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[PHOTO OF FAMILY OMITTED]
HIGHMARK Semi-Annual Report
JANUARY 31, 1998
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Table of Contents
Letter to Shareholders & Message from the Investment Advisor ............... 1
Statements of Net Assets/Schedule of Investments ........................... 40
Statements of Assets and Liabilities ....................................... 93
Statements of Operations ................................................... 94
Statements of Changes in Net Assets ........................................ 98
Financial Highlights ....................................................... 102
Notes to Financial Statements .............................................. 110
This report and the financial statements contained herein are submitted for the
general information of HighMarkSM 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
[PHOTO OF MR. KNOPF OMITTED]
R. GREGORY KNOPF
DEAR SHAREHOLDER:
We are pleased to report another period of fine performance for many of the
HighMark Funds for the six months ended January 31, 1998. The stock market
rebounded from the surprising economic developments in Asia, while the bond
market benefited from continuing good news on inflation. Your HighMark Funds
generally did well against their peer groups and compared to the standard
benchmarks of investment performance.
CONTINUED GROWTH
Since our last report to shareholders, the HighMark Fund family has passed the
$6 billion mark in total assets under management. Our continued growth can be
attributed to the strong investment performance of the HighMark Funds and
efforts to increase awareness of the HighMark Funds through our existing
distribution network and new distribution opportunities such as financial
advisors and broker dealers nationwide.
NEW INVESTMENT OPPORTUNITIES
We have recently introduced a new back-end load class of Retail Shares for four
of our equity funds: the Balanced Fund, Growth Fund, Income Equity Fund, and
Value Momentum Fund. This gives our retail investors the opportunity to invest
in HighMark without paying an initial sales charge. Please contact your
Investment Representative or HighMark directly at (800) 433-6884 to request a
prospectus and additional information about our new back-end load funds.
HIGHMARK ON THE INTERNET
We continue to be excited about HighMark's presence on the World Wide Web, at
www.highmark-funds.com, and in the America Online Mutual Fund Center, which has
given us additional ways to serve and communicate with our investors. We are
currently adding significant enhancements to our Web site, which should be
integrated during the second quarter of 1998. We encourage you to visit us on
the Web or through America Online to learn more about your current HighMark
investments and additional HighMark Funds that may help to enhance your
portfolio and diversify your investments.
As always, we thank you for your confidence and investment in HighMark Funds.
Sincerely,
/S/SIGNATURE
R. Gregory Knopf
Managing Director, HighMark Funds
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MESSAGE FROM THE INVESTMENT ADVISOR
[PHOTO OF MR. MAZUR OMITTED]
LUKE MAZUR
DEAR SHAREHOLDER:
Considering the economic turmoil in Southeast Asia, and the potential impact on
U.S. companies, the stock market was very resilient during the six months ended
January 31, 1998. Although the period included one very difficult day in October
when the Dow Jones Industrial Average fell a record 554 points, patient
investors were rewarded. Since the correction on October 27, 1997 to January 31,
1998, the Dow Jones Industrial Average rose 10.4%. By Valentine's Day, stocks
hit a new all-time high.
Fixed income markets were quite strong during the period, as interest rates
declined sharply. U.S. Treasury bonds were the star performers, as investors
around the world sought safety and liquidity.
THE ECONOMY: WITHSTANDING THE ASIAN "CONTAGION"
Although some forecasters believe that the turmoil in Southeast Asia will lead
to deflation and recession in the United States, we believe that the most likely
outcome is merely a slowdown in the U.S. economy, which has been growing at an
annual rate of 4%. The unemployment rate has declined to a 27-year low of 4.7%.
Consumer spending and confidence, industrial production, housing starts and low
inflation suggest a U.S. economy in high gear without rising wages.
Our conclusion is that the U.S. economy remains the most dynamic in the world.
As a result, the odds of recession in 1998 are very low. Instead, we expect real
Gross Domestic Product to grow in the 2.0% to 2.5% range, as productivity gains
offset rising wages.
BONDS: SHOWING STRENGTH
Between August 1, 1997 and January 31, 1998, the benchmark 30-year Treasury
yield fell from 6.45% to 5.80%. As a result, bond prices rose about 4.91% during
the period. Even at relatively low yields, bonds continued to produce income
well in excess of inflation.
During the period, the Federal Reserve Board stayed on the sidelines, leaving
short-term interest rates at 5.50%. Investors in 30-year bonds have been willing
to accept yields just 0.30% percentage points above the rate charged for
overnight loans.
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STOCKS: THE BULL MARKET REMAINS INTACT
Although corporate profits are growing more slowly, inflation remains low,
mergers, acquisitions and stock buybacks continue unabated and the U.S. remains
the world leader in innovation and technology.
After rising 50% between mid-1996 and mid-1997, the stock market's performance
has moderated. However, the underlying strengths in the market have to a large
degree offset the uncertainties that still exist from Asia. We remain optimistic
that 1998 will be a year of moderate economic growth and prosperity, which bodes
well for the stock and bond markets.
Sincerely,
/S/SIGNATURE
Luke Mazur
Chief Investment Officer
Pacific Alliance
March 1998
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[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK TAXABLE MONEY MARKET FUNDS+
The 100% U.S. Treasury Money Market Fund invests exclusively in direct U.S.
Treasury obligations with maturities of less than 13 months. As of January 31,
1998, the Fund's 30-day yield was 5.00% (Fiduciary Shares) and its weighted
average maturity was 62 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. As of January 31, 1998, the Fund's 30-day yield was
5.19% (Fiduciary Shares) and its weighted average maturity was 50 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, and in repurchase agreements collateralized by like
instruments. As of January 31, 1998, the Fund's 30-day yield was 5.08%
(Fiduciary Shares) and its weighted average maturity was 36 days.*
To qualify as short-term investments, the Securities & Exchange Commission
requires the maturities of these securities to be 397 days or less.
DESCRIBE THE BEHAVIOR OF SHORT-TERM INTEREST RATES DURING THE SIX MONTHS ENDED
JANUARY 31, 1998.
With short-term interest rates unchanged since March of 1997,the money markets
have been primarily influenced by technical factors and swings in market
sentiment, especially as it relates to the expected impact of the Southeast
Asian financial crisis on domestic growth prospects. Over the period,
investor expectations were for a continuation of the beneficial trend of
declining inflation, as well as strong demand for U.S. dollar denominated
securities.
WHAT IMPACT HAS THIS HAD ON MONEY MARKET INSTRUMENTS?
As optimism prompted buying of longer-term securities, the yield differential or
spread between short- and long-term securities has narrowed further. With the
current economic expansion now in excess of seven years, such a change would
usually occur as a result of the Federal Reserve's policymakers raising the
market level of short-term rates. This flattening of the yield curve has been
noteworthy, in that it has been market driven.
In normal markets, additional yield can be attained by purchasing securities
with longer maturities. However, over the past six months there has been little
incremental yield to be attained from extending maturities, and the spread
between different types of products in the marketplace has shrunk. For example,
while rates on overnight investments have averaged about 5.45%, three month
certificates of deposit (CD's) return only about 5.51%, six month CD's yield
about 5.55% and one year CD's pay only about 5.60%.
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HOW HAVE YOU ADJUSTED THE STRATEGIES OF THE FUNDS?
We continued to find overnight investments providing us with good returns, and
have sought to maintain at least 20% of the Diversified and U.S. Government
portfolios in repurchase agreements. Otherwise, our strategy has been an
opportunistic one. By monitoring the technical factors that affect overnight
rates, following the calendar for new securities issuance, and taking advantage
of market dips on negative reaction to "surprise" economic statistics, we have
been able to purchase securities at better than average levels. Weighted average
maturities for these two portfolios have been managed within the 30 to 55 day
ranges.
The trend toward a balanced federal budget continues to impact the Treasury
markets. The size of new issues has been shrinking consistently for the past
year to eighteen months, with the greatest reduction in the three to six month
bill markets. In the 100% U.S. Treasury portfolio we have continued to manage
the portfolio with a somewhat longer average maturity. We employed a barbell
strategy, using very short-term U.S. Treasury bills to accommodate liquidity
needs, while extending to the six month area to lock in higher returns.
WHAT IS YOUR OUTLOOK FOR SHORT-TERM INTEREST RATES AND HOW MIGHT IT AFFECT THE
MANAGEMENT OF THE FUNDS?
As a result of the prolonged economic expansion, the federal budget may be in
balance for the fiscal year 1999. If this occurs, it would be the first time
this has happened in 30 years. As the U.S. Treasury further reduces the supply
of marketable securities into 1998, demand for Treasury securities is increasing
in the face of the financial turmoil in Southeast Asia. This is certain to raise
prices and put further downward pressure on yields.
Additionally, the problems overseas could have a dampening effect on U.S.
industry. In that the Federal Reserve has been concerned about the pace of
growth, this could serve as a moderating influence, keeping interest rates
unchanged through the first half of 1998. Consequently, our strategy remains the
same into early 1998.
We believe the risk of a slowdown is greater, as we move later in the year. With
oil prices near a four-year low, price pressures are just about erased from the
domestic front. Policy makers are now more concerned about the Asian markets'
potential to drive prices lower as they attempt to use export sales to revive
their economies. Any sign of a deflationary trend will be met with lower U.S.
interest rates.
We will be looking for opportunities to extend the average lives of the
portfolios as we approach the May Federal Open-Market Committee policy setting
meeting. By then there should be sufficient statistical data to better assess
the outlook for continued expansion.
- --------
+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.
*For Retail Class A Shares of the Highmark 100% U.S. Treasury, Diversified and
U.S. Government Money Markets, the 30-day yield as of January 31, 1998 was
4.75%, 4.94%, and 4.83%, respectively.
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[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK CALIFORNIA TAX-FREE MONEY MARKET FUND+
The HighMark California Tax-Free Money Market Fund seeks a high level of current
interest income free from federal income tax and California personal income tax.
As of January 31, 1998, the Fund's 30-day yield (Fiduciary Shares) was 2.95%.*
Using a combined federal and state income tax rate of 41.95%, the 30-day yield
is equivalent to a 5.08% taxable yield.
HOW WOULD YOU CHARACTERIZE THE INVESTMENT ENVIRONMENT?
The California economy has rebounded strongly from the recession of the early
1990s. Vibrant growth in the entertainment, high technology, manufacturing and
trade areas have more than made up for the loss of jobs in the aerospace
industry. The unemployment rate has nearly been cut in half, and the real estate
market is booming once again.
WHAT IS YOUR OUTLOOK AND STRATEGY?
In the U.S., the current economic expansion is in its seventh year, and the
effects of the Asian financial crisis have yet to be felt. As a result, we
believe that the economy could slow in the second half of 1998, and it is likely
that the next movement in interest rates is downward rather than upward. Given
that environment, the Fund will look for opportunities to extend its weighted
average maturity, thereby locking in higher interest rates.
- -------
+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.
*The 30-day yield as of January 31, 1998 for the Retail Class A Shares of the
California Tax-Free Money Market Fund was 2.77%.
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HIGHMARK INTERMEDIATE-TERM BOND FUND
The HighMark Intermediate-Term Bond Fund seeks total return by investing
primarily in U.S. Treasury and government agency bonds, U.S. corporate bonds and
asset-backed securities. The portfolio's average maturity will be from 3 to 10
years.
For the six months ended January 31, 1998, the HighMark Intermediate-Term Bond
Fund produced a return of 3.88% (Fiduciary Shares).* In comparison, the average
intermediate bond fund as measured by the Lipper Intermediate Investment Grade
Debt Average produced a 4.21% return. The unmanaged Lehman Brothers Intermediate
Government/Corporate Index reflected a return of 4.16%.
HighMark Intermediate-Term Bond Fund is managed by a team of investment
professionals led by Jack Montgomery, who has 19 years of experience in the
investment field. Mr. Montgomery holds an MBA from the University of Oregon.
WHAT FACTORS AFFECTED YOUR PERFORMANCE DURING THE SIX-MONTH PERIOD?
As Asia's economic problems became clear, U.S. interest rates began to fall
rapidly as investors perceived a disinflationary environment. Investors believed
that the U.S. economy would slow down from its torrid pace of 1997. So far,
however, the U.S. economy remains buoyant. In January 1998, 358,000 new jobs
were created by the U.S. economy, about 100,000 more than expected. Without the
Asian backdrop, the Federal Reserve Board would probably have to increase
short-term interest rates to slow down the economy to ward off inflation.
Instead, the Fed is staying on the sidelines as U.S. inflation remains dormant.
WHAT STRATEGY HAVE YOU EMPLOYED TO TAKE ADVANTAGE OF LOWER INTEREST RATES?
The portfolio's duration (sensitivity to interest rates) was longer than our
benchmark for the entire six-month period. In July, the portfolio was about 20%
longer than the benchmark when interest rates were significantly higher. That
strategy was very effective as interest rates fell during the period. On January
31, 1998, the portfolio was still about 15% longer than the benchmark. Since
bond prices move inversely to interest rates, a portfolio that is more sensitive
will outperform in a period in which interest rates are falling. However, the
Fund's significant commitment to corporate bonds had a negative impact on
performance as investment grade corporate bonds underperformed Treasuries by
more than 1.5% during the six months ended January 31, 1998.
HOW DID YOUR ASSET ALLOCATION SHIFT DURING THE PERIOD?
Since corporate bonds underperformed during most of the period, we were able to
take advantage of some bargains, boosting the allocation to corporates from
about 50% to 55% of the portfolio. For example, we added an AA-rated bond issued
by E.I duPont (2.9% of the portfolio), maturing in 2002, and two BBB-rated
bonds, Raytheon (1.5%) and Worldcom (1.6%), both maturing in 2007. These bonds
offered extra yield of as much as one percent more income compared to similar
maturity Treasury bonds. Even with the increased emphasis on corporates, the
portfolio's overall credit quality is still AA+, the second-highest possible
rating by Standard & Poor's Corporation, a national credit rating agency.
WHAT IS YOUR OUTLOOK ON THE BOND MARKET?
We're cautious at this point. If investors become less concerned about Asia's
problems and start focusing again on the strength of the U.S economy, then we
could see a rise in interest rates. If that happens, then we would lengthen the
duration of the portfolio to take advantage of higher rates.
- --------
*The HighMark Intermediate-Term Bond Fund (Retail Class A Shares) produced a
total return of 3.88% for the period. Including the maximum sales charge of
3.00%, the total return for the Fund's Retail Class A Shares was 0.75%.
7
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[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK INTERMEDIATE-TERM BOND FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE HIGHMARK
INTERMEDIATE-TERM BOND FUND, VERSUS THE LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE INDEX, AND THE LIPPER INTERMEDIATE
INVESTMENT-GRADE DEBT AVERAGE.
FIDUCIARY SHARES
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
Lipper Intermediate
Highmark Intermediate Lehman Brothers Intermediate Investment-Grade
Term Bond Fund Government/Corporate Index Debt Average
2/28/91 $10,000 $10,000 $10,000
7/31/91 $10,427 $10,362 $10,383
7/31/92 $12,026 $11,826 $11,944
7/31/93 $13,127 $12,843 $13,118
7/31/94 $13,066 $12,964 $13,042
7/31/95 $14,164 $14,106 $14,235
7/31/96 $14,794 $14,853 $14,930
7/31/97 $16,140 $16,201 $16,453
1/31/98 $16,767 $16,874 $17,145
RETAIL CLASS A SHARES
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
Lipper Intermediate
Highmark Intermediate Lehman Brothers Intermediate Investment-Grade
Term Bond Fund Government/Corporate Index Debt Average
2/29/92 $ 9,700 $10,000 $10,000
7/31/92 $10,309 $10,562 $10,585
7/31/93 $11,252 $11,470 $11,626
7/31/94 $11,189 $11,578 $11,558
7/31/95 $12,130 $12,598 $12,616
7/31/96 $12,671 $13,265 $13,231
7/31/97 $13,826 $14,468 $14,581
1/31/98 $14,362 $15,070 $15,195
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Annualized Annualized Annualized
Six Month One Year 3 Year 5 Year Inception
Return Return Return Return to Date
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Fiduciary 3.88% 8.59% 8.69% 6.11% 7.83%
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Retail Class A 3.88% 8.49% 8.66% 6.09% 6.82%
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Retail Class A
with load* 0.75% 5.28% 7.56% 5.44% 6.28%
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*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 reflects
the performance of the Stepstone Intermediate-Term Bond Fund.
8
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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 six months ended January 31, 1998, the HighMark California Intermediate
Tax-Free Bond Fund produced a total return of 3.34% (Fiduciary Shares).* In
comparison, the Lipper California Intermediate Muni Debt returned an average of
3.04%. The unmanaged Lehman Brothers 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 3.61%.
The HighMark California Intermediate Tax-Free Bond Fund is managed by a team of
investment professionals led by Robert L. Bigelow, who has 12 years of
experience in the investment field. Mr. Bigelow holds an MBA from Pepperdine
University.
HOW WOULD YOU CHARACTERIZE THE CALIFORNIA MUNICIPAL BOND MARKET DURING THE SIX
MONTHS ENDED JANUARY 31, 1998?
The California municipal bond market was strong during the period. In California
and throughout the country, credit quality has been improving, and many bonds
are being upgraded. Municipal coffers are benefiting from an economy that
continues to do well. Upgrades of municipal debt exceeded downgrades at Standard
& Poor's Corporation and Moody's Investor Service by a ratio of 7:1 and 17:1,
respectively. In addition, falling interest rates boosted bond prices.
WHAT FACTORS AFFECTED THE FUND DURING THE PERIOD?
The Fund performed well because the portfolio's duration (sensitivity to
interest rates) was longer than the benchmark. In a period of falling interest
rates, a portfolio with a longer than average duration outperforms. In addition,
we have continued to focus on higher quality bonds, many of which are insured.
There is very little extra yield to be gained by purchasing lower quality bonds.
HOW WOULD YOU DESCRIBE THE CALIFORNIA ECONOMY?
Citing favorable economic conditions, the State's credit rating was upgraded by
Fitch, one of the national credit rating agencies, to AA- from A+. Moody's
continues to rate the State's general obligation debt "A1" with a positive
outlook, while Standard & Poor's rates California "A+" with a stable outlook.
The State's unemployment rate declined to 5.8% in November 1997, down from 10.1%
in January 1994. The real estate market is buoyant once again, driven by the
strong economy and population growth.
WHAT IS YOUR OUTLOOK?
For California residents in the highest federal tax bracket, the Fund's 3.98%
SEC 30-day yield is equivalent to a taxable yield of 6.86%. This type of return
is attractive in a low inflation environment. We continue to maintain a positive
outlook on the California municipal bond market in general and the Fund in
particular.
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*The HighMark California Intermediate Tax-Free Bond Fund (Retail Class A Shares)
produced a total return of 3.35% for the period. Including the maximum sales
charge of 3.00%, the total return for the Fund's Retail Class A Shares was
0.24% for the period.
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[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE HIGHMARK CALIFORNIA
INTERMEDIATE TAX-FREE BOND FUND VERSUS
THE LEHMAN BROTHERS 7-YEAR MUNI BOND INDEX,
AND THE LIPPER CALIFORNIA INTERMEDIATE MUNI DEBT.
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
HighMark HighMark
California California
Intermediate Intermediate
Tax-Free Tax-Free Bond Lehman Brothers Lipper California
Bond Fund, Fund,Retail 7-Year Muni Intermediate
Fiduciary Shares Class A Shares Index Muni Debt
10/31/93 $10,000 $ 9,700 $10,000 $10,000
7/31/94 $ 9,702 $ 9,402 $ 9,953 $ 9,913
7/31/95 $10,407 $10,086 $10,760 $10,527
7/31/96 $11,102 $10,749 $11,307 $11,123
7/31/97 $12,079 $11,697 $12,284 $12,038
7/31/98 $12 482 $12,089 $12,727 $12,404
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Annualized Annualized
Six Month One Year 3 Year Inception
Return Return Return to Date
- --------------------------------------------------------------------------------
Fiduciary 3.34% 8.35% 9.18% 5.08%
- --------------------------------------------------------------------------------
Retail Class A 3.35% 8.36% 9.16% 5.04%
- --------------------------------------------------------------------------------
Retail Class A
with load* 0.24% 5.12% 8.04% 4.29%
- --------------------------------------------------------------------------------
*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 reflects the performance of the Stepstone California Intermediate
Tax-Free Bond Fund.
10
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HIGHMARK BOND FUND
The HighMark Bond Fund seeks current income by investing primarily in U.S.
Treasury and government agency bonds, U.S. corporate bonds and mortgage-backed
securities. The portfolio's average maturity will be from five to 20 years.
For the six months ended January 31, 1998, the HighMark Bond Fund produced a
return of 4.67% (Fiduciary Shares).* In comparison, the average bond fund with a
similar composition as measured by Lipper Corporate Debt A-Rated Average
produced a 4.40% 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 4.91%.
The HighMark Bond Fund is managed by a team of investment professionals led by
Jack Montgomery, who has 19 years of experience in the investment field. Mr.
Montgomery holds an MBA from the University of Oregon.
WHAT FACTORS AFFECTED YOUR PERFORMANCE DURING THE SIX-MONTH PERIOD?
The single most important factor affecting performance was the general decline
in interest rates brought about by the Asian economic crisis. Between October
and January, the yield on the 30-year Treasury bond fell from 6.70% to 5.70%
despite the strong U.S. economy. The reason for the rapid drop in interest rates
was the perception that Asia's problems would eventually slow down worldwide
economic growth.
WHAT STRATEGY HAVE YOU EMPLOYED TO TAKE ADVANTAGE OF LOWER INTEREST RATES?
The portfolio's duration (sensitivity to interest rates) was longer than our
benchmark for the entire six-month period. In July, the portfolio was about 11%
longer than the benchmark when interest rates were significantly higher. That
strategy was very effective as interest rates fell during the period. At January
31, 1998, the portfolio was still about 5% longer than the benchmark. Since bond
prices move inversely to interest rates, a portfolio that is more sensitive will
outperform in a period in which interest rates are falling. However, the Fund's
significant commitment to corporate bonds had a negative impact on performance
as investment grade corporate bonds underperformed Treasuries by more than 1.5%
during the six months ended January.
HOW HAS THE PORTFOLIO'S ASSET ALLOCATION CHANGED DURING THE PERIOD?
At January 31, 1998, 17% of the portfolio was invested in U.S. Treasury
obligations, 26% in U.S. government agency obligations, 50% was invested in
corporate bonds including asset-backed securities and collateralized mortgage
obligations and 16% was in cash. In contrast, at July 31, 1997, the portfolio
included a higher proportion of Treasury bonds and a lower proportion of
corporate bonds. For example, we added a Triple A-rated bond issued by General
Electric Corporation (2.8% of the portfolio) maturing in 2006 which offered a
half percent extra yield compared to the ten-year U.S. Treasury bond. Another
addition to the portfolio was a Single A-rated bond issued by EW Scripps (2.7%),
the newspaper/broadcasting company. We also added to some of our existing
positions such as Citicorp (2.3%) (the big New York bank) and Golden West (1.4%)
(a California thrift).
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[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HOW DID THOSE CATEGORIES PERFORM DURING THE SIX MONTHS?
Treasury bonds did the best, as investors from around the world sought safety
and liquidity after the Asian crisis began to unfold. In contrast, corporate
bonds performed poorly, suffering their worst month in six years during October
1997. In early 1998, corporate bonds began to rebound, and we saw some excellent
values there and added to the portfolio.
WHAT DOES THE FISCAL 1999 FEDERAL BUDGET SURPLUS MEAN TO INVESTORS?
That's one of the things that has drawn interest rates down to their present
levels. The U.S. government is auctioning fewer bonds than before, thus reducing
supply. As demand exceeds supply, bond prices rise and yields fall. Therefore, a
budget surplus exerts downward pressure on interest rates and upward pressure on
bond prices already in a portfolio.
WHAT IS YOUR OUTLOOK ON THE BOND MARKET?
We're cautious at this point. If investors become less concerned about Asia's
problems and start focusing again on the strength of the U.S economy, then we
could see a rise in interest rates. If that happens, then we would lengthen the
duration of the portfolio to take advantage of higher rates.
- ---------
*The HighMark Bond Fund (Retail Class A Shares) produced a total return of 4.61%
for the period. Including the maximum sales charge of 3.00%, the total return
for the Fund's Retail Class A Shares was 1.45%.
12
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HIGHMARK BOND FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE
HIGHMARK BOND FUND VERSUS THE LEHMAN AGGREGATE BOND
INDEX AND THE LIPPER CORPORATE DEBT A-RATED AVERAGE.
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
HighMark
HighMark Bond Fund, Lipper
Bond Fund, Retail Class A Lehman Corporate
Fiduciary Shares Aggregate Debt A-Rated
Shares (synthetic) Bond Index Average
2/28/84 $10,000 $ 9,700 $10,000 $10,000
7/31/84 $ 9,896 $ 9,599 $10,119 $10,041
7/31/85 $12,322 $11,952 $12,541 $12,350
7/31/86 $15,603 $15,135 $15,236 $14,69
7/31/87 $15,853 $15,378 $15,923 $15,429
7/31/88 $16,779 $16,276 $17,129 $16,531
7/31/89 $19,259 $18,681 $19,734 $18,911
7/31/90 $20,322 $19,712 $21,127 $19,917
7/31/91 $22,149 $21,484 $23,388 $21,845
7/31/92 $25,345 $24,585 $26,844 $25,386
7/31/93 $27,895 $27,058 $29,577 $28,204
7/31/94 $27,019 $26,027 $29,604 $27,902
7/31/95 $29,567 $28,445 $32,597 $30,567
7/31/96 $30,989 $29,853 $34,399 $32,034
7/31/97 $34,271 $33,041 $38,108 $35,507
1/31/98 $35,871 $34,564 $39,979 $37,069
- --------------------------------------------------------------------------------
Annualized Annualized Annualized Annualized
Six Month One Year 3 Year 5 Year 10 Year Inception
Return Return Return Return Return to Date
- --------------------------------------------------------------------------------
Fiduciary 4.67% 10.51% 9.79% 6.34% 7.74% 9.49%
- --------------------------------------------------------------------------------
Retail Class A 4.61% 10.61% 9.84% 6.20% 7.67% 8.23%+
- --------------------------------------------------------------------------------
Retail Class A
with load* 1.45% 7.28% 8.73% 5.55% 7.34% 7.33%+
- --------------------------------------------------------------------------------
*Reflects 3.00% sales charge.
+Synthetic, not actual return. The performance presented links the performance
of an older class of shares from inception on 2/15/84 to 6/20/94 with the
performance of this class after its inception 6/20/94.
Past performance is not predictive of future results.
13
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
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 six months ended January 31, 1998, the HighMark Convertible Securities
Fund produced a return of -3.08% (Fiduciary Shares). In comparison, the Lipper
Convertible Securities Average produced a return of 1.95%. The unmanaged Merrill
Lynch Investment Grade Convertible Securities Index, generally considered to be
representative of the market for all convertible securities, reflected a return
of 2.13%.
The HighMark Convertible Securities Fund is sub-advised by a team of investment
professionals from Bank of Tokyo-Mitsubishi Trust Company. The team is led by
Robert Freund, who has 5 years of experience in the investment field. Mr. Freund
holds a bachelor's degree in economics from Boston College.
WHAT FACTORS AFFECTED YOUR PERFORMANCE?
The Fund underperformed its benchmark during the period. The significant reasons
behind this performance were weakness in the technology sector, which did not
meet expectations, and volatility in core (long-term) holdings that have been
very strong performers but pulled back recently. Convertibles, in general,
performed as expected in a strong equity environment with performance generally
higher than bond funds but below equity funds.
WHAT IS YOUR STRATEGY?
The Fund employs a bottom-up equity approach to investing in convertibles. We
seek securities whose underlying equities have significant appreciation
potential due to the company's dominant industry position, strong market niche,
excellent management or some other catalyst for improving performance.
Convertibles that are statistically attractive are purchased to maintain
favorable risk/reward characteristics that are unique to this product. By
maintaining 35 to 45 positions, the Fund concentrates on the portfolio manager's
best ideas. During this period, the Fund focused on newly issued convertibles in
growth sectors such as technology, finance and health-care.
14
<PAGE>
WHAT SECURITIES HAVE PERFORMED PARTICULARLY WELL?
Intermedia Communications (4.5% of the portfolio), a telephone company that is
benefiting from deregulation, performed very well during the six-month period.
Intermedia has set out to build a full-service telecommunications company
providing voice and data, local and long distance and advanced network access
services. Home Depot (3.1%) has had a very strong performance during the period.
The company's methodical growth, low cost and high service strategy has made it
a formidable competitor. Solectron Corporation (2.2%), another strong performer,
is a leading technology manufacturing company benefiting from the trend toward
outsourcing. Solectron's customers include Hewlett-Packard and Ericsson.
WHAT IS YOUR OUTLOOK?
The Fund is best suited for those looking for a defensive means to participate
in the equity market. The Fund should outperform equity funds if there is a
sustained market decline. Given our view for stable interest rates and
normalized equity performance, the Fund should have attractive relative and
absolute performance.
15
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK CONVERTIBLE SECURITIES FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
IN THE HIGHMARK CONVERTIBLE SECURITIES FUND VERSUS
THE MERRILL LYNCH INVESTMENT GRADE CONVERTIBLE SECURITIES INDEX
AND THE LIPPER CONVERTIBLE SECURITIES AVERAGE.
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
Merrill Lynch Investment
HighMark Convertible Grade Convertible Lipper Convertible
Securities Fund Securities Index Securities Average
2/28/94 $10,000 $10,000 $10,000
7/31/94 $ 9,648 $ 9,615 $ 9,538
7/31/95 $10,883 $11,034 $10,825
7/31/96 $11,487 $12,360 $11,746
7/31/97 $14,601 $15,451 $15,018
1/31/98 $14,151 $15,780 $15,311
- --------------------------------------------------------------------------------
Annualized Annualized
Six Month One Year 3 Year Inception
Return Return Return to Date
- --------------------------------------------------------------------------------
Fiduciary -3.08% 5.56% 14.14% 8.80%
- --------------------------------------------------------------------------------
Past performance is not predictive of future results. Performance presented from
February 1, 1994 (commencement of operations Fiduciary Shares) to April 25, 1997
reflects the performance of the Stepstone Convertible Securities Fund.
