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HIGHMARK Annual Report
JULY 31, 1997
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TABLE OF CONTENTS
Message from the Chairman and the Investment Adviser ...................... 1
Independent Auditor's Rep0ort ............................................. 43
Statements of Net Assets .................................................. 44
Statements of Operations ..................................................100
Statements of Changes in Net Assets .......................................104
Financial Highlights ......................................................108
Notes to Financial Statements .............................................116
Notice to Shareholders ....................................................124
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This report and the financial statements contained herein are
submitted for the general information of HighMark[SERVICE MARK] Funds'
shareholders. This report is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus. Shares of
HighMark Funds are NOT deposits or obligations of, or guaranteed by Union Bank
of California, N.A., or any of its subsidiaries. Such shares are also NOT
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency. Investments in shares of mutual funds
involve risk, including the possible loss of principal. SEI Investments
Distribution Co. serves as Distributor for HighMark Funds and is not affiliated
with Union Bank of California, N.A.
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LETTER TO SHAREHOLDERS
DEAR SHAREHOLDER:
We are pleased to report an excellent period of performance for the HighMark
Funds for the fiscal year ended July 31, 1997. The stock market produced strong
returns during the period. Bond returns were also performed well, ahead of their
historical norms. Your HighMark Funds generally did very well against their peer
groups and compared to their standard benchmarks of investment performance.
A NEW FUND FAMILY
On April 28, 1997, the Stepstone Funds and The HighMark Group were successfully
combined to form the HighMark Funds, a $5 billion fund family managed by Pacific
Alliance Capital Management. HighMark Funds, with over 125,000 shareholders
nationwide, now offer 16 different investment options, ranging from
conservative to aggressive. We would like to welcome you to the new family of
HighMark Funds.
THE IMPORTANCE OF ASSET ALLOCATION
Stocks, bonds, money market instruments . . . how you divide up your investment
dollars plays a major role in determining the performance and volatility of your
portfolio. HighMark Funds offer an even greater opportunity for diversification
than before, and we suggest that you discuss these new opportunities for
diversification with your Investment Representative.
A COMMITMENT TO SERVICE
This annual report includes interviews with portfolio managers, followed by a
Statement of Net Assets, that provides a list of each Fund's holdings. We urge
you to read the entire report closely to help you monitor the progress of your
investment in HighMark Funds.
We now have expanded investor services for HighMark Funds. The HighMark Funds
Investor Service telephone number, 1-800-433-6884, can be used to obtain
information about the Funds, such as fund prices and performance, and also to
purchase shares through HighMark FundDirect.
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In addition, HighMark Funds has a new Web site, at www.highmark-funds.com, and
we encourage you to take a look at it and learn more about your fund family.
Also, we are pleased to inform you that HighMark Funds is now a part of the
America Online Mutual Fund Center. To directly access the HighMark Funds Web
site via America Online, go to Keyword "HighMark," or follow the link in the
Mutual Fund Center.
Remember to "Think HighMark" for your investment needs. Once again, we thank you
for your confidence and investment in HighMark Funds.
Sincerely,
/S/SIGNATURE]
R. Gregory Knopf
Senior Vice President, Union Bank of California, N.A.
September 1997
FOR MORE COMPLETE INFORMATION ON ANY HIGHMARK FUND, INCLUDING FEES, EXPENSES AND
SALES CHARGES, PLEASE CALL 1-800-433-6884 FOR A PROSPECTUS. PLEASE READ THE
PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
- --------------------------------
Mutual Funds:
[BULLET] are not FDIC insured
[BULLET] have no bank guarantee
[BULLET] may lose value
- --------------------------------
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MESSAGE FROM THE INVESTMENT ADVISOR
DEAR SHAREHOLDER:
The fiscal year ending July 31, 1997 was one of the best periods in history for
stocks, with the Standard & Poor's 500 Stock Index up 52.11%. Since early 1995,
stock prices have roughly doubled, a remarkable performance in such a short
period of time.
To be sure, the stock market was more volatile than in prior years, as investors
searched for clues on where the economy was headed. During the past twelve
months, there were two periods in which stocks pulled back nearly ten percent.
However, the pullback lasted just a few weeks in each case. Although the big
company stocks rebounded quickly, small capitalization stocks lagged for much of
the period. Meanwhile, the bond market produced above-average returns, as
interest rates, though volatile during the year, fell between August 1, 1996
and July 31, 1997.
THE ECONOMY: GROWTH ABOVE THE TREND
During the 1990s, the U.S. economy has continued to expand at an annual rate of
2-3%. However, in 1997, growth has been stronger than that. In the first
quarter, Gross Domestic Product grew at an annual rate of about 5%, while second
quarter growth was recently revised to 3.6%.
Such growth above the trend is often a concern because it could lead to
inflation. However, inflation remains dormant. The Consumer Price Index
(CPI) is increasing at an annual rate of about 2%, and there are some market
watchers who believe that the CPI is actually overstated. To be sure, inflation
has been curtailed by U.S. corporate productivity, as well as trade agreements
such as NAFTA which have paved the way for lower-cost overseas manufacturing.
BONDS: ATTRACTIVE REAL RETURNS
Between August 1, 1996 and July 31, 1997, the benchmark 30-year Treasury yield
fell from 6.97% to 6.30%. As a result, bond prices generally rose during the
period. At the same time, bonds continued to produce income well in excess of
inflation. Even at a low of 6.30%, the 30-year Treasury is offering investors a
real return of at least 4%.
During the period, the Federal Reserve Board raised short-term interest rates
just once, to 5.50%. Given the upward revision in economic growth during the
second quarter, it is possible that the Fed will raise rates again before the
end of 1997 if the third quarter continues to be stronger than expected.
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STOCKS: ANOTHER 50% YEAR IS UNLIKELY
After rising more than 50% during the past twelve months, the stock market
reached record levels at the end of July, although it pulled back somewhat in
August. The current dividend yield on stocks is below 2% while the ratio of
price to 1997 earnings is more than 20. At these levels, investors are very
concerned about companies that report disappointing earnings. For example, when
Coca-Cola reported disappointing earnings for a recent quarter, investors sent
the stock down by 20%.
Although we are optimistic about factors affecting stocks such as economic
growth, inflation, interest rates and corporate profits, we also recognize that
the historic average annual return for stocks is 10-12%, not 50%. Given the
current levels of stock prices, it would not be surprising to see the stock
market's rise slow or even correct while earnings catch up with stock prices.
However, in our view, the conditions necessary for a bear market or severe
market correction do not now exist.
Sincerely,
/S/ SIGNATURE
Luke Mazur
Chief Investment Officer
Pacific Alliance Capital Management
September 1997
4
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HIGHMARK TAXABLE MONEY MARKET FUNDS*
The 100% U.S. Treasury Money Market Fund invests exclusively in short-term
direct U.S. Treasury obligations. As of July 31, 1997, the Fund's 30-day yield
was 4.62% (Retail Shares)and its weighted average maturity was 74 days.
The U.S. Government Money Market Fund invests in short-term obligations issued
or guaranteed by the U.S. Treasury or by agencies or instrumentalities of the
U.S. Government. As of July 31, 1997, the Fund's 30-day yield was 4.80% (Retail
Shares)and its weighted average maturity was 39 days.
The Diversified Money Market Fund invests in U.S. Treasuries and government
agency securities, as well as high-quality short-term obligations issued by
banks and corporations. To qualify as short-term investments, the maturities of
these securities must be 397 days or less as determined by the Securities &
Exchange Commission rules. As of July 31, 1997, the Fund's 30-day yield was
4.87% (Retail Shares)and its weighted average maturity was 36 days.
SHORT-TERM INTEREST RATE ENVIRONMENT DURING THE FISCAL YEAR
Short-term interest rates were essentially unchanged from August 1, 1996 until
March 1997, when the Federal Reserve Board raised rates by 0.25 percentage
points to 5.50%. Policy makers cited concerns about the tightness in the labor
market, fearing that it would translate into wage pressures and inflation.
Through July 31, 1997, short-term rates remained targeted at 5.50%, although
there have been periods where the market was concerned that the Fed would have
to do additional tightening of the money supply.
STRATEGY AND MATURITY MANAGEMENT FOR THE TAXABLE MONEY MARKET FUNDS
Reflecting the prolonged strength of the U.S. economy and the stock market, the
U.S. Treasury in early 1997 has experienced a windfall of revenue. The budget
deficit projection made at the start of Fiscal 1997 has proven to be too high
and it appears that we're on track to have one of the lowest budget deficits in
recent memory. The result: the reduction in the size of auctions for Treasury
securities. With more money chasing less product, yields should continue to
fall. By extending the 100% U.S. Treasury Fund's maturity, we can lock in higher
yields that are currently available.
5
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During the last three months of the reporting period, the markets were of the
opinion that there would be no further action by the Federal Reserve Board to
raise interest rates until the fall, at the earliest. As a result, money market
securities were offered at relatively low yields--and very narrow yield spreads
over U.S. Treasury bills. However, the U.S. Government and Diversified Funds are
able to invest in overnight repurchase agreements, an investment not permitted
in the 100% U.S. Treasury Fund. These investments, which are essentially
collateralized over night loans to broker/dealers to finance their inventory,
offered excellent value during this period. The use of these vehicles resulted
in the U.S. Government and Diversified Funds having a relatively shorter
maturity than the 100% U.S. Treasury Fund. As opportunities present themselves,
we will be extending the average weighted maturities of these two funds toward
the 50 day area, consistent with our expectations of continued moderate growth,
contained inflation, and no major near term changes in short term interest
rates.
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* An investment in the HighMark money market funds is neither insured nor
guaranteed by the U.S. Government. Although these funds seek to maintain a
stable net asset value of $1.00 per share, there can be no assurance that
they will be able to do so.
6
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HIGHMARK CALIFORNIA TAX-FREE MONEY MARKET FUND*
By investing in short-term municipal obligations, the HighMark California
Tax-Free Money Market Fund seeks as high a level of current interest income free
from federal income tax and California personal income tax as is consistent with
the preservation of capital and relative stability of principal. As of July 31,
1997, the Fund's 30-day yield (Retail Shares) was 2.91% and its weighted average
maturity was 40 days. Using a combined federal and state income tax rate of
41.95%, the 30-day yield is equivalent to a 5.01% taxable yield.
HOW WOULD YOU CHARACTERIZE THE CALIFORNIA ECONOMY?
The California economy continues to emerge from the deep recession of the early
1990s, led by a strong expansion in the high technology and entertainment
industries. Although the State was recently upgraded to "A+" from "A" by two
national rating agencies, we believe that the State's credit rating is not
likely to be upgraded further, due to its huge social services commitments.
WHAT IS YOUR STRATEGY FOR THE COMING YEAR?
We will continue to extend the portfolio in a falling interest rate environment,
by buying longer-term notes and bonds--anything which matures within 13 months,
the longest allowed for a money market fund. As a result, this could extend the
portfolio's weighted average maturity from 40 to 60 days. We believe that a
tax-free fund should continue to offer attractive income when compared to
taxable money market fund yields.
- --------------
* An investment in the HighMark California Tax-Free Money Market Fund is neither
insured nor guaranteed by the U.S. Government. Although this fund seeks to
maintain a stable net asset value of $1.00 per share, there can be no
assurance that it will be able to do so. Some or all of the income may be
subject to certain state and local taxes, and, in some cases, to the federal
alternative minimum tax.
7
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HIGHMARK INTERMEDIATE-TERM BOND FUND
The HighMark Intermediate-Term Bond Fund seeks total return through investments
in fixed income securities issued by the U.S. government and its agencies, U.S.
corporations and foreign governments. The average maturity of the portfolio will
range from three to ten years.
For the 12 months ended July 31, 1997, the HighMark Intermediate-Term Bond Fund
returned 9.11% (Retail Shares).* In comparison, the average intermediate bond
fund as measured by Lipper Analytical Services, Inc. produced a 9.71% return.
The unmanaged Lehman Brothers Intermediate Government/Corporate Index, which
represents an aggregate of U.S. government, treasury, and agency securities,
corporate bonds and yankee bonds, reflected a return of 9.08%. the Fund changed
its benchmark to this index from the Salomon Broad Investment Grade Bond Index
last year, as this index is more representative of the objectives of the Fund.
The day-to-day management of the HighMark Intermediate-Term Bond Fund's
investments is the responsibility of a team of investment professionals.
WHAT FACTORS AFFECTED YOUR PERFORMANCE DURING THE YEAR?
The key factor in performance is the portfolio's duration (sensitivity to
interest rates). The longer the duration, the more sensitive the portfolio is to
changes in interest rates, up or down. From mid-April to the end of July,
interest rates on intermediate and long-term securities fell steadily.
Therefore, a portfolio with a longer duration would do better in such an
environment.
This Fund underwent a transition in May in which it changed its style from a
full maturity portfolio to an intermediate portfolio. As a result, the duration
was reduced sharply. The policy change limited holdings of any individual
security to a maximum maturity of 12 years and had a slightly negative impact to
yield. However, the Fund's duration was still longer than its intermediate index
for most of the period, and that was a positive in a falling interest rate
environment.
Another factor affecting the Fund's performance was our sector decision. As
interest rates were falling, we eliminated the portfolio's mortgage component,
which had been as high as 25%. This decision added value, since mortgages do
poorly in a falling interest rate environment because borrowers refinance at the
lower rates. We remain overweighted in corporate bonds, which have outperformed
in this strong economy. However, corporate yield spreads over U.S. Treasury
bonds are very tight. For instance, a bond issued by Disney due in four years
yields just 0.25 percentage points over Treasury securities of comparable
maturity.
8
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WHAT AREAS OF THE CORPORATE BOND MARKET ARE YOU FINDING ATTRACTIVE?
Because of the healthy U.S. economy, the lower rated bonds are producing the
greatest appreciation. For instance, we purchased Worldcom bonds due in 2004
with a split rating; Standard & Poor's rates them the lowest investment grade
while Moody's rates them the highest non-investment grade. Between April and
July, the bond has appreciated from 99.25 to 103, which was a gain of
approximately 2.25 points more than a comparable maturity U.S. Treasury Note in
the same time frame.
WHAT IS YOUR OUTLOOK?
Statistical measures of inflation are continuing to show that price stability is
a reality of the times even during periods of 6% growth in U.S. Gross Domestic
Product and a 4.8% rate of unemployment. This development has confounded the
conventional wisdom that would anticipate rising inflation in such a buoyant
economy. With inflation still trending downward, fixed income securities
yielding between 6.75% and 7%, ranging in maturity from 5-10 years, remain quite
attractive. Indeed, the intermediate sector would appear to be more attractive
than the longer maturities, which offer little extra yield.
- ---------------
*Including the maximum sales charge of 3.00%, the Fund's total return (Retail
Shares) was 5.83% for the year.
9
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HIGHMARK INTERMEDIATE-TERM BOND FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE
INTERMEDIATE-TERM BOND FUND VERSUS THE LEHMAN BROTHERS
INTERMEDIATE GOVERNMENT/CORPORATE INDEX AND THE SALOMON
BROAD INVESTMENT GRADE BOND INDEX
FIDUCIARY SHARES
[LINE GRAPH OMITTED] PLOT POINTS ARE AS FOLLOWS:
<TABLE>
<CAPTION>
HIHGMARK INTERMEDIATE- LEHMAN BROTHERS INTERMEDIATE SALMON BROAD INVESTMENT
TERM BOND FUND, FIDUCIARY GOVERNMENT/CORPORATE INDEX GRADE BOND INDEX
<S> <C> <C> <C>
2/28/91 10,000 10,000 10,000
7/31/91 10,427 10,362 10,399
7/31/92 12,026 11,826 11,939
7/31/93 13,127 12,843 13,183
7/31/94 13,066 12,964 13,198
7/31/95 14,164 14,106 14,549
7/31/96 14,794 14,853 15,344
7/31/97 16,140 16,201 16,999
</TABLE>
RETAIL SHARES
LINE GRAPH OMITTED, PLOT POINTS ARE AS FOLLOWS:
<TABLE>
<CAPTION>
HIHGMARK INTERMEDIATE- LEHMAN BROTHERS INTERMEDIATE SALMON BROAD INVESTMENT
TERM BOND FUND, RETAIL GOVERNMENT/CORPORATE INDEX GRADE BOND INDEX
<S> <C> <C> <C>
2/29/92 9,700 10,000 10,000
7/31/92 10,309 10,562 10,556
7/31/93 11,252 11,470 11,656
7/31/94 11,189 11,578 11,670
7/31/95 12,130 12,598 12,864
7/31/96 12,671 13,265 13,567
7/31/97 13,825 14,468 15,030
</TABLE>
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Annualized Annualized Annualized
One Year 3 Year 5 Year Inception
Return Return Return to Date
- ---------------------------------------------------------------
Fiduciary 9.10% 7.30% 6.06% 7.83%
- ---------------------------------------------------------------
Retail 9.11% 7.30% 6.04% 6.72%
- ---------------------------------------------------------------
Retail
with load* 5.83% 6.22% 5.39% 6.14%
- ---------------------------------------------------------------
*Reflects 3.00% sales charge.
Past performance is not predictive of future results. Performance presented from
February 28, 1991 (commencement of operations Fiduciary Shares) and February 29,
1992 (commencement of operation of the Retail Shares) to April 25, 1997 reflect
the performance of the Stepstone Intermediate-Term Bond Fund. See Note 7 of the
Notes to the Financial Statements.
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HIGHMARK CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND:
The HighMark California Intermediate Tax-Free Bond Fund seeks to provide high
current income that is exempt from federal and State of California income taxes.
It does so by investing in a portfolio of intermediate-term municipal bonds
issued within California.
For the 12 months ended July 31, 1997, the HighMark California Intermediate
Tax-Free Bond Fund produced a total return of 8.82% (Retail Shares),*
outperforming its peer group. In comparison, the Lipper California Intermediate
Muni Debt Group returned an average of 8.26%. The unmanaged Lehman 7 Year Muni
Bond Index, which is composed of investment-grade, fixed rate, municipal bonds
maturing in 7-8 years with issues larger than $50 million, reflected a return of
8.64%. The Fund changed its benchmark to this index from the Lehman 7 year G.O.
Index last year, as this index is more representative of the performance of
municipal bonds.
The HighMark California Intermediate Tax-Free Bond Fund strategy team is led by
Robert L. Bigelow, who has 12 years of experience in the investment management
field. Mr. Bigelow holds an MBA and a bachelor's degree in economics from
Pepperdine University.
HOW WOULD YOU CHARACTERIZE THE MUNICIPAL BOND MARKET DURING THE YEAR?
The municipal bond market outperformed the U.S. Treasury market on a relative
basis during the year ending July 31, 1997. Although the interest rate
environment was volatile during the year, interest rates fell between August 1,
1996 and July 31, 1997. As a result, bond portfolios generally appreciated.
Municipal bonds appreciated more than Treasuries because the supply of municipal
bonds was tight during the year, while the demand for tax-exempt income
increased relative to Treasury bonds.
There was also the absence of two negative factors during the year: tax reform
and Orange County. Up until the November 1996 election, some of the presidential
candidates were advocating a flat tax, which would have limited or removed the
tax advantage from municipal bonds. That concern ended with the election
results. In addition, California's prolonged recession and the 1995 credit
concerns arising from Orange County faded from view.
WHY DID THE FUND OUTPERFORM ITS PEER GROUP?
The Fund outperformed because of its active management of specific securities as
well as decisions relating to the portfolio's duration, or sensitivity to
interest rates. In a period of generally falling interest rates, a portfolio
with a longer than average duration tends to outperform its benchmark.
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WHAT IS YOUR CURRENT STRATEGY?
We have continued to focus on higher quality bonds, many of which are insured.
This represents our shareholders' desires as well as the declining relative
value of lower quality bonds. We continue to maintain a duration slightly longer
than the benchmark. In addition, we continue to hold higher coupon bonds, which
tend to protect us against an unexpected rise in interest rates.
WHAT IS YOUR OUTLOOK?
We continue to maintain a positive outlook on the fixed income market. The
economy is growing at a moderate and sustainable rate, with little apparent
threat of inflation on the horizon.
California continues to emerge from the recession of the early 1990s. During the
past year, the California unemployment rate has fallen one percentage point to
6.10%, its pre-recession level. Many of the jobs lost in the declining aerospace
industry were replaced by strong growth in technology and entertainment.
New municipal bond issuance in California should continue to remain restrained
as taxpayer challenges reduce municipalities' ability to issue debt without
voter approval. A tight supply would continue to be favorable for California
municipal bond holders.
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*Including the maximum sales charge of 3.00%, the Fund's total return (Retail
Shares) was 5.52% for the year.
12
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HIGHMARK CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE
CALIFORNIA INTERMEDIATE TAX FREE BOND FUND VERSUS THE
LEHMAN BROTHERS 7-YEAR MUNI INDEX, THE LEHMAN BROTHERS
7-YEAR G.O. INDEX AND THE LEHMAN BROTHERS 10-YEAR G.O. INDEX
[LINE GRAPH OMITTED] PLOT POINTS ARE AS FOLLOWS:
<TABLE>
<CAPTION>
HIGHMARK CALIFORNIA HIGHMARK CALIFORNIA LEHMAN BROTHERS LEHMAN BROTHERS LEHMAN BROTHERS
INTERMEDIATE TAX- INTERMEDIATE TAX- 7-YEAR MUNI 7-YEAR G.O. 10-YEAR G.O.
FREE BOND FUND, FREE BOND FUND, INDEX INDEX INDEX
FIDUCIARY SHARES RETAIL SHARES
<S> <C> <C> <C> <C> <C>
10/31/93 10,000 9,700 10,000 10,000 10,000
7/31/94 9,702 9,402 9,953 9,950 9,875
7/31/95 10,407 10,086 10,760 10,752 10,714
7/31/96 11,102 10,749 11,307 11,327 11,350
7/31/97 12,079 11,697 12,284 12,328 12,549
</TABLE>
- --------------------------------------------------------------
Annualized Annualized
One Year 3 Year Inception
Return Return to Date
- --------------------------------------------------------------
Fiduciary 8.80% 7.58% 4.86%
- --------------------------------------------------------------
Retail 8.82% 7.55% 4.81%
- --------------------------------------------------------------
Retail
with load* 5.52% 6.45% 3.97%
- --------------------------------------------------------------
*Reflects 3.00% sales charge.
Past performance is not predictive of future results.Performance presented from
October 15, 1993 (commencement of operations Fiduciary and Retail Shares) to
April 25, 1997 reflect the performance of the Stepstone California Intermediate
Tax-Free Bond Fund. See Note 7 of the Notes to the Financial Statements.
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HIGHMARK BOND FUND
The HighMark Bond Fund seeks current income by investing in long-term
fixed-income securities issued by the U.S. government and its agencies, U.S.
corporations and foreign governments, and mortgage-back securities. The average
maturity of the portfolio will range from five to 20 years.
For the 12 months ended July 31, 1997, the HighMark Bond Fund returned 10.68%
(Retail Shares).* In comparison, the average bond fund as measured by Lipper
Analytical Services, Inc. produced a 14.89% return. The unmanaged, broad-based
Lehman Brothers Aggregate Bond Index, considered to be representative of the
bond market as a whole, reflected a return of 10.78%.
The day-to-day management of the HighMark Bond Fund's investments is the
responsibility of a team of investment professionals.
WHAT FACTORS AFFECTED YOUR PERFORMANCE DURING THE YEAR?
We've kept the duration (sensitivity to interest rates) of the portfolio
consistently longer than the benchmark. That helps if interest rates are
generally falling.
Although interest rates have been volatile during the fiscal year, yields on
bonds began the year at a similar level as they ended the year. As a result, the
key to bond management has been income. Anything that provides more
income--callable bonds, bonds with longer maturities, mortgages, lower rated
credits--helped the portfolio's performance.
We don't try to time the market. Some months have been extremely good for the
bond market, such as July, and others have been poor, such as March. Trying to
make interest rate guesses by making a lot of bond trades would have likely led
to poor performance. Staying consistent turned out to be the best strategy for
most investors.
HOW WOULD YOU DESCRIBE THE PORTFOLIO'S CURRENT COMPOSITION?
The portfolio consists of high-grade domestic bonds. All credits are rated above
BBB. At July 31, 1997, the portfolio consisted of 48% in U.S. Treasury and
government agency securities, 21% in mortgage-backed securities, 28% in
corporate bonds and the rest in cash. Although BBB corporate bonds have produced
the best price appreciation in recent months, we don't own them because we don't
believe their yields warrant the extra risk. That is, the yield spread over
risk-free U.S. Treasury bonds is too narrow. For instance, an A-rated industrial
bond due in ten years pays about 50 basis points (0.50%) more than a Treasury.
We own household names such as Ford Motor, Travelers and New England Telephone.
14
<PAGE>
There has been a huge amount of good news on the federal budget deficit. The
supply of bonds is likely to shrink as the government holds fewer auctions for
new bonds. At the same time, the demand for Treasury bonds continues to increase
worldwide, as investors continue to find Treasury yields attractive relative to
inflation. Lower supply and stronger demand would generally lead to higher bond
prices and lower yields.
Mortgage-backed securities lagged in July but did well virtually every other
month. Mortgages, which pay higher yields than Treasury bonds, outperform in
periods in which interest rates are steady to rising. When interest rates are
falling, investors rightly fear that homeowners will want to refinance their
mortgages, leaving investors to reinvest their money at lower interest rates.
WHAT IS YOUR OUTLOOK ON THE BOND MARKET?
Over the short-term, it's very possible for yields on the 30-year Treasury bond
to reach 7% once again. But given the inflation outlook, we think that long-term
interest rates could eventually trend downward to 5%. As a result, we continue
to construct the portfolio with a longer than average duration.
- ------------
*Including the maximum sales charge of 3.00%, the Fund's total return (Retail
Shares) was 7.40% for the year.
15
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HIGHMARK BOND FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN
THE BOND FUND VERSUS THE LEHMAN BROTHERS AGGREGATE BOND INDEX
AND THE MORNINGSTAR CORP BOND HIGH QUALITY AVERAGE.
[LINE GRAPH OMITTED] PLOT POINTS ARE AS FOLLOWS:
BOND FUND, FIDUCIARY BOND FUND, RETAIL LEHMAN BROTHERS MORNINGSTAR CORP
SHARES SHARES(synthetic) AGGREGATE BOND BOND HIGH QUALITY
INDEX AVERAGE
2/28/84 10,000 9,700 10,000 10,000
7/31/84 9,896 9,599 10,119 10,083
7/31/85 12,322 11,952 12,541 12,208
7/31/86 15,603 15,135 15,236 14,350
7/31/87 15,853 15,378 15,923 14,945
7/31/88 16,779 16,276 17,129 15,908
7/31/89 19,259 18,681 19,734 17,869
7/31/90 20,322 19,712 21,127 18,957
7/31/91 22,149 21,484 23,388 20,692
7/31/92 25,345 24,585 26,844 23,433
7/31/93 27,895 27,058 29,577 25,364
7/31/94 27,019 26,027 29,604 25,440
7/31/95 29,567 28,445 32,597 27,435
7/31/96 30,989 29,853 34,399 28,790
7/31/97 34,271 33,041 38,108 31,324
- -----------------------------------------------------------------
Annualized Annualized Annualized Annualized
One Year 3 Year 5 Year 10 Year Inception
Return Return Return Return to Date
- -----------------------------------------------------------------
Fiduciary 10.59% 8.25% 6.22% 8.01% 9.49%
- -----------------------------------------------------------------
Retail 10.68% 8.28% 6.09%+ 7.95%+ 8.05%
- -----------------------------------------------------------------
Retail
with load* 7.40% 7.19% 5.45%+ 7.62%+ 7.01%
- -----------------------------------------------------------------
*Reflects 3.00% sales charge.
+Synthetic, not actual return
Past performance is not predictive of future results.
16
<PAGE>
HIGHMARK CONVERTIBLE SECURITIES FUND
The HighMark Convertible Securities Fund seeks a high level of current income
and capital appreciation by investing in convertible securities. A convertible
security is typically a bond or preferred stock that may be converted at a
stated price within a specified time period into a specific number of shares of
common stock.
For the 12 months ended July 31, 1997, the HighMark Convertible Securities Fund
returned 27.11% (Fiduciary Shares). In comparison, the unmanaged Merrill Lynch
Investment Grade Convertible Securities Index, which is generally considered to
be representative of the market for all convertible securities of corporations
with investment-grade quality ratings, reflected a return of 25.01%.
The HighMark Convertible Securities Fund strategy team is led by Seth Shalov.
Mr. Shalov, who holds an MBA and bachelor's degree in finance from Rutgers
University, has 14 years of experience in the investment field.
WHAT IS THE STRATEGY BEHIND INVESTING IN CONVERTIBLE SECURITIES?
Convertible securities are hybrids combining some of the appreciation potential
of equities with the fixed income payments of bonds. They are generally issued
in the form of fixed income instruments with the option to convert into equity
of the company. If the underlying stock appreciates, the option becomes
more valuable, and therefore drives the price of the convertible security
higher.
Our goal in investing in convertible securities is to capture most of the
appreciation of the underlying stock, while limiting the downside exposure by
selecting convertibles with favorable risk/reward characteristics. By managing
in this way, an investor in this Fund can be afforded the opportunity for
capital appreciation while experiencing lower volatility of return compared to
an investment in a general equity fund. By holding 35 to 45 positions, the Fund
concentrates on the portfolio management team's best ideas.
WHAT ARE SOME ATTRACTIVE SECURITIES IN THIS PORTFOLIO?
One of the Fund's largest holdings is The Money Store (4.1% of the portfolio),
which specializes in sub-prime lending to homeowners. The company also makes
loans to small businesses and college students and has leveraged its brand name
into related products by analyzing customer requests on its popular 1-800
telephone line.
Another significant holding is USA Waste (3.1%), which is a leader in the solid
waste management business. The company makes acquisitions and achieves economies
of scale by cutting redundant operations. Currently, the largest companies in
the industry are divesting mismanaged and unprofitable divisions, leaving USA
Waste in a strong position to make acquisitions that strengthen its earnings.
17
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
Another holding, Diamond Offshore (2.8%), is a supplier of deep water drilling
rigs for the major oil companies. Diamond Offshore is benefiting from a shortage
of rigs in the industry, thus boosting day rates. In addition to the limited
supply, new drilling technologies have improved the potential for success.
As of July 31, 1997, the Fund's top five holdings were: The Money Store
(preferred) (4.1%); Intermedia Communications (preferred) (3.5%); Sanwa Bank
Limited (3.4%); U.S. Filter (3.3%); and U.S. Waste (3.1%).
WHAT IS YOUR OUTLOOK?
Convertible securities generally produce greater income than stocks and
therefore may be suited for those who are concerned about the rapid rise in
equity prices. Typically, convertible performance should fall between stock and
bond fund returns.
18
<PAGE>
HIGHMARK CONVERTIBLE SECURITIES FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE
CONVERTIBLE SECURITIES FUND VERSUS THE MERRILL LYNCH
INVESTMENT GRADE CONVERTIBLE SECURITIES INDEX.
[LINE GRAPH OMITTED] PLOT POINTS ARE AS FOLLOWS:
HIGHMARK CONVERTIBLE MERRILL LYNCH INVESTMENT
SECURITIES FUND GRADE CONVERTIBLE SECURITIES INDEX
2/28/94 10,000 10,000
7/31/94 9,648 9,615
7/31/95 10,883 11,034
7/31/96 11,487 12,360
7/31/97 14,601 15,401
- ---------------------------------------------------------------
Annualized Annualized
One Year 3 Year Inception
Return Return to Date
- ---------------------------------------------------------------
Fiduciary 27.11% 14.81% 11.12%
- ---------------------------------------------------------------
Past performance is not predictive of future results. Performance presented from
February 1, 1994 (commencement of operations Fiduciary Shares) to April 25, 1997
reflect the performance of the Stepstone Convertible Securities Fund. See Note 7
of the Notes to the Financial Statements.
19
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
HIGHMARK GOVERNMENT SECURITIES FUND
The HighMark Government Securities Fund seeks to achieve total return consistent
with the preservation of capital by investing in a diversified portfolio of
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Fund may invest in mortgage-backed securities and up to
20% of the portfolio can be invested in corporate bonds.
For the 12 months ended July 31, 1997, the HighMark Government Securities Fund
returned 9.10% (Fiduciary Shares). In comparison, the average U.S. government
bond fund as measured by Lipper Analytical Services, Inc. produced a 9.74%
return. The unmanaged Lehman Brothers Government Bond Index, which represents
all public obligations of the U.S. Treasury, all publicly issued debt of U.S.
government agencies, and all corporate debt guaranteed by the U.S. government,
reflected a return of 10.17%.
The HighMark Government Securities Fund is managed by Steven Blocklin, who has
15 years of experience in the investment field. Mr. Blocklin holds an MBA degree
from George Washington University and a bachelor's degree in economics from
Miami University.
WHAT FACTORS AFFECTED YOUR PERFORMANCE DURING THE YEAR?
The two factors that had the most impact on the performance of the Fund were
duration (sensitivity to interest rates) and sector weighting. For example, the
Fund had a duration/average maturity less than the benchmark during the month of
April, as we expected the Federal Reserve Board to enact a series of
tightenings. Instead, the Fed hiked rates just once on March 25, 1997. With a
shorter than average duration/maturity, our performance suffered in April when
interest rates fell. However, at other times during the year, having a shorter
duration was an advantage--such as when interest rates were rising.
In terms of sectors, one strategy that has increased returns this year has been
the purchase of lower quality corporate issuers. Investment in this quality
sector has increased the income component of total return. In addition, this
sector of the market has appreciated faster than similar maturity Treasury
bonds.
WHAT IS YOUR OUTLOOK?
Many economists believe that we are in a new era. The old theory is that low
unemployment eventually leads to inflation. But there is no inflation yet and
nobody really knows why. We can surmise that U.S. corporations are more
productive and the absence of trade barriers allows manufacturers to seek
globally the lowest cost environment. However, these factors, while important,
would not explain the dramatic absence of pricing pressure that we see today.
20
<PAGE>
Another new development is the shrinking budget deficit driven by the long U.S.
economic expansion. Recent reports indicate that the federal budget deficit
could be as low as $35 billion in fiscal 1997, which is just half of one percent
of the U.S. Gross Domestic Product. There's even talk about eliminating the
November auction for the 30-year bond. If that happens, then the long bond will
have scarcity value.
On a worldwide basis, U.S. interest rates are relatively high. At 5.50%, the
federal funds rate is several percentage points above the inflation rate. As a
result, we are attracting investors from all over the world, and that's why the
dollar is so strong. In Japan, you can borrow money at one percent interest, and
invest in three month T-bills at about 5.50%. Because of low inflation, the
shrinking deficit and our relatively high interest rates compared to the rest of
the world, there is certainly room for interest rates to fall in the U.S.
21
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
HIGHMARK GOVERNMENT SECURITIES FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE
GOVERNMENT SECURITIES FUND VERSUS THE LEHMAN BROTHERS GOVERNMENT BOND
INDEX AND THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX
[LINE GRAPH OMITTED] PLOT POINTS ARE AS FOLLOWS:
HIGHMARK GOVERNMENT LEHMAN BROTHERS LEHMAN BROTHERS
SECURITIES FUND GOVERNMENT BOND INTERMEDIATE GOVERNMENT
INDEX BOND INDEX
2/28/94 10,000 10,000 10,000
7/31/94 9,740 9,841 9,927
7/31/95 10,613 10,789 10,761
7/31/96 11,016 11,345 11,321
7/31/97 12,019 12,499 12,292
- ---------------------------------------------------------------
Annualized Annualized
One Year 3 Year Inception
Return Return to Date
- ---------------------------------------------------------------
Fiduciary 9.10% 7.26% 4.59%
- ---------------------------------------------------------------
Past performance is not predictive of future results. Performance presented from
February 1, 1994 (commencement of operations Fiduciary Shares) to April 25, 1997
reflect the performance of the Stepstone Government Securities Fund. See Note 7
of the Notes to the Financial Statements.
22
<PAGE>
HIGHMARK BALANCED FUND
The HighMark Balanced Fund seeks capital appreciation and income, with a
secondary investment objective of conservation of capital. Typically, the
Balanced Fund will invest 50% to 70% of its total assets in stocks, at least 25%
in bonds and the rest in money market securities and cash equivalents.
For the 12 months ended July 31, 1997, the HighMark Balanced Fund returned
30.08% (Retail Shares).* In comparison, the average balanced fund as measured by
Lipper Analytical Services, Inc. produced a 29.46% return. The unmanaged
Standard & Poor's 500 Stock Index, which is generally considered to be
representative of the U.S. stock market, and the unmanaged Lehman Brothers
Aggregate Bond Index, generally considered to be representative of the bond
market as a whole, reflected a return of 52.11% and 10.78%, respectively. The
Fund recently replaced the Salomon Brothers Bond Index with the Lehman Brothers
Aggregate Bond Index as the benchmark for its fixed income allocation, as the
latter is more representative of the portfolio.
The HighMark Balanced Fund strategy team is led by Carl Colombo, CFA, who has 23
years of experience in the investment field. Mr. Colombo holds an MBA from San
Diego State University and a bachelor's degree in business administration from
Florida State University.
HOW HAVE YOU ARRIVED AT YOUR STOCK MARKET ALLOCATION?
As the stock market has risen, there has been a strong temptation to reduce the
equity position of the portfolio, and we did that to some extent, reducing it
from about 65% to 60%. We have maintained a 60% weight because of four
fundamental factors: 1) corporate earnings and cash flows have been very strong
and this has helped support the relatively high valuations; 2) mergers &
acquisitions have continued to provide support for the market; 3) equity buy
backs by companies have helped to reduce the supply of common stock; and 4)
equity mutual funds continue to receive large monthly contributions from baby
boomers nearing retirement age, young 401(k) plan participants and other
investors in the U.S. and abroad seeking higher returns than are available in
the fixed income markets.
WHAT IS YOUR STOCK MARKET STRATEGY?
The equity portfolio consists of a value component and a growth component. The
value component is 60% of the portfolio. We look for companies that are out of
favor on Wall Street, but which demonstrate there are good reasons to think that
management is taking steps to make significant improvements. A good example is
Sears Roebuck, which rose 58% during the fiscal year. Sears is a retailer that
has gone through a tremendous rebirth in terms of profitability. Another example
is Dresser Industries, an oil services company that also rose 58% during the
fiscal year. Dresser is riding a wave of increased drilling activity that is
occurring worldwide.
23
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
WHAT IS YOUR FIXED INCOME STRATEGY?
Our strategy has been to take advantage of interest rate spikes by adding to the
portfolio, and taking profits and letting cash build up when interest rates move
down. We think the bond market is in a trading range with the 30-year Treasury
bond yielding anywhere between 6.25% and 7.00%. As yields move towards 7%, bonds
are more attractive and we're more likely to be aggressive buyers. To earn extra
yield, we have remained overweighted in corporate bonds. We look for credits
that are actually improving in which the market hasn't yet given them credit.
The duration (sensitivity to changes in interest rates) of the portfolio has
stayed at about 4.6 years, which is slightly longer than our benchmark.
WHAT IS YOUR OUTLOOK?
We continue to expect moderate economic growth and low rates of inflation. Over
the short-term, if there is an acceleration of economic growth in the third
quarter, it may be challenging to earn a competitive return on the bond portion
of the portfolio. In the stock market, you can generally find good investments,
regardless of whether interest rates are rising or falling.
- --------------
*Including the maximum sales charge of 4.50%, the Fund's total return (Retail
Shares) was 24.25% for the year.
24
<PAGE>
HIGHMARK BALANCED FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE BALANCED
FUND VERSUS THE S&P 500 STOCK INDEX, MORNINGSTAR BALANCED FUNDS
AVERAGE, LEHMAN BROTHERS AGGREGATE BOND INDEX AND THE SALOMON
INVESTMENT GRADE BROAD BOND INDEX.
