<PAGE>
EQUITY
FIXED INCOME
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.
[LOGO]
HIGHMARK-SM-
FUNDS
<PAGE>
PROSPECTUS
1
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 ............................................2
Core Equity Fund .........................................5
Growth Fund ..............................................8
Income Equity Fund ......................................11
International Equity Fund ...............................14
Small Cap Value Fund ....................................17
Value Momentum Fund .....................................20
FIXED-INCOME FUNDS
Bond Fund ...............................................23
California Intermediate Tax-Free Bond Fund ..............26
SHAREOWNER GUIDE -- HOW TO INVEST IN THE
HIGHMARK FUNDS
Choosing a Share Class ..................................29
How Sales Charges Are Calculated ........................29
Sales Charge Reductions and Waivers .....................30
Fees for Distribution of Shares .........................32
Opening an Account ......................................32
Buying Shares ...........................................32
Selling Shares ..........................................33
Exchanging Shares .......................................34
Transaction Policies ....................................34
Dividends and Distributions .............................35
Taxes ...................................................35
Investor Services .......................................36
MORE ABOUT THE HIGHMARK FUNDS
Investment Management ...................................36
Financial Highlights ....................................38
Investment Practices ....................................41
Glossary of Investment Risks ............................46
FOR MORE INFORMATION ABOUT HIGHMARK FUNDS, PLEASE SEE THE BACK COVER OF THE
PROSPECTUS
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 OBLIGATION OF
UNION BANK OF CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK. IT IS NOT INSURED BY
THE FDIC OR ANY GOVERNMENT AGENCY.
Each Fund has its own investment goal and strategies for reaching that goal.
There is no guarantee that a Fund will achieve its goal. Before investing, make
sure that the Fund's goal matches your own.
The portfolio manager invests each Fund's assets in a way that he or she
believes will help the Fund achieve its goal. A manager's judgments about the
securities markets, economy and companies, and his or her investment selection,
may cause a Fund to underperform other funds with similar objectives.
[AMPERSAND ICON] FUND SUMMARY
[QUOTATIONS ICON] INVESTMENT STRATEGY
[EXCLAMATION POINT ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
[AT SIGN ICON] PERFORMANCE INFORMATION
[QUESTION MARK ICON] DID YOU KNOW?
[NUMBER SIGN ICON] FUND INFORMATION
[DOLLAR SIGN ICON] FEES AND EXPENSES
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
2 BALANCED FUND
[AMPERSAND ICON] 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
-------------------------------------------------------------------------
[QUOTATIONS ICON] INVESTMENT STRATEGY
HighMark Balanced Fund seeks capital appreciation and income. Conservation of
capital is a secondary consideration. To pursue these goals, the Fund normally
invests between 50% and 70% of its assets in equity securities, primarily common
stocks, and at least 25% of its assets in fixed-income securities, primarily
bonds. Within these ranges, the Fund's specific allocation among equity
securities and fixed-income securities will vary depending on the portfolio
managers' assessment of business, economic and market conditions.
The Fund may invest in bonds of various maturities and types, including those
issued by U.S. and foreign governments or companies, mortgage-backed securities
and asset-backed securities. At least 90% of the bonds will be investment grade
at the time of purchase.
To select bonds for the Fund, the portfolio managers consider such factors as
the potential direction of interest rates and the U.S. economy; the outlook for
one sector of the bond market versus another; and the value that one bond may
represent versus another. They also consider the financial strength of each
issuer and the possibility that its credit rating may be upgraded or downgraded.
The Fund may continue to hold a bond that has been downgraded if the managers
believe it is in Shareholders' best interest to do so.
To choose stocks for the Fund, the portfolio managers focus 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 500 Composite Index ("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 41.
[EXCLAMATION POINT ICON] 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.
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 46.
<PAGE>
PROSPECTUS
3
[AT SIGN ICON] PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE 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.*
[CHART]
<TABLE>
<S> <C>
1993 11.05%
1994 (2.3)%
1995 28.22%
1996 15.42%
1997 19.58%
1998 9.88%
1999 5.59%
</TABLE>
BEST QUARTER WORST QUARTER
11.27% -7.34%
(12/31/98) (9/30/98)
*THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL
RETURN FROM 1/1/2000 TO 9/30/2000 WAS 1.07%.
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 U.S. 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) -0.25% 14.17% 11.40%*
-------------------------------------------------------------
Class B Shares (with
applicable Contingent
Deferred Sales Charge) 0.16%*** 15.12%*** 4.54%**
-------------------------------------------------------------
S&P 500 INDEX(2) 21.04% 28.55% 19.75%+
-------------------------------------------------------------
LEHMAN BROTHERS
U.S. AGGREGATE BOND INDEX(3) -0.83% 7.73% 7.45%+
-------------------------------------------------------------
</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 U.S. stock market.
(3)The unmanaged Lehman Brothers U.S. Aggregate Bond Index is generally
representative of the bond market as a whole.
*Since 11/13/92.
**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.
+Since 2/28/91.
(CONTINUED)
<TABLE>
<CAPTION>
-------------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
--------------------------------------
<S> <C> <C> <C>
Class A 431114776 HMBRX
Class B 431114545 HMBBX
Class C 431112887 NA
-------------------------------------------------
</TABLE>
[QUESTION MARK ICON] 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.
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
4 BALANCED FUND (CONTINUED)
[DOLLAR SIGN ICON] 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%
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses 0.49% 0.49% 0.24%
-------- --------- --------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.34% 1.84% 1.84%
Fee Waivers 0.15% 0% 0%
NET EXPENSES+ 1.19% 1.84% 1.84%
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
+The Fund's Adviser has agreed to contractually waive fees or reimburse expenses
in order to keep total operating expenses for Class A Shares from exceeding
1.19% 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 for
all Share classes. 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:
<TABLE>
<S> <C>
Class A Shares: 1.17%
Class B Shares: 1.82%
Class C Shares: 1.82%
</TABLE>
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $665 $937 $1,230 $2,062
CLASS B SHARES
If you do not sell
your shares $187 $579 $995 $2,028
If you sell your
shares at the
end of the period: $687 $879 $1,195 $2,028
CLASS C SHARES
If you do not sell
your shares: $187 $579 $995 $2,159
If you sell your
shares at the
end of the period: $287 $579 $995 $2,159
</TABLE>
<PAGE>
PROSPECTUS
5
HIGHMARK EQUITY FUNDS
CORE EQUITY FUND
[AMPERSAND ICON] 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
-------------------------------------------------------------------------
[QUOTATIONS ICON] 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 Standard & Poor's 500 Composite
Index ("S&P 500 Index").
To choose stocks for the Fund, the portfolio managers focus 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 S&P 500 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 41.
[EXCLAMATION POINT ICON] 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.
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 46.
(CONTINUED)
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
6 CORE EQUITY FUND (CONTINUED)
[AT SIGN ICON] 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.
<TABLE>
<CAPTION>
-------------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
--------------------------------------
<S> <C> <C> <C>
Class A 431112770 NA
Class B 431112762 NA
Class C 431112754 NA
-------------------------------------------------
</TABLE>
[QUESTION MARK ICON] 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.
<PAGE>
PROSPECTUS
7
[DOLLAR SIGN ICON] 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%
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses+ 0.49% 0.49% 0.24%
----- ----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.34% 1.84% 1.84%
Fee Waivers 0.15% 0% 0%
NET EXPENSES++ 1.19% 1.84% 1.84%
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
+Other expenses are based on estimated amounts for the current fiscal year.
++The Fund's Adviser has agreed to contractually waive fees or reimburse
expenses in order to keep total operating expenses for Class A Shares from
exceeding 1.19% 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 for all Share classes. 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:
<TABLE>
<S> <C>
Class A Shares: 1.17%
Class B Shares: 1.82%
Class C Shares: 1.82%
</TABLE>
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C> <C>
CLASS A SHARES $665 $937
CLASS B SHARES
If you do not sell
your shares: $187 $579
If you sell your
shares at the
end of the period: $687 $879
CLASS C SHARES
If you do not sell
your shares: $187 $579
If you sell your
shares at the
end of the period: $287 $579
</TABLE>
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
8 GROWTH FUND
[AMPERSAND ICON] 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
-------------------------------------------------------------------------
[QUOTATIONS ICON] INVESTMENT STRATEGY
HighMark Growth Fund seeks long term capital appreciation through investments in
equity securities. The production of current income is an incidental objective.
To pursue its main goal, the Fund invests at least 65% of its assets in equity
securities, primarily in the stocks of MEDIUM TO LARGE U.S. GROWTH-ORIENTED
COMPANIES that the portfolio managers believe are also financially stable.
"Growth-oriented companies" are those whose earnings are growing at a faster
rate than the market as a whole, or have the potential to do so. Other
attributes the portfolio managers seek in a company include:
- above-average return on capital (an indication that a firm has employed its
investors' money effectively)
- free cash flow (an indication that a firm has managed its assets and
liabilities well)
- recurring revenues (an indication that a firm has a fairly steady source of
income)
- an attractive share price versus the firm's earnings and other
characteristics
- competitive advantages such as a solid brand identity and unique products
or services
- a capable management team
In addition to those described above, the Fund may invest in other types of
securities. 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 41.
[EXCLAMATION POINT ICON] 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.
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 46.
<PAGE>
PROSPECTUS
9
[AT SIGN ICON] PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE 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.*
[CHART]
<TABLE>
<S> <C>
1995 32.72%
1996 21.34%
1997 31.89%
1998 31.48%
1999 21.77%
</TABLE>
BEST QUARTER WORST QUARTER
25.89% -14.37%
(12/31/98) (9/30/98)
*THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL
RETURN FROM 1/1/2000 TO 9/30/2000 WAS -2.39%.
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) 15.06% 26.30%*** 23.87%*
-------------------------------------------------------------
Class B Shares (with
applicable Contingent
Deferred Sales Charge) 16.07% 27.29%**** 22.83%**
-------------------------------------------------------------
S&P 500 INDEX(1) 21.04% 28.55% 23.43%+
-------------------------------------------------------------
</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.
**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 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.
(CONTINUED)
<TABLE>
<CAPTION>
-------------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
--------------------------------------
<S> <C> <C> <C>
Class A 431114768 HMRGX
Class B 431114511 HMGBX
Class C 431112879 NA
-------------------------------------------------
</TABLE>
[QUESTION MARK ICON] 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.
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
10 GROWTH FUND (CONTINUED)
[DOLLAR SIGN ICON] 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%
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses 0.50% 0.50% 0.25%
----- ----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.35% 1.85% 1.85%
Fee Waivers 0.15% 0% 0%
NET EXPENSES+ 1.20% 1.85% 1.85%
</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 or reimburse expenses
in order to keep total operating expenses for Class A Shares from exceeding
1.20% 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 for
all Share classes. 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:
<TABLE>
<S> <C>
Class A Shares: 1.18%
Class B Shares: 1.83%
Class C Shares: 1.83%
</TABLE>
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $666 $940 $1,235 $2,072
CLASS B SHARES
If you do not sell
your shares: $188 $582 $1,001 $2,039
If you sell your
shares at the
end of the period: $688 $882 $1,201 $2,039
CLASS C SHARES
If you do not sell
your shares: $188 $582 $1,001 $2,169
If you sell your
shares at the
end of the period: $288 $582 $1,001 $2,169
</TABLE>
<PAGE>
PROSPECTUS
11
HIGHMARK EQUITY FUNDS
INCOME EQUITY FUND
[AMPERSAND ICON] 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
--------------------------------------------------------------------------
[QUOTATIONS ICON] INVESTMENT STRATEGY
HighMark Income Equity Fund seeks total return on investment, with DIVIDEND
income as an important component of that return. A secondary goal is to maintain
a low level of price volatility.
To pursue its primary goal, the Fund invests mostly in dividend-paying stocks
that the managers believe are undervalued or out-of-favor. 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 portfolio 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 41.
[EXCLAMATION POINT ICON] 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 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 46.
(CONTINUED)
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
12 INCOME EQUITY FUND (CONTINUED)
[AT SIGN ICON] PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE 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.*
[CHART]
<TABLE>
<S> <C>
1995 36.16%
1996 15.62%
1997 27.11%
1998 14.84%
1999 1.44%
</TABLE>
BEST QUARTER WORST QUARTER
16.69% -11.17%
(12/31/98) (9/30/99)
*THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL
RETURN FROM 1/1/2000 TO 9/30/2000 WAS 0.46%.
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(1)
Class A Shares (with
a 5.50% sales charge) -4.16% 17.10%*** 12.34%*** 15.49%*
--------------------------------------------------------------------------------
Class B Shares (with
applicable Contingent
Deferred Sales Charge) -3.12% 18.03%**** 12.84%**** 5.65%**
--------------------------------------------------------------------------------
S&P 500 INDEX(2) 21.04% 28.55% 18.20% 18.60%+
--------------------------------------------------------------------------------
</TABLE>
(1)Performance data includes the performance of the IRA Fund Income Equity
Portfolio for the period prior to its consolidation with the HighMark Income
Equity Fund on 6/23/88.
(2)The unmanaged S&P 500 Index generally represents the performance of large
companies in the U.S. stock market.
*Since 6/20/94.
**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 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.
<TABLE>
<CAPTION>
------------------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
-------------------------------------------
<S> <C> <C> <C>
Class A 431114784 HMERX
Class B 431114537 HIEBX
Class C 431112861 NA
------------------------------------------------------
</TABLE>
[QUESTION MARK ICON] 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.
<PAGE>
PROSPECTUS
13
[DOLLAR SIGN ICON] 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%
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses 0.49% 0.49% 0.24%
------- ------- -------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.34% 1.84% 1.84%
Fee Waivers 0.15% 0% 0%
NET EXPENSES+ 1.19% 1.84% 1.84%
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
+The Fund's Adviser has agreed to contractually waive fees or reimburse expenses
in order to keep total operating expenses for Class A Shares from exceeding
1.19% 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 for
all Share classes. 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:
<TABLE>
<S> <C>
Class A Shares: 1.17%
Class B Shares: 1.82%
Class C Shares: 1.82%
</TABLE>
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $665 $937 $1,230 $2,062
CLASS B SHARES
If you do not sell
your shares $187 $579 $995 $2,028
If you sell your
shares at the
end of the period: $687 $879 $1,195 $2,028
CLASS C SHARES
If you do not sell
your shares: $187 $579 $995 $2,159
If you sell your
shares at the
end of the period: $287 $579 $995 $2,159
</TABLE>
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
14 INTERNATIONAL EQUITY FUND
[AMPERSAND ICON] 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
--------------------------------------------------------------------------
[QUOTATIONS ICON] INVESTMENT STRATEGY
HighMark International Equity Fund seeks to provide long-term capital
appreciation by investing primarily in a diversified portfolio of equity
securities of non-U.S. issuers. Normally, at least 65% of the Fund's assets will
be invested in the stocks of companies from at least five countries (other than
the United States) that are included in the Morgan Stanley Capital International
Europe, Australiasia 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 41.
[EXCLAMATION POINT ICON] 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.
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 46.
<PAGE>
PROSPECTUS
15
[AT SIGN ICON] 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.*
[CHART]
<TABLE>
<S> <C>
1996 3.25%
1997 (6.51%)
1998 15.18%
1999 29.32%
</TABLE>
BEST QUARTER WORST QUARTER
21.44% -13.77%
(12/31/99) (9/30/98)
* THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S
TOTAL RETURN FROM 1/1/2000 TO 9/30/2000 WAS -14.40%.
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.
<TABLE>
<CAPTION>
SINCE CLASS
1 YEAR INCEPTION
--------------------------------------------------------------------------------
<S> <C> <C>
INTERNATIONAL EQUITY FUND(1)
Fiduciary Shares 29.32% 10.16%*
--------------------------------------------------------------------------------
MSCI-EAFE INDEX(2) 26.96% 14.29%+
--------------------------------------------------------------------------------
</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.
(CONTINUED)
<TABLE>
<CAPTION>
-----------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
------------------------------------
<S> <C> <C> <C>
Class A 431112853 NA
Class B 431112846 NA
Class C 431112838 NA
-----------------------------------------------
</TABLE>
[QUESTION MARK ICON] 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.
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
16 INTERNATIONAL EQUITY FUND (CONTINUED)
[DOLLAR SIGN ICON] 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%
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------------------------------------------------
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 0.68% 0.68% 0.43%
------- ------- -------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.88% 2.38% 2.38%
Fee Waivers 0.15% 0% 0%
NET EXPENSES+ 1.73% 2.38% 2.38%
</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 or reimburse expenses
in order to keep total operating expenses for Class A Shares from exceeding
1.73% 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 for all Share
classes. 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:
<TABLE>
<S> <C>
Class A Shares: 1.71%
Class B Shares: 2.36%
Class C Shares: 2.36%
</TABLE>
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $716 $1,095 $1,497 $2,618
CLASS B SHARES
If you do not sell
your shares: $241 $742 $1,270 $2,592
If you sell your
shares at the
end of the period: $741 $1,042 $1,470 $2,592
CLASS C SHARES
If you do not sell
your shares: $241 $742 $1,270 $2,716
If you sell your
shares at the
end of the period: $341 $742 $1,270 $2,716
</TABLE>
<PAGE>
PROSPECTUS
17
HIGHMARK EQUITY FUNDS
SMALL CAP VALUE FUND
[AMPERSAND ICON] 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
--------------------------------------------------------------------------
[QUOTATIONS ICON] INVESTMENT STRATEGY
HighMark Small Cap Value Fund seeks to provide long-term capital appreciation.
To pursue this goal, the Fund invests primarily in the stocks of SMALL
CAPITALIZATION U.S. and foreign companies that the portfolio managers believe
are undervalued. The Fund may leave up to 25% of its assets
in foreign stocks.
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 41.
[EXCLAMATION POINT ICON] 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 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 46.
(CONTINUED)
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
18 SMALL CAP VALUE FUND (CONTINUED)
[AT SIGN ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS THE PERFORMANCE OF THE FUND'S CLASS A SHARES FOR ITS FIRST
FISCAL YEAR. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN
THOSE SHOWN BELOW.*
[CHART]
<TABLE>
<S> <C>
1999 20.20%
</TABLE>
BEST QUARTER WORST QUARTER
19.43% -6.80%
(6/30/99) (3/31/99)
*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 6.55%.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/99 TO THOSE OF THE S&P 600/BARRA VALUE INDEX.
<TABLE>
<CAPTION>
SINCE CLASS
1 YEAR INCEPTION
--------------------------------------------------------------------------------
<S> <C> <C>
SMALL CAP VALUE FUND(1)
Class A Shares (with a
5.50% sales charge) 13.58% 21.61%*
--------------------------------------------------------------------------------
Class B Shares (with
applicable Contingent
Deferred Sales Charge) 14.63% 23.46%*
--------------------------------------------------------------------------------
S&P 600/BARRA VALUE INDEX(2) 3.03% 13.02%+
--------------------------------------------------------------------------------
</TABLE>
(1)The unmanaged S&P 600/BARRA Value Index is generally representative of the
performance of small capitalization U.S. companies making up the S&P 600 Small
Cap Index with a lower price to book ratio.
*Since 9/17/98.
+Since 9/30/98.
<TABLE>
<CAPTION>
------------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
-------------------------------------
<S> <C> <C> <C>
Class A 431112200 HASVX
Class B 431112309 HBSVX
Class C 431112820 NA
------------------------------------------------
</TABLE>
[QUESTION MARK ICON] 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).
<PAGE>
PROSPECTUS
19
[DOLLAR SIGN ICON] 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%
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Investment Advisory Fees 1.00% 1.00% 1.00%
Distribution and/or Service (12b-1) Fees 0.75% 0.75% 1.00%
Other Expenses 0.62% 0.62% 0.37%
------- ------- -------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.87% 2.37% 2.37%
Fee Waivers 0.15% 0% 0%
NET EXPENSES+ 1.72% 2.37% 2.37%
</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 or reimburse expenses
in order to keep total operating expenses for Class A Shares from exceeding
1.72% 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 for
all share classes. 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:
<TABLE>
<S> <C>
Class A Shares: 1.70%
Class B Shares: 2.35%
Class C Shares: 2.35%
</TABLE>
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $715 $1,029 $1,492 $2,608
CLASS B SHARES
If you do not sell
your shares: $240 $739 $1,265 $2,582
If you sell your
shares at the
end of the period: $740 $1,039 $1,465 $2,582
CLASS C SHARES
If you do not sell
your shares: $240 $739 $1,265 $2,720
If you sell your
shares at the
end of the period: $340 $739 $1,265 $2,720
</TABLE>
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
20 VALUE MOMENTUM FUND
[AMPERSAND ICON] FUND SUMMARY
INVESTMENT GOAL To seek long-term capital growth; current
income is a secondary objective
--------------------------------------------------------------------------
INVESTMENT FOCUS U.S. common stocks
--------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY Seeks undervalued stocks showing signs of
improved momentum
--------------------------------------------------------------------------
SHARE PRICE VOLATILITY Moderate
--------------------------------------------------------------------------
INVESTOR 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
--------------------------------------------------------------------------
[QUOTATIONS ICON] 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 41.
[EXCLAMATION POINT ICON] 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 46.
<PAGE>
PROSPECTUS
21
[AT SIGN ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how 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.*
[CHART]
<TABLE>
<CAPTION>
<S> <C>
1993 12.67%
1994 (1.92%)
1995 38.66%
1996 25.33%
1997 30.40%
1998 9.43%
1999 12.50%
</TABLE>
BEST QUARTER WORST QUARTER
17.99% -14.09%
(12/31/98) (9/30/98)
*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 1.84%.
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) 6.31% 21.39% 16.39%*
--------------------------------------------------------------------------------
Class B Shares (with
applicable Contingent
Deferred Sales Charge) 6.63%*** 22.39%*** 7.70%**
--------------------------------------------------------------------------------
S&P 500 INDEX(2) 21.04% 28.55% 19.75%+
--------------------------------------------------------------------------------
</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.
**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.
(CONTINUED)
<TABLE>
<CAPTION>
-----------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
------------------------------------
<S> <C> <C> <C>
Class A 431114628 HMVLX
Class B 431114529 HVMBX
Class C 431112812 NA
-----------------------------------------------
</TABLE>
[QUESTION MARK ICON] 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
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
22 VALUE MOMENTUM FUND (CONTINUED)
[DOLLAR SIGN ICON] 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%
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Investment Advisory Fees 0.60% 0.60% 0.60%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses 0.49% 0.49% 0.24%
------- ------- -------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.34% 1.84% 1.84%
Fee Waivers 0.15% 0% 0%
NET EXPENSES+ 1.19% 1.84% 1.84%
</TABLE>
*This sales charge varies depending upon how much you invest. See "How Sales
Charges Are Calculated."
**If you sell Class A Shares within one year of buying them and you purchased
those Shares without a sales charge because your initial investment was $1
million or greater, you must pay a Contingent Deferred Sales Charge of 1.00%.
See "How Sales Charges are Calculated."
***Does not include any wire transfer fees, if applicable.
+The Fund's Adviser has agreed to contractually waive fees or reimburse expenses
in order to keep total operating expenses for Class A Shares from exceeding
1.19% 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 for
all Share classes. 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:
<TABLE>
<S> <C>
Class A Shares: 1.17%
Class B Shares: 1.82%
Class C Shares: 1.82%
</TABLE>
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $665 $937 $1,230 $2,062
CLASS B SHARES
If you do not sell
your shares: $187 $579 $995 $2,028
If you sell your
shares at the
end of the period: $687 $879 $1,195 $2,028
CLASS C SHARES
If you do not sell
your shares: $187 $579 $995 $2,159
If you sell your
shares at the
end of the period: $287 $579 $995 $2,159
</TABLE>
<PAGE>
PROSPECTUS
23
HIGHMARK FIXED-INCOME FUNDS
BOND FUND
[AMPERSAND ICON] 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
--------------------------------------------------------------------------
[QUOTATIONS ICON] INVESTMENT STRATEGY
HighMark Bond Fund seeks to provide total return through investments in
fixed-income securities. To pursue this goal, the Fund invests at least 65% of
its assets in bonds which include:
- Debt obligations issued or guaranteed by the U.S. government or its agencies.
- Corporate debt securities issued by U.S. or foreign companies that nationally
recognized rating agencies such as Moody's or Standard & Poor's recognize as
investment-grade.
- Investment-grade bonds backed by the interest and principal payments of
various types of mortgages, known as mortgage-backed securities.
- Investment-grade bonds backed by the interest and principal payments on loans
for other types of assets, such as automobiles, houses, or credit cards, known
as asset-backed securities.
The Fund may also invest up to 10% of its assets in issues which are rated below
BBB but have a minimum rating of B by Moody's and/or S&P at the time of
investment.
In addition to these, the Fund may invest in other types of debt securities. In
an effort to preserve the value of your investment under volatile market
conditions, the portfolio managers also may invest more than 35% of the Fund's
assets in very short-term investments called money market securities. Such a
defensive strategy could make it more difficult for the Fund to achieve its
income and total return objectives.
The Fund will maintain an average DURATION of between 3 and 6 years, which the
managers expect to be within one year of the duration of the Lehman Brothers
Aggregate Bond Index.
The portfolio managers consider several factors when selecting securities for
the Fund's portfolio, including:
- An assessment of the future level of interest rates and inflation
- Expectations for U.S. and global economic growth
- Relative yields among securities in various market sectors
- The yield to maturity, quality, liquidity and capital appreciation potential
of individual securities
The Fund managers also consider the current state of a bond's issuer and the
possibility that an improvement or deterioration in its financial health may
result in, respectively, an upgrade or downgrade of the issuer's credit rating.
The portfolio managers may continue to hold a bond that has been downgraded if
they believe it is in the best interest of the Fund's shareholders.
For a more complete description of the various securities in which the Fund can
invest, please see "Investment Practices" on page 41.
[EXCLAMATION POINT ICON] 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 46.
(CONTINUED)
<PAGE>
PROSPECTUS
HIGHMARK FIXED-INCOME FUNDS
24 BOND FUND (CONTINUED)
[AT SIGN ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how 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.*
[CHART]
<TABLE>
<S> <C>
1995 18.79%
1996 2.59%
1997 9.17%
1998 8.45%
1999 -1.83%
</TABLE>
BEST QUARTER WORST QUARTER
6.31% -2.53%
(6/30/95) (3/31/96)
*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 6.26%.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/99, TO THOSE OF THE LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX.
<TABLE>
<CAPTION>
SINCE CLASS
1 YEAR 5 YEARS 10 YEARS INCEPTION
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BOND FUND(1)
Class A Shares (with
a 4.25% sales charge) -5.97% 6.28%** 6.21%** 5.42%*
----------------------------------------------------------------------------------
LEHMAN BROTHERS
U.S. AGGREGATE BOND
INDEX(2) -0.83% 7.73% 7.70% 9.57%+
----------------------------------------------------------------------------------
</TABLE>
(1) Performance data includes the performance of the IRA Fund Bond Portfolio for
the period prior to its consolidation with the HighMark Bond Fund on 6/23/88.
(2) The unmanaged Lehman Brothers U.S. 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>
--------------------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
--------------------------------
<S> <C> <C> <C>
Class A 431114743 HMRBX
Class B 431112747 NA
--------------------------------------------------------
</TABLE>
[QUESTION MARK ICON] 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.
<PAGE>
PROSPECTUS
25
[DOLLAR SIGN ICON] 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
SHARES SHARES
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price)* 3.25% 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%
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
------------------------------------------------------------------------------------------------------------------------------
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 0.51% 0.51%+
------- -------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.26% 1.76%
Fee Waivers 0.49% 0%
NET EXPENSES+ 0.77% 1.76%
</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 or reimburse
expenses in order to keep total operating expenses for Class A Shares from
exceeding 0.77% 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 for all Share classes. 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:
<TABLE>
<S> <C>
Class A Shares: 0.75%
Class B Shares: 1.73%
</TABLE>
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $401 $665 $949 $1,756
CLASS B SHARES
If you do not sell
your shares: $179 $554 $954 $1,942
If you sell your
shares at the
end of the period: $679 $854 $1,154 $1,942
</TABLE>
<PAGE>
PROSPECTUS
HIGHMARK FIXED-INCOME FUNDS
26 CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
[AMPERSAND ICON] 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
--------------------------------------------------------------------------------
[QUOTATIONS ICON] INVESTMENT STRATEGY
HighMark California Intermediate Tax-Free Bond Fund seeks high current income
that is exempt from federal and State of California income taxes. To pursue
this goal, the Fund invests at least 65% of its assets in INVESTMENT-GRADE
MUNICIPAL BONDS and notes that are tax-exempt in California.
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 issuers.
For a more complete description of the various securities in which the Fund can
invest, please see "Investment Practices" on page 41.
[EXCLAMATION POINT ICON] 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.
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 46.
<PAGE>
PROSPECTUS
27
[AT SIGN ICON] PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE 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.*
[CHART]
<TABLE>
<S> <C>
1994 (8.32%)
1995 18.52%
1996 4.16%
1997 7.50%
1998 6.34%
1999 (0.66%)
</TABLE>
BEST QUARTER WORST QUARTER
8.72% -6.86%
(3/31/95) (3/31/94)
*THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL
RETURN FROM 1/1/2000 TO 9/30/2000 WAS 6.05%.
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) -4.87% 6.05% 3.45%*
--------------------------------------------------------------------------------
LEHMAN BROTHERS
7-YEAR MUNICIPAL
BOND INDEX(2) -0.14% 6.36% 4.81%+
--------------------------------------------------------------------------------
</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, investment grade tax-exempt bonds with maturities between 6
and 8 years.
*Since 10/15/93.
+Since 10/31/93.
(CONTINUED)
<TABLE>
<CAPTION>
-------------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
--------------------------------------
<S> <C> <C> <C>
Class A 431114578 HMCIX
Class B 431112796 NA
</TABLE>
[QUESTION MARK ICON] 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.
<PAGE>
PROSPECTUS
HIGHMARK FIXED-INCOME FUNDS
28 CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND (CONTINUED)
[DOLLAR SIGN ICON] 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
SHARES SHARES
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price)* 3.25% 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%
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------------------------------------------------
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 0.51% 0.51%
------- --------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.26% 1.76%
Fee Waivers 0.77% 0.27%
NET EXPENSES+ 0.49% 1.49%
</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 or reimburse expenses
in order to keep total operating expenses for Class A Shares and Class B Shares
from exceeding 0.49% and 1.49%, 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 for all Share classes. 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:
<TABLE>
<S> <C>
Class A Shares: 0.47%
Class B Shares: 1.47%
</TABLE>
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $373 $638 $922 $1,732
CLASS B SHARES
If you do not sell
your shares: $152 $528 $929 $1,919
If you sell your
shares at the
end of the period: $652 $828 $1,129 $1,919
</TABLE>
<PAGE>
PROSPECTUS
29
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.
- 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
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 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
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
30
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 3.25% 3.36%
$100,000 - $249,999 2.75% 2.83%
$250,000 - $499,999 2.25% 2.30%
$500,000 - $999,999 1.75% 1.78%
$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 0.50%.
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:
<TABLE>
<CAPTION>
CLASS B SHARES
IF SOLD WITHIN CDSC ON SHARES BEING SOLD
<S> <C>
1st year 5.00%
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
7th and 8th year 0%
<CAPTION>
CLASS C SHARES
IF SOLD WITHIN CDSC ON SHARES BEING SOLD
<S> <C>
1st year 1.00%
After 1st year 0%
</TABLE>
Class B Shares will automatically convert to Class A Shares after eight years.
Class C Shares do not convert to Class A Shares.
In addition, we calculate any CDSC you may owe by considering the number of
Shares you are selling, not the value of your account. To keep your CDSC as low
as possible, each time you ask us to sell Shares we will first sell any Shares
in your account that carry no CDSC. If there are not enough of these to meet
your request, we will sell those Shares that have the lowest CDSC next.
CLASS C SHARES
Even though there is no front-end sales charge, the Distributor pays a
commission equal to 1% of your purchase to your broker or financial institution.
The Distributor receives any CDSC imposed when you sell your Class C Shares.
REPURCHASE OF CLASS A SHARES
You may purchase any amount of Class A Shares of any Fund at NAV (without the
normal front-end sales charge), up to the limit of the value of any amount of
Class A Shares (other than those which were purchased with reinvested dividends
and distributions) that you redeemed within the past 30 days. In effect, this
allows you to reacquire Shares that you may have had to redeem, without
re-paying the front-end sales charge. To exercise this privilege , we must
receive your purchase order within 30 days of your redemption. In addition, you
must notify us when you send in your purchase order that you are repurchasing
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 a HighMark Fund
and, within a 13-month period, make additional investments in Class A Shares
of that Fund or
<PAGE>
PROSPECTUS
31
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
start with a minimum initial investment of 5% of the total amount and inform
us in writing within 90 days of your initial purchase. Be sure to notify us
again when you make additional investments in another HighMark Fund.