16
<PAGE>
HIGHMARK GOVERNMENT SECURITIES FUND
The HighMark Government Securities Fund invests in a diversified portfolio of
obligations issued or guaranteed by the U.S. government, 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, to enhance yield.
For the six months ended January 31, 1998, the HighMark Government Securities
Fund returned 4.52% (Fiduciary Shares). In comparison, the Lipper General U.S.
Government Average produced a 4.79% return. The unmanaged Lehman Brothers
Government Bond Index reflected a return of 5.39%.
The HighMark Government Securities Fund is sub-advised by a team of fixed income
investment professionals from Bank of Tokyo-Mitsubishi Trust Company.
WHAT FACTORS AFFECTED YOUR PERFORMANCE DURING THE YEAR?
Three factors positively influenced the portfolio's performance during the
period. First, interest rates declined steadily from October through January, as
investors perceived lessening inflation caused by the turmoil in Asia. The
foreign currency devaluations in Asia and the reduced demand for U.S. exports
suggested that the U.S. economy would slow and that price increases would be
muted. When inflation expectations diminish, interest rates generally fall.
Second, amid the turmoil in Asian markets, investors around the world sought the
safety and liquidity of U.S. Treasury bonds, boosting prices. Indeed, U.S.
Treasury bonds generally outperformed mortgage-backed securities and corporate
bonds during the period.
Third, the federal budget appears to be balanced and may even be in a surplus
position for Fiscal 1999. This means that the U.S. government does not need to
issue as many new Treasury bonds as was the case in prior years. Using the law
of supply and demand, a shrinking supply of bonds leads to higher prices and
lower yields.
WHAT IS YOUR OUTLOOK AND STRATEGY?
Our outlook on inflation is favorable. We believe that interest rates are
trending downward over the long term. However, interest rate movements can be
quite volatile. During the past 12 months alone, the 30-year U.S. Treasury bond
yield has fluctuated from as high as 7.1% to as low as 5.7%, resulting in
fluctuating bond prices. As a result, it is important to take advantage of
higher interest rates by extending the portfolio's maturity when interest rates
are expected to fall, and doing the opposite when interest rates are expected to
rise. Overall, U.S. government bonds are accomplishing their purpose: to provide
safety, liquidity and a rate of return in excess of inflation.
- ---------
17
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK GOVERNMENT SECURITIES FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
IN THE HIGHMARK GOVERNMENT SECURITIES FUND
VERSUS THE LEHMAN BROTHERS GOVERNMENT BOND INDEX
AND THE LIPPER GENERAL U.S. GOVERNMENT AVERAGE.
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
HighMark Government Lehman Brothers Lipper General
Securities Fund Government Bond Index U.S. Government Average
2/28/94 $10,000 $10,000 $10,000
7/31/94 $ 9,740 $ 9,841 $ 9,751
7/31/95 $10,613 $10,789 $10,596
7/31/96 $11,016 $11,345 $11,044
7/31/97 $12,019 $12,499 $12,120
1/31/98 $12,562 $13,172 $12,701
- --------------------------------------------------------------------------------
Annualized Annualized
Six Month One Year 3 Year Inception
Return Return Return to Date
- --------------------------------------------------------------------------------
Fiduciary 4.52% 9.83% 8.58% 5.16%
- --------------------------------------------------------------------------------
Past performance is not predictive of future results. Performance presented from
February 1, 1994 (commencement of operations Fiduciary Shares) to April 25, 1997
reflects the performance of the Stepstone Government Securities Fund.
18
<PAGE>
HIGHMARK BALANCED FUND
The HighMark Balanced Fund seeks capital appreciation and income with the
conservation of capital being a secondary consideration. Typically, the Balanced
Fund will invest 50% to 70% of its total assets in stocks, at least 25% in bonds
and the rest in short-term fixed-income investments such as money market
securities and cash equivalents.
For the six months ended January 31, 1998, the HighMark Balanced Fund returned
3.38% (Fiduciary Shares).* In comparison, the Lipper Balanced Fund Average
produced a 2.74% return. The unmanaged Standard & Poor's 500 Stock Index, which
is generally considered to be representative of the U.S. stock market, reflected
a return of 3.56%. The unmanaged Lehman Brothers Aggregate Bond Index, generally
considered to be representative of the bond market as a whole, reflected a
return of 4.91%.
The HighMark Balanced Fund is managed by a team of investment professionals 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.
HOW HAVE YOU ARRIVED AT YOUR ASSET ALLOCATION STRATEGY?
Our asset allocation strategy reflects our effort to weigh the expected returns
available from stocks, bonds and short-term fixed-income investments against the
likely risk associated with those investments. For the past six months, we
believed that common stocks represented the superior choice despite the strong
performance of equities over the past several years. This has led us to maintain
a 63% weight in common stocks during the period. Our allocation to bonds
averaged approximately 34% and short-term fixed-income investments and cash
equivalents came in at just 3%. Based on the performance of the markets, we
believe that our allocation was appropriate in terms of risk/return balance.
WHAT IS YOUR STOCK MARKET STRATEGY?
The equity portfolio includes both value and growth components. Although the
growth component is normally 40%, we raised it to 46% during the period because
we believed that opportunities existed in several growth segments of the stock
market including technology and health care. Even though we reduced our value
position to 54% from 60%, it remained an important part of the equity portfolio
during the year. We continue to look for attractive valuations on both the value
and growth side that are being overlooked by investors.
WHAT IS YOUR FIXED INCOME STRATEGY?
Despite the turmoil in Asia and the flight to quality, we have still been
somewhat surprised by the sharp drop in long-term U.S. interest rates. Given the
continuing strength of the U.S. economy, we believe that yields on U.S. Treasury
bonds have fallen too quickly. Our response has been to take advantage of yield
opportunities in the mortgage-backed securities market and the corporate bond
market.
19
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
WHAT IS YOUR OUTLOOK?
We continue to find equity investments which possess attractive valuation
characteristics. Although a 5%-7% market correction is possible at any time, we
think it would be short-lived given the ample liquidity in the hands of
investors and the willingness of corporations to buy back their stock at
temporarily depressed prices.
So far, the impact of the Asian economic crisis has not been significant on the
U.S. economy. As a result, the fixed-income market continues in a trading range
as the Federal Reserve Board remains on the sidelines. Interest rates are likely
to fluctuate in a narrow band until there is either evidence of economic
weakness prompting the Fed to loosen monetary policy, or a sign that the economy
is growing too fast, forcing a tightening. Given the current level of long-term
interest rates, the market seems to be saying that the former is more likely.
- -----------
*The HighMark Balanced Fund (Retail Class A Shares) produced a total return of
3.24% for the period. Including the maximum sales charge of 4.50%, the total
return for the Fund's Retail Class A Shares was -1.43%.
20
<PAGE>
HIGHMARK BALANCED FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE
HIGHMARK BALANCED FUND VERSUS THE LEHMAN AGGREGATE BOND INDEX,
THE S&P 500 STOCK INDEX, AND THE LIPPER BALANCED FUNDS AVERAGE.
FIDUCIARY SHARES
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
HighMark S&P 500 Lipper Balanced Lehman Aggregate
Balanced Fund Composite Index Funds Average Bond Index
2/28/91 $10,000 $10,000 $10,000 $10,000
7/31/91 $10,437 $10,374 $10,694 $10,565
7/31/92 $11,600 $11,907 $12,065 $11,947
7/31/93 $12,809 $13,119 $13,116 $13,233
7/31/94 $13,183 $13,131 $13,788 $13,555
7/31/95 $15,701 $14,459 $17,383 $15,769
7/31/96 $17,419 $15,258 $20,260 $17,322
7/31/97 $22,726 $16,903 $30,817 $22,444
1/31/98 $23,494 $17,733 $31,914 $23,059
RETAIL CLASS A SHARES
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
HighMark S&P 500 Lipper Balanced Lehman Aggregate
Balanced Fund Composite Index Funds Average Bond Index
11/30/92 $ 9,550 $10,000 $10,000 $10,000
7/31/93 $10,298 $10,922 $10,573 $10,764
7/31/94 $10,599 $10,932 $11,115 $11,026
7/31/95 $12,624 $12,037 $14,013 $12,826
7/31/96 $13,977 $12,703 $16,332 $14,089
7/31/97 $18,182 $14,073 $24,843 $18,256
1/31/98 $18,771 $14,763 $25,728 $18,756
Annualized Annualized Annualized
Six Month One Year 3 Year 5 Year Inception
Return Return Return Return to Date
- -------------------------------------------------------------------------
Fiduciary 3.38% 17.18% 20.67% 13.79% 13.61%
- -------------------------------------------------------------------------
Retail Class A 3.24% 16.89% 20.42% 13.63% 13.98%
- -------------------------------------------------------------------------
Retail Class A
with load* -1.43% 11.62% 18.58% 12.59% 12.98%
- -------------------------------------------------------------------------
*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 reflects
the performance of the Stepstone Balanced Fund.
21
<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 six months ended January 31, 1998, the HighMark Growth Fund returned
4.39% (Fiduciary Shares).* In comparison, the Lipper Growth Funds Average was up
1.19% 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
3.56% for the six-month period.
The HighMark Growth Fund is managed by a team of investment professionals led by
Scott Chapman, CFA, who has 18 years of experience in the investment field. Mr.
Chapman holds an MBA from Golden Gate University.
HOW WOULD YOU ASSESS THE FUND'S PERFORMANCE?
We are pleased that the Growth Fund outperformed the S&P 500 and the average
growth mutual fund. The modest return for the market masked the underlying
volatility during the period. In August, third quarter earnings warnings from
traditionally reliable Coca-Cola and Gillette caused a sell-off in blue-chip
multinational companies and a brief speculative return to the lagging small- and
mid-size companies. In October, volatility in Asian markets caused the Dow to
slide 7% or 554 points to 7100, its largest single-day point loss in history.
Five weeks later, the Dow was back to 8100. Nervousness about the potential
earnings fallout from several economically weakened Asian countries caused
investors to return to defensive blue-chip, consumer non-durables through the
end of January 1998. Our valuation discipline allowed us to capitalize on the
market's volatility by reducing our exposure to the pricey blue chips before
they corrected, and then repurchasing them after they became better values.
WHAT WAS YOUR STRATEGY FOR THE FUND?
Our valuation barometers and fundamental analysis allowed us to keep our
emotions in check while capitalizing on the emotion of the market. By the time
investors became nervous about blue chips, we had already scaled back our
exposure as they had become excessively priced. We reduced our weight in
Coca-Cola (2.4% of the portfolio), General Electric (2.1%) and Microsoft (1.5%)
among others and invested in more attractively valued mid-size companies such as
Cognizant (2.4%), Safeskin (1.2%) and Mirage Resorts (1.0%).
22
<PAGE>
When investors became concerned that the strong dollar could cause earnings
erosion in companies with significant overseas exposure, the blue-chip
multinationals sold off and gave us an attractive re-entry point. We have found
that currency fears for broadly-based, seasoned multinational companies are
almost always temporary. So, in September, we added to our weights in the more
attractively priced brand-dominant, consistent-growth multinationals such as
Bristol-Myers Squibb (2.1%), Walt Disney (2.2%), Merck (1.2%), Abbott Labs
(1.3%) and Mattel (1.3%).
We took profits in the technology sector which had become expensive following a
terrific third-quarter performance. While frantic investors were selling the day
the Dow fell 7%, we stayed fully invested and benefited when the market more
than fully recovered five weeks later. When investors rotated back to the
multinationals in December and January, our fundamental analysis indicated that
it was too early to wade back into an overweighted position in technology
because of our belief that the Asian "flu" will depress capital goods demand.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We remain cautious about further near-term price appreciation in the overall
market indexes. The S&P 500 returns for 1995, 1996 and 1997 all significantly
exceeded the 70-year average return on stocks of 10%. In the long run, stock
prices increase in tandem with corporate earnings, and stock prices cannot
exceed underlying business performance forever. Nevertheless, we are identifying
excellent growth companies at reasonable prices and our long-term outlook is
positive. Furthermore, the Fund's projected earnings growth rate for 1998 is
more than double the S&P 500 of 7%, yet the Fund's price/earnings multiple of 24
is only slightly higher than the S&P 500 multiple of 22.
- ----------------
*The HighMark Growth Fund (Retail Class A Shares) produced a total return of
4.21% for the period. Including the maximum sales charge of 4.50%, the total
return for the Fund's Retail Class A Shares was -0.48%.
23
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK GROWTH FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT
IN THE HIGHMARK GROWTH FUND VERSUS THE S&P 500
STOCK INDEX, AND THE LIPPER GROWTH FUNDS AVERAGE.
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
HIGHMARK GROWTH HIGHMARK GROWTH S&P 500 LIPPER GROWTH
FUND, FIDUCIARY FUND, RETAIL COMPOSITE FUNDS
SHARES CLASS A SHARES (SYNTHETIC) INDEX AVERAGE
11/30/93 $10,000 $ 9,550 $10,000 $10,000
7/94 9,650 9,225 10,100 9,963
7/95 12,085 11,541 12,733 12,499
7/96 13,622 13,027 14,841 13,722
7/97 20,234 19,344 22,574 19,677
1/31/98 21,123 20,159 23,378 19,911
Annualized Annualized
Six Month One Year 3 Year Inception
Return Return Return to Date
- -----------------------------------------------------------------
Fiduciary 4.39% 25.45% 28.40% 19.95%
- -----------------------------------------------------------------
Retail Class A 4.21% 25.33% 28.38% 24.28%+
- -----------------------------------------------------------------
Retail Class A
with load* -0.48% 19.71% 26.44% 22.71%+
- -----------------------------------------------------------------
*Reflects 4.50% sales charge.
+Synthetic, not actual return. The performance presented links the performance
of an older class of shares from inception on 11/18/93 to 6/20/94 with the
performance of this class after its inception on 6/20/94.
Past performance is not predictive of future results.
24
<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. In
addition, stocks are screened for positive price or earnings momentum. Most of
the securities pay dividends.
For the six months ended January 31, 1998, the HighMark Value Momentum Fund
returned 4.43% (Fiduciary Shares).* In comparison, the Lipper Growth & Income
Funds Average was up 2.30%. The unmanaged Standard & Poor's 500 Stock Index,
generally considered to be representative of the U.S. stock market, was up 3.56%
for the period.
The HighMark Value Momentum Fund is managed by a team of investment
professionals led by Richard Earnest, who has more than 30 years of experience
in the investment field. Mr. Earnest holds an MBA from Stanford University.
WHAT WERE SOME OVERALL MARKET TRENDS DURING THE PAST SIX MONTHS?
Because of the uncertainty in Asia, it was a period where investors sought
stability, reliability, size and earnings growth. Although some U.S.
multinationals had weaker than expected earnings due to foreign currency
devaluations in Asia, investors stuck with them for their perceived stability.
The exception was technology, where many large capitalization stocks were
adversely affected. By the end of January, many of these trends began to
reverse, even though the impact of Southeast Asia on the U.S. economy had yet to
be felt.
WHAT WERE SOME ADDITIONS TO THE PORTFOLIO?
In telecommunications, we added a significant position in Bell Atlantic (1.0% of
the portfolio) and other regional telephone companies, which were very
inexpensive and high-yielding early in the year. So far, the government has not
permitted the long-distance companies to compete in the local service business,
so the competitive framework is still not intense. In addition, the telephone
companies have seen growth in their basic business, as customers install
additional phone lines dedicated to network computing.
In the pharmaceutical area, we bought Watson Pharmaceutical (0.8%), a generic
producer that focuses on niche markets, which has produced earnings growth of
20% or more per year. The stock became attractive because the company reported
one weak quarter, but the stock rebounded when the company's earnings got back
on track.
25
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
Another purchase was Sonoco (1.0%), a leading packaging company with industrial
and consumer segments. The company, which makes the Pillsbury Doughboy can and
many other products, is expanding internationally as well as finding new
applications for existing products. Sonoco has recently completed a major
restructuring to reduce costs around the world.
Another new stock is Tektronix (1.0%), which is known for making oscilloscopes
and other testing instruments. The company, a strong competitor to
Hewlett-Packard, also makes color laser printers. Its third business is station
broadcasting equipment, which should do very well as stations upgrade their
equipment to meet the demands of high-definition TV. For many years, Tektronix
was notoriously inefficient in generating profits, but new management came in
and focused the company on the bottom line.
WHAT IS YOUR OUTLOOK FOR THE MARKET?
The risks are that we could have higher interest rates and/or lower corporate
profits. We don't think either risk is substantial. Even if the impact from Asia
on the U.S. economy is minimal, inflation is still quite low and so the interest
rate environment should not change much. Corporations continue to generate
excess cash flow from which they are buying back their own stock. The demand for
stock continues to grow both from institutions and from the investing public and
we currently see nothing on the horizon that appears capable of reversing this
trend.
- ---------------
*The HighMark Value Momentum Fund (Retail Class A Shares) produced a total
return of 4.29% for the period. Including the maximum sales charge of 4.50%,
the total return for the Fund's Retail Class A Shares was -0.40%.
26
<PAGE>
HIGHMARK VALUE MOMENTUM FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE
HIGHMARK VALUE MOMENTUM FUND VERSUS THE S&P 500 STOCK
INDEX, AND THE LIPPER GROWTH AND INCOME FUNDS AVERAGE.
FIDUCIARY SHARES
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
HIGHMARK VALUE S&P 500 LIPPER GROWTH
MOMENTUM COMPOSITE AND INCOME
FUND INDEX FUNDS AVERAGE
2/28/91 $10,000 $10,000 $10,000
7/31/91 10,637 10,694 10,642
7/31/92 11,865 12,065 11,973
7/31/93 13,339 13,116 13,328
7/31/94 13,909 13,788 14,041
7/31/95 17,443 17,383 16,925
7/31/96 20,376 20,260 19,227
7/31/97 30,054 30,817 27,664
1/31/98 31,385 31,914 28,300
RETAIL CLASS A SHARES
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
HIGHMARK VALUE S&P 500 LIPPER GROWTH
MOMENTUM COMPOSITE AND INCOME
FUND INDEX FUNDS AVERAGE
4/30/92 $ 9,550 $10,000 $10,000
7/31/92 9,762 10,303 10,191
7/31/93 10,976 11,201 11,345
7/31/94 11,445 11,775 11,952
7/31/95 14,353 14,845 14,407
7/31/96 16,733 17,302 16,366
7/31/97 24,621 26,318 23,548
1/31/98 25,677 27,255 24,089
Annualized Annualized Annualized
Six Month One Year 3 Year 5 Year Inception
Return Return Return Return to Date
- -------------------------------------------------------------------
Fiduciary 4.43% 24.33% 30.65% 19.79% 18.76%
- -------------------------------------------------------------------
Retail Class A 4.29% 24.00% 30.40% 19.67% 19.15%
- -------------------------------------------------------------------
Retail Class A
with load* -0.40% 18.40% 28.42% 18.57% 18.22%
- -------------------------------------------------------------------
*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 reflects the
performance of the Stepstone Value Momentum Fund.
27
<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 a low level of price
volatility.
For the six months ended January 31, 1998, the HighMark Income Equity Fund
returned 2.02% (Fiduciary Shares).* In comparison, the Lipper Equity Income
Funds Average rose 4.33% during the period. The Standard & Poor's 500 Stock
Index, generally considered to be representative of the U.S. stock market, was
up 3.56% for the period.
The HighMark Income Equity Fund is managed by a team of investment professionals
led by Thomas M. Arrington, CFA, who has more than a decade of experience in
the investment field. Mr. Arrington holds an MBA from San Francisco State
University.
WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE?
Despite the Asian economic crisis, the U.S. stock market and the Fund were able
to weather the storm and produce positive returns. Economic conditions remained
ideal for equity investors, as business activity continued to rise without
engendering increases in inflation or long-term interest rates, and corporate
profits continued to burgeon. The strong economic backdrop lifted the already
high spirits of investors, and by January 31, 1998, stock prices were at or near
historic highs in relation to such fundamentals as dividends, earnings and book
values.
Every sector contributed strong gains to the Fund's return for the period, but,
as always, there were significant differences among sectors. Our strongest
performers were telephone, bank, insurance, health-care and publishing stocks.
The telephone stocks performed well in 1997, after a difficult year in 1996, as
investors were attracted to their steady and reliable earnings and some of the
uncertainties regarding the opening of the local market became clearer.
The bank and insurance stocks benefited from falling interest rates. These
companies still earn a substantial portion 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.
Health-care stocks--particularly the major drug companies--enjoyed strong price
appreciation. These stocks, most of which we bought after they fell out of favor
because of fears of national health-insurance legislation, have recovered much
of their reputation for growth in the eyes of investors.
28
<PAGE>
WHAT STOCKS PERFORMED PARTICULARLY WELL?
The Fund's largest holding, McGraw-Hill (3.2% of the portfolio), a publishing
stock, rose sharply because of strong earnings growth and a bright outlook for
1998, especially in the educational publishing market. The company, which owns
Standard & Poor's Corporation, continues to benefit from robust financial
markets, growth in non-traditional products and international expansion.
We have been buying utilities that should flourish in the newly emerging
deregulated environment. Among our additions were FPL Group (2.2%) and Duke
Power (1.8%). We expect electric utilities to improve their relative showing
over the next six to twelve months as state and federal regulators clarify the
rules of the road for the industry.
WHAT IS YOUR OUTLOOK FOR THE FUND?
The bull market in U.S. stocks that began 15 years ago has been especially
rewarding of late. Whereas equity investors have every reason to be thankful for
the stock market's bounty, they also have reason to be mindful of accompanying
risks. With stock market valuations at high levels, the ever-present risks of
owning stocks are especially evident now. Indeed, investors should bear in mind
that stock market returns have displayed a strong tendency to revert toward
their long-term average of about 10 percent per year.
Some of the factors that have fueled this extended bull market may be changing.
Companies have already achieved substantial reductions in their operating costs,
and price pressures are intense in many industries, so earnings gains may be
increasingly difficult to sustain. Even so, we are still able to find stocks
that appear attractive and offer above-average capital protection. These stocks,
we believe, put the Fund in a position to capture an important share of market
advances. In the market downturns that are inevitable from time to time, we
expect the relatively high yield of the Fund's holdings to provide some
cushioning effect.
- -----------------
*The HighMark Income Equity Fund (Retail Class A Shares) produced a total Return
of 1.88% for the period. Including the maximum sales charge of 4.50%, the total
return for the Fund's Retail Class A Shares was -2.70%.
29
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK INCOME EQUITY FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN
THE HIGHMARK INCOME EQUITY FUND VERSUS THE S&P 500
STOCK INDEX, AND THE LIPPER EQUITY INCOME FUNDS AVERAGE.
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
HIGHMARK INCOME HIGHMARK INCOME S&P 500 LIPPER EQUITY
EQUITY, FIDUCIARY EQUITY, RETAIL COMPOSITE INCOME FUNDS
SHARES CLASS A SHARES INDEX AVERAGE
(SYNTHETIC)
2/28/84 $10,000 $ 9,550 $10,000 $10,000
7/31/84 9,656 9,221 9,788 9,836
7/31/85 13,213 12,618 12,965 12,603
7/31/86 16,865 16,106 16,649 15,379
7/31/87 21,400 20,437 23,192 19,191
7/31/88 21,089 20,140 20,465 18,180
7/31/89 27,028 25,812 26,989 22,728
7/31/90 26,785 25,580 28,738 22,624
7/31/91 30,163 28,805 32,396 24,884
7/31/92 34,998 33,423 36,550 28,529
7/31/93 38,410 36,681 39,733 32,213
7/31/94 40,035 38,233 41,771 33,727
7/31/95 46,945 44,931 52,661 39,325
7/31/96 55,517 53,113 61,376 45,130
7/31/97 77,795 74,343 93,360 63,344
1/31/98 79,367 75,741 96,683 66,087
Annualized Annualized Annualized Annualized
Six Month One Year 3 Year 5 Year 10 Year Inception
Return Return Return Return Return to Date
- ----------------------------------------------------------------------------
Fiduciary 2.02% 22.09% 24.32% 17.25% 15.13% 15.80%
- ----------------------------------------------------------------------------
Retail Class A 1.88% 21.82% 24.22% 17.23% 15.12% 21.14%+
- ----------------------------------------------------------------------------
Retail Class A
with load* -2.70% 16.31% 22.33% 16.16% 14.60% 19.60%+
- ----------------------------------------------------------------------------
*Reflects 4.50% sales charge.
+Synthetic, not actual return. The performance presented links the performance
of an older class of shares from inception on 2/9/84 to 6/20/94 with the
performance of this class after its inception on 6/20/94.
Past performance is not predictive of future results.
30
<PAGE>
HIGHMARK BLUE CHIP GROWTH FUND
The HighMark Blue Chip Growth Fund seeks long-term capital growth by investing
primarily in a diversified portfolio of seasoned, large-capitalization growth
companies.
For the six months ended January 31, 1998, the HighMark Blue Chip Growth Fund
returned -1.43% (Fiduciary Shares). In comparison, the Lipper Growth Funds
Average was up 1.19%. The unmanaged Standard & Poor's 500 Stock Index, generally
considered to be representative of the U.S. stock market, was up 3.56% for the
period.
The HighMark Blue Chip Growth Fund is sub-advised by a team of investment
professionals from Bank of Tokyo-Mitsubishi Trust Company. The 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.
WHAT FACTORS AFFECTED YOUR PERFORMANCE?
On the positive side, the technology, healthcare and financial sectors continued
to post strong earnings growth, thereby boosting performance in these
investments. On the negative side, the escalating concerns over the economic
crisis in Asia have caused investors to sell off any stocks they perceive to
have any amount of sales to this region, especially technology stocks. This has
produced an oversold position in the technology stocks, which has negatively
affected performance. This situation should correct itself over time, but the
Asian economic crisis may continue to be a major factor on performance in the
near-term.
WHAT IS YOUR INVESTMENT STRATEGY?
The strategy of the HighMark Blue Chip Growth Fund is to invest in
large-capitalization companies that are dominant market leaders with consistent
earnings growth greater than the overall market. The companies tend to have a
high return on invested capital, the ability to generate free cash flow and a
strong management team. Because growth is not homogeneously distributed
throughout the economy, the holdings tend to be concentrated in the growth areas
of the economy such as technology, healthcare and financial services. The
portfolio employs a buy and hold strategy that maximizes the returns on this
investment philosophy.
WHAT ARE SOME OF YOUR TOP HOLDINGS?
Peoplesoft (1.7% of the portfolio) is the top technology holding in the
portfolio. The company, which is growing at a 50% annual rate, designs software
which enables corporations to retrieve and use stored data more efficiently.
Boston Scientific (1.6%), growing at a 25% rate, is one of the leading providers
of medical technology products for minimally invasive procedures. These products
range from balloon angioplasty catheters, stents, vascular and urological
grafts, and endoscopic devices. These devices greatly reduce the cost of health
care by minimizing the recuperative time spent in the hospital.
31
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
The Money Store (1.6%) is our top investment in financial services. It is a
leading national consumer lending company, specializing in home-equity loans.
The Money Store offers an attractive alternative to high interest credit card
balances by consolidating these bills into a home-equity loan with a lower
interest rate. The company is a leader in the use of information technology to
analyze the credit worthiness of potential customers and has one of the most
conservative balance sheets in the industry.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We intend for the portfolio to continue to emphasize the technology, healthcare
and financial sectors. The growth rates of these industries are considerably
higher than the 8-10% growth forecasted for the S&P 500. We believe that
information technology should continue to allow companies to manage their
organizations and to compete more effectively. Cost effective delivery of
healthcare products and services is the basis on which we intend to select our
healthcare holdings. The managed care phenomenon puts the onus on healthcare
companies to balance medical results with fiscal prudence. Lastly, we believe
that deregulation of the financial industry, and the resulting efficiency it
brings, will be the growth engine for our investments in financial services
stocks.
While the long-term outlook for the investments in the portfolio is strong, the
economic crisis in Asia may temporarily slow down the U.S. economy as Asian
demand for U.S. products decline, and Asian imports compete more effectively in
our home markets. We are closely monitoring these events, and the investments
are being scrutinized for excessive exposure to Asian markets.
32
<PAGE>
HIGHMARK BLUE CHIP GROWTH FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE
HIGHMARK BLUE CHIP GROWTH FUND VERSUS THE S&P 500
STOCK INDEX, AND THE LIPPER GROWTH FUNDS AVERAGE.
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
HIGHMARK BLUE CHIP S&P 500 COMPOSITE LIPPER GROWTH
GROWTH FUND INDEX FUNDS AVERAGE
2/28/94 $10,000 $10,000 $10,000
7/94 9,651 9,920 9,538
7/95 12,114 12,506 11,966
7/96 13,548 14,576 13,137
7/97 19,699 22,172 18,838
1/98 19,417 22,961 19,062
Annualized Annualized
Six Month One Year 3 Year Inception
Return Return Return to Date
- ------------------------------------------------------------------
Fiduciary -1.43% 18.35% 25.21% 17.45%
- ------------------------------------------------------------------
Past performance is not predictive of future results. Performance presented from
February 1, 1994 (commencement of operations Fiduciary Shares) to April 25, 1997
reflects the performance of the Stepstone Blue Chip Fund.
33
<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 six months ended January 31, 1998, the HighMark Emerging Growth Fund
returned 0.17% (Fiduciary Shares). In comparison, the average small
capitalization fund as measured by Lipper Small Cap Funds Average was up 2.19%
during the period. The Frank Russell 2000 Index, which measures the performance
of the 2000 smallest companies in the Russell 3000 Index, rose 0.75% for the six
month period.
The HighMark Emerging Growth Fund is sub-advised by a team of investment
professionals from Bank of Tokyo-Mitsubishi Trust Company. The team is led by
Seth Shalov, who has 14 years of experience in the investment field. Mr. Shalov
holds an MBA from Rutgers University.
WHAT FACTORS AFFECTED YOUR PERFORMANCE?