FIDUCIARY SHARES
[LINE GRAPH OMITTED] PLOT POINTS ARE AS FOLLOWS:
<TABLE>
<CAPTION>
HIGHMARK BALANCED LEHMAN S&P 500 SALOMON MORNINGSTAR
FUND, FIDUCIARY BROTHERS AGGREGATE STOCK INVESTMENT GRADE BALANCED FUNDS
SHARES BOND INDEX INDEX BROAD BOND INDEX AVERAGE
<S> <C> <C> <C> <C> <C>
2/28/91 10,000 10,000 10,000 10,000 10,000
7/31/91 10,437 10,374 10,694 10,399 10,576
7/31/92 11,600 11,907 12,065 11,939 12,008
7/31/93 12,809 13,119 13,116 13,183 13,315
7/31/94 13,183 13,131 13,788 13,198 13,590
7/31/95 15,701 14,459 17,383 14,549 15,729
7/31/96 17,419 15,258 20,260 15,344 17,228
7/31/97 22,726 16,903 30,817 16,999 22,218
</TABLE>
RETAIL SHARES
[LINE GRAPH OMITTED] PLOT POINTS ARE AS FOLLOWS:
<TABLE>
<CAPTION>
HIGHMARK BALANCED LEHMAN S&P 500 SALOMON MORNINGSTAR
FUND, RETAIL BROTHERS AGGREGATE STOCK INVESTMENT GRADE BALANCED FUNDS
SHARES BOND INDEX INDEX BROAD BOND INDEX AVERAGE
<S> <C> <C> <C> <C> <C>
11/30/92 9,550 10,000 10,000 10,000 10,000
7/31/93 10,298 10,922 10,573 10,933 10,791
7/31/94 10,599 10,932 11,115 10,946 11,014
7/31/95 12,624 12,037 14,013 12,066 12,748
7/31/96 13,977 12,703 16,332 12,726 13,963
7/31/97 18,182 14,073 24,843 14,098 18,007
</TABLE>
- ---------------------------------------------------------------
Annualized Annualized Annualized
One Year 3 Year 5 Year Inception
Return Return Return to Date
- ---------------------------------------------------------------
Fiduciary 30.47% 19.90% 14.40% 14.15%
- ---------------------------------------------------------------
Retail 30.08% 19.70% N/A 14.80%
- ---------------------------------------------------------------
Retail
with load* 24.25% 17.88% N/A 13.69%
- ---------------------------------------------------------------
*Reflects 4.50% sales charge.
Past performance is not predictive of future results. Performance presented from
February 1, 1991 (commencement of operations Fiduciary Shares) and November 13,
1992 (commencement of operations of Retail Shares) to April 25, 1997 reflect the
performance of the Stepstone Balanced Fund. See Note 7 of the Notes to the
Financial Statements.
25
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
HIGHMARK GROWTH FUND
The HighMark Growth Fund seeks long-term capital appreciation through
investments in equity securities. The production of current income is an
incidental objective.
For the 12 months ended July 31, 1997, the HighMark Growth Fund returned 48.49%
(Retail Shares).* In comparison, the average growth fund as measured by Lipper
Analytical Services, Inc. was up 42.90% during the period. In addition, the
unmanaged Standard & Poor's 500 Stock Index, generally considered to be
representative of the U.S. stock market, rose 52.11% for the twelve-month
period.
The HighMark Growth Fund strategy team is led by Scott Chapman, CFA, who has 18
years of experience in the investment field. Mr. Chapman holds an MBA from
Golden Gate University and a bachelor's degree in accounting from Santa Clara
University.
WHAT WERE SOME OF THE BIG WINNERS IN THE PORTFOLIO?
Applied Materials (0.6% of the portfolio) was a big winner during the period.
The company is the leading supplier of semiconductor manufacturing equipment,
and a major supplier to Intel. Warner-Lambert (1.4%) is benefiting from the
success of two drugs, one to reduce cholesterol and the other to treat diabetes.
Both drugs were approved by the FDA last winter, and they've exceeded Wall
Street expectations for growth. Colgate-Palmolive (1.6%) has gained market share
in all of its categories. In toothpaste, the brand has gained against Crest, its
main competitor in the U.S. Investors accorded the stock a high value due to the
predictability of its earnings. In financial services, Franklin Resources (1.1%)
is benefiting from the boom in mutual funds. Historically, the company has been
highly reliant on the municipal bond business. However, it recently made an
acquisition to bolster its equity offerings.
WHAT DIDN'T DO SO WELL?
Wells Fargo (1.0%) had problems integrating its merger with First Interstate
Bank. After the merger, Wells lost customers and had problems assimilating First
Interstate's back office accounting systems. Electronic Data Systems (1.0%) has
seen its labor costs increase, as it hires more experienced consultants to deal
with the "year 2000" problem coming for computers.
26
<PAGE>
WHAT IS YOUR STRATEGY?
We have been surprised that the stock market has done so well in 1997. However,
we've done well because we always stay fully invested and don't try to time the
market. Since the bulk of the market's move this year has been concentrated in
the top 20 market capitalization companies, we've cut back on some of them. We
cut back our position on Microsoft from 3% to 2% of the portfolio after the
company announced that management thought their stock was overvalued. We reduced
our position in Coca-Cola from 3% to 1.3% because the stock was selling at more
than 40 times earnings, and that's more than twice the company's growth rate.
We're shifting away from large blue-chip companies that have been excessively
valued and we're moving towards mid-capitalization companies such as Mirage
(1.0%), a leading gaming company. As of July 31, 1997, the Fund's top five
holdings were: Intel (3.6%); Gillette (2.9%); Merck (2.5%); General Electric
(2.5%); and Johnson & Johnson (2.2%).
WHAT IS YOUR CURRENT OUTLOOK?
Currently, stock prices are close to an all-time high. The S&P 500 Index was up
37% in 1995, 23% in 1996 and more than 20% so far in 1997. The long-term return
on stocks has been about 10%. During the past three years, the S&P 500 has
doubled in price, yet underlying business performance has not doubled. We
currently expect a return to more normal levels of appreciation. Regardless of
how the market does overall, we currently plan to remain focused on high quality
proven growth companies that will benefit from the globalization of the economy,
technology, and the aging population.
- ------------
*Including the maximum sales charge of 4.50%, the Fund's total return (Retail
Shares) was 41.85% for the year.
27
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
HIGHMARK GROWTH FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN
THE GROWTH FUND VERSUS THE S&P 500 STOCK INDEX, RUSSELL 1000
GROWTH INDEX AND THE MORNINGSTAR GROWTH FUND AVERAGE.
[LINE GRAPH OMITTED] PLOT POINTS ARE AS FOLLOWS:
<TABLE>
<CAPTION>
HIGHMARK GROWTH HIGHMARK GROWTH S&P 500 RUSSELL 1000 MORNINGSTAR GROWTH
FUND, FIDUCIARY FUND, RETAIL STOCK GROWTH INDEX FUNDS AVERAGE
SHARES SHARES (SYNTHETIC) INDEX
<S> <C> <C> <C> <C> <C>
11/30/93 10,000 9,550 10,000 10,000 10,000
7/31/94 9,650 9,225 10,100 9,955 9,960
7/31/95 12,085 11,541 12,733 13,086 12,491
7/31/96 13,622 13,027 14,841 15,118 13,786
7/31/97 20,234 19,344 22,574 22,955 19,524
</TABLE>
- ---------------------------------------------------------------
Annualized Annualized
One Year 3 Year Inception
Return Return to Date
- ---------------------------------------------------------------
Fiduciary 48.54% 27.99% 21.54%
- ---------------------------------------------------------------
Retail 48.49% 28.00%+ 21.58%
- ---------------------------------------------------------------
Retail
with load* 41.85% 26.05%+ 20.08%
- ---------------------------------------------------------------
*Reflects 4.50% sales charge.
+Synthetic, not actual return
Past performance is not predictive of future results.
28
<PAGE>
HIGHMARK VALUE MOMENTUM FUND
The HighMark Value Momentum Fund invests primarily in stocks which appear
undervalued relative to the market and/or their historic price valuations.
Stocks are screened for positive price or earnings momentum. Most of the
securities pay dividends.
For the 12 months ended July 31, 1997, the HighMark Value Momentum Fund returned
47.14% (Retail Shares).* In comparison, the average growth and income fund as
measured by Lipper Analytical Services, Inc. was up 43.83%. The unmanaged
Standard & Poor's 500 Stock Index, generally considered to be representative of
the U.S. stock market, was up 52.11% for the period.
The HighMark Value Momentum Fund strategy team is led by Richard Earnest, who
holds an MBA in finance as well as a bachelor's degree in economics from
Stanford University. Mr. Earnest has more than 30 years of experience in the
investment field.
HOW WOULD YOU ASSESS YOUR PERFORMANCE?
Of course, a 47.14% return is certainly good performance, although we did
slightly trail the S&P 500 Index. In order to match the S&P 500 Index, you would
have to be heavily weighted in the large capitalization growth sector. You
would have needed to hold Coca-Cola and Gillette for the year ended July 31,
1997, and that's not likely in a value fund. Fortunately, our "momentum" element
allows us to stick with some stocks that we couldn't buy today, such as Intel
(2.1% of the portfolio) and Cisco Systems (1.0%).
WHAT ARE SOME NEW ADDITIONS TO THE PORTFOLIO?
In banking, we added Bankers Trust (0.9%), which has done quite well. The
company's stock was selling at a significant discount to other bank stocks
because of a problem they had a few years ago with the use of derivatives.
However, they have been able to achieve higher earnings without profits from
derivatives, a business they have downsized.
As value investors we're underweighted at 8% in the medical area, which
represents about 12% of the S&P 500. Nevertheless, we did add a new nursing home
stock, Manor Care (0.7%), that has developed a lucrative side business in
assisted living and pre-Alzheimer's care. Investors perceive nursing home
companies as vulnerable to cutbacks in Federal Medicare reimbursement. However,
Manor Care focuses on upscale nursing centers where there is more private pay,
and a lower proportion of Medicare reimbursement.
As of July 31, 1997, the Fund's top five holdings were: Intel (2.1%); Travelers
(1.5%); Hewlett Packard (1.4%); Dresser Industries (1.3%); and Aames Financial
(1.3%).
29
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
DO YOU STILL FIND REAL ESTATE INVESTMENT TRUSTS (REITS) ATTRACTIVE?
REITs currently make up 5% of the portfolio. We would buy more, but we limit our
portfolio to 5% in any one industry. Our REITs yield 6-6.5%, which is about the
same as a ten-year U.S. Treasury bond, and we think that the dividend is going
to grow at a 5-8% annual rate. REITs are able to raise rents now, and the real
estate they purchased in the late 1980s is finally looking inexpensive.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We think that this portfolio is more defensive than the market as a whole. The
portfolio's "beta," its correlation to the S&P 500, has fallen from 0.98 at the
beginning of 1997 to 0.87 now. That suggests that our portfolio would hold up
better in the event of a market correction.
- -------------
*Including the maximum sales charge of 4.50%, the Fund's total return (Retail
Shares) was 40.49% for the year.
30
<PAGE>
HIGHMARK VALUE MOMENTUM FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN
THE VALUE MOMENTUM FUND VERSUS THE STANDARD & POOR'S 500 STOCK INDEX.
FIDUCIARY SHARES
[LINE GRAPH OMITTED] PLOT POINTS ARE AS FOLLOWS:
HIGHMARK VALUE STANDARD & POOR'S
MOMENTUM FUND 500 STOCK INDEX
2/28/91 10,000 10,000
7/31/91 10,637 10,694
7/31/92 11,865 12,065
7/31/93 13,339 13,116
7/31/94 13,909 13,788
7/31/95 17,443 17,383
7/31/96 20,376 20,260
7/31/97 30,054 30,817
RETAIL SHARES
[LINE GRAPH OMITTED] PLOT POINTS ARE AS FOLLOWS:
HIGHMARK VALUE STANDARD & POOR'S
MOMENTUM FUND 500 STOCK INDEX
4/30/92 9,550 10,000
7/31/92 9,762 10,303
7/31/93 10,976 11,201
7/31/94 11,445 11,775
7/31/95 14,353 14,845
7/31/96 16,733 17,302
7/31/97 24,621 26,318
- ---------------------------------------------------------------
Annualized Annualized Annualized
One Year 3 Year 5 Year Inception
Return Return Return to Date
- ---------------------------------------------------------------
Fiduciary 47.50% 29.28% 20.43% 19.55%
- ---------------------------------------------------------------
Retail 47.14% 29.09% 20.32% 20.19%
- ---------------------------------------------------------------
Retail
with load* 40.49% 27.14% 19.22% 19.16%
- ---------------------------------------------------------------
*Reflects 4.50% sales charge.
Past performance is not predictive of future results. Performance presented from
February 1, 1991, (commencement of operations Fiduciary Shares) and April 2,
1992, (commencement of operations Retail Shares) to April 25, 1997 reflect the
performance of the Stepstone Value Momentum Fund. See Note 7 of the Notes to
Financial Statements.
31
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
HIGHMARK INCOME EQUITY FUND
The HighMark Income Equity Fund seeks investments in equity securities that
provide current income through the regular payment of dividends, with the goal
that the Fund will have a high current yield and low level of price volatility.
The opportunity for long-term growth of asset value is a secondary
consideration.
For the 12 months ended July 31, 1997, the HighMark Income Equity Fund returned
39.97% (Retail Shares).* In comparison, the average equity income fund as
measured by Lipper Analytical Services rose 39.93% during the fiscal year. The
Standard & Poor's 500 Stock Index, generally considered to be representative of
the U.S. stock market, was up 52.11% for the period.
The HighMark Income Equity Fund strategy team is led by Thomas M. Arrington,
CFA. Mr. Arrington, who holds an MBA from San Francisco State University and a
bachelor's degree in economics from UCLA, has more than a decade of investment
management experience.
WHAT AREAS OF YOUR PORTFOLIO HAVE PERFORMED WELL RECENTLY?
In recent months, the Fund's bank, insurance, pharmaceutical and forest product
stocks outperformed the broad market. The bank and insurance stocks benefited
from falling interest rates. These companies still earn a substantial proportion
of their profits through interest rate margin products. When interest rates
fall, banks are able to reduce their cost of funds faster than they are required
to reduce their lending rates. Insurance companies invest a large percentage of
their portfolios in long-term bonds, which appreciate in a falling interest rate
environment.
The pharmaceutical stocks performed well due to their strong earnings growth and
attractive product pipelines. The forest products stocks surged as investors
anticipated rising pulp and paper prices. On the downside, the Fund's utility
and telephone stocks lagged because investors were concerned about industry
deregulation and the competitive pressures that will likely follow.
WHERE DO YOU CURRENTLY SEE VALUE?
Six months ago, we told you that we liked McGraw-Hill (4.0% of the portfolio), a
publisher of college textbooks and BUSINESS WEEK magazine as well as the owner
of Standard & Poor's Corporation. We are pleased to report that the company's
stock rose nearly 38% over the last six months. Even with this increase, we
still believe McGraw-Hill represents an excellent value. The company reported
14% earnings per share growth during the second quarter of 1997, and we
currently expect the company to produce earnings growth for calendar year 1997
and 1998. The educational and professional publishing business appears to be in
the early stages of a strong adoption cycle. S&P continues to benefit from
robust financial markets, growth in non-traditional products and expansion into
the international market.
32
<PAGE>
We also like Phillips Petroleum (1.2%), a company that has the lowest
price-earnings ratio among the major integrated oil companies. We believe that
the shares should perform well in the near future because of higher than
expected natural gas earnings.
As of July 31, 1997, the Fund's top five holdings were: McGraw-Hill (4.0%);
BancOne (3.3%); Marsh & McClennan (3.0%); Bristol-Myers Squibb (2.8%) and Baxter
International (2.6%).
WHAT IS YOUR OUTLOOK?
We are cautious about further near-term price appreciation in the overall market
indexes. The S&P 500 Index returns for 1995, 1996 and the first half of 1997
have at least doubled the 70-year average annual return on stocks of 10%. In the
long run, stock prices generally increase in tandem with corporate earnings.
However, stocks have increased more than twice as fast as earnings in the past
few years.
We believe that the Income Equity strategy is especially well positioned for the
current market environment. The strategy should provide returns that participate
with the market if it continues to rise. Equally important, the strategy should
provide downside protection if the market were to retreat. Over the long-term,
we are optimistic about investing in the U.S. stock market and continue to
identify and purchase well-managed, undervalued, dividend paying companies.
- ---------------
*Including the maximum sales charge of 4.50%, the Fund's total return (Retail
Shares) was 33.70% for the year.
33
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
HIGHMARK INCOME EQUITY FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE INCOME EQUITY
FUND VERSUS THE S&P 500 STOCK INDEX AND THE MORNINGSTAR EQUITY INCOME AVERAGE.
[LINE GRAPH OMITTED] PLOT POINTS ARE AS FOLLOWS:
HIGHMARK HIGHMARK
FIDUCIARY RETAIL S&P MORNINGSTAR
2/28/84 10,000 9,550 10,000 10,000
7/31/84 9,656 9,221 9,788 9,751
7/31/85 13,213 12,618 12,965 12,700
7/31/86 16,865 16,106 16,649 15,658
7/31/87 21,400 20,437 23,192 19,321
7/31/88 21,089 20,140 20,465 18,457
7/31/89 27,028 25,812 26,989 23,009
7/31/90 26,785 25,580 28,738 23,061
7/31/91 30,163 28,805 32,396 25,610
7/31/92 34,998 33,423 36,550 29,367
7/31/93 38,410 36,681 39,733 32,946
7/31/94 40,035 38,233 41,771 34,399
7/31/95 46,945 44,931 52,661 40,044
7/31/96 55,517 53,113 61,376 45,855
7/31/97 77,795 74,343 93,360 64,087
- -----------------------------------------------------------------
Annualized Annualized Annualized Annualized
One Year 3 Year 5 Year 10 Year Inception
Return Return Return Return to Date
- -----------------------------------------------------------------
Fiduciary 40.13% 24.79% 17.32% 13.78% 16.27%
- -----------------------------------------------------------------
Retail 39.97% 24.81% 17.34% 13.78% 24.21%
- -----------------------------------------------------------------
Retail
with load*33.70% 22.92% 16.26%+ 13.26%+ 22.39%
- -----------------------------------------------------------------
*Reflects 4.50% sales charge.
+Synthetic, not actual return
Past performance is not predictive of future results.
34
<PAGE>
HIGHMARK BLUE CHIP GROWTH FUND
The HighMark Blue Chip Growth Fund seeks long-term capital growth by investing
in a diversified portfolio of common stocks and other equity securities of
seasoned, large-capitalization growth companies.
For the 12 months ended July 31, 1997, the HighMark Blue Chip Growth Fund
returned 45.40% (Fiduciary Shares). In comparison, the average growth fund as
measured by Lipper Analytical Services, Inc. was up 42.90%. The unmanaged
Standard & Poor's 500 Stock Index, generally considered to be representative of
the U.S. stock market, was up 52.11% for the period.
The HighMark Blue Chip Growth Fund strategy team is led by Edmond Chin, CFA, who
has 15 years of experience in the investment field. Mr. Chin holds a bachelor's
degree in biology from Cornell University.
HOW DO YOU DEFINE "BLUE CHIP?"
For this portfolio, blue chip means large capitalization companies that are
dominant market leaders with consistent earnings growth in excess of the overall
market. Some good examples include Compaq Computer (2.5% of the portfolio),
Money Store (1.8%) and MedPartners (1.5%).
Let's look at technology first. The hot growth area in computers is in "client
servers," which allow computers to communicate with one another. Compaq is a
leader in the client server field. In the old days, you had dummy terminals
connected to the mainframe computer. Then, everyone had a PC on their desk, but
they weren't networked together. Now, the new computer architecture is a
mainframe with PC terminals, with the mainframe not being so dominant and the
"dummy" terminals much more functional. Data resides on the client server and
can be manipulated by office personnel either in the office or on the road.
IN FINANCIAL SERVICES, WHY IS MONEY STORE SUCH A LEADER?
Money Store is a leader in the home equity loan industry. People who are worried
about their large credit card balances go to Money Store to consolidate their
debts. The company makes good use of information technology to analyze the
credit quality of customers, enabling it to have one of the most conservative
balance sheets in the industry. One of the themes of this portfolio has been
companies which are investing in information technology as a competitive weapon.
35
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
DOES YOUR DEGREE IN BIOLOGY HELP YOU ANALYZE MEDICAL COMPANIES?
It might help me because I'm less intimidated by them. I'm willing to read up
about a company's technology whereas perhaps someone without the biology degree
may be less likely to invest in healthcare, especially if they didn't do too
well in science. For instance, Boston Scientific (1.5%) is an attractive
healthcare company that makes angioplasty devices. Balloon angioplasty is a
procedure in which doctors use a catheter to open up a blocked artery. Often,
those unclogged arteries collapse from disease. Boston Scientific is a leading
maker of stints, which are placed in the artery to keep it from collapsing.
Another medical company is taking advantage of the dramatic change in the health
care industry. MedPartners (1.5%) is the largest physician practice management
company in the U.S. By consolidating physician practices, MedPartners allows
physicians more bargaining power when dealing with managed care companies.
As of July 31, 1997, the Fund's top five holdings were: Philip Morris (2.7%);
Compaq Computer (2.5%); Quantum (2.3%); Computer Associates International
(2.3%); and United Healthcare (2.2%).
WHAT IS YOUR OUTLOOK?
As we have seen in August, the stocks that have done extremely well are targets
for profit taking. However, I believe that the outlook for stocks is very good,
given the current economic environment of moderate growth and low inflation. The
major investment themes for the portfolio will continue to be productivity and
competitive advantages through the use of information technology, the managed
care phenomenon of the U.S. healthcare market, and deregulation and the
consolidation of the banking and financial sectors.
36
<PAGE>
HIGHMARK BLUE CHIP GROWTH FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
IN THE BLUE CHIP GROWTH FUND VERSUS THE S&P 500 STOCK INDEX.
[LINE GRAPH OMITTED] PLOT POINTS ARE AS FOLLOWS:
HIGHMARK BLUE CHIP GROWTH FUND S&P 500 STOCK INDEX
2/28/94 10,000 10,000
7/31/94 9,651 9,920
7/31/95 12,114 12,506
7/31/96 13,548 14,576
7/31/97 19,699 22,172
- --------------------------------------------------------------
Annualized Annualized
One Year 3 Year Inception
Return Return to Date
- --------------------------------------------------------------
Fiduciary 45.40% 26.85% 20.71%
- --------------------------------------------------------------
Past performance is not predictive of future results. Performance presented from
February 1, 1994 (commencement of operations Fiduciary Shares) to April 25, 1997
reflect the performance of the Stepstone Blue Chip Fund. See Note 7 of the Notes
to the Financial Statements.
37
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
HIGHMARK EMERGING GROWTH FUND
The HighMark Emerging Growth Fund seeks long-term growth of capital by investing
in a diversified portfolio of equity securities of small-capitalization,
emerging-growth companies.
For the 12 months ended July 31, 1997, the HighMark Emerging Growth Fund
returned 24.12% (Fiduciary Shares). In comparison, the average small
capitalization fund as measured by Lipper Analytical Services, Inc. was up
31.96% during the period. In addition, the unmanaged Standard & Poor's 600 Small
Cap Index which is a market-value weighted index made up of 600 domestic stocks
of relatively liquid, small capitalization companies, rose 38.90% and the
Russell 2000 Index, which measures the performance of the 2,000 smallest
companies in the Russell 3,000 Index, rose 25.26% for the twelve month period.
The HighMark Emerging Growth Fund is managed by Seth Shalov, who has 14 years of
experience in the investment field. Mr. Shalov holds an MBA and a bachelor's
degree in finance from Rutgers University.
WHAT FACTORS AFFECTED YOUR PERFORMANCE?
Through July 1997, small capitalization technology stocks did not do as well as
large cap technology. When stocks such as Intel and Microsoft are doing so well,
investors decide it may not be worth the additional risk to buy a little known
small cap name. However, we hope that investors will see that they're paying 40
times earnings for a large cap company that might be growing slower than a small
cap name that's selling at 20 times earnings.
WHAT ARE SOME ATTRACTIVE STOCKS IN THE PORTFOLIO?
We think that Astoria Financial (1.5% of the portfolio), located in Long Island,
continues to be undervalued. The company, which recently acquired Greater New
York Savings Bank, is now a thrift with $10 billion in assets, one of the
largest in the country. Astoria Financial continues to reduce costs, and is
likely to be acquired because they've reached a critical mass in a very
attractive market. In energy, Santa Fe International (0.3%) is an oil services
company primarily focused on contract drilling. Although the price of oil
affects these stocks, another major factor is the shortage of rigs available for
drilling. Even though oil prices have fluctuated up and down, day rates to rent
these rigs have risen sharply over the past six months. In high technology,
Gasonics International (0.1%) makes equipment used to produce semiconductors. In
particular, the company specializes in the "etching" process, which is one of
the critical steps in creating a computer chip. The company occupies an
attractive niche, and we wouldn't be surprised to see them purchased by a much
bigger company. As of July 31, 1997, the Fund's top five equity holdings were:
Saville Systems Ireland, ADR (2.0%); Astoria Financial (1.5%); WorldCom (1.4%);
Merchantile Bancorp (1.4%); and First American, Tennessee (1.3%).
38
<PAGE>
WHY ARE SMALL CAP STOCKS SO VOLATILE?
When you buy a small capitalization company, you're not buying it for a 20%
move. You're looking for a 50% move. Wall Street analysts publish earnings
estimates of these companies, but there is also what might be called the
"whisper" number, or the talk of the industry. If a published consensus estimate
for a quarter is 20 cents per share, there might be a whisper number of 22
cents. If the company hits its published earnings forecast, but not its whisper
number, then stock can sell off. This happens all the time in small
capitalization stocks. But if the company's story is still intact, we view it as
a buying opportunity rather than a sell trigger.
WHAT IS YOUR OUTLOOK?
We think small capitalization stocks may close the performance gap with large
capitalization stocks in the next fiscal year. We hope that investors will
eventually see the discrepancy in valuations and we believe that there is
already some indication that that is happening.
39
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
HIGHMARK EMERGING GROWTH FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN
THE EMERGING GROWTH FUND VERSUS THE FRANK RUSSELL 2000
GROWTH INDEX AND THE S&P 600 SMALL CAP INDEX.
[LINE GRAPH OMITTED] PLOT POINTS ARE AS FOLLOWS:
HIGHMARK EMERGING FRANK RUSSELL S&P 600 SMALL
GROWTH FUND 2000 GROWTH INDEX CAP INDEX
2/28/94 10,000 10,000 10,000
7/31/94 9,282 8,923 9,003
7/31/95 11,888 11,932 11,513
7/31/96 13,258 12,291 12,558
7/31/97 16,455 15,396 17,443
- ---------------------------------------------------------------
Annualized Annualized
One Year 3 Year Inception
Return Return to Date
- ---------------------------------------------------------------
Fiduciary 24.12% 21.03% 14.75%
- ---------------------------------------------------------------
Past performance is not predictive of future results. Performance presented from
February 1, 1994 (commencement of operations Fiduciary Shares) to April 25, 1997
reflect the performance of the Stepstone Emerging Growth Fund. See Note 7 of the
Notes to the Financial Statements.
40
<PAGE>
HIGHMARK INTERNATIONAL EQUITY FUND
The HighMark International Equity Fund seeks to provide long-term capital
appreciation by investing primarily in a diversified portfolio of non-U.S.
issues that are included in the Morgan Stanley Capital International Europe,
Australia and Far East (EAFE) Index.
For the 12 months ended July 31, 1997, the HighMark International Equity Fund
returned 8.03% (Fiduciary Shares). In comparison, the average international fund
as measured by Lipper Analytical Services, Inc. was up 24.34%. The unmanaged
Morgan Stanley MSCI EAFE Index, which is a capitalization weighted index made up
of companies representing the industry compositions of twenty nations, was up
18.11% for the period.
The HighMark International Equity Fund is managed by Andrew Richmond, who has
over 20 years of experience in equity management. He holds a law degree from
Glasgow University and is qualified as a Scottish Chartered Accountant.
WHAT FACTORS AFFECTED YOUR PERFORMANCE?
We trailed EAFE primarily because we were underweighted in Europe and
overweighted in Southeast Asia. In Europe, the Bundesbank lowered interest rates
in Germany, causing the European stock markets to rise sharply. Even though the
Fund's exposure to Thailand--Southeast Asia's worst performing market--was tiny,
the country's problems caused a ripple effect through Malaysia, Indonesia, the
Philippines and Korea. Because of the weakening yen, the Japanese stocks that
did well were primarily exporters, with share prices that were generally too
high to be in the portfolio. As of July 31, 1997, the Fund's top five holdings
were: Latin America Equity Fund (2.0%); Shell Transportation & Trading (1.5%);
Glaxo Wellcome (1.4%); Zeneca Group (1.3%); and Siemens (1.3%).
HOW DID THE TRANSFER OF HONG KONG TO CHINESE CONTROL IMPACT THE PORTFOLIO?
The Hong Kong stock market strengthened early in 1997, boosted by an improving
real estate market. Many investors thought that there would be an exodus from
the country in anticipation of the transfer from British control. Instead,
Chinese companies began sending staff to Hong Kong, which firmed the office
space and apartment markets. Since many stocks are real estate oriented, the
stock market has enjoyed a nice surprise.
WHAT IS YOUR VIEW ON JAPAN'S STOCK MARKET?
The Japanese market, which makes up about 30% of EAFE, peaked at 38,000 in 1989.
Since that time, it has fallen as low as 12,000, and is now trading between
19,000 and 22,000. However, it's very hard to establish valuation standards in
Japan, because once the market started going up in the 1960s, it never stopped.
There was never a base where you could say "this is what the price-earnings
multiples should be, or this is what the dividend yield should be." The Japanese
stock market has been disappointing for a long time, and that's why it has very
little institutional following. The current Japanese stock market is similar to
the U.S. market in the 1970s, when stocks were in a depressed trading range.
WHY SHOULD A U.S. INVESTOR DIVERSIFY INTO INTERNATIONAL MARKETS?
Diversifying allows you to offset what happens in the U.S. stock market. True,
the S&P 500 Stock Index has generally outperformed most international benchmarks
for several years, but the U.S. stock market is selling at historically high
valuation levels. Primarily because international markets do not tend to move in
line with the U.S. market, U.S. pension funds are expressing more interest in
investing abroad. They talk about raising their exposure to 15-20%, and they're
far from that level now. In addition, most individuals and 401(k) plans have no
exposure to international markets, and that will also likely change.
41
<PAGE>
HIGHMARK INTERNATIONAL EQUITY FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE
INTERNATIONAL EQUITY FUND VERSUS THE MORGAN STANLEY MSCI EAFE INDEX.
[LINE GRAPH OMITTED] PLOT POINTS ARE AS FOLLOWS:
HIGHMARK INTERNATIONAL EQUITY FUND MORGAN STANLEY MSCI EAFE INDEX
2/28/95 10,000 10,000
7/31/95 11,143 11,368
7/31/96 11,650 11,770
7/31/97 12,585 13,902
- ------------------------------------------------------------
Annualized
One Year Inception
Return to Date
- ------------------------------------------------------------
Fiduciary 8.03% 9.20%
- ------------------------------------------------------------
Past performance is not predictive of future results. Performance presented from
February 1, 1995 (commencement of operations Fiduciary Shares) to April 25, 1997
reflect the performance of the Stepstone International Equity Fund. See Note 7
of the Notes to the Financial Statements.
42
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
HIGHMARK FUNDS:
We have audited the accompanying statements of net assets of HighMark Funds (the
"Funds"), including Diversified Money Market Fund, U.S. Government Money Market
Fund, 100% U.S. Treasury Money Market Fund, California Tax-Free Money Market
Fund, Bond Fund, Intermediate-Term Bond Fund, Income Equity Fund, Value Momentum
Fund, Blue Chip Growth Fund, Growth Fund, Emerging Growth Fund, Balanced Fund,
International Equity Fund, Convertible Securities Fund, Government Securities
Fund and California Intermediate Tax-Free Bond Fund, as of July 31, 1997, and
the related statements of operations, statements of changes in net assets and
financial highlights for the periods ended July 31, 1997 and July 31, 1996,
respectively. These financial statements and the financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits. The financial highlights for the years presented prior to July 31, 1996
were audited by other auditors whose report, dated September 22, 1995, expressed
an unqualified opinion on those statements. The financial highlights and the
statement of changes in net assets for the formerly named Stepstone Funds, for
the year ended January 31, 1997, were audited by other auditors whose report,
dated March 15, 1997, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1997 by correspondence with the custodians and brokers, and where replies
were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Funds as of July
31, 1997, the results of their operations, the changes in their net assets, and
the financial highlights for the respective stated periods, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
San Francisco, CA
September 19, 1997
43
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
100% U.S. TREASURY MONEY MARKET FUND
- -----------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- -----------------------------------------------------
U.S. Treasury Bills* -- 23.2%
5.068%, 08/14/97 (A) $36,634 $ 36,568
5.118%, 08/21/97 (A) 43,325 43,205
5.037%, 09/04/97 (A) 12,454 12,396
5.399%, 09/11/97 5,000 4,970
5.372%, 09/18/97 25,079 24,903
5.512%, 09/25/97 1,430 1,418
5.209%, 10/16/97 (A) 51,008 50,463
5.496%, 11/13/97 12,788 12,593
--------
TOTAL U.S. TREASURY BILLS
(Cost $186,516) 186,516
--------
U.S. Treasury Notes -- 69.7%
6.500%, 08/15/97 (A) 60,000 60,027
8.625%, 08/15/97 (A) 20,000 20,024
5.625%, 08/31/97 (A) 52,650 52,660
6.000%, 08/31/97 5,000 5,001
5.500%, 09/30/97 57,850 57,864
5.750%, 09/30/97 45,000 45,022
8.750%, 10/15/97 65,035 65,455
5.625%, 10/31/97 (A) 123,475 123,517
5.750%, 10/31/97 (A) 4,900 4,903
7.375%, 11/15/97 11,288 11,342
8.875%, 11/15/97 5,000 5,041
5.250%, 12/31/97 55,000 54,949
6.000%, 12/31/97 1,680 1,684
5.625%, 01/31/98 25,000 25,006
6.125%, 03/31/98 10,000 10,006
5.125%, 04/30/98 16,690 16,597
TOTAL U.S. TREASURY NOTES
(Cost $559,098) 559,098
-------
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
U.S. Treasury STRIPS -- 6.3%
08/15/97 $40,560 $ 40,481
02/15/98 10,000 9,709
--------
TOTAL U.S. TREASURY STRIPS
(Cost $50,190) 50,190
--------
TOTAL INVESTMENTS -- 99.2%
(Cost $795,804) 795,804
--------
OTHER ASSETS AND LIABILITIES, NET -- 0.8% 6,632
--------
Net Assets:
Fund Shares of Fiduciary Shares
(unlimited authorization -- no
par value) based on 243,417,977
outstanding shares
of beneficial interest 243,418
Fund Shares of Retail Shares
(unlimitedauthorization -- no
par value) based on 558,971,451
outstanding shares
of beneficial interest 558,971
Undistributed net investment income 52
Accumulated net realized loss
on investments (5)
--------
TOTAL NET ASSETS -- 100.0% $802,436
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY SHARES $1.00
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL SHARES $1.00
========
- ----------------------------------------------------
* REPRESENTS THE AVERAGE EFFECTIVE YIELD AT DATE OF PURCHASE.
STRIPS -- SEPARATE TRADING OF REGISTERED INTEREST AND PRINCIPAL
OF SECURITIES
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT JULY 31,
1997 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT JULY 31,
1997 WAS $233,382,317.
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
DIVERSIFIED MONEY MARKET FUND
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Certificates of Deposit - Domestic -- 5.1%
Chase Manhattan Bank (USA),
Wilmington, DE
5.680%, 08/29/97 $40,000 $ 40,004
National City Bank of Kentucky
5.580%, 10/14/97 50,000 50,000
--------
TOTAL CERTIFICATES OF DEPOSIT - DOMESTIC
(Cost $90,004) 90,004
--------
Certificates of Deposit - Yankee -- 14.9%
Bank of Nova Scotia, Portland
5.650%, 09/02/97 50,000 50,000
Banque National de Paris,
New York
5.600%, 09/12/97 13,000 12,996
Barclays Bank PLC, New York
5.620%, 09/17/97 30,000 30,000
Bayerische Hypotheken-
Und Wechsel
Bank A.G., New York
6.020%, 09/23/97 11,000 11,000
5.580%, 10/09/97 40,000 40,000
Creditanstalt Bankverein,
Greenwich, CT
5.550%, 09/16/97 50,000 50,000
Royal Bank of Canada,
New York
5.580%, 12/11/97 30,000 29,998
Societe Generale, New York
5.550%, 09/11/97 40,000 40,000
--------
TOTAL CERTIFICATES OF DEPOSIT - YANKEE
(Cost $263,994) 263,994
--------
EuroDollar Certificates
of Deposits -- 5.6%
Abbey National PLC, London
5.640%, 09/26/97 50,000 50,000
National Westminster Bank PLC, London
5.600%, 10/09/97 50,000 50,000
--------
TOTAL EURODOLLAR CERTIFICATES
OF DEPOSIT
(Cost $100,000) 100,000
--------
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Yankee Dollar Bankers Acceptance -- 1.0%
Royal Bank of Canada (New York)*
5.680%, 08/07/97 $18,360 $ 18,343
--------
TOTAL YANKEE DOLLAR BANKERS ACCEPTANCE
(Cost $18,343) 18,343
--------
Commercial Paper* -- 42.7%
AUTOMOTIVE -- 2.8%
Ford Motor Credit Corp.
5.618%, 09/11/97 50,000 49,685
--------
BANKS -- 14.4%
ABN Amro North America
Finance Inc.
5.703%, 01/05/98 35,000 34,154
ANZ (DE) Inc.
5.563%, 10/03/97 5,000 4,953
Bayerische Vereinsbank, A.G.
5.563%, 08/11/97 50,000 49,924
Dresdner U.S. Finance Inc.
5.520%, 09/19/97 50,000 49,628
JP Morgan & Co., Inc.
5.620%, 08/18/97 5,000 4,987
Republic New York Corp.
5.545%, 08/01/97 50,000 50,000
Societe Generale North
America, Inc.
5.890%, 10/15/97 10,000 9,881
Toronto Dominion
Holdings (USA), Inc.
5.605%, 10/24/97 5,000 4,937
5.700%, 01/05/98 47,000 45,864
--------
254,328
--------
BROKERAGE -- 2.8%
Goldman Sachs Group L.P.
5.607%, 08/20/97 50,000 49,853
--------
BUSINESS CREDIT INSTITUTIONS -- 4.2%
Asset Securitization Cooperative
Corp. - 4(2) Program (B)
5.552%, 09/03/97 50,000 49,748
The accompanying notes are an integral part of the financial statements.
45
<PAGE>
[LOGO OMITTED]
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
DIVERSIFIED MONEY MARKET FUND (continued)
- -------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- -------------------------------------------------------
Commercial Paper* (continued)
Ciesco, L.P.
5.547%, 08/20/97 $24,440 $ 24,369
--------
74,117
--------
CHEMICALS -- 1.4%
Akzo Nobel Inc.
5.604%, 11/24/97 25,000 24,561
--------
EDUCATION -- 0.4%
Stanford University - 3a-4
Program (B)
5.867%, 10/08/97 6,000 5,935
--------
FINANCIAL SERVICES -- 5.6%
American Express Credit Corp.
5.602%, 08/01/97 50,000 50,000
General Electric Capital Corp.
