<PAGE>
IMPORTANT SHAREHOLDER INFORMATION
HIGHMARK FUNDS
The document you hold in your hands contains your combined registration
statement/proxy statement and proxy card. A proxy card is, in essence, a ballot.
When you vote your proxy, it tells us how to vote on your behalf on important
issues relating to your Fund. The proxy card may be completed by checking the
appropriate box voting for or against the specific proposals relating to your
Fund. If you simply sign the proxy without specifying a vote, your shares will
be voted in accordance with the recommendations of the Board of Trustees of
HighMark Funds.
We urge you to take the time to read the proxy statement, fill out the proxy
card, and return it to us. Voting your proxy, and doing so promptly, ensures
that the Fund will not need to conduct additional mailings. When shareholders do
not return their proxies in sufficient numbers, we will incur the expense of
follow-up solicitations.
Please take a few moments to exercise your right to vote. Thank you.
<PAGE>
HIGHMARK FUNDS
1 Freedom Valley Drive
Oaks, PA 19456
April 26, 2000
To the Shareholders of the HighMark Intermediate-Term Bond Fund:
Enclosed you will find several documents being furnished to you in
connection with a special meeting of the shareholders of HighMark Funds to be
held on May 26, 2000, at SEI Investments Mutual Fund Services, 1 Freedom Valley
Drive, Oaks, Pennsylvania. We hope this material will receive your immediate
attention and that, if you cannot attend the meeting in person, you will vote
your proxy promptly.
The Board of Trustees of HighMark Funds is recommending that shareholders of
the HighMark Intermediate-Term Bond Fund ("Intermediate-Term Bond Fund" or the
"Consolidating Fund") approve a reorganization in which the Fund will transfer
all of its assets to the HighMark Bond Fund ("Bond Fund" or the "Consolidated
Fund") in return for Class A or Fiduciary Shares ("collectively, "Shares") of
the Bond Fund and the assumption by the Bond Fund of all of the liabilities of
the Intermediate-Term Bond Fund. After the transfer, Shares of the Bond Fund
will be distributed to the Intermediate-Term Bond Fund's shareholders tax-free
in liquidation of the Intermediate-Term Bond Fund. As a result of these
transactions, your Shares of the Intermediate-Term Bond Fund would, in effect,
be exchanged at net asset value and on a tax-free basis for corresponding Shares
of the Bond Fund.
HighMark Capital Management, Inc. has advised the Board of Trustees of
HighMark Funds that it believes that the above-described transactions regarding
the Intermediate-Term Bond Fund offer the shareholders of the Fund an
opportunity to pursue similar investment objectives more effectively and with
resulting economies of scale and potentially lower expense ratios over time.
THE BOARD OF TRUSTEES OF HIGHMARK FUNDS BELIEVES THAT THE PROPOSED
COMBINATION OF THE INTERMEDIATE-TERM BOND FUND WITH THE BOND FUND IS IN THE BEST
INTERESTS OF THE FUND AND ITS SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE IN FAVOR
OF THE PROPOSAL.
The Notices of Special Meeting of Shareholders, the accompanying Combined
Prospectus/Proxy Statement, and proxy cards are enclosed. Please read them
carefully. If you are unable to attend the meeting in person, we urge you to
sign, date, and return the proxy card so that your shares may be voted in
accordance with your instructions.
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SINCE THE MEETING IS LESS THAN FIVE WEEKS AWAY, WE URGE YOU TO GIVE THE
ENCLOSED MATERIAL YOUR PROMPT ATTENTION SO THAT HIGHMARK FUNDS WILL NOT HAVE TO
INCUR THE EXPENSE OF ADDITIONAL MAILINGS.
Your vote is important to us. Thank you for taking the time to consider this
important proposal.
Sincerely yours,
[LOGO]
Mark E. Nagle
PRESIDENT
HighMark Funds
2
<PAGE>
HIGHMARK FUNDS
Notice of Special Meeting of Shareholders
of the
Highmark Intermediate-Term Bond Fund
To the Shareholders of the HighMark Intermediate-Term Bond Fund:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders ("Meeting") of
the HighMark Intermediate-Term Bond Fund ("Intermediate-Term Bond Fund"), a
separate series of HighMark Funds, will be held at SEI Investments Mutual Funds
Services, 1 Freedom Valley Drive, Oaks, Pennsylvania on Friday, May 26, 2000 at
10:00 a.m., Eastern time, for the following purposes:
1. To consider and act upon a Plan of Reorganization ("Plan") adopted by
HighMark Funds providing for the transfer of all of the assets of the
Intermediate-Term Bond Fund (the "Intermediate-Term Bond Fund" or
"Consolidating Fund") to the HighMark Bond Fund (the "Bond Fund" or
"Consolidated Fund") in exchange for Class A or Fiduciary Shares
(collectively, "Shares") of the Bond Fund and the assumption by the Bond
Fund of all of the liabilities of the Intermediate-Term Bond Fund,
followed by the dissolution and liquidation of the Intermediate-Term
Bond Fund, and the distribution of Shares of the Bond Fund to the
shareholders of the Intermediate-Term Bond Fund.
2. To transact such other business as may properly come before the Meeting
or any adjournment or adjournments thereof.
The proposed transaction is described in the attached Combined
Prospectus/Proxy Statement. A copy of the Plan is appended as Exhibit A thereto.
Pursuant to instructions of the Board of Trustees of HighMark Funds, the
close of business on March 16, 2000, has been designated as the record date for
determination of shareholders entitled to notice of, and to vote at, the
Meeting.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY THE BOARD OF
TRUSTEES OF HIGHMARK FUNDS. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE SPECIAL
MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY
SUBMITTING TO HIGHMARK FUNDS A WRITTEN NOTICE OF REVOCATION OR A
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SUBSEQUENTLY EXECUTED PROXY OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN
PERSON.
By Order of the Trustees
[LOGO]
Lynda J. Striegel
SECRETARY
HighMark Funds
1 Freedom Valley Drive
Oaks, Pennsylvania
April 26, 2000
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QUESTION & ANSWER SECTION
Q. WHY IS THE BOARD OF TRUSTEES OF HIGHMARK FUNDS PROPOSING TO MERGE THE
HIGHMARK INTERMEDIATE-TERM BOND FUND INTO THE HIGHMARK BOND FUND?
A. As part of a wide ranging effort to maximize efficiencies in HighMark Funds,
serious consideration was given to the future of the Intermediate-Term Bond
Fund. After considering a variety of options, the Board of Trustees of
HighMark Funds approved the consolidation of the Intermediate-Term Bond Fund
into the Bond Fund. The Board of Trustees of HighMark Funds based its
decision on a number of considerations, including the tax-free nature of the
consolidation, the potential that the consolidation will provide to
shareholders the ability to pursue similar investment objectives more
effectively, the opportunities for increased economies of scale and the
better long-term performance of the Bond Fund.
After careful consideration, the Board of Trustees of HighMark Funds
determined that the proposed Plan of Reorganization is in the best interest
of shareholders. Through this proxy, the Board of Trustees of HighMark Funds
is submitting the proposal to you--the shareholders--for a vote.
Q. WHAT WILL HAPPEN TO MY INVESTMENT IN THE HIGHMARK INTERMEDIATE-TERM BOND FUND
IF THIS PROPOSAL IS APPROVED?
A. The assets of the HighMark Intermediate-Term Bond Fund (the
"Intermediate-Term Bond Fund" or "Consolidating Fund") will be transferred
to the HighMark Bond Fund (the "Bond Fund" or "Consolidated Fund"), in
return for Shares of the Bond Fund and the assumption by the Bond Fund of
all of the liabilities of the Intermediate-Term Bond Fund.
After the transfer, shares of the Bond Fund will be distributed to the
Intermediate-Term Bond Fund's shareholders tax-free in liquidation of the
Intermediate-Term Bond Fund. As a result of these transactions, your shares
of the Intermediate-Term Bond Fund would, in effect, be exchanged at net
asset value and on a tax-free basis for shares of the Bond Fund.
Q. HOW CAN I GET MORE INFORMATION ABOUT THE BOND FUND?
A. Please see the combined prospectus and proxy statement for more information
about the Bond Fund. If you have any questions about the
5
<PAGE>
Fund, please contact your account administrator, investment representative,
or HighMark Funds directly at 1-800-433-6884.
Q. WHAT IF I DO NOT RETURN MY PROXY VOTING BALLOT?
A. In order to conduct the Shareholder Meeting a quorum must be present, in
person or by proxy. A quorum is defined as representation of over 50% of the
shares outstanding for the Intermediate-Term Bond Fund as of March 16, 2000.
In the event that not enough shareholders return the enclosed proxy ballot
card to achieve quorum, we will be forced to incur additional expenses
associated with additional solicitations. In order to avoid additional
costs, please return the completed proxy ballot as soon as possible.
Q. HOW DOES THE BOARD OF TRUSTEES OF HIGHMARK FUNDS SUGGEST THAT I VOTE?
A. After careful consideration, the Board of Trustees, including the independent
members, recommends that you vote "FOR" all of the items on the enclosed
proxy ballot. The Board of Trustees also wishes to remind you to vote and
return ALL of the proxy ballot cards you receive.
Q. WHO SHOULD I CALL WITH QUESTIONS ABOUT THIS PROXY?
A. If you have any questions regarding this proxy, please contact your account
administrator, investment representative, or HighMark Funds directly at
1-800-433-6884.
THE INFORMATION PROVIDED IN THIS "Q&A" IS SUPPORTED
BY DISCLOSURES CONTAINED IN THE ACCOMPANYING PROXY STATEMENT.
6
<PAGE>
PROSPECTUS/PROXY STATEMENT
APRIL 26, 2000
HighMark Funds
1 Freedom Valley Drive
Oaks, PA 19456
Tel. No. 1-800-433-6884
COMBINED PROSPECTUS/PROXY STATEMENT
This Combined Prospectus/Proxy Statement is furnished in connection with the
solicitation of proxies from the holders of units of beneficial interest
("Shareholders") of the HighMark Intermediate-Term Bond Fund for use at a
Special Meeting of Shareholders of the HighMark Intermediate-Term Bond Fund to
approve a Plan of Reorganization adopted by HighMark Funds dated as of
April 26, 2000 ("Plan"), a copy of which is attached hereto as Appendix A, and
the consummation of the transactions (collectively, the "Transaction")
contemplated therein. The Plan contemplates the transfer of all of the assets
and liabilities of the HighMark Intermediate-Term Bond Fund (the
"Intermediate-Term Bond Fund") to the HighMark Bond Fund (the "Bond Fund"), (the
Intermediate-Term Bond Fund, is also the "Consolidating Fund" and the Bond Fund
is also the "Consolidated Fund" and the Intermediate-Term Bond and Bond Funds
are, collectively, the "HighMark Funds") in exchange for Class A or Fiduciary
Shares (collectively "Shares") of the Bond Fund, followed by the dissolution and
liquidation of the Intermediate-Term Bond Fund and the distribution of Shares to
the shareholders of the Intermediate-Term Bond Fund. As a result of the proposed
Transaction, each shareholder of the Intermediate-Term Bond Fund will receive on
a tax-free basis, a number of full and fractional Shares of the Bond Fund equal
in value at the date of the exchange to the value of the net assets of the
Intermediate-Term Bond Fund transferred to the Bond Fund attributable to the
shareholder (based on the proportion of the outstanding shares of the
Intermediate-Term Bond Fund owned at that time by the shareholder).
This Combined Prospectus/Proxy Statement explains concisely what you should
know before investing in the Bond Fund. Please read it and keep it for future
reference. This Combined Prospectus/Proxy Statement is accompanied by the
prospectuses relating to the HighMark Equity Funds and Fixed Income Funds,
Fiduciary Shares and Retail Shares, each dated November 30, 1999 (the "HighMark
Funds Prospectuses"), which are incorporated into this Combined Prospectus/Proxy
Statement by reference. The current Statement of Additional Information for
HighMark Funds, dated November 30, 1999, has been filed with the Securities and
Exchange Commission and is incorporated into this Combined Prospectus/Proxy
Statement by reference. The Statement of
7
<PAGE>
Additional Information of HighMark Funds may be obtained, without charge, by
writing SEI Investments Distribution Co., 1 Freedom Valley Drive, Oaks, PA 19456
or by calling 1-800-433-6884. In addition, a Statement of Additional Information
dated April 26, 2000 relating to the Transaction described in this Combined
Prospectus/Proxy Statement has been filed with the Securities and Exchange
Commission and is also incorporated into this Combined Prospectus/Proxy
Statement by reference. Such Statement of Additional Information may be
obtained, without charge, by writing SEI Investments Distribution Co. at the
above-listed address or by calling 1-800-433-6884.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE SHARES OF HIGHMARK FUNDS OFFERED HEREBY ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, INCLUDING UNION BANK OF CALIFORNIA,
N.A., THE BANK OF TOKYO-MITSUBISHI, LTD. OR ANY OF THEIR AFFILIATES OR
CORRESPONDENTS. HIGHMARK FUNDS SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN
HIGHMARK FUNDS INVOLVES RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS COMBINED PROSPECTUS/PROXY STATEMENT IN
CONNECTION WITH THE OFFERING MADE BY THIS COMBINED PROSPECTUS/PROXY STATEMENT
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY HIGHMARK FUNDS. THIS COMBINED PROSPECTUS/PROXY
STATEMENT DOES NOT CONSTITUTE AN OFFERING BY HIGHMARK FUNDS IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
8
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROPOSAL (1) APPROVAL OF PLAN OF REORGANIZATION............. 9
FEE TABLES.................................................. 9
SYNOPSIS.................................................... 12
RISK FACTORS................................................ 21
MANAGEMENT DISCUSSION OF FUND PERFORMANCE................... 23
INTRODUCTION................................................ 26
PROPOSAL REGARDING APPROVAL OR DISAPPROVAL OF PLAN OF
REORGANIZATION............................................ 27
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION...... 29
INFORMATION ABOUT THE REORGANIZATION........................ 30
HIGHMARK FUNDS.............................................. 33
FINANCIAL STATEMENTS........................................ 34
VOTING INFORMATION.......................................... 34
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION................................................ 37
FORM OF PLAN OF REORGANIZATION APPENDIX A................... A1
</TABLE>
<PAGE>
PROPOSAL (1)--APPROVAL OF
PLAN OF REORGANIZATION AND TRANSACTION THEREUNDER
At a meeting held on March 22, 2000, the Board of Trustees of HighMark Funds
unanimously approved a Plan of Reorganization providing for the transfer of all
of the assets of the Intermediate-Term Bond Fund to the Bond Fund in exchange
for Shares of the Bond Fund and the assumption by the Bond Fund of all of the
liabilities of the Intermediate-Term Bond Fund.
Following the transfer, the Intermediate-Term Bond Fund will be dissolved
and the Shares received by the Intermediate-Term Bond Fund will be distributed
to the shareholders of the Intermediate-Term Bond Fund in liquidation of the
Intermediate-Term Bond Fund. As a result of the proposed Transaction,
shareholders of the Intermediate-Term Bond Fund will receive, on a tax-free
basis, a number of full and fractional Shares equal in value at the date of the
exchange to the value of the net assets of the Intermediate-Term Bond Fund
transferred to the Bond Fund attributable to the shareholder (based on the
proportion of the outstanding shares of the Intermediate-Term Bond Fund owned at
the time by the shareholder).
