relating to the performance, rankings, and
other investment characteristics of mutual funds and their investment advisers,
including the Funds and the Adviser, may appear in national, regional, and local
publications. In particular, some publications may publish their own rankings or
performance reviews of mutual funds and their
-83-
<PAGE>
investment advisers, including the Funds and the Adviser. Various mutual fund or
market indices may also serve as a basis for comparison of the performance of
the Funds with other mutual funds or mutual fund portfolios with comparable
investment objectives and policies. In addition to the indices prepared by Dow
Jones & Co., Inc. and Standard & Poor's Corporation, references to or reprints
from the following publications may be used in HighMark Funds' promotional
literature: IBC/Donoghue's Money Fund Report, Ibbotson Associates of Chicago,
Morningstar, Lipper, Inc., CDA/Wiesenberger Investment Company Services, SEI
Investments, Callan Associates, Wilshire Associates, MONEY Magazine, Pension and
Investment Age, Forbes, BusinessWeek, Smart Money, American Banker, Fortune
Magazine, Worth, Institutional Investor, Barron's National Business & Financial
Weekly, Investor's Business Daily, Barron's, Pensions and Investments,
Investment News, America Online, The Wall Street Journal, New York Times, San
Francisco Chronicle and Examiner, Los Angeles Business Journal, Los Angeles
Times, USA Today, Sacramento Bee, Seattle Times, Seattle Daily Journal of
Commerce, Seattle Post/Intelligence, Seattle Business Journal, Tacoma New
Tribune, Bellevue Journal-American, The Oregonian, Puget Sound Business Journal,
Portland Chamber of Commerce and Portland Daily Journal of Commerce/Portland
Business Today. Shareholders may call toll free 1-800-433-6884 for current
information concerning the performance of each of the Funds.
From time to time, the Funds may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of compounding and the benefits of dollar-cost averaging); (2)
discussions of general economic trends; (3) presentations of statistical data to
supplement such discussions; (4) descriptions of past or anticipated portfolio
holdings for one or more of the Funds within HighMark Funds; (5) descriptions of
investment strategies for one or more of the Funds; (6) descriptions or
comparisons of various savings and investment products (including, but not
limited to, insured bank products, annuities, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant market or
industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) testimonials
describing the experience of persons that have invested in one or more of the
Funds. The Funds may also include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results in such communications.
Such performance examples will be based on an express set of assumptions and are
not indicative of the performance of any of the Funds. In addition, the
California Tax-Free Fund may include charts comparing various tax-free yields
versus taxable yield equivalents at different income levels.
The 7-day yield of each class of Shares of a Fund was computed by
determining the percentage net change, excluding capital changes, in the value
of an investment in one Share of that class over the base period, and
multiplying the net change by 365/7 (or approximately 52 weeks). The 7-day
effective yield of each class of Shares of a Fund represents a compounding of
the yield of that class by adding 1 to the number representing the percentage
change in value of
-84-
<PAGE>
the investment during the base period, raising that sum to a power equal to
365/7, and subtracting 1 from the result.
The yield and effective yield for the seven-day period ending July 31,
1999, for the Money Market Funds are shown below:
<TABLE>
<CAPTION>
Yield Effective Yield
---------------- -------------------
Class A Class B Fiduciary Class A Class B Fiduciary
------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
100% U.S. Treasury Money Market Fund 4.09% -- 4.34% 4.17% -- 4.43%
California Intermediate Tax-Free
Money Market Fund 2.16% -- 2.41% 2.18% -- 2.44%
Diversified Money Market Fund 4.39% -- 4.63% 4.48% -- 4.71%
U.S. Government Money Market Fund 4.31% 3.56% 4.55% 4.40% 3.62% 4.66%
</TABLE>
*No performance information is presented for Class S Shares because they had
commenced operations as of July 31, 1999.
The Fund's "yield" (referred to as "standardized yield") for a given
30-day period for a class of shares is calculated using the following formula
set forth in rules adopted by the Commission that apply to all funds that quote
yields:
Standardized Yield = 2 [(a-b + 1)(6) - 1]
--
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares of that class outstanding during the
30-day period that were entitled to receive dividends.
d = the maximum offering price per share of the class on the last day of
the period, adjusted for undistributed net investment income.
The standardized yield of a class of shares for a 30-day period may differ
from its yield for any other period. The Commission formula assumes that the
standardized yield for a 30-day period occurs at a constant rate for a six-month
period and is annualized at the end of the six-month period. This standardized
yield is not based on actual distributions paid by the Fund to shareholders in
the 30-day period, but is a hypothetical yield based upon the net investment
income from the Fund's portfolio investments calculated for that period. Because
each class of shares is subject to different expenses, it is likely that the
standardized yields of the Fund classes of shares will differ.
The yield and effective yield for the 30-day period ending July 31, 1999,
for the Money Market Funds and Fixed Income Funds are shown below:
-85-
<PAGE>
<TABLE>
<CAPTION>
Yield Effective Yield
---------------- -------------------
Class A Class B Fiduciary Class A Class B Fiduciary
------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
100% U.S. Treasury Money Market Fund 4.04% -- 4.29% 4.12% -- 4.38%
California Intermediate Tax-Free Money
Market Fund 2.10% -- 2.35% 2.12% -- 2.38%
Diversified Money Market Fund 4.35% -- 4.60% 4.45% -- 4.71%
U.S. Government Money Market Fund 4.28% 3.53% 4.53% 4.37% 3.59 4.63%
Bond Fund 5.67% -- 5.85% -- -- --
California Intermediate Tax-Free Bond Fund 3.90% -- 4.02% -- -- --
Intermediate Term Bond Fund 5.69% -- 5.86% -- -- --
</TABLE>
The tax-equivalent yield of each class of Shares of the California
Tax-Free Fund was computed by dividing that portion of the yield of that class
that is tax-exempt by 1 minus the stated income tax rate (or rates) and adding
the product to that portion, if any, of the yield of the Class that is not
tax-exempt. The tax-equivalent effective yield of each class of Shares was
computed by dividing that portion of the effective yield of that class which is
tax-exempt by 1 minus the stated income tax rate (or rates) and adding to that
portion, if any, of the effective yield of that class that is not tax-exempt.
The tax-equivalent yield and tax-equivalent effective yield for the
California Tax-Free Money Market Fund for the 7-day and 30-day periods ended
July 31, 1999 are shown below:
<TABLE>
<CAPTION>
Tax-Equivalent Tax-Equivalent
Yield Effective Yield
-------------- ---------------
Class A Fiduciary Class A Fiduciary
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Using a 39.6% Fed. Income Tax Rate
- ----------------------------------
a. 7-day 3.58% 3.99% 3.61% 4.04%
b. 30-day 3.48% 3.89% 3.51% 3.94%
Using a 39.6% Fed. Income Tax
Rate and 11% Cal. Personal
Income Tax Rate
- ---------------
a. 7-day 4.37% 4.88% 4.41% 4.94%
b. 30-day 4.25% 4.76% 4.29% 4.82%
</TABLE>
The tax-equivalent yield for the California Intermediate Tax-Free Bond
Fund for the 30-day period ended July 31, 1999 is shown below:
<TABLE>
<CAPTION>
Tax-Equivalent
Yield
--------------
Class A Fiduciary
------- ---------
<S> <C> <C>
Using a 39.6% Fed. Income Tax Rate 6.46% 6.66%
Using a 39.6% Fed. Income Tax
Rate and 11% Cal. Personal
Income Tax Rate 7.89% 8.14%
</TABLE>
-86-
<PAGE>
Each Fund's respective average annual total return over periods of 1, 5
and 10 years (up to the life of Fund or Class) was calculated by determining the
change in the value of a hypothetical $1,000 investment in the Fund over the
applicable period (utilizing, when appropriate, performance information from the
applicable IRA Fund Portfolio prior to June 23, 1988) that would equate the
initial amount invested to the ending redeemable value of the investment; in the
case of the average annual total return, this amount (representing the Fund's
total return) was then averaged over the relevant number of years. Specifically,
these rates of return are calculated pursuant to the following formula: P(1 +
T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the average
annual total return, n = the number of years and ERV = the ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the period). All
total return figures reflect the deduction o a proportional share of Fund
expenses on an annual basis, and assume that all dividends and distributions are
reinvested when paid. The resulting percentages indicate the positive or
negative investment results that an investor would have experienced from changes
in Share price and reinvestment of dividends and capital gains distributions.
The performance figures relating to the Class A Shares and Class B Shares
reflect the sales charge and distribution fees to which each Class is subject.
Because only Class A Shares and Class B Shares bear the expense of the fee, if
any, under the Distribution Plan and a sales charge, total return and yield
relating to a Fund's Class A Shares and Class B Shares will be lower than that
relating to the Funds' Fiduciary Shares. No performance information for Class C
Shares and Class I Shares is presented because they had not commenced operations
as of July 31, 1999.
-87-
<PAGE>
The average total return for the Class A Shares of each Fund, computed as
of July 31, 1999, is shown in the table below:
<TABLE>
<CAPTION>
Average Annual Total Return - Class A Shares
Fund/Class
Commencement One Five Ten Life of
Fund Name of Operations Year Years Years Fund
- --------- ------------- ------ ------ -------- -------
With Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales Sales
Load* Load Load* Load Load* Load Load* Load
----- ---- ----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund 11/13/92 4.70% 9.64% 13.98% 15.04% -- -- 12.08% 12.84%
Growth Fund 06/20/94 11.64% 16.92% 23.41% 24.55% -- -- 22.93% 24.05%
Income Equity Fund 06/20/94 8.79% 13.94% 18.52% 19.61% 13.23%(1) 13.75%(1) 18.29% 19.36%
Small Cap Value Fund 09/17/98 -- -- -- -- -- -- 19.62% 25.24%
Value Momentum Fund 04/02/94 7.70% 12.79% 0.36% 21.46% -- -- 16.83% 17.56%
Bond Fund 06/20/94 -1.51% 1.52% 6.09% 6.73% 6.47%(2) 6.79%(2) 6.00% 6.62%
California Intermediate
Tax-Free Bond Fund 10/15/93 0.44% 3.55% 5.51% 6.16% -- -- 4.02% 4.57%
Intermediate-Term Bond
Fund 02/03/92 -0.49% 2.60% 5.51% 6.16% -- -- 5.71% 6.13%
100% U.S. Treasury
Money Market Fund 12/01/90 -- 4.17% -- 4.59% -- 4.69%(3) -- 4.20%
California Tax-Free
Money Market Fund 06/25/91 -- 2.34% -- 2.80% -- -- -- 2.62%
Diversified Money Market
Fund 05/28/91 -- 4.52% -- 4.85% -- -- -- 4.36%
U.S. Government Money
Market Fund 12/01/90 -- 4.39% -- 4.74% -- 4.79%(4) -- 4.31%
</TABLE>
* Reflects maximum sales charge (4.50% for the Equity Funds and 3.00% for the
Fixed Income Funds).
(1) Prior to 6/20/94, performance for Class A Shares is based on Fiduciary
Share performance, which were first offered 2/9/84. The performance of the
Fiduciary Shares has been adjusted for the sales charge applicable to Class A
Shares, but does not reflect the Class A Shares' Rule 12b-1 fees and expenses.
With those adjustments, performance would be lower than that shown.
