<PAGE>
As filed with the Securities and Exchange Commission
on September 22, 2000
Registration Nos. 33-12608 and 811-5059
---------------------------------------
---------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No.
Post-Effective Amendment No. 30 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT /X/
COMPANY ACT OF 1940
Amendment No. 31 /X/
HIGHMARK FUNDS
(Exact Name of Registrant as Specified in Charter)
Oaks, Pennsylvania 19456
------------------------
(Address of principal executive offices)
(800) 433-6884
--------------
(Registrant's telephone number, including area code)
Name and address of agent for service:
--------------------------------------
Martin E. Lybecker, Esq.
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on [date] pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(i)
/ / on [date] pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on [date] pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for
post-effective amendment No. [__] filed on [date].
<PAGE>
HIGHMARK FUNDS
EQUITY FUNDS
FIXED-INCOME FUNDS
Retail Shares
PROSPECTUS
Balanced Fund
Core Equity Fund
Growth Fund
Income Equity Fund
International Equity Fund
Small Cap Value Fund
Value Momentum Fund
Bond Fund
California Intermediate Tax-Free Bond Fund
November 30, 2000
The Securities and Exchange Commission has not approved or disapproved of these
securities or determined whether this prospectus is accurate or complete. Any
representation to the contrary is unlawful.
<PAGE>
HOW TO READ THIS PROSPECTUS
HighMark Funds is a mutual fund family that offers different classes of Shares
in separate investment portfolios (Funds). The Funds have various investment
goals and strategies. This prospectus gives you important information about the
Class A, Class B and Class C Shares of HighMark's Equity and Fixed-Income funds
that you should know before investing. Each Fund also offers a class of Shares
called Fiduciary Shares, which are offered in a separate prospectus. In
addition, the HighMark Value Momentum Fund offers a class of Shares called Class
I Shares.
Please read this prospectus and keep it for future reference. The prospectus is
arranged into different sections so that you can easily review this important
information. The next column contains general information you should know about
investing in the HighMark Funds.
INDIVIDUAL HIGHMARK FUND PROFILES
EQUITY FUNDS
Balanced Fund...................................................................
Core Equity Fund................................................................
Growth Fund.....................................................................
Income Equity Fund..............................................................
International Equity Fund.......................................................
Small Cap Value Fund............................................................
Value Momentum Fund.............................................................
FIXED-INCOME FUNDS
Bond Fund.......................................................................
California Intermediate Tax-Free Bond Fund......................................
SHAREOWNER GUIDE - HOW TO INVEST IN THE HIGHMARK FUNDS
Choosing a Share Class..........................................................
How Sales Charges Are Calculated................................................
Sales Charge Reductions and Waivers.............................................
Fees for Distribution of Shares.................................................
Opening an Account..............................................................
Buying Shares...................................................................
Selling Shares..................................................................
Exchanging Shares...............................................................
Transaction Policies............................................................
Dividends and Distributions.....................................................
Taxes...........................................................................
Investor Services...............................................................
MORE ABOUT THE HIGHMARK FUNDS
Investment Management...........................................................
Financial Highlights............................................................
Investment Practices............................................................
Glossary of Investment Risks....................................................
FOR MORE INFORMATION ABOUT HIGHMARK FUNDS, PLEASE SEE THE BACK COVER OF THE
PROSPECTUS
2
<PAGE>
INTRODUCTION
Each HighMark Fund is a mutual fund. A mutual fund pools shareholders' money
and, using professional investment managers, invests it in securities such as
stocks and bonds. Before you look at specific HighMark Funds, you should know a
few basics about investing in mutual funds.
The value of your investment in a mutual fund is based on the market prices of
the securities the mutual fund holds. These prices change daily due to economic
trends and other developments that generally affect securities markets, as well
as those that affect particular firms and other types of issuers. These price
movements, also called volatility, vary depending on the types of securities a
mutual fund owns and the markets where these securities trade.
AS WITH OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR INVESTMENT IN A MUTUAL
FUND. YOUR INVESTMENT IN THE HIGHMARK FUNDS IS NOT A DEPOSIT OR AN OBLIGATIONS
OF UNION BANK OF CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK. IT IS NOT INSURED
BY THE FDIC OR ANY GOVERNMENT AGENCY.
Each Fund has its own investment goal and strategies for reaching that goal.
There is no guarantee that a Fund will achieve its goal. Before investing, make
sure that the Fund's goal matches your own.
The portfolio manager invests each Fund's assets in a way that he or she
believes will help the Fund achieve its goal. A manager's judgments about the
securities markets, economy and companies, and his or her investment selection,
may cause a Fund to underperform other funds with similar objectives.
FUND SUMMARY PERFORMANCE INFORMATION
INVESTMENT STRATEGY DID YOU KNOW?
WHAT ARE THE MAIN FUND INFORMATION
RISKS OF INVESTING
IN THIS FUND? FEES AND EXPENSES
3
<PAGE>
BALANCED FUND
FUND SUMMARY
INVESTMENT GOAL To seek capital appreciation and income;
conservation of capital is a secondary consideration
INVESTMENT FOCUS U.S. common stocks and investment grade bonds
PRINCIPAL INVESTMENT
STRATEGY Diversifies across market segments and investment
styles, including value and growth stocks as well as
various types of bonds
SHARE PRICE VOLATILITY Moderate
INVESTOR PROFILE Investors seeking the growth potential of stocks
with the diversification value of bonds
INVESTMENT STRATEGY
HighMark Balanced Fund seeks capital appreciation and income. Conservation of
capital is a secondary consideration. To pursue these goals, the Fund normally
invests between 50% and 70% of its assets in equity securities, primarily common
stocks, and at least 25% of its assets in fixed-income securities, primarily
bonds. Within these ranges, the Fund's specific allocation among equity
securities and fixed-income securities will vary depending on the portfolio
managers' assessment of business, economic and market conditions.
The Fund may invest in bonds of various maturities and types, including those
issued by U.S. and foreign governments or companies, mortgage-backed securities
and asset-backed securities. At least 90% of the bonds will be investment grade
at the time of purchase.
To choose stocks for the Fund, the portfolio managers follow a stock selection
strategy utilizing a proprietary quantitative methodology and fundamental
analysis. Stock selection focuses on companies that are likely to demonstrate
superior earnings growth relative to their peers, and which are selling at
attractive valuations. As a result, the Fund will invest in a blend of GROWTH
STOCKS and VALUE STOCKS. Further, the Fund is diversified over a broad cross
section of economic sectors and industries. To help control risk, the managers
compare the Fund's economic sector and industry weightings to a broad index,
such as the Standard & Poor's (S&P) 500 Index, and normally avoid extreme
overweighting or underweighting relative to that index.
The Fund may invest in other types of securities in addition to those described
above. In an effort to preserve the value of your investment under volatile
market conditions, the managers may invest more than 20% of the Fund's assets in
very short-term debt obligations called money market securities. Such a strategy
could make it more difficult for the Fund to achieve its objective of capital
appreciation and income.
For a more complete description of the securities in which the Fund can invest,
please see "Investment Practices" on page ___.
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Your investment in the Fund may be subject to the following risks:
MARKET RISK: The possibility that the Fund's stock holdings will decline in
price because of a broad stock
4
<PAGE>
market decline. Stock markets generally move in cycles, with periods of rising
prices followed by periods of falling prices. The value of your investment will
tend to increase or decrease in response to these movements.
INTEREST RATE RISK: The possibility that the value of the Fund's investments
will decline due to an increase in interest rates. Generally, the longer the
average maturity of the Fund's fixed income portion, the greater its interest
rate risk.
CREDIT RISK: The possibility that a bond issuer cannot make timely interest and
principal payments on its bonds. The lower a bond's rating, the greater its
credit risk.
INVESTMENT STYLE RISK: The possibility that the types of securities on which
this Fund focuses will underperform other kinds of investments or the overall
market.
If the Fund invests in securities with additional risks, its share-price
volatility accordingly could be greater and its performance lower. In addition,
the Fund may trade securities actively, which could increase its transaction
costs (thereby lowering its performance) and may increase the amount of taxes
that you pay on your investment.
For more information about these risks, please see "Glossary of Investment
Risks" on page ___.
PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S CLASS A SHARES
FROM YEAR TO YEAR. IF SALES CHARGES HAD BEEN REFLECTED, THE FUND'S RETURNS WOULD
BE LESS THAN THOSE SHOWN BELOW.*
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
11.05% (2.30)% 28.22% 15.42% 19.58% 9.88% ____%
</TABLE>
<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
------------ -------------
<S> <C>
11.27% -7.34%
(12/31/98) (9/30/98)
</TABLE>
*THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL
RETURN FROM 1/1/2000 to 9/30/2000 was ____%.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/99 TO THOSE OF THE S&P 500 INDEX AND THE LEHMAN BROTHERS AGGREGATE BOND
INDEX.
<TABLE>
<CAPTION>
SINCE CLASS
1 YEAR 5 YEARS INCEPTION
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCED FUND(1)
CLASS A SHARES (with a 5.50% sales charge) ____% ____% ____%*
-----------------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent
Deferred Sales Charge) ____%*** ____%*** ____%**
-----------------------------------------------------------------------------------------------------------
S&P 500 INDEX(2) ____% ____% ____%+
-----------------------------------------------------------------------------------------------------------
LEHMAN BROTHER AGGREGATE BOND INDEX(3) ____% ____% ____%+
-----------------------------------------------------------------------------------------------------------
</TABLE>
(1)The performance data includes the performance of the Stepstone Balanced Fund
for the period prior to its consolidation with the HighMark Balanced Fund on
4/25/97.
(2)The unmanaged S&P 500 Index is generally representative of the performance of
large companies in the
5
<PAGE>
U.S. stock market.
(3)The unmanaged Lehman Brothers Aggregate Bond Index is generally
representative of the bond market as a whole.
*Since 11/13/92.
**Cumulative since 2/2/98.
***Prior to 11/13/92, performance for Class B Shares is based on Fiduciary Share
performance. Fiduciary Shares, which were first offered 2/1/91, are not offered
in this prospectus; however, because they are invested in the same portfolio of
securities, the annual returns for the two classes would be substantially
similar. The performance of the Fiduciary Shares has been adjusted for the
maximum contingent deferred sales charge applicable to Class B Shares, but does
not reflect the Class B Shares' Rule 12b-1 fees and expenses. With those
adjustments, performance would be lower than that shown.
(H)Since 2/28/91.
<TABLE>
<CAPTION>
Class CUSIP Ticker
----- ----- ------
<S> <C> <C>
Class A 431114776 HMBRX
Class B 431114545 NA
Class C 431112887 NA
</TABLE>
DID YOU KNOW?
VALUE STOCKS are those that the managers believe may be undervalued relative to
their earnings, financial strength or other qualities.
GROWTH STOCKS have a record of achieving consistent earnings and sales growth.
FEES AND EXPENSES
The following tables describe the fees and expenses you would pay if you buy and
hold Fund Shares. The first table describes the fees that you would pay directly
from your investment if you purchased or sold Fund Shares. The second table
describes the expenses you would pay indirectly if you held Fund Shares.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
-----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price)* 5.50% 0% 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** 0% 5.00% 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)*** 0% 0% 0%
-----------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
-----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses % % %
----- ----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES % % %
Fee Waivers % % %
TOTAL ANNUAL FUND OPERATING EXPENSES+ % % %
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
6
<PAGE>
+The Fund's Adviser has agreed to contractually waive fees in order to keep
total operating expenses for Class A Shares from exceeding ___% for the period
beginning November 30, 2000 and ending on November 29, 2001. The Fund's total
actual operating expenses 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
Fund's actual operating expenses are expected to be as follows:
Class A Shares: ____%
Class B Shares: ____%
Class C Shares: ____%
EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $___ $___ $_____ $_____
CLASS B SHARES
If you do not sell
your shares: $___ $___ $___ $_____
If you sell your
shares at the
end of the period: $___ $___ $_____ $_____
CLASS C SHARES
If you do not sell
your shares: $___ $___ $___ $_____
If you sell your
shares at the
end of the period: $___ $___ $___ $_____
</TABLE>
7
<PAGE>
CORE EQUITY FUND
FUND SUMMARY
INVESTMENT GOAL To seek long-term capital appreciation
INVESTMENT FOCUS U.S. common stocks
PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with strong
earnings growth selling at attractive values.
SHARE PRICE VOLATILITY Moderate to high
INVESTOR PROFILE Long-term investors seeking capital appreciation
INVESTMENT STRATEGY
HighMark Core Equity Fund seeks long-term capital appreciation. To pursue this
goal, the Fund invests at least 65% of its assets in the stocks of U.S.
companies with capitalizations similar to the S&P 500 Stock Index.
To choose stocks for the Fund, the portfolio managers follow a stock selection
strategy utilizing a proprietary quantitative methodology and fundamental
analysis. Stock selection focuses on companies that are likely to demonstrate
superior earnings growth relative to their peers, and whose equities are selling
at attractive valuations. As a result, the Fund will invest in a blend of both
"growth" and "value" stocks. Further, the Fund is diversified over a broad cross
section of economic sectors and industries. To help control risk, the managers
compare the Fund's economic sector and industry weightings to a broad index,
such as the Standard & Poor's (S&P) 500 Stock Index, and normally avoids extreme
overweighting or underweighting relative to that index.
The Fund may invest in small capitalization companies but does not expect to
invest more than 10% of its assets in such companies.
In addition to those described above, the Fund may invest in other types of
securities, including bonds. In an effort to preserve the value of your
investment under volatile market conditions, the managers may invest more than
35% of the Fund's assets in very short-term debt obligations called money market
securities. Such a strategy could make it more difficult for the Fund to achieve
its goals.
For a more complete description of the securities in which the Fund can invest,
please see "Investment Practices" on page ___.
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Your investment in the Fund may be subject to the following risks:
MARKET RISK: The possibility that the Fund's stock holdings may decline in price
because of a broad stock market decline. Markets generally move in cycles, with
periods of rising prices followed by periods of falling prices. The value of
your investment will tend to increase or decrease in response to these
movements.
INVESTMENT STYLE RISK: The possibility that the securities on which this Fund
focuses - the stocks of those companies with capitalization similar to those in
the S&P 500 Index - may underperform other kinds of investments or the market as
a whole.
8
<PAGE>
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the amount
of taxes you pay.
For more information about these risks, please see "Glossary of Investment
Risks" on page __.
PERFORMANCE INFORMATION
This section would normally include a bar chart and a table showing how the Fund
has performed and how its performance has varied from year to year. Because the
Fund has not been in operation for a full calendar year, the bar chart and table
are not shown.
FUND INFORMATION
<TABLE>
<CAPTION>
Class CUSIP Ticker
----- ----- ------
<S> <C> <C>
Class A 431112770
Class B
Class C
</TABLE>
DID YOU KNOW?
Small Capitalization Companies are those companies with market capitalizations
within the range of those in the S&P 600 Small Cap Index.
Medium Capitalization Companies are those companies with market capitalization
within the range of those in the S&P 400 Mid-Cap Index.
Large Capitalization Companies are those companies with market capitalization
within the range of those companies in the S&P 500 Index.
FEES AND EXPENSES
The following tables describe the fees and expenses you would pay if you buy and
hold Fund Shares. The first table describes the fees that you would pay directly
from your investment if you purchased or sold Fund Shares. The second table
describes the expenses you would pay indirectly if you held Fund Shares.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
-----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price)* 5.50% 0% 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** 0% 5.00% 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)*** 0% 0% 0%
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
-----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses % % %
----- ----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES % % %
Fee Waivers % % %
TOTAL ANNUAL FUND OPERATING EXPENSES+ % % %
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
+The Fund's Adviser has agreed to contractually waive fees in order to keep
total operating expenses for Class A Shares from exceeding ____% for the period
beginning November 30, 2000 and ending on November 29, 2001. The Fund's total
actual operating expenses for the current fiscal year are expected to be less
than the amount shown above because additional fees are expected to be waived or
reimbursed in order to keep total operating expenses at a specified level. These
voluntary waivers or reimbursements may be discontinued at any time. With these
fee waivers, the Fund's actual operating expenses are expected to be as follows:
Class A Shares: ____%
Class B Shares: ____%
Class C Shares: ____%
EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C> <C>
CLASS A SHARES $___ $___
CLASS B SHARES
If you do not sell
your shares: $___ $___
If you sell your
shares at the
end of the period: $___ $___
CLASS C SHARES
If you do not sell
your shares: $___ $___
If you sell your
shares at the
end of the period: $___ $___
</TABLE>
10
<PAGE>
GROWTH FUND
FUND SUMMARY
INVESTMENT GOAL To seek long-term capital appreciation through
investments in equity securities; current income
is incidental
INVESTMENT FOCUS U.S. common stocks
PRINCIPAL INVESTMENT STRATEGY Seeks to invest in companies offering
above-average growth potential
SHARE PRICE VOLATILITY Moderate to High
INVESTOR PROFILE Long-term investors seeking capital appreciation
INVESTMENT STRATEGY
HighMark Growth Fund seeks long term capital appreciation through investments in
equity securities. The production of current income is an incidental objective.
To pursue its main goal, the Fund invests at least 65% of its assets in equity
securities, primarily in the stocks of MEDIUM TO LARGE U.S. GROWTH-ORIENTED
COMPANIES that the portfolio managers believe are also financially stable.
"Growth-oriented companies" are those whose earnings are growing at a faster
rate than the market as a whole, or have the potential to do so. Other
attributes the portfolio managers seek in a company include:
- above-average return on capital (an indication that a firm has employed its
investors' money effectively)
- free cash flow (an indication that a firm has managed its assets and
liabilities well)
- recurring revenues (an indication that a firm has a fairly steady source of
income)
- an attractive share price versus the firm's earnings and other
characteristics
- competitive advantages such as a solid brand identity and unique products
or services
- a capable management team
In addition to those described above, the Fund may invest in other types of
securities . In an effort to preserve the value of your investment under
volatile market conditions, the managers may invest more than 35% of the Fund's
assets in very short-term debt obligations called money market securities. Such
a strategy could make it more difficult for the Fund to achieve its goals.
For a more complete description of the securities in which the Fund can invest,
please see "Investment Practices" on page ___.
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Your investment in the Fund may be subject to the following risks:
MARKET RISK: The possibility that the Fund's stock holdings will decline in
price because of a general decline in the stock market. Markets generally move
in cycles, with periods of rising prices followed by periods of falling prices.
The value of your investment will tend to increase or decrease in response to
these movements.
11
<PAGE>
INVESTMENT STYLE RISK: The possibility that the kind of stocks on which this
Fund focuses--those of medium to large U.S. growth companies--will underperform
other types of stock investments or the market as a whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the amount
of taxes that you pay. For more information about these risks, please see
"Glossary of Investment Risks" on page ___.
PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S CLASS A SHARE FROM
YEAR TO YEAR. IF SALES CHARGES HAD BEEN REFLECTED, THE FUND'S RETURNS WOULD BE
LESS THAN THOSE SHOWN BELOW.*
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C>
32.72% 21.34% 31.89% 31.48% ____%
</TABLE>
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
25.89% -14.37%
------ -------
(12/31/98) (9/30/98)
</TABLE>
*THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL
RETURN FROM 1/1/2000 to 9/30/2000 was ___%.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/99 TO THOSE OF THE S&P 500 INDEX.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
SINCE CLASS
1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GROWTH FUND
CLASS A SHARES (with a 5.50% sales charge) ____% ____%*** ____%*
--------------------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent
Deferred Sales Charge) ____% ____%**** ____%**
--------------------------------------------------------------------------------------------------------------
S&P 500 INDEX(1) ____% ____% ____%+
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The unmanaged S&P 500 Index generally reflects the performance of large
companies in the U.S. stock market.
* Since 6/20/94.
** Cumulative since 2/2/98.
*** Prior to 6/2/94, performance for Class A Shares is based on Fiduciary Share
performance. Fiduciary Shares, which were first offered 11/18/93, are not
offered in this prospectus; however, because they are invested in the same
portfolio of securities, the annual returns for the two classes would be
substantially similar. The performance of the Fiduciary Shares has been adjusted
for the sales charge applicable to Class A Shares, but does not reflect the
Class A Shares' Rule 12b-1 fees and expenses. With those adjustments,
performance would be lower than that shown.
**** Prior to 2/2/98, performance for Class B Shares is based on Fiduciary Share
performance. Fiduciary Shares, which were first offered 11/18/93, are not
offered in this prospectus; however, because they are invested in the same
portfolio of securities, the annual returns for the two classes would be
substantially similar. The performance of the Fiduciary Shares has been adjusted
for the maximum contingent deferred
12
<PAGE>
sales charge applicable to Class B Shares, but does not reflect the Class B
Shares' Rule 12b-1 fees and expenses. With those adjustments, performance would
be lower than that shown.
+ Since 11/30/93.
FUND INFORMATION
<TABLE>
<CAPTION>
CLASS CUSIP TICKER
------------------------------------------
<S> <C> <C>
Class A 431114768 HMRGX
Class B 431114511 HMGBX
Class C 431112879 NA
</TABLE>
DID YOU KNOW?
Companies are considered to have a MEDIUM MARKET CAPITALIZATION if their
capitalization is within the range of those companies in the S&P 400 Mid-Cap
Index. Companies are considered to have a LARGE MARKET CAPITALIZATION if their
capitalization is within the range of those companies in the S&P 500 Index.
FEES AND EXPENSES
The following tables describe the fees and expenses you would pay if you buy and
hold Fund Shares. The first table describes the fees that you would pay directly
from your investment if you purchased or sold Fund Shares. The second table
describes the expenses you would pay indirectly if you held Fund Shares.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
-----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price)* 5.50% 0% 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** 0% 5.00% 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)*** 0% 0% 0%
-----------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
-----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses % % %
----- ----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES % % %
Fee Waivers % % %
TOTAL ANNUAL FUND OPERATING EXPENSES+ % % %
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
+The Fund's Adviser has agreed to contractually waive fees in order to keep
total operating expenses for Class A Shares from exceeding ____% for the period
beginning November 30, 2000 and ending on November 29, 2001. The Fund's total
actual operating expenses 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
Fund's actual operating expenses are expected to be as follows:
Class A Shares: ____%
Class B Shares: ____%
Class C Shares: ____%
13
<PAGE>
EXAMPLE This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $___ $___ $_____ $____
CLASS B SHARES
If you do not sell
your shares: $___ $___ $____ $____
If you sell your
shares at the
end of the period: $___ $___ $____ $____
CLASS C SHARES
If you do not sell
your shares: $___ $___ $____ $____
If you sell your
shares at the
end of the period: $___ $___ $____ $____
</TABLE>
14
<PAGE>
INCOME EQUITY FUND
FUND SUMMARY
INVESTMENT GOAL To seek total return on investment, with
dividend income as an important component of
that return. A secondary goal is a low level of
price volatility
INVESTMENT FOCUS U.S. common stocks
PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued stocks that pay
high dividends
SHARE PRICE VOLATILITY Moderate
INVESTOR PROFILE Investors seeking capital appreciation potential
with higher current income and lower volatility
than the average stock fund
INVESTMENT STRATEGY
HighMark Income Equity Fund seeks total return on investment, with DIVIDEND
income as an important component of that return. A secondary goal is to maintain
a low level of price volatility.
To pursue its primary goal, the Fund invests mostly in dividend-paying stocks
that the managers believe are undervalued or out-of-favor. Quantitative analysis
is used to identify stocks that they believe are undervalued relative to the
market and to the security's historic valuations. The managers then use a
quantitative stock selection model based on earnings revisions and supplemental
valuation measures to narrow the list of stocks to the most attractive.
In-depth fundamental research confirms the value characteristics of individual
stocks and evaluates the company's future prospects.
The companies in which the Fund invests are generally mature,
large-capitalization U.S. corporations.
The managers typically begin to pare down a position when the stock's price/book
ratio is above the index average or is at the upper end of the stock's historic
range. The managers may eliminate a stock from the Fund's portfolio if its
long-term fundamentals become unfavorable.
The Fund may invest in convertible bonds and other types of securities in
addition to those described above. In an effort to preserve the value of your
investment under volatile market conditions, the managers may invest more than
35% of the Fund's assets in very short-term debt obligations called money market
securities. Such a strategy could make it more difficult for the Fund to achieve
its goals.
For a more complete description of the securities in which the Fund can invest,
please see "Investment Practices" on page ___.
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Your investment in the Fund may be subject to the following risks:
MARKET RISK: The possibility that the Fund's stock holdings will decline in
price because of a broad stock market decline. Stock markets generally move in
cycles, with periods of rising prices followed by periods of falling prices. The
value of your investment will tend to increase or decrease in response to these
movements.
INVESTMENT STYLE RISK: The possibility that the securities on which this Fund
focuses--the stocks of
15
<PAGE>
undervalued, dividend-paying companies--will underperform other kinds of
investments or market averages.
The Fund may trade securities actively, which could increase its transaction
costs (thereby lowering its performance) and increase the amount of taxes that
you pay.
For more information about these risks, please see "Glossary of Investment
Risks" on page ___.
PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S CLASS A SHARES
FROM YEAR TO YEAR. IF SALES CHARGES HAD BEEN REFLECTED, THE FUND'S RETURNS WOULD
BE LESS THAN THOSE SHOWN BELOW.*
<TABLE>
<CAPTION>
------------------------------------------------------------------
YEAR RETURN
------------------------------------------------------------------
<S> <C>
1995 36.16%
------------------------------------------------------------------
1996 15.62%
------------------------------------------------------------------
1997 27.11%
------------------------------------------------------------------
1998 14.84%
------------------------------------------------------------------
1999 ____%
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
16.69% -10.21%
------ -------
(12/31/98) (9/30/98)
</TABLE>
*THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL
RETURN FROM 1/1/2000 to 9/30/2000 was ____%.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/99, TO THOSE OF THE S&P 500 INDEX.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
SINCE CLASS
1 YEAR 5 YEARS 10 YEARS INCEPTION
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME EQUITY FUND
CLASS A SHARES (with a 5.50% sales charge) ____% ____%*** ____%*** ____%*
-------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent
Deferred Sales Charge) ____% ____%**** ____%**** ____%**
-------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX(1) ____% ____% ____% ____%+
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)The unmanaged S&P 500 Index generally represents the performance of large
companies in the U.S. stock market.
*Since 6/20/94.
**Cumulative since 2/2/98.
***Prior to 6/20/94, performance for Class A Shares is based on Fiduciary Share
performance. Fiduciary Shares, which were first offered 2/9/84, are not offered
in this prospectus; however, because they are invested in the same portfolio of
securities, the annual returns for the two classes would be substantially
similar. The performance of the Fiduciary Shares has been adjusted for the sales
charge applicable to Class A Shares, but does not reflect the Class A Shares'
Rule 12b-1 fees and expenses. With those adjustments, performance would be lower
than that shown.
****Prior to 2/2/98, performance for Class B Shares is based on Fiduciary Share
performance. Fiduciary Shares, which were first offered 2/9/84, are not offered
in this prospectus; however, because they are
16
<PAGE>
invested in the same portfolio of securities, the annual returns for the two
classes would be substantially similar. The performance of the Fiduciary Shares
has been adjusted for the maximum contingent deferred sales charge applicable to
Class B Shares, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
+Since 2/29/84.
FUND INFORMATION
<TABLE>
<CAPTION>
CLASS CUSIP TICKER
------- ----- ------
<S> <C> <C>
Class A 431114784 HMERX
Class B 431114537 NA
Class C 431112861 NA
</TABLE>
DID YOU KNOW?
A DIVIDEND is a distribution of corporate earnings to shareholders. The amount
of the dividend is usually paid quarterly. Dividends must be declared as income
in the year they are received.
FEES AND EXPENSES
The following tables describe the fees and expenses you would pay if you buy and
hold Fund Shares. The first table describes the fees that you would pay directly
from your investment if you purchased or sold Fund Shares. The second table
describes the expenses you would pay indirectly if you held Fund Shares.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
-----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price)* 5.50% 0% 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** 0% 5.00% 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)*** 0% 0% 0%
-----------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
-----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses % % %
----- ----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES % % %
Fee Waivers % % %
TOTAL ANNUAL FUND OPERATING EXPENSES+ % % %
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
+The Fund's Adviser has agreed to contractually waive fees in order to keep
total operating expenses for Class A Shares from exceeding ____% for the period
beginning November 30, 2000 and ending on November 29, 2001. The Fund's total
actual operating expenses 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
Fund's actual operating expenses are expected to be as follows:
Class A Shares: ____%
17
<PAGE>
Class B Shares: ____%
Class C Shares: ____%
EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $___ $___ $____ $___
CLASS B SHARES
If you do not sell
your shares: $___ $___ $____ $___
If you sell your
shares at the
end of the period: $___ $___ $____ $___
CLASS C SHARES
If you do not sell
your shares: $___ $___ $____ $___
If you sell your
shares at the
end of the period: $___ $___ $___ $___
</TABLE>
18
<PAGE>
INTERNATIONAL EQUITY FUND
FUND SUMMARY
INVESTMENT GOAL To seek long-term capital appreciation by
investing primarily in equity securities of
foreign issuers
INVESTMENT FOCUS Common stocks of foreign companies
PRINCIPAL INVESTMENT STRATEGY Attempts to identify reasonably priced foreign
stocks with above- average growth potential
SHARE PRICE VOLATILITY High
INVESTOR PROFILE Investors who want capital appreciation, are
willing to accept the increased risks of
international investing for the possibility of
higher returns, and want exposure to a
diversified portfolio of international stocks
INVESTMENT STRATEGY
HighMark International Equity Fund seeks to provide long-term capital
appreciation by investing primarily in a diversified portfolio of equity
securities of non-U.S. issuers. Normally, at least 65% of the Fund's assets will
be invested in the stocks of companies from at least five countries (other than
the United States) that are included in the Morgan Stanley Capital International
Europe , Australia and Far East Index (the "EAFE Index"). The Fund's portfolio
managers intend to focus on companies with a market capitalization of more than
$100 million.
In selecting investments for the Fund, the portfolio managers may over- or
under-weight regions in comparison to the EAFE Index based on the rates of
return they expect from various markets. The Fund's regional and individual
country weightings may therefore vary from those of the EAFE Index. The
portfolio managers will then select individual securities for the Fund on the
basis of their growth opportunities or undervaluation in relation to other
securities.
The Fund typically invests in securities that are listed on recognized foreign
exchanges, but it may also invest up to 15% of its assets in securities traded
in over-the-counter markets. In addition, the Fund may buy AMERICAN DEPOSITORY
RECEIPTS (ADRs) and GLOBAL DEPOSITORY RECEIPTS (GDRs), enter into forward
foreign currency contracts and invest in options on currencies. The Fund may
invest in other investment companies, including closed-end funds that invest in
securities from a single country or region. Additionally, the Fund may invest in
securities of issuers whose principal activities are in emerging markets.
In addition to those described above, the Fund may invest in certain other types
of securities, including investment-grade bonds of U.S. and non-U.S. issuers. In
an effort to preserve the value of your investment under volatile market
conditions, the portfolio managers may invest more than 35% of the Fund's assets
in very short-term debt obligations called money market securities. Such a
strategy could make it more difficult for the Fund to achieve its goal.
For a more complete description of the securities in which the Fund can invest,
please see "Investment Practices" on page ___.
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Your investment in the Fund may be subject to the following risks:
19
<PAGE>
MARKET RISK: The possibility that the Fund's stock holdings may decline in price
because of a broad stock market decline. Markets generally move in cycles, with
periods of rising prices followed by periods of falling prices. The value of
your investment will tend to increase or decrease in response to these
movements.
FOREIGN SECURITIES RISK: Investing in foreign markets involves greater risk than
investing in the United States. Foreign securities may be affected by such
factors as fluctuations in currency exchange rates, incomplete or inaccurate
financial information on companies, social upheavals and political actions
ranging from tax code changes to governmental collapse. Emerging market
securities may be even more susceptible to these risks.
INVESTMENT STYLE RISK: The possibility that the securities on which this Fund
focuses--the stocks of foreign companies--may underperform other kinds of
investments or the market as a whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the amount
of taxes that you pay.
For more information about these risks, please see "Glossary of Investment
Risks" on page ___.
PERFORMANCE INFORMATION
The performance table below illustrate the risks and volatility of an investment
in the Fund. Because Classes A, B and C Shares have not had a full calendar year
of performance, these returns reflect the performance of the Fund's Fiduciary
Shares, which are offered in a separate prospectus. Classes A, B and C Shares
will have annual returns substantially similar to those of the Fiduciary Shares
because Classes A, B, C and Fiduciary Shares each invest in the same portfolio
of securities. Their annual returns will differ only to the extent that they do
not have the same expenses. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FIDUCIARY SHARES
FROM YEAR TO YEAR. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS
THAN THOSE SHOWN BELOW.*
<TABLE>
<CAPTION>
---------------------------------------
YEAR RETURN
---------------------------------------
<S> <C>
1996 3.25%
---------------------------------------
1997 -6.51%
---------------------------------------
1998 15.18%
---------------------------------------
1999 _____%
---------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
18.15% -13.77%
------ -------
(12/31/98) (9/30/98)
</TABLE>
* THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S
TOTAL RETURN FROM 1/1/2000 to 9/30/2000 was ____%. PERFORMANCE FOR FIDUCIARY
SHARES, WHICH WERE FIRST OFFERED 2/1/95, INCLUDES THE PERFORMANCE OF THE
STEPSTONE INTERNATIONAL EQUITY FUND FOR THE PERIOD PRIOR TO ITS CONSOLIDATION
WITH THE HIGHMARK INTERNATIONAL EQUITY FUND ON 4/25/97.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/99 TO THOSE OF ITS BENCHMARK, THE MSCI-EAFE INDEX.
20
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
1 YEAR SINCE CLASS
INCEPTION
--------------------------------------------------------------------------
<S> <C> <C>
INTERNATIONAL EQUITY FUND(1)
FIDUCIARY SHARES ___% ___%*
--------------------------------------------------------------------------
MSCI-EAFE INDEX(2) ___% ___%+
--------------------------------------------------------------------------
</TABLE>
(1) The performance for Fiduciary Shares, which were first offered 2/1/95,
includes the performance of the Stepstone International Equity Fund for the
period prior to its consolidation with the HighMark International Equity Fund on
4/25/97.
(2) The unmanaged Morgan Stanley Capital International Europe, Australasia and
Far East Index reflects the performance of securities listed on stock exchanges
in Europe, Australia and the Far East.
*Since 2/1/95.
+Since 2/28/95.
FUND INFORMATION
<TABLE>
<CAPTION>
CLASS CUSIP TICKER
----- ----- ------
<S> <C> <C>
Class A 431112853 NA
Class B 431112846 NA
Class C 431112838 NA
</TABLE>
DID YOU KNOW?
AMERICAN DEPOSITORY RECEIPTS (ADRs) and GLOBAL DEPOSITORY RECEIPTS (GDRs) are
foreign Shares of a company held by, respectively, a U.S. or a foreign bank that
issues a receipt evidencing ownership.
FEES AND EXPENSES
The following tables describe the fees and expenses you would pay if you buy and
hold Fund Shares. The first table describes the fees that you would pay directly
from your investment if you purchased or sold Fund Shares. The second table
describes the expenses you would pay indirectly if you held Fund Shares.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
-----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price)* 5.50% 0% 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** 0% 5.00% 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)*** 0% 0% 0%
-----------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
-----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.95% 0.95% 0.95%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses % % %
----- ----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES % % %
Fee Waivers % % %
TOTAL ANNUAL FUND OPERATING EXPENSES+ % % %
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
+The Fund's Adviser has agreed to contractually waive fees in order to keep
total operating expenses for
21
<PAGE>
Class A Shares from exceeding ___% for the period beginning November 30, 2000
and ending on November 29, 2001. The Fund's total actual operating expenses are
expected to be less than the amount shown above because additional fees are to
be waived or reimbursed in order to keep total operating expenses at a specified
level. These voluntary waivers or reimbursements may be discontinued at any
time. With these fee waivers, the Fund's actual operating expenses are expected
to be as follows:
Class A Shares: ____%
Class B Shares: ____%
Class C Shares: ____%
EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $___ $___ $___ $___
CLASS B SHARES
If you do not sell
your shares: $___ $___ $___ $___
If you sell your
shares at the
end of the period: $___ $___ $___ $___
CLASS C SHARES
If you do not sell
your shares: $___ $___ $___ $___
If you sell your
shares at the
end of the period: $___ $___ $___ $___
</TABLE>
22
<PAGE>
SMALL CAP VALUE FUND
FUND SUMMARY
INVESTMENT GOAL To seek long-term capital appreciation
INVESTMENT FOCUS Stocks of small U.S. & foreign companies
PRINCIPAL INVESTMENT STRATEGY Seeks undervalued small company stocks
SHARE PRICE VOLATILITY Moderate to High
INVESTOR PROFILE Risk-tolerant investors seeking high long-term
returns
INVESTMENT STRATEGY
HighMark Small Cap Value Fund seeks to provide long-term capital appreciation.
To pursue this goal, the Fund invests primarily in the stocks of
small-capitalization U.S. and foreign companies that the portfolio managers
believe are undervalued. The Fund typically invests approximately 25% of its
assets in foreign stocks, though the actual percentage may vary.
To reduce the risks associated with any one market, the portfolio managers
normally diversify the Fund's international investments among various countries.
Although the Fund invests primarily in developed economies such as those of
Europe and Japan, it may invest in developing countries to take advantage of
potential opportunities.
The Fund's portfolio managers seek companies that they believe are both
fundamentally strong and undervalued relative to current market averages and/or
the stock's own historic norms. Of these, the managers favor companies
exhibiting positive momentum in their share price or earnings.
In addition to those described above, the Fund may invest in other types of
securities, including bonds. In an effort to preserve the value of your
investment under volatile market conditions, the managers may temporarily invest
a significant amount of the Fund's assets in very short-term debt obligations
called money market securities. They may also do so in situations when there is
not an adequate number of stocks that meet their investment criteria. Such a
strategy could make it more difficult for the Fund to achieve its goals.
For a more complete description of the securities in which the Fund can invest,
please see "Investment Practices" on page ___.
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Your investment in the Fund may be subject to the following risks:
MARKET RISK: The possibility that the Fund's stock holdings may decline in price
because of a broad stock market decline. Markets generally move in cycles, with
periods of rising prices followed by periods of falling prices. The value of
your investment will tend to increase or decrease in response to these
movements.
SMALL COMPANY RISK: Investing in smaller, lesser-known companies involves
greater risk than investing in those that are more established. A small
company's financial well-being may, for example, depend heavily on just a few
products or services. In addition, investors may have limited flexibility to buy
or sell small company stocks, as compared to those of larger firms.
FOREIGN SECURITIES RISK: Investing in foreign markets involves greater risk than
investing in the United
23
<PAGE>
States. Foreign securities may be affected by fluctuations in currency exchange
rates, incomplete or inaccurate financial information on companies, social
upheavals and political actions ranging from tax code changes to governmental
collapse. These risks are more significant in the emerging markets.
INVESTMENT STYLE RISK: The possibility that the securities on which this Fund
focuses--the stocks of small, undervalued U.S. and foreign companies--may
underperform other kinds of investments or the market as a whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the amount
of taxes that you pay.
For more information about these risks, please see " Glossary of Investment
Risks" on page ___.
PERFORMANCE INFORMATION
THIS SECTION WOULD NORMALLY INCLUDE A BAR CHART AND A TABLE SHOWING HOW THE FUND
HAS PERFORMED AND ARE CHANGES IN THE FUND'S PERFORMANCE FROM YEAR TO YEAR.
BECAUSE THE FUND HAS NOT BEEN IN OPERATION FOR A FULL CALENDAR YEAR, THE BAR
CHART AND TABLE ARE NOT SHOWN.
FEES AND EXPENSES
The following tables describe the fees and expenses you would pay if you buy and
hold Fund Shares. The first table describes the fees that you would pay directly
from your investment if you purchased or sold Fund Shares. The second table
describes the expenses you would pay indirectly if you held Fund Shares.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
-----------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase
(as a percentage of offering price)* 5.50% 0% 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** 0% 5.00% 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)*** 0% 0% 0%
-----------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
-----------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C>
Investment Advisory Fees 1.00% 1.00% 1.00%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses 0.75% 0.75% 0.50%
----- ----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES % % %
Fee Waivers % % %
TOTAL ANNUAL FUND OPERATING EXPENSES+ % % %
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
+The Fund's Adviser has agreed to contractually waive fees in order to keep
total operating expenses for Class A Shares from exceeding ____% for the period
beginning November 30, 2000 and ending on November 29, 2001. The Fund's total
actual operating expenses 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
Fund's actual operating expenses are expected to be as follows:
Class A Shares: ____% Class B Shares: ____% Class C Shares: ____%
24
<PAGE>
EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $___ $___ $___ $___
CLASS B SHARES
If you do not sell
your shares: $___ $___ $___ $___
If you sell your
shares at the
end of the period: $___ $___ $___ $___
CLASS C SHARES
If you do not sell
your shares: $___ $___ $___ $___
If you sell your
shares at the
end of the period: $___ $___ $___ $___
</TABLE>
FUND INFORMATION
<TABLE>
<CAPTION>
CLASS CUSIP TICKER
----- ----- ------
<S> <C> <C>
Class A 431112200 NA
Class B 431112309 NA
Class C 431112820 NA
</TABLE>
DID YOU KNOW?
SMALL CAPITALIZATION STOCKS are those issued by companies with market
capitalizations within the range of those in the S&P 600/BARRA Value Index
(domestic Investments) and the Financial Times/S&P Actuaries World Indices World
Ex U.S. Medium/Small Cap Index (international investments).
25
<PAGE>
VALUE MOMENTUM FUND
FUND SUMMARY
INVESTMENT GOAL To seek long-term capital growth. Current income
is a secondary objective.
INVESTMENT FOCUS U.S. common stocks
PRINCIPAL INVESTMENT STRATEGY Seeks undervalued stocks showing signs of
improved momentum
SHARE PRICE VOLATILITY Moderate
INVESTOR PROFILE Investors seeking the potential for a long-term
increase in the value of their investment with
capital appreciation at potentially lower
volatility than the average stock fund
INVESTMENT STRATEGY
The Value Momentum Fund seeks long-term capital growth with a secondary
objective of income. To pursue this goal, the Fund invests primarily in U.S.
stocks that the portfolio managers believe to be undervalued.
The managers emphasize a value-oriented approach to selecting stocks for the
Fund's portfolio. They first identify stocks that they believe are undervalued
relative to the market and to the security's historic valuation. The managers
then screen these stocks for positive price or earnings momentum. The Fund
generally will invest in companies with a MEDIUM TO LARGE MARKET CAPITALIZATION
and a majority of them will pay dividends.
In addition to U.S. common stocks, the Fund may invest in other types of
securities. In an effort to preserve the value of your investment under volatile
market conditions, the portfolio managers may invest more than 35% of the Fund's
assets in very short-term debt obligations called money market securities. In
these and other cases, the Fund may not achieve its total return and income
objectives.
For a more complete description of the securities the Fund invests in, please
see "Investment Practices" on page ____.
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Your investment in the Fund may be subject to the following risks:
MARKET RISK: The possibility that the Fund's stock holdings will decline in
price because of broad stock market declines. Stock markets generally move in
cycles, with periods of either rising or falling prices. The value of your
investment will tend to go up or down in response to these movements.
INVESTMENT STYLE RISK: The possibility that the securities on which this Fund
focuses - the stocks of mid-size to large undervalue U.S. companies - may under
perform other kinds of investments or the market as a whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the amount
of taxes that you pay. For more information about these risks, please see
"Glossary of Investment Risks" on page ___.
26
<PAGE>
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S CLASS A SHARES
FROM YEAR TO YEAR. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS
THAN THOSE SHOWN BELOW.*
<TABLE>
<CAPTION>
---------------------------------------
YEAR RETURN
---------------------------------------
<S> <C>
1993 12.76%
---------------------------------------
1994 -1.92%
---------------------------------------
1995 38.66%
---------------------------------------
1996 25.33%
---------------------------------------
1997 30.40%
---------------------------------------
1998 9.43%
---------------------------------------
1999 %
---------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
17.99% -14.09%
------ -------
(12/31/98) (9/30/98)
</TABLE>
*THIS PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE
FUND'S TOTAL RETURN FROM 1/1/2000 to 9/30/2000 was ____%. THE PERFORMANCE DATA
INCLUDES THE PERFORMANCE OF THE STEPSTONE VALUE MOMENTUM FUND FOR THE PERIOD
PRIOR TO ITS CONSOLIDATION WITH THE HIGHMARK VALUE MOMENTUM FUND ON 4/25/97.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/99 TO THOSE OF THE S&P 500 INDEX.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
SINCE CLASS
1 YEAR 5 YEARS INCEPTION
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VALUE MOMENTUM FUND(1)
CLASS A SHARES (with a 5.50% sales charge) ____% ____% ____%*
---------------------------------------------------------------------------------------------------------------
CLASS B SHARES (with applicable Contingent
Deferred Sales Charge) _____%*** ____%*** ____%**
---------------------------------------------------------------------------------------------------------------
S&P 500 INDEX(2) _____% ____% _____%+
---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The performance data includes the performance of the Stepstone Value
Momentum Fund for the period prior to its consolidation with the HighMark Value
Momentum Fund on 4/25/97.
(2) The unmanaged S&P 500 Index is generally representative of the performance
of large companies in the U.S. stock market.
*Since 4/2/92.
**Cumulative since 2/2/98.
***Prior to 4/2/92, performance for Class B Shares is based on Fiduciary Share
performance. Fiduciary Shares, which were first offered 2/1/91, are not offered
in this prospectus; however, because they are invested in the same portfolio of
securities, the annual returns for the two classes would be substantially
similar. The performance of the Fiduciary Shares has been adjusted for the
maximum contingent deferred sales charge applicable to Class B Shares, but does
not reflect the Class B Shares' Rule 12b-1 fees and expenses. With those
adjustments, performance would be lower than that shown. +Since 2/28/91.
27
<PAGE>
FUND INFORMATION
<TABLE>
<CAPTION>
CLASS CUSIP TICKER
----- ----- ------
<S> <C> <C>
Class A 431114628 HMVLX
Class B 431114529 NA
Class C 431112812 NA
</TABLE>
DID YOU KNOW?
Companies are considered to have a MEDIUM MARKET CAPITALIZATION if their
capitalization is within the range of those companies in the S&P 400 Mid-Cap
Index. Companies are considered to have a LARGE MARKET CAPITALIZATION if their
capitalization is within the range of those companies in the S&P 500 Index
FEES AND EXPENSES
The following tables describe the fees and expenses you would pay if you buy and
hold Fund Shares. The first table describes the fees that you would pay directly
from your investment if you purchased or sold Fund Shares. The second table
describes the expenses you would pay indirectly if you held Fund Shares.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
-----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price)* 5.50% 0% 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** 0% 5.00% 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)*** 0% 0% 0%
-----------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
-----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses % % %
----- ----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES % % %
Fee Waivers % % %
TOTAL ANNUAL FUND OPERATING EXPENSES++ % % %
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
+The Fund's Adviser has agreed to contractually waive fees in order to keep
total operating expenses for Class A Shares from exceeding ____% for the period
beginning November 30, 2000 and ending on November 29, 2001. The Fund's total
actual operating expenses 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
Fund's actual operating expenses are expected to be as follows:
Class A Shares: ___% Class B Shares: ____% Class C Shares: ____%
28
<PAGE>
EXAMPLE: This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $___ $___ $___ $___
CLASS B SHARES
If you do not sell
your shares: $___ $___ $___ $___
If you sell your
shares at the
end of the period: $___ $___ $___ $___
CLASS C SHARES
If you do not sell
your shares: $___ $___ $___ $___
If you sell your
shares at the
end of the period: $___ $___ $___ $___
</TABLE>
29
<PAGE>
BOND FUND
FUND SUMMARY
INVESTMENT GOAL To seek total return through investments in
fixed-income securities
INVESTMENT FOCUS U.S. Government obligations, corporate debt
securities, mortgage and other asset-backed
securities
PRINCIPAL INVESTMENT STRATEGY Focuses on sectors of the bond market that the
portfolio managers believe are undervalued
SHARE PRICE VOLATILITY Moderate
INVESTOR PROFILE Investors willing to accept the risk of a
moderate amount of fluctuation in the value of
their investment for the benefit of a higher
total return potential
INVESTMENT STRATEGY
HighMark Bond Fund seeks to provide total return through investments in
fixed-income securities. To pursue this goal, the Fund invests at least 65% of
its assets in bonds which include:
- Debt obligations issued or guaranteed by the U.S. government or its
agencies.
- Corporate debt securities issued by U.S. or foreign companies that
nationally recognized rating agencies such as Moody's or Standard & Poor's
recognize as investment-grade.
- Investment-grade bonds backed by the interest and principal payments of
various types of mortgages, known as mortgage-backed securities.
- Investment-grade bonds backed by the interest and principal payments on
loans for other types of assets, such as automobiles, houses, or credit
cards, known as asset-backed securities.
The Fund may also invest up to 10% of its assets in issues which are rated below
BBB but have a minimum rating of B by Moody's and/or S&P at the time of
investment.
In addition to these, the Fund may invest in other types of debt securities. In
an effort to preserve the value of your investment under volatile market
conditions, the portfolio managers also may invest more than 35% of the Fund's
assets in very short-term investments called money market securities. Such a
defensive strategy could make it more difficult for the Fund to achieve its
income and total return objectives.
The Fund will maintain an average DURATION of between 3 and 6 years, which the
managers expect to be within one year of the duration of the Lehman Brothers
Aggregate Bond Index.