For the reasons set forth below under "Background and Reasons for the
Proposed Reorganization," the Board of Trustees of HighMark Funds, including the
Trustees who are not "interested persons" of HighMark Funds as defined in the
Investment Company Act of 1940 (the "1940 Act") (the "Independent Trustees"),
unanimously concluded that participation in the proposed Transaction is in the
best interests of HighMark Funds and their respective existing shareholders and
that the economic interests of their respective existing shareholders will not
be diluted as a result of effecting the proposed Transaction.
In reaching this conclusion, the Board of Trustees of HighMark Funds
considered, among other things, the qualifications and experience of HighMark
Capital Management, Inc. (the "Adviser"); the potential economies of scale which
could be realized over time by former Intermediate-Term Bond Fund shareholders
as the Bond Fund increases in size; the recommendation of the Adviser in favor
of the Transaction; the fact that the Transaction will be free from Federal
income taxes to HighMark Funds and their shareholders; and the assumption of the
cost of the Transaction by the Adviser and/or its affiliates.
FEE TABLES
The following tables show the current fees for the Intermediate-Term Bond
Fund followed by those currently charged by the Bond Fund. If the reorganization
is approved, you would pay the fees shown for the Bond Fund. Because the fees
for the Bond Fund following the Transaction will be identical
9
<PAGE>
to the current fees for the Bond Fund as set forth in the following fee tables,
no pro forma fee tables are provided.
FEE TABLES
<TABLE>
<CAPTION>
INTERMEDIATE-TERM COMBINED FUND
BOND FUND BOND FUND PRO FORMA
CLASS A SHARES CLASS A SHARES CLASS A SHARES
----------------- --------------- ---------------
<S> <C> <C> <C>
SHAREHOLDER FEES
Maximum Sales Charge (Load) Imposed
on Purchase (as a percentage of
offering price)*.................. 4.25% 4.25% 4.25%
Maximum Deferred Sales Charge (Load)
(as a percentage of net asset
value)**.......................... 0% 0% 0%
Redemption Fee (as a percentage of
amount redeemed, if
applicable)***.................... 0% 0% 0%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Investment Advisory Fees............ 0.50% 0.50% 0.50%
Distribution and/or Services (12b-1)
Fees.............................. 0.25% 0.25% 0.25%
Other Expenses...................... 0.49% 0.51% 0.51%
---- ---- ----
TOTAL ANNUAL FUND OPERATING
EXPENSES...................... 1.24% 1.26% 1.26%
Fee Waivers......................... 0.47% 0.49% 0.49%
TOTAL ANNUAL FUND OPERATING
EXPENSES+..................... 0.77% 0.77% 0.77%
</TABLE>
- ------------------------------
* This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated" in the HighMark Funds Retail Prospectus.
** 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" in the HighMark Funds Retail
Prospectus.
*** Does not include any wire transfer fees, if applicable.
+ The Adviser for the Intermediate-Term Bond Fund and the Bond Fund has agreed
to contractually waive fees in order to keep total operating expenses for
Class A Shares of each Fund from exceeding 0.77% for the period beginning
November 30, 1999 and ending on November 29, 2000. The total actual
operating expenses for each of the Funds for the most recent fiscal year
were less than the amount shown above because additional fees were 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 actual operating expenses for each of the Funds
are expected to be as follows:
<TABLE>
<S> <C>
Intermediate-Term Bond Fund--Class A Shares:................ 0.75%
Bond Fund--Class A Shares:.................................. 0.75%
Combined Fund Pro Forma--Class A Shares:.................... 0.75%
</TABLE>
10
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<TABLE>
<CAPTION>
INTERMEDIATE-TERM COMBINED FUND
BOND FUND BOND FUND PRO FORMA
FIDUCIARY SHARES FIDUCIARY SHARES FIDUCIARY SHARES
----------------- ---------------- ----------------
<S> <C> <C> <C>
SHAREHOLDER FEES
Maximum Sales Charge (Load)
Imposed on Purchase (as a
percentage of offering
price)........................ 0% 0% 0%
Deferred Sales Charge (Load) (as
a percentage of net asset
value)........................ 0% 0% 0%
Redemption Fees (as a percentage
of amount redeemed, if
applicable)................... 0% 0% 0%
ANNUAL FUND OPERATING EXPENSES (as
a percentage of net assets)
Investment Advisory Fees........ 0.50% 0.50% 0.50%
Distribution and/or Service
(12b-1) Fees.................. 0.00% 0.00% 0.00%
Other Expenses.................. 0.49% 0.51% 0.51%
---- ---- ----
TOTAL ANNUAL FUND OPERATING
EXPENSES.................. 0.99% 1.01% 1.01%
Fee Waivers..................... 0.22% 0.24% 0.24%
TOTAL ANNUAL FUND OPERATING
EXPENSES+................. 0.77% 0.77% 0.77%
</TABLE>
- ------------------------------
* Does not include any wire transfer fees, if applicable.
+ The Adviser for the Intermediate-Term Bond Fund and the Bond Fund has agreed
to contractually waive fees in order to keep total operating expenses for
Fiduciary Shares of each Fund from exceeding 0.77% for the period beginning
November 30, 1999 and ending on November 29, 2000. The total actual
operating expenses for each of the Funds for the most recent fiscal year
were less than the amount shown above because additional fees were 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 actual operating expenses for the
Intermediate-Term Bond Fund and the Bond Fund are expected to be as follows:
<TABLE>
<S> <C>
Intermediate-Term Bond Fund--Fiduciary Shares:.............. 0.75%
Bond Fund--Fiduciary Shares:................................ 0.75%
Combined Fund Pro Forma--Fiduciary Shares:.................. 0.75%
</TABLE>
EXAMPLE: You would pay the following expenses on a $10,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period.
CLASS A SHARES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Intermediate-Term Bond Fund............. $500 $757 $1,034 $1,822
Bond Fund............................... $500 $761 $1,042 $1,842
Combined Fund Pro Forma................. $500 $761 $1,042 $1,842
</TABLE>
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FIDUCIARY SHARES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Intermediate-Term Bond Fund............. $79 $293 $526 $1,193
Bond Fund............................... $79 $298 $535 $1,214
Combined Fund Pro Forma................. $79 $298 $535 $1,214
</TABLE>
The purpose of the tables above is to assist an investor in the Funds in
understanding the various costs and expenses that a Shareholder will bear
directly or indirectly. For a more complete discussion of each Fund's annual
operating expenses, see SERVICE ARRANGEMENTS. THE FOREGOING EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.
SYNOPSIS OF PROSPECTUS
INVESTMENT OBJECTIVES AND POLICIES. Below is a brief comparison of the
investment objectives and policies of the Intermediate-Term Bond Fund and the
Bond Fund. The following discussion is qualified in its entirety by the
disclosure on such subjects contained in the HighMark Funds Prospectuses
accompanying this Combined Prospectus/Proxy Statement. For a full and detailed
description of permitted investments, see the HighMark Funds Prospectuses.
The securities currently held by the Intermediate-Term Bond Fund are
substantially similar to those securities which the Bond Fund may hold.
Consequently, the proposed reorganization of the Intermediate-Term Bond Fund
should not result in higher than normal portfolio turnover due to the Bond
Fund's disposal of investment securities.
The Intermediate-Term Bond Fund and Bond Fund each have identical investment
objectives. The Intermediate-Term Bond Fund seeks total return through
investments in fixed-income securities. The Bond Fund also seeks total return
through investments in fixed-income securities.
The Intermediate-Term Bond Fund and Bond Fund each have, with one exception
discussed below, identical investment strategies. Each Fund pursues its
investment goal by investing at least 65% of its assets in bonds which include:
- Debt obligations issued or guaranteed by the U.S. government or its
agencies.
- Corporate debt securities issued by U.S. or foreign companies that
nationally recognized rating agencies such as Moody's or Standard & Poor's
recognize as investment-grade.
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<PAGE>
- Investment-grade bonds backed by the interest and principal payments of
various types of mortgages, known as mortgage-backed securities.
- Investment-grade bonds backed by the interest and principal payments on
loans for other types of assets, such as automobiles, houses, or credit
cards, known as asset-backed securities.
Each Fund may also invest up to 10% of its assets in issues which are rated
below BBB but have a minimum rating of B by Moody's and/or S&P at the time of
investment.
In addition to the securities discussed above, each Fund may invest in other
types of debt securities and may, under adverse market conditions, invest more
than 35% of its assets in very short-term investments called money market
securities.
The Intermediate-Term Bond Fund tries to maintain an average duration of
between 2 and 5 years, which the managers expect to be within one year of the
duration of the Lehman Brothers Intermediate Government/Corporate Bond Index.
The Bond Fund, on the other hand, tries to maintain an average duration of
between 3 and 6 years, which the managers expect to be within one year of the
duration of the Lehman Brothers Aggregate Bond Index.
The portfolio managers of both the Intermediate-Term Bond Fund and Bond Fund
consider the same factors when selecting securities for a Fund's portfolio,
including:
- An assessment of the future level of interest rates and inflation
- Expectations for U.S. and global economic growth
- Relative yields among securities in various market sectors
- The yield to maturity, quality, liquidity and capital appreciation
potential of individual securities
OTHER INVESTMENTS. Each HighMark Fund limits investments in illiquid
securities to 15% or less of its net assets, and may additionally purchase
restricted securities which have not been registered under the Securities Act of
1933 (e.g., Rule 144A Securities and Section 4(2) commercial paper), subject to
policies approved by the Board of Trustees of HighMark Funds.
Each HighMark Fund may lend portfolio securities in an amount representing
up to 33 1/3% of the value of its total assets.
Each HighMark Fund may enter into repurchase agreements and reverse
repurchase agreements.
Each HighMark Fund may enter into forward commitments or purchase securities
on a "when-issued" basis. Each HighMark Fund expects that
13
<PAGE>
commitments by it to enter into forward commitments or purchase when-issued
securities will not exceed 25% of the value of its total assets under normal
market conditions.
Each HighMark Fund may purchase securities of money market funds of other
investment companies and may purchase securities of variable funds of other
investment companies, subject to the terms of the 1940 Act and HighMark Funds'
exemptive order.
INVESTMENT RESTRICTIONS. The following discussion is qualified by the
disclosure regarding investment restrictions contained in the Statement of
Additional Information of HighMark Funds which is incorporated by reference into
this Combined Prospectus/Proxy Statement.
HighMark Funds revised and simplified its fundamental investment
restrictions for the Fund, as well as for a number of other HighMark Funds not
involved in the proposed transaction. It is the intent of HighMark Funds to
conform the fundamental investment restrictions of the remaining HighMark Funds,
including the Bond Fund (which commenced operations prior to the adoption of the
new format) to the simplified format used by the Intermediate-Term Bond Fund by
means of a proxy vote within the next two years. The fundamental investment
restrictions for the Intermediate-Term Bond Fund provides that the Fund:
1. May purchase securities of any issuer only when consistent with the
maintenance of its status as a diversified company under the 1940 Act, or
the rules or regulations thereunder, as such statute, rules or regulations
may be amended from time to time.
2. May not concentrate investments in a particular industry or group of
industries, or within any one state, as concentration is defined under the
1940 Act, or the rules or regulations thereunder, as such statute, rules or
regulations may be amended from time to time.
3. May issue senior securities to the extent permitted by the 1940 Act,
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 1940 Act, or
the rules or regulations thereunder, as such statute, rules or regulations
may be amended from time to time.
5. May purchase or sell commodities, commodities contracts, futures
contracts, or real estate to the extent permitted by the 1940 Act, or the
rules or regulations thereunder, as such statute, rules or regulations may
be amended from time to time.
14
<PAGE>
6. May underwrite securities to the extent permitted by the 1940 Act,
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 1940 Act, or the rules or regulations thereunder, as such
statute, rules or regulations may be amended from time to time.
The fundamental limitations of the Intermediate-Term Bond Fund have been
adopted to avoid wherever possible the necessity of shareholder meetings
otherwise required by the 1940 Act. However, the Intermediate-Term Bond Fund
also has adopted nonfundamental limitations as set forth below, which in some
instances may be more restrictive than its fundamental limitations. Any changes
in a HighMark Fund's nonfundamental limitations are communicated to HighMark
Fund's shareholders prior to effectiveness.
Under the 1940 Act, and the rules, regulations and interpretations
thereunder, a "diversified company," as to 75% of its total assets, may not
purchase securities of any issuer (other than obligations of, or guaranteed by,
the U.S. Government, its agencies or its instrumentalities) if, as a result,
more than 5% of the value of its total assets would be invested in the
securities of such issuer or more than 10% of the issuer's voting securities
would be held by the fund. "Concentration" is generally interpreted under the
1940 Act to be investing more than 25% of net assets in an industry or group of
industries. The 1940 Act limits the ability of investment companies to borrow
and lend money and to underwrite securities. The 1940 Act currently prohibits an
open-end fund from issuing senior securities, as defined in the 1940 Act, except
under very limited circumstances.
The following investment limitations of the Intermediate-Term Bond Fund are
nonfundamental policies. The Fund may not:
1. Acquire more than 10% of the voting securities of any one issuer.
This limitation applies to only 75% of 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
15
<PAGE>
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 Funds may
invest in futures contracts and options on futures contracts, as disclosed
in the prospectus) and interest in a pool of securities that are secured by
interests in real estate. However, subject to their permitted investments,
any Fund may invest in companies which invest in real estate, commodities or
commodities contracts.
6. Make short sales of securities, maintain a short position or
purchase securities on margin, except that HighMark Funds may obtain
short-term credits as necessary for the clearance of security transactions.
7. Act as an underwriter of securities of other issuers except as it
may be deemed an underwriter in selling a Fund security.
8. Issue senior securities (as defined in the Investment Company Act of
1940) except in connection with permitted borrowings as described above or
as permitted by rule, regulation or order of the Securities and Exchange
Commission.
9. Purchase or retain securities of an issuer if, to the knowledge of
HighMark Funds, an officer, trustee, partner or director of HighMark Funds
or the Adviser or sub-advisers of HighMark Funds owns beneficially more than
1/2 of 1% of the shares or securities of such issuer and all such officers,
trustees, partners and directors owning more than 1/2 of 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.
16
<PAGE>
The fundamental investment restrictions for the Bond Fund provide that the
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,
if, immediately after the purchase, more than 5% of the value of such Fund's
total assets would be invested in the issuer or a 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 a Fund's total assets may be invested without regard to these
limitations);
2. Purchase any securities that would cause more than 25% of a 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);
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;
4. Purchase securities on margin (except that the Fund 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 the Fund;
5. Purchase or sell commodities, commodity contracts (excluding options
and financial and currency futures contracts), oil, gas or mineral
exploration leases or development programs, or real estate (although
investments by a Fund in marketable securities of companies engaged in such
activities and investments by a Fund in securities secured by real estate or
interests therein, are not hereby precluded to the extent the investment is
appropriate to each Fund's investment objective and policies);
17
<PAGE>
6. Invest in any issuer for purposes of exercising control or
management;
7. 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;
8. 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 a
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
9. Purchase the securities of other investment companies, except as
permitted by the 1940 Act.