(2) Prior to 6/20/94, performance for Class A Shares is based on Fiduciary
Share performance, which were first offered 2/15/84. The performance of the
Fiduciary Shares has been adjusted for the sales charge applicable to Class A
Shares, but does not reflect the Class A Shares' Rule 12b-1 fees and expenses.
With those adjustments, performance would be lower than that shown.
(3) Prior to 12/1/90, performance for Class A Shares is based on Fiduciary
Share performance, which were first offered 8/10/87. The performance of
Fiduciary Shares has been adjusted for the sales charge applicable to Class A
Shares, but does not reflect the Class A Shares' Rule 12b-1 fees and expenses.
With those adjustments, performance would be lower than that shown.
(4) Prior to 12/1/90, performance for Class A Shares is based on Fiduciary
Share performance, which were first offered 8/10/87. The performance of
Fiduciary Shares has been adjusted for the sales charge applicable to Class A
Shares, but does not reflect the Class A Shares' Rule 12b-1 fees and expenses.
With those adjustments, performance would be lower than that shown.
-88-
<PAGE>
The average total return for the Class B Shares of each Fund, computed as of
July 31, 1999, is shown in the table below:
<TABLE>
<CAPTION>
Average Annual Total Return - Class B Shares
Fund/Class
Commencement One Five Ten Life of
Fund Name of Operations Year Years Years Fund
- --------- ------------- ------ ------ -------- -------
With Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales Sales
Load* Load Load* Load Load* Load Load* Load
----- ---- ----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund 02/02/98 3.91% 8.91% 14.74%(1) 14.97%(1) -- -- 4.79% 7.39%
Growth Fund 02/02/98 11.26% 16.26% 24.20%(2) 24.37%(2) -- -- 18.46% 20.92%
Income Equity Fund 02/02/98 8.29% 13.25% 19.21%(3) 19.41%(3) 13.65%(3) 13.65%(3) 10.83% 13.37%
Small Cap Value Fund 02/02/98 -- -- -- -- -- -- 19.60% 24.60%
Value Momentum Fund 02/02/98 6.89% 11.89% 21.14%(4) 21.32%(4) -- -- 6.67% 9.26%
U.S. Government Fund 02/02/98
Money Market Fund 02/02/98 3.62% -1.38% 4.58%(5) 4.24%(5) 4.71%(5) 4.71%(5) 3.85% 1.19%
</TABLE>
* Reflects maximum CDSC of 5.00%.
(1) Prior to 11/13/92, performance for Class B Shares is based on Fiduciary
Share performance, which were first offered 2/1/91. The performance of the
Fiduciary Shares has been adjusted for the maximum contingent deferred sales
charge applicable to Class B Shares, but does not reflect the Class B Shares'
Rule 12b-1 fees and expenses. With those adjustments, performance would be lower
than that shown.
(2) Prior to 2/2/98, performance for Class B Shares is based on Fiduciary
Share performance, which were first offered 11/18/93. The performance of the
Fiduciary Shares has been adjusted for the maximum contingent deferred sales
charge applicable to Class B Shares, but does not reflect the Class B Shares'
Rule 12b-1 fees and expenses. With those adjustments, performance would be lower
than that shown.
(3) Prior to 2/2/98, performance for Class B Shares is based on Fiduciary
Share performance, which were first offered 2/9/84. The performance of the
Fiduciary Shares has been adjusted for the maximum contingent deferred sales
charge applicable to Class B Shares, but does not reflect the Class B Shares'
Rule 12b-1 fees and expenses. With those adjustments, performance would be lower
than that shown.
(4) Prior to 4/2/92, performance for Class B Shares is based on Fiduciary
Share performance, which were first offered 2/1/91. The performance of the
Fiduciary Shares has been adjusted for the maximum contingent deferred sales
charge applicable to Class B Shares, but does not reflect the Class B Shares'
Rule 12b-1 fees and expenses. With those adjustments, performance would be lower
than that shown.
(5) Prior to 2/2/98, performance for Class B Shares is based on Fiduciary
Share performance, which were first offered 8/10/87. The performance of
Fiduciary Shares has been adjusted for the maximum contingent deferred sales
charge applicable to Class B Shares, but does not reflect the Class B Shares'
Rule 12b-1 fees and expenses. With those adjustments, performance would be lower
than that shown.
-89-
<PAGE>
The average total return for the Fiduciary Shares of each Fund, computed as of
July 31, 1999, is shown in the table below:
Average Annual Total Return - Fiduciary Shares
<TABLE>
<CAPTION>
Fund/Class
Commencement One Five Ten Life of
Fund Name of Operations Year Years Years Fund
- --------- ------------- ---- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Balanced Fund 02/01/91 9.96% 15.26% -- 12.82%
Growth Fund 11/18/93 17.24% 24.68% -- 20.95%
Income Equity Fund 02/09/84 14.23% 19.72% 13.80% 15.81%
International Equity Fund 02/01/95 5.90% -- -- 6.16%
Small Cap Value Fund 09/17/98 -- -- -- 25.54%
Value Momentum Fund 02/01/91 13.08% 21.69% -- 17.50%
Bond Fund 02/15/84 1.60% 6.72% 6.86% 8.84%
California Intermediate
Tax-Free Bond Fund 10/15/93 3.54% 6.19% -- 4.61%
Intermediate-Term Bond
Fund 02/01/91 2.60% 6.16% -- 7.02%
100% U.S. Treasury
Money Market Fund 08/10/87 4.43% 4.71% 4.75% 5.23%
California Tax-Free
Money Market Fund 06/10/91 2.59% 3.10% -- 2.94%
Diversified Money Market
Fund 02/02/91 4.78% 5.10% -- 4.66%
U.S. Government Money
Market Fund 08/10/87 4.64% 4.87% 4.85% 5.34%
</TABLE>
Prior to June 23, 1988 (the date on which the Income Equity Fund and the
Bond Fund commenced operations as a result of the reorganization involving the
IRA Fund Income Equity Portfolio and the IRA Fund Bond Portfolio, respectively,
as described under "ADDITIONAL INFORMATION - The Reorganization of the IRA Fund
and HighMark Funds" above), the total return and average annual total return of
the Income Equity Fund and the Bond Fund reflects the total return and average
annual total return of the IRA Fund Income Equity Portfolio, and the IRA Fund
Bond Portfolio, respectively. Each IRA Fund Portfolio received investment advice
from the same division of the Bank of California subsequently known as Pacific
Alliance Capital Management and then reorganized as HighMark Capital Management,
Inc, and had substantially similar investment objectives, policies, and
restrictions of the Fund into which it was reorganized. However, potential
investors in the Income Equity Fund, and the Bond Fund should be aware that both
the nature and amount of fees and expenses of the IRA Fund Income Equity
Portfolio, and the IRA Fund Bond Portfolio differ from the Fund into which the
respective IRA Fund Portfolios were reorganized. See "Management of HighMark
Funds - Investment Adviser" and the Statements of Operations in the Financial
Statements with respect to the Income Equity Fund, and the Bond Fund and the IRA
Fund Income Equity Portfolio, and the IRA Fund Bond Portfolio for the applicable
period ended July 31, 1989 and June 22, 1988 contained in this Statement of
Additional Information.
Because each class of Shares of a Fund has different sales charge
structures and differing distribution and shareholder servicing fees, the
performance of each class will differ. All
-90-
<PAGE>
performance information presented is based on past performance and does not
predict future performance.
MISCELLANEOUS
Prior to April 28, 1997, the California Tax-Free Money Market Fund, the
Value Momentum Fund, the International Equity Fund, the Intermediate-Term Bond
Fund, and the California Intermediate Tax-Free Bond Fund were Stepstone Funds.
Prior to operating as HighMark Funds, each Fund had a fiscal year end of January
31 (rather than July 31). Most of the financial and investment information
(e.g., fees paid to service providers and portfolio turnover) presented in this
Statement of Additional Information and in the Prospectuses is based on a Fund's
fiscal year end. Each of these Funds is the accounting survivor of a
reorganization of two mutual funds. All fees paid by these Funds (or
sub-advisory fees paid with respect to these Funds) for a fiscal year end of
January 31 represent the fees paid by the accounting survivor prior to the
reorganization. As a result, for each of these Funds, and for the Diversified
Money Market Fund and the Balanced Fund, for the fiscal year ended July 31,
1997, the financial and investment information is provided for the period
February 1, 1997 through July 31, 1997. Therefore, for these Funds for each
prior fiscal year, the financial and investment information is provided for the
period February 1 through January 31.
For all of the other Funds information for a fiscal year is provided for
the period August 1 through July 31 (or such other shorter period if the Fund
began operations after August 1).
Shareholders are entitled to one vote for each Share held in a Fund as
determined on the record date for any action requiring a vote by the
Shareholders, and a proportionate fractional vote for each fractional Share
held. Shareholders of HighMark Funds will vote in the aggregate and not by
series or class except (i) as otherwise expressly required by law or when
HighMark Funds' Board of Trustees determines that the matter to be voted upon
affects only the interests of the Shareholders of a particular series or
particular class, and (ii) only Retail Shares will be entitled to vote on
matters submitted to a Shareholder vote relating to the Distribution Plan.
HighMark Funds is not required to hold regular annual meetings of Shareholders,
but may hold special meetings from time to time.
HighMark Funds' Trustees are elected by Shareholders, except that
vacancies may be filled by vote of the Board of Trustees. HighMark Funds is not
required to hold meetings of Shareholders for the purpose of electing Trustees
except that (i) HighMark Funds is required to hold a Shareholders' meeting for
the election of Trustees at such time as less than a majority of the Trustees
holding office have been elected by Shareholders and (ii) if, as a result of a
vacancy on the Board of Trustees, less than two-thirds of the Trustees holding
office have been elected by the Shareholders, that vacancy may be filled only by
a vote of the Shareholders. In addition, Trustees may be removed from office by
a written consent signed by the holders of Shares representing two-thirds of the
outstanding Shares of HighMark Funds at a meeting duly called for the purpose,
which meeting shall be held upon the written request of the holders of Shares
-91-
<PAGE>
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 1999 Annual Report to Shareholders of HighMark Funds is
incorporated herein by reference. This Report includes audited financial
statements for the fiscal year ended July 31, 1999. Upon the incorporation by
reference herein of such Annual Report, the opinion in such Annual Report of
independent accountants is incorporated herein by reference and such Annual
Report's financial statements are incorporated by reference herein in reliance
upon the authority of such accountants as experts in auditing and accounting.
The Prospectuses and this Statement of Additional Information are not
an offering of the securities herein described in any state in which such
offering may not lawfully be made.
No salesperson, dealer, or other person is authorized to give any
information or make any representation other than those contained in the
Prospectuses and this Statement of Additional Information.
As of January 24, 2000, 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 January 24, 2000, HighMark Funds
believes that there was no person who beneficially owned more than 25% of the
Class A, Class B or Class C Shares of any Fund.