REDUCTIONS FOR QUALIFIED GROUP(S). If you are investing with, or on behalf of, a
group, your combined purchases of Class A Shares may be eligible for a reduced
sales charge through the accumulation and combination privileges described
above. Each investor will retain an individual account.
CONTACT YOUR FINANCIAL REPRESENTATIVE OR THE DISTRIBUTOR TO FIND OUT HOW TO
QUALIFY, OR CONSULT THE STATEMENT OF ADDITIONAL INFORMATION (SEE THE BACK COVER
OF THIS PROSPECTUS FOR CONTACT INFORMATION).
FRONT-END SALES CHARGE WAIVERS: The front-end sales charge will be waived on
Class A Shares bought:
(1) Through reinvestment of dividend and capital gain distributions.
(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 who purchase Shares with redemption proceeds (but only to the
extent of such redemption proceeds) from another mutual fund (other than
HighMark Funds) within 30 days of such redemption, provided that, the
individuals paid a sales charge on the original shares redeemed. If you
believe you qualify for this exemption, you must notify us at the time you
purchase Class A Shares and provide us with evidence such as a confirmation
of your share redemption.
(9) By brokers, dealers and agents (as well as their employees, spouses and
children under the age of 21) who have a sales agreement with the
Distributor and are purchasing Class A Shares for their own account.
(10) By individuals buying Class A Shares on behalf of a qualified prototype
retirement plan (other than an IRA, SEP-IRA or Keogh).
(11) By sponsors of a unit investment trust (UIT) who are buying Class A Shares
of HighMark Growth Fund for deposit into the UIT. This exception may also
apply to you if you hold a UIT and invest distributions you receive from it
in Class A Shares of the HighMark Growth Fund.
(12) By current or retired trustees of HighMark Funds; by directors, officers
and employees (as well as their spouses and children under the age of 21) of
Union Bank of California, SEI Investments Distribution Co. or their
affiliated companies and of Sub-Advisers to the HighMark Funds.
(13) By investors receiving Class A Shares issued in plans of reorganization,
such as mergers, asset acquisitions, and exchange offers, to which HighMark
Funds is a party.
(14) By persons who bought Class A Shares without the assistance of an
investment professional between May 15, 1998 and August 31, 1998. Such
individuals may make future purchases of Class A Shares at no sales charge.
IF YOU THINK YOU MAY BE ELIGIBLE FOR A SALES CHARGE WAIVER, CONTACT THE
DISTRIBUTOR OR CONSULT THE STATEMENT OF ADDITIONAL INFORMATION (SEE THE BACK
COVER OF THIS PROSPECTUS). FOR CATEGORIES 2 THROUGH 12 AND 14 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.
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
32
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.
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."
- 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 note to your financial representative, or mail
them to our transfer agent (address below).
All purchases made by check should be in U.S. dollars.
Third party checks, credit card checks or cash will not be accepted.
--------------------------------------------------------------------------------
BY EXCHANGE
--------------------------------------------------------------------------------
OPENING AN ACCOUNT
- Call your financial representative or the Distributor at 1-800-433-6884 to
request an exchange.
ADDING TO AN ACCOUNT
- Call your financial representative or the Distributor at 1-800-433-6884 to
request an exchange.
--------------------------------------------------------------------------------
BY WIRE
--------------------------------------------------------------------------------
OPENING AN ACCOUNT
- Deliver your completed application to your financial representative, or mail
it to the transfer agent (address below).
- Obtain your Fund account number by calling your financial representative or
our transfer agent.
- 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
<PAGE>
PROSPECTUS
33
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 Investment Plan, see "Investor
Services."
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.
- Shares cannot be redeemed by wire on Federal holidays restricting wire
transfers.
--------------------------------------------------------------------------------
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 "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.
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
34
RECEIVING YOUR MONEY. Normally, we will send you a check for your proceeds as
promptly as possible, at the latest within seven calendar days of receiving your
redemption order. If, however, you recently purchased Shares in the Fund, we may
be unable to fulfill your request if we have not yet received and processed your
payment for the initial purchase. In such a case you may need to resubmit your
redemption request after we have received payment.
REDEMPTION IN KIND. The Funds reserve the right to make payment on redemptions
in securities rather than cash.
INVOLUNTARY SALES OF YOUR SHARES. Due to the relatively high costs of handling
small investments, each Fund reserves the right to redeem your Shares at net
asset value (less any applicable contingent deferred sales charge) if your
account balance in any Fund drops below the minimum initial purchase amount for
any reason other than market fluctuation. This is more likely to occur if you
invest only the minimum amount in a Fund and then sell Shares within a fairly
short period of time. Before any Fund exercises its right to redeem your Shares,
we will notify you in writing at least 60 days in advance to give you time to
bring your account up to 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 Fund 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 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 one business day, you must place your
redemption order before 1:00 p.m. PT (4:00 p.m. ET). Otherwise, we will
execute your order on the following business day.
<PAGE>
PROSPECTUS
35
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.
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.
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
36
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.
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
investmentor 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.
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 $33.7 billion in consolidated assets. As of the
same date, HighMark Capital Management, had over $19 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 0.60%
Growth Fund 0.60%
Income Equity Fund 0.60%
International Equity Fund 0.95%*
Value Momentum Fund 0.60%
Small Cap Value Fund 1.00%*
</TABLE>
*A portion of the management fee is used to pay the Fund's 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
<PAGE>
PROSPECTUS
37
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 $349.797 million. The AXA
Group, including AXA, had over $783 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 $46.5 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.
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
38
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 derived from the
financial statements audited by Deloitte & Touche LLP, or other independent
accountants, as noted in Deloitte & Touche llp's report. This report, along with
the Fund's financial statements, is incorporated by reference in the SAI, which
is available upon request.
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
-----------------------------------------------------------------------
NET
REALIZED
NET AND NET
ASSET UNREALIZED ASSET
VALUE, NET GAIN (LOSS) NET VALUE,
BEGINNING INVESTMENT ON INVESTMENT CAPITAL END
OF PERIOD INCOME INVESTMENTS INCOME GAINS OF PERIOD
-----------------------------------------------------------------------------------------------------------------------------------
BALANCED FUND
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
For the years ended July 31,:
2000 $17.20 0.391 (0.077) (0.386) (1.398) $15.73
1999 $16.73 0.383 1.167 (0.396) (0.684) 17.20
1998 16.45 0.402 0.736 (0.416) (0.442) 16.73
For the six month period ended July 31,:
1997 $15.03 0.209 1.712 (0.209) (0.290) $16.45
For the years ended January 31,:
1997 $13.91 0.464 1.706 (0.455) (0.595) $15.03
1996 11.45 0.406 2.825 (0.406) (0.362) 13.91
CLASS B SHARES
For the year ended July 31,:
2000 $17.18 0.288 (0.086) (0.284) (1.398) $15.70
1999 16.73 0.278 1.161 (0.301) (0.684) 17.18
For the period ended July 31,:
1998 (1) $16.55 0.155 0.197 (0.175) -- $16.73
CLASS C SHARES
For the year ended July 31,:
2000 (2) $17.07 0.153 0.042 (0.157) (1.398) $15.71
-----------------------------------------------------------------------------------------------------------------------------------
CORE EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
For the period ended July 31,:
2000 (3) $ 9.88 0.006 (0.119) (0.007) -- $ 9.76
CLASS B SHARES
For the period ended July 31,:
2000 (3) $ 9.88 0.004 (0.127) (0.007) -- $ 9.75
-----------------------------------------------------------------------------------------------------------------------------------
GROWTH FUND
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
For the years ended July 31,:
2000 $18.35 -- 1.980 -- (1.800) $18.53
1999 16.93 (0.055) 2.746 -- (1.271) 18.35
1998 17.39 (0.018) 3.100 (0.015) (3.532) 16.93
1997 12.60 0.049 5.784 (0.048) (0.996) 17.39
1996 11.87 0.110 1.380 (0.120) (0.640) 12.60
<CAPTION>
RATIO OF
RATIO RATIO OF NET INVESTMENT
NET OF EXPENSES NET INCOME TO
ASSETS, RATIO TO AVERAGE INVESTMENT AVERAGE
END OF EXPENSES NET ASSETS INCOME NET ASSET PORTFOLIO
TOTAL** OF PERIOD TO AVERAGE EXCLUDING TO AVERAGE EXCLUDING TURNOVER
RETURN (000) NET ASSETS FEE WAIVERS NET ASSETS FEE WAIVERS RATE
-----------------------------------------------------------------------------------------------------------------------------------
BALANCED FUND
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
For the years ended July 31,:
2000 2.03% $10,588 1.17% 1.34% 2.39% 2.22% 25%
1999 9.64% 11,236 1.17% 1.34% 2.35% 2.18% 34%
1998 7.12% 10,629 1.16% 1.33% 2.42% 2.24% 22%
For the six month period ended July 31,:
1997 13.22% $ 9,214 1.07%* 1.30%* 2.75%* 2.53%* 10%
For the years ended January 31,:
1997 16.04% $ 8,833 1.04% 1.19% 3.22% 3.07% 27%
1996 28.73% 8,422 0.89% 1.20% 3.12% 2.81% 26%
CLASS B SHARES
For the year ended July 31,:
2000 1.33% $ 4,681 1.82% 1.84% 1.72% 1.70% 25%
1999 8.91% 3,594 1.82% 1.84% 1.68% 1.66% 34%
For the period ended July 31,:
1998 (1) 4.32%* $ 967 1.80%* 1.83%* 1.77%* 1.74%* 22%
CLASS C SHARES
For the year ended July 31,:
2000 (2) 1.29%+ $ 46 1.82%* 1.84%* 1.39%* 1.37%* 25%
-----------------------------------------------------------------------------------------------------------------------------------
CORE EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
For the period ended July 31,:
2000 (3) (1.14)%+ $ 27 1.17%* 1.34%* 0.90%* 0.73%* 3%
CLASS B SHARES
For the period ended July 31,:
2000 (3) (1.24)%+ $ 140 1.82%* 1.84%* 0.72%* 0.70%* 3%
-----------------------------------------------------------------------------------------------------------------------------------
GROWTH FUND
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
For the years ended July 31,:
2000 10.87% $54,199 1.17% 1.34% (0.60)% (0.77)% 67%
1999 16.92% 24,579 1.14% 1.34% (0.38)% (0.58)% 52%
1998 22.26% 17,173 1.16% 1.34% (0.17)% (0.35)% 67%
1997 48.49% 7,816 1.04% 1.49% 0.28% (0.18)% 118%
1996 12.88% 2.843 0.93% 1.91% 0.96% (0.02)% 79%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AMOUNTS DESIGNATED AS "-" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
*Annualized
**Total return does not reflect the sales charge.
+ Total returns for the period indicated and it has not been annualized.
++ Includes a 0.037 distribution in excess of net investment income.
(1) Commenced operations on February 2, 1998.
(2) Commenced operations on November 30, 1999.
(3) Commenced operations on June 30, 2000.
<PAGE>
PROSPECTUS
39
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
------------------------------------------------------------------------
NET
REALIZED
NET AND NET
ASSET UNREALIZED ASSET
VALUE, NET GAIN (LOSS) NET VALUE,
BEGINNING INVESTMENT ON INVESTMENT CAPITAL END
OF PERIOD INCOME INVESTMENTS INCOME GAINS OF PERIOD
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
For the year ended July 31,:
2000 $18.15 -- 1.840 -- (1.800) $18.19
1999 $16.85 (0.103) 2.674 -- (1.271) 18.15
For the period ended July 31,:
1998(1) $14.76 (0.035) 2.125 -- -- $16.85
CLASS C SHARES
For the year ended July 31,:
2000 (2) $19.43 -- 0.560 -- (1.800) $18.19
-----------------------------------------------------------------------------------------------------------------------------------
INCOME EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
For the years ended July 31,:
2000 $17.81 0.210 (1.882) (0.193) (3.565) $12.38
1999 17.95 0.189 2.087 (0.208) (2.206) 17.81
1998 18.24 0.262 1.486 (0.258) (1.776) 17.95
1997 14.29 0.363 5.028 (0.358) (1.083) 18.24
1996 13.03 0.420 1.920 (0.420) (0.660) 14.29
CLASS B SHARES
For the year ended July 31,:
2000 $17.74 0.101 (1.864) (0.112) (3.565) $12.30
1999 17.90 0.089 2.071 (0.115) (2.206) 17.74
For the period ended July 31,:
1998 (1) $16.88 0.057 1.034 (0.072) -- $17.90
CLASS C SHARES
For the year ended July 31,:
2000 (2) $16.51 0.062 (0.643) (0.074) (3.565) $12.29
-----------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
For the period ended July 31,:
2000 (2) $44.06 0.626 (0.968) (0.271) (0.297) $43.15
CLASS B SHARES
For the period ended July 31,:
2000 (2) $44.06 0.462 (0.949) (0.256) (0.297) $43.02
CLASS C SHARES
For the year ended July 31,:
2000 (2) $44.06 0.322 (0.816) (0.249) (0.297) $43.02
-----------------------------------------------------------------------------------------------------------------------------------
SMALL CAP VALUE FUND
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
For the year ended July 31,:
2000 $12.52 0.222 1.677 (0.252)++ (0.637) $13.53
For the period ended July 31,:
1999 (3) $10.00 (0.003) 2.526 (0.003) -- $12.52
CLASS B SHARES
For the year ended July 31,:
2000 $12.46 (0.169) 1.672 (0.214)++ (0.637) $13.45
For the period ended July 31,:
1999 (3) $10.00 (0.041) 2.501 -- -- $12.46
<CAPTION>
RATIO OF
RATIO RATIO OF NET INVESTMENT
NET OF EXPENSES NET INCOME TO
ASSETS, RATIO TO AVERAGE INVESTMENT AVERAGE
END OF EXPENSES NET ASSETS INCOME NET ASSET PORTFOLIO
TOTAL** OF PERIOD TO AVERAGE EXCLUDING TO AVERAGE EXCLUDING TURNOVER
RETURN (000) NET ASSETS FEE WAIVERS NET ASSETS FEE WAIVERS RATE
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
For the year ended July 31,:
2000 10.18% $24.407 1.82% 1.84% (1.26)% (1.28)% 67%
1999 16.26% $11,111 1.79% 1.84% (1.04)% (1.09)% 52%
For the period ended July 31,:
1998(1) 28.71%* $ 1,948 1.81%* 1.84%* (0.94)%* (0.97)%* 67%
For the year ended July 31,:
2000 (2) 2.92%+ $ 817 1.82%* 1.84%* (1.46)%* (1.48)%* 67%
-----------------------------------------------------------------------------------------------------------------------------------
INCOME EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
For the years ended July 31,:
2000 (9.86)% $63,180 1.16% 1.37% 1.17% 0.96% 97%
1999 13.94% 22,329 1.13% 1.34% 1.17% 0.96% 71%
1998 10.50% 23,024 1.17% 1.34% 1.39% 1.22% 69%
1997 39.97% 14,152 1.06% 1.46% 2.32% 1.92% 46%
1996 18.21% 10,143 1.03% 1.51% 2.89% 2.41% 42%
CLASS B SHARES
For the year ended July 31,:
2000 (10.50)% $ 3,786 1.80% 1.86% 0.66% 0.60% 97%
1999 13.25% $ 4,543 1.78% 1.84% 0.50% 0.44% 71%
For the period ended July 31,:
1998 (1) 13.10%* $ 1,816 1.82%* 1.85%* 0.38%* 0.36%* 69%
CLASS C SHARES
For the year ended July 31,:
2000 (2) (4.10)%+ $ 38 1.80%* 1.86%* 0.08%* 0.02%* 97%
-----------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
For the period ended July 31,:
2000 (2) (0.84)%+ $ 1,548 1.70%* 1.85%* 0.56%* 0.41%* 49%
CLASS B SHARES
For the period ended July 31,:
2000 (2) (1.17)%+ $ 960 2.36%* 2.39%* (0.18)%* (0.21)%* 49%
CLASS C SHARES
For the year ended July 31,:
2000 (2) (1.19)%+ $ 9 2.36%* 2.39%* (0.33)%* (0.36)%* 49%
-----------------------------------------------------------------------------------------------------------------------------------
SMALL CAP VALUE FUND
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
For the year ended July 31,:
2000 16.06% $ 8,280 1.55% 1.71% 0.53% 0.37% 57%
For the period ended July 31,:
1999 (3) 25.24%+ $ 912 1.77%* 1.94%* (0.11)%* (0.28)%* 74%
CLASS B SHARES
For the year ended July 31,:
2000 15.63% $ 4,477 2.22% 2.24% (0.15)% (0.17)% 57%
For the period ended July 31,:
1999 (3) 24.60%+ $ 1,012 2.39%* 2.42%* (1.40)%* (1.43)%* 74%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AMOUNTS DESIGNATED AS "-" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
*Annualized
**Total return does not reflect the sales charge.
+ Total returns for the period indicated and it has not been annualized.
++ Includes a 0.037 distribution in excess of net investment income.
(1) Commenced operations on February 2, 1998.
(2) Commenced operations on November 30, 1999.
(3) Commenced operations on September 17, 1998.
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
40
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
------------------------------------------------------------------------
NET
REALIZED
NET AND NET
ASSET UNREALIZED ASSET
VALUE, NET GAIN (LOSS) NET VALUE,
BEGINNING INVESTMENT ON INVESTMENT CAPITAL END
OF PERIOD INCOME INVESTMENTS INCOME GAINS OF PERIOD
-----------------------------------------------------------------------------------------------------------------------------------
SMALL CAP VALUE FUND (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
For the year ended July 31,:
2000 (2) $12.48 0.325 1.516 (0.254)++ (0.637) $13.43
-----------------------------------------------------------------------------------------------------------------------------------
VALUE MOMENTUM FUND
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
For the years ended July 31,:
2000 $29.55 0.196 0.993 (0.136) (1.463) $29.09
1999 27.31 0.245 3.119 (0.255) (0.866) 29.55
1998 25.48 0.262 2.007 (0.275) (0.164) 27.31
For the six month period ended July 31,:
1997 $21.57 0.106 3.953 (0.147) -- $25.48
For the years ended January 31,:
1997 $18.05 0.389 4.368 (0.393) (0.848) $21.57
1996 13.40 0.320 5.060 (0.323) (0.408) 18.05
CLASS B SHARES
For the years ended July 31,:
2000 $29.46 0.032 0.950 (0.029) (1.463) $28.95
1999 27.28 0.024 3.113 (0.088) (0.866) 29.46
For the years ended July 31,:
1998(1) $26.82 0.046 0.479 (0.064) -- $27.28
CLASS C SHARES
For the year ended July 31,:
2000 (2) $29.50 0.128 0.819 (0.044) (1.463) $28.94
-----------------------------------------------------------------------------------------------------------------------------------
BOND FUND
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
For the years ended July 31,:
2000 $10.30 0.630 (0.144) (0.626) -- $10.16
1999 10.73 0.610 (0.440) (0.600) -- 10.30
1998 10.59 0.605 0.162 (0.627) -- 10.73
1997 10.15 0.642 0.403 (0.609) -- 10.59
1996 10.29 0.690 (0.180) (0.650) -- 10.15
-----------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
For the years ended July 31,:
2000 $ 9.93 0.426 0.023 (0.439) -- $ 9.94
1999 10.01 0.429 (0.078) (0.436) -- 9.93
1998 9.99 0.423 0.032 (0.435) -- 10.01
For the six month period ended July 31,:
1997 $ 9.74 0.222 0.240 (0.215) -- $ 9.99
For the years ended January 31,:
1997 $ 9.84 0.458 (0.112) (0.442) -- $ 9.74
1996 8.94 0.470 0.918 (0.487) -- 9.84
CLASS B SHARES
For the year ended July 31,:
2000 (2) $ 9.84 0.225 0.128 (0.243) -- $ 9.95
<CAPTION>
RATIO OF
RATIO RATIO OF NET INVESTMENT
NET OF EXPENSES NET INCOME TO
ASSETS, RATIO TO AVERAGE INVESTMENT AVERAGE
END OF EXPENSES NET ASSETS INCOME NET ASSET PORTFOLIO
TOTAL** OF PERIOD TO AVERAGE EXCLUDING TO AVERAGE EXCLUDING TURNOVER
RETURN (000) NET ASSETS FEE WAIVERS NET ASSETS FEE WAIVERS RATE
-----------------------------------------------------------------------------------------------------------------------------------
SMALL CAP VALUE FUND (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
For the year ended July 31,:
2000 (2) 15.64%+ $ 362 2.22%* 2.24%* 0.07%* 0.05%* 57%
-----------------------------------------------------------------------------------------------------------------------------------
VALUE MOMENTUM FUND
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
For the years ended July 31,:
2000 4.23% $40,930 1.15% 1.34% 0.62% 0.43% 3%
1999 12.79% 36,495 1.06% 1.34% 0.90% 0.62% 9%
1998 8.96% 35,325 1.06% 1.33% 0.99% 0.72% 7%
For the six month period ended July 31,:
1997 18.90% $20,750 1.03%* 1.25%* 1.40%* 1.17%* 1%
For the years ended January 31,:
1997 27.04% $15,963 1.04% 1.19% 2.01% 1.86% 9%
1996 40.77% 11,801 0.89% 1.20% 2.00% 1.69% 20%
CLASS B SHARES
For the years ended July 31,:
2000 3.50% $ 8,336 1.82% 1.84% (0.06)% (0.08)% 3%
1999 11.89% 6,506 1.81% 1.84% 0.14% 0.11% 9%
For the years ended July 31,:
1998(1) 3.94%* $ 5,202 1.81%* 1.84%* 0.15%* 0.13%* 7%
CLASS C SHARES
For the year ended July 31,:
2000 (2) 3.37%+ $ 568 1.82%* 1.84%* (0.21)%* (0.23)%* 3%
-----------------------------------------------------------------------------------------------------------------------------------
BOND FUND
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
For the years ended July 31,:
2000 4.90% $ 6,183 0.75% 1.26% 6.11% 5.60% 27%
1999 1.52% 2,638 0.75% 1.26% 5.67% 5.16% 39%
1998 7.47% 1,912 0.75% 1.26% 5.85% 5.33% 16%
1997 10.68% 606 0.85% 1.68% 6.10% 5.27% 14%
1996 4.95% 1,157 0.89% 1.65% 6.10% 5.14% 21%
-----------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
For the years ended July 31,:
2000 4.69% $31,261 0.44% 1.26% 4.46% 3.64% 10%
1999 3.55% 17,759 0.45% 1.27% 4.30% 3.48% 11%
1998 4.66% 12,925 0.31% 1.29% 4.37% 3.39% 23%
For the six month period ended July 31,:
1997 4.85% $11,214 0.21%* 1.22%* 4.55%* 3.54%* 5%
For the years ended January 31,:
1997 3.62% $ 5,791 0.20% 1.25% 4.69% 3.64% 6%
1996 15.84% 4,266 0.23% 1.12% 4.93% 4.04% 30%
CLASS B SHARES
For the year ended July 31,:
2000 (2) 3.65%+ $ 425 1.44%* 1.76%* 3.50%* 3.18%* 10%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AMOUNTS DESIGNATED AS "-" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
*Annualized
**Total return does not reflect the sales charge.
+ Total returns for the period indicated and it has not been annualized.
++ Includes a 0.037 distribution in excess of net investment income.
(1) Commenced operations on February 2, 1998.
(2) Commenced operations on November 30, 1999.
<PAGE>
PROSPECTUS
41
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.
FUND NAME FUND CODE
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>
<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 are foreign 1-7 Market
Shares of a company held by a U.S. bank that issues a Political
receipt evidencing ownership. ADRs pay dividends in U.S. dollars. Foreign Investment
-------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES: Securities backed by company 1, 3, 8, 9 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 option to sell, Liquidity
a security at a specified price. A put option gives the buyer Credit
the right to sell, and obligates the seller of the option to buy, Market
a security at a specified price. The Funds will sell only Leverage
covered call and secured put options.
------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT: Negotiable instruments 1-8 Market
with a stated maturity. Credit
Liquidity
------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
42
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 an 1-9 Management
underlying contract, index or security, or any combination Market
thereof, including futures, options (e.g., put and calls), Credit
options on futures, swap agreements, and some Liquidity
mortgage-backed securities. Leverage
------------------------------------------------------------------------------------------------------------------
FOREIGN SECURITIES: Stocks issued by foreign companies 3-7 Market
including ADRs and Global Depository Receipts (GDRs), as well Political
as Commercial paper of foreign issuers and obligations of Foreign Investment
foreign governments, companies, banks, overseas branches of Liquidity
U.S. banks or supranational entities.
------------------------------------------------------------------------------------------------------------------
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."
------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PROSPECTUS
43
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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; similarly Credit
rated by other nationally recognized rating organizations;
or, if not rated, determined to be of comparably high
quality by the Adviser.
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS: Investment-grade, U.S. 1-9 Market
dollar-denominated debt securities with remaining Credit
maturities of one year or less. These may include short-term
U.S. government obligations, commercial paper and other
short-term corporate obligations, repurchase agreements
collateralized with U.S. government securities, certificates
of deposit, bankers' acceptances, and other financial
institution obligations. These securities may carry fixed or
variable interest rates.
------------------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
44
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
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 Market
underlying foreign currency. Currency options help a Fund Political
manage its exposure to changes in the value of the U.S. dollar Leverage
relative to other currencies. If a Fund sells a put option on a Foreign Investment
foreign currency, it will establish a segregated account with
its Custodian consisting of cash, U.S government securities
or other liquid high-grade bonds in an amount equal to the
amount the Fund would be required to pay if the put is exercised.
------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PROSPECTUS
45
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PARTICIPATION INTERESTS: Interests in municipal securities from 1, 9 Market
financial institutions such as commercial and investment banks, Liquidity
savings and loan associations and insurance companies. Credit
These interests are usually structured as some form of Tax
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 the Leverage
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 bank in 1-4, 6-8 Liquidity
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 recovered their principal.
------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
46
<TABLE>
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
<PAGE>
PROSPECTUS
47
inaccurate financial information about their issuers, social upheavals or
political actions ranging from tax code changes to governmental collapse. These
risks are greater in the emerging markets than in the developed markets of
Europe and Japan.
HEDGING. When a derivative (a security whose value is based on that of another
security or index) is used as a hedge against an opposite position that a fund
holds, any loss on the derivative should be substantially offset by gains on the
hedged investment, and vice versa. Although hedging can be an effective way to
reduce a Fund's risk, it may not always be possible to perfectly offset one
position with another. As a result, there is no assurance that a Fund's hedging
transactions will be effective.
INTEREST RATE RISK. The risk that debt prices overall will decline over short or
even long periods due to rising interest rates. Interest rate risk should be
modest for shorter-term securities, moderate for intermediate-term securities,
and high for longer-term securities. Generally, an increase in 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 repaya
high-yielding bond before the bond's maturity date. In both cases, the investor
is usually forced to reinvest the proceeds in a security with a lower yield.
This turnover may result in taxable capital gains and, in addition, may lower a
portfolio's income. If an investor paid a premium for the security, the
prepayment may result in an unexpected capital loss.
Prepayment and call risk generally increase when interest rates decline, and can
make a security's yield as well as its market price more volatile. Generally
speaking, the longer a security's maturity, the greater the prepayment and call
risk it poses.
REGULATORY RISK. The risk that federal and state laws may restrict an investor
from seeking recourse when an issuer has defaulted on the interest and/or
principal payments it owes on its obligations. These laws include restrictions
on foreclosures, redemption rights after foreclosure, Federal and state
bankruptcy and debtor relief laws, restrictions on "due on sale" clauses, and
state usury laws.
SMALL-COMPANY STOCK RISK. Investing in small companies is generally more risky
than investing in large companies, for a variety of reasons. Many small
companies are young and have limited track records. They also may have limited
product lines, markets or financial resources. They may, in addition, be more
vulnerable to adverse business or economic developments than larger companies.
Stocks issued by small companies tend to be less liquid and more volatile than
stocks of larger companies or the market averages in general. In addition, small
companies may not be well-known to the investing public, may not have
institutional ownership, and may have only cyclical, static, or moderate growth
prospects. If a fund concentrates on small companies, its performance may be
more volatile than that of a fund that invests primarily in larger companies.
TAX RISK. The risk that the issuer of a security will fail to comply with
certain requirements of the Internal Revenue Code, which would cause adverse tax
consequences for the issuer and potential losses for its investors.
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.
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
48
NOTES
<PAGE>
[LOGO]
HIGHMARK-SM-
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.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list the Funds' holdings and contain information on the market
conditions and investment strategies that significantly affected the HighMark
Funds' performance during the last year.
To obtain the SAI, the Annual or Semi-Annual Reports free of charge, or for
more information:
BY TELEPHONE: call 1-800-433-6884
BY MAIL: write to us at
SEI Investments Distribution Co.
1 Freedom Valley Drive
Oaks, PA 19456
BY INTERNET: www.highmarkfunds.com
FROM THE SEC: You can also obtain the SAI, the Annual and Semi-Annual Reports,
and other information about the HighMark Funds, from the SEC's Web site
(http://www.sec.gov). You may review and copy documents at the SEC Public
Reference Room in Washington, DC (for information call 1-800-SEC-0330). You
may request documents by mail from the SEC, upon payment of a duplicating fee,
by writing to: Securities and Exchange Commission, Public Reference Section,
450 5th Street, N.W., Washington, DC 20549-6009.
HighMark Funds' Investment Company Act registration number is 811-05059.
84823-B (11/00)
<PAGE>
EQUITY
FIXED INCOME
FIDUCIARY 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.
[LOGO]
HIGHMARK-SM-
FUNDS
<PAGE>
PROSPECTUS
1
HOW TO READ
THIS PROSPECTUS
HighMark Funds is a mutual fund family that offers different classes of Shares
in separate investment portfolios (Funds). The Funds have various investment
goals and strategies. This prospectus gives you important information about the
Fiduciary Shares of HighMark's Equity and Fixed-Income funds that you should
know before investing. Certain Funds also offer additional classes of Shares
called Class A, Class B and Class C Shares, which are offered in separate
prospectuses. In addition, the HighMark Value Momentum Fund offers a class of
Shares called Class I Shares.
Please read this prospectus and keep it for future reference. The prospectus is
arranged into different sections so that you can easily review this important
information. The next column contains general information you should know about
investing in the HighMark Funds.
INDIVIDUAL HIGHMARK FUND PROFILES
EQUITY FUNDS
Balanced Fund..................................................................2
Core Equity Fund ..............................................................5
Growth Fund ...................................................................8
Income Equity Fund ...........................................................11
International Equity Fund ....................................................14
Small Cap Value Fund .........................................................17
Value Momentum Fund ..........................................................20
FIXED-INCOME FUNDS
Bond Fund ....................................................................23
California Intermediate Tax-Free Bond Fund ...................................26
SHAREOWNER GUIDE -- HOW TO INVEST IN THE
HIGHMARK FUNDS
Choosing a Share Class .......................................................29
Opening an Account ...........................................................29
Buying Shares ................................................................30
Selling Shares ...............................................................30
Exchanging Shares ............................................................30
Transaction Policies .........................................................30
Dividends and Distributions ..................................................31
Taxes ........................................................................31
Investor Services ............................................................32
MORE ABOUT THE HIGHMARK FUNDS
Investment Management ........................................................32
Financial Highlights .........................................................34
Investment Practices .........................................................36
Glossary of Investment Risks .................................................41
FOR MORE INFORMATION ABOUT HIGHMARK FUNDS, PLEASE SEE THE BACK COVER OF THE
PROSPECTUS
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 OBLIGATION OF
UNION BANK OF CALIFORNIA, N.A., ITS AFFILIATES OR ANY BANK IT IS NOT INSURED BY
THE FDIC OR ANY GOVERNMENT AGENCY.
Each Fund has its own investment goal and strategies for reaching that goal.
There is no guarantee that a Fund will achieve its goal. Before investing, make
sure that the Fund's goal matches your own.
The portfolio manager invests each Fund's assets in a way that he or she
believes will help the Fund achieve its goal. A manager's judgments about the
securities markets, economy and companies, and his or her method of investment
selection, may cause a Fund to underperform other funds with similar objectives.
[AMPERSAND ICON] FUND SUMMARY
[QUOTATIONS ICON] INVESTMENT STRATEGY
[EXCLAMATION POINT ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
[AT SIGN ICON] PERFORMANCE INFORMATION
[QUESTION MARK ICON] DID YOU KNOW?
[NUMBER SIGN ICON] FUND INFORMATION
[DOLLAR SIGN ICON] FEES AND EXPENSES
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
2 BALANCED FUND
[AMPERSAND ICON] 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
--------------------------------------------------------------------------
[QUOTATIONS ICON] INVESTMENT STRATEGY
HighMark Balanced Fund seeks capital appreciation and income. Conservation of
capital is a secondary consideration. To pursue these goals, the Fund normally
invests between 50% and 70% of its assets in equity securities, primarily common
stocks, and at least 25% of its assets in fixed-income securities, primarily
bonds. Within these ranges, the Fund's specific allocation among stocks, bonds
and other securities will vary depending on the portfolio managers' assessment
of business, economic and market conditions.