The small-cap universe is divided into growth and value. Growth companies are
growing their sales and earnings at faster than average rate. Value companies
are those selling at a discount to their intrinsic value. In general "growth"
stocks significantly underperformed "value" style equities during the period. We
invest in companies with rapidly expanding sales, healthy margins and earnings
supported by a solid balance sheet. Because we are buying rapidly growing
companies, valuation levels tend to be expensive relative to the market as a
whole. When the economy grows sharply as it did in 1997, the growth stocks do
not perform as well since investors don't need to pay the premium that growth
stocks warrant. When comparing our results to most growth stock indexes, the
Fund's returns were competitive.
The second factor adversely affecting our performance was our emphasis on
technology, a major component of growth stock investing. As a group, small-cap
technology companies performed relatively poorly during the period, causing the
Fund to lag overall market performance. However, we expect our technology
investments to outperform the market over the long term.
WHAT ARE SOME ATTRACTIVE STOCKS IN THE PORTFOLIO?
Our largest position is Saville Systems Ireland (2.7% of the portfolio), a
software company that creates billing solutions for global telecommunication
service providers. The company continues to see dramatic growth in both domestic
and international markets. Another large position is Astoria Financial (2.3%),
one of the largest savings & loans in the country. Astoria, based in the New
York metropolitan area, is growing rapidly and is led by a strong management
team that owns more than 10% of the stock. We recently added Sylvan Learning
Systems (1.0%), which provides private education and testing services for
individuals, schools and industry. We expect the company to benefit from the
growing need and demand for continuing education.
34
<PAGE>
WILL SMALL-CAP STOCKS BE HURT BY THE ASIAN ECONOMIC CRISIS?
Small-cap stocks fared poorly during late 1997 as investors sought refuge in the
large liquid companies. However, most small-cap stocks have limited
international exposure, and earnings growth should hold up relatively well.
WHAT IS YOUR OUTLOOK?
We believe that small-cap stocks will again outperform the broader markets once
the capital markets begin to understand the financial and economic implications
of the Asian currency realignments. The fear of the unknown tends to limit the
short-term appeal of small-cap stocks. The fundamental factors that favor
smaller stocks include a more favorable earnings outlook, relatively depressed
valuations, the reduction in the capital gains rate and the investment flows
away from foreign small-cap stock markets.
35
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK EMERGING GROWTH FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE
HIGHMARK EMERGING GROWTH FUND VERSUS THE FRANK RUSSELL 2000
GROWTH INDEX, AND THE LIPPER SMALL-CAP FUNDS AVERAGE.
[LINE GRAPH OMITTED--PLOT POINTS AS FOLLOWS]
HIGHMARK EMERGING FRANK RUSSELL 2000 LIPPER SMALL-CAP
GROWTH FUND GROWTH INDEX FUNDS AVERAGE
2/28/94 $10,000 $10,000 $10,000
7/94 9,282 8,923 9,118
7/95 11,888 11,932 12,046
7/96 13,258 12,291 13,350
7/97 16,455 15,396 17,665
1/31/98 16,483 15,511 18,051
Annualized Annualized
Six Month One Year 3 Year Inception
Return Return Return to Date
- -----------------------------------------------------------------
Fiduciary 0.17% 6.88% 19.24% 12.82%
- -----------------------------------------------------------------
Past performance is not predictive of future results. Performance presented from
February 1, 1994 (commencement of operations Fiduciary Shares) to April 25, 1997
reflects the performance of the Stepstone Emerging Growth Fund.
36
<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.
For the six months ended January 31, 1998, the HighMark International Equity
Fund returned -12.25% (Fiduciary Shares). In comparison, the Lipper
International Funds Average returned -6.89%. The unmanaged Morgan Stanley
Capital International EAFE Index, a benchmark made up of companies in 20
nations, returned -5.82% for the period.
On January 1, 1998, AXA Asset Management Partenaires assumed responsibility as
sub-advisor for the management of the Fund. AXA Asset Management Partenaires is
part of the AXA Group, one of the world's largest money management firms with
$495 billion under management. The HighMark International Equity Fund is
subadvised by an investment team led by Robert de Guigne, who has 10 years of
experience in the investment field. Mr. Guigne holds an engineering degree from
l'Ecole Speciale de Mechanique et d'Electricite in Paris.
WHAT CHANGES HAVE YOU MADE TO THE PORTFOLIO?
Prior to our involvement, the portfolio was managed very closely to the
benchmark, with very few deviations. We're still managing this portfolio against
the EAFE Index, but we're taking a more active policy in terms of country
allocation and stock selection in an effort to generate higher returns than the
benchmark. In addition, we have pared down the portfolio from about 200 stocks
to 100 larger issues in an effort to reduce costs and boost liquidity. We will
focus on growth at a reasonable price in Europe, Japan and the rest of Asia. Our
advantage is that we have local equity teams throughout the United Kingdom,
Europe, Japan and Hong Kong.
LET'S TALK ABOUT SOME OF YOUR IDEAS IN EUROPE.
We believe that opportunities in Europe come from two types of companies: those
which are well-managed and able to achieve growing earnings and those which are
benefiting from the trend toward consolidation. Among these, in particular, are
pharmaceuticals and financial services. The stock with the biggest weighting in
the portfolio is Glaxo Wellcome PLC (2.1%), the world's largest pharmaceutical
company. The company is a formidable force in the research, development and
marketing of new therapies. In financial services, Lloyd TSB Group (1.7%) has a
very powerful franchise in the U.K. It had problems in the beginning of the
1980s trying to diversify in Latin America but has since refocused on its
traditional activities. For the past few years, the company has generated
returns on equity of about 35%. The portfolio has a heavy weighting in
telecommunications, including Ericcson (0.6%), a century-old Swedish
telecommunications supplier which competes with such industry giants as Motorola
and Nokia.
37
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
IN EUROPE, WHAT'S THE INVESTMENT IMPACT OF A UNIFIED CURRENCY?
Although the trend has largely been reflected in stock prices, the overall
impact is to lower interest rates amongst European countries, such as Italy,
Portugal and Spain. Currently, the French ten-year interest rate is 4.99%, the
same as Germany. In contrast, the ten-year U.K. interest rate is 5.94%. The U.K.
has elected not to participate in the currency union.
IT LOOKS LIKE THINGS ARE CALMING DOWN IN ASIA. WHAT'S YOUR VIEW?
We have to distinguish three types of countries in Asia. First, we should look
at the big healthy countries which are running surpluses, which have low current
account deficits and which have very important foreign exchange reserves. These
are China, Taiwan, Singapore and Hong Kong. The second group of countries are
those that have made decisions regarding the economic crisis. These countries
are Thailand, Korea and the Philippines. They made the decision to open their
economies to foreign investors. Then there's a third group of countries which
have not made the right decisions, such as Indonesia and Malaysia, where we have
a significant underweight. Telecommunications is one of the few bright spots in
Asia, and the portfolio reflects that with a position in Singapore
Telecommunications (0.01%).
WHAT IS YOUR OUTLOOK FOR THE FUND?
We expect to be overweighted in Europe, neutral in Japan and remain negative on
the rest of Asia. But we'll continue to pick stocks that we see as oversold in
Asia, primarily telecommunications companies. We continue to see increasing
demand for equities throughout the world, particularly from U.S. institutions
seeking diversification, as well as individual investors, many of whom currently
have no exposure to international markets.
38
<PAGE>
HIGHMARK INTERNATIONAL EQUITY FUND
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE
HIGHMARK INTERNATIONAL EQUITY FUND, VERSUS THE MORGAN STANLEY
MSCI EAFE INDEX, AND THE LIPPER INTERNATIONAL FUNDS AVERAGE.
[LINE GRAPH OMIITTED--PLOT POINTS AS FOLLOWS]
HIGHMARK INTERNATIONAL LIPPER INTERNATIONAL MORGAN STANLEY
EQUITY FUND FUNDS AVERAGE MSCI EAFE INDEX
2/28/95 $10,000 $10,000 $10,000
7/95 11,143 11,368 11,323
7/96 11,650 11,770 11,980
7/97 12,585 13,902 14,902
1/31/98 11,043 13,093 13,875
Annualized
Six Month One Year Inception
Return Return to Date
- -----------------------------------------------------------------
Fiduciary -12.25% -1.64% 3.01%
- -----------------------------------------------------------------
Past performance is not predictive of future results. Performance presented from
February 1, 1995 (commencement of operations Fiduciary Shares) to April 25, 1997
reflects the performance of the Stepstone International Equity Fund.
39
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
100% U.S. TREASURY MONEY MARKET FUND
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
U.S. TREASURY BILLS* -- 12.7%
================================================================================
5.589%, 02/05/98 (A) $ 32,764 $ 32,744
5.317%, 02/26/98 1,350 1,345
5.352%, 03/05/98 15,053 14,984
5.141%, 03/12/98 301 299
5.265%, 03/26/98 986 978
5.389%, 04/02/98 (A) 25,000 24,781
5.461%, 04/30/98 (A) 46,082 45,486
---------
TOTAL TREASURY BILLS
(Cost $120,617) 120,617
---------
================================================================================
U.S. TREASURY NOTES -- 94.9%
================================================================================
5.000%, 01/31/98 (A) 163,416 163,415
5.625%, 01/31/98 14,323 14,323
7.250%, 02/15/98 164,808 164,924
5.125%, 02/28/98 42,067 42,047
6.125%, 03/31/98 97,739 97,843
7.875%, 04/15/98 2,231 2,242
5.125%, 04/30/98 26,035 25,994
5.875%, 04/30/98 116,130 116,233
6.125%, 05/15/98 50,000 50,109
6.000%, 05/31/98 184,259 184,548
6.125%, 08/31/98 37,494 37,659
---------
TOTAL TREASURY NOTES
(Cost $899,337) 899,337
---------
================================================================================
U.S. TREASURY STRIPS* -- 1.7%
================================================================================
5.651%, 02/15/98 15,632 15,595
---------
TOTAL U.S. TREASURY STRIPS
(Cost $15,595) 15,595
---------
TOTAL INVESTMENTS -- 109.3%
(Cost $1,035,549) 1,035,549
---------
OTHER ASSETS AND LIABILITIES,
NET -- (9.3%) (87,799)
---------
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
NET ASSETS:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization --
no par value) based on
286,754,286 outstanding
shares of beneficial interest $ 286,754
Fund Shares of Retail Class A
(unlimited authorization --
no par value) based on
660,958,487 outstanding
shares of beneficial interest 660,958
Undistributed net investment income 52
Accumulated net realized loss
on investments (14)
---------
TOTAL NET ASSETS -- 100.0% $ 947,750
=========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $1.00
=========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $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
JANUARY 31, 1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT
JANUARY 31, 1998 WAS $165,761,250.
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
DIVERSIFIED MONEY MARKET FUND
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CERTIFICATES OF DEPOSIT - DOMESTIC -- 6.3%
================================================================================
Bankers Trust Company,
New York
5.910%, 07/17/98 $10,000 $ 9,996
5.950%, 09/09/98 52,400 52,394
Regions Bank
5.670%, 03/04/98 20,000 20,000
SouthTrust Bank, N.A.
5.660%, 07/07/98 50,000 50,000
---------
TOTAL CERTIFICATES OF DEPOSIT
- DOMESTIC
(Cost $132,390) 132,390
---------
================================================================================
CERTIFICATES OF DEPOSIT - YANKEE -- 18.6%
================================================================================
Bank of Nova Scotia, Portland
5.800%, 10/06/98 15,000 15,017
Barclays Bank PLC, New York
5.800%, 02/12/98 50,000 50,000
Bayerische Vereinsbank, A.G.,
New York
5.640%, 02/02/98 25,000 25,000
Canadian Imperial
Bank of Commerce,
New York
5.800%, 03/18/98 50,000 50,000
5.590%, 04/07/98 37,000 37,006
Creditanstalt-Bankverein,
New York
5.745%, 04/21/98 50,000 50,000
Rabobank Nederland N.V.,
New York
5.980%, 03/20/98 50,000 50,006
5.690%, 03/30/98 30,000 29,999
Swiss Bank Corp.,
New York
5.750%, 02/17/98 85,000 85,001
---------
TOTAL CERTIFICATES OF DEPOSIT - YANKEE
(Cost $392,029) 392,029
---------
================================================================================
EURODOLLAR CERTIFICATES OF DEPOSIT -- 10.4%
================================================================================
ABN AMRO Bank N.V., London
5.730%, 02/27/98 40,000 40,001
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
EURODOLLAR CERTIFICATES OF DEPOSIT (continued)
================================================================================
Bayerische Vereinsbank,
A.G., London
5.810%, 05/20/98 $50,000 $ 50,001
Dresdner Bank A.G., London
5.750%, 04/20/98 45,000 45,000
Toronto Dominion Bank, London
5.800%, 06/18/98 34,000 34,033
Westdeutsche Landesbank
Girozentrale, London
5.620%, 04/07/98 50,000 50,004
---------
TOTAL EURODOLLAR CERTIFICATES
OF DEPOSIT
(Cost $219,039) 219,039
---------
================================================================================
BANK NOTES -- 7.6%
================================================================================
Bank of America NT&SA,
San Francisco, CA.
5.510%, 07/27/98 50,000 50,002
FCC National Bank,
Wilmington, De.
5.680%, 02/18/98 50,000 50,000
First National
Bank of Chicago
5.650%, 04/06/98 10,000 10,001
U.S. Bank, N.A. (A)
5.493%, 02/17/98 50,000 49,978
---------
TOTAL BANK NOTES
(Cost $159,981) 159,981
---------
================================================================================
COMMERCIAL PAPER* -- 22.8%
================================================================================
AUTOMOTIVE -- 2.7%
Daimler-Benz North
America Corp.
5.652%, 02/20/98 18,000 17,947
Toyota Motor Credit Corp.
5.806%, 02/23/98 40,000 39,860
---------
57,807
---------
BANKS -- 7.4%
Abbey National North
America Corp.
5.445%, 04/14/98 32,000 31,656
JP Morgan & Co., Inc.
5.507%, 07/13/98 26,600 25,958
The accompanying notes are an integral part of the financial statements.
41
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
DIVERSIFIED MONEY MARKET FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMERCIAL PAPER* -- (continued)
================================================================================
National Australia Funding
(De), Inc.
5.487%, 05/13/98 $50,000 $ 49,244
Toronto Dominion Holdings
(USA), Inc.
5.526%, 05/08/98 50,000 49,276
---------
156,134
---------
BROKERAGE -- 2.8%
Bear Stearns Companies, Inc.
5.774%, 03/12/98 40,000 39,754
5.618%, 04/29/98 20,000 19,733
---------
59,487
---------
BUSINESS CREDIT INSTITUTIONS -- 4.7%
Ciesco, L.P.
5.829%, 02/12/98 50,000 49,912
Corporate Receivables Corp.
5.522%, 04/24/98 50,000 49,379
---------
99,291
---------
CHEMICALS -- 0.5%
Akzo Nobel Inc.
5.833%, 03/09/98 10,000 9,943
---------
MULTIPLE INDUSTRY -- 4.7%
BTR Dunlop Finance Inc.
5.517%, 07/13/98 50,000 48,792
General Electric Capital Corp.
5.683%, 02/02/98 50,000 49,992
---------
98,784
---------
TOTAL COMMERCIAL PAPER
(Cost $481,446) 481,446
---------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CORPORATE OBLIGATIONS -- 5.4%
================================================================================
Associates Corp. of North
America (A) Medium
Term Note
5.680%, 02/02/98 $25,000 $ 24,999
Credit Suisse
First Boston Inc.,
144A Corp. Bond
5.915%, 03/16/98 9,000 9,001
Goldman Sachs Group L.P.
Master Demand Note (A)
5.750%, 02/02/98 50,000 50,000
Merrill Lynch & Co., Inc.
Medium Term Note (A)
5.870%, 02/02/98 30,000 30,006
---------
TOTAL CORPORATE OBLIGATIONS
(Cost $114,006) 114,006
---------
================================================================================
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 3.1%
================================================================================
Federal Home Loan Bank (A)
5.679%, 02/04/98 65,000 64,991
---------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $64,991) 64,991
---------
================================================================================
YANKEE DOLLAR BANKERS ACCEPTANCE -- 2.5%
================================================================================
Royal Bank of Canada
(New York)
5.570%, 02/05/98 36,170 36,149
5.570%, 02/06/98 17,525 17,512
---------
TOTAL YANKEE DOLLAR BANKERS ACCEPTANCE
(Cost $53,661) 53,661
---------
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
DIVERSIFIED MONEY MARKET FUND (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
REPURCHASE AGREEMENTS -- 23.1%
================================================================================
BZW Securities, Inc.
5.58%, dated 01/30/98,
matures 02/02/98,
repurchase price
$153,960,631
(collateralized by
various U.S. Government
Obligations, total par
value $157,659,000,
0.00%-6.00%,
03/10/98-01/22/03:
total market
value $156,967,476) $153,889 $ 153,889
JP Morgan Securities, Inc.
5.59%, dated 01/30/98,
matures 02/02/98,
repurchase price
$332,133,536
(collateralized by
various U.S. Government
Obligations, total
par value $334,724,000,
0.00%-9.40%,
02/02/98-06/15/44:
total market
value $338,620,560) 331,979 331,979
---------
TOTAL REPURCHASE AGREEMENTS
(Cost $485,868) 485,868
---------
TOTAL INVESTMENTS -- 99.8%
(Cost $2,103,411) 2,103,411
---------
OTHER ASSETS AND LIABILITIES, NET -- 0.2% 4,373
---------
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
NET ASSETS:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization --
no par value) based on
1,133,407,233 outstanding
shares of beneficial interest $1,133,407
Fund Shares of Retail Class A
(unlimited authorization --
no par value) based on
975,804,744 outstanding
shares of beneficial interest 975,805
Accumulated net realized loss
on investments (1,428)
----------
TOTAL NET ASSETS -- 100.0% $2,107,784
==========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $1.00
==========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $1.00
==========
- --------------------------------------------------------------------------------
* REPRESENTS THE AVERAGE EFFECTIVE YIELD AT DATE OF PURCHASE FOR DISCOUNTED
SECURITIES.
(A) ADJUSTABLE RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET
ASSETS IS THE RATE IN EFFECT ON JANUARY 31, 1998. THE MATURITY DATE SHOWN
IS THE NEXT RESET DATE.
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CALIFORNIA MUNICIPAL BONDS -- 98%
================================================================================
Anaheim Public Improvement
Corporation, 1995 Police
Facilities Refinancing
Project, COP, VRDN,
AMBAC Insured (A) (B) (C)
3.150%, 02/07/98 $ 3,400 $ 3,400
Anaheim, Housing Authority,
Bel Page Project,
VRDN (A) (B) (C)
3.200%, 02/07/98 6,000 6,000
Alternative Energy Source
Finance Authority,
GE Capital Corporation-
Arroyo Energy Project,
VRDN (A) (B) (C)
3.250%, 02/01/98 1,100 1,100
Camarillo, Multi-Family
Housing Revenue,
Heritage Park Apartments,
VRDN (A) (B) (C)
3.200%, 02/07/98 1,900 1,900
Contra Costa Transportation
Authority, Ser A,
Escrowed to Maturity, RB
6.100%, 03/01/98 1,000 1,002
Contra Costa, California Water
District, TECP
3.350%, 04/07/98 5,000 5,000
3.625%, 06/09/98 1,500 1,500
East Bay, Municipal Utility
District, TECP
3.600%, 02/18/98 2,400 2,400
3.550%, 04/09/98 6,200 6,200
Education Facilities Authority,
Carnegie Institute, TECP
3.750%, 03/23/98 5,000 5,000
Glendale, Unified School
District, GO, FGIC Insured
5.500%, 09/01/98 3,420 3,453
Health Facility Authority,
Catholic West
Ser 97 B, VRDN (A) (B) (C)
3.200%, 02/07/98 3,000 3,000
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CALIFORNIA MUNICIPAL BONDS (continued)
================================================================================
Health Facility Authority,
Catholic West Ser 97 C,
VRDN (A) (B) (C) 3.200%,
02/07/98 $ 3,000 $ 3,000
Health Facilities Authority,
Enloe Memorial Hospital,
VRDN, RB (A) (B) (C)
3.250%, 02/07/98 3,000 3,000
Health Facilities
Finance Authority,
Adventist Health Systems,
VRDN, RB (A) (B) (C)
3.200%, 02/07/98 1,500 1,500
Health Facilities
Financing Authority,
Catholic Health Care, Ser A,
VRDN, RB (A) (B) (C)
3.200%, 02/07/98 11,100 11,100
Health Facilities
Finance Authority,
Memorial Health Services,
VRDN, RB (A) (B)
3.200%, 02/07/98 13,740 13,740
Health Facilities
Finance Authority,
Pool Program, Ser A,
VRDN, RB (A) (B) (C)
3.150%, 02/07/98 2,410 2,410
Health Facilities
Finance Authority,
Pooled Loan Program,
Ser B, VRDN, RB,
FGIC Insured (A) (B)
3.150%, 02/07/98 4,100 4,100
Health Facilities
Finance Authority,
Santa Barbara Cottage,
Ser B, VRDN, RB
(A) (B) (C)
3.200%, 02/07/98 3,920 3,920
Health Facilities
Finance Authority,
Santa Barbara Cottage,
Ser C, VRDN, RB
(A) (B) (C)
3.200%, 02/07/98 6,000 6,000
Health Facilities
Finance Authority,
St. Francis Medical,
Ser F, RB, VRDN,
MBIA Insured (A)
3.150%, 02/07/98 3,000 3,000
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CALIFORNIA MUNICIPAL BONDS (continued)
================================================================================
Health Finance Authority, Valley
Presbyterian Hospital,
RB MBIA Insured
4.500%, 05/01/98 $ 1,400 $ 1,402
Irvine Ranch Water District,
VRDN, RB (A) (B) (C)
3.550%, 02/01/98 300 300
Kern County, Public
Facilities Project,
Ser B, COP, VRDN
(A) (B) (C)
3.200%, 02/07/98 4,300 4,300
Livermore, Mortgage Revenue,
Park Paseo Apartments Project,
VRDN (A) (B) (C)
3.150%, 02/07/98 3,700 3,700
Livermore, Mortgage Revenue,
Portola Meadows
Apartments Project,
VRDN (A) (B) (C)
3.300%, 02/07/98 4,600 4,600
Los Angeles, Wastewater System,
TECP (C)
3.400%, 02/12/98 1,200 1,200
3.750%, 02/12/98 5,000 5,000
Los Angeles, Capital Asset
Lease Corp, TECP
3.650%, 02/25/98 4,000 4,000
3.400%, 03/13/98 3,000 3,000
Los Angeles County,
Public Works
Financing Authority,
Regional Park
& Open Space District,
Ser A, RB
5.000%, 10/01/98 12,000 12,097
Los Angeles County,
Metropolitan
Transportation Authority,
Ser A, VRDN, RB
MBIA Insured (A)
3.150%, 02/07/98 17,200 17,200
Los Angeles County,
Pension Obligation,
Ser B, GO, VRDN
(A) (B) (C)
3.150%, 02/07/98 2,000 2,000
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CALIFORNIA MUNICIPAL BONDS (continued)
================================================================================
Los Angeles County,
Pension Obligation,
Ser C, RB, VRDN, AMBAC
Insured (A) (B)
3.150%, 02/07/98 $10,400 $ 10,400
Los Angeles County,
Ser A, VRDN, RB,
FGIC Insured (A) (B)
3.150%, 02/07/98 5,700 5,700
Los Angeles, Department
of Water & Power, TECP
3.600%, 07/09/98 3,100 3,100
Los Angeles Multi-Family
Housing, Ser K,
VRDN, RB (A) (B)
3.450%, 02/07/98 14,300 14,300
Los Angeles, Unified
School District
Authority, Belmont
Learning Complex
Project, Ser A,
VRDN (A) (B)
3.350%, 02/07/98 1,700 1,700
Metro Water District
of Southern
California, TECP
3.750%, 02/12/98 2,000 2,000
3.650%, 05/15/98 2,300 2,300
Modesto Multi-Family Housing,
Live Oak Project,
VRDN, RB (A) (B)
3.200%, 02/07/98 2,400 2,400
MSR Public Power Agency,
San Juan Project,
Ser B, VRDN, RB,
AMBAC Insured (A) (B)
3.200%, 02/07/98 2,000 2,000
MSR Public Power Agency,
San Juan Project,
Ser E, VRDN, RB,
MBIA Insured (A) (B)
3.200%, 02/07/98 5,000 5,000
Ontario Industrial Development
Authority, Winsford Partners
Project, Ser A, VRDN,
RB (A) (B) (C)
3.200%, 02/07/98 2,000 2,000
Orange County, Apartment
Development Authority, Wood
Canyon Villas, AMT (A)
3.350%, 02/07/98 2,000 2,000
The accompanying notes are an integral part of the financial statements.
45
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CALIFORNIA MUNICIPAL BONDS (continued)
================================================================================
Orange County, Transportation
Authority, TECP
3.400%, 05/15/98 $ 3,000 $ 3,000
Orange County Water
District TECP
3.400%, 05/08/98 8,200 8,200
Oxnard Housing Authority,
Seawind Apartment Projects,
Ser A, VRDN, RB
(A) (B) (C)
3.600%, 02/07/98 2,775 2,775
Pasadena, Rose Bowl
Improvements Project,
VRDN, COP (A) (B) (C)
3.350%, 02/07/98 2,000 2,000
Pollution Control
Finance Authority,
Southern California Edison,
Ser A, VRDN, RB (A) (B)
3.700%, 02/01/98 1,500 1,500
Pollution Control
Finance Authority,
Burney Forest, VRDN, RB
(A) (B) (C)
3.650%, 02/01/98 21,300 21,300
Pollution Control
Finance Authority,
Chevron U.S.A. Project,
VRDN, RB (A) (B)
4.000%, 02/07/98 2,585 2,585
Pollution Control
Finance Authority,
Delano Project 1989,
VRDN, RB (A) (B) (C)
3.700%, 02/01/98 5,400 5,400
Pollution Control
Finance Authority,
Delano Project 1990,
VRDN, RB (A) (B) (C)
3.700%, 02/01/98 3,200 3,200
Pollution Control
Finance Authority,
Delano Project 1991,
VRDN, RB (A) (B) (C)
3.700%, 02/01/98 10,400 10,400
Pollution Control
Finance Authority,
Exxon Project, VRDN,
RB (A) (B) (C)
3.250%, 02/01/98 5,000 5,000
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CALIFORNIA MUNICIPAL BONDS (continued)
================================================================================
Pollution Control
Finance Authority,
Honey Lake Power Project,
VRDN, RB (A) (B) (C)
3.700%, 02/01/98 $ 4,700 $ 4,700
Pollution Control
Finance Authority,
Southern California Edison,
Ser C, VRDN, RB (A) (B)
3.700%, 02/01/98 1,100 1,100
Pollution Control
Finance Authority,
Southern California Edison,
Ser D, VRDN, RB (A) (B)
3.700%, 02/01/98 400 400
Pollution Control Revenue,
Southern California Edison
Project, TECP
3.650%, 02/26/98 1,000 1,000
Rancho Mirage, Eisenhower
Medical Center, VRDN
(A) (B)
3.350%, 02/07/98 6,800 6,800
Regents of University of
California, TECP
3.650%, 05/13/98 5,000 5,000
Riverside County,
Riverside County
Public Facilities,
COP, Ser 1985 A,
VRDN (A) (B) (C)
3.200%, 02/07/98 14,500 14,500
Riverside County, TRAN,
Ser A
4.500%, 06/30/98 7,500 7,516
Sacramento, California
Municipal Utility
District Electric,
RB, VRDN (A) (B)
7.875%, 02/07/98 5,315 5,533
San Bernadino County Housing
Authority, Victoria Terrace,
Project A, VRDN, RB
(A) (B) (C)
3.250%, 02/07/98 2,450 2,450
San Bernadino County Housing
Authority, Western #3 Project,
VRDN, RB (A) (B) (C)
3.000%, 02/07/98 2,500 2,500
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CALIFORNIA MUNICIPAL BONDS (continued)
================================================================================
San Bernadino County
Housing Authority,
Western #4 Project,
VRDN, RB (A) (B) (C)
3.000%, 02/07/98 $ 2,500 $ 2,500
San Diego California
Sales Tax Revenue, TECP
3.650%, 05/15/98 4,000 4,000
San Diego Housing Authority,
Carmel Del Mar Apartments,
Ser A, VRDN, RB (A) (B) (C)
3.300%, 02/07/98 1,000 1,000
San Diego Housing Authority,
Multi-Family Housing,
VRDN, RB (A) (B) (C)
3.200%, 02/07/98 1,905 1,905
San Diego Housing Authority,
University Town Center
Apartments, VRDN, RB
(A) (B)
3.000%, 02/07/98 2,600 2,600
San Diego, Transportation
Authority Sales Tax
Revenue, TECP
3.450%, 02/04/98 7,400 7,400
San Joaquin County
Transportation
Authority, TECP
3.650%, 03/06/98 5,000 5,000
San Mateo, TRAN
4.500%, 07/01/98 12,000 12,033
Santa Clara, Fox Chase
Apartments, VRDN,
FGIC Insured (A) (B)
3.150%, 02/07/98 3,000 3,000
Santa Clara, Unified School
District, GO, FGIC Insured
7.000%, 08/01/98 2,500 2,538
Santa Magarita, Dana Point
Authority, RB,
AMBAC Insured
4.250%, 08/01/98 1,905 1,910
Southern California Metro
Water District, Ser A, VRDN,
RB, AMBAC Insured (A)
3.150%, 02/07/98 7,500 7,500
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CALIFORNIA MUNICIPAL BONDS (continued)
================================================================================
Southern California Public
Power Authority,
Transmission Project
Revenue, AMBAC Insured,
VRDN, RB (A) (B) (C)
3.150%, 02/07/98 $ 7,900 $ 7,900
Southern California State
Public Power Revenue Bond
Transmission Project, Ser B,
VRDN (A) (B) (C)
3.200%, 02/07/98 5,000 5,000
Statewide Community
Developments, St. Joseph
Health System Project,
COP (A) (B) (C)
4.000%, 07/01/98 1,595 1,596
Statewide Communities
Development Authority,
Irvine County Project,
Ser A-1, VRDN, RB
(A) (B) (C)
3.150%, 02/07/98 9,065 9,065
Statewide Communities
Development Authority,
North California Retirement,
VRDN, RB, (A) (B) (C)
3.550%, 02/01/98 15,300 15,300
Statewide Communities
Development Authority,
St. Joseph Health System,
COP, VRDN, RB (A) (B)
3.200%, 02/07/98 1,600 1,600
Statewide Communities
Development Authority,
TRAN, FSA Insured
4.500%, 06/30/98 4,000 4,011
State Economic Development
Authority,
VRDN (A) (B) (C)
3.650%, 02/01/98 4,600 4,600
State Housing Finance Agency,
Multi-Family Housing, Ser B,
VRDN, RB (A) (B) (C)
3.300%, 02/07/98 3,200 3,200
State Transportation
Finance Authority,
VRDN (A) (B) (C)
3.550%, 02/07/98 2,000 2,000
Tracy Multi-Family
Housing Refunding, Sycamore
Village Apartments,
VRDN, RB (A) (B) (C)
3.000%, 02/07/98 2,300 2,300
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CALIFORNIA MUNICIPAL BONDS (continued)
================================================================================
Turlock Irrigation District
Transmission Projects,
COP, Ser A, VRDN (A) (C)
3.100%, 02/07/98 $ 4,050 $ 4,050
University of California
Regents TECP
3.400%, 03/06/98 3,000 3,000
Vallejo Housing
Authority, Crow
Western Project Phase II,
VRDN, RB (A) (B) (C)
3.300%, 02/07/98 5,200 5,200
Vista, Multi-Family
Housing Rate,
VRDN (A) (B)
3.200%, 02/07/98 2,640 2,640
West Basin Municipal
Water District,
Phase II Recycled
Water Project,
Ser B, COP, VRDN
(A) (B) (C)
3.100%, 02/07/98 2,200 2,200
West Basin Municipal
Water District,
Phase II Recycled
Water Project,
Ser C, COP, VRDN
(A) (B) (C)
3.200%, 02/07/98 2,000 2,000
West Covina Redevelopment
Agency, Lakes Public
Parking Project,
VRDN, RB (A) (B) (C)
3.050%, 02/07/98 2,505 2,505
--------
TOTAL CALIFORNIA MUNICIPAL BONDS
(Cost $449,836) 449,836
--------
================================================================================
CASH EQUIVALENTS -- 0.6%
================================================================================
Provident California Tax Free
Money Market 2,429 2,429
SEI California Tax Free
Money Market 30 30
--------
TOTAL CASH EQUIVALENTS
(Cost $2,459) 2,459
--------
TOTAL INVESTMENTS -- 99.1%
(Cost $452,295) 452,295
--------
OTHER ASSETS AND LIABILITIES,
NET -- 0.9% 4,313
--------
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
NET ASSETS:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization --
no par value) based on
203,744,353 outstanding
shares of beneficial interest $203,744
Fund Shares of Retail Class A
(unlimited authorization --
no par value) based on
252,929,169. outstanding shares
of beneficial interest 252,929
Distribution in excess of net
investment income (1)
Accumulated net realized loss
on investments (64)
--------
TOTAL NET ASSETS -- 100.0% $456,608
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $1.00
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $1.00
========
- --------------------------------------------------------------------------------
(A) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JANUARY 31, 1998.