OPERATING PROCEDURES.
PURCHASE PROCEDURES. Purchases and redemptions of Shares of HighMark Funds
may be made on days on which The New York Stock Exchange is open for business
("Business Days"). Shares are sold on a continuous basis by the Distributor,
either by mail or by wire. The minimum investment requirement is generally
$1,000 and the subsequent minimum investment requirement is generally $100.
Purchase orders for Shares of HighMark Funds are executed at a per Share
price equal to the asset value next determined after the purchase order is
effective, plus any applicable sales charges. No sales charges will be imposed
on the Class A Shares and Fiduciary Shares of the Bond Fund distributed by
HighMark Funds in the Transaction.
EXCHANGE PRIVILEGES. Shareholders in the Intermediate-Term Bond Fund and
the Bond Fund enjoy identical exchange privileges. Each HighMark Fund's shares
may be exchanged for shares of the class of the various other Funds of HighMark
Funds which the shareholder qualifies to purchase directly so long as the
shareholder maintains the applicable minimum account balance in each Fund in
which he or she owns shares and satisfies the minimum initial and subsequent
purchase amounts of the Fund into which the shares are
18
<PAGE>
exchanged. HighMark Funds' shareholders may exchange Class A Shares of one
HighMark Fund for Class A Shares of another Fund on the basis of relative net
asset value of the Class A Shares exchanged. If the Fund being exchanged into
has a higher sales charge than what you paid originally, you must pay the
difference. HighMark Funds' shareholders may exchange their Fiduciary Shares for
Fiduciary Shares of another Fund on the basis of the relative net asset value of
the Fiduciary Shares exchanged. HighMark Funds' shareholders may also exchange
Fiduciary Shares of a Fund for Class A, Class B or Class C Shares ("Retail
Shares") of another Fund. Under such circumstances, the cost of the acquired
Retail Shares will be the net asset value per share plus the appropriate sales
charge.
Exchanges are made on the basis of the relative net asset values of the
shares exchanged plus any applicable sales charge. HighMark Funds does not
impose a charge for processing exchanges of shares.
REDEMPTION PROCEDURES. Redemption procedures are identical for each
HighMark Fund. HighMark Funds redeems shares at their net asset value next
determined after receipt by the Distributor of the redemption request.
Redemptions will be made on any Business Day without charge although there is
presently a $15 charge for wiring redemption proceeds to a shareholder's
designated account. Shares may be redeemed by mail or by telephone. HighMark
Funds reserves the right to make payment on redemptions in securities rather
than cash.
DISTRIBUTIONS. The net investment income for HighMark Funds is declared and
paid monthly to all shareholders of record at the close of business on the day
of declaration. Net realized capital gains, if any, are distributed at least
annually to shareholders of record. A shareholder will automatically receive all
income dividends and capital gains distributions in additional full and
fractional shares of the Fund at net asset value as of the date of declaration
unless the shareholder elects to receive such dividends or distributions in
cash. Dividends paid in additional shares receive the same tax treatment as
dividends paid in cash.
The amount of dividends payable on Fiduciary Shares of HighMark Funds
generally will be more than dividends payable on Class A Shares of HighMark
Funds because of the distribution expenses charged to Class A Shares, but not
charged to Fiduciary Shares.
HighMark Funds has adopted a 12b-1 plan with respect to the Class A Shares
that allows each Fund to pay distribution and service fees. The maximum
distribution and service fee for Class A Shares is 0.25% of average daily net
assets. Because 12b-1 fees are paid on an ongoing basis, over time these fees
may increase the cost of your investment.
19
<PAGE>
NET ASSET VALUE. The net asset value of shares of HighMark Funds is
determined daily as of 1:00 p.m., Pacific time (4:00 p.m., Eastern time) on any
Business Day. The price at which a purchase or redemption is effected is the net
asset value next calculated after the order is received.
Investments by HighMark 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. Investments by HighMark Funds in
securities for which the principal market 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 the Board of
Trustees of HighMark Funds. With the exception of short-term securities, 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.
FEDERAL TAX CONSIDERATIONS. Consummation of the Transaction is subject to
the condition that HighMark Funds receives an opinion of Ropes & Gray to the
effect that, based upon certain representations and assumptions and subject to
certain qualifications, the Transaction will not result in the recognition of
gain or loss for Federal income tax purposes for the Intermediate-Term Bond
Fund, their shareholders or the Bond Fund.
INVESTMENT ADVISER
HighMark Capital Management, Inc., a subsidiary of UnionBanCal Corporation,
serves as the investment adviser to HighMark Funds. Subject to the general
supervision of the Board of Trustees of HighMark Funds, the Adviser manages each
Fund in accordance with its investment objective and policies, makes decisions
with respect to and places orders for all purchases and sales of the Fund's
investment securities, and maintains the Fund's records relating to such
purchases and sales.
For the expenses assumed and services provided by the Adviser as each Fund's
investment adviser, the Adviser receives an identical fee from the
Intermediate-Term Bond Fund and the Bond Fund, computed daily and paid monthly,
at the annual rate of fifty one-hundredths of one percent (0.50%) of the Fund's
average daily net assets. Following the reorganization, the advisory fees will
remain the same.
All investment decisions for the Bond Fund are made by a team of investment
professionals, all of whom take an active part in the decision
20
<PAGE>
making process. The Intermediate-Term Bond Fund and Bond Fund have the same team
leader. The team leader is as follows:
E. Jack Montgomery, Vice President of the Adviser, has served as team leader
for the Bond Fund since 1994 and of the Intermediate-Term Bond Fund since
1995. He has been with the Adviser and its predecessors, Union Bank of
California, N.A. and The Bank of California, N.A., since 1994. From 1990 to
1994, Mr. Montgomery was employed by the San Francisco Employees' Retirement
System. Mr. Montgomery has an M.B.A. from the University of Oregon and a
B.A. from the University of Oklahoma.
RISK FACTORS
This discussion is qualified in its entirety by the disclosure set forth in
the HighMark Funds Prospectuses accompanying this Combined Prospectus/Proxy
Statement and the HighMark Funds Statement of Additional Information. Because
each Fund's investment objectives and policies are virtually identical with the
exception of the average duration of each Fund's portfolio, the
Intermediate-Term Bond Fund and Bond Fund are subject to substantially similar
investment risks.
The Intermediate-Term Bond Fund and Bond Fund are each subject to interest
rate or market risk, which relates to changes in a security's value as a result
of interest rate changes generally. An increase in interest rates will generally
reduce the value of the fixed income investments and a decline in interest rates
will generally increase the value of those investments. Accordingly, the net
asset value of each of the Intermediate-Term Bond and Bond Funds' shares will
vary as a result of changes in the value of the securities in the Funds'
portfolios. Therefore, an investment in the Funds may decline in value,
resulting in a loss of principal. Because interest rates vary, it is impossible
to predict the income or yield of the Funds for any particular period. 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.
Both Funds are also subject to credit risk which is the possibility that a
bond issuer cannot make timely interest and principal payments on its bonds.
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.
Each Fund is also subject to prepayment and call risk. While debt securities
normally fluctuate less in price than equity securities, there have been
extended periods of cyclical increases in interest rates that have caused
21
<PAGE>
significant declines in debt securities prices. Certain fixed-income securities,
such as zero-coupon obligations, mortgage-backed and asset-backed securities and
collateralized mortgage obligations ("CMOs") will have greater price volatility
then other fixed-income obligations. Because declining interest rates may lead
to prepayment of underlying mortgages, automobile sales contracts or credit card
receivables, the prices of mortgage-related and asset-backed securities may not
rise with a decline in interest rates. Mortgage-backed and asset-backed
securities and CMOs are extremely sensitive to the rate of principal prepayment.
Changes by recognized rating agencies in the rating of any fixed income security
and in the ability of an issuer to make payments of interest and principal also
affect the value of these investments. Changes in the value of Fund securities
will not affect cash income derived from these securities, but will affect the
Fund's net asset value. 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.
Both the Intermediate-Term Bond Fund and the Bond Fund may invest in
securities rated BBB by S&P or Baa by Moody's, which are considered investment
grade, but are deemed by these rating services to have some speculative
characteristics. Both Funds may also invest in bonds rated below investment
grade by the primary rating agencies (e.g., BB or lower by Standard & Poor's and
Ba or lower by Moody's). These securities, commonly called "lower rated bonds,"
"noninvestment grade bonds" or "junk bonds," are also considered speculative and
involve greater risk of loss than investment grade bonds. 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.
Each of the Funds may invest in foreign securities. There may be certain
risks connected with investing in foreign securities, including risks of adverse
political and economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, including less uniformity in accounting and
reporting requirements, the possibility that there will be less information on
such securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, which reduce yield, and may be less marketable than comparable
U.S. securities. The value of a Fund's investments denominated in foreign
currencies will depend on the relative strengths of those currencies and the
U.S. dollar, and the Fund may be affected favorably or unfavorably by changes in
the exchange rates or exchange control regulations between foreign
22
<PAGE>
currencies and the U.S. dollar. Changes in foreign currency exchange rates may
also affect the value of dividends and interest earned, gains and losses
realized on the sale of securities, and net investment income and gains, if any,
to be distributed to shareholders by the Fund.
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
The following information was provided by the Annual Report to Shareholders
of HighMark Funds ("Annual Report") for the period ended July 31, 1999. The
Management Discussion found in the Annual Report in its entirety, is as follows:
HIGHMARK BOND & INTERMEDIATE-TERM BOND FUNDS
PERFORMANCE
For the fiscal year ended July 31, 1999, the HighMark Bond Fund returned
1.60% (Fiduciary Shares).* In comparison, the Lipper Corporate A-Rated Debt
Funds Average produced a 0.66% return while the unmanaged Lehman Brothers
Aggregate Bond Index reflected a return of 2.48%.
The HighMark Intermediate-Term Bond Fund produced a total return of 2.60%
(Fiduciary Shares).** In comparison, the Lipper Intermediate Investment-Grade
Debt Average reflected a 1.43% return, while the unmanaged Lehman Brothers
Intermediate Government/Corporate Bond Index rose 3.72%.
FACTORS AFFECTING PERFORMANCE
The two halves of the fiscal year were a mirror image of each other. After
Russia devalued its currency last August, a worldwide credit crunch ensued and
there was a flight to quality. U.S. Treasury bonds soared and yields fell as low
as 4.7%, while corporate bonds and mortgages performed poorly.
After the Federal Reserve Board lowered short-term interest rates last fall,
central banks around the world followed suit, and the global economic crisis
faded. In early 1999, investors aggressively sold U.S. Treasury bonds and bonds
yields climbed above 6%. Both Funds reduced their allocation to Treasury
securities while adding corporate exposure. Corporate bonds,
- ------------------------
* The HighMark Bond Fund (Retail Class A Shares) produced a total return of
1.52% for the period. Including the maximum sales charge of 3.00%, the total
return for the Fund's Retail Class A Shares was -1.51%.
** The HighMark Intermediate-Term Bond Fund (Retail Class A Shares) produced a
total return of 2.60% for the period. Including the maximum sales charge of
3.00%, the total return for the Fund's Retail Class A Shares was -0.49%.
23
<PAGE>
particularly lower-rated bonds, performed well until May, when a flood of supply
depressed prices. As interest rates steadily rose, mortgages performed very well
in 1999.
CURRENT STRATEGY & OUTLOOK
Both Funds continue to emphasize high-quality corporate bonds, a strategy
that works particularly well when the economy is slowing. With recent inflation
data showing some upward movement in labor costs, the Federal Reserve Board
raised short-term interest rates on June 30 and August 24 to slow the economy.
As a result, recent additions to the Funds have not included cyclical companies.
Instead, bonds issued by AT&T, Disney, MCI Worldcom, Nevada Power, Safeway,
Staples and Time Warner were added. Rather than make a prediction on the
direction of interest rates, the Funds' duration strategy is neutral to the
market.
24
<PAGE>
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE HIGHMARK
BOND FUND* VERSUS THE LEHMAN BROTHERS AGGREGATE BOND INDEX AND THE LIPPER
CORPORATE A-RATED DEBT FUNDS AVERAGE.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BOND FUND BOND FUND LEHMAN BROTHERS LIPPER CORPORATE A-RATED
<S> <C> <C> <C> <C>
Fiduciary Shares Synthet Retail A Shares Aggregate Bond Index Debt Funds Average
7/89 10,000 9,700 10,000 10,000
7/90 10,552 10,235 10,706 10,531
7/91 11,500 11,155 11,852 11,553
7/92 13,160 12,765 13,603 13,436
7/93 14,484 14,049 14,988 14,926
7/94 14,029 13,514 15,001 14,767
7/95 15,352 14,770 16,518 16,188
7/96 16,091 15,501 17,432 16,957
7/97 17,795 17,156 19,311 18,810
7/98 19,113 18,438 20,829 20,133
7/99 19,419 18,718 21,345 20,266
</TABLE>
- ------------------------
* Fiduciary or Synthetic Retail Class A Shares.
<TABLE>
<CAPTION>
ANNUALIZED ANNUALIZED ANNUALIZED ANNUALIZED
ONE YEAR 3 YEAR 5 YEAR 10 YEAR INCEPTION TO
RETURN RETURN RETURN RETURN DATE
------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Fiduciary Shares.......... 1.60% 6.47% 6.72% 6.86% 8.84%
Retail Class A Shares..... 1.52% 6.49% 6.73% 6.79%+ 6.62%
Retail Class A Shares with
load**.................. -1.51% 5.43% 6.09% 6.47%+ 6.00%
</TABLE>
- ------------------------
+ Synthetic, not actual. [The synthetic returns calculated represent the
joining of the NAV, income, capital gains and returns history of the oldest
class of the fund to the NAV, income, capital gains and return history of
all subsequent classes of the fund prior to their inception date.]
** Relfects 3.00% sales charge.
Past performance is not predictive of future results.
25
<PAGE>
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE HIGHMARK
INTERMEDIATE-TERM BOND FUND* VERSUS THE LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE INDEX AND THE LIPPER INTERMEDIATE INVESTMENT-GRADE DEBT
AVERAGE.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INTERMEDIATE-TERM INTERMEDIATE-TERM LEHMAN BROTHERS LIPPER INTERMEDIATE
<S> <C> <C> <C> <C>
Bond Fund Bond Fund Synthetic Intermediate Government/ Investment-Grade
Fiduciary Shares Retail Class A Shares Corporate Index Debt Average
2/91 10,000 9,700 10,000 10,000
7/91 10,427 10,114 10,362 10,411
7/92 12,030 11,658 11,826 12,004
7/93 13,131 12,725 12,843 13,228
7/94 13,071 12,654 12,964 13,189
7/95 14,169 13,718 14,106 14,406
7/96 14,799 14,330 14,853 15,095
7/97 16,146 15,635 16,201 16,648
7/98 17,174 16,633 17,292 17,795
7/99 17,621 17,065 17,936 18,049
</TABLE>
- ------------------------
* Fiduciary or Synthetic Retail Class A Shares.