The portfolio managers consider several factors when selecting securities for
the Fund's portfolio, including:
- An assessment of the future level of interest rates and inflation
- Expectations for U.S. and global economic growth
- Relative yields among securities in various market sectors
30
<PAGE>
- The yield to maturity, quality, liquidity and capital appreciation
potential of individual securities
The Fund managers also consider the current state of a bond's issuer and the
possibility that an improvement or deterioration in its financial health may
result in, respectively, an upgrade or downgrade of the issuer's credit rating.
The portfolio managers may continue to hold a bond that has been downgraded if
they believe it is in the best interest of the Fund's shareholders.
For a more complete description of the various securities in which the Fund can
invest, please see "Investment Practices" on page ___.
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Your investment in the Fund may be subject to the following risks:
INTEREST RATE RISK: The possibility that the value of the Fund's investments
will decline due to an increase in interest rates or that the Fund's yield will
decrease due to a decrease in interest rates.
CREDIT RISK: The possibility that a bond issuer cannot make timely interest and
principal payments on its bonds. The lower a bond's rating, the greater its
credit risk.
PREPAYMENT/CALL RISK: If a significant number of the mortgages underlying a
mortgage-backed bond are refinanced, the bond may be "prepaid." Call risk is the
possibility that, during periods of declining interest rates, a bond issuer will
"call"--or repay--higher-yielding bonds before their stated maturity date. In
both cases, investors receive their principal back and are typically forced to
reinvest it in bonds that pay lower interest rates. Rapid changes in prepayment
and call rates can cause bond prices and yields to be volatile.
If the Fund invests in securities with additional risks, its share-price
volatility accordingly could be greater and its performance lower. The Fund may
trade securities actively, which could increase its transaction costs (thereby
lowering its performance) and may increase the amount of taxes that you pay. For
more information about these risks, please see "Glossary of Investment Risks" on
page ___.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S CLASS A SHARES
FROM YEAR TO YEAR. IF SALES CHARGES HAD BEEN REFLECTED, ITS RETURNS WOULD BE
LESS THAN THOSE SHOWN BELOW.*
<TABLE>
<CAPTION>
---------------------------------------
YEAR RETURN
---------------------------------------
<S> <C>
1995 18.79%
---------------------------------------
1996 2.59%
---------------------------------------
1997 9.17%
---------------------------------------
1998 8.45%
---------------------------------------
1999 %
---------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
6.31% -2.53%
----- ------
(6/30/95) (3/31/96)
</TABLE>
*THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S
TOTAL RETURN FROM 1/1/2000 TO 9/30/2000 WAS ____%.
31
<PAGE>
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/99, TO THOSE OF THE LEHMAN BROTHERS AGGREGATE BOND INDEX.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
SINCE CLASS
1 YEAR 5 YEARS 10 YEARS INCEPTION
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BOND FUND
CLASS A SHARES (with a 4.25% sales charge) ____% ____%** ____%** ____%*
-------------------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS AGGREGATE BOND INDEX(1) ____% ____% ____% ____%+
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The unmanaged Lehman Brothers Aggregate Bond Index is generally
representative of the bond market as a whole.
*Since 6/20/94.
**Prior to 6/20/94, performance for Class A Shares is based on Fiduciary Share
performance. Fiduciary Shares, which were first offered 2/15/84, are not offered
in this prospectus; however, because they are invested in the same portfolio of
securities, the annual returns for the two classes would be substantially
similar. The performance of the Fiduciary Shares has been adjusted for the sales
charge applicable to Class A Shares, but does not reflect the Class A Shares'
Rule 12b-1 fees and expenses. With those adjustments, performance would be lower
than that shown.
+Since 2/29/84.
<TABLE>
<CAPTION>
CLASS CUSIP TICKER
----- ----- ------
<S> <C> <C>
Class A 431114743 HMRBX
Class B
</TABLE>
DID YOU KNOW?
One of the most significant factors affecting the performance of a bond fund is
the rise and fall of interest rates. When interest rates rise, a bond's value
generally declines. When interest rates fall, its value generally increases. As
a result, the greater a fund's exposure to interest rates, the greater its risk
and return potential.
DURATION is an indication of how sensitive a bond or mutual fund portfolio may
be to changes in interest rates. Generally speaking, the longer a fund's
duration, the more dramatically it will react to interest rate fluctuations and
the greater its long-term risk/return potential. Due to their high yields,
non-investment grade bonds are typically less sensitive to interest rates than
investment grade bonds.
FEES AND EXPENSES
The following tables describe the fees and expenses you would pay if you buy and
hold Fund Shares. The first table describes the fees that you would pay directly
from your investment if you purchased or sold Fund Shares. The second table
describes the expenses you would pay indirectly if you held Fund Shares.
32
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
---------------------------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of
offering price)* 4.25% 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** 0% 5.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)*** 0% 0%
---------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------------------------
<CAPTION>
CLASS A CLASS B
SHARES SHARES
<S> <C> <C>
Investment Advisory Fees 0.50% 0.50%
Distribution and/or Service (12b-1) Fees 0.25% 0.75%
Other Expenses % %+
----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES % %
Fee Waivers % %
TOTAL ANNUAL FUND OPERATING EXPENSES+ % %
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
+Because Class B Shares are new, other expenses for Class B Shares are based on
estimated amounts for the current fiscal year.
++The Fund's Adviser has agreed to contractually waive fees in order to keep
total operating expenses for Class A Shares from exceeding ____% for the period
beginning November 30, 2000 and ending on November 29, 2001. The Fund's total
actual operating expenses 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
Fund's actual operating expenses are expected to be as follows:
Class A Shares: ___% Class B Shares: _____%
EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $___ $___ $___ $___
CLASS B SHARES
If you do not sell
your shares: $___ $___ $___ $___
If you sell your
shares at the
end of the period: $___ $___ $___ $___
</TABLE>
33
<PAGE>
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
FUND SUMMARY
INVESTMENT GOAL To seek high current income that is exempt from
federal and California state income taxes
INVESTMENT FOCUS California municipal securities
PRINCIPAL INVESTMENT STRATEGY Invests primarily in investment grade California
municipal securities
SHARE PRICE VOLATILITY Low to Moderate
INVESTOR PROFILE California residents seeking income exempt from
federal and state income taxes
INVESTMENT STRATEGY
HighMark California Intermediate Tax-Free Bond Fund seeks high current income
that is exempt from federal and State of California income taxes. To pursue this
goal, the Fund invests at least 65% of its assets in INVESTMENT-GRADE California
MUNICIPAL BONDS and notes.
Although the Fund will invest primarily in California municipal bonds, it may
also invest in municipal bonds from other states, territories and possessions of
the United States if the income from these bonds is exempt from U.S. federal
income taxes. In addition, the Fund may invest in Shares of money market funds
and other investment companies that have similar investment objectives. Under
certain conditions, the Fund may temporarily invest more than 20% of its assets
in bonds not exempt from federal or California state taxes, which would make it
more difficult for the Fund to achieve its goals. Investors who may be subject
to the alternative minimum tax (AMT) should note that the portfolio managers
will invest at least 80% of the Fund's assets in bonds that pay interest exempt
from the AMT under normal circumstances.
In selecting bonds for the Fund's portfolio, the portfolio managers consider
factors such as:
- The potential direction of interest rate changes.
- Their expectations for the U.S. economy in general and California's economy
in particular.
- The credit rating and stability of the issuer.
For a more complete description of the various securities in which the Fund can
invest, please see "Investment Practices" on page ___.
WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Your investment in the Fund may be subject to the following risks.
STATE SPECIFIC RISK: By concentrating its investments in California, the Fund
may be more vulnerable to unfavorable developments in that state than funds that
are more geographically diversified.
INTEREST RATE RISK: The possibility that the value of the Fund's investments
will decline due to an increase in interest rates or that the Fund's yield will
decrease due to a decrease in interest rates.
CREDIT RISK: The possibility that a bond issuer cannot make timely interest and
principal payments on its bonds. The lower a bond's rating, the greater its
credit risk.
34
<PAGE>
PREPAYMENT/CALL RISK: If a significant number of the mortgages underlying a
mortgage-backed bond are refinanced, the bond may be "prepaid." Call risk is the
possibility that, during periods of declining interest rates, a bond issuer will
"call"--or repay--higher-yielding bonds before their stated maturity date. In
both cases, investors receive their principal back and are typically forced to
reinvest it in bonds that pay lower interest rates. Rapid changes in prepayment
and call rates can cause bond prices and yields to be volatile.
If the Fund invests in securities with additional risks, its share-price
volatility accordingly could be greater and its performance lower. The Fund may
trade securities actively, which could increase its transaction costs and
thereby lower its performance.
For more information about these risks, please see "Glossary of Investment
Risks" on page ___.
PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S CLASS A SHARE FROM
YEAR TO YEAR. IF SALES CHARGES HAD BEEN REFLECTED, THE FUND'S RETURNS WOULD BE
LESS THAN THOSE SHOWN BELOW.*
<TABLE>
<CAPTION>
-------------------------------------------------------------------
YEAR RETURN
-------------------------------------------------------------------
<S> <C>
1994 -8.32%
-------------------------------------------------------------------
1995 18.52%
-------------------------------------------------------------------
1996 4.16%
-------------------------------------------------------------------
1997 7.50%
-------------------------------------------------------------------
1998 6.34%
-------------------------------------------------------------------
1999 ____%
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Best Quarter Worst Quarter
<S> <C>
8.72% -6.86%
----- ------
(3/31/95) (3/31/94)
</TABLE>
*THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL
RETURN FROM 1/1/2000 to 9/30/2000 was ____%. PERFORMANCE DATA INCLUDES THE
PERFORMANCE OF THE STEPSTONE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND FOR THE
PERIOD PRIOR TO ITS CONSOLIDATION WITH THE HIGHMARK CALIFORNIA INTERMEDIATE
TAX-FREE BOND FUND ON 4/25/97.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/99 TO THOSE OF THE LEHMAN BROTHERS 7-YEAR MUNICIPAL BOND INDEX.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
SINCE CLASS
1 YEAR 5 YEARS INCEPTION
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA INTERMEDIATE
TAX-FREE FUND(1)
CLASS A SHARES (with 4.25% sales charge) ____% ____% ____%*
---------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS 7-YEAR MUNICIPAL
BOND INDEX(2)
____% ____% ____%+
---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Performance data includes the performance of the Stepstone California
Intermediate Tax-Free Bond Fund for the period prior to its consolidation with
the HighMark California Intermediate Tax-Free Bond Fund on 4/25/97.
(2) The unmanaged Lehman Brothers 7-Year Municipal Bond Index comprises
intermediate-term,
35
<PAGE>
investment grade tax-exempt bonds with maturities between 6 and 8 years.
*Since 10/15/93.
+Since 10/31/93.
FUND INFORMATION
<TABLE>
<CAPTION>
CLASS CUSIP TICKER
----- ----- ------
<S> <C> <C>
Class A 431114578 HMCIX
Class B 431112796 NA
</TABLE>
DID YOU KNOW?
One of the most significant factors affecting the performance of a bond fund is
the rise and fall of interest rates. When interest rates rise, a bond's value
generally declines. When interest rates fall, its value generally increases. As
a result, the greater a fund's exposure to interest rates, the greater its risk
and return potential.
DURATION is an indication of how sensitive a bond or mutual fund portfolio may
be to changes in interest rates. Generally speaking, the longer a fund's
duration, the more dramatically it will react to interest rate fluctuations and
the greater its long-term risk/return potential. Due to their high yields,
non-investment grade bonds are typically less sensitive to interest rates than
investment grade bonds.
MUNICIPAL BONDS are issued by California and other states, cities and
municipalities to help finance utilities, schools, public works projects and
facilities, among other things. Additionally, the Fund will invest at least 80%
of its assets in investment-grade bonds.
INVESTMENT-GRADE BONDS are generally those whose issuers are considered to have
fairly solid financial health by nationally recognized rating agencies such as
Standard & Poor's.
FEES AND EXPENSES
The following tables describe the fees and expenses you would pay if you buy and
hold Fund Shares. The first table describes the fees that you would pay directly
from your investment if you purchased or sold Fund Shares. The second table
describes the expenses you would pay indirectly if you held Fund Shares.
36
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
---------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price)* 4.25% 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** 0% 5.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)*** 0% 0%
---------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS A CLASS B
SHARES SHARES
<S> <C> <C>
Investment Advisory Fees 0.50% 0.50%
Distribution and/or Service (12b-1) Fees 0.25% 0.75%
Other Expenses % %
----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES % %
Fee Waivers % %
TOTAL ANNUAL FUND OPERATING EXPENSES+ % %
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated." ***Does not include any wire transfer
fees, if applicable.
+The Fund's Adviser has agreed to contractually waive fees in order to keep
total operating expenses for Class A Shares and Class B Shares from exceeding
___% and ___%, respectively, for the period beginning November 30, 2000 and
ending on November 29, 2001. The Fund's total actual operating expenses 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 Fund's actual operating expenses are
expected to be as follows:
Class A Shares: ____% Class B Shares: ____%
EXAMPLE: This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $___ $___ $___ $___
CLASS B SHARES
If you do not sell
your shares: $___ $___ $___ $___
If you sell your
shares at the
end of the period: $___ $___ $___ $___
</TABLE>
37
<PAGE>
SHAREOWNER GUIDE - HOW TO INVEST IN THE HIGHMARK FUNDS
Before you invest, we encourage you to carefully read the Fund profiles included
in this prospectus and consider which Funds are appropriate for your particular
financial situation, risk tolerance and goals. As always, your financial
representative can provide you with valuable assistance in making this decision.
He or she can also help you choose which of the Fund share classes we offer is
right for you.
CHOOSING A SHARES CLASS
HighMark Funds offers different classes of Fund Shares, each of which has
different expenses and other characteristics. Three classes of Fund
Shares--Classes A, B and C--are offered in this prospectus. To choose the one
that is best suited to your needs and goals, consider the amount of money you
want to invest, how long you expect to invest it and whether you plan to make
additional investments. The following are some of the main differences between
HighMark's Class A, Class B and Class C Shares:
CLASS A
- Front-end sales charges, as described below.
- Distribution and service (12b-1) fees of 0.25%.
- Offered by:
Balanced Fund
Core Equity Fund
Growth Fund
Income Equity Fund
International Equity Fund
Small Cap Value Fund
Value Momentum Fund
Bond Fund
California Intermediate Tax-Free Bond Fund
- Because Class A Shares will normally be the better choice if your
investment qualifies for a reduced sales charge:
- Orders for Class B Shares for $250,000 or more normally should be
placed as orders for Class A Shares.
- Orders for Class C Shares for $1 million or more normally should be
placed as orders for Class A Shares.
- Orders for Class B Shares or Class C Shares by an investor eligible to
purchase Class A Shares without a front-end sales charge normally
should be placed as orders for Class A Shares.
CLASS B
- No front-end sales charge.
- Distribution and service (12b-1) fees of 0.75%.
- A deferred sales charge, as described below.
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<PAGE>
- Automatic conversion to Class A Shares after eight years, thus reducing
future annual expenses.
- Offered by:
Balanced Fund
Core Equity Fund
Growth Fund
Income Equity Fund
International Equity Fund
Small Cap Value Fund
Value Momentum Fund
Bond Fund
California Intermediate Tax-Free Bond Fund
CLASS C
- No front-end sales charge.
- Distribution and service (12b-1) fees of 1.00%.
- A deferred sales charge, as described below.
- No automatic conversion to Class A Shares, so annual expenses continue at
the Class C level throughout the life of your investment.
- Offered by:
Balanced Fund
Core Equity Fund
Growth Fund
Income Equity Fund
International Equity Fund
Small Cap Value Fund
Value Momentum Fund
FOR THE ACTUAL PAST EXPENSES OF EACH SHARE CLASS, SEE THE INDIVIDUAL FUND
PROFILES EARLIER IN THIS PROSPECTUS.
BECAUSE 12b-1 FEES ARE PAID ON AN ONGOING BASIS, CLASS B AND CLASS C
SHAREHOLDERS COULD END UP PAYING MORE EXPENSES OVER THE LONG TERM THAN IF THEY
HAD PAID A SALES CHARGE ON THEIR INITIAL INVESTMENT.
FOR INSTITUTIONAL INVESTORS ONLY: THE FUNDS ALSO OFFER FIDUCIARY CLASS SHARES.
THE VALUE MOMENTUM FUND ALSO OFFERS CLASS I SHARES. EACH OF THESE CLASSES HAS
ITS OWN EXPENSE STRUCTURE. FIDUCIARY CLASS SHARES ARE AVAILABLE ONLY TO
FINANCIAL INSTITUTIONS, FIDUCIARY CLIENTS OF UNION BANK OF CALIFORNIA, N.A., AND
CERTAIN OTHER QUALIFIED INVESTORS. CLASS I SHARES ARE AVAILABLE ONLY TO
GOVERNMENT RETIREMENT PLANS INVESTING $70 MILLION OR MORE. CALL US AT
1-800-433-6884 FOR MORE DETAILS.
FOR PURCHASES OF $1 MILLION OR GREATER, THE SALES CHARGE FOR CLASS A SHARES IS
WAIVED. AS A RESULT, IF YOU ARE MAKING AN INITIAL INVESTMENT OF $1 MILLION OR
MORE, THE LOWER OPERATING EXPENSES OF CLASS A SHARES MAY MAKE THEM A BETTER
CHOICE FOR YOU THAN CLASS B OR CLASS C SHARES.
HOW SALES CHARGES ARE CALCULATED
HighMark Funds offers different classes of Fund Shares, each of which has
different expenses and other characteristics. Three classes of Fund
Shares--Classes A, B and C--are offered in this prospectus. To
39
<PAGE>
choose the one that is best suited to your needs and goals, consider the amount
of money you want to invest, how long you expect to invest it and whether you
plan to make additional investments. The following are some of the main
differences between HighMark's Class A, Class B and Class C Shares:
CLASS A SHARES: FRONT-END SALES CHARGE
EQUITY FUNDS
<TABLE>
<CAPTION>
AS A AS A
PERCENTAGE OF PERCENTAGE OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
<S> <C> <C>
0 - $49,999 5.50% 5.82%
$50,000 - $99,999. 4.50% 4.71%
$100,000 - $249,999 3.75% 3.90%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and Over 0.00%* 0.00%
</TABLE>
*If you sell Class A Shares within one year of buying them and you bought those
Shares without a sales charge because your initial investment was $1 million or
greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
FIXED-INCOME FUNDS
<TABLE>
<CAPTION>
AS A AS A
PERCENTAGE OF PERCENTAGE OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
<S> <C> <C>
0 - $99,999 4.25% 4.44%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and Over 0.00%* 0.00%
</TABLE>
*If you sell Class A Shares within one year of buying them and you bought those
Shares without a sales charge because your initial investment was $1 million or
greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
CLASS B AND CLASS C SHARES: CONTINGENT DEFERRED SALES CHARGE
Class B Shares and Class C Shares are available at their net asset value per
share, without any initial sales charge. If you sell Class B Shares within six
years of buying them or Class C Shares within one year of buying them, you must
pay what is known as a "contingent deferred sales charge" (CDSC). As the tables
below show, the CDSC declines over time and is based on either the original cost
you paid for the Shares or their current market value, whichever is less. We do
not impose a CDSC on Shares you may have acquired by reinvesting your dividends
or capital gains distributions.
THE CDSC ARE AS FOLLOWS:
CLASS B SHARES
<TABLE>
<CAPTION>
IF SOLD WITHIN CDSC ON SHARES BEING SOLD
<S> <C>
1st year 5.00%
40
<PAGE>
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
7th and 8th year 0%
</TABLE>
CLASS C SHARES
<TABLE>
<CAPTION>
IF SOLD WITHIN CDSC ON SHARES BEING SOLD
<S> <C>
1st year 1.00%
After 1st year 0%
</TABLE>
Class B Shares will automatically convert to Class A Shares after eight years.
Class C Shares do not convert to Class A Shares.
In addition, we calculate any CDSC you may owe by considering the number of
Shares you are selling, not the value of your account. To keep your CDSC as low
as possible, each time you ask us to sell Shares we will first sell any Shares
in your account that carry no CDSC. If there are not enough of these to meet
your request, we will sell those Shares that have the lowest CDSC next.
CLASS C SHARES
Even though there is no front-end sales charge, the Distributor pays a
commission equal to !% of your purchase to your broker or financial institution.
The Distributor receives any CDSC imposed when you sell your Class C Shares.
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGES. You can combine multiple purchases of Class
A Shares in several ways to qualify for reduced sales charges. Notify us at the
time of your purchase if you believe you qualify for a reduced sales charge for
any of the following reasons:
- RIGHT OF ACCUMULATION PRIVILEGE: You may combine the value of Class A
Shares you are presently buying with the current value of any Class A
Shares you bought previously for: (1) your account; (2) your spouse's
account; (3) a joint account with your spouse; or (4) your minor children's
trust or custodial accounts. A fiduciary who is purchasing Shares for the
same fiduciary account, trust or estate may also use this right of
accumulation.
- COMBINATION PRIVILEGE: You may combine your investment in Class A Shares of
several HighMark Funds sold subject to a comparable sales charge to qualify
for the reduced sales charge.
- LETTER OF INTENT: If you plan to invest in Class A Shares of one HighMark
Fund and, within a 13-month period, make an additional investment in Class
A Shares of another HighMark Fund, you may be able to receive a reduced
sales charge on your cumulative investment. To take advantage of this
privilege, you must inform us in writing within 90 days of your initial
purchase. Be sure to notify us again when you make your additional
investment in another HighMark Fund.
REDUCTIONS FOR QUALIFIED GROUP(S). If you are investing with, or on behalf of, a
group, your combined purchases of Class A Shares may be eligible for a reduced
sales charge through the accumulation and combination privileges described
above. Each investor will retain an individual account.
CONTACT YOUR FINANCIAL REPRESENTATIVE OR THE DISTRIBUTOR TO FIND OUT HOW TO
QUALIFY, OR CONSULT THE STATEMENT OF ADDITIONAL INFORMATION (SEE THE BACK COVER
OF THIS PROSPECTUS FOR CONTACT INFORMATION).
41
<PAGE>
FRONT-END SALES CHARGE WAIVERS: The front-end sales charge will be waived on
Class A Shares bought:
(1) Through reinvestment of dividend and capital gain distributions
(2) By investment companies advised by HighMark Capital Management, Inc.,
Union Bank of California, N.A., or their affiliates; or distributed by
SEI Investments Distribution Co. or their affiliates placing orders on
each entity's behalf.
(3) By state and local governments.
(4) By individuals rolling over distributions received from employee
benefit trust accounts administered by Union Bank of California into an
individual retirement account administered by the Bank, or for which
the Bank serves as trustee or custodian. Future purchases will be
subject to the appropriate sales charge.
(5) By individuals investing the proceeds from a required minimum
distribution at age 70 1/2 from their employee benefit qualified plan
or an individual retirement account administered by Union Bank of
California.
(6) By individuals investing proceeds received in connection with a
distribution paid from a Union Bank of California trust or agency
account.
(7) By investment advisers or financial planners regulated by a federal or
state governmental authority who are purchasing Class A Shares for
their own account or for an account for which they are authorized to
make investment decisions (i.e., a discretionary account) and who
charge a management, consulting or other fee for their services; and
clients of such investment advisers or financial planners who place
trades for their own accounts, if the accounts are linked to the master
account of the investment adviser or financial planner on the books and
records of a broker or agent;
(8) By individuals investing proceeds they received from selling Shares of
another mutual fund (other than HighMark Funds) on which they paid a
sales charge. If you believe you qualify for this exemption, you must
notify us at the time you purchase Class A Shares and provide us with
evidence such as a confirmation of your share redemption.
(9) By brokers, dealers and agents (as well as their employees, spouses and
children under the age of 21) who have a sales agreement with the
Distributor and are purchasing Class A Shares for their own account.
(10) By individuals buying Class A Shares on behalf of a qualified
prototype retirement plan (other than an IRA, SEP-IRA or Keogh).
(11) By sponsors of a unit investment trust (UIT) who are buying Class A
Shares of HighMark Growth Fund for deposit into the UIT. This exception
may also apply to you if you hold a UIT and invest distributions you
receive from it in Class A Shares of the HighMark Growth Fund.
(12) By current or retired trustees of HighMark Funds; by directors,
officers and employees (as well as their spouses and children under the
age of 21) of Union Bank of California, SEI Investments Distribution
Co. or their affiliated companies and of Sub-Advisers to the HighMark
Funds.
(13) By investors receiving Class A Shares issued in plans of
reorganization, such as mergers, asset acquisitions, and exchange
offers, to which HighMark Funds is a party.
(14) By persons who bought Class A Shares without the assistance of an
investment professional between May 15, 1998 and August 31, 1998. Such
individuals may make future purchases of Class A Shares at no sales
charge.
42
<PAGE>
IF YOU THINK YOU MAY BE ELIGIBLE FOR A SALES CHARGE WAIVER, CONTACT THE
DISTRIBUTOR OR CONSULT THE STATEMENT OF ADDITIONAL INFORMATION (SEE THE BACK
COVER OF THIS PROSPECTUS). FOR CATEGORIES 2 THROUGH 12 AND 14 ABOVE, YOU MUST
NOTIFY THE DISTRIBUTOR AT THE TIME YOU BUY THE SHARES THAT YOUR PURCHASE
QUALIFIES FOR A SALES CHARGE WAIVER.
CDSC WAIVERS: You may qualify for a CDSC waiver if:
- you are selling Shares as part of a systematic withdrawal plan.
- you are taking certain distributions from a retirement plan.
- the shareholder has died or become disabled.
YOU MUST NOTIFY US THAT YOU ARE ELIGIBLE FOR A WAIVER UNDER THESE CIRCUMSTANCES
AT THE TIME YOU WISH TO SELL SHARES.
IF YOU THINK YOU MAY BE ELIGIBLE FOR A CDSC WAIVER, CONTACT YOUR FINANCIAL
REPRESENTATIVE OR THE DISTRIBUTOR OR CONSULT THE STATEMENT OF ADDITIONAL
INFORMATION (SEE THE BACK COVER OF THIS PROSPECTUS FOR CONTACT INFORMATION).
FEES FOR DISTRIBUTION OF SHARES
HighMark Funds has adopted 12b-1 plans with respect to Class A, Class B and
Class C Shares that allow each Fund to pay distribution and service fees. The
maximum distribution and service fee for each class of Shares is as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
SHARE CLASS DAILY NET ASSETS
<S> <C>
Class A 0.25%
Class B 0.75%
Class C 1.00%
</TABLE>
Because 12b-1 fees are paid on an ongoing basis, Class B and Class C
shareholders could, over time, end up paying more in expenses than if they had
paid a sales charge on their initial investment.
OPENING AN ACCOUNT
1. Read this prospectus carefully.
2. Determine how much money you want to invest.
The minimum investments for the HighMark Funds are as follows:
- INITIAL PURCHASE: $1,000 for each Fund
$250 for current and retired trustees of
HighMark Funds and directors, officers and
employees (as well as their spouses and
children under the age of 21) of Union Bank
of California, N.A., SEI Investments
Distribution Co. and their affiliates.
- ADDITIONAL PURCHASES: $100 for each Fund
We may waive these initial and additional investment minimums for purchases made
in connection with Individual Retirement Accounts, Keoghs, payroll deduction
plans, or 401(k) or similar plans.
43
<PAGE>
3. Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation
when opening trust, corporate or power of attorney accounts. For more
information, please contact your financial representative or call us at
1-800-433-6884.
4. You and your financial representative can initiate any purchase,
exchange or sale of Shares.
WE RESERVE THE RIGHT TO REJECT A PURCHASE ORDER IF THE DISTRIBUTOR OR THE
ADVISER DETERMINES THAT IT IS NOT IN THE BEST INTEREST OF HIGHMARK FUNDS OR ITS
SHAREHOLDERS.
BUYING SHARES
BY CHECK
OPENING AN ACCOUNT
- Make out a check for the investment amount, payable to "HighMark Funds."
- Deliver the check and your completed application to your financial
representative, or mail them to our transfer agent (see address below).
ADDING TO AN ACCOUNT
- Make out a check for the investment amount, payable to "HighMark Funds."
- Fill out the detachable investment slip from your account statement. If you
do not have a slip, include a note specifying the fund name, your share
class, your account number and the name(s) in which the account is
registered.
- Deliver the check and your investment slip or note to your financial
representative, or mail them to our transfer agent (address below).
All purchases made by check should be in U.S. dollars.
Third party checks, credit card checks or cash will not be accepted.
BY EXCHANGE
OPENING AN ACCOUNT
- Call your financial representative or the Distributor at 1-800-433-6884 to
request an exchange.
ADDING TO AN ACCOUNT
- Call your financial representative or the Distributor at 1-800-433-6884 to
request an exchange.
BY WIRE
OPENING AN ACCOUNT
- Deliver your completed application to your financial representative, or
mail it to the transfer agent (address below).
44
<PAGE>
- Obtain your Fund account number by calling your financial representative or
our transfer agent.
- Instruct your bank to wire the amount of your investment to:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02101
ABA# 011000028
DDA# 9905-194-8
Specify the Fund name, your choice of share class, the new Fund account number
and the name(s) in which the Fund account is registered. Your bank may charge a
fee to wire money.
ADDING TO AN ACCOUNT
- Call our transfer agent before wiring any funds.
- Instruct your bank to wire the amount of your investment to:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02101
ABA# 011000028
DDA# 9905-194-8
Specify the Fund name, your share class, your Fund account number and the
name(s) in which the Fund account is registered. Your bank may charge a fee to
wire money.
THROUGH FINANCIAL INSTITUTIONS
OPENING AN ACCOUNT
- Call your financial institution for information on their procedures for
transmitting orders to HighMark Funds.
ADDING TO AN ACCOUNT
- Call your financial institution for information on their procedures for
transmitting orders to HighMark Funds.
TRANSFER AGENT ADDRESS:
HighMark Funds
P.O. Box 8416
Boston, MA 02266-8416
Phone Number: 1-800-433-6884
Or contact your financial representative for instructions and assistance.
To add to an account using the Automatic Invest Plan, see "Additional
Investor Services."
45
<PAGE>
SELLING SHARES
BY LETTER
DESIGNED FOR
- Accounts of any type.
- Sales of any amount.
TO SELL SOME OR ALL OF YOUR SHARES
- Write a letter indicating the Fund name, your share class, your Fund
account number, the name(s) in which the account is registered and the
dollar value or number of Shares you wish to sell.
- Include all signatures and any guarantees that may be required (see next
page).
- Mail the materials to our transfer agent.
- We will mail a check to the name(s) and address in which the account is
registered, unless you give us other written instructions.
BY PHONE
DESIGNED FOR
- Accounts of any type.
- Sales of any amount.
TO SELL SOME OR ALL OF YOUR SHARES
- To place your order, contact your financial representative or the
Distributor at 1-800-433-6884 between 8:30 A.M. and 8:00 P.M. Eastern Time
on most business days.
BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT)
DESIGNED FOR
- Requests by letter to sell at least $500 (accounts of any type).
- Requests by phone to sell at least $500 (accounts of any type).
TO SELL SOME OR ALL OF YOUR SHARES
- We will wire amounts of $500 or more on the next business day after we
receive your request.
- If you have an account with the Fund's transfer agent (a "Fund Direct
Account"), a $15 fee will be deducted from your account.
- Shares cannot be redeemed by wire on Federal holidays restricting wire
transfers.
46
<PAGE>
BY EXCHANGE
DESIGNED FOR
- Accounts of any type.
- Sales of any amount.
TO SELL SOME OR ALL OF YOUR SHARES
- Obtain a current prospectus for the Fund into which you are exchanging by
calling the Distributor or your financial representative.
- Call the Distributor or your financial representative to request an
exchange.
THROUGH FINANCIAL INSTITUTIONS
DESIGNED FOR
- Accounts set up through financial institutions.
TO SELL SOME OR ALL OF YOUR SHARES
- Contact your financial institution for information on their procedures for
transmitting orders to HighMark Funds.
TRANSFER AGENT ADDRESS:
HighMark Funds
P.O. Box 8416
Boston, MA 02266-8416
Phone Number: 1-800-433-6884
Or contact your financial representative for instructions and assistance.
To add to an account using the Automatic Invest Plan, see "Additional Investor
Services."
SELLING SHARES IN WRITING. In certain circumstances, you may need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
- you are selling more than $5,000 worth of Shares.
- you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s).
You should be able to obtain a signature guarantee from a bank, broker-dealer,
credit union, securities exchange or association, clearing agency or savings
association. A notary public CANNOT provide a signature guarantee.
RECEIVING YOUR MONEY. Normally, we will send you a check for your proceeds as
promptly as possible, at the latest within seven calendar days of receiving your
redemption order. If, however, you recently purchased Shares in the Fund, we may
be unable to fulfill your request if we have not yet received and processed your
payment for the initial purchase. In such a case you may need to resubmit your
redemption request after we have received payment.
47
<PAGE>
REDEMPTION IN KIND. The Funds reserve the right to make payment on redemptions
in securities rather than cash.
INVOLUNTARY SALES OF YOUR SHARES. Due to the relatively high costs of handling
small investments, each Fund reserves the right to redeem your Shares at net
asset value (less any applicable contingent deferred sales charge) if your
account balance in any Fund drops below the minimum initial purchase amount for
any reason other than market fluctuation. This is more likely to occur if you
invest only the minimum amount in a Fund and then sell Shares within a fairly
short period of time. Before any Fund exercises its right to redeem your Shares,
we will notify you in writing at least 60 days in advance to give you time to
bring your account up to or above the minimum.
EXCHANGING SHARES
HOW TO EXCHANGE YOUR SHARES. You may exchange Class A, Class B or Class C Shares
of one HighMark Fund for those of another HighMark Fund (the "new Fund"),
provided that you:
- Are qualified to invest in the new Fund.
- Satisfy the initial and additional investment minimums for the new Fund.
- Invest in the same share class in the new Fund as you did in the previous
Fund.
- Maintain the minimum account balance for each HighMark Fund in which you
invest.
Your cost for buying Shares in the new Fund is based on the relative net asset
values of the Shares you are exchanging plus any applicable sales charge.
CLASS A SHARES. If you want to exchange Class A Shares of one HighMark Fund for
those of another Fund that has a higher sales charge, you must pay the
difference. The same is true if you want to exchange Class A Shares of a no-load
HighMark Money Market Fund for those of another HighMark Fund with a sales
charge. There is one exception: If you acquired Class A Shares of a HighMark
Money Market Fund in an exchange out of Class A Shares of a non-money market
HighMark Fund, you may, within a 12-month period, exchange your Class A money
market Shares for those of another HighMark Fund without paying any additional
sales charge. To receive a reduced sales charge when exchanging into a Fund, you
must notify us that you originally paid a sales charge and provide us with
information confirming your qualification.
CLASS B SHARES. To calculate the Class B Shares' eight-year conversion period or
contingent deferred sales charge payable upon redemption, we combine the period
you held Class B Shares of the "old" Fund with the period you held Class B
Shares of the "new" Fund.
TRANSACTION POLICIES
VALUATION OF SHARES. A Fund's net asset value is calculated according to the
following formula:
(Total mkt. value of the Fund's investments and other assets - any
Fund liabilities)
DIVIDED BY Total number of the Fund's Shares outstanding
= Fund's net asset value
We determine the net asset value (NAV) of each HighMark Fund as of 1:00 p.m.
Pacific time (4:00 p.m. Eastern time) every business day, based on the current
market price of the Fund's securities. If that is not available, we value
securities by using a method that the Funds' Board of Trustees believes
accurately reflects fair value. Although we use the same method to determine the
NAV of Class A, Class B and Class C Shares, the NAV of a Fund's Class B and
Class C Shares may be lower than that of its Class A Shares
48
<PAGE>
because Class B and Class C Shares have higher distribution expenses. For
further information about how we determine the value of the Funds' investments,
see the Statement of Additional Information.
BUY AND SELL PRICES. When you buy Shares, you pay the net asset value next
determined after we receive your order, plus any applicable sales charges. When
you sell Shares, you receive the net asset value next determined after we
receive your order, minus any applicable deferred sales charges.
EXECUTION OF ORDERS. You may buy and sell Shares of the HighMark Funds on any
day when the New York Stock Exchange is open for business (hereafter referred to
as a "business day").
- PURCHASING SHARES BY MAIL: If you mail us a purchase order, we will execute
it as soon as we have received your payment. (Note: If your check does not
clear, we will be forced to cancel your purchase and may hold you liable
for any losses or fees incurred.)
- PURCHASING SHARES BY WIRE: If you place a purchase order by wire on any
business day, we will execute it that day, provided that you have wired the
money you wish to invest to the transfer agent prior to 1:00 p.m. PT (4:00
p.m. ET). If the transfer agent does not receive the money you plan to wire
by this deadline, we will execute your order the following business day or
whenever we have received payment.
- SELLING SHARES: To sell Shares on any business day, you must place your
redemption order before 1:00 p.m. PT (4:00 p.m. ET). Otherwise, we will
execute your order on the following business day.
DIVIDENDS AND DISTRIBUTIONS
As a mutual fund shareholder, you may receive capital gains and/or income from
your investment. Each of the HighMark Funds declares and pays income dividends
monthly, with the exception of the Small Cap Value Fund and International Equity
Fund, which declare and pay income dividends periodically. The Funds distribute
any net capital gains they have realized at least once a year.
We will automatically reinvest any income and capital gains distributions you
are entitled to in additional Shares of your Fund(s) unless you notify our
Transfer Agent that you want to receive your distributions in cash. To do so,
send a letter with your request, including your name and account number to:
HighMark Funds
P.O. Box 8416
Boston, MA 02266-8416
Your request will become effective for distributions having record dates after
our Transfer Agent receives your request. Note that the IRS treats dividends
paid in additional Fund Shares the same as it treats dividends paid in cash. In
general, a Fund's Class A Shares will pay higher dividends than Class B and
Class C Shares, because Class B Shares and Class C Shares have higher
distribution fees.
TAXES
Your mutual fund investments may have a considerable impact on your tax
situation. We've summarized some of the main points you should know below. Note,
however, that the following is general information and will not apply to you if
you are investing through a tax-deferred account such as an IRA or a qualified
employee benefit plan. In addition, if you are not a resident of the United
States, you may have to pay taxes besides those described here, such as U.S.
withholding and estate taxes.
IMPORTANT NOTE: IF YOU HAVE NOT DONE SO ALREADY, BE SURE TO PROVIDE US WITH YOUR
CORRECT TAXPAYER IDENTIFICATION NUMBER OR CERTIFY THAT IT IS CORRECT. UNLESS WE
HAVE THAT INFORMATION, WE MUST, BY LAW, WITHHOLD 31% OF THE TAXABLE
DISTRIBUTIONS YOU WOULD OTHERWISE BE ENTITLED TO RECEIVE FROM YOUR FUND
INVESTMENTS AS WELL AS ANY PROCEEDS YOU WOULD NORMALLY RECEIVE FROM SELLING FUND
SHARES.
49
<PAGE>
END-OF-YEAR TAX STATEMENTS
We will send you a statement each year showing the tax status of all your
distributions. The laws governing taxes change frequently, however, so please
consult your tax adviser for the most up-to-date information and specific
guidance regarding your particular tax situation. You can find more information
about the potential tax consequences of mutual fund investing in the Statement
of Additional Information.
TAXES ON FUND DISTRIBUTIONS
- FEDERAL TAXES: The IRS treats any dividends and short-term capital gains
you receive from the Funds as ordinary income.
- STATE AND LOCAL TAXES: In addition to federal taxes, you may have to pay
state and local taxes on the dividends or capital gains you receive from a
Fund.
- TAXATION OF LONG-TERM CAPITAL GAINS: You may have to pay federal and state
taxes on any distributions of net long-term capital gains you receive from
a Fund at the long-term capital gains rate, regardless of how long you've
owned Shares in the Fund. (Although some states like California, do not
have a special rate for capital gains.)
- "BUYING A DIVIDEND": You may owe taxes on Fund distributions even if they
represent income or capital gains the Fund earned before you invested in it
and thus were likely included in the price you paid.
TAX CONSEQUENCES OF SELLING OR EXCHANGING SHARES
If you sell or exchange Fund Shares, you may have to report any capital gain you
realize as income and any capital loss as a deduction on your federal income tax
return (even if the Fund invests primarily in tax-exempt securities.) For more
specific information about your own tax situation, consult your tax adviser.
The portfolio managers of the Funds do not actively consider tax consequences
when making investment decisions. From time to time, the Funds may realize
capital gains as by-products of ordinary investment activities. As a result, the
amount and timing of Fund distributions may vary considerably from year to year.
SPECIAL CONSIDERATIONS FOR SHAREHOLDERS OF HIGHMARK CALIFORNIA INTERMEDIATE
TAX-FREE BOND FUND: The Fund's portfolio managers expect that virtually all of
the income the California Intermediate Tax-Free Fund generates will be exempt
from federal and California state personal income taxes. If, however, you
receive Social Security or railroad retirement benefits, you should consult your
tax adviser to determine whether investing in the Fund could increase federal
taxation of such benefits. In addition, some of the income you received from the
Fund may be included in the computation of federal and state alternative minimum
tax.
SPECIAL CONSIDERATIONS FOR SHAREHOLDERS OF FUNDS INVESTING IN FOREIGN
SECURITIES: If your Fund invests in foreign securities, the income those
securities generate may be subject to foreign withholding taxes, which may
decrease their yield. Foreign governments may also impose taxes on other
payments or gains your Fund earns on these securities. In general, shareholders
in these Funds will not be entitled to claim a credit or deduction for these
foreign taxes on their U.S. tax return. (There are some exceptions, however;
please consult your tax adviser for more information.) In addition, foreign
investments may prompt a Fund to distribute ordinary income more frequently
and/or in greater amounts than purely domestic funds, which could increase your
tax liability.
THE TAX CONSIDERATIONS DESCRIBED ABOVE MAY OR MAY NOT APPLY TO YOU. PLEASE
CONSULT YOUR TAX ADVISER TO HELP DETERMINE WHETHER THESE CONSIDERATIONS ARE
RELEVANT TO YOUR PARTICULAR INVESTMENTS AND TAX SITUATION.
50
<PAGE>
INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN* (AIP): AIP allows you to make regular investments in
the HighMark Fund(s) of your choice through automatic deductions from your
checking account. The monthly minimum per Fund is $100.** AIP is available only
to current shareholders who wish to make additional investments to their
existing account(s). To participate in AIP, complete the appropriate section on
your Account Application form.
*Any shareholders who have established an Automatic Investment Plan on or
before November 30, 1999, and have elected automatic deductions from their
checking or savings accounts, may be eligible for a reduced sales charge. For
further information about the reduced sales charge, see the Statement of
Additional Information.
**There is a $50 monthly minimum for current or retired trustees of the
HighMark Funds and directors, officers, and employees (as well as their
spouses and children under the age of 21) of Union Bank of California, SEI
Investments Distribution Co., and their affiliates who were participating in
HighMark's AIP on or before December 11, 1998.
SYSTEMATIC WITHDRAWAL PLAN (SWP): HighMark's Systematic Withdrawal Plan allows
you to make regular withdrawals from your account. The minimum monthly
withdrawal is $100 per Fund. You can choose to make these withdrawals on a
monthly, quarterly, semi-annual or annual basis. You also have the option of
receiving your withdrawals by check or by automatic deposit into your bank
account.
To participate in SWP, you must:
- Have at least $5,000 in your HighMark Fund(s) account.
- Have your dividends automatically reinvested.
BEFORE YOU SIGN UP FOR SWP, PLEASE NOTE THE FOLLOWING IMPORTANT CONSIDERATIONS:
If your automatic withdrawals through SWP exceed the income your Fund(s)
normally pay, your withdrawals may, over time, deplete your original
investment--or exhaust it entirely if you make large and frequent withdrawals.
Fluctuations in the net asset value per share of your Fund(s) may also
contribute to the depletion of your principal.
CLASS A SHAREHOLDERS SHOULD NOTE THE FOLLOWING:
If you are currently making additional purchases of HighMark Shares that carry a
sales load, or plan to do so, it generally would not be in your best interest to
participate in SWP.
CLASS B SHAREHOLDERS SHOULD ALSO NOTE THE FOLLOWING:
If you expect to withdraw more than 10% of your account's current value in any
single year, it may not be in your best interest to participate in SWP because
you will have to pay a contingent deferred sales charge on Class B withdrawals
of this size.
To take part in SWP, complete the appropriate section on your Account
Application form. You may change or cancel the plan at any time by sending a
written notice to our transfer agent (a signature guarantee may be required).
MORE ABOUT HIGHMARK FUNDS
INVESTMENT MANAGEMENT
INVESTMENT ADVISER
HighMark Capital Management, Inc., serves as investment adviser of the HighMark
Funds and manages their investment portfolios on a day-to-day basis under the
supervision of HighMark Funds' Board of Trustees.
51
<PAGE>
HighMark Capital Management is a subsidiary of UnionBanCal Corporation, the
holding company of Union Bank of California, N.A. UnionBanCal Corporation is a
publicly held corporation, which is principally held by The Bank of
Tokyo-Mitsubishi, Ltd. As of September 30, 2000, UnionBanCal Corporation and its
subsidiaries had approximately $___ billion in consolidated assets. As of the
same date, HighMark Capital Management, had approximately $___ billion in assets
under management. HighMark Capital Management (and its predecessors), with a
team of approximately 50 stock and bond research analysts, portfolio managers
and traders, has been providing investment management services to individuals,
institutions and large corporations since 1917.
Over the past fiscal year, the Funds paid the following management fees to
HighMark Capital Management:
<TABLE>
<CAPTION>
FUND % OF NET ASSETS
<S> <C>
Bond Fund 0.50%
California Intermediate
Tax-Free Bond Fund 0.20%
Balanced Fund 0.60%
Core Equity Fund ____%
Growth Fund 0.58%
Income Equity Fund 0.60%
International Equity Fund 0.95%*
Value Momentum Fund 0.59%
Small Cap Value Fund 1.00%*
</TABLE>
*A portion of the management fee is used to pay the Fund's sub-adviser.
SUB-ADVISERS
INTERNATIONAL EQUITY FUND. AXA Investment Managers GS Ltd. ("AXA") serves as the
sub-adviser to the International Equity Fund. Under an investment sub-advisory
agreement between AXA and HighMark Capital Management, AXA makes day-to-day
investment decisions regarding the Fund, subject to the supervision of, and
policies established by, HighMark Capital Management and the Trustees of
HighMark Funds.
AXA operates as a subsidiary of the AXA Group. AXA provides active global
investment services for U.S. mutual funds and foreign mutual funds. As of
October 1, 2000, AXA managed assets in excess of $___ million. The AXA Group,
including AXA, had over $___ billion in assets under management as of December
31, 1999.
SMALL CAP VALUE FUND. Brandes Investment Partners, L.P. (Brandes) serves as the
sub-adviser to a portion of the Small Cap Value Fund's assets. Under an
investment sub-advisory agreement between Brandes and HighMark Capital
Management, Brandes makes day-to-day investment decisions regarding the Fund's
foreign securities, subject to the supervision of, and policies established by,
HighMark Capital Management and the Trustees of HighMark Funds.
Brandes is a California limited partnership organized in May 1996 as the
successor to its general partner, Brandes Investment Partners, Inc., which
(through its various predecessors) has provided investment advisory services
since 1974. Brandes serves as portfolio manager to mutual funds, employee
benefit funds and other institutional clients. As of September 30, 2000, Brandes
managed approximately $___ billion in assets.
PORTFOLIO MANAGERS
All investment decisions for the HighMark Funds are made by a team of investment
professionals, all of whom take an active part in the decision making process.
52
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Fund's
financial performance for the past 5 years or, if shorter, the period of the
Fund's operations. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in a Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by
___________, or other independent accountants, as noted in ____________ report.
This report, along with the Fund's financial statements, is incorporated by
reference in the SAI, which is available upon request.
53
<PAGE>
INVESTMENT PRACTICES
The Funds invest in a variety of securities and employ a number of investment
techniques. Each security and technique involves certain risks. The following
table describes the securities and techniques the Funds use, as well as the main
risks they pose. Equity securities are subject mainly to market risk.
Fixed-income securities are subject primarily to market, credit and prepayment
risk. Following the table is a more complete discussion of risk. You may also
consult the Statement of Additional Information for more details about the
securities in which the Funds may invest.
<TABLE>
<CAPTION>
FUND NAME FUND CODE
<S> <C>
Balanced Fund 1
Core Equity Fund 2
Growth Fund 3
Income Equity Fund 4
International Equity Fund 5
Value Momentum Fund 6
Small Cap Value Fund 7
Bond Fund 8
California Intermediate Tax-Free Bond Fund 9
</TABLE>
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE MORTGAGE LOANS (ARMSS): Loans in a 1, 8 Pre-payment
mortgage pool which provide for a fixed initial mortgage Market
interest rate for a specified period of time, after which the rate Credit
may be subject to periodic adjustments. Regulatory
-------------------------------------------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS (ADRS): ADRs 1-7 Market
are foreign Shares of a company held by a U.S. Political
bank that issues a receipt evidencing ownership. Foreign Investment
ADRs pay dividends in U.S. dollars.
-------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES: Securities backed by company 1, 3, 8 Pre-payment
receivables, home equity loans, truck and auto loans, Market
leases, credit card receivables and other securities backed Credit
by other types of receivables or assets. Regulatory
-------------------------------------------------------------------------------------------------------------
BANKERS' ACCEPTANCES: Bills of exchange or time drafts 1-8 Credit
drawn on and accepted by a commercial bank. They generally Liquidity
have maturities of six months or less. Market
-------------------------------------------------------------------------------------------------------------
BONDS: Interest-bearing or discounted government or corporate 1, 6-9 Market
securities that obligate the issuer to pay the bondholder Credit
a specified sum of money, usually at specific intervals, and to
repay the principal amount of the loan at maturity.