As of January 24, 2000, HighMark Funds believes that Union Bank of
California was the shareholder of record of 87.52% of the Fiduciary Shares of
the Growth Fund, 84.99% of the Fiduciary Shares of the Income Equity Fund,
98.77% of the Fiduciary Shares of the Balanced Fund, 65.01% of the Fiduciary
Shares of the Bond Fund, 99.48% of the Fiduciary Shares of the
Intermediate-Term Bond Fund, 99.69% of the Fiduciary Shares of the California
Intermediate Tax-Free Bond Fund, 95.34% of the Fiduciary Shares of the Value
Momentum Fund, 98.15% of the Fiduciary Shares of the Small Cap Value Fund,
96.47% of the Fiduciary Shares of the U.S. Government Money Market Fund,
-92-
<PAGE>
97.46% of the Fiduciary Shares of the Diversified Money Market Fund, 99.30%
of the Fiduciary Shares of the 100% U.S. Treasury Money Market Fund and
99.81% of the Fiduciary Shares of the California Tax-Free Money Market Fund.
As of January 24, 2000, HighMark Funds believes that Union Bank of
California had investment authority with respect to 43.16% of the Growth Fund
Fiduciary Shares, 49.91% of the Income Equity Fund Fiduciary Shares, 51.70% of
the Balanced Fund Fiduciary Shares, 51.61% of the Bond Fund Fiduciary Shares,
62.26% of the Value Momentum Fund Fiduciary Shares, 77.46% of the International
Equity Fund Fiduciary Shares, 96.55% of the Small Cap Value Fund Fiduciary
Shares, 88.21% of the Intermediate-Term Bond Fund, 97.35% of the California
Intermediate Tax-Free Bond Fund, 11.85% of the 100% U.S. Treasury Money Market
Fund, 48.60% of the California Tax-Free Money Market Fund, 16.41% of the
Diversified Money Market Fund, and 11.99% of the U.S. Government Money Market
Fund.
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 January 24, 2000.
-93-
<PAGE>
5% OR MORE OWNERS
BALANCED FUND - CLASS A SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Ty & Wei Chen Yeh TTEE 8.19%
Yeh Family Trust
U/A 9/11/91 2048 Studebaker Rd.
Long Beach, CA 90815-3539
</TABLE>
BALANCED FUND - CLASS C SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
HighMark Capital Management 86.11%
445 S. Figueroa Street
Los Angeles, CA 90071-1602
SEI Investments 8.84%
SEED Account
530 E. Swedesford Road
Wayne, PA 19087-1607
</TABLE>
BALANCED FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF BENEFICIAL OWNERSHIP
<S> <C>
Nissan 401(k) Plan 5.33%
Attn: Virginia King
P.O. Box 191
Gardena, CA 90248-0191
Nummi Hourly Retirement Plan 10.60%
Attn: Paige Kanisberg
45500 Fremont Blvd.
Fremont, CA 94538
NEC Savings Plan 9.69%
8 Old Sod Farm Road
Melville, NY 11747
</TABLE>
-94-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Union Bank of California Retirement Plan 10.92%
350 California Street
San Francisco, CA 94104
Union Bank of California 401(k) Plan 11.12%
350 California Street
San Francisco, CA 94104
</TABLE>
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Lane & Company 80.79%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
American Express Trust Company 9.69%
As Agent for NEC Savings and
Retirement Plan
Attn: Nancy Jendro Trust Operation
P.O. Box 534
Minneapolis, MN 55440-0534
PFTC Trustee Nissan Empl. Sav. Plan 5.33%
Putnam Investments
Nissan Motor Corporation
Location 31
P.O. Box 9740
Providence, RI 02940-9740
</TABLE>
GROWTH FUND - CLASS C SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
First Union Bank Securities, Inc. 54.43%
FBO David W. Kaney IRA
111 East Kilbourn Avenue
Milwaukee, WI 53202-6611
Donaldson Lufkin Jenrette 34.48%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
</TABLE>
-95-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Union Securities, Inc. 8.98%
Jerry E. Gale
111 East Kilbourn Avenue
Milwaukee, WI 53202-6611
</TABLE>
GROWTH FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF BENEFICIAL OWNERSHIP
<S> <C>
Union Bank of California Retirement Plan 11.52%
350 California Street
San Francisco, CA 94104
Union Bank of California 401(k) Plan 14.39%
350 California Street
San Francisco, CA 94104
</TABLE>
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Lane & Company 85.81%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 84584
San Diego, CA 92138-4584
BOTT Pension 10.58%
c/o Bank of Tokyo Trust Company
Attn: Dennis Demetropoulos
1251 Avenue of the Americas, Fl. 10
New York, NY 10020-1104
</TABLE>
INCOME EQUITY FUND - CLASS A SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
The Jackson Family Foundation 6.52%
Attn: Claire Grabowski
421 Aviation Blvd.
Santa Rosa, CA 95403-1069
</TABLE>
-96-
<PAGE>
INCOME EQUITY FUND - CLASS C SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
HighMark Capital Management 85.52%
445 S. Figueroa Street
Los Angeles, CA 90071-1602
SEI Investments 9.18%
SEED Account
530 E. Swedesford Road
Wayne, PA 19087-1607
</TABLE>
INCOME EQUITY FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF BENEFICIAL OWNERSHIP
<S> <C>
Union Bank of California 401(k) Plan 13.45%
350 California Street
San Francisco, CA 94104
</TABLE>
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Lane & Company 81.08%
c/o Union Bank
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
</TABLE>
INTERNATIONAL EQUITY FUND - CLASS A SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Donaldson Lufkin Jenrette 98.17%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
</TABLE>
-97-
<PAGE>
INTERNATIONAL EQUITY FUND - CLASS B SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Sergey Tikhomirov 17.67%
c/o Gary Dunn CPA
1690 West Shaw, Suite 210
Fresno, CA 93711-3516
State Street Bank & Trust Co. 11.96%
Cust. for The IRA of
FBO Barbara A. Vestal
6943 Lake Drive, Apt. F
Dublin, CA 94568-3412
Donaldson Lufkin Jenrette 10.34%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Sergey Tikhomirov 9.31%
c/o Gary Dunn CPA
1690 West Shaw, Suite 210
Fresno, CA 93711-3516
c/o Std. Commun. 8.02%
Ken Ungar
P.O. Box 92151
Los Angeles, CA 90009-2151
</TABLE>
INTERNATIONAL EQUITY FUND - CLASS C SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
HighMark Capital Management 86.53%
445 S. Figueroa Street
Los Angeles, CA 90071-1602
SEI Investments 8.69%
SEED Account
530 E. Swedesford Road
Wayne, PA 19087-1607
</TABLE>
-98-
<PAGE>
INTERNATIONAL EQUITY FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF BENEFICIAL OWNERSHIP
<S> <C>
UBOC Retirement Plan 59.49%
350 California Street
San Francisco, CA 94104
Nummi Hourly Retirement Plan 6.88%
Attn: Paige Kenisberg
45500 Fremont Blvd.
Fremont, CA 94538
</TABLE>
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
The Equitable Life Assurance 5.88%
Society of the United States
1290 Avenue of the Americas
12th Floor
Attn: Rosemarie Shomstein
New York, NY 10104-0101
AXA Banque 8.02%
372 Rue Saint Honore
75040 Paris Cedex 01 France
Lane & Company 78.54%
c/o Union Bank of California
Attn: Kathleen Heilman
P. O. Box 85484
San Diego, CA 92186-5484
</TABLE>
SMALL CAP VALUE FUND - CLASS A SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
State Street Bank & Trust 7.07%
Cust for the IRA of
Harold A. Hunter
480 Oak Grove Drive, Apt. 104
Santa Clara, CA 95054-3531
</TABLE>
-99-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Union Bank Cust. 24.59%
IRA of Robert S. Butler
Personalized IRA Rollover
650 Club View Drive
Los Angeles, CA 90024-2624
Barbara & Andrew Leigh Family 10.20%
Andrew M. Leigh
U/A 11/08/1994
15961 Royal Oak Road
Encino, CA 91436-3911
</TABLE>
SMALL CAP VALUE FUND - CLASS B SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
BOTT Pension 28.15%
c/o Bank of Tokyo Trust Company
Attn: Dennis Demetropoulos
1251 Avenue of the Americas, Fl. 10
New York, NY 10020-1104
Donaldson Lufkin Jenrette 6.67%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
</TABLE>
SMALL CAP VALUE FUND - CLASS C SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Wexford Clearing Services Corp. F 80.53%
Sutro & Co., Inc. C/F
Ruth Matulavich
ROTH IRA DTD 12/02/99
3789 E. Edison Street
Tucson, AZ 85716-2900
HighMark Capital Management 16.89%
445 S. Figueroa Street
Los Angeles, CA 90071-1602
</TABLE>
-100-
<PAGE>
SMALL CAP VALUE FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF BENEFICIAL OWNERSHIP
<S> <C>
UBOC Retirement Plan 85.03%
350 California Street
San Francisco, CA 94104
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Lane & Company 95.25%
c/o Union Bank of CA
Attn: Kathleen Heilman
P.O. Box 85484
San Diego, CA 92186-5484
</TABLE>
VALUE MOMENTUM FUND - CLASS C SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Daniel C. Halsey 46.04%
40 Chappie Street, Apt. 1
Charlestown, MA 02129-1404
Donaldson Lufkin Jenrette 29.94%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
First Union Securities, Inc. 16.70%
Jerry E. Gale
111 East Kilbourn Avenue
Milwaukee, WI 53202-6611
</TABLE>
VALUE MOMENTUM FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF BENEFICIAL OWNERSHIP
<S> <C>
UBOC Retirement Plan 10.25%
350 California Street
San Francisco, CA 94104
UBOC 401(k) Plan 9.56%
350 California Street
San Francisco, CA 94104
</TABLE>
-101-
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Lane & Company 92.28%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 85484
San Diego, CA 92186-5484
</TABLE>
VALUE MOMENTUM FUND - CLASS I SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Mellon Bank NA, Trustee for Dept. 70.46%
of Personnel Admin. of St. of CA
Attn: Wally Adebayo
135 Santilli Hwy.
Everett, MA 02149-1906
Mellon Bank NA, Trustee for Dept. of 29.54%
Personnel Admin. of St. of CA 401K
Attn: Wally Adebayo
135 Santilli Hwy.
Everett, MA 02149-1906
</TABLE>
BOND FUND - CLASS A SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Northwestern Trst. & Advisory Co. TTBE 6.17%
1201 3rd Ave., Suite 2010
Seattle, WA 98101-3026
Alice A. Swenning TTEE 5.76%
The Swenning Fam. Trust
U/A 9/23/91 1447 21st Ave.