(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.
48
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
U.S. GOVERNMENT AGENCY OBLIGATIONS-DISCOUNTED* -- 29.8%
================================================================================
FHLB
5.723%, 02/25/98 $13,716 $ 13,665
5.735%, 03/20/98 13,000 12,905
5.647%, 04/13/98 10,000 9,893
FHLMC
5.769%, 02/06/98 11,500 11,491
5.507%, 04/13/98 4,450 4,403
FNMA
5.716%, 03/30/98 10,000 9,912
5.731%, 04/24/98 10,000 9,874
5.720%, 05/19/98 10,000 9,836
---------
TOTAL U.S.GOVERNMENT AGENCY
OBLIGATIONS-DISCOUNTED
(Cost $81,979) 81,979
---------
================================================================================
U.S. GOVERNMENT AGENCY OBLIGATIONS-COUPON BEARING -- 39.2%
================================================================================
FFCB
5.540%, 03/02/98 10,000 9,999
FFCB (A)
5.360%, 02/02/98 10,000 9,998
FHLB
5.579%, 01/27/99 10,000 9,997
5.725%, 02/05/98 5,800 5,800
FHLB (A)
5.679%, 02/04/98 10,000 9,999
FHLMC
5.715%, 03/17/98 10,000 10,001
FNMA
5.690%, 03/13/98 17,000 17,002
SLMA (A)
5.469%, 02/03/98 15,000 15,000
5.399%, 02/03/98 20,000 19,983
---------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS-COUPON BEARING
(Cost $107,779) 107,779
---------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
REPURCHASE AGREEMENT -- 30.8%
================================================================================
BZW Securities, Inc.
5.58%, dated 01/30/98,
matures 02/02/98, repurchase
price $24,957,931
(collateralized by
U.S. Treasury Note,
par value $23,948,000,
9.25%, 08/15/98:
market value $25,445,666) $24,946 $ 24,946
JP Morgan Securities, Inc.
5.59%, dated 01/30/98,
matures 02/02/98, repurchase
price $59,838,176
(collateralized by various
U.S. Government Obligations,
total par value
$59,938,000, 0.00%-7.33%,
04/24/98-12/15/43:
total market
value $61,006,748) 59,810 59,810
---------
TOTAL REPURCHASE AGREEMENTS
(Cost $84,756) 84,756
---------
TOTAL INVESTMENTS -- 99.8%
(Cost $274,514) 274,514
---------
OTHER ASSETS AND LIABILITIES, NET -- 0.2% 569
---------
================================================================================
NET ASSETS:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization --
no par value) based on
223,068,704 outstanding
shares of beneficial interest 223,069
Fund Shares of Retail Class A
(unlimited authorization --
no par value) based on
52,172,309 outstanding
shares of beneficial interest 52,172
Accumulated net realized loss
on investments (158)
---------
TOTAL NET ASSETS -- 100.0% $275,083
=========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $1.00
=========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $1.00
=========
- --------------------------------------------------------------------------------
(A) ADJUSTABLE RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET
ASSETS IS THE RATE IN EFFECT ON JANUARY 31, 1998. THE MATURITY DATE SHOWN
IS THE NEXT RESET DATE.
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.
49
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM BOND FUND
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CORPORATE OBLIGATIONS -- 54.6%
================================================================================
BANKING & FINANCE -- 23.4%
Avco Financial Services
7.375%, 08/15/01 $ 3,500 $ 3,675
Bankers Trust
7.250%, 01/15/03 3,500 3,662
Banponce
6.750%, 12/15/05 2,000 2,057
Commercial Credit
6.200%, 11/15/01 2,000 2,027
Fleet Financial
7.125%, 04/15/06 5,000 5,250
Ford Motor Credit
8.200%, 02/15/02 4,000 4,315
Lehman Brothers Holdings
8.750%, 05/15/02 4,000 4,375
Salomon
7.300%, 05/15/02 4,000 4,175
Sears Finance
7.000%, 06/15/07 3,000 3,127
---------
32,663
---------
FOREIGN GOVERNMENTS -- 5.2%
Province of Manitoba
6.125%, 01/19/04 3,000 3,026
Province of Ontario
7.375%, 01/27/03 4,000 4,240
---------
7,266
---------
INDUSTRIAL -- 11.5%
Du Pont (E.I.) de Nemours
6.500%, 09/01/02 4,000 4,105
General Motors
8.950%, 07/02/09 4,455 5,011
Lockheed Martin
7.450%, 06/15/04 3,500 3,745
McDonnell Douglas
6.875%, 11/01/06 1,000 1,059
Raytheon
6.750%, 08/15/07 2,000 2,065
---------
15,985
---------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CORPORATE OBLIGATIONS (continued)
================================================================================
TELEPHONES & TELECOMMUNICATION -- 3.6%
WorldCom
9.375%, 01/15/04 $ 2,091 $ 2,243
7.750%, 04/01/07 2,500 2,719
---------
4,962
---------
UTILITIES -- 10.9%
Arkansas Electric Cooperative
7.330%, 06/30/08 2,310 2,463
Oklahoma Gas & Electric
6.650%, 07/15/27 2,500 2,622
Old Dominion Electric
7.480%, 12/01/13 5,550 6,015
Pacific Gas & Electric
8.750%, 01/01/01 780 842
Panhandle Eastern
7.875%, 08/15/04 3,000 3,259
---------
15,201
---------
TOTAL CORPORATE OBLIGATIONS
(Cost $72,795) 76,077
---------
================================================================================
U.S. TREASURY OBLIGATIONS -- 22.4%
================================================================================
U.S. Treasury Notes
8.250%, 07/15/98 5,000 5,066
6.375%, 05/15/99 1,500 1,518
6.250%, 05/31/00 (A) 5,000 5,096
8.000%, 05/15/01 7,000 7,536
6.250%, 06/30/02 (A) 3,000 3,096
7.250%, 05/15/04 (A) 3,000 3,282
7.875%, 11/15/04 (A) 5,000 5,664
---------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $30,627) 31,258
---------
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM BOND FUND (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED OBLIGATIONS -- 13.4%
================================================================================
FHLMC
7.000%, 09/01/01 $ 8,487 $ 8,623
FNMA
6.850%, 05/26/00 10,000 10,042
---------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED OBLIGATIONS
(Cost $18,514) 18,665
---------
================================================================================
ASSET BACKED SECURITIES -- 6.9%
================================================================================
American Express Master Trust
7.150%, 08/15/99 4,000 4,032
Chase Manhattan Auto
Grantor Trust
6.610%, 09/15/02 2,895 2,926
J.C. Penney Master Credit
Card Trust
9.625%, 06/30/00 2,500 2,717
---------
TOTAL ASSET BACKED SECURITIES
(Cost $9,419) 9,675
---------
================================================================================
REPURCHASE AGREEMENTS -- 8.2%
================================================================================
JP Morgan Securities, Inc.
5.59%, dated 01/30/98,
matures 02/02/98, repurchase
price $1,895,897
(collateralized by U.S.
Treasury Note,
par value $1,832,000,
6.875%, 07/31/99:
market value $1,933,469) 1,895 1,895
Lehman Brothers (B)
5.70%, dated 01/30/98,
matures 02/02/98, repurchase
price $9,479,476
(collateralized by
various corporate
obligations, 0.00%-9.502%,
11/02/98-11/25/07: total
market value $9,669,066) 9,475 9,475
---------
TOTAL REPURCHASE AGREEMENTS
(Cost $11,370) 11,370
---------
TOTAL INVESTMENTS -- 105.5%
(Cost $142,725) 147,045
---------
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (6.8%) $ (9,475)
---------
OTHER ASSETS AND LIABILITIES,
NET -- 1.3% 1,823
---------
================================================================================
NET ASSETS
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization --
no par value)
based on 12,967,600 outstanding
shares of beneficial interest 133,425
Fund Shares of Retail Class A
(unlimited authorization --
no par value)based on 467,416
outstanding shares of
beneficial interest 5,393
Distribution in excess of
net investment income (44)
Accumulated net realized loss
on investments (3,701)
Net unrealized appreciation
on investments 4,320
---------
TOTAL NET ASSETS -- 100.0% $139,393
---------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $10.38
=========
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $10.37
=========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($10.37 [divide] 97%) $10.69
=========
- --------------------------------------------------------------------------------
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT
JANUARY 31, 1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN
AT JANUARY 31, 1998 WAS $9,474,975.
(B) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CALIFORNIA MUNICIPAL BONDS -- 98%
================================================================================
Alameda County, Santa Rita
Jail Project,
COP, MBIA Insured
5.250%, 12/01/04 $ 500 $ 534
Anaheim Public Financing
Authority, Electric Utility
Projects, RB, Callable
04/01/03 @ 102,
Callable 04/01/05 @ 100,
MBIA Insured
5.500%, 10/01/10 250 262
Antioch Public Finance
Authority, Police Facilities
Project, Lease RB,
MBIA Insured
4.550%, 01/01/03 500 508
Atascadero Unified School
District, COP, Measure B,
Capital Projects
Ser A, MBIA Insured,
Callable 08/01/06 @ 102
5.100%, 08/01/07 415 440
Bakersfield, Convention Center
Expansion Project, COP,
MBIA Insured
5.000%, 04/01/03 335 349
Berkeley Unified School
District, GO,
Ser D, FGIC Insured
8.250%, 08/01/05 345 434
California Educational
Facilities Authority,
Santa Clara University,
RB, MBIA Insured,
Callable 9/01/06 @ 102
5.000%, 09/01/07 400 421
California Educational
Facilities Authority,
Pooled College &
Universities Project,
Ser C, RB, MBIA Insured
5.000%, 03/01/05 560 587
California State
Department of Water,
Ser J-3, RB
5.900%, 12/01/05 500 557
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CALIFORNIA MUNICIPAL BONDS (continued)
================================================================================
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 $ 904
Capistrano, Unified Public
Financing Authority, Special
Tax RB, First Lien,
Ser A, AMBAC Insured
4.500%, 09/01/01 300 306
Contra Costa County, Merrithew
Memorial Hospital Project, COP,
Callable 11/01/07 @ 102,
Callable 11/01/09 @ 100,
MBIA Insured
5.500%, 11/01/12 800 858
Contra Costa Transportation
Authority, Ser A, RB,
Escrowed to Maturity
6.300%, 03/01/00 1,000 1,049
Contra Costa Transportation
Authority, Ser A, RB,
FGIC Insured,
Callable 03/01/05 @ 100
5.300%, 03/01/06 600 640
Contra Costa Water
Distribution, Ser G,
RB, MBIA Insured,
Callable 10/01/04 @ 102
5.700%, 10/01/06 500 551
Cupertino, COP,
Callable 01/01/03 @ 102
5.500%, 01/01/05 500 532
East Bay, Regal Park
District, Ser C,
GO, FGIC Insured
6.500%, 09/01/01 685 745
East Bay Wastewater
Treatment System,
RB, FGIC Insured
6.000%, 06/01/06 750 844
Eastern Municipal
Water District,
COP, FGIC Insured
5.000%, 07/01/04 1,000 1,050
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CALIFORNIA MUNICIPAL BONDS (continued)
================================================================================
Gilroy Unified School
District, COP,
Measure J Capital Projects,
FSA Insured,
Callable 09/01/04 @ 102
5.750%, 09/01/05 $ 235 $ 258
Glendale, Unified School
District, Ser A,
GO, FGIC Insured
4.650%, 09/01/04 610 630
Joshua Basin, HI Desert
Financing Authority,
RB, AMBAC Insured
4.800%, 05/01/08 445 461
4.900%, 05/01/09 465 483
Los Angeles County
Public Works Financing
Authority, Regal Park &
Open Space District, RB
5.250%, 10/01/05 700 745
Los Angeles County
Transportation
Commission, Sales Tax
RB, Ser A, FGIC
Insured, Pre-Refunded
07/01/01 @ 102
6.750%, 07/01/18 500 553
Los Angeles Department of
Airports, RB,
Ser B, FGIC Insured
6.500%, 05/15/04 500 567
Los Angeles Unified
School District, GO,
Ser A, FGIC Insured
4.600%, 07/01/06 500 514
Los Angeles, GO, FGIC Insured,
Callable 09/01/03 @ 101,
Callable 09/01/05 @ 100
5.400%, 09/01/06 300 321
Los Angeles, Wastewater
System RB, Ser B,
Callable 06/01/03 @ 102,
Callable 06/01/05 @ 100,
MBIA Insured
5.400%, 06/01/08 300 318
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%, 07/01/08 230 252
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CALIFORNIA MUNICIPAL BONDS (continued)
================================================================================
Mendota, Unified
School District,
GO, AMBAC Insured,
Callable 05/01/07 @ 102
4.800%, 05/01/08 $ 480 $ 496
Metropolitan Water District
of Southern California,
Ser B, RB, MBIA Insured,
Callable 07/01/06 @ 102
5.250%, 07/01/07 500 536
Midpeninsula Regional
Open Space District
Finance Authority, RB,
AMBAC Insured
4.900%, 09/01/02 250 260
Milpitas Redevelopment Agency,
Tax Allocation, Redevelopment
Project Area # 1, RB,
MBIA Insured
4.600%, 01/15/06 540 554
Mojave Water Agency,
Supplemental Water
Entitlement, COP,
MBIA Insured
4.950%, 09/01/06 500 526
Mountain View-Los Altos
Unified High School
District, Ser B, GO
5.500%, 05/01/00 530 549
Orange County, Local
Transportation Authority,
Sales Tax Revenue,
Measure M, RB
6.000%, 02/15/07 380 423
Port of Oakland, Ser D, RB,
MBIA Insured
6.500%, 11/01/03 500 562
Roseville Water
Utility Revenue,
COP, FGIC Insured
4.500%, 12/01/06 685 700
Sacramento County
Sanitation District
Financing Authority, RB
5.500%, 12/01/03 800 856
Sacramento Municipal
Utility District,
Ser C, RB, FGIC Insured,
Escrowed To Maturity
5.750%, 11/15/08 330 367
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CALIFORNIA MUNICIPAL BONDS (continued)
================================================================================
Sacramento Municipal
Utility District,
Ser C, RB, FGIC Insured,
Unrefunded Balance
5.750%, 11/15/08 $ 220 $ 236
San Bernardino County
Transportation Authority,
Sales Tax Revenue,
RB, FGIC Insured
6.000%, 03/01/02 360 387
San Bernardino County
Transportation Authority,
Sales Tax Revenue,
RB, MBIA Insured
6.000%, 03/01/06 415 465
San Diego County Water
Authority Revenue,
COP, Ser A
5.000%, 05/01/04 1,000 1,048
San Diego County Regional
Transportation Commission,
Sales Tax RB, Ser A,
FGIC Insured
5.250%, 04/01/06 1,000 1,071
San Diego Lease Revenue, RB,
Callable 09/01/04 @ 102,
Callable 09/01/06 @100
5.500%, 09/01/07 450 483
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%, 10/01/00 300 305
San Francisco City & County, GO,
Utility Public Safety
Improvement Project,
Ser F, FGIC Insured,
Callable 06/15/01 @ 100
6.500%, 06/15/08 350 378
San Jose Redevelopment Agency,
Tax Allocation, Merged Area
Redevelopment Project,
RB, MBIA Insured
6.000%, 08/01/08 450 514
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CALIFORNIA MUNICIPAL BONDS (continued)
================================================================================
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 $ 427
Santa Cruz County, Public
Facilities Financing
Authority, Tax Allocation,
Callable 09/01/03 @ 102,
MBIA Insured
5.100%, 09/01/05 500 530
Saratoga Unified
School District,
Ser A, GO, FGIC Insured,
Callable 09/01/2007 @ 102
4.800%, 09/01/08 825 854
West Basin Municipal
Water District,
Ser A, COP, AMBAC Insured,
Callable 08/01/07 @ 101
5.000%, 08/01/08 425 446
---------
TOTAL CALIFORNIA MUNICIPAL BONDS
(Cost $29,295) 30,329
---------
================================================================================
CASH EQUIVALENTS -- 3.7%
================================================================================
Provident California Tax Free
Money Market 581 581
SEI California Tax Free
Money Market 553 553
---------
TOTAL CASH EQUIVALENTS
(Cost $1,134) 1,134
---------
TOTAL INVESTMENTS -- 102.5%
(Cost $30,429) 31,463
---------
OTHER ASSETS AND LIABILITIES,
NET -- (2.5%) (757)
---------
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
NET ASSETS:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization --
no par value) based on 1,736,721
outstanding shares of
beneficial interest $ 18,141
Fund Shares of Retail Class A
(unlimited authorization --
no par value) based on 1,302,981
outstanding shares of
beneficial interest 12,774
Undistributed net investment income 14
Accumulated net realized loss
on investments (1,257)
Net unrealized appreciation
on investments 1,034
---------
TOTAL NET ASSETS -- 100.0% $ 30,706
=========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $10.11
=========
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $10.09
=========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($10.09 [divide] 97%) $10.40
=========
- --------------------------------------------------------------------------------
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.
55
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
BOND FUND
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CORPORATE BONDS -- 30.5%
================================================================================
AUTOMOTIVE -- 5.8%
Ford Motor Credit
6.500%, 02/28/02 $ 3,000 $ 3,045
General Motors Acceptance
8.000%, 10/01/99 2,290 2,365
---------
5,410
---------
BANKS -- 3.9%
Citicorp
6.750%, 08/15/05 2,100 2,166
First Bank System
6.875%, 09/15/07 500 519
U.S. Bancorp
6.750%, 10/15/05 900 927
---------
3,612
---------
COMPUTERS & SERVICES -- 1.6%
IBM
6.500%, 01/15/28 1,500 1,468
---------
FINANCIAL SERVICES -- 4.2%
General Electric
Capital Services
6.500%, 11/02/06 2,500 2,578
Golden West Financial
6.700%, 07/01/02 1,300 1,328
---------
3,906
---------
FOREIGN GOVERNMENTS -- 1.0%
Hydro Quebec
8.050%, 07/07/24 825 958
---------
INDUSTRIAL -- 1.9%
Caterpillar Tractor
6.000%, 05/01/07 1,860 1,825
---------
INSURANCE -- 2.2%
Travelers Property Casualty
6.750%, 04/15/01 2,000 2,052
---------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CORPORATE BONDS (continued)
================================================================================
PRINTING & PUBLISHING -- 2.7%
E.W. Scripps
6.375%, 10/15/02 $ 2,500 $ 2,538
---------
RETAIL -- 3.0%
J.C. Penney
6.000%, 05/01/06 980 954
Wal-Mart
6.375%, 03/01/03 1,850 1,892
---------
2,846
---------
TELEPHONES & TELECOMMUNICATION -- 4.2%
Bell Atlantic
8.000%, 10/15/29 1,500 1,787
New England Telephone
& Telegraph
6.250%, 03/15/03 1,500 1,523
7.875%, 11/15/29 500 589
---------
3,899
---------
TOTAL CORPORATE BONDS
(Cost $27,606) 28,514
---------
================================================================================
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 25.5%
================================================================================
FHLB
8.375%, 10/25/99 300 313
FHLMC
7.000%, 02/20/18 1,820 1,840
6.250%, 01/15/24 1,500 1,502
FNMA
9.050%, 04/10/00 1,000 1,072
6.200%, 09/25/02 2,000 2,003
5.450%, 10/10/03 1,750 1,727
6.500%, 03/25/13 1,500 1,517
6.500%, 03/01/24 1,441 1,435
8.500%, 05/01/25 1,218 1,271
6.500%, 05/01/26 929 924
6.000%, 12/01/27 1,994 1,942
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
BOND FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
U.S. GOVERNMENT AGENCY OBLIGATIONS (continued)
================================================================================
GNMA
6.500%, 06/15/23 $ 1,609 $ 1,604
6.500%, 12/15/23 507 505
7.500%, 01/15/24 1,014 1,047
7.500%, 02/15/24 366 378
7.000%, 04/15/24 807 819
7.500%, 09/15/25 936 965
6.500%, 04/15/26 980 977
7.500%, 02/15/27 594 613
7.500%, 06/15/27 532 548
7.500%, 07/15/27 495 510
7.500%, 08/15/27 340 350
---------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(Cost $22,965) 23,862
---------
================================================================================
U.S. TREASURY OBLIGATIONS -- 16.6%
================================================================================
U.S. Treasury Bonds
10.375%, 11/15/12 (A) 1,500 2,018
7.250%, 05/15/16 (A) 4,500 5,204
8.750%, 08/15/20 2,360 3,195
7.125%, 02/15/23 2,800 3,244
U.S. Treasury Notes
8.125%, 02/15/98 1,000 1,001
9.000%, 05/15/98 430 434
8.500%, 11/15/00 420 454
---------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $14,283) 15,550
---------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
ASSET BACKED SECURITIES -- 15.8%
================================================================================
Citibank Credit Card Master
Trust 1997-7 Cl A
6.350%, 08/15/02 $ 3,000 $ 3,040
Citibank Credit Card Master
Trust 1997-3 Cl A
6.839%, 02/10/04 1,300 1,336
Citibank Credit Card Master
Trust 1998-3 Cl A
5.800%, 02/07/05 2,000 1,998
Contimortgage Home Equity Loan
Trust 1994-4 Cl A3
8.090%, 09/15/09 1,125 1,181
Contimortgage Home Equity Loan
Trust 1995-2 Cl A4
8.050%, 07/15/12 1,000 1,054
EQCC 1995-2 Cl A4
7.800%, 12/15/10 1,200 1,260
EQCC 1996-3 Cl A6
7.400%, 12/15/19 1,250 1,308
Green Tree Financial 1995-9 Cl A5
6.800%, 01/15/27 1,250 1,295
Premier Auto Trust 1993-2 A3
4.900%, 10/15/98 52 53
Standard Credit Card Master
Trust 1993-3
5.500%, 02/07/00 2,000 1,996
Union Federal Savings Bank
Trust 1994-A Cl A
5.075%, 05/15/00 162 161
---------
TOTAL ASSET BACKED SECURITIES
(Cost $14,332) 14,682
---------
The accompanying notes are an integral part of the financial statements.
57
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
BOND FUND (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COLLATERALIZED MORTGAGE OBLIGATIONS -- 3.6%
================================================================================
Country Wide Mortgage
1993-2 Cl 4
6.750%, 04/25/08 $ 598 $ 595
GE Capital Mortgage Service
1994-1 Cl A6
6.500%, 01/25/24 1,850 1,847
Residential Funding Mortgage
1992-S36 Cl A4
6.750%, 11/25/07 950 954
---------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $3,156) 3,396
---------
================================================================================
REPURCHASE AGREEMENTS -- 16.1%
================================================================================
JP Morgan Securities, Inc.
5.59%, dated 01/30/98,
matures 02/02/98, repurchase
price $8,024,295
(collateralized by FHLB,
par value $7,995,000,
6.76%, 11/13/07:
market value $8,184,432) 8,021 8,021
Lehman Brothers (B)
5.70%, dated 01/30/98,
matures 02/02/98, repurchase
price $7,067,606
(collateralized by various
corporate obligations,
0.00%-9.502%,
11/02/98-11/25/07:
total market
value $7,208,958) 7,064 7,064
---------
TOTAL REPURCHASE AGREEMENTS
(Cost $15,085) 15,085
---------
TOTAL INVESTMENTS -- 108.1%
(Cost $97,427) 101,089
---------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (7.5%) (7,064)
---------
OTHER ASSETS AND LIABILITIES,
NET -- (0.6%) (553)
---------
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
NET ASSETS:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization --
no par value) based on 8,546,764
outstanding shares of beneficial
interest $ 92,031
---------
Fund Shares of Retail Class A
(unlimited authorization --
no par value) based on 80,530
outstanding shares of beneficial
interest 835
Undistributed net investment income 58
Accumulated net realized loss
on investments (3,114)
Net unrealized appreciation
on investments 3,662
---------
TOTAL NET ASSETS -- 100.0% $ 93,472
=========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $10.84
=========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL CLASS A $10.74
=========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($10.74 [divide] 97%) $11.07
=========
- --------------------------------------------------------------------------------
CL -- CLASS
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
JANUARY 31, 1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT
JANUARY 31, 1998 WAS $7,064,250.
(B) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
CONVERTIBLE SECURITIES FUND
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CONVERTIBLE BONDS -- 51.0%
================================================================================
AUTOMOTIVE -- 1.6%
Magna International
5.000%, 10/15/02 $ 400 $ 465
---------
COMPUTERS & SOFTWARE SERVICES -- 2.2%
Solectron (A)
6.000%, 03/01/06 450 628
---------
DRUGS -- 2.3%
Dura Pharmaceuticals
3.500%, 07/15/02 650 669
---------
ENVIRONMENTAL SERVICES -- 6.7%
U.S. Filter
4.500%, 12/15/01 825 894
USA Waste
4.000%, 02/01/02 700 758
WMX Technologies
2.000%, 01/24/05 300 249
---------
1,901
---------
HOTELS & LODGING -- 1.7%
Hilton Hotels
5.000%, 05/15/06 450 485
---------
INSURANCE -- 2.2%
Penn Treaty American
6.250%, 12/01/03 500 619
---------
MACHINERY -- 1.5%
Thermo Electron
4.250%, 01/01/03 375 429
---------
MEDICAL PRODUCTS & SERVICES -- 5.1%
Alza
5.000%, 05/01/06 500 570
Assisted Living Concepts
6.000%, 11/01/02 250 257
Integrated Health Services
5.750%, 01/01/01 300 311
Vencor (Tenet Healthcare)
6.000%, 12/01/05 325 308
---------
1,446
---------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000)/SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CONVERTIBLE BONDS (continued)
================================================================================
MISCELLANEOUS BUSINESS SERVICES -- 7.3%
CUC International (A)
3.000%, 02/15/02 $ 675 $ 847
Cendant
4.750%, 03/01/03 550 731
First Data 16,088 493
---------
TOTAL PETROLEUM & FUEL PRODUCTS 2,071
---------
PETROLEUM & FUEL PRODUCTS -- 6.4%
Diamond Offshore Drilling (Loews)
3.125%, 09/15/07 825 788
Halter Marine (A)
4.500%, 09/15/04 300 284
Parker Drilling
5.500%, 08/01/04 700 742
---------
1,814
---------
RETAIL -- 12.0%
Federated Department Stores
5.000%, 10/01/03 400 540
Home Depot
3.250%, 10/01/01 625 868
Nine West Group
5.500%, 07/15/03 750 608
Rite Aid (A)
5.250%, 09/15/02 750 857
Staples (A)
4.500%, 10/01/00 425 553
---------
3,426
---------
SEMI-CONDUCTORS/INSTRUMENTS -- 2.0%
Adaptec (A)
4.750%, 02/01/04 675 559
---------
TOTAL CONVERTIBLE BONDS
(Cost $13,371) 14,512
---------
================================================================================
COMMON STOCKS -- 5.0%
================================================================================
AIR TRANSPORTATION -- 1.7%
AMR* 3,797 479
---------
BANKS -- 1.3%
Citicorp 3,000 357
---------
The accompanying notes are an integral part of the financial statements.