The Fund may invest in bonds of various maturities and types, including those
issued by U.S. and foreign governments or companies, mortgage-backed securities
and asset-backed securities. At least 90% of the bonds will be investment grade
at the time the Fund purchases them.
To select bonds for the Fund, the portfolio managers consider such factors as
the potential direction of interest rates and the U.S. economy; the outlook for
one sector of the bond market versus another; and the value that one bond may
represent versus another. They also consider the financial strength of each
issuer and the possibility that its credit rating may be upgraded or downgraded.
The Fund may continue to hold a bond that has been downgraded if the managers
believe it is in Shareholders' best interest to do so.
To choose stocks for the Fund, the portfolio managers focus 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 500 Composite Index ("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 36.
[EXCLAMATION POINT ICON] 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.
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 41.
<PAGE>
PROSPECTUS
3
[AT SIGN ICON] PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how it will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FIDUCIARY SHARES
FROM YEAR TO YEAR.*
[CHART]
<TABLE>
<S> <C>
1992 7.10%
1993 11.05%
1994 -2.30%
1995 28.30%
1996 15.78%
1997 19.86%
1998 10.13%
1999 5.85%
</TABLE>
BEST QUARTER WORST QUARTER
11.32% -7.23%
(12/31/98) (9/30/98)
*THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL
RETURN FROM 1/1/2000 TO 9/30/2000 WAS 1.32%.
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 U.S. AGGREGATE
BOND INDEX.
<TABLE>
<CAPTION>
SINCE CLASS
1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCED FUND(1)
Fiduciary Shares 5.85% 15.72% 12.39%*
--------------------------------------------------------------------------------
S&P 500 INDEX(2) 21.04% 28.55% 19.75%+
--------------------------------------------------------------------------------
LEHMAN BROTHERS
U.S. AGGREGATE
BOND INDEX(3) -0.83% 7.73% 7.45%+
--------------------------------------------------------------------------------
</TABLE>
(1)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 U.S. stock market.
(3)The unmanaged Lehman Brothers U.S. Aggregate Bond Index is generally
representative of the bond market as a whole.
*Since 2/1/91.
+Since 2/28/91.
<TABLE>
<CAPTION>
-----------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
------------------------------------
<S> <C> <C> <C>
Fiduciary 431114792 HMBAX
-----------------------------------------------
</TABLE>
[QUESTION MARK ICON] 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.
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
4 BALANCED FUND (CONTINUED)
[DOLLAR SIGN ICON] 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
----------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price) 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) 0%
Redemption Fee (as a percentage of amount redeemed, if applicable)* 0%
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Investment Advisory Fees 0.60%
Distribution and/or Service (12b-1) Fees 0.00%
Other Expenses 0.49%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.09%
Fee Waivers 0.15%
NET EXPENSES+ 0.94%
</TABLE>
*Does not include any wire transfer fees, if applicable.
+The Fund's Adviser has agreed to contractually waive fees or reimburse expenses
in order to keep total operating expenses for Fiduciary Shares from exceeding
0.94% 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:
Fiduciary Shares: 0.92%
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $96 $332 $586 $1,315
</TABLE>
<PAGE>
PROSPECTUS
5
HIGHMARK EQUITY FUNDS
CORE EQUITY FUND
[AMPERSAND ICON] 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
--------------------------------------------------------------------------
[QUOTATIONS ICON] 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 Standard & Poor's 500 Composite
Index ("S&P 500 Index").
To choose stocks for the Fund, the portfolio managers focus 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 S&P 500 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 36.
[EXCLAMATION POINT ICON] 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.
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 41.
(CONTINUED)
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
6 CORE EQUITY FUND (CONTINUED)
[AT SIGN ICON] 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.
<TABLE>
<CAPTION>
--------------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
---------------------------------------
<S> <C> <C> <C>
Fiduciary 431112788 HMCFX
</TABLE>
[QUESTION MARK ICON] 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.
<PAGE>
PROSPECTUS
7
[DOLLAR SIGN ICON] 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
-----------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price) 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) 0%
Redemption Fee (as a percentage of amount redeemed, if applicable) 0%
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
-----------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Investment Advisory Fees 0.60%
Distribution and/or Service (12b-1) Fees 0.00%
Other Expenses 0.49%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.09%
Fee Waivers 0.15%
NET EXPENSES+ 0.94%
</TABLE>
*Does not include any wire transfer fees, if applicable.
**Other expenses are based on estimated amounts for the current fiscal year.
+The Fund's Adviser has agreed to contractually waive fees or reimburse expenses
in order to keep total operating expenses for Fiduciary Shares from exceeding
0.94% 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:
Fiduciary Shares: 0.92%
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return, and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C> <C>
Fiduciary Shares $96 $332
</TABLE>
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
8 GROWTH FUND
[AMPERSAND ICON] 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 INVESTMENTS 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
--------------------------------------------------------------------------
[QUOTATIONS ICON] INVESTMENT STRATEGY
HighMark Growth Fund seeks long-term capital appreciation through investments in
equity securities. The production of current income is an incidental objective.
To pursue its primary goal, the Fund invests at least 65% of its assets in
equity securities, primarily in the stocks of MEDIUM TO LARGE U.S.
growth-oriented companies that the portfolio managers believe are also
financially stable. Growth-oriented companies are those whose earnings are
growing at a faster rate than the market as a whole, or have the potential to do
so. Other attributes the portfolio managers seek in a company include:
- above-average return on capital (an indication that a firm has employed its
investors' money effectively)
- free cash flow (an indication that a firm has managed its assets and
liabilities well)
- recurring revenues (an indication that a firm has a fairly steady source of
income)
- an attractive Share price relative to the firm's earnings and other
characteristics
- competitive advantages such as a solid brand identity and unique products or
services
- a capable management team
In addition to those described above, the Fund may invest in other types of
securities, including bonds. In an effort to preserve the value of your
investment under volatile market conditions, the managers may invest more than
35% of the Fund's assets in very short-term debt obligations called money market
securities. Such a strategy could make it more difficult for the Fund to achieve
its goals.
For a more complete description of the securities
in which the Fund can invest, please see "Investment Practices" on page 36.
[EXCLAMATION POINT ICON] 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.
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 41.
<PAGE>
PROSPECTUS
9
[AT SIGN ICON] PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how it will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FIDUCIARY SHARES
FROM YEAR TO YEAR.*
[CHART]
<TABLE>
<S> <C>
1994 -4.88%
1995 32.40%
1996 21.56%
1997 32.02%
1998 31.76%
1999 22.10%
</TABLE>
BEST QUARTER WORST QUARTER
25.97% -14.37%
(12/31/98) (9/30/98)
*THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL
RETURN FROM 1/1/2000 TO 9/30/2000 WAS -2.23%.
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
Fiduciary Shares 22.10% 27.87% 22.15%*
--------------------------------------------------------------------------------
S&P 500 INDEX(1) 21.04% 28.55% 23.43%+
--------------------------------------------------------------------------------
</TABLE>
(1)The unmanaged S&P 500 Index is generally representative of the performance of
large companies in the U.S. stock market.
*Since 11/18/93.
+Since 11/30/93.
(CONTINUED)
[NUMBER SIGN ICON] FUND INFORMATION
<TABLE>
<CAPTION>
-----------------------------------------------
CLASS CUSIP TICKER
------------------------------------
<S> <C> <C> <C>
Fiduciary 431114818 HMGRX
-----------------------------------------------
</TABLE>
[QUESTION MARK ICON] 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.
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
10 GROWTH FUND (CONTINUED)
[DOLLAR SIGN ICON] 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
------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price) 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) 0%
Redemption Fee (as a percentage of amount redeemed, if applicable)* 0%
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Investment Advisory Fees 0.60%
Distribution and/or Service (12b-1) Fees 0.00%
Other Expenses 0.50%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.10%
Fee Waivers 0.15%
NET EXPENSES+ 0.95%
</TABLE>
*Does not include any wire transfer fees, if applicable.
+The Fund's Adviser has agreed to contractually waive fees or reimburse expenses
in order to keep total operating expenses for Fiduciary Shares from exceeding
0.95% 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:
Fiduciary Shares: 0.93%
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $97 $335 $592 $1,327
</TABLE>
<PAGE>
PROSPECTUS
11
HIGHMARK EQUITY FUNDS
INCOME EQUITY FUND
[AMPERSAND ICON] 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
-------------------------------------------------------------------------
[QUOTATIONS ICON] INVESTMENT STRATEGY
HighMark Income Equity Fund seeks total return on investment, with DIVIDEND
income as an important component of that return. A secondary goal is to maintain
a low level of price volatility.
To pursue its primary goal, the Fund invests mostly in dividend-paying stocks
that the managers believe are undervalued or out-of-favor. Quantitative analysis
is used to identify stocks that they believe are undervalued relative to the
market and to the security's historic valuations. The portfolio 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 portfolio 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 portfolio 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 36.
[EXCLAMATION POINT ICON] 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 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 41.
(CONTINUED)
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
12 INCOME EQUITY FUND (CONTINUED)
[AT SIGN ICON] PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how it will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FIDUCIARY SHARES
FROM YEAR TO YEAR.*
[CHART]
<TABLE>
<S> <C>
1990 -9.54%
1991 30.48%
1992 9.52%
1993 12.77%
1994 -0.60%
1995 36.27%
1996 15.73%
1997 27.29%
1998 15.12%
1999 1.68%
</TABLE>
BEST QUARTER WORST QUARTER
16.71% -14.97%
(12/31/98) (9/30/90)
*THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL
RETURN FROM 1/1/2000 TO 9/30/2000 WAS 0.64%.
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(1)
Fiduciary Shares 1.68% 18.63% 13.03% 14.99%*
--------------------------------------------------------------------------------
S&P 500 INDEX(2) 21.04% 28.55% 18.20% 18.60%+
--------------------------------------------------------------------------------
</TABLE>
(1)Performance data includes the performance of the IRA Fund Income Equity
Portfolio for the period prior to its consolidation with the HighMark Income
Equity Fund on 6/23/88.
(2)The unmanaged S&P 500 Index is generally representative
of the performance of large companies in the U.S. stock market.
*Since 2/9/84.
+Since 2/29/84.
<TABLE>
<CAPTION>
-------------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
--------------------------------------
<S> <C> <C> <C>
Fiduciary 431114206 HMIEX
</TABLE>
[QUESTION MARK ICON]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.
<PAGE>
PROSPECTUS
13
[DOLLAR SIGN ICON] 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
------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price) 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) 0%
Redemption Fee (as a percentage of amount redeemed, if applicable)* 0%
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Investment Advisory Fees 0.60%
Distribution and/or Service (12b-1) Fees 0.00%
Other Expenses 0.49%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.09%
Fee Waivers 0.15%
NET EXPENSES+ 0.94%
</TABLE>
*Does not include any wire transfer fees, if applicable.
+The Fund's Adviser has agreed to contractually waive fees or reimburse expenses
in order to keep total operating expenses for Fiduciary Shares from exceeding
0.94% 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:
Fiduciary Shares: 0.92%
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Fiduciary Shares $96 $332 $586 $1,315
</TABLE>
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
14 INTERNATIONAL EQUITY FUND
[AMPERSAND ICON] 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
--------------------------------------------------------------------------
[QUOTATIONS ICON] INVESTMENT STRATEGY
HighMark International Equity Fund seeks to provide long-term capital
appreciation by investing primarily in a diversified portfolio of equity
securities of non-U.S. issuers. Normally, at least 65% of the Fund's assets will
be invested in the stocks of companies from at least five countries (other than
the United States) that are included in the Morgan Stanley Capital International
Europe, Australasia, 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 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 36.
[EXCLAMATION POINT ICON] 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.
FOREIGN SECURITIES RISK: Investing in foreign markets involves greater risk than
investing in the United States. Foreign securities may be affected by such
factors as fluctuations in currency exchange rates, incomplete or inaccurate
financial information on companies, social upheavals and political actions
ranging from tax code changes to governmental collapse. Emerging market
securities may be even more susceptible to these risks.
INVESTMENT STYLE RISK: The possibility that the securities on which this Fund
focuses-the stocks of foreign companies-may underperform other kinds of
investments or the market as a whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the amount
of taxes you pay.
For more information about these risks, please see "Glossary of Investment
Risks" on page 41.
<PAGE>
PROSPECTUS
15
[AT SIGN ICON] PERFORMANCE INFORMATION
The performance table below illustrate the risks and volatility of an investment
in the Fund. Of course, the Fund's past performance does not necessarily
indicate how it will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FIDUCIARY SHARES
FROM YEAR TO YEAR.*
[CHART]
<TABLE>
<S> <C>
1996 3.25%
1997 -6.51%
1998 15.18%
1999 29.32%
</TABLE>
BEST QUARTER WORST QUARTER
21.44% -13.77%
(12/31/99) (9/30/98)
*THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL
RETURN FROM 1/1/2000 TO 9/30/2000 WAS -14.40%.
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.
<TABLE>
<CAPTION>
SINCE CLASS
1 YEAR INCEPTION
--------------------------------------------------------------------------------
<S> <C> <C>
INTERNATIONAL EQUITY FUND(1)
Fiduciary Shares 29.32% 10.16%*
--------------------------------------------------------------------------------
MSCI-EAFE INDEX(2) 26.96% 14.29%+
--------------------------------------------------------------------------------
</TABLE>
(1)Performance data includes the performance of the Stepstone International
Equity Fund for the period prior to its consolidation with the HighMark Balanced
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.
(CONTINUED)
<TABLE>
<CAPTION>
-----------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
------------------------------------
<S> <C> <C> <C>
Fiduciary 431114594 HMIQX
</TABLE>
[QUESTION MARK ICON] 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.
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
16 INTERNATIONAL EQUITY FUND (CONTINUED)
[DOLLAR SIGN ICON] 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
---------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price) 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) 0%
Redemption Fee (as a percentage of amount redeemed, if applicable)* 0%
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Investment Advisory Fees 0.95%
Distribution and/or Service (12b-1) Fees 0.00%
Other Expenses 0.68%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.63%
Fee Waivers 0.15%
NET EXPENSES+ 1.48%
</TABLE>
*Does not include any wire transfer fees, if applicable.
+The Fund's Adviser has agreed to contractually waive fees or reimburse expenses
in order to keep total operating expenses for Fiduciary Shares from exceeding
1.48% 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:
Fiduciary Shares: 1.46%
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
FIDUCIARY SHARES $151 $500 $872 $1,920
</TABLE>
<PAGE>
PROSPECTUS
17
HIGHMARK EQUITY FUNDS
SMALL CAP VALUE FUND
[AMPERSAND ICON] 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
--------------------------------------------------------------------------
[QUOTATIONS ICON] INVESTMENT STRATEGY
HighMark Small Cap Value Fund seeks to provide long-term capital appreciation.
To pursue this goal, the Fund invests primarily in the stocks of SMALL
CAPITALIZATION U.S. and foreign companies that the portfolio managers believe
are undervalued. The Fund may leave up to 25% of its assets
in foreign stocks.
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 portfolio 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 36.
[EXCLAMATION POINT ICON] WHAT ARE THE MAIN RISKS OF INVESTING IN THIS FUND?
Your investment in the Fund may be subject to the following risks:
MARKET RISK: The possibility that the Fund's stock holdings may decline in price
because of a broad stock market decline. Markets generally move in cycles, with
periods of rising prices followed by periods of falling prices. The value of
your investment will tend to increase or decrease in response to these
movements.
SMALL COMPANY RISK: Investing in smaller, lesser-known companies involves
greater risk than investing in those that are more established. A small
company's financial well-being may, for example, depend heavily on just a few
products or services. In addition, investors may have limited flexibility to buy
or sell small company stocks compared to those of larger firms.
FOREIGN SECURITIES RISK: Investing in foreign markets involves greater risk than
investing in the United States. Foreign securities may be affected by
fluctuations in currency exchange rates, incomplete or inaccurate financial
information on companies, social upheavals and political actions ranging from
tax code changes to governmental collapse. These risks are more significant in
the emerging markets.
INVESTMENT STYLE RISK: The possibility that the securities on which this Fund
focuses-the stocks of small, undervalued U.S. and foreign companies-may
underperform other kinds of investments or the market as a whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the amount
of taxes you pay.
For more information about these risks, please see "Glossary of Investment
Risks" on page 41.
(CONTINUED)
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
18 SMALL CAP VALUE FUND (CONTINUED)
[AT SIGN ICON] PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how it will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FIDUCIARY SHARES
FROM YEAR TO YEAR.*
[CHART]
<TABLE>
<S> <C>
1999 20.53%
</TABLE>
BEST QUARTER WORST QUARTER
19.39% -6.71%
(6/30/99) (3/31/99)
*THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL
RETURN FROM 1/1/2000 TO 9/30/2000 WAS 6.84%.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/99 TO THOSE OF THE S&P 600/BARRA VALUE INDEX.
<TABLE>
<CAPTION>
SINCE CLASS
1 YEAR INCEPTION
--------------------------------------------------------------------------------
<S> <C> <C>
SMALL CAP VALUE FUND
Fiduciary Shares 20.53% 27.41%*
--------------------------------------------------------------------------------
S&P 600/BARRA
VALUE INDEX(1) 3.03% 13.02%+
--------------------------------------------------------------------------------
</TABLE>
(1)The unmanaged S&P 600/BARRA Value Index is generally representative of the
performance of those 600 small capitalization U.S. companies making up the S&P
600 Small Cap Index with a lower price to book ratio.
*Since 9/17/98.
+Since 9/30/98.
<TABLE>
<CAPTION>
-----------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
------------------------------------
<S> <C> <C> <C>
Fiduciary 431112101 HMSCX
</TABLE>
[QUESTION MARK ICON] DID YOU KNOW?
SMALL CAPITALIZATION COMPANIES are those issued by companies with market
capitalizations within the range of those in the S&P 600/BARRA Value Index
(domestic investments) and the Financial Times/S&P Actuaries World Indices World
ex U.S. Medium/Small Cap Index (international investments).
<PAGE>
PROSPECTUS
19
[DOLLAR SIGN ICON] 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
---------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price) 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) 0%
Redemption Fee (as a percentage of amount redeemed, if applicable)* 0%
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Investment Advisory Fees 1.00%
Distribution and/or Service (12b-1) Fees 0.00%
Other Expenses 0.62%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.62%
Fee Waivers 0.15%
NET EXPENSES+ 1.47%
</TABLE>
*Does not include any wire transfer fees, if applicable.
+The Fund's Adviser has agreed to contractually waive fees or reimburse expenses
in order to keep total operating expenses for Fiduciary Shares from exceeding
1.47% 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:
Fiduciary Shares: 1.45%
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
FIDUCIARY SHARES $150 $496 $867 $1,909
</TABLE>
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
20 VALUE MOMENTUM FUND
[AMPERSAND ICON] FUND SUMMARY
INVESTMENT GOAL To seek long-term capital growth;
current income is a secondary objective
--------------------------------------------------------------------------
INVESTMENT FOCUS U.S. common stocks
--------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY Seeks undervalued stocks showing signs
of improved momentum
--------------------------------------------------------------------------
SHARE PRICE VOLATILITY Moderate
--------------------------------------------------------------------------
INVESTOR 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
--------------------------------------------------------------------------
[QUOTATIONS ICON] INVESTMENT STRATEGY
The Value Momentum Fund seeks to provide long-term capital growth with a
secondary objective of income. To pursue this goal, the Fund invests primarily
in U.S. stocks that the portfolio managers believe are undervalued.
The portfolio managers emphasize a value-oriented approach to selecting stocks
for the Fund's portfolio. They first identify stocks that they believe are
undervalued relative to the market and to their own historic valuations. The
portfolio managers then screen these stocks for positive price or earnings
momentum. The Fund generally will invest in companies with a MEDIUM TO LARGE
MARKET CAPITALIZATION and a majority of them will pay dividends.
In addition to U.S. common stocks, the Fund may invest in other types of
securities. In an effort to preserve the value of your investment under volatile
market conditions, the portfolio managers may invest more than 35% of the Fund's
assets in very short-term bonds called money market securities. In these and
other cases, the Fund may not achieve its total return and income objectives.
For a description of the securities the Fund invests in, please see "Investment
Practices" on page 36.
[EXCLAMATION POINT ICON] 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 either rising or falling prices. The value of your
investment will tend to go up or down in response to these movements.
INVESTMENT STYLE RISK: The possibility that the securities on which this Fund
focuses-the stocks of mid-size to large undervalued U.S. companies-may
underperform other kinds of investments or the market as a whole.
In addition, the Fund may trade securities actively, which could increase its
transaction costs (thereby lowering its performance) and may increase the amount
of taxes that you pay.
For more information about these risks, please see "Glossary of Investment
Risks" on page 41.
<PAGE>
PROSPECTUS
21
[AT SIGN ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FIDUCIARY SHARES
FROM YEAR TO YEAR.*
[CHART]
<TABLE>
<S> <C>
1992 9.37%
1993 12.58%
1994 -1.93%
1995 38.75%
1996 25.64%
1997 30.72%
1998 9.72%
1999 12.73%
</TABLE>
BEST QUARTER WORST QUARTER
18.05% -14.00%
(12/31/98) (9/30/98)
*THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL
RETURN FROM 1/1/2000 TO 9/30/2000 WAS 2.04%.
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>
INCEPTION
1 YEAR 5 YEARS SINCE CLASS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
VALUE MOMENTUM FUND(1)
Fiduciary Shares 12.73% 23.03% 17.24%*
--------------------------------------------------------------------------------
S&P 500 INDEX(2) 21.04% 28.55% 19.75%+
</TABLE>
(1) 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 2/1/91.
+ Since 2/28/91.
(CONTINUED)
-----------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
-------------------------------------
Fiduciary 431114677 HMVMX
-----------------------------------------------
[QUESTION MARK ICON] 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.
<PAGE>
PROSPECTUS
HIGHMARK EQUITY FUNDS
22 VALUE MOMENTUM FUND (CONTINUED)
[DOLLAR SIGN ICON] 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
---------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price) 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) 0%
Redemption Fee (as a percentage of amount redeemed, if applicable)* 0%
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Investment Advisory Fees 0.60%
Distribution and/or Service (12b-1) Fees 0.00%
Other Expenses 0.49%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.09%
Fee Waivers 0.15%
NET EXPENSES+ 0.94%
</TABLE>
* Does not include any wire transfer fees, if applicable.
+ The Fund's Adviser has agreed to contractually waive fees or reimburse
expenses in order to keep total operating expenses for Fiduciary Shares from
exceeding 0.94% 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:
Fiduciary Shares: 0.92%
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
FIDUCIARY SHARES $96 $332 $586 $1,315
</TABLE>
<PAGE>
PROSPECTUS
23
HIGHMARK FIXED-INCOME FUNDS
BOND FUND
[AMPERSAND ICON] FUND SUMMARY
INVESTMENT GOAL To seek total return through investments
in fixed-income securties
--------------------------------------------------------------------------
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
--------------------------------------------------------------------------
[QUOTATIONS ICON] INVESTMENT STRATEGY
HighMark Bond Fund seeks to provide total return through investments in
fixed-income securities. To pursue this goal, the Fund invests at least 65% of
its assets in bonds which include:
- Debt obligations issued or guaranteed by the U.S. government or its agencies.
- Corporate debt securities issued by U.S. or foreign companies that nationally
recognized rating agencies such as Moody's or Standard & Poor's recognize as
investment-grade.
- Investment-grade bonds backed by the interest and principal payments of
various types of mortgages, known as mortgage-backed securities.
- Investment-grade bonds backed by the interest and principal payments on loans
for other types of assets, such as automobiles, houses, or credit cards, known
as asset-backed securities.
The Fund may also invest up to 10% of its assets in issues which are rated below
BBB but have a minimum rating of B by Moody's and/or S&P at the time of
investment.
In addition to these, the Fund may invest in other types of debt securities. In
an effort to preserve the value of your investment under volatile market
conditions, the portfolio managers also may invest more than 35% of the Fund's
assets in very short-term investments called money market securities. Such a
defensive strategy could make it more difficult for the Fund to achieve its
income and total return objectives.
The Fund will maintain an average duration of between 3 and 6 years, which the
managers expect to be within one year of the duration of the Lehman Brothers
Aggregate Bond Index.
The portfolio managers consider several factors when selecting securities for
the Fund's portfolio, including:
- An assessment of the future level of interest rates and inflation
- Expectations for U.S. and global economic growth
- Relative yields among securities in various market sectors
- The yield to maturity, quality, liquidity and capital appreciation potential
of individual securities
The Fund managers also consider the current state of a bond's issuer and the
possibility that an improvement or deterioration in its financial health may
result in, respectively, an upgrade or downgrade of the issuer's credit rating.
The portfolio managers may continue to hold a bond that has been downgraded if
they believe it is in the best interest of the Fund's Shareholders.
For a more complete description of the securities in which the Fund can invest,
please see "Investment Practices" on page 36.
[EXCLAMATION POINT ICON] 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 41.
(CONTINUED)
<PAGE>
PROSPECTUS
HIGHMARK FIXED-INCOME FUNDS
24 BOND FUND (CONTINUED)
[AT SIGN ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how it will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FIDUCIARY SHARES
FROM YEAR TO YEAR.*
[CHART]
<TABLE>
<S> <C>
1990 8.19%
1991 12.24%
1992 8.37%
1993 7.50%
1994 -3.94%
1995 18.74%
1996 2.47%
1997 9.20%
1998 8.38%
1999 -1.82%
</TABLE>
BEST QUARTER WORST QUARTER
6.25% -2.82%
(6/30/95) (3/31/94)
* THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S
TOTAL RETURN FROM 1/1/2000 TO 9/30/2000 WAS 6.31%.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/99 TO THOSE OF THE LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX.
<TABLE>
<CAPTION>
SINCE CLASS
1 YEAR 5 YEARS 10 YEARS INCEPTION
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BOND FUND(1)
Fiduciary Shares -1.82% 7.17% 6.75% 8.65%*
--------------------------------------------------------------------------------
LEHMAN BROTHERS
U.S. AGGREGATE
BOND INDEX(2) -0.83% 7.73% 7.70% 9.57%+
--------------------------------------------------------------------------------
</TABLE>
(1) Performance data includes the performance of the IRA Fund Bond Portfolio for
the period prior to its consolidation with the HighMark Bond Fund on
6/23/88.
(2) The unmanaged Lehman Brothers U.S. Aggregate Bond Index is generally
representative of the bond market as a whole.
* Since 2/15/84.
+ Since 2/29/84.
-----------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
-------------------------------------
Fiduciary 431114305 HMBDX
-----------------------------------------------
[QUESTION MARK ICON] 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,
noninvestment grade bonds are typically less sensitive to interest rates than
investment grade bonds.
<PAGE>
PROSPECTUS
25
[DOLLAR SIGN ICON] 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
---------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price) 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) 0%
Redemption Fee (as a percentage of amount redeemed, if applicable)* 0%
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Investment Advisory Fees 0.50%
Distribution and/or Service (12b-1) Fees 0.00%
Other Expenses 0.51%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.01%
Fee Waivers 0.24%
NET EXPENSES+ 0.77%
</TABLE>
* Does not include any wire transfer fees, if applicable.
+ The Fund's Adviser has agreed to contractually waive fees or reimburse
expenses in order to keep total operating expenses for Fiduciary Shares from
exceeding 0.77% 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:
Fiduciary Shares: 0.75%
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
FIDUCIARY SHARES $79 $298 $535 $1,214
</TABLE>
<PAGE>
PROSPECTUS
HIGHMARK FIXED-INCOME FUNDS
26 CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
--------------------------------------------------------------------------------
[AMPERSAND ICON] 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
--------------------------------------------------------------------------
[QUOTATIONS ICON] INVESTMENT STRATEGY
HighMark California Intermediate Tax-Free Bond Fund seeks high current income
that is exempt from federal and State of California income taxes. To pursue
this goal, the Fund invests at least 65% of its assets in INVESTMENT-GRADE
MUNICIPAL BONDS and notes that are tax exempt in California.
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 issuers.
For a more complete description of the securities in which the Fund can invest,
please see "Investment Practices" on page 36.
[EXCLAMATION POINT ICON] 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.
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 41.
<PAGE>
PROSPECTUS
27
--------------------------------------------------------------------------------
[AT SIGN ICON] PERFORMANCE INFORMATION
The bar chart and performance table below illustrate the risks and volatility of
an investment in the Fund. Of course, the Fund's past performance does not
necessarily indicate how it will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FIDUCIARY SHARES
FROM YEAR TO YEAR.*
[CHART]
<TABLE>
<S> <C>
1994 -8.33%
1995 18.64%
1996 4.26%
1997 7.49%
1998 6.43%
1999 -0.66%
</TABLE>
BEST QUARTER WORST QUARTER
8.84% -6.76%
(3/31/95) (3/31/94)
*THE PERFORMANCE INFORMATION ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL
RETURN FROM 1/1/2000 TO 9/30/2000 WAS 6.03%.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/99 TO THOSE OF THE LEHMAN BROTHERS 7-YEAR BOND INDEX.
<TABLE>
<CAPTION>
SINCE CLASS
1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA
INTERMEDIATE TAX-FREE
BOND FUND(1)
Fiduciary Shares -0.66% 7.05% 4.21%*
--------------------------------------------------------------------
LEHMAN BROTHERS
7-YEAR MUNICIPAL
BOND INDEX(2) -0.14% 6.36% 4.81%+
--------------------------------------------------------------------
</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, investment grade tax-exempt bonds with maturities.
* Since 10/15/93.
+ Since 10/31/93.
(CONTINUED)
-----------------------------------------------
[NUMBER SIGN ICON] FUND INFORMATION
CLASS CUSIP TICKER
-------------------------------------
Fiduciary 431114644 HMITX
-----------------------------------------------
[QUESTION MARK ICON] 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,
noninvestment 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.
<PAGE>
PROSPECTUS
HIGHMARK FIXED-INCOME FUNDS
28 CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND (CONTINUED)
--------------------------------------------------------------------------------
[DOLLAR SIGN ICON] 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
---------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchase (as a percentage of offering price) 0%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) 0%
Redemption Fee (as a percentage of amount redeemed, if applicable)* 0%
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------------------------------------------------
FIDUCIARY
SHARES
<S> <C>
Investment Advisory Fees 0.50%
Distribution and/or Service (12b-1) Fees 0.00%
Other Expenses 0.51%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.01%
Fee Waivers 0.52%
NET EXPENSES+ 0.49%
</TABLE>
* Does not include any wire transfer fees, if applicable.
+ The Fund's Adviser has agreed to contractually waive fees or reimburse
expenses in order to keep total operating expenses for Fiduciary Shares from
exceeding 0.49% 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:
Fiduciary Shares: 0.47%
--------------------------------------------------------------------------------
EXAMPLE
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in the Fund for the time periods indicated, that each year your
investment has a 5% return and that the Fund's expenses remain the same.
Although your actual costs and returns may be different, your approximate costs
of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
FIDUCIARY SHARES $50 $270 $507 $1,189
</TABLE>
<PAGE>
PROSPECTUS
29
--------------------------------------------------------------------------------
SHAREOWNER GUIDE -
HOW TO INVEST IN THE
HIGHMARK FUNDS
Before you invest, we encourage you to carefully read the Fund profiles included
in this prospectus and consider which Funds are appropriate for your particular
financial situation, risk tolerance and goals. As always, your financial
representative can provide you with valuable assistance in making this decision.
He or she can also help you choose which of the Fund Share classes we offer is
right for you.
CHOOSING A SHARE CLASS
HighMark Funds offers different classes of Fund Shares, each of which has
different expenses and other characteristics. Only one class of Fund Shares,
Fiduciary Shares, is offered in this prospectus. To choose the one that is best
suited to your needs and goals, consider the amount of money you want to invest,
how long you expect to invest it and whether you plan to make additional
investments. The following are some of the main characteristics of HighMark's
Fiduciary Shares.
FIDUCIARY SHARES
- No sales charge.
- No Distribution (12b-1) fees.
- Available only to the following investors and accounts:
- Fiduciary, advisory, agency, custodial and other similar accounts maintained
with Union Bank of California, N.A., or its affiliates;
- Non-fiduciary IRA accounts investing in a HighMark Equity or Fixed Income Fund
that were established with The Bank of California, N.A., prior to June 20,
1994, and have remained open since then;
- Investors who currently own Shares of a HighMark Equity or Fixed Income Fund
that they purchased prior to June 20, 1994 within an account registered in
their name with the Funds;
- Current and retired trustees of the HighMark Funds and directors, officers and
employees (and their spouses and children under the age of 21) of Union Bank
of California, N.A., of HighMark Funds' current or former distributors or of
their respective affiliated companies who currently own Shares of HighMark
Funds that they purchased before April 30, 1997;
- Registered investment advisers who are regulated by a federal or state
governmental authority, or financial planners who are purchasing Fiduciary
Shares for an account for which they are authorized to make investment
decisions (i.e., a discretionary account) and who are compensated by their
clients on the basis of an ad valorem fee;
- Retirement and other benefit plans sponsored by governmental entities; and
- Financial Institutions that may buy Shares on their own account or as record
owner on behalf of fiduciary, agency or custodial accounts, with a minimum
investment of $1,000,000 per Fund.