Kingsburg, CA 93631-2027
</TABLE>
BOND FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF BENEFICIAL OWNERSHIP
<S> <C>
BTM U.S. Agency Retirement Plan 5.61%
1251 Avenue of the Americas
New York, NY 10020
</TABLE>
-102-
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Lane & Company 60.60%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
BOTT Pension 33.45%
c/o Bank of Tokyo-Mitsubishi Trust Company
Attn: Dennis Demetropoulos
1251 Avenue of the Americas FL 10
New York, NY 10020-1104
</TABLE>
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND - CLASS A SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Charles Schwab & Co., Inc. 23.15%
FBO Exclusive Customers
101 Montgomery St.
San Francisco, CA 94104-4122
Kenneth E. Becker 7.52%
3384 Shady Springs Lake
Mountain View, CA 94040-4581
Marcelino Estrada Muniz TTEE 7.97%
Marcelino Estrada Muniz Living
TR of 1998 U/A 11/23/98
2840 D Street
Selma, CA 93662-2903
</TABLE>
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND - CLASS B SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Sugi Morimoto TTEE 78.64%
The Morimoto Family Trust
U/A 3/20/81
4410 Celeste Street
Santa Ana, CA 92703-1611
Susanna M. Fernandez 20.44%
1119 Gardner Blvd.
San Leondro, CA 94577-2539
</TABLE>
-103-
<PAGE>
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Lane & Company 100.00%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 85484
San Diego, CA 92186-5484
</TABLE>
INTERMEDIATE-TERM BOND FUND - CLASS A SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
National Financial Services Corp. 87.25%
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 99.67%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 85484
San Diego, CA 92186-5484
</TABLE>
100% U.S. TREASURY MONEY MARKET FUND - CLASS A SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
National Financial Services Corp. 99.29%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
</TABLE>
-104-
<PAGE>
100% U.S. TREASURY MONEY MARKET FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Union Bank of California 91.36%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
Lane & Company 8.22%
c/o Union Bank of CA
Attn: Kathleen Heilman
P.O. Box 85484
San Diego, CA 92186-5484
</TABLE>
100% U.S. TREASURY MONEY MARKET FUND - CLASS S SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
National Financial Services Corp. 100.00%
for the Benefit of Our Customers
Church Street Station
P.O. Box 3752
New York, NY 10008-3752
</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 99.93%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
</TABLE>
CALIFORNIA TAX-FREE MONEY MARKET FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Union Bank of California 99.89%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
</TABLE>
-105-
<PAGE>
CALIFORNIA TAX-FREE MONEY MARKET FUND - CLASS S SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
National Financial Services Corp. 100.00%
For the Benefit of our Customers
Church Street Station
PO Box 3752
New York, NY 10008-3752
</TABLE>
DIVERSIFIED MONEY MARKET FUND - CLASS A SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
National Financial Services Corp 97.07%
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 of California 83.76%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
Lane & Company 15.12%
c/o Union Bank of California
Attn: Kathleen Heilman
PO Box 120109
San Diego, CA 92112-0109
</TABLE>
DIVERSIFIED MONEY MARKET FUND - CLASS S SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
National Financial Services Corp. 100.00%
For the Benefit of our Customers
Church Street Station
PO Box 3752
New York, NY 10008-3752
</TABLE>
-106-
<PAGE>
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 98.10%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
</TABLE>
U.S. GOVERNMENT MONEY MARKET FUND - CLASS B SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Lakeside Business Center 22.89%
Sole Proprietorship
Ronald E. Soderling
1400 N. Bristol Street Suite #150
Newport Beach, CA 97660-2957
Laguna Ridge Business Center 15.27%
Sole Proprietorship
Ronald E. Soderling
1400 N. Bristol St. Suite 150
Newport Beach, CA 92650-2957
Park Laguna Hills 15.26%
Sole Proprietorship
Ronald B. Soderling
1400 N. Bristol St. Suite 150
Newport Beach, CA 92660-2957
Robert D. Hidalgo Jr., MD 8.78%
Elsie R. Hidalgo
12332 Morningside Lane
Santa Ana, CA 92705-3376
Ken Ungar 8.03%
P.O. Box 92151
Los Angeles, CA 90009-2151
Sachiko Kuwada 7.76%
2 Commodore Dr., #386
Emeryville, CA 94608-1642
</TABLE>
-107-
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND - FIDUCIARY SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF BENEFICIAL OWNERSHIP
<S> <C>
Watkins Johnson Company 9.02%
3333 Hillview Avenue
Palo Alto, CA 94304
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
Union Bank of California 97.25%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
</TABLE>
U.S. GOVERNMENT MONEY MARKET FUND - CLASS S SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OF OWNERSHIP OF RECORD
<S> <C>
National Financial Services Corp. 100.00%
For the Benefit of our Customers
Church Street Station
PO Box 3752
New York, NY 10008-3752
</TABLE>
-108-
<PAGE>
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 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):
-109-
<PAGE>
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.
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.
-110-
<PAGE>
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 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.
-111-
<PAGE>
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.
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
-112-
<PAGE>
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
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.
-113-
<PAGE>
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.
-114-
<PAGE>
FINANCIAL STATEMENTS
The Independent Auditors' Report for HighMark Funds for the fiscal year
ended July 31, 1999, audited Financial Statements for HighMark Funds for the
fiscal year ended July 31, 1999, and unaudited Financial Statements for HighMark
Funds for the period ended January 31, 1999 will be incorporated by reference to
the Annual and Semi-Annual Reports of HighMark Funds, dated as of such dates,
which will be sent to shareholders of each Fund pursuant to the 1940 Act and
will be filed with the Securities and Exchange Commission, by subsequent
amendment prior to the effectiveness of this amendment to HighMark Funds'
registration statement. A copy of each such report may be obtained without
charge by contacting the Distributor, SEI Investments Distribution Co. at 1
Freedom Valley Drive, Oaks, Pennsylvania, 19456 or by telephoning toll-free at
1-800-734-2922.
-115-
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
(a) (1) Declaration of Trust, dated March 10, 1987, is incorporated
by reference to Exhibit (1)(a) of Pre-Effective Amendment
No. 1 (filed May 15, 1987) to Registrant's Registration
Statement on Form N-1A.
(2) Amendment to Declaration of Trust, dated April 13, 1987, is
incorporated by reference to Exhibit (1)(b) of Pre-Effective
Amendment No. 1 (filed May 15, 1987) to Registrant's
Registration Statement on Form N-1A.
(3) Amendment to Declaration of Trust, dated July 13, 1987, is
incorporated by reference to Exhibit (1)(c) of Pre-
Effective Amendment No. 2 (filed July 24, 1987) to
Registrant's Registration Statement on Form N-1A.
(4) Amendment to Declaration of Trust, dated July 30, 1987, is
incorporated by reference to Exhibit (1)(d) of Pre-
Effective Amendment No. 3 (filed July 31, 1987) to
Registrant's Registration Statement on Form N-1A.
(5) Amendment to Declaration of Trust, dated October 18, 1996,
is incorporated by reference to Exhibit (1)(e) of
Post-Effective Amendment No. 18 (filed November 8, 1996) to
Registrant's Registration Statement on Form N-1A.
(6) Amendment to Declaration of Trust, dated December 4, 1996,
is incorporated by reference to Exhibit (1)(f) of
Post-Effective Amendment No. 19 (filed December 13, 1996) to
Registrant's Registration Statement on Form N-1A.
(b) (1) Amended and Restated Code of Regulations, dated June 5,
1991, is incorporated by reference to Exhibit 2 of
Post-Effective Amendment No. 7 (filed September 30, 1991) to
Registrant's Registration Statement on Form N-1A.
(2) Amendment to Amended and Restated Code of Regulations, dated
December 4, 1991, is incorporated by reference to Exhibit
2(b) of Post-Effective Amendment
<PAGE>
No. 8 (filed September 30, 1992) to Registrant's
Registration Statement on Form N-1A.
(c) RIGHTS OF SHAREHOLDERS
The following portions of Registrant's Declaration of Trust
incorporated as Exhibit (a) hereto, define the rights of
shareholders:
5.1 SHARES IN THE SERIES OF THE TRUST.
A. The Trustees shall have full power and authority, in
their sole discretion, without obtaining the prior approval
of the Shareholders (either with respect to the Trust as a
whole or with respect to any series of the Trust) by vote or
otherwise, to establish one or more series of Shares of the
Trust. The establishment of any such series shall be
effective upon the adoption by a majority of the Trustees
then in office of a resolution establishing such series and
setting the voting rights, preferences, designations,
conversion or other rights, restrictions, limitations as to
distributions, conditions of redemption, qualifications, or
other terms of the Shares of such series. The beneficial
interest in each series of the Trust shall at all times be
divided into full and fractional transferable Shares without
par value. There is no numerical limitation on the number of
Shares of a series that may be issued. The investment
objective, policies, and restrictions governing the
management and operations of each series of the Trust,
including the management of assets belonging to any
particular series, may from time to time be changed or
supplemented by the Trustees, subject to the requirements of
the Act. The Trustees may from time to time divide or
combine the outstanding Shares of any one or more series of
the Trust into a greater or lesser number without thereby
changing their proportionate beneficial interests in the
Trust assets allocated or belonging to such series.
Subject to the respective voting rights, preferences,
participating or other special rights and qualifications,
restrictions, and limitations expressly provided for in this
Declaration of Trust or the Code of Regulations with respect
to Shares of each series of the Trust, the Trustees have the
power to classify or reclassify Shares of any series of the
Trust into one or more classes by setting or changing in any
one or more respects, from time to time, the
-2-
<PAGE>
preferences, designations, conversion or other rights,
restrictions, limitations as to dividends, conditions of
redemption, qualifications, or other terms applicable to
Shares of such class. All references in this Declaration of
Trust to Shares of any series of the Trust shall include and
refer to the Shares of any class thereof.
B. Shares of each series of the Trust shall have the
following preferences, participating or other special
rights, qualifications, restrictions and limitations:
(1) ASSETS BELONGING TO A SERIES. All consideration
received by the Trust for the issue or sale of Shares of any
series, together with all assets in which such consideration
is invested or reinvested, including any proceeds derived
from the sale, exchange, or liquidation of such assets, and
any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall be referred
to as "assets belonging to" that series. In addition, any
assets, income,.earnings, profits or proceeds thereof, or
funds or payments which are not readily identifiable as
belonging to a particular series shall be allocated by the
Trustees to one or more series (such allocation to be
conclusive and binding upon the Shareholders of all series
for all purposes) in such manner as they, in their sole
discretion, deem fair and equitable, and shall also be
referred to as "assets belonging to" such series. Such
assets belonging to a particular series shall irrevocably
belong for all purposes to the Shares of the series, and
shall be so handled upon the books of account of the Trust.
Such assets and the income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale,
exchange, or liquidation thereof, and any funds or payments
derived from any reinvestment of such proceeds in whatever
form, are herein referred to as "assets belonging to" such a
series. Shareholders of any series shall have no right,
title or interest in or to the assets belonging to any other
series.
(2) LIABILITIES BELONGING TO A SERIES. The assets
belonging to any series of the Trust shall be charged with
the direct liabilities in respect of such series and with
all expenses, costs, charges, and reserves attributable to
such series, and shall also be charged with the share of
such series of the general liabilities, expenses, costs,
charges, and reserves of the Trust which are not readily
identifiable as belonging to a particular series in
proportion to the relative net assets of the respective
series, as determined at
-3-
<PAGE>
such time or times as may be authorized by the Trustees. Any
such determination by the Trustees shall be conclusive and
binding upon the Shareholders of all series for all
purposes; provided, however, that under no circumstances
shall the assets allocated or belonging to any series of the
Trust be charged with liabilities directly attributable to
any other series. The liabilities so charged to a series are
herein referred to as "liabilities belonging to" such
series. All persons who may have extended credit to a
particular series or who have contracts or claims with
respect to a particular series shall look only to the assets
of that particular series for payment of such contracts or
claims.