5.540%, 08/25/97 50,000 49,817
--------
99,817
--------
FOOD, BEVERAGE & TOBACCO -- 2.8%
Coca Cola Co.
5.559%, 09/15/97 50,000 49,657
--------
FOREIGN GOVERNMENTS -- 1.1%
Queensland Treasury Corp.
5.616%, 09/18/97 5,000 4,964
Tasmanian Public Finance Corp.
5.423%, 08/18/97 10,000 9,975
5.555%, 08/28/97 5,000 4,980
--------
19,919
--------
LEASING -- 2.8%
International Lease Finance Corp.
5.547%, 09/22/97 50,000 49,604
--------
TELEPHONES & TELECOMMUNICATION -- 2.2%
Lucent Technologies Inc.
5.622%, 09/26/97 40,000 39,656
--------
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Commercial Paper* (continued)
TRADING COMPANY -- 2.2%
Cargill Inc.
5.587%, 09/17/97 $40,000 $ 39,712
--------
TOTAL COMMERCIAL PAPER
(Cost $756,844) 756,844
--------
Corporate Obligations -- 2.3%
Coca Cola Enterprises Bond
6.500%, 11/15/97 5,000 5,008
Merrill Lynch & Co., Inc.
Medium Term Note (A)
6.020%, 04/09/98 30,000 30,022
Wal-Mart Stores Inc. Bond
5.500%, 09/15/97 5,000 4,999
--------
TOTAL CORPORATE OBLIGATIONS
(Cost $40,029) 40,029
--------
Asset Backed Securities -- 0.1%
Ford Credit Auto Lease Trust
5.451%, 11/15/97 957 957
--------
TOTAL ASSET BACKED SECURITIES
(Cost $957) 957
--------
Repurchase Agreements -- 28.5%
BZW Securities, Inc.
5.77%, dated 07/31/97, matures
08/01/97, repurchase price
$202,159,423 (collateralized
by various U.S. Government
Obligations, total par value
$207,486,000, 5.54%-7.82%,
08/01/97-04/10/07:
total market value
$206,170,456) 202,127 202,127
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
DIVERSIFIED MONEY MARKET FUND (concluded)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Repurchase Agreements (continued)
Deutsche Morgan Grenfell/
C.J. Lawrence, Inc.
5.73%, dated 07/31/97, matures
08/01/97, repurchase price
$25,006,407 (collateralized
by U.S. Treasury Bill, par value
$26,124,000, 01/15/98:
market value $25,502,771) $25,002 $ 25,002
JP Morgan Securities, Inc.
5.78%, dated 07/31/97, matures
08/01/97, repurchase price
$220,659,441 (collateralized
by various U.S. Government
Obligations, total par value
$522,020,000, 0.00%-6.875%,
08/01/97-12/15/43:
total market value
$225,036,727) 220,624 220,624
SBC Warburg, Inc.
5.73%, dated 07/31/97, matures
08/01/97, repurchase price
$57,826,522 (collateralized
by various U.S. Government
Obligations, total par value
$51,866,000, 7.50%-8.125%,
08/29/97-08/15/19: total market
value $58,994,332) 57,817 57,817
----------
TOTAL REPURCHASE AGREEMENTS
(Cost $505,570) 505,570
----------
TOTAL INVESTMENTS -- 100.2%
(Cost $1,775,741) 1,775,741
----------
OTHER ASSETS AND LIABILITIES,
NET -- (0.2%) (4,226)
----------
- -----------------------------------------------------
DESCRIPTION VALUE (000)
- -----------------------------------------------------
Net Assets:
Fund Shares of Fiduciary Shares
(unlimited authorization -- no
par value) based on 973,074,519
outstanding shares
of beneficial interest $ 973,074
Fund Shares of Retail Shares
(unlimitedauthorization --- no
par value)based on 799,862,989
outstanding shares of
beneficial interest 799,863
Accumulated net realized loss
on investments (1,422)
----------
TOTAL NET ASSETS-- 100.0% $1,771,515
==========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY SHARES $1.00
==========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL SHARES $1.00
==========
- ----------------------------------------------------
* REPRESENTS THE AVERAGE EFFECTIVE YIELD AT DATE OF PURCHASE FOR DISCOUNTED
SECURITIES.
(A) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JULY 31, 1997.
(B) SECURITIES SOLD WITHIN THE TERMS OF A PRIVATE PLACEMENT MEMORANDUM, EXEMPT
FROM REGISTRATION UNDER SECTION 3A-4, 4[2] OR 144A OF THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR
OTHER "ACCREDITED INVESTORS."
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
California Municipal Bonds -- 99.6%
Anaheim Public Improvement
Corporation, 1995 Police Facilities
Refinancing Project, COP,
AMBAC Insured (A)
3.350%, 08/07/97 $3,600 $ 3,600
Contra Costa County, Multi-Family
Housing, Park Regency,
Ser A, (A) (B) (C)
3.600%, 08/04/97 5,675 5,675
Contra Costa Transportation Authority,
Ser A, Escrowed to Maturity, RB
6.100%, 03/01/98 1,000 1,013
Contra Costa, Water District, TECP
3.550%, 08/25/97 1,500 1,500
East Bay, Municipal Utility District, TECP
3.700%, 12/11/97 5,800 5,800
East Bay, Municipal Water District, TECP
3.700%, 10/09/97 2,400 2,400
Education Facilities Authority
Carnegie Institute, TECP
3.700%, 08/29/97 5,000 5,000
Education Facilities Authority
Stanford University, Ser M, RB
5.000%, 12/01/97 1,035 1,040
Healdsburg Community Redevelopment
Agency, VRDN, RB (A) (B) (C)
3.650%, 08/07/97 3,735 3,735
Health Facilities Authority, Enloe
Memorial Hospital, VRDN,
RB (A) (B) (C)
3.500%, 08/07/97 3,100 3,100
Health Facilities Finance Authority,
Adventist Health Systems, VRDN,
RB (A) (B) (C)
3.450%, 08/07/97 1,500 1,500
Health Facilities Finance Authority,
Kaiser Permanente, Ser A,
VRDN, RB (A) (B)
3.450%, 08/07/97 5,000 5,000
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
California Municipal Bonds (continued)
Health Facilities Finance Authority,
Kaiser Permanente, Ser B,
VRDN, RB (A) (B)
3.450%, 08/07/97 $8,500 $ 8,500
Health Facilities Finance Authority,
Memorial Health Services,
VRDN, RB (A) (B)
3.450%, 08/07/97 13,740 13,740
Health Facilities Finance Authority,
Pool Program, Ser A, VRDN,
RB (A) (B) (C)
3.450%, 08/07/97 2,510 2,510
Health Facilities Finance Authority,
Pooled Loan Program, Ser B, VRDN,
RB, FGIC Insured (A) (B)
3.450%, 08/07/97 4,200 4,200
Health Facilities Finance Authority,
Santa Barbara Cottage, Ser B,
VRDN, RB (A) (B) (C)
3.450%, 08/07/97 4,285 4,285
Health Facilities Finance Authority,
Santa Barbara Cottage, Ser C,
VRDN, RB (A) (B) (C)
3.450%, 08/07/97 6,000 6,000
Health Facilities Finance Authority,
St. Francis Medical, Ser F, RB,
MBIA Insured (A)
3.400%, 08/07/97 3,000 3,000
Health Facilities Finance Authority,
Sutter Health, Ser A, VRDN, RB (A) (B)
3.500%, 08/01/97 1,000 1,000
Huntington Park Redevelopment Agency,
Huntington Park Personal Storage I
Project, VRDN, RB (A) (B) (C)
4.000%, 08/07/97 1,065 1,065
Irvine Ranch Water District, Ser A
VRDN, RB (A) (B) (C)
3.550%, 08/01/97 1,300 1,300
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND (continued)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
California Municipal Bonds (continued)
Irvine Ranch Water District,
VRDN, RB (A) (B) (C)
3.500%, 08/01/97 $ 300 $ 300
Irvine Ranch Water District, Waterworks
Bond, Improvement District # 182,
Ser A, VRDN, RB (A) (B) (C)
3.550%, 08/01/97 1,200 1,200
Kern County, Public Facilities Project,
Ser B, COP, VRDN (A) (B) (C)
3.350%, 08/07/97 4,600 4,600
Lancaster Multi-Family Housing,
Westwood Park, Ser K,
VRDN, RB (A) (B) (C)
3.300%, 08/07/97 2,500 2,500
Long Beach, TRAN
4.750%, 10/09/97 2,000 2,003
Los Angeles County, Metropolitan
Transportation Authority, Ser A,
VRDN, RB MBIA (A)
3.350%, 08/07/97 4,000 4,000
Los Angeles County, Pension
Obligation, Ser B, GO (A) (C)
3.350%, 08/07/97 2,000 2,000
Los Angeles County, Pension
Obligation, Ser C, RB,
AMBAC Insured (A)
3.350%, 08/07/97 2,000 2,000
Los Angeles County, Ser A, VRDN,
RB FGIC Insured (A) (B)
3.350%, 08/07/97 5,700 5,700
Los Angeles Department of Water
and Power, TECP
3.750%, 09/08/97 3,000 3,000
Los Angeles Multi-Family Housing,
Ser K, VRDN, RB (A) (B)
3.450%, 08/07/97 14,300 14,300
Los Angeles Multi-Family Housing,
Skyline at South Park
Phase II, RB (A) (C)
3.550%, 08/07/97 8,250 8,250
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
California Municipal Bonds (continued)
Los Angeles Wastewater System, TECP
3.750%, 09/10/97 $5,000 $ 5,000
Modesto Multi-Family Housing,
Live Oak Project, VRDN, RB (A) (B)
3.450%, 08/07/97 1,000 1,000
Monterey County, Reclamation &
Distribution Projects, Ser A,
VRDN, RB (A) (B) (C)
3.600%, 08/07/97 8,000 8,000
MSR Public Power Agency, San Juan
Project, Ser B, VRDN, RB,
AMBAC Insured (A) (B)
3.350%, 08/07/97 2,000 2,000
MSR Public Power Agency, San Juan
Project, Ser E, VRDN, RB,
MBIA Insured (A) (B)
3.350%, 08/07/97 5,000 5,000
Ontario Industrial Development
Authority, Winsford Partners Project,
Ser A, VRDN, RB (A) (B) (C)
3.400%, 08/07/97 1,200 1,200
Oxnard Housing Authority, Seawind
Apartment Projects, Ser A,
VRDN, RB (A) (B) (C)
3.750%, 08/07/97 2,775 2,775
Pollution Control Finance Authority,
Burney Forest, VRDN, RB (A) (B) (C)
3.450%, 08/01/97 17,600 17,600
Pollution Control Finance Authority,
Chevron U.S.A. Project,
VRDN, RB (A) (B)
3.700%, 05/15/98 2,585 2,586
Pollution Control Finance Authority,
Delano Project 1989,
VRDN, RB (A) (B) (C)
3.600%, 08/01/97 6,400 6,400
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND (continued)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
California Municipal Bonds (continued)
Pollution Control Finance Authority,
Delano Project 1990,
VRDN, RB (A) (B) (C)
3.600%, 08/01/97 $3,900 $ 3,900
Pollution Control Finance Authority,
Delano Project 1991,
VRDN, RB (A) (B) (C)
3.600%, 08/01/97 2,600 2,600
Pollution Control Finance Authority,
Exxon Project, VRDN, RB (A) (B) (C)
3.400%, 08/01/97 5,000 5,000
Pollution Control Finance Authority,
Honey Lake Power Project,
VRDN, RB (A) (B) (C)
3.600%, 08/01/97 4,100 4,100
Pollution Control Finance Authority,
Shell Oil, Ser A, VRDN, RB (A) (B)
3.450%, 08/01/97 2,700 2,700
Pollution Control Finance Authority,
Shell Oil, VRDN, RB (A) (B)
3.450%, 08/01/97 1,000 1,000
Pollution Control Finance Authority,
Southern California Edison,
Ser B, VRDN, RB (A) (B)
3.400%, 08/01/97 3,900 3,900
Pollution Control Finance Authority,
Southern California Edison,
Ser C, VRDN, RB (A) (B)
3.400%, 08/01/97 4,300 4,300
Pollution Control Finance Authority,
Southern California Edison,
Ser D, VRDN, RB (A) (B)
3.400%, 08/01/97 1,000 1,000
Pollution Control Finance
Authority, TECP
3.700%, 11/21/97 2,000 2,000
3.750%, 11/21/97 4,000 4,000
3.350%, 08/07/97 1,200 1,200
3.500%, 09/09/97 1,000 1,000
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
California Municipal Bonds (continued)
Riverside County, TRAN, Ser A
4.500%, 06/30/98 $7,500 $ 7,536
Sacramento County Housing
Authority, Ashford Park Apartments,
Ser D, VRDN, RB (A) (B) (C)
3.550%, 08/07/97 1,000 1,000
Sacramento County Housing Authority,
River Oaks Apartments, Ser E,
VRDN, RB (A) (B) (C)
3.600%, 08/07/97 7,200 7,200
Sacramento County Housing Authority,
River Terrace Apartments, Ser C,
VRDN, RB (A) (B) (C)
3.550%, 08/07/97 4,400 4,400
San Bernadino County Housing
Authority, Victoria Terrace, Project A,
VRDN, RB (A) (B) (C)
3.450%, 08/07/97 2,450 2,450
San Bernadino County Housing
Authority, Western #3 Project,
VRDN, RB (A) (B) (C)
3.300%, 08/07/97 2,500 2,500
San Bernadino County Housing
Authority, Western #4 Project,
VRDN, RB (A) (B) (C)
3.300%, 08/07/97 2,500 2,500
San Diego Housing Authority,
Carmel Del Mar Apartments,
Ser A, VRDN, RB (A) (B) (C)
3.500%, 08/07/97 1,000 1,000
San Diego Housing Authority,
Multi Family Housing, VRDN,
RB (A) (B) (C)
3.400%, 08/07/97 1,905 1,905
San Diego Housing Authority,
University Town Center Apartments,
VRDN, RB (A) (B)
3.400%, 08/07/97 2,600 2,600
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND (continued)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
California Municipal Bonds (continued)
San Diego, Ser A, TECP
3.750%, 08/14/97 $ 4,000 $ 4,000
3.650%, 09/12/97 5,000 5,000
San Joaquin County, TRAN
4.500%, 01/15/98 9,475 9,501
San Jose Redevelopment Agency,
Ser A, Tax Allocation,
AMBAC Insured (B)
6.900%, 08/01/97 1,250 1,275
San Jose Redevelopment Agency,
Ser B, VRDN, RB (A) (B) (C)
3.600%, 08/01/97 3,000 3,000
San Jose Unified School District,
Santa Clara County, TRAN
4.500%, 08/05/97 2,000 2,000
San Mateo, TRAN
4.500%, 07/01/98 12,000 12,074
Santa Clara Transport Authority,
VRDN, RB (A) (B) (C)
3.500%, 08/01/97 1,000 1,000
Southern California Metro Water
District, Ser A, VRDN, RB,
AMBAC Insured (A)
3.350%, 08/07/97 6,100 6,100
Southern California Metro
Water District, TECP
3.600%, 09/10/97 1,000 1,000
3.800%, 08/08/97 2,300 2,300
Southern California Metro
Water District, TECP, Ser A
3.750%, 09/10/97 1,000 1,000
Southern California Public Power
Authority, Transmission Project
Revenue, AMBAC Insured,
VRDN, RB (A) (B) (C)
3.350%, 08/07/97 7,900 7,900
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
California Municipal Bonds (continued)
Southern California Public Power
Authority, Transmission Project
Revenue, Ser B, FSA Insured,
VRDN, RB (A) (B)
3.350%, 08/07/97 $5,000 $ 5,000
State Housing Finance Agency,
Multi-Family Housing, Ser B,
VRDN, RB (A) (B) (C)
3.400%, 08/07/97 3,200 3,200
State of California, TECP
3.650%, 08/27/97 4,600 4,600
3.600%, 08/27/97 4,500 4,500
Statewide Communities Development
Authority, Irvine County Project,
Ser A-1, VRDN, RB (A) (B) (C)
3.400%, 08/07/97 9,065 9,065
Statewide Communities Development
Authority, North California Retirement,
VRDN, RB, (A) (B) (C)
3.500%, 08/01/97 10,800 10,800
Statewide Communities Development
Authority, St. Joseph Health System,
COP, VRDN, RB (A) (B)
3.450%, 08/07/97 1,600 1,600
Statewide Communities Development
Authority, Sutter Health Group,
VRDN, RB, AMBAC Insured (B)
3.500%, 08/01/97 800 800
Statewide Communities Development
Authority, TRAN, FSA Insured
4.500%, 06/30/98 4,000 4,025
Tracy Multi-Family Housing Refunding,
Sycamore Village Apartments,
VRDN, RB (A) (B) (C)
3.300%, 08/07/97 2,300 2,300
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND (concluded)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
California Municipal Bonds (continued)
Turlock Irrigation District Transmission
Projects, COP, Ser A (A) (C)
3.350%, 08/07/97 $4,050 $ 4,050
Vallejo Housing Authority, Crow
Western Project Phase II, VRDN,
RB (A) (B) (C)
3.550%, 08/07/97 5,200 5,200
Walnut Creek Multi-Family Housing,
Creekside Drive Apartments,
VRDN, RB (A) (B) (C)
3.300%, 08/07/97 1,000 1,000
West Basin Municipal Water District,
Phase II Recycled Water Project,
Ser B, COP, (A) (B) (C)
3.350%, 08/07/97 2,200 2,200
West Basin Municipal Water District,
Phase II Recycled Water Project,
Ser C, COP, (A) (B) (C)
3.350%, 08/07/97 2,000 2,000
West Covina Redevelopment Agency,
Lakes Public Parking Project,
VRDN, RB (A) (B) (C)
3.300%, 08/07/97 2,550 2,550
--------
TOTAL CALIFORNIA MUNICIPAL BONDS
(Cost $375,208) 375,208
--------
Cash Equivalents -- 0.2%
Provident California Tax Free
Money Market 240 240
SEI California Tax Free
Money Market 378 378
--------
TOTAL CASH EQUIVALENTS
(Cost $618) 618
--------
TOTAL INVESTMENTS -- 99.8%
(Cost $375,826) 375,826
--------
OTHER ASSETS AND LIABILITIES, NET-- 0.2% 700
--------
- -----------------------------------------------------
DESCRIPTION VALUE (000)
- -----------------------------------------------------
Net Assets:
Fund Shares of Fiduciary Shares
(unlimited authorization -- no
par value) based on 159,341,391
outstanding shares
of beneficial interest $159,341
Fund Shares of Retail Shares
(unlimited authorization -- no
par value) based on 217,248,312
outstanding shares
of beneficial interest 217,248
Undistributed net investment income 1
Accumulated net realized loss
on investments (64)
---------
TOTAL NET ASSETS-- 100.0% $376,526
=========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY SHARES $1.00
=========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL SHARES $1.00
=========
- --------------------------------------------------------------------------------
(A) FLOATING RATE SECURITY--THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT ON JULY 31, 1997.
(B) PUT AND DEMAND FEATURE--THE DATE REPORTED IS THE LESSER OF THE MATURITY OR
THE PUT DATE.
(C) SECURITIES ARE HELD IN CONJUNCTION WITH A LETTER OF CREDIT BY A MAJOR
COMMERCIAL BANK OR FINANCIAL INSTITUTION.
AMBAC--AMERICAN MUNICIPAL BOND ASSURANCE CORPORATION
COP--CERTIFICATE OF PARTICIPATION
FGIC--FEDERAL GUARANTY INSURANCE COMPANY
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
FSA--FINANCIAL SECURITY ASSURANCE
GO--GENERAL OBLIGATION
MBIA--MUNICIPAL BOND INVESTORS ASSURANCE
RB--REVENUE BOND
SER--SERIES
TECP--TAX EXEMPT COMMERCIAL PAPER
TRAN--TAX AND REVENUE ANTICIPATION NOTE
VRDN--VARIABLE RATE DEMAND NOTE
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
U.S. GOVERNMENT MONEY MARKET FUND
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
U.S. Government Agency Obligations-Discounted* -- 38.6%
FFCB
5.648%, 08/05/97 $ 5,000 $ 4,997
FHLB
5.503%, 09/03/97 10,000 9,951
5.598%, 09/08/97 10,000 9,943
5.777%, 10/03/97 5,000 4,951
5.844%, 10/15/97 5,000 4,942
5.843%, 11/06/97 5,000 4,925
FHLMC
5.684%, 08/01/97 5,000 5,000
5.677%, 08/04/97 5,000 4,998
5.499%, 10/14/97 20,000 19,780
FNMA
5.570%, 09/04/97 5,000 4,974
5.601%, 09/09/97 10,000 9,941
5.533%, 09/11/97 5,000 4,970
5.831%, 10/07/97 5,000 4,948
5.515%, 10/23/97 10,000 9,876
5.507%, 12/04/97 10,000 9,815
--------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS-DISCOUNTED
(Cost $114,011) 114,011
--------
U.S. Government Agency Obligations-
Coupon Bearing -- 27.4%
FFCB (A)
5.580%, 08/01/97 10,000 9,993
FFCB
5.550%, 08/01/97 5,000 5,000
5.270%, 09/02/97 10,000 9,996
5.690%, 10/01/97 10,000 10,000
5.400%, 12/02/97 11,095 11,083
FNMA
5.350%, 08/14/97 5,000 5,000
5.530%, 10/29/97 10,000 9,997
5.480%, 01/02/98 10,000 9,992
SLMA (A)
5.465%, 08/05/97 10,000 9,995
--------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS-COUPON BEARING
(Cost $81,056) 81,056
--------
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Repurchase Agreements -- 34.1%
BZW Securities, Inc.
5.77%, dated 07/31/97,
matures 08/01/97,
repurchase price $44,641,602
(collateralized by various
U.S. Government Obligations,
total par value $45,665,000,
08/04/97-09/05/97: total
market value $45,527,554 $44,634 $ 44,634
JP Morgan Securities, Inc.
5.78%, dated 07/31/97,
matures 08/01/97,
repurchase price $56,298,537
(collateralized by various
U.S. Government Obligations,
total par value $57,518,000,
08/04/97-08/22/97: total
market value $57,415,929) 56,289 56,289
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $100,923) 100,923
--------
TOTAL INVESTMENTS -- 100.1%
(Cost $295,990) 295,990
--------
OTHER ASSETS AND LIABILITIES, NET -- (0.1%) (198)
--------
Net Assets:
Fund Shares of Fiduciary Shares
(unlimited authorization -- no
par value) based on 253,142,883
outstanding shares
of beneficial interest 253,143
Fund Shares of Retail Shares
(unlimited authorization -- no
par value) based on 42,807,017
outstanding shares
of beneficial interest 42,807
Accumulated net realized gain/loss
on investments (158)
--------
TOTAL NET ASSETS-- 100.0% $295,792
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY SHARES $1.00
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL SHARES $1.00
========
* REPRESENTS AVERAGE EFFECTIVE YIELD AT DATE OF PURCHASE.
(A) FLOATING RATE SECURITY--THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT ON JULY 31, 1997.
FFCB--FEDERAL FARM CREDIT BANK
FHLB--FEDERAL HOME LOAN BANK
FHLMC--FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
SLMA--STUDENT LOAN MARKETING ASSOCIATION
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM BOND FUND
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Corporate Obligations -- 44.1%
BANKING & FINANCE -- 20.4%
Avco Financial Services
7.375%, 08/15/01 $3,500 $ 3,640
Bankers Trust
7.250%, 01/15/03 3,500 3,622
Banponce
6.750%, 12/15/05 2,000 2,002
Commercial Credit
6.200%, 11/15/01 2,000 1,998
Fleet Financial
7.125%, 04/15/06 5,000 5,131
Ford Motor Credit
8.200%, 02/15/02 4,000 4,285
Lehman Brothers Holdings
8.750%, 05/15/02 4,000 4,350
Salomon
7.300%, 05/15/02 4,000 4,105
Sears Finance
7.000%, 06/15/07 3,000 3,079
--------
32,212
--------
FOREIGN GOVERNMENTS -- 4.6%
Province of Manitoba
6.125%, 01/19/04 3,000 2,974
Province of Ontario
7.375%, 01/27/03 4,000 4,200
--------
7,174
--------
INDUSTRIAL -- 6.1%
General Motors
8.950%, 07/02/09 4,455 4,923
Lockheed Martin
7.450%, 06/15/04 3,500 3,693
McDonnell Douglas
6.875%, 11/01/06 1,000 1,028
--------
9,644
--------
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Corporate Obligations (continued)
TELEPHONES & TELECOMMUNICATIONS -- 3.6%
MFS Communications
9.375%, 01/15/04 $2,400 $ 2,598
WorldCom
7.550%, 04/01/04 3,000 3,143
--------
5,741
--------
UTILITIES -- 9.4%
Arkansas Electric Cooperative
7.330%, 06/30/08 2,310 2,411
Oklahoma Gas & Electric
6.650%, 07/15/27 2,500 2,547
Old Dominion Electric
7.480%, 12/01/13 5,550 5,841
Pacific Gas & Electric
8.750%, 01/01/01 780 841
Panhandle Eastern
7.875%, 08/15/04 3,000 3,210
--------
14,850
--------
TOTAL CORPORATE OBLIGATIONS
(Cost $67,204) 69,621
--------
U.S. Treasury Obligations -- 33.9%
U.S. Treasury Notes
8.250%, 07/15/98 5,000 5,123
8.875%, 11/15/98 5,000 5,196
6.375%, 05/15/99 1,000 1,011
6.375%, 07/15/99 1,000 1,012
6.250%, 05/31/00 5,000 5,058
8.000%, 05/15/01 7,000 7,504
6.250%, 06/30/02 7,000 7,095
7.250%, 05/15/04 6,000 6,422
7.875%, 11/15/04 5,000 5,546
6.500%, 05/15/05 2,000 2,057
7.000%, 07/15/06 7,000 7,445
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $52,917) 53,469
--------
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM BOND FUND (concluded)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
U.S. Government Agency Mortgage-
Backed Obligations -- 12.4%
FHLMC
7.000%, 09/01/01 $9,466 $ 9,591
FNMA
6.850%, 05/26/00 10,000 10,031
--------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED OBLIGATIONS
(Cost $19,523) 19,622
--------
Asset Backed Securities -- 6.6%
American Express Master Trust
7.150%, 08/15/99 4,000 4,063
Chase Manhattan Auto
Grantor Trust
6.610%, 09/15/02 3,627 3,672
J.C. Penney Master
Credit Card Trust
9.625%, 06/15/00 2,500 2,717
--------
TOTAL ASSET BACKED SECURITIES
(Cost $10,154) 10,452
--------
Repurchase Agreements -- 1.7%
JP Morgan Securities, Inc.
5.78%, dated 07/31/97, matures
08/01/97, repurchase price $2,646,381
(collateralized by FHLMC, par value
$2,685,000, 6.665%, 07/23/02:
market value $2,703,532) 2,646 2,646
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $2,646) 2,646
--------
TOTAL INVESTMENTS -- 98.7%
(Cost $152,444) 155,810
--------
OTHER ASSETS AND LIABILITIES, NET-- 1.3% 1,990
--------
- ------------------------------------------------------
DESCRIPTION VALUE (000)
- ------------------------------------------------------
Net Assets:
Fund Shares of Fiduciary Shares
(unlimited authorization -- no
par value) based on 14,827,364
outstanding shares
of beneficial interest $152,434
Fund Shares of Retail Shares
(unlimited authorization -- no
par value) based on 498,064
outstanding shares
of beneficial interest 5,710
Undistributed net investment income 219
Accumulated net realized loss
on investments (3,929)
Net unrealized appreciation
on investments 3,366
--------
TOTAL NET ASSETS-- 100.0% $157,800
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY SHARES $10.30
========
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE -- RETAIL SHARES $10.29
========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL SHARES ($10.29 / 97%) $10.61
========
FHLMC--FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
The accompanying notes are an integral part of the financial statements.
55
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
California Municipal Bonds -- 96.6%
Alameda County, Santa Rita Jail Project,
COP, MBIA Insured
5.250%, 12/01/04 $500 $ 531
Anaheim Public Financing Authority,
Electric Utility Projects, RB,
Callable 04/01/03 @ 102, Callable
04/01/05 @ 100, MBIA Insured
5.500%, 10/01/10 250 261
Antioch Public Finance Authority,
Police Facilities Project, Lease RB,
MBIA Insured
4.550%, 01/01/03 500 506
Atascadero Unified School District,
COP, Measure B, Capital Projects
Ser A, MBIA Insured,
Callable 08/01/06 @ 102
5.100%, 08/01/07 415 436
Bakersfield, Convention Center
Expansion Project, COP,
MBIA Insured
5.000%, 04/01/03 335 348
Berkeley Unified School District, GO,
Ser D, FGIC Insured
8.250%, 08/01/05 345 433
California Educational Facilities
Authority, Santa Clara University,
RB, MBIA Insured, Callable
9/01/06 @ 102
5.000%, 09/01/07 400 417
California State, GO
4.200%, 09/01/02 250 248
California State Department of
Water, Ser J-3, RB
5.900%, 12/01/05 500 553
California State Public Works Board,
Various University of California
Projects, Ser A, RB, Pre-refunded
12/01/02 @ 102
6.600%, 12/01/22 800 910
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
California Municipal Bonds (continued)
Capistrano, Unified Public Financing
Authority, Special Tax RB, First Lien,
Ser A, AMBAC Insured
4.500%, 09/01/01 $300 $ 305
Contra Costa County, Merrithew
Memorial Hospital Project, COP,
Callable 11/01/07 @ 102,
Callable 11/01/09 @ 100, MBIA Insured
5.500%, 11/01/12 800 834
Contra Costa Transportation Authority,
Ser A, RB, Escrowed to Maturity
6.300%, 03/01/00 350 370
6.400%, 03/01/01 200 215
Contra Costa Transportation Authority,
Ser A, RB, FGIC Insured,
Callable 03/01/05 @ 100
5.300%, 03/01/06 600 634
Contra Costa Water Distribution,
Ser G, RB, MBIA Insured,
Callable 10/01/04 @ 102
5.700%, 10/01/06 500 546
Cupertino, COP, Callable 01/01/03 @ 102
5.500%, 01/01/05 500 526
East Bay Wastewater Treatment System,
RB, FGIC Insured
6.000%, 06/01/06 750 839
Gilroy Unified School District, COP,
Measure J Capital Projects, FSA
Insured, Callable 09/01/04 @ 102
5.750%, 09/01/05 235 254
Los Angeles County Transportation
Commission, Sales Tax RB, Ser A,
FGIC Insured, Pre-Refunded
07/01/01 @ 102
6.750%, 07/01/18 500 557
Los Angeles Department of Airports,
RB, Ser B, FGIC Insured
6.500%, 05/15/04 500 568
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND (continued)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
California Municipal Bonds (continued)
Los Angeles Unified School District,
GO, Ser A, FGIC Insured
4.600%, 07/01/06 $500 $ 506
Los Angeles, GO, FGIC Insured,
Callable 09/01/03 @ 101,
Callable 09/01/05 @ 100
5.400%, 09/01/06 300 318
Los Angeles, GO, Ser A, FGIC Insured
5.000%, 09/01/03 450 469
Los Angeles, Wastewater System RB,
Ser B, Callable 06/01/03 @ 102,
Callable 06/01/05 @ 100,MBIA Insured
5.400%, 06/01/08 300 315
M-S-R Public Power Agency, San Juan
Project, RB, Ser F, AMBAC Insured,
Callable 07/01/03 @ 102, Callable
07/01/05 @ 100 6.000%, 07/01/08 230 251
Metropolitan Water District of Southern
California, Ser B, RB, MBIA Insured,
Callable 07/01/06 @ 102
5.250%, 07/01/07 500 531
Midpeninsula Regional Open Space
District Finance Authority, RB,
AMBAC Insured
4.900%, 09/01/02 250 259
Mojave Water Agency, Supplemental
Water Entitlement, COP, MBIA Insured
4.950%, 09/01/06 500 520
Moulton-Niguel Water District,
COP, Callable 09/01/03 @ 102,
AMBAC Insured
4.750%, 09/01/04 300 308
Mountain View-Los Altos Unified
High School District, Ser B, GO
5.500%, 05/01/00 530 551
Orange County, Local Transportation
Authority, Sales Tax Revenue,
Measure M, RB
6.000%, 02/15/07 380 422
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
California Municipal Bonds (continued)
Sacramento County Sanitation District
Financing Authority, RB
5.500%, 12/01/03 $800 $ 853
Sacramento Municipal Utility District,
Electric Revenue, Ser C, FGIC Insured,
Callable 11/15/02 @ 102,
Callable 11/15/04 @ 100
5.750%, 11/15/08 550 588
San Bernadino County Transportation
Authority, Sales Tax Revenue,
RB, MBIA Insured
6.000%, 03/01/06 415 465
San Diego County Regional Transportation
Commission, Sales Tax RB, Ser A,
FGIC Insured
5.250%, 04/01/06 400 424
San Diego County Water Authority,
COP, Ser A, Callable 05/01/01 @ 102,
Callable 05/01/03 @ 100
6.250%, 05/01/04 480 518
San Diego Lease Revenue, RB, Callable
09/01/04 @ 102, Callable
09/01/06 @100
5.500%, 09/01/07 450 476
San Diego Unified School District,
Phase XIII Ser A, COP
5.000%, 07/01/00 665 683
San Francisco Building Authority,
Department General Services,
Lease RB, Ser A
4.500%, 10/01/00 300 304
San Francisco City & County, GO,
Utility Public Safety Improvement
Project, Ser F, FGIC Insured,
Callable 06/15/01 @ 100
6.500%, 06/15/08 350 377
The accompanying notes are an integral part of the financial statements.
57
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND (concluded)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
California Municipal Bonds (continued)
San Jose Redevelopment Agency, Tax
Allocation, Merged Area Redevelopment
Project, RB, MBIA Insured
6.000%, 08/01/08 $450 $ 510
Santa Clara, COP, AMBAC Insured,
Callable 05/15/02 @ 102, Callable
05/15/04 @ 100, Sinking Fund
05/15/06 @ 100
6.000%, 05/15/12 400 424
Santa Cruz County, Public Facilities
Financing Authority, Tax Allocation,
Callable 09/01/03 @ 102, MBIA Insured
5.100%, 09/01/05 500 526
Tulare County Capital Improvement
Program, COP, Ser A, MBIA Insured
4.700%, 02/15/00 200 204
United Water Conservation District,
Water Systems Project, RB, FSA Insured
4.300%, 03/01/03 200 200
West Basin Municipal Water District,
Ser A, COP, AMBAC Insured,
Callable 08/01/07 @ 101
5.000%, 08/01/08 425 441
--------
TOTAL CALIFORNIA MUNICIPAL BONDS
(Cost $21,010) 21,734
--------
Cash Equivalents -- 2.0%
Provident California Tax Free
Money Market 221 221
SEI California Tax Free
Money Market 220 220
--------
TOTAL CASH EQUIVALENTS
(Cost $441) 441
--------
TOTAL INVESTMENTS -- 98.6%
(Cost $21,451) 22,175
--------
OTHER ASSETS AND LIABILITIES, NET -- 1.5% 331
--------
- -----------------------------------------------------
DESCRIPTION VALUE (000)
- -----------------------------------------------------
Net Assets:
Fund Shares of Fiduciary Shares
(unlimited authorization -- no
par value) based on 1,128,454
outstanding shares
of beneficial interest $12,068
Fund Shares of Retail Shares
(unlimited authorization -- no
par value) based on 1,122,377
outstanding shares
of beneficial interest 10,982
Undistributed net investment income 38
Accumulated net realized loss
on investments (1,306)
Net unrealized appreciation
on investments 724
--------
TOTAL NET ASSETS-- 100.0% $22,506
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE --FIDUCIARY SHARES $10.01
========
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE --RETAIL SHARES $9.99
========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL SHARES ($9.99 / 97%) $10.30
========
- ----------------------------------------------------
AMBAC--AMERICAN MUNICIPAL BOND ASSURANCE COMPANY
COP--CERTIFICATES OF PARTICIPATION
FGIC--FINANCIAL GUARANTY INSURANCE CORPORATION
FSA--FINANCIAL SECURITY ASSURANCE
GO--GENERAL OBLIGATION
MBIA--MUNICIPAL BOND INVESTORS ASSURANCE
RB--REVENUE BOND
SER--SERIES
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
STATEMENT OF NET ASSETS
BOND FUND
- --------------------------------------------------------------------------------
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Corporate Bonds -- 28.1%
AUTOMOTIVE -- 7.5%
Ford Motor Credit (A)
6.500%, 02/28/02 $3,000 $ 3,026
General Motors Acceptance
8.000%, 10/01/99 2,290 2,376
--------
5,402
--------
BANKING & FINANCE -- 2.8%
Citicorp
6.750%, 08/15/05 600 605
First Bank System
6.875%, 09/15/07 500 505
U.S. Bancorp
6.750%, 10/15/05 900 907
--------
2,017
--------
COMPUTERS & SERVICES -- 1.3%
IBM
8.375%, 11/01/19 800 936
--------
FINANCIAL SERVICES -- 0.9%
Golden West Financial
6.700%, 07/01/02 650 657
--------
FOREIGN GOVERNMENTS -- 1.3%
Hydro Quebec
8.050%, 07/07/24 825 937
--------
INDUSTRIAL -- 1.2%
Caterpillar Tractor
6.000%, 05/01/07 860 826
--------
INSURANCE -- 2.8%
Travelers Property Casualty
6.750%, 04/15/01 2,000 2,032
--------
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Corporate Bonds (continued)
RETAIL -- 5.1%
JC Penney
6.000%, 05/01/06 $ 980 $ 933
Sears Roebuck
9.250%, 08/01/97 900 900
Wal-Mart
6.375%, 03/01/03 1,850 1,855
--------
3,688
--------
TELEPHONES & TELECOMMUNICATION -- 5.2%
Bell Atlantic
8.000%, 10/15/29 1,500 1,714
New England Telephone & Telegraph
6.250%, 03/15/03 1,500 1,491
7.875%, 11/15/29 500 565
--------
3,770
--------
TOTAL CORPORATE BONDS
(Cost $19,812) 20,265
--------
U.S. Government Agency Obligations -- 26.9%
FHLB
8.375%, 10/25/99 300 316
FHLMC
7.000%, 02/20/18 1,958 1,979
6.250%, 01/15/24 1,500 1,469
FNMA
9.050%, 04/10/00 1,000 1,076
6.200%, 09/25/02 2,000 1,993
5.450%, 10/10/03 1,750 1,689
6.500%, 03/25/13 1,500 1,494
6.500%, 03/01/24 1,495 1,463
8.500%, 05/01/25 1,419 1,479
6.500%, 05/01/26 1,006 985
The accompanying notes are an integral part of the financial statements.