-------------------------------------------------------------------------------------------------------------
CALL AND PUT OPTIONS: A call option gives the buyer the 1-7 Management
right to buy, and obligates the seller of the Liquidity
option to sell, a security at a specified price. A Credit
put option gives the buyer the right to sell, and Market
obligates the seller of the option to buy, a security Leverage
at a specified price. The Funds will sell only
covered call and secured put options.
-------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT: Negotiable instruments 1-8 Market
with a stated maturity. Credit
Liquidity
-------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER: Secured and unsecured short-term 1-9 Credit
promissory notes issued by corporations and other entities. Liquidity
Their maturities generally vary from a few days to nine months. Market
-------------------------------------------------------------------------------------------------------------
COMMON STOCK: Shares of ownership of a company. 1-7 Market
-------------------------------------------------------------------------------------------------------------
CONVERTIBLE SECURITIES: Bonds or preferred stock that 1-7 Market
convert to common stock. Credit
-------------------------------------------------------------------------------------------------------------
DEMAND NOTES: Securities that are subject to puts and 1-9 Market
standby commitments to purchase the securities at a fixed Liquidity
price (usually with accrued interest) within a fixed period Management
of time following demand by a Fund.
-------------------------------------------------------------------------------------------------------------
DERIVATIVES: Instruments whose value is derived from 1-9 Management
an underlying contract, index or security, or any Market
combination thereof, including futures, options Credit
(e.g., put and calls), options on futures, swap Liquidity
agreements, and some mortgage-backed securities. Leverage
-------------------------------------------------------------------------------------------------------------
FOREIGN SECURITIES: Stocks issued by foreign companies including 3-7 Market
ADRs and Global Depository Receipts (GDRs), as well as Political
Commercial paper of foreign issuers and obligations of foreign Foreign Investment
governments, companies, banks, overseas branches of U.S. banks Liquidity
or supranational entities.
-------------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
<TABLE>
<S> <C> <C>
FORWARD FOREIGN CURRENCY CONTRACTS: An obligation to 5-7 Management
purchase or sell a specific amount of a currency at a fixed Liquidity
future date and price set by the parties involved at the time Credit
the contract is negotiated. Market
Political
Leverage
Foreign Investment
-------------------------------------------------------------------------------------------------------------
FUTURES AND RELATED OPTIONS: A contract providing for the 1-9 Management
future sale and purchase of a specific amount of a specific Market
security, class of securities, or index at a specified time in Credit
the future and at a specified price. The aggregate value Liquidity
of options on securities (long puts and calls) will not exceed Leverage
10% of a HighMark Equity Fund's net assets at the time it
purchases the options. Each Equity Fund will limit obligations
under futures, options on futures, and options on securities to
no more than 25% of the Fund's assets. The HighMark Fixed
Income Funds may invest in futures and options on futures for
the purpose of achieving their objectives and for adjusting
their portfolio's duration. Each of these Funds will limit their
obligations under futures contracts and related options
to no more than 10% of its assets.
-------------------------------------------------------------------------------------------------------------
HIGH-YIELD/HIGH-RISK/BONDS: Bonds rated below investment 1, 8-9 Credit
grade by the primary rating agencies (e.g., BB or lower by Market
Standard & Poor's and Ba or lower by Moody's). These Liquidity
securities are considered speculative and involve greater
risk of loss than investment grade bonds. Also called "lower
rated bonds," "noninvestment grade bonds" and "junk bonds."
-------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES: Securities that ordinarily cannot be 1-9 Liquidity
sold within seven business days at the value the Fund Market
has estimated for them. Each Fund may invest up to
15% of its net assets in illiquid securities.
-------------------------------------------------------------------------------------------------------------
INDEX-BASED SECURITIES: Index-based securities such as 1-7 Market
Standard & Poor's Depository Receipts ("SPDRs") and
NASDAQ-100 Index Tracking Stock ("NASDAQ 100s"), represent
ownership in a long-term unit investment trust that holds a
portfolio of common stocks designed to track the price
performance and dividend yield of an index, such as the S&P
500 Index or the NASDAQ-100 Index. Index-based securities
entitle a holder to receive proportionate quarterly cash
distributions corresponding to the dividends that accrue to
the index stocks in the underlying portfolio, less trust
expenses.
-------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY SECURITIES: Shares of registered 1-9 Market
investment companies. These may include HighMark Money
Market Funds and other registered investment companies for
which HighMark, its sub-advisers, or any of their affiliates
serves as investment adviser, administrator or distributor.
Each of the Funds may invest up to 5% of its assets in the
Shares of any one registered investment company. A Fund may
not, however, own more than 3% of the securities of any one
registered investment company or invest more than 10% of its
assets in the Shares of other registered investment
companies. As a shareholder of an investment company, a Fund
will indirectly bear investment management fees of that
investment company, which are in addition to the management
fees the fund pays its own adviser.
-------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE SECURITIES: Securities rated BBB or higher 1-9 Market
by Standard & Poor's; Baa or better by Moody's; Credit
similarly rated by other nationally recognized rating
organizations; or, if not rated, determined to be of
comparably high quality by the Adviser.
-------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS: Investment-grade, U.S. 1-9 Market
dollar-denominated debt securities with remaining Credit
maturities of one year or less. These may include short-term
U.S. government obligations, commercial paper and other
short-term corporate obligations, repurchase agreements
collateralized with U.S. government securities, certificates
of deposit, bankers' acceptances, and other financial
institution obligations. These securities may carry fixed or
variable interest rates.
-------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES: Bonds backed by real 1, 8, 9 Prepayment
estate loans and pools of loans. These include Market
collateralized mortgage obligations (CMOs) and Credit
real estate mortgage investment conduits (REMICs). Regulatory
-------------------------------------------------------------------------------------------------------------
MUNICIPAL FORWARDS: Forward commitments to purchase 9 Market
tax-exempt bonds with a specific coupon to be Leverage
delivered by an issuer at a future date (typically Liquidity
more than 45 days but less than one year). Municipal Credit
forwards are normally used as a refunding mechanism for
bonds that may be redeemed only on a designated future
date. Any Fund that makes use of municipal forwards
will maintain liquid, high-grade securities in a segregated
account in an amount at least equal to the purchase price
of the municipal forward.
-------------------------------------------------------------------------------------------------------------
MUNICIPAL SECURITIES: Securities issued by a state or 9 Market
</TABLE>
55
<PAGE>
<TABLE>
<S> <C> <C>
political subdivision to obtain funds for various public Credit
purposes. Municipal securities include private activity bonds Political
and industrial development bonds, as well as general Tax
obligation bonds, tax anticipation notes, bond anticipation Regulatory
notes, revenue anticipation notes, project notes, other
short-term tax-exempt obligations, municipal leases, and
obligations of municipal housing authorities (single
family revenue bonds).
There are two general types of municipal bonds: GENERAL-OBLIGATION
BONDS, which are secured by the taxing power of the issuer (and,
in California, have the approval of voters) and REVENUE BONDS,
which take many shapes and forms but are generally backed by
revenue from a specific project or tax. These include, but are not
limited to, certificates of participation (COPs); utility and sales
tax revenues; tax increment or tax allocations; housing and special
tax, including assessment district and community facilities district
(Mello-Roos) issues which are secured by taxes on specific real
estate parcels; hospital revenue; and industrial development bonds
that are secured by the financial resources of a private company.
-------------------------------------------------------------------------------------------------------------
OBLIGATIONS OF SUPRANATIONAL AGENCIES: Securities issued 3-5, 7-9 Credit
by supranational agencies that are chartered to promote Foreign Investment
economic development and are supported by various
governments and government agencies.
-------------------------------------------------------------------------------------------------------------
OPTIONS ON CURRENCIES: A Fund may buy put options and sell 5, 7 Management
covered call options on foreign currencies (traded on U.S. and Liquidity
foreign exchanges or over-the-counter markets). A covered call Credit
option means the Fund will own an equal amount of the underlying Market
foreign currency. Currency options help a Fund manage its exposure Political
to changes in the value of the U.S. dollar relative to other currencies. Leverage
If a Fund sells a put option on a foreign currency, it will establish a Foreign Investment
segregated account with its Custodian consisting of cash, U.S.
government securities or other liquid high-grade bonds in an
amount equal to the amount the Fund would be required to pay
if the put is exercised.
-------------------------------------------------------------------------------------------------------------
PARTICIPATION INTERESTS: Interests in municipal 1, 9 Market
securities from financial institutions such Liquidity
as commercial and investment banks, savings and loan Credit
associations and insurance companies. These interests Tax
are usually structured as some form of indirect ownership
that allows the Fund to treat the income from the investment
as exempt from federal income tax. The Fund invests in these
interests to obtain credit enhancement on demand features
that would be available through direct ownership of the
underlying municipal securities.
-------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS: Equity securities that generally pay dividends 1-7 Market
at a specified rate and take precedence over common stock in the
payment of dividends or in the event of liquidation.
Preferred stock generally does not carry voting rights.
-------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS: The purchase of a security and 1-9 Market
the simultaneous commitment to return the security to Leverage
the seller at an agreed upon price on an agreed upon
date. This is treated as a loan.
-------------------------------------------------------------------------------------------------------------
REVERSE REPURCHASE AGREEMENTS: The sale of a security 1-9 Market
and the simultaneous commitment to buy the security back Leverage
at an agreed upon price on an agreed upon date. This is
treated as a borrowing by a Fund.
-------------------------------------------------------------------------------------------------------------
RESTRICTED SECURITIES: Securities not registered under the 1-9 Liquidity
Securities Act of 1933, such as privately placed commercial Market
paper and Rule 144A securities.
-------------------------------------------------------------------------------------------------------------
SECURITIES LENDING: The lending of up to 33 1/3% of the 1-9 Market
Fund's total assets. In return the Fund will receive Leverage
cash, other securities and/or letters of credit. Liquidity
Credit
-------------------------------------------------------------------------------------------------------------
TAX-EXEMPT COMMERCIAL PAPER: Commercial paper 9 Credit
issued by governments and political sub-divisions. Liquidity
Market
Tax
-------------------------------------------------------------------------------------------------------------
TIME DEPOSITS: Non-negotiable receipts issued by a 1-4, 6-8 Liquidity
bank in exchange for a deposit of money. Credit
Market
-------------------------------------------------------------------------------------------------------------
TREASURY RECEIPTS: Treasury receipts, Treasury investment 1-9 Market
growth receipts, and certificates of accrual of Treasury securities.
-------------------------------------------------------------------------------------------------------------
UNIT INVESTMENT TRUSTS: A type of investment vehicle, 1-8 Market
registered with the Securities and Exchange Commission
under the Investment Company Act of 1940, that purchases a
fixed portfolio of income-producing securities, such as
corporate, municipal, or government bonds, mortgage-backed
securities, or preferred stock. Unit holders receive an
undivided interest in both the principal and the income
portion of the portfolio in proportion to the amount of
capital they invest. The portfolio of securities remains
fixed until all the securities mature and unit holders have
</TABLE>
56
<PAGE>
<TABLE>
<S> <C> <C>
recovered their principal.
-------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued 1-9 Market
by agencies and instrumentalities of the U.S. government. Credit
These include Ginnie Mae, Fannie Mae, and Freddie Mac.
-------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, 1-9 Market
separately traded registered interest and principal
securities, and coupons under bank entry safekeeping.
-------------------------------------------------------------------------------------------------------------
VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations with 1-9 Credit
interest rates that are reset daily, weekly, quarterly or on Liquidity
some other schedule. Such instruments may be payable to Market
a Fund on demand.
-------------------------------------------------------------------------------------------------------------
WARRANTS: Securities that give the holder the right to buy a 1-7 Market
proportionate amount of common stock at a specified price. Credit
Warrants are typically issued with preferred stock and bonds.
-------------------------------------------------------------------------------------------------------------
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: 1-9 Market
A purchase of, or contract to purchase, securities at a fixed Leverage
price for delivery at a future date. The portfolio managers Liquidity
of each Fund expect that commitments to enter into forward
Credit commitments or purchase when-issued securities will not
exceed 25% of the Fund's total assets.
-------------------------------------------------------------------------------------------------------------
YANKEE BONDS AND SIMILAR DEBT OBLIGATIONS: U.S. dollar 1, 5, 7-9 Market
denominated bonds issued by foreign corporations or Credit
governments. Sovereign bonds are those issued by the
government of a foreign country. Supranational bonds are
those issued by supranational entities, such as the World
Bank and European Investment Bank. Canadian bonds are those
issued by Canadian provinces.
-------------------------------------------------------------------------------------------------------------
ZERO-COUPON DEBT OBLIGATIONS: Bonds and other types of 1, 5-9 Credit
debt that pay no interest, but are issued at a discount from Market
their value at maturity. When held to maturity, their entire Zero Coupon
return equals the difference between their issue price and
their maturity value.
</TABLE>
GLOSSARY OF INVESTMENT RISKS
This section discusses the risks associated with the securities and investment
techniques listed above, as well as the risks mentioned under the heading "What
are the main risks of investing in this Fund?" in each Fund profile. Because of
these risks, the value of the securities held by the Funds may fluctuate, as
will the value of your investment in the Funds. Certain types of investments and
Funds are more susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Generally speaking, the lower a security's credit rating, the higher
its credit risk. If a security's credit rating is downgraded, its price tends to
decline sharply, especially as it becomes more probable that the issuer will
default.
FOREIGN INVESTMENT RISK. Compared with investing in the United States, investing
in foreign markets involves a greater degree and variety of risk. Investors in
foreign markets may face delayed settlements, currency controls and adverse
economic developments as well as higher overall transaction costs. In addition,
fluctuations in the U.S. dollar's value versus other currencies may erode or
reverse gains from investments denominated in foreign currencies or widen
losses. For instance, foreign governments may limit or prevent investors from
transferring their capital out of a country. This may affect the value of your
investment in the country that adopts such currency controls. Exchange rate
fluctuations also may impair an issuer's ability to repay U.S. dollar
denominated debt, thereby increasing credit risk of such debt. Finally, the
value of foreign securities may be affected by incomplete or inaccurate
financial information about their issuers, social upheavals or political actions
ranging from tax code changes to governmental collapse. These risks are greater
in the emerging markets than in the developed markets of Europe and Japan.
HEDGING. When a derivative (a security whose value is based on that of another
security or index) is used as a hedge against an opposite position that a fund
holds, any loss on the derivative should be substantially offset by gains on the
hedged investment, and vice versa. Although hedging can be an effective way to
reduce a Fund's risk, it may not always be possible to perfectly offset one
position with another. As a result, there is no assurance that a Fund's hedging
transactions will be effective.
57
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INTEREST RATE RISK. The risk that debt prices overall will decline over short or
even long periods due to rising interest rates. Interest rate risk should be
modest for shorter-term securities, moderate for intermediate-term securities,
and high for longer-term securities. Generally, an increase in the average
maturity of a Fund will make it more sensitive to interest rate risk.
INVESTMENT STYLE RISK. The risk that the particular type of investment on which
a Fund focuses (such as small-cap value stocks or large-cap growth stocks) may
underperform other asset classes or the overall market. Individual market
segments tend to go through cycles of performing better or worse than other
types of securities. These periods may last as long as several years.
Additionally, a particular market segment could fall out of favor with
investors, causing a Fund that focuses on that market segment to underperform
those that favor other kinds of securities.
LEVERAGE RISK. The risk associated with securities or investment practices that
magnify small index or market movements into large changes in value. Leverage is
often associated with investments in derivatives, but also may be embedded
directly in the characteristics of other securities.
LIQUIDITY RISK. The risk that a security may be difficult or impossible to sell
at the time and price the seller wishes. The seller may have to accept a lower
price for the security, sell other securities instead, or forego a more
attractive investment opportunity. All of this could hamper the management or
performance of a Fund.
MANAGEMENT RISK. The risk that a strategy used by a Fund's portfolio manager may
fail to produce the intended result. This includes the risk that changes in the
value of a hedging instrument will not match those of the asset being hedged.
MARKET RISK. The risk that a security's market value may decline, sometimes
rapidly and unpredictably. These fluctuations may cause a security to be worth
less than the price the investor originally paid for it, or less than it was
worth at an earlier time. Market risk may affect a single issuer, industrial
sector or the market as a whole. For fixed-income securities, market risk is
largely influenced by changes in interest rates. Rising interest rates typically
cause the value of bonds to decrease, while falling rates typically cause the
value of bonds to increase.
POLITICAL RISK. The risk of investment losses attributable to unfavorable
governmental or political actions, seizure of foreign deposits, changes in tax
or trade statutes, and governmental collapse and war.
PREPAYMENT & CALL RISK. The risk that a security's principal will be repaid at
an unexpected time. Prepayment and call risk are related, but differ somewhat.
Prepayment risk is the chance that a large number of the mortgages underlying a
mortgage-backed security will be refinanced sooner than the investor had
expected. Call risk is the possibility that an issuer will "call"--or repay--a
high-yielding bond before the bond's maturity date. In both cases, the investor
is usually forced to reinvest the proceeds in a security with a lower yield.
This turnover may result in taxable capital gains and, in addition, may lower a
portfolio's income. If an investor paid a premium for the security, the
prepayment may result in an unexpected capital loss.
Prepayment and call risk generally increase when interest rates decline, and can
make a security's yield as well as its market price more volatile. Generally
speaking, the longer a security's maturity, the greater the prepayment and call
risk it poses.
REGULATORY RISK. The risk that federal and state laws may restrict an investor
from seeking recourse when an issuer has defaulted on the interest and/or
principal payments it owes on its obligations. These laws include restrictions
on foreclosures, redemption rights after foreclosure, Federal and state
bankruptcy and debtor relief laws, restrictions on "due on sale" clauses, and
state usury laws.
SMALL-COMPANY STOCK RISK. Investing in small companies is generally more risky
than investing in large companies, for a variety of reasons. Many small
companies are young and have limited track records.
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They also may have limited product lines, markets or financial resources. They
may, in addition, be more vulnerable to adverse business or economic
developments than larger companies. Stocks issued by small companies tend to be
less liquid and more volatile than stocks of larger companies or the market
averages in general. In addition, small companies may not be well-known to the
investing public, may not have institutional ownership, and may have only
cyclical, static, or moderate growth prospects. If a fund concentrates on small
companies, its performance may be more volatile than that of a fund that invests
primarily in larger companies.
TAX RISK. The risk that the issuer of a security will fail to comply with
certain requirements of the Internal Revenue Code, which would cause adverse tax
consequences for the issuer and potential losses for its investors.
ZERO COUPON RISK. The market prices of securities structured as zero coupon or
pay-in-kind securities are generally affected to a greater extent by interest
rate changes. These securities tend to be more volatile than securities that pay
interest periodically.
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HIGHMARK FUNDS
445 South Figueroa Street, Suite 306
Los Angeles, CA 90071
www.highmarkfunds.com
HighMark Funds Service Providers:
INVESTMENT ADVISER
HighMark Capital Management, Inc.
475 Sansome Street
San Francisco, CA 94104
SUB-ADVISER
(International portion of Small Cap Value Fund)
Brandes Investment Partners, L.P.
12750 High Bluff Drive
San Diego, CA 90730
SUB-ADVISER
(International Equity Fund)
AXA Investment Managers GS Ltd.
60 Greenchurch Street
London, England
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
SEI Investments Mutual Funds Services
SEI Investments Distribution Co.
1 Freedom Valley Drive
Oaks, PA 19456
LEGAL COUNSEL
Ropes & Gray
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
AUDITORS
Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105-2230
How to obtain more information:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
More detailed information about the HighMark Funds is included in our SAI. The
SAI has been filed with the SEC and is incorporated by reference into this
prospectus. This means that the SAI, for legal purposes, is a part of this
prospectus.
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ANNUAL AND SEMI-ANNUAL REPORTS
These reports list the Funds' holdings and contain information on the market
conditions and investment strategies that significantly affected the HighMark
Funds' performance during the last year.
To obtain the SAI, the Annual or Semi-Annual Reports free of charge, or for more
information:
BY TELEPHONE: call 1-800-433-6884
BY MAIL: write to us at
SEI Investments Distribution Co.
1 Freedom Valley Drive
Oaks, PA 19456
BY INTERNET: www.highmarkfunds.com
FROM THE SEC: You can also obtain the SAI, the Annual and Semi-Annual Reports,
and other information about the HighMark Funds, from the EDGAR Database on SEC's
Web site (http://www.sec.gov). You may review and copy documents at the SEC
Public Reference Room in Washington, DC (for information call 1-202-942-8090).
You may request documents by mail from the SEC, upon payment of a duplicating
fee, by electronic request at the following E-mail address: [email protected],
or by writing to: Securities and Exchange Commission, Public Reference Section,
450 5th Street, N.W., Washington, DC 20549-6009.
HighMark Funds' Investment Company Act registration number is 811-05059.
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HIGHMARK FUNDS
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 30, 2000
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Prospectuses of the HighMark Equity and
Fixed Income Funds and the HighMark Money Market Funds, each of which is dated
November 30, 2000, (collectively, the "Prospectuses") and any of their
supplements. This Statement of Additional Information is incorporated in its
entirety into these Prospectuses. Copies of the Prospectuses may be obtained by
writing the Distributor, SEI Investments Distribution Co., at 1 Freedom Valley
Drive, Oaks, Pennsylvania, 19456, or by telephoning toll free 1-800-433-6884.
Capitalized terms used but not defined in this Statement of Additional
Information have the same meanings as set forth in the Prospectuses.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
HIGHMARK FUNDS....................................................................................................1
INVESTMENT OBJECTIVES AND POLICIES................................................................................2
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS...................................................................2
Equity Securities........................................................................................3
Debt Securities..........................................................................................3
Convertible Securities...................................................................................3
Asset-Backed Securities (non-mortgage)...................................................................4
Bank Instruments.........................................................................................5
Commercial Paper and Variable Amount Master Demand Notes.................................................5
Lending of Portfolio Securities..........................................................................6
Repurchase Agreements....................................................................................6
Reverse Repurchase Agreements............................................................................7
U.S. Government Obligations..............................................................................7
Mortgage-Related Securities..............................................................................8
Adjustable Rate Notes...................................................................................10
Municipal Securities....................................................................................11
Investments in California Municipal Securities by the California Tax-Free Money
Market Fund and the California Intermediate Tax-Free Bond Fund........................................15
Puts....................................................................................................18
Shares of Mutual Funds..................................................................................18
When-Issued Securities and Forward Commitments..........................................................19
Zero-coupon Securities..................................................................................19
Options (Puts and Calls) on Securities..................................................................20
Covered Call Writing....................................................................................20
Purchasing Call Options.................................................................................21
Purchasing Put Options..................................................................................21
Options in Stock Indices................................................................................22
Risk Factors in Options Transactions....................................................................23
Futures Contracts on Securities and Related Options.....................................................24
Futures Contracts on Securities.........................................................................24
Options on Securities' Futures Contracts................................................................25
Risk of Transactions in Securities' Futures Contracts and Related Options...............................25
Index Futures Contracts.................................................................................26
Options on Index Futures Contracts......................................................................27
Foreign Investment......................................................................................27
Foreign Currency Transactions...........................................................................29
Transaction Hedging.....................................................................................29
Position Hedging........................................................................................30
</TABLE>
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<TABLE>
<S> <C>
Currency Forward and Futures Contracts..................................................................30
General Characteristics of Currency Futures Contracts...................................................32
Foreign Currency Options................................................................................32
Foreign Currency Conversion.............................................................................33
Index-Based Investments.................................................................................33
Small Cap/Special Equity Situation Securities...........................................................33
High Yield Securities...................................................................................34
Money Market Instruments................................................................................35
Treasury Receipts.......................................................................................35
High Quality Investments with Regard to the Money Market Funds..........................................36
Illiquid Securities.....................................................................................38
Restricted Securities...................................................................................38
INVESTMENT RESTRICTIONS..........................................................................................39
Voting Information......................................................................................47
PORTFOLIO TURNOVER...............................................................................................47
VALUATION........................................................................................................48
Valuation of the Money Market Funds.....................................................................48
Valuation of the Equity Funds and the Fixed Income Funds................................................49
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................49
Purchases through Financial Institutions................................................................50
Redemption by Checkwriting..............................................................................50
Sales Charges...........................................................................................51
Sales Charge Reductions and Waivers.....................................................................51
Additional Federal Tax Information......................................................................55
Additional Tax Information Concerning the California Tax-Free Money Market
Fund and the California Intermediate Tax-Free Bond Fund...............................................57
Foreign Taxes...........................................................................................61
MANAGEMENT OF HIGHMARK FUNDS.....................................................................................61
Trustees and Officers...................................................................................61
Investment Adviser......................................................................................66
The Sub-Advisers........................................................................................67
Portfolio Transactions..................................................................................68
Administrator and Sub-Administrator.....................................................................70
Glass-Steagall Act......................................................................................72
Shareholder Services Plans..............................................................................73
Shareholder Servicing Agreement.........................................................................74
Expenses................................................................................................74
Distributor.............................................................................................75
The Distribution Plans..................................................................................75
</TABLE>
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<TABLE>
<S> <C>
Transfer Agent and Custodian Services...................................................................77
Legal Counsel...........................................................................................78
ADDITIONAL INFORMATION...........................................................................................78
Description of Shares...................................................................................78
Shareholder and Trustee Liability.......................................................................80
Calculation of Performance Data.........................................................................81
Miscellaneous...........................................................................................88
APPENDIX........................................................................................................106
FINANCIAL STATEMENTS............................................................................................112
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
HIGHMARK FUNDS
HighMark Funds is a diversified, open-end management investment
company. HighMark Funds was organized as a Massachusetts business trust on March
10, 1987 and presently consists of thirteen series of units of beneficial
interest ("Shares"), representing interests in one of the following portfolios:
HighMark Balanced Fund,
HighMark Core Equity Fund,
HighMark Growth Fund,
HighMark Income Equity Fund,
HighMark International Equity Fund,
HighMark Small Cap Value Fund,
HighMark Value Momentum Fund,
HighMark Bond Fund,
HighMark California Intermediate Tax-Free Bond Fund,
HighMark 100% U.S. Treasury Money Market Fund,
HighMark California Tax-Free Money Market Fund,
HighMark Diversified Money Market Fund, and
HighMark U.S. Government Money Market Fund, (collectively the "Funds").
HighMark Core Equity Fund commenced operations on May 31, 2000.
HighMark Small Cap Value Fund commenced operations on September 17, 1998.
HighMark Value Momentum Fund, HighMark International Equity Fund, and HighMark
California Intermediate Tax-Free Bond Fund commenced operations in HighMark
Funds on April 28, 1997. HighMark Balanced Fund commenced operations on November
14, 1993 and HighMark Growth Fund commenced operations on November 18, 1993.
HighMark Income Equity Fund and HighMark Bond Fund commenced operations on June
23, 1988 as a result of the reorganization of the Income Equity Portfolio and
the Bond Portfolio, respectively, of the IRA Collective Investment Fund.
HighMark Diversified Money Market Fund commenced operations on February 1,
1991. HighMark U.S. Government Money Market Fund and HighMark 100% U.S.
Treasury Money Market Fund commenced operations on August 10, 1987. HighMark
California Tax-Free Money Market Fund commenced operations on June 10, 1991.
For ease of reference, this Statement of Additional Information
sometimes refers to the Funds as the "Equity Funds," the "Fixed Income Funds"
and the "Money Market Funds."
<PAGE>
The EQUITY FUNDS include:
Balanced Fund
Core Equity Fund
Growth Fund
Income Equity Fund
International Equity Fund
Small Cap Value Fund
Value Momentum Fund
The FIXED INCOME FUNDS include:
Bond Fund
California Intermediate Tax-Free Bond Fund
The MONEY MARKET FUNDS include:
100% U.S. Treasury Money Market Fund
California Tax-Free Money Market Fund
Diversified Money Market Fund
U.S. Government Money Market Fund
The Income Equity Portfolio and the Bond Portfolio of the IRA Fund
(which were reorganized into certain Funds of HighMark Funds as described above)
are sometimes referred to as the "IRA Fund Portfolios."
As described in the Prospectuses, selected Funds of HighMark Funds have
been divided into six classes of Shares (designated Class A, Class B, Class C
and Class S Shares (collectively "Retail Shares"), Class I Shares and Fiduciary
Shares) for purposes of HighMark Funds' Distribution and Shareholder Services
Plans (the "Distribution Plans"), which Distribution Plans apply only to such
Funds' Retail Shares. Retail Shares and Fiduciary Shares are sometimes referred
to collectively as "Shares".
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectuses for the
respective Funds. No investment in Shares of a Fund should be made without first
reading that Fund's Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the investment objectives and
policies of each Fund of HighMark Funds as set forth in the respective
Prospectus for that Fund.
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
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1. EQUITY SECURITIES. Equity Securities include common stocks,
preferred stocks, convertible securities and warrants. Common stocks, which
represent an ownership interest in a company, are probably the most recognized
type of equity security. Equity securities have historically outperformed most
other securities, although their prices can be volatile in the short term.
Market conditions, political, economic and even company-specific news can cause
significant changes in the price of a stock. Smaller companies (as measured by
market capitalization), sometimes called small-cap companies or small-cap
stocks, may be especially sensitive to these factors. To the extent a Fund
invests in equity securities, that Fund's Shares will fluctuate in value, and
thus may be more suitable for long-term investors who can bear the risk of
short-term fluctuations.
2. DEBT SECURITIES. The Funds may invest in debt securities within the
four highest rating categories assigned by a nationally recognized statistical
rating organization ("NRSRO") and comparable unrated securities. Securities
rated BBB by S&P or Baa by Moody's are considered investment grade, but are
deemed by these rating services to have some speculative characteristics, and
adverse economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher-grade bonds. Should subsequent events cause the rating of a debt security
purchased by a Fund to fall below the fourth highest rating category, the
Adviser will consider such an event in determining whether the Fund should
continue to hold that security. In no event, however, would a Fund be required
to liquidate any such portfolio security where the Fund would suffer a loss on
the sale of such security.
Depending upon prevailing market conditions, a Fund may purchase debt
securities at a discount from face value, which produces a yield greater than
the coupon rate. Conversely, if debt securities are purchased at premium over
face value, the yield will be lower than the coupon rate. In making investment
decisions, the Adviser will consider many factors other than current yield,
including the preservation of capital, the potential for realizing capital
appreciation, maturity, and yield to maturity.
From time to time, the equity and debt markets may fluctuate
independently of one another. In other words, a decline in equity markets may in
certain instances be offset by a rise in debt markets, or vice versa. As a
result, the Balanced Fund, with its balance of equity and debt investments, may
entail less investment risk (and a potentially smaller investment return) than a
mutual fund investing primarily in equity securities.
3. CONVERTIBLE SECURITIES. Consistent with its objective policies and
restrictions, each Equity Fund may invest in convertible securities. Convertible
securities include corporate bonds, notes or preferred stocks that can be
converted into common stocks or other equity securities. Convertible securities
also include other securities, such as warrants, that provide an opportunity for
equity participation. Convertible Bonds are bonds convertible into a set number
of shares of another form of security (usually common stock) at a prestated
price. Convertible bonds have characteristics similar to both fixed-income and
equity securities. Preferred stock is a class of capital stock that pays
dividends at a specified rate and that has preference over common stock in
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the payment of dividends and the liquidation of assets. Convertible preferred
stock is preferred stock exchangeable for a given number of common stock shares,
and has characteristics similar to both fixed-income and equity securities.
Because convertible securities can be converted into common stock,
their values will normally vary in some proportion with those of the underlying
common stock. Convertible securities usually provide a higher yield than the
underlying common stock, however, so that the price decline of a convertible
security may sometimes be less substantial than that of the underlying common
stock. The value of convertible securities that pay dividends or interest, like
the value of all fixed-income securities, generally fluctuates inversely with
changes in interest rates.
Warrants have no voting rights, pay no dividends and have no rights
with respect to the assets of the corporation issuing them. They do not
represent ownership of the securities for which they are exercisable, but only
the right to buy such securities at a particular price.
The Funds will not purchase any convertible debt security or
convertible preferred stock unless it has been rated as investment grade at the
time of acquisition by a NRSRO or that is not rated but is determined to be of
comparable quality by the Adviser.
4. ASSET-BACKED SECURITIES (NON-MORTGAGE). Consistent with its
investment objective, policies and restrictions, certain Funds may invest in
asset-backed securities. Asset-backed securities are instruments secured by
company receivables, truck and auto loans, leases, and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity, such as a trust, organized solely for the purpose of owning such
assets and issuing such debt.
The purchase of non-mortgage asset-backed securities raises risk
considerations peculiar to the financing of the instruments underlying such
securities. Like mortgages underlying mortgage-backed securities, underlying
automobile sales contracts or credit card receivables are subject to substantial
prepayment risk, which may reduce the overall return to certificate holders.
Nevertheless, principal prepayment rates tend not to vary as much in response to
changes in interest rates and the short-term nature of the underlying car loans
or other receivables tend to dampen the impact of any change in the prepayment
level. Certificate holders may also experience delays in payment on the
certificates if the full amounts due on underlying sales contracts or
receivables are not realized by the trust because of unanticipated legal or
administrative costs of enforcing the contracts or because of depreciation or
damage to the collateral (usually automobiles) securing certain contracts, or
other factors. If consistent with their investment objectives and policies, the
Funds may invest in other asset-backed securities that may be developed in the
future.
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5. BANK INSTRUMENTS. Consistent with its investment objective,
policies, and restrictions, each Fund (other than the U.S. Government Money
Market Fund and the 100% U.S. Treasury Money Market Fund) may invest in bankers'
acceptances, certificates of deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise that
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity. Investments in
bankers' acceptances will be limited to those guaranteed by domestic and foreign
banks having, at the time of investment, total assets of $1 billion or more (as
of the date of the institution's most recently published financial statements).
Certificates of deposit and time deposits represent funds deposited in
a commercial bank or a savings and loan association for a definite period of
time and earning a specified return.
Investments in certificates of deposit and time deposits may include
Eurodollar Certificates of Deposit, which are U.S. dollar denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States, Yankee Certificates of Deposit, which are
certificates of deposit issued by a U.S. branch of a foreign bank denominated in
U.S. dollars and held in the United States, Eurodollar Time Deposits ("ETDs"),
which are U.S. dollar denominated deposits in a foreign branch of a U.S. bank or
a foreign bank, and Canadian Time Deposits ("CTDs"), which are U.S. dollar
denominated certificates of deposit issued by Canadian offices of major Canadian
banks. All investments in certificates of deposit and time deposits will be
limited to those (a) of domestic and foreign banks and savings and loan
associations which, at the time of investment, have total assets of $1 billion
or more (as of the date of the institution's most recently published financial
statements) or (b) the principal amount of which is insured by the Federal
Deposit Insurance Corporation.
Although the Diversified Money Market Fund maintains a diversified
portfolio, there are no limitations on its ability to invest in domestic
certificates of deposit, banker's acceptances and other bank instruments.
Extensive investments in such instruments may result from the Fund's
concentration of securities in the financial services industry. Domestic
certificates of deposit and bankers' acceptances include those issued by
domestic branches of foreign banks to the extent permitted by the rules and
regulations of the Securities and Exchange Commission staff. These rules and
regulations currently permit U.S. branches of foreign banks to be considered
domestic banks if it can be demonstrated that they are subject to the same
regulation as U.S. banks.
6. COMMERCIAL PAPER AND VARIABLE AMOUNT MASTER DEMAND NOTES. Consistent
with its investment objective, policies, and restrictions, each Fund (other than
the 100% U.S. Treasury Money Market Fund) may invest in commercial paper
(including Section 4(2) commercial paper) and variable amount master demand
notes. Commercial paper consists of unsecured promissory notes issued by
corporations normally having maturities of 270 days or less. These investments
may include Canadian Commercial Paper, which is U.S. dollar denominated
commercial paper
-5-
<PAGE>
issued by a Canadian corporation or a Canadian counterpart of a U.S.
corporation, and Europaper, which is U.S. dollar denominated commercial paper of
a foreign issuer.
Variable amount master demand notes are unsecured demand notes that
permit the indebtedness thereunder to vary and provide for periodic adjustments
in the interest rate according to the terms of the instrument. Because master
demand notes are direct lending arrangements between a Fund and the issuer, they
are not normally traded. Although there is no secondary market in the notes, a
Fund may demand payment of principal and accrued interest at any time. A
variable amount master demand note will be deemed to have a maturity equal to
the longer of the period of time remaining until the next readjustment of its
interest rate or the period of time remaining until the principal amount can be
recovered from the issuer through demand.
7. LENDING OF PORTFOLIO SECURITIES. In order to generate additional
income, each Fund (other than the California Tax-Free Money Market Fund and the
100% U.S. Treasury Money Market Fund) may lend its portfolio securities to
broker-dealers, banks or other institutions. During the time portfolio
securities are on loan from a Fund, the borrower will pay the Fund any dividends
or interest paid on the securities. In addition, loans will be subject to
termination by the Fund or the borrower at any time. While the lending of
securities may subject a Fund to certain risks, such as delays or an inability
to regain the securities in the event the borrower were to default on its
lending agreement or enter into bankruptcy, a Fund will receive at least 100%
collateral in the form of cash or U.S. Government securities. This collateral
will be valued daily by the lending agent, with oversight by HighMark Capital
Management, Inc. (the "Adviser"), and, should the market value of the loaned
securities increase, the borrower will be required to furnish additional
collateral to the Fund. A Fund (other than the California Tax-Free Money Market
Fund and the 100% U.S. Treasury Money Market Fund) may lend portfolio securities
in an amount representing up to 33 1/3% of the value of the Fund's total assets.
8. REPURCHASE AGREEMENTS. Securities held by each Fund (other than the
100% U.S. Treasury Money Market Fund) may be subject to repurchase agreements.
Under the terms of a repurchase agreement, a Fund will deal with financial
institutions such as member banks of the Federal Deposit Insurance Corporation
having, at the time of investment, total assets of $100 million or more and from
registered broker-dealers that the Adviser deems creditworthy under guidelines
approved by HighMark Funds' Board of Trustees. Under a repurchase agreement, the
seller agrees to repurchase the securities at a mutually agreed-upon date and
price, and the repurchase price will generally equal the price paid by the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. The seller
under a repurchase agreement will be required to maintain the value of
collateral held pursuant to the agreement at not less than 100% of the
repurchase price (including accrued interest) and the Custodian, with oversight
by the Adviser, will monitor the collateral's value daily and initiate calls to
request that collateral be restored to appropriate levels. In addition,
securities subject to repurchase agreements will be held in a segregated
custodial account.
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If the seller were to default on its repurchase obligation or become
insolvent, the Fund holding such obligation would suffer a loss to the extent
that either the proceeds from a sale of the underlying portfolio securities were
less than the repurchase price under the agreement or the Fund's disposition of
the underlying securities was delayed pending court action. Additionally,
although there is no controlling legal precedent confirming that a Fund would be
entitled, as against a claim by the seller or its receiver or trustee in
bankruptcy, to retain the underlying securities, HighMark Funds' Board of
Trustees believes that, under the regular procedures normally in effect for
custody of a Fund's securities subject to repurchase agreements and under
federal laws, a court of competent jurisdiction would rule in favor of the Fund
if presented with the question. Securities subject to repurchase agreements will
be held by HighMark Funds' custodian or another qualified custodian or in the
Federal Reserve/Treasury book-entry system. Repurchase agreements are considered
to be loans by a Fund under the 1940 Act.
9. REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow funds for
temporary purposes by entering into reverse repurchase agreements, provided such
action is consistent with the Fund's investment objective and fundamental
investment restrictions; as a matter of non fundamental policy, each Fund
intends to limit total borrowings under reverse repurchase agreements to no more
than 10% of the value of its total assets. Pursuant to a reverse repurchase
agreement, a Fund will sell portfolio securities to financial institutions such
as banks or to broker-dealers, and agree to repurchase the securities at a
mutually agreed-upon date and price. A Fund intends to enter into reverse
repurchase agreements only to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. At the time a Fund enters
into a reverse repurchase agreement, it will place in a segregated custodial
account assets such as U.S. Government securities or other liquid, high-quality
debt securities consistent with the Fund's investment objective having a value
equal to 100% of the repurchase price (including accrued interest), and will
subsequently monitor the account to ensure that an equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by a Fund may decline below the price at which a Fund is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by a Fund under the 1940 Act.
10. U.S. GOVERNMENT OBLIGATIONS. With the exception of the 100% U.S.
Treasury Money Market Fund, which may invest only in direct U.S. Treasury
obligations, each Fund may, consistent with its investment objective, policies,
and restrictions, invest in obligations issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities. Obligations of certain agencies
and instrumentalities of the U.S. Government, such as those of the Government
National Mortgage Association and the Export-Import Bank of the United States,
are supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; and still others, such as
those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given
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that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it is not obligated to do
so by law.
U.S. Government Securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities, although,
as a result, the yields available from U.S. Government Securities are generally
lower than the yields available from otherwise comparable corporate fixed-income
securities. Like other fixed-income securities, however, the values of U.S.
Government Securities change as interest rates fluctuate. Fluctuations in the
value of portfolio securities will in many cases not affect interest income on
existing portfolio securities, but will be reflected in the Fund's net asset
value. Because the magnitude of these fluctuations will generally be greater at
times when a Fund's average maturity is longer, under certain market conditions
the Fund may invest in short-term investments yielding lower current income
rather than investing in higher yielding longer-term securities.
For information concerning mortgage-related securities issued by
certain agencies or instrumentalities of the U.S. Government, see
"Mortgage-Related Securities" below.
11. MORTGAGE-RELATED SECURITIES. As indicated in the Prospectus, the
Diversified Money Market Fund, the U.S. Government Money Market Fund and the
California Tax-Free Money Market Fund may each invest in mortgage-related
securities issued by the Government National Mortgage Association ("GNMA")
representing GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes"). The Fixed Income Funds and the Balanced Fund may also, consistent with
each such Fund's investment objective and policies, invest in Ginnie Maes and in
mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies, or its instrumentalities or, those issued by nongovernmental entities.
In addition, the Fixed Income Funds and the Balanced Fund may invest in
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs").
Mortgage-related securities represent interests in pools of mortgage
loans assembled for sale to investors. Mortgage-related securities may be
assembled and sold by certain governmental agencies and may also be assembled
and sold by nongovernmental entities such as commercial banks, savings and loan
institutions, mortgage bankers, and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third party or
otherwise similarly secured, the market value of the security, which may
fluctuate, is not so secured. If a Fund purchases a mortgage-related security at
a premium, that portion may be lost if there is a decline in the market value of
the security, whether resulting from changes in interest rates or prepayments in
the underlying mortgage collateral. As with other interest-bearing securities,
the prices of mortgage-related securities are inversely affected by changes in
interest rates. However, although the value of a mortgage-related security may
decline when interest rates rise, the converse is not necessarily true because
in periods of declining interest rates the mortgages underlying the security are
prone to prepayment. For this and other reasons, a mortgage-related security's
stated maturity may be shortened by unscheduled prepayments on the underlying
mortgages and, therefore, it is not possible to predict accurately the
security's return to the Fund. In addition, regular payments received in respect
of mortgage-related
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securities include both interest and principal. No assurance can be given as to
the return a Fund will receive when these amounts are reinvested. As a
consequence, mortgage-related securities may be a less effective means of
"locking in" interest rates than other types of debt securities having the same
stated maturity, may have less potential for capital appreciation and may be
considered riskier investments as a result.
Adjustable rate mortgage securities ("ARMS") are pass-through
certificates representing ownership interests in a pool of adjustable rate
mortgages and the resulting cash flow from those mortgages. Unlike conventional
debt securities, which provide for periodic (usually semi-annual) payments of
interest and payments of principal at maturity or on specified call dates, ARMs
provide for monthly payments based on a pro rata share of both periodic interest
and principal payments and prepayments of principal on the underlying mortgage
pool (less GNMA's, FNMA's, or FHLMC's fees and any applicable loan servicing
fees).
There are a number of important differences both among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities themselves. As noted above, Ginnie Maes are issued by
GNMA, which is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. Ginnie Maes are guaranteed as to the timely
payment of principal and interest by GNMA and GNMA's guarantee is backed by the
full faith and credit of the U.S. Treasury. In addition, Ginnie Maes are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under GNMA's guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes"), which are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the U.S. Treasury. The FNMA is a government-sponsored organization
owned entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). The FHLMC is
a corporate instrumentality of the U.S. Government, created pursuant to an Act
of Congress, which is owned entirely by the Federal Home Loan Banks. Freddie
Macs are not guaranteed by the U.S. Treasury or by any Federal Home Loan Banks
and do not constitute a debt or obligation of the U.S. Government or of any
Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment of
interest, which is guaranteed by the FHLMC. The FHLMC guarantees either ultimate
collection or timely payment of all principal payments on the underlying
mortgage loans. When the FHLMC does not guarantee timely payment of principal,
FHLMC may remit the amount due on account of its guarantee of ultimate payment
of principal at any time after default on an underlying mortgage, but in no
event later than one year after it becomes payable.
CMOs in which the Fixed Income Funds and the Balanced Fund may invest
represent securities issued by a private corporation or a U.S. Government
instrumentality that are backed by a portfolio of mortgages or mortgage-backed
securities held under an indenture. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued with a number of classes or series
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that have different maturities and that may represent interests in some or all
of the interest or principal on the underlying collateral or a combination
thereof. CMOs of different classes are generally retired in sequence as the
underlying mortgage loans in the mortgage pool are repaid. In the event of
sufficient early prepayments on such mortgages, the class or series of a CMO
first to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of a CMO held by a Fund would have
the same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security.
One or more classes of CMOs may have coupon rates that reset
periodically based on an index, such as the London Interbank Offered Rate
("LIBOR"). Each Fund may purchase fixed, adjustable, or "floating" rate CMOs
that are collateralized by fixed rate or adjustable rate mortgages that are
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government or are directly guaranteed as to payment
of principal and interest by the issuer, which guarantee is collateralized by
U.S. government securities or is collateralized by privately issued fixed rate
or adjustable rate mortgages.
Securities such as zero-coupon obligations, mortgage-backed and
asset-backed securities, and collateralized mortgage obligations ("CMOs") will
have greater price volatility than other fixed-income obligations. Because
declining interest rates may lead to prepayment of underlying mortgages,
automobile sales contracts or credit card receivables, the prices of
mortgage-related and asset-backed securities may not rise with a decline in
interest rates. Mortgage-backed and asset-backed securities and CMOs are
extremely sensitive to the rate of principal prepayment. Similarly, callable
corporate bonds also present risk of prepayment. During periods of falling
interest rates, securities that can be called or prepaid may decline in value
relative to similar securities that are not subject to call or prepayment.
REMICs in which the Fixed Income Funds and the Balanced Fund may invest
are private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
12. ADJUSTABLE RATE NOTES. Consistent with its investment objective,
policies, and restrictions, each Fund (other than the 100% U.S. Treasury Money
Market Fund) may invest in "adjustable rate notes," which include variable rate
notes and floating rate notes. For Money Market Fund purposes, a variable rate
note is one whose terms provide for the readjustment of its interest rate on set
dates and that, upon such readjustment, can reasonably be expected to have a
market value that approximates its amortized cost; the degree to which a
variable rate note's market value approximates its amortized cost subsequent to
readjustment will depend on the frequency of the readjustment of the note's
interest rate and the length of time that must elapse before the next
readjustment. A floating rate note is one whose terms provide for the
readjustment of its interest rate whenever a specified interest rate changes and
that, at any time, can reasonably be expected to have a market value that
approximates its amortized cost. Although there may be no active secondary
market with respect to a particular variable or floating rate note purchased by
a Fund, the Fund may seek to resell the note at any time to a third party. The
absence of an active secondary market, however, could make it difficult for the
Fund
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to dispose of a variable or floating rate note in the event the issuer of the
note defaulted on its payment obligations and the Fund could, as a result or for
other reasons, suffer a loss to the extent of the default. Variable or floating
rate notes may be secured by bank letters of credit. A demand instrument with a
demand notice period exceeding seven days may be considered illiquid if there is
no secondary market for such security. Such security will be subject to a Fund's
non fundamental 15% (10% in the case of the Money Market Funds) limitation
governing investments in "illiquid" securities, unless such notes are subject to
a demand feature that will permit the Fund to receive payment of the principal
within seven days of the Fund's demand. See "INVESTMENT RESTRICTIONS" below.
Maturities for variable and adjustable rate notes held in the Money
Market Funds will be calculated in compliance with the provisions of Rule 2a-7,
as it may be amended from time to time.
As used above, a note is "subject to a demand feature" where the Fund
is entitled to receive the principal amount of the note either at any time on
not more than thirty days' notice or at specified intervals, not exceeding 397
days and upon not more than thirty days' notice.
13. MUNICIPAL SECURITIES. As defined in the Prospectuses, under normal
market conditions, and as a matter of fundamental policy, at least 80% of the
total assets of the California Tax-Free Money Market Fund will be invested in
Municipal Securities, the interest on which, in the opinion of bond counsel, is
both excluded from gross income for federal income tax purposes and California
personal income tax purposes, and does not constitute a preference item for
individuals for purposes of the federal alternative minimum tax. With respect to
the California Intermediate Tax-Free Bond Fund, under normal market conditions,
at least 65% of its total assets will be invested in Municipal Securities, the
interest on which is both excluded from gross income for federal income tax
purposes and California personal income tax purposes, and at least 80% of its
total assets will be invested in Municipal Securities the interest on which is
excluded from gross income for federal income tax purposes and is not treated as
a preference item for individuals for purposes of the federal alternative
minimum tax. The California Intermediate Tax-Free Bond Fund invests at least 80%
of its total assets in Municipal Securities of varying maturities, which are
rated in one of the four highest rating categories by at least one nationally
recognized statistical rating organization ("NRSRO") or are determined by the
Adviser to be of comparable quality. The California Tax-Free Money Market Fund
invests only in Municipal Securities with remaining effective maturities of 397
days or less, and which, at the time of purchase, possess one of the two highest
short-term ratings from at least one NRSRO or are determined by the Adviser to
be of comparable quality.