(3) LIQUIDATING DISTRIBUTIONS. In the event of the
termination of the Trust or a particular series thereof and
the winding up of its affairs, the Shareholders of the Trust
or such particular series shall be entitled to receive out
of the assets of the Trust or belonging to the particular
series, as the case may be, available for distribution to
Shareholders, but other than general assets not belonging to
any particular series of the Trust, the assets belonging to
such series; and the assets so distributable to the
Shareholders of any series shall be distributed among such
Shareholders in proportion to the number of Shares of such
series held by them and recorded in their names on the books
of the-Trust. In the event that there are any general assets
not belonging to any particular series of the Trust
available for distribution, such distribution shall be made
to the Shareholders of all series subject to such
termination and winding up in proportion to the relative net
assets of the respective series determined as hereinafter
provided and the number of Shares of such series held by
them and recorded in their names on the books of the Trust.
(4) DIVIDENDS AND DISTRIBUTIONS. Shares of each series
shall be entitled to such dividends and distributions in
Shares or in cash or both, as may be declared from time to
time by the Trustees, acting in their sole discretion, with
respect to such series, provided, however, that dividends
and distributions on Shares of a particular series shall be
paid only out of the lawfully available "assets belonging
to" such series as such term is defined in this Declaration
of Trust.
5.2 PURCHASE OF SHARES. The Trustees may accept investments in
each series of the Trust from such Persons for such consideration and
on such other terms as they may from time to time authorize. The Trust
may reject
-4-
<PAGE>
any order for, or refuse to give effect on the books of the Trust to
the transfer of, any Shares as permitted under the Act. Each such
investment shall be credited to the Shareholder's account in the form
of full and fractional Shares of the appropriate series of the Trust,
at the net asset value per Share next computed after receipt of the
investment.
5.3 NET ASSET VALUE PER SHARE. The net asset value per Share of
each series of the Trust shall be computed at such time or times as
the Trustees may specify pursuant to the Act. Assets shall be valued
and net asset value per Share shall be determined by such Person or
Persons as the Trustees may appoint under the supervision of the
Trustees in such manner not inconsistent with the Act and any orders
of the Securities and Exchange Commission received by the Trust, as
the Trustees may determine.
5.4 OWNERSHIP OF SHARES. The ownership of Shares shall be
recorded separately with respect to each series on the record books of
the Trust. Certificates for Shares shall be issued to holders of such
Shares only upon the authorization of the Trustees, in their
discretion, to issue such certificates, and shall be issued, if at
all, subject to such rules and regulations as the Trustees may
determine. The Trustees may make such rules as they consider
appropriate for the transfer of Shares and similar matters. The record
books of the Trust shall be conclusive as to the identity of holders
of Shares and as to the number of Shares of each series held by each
Shareholder.
5.5 PREEMPTIVE RIGHTS. Shareholders shall have no preemptive or
other rights to subscribe to any additional Shares or other securities
issued by the Trust or by the Trustees.
5.6 REDEMPTION OF SHARES. To the extent of the assets of the
Trust legally available for such redemption, a Shareholder of any
series of the Trust shall have the right, subject to the provisions of
Section 5.7 hereof, to require the Trust to redeem his full and
fractional Shares of any series out of assets belonging to such series
at a redemption price equal to the net asset value per Share next
determined after receipt of a request to redeem in proper form as
determined by the Trustees. The Trustees shall establish such rules
and procedures as they deem appropriate for redemption of Shares;
PROVIDED, HOWEVER, that all redemptions shall be in accordance with
the Act. Without limiting the generality of the foregoing, the Trust
shall, to the extent permitted by applicable law, have the right at
any time to redeem the Shares owned by any holder thereof (i) if the
value of such Shares in an account maintained by the Trust or its
transfer agent for any
-5-
<PAGE>
Shareholder with respect to any series of the Trust is less than the
amount specified by resolution of the Trustees; PROVIDED, HOWEVER,
that any such Shareholder shall be notified that the value of his
account is less than such amount, and shall be allowed such period of
time as specified by resolution of the Trustees to make additional
purchases of Shares of the appropriate series so that the value of his
account may be increased before any such involuntary redemption is
processed by the Trust; or (ii) if the net income with respect to any
particular series of the Trust should be negative or it should
otherwise be appropriate to carry out the Trust's responsibilities
under the Act, in each case subject to such further terms and
conditions as the Board of Trustees of the Trust may from time to time
adopt. The redemption price of Shares of any series of the Trust
shall, except as otherwise provided in this section, be the net asset
value thereof as determined by the Board of Trustees of the Trust from
time to time in accordance with the provisions of applicable law, less
such redemption fee or other charge, if any, as may be fixed by
resolution of the Board of Trustees of the Trust. When the net income
with respect to any particular series of the Trust is negative or
whenever deemed appropriate by the Board of Trustees of the Trust in
order to carry out the Trust's responsibilities under the Act, any
series of the Trust may, without payment of compensation but in
consideration of the interests of the Trust or a particular series
thereof and of the Shareholders of the Trust or of such series in
maintaining a constant net asset value per Share with respect to such
series, redeem pro rata from each holder of record on such day, such
number of full and fractional Shares of such series as may be
necessary to reduce the aggregate number of outstanding Shares of such
series in order to permit the net asset value thereof to remain
constant. Payment of the redemption price, if any, shall be made in
cash by the appropriate series of the Trust at such time and in such
manner as may be determined from time to time by the Board of Trustees
of the Trust unless, in the opinion of the Board of Trustees, which
shall be conclusive and binding upon the Shareholders for all
purposes, conditions exist which make payment wholly in cash unwise or
undesirable; in such event the appropriate series of the Trust may
make payment in the assets belonging or allocable to such series, the
value of which shall be determined as provided herein.
5.7 SUSPENSION OF RIGHT OF REDEMPTION. The Trustees may suspend
the right of redemption by Shareholders or postpone the date of
payment or the recordation of transfer of Shares of any series, as
permitted under the Act or applicable law. Such suspension or
postponement, shall take effect at such time as the Trustees shall
specify but not later than the close of business of the business day
following the declaration of suspension or
-6-
<PAGE>
postponement, and thereafter there shall be no right of redemption or
payment or transfer until the Trustees shall declare the suspension at
an end. In case of suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive
payment based on the net asset value existing after the termination of
the suspension.
5.8 CONVERSION RIGHTS. The Trustees shall have the authority to
provide from time to time that the holders of Shares of any series
shall have the right to convert or exchange said Shares for or into
Shares of one or more other series in accordance with such
requirements and procedures as may be established from time to time by
the Trustees.
8. SHAREHOLDER'S VOTING POWERS AND MEETINGS. Shareholders shall
have such power to vote as is provided in, and may hold meetings and
take actions pursuant to the provisions of this Declaration of Trust
or the Code of Regulations.
9.4 LIMITATION OF SHAREHOLDER LIABILITY. Shareholders shall not
be subject to any personal liability in connection with the assets of
the Trust for the acts or obligations of the Trust. The Trustees shall
have no power to bind any Shareholder personally or to call upon any
Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time,
personally agree to pay by way of subscription to any Share or
otherwise. Every obligation, contract, instrument, certificate, Share,
other security or undertaking of the Trust, and every other act
whatsoever executed in connection with the Trust shall be conclusively
presumed to have been executed or done by the executors thereof only
in their capacities as Trustees under this Declaration of Trust or in
their capacity as officers, employees, or agents of the Trust, and not
individually. Every note, bond, contract, order, or other undertaking
issued by or on behalf of the Trust or the Trustees relating to the
Trust or to any series of the Trust, and the stationery used by the
Trust, shall include a recitation limiting the obligation represented
thereby to the Trust and its assets (but the omission of such a
recitation shall not operate to bind any Shareholder), as follows:
"The names 'HighMark Funds' and 'Trustees of HighMark Funds' refer
respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under this
Declaration of Trust dated March 10, 1987 to which reference is hereby
made and a copy of which is on file at the office of the Secretary of
the Commonwealth of Massachusetts and elsewhere as required by law,
and to any and all amendments thereto so filed or hereafter filed. The
obligations
-7-
<PAGE>
of 'The Merus Group' entered into in the name or on behalf thereof by
any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of
the Trustees, Shareholders or representatives of the Trust personally,
but bind only the assets of the Trust, and all persons dealing with
any series of Shares of the Trust must look solely to the assets of
the Trust belonging to such series for the enforcement of any claims
against the Trust."
The rights accruing to a Shareholder under this Section 9.4 shall not
exclude any other right to which such Shareholder may be lawfully
entitled, nor shall anything herein contained restrict the right of
the Trust to indemnify or reimburse a Shareholder in any appropriate
situation even though not specifically provided for herein PROVIDED,
HOWEVER, that a Shareholder of any series of the Trust shall be
indemnified only from assets belonging to that series.
9.5 INDEMNIFICATION OF SHAREHOLDERS. In case any Shareholder or
former Shareholder shall be held to be personally liable solely by
reason of his being or having been a Shareholder and not because of
his acts or omissions or for some other reason, the Shareholder or
former Shareholder (or his heirs, executors, administrators, or other
legal representatives, or, in the case of a corporation or other
entity, its corporate or other general successor) shall be entitled
out of the Trust estate to be held harmless from and indemnified
against all loss and expense arising from such liability. The Trust
shall, upon request by the Shareholder, assume the defense of any
claim made against any Shareholder for any act or obligations of the
Trust, and shall satisfy any judgment thereon.
9.6 LIABILITIES OF A SERIES. Liabilities belonging to any series
of the Trust, including, without limitation, expenses, fees, charges,
taxes, and liabilities incurred or arising in connection with a
particular series, or in connection with the management thereof, shall
be paid only from the assets belonging to that series.
10.3 TERMINATION OF TRUST. This Trust shall continue without
limitation of time; PROVIDED, HOWEVER, that:
A. The Trustees, with the vote of a majority of the
outstanding Shares of any series of the Trust, may sell and
convey the assets belonging to such series to another I
trust or corporation organized under the laws of any state
of the United States, which is a management investment
company as defined in the Act, for an adequate consideration
which may include the assumption of all
-8-
<PAGE>
outstanding obligations, taxes, and other liabilities,
accrued or contingent, of the series and which may include
beneficial interests of such trust or stock of such
corporation. Upon making provision for the payment of all
such liabilities, by such assumption or otherwise, the
Trustees shall distribute the remaining proceeds ratably
among the holders of the Shares of the series then
outstanding.
B. The Trustees, with the vote of a majority, of the
outstanding Shares of any series of the Trust, may sell and
convert into money all the assets belonging to such series.
Upon making provision for the payment of all outstanding
obligations, taxes, and other liabilities, accrued or
contingent, of the series, the Trustees shall distribute the
remaining assets belonging to such series ratably among the
holders of the outstanding Shares of the series.
C. Without the vote of a majority of the outstanding Shares
of any series of the Trust (unless Shareholder approval is
otherwise required by applicable law), the Trustees may
combine the assets belonging to any two or more series into
a single series if the Trustees reasonably determine that
such combination will not have a material adverse effect
on the Shareholders of each series affected thereby.
D. After the effective date of the determination of the
Trustees under paragraph A or B above,
(1) The Trust shall carry on no business relating to the
assets of such series except for the purpose of winding
up the affairs of such series.
(2) The Trustees shall proceed to wind up the affairs of
such series and all of the powers of the Trustees under
this Declaration of Trust shall continue until the
affairs of such series shall have been wound up,
including the power to fulfill or discharge the
contracts of the Trust relating to such series, to
collect assets of such series, to sell, convey, assign,
exchange, transfer, or otherwise dispose of all or any
part of the remaining assets of such class to one or
more Persons at public or private sale for consideration
that may consist in whole or in part of cash,
securities, or other property of any kind, to discharge
or pay its liabilities, and
-9-
<PAGE>
to do all other acts appropriate to liquidate the
business of such series.
Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in
paragraphs A and B of this section, the Trustees may
authorize the termination of that series of the Trust.
Such termination shall be effective upon filing with the
State Secretary of the Commonwealth of Massachusetts of
an instrument setting forth such termination, at which
time the Trustees shall be discharged of any and all
further liabilities and duties hereunder relating to
such series and the right, title and interest of all
parties shall be cancelled and discharged with respect
to such series. Such instrument shall constitute an
amendment to this Declaration of Trust when filed with
the State Secretary of the Commonwealth of Massachusetts
as provided in this Title X.
10.8 AMENDMENT PROCEDURE.
A. Subject to the provisions of subsections B and C of this
Section 10.8, this Declaration of Trust may be amended by the
affirmative vote of the holders of not less than a majority of
the outstanding Shares (except that an amendment which shall
affect the holders of one or more series of Shares but not the
holders of all outstanding series shall be authorized by vote
of the Shareholders holding a majority of the Shares entitled
to vote of each series affected and no vote of Shareholders of
a series not affected shall be required) or by any larger vote
as may be required by any provisions of applicable law.
B. Notwithstanding any other provisions hereof, until such
time as a Registration Statement under the Securities Act of
1933, as amended, covering the first public offering of
securities of the Trust shall have become effective, this
Declaration of Trust may be terminated or amended in any
respect by the affirmative vote of a majority of the Trustees.
C. The Trustees may also amend this Declaration without the
vote of Shareholders to cure any error or ambiguity or to
change the name of the Trust or, if they . deem it necessary,
to conform this Declaration of Trust to the requirements of
applicable state or federal laws or . regulations or the
requirements of the regulated
-10-
<PAGE>
investment company provisions of the Internal Revenue Code of
1986, but the Trustees shall not be liable for failing to do
so.
The following portions of Registrant's Code of Regulations
incorporated as Exhibit (b) hereto, define the rights of
shareholders:
1.1 VOTING POWERS. The Shareholders shall have power to vote
(a) for the election of Trustees as provided in Section 6.2
and Section 6.5 of the Declaration of Trust; (b) with respect
to any amendment of the Declaration of Trust to the extent and
as provided in Section 10.8 of the Declaration of Trust; (c)
with respect to any restrictions, or amendments thereto, upon
the investment of the assets of the Trust to the extent and as
provided in Article V of these Regulations; (d) with respect
to the approval of investment advisory agreements (as provided
in Section 7.1 of the Declaration of Trust), and with respect
to distribution agreements entered into on behalf of the Trust
or one or more series thereof, to the extent required by the
Investment Company Act of 1940; (e) with respect to matters
relating to any termination of the Trust or to incorporation
to the extent and as provided in Section 10.3 and Section
10.4, respectively, of the Declaration of Trust; (f) with
respect to such additional matters relating to the Trust as
may be required by law, the Declaration of Trust, these
Regulations, or by any requirements applicable to or agreement
of the Trust, or as the Trustees may consider desirable; and
(g) to the same extent as the stockholders of a Massachusetts
business corporation, when considering whether a court action,
proceeding, or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the
Trust or the Shareholders; PROVIDED, HOWEVER, that no
Shareholder of a particular series shall be entitled to bring,
or to vote in respect of, any class or derivative action not
on behalf of the series of the Trust in respect of which the
Shareholder owns Shares. Each whole Share shall be entitled to
one vote as to any matter on which it is entitled to vote and
each fractional Share shall be entitled to a proportionate
fractional vote. There shall be no cumulative voting. Shares
may be voted in person or by proxy. The authorization for a
proxy to act may be obtained by written authorization or by
telephone, facsimile or alternative transmission, provided
that such telephone or facsimile transmission is performed in
accordance with Telephonic and Facsimile Voting Procedures
adopted by the Board of Trustees. On any matter submitted to a
vote of the
-11-
<PAGE>
Shareholders, all Shares shall be voted in the aggregate and
not by individual series, except (i) where required law,
Shares shall be voted by individual series, and (ii) if the
Trustees shall have determined that a matter affects the
interests only of one or more series, then only the
Shareholders of such affected series shall be entitled to vote
thereon. Until Shares are issued, the Trustees may exercise
all rights of Shareholders and may take any action required or
permitted by law, the Declaration of Trust, or these
Regulations to be taken by Shareholders.
1.2 MEETINGS. Meetings of Shareholders of the Trust may be
called by the Trustees, and shall be called by the Trustees
whenever required by law or upon the written request of
holders of at least twenty percent of all the outstanding
Shares entitled to vote.
1.3 QUORUM AND REQUIRED VOTE. At any meeting of the
Shareholders, a quorum for the transaction of business shall
consist of a majority represented in person or by proxy of the
outstanding Shares (without regard to individual series)
entitled to vote with respect to a matter; PROVIDED, HOWEVER,
that at any meeting at which the only actions to be taken are
actions required by law, to be taken by vote of the
Shareholders of an individual series, a quorum shall consist
of a majority of the outstanding Shares of such individual
series entitled to vote thereon, and that at any meeting at
which the only actions to be taken shall have been determined
by the Board of Trustees to affect the rights and interests of
one or more but not all series of the Trust, a quorum shall
consist of a majority of the outstanding Shares of the series
so affected; and PROVIDED, FURTHER, that any reasonable
adjournments of such meeting until a quorum is obtained may be
made by a vote of the Shares present in person or by proxy. A
majority of the votes shall decide any question and a
plurality shall elect a Trustee, subject to any applicable
requirements of law or of the Declaration of Trust or these
Regulations; PROVIDED, HOWEVER, that when any provision of law
or of the Declaration of Trust or these Regulations requires
the holders of Shares of any particular series to vote by
series and not in the aggregate with respect to a matter, then
a majority of the outstanding Shares of that series shall
decide such matter insofar as that particular series shall be
concerned. As used in these Regulations, the term "vote of a
majority of the outstanding Shares" (the 67% or 50%
requirement of the third sentence of Section 2(a)(42) of the
Investment Company Act of
-12-
<PAGE>
1940) shall have the same meaning given such term in the
Investment Company Act of 1940; PROVIDED, HOWEVER, that such
term may be used herein with respect to Shares of the Trust as
a whole, or with respect to Shares of a particular series of
the Trust, as the context may require.
1.4 NOTICE. Written notice, stating the place, day, and hour
of each meeting of Shareholders and the general nature of the
business to be transacted, shall be given by, or at the
direction of, the person calling the meeting to each
Shareholder of record entitled to vote at the meeting at least
ten days prior to the day named for the meeting, unless in a
particular case a longer period of notice is required by law.
Any adjournments of a meeting of Shareholders may be held,
within a reasonable time after the date set for the original
meeting, without the necessity of further notice.
1.5 SHAREHOLDERS' LIST. The officer or agent having charge of
the transfer books for Shares of the Trust shall make, at
least five days before each meeting of Shareholders, a
complete list of the Shareholders entitled to vote at the
meeting, arranged in alphabetical order with the address of
and the number of Shares held by each such Shareholder. The
list shall be kept on file at the office of the Trust and
shall be subject to inspection by any Shareholders at any time
during usual business hours, and shall also be produced and
kept open at the time and place of each meeting of
Shareholders and shall be subject to the inspection of any
Shareholder during each meeting of Shareholders.
1.6 RECORD DATE. The Trustees may fix a time (during which
they may close the Share transfer books of the Trust) not more
than ninety (90) days prior to the date of any meeting of
Shareholders as a record date for the determination of the
Shareholders entitled to notice of, or to vote at, any such
meeting; only such Shareholders as shall be Shareholders of
record at the close of business on the date so fixed shall be
entitled to notice of, or to vote at, such meeting,
notwithstanding any transfer of any Shares on the books of the
Trust after any record date fixed, as aforesaid. The Trustees
may also fix a time (during which they may close the Share
transfer books of the Trust) not more than fifty (50) days
prior to the payment of any dividend, or the date of the
allotment of rights or the date when any change or conversion
or exchange of Shares shall go into effect, as a record date
for the determination of the Shareholders entitled to receive
payment of any such dividend, or
-13-
<PAGE>
to receive any such allotment of rights, or to exercise such
rights, as the case may be; only such Shareholders as shall be
Shareholders of record at the close of business on the date so
fixed shall be entitled to receive payment of such dividend,
or to receive such allotment of rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of
any Shares on the books of the Trust after any record date
fixed, as aforesaid.
1.7 SHAREHOLDER ACTION BY WRITTEN CONSENT. Any action taken by
Shareholders may be taken without a meeting if a majority of
Shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express
provision of law or the Declaration of Trust or these
Regulations) consent to the action in writing and such written
consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes
as a vote taken at a meeting of Shareholders.
3.1 FORM. Notices to Shareholders shall be in writing and
delivered personally or mailed to the Shareholders at their
addresses appearing on the books of the Trust. Notices to
Trustees shall be oral or by telephone or telegram or in
writing delivered personally or mailed to the trustees at
their addresses appearing on the books of the Trust. Oral
notice shall be deemed to be given when given directly to the
person required to be notified and notice by mail shall be
deemed to be given when deposited in the United States mail or
with a telegraph office or courier service for transmission.
Notices to Trustees need not state the purpose of a Regular or
Special Meeting.
3.2 WAIVER. Whenever any notice of the time, place, or purpose
of any meeting of Shareholders, Trustees, or committee is
required to be given under the provisions of Massachusetts law
or under the provisions of the Declaration of Trust or these
Regulations, a wavier thereof in writing, signed by the person
or persons entitled to such notice and filed with the records
of the meeting, whether before or after the holding thereof,
or actual attendance at the meeting of Shareholders in person
or by proxy, or at the meeting of Trustees or committee in
person, shall be deemed equivalent to the giving of such
notice to such persons.
(d) (1) Investment Advisory Agreement between Registrant
and HighMark Capital Management, Inc., dated as of
-14-
<PAGE>
September 1, 1998 (the "Investment Advisory
Agreement"), is incorporated by reference to
Exhibit 5(a) of Post-Effective Amendment No. 25
(filed November 30, 1998) to Registrant's
Registration Statement on Form N-1A.
(2) Investment Sub-Advisory Agreement between HighMark
Capital Management, Inc. and Bank of
Tokyo-Mitsubishi Trust Company, dated as of
September 1, 1998 (the "BOTM Sub-Advisory
Agreement") is incorporated by reference to
Exhibit 5(b) of Post-Effective Amendment No. 25
(filed November 30, 1998) to Registrant's
Registration Statement on Form N-1A.
(3) Investment Sub-Advisory Agreement between HighMark
Capital Management, Inc. and AXA Asset Management
Partenaires dated as of September 1, 1998 (the
"AXA Sub-Advisory Agreement") is incorporated by
reference to Exhibit 5(c) of Post-Effective
Amendment No. 25 (filed November 30, 1998) to
Registrant's Registration Statement on Form N-1A.