FOR THE ACTUAL PAST EXPENSES OF THE FIDUCIARY SHARES, SEE THE INDIVIDUAL FUND
PROFILES EARLIER IN THIS PROSPECTUS.
THE FUNDS ALSO OFFER CLASS A, CLASS B AND CLASS C SHARES (COLLECTIVELY RETAIL
SHARES). THE VALUE MOMENTUM FUND ALSO OFFERS CLASS I SHARES. EACH OF THESE
CLASSES HAS ITS OWN EXPENSE STRUCTURE. RETAIL SHARES ARE AVAILABLE TO
NON-FIDUCIARY CLIENTS OR UNION BANK OF CALIFORNIA, N.A., WHO ARE NOT OTHERWISE
ELIGIBLE FOR FIDUCIARY SHARES. CLASS I SHARES ARE AVAILABLE ONLY TO GOVERNMENT
RETIREMENT PLANS INVESTING $70 MILLION OR MORE. CALL US AT 1-800-433-6884 FOR
MORE DETAILS.
OPENING AN ACCOUNT
1. Read this prospectus carefully.
2. Determine how much money you want to invest. The minimum investments for the
HighMark Funds are as follows:
- INITIAL PURCHASE: $1,000 for each Fund
$250 for current and retired trustees of HighMark
Funds and directors, officers and employees (as
well as their spouses and children under the age of
21) of Union Bank of California, N.A., SEI
Investments Distribution Co. and their affiliates.
- ADDITIONAL PURCHASES: $100 for each Fund
We may waive these initial and additional investment minimums for purchases
made in connection with Individual Retirement Accounts, Keoghs, payroll
deduction plans or 401(k) or similar plans.
3. Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation when
opening trust, corporate or power of attorney accounts. For more information,
please contact your financial representative or call the Distributor at
1-800-433-6884.
4. You and your financial representative can initiate any purchase, exchange or
sale of Shares.
WE RESERVE THE RIGHT TO REJECT A PURCHASE ORDER IF WE DETERMINE THAT IT IS NOT
IN THE BEST INTEREST OF HIGHMARK FUNDS OR ITS SHAREHOLDERS.
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
30
BUYING SHARES
--------------------------------------------------------------------------------
THROUGH FINANCIAL INSTITUTIONS
--------------------------------------------------------------------------------
- Call your financial institution for information on their procedures for
transmitting orders to HighMark Funds.
--------------------------------------------------------------------------------
BY EXCHANGE
--------------------------------------------------------------------------------
- Call us at 1-800-433-6884 or contact your financial representative to request
an exchange.
SELLING SHARES
--------------------------------------------------------------------------------
THROUGH FINANCIAL INSTITUTIONS
--------------------------------------------------------------------------------
- Contact your financial institution to find out more about their procedures for
transmitting orders to HighMark Funds.
--------------------------------------------------------------------------------
BY EXCHANGE
--------------------------------------------------------------------------------
- Obtain a current prospectus for the Fund into which you are exchanging by
calling us or contacting your financial representative.
- Call us or contact your financial representative to request an exchange.
TRANSFER AGENT ADDRESS:
HighMark Funds
P.O. Box 8416
Boston, MA 02266-8416
Phone Number: 1-800-433-6884
Or contact your financial representative for instructions and assistance.
To add to an account using the Automatic Investment Plan, see "Investor
Services."
SELLING SHARES IN WRITING. In certain circumstances, you may need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
- you are selling more than $5,000 worth of Shares.
- you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s).
You should be able to obtain a signature guarantee from a bank,
broker-dealer, credit union, securities exchange or association, clearing
agency or savings association. A notary public CANNOT provide a signature
guarantee.
RECEIVING YOUR MONEY. Normally, we will send you a check for your proceeds as
promptly as possible, at the latest within seven calendar days of receiving your
redemption order. If, however, you recently purchased Shares in the Fund, we may
be unable to fulfill your request if we have not yet received and processed your
payment for the initial purchase. In such a case you may need to resubmit your
redemption request after we have received payment.
REDEMPTION IN KIND: The Funds reserve the right to make payment on redemptions
in securities rather than cash.
INVOLUNTARY SALES OF YOUR SHARES: Due to the relatively high costs of handling
small investments, each Fund reserves the right to redeem your Shares at net
asset value (less any applicable contingent deferred sales charge) if your
account balance in any Fund drops below the minimum initial purchase amount for
any reason other than market fluctuation. This is more likely to occur if you
invest only the minimum amount in a Fund and then sell some of your Shares
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 balance up to or above the minimum.
EXCHANGING SHARES
HOW TO EXCHANGE YOUR SHARES: You may exchange Fiduciary Shares of one HighMark
Fund for Fiduciary Shares of another HighMark Fund (the "new Fund"), provided
that you:
- Are qualified to invest in the new Fund.
- Satisfy the initial and additional investment minimums for the new Fund.
- Invest in the same Share class in the new Fund as you did in the previous
Fund.
- Maintain the minimum account balance for each HighMark Fund in which you
invest.
Your cost for buying Shares in the new Fund is based on the relative net asset
values of the Shares you are exchanging. You may also exchange your Fiduciary
Shares of a Fund for Class A, Class B or Class C Shares of another HighMark
Fund. In that case, your cost for buying Shares in the new Fund is based on the
relative net asset value of the Shares you are exchanging plus any applicable
sales charge.
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 its
securities by using a method that the Funds' Board of Trustees believes
accurately reflects fair value. For further information about how we determine
the value of the Funds' investments, see the Statement of Additional
Information.
BUY AND SELL PRICES. When you buy Shares, the number of Shares you
receive is based on the net asset value next determined after we receive your
order. When you sell Shares, the amount of your proceeds are based on the net
asset value next determined after we receive your order.
<PAGE>
PROSPECTUS
31
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 your order and/or payment.
- SELLING SHARES: To sell Shares on any one business day, you must place your
redemption order before 1:00 p.m. PT (4:00 p.m. ET). Otherwise, we will
execute your order the following business day.
DIVIDENDS AND DISTRIBUTIONS
As a mutual fund Shareholder, you may receive capital gains and/or income from
your investment. Each of the HighMark Funds declares and pays income dividends
monthly, with the exception of the Small Cap Value Fund 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.
TAXES
Your mutual fund investments may have a considerable impact on your tax
situation. We've summarized some of the main points you should know below. Note,
however, that the following is general information and will not apply to you if
you are investing through a tax-deferred account such as an IRA or a qualified
employee benefit plan. In addition, if you are not a resident of the United
States, you may have to pay taxes besides those described here, such as U.S.
withholding and estate taxes.
IMPORTANT NOTE: IF YOU HAVE NOT DONE SO ALREADY, BE SURE TO PROVIDE US WITH YOUR
CORRECT TAXPAYER IDENTIFICATION NUMBER OR CERTIFY THAT IT IS CORRECT. UNLESS WE
HAVE THAT INFORMATION, WE MUST, BY LAW, WITHHOLD 31% OF THE TAXABLE
DISTRIBUTIONS YOU WOULD OTHERWISE BE ENTITLED TO RECEIVE FROM YOUR FUND
INVESTMENTS AS WELL AS ANY PROCEEDS YOU WOULD NORMALLY RECEIVE FROM SELLING FUND
SHARES.
END-OF-YEAR TAX STATEMENTS
We will send you a statement each year showing the tax status of all your
distributions. The laws governing taxes change frequently, however, so please
consult your tax adviser for the most up-to-date information and specific
guidance regarding your particular tax situation. You can find more information
about the potential tax consequences of mutual fund investing in the Statement
of Additional Information.
TAXES ON FUND DISTRIBUTIONS
- FEDERAL TAXES: The IRS treats any dividends and short-term capital gains you
receive from the Funds as ordinary income.
- STATE AND LOCAL TAXES: In addition to federal taxes, you may have to pay state
and local taxes on the dividends or capital gains you receive from 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.
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
32
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.
INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN (AIP): AIP allows you to make regular investments in
the HighMark Fund(s) of your choice through automatic deductions from your
checking account. The monthly minimum per Fund is $100.* AIP is available only
to current Shareholders who wish to make additional investments to their
existing account(s). To participate in AIP, complete the appropriate section on
your Account Application form.
* There is a $50 monthly minimum for current or retired trustees of the
HighMark Funds and directors, officers, and employees (as well as their
spouses and children under the age of 21) of Union Bank of California, SEI
Investments Distribution Co., and their affiliates who were participating in
HighMark's AIP on or before December 11, 1998.
SYSTEMATIC WITHDRAWAL PLAN (SWP): HighMark's Systematic Withdrawal Plan allows
you to make regular withdrawals from your account. The minimum monthly
withdrawal is $100 per Fund. You can choose to make these withdrawals on a
monthly, quarterly, semi-annual or annual basis. You also have the option of
receiving your withdrawals by check or by automatic deposit into your bank
account.
To participate in SWP, you must:
- Have at least $5,000 in your HighMark Fund(s) account.
- Have your dividends automatically reinvested.
BEFORE YOU SIGN UP FOR SWP, PLEASE NOTE THE FOLLOWING IMPORTANT CONSIDERATIONS:
If your automatic withdrawals through SWP exceed the income your Fund(s)
normally pay, your withdrawals may, over time, deplete your original
investment - or exhaust it entirely if you make large and frequent withdrawals.
Fluctuations in the net asset value per Share of your Fund(s) may also deplete
your principal.
To take part in SWP, complete the appropriate section on your Account
Application form. You may change or cancel the plan at any time by sending a
written notice to our Transfer Agent (which may require a signature guarantee).
MORE ABOUT HIGHMARK FUNDS
INVESTMENT MANAGEMENT
INVESTMENT ADVISER
HighMark Capital Management, Inc., serves as investment adviser of the HighMark
Funds and manages their investment portfolios on a day-to-day basis under the
supervision of HighMark Funds' Board of Trustees.
HighMark Capital Management is a subsidiary of UnionBanCal Corporation, the
holding company of Union Bank of California, N.A. UnionBanCal Corporation is a
publicly held corporation which is principally held by The Bank of
Tokyo-Mitsubishi, Ltd. As of September 30, 2000, UnionBanCal Corporation and its
subsidiaries had approximately $33.7 billion in consolidated assets. As of the
same date, HighMark Capital Management had over $19 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 0.60%
Growth Fund 0.60%
Income Equity Fund 0.60%
International Equity Fund 0.95%*
Value Momentum Fund 0.60%
Small Cap Value Fund 1.00%*
</TABLE>
* A portion of the management fee is used to pay the Fund's sub-adviser.
<PAGE>
PROSPECTUS
33
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 $349.797 million. The AXA
Group, including AXA, had over $783 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 $46.5 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.
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
34
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years or, if shorter, the period of the
Fund's operations. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in a Fund (assuming reinvestment of
all dividends and distributions). This information has been derived from the
financial statements audited by Deloitte & Touche LLP, or other independent
accountants, as noted in Deloitte & Touche LLP's report. This report, along with
the Fund's financial statements, is incorporated by reference in the SAI, which
is available upon request.
<TABLE>
<CAPTION>
Investment Activities Distributions
-----------------------------------------------------------------------------
Net
Realized
Net and Net
Asset Unrealized Asset
Value, Net Gain (Loss) Net Value,
Beginning Investment on Investment Capital End Total
of Period Income Investments Income Gains of Period Return
------------------------------------------------------------------------------------------------------------------------------------
BALANCED FUND
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
For the years ended July 31,:
2000 $17.21 0.431 (0.077) (0.426) (1.398) $15.74 2.28%
1999 16.73 0.428 1.172 (0.436) (0.684) 17.21 9.96%
1998 16.46 0.446 0.724 (0.458) (0.442) 16.73 7.31%
For the six month period ended July 31,:
1997 $15.04 0.228 1.712 (0.228) (0.290) $16.46 13.35%
For the years ended January 31,:
1997 $13.92 0.422 1.699 (0.409) (0.595) $15.04 16.30%
1996 11.45 0.415 2.831 (0.417) (0.362) 13.92 28.93%
------------------------------------------------------------------------------------------------------------------------------------
CORE EQUITY FUND
------------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY SHARES
For the period ended July 31,:
2000(1) $10.00 0.012 (0.243) (0.009) -- $9.76 (2.31)%+
------------------------------------------------------------------------------------------------------------------------------------
GROWTH FUND
------------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY SHARES
For the years ended July 31,:
2000 $18.39 -- 2.030 -- (1.800) $18.62 11.13%
1999 16.92 (0.018) 2.759 -- (1.271) 18.39 17.24%
1998 17.36 0.017 3.108 (0.333) (3.532) 16.92 22.59%
1997 12.58 0.057 5.773 (0.053) (0.996) 17.36 48.54%
1996 11.87 0.120 1.350 (0.120) (0.640) 12.58 12.72%
------------------------------------------------------------------------------------------------------------------------------------
INCOME EQUITY FUND
------------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY SHARES
For the years ended July 31,:
2000 $17.78 0.227 (1.864) (0.228) (3.565) $12.35 (9.67)%
1999 17.92 0.247 2.072 (0.249) (2.206) 17.78 14.23%
1998 18.21 0.305 1.486 (0.302) (1.776) 17.92 10.79%
1997 14.27 0.372 5.019 (0.368) (1.083) 18.21 40.13%
1996 13.00 0.420 1.930 (0.420) (0.660) 14.27 18.25%
------------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
------------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY SHARES
For the years ended July 31,:
2000 $39.38 0.146 4.298 (0.277) (0.297) $43.25 11.21%
1999 37.32 0.210 1.982 (0.132) -- 39.38 5.90%
1998 38.69 0.767 (1.178) (0.592) (0.367) 37.32 (0.82)%
For the six month period ended July 31,:
1997 $34.52 0.212 3.958 -- -- $38.69 12.08%
For the years ended January 31,:
1997 $37.49 0.220 (0.965) (0.812) (1.416) $34.52 (2.14)%
1996 (2) 33.51 0.447 4.084 (0.446) (0.105) 37.49 13.56%+
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio of
Ratio Ratio of Net Investment
Net of Expenses Net Income to
Assets, Ratio to Average Investment Average
End of Expenses Net Assets Income Net Assets Portfolio
of Period to Average Excluding to Average Excluding Turnover
(000) Net Assets Fee Waivers Net Assets Fee Waivers Rate
------------------------------------------------------------------------------------------------------------------------------------
BALANCED FUND
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
For the years ended July 31,:
2000 $401,742 0.92% 1.09% 2.65% 2.48% 25%
1999 451,411 0.92% 1.09% 2.60% 2.43% 34%
1998 448,783 0.91% 1.08% 2.67% 2.50% 22%
For the six month period ended July 31,:
1997 $400,442 0.83%* 0.98%* 2.99%* 2.85%* 10%
For the years ended January 31,:
1997 $307,531 0.79% 0.79% 3.48% 3.48% 27%
1996 233,878 0.80% 0.80% 3.20% 3.20% 26%
------------------------------------------------------------------------------------------------------------------------------------
CORE EQUITY FUND
------------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY SHARES
For the period ended July 31,:
2000 (1) $34,210 0.92%* 1.09%* 1.21%* 1.04% 3%
------------------------------------------------------------------------------------------------------------------------------------
GROWTH FUND
------------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY SHARES
For the years ended July 31,:
2000 $722,376 0.92% 1.09% 0.32% 0.49% 67%
1999 738,548 0.90% 1.09% 0.14% 0.33% 52%
1998 499,060 0.91% 1.08% 0.08% 0.09% 67%
1997 297,879 0.92% 1.24% 0.39% 0.07% 118%
1996 41,495 0.93% 1.67% 0.98% 0.23% 79%
------------------------------------------------------------------------------------------------------------------------------------
INCOME EQUITY FUND
------------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY SHARES
For the years ended July 31,:
2000 $290,327 0.89% 1.10% 1.61% 1.40% 97%
1999 628,839 0.88% 1.09% 1.43% 1.22% 71%
1998 670,298 0.92% 1.09% 1.63% 1.45% 69%
1997 352,725 0.99% 1.21% 2.39% 2.17% 46%
1996 262,660 1.03% 1.27% 2.95% 2.71% 42%
------------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
------------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY SHARES
For the years ended July 31,:
2000 $121,581 1.43% 1.63% 0.32% 0.12% 49%
1999 108,537 1.36% 1.63% 0.42% 0.15% 87%
1998 91,970 1.34% 1.61% 0.71% 0.44% 72%
For the six month period ended July 31,:
1997 $52,467 1.22%* 1.41%* 1.16%* 0.97%* 18%
For the years ended January 31,:
1997 $46,373 1.18% 1.28% 0.60% 0.50% 29%
1996(2) 44,188 1.16% 1.36% 1.31% 1.11% 21%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
*Annualized
(1) Commenced operations on May 31, 2000.
(2) Commenced operations on February 1, 1995.
+ Total return is for the period indicated and has not been annualized.
<PAGE>
PROSPECTUS
35
<TABLE>
<CAPTION>
Investment Activities Distributions
-------------------------------------------------------------
Net
Realized
Net and Net
Asset Unrealized Asset
Value, Net Gain (Loss) Net Value,
Beginning Investment on Investment Capital End Total
of Period Income Investments Income Gains of Period Return
------------------------------------------------------------------------------------------------------------------------------------
SMALL CAP VALUE FUND
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
For the period ended July 31,:
2000 $12.55 0.202 1.746 (0.251) ++ (0.637) $13.53 16.43%
1999(1) 10.00 0.018 2.536 (0.004) -- 12.55 25.54% +
------------------------------------------------------------------------------------------------------------------------------------
VALUE MOMENTUM FUND
------------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY SHARES
For the years ended July 31,:
2000 $29.56 0.256 1.002 (0.255) (1.463) $29.10 4.47%
1999 27.31 0.315 3.117 (0.318) (0.866) 29.56 13.08%
1998 25.48 0.332 2.003 (0.341) (0.164) 27.31 9.22%
For the six month period ended July 31,:
1997 $21.57 0.132 3.955 (0.176) -- $25.48 19.06%
For the years ended January 31,:
1997 $18.05 0.436 4.371 (0.438) (0.848) $21.57 27.33%
1996 13.40 0.331 5.063 (0.337) (0.408) 18.05 40.88%
------------------------------------------------------------------------------------------------------------------------------------
BOND FUND
------------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY SHARES
For the years ended July 31,:
2000 $10.39 0.625 (0.139) (0.626) -- $10.25 4.86%
1999 10.81 0.605 (0.426) (0.600) -- 10.39 1.60%
1998 10.67 0.615 0.150 (0.627) -- 10.81 7.41%
1997 10.23 0.628 0.421 (0.609) -- 10.67 10.59%
1996 10.38 0.660 (0.160) (0.650) -- 10.23 4.81%
------------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
------------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY SHARES
2000 $9.96 0.441 0.008 (0.439) -- $9.97 4.68%
1999 10.04 0.438 (0.086) (0.436) -- 9.96 3.54%
1998 10.01 0.457 0.008 (0.435) -- 10.04 4.75%
For the six month period ended July 31,:
1997 $9.76 0.206 0.256 (0.215) -- $10.01 4.84%
For the years ended January 31,:
1997 $9.85 0.430 (0.078) (0.442) -- $9.76 3.72%
1996 8.95 0.518 0.873 (0.487) -- 9.85 15.83%
<CAPTION>
Ratio of
Ratio Ratio of Net Investment
Net of Expenses Net Income to
Assets, Ratio to Average Investment Average
End of Expenses Net Assets Income Net Assets Portfolio
of Period to Average Excluding to Average Excluding Turnover
(000) Net Assets Fee Waivers Net Assets Fee Waivers Rate
------------------------------------------------------------------------------------------------------------------------------------
SMALL CAP VALUE FUND
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FIDUCIARY SHARES
For the period ended July 31,:
2000 $134,616 1.34% 1.51% 0.69% 0.52% 57%
1999(1) 80,423 1.54% * 1.71% * 0.28% * 0.11% * 74%
------------------------------------------------------------------------------------------------------------------------------------
VALUE MOMENTUM FUND
------------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY SHARES
For the years ended July 31,:
2000 $619,618 0.90% 1.09% 0.88% 0.69% 3%
1999 843,316 0.81% 1.09% 1.15% 0.87% 9%
1998 863,627 0.81% 1.08% 1.25% 0.98% 7%
For the six month period ended July 31,:
1997 $463,434 0.78% * 0.94% * 1.65% * 1.49% * 1%
For the years ended January 31,:
1997 $317,482 0.79% 0.79% 2.26% 2.26% 9%
1996 222,065 0.80% 0.80% 2.07% 2.07% 20%
------------------------------------------------------------------------------------------------------------------------------------
BOND FUND
------------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY SHARES
For the years ended July 31,:
2000 $342,388 0.75% 1.01% 6.06% 5.80% 27%
1999 334,900 0.75% 1.01% 5.69% 5.43% 39%
1998 206,125 0.75% 1.02% 5.86% 5.60% 16%
1997 71,571 0.85% 1.42% 6.11% 5.54% 14%
1996 60,374 0.89% 1.61% 6.10% 5.38% 21%
------------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
------------------------------------------------------------------------------------------------------------------------------------
FIDUCIARY SHARES
2000 $139,098 0.44% 1.01% 4.45% 3.88% 10%
1999 149,365 0.45% 1.02% 4.29% 3.72% 11%
1998 157,062 0.42% 1.04% 4.46% 3.84% 23%
For the six month period ended July 31,:
1997 $11,292 0.21%* 0.91%* 4.56%* 3.85%* 5%
For the years ended January 31,:
1997 $7,435 0.20% 0.85% 4.69% 4.04% 6%
1996 4,196 0.24% 0.71% 4.97% 4.50% 30%
</TABLE>
--------------------------------------------------------------------------------
AMOUNTS DESIGNATED AS "-" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
* Annualized
1 Commenced operations on September 17, 1998.
++ Includes a 0.037 distribution in excess of net investment income.
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
36
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.
FUND NAME FUND CODE
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>
<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, 9 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 option to Liquidity
sell, a security at a specified price. A put option gives Credit
the buyer the right to sell, and obligates the seller of the Market
option to buy, a security at a specified price. The Funds Leverage
will sell only covered call and secured put options.
------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT: Negotiable instruments 1-8 Market
with a stated maturity. Credit
Liquidity
------------------------------------------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
37
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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.
------------------------------------------------------------------------------------------------------------------
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 securities Liquidity
are considered speculative and involve greater risk of loss than
investment grade bonds. Also called "lower rated bonds,"
"noninvestment grade bonds" and "junk bonds."
------------------------------------------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
38
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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; similarly Credit
rated by other nationally recognized rating organizations;
or, if not rated, determined to be of comparably high
quality by the Adviser.
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS: Investment-grade, U.S. 1-9 Market
dollar-denominated debt securities with remaining maturities Credit
of one year or less. These may include short-term U.S.
government obligations, commercial paper and other
short-term corporate obligations, repurchase agreements
collateralized with U.S. government securities, certificates
of deposit, bankers' acceptances, and other financial
institution obligations. These securities may carry fixed or
variable interest rates.
------------------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
39
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL FORWARDS: Forward commitments to 9 Market
purchase tax-exempt bonds with a specific coupon Leverage
to be delivered by an issuer at a future date (typically Liquidity
more than 45 days but less than one year). Municipal Credit
forwards are normally used as a refunding mechanism for
bonds that may be redeemed only on a designated future date.
Any Fund that makes use of municipal forwards will
maintain liquid, high-grade securities in a segregated
account in an amount at least equal to the purchase price
of the municipal forward.
------------------------------------------------------------------------------------------------------------------
MUNICIPAL SECURITIES: Securities issued by a state or 9 Market
political subdivision to obtain funds for various public Credit
purposes. Municipal securities include private activity bonds Political
and industrial development bonds, as well as general Tax
obligation bonds, tax anticipation notes, bond anticipation Regulatory
notes, revenue anticipation notes, project notes, other
short-term tax-exempt obligations, municipal leases, and
obligations of municipal housing authorities (single
family revenue bonds).
There are two general types of municipal bonds:
GENERAL-OBLIGATION BONDS, which are secured by the taxing
power of the issuer (and, in California, have the approval
of voters) and REVENUE BONDS, which take many shapes and
forms but are generally backed by revenue from a specific
project or tax. These include, but are not limited to,
certificates of participation (COPs); utility and sales
tax revenues; tax increment or tax allocations; housing
and special tax, including assessment district and community
facilities district (Mello-Roos) issues which are secured
by taxes on specific real estate parcels; hospital revenue;
and industrial development bonds that are secured by the
financial resources of a private company.
------------------------------------------------------------------------------------------------------------------
OBLIGATIONS OF SUPRANATIONAL AGENCIES: Securities issued 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 Political
exposure to changes in the value of the U.S. dollar relative Leverage
to other currencies. If a Fund sells a put option on a Foreign
foreign currency, it will establish a 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.
------------------------------------------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
40
<CAPTION>
INSTRUMENT FUND CODE RISK TYPE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 recovered their principal.
------------------------------------------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
41
INSTRUMENT FUND CODE RISK TYPE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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: A purchase 1-9 Market
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 Funds' holdings may fluctuate, as will the value
of your investment in the Funds. Certain types of investments and funds are more
susceptible to these risks than others.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Generally speaking, the lower a security's credit rating, the higher
its credit risk. If a security's credit rating is downgraded, its price tends to
decline sharply, especially as it becomes more probable that the issuer will
default.
FOREIGN INVESTMENT RISK. Compared with investing in the United States, investing
in foreign markets involves a greater degree and variety of risk. Investors in
foreign markets may face delayed settlements, currency controls and adverse
economic developments as well as higher overall transaction costs. In addition,
fluctuations in the U.S. dollar's value versus other currencies may erode or
reverse gains from investments denominated in foreign currencies or widen
losses. For instance, foreign governments may limit or prevent investors from
transferring their capital out of a country. This may affect the value of your
investment in the country that adopts such currency controls. Exchange rate
fluctuations also may impair an issuer's ability to repay U.S.
dollar-denominated debt, thereby increasing the credit risk of such debt.
Finally, the value of foreign securities may be seriously harmed by
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
42
incomplete or inaccurate financial information about their issuers, social
upheavals or political actions ranging from tax code changes to governmental
collapse. These risks are greater in the emerging markets than in the developed
markets of Europe and Japan.
HEDGING. When a derivative (a security whose value is based on that of another
security or index) is used as a hedge against an opposite position that a fund
holds, any loss on the derivative should be substantially offset by gains on the
hedged investment, and vice versa. Although hedging can be an effective way to
reduce a fund's risk, it may not always be possible to perfectly offset one
position with another. As a result, there is no assurance that a fund's hedging
transactions will be effective.
INTEREST RATE RISK. The risk that debt prices overall will decline over short or
even long periods due to rising interest rates. Interest rate risk should be
modest for shorter-term securities, moderate for intermediate-term securities,
and high for longer-term securities. Generally, an increase in a fund's average
maturity will make it more sensitive to interest rate risk.
INVESTMENT STYLE RISK. The risk that the particular type of investment on which
a fund focuses (such as small-cap value stocks or large-cap growth stocks) may
underperform other asset classes or the overall market. Individual market
segments tend to go through cycles of performing better or worse than other
types of securities. These periods may last as long as several years.
Additionally, a particular market segment could fall out of favor with
investors, causing a fund that focuses on that market segment to underperform
those that favor other kinds of securities.
LEVERAGE RISK. The risk associated with securities or investment practices that
magnify small index or market movements into large changes in value. Leverage is
often created by investing in derivatives, but it may be inherent in other types
of securities as well.
LIQUIDITY RISK. The risk that a security may be difficult or impossible to sell
at the time and price the seller wishes. The seller may have to accept a lower
price for the security, sell other securities instead, or forego a more
attractive investment opportunity. Any or all of these limitations could hamper
the management or performance of a fund.
MANAGEMENT RISK. The risk that a strategy used by a fund's portfolio manager may
fail to produce the intended result. This includes the risk that changes in the
value of a hedging instrument will not match those of the asset being hedged.
MARKET RISK. The risk that a security's market value may decline, especially if
it occurs rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price the investor originally paid for it. Market risk
may affect a single issuer, industrial sector or the market as a whole. For
fixed-income securities, market risk is largely influenced by changes in
interest rates. Rising interest rates typically cause the value of bonds to
decrease, while falling rates typically cause the value of bonds to increase.
POLITICAL RISK. The risk of investment losses attributable to unfavorable
governmental or political actions, seizure of foreign deposits, changes in tax
or trade statutes, and governmental collapse and war.
PREPAYMENT & CALL RISK. The risk that an issuer will repay a security's
principal at an unexpected time. Prepayment and call risk are related, but
differ somewhat. Prepayment risk is the chance that a large number of the
mortgages underlying a mortgage-backed security will be refinanced sooner than
the investor had expected. Call risk is the possibility that an issuer will
"call"--or repay--a high-yielding bond before the bond's maturity date. In both
cases, the investor is usually forced to reinvest the proceeds in a security
with a lower yield. This turnover may result in taxable capital gains and, in
addition, may lower a portfolio's income. If an investor paid a premium for the
security, the prepayment may result in an unexpected capital loss.
Prepayment and call risk generally increase when interest rates decline, and can
make a security's yield as well as its market price more volatile. Generally
speaking, the longer a security's maturity, the greater the prepayment and call
risk it poses.
REGULATORY RISK. The risk that federal and state laws may restrict an investor
from seeking recourse when an issuer has defaulted on the interest and/or
principal payments it owes on its obligations. These laws include restrictions
on foreclosures, redemption rights after foreclosure, Federal and state
bankruptcy and debtor relief laws, restrictions on "due on sale" clauses, and
state usury laws.
SMALL-COMPANY STOCK RISK. Investing in small companies is generally more risky
than investing in large companies, for a variety of reasons. Many small
companies are young and have limited track records. They also may have limited
product lines, markets or financial resources. They may, in addition, be more
vulnerable to adverse business or economic developments than larger companies.
Stocks issued by small companies tend to be less liquid and more volatile than
stocks of larger companies or the market averages in general. In addition, small
companies may not be well-known to the investing public, may not have
institutional ownership, and may have only cyclical, static or moderate growth
prospects. If a fund concentrates on small companies, its performance may be
more volatile than that of a fund that invests primarily in larger companies.
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.
<PAGE>
PROSPECTUS
43
NOTES
<PAGE>
PROSPECTUS
HIGHMARK FUNDS
44
NOTES
<PAGE>
[LOGO]
HIGHMARK-SM-
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 part of this
prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list the Funds' holdings and contain information on the market
conditions and investment strategies that significantly affected the HighMark
Funds' performance during the last year.
To obtain the SAI, the Annual or Semi-Annual Reports free of charge, or for
more information:
BY TELEPHONE: call 1-800-433-6884
BY MAIL: write to us at
SEI Investments Distribution Co.
1 Freedom Valley Drive
Oaks, PA 19456
BY INTERNET: www.highmarkfunds.com
FROM THE SEC: You should also obtain the SAI, the Annual and Semi-Annual
Reports, and other information about the HighMark Funds, from the SEC's Web
site (http://www.sec.gov). You may review and copy documents at the SEC
Public Reference Room in Washington, DC (for information call 1-800-SEC-0330).
You may request documents by mail from the SEC, upon payment of a
duplicating fee, by writing to: Securities and Exchange Commission, Public
Reference Sections, 450 5th Street, N.W., Washington, DC 20549-6009.
HighMark Funds' Investment Company Act registration number is 811-05059.
84823-A(11/00)
<PAGE>
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
<S> <C>
HIGHMARK FUNDS...............................................................................................
INVESTMENT OBJECTIVES AND POLICIES...........................................................................
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS..............................................................
Equity Securities...................................................................................
Debt Securities.....................................................................................
Convertible Securities..............................................................................
Asset-Backed Securities (non-mortgage)..............................................................
Bank Instruments....................................................................................
Commercial Paper and Variable Amount Master Demand Notes............................................
Lending of Portfolio Securities.....................................................................
Repurchase Agreements...............................................................................
Reverse Repurchase Agreements.......................................................................
U.S. Government Obligations.........................................................................
Mortgage-Related Securities.........................................................................
Adjustable Rate Notes...............................................................................
Municipal Securities................................................................................
Investments in California Municipal Securities by the California Tax-Free
Money Market Fund and the California Intermediate Tax-Free Bond Fund..............................
Puts................................................................................................
Shares of Mutual Funds..............................................................................
When-Issued Securities and Forward Commitments......................................................
Zero-coupon Securities..............................................................................
Options (Puts and Calls) on Securities..............................................................
Covered Call Writing................................................................................
Purchasing Call Options.............................................................................