59
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BOND FUND (continued)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
U.S. Government Agency Obligations (continued)
GNMA
6.500%, 06/15/23 $1,672 $ 1,644
6.500%, 12/15/23 565 556
7.500%, 01/15/24 1,100 1,121
7.500%, 02/15/24 382 389
7.000%, 04/15/24 813 815
6.500%, 04/15/26 990 973
--------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $18,800) 19,441
--------
U.S. Treasury Obligations -- 20.6%
U.S. Treasury Bonds
10.375%, 11/15/12 1,500 1,971
7.250%, 05/15/16 (A) 2,500 2,749
8.750%, 08/15/20 2,360 3,032
7.125%, 02/15/23 2,800 3,063
U.S. Treasury Notes
8.125%, 02/15/98 1,000 1,013
9.000%, 05/15/98 430 441
8.500%, 11/15/00 420 453
7.000%, 07/15/06 (A) 2,000 2,127
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $14,186) 14,849
--------
Asset Backed Securities -- 16.2%
Carco Auto Loan Master Trust
1994-2 Cl A
7.875%, 07/15/99 1,000 1,006
Citibank Credit Card Master
Trust 1997-3 Cl A
6.839%, 02/10/04 1,300 1,322
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Asset Backed Securities (continued)
Contimortgage Home Equity Loan
Trust 1994-4 Cl A3
8.090%, 09/15/09 $1,125 $ 1,169
Contimortgage Home Equity Loan
Trust 1995-2 Cl A4
8.050%, 07/15/12 1,000 1,043
EQCC 1995-2 Cl A4
7.800%, 12/15/10 1,200 1,247
EQCC 1996-3 Cl A6
7.400%, 12/15/19 1,250 1,307
Green Tree Financial 1995-9 Cl A5
6.800%, 01/15/27 1,250 1,270
MBNA Master Credit Card Trust
1992-1 Cl A
7.250%, 06/15/99 208 208
Mid State Trust IV Cl A
8.330%, 04/01/30 684 734
Premier Auto Trust 1993-2 A3
4.900%, 10/15/98 157 157
Standard Credit Card Master
Trust 1993-3
5.500%, 02/07/00 2,000 1,995
Union Federal Savings Bank
Trust 1994-A Cl A
5.075%, 05/15/00 247 246
--------
TOTAL ASSET BACKED SECURITIES
(Cost $11,413) 11,704
--------
Collateralized Mortgage Obligations -- 4.9%
Country Wide Mortgage 1993-2 Cl 4
6.750%, 04/25/08 787 786
GE Capital Mortgage Service
1994-1 Cl A6
6.500%, 01/25/24 1,850 1,835
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BOND FUND (concluded)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Collateralized Mortgage Obligations (continued)
Residential Funding Mortgage
1992-S36 Cl A4
6.750%, 11/25/07 $ 950 $ 946
--------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $3,347) 3,567
--------
Cash Equivalent -- 0.1%
Janus Money Fund (B) 87 87
--------
TOTAL CASH EQUIVALENT
(Cost $87) 87
--------
Repurchase Agreement -- 9.4%
HSBC (B)
5.93%, dated 07/31/97,
matures 08/01/97,
repurchase price
$5,500,906 5,500 5,500
JP Morgan Securities, Inc.
5.78%, dated 07/31/97,
matures 08/01/97,
repurchase price $1,305,715
(collateralized by FHLMC,
par value $1,325,000,
6.665%, 07/23/02:
market value $1,334,145) 1,305 1,305
--------
TOTAL REPURCHASE AGREEMENT
(Cost $6,805) 6,805
--------
TOTAL INVESTMENTS -- 106.3%
(Cost $74,450) 76,718
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED-- (7.7%) (5,587)
--------
OTHER ASSETS AND LIABILITIES, NET-- 1.4% 1,046
--------
- ------------------------------------------------------
DESCRIPTION VALUE (000)
- ------------------------------------------------------
Net Assets:
Fund Shares of Fiduciary Shares (unlimited
authorization -- no par value)
based on 6,705,929 outstanding shares
of beneficial interest $72,456
Fund Shares of Retail Shares (unlimited
authorization -- no par value)
based on 57,245 outstanding shares
of beneficial interest 588
Undistributed net investment income 168
Accumulated net realized loss
on investments (3,303)
Net unrealized appreciation
on investments 2,268
--------
TOTAL NET ASSETS -- 100.0% $72,177
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY SHARES $10.67
========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL SHARES $10.59
========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL SHARES ($10.59 / 97%) $10.92
========
- ----------------------------------------------------
FHLB--FEDERAL HOME LOAN BANK
FHLMC--FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT JULY 31,
1997 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT JULY 31,
1997 WAS $5,508,924.
(B) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
The accompanying notes are an integral part of the financial statements.
61
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
CONVERTIBLE SECURITIES FUND
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Convertible Bonds -- 62.1%
AUTOMOTIVE -- 2.0%
Magna International
5.000%, 10/15/02 $400 $ 517
--------
COMPUTERS & SOFTWARE SERVICES -- 8.5%
3Com (A)
10.250%, 11/01/01 200 331
CUC International (A)
3.000%, 02/15/02 675 698
HMT Technology (A)
5.750%, 01/15/04 575 517
Solectron (A)
6.000%, 03/01/06 450 605
--------
2,151
--------
DRUGS -- 2.6%
Dura Pharmaceuticals
3.500%, 07/15/02 650 653
--------
ENVIRONMENTAL SERVICES -- 7.5%
U.S. Filter
4.500%, 12/15/01 825 836
USA Waste
4.000%, 02/01/02 700 784
WMX Technologies
2.000%, 01/24/05 300 278
--------
1,898
--------
HOTELS & LODGING -- 4.9%
HFS
4.750%, 03/01/03 650 732
Hilton Hotels
5.000%, 05/15/06 450 516
--------
1,248
--------
INSURANCE -- 2.6%
Penn Treaty American
6.250%, 12/01/03 500 667
--------
MACHINERY -- 1.6%
Thermo Electron
4.250%, 01/01/03 375 411
--------
- -------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- -------------------------------------------------------
Convertible Bonds (continued)
MARINE TRANSPORTATION -- 1.9%
Seacor Holdings
5.375%, 11/15/06 $ 425 $ 470
--------
MEDICAL PRODUCTS & SERVICES -- 5.0%
Alza
5.000%, 05/01/06 500 531
Integrated Health Services
5.750%, 01/01/01 300 338
Tenet Healthcare
6.000%, 12/01/05 325 393
--------
1,262
--------
MISCELLANEOUS BUSINESS SERVICES -- 2.8%
First Data
5.000%, 12/15/99 350 711
--------
PETROLEUM & FUEL PRODUCTS -- 5.9%
Diamond Offshore
3.750%, 02/15/07 550 718
Parker Drilling
5.500%, 08/01/04 700 770
--------
1,488
--------
REAL ESTATE -- 1.5%
Liberty Property Trust
8.000%, 07/01/01 300 391
--------
RETAIL -- 12.4%
Einstein/Noah Bagel (A)
7.250%, 06/01/04 650 603
Federated Department Stores
5.000%, 10/01/03 400 551
Home Depot
3.250%, 10/01/01 625 747
Nine West Group (A)
5.500%, 07/15/03 750 700
Staples (A)
4.500%, 10/01/00 425 535
--------
3,136
--------
The accompanying notes are an integral part of the financial statements.
62
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
CONVERTIBLE SECURITIES FUND (concluded)
- ------------------------------------------------------
DESCRIPTION PAR(000)/SHARES VALUE (000)
- ------------------------------------------------------
Convertible Bonds (continued)
SEMI-CONDUCTORS/INSTRUMENTS -- 2.9%
Adaptec (A)
4.750%, 02/01/04 $ 675 $ 736
--------
TOTAL CONVERTIBLE BONDS
(Cost $13,998) 15,739
--------
Common Stocks -- 9.9%
AIR TRANSPORTATION -- 1.6%
AMR* 3,797 408
--------
BANKS -- 1.6%
Citicorp 3,000 407
--------
COMPUTERS & SERVICES -- 2.4%
Seagate Technology* 14,500 595
--------
MISCELLANEOUS BUSINESS SERVICES -- 1.5%
Electronic Data Systems 9,000 389
--------
MISCELLANEOUS CONSUMER SERVICES -- 1.3%
Service Corporation
International 9,966 339
--------
TELEPHONES & TELECOMMUNICATIONS -- 1.5%
WorldCom* 10,581 370
--------
TOTAL COMMON STOCKS
(Cost $1,644) 2,508
--------
Preferred Stocks -- 21.2%
BANKS -- 1.3%
Banc One 3,000 326
--------
COMPUTERS & SERVICES -- 2.6%
Microsoft 7,325 647
--------
ENERGY -- 3.0%
MCN Financing 13,750 753
--------
FINANCIAL SERVICES -- 4.1%
The Money Store 31,000 1,039
--------
INSURANCE -- 2.4%
SunAmerica 13,000 595
--------
PAPER & PAPER PRODUCTS -- 1.5%
International Paper 6,500 377
--------
- ------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- ------------------------------------------------------
Preferred Stocks (continued)
PRINTING & PUBLISHING -- 1.8%
Hollinger International 40,000 $ 465
--------
TELEPHONES & TELECOMMUNICATIONS -- 4.7%
Intermedia Communications* (A) 31,000 876
WorldCom 2,500 307
--------
1,183
--------
TOTAL PREFERRED STOCKS
(Cost $4,483) 5,385
--------
Time Deposits -- 3.4%
Sanwa Bank Limited
5.844%, 08/01/97 $852 852
--------
TOTAL TIME DEPOSITS
(Cost $852) 852
--------
TOTAL INVESTMENTS -- 96.6%
(Cost $20,977) 24,484
--------
OTHER ASSETS AND LIABILITIES, NET -- 3.4% 854
--------
Net Assets:
Fund Shares of Fiduciary Shares
(unlimited authorization -- no
par value) based on 2,041,202
outstanding shares
of beneficial interest 20,467
Undistributed net investment income 18
Accumulated net realized gain
on investments 1,346
Net unrealized appreciation
on investments 3,507
--------
TOTAL NET ASSETS -- 100.0% $25,338
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY SHARES $12.41
========
- --------------------------------------------------------------------------------
*NON-INCOME PRODUCING SECURITY
(A) SECURITIES SOLD WITHIN THE TERMS OF A PRIVATE PLACEMENT MEMORANDUM, EXEMPT
FROM REGISTRATION UNDER SECTION 4[2] OR 144A OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER
"ACCREDITED INVESTORS."
The accompanying notes are an integral part of the financial tatements.
63
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
GOVERNMENT SECURITIES FUND
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
U.S. Treasury Obligations -- 78.4%
U.S. Treasury Bonds
8.125%, 08/15/19 $ 1,000 $ 1,206
6.625%, 02/15/27 (B) 11,000 11,485
U.S. Treasury Notes
5.250%, 12/31/97 1,300 1,299
5.125%, 02/28/98 (B) 1,000 998
6.000%, 05/31/98 5,250 5,267
6.125%, 08/31/98 2,000 2,011
5.875%, 02/28/99 (B) 200 201
6.250%, 03/31/99 1,000 1,009
6.500%, 04/30/99 6,750 6,838
7.750%, 01/31/00 1,500 1,567
6.750%, 04/30/00 1,000 1,023
6.500%, 08/31/01 1,000 1,022
6.375%, 09/30/01 (B) 2,000 2,035
7.500%, 11/15/01 2,000 2,121
6.250%, 02/15/03 2,400 2,436
5.750%, 08/15/03 1,000 991
7.250%, 05/15/04 (B) 3,180 3,404
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $43,451) 44,913
--------
U.S. Government Agency Obligations -- 3.6%
Aid-Israel
7.125%, 08/15/99 2,000 2,045
--------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $1,995) 2,045
--------
Corporate Obligations -- 15.7%
BANKS -- 5.7%
Capital One
7.200%, 07/19/99 1,500 1,522
Svenska Handelsbanken (A)
7.125%, 03/29/49 1,700 1,725
--------
3,247
--------
FINANCIAL - REAL ESTATE -- 2.2%
Meditrust
7.250%, 08/16/99 1,250 1,270
--------
- -------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- -------------------------------------------------------
Corporate Obligations (continued)
FINANCIAL SERVICES -- 3.8%
Salomon Brothers
9.250%, 05/01/01 $2,000 $ 2,169
--------
HOTELS & LODGING -- 1.8%
Hilton Hotels
7.950%, 04/15/07 1,000 1,060
--------
INSURANCE -- 2.2%
Prudential Insurance
6.875%, 04/15/03 (A) 500 504
7.650%, 07/01/07 (A) 700 739
--------
1,243
--------
TOTAL CORPORATE OBLIGATIONS
(Cost $8,780) 8,989
--------
Time Deposits -- 1.4%
Sanwa Bank Limited
5.844%, 08/01/97 809 809
--------
TOTAL TIME DEPOSITS
(Cost $809) 809
--------
Bank Note -- 4.4%
PNCBank (C) (D)
5.672%, 02/13/98 2,500 2,505
--------
TOTAL BANK NOTE
(Cost $2,505) 2,505
--------
Commercial Paper -- 8.2%
Safeco Credit* (D)
5.718%, 08/12/97 2,500 2,496
--------
South Western Electric* (D)
5.614%, 08/14/97 2,193 2,189
--------
TOTAL COMMERICAL PAPER
(Cost $4,685) 4,685
--------
The accompanying notes are an integral part of the financial statements.
64
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
GOVERNMENT SECURITIES FUND (concluded)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Repurchase Agreements -- 15.7%
HSBC (D)
5.93%, dated 07/31/97, matures
08/01/97, repurchase price
$9,001,483 $9,000 $ 9,000
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $9,000) 9,000
--------
Cash Equivalent -- 0.2%
Janus Money Fund (D) 98 98
--------
TOTAL CASH EQUIVALENT
(Cost $98) 98
--------
TOTAL INVESTMENTS -- 127.6%
(Cost $71,323) 73,044
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (28.5%) (16,288)
--------
OTHER ASSETS AND LIABILITIES, NET -- 0.9% 500
--------
- -----------------------------------------------------
DESCRIPTION VALUE (000)
- -----------------------------------------------------
Net Assets:
Fund Shares of Fiduciary Shares (unlimited
authorization -- no par value)
based on 5,938,305 outstanding shares
of beneficial interest $57,498
Undistributed net investment income 117
Accumulated net realized loss
on investments (2,080)
Net unrealized appreciation
on investments 1,721
-------
TOTAL NET ASSETS-- 100.0% $57,256
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY SHARES $9.64
=======
- --------------------------------------------------------------------------------
*REPRESENTS THE EFFECTIVE YIELD AT DATE OF PURCHASE.
(A) SECURITIES SOLD WITHIN THE TERMS OF A PRIVATE PLACEMENT MEMORANDUM, EXEMPT
FROM REGISTRATION UNDER SECTION 4[2] OR 144A OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER
"ACCREDITED INVESTORS."
(B) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT JULY 31,
1997 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT JULY 31,
1997 WAS $15,987,853.
(C) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JULY 31, 1997.
(D) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
The accompanying notes are an integral part of the financial statements.
65
<PAGE>
[LOGO OMITTED]
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BALANCED FUND
- -------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- -------------------------------------------------------
Common Stocks -- 61.3%
AEROSPACE & DEFENSE -- 1.0%
Litton Industries* 18,600 $ 966
Lockheed Martin (A) 25,000 2,662
Raytheon 5,400 302
--------
3,930
--------
AGRICULTURE -- 0.2%
Dole Food (A) 20,000 819
--------
AIR TRANSPORTATION -- 0.5%
Federal Express* 2,600 168
KLM Royal Dutch Air* (A) 46,250 1,653
Southwest Airlines 2,200 64
--------
1,885
--------
AIRCRAFT -- 0.7%
Textron (A) 40,000 2,802
--------
APPAREL/TEXTILES -- 0.6%
Albany International 11,300 290
Donna Karan
International* (A) 100,000 1,400
Springs Industries, Cl A 15,000 726
--------
2,416
--------
AUTO RENTAL AND LEASING -- 0.3%
Rollins Truck Leasing 92,800 1,380
--------
AUTOMOTIVE -- 0.6%
Autoliv (A) 11,524 401
Chrysler 45,610 1,693
Ford Motor 5,900 241
Genuine Parts 3,600 117
--------
2,452
--------
BANKS -- 2.8%
Banc One (A) 2,970 167
Bank of New York 48,000 2,331
Bank United, Cl A* 30,000 1,132
BankBoston 25,000 2,123
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
Chase Manhattan Bank 3,300 $ 375
First Union (A) 10,000 1,014
Fleet Financial Group (A) 8,000 543
J.P. Morgan 14,300 1,657
National City 3,300 196
Norwest (A) 16,000 1,009
Wachovia (A) 2,400 155
Wilmington Trust 19,000 964
--------
11,666
--------
CHEMICALS -- 3.7%
Avery Dennison (A) 40,000 1,765
B.F. Goodrich 5,800 262
BetzDearborn 3,000 196
Cabot (A) 76,000 2,152
Du Pont (E. I.) de Nemours 37,800 2,530
Engelhard (A) 49,200 1,058
Georgia Gulf (A) 60,600 1,776
Monsanto 55,000 2,740
Morton International 33,800 1,130
W.R. Grace 20,000 1,230
Wellman 7,000 159
--------
14,998
--------
COMMUNICATIONS EQUIPMENT -- 0.5%
Motorola (A) 27,700 2,225
--------
COMPUTERS & SOFTWARE SERVICES -- 2.9%
Compaq Computer* (A) 56,250 3,213
Computer Associates
International 31,125 2,118
Hewlett Packard 36,000 2,522
IBM 34,000 3,595
Microsoft* 2,600 368
--------
11,816
--------
CONSTRUCTION MATERIALS-- 0.5%
Lafarge (A) 60,000 1,931
Masco (A) 5,600 263
--------
2,194
--------
The accompanying notes are an integral part of the financial statements.
66
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BALANCED FUND (continued)
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
DRUGS -- 5.0%
Abbott Labs 2,600 $ 170
American Home Products 30,000 2,473
Amgen* (A) 30,000 1,764
Astra, AB, ADR (A) 80,000 1,460
Bristol-Myers Squibb (A) 35,000 2,745
Johnson & Johnson 5,000 312
Merck 23,800 2,474
Pfizer 6,600 394
Pharmacia & Upjohn (A) 50,000 1,887
Schering Plough (A) 3,600 196
SmithKline Beecham, ADR (A) 28,000 2,723
Warner Lambert 27,000 3,772
--------
20,370
--------
ELECTRICAL EQUIPMENT -- 0.5%
AMP (A) 37,600 1,965
Thomas & Betts (A) 3,300 189
--------
2,154
--------
ELECTRICAL UTILITIES -- 0.9%
FPL Group 4,600 220
Illinova (A) 65,400 1,541
Ohio Edison (A) 50,700 1,128
PacifiCorp 9,500 212
Potomac Electric Power 9,000 201
Public Service Enterprise Group 6,500 161
Texas Utilities 5,100 181
--------
3,644
--------
ENTERTAINMENT -- 0.9%
Harrah's Entertainment* (A) 30,000 615
Mirage Resorts* 25,000 669
Walt Disney 30,000 2,424
--------
3,708
--------
ENVIRONMENTAL SERVICES-- 0.0%
Cuno* 9,600 137
--------
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
FINANCIAL SERVICES -- 2.6%
Aames Financial (A) 65,000 $ 1,393
American Express 30,000 2,512
Fannie Mae 67,600 3,198
Travelers 49,465 3,558
--------
10,661
--------
FOOD, BEVERAGE & TOBACCO -- 2.3%
Anheuser Busch 12,400 532
Archer-Daniels-Midland 90,612 2,039
General Mills 3,700 256
H.J. Heinz 6,450 298
IBP (A) 60,000 1,365
Pepsico 48,200 1,847
Philip Morris 37,500 1,692
Ralston-Ralston Purina Group 1,700 153
Universal Foods 36,800 1,398
--------
9,580
--------
FORESTRY -- 0.3%
Rayonier 25,000 1,167
--------
GAS/NATURAL GAS -- 1.3%
Coastal (A) 35,000 1,903
Consolidated Natural Gas 2,600 150
Eastern Enterprises 18,600 666
Pacific Enterprises 4,100 137
Williams Companies (A) 58,200 2,663
--------
5,519
--------
GLASS PRODUCTS -- 0.2%
Corning (A) 10,800 668
--------
HOTELS & LODGING -- 1.0%
Circus Circus Enterprises* (A) 30,000 752
HFS* 34,650 2,018
Hilton Hotels (A) 40,000 1,257
--------
4,027
--------
The accompanying notes are an integral part of the financial statements.
67
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BALANCED FUND (continued)
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
HOUSEHOLD FURNITURE & FIXTURES-- 0.3%
Leggett & Platt 31,200 $ 1,416
--------
HOUSEHOLD PRODUCTS -- 0.1%
Snap-On Tools 6,450 266
--------
INSURANCE -- 3.7%
AFLAC 37,500 2,091
Allstate 27,520 2,174
American General (A) 3,000 160
Equitable (A) 60,000 2,363
General Re 1,500 313
Hartford Financial
Services Group 27,000 2,352
HSB Group 2,100 117
Jefferson Pilot (A) 2,250 160
Lincoln National 30,000 2,130
Loew's 10,000 1,081
Marsh & McLennan 6,600 511
Mutual Risk Management 3,600 177
St. Paul 1,900 149
USF&G (A) 60,000 1,474
--------
15,252
--------
LEASING & RENTING -- 0.6%
Comdisco 63,375 1,771
Xtra 15,000 707
--------
2,478
--------
LEISURE PRODUCTS -- 0.0%
Mattel 4,250 148
--------
LUMBER & WOOD PRODUCTS-- 0.1%
Georgia-Pacific (A) 2,700 255
--------
MACHINERY -- 4.3%
Applied Materials* (A) 25,000 2,297
Baker Hughes 3,300 145
Briggs & Stratton 20,000 1,014
Deere 40,300 2,292
Dresser Industries (A) 70,000 2,923
Emerson Electric 5,000 295
General Electric 48,600 3,411
Global Industries
Technologies* 60,000 1,136
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
MACHINERY (CONTINUED)
Ingersoll Rand (A) 2,700 $ 184
Parker-Hannifin 35,000 2,253
Tenneco (A) 1,900 89
Toro (A) 40,000 1,460
--------
17,499
--------
MEASURING DEVICES -- 0.6%
Mallinckrodt 35,000 1,225
Tektronix (A) 20,000 1,235
--------
2,460
--------
MEDICAL PRODUCTS & SERVICES -- 2.3%
Bausch & Lomb 30,000 1,277
Baxter International 40,000 2,313
Columbia/HCA Healthcare 43,650 1,408
Fresenius National
Medical Care, ADR* (A) 20,981 603
Shared Medical Systems 2,400 130
Tenet Healthcare* (A) 60,000 1,796
Vencor* (A) 50,000 2,016
--------
9,543
--------
MISCELLANEOUS BUSINESS SERVICES -- 1.0%
Electronic Data Systems (A) 41,900 1,812
Equifax 40,000 1,358
Pitney Bowes 2,800 210
Reuters Holdings PLC, ADR 10,000 646
--------
4,026
--------
MISCELLANEOUS TRANSPORTATION -- 0.1%
Fleetwood Enterprises (A) 13,700 444
--------
PAPER & PAPER PRODUCTS -- 1.4%
International Paper (A) 2,200 123
Kimberly-Clark 23,000 1,166
Mead (A) 19,000 1,368
Weyerhaeuser (A) 24,000 1,494
Willamette Industries (A) 19,000 1,448
--------
5,599
--------
The accompanying notes are an integral part of the financial statements.
68
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BALANCED FUND (continued)
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
PETROLEUM & FUEL PRODUCTS -- 1.8%
Atlantic Richfield 3,800 $ 284
Halliburton (A) 7,800 359
Occidental Petroleum (A) 78,200 1,960
Phillips Petroleum 26,700 1,230
Union Pacific Resources Group 71,104 1,755
Union Texas Petroleum (A) 80,000 1,665
--------
7,253
--------
PETROLEUM REFINING -- 3.3%
Amoco 4,600 432
Chevron (A) 33,600 2,659
Exxon 5,400 347
Mobil 34,000 2,601
Royal Dutch Petroleum (A) 39,200 2,193
Texaco (A) 2,400 279
Ultramar Diamond Shamrock (A) 55,700 1,852
Unocal 30,000 1,200
USX-Marathon Group 62,000 1,996
--------
13,559
--------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 0.3%
Eastman Kodak 16,600 1,112
--------
PRECIOUS METALS -- 0.5%
Barrick Gold (A) 88,636 2,022
--------
PRINTING & PUBLISHING -- 2.4%
A.H. Belo, Cl A 28,400 1,264
Gannett 3,500 348
Houghton Mifflin 50,000 1,806
McGraw-Hill 2,500 170
Media General 50,000 1,775
Time Warner (A) 50,000 2,728
Viacom, Cl B* (A) 55,000 1,698
--------
9,789
--------
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
RAILROADS -- 0.6%
Burlington Northern Santa Fe 23,100 $ 2,231
Union Pacific 2,100 151
--------
2,382
--------
REAL ESTATE -- 1.8%
BRE Properties, Cl A 53,600 1,367
CBL & Associates Properties 55,500 1,415
First Industrial Realty Trust 35,000 1,083
JP Realty 52,000 1,316
Post Properties 21,900 875
Price Real Estate
Investment Trust 30,000 1,136
--------
7,192
--------
RETAIL -- 1.9%
American Stores (A) 66,000 1,667
Costco* (A) 55,000 2,083
Federated Department
Stores* (A) 15,000 657
Home Depot 3,300 165
J.C. Penney 4,400 257
McDonald's 10,000 538
Sears Roebuck 42,000 2,659
--------
8,026
--------
RUBBER & PLASTIC -- 0.9%
Agrium (A) 120,000 1,388
Mark IV Industries 52,600 1,312
Tupperware 30,000 1,043
--------
3,743
--------
SEMI-CONDUCTORS/INSTRUMENTS -- 1.5%
Intel 38,000 3,489
National Semiconductor* (A) 70,000 2,205
Texas Instruments 4,100 472
--------
6,166
--------
The accompanying notes are an integral part of the financial statements.
69
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BALANCED FUND (continued)
- ------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
TELEPHONES & TELECOMMUNICATIONS -- 2.1%
AT&T 21,771 $ 801
Airtouch Communications* 51,400 1,693
Ameritech 3,800 256
Bell Atlantic (A) 21,900 1,589
Bellsouth 5,000 237
Century Telephone Enterprises 40,000 1,470
Frontier (A) 43,400 895
GTE 5,700 265
NYNEX 25,000 1,386
US West 3,700 135
--------
8,727
--------
WHOLESALE -- 0.4%
Arrow Electronics* 28,000 1,624
--------
TOTAL COMMON STOCKS
($148,362) 251,199
--------
Preferred Stocks -- 0.0%
Fresenius National
Medical Care* 20,000 2
--------
TOTAL PREFERRED STOCKS
(Cost $0) 2
--------
U.S. Treasury Obligations -- 13.8%
U.S. Treasury Bonds
5.625%, 02/15/06 $3,000 2,914
7.250%, 05/15/16 1,150 1,264
8.750%, 08/15/20 205 263
7.125%, 02/15/23 1,125 1,231
U.S. Treasury Notes
7.500%, 10/31/99 1,000 1,036
7.750%, 11/30/99 1,000 1,042
7.125%, 02/29/00 1,500 1,547
5.500%, 04/15/00 3,000 2,978
6.125%, 09/30/00 1,500 1,512
5.750%, 10/31/00 700 698
- -------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- -------------------------------------------------------
U.S. Treasury Obligations (continued)
5.625%, 02/28/01 $3,000 $ 2,979
6.250%, 04/30/01 1,000 1,013
6.500%, 05/31/01 2,000 2,042
6.625%, 06/30/01 1,000 1,026
6.500%, 08/31/01 3,000 3,067
7.500%, 11/15/01 6,000 6,362
5.875%, 11/30/01 2,000 1,998
6.250%, 01/31/02 2,000 2,027
6.250%, 06/30/02 3,000 3,041
6.375%, 08/15/02 2,000 2,041
6.250%, 02/15/03 1,000 1,015
5.875%, 02/15/04 500 498
6.500%, 05/15/05 4,500 4,629
6.500%, 08/15/05 4,500 4,630
6.875%, 05/15/06 1,000 1,055
7.000%, 07/15/06 2,500 2,659
6.500%, 10/15/06 2,000 2,060
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $55,302) 56,627
--------
U.S. Government Agency Mortgage-Backed Bonds -- 8.6%
FNMA
7.500%, 08/01/01 2,564 2,619
5.450%, 10/10/03 1,350 1,303
6.850%, 09/12/05 1,200 1,212
6.500%, 03/01/24 290 284
8.000%, 08/01/24 899 928
8.000%, 05/01/25 4,087 4,214
8.000%, 07/01/26 921 950
7.500%, 09/01/26 1,480 1,505
7.000%, 09/01/26 1,475 1,473
7.000%, 12/01/26 1,903 1,901
7.500%, 03/01/27 1,480 1,506
GNMA
6.500%, 09/15/08 3,383 3,385
6.000%, 11/15/08 2,215 2,175
6.500%, 02/15/24 93 92
The accompanying notes are an integral part of the financial statements.
70
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BALANCED FUND (continued)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
U.S. Government Agency Mortgage-Backed Bonds (continued)
7.500%, 05/15/24 $ 414 $ 422
7.500%, 09/15/25 943 960
7.000%, 02/15/26 962 965
6.500%, 04/15/26 963 947
7.000%, 08/15/26 2,478 2,484
7.500%, 09/15/26 1,964 1,996
7.500%, 09/15/26 1,456 1,487
7.500%, 01/15/27 2,464 2,507
--------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED BONDS
(Cost $34,645) 35,315
--------
Corporate Obligations -- 8.9%
American General
6.750%, 06/15/05 2,000 2,020
American Telephone & Telegraph
7.500%, 06/01/06 2,000 2,135
Associates of North America
7.875%, 09/30/01 2,000 2,115
Avco Financial Services
7.375%, 08/15/01 2,000 2,080
Bankers Trust NY
7.500%, 11/15/15 2,000 2,065
Bass America
6.750%, 08/01/99 95 96
Bell Atlantic
8.000%, 10/15/29 175 200
Caterpillar Tractor
6.000%, 05/01/07 205 197
Chemical Banking
6.700%, 08/15/08 1,500 1,500
Chesapeake & Potomac
Telephone of Maryland
6.000%, 05/01/03 1,500 1,476
Citicorp
6.750%, 08/15/05 200 202
First Bank System
6.875%, 09/15/07 500 505
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Corporate Obligations (continued)
First National Bank of Boston
8.000%, 09/15/04 $2,000 $ 2,160
Ford Motor Credit
6.500%, 02/28/02 500 504
6.125%, 01/09/06 3,000 2,903
General Motors Acceptance
8.000%, 10/01/99 305 316
Golden West Financial
6.700%, 07/01/02 100 101
Hydro Quebec
8.050%, 07/07/24 100 114
IBM
8.375%, 11/01/19 200 234
JC Penney
6.000%, 05/01/06 100 95
Joseph E. Seagram & Sons
7.000%, 04/15/08 1,500 1,541
Lehman Brothers Holding
8.500%, 05/01/07 2,000 2,235
Lockheed Martin
7.700%, 06/15/08 2,000 2,165
New England Telephone & Telegraph
7.875%, 11/15/29 125 141
Panhandle Eastern
7.875%, 08/15/04 1,000 1,070
Province of British Columbia
7.000%, 01/15/03 1,500 1,547
Ralston Purina
7.750%, 10/01/15 2,000 2,130
Royal Bank of Scotland
6.375%, 02/01/11 2,500 2,397
U.S. Bancorp
6.750%, 10/15/05 150 151
Wal-Mart
5.875%, 10/15/05 2,000 1,933
6.375%, 03/01/03 200 201
--------
TOTAL CORPORATE OBLIGATIONS
(Cost $35,034) 36,529
--------
The accompanying notes are an integral part of the financial statements.
71
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BALANCED FUND (continued)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Asset Backed Securities -- 1.1%
American Express 1994-1A
7.150%, 08/15/99 $1,500 $ 1,524
Carco Auto Loan Master Trust
1994-2 Cl A
7.875%, 07/15/99 190 191
Contimortgage Home Equity Loan
Trust Ser 1994-4, Cl A3
8.090%, 09/15/09 200 208
Contimortgage Home Equity
Loan Trust
7.440%, 09/15/15 200 206
Equity Capital
7.400%, 12/15/19 350 366
Green Tree Financial
6.800%, 01/15/27 250 254
J.C. Penney's Master Credit Card
Trust, Ser C, Cl A
9.625%, 06/15/00 1,000 1,087
Standard Credit Card Master
Trust 1993-3
5.500%, 02/07/00 500 499
Union Federal Savings Bank
Trust 1994-A Cl A
5.075%, 05/15/00 82 82
--------
TOTAL ASSET BACKED SECURITIES
(Cost $4,264) 4,417
--------
Commercial Paper -- 10.4%
Bankers Trust New York (B) (C)
5.700%, 12/12/97 2,000 2,000
Baxter International* (C)
5.705%, 08/04/97 10,000 9,995
Hercules (C)
5.641%, 08/04/97 9,000 8,996
Progress Funding* Ser A (C)
5.667%, 08/07/97 12,500 12,488
Safeco Credit* (C)
5.718%, 08/12/97 4,000 3,993
5.729%, 08/18/97 5,000 4,987
--------
TOTAL COMMERCIAL PAPER
(Cost $42,459) 42,459
--------
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Certificates of Deposit - Domestic -- 2.4%
Bankers Trust (B) (C)
5.700%, 07/15/98 $10,000 $ 9,995
--------
TOTAL CERTIFICATES OF DEPOSIT - DOMESTIC
(Cost $9,995) 9,995
--------
Certificates of Deposit - Yankee -- 4.9%
Fuji Bank (C)
5.620%, 08/01/97 5,000 5,000
5.620%, 08/11/97 10,000 10,039
--------
15,039
--------
Societe General New York (B) (C)
5.924%, 05/06/98 5,000 5,004
TOTAL CERTIFICATES OF DEPOSIT - YANKEE
(Cost $20,043) 20,043
--------
Bank Note -- 1.2%
PNC Bank (B) (C)
5.672%, 02/13/98 5,000 5,015
--------
TOTAL BANK NOTE
(Cost $5,015) 5,015
--------
Cash Equivalents -- 0.1%
AIMLiquid Asset Money Fund (C) 104 104
Janus Money Fund (C) 550 550
--------
TOTAL CASH EQUIVALENTS
(Cost $654) 654
--------
Repurchase Agreements -- 9.0%
JP Morgan Securities, Inc.
5.78%, dated 07/31/97,
matures 08/01/97, repurchase
price $23,386,264
(collateralized by FHLMC,
par value $23,932,000,
08/22/97: market
value $23,850,65 23,383 23,383
The accompanying notes are an integral part of the financial statements.
72
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BALANCED FUND (concluded)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- -------------------------------------------------------
Repurchase Agreements (continued)
Paine Webber (C)
6.00%, dated 07/31/97, matures
08/01/97, repurchase price
$2,000,333 $2,000 $ 2,000
Salomon Brothers (C)
5.90%, dated 07/31/97, matures
08/01/97, repurchase price
$11,501,885 11,500 11,500
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $36,883) 36,883
--------
TOTAL INVESTMENTS -- 121.7%
(Cost $392,656) 499,138
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (22.3%) (91,666)
--------
OTHER ASSETS AND LIABILITIES, NET -- 0.6% 2,184
--------
Net Assets:
Fund Shares of Fiduciary Shares (unlimited
authorization -- no par value)
based on 24,332,071 outstanding shares
of beneficial interest 291,029
Fund Shares of Retail Shares (unlimited
authorization -- no par value)
based on 560,078 outstanding shares
of beneficial interest 6,434
Undistributed net investment income 569
Accumulated net realized gain
on investments 5,142
Net unrealized appreciation
on investments 106,482
--------
TOTAL NET ASSETS -- 100.0% $409,656
========
- -----------------------------------------------------
DESCRIPTION VALUE
- -----------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY SHARES $16.46
========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL SHARES $16.45
========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL SHARES ($16.45 / 95.5%) $17.23
========
- -----------------------------------------------------
*REPRESENTS THE EFFECTIVE YIELD AT DATE OF PURCHASE.
ADR--AMERICAN DEPOSITORY RECEIPT
CL--CLASS
FHLMC--FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
SER--SERIES
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT JULY 31,
1997 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT JULY 31,
1997 WAS $88,627,033.
(B) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JULY 31, 1997.
(C) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
The accompanying notes are an integral part of the financial statements.
73
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
GROWTH FUND
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks -- 97.2%
APPAREL/TEXTILES -- 0.5%
Albany International 5,605 $ 144
Cintas 21,915 1,435
--------
1,579
--------
BANKS -- 5.7%
Banc One (A) 36,300 2,037
BankAmerica 20,870 1,576
Chase Manhattan Bank 54,275 6,164
Fleet Financial Group 24,440 1,659
U.S. Bancorp 42,680 2,849
Wells Fargo 11,275 3,100
--------
17,385
--------
BEAUTY PRODUCTS -- 2.4%
Avon Products (A) 29,070 2,109
Colgate-Palmolive (A) 65,050 4,928
Proctor & Gamble 2,670 406
--------
7,443
--------
BROADCASTING, NEWSPAPERS & ADVERTISING -- 0.5%
Comcast, Cl A (A) 62,000 1,407
--------
CHEMICALS -- 1.4%
B.F. Goodrich 30,395 1,373
Monsanto 61,100 3,044
--------
4,417
--------
COMMUNICATIONS EQUIPMENT-- 1.6%
Motorola (A) 61,595 4,947
--------
COMPUTERS & SOFTWARE SERVICES -- 9.3%
Cisco Systems* (A) 57,395 4,566
Computer Associates
International 61,743 4,202
CUC International* (A) 116,472 2,868
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
COMPUTERS & SOFTWARE SERVICES (CONTINUED)
Fiserv* 59,780 $ 2,869
Hewlett Packard 59,355 4,159
Microsoft* 41,070 5,811
Parametric Technology* (A) 79,660 3,903
--------
28,378
--------
DRUGS -- 13.3%
Abbott Labs 40,322 2,639
Alza* (A) 43,740 1,413
Amgen* (A) 23,971 1,410
Bristol-Myers Squibb 38,400 3,012
Eli Lilly 9,700 1,096
Johnson & Johnson 109,360 6,814
Merck (A) 73,905 7,681
Pfizer 100,380 5,985
Schering Plough (A) 87,300 4,763
SmithKline Beecham, ADR 15,775 1,534
Warner Lambert 31,755 4,436
--------
40,783
--------
ENTERTAINMENT -- 3.6%
Harrah's Entertainment* (A) 13,815 283
International Game Technology 113,600 1,889
Mirage Resorts* (A) 117,160 3,134
Walt Disney 69,911 5,650
--------
10,956
--------
FINANCIAL SERVICES -- 4.8%
American Express 77,635 6,502
Fannie Mae 64,375 3,046
Franklin Resources (A) 38,960 3,309
MBNA 39,375 1,772
--------
14,629
--------
The accompanying notes are an integral part of the financial statements.