Municipal Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and public entities. Private activity bonds that are issued
by or on behalf of public authorities to finance various privately operated
facilities are included within the term Municipal Securities if the interest
paid thereon is (i) excluded from
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gross income for federal income tax purposes and (ii) not treated as a
preference item for individuals for purposes of the federal alternative minimum
tax.
As described in the Prospectuses, the two principal classifications of
Municipal Securities consist of "general obligation" and "revenue" issues. In
general, only general obligation bonds are backed by the full faith and credit
and general taxing power of the issuer. There are, of course, variations in the
quality of Municipal Securities, both within a particular classification and
between classifications, and the yields on Municipal Securities depend upon a
variety of factors, including general market conditions, the financial condition
of the issuer (or other entity whose financial resources are supporting the
Municipal Securities), general conditions of the municipal bond market, the size
of a particular offering, the maturity of the obligation and the rating(s) of
the issue. In this regard, it should be emphasized that the ratings of any NRSRO
are general and are not absolute standards of quality; Municipal Securities with
the same maturity, interest rate and rating(s) may have different yields while
Municipal Securities of the same maturity and interest rate with a different
rating(s) may have the same yield.
In addition, Municipal Securities may include "moral obligation" bonds,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Certain Municipal Securities are municipal lease revenue obligations
(or certificates of participation or "COPs"), which typically provide that the
municipality has no obligation to make lease or installment payments in future
years unless money is appropriated for such purpose. While the risk of
non-appropriation is inherent to COP financing, this risk is mitigated by the
Fund's policy to invest in COPs that are rated in one of the four highest rating
categories used by Moody's Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P").
Municipal Securities also include so-called Mello-Roos and assessment
district bonds, which are usually unrated instruments issued to finance the
building of roads and other public works and projects that are primarily secured
by real estate taxes or assessments levied on property located in the local
community. Most of these bonds do not seek agency ratings because the issues are
too small, and in most cases, the purchase of these bonds is based upon the
Adviser's determination that it is suitable for the Fund.
Municipal Securities may also include, but are not limited to,
short-term anticipation notes, bond anticipation notes, revenue anticipation
notes, and other forms of short-term tax-exempt securities. These instruments
are issued in anticipation of the receipt of funds, the proceeds of bond
placements, or other revenues.
An issuer's obligations with respect to its Municipal Securities are
subject to the provisions of bankruptcy, insolvency, and other laws affecting
the rights and remedies of creditors, such as the Federal Bankruptcy Code, and
laws, if any, that may be enacted by
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Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon the enforcement of such
obligations or upon the ability of municipalities to levy taxes or otherwise
raise revenues. Certain of the Municipal Securities may be revenue securities
and dependent on the flow of revenue, generally in the form of fees and charges.
The power or ability of an issuer to meet its obligations for the payment of
interest on and principal of its Municipal Securities may be materially
adversely affected by litigation or other conditions, including a decline in
property value or a destruction of uninsured property due to natural disasters.
In addition, in accordance with its investment objective, each Fund may
invest in private activity bonds, which may constitute Municipal Securities
depending upon the federal income tax treatment of such bonds. Such bonds are
usually revenue bonds because the source of payment and security for such bonds
is the financial resources of the private entity involved; the full faith and
credit and the taxing power of the issuer in normal circumstances will not be
pledged. The payment obligations of the private entity also will be subject to
bankruptcy and similar debtor's rights, as well as other exceptions similar to
those described above. Moreover, the Funds may invest in obligations secured in
whole or in part by a mortgage or deed of trust on real property located in
California that are subject to the "anti-deficiency" legislation discussed
below.
The Funds, in accordance with their investment objective, may also
invest indirectly in Municipal Securities by purchasing the shares of tax-exempt
money market mutual funds. Such investments will be made solely for the purpose
of investing short-term cash on a temporary tax-exempt basis and only in those
funds with respect to which the Adviser believes with a high degree of certainty
that redemption can be effected within seven days of demand. Additional
limitations on investments by the Funds in the shares of other tax-exempt money
market mutual funds are set forth under "Investment Restrictions" below.
The Funds may invest in municipal obligations that are payable solely
from the revenues of health care institutions, although the obligations may be
secured by real or personal property of such institutions. Certain provisions
under federal and California law may adversely affect such revenues and,
consequently, payment on those Municipal Securities.
Certain Municipal Securities in which the Funds may invest may be
obligations that are secured in whole or in part by a mortgage or deed of trust
on real property. California has certain statutory provisions, as embellished by
decisional law, that limit the remedies of a creditor secured by a mortgage or
deed of trust. Some of the provisions generally bar a creditor from obtaining a
deficiency judgment for such secured obligations based either on the method of
foreclosure or the type of debt secured. Other antideficiency provisions limit a
creditors deficiency based on the value of the real property security at the
time of the foreclosure sale. Another statutory provision, commonly known as the
"one-action" rule, has two aspects, an "affirmative defense" aspect and a
"sanction" aspect. The "affirmative defense" aspect limits creditors secured by
real property to a single action to enforce the obligation (e.g., a collection
lawsuit or setoff) and under the related "security-first principle," requires
the creditor to foreclose
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on the security before obtaining a judgment or other enforcement of the secured
obligation. Under the "sanction" aspect, if the real property secured creditor
violates the one-action rule, the creditor loses its lien on the real property
security and, in some instances, the right to recover on the debt. Under the
statutory provisions governing judicial foreclosures, the debtor has the right
to redeem the title to the property for up to one-year following the foreclosure
sale.
Upon the default under a mortgage or deed of trust with respect to
California real property, a creditor's nonjudicial foreclosure rights under the
power of sale contained in the mortgage or deed of trust are subject to certain
procedural requirements whereby the effective minimum period for foreclosing on
a mortgage or deed of trust is generally four to five months after the initial
default and such foreclosure could be further delayed by bankruptcy proceedings
initiated by the debtor. Such time delays in collections could disrupt the flow
of revenues available to an issuer for the payment of debt service on the
outstanding obligations if such defaults occur with respect to a substantial
number of mortgages or deeds of trust securing an issuer's obligations.
Following a creditor's non-judicial foreclosure under a power of sale, no
deficiency judgment is available. This limitation, however, does not apply to
recoveries for bad faith waste, certain kinds of fraud and pursuant to
environmental indemnities. This limitation also does not apply to bonds
authorized or permitted to be issued by the Commissioner of Corporations, or
which are made by a public utility subject to the Public Utilities Act.
Certain Municipal Securities in the Funds may be obligations that
finance the acquisition of mortgages for low and moderate income mortgagors.
These obligations may be payable solely from revenues derived from home
mortgages and are subject to California's statutory limitations applicable to
obligations secured by real property, as described above. Under California
anti-deficiency legislation, there is usually no personal recourse against a
mortgagor of a dwelling of no more than four units, at least one of which is
occupied by such a mortgagor, where the dwelling has been purchased with the
loan that is secured by the mortgage, regardless of whether the creditor chooses
judicial or nonjudicial foreclosure. In the event that this purchase money
anti-deficiency rule applies to a loan secured by a mortgage or deed of trust,
and the value of the property subject to that mortgage or deed of trust has been
substantially reduced because of market forces or by an earthquake or other
event for which the mortgagor or trustor carried no insurance, upon default, the
issuer holding that loan nevertheless would generally be entitled to collect no
more on its loan than it could obtain from the foreclosure sale of the property.
Legislation has been introduced from time to time regarding the
California state personal income tax status of interest paid on Municipal
Securities issued by the State of California and its local governments and held
by investment companies such as the California Tax-Free Money Market Fund and
the California Intermediate Tax-Free Bond Fund. The Funds can not predict what
legislation relating to Municipal Securities, if any, may be proposed in the
future or which proposals, if any, might be enacted. Such proposals, while
pending or if enacted, might materially adversely affect the availability of
Municipal Securities generally, as well as the availability of Municipal
Securities issued by the State of California and its local governments
specifically, for investment by the Funds and the liquidity and value of their
portfolios. In such
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an event, each Fund would re-evaluate its investment objective and policies and
consider changes in its structure or possible dissolution. See "Investments in
California Municipal Securities by the California Tax-Free Money Market Fund and
the California Intermediate Tax-Free Bond Fund" below.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax or California personal
income tax are rendered at the time of issuance by counsel experienced in
matters relating to the validity of and tax exemption of interest on bonds
issued by states and their political sub-divisions. Neither the Funds nor the
Adviser will review the proceedings relating to the issuance of Municipal
Securities or the basis for such opinions.
14. INVESTMENTS IN CALIFORNIA MUNICIPAL SECURITIES BY THE CALIFORNIA
TAX-FREE MONEY MARKET FUND AND THE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND.
The following information is a general summary intended to give a recent
historical description, and is not a discussion of any specific factors that may
affect any particular issuer of California Municipal Securities. The information
is not intended to indicate continuing or future trends in the condition,
financial or otherwise, of California.
Because each of these California Funds expects to invest substantially
all of its assets in California Municipal Securities, it will be susceptible to
a number of complex factors affecting the issuers of California Municipal
Securities, including national and local political, economic, social,
environmental, and regulatory policies and conditions. The Funds cannot predict
whether or to what extent such factors or other factors may affect the issuers
of California Municipal Securities, the market value or marketability of such
securities or the ability of the respective issuers of such securities to pay
interest on, or principal of, such securities. The creditworthiness of
obligations issued by a local California issuer may be unrelated to the
creditworthiness of obligations issued by the State of California, and there is
no responsibility on the part of the State of California to make payments on
such local obligations.
During the first half of the 1990's California suffered the most severe
recession in the State since the 1930's, with significant job losses
(particularly in the aerospace, other manufacturing, services and construction
industries). The greatest effects of the recession were felt in Southern
California. Since 1994, California's economy has made a strong recovery, but its
growth has been somewhat unbalanced. In general, the high-technology,
biotechnology, construction, and entertainment and other service industries have
expanded while aerospace and other manufacturing industries have declined.
California's economy can be expected to be particularly sensitive to trends in
these industries.
The financial difficulties experienced by the State of California and
municipal issuers during the recession resulted in the credit ratings of certain
of their obligations being downgraded significantly by the major rating
agencies. California's economy has subsequently made a strong steady recovery
and California's credit ratings have climbed from the lows experienced during
the recession. However, as of the date of this Statement of Additional
Information, the enthusiasm that rating agencies,
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underwriters and investors might have about the strength of the California
economy appears to be tempered by concerns about, among other things,
California's looming large capital needs and on-going structural budget
impediments.
The recession severely affected State revenues while the State's
health, welfare and education costs were increasing. As a result, throughout
the first half of the decade, California had a period of budget imbalance and
multibillion dollar year-end deficits. In recent years, California has
generally experienced positive operating results due, in part, to more
conservative budgeting, improved economic conditions and higher-than-expected
tax receipts paid on capital gains realizations. The State's ability to raise
revenues and reduce expenditures to the extent necessary to balance the
budget for any year depends upon numerous factors, including economic
conditions in the State and the nation, the accuracy of the State's revenue
predictions, as well as the impact of budgetary restrictions imposed by
voter-passed initiatives.
The ability of the State of California and its political sub-divisions
to generate revenue through real property and other taxes and to increase
spending has been significantly restricted by various constitutional and
statutory amendments and voter-passed initiatives. Such limitations could affect
the ability of California state and municipal issuers to pay interest or repay
principal on their obligations.
During the recession that began in 1990, the State depleted its
available cash resources and became increasingly dependent on external
borrowings to meet its cash needs. Over a decade and a half, California has
issued revenue anticipation notes (which must be issued and repaid during the
same fiscal year) to fund its operating budget during the fiscal year. Beginning
in 1992, the State expanded its external borrowing to include revenue
anticipation warrants (which can be issued and redeemed in different fiscal
years). The State was severely criticized by the major credit rating agencies
for the State's reliance upon such external borrowings during the recession. In
1996, the State fully repaid $4 billion of revenue anticipation warrants issued
in 1994. The State has not needed to use such "cross-year" borrowing since 1996.
It is not presently possible, however, to determine the extent to which
California will issue additional revenue anticipation warrants, short-term
interest-bearing notes or other instruments in future fiscal years.
Certain of the securities in the California Tax-Free Money Market Fund
and the California Intermediate Tax-Free Bond Fund may be obligations of issuers
that rely in whole or in part, directly or indirectly, on ad valorem real
property taxes as a source of revenue. Article XIII A of the California
Constitution, adopted by the voters in 1978, limits ad valorem taxes on real
property, and restricts the ability of taxing entities to increase real property
and other taxes.
Article XIII B of the California Constitution, originally adopted in
1979, limits significantly spending by state government and by "local
governments". Article XIII B generally limits the amount of the appropriations
of the State and of local governments to the amount of
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appropriations of the entity for the prior year, adjusted for changes in the
cost of living, population, and the services that the government entity is
financially responsible for providing. To the extent that the "proceeds of
taxes" of the State or a local government exceed its "appropriations limit," the
excess revenues must be rebated. One of the exclusions from these limitations
for any entity of government is the debt service costs of bonds existing or
legally authorized as of January 1, 1979 or on bonded indebtedness thereafter
approved by the voters. Although Article XIII B states that it shall not "be
construed to impair the ability of the state or of any local government to meet
its obligations with respect to existing or future bonded indebtedness," concern
has been expressed with respect to the combined effect of such constitutionally
imposed spending limits on the ability of California state and local governments
to utilize bond financing.
Article XIII B was modified substantially by Propositions 98 and 111 of
1988 and 1990, respectively. These initiatives changed the State's Article XIII
B appropriations limit to require that the State set aside a prudent reserve
fund for public education, and guarantee a minimum level of State funding for
public elementary and secondary schools as well as community colleges. Such
guaranteed spending was often cited as one of the causes of the State's earlier
budget problems.
The Fund's Administrator, SEI Investments Mutual Funds Services, a
Delaware business trust, has its principal business offices at Oaks,
Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a
wholly-owned subsidiary of SEI Investments Company ("SEI Investments"), is
the owner of all beneficial interest in the Administrator. SEI Investments
and its subsidiaries and affiliates, including the Administrator, are leading
providers of funds evaluation services, trust accounting systems, and
brokerage and information services to financial institutions, institutional
investors, and money managers. The Administrator and its affiliates also
serve as administrator or sub-administrator to the following other mutual
funds: The Achievement Funds Trust, The Advisors' Inner Circle Fund, Alpha
Select Funds, Amerindo Funds Inc., The Arbor Fund, ARK Funds, Armada Funds,
The Armada Advantage Fund, Bishop Street Funds, CNI Charter Funds, CUFUND,
The Expedition Funds, First American Funds, Inc., First American Investment
Funds, Inc., First American Strategy Funds, Inc., Friends Ivory Funds,
HighMark Funds, Huntington Funds, Huntington VA Funds, The Nevis Funds, Oak
Associates Funds, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The
Pillar Funds, Pitcairn Funds, SEI Asset Allocation Trust, SEI Daily Income
Trust, SEI Index Funds, SEI Institutional International Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Insurance Products Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI
Classic Funds, STI Classic Variable Trust, TIP Funds, UAM Funds Trust, UAM
Funds, Inc. and UAM Funds, Inc. II.
The effect of Article XIII A, Article XIII B and other constitutional
and statutory changes and of budget developments on the ability of California
issuers to pay interest and principal on their obligations remains unclear, and
may depend on whether a particular bond is a general obligation or limited
obligation bond (limited obligation bonds being generally less affected).
There is no assurance that any California issuer will make full or
timely payments of principal or interest or remain solvent. For example, in
December 1994, Orange County filed for bankruptcy. In June 1995, Orange County
negotiated a rollover of its short-term debt originally due at that time; the
major rating agencies considered the rollover a default. In June 1996, the
investors in such overdue notes were paid and the Orange County bankruptcy
ended. However, the Orange County bankruptcy and such default had a serious
effect upon the market for California municipal obligations.
Numerous factors may adversely affect the State and municipal
economies. For example, limits on federal funding could result in the loss of
federal assistance otherwise available to the State.
In addition, it is impossible to predict the time, magnitude, or
location of a natural catastrophe, such as a major earthquake, fire or flood,
or its effect on the California economy. In January 1994, a major earthquake
struck the Los Angeles area, causing significant damage in a four-county area.
The possibility exists that another natural disaster such as an earthquake could
create a major dislocation of the California economy.
The Funds' concentration in California Municipal Securities provides a
greater level of risk than funds that are diversified across numerous states and
municipal entities.
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15. PUTS. The California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund may acquire "puts" with respect to the Municipal
Securities held in their respective portfolios. A put is a right to sell a
specified security (or securities) within a specified period of time at a
specified exercise price. These Funds may sell, transfer, or assign a put only
in conjunction with the sale, transfer, or assignment of the underlying security
or securities.
The amount payable to a Fund upon its exercise of a "put" is normally
(i) the Fund's acquisition cost of the securities (excluding any accrued
interest that the Fund paid on the acquisition), less any amortized market
premium or plus any amortized market or original issue discount during the
period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.
Puts may be acquired by a Fund to facilitate the liquidity of the
Fund's portfolio assets. Puts may also be used to facilitate the reinvestment of
a Fund's assets at a rate of return more favorable than that of the underlying
security. Under certain circumstances, puts may be used to shorten the maturity
of underlying adjustable rate notes for purposes of calculating the remaining
maturity of those securities and the dollar-weighted average portfolio maturity
of the California Tax-Free Money Market Fund's assets pursuant to Rule 2a-7
under the 1940 Act.
The California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund will generally acquire puts only where the puts
are available without the payment of any direct or indirect consideration.
However, if necessary or advisable, a Fund may pay for puts either separately in
cash or by paying a higher price for portfolio securities that are acquired
subject to the puts (thus reducing the yield to maturity otherwise available for
the same securities).
16. SHARES OF MUTUAL FUNDS. Each Fund may invest in the securities of
other investment companies to the extent permitted by the 1940 Act. Currently,
the 1940 Act permits a Fund to invest up to 5% of its total assets in the shares
of any one investment company, but it may not own more than 3% of the securities
of any one registered investment company or invest more than 10% of its assets
in the securities of other investment companies. In accordance with an exemptive
order issued to HighMark Funds by the Securities and Exchange Commission, such
other registered investment companies securities may include shares of a money
market fund of HighMark Funds, and may include registered investment companies
for which the Adviser or Sub-Adviser to a Fund of HighMark Funds, or an
affiliate of such Adviser or Sub-Adviser, serves as investment adviser,
administrator or distributor or provides other services. Because other
investment companies employ an investment adviser, such investment by a Fund may
cause Shareholders to bear duplicative fees. The Adviser will waive its advisory
fees attributable to the assets of the investing Fund invested in a money market
fund of HighMark Funds, and, to the extent required by applicable law, the
Adviser will waive its fees attributable to the assets of the Fund invested in
any investment company. Additional restrictions on the Fund's investments in the
securities of a money market mutual fund are set forth under "Investment
Restrictions" below.
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Investments by the California Tax-Free Money Market Fund in the shares
of other tax-exempt money market mutual funds are described under "Municipal
Securities" above.
17. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may enter
into forward commitments or purchase securities on a "when-issued" basis, which
means that the securities will be purchased for delivery beyond the normal
settlement date at a stated price and yield and thereby involve the risk that
the yield obtained in the transaction will be less than that available in the
market when delivery takes place. A Fund will generally not pay for such
securities and no interest accrues on the securities until they are received by
the Fund. These securities are recorded as an asset and are subject to changes
in value based upon changes in the general level of interest rates. Therefore,
the purchase of securities on a "when-issued" basis may increase the risk of
fluctuations in a Fund's net asset value.
When a Fund agrees to purchase securities on a "when-issued" basis or
enter into forward commitments, HighMark Funds' custodian will be instructed to
set aside cash or liquid portfolio securities equal to the amount of the
commitment in a separate account. The Fund may be required subsequently to place
additional assets in the separate account in order to assure that the value of
the account remains equal to the amount of the Fund's commitment.
The Funds expect that commitments to enter into forward commitments or
purchase "when-issued" securities will not exceed 25% of the value of their
respective total assets under normal market conditions; in the event any Fund
exceeded this 25% threshold, the Fund's liquidity and the Adviser's ability to
manage it might be adversely affected. In addition, the Funds do not intend to
purchase "when-issued" securities or enter into forward commitments for
speculative or leveraging purposes but only in furtherance of such Fund's
investment objective.
18. ZERO-COUPON SECURITIES. Consistent with its objectives, a Fund may
invest in zero-coupon securities, which are debt securities that do not pay
interest, but instead are issued at a deep discount from par. The value of the
security increases over time to reflect the interest accrued. The value of these
securities may fluctuate more than similar securities that are issued at par and
pay interest periodically. Although these securities pay no interest to holders
prior to maturity, interest on these securities is reported as income to the
Fund and distributed to its shareholders. These distributions must be made from
the Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. The Fund will not be able to purchase additional income producing
securities with cash used to make such distributions and its current income
ultimately may be reduced as a result. The amount included in income is
determined under a constant interest rate method. In addition, if an obligation
is purchased subsequent to its original issue, a holder such as the Fixed Income
Funds may elect to include market discount in income currently on a ratable
accrual method or a constant interest rate method. Market discount is the
difference between the obligation's "adjusted issue price" (the original issue
price plus original issue discount accrued to date) and the holder's purchase
price. If no such election is made, gain on the disposition of a market discount
obligation is treated as ordinary income (rather than capital gain) to the
extent it does not exceed the accrued market discount.
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19. OPTIONS (PUTS AND CALLS) ON SECURITIES. Each Equity Fund may buy
and sell options (puts and calls), and write call options on a covered basis.
Under a call option, the purchaser of the option has the right to purchase, and
the writer (the Fund) the obligation to sell, the underlying security at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to purchase, the underlying
security at the exercise price during the option period.
There are risks associated with such investments including the
following: (1) the success of a hedging strategy may depend on the ability of
the Adviser or Sub-Adviser to predict movements in the prices of individual
securities, fluctuations in markets and movements in interest rates; (2) there
may be an imperfect correlation between the movement in prices of securities
held by a Fund and the price of options; (3) there may not be a liquid secondary
market for options; and (4) while a Fund will receive a premium when it writes
covered call options, it may not participate fully in a rise in the market value
of the underlying security.
20. COVERED CALL WRITING. Each Equity Fund may write covered call
options from time to time on such portion of its assets, without limit, as the
Adviser determines is appropriate in seeking to obtain its investment objective.
A Fund will not engage in option writing strategies for speculative purposes. A
call option gives the purchaser of such option the right to buy, and the writer,
in this case the Fund, has the obligation to sell the underlying security at the
exercise price during the option period. The advantage to the Fund of writing
covered calls is that the Fund receives a premium which is additional income.
However, if the value of the security rises, the Fund may not fully participate
in the market appreciation.
During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option was sold,
which requires the writer to deliver the underlying security against payment of
the exercise price. This obligation is terminated upon the expiration of the
option period or at such earlier time in which the writer effects a closing
purchase transaction. A closing purchase transaction is one in which a Fund,
when obligated as a writer of an option, terminates its obligation by purchasing
an option of the same series as the option previously written. A closing
purchase transaction cannot be effected with respect to an option once the
option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security, or to enable the
Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Fund may realize a net
gain or loss from a closing purchase transaction, depending upon whether the net
amount of the original premium received on the call option is more or less than
the cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be partially or entirely offset by the premium
received from a sale of a different call option on the same underlying security.
Such a loss may also be wholly or partially offset by unrealized appreciation in
the market value of the underlying security. Conversely, a gain resulting from a
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closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
If a call option expires unexercised, the Fund will realize a short
term capital gain in the amount of the premium on the option, less the
commission paid. Such a gain, however, may be offset by depreciation in the
market value of the underlying security during the option period. If a call
option is exercised, the Fund will realize a gain or loss from the sale of the
underlying security equal to the difference between the cost of the underlying
security, and the proceeds of the sale of the security plus the amount of the
premium on the option, less the commission paid.
The market value of a call option generally reflects the market price
of an underlying security. Other principal factors affecting market value
include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.
The Fund will write call options only on a covered basis, which means
that the Fund will own the underlying security subject to a call option at all
times during the option period or will own the right to acquire the underlying
security at a price equal to or below the option's strike price. Unless a
closing purchase transaction is effected the Fund would be required to continue
to hold a security which it might otherwise wish to sell, or deliver a security
it would want to hold. Options written by the Fund will normally have expiration
dates between one and nine months from the date written. The exercise price of a
call option may be below, equal to or above the current market value of the
underlying security at the time the option is written.
21. PURCHASING CALL OPTIONS. The Equity Funds may purchase call options
to hedge against an increase in the price of securities that the Fund wants
ultimately to buy. Such hedge protection is provided during the life of the call
option since the Fund, as holder of the call option, is able to buy the
underlying security at the exercise price regardless of any increase in the
underlying security's market price. In order for a call option to be profitable,
the market price of the underlying security must rise sufficiently above the
exercise price to cover the premium and transaction costs. These costs will
reduce any profit the Fund might have realized had it bought the underlying
security at the time it purchased the call option. The Funds may sell, exercise
or close out positions as the Adviser deems appropriate.
22. PURCHASING PUT OPTIONS. Each Equity Fund may purchase put options
to protect its portfolio holdings in an underlying security against a decline in
market value. Such hedge protection is provided during the life of the put
option since the Fund, as holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. For a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, a Fund will reduce any profit it might otherwise have realized
from appreciation of the underlying security by the premium paid for the put
option and by transaction costs.
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23. OPTIONS IN STOCK INDICES. The Equity Funds may engage in options on
stock indices. A stock index assigns relative values to the common stock
included in the index with the index fluctuating with changes in the market
values of the underlying common stock.
Options on stock indices are similar to options on stocks but have
different delivery requirements. Stock options provide the right to take or make
delivery of the underlying stock at a specified price. A stock index option
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the amount by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (ii) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return of the
premium received, to make delivery of this amount. Gain or loss to a Fund on
transactions in stock index options will depend on price movements in the stock
market generally (or in a particular industry or segment of the market) rather
than price movements of individual securities.
As with stock options, a Fund may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.
A stock index fluctuates with changes in the market values of the stock
so included. Some stock index options are based on a broad market index, such as
the Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower market index such as the Standard & Poor's 100. Indices are also based
on an industry or market segment such as the AMEX Oil and Gas Index or the
Computer and Business Equipment Index. Options on stock indices are currently
traded on the following exchanges among others: The Chicago Board Options
Exchange, New York Stock Exchange, American Stock Exchange and London Stock
Exchange.
A Fund's ability to hedge effectively all or a portion of its
securities through transactions in options on stock indices depends on the
degree to which price movements in the underlying index correlate with price
movements in the Fund's portfolio securities. Since a Fund's portfolio will not
duplicate the components of an index, the correlation will not be exact.
Consequently, a Fund bears the risk that the prices of the securities being
hedged will not move in the same amount as the hedging instrument. It is also
possible that there may be a negative correlation between the index or other
securities underlying the hedging instrument and the hedged securities which
would result in a loss on both such securities and the hedging instrument.
A Fund will enter into an option position only if there appears to be a
liquid secondary market for such options.
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A Fund will not engage in transactions in options on stock indices for
speculative purposes but only to protect appreciation attained, to offset
capital losses and to take advantage of the liquidity available in the option
markets. The aggregate premium paid on all options on stock indices will not
exceed 20% of a Fund's total assets.
24. RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of options
strategies depends on the ability of the Adviser or, where applicable, the
Sub-Adviser to forecast interest rate and market movements correctly.
When it purchases an option, a Fund runs the risk that it will lose its
entire investment in the option in a relatively short period of time, unless the
Fund exercises the option or enters into a closing sale transaction with respect
to the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, a Fund
will lose part or all of its investment in the option. This contrasts with an
investment by a Fund in the underlying securities, since the Fund may continue
to hold its investment in those securities notwithstanding the lack of a change
in price of those securities.
The effective use of options also depends on a Fund's ability to
terminate option positions at times when the Adviser or, where applicable, the
Sub-Adviser deems it desirable to do so. Although a Fund will take an option
position only if its Adviser or, where applicable, the Sub-Adviser believes
there is liquid secondary market for the option, there is no assurance that a
Fund will be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, a
Fund could no longer engage in closing transactions. Lack of investor interest
might adversely affect the liquidity of the market for particular options or
series of options. A marketplace may discontinue trading of a particular option
or options generally. In addition, a market could become temporarily unavailable
if unusual events such as volume in excess of trading or clearing capability,
were to interrupt normal market operations. A marketplace may at times find it
necessary to impose restrictions on particular types of options transactions,
which may limit a Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for securities underlying options purchased
or sold by a Fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, a Fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets, such as the London Options Clearing House, may
impose exercise restrictions. If a prohibition on exercise is imposed at the
time when trading in the option has also been halted, a Fund as purchaser or
writer of an option will be locked into its position until one of the two
restrictions has been lifted. If a prohibition on exercise remains in effect
until an option owned by a Fund has expired, the Fund could lose the entire
value of its option.
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25. FUTURES CONTRACTS ON SECURITIES AND RELATED OPTIONS. The Equity
Funds and Fixed Income Funds may invest in futures and related options based on
any type of security or index traded on U.S. or foreign exchanges, or over the
counter as long as the underlying security or the securities represented by the
future or index are permitted investments of the Fund. Futures and options can
be combined with each other in order to adjust the risk and return parameters of
a Fund.
26. FUTURES CONTRACTS ON SECURITIES. The Equity Funds and Fixed Income
Funds will enter into futures contracts on securities only when, in compliance
with the SEC's requirements, cash or equivalents equal in value to the
securities' value (less any applicable margin deposits) have been deposited in a
segregated account of the Fund's custodian.
A futures contract sale creates an obligation by the seller to deliver
the type of instrument called for in the contract in a specified delivery month
for a stated price. A futures contract purchase creates an obligation by the
purchaser to take delivery of the type of instrument called for in the contract
in a specified delivery month at a stated price. The specific instruments
delivered or taken at settlement date are not determined until on or near that
date. The determination is made in accordance with the rules of the exchanges on
which the futures contract was made. Futures contracts are traded in the United
States only on the commodity exchange or boards of trade, known as "contract
markets," approved for such trading by the Commodity Futures Trading Commission
(CFTC), and must be executed through a futures commission merchant or brokerage
firm which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument with the same
delivery date. If the price of the initial sale of the futures contract exceeds
the price of the offsetting purchase, the seller is paid the difference and
realizes a gain. Similarly, the closing out of a futures contract purchase is
effected by the purchaser's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes a gain,
and if the purchase price exceeds the offsetting sale price, the purchaser
realizes a loss.
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract, although
the Fund is required to deposit with its custodian in a segregated account in
the name of the futures broker an amount of cash and/or U.S. Government
securities. This amount is known as "initial margin." The nature of initial
margin in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the Fund to finance the transactions. Rather, initial margin is in the
nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts also involve
brokerage costs.
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Subsequent payments, called "variation margin," to and from the broker
(or the custodian) are made on a daily basis as the price of the underlying
security fluctuates, making the long and short positions in the futures contract
more or less valuable, a process known as "marking to market."
A Fund may elect to close some or all of its futures positions at any
time prior to their expiration. The purpose of making such a move would be to
reduce or eliminate the hedge position then currently held by the Fund. A Fund
may close its positions by taking opposite positions which will operate to
terminate the Fund's position in the futures contracts. Final determinations of
variation margin are then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain. Such closing
transactions involve additional commission costs.
27. OPTIONS ON SECURITIES' FUTURES CONTRACTS. The Equity Funds and
Fixed Income Funds will enter into written options on securities' futures
contracts only when in compliance with the SEC's requirements, cash or
equivalents equal in value to the securities' value (less any applicable margin
deposits) have been deposited in a segregated account of the Fund's custodian. A
Fund may purchase and write call and put options on the futures contracts it may
buy or sell and enter into closing transactions with respect to such options to
terminate existing positions. A Fund may use such options on futures contracts
in lieu of writing options directly on the underlying securities or purchasing
and selling the underlying futures contracts. Such options generally operate in
the same manner as options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option may
terminate his or her position by selling or purchasing an offsetting option.
There is no guarantee that such closing transactions can be effected.
A Fund will be required to deposit initial margin and maintenance
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above.
Aggregate initial margin deposits for futures contracts (including
futures contracts on securities, indices and currency) and premiums paid for
related options may not exceed 5% of a Fund's total assets.
28. RISK OF TRANSACTIONS IN SECURITIES' FUTURES CONTRACTS AND RELATED
OPTIONS. Successful use of securities' futures contracts by a Fund is subject to
the ability of the Adviser or, where applicable, the Sub-Adviser to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less risk to a Fund because
the maximum amount at risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances
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when the purchase of a call or put option on a futures contract would result in
a loss to a Fund when the purchase or sale of a futures contract would not, such
as when there is no movement in the price of the hedged investments. The writing
of an option on a futures contract involves risks similar to those risks
relating to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or
other unforeseen events will not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.
To reduce or eliminate a hedge position held by a Fund, the Fund may
seek to close out a position. The ability to establish and close out positions
will be subject to the development and maintenance of a liquid secondary market.
It is not certain that this market will develop or continue to exist for a
particular futures contract. Reasons for the absence of a liquid secondary
market on an exchange include the following: (i) there may be insufficient
trading interest in certain contracts or options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of contracts or options
(or a particular class or series of contracts or options), in which event the
secondary market on that exchange (or in the class or series of contracts or
options) would cease to exist, although outstanding contracts or options on the
exchange that had been issued by a clearing corporation as a result of trades on
that exchange would continue to be exercisable in accordance with their terms.
29. INDEX FUTURES CONTRACTS. The Equity Funds may enter into stock
index futures contracts, debt index futures contracts, or other index futures
contracts appropriate to its objective, and may purchase and sell options on
such index futures contracts. A Fund will not enter into any index futures
contract for the purpose of speculation, and will only enter into contracts
traded on securities exchanges with standardized maturity dates.
An index futures contract is a bilateral agreement pursuant to which
two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the index value at the
close of trading of the contracts and the price at which the futures contract is
originally struck. No physical delivery of the securities comprising the index
is made; generally contracts are closed out prior to the expiration date of the
contract. No price is paid upon entering into index futures contracts. When a
Fund purchases or sells an index futures contract, it is required to make an
initial margin deposit in the name of the futures broker and to make variation
margin deposits as the value of the contract fluctuates, similar to the deposits
made with respect to futures contracts on securities. Positions in index futures
contracts may be closed only on an exchange or board of trade providing a
secondary market for such
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index futures contracts. The value of the contract usually will vary in direct
proportion to the total face value.
A Fund's ability to effectively utilize index futures contracts depends
on several factors. First, it is possible that there will not be a perfect price
correlation between the index futures contracts and their underlying index.
Second, it is possible that a lack of liquidity for index futures contracts
could exist in the secondary market, resulting in the Fund's inability to close
a futures position prior to its maturity date. Third, the purchase of an index
futures contract involves the risk that the Fund could lose more than the
original margin deposit required to initiate a futures transaction. In order to
avoid leveraging and related risks, when a Fund purchases an index futures
contract, it will collateralize its position by depositing an amount of cash or
cash equivalents, equal to the market value of the index futures positions held,
less margin deposits, in a segregated account with the Fund's custodian.
Collateral equal to the current market value of the index futures position will
be maintained only a daily basis.
The extent to which a Fund may enter into transactions involving index
futures contracts may be limited by the Internal Revenue Code's requirements for
qualification as a regulated investment company and the Funds' intention to
qualify as such.
30. OPTIONS ON INDEX FUTURES CONTRACTS. Options on index futures
contracts are similar to options on securities except that options on index
futures contracts gives the purchaser the right, in return for the premium paid,
to assume a position in an index futures contract (a long position if the option
is a call and a short position if the option is a put), at a specified exercise
price at any time during the period of the option. Upon exercise of the option,
the delivery of the futures position by the writer of the option to the holder
of the option will be accompanied by delivery of the accumulated balance in the
writer's futures margin account which represents the amount by which the market
price of the index futures contract, at exercise, exceeds (in the case of a
call) or is less than (in the case of a put) the exercise price of the option on
the index futures contract. If an option is exercised on the last trading day
prior to the expiration date of the option, the settlement will be made entirely
in cash equal to the difference between the exercise price of the option and the
closing level of the index on which the future is based on the expiration date.
Purchasers of options who fail to exercise their options prior to the exercise
date suffer a loss of the premium.
31. FOREIGN INVESTMENT. Certain of the Funds may invest in U.S. dollar
denominated obligations of securities of foreign issuers. Permissible
investments may consist of obligations of foreign branches of U.S. banks and
foreign or domestic branches of foreign banks, including European Certificates
of Deposit, European Time Deposits, Canadian Time Deposits and Yankee
Certificates of Deposits, and investments in Canadian Commercial Paper, foreign
securities and Europaper. In addition, the Equity Funds may invest in American
Depositary Receipts. The Equity Funds and Fixed Income Funds may also invest in
securities issued or guaranteed by foreign corporations or foreign governments,
their political subdivisions, agencies or instrumentalities and obligations of
supranational entities such as the World Bank and the Asian Development Bank.
Any investments in these securities will be in accordance with a Fund's
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investment objective and policies, and are subject to special risks that differ
in some respects from those related to investments in obligations of U.S.
domestic issuers. Such risks include future adverse political and economic
developments, the possible imposition of withholding taxes on interest or other
income, possible seizure, nationalization, or expropriation of foreign deposits,
the possible establishment of exchange controls or taxation at the source,
greater fluctuations in value due to changes in exchange rates, or the adoption
of other foreign governmental restrictions which might adversely affect the
payment of principal and interest on such obligations. Such investments may also
entail higher custodial fees and sales commissions than domestic investments. To
the extent that a Fund may invest in securities of foreign issuers that are not
traded on any exchange, there is a further risk that these securities may not be
readily marketable. Foreign issuers of securities or obligations are often
subject to accounting treatment and engage in business practices different from
those respecting domestic issuers of similar securities or obligations. Foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements than those applicable to domestic branches of U.S. banks.
On January 1, 1999, the European Monetary Market Union ("EMU")
introduced a new single currency, the euro, which replaced the national currency
for participating member countries. Those countries are Austria, Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal
and Spain. A new European Central Bank ("ECB") was created to manage the
monetary policy of the new unified region. On the same day, exchange rates were
irrevocably fixed between the EMU member countries. National currencies will
continue to circulate until they are replaced by coins and banks notes by the
middle of 2002.
The Small Cap Value Fund and International Equity Fund may invest in
the securities of emerging market issuers. Investing in emerging market
securities involves risks which are in addition to the usual risks inherent in
foreign investments. Some emerging markets countries may have fixed or managed
currencies that are not free-floating against the U.S. dollar. Further, certain
currencies may not be traded internationally. Certain of these currencies have
experienced a steady devaluation relative to the U.S. dollar. Any devaluation in
the currencies in which the Fund's securities are denominated may have a
detrimental impact on the Fund.
Some countries with emerging securities markets have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuation in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some countries may differ
favorably or unfavorably from the U.S. economy in such respects as rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency, number and depth of industries forming the economy's
base, governmental controls and investment restrictions that are subject to
political change and balance of payments position. Further, there may be greater
difficulties or restrictions with respect to investments made in emerging
markets countries.
Emerging markets typically have substantially less volume than U.S.
markets. In addition, securities in many of such markets are less liquid, and
their prices often are more
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volatile, than securities of comparable U.S. companies. Such markets often have
different clearance and settlement procedures for securities transactions, and
in some markets there have been times when settlements have been unable to keep
pace with the volume of transactions, making it difficult to conduct
transactions. Delays in settlement could result in temporary periods when assets
may be uninvested. Settlement problems in emerging markets countries also could
cause the Fund to miss attractive investment opportunities. Satisfactory
custodial services may not be available in some emerging markets countries,
which may result in the Fund's incurring additional costs and delays in the
transportation and custody of such securities.
32. FOREIGN CURRENCY TRANSACTIONS. Under normal market conditions, the
International Equity Fund may engage in foreign currency exchange transactions
to protect against uncertainty in the level of future exchange rates. The
International Equity Fund expects to engage in foreign currency exchange
transactions in connection with the purchase and sale of portfolio securities
("transaction hedging"), and to protect the value of specific portfolio
positions ("position hedging"). The Fund may purchase or sell a foreign currency
on a spot (or cash) basis at the prevailing spot rate in connection with the
settlement of transactions in portfolio securities denominated in that foreign
currency, and may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and purchase or sell foreign
currency futures contracts ("futures contracts"). The Fund may also purchase
domestic and foreign exchange-listed and over-the-counter call and put options
on foreign currencies and futures contracts. Hedging transactions involve costs
and may result in losses, and the Fund's ability to engage in hedging and
related options transactions may be limited by tax considerations.
33. TRANSACTION HEDGING. When it engages in transaction hedging, the
International Equity Fund enters into foreign currency transactions with respect
to specific receivables or payables of the International Equity Fund, generally
arising in connection with the purchase or sale of its portfolio securities. The
International Equity Fund will engage in transaction hedging when it desires to
"lock in" the U.S. dollar price of a security it has agreed to purchase or sell,
or the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging, the Fund will attempt to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Although there is no current intention to do so, the International
Equity Fund reserves the right to purchase and sell foreign currency futures
contracts which are traded in the United States and are subject to regulation by
the CFTC.
For transaction hedging purposes the International Equity Fund may also
purchase exchange-listed call and put options on foreign currency futures
contracts and on foreign currencies. A put option on a futures contract gives
the Fund the right to assume a short position in the futures contract until
expiration of the option. A put option on currency gives the Fund the right to
sell a currency at an exercise price until the expiration of the option. A call
option on a futures contract gives the Fund the right to assume a long position
in the futures contract until the
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expiration of the option. A call option on currency gives the Fund the right to
purchase a currency at the exercise price until the expiration of the option.
34. POSITION HEDGING. When it engages in position hedging, the
International Equity Fund enters into foreign currency exchange transactions to
protect against a decline in the values of the foreign currencies in which its
portfolio securities are denominated (or an increase in the value of currency
for securities which the Sub-Adviser expects to purchase, when the Fund holds
cash or short-term investments). In connection with the position hedging, the
Fund may purchase or sell foreign currency forward contracts or foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the value of such securities in foreign currencies
will change as a consequence of market movements in the value of those
securities between the dates the currency exchange transactions are entered into
and the dates they mature.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward contract or
futures contract. Accordingly, it may be necessary for the International Equity
Fund to purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security or securities
being hedged is less than the amount of foreign currency the Fund is obligated
to deliver and if a decision is made to sell the security or securities and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the portfolio
security or securities if the market value of such security or securities
exceeds the amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the International Equity Fund owns or
expects to purchase or sell. They simply establish a rate of exchange which one
can achieve at some future point in time. Additionally, although these
techniques tend to minimize the risk of loss due to a decline in the value of
the hedged currency, they tend to limit any potential gain which might result
from the increase in the value of such currency.
35. CURRENCY FORWARD AND FUTURES CONTRACTS. Consistent with its
investment objective and policies, the International Equity Fund and Small Cap
Value Fund may invest in currency forward and futures contracts. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
as agreed by the parties, at a price set at the time of the contract. In the
case of a cancelable forward contract, the holder has the unilateral right to
cancel the contract at maturity by paying a specified fee. Forward contracts are
trades in the interbank markets conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades.
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A futures contract is a standardized contract for the future delivery
of a specified amount of a foreign currency at a future date at a price set at
the time of the contract. Futures contracts are designed by and traded on
exchanges. The Fund would enter into futures contracts solely for hedging or
other appropriate risk management purposes as defined in the controlling
regulations.
Forward contracts differ from futures contracts in certain respects.
For example, the maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month. Forward contracts may be in any amounts
agreed upon by the parties rather than predetermined amounts. Also, forward
contracts are traded directly between currency traders so that no intermediary
is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in the futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market in such contracts.
Although the Fund intends to purchase or sell futures contracts only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a secondary market on an exchange or board of
trade will exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures position and, in the event of
adverse price movements, the Fund would continue to be required to make daily
cash payments of variation margin, as described below.
A Fund may conduct its foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market or through entering into forward currency contracts to protect against
uncertainty in the level of future exchange rates between particular currencies
or between foreign currencies in which the Fund's securities are or may be
denominated. Under normal circumstances, consideration of the prospect for
changes in currency exchange rates will be incorporated into the Fund's
long-term investment strategies. However, the Adviser and Sub-Adviser believe
that it is important to have the flexibility to enter into forward currency
contracts when it determines that the best interests of the Fund will be served.
When the Adviser and Sub-Adviser believe that the currency of a
particular country may suffer a significant decline against another currency,
the Fund may enter into a currency contract to sell, for the appropriate
currency, the amount of foreign currency approximating the value of some or all
of the Fund's securities denominated in such foreign currency. The Fund may
realize a gain or loss from currency transactions.
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36. GENERAL CHARACTERISTICS OF CURRENCY FUTURES CONTRACTS. When the
International Equity Fund or Small Cap Value Fund purchases or sells a futures
contract, it is required to deposit with its custodian an amount of cash or U.S.
Treasury bills up to 5% of the amount of the futures contract. This amount is
known as "initial margin." The nature of initial margin is different from that
of margin in security transactions in that it does not involve borrowing money
to finance transactions. Rather, initial margin is similar to a performance bond
or good faith deposit that is returned to a Fund upon termination of the
contract, assuming a Fund satisfies its contractual obligation.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market." These payments are called "variation
margin," and are made as the value of the underlying futures contract
fluctuates. For example, when a Fund sells a futures contract and the price of
the underlying currency rises above the delivery price, the International Fund's
position declines in value. The Fund then pays a broker a variation margin
payment equal to the difference between the delivery price of the futures
contract and the market price of the currency underlying the futures contract.
Conversely, if the price of the underlying currency falls below the delivery
price of the contract, the Fund's futures position increases in value. The
broker then must make a variation margin payment equal to the difference between
the delivery price of the futures contract and the market price of the currency
underlying the futures contract.
When a Fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Fund, and the Fund realizes a loss or gain. Such closing transactions involve
additional commission costs.
37. FOREIGN CURRENCY OPTIONS. Options on foreign currencies operate
similarly to options on securities, and are traded primarily in the
over-the-counter market, although options on foreign currencies have recently
been listed on several exchanges. Such options will be purchased or written only
when the International Equity or Small Cap Value Fund's Sub-Adviser believes
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specific time. Options on foreign currencies are affected by all of those
factors which influence foreign exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of
the foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealer or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of
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very large transactions in the interbank market, and thus may not reflect
relatively smaller transactions (less than $1 million), where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market.
38. FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do
not charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
International Equity Fund or the Small Cap Value Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
39. INDEX-BASED INVESTMENTS. Index-Based Investments, such as Standard
& Poor's Depository Receipts ("SPDRs"), NASDAQ-100 Index Tracking Stock ("NASDAQ
100s") and Dow Jones DIAMONDS ("Diamonds"), are interests in a unit investment
trust ("UIT") that may be obtained from the UIT or purchased in the secondary
market. SPDRs, NASDAQ 100s and DIAMONDS are listed on the American Stock
Exchange.
A UIT will generally issue Index-Based Investments in aggregations of
50,000 known as "Creation Units" in exchange for a "Portfolio Deposit"
consisting of (a) a portfolio of securities substantially similar to the
component securities ("Index Securities") of the applicable index (the "Index"),
(b) a cash payment equal to a pro rata portion of the dividends accrued on the
UIT's portfolio securities since the last dividend payment by the UIT, net of
expenses and liabilities, and (c) a cash payment or credit ("Balancing Amount")
designed to equalize the net asset value of the Index and the net asset value of
a Portfolio Deposit.
Index-Based Investments are not individually redeemable, except upon
termination of the UIT. To redeem, the portfolio must accumulate enough
Index-Based Investments to reconstitute a Creation Unit (large aggregations of a
particular Index-Based Investment). The liquidity of small holdings of
Index-Based Investments, therefore, will depend upon the existence of a
secondary market. Upon redemption of a Creation Unit, the portfolio will receive
Index Securities and cash identical to the Portfolio Deposit required of an
investor wishing to purchase a Creation Unit that day.
The price of Index-Based Investments is derived and based upon the
securities held by the UIT. Accordingly, the level of risk involved in the
purchase or sale of Index-Based Investments is similar to the risk involved in
the purchase or sale of traditional common stock, with the exception that the
pricing mechanism for Index-Based Investments is based on a basket of stocks.
Disruptions in the markets for the securities underlying Index-Based Investments
purchased or sold by the Portfolio could result in losses on Index-Based
Investments. Trading in Index-Based Investments involves risks similar to those
risks, described above under "Options," involved in the writing of options on
securities.
40. SMALL CAP/SPECIAL EQUITY SITUATION SECURITIES. Certain Funds may
invest in the securities of small capitalization companies and companies in
special equity situations.
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Companies are considered to have a small market capitalization if their
capitalization is within the range of those companies in the S&P 600 Small Cap
Index. Companies are considered to be experiencing special equity situations if
they are experiencing unusual and possibly non-repetitive developments, such as
mergers; acquisitions; spin-offs; liquidations; reorganizations; and new
products, technology or management. These companies may offer greater
opportunities for capital appreciation than larger, more established companies,
but investment in such companies may involve certain special risks. These risks
may be due to the greater business risks of small size, limited markets and
financial resources, narrow product lines and frequent lack of depth in
management. The securities of such companies are often traded in the
over-the-counter market and may not be traded in volumes typical on a national
securities exchange. Thus, the securities of such companies may be less liquid,
and subject to more abrupt or erratic market movements than securities of
larger, more established growth companies. Since a "special equity situation"
may involve a significant change from a company's past experiences, the
uncertainties in the appraisal of the future value of the company's equity
securities and the risk of a possible decline in the value of the Funds'
investments are significant.