Purchasing Put Options..............................................................................
Options in Stock Indices............................................................................
Risk Factors in Options Transactions................................................................
Futures Contracts on Securities and Related Options.................................................
Futures Contracts on Securities.....................................................................
Options on Securities' Futures Contracts............................................................
Risk of Transactions in Securities' Futures Contracts and Related Options...........................
Index Futures Contracts.............................................................................
Options on Index Futures Contracts..................................................................
Foreign Investment..................................................................................
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C>
Foreign Currency Transactions.......................................................................
Transaction Hedging.................................................................................
Position Hedging....................................................................................
Currency Forward and Futures Contracts..............................................................
General Characteristics of Currency Futures Contracts...............................................
Foreign Currency Options............................................................................
Foreign Currency Conversion.........................................................................
Index-Based Investments.............................................................................
Small Cap/Special Equity Situation Securities.......................................................
High Yield Securities...............................................................................
Money Market Instruments............................................................................
Treasury Receipts...................................................................................
High Quality Investments with Regard to the Money Market Funds......................................
Illiquid Securities.................................................................................
Restricted Securities...............................................................................
INVESTMENT RESTRICTIONS......................................................................................
Voting Information..................................................................................
PORTFOLIO TURNOVER...........................................................................................
VALUATION....................................................................................................
Valuation of the Money Market Funds.................................................................
Valuation of the Equity Funds and the Fixed Income Funds............................................
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................................................
Purchases through Financial Institutions............................................................
Redemption by Checkwriting..........................................................................
Sales Charges.......................................................................................
Sales Charge Reductions and Waivers.................................................................
Additional Federal Tax Information..................................................................
Additional Tax Information Concerning the California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund............................................................
Foreign Taxes.......................................................................................
MANAGEMENT OF HIGHMARK FUNDS.................................................................................
Trustees and Officers...............................................................................
Investment Adviser..................................................................................
The Sub-Advisers....................................................................................
Portfolio Transactions..............................................................................
Administrator and Sub-Administrator.................................................................
Glass-Steagall Act..................................................................................
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C>
Shareholder Services Plans..........................................................................
Shareholder Servicing Agreement.....................................................................
Expenses............................................................................................
Distributor.........................................................................................
The Distribution Plans..............................................................................
Transfer Agent and Custodian Services...............................................................
Auditor.............................................................................................
Legal Counsel.......................................................................................
ADDITIONAL INFORMATION.......................................................................................
Description of Shares...............................................................................
Shareholder and Trustee Liability...................................................................
Calculation of Performance Data.....................................................................
Miscellaneous.......................................................................................
APPENDIX.....................................................................................................
FINANCIAL STATEMENTS.........................................................................................
</TABLE>
-4-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
HIGHMARK FUNDS
HighMark Funds is a diversified, open-end management investment
company. HighMark Funds was organized as a Massachusetts business trust on March
10, 1987 and presently consists of 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. 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."
-5-
<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.
-6-
<PAGE>
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
1. EQUITY SECURITIES. Equity Securities include common stocks,
preferred stocks, convertible securities and warrants. Common stocks, which
represent an ownership interest in a company, are probably the most
recognized type of equity security. Equity securities have historically
outperformed most other securities, although their prices can be volatile in
the short term. Market conditions, political, economic and even
company-specific news can cause significant changes in the price of a stock.
Smaller companies (as measured by market capitalization), sometimes called
small-cap companies or small-cap stocks, may be especially sensitive to these
factors. To the extent a Fund invests in equity securities, that Fund's
Shares will fluctuate in value, and thus may be more suitable for long-term
investors who can bear the risk of short-term fluctuations.
2. DEBT SECURITIES. The Funds may invest in debt securities within
the four highest rating categories assigned by a nationally recognized
statistical rating organization ("NRSRO") and comparable unrated securities.
Securities rated BBB by S&P or Baa by Moody's are considered investment
grade, but are deemed by these rating services to have some speculative
characteristics, and adverse economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher-grade bonds. Should subsequent events
cause the rating of a debt security purchased by a Fund to fall below the
fourth highest rating category, the Adviser will consider such an event in
determining whether the Fund should continue to hold that security. In no
event, however, would a Fund be required to liquidate any such portfolio
security where the Fund would suffer a loss on the sale of such security.
Depending upon prevailing market conditions, a Fund may purchase
debt securities at a discount from face value, which produces a yield greater
than the coupon rate. Conversely, if debt securities are purchased at premium
over face value, the yield will be lower than the coupon rate. In making
investment decisions, the Adviser will consider many factors other than
current yield, including the preservation of capital, the potential for
realizing capital appreciation, maturity, and yield to maturity.
From time to time, the equity and debt markets may fluctuate
independently of one another. In other words, a decline in equity markets may
in certain instances be offset by a rise in debt markets, or vice versa. As a
result, the Balanced Fund, with its balance of equity and debt investments,
may entail less investment risk (and a potentially smaller investment return)
than a mutual fund investing primarily in equity securities.
3. CONVERTIBLE SECURITIES. Consistent with its objective policies
and restrictions, each Equity Fund may invest in convertible securities.
Convertible securities include corporate bonds, notes or preferred stocks
that can be converted into common stocks or other equity securities.
Convertible securities also include other securities, such as warrants, that
provide an opportunity
-7-
<PAGE>
for equity participation. Convertible Bonds are bonds convertible into a set
number of shares of another form of security (usually common stock) at a
prestated price. Convertible bonds have characteristics similar to both
fixed-income and equity securities. Preferred stock is a class of capital
stock that pays dividends at a specified rate and that has preference over
common stock in the payment of dividends and the liquidation of assets.
Convertible preferred stock is preferred stock exchangeable for a given
number of common stock shares, and has characteristics similar to both
fixed-income and equity securities.
Because convertible securities can be converted into common stock,
their values will normally vary in some proportion with those of the underlying
common stock. Convertible securities usually provide a higher yield than the
underlying common stock, however, so that the price decline of a convertible
security may sometimes be less substantial than that of the underlying common
stock. The value of convertible securities that pay dividends or interest, like
the value of all fixed-income securities, generally fluctuates inversely with
changes in interest rates.
Warrants have no voting rights, pay no dividends and have no rights
with respect to the assets of the corporation issuing them. They do not
represent ownership of the securities for which they are exercisable, but only
the right to buy such securities at a particular price.
The Funds will not purchase any convertible debt security or
convertible preferred stock unless it has been rated as investment grade at the
time of acquisition by a NRSRO or that is not rated but is determined to be of
comparable quality by the Adviser.
4. ASSET-BACKED SECURITIES (NON-MORTGAGE). Consistent with its
investment objective, policies and restrictions, certain Funds may invest in
asset-backed securities. Asset-backed securities are instruments secured by
company receivables, truck and auto loans, leases, and credit card
receivables. Such securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in the
underlying pools of assets. Such securities also may be debt instruments,
which are also known as collateralized obligations and are generally issued
as the debt of a special purpose entity, such as a trust, organized solely
for the purpose of owning such assets and issuing such debt.
The purchase of non-mortgage asset-backed securities raises risk
considerations peculiar to the financing of the instruments underlying such
securities. Like mortgages underlying mortgage-backed securities, underlying
automobile sales contracts or credit card receivables are subject to
substantial prepayment risk, which may reduce the overall return to
certificate holders. Nevertheless, principal prepayment rates tend not to
vary as much in response to changes in interest rates and the short-term
nature of the underlying car loans or other receivables tend to 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
-8-
<PAGE>
administrative costs of enforcing the contracts or because of depreciation or
damage to the collateral (usually automobiles) securing certain contracts, or
other factors. If consistent with their investment objectives and policies,
the Funds may invest in other asset-backed securities that may be developed
in the future.
5. BANK INSTRUMENTS. Consistent with its investment objective,
policies, and restrictions, each Fund (other than the U.S. Government Money
Market Fund and the 100% U.S. Treasury Money Market Fund) may invest in
bankers' acceptances, certificates of deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise
that are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Investments in bankers' acceptances will be limited to those guaranteed by
domestic and foreign banks having, at the time of investment, total assets of
$1 billion or more (as of the date of the institution's most recently
published financial statements).
Certificates of deposit and time deposits represent funds deposited
in a commercial bank or a savings and loan association for a definite period
of time and earning a specified return.
Investments in certificates of deposit and time deposits may include
Eurodollar Certificates of Deposit, which are U.S. dollar denominated
certificates of deposit issued by offices of foreign and domestic banks
located outside the United States, Yankee Certificates of Deposit, which are
certificates of deposit issued by a U.S. branch of a foreign bank denominated
in U.S. dollars and held in the United States, Eurodollar Time Deposits
("ETDs"), which are U.S. dollar denominated deposits in a foreign branch of a
U.S. bank or a foreign bank, and Canadian Time Deposits ("CTDs"), which are
U.S. dollar denominated certificates of deposit issued by Canadian offices of
major Canadian banks. All investments in certificates of deposit and time
deposits will be limited to those (a) of domestic and foreign banks and
savings and loan associations which, at the time of investment, have total
assets of $1 billion or more (as of the date of the institution's most
recently published financial statements) or (b) the principal amount of which
is insured by the Federal Deposit Insurance Corporation.
Although the Diversified Money Market Fund maintains a diversified
portfolio, there are no limitations on its ability to invest in domestic
certificates of deposit, banker's acceptances and other bank instruments.
Extensive investments in such instruments may result from the Fund's
concentration of securities in the financial services industry. Domestic
certificates of deposit and bankers' acceptances include those issued by
domestic branches of foreign banks to the extent permitted by the rules and
regulations of the Securities and Exchange Commission staff. These 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.
-9-
<PAGE>
6. COMMERCIAL PAPER AND VARIABLE AMOUNT MASTER DEMAND NOTES.
Consistent with its investment objective, policies, and restrictions, each
Fund (other than the 100% U.S. Treasury Money Market Fund) may invest in
commercial paper (including Section 4(2) commercial paper) and variable
amount master demand notes. Commercial paper consists of unsecured promissory
notes issued by corporations normally having maturities of 270 days or less.
These investments may include Canadian Commercial Paper, which is U.S. dollar
denominated commercial paper issued by a Canadian corporation or a Canadian
counterpart of a U.S. corporation, and Europaper, which is U.S. dollar
denominated commercial paper of a foreign issuer.
Variable amount master demand notes are unsecured demand notes that
permit the indebtedness thereunder to vary and provide for periodic
adjustments in the interest rate according to the terms of the instrument.
Because master demand notes are direct lending arrangements between a Fund
and the issuer, they are not normally traded. Although there is no secondary
market in the notes, a Fund may demand payment of principal and accrued
interest at any time. A variable amount master demand note will be deemed to
have a maturity equal to the longer of the period of time remaining until the
next readjustment of its interest rate or the period of time remaining until
the principal amount can be recovered from the issuer through demand.
7. LENDING OF PORTFOLIO SECURITIES. In order to generate additional
income, each Fund (other than the California Tax-Free Money Market Fund and
the 100% U.S. Treasury Money Market Fund) may lend its portfolio securities
to broker-dealers, banks or other institutions. During the time portfolio
securities are on loan from a Fund, the borrower will pay the Fund any
dividends or interest paid on the securities. In addition, loans will be
subject to termination by the Fund or the borrower at any time. While the
lending of securities may subject a Fund to certain risks, such as delays or
an inability to regain the securities in the event the borrower were to
default on its lending agreement or enter into bankruptcy, a Fund will
receive at least 100% collateral in the form of cash or U.S. Government
securities. This collateral will be valued daily by the lending agent, with
oversight by HighMark Capital Management, Inc. (the "Adviser"), and, should
the market value of the loaned securities increase, the borrower will be
required to furnish additional collateral to the Fund. A Fund (other than the
California Tax-Free Money Market Fund and the 100% U.S. Treasury Money Market
Fund) may lend portfolio securities in an amount representing up to 33 1/3%
of the value of the Fund's total assets.
8. REPURCHASE AGREEMENTS. Securities held by each Fund (other than
the 100% U.S. Treasury Money Market Fund) may be subject to repurchase
agreements. Under the terms of a repurchase agreement, a Fund will deal with
financial institutions such as member banks of the Federal Deposit Insurance
Corporation having, at the time of investment, total assets of $100 million
or more and from registered broker-dealers that the Adviser deems
creditworthy under guidelines approved by HighMark Funds' Board of Trustees.
Under a repurchase agreement, the seller agrees to repurchase the securities
at a mutually agreed-upon date and price, and the 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
-10-
<PAGE>
portfolio securities. The seller under a repurchase agreement will be
required to maintain the value of collateral held pursuant to the agreement
at not less than 100% of the repurchase price (including accrued interest)
and the Custodian, with oversight by the Adviser, will monitor the
collateral's value daily and initiate calls to request that collateral be
restored to appropriate levels. In addition, securities subject to repurchase
agreements will be held in a segregated custodial account.
If the seller were to default on its repurchase obligation or become
insolvent, the Fund holding such obligation would suffer a loss to the extent
that either the proceeds from a sale of the underlying portfolio securities
were less than the repurchase price under the agreement or the Fund's
disposition of the underlying securities was delayed pending court action.
Additionally, although there is no controlling legal precedent confirming
that a Fund would be entitled, as against a claim by the seller or its
receiver or trustee in bankruptcy, to retain the underlying securities,
HighMark Funds' Board of Trustees believes that, under the regular procedures
normally in effect for custody of a Fund's securities subject to repurchase
agreements and under federal laws, a court of competent jurisdiction would
rule in favor of the Fund if presented with the question. Securities subject
to repurchase agreements will be held by HighMark Funds' custodian or another
qualified custodian or in the Federal Reserve/Treasury book-entry system.
Repurchase agreements are considered to be loans by a Fund under the 1940 Act.
9. REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow funds for
temporary purposes by entering into reverse repurchase agreements, provided
such action is consistent with the Fund's investment objective and
fundamental investment restrictions; as a matter of non fundamental policy,
each Fund intends to limit total borrowings under reverse repurchase
agreements to no more than 10% of the value of its total assets. Pursuant to
a reverse repurchase agreement, a Fund will sell portfolio securities to
financial institutions such as banks or to broker-dealers, and agree to
repurchase the securities at a mutually agreed-upon date and price. A Fund
intends to enter into reverse repurchase agreements only to avoid otherwise
selling securities during unfavorable market conditions to meet redemptions.
At the time a Fund enters into a reverse repurchase agreement, it will place
in a segregated custodial account assets such as U.S. Government securities
or other liquid, high-quality debt securities consistent with the Fund's
investment objective having a value equal to 100% of the repurchase price
(including accrued interest), and will subsequently monitor the account to
ensure that an equivalent value is maintained. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the price at which a Fund is obligated to repurchase the
securities. Reverse repurchase agreements are considered to be borrowings by
a Fund under the 1940 Act.
10. U.S. GOVERNMENT OBLIGATIONS. With the exception of the 100% U.S.
Treasury Money Market Fund, which may invest only in direct U.S. Treasury
obligations, each Fund may, consistent with its investment objective,
policies, and restrictions, invest in obligations issued or guaranteed by the
U.S. Government, its agencies, or instrumentalities. Obligations of certain
-11-
<PAGE>
agencies and instrumentalities of the U.S. Government, such as those of the
Government National Mortgage Association and the Export-Import Bank of the
United States, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the right of the issuer to borrow from the Treasury; others,
such as those of the Student Loan Marketing Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; and still others, such as those of the Federal Farm Credit Banks
or the Federal Home Loan Mortgage Corporation, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
agencies or instrumentalities if it is not obligated to do so by law.
U.S. Government Securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities,
although, as a result, the yields available from U.S. Government Securities
are generally lower than the yields available from otherwise comparable
corporate fixed-income securities. Like other fixed-income securities,
however, the values of U.S. Government Securities change as interest rates
fluctuate. Fluctuations in the value of portfolio securities will in many
cases not affect interest income on existing portfolio securities, but will
be reflected in the Fund's net asset value. Because the magnitude of these
fluctuations will generally be greater at times when a Fund's average
maturity is longer, under certain market conditions the Fund may invest in
short-term investments yielding lower current income rather than investing in
higher yielding longer-term securities.
For information concerning mortgage-related securities issued by
certain agencies or instrumentalities of the U.S. Government, see
"Mortgage-Related Securities" below.
11. MORTGAGE-RELATED SECURITIES. As indicated in the Prospectus, the
Diversified Money Market Fund, the U.S. Government Money Market Fund and the
California Tax-Free Money Market Fund may each invest in mortgage-related
securities issued by the Government National Mortgage Association ("GNMA")
representing GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes"). The Fixed Income Funds and the Balanced Fund may also, consistent
with each such Fund's investment objective and policies, invest in Ginnie
Maes and in mortgage-related securities issued or guaranteed by the U.S.
Government, its agencies, or its instrumentalities or, those issued by
nongovernmental entities. In addition, the Fixed Income Funds and the
Balanced Fund may invest in collateralized mortgage obligations ("CMOs") and
real estate mortgage investment conduits ("REMICs").
Mortgage-related securities represent interests in pools of mortgage
loans assembled for sale to investors. Mortgage-related securities may be
assembled and sold by certain governmental agencies and may also be assembled
and sold by nongovernmental entities such as commercial banks, savings and
loan institutions, mortgage bankers, and private mortgage insurance
companies. Although certain mortgage-related securities are guaranteed by a
third party or otherwise similarly secured, the market value of the security,
which may fluctuate, is not
-12-
<PAGE>
so secured. If a Fund purchases a mortgage-related security at a premium,
that portion may be lost if there is a decline in the market value of the
security, whether resulting from changes in interest rates or prepayments in
the underlying mortgage collateral. As with other interest-bearing
securities, the prices of mortgage-related securities are inversely affected
by changes in interest rates. However, although the value of a
mortgage-related security may decline when interest rates rise, the converse
is not necessarily true because in periods of declining interest rates the
mortgages underlying the security are prone to prepayment. For this and other
reasons, a mortgage-related security's stated maturity may be shortened by
unscheduled prepayments on the underlying mortgages and, therefore, it is not
possible to predict accurately the security's return to the Fund. In
addition, regular payments received in respect of mortgage-related securities
include both interest and principal. No assurance can be given as to the
return a Fund will receive when these amounts are reinvested. As a
consequence, mortgage-related securities may be a less effective means of
"locking in" interest rates than other types of debt securities having the
same stated maturity, may have less potential for capital appreciation and
may be considered riskier investments as a result.
Adjustable rate mortgage securities ("ARMS") are pass-through
certificates representing ownership interests in a pool of adjustable rate
mortgages and the resulting cash flow from those mortgages. Unlike
conventional debt securities, which provide for periodic (usually
semi-annual) payments of interest and payments of principal at maturity or on
specified call dates, ARMs provide for monthly payments based on a pro rata
share of both periodic interest and principal payments and prepayments of
principal on the underlying mortgage pool (less GNMA's, FNMA's, or FHLMC's
fees and any applicable loan servicing fees).
There are a number of important differences both among the agencies
and instrumentalities of the U.S. Government that issue mortgage-related
securities and among the securities themselves. As noted above, Ginnie Maes
are issued by GNMA, which is a wholly-owned U.S. Government corporation
within the Department of Housing and Urban Development. Ginnie Maes are
guaranteed as to the timely payment of principal and interest by GNMA and
GNMA's guarantee is backed by the full faith and credit of the U.S. Treasury.
In addition, Ginnie Maes are supported by the authority of GNMA to borrow
funds from the U.S. Treasury to make payments under GNMA's guarantee.
Mortgage-related securities issued by the Federal National Mortgage
Association ("FNMA") include FNMA Guaranteed Mortgage Pass-Through
Certificates (also known as "Fannie Maes"), which are solely the obligations
of the FNMA and are not backed by or entitled to the full faith and credit of
the U.S. Treasury. The FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued
by the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC
Mortgage Participation Certificates (also known as "Freddie Macs" or "PCs").
The FHLMC is a corporate instrumentality of the U.S. Government, created
pursuant to an Act of Congress, which is owned entirely by the Federal Home
Loan Banks. Freddie Macs are not guaranteed by the U.S. Treasury or by any
Federal Home Loan Banks and do not constitute a debt or obligation of
-13-
<PAGE>
the U.S. Government or of any Federal Home Loan Bank. Freddie Macs entitle
the holder to timely payment of interest, which is guaranteed by the FHLMC.
The FHLMC guarantees either ultimate collection or timely payment of all
principal payments on the underlying mortgage loans. When the FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due on
account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after
it becomes payable.
CMOs in which the Fixed Income Funds and the Balanced Fund may
invest represent securities issued by a private corporation or a U.S.
Government instrumentality that are backed by a portfolio of mortgages or
mortgage-backed securities held under an indenture. The issuer's obligation
to make interest and principal payments is secured by the underlying
portfolio of mortgages or mortgage-backed securities. CMOs are issued with a
number of classes or series that have different maturities and that may
represent interests in some or all of the interest or principal on the
underlying collateral or a combination thereof. CMOs of different classes are
generally retired in sequence as the underlying mortgage loans in the
mortgage pool are repaid. In the event of sufficient early prepayments on
such mortgages, the class or series of a CMO first to mature generally will
be retired prior to its maturity. Thus, the early retirement of a particular
class or series of a CMO held by a Fund would have the same effect as the
prepayment of mortgages underlying a mortgage-backed pass-through security.
One or more classes of CMOs may have coupon rates that reset
periodically based on an index, such as the London Interbank Offered Rate
("LIBOR"). Each Fund may purchase fixed, adjustable, or "floating" rate CMOs
that are collateralized by fixed rate or adjustable rate mortgages that are
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government or are directly guaranteed as to
payment of principal and interest by the issuer, which guarantee is
collateralized by U.S. government securities or is collateralized by
privately issued fixed rate or adjustable rate mortgages.
Securities such as zero-coupon obligations, mortgage-backed and
asset-backed securities, and collateralized mortgage obligations ("CMOs")
will have greater price volatility than other fixed-income obligations.
Because declining interest rates may lead to prepayment of underlying
mortgages, automobile sales contracts or credit card receivables, the prices
of mortgage-related and asset-backed securities may not rise with a decline
in interest rates. Mortgage-backed and asset-backed securities and CMOs are
extremely sensitive to the rate of principal prepayment. Similarly, callable
corporate bonds also present risk of prepayment. During periods of falling
interest rates, securities that can be called or prepaid may decline in value
relative to similar securities that are not subject to call or prepayment.
REMICs in which the Fixed Income Funds and the Balanced Fund may
invest are private entities formed for the purpose of holding a fixed pool of
mortgages secured by an interest in real property. REMICs are similar to CMOs
in that they issue multiple classes of securities.
-14-
<PAGE>
12. ADJUSTABLE RATE NOTES. Consistent with its investment objective,
policies, and restrictions, each Fund (other than the 100% U.S. Treasury
Money Market Fund) may invest in "adjustable rate notes," which include
variable rate notes and floating rate notes. For Money Market Fund purposes,
a variable rate note is one whose terms provide for the readjustment of its
interest rate on set dates and that, upon such readjustment, can reasonably
be expected to have a market value that approximates its amortized cost; the
degree to which a variable rate note's market value approximates its
amortized cost subsequent to readjustment will depend on the frequency of the
readjustment of the note's interest rate and the length of time that must
elapse before the next readjustment. A floating rate note is one whose terms
provide for the readjustment of its interest rate whenever a specified
interest rate changes and that, at any time, can reasonably be expected to
have a market value that approximates its amortized cost. Although there may
be no active secondary market with respect to a particular variable or
floating rate note purchased by a Fund, the Fund may seek to resell the note
at any time to a third party. The absence of an active secondary market,
however, could make it difficult for the Fund to dispose of a variable or
floating rate note in the event the issuer of the note defaulted on its
payment obligations and the Fund could, as a result or for other reasons,
suffer a loss to the extent of the default. Variable or floating rate notes
may be secured by bank letters of credit. A demand instrument with a demand
notice period exceeding seven days may be considered illiquid if there is no
secondary market for such security. Such security will be subject to a Fund's
non fundamental 15% (10% in the case of the Money Market Funds) limitation
governing investments in "illiquid" securities, unless such notes are subject
to a demand feature that will permit the Fund to receive payment of the
principal within seven days of the Fund's demand. See "INVESTMENT
RESTRICTIONS" below.
Maturities for variable and adjustable rate notes held in the Money
Market Funds will be calculated in compliance with the provisions of Rule
2a-7, as it may be amended from time to time.
As used above, a note is "subject to a demand feature" where the
Fund is entitled to receive the principal amount of the note either at any
time on not more than thirty days' notice or at specified intervals, not
exceeding 397 days and upon not more than thirty days' notice.
13. MUNICIPAL SECURITIES. As defined in the Prospectuses, under
normal market conditions, 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
-15-
<PAGE>
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 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
-16-
<PAGE>
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 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
-17-
<PAGE>
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 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
-18-
<PAGE>
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 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
-19-
<PAGE>
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, 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
-20-
<PAGE>
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
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.
-21-
<PAGE>
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.
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.
-22-
<PAGE>
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.
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
-23-
<PAGE>
invest up to 5% of its total assets in the shares of any one investment
company, but it may not own more than 3% of the securities of any one
registered investment company or invest more than 10% of its assets in the
securities of other investment companies. In accordance with an exemptive
order issued to HighMark Funds by the Securities and Exchange Commission,
such other registered investment companies securities may include shares of a
money market fund of HighMark Funds, and may include registered investment
companies for which the Adviser or Sub-Adviser to a Fund of HighMark Funds,
or an affiliate of such Adviser or Sub-Adviser, serves as investment adviser,
administrator or distributor or provides other services. Because other
investment companies employ an investment adviser, such investment by a Fund
may cause Shareholders to bear duplicative fees. The Adviser will waive its
advisory fees attributable to the assets of the investing Fund invested in a
money market fund of HighMark Funds, and, to the extent required by
applicable law, the Adviser will waive its fees attributable to the assets of
the Fund invested in any investment company. Additional restrictions on the
Fund's investments in the securities of a money market mutual fund are set
forth under "Investment Restrictions" below.
Investments by the California Tax-Free Money Market Fund in the
shares of other tax-exempt money market mutual funds are described under
"Municipal Securities" above.
17. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may
enter into forward commitments or purchase securities on a "when-issued"
basis, which means that the securities will be purchased for delivery beyond
the normal settlement date at a stated price and yield and thereby involve
the risk that the yield obtained in the transaction will be less than that
available in the market when delivery takes place. A Fund will generally not
pay for such securities and no interest accrues on the securities until they
are received by the Fund. These securities are recorded as an asset and are
subject to changes in value based upon changes in the general level of
interest rates. Therefore, the purchase of securities on a "when-issued"
basis may increase the risk of fluctuations in a Fund's net asset value.
When a Fund agrees to purchase securities on a "when-issued" basis
or enter into forward commitments, HighMark Funds' custodian will be
instructed to set aside cash or liquid portfolio securities equal to the
amount of the commitment in a separate account. The Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of the
Fund's commitment.
The Funds expect that commitments to enter into forward commitments
or purchase "when-issued" securities will not exceed 25% of the value of
their respective total assets under 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.
-24-
<PAGE>
18. ZERO-COUPON SECURITIES. Consistent with its objectives, a Fund
may invest in zero-coupon securities, which are debt securities that do not
pay interest, but instead are issued at a deep discount from par. The value
of the security increases over time to reflect the interest accrued. The
value of these securities may fluctuate more than similar securities that are
issued at par and pay interest periodically. Although these securities pay no
interest to holders prior to maturity, interest on these securities is
reported as income to the Fund and distributed to its shareholders. These
distributions must be made from the Fund's cash assets or, if necessary, from
the proceeds of sales of portfolio securities. The Fund will not be able to
purchase additional income producing securities with cash used to make such
distributions and its current income ultimately may be reduced as a result.
The amount included in income is determined under a constant interest rate
method. In addition, if an obligation is purchased subsequent to its original
issue, a holder such as the Fixed Income Funds may elect to include market
discount in income currently on a ratable accrual method or a constant
interest rate method. Market discount is the difference between the
obligation's "adjusted issue price" (the original issue price plus original
issue discount accrued to date) and the holder's purchase price. If no such
election is made, gain on the disposition of a market discount obligation is
treated as ordinary income (rather than capital gain) to the extent it does
not exceed the accrued market discount.
19. OPTIONS (PUTS AND CALLS) ON SECURITIES. Each Equity Fund may buy
and sell options (puts and calls), and write call options on a covered basis.
Under a call option, the purchaser of the option has the right to purchase,
and the writer (the Fund) the obligation to sell, the underlying security at
the exercise price during the option period. A put option gives the purchaser
the right to sell, and the writer the obligation to purchase, the underlying
security at the exercise price during the option period.
There are risks associated with such investments including the
following: (1) the success of a hedging strategy may depend on the ability of
the Adviser or Sub-Adviser to predict movements in the prices of individual
securities, fluctuations in markets and movements in interest rates; (2)
there may be an imperfect correlation between the movement in prices of
securities held by a Fund and the price of options; (3) there may not be a
liquid secondary market for options; and (4) while a Fund will receive a
premium when it writes covered call options, it may not participate fully in
a rise in the market value of the underlying security.
20. COVERED CALL WRITING. Each Equity Fund may write covered call
options from time to time on such portion of its assets, without limit, as
the Adviser determines is appropriate in seeking to obtain its investment
objective. A Fund will not engage in option writing strategies for
speculative purposes. A call option gives the purchaser of such option the
right to buy, and the writer, in this case the Fund, has the obligation to
sell the underlying security at the exercise 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.
-25-
<PAGE>
During the option period, a covered call option writer may be
assigned an exercise notice by the broker/dealer through whom such call
option was sold, which requires the writer to deliver the underlying security
against payment of the exercise price. This obligation is terminated upon the
expiration of the option period or at such earlier time in which the writer
effects a closing purchase transaction. A closing purchase transaction is one
in which a Fund, when obligated as a writer of an option, terminates its
obligation by purchasing an option of the same series as the option
previously written. A closing purchase transaction cannot be effected with
respect to an option once the option writer has received an exercise notice
for such option.
Closing purchase transactions will ordinarily be effected to realize
a profit on an outstanding call option, to prevent an underlying security
from being called, to permit the sale of the underlying security, or to
enable the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both. The Fund may
realize a net gain or loss from a closing purchase transaction, depending
upon whether the net amount of the original premium received on the call
option is more or less than the cost of effecting the closing purchase
transaction. Any loss incurred in a closing purchase transaction may be
partially or entirely offset by the premium received from a sale of a
different call option on the same underlying security. Such a loss may also
be wholly or partially offset by unrealized appreciation in the market value
of the underlying security. Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part by a decline in the
market value of the underlying security.
If a call option expires unexercised, the Fund will realize a short
term capital gain in the amount of the premium on the option, less the
commission paid. Such a gain, however, may be offset by depreciation in the
market value of the underlying security during the option period. If a call
option is exercised, the Fund will realize a gain or loss from the sale of
the underlying security equal to the difference between the cost of the
underlying security, and the proceeds of the sale of the security plus the
amount of the premium on the option, less the commission paid.
The market value of a call option generally reflects the market
price of an underlying security. Other principal factors affecting market
value include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.
The Fund will write call options only on a covered basis, which
means that the Fund will own the underlying security subject to a call option
at all times during the option period or will own the right to acquire the
underlying security at a price equal to or below the option's strike price.
Unless a closing purchase transaction is effected the Fund would be required
to continue to hold a security which it might otherwise wish to sell, or
deliver a security it would want to hold. Options written by the Fund will
normally have expiration dates between one and nine months from the date
written. The exercise price of a call option may be below, equal to or above
the current market value of the underlying security at the time the option is
written.
-26-
<PAGE>
21. PURCHASING CALL OPTIONS. The Equity Funds may purchase call
options to hedge against an increase in the price of securities that the Fund
wants ultimately to buy. Such hedge protection is provided during the life of
the call option since the Fund, as holder of the call option, is able to buy
the underlying security at the exercise price regardless of any increase in
the underlying security's market price. In order for a call option to be
profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
costs. These costs will reduce any profit the Fund might have realized had it
bought the underlying security at the time it purchased the call option. The
Funds may sell, exercise or close out positions as the Adviser deems
appropriate.
22. PURCHASING PUT OPTIONS. Each Equity Fund may purchase put
options to protect its portfolio holdings in an underlying security against a
decline in market value. Such hedge protection is provided during the life of
the put option since the Fund, as holder of the put option, is able to sell
the underlying security at the put exercise price regardless of any decline
in the underlying security's market price. For a put option to be profitable,
the market price of the underlying security must decline sufficiently below
the exercise price to cover the premium and transaction costs. By using put
options in this manner, a Fund will reduce any profit it might otherwise have
realized from appreciation of the underlying security by the premium paid for
the put option and by transaction costs.
23. OPTIONS IN STOCK INDICES. The Equity Funds may engage in options
on stock indices. A stock index assigns relative values to the common stock
included in the index with the index fluctuating with changes in the market
values of the underlying common stock.