74
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
GROWTH FUND (continued)
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
FOOD, BEVERAGE & TOBACCO -- 5.6%
Anheuser Busch 16,470 $ 707
Coca Cola Company 61,110 4,232
Hershey Foods 26,650 1,472
PepsiCo 168,030 6,438
Philip Morris 92,630 4,180
--------
17,029
--------
HOUSEHOLD PRODUCTS -- 3.6%
Danaher (A) 37,190 2,062
Gillette (A) 90,154 8,925
--------
10,987
--------
INSURANCE -- 7.0%
AFLAC 25,715 1,434
Allstate 38,237 3,021
American International
Group (A) 9,922 1,057
General Re 14,540 3,037
Hartford Financial Services
Group 34,335 2,991
Healthcare Compare* (A) 56,000 3,192
Marsh & McLennan 2,800 217
MBIA 12,600 1,487
Mutual Risk Management 16,271 799
Travelers 59,466 4,278
--------
21,513
--------
LEISURE PRODUCTS -- 1.7%
Mattel (A) 108,440 3,768
Nike (A) 22,180 1,382
--------
5,150
--------
MACHINERY -- 6.8%
Applied Materials* 19,640 1,804
Baker Hughes (A) 85,110 3,750
Dresser Industries (A) 59,155 2,470
General Electric 109,240 7,667
Illinois Tool Works 46,550 2,415
Ingersoll Rand (A) 38,380 2,612
--------
20,718
--------
- -------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- -------------------------------------------------------
Common Stocks (continued)
MARINE TRANSPORTATION -- 0.9%
Carnival, Cl A 65,730 $ 2,769
--------
MEDICAL PRODUCTS & SERVICES -- 1.1%
Covance* 15,740 322
Medtronic 34,660 3,024
--------
3,346
--------
MISCELLANEOUS BUSINESS SERVICES -- 3.2%
Automatic Data Processing (A) 26,955 1,334
Electronic Data Systems (A) 67,650 2,926
First Data (A) 130,362 5,687
--------
9,947
--------
MISCELLANEOUS CONSUMER SERVICES -- 1.3%
Robert Half International* 46,675 2,570
Service International 38,295 1,302
--------
3,872
--------
PETROLEUM & FUEL PRODUCTS -- 1.8%
Halliburton (A) 82,230 3,783
Schlumberger (A) 21,260 1,624
--------
5,407
--------
PRINTING & PUBLISHING -- 2.4%
Dow Jones 35,350 1,527
Gannett 27,430 2,724
McGraw-Hill 22,130 1,501
R.R. Donnelley & Sons (A) 41,800 1,680
--------
7,432
--------
PROFESSIONAL SERVICES -- 1.0%
Cognizant 68,735 2,930
--------
RETAIL -- 8.3%
Costco* (A) 21,520 815
Home Depot 85,410 4,260
Kohls* 92,905 5,853
McDonald's 118,125 6,349
OfficeMax* 94,980 1,330
Pep Boys-Manny, Moe & Jack 38,110 1,267
Safeway* (A) 25,880 1,388
The accompanying notes are an integral part of the financial statements.
75
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
GROWTH FUND (continued)
- -------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- -------------------------------------------------------
Common Stocks (continued)
RETAIL (CONTINUED)
Sears Roebuck 51,305 $ 3,248
Wal-Mart Stores (A) 21,800 819
--------
25,329
--------
SEMI-CONDUCTORS/INSTRUMENTS -- 6.5%
Intel 121,610 11,165
National Semiconductor* (A) 53,420 1,683
Texas Instruments (A) 45,000 5,175
Xilinx* (A) 36,470 1,728
--------
19,751
--------
TELEPHONES & TELECOMMUNICATION -- 2.5%
Airtouch Communications* 70,095 2,309
Cincinnati Bell 89,870 2,696
Lucent Technologies 31,559 2,681
--------
7,686
--------
TESTING LABORATORIES -- 0.4%
Chiron* (A) 62,976 1,322
--------
TOTAL COMMON STOCK
(Cost $203,152) 297,112
--------
Corporate Bond -- 3.3%
Merrill Lynch MTN (B) (C)
5.920%, 05/11/98 $10,000 10,000
--------
TOTAL CORPORATE BOND
(Cost $10,000) 10,000
--------
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Commercial Paper -- 9.6%
Atlas Copco AB # (C)
5.704%, 09/22/97 $10,000 $ 9,917
Bankers Trust New York (B) (C)
5.700%, 12/12/97 3,000 3,000
Progress Funding Ser A # (C)
5.667%, 08/07/97 12,500 12,488
Safeco Credit # (C)
5.718%, 08/12/97 3,917 3,910
--------
TOTAL COMMERCIAL PAPER
(Cost $29,315) 29,315
--------
Certificates of Deposit - Yankee -- 5.7%
Fuji Bank, Chicago (C)
5.620%, 08/01/97 5,000 5,000
5.620%, 08/11/97 7,500 7,527
Societe General, New York (B) (C)
5.924%, 05/06/98 5,000 5,004
--------
TOTAL CERTIFICATES OF DEPOSIT - YANKEE
(Cost $17,531) 17,531
--------
Cash Equivalents -- 0.3%
AIM Liquid Asset Money Fund (C) 414 414
Janus Money Fund (C) 510 510
--------
TOTAL CASH EQUIVALENTS
(Cost $924) 924
--------
The accompanying notes are an integral part of the financial statements.
76
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
GROWTH FUND (concluded)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Repurchase Agreements -- 10.2%
JP Morgan Securities, Inc.
5.78%, dated 07/31/97,
matures 08/01/97, repurchase
price $8,266,501
(collateralized by FHLMC,
par value $8,550,000,
10/31/97: market
value $8,431,394) $8,265 $ 8,265
Salomon Brothers (C)
5.90%, dated 07/31/97, matures
08/01/97, repurchase price
$23,003,769 23,000 23,000
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $31,265) 31,265
--------
TOTAL INVESTMENTS -- 126.3%
(Cost $292,187) 386,147
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (26.4%) (80,770)
--------
OTHER ASSETS AND LIABILITIES, NET-- 0.1% 318
--------
- -----------------------------------------------------
DESCRIPTION VALUE (000)
- -----------------------------------------------------
Net Assets:
Fund Shares of Fiduciary Shares
(unlimited authorization -- no
par value) based on 17,158,727
outstanding shares
of beneficial interest $166,722
Fund Shares of Retail Shares
(unlimited authorization -- no
par value) based on 449,439
outstanding shares
of beneficial interest 5,433
Undistributed net investment income 66
Accumulated net realized gain
on investments 39,514
Net unrealized appreciation
on investments 93,960
--------
TOTAL NET ASSETS -- 100.0% $305,695
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY SHARES $17.36
========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL SHARES $17.39
========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL SHARES ($17.39 / 95.5%) $18.21
========
* NON-INCOME PRODUCING SECURITY
# REPRESENTS THE EFFECTIVE YIELD AT DATE OF PURCHASE.
CL--CLASS
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
MTN -- MEDIUM TERM NOTE
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT JULY 31,
1997 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT
JULY 31, 1997 WAS $78,313,392.
(B) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JULY 31, 1997.
(C) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
The accompanying notes are an integral part of the financial statements.
77
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
VALUE MOMENTUM FUND
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks -- 92.0%
AGRICULTURE -- 0.9%
Dole Food 110,000 $ 4,503
--------
AIRCRAFT -- 0.9%
Boeing (A) 2,520 148
Textron (A) 60,000 4,204
--------
4,352
--------
APPAREL/TEXTILES -- 0.2%
Springs Industries, Cl A 20,000 967
--------
AUTOMOTIVE -- 2.1%
Arvin Industries 140,000 4,874
Fleetwood Enterprises (A) 70,000 2,271
Ford Motor 50,000 2,044
TRW 20,000 1,170
--------
10,359
--------
BANKS -- 5.1%
Bank United, Cl A 120,000 4,530
BankAmerica (A) 70,000 5,285
Bankers Trust 45,000 4,553
First Union (A) 50,000 5,072
J.P. Morgan 25,000 2,897
Wilmington Trust 50,000 2,537
--------
24,874
--------
CHEMICALS -- 4.6%
Avery Dennison 114,000 5,030
Cabot (A) 106,000 3,001
Du Pont (E.I.) de Nemours 66,000 4,418
Monsanto 60,000 2,989
W.R. Grace 74,000 4,551
Wellman (A) 100,000 2,275
--------
22,264
--------
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
COMMUNICATIONS EQUIPMENT -- 1.9%
CTS (A) 75,000 $ 6,178
Harris 35,000 3,041
--------
9,219
--------
COMPUTERS & SERVICES -- 3.4%
Cisco Systems* (A) 60,000 4,774
Hewlett Packard 95,000 6,656
IBM 48,000 5,076
--------
16,506
--------
DRUGS -- 4.6%
Allegiance 6,000 187
American Home Products 30,000 2,473
Amgen* 85,000 4,999
Astra AB-A, ADR (A) 100,000 1,825
Bristol Myers Squibb 26,000 2,039
Merck 50,000 5,197
SmithKline Beecham, ADR 57,000 5,543
--------
22,263
--------
ELECTRICAL UTILITIES -- 0.5%
General Public Utilities 75,000 2,602
--------
ENTERTAINMENT -- 0.1%
Ascent Entertainment Group* 24,440 296
--------
FINANCIAL SERVICES -- 6.3%
Aames Financial (A) 300,000 6,431
Bear Stearns (A) 116,504 4,755
Fannie Mae 120,000 5,677
Morgan Stanley, Dean Witter,
Discover 90,000 4,708
Providian Financial 50,000 1,959
Travelers 100,001 7,194
--------
30,724
--------
FOOD, BEVERAGE & TOBACCO -- 3.4%
IBP (A) 130,000 2,957
Philip Morris 105,000 4,738
Sara Lee (A) 80,000 3,505
Universal Foods 75,000 2,850
Universal 70,000 2,411
--------
16,461
--------
The accompanying notes are an integral part of the financial statements.
78
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
VALUE MOMENTUM FUND (continued)
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
GAS/NATURAL GAS -- 5.0%
Coastal 65,000 $ 3,534
Eastern Enterprises 125,000 4,477
MCN 75,000 2,377
Oneok (A) 125,000 4,375
Questar 42,000 1,719
Sonat 40,000 1,995
Westcoast Energy 70,000 1,400
Williams 90,000 4,117
--------
23,994
--------
GLASS PRODUCTS -- 0.4%
PPG Industries (A) 27,000 1,728
--------
HOTELS & LODGING -- 1.7%
HFS* 107,250 6,247
Hilton Hotels (A) 60,000 1,886
--------
8,133
--------
HOUSEHOLD FURNITURE & FIXTURES -- 1.9%
Lafarge (A) 165,000 5,311
Leggett & Platt (A) 85,000 3,857
--------
9,168
--------
INSURANCE -- 2.7%
Aegon N.V., ADR* (A) 21,720 1,648
Allstate 39,467 3,118
Chubb (A) 45,000 3,172
Lincoln National 40,000 2,840
Torchmark 30,000 2,389
--------
13,167
--------
LEASING & RENTING -- 2.5%
Comdisco 202,500 5,657
Rollins Truck Leasing 280,000 4,165
Xtra 45,000 2,121
--------
11,943
--------
LEISURE PRODUCTS -- 1.0%
Hasbro (A) 160,000 4,910
--------
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
MACHINERY -- 5.5%
Caterpillar 66,000 $ 3,696
Deere 70,000 3,981
Dresser Industries (A) 155,000 6,471
General Electric 90,000 6,317
Rockwell International (A) 30,000 1,969
Toro 117,500 4,289
--------
26,723
--------
MEASURING DEVICES -- 0.5%
Perkin Elmer 30,000 2,449
--------
MEDICAL PRODUCTS & SERVICES -- 3.4%
Baxter International 30,000 1,734
Becton, Dickinson (A) 40,000 2,145
Fresenius National Medical
Care, ADR* (A) 67,141 1,930
Novacare* 50,000 647
Mallinckrodt 75,000 2,625
Manor Care (A) 105,000 3,465
Tenet Healthcare* (A) 123,000 3,682
--------
16,228
--------
MISCELLANEOUS BUSINESS SERVICES -- 1.7%
Electronic Data Systems (A) 25,000 1,081
Equifax 100,000 3,394
NCR* 1,465 47
Wallace Computer Services (A) 110,000 3,678
--------
8,200
--------
OFFICE FURNITURE & FIXTURES -- 0.7%
Hon Industries 55,000 3,286
--------
PAPER & PAPER PRODUCTS-- 2.5%
Kimberly-Clark 116,720 5,916
Weyerhaeuser (A) 45,000 2,801
Willamette Industries (A) 47,000 3,581
--------
12,298
--------
The accompanying notes are an integral part of the financial statements.
79
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
VALUE MOMENTUM FUND (continued)
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
PETROLEUM & FUEL PRODUCTS -- 4.3%
Chevron (A) 55,000 $ 4,352
Mobil 56,000 4,284
Occidental Petroleum (A) 165,000 4,135
Royal Dutch Petroleum 52,000 2,909
Union Pacific Resources 95,408 2,355
Union Texas Petroleum (A) 130,000 2,706
--------
20,741
--------
PETROLEUM REFINING -- 0.8%
Ashland 30,000 1,594
Valero Energy 50,000 2,150
--------
3,744
--------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 1.1%
Eastman Kodak 20,000 1,340
Xerox 49,000 4,030
--------
5,370
--------
PRINTING & PUBLISHING -- 1.8%
Houghton Mifflin 100,000 3,612
McGraw-Hill 75,000 5,086
--------
8,698
--------
RAILROADS -- 1.5%
Burlington Northern Santa Fe 32,000 3,090
Florida East Coast Railway 40,000 4,265
--------
7,355
--------
REAL ESTATE -- 4.9%
BRE Properties, Cl A 172,262 4,393
CBL Associates Properties 180,000 4,590
First Industrial Realty Trust 145,000 4,486
JP Realty 123,000 3,113
Post Properties 65,000 2,596
Price Real Estate Investment
Trust 90,000 3,409
Santa Anita Real Estate
Investment Trust 30,700 982
--------
23,569
--------
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
RETAIL -- 3.5%
Dayton-Hudson (A) 54,000 $ 3,490
Federated Department
Stores* (A) 125,000 5,477
Kroger* 60,000 1,774
May Department Stores 50,000 2,794
Sears Roebuck 56,000 3,546
--------
17,081
--------
RUBBER & PLASTIC -- 0.9%
Hanna 170,000 4,484
--------
SEMI-CONDUCTORS/INSTRUMENTS -- 3.6%
Applied Materials* (A) 15,000 1,378
Avnet 50,000 3,291
Intel 110,000 10,099
National Semiconductor* (A) 75,000 2,363
--------
17,131
--------
STEEL & STEEL WORKS -- 1.7%
Aluminum Company of America 25,000 2,213
Engelhard (A) 152,500 3,279
Harsco 60,000 2,662
--------
8,154
--------
TELEPHONES & TELECOMMUNICATIONS -- 3.8%
AT&T 23,449 863
Airtouch Communications* 16,000 527
Century Telephone Enterprises 90,000 3,308
Comsat 50,000 1,166
Frontier (A) 100,000 2,063
GTE 60,000 2,790
Lucent Technologies 22,840 1,940
SBC Communications 95,000 5,623
--------
18,280
--------
The accompanying notes are an integral part of the financial statements.
80
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
VALUE MOMENTUM FUND (continued)
- ------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
TRANSPORTATION SERVICES -- 0.6%
GATX $51,000 $ 3,140
--------
TOTAL COMMON STOCKS
(Cost $254,865) 445,364
--------
Corporate Bond -- 3.1%
Merrill Lynch MTN (B) (C)
5.920%, 05/11/98 15,000 15,000
--------
TOTAL CORPORATE BOND
(Cost $15,000) 15,000
--------
Commercial Paper -- 11.6%
Atlas Copco AB # (A) (B) (C)
5.704%, 09/22/97 15,000 14,873
Bankers Trust New York (B) (C)
5.700%, 07/15/98 10,000 9,995
Baxter International# (C)
5.705%, 08/04/97 10,000 9,994
Progress Funding, Ser A# (C)
5.667%, 08/07/97 12,500 12,488
Safeco Credit# (C)
5.718%, 08/12/97 4,000 3,992
5.729%, 08/18/97 5,000 4,986
--------
TOTAL COMMERCIAL PAPER
(Cost $56,328) 56,328
--------
Certificates of Deposit - Yankee -- 3.5%
Fuji Bank, Chicago (C)
5.620%, 08/01/97 5,000 5,000
5.620%, 08/11/97 7,500 7,530
--------
12,530
--------
Societe General, New York (B) (C)
5.924%, 05/06/98 5,000 5,004
--------
TOTAL CERTIFICATES OF DEPOSIT - YANKEE
(Cost $17,534) 17,534
--------
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Cash Equivalents -- 0.3%
AIM Liquid Asset Money
Fund (C) $1,654 $ 1,654
Janus Money Fund (C) 689 689
--------
TOTAL CASH EQUIVALENTS
(Cost $2,343) 2,343
--------
Repurchase Agreements -- 12.0%
JP Morgan Securities, Inc.
5.78%, dated 07/31/97,
matures 08/01/97, repurchase
price $39,277,039 (collateralized
by various U.S. Government
Obligations, total par value
$40,285,000, 08/19/97-09/26/97:
total market value
$40,056,930) 39,271 39,271
Salomon Brothers (C)
5.90%, dated 07/31/97,
matures 08/01/97,
repurchase price
$19,003,114 19,000 19,000
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $58,271) 58,271
--------
TOTAL INVESTMENTS -- 122.7%
(Cost $404,341) 594,840
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED-- (22.8%) (110,205)
--------
OTHER ASSETS AND LIABILITIES, NET -- (0.1%) (451)
--------
The accompanying notes are an integral part of the financial statements.
81
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
VALUE MOMENTUM FUND (concluded)
- -----------------------------------------------------
DESCRIPTION VALUE (000)
- -----------------------------------------------------
Net Assets:
Fund Shares of Fiduciary Shares
(unlimited authorization -- no
par value) based on 18,186,587
outstanding shares
of beneficial interest $278,413
Fund Shares of Retail Shares
(unlimited authorization -- no
par value) based on 814,427
outstanding shares
of beneficial interest 11,788
Undistributed net investment income 427
Accumulated net realized gain
on investments 3,057
Net unrealized appreciation
on investments 190,499
--------
TOTAL NET ASSETS -- 100.0% $484,184
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY SHARES $25.48
========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL SHARES $25.48
========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL SHARES ($25.48 / 95.5%) $26.68
========
* NON-INCOME PRODUCING SECURITY
# REPRESENTS THE EFFECTIVE YIELD AT DATE OF PURCHASE.
ADR--AMERICAN DEPOSITORY RECEIPT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE CORPORATION
MTN -- MEDIUM TERM NOTE
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT JULY 31,
1997 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT JULY 31,
1997 WAS $106,571,400.
(B) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JULY 31, 1997.
(C) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
The accompanying notes are an integral part of the financial statements.
82
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
INCOME EQUITY FUND
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks -- 97.5%
AUTOMOTIVE -- 1.5%
Genuine Parts 167,100 $ 5,452
--------
BANKING & FINANCE -- 11.1%
Banc One (A) 217,425 12,203
BankAmerica (A) 51,600 3,896
First Union (A) 38,750 3,931
Fleet Financial Group (A) 102,900 6,984
J.P. Morgan 58,050 6,726
National City 60,575 3,604
NationsBank (A) 50,175 3,572
--------
40,916
--------
BEAUTY PRODUCTS -- 1.2%
International Flavors &
Fragrances (A) 81,275 4,313
--------
BUSINESS SERVICES -- 1.3%
Pitney Bowes 64,625 4,855
--------
CHEMICALS -- 6.1%
B.F. Goodrich 116,575 5,268
BetzDearborn (A) 56,300 3,688
Dow Chemical 56,325 5,351
Rohm & Haas (A) 41,600 4,077
Witco Chemical (A) 85,400 3,896
--------
22,280
--------
DRUGS -- 5.2%
American Home Products 56,275 4,639
Bristol-Myers Squibb 133,325 10,458
SmithKline Beecham, ADR 41,525 4,038
--------
19,135
--------
ELECTRICAL EQUIPMENT -- 2.9%
AMP (A) 123,075 6,431
Thomas & Betts (A) 72,500 4,141
--------
10,572
--------
ELECTRICAL UTILITIES -- 3.3%
Baltimore Gas & Electric (A) 160,100 4,453
PacifiCorp 184,300 4,112
TECO Energy (A) 143,775 3,648
--------
12,213
--------
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
ENVIRONMENTAL SERVICES -- 0.9%
Browning-Ferris Industries (A) 86,800 $ 3,212
--------
FOOD, BEVERAGE & TOBACCO -- 8.6%
Anheuser Busch 144,880 6,221
Fortune Brands 59,400 2,105
General Mills (A) 96,600 6,677
H.J. Heinz 152,350 7,037
Kellogg (A) 45,600 4,189
Philip Morris 122,425 5,524
--------
31,753
--------
GAS/NATURAL GAS -- 3.1%
Consolidated Natural Gas 115,850 6,705
Williams Companies (A) 100,025 4,576
--------
11,281
--------
HOUSEHOLD PRODUCTS -- 0.7%
Clorox 19,775 2,761
--------
INSURANCE -- 8.8%
American General (A) 107,500 5,724
Jefferson Pilot (A) 46,325 3,292
Lincoln National 34,150 2,425
Marsh & McLennan 144,550 11,194
Safeco (A) 80,200 3,840
St. Paul 72,500 5,687
--------
32,162
--------
MACHINERY -- 6.8%
Dresser Industries (A) 138,125 5,767
General Electric 52,725 3,701
Minnesota Mining &
Manufacturing 51,650 4,894
National Service
Industries (A) 89,000 4,389
Tenneco (A) 130,650 6,091
--------
24,842
--------
MEDICAL PRODUCTS & SERVICES -- 2.6%
Baxter International 165,775 9,584
--------
The accompanying notes are an integral part of the financial statements.
83
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
INCOME EQUITY FUND (continued)
- -------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- -------------------------------------------------------
Common Stocks (continued)
PAPER & PAPER PRODUCTS -- 4.4%
International Paper (A) 65,170 $ 3,649
Georgia-Pacific (A) 32,900 3,107
Union Camp (A) 61,400 3,596
Weyerhaeuser 93,775 5,837
--------
16,189
--------
PETROLEUM & FUEL PRODUCTS -- 8.9%
Amoco 92,225 8,669
Atlantic Richfield 93,350 6,984
Chevron (A) 68,000 5,380
Mobil 47,550 3,638
Phillips Petroleum 98,925 4,557
Texaco (A) 29,800 3,459
--------
32,687
--------
PRINTING & PUBLISHING -- 5.7%
Dow Jones 67,025 2,895
McGraw-Hill 219,125 14,859
R.R. Donnelley & Sons (A) 77,850 3,129
--------
20,883
--------
RAILROADS -- 1.2%
Union Pacific 60,250 4,319
--------
RETAIL -- 3.7%
J.C. Penney 134,025 7,840
May Department Stores (A) 100,725 5,628
--------
13,468
--------
SPECIALTY MACHINERY -- 2.4%
Cooper Industries 159,925 8,886
--------
TELEPHONES & TELECOMMUNICATIONS -- 7.1%
Ameritech 80,925 5,457
Bell Atlantic (A) 67,475 4,896
Bellsouth 64,900 3,075
GTE 52,075 2,421
NYNEX 56,300 3,121
SBC Communications 56,025 3,316
US West 100,170 3,662
--------
25,948
--------
TOTAL COMMON STOCK
(Cost $258,214) 357,711
--------
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Commercial Paper -- 16.2%
Bankers Trust New York (B) (C)
5.700%, 12/12/97 $15,500 $ 15,500
Baxter International* (C)
5.705%, 08/04/97 10,000 9,995
Hercules* (C)
5.641%, 08/04/97 8,500 8,496
Progress Funding,* Ser A (C)
5.667%, 08/07/97 12,500 12,488
Safeco Credit* (C)
5.718%, 08/12/97 4,000 3,994
5.729%, 08/18/97 5,000 4,985
South Western Electric* (C)
5.614%, 08/14/97 4,000 3,992
--------
TOTAL COMMERCIAL PAPER
(Cost $59,450) 59,450
--------
Certificates of Deposit - Yankee -- 4.1%
Fuji Bank, Chicago (C)
5.620%, 08/01/97 5,000 5,000
5.620%, 08/11/97 10,000 10,039
--------
TOTAL CERTIFICATES OF DEPOSIT - YANKEE
(Cost $15,039) 15,039
--------
Cash Equivalents -- 0.2%
AIMLiquid Asset Money Fund (C) 83 83
Janus Money Fund (C) 661 661
--------
TOTAL CASH EQUIVALENTS
(Cost $744) 744
--------
Repurchase Agreements -- 12.4%
JP Morgan Securities, Inc.
5.78%, dated 07/31/97,
matures 08/01/97, repurchase
price $10,344,655
(collateralized by FHLMC,
par value $10,699,000,
10/31/97: market
value $10,550,583) 10,343 10,343
The accompanying notes are an integral part of the financial statements.
84
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
INCOME EQUITY FUND (concluded)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Repurchase Agreements (continued)
Paine Webber (C)
6.00%, dated 07/31/97, matures
08/01/97, repurchase price
$2,000,333 $ 2,000 $ 2,000
Salomon Brothers (C)
5.90%, dated 07/31/97, matures
08/01/97, repurchase price
$33,005,408 33,000 33,000
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $45,343) 45,343
--------
TOTAL INVESTMENTS -- 130.4%
(Cost $378,790) 478,287
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (30.1%) (110,233)
--------
OTHER ASSETS AND LIABILITIES,
NET -- (0.3%) (1,177)
--------
- -----------------------------------------------------
DESCRIPTION VALUE (000)
- -----------------------------------------------------
Net Assets:
Fund Shares of Fiduciary Shares
(unlimited authorization -- no
par value) based on 19,366,427
outstanding shares
of beneficial interest $227,975
Fund Shares of Retail Shares
(unlimited authorization -- no
par value) based on 775,778
outstanding shares of
beneficial interest 10,623
Undistributed net investment income 81
Accumulated net realized gain
on investments 28,701
Net unrealized appreciation
on investments 99,497
--------
TOTAL NET ASSETS-- 100.0% $366,877
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY SHARES $18.21
========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL SHARES $18.24
========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL SHARES ($18.24 / 95.5%) $19.10
========
- ----------------------------------------------------
* REPRESENTS THE EFFECTIVE YIELD AT DATE OF PURCHASE.
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT JULY 31,
1997 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT JULY 31,
1997 WAS $107,043,096.
(B) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JULY 31, 1997.
(C) THIS SECURITY WAS PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES
LENDING.
The accompanying notes are an integral part of the financial statements.
85
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BLUE CHIP GROWTH FUND
- -------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- -------------------------------------------------------
Common Stocks -- 95.5%
AIR TRANSPORTATION -- 1.2%
AMR* (A) 11,000 $ 1,183
--------
AIRCRAFT -- 2.3%
Allied Signal 16,600 1,531
Boeing 12,000 706
--------
2,237
--------
BANKS -- 12.1%
BankBoston 14,400 1,223
Bankers Trust 5,000 506
Chase Manhattan Bank 13,500 1,533
Citicorp 13,500 1,833
Comerica 20,000 1,512
CoreStates 15,000 925
First Bank System (A) 11,000 979
First Union (A) 11,000 1,116
H.F. Ahmanson (A) 10,000 532
Merchantile Bancorp (A) 15,000 1,058
NationsBank (A) 6,524 464
--------
11,681
--------
CHEMICALS -- 0.8%
IMC Fertilizer Group 22,900 723
--------
COMPUTERS & SOFTWARE SERVICES -- 13.4%
3Com* 10,000 547
Cisco Systems* 20,000 1,591
Compaq Computer* (A) 43,000 2,456
Computer Associates
International 32,550 2,215
EMC* 15,000 757
Gateway 2000* (A) 10,000 382
Oracle* 7,000 381
Peoplesoft* (A) 26,400 1,544
Quantum* (A) 77,400 2,249
Sun Microsystems* (A) 20,000 914
--------
13,036
--------
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
DRUGS -- 7.6%
American Home Products 12,000 $ 989
Amgen* 10,000 588
Eli Lilly 9,426 1,065
Forest Laboratories* 20,700 942
Johnson & Johnson 13,000 810
Merck 9,000 935
Pfizer 16,000 954
Schering Plough (A) 20,000 1,091
--------
7,374
--------
ENVIRONMENTAL SERVICES -- 0.5%
U.S. Filter* (A) 15,000 453
--------
FINANCIAL SERVICES -- 6.8%
American Express 5,000 419
Bear Stearns (A) 27,562 1,125
Franklin Resources (A) 15,000 1,274
Household International 2,500 324
Merrill Lynch 10,000 704
S&P 500 Depositary Receipt 10 953
The Money Store (A) 49,000 1,758
--------
6,557
--------
FOOD, BEVERAGE & TOBACCO -- 6.3%
Coca Cola 18,800 1,302
PepsiCo 20,000 766
Philip Morris 57,500 2,595
RJR Nabisco 21,000 689
UST 25,650 745
--------
6,097
--------
GAS/NATURAL GAS -- 0.6%
El Paso Natural Gas 6,000 347
Noram Energy 15,000 240
--------
587
--------
HOTELS & LODGING -- 0.3%
HFS* 5,000 291
--------
The accompanying notes are an integral part of the financial statements.
86
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BLUE CHIP GROWTH FUND (continued)
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
HOUSEHOLD PRODUCTS -- 3.5%
Alberto Culver, Cl A 40,000 $ 958
Clorox 3,750 524
Kimberly-Clark 16,500 836
Proctor & Gamble 7,000 1,065
--------
3,383
--------
INSURANCE -- 1.3%
Hartford Financial Services
Group 8,000 697
SunAmerica (A) 10,000 605
--------
1,302
--------
LEISURE PRODUCTS -- 1.5%
Mattel (A) 12,500 434
Nike (A) 16,700 1,041
--------
1,475
--------
MACHINERY -- 1.1%
Deere 18,000 1,024
--------
MEDICAL PRODUCTS & SERVICES -- 9.8%
BioChem Pharma* 15,300 442
Boston Scientific* (A) 20,000 1,435
Columbia HCA Healthcare 15,000 484
Guidant 16,000 1,460
Healthsouth Rehabilitation* 23,000 609
Medpartners* (A) 60,000 1,425
Pacificare Health Systems* (A) 10,000 707
Tenet Healthcare* (A) 27,400 820
United Healthcare (A) 37,500 2,137
--------
9,519
--------
MISCELLANEOUS BUSINESS SERVICES -- 2.6%
Autodesk 23,500 996
Baan NV* 10,000 690
NCR* 937 30
Network General* 49,700 808
--------
2,524
--------
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
PAPER & PAPER PRODUCTS -- 1.7%
Champion International 13,000 $ 806
International Paper 15,000 840
--------
1,646
--------
PETROLEUM & FUEL PRODUCTS -- 0.4%
Tidewater 7,000 354
--------
PETROLEUM REFINING -- 2.7%
Exxon 15,000 964
Mobil 15,800 1,209
Royal Dutch Petroleum 8,000 448
--------
2,621
--------
PROFESSIONAL SERVICES -- 0.5%
Paychex (A) 11,250 454
--------
RETAIL -- 8.0%
Costco* 14,500 549
Dayton-Hudson (A) 20,000 1,293
General Nutrition* 61,300 1,747
Lowe's 20,800 783
Safeway* (A) 27,600 1,480
Sears Roebuck 5,000 317
Staples* (A) 20,000 503
TJX (A) 36,000 1,076
--------
7,748
--------
SEMI-CONDUCTORS/INSTRUMENTS -- 4.4%
Adaptec* 36,000 1,517
Analog Devices* (A) 49,000 1,540
Intel 13,000 1,194
--------
4,251
--------
SPECIALTY MACHINERY -- 0.5%
Solectron* 6,250 493
--------
STEEL & STEEL WORKS -- 0.8%
Aluminum Company of America 8,400 743
--------
The accompanying notes are an integral part of the financial statements.
87
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BLUE CHIP GROWTH FUND (continued)
- ------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
TELEPHONES & TELECOMMUNICATIONS-- 4.7%
Ameritech 15,200 $ 1,025
Lucent Technologies 6,805 578
Newbridge Networks* 28,200 1,470
Pairgain Technologies* 22,000 473
WorldCom* 30,000 1,048
--------
4,594
--------
WHOLESALE -- 0.1%
Autoliv (A) 3,410 119
--------
TOTAL COMMON STOCKS
(Cost $64,708) 92,469
--------
Equity Options -- (0.1%)
# of Contracts
--------------
Pacificare August 65 Puts*
08/15/97 10 1
Philip Morris August 47.5
Calls* 08/15/97 (270) (8)
--------
TOTAL EQUITY OPTIONS
(Cost $(31)) (7)
--------
Time Deposits -- 4.4%
Sanwa Bank Limited
5.844%, 08/01/97 $4,265 4,265
--------
TOTAL TIME DEPOSITS
(Cost $4,265) 4,265
--------
Commercial Paper -- 6.2%
Martin Marietta Material# (C)
5.644%, 08/07/97 4,000 3,996
Safeco Credit# (C)
5.729%, 08/18/97 2,000 1,995
--------
TOTAL COMMERCIAL PAPER
(Cost $5,991) 5,991
--------
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Certificates of Deposit -- 3.1%
Bankers Trust (B) (C)
5.701%, 07/15/98 $3,000 $ 2,999
--------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $2,999) 2,999
--------
Bank Note -- 2.6%
PNC Bank (B) (C)
5.672%, 02/13/98 2,500 2,505
--------
TOTAL BANK NOTE
(Cost $2,505) 2,505
--------
Cash Equivalents -- 1.7%
AIMLiquid Asset Money Fund (C) 872 872
Janus Money Fund (C) 818 818
--------
TOTAL CASH EQUIVALENTS
(Cost $1,690) 1,690
--------
Repurchase Agreements -- 16.4%
Salomon Brothers (C)
5.90%, dated 07/31/97, matures
08/01/97, repurchase price
$16,002,622 16,000 16,000
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $16,000) 16,000
--------
TOTAL INVESTMENTS -- 130.0%
(Cost $98,127) 125,912
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (30.2%) (29,185)
--------
OTHER ASSETS AND LIABILITIES, NET -- 0.2% 156
--------
The accompanying notes are an integral part of the financial statements.
88
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
BLUE CHIP GROWTH FUND (concluded)
- ------------------------------------------------------
DESCRIPTION VALUE (000)
- ------------------------------------------------------
Net Assets:
Fund Shares of Fiduciary Shares (unlimited
authorization -- no par value)
based on 5,592,308 outstanding shares
of beneficial interest $ 58,138
Undistributed net investment income 23
Accumulated net realized gain
on investments 10,937
Net unrealized appreciation
on investments 27,785
-------
TOTAL NET ASSETS -- 100.0% $96,883
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY SHARES $17.32
=======
- ----------------------------------------------------
* NON-INCOME PRODUCING SECURITY
# REPRESENTS THE EFFECTIVE YIELD AT DATE OF PURCHASE.
ADR--AMERICAN DEPOSITORY RECEIPT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT JULY 31,
1997 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT JULY 31,
1997 WAS $27,013,523.
(B) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JULY 31, 1997.
(C) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
The accompanying notes are an integral part of the financial statements.
89
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND
- -------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- -------------------------------------------------------
Common Stocks -- 90.5%
AEROSPACE & DEFENSE -- 1.6%
Remec* 14,500 $ 438
SCI Systems* 7,500 596
--------
1,034
--------
AIR TRANSPORTATION -- 1.6%
Aar 11,000 393
Atlas Air* 6,500 172
ComAir Holdings 2,250 61
Expeditors International
of Washington 4,000 152
Mesaba Holdings* 10,000 169
Trans World Airlines* (A) 17,500 120
--------
1,067
--------
APPAREL/TEXTILES -- 1.7%
Interface Cl A 6,500 180
Jones Apparel Group* 10,000 519
Ralph Lauren* 15,000 402
--------
1,101
--------
BANKS -- 7.7%
Astoria Financial (A) 20,000 965
CBT Group, ADR* 3,000 199
Cullen/Frost Bankers 7,400 346
First Security 16,875 454
Hibernia, Cl A 12,500 189
Merchantile Bancorp (A) 12,852 907
Old Kent Financial 6,675 432
PFF Bancorp* 7,000 134
Roslyn Bancorp 20,000 479
Union Planters 15,000 793
Zions Bancorp 5,000 179
--------
5,077
--------
BROADCASTING, NEWSPAPERS & ADVERTISING -- 1.1%
Evergreen Media, Cl A* (A) 5,000 230
SFX Broadcasting, Cl A* (A) 7,500 440
Sinclair Broadcast Group Cl A* 2,500 87
--------
757
--------
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
BUILDING & CONSTRUCTION -- 1.5%
Centex 6,500 $ 362
Pacific Greystone* 15,000 298
Southdown 6,000 306
--------
966
--------
CHEMICALS -- 0.3%
Cytec Industries* 5,500 217
--------
COMMUNICATIONS EQUIPMENT -- 4.1%
ADC Telecommunications* 8,600 347
AFC Cable Systems* 8,400 240
Ascend Communications* 7,000 381
Ciena* 5,000 281
Digital Microwave* 6,500 278
ECI Telecom 5,000 163
Encore Wire* 9,000 342
Nice Systems Limited, ADR* 8,000 305
PRI Automation* 5,000 248
Tellabs* (C) 2,500 150
--------
2,735
--------
COMPUTERS & SOFTWARE SERVICES -- 11.1%
Aris* 2,000 54
Bea Systems* 6,500 126
BMC Software* (A) 9,000 542
C-Net* 6,500 173
Clarify* 7,000 122
Cognex* 10,000 340
Cisco Systems* 4,500 358
CUC International* (A) 7,500 185
Compuware* 5,000 309
Comverse Technology* 5,000 244
Gasonics International* 5,000 93
Geoworks* 9,000 87
HBO 11,500 890
Informix* (C) 13,000 147
JDA Software Group* 5,000 174
McAfee Associates* 10,500 684
New Era of Networks* 7,000 97
Oracle* 2,500 136
Saville Systems Ireland,
ADR* (A) (C) 20,500 1,307
The accompanying notes are an integral part of the financial statements.
90
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND (continued)
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
COMPUTERS & SOFTWARE SERVICES (CONTINUED)
Stratus Computer* 7,500 $ 409
Sun Microsystems* (A) 3,000 137
Symantec* 7,100 171
Sync Research* 17,000 76
Verilink* 5,750 62
Viasoft* 7,500 454
--------
7,377
--------
CONCRETE & MINERAL PRODUCTS -- 0.2%
Ferro 4,000 148
--------
CONSUMER PRODUCTS -- 1.4%
Nine West Group* 8,500 341
Wolverine World Wide 21,937 599
--------
940
--------
DRUGS & BIOTECHNOLOGY -- 5.0%
Agouron Pharmecutical* (A) 3,000 287
Alexion Pharmaceuticals* 7,500 79
Arqule* 10,000 165
Aviron* (A) 10,000 272
Axogen Limited Units* 7,500 247
Boston Scientific* 3,200 230
Cell Genesys* 15,000 88
ChiRex* 1,000 17
Cytyc 8,700 203
Dura Pharmaceuticals* (A) 7,000 273
IDEC Pharmaceuticals* 5,000 136
Jones Medical Industries (A) 14,000 415
Liposome* (A) 19,000 134
Medicis Pharmaceutical, Cl A* 5,000 226
Neurocrine Biosciences* 10,000 91
Oncogene Science* 15,000 120
Parexel International* 7,500 289
--------
3,272
--------
ENVIRONMENTAL SERVICES -- 1.3%
United Waste Systems* (A) 8,500 363
USA Waste Services* 12,800 516
--------
879
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
FINANCIAL SERVICES -- 2.8%
Finova Group 2,800 $ 253
First American, Tennessee 21,000 892
Firstplus Financial Group* (A) 10,000 456
JSB Financial 6,000 265
--------
1,866
--------
FOOD, BEVERAGE & TOBACCO -- 1.3%
Dean Foods 10,000 482
Earthgrains 5,000 183
Ralcorp Holdings* (C) 10,000 181
--------
846
--------
GLASS PRODUCTS -- 0.2%
Excel Industries 5,000 101
--------
HOTELS & LODGING -- 1.2%
HFS* 13,000 757
--------
HOUSEHOLD PRODUCTS -- 0.4%
Helen of Troy Limited* 7,500 232
--------
INSURANCE -- 2.1%
Arm Financial Group* 14,000 290
CMAC Investment 7,500 354
Conseco Common 5,000 204
Reliastar Financial 5,000 383
USF&G 7,500 184
--------
1,415
--------
LEASING & RENTING -- 0.1%
Rent-Way* 4,000 59
--------
MACHINERY -- 3.3%
Camco International 13,750 889
Chart Industries 10,000 177
Crane 10,000 454
DT Industries 3,200 111
Kuhlman 8,500 263
SPX 5,000 260
--------
2,154
--------
The accompanying notes are an integral part of the financial statements.