(4) Investment Sub-Advisory Agreement between HighMark
Capital Management, Inc. and Brandes Investment
Partners, L.P. (the "Brandes Sub-Advisory
Agreement") dated as of September 1, 1998 is
incorporated by reference to Exhibit 5(d) of
Post-Effective Amendment No. 25 (filed November
30, 1998) to Registrant's Registration Statement
on Form N-1A.
(e) (1) Distribution Agreement between the Registrant and
SEI Financial Services Company is incorporated by
reference to Exhibit 6 of Post-Effective Amendment
No. 20 (filed February 25, 1997) to Registrant's
Registration Statement on Form N-1A.
(2) Form of Distribution and Service Agreement for
Class B Shares between Registrant and SEI
Investments Distribution Co. incorporated by
reference to Exhibit (6)(b) of Post-Effective
Amendment No. 22 (filed June 18, 1997) to
Registrant's Registration Statement on Form N-1A.
(f) None.
-15-
<PAGE>
(g) (1) Custodian Agreement between Registrant and The
Bank of California, N.A., dated as of December 23,
1991, as amended as of September 15, 1992 (the
"Custodian Agreement"), is incorporated by
reference to Exhibit 8 of Post-Effective Amendment
No. 8 (filed September 30, 1992) to Registrant's
Registration Statement on Form N-1A.
(2) Amended and Restated Schedule A to the Custodian
Agreement is incorporated by reference to Exhibit
(8)(b) of Post-Effective Amendment No. 22 (filed
June 18, 1997) to Registrant's Registration
Statement on Form N-1A.
(3) Form of Amended and Restated Schedule B to the
Custodian Agreement is incorporated by reference
to Exhibit (8)(c) of Post-Effective Amendment No.
22 (filed June 18, 1997) to Registrant's
Registration Statement on Form N-1A.
(4) Form of Securities Lending and Reverse Repurchase
Agreement Services Client Addendum to Custodian
Agreement is incorporated by reference to Exhibit
(8)(d) of Post-Effective Amendment No. 22 (filed
June 18, 1997) to Registrant's Registration
Statement on Form N-1A.
(h) (1) Administration Agreement between Registrant
and SEI Fund Resources incorporated by reference
to Exhibit 9(a) of Post-Effective Amendment No. 20
(filed February 25, 1997) to Registrant's
Registration Statement on Form N-1A.
(2) Form of Sub-Administration Agreement between SEI
Fund Resources and Union Bank of California, N.A.
is incorporated by reference to Exhibit 9(e) of
Post-Effective Amendment No. 19 (filed December
13, 1996) to Registrant's Registration Statement
on Form N-1A.
(3) Transfer Agency and Service Agreement between the
Registrant and State Street Bank and Trust Company
is incorporated by reference to Exhibit 9(c) of
Post-Effective Amendment No. 20 (filed February
25, 1997) to Registrant's Registration Statement
on Form N-1A.
-16-
<PAGE>
(4) Form of Shareholder Service Provider Agreement for
the Registrant is incorporated by reference to
Exhibit 9(n) of Post-Effective Amendment No. 19
(filed December 13, 1996) to Registrant's
Registration Statement on Form N-1A.
(5) Form of Shareholder Service Plan for the
Registrant is incorporated by reference to Exhibit
9(q) of Post-Effective Amendment No. 19 (filed
December 13, 1996) to Registrant's Registration
Statement on Form N-1A.
(6) Form of Shareholder Service Plan for Class B for
the Registrant is incorporated by reference to
Exhibit (9)(f) of Post-Effective Amendment No. 22
(filed June 18, 1997) to Registrant's Registration
Statement on Form N-1A.
(7) Shareholder Servicing Agreement between the
California Department of Personnel, HighMark
Capital Management, Inc. and Registrant with
respect to the Class I Shares is incorporated by
reference to Exhibit (h)(7) of Post-Effective
Amendment No. 28 (filed November23, 1999) to
Registrant's Registration Statement on Form N-1A.
(i) Opinion and Consent of Counsel as to legality of
shares being registered is filed herewith.
(j) (1) Consent of Ropes & Gray, is filed herewith.
(2) Consent of Deloitte & Touche LLP is filed
herewith.
(k) None.
(l) None.
(m) (1) Restated Shareholder Services Plan with respect to
the Fiduciary Shares is incorporated by reference
to Exhibit 15(a) of Post-Effective Amendment No.
25 (filed November 30, 1998) to Registrant's
Registration Statement on Form N-1A.
(2) Restated Distribution and Shareholder Services
Plan with respect to the Class A Shares is
incorporated by reference to Exhibit 15(b) of
Post-Effective Amendment No. 25 (filed
-17-
<PAGE>
November 30, 1998) to Registrant's Registration
Statement on Form N-1A.
(3) Form of Distribution and Shareholder Services Plan
relating to the Class B Shares of the Income Funds
and the Equity Funds is incorporated by reference
to Exhibit (15)(f) of Post-Effective Amendment No.
22 (filed June 18, 1997) to Registrant's
Registration Statement on Form N-1A.
(4) Distribution Plan with respect to the Class C
Shares is incorporated by reference to Exhibit
(m)(4) of Post-Effective Amendment No. 28 (filed
September 20, 1999) to Registrant's Registration
Statement on Form N-1A.
(5) Distribution Plan with respect to the Class S
Shares is incorporated by reference to Exhibit
(m)(5) of Post-Effective Amendment No. 28 (filed
September 20, 1999) to Registrant's Registration
Statement on Form N-1A.
(n) Amended Multiple Class Plan for HighMark Funds
adopted by the Board of Trustees on September 17,
1999 is incorporated by reference to Exhibit (n)
of Post-Effective Amendment No. 28 (filed
September 20, 1999) to Registrant's Registration
Statement on Form N-1A.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
As of the effective date of this Registration Statement, there are no
persons controlled by or under common control with the Registrant.
ITEM 25. INDEMNIFICATION
Article IX, Section 9.2 of the Registrant's Declaration of Trust,
filed or incorporated by reference as Exhibit (1) hereto, provides for
the indemnification of Registrant's trustees and officers.
Indemnification of the Registrant's principal underwriter, custodian,
investment adviser, administrator, transfer agent, and fund accountant
is provided for, respectively, in Section 6 of the Distribution
Agreement, filed or incorporated by reference as Exhibit 6(a) hereto,
Section 16 of the Custodian Agreement, filed or incorporated by
reference as Exhibit 8 hereto, Section 8 of the Investment Advisory
Agreement, filed or incorporated by reference as Exhibit 5 hereto,
Section 5 of the Administration Agreement, filed or incorporated by
reference as Exhibit 9(a) hereto, Section 6 of the Transfer Agency and
Service Agreement, filed or incorporated by reference as Exhibit 9 (c)
hereto,
-18-
<PAGE>
and Section 7 of the Fund Accounting Agreement, filed or incorporated
by reference as Exhibit 9(e) hereto. Registrant has obtained from a
major insurance carrier a trustees and officers' liability policy
covering certain types of errors and omissions. In no event will
Registrant indemnify any of its trustees, officers, employees or
agents against any liability to which such person would otherwise be
subject by reason of his willful misfeasance, bad faith, or gross
negligence in the performance of his duties, or by reason of his
reckless disregard of the duties involved in the conduct of his office
or under his agreement with Registrant. Registrant will comply with
Rule 484 under the Securities Act of 1933 and Release 11330 under the
Investment Company Act of 1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers, and controlling
persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of
Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling
person in connection with the securities being registered, Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
HighMark Capital Management, Inc. (the "Adviser") performs investment
advisory services for Registrant. The Adviser offers a wide range of
investment management services to its clients in California, Oregon,
and Washington and around the world. The Adviser is a subsidiary of
UnionBanCal Corporation, a publicly traded corporation, a majority of
the shares of which are owned by the Bank of Tokyo-Mitsubishi,
Limited.
To the knowledge of Registrant, none of the directors or officers of
the Adviser, except those set forth below, is or has been at any time
during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature, except
that certain directors and officers of the Adviser also hold positions
with UnionBanCal Corporation, the Bank of Tokyo-Mitsubishi and/or the
Bank of Tokyo-Mitsubishi's other subsidiaries.
-19-
<PAGE>
Listed below are the directors and certain principal executive
officers of the Adviser, their principal occupations and, for the
prior two fiscal years, any other business, profession, vocation, or
employment of a substantial nature engaged in by such directors and
officers:
<TABLE>
<CAPTION>
Position with Type of
the Adviser Name Principal Occupation Business
- ------------- ---- -------------------- ---------
<S> <C> <C> <C>
Director, Chairman of the Pieter Westerbeek III Executive Vice President Banking
Board Community
Banking/Institutional Services Group
Union Bank of California
445 S. Figueroa Street
Los Angeles, CA 90071
Director, President and Chief Clark R. Gates President and CEO Investment
Executive Officer HighMark Capital Management Management
475 Sansome Street
San Francisco, CA 94104
Director Susumu Hanada Deputy Group Head Banking
Trust & Private Financial Services Group
Union Bank of California
475 Sansome Street
San Francisco, CA 94104
Director Tsutomu Nakagawa Executive Vice President and Manager, Banking
Office of the President
Union Bank of California
400 California Street
San Francisco, CA 94104
Director Richard C. Hartnack Vice Chairman Banking
Union Bank of California
445 S. Figueroa Street
Los Angeles, CA 90071
Director Honoria F. Vivell Exeuctive Vice President Banking
Community Banking Group
Union Bank of California
445 S. Figueroa Street
Los Angeles, CA 90071
Senior Vice President of Sales Jeffrey L. Boyle Senior Vice President Banking
Community Banking Group
Union Bank of California
475 Sansome Street
San Francisco, CA 94111
</TABLE>
-20-
<PAGE>
<TABLE>
Position with Type of
the Adviser Name Principal Occupation Business
- ------------- ---- -------------------- ---------
<S> <C> <C> <C>
Secretary John J. King Vice President and Associate General Banking
Counsel
Union Bank of California
400 California Street
San Francisco, CA 94104
Assistant Treasurer David A. Anderson Senior Vice President Banking
Administration & Support Group
Union Bank of California
400 California Street
San Francisco, CA 94104
Assistant Treasurer Kristin Friedman Vice President Banking
Administration & Support Group
Union Bank of California
400 California Street
San Francisco, CA 94104
Compliance Officer and Monica Poon c/o HighMark Capital Management Investment
Assistant Secretary 475 Sansome Street Management
San Francisco, CA 94111
Managing Director, Chief Luke C. Mazur c/o HighMark Capital Management Investment
Investment Officer 475 Sansome Street Management
San Francisco, CA 94104
Managing Director, Mutual R. Gregory Knopf c/o HighMark Capital Management Investment
Funds
445 S. Figueroa Street Management
Los Angeles, CA 90071
Managing Director, Chief Kevin A. Rogers c/o HighMark Capital Management Investment
Financial Officer 18300 Von Karman Avenue Management
Irvine, CA 92715
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITER
Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently
distributing securities of the Registrant also acts as a principal
underwriter, distributor or investment adviser.
-21-
<PAGE>
Registrant's distributor, SEI Investments Distribution Co. acts as
distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 10, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds (R) June 1, 1993
The PBHG Funds, Inc. July 16, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
Monitor Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
ARMADA Funds March 8, 1997
PBHG Insurance Series Fund, Inc. April 1, 1999
The Expedition Funds June 9, 1999
Alpha Select January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Funds, Inc. June 29, 1998
The Parkstone Group of Funds September 14, 1998
CNJ Chester Funds April 1, 1999
The Parkstone Advantage Funds May 1, 1999
Amerindo Funds, Inc. July 13, 1999
The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These
services include portfolio evaluation, performance measurement and
consulting services ("Funds
-22-
<PAGE>
Evaluation") and automated execution, clearing and settlement of
securities transactions ("MarketLink").