Options on stock indices are similar to options on stocks but have
different delivery requirements. Stock options provide the right to take or
make delivery of the underlying stock at a specified price. A stock index
option gives the holder the right to receive a cash "exercise settlement
amount" equal to (i) the amount by which the fixed exercise price of the
option exceeds (in the case of a put) or is less than (in the case of a call)
the closing value of the underlying index on the date of exercise, multiplied
by (ii) a fixed "index multiplier." Receipt of this cash amount will depend
upon the closing level of the stock index upon which the option is based
being greater than (in the case of a call) or less than (in the case of a
put) the exercise price of the option. The amount of cash received will be
equal to such difference between the closing price of the index and exercise
price of the option expressed in dollars times a specified multiple. The
writer of the option is obligated, in return of the premium received, to make
delivery of this amount. Gain or loss to a Fund on transactions in stock
index options will depend on price movements in the stock market generally
(or in a particular industry or segment of the market) rather than price
movements of individual securities.
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
-27-
<PAGE>
unexercised.
A stock index fluctuates with changes in the market values of the
stock so included. Some stock index options are based on a broad market
index, such as the Standard & Poor's 500 or the New York Stock Exchange
Composite Index, or a narrower market index such as the Standard & Poor's
100. Indices are also based on an industry or market segment such as the AMEX
Oil and Gas Index or the Computer and Business Equipment Index. Options on
stock indices are currently traded on the following exchanges among others:
The Chicago Board Options Exchange, New York Stock Exchange, American Stock
Exchange and London Stock Exchange.
A Fund's ability to hedge effectively all or a portion of its
securities through transactions in options on stock indices depends on the
degree to which price movements in the underlying index correlate with price
movements in the Fund's portfolio securities. Since a Fund's portfolio will
not duplicate the components of an index, the correlation will not be exact.
Consequently, a Fund bears the risk that the prices of the securities being
hedged will not move in the same amount as the hedging instrument. It is also
possible that there may be a negative correlation between the index or other
securities underlying the hedging instrument and the hedged securities which
would result in a loss on both such securities and the hedging instrument.
A Fund will enter into an option position only if there appears to
be a liquid secondary market for such options.
A Fund will not engage in transactions in options on stock indices
for speculative purposes but only to protect appreciation attained, to offset
capital losses and to take advantage of the liquidity available in the option
markets. The aggregate premium paid on all options on stock indices will not
exceed 20% of a Fund's total assets.
24. RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of
options strategies depends on the ability of the Adviser or, where
applicable, the Sub-Adviser to forecast interest rate and market movements
correctly.
When it purchases an option, a Fund runs the risk that it will lose
its entire investment in the option in a relatively short period of time,
unless the Fund exercises the option or enters into a closing sale
transaction with respect to the option during the life of the option. If the
price of the underlying security does not rise (in the case of a call) or
fall (in the case of a put) to an extent sufficient to cover the option
premium and transaction costs, a Fund will lose part or all of its investment
in the option. This contrasts with an investment by a Fund in the underlying
securities, since the Fund may continue to hold its investment in those
securities notwithstanding the lack of a change in price of those securities.
The effective use of options also depends on a Fund's ability to
terminate option positions
-28-
<PAGE>
at times when the Adviser or, where applicable, the Sub-Adviser deems it
desirable to do so. Although a Fund will take an option position only if its
Adviser or, where applicable, the Sub-Adviser believes there is liquid
secondary market for the option, there is no assurance that a Fund will be
able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable,
a Fund could no longer engage in closing transactions. Lack of investor
interest might adversely affect the liquidity of the market for particular
options or series of options. A marketplace may discontinue trading of a
particular option or options generally. In addition, a market could become
temporarily unavailable if unusual events such as volume in excess of trading
or clearing capability, were to interrupt normal market operations. A
marketplace may at times find it necessary to impose restrictions on
particular types of options transactions, which may limit a Fund's ability to
realize its profits or limit its losses.
Disruptions in the markets for securities underlying options
purchased or sold by a Fund could result in losses on the options. If trading
is interrupted in an underlying security, the trading of options on that
security is normally halted as well. As a result, a Fund as purchaser or
writer of an option will be unable to close out its positions until options
trading resumes, and it may be faced with losses if trading in the security
reopens at a substantially different price. In addition, the Options Clearing
Corporation (OCC) or other options markets, such as the London Options
Clearing House, may impose exercise restrictions. If a prohibition on
exercise is imposed at the time when trading in the option has also been
halted, a Fund as purchaser or writer of an option will be locked into its
position until one of the two restrictions has been lifted. If a prohibition
on exercise remains in effect until an option owned by a Fund has expired,
the Fund could lose the entire value of its option.
25. FUTURES CONTRACTS ON SECURITIES AND RELATED OPTIONS. The Equity
Funds and Fixed Income Funds may invest in futures and related options based
on any type of security or index traded on U.S. or foreign exchanges, or over
the counter as long as the underlying security or the securities represented
by the future or index are permitted investments of the Fund. Futures and
options can be combined with each other in order to adjust the risk and
return parameters of a Fund.
26. FUTURES CONTRACTS ON SECURITIES. The Equity Funds and Fixed
Income Funds will enter into futures contracts on securities only when, in
compliance with the SEC's requirements, cash or equivalents equal in value to
the securities' value (less any applicable margin deposits) have been
deposited in a segregated account of the Fund's custodian.
A futures contract sale creates an obligation by the seller to
deliver the type of instrument called for in the contract in a specified
delivery month for a stated price. A futures contract purchase creates an
obligation by the purchaser to take delivery of the type of instrument called
for in the contract in a specified delivery month at a stated price. The
specific instruments
-29-
<PAGE>
delivered or taken at settlement date are not determined until on or near
that date. The determination is made in accordance with the rules of the
exchanges on which the futures contract was made. Futures contracts are
traded in the United States only on the commodity exchange or boards of
trade, known as "contract markets," approved for such trading by the
Commodity Futures Trading Commission (CFTC), and must be executed through a
futures commission merchant or brokerage firm which is a member of the
relevant contract market.
Although futures contracts by their terms call for actual delivery
or acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a
futures contract sale is effected by purchasing a futures contract for the
same aggregate amount of the specific type of financial instrument with the
same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the
difference and realizes a gain. Similarly, the closing out of a futures
contract purchase is effected by the purchaser's entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the
purchaser realizes a gain, and if the purchase price exceeds the offsetting
sale price, the purchaser realizes a loss.
Unlike when a Fund purchases or sells a security, no price is paid
or received by the Fund upon the purchase or sale of a futures contract,
although the Fund is required to deposit with its custodian in a segregated
account in the name of the futures broker an amount of cash and/or U.S.
Government securities. This amount is known as "initial margin." The nature
of initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the Fund to finance the transactions. Rather, initial
margin is in the nature of a performance bond or good faith deposit on the
contract that is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Futures
contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the
broker (or the custodian) are made on a daily basis as the price of the
underlying security fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as "marking to
market."
A Fund may elect to close some or all of its futures positions at
any time prior to their expiration. The purpose of making such a move would
be to reduce or eliminate the hedge position then currently held by the Fund.
A Fund may close its positions by taking opposite positions which will
operate to terminate the Fund's position in the futures contracts. Final
determinations of variation margin are then made, additional cash is required
to be paid by or released to the Fund, and the Fund realizes a loss or a
gain. Such closing transactions involve additional commission costs.
27. OPTIONS ON SECURITIES' FUTURES CONTRACTS. The Equity Funds and
Fixed Income Funds will enter into written options on securities' futures
contracts only when in compliance with the
-30-
<PAGE>
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 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
-31-
<PAGE>
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 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
-32-
<PAGE>
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 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
-33-
<PAGE>
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 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
-34-
<PAGE>
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 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
-35-
<PAGE>
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.
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
-36-
<PAGE>
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.
36. GENERAL CHARACTERISTICS OF CURRENCY FUTURES CONTRACTS. When the
International Equity
-37-
<PAGE>
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
-38-
<PAGE>
firm or revised on a timely basis. Available quotation information is
generally representative of very large transactions in the interbank market,
and thus may not reflect relatively smaller transactions (less than $1
million), where rates may be less favorable. The interbank market in foreign
currencies is a global, around-the-clock market.
38. FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers
do not charge a fee for currency conversion, they do realize a profit based
on the difference (the "spread") between prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign
currency to the International Equity Fund or the Small Cap Value Fund at one
rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
39. INDEX-BASED INVESTMENTS. Index-Based Investments, such as
Standard & Poor's Depository Receipts ("SPDRs"), NASDAQ-100 Index Tracking
Stock ("NASDAQ 100s") and Dow Jones DIAMONDS ("Diamonds"), are interests in a
unit investment trust ("UIT") that may be obtained from the UIT or purchased
in the secondary market. SPDRs, NASDAQ 100s and DIAMONDS are listed on the
American Stock Exchange.
A UIT will generally issue Index-Based Investments in aggregations
of 50,000 known as "Creation Units" in exchange for a "Portfolio Deposit"
consisting of (a) a portfolio of securities substantially similar to the
component securities ("Index Securities") of the applicable index (the
"Index"), (b) a cash payment equal to a pro rata portion of the dividends
accrued on the UIT's portfolio securities since the last dividend payment by
the UIT, net of 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.
-39-
<PAGE>
40. SMALL CAP/SPECIAL EQUITY SITUATION SECURITIES. Certain Funds may
invest in the securities of small capitalization companies and companies in
special equity situations. Companies are considered to have a small market
capitalization if their capitalization is within the range of those companies
in the S&P 600 Small Cap Index. Companies are considered to be experiencing
special equity situations if they are experiencing unusual and possibly
non-repetitive developments, such as mergers; acquisitions; spin-offs;
liquidations; reorganizations; and new products, technology or management.
These companies may offer greater opportunities for capital appreciation than
larger, more established companies, but investment in such companies may
involve certain special risks. These risks may be due to the greater business
risks of small size, limited markets and financial resources, narrow product
lines and frequent lack of depth in management. The securities of such
companies are often traded in the over-the-counter market and may not be
traded in volumes typical on a national securities exchange. Thus, the
securities of such companies may be less liquid, and subject to more abrupt
or erratic market movements than securities of larger, more established
growth companies. Since a "special equity situation" may involve a
significant change from a company's past experiences, the uncertainties in
the appraisal of the future value of the company's equity securities and the
risk of a possible decline in the value of the Funds' investments are
significant.
41. HIGH YIELD SECURITIES. The Small Cap Value Fund and the 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
-40-
<PAGE>
able to sell the securities only at prices lower than if such securities were
widely traded. Furthermore, the Trust may experience difficulty in valuing
certain securities at certain times. Prices realized upon the sale of such
lower rated or unrated securities, under these circumstances, may be less
than the prices used in calculating a Fund's net asset value.
Lower rated or unrated debt obligations also present risks based on
payment expectations. If an issuer calls an obligation for redemption, a Fund
may have to replace the security with a lower yielding security, resulting in
a decreased return for investors. If a Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting
in a decline in the overall credit quality of the Fund's investment portfolio
and increasing the exposure of the Fund to the risks of high yield securities.
A Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to
seek to protect the interest of security holders if it determines this to be
in the interest of its Shareholders.
42. MONEY MARKET INSTRUMENTS. Each Fund, subject to its own
investment limitations, may invest in money market instruments which are
short-term, debt instruments or deposits and may include, for example, (i)
commercial paper rated within the highest rating category by a NRSRO at the
time of investment, or, if not rated, determined by the Adviser to be of
comparable quality; (ii) obligations (certificates of deposit, time deposits,
bank master notes, and bankers' acceptances) of thrift institutions, savings
and loans, U.S. commercial banks (including foreign branches of such banks),
and U.S. and foreign branches of foreign banks, provided that such
institutions (or, in the case of a branch, the parent institution) have total
assets of $1 billion or more as shown on their last published financial
statements at the time of investment; (iii) short-term corporate obligations
rated within the three highest rating categories by a NRSRO (e.g., at least A
by S&P or A by Moody's) at the time of investment, or, if not rated,
determined by the Adviser to be of comparable quality; (iv) general
obligations issued by the U.S. Government and backed by its full faith and
credit, and obligations issued or guaranteed as to principal and interest by
agencies or instrumentalities of the U.S. Government (e.g., obligations
issued by Farmers Home Administration, Government National Mortgage
Association, Federal Farm Credit Bank and Federal Housing Administration);
(v) receipts, including TRs, TIGRs and CATS; (vi) repurchase agreements
involving such obligations; (vii) money market funds and (viii) foreign
commercial paper. Certain of the obligations in which a Fund may invest may
be variable or floating rate instruments, may involve conditional or
unconditional demand features and may include variable amount master demand
notes.
43. TREASURY RECEIPTS. Consistent with its investment objective,
policies and restrictions, each Fund may invest in Treasury receipts.
Treasury receipts are interests in separately traded interest and principal
component parts of U.S. Treasury obligations that are issued by banks and
brokerage firms and are created by depositing Treasury notes and Treasury
bonds into a special account at a custodian bank. The custodian holds the
interest and principal payments for the benefit of the registered owners of
the certificates of such receipts. The custodian arranges for the issuance of
the certificates or receipts evidencing ownership and maintains the register.
Receipts include "Treasury Receipts" ("TR's"), "Treasury Investment Growth
Receipts" ("TIGR's"), and "Certificates of Accrual on Treasury Securities"
("CATS"). TR's, TIGR's and CATS are sold as zero coupon securities, which
means that they are sold at a substantial discount and redeemed at face value
at their maturity date without interim cash payments of interest or
principal. This discount is accrued over the life of the security, and such
accretion will constitute the income earned on the security for both
accounting and tax purposes. Because of these features, such securities may
be subject to greater interest rate volatility than interest-paying
securities.
44. HIGH QUALITY INVESTMENTS WITH REGARD TO THE MONEY MARKET FUNDS.
As noted in the Prospectuses for the Money Market Funds, each such Fund may
invest only in obligations determined by the Adviser to present minimal
credit risks under guidelines adopted by HighMark Funds' Board of Trustees.
With regard to the Diversified Money Market Fund and the California
Tax-Free Money Market Fund, investments will be limited to "Eligible
Securities." Eligible Securities include First Tier Securities and Second
Tier Securities. First Tier Securities include those that possess at least
one rating in the highest category and, if the securities do not possess a
rating, those that are determined to be of comparable quality by the Adviser
pursuant to guidelines adopted by the Board of Trustees. Second Tier
Securities are all other Eligible Securities.
A security subject to a tender or demand feature will be considered
an Eligible Security only if both the demand feature and the underlying
security possess a high quality rating or, if such do not possess a rating,
are determined by the Adviser to be of comparable quality; provided, however,
that where the demand feature would be readily exercisable in the event of a
default in payment of principal or interest on the underlying security, the
obligation may be acquired based on the rating possessed by the demand
feature or, if the demand feature does not possess a rating, a determination
of comparable quality by the Adviser. In applying the above-described
investment policies, a security that has not received a short-term rating
will be deemed to possess the rating assigned to an outstanding class of the
issuer's short-term debt obligations if determined by the Adviser to be
comparable in priority and security to the obligation selected for purchase
by the Fund, or, if not available, the issuer's long-term obligations, but
only in accordance with the requirements of Rule 2a-7. A security that at the
time of issuance had a maturity exceeding 397 days but, at the time of
purchase, has a remaining maturity of 397 days or less, is considered an
Eligible Security if it possesses a long-term rating, within the two highest
rating categories.
Certain of the obligations in which the Funds may invest may be
variable or floating rate instruments, may involve a conditional or
unconditional demand feature, and may include variable amount master demand
notes.
In the case of the Diversified Money Market Fund, Eligible
Securities include those obligations that, at the time of purchase, possess
the highest short-term rating from at least one NRSRO (the Diversified Money
Market Fund may also invest up to 5% of its net assets in obligations that,
at the time of purchase, possess one of the two highest short-term ratings
from at least one NRSRO, and in obligations that do not possess a short-term
rating (i.e., are unrated) but are determined by the Adviser to be of
comparable quality to the rated instruments eligible for purchase by the Fund
under guidelines adopted by the Board of Trustees). In the case of the
California Tax-Free Money Market Fund, Eligible Securities include those
obligations that, at the time of purchase, possess one of the two highest
short-term ratings by at least one NRSRO or do not possess a short-term
rating (i.e., are unrated) but are determined by the Adviser to be of
comparable quality to the rated obligations eligible for purchase by the Fund
under guidelines adopted by the Board of Trustees.
Specific obligations that the Diversified Money Market Fund may
invest in include:
(i) obligations issued by the U.S. Government, and backed by its
full faith and credit, and obligations issued or guaranteed as
to principal and interest by the agencies or instrumentalities
of the U.S. Government (e.g., obligations issued by Farmers
Home Administration, Government National Mortgage Association,
Federal Farm Credit Bank and Federal Housing Administration);
(ii) obligations such as bankers' acceptances, bank notes,
certificates of deposit and time deposits of thrift
institutions, savings and loans, U.S. commercial banks
(including foreign branches of such banks), and U.S. and
foreign branches of foreign banks, provided that such
institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown
on their last published financial statements at the time of
investment;
(iii) short-term promissory notes issued by corporations, including
Canadian Commercial Paper ("CCP"), which is U.S.
dollar-denominated commercial paper issued by a Canadian
corporation or a Canadian counterpart of a U.S. corporation,
and Europaper, which is U.S. dollar-denominated commercial
paper of a foreign issuer;
(iv) U.S. dollar-denominated securities issued or guaranteed by
foreign governments, their political subdivisions, agencies or
instrumentalities, and obligations of supranational entities
such as the World Bank and the Asian Development Bank
(provided that the Fund invests no more than 5% of its assets
in any such instrument and invests no more than 25% of its
assets in such instruments in the aggregate);
(v) readily-marketable, short-term asset-backed debt securities,
repayment on which is obtained from an identifiable pool of
assets, typically receivables related to a particular
industry, such as credit card receivables, automobile loan or
lease related receivables, trade receivables or diversified
financial assets (provided that the Fund invests no more than
25% of its assets in any such industry and invests no more
than 35% of its assets in such instruments in the aggregate);
(vi) Treasury receipts, including TRs, TIGRs and CATs; and
(vii) repurchase agreements involving such obligations.
The Diversified Money Market Fund will not invest more than 5% of
its total assets in the First Tier Securities of any one issuer, except that
the Fund may invest up to 25% of its total assets in First Tier Securities of
a single issuer for a period of up to three business days. (This three day
"safe harbor" provision will not be applicable to the California Tax-Free
Money Market Fund, because single state funds are specifically excluded from
this Rule 2a-7 provision.) In addition, the Diversified Money Market Fund may
not invest more than 5% of its total assets in Second Tier Securities, with
investments in the Second Tier Securities of any one issuer further limited
to the greater of 1% of the Fund's total assets or $1.0 million. If a
percentage limitation is satisfied at the time of purchase, a later increase
in such percentage resulting from a change in the Diversified Money Market
Fund's net asset value or a subsequent change in a security's qualification
as a First Tier or Second Tier Security will not constitute a violation of
the limitation. In addition, there is no limit on the percentage of the
Diversified Money Market Fund's assets that may be invested in obligations
issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities and repurchase agreements fully collateralized by such
obligations.
Under the guidelines adopted by HighMark Funds' Board of Trustees,
in accordance with Rule 2a-7 under the Investment Company Act of 1940 (the
"1940 Act"), when in the best interests of the Shareholders, the Adviser may
be required to promptly take appropriate action with respect to an obligation
held in a Fund's portfolio in the event of certain developments that indicate
a diminishment of the instrument's credit quality, such as where an NRSRO
downgrades an obligation below the second highest rating category, or in the
event of a default relating to the financial condition of the issuer.
The Appendix to this Statement of Additional Information identifies
each NRSRO that may be utilized by the Adviser with regard to portfolio
investments for the Funds and provides a description of relevant ratings
assigned by each such NRSRO. A rating by a NRSRO may be utilized only where
the NRSRO is neither controlling, controlled by, or under common control with
the issuer of, or any issuer, guarantor, or provider of credit support for,
the instrument.
45. ILLIQUID SECURITIES. Each Fund has adopted a non-fundamental
policy (which may be changed without shareholder approval) prohibiting the
Fund from investing more than 15% (in the case of each of the Money Market
Funds, not more than 10%) of its total assets in "illiquid" securities, which
include securities with legal or contractual restrictions on resale or for
which no readily available market exists but exclude such securities if
resalable pursuant to Rule 144A under the Securities Act ("Rule 144A
Securities"). Pursuant to this policy, the Funds may purchase Rule 144A
Securities only in accordance with liquidity guidelines established by the
Board of Trustees of HighMark Funds and only if the investment would be
permitted under applicable state securities laws.
46. RESTRICTED SECURITIES. Each Fund has adopted a nonfundamental
policy (which may be changed without Shareholder approval) permitting the
Fund to invest in restricted securities provided the Fund complies with the
illiquid securities policy described above. Restricted securities are
securities that may not be sold to the public without registration under the
Securities Act of 1933 ("1933 Act") and may be either liquid or illiquid. The
Adviser will determine the liquidity of restricted securities in accordance
with guidelines established by HighMark Funds' Board of Trustees. Restricted
securities purchased by the Funds may include Rule 144A securities and
commercial paper issued in reliance upon the "private placement" exemption
from registration under Section 4(2) of the 1933 Act (whether or not such
paper is a Rule 144A security).
INVESTMENT RESTRICTIONS
Unless otherwise indicated, the following investment restrictions
are fundamental and, as such, may be changed with respect to a particular
Fund only by a vote of a majority of the outstanding Shares of that Fund (as
defined below). Except with respect to a Fund's restriction governing the
borrowing of money, if a percentage restriction is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in asset value will not constitute a violation of the restriction.
100% U.S. Treasury Money Market Fund
The 100% U.S. Treasury Money Market Fund may not purchase securities
other than short-term obligations issued or guaranteed as to payment of
principal and interest by the full faith and credit of the U.S.
Treasury.
Each of the Growth Fund, the Income Equity Fund, the Balanced Fund, the Bond
Fund, the Diversified Money Market Fund, the U.S. Government Money Market Fund,
and the 100% U.S. Treasury Money Market Fund may not:
1. Purchase securities on margin (except that, with respect to
the Growth Fund, the Income Equity Fund, the Balanced Fund and the Bond
Fund only, such Funds may make margin payments in connection with
transactions in options and financial and currency futures contracts),
sell securities short, participate on a joint or joint and several
basis in any securities trading account, or underwrite the securities
of other issuers, except to the extent that a Fund may be deemed to be
an underwriter under certain securities laws in the disposition of
"restricted securities" acquired in accordance with the investment
objectives and policies of such Fund;
2. Purchase or sell commodities, commodity contracts
(excluding, with respect to the Growth Fund, the Income Equity Fund,
the Balanced Fund, and the Bond Fund, options and financial and
currency futures contracts), oil, gas or mineral exploration leases or
development programs, or real estate (although investments by the
Growth Fund, the Income Equity Fund, the Balanced Fund, the Bond Fund,
and the Diversified Money Market Fund in marketable securities of
companies engaged in such activities and investments by the Growth
Fund, the Income Equity Fund, the Balanced Fund, and the Bond Fund in
securities secured by real estate or interests therein, are not hereby
precluded to the extent the investment is appropriate to such Fund's
investment objective and policies);
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;
<PAGE>
5. Borrow money or issue senior securities, except that a Fund
may borrow from banks or enter into reverse repurchase agreements for
temporary emergency purposes in amounts up to 10% of the value of its
total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with permissible
borrowings and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Fund's total assets at the
time of its borrowing. A Fund will not invest in additional securities
until all its borrowings (including reverse repurchase agreements) have
been repaid. For purposes of this restriction, the deposit of
securities and other collateral arrangements with respect to options
and financial and currency futures contracts, and payments of initial
and variation margin in connection therewith, are not considered a
pledge of a Fund's assets; and
THE DIVERSIFIED MONEY MARKET FUND, THE U.S. GOVERNMENT MONEY MARKET FUND AND
THE 100% U.S. TREASURY MONEY MARKET FUND MAY NOT:
1. Buy common stocks or voting securities, or state,
municipal or private activity bonds;
2. Write or purchase put or call options; or
3. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies,
or instrumentalities, if, immediately after the purchase, more than 5%
of the value of the Fund's total assets would be invested in such
issuer (except that up to 25% of the value of the Fund's total assets
may be invested without regard to the 5% limitation). (As indicated
below, the Funds have adopted a non-fundamental investment policy that
is more restrictive than this fundamental investment limitation);
4. Purchase any securities that would cause more than 25% of
the value of the Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their
principal business activities in the same industry, provided that (a)
there is no limitation with respect to obligations issued or guaranteed
by the U.S. Government, its agencies, or instrumentalities, domestic
bank certificates of deposit or bankers' acceptances, and repurchase
agreements secured by bank instruments or obligations of the U.S.
Government, its agencies, or instrumentalities; (b) wholly owned
finance companies will be considered to be in the industries of their
parents if their activities are primarily related to financing the
activities of their parents; and (c) utilities will be divided
according to their services (for example, gas, gas transmission,
electric and gas, electric and telephone will each be considered a
separate industry).
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.
-41-
<PAGE>
The Diversified Money Market Fund, the U.S. Government Money
Market Fund, and the 100% U.S. Treasury Money Market Fund have each
adopted, in accordance with Rule 2a-7, a non-fundamental policy
providing that the 5% limit noted in limitation (3) above shall apply
to 100% of each Fund's assets. Notwithstanding, each such Fund may
invest up to 25% of its assets in First Tier qualified securities of a
single issuer for up to three business days.
EACH OF THE EQUITY AND FIXED INCOME FUNDS, OTHER THAN THE CALIFORNIA
INTERMEDIATE TAX-FREE BOND FUND, MAY NOT:
1. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies,
or instrumentalities, (and, with respect to the International Equity
Fund only, repurchase agreements involving such securities) if,
immediately after the purchase, more than 5% of the value of such
Fund's total assets would be invested in the issuer or the Fund would
hold more than 10% of any class of securities of the issuer or more
than 10% of the issuer's outstanding voting securities (except that up
to 25% of the value of the Fund's total assets may be invested without
regard to these limitations). With respect to the International Equity
Fund, for purposes of this investment limitation, each foreign
governmental issuer is deemed a separate issuer;
2. Purchase any securities that would cause more than 25% of
such Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
or foreign governments or their agencies or instrumentalities and
repurchase agreements secured by obligations of the U.S. Government or
its agencies or instrumentalities; (b) wholly owned finance companies
will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents; and (c) utilities will be divided according to their services
(for example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry); and
3. Make loans, except that a Fund may purchase or hold debt
instruments, lend portfolio securities, and enter into repurchase
agreements in accordance with its investment objective and policies.
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;
-42-
<PAGE>
2. Purchase any securities which would cause more than 25% of
the total assets of the Fund to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry, provided that this limitation does not apply to investments
in the obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities and repurchase agreements involving such
securities, and provided further, that utilities as a group will not be
considered to be one industry, and wholly-owned subsidiaries organized
to finance the operations of their parent companies will be considered
to be in the same industries as their parent companies; and
3. Make loans, except that the Fund may (a) purchase or hold
debt instruments in accordance with its investment objective and
policies; (b) enter into repurchase agreements; and (c) lend
securities.
THE CALIFORNIA TAX-FREE MONEY MARKET FUND MAY NOT:
1. Purchase or sell real estate; provided, however, that the
Fund may, to the extent appropriate to its investment objective,
purchase Municipal Securities secured by real estate or interests
therein or securities issued by companies investing in real estate or
interests therein;
2. Purchase securities on margin, make short sales of
securities or maintain a short position;
3. Underwrite the securities of other issuers;
4. Purchase securities of companies for the purpose of
exercising control or management;
5. Purchase or sell commodities or commodity contracts, or
invest in oil, gas or mineral exploration leases or development
programs; provided, however, the Fund may, to the extent appropriate to
the Fund's investment objective, purchase publicly traded obligations
of companies engaging in whole or in part in such activities;
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;
-43-
<PAGE>
7. Write or sell puts, calls, straddles, spreads, or
combinations thereof, except that the Fund may acquire puts with
respect to Municipal Securities in its portfolio and sell the puts in
conjunction with a sale of the underlying Municipal Securities;
8. Acquire a put, if, immediately after the acquisition, more
than 5% of the total amortized cost value of the Fund's assets would be
subject to puts from the same institution (except that (i) up to 25% of
the value of the Fund's total assets may be subject to puts without
regard to the 5% limitation and (ii) the 5% limitation is inapplicable
to puts that, by their terms, would be readily exercisable in the event
of a default in payment of principal or interest on the underlying
securities). In applying the above-described limitation, the Fund will
aggregate securities subject to puts from any one institution with the
Fund's investments, if any, in securities issued or guaranteed by that
institution. In addition, for the purpose of this investment
restriction and investment restriction No. 10 below, a put will be
considered to be from the party to whom the Fund will look for payment
of the exercise price;
9. Acquire a put that, by its terms, would be readily
exercisable in the event of a default in payment of principal and
interest on the underlying security or securities if, immediately after
the acquisition, the amortized cost value of the security or securities
underlying the put, when aggregated with the amortized cost value of
any other securities issued or guaranteed by the issuer of the put,
would exceed 10% of the total amortized cost value of the Fund's
assets; and
10. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government, its agencies,
or instrumentalities, if, immediately after the purchase, more than 5%
of the value of its total assets would be invested in such issuer
(except that up to 25% of the value of the Fund's total assets may be
invested without regard to the 5% limitation). For purposes of this
investment restriction, a security is considered to be issued by the
government entity (or entities) whose assets and revenues back the
security or, with respect to be private activity bond that is backed
only by the assets and revenues of non-governmental user, by the
non-governmental user;
11. Purchase any securities that would cause 25% or more of
such Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers 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.
-44-
<PAGE>
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.
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.
-45-
<PAGE>
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.
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
-46-
<PAGE>
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.
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.
-47-
<PAGE>
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:
Fund 2000 1999
---- ---- ----
Balanced Fund 25% 34%
Core Equity Fund 3% N/A
Growth Fund 67% 52%
Income Equity Fund 97% 71%
International Equity Fund 49% 87%
Small Cap Value Fund 57% 74%
Value Momentum Fund 3% 9%
Bond Fund 27% 39%
California Intermediate Tax-Free Bond Fund 10% 11%
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
-48-
<PAGE>
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 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
-49-
<PAGE>
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.
Although HighMark Funds' policy is normally to pay redemptions in cash,
HighMark Funds reserves the right to provide for redemptions in whole or in part
by a distribution in-kind of securities held by the 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.
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
-50-
<PAGE>
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 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.
-51-
<PAGE>
SALES CHARGES
FRONT-END SALES CHARGES. The commissions shown in the Prospectuses and
below 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.
-52-
<PAGE>
Equity Funds
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
0 - $49,999 5.50% 5.82% 4.95%
$50,000 -- $99,999 4.50% 4.71% 4.05%
$100,000 -- $249,999 3.75% 3.90% 3.38%
$250,000 -- $499,999 2.50% 2.56% 2.25%
$500,000 -- $999,999 2.00% 2.04% 1.80%
$1,000,000 and Over* 0.00% 0.00% 0.00%
-----------
* 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
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
0 - $99,999 3.25% 3.36% 2.93%
$100,000 -- $249,999 2.75% 2.83% 2.48%
$250,000 -- $499,999 2.25% 2.30% 2.03%
$500,000 -- $999,999 1.75% 1.78% 1.58%
$1,000,000 and Over* 0.00% 0.00% 0.00%
-----------
* A contingent deferred sales charge of 0.50% will be assessed against
any proceeds of any redemption of such Retail Shares prior to one year
from date of purchase.
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
-53-
<PAGE>
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.
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
-54-
<PAGE>
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:
EQUITY FUNDS
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
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%
* 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
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
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%
-55-
<PAGE>
$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%
* 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
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
-56-
<PAGE>
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.
-57-
<PAGE>
If a Fund engages in hedging transactions, including hedging
transactions in options, futures contracts, and straddles, or other similar
transactions, it will be subject to special tax rules (including constructive
sales, mark-to-market, straddle, wash sale, and short sale rules), the effect
of which may be to accelerate income to the Fund, defer losses to the Fund,
cause adjustments in the holding periods of the Fund's securities, or convert
short-term capital losses into long-term capital losses. These rules could
therefore affect the amount, timing and character of distributions to
shareholders.
Certain of a Fund's hedging activities (including its transactions,
if any, in foreign currencies or foreign currency-denominated instruments)
are likely to produce a difference between its book income and its taxable
income. If a Fund's book income exceeds its taxable income, the distribution
(if any) of such excess will be treated as (i) a dividend to the extent of
the Fund's remaining earnings and profits (including earnings and profits
arising from tax-exempt income), (ii) thereafter as a return of capital to
the extent of the recipient's basis in the shares, and (iii) thereafter as
gain from the sale or exchange of a capital asset. If the Fund's book income
is less than its taxable income, the Fund could be required to make
distributions exceeding book income to qualify as a regulated investment
company that is accorded special tax treatment.