59
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
SCHEDULE OF INVESTMENTS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
CONVERTIBLE SECURITIES FUND (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
COMPUTERS & SERVICES -- 0.7%
Seagate Technology* 8,500 $ 197
---------
TELEPHONES & TELECOMMUNICATION -- 1.3%
WorldCom* 10,581 379
---------
TOTAL COMMON STOCKS
(Cost $921) 1,412
---------
================================================================================
PREFERRED STOCKS -- 27.4%
================================================================================
BANKS -- 1.1%
Banc One 3,000 320
---------
COMPUTERS & SERVICES -- 2.4%
Microsoft 7,325 673
---------
ENERGY -- 2.9%
MCN Financing 13,750 830
---------
ENTERTAINMENT -- 2.4%
Metromedia International* 13,500 675
---------
FINANCIAL SERVICES -- 5.0%
FirstPlus Financial Group 23,500 758
The Money Store 31,000 655
---------
1,413
---------
INSURANCE -- 2.6%
Conseco Financial Trust* 2,500 130
SunAmerica 13,000 612
---------
742
---------
MEDICAL PRODUCTS & SERVICES -- 1.6%
MedPartners* 33,000 441
---------
PAPER & PAPER PRODUCTS -- 1.1%
International Paper 6,500 326
---------
PRINTING & PUBLISHING -- 1.8%
Hollinger International 40,000 505
---------
REAL ESTATE -- 0.9%
Glenborough Realty Trust* 10,000 266
---------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
PREFERRED STOCKS (continued)
================================================================================
TELEPHONES & TELECOMMUNICATION -- 5.6%
Intermedia Communications* (A) 31,000 $ 1,290
WorldCom 2,500 313
---------
1,603
---------
TOTAL PREFERRED STOCKS
(Cost $7,407) 7,794
---------
================================================================================
TIME DEPOSITS -- 8.9%
================================================================================
Industrial Bank of Japan Limited
5.500%, 02/02/98 $2,522 2,522
---------
TOTAL TIME DEPOSITS
(Cost $2,522) 2,522
---------
TOTAL INVESTMENTS -- 92.3%
(Cost $24,221) 26,240
---------
OTHER ASSETS AND LIABILITIES,
NET -- 7.7% 2,191
---------
- --------------------------------------------------------------------------------
(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."
*NON-INCOME PRODUCING SECURITY
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
SCHEDULE OF INVESTMENTS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
U.S. TREASURY OBLIGATIONS -- 67.4%
================================================================================
U.S. Treasury Bonds
8.125%, 08/15/19 $ 1,000 $ 1,270
6.625%, 02/15/27 11,700 12,917
6.125%, 11/15/27 800 835
U.S. Treasury Notes
5.125%, 02/28/98 500 500
6.000%, 05/31/98 5,250 5,260
6.125%, 08/31/98 2,000 2,008
5.875%, 02/28/99 200 201
6.250%, 03/31/99 1,000 1,010
6.500%, 04/30/99 (B) 6,750 6,841
5.875%, 07/31/99 1,500 1,511
7.750%, 01/31/00 1,500 1,567
6.750%, 04/30/00 1,000 1,029
7.750%, 02/15/01 2,000 2,132
6.375%, 09/30/01 1,500 1,546
7.500%, 11/15/01 2,000 2,140
6.250%, 02/15/03 (B) 800 828
5.750%, 08/15/03 900 912
7.250%, 05/15/04 (B) 1,580 1,728
6.125%, 08/15/07 (B) 2,600 2,714
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $44,535) $ 46,949
--------
================================================================================
U.S. GOVERNMENT AGENCY OBLIGAATIONS -- 2.9%
================================================================================
Aid-Israel
7.125%, 08/15/99 2,000 2,045
--------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(Cost $1,997) 2,045
--------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CORPORATE OBLIGAATIONS -- 10.0%
================================================================================
FINANCIAL - REAL ESTATE -- 1.8%
Meditrust
7.250%, 08/16/99 $1,250 $ 1,272
--------
FINANCIAL SERVICES -- 1.5%
Associates of North America
6.500%, 07/15/02 1,000 1,020
--------
INSURANCE -- 4.4%
Florida Windstorm Underwriters (A)
6.850%, 08/25/07 1,700 1,798
Prudential Insurance (A)
6.875%, 04/15/03 500 514
7.650%, 07/01/07 700 759
-------
3,071
-------
RETAIL -- 2.3%
Federated Department Stores
8.125%, 10/15/02 1,500 1,624
-------
TOTAL CORPORATE OBLIGATIONS
(Cost $6,744) 6,987
-------
================================================================================
TIME DEPOSITS -- 3.9%
================================================================================
Industrial Bank of Japan Limited
5.500%, 02/02/98 2,711 2,711
-------
TOTAL TIME DEPOSITS
(Cost $2,711) 2,711
-------
================================================================================
BANK NOTE -- 3.6%
================================================================================
PNC Bank (C) (D)
5.620%, 02/13/98 2,500 2,501
-------
TOTAL BANK NOTE
(Cost $2,501) 2,501
-------
The accompanying notes are an integral part of the financial statements.
61
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
SCHEDULE OF INVESTMENTS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
GOVERNMENT SECURITIES FUND (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
REPURCHASE AGREEMENT -- 6.2%
================================================================================
Lehman Brothers (D)
5.70%, dated 01/30/98, matures
02/02/98, repurchase price
$4,338,478 (collateralized by various
corporate obligations, 0.00%-9.502%,
11/02/98-11/25/07: total market
value $4,425,248) $ 4,336 $ 4,336
--------
TOTAL REPURCHASE AGREEMENT
(Cost $4,336) 4,336
--------
TOTAL INVESTMENTS -- 94.0%
(Cost $62,824) 65,529
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (9.8%) (6,837)
--------
OTHER ASSETS AND LIABILITIES,
NET -- 15.8% 11,005
--------
- --------------------------------------------------------------------------------
(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
JANUARY 31, 1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT
JANUARY 31, 1998 WAS $6,846,075.
(C) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JANUARY 31, 1998. (D) THIS SECURITY PURCHASED WITH
CASH COLLATERAL HELD FROM SECURITIES LENDING.
The accompanying notes are an integral part of the financial statements.
62
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
BALANCED FUND
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS -- 62.7%
================================================================================
AEROSPACE & DEFENSE -- 0.6%
Lockheed Martin (A) 25,000 $ 2,602
-------
AGRICULTURE -- 0.3%
Dole Food 30,000 1,395
-------
AIR TRANSPORTATION -- 0.4%
KLM Royal Dutch Air* 46,820 1,627
-------
AIRCRAFT -- 0.8%
Allied Signal 25,000 973
Textron 40,000 2,392
-------
3,365
-------
APPAREL/TEXTILES -- 0.4%
Albany International 19,400 433
Donna Karan International*
(A) 100,000 1,125
-------
1,558
-------
AUTO RENTAL AND LEASING -- 0.4%
Rollins Truck Leasing 92,800 1,688
-------
AUTOMOTIVE -- 0.5%
Chrysler 60,610 2,110
Genuine Parts 3,600 119
-------
2,229
-------
BANKS -- 2.6%
Banc One (A) 2,970 166
Bank of New York 48,000 2,601
Bank United, Cl A* 30,000 1,239
BankBoston 25,000 2,237
Chase Manhattan Bank 3,300 354
First Union (A) 20,000 961
J.P. Morgan 14,300 1,447
Norwest 32,000 1,168
Wilmington Trust 14,000 817
-------
10,990
-------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (CONTINUED)
================================================================================
BEAUTY PRODUCTS -- 0.1%
Avon Products 10,000 $ 600
-------
CHEMICALS -- 3.5%
Avery Dennison 40,000 1,795
B.F. Goodrich 30,800 1,292
Cabot (A) 76,000 2,147
Du Pont (E.I.) de Nemours 37,800 2,140
Engelhard (A) 89,200 1,494
Georgia Gulf 60,600 1,977
Monsanto (A) 60,000 2,846
Morton International 33,800 1,115
-------
14,806
-------
COMMUNICATIONS EQUIPMENT -- 0.5%
Motorola 37,700 2,241
-------
COMPUTERS & SOFTWARE SERVICES -- 2.9%
Compaq Computer* (A) 82,500 2,480
Computer Associates
International 44,437 2,363
Hewlett Packard 36,000 2,160
IBM 34,000 3,355
Microsoft* 2,600 388
Parametric Technology* 26,900 1,365
-------
12,111
-------
CONSTRUCTION MATERIALS -- 0.9%
Armstrong World Industries 27,237 1,941
Lafarge (A) 60,000 1,942
-------
3,883
-------
DRUGS -- 4.5%
American Home Products 30,000 2,863
Amgen* 45,000 2,250
Astra, Cl A, ADR* 90,000 1,631
Bristol-Myers Squibb 20,000 1,994
Johnson & Johnson 5,000 335
Merck 23,800 2,791
The accompanying notes are an integral part of the financial statements.
63
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
BALANCED FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
DRUGS (CONTINUED)
SmithKline Beecham 56,000 $ 3,531
Warner Lambert 22,000 3,311
-------
18,706
-------
ELECTRICAL EQUIPMENT -- 0.4%
AMP (A) 37,600 1,504
-------
ELECTRICAL UTILITIES -- 0.8%
FPL Group 4,600 264
Duke Power 10,000 542
FirstEnergy* 50,700 1,470
PacifiCorp 39,500 916
Public Service Enterprise Group 6,500 201
-------
3,393
-------
ENTERTAINMENT -- 1.1%
Harrah's Entertainment* 10,000 220
Mirage Resorts* (A) 55,000 1,268
Walt Disney 30,000 3,197
-------
4,685
-------
FINANCIAL SERVICES -- 2.7%
Aames Financial (A) 65,000 825
American Express 30,000 2,511
Fannie Mae 67,600 4,174
Travelers (A) 74,197 3,673
-------
11,183
-------
FOOD, BEVERAGE & TOBACCO -- 2.9%
Anheuser Busch 27,400 1,231
Archer-Daniels-Midland 95,142 2,004
Coca Cola Company 10,000 647
General Mills (A) 3,700 275
H.J. Heinz 6,450 358
IBP (A) 60,000 1,215
PepsiCo 48,200 1,738
Philip Morris 67,500 2,801
Universal Foods (A) 45,200 1,921
-------
12,190
-------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
FORESTRY -- 0.3%
Rayonier 25,000 $ 1,069
-------
GAS/NATURAL GAS -- 1.8%
Coastal 35,000 2,030
Consolidated Natural Gas 2,600 141
Eastern Enterprises 34,900 1,444
Pacific Enterprises 14,100 508
Williams (A) 116,400 3,317
-------
7,440
-------
GLASS PRODUCTS -- 0.2%
Corning 25,000 850
-------
HOTELS & LODGING -- 0.5%
Circus Circus Enterprises* (A) 40,000 920
Hilton Hotels 40,000 1,132
-------
2,052
-------
HOUSEHOLD FURNITURE & FIXTURES -- 0.3%
Leggett & Platt 26,200 1,184
-------
HOUSEHOLD PRODUCTS -- 0.1%
Snap-On Tools 6,450 253
-------
INSURANCE -- 3.9%
AFLAC (A) 37,500 2,041
Allstate 27,520 2,436
American General 3,000 169
Equitable 60,000 2,760
General Re 1,400 291
Hartford Financial
Services Group 27,000 2,430
HSB Group 32,100 1,898
Jefferson Pilot (A) 7,250 592
Lincoln National 30,000 2,271
Marsh & McLennan (A) 6,600 488
Mutual Risk Management (A) 7,200 215
USF&G 27,600 657
-------
16,248
-------
The accompanying notes are an integral part of the financial statements.
64
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
BALANCED FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
LEASING & RENTING -- 0.7%
Comdisco 63,375 $ 2,186
Xtra 15,000 892
--------
3,078
--------
LEISURE PRODUCTS -- 0.0%
Mattel (A) 4,250 172
--------
MACHINERY -- 5.2%
Applied Materials* (A) 60,000 1,969
Baker Hughes 33,300 1,284
Briggs & Stratton 14,100 621
Deere 40,300 2,126
Dresser Industries 70,000 2,502
Emerson Electric 5,000 302
General Electric (A) 48,600 3,767
Global Industries
Technologies* 85,000 1,403
Ingersoll Rand (A) 44,050 1,751
Minnesota Mining &
Manufacturing 15,000 1,252
Parker-Hannifin (A) 42,500 1,857
Tenneco (A) 36,900 1,497
Toro 40,000 1,558
-------
21,889
-------
MEASURING DEVICES -- 0.7%
Mallinckrodt 35,000 1,240
Tektronix (A) 45,000 1,901
-------
3,141
-------
MEDICAL PRODUCTS & SERVICES -- 2.2%
Bausch & Lomb 30,000 1,286
Baxter International 45,000 2,506
Columbia/HCA Healthcare 48,650 1,216
Fresenius National Medical
Care, ADR* 20,981 528
Tenet Healthcare* 60,000 2,070
Vencor* (A) 60,000 1,470
-------
9,076
-------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
MISCELLANEOUS BUSINESS SERVICES -- 2.1%
Cendant* (A) 83,267 $ 2,821
Electronic Data Systems 51,900 2,160
Equifax (A) 40,000 1,315
First Data (A) 60,000 1,838
Reuters Holdings PLC, ADR 15,000 804
-------
8,938
-------
PAPER & PAPER PRODUCTS-- 1.4%
Kimberly-Clark 33,000 1,722
Mead 38,000 1,235
Weyerhaeuser (A) 24,000 1,196
Willamette Industries (A) 48,000 1,608
-------
5,761
-------
PETROLEUM & FUEL PRODUCTS -- 1.6%
Occidental Petroleum 78,200 1,994
Phillips Petroleum 28,000 1,232
Union Pacific Resources
Group (A) 81,104 1,815
Union Texas Petroleum (A) 80,000 1,515
-------
6,556
-------
PETROLEUM REFINING -- 3.4%
Amoco 29,600 2,409
Chevron 33,600 2,514
Mobil 34,000 2,316
Royal Dutch Petroleum 39,200 2,009
Ultramar Diamond Shamrock* 55,700 1,856
Unocal 30,000 1,031
USX-Marathon Group 62,000 2,081
-------
14,216
-------
PRECIOUS METALS -- 0.5%
Barrick Gold (A) 108,636 2,105
-------
PRINTING & PUBLISHING -- 1.4%
Houghton Mifflin 50,000 1,353
McGraw-Hill 2,500 175
The accompanying notes are an integral part of the financial statements.
65
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
BALANCED FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
PRINTING & PUBLISHING (CONTINUED)
Media General 45,000 $ 2,048
Viacom, Cl B* (A) 55,000 2,296
--------
5,872
--------
RAILROADS -- 0.9%
Burlington Northern Santa Fe 23,100 2,004
Union Pacific 31,100 1,866
--------
3,870
--------
REAL ESTATE -- 1.9%
BRE Properties, Cl A 53,600 1,477
CBL & Associates Properties 65,500 1,617
First Industrial Realty Trust 35,000 1,256
JP Realty 52,000 1,264
Post Properties 21,900 842
Price Real Estate Investment
Trust 30,000 1,331
--------
7,787
--------
RETAIL -- 2.3%
American Stores 66,000 1,436
Costco* 45,000 1,952
Federated Department Stores* 30,000 1,271
Home Depot (A) 3,300 199
McDonald's 40,000 1,885
OfficeMax* 60,000 878
Sears Roebuck 47,000 2,165
Tricon Global Restaurants* 4,820 131
--------
9,917
--------
RUBBER & PLASTIC -- 0.7%
Agrium 120,000 1,470
Mark IV Industries 62,600 1,326
--------
2,796
--------
SEMI-CONDUCTORS/INSTRUMENTS -- 1.1%
Intel 35,500 2,876
National Semiconductor* (A) 60,000 1,688
--------
4,564
--------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
TELEPHONES & TELECOMMUNICATION -- 2.8%
AirTouch Communications* 51,400 $ 2,255
Bell Atlantic 41,100 3,804
Century Telephone Enterprises 40,000 2,110
Frontier (A) 43,400 1,131
SBC Communications 30,000 2,333
--------
11,633
--------
WHOLESALE -- 0.4%
Arrow Electronics* 56,000 1,813
--------
TOTAL COMMON STOCKS
(Cost $167,298) 263,036
--------
================================================================================
PREFERRED STOCKS -- 0.0%
================================================================================
Fresenius National Medical
Care* 20,000 1
--------
TOTAL PREFERRED STOCKS
(Cost $0) 1
--------
================================================================================
U.S. TREASURY OBLIGATIONS -- 12.6%
================================================================================
U.S. Treasury Bonds
5.625%, 02/15/06 $3,000 3,014
U.S. Treasury Notes
7.500%, 10/31/99 1,000 1,035
7.750%, 11/30/99 1,000 1,041
7.125%, 02/29/00 1,500 1,551
5.500%, 04/15/00 3,000 3,010
6.125%, 09/30/00 1,500 1,528
5.750%, 10/31/00 700 707
5.625%, 02/28/01 3,000 3,020
6.250%, 04/30/01 1,000 1,025
6.500%, 05/31/01 2,000 2,065
6.625%, 06/30/01 1,000 1,037
6.500%, 08/31/01 3,000 3,104
7.500%, 11/15/01 6,000 6,419
5.875%, 11/30/01 2,000 2,030
The accompanying notes are an integral part of the financial statements.
66
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
BALANCED FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
U.S. TREASURY OBLIGATIONS (continued0
================================================================================
U.S. Treasury Notes (continued)
6.250%, 06/30/02 $ 3,000 $ 3,096
6.375%, 08/15/02 2,000 2,075
6.250%, 02/15/03 1,000 1,036
5.875%, 02/15/04 500 512
6.500%, 05/15/05 4,500 4,761
6.500%, 08/15/05 4,500 4,763
6.875%, 05/15/06 1,000 1,086
7.000%, 07/15/06 2,500 2,737
6.500%, 10/15/06 2,000 2,125
-------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $50,772) 52,777
-------
================================================================================
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
BONDS -- 10.5%
================================================================================
FNMA
7.500%, 08/01/01 2,312 2,362
5.450%, 10/10/03 1,350 1,333
6.850%, 09/12/05 1,200 1,224
6.500%, 03/01/24 280 279
8.000%, 08/01/24 806 837
8.000%, 05/01/25 3,491 3,624
7.000%, 09/01/25 1,901 1,928
8.000%, 07/01/26 830 862
7.000%, 09/01/26 1,409 1,429
7.500%, 09/01/26 1,380 1,419
7.000%, 12/01/26 1,781 1,806
7.500%, 03/01/27 1,474 1,515
6.500%, 10/01/27 1,483 1,476
6.500%, 12/01/27 2,522 2,510
7.000%, 12/01/27 2,490 2,525
GNMA
6.500%, 09/15/08 3,127 3,162
6.000%, 11/15/08 2,063 2,052
6.500%, 02/15/24 93 93
7.500%, 05/15/24 411 424
7.500%, 09/15/25 916 943
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000)VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED (continued)
================================================================================
GNMA (continued)
7.000%, 02/15/26 $ 932 $ 947
6.500%, 04/15/26 946 943
7.000%, 08/15/26 2,415 2,452
7.500%, 09/15/26 1,954 2,010
7.500%, 09/15/26 1,397 1,444
7.500%, 01/15/27 2,425 2,498
7.000%, 10/15/27 1,994 2,024
-------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED BONDS
(Cost $42,959) 44,121
-------
================================================================================
CORPORATE OBLIGATIONS -- 10.1%
================================================================================
American General
6.250%, 12/18/02 2,000 2,018
6.750%, 06/15/05 2,000 2,053
American Telephone & Telegraph
7.500%, 06/01/06 2,000 2,168
Associates of North America
7.875%, 09/30/01 2,000 2,130
Avco Financial Services
7.375%, 08/15/01 2,000 2,100
Bankers Trust NY
7.500%, 11/15/15 2,000 2,083
Bass America
6.750%, 08/01/99 95 96
Bell Atlantic
8.000%, 10/15/29 175 208
Caterpillar Tractor
6.000%, 05/01/07 205 201
Chemical Banking
6.700%, 08/15/08 1,500 1,539
Chesapeake & Potomac
Telephone of Maryland
6.000%, 05/01/03 1,500 1,508
Citicorp
6.750%, 08/15/05 200 206
The accompanying notes are an integral part of the financial statements.
67
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
BALANCED FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CORPORATE OBLIGATIONS (continued)
================================================================================
Du Pont (E.I.) de Nemours
6.750%, 09/01/07 $ 3,000 $ 3,143
First Bank System
6.875%, 09/15/07 500 519
First National Bank of Boston
8.000%, 09/15/04 2,000 2,190
Ford Motor Credit
6.500%, 02/28/02 500 508
6.125%, 01/09/06 3,000 2,978
General Motors Acceptance
8.000%, 10/01/99 305 315
Golden West Financial
6.700%, 07/01/02 100 102
Hydro Quebec
8.050%, 07/07/24 100 116
IBM
8.375%, 11/01/19 200 244
J.C. Penney
6.000%, 05/01/06 100 97
Joseph E. Seagram & Sons
7.000%, 04/15/08 1,500 1,584
Lehman Brothers Holding
8.500%, 05/01/07 2,000 2,298
Lockheed Martin
7.700%, 06/15/08 2,000 2,223
New England Telephone
& Telegraph
7.875%, 11/15/29 125 147
Panhandle Eastern
7.875%, 08/15/04 1,000 1,086
Province of British Columbia
7.000%, 01/15/03 1,500 1,568
Ralston Purina
7.750%, 10/01/15 2,000 2,215
Royal Bank of Scotland
6.375%, 02/01/11 2,500 2,488
U.S. Bancorp
6.750%, 10/15/05 150 155
Wal-Mart
6.375%, 03/01/03 200 205
5.875%, 10/15/05 2,000 1,990
--------
TOTAL CORPORATE OBLIGATIONS
(Cost $40,042) 42,481
--------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
ASSET BACKED SECURITIES -- 1.0%
================================================================================
American Express Master Trust,
Ser 1994-1, Cl A
7.150%, 08/15/99 $ 1,500 $ 1,512
Contimortgage Home Equity Loan
Trust, Ser 1995-3, Cl A4
7.440%, 09/15/15 200 210
Contimortgage Home Equity Loan
Trust, Ser 1994-4, Cl A3
8.090%, 09/15/09 200 210
Equity Capital Home Equity Loan
Trust, Ser 1996-3, Cl A6
7.400%, 12/15/19 350 366
Green Tree Financial,
Ser 1995-9, Cl A5
6.800%, 01/15/27 250 259
J.C. Penney Master Credit Card
Trust, Ser C, Cl A
9.625%, 06/30/00 1,000 1,087
Standard Credit Card Master Trust,
Ser 1993-3
5.500%, 02/07/00 500 499
Union Federal Savings Bank Trust,
Ser 1994-A, Cl A
5.075%, 05/15/00 58 58
--------
TOTAL ASSET BACKED SECURITIES
(Cost $4,044) 4,201
--------
================================================================================
CORPORATE BOND -- 1.2%
================================================================================
Sigma Finance (B) (C)
5.770%, 11/10/98 5,000 5,000
--------
TOTAL CORPORATE BOND
(Cost $5,000) 5,000
--------
================================================================================
CERTIFICATE OF DEPOSIT-DOMESTIC -- 2.4%
================================================================================
Bankers Trust New York (B) (C)
5.650%, 07/15/98 10,000 9,998
--------
TOTAL CERTIFICATE OF DEPOSIT-DOMESTIC
(Cost $9,998) 9,998
--------
The accompanying notes are an integral part of the financial statements.
68
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
BALANCED FUND (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CERTIFICATES OF DEPOSIT-YANKEE -- 2.4%
================================================================================
Societe Generale, New York (B) (C)
5.750%, 05/06/98 $ 5,000 $ 5,001
5.720%, 08/25/98 5,000 4,998
-------
TOTAL CERTIFICATES OF DEPOSIT-YANKEE
(Cost $9,999) 9,999
-------
================================================================================
BANK NOTE -- 1.2%
================================================================================
PNC Bank (B) (C)
5.620%, 02/13/98 5,000 5,001
-------
TOTAL BANK NOTE
(Cost $5,001) 5,001
-------
================================================================================
CASH EQUIVALENT -- 0.2%
================================================================================
AIM Liquid Asset Money Fund (C) 773 773
-------
TOTAL CASH EQUIVALENT
(Cost $773) 773
-------
================================================================================
REPURCHASE AGREMENTS -- 6.1%
================================================================================
JP Morgan Securities, Inc.
5.59%, dated 01/30/98,
matures 02/02/98,
repurchase price
$8,809,483 (collateralized
by FHLB, par value
$8,775,000, 6.76%,
11/13/07: market
value $8,982,913) 8,805 8,805
Lehman Brothers (C)
5.70%, dated 01/30/98,
matures 02/02/98,
repurchase price
$17,031,342 (collateralized
by various corporate
obligations: 0.00%-9.502%,
11/02/98-11/25/07: total
market value $17,371,969) 17,023 17,023
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $25,828) 25,828
--------
TOTAL INVESTMENTS -- 110.4%
(Cost $361,714) 463,216
--------
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (11.4%) $ (47,794)
---------
OTHER ASSETS AND LIABILITIES,
NET -- 1.0% 4,196
---------
================================================================================
NET ASSETS:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization --- no
par value) based on 25,101,342
outstanding shares of beneficial
interest 303,639
Fund Shares of Retail Class A
(unlimited authorization --
no par value) based on
597,304 outstanding shares of
beneficial interest 7,034
Undistributed net investment income 129
Accumulated net realized gain
on investments 7,314
Net unrealized appreciation
on investments 101,502
--------
TOTAL NET ASSETS -- 100.0% $419,618
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $16.33
========
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $16.32
========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($16.32(Divide)95.5%) $17.09
========
- --------------------------------------------------------------------------------
*NON-INCOME PRODUCING SECURITY
ADR -- AMERICAN DEPOSITORY RECEIPT
CL -- CLASS
FHLB -- FEDERAL HOME LOAN BANK
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 JANUARY
31, 1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT JANUARY
31, 1998 WAS $47,813,189.
(B) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JANUARY 31, 1998.
(C) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
The accompanying notes are an integral part of the financial statements.
69
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS -- 96.0%
================================================================================
AIR TRANSPORTATION -- 0.5%
FDX (A) 23,570 $ 1,534
-------
APPAREL/TEXTILES -- 1.0%
Cintas 78,830 3,291
-------
BANKS -- 4.0%
Banc One (A) 36,500 2,039
Chase Manhattan Bank 24,785 2,657
Fleet Financial Group 11,430 819
U.S. Bancorp (A) 32,323 3,539
Washington Mutual (A) 45,240 2,907
Wells Fargo 5,115 1,581
-------
13,542
-------
BEAUTY PRODUCTS -- 1.9%
Avon Products (A) 83,330 5,000
Colgate-Palmolive (A) 11,020 807
Proctor & Gamble 5,440 426
-------
6,233
-------
BROADCASTING, NEWSPAPERS & ADVERTISING -- 3.3%
Comcast, Cl A (A) 92,400 2,893
Dow Jones (A) 63,200 3,176
Gannett 55,060 3,331
Interpublic Group (A) 33,370 1,637
-------
11,037
-------
CHEMICALS -- 1.7%
B.F. Goodrich 113,975 4,780
Monsanto 18,520 879
-------
5,659
-------
DIVERSIFIED OPERATIONS -- 2.0%
Berkshire Hathaway* (A) 4,013 6,730
-------
COMPUTERS & SOFTWARE SERVICES -- 5.3%
Cisco Systems* 13,687 863
Compaq Computer* (A) 24,650 741
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
COMPUTERS & SOFTWARE SERVICES (CONTINUED)
Computer Associates
International 15,609 $ 830
Dell Computer* 18,070 1,797
Fiserv* 60,080 3,117
HBO 56,280 2,944
Hewlett Packard 12,155 729
Microsoft* 34,250 5,110
Parametric Technology* 31,030 1,575
-------
17,706
-------
DRUGS -- 14.0%
Abbott Labs 59,482 4,212
Alza* (A) 99,430 3,542
Amgen* 14,671 734
Bristol-Myers Squibb 68,990 6,877
Eli Lilly 98,080 6,620
Johnson & Johnson 48,390 3,239
Merck 34,235 4,014
Pfizer 106,970 8,765
Schering Plough 58,520 4,235
Warner Lambert 30,135 4,535
-------
46,773
-------
ENTERTAINMENT -- 3.2%
Mirage Resorts* (A) 139,370 3,214
Walt Disney 70,211 7,482
-------
10,696
-------
FINANCIAL SERVICES -- 5.4%
American Express 53,455 4,474
Charles Schwab (A) 44,590 1,628
Fannie Mae 108,295 6,687
Franklin Resources (A) 78,120 3,501
MBNA (A) 59,262 1,841
-------
18,131
-------
FOOD, BEVERAGE & TOBACCO -- 8.3%
Coca Cola Company 122,140 7,909
Hershey Foods 52,460 3,341
The accompanying notes are an integral part of the financial statements.