<TABLE>
<CAPTION>
ANNUALIZED ANNUALIZED ANNUALIZED
ONE YEAR 3 YEAR 5 YEAR INCEPTION TO
RETURN RETURN RETURN DATE
-------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Fiduciary Shares.................. 2.60% 5.99% 6.16% 7.02%
Retail Class A Shares............. 2.60% 5.99% 6.16% 6.13%
Retail Class A Shares with
load**.......................... -0.49% 4.92% 5.51% 5.71%
</TABLE>
- ------------------------
** Relfects 3.00% sales charge.
Past performance is not predictive of future results. Performance presented
from February 28, 1991 (commencement of operations of Fiduciary Shares) and
February 29, 1992 (commencement of operation of the Retail Shares) to April 25,
1997 reflects the performance of the Stepstone Intermediate-Term Bond Fund.
INTRODUCTION--SPECIAL MEETING OF SHAREHOLDERS
Proxies will be solicited by and on behalf of the Board of Trustees of
HighMark Funds for use at a Special Meeting of Shareholders of the
26
<PAGE>
Intermediate-Term Bond Fund (the "Meeting"). The Meeting is to be held on May
26, 2000 at 10:00 a.m., Eastern time, at SEI Investments Mutual Funds Services,
1 Freedom Valley Drive, Oaks, PA 19456. This Combined Prospectus/ Proxy
Statement and the enclosed form of proxy are being mailed to shareholders on or
about April 26, 2000.
Any shareholder giving a proxy has the power to revoke it. The shareholder
revoking such proxy must either submit to HighMark Funds a subsequently dated
proxy, deliver to HighMark Funds a written notice of revocation, or otherwise
give notice of revocation in open meeting. All properly executed proxies
received in time for the meeting will be voted as specified in the proxy, or, if
no specification is made, FOR the proposal (set forth in item (1) of the Notice
of Special Meeting) to implement the reorganization of the Intermediate-Term
Bond Fund by the transfer of all of their assets to the Bond Fund, in exchange
for Class A and Fiduciary Shares of the Bond Fund (collectively, "Shares") and
the assumption by the Bond Fund of all of the liabilities of the
Intermediate-Term Bond Fund followed by the dissolution and liquidation of the
Intermediate-Term Bond Fund and the distribution of Shares to the shareholders
of the Intermediate-Term Bond Fund.
Only shareholders of record on March 16, 2000 will be entitled to notice of
and to vote at the meeting. Each share is entitled to one vote as of the close
of business on March 16, 2000.
The Board of Trustees of HighMark Funds knows of no matters other than those
set forth herein to be brought before the meeting. If, however, any other
matters properly come before the meeting, it is the Trustees' intention that
proxies will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
PROPOSAL REGARDING APPROVAL OR DISAPPROVAL
OF PLAN OF REORGANIZATION
The shareholders of the Intermediate-Term Bond Fund are being asked to
approve or disapprove the Plan of Reorganization adopted by HighMark dated as of
April 26, 2000 (the "Plan"), a copy of which is attached to this Combined
Prospectus/Proxy Statement as Appendix A. The Plan provides, among other things,
for the transfer of all of the assets of the Intermediate-Term Bond Fund to the
Bond Fund in exchange for the assumption by the Bond Fund of all of the
liabilities of the Intermediate-Term Bond Fund and for a number of Shares
calculated based on the value of the net assets of the Intermediate-Term Bond
Fund acquired by the Bond Fund and the net asset value per share of the Bond
Fund, all as more fully described below under "Information about the
Reorganization." After receipt of Shares the Intermediate-Term Bond Fund will
dissolve, distributing the Shares to its
27
<PAGE>
shareholders in complete liquidation, and the Intermediate-Term Bond Fund will
be terminated. Prior to the date of such transfer (the "Exchange Date"), the
Intermediate-Term Bond Fund will declare a distribution to its shareholders
which, together with all previous distributions, will have the effect of
distributing to its respective shareholders all of their investment company
taxable income (computed without regard to the deduction for dividends paid) and
net realized capital gains, if any, through the Exchange Date.
At a meeting held on March 22, 2000, the Trustees of HighMark Funds in
attendance voted unanimously to approve the Transaction and to recommend that
shareholders of the Intermediate-Term Bond Fund also approve the Transaction.
Approval of the reorganization of the Intermediate-Term Bond Fund requires the
affirmative vote of a majority of all votes attributable to the voting
securities of the Intermediate-Term Bond Fund voting separately as a fund,
defined as the lesser of (a) sixty seven percent (67%) or more of the votes
attributable to all voting securities of the Intermediate-Term Bond Fund present
at such meeting, if holders of more than 50% of the votes attributable to the
outstanding voting securities are present or represented by proxy, or (b) more
than 50% of the votes attributable to the outstanding voting securities of the
Intermediate-Term Bond Fund.
A shareholder of the Intermediate-Term Bond Fund objecting to the proposed
Transaction is not entitled under either Massachusetts law or HighMark Funds'
Declaration of Trust to demand payment for and an appraisal of his or her
particular HighMark Fund shares if the Transaction is consummated over his or
her objection. However, shares of HighMark Funds are redeemable for cash at
their net asset value on any Business Day.
In the event that this proposal is not approved by the shareholders of the
Intermediate-Term Bond Fund, the Intermediate-Term Bond Fund will continue to be
managed as a separate fund in accordance with its current investment objectives
and policies, and the Trustees of HighMark Funds may consider alternatives in
the best interests of the shareholders. However, the reorganization of the
Intermediate-Term Bond Fund for which approval of the Plan is obtained will be
consummated.
28
<PAGE>
BACKGROUND AND REASONS FOR
THE PROPOSED REORGANIZATION
A meeting was held on March 22, 2000 for the Board of Trustees of HighMark
Funds, at which meeting all of the Trustees of HighMark Funds, including the
Independent Trustees, unanimously determined that the reorganization would be in
the best interests of HighMark Funds and existing shareholders and that the
economic interests of the existing shareholders would not be diluted as a result
of effecting the reorganization. The Trustees of HighMark Funds, including the
Independent Trustees, unanimously approved the proposed reorganization and have
unanimously recommended its approval by the Intermediate-Term Bond Fund's
shareholders.
In electing to approve the Plan and recommend it to shareholders of the
Intermediate-Term Bond Fund, the Board of Trustees of HighMark Funds acted upon
information provided to them, indicating that the proposed Transaction would
operate in the best interests of HighMark Funds' shareholders. In particular,
the Trustees determined that the proposed transaction offered the following
benefits:
- BETTER LONG-TERM INVESTMENT PERFORMANCE: The Trustees considered favorably
that the long-term performance of the Bond Fund was better than that of
the Intermediate-Term Bond Fund. For the fiscal year ended July 31, 1999,
the Bond Fund had an annualized 5 year total return of 6.72% for Fiduciary
Shares and 6.73% for Class A Shares (without sales load). For the same
period, the Intermediate-Term Bond Fund had an annualized 5 year total
return of 6.16% for Fiduciary Shares and 6.16% for Class A Shares (without
sales load).
- OPPORTUNITIES FOR ECONOMIES OF SCALE: The Trustees considered favorably
the potential the consolidation held for increased economies of scale for
the Bond Fund that could result in reduced expenses, and consequent
increased performance. The Trustees concluded that this could allow
shareholders of the Intermediate-Term Bond Fund to pursue similar
investment objectives more effectively through ownership of shares of the
Bond Fund.
- TAX-FREE NATURE OF TRANSACTION: The Trustees of HighMark Funds were
informed that the proposed Transaction would be accomplished without the
imposition of federal income taxes on the Intermediate-Term Bond Fund or
its shareholders.
- NO DILUTION OF SHAREHOLDER INTERESTS: The Trustees of HighMark Funds were
informed that the interests of the shareholders of HighMark Funds would
not be materially diluted as a result of the proposed Transaction, and
that the shareholders of the Intermediate-Term Bond Fund in the aggregate
would receive shares of the Bond Fund equal in
29
<PAGE>
value to the market value of the assets of the Intermediate-Term Bond
Fund.
The total operating expenses of the Class A Shares and the Fiduciary Shares
of the Intermediate-Term Bond Fund and the Bond Fund are identical. Absent fee
waivers, the total expenses of the Intermediate-Term Bond Fund would be 1.24%
for Class A Shares and 0.99% for Fiduciary Shares, while those of the Bond Fund
would be 1.26% for Class A Shares and 1.01% for Fiduciary Shares. Taking into
consideration both contractual and voluntary fee waivers, the total operating
expenses of the Funds are compared below.
<TABLE>
<CAPTION>
CLASS A SHARES FIDUCIARY SHARES
--------------- ----------------
<S> <C> <C>
Intermediate-Term Bond Fund:............... 0.75% 0.75%
Bond Fund:................................. 0.75% 0.75%
</TABLE>
INFORMATION ABOUT THE REORGANIZATION
PLAN OF REORGANIZATION. The proposed Plan provides that the Bond Fund will
acquire all of the assets of the Intermediate-Term Bond Fund in exchange for the
assumption by the Bond Fund of all of the liabilities of the Intermediate-Term
Bond Fund and for Shares all as of the Exchange Date (defined in the Plan to be
June 5, 2000, or such other dates as may be decided by HighMark Funds). The
following discussion of the Plan is qualified in its entirety by the full text
of the Plan, which is attached as Appendix A to this Combined Prospectus/Proxy
Statement.
As a result of the Transaction, each shareholder of the Intermediate-Term
Bond Fund will receive that number of full and fractional Shares equal in value
at the Exchange Date to the value of the portion of the net assets of the
Intermediate-Term Bond Fund transferred to the Bond Fund attributable to the
shareholder (based on the proportion of the outstanding shares of the
Intermediate-Term Bond Fund owned by the shareholder as of the Valuation Time).
The portfolio securities of the Intermediate-Term Bond Fund will be valued in
accordance with the generally employed valuation procedures of HighMark Funds.
Each reorganization is being accounted for as a tax-free business combination.
Immediately following the Exchange Date, the Intermediate-Term Bond Fund
will distribute pro rata to its respective shareholders of record as of the
close of business on the Exchange Date the full and fractional Shares received
by it and the Intermediate-Term Bond Fund will be liquidated and dissolved. Such
liquidation and distribution will be accomplished by the establishment of
accounts on the share records of the Bond Fund in the name of the
Intermediate-Term Bond Fund's shareholders, each account representing the
respective number of full and fractional Shares due such shareholder. All
shareholders of the Intermediate-Term Bond Fund will receive the class of
30
<PAGE>
shares (Class A or Fiduciary) of the Bond Fund that corresponds to the class of
shares of the Intermediate-Term Bond Fund that they hold.
Each Share will be fully paid and nonassessable when issued, will be
transferable without restriction, and will have no preemptive or conversion
rights. HighMark Funds' Declaration of Trust permits HighMark Funds to divide
its shares of any series, without shareholder approval, into one or more classes
of shares having such preferences and special or relative rights and privileges
as the Trustees of HighMark Funds may determine.
The consummation of the reorganization is subject to the conditions set
forth in the Plan. The Plan may be terminated and the reorganization abandoned
by HighMark Funds at any time, before or after approval by the shareholders,
prior to the Exchange Date by HighMark Funds.
Under Massachusetts law, HighMark Funds' shareholders, could, under certain
circumstances, be held personally liable for the obligations of HighMark Funds.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of HighMark Funds. The Declaration of Trust provides for
indemnification out of HighMark Funds' property for all loss and expense of any
shareholder held personally liable for the obligations of HighMark Funds. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which HighMark Funds would be unable to
meet its obligations. The likelihood of such circumstances is remote.
FEES AND EXPENSES REORGANIZATION. All fees and expenses, including
accounting expenses, portfolio transfer taxes (if any) or other similar expenses
incurred directly in connection with the consummation of the Transaction
contemplated by the Agreement will be borne by the Adviser and/or its affiliates
including the costs of proxy materials, proxy solicitation, and legal expenses.
Fees and expenses not incurred directly in connection with the consummation of
the Transaction will be borne by the party incurring such fees and expenses.
FEDERAL INCOME TAX CONSEQUENCES. The federal income tax consequences of the
Transaction should be as follows: (i) under Section 361 of the Code, no gain or
loss will be recognized by the Intermediate-Term Bond Fund upon the transfer of
its assets to the Bond Fund in exchange for the Bond Fund's Shares and the
assumption by the Bond Fund of the liabilities of the Intermediate-Term Bond
Fund, or upon the distribution of the Bond Fund Shares by the Intermediate-Term
Bond Fund to its shareholders in liquidation; (ii) under Section 354 of the
Code, no gain or loss will be recognized by the Intermediate-Term Bond Fund
shareholders upon the exchange of their shares of the Intermediate-Term Bond
Fund for the Shares; (iii) under Section 358 of the Code, the aggregate basis of
Shares an Intermediate-Term Bond Fund
31
<PAGE>
shareholder receives in connection with the reorganization will be the same as
the aggregate basis of his or her Intermediate-Term Bond Fund shares exchanged
therefor; (iv) under Section 1223(1) of the Code, an Intermediate-Term Bond
Fund's shareholder's holding period for his or her Shares will be determined by
including the period for which he or she held the Intermediate-Term Bond Fund
shares exchanged therefor provided that he or she held the Intermediate-Term
Bond Fund shares as capital assets; (v) under Section 1032 of the Code, no gain
or loss will be recognized by the Bond Fund upon the receipt of the assets of
the Intermediate-Term Bond Fund in exchange for Shares and the assumption by the
Bond Fund of the liabilities of the Intermediate-Term Bond Fund, (vi) under
Section 362 of the Code, the basis in the hands of the Bond Fund of the assets
of the Intermediate-Term Bond Fund transferred to the Bond Fund in the
reorganization will be the same as the basis of such assets in the hands of the
Intermediate-Term Bond Fund immediately prior to the transfer; and (vii) under
Section 1223(2) of the Code, the holding period of the assets of the
Intermediate-Term Bond Fund in the hands of the Bond Fund will include the
periods during which such assets were held by the Intermediate-Term Bond Fund.
As a condition to HighMark Funds' obligation to consummate the reorganization,
HighMark Funds will receive an opinion from Ropes & Gray, counsel to HighMark
Funds, to the effect that, on the basis of the existing provisions of the Code,
current administrative rules, court decisions, and based upon certain
representations and assumptions and subject to certain qualifications, for
federal income tax purposes the above stated tax consequences will be applicable
to the Transaction.
VOTING RIGHTS. Each shareholder of a HighMark Fund is entitled to one vote
per share and a proportionate fractional vote for any fractional share. The
former shareholders of the Intermediate-Term Bond Fund, as holders of Class A or
Fiduciary Shares of the Bond Fund, will vote separately as a fund or a class on
matters relating solely to that fund or class. On all other matters, they will
vote in the aggregate with shareholders of all of HighMark Funds. When the
former shareholders of the Intermediate-Term Bond Fund vote in the aggregate as
shareholders of the Bond Fund, the voting power they will have will be less than
the voting power they had when the Intermediate-Term Bond Fund voted in the
aggregate. For a more detailed discussion of HighMark Funds' voting procedures,
see the HighMark Funds' Prospectuses "GENERAL INFORMATION--Miscellaneous."