41. HIGH YIELD SECURITIES. The Small Cap Value Fund and the Fixed
Income Funds may invest in lower rated securities. Fixed income securities are
subject to the risk of an issuer's ability to meet principal and interest
payments on the obligation (credit risk), and may also be subject to price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity (market
risk). Lower rated or unrated (i.e., high yield) securities are more likely to
react to developments affecting market and credit risk than are more highly
rated securities, which primarily react to movements in the general level of
interest rates. The market values of fixed-income securities tend to vary
inversely with the level of interest rates. Yields and market values of high
yield securities will fluctuate over time, reflecting not only changing interest
rates but the market's perception of credit quality and the outlook for economic
growth. When economic conditions appear to be deteriorating, medium to lower
rated securities may decline in value due to heightened concern over credit
quality, regardless of the prevailing interest rates. Investors should carefully
consider the relative risks of investing in high yield securities and understand
that such securities are not generally meant for short-term investing.
The high yield market is relatively new and its growth has paralleled a
long period of economic expansion and an increase in merger, acquisition and
leveraged buyout activity. Adverse economic developments can disrupt the market
for high yield securities, and severely affect the ability of issuers,
especially highly leveraged issuers, to service their debt obligations or to
repay their obligations upon maturity which may lead to a higher incidence of
default on such securities. In addition, the secondary market for high yield
securities, which is concentrated in relatively few market makers, may not be as
liquid as the secondary market for more highly rated securities. As a result, a
Fund could find it more difficult to sell these securities or may be able to
sell the securities only at prices lower than if such securities were widely
traded. Furthermore, the Trust may experience difficulty in valuing certain
securities at certain times. Prices realized upon the sale of such lower rated
or unrated securities, under these circumstances, may be less than the prices
used in calculating a Fund's net asset value.
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Lower rated or unrated debt obligations also present risks based on
payment expectations. If an issuer calls an obligation for redemption, a Fund
may have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If a Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Fund's investment portfolio and
increasing the exposure of the Fund to the risks of high yield securities.
A Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to seek
to protect the interest of security holders if it determines this to be in the
interest of its Shareholders.
42. MONEY MARKET INSTRUMENTS. Each Fund, subject to its own investment
limitations, may invest in money market instruments which are short-term, debt
instruments or deposits and may include, for example, (i) commercial paper rated
within the highest rating category by a NRSRO at the time of investment, or, if
not rated, determined by the Adviser to be of comparable quality; (ii)
obligations (certificates of deposit, time deposits, bank master notes, and
bankers' acceptances) of thrift institutions, savings and loans, U.S. commercial
banks (including foreign branches of such banks), and U.S. and foreign branches
of foreign banks, provided that such institutions (or, in the case of a branch,
the parent institution) have total assets of $1 billion or more as shown on
their last published financial statements at the time of investment; (iii)
short-term corporate obligations rated within the three highest rating
categories by a NRSRO (e.g., at least A by S&P or A by Moody's) at the time of
investment, or, if not rated, determined by the Adviser to be of comparable
quality; (iv) general obligations issued by the U.S. Government and backed by
its full faith and credit, and obligations issued or guaranteed as to principal
and interest by agencies or instrumentalities of the U.S. Government (e.g.,
obligations issued by Farmers Home Administration, Government National Mortgage
Association, Federal Farm Credit Bank and Federal Housing Administration); (v)
receipts, including TRs, TIGRs and CATS; (vi) repurchase agreements involving
such obligations; (vii) money market funds and (viii) foreign commercial paper.
Certain of the obligations in which a Fund may invest may be variable or
floating rate instruments, may involve conditional or unconditional demand
features and may include variable amount master demand notes.
43. TREASURY RECEIPTS. Consistent with its investment objective,
policies and restrictions, each Fund may invest in Treasury receipts. Treasury
receipts are interests in separately traded interest and principal component
parts of U.S. Treasury obligations that are issued by banks and brokerage firms
and are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank. The custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates of such
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TR's"), "Treasury Investment Growth Receipts" ("TIGR's"),
and "Certificates of Accrual on Treasury Securities" ("CATS"). TR's, TIGR's and
CATS are sold as zero coupon securities, which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or
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principal. This discount is accrued over the life of the security, and such
accretion will constitute the income earned on the security for both accounting
and tax purposes. Because of these features, such securities may be subject to
greater interest rate volatility than interest-paying securities.
44. HIGH QUALITY INVESTMENTS WITH REGARD TO THE MONEY MARKET FUNDS. As
noted in the Prospectuses for the Money Market Funds, each such Fund may invest
only in obligations determined by the Adviser to present minimal credit risks
under guidelines adopted by HighMark Funds' Board of Trustees.
With regard to the Diversified Money Market Fund and the California
Tax-Free Money Market Fund, investments will be limited to "Eligible
Securities." Eligible Securities include First Tier Securities and Second Tier
Securities. First Tier Securities include those that possess at least one rating
in the highest category and, if the securities do not possess a rating, those
that are determined to be of comparable quality by the Adviser pursuant to
guidelines adopted by the Board of Trustees. Second Tier Securities are all
other Eligible Securities.
A security subject to a tender or demand feature will be considered an
Eligible Security only if both the demand feature and the underlying security
possess a high quality rating or, if such do not possess a rating, are
determined by the Adviser to be of comparable quality; provided, however, that
where the demand feature would be readily exercisable in the event of a default
in payment of principal or interest on the underlying security, the obligation
may be acquired based on the rating possessed by the demand feature or, if the
demand feature does not possess a rating, a determination of comparable quality
by the Adviser. In applying the above-described investment policies, a security
that has not received a short-term rating will be deemed to possess the rating
assigned to an outstanding class of the issuer's short-term debt obligations if
determined by the Adviser to be comparable in priority and security to the
obligation selected for purchase by the Fund, or, if not available, the issuer's
long-term obligations, but only in accordance with the requirements of Rule
2a-7. A security that at the time of issuance had a maturity exceeding 397 days
but, at the time of purchase, has a remaining maturity of 397 days or less, is
considered an Eligible Security if it possesses a long-term rating, within the
two highest rating categories.
Certain of the obligations in which the Funds may invest may be
variable or floating rate instruments, may involve a conditional or
unconditional demand feature, and may include variable amount master demand
notes.
In the case of the Diversified Money Market Fund, Eligible Securities
include those obligations that, at the time of purchase, possess the highest
short-term rating from at least one NRSRO (the Diversified Money Market Fund may
also invest up to 5% of its net assets in obligations that, at the time of
purchase, possess one of the two highest short-term ratings from at least one
NRSRO, and in obligations that do not possess a short-term rating (i.e., are
unrated) but are determined by the Adviser to be of comparable quality to the
rated instruments eligible for purchase by the Fund under guidelines adopted by
the Board of Trustees). In the case of the
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California Tax-Free Money Market Fund, Eligible Securities include those
obligations that, at the time of purchase, possess one of the two highest
short-term ratings by at least one NRSRO or do not possess a short-term
rating (i.e., are unrated) but are determined by the Adviser to be of
comparable quality to the rated obligations eligible for purchase by the Fund
under guidelines adopted by the Board of Trustees.
Specific obligations that the Diversified Money Market Fund may invest
in include:
(i) obligations issued by the U.S. Government, and backed by its
full faith and credit, and obligations issued or guaranteed as
to principal and interest by the agencies or instrumentalities
of the U.S. Government (e.g., obligations issued by Farmers
Home Administration, Government National Mortgage Association,
Federal Farm Credit Bank and Federal Housing Administration);
(ii) obligations such as bankers' acceptances, bank notes,
certificates of deposit and time deposits of thrift
institutions, savings and loans, U.S. commercial banks
(including foreign branches of such banks), and U.S. and
foreign branches of foreign banks, provided that such
institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown
on their last published financial statements at the time of
investment;
(iii) short-term promissory notes issued by corporations, including
Canadian Commercial Paper ("CCP"), which is U.S.
dollar-denominated commercial paper issued by a Canadian
corporation or a Canadian counterpart of a U.S. corporation,
and Europaper, which is U.S.
dollar-denominated commercial paper of a foreign issuer;
(iv) U.S. dollar-denominated securities issued or guaranteed by
foreign governments, their political subdivisions, agencies or
instrumentalities, and obligations of supranational entities
such as the World Bank and the Asian Development Bank
(provided that the Fund invests no more than 5% of its assets
in any such instrument and invests no more than 25% of its
assets in such instruments in the aggregate);
(v) readily-marketable, short-term asset-backed debt securities,
repayment on which is obtained from an identifiable pool of
assets, typically receivables related to a particular
industry, such as credit card receivables, automobile loan or
lease related receivables, trade receivables or diversified
financial assets (provided that the Fund invests no more than
25% of its assets in any such industry and invests no more
than 35% of its assets in such instruments in the aggregate);
(vi) Treasury receipts, including TRs, TIGRs and CATs; and
(vii) repurchase agreements involving such obligations.
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The Diversified Money Market Fund will not invest more than 5% of its
total assets in the First Tier Securities of any one issuer, except that the
Fund may invest up to 25% of its total assets in First Tier Securities of a
single issuer for a period of up to three business days. (This three day "safe
harbor" provision will not be applicable to the California Tax-Free Money Market
Fund, because single state funds are specifically excluded from this Rule 2a-7
provision.) In addition, the Diversified Money Market Fund may not invest more
than 5% of its total assets in Second Tier Securities, with investments in the
Second Tier Securities of any one issuer further limited to the greater of 1% of
the Fund's total assets or $1.0 million. If a percentage limitation is satisfied
at the time of purchase, a later increase in such percentage resulting from a
change in the Diversified Money Market Fund's net asset value or a subsequent
change in a security's qualification as a First Tier or Second Tier Security
will not constitute a violation of the limitation. In addition, there is no
limit on the percentage of the Diversified Money Market Fund's assets that may
be invested in obligations issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities and repurchase agreements fully collateralized by
such obligations.
Under the guidelines adopted by HighMark Funds' Board of Trustees, in
accordance with Rule 2a-7 under the Investment Company Act of 1940 (the "1940
Act"), when in the best interests of the Shareholders, the Adviser may be
required to promptly take appropriate action with respect to an obligation held
in a Fund's portfolio in the event of certain developments that indicate a
diminishment of the instrument's credit quality, such as where an NRSRO
downgrades an obligation below the second highest rating category, or in the
event of a default relating to the financial condition of the issuer.
The Appendix to this Statement of Additional Information identifies
each NRSRO that may be utilized by the Adviser with regard to portfolio
investments for the Funds and provides a description of relevant ratings
assigned by each such NRSRO. A rating by a NRSRO may be utilized only where the
NRSRO is neither controlling, controlled by, or under common control with the
issuer of, or any issuer, guarantor, or provider of credit support for, the
instrument.
45. ILLIQUID SECURITIES. Each Fund has adopted a non-fundamental policy
(which may be changed without shareholder approval) prohibiting the Fund from
investing more than 15% (in the case of each of the Money Market Funds, not more
than 10%) of its total assets in "illiquid" securities, which include securities
with legal or contractual restrictions on resale or for which no readily
available market exists but exclude such securities if resalable pursuant to
Rule 144A under the Securities Act ("Rule 144A Securities"). Pursuant to this
policy, the Funds may purchase Rule 144A Securities only in accordance with
liquidity guidelines established by the Board of Trustees of HighMark Funds and
only if the investment would be permitted under applicable state securities
laws.
46. RESTRICTED SECURITIES. Each Fund has adopted a nonfundamental
policy (which may be changed without Shareholder approval) permitting the Fund
to invest in restricted securities provided the Fund complies with the illiquid
securities policy described above. Restricted
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securities are securities that may not be sold to the public without
registration under the Securities Act of 1933 ("1933 Act") and may be either
liquid or illiquid. The Adviser will determine the liquidity of restricted
securities in accordance with guidelines established by HighMark Funds' Board of
Trustees. Restricted securities purchased by the Funds may include Rule 144A
securities and commercial paper issued in reliance upon the "private placement"
exemption from registration under Section 4(2) of the 1933 Act (whether or not
such paper is a Rule 144A security).
INVESTMENT RESTRICTIONS
Unless otherwise indicated, the following investment restrictions are
fundamental and, as such, may be changed with respect to a particular Fund only
by a vote of a majority of the outstanding Shares of that Fund (as defined
below). Except with respect to a Fund's restriction governing the borrowing of
money, if a percentage restriction is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in asset
value will not constitute a violation of the restriction.
100% U.S. TREASURY MONEY MARKET FUND
The 100% U.S. Treasury Money Market Fund may not purchase securities
other than short-term obligations issued or guaranteed as to payment of
principal and interest by the full faith and credit of the U.S.
Treasury.
EACH OF THE GROWTH FUND, THE INCOME EQUITY FUND, THE BALANCED FUND, THE BOND
FUND, THE DIVERSIFIED MONEY MARKET FUND, THE U.S. GOVERNMENT MONEY MARKET FUND,
AND THE 100% U.S. TREASURY MONEY MARKET FUND MAY NOT:
1. Purchase securities on margin (except that, with respect to
the Growth Fund, the Income Equity Fund, the Balanced Fund and the Bond
Fund only, such Funds may make margin payments in connection with
transactions in options and financial and currency futures contracts),
sell securities short, participate on a joint or joint and several
basis in any securities trading account, or underwrite the securities
of other issuers, except to the extent that a Fund may be deemed to be
an underwriter under certain securities laws in the disposition of
"restricted securities" acquired in accordance with the investment
objectives and policies of such Fund;
2. Purchase or sell commodities, commodity contracts
(excluding, with respect to the Growth Fund, the Income Equity Fund,
the Balanced Fund, and the Bond Fund, options and financial and
currency futures contracts), oil, gas or mineral exploration leases or
development programs, or real estate (although investments by the
Growth Fund, the Income Equity Fund, the Balanced Fund, the Bond Fund,
and the Diversified Money Market Fund in marketable securities of
companies engaged in such activities and investments by the Growth
Fund, the Income Equity Fund, the Balanced Fund, and the Bond Fund in
securities secured by real estate or interests therein, are not hereby
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precluded to the extent the investment is appropriate to such Fund's
investment objective and policies);
3. Invest in any issuer for purposes of exercising control or
management;
4. Purchase or retain securities of any issuer if the officers
or Trustees of HighMark Funds or the officers or directors of its
investment adviser owning beneficially more than one-half of 1% of the
securities of such issuer together own beneficially more than 5% of
such securities;
5. Borrow money or issue senior securities, except that a Fund
may borrow from banks or enter into reverse repurchase agreements for
temporary emergency purposes in amounts up to 10% of the value of its
total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with permissible
borrowings and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Fund's total assets at the
time of its borrowing. A Fund will not invest in additional securities
until all its borrowings (including reverse repurchase agreements) have
been repaid. For purposes of this restriction, the deposit of
securities and other collateral arrangements with respect to options
and financial and currency futures contracts, and payments of initial
and variation margin in connection therewith, are not considered a
pledge of a Fund's assets; and
THE DIVERSIFIED MONEY MARKET FUND, THE U.S. GOVERNMENT MONEY MARKET FUND AND THE
100% U.S. TREASURY MONEY MARKET FUND MAY NOT:
1. Buy common stocks or voting securities, or state,
municipal or private activity bonds;
2. Write or purchase put or call options; or
3. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies,
or instrumentalities, if, immediately after the purchase, more than 5%
of the value of the Fund's total assets would be invested in such
issuer (except that up to 25% of the value of the Fund's total assets
may be invested without regard to the 5% limitation). (As indicated
below, the Funds have adopted a non-fundamental investment policy that
is more restrictive than this fundamental investment limitation);
4. Purchase any securities that would cause more than 25% of
the value of the Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their
principal business activities in the same industry, provided that (a)
there is no limitation with respect to obligations issued or guaranteed
by the U.S. Government, its agencies, or instrumentalities, domestic
bank certificates of deposit or bankers' acceptances, and repurchase
agreements secured by bank instruments or
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obligations of the U.S. Government, its agencies, or instrumentalities;
(b) wholly owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related
to financing the activities of their parents; and (c) utilities will be
divided according to their services (for example, gas, gas
transmission, electric and gas, electric and telephone will each be
considered a separate industry).
5. Make loans, except that a Fund may purchase or hold debt
instruments, lend portfolio securities, and enter into repurchase
agreements as permitted by its individual investment objective and
policies.
The Diversified Money Market Fund, the U.S. Government Money
Market Fund, and the 100% U.S. Treasury Money Market Fund have each
adopted, in accordance with Rule 2a-7, a non-fundamental policy
providing that the 5% limit noted in limitation (3) above shall apply
to 100% of each Fund's assets. Notwithstanding, each such Fund may
invest up to 25% of its assets in First Tier qualified securities of a
single issuer for up to three business days.
EACH OF THE EQUITY AND FIXED INCOME FUNDS, OTHER THAN THE CALIFORNIA
INTERMEDIATE TAX-FREE BOND FUND, MAY NOT:
1. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies,
or instrumentalities, (and, with respect to the International Equity
Fund only, repurchase agreements involving such securities) if,
immediately after the purchase, more than 5% of the value of such
Fund's total assets would be invested in the issuer or the Fund would
hold more than 10% of any class of securities of the issuer or more
than 10% of the issuer's outstanding voting securities (except that up
to 25% of the value of the Fund's total assets may be invested without
regard to these limitations). With respect to the International Equity
Fund, for purposes of this investment limitation, each foreign
governmental issuer is deemed a separate issuer;
2. Purchase any securities that would cause more than 25% of
such Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
or foreign governments or their agencies or instrumentalities and
repurchase agreements secured by obligations of the U.S. Government or
its agencies or instrumentalities; (b) wholly owned finance companies
will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents; and (c) utilities will be divided according to their services
(for example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry); and
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<PAGE>
3. Make loans, except that a Fund may purchase or hold debt
instruments, lend portfolio securities, and enter into repurchase
agreements in accordance with its investment objective and policies.
THE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND MAY NOT:
1. Purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving such securities)
if as a result more than 5% of the total assets of the Fund would be
invested in securities of such issuer provided, however, that the Fund
may invest up to 25% of its total assets without regard to this
restriction as permitted by applicable law;
2. Purchase any securities which would cause more than 25% of
the total assets of the Fund to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry, provided that this limitation does not apply to investments
in the obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities and repurchase agreements involving such
securities, and provided further, that utilities as a group will not be
considered to be one industry, and wholly-owned subsidiaries organized
to finance the operations of their parent companies will be considered
to be in the same industries as their parent companies; and
3. Make loans, except that the Fund may (a) purchase or hold
debt instruments in accordance with its investment objective and
policies; (b) enter into repurchase agreements; and (c) lend
securities.
THE CALIFORNIA TAX-FREE MONEY MARKET FUND MAY NOT:
1. Purchase or sell real estate; provided, however, that the
Fund may, to the extent appropriate to its investment objective,
purchase Municipal Securities secured by real estate or interests
therein or securities issued by companies investing in real estate or
interests therein;
2. Purchase securities on margin, make short sales of
securities or maintain a short position;
3. Underwrite the securities of other issuers;
4. Purchase securities of companies for the purpose of
exercising control or management;
5. Purchase or sell commodities or commodity contracts, or
invest in oil, gas or mineral exploration leases or development
programs; provided, however, the Fund may,
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to the extent appropriate to the Fund's investment objective, purchase
publicly traded obligations of companies engaging in whole or in part
in such activities;
6. Borrow money or issue senior securities, except that the
Fund may borrow from banks or enter into reverse repurchase agreements
for temporary emergency purposes in amounts up to 10% of the value of
its total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with permissible
borrowings and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Fund's total assets at the
time of its borrowing. The Fund will not invest in additional
securities until all its borrowings (including reverse repurchase
agreements) have been repaid;
7. Write or sell puts, calls, straddles, spreads, or
combinations thereof, except that the Fund may acquire puts with
respect to Municipal Securities in its portfolio and sell the puts in
conjunction with a sale of the underlying Municipal Securities;
8. Acquire a put, if, immediately after the acquisition, more
than 5% of the total amortized cost value of the Fund's assets would be
subject to puts from the same institution (except that (i) up to 25% of
the value of the Fund's total assets may be subject to puts without
regard to the 5% limitation and (ii) the 5% limitation is inapplicable
to puts that, by their terms, would be readily exercisable in the event
of a default in payment of principal or interest on the underlying
securities). In applying the above-described limitation, the Fund will
aggregate securities subject to puts from any one institution with the
Fund's investments, if any, in securities issued or guaranteed by that
institution. In addition, for the purpose of this investment
restriction and investment restriction No. 10 below, a put will be
considered to be from the party to whom the Fund will look for payment
of the exercise price;
9. Acquire a put that, by its terms, would be readily
exercisable in the event of a default in payment of principal and
interest on the underlying security or securities if, immediately after
the acquisition, the amortized cost value of the security or securities
underlying the put, when aggregated with the amortized cost value of
any other securities issued or guaranteed by the issuer of the put,
would exceed 10% of the total amortized cost value of the Fund's
assets; and
10. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies,
or instrumentalities, if, immediately after the purchase, more than 5%
of the value of its total assets would be invested in such issuer
(except that up to 25% of the value of the Fund's total assets may be
invested without regard to the 5% limitation). For purposes of this
investment restriction, a security is considered to be issued by the
government entity (or entities) whose assets and revenues back the
security or, with respect to be private activity bond that is backed
only by the assets and revenues of non-governmental user, by the
non-governmental user;
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11. Purchase any securities that would cause 25% or more of
such Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry; provided that this limitation shall
not apply to securities of the U.S. Government, its agencies or
instrumentalities or Municipal Securities or governmental guarantees of
Municipal Securities; and provided, further, that for the purpose of
this limitation, private activity bonds that are backed only by the
assets and revenues of a non-governmental user shall not be deemed to
by Municipal Securities.
12. Make loans; except that the Fund may purchase or hold debt
instruments, lend portfolio securities and enter into repurchase
agreements as permitted by its investment objective and policies.
EACH OF THE BALANCED FUND, INCOME EQUITY FUND, GROWTH FUND, BOND FUND, 100% U.S.
TREASURY MONEY MARKET FUND, CALIFORNIA TAX-FREE MONEY MARKET FUND, DIVERSIFIED
MONEY MARKET FUND AND U.S. GOVERNMENT MONEY MARKET FUND:
1. May not purchase securities of other investment companies,
except as permitted by the 1940 Act.
EACH OF THE VALUE MOMENTUM FUND, THE CORE EQUITY FUND, THE INTERNATIONAL EQUITY
FUND, THE SMALL CAP VALUE FUND, AND THE CALIFORNIA INTERMEDIATE TAX-FREE BOND
FUND:
1. May purchase securities of any issuer only when consistent
with the maintenance of its status as a diversified company under the
Investment Company Act of 1940, or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.
2. Concentrate investments in a particular industry or group
of industries, or within any one state (except that the limitation as
to investments in any one state or its political subdivision shall not
apply to the California Intermediate Tax-Free Bond Fund), as
concentration is defined under the Investment Company Act of 1940, or
the rules and regulations thereunder, as such statute, rules or
regulations may be amended from time to time.
3. May issue senior securities to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.
4. May lend or borrow money to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.
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5. May purchase or sell commodities, commodities contracts,
futures contracts, or real estate to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.
6. May underwrite securities to the extent permitted by the
Investment Company Act of 1940, or the rules or regulations thereunder,
as such statute, rules or regulations may be amended from time to time.
7. May pledge, mortgage or hypothecate any of its assets to
the extent permitted by the Investment Company Act of 1940, or the
rules or regulations thereunder, as such statute, rules or regulations
may be amended from time to time.
The fundamental limitations of the Value Momentum Fund, the Core Equity
Fund, the International Equity Fund, the Small Cap Value Fund, and the
California Intermediate Tax-Free Bond Fund have been adopted to avoid wherever
possible the necessity of shareholder meetings otherwise required by the 1940
Act. This recognizes the need to react quickly to changes in the law or new
investment opportunities in the securities markets and the cost and time
involved in obtaining shareholder approvals for diversely held investment
companies. However, the Funds also have adopted nonfundamental limitations, set
forth below, which in some instances may be more restrictive than their
fundamental limitations. Any changes in a Fund's nonfundamental limitations will
be communicated to the Fund's shareholders prior to effectiveness.
1940 ACT RESTRICTIONS. Under the 1940 Act, and the rules, regulations
and interpretations thereunder, a "diversified company," as to 75% of its totals
assets, may not purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. Government, its agencies or its instrumentalities) if,
as a result, more than 5% of the value of its total assets would be invested in
the securities of such issuer or more than 10% of the issuer's voting securities
would be held by the fund. "Concentration" is generally interpreted under the
1940 Act to be investing more than 25% of net assets in an industry or group of
industries. The 1940 Act limits the ability of investment companies to borrow
and lend money and to underwrite securities. The 1940 Act currently prohibits an
open-end fund from issuing senior securities, as defined in the 1940 Act, except
under very limited circumstances.
The 1940 Act also limits the amount that the Funds may invest in other
investment companies prohibiting each Fund in the aggregate (with each other and
with all other mutual funds in the HighMark Funds) from: (i) owning more than 3%
of the total outstanding voting stock of a single other investment company; (ii)
investing more than 5% of its total assets in the securities of a single other
investment company; and (iii) investing more than 10% of its total assets in
securities of all other investment companies. The SEC rules applicable to money
market funds also govern and place certain quality restrictions on these
investments.
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THE FOLLOWING INVESTMENT LIMITATIONS OF THE VALUE MOMENTUM FUND, THE CORE EQUITY
FUND, THE INTERNATIONAL EQUITY FUND, THE SMALL CAP VALUE FUND, AND THE
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND ARE NON-FUNDAMENTAL POLICIES. EACH
FUND MAY NOT:
1. Acquire more than 10% of the voting securities of any one
issuer. This limitation applies to only 75% of a Fund's assets.
2. Invest in companies for the purpose of exercising control.
3. Borrow money, except for temporary or emergency purposes
and then only in an amount not exceeding one-third of the value of
total assets and except that a Fund may borrow from banks or enter into
reverse repurchase agreements for temporary emergency purposes in
amounts up to 10% of the value of its total assets at the time of such
borrowing. To the extent that such borrowing exceeds 5% of the value of
the Fund's assets, asset coverage of at least 300% is required. In the
event that such asset coverage shall at any time fall below 300%, the
Fund shall, within three days thereafter or such longer period as the
Securities and Exchange Commission may prescribe by rules and
regulations, reduce the amount of its borrowings to such an extent that
the asset coverage of such borrowing shall be at least 300%. This
borrowing provision is included solely to facilitate the orderly sale
of portfolio securities to accommodate heavy redemption requests if
they should occur and is not for investment purposes. All borrowings
will be repaid before making additional investments and any interest
paid on such borrowings will reduce income.
4. Pledge, mortgage or hypothecate assets except to secure
temporary borrowings permitted by (3) above in aggregate amounts not to
exceed 10% of total assets taken at current value at the time of the
incurrence of such loan, except as permitted with respect to securities
lending.
5. Purchase or sell real estate, real estate limited
partnership interest, commodities or commodities contracts (except that
the Core Equity Fund, the International Equity Fund, the Value Momentum
Fund, and the California Intermediate Tax-Free Bond Fund may invest in
futures contracts and options on futures contracts, as disclosed in the
prospectuses) and interest in a pool of securities that are secured by
interests in real estate. However, subject to their permitted
investments, any Fund may invest in companies which invest in real
estate, commodities or commodities contracts.
6. Make short sales of securities, maintain a short position
or purchase securities on margin, except that HighMark Funds may obtain
short-term credits as necessary for the clearance of security
transactions.
7. Act as an underwriter of securities of other issuers except
as it may be deemed an underwriter in selling a Fund security.
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8. Issue senior securities (as defined in the Investment
Company Act of 1940) except in connection with permitted borrowings as
described above or as permitted by rule, regulation or order of the
Securities and Exchange Commission.
9. Purchase or retain securities of an issuer if, to the
knowledge of HighMark Funds, an officer, trustee, partner or director
of HighMark Funds or the Adviser or Sub-Advisers of HighMark Funds owns
beneficially more than 1/2 or 1% of the shares or securities or such
issuer and all such officers, trustees, partners and directors owning
more than 1/2 or 1% of such shares or securities together own more than
5% of such shares or securities.
10. Invest in interest in oil, gas, or other mineral
exploration or development programs and oil, gas or mineral leases.
VOTING INFORMATION. As used in this Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of HighMark Funds
or a particular Fund or a particular Class of Shares of HighMark Funds or a Fund
means the affirmative vote of the lesser of (a) more than 50% of the outstanding
Shares of HighMark Funds or such Fund or such Class, or (b) 67% or more of the
Shares of HighMark Funds or such Fund or such Class present at a meeting at
which the holders of more than 50% of the outstanding Shares of HighMark Funds
or such Fund or such Class are represented in person or by proxy.
PORTFOLIO TURNOVER
A Fund's turnover rate is calculated by dividing the lesser of a Fund's
purchases or sales of portfolio securities for the year by the monthly average
value of the portfolio securities. The calculation excludes all securities whose
maturities at the time of acquisition were one year or less. Thus, for
regulatory purposes, the portfolio turnover rate with respect to each of the
Money Market Funds was zero percent for each of the last two fiscal years, and
is expected to remain zero percent.
For HighMark Funds' fiscal years ended July 31, 2000 and July 31, 1999,
each Funds' portfolio turnover rate was as follows:
<TABLE>
<CAPTION>
FUND 2000 1999
---- ---- ----
<S> <C> <C>
Balanced Fund 34%
Core Equity Fund
Growth Fund 52%
Income Equity Fund 71%
International Equity Fund 87%
Small Cap Value Fund 74%
Value Momentum Fund 9%
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Bond Fund 39%
California Intermediate Tax-Free Bond Fund 11%
</TABLE>
It is currently expected that the Core Equity Fund's portfolio turnover
rate will not exceed 40%.
The portfolio turnover rate may vary greatly from year to year as well
as within a particular year, and may also be affected by cash requirements for
redemption of Shares.
VALUATION
As disclosed in the Prospectuses, each Money Market Fund's net asset
value per share for purposes of pricing purchase and redemption orders is
determined by the administrator as of 1:00 p.m., Pacific Time (4:00 p.m. Eastern
Time) and 11:00 a.m. Pacific Time (2:00 p.m. Eastern Time) on days on which both
the New York Stock Exchange and the Federal Reserve wire system are open for
business ("Business Days"). As disclosed in the Prospectuses, each Equity Fund's
and Fixed Income Fund's net asset value per share for purposes of pricing
purchase and redemption orders is determined by the administrator as of 1:00
p.m., Pacific Time (4:00 p.m. Eastern Time) on days on which the New York Stock
Exchange is open for business (also "Business Days").
VALUATION OF THE MONEY MARKET FUNDS
The Money Market Funds have elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. The amortized cost method
involves valuing an instrument at its cost initially and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. This
method may result in periods during which value, as determined by amortized
cost, is higher or lower than the price a Fund would receive if it sold the
instrument. The value of securities in a Fund can be expected to vary inversely
with changes in prevailing interest rates.
HighMark Funds' Board of Trustees has undertaken to establish
procedures reasonably designed, taking into account current market conditions
and a Fund's investment objective, to stabilize the net asset value per Share of
each Money Market Fund for purposes of sales and redemptions at $l.00. These
procedures include review by the Trustees, at such intervals as they deem
appropriate, to determine the extent, if any, to which the net asset value per
Share of each Fund calculated by using available market quotations deviates from
$1.00 per Share. In the event such deviation exceeds one-half of one percent,
Rule 2a-7 requires that the Board promptly consider what action, if any, should
be initiated. If the Trustees believe that the extent of any deviation from a
Fund's $1.00 amortized cost price per Share may result in material dilution or
other unfair results to new or existing investors, the Trustees will take such
steps as they consider appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity, shortening the
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average portfolio maturity of a Fund, withholding or reducing dividends,
reducing the number of a Fund's outstanding Shares without monetary
consideration, or utilizing a net asset value per Share based on available
market quotations.
VALUATION OF THE EQUITY FUNDS AND THE FIXED INCOME FUNDS
Except as noted below, investments by the Equity Funds and the Fixed
Income Funds in securities traded on a national exchange (or exchanges) are
valued based upon their last sale price on the principal exchange on which such
securities are traded. With regard to each such Fund, securities the principal
market for which is not a securities exchange are valued based upon the latest
bid price in such principal market. Securities and other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of HighMark Funds' Board of Trustees. With the
exception of short-term securities as described below, the value of each Fund's
investments may be based on valuations provided by a pricing service. Short-term
securities (i.e., securities with remaining maturities of 60 days or less) may
be valued at amortized cost, which approximates current value.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases and redemptions of shares of the Money Market Funds may be
made on days on which both the New York Stock Exchange and the Federal Reserve
wire systems are open for business. Purchases and redemptions of shares of the
Equity Funds and Fixed Income Funds may be made on days on which the New York
Stock Exchange is open for business. Purchases will be made in full and
fractional Shares of HighMark Funds calculated to three decimal places.
It is currently HighMark Funds' policy to pay redemptions in cash.
HighMark Funds retains the right, however, to alter this policy to provide for
redemptions in whole or in part by a distribution in-kind of securities held by
the Funds other than the Money Market Funds in lieu of cash. Shareholders may
incur brokerage charges on the sale of any such securities so received in
payment of redemptions. However, a Shareholder will at all times be entitled to
aggregate cash redemptions from all Funds of HighMark Funds during any 90-day
period of up to the lesser of $250,000 or 1% of HighMark Funds' net assets.
HighMark Funds reserves the right to suspend the right of redemption
and/or to postpone the date of payment upon redemption for any period on which
trading on the New York Stock Exchange is restricted, or during the existence of
an emergency (as determined by the Securities and Exchange Commission by rule or
regulation) as a result of which disposal or valuation of the Fund's securities
is not reasonably practicable, or for such other periods as the Securities and
Exchange Commission has by order permitted. HighMark Funds also reserves the
right to suspend sales of Shares of the Funds for any period and to reject a
purchase order when the Distributor or the Adviser determines that it is not in
the best interest of HighMark Funds and/or its Shareholders to accept such
order.
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If a Fund holds portfolio securities listed on foreign exchanges which
trade on Saturdays or other customary United States national business holidays,
the portfolio will trade and the net assets of the Fund's redeemable securities
may be significantly affected on days when the investor has no access to the
Fund.
Neither the transfer agent nor HighMark Funds will be responsible for
any loss, liability, cost or expense for acting upon wire or telephone
instructions that it reasonably believes to be genuine. HighMark Funds and
transfer agent will each employ reasonable procedures to confirm that
instructions, communicated by telephone are genuine. Such procedures may include
taping of telephone conversations.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
Shares of the Funds may be purchased through financial institutions,
including the Adviser, that provide distribution assistance or Shareholder
services. Shares purchased by persons ("Customers") through financial
institutions may be held of record by the financial institution. Financial
institutions may impose an earlier cut-off time for receipt of purchase orders
directed through them to allow for processing and transmittal of these orders to
the transfer agent for effectiveness the same day. Customers should contact
their financial institution for information as to that institution's procedures
for transmitting purchase, exchange or redemption orders to HighMark Funds.
Customers who desire to transfer the registration of Shares
beneficially owned by them but held of record by a financial institution should
contact the institution to accomplish such change.
Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer account fees. Information concerning these
services and any charges will be provided to the Customer by the financial
institution. Additionally, certain entities (including Participating
Organizations and Union Bank of California and its affiliates), may charge
customers a fee with respect to exchanges made on the customer's behalf.
Information about these charges, if any, can be obtained by the entity effecting
the exchange.
REDEMPTION BY CHECKWRITING
Checkwriting is available to Shareholders of the Money Market Funds who
have purchased Retail Shares directly from the Funds without the help of an
investment professional. HighMark Funds will provide Shareholders of record,
upon request and without charge, with checks drawn on the Fund in which they
have an account. Shareholders will be required to sign signature cards and will
be subject to any applicable rules and regulations of the clearing bank relating
to check redemption privileges.
Checks drawn on the Money Market Funds may be made payable to the order
of any payee in an amount of $500 or more. Shareholders should be aware that, as
in the case with
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bank checks, certain banks may not provide cash at the time of deposit, but will
wait until they have received payment from the clearing bank. When a check is
presented to the clearing bank for payment, subject to the Fund's acceptance of
the check, the clearing bank, as agent, causes the Fund to redeem, at the net
asset value next determined after such presentation, a sufficient number of full
and fractional shares in the shareholder's account to cover the amount of the
check. Checks will be returned by the clearing bank if there are insufficient
shares to meet the withdrawal amount. Shareholders of record wishing to use this
method of redemption should check the appropriate box on the Account
Application, obtain a signature card by calling 1-800-433-6884, and mail the
completed form and signature card to the transfer agent at P.O. Box 8416,
Boston, Massachusetts 02266-8416. There is no charge for the clearance of any
checks, although the clearing bank will impose its customary overdraft fee in
connection with returning any checks as to which there are insufficient shares
to meet the withdrawal amount. As of the date of this Supplement, the overdraft
fee was $20. Shareholders are permitted to write a maximum of five checks per
month. A charge of $25 will be assessed to the account of a Shareholder who
writes more than the permitted maximum amount of checks per month. Shareholders
may not use a check to close their account.
SALES CHARGES
FRONT-END SALES CHARGES. The commissions shown in the Prospectuses
apply to sales through authorized dealers and brokers. Under certain
circumstances, the Distributor may use its own funds to compensate financial
institutions and intermediaries in amounts that are additional to the
commissions shown in the Prospectuses. In addition, the Distributor may, from
time to time and at its own expense, provide promotional incentives in the form
of cash or other compensation to certain financial institutions and
intermediaries whose registered representatives have sold or are expected to
sell significant amounts of the Class A Shares of a Fund. Such other
compensation may take the form of payments for travel expenses, including
lodging, incurred in connection with trips taken by qualifying registered
representatives to places within or without the United States. Under certain
circumstances, commissions up to the amount of the entire sales charge may be
reallowed to dealers or brokers, who might then be deemed to be "underwriters"
under the Securities Act of 1933. Commission rates may vary among the Funds.
CONTINGENT DEFERRED SALES CHARGES ("CDSC"). In determining whether a
particular redemption is subject to a contingent deferred sales charge, it is
assumed that the redemption is first of any Class A shares in the shareholder's
Fund account, second of Class B shares held for over six years or Class B shares
acquired pursuant to reinvestment of dividends or other distributions and third
of Class B shares held longest during the six year period. This method should
result in the lowest possible sales charge.
SALES CHARGE REDUCTIONS AND WAIVERS
In calculating the sales charge rates applicable to current purchases
of a Fund's Class A Shares, a "single purchaser" is entitled to cumulate current
purchases with the net purchase of
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previously purchased Class A Shares of a Fund and other funds of HighMark Funds
(the "Eligible Funds") which are sold subject to a comparable sales charge.
The term "single purchaser" refers to (i) an individual, (ii) an
individual and spouse purchasing Shares of a Fund for their own account or for
trust or custodial accounts for their minor children, or (iii) a fiduciary
purchasing for any one trust, estate or fiduciary account including employee
benefit plans created under Sections 401, 403(b) or 457 of the Internal Revenue
Code of 1986, as amended (the "Code"), including related plans of the same
employer. To be entitled to a reduced sales charge based upon Class A Shares
already owned, the investor must ask the Distributor for such entitlement at the
time of purchase and provide the account number(s) of the investor, the investor
and spouse, and their minor children, and give the age of such children. A Fund
may amend or terminate this right of accumulation at any time as to subsequent
purchases.
LETTER OF INTENT. By initially investing at least $1,000 and submitting
a Letter of Intent (the "Letter") to the Distributor, a "single purchaser" may
purchase Class A Shares of a Fund and the other Eligible Funds during a 13-month
period at the reduced sales charge rates applicable to the aggregate amount of
the intended purchases stated in the Letter. The Letter may apply to purchases
made up to 90 days before the date of the Letter. To receive credit for such
prior purchases and later purchases benefitting from the Letter, the Shareholder
must notify the transfer agent at the time the Letter is submitted that there
are prior purchases that may apply, and, at the time of later purchases, notify
the transfer agent that such purchases are applicable under the Letter.
RIGHTS OF ACCUMULATION. In calculating the sales charge rates
applicable to current purchases of Class A Shares, a "single purchaser" is
entitled to cumulate current purchases with the current market value of
previously purchased Class A Shares of the Funds sold subject to a comparable
sales charge.
To exercise your right of accumulation based upon Shares you already
own, you must ask the Distributor for this reduced sales charge at the time of
your additional purchase and provide the account number(s) of the investor, as
applicable, the investor and spouse, and their minor children. The Funds may
amend or terminate this right of accumulation at any time as to subsequent
purchases.
FRONT-END SALES CHARGE WAIVERS. The following categories of investors
may purchase Class A Shares of the Funds with no sales charge in the manner
described below (which may be changed or eliminated at any time by the
Distributor):
(1) Existing holders of Class A Shares of a Fund upon the
reinvestment of dividend and capital gain distributions on those
Shares;
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(2) Investment companies advised by HighMark Capital
Management, Inc., Union Bank of California, N.A. or their affiliates,
or distributed by SEI Investments Distribution Co. or their affiliates
placing orders on each entity's behalf;
(3) State and local governments;
(4) Individuals who have received distributions from employee
benefit trust accounts administered by Union Bank of California who are
rolling over such distributions into an individual retirement account
administered by or for which the Bank serves as trustee or custodian.
All subsequent purchases into the Funds made by such individuals will
be subject to the appropriate sales charge;
(5) Individuals who purchase Class A Shares with proceeds from
a required minimum distribution at age 70 1/2 from their employee
benefit qualified plan or an individual retirement account administered
by Union Bank of California;
(6) Individuals who purchase Class A Shares with proceeds
received in connection with a distribution paid from a Union Bank of
California trust or agency account;
(7) Investment advisers or financial planners regulated by a
federal or state governmental authority who are purchasing Class A
Shares for their own account or for an account for which they are
authorized to make investment decisions (i.e., a discretionary account)
and who charge a management, consulting or other fee for their
services; and clients of such investment advisers or financial planners
who place trades for their own accounts if the accounts are linked to
the master account of such investment adviser or financial planner on
the books and records of a broker or agent;
(8) Investors purchasing Class A Shares with proceeds from a
redemption of Shares of another open-end investment company (other than
HighMark Funds) on which a sales charge was paid. Satisfactory evidence
of the purchaser's eligibility must be provided at the time of purchase
(e.g., a confirmation of the redemption);
(9) Brokers, dealers and agents who are purchasing for their
own account and who have a sales agreement with the Distributor, and
their employees (and their spouses and children under the age of 21);
(10) Investors purchasing Class A Shares on behalf of a
qualified prototype retirement plan (other than an IRA, SEP-IRA or
Keogh) sponsored by Union Bank of California or any other parties;
(11) Purchasers of Class A Shares of the Growth Fund that are
sponsors of other investment companies that are unit investment trusts
for deposit by such sponsors into such unit investment trusts, and to
purchasers of Class A Shares of the Growth Fund that
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<PAGE>
are holders of such unit investment trusts that invest distributions
from such investment trusts in Class A Shares of the Growth Fund;
(12) Present and retired trustees of the Funds and directors,
officers, and employees (and their spouses and children under the age
of 21) of Union Bank of California, SEI Investments Distribution Co. or
their affiliated companies and of Sub-Advisers to the HighMark Funds;
and
(13) Investors receiving Class A Shares issued in plans of
reorganization, such as mergers, asset acquisitions, and exchange
offers, to which HighMark Funds is a party.
(14) Investors who purchased Class A Shares without the
assistance of an investment professional (Fund Direct accounts) between
May 15, 1998 and August 31, 1998. All subsequent purchases of Class A
Shares may be made with no sales charge.
With regard to categories 2 through 12 and 14 above, the Distributor
must be notified that the purchase qualifies for a sales charge waiver at the
time of purchase.
REDUCTIONS FOR QUALIFIED GROUPS. Reductions in sales charges also apply
to purchases by individual members of a "qualified group." The reductions are
based on the aggregate dollar amount of Class A Shares purchased by all members
of the qualified group. For purposes of this paragraph, a qualified group
consists of a "company," as defined in the 1940 Act, which has been in existence
for more than six months and which has a primary purpose other than acquiring
Shares of a Fund at a reduced sales charge, and the "related parties" of such
company. For purposes of this paragraph, a "related party" of a company is (i)
any individual or other company who directly or indirectly owns, controls or has
the power to vote five percent or more of the outstanding voting securities of
such company; (ii) any other company of which such company directly or
indirectly owns, controls or has the power to vote five percent or more of its
outstanding voting securities; (iii) any other company under common control with
such company; (iv) any executive officer, director or partner of such company or
of a related party; and (v) any partnership of which such company is a partner.
Investors seeking to rely on their membership in a qualified group to purchase
Shares at a reduced sales load must provide evidence satisfactory to the
transfer agent of the existence of a bona fide qualified group and their
membership therein.
All orders from a qualified group will have to be placed through a
single source and identified at the time of purchase as originating from the
same qualified group, although such orders may be placed into more than one
discrete account that identifies HighMark Funds.
REDUCTIONS FOR AUTOMATIC INVESTMENT PLAN ("AIP") PARTICIPANTS. Any
shareholders that have established an AIP on or before November 30, 1999 may be
eligible for a reduced sales charge through automatic deductions from their
checking or savings account as described in the tables below:
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EQUITY FUNDS
<TABLE>
<CAPTION>
Sales Charge as
Sales Charge Appropriate Commission as
As Percentage Percentage of Net Percentage of
Amount of Purchase of Offering Price Amount Invested Offering Price
------------------ ----------------- --------------- --------------
<S> <C> <C> <C>
0 - $49,999 4.50% 4.71% 4.05%
$50,000 -- $99,999 4.00% 4.17% 3.60%
$100,000 -- $249,999 3.50% 3.63% 3.15%
$250,000 -- $499,999 2.50% 2.56% 2.25%
$500,000 -- $999,999 1.50% 1.52% 1.35%
$1,000,000 and Over* 0.00% 0.00% 0.00%
</TABLE>
* A contingent deferred sales charge of 1.00% will be assessed against
any proceeds of any redemption of such Class A Shares prior to one year from
date of purchase.
FIXED INCOME FUNDS
<TABLE>
<CAPTION>
Sales Charge as
Sales Charge Appropriate Commission as
As Percentage Percentage of Net Percentage of
Amount of Purchase of Offering Price Amount Invested Offering Price
------------------ ----------------- --------------- --------------
<S> <C> <C> <C>
0 - $24,999 3.00% 3.09% 2.70%
$25,000 -- $49,000 2.50% 2.56% 2.25%
$50,000 -- $99,999 2.00% 2.04% 1.80%
$100,000 -- $249,999 1.50% 1.52% 1.35%
$250,000 -- $999,999 1.00% 1.01% 0.90%
$1,000,000 and Over* 0.00% 0.00% 0.00%
</TABLE>
* A contingent deferred sales charge of 1.00% will be assessed against
any proceeds of any redemption of such Retail Shares prior to one year from date
of purchase.
CDSC WAIVERS. The contingent deferred sales charge is waived on
redemption of shares (i) following the death or disability (as defined in the
Code) of a shareholder, or (ii) to the extent that the redemption represents a
minimum required distribution from an individual retirement account or other
retirement plan to a shareholder who has attained the age of 70 1/2. A
Shareholder, or his or her representative, must notify the Transfer Agent prior
to the time of redemption if such circumstances exist and the shareholder is
eligible for a waiver.
ADDITIONAL FEDERAL TAX INFORMATION
Each Fund intends to qualify annually as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order to so qualify and to qualify for the special tax treatment
accorded regulated investment companies and their Shareholders, a Fund must,
among other things, (a) derive at least 90% of its gross income
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from dividends, interest, payments with respect to certain securities loans, and
gains from the sale of stock, securities, and foreign currencies, or other
income (including but not limited to gains from options, futures, or forward
contracts) derived with respect to its business of investing in such stock,
securities, or currencies; (b) each year distribute at least 90% of its
dividends, interest (including tax-exempt interest), certain other income and
the excess, if any, of its net short-term capital gains over its net long-term
capital losses; and (c) diversify its holdings so that, at the end of each
fiscal quarter (i) at least 50% of the market value of the Fund's assets is
represented by cash, cash items, U.S. Government securities, securities of other
regulated investment companies, and other securities, limited in respect of any
one issuer to a value not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its assets is invested in the securities (other
than those of the U.S. Government or other regulated investment companies) of
any one issuer or of two or more issuers that the Fund controls and that are
engaged in the same, similar, or related trades or businesses.
If a Fund qualifies as a regulated investment company that is accorded
special tax treatment, the Fund will not be subject to federal income tax on
income paid to its shareholders in the form of dividends (including capital gain
dividends). If a Fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Fund would be subject to
tax on its taxable income at corporate rates, and all distributions from
earnings and profits, including any distributions of net tax-exempt income and
net long-term capital gains, would be taxable to shareholders as ordinary
income.
If a Fund fails to distribute in a calendar year substantially all of
its ordinary income for the year and substantially all its net capital gain
income for the one-year period ending October 31 of the year (and any retained
amount from the prior calendar year), the Fund will be subject to a
non-deductible 4% excise tax on the undistributed amounts.
Distributions of taxable income or capital gains are taxable to Fund
Shareholders whether received in cash or in Fund Shares through automatic
reinvestment.