91
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND (continued)
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
MEASURING DEVICES -- 1.5%
Benchmarq Microelectronics* 1,500 $ 34
KLA Tencor* 3,000 182
Molecular Dynamics* 7,000 145
Technitrol 8,000 254
Thermoquest* 15,000 255
Veeco Instruments* 2,500 124
--------
994
--------
MEDICAL PRODUCTS & SERVICES -- 4.2%
Biochem Pharma* 9,500 274
Cardiothoracic Systems* (A) 12,500 173
ESC Medical Systems Limited* 5,000 167
Express Scripts Cl A* 2,500 112
FPA Medical Management* 5,000 133
Genesis Health Ventures* (A) 5,000 169
IMPATH* 4,000 105
Medquist* 3,750 124
Molecular Devices* 5,000 95
Rehabcare* 2,500 82
Renal Treatment Centers* (A) 15,000 443
Sabratek* (A) 3,100 84
Safeskin* 7,500 248
Staar Surgical* 10,000 137
Theragenics* 1,500 43
Universal Health Services* 5,500 223
Veterinary Centers of America* 10,000 148
--------
2,760
--------
MISCELLANEOUS BUSINESS SERVICES-- 4.0%
Abacus Direct* 11,000 330
Cognos* 16,000 483
Concord EFS* (A) 15,343 452
E*Trade Group* (A) 7,500 229
Individual* 12,500 41
Memberworks* 10,000 181
Midway Games* (A) 5,000 102
Profit Recovery Group
International* 5,000 83
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
MISCELLANEOUS BUSINESS SERVICES (CONTINUED)
Sterling Commerce* 7,963 $ 300
Superior Services* 5,000 131
Vantive* 10,000 313
--------
2,645
--------
MISCELLANEOUS CONSUMER SERVICES -- 1.3%
Corestaff* 5,000 155
Service International 7,500 255
Stewart Enterprises, Cl A 10,500 454
--------
864
--------
MISCELLANEOUS MANUFACTURING -- 0.7%
Mueller Industries* 5,000 224
Samsonite* (A) 5,000 232
--------
456
--------
PAPER & PAPER PRODUCTS -- 1.0%
Shorewood Packaging* 7,500 158
St. Joe 6,000 515
--------
673
--------
PETROLEUM & FUEL PRODUCTS -- 3.3%
Diamond Offshore Drilling 2,500 233
EVI* 10,000 489
Falcon Drilling* (A) 23,000 664
Global Marine* 12,000 344
Key Energy Group* (A) 6,000 128
Reading & Bates* 4,000 133
Santa Fe International* 5,000 206
--------
2,197
--------
PRINTING & PUBLISHING -- 1.2%
Central Newspapers, Cl A 6,500 454
Digital Generations Systems* 12,000 74
Electronics for Imaging* 5,000 275
--------
803
--------
The accompanying notes are an integral part of the financial statements.
92
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND (continued)
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
PROFESSIONAL SERVICES -- 1.9%
Apollo Group, Cl A* (A) 5,000 $ 186
Childrens Comprehensive* 7,500 123
Paychex (A) 18,950 765
Pre Paid Legal* 7,500 184
--------
1,258
--------
RAILROADS -- 0.2%
Hub Group* 4,500 151
--------
RETAIL -- 5.5%
Bed Bath & Beyond* 6,000 198
CKE Restaurants 8,500 294
Cost Plus* 5,000 128
Family Dollar Stores 10,000 326
Gadzooks* 5,000 86
Goody's Family Clothing* (A) 10,000 345
MSC Industrial Direct* (A) 5,000 216
Omnicare 11,000 324
Pier 1 Imports 12,000 212
Planet Hollywood* (A) 5,000 114
Ross Stores 5,000 158
Shopko Stores 15,000 433
Showbiz Pizza Time* 16,000 370
Staples* (A) 16,500 415
--------
3,619
--------
RUBBER & PLASTIC -- 0.5%
Carlisle 8,000 332
--------
SEMI-CONDUCTORS/INSTRUMENTS -- 4.7%
Altera* (C) 9,000 543
Cymer* 3,500 256
Hadco* 1,000 66
Lernout & Hauspie Speech* (A) 6,500 202
Level One Communications* 3,500 149
Sanmina* (A) 3,300 240
Semtech* 6,500 294
Triquint Semiconductor* 3,000 105
Ultratech Stepper* 9,500 242
Vitesse Semiconductor* 9,750 472
- -------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- -------------------------------------------------------
Common Stocks (continued)
SEMI-CONDUCTORS/INSTRUMENTS (CONTINUED)
VLSI Technology* 18,000 $ 533
--------
3,102
--------
SPECIALTY MACHINERY -- 0.4%
U.S. Filter* (A) 9,000 272
--------
STEEL & STEEL WORKS -- 0.4%
Lone Star Technologies* 5,000 158
Tubos de Mexico Acero, ADR* 6,500 122
--------
280
--------
REAL ESTATE -- 1.2%
Boston Properties* 7,000 195
Felcor Suite Hotels 9,000 351
INMC Mortgage Holdings 10,000 241
--------
787
--------
TELEPHONES & TELECOMMUNICATIONS -- 5.0%
Advanced Fibre Communication* 7,000 489
Boston Communications Group* 7,500 102
Brightpoint* 10,500 314
Intermedia Communications
of Florida* 10,000 364
MRV Communications* 10,000 309
Omnipoint Communications* 6,000 92
Pacific Gateway Exchange* 5,000 183
Qualcomm* 4,000 185
Star Telecommunications* 10,000 164
Tel-Save Holdings* 7,500 128
WorldCom* 27,500 961
Xcellenet* 5,000 43
--------
3,334
--------
TESTING LABORATORIES -- 1.2%
Curative Technologies* 5,000 158
Martek Biosciences* 7,500 68
Quintiles Transnational* (A) 7,500 565
--------
791
--------
TRUCKING -- 0.3%
U.S. Express Enterprises* 2,500 46
Yellow* 5,000 135
--------
181
--------
The accompanying notes are an integral part of the financial statements.
93
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND (continued)
- ------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- ------------------------------------------------------
Common Stocks (continued)
WHOLESALE -- 1.7%
Barrett Resources* 6,100 $ 177
Cardinal Health (A) 9,500 591
Central Garden & Pet* (A) 9,500 245
Physician Sales & Services* 7,000 130
--------
1,143
--------
TOTAL COMMON STOCKS
(Cost $47,555) 59,642
--------
Equity Options -- (0.6%)
# of Contracts
--------------
Altera September 65 Calls*
09/19/97 (30) (7)
Ascend Communications
August 50 Puts* 08/15/97 70 7
Ascend Communications
September 60 Calls* 09/19/97 (70) (18)
Boston Scientific August 60
Puts* 08/15/97 32 --
Boston Scientific August 65
Calls* 08/15/97 (32) (22)
Cisco Systems August 80
Calls* 08/15/97 (25) (8)
Compuware August 45
Calls* 08/15/97 (50) (83)
Cytyc August 35 Calls* 08/15/97 (50) --
Evergreen Media August
45 Puts* 08/15/97 25 2
Evergreen Media August
50 Puts* 08/15/97 25 10
Falcon Drilling August 27.5
Calls* 08/15/97 (60) (10)
HBO August 65 Calls* 08/15/97 (25) (31)
Informix September 12.5
Calls* 09/19/97 (130) (11)
Ralcorp Holdings September
17.5 Calls* 09/19/97 (100) (18)
Saville Systems August 55
Calls* 08/15/97 (95) (80)
- ------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- ------------------------------------------------------
Equity Options (continued)
# of Contracts
--------------
Saville Systems September
60 Calls* 09/19/97 (45) $ (28)
SCI Systems August 70
Puts* 08/15/97 40 2
Tellabs August 60 Calls* 08/15/97 (25) (6)
Viasoft August 40 Puts* 08/15/97 75 --
Viasoft August 55 Calls* 08/15/97 (75) (53)
Wolverine World Wide
September 30 Calls* 09/19/97 (217) (19)
--------
TOTAL EQUITY OPTIONS
(Cost $(147)) (373)
--------
Time Deposits -- 12.1%
Sanwa Bank Limited
5.844%, 08/01/97 7,987 7,987
--------
TOTAL TIME DEPOSITS
(Cost $7,987) 7,987
--------
Commercial Paper -- 3.6%
Martin Marietta Material# (B)
5.644%, 08/07/97 2,400 2,398
--------
TOTAL COMMERCIAL PAPER
(Cost $2,398) 2,398
--------
Repurchase Agreements -- 10.0%
Salomon Brothers (B)
5.90%, dated 07/31/97, matures
08/01/97, repurchase price
$7,001,147 7,000 7,000
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $7,000) 7,000
--------
Cash Equivalents -- 1.0%
AIMLiquid Asset Money Fund (B) 48 48
Janus Money Fund (B) 626 626
--------
TOTAL CASH EQUIVALENTS
(Cost $674) 674
--------
The accompanying notes are an integral part of the financial statements.
94
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND (concluded)
- -----------------------------------------------------
DESCRIPTION VALUE (000)
- -----------------------------------------------------
TOTAL INVESTMENTS -- 116.6%
(Cost $65,465) $ 77,328
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (15.2%) (10,072)
--------
OTHER ASSETS AND LIABILITIES, NET -- (1.4%) (920)
--------
Net Assets:
Fund Shares of Fiduciary Shares
(unlimited authorization -- no
par value) based on 4,608,545
outstanding shares
of beneficial interest 49,513
Undistributed net investment income 10
Accumulated net realized gain
on investments 4,950
Net unrealized appreciation
on investments 11,863
--------
TOTAL NET ASSETS -- 100.0% $66,336
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY SHARES $14.39
========
- ----------------------------------------------------
* NON-INCOME PRODUCING SECURITY
# REPRESENTS THE EFFECTIVE YIELD AT DATE OF PURCHASE.
ADR--AMERICAN DEPOSITORY RECEIPT
CL--CLASS
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT JULY 31,
1997 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT JULY 31,
1997 WAS $9,745,926.
(B) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
(C) DENOTES SECURITIES COVERING OUTSTANDING OPTIONS HELD IN A SEGREGATED ACCOUNT
BY THE CUSTODIAN BANK.
The accompanying notes are an integral part of the financial statements.
95
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- -------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- -------------------------------------------------------
Foreign Common Stocks -- 97.1%
FINLAND -- 0.5%
Nokia AB, Cl A 3,000 $ 259
--------
FRANCE -- 7.9%
Alcatel Alsthom 2,636 344
AXA-UAP 6,000 392
Banque Nationale Paris, Cl A 3,951 188
Carrefour 675 455
Castorama 2,147 257
Danone 2,000 315
Elf Aquitaine 2,385 272
Essilor International 750 211
Group Assurances 5,800 140
Lafarge 2,927 206
LVMH Moet Hennesy 1,800 461
Pathe 770 152
Schneider 5,079 294
Societe Generale 1,851 244
Valeo 3,557 224
--------
4,155
--------
GERMANY -- 9.0%
Allianz 2,140 548
BASF 12,000 462
Bayer 9,500 405
Daimler Benz 6,000 509
Degussa 5,000 284
Deutsche Bank 4,000 270
Gehe 4,250 266
Linde 300 219
RWE 7,500 333
Siemens 9,500 662
Veba 8,000 464
Volkswagen 350 268
--------
4,690
--------
HONG KONG -- 4.3%
Amoy Properties 100,000 112
Cheung Kong Holdings 40,000 444
Hong Kong & China Gas 180,000 391
HSBC Holdings 12,816 447
Hutchison Whampoa 40,000 390
New World Development 40,000 288
Swire Pacific, Cl A 20,000 190
--------
2,262
--------
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Foreign Common Stocks (continued)
ITALY -- 3.4%
Assicurazioni Generali 12,000 $ 245
ENI SPA 80,000 467
Fiat SPA 44,000 145
Istituto Mobiliare Italiano 18,000 173
Istituto Nazionale
Assicurazioni 100,000 146
Parmalat Finanziaria 100,000 139
Telecom Italia Mobile 60,000 202
Telecom Italia SPA-RNC 68,500 244
--------
1,761
--------
JAPAN -- 29.6%
Amada 47,000 362
Amada Metrecs 30,000 319
Asahi Breweries Limited 27,000 410
Asahi Organic Chemical 63,000 278
Best Denki 33,000 295
Canon Sales 8,000 178
Chugai Pharmaceutical 34,000 302
Chugoku Electric Power 11,000 184
CSK 12,600 488
Daiwa Securities 36,000 247
Fuji Bank 21,000 273
Fujisawa Pharmaceutical 40,000 409
Gun-ei Chemicals 96,000 221
Hitachi Cable 54,000 488
Industrial Bank of Japan 19,760 275
Kamigumi Limited 52,000 258
Kansai Electric Power 16,700 322
Katokichi 20,000 355
Kuraray 40,000 385
Mabuchi Motor 4,200 267
Maeda 46,000 230
Makita 30,000 451
Matsushita Electric Works 40,000 503
Meiji Seika 69,000 353
Mitsubishi Heavy Industries 50,000 353
Mitsui Marine & Fire 45,000 309
Mitsukoshi 48,000 295
NGK Insulators 29,000 314
Nissan Motors 53,000 364
The accompanying notes are an integral part of the financial statements.
96
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND (continued)
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Foreign Common Stocks (continued)
JAPAN (CONTINUED)
Nisshin Steel 110,000 $ 252
Nomura Securities 21,000 298
Ryobi Limited 78,000 256
Sanyo Electric 90,000 377
Seven Eleven 6,000 476
Shizuoka Bank 28,000 303
Sumitomo Bank 19,000 305
Sumitomo Trust & Banking 26,000 246
Taisei 77,000 310
Takara Standard 43,000 347
Tokio Marine & Fire Insurance 30,000 383
Tokyo Gas Limited 112,000 278
Tomen 120,000 279
Toppan Printing 31,000 497
Toshiba 65,000 421
Toyo Ink Manufacturing 78,000 271
Toyo Tire & Rubber 100,000 265
Yamato Transportation 39,000 494
--------
15,546
--------
MALAYSIA -- 2.1%
AMMB Holdings Berhad 20,000 114
Edaran Otomobil 10,000 81
Hicom Holdings 50,000 91
Malayan Banking Berhad 12,000 114
Petronas Gas 40,000 140
Rothmans of Pall Mall 10,000 104
Sime Darby 40,000 126
Telekom Malaysia* 30,000 110
United Engineers 20,000 140
YTL 30,000 94
--------
1,114
--------
NETHERLANDS -- 6.1%
Aegon 5,106 387
Ahold 15,918 460
Akzo 2,000 310
Elsevier 15,000 264
IHC Caland 4,000 216
Philips Electronics 5,000 405
Royal Dutch Petroleum 6,000 336
Unilever 2,000 439
Wolters Kluwer 3,030 399
--------
3,216
--------
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Foreign Common Stocks (continued)
PHILIPPINES -- 0.8%
Ayala, Cl B 46,875 $ 30
Ayala Land, Cl B 97,500 73
DMCI Holdings 120,000 30
JG Summit Holdings 127,000 19
Manila Electric, Cl B 11,700 51
Metropolitan Bank & Trust Co. 3,871 75
Petron 134,400 28
Philippine Long Distance
Telephone 2,000 67
SM Prime Holdings 185,000 49
--------
422
--------
SINGAPORE -- 1.5%
DBS Land 40,000 125
Development Bank of Singapore 15,000 195
Keppel 12,500 54
Singapore Airlines 15,000 141
Singapore Tech Industrial 40,000 101
Singapore Telecommunications 40,000 76
United Overseas Bank 10,000 109
--------
801
--------
SPAIN -- 2.1%
Banco Bilbao-Vizcaya 7,500 196
Banco de Santander 5,250 147
Empresa Nacional de
Electricidad 14,000 288
Iberdrola 10,000 111
Repsol 3,500 140
Telefonica de Espana 8,000 214
--------
1,096
--------
SWEDEN -- 2.6%
Abb AB, Cl A 13,500 180
Astra AB, Cl A 9,333 167
Electrolux AB, Cl B 2,300 178
Ericsson, Cl B 7,500 338
Getinge Industrier, Cl B 4,700 78
Sandvik AB 5,700 173
SKF AB, Cl B 6,000 160
Svenska Handlesbanken 3,000 93
--------
1,367
--------
The accompanying notes are an integral part of the financial statements.
97
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND (concluded)
- ------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- ------------------------------------------------------
Foreign Common Stocks (continued)
SWITZERLAND -- 6.4%
Abb - Asea Brown Boveri Group 300 $ 426
Alusuisse Lonza Holding Bearer 250 227
Ciba Speciality Chemicals* 320 29
Credit Suisse Group 3,000 404
Nestle 300 381
Novartis 320 513
Roche Holdings 50 483
SMH PC 400 229
Union Bank of Switzerland 250 278
Zuerich Versicherung 950 387
--------
3,357
--------
THAILAND -- 0.7%
Advanced Info Service 4,700 37
Bangkok Bank 8,700 68
Electricity Generating 26,000 77
PTT Exploration 5,200 77
Siam Commercial Bank 20,000 86
--------
345
--------
UNITED KINGDOM -- 18.1%
Abbey National 30,000 412
Associated British Ports 50,000 216
British Airport Authority 46,239 435
BTR 75,000 233
Cable & Wireless 46,410 467
General Accident 40,000 603
Glaxo Wellcome 35,533 753
Granada Group 40,000 550
Hardy Oil & Gas 40,000 233
Hays 50,000 466
Lloyds TSB Group 55,000 609
Marks & Spencer 60,410 584
National Grid Group 33,000 139
Prudential 52,963 507
Reuters Holdings 40,000 432
Rexam 50,000 203
Rio Tinto 20,000 324
Shell Transportation &
Trading 105,000 776
Southern Electric 55,384 406
Standard Chartered Bank 30,000 494
Zeneca Group 20,000 663
--------
9,505
--------
- -------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- -------------------------------------------------------
Foreign Common Stocks (concluded)
UNITED STATES -- 2.0%
Latin America Equity Fund 55,000 $ 1,035
--------
TOTAL FOREIGN COMMON STOCKS
(Cost $45,065) 50,931
--------
Foreign Preferred Stock -- 0.2%
GERMANY -- 0.2%
Jungheinrich 700 107
--------
TOTAL FOREIGN PREFERRED STOCK
(Cost $164) 107
--------
Cash Equivalent -- 0.7%
SEI Prime Obligation 374 374
--------
TOTAL CASH EQUIVALENT
(Cost $374) 374
--------
TOTAL INVESTMENTS -- 98.0%
(Cost $45,603) 51,412
--------
OTHER ASSETS AND LIABILITIES, NET-- 2.0% 1,055
--------
Net Assets:
Fund Shares of Fiduciary Shares
(unlimited authorization -- no
par value) based on 1,356,208
outstanding shares
of beneficial interest 46,393
Undistributed net investment income 59
Accumulated net realized gain
on investments 247
Net unrealized depreciation on forward
foreign currency contracts, foreign
currency and translation of other assets
and liabilities in foreign currency (41)
Net unrealized appreciation
on investments 5,809
--------
TOTAL NET ASSETS -- 100.0% $52,467
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY SHARES $38.69
========
* NON-INCOME PRODUCING SECURITIES.
PC--PARTICIPATING CERTIFICATE
The accompanying notes are an integral part of the financial statements.
98
<PAGE>
This page left intentionally blank
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS (000)
For the Period Ended July 31, 1997
100%
U.S.TREASURY DIVERSIFIED CALIFORNIA TAX-FREE U.S. GOVERNMENT
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
-------------- -------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Interest Income ........................................ $22,612 $40,348 $4,701 $12,216
Dividend Income ........................................ -- -- -- --
------- ------- ------ -------
Total Investment Income ..................... 22,612 40,348 4,701 12,216
------- ------- ------ -------
Expenses: ..............................................
Administrative and Accounting Fees .................. 908 1,230 223 453
Administrative Fees Waived .......................... (45) (88) (15) (14)
Investment Advisor Fees ............................. 1,506 2,182 391 839
Investment Advisor Fees Waived ...................... (129) -- (256) --
Shareholder Servicing Fees .......................... 1,076 1,091 235 567
Shareholder Servicing Fees Waived ................... (1,050) (1,091) (235) (548)
Custodian Fees ...................................... 74 15 2 45
Professional Fees ................................... 90 70 8 65
Registration Fees ................................... 19 70 9 59
Transfer Agency Fees ................................ 40 38 8 33
Distribution Fees (1) ............................... 553 1,002 250 121
Distribution Fees Waived ............................ (194) (198) (21) (91)
Insurance Fees ...................................... 12 14 7 7
Trustees Fees ....................................... 12 6 1 5
Printing Fees ....................................... 33 2 -- 31
Miscellaneous Fees .................................. 23 -- -- 65
------- ------- ------ -------
Total Expenses .............................. 2,928 4,343 607 1,637
Reduction of Expenses (2) ................... (10) (33) (6) (5)
------- ------- ------ -------
Total Net Expenses .......................... 2,918 4,310 601 1,632
------- ------- ------ -------
Net Investment Income ............................... 19,694 36,038 4,100 10,584
------- ------- ------ -------
Net Realized Gain (Loss) on Investments ................ 46 31 -- 18
------- ------- ------ -------
Change in Unrealized Appreciation (Depreciation)
on Investments ...................................... -- -- -- --
------- ------- ------ -------
Net Realized and Unrealized Gain on
Investments ......................................... 46 31 -- 18
------- ------- ------ -------
Increase in Net Assets Resulting from
Operations .......................................... $19,740 $36,069 $ 4,100 $10,602
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE- TAX-FREE CONVERTIBLE
TERM BOND BOND BOND SECURITIES
FUND FUND FUND FUND
-------------- -------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Interest Income ........................................ $ 3,653 $ 405 $4,422 $ 337
Dividend Income ........................................ 1,676 -- -- 125
------- ------- ------ -------
Total Investment Income ..................... 5,329 405 4,422 462
------- ------- ------ -------
Expenses:
Administrative and Accounting Fees .................. 126 14 152 18
Administrative Fees Waived .......................... (8) (2) (25) (1)
Investment Advisor Fees ............................. 389 42 483 68
Investment Advisor Fees Waived ...................... -- (41) (188) --
Shareholder Servicing Fees .......................... 102 15 159 16
Shareholder Servicing Fees Waived ................... (90) (15) (150) (16)
Custodian Fees ...................................... 4 1 22 2
Professional Fees ................................... 8 2 18 2
Registration Fees ................................... 2 1 7 2
Transfer Agency Fees ................................ 7 -- 39 2
Distribution Fees (1) ............................... 8 12 2 --
Distribution Fees Waived ............................ (8) (12) (2) --
Insurance Fees ...................................... -- -- 3 --
Trustees Fees ....................................... 1 -- 3 --
Printing Fees ....................................... (2) 2 7 2
Miscellaneous Fees .................................. -- (1) 10 1
------- ------- ------ -------
Total Expenses .............................. 539 18 540 96
Reduction of Expenses (2) ................... (3) -- (1) (1)
------- ------- ------ -------
Total Net Expenses .......................... 536 18 539 95
------- ------- ------ -------
Net Investment Income ............................... 4,793 387 3,883 367
------- ------- ------ -------
Net Realized Gain (Loss) on Investments ................ (364) 4 (119) 1,124
------- ------- ------ -------
Change in Unrealized Appreciation (Depreciation)
on Investments ...................................... 2,370 576 2,823 718
------- ------- ------ -------
Net Realized and Unrealized Gain on
Investments ......................................... 2,006 580 2,704 1,842
------- ------- ------ -------
Increase in Net Assets Resulting from
Operations .......................................... $ 6,799 $ 967 $6,587 $ 2,209
======= ======= ====== =======
<FN>
Amounts designated as "-" are either $0 or have been rounded to $0.
(1) All distribution fees are incurred in the Retail Class.
(2) See Note 3.
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
100 & 101
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS (000)
For the Period Ended July 31, 1997
GOVERNMENT VALUE
SECURITIES BALANCED GROWTH MOMENTUM
FUND FUND FUND FUND
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest Income ........................................ $ 1,773 $ 4,583 $ 104 $ 700
Dividend Income ........................................ 14 2,008 1,380 3,901
Less: Foreign Taxes withheld, net of reclaims .......... -- -- -- --
------- ------- ------- -------
Total Investment Income ..................... 1,787 6,591 1,484 4,601
------- ------- ------- -------
Expenses:
Administrative and Accounting Fees .................. 45 285 240 320
Administration Fees Waived .......................... (3) (30) (22) (21)
Investment Advisor Fees ............................. 137 1,026 789 1,158
Investment Advisor Fees Waived ...................... -- -- (122) --
Shareholder Servicing Fees .......................... 37 307 283 276
Shareholder Servicing Fees Waived ................... (37) (209) (206) (276)
Custodian Fees ...................................... 3 22 24 8
Professional Fees ................................... 5 13 20 17
Registration Fees ................................... 6 11 2 22
Transfer Agency Fees ................................ 1 11 39 18
Distribution Fees (1) ............................... -- 13 11 28
Distribution Fees Waived ............................ -- (3) (6) (6)
Insurance Fees ...................................... -- -- 1 1
Trustees Fees ....................................... 1 1 1 2
Printing Fees ....................................... 1 -- -- (2)
Miscellaneous Fees .................................. 4 1 -- --
------- ------- ------- -------
Total Expenses .............................. 200 1,448 1,054 1,545
Reduction of Expenses (2) ................... (1) (8) (2) (9)
------- ------- ------- -------
Total Net Expenses .......................... 199 1,440 1,052 1,536
------- ------- ------- -------
Net Investment Income ............................... 1,588 5,151 432 3,065
------- ------- ------- -------
Net Realized Gain (Loss) on Investments ................ (287) 7,454 40,894 2,055
------- ------- ------- -------
Net Realized Gain (Loss) on Option Contracts ........... -- -- -- --
------- ------- ------- -------
Net Realized Loss on Foreign Currency Transactions ..... -- -- -- --
------- ------- ------- -------
Change in Unrealized Appreciation (Depreciation)
on Investments ...................................... 1,569 36,114 28,516 68,691
------- ------- ------- -------
Change in Unrealized Depreciation on Foreign Currency .. -- -- -- --
------- ------- ------- -------
Net Realized and Unrealized Gain on Investments ........ 1,282 43,568 69,410 70,746
------- ------- ------- -------
Increase in Net Assets Resulting from Operations ....... $2,870 $48,719 $69,842 $73,811
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
INCOME BLUE CHIP EMERGING INTERNATIONAL
EQUITY GROWTH GROWTH EQUITY
FUND FUND FUND FUND
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest Income ........................................ $ 168 $ 250 $ 233 $ 13
Dividend Income ........................................ 10,382 551 130 603
Less: Foreign Taxes withheld, net of reclaims .......... -- -- -- (43)
-------- ------- ------ ------
Total Investment Income ...................... 10,550 801 363 573
-------- ------- ------ ------
Expenses:
Administrative and Accounting Fees .................. 679 70 47 40
Administration Fees Waived .......................... (18) (5) (3) (3)
Investment Advisor Fees ............................. 1,987 255 230 228
Investment Advisor Fees Waived ...................... -- -- -- (9)
Shareholder Servicing Fees .......................... 779 59 39 34
Shareholder Servicing Fees Waived ................... (665) (59) (39) (34)
Custodian Fees ...................................... 82 4 2 21
Professional Fees ................................... 86 4 4 --
Registration Fees ................................... 36 4 4 --
Transfer Agency Fees ................................ 67 2 1 1
Distribution Fees (1) ............................... 29 -- -- --
Distribution Fees Waived ............................ (21) -- -- --
Insurance Fees ...................................... -- -- -- --
Trustees Fees ....................................... 9 1 -- --
Printing Fees ....................................... 21 3 4 6
Miscellaneous Fees .................................. 31 1 2 10
-------- ------- ------ ------
Total Expenses .............................. 3,102 339 291 294
Reduction of Expenses (2) ................... (7) (2) (1) (1)
-------- ------- ------ ------
Total Net Expenses .......................... 3,095 337 290 293
-------- ------- ------ ------
Net Investment Income ............................... 7,455 464 73 280
-------- ------- ------ ------
Net Realized Gain (Loss) on Investments ................ 34,297 8,315 3,445 (207)
-------- ------- ------ ------
Net Realized Gain (Loss) on Option Contracts ........... -- 21 (320) --
-------- ------- ------ ------
Net Realized Loss on Foreign Currency Transactions ..... -- -- -- (59)
-------- ------- ------ ------
Change in Unrealized Appreciation (Depreciation)
on Investments ...................................... 65,148 7,929 1,474 5,628
-------- ------- ------ ------
Change in Unrealized Depreciation on Foreign Currency .. -- -- -- (27)
-------- ------- ------ ------
Net Realized and Unrealized Gain on Investments ........ 99,445 16,265 4,599 5,335
-------- ------- ------ ------
Increase in Net Assets Resulting from Operations ....... $106,900 $16,729 $4,672 $5,615
======== ======= ====== ======
<FN>
Amounts designated as "--" are either $0 or have been rounded to $0.
(1) All distribution fees are incurred in the Retail Class.
(2) See Note 3.
The accompanying notes are an integral part of the financial statements.
102 & 103
<PAGE>
</FN>
</TABLE>
<TABLE>
<CAPTION>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF CHANGES IN NET ASSETS (000)
100% U.S. TREASURY DIVERSIFIED CALIFORNIA TAX-FREE
MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
----------------------- ----------------------- -----------------------
08/01/96 08/01/95 02/01/97 02/01/96 02/01/97 02/01/96
to 07/31/97 to 07/31/96 to 07/31/97 to 01/31/97 to 07/31/97 to 01/31/97
----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Activities From Operations:
Net Investment Income ......................... $ 19,694 $ 13,980 $ 36,038 $ 44,628 $ 4,100 $ 3,710
Net Realized Gain (Loss) on Investments ....... 46 (51) 31 85 -- 1
Change in Unrealized Appreciation
(Depreciation) on Investments ............... -- -- -- -- -- --
-------- --------- ---------- ---------- --------- ---------
Net Increase in Net Assets Resulting
From Operations ............................. 19,740 13,929 36,069 44,713 4,100 3,711
-------- --------- ---------- ---------- --------- ---------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares ............................ (9,631) (9,032) (20,558) (26,589) (1,618) (1,211)
Retail Shares ............................... (10,063) (4,948) (15,480) (18,042) (2,478) (2,500)
Capital Gains:
Fiduciary Shares ............................ -- -- -- -- -- --
Retail Shares ............................... -- -- -- -- -- --
-------- --------- ---------- ---------- --------- ---------
Total Distributions ....................... (19,694) (13,980) (36,038) (44,631) (4,096) (3,711)
-------- --------- ---------- ---------- --------- ---------
Change in Net Assets ............................ 46 (51) 31 82 4 --
-------- --------- ---------- ---------- --------- ---------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark ..................... 181,083 -- 283,586 -- 114,246 --
Proceeds from Shares Issued ................. 444,667 541,337 2,066,619 4,063,181 131,018 281,820
Reinvestment of Distributions ............... 740 45 4,034 6,239 6 --
Cost of Shares Redeemed ..................... (556,386) (558,614) (1,905,972)(4,048,975) (122,182) (288,535)
-------- --------- ---------- ---------- --------- ---------
Total Fiduciary Share Transactions ........ 70,104 (17,232) 448,267 20,445 123,088 (6,715)
Retail Shares:
Proceeds from the reorganization of
Stepstone or Highmark ..................... 436,482 -- 139,246 -- 61,460 --
Proceeds from Shares Issued ................. 526,646 463,343 621,422 1,097,689 159,066 237,667
Reinvestment of Distributions ............... 8,189 4,526 14,984 16,920 2,370 2,396
Cost of Shares Redeemed ..................... (512,994) (455,887) (552,572) (797,687) (156,357) (170,553)
-------- --------- ---------- ---------- --------- ---------
Total Retail Share Transactions ........... 458,323 11,982 223,080 316,922 66,539 69,510
-------- --------- ---------- ---------- --------- ---------
Net Increase in Net Assets From
Share Transactions ......................... 528,427 (5,250) 671,347 337,367 189,627 62,795
-------- --------- ---------- ---------- --------- ---------
Total Increase in Net Assets .............. 528,473 (5,301) 671,378 337,449 189,631 62,795
-------- --------- ---------- ---------- --------- ---------
Net Assets:
Beginning of Period ........................... 273,963 279,264 1,100,137 762,688 186,895 124,100
-------- --------- ---------- ---------- --------- ---------
End of Period ................................. $802,436 $ 273,963 $1,771,515 $1,100,137 $376,526 $186,895
======== ========= ========= ========== ========= =========
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of
Stepstone or Highmark ..................... 181,083 -- 283,586 -- 114,246 --
Issued ...................................... 444,667 541,337 2,066,619 4,063,181 131,018 281,820
Issued in Lieu of Cash Distributions ........ 740 45 4,034 6,239 6 --
Redeemed .................................... (556,386) (558,614) (1,905,972)(4,048,975) (122,182) (288,535)
-------- --------- ---------- ---------- --------- ---------
Total Fiduciary Share Transactions .......... 70,104 (17,232) 448,267 20,445 123,088 (6,715)
-------- --------- ---------- ---------- --------- ---------
Retail Shares:
Issued from the reorganization of
Stepstone or Highmark .................... 436,482 -- 139,246 -- 61,460
Issued ...................................... 526,646 463,343 621,422 1,097,689 159,066 237,667
Issued in Lieu of Cash Distributions ........ 8,189 4,526 14,984 16,920 2,370 2,396
Redeemed .................................... (512,994) (455,887) (552,572) (797,687) (156,357) (170,553)
-------- --------- ---------- ---------- --------- ---------
Total Retail Share Transactions ........... 458,323 11,982 223,080 316,922 66,539 69,510
-------- --------- ---------- ---------- --------- ---------
Net Increase (Decrease) in Share Transactions ... 528,427 (5,250) 671,347 337,367 189,627 62,795
======== ========= ========== ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA
U.S. GOVERNMENT INTERMEDIATE- INTERMEDIATE
MONEY MARKET TERM BOND TAX-FREE BOND
FUND FUND FUND
----------------------- ----------------------- -----------------------
08/01/96 08/01/95 02/01/97 02/01/96 02/01/97 02/01/96
to 07/31/97 to 07/31/96 to 07/31/97 to 01/31/97 to 07/31/97 to 01/31/97
----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Activities From Operations:
Net Investment Income ........................ $ 10,584 $ 11,248 $ 4,793 $ 8,435 $ 387 $ 467
Net Realized Gain (Loss) on Investments ...... 18 15 (364) (2,153) 4 --
Change in Unrealized Appreciation
(Depreciation) on Investments .............. -- -- 2,370 (3,828) 576 (65)
---------- ---------- -------- -------- ------- -------
Net Increase in Net Assets Resulting
From Operations ............................ 10,602 11,263 6,799 2,454 967 402
---------- ---------- -------- -------- ------- -------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares ........................... (8,350) (7,541) (4,648) (8,016) (202) (235)
Retail Shares .............................. (2,234) (3,707) (157) (326) (176) (217)
Capital Gains:
Fiduciary Shares ........................... -- -- -- -- -- --
Retail Shares .............................. -- -- -- -- -- --
---------- ---------- -------- -------- ------- -------
Total Distributions ...................... (10,584) (11,248) (4,805) (8,342) (378) (452)
---------- ---------- -------- -------- ------- -------
Change in Net Assets ........................... 18 15 1,994 (5,888) 589 (50)
---------- ---------- -------- -------- ------- -------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark .................... -- -- -- -- -- --
Proceeds from Shares Issued ................ 1,103,212 1,221,391 13,541 42,015 4,761 5,838
Reinvestment of Distributions .............. 253 11 3,112 5,582 93 111
Cost of Shares Redeemed .................... (1,001,968) (1,229,676) (16,318) (24,514) (1,268) (2,702)
---------- ---------- -------- -------- ------- -------
Total Fiduciary Share Transactions ....... 101,497 (8,274) 335 23,083 3,586 3,247
Retail Shares:
Proceeds from the reorganization of
Stepstone or Highmark .................... -- -- -- -- -- --
Proceeds from Shares Issued ................ 331,210 712,337 126 22 5,443 1,852
Reinvestment of Distributions .............. 2,297 3,476 157 326 160 217
Cost of Shares Redeemed .................... (366,427) (688,578) (436) (1,278) (498) (502)
---------- ---------- -------- -------- ------- -------
Total Retail Share Transactions .......... (32,920) 27,235 (153) (930) 5,105 1,567
---------- ---------- -------- -------- ------- -------
Net Increase in Net Assets From
Share Transactions ........................ 68,577 18,961 182 22,153 8,691 4,814
---------- ---------- -------- -------- ------- -------
Total Increase in Net Assets ............. 68,595 18,976 2,176 16,265 9,280 4,764
---------- ---------- -------- -------- ------- -------
Net Assets:
Beginning of Period .......................... 227,197 208,221 155,624 139,359 13,226 8,462
---------- ---------- -------- -------- ------- -------
End of Period ................................ $ 295,792 $ 227,197 $157,800 $155,624 $22,506 $13,226
========== ========== ======== ======== ======= =======
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of
Stepstone or Highmark .................... -- -- -- -- -- --
Issued ..................................... 1,103,212 1,221,391 1,339 4,141 486 603
Issued in Lieu of Cash Distributions ....... 253 11 309 550 10 11
Redeemed ................................... (1,001,968) (1,229,676) (1,618) (2,410) (129) (278)
---------- ---------- -------- -------- ------- -------
Total Fiduciary Share Transactions ......... 101,497 (8,274) 30 2,281 367 336
---------- ---------- -------- -------- ------- -------
Retail Shares:
Issued from the reorganization of
Stepstone or Highmark ................... -- -- -- -- -- --
Issued ..................................... 331,210 712,337 13 2 563 190
Issued in Lieu of Cash Distributions ....... 2,297 3,476 16 32 16 23
Redeemed ................................... (366,427) (688,578) (44) (125) (51) (52)
---------- ---------- -------- -------- ------- -------
Total Retail Share Transactions .......... (32,920) 27,235 (15) (91) 528 161
---------- ---------- -------- -------- ------- -------
Net Increase (Decrease) in Share Transactions .. 68,577 18,961 15 2,190 895 497
========== ========== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
CONVERTIBLE
BOND SECURITIES
FUND FUND
----------------------- -----------------------
08/01/96 08/01/95 02/01/97 02/01/96
to 07/31/97 to 07/31/96 to 07/31/97 to 01/31/97
----------------------- -----------------------
<S> <C> <C> <C> <C>
Net Investment Income ......................... $ 3,883 $ 3,766 $ 367 $ 672
Net Realized Gain (Loss) on Investments ....... (119) (369) 1,124 812
Change in Unrealized Appreciation
(Depreciation) on Investments ............... 2,823 (465) 718 1,680
------- ------- ------- -------
Net Increase in Net Assets Resulting
From Operations ............................. 6,587 2,932 2,209 3,164
------- ------- ------- -------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares ............................ (3,682) (3,703) (371) (672)
Retail Shares ............................... (50) (63) -- --
Capital Gains:
Fiduciary Shares ............................ -- (32) -- (533)
Retail Shares ............................... -- (1) -- --
------- ------- ------- -------
Total Distributions ....................... (3,732) (3,799) (371) (1,205)
------- ------- ------- -------
Change in Net Assets ............................ 2,855 (867) 1,838 1,959
------- ------- ------- -------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark ..................... -- -- -- --
Proceeds from Shares Issued ................. 20,964 14,876 5,864 7,145
Reinvestment of Distributions ............... 2,935 2,983 371 1,205
Cost of Shares Redeemed ..................... (15,525) (16,414) (3,864) (5,848)
------- ------- ------- -------
Total Fiduciary Share Transactions ........ 8,374 1,445 2,371 2,502
Retail Shares:
Proceeds from the reorganization of
Stepstone or Highmark ..................... -- -- -- --
Proceeds from Shares Issued ................. 222 754 -- --
Reinvestment of Distributions ............... 53 60 -- --
Cost of Shares Redeemed ..................... (858) (177) -- --
------- ------- ------- -------
Total Retail Share Transactions ........... (583) 637 -- --
------- ------- ------- -------
Net Increase in Net Assets From
Share Transactions ......................... 7,791 2,082 2,371 2,502
------- ------- ------- -------
Total Increase in Net Assets .............. 10,646 1,215 4,209 4,461
------- ------- ------- -------
Net Assets:
Beginning of Period ........................... 61,531 60,316 21,129 16,668
------- ------- ------- -------
End of Period ................................. $72,177 $61,531 $25,338 $21,129
======= ======= ======= =======
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of
Stepstone or Highmark ..................... -- -- -- --
Issued ...................................... 2,017 1,421 526 651
Issued in Lieu of Cash Distributions ........ 283 284 32 109
Redeemed .................................... (1,494) (1,563) (341) (533)
------- ------- ------- -------
Total Fiduciary Share Transactions .......... 806 142 217 227
------- ------- ------- -------
Retail Shares:
Issued from the reorganization of
Stepstone or Highmark .................... -- -- -- --
Issued ...................................... 21 71 -- --
Issued in Lieu of Cash Distributions ........ 5 6 -- --
Redeemed .................................... (83) (17) -- --
------- ------- ------- -------
Total Retail Share Transactions ........... (57) 60 -- --
------- ------- ------- -------
Net Increase (Decrease) in Share Transactions ... 749 202 217 227
======= ======= ======= =======
<FN>
Amounts designated as "--" are either $0 or have been rounded to $0.
</FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
104 & 105
<PAGE>
<TABLE>
<CAPTION>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (000)
- ------------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT SECURITIES BALANCED GROWTH
FUND FUND FUND
----------------------- ----------------------- -----------------------
02/01/97 02/01/96 02/01/97 02/01/96 08/01/96 08/01/95
to 07/31/97 to 01/31/96 to 07/31/97 to 01/31/97 to 07/31/97 to 07/31/96
----------------------- ----------------------- -----------------------
Investment Activities From Operations:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income ......................... $ 1,588 $ 2,713 $ 5,151 $ 9,417 $ 432 $ 354
Net Realized Gain (Loss) on Investments ....... (287) (1,410) 7,454 14,191 40,894 3,272
Net Realized Gain (Loss) on Option Contracts .. -- -- -- 87 -- --
Net Realized Gain (Loss) on Foreign
Currency Transactions ..................... -- -- -- -- -- --
Change in Unrealized Appreciation
(Depreciation) on Investments ............... 1,569 (974) 36,114 18,736 28,516 155
Change in Unrealized Depreciation on
Foreign Currency ............................ -- -- -- -- -- --
------- ------- -------- -------- -------- --------
Net Increase (Decrease) in Net Assets
Resulting From Operations ................... 2,870 329 48,719 42,431 69,842 3,781
------- ------- -------- -------- -------- --------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares ............................ (1,582) (2,681) (4,955) (9,025) (354) (333)
Retail Shares ............................... -- -- (113) (265) (12) (21)
Capital Gains:
Fiduciary Shares ............................ -- -- (5,775) (11,438) (3,457) (1,566)
Retail Shares ............................... -- -- (150) (339) (229) (94)
------- ------- -------- -------- -------- --------
Total Distributions ....................... (1,582) (2,681) (10,993) (21,067) (4,052) (2,014)
------- ------- -------- -------- -------- --------
Change in Net Assets ............................ 1,288 (2,352) 37,726 21,364 65,790 1,767
------- ------- -------- -------- -------- --------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark ..................... -- -- 44,366 -- 184,625 --
Proceeds from Shares Issued ................. 14,934 17,762 49,160 81,907 29,160 17,443
Reinvestment of Distributions ............... 1,582 2,681 10,043 19,069 3,648 1,858
Cost of Shares Redeemed ..................... (11,930) (13,434) (47,541) (48,042) (24,942) (4,577)
------- ------- -------- -------- -------- --------
Total Fiduciary Share Transactions ........ 4,586 7,009 56,028 52,934 192,491 14,724
Retail Shares:
Proceeds from the reorganization of
Stepstone or Highmark ..................... -- -- 594 -- 3,366 --
Proceeds from Shares Issued ................. -- -- 872 1,002 1,023 1,796
Reinvestment of Distributions ............... -- -- 262 604 234 107
Cost of Shares Redeemed ..................... -- -- (2,190) (1,840) (1,547) (370)
------- ------- -------- -------- -------- --------
Total Retail Share Transactions ........... -- -- (462) (234) 3,076 1,533
------- ------- -------- -------- -------- --------
Net Increase in Net Assets From
Share Transactions ........................ 4,586 7,009 55,566 52,700 195,567 16,257
------- ------- -------- -------- -------- --------
Total Increase in Net Assets .............. 5,874 4,657 93,292 74,064 261,357 18,024
------- ------- -------- -------- -------- --------
Net Assets:
Beginning of Period ........................... 51,382 46,725 316,364 242,300 44,338 26,314
------- ------- -------- -------- -------- --------
End of Period ................................. $57,256 $51,382 $409,656 $316,364 $305,695 $ 44,338
======= ======= ======== ======== ======== ========
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of
Stepstone or Highmark ..................... -- -- 3,120 -- 13,293 --
Issued ...................................... 1,599 1,878 3,210 5,687 1,944 1,321
Issued in Lieu of Cash Distributions ........ 169 284 683 1,306 264 100
Redeemed .................................... (1,273) (1,419) (3,134) (3,344) (1,642) (789)
------- ------- -------- -------- -------- --------
Total Fiduciary Share Transactions .......... 495 743 3,879 3,649 13,859 632
------- ------- -------- -------- -------- --------
Retail Shares:
Issued from the reorganization of
Stepstone or Highmark ..................... -- -- 42 -- 242 --
Issued ...................................... -- -- 56 70 68 46
Issued in Lieu of Cash Distributions ........ -- -- 18 41 17 2
Redeemed .................................... -- -- (144) (129) (103) (31)
------- ------- -------- -------- -------- --------
Total Retail Share Transactions ........... -- -- (28) (18) 224 17
------- ------- -------- -------- -------- --------
Net Increase in Share Transactions .......... 495 743 3,851 3,631 14,083 649
======= ======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
VALUE MOMENTUM INCOME EQUITY BLUE CHIP GROWTH
FUND FUND FUND
----------------------- ----------------------- -----------------------
02/01/97 02/01/96 08/01/96 08/01/95 02/01/97 02/01/96
to 07/31/97 to 01/31/96 to 07/31/97 to 07/31/96 to 07/31/97 to 01/31/97
----------------------- ----------------------- -----------------------
Investment Activities From Operations:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income .......................... $ 3,065 $ 5,994 $ 7,455 $ 7,682 $ 464 $ 884
Net Realized Gain (Loss) on Investments ........ 2,055 7,874 34,297 19,384 8,315 5,193
Net Realized Gain (Loss) on Option Contracts ... -- -- -- -- 21 256
Net Realized Gain (Loss) on Foreign
Currency Transactions ...................... -- -- -- -- -- --
Change in Unrealized Appreciation
(Depreciation) on Investments ................ 68,691 53,010 65,148 13,911 7,929 8,107
Change in Unrealized Depreciation on
Foreign Currency ............................. -- -- -- -- -- --
-------- -------- -------- -------- ------- -------
Net Increase (Decrease) in Net Assets
Resulting From Operations .................... 73,811 66,878 106,900 40,977 16,729 14,440
-------- -------- -------- -------- ------- -------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares ............................. (2,920) (5,703) (7,008) (7,443) (447) (893)
Retail Shares ................................ (115) (274) (263) (239) -- --
Capital Gains:
Fiduciary Shares ............................. -- (11,218) (19,912) (11,279) -- (3,340)
Retail Shares ................................ -- (595) (761) (277) -- --
-------- -------- -------- -------- ------- -------
Total Distributions ........................ (3,035) (17,790) (27,944) (19,238) (447) (4,233)
-------- -------- -------- -------- ------- -------
Change in Net Assets ............................. 70,776 49,088 78,956 21,739 16,282 10,207
-------- -------- -------- -------- ------- -------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark ...................... -- -- -- -- -- --
Proceeds from Shares Issued .................. 110,431 102,484 48,928 52,940 17,168 21,863
Reinvestment of Distributions ................ 2,053 10,755 24,742 16,994 447 4,233
Cost of Shares Redeemed ...................... (34,176) (64,457) (59,638) (49,911) (17,696) (19,031)
-------- -------- -------- -------- ------- -------
Total Fiduciary Share Transactions ......... 78,308 48,782 14,032 20,023 (81) 7,065
Retail Shares:
Proceeds from the reorganization of
Stepstone or Highmark ...................... -- -- -- -- -- --
Proceeds from Shares Issued .................. 2,942 2,798 3,294 10,342 -- --
Reinvestment of Distributions ................ 113 869 1,039 501 -- --
Cost of Shares Redeemed ...................... (1,400) (1,958) (3,247) (5,008) -- --
-------- -------- -------- -------- ------- -------
Total Retail Share Transactions ............ 1,655 1,709 1,086 5,835 -- --
-------- -------- -------- -------- ------- -------
Net Increase in Net Assets From
Share Transactions ......................... 79,963 50,491 15,118 25,858 (81) 7,065
-------- -------- -------- -------- ------- -------
Total Increase in Net Assets ............... 150,739 99,579 94,074 47,597 16,201 17,272
-------- -------- -------- -------- ------- -------
Net Assets:
Beginning of Period ............................ 333,445 233,866 272,803 225,206 80,682 63,410
-------- -------- -------- -------- ------- -------
End of Period .................................. $484,184 $333,445 $366,877 $272,803 $96,883 $80,682
======== ======== ======== ======== ======= =======
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of
Stepstone or Highmark ...................... -- -- -- -- -- --
Issued ....................................... 4,899 5,141 3,110 2,744 1,198 1,649
Issued in Lieu of Cash Distributions ......... 91 536 1,630 515 30 310
Redeemed ..................................... (1,521) (3,263) (3,787) (2,161) (1,199) (1,416)
-------- -------- -------- -------- ------- -------
Total Fiduciary Share Transactions ........... 3,469 2,414 953 1,098 29 543
-------- -------- -------- -------- ------- -------
Retail Shares:
Issued from the reorganization of
Stepstone or Highmark ...................... -- -- -- -- -- --
Issued ....................................... 130 141 204 53 -- --
Issued in Lieu of Cash Distributions ......... 5 43 68 28 -- --
Redeemed ..................................... (61) (98) (206) (157) -- --
-------- -------- -------- -------- ------- -------
Total Retail Share Transactions ............ 74 86 66 (76) -- --
-------- -------- -------- -------- ------- -------
Net Increase in Share Transactions ........... 3,543 2,500 1,019 1,022 29 543
======== ======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
EMERGING GROWTH INTERNATIONAL EQUITY
FUND FUND
----------------------- -----------------------
02/01/97 02/01/96 02/01/97 02/01/96
to 07/31/97 to 01/31/96 to 07/31/97 to 07/31/96
----------------------- -----------------------
Investment Activities From Operations:
<S> <C> <C> <C> <C>
Net Investment Income .......................... $ 73 $ 34 $ 280 $ 291
Net Realized Gain (Loss) on Investments ........ 3,445 5,733 (207) 2,351
Net Realized Gain (Loss) on Option Contracts ... (320) (43) -- --
Net Realized Gain (Loss) on Foreign
Currency Transactions ...................... -- -- (59) 425
Change in Unrealized Appreciation
(Depreciation) on Investments ................ 1,474 4,357 5,628 (4,106)
Change in Unrealized Depreciation on
Foreign Currency ............................. -- -- (27) (103)
------- ------- ------- -------
Net Increase (Decrease) in Net Assets
Resulting From Operations .................... 4,672 10,081 5,615 (1,142)
------- ------- ------- -------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares ............................. (57) (41) -- (1,087)
Retail Shares ................................ -- -- -- --
Capital Gains:
Fiduciary Shares ............................. -- (4,336) -- (1,914)
Retail Shares ................................ -- -- -- --
------- ------- ------- -------
Total Distributions ........................ (57) (4,377) -- (3,001)
------- ------- ------- -------
Change in Net Assets ............................. 4,615 5,704 5,615 (4,143)
------- ------- ------- -------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark ...................... -- -- -- --
Proceeds from Shares Issued .................. 16,568 28,704 3,528 10,986
Reinvestment of Distributions ................ 57 4,375 -- 909
Cost of Shares Redeemed ...................... (12,060) (23,397) (3,049) (5,567)
------- ------- ------- -------
Total Fiduciary Share Transactions ......... 4,565 9,682 479 6,328
Retail Shares:
Proceeds from the reorganization of
Stepstone or Highmark ...................... -- -- -- --
Proceeds from Shares Issued .................. -- -- -- --
Reinvestment of Distributions ................ -- -- -- --
Cost of Shares Redeemed ...................... -- -- -- --
------- ------- ------- -------
Total Retail Share Transactions ............ -- -- -- --
------- ------- ------- -------
Net Increase in Net Assets From
Share Transactions ......................... 4,565 9,682 479 6,328
------- ------- ------- -------
Total Increase in Net Assets ............... 9,180 15,386 6,094 2,185
------- ------- ------- -------
Net Assets:
Beginning of Period ............................ 57,156 41,770 46,373 44,188
------- ------- ------- -------
End of Period .................................. $66,336 $57,156 $52,467 $46,373
======= ======= ======= =======
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of
Stepstone or Highmark ...................... -- -- -- --
Issued ....................................... 1,332 2,159 96 288
Issued in Lieu of Cash Distributions ......... 5 334 -- 25
Redeemed ..................................... (961) (1,758) (84) (149)
------- ------- ------- -------
Total Fiduciary Share Transactions ........... 376 735 12 164
------- ------- ------- -------
Retail Shares:
Issued from the reorganization of
Stepstone or Highmark ...................... -- -- -- --
Issued ....................................... -- -- -- --
Issued in Lieu of Cash Distributions ......... -- -- -- --
Redeemed ..................................... -- -- -- --
------- ------- ------- -------
Total Retail Share Transactions ............ -- -- -- --
------- ------- ------- -------
Net Increase in Share Transactions ........... 376 735 12 164
======= ======= ======= =======
<FN>
Amounts designated as "--" are either $0 or have been rounded to $0.
</FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
106 & 107
<PAGE>
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
NET ---------------------------- ------------------ NET NET
ASSET NET REALIZED ASSET ASSETS, RATIO
VALUE, NET AND UNREALIZED NET CONTRIBUTION VALUE, END OF EXPENSES
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL OF END TOTAL OF PERIOD TO AVERAGE
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS CAPITAL OF PERIOD RETURN (000) NET ASSETS
===================================================================================================================================
- -------------------------------------
100% U.S. TREASURY MONEY MARKET FUND
- -------------------------------------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
<S> <C> <C> <C> <C> <C> <C> <C>
1997 $1.00 0.046 -- (0.046) -- -- $1.00 4.65% $243,464 0.64%
1996 1.00 0.046 -- (0.046) -- -- 1.00 4.74% 173,340 0.74%
1995 1.00 0.046 -- (0.046) -- -- 1.00 4.69% 190,604 0.73%
1994 1.00 0.026 -- (0.026) -- -- 1.00 2.68% 160,721 0.74%
1993 1.00 0.026 -- (0.026) -- -- 1.00 2.64% 191,946 0.67%
RETAIL SHARES
FOR THE YEARS ENDED JULY 31,:
1997 $1.00 0.045 -- (0.045) -- -- $1.00 4.58% $558,972 0.72%
1996 1.00 0.046 -- (0.046) -- -- 1.00 4.74% 100,623 0.74%
1995 1.00 0.046 -- (0.046) -- -- 1.00 4.69% 88,660 0.73%
1994 1.00 0.026 -- (0.026) -- -- 1.00 2.68% 39,157 0.74%
1993 1.00 0.026 -- (0.026) -- -- 1.00 2.64% 32,629 0.67%
- ------------------------------
DIVERSIFIED MONEY MARKET FUND
- ------------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $1.00 0.025 -- (0.025) -- -- $1.00 5.11%* $971,858 0.48%*
FOR THE YEARS ENDED JANUARY 31,:
1997 1.00 0.049 -- (0.049) -- -- 1.00 5.03% 523,571 0.49%
1996 1.00 0.054 -- (0.054) -- -- 1.00 5.57% 503,080 0.50%
1995 1.00 0.039 (0.001) (0.039) -- 0.001 1.00 3.99% 536,754 0.50%
1994 1.00 0.029 -- (0.029) -- -- 1.00 2.99% 498,795 0.49%
1993 1.00 0.035 -- (0.035) -- -- 1.00 3.61% 521,664 0.46%
RETAIL SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $1.00 0.024 -- (0.024) -- -- $1.00 4.86%* $799,657 0.72%*
FOR THE YEARS ENDED JANUARY 31,:
1997 1.00 0.047 -- (0.047) -- -- 1.00 4.78% 576,566 0.73%
1996 1.00 0.052 -- (0.052) -- -- 1.00 5.31% 259,608 0.75%
1995 1.00 0.037 -- (0.037) -- -- 1.00 3.78% 111,267 0.70%
1994 1.00 0.027 -- (0.027) -- -- 1.00 2.77% 86,291 0.70%
1993 1.00 0.033 -- (0.033) -- -- 1.00 3.36% 79,253 0.69%
RATIO OF
RATIO NET INVESTMENT
OF EXPENSES RATIO OF INCOME TO
TO AVERAGE NET INVESTMENT AVERAGE
NET ASSETS INCOME NET ASSETS
EXCLUDING TO AVERAGE EXCLUDING
FEE WAIVERS NET ASSETS FEE WAIVERS
========================================================
- ------------------------------------
100% U.S. TREASURY MONEY MARKET FUND
- ------------------------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
<S> <C> <C> <C>
1997 0.92% 4.61% 4.33%
1996 0.97% 4.64% 4.41%
1995 0.97% 4.60% 4.36%
1994 0.90% 2.63% 2.48%
1993 0.72% 2.60% 2.55%
RETAIL SHARES
FOR THE YEAR ENDED JULY 31,:
1997 1.10% 4.55% 4.17%
1996 1.23% 4.64% 4.15%
1995 1.22% 4.68% 4.19%
1994 1.15% 2.68% 2.27%
1993 0.75% 2.60% 2.52%
- ------------------------------
DIVERSIFIED MONEY MARKET FUND
- -----------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.64%* 5.07%* 4.90%*
FOR THE YEAR ENDED JANUARY 31,:
1997 0.49% 4.93% 4.93%
1996 0.50% 5.43% 5.43%
1995 0.50% 3.93% 3.93%
1994 0.49% 2.93% 2.93%
1993 0.46% 3.47% 3.47%
RETAIL SHAARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.95%* 4.82%* 4.59%*
FOR THE YEAR ENDED JANUARY 31,:
1997 0.88% 4.69% 4.54%
1996 0.90% 5.16% 5.01%
1995 0.90% 3.79% 3.59%
1994 0.89% 2.71% 2.52%
1993 0.86% 3.41% 3.24%
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
* ANNUALIZED.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
108
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS RATIO
NET ---------------------------- ------------------ NET NET OF EXPENSES
ASSET NET REALIZED ASSET ASSETS, RATIO TO AVERAGE
VALUE, NET AND UNREALIZED NET VALUE, END OF EXPENSES NET ASSETS
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL OF PERIOD TO AVERAGE EXCLUDING
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN (000) NET ASSETS FEE WAIVERS
==================================================================================================================================
- --------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- --------------------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $1.00 0.016 -- (0.016) -- $1.00 3.28%* $159,297 0.28%* 0.69%*
FOR THE YEARS ENDED JANUARY 31,:
1997 1.00 0.031 -- (0.031) -- 1.00 3.12% 36,207 0.27% 0.49%
1996 1.00 0.034 -- (0.034) -- 1.00 3.48% 42,923 0.28% 0.49%
1995 1.00 0.026 -- (0.026) -- 1.00 2.67% 52,050 0.29% 0.50%
1994 1.00 0.021 -- (0.021) -- 1.00 2.13% 52,982 0.30% 0.54%
1993 1.00 0.025 -- (0.025) -- 1.00 2.61% 45,521 0.30% 0.54%
RETAIL SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $1.00 0.015 -- (0.015) -- $1.00 2.99%* $217,229 0.55%* 0.97%*
FOR THE YEARS ENDED JANUARY 31,:
1997 1.00 0.027 -- (0.027) -- 1.00 2.78% 150,688 0.60% 0.88%
1996 1.00 0.031 -- (0.031) -- 1.00 3.14% 81,177 0.61% 0.88%
1995 1.00 0.023 -- (0.023) -- 1.00 2.33% 49,494 0.62% 0.90%
1994 1.00 0.018 -- (0.018) -- 1.00 1.80% 52,220 0.63% 0.94%
1993 1.00 0.022 -- (0.022) -- 1.00 2.27% 8,542 0.63% 0.94%
- ----------------------------------
U.S. GOVERNMENT MONEY MARKET FUND
- ----------------------------------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
1997 $1.00 0.047 -- (0.047) -- $1.00 4.78% $252,995 0.70% 0.95%
1996 1.00 0.048 -- (0.048) -- 1.00 4.88% 151,483 0.77% 1.00%
1995 1.00 0.048 -- (0.048) -- 1.00 4.87% 159,747 0.78% 1.02%
1994 1.00 0.027 -- (0.027) -- 1.00 2.74% 162,094 0.78% 0.94%
1993 1.00 0.027 -- (0.027) -- 1.00 2.72% 166,182 0.71% 0.74%
RETAIL SHARES
FOR THE YEARS ENDED JULY 31,:
1997 $1.00 0.046 -- (0.046) -- $1.00 4.70% $ 42,797 0.78% 1.22%
1996 1.00 0.048 -- (0.048) -- 1.00 4.86% 75,714 0.79% 1.26%
1995 1.00 0.048 -- (0.048) -- 1.00 4.86% 48,474 0.78% 1.27%
1994 1.00 0.027 -- (0.027) -- 1.00 2.74% 24,055 0.77% 1.17%
1993 1.00 0.027 -- (0.027) -- 1.00 2.72% 37,332 0.71% 0.79%
RATIO OF
NET INVESTMENT
RATIO OF INCOME TO
NET INVESTMENT AVERAGE
INCOME NET ASSETS
TO AVERAGE EXCLUDING
NET ASSETS FEE WAIVERS
==========================================
- --------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- --------------------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
<S> <C> <C>
1997 3.36%* 2.96%*
FOR THE YEARS ENDED JANUARY 31,:
1997 3.08% 2.86%
1996 3.43% 3.22%
1995 2.66% 2.45%
1994 2.09% 1.85%
1993 2.53% 2.29%
RETAIL SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 3.02%* 2.59%*
FOR THE YEARS ENDED JANUARY 31,:
1997 2.75% 2.47%
1996 3.09% 2.82%
1995 2.33% 2.05%
1994 1.76% 1.45%
1993 2.21% 1.90%
- ----------------------------------
U.S. GOVERNMENT MONEY MARKET FUND
- ----------------------------------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
1997 4.69% 4.44%
1996 4.76% 4.53%
1995 4.76% 4.52%
1994 2.70% 2.54%
1993 2.67% 2.65%
RETAIL SHARES
FOR THE YEARS ENDED JULY 31,:
1997 4.60% 4.16%
1996 4.77% 4.30%
1995 4.82% 4.33%
1994 2.63% 2.23%
1993 2.67% 2.59%
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
* ANNUALIZED.
</FN>
</TABLE>
109
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS RATIO
NET ---------------------------- ------------------ NET NET OF EXPENSES
ASSET NET REALIZED ASSET ASSETS, RATIO TO AVERAGE
VALUE, NET AND UNREALIZED NET VALUE, END OF EXPENSES NET ASSETS
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL** OF PERIOD TO AVERAGE EXCLUDING
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN (000) NET ASSETS FEE WAIVERS
====================================================================================================================================
- ---------------------------
INTERMEDIATE-TERM BOND FUND
- ---------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $10.16 0.309 0.138 (0.310) -- $10.30 4.54% $152,676 0.69%* 0.82%*
FOR THE YEARS ENDED JANUARY 31,:
1997 10.62 0.599 (0.460) (0.595) -- 10.16 1.43% 150,411 0.67% 0.68%
1996 9.67 0.609 0.951 (0.609) -- 10.62 16.58% 132,942 0.68% 0.68%
1995 10.72 0.589 (1.034) (0.590) (0.015) 9.67 (4.11)% 109,848 0.71% 0.71%
1994 10.57 0.598 0.352 (0.595) (0.205) 10.72 9.22% 130,308 0.69% 0.69%
1993 10.49 0.650 0.409 (0.636) (0.343) 10.57 10.47% 112,806 0.67% 0.67%
RETAIL SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $10.16 0.309 0.128 (0.310) -- $10.29 4.44% $5,124 0.69%* 1.14%*
FOR THE YEARS ENDED JANUARY 31,:
1997 10.61 0.602 (0.462) (0.595) -- 10.16 1.54% 5,213 0.67% 1.08%
1996 9.67 0.609 0.940 (0.609) -- 10.61 16.48% 6,417 0.68% 1.09%
1995 10.72 0.589 (1.034) (0.590) (0.015) 9.67 (4.11)% 6,645 0.71% 1.11%
1994 10.57 0.615 0.335 (0.595) (0.205) 10.72 9.23% 9,308 0.69% 1.09%
1993 (1) 10.49 0.609 0.450 (0.636) (0.343) 10.57 10.59%* 2,897 0.65%* 1.05%*
- -------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
- -------------------------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $9.76 0.206 0.256 (0.215) -- $10.01 4.84% $11,292 0.21%* 0.91%*
FOR THE YEARS ENDED JANUARY 31,:
1997 9.85 0.430 (0.078) (0.442) -- 9.76 3.72% 7,435 0.20% 0.85%
1996 8.95 0.518 0.873 (0.487) -- 9.85 15.83% 4,196 0.24% 0.71%
1995 10.04 0.460 (1.098) (0.452) -- 8.95 (6.33)% 12,793 0.50% 0.72%
1994(2) 10.00 0.117 0.028 (0.105) -- 10.04 5.01%* 22,197 0.50%* 0.73%*
RETAIL SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $9.74 0.222 0.240 (0.215) -- $9.99 4.85% $11,214 0.21%* 1.22%*
FOR THE YEARS ENDED JANUARY 31,:
1997 9.84 0.458 (0.112) (0.442) -- 9.74 3.62% 5,791 0.20% 1.25%
1996 8.94 0.470 0.918 (0.487) -- 9.84 15.84% 4,266 0.23% 1.12%
1995 10.03 0.439 (1.077) (0.452) -- 8.94 (6.33)% 4,882 0.50% 1.12%
1994(2) 10.00 0.115 0.020 (0.105) -- 10.03 4.67%* 2,830 0.50%* 1.13%*
RATIO OF
NET INVESTMENT
RATIO OF INCOME TO
NET INVESTMENT AVERAGE
INCOME NET ASSETS PORTFOLIO
TO AVERAGE EXCLUDING TURNOVER
NET ASSETS FEE WAIVERS RATE
========================================================
- ---------------------------
INTERMEDIATE-TERM BOND FUND
- ---------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
<S> <C> <C> <C>
1997 6.17%* 6.04%* 58%
FOR THE YEARS ENDED JANUARY 31,:
1997 5.93% 5.92% 106%
1996 5.97% 5.97% 147%
1995 5.89% 5.89% 95%
1994 5.56% 5.56% 72%
1993 6.16% 6.16% 88%
RETAIL SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 6.17%* 5.71%* 58%
FOR THE YEARS ENDED JANUARY 31,:
1997 5.91% 5.50% 106%
1996 5.99% 5.58% 147%
1995 5.87% 5.47% 95%
1994 5.51% 5.11% 72%
1993 (1) 6.01%* 5.61%* 88%
- -------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
- -------------------------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 4.56%* 3.85%* 5%
FOR THE YEARS ENDED JANUARY 31,:
1997 4.69% 4.04% 6%
1996 4.97% 4.50% 30%
1995 4.84% 4.62% 22%
1994(2) 4.31%* 4.08% 19%
RETAIL SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 4.55%* 3.54%* 5%
FOR THE YEARS ENDED JANUARY 31,:
1997 4.69% 3.64% 6%
1996 4.93% 4.04% 30%
1995 4.92% 4.30% 22%
1994(2) 4.26%* 3.63%* 19%
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
* ANNUALIZED.
** TOTAL RETURN DOES NOT REFLECT THE SALES CHARGE.
(1) COMMENCED OPERATIONS ON FEBRUARY 3, 1992.
(2) COMMENCED OPERATIONS ON OCTOBER 15, 1993.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
110
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
NET ---------------------------- ------------------ NET NET
ASSET NET REALIZED ASSET ASSETS, RATIO
VALUE, NET AND UNREALIZED NET VALUE, END OF EXPENSES
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL** OF PERIOD TO AVERAGE
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN (000) NET ASSETS
======================================================================================================================
- ---------
BOND FUND
- ---------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $10.23 0.628 0.421 (0.609) -- $10.67 10.59% $71,571 0.85%
1996 10.38 0.660 (0.160) (0.650) -- 10.23 4.81% 60,374 0.89%
1995 10.11 0.640 0.270 (0.640) -- 10.38 9.43% 59,758 0.92%
1994 11.13 0.630 (0.970) (0.630) -- 10.11 (3.14)% 64,185 0.86%
1993 11.02 0.700 0.350 (0.700) -- 11.13 10.07% 33,279 0.93%
RETAIL SHARES
FOR THE YEARS ENDED JULY 31,:
1997 $10.15 0.642 0.403 (0.609) -- $10.59 10.68% $ 606 0.85%
1996 10.29 0.690 (0.180) (0.650) -- 10.15 4.95% 1,157 0.89%
1995 10.04 0.660 0.230 (0.640) -- 10.29 9.29% 558 0.92%
1994 10.12 0.070 (0.050) (0.100) -- 10.04 (3.81)%(B) 7 0.99%*
- ---------------------------
CONVERTIBLE SECURITIES FUND
- ---------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $11.58 0.183 0.833 (0.186) -- $12.41 8.92% $25,338 0.85%*
FOR THE YEARS ENDED JANUARY 31,:
1997 10.43 0.376 1.423 (0.378) (0.270) 11.58 17.72% 21,129 0.85%
1996 9.08 0.407 1.350 (0.404) -- 10.43 19.67% 16,668 0.85%
1995(3) 10.00 0.354 (0.930) (0.343) -- 9.08 (5.83)% 10,297 0.85%
- --------------------------
GOVERNMENT SECURITIES FUND
- --------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $9.44 0.268 0.203 (0.269) -- $9.64 5.08% $57,256 0.73%*
FOR THE YEARS ENDED JANUARY 31,:
1997 9.94 0.524 (0.505) (0.520) -- 9.44 0.34% $51,382 0.74%
1996 9.07 0.556 0.870 (0.556) -- 9.94 16.16% 46,725 0.75%
1995 (3) 10.00 0.491 (0.950) (0.475) -- 9.07 (4.49)% 32,178 0.75%
RATIO OF
NET INVESTMENT
RATIO OF INCOME TO
NET INVESTMENT AVERAGE
INCOME NET ASSETS PORTFOLIO AVERAGE
TO AVERAGE EXCLUDING TURNOVER COMMISSION
NET ASSETS FEE WAIVERS RATE RATE(A)
====================================================================
- ---------
BOND FUND
- ---------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
<S> <C> <C> <C>
1997 6.11% 5.54% 14% n/a
1996 6.10% 5.38% 21% n/a
1995 6.35% 5.62% 36% n/a
1994 6.11% 5.60% 44% n/a
1993 6.41% 5.79% 59% n/a
RETAIL SHARES
FOR THE YEARS ENDED JULY 31,:
1997 6.10% 5.27% 14% n/a
1996 6.10% 5.14% 21% n/a
1995 6.29% 5.32% 36% n/a
1994 5.77%* 3.80%* 44% n/a
- ---------------------------
CONVERTIBLE SECURITIES FUND
- ---------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 3.25%* 3.10%* 33% 0.0647
FOR THE YEARS ENDED JANUARY 31,:
1997 3.47% 3.47% 89% 0.0640
1996 4.14% 4.14% 46% n/a
1995(3) 3.87% 3.87% 36% n/a
- --------------------------
GOVERNMENT SECURITIES FUND
- --------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 5.79%* 5.64%* 40% n/a
FOR THE YEARS ENDED JANUARY 31,:
1997 5.59% 5.59% 186% n/a
1996 5.89% 5.89% 239% n/a
1995 (3) 5.46% 5.46% 184% n/a
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(A) AVERAGE COMMISSION RATE PAID PER SHARE FOR SECURITY PURCHASES AND SALES
DURING THE PERIOD. PRESENTATION OF THE RATE IS ONLY REQUIRED FOR FISCAL
YEARS BEGINNING AFTER SEPTEMBER 1, 1995.
(B) REPRESENTS TOTAL RETURN FOR THE FIDUCIARY SHARES FOR THE PERIOD FROM AUGUST
1, 1993 TO JUNE 19, 1994 PLUS THE TOTAL RETURN FOR THE INVESTOR SHARES FOR
THE PERIOD FROM JUNE 20, 1994 TO JULY 31, 1994.
* ANNUALIZED.
** TOTAL RETURN DOES NOT REFLECT THE SALES CHARGE.
(3) COMMENCED OPERATIONS ON FEBRUARY 1, 1994.
</FN>
</TABLE>
111
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS RATIO
NET ---------------------------- ------------------ NET NET OF EXPENSES
ASSET NET REALIZED ASSET ASSETS, RATIO TO AVERAGE
VALUE, NET AND UNREALIZED NET VALUE, END OF EXPENSES NET ASSETS
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL** OF PERIOD TO AVERAGE EXCLUDING
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN (000) NET ASSETS FEE WAIVERS
====================================================================================================================================
- -------------
BALANCED FUND
- -------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $15.04 0.228 1.712 (0.228) (0.290) $16.46 13.35% $400,442 0.83%* 0.98%*
FOR THE YEARS ENDED JANUARY 31,:
1997 13.92 0.422 1.699 (0.409) (0.595) 15.04 16.30% 307,531 0.79% 0.79%
1996 11.45 0.415 2.831 (0.417) (0.362) 13.92 28.93% 233,878 0.80% 0.80%
1995 12.21 0.390 (0.756) (0.391) (0.003) 11.45 (2.95)% 167,434 0.80% 0.80%
1994 11.50 0.394 0.928 (0.391) (0.221) 12.21 11.79% 152,189 0.69% 0.79%
1993 11.15 0.413 0.543 (0.408) (0.198) 11.50 8.86% 100,474 0.69% 0.79%
RETAIL SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $15.03 0.209 1.712 (0.209) (0.290) $16.45 13.22% $9,214 1.07%* 1.30%*
FOR THE YEARS ENDED JANUARY 31,:
1997 13.91 0.464 1.706 (0.455) (0.595) 15.03 16.04% 8,833 1.04% 1.19%
1996 11.45 0.406 2.825 (0.406) (0.362) 13.91 28.73% 8,422 0.89% 1.20%
1995 12.21 0.393 (0.758) (0.392) (0.003) 11.45 (2.95)% 7,128 0.79% 1.19%
1994 11.50 0.397 0.925 (0.391) (0.221) 12.21 11.79% 7,292 0.69% 1.19%
1993(4) 11.30 0.092 0.404 (0.098) (0.198) 11.50 4.45%* 425 0.60%* 1.10%*
RATIO OF
NET INVESTMENT
RATIO OF INCOME TO
NET INVESTMENT AVERAGE
INCOME NET ASSETS PORTFOLIO AVERAGE
TO AVERAGE EXCLUDING TURNOVER COMMISSION
NET ASSETS FEE WAIVERS RATE RATE(A)
====================================================================
- -------------
BALANCED FUND
- -------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
<S> <C> <C> <C> <C>
1997 2.99%* 2.85%* 10% 0.0581
FOR THE YEARS ENDED JANUARY 31,:
1997 3.48% 3.48% 27% 0.0604
1996 3.20% 3.20% 26% n/a
1995 3.41% 3.41% 48% n/a
1994 3.35% 3.25% 49% n/a
1993 3.72% 3.62% 68% n/a
RETAIL SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 2.75%* 2.53%* 10% 0.0581
FOR THE YEARS ENDED JANUARY 31,:
1997 3.22% 3.07% 27% 0.0604
1996 3.12% 2.81% 26% n/a
1995 3.41% 3.01% 48% n/a
1994 3.26% 2.76% 49% n/a
1993(4) 3.20%* 2.70%* 68% n/a
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(A) AVERAGE COMMISSION RATE PAID PER SHARE FOR SECURITY PURCHASES AND SALES
DURING THE PERIOD. PRESENTATION OF THE RATE IS ONLY REQUIRED FOR FISCAL
YEARS BEGINNING AFTER SEPTEMBER 1, 1995.
* ANNUALIZED.
** TOTAL RETURN DOES NOT REFLECT THE SALES CHARGE.
(4) COMMENCED OPERATIONS ON NOVEMBER 13, 1992.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
112
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS RATIO
NET ---------------------------- ------------------ NET NET OF EXPENSES
ASSET NET REALIZED ASSET ASSETS, RATIO TO AVERAGE
VALUE, NET AND UNREALIZED NET VALUE, END OF EXPENSES NET ASSETS
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL** OF PERIOD TO AVERAGE EXCLUDING
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN (000) NET ASSETS FEE WAIVERS
====================================================================================================================================
- -----------
GROWTH FUND
- -----------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $12.58 0.057 5.773 (0.053) (0.996) $17.36 48.54% $297,879 0.92% 1.24%
1996 11.87 0.120 1.350 (0.120) (0.640) 12.58 12.72% 41,495 0.93% 1.67%
1995 9.76 0.150 2.260 (0.150) (0.150) 11.87 25.23% 25,096 0.79% 1.92%
1994 10.00 0.050 (0.240) (0.050) -- 9.76 (1.87)% 15,254 0.77% 2.61%
RETAIL SHARES
FOR THE YEARS ENDED JULY 31,:
1997 $12.60 0.049 5.784 (0.048) (0.996) $17.39 48.49% 7,816 1.04% 1.49%
1996 11.87 0.110 1.380 (0.120) (0.640) 12.60 12.88% 2,843 0.93% 1.91%
1995 9.77 0.150 2.250 (0.150) (0.150) 11.87 25.10% 1,218 0.84% 2.11%
1994 9.74 -- 0.040 (0.010) -- 9.77 (1.77)%(B) -- -- --
RATIO OF
NET INVESTMENT
RATIO OF INCOME TO
NET INVESTMENT AVERAGE
INCOME NET ASSETS PORTFOLIO AVERAGE
TO AVERAGE EXCLUDING TURNOVER COMMISSION
NET ASSETS FEE WAIVERS RATE RATE(A)
=====================================================================
- -----------
GROWTH FUND
- -----------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
<S> <C> <C> <C> <C>
1997 0.39% 0.07% 118% 0.0598
1996 0.98% 0.23% 79% n/a
1995 1.40% 0.26% 68% n/a
1994 0.86% (0.98)% 123% n/a
RETAIL SHARES
FOR THE YEARS ENDED JULY 31,:
1997 0.28% (0.18)% 118% 0.0598
1996 0.96% (0.02)% 79% n/a
1995 1.17% (0.10)% 68% n/a
1994 -- -- 123% n/a
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(A) AVERAGE COMMISSION RATE PAID PER SHARE FOR SECURITY PURCHASES AND SALES
DURING THE PERIOD. PRESENTATION OF THE RATE IS ONLY REQUIRED FOR FISCAL
YEARS BEGINNING AFTER SEPTEMBER 1, 1995. (B) REPRESENTS TOTAL RETURN FOR
THE FIDUCIARY SHARES FROM COMMENCEMENT OF OPERATIONS TO JUNE 19, 1994
PLUS THE TOTAL RETURN FOR THE INVESTOR SHARES FOR THE PERIOD FROM
JUNE 20, 1994 TO JULY 31, 1994.