70
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
GROWTH FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
FOOD, BEVERAGE & TOBACCO (CONTINUED)
PepsiCo 165,910 $ 5,983
Philip Morris 153,390 6,366
Quaker Oats 49,770 2,675
Wm. Wrigley, Jr. 19,610 1,450
-------
27,724
-------
HOUSEHOLD PRODUCTS -- 3.2%
Gillette (A) 107,214 10,587
-------
INSURANCE -- 6.6%
Allstate 38,437 3,402
American International Group 35,812 3,951
First Health Group (A) 56,800 2,705
Hartford Financial Services
Group 18,415 1,657
Marsh & McLennan 19,980 1,476
MBIA 25,300 1,638
Mutual Risk Management (A) 61,262 1,826
Travelers (A) 113,309 5,609
-------
22,264
-------
LEISURE PRODUCTS -- 1.6%
Mattel (A) 108,940 4,412
Nike (A) 22,280 893
-------
5,305
-------
MACHINERY -- 5.8%
Applied Materials* 6,280 206
Baker Hughes 37,310 1,439
Danaher 37,290 2,354
Dresser Industries 41,785 1,494
Emerson Electric 29,020 1,756
General Electric 91,560 7,096
Illinois Tool Works 60,920 3,392
Ingersoll Rand (A) 40,340 1,604
-------
19,341
-------
MARINE TRANSPORTATION -- 1.1%
Carnival, Cl A 66,030 3,685
-------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
MEDICAL PRODUCTS & SERVICES -- 3.3%
Covance* 15,840 $ 300
Guidant 25,070 1,611
Medtronic (A) 69,520 3,550
Safeskin* 72,200 4,084
Stryker (A) 41,460 1,531
-------
11,076
-------
MISCELLANEOUS BUSINESS SERVICES -- 3.0%
Automatic Data Processing 26,335 1,575
Cendant* 203,112 6,880
Electronic Data Systems 8,370 348
First Data (A) 43,822 1,342
-------
10,145
-------
MISCELLANEOUS CONSUMER SERVICES -- 1.4%
Robert Half International* 82,782 3,197
Service International 38,495 1,501
-------
4,698
-------
PAPER & PAPER PRODUCTS -- 1.0%
Kimberly-Clark 64,240 3,353
-------
PRINTING & PUBLISHING -- 1.3%
McGraw-Hill 42,870 2,993
R.R. Donnelley & Sons 42,000 1,567
-------
4,560
-------
PROFESSIONAL SERVICES -- 3.6%
Cognizant 177,575 8,057
Devry* 128,030 3,873
-------
11,930
-------
RETAIL -- 6.5%
Costco* 108,000 4,684
Home Depot 85,710 5,169
Kohls* (A) 71,825 4,983
McDonald's 64,555 3,042
The accompanying notes are an integral part of the financial statements.
71
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
GROWTH FUND (continued)
- --------------------------------------------------------------------------------
ESCRIPTION SHARES/PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
RETAIL (CONTINUED)
Safeway* 56,520 $ 3,755
--------
21,633
--------
SEMI-CONDUCTORS/INSTRUMENTS -- 4.1%
Intel 80,570 6,526
National Semiconductor* (A) 74,220 2,087
Texas Instruments 71,300 3,895
Xilinx* 32,440 1,231
--------
13,739
--------
TELEPHONES & TELECOMMUNICATION -- 2.9%
AirTouch Communications* 106,975 4,694
AT&T 24,330 1,524
Cincinnati Bell 10,880 390
Lucent Technologies 36,259 3,209
--------
9,817
--------
TOTAL COMMON STOCKS
(Cost $250,939) 321,189
--------
================================================================================
CORPORATE BONDS -- 4.5%
================================================================================
Merrill Lynch MTN (B) (C)
5.770%, 05/11/98 $10,000 10,000
Sigma Finance (B) (C)
5.770%, 11/10/98 5,000 5,000
-------
TOTAL CORPORATE BONDS
(Cost $15,000) 15,000
-------
================================================================================
CERTIFICATES OF DEPOSIT-DOMESTIC -- 1.5%
================================================================================
Bankers Trust New York (B) (C)
5.640%, 09/11/98 5,000 4,998
--------
TOTAL CERTIFICATES OF DEPOSIT-DOMESTIC
(Cost $4,998) 4,998
--------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CERTIFICATES OF DEPOSIT-YANKEE -- 3.0%
================================================================================
Societe Generale, New York (B) (C)
5.750%, 05/06/98 $ 5,000 $ 5,001
5.720%, 08/25/98 5,000 4,998
-------
TOTAL CERTIFICATES OF DEPOSIT-YANKEE
(Cost $9,999) 9,999
-------
================================================================================
CASH EQUIVALENT -- 0.6%
================================================================================
Janus Money Fund (C) 2,000 2,000
-------
TOTAL CASH EQUIVALENT
(Cost $2,000) 2,000
-------
================================================================================
REPURCHASE AGREEMENTS -- 11.1%
================================================================================
JP Morgan Securities, Inc.
5.59%, dated 01/30/98,
matures 02/02/98, repurchase
price $13,088,759 (collateralized
by FHLMC, par value $13,518,000,
04/24/98: market value
$13,344,375) 13,083 13,083
Lehman Brothers (C)
5.70%, dated 01/30/98, matures
02/02/98, repurchase price
$24,075,308 (collateralized
by various corporate
obligations, 0.00%-9.502%,
11/02/98-11/25/07: total
market $24,556,814) 24,064 24,064
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $37,147) 37,147
--------
TOTAL INVESTMENTS -- 116.7%
(Cost $320,083) 390,333
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (16.7%) (56,061)
--------
OTHER ASSETS AND LIABILITIES, NET -- 0.0% 222
--------
The accompanying notes are an integral part of the financial statements.
72
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
GROWTH FUND (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
NET ASSETS:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization --
no par value) based on 22,525,588
outstanding shares of beneficial
interest $243,355
Fund Shares of Retail Class A
(unlimited authorization -- no
par value) based on 678,641
outstanding shares of beneficial
interest 8,976
Distribution in excess of net
investment income (110)
Accumulated net realized gain
on investments 12,023
Net unrealized appreciation
on investments 70,250
--------
TOTAL NET ASSETS -- 100.0% $334,494
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $14.41
========
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $14.43
========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($14.43 [divide] 95.5%) $15.11
========
- --------------------------------------------------------------------------------
*NON-INCOME PRODUCING SECURITY
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 JANUARY
31, 1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT JANUARY
31, 1998 WAS $56,064,306.
(B) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JANUARY 31, 1998.
(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
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
VALUE MOMENTUM FUND
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS -- 93.6%
================================================================================
AUTOMOTIVE -- 1.6%
Arvin Industries 150,000 $ 5,175
Ford Motor 50,000 2,550
Meritor Automotive* 10,000 229
TRW 20,000 1,017
-------
8,971
-------
BANKS -- 5.3%
Bank United, Cl A* 120,000 4,957
BankAmerica 70,000 4,974
Bankers Trust (A) 55,000 5,737
First Union 110,000 5,287
J.P. Morgan 35,000 3,542
Providian Financial 50,000 2,444
Wilmington Trust 50,000 2,919
-------
29,860
-------
BUILDING MATERIALS -- 1.5%
Fleetwood Enterprises (A) 70,000 2,914
Lafarge 175,000 5,666
-------
8,580
--------
CHEMICALS -- 4.5%
Avery Dennison 139,000 6,238
Cabot (A) 106,000 2,994
Du Pont (E.I.) de Nemours 66,000 3,737
Engelhard (A) 202,500 3,392
Solutia 12,000 335
W.R. Grace 74,000 5,814
Wellman (A) 160,000 2,870
-------
25,380
-------
COMMUNICATIONS EQUIPMENT -- 2.3%
CTS 225,000 7,256
Harris (A) 80,000 3,810
Lucent Technologies (A) 22,840 2,021
-------
13,087
-------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
COMPUTERS & SERVICES -- 3.6%
Cisco Systems* 90,000 $ 5,676
Electronic Data Systems 25,000 1,041
Equifax (A) 100,000 3,288
Hewlett Packard 95,000 5,700
IBM 48,000 4,737
NCR* 1,465 44
-------
20,486
-------
DRUGS -- 5.9%
American Home Products 45,000 4,295
Amgen* (A) 95,000 4,750
Astra AB-A, ADR* 100,000 1,812
Bristol Myers Squibb 26,000 2,592
Merck 50,000 5,862
Monsanto 60,000 2,846
SmithKline Beecham, ADR (A) 114,000 7,189
Watson Pharmaceuticals* 120,000 4,410
-------
33,756
-------
ELECTRICAL UTILITIES -- 0.5%
General Public Utilities 75,000 2,948
-------
ENTERTAINMENT -- 0.0%
Ascent Entertainment Group* 24,440 260
-------
FINANCIAL SERVICES -- 5.2%
Aames Financial (A) 300,000 3,806
Bear Stearns 116,504 4,871
Fannie Mae 120,000 7,410
Morgan Stanley, Dean
Witter, Discover 100,000 5,837
Travelers (A) 150,001 7,425
-------
29,349
-------
FOOD, BEVERAGE & TOBACCO -- 4.0%
Dole Food 110,000 5,115
IBP (A) 130,000 2,632
Philip Morris 115,000 4,773
Sara Lee (A) 80,000 4,365
The accompanying notes are an integral part of the financial statements.
74
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
VALUE MOMENTUM FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
FOOD, BEVERAGE & TOBACCO (CONTINUED)
Universal Foods 75,000 $ 3,188
Universal 70,000 2,708
-------
22,781
-------
GAS/NATURAL GAS -- 5.6%
Coastal 110,000 6,380
Eastern Enterprises 135,000 5,586
MCN (A) 90,000 3,330
Oneok* (A) 150,000 5,128
Questar 82,000 3,413
Sonat (A) 50,000 2,184
Westcoast Energy 30,000 720
Williams (A) 180,000 5,130
-------
31,871
-------
GLASS PRODUCTS -- 0.3%
PPG Industries (A) 27,000 1,549
-------
HOTELS & LODGING -- 0.4%
Hilton Hotels 75,000 2,123
-------
HOUSEHOLD FURNITURE & FIXTURES -- 1.1%
Leggett & Platt 135,000 6,100
-------
INSURANCE -- 2.5%
Aegon N.V., ADR* 21,720 2,058
Allstate 39,467 3,493
Chubb 45,000 3,417
Lincoln National 40,000 3,028
Torchmark 60,000 2,494
-------
14,490
-------
LEASING & RENTING -- 3.3%
Comdisco (A) 202,500 6,986
GATX 51,000 3,701
Rollins Truck Leasing 310,000 5,638
Xtra 45,000 2,675
-------
19,000
-------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
LEISURE PRODUCTS -- 1.2%
Hasbro 200,000 $ 6,900
-------
MACHINERY -- 5.6%
Caterpillar (A) 86,000 4,128
Deere 80,000 4,220
Dresser Industries (A) 165,000 5,899
General Electric 90,000 6,975
Rockwell International* 45,000 2,514
Textron 60,000 3,589
Toro 117,500 4,575
-------
31,900
-------
MEASURING DEVICES -- 1.3%
Perkin Elmer (A) 30,000 1,770
Tektronix (A) 137,500 5,809
-------
7,579
-------
MEDICAL PRODUCTS & SERVICES -- 4.7%
Baxter International 95,000 5,290
Becton, Dickinson (A) 100,000 6,313
Fresenius National
Medical Care, ADR* 67,141 1,691
Mallinckrodt (A) 75,000 2,658
Manor Care 115,000 3,989
Novacare* 100,000 1,250
Tenet Healthcare* 155,000 5,348
-------
26,539
-------
MISCELLANEOUS BUSINESS SERVICES -- 3.0%
Cendant* (A) 257,732 8,731
Choicepoint* 10,000 452
Manpower 30,000 1,110
Wallace Computer Services (A) 170,000 6,556
-------
16,849
-------
OFFICE FURNITURE & FIXTURES -- 1.0%
Hon Industries 90,000 5,490
-------
The accompanying notes are an integral part of the financial statements.
75
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
VALUE MOMENTUM FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
PAPER & PAPER PRODUCTS -- 2.0%
Kimberly-Clark 116,720 $ 6,091
Weyerhaeuser (A) 45,000 2,242
Willamette Industries (A) 94,000 3,149
-------
11,482
-------
PETROLEUM & FUEL PRODUCTS -- 3.8%
Chevron 55,000 4,115
Mobil 56,000 3,815
Occidental Petroleum 190,000 4,845
Royal Dutch Petroleum 52,000 2,665
Union Pacific Resources 165,408 3,701
Union Texas Petroleum (A) 130,000 2,462
-------
21,603
-------
PETROLEUM REFINING -- 0.6%
Ashland 30,000 1,583
Valero Energy 50,000 1,578
-------
3,161
-------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 1.3%
Xerox 89,000 7,153
-------
PRINTING & PUBLISHING -- 1.4%
Houghton Mifflin (A) 100,000 2,706
McGraw-Hill 75,000 5,236
-------
7,942
-------
RAILROADS -- 1.2%
Burlington Northern Santa Fe 32,000 2,776
Florida East Coast Railway 40,000 4,010
-------
6,786
-------
REAL ESTATE -- 5.1%
BRE Properties, Cl A 172,262 4,748
CBL Associates Properties 260,000 6,419
First Industrial Realty Trust 145,000 5,202
Meditrust 30,700 988
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
================================================================================
REAL ESTATE (CONTINUED)
JP Realty 143,000 $ 3,477
Post Properties 115,000 4,420
Price Real Estate
Investment Trust 90,000 3,994
-------
29,248
-------
RETAIL -- 3.7%
Dayton-Hudson (A) 74,000 5,323
Federated Department
Stores* (A) 145,000 6,144
Kroger* 60,000 2,348
May Department Stores (A) 50,000 2,628
Sears Roebuck 96,000 4,422
-------
20,865
-------
RUBBER & PLASTIC -- 1.9%
Hanna 240,000 4,890
Sonoco Products 160,000 5,680
-------
10,570
-------
SEMI-CONDUCTORS/INSTRUMENTS -- 2.8%
Applied Materials* (A) 85,000 2,789
Avnet 40,000 2,440
Intel 110,000 8,910
National Semiconductor* (A) 75,000 2,109
-------
16,248
-------
STEEL & STEEL WORKS -- 0.8%
Aluminum Company of America 25,000 1,909
Harsco (A) 60,000 2,434
-------
4,343
-------
TELEPHONES & TELECOMMUNICATION -- 4.6%
AirTouch Communications* 16,000 702
Bell Atlantic 60,000 5,554
Century Telephone Enterprises 100,000 5,275
Comsat 50,000 1,247
Frontier (A) 100,000 2,606
GTE 60,000 3,274
The accompanying notes are an integral part of the financial statements.
76
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
VALUE MOMENTUM FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
TELEPHONES & TELECOMMUNICATION (CONTINUED)
SBC Communications 95,000 $ 7,386
-------
26,044
-------
TOTAL COMMON STOCKS
(Cost $322,567) 531,293
-------
================================================================================
CORPORATE BONDS -- 3.5%
================================================================================
Merrill Lynch MTN (B) (C)
5.770%, 05/11/98 $15,000 15,000
Sigma Finance (B) (C)
5.770%, 11/10/98 5,000 5,000
-------
TOTAL CORPORATE BONDS
(Cost $20,000) 20,000
-------
================================================================================
COMMERCIAL PAPER -- 1.8%
================================================================================
South Western Electric PLC# (C)
5.664%, 02/19/98 10,472 10,441
-------
TOTAL COMMERCIAL PAPER
(Cost $10,441) 10,441
-------
================================================================================
CERTIFICATES OF DEPOSIT-DOMESTIC -- 3.0%
================================================================================
Bankers Trust New York (B) (C)
5.650%, 07/15/98 12,000 12,006
5.640%, 09/11/98 5,000 4,998
-------
TOTAL CERTIFICATES OF DEPOSIT-DOMESTIC
(Cost $17,004) 17,004
-------
================================================================================
CERTIFICATES OF DEPOSIT-YANKEE -- 1.8%
================================================================================
Societe Generale, New York (B) (C)
5.750%, 05/06/98 5,000 5,001
5.720%, 08/25/98 5,000 4,998
-------
TOTAL CERTIFICATES OF DEPOSIT-YANKEE
(Cost $9,999) 9,999
-------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CASH EQUIVALENT -- 0.5%
================================================================================
AIM Liquid Asset Money Fund (C) $ 2,816 $ 2,816
-------
TOTAL CASH EQUIVALENT
(Cost $2,816) 2,816
-------
================================================================================
REPURCHASE AGREMENTS -- 12.8%
================================================================================
JP Morgan Securities, Inc.
5.59%, dated 01/30/98,
matures 02/02/98,
repurchase price
$34,989,975 (collateralized
by various U.S. Government
Obligations, total par value
$35,455,000, 6.50%-6.76%,
11/13/07-01/07/08:
total market value
$35,678,026) 34,974 34,974
Lehman Brothers (C)
5.70%, dated 01/30/98,
matures 02/02/98,
repurchase price
$37,613,079 (collateralized
by various corporate
obligations, 0.00%-9.502%,
11/02/98-11/25/07:
total market value
$38,365,341) 37,595 37,595
-------
TOTAL REPURCHASE AGREEMENTS
(Cost $72,569) 72,569
-------
TOTAL INVESTMENTS -- 117.0%
(Cost $455,396) 664,122
-------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (17.2%) (97,855)
-------
OTHER ASSETS AND LIABILITIES, NET -- 0.2% 1,209
-------
The accompanying notes are an integral part of the financial statements.
77
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
VALUE MOMENTUM FUND (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
NET ASSETS:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization --
no par value) based on
20,528,270 outstanding shares
of beneficial interest $338,538
Fund Shares of Retail Class A
(unlimited authorization --
no par value) based on
1,083,161 outstanding shares
of beneficial interest 18,723
Undistributed net investment income 221
Accumulated net realized gain
on investments 1,268
Net unrealized appreciation
on investments 208,726
--------
TOTAL NET ASSETS -- 100.0% $567,476
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $26.26
========
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $26.25
========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($25.25(Divide)95.5%) $27.49
========
- --------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITY
# REPRESENTS THE EFFECTIVE YIELD AT DATE OF PURCHASE.
ADR -- AMERICAN DEPOSITORY RECEIPT
CL -- CLASS
MTN -- MEDIUM TERM NOTE
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT JANUARY
31, 1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT JANUARY
31, 1998 WAS $97,853,740.
(B) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JANUARY 31, 1998.
(C) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
78
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INCOME EQUITY FUND
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCK -- 98.0%
================================================================================
AUTOMOTIVE -- 0.5%
Genuine Parts 57,125 $ 1,896
-------
BANKS -- 10.4%
Banc One (A) 193,275 10,799
First Union 177,350 8,524
Fleet Financial Group (A) 87,725 6,283
J.P. Morgan 39,000 3,946
National City (A) 60,875 3,664
NationsBank (A) 92,500 5,550
-------
38,766
-------
BEAUTY PRODUCTS -- 0.9%
International Flavors &
Fragrances (A) 81,575 3,436
-------
BUSINESS SERVICES -- 1.6%
Pitney Bowes 129,850 5,957
-------
CHEMICALS -- 4.4%
B.F. Goodrich 101,275 4,247
BetzDearborn (A) 56,600 3,262
Dow Chemical (A) 29,125 2,621
Du Pont (E. I.) de Nemours 31,500 1,784
Rohm & Haas (A) 20,100 1,724
Witco (A) 63,050 2,554
-------
16,192
-------
DRUGS -- 5.3%
Bristol-Myers Squibb 100,750 10,044
Merck 47,675 5,590
SmithKline Beecham 63,300 3,992
-------
19,626
-------
ELECTRICAL EQUIPMENT -- 2.1%
AMP (A) 104,900 4,196
Thomas & Betts (A) 72,900 3,599
--------
7,795
--------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
ELECTRICAL UTILITIES -- 7.7%
Baltimore Gas & Electric 165,350 $ 5,022
Duke Power 122,475 6,637
FPL Group 140,300 8,050
PacifiCorp 185,200 4,294
TECO Energy (A) 176,200 4,570
--------
28,573
--------
ENVIRONMENTAL SERVICES -- 0.8%
Browning-Ferris Industries (A) 87,300 3,017
--------
FOOD, BEVERAGE & TOBACCO-- 8.1%
Anheuser Busch 145,580 6,542
General Mills (A) 97,100 7,228
H.J. Heinz 126,325 7,003
Kellogg 91,700 4,235
Philip Morris 123,900 5,142
--------
30,150
--------
GAS/NATURAL GAS -- 2.9%
Consolidated Natural Gas 95,100 5,165
Williams (A) 200,850 5,724
--------
10,889
--------
INSURANCE -- 7.6%
American General 108,000 6,088
Jefferson Pilot (A) 46,525 3,800
Lincoln National 34,250 2,592
Marsh & McLennan 129,100 9,537
St. Paul (A) 72,900 6,342
--------
28,359
--------
MACHINERY -- 6.8%
Dresser Industries 99,675 3,563
Emerson Electric 78,150 4,728
General Electric 52,925 4,102
Minnesota Mining &
Manufacturing 51,850 4,329
The accompanying notes are an integral part of the financial statements.
79
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INCOME EQUITY FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
MACHINERY (CONTINUED)
National Service
Industries (A) 89,400 $ 4,470
Tenneco (A) 101,525 4,118
--------
25,310
--------
MEDICAL PRODUCTS & SERVICES -- 2.5%
Baxter International 166,575 9,276
--------
PAPER & PAPER PRODUCTS -- 4.9%
International Paper (A) 82,870 3,786
Kimberly-Clark 111,400 5,814
Union Camp 41,150 2,353
Weyerhaeuser 123,800 6,167
--------
18,120
--------
PETROLEUM & FUEL PRODUCTS -- 8.4%
Amoco 44,950 3,658
Atlantic Richfield 66,175 4,922
Chevron 31,425 2,351
Exxon 115,650 6,859
Mobil 82,900 5,648
Phillips Petroleum 99,425 4,375
Texaco 66,300 3,452
--------
31,265
--------
PRINTING & PUBLISHING -- 5.9%
Dow Jones (A) 67,325 3,383
McGraw-Hill 169,150 11,809
R.R. Donnelley & Sons (A) 177,875 6,637
--------
21,829
--------
RAILROADS -- 1.0%
Union Pacific 60,550 3,633
--------
RETAIL -- 3.4%
J.C. Penney 76,925 5,183
May Department Stores 68,000 3,574
Sears Roebuck 79,100 3,644
--------
12,401
--------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
RUBBER & PLASTIC -- 0.6%
Rubbermaid (A) 84,400 $ 2,184
--------
SPECIALTY MACHINERY -- 1.6%
Cooper Industries 112,100 5,948
--------
TELEPHONES & TELECOMMUNICATION -- 10.6%
AT&T 83,125 5,206
Ameritech 162,650 6,984
Bell Atlantic 122,888 11,375
Bellsouth 45,450 2,753
GTE 72,575 3,960
SBC Communications 56,325 4,379
US West 100,670 4,845
--------
39,502
--------
TOTAL COMMON STOCK
(Cost $284,875) 364,124
--------
================================================================================
CORPORATE BOND - 1.3%
================================================================================
Sigma Finance (B) (C)
5.770%, 11/10/98 $ 5,000 5,000
--------
TOTAL CORPORATE BOND
(Cost $5,000) 5,000
--------
================================================================================
COMMERCIAL PAPER -- 2.7%
================================================================================
South Western Electric PLC* (C)
5.664%, 02/19/98 10,000 9,970
--------
TOTAL COMMERCIAL PAPER
(Cost $9,970) 9,970
--------
================================================================================
CERTIFICATE OF DEPOSIT-YANKEE -- 2.7%
================================================================================
Societe Generale, New York (B) (C)
5.720%, 08/25/98 10,000 9,997
--------
TOTAL CERTIFICATE OF DEPOSIT-YANKEE
(Cost $9,997) 9,997
--------
The accompanying notes are an integral part of the financial statements.
80
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INCOME EQUITY FUND (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
REPURCHASE AGREEMENTS -- 16.8%
================================================================================
JP Morgan Securities, Inc.
5.59%, dated 01/30/98, matures
02/02/98, repurchase price
$5,858,370 (collateralized
by FHLB, par value
$5,835,000, 6.76%, 11/13/07:
market value $5,973,253) $ 5,856 $ 5,856
Lehman Brothers (C)
5.70%, dated 01/30/98,
matures 02/02/98, repurchase
price $56,789,726 (collateralized
by various corporate
obligations, 0.00%-9.502%,
11/02/98-11/25/07: total
market value $57,925,521) 56,763 56,763
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $62,619) 62,619
--------
TOTAL INVESTMENTS -- 121.5%
(Cost $372,461) 451,710
--------
PAYABLE UPON RETURN
OF SECURITIES LOANED -- (22.0%) (81,730)
--------
OTHER ASSETS AND LIABILITIES, NET -- 0.5% 1,752
--------
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
NET ASSETS:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization --
no par value) based on 21,265,341
outstanding shares of beneficial
interest $259,556
Fund Shares of Retail Class A
(unlimited authorization --
no par value) based on
1,095,095 outstanding shares
of beneficial interest 16,198
Distribution in excess of net
investment income (79)
Accumulated net realized gain
on investments 16,808
Net unrealized appreciation
on investments 79,249
--------
TOTAL NET ASSETS -- 100.0% $371,732
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $16.62
========
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $16.65
========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($16.65(Divide)95.5%) $17.43
========
- --------------------------------------------------------------------------------
* REPRESENTS THE EFFECTIVE YIELD AT DATE OF PURCHASE.
FHLB -- FEDERAL HOME LOAN BANK
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT JANUARY
31, 1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT
JANUARY 31, 1998 WAS $81,714,670.
(B) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT ON NET ASSETS
IS THE RATE IN EFFECT ON JANUARY 31, 1998.
(C) THIS SECURITY WAS PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES
LENDING.
The accompanying notes are an integral part of the financial statements.
81
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
SCHEDULE OF INVESTMENTS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
BLUE CHIP GROWTH FUND
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS -- 76.3%
================================================================================
AIR TRANSPORTATION -- 1.3%
AMR* 11,000 $ 1,389
-------
AIRCRAFT -- 1.7%
Allied Signal 33,200 1,293
Boeing 12,000 571
-------
1,864
-------
BANKS -- 13.4%
Banc One 18,600 1,039
BankBoston 14,400 1,289
Bankers Trust (A) 5,000 522
Chase Manhattan Bank 13,500 1,447
Citicorp 13,500 1,606
Comerica 20,000 1,887
CoreStates 18,100 1,385
H.F. Ahmanson 10,000 583
Merchantile Bancorp (A) 22,500 1,136
NationsBank 6,524 391
Providian Financial 21,300 1,041
U.S. Bancorp (A) 11,000 1,205
Union Planters 17,000 1,046
-------
14,577
-------
BEAUTY PRODUCTS -- 0.9%
Avon Products 17,000 1,020
-------
CHEMICALS -- 0.7%
IMC Global (A) 22,900 739
-------
COMPUTERS & SOFTWARE SERVICES -- 16.9%
3Com* 32,000 1,058
Autodesk 23,500 908
Cadence Design Systems* (A) 44,000 1,232
Cisco Systems* 30,000 1,892
Compaq Computer* (A) 36,400 1,094
Computer Associates
International 31,725 1,687
EMC* 45,000 1,465
Microsoft* 8,000 1,194
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
COMPUTERS & SOFTWARE SERVICES (CONTINUED)
NCR* 937 $ 28
Networks Associates* (A) 20,709 1,118
Peoplesoft* (A) 52,800 1,848
Quantum* (A) 77,400 1,887
Sun Microsystems* 45,000 2,157
Synopsys* 28,000 866
-------
18,434
-------
DRUGS -- 6.4%
American Home Products 18,800 1,794
Eli Lilly 14,852 1,003
Forest Laboratories* 29,200 1,734
Pfizer 13,000 1,065
Warner Lambert 8,900 1,339
-------
6,935
-------
ENVIRONMENTAL SERVICES-- 0.7%
U.S. Filter* (A) 23,000 748
-------
FINANCIAL SERVICES -- 4.9%
Firstplus Financial Group* (A) 43,700 1,327
Franklin Resources (A) 30,000 1,344
Merrill Lynch 15,400 972
The Money Store (A) 89,400 1,710
-------
5,353
-------
FOOD, BEVERAGE & TOBACCO -- 2.0%
PepsiCo 41,600 1,500
RJR Nabisco 21,000 662
-------
2,162
-------
GAS/NATURAL GAS -- 0.3%
El Paso Natural Gas 6,000 384
-------
HOUSEHOLD PRODUCTS -- 1.3%
Clorox 7,500 575
Kimberly-Clark 16,500 861
-------
1,436
-------
The accompanying notes are an integral part of the financial statements.
82
<PAGE>
SCHEDULE OF INVESTMENTS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
BLUE CHIP GROWTH FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
LEISURE PRODUCTS -- 1.5%
Mattel 41,400 $ 1,677
-------
MEDICAL PRODUCTS & SERVICES -- 7.7%
BioChem Pharma* 53,500 1,097
Boston Scientific* 35,300 1,791
Healthsouth* 67,000 1,503
Medpartners* 107,000 1,063
Pacificare Health Systems* 10,000 580
Perkin Elmer 14,800 873
United Healthcare (A) 30,000 1,538
-------
8,445
-------
METALS -- 0.6%
Aluminum Company of America 8,400 642
-------
PAPER & PAPER PRODUCTS -- 1.2%
Champion International 13,000 665
International Paper (A) 15,000 685
-------
1,350
-------
PETROLEUM & FUEL PRODUCTS -- 1.8%
Diamond Offshore Drilling (A) 36,800 1,645
Tidewater (A) 7,000 286
-------
1,931
-------
PETROLEUM REFINING -- 2.2%
Exxon 15,000 890
Mobil 15,800 1,076
Royal Dutch Petroleum 8,000 410
-------
2,376
-------
RETAIL -- 4.3%
Costco* 14,500 629
General Nutrition* 30,500 1,100
Safeway* (A) 31,300 2,079
Sears Roebuck 5,000 230
Staples* 20,000 545
Tricon Global Restaurants* 2,000 55
-------
4,638
-------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
SEMI-CONDUCTORS/INSTRUMENTS -- 2.8%
Adaptec* 49,000 $ 1,093
Analog Devices* 49,000 1,446
Atmel* 32,400 524
-------
3,063
-------
SPECIALTY MACHINERY -- 1.4%
American Standard* (A) 24,000 962
Solectron* 12,500 541
-------
1,503
-------
STEEL & STEEL WORKS -- 0.8%
Ispat International NV* (A) 39,000 843
-------
TELEPHONES & TELECOMMUNICATION -- 1.4%
Pairgain Technologies* 22,000 404
WorldCom* 30,000 1,074
-------
1,478
-------
WHOLESALE -- 0.1%
Autoliv 3,410 115
-------
TOTAL COMMON STOCKS
(Cost $72,412) 83,102
-------
================================================================================
EQUITY OPTIONS -- -0.5%
================================================================================
Autodesk February 35 Calls* (235) (118)
Computer Associates March
45 Calls* (317) (293)
Safeway February 65 Calls* (313) (94)
-------
TOTAL EQUITY OPTIONS
(Cost ($391)) (505)
-------
================================================================================
TIME DEPOSITS -- 18.2%
================================================================================
Industrial Bank of Japan Limited
5.500%, 02/02/98 $19,784 19,784
-------
TOTAL TIME DEPOSITS
(Cost $19,784) 19,784
-------
The accompanying notes are an integral part of the financial statements.