Any dividend declared by a Fund to Shareholders of record on a date in
October, November or December generally is deemed to have been received by its
Shareholders on December 31 of such year (and paid by the Fund on or before such
time) provided that the dividend actually is paid during January of the
following year.
Shareholders who sell Fund Shares will generally recognize gain or loss
in an amount equal to the difference between their adjusted tax basis in the
Fund Shares and the amount received. If Fund Shareholders hold their Fund Shares
as capital assets, the gain or loss will be a capital gain or loss. The tax rate
generally applicable to net capital gains recognized by individuals and other
noncorporate taxpayers is (i) the same as the maximum ordinary income tax rate
for gains recognized on the sale of capital assets held for one year or less or
(ii) 20% for gains recognized on the sale of capital assets held for more than
one year (as well as capital gain dividends). For taxable years beginning after
December 31, 2000, the maximum capital gain tax rate for capital assets
(including Fund Shares) held by a non-corporate Shareholder for more than 5
years will be 8 percent and 18 percent (rather than 10 percent and 20 percent).
The 18-percent rate applies only to assets the holding period for which begins
after December 31, 2000 (including by way of an election to mark the asset to
the market, and to pay the tax on any gain thereon, as of January 2, 2001). The
mark-to-market election may be disadvantageous from a federal tax perspective,
and Shareholders should consult their tax advisors before making such an
election.
Any loss will be treated as a long-term capital loss to the extent of
any capital gain dividends received with respect to those Fund Shares. For
purposes of determining whether Fund Shares have been held for six months or
less, the holding period is suspended for any periods during which your risk of
loss is diminished as a result of holding one or more other positions in
substantially similar or related property, or through certain options or short
sales. In addition, any loss realized on a sale or exchange of Fund Shares will
be disallowed to the extent that Fund Shareholders replace the disposed of Fund
Shares with other Fund Shares within a period of 61 days beginning 30 days
before and ending 30 days after the date of disposition, which could, for
example, occur as a result of automatic dividend reinvestment. In such an event,
a Fund Shareholder's basis in the replacement Fund Shares will be adjusted to
reflect the disallowed loss.
If a Fund Shareholder borrows money to buy Fund Shares, such Shareholder may not
deduct the interest on that loan. Under Internal Revenue Service rules, Fund
Shares may be treated as having been bought with borrowed money even if the
purchase of the Fund Shares cannot be traced directly to borrowed money.
If a Fund engages in hedging transactions, including hedging
transactions in options, futures contracts, and straddles, or other similar
transactions, it will be subject to special tax rules (including constructive
sales, mark-to-market, straddle, wash sale, and short sale rules), the effect of
which may be to accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund's securities, or convert
short-term capital losses into long-term capital losses. These rules could
therefore affect the amount, timing and character of distributions to
shareholders.
Certain of a Fund's hedging activities (including its transactions, if
any, in foreign currencies or foreign currency-denominated instruments) are
likely to produce a difference between its book income and its taxable income.
If a Fund's book income exceeds its taxable
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income, the distribution (if any) of such excess will be treated as (i) a
dividend to the extent of the Fund's remaining earnings and profits (including
earnings and profits arising from tax-exempt income), (ii) thereafter as a
return of capital to the extent of the recipient's basis in the shares, and
(iii) thereafter as gain from the sale or exchange of a capital asset. If the
Fund's book income is less than its taxable income, the Fund could be required
to make distributions exceeding book income to qualify as a regulated investment
company that is accorded special tax treatment.
If a Fund makes a distribution in excess of its current and accumulated
"earnings and profits" in any taxable year, the excess distribution will be
treated as a return of capital to the extent of a Shareholder's tax basis in
Fund shares, and thereafter as capital gain. A return of capital is not taxable,
but it reduces the Shareholder's tax basis in the shares, thus reducing any loss
or increasing any gain on a subsequent taxable disposition of those shares.
A Fund's investment in securities issued at a discount and certain
other obligations will (and investments in securities purchased at a discount
may) require the Fund to accrue and distribute income not yet received. In order
to generate sufficient cash to make the requisite distributions, a Fund may be
required to sell securities in its portfolio that it otherwise would have
continued to hold.
The Funds will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends and other distributions paid
to any Shareholder who has provided either an incorrect tax identification
number or no number at all, or who is subject to withholding by the Internal
Revenue Service for failure to properly include on his or her tax return
payments of interest or dividends.
The foregoing discussion and the one below regarding the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund
under "Federal Taxation" is only a summary of some of the important Federal tax
considerations generally affecting purchasers of the Funds' Shares. No attempt
has been made to present a detailed explanation of the Federal income tax
treatment of the Funds, and this discussion is not intended as a substitute for
careful tax planning. Accordingly, potential purchasers of the Funds' Shares are
urged to consult their tax advisers with specific reference to their own tax
situation. Foreign Shareholders should consult their tax advisers regarding the
U.S. and foreign tax consequences of an investment in the Funds. In addition,
this discussion is based on tax laws and regulations that are in effect on the
date of this Statement of Additional Information; such laws and regulations may
be changed by legislative, judicial or administrative action, and such changes
may be retroactive.
ADDITIONAL TAX INFORMATION CONCERNING THE CALIFORNIA TAX-FREE MONEY MARKET
FUND AND THE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
FEDERAL TAXATION. As indicated in their respective Prospectuses, the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund are designed to provide individual Shareholders with current
tax-exempt interest income. Neither of these Funds
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is intended to constitute a balanced investment program or is designed for
investors seeking capital appreciation. Nor are the California Tax-Free Money
Market Fund or the California Intermediate Tax-Free Bond Fund designed for
investors seeking maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Funds may not be suitable for tax-exempt institutions,
retirement plans qualified under Section 401 of the Code, H.R. 10 plans, and
individual retirement accounts because such institutions, plans and accounts are
generally tax-exempt and, therefore, would not gain any additional benefit from
the Funds' dividends being tax-exempt, and such dividends would ultimately be
taxable to the plan and account beneficiaries when distributed to them.
The Code permits a regulated investment company that invests at least
50% of its total assets in tax-free Municipal Securities (at the close of each
quarter of the Fund's taxable year) to pass through to its investors, tax-free,
net Municipal Securities interest income to the extent such interest would be
exempt if earned directly. Because the California Tax-Free Money Market Fund and
the California Intermediate Tax-Free Bond Fund intend to be qualified to pay
such exempt-interest dividends, these Funds will be limited in their ability to
enter into taxable transactions, such as forward commitments, repurchase
agreements, securities lending transactions, financial futures and options
contracts on financial futures, tax-exempt bond indices and other assets. The
policy of the California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund is to pay each year as dividends substantially
all of such Fund's Municipal Securities interest income net of certain
deductions. An exempt-interest dividend is any dividend or part thereof derived
from interest excludable from gross income and designated as an exempt-interest
dividend in a written notice mailed to Shareholders after the close of such
Fund's taxable year, but the aggregate of such dividends may not exceed the net
Municipal Securities interest received by the Fund during the taxable year. In
the case of each of the California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund the percentage of the dividends paid for any
taxable year that qualifies as federal exempt-interest dividends will be the
same for all Shareholders receiving dividends during such year, regardless of
the period for which the Shares were held.
Exempt-interest dividends may be treated by Shareholders of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund as items of interest excludable from their gross income. However, each
such Shareholder is advised to consult his or her tax adviser with respect to
whether exempt-interest dividends would remain excludable if such Shareholder
were treated as a "substantial user" or a "related person" to such user with
respect to facilities financed through any of the tax-exempt obligations held by
the California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund. In addition, exempt-interest dividends may be taxable for
federal alternative minimum tax purposes and for state and local purposes.
The California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund will distribute substantially all of any
investment company taxable income for each taxable year. In general, a Fund's
investment company taxable income will be its taxable income subject to certain
adjustments and excluding the excess of any net long-term capital gains for the
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taxable year over the net short-term capital loss, if any, for such year.
Distributions of such income will be taxable to Shareholders as ordinary income.
The dividends-received deduction for corporations is not expected to apply to
such distributions.
Distributions designated by the California Tax-Free Money Market Fund
and the California Intermediate Tax-Free Bond Fund as deriving from net gains on
securities held for more than one year will be taxable to a Fund Shareholder as
such, regardless of how long a time the Shareholder held the Fund's Shares. Such
distributions will not be eligible for the dividends-received deduction. If a
Shareholder disposes of Shares in a Fund at a loss before holding such Shares
for longer than six months, such loss will be disallowed to the extent of any
exempt-interest dividends paid thereon, and any remaining loss will be treated
as a long-term capital loss to the extent the Shareholder has received a capital
gain dividend on the Shares.
Because Fund expenses attributable to earning tax-exempt income do
not reduce the Fund's current earnings and profits, a portion of any
distribution in excess of the Fund's net tax-exempt and taxable income may be
considered as paid out of the Fund's earnings and profits and may therefore
be treated as a taxable dividend (even though that portion represents a
return of the Fund's capital).
Shareholders receiving social security or railroad retirement benefits
may be taxed on a portion of those benefits as a result of receiving tax-exempt
income (including exempt-interest dividends distributed by the Fund).
A Fund's investments in Municipal Securities issued at a discount and
certain other portfolio positions will require the Fund to accrue and distribute
income and gains not yet received. In such cases, a Fund may be required to sell
assets (including when it is not advantageous to do so) to generate the cash
necessary to distribute as dividends to its shareholders all of its income and
gains and therefore eliminate any tax liability at the Fund level.
Like the other Funds, if for any taxable year the California Tax-Free
Money Market Fund or the California Intermediate Tax-Free Bond Fund does not
qualify for the special tax treatment afforded regulated investment companies,
all of such Fund's taxable income will be subject to tax at regular corporate
rates (without any deduction for distributions to Shareholders), and Municipal
Securities interest income, although not taxable to the California Tax-Free
Money Market Fund or the California Intermediate Tax-Free Bond Fund, would be
taxable to Shareholders as ordinary income when distributed as dividends.
Depending upon the extent of its activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located or in which it is otherwise deemed to be conducting business, the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund may be subject to the tax laws of such states or localities. For a
summary of certain California tax considerations affecting the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund,
see "California Taxation" below.
As indicated in their Prospectuses, the California Tax-Free Money
Market Fund and the California Intermediate Tax-Free Bond Fund may acquire
rights regarding specified portfolio securities under puts. See "INVESTMENT
OBJECTIVES AND POLICIES Additional Information on Portfolio Instruments - Puts"
in this Statement of Additional Information. The policy of each Fund is to limit
its acquisition of puts to those under which the Fund will be treated for
Federal income tax purposes as the owner of the Municipal Securities acquired
subject to the put and the interest on such Municipal Securities will be
tax-exempt to the Fund. There is currently no guidance available from the
Internal Revenue Service that definitively establishes the tax consequences that
may result from the acquisition of many of the types of puts that the California
Tax-Free Money Market Fund or the California Intermediate Tax-Free Bond Fund
could acquire under the 1940 Act. Therefore, although they will only acquire a
put after
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concluding that it will have the tax consequences described above, the Internal
Revenue Service could reach a different conclusion from that of the relevant
Fund.
CALIFORNIA TAXATION. Under existing California law, if the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund
continue to qualify for the special federal income tax treatment afforded
regulated investment companies and if at the end of each quarter of each such
Fund's taxable year at least 50% of the value of that Fund's assets consists of
obligations that, if held by an individual, would pay interest exempt from
California taxation ("California Exempt-Interest Securities"), Shareholders of
that Fund will be able to exclude from income, for California personal income
tax purposes, "California exempt-interest dividends" received from that Fund
during that taxable year. A "California exempt-interest dividend" is any
dividend or portion thereof of the California Tax-Free Money Market Fund or the
California Intermediate Tax-Free Bond Fund not exceeding the interest received
by the Fund during the taxable year on California Exempt-Interest Securities
(less direct and allocated expenses, which includes amortization of acquisition
premium) and so designated by written notice to Shareholders within 60 days
after the close of that taxable year.
Distributions, other than of "California exempt-interest dividends," by
the California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund to California residents will be subject to California
personal income taxation. Gains realized by California residents from a
redemption or sale of Shares of the California Tax-Free Money Market Fund and
the California Intermediate Tax-Free Bond Fund will also be subject to
California personal income taxation. In general, California nonresidents, other
than certain dealers, will not be subject to California personal income taxation
on distributions by, or on gains from the redemption or sale of, Shares of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund unless those Shares have acquired a California "business situs." (Such
California nonresidents may, however, be subject to other state or local income
taxes on such distributions or gains, depending on their residence.) Short-term
capital losses realized by shareholders from a redemption of shares of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund within six months from the date of their purchase will not be allowed
for California personal income tax purposes to the extent of any tax-exempt
dividends received with respect to such Shares during such period. No deduction
will be allowed for California personal income tax purposes for interest on
indebtedness incurred or continued in order to purchase or carry Shares of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund for any taxable year of a Shareholder during which the Fund
distributes "California exempt-interest dividends."
A statement setting forth the amount of "California exempt-interest
dividends" distributed during each calendar year will be sent to Shareholders
annually.
The foregoing is only a summary of some of the important California
personal income tax considerations generally affecting the Shareholders of the
California Tax-Free Money Market Fund and the California Intermediate Tax-Free
Bond Fund. This summary does not describe the California tax treatment of the
California Tax-Free Money Market Fund and the California
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Intermediate Tax-Free Bond Fund. In addition, no attempt has been made to
present a detailed explanation of the California personal income tax treatment
of the Fund's Shareholders. Accordingly, this discussion is not intended as a
substitute for careful planning. Further, "California exempt-interest dividends"
are excludable from income for California personal income tax purposes only. Any
dividends paid to Shareholders subject to California corporate franchise tax
will be taxed as ordinary dividends to such Shareholders, notwithstanding that
all or a portion of such dividends is exempt from California personal income
tax. Accordingly, potential investors in the California Tax-Free Money Market
Fund and the California Intermediate Tax-Free Bond Fund including, in
particular, corporate investors which may be subject to either California
franchise tax or California corporate income tax, should consult their tax
advisers with respect to the application of such taxes to the receipt of Fund
dividends and as to their own California tax situation, in general.
FOREIGN TAXES
Dividends and interest received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on the Fund's securities. Tax conventions between
certain countries and the United States may reduce or eliminate these taxes.
Foreign countries generally do not impose taxes on capital gains with respect to
investments by foreign investors. If at the end of a Fund's fiscal year more
than 50% of the value of its total assets represents securities of foreign
corporations, the Fund will be eligible to make an election permitted by the
Code to treat any foreign taxes paid by it on securities it has held for at
least the minimum period specified in the Code as having been paid directly by
the Fund's Shareholders in connection with the Fund's dividends received by
them. In this case, Shareholders generally will be required to include in U.S.
taxable income their pro rata share of such taxes, and those Shareholders who
are U.S. citizens, U.S. corporations and, in some cases, U.S. residents will be
entitled to deduct their share of such taxes. Alternatively, such Shareholders
who hold Fund Shares (without protection from risk of loss) on the ex-dividend
date and for at least 15 other days during the 30-day period surrounding the
ex-dividend date will be entitled to claim a foreign tax credit for their share
of these taxes. If a Fund makes the election, it will report annually to its
Shareholders the respective amounts per share of the Fund's income from sources
within, and taxes paid to, foreign countries and U.S. possessions.
MANAGEMENT OF HIGHMARK FUNDS
TRUSTEES AND OFFICERS
Overall responsibility for management of each Fund rests with the
Trustees of HighMark Funds, who are elected by HighMark Funds' Shareholders.
There are currently six Trustees, all of whom are not "interested persons" of
HighMark Funds within the meaning of that term under the 1940 Act.
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<PAGE>
The Trustees, in turn, elect the officers of HighMark Funds to
supervise actively its day-to-day operations.
The Trustees and officers of HighMark Funds, their addresses and
principal occupations during the past five years are set forth below.
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH HIGHMARK FUNDS DURING PAST 5 YEARS
---------------- ------------------- -------------------
<S> <C> <C>
Thomas L. Braje Trustee, Chairman Prior to retirement in October 1996,
1 Freedom Valley Dr. Vice President and Chief Financial
Oaks, PA 19456 Officer of Bio Rad Laboratories, Inc.
Date of Birth: 6/7/43
David A. Goldfarb Trustee Partner, Goldfarb & Simens, Certified
1 Freedom Valley Dr. Public Accountants.
Oaks, PA 19456
Date of Birth: 8/2/42
Joseph C. Jaeger Trustee Prior to retirement in June 1998, Senior
1 Freedom Valley Dr. Vice President and Chief Financial
Oaks, PA 19456 Officer, Delta Dental Plan of California.
Date of Birth: 8/21/35
Frederick J. Long Trustee Prior to retirement in December 1999,
1 Freedom Valley Dr. Chairman, Acordia West and Acordia
Oaks, PA 19456 Northwest Inc. (each an insurance
Date of Birth: 9/17/35 brokerage firm).
Michael L. Noel Trustee President, Noel Consulting Company since
1 Freedom Valley Dr. 1998. From 1991 to 1997, Member of the
Oaks, PA 19456 Board of Trustees of Stepstone Funds.
Date of Birth: 4/5/41 Prior to retirement in December 1994,
Senior Vice President and Chief
Financial Officer, Southern California
Edison Company; Director of Amervest
Company, and SCAN Health Plan; Chairman
of the Board of Directors of Current
Income Shares, Inc. From April 1997 to
December 1998, Member of HighMark Funds
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<PAGE>
Advisory Board.
Robert M. Whitler Trustee, Vice Chairman Director, Current Income Shares, Inc.
1 Freedom Valley Dr. From April 1997 to December 1998, Member
Oaks, PA 19456 of HighMark Funds Advisory Board. Prior
Date of Birth: 9/11/38 to retirement in 1996, Executive Vice
President and head of Union Bank's Trust
and Investment Group.
Mark E. Nagle President and Chief Executive Vice President and Controller, Funds
530 East Swedesford Road Officer Account, Vice President of the
Wayne, PA 19087 Administrator and Distributor, employee
Date of Birth: 10/20/59 since November 1996. From 1995 to 1996,
Vice President of Fund Accounting of
BISYS Fund Services. Prior to 1995,
Senior Vice President for Fidelity
Investments since 1981.
Robert DellaCroce Controller and Chief Financial CPA, Director of Fund Resources,
530 East Swedesford Road Officer employee since 1994. Prior to 1994,
Wayne, PA 19087 senior manager for Arthur Andersen.
Date of Birth: 12/17/63
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<PAGE>
Todd Cipperman Vice President and Assistant Employee since 1995. From 1994 to May
1 Freedom Valley Drive Secretary 1995, associate with Dewey Ballantine.
Oaks, PA 19456 Prior to 1994, associate with Winston &
Date of Birth: 2/14/66 Strawn.
Lydia A. Gavalis Vice President and Assistant Vice President and Assistant Secretary
1 Freedom Valley Drive Secretary of SEI Investments Company, employee
Oaks, PA 19456 since 1998. Prior to 1998, Assistant
Date of Birth: 10/30/48 General Counsel and Director of
Arbitration, Philadelphia Stock Exchange.
James R. Foggo Vice President and Assistant Vice President and Assistant Secretary
1 Freedom Valley Drive Secretary of the Administrator and the
Oaks, PA 19456 Distributor, employee since 1998. In
Date of Birth: 6/30/64 1998, associate Paul Weiss, Rifkind,
Wharton & Garrison. From 1995 to 1998,
associate, Baker & McKenzie. Prior to
1995, associate, Battle Fowler, L.L.P.
Timothy D. Barto Vice President and Assistant Vice President and Assistant Secretary of
1 Freedom Valley Drive Secretary SEI Investments Company, employee since
Oaks, PA 19456 November 1999. From 1997 to November
Date of Birth: 3/28/68 1999, Associate, Dechert Price & Rhoads.
Prior to 1997, Associate, Richter, Miller &
Finn.
Christine M. McCullough Vice President and Secretary Vice President and Assistant Secretary of
1 Freedom Valley Drive SEI Investments Company, employee since
Oaks, PA 19456 November 1999. Prior to 1999, Associate,
Date of Birth: 12/5/60 White & Williams LLP.
William E. Zitelli, Jr. Vice President and Assistant Vice President and Assistant Secretary of
1 Freedom Valley Drive Secretary SEI Investments Company, employee since
Oaks, PA 19456 September 2000. From 1998 to 2000, Vice
Date of Birth: President, Merrill Lynch & Co. Asset
Management Group. From 1997 to 1998,
Associate, Pepper Hamilton LLP. Prior to
1997, Associate, Reboul, MacMurray,
Hewitt, Maynard & Kristol.
</TABLE>
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<PAGE>
The Trustees of HighMark Funds receive quarterly retainer fees and fees
and expenses for each meeting of the Board of Trustees attended. No employee,
officer or stockholder of SEI Investments Mutual Funds Services and/or SEI
Investments Distribution Co. receives any compensation directly from HighMark
Funds for serving as a Trustee and/or officer. SEI Investments Mutual Funds
Services and/or SEI Investments Distribution Co. receive administration, fund
accounting servicing and distribution fees from each of the Funds. See "Manager
and Administrator" and "Distributor" below. Messrs. Nagle, Barto, Cipperman,
DellaCroce, Foggo and Zitelli, and, Ms. Gavalis and Ms. Heilig are employees
and officers of SEI Investments Company. While SEI Investments Mutual Funds
Services is a distinct legal entity from SEI Investments Distribution Co., SEI
Investments Mutual Funds Services is considered to be an affiliated person of
SEI Investments Distribution Co. under the 1940 Act due to, among other things,
the fact that SEI Investments Distribution Co. and SEI Investments Mutual Funds
Services are both controlled by the same ultimate parent company, SEI
Investments Company.
During the fiscal year ended July 31, 2000, fees paid to the
disinterested Trustees for their services as Trustees aggregated $______. For
the disinterested Trustees, the following table sets forth information
concerning fees paid and retirement benefits accrued during the fiscal year
ended July 31, 2000:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Annual Total Compensation
Trustee Compensation Retirement Benefits Upon from Fund
from Group Benefits Accrued Retirement Complex Paid to
as Part of Fund Trustees
Expenses
-------- ------------ -------- ---------- --------
<S> <C> <C> <C> <C>
Thomas L. Braje None None
David A. Goldfarb None None
Joseph C. Jaeger None None
Frederick J. Long None None
Michael L. Noel None None
Robert M. Whitler None None
William R. Howell* None None
Paul L. Smith* None None
</TABLE>
*Members of Advisory Board.
The Advisory Board to the Board of Trustees is responsible for
providing monitoring services and evaluating issues affecting the HighMark Funds
pursuant to the direction of the Board of Trustees, and consulting and providing
advice to the Board of Trustees regarding those issues.
CODE OF ETHICS
HighMark Funds, HighMark Capital Management, Inc., and SEI Investments
Distribution Co. have each adopted a code of ethics ("Codes") pursuant to Rule
17j-1 of the 1940 Act, and these Codes permit personnel covered by the Codes to
invest in securities, including securities that may be purchased or held by each
Fund, subject to certain restrictions.
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<PAGE>
INVESTMENT ADVISER
Investment advisory and management services are provided to each of the
Funds by HighMark Capital Management, Inc. (the "Adviser"), pursuant to an
investment advisory agreement between the Adviser and HighMark Funds dated
September 1, 1998 (the "Investment Advisory Agreement"). Prior to September 1,
1998, Pacific Alliance, a division of Union Bank of California, N.A., served as
the Funds' investment adviser. On September 1, 1998, Pacific Alliance was
reorganized into a subsidiary of UnionBanCal Corporation, the holding company of
Union Bank of California, creating HighMark Capital Management, Inc. HighMark
Capital Management is a California corporation registered under the Investment
Adviser's Act of 1940. Union Bank of California serves as custodian for each of
the Funds. See "Transfer Agent, Custodian and Fund Accounting Services" below.
Union Bank of California also serves as sub-administrator to each of the Funds
pursuant to an agreement with SEI Investments Mutual Funds Services. See
"Manager and Administrator" below.
Unless sooner terminated, the Investment Advisory Agreement will
continue in effect as to each particular Fund from year to year if such
continuance is approved at least annually by HighMark Funds' Board of Trustees
or by vote of a majority of the outstanding Shares of such Fund (as defined
above under INVESTMENT RESTRICTIONS - Voting Information), and a majority of the
Trustees who are not parties to the Investment Advisory Agreement or interested
persons (as defined in the 1940 Act) of any party to the Investment Advisory
Agreement by votes cast in person at a meeting called for such purpose. The
Investment Advisory Agreement is terminable as to a particular Fund at any time
on 60 days' written notice without penalty by the Trustees, by vote of a
majority of the outstanding Shares of that Fund, or by the Adviser. The
Investment Advisory Agreement terminates automatically in the event of any
assignment, as defined in the 1940 Act.
Depending on the size of the Fund, fees payable under the Investment
Advisory Agreement may be higher than the advisory fee paid by most mutual
funds, although the Board of Trustees believes it will be comparable to advisory
fees paid by many funds having similar objectives and policies. The Adviser may
from time to time agree to voluntarily reduce its advisory fee, however, it is
not currently doing so for each Fund. While there can be no assurance that the
Adviser will choose to make such an agreement, any voluntary reductions in the
Adviser's advisory fee will lower the Fund's expenses, and thus increase the
Fund's yield and total return, during the period such voluntary reductions are
in effect.
The Investment Advisory Agreement provides that the Adviser will not be
liable for any error of judgment or mistake of law or for any loss suffered by
HighMark Funds in connection with the Adviser's services under the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Adviser
in the performance of its duties, or from reckless disregard by the Adviser of
its duties and obligations thereunder.
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<PAGE>
On April 1, 1996, The Bank of California, N.A., HighMark Funds'
then-investment adviser, combined with Union Bank and the resulting bank changed
its name to Union Bank of California, N.A. At the same time, the banks'
investment management divisions were combined. Each of The Bank of California
and Union Bank (or its predecessor bank) has been in banking since the early
1900's, and historically, each has had significant investment functions within
its trust and investment division. Union Bank of California, N.A. is a
subsidiary of UnionBanCal Corporation, a publicly traded corporation, a majority
of the shares of which are owned by The Bank of Tokyo - Mitsubishi, Ltd.
For the services provided and expenses assumed by the Adviser pursuant
to the Investment Advisory Agreement, Union Bank of California is entitled to
receive fees from each Fund as described in that Fund's Prospectus.
For the fiscal years ended July 31, 2000, July 31, 1999, July 31, 1998,
HighMark Capital Management, Inc., received the following investment advisory
fees:
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31, 2000 July 31, 1999 July 31, 1998
------------- ------------- -------------
Additional Additional Additional
Amount Amount Amount
Paid Waived Paid Waived Paid Waived
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund $2,751,956 N/A $2,602,642 N/A
Core Equity Fund
Growth Fund $3,746,604 $162,470 $2,265,301 N/A
Income Equity Fund $3,971,713 N/A $2,825,963 N/A
International Equity Fund $903,234 N/A $629,025 N/A
Small Cap Value Fund
Value Momentum Fund $5,115,840 $82,551 $3,952,110 N/A
Bond Fund $1,434,828 N/A $593,291 N/A
California Intermediate Tax-Free Bond Fund $340,650 $510,975 $87,732 $245,284
100% U.S. Treasury Money Market Fund $2,877,943 $575,589 $2,383,235 $476,647
California Tax-Free Money Market Fund $622,870 $1,245,740 $462,600 $925,201
Diversified Money Market Fund $7,834,593 N/A $6,250,527 N/A
U.S. Government Money Market Fund $1,380,558 N/A $906,618 N/A
</TABLE>
(1) See "ADDITIONAL INFORMATION - Miscellaneous" for an explanation of
the different fiscal year ends for each Fund.
THE SUB-ADVISERS
The Adviser and AXA Investment Managers GS Ltd. ("AXA") have entered
into a sub-advisory agreement which relates to the International Equity Fund.
Prior to October 1, 1999, AXA Asset Management Partenaires served as the
International Equity Fund's Sub-Adviser. Prior to January 1, 1998,
Tokyo-Mitsubishi Asset Management (U.K.), Ltd. ("TMAM") was the Fund's
Sub-Adviser. The Adviser and Brandes Investment Partners LP ("Brandes") have
entered
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<PAGE>
into a sub-advisory agreement which relates to the Small Cap Value Fund
(BTMT, together with AXA and Brandes, are hereafter collectively, the
"Sub-Advisers").
INTERNATIONAL EQUITY FUND. Under its sub-advisory agreement, AXA is
entitled to a fee which is calculated daily and paid monthly at an annual rate
of 0.50% of the average daily net assets of the International Equity Fund. Such
a fee is paid by the Adviser, and AXA receives no fees directly from the
International Equity Fund. For the fiscal year ended July 31, 2000, AXA received
sub-advisory fees of $_____. For the fiscal year ended July 31, 1999 and for the
period from January 1, 1998 to July 31, 1998, AXA received sub-advisory fees of
$471,338 and $192,406, respectively. For the period from August 1, 1997 to
December 31, 1997, TMAM received sub-advisory fees of $59,319.
AXA operates as a subsidiary of the AXA Group. AXA was established in
1998.
SMALL CAP VALUE FUND. Under its sub-advisory agreement, Brandes is
entitled to a fee which is calculated and paid monthly at the annual rate of
.50% of the average of the market value of the assets of the Small Cap Value
Fund allocated to Brandes. Such fee is paid by the Adviser, and Brandes receives
no fees directly from the Small Cap Value Fund. For the fiscal years ended July
31, 2000 and July 31, 1999, Brandes received sub-advisory fees of $________ and
$921,269, respectively.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Adviser determines,
subject to the general supervision of the Board of Trustees of HighMark Funds
and in accordance with each Fund's investment objective and restrictions, which
securities are to be purchased and sold by a Fund, and which brokers are to be
eligible to execute its portfolio transactions. Purchases and sales of portfolio
securities for the Bond Fund, the California Intermediate Tax-Free Bond Fund,
the Diversified Money Market Fund, the U.S. Government Money Market Fund, the
100% U.S. Treasury Money Market Fund and the California Tax-Free Money Market
Fund usually are principal transactions in which portfolio securities are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities. Purchases from underwriters of portfolio securities
include a commission or concession paid by the issuer to the underwriter and
purchases from dealers serving as market makers may include the spread between
the bid and asked price. Securities purchased by the Growth Fund, the Income
Equity Fund, the Value Momentum Fund, the Core Equity Fund, the International
Equity Fund and the Small Cap Value Fund will generally involve the payment of a
brokerage fee. Portfolio transactions for the Balanced Fund may be principal
transactions or involve the payment of brokerage commissions. While the Adviser
generally seeks competitive spreads or commissions on behalf of each of the
Funds, HighMark Funds may not necessarily pay the lowest spread or commission
available on each transaction, for reasons discussed below.
Allocation of transactions, including their frequency, to various
dealers is determined by the Adviser or the Sub-Advisers in their best judgment
and in a manner deemed fair and
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<PAGE>
reasonable to Shareholders. The primary consideration is prompt execution of
orders in an effective manner at the most favorable price. Subject to this
consideration, dealers who provide supplemental investment research to the
Adviser or the Sub-Advisers may receive orders for transactions by HighMark
Funds. Information so received is in addition to and not in lieu of services
required to be performed by the Adviser or the Sub-Advisers and does not reduce
the advisory fees payable to the Adviser by HighMark Funds. Such information may
be useful to the Adviser or the Sub-Advisers in serving both HighMark Funds and
other clients and, conversely, supplemental information obtained by the
placement of business of other clients may be useful to the Adviser in carrying
out its obligations to HighMark Funds.
Upon adoption by the Board of Trustees of certain procedures pursuant
to Rule 17e-1 under the 1940 Act, HighMark Funds may execute portfolio
transactions involving the payment of a brokerage fee through the Adviser, SEI
Investments Distribution Co., and their affiliates in accordance with such
procedures. HighMark Funds will not acquire portfolio securities issued by, make
savings deposits in, or enter repurchase or reverse repurchase agreements with,
Union Bank of California, or their affiliates, and will not give preference to
correspondents of Union Bank of California with respect to such securities,
savings deposits, repurchase agreements and reverse repurchase agreements.
Investment decisions for each Fund of HighMark Funds are made
independently from those for the other Funds or any other investment company or
account managed by the Adviser or the Sub-Advisers. However, any such other
investment company or account may invest in the same securities as HighMark
Funds. When a purchase or sale of the same security is made at substantially the
same time on behalf of a Fund and another Fund, investment company or account,
the transaction will be averaged as to price, and available investments
allocated as to amount, in a manner that the Adviser or the Sub-Advisers believe
to be equitable to the Fund(s) and such other investment company or account. In
some instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained by a Fund. To the extent
permitted by law, the Adviser or the Sub-Advisers may aggregate the securities
to be sold or purchased for a Fund with those to be sold or purchased for the
other Funds or for other investment companies or accounts in order to obtain
best execution. As provided in the Investment Advisory Agreement and the
Sub-Advisory Agreements, in making investment recommendations for
HighMark Funds, the Adviser or the Sub-Advisers will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
HighMark Funds is a customer of the Adviser, the Sub-Advisers, their parent or
its subsidiaries or affiliates and, in dealing with its commercial customers,
the Adviser and the Sub-Advisers, their parent, subsidiaries, and affiliates
will not inquire or take into consideration whether securities of such customers
are held by HighMark Funds.
During the following fiscal years, the Funds listed below paid the
following aggregate brokerage commissions:
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<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31, 2000 July 31, 1999 July 31, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Balanced Fund $343,762 $205,232
Core Equity Fund
Growth Fund $696,665 $465,576
Income Equity Fund $1,266,837 $638,230
International Equity Fund $413,403 $389,285
Small Cap Value Fund $303,124 N/A
Value Momentum Fund $371,708 $248,933
</TABLE>
ADMINISTRATOR AND SUB-ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator") serves as
administrator to each of the Funds pursuant to the administration agreement
dated as of February 15, 1997 between HighMark Funds and the Administrator (the
"Administration Agreement").
The outcome of pending litigation could have an adverse impact on the
State's fiscal condition. As of the date of this Statement of Additional
Information, the State was involved in ongoing litigation which, if decided
adversely, could have a material impact to the State General Fund. For example,
one case brought by a consortium of California counties, if finally decided
against the State, could impact the State General Fund by more than $10 billion
and could result in an annual Proposition 98 General Fund cost of at least $3.75
billion, indexed annually. As of September 2000 the case had been decided
against the State by the Sonoma County Superior Court and the State had appealed
to a higher court.
Pursuant to the Administration Agreement, the Administrator provides
the Group with administrative services, regulatory reporting, fund accounting
and related portfolio accounting services, all necessary office space,
equipment, personnel, compensation and facilities for handling the affairs of
the Group. As described below, the Administrator has delegated part of its
responsibilities under the Administration Agreement to HighMark Capital
Management, Inc.
The Administrator is entitled to a fee, which is calculated daily and
paid monthly, at an annual rate of 0.20% of the average daily net assets of the
Funds. The Administrator may waive its fee or reimburse various expenses to the
extent necessary to limit the total operating expenses of a Fund's Retail
Shares. Any such waiver is voluntary and may be terminated at any time in
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the Administrator's sole discretion. Currently, the Administrator has agreed to
waive its fee to the rate of 0.18% of the average daily net assets of the Funds.
For its services as administrator and expenses assumed pursuant to the
Administration Agreement, the Administrator received the following fees:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------------
July 31, 2000 July 31, 1999 July 31, 1998
------------- ---------------------- ------------------ -
Additional Additional Additional
Amount Amount Amount
Paid Waived Paid Waived Paid Waived
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund $759,593 $91,732 $767,123 $100,424
Core Equity Fund $ $ $ $
Growth Fund $1,104,261 $130,302 $669,261 $85,839
Income Equity Fund $882,395 $347,294 $847,789 $94,199
International Equity Fund $158,476 $19,015 $119,187 $13,243
SmallCap Value Fund
Value Momentum Fund $1,442,857 $173,280 $1,185,633 $131,737
Bond Fund $483,115 $57,393 $213,585 $23,732
California Intermediate Tax-Free Bond Fund $280,016 $34,065 $117,410 $15,796
100% U.S. Treasury Money Market Fund $1,904,751 $230,235 $1,715,929 $190,659
California Tax-Free Money Market Fund $1,030,037 $124,574 $832,681 $92,520
Diversified Money Market Fund $4,312,435 $522,306 $3,750,316 $416,702
U.S. Government Money Market Fund $769,550 $92,037 $543,971 $60,441
</TABLE>
The Administration Agreement became effective on February 15, 1997 and
was automatically renewed for a one year term on July 31, 2000. Unless sooner
terminated as provided in the Administration Agreement (and as described below),
the Administration Agreement, as amended, will continue in effect until July 31,
2001. The Administration Agreement thereafter shall be renewed automatically for
successive annual terms. The Administration Agreement is terminable at any time
with respect to a particular Fund or HighMark Funds as a whole by either party
without penalty for any reason upon 90 days' written notice by the party
effecting such termination to the other party.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
HighMark Funds in connection with the matters to which the Administration
Agreement relates, except a loss resulting from willful misfeasance, bad faith,
or gross negligence in the performance of its duties, or from the reckless
disregard by the Administrator of its obligations and duties thereunder.
The Administration Agreement permits the Administrator to subcontract
its services thereunder, provided that the Administrator will not be relieved of
its obligations under the Administration Agreement by the appointment of a
subcontractor and the Administrator shall be responsible to HighMark Funds for
all acts of the subcontractor as if such acts were its own, except for losses
suffered by any Fund resulting from willful misfeasance, bad faith or gross
negligence by the subcontractor in the performance of its duties or for reckless
disregard by it of its obligations and duties. Pursuant to a sub-administration
agreement between the Administrator and HighMark Capital Management, Inc.,
HighMark Capital Management, Inc. will perform services which may include
clerical, bookkeeping, accounting, stenographic and
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administrative services, for which it will receive a fee, paid by the
Administrator, at the annual rate of up to 0.10% of each Fund's average daily
net assets.
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complies with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
The Adviser and the Sub-Advisers believe that they possess the legal
authority to perform the services for the Funds contemplated by the Investment
Advisory Agreement and the Sub-Advisory Agreements and described in the
Prospectuses and this Statement of Additional Information and has so represented
in the Investment Advisory Agreement and the Sub-Advisory Agreements. Union Bank
of California, N.A. also believes that it may perform sub-administration
services on behalf of each Fund, for which it receives compensation from the
Administrator without a violation of applicable banking laws and regulations.
Future changes in either federal or state statutes and regulations relating to
the permissible activities of banks or bank holding companies and the
subsidiaries or affiliates of those entities, as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations could prevent or restrict the Adviser from continuing to perform
such services for HighMark Funds. Depending upon the nature of any changes in
the services that could be provided by the Adviser, or the Sub-Advisers, the
Board of Trustees of HighMark Funds would review HighMark Funds' relationship
with the Adviser and the Sub-Advisers and consider taking all action necessary
in the circumstances.
Should further legislative, judicial or administrative action prohibit
or restrict the activities of Union Bank of California, the Adviser, its
affiliates, and its correspondent banks in connection with Customer purchases of
Shares of HighMark Funds, such Banks might be
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required to alter materially or discontinue the services offered by them to
Customers. It is not anticipated, however, that any change in HighMark Funds'
method of operations would affect its net asset value per Share or result in
financial losses to any Customer.
SHAREHOLDER SERVICES PLANS
HighMark Funds has adopted two Shareholder Services Plans, one for
Fiduciary Class and Class A Shares, one for Class B Shares (collectively, the
"Services Plans") pursuant to which a Fund is authorized to pay compensation to
financial institutions (each a "Service Provider"), which may include Bank of
Tokyo-Mitsubishi Trust Company, Union Bank of California, N.A., or their
respective affiliates, that agree to provide certain shareholder support
services for their customers or account holders (collectively, "customers") who
are the beneficial or record owners of Shares of a Fund. In consideration for
such services, a Service Provider is compensated by a Fund at a maximum annual
rate of up to 0.25% of the average daily net asset value of Shares of a Fund,
pursuant to each plan. A service provider may waive such fees at any time. Any
such waiver is voluntary and may be terminated at any time. Currently, such fees
are being waived to the rate of 0.10% of average daily net assets for the
Fiduciary and Class A Shares of the Income Equity Fund, Growth Fund,
International Equity Fund, Small Cap Value Fund, Balanced Fund, Value Momentum
Fund, and Core Equity Fund; 0.01% for the Fiduciary and Class A Shares of the
Bond Fund, and 0.00% for the Class A Shares of the California Intermediate
Tax-Free Bond Fund and 0.00% for the Fiduciary and Fiduciary and Class A Shares
of the 100% U.S. Treasury Money Market Fund, California Tax-Free Money Market
Fund, Diversified Money Market Fund and U.S. Government Money Market Fund.
The servicing agreements adopted under the Services Plans (the
"Servicing Agreements") require the Service Provider receiving such compensation
to perform certain shareholder support services as set forth in the Servicing
Agreements with respect to the beneficial or record owners of Shares of a Fund.
As authorized by the Services Plans, HighMark Funds may enter into a
Servicing Agreement with a Service Provider pursuant to which the Service
Provider has agreed to provide certain shareholder support services in
connection with Shares of one or more of the Funds. Such shareholder support
services may include, but are not limited to, (i) maintaining Shareholder
accounts; (ii) providing information periodically to Shareholders showing their
positions in Shares; (iii) arranging for bank wires; (iv) responding to
Shareholder inquiries relating to the services performed by the Service
Provider; (v) responding to inquiries from Shareholders concerning their
investments in Shares; (vi) forwarding Shareholder communications from HighMark
Funds (such as proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to Shareholders; (vii)
processing purchase, exchange and redemption requests from Shareholders and
placing such orders with HighMark Funds or its service providers; (viii)
assisting Shareholders in changing dividend options, account designations, and
addresses; (ix) providing subaccounting with respect to Shares beneficially
owned by Shareholders; (x) processing dividend payments from HighMark Funds on
behalf of the Shareholders; and (xi) providing such other similar services as
HighMark
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Funds may reasonably request to the extent that the service provider is
permitted to do so under applicable laws or regulations.
SHAREHOLDER SERVICING AGREEMENT
HighMark Capital Management, Inc., HighMark Funds and the California
Department of Personnel have entered into a shareholder servicing agreement
pursuant to which HighMark Capital Management is to pay compensation to the
California Department of Personnel for providing certain shareholder support
services to plan participants in the State of California Savings Plus Program
("Plan Participants") who are the beneficial or record owners of Shares of the
Fund. In consideration for such services, the California Department of Personnel
is compensated by the Adviser at an annual rate of 0.10% on net assets of the
Value Momentum Fund held in the Thrift Plan and Deferred Compensation Plan in
the State of California Savings Plus Program.
The servicing agreement adopted requires the California Department of
Personnel to perform certain shareholder support services as set forth in the
Servicing Agreement with respect to the beneficial or record owners of Class I
Shares of the Value Momentum Fund.
California Department of Personnel has agreed to provide certain
shareholder support services in connection with the Class I Shares of the Value
Momentum Fund. Such shareholder support services may include, but are not
limited to, (i) maintaining separate records for each Plan Participant with
respect to the Value Momentum Fund, which records shall reflect shares purchased
and redeemed and share balances, (ii) transmitting to the Value Momentum Fund
purchase and redemption orders on behalf of Plan Participants, (iii) preparing
and transmitting to Plan Participants periodic account statements showing the
total number of shares owned by them as of the statement closing date, purchases
and redemptions of Fund shares by the plan participant during the period covered
by the statement and the dividends and other distributions paid to the plan
participant during the statement period (whether paid in case or reinvested in
Fund shares), and (iv) transmitting to plan participants proxy materials,
reports and other information required to be sent to shareholders under the
federal securities laws received by the California Department of Personnel from
the Value Momentum Fund.
EXPENSES
HighMark Funds' service providers bear all expenses in connection with
the performance of their respective services, except that each Fund will bear
the following expenses relating to its operations: taxes, interest, brokerage
fees and commissions, if any, fees and travel expenses of Trustees who are not
partners, officers, directors, shareholders or employees of HighMark Capital
Management, Inc., Union Bank of California, SEI Investments Mutual Funds
Services or SEI Investments Distribution Co., Securities and Exchange Commission
fees and state fees and expenses, certain insurance premiums, outside and, to
the extent authorized by HighMark Funds, inside auditing and legal fees and
expenses, fees charged by rating agencies in having the Fund's Shares rated,
advisory and administration fees, fees and reasonable out-of-pocket expenses of
the
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custodian and transfer agent, expenses incurred for pricing securities owned
by the Fund, costs of maintenance of corporate existence, typesetting and
printing prospectuses for regulatory purposes and for distribution to current
Shareholders, costs and expenses of Shareholders' and Trustees' reports and
meetings and any extraordinary expenses.
DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned
subsidiary of SEI Investments Company, serves as distributor to the Funds
pursuant to a distribution agreement dated February 15, 1997 between HighMark
Funds and the Distributor for the Fiduciary Class and Class A Shares, and
pursuant to a distribution agreement dated June 18, 1997 between HighMark Funds
and the Distributor for Class B Shares (collectively, the "Distribution
Agreements").
The Distribution Agreements were renewed for a one-year term on July
31, 2000 and, unless sooner terminated, will continue in effect until July 31,
2001 and from year to year thereafter if approved at least annually (i) by
HighMark Funds' Board of Trustees or by the vote of a majority of the
outstanding Shares of HighMark Funds, and (ii) by the vote of a majority of the
Trustees of HighMark Funds who are not parties to the Distribution Agreements or
interested persons (as defined in the 1940 Act) of any party to the Distribution
Agreements, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreements are terminable without penalty, on not
less than sixty days' notice by HighMark Funds' Board of Trustees, by vote of a
majority of the outstanding voting securities of HighMark Funds or by the
Distributor. The Distribution Agreements terminate in the event of their
assignment, as defined in the 1940 Act.
THE DISTRIBUTION PLANS. Pursuant to HighMark Funds' Distribution Plans,
each Fund pays the Distributor as compensation for its services in connection
with the Distribution Plans a distribution fee, computed daily and paid monthly,
equal to twenty-five one-hundredths of one percent (0.25%) of the average daily
net assets attributable to that Fund's Class A Shares, pursuant to the Class A
Distribution Plan, and seventy-five one-hundredths of one percent (0.75%) of the
average daily net assets attributable to that Fund's Class B Shares, pursuant to
the Class B Distribution Plan, seventy-five one-hundredths of one percent
(0.75%) of the average daily net assets attributable to that Fund's Class C
Shares, pursuant to the Class C Distribution Plan and fifty-five one-hundredths
of one percent (0.55%) of the average daily net assets attributable to that
Fund's Class S Shares, pursuant to the Class S Distribution Plan. The
Distributor has agreed to waive its fees to 0.00% of the average daily net
assets of the Bond Fund and the California Intermediate Tax-Free Bond Fund.
For the fiscal year ended July 31, 2000, the Distributor received the
following distribution fees with respect to the sale of Class A Shares and Class
B Shares from the following Funds:
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<TABLE>
<CAPTION>
Fund Class A Shares Class B Shares Class C Shares Class S Shares
---- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balanced Fund N/A
Core Equity Fund
Growth Fund N/A
Income Equity Fund N/A
Value Momentum Fund N/A
Small Cap Value N/A
100% U.S. Treasury Money Market Fund N/A N/A
California Tax-Free Money Market Fund N/A N/A
Diversified Money Market Fund N/A N/A
U.S. Government Money Market Fund N/A NA
</TABLE>
The Distributor may use the distribution fee applicable to a Fund's
Class A, Class B, Class C and Class S Shares to provide distribution assistance
with respect to the sale of the Fund's Class A, Class B, Class C and Class S
Shares or to provide Shareholder services to the holders of the Fund's Class A,
Class B, Class C and Class S Shares. The Distributor may also use the
distribution fee (i) to pay financial institutions and intermediaries (such as
insurance companies and investment counselors but not including banks and
savings and loan associations), broker-dealers, and the Distributor's affiliates
and subsidiaries compensation for services or reimbursement of expenses incurred
in connection with the distribution of a Fund's Class A, Class B, Class C and
Class S Shares to their customers or (ii) to pay banks, savings and loan
associations, other financial institutions and intermediaries, broker-dealers,
and the Distributor's affiliates and subsidiaries compensation for services or
reimbursement of expenses incurred in connection with the provision of
Shareholder services to their customers owning a Fund's Class A, Class B, Class
C and Class S Shares. All payments by the Distributor for distribution
assistance or Shareholder services under the Distribution Plans will be made
pursuant to an agreement between the Distributor and such bank, savings and loan
association, other financial institution or intermediary, broker-dealer, or
affiliate or subsidiary of the Distributor (a "Servicing Agreement"; banks,
savings and loan associations, other financial institutions and intermediaries,
broker-dealers, and the Distributor's affiliates and subsidiaries that may enter
into a Servicing Agreement are hereinafter referred to individually as a
"Participating Organization"). A Participating Organization may include Union
Bank of California, its subsidiaries and its affiliates.
Participating Organizations may charge customers fees in connection
with investments in a Fund on their customers' behalf. Such fees would be in
addition to any amounts the Participating Organization may receive pursuant to
its Servicing Agreement. Under the terms of the Servicing Agreements,
Participating Organizations are required to provide their customers with a
schedule of fees charged directly to such customers in connection with
investments in a Fund. Customers of Participating Organizations should read this
Prospectus in light of the terms governing their accounts with the Participating
Organization.
The distribution fees under the Distribution Plans will be payable
without regard to whether the amount of the fee is more or less than the actual
expenses incurred in a particular year by the Distributor in connection with
distribution assistance or Shareholder services rendered by the Distributor
itself or incurred by the Distributor pursuant to the Servicing Agreements
entered into under the Distribution Plans. The Distributor may from time to time
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voluntarily reduce its distribution fees with respect to a Fund in significant
amounts for substantial periods of time pursuant to an agreement with HighMark
Funds. While there can be no assurance that the Distributor will choose to make
such an agreement, any voluntary reduction in the Distributor's distribution
fees will lower such Fund's expenses, and thus increase such Fund's yield and
total returns, during the period such voluntary reductions are in effect.