If a Fund makes a distribution in excess of its current and
accumulated "earnings and profits" in any taxable year, the excess
distribution will be treated as a return of capital to the extent of a
Shareholder's tax basis in Fund shares, and thereafter as capital gain. A
return of capital is not taxable, but it reduces the Shareholder's tax basis
in the shares, thus reducing any loss or increasing any gain on a subsequent
taxable disposition of those shares.
A Fund's investment in securities issued at a discount and certain
other obligations will (and investments in securities purchased at a discount
may) require the Fund to accrue and distribute income not yet received. In
order to generate sufficient cash to make the requisite distributions, a Fund
may be required to sell securities in its portfolio that it otherwise would
have continued to hold.
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
-58-
<PAGE>
consult their tax advisers with specific reference to their own tax
situation. Foreign Shareholders should consult their tax advisers regarding
the U.S. and foreign tax consequences of an investment in the Funds. In
addition, this discussion is based on tax laws and regulations that are in
effect on the date of this Statement of Additional Information; such laws and
regulations may be changed by legislative, judicial or administrative action,
and such changes may be retroactive.
ADDITIONAL TAX INFORMATION CONCERNING THE CALIFORNIA TAX-FREE MONEY
MARKET FUND AND THE CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
FEDERAL TAXATION. As indicated in their respective Prospectuses, the
California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund are designed to provide individual Shareholders with
current tax-exempt interest income. Neither of these Funds is intended to
constitute a balanced investment program or is designed for investors seeking
capital appreciation. Nor are the California Tax-Free Money Market Fund or
the California Intermediate Tax-Free Bond Fund designed for investors seeking
maximum tax-exempt income irrespective of fluctuations in principal. Shares
of the Funds may not be suitable for tax-exempt institutions, retirement
plans qualified under Section 401 of the Code, H.R. 10 plans, and individual
retirement accounts because such institutions, plans and accounts are
generally tax-exempt and, therefore, would not gain any additional benefit
from the Funds' dividends being tax-exempt, and such dividends would
ultimately be taxable to the plan and account beneficiaries when distributed
to them.
The Code permits a regulated investment company that invests at
least 50% of its total assets in tax-free Municipal Securities (at the close
of each quarter of the Fund's taxable year) to pass through to its investors,
tax-free, net Municipal Securities interest income to the extent such
interest would be exempt if earned directly. Because the California Tax-Free
Money Market Fund and the California Intermediate Tax-Free Bond Fund intend
to be qualified to pay such exempt-interest dividends, these Funds will be
limited in their ability to enter into taxable transactions, such as forward
commitments, repurchase agreements, securities lending transactions,
financial futures and options contracts on financial futures, tax-exempt bond
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
-59-
<PAGE>
her tax adviser with respect to whether exempt-interest dividends would
remain excludable if such Shareholder were treated as a "substantial user" or
a "related person" to such user with respect to facilities financed through
any of the tax-exempt obligations held by the California Tax-Free Money
Market Fund and the California Intermediate Tax-Free Bond Fund. In addition,
exempt-interest dividends may be taxable for federal alternative minimum tax
purposes and for state and local purposes.
The California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund will distribute substantially all of any
investment company taxable income for each taxable year. In general, a Fund's
investment company taxable income will be its taxable income subject to
certain adjustments and excluding the excess of any net long-term capital
gains for the taxable year over the net short-term capital loss, if any, for
such year. Distributions of such income will be taxable to Shareholders as
ordinary income. The dividends-received deduction for corporations is not
expected to apply to such distributions.
Distributions designated by the California Tax-Free Money Market
Fund and the California Intermediate Tax-Free Bond Fund as deriving from net
gains on securities held for more than one year will be taxable to a Fund
Shareholder as such, regardless of how long a time the Shareholder held the
Fund's Shares. Such distributions will not be eligible for the
dividends-received deduction. If a Shareholder disposes of Shares in a Fund
at a loss before holding such Shares for longer than six months, such loss
will be disallowed to the extent of any exempt-interest dividends paid
thereon, and any remaining loss will be treated as a long-term capital loss
to the extent the Shareholder has received a capital gain dividend on the
Shares.
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
-60-
<PAGE>
afforded regulated investment companies, all of such Fund's taxable income
will be subject to tax at regular corporate rates (without any deduction for
distributions to Shareholders), and Municipal Securities interest income,
although not taxable to the California Tax-Free Money Market Fund or the
California Intermediate Tax-Free Bond Fund, would be taxable to Shareholders
as ordinary income when distributed as dividends.
Depending upon the extent of its activities in states and localities
in which its offices are maintained, in which its agents or independent
contractors are located or in which it is otherwise deemed to be conducting
business, the California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund may be subject to the tax laws of such states
or localities. For a summary of certain California tax considerations
affecting the California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund, see "California Taxation" below.
As indicated in their Prospectuses, the California Tax-Free Money
Market Fund and the California Intermediate Tax-Free Bond Fund may acquire
rights regarding specified portfolio securities under puts. See "INVESTMENT
OBJECTIVES AND POLICIES Additional Information on Portfolio Instruments -
Puts" in this Statement of Additional Information. The policy of each Fund is
to limit its acquisition of puts to those under which the Fund will be
treated for Federal income tax purposes as the owner of the Municipal
Securities acquired subject to the put and the interest on such Municipal
Securities will be tax-exempt to the Fund. There is currently no guidance
available from the Internal Revenue Service that definitively establishes the
tax consequences that may result from the acquisition of many of the types of
puts that the California Tax-Free Money Market Fund or the California
Intermediate Tax-Free Bond Fund could acquire under the 1940 Act. Therefore,
although they will only acquire a put after concluding that it will have the
tax consequences described above, the Internal Revenue Service could reach a
different conclusion from that of the relevant Fund.
CALIFORNIA TAXATION. Under existing California law, if the
California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund continue to qualify for the special federal income tax
treatment afforded regulated investment companies and if at the end of each
quarter of each such Fund's taxable year at least 50% of the value of that
Fund's assets consists of obligations that, if held by an individual, would
pay interest exempt from California taxation ("California Exempt-Interest
Securities"), Shareholders of that Fund will be able to exclude from income,
for California personal income tax purposes, "California exempt-interest
dividends" received from that Fund during that taxable year. A "California
exempt-interest dividend" is any dividend or portion thereof of the
California Tax-Free Money Market Fund or the California Intermediate Tax-Free
Bond Fund not exceeding the interest received by the Fund during the taxable
year on California Exempt-Interest Securities (less direct and allocated
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
-61-
<PAGE>
residents will be subject to California personal income taxation. Gains
realized by California residents from a redemption or sale of Shares of the
California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund will also be subject to California personal income
taxation. In general, California nonresidents, other than certain dealers,
will not be subject to California personal income taxation on distributions
by, or on gains from the redemption or sale of, Shares of the California
Tax-Free Money Market Fund and the California Intermediate Tax-Free Bond Fund
unless those Shares have acquired a California "business situs." (Such
California nonresidents may, however, be subject to other state or local
income taxes on such distributions or gains, depending on their residence.)
Short-term capital losses realized by shareholders from a redemption of
shares of the California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund within six months from the date of their
purchase will not be allowed for California personal income tax purposes to
the extent of any tax-exempt dividends received with respect to such Shares
during such period. No deduction will be allowed for California personal
income tax purposes for interest on indebtedness incurred or continued in
order to purchase or carry Shares of the California Tax-Free Money Market
Fund and the California Intermediate Tax-Free Bond Fund for any taxable year
of a Shareholder during which the Fund distributes "California
exempt-interest dividends."
A statement setting forth the amount of "California exempt-interest
dividends" distributed during each calendar year will be sent to Shareholders
annually.
The foregoing is only a summary of some of the important California
personal income tax considerations generally affecting the Shareholders of
the California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund. This summary does not describe the California tax
treatment of the California Tax-Free Money Market Fund and the California
Intermediate Tax-Free Bond Fund. In addition, no attempt has been made to
present a detailed explanation of the California personal income tax
treatment of the Fund's Shareholders. Accordingly, this discussion is not
intended as a substitute for careful planning. Further, "California
exempt-interest dividends" are excludable from income for California personal
income tax purposes only. Any dividends paid to Shareholders subject to
California corporate franchise tax will be taxed as ordinary dividends to
such Shareholders, notwithstanding that all or a portion of such dividends is
exempt from California personal income tax. Accordingly, potential investors
in the California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund including, in particular, corporate investors which may be
subject to either California franchise tax or California corporate income
tax, should consult their tax advisers with respect to the application of
such taxes to the receipt of Fund dividends and as to their own California
tax situation, in general.
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
-62-
<PAGE>
respect to investments by foreign investors. If at the end of a Fund's fiscal
year more than 50% of the value of its total assets represents securities of
foreign corporations, the Fund will be eligible to make an election permitted
by the Code to treat any foreign taxes paid by it on securities it has held
for at least the minimum period specified in the Code as having been paid
directly by the Fund's Shareholders in connection with the Fund's dividends
received by them. In this case, Shareholders generally will be required to
include in U.S. taxable income their pro rata share of such taxes, and those
Shareholders who are U.S. citizens, U.S. corporations and, in some cases,
U.S. residents will be entitled to deduct their share of such taxes.
Alternatively, such Shareholders who hold Fund Shares (without protection
from risk of loss) on the ex-dividend date and for at least 15 other days
during the 30-day period surrounding the ex-dividend date will be entitled to
claim a foreign tax credit for their share of these taxes. If a Fund makes
the election, it will report annually to its Shareholders the respective
amounts per share of the Fund's income from sources within, and taxes paid
to, foreign countries and U.S. possessions.
MANAGEMENT OF HIGHMARK FUNDS
TRUSTEES AND OFFICERS
Overall responsibility for management of each Fund rests with the
Trustees of HighMark Funds, who are elected by HighMark Funds' Shareholders.
There are currently six Trustees, all of whom are not "interested persons" of
HighMark Funds within the meaning of that term under the 1940 Act.
The Trustees, in turn, elect the officers of HighMark Funds to
supervise actively its day-to-day operations.
The Trustees and officers of HighMark Funds, their addresses and
principal occupations during the past five years are set forth below.
<TABLE>
<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
</TABLE>
-63-
<PAGE>
<TABLE>
<S> <C> <C>
1 Freedom Valley Dr. Senior Vice President and Chief
Oaks, PA 19456 Financial Officer, Delta Dental Plan of
Date of Birth: 8/2/35 California.
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. since 1998. From 1991 to 1997,
Oaks, PA 19456 Member of the Board of Trustees of
Date of Birth: 4/5/41 Stepstone Funds. Prior to retirement
in December 1994, Senior Vice President and
Chief Financial Officer, Southern California
Edison Company; Director of Amervest Company,
and SCAN Health Plan; Chairman of the Board of
Directors of Current Income Shares, Inc. From
April 1997 to December 1998, Member of HighMark
Funds Advisory Board.
Robert M. Whitler Trustee, Vice Chairman Director, Current Income Shares, Inc.
1 Freedom Valley Dr. From April 1997 to December 1998,
Oaks, PA 19456 Member of HighMark Funds Advisory
Date of Birth: 9/11/38 Board. Prior to retirement in 1996,
Executive Vice President and head of
Union Bank's Trust Group.
Mark E. Nagle President and Chief Vice President and Controller, Funds
530 East Swedesford Road Executive Officer Account, Vice President of the
Wayne, PA 19087 Administrator and Distributor,
Date of Birth: 10/20/59 employee since November 1996.
From 1995 to 1996, Vice President of
Fund Accounting of BISYS Fund
Services. Prior to 1995, Senior Vice
President for Fidelity Investments
since 1981.
</TABLE>
-64-
<PAGE>
<TABLE>
<S> <C> <C>
Robert DellaCroce Controller and Chief Financial CPA, Director of Fund Resources,
530 East Swedesford Road Financial Officer employee since 1994. Prior to 1994,
Wayne, PA 19087 senior manager for Arthur Andersen.
Date of Birth: 12/17/63
Todd Cipperman Vice President and Assistant Vice President and General Counsel of
1 Freedom Valley Drive Assistant Secretary of the Administrator and Distributor
Oaks, PA 19456 since January 2000. Vice President
Date of Birth: 2/14/66 and Assistant Secretary of the Administrator
and Distributor since 1995. From 1994 to
May 1995, associate with Dewey Ballantine.
Prior to 1994, associate with Winston & Strawn.
Lydia A. Gavalis Vice President and Vice President and Assistant
1 Freedom Valley Drive Assistant Secretary Secretary of the Administrator and
Oaks, PA 19456 Distributor since 1998. Prior to 1998,
Date of Birth: 10/30/48 Assistant 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 Assistant Secretary Secretary of the Administrator and the
Oaks, PA 19456 Distributor since 1998. In 1998,
Date of Birth: 6/30/64 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
1 Freedom Valley Drive Assistant Secretary Secretary of the Administrator and
Oaks, PA 19456 Distributor since November 1999.
Date of Birth: 3/28/68 From 1997 to November 1999,
Associate, Dechert Price & Rhoads.
Prior to 1997, Associate, Richter,
Miller & Finn.
</TABLE>
-65-
<PAGE>
<TABLE>
<S> <C> <C>
Christine M. McCullough Vice President and Secretary Vice President and Assistant Secretary
1 Freedom Valley Drive Secretary Secretary of the Administrator and
Oaks, PA 19456 Distributor since November 1999.
Date of Birth: 12/5/60 Prior to 1999, Associate, White &
Williams LLP.
William E. Zitelli, Jr. Vice President and Vice President and Assistant
1 Freedom Valley Drive Assistant Secretary Secretary of the Administrator and
Oaks, PA 19456 Distributor since September 2000.
Date of Birth: 6/14/68 From 1998 to 2000, Vice 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>
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, 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 $121,500. 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 $19,500 None None $19,500
David A. Goldfarb 20,500 None None 20,500
Joseph C. Jaeger 11,000 None None 11,000
Frederick J. Long 18,750 None None 18,750
</TABLE>
-66-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Michael L. Noel 18,750 None None 18,750
Robert M. Whitler 18,750 None None 18,750
William R. Howell* 8,500 None None 8,500
Paul L. Smith* 5,750 None None 5,750
</TABLE>
*Members of Advisory Board. Mr. Howell and Mr. Smith each retired from the
Fund's Advisory Board effective December 8, 1999.
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.
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
-67-
<PAGE>
Investment Advisory Agreement terminates automatically in the event of any
assignment, as defined in the 1940 Act.
Depending on the size of the Fund, fees payable under the Investment
Advisory Agreement may be higher than the advisory fee paid by most mutual
funds, although the Board of Trustees believes it will be comparable to
advisory fees paid by many funds having similar objectives and policies. The
Adviser may from time to time agree to voluntarily reduce its advisory fee,
however, it is not currently doing so for each Fund. While there can be no
assurance that the Adviser will choose to make such an agreement, any
voluntary reductions in the Adviser's advisory fee will lower the Fund's
expenses, and thus increase the Fund's yield and total return, during the
period such voluntary reductions are in effect.
The Investment Advisory Agreement provides that the Adviser will not
be liable for any error of judgment or mistake of law or for any loss
suffered by HighMark Funds in connection with the Adviser's services under
the Investment Advisory Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith, or gross negligence on
the part of the Adviser in the performance of its duties, or from reckless
disregard by the Adviser of its duties and obligations thereunder.
On April 1, 1996, The Bank of California, N.A., HighMark Funds'
then-investment adviser, combined with Union Bank and the resulting bank
changed its name to Union Bank of California, N.A. At the same time, the
banks' investment management divisions were combined. Each of The Bank of
California and Union Bank (or its predecessor bank) has been in banking since
the early 1900's, and historically, each has had significant investment
functions within its trust and investment division. Union Bank of California,
N.A. is a subsidiary of UnionBanCal Corporation, a publicly traded
corporation, a majority of the shares of which are owned by The Bank of Tokyo
- Mitsubishi, Ltd.
For the services provided and expenses assumed by the Adviser
pursuant to the Investment Advisory Agreement, Union Bank of California is
entitled to receive fees from each Fund as described in that Fund's
Prospectus.
-68-
<PAGE>
For the fiscal years ended July 31, 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 $2,629,148 N/A $2,751,956 N/A $2,602,642 N/A
Core Equity Fund 13,988 N/A
Growth Fund 4,824,757 N/A 3,746,604 $162,470 2,265,301 N/A
Income Equity Fund 3,042,990 $9,869 3,971,713 N/A 2,825,963 N/A
International Equity Fund 1,126,671 N/A 903,234 N/A 629,025 N/A
Small Cap Value Fund 1,121,508 N/A 638,000 N/A N/A N/A
Value Momentum Fund 4,990,873 N/A 5,115,840 82,551 3,952,110 N/A
Bond Fund 1,635,743 N/A 1,434,828 N/A 593,291 N/A
California Intermediate Tax-Free Bond Fund 831,955 499,173 340,650 510,975 87,732 $245,284
100% U.S. Treasury Money Market Fund 3,801,449 633,575 2,877,943 575,589 2,383,235 476,647
California Tax-Free Money Market Fund 1,970,298 774,300 622,870 1,245,740 462,600 925,201
Diversified Money Market Fund 10,504,156 N/A 7,834,593 N/A 6,250,527 N/A
U.S. Government Money Market Fund 1,522,053 N/A 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 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 $595,383. 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
-69-
<PAGE>
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 $134,781 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 reasonable to Shareholders. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. Subject to this consideration, brokerage will at
times be allocated to firms that supply research, statistical data and other
services when the terms of the transaction and the capabilities of different
broker/dealers are consistent with the guidelines set forth in Section 28(e)
of the Securities Exchange Act of 1934. 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.
To the extent permitted by applicable rules and regulations, the
Adviser or Sub-Advisers 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. As required by
Rule 17e-1 under the 1940 Act, the Funds have adopted procedures which
provide that commissions paid to such affiliate must be fair and reasonable
compared to the commission, fees or other remuneration paid to other brokers
in connection with comparable transactions. The procedures also provide that
the Board will review reports of such affiliated brokerage transactions in
connection with the foregoing standard. 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
-70-
<PAGE>
Bank of California with respect to such securities, savings deposits,
repurchase agreements and reverse repurchase agreements.
Investment decisions for each Fund of HighMark Funds are made
independently from those for the other Funds or any other investment company
or account managed by the Adviser or the Sub-Advisers. However, any such
other investment company or account may invest in the same securities as
HighMark Funds. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund and another Fund, investment
company or account, the transaction will be averaged as to price, and
available investments allocated as to amount, in a manner that the Adviser or
the Sub-Advisers believe to be equitable to the Fund(s) and such other
investment company or account. In some instances, this investment procedure
may adversely affect the price paid or received by a Fund or the size of the
position obtained by a Fund. To the extent permitted by law, the Adviser or
the Sub-Advisers may aggregate the securities to be sold or purchased for a
Fund with those to be sold or purchased for the other Funds or for other
investment companies or accounts in order to obtain best execution. As
provided in the Investment Advisory Agreement and the Sub-Advisory
Agreements, in making investment recommendations for HighMark Funds, the
Adviser or the Sub-Advisers will not inquire or take into consideration
whether an issuer of securities proposed for purchase or sale by HighMark
Funds is a customer of the Adviser, the Sub-Advisers, their parent or its
subsidiaries or affiliates and, in dealing with its commercial customers, the
Adviser and the Sub-Advisers, their parent, subsidiaries, and affiliates will
not inquire or take into consideration whether securities of such customers
are held by HighMark Funds.
During the following fiscal years, the Funds listed below paid the
following aggregate brokerage commissions:
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31, 2000 July 31, 1999 July 31, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Balanced Fund $241,737 $343,762 $205,232
Core Equity Fund 23,630 N/A N/A
Growth Fund 898,490 696,665 465,576
Income Equity Fund 1,665,916 1,266,837 638,230
International Equity Fund 283,718 413,403 389,285
Small Cap Value Fund 386,720 303,124 N/A
Value Momentum Fund 266,346 371,708 248,933
</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 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.
Pursuant to the Administration Agreement, the Administrator provides
the Group with administrative services, regulatory reporting, fund accounting
and related portfolio accounting
-71-
<PAGE>
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 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 $876,383 $87,638 $759,593 $91,732 $767,123 100,424
Core Equity Fund 4,663 466 N/A N/A N/A N/A
Growth Fund 1,608,252 160,825 1,104,261 $130,302 669,261 85,839
Income Equity Fund 1,014,330 280,433 882,395 $347,294 847,789 94,199
International Equity Fund 237,194 23,719 158,476 $19,015 119,187 13,243
Small Cap Value Fund 224,282 22,428 128,000 13,000 N/A N/A
Value Momentum Fund 1,663,624 166,362 1,442,857 $173,280 1,185,633 131,737
Bond Fund 654,297 65,430 483,115 $57,393 213,585 23,732
California Intermediate Tax-Free Bond Fund 332,782 33,278 280,016 $34,065 117,410 15,796
100% U.S. Treasury Money Market Fund 2,534,299 253,430 1,904,751 $230,235 1,715,929 190,659
California Tax-Free Money Market Fund 1,313,532 131,353 1,030,037 $124,574 832,681 92,520
Diversified Money Market Fund 7,002,771 700,277 4,312,435 $522,306 3,750,316 416,702
U.S. Government Money Market Fund 1,014,702 101,470 769,550 $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
-72-
<PAGE>
responsible to HighMark Funds for all acts of the subcontractor as if such
acts were its own, except for losses suffered by any Fund resulting from
willful misfeasance, bad faith or gross negligence by the subcontractor in
the performance of its duties or for reckless disregard by it of its
obligations and duties. Pursuant to a sub-administration agreement between
the Administrator and HighMark Capital Management, Inc., HighMark Capital
Management, Inc. will perform services which may include clerical,
bookkeeping, accounting, stenographic and administrative services, for which
it will receive a fee, paid by the Administrator, at the annual rate of up to
0.10% of each Fund's average daily net assets.
GLASS-STEAGALL ACT
The Gramm-Leach-Bliley Act of 1999 repealed certain provisions of the
Glass-Steagall Act that had previously restricted the ability of banks and their
affiliates to engage in certain mutual fund activitities. Nevertheless, the
Adviser's activities remain subject to, and may be limited by, applicable
federal banking law and regulations. 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
-73-
<PAGE>
review HighMark Funds' relationship with the Adviser and the Sub-Advisers and
consider taking all action necessary in the circumstances.
Should further legislative, judicial or administrative action prohibit
or restrict the activities of Union Bank of California, the Adviser, its
affiliates, and its correspondent banks in connection with Customer purchases of
Shares of HighMark Funds, such Banks might be required to alter materially or
discontinue the services offered by them to Customers. It is not anticipated,
however, that any change in HighMark Funds' method of operations would affect
its net asset value per Share or result in financial losses to any Customer.
SHAREHOLDER SERVICES PLANS
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-
-74-
<PAGE>
annual financial statements and dividend, distribution and tax notices) to
Shareholders; (vii) processing purchase, exchange and redemption requests
from Shareholders and placing such orders with HighMark Funds or its service
providers; (viii) assisting Shareholders in changing dividend options,
account designations, and addresses; (ix) providing subaccounting with
respect to Shares beneficially owned by Shareholders; (x) processing dividend
payments from HighMark Funds on behalf of the Shareholders; and (xi)
providing such other similar services as HighMark Funds may reasonably
request to the extent that the service provider is permitted to do so under
applicable laws or regulations.
SHAREHOLDER SERVICING AGREEMENT
HighMark Capital Management, Inc., HighMark Funds and the California
Department of Personnel have entered into a shareholder servicing agreement
pursuant to which HighMark Capital Management is to pay compensation to the
California Department of Personnel for providing certain shareholder support
services to plan participants in the State of California 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
-75-
<PAGE>
Trustees who are not partners, officers, directors, shareholders or employees
of HighMark Capital Management, Inc., Union Bank of California, SEI
Investments Mutual Funds Services or SEI Investments Distribution Co.,
Securities and Exchange Commission fees and state fees and expenses, certain
insurance premiums, outside and, to the extent authorized by HighMark Funds,
inside auditing and legal fees and expenses, fees charged by rating agencies
in having the Fund's Shares rated, advisory and administration fees, fees and
reasonable out-of-pocket expenses of the custodian and transfer agent,
expenses incurred for pricing securities owned by the Fund, costs of
maintenance of corporate existence, typesetting and printing prospectuses for
regulatory purposes and for distribution to current Shareholders, costs and
expenses of Shareholders' and Trustees' reports and meetings and any
extraordinary expenses.
DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned
subsidiary of SEI 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.
-76-
<PAGE>
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:
<TABLE>
<CAPTION>
Fund Class A Shares Class B Shares Class C Shares Class S Shares
---- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balanced Fund $26,987 $31,205 $76 N/A
Core Equity Fund 2 24 N/A N/A
Growth Fund 92,604 133,239 1,702 N/A
Income Equity Fund 90,413 32,752 39 N/A
International Equity Fund 1,306 3,267 14 N/A
Value Momentum Fund 92,718 54,684 1,147 N/A
Small Cap Value 10,213 21,560 644 N/A
100% U.S. Treasury Money Market Fund 1,053,814 N/A N/A $3,261,878
California Tax-Free Money Market Fund 714,333 N/A N/A 398,598
Diversified Money Market Fund 1,985,759 N/A N/A 5,699,233
U.S. Government Money Market Fund 161,097 2,332 N/A 556,086
</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.
-77-
<PAGE>
The distribution fees under the Distribution Plans will be payable
without regard to whether the amount of the fee is more or less than the
actual expenses incurred in a particular year by the Distributor in
connection with distribution assistance or Shareholder services rendered by
the Distributor itself or incurred by the Distributor pursuant to the
Servicing Agreements entered into under the Distribution Plans. The
Distributor may from time to time voluntarily reduce its distribution fees
with respect to a Fund in significant amounts for substantial periods of time
pursuant to an agreement with HighMark Funds. While there can be no assurance
that the Distributor will choose to make such an agreement, any voluntary
reduction in the Distributor's distribution fees will lower such Fund's
expenses, and thus increase such Fund's yield and total returns, during the
period such voluntary reductions are in effect.
In accordance with Rule 12b-1 under the 1940 Act, the Distribution
Plans may be terminated with respect to any Fund by a vote of a majority of
the Independent Trustees, or by a vote of a majority of the outstanding Class
A, Class B, Class C or Class S Shares of that Fund. The Distribution Plans
may be amended by vote of HighMark Funds' Board of Trustees, including a
majority of the Independent Trustees, cast in person at a meeting called for
such purpose, except that any change in a Distribution Plan that would
materially increase the distribution fee with respect to a Fund requires the
approval of that Fund's Retail Shareholders. HighMark Funds' Board of
Trustees will review on a quarterly and annual basis written reports of the
amounts received and expended under the Distribution Plans (including amounts
expended by the Distributor to Participating Organizations pursuant to the
Servicing Agreements entered into under the Distribution Plans) indicating
the purposes for which such expenditures were made.
Each Distribution Plan provides that it will continue in effect with
respect to each Fund for successive one-year periods, provided that each such
continuance is specifically approved (i) by the vote of a majority of the
Independent Trustees and (ii) by the vote of the entire Board of Trustees,
cast in person at a meeting called for such purpose. For so long as each of
the Distribution Plans remains in effect, the selection and nomination of
those trustees who are not interested persons of HighMark Funds (as defined
in the 1940 Act) shall be committed to the discretion of such disinterested
persons.
TRANSFER AGENT AND CUSTODIAN SERVICES
State Street Bank and Trust Company performs transfer agency
services for the Funds pursuant to a transfer agency and shareholder service
agreement with HighMark Funds dated as of February 15, 1997 (the "Transfer
Agency Agreement"). As each Fund's transfer agent, State Street Bank and
Trust Company processes purchases and redemptions of each Fund's Shares and
maintains each Fund's Shareholder transfer and accounting records, such as
the history of purchases, redemptions, dividend distributions, and similar
transactions in a Shareholder's account.
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
-78-
<PAGE>
fee of $25.00 per account and IRA Custodial fees totaling $15.00 per account,
as well as out-of-pocket expenses as defined in the Transfer Agency
Agreement. HighMark Funds intends to charge transfer agency fees across the
HighMark Funds as a whole. State Street Bank and Trust Company may
periodically voluntarily reduce all or a portion of its transfer agency fee
with respect to a Fund to increase the Fund's net income available for
distribution as dividends.
Union Bank of California, N.A. serves as custodian to the Funds
pursuant to a custodian agreement with HighMark Funds dated as of December
23, 1991, as amended (the "Custodian Agreement"). Under the Custodian
Agreement, Union Bank of California's responsibilities include safeguarding
and controlling each Fund's cash and securities, handling the receipt and
delivery of securities, and collecting interest and dividends on each Fund's
investments.
Under the Custodian Agreement, HighMark Funds has agreed to pay
Union Bank of California a domestic custodian fee with respect to each Fund
at an annual rate of 0.01% of the Fund's average daily net assets, with an
annual minimum fee of $2,500 per Fund, plus certain transaction fees. Union
Bank of California is also entitled to be reimbursed by HighMark Funds for
its reasonable out-of-pocket expenses incurred in the performance of its
duties under the Custodian Agreement. Global custody fees shall be determined
on a transaction basis. Union Bank of California may periodically voluntarily
reduce all or a portion of its custodian fee with respect to a Fund to
increase the Fund's net income available for distribution as dividends.
AUDITOR
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 Deloitte & Touche LLP, independent
accountants, as set forth in their report also incorporated by reference into
this Statement of Additional Information, and are included in reliance upon
such report and on the authority of such firm as experts in auditing and
accounting.
LEGAL COUNSEL
Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800
East, Washington, D.C. 20005, are counsel to HighMark Funds and will pass
upon the legality of the Shares offered hereby.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES
-79-
<PAGE>
HighMark Funds is a Massachusetts business trust. HighMark Funds'
Declaration of Trust was originally filed with the Secretary of State of The
Commonwealth of Massachusetts on March 10, 1987. The Declaration of Trust, as
amended, authorizes the Board of Trustees to issue an unlimited number of
Shares, which are units of beneficial interest, without par value. HighMark
Funds' Declaration of Trust, as amended, further authorizes the Board of
Trustees to establish one or more series of Shares of HighMark Funds, and to
classify or reclassify the Shares of any series into one or more classes by
setting or changing in any one or more respects the preferences,
designations, conversion or other rights, restrictions, limitations as to
dividends, conditions of redemption, qualifications or other terms applicable
to the Shares of such class, subject to those matters expressly provided for
in the Declaration of Trust, as amended, with respect to the Shares of each
series of HighMark Funds. HighMark Funds presently consists of thirteen
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
-80-
<PAGE>
general assets may be made in any manner deemed fair and equitable, and it is
anticipated that the Board of Trustees will use the relative net asset values
of the respective Funds at the time of allocation. Assets belonging to a
particular Fund are charged with the direct liabilities and expenses of that
Fund, and with a share of the general liabilities and expenses of HighMark
Funds not readily identified as belonging to a particular Fund that are
allocated to that Fund in proportion to the relative net asset values of the
respective Funds at the time of allocation. The timing of allocations of
general assets and general liabilities and expenses of HighMark Funds to
particular Funds will be determined by the Board of Trustees and will be in
accordance with generally accepted accounting principles. Determinations by
the Board of Trustees as to the timing of the allocation of general
liabilities and expenses and as to the timing and allocable portion of any
general assets with respect to a particular Fund are conclusive.
Rule 18f-2 under the 1940 Act provides that any matter required to
be submitted to the holders of the outstanding voting securities of an
investment company such as HighMark Funds shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding Shares of each Fund affected by the matter. For purposes of
determining whether the approval of a majority of the outstanding Shares of a
Fund will be required in connection with a matter, a Fund will be deemed to
be affected by a matter unless it is clear that the interests of each Fund in
the matter are identical, or that the matter does not affect any interest of
the Fund.
Under Rule 18f-2, the approval of an investment advisory agreement
or any change in fundamental investment policy would be effectively acted
upon with respect to a Fund only if approved by a majority of the outstanding
Shares of such Fund. However, Rule 18f-2 also provides that the ratification
of independent public accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
Shareholders of HighMark Funds voting without regard to series.
Although not governed by Rule 18f-2, Retail Shares of a Fund have
exclusive voting rights with respect to matters pertaining to the Fund's
Distribution Plan.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, holders of units of interest in a business
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. However, HighMark Funds' Declaration of
Trust, as amended, provides that Shareholders shall not be subject to any
personal liability for the obligations of HighMark Funds, and that every
written agreement, obligation, instrument, or undertaking made by HighMark
Funds shall contain 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
-81-
<PAGE>
Shareholder incurring financial loss on account of Shareholder liability is
limited to circumstances in which HighMark Funds itself would be unable to
meet its obligations.