CAPITALIZATION. The following tables set forth as of July 31, 1999, (i) the
capitalization of the Intermediate-Term Bond Fund, (ii) the capitalization of
the Bond Fund, and (iii) the pro forma capitalization of the Intermediate-Term
Bond Fund as adjusted giving effect to the proposed acquisition of assets at net
asset value:
32
<PAGE>
CAPITALIZATION TABLES AS OF 7/31/99
If the Reorganization is consummated, the actual adjustments to the number
of shares outstanding in each respective class of the HighMark Fund may vary
from the numbers above due to changes in the Net Asset Values between July 31,
1999 and the Reorganization date.
HIGHMARK BOND FUND AND HIGHMARK INTERMEDIATE-TERM BOND FUND (UNAUDITED)
<TABLE>
<CAPTION>
HIGHMARK
HIGHMARK BOND INTERMEDIATE- PRO FORMA
FUND TERM BOND FUND COMBINED(1),(2)
-------------------- -------------------- --------------------
CLASS A FIDUCIARY CLASS A FIDUCIARY CLASS A FIDUCIARY
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS (000'S)................. $2,638 $334,900 $4,591 $257,775 $7,229 $592,675
SHARES (000'S)..................... 256 32,225 459 25,783 702 57,029
NET ASSET VALUE PER SHARE.......... $10.30 $ 10.39 $ 9.99 $ 10.00 $10.30 $ 10.39
</TABLE>
- ------------------------------
(1) The adjusted balances are presented as if the Reorganization were effective
as of July 31, 1999 for information purposes only. The actual Effective Time
of the Reorganization is expected to be June 5, 2000 at which time the
results would be reflective of the actual composition of the shareholders'
equity at that date.
(2) Assumes that the HighMark Intermediate-Term Bond Fund has executed a reverse
stock split on June 2, 2000 immediately preceding the Reorganization, to
allow the Net Asset Values of the HighMark Intermediate-Term Bond Fund Class
A and Fiduciary Shares to match the Net Asset Values of the HighMark Bond
Fund Class A and Fiduciary Shares. Accordingly, this resulted in an
adjustment to the number of shares outstanding in the HighMark Intermediate-
Term Bond Fund of 13 in Class A Shares and 979 in Fiduciary Shares.
If the Reorganization is consummated, the actual adjustments to the number
of shares outstanding in each respective class of HighMark Fund may vary from
the numbers above due to changes in the Net Asset Values between July 31, 1999
and the Reorganization date.
INTEREST OF CERTAIN PERSONS IN THE TRANSACTION
HighMark Capital Management, Inc. may be deemed to have an interest in the
Plan of Reorganization and the Transaction because it provides investment
advisory services to HighMark Funds pursuant to an advisory agreement. HighMark
Capital Management, Inc. receives compensation from HighMark Funds for services
it provides pursuant to that Agreement. The terms and provisions of these
arrangements are described in HighMark Funds Statement of Additional
Information. HighMark Capital Management, Inc. also serves as subadministrator
to HighMark Funds for which it receives a fee as described in HighMark Funds
Statement of Additional Information. Union Bank of California, N.A. serves as
custodian to HighMark Funds for which services it receives a fee as described in
HighMark Funds Statement of Additional Information. Union Bank of California,
N.A. may also act as a
33
<PAGE>
service provider pursuant to the Shareholder Service Plan adopted by HighMark
Funds for which services it would also receive a fee as described in HighMark
Funds Statement of Additional Information.
FINANCIAL STATEMENTS
The financial statements and financial highlights for HighMark Funds for the
periods indicated therein ended July 31, 1999, July 31, 1998 and July 31, 1997
and July 31, 1996 included in HighMark Funds Prospectuses and related Statement
of Additional Information have been incorporated by reference in this Combined
Prospectus/Proxy Statement in reliance on the report of Deloitte & Touche LLP,
independent auditors, given on the authority of that Firm as experts in
accounting and auditing. The financial highlights for the fiscal periods ended
July 31, 1995 and prior were audited by other auditors whose report, dated
September 22, 1995, expressed an unqualified opinion on those statements. The
financial highlights for the fiscal period ended January 31, 1997 and prior were
audited by other auditors, whose report, dated March 15, 1997, expressed an
unqualified opinion of those statements. Unaudited financial statements for
HighMark Funds for the period ended January 31, 2000, contained in HighMark
Fund's Semi-Annual Report, are also incorporated by reference in this Combined
Prospectus/Proxy Statement.
VOTING INFORMATION
Proxies are being solicited from shareholders of the Intermediate-Term Bond
Fund by the Board of Trustees of HighMark Funds for the Special Meeting of
Shareholders ("Meeting") to be held on May 26, 2000 at 10:00 a.m., Eastern time,
at SEI Investments Mutual Fund Services, 1 Freedom Valley Drive, Oaks, PA 19456,
or at such later time made necessary by adjournment. A proxy may be revoked at
any time at or before the Meeting by submitting to HighMark Funds a subsequently
dated proxy, delivering a written notice of revocation to HighMark Funds at 1
Freedom Valley Drive, Oaks, PA 19456, or as otherwise described in the
"Introduction" above. Unless revoked, all valid proxies will be voted in
accordance with the instructions thereon or, in the absence of instructions,
will be voted FOR approval of the Plan. The Transaction contemplated by the Plan
will be consummated only if approved by the affirmative vote of a majority of
all votes attributable to the voting securities of the Intermediate-Term Bond
Fund voting separately as a Fund, as described above. In the event the
shareholders do not approve the reorganization, the Trustees of HighMark Funds
will consider possible alternative arrangements in the best interests of the
Fund and its shareholders.
Proxies are being solicited by mail. Shareholders of record of the
Intermediate-Term Bond Fund at the close of business on March 16, 2000, (the
"Record Date"), will be entitled to vote at the Meeting of or any adjournment
34
<PAGE>
thereof. The holders of a majority of votes attributable to the outstanding
voting shares of the Fund represented in person or by proxy at the Meeting will
constitute a quorum for the Fund for the Meeting, and a majority of the shares
of the Intermediate-Term Bond Fund voted on the Transaction is necessary to
approve the Transaction. Shareholders are entitled to one vote per share and a
proportionate fractional vote for any fractional share.
Votes cast by proxy or in person at the meeting will be counted by the
inspector of election appointed by the Intermediate-Term Bond Fund. The
inspector of election will count the total number of votes cast "for" approval
of the proposal for purposes of determining whether sufficient affirmative votes
have been cast. The inspector of election will count shares represented by
proxies that reflect abstentions as shares that are present and entitled to vote
on the matter for purposes of determining the presence of a quorum; however, the
inspector of election will not count "broker non-votes" (I.E., shares held by
brokers or nominees as to which (i) instructions have not been received from the
beneficial owners or the persons entitled to vote and (ii) the broker or nominee
does not have the discretionary voting power on a particular matter) as shares
that are present and entitled to vote on the matter for purposes of determining
the presence of a quorum. For purposes of determining whether an issue has been
approved, abstentions have the effect of a negative vote on the proposal, and
broker non-votes are treated as "against" votes in those instances where
approval of an issue requires a certain percentage of all votes outstanding, but
are given no effect in those instances where approval of an issue requires a
certain percentage of the votes constituting the quorum for such issue.
As of March 16, 2000, there were issued and outstanding 465,158 Class A
Shares and 24,240,441 Fiduciary Shares of the Intermediate-Term Bond Fund; and
264,099 Class A Shares and 31,275,737 Fiduciary Shares of the Bond Fund.
The votes of the shareholders of the Bond Fund are not being solicited,
since their approval or consent is not necessary for approval of the Plan. As of
March 16, 2000, the officers and Trustees of HighMark Funds as a group
beneficially owned less than 1% of the outstanding Retail and Fiduciary shares
of HighMark Funds. At March 16, 2000, to the best of the knowledge of
35
<PAGE>
HighMark Funds, the following owned 5% or more of the outstanding shares of:
INTERMEDIATE-TERM BOND--CLASS A SHARES
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS OWNERSHIP OF RECORD
- ---------------- -------------------
<S> <C>
National Financial Services Corp. 68.99%
for Exclusive Benefit of our Customers
P.O. Box 3908
Church Street Station
New York, NY
10008-3908
</TABLE>
INTERMEDIATE-TERM BOND--FIDUCIARY SHARES
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS OWNERSHIP OF RECORD
- ---------------- -------------------
<S> <C>
Lane & Company 99.66%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 85484
San Diego, CA
92186-5484
</TABLE>
BOND FUND--CLASS A SHARES
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS OWNERSHIP OF RECORD
- ---------------- -------------------
<S> <C>
Northwestern Trst. 6.64%
& Advisory Co. TTBE
1201 3rd Ave., Suite 2010
Seattle, WA
98101-3026
Jody A. Bertolini TTEE 7.39%
The Bertolini Trust
UA 11/30/1999
P.O. Box 9598
Santa Rosa, CA 95405-1598
</TABLE>
36
<PAGE>
BOND FUND--FIDUCIARY SHARES
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP
- ---------------- --------------------
<S> <C>
BTM U.S. Agency Retirement Plan 5.83%
1251 Avenue of the Americas
New York, NY 10020
Lane & Company 60.77%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA
92112-0109
BTMT Pension 33.29%
c/o Bank of Tokyo-Mitsubishi Trust Company
Attn: Dennis Demetropoulos
1251 Avenue of the Americas FL 10
New York, NY
10020-1104
</TABLE>
THE BOARD OF TRUSTEES OF HIGHMARK FUNDS, INCLUDING THE INDEPENDENT TRUSTEES,
UNANIMOUSLY RECOMMEND APPROVAL OF THE PLAN.
INFORMATION FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
This Combined Prospectus/Proxy Statement and the related statement of
additional information do not contain all of the information set forth in the
registration statements and the exhibits relating thereto which HighMark Funds
has filed with the Securities and Exchange Commission under the Securities Act
of 1933 and the 1940 Act to which reference is hereby made. The SEC file numbers
for the HighMark Funds Prospectuses and related statement of additional
information which are incorporated by reference herein are Registration No.
33-12608 and 811-5059.
HighMark Funds is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith file reports and
other information with the SEC. Reports, proxy and information statements,
registration statements and other information filed by HighMark Funds can be
inspected and copied at the public reference facilities of the SEC at 450 Fifth
Street, N.W. Washington, D.C. 20549. Copies of such filings may also be
available at the following SEC regional offices: 90 Devonshire Street,
Suite 700, Boston, MA 02109; 500 West Madison Street, Suite 1400, Chicago, IL
60611-2511; and 601 Walnut Street, Suite 1005E, Philadelphia, PA 19106. Copies
of such materials can also be obtained by mail from the Public Reference Branch,
Office of Consumer Affairs and Information Services, SEC, Washington, D.C. 20549
at prescribed rates.
37
<PAGE>
EXHIBIT A
HIGHMARK FUNDS
PLAN OF REORGANIZATION
This Plan of Reorganization having been approved by the Board of Trustees of
HighMark Funds is made as of April 26, 2000 by HighMark Funds (the "Plan"). The
capitalized terms used herein shall have the meaning ascribed to them in this
Plan.
OVERVIEW OF PLAN OF REORGANIZATION
(1) The HighMark Intermediate-Term Bond Fund ("Intermediate-Term Bond Fund"
or the "Consolidating Fund") will sell, assign, convey, transfer and deliver to
the HighMark Bond Fund (the "Bond Fund" or the "Consolidated Fund") on the
Exchange Date all of the properties and assets existing at the Valuation Time in
the Consolidating Fund. In consideration therefor, the Consolidated Fund shall,
on the Exchange Date, assume all of the liabilities of the Consolidating Fund
for a number of full and fractional shares of the Consolidating Fund having an
aggregate net asset value equal to the value of the assets of the Consolidating
Fund transferred to the Consolidated Fund on such date less the value of the
liabilities of the Consolidating Fund assumed by the Consolidated Fund on that
date. It is intended that the reorganization described in this Plan shall be a
tax-free reorganization under the Internal Revenue Code of 1986, as amended (the
"Code").
(2) Upon consummation of the transactions described in paragraph (1) of this
Plan, the Consolidating Fund shall distribute in complete liquidation to its
shareholders of record as of the Exchange Date the shares of the Consolidated
Fund received by it, each shareholder being entitled to receive the number of
such shares of the Consolidated Fund equal to the proportion which the number of
shares of beneficial interest of the Consolidating Fund held by such shareholder
bears to the number of such shares of the Consolidating Fund outstanding on such
date.
FACTUAL BASIS OF THE PLAN
1. (a) HighMark Funds is a business trust duly established and validly
existing under the laws of the Commonwealth of Massachusetts and has power to
own all of its properties and assets and to carry out the transactions involved
under this Plan. Each of the Intermediate-Term Bond Fund and the Bond Fund (each
a "HighMark Fund" and, collectively, the "HighMark Funds") has all necessary
federal, state and local authorizations to carry on its business as now being
conducted and to carry out this Plan.
A1
<PAGE>
(b) HighMark Funds is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company, and
such registration has not been revoked or rescinded and is in full force and
effect. Each HighMark Fund has elected to qualify and has qualified as a
regulated investment company under Part I of Subchapter M of the Code as of and
since its first taxable year and each HighMark Fund qualifies and intends to
continue to qualify as a regulated investment company for the taxable year
ending upon its liquidation. Each HighMark Fund has been regulated as an
investment company under such Sections of the Code at all times since its
inception.
(c) The statement of assets and liabilities, statement of operations, and
statements of changes in net assets, financial highlights and schedule of
investments (indicating their market values) for each HighMark Fund for the year
ended July 31, 1999, such statements and schedules having been audited by
Deloitte & Touche LLP, independent accountants to HighMark Funds, fairly present
the financial position of each HighMark Fund as of such date and said statements
of operations and changes in net assets and financial highlights fairly reflect
the results of operations, changes in net assets and financial highlights for
the periods covered thereby in conformity with generally accepted accounting
principles.
(d) The prospectuses of each HighMark Fund dated November 30, 1999, as filed
with the Securities and Exchange Commission (the "Commission") (the
Prospectuses") and the Statement of Additional Information for HighMark Funds,
dated November 30, 1999, as filed with the Commission did not as of their such
dates, and will not as of the Exchange Date contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(e) There are no material legal, administrative or other proceedings pending
or, to the knowledge of HighMark Funds, threatened against HighMark Funds which
assert liability on the part of HighMark Funds.
(f) The Consolidating Fund does not have any known liabilities of a material
nature, contingent or otherwise, other than those shown as belonging to it on
its respective statement of assets and liabilities as of July 31, 1999 referred
to in Section 1(c) hereof and those incurred in the ordinary course of HighMark
Funds' business as an investment company since that date.
(g) As used in this Plan, the term "Investments" shall mean the
Consolidating Fund's investments shown on their respective schedule of portfolio
investments as of July 31, 1999 referred to in Section 1(c) hereof as
supplemented with such changes as HighMark Funds or the Consolidating Fund shall
make after that date.
A2
<PAGE>
(h) HighMark Funds and each HighMark Fund has filed or will file all federal
and state tax returns which, to the knowledge of HighMark Funds' officers, are
required to be filed by HighMark Funds and has paid or will pay all federal and
state taxes shown to be due on said returns or on any assessments received by
HighMark Funds or each HighMark Fund. All tax liabilities of HighMark Funds and
each HighMark Fund have been adequately provided for on its books, and no tax
deficiency or liability of HighMark Funds or any HighMark Fund has been
asserted, and no question with respect thereto has been raised by the Internal
Revenue Service or by any state or local tax authority for taxes in excess of
those already paid.