In accordance with Rule 12b-1 under the 1940 Act, the Distribution
Plans may be terminated with respect to any Fund by a vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding Class A,
Class B, Class C or Class S Shares of that Fund. The Distribution Plans may be
amended by vote of HighMark Funds' Board of Trustees, including a majority of
the Independent Trustees, cast in person at a meeting called for such purpose,
except that any change in a Distribution Plan that would materially increase the
distribution fee with respect to a Fund requires the approval of that Fund's
Retail Shareholders. HighMark Funds' Board of Trustees will review on a
quarterly and annual basis written reports of the amounts received and expended
under the Distribution Plans (including amounts expended by the Distributor to
Participating Organizations pursuant to the Servicing Agreements entered into
under the Distribution Plans) indicating the purposes for which such
expenditures were made.
Each Distribution Plan provides that it will continue in effect with
respect to each Fund for successive one-year periods, provided that each such
continuance is specifically approved (i) by the vote of a majority of the
Independent Trustees and (ii) by the vote of the entire Board of Trustees, cast
in person at a meeting called for such purpose. For so long as each of the
Distribution Plans remains in effect, the selection and nomination of those
trustees who are not interested persons of HighMark Funds (as defined in the
1940 Act) shall be committed to the discretion of such disinterested persons.
TRANSFER AGENT AND CUSTODIAN SERVICES
State Street Bank and Trust Company performs transfer agency services
for the Funds pursuant to a transfer agency and shareholder service agreement
with HighMark Funds dated as of February 15, 1997 (the "Transfer Agency
Agreement"). As each Fund's transfer agent,
State Street Bank and Trust Company processes purchases and redemptions
of each Fund's Shares and maintains each Fund's Shareholder transfer and
accounting records, such as the history of purchases, redemptions, dividend
distributions, and similar transactions in a Shareholder's account.
Under the Transfer Agency Agreement, HighMark Funds has agreed to pay
State Street Bank and Trust Company annual fees at the rate of $18,000 per
Retail class/per Fund. The Distributor has agreed to pay State Street Bank and
Trust Company annual fees at the rate of $15,000 per Fiduciary class/per Fund.
In addition, there will be an annual account maintenance fee of $25.00 per
account and IRA Custodial fees totaling $15.00 per account, as well as
out-of-pocket expenses as defined in the Transfer Agency Agreement. HighMark
Funds intends to
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charge transfer agency fees across the HighMark Funds as a whole. State Street
Bank and Trust Company may periodically voluntarily reduce all or a portion of
its transfer agency fee with respect to a Fund to increase the Fund's net income
available for distribution as dividends.
Union Bank of California, N.A. serves as custodian to the Funds
pursuant to a custodian agreement with HighMark Funds dated as of December 23,
1991, as amended (the "Custodian Agreement"). Under the Custodian Agreement,
Union Bank of California's responsibilities include safeguarding and controlling
each Fund's cash and securities, handling the receipt and delivery of
securities, and collecting interest and dividends on each Fund's investments.
Under the Custodian Agreement, HighMark Funds has agreed to pay Union
Bank of California a domestic custodian fee with respect to each Fund at an
annual rate of 0.01% of the Fund's average daily net assets, with an annual
minimum fee of $2,500 per Fund, plus certain transaction fees. Union Bank of
California is also entitled to be reimbursed by HighMark Funds for its
reasonable out-of-pocket expenses incurred in the performance of its duties
under the Custodian Agreement. Global custody fees shall be determined on a
transaction basis. Union Bank of California may periodically voluntarily reduce
all or a portion of its custodian fee with respect to a Fund to increase the
Fund's net income available for distribution as dividends.
The financial statements of HighMark Funds for the period ended
July 31, 2000, incorporated by reference into this Statement of Additional
Information have been audited by ______________, independent accountants, as set
forth in their report also incorporated by reference into this Statement of
Additional Information, and are included in reliance upon such report and on the
authority of such firm as experts in auditing and accounting.
LEGAL COUNSEL
Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800 East,
Washington, D.C. 20005, are counsel to HighMark Funds and will pass upon the
legality of the Shares offered hereby.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES
HighMark Funds is a Massachusetts business trust. HighMark Funds'
Declaration of Trust was originally filed with the Secretary of State of The
Commonwealth of Massachusetts on March 10, 1987. The Declaration of Trust, as
amended, authorizes the Board of Trustees to issue an unlimited number of
Shares, which are units of beneficial interest, without par value. HighMark
Funds' Declaration of Trust, as amended, further authorizes the Board of
Trustees to establish one or more series of Shares of HighMark Funds, and to
classify or reclassify the Shares of any series into one or more classes by
setting or changing in any one or more respects the preferences, designations,
conversion or other rights, restrictions, limitations as to dividends,
conditions of redemption, qualifications or other terms applicable to the Shares
of such class,
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subject to those matters expressly provided for in the Declaration of Trust, as
amended, with respect to the Shares of each series of HighMark Funds. HighMark
Funds presently consists of fourteen series of Shares, representing units of
beneficial interest in the Growth Fund, the Income Equity Fund, the Balanced
Fund, the Value Momentum Fund, the Core Equity Fund, the International Equity
Fund, the Small Cap Value Fund, the Bond Fund, the California Intermediate
Tax-Free Bond Fund, the Diversified Money Market Fund, the U.S. Government Money
Market Fund, the 100% U.S. Treasury Money Market Fund, and the California
Tax-Free Money Market Fund. Pursuant to a Multiple Class Plan on file with the
Securities and Exchange Commission permitting the issuance and sale of six
classes of Shares in selected Funds, Shares of such Funds have been divided into
six classes of Shares, designated Class A, Class B, Class C and Class S Shares
(collectively, "Retail Shares"), Class I Shares and Fiduciary Shares. The
Trustees of HighMark Funds have determined that currently no conflict of
interest exists between the Class A, Class B, Class C and Class S shares. On an
ongoing basis, the Trustees of HighMark Funds, pursuant to their fiduciary
duties under the Investment Company Act of 1940, as amended (the "1940 Act"),
and state laws, will seek to ensure that no such conflict arises.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectuses and this
Statement of Additional Information, HighMark Funds' Shares will be fully paid
and non-assessable. In the event of a liquidation or dissolution of HighMark
Funds, Shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund that are available for distribution. Upon
liquidation or dissolution of HighMark Funds, Retail and Fiduciary shareholders
are entitled to receive the net assets of the Fund attributable to each class.
As used in the Prospectuses and in this Statement of Additional
Information, "assets belonging to a Fund" means the consideration received by
HighMark Funds upon the issuance or sale of Shares in that Fund, together with
all income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or payments derived from any reinvestment of such
proceeds, and any general assets of HighMark Funds not readily identified as
belonging to a particular Fund that are allocated to that Fund by HighMark
Funds' Board of Trustees. Such allocations of general assets may be made in any
manner deemed fair and equitable, and it is anticipated that the Board of
Trustees will use the relative net asset values of the respective Funds at the
time of allocation. Assets belonging to a particular Fund are charged with the
direct liabilities and expenses of that Fund, and with a share of the general
liabilities and expenses of HighMark Funds not readily identified as belonging
to a particular Fund that are allocated to that Fund in proportion to the
relative net asset values of the respective Funds at the time of allocation. The
timing of allocations of general assets and general liabilities and expenses of
HighMark Funds to particular Funds will be determined by the Board of Trustees
and will be in accordance with generally accepted accounting principles.
Determinations by the Board of Trustees as to the
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timing of the allocation of general liabilities and expenses and as to the
timing and allocable portion of any general assets with respect to a particular
Fund are conclusive.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as HighMark Funds shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
Shares of each Fund affected by the matter. For purposes of determining whether
the approval of a majority of the outstanding Shares of a Fund will be required
in connection with a matter, a Fund will be deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are identical,
or that the matter does not affect any interest of the Fund.
Under Rule 18f-2, the approval of an investment advisory agreement or
any change in fundamental investment policy would be effectively acted upon with
respect to a Fund only if approved by a majority of the outstanding Shares of
such Fund. However, Rule 18f-2 also provides that the ratification of
independent public accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
Shareholders of HighMark Funds voting without regard to series.
Although not governed by Rule 18f-2, Retail Shares of a Fund have
exclusive voting rights with respect to matters pertaining to the Fund's
Distribution Plan.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, holders of units of interest in a business
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. However, HighMark Funds' Declaration of Trust,
as amended, provides that Shareholders shall not be subject to any personal
liability for the obligations of HighMark Funds, and that every written
agreement, obligation, instrument, or undertaking made by HighMark Funds shall
contain a provision to the effect that the Shareholders are not personally
liable thereunder. The Declaration of Trust, as amended, provides for
indemnification out of the trust property of any Shareholder held personally
liable solely by reason of his or her being or having been a Shareholder. The
Declaration of Trust, as amended, also provides that HighMark Funds shall, upon
request, assume the defense of any claim made against any Shareholder for any
act or obligation of HighMark Funds, and shall satisfy any judgment thereon.
Thus, the risk of a Shareholder incurring financial loss on account of
Shareholder liability is limited to circumstances in which HighMark Funds itself
would be unable to meet its obligations.
The Declaration of Trust, as amended, states further that no Trustee,
officer, or agent of HighMark Funds shall be personally liable in connection
with the administration or preservation of the assets of the trust or the
conduct of HighMark Funds' business, nor shall any Trustee, officer, or agent be
personally liable to any person for any action or failure to act except for his
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties. The
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Declaration of Trust, as amended, also provides that all persons having any
claim against the Trustees or HighMark Funds shall look solely to the assets of
the trust for payment.
CALCULATION OF PERFORMANCE DATA
From time to time, articles relating to the performance, rankings, and
other investment characteristics of mutual funds and their investment advisers,
including the Funds and the Adviser, may appear in national, regional, and local
publications. In particular, some publications may publish their own rankings or
performance reviews of mutual funds and their investment advisers, including the
Funds and the Adviser. Various mutual fund or market indices may also serve as a
basis for comparison of the performance of the Funds with other mutual funds or
mutual fund portfolios with comparable investment objectives and policies. In
addition to the indices prepared by Dow Jones & Co., Inc. and Standard & Poor's
Corporation, references to or reprints from the following publications may be
used in HighMark Funds' promotional literature: IBC/Donoghue's Money Fund
Report, Ibbotson Associates of Chicago, Morningstar, Lipper, Inc.,
CDA/Wiesenberger Investment Company Services, SEI Investments, Callan
Associates, Wilshire Associates, MONEY Magazine, Pension and Investment Age,
Forbes, BusinessWeek, Smart Money, American Banker, Fortune Magazine, Worth,
Institutional Investor, Barron's National Business & Financial Weekly,
Investor's Business Daily, Barron's, Pensions and Investments, Investment News,
America Online, The Wall Street Journal, New York Times, San Francisco Chronicle
and Examiner, Los Angeles Business Journal, Los Angeles Times, USA Today,
Sacramento Bee, Seattle Times, Seattle Daily Journal of Commerce, Seattle
Post/Intelligence, Seattle Business Journal, Tacoma New Tribune, Bellevue
Journal-American, The Oregonian, Puget Sound Business Journal, Portland Chamber
of
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Commerce and Portland Daily Journal of Commerce/Portland Business Today.
Shareholders may call toll free 1-800-433-6884 for current information
concerning the performance of each of the Funds.
From time to time, the Funds may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of compounding and the benefits of dollar-cost averaging); (2)
discussions of general economic trends; (3) presentations of statistical data to
supplement such discussions; (4) descriptions of past or anticipated portfolio
holdings for one or more of the Funds within HighMark Funds; (5) descriptions of
investment strategies for one or more of the Funds; (6) descriptions or
comparisons of various savings and investment products (including, but not
limited to, insured bank products, annuities, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant market or
industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) testimonials
describing the experience of persons that have invested in one or more of the
Funds. The Funds may also include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results in such communications.
Such performance examples will be based on an express set of assumptions and are
not indicative of the performance of any of the Funds. In addition, the
California Tax-Free Fund may include charts comparing various tax-free yields
versus taxable yield equivalents at different income levels.
The 7-day yield of each class of Shares of a Fund was computed by
determining the percentage net change, excluding capital changes, in the value
of an investment in one Share of that class over the base period, and
multiplying the net change by 365/7 (or approximately 52 weeks). The 7-day
effective yield of each class of Shares of a Fund represents a compounding of
the yield of that class by adding 1 to the number representing the percentage
change in value of the investment during the base period, raising that sum to a
power equal to 365/7, and subtracting 1 from the result.
The yield and effective yield for the seven-day period ending July 31,
2000, for the Money Market Funds are shown below:
<TABLE>
<CAPTION>
Yield Effective Yield
----------------------------------- ------------------------------------
Class A Class B Class S Fiduciary Class A Class B Class S Fiduciary
------- ------- ------- --------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100% U.S. Treasury Money Market Fund % -- % % % -- % %
California Intermediate Tax-Free
Money Market Fund % -- % % % -- % %
Diversified Money Market Fund % -- % % % -- % %
U.S. Government Money Market Fund % % % % % % % %
</TABLE>
The Fund's "yield" (referred to as "standardized yield") for a given
30-day period for a class of shares is calculated using the following formula
set forth in rules adopted by the Commission that apply to all funds that quote
yields:
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Standardized Yield = 2 [(a-b + 1)(6) - 1]
--
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares of that class outstanding during the
30-day period that were entitled to receive dividends.
d = the maximum offering price per share of the class on the last day of
the period, adjusted for undistributed net investment income.
The standardized yield of a class of shares for a 30-day period may
differ from its yield for any other period. The Commission formula assumes that
the standardized yield for a 30-day period occurs at a constant rate for a
six-month period and is annualized at the end of the six-month period. This
standardized yield is not based on actual distributions paid by the Fund to
shareholders in the 30-day period, but is a hypothetical yield based upon the
net investment income from the Fund's portfolio investments calculated for that
period. Because each class of shares is subject to different expenses, it is
likely that the standardized yields of the Fund classes of shares will differ.
The yield and effective yield for the 30-day period ending July 31,
2000, for the Money Market Funds and Fixed Income Funds are shown below:
<TABLE>
<CAPTION>
Yield Effective Yield
----------------------------------- ------------------------------------
Class A Class B Class S Fiduciary Class A Class B Class S Fiduciary
------- ------- ------- --------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100% U.S. Treasury Money Market Fund % -- % % % -- % %
California Intermediate Tax-Free Money
Market Fund % -- % % % -- % %
Diversified Money Market Fund % -- % % % -- % %
U.S. Government Money Market Fund % % % % % %
Bond Fund % -- % % -- -- -- %
California Intermediate Tax-Free Bond Fund % -- % % -- -- -- %
</TABLE>
The tax-equivalent yield of each class of Shares of the California
Tax-Free Fund was computed by dividing that portion of the yield of that class
that is tax-exempt by 1 minus the stated income tax rate (or rates) and adding
the product to that portion, if any, of the yield of the Class that is not
tax-exempt. The tax-equivalent effective yield of each class of Shares was
computed by dividing that portion of the effective yield of that class which is
tax-exempt by 1 minus the stated income tax rate (or rates) and adding to that
portion, if any, of the effective yield of that class that is not tax-exempt.
-83-
<PAGE>
The tax-equivalent yield and tax-equivalent effective yield for the
California Tax-Free Money Market Fund for the 7-day and 30-day periods ended
July 31, 2000 are shown below:
<TABLE>
<CAPTION>
Tax-Equivalent Tax-Equivalent
Yield Effective Yield
-------------- ---------------
Class A Fiduciary Class A Fiduciary
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Using a 39.6% Fed. Income Tax Rate
-----------------------------------
a. 7-day % % % %
b. 30-day % % % %
Using a 39.6% Fed. Income Tax
Rate and 11% Cal. Personal
Income Tax Rate
---------------------
a. 7-day % % % %
b. 30-day % % % %
</TABLE>
The tax-equivalent yield for the California Intermediate Tax-Free Bond
Fund for the 30-day period ended July 31, 2000 is shown below:
<TABLE>
<CAPTION>
Tax-Equivalent
Yield
--------------
Class A Fiduciary
------- ---------
<S> <C> <C>
Using a 39.6% Fed. Income Tax Rate % %
Using a 39.6% Fed. Income Tax
Rate and 11% Cal. Personal
Income Tax Rate % %
</TABLE>
Each Fund's respective average annual total return over periods of 1, 5
and 10 years (up to the life of Fund or Class) was calculated by determining the
change in the value of a hypothetical $1,000 investment in the Fund over the
applicable period (utilizing, when appropriate, performance information from the
applicable IRA Fund Portfolio prior to June 23, 1988) that would equate the
initial amount invested to the ending redeemable value of the investment; in the
case of the average annual total return, this amount (representing the Fund's
total return) was then averaged over the relevant number of years. Specifically,
these rates of return are calculated pursuant to the following formula: P(1 +
T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the average
annual total return, n = the number of years and ERV = the ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the period). All
total return figures reflect the deduction of a proportional share of Fund
expenses on an annual basis, and assume that all dividends and distributions are
reinvested when paid. The resulting percentages indicate the positive or
negative investment results that an investor would have experienced from changes
in Share price and reinvestment of dividends and capital gains distributions.
The performance figures relating to the Class A Shares and Class B
Shares reflect the sales charge and distribution fees to which each Class is
subject. Because only Class A Shares and Class B Shares bear the expense of the
fee, if any, under the Distribution Plan and a sales
-84-
<PAGE>
charge, total return and yield relating to a Fund's Class A Shares and Class B
Shares will be lower than that relating to the Funds' Fiduciary Shares.
The average total return for the Class A Shares of each Fund,
computed as of July 31, 2000, is shown in the table below:
<TABLE>
<CAPTION>
Average Annual Total Return - Class A Shares
Fund/Class
Commencement One Five Ten Life of
Fund Name of Operations Year Years Years Fund
--------- ------------- --------- --------- -------- ----------
With Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales Sales
Load* Load Load* Load Load* Load Load* Load
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund 11/13/92 % % % % -- -- % %
Core Equity Fund 06/30/00
Growth Fund 06/20/94 % % % % -- -- % %
Income Equity Fund 06/20/94 % % % % %(1) %(1) % %
International Equity Fund
Small Cap Value Fund 09/17/98 -- -- -- -- -- -- % %
Value Momentum Fund 04/02/94 % % % % -- -- % %
Bond Fund 06/20/94 % % % % %(2) (2) % %
California Intermediate
Tax-Free Bond Fund 10/15/93 % % % % -- -- % %
100% U.S. Treasury
Money Market Fund 12/01/90 -- % -- % -- %(3) -- %
California Tax-Free
Money Market Fund 06/25/91 -- % -- % -- -- -- %
Diversified Money Market
Fund 05/28/91 -- % -- % -- -- -- %
U.S. Government Money
Market Fund 12/01/90 -- % -- % -- %(4) -- %
</TABLE>
* Reflects maximum sales charge (4.50% for the Equity Funds and 3.00% for the
Fixed Income Funds).
(1) Prior to 6/20/94, performance for Class A Shares is based on Fiduciary Share
performance, which were first offered 2/9/84. The performance of the Fiduciary
Shares has been adjusted for the sales charge applicable to Class A Shares, but
does not reflect the Class A Shares; Rule 12b-1 fees and expenses.
With those adjustments, performance would be lower than that shown.
(2) Prior to 6/20/94, performance for Class A Shares is based on Fiduciary Share
performance, which were first offered 2/15/84. The performance of the Fiduciary
Shares has been adjusted for the sales charge applicable to Class A Shares, but
does not reflect the Class A Shares; Rule 12b-1 fees and expenses.
With those adjustments, performance would be lower than that shown.
(3) Prior to 12/1/90, performance for Class A Shares is based on Fiduciary Share
performance, which were first offered 8/10/87. The performance of Fiduciary
Shares has been adjusted for the sales charge applicable to Class A Shares, but
does not reflect the Class A Shares; Rule 12b-1 fees and expenses.
With those adjustments, performance would be lower than that shown.
(4) Prior to 12/1/90, performance for Class A Shares is based on Fiduciary Share
performance, which were first offered 8/10/87. The performance of Fiduciary
Shares has been adjusted for the sales charge applicable to Class A Shares, but
does not reflect the Class A Shares; Rule 12b-1 fees and expenses.
With those adjustments, performance would be lower than that shown.
-85-
<PAGE>
The average total return for the Class B Shares of each Fund, computed
as of July 31, 2000, is shown in the table below:
<TABLE>
<CAPTION>
Average Annual Total Return - Class B Shares
Fund/Class
Commencement One Five Ten Life of
Fund Name of Operations Year Years Years Fund
--------- ------------- ---------- ---------- --------- ----------
With Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales Sales
Load* Load Load* Load Load* Load Load* Load
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund 02/02/98 % % %(1) %(1) -- -- % %
Core Equity Fund 06/30/00
International Equity Fund
Growth Fund 02/02/98 % % %(2) %(2) -- -- % %
Income Equity Fund 02/02/98 % % %(3) %(3) %(3) %(3) % %
Small Cap Value Fund 02/02/98 -- -- -- -- -- -- % %
Value Momentum Fund 02/02/98 % % %(4) %(4) -- -- % %
U.S. Government Fund 02/02/98
Money Market Fund 02/02/98 % % %(5) %(5) %(5) %(5) % %
</TABLE>
* Reflects maximum CDSC of 5.00%.
(1) Prior to 11/13/92, performance for Class B Shares is based on Fiduciary
Share performance, which were first offered 2/1/91. The performance of the
Fiduciary Shares has been adjusted for the maximum contingent deferred sales
charge applicable to Class B Shares, but does not reflect the Class B Shares;
Rule 12b-1 fees and expenses. With those adjustments, performance would be lower
than that shown.
(2) Prior to 2/2/98, performance for Class B Shares is based on Fiduciary Share
performance, which were first offered 11/18/93. The performance of the Fiduciary
Shares has been adjusted for the maximum contingent deferred sales charge
applicable to Class B Shares, but does not reflect the Class B Shares; Rule
12b-1 fees and expenses. With those adjustments, performance would be lower than
that shown.
(3) Prior to 2/2/98, performance for Class B Shares is based on Fiduciary Share
performance, which were first offered 2/9/84. The performance of the Fiduciary
Shares has been adjusted for the maximum contingent deferred sales charge
applicable to Class B Shares, but does not reflect the Class B Shares; Rule
12b-1 fees and expenses. With those adjustments, performance would be lower than
that shown.
(4) Prior to 4/2/92, performance for Class B Shares is based on Fiduciary Share
performance, which were first offered 2/1/91. The performance of the Fiduciary
Shares has been adjusted for the maximum contingent deferred sales charge
applicable to Class B Shares, but does not reflect the Class B Shares; Rule
12b-1 fees and expenses. With those adjustments, performance would be lower than
that shown.
(5) Prior to 2/2/98, performance for Class B Shares is based on Fiduciary Share
performance, which were first offered 8/10/87. The performance of Fiduciary
Shares has been adjusted for the maximum contingent deferred sales charge
applicable to Class B Shares, but does not reflect the Class B Shares; Rule
12b-1 fees and expenses. With those adjustments, performance would be lower than
that shown.
-86-
<PAGE>
The average total return for the Fiduciary Shares of each Fund,
computed as of July 31, 2000, is shown in the table below:
<TABLE>
<CAPTION>
Average Annual Total Return - Fiduciary Shares
Fund/Class
Commencement One Five Ten Life of
Fund Name of Operations Year Years Years Fund
--------- ------------- ---- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Balanced Fund 02/01/91 % % -- %
Core Equity Fund 05/31/00
Growth Fund 11/18/93 % % -- %
Income Equity Fund 02/09/84 % % % %
International Equity Fund 02/01/95 % -- -- %
Small Cap Value Fund 09/17/98 -- -- -- %
Value Momentum Fund 02/01/91 % % -- %
Bond Fund 02/15/84 % % % %
California Intermediate
Tax-Free Bond Fund 10/15/93 % % -- %
100% U.S. Treasury Money
Market Fund 08/10/87 % % % %
California Tax-Free
Money Market Fund 06/10/91 % % -- %
Diversified Money Market
Fund 02/02/91 % % -- %
U.S. Government Money
Market Fund 08/10/87 % % % %
</TABLE>
Prior to June 23, 1988 (the date on which the Income Equity Fund and
the Bond Fund commenced operations as a result of the reorganization involving
the IRA Fund Income Equity Portfolio and the IRA Fund Bond Portfolio,
respectively, as described under "ADDITIONAL INFORMATION - The Reorganization of
the IRA Fund and HighMark Funds" above), the total return and average annual
total return of the Income Equity Fund and the Bond Fund reflects the total
return and average annual total return of the IRA Fund Income Equity Portfolio,
and the IRA Fund Bond Portfolio, respectively. Each IRA Fund Portfolio received
investment advice from the same division of the Bank of California subsequently
known as Pacific Alliance Capital Management and then reorganized as HighMark
Capital Management, Inc, and had substantially similar investment objectives,
policies, and restrictions of the Fund into which it was reorganized. However,
potential investors in the Income Equity Fund, and the Bond Fund should be aware
that both the nature and amount of fees and expenses of the IRA Fund Income
Equity Portfolio, and the IRA Fund Bond Portfolio differ from the Fund into
which the respective IRA Fund Portfolios were reorganized. See "Management of
HighMark Funds - Investment Adviser" and the Statements of Operations in the
Financial Statements with respect to the Income Equity Fund, and the Bond Fund
and the IRA Fund Income Equity Portfolio, and the IRA Fund Bond Portfolio for
the applicable period ended July 31, 1989 and June 22, 1988 contained in this
Statement of Additional Information.
Because each class of Shares of a Fund has different sales charge
structures and differing distribution and shareholder servicing fees, the
performance of each class will differ. All
-87-
<PAGE>
performance information presented is based on past performance and does not
predict future performance.
MISCELLANEOUS
Prior to April 28, 1997, the California Tax-Free Money Market Fund, the
Value Momentum Fund, the International Equity Fund, and the California
Intermediate Tax-Free Bond Fund were Stepstone Funds.
Shareholders are entitled to one vote for each Share held in a Fund as
determined on the record date for any action requiring a vote by the
Shareholders, and a proportionate fractional vote for each fractional Share
held. Shareholders of HighMark Funds will vote in the aggregate and not by
series or class except (i) as otherwise expressly required by law or when
HighMark Funds' Board of Trustees determines that the matter to be voted upon
affects only the interests of the Shareholders of a particular series or
particular class, and (ii) only Retail Shares will be entitled to vote on
matters submitted to a Shareholder vote relating to the Distribution Plan.
HighMark Funds is not required to hold regular annual meetings of Shareholders,
but may hold special meetings from time to time.
HighMark Funds' Trustees are elected by Shareholders, except that
vacancies may be filled by vote of the Board of Trustees. HighMark Funds is not
required to hold meetings of Shareholders for the purpose of electing Trustees
except that (i) HighMark Funds is required to hold a Shareholders' meeting for
the election of Trustees at such time as less than a majority of the Trustees
holding office have been elected by Shareholders and (ii) if, as a result of a
vacancy on the Board of Trustees, less than two-thirds of the Trustees holding
office have been elected by the Shareholders, that vacancy may be filled only by
a vote of the Shareholders. In addition, Trustees may be removed from office by
a written consent signed by the holders of Shares representing two-thirds of the
outstanding Shares of HighMark Funds at a meeting duly called for the purpose,
which meeting shall be held upon the written request of the holders of Shares
representing not less than 10% of the outstanding Shares of HighMark Funds. Upon
written request by the holders of Shares representing 1% of the outstanding
Shares of HighMark Funds stating that such Shareholders wish to communicate with
the other Shareholders for the purpose of obtaining the signatures necessary to
demand a meeting to consider removal of a Trustee, HighMark Funds will provide a
list of Shareholders or disseminate appropriate materials (at the expense of the
requesting Shareholders). Except as set forth above, the Trustees may continue
to hold office and may appoint successor Trustees.
HighMark Funds is registered with the Securities and Exchange
Commission as a management investment company. Such registration does not
involve supervision by the Securities and Exchange Commission of the management
or policies of HighMark Funds.
The Prospectuses and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Securities and Exchange
-88-
<PAGE>
Commission. Copies of such information may be obtained from the Securities and
Exchange Commission upon payment of the prescribed fee.
The 2000 Annual Report to Shareholders of HighMark Funds [will be]
incorporated herein by reference. This Report includes audited financial
statements for the fiscal year ended July 31, 2000. Upon the incorporation by
reference herein of such Annual Report, the opinion in such Annual Report of
independent accountants is incorporated herein by reference and such Annual
Report's financial statements are incorporated by reference herein in reliance
upon the authority of such accountants as experts in auditing and accounting.
The Prospectuses and this Statement of Additional Information are not
an offering of the securities herein described in any state in which such
offering may not lawfully be made.
No salesperson, dealer, or other person is authorized to give any
information or make any representation other than those contained in the
Prospectuses and this Statement of Additional Information.
As of September 15, 2000, HighMark Funds believes that the trustees
and officers of HighMark Funds, as a group, owned less than one percent of
the Shares of any Fund of HighMark Funds. As of September 15, 2000, HighMark
Funds believes that there was no person who beneficially owned more than 25%
of the Class A, Class B or Class C Shares of any Fund.
As of September 15, 2000, HighMark Funds believes that Union Bank of
California was the shareholder of record of ____% of the Fiduciary Shares of
the Growth Fund, ____% of the Fiduciary Shares of the Income Equity Fund,
____% of the Fiduciary Shares of the Balanced Fund, ____% of the Fiduciary
Shares of the Bond Fund, ____% of the Fiduciary Shares of the California
Intermediate Tax-Free Bond Fund, ___% of the Fiduciary Shares of the Value
Momentum Fund, ____% of the Fiduciary Shares of the Small Cap Value Fund,
_____% of the Fiduciary Shares of the U.S. Government Money Market Fund,
____% of the Fiduciary Shares of the Diversified Money Market Fund, ____% of
the Fiduciary Shares of the 100% U.S. Treasury Money Market Fund and ____% of
the Fiduciary Shares of the California Tax-Free Money Market Fund.
As of September 15, 2000, HighMark Funds believes that Union Bank of
California had investment authority with respect to ____% of the Growth Fund
Fiduciary Shares, ____% of the Income Equity Fund Fiduciary Shares, ____% of
the Balanced Fund Fiduciary Shares, ____% of the Bond Fund Fiduciary Shares,
____% of the Value Momentum Fund Fiduciary Shares, _____% of the
International Equity Fund Fiduciary Shares, ____% of the Small Cap Value Fund
Fiduciary Shares, _____% of the California Intermediate Tax-Free Bond Fund,
____% of the 100% U.S. Treasury Money Market Fund, ____% of the California
Tax-Free Money Market Fund, _____% of the Diversified Money Market Fund, and
____% of the U.S. Government Money Market Fund.
-89-
<PAGE>
The table below indicates each additional person known by HighMark
Funds to own of record or beneficially 5% or more of the Shares of the following
Funds of HighMark Funds as of September 15, 2000.
-90-
<PAGE>
5% OR MORE OWNERS
<TABLE>
<CAPTION>
BALANCED FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
--------------------- ---------------------------------
<S> <C>
Ty & Wei Chen Yeh TTEE 8.54%
Yeh Family Trust
U/A 9/11/91
2048 Studebaker Rd.
Long Beach, CA 90815-3539
BALANCED FUND - CLASS C SHARES
Name and Address Percentage of Ownership of Record
--------------------- ---------------------------------
Union Bank of California Cust. 10.94%
IRA of Patricia A. Dejohn
Rollover
P.O. Box 364
Inyokern, CA 93527-0364
Robert J. Krahulik 86.56%
32062 Via Tonada
San Juan Capistrano, CA 92675-3612
BALANCED FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
Nissan 401(k) Plan %
Attn: Virginia King
P.O. Box 191
Gardena, CA 90248-0191
Nummi Hourly Retirement Plan %
Attn: Paige Kanisberg
45500 Fremont Blvd.
Fremont, CA 94538
-91-
<PAGE>
NEC Savings Plan %
8 Old Sod Farm Road
Melville, NY 11747
Union Bank of California Retirement Plan %
350 California Street
San Francisco, CA 94104
Union Bank of California 401(k) Plan %
350 California Street
San Francisco, CA 94104
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lane & Company 81.99%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
American Express Trust Company 9.08%
As Agent for NEC Savings and
Retirement Plan
Attn: Nancy Jendro Trust Operation
P.O. Box 534
Minneapolis, MN 55440-0534
PFTC Trustee Nissan Empl. Sav. Plan 5.26%
Putnam Investments
Nissan Motor Corporation
Location 31
P.O. Box 9740
Providence, RI 02940-9740
GROWTH FUND - CLASS C SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Uri Moscovici 7.19%
Hedy Moscovici
6315 Ridge Path Ct.
Rancho Palos Verdes, CA 90275-3247
Union Bank of Calif. Cust. 5.19%
IRA of Robert S. Cathcart
Rollover
1112 Filbert
San Francisco, CA 94109-1712
Claudia Venegas Villegas 6.46%
A P 22 Cabo San Lucas
BCS Mexico
Union Bank of California Cust. 23.10%
IRA of David Miller
Rollover
1408 Hawthorne Terrace
Berkeley, CA 94708-1804
CORE EQUITY FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
The Chicago Trust Company 18.39%
of California TTEE
Omnibus Account
U/A Dtd. 12/17/1999
P.O. Box 121589
San Diego, CA 92112-1589
Union Bank of California Cust. 9.33%
IRA of James Harris
1212 Christian Valley Road
Auburn, CA 95602-8851
Brent M. Lievsay 8.84%
3625 5th Avenue
San Diego, CA 92103-4219
Union Bank of California Cust. 47.19%
IRA of Ken Inose
28425 Cayuse Ln.
Rancho Palos Verdes, CA 90275-5163
CORE EQUITY FUND - CLASS B SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
State Street Bank & Trust Co. 6.73%
Cust. for the IRA of
FBO Dennis Wood
20559 Glenwood Dr.
Castro Valley, CA 94552-5226
Union Bank of California Cust. 22.24%
IRA of James R. Wells
13159 S. Peach Ave.
Selma, CA 93662-9632
Bill T. Scarbrough 6.34%
Marilyn J. Scarbrough
2278 S. Indiana St.
Porterville, CA 93257-8916
Robert S. Parker 6.29%
816 Saratoga Ave., #104
San Jose, CA 95129-2675
CORE EQUITY FUND - FIDUCIARY SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lane & Company 97.43%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 85484
San Diego, CA 92186-5484
-92-
<PAGE>
GROWTH FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
Union Bank of California Retirement Plan %
350 California Street
San Francisco, CA 94104
Union Bank of California 401(k) Plan %
350 California Street
San Francisco, CA 94104
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lane & Company 90.35%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 84584
San Diego, CA 92138-4584
BOTT Pension 7.28%
c/o Bank of Tokyo Trust Company
Attn: Dennis Demetropoulos
1251 Avenue of the Americas, Fl. 10
New York, NY 10020-1104
-93-
<PAGE>
INCOME EQUITY FUND - CLASS C SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Thomas Family Rev. Trust 7.83%
Karen R. Thomas TTEE
U/A 12/12/97
5716 N. 8th Street
Fresno, CA 93710-6432
Union Bank of California Cust. 55.75%
IRA of Elena C. La Clair
106 Greenwood Dr.
South San Francisco, CA 94080-5837
Union Bank of California Cust. 32.30%
IRA of Linda Joy William
P.O. Box 3632
Dana Point, CA 92692-8632
INCOME EQUITY FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
Union Bank of California 401(k) Plan %
350 California Street
San Francisco, CA 94104
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lane & Company 99.61%
c/o Union Bank
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
INTERNATIONAL EQUITY FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
State Street Bank & Trust Co. 9.53%
Cust. for the IRA of
FBO Florence Arnols
1913 Saint Andrews Dr.
Moraga, CA 94556-1062
Said Cohen TTEE 36.14%
Said and Joan Cohen Family Trust
U/A 9/28/77
1862 Park Skyline Road
Santa Ana, CA 92705-3130
LPL Financial Services 16.84%
9785 Towne Centre Drive
San Diego, CA 92121-1968
-94-
<PAGE>
INTERNATIONAL EQUITY FUND - CLASS B SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
So Cal Inderground 11.48%
P.O. Box 1747
Brea, CA 92822-1747
Union Bank of California Cust. 9.76%
IRA of David C. Gallardo
10290 Ave. 19 1/2
Chowchilla, CA 93610-9070
INTERNATIONAL EQUITY FUND - CLASS C SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
State Street Bank & Trust Co. 8.10%
Cust. for the IRA R/O
FBO Rodney A. Harrison
2410 N. Post Street
Spokane, WA 99205-3251
Rosemary Mercurio 37.73%
8840 W. Kimberly Way
Peoria, AZ 85382-8721
State Street Bank & Trust Co. 22.11%
Cust. for the IRA of
FBO Ronald D. Noon
P.O. Box 893
Orinda, CA 94563-0888
State Street Bank & Trust Co. 19.69%
Cust. for the IRA of
FBO Hiroshi Nakai
138 15th Avenue
San Francisco, CA 94118-1011
-95-
<PAGE>
INTERNATIONAL EQUITY FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
UBOC Retirement Plan %
350 California Street
San Francisco, CA 94104
Nummi Hourly Retirement Plan %
Attn: Paige Kenisberg
45500 Fremont Blvd.
Fremont, CA 94538
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
The Equitable Life Assurance 5.22%
Society of the United States
1290 Avenue of the Americas
12th Floor
Attn: Rosemarie Shomstein
New York, NY 10104-0101
AXA Banque 7.12%
372 Rue Saint Honore
75040 Paris Cedex 01 France
Lane & Company 76.00%
c/o Union Bank of California
Attn: Kathleen Heilman
P. O. Box 85484
San Diego, CA 92186-5484
SMALL CAP VALUE FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Said Cohen TTEE 5.14%
Said and Joan Cohen Family Trust
U/A 9/28/77
1862 Park Skyline Road
Santa Ana, CA 92705-3130
Considine Family Trust 6.50%
Kenneth M. Considine
U/A 06/14/00
Moreno Valley, CA 92551-1928
-96-
<PAGE>
Union Bank Cust. 8.23%
IRA of Robert S. Butler
Personalized IRA Rollover
650 Club View Drive
Los Angeles, CA 90024-2624
Barbara & Andrew Leigh Family 7.31%
Andrew M. Leigh
U/A 11/08/1994
15961 Royal Oak Road
Encino, CA 91436-3911
SMALL CAP VALUE FUND - CLASS B SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
William & Anna Tenenblatt Trust 5.31%
William Tenenblatt
V/A 04/12/1986
608 N. Beverly Dr.
Beverly Hills, CA 90210-3320
SMALL CAP VALUE FUND - CLASS C SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
State Street Bank & Trust Co. 5.84%
Cust. for the IRA of
FBO Tedd J. Dowd
1030 Lehigh Valley Circle
Danville, CA 94526-4926
Sally Gibson 26.68%
36110 Fanshawe Street
Fremont, CA 94536-4634
Bear Stearns Securities Corp. 6.59%
FBO 486-90368-16
1 Metrotech Center North
Brooklyn, NY 11201-3870
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SMALL CAP VALUE FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
UBOC Retirement Plan %
350 California Street
San Francisco, CA 94104
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lane & Company 83.69%
c/o Union Bank of CA
Attn: Kathleen Heilman
P.O. Box 85484
San Diego, CA 92186-5484
BOTT Pension 13.04%
c/o Bank of Tokyo Trust Company
Attn: Dennis Demetropoulos
1251 Avenue of the Americas, Fl. 10
New York, NY 10020-1104
VALUE MOMENTUM FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
The Chicago Trust Company 6.41%
of Chicago
Omnibus Account
VA DTD 12/17/1999
P.O. Box 121589
San Diego, CA 92112-1589
VALUE MOMENTUM FUND - CLASS C SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
California Chamber of Commerce 7.70%
P.O. Box 1736
Sacramento, CA 95812-1736
Elizabeth J. Petersen TTEE 6.45%
Elizabeth Jane Petersen Trust
U/A 6/30/95
6626 Sunny Brae Dr.
San Diego, CA 92119-2959
Wexford Clearing Services Corp. FBO 15.47%
Mr. Roy Zeiger
Mrs. Mavis Zeiger Co.-Ttees.
U/A Dtd. 04/12/00
6432 Buckskin Lane
Roseville, CA 95747-8076
LPL Financial Services 5.11%
9785 Towne Centre Drive
San Diego, CA 92121-1968
Wexford Clearing Services Corp. FBO 7.34%
Sutro & Co. Inc. C/F
Walter Schieron
Walter Schieron Sep. Dtd.
12/26/90
Camino, CA 95709
VALUE MOMENTUM FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
UBOC Retirement Plan %
350 California Street
San Francisco, CA 94104
UBOC 401(k) Plan %
350 California Street
San Francisco, CA 94104
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Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lane & Company 93.41%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 85484
San Diego, CA 92186-5484
VALUE MOMENTUM FUND - CLASS I SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Mellon Bank NA, Trustee for Dept. 69.28%
of Personnel Admin. of St. of CA
Attn: Wally Adebayo
135 Santilli Hwy.
Everett, MA 02149-1906
Mellon Bank NA, Trustee for Dept. of 30.72%
Personnel Admin. of St. of CA 401K
Attn: Wally Adebayo
135 Santilli Hwy.
Everett, MA 02149-1906
BOND FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
The Chicago Trust Company 15.63%
of Chicago TTEE
Omnibus Account
UA DTD 12/17/1999
P.O. Box 121589
San Diego, CA 92112-1589
-99-
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BOND FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
BTM U.S. Agency Retirement Plan %
1251 Avenue of the Americas
New York, NY 10020
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lane & Company 80.65%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
BOTT Pension 14.42%
c/o Bank of Tokyo-Mitsubishi Trust Company
Attn: Dennis Demetropoulos
1251 Avenue of the Americas FL 10
New York, NY 10020-1104
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Charles Schwab & Co., Inc. 32.92%
FBO Exclusive Customers
101 Montgomery St.
San Francisco, CA 94104-4122
Harry R. & Edythe L. Silverglide TTEE 12.29%
Harry & Edythe Silverglide
c/o Mike Destro
16615 Lark Ave. Ste 200
Los Gatos, CA 95032-7645
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CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND - CLASS B SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Sugi Morimoto TTEE 20.50%
The Morimoto Family Trust
U/A 3/20/81
4410 Celeste Street
Santa Ana, CA 92703-1611
Susanna M. Fernandez 5.45%
1119 Gardner Blvd.
San Leondro, CA 94577-2539
Sutherland Family Trust 9.35%
Robert Douglas Sutherland
U/A 06/07/1995
1676 Auburn Ravine Road
Auburn, CA 95603-3611
John J. McCullough 24.97%
Eula J. McCullough
13861 Oakwood Glen Pl.
Valley Center, CA 92082-5813
Mehran Raza 5.42%
1106 N. 2nd Street
El Cajon, CA 92021-5008
First Union Securities, Inc. 7.25%
Eva E. Deady Tr.
111 East Kilbourn Avenue
Milwaukee, WI 53202-6611
LPL Financial Services 8.11%
9785 Towne Centre Drive
San Diego, CA 92121-1968
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND - FIDUCIARY SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lane & Company 99.99%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 85484
San Diego, CA 92186-5484
100% U.S. TREASURY MONEY MARKET FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
National Financial Services LLC 99.99%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
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<PAGE>
100% U.S. TREASURY MONEY MARKET FUND - FIDUCIARY SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Union Bank of California 95.30%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
100% U.S. TREASURY MONEY MARKET FUND - CLASS S SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
National Financial Services LLC 100.00%
for the Benefit of Our Customers
Church Street Station
P.O. Box 3752
New York, NY 10008-3752
CALIFORNIA TAX-FREE MONEY MARKET FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
National Financial Services LLC 99.43%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
CALIFORNIA TAX-FREE MONEY MARKET FUND - FIDUCIARY SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Union Bank of California 99.99%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
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<PAGE>
CALIFORNIA TAX-FREE MONEY MARKET FUND - CLASS S SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
National Financial Services LLC 100.00%
For the Benefit of our Customers
Church Street Station
PO Box 3752
New York, NY 10008-3752
DIVERSIFIED MONEY MARKET FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
National Financial Services LLC 97.22%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
DIVERSIFIED MONEY MARKET FUND - FIDUCIARY SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Union Bank of California 83.42%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
Lane & Company 15.40%
c/o Union Bank of California
Attn: Kathleen Heilman
PO Box 120109
San Diego, CA 92112-0109
DIVERSIFIED MONEY MARKET FUND - CLASS S SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
National Financial Services LLC 100.00%
For the Benefit of our Customers
Church Street Station
PO Box 3752
New York, NY 10008-3752
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<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
National Financial Services LLC 96.63%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
U.S. GOVERNMENT MONEY MARKET FUND - CLASS B SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lakeside Business Center 21.44%
Sole Proprietorship
Ronald E. Soderling
1400 N. Bristol Street Suite #150
Newport Beach, CA 97660-2957
Laguna Ridge Business Center 14.30%
Sole Proprietorship
Ronald E. Soderling
1400 N. Bristol St. Suite 150
Newport Beach, CA 92650-2957
Park Laguna Hills 14.29%
Sole Proprietorship
Ronald B. Soderling
1400 N. Bristol St. Suite 150
Newport Beach, CA 92660-2957
Jeany Choi Lee 11.63%
1207 W. 164th Street, Apt. #1
Gardena, CA 90247-4886
Ragen MacKenzie Incorporated FBO 6.31%
Ragen MacKenzie Incorporated
c/f Richard E. Haugen
IRA
P.O. Box 2279
Hailey, ID 83333-2279
Miyoko Nishiya 6.61%
1876 W. 180th Street
Torrance, CA 90504-4439
Sachiko Kuwada 7.27%
2 Commodore Dr., #386
Emeryville, CA 94608-1642
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<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
Watkins Johnson Company %
3333 Hillview Avenue
Palo Alto, CA 94304
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Union Bank of California 97.53%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
U.S. GOVERNMENT MONEY MARKET FUND - CLASS S SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
National Financial Services LLC 100.00%
For the Benefit of our Customers
Church Street Station
PO Box 3752
New York, NY 10008-3752
</TABLE>
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<PAGE>
APPENDIX
The nationally recognized statistical rating organizations
(individually, an "NRSRO") that may be utilized by the Funds with regard to
portfolio investments for the Funds include Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P"), Duff & Phelps, Inc.
("Duff"), Fitch IBCA, and Thomson BankWatch, Inc. ("Thomson"). Set forth below
is a description of the relevant ratings of each such NRSRO. The NRSROs that may
be utilized by the Funds and the description of each NRSRO's ratings is as of
the date of this Statement of Additional Information, and may subsequently
change. Long-Term Debt Ratings (may be assigned, for example, to corporate and
municipal bonds) Description of the five highest long-term debt ratings by
Moody's (Moody's applies numerical modifiers (1, 2, and 3) in each rating
category to indicate the security's ranking within the category):
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times in the future. Uncertainty of
position characterizes bonds in this class.
Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or
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minus (-) to a particular rating classification to show relative standing within
that classification):
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
Obligations rated BB, B, CCC, CC, and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
Description of the three highest long-term debt ratings by Duff:
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong.
AA Risk is modest but may vary slightly from time to
AA- time because of economic conditions.
A+ Protection factors are average but adequate. However,
A risk factors are more variable and greater in periods
A- of economic stress.
Description of the three highest long-term debt ratings by Fitch IBCA (plus or
minus signs are used with a rating symbol to indicate the relative position of
the credit within the rating category):
AAA Obligations which have the highest rating assigned by Fitch IBCA.
Capacity for timely repayment principal and interest is extremely strong
relative to other obligors in the same
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country.
AA Obligations for which capacity for timely repayment of principal and
interest is very strong relative to other obligors in the same country. The risk
attached to these obligations differs only slightly from the country's highest
rated debt.
A Obligations for which capacity for timely repayment of principal and
interest is strong relative to other obligors in the same country. However,
adverse changes in business, economic or financial conditions are more likely to
affect the capacity for timely repayment than for obligations in higher rated
categories.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
Leading market positions in well-established industries.
High rates of return on funds employed.
Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
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S&P's description of its three highest short-term debt ratings:
A-1 A short-term obligation rated A-1 is rated in the highest category
by S&P. The obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Duff's description of its three highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
D-1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
D-3 Satisfactory liquidity and other protection factors qualify issues
as to investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Fitch IBCA's description of its three highest short-term debt ratings:
F1 Obligations assigned this rating have the highest capacity for
timely repayment under Fitch IBCA's national rating scale for that country,
relative to other obligations in the same country. Where issues possess a
particularly strong credit feature, a "+" is added to the assigned
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<PAGE>
rating.
F2 Obligations supported by a strong capacity for timely repayment
relative to other obligors in the same country. However, the relative degree of
risk is slightly higher than for issues classified as 'A1' and capacity for
timely repayment may be susceptible to adverse changes in business, economic, or
financial conditions.
F3 Obligations supported by an adequate capacity for timely repayment
relative to other obligors in the same country. Such capacity is more
susceptible to adverse changes in business, economic, or financial conditions
than for obligations in higher categories.
SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIG-1 This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2 This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
SHORT-TERM DEBT RATINGS
Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch-TM- Ratings do not constitute a recommendation to buy or sell
securities of any of these companies. Further, BankWatch does not suggest
specific investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that have a
maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an untimely
payment of principal or interest.
TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
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<PAGE>
TBW-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".
TBW-3 The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
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<PAGE>
FINANCIAL STATEMENTS
The Independent Auditors' Report for HighMark Funds for the fiscal year
ended July 31, 2000, audited Financial Statements for HighMark Funds for the
fiscal year ended July 31, 2000, and unaudited Financial Statements for HighMark
Funds for the period ended January 31, 2000 will be incorporated by reference to
the Annual and Semi-Annual Reports of HighMark Funds, dated as of such dates,
which will be sent to shareholders of each Fund pursuant to the 1940 Act and
will be filed with the Securities and Exchange Commission, by subsequent
amendment prior to the effectiveness of this amendment to HighMark Funds'
registration statement. A copy of each such report may be obtained without
charge by contacting the Distributor, SEI Investments Distribution Co. at 1
Freedom Valley Drive, Oaks, Pennsylvania, 19456 or by telephoning toll-free at
1-800-734-2922.
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PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
(a) (1) Declaration of Trust, dated March 10, 1987, is
incorporated by reference to Exhibit (1)(a) of
Pre-Effective Amendment No. 1 (filed May 15, 1987) to
Registrant's Registration Statement on Form N-1A.
(2) Amendment to Declaration of Trust, dated April 13,
1987, is incorporated by reference to Exhibit (1)(b) of
Pre-Effective Amendment No. 1 (filed May 15, 1987) to
Registrant's Registration Statement on Form N-1A.
(3) Amendment to Declaration of Trust, dated July 13, 1987,
is incorporated by reference to Exhibit (1)(c) of Pre-
Effective Amendment No. 2 (filed July 24, 1987) to
Registrant's Registration Statement on Form N-1A.
(4) Amendment to Declaration of Trust, dated July 30, 1987,
is incorporated by reference to Exhibit (1)(d) of Pre-
Effective Amendment No. 3 (filed July 31, 1987) to
Registrant's Registration Statement on Form N-1A.
(5) Amendment to Declaration of Trust, dated October 18,
1996, is incorporated by reference to Exhibit (1)(e) of
Post-Effective Amendment No. 18 (filed November 8,
1996) to Registrant's Registration Statement on Form
N-1A.
(6) Amendment to Declaration of Trust, dated December 4,
1996, is incorporated by reference to Exhibit (1)(f) of
Post-Effective Amendment No. 19 (filed December 13,
1996) to Registrant's Registration Statement on Form
N-1A.
(b) (1) Amended and Restated Code of Regulations, dated
June 5, 1991, is incorporated by reference to Exhibit 2
of Post-Effective Amendment No. 7 (filed September 30,
1991) to Registrant's Registration Statement on Form
N-1A.
(2) Amendment to Amended and Restated Code of Regulations,
dated December 4, 1991, is incorporated by reference to
Exhibit 2(b) of Post-Effective Amendment
<PAGE>
No. 8 (filed September 30, 1992) to Registrant's
Registration Statement on Form N-1A.
(c) RIGHTS OF SHAREHOLDERS
The following portions of Registrant's Declaration of
Trust incorporated as Exhibit (a) hereto, define the
rights of shareholders:
5.1 SHARES IN THE SERIES OF THE TRUST.
A. The Trustees shall have full power and authority, in
their sole discretion, without obtaining the prior
approval of the Shareholders (either with respect to the
Trust as a whole or with respect to any series of the
Trust) by vote or otherwise, to establish one or more
series of Shares of the Trust. The establishment of any
such series shall be effective upon the adoption by a
majority of the Trustees then in office of a resolution
establishing such series and setting the voting rights,
preferences, designations, conversion or other rights,
restrictions, limitations as to distributions, conditions
of redemption, qualifications, or other terms of the
Shares of such series. The beneficial interest in each
series of the Trust shall at all times be divided into
full and fractional transferable Shares without par value.
There is no numerical limitation on the number of Shares
of a series that may be issued. The investment objective,
policies, and restrictions governing the management and
operations of each series of the Trust, including the
management of assets belonging to any particular series,
may from time to time be changed or supplemented by the
Trustees, subject to the requirements of the Act. The
Trustees may from time to time divide or combine the
outstanding Shares of any one or more series of the Trust
into a greater or lesser number without thereby changing
their proportionate beneficial interests in the Trust
assets allocated or belonging to such series.
Subject to the respective voting rights, preferences,
participating or other special rights and qualifications,
restrictions, and limitations expressly provided for in
this Declaration of Trust or the Code of Regulations with
respect to Shares of each series of the Trust, the
Trustees have the power to classify or reclassify Shares
of any series of the Trust into one or more classes by
setting or changing in any one or more respects, from time
to time, the
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<PAGE>
preferences, designations, conversion or other rights,
restrictions, limitations as to dividends, conditions of
redemption, qualifications, or other terms applicable to
Shares of such class. All references in this Declaration
of Trust to Shares of any series of the Trust shall
include and refer to the Shares of any class thereof.
B. Shares of each series of the Trust shall have the
following preferences, participating or other special
rights, qualifications, restrictions and limitations:
(1) ASSETS BELONGING TO A SERIES. All consideration
received by the Trust for the issue or sale of Shares of
any series, together with all assets in which such
consideration is invested or reinvested, including any
proceeds derived from the sale, exchange, or liquidation
of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same
may be, shall be referred to as "assets belonging to" that
series. In addition, any assets, income, earnings, profits
or proceeds thereof, or funds or payments which are not
readily identifiable as belonging to a particular series
shall be allocated by the Trustees to one or more series
(such allocation to be conclusive and binding upon the
Shareholders of all series for all purposes) in such
manner as they, in their sole discretion, deem fair and
equitable, and shall also be referred to as "assets
belonging to" such series. Such assets belonging to a
particular series shall irrevocably belong for all
purposes to the Shares of the series, and shall be so
handled upon the books of account of the Trust. Such
assets and the income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale,
exchange, or liquidation thereof, and any funds or
payments derived from any reinvestment of such proceeds in
whatever form, are herein referred to as "assets belonging
to" such a series. Shareholders of any series shall have
no right, title or interest in or to the assets belonging
to any other series.
(2) LIABILITIES BELONGING TO A SERIES. The assets
belonging to any series of the Trust shall be charged with
the direct liabilities in respect of such series and with
all expenses, costs, charges, and reserves attributable to
such series, and shall also be charged with the share of
such series of the general liabilities, expenses, costs,
charges, and reserves of the Trust which are not readily
identifiable as belonging to a particular series in
proportion to the relative net assets of the respective
series, as determined at
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such time or times as may be authorized by the Trustees.
Any such determination by the Trustees shall be conclusive
and binding upon the Shareholders of all series for all
purposes; provided, however, that under no circumstances
shall the assets allocated or belonging to any series of
the Trust be charged with liabilities directly
attributable to any other series. The liabilities so
charged to a series are herein referred to as "liabilities
belonging to" such series. All persons who may have
extended credit to a particular series or who have
contracts or claims with respect to a particular series
shall look only to the assets of that particular series
for payment of such contracts or claims.
(3) LIQUIDATING DISTRIBUTIONS. In the event of the
termination of the Trust or a particular series thereof
and the winding up of its affairs, the Shareholders of the
Trust or such particular series shall be entitled to
receive out of the assets of the Trust or belonging to the
particular series, as the case may be, available for
distribution to Shareholders, but other than general
assets not belonging to any particular series of the
Trust, the assets belonging to such series; and the assets
so distributable to the Shareholders of any series shall
be distributed among such Shareholders in proportion to
the number of Shares of such series held by them and
recorded in their names on the books of the Trust. In the
event that there are any general assets not belonging to
any particular series of the Trust available for
distribution, such distribution shall be made to the
Shareholders of all series subject to such termination and
winding up in proportion to the relative net assets of the
respective series determined as hereinafter provided and
the number of Shares of such series held by them and
recorded in their names on the books of the Trust.
(4) DIVIDENDS AND DISTRIBUTIONS. Shares of each
series shall be entitled to such dividends and
distributions in Shares or in cash or both, as may be
declared from time to time by the Trustees, acting in
their sole discretion, with respect to such series,
provided, however, that dividends and distributions on
Shares of a particular series shall be paid only out of
the lawfully available "assets belonging to" such series
as such term is defined in this Declaration of Trust.
5.2 PURCHASE OF SHARES. The Trustees may accept investments in
each series of the Trust from such Persons for such
consideration and on such other terms as they may from time to
time authorize. The Trust may reject
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any order for, or refuse to give effect on the books of the
Trust to the transfer of, any Shares as permitted under the Act.
Each such investment shall be credited to the Shareholder's
account in the form of full and fractional Shares of the
appropriate series of the Trust, at the net asset value per
Share next computed after receipt of the investment.
5.3 NET ASSET VALUE PER SHARE. The net asset value per Share
of each series of the Trust shall be computed at such time or
times as the Trustees may specify pursuant to the Act. Assets
shall be valued and net asset value per Share shall be
determined by such Person or Persons as the Trustees may appoint
under the supervision of the Trustees in such manner not
inconsistent with the Act and any orders of the Securities and
Exchange Commission received by the Trust, as the Trustees may
determine.
5.4 OWNERSHIP OF SHARES. The ownership of Shares shall be
recorded separately with respect to each series on the record
books of the Trust. Certificates for Shares shall be issued to
holders of such Shares only upon the authorization of the
Trustees, in their discretion, to issue such certificates, and
shall be issued, if at all, subject to such rules and
regulations as the Trustees may determine. The Trustees may make
such rules as they consider appropriate for the transfer of
Shares and similar matters. The record books of the Trust shall
be conclusive as to the identity of holders of Shares and as to
the number of Shares of each series held by each Shareholder.
5.5 PREEMPTIVE RIGHTS. Shareholders shall have no preemptive
or other rights to subscribe to any additional Shares or other
securities issued by the Trust or by the Trustees.
5.6 REDEMPTION OF SHARES. To the extent of the assets of the
Trust legally available for such redemption, a Shareholder of
any series of the Trust shall have the right, subject to the
provisions of Section 5.7 hereof, to require the Trust to redeem
his full and fractional Shares of any series out of assets
belonging to such series at a redemption price equal to the net
asset value per Share next determined after receipt of a request
to redeem in proper form as determined by the Trustees. The
Trustees shall establish such rules and procedures as they deem
appropriate for redemption of Shares; PROVIDED, HOWEVER, that
all redemptions shall be in accordance with the Act. Without
limiting the generality of the foregoing, the Trust shall, to
the extent permitted by applicable law, have the right at any
time to redeem the Shares owned by any holder thereof (i) if the
value of such Shares in an account maintained by the Trust or
its transfer agent for any
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Shareholder with respect to any series of the Trust is less than
the amount specified by resolution of the Trustees; PROVIDED,
HOWEVER, that any such Shareholder shall be notified that the
value of his account is less than such amount, and shall be
allowed such period of time as specified by resolution of the
Trustees to make additional purchases of Shares of the
appropriate series so that the value of his account may be
increased before any such involuntary redemption is processed by
the Trust; or (ii) if the net income with respect to any
particular series of the Trust should be negative or it should
otherwise be appropriate to carry out the Trust's
responsibilities under the Act, in each case subject to such
further terms and conditions as the Board of Trustees of the
Trust may from time to time adopt. The redemption price of
Shares of any series of the Trust shall, except as otherwise
provided in this section, be the net asset value thereof as
determined by the Board of Trustees of the Trust from time to
time in accordance with the provisions of applicable law, less
such redemption fee or other charge, if any, as may be fixed by
resolution of the Board of Trustees of the Trust. When the net
income with respect to any particular series of the Trust is
negative or whenever deemed appropriate by the Board of Trustees
of the Trust in order to carry out the Trust's responsibilities
under the Act, any series of the Trust may, without payment of
compensation but in consideration of the interests of the Trust
or a particular series thereof and of the Shareholders of the
Trust or of such series in maintaining a constant net asset
value per Share with respect to such series, redeem pro rata
from each holder of record on such day, such number of full and
fractional Shares of such series as may be necessary to reduce
the aggregate number of outstanding Shares of such series in
order to permit the net asset value thereof to remain constant.
Payment of the redemption price, if any, shall be made in cash
by the appropriate series of the Trust at such time and in such
manner as may be determined from time to time by the Board of
Trustees of the Trust unless, in the opinion of the Board of
Trustees, which shall be conclusive and binding upon the
Shareholders for all purposes, conditions exist which make
payment wholly in cash unwise or undesirable; in such event the
appropriate series of the Trust may make payment in the assets
belonging or allocable to such series, the value of which shall
be determined as provided herein.
5.7 SUSPENSION OF RIGHT OF REDEMPTION. The Trustees may
suspend the right of redemption by Shareholders or postpone the
date of payment or the recordation of transfer of Shares of any
series, as permitted under the Act or applicable law. Such
suspension or postponement shall take effect at such time as the
Trustees shall specify but not later than the close of business
of the business day following the declaration of suspension or
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postponement, and thereafter there shall be no right of
redemption or payment or transfer until the Trustees shall
declare the suspension at an end. In case of suspension of the
right of redemption, a Shareholder may either withdraw his
request for redemption or receive payment based on the net asset
value existing after the termination of the suspension.
5.8 CONVERSION RIGHTS. The Trustees shall have the authority
to provide from time to time that the holders of Shares of any
series shall have the right to convert or exchange said Shares
for or into Shares of one or more other series in accordance
with such requirements and procedures as may be established from
time to time by the Trustees.
8. SHAREHOLDER'S VOTING POWERS AND MEETINGS. Shareholders
shall have such power to vote as is provided in, and may hold
meetings and take actions pursuant to the provisions of this
Declaration of Trust or the Code of Regulations.
9.4 LIMITATION OF SHAREHOLDER LIABILITY. Shareholders shall
not be subject to any personal liability in connection with the
assets of the Trust for the acts or obligations of the Trust.
The Trustees shall have no power to bind any Shareholder
personally or to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the
Shareholder may at any time, personally agree to pay by way of
subscription to any Share or otherwise. Every obligation,
contract, instrument, certificate, Share, other security or
undertaking of the Trust, and every other act whatsoever
executed in connection with the Trust shall be conclusively
presumed to have been executed or done by the executors thereof
only in their capacities as Trustees under this Declaration of
Trust or in their capacity as officers, employees, or agents of
the Trust, and not individually. Every note, bond, contract,
order, or other undertaking issued by or on behalf of the Trust
or the Trustees relating to the Trust or to any series of the
Trust, and the stationery used by the Trust, shall include a
recitation limiting the obligation represented thereby to the
Trust and its assets (but the omission of such a recitation
shall not operate to bind any Shareholder), as follows:
"The names 'HighMark Funds' and 'Trustees of HighMark Funds'
refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to
time under this Declaration of Trust dated March 10, 1987 to
which reference is hereby made and a copy of which is on file at
the office of the Secretary of the Commonwealth of Massachusetts
and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations
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<PAGE>
of 'The Merus Group' entered into in the name or on behalf
thereof by any of the Trustees, representatives or agents are
made not individually, but in such capacities, and are not
binding upon any of the Trustees, Shareholders or
representatives of the Trust personally, but bind only the
assets of the Trust, and all persons dealing with any series of
Shares of the Trust must look solely to the assets of the Trust
belonging to such series for the enforcement of any claims
against the Trust."
The rights accruing to a Shareholder under this Section 9.4
shall not exclude any other right to which such Shareholder
may be lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not
specifically provided for herein PROVIDED, HOWEVER, that a
Shareholder of any series of the Trust shall be indemnified only
from assets belonging to that series.
9.5 INDEMNIFICATION OF SHAREHOLDERS. In case any Shareholder
or former Shareholder shall be held to be personally liable
solely by reason of his being or having been a Shareholder and
not because of his acts or omissions or for some other reason,
the Shareholder or former Shareholder (or his heirs, executors,
administrators, or other legal representatives, or, in the case
of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the Trust estate to be held
harmless from and indemnified against all loss and expense
arising from such liability. The Trust shall, upon request by
the Shareholder, assume the defense of any claim made against
any Shareholder for any act or obligations of the Trust, and
shall satisfy any judgment thereon.
9.6 LIABILITIES OF A SERIES. Liabilities belonging to any
series of the Trust, including, without limitation, expenses,
fees, charges, taxes, and liabilities incurred or arising in
connection with a particular series, or in connection with the
management thereof, shall be paid only from the assets belonging
to that series.
10.3 TERMINATION OF TRUST. This Trust shall continue without
limitation of time; PROVIDED, HOWEVER, that:
A. The Trustees, with the vote of a majority of the
outstanding Shares of any series of the Trust, may sell and
convey the assets belonging to such series to another I trust or
corporation organized under the laws of any state of the United
States, which is a management investment company as defined in
the Act, for an adequate consideration which may include the
assumption of all
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<PAGE>
outstanding obligations, taxes, and other liabilities, accrued
or contingent, of the series and which may include beneficial
interests of such trust or stock of such corporation. Upon
making provision for the payment of all such liabilities, by
such assumption or otherwise, the Trustees shall distribute the
remaining proceeds ratably among the holders of the Shares of
the series then outstanding.
B. The Trustees, with the vote of a majority, of the
outstanding Shares of any series of the Trust, may sell and
convert into money all the assets belonging to such series. Upon
making provision for the payment of all outstanding obligations,
taxes, and other liabilities, accrued or contingent, of the
series, the Trustees shall distribute the remaining assets
belonging to such series ratably among the holders of the
outstanding Shares of the series.
C. Without the vote of a majority of the outstanding
Shares of any series of the Trust (unless Shareholder approval
is otherwise required by applicable law), the Trustees may
combine the assets belonging to any two or more series into a
single series if the Trustees reasonably determine that such
combination will not have a material adverse effect on the
Shareholders of each series affected thereby.
D. After the effective date of the determination of the
Trustees under paragraph A or B above,
(1) The Trust shall carry on no business relating to
the assets of such series except for the purpose of
winding up the affairs of such series.
(2) The Trustees shall proceed to wind up the
affairs of such series and all of the powers of the
Trustees under this Declaration of Trust shall
continue until the affairs of such series shall have
been wound up, including the power to fulfill or
discharge the contracts of the Trust relating to such
series, to collect assets of such series, to sell,
convey, assign, exchange, transfer, or otherwise
dispose of all or any part of the remaining assets of
such class to one or more Persons at public or private
sale for consideration that may consist in whole or in
part of cash, securities, or other property of any
kind, to discharge or pay its liabilities, and
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to do all other acts appropriate to liquidate the
business of such series.
Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in
paragraphs A and B of this section, the Trustees may
authorize the termination of that series of the Trust.
Such termination shall be effective upon filing with
the State Secretary of the Commonwealth of
Massachusetts of an instrument setting forth such
termination, at which time the Trustees shall be
discharged of any and all further liabilities and
duties hereunder relating to such series and the
right, title and interest of all parties shall be
cancelled and discharged with respect to such series.
Such instrument shall constitute an amendment to this
Declaration of Trust when filed with the State
Secretary of the Commonwealth of Massachusetts as
provided in this Title X.
10.8 AMENDMENT PROCEDURE.
A. Subject to the provisions of subsections B and C of
this Section 10.8, this Declaration of Trust may be
amended by the affirmative vote of the holders of not less
than a majority of the outstanding Shares (except that an
amendment which shall affect the holders of one or more
series of Shares but not the holders of all outstanding
series shall be authorized by vote of the Shareholders
holding a majority of the Shares entitled to vote of each
series affected and no vote of Shareholders of a series
not affected shall be required) or by any larger vote as
may be required by any provisions of applicable law.
B. Notwithstanding any other provisions hereof, until
such time as a Registration Statement under the Securities
Act of 1933, as amended, covering the first public
offering of securities of the Trust shall have become
effective, this Declaration of Trust may be terminated or
amended in any respect by the affirmative vote of a
majority of the Trustees.
C. The Trustees may also amend this Declaration without
the vote of Shareholders to cure any error or ambiguity or
to change the name of the Trust or, if they deem it
necessary, to conform this Declaration of Trust to the
requirements of applicable state or federal laws or
regulations or the requirements of the regulated
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<PAGE>
investment company provisions of the Internal Revenue Code
of 1986, but the Trustees shall not be liable for failing
to do so.
The following portions of Registrant's Code of Regulations
incorporated as Exhibit (b) hereto, define the rights of
shareholders:
1.1 VOTING POWERS. The Shareholders shall have power to
vote (a) for the election of Trustees as provided in
Section 6.2 and Section 6.5 of the Declaration of Trust;
(b) with respect to any amendment of the Declaration of
Trust to the extent and as provided in Section 10.8 of the
Declaration of Trust; (c) with respect to any
restrictions, or amendments thereto, upon the investment
of the assets of the Trust to the extent and as provided
in Article V of these Regulations; (d) with respect to the
approval of investment advisory agreements (as provided in
Section 7.1 of the Declaration of Trust), and with respect
to distribution agreements entered into on behalf of the
Trust or one or more series thereof, to the extent
required by the Investment Company Act of 1940; (e) with
respect to matters relating to any termination of the
Trust or to incorporation to the extent and as provided in
Section 10.3 and Section 10.4, respectively, of the
Declaration of Trust; (f) with respect to such additional
matters relating to the Trust as may be required by law,
the Declaration of Trust, these Regulations, or by any
requirements applicable to or agreement of the Trust, or
as the Trustees may consider desirable; and (g) to the
same extent as the stockholders of a Massachusetts
business corporation, when considering whether a court
action, proceeding, or claim should or should not be
brought or maintained derivatively or as a class action on
behalf of the Trust or the Shareholders; PROVIDED,
HOWEVER, that no Shareholder of a particular series shall
be entitled to bring, or to vote in respect of, any class
or derivative action not on behalf of the series of the
Trust in respect of which the Shareholder owns Shares.
Each whole Share shall be entitled to one vote as to any
matter on which it is entitled to vote and each fractional
Share shall be entitled to a proportionate fractional
vote. There shall be no cumulative voting. Shares may be
voted in person or by proxy. The authorization for a proxy
to act may be obtained by written authorization or by
telephone, facsimile or alternative transmission, provided
that such telephone or facsimile transmission is performed
in accordance with Telephonic and Facsimile Voting
Procedures adopted by the Board of Trustees. On any matter
submitted to a vote of the
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Shareholders, all Shares shall be voted in the aggregate
and not by individual series, except (i) where required
law, Shares shall be voted by individual series, and (ii)
if the Trustees shall have determined that a matter
affects the interests only of one or more series, then
only the Shareholders of such affected series shall be
entitled to vote thereon. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may
take any action required or permitted by law, the
Declaration of Trust, or these Regulations to be taken by
Shareholders.
1.2 MEETINGS. Meetings of Shareholders of the Trust may
be called by the Trustees, and shall be called by the
Trustees whenever required by law or upon the written
request of holders of at least twenty percent of all the
outstanding Shares entitled to vote.
1.3 QUORUM AND REQUIRED VOTE. At any meeting of the
Shareholders, a quorum for the transaction of business
shall consist of a majority represented in person or by
proxy of the outstanding Shares (without regard to
individual series) entitled to vote with respect to a
matter; PROVIDED, HOWEVER, that at any meeting at which
the only actions to be taken are actions required by law,
to be taken by vote of the Shareholders of an individual
series, a quorum shall consist of a majority of the
outstanding Shares of such individual series entitled to
vote thereon, and that at any meeting at which the only
actions to be taken shall have been determined by the
Board of Trustees to affect the rights and interests of
one or more but not all series of the Trust, a quorum
shall consist of a majority of the outstanding Shares of
the series so affected; and PROVIDED, FURTHER, that any
reasonable adjournments of such meeting until a quorum is
obtained may be made by a vote of the Shares present in
person or by proxy. A majority of the votes shall decide
any question and a plurality shall elect a Trustee,
subject to any applicable requirements of law or of the
Declaration of Trust or these Regulations; PROVIDED,
HOWEVER, that when any provision of law or of the
Declaration of Trust or these Regulations requires the
holders of Shares of any particular series to vote by
series and not in the aggregate with respect to a matter,
then a majority of the outstanding Shares of that series
shall decide such matter insofar as that particular series
shall be concerned. As used in these Regulations, the term
"vote of a majority of the outstanding Shares" (the 67% or
50% requirement of the third sentence of Section 2(a)(42)
of the Investment Company Act of
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1940) shall have the same meaning given such term in the
Investment Company Act of 1940; PROVIDED, HOWEVER, that
such term may be used herein with respect to Shares of the
Trust as a whole, or with respect to Shares of a
particular series of the Trust, as the context may
require.
1.4 NOTICE. Written notice, stating the place, day, and
hour of each meeting of Shareholders and the general
nature of the business to be transacted, shall be given
by, or at the direction of, the person calling the meeting
to each Shareholder of record entitled to vote at the
meeting at least ten days prior to the day named for the
meeting, unless in a particular case a longer period of
notice is required by law. Any adjournments of a meeting
of Shareholders may be held, within a reasonable time
after the date set for the original meeting, without the
necessity of further notice.
1.5 SHAREHOLDERS' LIST. The officer or agent having
charge of the transfer books for Shares of the Trust shall
make, at least five days before each meeting of
Shareholders, a complete list of the Shareholders entitled
to vote at the meeting, arranged in alphabetical order
with the address of and the number of Shares held by each
such Shareholder. The list shall be kept on file at the
office of the Trust and shall be subject to inspection by
any Shareholders at any time during usual business hours,
and shall also be produced and kept open at the time and
place of each meeting of Shareholders and shall be subject
to the inspection of any Shareholder during each meeting
of Shareholders.
1.6 RECORD DATE. The Trustees may fix a time (during
which they may close the Share transfer books of the
Trust) not more than ninety (90) days prior to the date of
any meeting of Shareholders as a record date for the
determination of the Shareholders entitled to notice of,
or to vote at, any such meeting; only such Shareholders as
shall be Shareholders of record at the close of business
on the date so fixed shall be entitled to notice of, or to
vote at, such meeting, notwithstanding any transfer of any
Shares on the books of the Trust after any record date
fixed, as aforesaid. The Trustees may also fix a time
(during which they may close the Share transfer books of
the Trust) not more than fifty (50) days prior to the
payment of any dividend, or the date of the allotment of
rights or the date when any change or conversion or
exchange of Shares shall go into effect, as a record date
for the determination of the Shareholders entitled to
receive payment of any such dividend, or
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to receive any such allotment of rights, or to exercise
such rights, as the case may be; only such Shareholders as
shall be Shareholders of record at the close of business
on the date so fixed shall be entitled to receive payment
of such dividend, or to receive such allotment of rights,
or to exercise such rights, as the case may be,
notwithstanding any transfer of any Shares on the books of
the Trust after any record date fixed, as aforesaid.
1.7 SHAREHOLDER ACTION BY WRITTEN CONSENT. Any action
taken by Shareholders may be taken without a meeting if a
majority of Shareholders entitled to vote on the matter
(or such larger proportion thereof as shall be required by
any express provision of law or the Declaration of Trust
or these Regulations) consent to the action in writing and
such written consents are filed with the records of the
meetings of Shareholders. Such consent shall be treated
for all purposes as a vote taken at a meeting of
Shareholders.
3.1 FORM. Notices to Shareholders shall be in writing and
delivered personally or mailed to the Shareholders at
their addresses appearing on the books of the Trust.
Notices to Trustees shall be oral or by telephone or
telegram or in writing delivered personally or mailed to
the trustees at their addresses appearing on the books of
the Trust. Oral notice shall be deemed to be given when
given directly to the person required to be notified and
notice by mail shall be deemed to be given when deposited
in the United States mail or with a telegraph office or
courier service for transmission. Notices to Trustees need
not state the purpose of a Regular or Special Meeting.
3.2 WAIVER. Whenever any notice of the time, place, or
purpose of any meeting of Shareholders, Trustees, or
committee is required to be given under the provisions of
Massachusetts law or under the provisions of the
Declaration of Trust or these Regulations, a wavier
thereof in writing, signed by the person or persons
entitled to such notice and filed with the records of the
meeting, whether before or after the holding thereof, or
actual attendance at the meeting of Shareholders in person
or by proxy, or at the meeting of Trustees or committee in
person, shall be deemed equivalent to the giving of such
notice to such persons.
(d) (1) Investment Advisory Agreement between Registrant and
HighMark Capital Management, Inc., dated as of
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September 1, 1998 (the "Investment Advisory
Agreement"), is incorporated by reference to Exhibit
5(a) of Post-Effective Amendment No. 25 (filed
November 30, 1998) to Registrant's Registration
Statement on Form N-1A.
(2) Investment Sub-Advisory Agreement between HighMark
Capital Management, Inc. and Bank of Tokyo-Mitsubishi
Trust Company, dated as of September 1, 1998 (the
"BOTM Sub-Advisory Agreement") is incorporated by
reference to Exhibit 5(b) of Post-Effective Amendment
No. 25 (filed November 30, 1998) to Registrant's
Registration Statement on Form N-1A.
(3) Investment Sub-Advisory Agreement between HighMark
Capital Management, Inc. and AXA Asset Management
Partenaires dated as of September 1, 1998 (the "AXA
Sub-Advisory Agreement") is incorporated by reference
to Exhibit 5(c) of Post-Effective Amendment No. 25
(filed November 30, 1998) to Registrant's Registration
Statement on Form N-1A.
(4) Investment Sub-Advisory Agreement between HighMark
Capital Management, Inc. and Brandes Investment
Partners, L.P. (the "Brandes Sub-Advisory Agreement")
dated as of September 1, 1998 is incorporated by
reference to Exhibit 5(d) of Post-Effective Amendment
No. 25 (filed November 30, 1998) to Registrant's
Registration Statement on Form N-1A.
(e) (1) Distribution Agreement between the Registrant and
SEI Financial Services Company is incorporated by
reference to Exhibit 6 of Post-Effective Amendment
No. 20 (filed February 25, 1997) to Registrant's
Registration Statement on Form N-1A.
(2) Form of Distribution and Service Agreement for Class B
Shares between Registrant and SEI Investments
Distribution Co. incorporated by reference to Exhibit
(6)(b) of Post-Effective Amendment No. 22 (filed June
18, 1997) to Registrant's Registration Statement on
Form N-1A.
(f) None.
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(g) (1) Custodian Agreement between Registrant and The Bank
of California, N.A., dated as of December 23, 1991, as
amended as of September 15, 1992 (the "Custodian
Agreement"), is incorporated by reference to Exhibit 8
of Post-Effective Amendment No. 8 (filed September 30,
1992) to Registrant's Registration Statement on Form
N-1A.
(2) Amended and Restated Schedule A to the Custodian
Agreement is incorporated by reference to Exhibit
(8)(b) of Post-Effective Amendment No. 22 (filed June
18, 1997) to Registrant's Registration Statement on
Form N-1A.
(3) Form of Amended and Restated Schedule B to the
Custodian Agreement is incorporated by reference to
Exhibit (8)(c) of Post-Effective Amendment No. 22
(filed June 18, 1997) to Registrant's Registration
Statement on Form N-1A.
(4) Form of Securities Lending and Reverse Repurchase
Agreement Services Client Addendum to Custodian
Agreement is incorporated by reference to Exhibit
(8)(d) of Post-Effective Amendment No. 22 (filed June
18, 1997) to Registrant's Registration Statement on
Form N-1A.
(h) (1) Administration Agreement between Registrant and SEI
Fund Resources incorporated by reference to Exhibit
9(a) of Post-Effective Amendment No. 20 (filed
February 25, 1997) to Registrant's Registration
Statement on Form N-1A.
(2) Form of Sub-Administration Agreement between SEI Fund
Resources and Union Bank of California, N.A. is
incorporated by reference to Exhibit 9(e) of
Post-Effective Amendment No. 19 (filed December 13,
1996) to Registrant's Registration Statement on Form
N-1A.
(3) Transfer Agency and Service Agreement between the
Registrant and State Street Bank and Trust Company is
incorporated by reference to Exhibit 9(c) of
Post-Effective Amendment No. 20 (filed February 25,
1997) to Registrant's Registration Statement on Form
N-1A.
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(4) Form of Shareholder Service Provider Agreement for the
Registrant is incorporated by reference to Exhibit
9(n) of Post-Effective Amendment No. 19 (filed
December 13, 1996) to Registrant's Registration
Statement on Form N-1A.
(5) Form of Shareholder Service Plan for the Registrant is
incorporated by reference to Exhibit 9(q) of
Post-Effective Amendment No. 19 (filed December 13,
1996) to Registrant's Registration Statement on Form
N-1A.
(6) Form of Shareholder Service Plan for Class B for the
Registrant is incorporated by reference to Exhibit
(9)(f) of Post-Effective Amendment No. 22 (filed June
18, 1997) to Registrant's Registration Statement on
Form N-1A.
(7) Shareholder Servicing Agreement between the California
Department of Personnel, HighMark Capital Management,
Inc. and Registrant with respect to the Class I Shares
is incorporated by reference to Exhibit (h)(7) of
Post-Effective Amendment No. 28 (filed November 23,
1999) to Registrant's Registration Statement on Form
N-1A.
(i) Opinion and Consent of Counsel as to legality of
shares being registered is filed herewith.
(j) Consent of Ropes & Gray is filed herewith.
(k) None.
(l) None.
(m) (1) Restated Shareholder Services Plan with respect to
the Fiduciary Shares is incorporated by reference to
Exhibit 15(a) of Post-Effective Amendment No. 25
(filed November 30, 1998) to Registrant's Registration
Statement on Form N-1A.
(2) Restated Distribution and Shareholder Services Plan
with respect to the Class A Shares is incorporated by
reference to Exhibit 15(b) of Post-Effective Amendment
No. 25 (filed November 30, 1998) to Registrant's
Registration Statement on Form N-1A.
-17-
<PAGE>
(3) Form of Distribution and Shareholder Services Plan
relating to the Class B Shares of the Income Funds and
the Equity Funds is incorporated by reference to
Exhibit (15)(f) of Post-Effective Amendment No. 22
(filed June 18, 1997) to Registrant's Registration
Statement on Form N-1A.
(4) Distribution Plan with respect to the Class C Shares
is incorporated by reference to Exhibit (m)(4) of
Post-Effective Amendment No. 28 (filed September 20,
1999) to Registrant's Registration Statement on Form
N-1A.
(5) Distribution Plan with respect to the Class S Shares
is incorporated by reference to Exhibit (m)(5) of
Post-Effective Amendment No. 28 (filed September 20,
1999) to Registrant's Registration Statement on Form
N-1A.
(n) Amended Multiple Class Plan for HighMark Funds adopted
by the Board of Trustees on September 17, 1999 is
incorporated by reference to Exhibit (n) of
Post-Effective Amendment No. 28 (filed September 20,
1999) to Registrant's Registration Statement on Form
N-1A.
(p) (1) Code of Ethics of HighMark Funds dated as of June 21,
2000 is filed herewith.
(2) Code of Ethics of HighMark Capital Management, Inc.
dated as of June 2000 is filed herewith.
(3) Code of Ethics of Brandes Investment Partners, L.P.
dated as of April 1, 1997, as amended March 1, 2000,
is filed herewith.
(4) Code of Ethics of AXA Investment Managers GS Ltd.
dated as of March 1, 2000 is filed herewith.
(5) Code of Ethics of SEI Investments Company dated as of
April 2000 is filed herewith.
-18-
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
As of the effective date of this Registration Statement, there are no
persons controlled by or under common control with the Registrant.
ITEM 25. INDEMNIFICATION
Article IX, Section 9.2 of the Registrant's Declaration of Trust, filed
or incorporated by reference as Exhibit (1) hereto, provides for the
indemnification of Registrant's trustees and officers. Indemnification
of the Registrant's principal underwriter, custodian, investment
adviser, administrator, transfer agent, and fund accountant is provided
for, respectively, in Section 6 of the Distribution Agreement, filed or
incorporated by reference as Exhibit 6(a) hereto, Section 16 of the
Custodian Agreement, filed or incorporated by reference as Exhibit 8
hereto, Section 8 of the Investment Advisory Agreement, filed or
incorporated by reference as Exhibit 5 hereto, Section 5 of the
Administration Agreement, filed or incorporated by reference as Exhibit
9(a) hereto, Section 6 of the Transfer Agency and Service Agreement,
filed or incorporated by reference as Exhibit 9 (c) hereto, and Section
7 of the Fund Accounting Agreement, filed or incorporated by reference
as Exhibit 9(e) hereto. Registrant has obtained from a major insurance
carrier a trustees and officers' liability policy covering certain
types of errors and omissions. In no event will Registrant indemnify
any of its trustees, officers, employees or agents against any
liability to which such person would otherwise be subject by reason of
his willful misfeasance, bad faith, or gross negligence in the
performance of his duties, or by reason of his reckless disregard of
the duties involved in the conduct of his office or under his agreement
with Registrant. Registrant will comply with Rule 484 under the
Securities Act of 1933 and Release 11330 under the Investment Company
Act of 1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers, and controlling
persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid by a
trustee, officer, or controlling person of Registrant in the successful
defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification
-19-
<PAGE>
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
HighMark Capital Management, Inc. (the "Adviser") performs investment
advisory services for Registrant. The Adviser offers a wide range of
investment management services to its clients in California, Oregon,
and Washington and around the world. The Adviser is a subsidiary of
UnionBanCal Corporation, a publicly traded corporation, a majority of
the shares of which are owned by the Bank of Tokyo-Mitsubishi, Limited.
To the knowledge of Registrant, none of the directors or officers of
the Adviser, except those set forth below, is or has been at any time
during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature, except that
certain directors and officers of the Adviser also hold positions with
UnionBanCal Corporation, the Bank of Tokyo-Mitsubishi and/or the Bank
of Tokyo-Mitsubishi's other subsidiaries.
Listed below are the directors and certain principal executive officers
of the Adviser, their principal occupations and, for the prior two
fiscal years, any other business, profession, vocation, or employment
of a substantial nature engaged in by such directors and officers:
<TABLE>
<CAPTION>
POSITION WITH TYPE OF
THE ADVISER NAME PRINCIPAL OCCUPATION BUSINESS
----------- ---- -------------------- --------
<S> <C> <C> <C>
Director, Chairman of the Peter Westerbeek III Executive Vice President Banking
Board Community
Banking/Institutional Services Group
Union Bank of California
445 S. Figueroa Street
Los Angeles, CA 90071
Director, President and Chief Clark R. Gates President and CEO Investment
Executive Officer HighMark Capital Management Management
475 Sansome Street
San Francisco, CA 94104
Director Susumu Hanada Deputy Group Head Banking
Trust & Private Financial Services Group
Union Bank of California
475 Sansome Street
San Francisco, CA 94104
-20-
<PAGE>
<CAPTION>
POSITION WITH TYPE OF
THE ADVISER NAME PRINCIPAL OCCUPATION BUSINESS
----------- ---- -------------------- --------
<S> <C> <C> <C>
Director Tsutomu Nakagawa Executive Vice President and Manager, Banking
Office of the President
Union Bank of California
400 California Street
San Francisco, CA 94104
Director Richard C. Hartnack Vice Chairman Banking
Union Bank of California
445 S. Figueroa Street
Los Angeles, CA 90071
Director Honoria F. Vivell Executive Vice President Banking
Community Banking Group
Union Bank of California
445 S. Figueroa Street
Los Angeles, CA 90071
Senior Vice President of Sales Jeffrey L. Boyle Senior Vice President Banking
Community Banking Group
Union Bank of California
475 Sansome Street
San Francisco, CA 94111
Secretary John J. King Vice President and Associate General Banking
Counsel
Union Bank of California
400 California Street
San Francisco, CA 94104
Assistant Treasurer David A. Anderson Senior Vice President Banking
Administration & Support Group
Union Bank of California
400 California Street
San Francisco, CA 94104
Assistant Treasurer Kristin Friedman Vice President Banking
Administration & Support Group
Union Bank of California
400 California Street
San Francisco, CA 94104
Compliance Officer and Monica Poon c/o HighMark Capital Management Investment
Assistant Secretary 475 Sansome Street Management
San Francisco, CA 94111
-21-
<PAGE>
<CAPTION>
POSITION WITH TYPE OF
THE ADVISER NAME PRINCIPAL OCCUPATION BUSINESS
----------- ---- -------------------- --------
<S> <C> <C> <C>
Managing Director, Chief Luke C. Mazur c/o HighMark Capital Management Investment
Investment Officer 475 Sansome Street Management
San Francisco, CA 94104
Managing Director, Mutual R. Gregory Knopf c/o HighMark Capital Management Investment
Funds 445 S. Figueroa Street Management
Los Angeles, CA 90071
Managing Director, Chief Kevin A. Rogers c/o HighMark Capital Management Investment
Financial Officer 18300 Von Karman Avenue Management
Irvine, CA 92715
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITER
Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing securities
of the Registrant also acts as a principal underwriter, distributor or
investment adviser.
Registrant's distributor, SEI Investments Distribution Co. acts as
distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 10, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
The PBHG Funds, Inc. July 16, 1993
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
Huntington Funds January 11, 1996
-22-
<PAGE>
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
ARMADA Funds March 8, 1997
PBHG Insurance Series Fund, Inc. April 1, 1999
The Expedition Funds June 9, 1999
Alpha Select Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Funds, Inc. June 29, 1998
CNI Charter Funds April 1, 1999
The Armada Advantage Funds May 1, 1999
Amerindo Funds, Inc. July 13, 1999
Huntington VA Funds October 15, 1999
Friends Ivory Funds December 16, 1999
SEI Insurance Products Trust March 29, 2000
Pitcairn Funds August 1, 2000
The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These
services include portfolio evaluation, performance measurement and
consulting services ("Funds Evaluation") and automated execution,
clearing and settlement of securities transactions ("MarketLink").
Furnish the information required by the following table with respect to
each director, officer or partner of each principal underwriter named
in the answer to Item 20 of Part B. Unless otherwise noted, the
principal business address of each director or officer is 1 Freedom
Valley Drive, Oaks, PA 19456.
-23-
<PAGE>
<TABLE>
<CAPTION>
POSITION AND OFFICE POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
---- ---------------- ---------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board of Directors --
Richard B. Lieb Director, Executive Vice President --
Carmen V. Romeo Director --
Mark J. Held President & Chief Operating Officer --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Todd Cipperman Senior Vice President & General Counsel Vice President,
Assistant Secretary
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Kevin P. Robins Senior Vice President --
Patrick K. Walsh Senior Vice President --
Wayne M. Withrow Senior Vice President --
Robert Aller Vice President --
John D. Anderson Vice President & Managing Director --
Timothy D. Barto Vice President & Assistant Secretary Vice President,
Assistant Secretary
S. Courtney E. Collier Vice President & Assistant Secretary --
Robert Crudup Vice President & Managing Director --
Richard A. Deak Vice President & Assistant Secretary --
Scott W. Dellorfano Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Scott C. Fanatico Vice President & Managing Director --
James R. Foggo Vice President & Assistant Secretary Vice President,
Assistant Secretary
Vic Galef Vice President & Managing Director --
Steven A. Gardner Vice President & Managing Director --
Lydia A. Gavalis Vice President & Assistant Secretary Vice President &
Assistant Secretary
Greg Gettinger Vice President & Assistant Secretary --
Kathy Heilig Vice President --
Jeff Jacobs Vice President --
Samuel King Vice President --
John Kirk Vice President & Managing Director --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Paul Lonergan Vice President & Managing Director --
Ellen Marquis Vice President --
Christine M. McCullough Vice President & Assistant Secretary Vice President &
Assistant Secretary
Carolyn McLaurin Vice President & Managing Director --
Mark Nagle Vice President President & Chief
Executive Officer
-24-
<PAGE>
<CAPTION>
POSITION AND OFFICE POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
---- ---------------- ---------------------
<S> <C> <C>
Joanne Nelson Vice President --
Cynthia M. Parrish Vice President & Secretary --
Rob Redican Vice President --
Maria Rinehart Vice President --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President --
Lori L. White Vice President & Assistant Secretary --
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
(1) HighMark Capital Management, Inc., 475 Sansome Street, San
Francisco, CA 94104 (records relating to its function as
investment adviser).
(2) Union Bank of California, N.A., 400 California Street, San
Francisco, CA 94104 (records relating to its functions as
custodian, sub-administrator and sub-transfer agent).
(3) SEI Investments Mutual Funds Services, Oaks, Pennsylvania
19456 (records relating to its functions as administrator).
(4) SEI Investments Distribution Co. (formerly SEI Financial
Services Company), Oaks, Pennsylvania 19456 (records relating
to its function as distributor).
(5) State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 (records relating to its functions
as transfer agent).
(6) Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite
800 East, Washington, DC 20005 (the Registrant's Declaration
of Trust, Code of Regulations and Minute Books).
ITEM 29. MANAGEMENT SERVICES
None.
ITEM 30. UNDERTAKINGS
Registrant hereby undertakes to call a meeting of the shareholders for
the purpose of voting upon the question of removal of one or more
trustees when requested to do so by the holders of at least 10% of the
outstanding shares of Registrant and to
-25-
<PAGE>
comply with the provisions of Section 16(c) of the Investment Company
Act of 1940 relating to shareholder communication.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
-26-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 30 to this Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Washington, D.C., on the 22nd day of September, 2000.
HighMark Funds
By: */s/ Mark E. Nagle
-----------------------------
Mark E. Nagle
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 30 has been signed below by the following persons
in the capacities and on the dates indicated:
SIGNATURE CAPACITY DATE
*/s/ Mark E. Nagle President and September 22, 2000
------------------ Chief Executive Officer
Mark E. Nagle
*/s/Robert DellaCroce Comptroller and Chief September 22, 2000
--------------------- Financial Officer
Robert DellaCroce
*/s/Thomas L. Braje Trustee September 22, 2000
-------------------
Thomas L. Braje
*/s/David A. Goldfarb Trustee September 22, 2000
---------------------
David A. Goldfarb
*/s/Joseph C. Jaeger Trustee September 22, 2000
--------------------
Joseph C. Jaeger
*/s/Frederick J. Long Trustee September 22, 2000
---------------------
Frederick J. Long
*/s/Michael L. Noel Trustee September 22, 2000
-------------------
Michael L. Noel
*/s/Robert M. Whitler Trustee September 22, 2000
---------------------
Robert M. Whitler
*By: *Martin E. Lybecker
-------------------
Martin E. Lybecker
Attorney-In-Fact, pursuant to powers
of attorney filed herewith.
-27-
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned, being a Trustee of the HighMark Funds, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest and Alyssa Albertelli
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments that said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable HighMark Funds to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of
the Securities and Exchange Commission in respect thereof, and in connection
with the filing and effectiveness of any registration statement or statement of
HighMark Funds pursuant to said Acts and any and all amendments thereto
(including post-effective amendments), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a Trustee of HighMark Funds any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
SIGNATURE TITLE DATE
/s/ Mark E. Nagle President October 10, 1998
----------------------
Mark E. Nagle
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Trustee of the HighMark Funds, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest and Alyssa Albertelli
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments that said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable HighMark Funds to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of
the Securities and Exchange Commission in respect thereof, and in connection
with the filing and effectiveness of any registration statement or statement of
HighMark Funds pursuant to said Acts and any and all amendments thereto
(including post-effective amendments), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a Trustee of HighMark Funds any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
SIGNATURE TITLE DATE
/s/ Robert J. DellaCroce Treasurer and October 10, 1998
-------------------------- Chief Financial Officer
Robert J. DellaCroce
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Trustee of the HighMark Funds, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest and Alyssa Albertelli
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments that said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable HighMark Funds to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of
the Securities and Exchange Commission in respect thereof, and in connection
with the filing and effectiveness of any registration statement or statement of
HighMark Funds pursuant to said Acts and any and all amendments thereto
(including post-effective amendments), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a Trustee of HighMark Funds any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
SIGNATURE TITLE DATE
/s/ Thomas L. Braje Trustee
-------------------------
Thomas L. Braje
/s/ David A. Goldfarb Trustee
-------------------------
David A. Goldfarb
/s/ William R. Howell Trustee
-------------------------
William R. Howell
/s/ Joseph C. Jaeger Trustee
-------------------------
Joseph C. Jaeger
/s/ Frederick J. Long Trustee
-------------------------
Frederick J. Long
/s/ Paul L. Smith Trustee
-------------------------
Paul L. Smith
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned, being a Trustee of the HighMark Funds, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest and Alyssa Albertelli
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments that said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable HighMark Funds to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of
the Securities and Exchange Commission in respect thereof, and in connection
with the filing and effectiveness of any registration statement or statement of
HighMark Funds pursuant to said Acts and any and all amendments thereto
(including post-effective amendments), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a Trustee of HighMark Funds any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
SIGNATURE TITLE DATE
/s/ Michael L. Noel Trustee September 9, 1999
-------------------------
Michael L. Noel
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned, being a Trustee of the HighMark Funds, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest and Alyssa Albertelli
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments that said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable HighMark Funds to
comply with the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of
the Securities and Exchange Commission in respect thereof, and in connection
with the filing and effectiveness of any registration statement or statement of
HighMark Funds pursuant to said Acts and any and all amendments thereto
(including post-effective amendments), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a Trustee of HighMark Funds any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, any Notification of Registration under the Investment Company Act of 1940
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
SIGNATURE TITLE DATE
/s/ Robert M. Whitler Trustee September 9, 1999
------------------------
Robert M. Whitler
<PAGE>
Exhibit Index
EXHIBIT NO. DESCRIPTION PAGE
(i) Opinion and Consent of Counsel as to legality of shares
being registered.
(j) Consent of Ropes & Gray.
(p)(1) Code of Ethics of HighMark Funds.
(p)(2) Code of Ethics of HighMark Capital Management, Inc.
(p)(3) Code of Ethics of Brandes Investment Partners, L.P.
(p)(4) Code of Ethics of AXA Investment Managers GS Ltd.
(p)(5) Code of Ethics of SEI Investments Company.