* ANNUALIZED.
** TOTAL RETURN DOES NOT REFLECT THE SALES CHARGE.
</FN>
</TABLE>
113
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS RATIO
NET ---------------------------- ------------------ NET NET OF EXPENSES
ASSET NET REALIZED ASSET ASSETS, RATIO TO AVERAGE
VALUE, NET AND UNREALIZED NET VALUE, END OF EXPENSES NET ASSETS
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL** OF PERIOD TO AVERAGE EXCLUDING
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN (000) NET ASSETS FEE WAIVERS
====================================================================================================================================
- -------------------
VALUE MOMENTUM FUND
- -------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $21.57 0.132 3.955 (0.176) -- $25.48 19.06% $463,433 0.78% 0.94%
FOR THE YEARS ENDED JANUARY 31,:
1997 18.05 0.436 4.371 (0.438) (0.848) 21.57 27.33 317,482 0.79% 0.79%
1996 13.40 0.331 5.063 (0.337) (0.408) 18.05 40.88% 222,065 0.80% 0.80%
1995 11.27 0.318 (0.817) (0.317) (0.054) 13.40 (3.48%) 150,138 0.81% 0.81%
1994 12.76 0.292 1.538 (0.290) (0.030) 14.27 14.56% 140,609 0.77% 0.79%
1993 11.68 0.310 1.103 (0.311) (0.022) 12.76 12.33% 92,636 0.68% 0.78%
RETAIL SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $21.57 0.106 3.953 (0.147) -- $25.48 18.90% $20,750 1.03% 1.25%
FOR THE YEARS ENDED JANUARY 31,:
1997 18.05 0.389 4.368 (0.393) (0.848) 21.57 27.04% 15,963 1.04% 1.19%
1996 13.40 0.320 5.060 (0.323) (0.408) 18.05 40.77% 11,801 0.89% 1.20%
1995 14.27 0.321 (0.820) (0.317) (0.054) 13.40 (3.48%) 9,777 0.81% 1.21%
1994 12.75 0.297 1.543 (0.290) (0.030) 14.27 14.65% 9,346 0.77% 1.20%
1993(5) 11.52 0.246 1.257 (0.251) (0.022) 12.75 15.97%* 3,162 0.65%* 1.15%*
- ------------------
INCOME EQUITY FUND
- ------------------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
1997 $14.27 0.372 5.019 (0.368) (1.083) $18.21 40.13% $352,725 0.99% 1.21%
1996 13.00 0.420 1.930 (0.420) (0.660) 14.27 18.25% 262,660 1.03% 1.27%
1995 11.92 0.440 1.500 (0.440) (0.420) 13.00 17.26% 221,325 1.06% 1.30%
1994 12.13 0.390 0.120 (0.390) (0.330) 11.92 4.23% 213,328 1.06% 1.10%
1993 11.42 0.380 0.710 (0.380) -- 12.13 9.75% 104,840 1.15% 1.21%
RETAIL SHARES
FOR THE YEARS ENDED JULY 31,:
1997 $14.29 0.363 5.028 (0.358) (1.083) $18.24 39.97% $14,152 1.06% 1.46%
1996 13.03 0.420 1.920 (0.420) (0.660) 14.29 18.21% 10,143 1.03% 1.51%
1995 11.92 0.420 1.550 (0.440) (0.420) 13.03 17.52% 3,881 1.06% 1.55%
1994(6) 11.85 0.040 0.080 (0.050) -- 11.92 4.23%(B) 24 1.10%* 1.33%*
RATIO OF
NET INVESTMENT
RATIO OF INCOME TO
NET INVESTMENT AVERAGE
INCOME NET ASSETS PORTFOLIO AVERAGE
TO AVERAGE EXCLUDING TURNOVER COMMISSION
NET ASSETS FEE WAIVERS RATE RATE(A)
=====================================================================
- -------------------
VALUE MOMENTUM FUND
- -------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
<S> <C> <C> <C> <C>
1997 1.65%* 1.49%* 1% 0.0600
FOR THE YEARS ENDED JANUARY 31,:
1997 2.26% 2.26% 9% 0.0590
1996 2.07% 2.07% 20% n/a
1995 2.36% 2.36% 6% n/a
1994 2.19% 2.17% 5% n/a
1993 2.59% 2.49% 3% n/a
RETAIL SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 1.40%* 1.17%* 1% 0.0600
FOR THE YEARS ENDED JANUARY 31,:
1997 2.01% 1.86% 9% 0.0590
1996 2.00% 1.69% 20% n/a
1995 2.37% 1.97% 6% n/a
1994 2.12% 1.69% 5% n/a
1993(5) 2.53%* 2.03%* 3% n/a
- ------------------
INCOME EQUITY FUND
- ------------------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
1997 2.39% 2.17% 46% 0.0583
1996 2.95% 2.71% 42% n/a
1995 3.59% 3.34% 37% n/a
1994 3.29% 3.24% 34% n/a
1993 3.27% 3.22% 30% n/a
RETAIL SHARES
FOR THE YEARS ENDED JULY 31,:
1997 2.32% 1.92% 46% 0.0583
1996 2.89% 2.41% 42% n/a
1995 3.06% 2.57% 37% n/a
1994(6) 0.93%* 0.71%* 34% n/a
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(A) AVERAGE COMMISSION RATE PAID PER SHARE FOR SECURITY PURCHASES AND SALES
DURING THE PERIOD. PRESENTATION OF THE RATE IS ONLY REQUIRED FOR FISCAL
YEARS BEGINNING AFTER SEPTEMBER 1, 1995.
(B) REPRESENTS TOTAL RETURN FOR THE FIDUCIARY SHARES FOR THE PERIOD FROM
AUGUST 1, 1993 TO JUNE 19, 1994 PLUS THE TOTAL RETURN FOR THE INVESTOR
SHARES FOR THE PERIOD FROM JUNE 20, 1994 TO JULY 31, 1994.
* ANNUALIZED
(5) COMMENCED OPERATIONS ON APRIL 2, 1992.
(6) COMMENCED OPERATIONS ON JUNE 20, 1994.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
114
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS RATIO
NET ---------------------------- ------------------ NET NET OF EXPENSES
ASSET NET REALIZED ASSET ASSETS, RATIO TO AVERAGE
VALUE, NET AND UNREALIZED NET VALUE, END OF EXPENSES NET ASSETS
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL END TOTAL** OF PERIOD TO AVERAGE EXCLUDING
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN (000) NET ASSETS FEE WAIVERS
===================================================================================================================================
- ---------------------
BLUE CHIP GROWTH FUND
- ---------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $14.50 0.081 2.818 (0.078) -- $17.32 20.08% $96,883 0.80%* 0.95%*
FOR THE YEARS ENDED JANUARY 31,:
1997 12.63 0.160 2.449 (0.162 (0.574) 14.50 21.11% 80,682 0.84% 0.84%
1996 9.53 0.174 3.311 (0.180) (0.203) 12.63 36.95% 63,410 0.83% 0.83%
1995(7) 10.00 0.167 (0.479) (0.158) -- 9.53 (3.10)% 39,319 0.85% 0.85%
- --------------------
EMERGING GROWTH FUND
- --------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $13.50 0.014 0.888 (0.012) -- $14.39 6.70% $66,336 1.01%* 1.16%*
FOR THE YEARS ENDED JANUARY 31,:
1997 11.94 0.008 2.556 (0.009) (0.991) 13.50 21.79% 57,156 1.04% 1.04%
1996 9.42 0.026 2.807 (0.033) (0.277) 11.94 30.24% 41,770 1.05% 1.05%
1995(7) 10.00 0.086 (0.535) (0.080) (0.051) 9.42 (4.48)% 23,928 1.05% 1.05%
- -------------------------
INTERNATIONAL EQUITY FUND
- -------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $34.52 0.212 3.958 -- -- $38.69 12.08% $52,467 1.22%* 1.41%*
FOR THE YEARS ENDED JANUARY 31,:
1997 37.49 0.220 (0.965) (0.812) (1.416) 34.52 (2.14)% 46,373 1.18% 1.28%
1996(8) 33.51 0.447 4.084 (0.446) (0.105) 37.49 13.56% 44,188 1.16% 1.36%
RATIO OF
NET INVESTMENT
RATIO OF INCOME TO
NET INVESTMENT AVERAGE
INCOME NET ASSETS PORTFOLIO AVERAGE
TO AVERAGE EXCLUDING TURNOVER COMMISSION
NET ASSETS FEE WAIVERS RATE RATE(A)
=====================================================================
- ---------------------
BLUE CHIP GROWTH FUND
- ---------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
<S> <C> <C> <C> <C>
1997 1.09%* 0.94%* 54% 0.0520
FOR THE YEARS ENDED JANUARY 31,:
1997 1.21% 1.21% 80% 0.0598
1996 1.54% 1.54% 69% n/a
1995(7) 1.84% 1.84% 89% n/a
- --------------------
EMERGING GROWTH FUND
- --------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.26%* 0.10%* 116% 0.0583
FOR THE YEARS ENDED JANUARY 31,:
1997 0.06% 0.06% 134% 0.0583
1996 0.22% 0.22% 131% n/a
1995(7) 1.01% 1.01% 123% n/a
- -------------------------
INTERNATIONAL EQUITY FUND
- -------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 1.16%* 0.97%* 18% 0.0250
FOR THE YEARS ENDED JANUARY 31,:
1997 0.60% 0.50% 29% 0.0235
1996(8) 1.31% 1.11% 21% n/a
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(A) AVERAGE COMMISSION RATE PAID PER SHARE FOR SECURITY PURCHASES AND SALES
DURING THE PERIOD. PRESENTATION OF THE RATE IS ONLY REQUIRED FOR FISCAL
YEARS BEGINNING AFTER SEPTEMBER 1, 1995.
* ANNUALIZED
(7) COMMENCED OPERATIONS ON FEBRUARY 1, 1994.
(8) COMMENCED OPERATIONS ON FEBRUARY 1, 1995.
</FN>
</TABLE>
115
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
- -------------------------------------------------------------------------------
HighMark Funds ("HighMark" or "the Funds") was organized as a Massachusetts
business trust under a Declaration of Trust dated March 10, 1987. Prior to
December 4, 1996, HighMark was known as the HighMark Group. The Funds are
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end investment company with sixteen funds: the 100% U.S.
Treasury Money Market Fund, the Diversified Money Market Fund, the California
Tax-Free Money Market Fund, and the U.S. Government Money Market Fund (the
"Money Market Funds") and the Intermediate-Term Bond Fund, the California
Intermediate Tax-Free Bond Fund, the Bond Fund, the Convertible Securities Fund,
the Government Securities Fund, the Balanced Fund, the Growth Fund, the Value
Momentum Fund, the Income Equity Fund, the Blue Chip Growth Fund, the Emerging
Growth Fund, and the International Equity Fund (the "Non-Money Market Funds").
HighMark is registered to offer two classes of shares, Fiduciary and Retail. The
Funds' prospectuses provide a description of each Fund's investment objectives,
policies and strategies. On October 18, 1996 and October 17, 1996, respectively,
the Board of Trustees of the HighMark Funds and the Board of Trustees of the
Stepstone Funds (Stepstone) approved an Agreement and Plan of Reorganization
(the "Reorganization Agreement") providing for the transfer of all assets and
liabilities of the Stepstone Funds in exchange for the issuance of shares in the
Funds in a tax-free reorganization (see Note 7).
2. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
The following is a summary of significant accounting policies followed by the
Funds.
BASIS OF PRESENTATION OF STATEMENTS -- As more fully described in Note 7, the
HighMark Funds acquired the Stepstone Funds in a series of tax-free business
combinations. While each Fund now exists legally as a HighMark Fund, a number of
the surviving funds for accounting purposes are Stepstone Funds. In accordance
with generally accepted accounting principles, the financial statements
presented herein represent those of the accounting survivors. Accordingly, the
Statements of Operations, Statements of Changes in Net Assets and Financial
Highlights presented reflect periods beginning on the first day of the
accounting survivor's fiscal year (August 1, 1996 and February 1, 1997,
respectively).
SECURITY VALUATION -- Investment securities held by the Money Market Funds are
stated at amortized cost, which approximates market value. Under this valuation
method, purchase discounts and premiums are accreted and amortized ratably to
maturity and are included in interest income.
Investments in equity securities held by the non-money market funds that are
traded on a national securities exchange (or reported on the NASDAQ national
market system) are stated at the last quoted sales price if readily available
for such equity securities on each business day; other equity securities traded
in the over-the-counter market and listed equity securities for which no sale
was reported on that date are stated at the last quoted bid price. Option
contracts are valued at the last quoted bid price as quoted on the primary
exchange or board of trade on which such option contracts are traded. Debt
obligations exceeding sixty days to maturity for which market quotations are
readily available are valued at the most recently quoted bid price. Debt
obligations with sixty days or less remaining until maturity may be valued at
their amortized cost. Restricted securities for which quotations are not readily
available are valued at fair value using methods determined in good faith under
general Trustee supervision.
FOREIGN CURRENCY TRANSLATION -- The books and records of the International
Equity Fund are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars on the following basis: (I) market value of
investment securities, other assets and liabilities at the current rate of
exchange; and (II) purchases and sales of investment securities, income and
expenses at the relevant rates of exchange prevailing on the respective dates of
such transactions. The International Equity Fund does not isolate the portion of
gains and losses on investments in securities that is due to changes in the
foreign exchange rates from that which is due to changes in market prices of
such securities.
116
<PAGE>
The International Equity Fund reports gains and losses on foreign currency
related transactions as realized and unrealized gains and losses for financial
reporting purposes, whereas such gains and losses are treated as ordinary income
or loss for U.S. Federal income tax purposes.
FEDERAL INCOME TAXES -- It is each Fund's intention to continue to qualify as a
regulated investment company for Federal income tax purposes and distribute all
of its taxable income and net capital gains. Accordingly, no provision for
Federal income taxes is required.
The International Equity Fund may be subject to taxes imposed by countries in
which it invests with respect to its investments in issuers existing or
operating in such countries. Such taxes are generally based on either income
earned or repatriated. The International Equity Fund accrues such taxes when the
related income is earned.
NET ASSET VALUE PER SHARE -- The net asset value per share is calculated each
business day for each Fund. In general, it is computed by dividing the assets of
each Fund, less its liabilities, by the number of outstanding shares of each
Fund.
DISCOUNTS AND PREMIUMS -- Discounts and premiums, except for the Bond Fund, are
accreted or amortized over the life of each security and are recorded as
interest income for each of the Funds using a method that approximates the
effective interest method. The Bond Fund follows the same basis for financial
reporting and federal income tax purposes and does not amortize premiums or
accrete discounts, with the applicable portion of market discount recognized as
ordinary income upon disposition or maturity.
CLASSES -- Class specific expenses are borne by that class. Income, non-class
specific expenses and realized/ unrealized gains and losses are allocated to the
respective classes on the basis of the relative daily net assets.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation
of financial statements requires management to make estimates and assumptions
which affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from estimates.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for Repurchase
Agreements are held by the custodian bank until the respective agreements
mature. Provisions of repurchase agreements and procedures adopted by the
Adviser ensure that the market value of the collateral is sufficient in the
event of default by the counterparty. If the counterparty defaults and the value
of the collateral declines or if the counterparty enters an insolvency
proceeding, realization of the collateral by the fund may be delayed or limited.
OPTIONS TRANSACTIONS -- In order to produce incremental earnings, protect gains,
and facilitate buying and selling of securities for investment purposes, certain
of the Funds, as described in their prospectuses, may participate in options
transactions including writing call options. A risk in writing a call option is
that the fund gives up the opportunity of profit if the market price of the
underlying security increases.
The Fund realizes a gain upon the expiration of a written call option. When a
written call option is closed prior to expiration by being exercised, the
proceeds on the sale are increased by the amount of original premium received.
Also, certain funds may purchase call or put options with respect to securities
that are permitted investments. The risk in purchasing options is limited to the
premium paid.
The Fund recognizes a gain when the underlying securities' market price rises
(in case of a call) or falls (in case of a put) to the extent sufficient to
cover the option premium and transaction costs.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the date the security is purchased or sold (trade date). Costs
used in determining realized gains and losses on the sale of investment
securities are those of the specific securities sold adjusted for the accretion
and amortization of purchase discounts and premiums, if any, during the
respective holding periods. Interest income is recorded on the accrual basis;
dividend income is recorded on the ex-dividend date.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income for
the money market funds are declared daily and paid monthly. Each of the
non-money
117
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
market funds except the International Equity Fund declare and make distributions
from net investment income monthly. The International Equity Fund declares and
make distributions from net investment income periodically. Any net realized
capital gains will be distributed at least annually for all Funds.
SECURITY LENDING-- Certain of the Funds lend their securities to approved
brokers to earn additional income and receive cash and/or securities as
collateral to secure the loans. Collateral is maintained at not less than 102%
of the value of loaned securities. Although the risk of lending is mitigated by
the collateral, the Fund could experience a delay in recovering its securities
and a possible loss of income or value if the borrower fails to return them.
RECLASSIFICATION OF COMPONENTS OF NET ASSETS -- In accordance with Statement of
Position 93-2, "Determination, Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distribution by Investment
Companies", $103,491, $304,519, $110,756, $160,815, and $188,818 relating to
differences attributable to the classification of short-term capital gains and
net investment income for tax distribution purposes of the Income Equity, Value
Momentum, Intermediate-Term Bond, Balanced and Growth Funds, respectively, as of
July 31, 1997 have been reclassified between the Fund's accumulated net realized
gains/losses and undistributed net income accounts, as appropriate. These
reclassifications had no effect on net asset value.
3. TRANSACTIONS WITH AFFILIATES
- --------------------------------------------------------------------------------
Effective February 15, 1997 SEI Fund Resources (the "Administrator"), a Delaware
business trust, became the Administrator for the Funds. SEI Investment
Management Corporation, a wholly-owned subsidiary of SEI Investments Company, is
the owner of all beneficial interest in the Administrator. The Funds and the
Administrator are parties to an Administration Agreement (the "Agreement") dated
February 15, 1997, under which the Administrator provides the Fund with
management, administrative and shareholder services for an annual fee of .20% of
the average daily net assets of the Funds. The Administrator may voluntarily
waive its fee, subject to termination at any time by the Administrator, to the
extent necessary to limit the total operating expenses of a Fund. During the
period April 28, 1997 to July 31, 1997 the Administrator agreed to waive its fee
to the rate of .18% of the average daily net assets of the Funds with the
exception of the California Intermediate Tax-Free Fund for which the
Administrator agreed to waive its fee to .15%.
Pursuant to a separate agreement with the Administrator, Union Bank of
California, N.A. ("UBOC") performs sub-administration services on behalf of each
Fund, for which it receives a fee paid by the Administrator at the annual rate
of up to 0.05% of the average daily net assets of the Funds. UBOC has
voluntarily agreed to reduce its fee to 0.03% (with the exception of California
Intermediate Tax Free Fund for which UBOC has agreed to waive its fee to 0.00%).
UBOC reserves the right to terminate its waivers at any time in its sole
discretion.
Prior to February 15, 1997, administrative and accounting services were provided
to the HighMark Funds by BISYS Fund Services at a range of 0.20% to 0.30%, of
average daily net assets. A portion of theses fees were voluntarily waived.
State Street Bank and Trust Company serves as the transfer agent, dividend
disbursing agent and shareholder servicing agent for HighMark. The Administrator
has agreed to absorb certain transfer agency related expenses on behalf of the
Fund.
SEI Investments Distribution Co. (the "Distributor") and the Funds are parties
to a distribution agreement dated February 15, 1997. No compensation is paid to
the Distributor for services rendered to the Fiduciary Shares under this
agreement. The Fund has adopted a Distribution Plan (the "Plan") on behalf of
the Retail Shares pursuant to Rule 12b-1 under the Investment Company Act of
1940. The Plan provides that the Retail Shares will bear the cost of its
distribution expenses. The Distributor, as compensation for its services under
the Plan, receives a distribution fee, computed daily and payable monthly, of
.25% of the average daily net assets attributable to each Fund's Retail Shares.
Prior to February 15, 1997, BISYS Fund Services Limited Partnership d/b/a
("BISYS") served as the Fund's distributor. For the period from August 1, 1996
to February 14, 1997, BISYS received approxi-
118
<PAGE>
- --------------------------------------------------------------------------------
mately $40,000 for compensation earned on sales of shares of the non-money
market funds. BISYS also received, pursuant to a distribution plan, a
distribution fee at an annual rate of 0.25% of the average daily net assets
attributable to the Fund's former investor shares. Such payments were reduced
with respect to the money market funds.
The Fund has also adopted a Shareholder Service Plan permitting payment of
compensation to service providers, that may include Union Bank of California,
N.A., Bank of Tokyo-Mitsubishi, Ltd., or their respective affiliates, that have
agreed to provide certain shareholder support services for their customers who
own Retail or Fiduciary Shares. In consideration for such services, a service
provider is entitled to receive compensation at the annual rate of up to .25% of
each Fund's average daily net assets. The service provider may waive such fees
at any time. Any such waiver is voluntary and may be terminated at any time. For
the period from March 28, 1997 to July 31, 1997, Union Bank of California, N.A.
received shareholder servicing fees from the Funds in the amount of
approximately $273,000.
Union Bank of California, N.A. acts as custodian ("the Custodian") for the Fund.
Fees of the Custodian are being paid on the basis of net assets of the Fund.
Prior to March 7, 1997, Corestates Bank N.A. provided custody services to the
Stepstone Funds and was paid $43,000 in fees and associated costs.
Certain officers and/or Trustees of the Funds are also officers and/or Directors
of the Administrator. The Funds pays each unaffiliated Trustee an annual fee for
attendance at quarterly, interim and committee meetings. Compensation of
officers and affiliated Trustees is paid by the Administrator.
4. INVESTMENT ADVISORY AGREEMENT
- --------------------------------------------------------------------------------
The Fund and Pacific Alliance Capital Management, a division of Union Bank of
California, N.A., (the "Advisor") are parties to an Advisory Agreement. For its
services, the Advisor is entitled to receive a fee, that is calculated daily and
paid monthly, at an annual rate of .30% of the average daily net assets of the
100% U.S. Treasury Money Market Fund, the Diversified Money Market Fund, the
California Tax-Free Money Market Fund, and the U.S. Government Money Market
Fund, .60% of the Growth Fund, the Income Equity Fund, the Value Momentum Fund,
the Blue Chip Growth Fund, the Balanced Fund and the Convertible Securities
Fund, .50% of the Intermediate-Term Bond Fund, the Bond Fund, the Government
Securities Fund and the California Intermediate Tax-Free Bond Fund, .80% of the
Emerging Growth Fund and .95% of the International Equity Fund. For the fiscal
year ended July 31, 1997 the Advisor voluntarily waived all or a portion of its
fee in the 100% U.S. Treasury Money Market Fund, the California Tax-Free Money
Market Fund, the Bond Fund, the Growth Fund, the International Equity Fund and
the California Intermediate Tax-Free Bond Fund in order to limit the operating
expenses of the Funds.
The Advisor and Bank of Tokyo-Mitsubishi Trust Company are parties to a
Sub-Advisory Agreement for the Blue Chip Growth Fund, the Emerging Growth Fund,
the Convertible Securities Fund and the Government Securities Fund.
Bank of Tokyo-Mitsubishi Trust Company is entitled to a fee ranging from 0.20%
to 0.50% of the average daily net assets of the Funds.
The Advisor and Tokyo-Mitsubishi Asset Management (U.K.), Ltd. are parties to a
Sub-Advisory Agreement for the International Equity Fund. Tokyo-Mitsubishi Asset
Management (U.K.), Ltd. is entitled to a fee of 0.30% of the average daily nets
assets of the Funds.
Prior to April 28, 1997, Pacific Alliance Capital Management provided Investment
Advisory services to HighMark under an agreement that provided for fees as
follows:
MONEY MARKET FUNDS NON MONEY MARKET FUNDS
------------------ ----------------------
Annual Fee 0.40% 1st $500 million 1.00% 1st $40 million
(% of average 0.35% next $500 million 0.60% remaining
net assets) 0.30% remaining
A portion of the associated fees were voluntarily waived by the advisor.
119
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
5. INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
The purchases and sales of investment securities other than short-term
securities were as follows:
INVESTMENT
SECURITIES
------------------
PURCHASES SALES
(000'S) (000'S)
---------- ----------
Intermediate-Term Bond ... $ 87,948 $ 84,032
California Intermediate
Tax-Free Bond .......... 10,027 775
Bond ..................... 77,242 8,823
Convertible Securities ... 8,974 6,714
Government Securities .... 26,454 21,469
Balanced ................. 66,938 33,571
Growth ................... 181,632 142,098
Value Momentum ........... 63,874 4,901
Income Equity ............ 382,888 137,568
Blue Chip Growth ......... 42,722 40,919
Emerging Growth .......... 61,891 58,293
International Equity ..... 8,437 9,136
At July 31, 1997, the total cost of securities and net realized gains or losses
on securities sold for Federal income tax purposes was not materially different
from amounts reported for financial reporting purposes. The aggregate gross
unrealized appreciation and depreciation at July 31, 1997 for each portfolio was
as follows:
APPRECIATION DEPRECIATION TOTAL
(000'S) (000'S) (000'S)
-------------- ------------ -------
Intermediate-Term Bond ....... $ 3,387 $ (21) $ 3,366
California Intermediate
Tax-Free Bond .............. 724 -- 724
Bond ......................... 2,697 (429) 2,268
Convertible Securities ....... 3,659 (152) 3,507
Government Securities ........ 1,721 -- 1,721
Balanced ..................... 108,095 (1,613) 106,482
Growth ....................... 94,670 (710) 93,960
Value Momentum ............... 191,083 (584) 190,499
Income Equity ................ 99,608 (111) 99,497
Blue Chip Growth ............. 28,479 (694) 27,785
Emerging Growth .............. 13,226 (1,363) 11,863
International Equity ......... 10,823 (5,014) 5,809
The Funds have capital loss carryforwards at July 31, 1997, to the extent
provided in the regulations for federal income tax as follows:
<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYOVER EXPIRES EXPIRES EXPIRES EXPIRES EXPIRES
7/31/97 2001 2002 2003 2004 2005
------------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
Money Market .......... $ 156,955 $ 156,955 $ -- $ -- $ -- $ --
Diversified
Money Market .......... 1,422,481 302,005 29,246 1,078,029 13,201 --
Cal Tax-Free MM ......... 64,602 -- 24,741 22,777 1,338 15,746
Bond .................... 3,301,067 -- 2,766,351 -- 69,995 464,721
Int.-Term Bond .......... 3,376,083 -- -- 1,412,177 -- 1,963,906
Cal. Int. Tax-Free Bond . 1,305,829 -- -- 584,687 711,043 10,099
Government Securities ... 1,793,225 -- -- 372,601 -- 1,420,624
</TABLE>
The Intermediate-Term Bond Fund, International Equity and Government Securities
Fund had post 10/31 loss deferrals of $552,855, $235,958 and $222,980,
respectively that can be used to offset future capital gains.
120
<PAGE>
- --------------------------------------------------------------------------------
6. CONCENTRATION OF CREDIT RISK
- --------------------------------------------------------------------------------
The California Tax-Free Money Market Fund and the California Intermediate
Tax-Free Bond Fund invest in debt securities in the State of California. The
ability of the issuers of the securities held by the Funds to meet their
obligations may be affected by economic developments in that state. The
International Equity Fund invests in securities of foreign issuers in various
countries. These investments may involve certain considerations and risks not
typically associated with investments in the United States as a result of, among
other factors, the possibility of future political and economic developments,
lack of liquidity, low market capitalizations, foreign currency fluctuations,
and the level of governmental supervision and regulation of securities markets
in the respective countries.
7. ACQUISITION OF THE STEPSTONE FUNDS
- --------------------------------------------------------------------------------
At a special meeting of shareholders held on April 11, 1997, reconvened on April
22, 1997, the shareholders of Stepstone voted to approve the Reorganization
Agreement. Pursuant to the Reorganization Agreement, on April 28, 1997
substantially all of the assets and liabilities of the Stepstone Funds described
below, were transferred to HighMark in a tax-free exchange for either Fiduciary
or Retail shares of the Funds, except for the assets and liabilities of the
Convertible Securities Fund which were transferred on May 1, 1997. In addition,
certain of the Stepstone Funds transferred all of their assets and liabilities
in tax-free exchanges to newly organized HighMark portfolios as described below.
The detail of these business combinations as they relate to the Funds are
described on page 122.
121
<PAGE>
[LOGO OMITTED]HIGHMARK[SERVICE MARK] FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes certain relevant information of the Funds prior
to and immediately after the business combinations on April 28, 1997 and May 1,
1997 and is unaudited.
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION SHARES ISSUED NET ASSETS NAV
SHARES (DEPRECIATION) HIGHMARK IN BUSINESS AFTER PER
STEPSTONE FUND 4/25/97 4/25/97* FUND COMBINATION COMBINATION SHARE
- ---------------- ----------- -------------- -------------------------- -------------- -------------- --------
<S> <C> <C> <C> <C>
Treasury 100% U.S. Treasury Obligation
Money Market Money Market (1)
Institutional 181,064,548 -- Fiduciary 181,064,548 $320,731,528 $ 1.00
Investment 436,504,093 -- Retail 436,504,093 536,718,079 $ 1.00
Diversified Obligation
Money Market (1) Money Market
Institutional 604,849,321 -- Fiduciary 604,849,321 887,485,768 $ 1.00
Investment 544,183,086 -- Retail 544,183,086 683,287,384 $ 1.00
California Tax-Free California Tax-Free
Money Market (1) Money Market (2)
Institutional 34,154,335 -- Fiduciary 34,154,335 148,402,399 $ 1.00
Investment 155,865,986 -- Retail 155,865,986 177,322,433 $ 1.00
Intermediate-
Term Bond (1) Intermediate-Term Bond
Institutional 15,088,304 $(1,329,267) Fiduciary 15,088,304 149,970,422 $ 9.94
Investment 504,300 (406,310) Retail 504,300 5,007,314 $ 9.93
California Intermediate California Intermediate
Tax-Free Bond (1) Tax-Free Bond
Institutional 893,161 (243,432) Fiduciary 893,161 8,625,114 $ 9.59
Investment 594,205 166,029 Retail 594,205 5,692,269 $ 9.58
Convertible
Securities** (1) Convertible Securities
Institutional 2,040,083 1,854,940 Fiduciary 2,040,083 22,569,400 $11.05
Government
Securities (1) Government Securities
Institutional 5,998,323 (754,788) Fiduciary 5,998,323 55,336,932 $ 9.23
Balanced (1) Balanced
Institutional 20,418,830 48,982,835 Fiduciary 20,418,830 334,721,383 $14.22
Investment 529,990 1,447,655 Retail 529,990 8,128,597 $14.22
Growth Growth (1)
Institutional 10,904,151 61,237,899 Fiduciary 13,292,779 238,776,096 $13.89
Investment 198,919 290,605 Retail 242,014 6,692,395 $13.91
Value Momentum (1) Value Momentum
Institutional 16,467,060 105,010,393 Fiduciary 16,467,060 343,671,566 $20.96
Investment 781,595 5,220,852 Retail 781,595 16,362,643 $20.96
Blue Chip Growth (1) Blue Chip Growth
Institutional 5,825,377 10,589,062 Fiduciary 5,825,377 80,051,994 $13.74
Emerging Growth (1) Emerging Growth
Institutional 4,584,971 945,599 Fiduciary 4,584,971 52,902,738 $11.54
International Equity (1) International Equity
Institutional 1,345,264 (982,301) Fiduciary 1,345,264 45,500,863 $33.82
<FN>
* 4/25/97 REPRESENTS THE SHARE VALUATION DATE USED IN THE MERGER ON 4/28/97.
(1) REPRESENTS THE ACCOUNTING SURVIVOR IN THIS BUSINESS COMBINATION.
(2) THE HIGHMARK CALIFORNIA TAX FREE MONEY MARKET FUND ACQUIRED THE ASSETS AND
ASSUMED THE LIABILITIES OF THE HIGHMARK TAX FREE MONEY MARKET FUND ON
FEBRUARY 24, 1997 IN A TAX FREE EXCHANGE. AT THE TIME OF THE ACQUSISITION,
THE HIGHMARK TAX FREE MONEY MARKET FUND HAD ASSETS OF $39,104,521 AND
RECEIVED $39,120,306 SHARES OF THE CALIFORNIA TAX FREE MONEY MARKET FUND.
</FN>
</TABLE>
122
<PAGE>
8. OPTION CONTRACTS
- --------------------------------------------------------------------------------
Transactions in covered call options and purchased put options during the period
ended July 31, 1997 are summarized as follows:
BLUE CHIP GROWTH
----------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- -------------------------------------- ----------- -------------
Option written and outstanding at
beginning of period ................. 362 $ 93,061
Call option written during period ... 1,801 496,421
Call option exercised during period . (1,156) (306,900)
Call option expired during period ... (400) (121,211)
Call option closed during period .... (337) (129,072)
------- ---------
Option written and outstanding at end
of period ........................... 270 $ 32,299
======= ==========
EMERGING GROWTH
----------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- -------------------------------------- ----------- -------------
Option written and outstanding at
beginning of period ................. 510 $ 70,751
Call option written during period ... 4,116 918,300
Call option exercised during period . (610) (158,150)
Call option expired during period ... (1,220) (167,874)
Call option closed during period .... (1,767) (418,282)
------ ---------
Option written and outstanding at end
of period ........................... 1,029 $ 244,745
====== =========
BALANCED
--------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- -------------------------------------- ----------- -------------
Option written and outstanding at
beginning of period ................. 176 $ 35,133
Call option written during period ... -- --
Call option exercised during period . (176) (35,133)
Call option expired during period ... -- --
Call option closed during period .... -- --
------- ---------
Option written and outstanding at end
of period ........................... -- --
======= =========
BLUE CHIP GROWTH
--------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- -------------------------------------- ----------- -------------
Purchased put option outstanding at
beginning of period ............... 150 $ 56,700
Put option purchased during period .. 615 111,898
Put option sold during period ....... (150) (56,700)
Put option expired during period .... (605) (111,065)
Put option exercised during period .. -- --
------- ---------
Purchased put option outstanding at end
of period ........................... 10 $ 833
======= =========
EMERGING GROWTH
--------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- -------------------------------------- ----------- -------------
Purchase put option outstanding at
beginning of period ............... 620 $ 149,554
Put option purchased during period .. 2,604 669,455
Put option sold during period ....... (807) (225,283)
Put option expired during period .... (1,212) (287,372)
Put option exercised during period .. (938) (209,012)
------ ---------
Purchased put option outstanding at
end of period ....................... 267 $ 97,342
====== =========
123
<PAGE>
[LOGO OMITTED] HIGHMARK[SERVICE MARK] FUNDS
NOTICE TO SHAREHOLDERS OF THE HIGHMARK FUNDS (UNAUDITED)
- -------------------------------------------------------------------------------
For shareholders that do not have a July 31, 1997 tax year end, this notice is
for informational purposes only. For shareholders with a July 31, 1997 tax year
end, please consult your tax advisor as to the pertinence of this notice.
For the fiscal year ended July 31, 1997, the fund is designated with the
following items with regard to distributions paid during the year.
<TABLE>
<CAPTION>
(A) (B) (C)
LONG TERM ORDINARY (A+B)
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
FUND (TAX BASIS) (TAX BASIS) (TAX BASIS)
=====================================================================================================================
<S> <C> <C> <C>
100% Treasury Money Market ...................................... 0% 100% 100%
Diversified Money Market ........................................ 0% 100% 100%
California Tax-Free Money Market ................................ 0% 100% 100%
U.S. Government Money Market .................................... 0% 100% 100%
Intermediate-Term Bond .......................................... 0% 100% 100%
California Intermediate Tax-Free Bond ........................... 0% 100% 100%
Bond ............................................................ 0% 100% 100%
Convertible Securities .......................................... 0% 100% 100%
Government Securities ........................................... 0% 100% 100%
Balanced ........................................................ 15% 85% 100%
Growth .......................................................... 89% 11% 100%
Value Momentum .................................................. 0% 100% 100%
Income Equity ................................................... 63% 37% 100%
Blue Chip Growth ................................................ 0% 100% 100%
Emerging Growth ................................................. 0% 100% 100%
International Equity ............................................ 0% 100% 100%
(D) (E) (F)
QUALIFYING TAX EXEMPT FOREIGN
FUND DIVIDENDS(1) INTEREST TAX CREDIT
======================================================================================================================
<S> <C> <C> <C>
100% Treasury Money Market ...................................... 0% 0% 0%
Diversified Money Market ........................................ 0% 0% 0%
California Tax-Free Money Market ................................ 0% 100% 0%
U.S. Government Money Market .................................... 0% 0% 0%
Intermediate-Term Bond .......................................... 0% 0% 0%
California Intermediate Tax-Free Bond ........................... 0% 100% 0%
Bond ............................................................ 0% 0% 0%
Convertible Securities .......................................... 27% 0% 0%
Government Securities ........................................... 0% 0% 0%
Balanced ........................................................ 38% 0% 0%
Growth .......................................................... 77% 0% 0%
Value Momentum .................................................. 100% 0% 0%
Income Equity ................................................... 100% 0% 0%
Blue Chip Growth ................................................ 41% 0% 0%
Emerging Growth ................................................. 100% 0% 0%
International Equity ............................................ 0% 0% 0%
<FN>
- ----------
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* Items (A) and (B) are based on a percentage of each fund's total
distributions.
** Items (D) and (E) are based on a percentage of ordinary income distributions
of the fund.
(2) For residents of California, Connecticut and New York
The 100% U.S. Treasury Money Market met the quarterly diversification
test for the fiscal quarters ended during July 31, 1997.
100% of the income earned by 100% U.A. Treasury Money Market is designed tax
exempt income.
(3) For residents of California, Connecticut and New York
California Intermediate Tax-Free Bond and California Tax-Free Money
Market met the quarterly diversification test for the fiscal quarters ended
during July 31, 1997. 100% of the income is designed as tax exempt.
(4) The 60 Day notice reflects the tax return information which differs from
financial statements for Balanced, Diversified Money Market and California
Tax-Free Money Market.
</FN>
</TABLE>
124
<PAGE>
[Logo Omitted]
HIGHMARK[SERVICE MARK] FUNDS
THANK YOU FOR
YOUR INVESTMENT.
<PAGE>
HIGHMARK ANNUAL REPORT
JULY 31, 1997
HIGHMARK FUNDS SERVICE PROVIDERS:
INVESTMENT ADVISER
Pacific Alliance Capital Management
a division of Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
ADMINISTRATOR & DISTRIBUTOR
SEI Fund Resources &
SEI Investments Distribution Company
One Freedom Valley Drive
Oaks, PA 19456
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
AUDITORS
Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105-2230
84806
[Logo Omitted]