(i) At both the Valuation Time and the Exchange Date and except for
shareholder approval, HighMark Funds, on behalf of the Consolidating Fund, will
have full right, power and authority to sell, assign, transfer and deliver the
Investments and any other assets and liabilities transferred by it pursuant to
this Plan. At the Exchange Date, subject only to the delivery of the shares,
Investments and any such other assets and liabilities as contemplated by this
Plan, HighMark Funds, on behalf of the Consolidated Fund, will acquire the
Investments and any such other assets subject to no encumbrances, liens or
security interests whatsoever and without any restrictions upon the transfer
thereof.
(j) At both the Valuation Time and the Exchange Date, HighMark Funds and the
Consolidated Fund will have full right, power and authority to purchase the
Investments and any other assets and assume the liabilities of the Consolidating
Fund to be transferred to it pursuant to this Plan.
(k) Each HighMark Fund is qualified and will at all times through the
Exchange Date qualify for taxation as a "regulated investment company" under
Sections 851 and 852 of the Code.
(l) At the Exchange Date, the Consolidating Fund will have sold such of its
assets, if any, as necessary to assure that, after giving effect to the
acquisition of its assets pursuant to this Plan, the Consolidated Fund will
remain a "diversified company" within the meaning of Section 5(b)(1) of the 1940
Act and in compliance with such other mandatory investment restrictions as are
set forth in its Prospectus and Statement of Additional Information.
SPECIFICS OF PLAN
2. REORGANIZATION. (a) Subject to the requisite approval of the respective
shareholders of the Consolidating Fund and to the other terms and conditions
contained herein (including the Consolidating Fund's distribution to its
respective shareholders of all of its investment company taxable income and net
capital gain (as described in Section 7(k)), the Consolidating Fund will sell,
assign, convey, transfer and deliver to the Consolidated Fund and the
A3
<PAGE>
Consolidated Fund will acquire from the Consolidating Fund, on the Exchange Date
all of the Investments and all of the cash and other assets of the Consolidating
Fund in exchange for that number of shares of beneficial interest of the
Consolidated Fund provided for in Section 3 and the assumption by the
Consolidated Fund of all of the liabilities of the Consolidating Fund. Pursuant
to this Plan, the Consolidating Fund will, as soon as practicable after the
Exchange Date, distribute in liquidation all of the Consolidated Fund's shares
received by it to its shareholders in exchange for their shares of beneficial
interest of the Consolidating Fund.
(b) HighMark Funds, on behalf of the Consolidating Fund, will pay or cause
to be paid to the Consolidated Fund any interest and cash dividends received by
it on or after the Exchange Date with respect to the Investments transferred to
the Consolidated Fund hereunder. HighMark Funds, on behalf of the Consolidating
Fund, will transfer to the Consolidated Fund any rights, stock dividends or
other securities received by it after the Exchange Date as stock dividends or
other distributions on or with respect to the Investments transferred, which
rights, stock dividends and other securities shall be deemed included in the
assets transferred to the Consolidated Fund at the Exchange Date and shall not
be separately valued, in which case any such distribution that remains unpaid as
of the Exchange Date shall be included in the determination of the value of the
assets of the Consolidating Fund.
3. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, the Consolidated
Fund will deliver to the Consolidating Fund a number of shares of the
Consolidated Fund having an aggregate net asset value equal to the value of the
assets of the Consolidating Fund, less the value of the liabilities of the
Consolidating Fund assumed, determined as hereafter provided in this Section.
(a) The valuation time shall be 4:00 pm. (Eastern time) June 2, 2000 or such
earlier or later day as may be established by the proper officers of HighMark
Funds (the "Valuation Time").
(b) The net asset value of shares of the Consolidated Fund to be delivered
to the Consolidating Fund, the value of the assets of the Consolidating Fund,
and the value of the liabilities of the Consolidating Fund to be assumed by the
Consolidated Fund in each case shall be computed as of the Valuation Time
pursuant to the valuation procedures customarily used by HighMark Funds.
(c) No formula will be used to adjust the net asset value of each HighMark
Fund to take into account differences in realized and unrealized gains and
losses.
(d) HighMark Funds, on behalf of the Consolidated Fund, shall issue shares
of the Consolidated Fund to the Consolidating Fund on one share
A4
<PAGE>
deposit receipt registered in the name of the Consolidating Fund. The
Consolidating Fund shall distribute in liquidation shares of the Consolidated
Fund received by it hereunder pro rata to its respective shareholders by
redelivering such share deposit receipt to HighMark Funds' transfer agent, which
will as soon as practicable set up open accounts for each shareholder of the
Consolidating Fund in accordance with written instructions furnished by HighMark
Funds.
(e) The Consolidated Fund shall assume all liabilities of the Consolidating
Fund, whether accrued or contingent, in connection with the acquisition of
assets and subsequent dissolution of the Consolidating Fund or otherwise, except
that recourse for assumed liabilities relating to the Consolidating Fund will be
limited to the Consolidated Fund.
4. EXPENSES AND FEES. All fees and expenses, including accounting
expenses, portfolio transfer taxes (if any) or other similar expenses incurred
directly in connection with the consummation of the transaction contemplated by
this Plan will be borne by HighMark Capital Management, Inc. and/or its
affiliates including the costs of proxy materials, proxy solicitation, and legal
expenses. Fees and expenses not incurred directly in connection with the
consummation of the Plan will be borne by the party incurring such fees and
expenses.
(b) Notwithstanding any other provisions of this Plan, if for any reason the
transaction contemplated by this Plan is not consummated, no entity shall be
liable to the other entity for any damages resulting therefrom, including,
without limitation, consequential damages.
5. EXCHANGE DATE. Delivery of the assets of the Consolidating Fund to be
transferred, assumption of the liabilities of the Consolidating Fund to be
assumed, and the delivery of the Consolidated Fund's shares to be issued shall
be made at the offices of HighMark Funds, 1 Freedom Valley Road, Oaks,
Pennsylvania 19456, at 9:00 a.m. Eastern time on the next full business day
following the Valuation Time, or at such other time and date established by the
proper officers of HighMark Funds, the date and time upon which such delivery is
to take place being referred to herein as the "Exchange Date."
6. SPECIAL MEETING OF SHAREHOLDERS: Dissolution. (a) The Consolidating
Fund agrees to call a special meeting of its respective shareholders as soon as
is practicable after the effective date of the registration statement filed with
the Commission by HighMark Funds on Form N-14 relating to the shares of the
Intermediate-Term Bond Fund issuable hereunder (the "Registration Statement"),
and the proxy statement of the Intermediate-Term Bond Fund included therein (the
"Proxy Statement") for the purpose of considering the sale of all of the assets
of the Consolidating Fund to and the assumption of all of the liabilities of the
Consolidating Fund by the Consolidated Fund as herein
A5
<PAGE>
provided, adopting this Plan, and authorizing the liquidation and dissolution of
the Consolidating Fund, and it shall be a condition to the obligations of each
of the parties hereto that the holders of the shares of beneficial interest of
the Consolidating Fund shall have approved this Plan and the transactions
contemplated herein in the manner required by law and HighMark Funds'
Declaration of Trust at such a meeting on or before the Valuation Time.
(b) The Consolidating Fund will liquidate and dissolve in the manner
provided in HighMark Funds' Declaration of Trust and in accordance with
applicable law, provided that the Consolidating Fund will not make any
distributions of shares of the Consolidated Fund to its shareholders without
first paying or adequately providing for the payment of all of its debts,
obligations and liabilities.
7. CONDITIONS TO BE MET REGARDING THE TRANSACTION. The intention of
HighMark Funds to consummate each of the transactions described herein is
subject to the following conditions:
(a) This Plan shall have been adopted and the transactions contemplated
hereby, including the liquidation and dissolution of the Consolidating Fund,
shall have been approved by its shareholders in the manner required by law.
(b) The officers of HighMark Funds shall cause the preparation of a
statement of assets of the Consolidating Fund and liabilities, with values
determined as provided in Section 3, together with a list of Investments
with their respective tax costs, all as of the Valuation Time, certified on
HighMark Funds' behalf by its President (or any Vice President) and
Treasurer, and a certificate of both such officers, dated the Exchange Date,
that there has been no material adverse change in the financial position of
the Consolidating Fund since July 31, 1999, other than changes in the
Investments since that date or changes in the market value of the
Investments, or changes due to net redemptions of shares of the
Consolidating Fund, dividends paid or losses from operations.
(c) The officers of HighMark Funds shall cause the preparation of a
statement of the Consolidated Fund's net assets, together with a list of
portfolio holdings with values determined as provided in Section 3 hereof,
all as of the Valuation Time certified on HighMark Funds' behalf by its
President (or any Vice President) and Treasurer.
(d) The President (or any Vice President) and Treasurer of HighMark
Funds shall certify that as of the Valuation Time and as of the Exchange
Date all the elements in Section 1 of this Plan are true and correct in all
material respects as if made at and as of such dates and that each HighMark
Fund has complied with and satisfied all the conditions on
A6
<PAGE>
its part under the Plan to be performed or satisfied at or prior to such
dates.
(e) There shall not be any material litigation pending with respect to
the matters contemplated by this Plan.
(f) HighMark Funds shall have received an opinion of Ropes & Gray dated
the Exchange Date to the effect that: (i) HighMark Funds is a business trust
duly established and validly existing under the laws of the Commonwealth of
Massachusetts, and neither HighMark Funds nor any HighMark Fund is, to the
knowledge of such counsel, required to qualify to do business as a foreign
association in any jurisdiction; (ii) HighMark Funds, on behalf of the
Consolidating Fund, has the power to sell, assign, convey, transfer and
deliver the Investments and other assets contemplated hereby and, upon
consummation of the transactions contemplated hereby in accordance with the
terms of this Plan, HighMark Funds, on behalf of the Consolidating Fund,
will have duly sold, assigned, conveyed, transferred and delivered such
Investments and other assets to the Consolidated Fund; (iii) the adoption of
this Plan did not, and the consummation of the transactions contemplated
hereby will not, violate HighMark Funds' Declaration of Trust or Code of
Regulations, as amended, or any provision of any agreement known to such
counsel to which HighMark Funds is a party or by which it is bound; (iv) no
consent, approval, authorization or order of any court or governmental
authority is required for the consummation by HighMark Funds of the
transactions contemplated hereby, except such as have been obtained under
the Securities Act of 1933 (the "1933 Act"), the Securities Exchange Act of
1934 ("the 1934 Act") and the 1940 Act; (v) this Plan has been duly
authorized, executed and delivered by HighMark Funds and is a valid and
binding obligation of HighMark Funds; and (vi) the shares of the
Consolidated Fund to be delivered to the Consolidating Fund as provided for
by this Plan are duly authorized and upon such delivery will be validly
issued and will be fully paid and nonassessable by HighMark Funds and no
shareholder of HighMark Funds has any preemptive right to subscription or
purchase in respect thereof.
(g) With respect to the transaction, HighMark Funds shall have received
an opinion of Ropes & Gray addressed to HighMark Funds and dated the
Exchange Date to the effect that for Federal income tax purposes: (i) no
gain or loss will be recognized by the Consolidating Fund upon the transfer
of the assets and Investments to the Consolidated Fund in exchange for
shares of the Consolidated Fund and the assumption by the Consolidated Fund
of the liabilities of the Consolidating Fund or upon the distribution of
shares of the Consolidating Fund by the Consolidating Fund to its
shareholders in liquidation; (ii) no gain or loss will be
A7
<PAGE>
recognized by the shareholders of the Consolidating Fund upon the exchange
of its shares for the shares of the Consolidated Fund; (iii) the basis of
the shares of the Consolidated Fund's shares a shareholder of the
Consolidating Fund receives in connection with the exchange will be the same
as the basis of his or her Consolidating Fund's shares exchanged therefor;
(iv) the Consolidating Fund's shareholder's holding period for his or her
Consolidated Fund's shares will be determined by including the period for
which he or she held the shares of the Consolidating Fund exchanged
therefor, provided that he or she held such shares of the Consolidating Fund
as capital assets; (v) no gain or loss will be recognized by the
Consolidated Fund upon the receipt of the assets transferred to the
Consolidated Fund pursuant to this Plan in exchange for the shares of the
Consolidated Fund and the assumption by the Consolidated Fund of the
liabilities of the Consolidating Fund; (vi) the basis in the hands of the
Consolidated Fund of the assets of the Consolidating Fund will be the same
as the basis of the assets in the hands of the Consolidating Fund
immediately prior to the transfer; and (vii) the Consolidated Fund's holding
periods of the assets of the Consolidating Fund will include the period for
which such assets were held by the Consolidating Fund.
(h) The assets of the Consolidating Fund to be acquired by the
Consolidated Fund will include no assets which the Consolidated Fund, by
reason of limitations contained in HighMark Funds' Declaration of Trust or
of investment restrictions disclosed in its Prospectus in effect on the
Exchange Date, may not properly acquire.
(i) The Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been
instituted or to the knowledge of HighMark Funds, contemplated by the
Commission.
(j) HighMark Funds shall have received from the Commission such order or
orders as Ropes & Gray deems reasonably necessary or desirable under the
1933 Act, the 1934 Act, the 1940 Act in connection with the transactions
contemplated hereby, and that all such orders shall be in full force and
effect.
(k) Prior to the Exchange Date, the Consolidating Fund shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its respective
shareholders all of its investment company taxable income for its taxable
years ending on or after July 31, 1999 and on or prior to the Exchange Date
(computed without regard to any deduction for dividends paid), and all of
its net capital gain realized in each of its taxable years ending on or
after July 31, 1999 and on or prior to the Exchange Date (after reduction
for any capital loss carryover).
A8
<PAGE>
(l) The custodian of HighMark Funds shall have delivered to HighMark
Funds a certificate identifying all of the assets of the Consolidating Funds
held by such custodian as of the Valuation Time.
(m) The transfer agent of HighMark Funds shall have provided to HighMark
Funds (i) a certificate setting forth the number of shares of the
Consolidating Fund outstanding as of the Valuation Time and (ii) the name
and address of each holder of record of any such shares of the Consolidating
Fund and the number and class of shares held of record by each such
shareholder.
(n) HighMark Funds, on behalf of the Consolidating Fund, shall have
executed and delivered an Assumption of Liabilities dated as of the Exchange
Date pursuant to which the Consolidating Fund will assume all of the
liabilities of the Consolidating Fund existing at the Valuation Time in
connection with the transactions contemplated by this Plan.
(o) HighMark Funds, on behalf of the Consolidating Fund, shall have
executed and delivered an instrument of transfer ("Transfer Document") and
any other certificates or documents HighMark Funds may deem necessary or
desirable to transfer the Consolidating Fund's entire right, title and
interest in and to the Investments and all other assets.
8. NO BROKER. There is no person who has dealt with HighMark Funds or any
HighMark Fund who by reason of such dealings is entitled to any broker's or
finder's or other similar fee or commission arising out of the transactions
contemplated by this Plan.