83
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
SCHEDULE OF INVESTMENTS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
BLUE CHIP GROWTH FUND (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
CORPORATE BOND -- 2.3%
================================================================================
Sigma Finance (B) (C)
5.770%, 11/10/98 $2,500 $ 2,500
--------
TOTAL CORPORATE BOND
(Cost $2,500) 2,500
--------
================================================================================
COMMERCIAL PAPER -- 3.2%
================================================================================
South Western Electric PLC# (C)
5.654%, 02/19/98 3,472 3,462
--------
TOTAL COMMERCIAL PAPER
(Cost $3,462) 3,462
--------
================================================================================
CERTIFICATE OF DEPOSIT -- 2.8%
================================================================================
Bankers Trust (B) (C)
5.650%, 07/15/98 3,000 2,999
--------
TOTAL CERTIFICATE OF DEPOSIT
(Cost $2,999) 2,999
--------
================================================================================
BANK NOTE -- 2.3%
================================================================================
PNC Bank (B) (C)
5.620%, 02/13/98 2,500 2,501
--------
TOTAL BANK NOTE
(Cost $2,501) 2,501
--------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
REPURCHASE AGREEMENT -- 8.5%
================================================================================
Lehman Brothers (C)
5.70%, dated 01/30/98, matures
02/02/98, repurchase price
$9,302,972 (collateralized by
various corporate obligations,
0.00%-9.502%, 11/02/98-11/25/07:
total market value
$9,489,031) $9,299 $ 9,299
--------
TOTAL REPURCHASE AGREEMENT
(Cost $9,299) 9,299
--------
TOTAL INVESTMENTS -- 113.1%
(Cost $112,566) 123,142
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (19.3%) (20,761)
--------
OTHER ASSETS AND LIABILITIES,
NET -- 6.2% 6,524
--------
- --------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITY
# REPRESENTS THE EFFECTIVE YIELD AT DATE OF PURCHASE.
CL -- CLASS
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT
JANUARY 31, 1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT
JANUARY 31, 1998 WAS $20,764,095.
(B) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JANUARY 31, 1998.
(C) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
The accompanying notes are an integral part of the financial statements.
84
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS -- 89.2%
================================================================================
AEROSPACE & DEFENSE -- 0.4%
Simula* (A) 20,000 $ 289
-------
AIR TRANSPORTATION -- 1.6%
Expeditors International
of Washington 7,500 233
Mesaba Holdings* 10,000 290
Midway Airlines* 15,000 272
Southwest Airlines 10,000 261
-------
1,056
-------
APPAREL/TEXTILES -- 1.0%
Interface 18,500 654
-------
BANKS -- 15.6%
Astoria Financial 30,000 1,541
Commercial Federal 42,000 1,365
Cullen/Frost Bankers 17,400 955
Downey Financial 20,000 562
First American, Tennessee 7,000 314
First Security 8,000 279
FirstFed Financial* 25,000 878
Hibernia, Cl A 25,500 486
Long Island Bancorp 20,000 899
Old Kent Financial 4,000 155
Provident Bankshares 25,000 1,581
Roslyn Bancorp* 28,000 588
TR Financial 20,000 595
Union Planters 6,000 369
-------
10,567
-------
BROADCASTING, NEWSPAPERS & ADVERTISING -- 3.0%
Chancellor Media, Cl A* 5,000 172
Cox Radio, Cl A* 9,300 355
SFX Broadcasting, Cl A* (A) 7,500 646
Sinclair Broadcast Group* (A) 2,500 118
Snyder Communications* 20,000 752
-------
2,043
-------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
BUILDING & CONSTRUCTION -- 1.3%
Centex Construction Products 17,000 $ 523
Southdown 6,000 378
-------
901
-------
COMMUNICATIONS EQUIPMENT -- 2.7%
ADC Telecommunications* 4,500 86
Applied Signal Technology* 20,000 270
Avid Technology* 7,500 218
Ciena* 1,000 55
Nice Systems Limited* 11,900 446
Omnipoint* 15,000 380
P-Com* 7,500 146
Sawtek* 7,500 195
-------
1,796
-------
COMPUTERS & SOFTWARE SERVICES -- 11.6%
Aspect Development* 8,000 358
BMC Software* (A) 16,000 1,084
Checkpoint Software* 5,000 152
Ciber* (A) 5,000 281
Cisco Systems* 6,750 426
Computer Horizons 2,500 105
Daou Systems* 9,000 200
Diamond Multimedia Systems* 10,000 113
HBO 22,500 1,177
Intelligroup* 13,500 278
Mastech 7,500 280
Mercury Interactive* 15,000 439
Network Appliance* 12,000 361
Pegasystems* (A) 12,500 253
Peregrine Systems* 8,000 100
Remedy* 2,500 39
Saville Systems
Ireland, ADR* (A) 45,000 1,834
Zebra Technologies, Cl A* 12,400 344
-------
7,824
-------
The accompanying notes are an integral part of the financial statements.
85
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
DRUGS -- 5.6%
Agouron Pharmaceutical* 15,500 $ 539
Aviron* 27,500 706
Axogen Limited Units* 7,500 326
Centocor* 2,500 100
Coulter Pharmaceutical* 24,000 480
Cytyc* 15,000 324
IDEC Pharmaceuticals* 5,000 209
Neurocrine Biosciences* 7,500 64
Rexall Sundown* 15,000 518
Sangstat Medical* 7,500 212
Sybron International* 6,300 299
-------
3,777
-------
ENTERTAINMENT -- 1.0%
Grand Casinos* 50,000 669
-------
ENVIRONMENTAL SERVICES -- 2.9%
Allied Waste Industries* 16,000 332
American Disposal Services* 25,000 828
Superior Services* 17,000 453
USA Waste Services* (A) 10,000 367
-------
1,980
-------
FINANCIAL SERVICES -- 0.2%
Firstplus Financial Group* (A) 5,000 152
-------
FOOD, BEVERAGE & TOBACCO-- 1.9%
Dean Foods 10,000 574
Earthgrains 5,000 230
Suiza Foods* 8,000 488
-------
1,292
-------
HOTELS & LODGING -- 0.4%
Signature Resorts* (A) 11,000 268
-------
HOUSEHOLD FURNITURE & FIXTURES -- 0.7%
Advanced Lighting
Technologies* 10,000 234
Ethan Allen Interiors 5,000 239
-------
473
-------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
INSURANCE -- 1.3%
Arm Financial Group* 34,500 $ 856
-------
LEISURE PRODUCTS -- 0.4%
Toymax International* 32,000 276
-------
MACHINERY -- 1.1%
Camco International 10,000 547
Chart Industries 10,000 215
-------
762
-------
MEASURING DEVICES -- 0.4%
Technitrol 8,000 257
-------
MEDICAL PRODUCTS & SERVICES -- 3.4%
BioChem Pharma* 13,000 266
Concord EFS* 10,343 266
ESC Medical Systems
Limited* (A) 5,500 204
FPA Medical Management* (A) 10,000 169
Lincare Holdings* 3,500 214
Renal Treatment Centers* 10,000 321
Safeskin* (A) 7,700 436
Staar Surgical* 10,000 162
Universal Health Services* 5,500 256
-------
2,294
-------
MISCELLANEOUS BUSINESS SERVICES -- 3.8%
Cendant* (A) 14,000 474
Cognos* 10,000 216
Complete Business Solutions* 5,000 231
E*Trade Group* (A) 36,100 787
Fore Systems* 15,000 221
Keane* 7,500 305
Syntel* 15,500 232
Vantive* 5,000 123
-------
2,589
-------
The accompanying notes are an integral part of the financial statements.
86
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
MISCELLANEOUS CONSUMER SERVICES -- 3.7%
Billing Information Concepts* 6,000 $ 264
Central Parking 7,500 308
Corestaff* 5,000 123
Rock of Ages 48,000 756
Stewart Enterprises, Cl A 22,500 1,035
-------
2,486
-------
MISCELLANEOUS MANUFACTURING -- 0.4%
AFC Cable Systems* 10,500 299
-------
PETROLEUM & FUEL PRODUCTS -- 3.1%
Devon Energy 10,000 349
Gulf Island Fabrication* 15,000 314
Key Energy Group* 13,000 254
Mitcham Industries* 27,000 488
R & B Falcon 1,100 33
Vintage Petroleum 37,000 652
-------
2,090
-------
PRINTING & PUBLISHING -- 0.7%
Digital Generations Systems* (A) 12,000 36
Mail-Well* 11,000 439
-------
475
-------
PROFESSIONAL SERVICES -- 3.5%
Caribiner International* (A) 19,000 599
Childrens Comprehensive* 7,500 129
Educational Management* 10,000 323
Paychex 13,625 651
Sylvan Learning Systems* 17,000 672
-------
2,374
-------
REAL ESTATE -- 0.3%
CB Commercial Real Estate* 5,000 170
-------
RETAIL -- 3.1%
Arbor Drugs 7,500 154
CKE Restaurants 9,350 413
- --------------------------------------------------------------------------------
DESCRIPTION SHARES (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
RETAIL (CONTINUED)
Family Dollar Stores 15,000 $ 478
Linens N Things* 5,000 221
Pier 1 Imports 17,000 397
Williams Sonoma* 10,000 426
-------
2,089
-------
RUBBER & PLASTIC -- 0.5%
Carlisle 8,000 354
-------
SEMI-CONDUCTORS/INSTRUMENTS -- 4.5%
DSP Group Inc* 5,000 112
Flextronics International* 5,000 178
Lernout & Hauspie Speech* (A) 9,000 530
Level One Communications* 17,000 657
Micrel* 5,000 151
Novellus Systems* 3,500 126
Photronics Labs* 12,500 288
Sanmina* (A) 3,800 256
Sci Systems* (A) 6,000 261
Semtech* 12,000 279
Vitesse Semiconductor* 5,050 219
-------
3,057
-------
SPECIALTY MACHINERY -- 0.3%
U.S. Filter* (A) 7,000 228
-------
STEEL & STEEL WORKS -- 1.8%
Lone Star Technologies* 26,000 752
NS Group* 31,500 461
-------
1,213
-------
TELEPHONES & TELECOMMUNICATION -- 6.3%
Advanced Fibre Communication* 16,000 476
Alpine Group* 21,500 390
Brightpoint* (A) 7,500 126
Centennial Cellular 10,000 210
ICG Communications* 8,500 209
Intermedia Communications
of Florida* (A) 6,000 369
The accompanying notes are an integral part of the financial statements.
87
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
COMMON STOCKS (continued)
================================================================================
TELEPHONES & TELECOMMUNICATION (CONTINUED)
Pacific Gateway Exchange* 5,000 $ 270
Plantronics* 7,500 299
Premisys Communications* 10,000 286
Smartalk Teleservices* (A) 10,000 290
Star Telecommunications* 9,000 345
Teleport Communications
Group* (A) 5,000 279
Winstar Communications* (A) 10,000 327
WorldCom* (A) 10,000 358
-------
4,234
-------
TESTING LABORATORIES -- 0.7%
Quintiles Transnational* (A) 12,000 457
-------
TOTAL COMMON STOCKS
(Cost $54,077) 60,301
-------
================================================================================
EQUITY OPTIONS -- -0.2%
================================================================================
# OF CONTRACTS
--------------
Agouron February 30 Puts* 155 7
Agouron February 37.5 Calls* (65) (6)
Agouron February 40 Calls* (90) (4)
Level One Communications February
33.375 Calls* (30) (29)
Level One Communications February
35 Calls* (40) (21)
Level One Communications February
30 Puts* 170 2
Level One Communications February
40 Calls* (85) (20)
Rexall Sundown February 30 Calls* (75) (41)
Rexall Sundown February 35 Calls* (75) (17)
Sawtek March 30 Puts* 50 26
Sawtek March 35 Calls* (50) (4)
-------
TOTAL EQUITY OPTIONS
(Cost $4) (107)
-------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
TIME DEPOSITS -- 8.9%
================================================================================
Industrial Bank of Japan Limited
5.500%, 02/02/98 $6,016 $ 6,017
-------
TOTAL TIME DEPOSITS
(Cost $6,017) 6,017
-------
================================================================================
CORPORATE BOND -- 3.7%
================================================================================
Sigma Finance (B) (C)
5.770%, 11/10/98 2,500 2,500
-------
TOTAL CORPORATE BOND
(Cost $2,500) 2,500
-------
================================================================================
REPURCHASE AGREEMENT -- 9.5%
================================================================================
Lehman Brothers (C)
5.70%, dated 01/30/98,
matures 02/02/98, repurchase
price $6,426,951 (collateralized
by various corporate obligations,
0.00%-9.502%, 11/02/98-11/25/07:
total market value
$6,555,490) 6,424 6,424
-------
TOTAL REPURCHASE AGREEMENT
(Cost $6,424) 6,424
-------
TOTAL INVESTMENTS -- 111.1%
(Cost $69,022) 75,135
-------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (13.2%) (8,924)
-------
OTHER ASSETS AND LIABILITIES, NET -- 2.1% 1,396
-------
The accompanying notes are an integral part of the financial statements.
88
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
NET ASSETS:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization --
no par value) based on 5,454,267
outstanding shares of beneficial
interest $60,654
Distribution in excess of net
investment income (48)
Accumulated net realized gain
on investments 888
Net unrealized appreciation
on investments 6,113
-------
TOTAL NET ASSETS -- 100.0% $67,607
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $12.39
=======
- --------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITY
ADR -- AMERICAN DEPOSITORY RECEIPT
CL -- CLASS
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT
JANUARY 31, 1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT
JANUARY 31, 1998 WAS $8,923,900.
(B) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JANUARY 31, 1998.
(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
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
FOREIGN COMMON STOCKS -- 93.7%
================================================================================
AUSTRALIA -- 1.0%
Amcor 6,000 $ 27
Brambles Industries 1,700 35
Broken Hill Proprietary 8,900 88
Coca-Cola Amatil 3,000 24
Coles Myer 8,500 43
CSR 11,000 39
Lend Lease 1,900 44
National Australia Bank 5,700 79
News Corporation 9,300 59
Rio Tinto 2,700 36
Western Minerals* 5,600 20
Westpac Banking 7,500 51
-------
545
-------
AUSTRIA -- 0.6%
Bank Austria 3,840 217
OMV 1,090 144
-------
361
-------
BELGIUM -- 0.9%
Dexia 3,620 485
-------
FINLAND -- 0.6%
Nokia, Class A 4,570 358
-------
FRANCE -- 8.7%
Accor 2,200 433
Compagnie de Saint-Gobain 3,390 447
Comptoirs Modernes 900 425
Credit Commercial de France 4,860 331
Groupe Danone 2,480 486
Elf Aquitaine 2,935 331
France Telecom* 17,170 731
Legrand 2,240 445
Pernod Ricard 7,980 510
Renault* 10,290 327
Rhone Poulenc, Class A 9,750 445
-------
4,911
-------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
FOREIGN COMMON STOCKS (continued)
================================================================================
GERMANY -- 7.4%
Adidas 3,160 $ 463
Allianz 1,520 452
Bayer 12,540 470
Bayerische Vereinsbank 6,770 431
BMW 560 447
Commerzbank* 11,930 426
Daimler Benz 5,260 368
Mannesmann 970 552
Veba 7,660 529
-------
4,138
-------
HONG KONG -- 1.8%
Amoy Properties 100,000 74
Cheung Kong Holdings 25,000 128
Hong Kong & China Gas 180,000 303
HSBC Holdings 12,816 284
Hutchison Whampoa 40,000 235
-------
1,024
-------
IRELAND -- 0.7%
Bank of Ireland 23,640 366
-------
ITALY -- 4.6%
Alleanza Assicurazioni 31,030 373
Autogrill* 33,240 184
Banca Intesa 40,850 189
Credito Italiano 131,740 492
ENI SPA 75,260 439
Istituto Bancario
San Paolo di Torino 20,080 219
INA 81,160 179
Telecom Italia 110,190 545
-------
2,620
-------
JAPAN -- 26.2%
Asahi Breweries 39,000 538
Bridgestone 19,000 457
Canon 24,000 583
Credit Saison 12,000 284
The accompanying notes are an integral part of the financial statements.
90
<PAGE>
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
FOREIGN COMMON STOCKS (continued)
================================================================================
JAPAN (CONTINUED)
East Japan Railway 96 $ 450
Honda Motor 15,000 546
Industrial Bank of Japan 760 6
Ishihara Chemical 36,000 326
Mitsubishi Estate 25,000 277
NEC 50,000 591
NGK Insulators 51,000 467
Nintendo 3,000 317
Nippon Telegraph & Telephone 164 1,488
Nomura Securities 22,000 295
NTT Data 11 595
Rohm Company 6,000 648
Sakura Bank 97,000 363
Sanwa Bank 43,000 472
Shizuoka Bank 38,000 422
SNT 88,000 310
Sony 8,900 820
Sumitomo Bank 25,000 299
Sumitomo Electric Industries 33,000 486
Sumitomo Heavy Industries 149,000 475
Sumitomo Special Metals 28,000 551
Takeda Chemical 21,000 593
Toho Titanium* 34,000 334
Tokio Marine & Fire Insurance 40,000 445
Tokyo Electric Power 19,000 355
Toyota Motor 21,000 587
Yamamoto Chemical 37,000 354
-------
14,734
-------
MALAYSIA -- 0.3%
Petronas Gas 40,000 88
Rothmans of Pall Mall 10,000 79
United Engineers 20,000 10
-------
177
-------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
FOREIGN COMMON STOCKS (continued)
================================================================================
NETHERLANDS -- 4.5%
Akzo Nobel 2,230 $ 403
ING Groep 11,920 545
Philips Electronics 6,000 405
Royal Dutch Petroleum 15,560 813
Unilever 6,910 396
-------
2,562
-------
PORTUGAL -- 1.0%
Banco Espirito Santo* 7,650 274
Portugal Telecom 5,280 270
-------
544
-------
SINGAPORE -- 0.4%
Singapore Airlines 15,000 98
Singapore Telecommunications 40,000 79
United Overseas Bank 10,000 37
-------
214
-------
SPAIN -- 3.2%
Aumar 9,370 183
Banco Central Hispano 14,550 356
Banco Santander 10,220 360
Cortefiel 7,670 182
Grupo Acciona 1,000 177
Endesa 28,060 541
-------
1,799
-------
SWEDEN -- 1.9%
Astra AB, Class A 19,863 364
Electrolux, Class B 4,800 350
Ericsson 9,010 353
-------
1,067
-------
The accompanying notes are an integral part of the financial statements.
91
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
FOREIGN COMMON STOCKS (continued)
================================================================================
SWITZERLAND -- 7.5%
Alusuisse Lonza Holdings 210 $ 231
CS Holdings 2,330 371
Nestle 380 606
Novartis 420 719
Rieter 310 142
Roche Holdings 80 831
Schindler Holding 130 142
Sulzer 200 138
Swiss Bank Corp.* 1,080 333
UBS 250 356
Zuerich Versicherung 720 360
-------
4,229
-------
UNITED KINGDOM -- 22.4%
Abbey National 37,130 746
Alliance & Leicester 17,550 260
BAA 468 4
Bank of Scotland 64,360 673
Barclays 25,310 763
British Aerospace 9,790 254
British Petroleum 14,070 190
CMG 27,300 821
Glaxo Wellcome 43,743 1,174
HSBC Holdings 14,220 372
Lloyds TSB Group 68,310 962
Marks & Spencer 79,150 750
Misys 16,610 633
National Power 17,040 186
Norwich Union* 45,490 328
Prudential 64,853 869
Reed International 48,420 499
Royal & Sun Alliance 63,860 733
SmithKline Beecham 68,080 867
Vodafone Group 70,600 542
Zeneca Group 24,380 975
-------
12,601
-------
TOTAL FOREIGN COMMON STOCKS
(Cost $47,932) 52,735
-------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
FOREIGN PREFERRED STOCK -- 1.0%
================================================================================
GERMANY -- 1.0%
SAP 1,560 $ 566
-------
TOTAL FOREIGN PREFERRED STOCK
(Cost $580) 566
-------
================================================================================
CASH EQUIVALENT -- 14.6%
================================================================================
SEI Prime Obligation $8,207 8,207
-------
TOTAL CASH EQUIVALENT
(Cost $8,207) 8,207
-------
TOTAL INVESTMENTS -- 109.3%
(Cost $56,719) 61,508
-------
OTHER ASSETS AND LIABILITIES,
NET -- (9.3%) (5,207)
-------
================================================================================
Net Assets:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization -- no
par value) based on 1,704,773
outstanding shares of beneficial
interest 57,702
Distributions in excess of net
investment income (793)
Accumulated net realized loss on
investments (5,411)
Net unrealized appreciation on
forward foreign currency contracts,
foreign currency and translation of
other assets and liabilities in
foreign currency 14
Net unrealized appreciation
on investments 4,789
-------
TOTAL NET ASSETS -- 100.0% $56,301
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $33.03
=======
- --------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES.
The accompanying notes are an integral part of the financial statements.
92
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES (000)
- ---------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
CONVERTIBLE GOVERNMENT BLUE CHIP
SECURITIES SECURITIES GROWTH
FUND FUND FUND
-------------- -------------- --------------
Assets:
<S> <C> <C> <C>
Investments at value (cost $24,221, $62,824 and
$112,566, respectively) ......................... $26,240 $65,529 $123,142
Cash -- 102 105
Accrued income .................................... 206 1,183 42
Investment securities sold ........................ -- -- 2,157
Capital shares sold ............................... 2,012 9,824 5,929
------- ------- --------
Total assets .............................. 28,458 76,638 131,375
------- ------- --------
Liabilities:
Investment securities purchased ................... -- -- 1,506
Payable upon return of securities loaned .......... -- 6,837 20,761
Advisory/Administrative fee payable ............... 17 35 66
Capital shares redeemed ........................... 2 23 82
Accrued expenses .................................. 8 46 55
------- ------- --------
Total liabilities ......................... 27 6,941 22,470
------- ------- --------
Total net assets .......................... $28,431 $69,697 $108,905
======= ======= ========
Net Assets:
Fund Shares of Fiduciary Class
(unlimited authorization -- no par value)
based on 2,577,787, 7,123,559 and 7,464,490,
respectively of outstanding shares
of beneficial interest ........................ 26,581 69,069 86,037
Undistributed net investment income ............. 4 28 20
Accumulated net realized gain (loss) on investments (173) (2,105) 12,272
Net unrealized appreciation on investments ...... 2,019 2,705 10,576
------- ------- --------
TOTAL NET ASSETS -- 100.0% ........................ $28,431 $69,697 $108,905
------- ------- --------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS .............. $11.03 $9.78 $14.59
======= ======= ========
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
</TABLE>
93
<PAGE>
<TABLE>
<CAPTION>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENTS OF OPERATIONS (000)
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
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 ......................... $25,174 $56,742 $7,726 $7,450
Dividend Income ......................... -- -- -- --
------- ------- ------ ------
Total Investment Income ...... 25,174 56,742 7,726 7,450
------- ------- ------ ------
Expenses:
Administrative Fees .................. 933 2,001 441 268
Administrative Fees Waived ........... (93) (200) (44) (27)
Investment Advisor Fees .............. 1,400 3,002 661 401
Investment Advisor Fees Waived ....... (233) -- (445) --
Shareholder Servicing Fees ........... 1,167 2,500 551 334
Shareholder Servicing Fees Waived .... (1,167) (2,500) (551) (334)
Custodian Fees ....................... 47 100 22 13
Professional Fees .................... 15 35 6 2
Registration Fees .................... 19 29 7 2
Transfer Agency Fees ................. 39 66 19 15
Distribution Fees (1) ................ 834 1,170 322 61
Distribution Fees Waived ............. -- -- -- --
Insurance Fees ....................... 2 5 1 1
Trustees Fees ........................ 7 13 2 1
Printing Fees ........................ 15 20 11 4
Miscellaneous Fees ................... -- -- -- 5
------- ------- ------ ------
Total Expenses ............... 2,985 6,241 1,003 746
Reduction of Expenses (2) .... (33) (71) (16) (9)
------- ------- ------ ------
Total Net Expenses ........... 2,952 6,170 987 737
------- ------- ------ ------
Net Investment Income ................ 22,222 50,572 6,739 6,713
------- ------- ------ ------
Net Realized Gain (Loss) on Investments . (9) (6) -- --
------- ------- ------ ------
Change in Unrealized Appreciation
(Depreciation) on Investments ......... -- -- -- --
------- ------- ------ ------
Net Realized and Unrealized Gain
(Loss) on Investments ................ (9) (6) -- --
------- ------- ------ ------
Increase (Decrease) in Net Assets
Resulting from Operations ............ $22,213 $50,566 $6,739 $6,713
======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA
INTERMEDIATE
INTERMEDIATE- TAX-FREE CONVERTIBLE
TERM BOND BOND BOND SECURITIES
FUND FUND FUND FUND
------------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
Interest Income ....................... $4,838 $ 622 $2,783 $ 356
Dividend Income ....................... -- -- -- 141
------ ------ ------ -----
Total Investment Income .... 4,838 622 2,783 497
------ ------ ------ -----
Expenses:
Administrative Fees ................ 147 26 84 26
Administrative Fees Waived ......... (14) (5) (8) (2)
Investment Advisor Fees ............ 368 66 210 79
Investment Advisor Fees Waived ..... -- (66) -- --
Shareholder Servicing Fees ......... 184 33 105 33
Shareholder Servicing Fees Waived .. (162) (33) (101) (33)
Custodian Fees ..................... 7 1 4 1
Professional Fees .................. 7 2 5 1
Registration Fees .................. 5 1 3 1
Transfer Agency Fees ............... 7 2 5 1
Distribution Fees (1) .............. 6 15 1 --
Distribution Fees Waived ........... (6) (15) (1) --
Insurance Fees ..................... 1 -- -- --
Trustees Fees ...................... 2 -- 2 1
Printing Fees ...................... 5 2 4 1
Miscellaneous Fees ................. -- 4 5 3
------ ------ ------ -----
Total Expenses ............. 557 33 318 112
Reduction of Expenses (2) .. (5) (1) (3) (1)
------ ------ ------ -----
Total Net Expenses ......... 552 32 315 111
------ ------ ------ -----
Net Investment Income .............. 4,286 590 2,468 386
------ ------ ------ -----
Net Realized Gain (Loss) on Investments 228 49 189 264
------ ------ ------ -----
Change in Unrealized Appreciation
(Depreciation) on Investments ....... 954 310 1,394 (1,488)
------ ------ ------ -----
Net Realized and Unrealized Gain
(Loss) on Investments .............. 1,182 359 1,583 (1,224)
------ ------ ------ -----
Increase (Decrease) in Net Assets
Resulting from Operations .......... $5,468 $ 949 $4,051 $ (838)
====== ====== ====== ======
<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.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
94 & 95
<PAGE>
<TABLE>
<CAPTION>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENTS OF OPERATIONS (000)
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
GOVERNMENT VALUE
SECURITIES BALANCED GROWTH MOMENTUM
FUND FUND FUND FUND
-------------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
Interest Income ....................... $1,864 $ 5,173 $ 288 $ 1,060
Dividend Income ....................... -- 2,079 1,412 4,504
Less: Foreign Taxes withheld, net of reclaims -- -- -- --
------ ------- ------- -------
Total Investment Income .... 1,864 7,252 1,700 5,564
------ ------- ------- -------
Expenses:
Administrative Fees ................ 59 414 316 526
Administration Fees Waived ......... (6) (55) (42) (52)
Investment Advisor Fees ............ 147 1,242 948 1,579
Investment Advisor Fees Waived ..... -- -- -- --
Shareholder Servicing Fees ......... 73 517 395 658
Shareholder Servicing Fees Waived .. (73) (310) (237) (658)
Custodian Fees ..................... 3 21 16 26
Professional Fees .................. 1 10 7 10
Registration Fees .................. 3 9 7 13
Transfer Agency Fees ............... 2 20 14 24
Distribution Fees (1) .............. -- 12 11 30
Distribution Fees Waived ........... -- -- -- --
Insurance Fees ..................... 1 2 1 2
Trustees Fees ...................... 1 3 2 4
Printing Fees ...................... 4 8 10 15
Miscellaneous Fees ................. 7 3 1 3
------ ------- ------- -------
Total Expenses ............. 222 1,896 1,449 2,180
Reduction of Expenses (2) .. (2) (15) (11) (19)
------ ------- ------- -------
Total Net Expenses ......... 220 1,881 1,438 2,161
------ ------- ------- -------
Net Investment Income .............. 1,644 5,371 262 3,403
------ ------- ------- -------
Net Realized Gain (Loss) on Investments (25) 13,184 37,722 1,615
------ ------- ------- -------
Net Realized Loss on Option Contracts . -- -- -- --
------ ------- ------- -------
Net Realized Loss on Foreign Currency Transactions -- -- -- --
------ ------- ------- -------
Change in Unrealized Appreciation (Depreciation)
on Investments ..................... 984 (4,980) (23,710) 18,227
------ ------- ------- -------
Change in Unrealized Appreciation on Foreign Currency -- -- -- --
------ ------- ------- -------
Net Realized and Unrealized Gain (Loss) on Investments 959 8,204 14,012 19,842
------ ------- ------- -------
Increase (Decrease) in Net Assets Resulting from Operations $2,603 $13,575 $14,274 $23,245
====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
INCOME BLUE CHIP EMERGING INTERNATIONAL
EQUITY GROWTH GROWTH EQUITY
FUND FUND FUND FUND
------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
Interest Income ....................................... $ 266 $ 401 $ 191 $ 31
Dividend Income ....................................... 4,861 179 114 306
Less: Foreign Taxes withheld, net of reclaims ......... -- -- -- (33)
------- ------- ------- -------
Total Investment Income .................... 5,127 580 305 304
------- ------- ------- -------
Expenses:
Administrative Fees ................................ 371 99 69 48
Administration Fees Waived ......................... (37) (10) (7) (5)
Investment Advisor Fees ............................ 1,114 296 275 226
Investment Advisor Fees Waived ..................... -- -- -- --
Shareholder Servicing Fees ......................... 464 124 86 59
Shareholder Servicing Fees Waived .................. (278) (124) (86) (59)
Custodian Fees ..................................... 16 5 4 29
Professional Fees .................................. 9 2 1 5
Registration Fees .................................. 9 2 2 1
Transfer Agency Fees ............................... 25 4 2 2
Distribution Fees (1) .............................. 20 -- -- --
Distribution Fees Waived ........................... -- -- -- --
Insurance Fees ..................................... 2 1 -- --
Trustees Fees ...................................... 3 2 1 1
Printing Fees ...................................... 6 2 4 2
Miscellaneous Fees ................................. 5 6 5 7
------- ------- ------- -------
Total Expenses ............................. 1,729 409 356 316
Reduction of Expenses (2) .................. (13) (4) (2) (2)
------- ------- ------- -------
Total Net Expenses ......................... 1,716 405 354 314
------- ------- ------- -------
Net Investment Income .............................. 3,411 175 (49) (10)
------- ------- ------- -------
Net Realized Gain (Loss) on Investments ............... 24,535 15,541 5,831 (5,174)
------- ------- ------- -------
Net Realized Loss on Option Contracts ................. -- (1) (100) --
------- ------- ------- -------
Net Realized Loss on Foreign Currency Transactions .... -- -- -- (53)
------- ------- ------- -------
Change in Unrealized Appreciation (Depreciation)
on Investments ..................................... (20,248) (17,209) (5,750) (1,020)
------- ------- ------- -------
Change in Unrealized Appreciation on Foreign Currency . -- -- -- 55
------- ------- ------- -------
Net Realized and Unrealized Gain (Loss) on Investments 4,287 (1,669) (19) (6,192)
------- ------- ------- -------
Increase (Decrease) in Net Assets Resulting from Operations $ 7,698 $(1,494) $ (68) $(6,202)
======= ======= ======= =======
<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.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
96 & 97
<PAGE>
<TABLE>
<CAPTION>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (000)
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED) AND FOR THE PERIOD ENDED JULY 31, 1997
100% U.S. TREASURY DIVERSIFIED CALIFORNIA TAX-FREE
MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
----------------------- ----------------------- -----------------------
08/01/97 08/01/96 08/01/97 02/01/97 08/01/97 02/01/97
TO 01/31/98 TO 07/31/97 TO 01/31/98 TO 07/31/97 TO 01/31/98 TO 07/31/97
----------------------- ----------------------- -----------------------
Investment Activities From Operations:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income ......................... $ 22,222 $ 19,694 $ 50,572 $ 36,038 $ 6,739 $ 4,100
Net Realized Gain (Loss) on Investments ....... (9) 46 (6) 31 -- --
Change in Unrealized Appreciation (Depreciation)
on Investments .............................. -- -- -- -- -- --
-------- --------- ---------- ---------- -------- --------
Net Increase (Decrease) in Net Assets
Resulting From Operations ................... 22,213 19,740 50,566 36,069 6,739 4,100
-------- --------- ---------- ---------- -------- --------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares ............................ (6,574) (9,631) (27,535) (20,558) (2,933) (1,618)
Retail Class A Shares ....................... (15,648) (10,063) (23,037) (15,480) (3,808) (2,478)
Capital Gains:
Fiduciary Shares ............................ -- -- -- -- -- --
Retail Class A Shares ....................... -- -- -- -- -- --
-------- --------- ---------- ---------- -------- --------
Total Distributions ....................... (22,222) (19,694) (50,572) (36,038) (6,741) (4,096)
-------- --------- ---------- ---------- -------- --------
Change in Net Assets ............................ (9) 46 (6) 31 (2) 4
-------- --------- ---------- ---------- -------- --------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark ..................... -- 181,083 -- 283,586 -- 114,246
Proceeds from Shares Issued ................. 318,213 444,667 1,079,723 2,066,619 199,110 131,018
Reinvestment of Distributions ............... 330 740 4,585 4,034 9 6
Cost of Shares Redeemed ..................... (275,207) (556,386) (923,975) (1,905,972) (154,716) (122,182)
-------- --------- ---------- ---------- -------- --------
Total Fiduciary Share Transactions ........ 43,336 70,104 160,333 448,267 44,403 123,088
Retail Class A Shares:
Proceeds from the reorganization of
Stepstone or Highmark ..................... -- 436,482 -- 139,246 -- 61,460
Proceeds from Shares Issued ................. 743,783 526,646 941,425 621,422 215,256 159,066
Reinvestment of Distributions ............... 14,981 8,189 22,125 14,984 3,737 2,370
Cost of Shares Redeemed ..................... (656,777) (512,994) (787,608) (552,572) (183,312) (156,357)
-------- --------- ---------- ---------- -------- --------
Total Retail Class A Share Transactions ... 101,987 458,323 175,942 223,080 35,681 66,539
-------- --------- ---------- ---------- -------- --------
Net Increase (Decrease) in Net Assets
From Share Transactions ................... 145,323 528,427 336,275 671,347 80,084 189,627
-------- --------- ---------- ---------- -------- --------
Total Increase (Decrease) in Net Assets ... 145,314 528,473 336,269 671,378 80,082 189,631
-------- --------- ---------- ---------- -------- --------
Net Assets:
Beginning of Period ....................... 802,436 273,963 1,771,515 1,100,137 376,526 186,895
-------- --------- ---------- ---------- -------- --------
End of Period ............................. $947,750 $ 802,436 $2,107,784 $1,771,515 $456,608 $376,526
======== ========= ========== ========== ======== ========
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of Stepstone .