The Declaration of Trust, as amended, states further that no
Trustee, officer, or agent of HighMark Funds shall be personally liable in
connection with the administration or preservation of the assets of the trust
or the conduct of HighMark Funds' business, nor shall any Trustee, officer,
or agent be personally liable to any person for any action or failure to act
except for his own bad faith, willful misfeasance, gross negligence, or
reckless disregard of his duties. The Declaration of Trust, as amended, also
provides that all persons having any claim against the Trustees or HighMark
Funds shall look solely to the assets of the trust for payment.
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 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
-82-
<PAGE>
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 5.35% -- 5.05% 5.60% 5.49% -- 5.17% 5.75%
California Intermediate Tax-Free
Money Market Fund 3.36% -- 3.06% 3.61% 3.41% -- 3.10% 3.67%
Diversified Money Market Fund 5.95% -- 5.66% 6.20% 6.12% -- 5.80% 6.38%
U.S. Government Money Market Fund 5.85% 5.10% 5.55% 6.10% 6.01% 5.22% 5.69% 6.27%
</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:
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
-83-
<PAGE>
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 5.30% -- 5.00% 5.55% 5.43% -- 5.12% 5.70%
California Intermediate Tax-Free Money
Market Fund 3.05% -- 2.75% 3.30% 3.10% -- 2.80% 3.36%
Diversified Money Market Fund 5.92% -- 5.63% 6.17% 6.09% -- 5.78% 6.35%
U.S. Government Money Market Fund 5.78% 5.03% 5.48% 6.03% 5.93% 5.15 5.62% 6.20%
Bond Fund 6.11% -- -- 6.53% -- -- -- --
California Intermediate Tax-Free Bond Fund 3.87% 3.04% -- 4.04% -- -- -- --
</TABLE>
The tax-equivalent yield of each class of Shares of the California
Tax-Free Fund was computed by dividing that portion of the yield of that
class that is tax-exempt by 1 minus the stated income tax rate (or rates) and
adding the product to that portion, if any, of the yield of the Class that is
not tax-exempt. The tax-equivalent effective yield of each class of Shares
was computed by dividing that portion of the effective yield of that class
which is tax-exempt by 1 minus the stated income tax rate (or rates) and
adding to that portion, if any, of the effective yield of that class that is
not tax-exempt.
The tax-equivalent yield and tax-equivalent effective yield for the
California Tax-Free Money Market Fund for the 7-day and 30-day periods ended
July 31, 2000 are shown below:
<TABLE>
<CAPTION>
Tax-Equivalent Tax-Equivalent
Yield Effective Yield
----- ---------------
Class A Class S Fiduciary Class A Class S Fiduciary
------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Using a 39.6% Fed. Income Tax Rate
----------------------------------
a. 7-day 5.56% 5.07% 5.98% 5.65% 5.13% 6.08%
b. 30-day 5.05% 4.55% 5.46% 5.13% 4.64% 5.56%
Using a 39.6% Fed. Income Tax
Rate and 11% Cal. Personal
Income Tax Rate
---------------
a. 7-day 6.80% 6.19% 7.31% 6.90% 6.28% 7.43%
b. 30-day 6.17% 5.57% 6.68% 6.28% 5.67% 6.80%
</TABLE>
-84-
<PAGE>
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 Class B Fiduciary
------- ------- ---------
<S> <C> <C> <C>
Using a 39.6% Fed. Income Tax Rate 6.41% 5.03% 6.69%
Using a 39.6% Fed. Income Tax
Rate and 11% Cal. Personal
Income Tax Rate 7.83% 6.15% 8.18%
</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 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 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.
-85-
<PAGE>
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(6) 11/13/92 (3.57)% 2.03% 10.28% 11.53% -- -- 10.56% 11.38%
Core Equity Fund 06/30/00 -- -- -- -- -- -- (6.63)% (1.14)%
Growth Fund 06/20/94 4.76% 10.87% 20.21% 21.58% -- -- 20.65% 21.78%
Income Equity Fund 06/20/94 (14.84)% (9.86)% 12.15% 13.43% 12.04%(1) 12.68%(1) 12.95% 14.00%
International Equity Fund 11/30/99 4.84%(2) 10.94%(2) 4.46%(2) 5.65%(2) -- -- (6.29)%+ (0.84)%+
Small Cap Value Fund 09/17/98 9.66% 16.06% -- -- -- -- 18.50% 22.12%
Value Momentum Fund(7) 04/02/94 (1.50)% 4.23% 15.73% 17.05% -- -- 15.08% 15.87%
Bond Fund 06/20/94 0.42% 4.90% 4.94% 5.86% 6.27%(3) 6.73%(3) 5.58% 6.34%
California Intermediate
Tax-Free Bond Fund(8) 10/15/93 0.25% 4.69% 4.73% 5.64% -- -- 3.92% 4.58%
100% U.S. Treasury
Money Market Fund 12/01/90 -- 4.79% -- 4.61% -- 4.37%(4) -- 4.26%
California Tax-Free
Money Market Fund(9) 06/25/91 -- 2.74% -- 2.76% -- -- -- 2.64%
Diversified Money Market
Fund(10) 05/28/91 -- 5.24% -- 4.92% -- -- -- 4.46%
U.S. Government Money
Market Fund 12/01/90 -- 5.12% -- 4.79% -- 4.50%(5) -- 4.39%
</TABLE>
* Reflects maximum sales charge (4.50% for the Equity Funds and 3.00% for the
Fixed Income Funds).
+ Cumulative inception to date.
(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 11/30/99, performance for Class A Shares is based on Fiduciary
Share performance, which were first offered 2/1/95. 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 6/20/94, performance for Class A Shares is based on Fiduciary
Share performance, which were first offered 2/15/84. 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.
(5) 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 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.
-86-
<PAGE>
(6) 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.
(7) 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.
(8) 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.
(9) Performance data includes the performance of the Stepstone California
Tax-Free Money Market Fund for the period prior to its consolidation with the
HighMark California Tax-Free Money Market Fund on 4/25/97.
(10) Performance data includes the performance of the Stepstone Diversified
Money Market Fund for the period prior to its consolidation with the HighMark
Diversified Fund on 4/25/97.
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 (3.24%) 1.33% 11.05%(1) 11.31%(1) -- -- 3.84% 4.91%
Core Equity Fund 06/30/00 -- -- -- -- -- -- (6.18)%* (1.24)%*
Growth Fund 02/02/98 5.18% 10.18% 21.04%(2) 21.22%(2) -- -- 15.50% 16.47%
Income Equity Fund 02/02/98 (13.97)% (10.50)% 12.90%(3) 13.13%(3) 12.50%(3) 12.50%(3) 2.26%+ 3.10%+
International Equity Fund 11/30/99 5.57%(4) 10.57%(4) 5.25%(4) 5.58%(4) -- -- (6.05)%+ (1.17)%+
Small Cap Value Fund 02/02/98 10.63% 15.63% -- -- -- -- 19.73% 21.55%
Value Momentum Fund 02/02/98 (1.41)% 3.50% 16.54%(5) 16.75%(5) -- -- 5.80% 6.90%
U.S. Government Fund 02/02/98 (1.07)% 3.93% 5.20% 5.52% -- -- (1.35)% 3.65%
Money Market Fund 02/02/98 (0.66)% 4.34% 4.13%(7) 4.47%(7) 4.34%(7) 4.34%(7) 2.89% 4.04%
</TABLE>
* Reflects maximum CDSC of 5.00%.
+ Cumulative inception date.
(1) Prior to 2/28/98, 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.
-87-
<PAGE>
(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 11/30/99, performance for Class B Shares is based on Fiduciary
Share performance, which were first offered 2/1/95. 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 2/28/98, performance for Class B Shares is based on Fiduciary
Share performance, which were first offered 2/1/91. 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.
(6) Prior to 11/30/99, performance for Class B Shares is based on Fiduciary
Share performance, which were first offered 10/15/93. 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.
(7) Prior to 2/28/98, performance for Class B Shares is based on Fiduciary
Share performance, which were first offered 8/10/87. 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.
-88-
<PAGE>
The average total return for the Class C Shares of each Fund, computed
as of July 31, 2000, is shown in the table below:
<TABLE>
<CAPTION>
Average Annual Total Return - Class C 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 11/30/99 0.77%(1) 1.68%(1) 11.67%(1) 11.67%(1) -- -- 0.37%* 1.29%*
Growth Fund 11/30/99 9.54%(2) 10.53%(2) 21.61%(2) 21.61%(2) -- -- 1.98%+ 2.92%+
Income Equity Fund 11/30/99 (10.82)%(3) (10.13)%(3) 13.51%(3) 13.51%(3) 12.69%(3) 12.69%(3) (4.84)%+ (4.10)%+
International Equity Fund 11/30/99 9.56%(4) 10.56%(4) 5.58%(4) 5.58%(4) -- -- (2.16)%+ (1.19)%+
Small Cap Value Fund 11/30/99 15.10%(5) 16.10%(5) -- -- -- -- 14.64%+ 15.64%+
Value Momentum Fund 11/30/99 2.87%(6) 3.85%(6) 17.19%(6) 17.19%(6) -- -- 2.39%+ 3.37%+
</TABLE>
* Reflects maximum CDSC of 5.00%.
+ Cumulative inception date.
(1) Prior to 11/30/99, performance for Class C 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 C Shares, but does not reflect the Class C Shares'
Rule 12b-1 fees and expenses. With those adjustments, performance would be
lower than that shown.
(2) Prior to 11/30/99, performance for Class C 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 C Shares, but does not reflect the Class C Shares'
Rule 12b-1 fees and expenses. With those adjustments, performance would be
lower than that shown.
(3) Prior to 11/30/99, performance for Class C 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 C Shares, but does not reflect the Class C Shares'
Rule 12b-1 fees and expenses. With those adjustments, performance would be
lower than that shown.
(4) Prior to 11/30/99, performance for Class C Shares is based on Fiduciary
Share performance, which were first offered 2/1/95. The performance of the
Fiduciary Shares has been adjusted for the maximum contingent deferred sales
charge applicable to Class C Shares, but does not reflect the Class C Shares'
Rule 12b-1 fees and expenses. With those adjustments, performance would be
lower than that shown.
(5) Prior to 11/30/99, performance for Class C Shares is based on Fiduciary
Share performance, which were first offered 9/17/98. The performance of
Fiduciary Shares has been adjusted for the maximum contingent deferred sales
charge applicable to Class C Shares, but does not reflect the Class C Shares'
Rule 12b-1 fees and expenses. With those adjustments, performance would be
lower than that shown.
(6) Prior to 11/30/99, performance for Class C Shares is based on Fiduciary
Share performance, which were first offered 9/17/98. The performance of the
Fiduciary Shares has been adjusted for the maximum contingent deferred sales
charge applicable to Class C Shares, but does not reflect the Class C Shares'
Rule 12b-1 fees and expenses. With those adjustments, performance would be
lower than that shown.
-89-
<PAGE>
The average total return for the Class I Shares of each Fund,
computed as of July 31, 2000, is shown in the table below:
<TABLE>
<CAPTION>
Average Annual Total Return - Class S 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>
100% U.S. Treasury
Money Market Fund 09/30/99 -- -- -- -- -- -- -- 3.81%+
California Tax-Free
Money Market Fund 09/30/99 -- -- -- -- -- -- -- 2.09%+
Diversified Money Market Fund
Money Market Fund 09/30/99 -- -- -- -- -- -- -- 4.21%+
U.S. Government Money Market
Fund 09/30/99 -- -- -- -- -- -- -- 4.09%+
</TABLE>
+ Cumulative inception date.
The average total return for the Class I Shares of each Fund, computed
as of July 31, 2000, is shown in the table below:
<TABLE>
<CAPTION>
Average Annual Total Return - Class I Shares
Fund/Class
Commencement One Five Ten Life of
Fund Name of Operations Year Years Years Fund
--------- ------------- ---- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Without Without Without Without
Sales Sales Sales Sales
Load* Load Load Load
----- ----- ---- ----
Value Momentum Fund 09/30/99 4.56%(1) 17.35%(1) -- 10.72%+
</TABLE>
+ Cumulative inception to date.
(1) Prior to 9/30/99, performance of Class I Shares is based on Fiduciary Share
performance, which were first offered 2/1/91. Performance of Fiduciary Shares
does not reflect Class I Share expenses.
The average total return for the Fiduciary Shares of each Fund,
computed as of July 31, 2000, is shown in the table below:
Average Annual Total Return - Fiduciary Shares
<TABLE>
<CAPTION>
Fund/Class
Commencement One Five Ten Life of
Fund Name of Operations Year Years Years Fund
--------- ------------- ---- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Balanced Fund(1) 02/01/91 2.28% 11.80% -- 11.66%
Core Equity Fund 05/31/00 -- -- -- (2.31)%*
Growth Fund 11/18/93 11.13% 21.74% -- 19.42%
</TABLE>
-90-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Income Equity Fund(2) 02/09/84 (9.67)% 13.63% 12.75% 14.07%
International Equity Fund(3) 02/01/95 11.21% 5.70% -- 7.06%
Small Cap Value Fund 09/17/98 16.43% -- -- 22.49%
Value Momentum Fund(4) 02/01/91 4.47% 17.33% -- 16.05%
Bond Fund(5) 02/15/84 4.86% 5.81% 6.79% 8.60%
California Intermediate
Tax-Free Bond Fund(6) 10/15/93 4.68% 5.67% -- 4.62%
100% U.S. Treasury Money
Market Fund 08/10/87 5.05% 4.78% 4.45% 5.21%
California Tax-Free
Money Market Fund(7) 06/10/91 3.00% 3.04% -- 2.95%
Diversified Money Market
Fund(8) 02/02/91 5.51% 5.18% -- 4.75%
U.S. Government Money
Market Fund 08/10/87 5.38% 4.97% 4.58% 5.35%
</TABLE>
*Cumulative inception date.
(1) 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) Performance data includes the performance of the IRA Fund Income Equity
Portfolio for the period prior to its consolidation with the HighMark Income
Equity Fund on 6/23/88.
(3) Performance data 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.
(4) 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.
(5) Performance data includes the performance of the IRA Fund Bond Portfolio
for the period prior to its consolidation with the HighMark Bond Fund on
6/23/88.
(6) 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.
(7) Performance data includes the performance of the Stepstone California
Tax-Free Money Market Fund for the period prior to its consolidation with the
HighMark California Tax-Free Money Market Fund on 4/25/97.
(8) Performance data includes the performance of the Stepstone Diversified
Money Market Fund for the period prior to its consolidation with the HighMark
Diversified Fund on 4/25/97.
Because each class of Shares of a Fund has different sales charge
structures and differing distribution and shareholder servicing fees, the
performance of each class will differ. All performance information presented
is based on past performance and does not predict future performance.
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.
-91-
<PAGE>
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 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 is
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.
-92-
<PAGE>
The Prospectuses and this Statement of Additional Information are
not an offering of the securities herein described in any state in which such
offering may not lawfully be made.
No salesperson, dealer, or other person is authorized to give any
information or make any representation other than those contained in the
Prospectuses and this Statement of Additional Information.
As of November 7, 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 November 7, 2000, HighMark Funds
believes that there was no person who beneficially owned more than 25% of the
outstanding voting securities of any Fund.
As of November 7, 2000, HighMark Funds believes that Union Bank of
California was the shareholder of record of 96.35% of the Fiduciary Shares of
the Core Equity Fund, 29.72% of the Fiduciary Shares of the Growth Fund,
99.60% of the Fiduciary Shares of the Income Equity Fund, 75.69% of the
Fiduciary Shares of the International Equity Fund, 82.38% of the Fiduciary
Shares of the Balanced Fund, 88.25% of the Fiduciary Shares of the Bond Fund,
100% of the Fiduciary Shares of the California Intermediate Tax-Free Bond
Fund, 95.10% of the Fiduciary Shares of the Value Momentum Fund, 88.15% of
the Fiduciary Shares of the Small Cap Value Fund, 97.26% of the Fiduciary
Shares of the U.S. Government Money Market Fund, 98.74% of the Fiduciary
Shares of the Diversified Money Market Fund, 95.62% of the Fiduciary Shares
of the 100% U.S. Treasury Money Market Fund and 99.99% of the Fiduciary
Shares of the California Tax-Free Money Market Fund.
As of November 7, 2000, HighMark Funds believes that Union Bank of
California had investment authority with respect to 29.72% of the Growth Fund
Fiduciary Shares, 19.67% of the Income Equity Fund Fiduciary Shares, 23.70%
of the Balanced Fund Fiduciary Shares, 22.31% of the Value Momentum Fund
Fiduciary Shares, 66.39% of the International Equity Fund Fiduciary Shares,
and 62.15% of the Small Cap Value Fund Fiduciary Shares.
The table below indicates each additional person known by HighMark
Funds to own of record or beneficially 5% or more of the Shares of the
following Funds of HighMark Funds as of November 7, 2000.
-93-
<PAGE>
5% OR MORE OWNERS
BALANCED FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ----------------------------------
Ty & Wei Chen Yeh TTEE 8.70%
Yeh Family Trust
U/A 9/11/91
2048 Studebaker Rd.
Long Beach, CA 90815-3539
BALANCED FUND - CLASS B SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Union Bank of California Cust. 12.59%
IRA of Patricia A. Dejohn
Rollover
P.O. Box 364
Inyokern, CA 93527-0364
Robert J. Krahulik 84.53%
32062 Via Tonada
San Juan Capistrano, CA 92675-3612
BALANCED FUND - CLASS C SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Socrates Mamakos 7.72%
FMT Co. Ttee. NFRP PS
100 Spear Street, Suite 1115
San Francisco, CA 94105-1526
Claudia Venegas Villegas 5.50%
A P 22 Cabo San Lucas
BCS Mexico
Union Bank of California Cust. 19.67%
IRA of David Miller
Rollover
1408 Hawthorne Terrace
Berkeley, CA 94708-1804
BALANCED FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
Nissan 401(k) Plan 5.20%
Attn: Virginia King
P.O. Box 191
Gardena, CA 90248-0191
Nummi Hourly Retirement Plan 13.90%
Attn: Paige Kenigsberg
45500 Fremont Blvd.
Fremont, CA 94538-6326
-94-
<PAGE>
NEC Savings Plan 9.38%
Attn: James Hanley
8 Corporate Center Drive
Melville, NY 11747
Union Bank of California Retirement Plan 13.10%
400 California Street
San Francisco, CA 94104
Union Bank of California 401(k) Plan 10.60%
350 California Street
San Francisco, CA 94104
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lane & Company 82.38%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
American Express Trust Company 9.38%
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 5.20%
Putnam Investments
Nissan Motor Corporation
Location 31
P.O. Box 9740
Providence, RI 02940-9740
-95-
<PAGE>
CORE EQUITY FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
The Chicago Trust Company 10.19%
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. 5.18%
IRA of James Harris
1212 Christian Valley Road
Auburn, CA 95602-8851
Union Bank of California Cust. 26.18%
IRA of Ken Inose
28425 Cayuse Ln.
Rancho Palos Verdes, CA 90275-5163
Union Bank of Calif. Cust. 9.09%
IRA of J. R. Saphir
Rollover
2909 Avalon Ave.
Berkeley, CA 94705-1401
Mark D. Pelley 6.16%
Sherry P. Pelley
1982 Deer Haven Dr.
Chino Hills, CA 91709-4837
Henry E. Sandahl 7.65%
2417 Columbia St., S.W.
Olympia, WA 98501-2845
First Clearing Corporation 5.64%
A/C 2415-7273
-96-
<PAGE>
Charles G. Delgado Trustee
423 Dwight Road
Burlingame, CA 94010-2741
CORE EQUITY FUND - CLASS B SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Union Bank of California Cust. 10.86%
IRA of James R. Wells
13159 S. Peach Ave.
Selma, CA 93662-9632
Landon McArthur 23.74%
466 Rutland Ave.
San Jose, CA 95128-2346
Harold and Kazuku Armstrong Tr. 7.08%
Harold L. Armstrong
U/A 04/07/1999
419 Woodcock Court
Milpitas, CA 95035-2825
CORE EQUITY FUND - FIDUCIARY SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lane & Company 96.35%
C/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 85484
San Diego, CA 92186-5484
GROWTH FUND - CLASS C SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Uri Moscovici 6.13%
Hedy Moscovici
6315 Ridge Path Ct.
Rancho Palos Verdes, CA 90275-3247
-97-
<PAGE>
GROWTH FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
Union Bank of California Retirement Plan 13.02%
400 California Street
San Francisco, CA 94104
Union Bank of California 401(k) Plan 16.70%
P.O. Box 45000
San Francisco, CA 94145-0001
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lane & Company 92.70%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 84584
San Diego, CA 92138-4584
INCOME EQUITY FUND - CLASS C SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Thomas Family Rev. Trust 9.71%
Karen R. Thomas TTEE
U/A 12/12/97
5716 N. 8th Street
Fresno, CA 93710-6432
Union Bank of California Cust. 69.11%
IRA of Elena C. La Clair
106 Greenwood Dr.
South San Francisco, CA 94080-5837
Union Bank of California Cust. 16.09%
IRA of Linda Joy William
P.O. Box 3632
Dana Point, CA 92692-8632
-98-
<PAGE>
INCOME EQUITY FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
Union Bank of California 401(k) Plan 19.67%
P.O. Box 45000
San Francisco, CA 94145-0001
Komatsu Savings Plan Salaried 6.60%
440 N. Fairway Dr.
Vernon Hills, IL 60061-1836
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lane & Company 99.60%
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
---------------- ---------------------------------
Said Cohen TTEE 8.45%
Said and Joan Cohen Family Trust
U/A 9/28/77
1862 Park Skyline Road
Santa Ana, CA 92705-3130
PaineWebber for the Benefit of 11.32%
Springate Investments Limited
PW 8
333 Waterfront Drive
British Virgin Islands
PaineWebber for the Benefit of 8.91%
Headstart Leveraged Ltd.
Class C PW 7
Svcs. Ltd.
22/23 Eden Quay
Dublin 1 Ireland
PaineWebber for the Benefit of 25.09%
PaineWebber Cdn. FBO
John P. Metcalf
P.O. Box 3321
Weehanken, NJ 07087-8154
-99-
<PAGE>
PaineWebber for the Benefit of 29.70%
Rhino Fund Three LP
Attn Brad Sellers
3800 Fanwood Place
Richmond, VA 23233-1855
INTERNATIONAL EQUITY FUND - CLASS B SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
So Cal Inderground 10.98%
P.O. Box 1747
Brea, CA 92822-1747
Union Bank of California Cust. 9.34%
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. 8.19%
Cust. for the IRA R/O
FBO Rodney A. Harrison
2410 N. Post Street
Spokane, WA 99205-3251
Rosemary Mercurio 37.11%
8840 W. Kimberly Way
Peoria, AZ 85382-8721
State Street Bank & Trust Co. 22.33%
Cust. for the IRA of
FBO Ronald D. Noon
P.O. Box 893
Orinda, CA 94563-0888
State Street Bank & Trust Co. 19.89%
Cust. for the IRA of
FBO Hiroshi Nakai
-100-
<PAGE>
138 15th Avenue
San Francisco, CA 94118-1011
INTERNATIONAL EQUITY FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
UBOC Retirement Plan 66.39%
400 California Street
San Francisco, CA 94104
Nummi Hourly Retirement Plan 9.26%
Attn: Paige Kenigsberg
45500 Fremont Blvd.
Fremont, CA 94538
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
AXA Banque 6.59%
372 Rue Saint Honore
75040 Paris Cedex 01 France
Lane & Company 75.69%
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
---------------- ---------------------------------
Donaldson Lufkin Jenrette 10.21%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
PaineWebber for the Benefit of 6.14%
G Appel Strategic Investors
150 Great Neck Road
Great Neck, NY 11021-3309
-101-
<PAGE>
Union Bank Cust. 5.62%
IRA of Robert S. Butler
Personalized IRA Rollover
650 Club View Drive
Los Angeles, CA 90024-2624
Barbara & Andrew Leigh Family 8.36%
Andrew M. Leigh
U/A 11/08/1994
15961 Royal Oak Road
Encino, CA 91436-3911
SMALL CAP VALUE FUND - CLASS C SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Sally Gibson 21.42%
36110 Fanshawe Street
Fremont, CA 94536-4634
Bear Stearns Securities Corp. 5.29%
FBO 486-90368-16
1 Metrotech Center North
Brooklyn, NY 11201-3870
Wexford Clearing Services Corp. FBO 9.82%
Ms. Susan J. Harman Ttee.
Mentzer Living Trust
UA Dtd. 03/17/83
7793 Driftwood Way
Pleasanton, CA 94588-4333
Benoit-Reinhardt Family Ttee. 9.01%
FBO Carmel Reinhardt Page
97826 Crestline Loop
Brookings, OR 97415-9406
-102-
<PAGE>
SMALL CAP VALUE FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
UBOC Retirement Plan 62.15%
400 California Street
San Francisco, CA 94104
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lane & Company 88.15%
c/o Union Bank of CA
Attn: Kathleen Heilman
P.O. Box 85484
San Diego, CA 92186-5484
BOTT Pension 8.20%
C/o Bank of Tokyo Trust Company
Attn: Dennis Demetropoulos
1251 Avenue of the Americas
New York, NY 10020-1104
VALUE MOMENTUM FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
The Chicago Trust Company 6.45%
of Chicago
Omnibus Account
UA 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 6.96%
P.O. Box 1736
Sacramento, CA 95812-1736
-103-
<PAGE>
Elizabeth J. Petersen TTEE 5.83%
Elizabeth Jane Petersen Trust
U/A 6/30/95
6626 Sunny Brae Dr.
San Diego, CA 92119-2959
Wexford Clearing Services Corp. FBO 13.98%
Mr. Roy Zeiger
Mrs. Mavis Zeiger Co.-Ttees.
U/A Dtd. 04/12/00
6432 Buckskin Lane
Roseville, CA 95747-8076
LPL Financial Services 5.08%
9785 Towne Centre Drive
San Diego, CA 92121-1968
Wexford Clearing Services Corp. FBO 6.63%
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 10.78%
400 California Street
San Francisco, CA 94104
UBOC 401(k) Plan 11.53%
P.O. Box 45000
San Francisco, CA 94145-0001
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lane & Company 95.10%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 85484
San Diego, CA 92186-5484
-104-
<PAGE>
VALUE MOMENTUM FUND - CLASS I SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Mellon Bank NA, Trustee for Dept. 69.08%
of Personnel Admin. of St. of CA
Attn: Wally Adebayo
135 Santilli Hwy.
Everett, MA 02149-1906
Mellon Bank NA, Trustee for Dept. of 30.92%
Personnel Admin. of St. of CA 401K
Attn: Wally Adebayo
135 Santilli Hwy.
Everett, MA 02149-1906
BOND FUND - FIDUCIARY SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lane & Company 88.25%
c/o Union Bank of California
Attn: Kathleen Heilman
P.O. Box 120109
San Diego, CA 92112-0109
BOTT Pension 6.76%
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. 27.43%
FBO Exclusive Customers
-105-
<PAGE>
101 Montgomery St.
San Francisco, CA 94104-4122
Harry R and Edythe L. Silverglide TTEE 12.21%
Harry and Edythe Silverglide
c/o Mike Destro
16651 Lark Avenue, Suite 200
Los Gatos, CA 95032-7645
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND - CLASS B SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Sugi Morimoto TTEE 12.50%
The Morimoto Family Trust
U/A 3/20/81
4410 Celeste Street
Santa Ana, CA 92703-1611
Sutherland Family Trust 5.73%
Robert Douglas Sutherland
U/A 06/07/1995
1676 Auburn Ravine Road
Auburn, CA 95603-3611
John J. McCullough 15.32%
Eula J. McCullough
13861 Oakwood Glen Pl.
Valley Center, CA 92082-5813
Stephen W. Reeves Ttee. 16.62%
William L. Reeves Trust B
U/A 4/20/72
P.O. Box 2966
Big Bear, CA 92314-2966
Rebecca Gold 10.81%
1912 Jasmine Street
El Cajon, CA 92021-3663
Tessa Siegel 6.16%
Wade Siegel
7344 Rindge Dr.
Playa Del Ray, CA 90293-8063
-106-
<PAGE>
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND - FIDUCIARY SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Lane & Company 100.00%
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 99.95%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
100% U.S. TREASURY MONEY MARKET FUND - FIDUCIARY SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Union Bank of California 95.62%
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
-107-
<PAGE>
CALIFORNIA TAX-FREE MONEY MARKET FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
National Financial Services LLC 99.66%
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
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 98.67%
For the Benefit of our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
-108-
<PAGE>
DIVERSIFIED MONEY MARKET FUND - FIDUCIARY SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Union Bank of California 83.72%
Lane & Co Cash
Attn: Fund Accounting
PO Box 85602
San Diego, CA 92186-5602
Lane & Company 15.02%
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
U.S. GOVERNMENT MONEY MARKET FUND - CLASS A SHARES
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
National Financial Services LLC 96.28%
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 19.33%
Sole Proprietorship
Ronald E. Soderling
1400 N. Bristol Street Suite #150
Newport Beach, CA 97660-2957
-109-
<PAGE>
Laguna Ridge Business Center 12.89%
Sole Proprietorship
Ronald E. Soderling
1400 N. Bristol St. Suite 150
Newport Beach, CA 92650-2957
Park Laguna Hills 12.89%
Sole Proprietorship
Ronald B. Soderling
1400 N. Bristol St. Suite 150
Newport Beach, CA 92660-2957
Union Bank of California Cust. 11.57%
IRA of Alexandre S. Bragadeste
Rollover
3020 Fenelon Street
San Diego, CA 92106-2208
Wells Fargo Investments LLC 5.69%
A/C 4120-8448
420 Montgomery Street
San Francisco, CA 94104-1298
Union Bank of California Cust. 6.30%
IRA of Linda L. Hulsey
Rollover
2494 Sunrise
Bishop, CA 93514-3136
Miyoko Nishiya 5.96%
1876 W. 180th Street
Torrance, CA 90504-4439
Sachiko Kuwada 6.55%
2 Commodore Dr., #386
Emeryville, CA 94608-1642
U.S. GOVERNMENT MONEY MARKET FUND - FIDUCIARY SHARES
Name and Address Percentage of Beneficial Ownership
---------------- ----------------------------------
Northwest Permanente 5.01%
500 NE Multnomah St., Suite 1500
Portland, OR 97232-2023
IC/RCM Capital Management 7.75%
P.O. Box 26894
San Francisco, CA 94126-6894
-110-
<PAGE>
Name and Address Percentage of Ownership of Record
---------------- ---------------------------------
Union Bank of California 97.26%
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
-111-
<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"), Fitch IBCA, Duff & Phelps
("Fitch IBCA"), and Thomson BankWatch, Inc. ("Thomson"). Set forth below is a
description of the relevant ratings of each such NSRO. The NSROs that may be
utilized by the Funds and the description of each NSRO'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 the 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.
-112-
<PAGE>
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 over the future.
Uncertainty of position characterizes bonds in this class.
Description of the five highest long-term debt ratings by S & P (S&P
may apply a plus (+) or minus (-) to a particular rating classification to show
relative standing within that classification):
AAA An obligation rated 'AAA' has the highest rating assigned by Standard &
Poor's. 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.
-113-
<PAGE>
Description of the three highest long-term debt ratings by Fitch IBCA:
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
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 structure 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
-114-
<PAGE>
degree. Earnings trends and coverage ratios, while sound, may
be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings
and profitability may result in changes in the level of debt
protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is
maintained.
S & P's description of its three highest short-term debt ratings:
A-1 A short-term obligation rated 'A-1' is rated in the highest category by
Standard & Poor's. 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.
Fitch IBCA's description of its three highest short-term debt ratings:
F1 Highest credit quality. Indicates the Best capacity for timely payment
of financial commitments; may have an added "+" to denote any
exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in
the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.
Short-Term Loan/Municipal Note Ratings
-115-
<PAGE>
Moody's description of its two highest short-term loan/municipal note ratings:
MIG 1/VMIG 1 This designation denotes superior credit quality. Excellent
protection is afforded by established cash flows, highly reliable
liquidity support, or demonstrated broad-based access to the
market for refinancing.
MIG2/VMIG 2 This designation denotes strong credit quality. Margins of
protection are ample, although not as 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 Rating apply only to unsecured instruments that have a
maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an untimely
payment of principal or interest.
TBW-1 The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis.
TBW-2 The second-highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as for
issues rated TBW-1.
TBW-3 The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both
internal and external) than those with higher ratings, the
capacity to service principal and interest in a timely fashion
is considered adequate.
-116-
<PAGE>
TBW-4 The lowest rating category; this rating is regarded as non investment
grade and therefore speculative.
-117-
<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 are 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 previously filed with the Securities and Exchange Commission.
A copy of each such report may be obtained without charge by contacting the
Distributor, SEI Investments Distribution Co. at 1 Freedom Valley Drive,
Oaks, Pennsylvania, 19456 or by telephoning toll-free at 1-800-734-2922.
-118-