9. TERMINATION. HighMark Funds may, by consent of its trustees, terminate
this Plan, and HighMark Funds, after consultation with counsel, may modify this
Plan in any manner deemed necessary or desirable.
10. RULE 145. Pursuant to Rule 145 under the 1933 Act, HighMark Funds
will, in connection with the issuance of any shares of the Consolidated Fund to
any person who at the time of the transaction contemplated hereby is deemed to
be an affiliate of a party to the transaction pursuant to Rule 145(c), cause to
be affixed upon the certificates issued to such person (if any) a legend as
follows:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO HIGHMARK FUNDS
OR ITS PRINCIPAL UNDERWRITER UNLESS (i) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (ii) IN
THE OPINION
A9
<PAGE>
OF COUNSEL REASONABLY SATISFACTORY TO HIGHMARK FUNDS SUCH REGISTRATION IS NOT
REQUIRED.
and, further, HighMark Funds will issue stop transfer instructions to HighMark
Funds' transfer agent with respect to such shares.
11. AGREEMENT AND DECLARATION OF TRUST. Copies of the Agreement and
Declaration of Trust of HighMark Funds and any amendments thereto so filed is on
file with the Secretary of State of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the trustees of HighMark Funds, as
trustees and not individually, and that the obligations of this instrument are
not binding upon any of the trustees, officers or shareholders of HighMark Funds
individually but are binding only upon the assets and property of HighMark
Funds.
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 a Declaration of
Trust filed on March 10, 1987, as amended, to which reference is hereby made and
a copy of which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of HighMark Funds entered
into in the name or on behalf thereof by any of the Trustees, representatives or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, 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.
<TABLE>
<S> <C> <C>
HighMark Funds
By:
--------------------
</TABLE>
A10
<PAGE>
HIGHMARK FUNDS
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information contains information which may
be of interest to investors, but which is not included in the Combined
Prospectus/Proxy Statement of HighMark Funds dated April 26, 2000 (the
"Prospectus") relating to the transfer of the assets and liabilities of the
HighMark Intermediate-Term Bond Fund to the HighMark Bond Fund. This Statement
of Additional Information is not a prospectus and is authorized for distribution
only when it accompanies or follows delivery of the Prospectus. This Statement
of Additional Information should be read in conjunction with the Prospectus. A
copy of the Prospectus may be obtained, without charge, by writing SEI
Investments Distribution Co., 1 Freedom Valley Drive, Oaks, PA 19456 or by
calling 1-800-734-2922.
The Statement of Additional Information for HighMark Funds, dated
November 30, 1999 has been filed with the Securities and Exchange Commission and
is incorporated herein by reference.
Audited financial statements for the Intermediate-Term Bond Fund and
the Bond Fund for the period ended July 31, 1999 are contained in the Annual
Report, which is incorporated herein by reference. Unaudited financial
statements for the Intermediate-Term Bond Fund and the Bond Fund for the
period ended January 31, 2000 are contained in the Semi-Annual Report, which
is also incorporated herein by reference.
The date of this Statement of Additional Information is April 26, 2000.
B1
<PAGE>
TABLE OF CONTENTS
Financial Statements of the combined Funds
on a pro-forma basis as of and for the year ended
July 31, 1999 (unaudited) ..................................................B-3
B2
<PAGE>
HIGHMARK BOND FUND
PRO FORMA COMBINING STATEMENTS OF ASSETS AND LIABILITIES (000)
FOR THE YEAR ENDED JULY 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
COMBINED
BOND INTERMEDIATE- PROFORMA PROFORMA
FUND TERM BOND FUND ADJUSTMENTS BOND FUND
<S> <C> <C> <C> <C>
ASSETS:
Investments at market value $399,692 $278,027 $677,719
(cost of $406,331, $281,152 and $687,483, respectively)
Interest Receivable 4,782 4,275 9,057
Receivable for investment securities sold - - -
Receivable for capital shares sold 109 290 399
Other assets 1,658 5 1,663
Total Assets 406,241 282,597 - 688,838
LIABILITIES:
Payable for investment securities purchased - - -
Payable for capital shares repurchased 114 62 176
Payable upon return of securities loaned 68,215 19,987 88,202
Other Liabilities 374 182 556
Total Liabilities 68,703 20,231 - 88,934
NET ASSETS:
Fiduciary Shares - HighMark Bond Fund
(based on 32,224,970 outstanding shares) 342,359
Fiduciary Shares - Pro Forma HighMark Bond Fund
(based on 57,028,834 outstanding shares) 604,870
Fiduciary Shares - HighMark Intermediate-Term Bond Fund 262,511
(based on 25,783,110 outstanding shares)
Class A - HighMark Bond Fund (based on 256,052 outstanding shares) 2,743
Class A - Proforma HighMark Bond Fund
(based on 701,613 outstanding shares) 8,065
Class A - HighMark Intermediate-Term Bond Fund
(based on 459,324 outstanding shares) 5,322
Undistributed net investment income 444 232 676
Accumulated net realized gain (losses) on investments (1,369) (2,574) (3,943)
Net unrealized appreciation (depreciation) on investments (6,639) (3,125) (9,764)
TOTAL NET ASSETS 337,538 262,366 599,904
Net Asset Value, Offering Price and Redemption Price Per Share -- Fiduciary Class 10.39 10.00 10.39
Net Asset Value and Redemption Price Per Share -- Class A 10.30 9.99 10.30
Maximum Offering Price Per Share -- Class A 10.62 10.30 10.62
</TABLE>
B3
<PAGE>
HIGHMARK BOND FUND
PRO FORMA COMBINING STATEMENTS OF OPERATIONS (000)
FOR THE YEAR ENDED JULY 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
BOND INTERMEDIATE- PROFORMA COMBINED
FUND TERM BOND FUND ADJUSTMENTS BOND FUND
<S> <C> <C> <C> <C>
Interest Income $18,323 $17,203 $35,526
Dividend Income - - -
Total Investment Income $18,323 $17,203 - $35,526
Expenses:
Administrative Fee 574 531 1,105
Administrative Fees Waived (57) (53) (110)
Investment Adviser Fee 1,435 1,328 2,763
Investment Adviser Fee Waiver - - -
Shareholder Servicing Fees Fiduciary 710 650 (433) 927
Shareholder Servicing Fees Class A 7 14 (9) 12
Shareholder Servicing Fees Waived (689) (584) (1,273)
Custodian Fees 29 27 56
Professional Fees 35 20 (14) 41
Registration Fees 40 16 (16) 40
Transfer Agent Fees 30 21 51
Distribution Fees Class A 7 13 20
Distribution Fees Waiver (7) (13) (20)
Insurance Fees 5 2 7
Trustees Fees 12 5 17
Printing Fees 30 16 - 46
Miscellaneous Fees 2 5 - 7
Total Expenses 2,163 1,998 (472) 3,689
Reduction of Expenses (6) (6) (12)
Total Net Expenses 2,157 1,992 3,677
Net Investment Income 16,166 15,211 472 31,849
Net Realized Gain (Loss) on Investments 2,681 693 3,374
Change in Unrealized Appreciation
(Depreciation) on Investments (14,801) (9,244) (24,045)
Net Realized and Unrealized Gain on Investments (12,120) (8,551) (20,671)
Increase in Net Assets Resulting from Operations 4,046 6,660 11,178
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGHMARK BOND FUND
PRO FORMA COMBINING
SCHEDULE OF INVESTMENTS BOND FUND INTERMEDIATE-TERM BOND FUND PROFORMA BOND FUND
July 31, 1999 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
Face Market Face Market Face Market
Amount Value Amount Value Amount Value
(000) (000) (000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS--9.6%
U.S. TREASURY NOTES
6.250%, 05/31/00 2,000 2,015 2,000 2,015
6.125%, 09/30/00 2,000 2,015 2,000 2,015
7.250%, 05/15/04 (A) 7,000 7,378 7,000 7,378
5.875%, 11/05/05 (A) 2,000 1,985 2,000 1,985
7.750%, 01/31/00 1,500 1,519 1,500 1,519
6.750%, 04/30/00 1,000 1,011 1,000 1,011
5.500%, 01/31/03 (A) 1,500 1,484 1,500 1,484
U.S. TREASURY BONDS
10.375%, 11/15/12 (A) 3,000 3,786 3,000 3,786
7.250%, 05/15/16 (A) 9,850 10,728 9,850 10,728
8.125%, 08/15/19 (A) 12,500 14,939 12,500 14,939
8.750%, 08/15/20 (A) 4,860 6,180 4,860 6,180
7.250%, 08/15/22 (A) 1,500 1,661 1,500 1,661
7.125%, 02/15/23 2,800 3,065 2,800 3,065
-------------- --------------- --------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $56,894) 44,373 13,393 57,766
-------------- --------------- --------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS--28.7%
AID-ISRAEL
7.125%, 08/15/99 2,000 2,001 2,000 2,001
FHLMC
8.000%, 05/15/00 220 221 220 221
7.000%, 09/01/01 3,281 3,293 3,281 3,293
7.000%, 02/20/18 974 979 974 979
6.250%, 01/15/24 2,000 1,890 2,000 1,890
FNMA
5.625%, 03/15/01 (A) 5,000 4,975 5,000 4,975
6.200%, 09/25/02 2,000 1,985 1,000 992 3,000 2,977
5.125%, 02/13/04 (A) 11,000 10,447 10,000 9,497 21,000 19,944
6.850%, 09/12/05 (A) 2,000 2,003 2,000 2,003 4,000 4,006
6.700%, 11/10/05 1,000 1,000 3,750 3,750 4,750 4,750
6.500%, 12/01/07 1,162 1,135 1,162 1,135
6.000%, 05/01/09 635 608 635 608
6.375%, 06/01/09 (A) 3,500 3,411 3,500 3,411
6.000%, 09/01/10 1,338 1,280 1,338 1,280
6.000%, 05/01/11 2,000 1,913 2,000 1,913
6.000%, 01/01/12 1,598 1,529 1,598 1,529
6.000%, 03/01/13 2,607 2,494 2,607 2,494
6.500%, 03/25/13 1,500 1,478 1,500 1,478
6.500%, 03/01/24 1,051 1,000 1,051 1,000
8.000%, 08/01/24 80 82 80 82
8.000%, 09/01/24 23 23 23 23
8.000%, 10/01/24 94 96 94 96
8.500%, 05/01/25 479 497 479 497
6.500%, 01/01/26 715 680 715 680
6.500%, 05/01/26 634 603 634 603
8.000%, 07/01/26 767 783 767 783
7.500%, 12/01/26 8,220 8,218 8,220 8,218
6.000%, 12/01/27 1,802 1,668 1,802 1,668
6.500%, 01/01/28 924 880 924 880
6.500%, 02/01/28 1,428 1,360 1,428 1,360
6.500%, 03/01/28 1,713 1,631 1,713 1,631
6.500%, 04/01/28 4,733 4,505 4,733 4,505
6.000%, 07/01/28 7,864 7,287 7,864 7,287
6.000%, 08/01/28 978 907 978 907
6.000%, 10/01/28 4,882 4,522 4,882 4,522
6.000%, 12/01/28 32,401 30,001 32,401 30,001
6.500%, 01/01/29 14,315 13,626 14,315 13,626
U.S. GOVERNMENT AGENCY
OBLIGATIONS (CONTINUED)
GNMA
8.000%, 04/15/17 257 263 257 263
8.000%, 05/15/17 124 127 124 127
6.500%, 06/15/23 1,908 1,811 1,908 1,811
6.500%, 12/15/23 1,115 1,059 1,115 1,059
6.500%, 01/15/24 420 399 420 399
7.000%, 01/15/24 569 555 569 555
7.500%, 01/15/24 789 788 789 788
6.500%, 02/15/24 737 700 737 700
7.500%, 02/15/24 1,010 1,008 1,010 1,008
7.000%, 04/15/24 1,159 1,130 1,159 1,130
7.500%, 09/15/25 619 619 619 619
6.500%, 10/15/25 766 728 766 728
6.500%, 04/15/26 1,725 1,639 1,725 1,639
8.000%, 11/15/26 5,000 5,108 4,000 4,086 9,000 9,194
7.500%, 02/15/27 610 609 610 609
7.500%, 06/15/27 331 331 331 331
7.500%, 07/15/27 961 960 961 960
7.500%, 08/15/27 823 822 823 822
6.000%, 07/15/28 1,998 1,840 1,998 1,840
6.000%, 08/15/28 999 921 999 921
6.000%, 09/15/28 2,999 2,763 1,999 1,841 4,998 4,604
6.500%, 01/15/29 4,852 4,605 4,852 4,605
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
-------------- --------------- --------------
(COST $177,882) 126,546 45,419 171,965
-------------- --------------- --------------
Certificates of Deposit -
Yankee--0.8%
Asian Development Bank
5.750%, 05/19/03 5,000 4,912 5,000 4,912
-------------- --------------
TOTAL CERTIFICATES OF
DEPOSIT - YANKEE (COST $4,970) 4,912 4,912
-------------- --------------
Corporate Obligations--48.8%
AEROSPACE & DEFENSE--2.7%
Lockheed Martin
7.450%, 06/15/04 5,500 5,569 5,500 5,569
7.700%, 06/15/08 1,500 1,526 1,500 1,526
McDonnell Douglas
6.875%, 11/01/06 1,000 1,000 1,000 1,000
Raytheon
6.750%, 08/15/07 6,000 5,865 6,000 5,865
6.150%, 11/01/08 2,500 2,334 2,500 2,334
-------------- --------------- --------------
3,860 12,434 16,294
-------------- --------------- --------------
AUTOMOTIVE--5.4%
Ford Motor Credit
8.200%, 02/15/02 6,000 6,225 6,000 6,225
6.500%, 02/28/02 (A) 6,500 6,484 4,500 4,489 11,000 10,973
7.750%, 11/15/02 1,000 1,027 1,000 1,027
General Motors
8.950%, 07/02/09 4,455 4,595 4,455 4,595
General Motors Acceptance, MTN
5.350%, 12/07/01 5,000 4,869 5,000 4,869 10,000 9,738
-------------- --------------- --------------
12,380 20,178 32,558
-------------- --------------- --------------
Auto Rental & Leasing--0.6%
Hertz
--------------- --------------
6.625%, 05/15/08 4,000 3,825 4,000 3,825
--------------- --------------
CORPORATE OBLIGATIONS
(CONTINUED)
BANKS--6.8%
BankBoston, N.A.
8.375%, 12/15/02 1,250 1,306 2,500 2,612 3,750 3,918
Bankers Trust
7.250%, 01/15/03 3,500 3,513 3,500 3,513
Bancponce
6.750%, 12/15/05 2,000 1,965 2,000 1,965
Citicorp (A) 4,100 4,044 4,100 4,044
6.750%, 08/15/05 4,075 4,019 4,075 4,019
Fleet Financial
7.125%, 04/15/06 5,000 4,962 5,000 4,962
Golden West Financial (A)
6.700%, 07/01/02 4,500 4,500 1,000 1,000 5,500 5,500
Mellon Bank N.A.