Furnish the information required by the following table with respect
to each director, officer or partner of each principal underwriter
named in the answer to Item 20 of Part B. Unless otherwise noted, the
principal business address of each director or officer is 1 Freedom
Valley Drive, Oaks, PA 19456.
-23-
<PAGE>
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name With Underwriter With Registrant
---- ------------------- ----------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board --
Carmen V. Romeo Director --
Mark J. Held President: Chief Operating Officer --
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Director: Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Kevin P. Robins Senior Vice President, Vice President,
General Counsel & Assistant Secretary
Secretary
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President and Assistant Vice President,
Secretary Assistant Secretary
S. Courtney Collier Vice President and Assistant Vice President,
Secretary Assistant Secretary
Robert Crudup Vice President and Managing --
Director
Richard A. Deak Vice President and Assistant Vice President,
Secretary Assistant Secretary
Barbara Doyne Vice President --
Jeff Drennen Vice President --
James R. Foggo Vice President and Assistant Vice President,
Secretary Assistant Secretary
Vic Galef Vice President and Managing --
Director
Lydia A. Gavalis Vice President & Assistant Vice President,
Secretary Assistant Secretary
Greg Gettinger Vice President & Assistant --
Secretary
Kathy Heilig Vice President --
Jeff Jacobs Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing
Director --
John Krzeminski Vice President & Managing --
Director
Carolyn McLaurin Vice President & Managing --
Director
Mark Nagle Vice President President
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name With Underwriter With Registrant
---- ------------------- ----------------------
<S> <C> <C>
Joanne Nelson Vice President --
Cynthia M. Parrish Vice President & Assistant Secretary --
Kim Rainey Vice President --
Rob Redican Vice President --
Maria Rinehart Vice President --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant --
Secretary
Lynda J. Striegel Vice President & Assistant Vice President,
Secretary Secretary
Lori L. White Vice President & Assistant --
Secretary
Wayne M. Withrow Vice President & Managing Director --
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
(1) HighMark Capital Management, Inc., 475 Sansome Street, San
Francisco, CA 94104 (records relating to its function as
investment adviser).
(2) Union Bank of California, N.A., 400 California Street, San
Francisco, CA 94104 (records relating to its functions as
custodian, sub-administrator and sub-transfer agent).
(3) SEI Investments Mutual Funds Services, Oaks, Pennsylvania
19456 (records relating to its functions as administrator).
(4) SEI Investments Distribution Co. (formerly SEI Financial
Services Company), Oaks, Pennsylvania 19456 (records
relating to its function as distributor).
(5) State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 (records relating to its
functions as transfer agent).
(6) Ropes & Gray, One Franklin Square, 1301 K Street, N.W.,
Suite 800 East, Washington, DC 20005 (the Registrant's
Declaration of Trust, Code of Regulations and Minute Books).
ITEM 29. MANAGEMENT SERVICES
None.
-25-
<PAGE>
ITEM 30. UNDERTAKINGS
Registrant hereby undertakes to call a meeting of the shareholders for
the purpose of voting upon the question of removal of one or more
trustees when requested to do so by the holders of at least 10% of the
outstanding shares of Registrant and to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940 relating to
shareholder communication.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
-26-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 29 to this Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Washington, D.C., on the 28th day of January, 2000.
HighMark Funds
By: */s/Mark E. Nagle
---------------------------
Mark E. Nagle
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 29 has been signed below by the following persons
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- -----
<S> <C> <C>
*/s/Mark E. Nagle President and January 28, 2000
- --------------------------- Chief Executive Officer
Mark E. Nagle
*/s/Robert DellaCroce Comptroller and Chief January 28, 2000
- --------------------------- Financial Officer
Robert DellaCroce
*/s/Thomas L. Braje Trustee January 28, 2000
- ---------------------------
Thomas L. Braje
*/s/David A. Goldfarb Trustee January 28, 2000
- ---------------------------
David A. Goldfarb
*/s/Joseph C. Jaeger Trustee January 28, 2000
- ---------------------------
Joseph C. Jaeger
*/s/Frederick J. Long Trustee January 28, 2000
- ---------------------------
Frederick J. Long
*/s/Michael L. Noel Trustee January 28, 2000
- ---------------------------
Michael L. Noel
*/s/Robert M. Whitler Trustee January 28, 2000
- ---------------------------
Robert M. Whitler
*By: *Martin E. Lybecker
---------------------------
Martin E. Lybecker
Attorney-In-Fact, pursuant to powers
of attorney filed herewith.
</TABLE>
-27-
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Trustee of the HighMark Funds, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest and Alyssa Albertelli
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments that said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable HighMark Funds to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of
the Securities and Exchange Commission in respect thereof, and in connection
with the filing and effectiveness of any registration statement or statement of
HighMark Funds pursuant to said Acts and any and all amendments thereto
(including post-effective amendments), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a Trustee of HighMark Funds any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
Signature Title Date
- --------- ----- ----
/s/ Mark E. Nagle President October 10, 1998
- ------------------------
Mark E. Nagle
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Trustee of the HighMark Funds, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest and Alyssa Albertelli
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments that said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable HighMark Funds to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of
the Securities and Exchange Commission in respect thereof, and in connection
with the filing and effectiveness of any registration statement or statement of
HighMark Funds pursuant to said Acts and any and all amendments thereto
(including post-effective amendments), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a Trustee of HighMark Funds any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
Signature Title Date
- --------- ----- ----
/s/ Robert J. DellaCroce Treasurer and October 10, 1998
- -------------------------- Chief Financial Officer
Robert J. DellaCroce
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Trustee of the HighMark Funds, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest and Alyssa Albertelli
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments that said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable HighMark Funds to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of
the Securities and Exchange Commission in respect thereof, and in connection
with the filing and effectiveness of any registration statement or statement of
HighMark Funds pursuant to said Acts and any and all amendments thereto
(including post-effective amendments), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a Trustee of HighMark Funds any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
Signature Title Date
- --------- ----- ----
/s/ Thomas L. Braje Trustee
- --------------------------
Thomas L. Braje
/s/ David A. Goldfarb Trustee
- --------------------------
David A. Goldfarb
/s/ William R. Howell Trustee
- --------------------------
William R. Howell
/s/ Joseph C. Jaeger Trustee
- --------------------------
Joseph C. Jaeger
/s/ Frederick J. Long Trustee
- --------------------------
Frederick J. Long
/s/ Paul L. Smith Trustee
- --------------------------
Paul L. Smith
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Trustee of the HighMark Funds, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest and Alyssa Albertelli
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments that said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable HighMark Funds to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of
the Securities and Exchange Commission in respect thereof, and in connection
with the filing and effectiveness of any registration statement or statement of
HighMark Funds pursuant to said Acts and any and all amendments thereto
(including post-effective amendments), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a Trustee of HighMark Funds any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
Signature Title Date
- --------- ----- ----
/s/ Michael L. Noel Trustee September 9, 1999
- ---------------------------------
Michael L. Noel
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Trustee of the HighMark Funds, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest and Alyssa Albertelli
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments that said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable HighMark Funds to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of
the Securities and Exchange Commission in respect thereof, and in connection
with the filing and effectiveness of any registration statement or statement of
HighMark Funds pursuant to said Acts and any and all amendments thereto
(including post-effective amendments), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a Trustee of HighMark Funds any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
Signature Title Date
- --------- ----- ----
/s/ Robert M. Whitler Trustee September 9, 1999
- ------------------------------
Robert M. Whitler
<PAGE>
Exhibit Index
Exhibit No. Description Page
- ----------- ----------- ----
99(i) Opinion and Consent of Counsel as to legality
of shares being registered.
99(j)(1) Consent of Ropes & Gray.
99(j)(2) Consent of Deloitte & Touche LLP.
<PAGE>
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
(202) 626-3900
Fax: (202) 626-3961
WRITER'S DIRECT DIAL NUMBER: (202) 626-3907
January 28, 2000
HighMark Funds
Oaks, Pennsylvania 19456
Ladies and Gentlemen:
You have registered under the Securities Act of 1933, as amended (the
"1933 Act") an indefinite number of shares of beneficial interest ("Shares") of
the HighMark Funds ("Trust"), as permitted by Rule 24f-2 under the Investment
Company Act of 1940, as amended (the "1940 Act"). You propose to file a
post-effective amendment on Form N-1A (the "Post-Effective Amendment") to your
Registration Statement as required by Section 10(a)(3) in order to update
certain financial information and file the annual amendment required by the 1940
Act.
We have examined your Agreement and Declaration of Trust on file in the
office of the Secretary of The Commonwealth of Massachusetts and the Clerk of
the City of Boston. We have also examined a copy of your Bylaws and such other
documents, receipts and records as we have deemed necessary for the purpose of
this opinion.
Based upon the foregoing, we are of the opinion that the issue and sale
of the authorized but unissued Shares of the Series have been duly authorized
under Massachusetts law. Upon the original issue and sale of your authorized but
unissued Shares and upon receipt of the authorized consideration therefor in an
amount not less than the net asset value of the Shares established and in force
at the time of their sale, the Shares issued will be validly issued, fully paid
and non-assessable.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust
<PAGE>
HighMark Funds
January 28, 2000
Page 2
provides for indemnification out of the property of a particular series of
Shares for all loss and expenses of any shareholder of that series held
personally liable solely by reason of his being or having been a shareholder.
Thus, the risk of shareholder liability is limited to circumstances in which
that series of Shares itself would be unable to meet its obligations.
We understand that this opinion is to be used in connection with the
filing of the Post-Effective Amendment. We consent to the filing of this opinion
with and as part of your Post-Effective Amendment.
Sincerely,
/s/Ropes & Gray
Ropes & Gray
<PAGE>
CONSENT OF COUNSEL
We hereby consent to the use of our name and the references to our firm
under the caption "Legal Counsel" included in or made a part of Post-Effective
Amendment No. 29 to the Registration Statement (Nos. 33-12608 and 811-5059) of
HighMark Funds on Form N-1A under the Securities Act of 1933, as amended.
/s/Ropes & Gray
Ropes & Gray
Washington, D.C.
January 28, 2000
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 29 to Registration
Statement under the Securities Act of 1933, filed under Registration
Statement No. 033-12608 of our report dated September 10, 1999, relating to
HighMark Funds, including Growth Fund, Value Momentum Fund, Income Equity
Fund, Balanced Fund, Emerging Growth Fund, Small Cap Value Fund,
International Equity Fund, California Intermediate Tax-Free Bond Fund, Bond
Fund, Intermediate-Term Bond Fund, 100% U.S. Treasury Money Market Fund, U.S.
Government Money Market Fund, Diversified Money Market Fund, and California
Tax-Free Money Market Fund, incorporated by reference in the Statement of
Additional Information and to the reference to us under the caption
"Auditors" in the Statement of Additional Information, which is part of such
Registration Statement.
DELOITTE & TOUCHE LLP
San Francisco, California
January 26, 2000