7.000%, 03/15/06 1,500 1,491 1,500 1,491
Mercantile Bancorp
7.050%, 06/15/04 1,500 1,502 2,500 2,503 4,000 4,005
U.S. Bancorp
6.875%, 09/15/07 4,500 4,444 3,000 2,962 7,500 7,406
-------------- --------------- --------------
15,796 25,027 40,823
-------------- --------------- --------------
Beauty Products--0.1%
Procter and Gamble
--------------
--------------
8.500%, 08/10/09 500 560 500 560
-------------- --------------
BROADCATING, NEWSPAPERS &
ADVERTISING--0.7%
TCI Communications
6.875%, 02/15/06 4,000 3,960 4,000 3,960
--------------- --------------
3,960 3,960
---------------
Chemicals--1.2%
Du Pont (E.I.) de Numours
--------------- --------------
6.500%, 09/01/02 7,000 7,017 7,000 7,017
--------------- --------------
COMPUTERS & SERVICES--0.8%
IBM (A)
-------------- --------------
6.500%, 01/15/28 5,000 4,562 5,000 4,562
-------------- --------------
ELECTRICAL UTILITIES--3.7%
Arkansas Electric Cooperative
7.330%, 06/30/08 2,125 2,178 2,125 2,178
Baltimore Gas & Electric
5.780%, 10/01/08 4,000 3,685 4,000 3,685
Cleveland Electric
7.670%, 07/01/04
Nevada Power
6.200%, 04/15/04 4,700 4,553 4,700 4,553
Oklahoma Gas & Electric
6.650%, 07/15/27 2,500 2,512 2,500 2,512
Old Dominion Electric
7.480%, 12/01/13 5,550 5,557 5,550 5,557
Pacific Gas & Electric
8.750%, 01/01/01 3,280 3,387 3,280 3,387
-------------- --------------- --------------
4,553 17,319 21,872
-------------- --------------- --------------
Entertainment--1.0%
Walt Disney
6.375%, 03/30/01 1,500 1,506 2,000 2,007 3,500 3,513
5.620%, 12/01/08 3,000 2,752 3,000 2,752
-------------- --------------- --------------
1,506 4,759 6,265
-------------- --------------- --------------
CORPORATE OBLIGATIONS
(CONTINUED)
FINANCIAL SERVICES--7.1%
American General Finance
5.370%, 12/10/01 2,000 1,952 2,000 1,952
Associates Corporation, N.A.
6.500%, 07/15/02 1,000 994 1,000 994
6.000%, 04/15/03 5,000 4,856 2,000 1,943 7,000 6,799
Avco Financial Services
7.375%, 08/15/01 3,500 3,561 3,500 3,561
Bear Stearns
6.500%, 06/15/00 4,000 4,024 4,000 4,024
Commercial Credit
6.200%, 11/15/01 2,000 1,990 2,000 1,990
General Electric Capital Services
6.500%, 11/01/06 3,500 3,434 2,000 1,963 5,500 5,397
Lehman Brothers Holdings
8.750%, 05/15/02 4,000 4,170 4,000 4,170
Merrill Lynch, MTN
6.330%, 08/25/00 3,000 3,025 1,500 1,512 4,500 4,537
Morgan Stanley Dean Witter
6.125%, 10/01/03 1,300 1,261 3,000 2,910 4,300 4,171
Salomon Brothers
7.300%, 05/15/02 1,000 1,015 4,000 4,060 5,000 5,075
-------------- --------------- --------------
16,537 26,133 42,670
-------------- --------------- --------------
Food, Beverage & Tobacco--1.5%
Bass America
6.750%, 08/01/99 200 200 4,000 4,000 4,200 4,200
Grand Metro Investment
8.625%, 08/15/01 1,000 1,041 1,000 1,041
Philip Morris
7.750%, 01/15/27 1,000 1,001 1,000 1,001
Safeway
5.750%, 11/15/00 3,000 2,985 3,000 2,985
-------------- --------------- --------------
1,201 8,026 9,227
-------------- --------------- --------------
Foreign Governments--2.3%
Hydro Quebec
8.050%, 07/07/24 1,125 1,207 1,125 1,207
Province of British Columbia
7.000%, 01/15/03 1,500 1,517 1,500 1,517 3,000 3,034
Province of Manitoba
6.125%, 01/19/04 4,000 3,910 4,000 3,910
Province of Ontario
7.375%, 01/27/03 1,500 1,536 4,000 4,095 5,500 5,631
-------------- --------------- --------------
4,260 9,522 13,782
-------------- --------------- --------------
Gas/Natural Gas--1.3%
Duke Energy
7.875%, 08/15/04 3,000 3,146 3,000 3,146
KN Energy
7.250%, 03/01/28 5,000 4,550 5,000 4,550
-------------- --------------- --------------
4,550 3,146 7,696
-------------- --------------- --------------
Insurance--2.2%
American General Finance
5.370%, 12/10/01 2,500 2,441 2,500 2,441
Travelers Property Casualty
6.750%, 04/15/01 6,000 6,022 5,000 5,019 11,000 11,041
-------------- --------------- --------------
6,022 7,460 13,482
-------------- --------------- --------------
Machinery--1.0%
Caterpillar Tractor
6.000%, 05/01/07 3,360 3,158 1,000 940 4,360 4,098
Tyco International
6.500%, 11/01/01 1,800 1,798 1,800 1,798
-------------- --------------- --------------
3,158 2,738 5,896
-------------- --------------- --------------
CORPORATE OBLIGATIONS
(CONTINUED)
METALS & MINING--0.3%
Potash
-------------- --------------
7.125%, 6/15/07 1,500 1,470 1,500 1,470
-------------- --------------
PETROLEUM REFINING--0.3%
Phillips Petroleum
-------------- --------------
7.125%, 03/15/28 2,000 1,815 2,000 1,815
-------------- --------------
PRINTING & PUBLISHING--1.5%
E.W. Scripps
6.375%, 10/15/02 4,000 3,985 4,000 3,985
Time Warner
7.480%, 01/15/08 5,000 5,056 5,000 5,056
-------------- --------------
9,041 9,041
-------------- --------------
Retail--3.8%
JC Penney
6.000%, 05/01/06 1,230 1,139 1,230 1,139
Safeway
5.750%, 11/15/00 7,000 6,965 7,000 6,965
Sears Finance (A)
7.000%, 06/15/07 1,500 1,491 5,000 4,969 6,500 6,460
Staples
7.125%, 08/15/07 2,500 2,466 2,500 2,466
Wal-Mart Stores (A)
6.375%, 03/01/03 2,850 2,836 3,000 2,985 5,850 5,821
-------------- --------------- --------------
14,897 7,954 22,851
-------------- --------------- --------------
Telephones &
Telecommunication--4.5%
Bell Atlantic
8.000%, 10/15/29 2,980 3,133 2,980 3,133
Cable and Wireless Communications
6.625%, 03/06/05 4,500 4,371 7,000 6,799 11,500 11,170
New England Telephone & Telegraph
6.250%, 03/15/03 1,500 1,481 2,000 1,975 3,500 3,456
7.875%, 11/15/29 1,000 1,037 1,000 1,037
Worldcom
6.400%, 08/15/05 6,000 5,842 2,500 2,594 8,500 8,436
-------------- --------------- --------------
15,864 11,368 27,232
-------------- --------------- --------------
-------------- --------------- --------------
TOTAL CORPORATE OBLIGATIONS
(COST $297,916) 122,032 170,866 292,898
-------------- --------------- --------------
CORPORATE OBLIGATIONS
(CONTINUED)
ASSET- BACKED SECURITIES--7.6%
American Express Master Trust 1998-1
5.900%, 04/15/04 4,000 3,931 4,000 3,931
Chase Manhattan Auto Grantor Trust
6.610%, 09/15/02 319 321 1,913 1,925 2,232 2,246
Citibank Credit Card Master Trust
1997-3 Cl A
6.839%, 02/10/04 2,700 2,705 3,000 3,006 5,700 5,711
Citibank Credit Card Master Trust
1998-3 Cl A
5.800%, 02/07/05 2,000 1,966 3,400 3,342 5,400 5,308
Contimortgage Home Equity Loan Trust
1995-2 Cl A4
8.050%, 07/15/12 544 542 544 542
Contimortgage Home Equity Loan Trust,
Ser 1995-3 Cl A4
7.440%, 09/15/12 899 905 2,796 2,815 3,695 3,720
EQCC Home Equity Loan Trust 1995-2 Cl A4
7.800%, 12/15/10 1,580 1,623 1,580 1,623
EQCC Home Equity Loan Trust 1996-3 Cl A6
7.400%, 12/15/19 2,500 2,497 2,500 2,497 5,000 4,994
Green Tree Financial
6.750%, 06/15/25 1,718 1,724 1,718 1,724
Green Tree Financial 1995-9 Cl A
6.800%, 01/15/27 7,500 7,562 7,500 7,562
J.C. Penney Master Credit Card Trust
9.625%, 06/15/00 1,500 1,560 6,000 6,239 7,500 7,799
J.C. Penney Master Credit Card Trust
Ser B Cl A
8.955%, 10/15/01 658 690 658 690
-------------- --------------- --------------
TOTAL ASSET BACKED SECURITIES
(COST $46,660) 23,612 22,238 45,850
-------------- --------------- --------------
COLLATERALIZED MORTGAGE OBLIGATIONS--0.8%
GE Capital Mortgage Service 1994-1 Cl A6
6.500%, 01/25/24 1,598 1,597 1,598 1,597
Residential Funding Mortgage 1992-S36 Cl A4
6.750%, 11/25/07 599 597 966 963 1,565 1,560
Residential Funding Mortgage 1992-S36 Cl A4
7.000%, 01/15/04 1,354 1,364 1,354 1,364
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
-------------- --------------- --------------
(COST $3,354) 2,194 2,327 4,521
-------------- --------------- --------------
COMMERCIAL PAPER--4.2%
Bear Stearns (B) (C)
5.355%, 01/07/00 10,000 10,000 10,000 10,000 20,000 20,000
Federal Signal
5.305%, 08/05/99 5,000 4,995 5,000 4,995
-------------- --------------- --------------
TOTAL COMMERCIAL PAPER (COST $24,995) 14,995 10,000 24,995
-------------- --------------- --------------
CORPORATE BONDS--1.7%
Amex Centurion (B) (C)
5.200%, 04/24/00 10,000 10,000 10,000 10,000
-------------- --------------
TOTAL CORPORATE OBLIGATION (COST $10,000) 10,000 10,000
-------------- --------------
REPURCHASE AGREEMENTS--10.8%
Deutsche Bank Securities, Inc.
5.010%, dated 07/30/99, matures 08/02/99,
repurchase price $7,811,140
(collateralized by U.S. Treasury Note,
par value $7,913,000, 5.625%,
12/31/99; market value $7,864,803) 7,808 7,808 7,808 7,808
Deutsche Bank Securities, Inc.
5.010%, dated 07/30/99, matures 08/02/99,
repurchase price $3,798,173 (collateralized
by U.S. Treasury Note, par value $3,848,000,
5.625%, 12/31/99; market value $3,873,191) 3,797 3,797 3,797 3,797
REPURCHASE AGREEMENTS (CONTINUED)
HSBC Securities, Inc. (B) (C)
5.220%, dated 07/30/99, matures 08/02/99,
repurchase price $21,150,195 (collateralized
by various corporate obligations,
par value $32,501,852, 0.000%-13.250%,
08/15/99-12/27/18: market value $21,564,405) 21,141 21,141 21,141 21,141
HSBC Securities, Inc. (B) (C) 5.220%, dated
07/30/99, matures 08/02/99, repurchase price
$9,991,344 (collateralized by various corporate
obligations, par value $15,353,863, 0.000%-13.250%,
08/15/99-12/27/18: market value $10,187,017) 9,987 9,987 9,987 9,987
Lehman Brothers, Inc. (B) (C)
5.205%, dated 07/30/99, matures 08/02/99,
repurchase price $22,088,546 (collateralized by
Structured Asset Securities, Corp., par value
$56,020,000, 4.129%, 09/25/26: market value
$23,164,850) 22,079 22,079 22,079 22,079
-------------- --------------- --------------
TOTAL REPURCHASE AGREEMENTS (COST $64,812) 51,028 13,784 64,812
-------------- --------------- --------------
-------------- ---------------
TOTAL INVESTMENTS--113.0% (COST $687,483) 399,692 278,027 677,719
-------------- --------------- --------------
PAYABLE UPON RETURN OF SECURITIES LOANED
--------------- --------------
- --(14.7%) (68,215) (19,987) (88,202)
-------------- --------------- --------------
--------------
OTHER ASSETS AND LIABILITIES, NET--1.7% 6,061 4,326 10,387
-------------- --------------- --------------
============== =============== ==============
TOTAL NET ASSETS--100.0% 337,538 262,366 599,904
============== =============== ==============
- ----------------------------------------------------------------------------------------------------------------------
(A) This security or a partial position of this security is on loan at July
31,1999. The total value of securities on loan at July 31, 1999 was
$66,509,805 and $19,534,027 for Bond and Intermediate-Term Bond,
respectively.
(B) This security purchased with cash collateral held from securities lending.
(C) Floating Rate Security - The rate reflected on the Statement of Net Assets
is the rate in effect on July 31, 1999. Cl - Class FHLMC - Federal Home Loan
Mortgage Corporation FNMA - Federal National Mortgage Association GNMA -
Government National Mortgage Association MTN - Medium Term Note Ser - Series
</TABLE>
B4
<PAGE>
HIGHMARK BOND FUND
Notes to Pro Forma Financial Statements
1. BASIS OF COMBINATION
The unaudited Pro Forma Combining Statements of Assets and Liabilities,
Pro Forma Combining Statements of Operations and Pro Forma Combining Schedule of
Investments give effect to the proposed acquisition of the HighMark
Intermediate-Term Bond Fund by the HighMark Bond Fund. The proposed acquisition
will be accounted for by the method of accounting for tax free mergers of
investment companies (sometimes referred to as the pooling without restatement
method). The acquisition will be accomplished by an exchange of all outstanding
Fiduciary Shares and Class A Shares of the HighMark Intermediate-Term Bond Fund
in exchange for Fiduciary Shares and Class A Shares, respectively, of the
HighMark Bond Fund.
The Pro Forma combining statements should be read in conjunction with
the historical financial statements of the constituent funds and the notes
thereto incorporated by reference in the Statement of Additional Information.
The HighMark Bond Fund is a portfolio offered by HighMark Funds, an
open-end, management investment company registered under the Investment Company
Act of 1940, as amended. The HighMark Intermediate-Term Bond Fund is a portfolio
offered by HighMark Funds, an open-end, management investment company also
registered under the Investment Company Act of 1940, as amended.
PRO FORMA ADJUSTMENTS:
a) The Pro Forma combining statements of assets and liabilities
assumes the issuance of additional shares of the HighMark Bond Fund
as if the reorganization were to take place on July 31, 1999 and is
based on the net asset value of the acquiring fund. In addition,
because the HighMark Bond Fund is the surviving fund for accounting
purposes, the pro forma adjustments also reflect a reverse stock
split of the HighMark Intermediate-Term Bond Fund shares that will
take place simultaneous to the merger so as to ensure that the NAV
per share that carries forward for historical reporting purposes is
the NAV per share of the HighMark Bond Fund at the time of the
merger.
b) The Pro Forma adjustments to professional, registration and
shareholder servicing fees reflect the expected savings due to the
combination of the funds.
B5