or Highmark ............................... -- 181,083 -- 283,586 --
Issued ...................................... 318,213 444,667 1,079,723 2,066,619 199,110 131,018
Issued in Lieu of Cash Distributions ........ 330 740 4,585 4,034 9 6
Redeemed .................................... (275,207) (556,386) (923,975) (1,905,972) (154,716) (122,182)
-------- --------- ---------- ---------- -------- --------
Total Fiduciary Share Transactions ........ 43,336 70,104 160,333 448,267 44,403 123,088
-------- --------- ---------- ---------- -------- --------
Retail Class A Shares:
Issued from the reorganization of Stepstone
or Highmark ............................... -- 436,482 -- 139,246 --
Issued ...................................... 743,783 526,646 941,425 621,422 215,256 159,066
Issued in Lieu of Cash Distributions ........ 14,981 8,189 22,125 14,984 3,737 2,370
Redeemed .................................... (656,777) (512,994) (787,608) (552,572) (183,312) (156,357)
-------- --------- ---------- ---------- -------- --------
Total Retail Class A Share Transactions ... 101,987 458,323 175,942 223,080 35,681 66,539
-------- --------- ---------- ---------- -------- --------
Net Increase (Decrease) in Share Transactions ... 145,323 528,427 336,275 671,347 80,084 189,627
======== ========= ========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT INTERMEDIATE- CALIFORNIA INTERMEDIATE
MONEY MARKET TERM BOND TAX-FREE BOND
FUND FUND FUND
---------------------- ----------------------- -----------------------
08/01/97 08/01/96 08/01/97 02/01/97 08/01/97 02/01/97
TO 01/31/98 TO 07/31/97 TO 01/31/98 TO 07/31/97 TO 01/31/98 TO 07/31/97
---------------------- ----------------------- -----------------------
Investment Activities From Operations:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income ........................ $ 6,713 $ 10,584 $ 4,286 $ 4,793 $ 590 $ 387
Net Realized Gain (Loss) on Investments ...... -- 18 228 (364) 49 4
Change in Unrealized Appreciation (Depreciation)
on Investments ............................. -- -- 954 2,370 310 576
-------- ---------- -------- -------- ------- -------
Net Increase (Decrease) in Net Assets
Resulting From Operations .................. 6,713 10,602 5,468 6,799 949 967
-------- ---------- -------- -------- ------- -------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares ........................... (5,546) (8,350) (4,393) (4,648) (338) (202)
Retail Class A Shares ...................... (1,167) (2,234) (156) (157) (276) (176)
Capital Gains:
Fiduciary Shares ........................... -- -- -- -- -- --
Retail Class A Shares ...................... -- -- -- -- -- --
-------- ---------- -------- -------- ------- -------
Total Distributions ...................... (6,713) (10,584) (4,549) (4,805) (614) (378)
-------- ---------- -------- -------- ------- -------
Change in Net Assets ........................... -- 18 919 1,994 335 589
-------- ---------- -------- -------- ------- -------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark .................... -- -- -- -- -- --
Proceeds from Shares Issued ................ 481,021 1,103,212 10,798 13,541 7,839 4,761
Reinvestment of Distributions .............. 118 253 2,944 3,112 132 93
Cost of Shares Redeemed .................... (511,213) (1,001,968) (32,751) (16,318) (1,898) (1,268)
-------- ---------- -------- -------- ------- -------
Total Fiduciary Share Transactions ....... (30,074) 101,497 (19,009) 335 6,073 3,586
Retail Class A Shares:
Proceeds from the reorganization of
Stepstone or Highmark .................... -- -- -- -- -- --
Proceeds from Shares Issued ................ 151,292 331,210 66 126 2,359 5,443
Reinvestment of Distributions .............. 1,114 2,297 156 157 219 160
Cost of Shares Redeemed .................... (143,041) (366,427) (539) (436) (786) (498)
-------- ---------- -------- -------- ------- -------
Total Retail Class A Share Transactions .. 9,365 (32,920) (317) (153) 1,792 5,105
-------- ---------- -------- -------- ------- -------
Net Increase (Decrease) in Net Assets
From Share Transactions .................. (20,709) 68,577 (19,326) 182 7,865 8,691
-------- ---------- -------- -------- ------- -------
Total Increase (Decrease) in Net Assets .. (20,709) 68,595 (18,407) 2,176 8,200 9,280
-------- ---------- -------- -------- ------- -------
Net Assets:
Beginning of Period .......................... 295,792 227,197 157,800 155,624 22,506 13,226
-------- ---------- -------- -------- ------- -------
End of Period ............................ $275,083 $ 295,792 $139,393 $157,800 $30,706 $22,506
======== ========== ======== ======== ======= =======
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of Stepstone
or Highmark .............................. 114,246 -- -- -- -- --
Issued ..................................... 481,021 1,103,212 1,050 1,339 785 486
Issued in Lieu of Cash Distributions ....... 118 253 289 309 14 10
Redeemed ................................... (511,213) (1,001,968) (3,198) (1,618) (190) (129)
-------- ---------- -------- -------- ------- -------
Total Fiduciary Share Transactions ....... (30,074) 101,497 (1,859) 30 609 367
-------- ---------- -------- -------- ------- -------
Retail Class A Shares:
Issued from the reorganization of Stepstone
or Highmark .............................. 61,460 -- -- -- -- --
Issued ..................................... 151,292 331,210 6 13 238 563
Issued in Lieu of Cash Distributions ....... 1,114 2,297 15 16 22 16
Redeemed ................................... (143,041) (366,427) (52) (44) (79) (51)
-------- ---------- -------- -------- ------- -------
Total Retail Class A Share Transactions .. 9,365 (32,920) (31) (15) 181 528
-------- ---------- -------- -------- ------- -------
Net Increase (Decrease) in Share Transactions .. (20,709) 68,577 (1,890) 15 790 895
======== ========== ======== ======== ======= =======
BOND CONVERTIBLE SECURITIES
FUND FUND
----------------------- -----------------------
08/01/97 08/01/96 02/01/97 02/01/96
TO 01/31/98 TO 07/31/97 TO 07/31/97 TO 01/31/97
----------------------- -----------------------
Investment Activities From Operations:
<S> <C> <C> <C> <C>
Net Investment Income ......................... $ 2,468 $ 3,883 $ 386 $ 367
Net Realized Gain (Loss) on Investments ....... 189 (119) 264 1,124
Change in Unrealized Appreciation (Depreciation)
on Investments .............................. 1,394 2,823 (1,488) 718
------- ------- ------- -------
Net Increase (Decrease) in Net Assets
Resulting From Operations ................... 4,051 6,587 (838) 2,209
------- ------- ------- --------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares ............................ (2,556) (3,682) (400) (371)
Retail Class A Shares ....................... (22) (50) -- --
Capital Gains:
Fiduciary Shares ............................ -- -- (1,783) --
Retail Class A Shares ....................... -- -- -- --
------- ------- ------- -------
Total Distributions ....................... (2,578) (3,732) (2,183) (371)
------- ------- ------- -------
Change in Net Assets ............................ 1,473 2,855 (3,021) 1,838
------- ------- ------- -------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark ..................... -- -- -- --
Proceeds from Shares Issued ................. 25,358 20,964 6,223 5,864
Reinvestment of Distributions ............... 1,820 2,935 2,179 371
Cost of Shares Redeemed ..................... (7,603) (15,525) (2,288) (3,864)
------- ------- ------- -------
Total Fiduciary Share Transactions ........ 19,575 8,374 6,114 2,371
Retail Class A Shares:
Proceeds from the reorganization of
Stepstone or Highmark ..................... -- -- -- --
Proceeds from Shares Issued ................. 273 222 -- --
Reinvestment of Distributions ............... 18 53 -- --
Cost of Shares Redeemed ..................... (44) (858) -- --
------- ------- ------- -------
Total Retail Class A Share Transactions ... 247 (583) -- --
------- ------- ------- -------
Net Increase (Decrease) in Net Assets
From Share Transactions ................... 19,822 7,791 6,114 2,371
------- ------- ------- -------
Total Increase (Decrease) in Net Assets ... 21,295 10,646 3,093 4,209
------- ------- ------- -------
Net Assets:
Beginning of Period ........................... 72,177 61,531 25,338 21,129
------- ------- ------- -------
End of Period ............................. $93,472 $72,177 $28,431 $25,338
======= ======= ======= =======
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of Stepstone
or Highmark ............................... -- -- -- --
Issued ...................................... 2,383 2,017 539 526
Issued in Lieu of Cash Distributions ........ 171 283 192 32
Redeemed .................................... (713) (1,494) (194) (341)
------- ------- ------- -------
Total Fiduciary Share Transactions ........ 1,841 806 537 217
------- ------- ------- -------
Retail Class A Shares:
Issued from the reorganization of Stepstone
or Highmark ............................... -- -- -- --
Issued ...................................... 25 21 -- --
Issued in Lieu of Cash Distributions ........ 3 5 -- --
Redeemed .................................... (4) (83) -- --
------- ------- ------- -------
Total Retail Class A Share Transactions ... 24 (57) -- --
------- ------- ------- -------
Net Increase (Decrease) in Share Transactions ... 1,865 749 537 217
======= ======= ======= =======
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
98 & 99
<PAGE>
<TABLE>
<CAPTION>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (000)
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED) AND FOR THE PERIOD ENDED JULY 31, 1997
GOVERNMENT SECURITIES BALANCED GROWTH
FUND FUND FUND
----------------------- ----------------------- -----------------------
08/01/97 02/01/97 08/01/97 02/01/97 08/01/97 08/01/96
TO 01/31/98 TO 07/31/97 TO 01/31/98 TO 07/31/97 TO 01/31/98 TO 07/31/97
----------------------- ----------------------- -----------------------
Investment Activities From Operations:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income ........................ $ 1,644 $ 1,588 $ 5,371 $ 5,151 $ 262 $ 432
Net Realized Gain (Loss) on Investments ...... (25) (287) 13,184 7,454 37,722 40,894
Net Realized Gain (Loss) on Option Contracts . -- -- -- -- -- --
Net Realized Gain (Loss) on Foreign
Currency Transactions ...................... -- -- -- -- -- --
Change in Unrealized Appreciation (Depreciation)
on Investments ............................. 984 1,569 (4,980) 36,114 (23,710) 28,516
Change in Unrealized Depreciation
on Foreign Currency ........................ -- -- -- -- -- --
------- ------- -------- -------- -------- --------
Net Increase (Decrease) in Net Assets
Resulting From Operations .................. 2,603 2,870 13,575 48,719 14,274 69,842
------- ------- -------- -------- -------- --------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares ........................... (1,733) (1,582) (5,690) (4,955) (433) (354)
Retail Class A Shares ...................... -- -- (121) (113) (5) (12)
Capital Gains:
Fiduciary Shares ........................... -- -- (10,762) (5,775) (63,262) (3,457)
Retail Class A Shares ...................... -- -- (250) (150) (1,951) (229)
------- ------- -------- -------- -------- --------
Total Distributions ...................... (1,733) (1,582) (16,823) (10,993) (65,651) (4,052)
------- ------- -------- -------- -------- --------
Change in Net Assets ........................... 870 1,288 (3,248) 37,726 (51,377) 65,790
------- ------- -------- -------- -------- --------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark ................... -- -- -- 44,366 -- 184,625
Proceeds from Shares Issued ................ 20,660 14,934 40,856 49,160 56,030 29,160
Reinvestment of Distributions .............. 1,721 1,582 16,408 10,043 44,497 3,648
Cost of Shares Redeemed .................... (10,810) (11,930) (44,654) (47,541) (23,894) (24,942)
------- ------- -------- -------- -------- --------
Total Fiduciary Share Transactions ....... 11,571 4,586 12,610 56,028 76,633 192,491
Retail Class A Shares:
Proceeds from the reorganization of
Stepstone or Highmark .................. -- -- -- 594 -- 3,366
Proceeds from Shares Issued ................ -- -- 976 872 2,417 1,023
Reinvestment of Distributions .............. -- -- 356 262 1,764 234
Cost of Shares Redeemed .................... -- -- (732) (2,190) (638) (1,547)
------- ------- -------- -------- -------- --------
Total Retail Class A Share Transactions .. -- -- 600 (462) 3,543 3,076
------- ------- -------- -------- -------- --------
Net Increase in Net Assets From Share Transactions 11,571 4,586 13,210 55,566 80,176 195,567
------- ------- -------- -------- -------- --------
Total Increase in Net Assets ............. 12,441 5,874 9,962 93,292 28,799 261,357
------- ------- -------- -------- -------- --------
Net Assets:
Beginning of Period .......................... 57,256 51,382 409,656 316,364 305,695 44,338
------- ------- -------- -------- -------- --------
End of Period ................................ $69,697 $57,256 $419,618 $409,656 $334,494 $305,695
======= ======= ======== ======== ======== ========
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of
Stepstone or Highmark ................... -- -- -- 3,120 -- 13,293
Issued ..................................... 2,127 1,599 2,495 3,210 3,621 1,944
Issued in Lieu of Cash Distributions ....... 179 169 1,012 683 3,213 264
Redeemed ................................... (1,121) (1,273) (2,738) (3,134) (1,467) (1,642)
------- ------- -------- -------- -------- --------
Total Fiduciary Share Transactions ....... 1,185 495 769 3,879 5,367 13,859
------- ------- -------- -------- -------- --------
Retail Class A Shares:
Issued from the reorganization of
Stepstone or Highmark ................... -- -- -- 42 -- 242
Issued ..................................... -- -- 60 56 143 68
Issued in Lieu of Cash Distributions ....... -- -- 22 18 128 17
Redeemed ................................... -- -- (45) (144) (41) (103)
------- ------- -------- -------- -------- --------
Total Retail Class A Share Transactions .. -- -- 37 (28) 230 224
------- ------- -------- -------- -------- --------
Net Increase in Share Transactions ......... 1,185 495 806 3,851 5,597 14,083
======= ======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
VALUE MOMENTUM INCOME EQUITY BLUE CHIP GROWTH
FUND FUND FUND
----------------------- ----------------------- -----------------------
08/01/97 02/01/97 08/01/97 08/01/96 08/01/97 02/01/97
TO 01/31/98 TO 07/31/97 TO 01/31/98 TO 07/31/97 TO 01/31/98 TO 07/31/97
----------------------- ----------------------- -----------------------
Investment Activities From Operations:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income .......................... $ 3,403 $ 3,065 $ 3,411 $ 7,455 $ 175 $ 464
Net Realized Gain (Loss) on Investments ........ 1,615 2,055 24,535 34,297 15,541 8,315
Net Realized Gain (Loss) on Option Contracts ... -- -- -- -- (1) 21
Net Realized Gain (Loss) on Foreign
Currency Transactions ........................ -- -- -- -- -- --
Change in Unrealized Appreciation (Depreciation)
on Investments ............................... 18,227 68,691 (20,248) 65,148 (17,209) 7,929
Change in Unrealized Depreciation
on Foreign Currency .......................... -- -- -- -- -- --
-------- -------- -------- -------- -------- -------
Net Increase (Decrease) in Net Assets
Resulting From Operations .................... 23,245 73,811 7,698 106,900 (1,494) 16,729
-------- -------- -------- -------- -------- -------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares ............................. (3,472) (2,920) (3,433) (7,008) (178) (447)
Retail Class A Shares ........................ (137) (115) (138) (263) -- --
Capital Gains:
Fiduciary Shares ............................. (3,243) -- (34,725) (19,912) (14,205) --
Retail Class A Shares ........................ (161) -- (1,703) (761) -- --
-------- -------- -------- -------- -------- -------
Total Distributions ........................ (7,013) (3,035) (39,999) (27,944) (14,383) (447)
-------- -------- -------- -------- -------- -------
Change in Net Assets ............................. 16,232 70,776 (32,301) 78,956 (15,877) 16,282
-------- -------- -------- -------- -------- -------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark ..................... -- -- -- -- -- --
Proceeds from Shares Issued .................. 90,028 110,431 34,173 48,928 23,886 17,168
Reinvestment of Distributions ................ 5,702 2,053 32,127 24,742 14,311 447
Cost of Shares Redeemed ...................... (35,605) (34,176) (34,719) (59,638) (10,298) (17,696)
-------- -------- -------- -------- -------- -------
Total Fiduciary Share Transactions ......... 60,125 78,308 31,581 14,032 27,899 (81)
Retail Class A Shares:
Proceeds from the reorganization of
Stepstone or Highmark .................... -- -- -- -- -- --
Proceeds from Shares Issued .................. 7,710 2,942 4,491 3,294 -- --
Reinvestment of Distributions ................ 289 113 1,819 1,039 -- --
Cost of Shares Redeemed ...................... (1,064) (1,400) (735) (3,247) -- --
-------- -------- -------- -------- -------- -------
Total Retail Class A Share Transactions .... 6,935 1,655 5,575 1,086 -- --
-------- -------- -------- -------- -------- -------
Net Increase (Decrease) in Net Assets
From Share Transactions 67,060 79,963 37,156 15,118 27,899 (81)
-------- -------- -------- -------- -------- -------
Total Increase in Net Assets ............... 83,292 150,739 4,855 94,074 12,022 16,201
-------- -------- -------- -------- -------- -------
Net Assets:
Beginning of Period ............................ 484,184 333,445 366,877 272,803 96,883 80,682
-------- -------- -------- -------- -------- -------
End of Period .................................. $567,476 $484,184 $371,732 $366,877 $108,905 $96,883
======== ======== ======== ======== ======== =======
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of
Stepstone or Highmark ..................... -- -- -- -- -- --
Issued ....................................... 3,514 4,899 1,930 3,110 1,538 1,198
Issued in Lieu of Cash Distributions ......... 219 91 1,926 1,630 968 30
Redeemed ..................................... (1,392) (1,521) (1,957) (3,787) (634) (1,199)
-------- -------- -------- -------- -------- -------
Total Fiduciary Share Transactions ......... 2,341 3,469 1,899 953 1,872 29
-------- -------- -------- -------- -------- -------
Retail Class A Shares:
Issued from the reorganization of
Stepstone or Highmark ..................... -- -- -- -- -- --
Issued 299 130 252 204 -- --
Issued in Lieu of Cash Distributions ......... 11 5 109 68 -- --
Redeemed ..................................... (41) (61) (42) (206) -- --
-------- -------- -------- -------- -------- -------
Total Retail Class A Share Transactions .... 269 74 319 66 -- --
-------- -------- -------- -------- -------- -------
Net Increase in Share Transactions ........... 2,610 3,543 2,218 1,019 1,872 29
======== ======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
EMERGING GROWTH INTERNATIONAL EQUITY
FUND FUND
----------------------- -----------------------
08/01/97 02/01/97 08/01/97 02/01/97
TO 01/31/98 TO 07/31/97 TO 07/31/97 TO 07/31/97
----------------------- -----------------------
Investment Activities From Operations:
<S> <C> <C> <C> <C>
Net Investment Income .......................... $ (49) $ 73 $ (10) $ 280
Net Realized Gain (Loss) on Investments ........ 5,831 3,445 (5,174) (207)
Net Realized Gain (Loss) on Option Contracts ... (100) (320) -- --
Net Realized Gain (Loss) on Foreign
Currency Transactions ........................ -- -- (53) (59)
Change in Unrealized Appreciation (Depreciation)
on Investments ............................... (5,750) 1,474 (1,020) 5,628
Change in Unrealized Depreciation
on Foreign Currency .......................... -- -- 55 (27)
------- ------- ------- -------
Net Increase (Decrease) in Net Assets
Resulting From Operations .................... (68) 4,672 (6,202) 5,615
------- ------- ------- -------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares ............................. (9) (57) (789) --
Retail Class A Shares ........................ -- -- -- --
Capital Gains:
Fiduciary Shares ............................. (9,793) -- (484) --
Retail Class A Shares ........................ -- -- -- --
------- ------- ------- -------
Total Distributions ........................ (9,802) (57) (1,273) --
------- ------- ------- -------
Change in Net Assets ............................. (9,870) 4,615 (7,475) 5,615
------- ------- ------- -------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark ..................... -- -- -- --
Proceeds from Shares Issued .................. 12,343 16,568 17,197 3,528
Reinvestment of Distributions ................ 9,723 57 709 --
Cost of Shares Redeemed ...................... (10,925) (12,060) (6,597) (3,049)
------- ------- ------- -------
Total Fiduciary Share Transactions ......... 11,141 4,565 11,309 479
Retail Class A Shares:
Proceeds from the reorganization of
Stepstone or Highmark .................... -- -- -- --
Proceeds from Shares Issued .................. -- -- -- --
Reinvestment of Distributions ................ -- -- -- --
Cost of Shares Redeemed ...................... -- -- -- --
------- ------- ------- -------
Total Retail Class A Share Transactions .... -- -- -- --
------- ------- ------- -------
Net Increase in Net Assets From Share Transactions 11,141 4,565 11,309 479
------- ------- ------- -------
Total Increase in Net Assets ............... 1,271 9,180 3,834 6,094
------- ------- ------- -------
Net Assets:
Beginning of Period ............................ 66,336 57,156 52,467 46,373
------- ------- ------- -------
End of Period .................................. $67,607 $66,336 $56,301 $52,467
======= ======= ======= =======
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of
Stepstone or Highmark ..................... -- -- -- --
Issued ....................................... 904 1,332 514 96
Issued in Lieu of Cash Distributions ......... 757 5 20 --
Redeemed ..................................... (816) (961) (185) (84)
------- ------- ------- -------
Total Fiduciary Share Transactions ......... 845 376 349 12
------- ------- ------- -------
Retail Class A Shares:
Issued from the reorganization of
Stepstone or Highmark ..................... -- -- -- --
Issued ....................................... -- -- -- --
Issued in Lieu of Cash Distributions ......... -- -- -- --
Redeemed ..................................... -- -- -- --
------- ------- ------- -------
Total Retail Class A Share Transactions .... -- -- -- --
------- ------- ------- -------
Net Increase in Share Transactions ........... 845 376 349 12
======= ======= ======= =======
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
</TABLE>
The accompanying notes are an integral part of the financial statements.
100 & 101
<PAGE>
<TABLE>
<CAPTION>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
INVESTMENT ACTIVITIES DISTRIBUTIONS
NET ---------------------------- ---------------------- NET NET
ASSET NET REALIZED ASSET ASSETS, RATIO TO
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 SIX MONTH PERIOD ENDED JANUARY 31,:
<S> <C> <C> <C> <C> <C> <C> <C>
1998 $1.00 0.025 -- (0.025) -- -- $1.00 4.92%* $ 286,800 0.45%*
FOR THE YEARS ENDED JULY 31,:
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 CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 $1.00 0.024 -- (0.024) -- -- $1.00 4.72%* $ 660,950 0.70%*
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 JANUARY 31,:
1998 $1.00 0.026 -- (0.026) -- -- $1.00 5.23%* $1,132,188 0.50%*
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 CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 $1.00 0.025 -- (0.025) -- -- $1.00 4.98%* $ 975,596 0.75%*
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%
</TABLE>
RATIO OF
RATIO NET INVESTMENT
OF EXPENSES RATIO OF INCOME 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 SIX MONTH PERIOD ENDED JANUARY 31,:
1998 0.78%* 4.94%* 4.61%*
FOR THE YEARS ENDED JULY 31,:
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 CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 1.03%* 4.69%* 4.36%*
FOR THE YEARS ENDED JULY 31,:
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 JANUARY 31,:
1998 0.78%* 5.17%* 4.90%*
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.64%* 5.07%* 4.90%*
FOR THE YEARS 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 CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 1.03%* 4.92%* 4.65%*
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.95%* 4.82%* 4.59%*
FOR THE YEARS 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%
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
* ANNUALIZED.
The accompanying notes are an integral part of the financial statements.
102
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
NET ---------------------------- ----------------- NET NET
ASSET NET REALIZED ASSET ASSETS, RATIO TO
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
- ----------------------------------------------------------------------------------------------------------------
- -------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- -------------------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
<S> <C> <C> <C> <C> <C> <C> <C>
1998 $1.00 0.016 -- (0.016) -- $1.00 3.28%* $203,698 0.30%*
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $1.00 0.016 -- (0.016) -- $1.00 3.28%* $159,297 0.28%*
FOR THE YEARS ENDED JANUARY 31,:
1997 $1.00 0.031 -- (0.031) -- 1.00 3.12% $ 36,207 0.27%
1996 1.00 0.034 -- (0.034) -- 1.00 3.48% 42,923 0.28%
1995 1.00 0.026 -- (0.026) -- 1.00 2.67% 52,050 0.29%
1994 1.00 0.021 -- (0.021) -- 1.00 2.13% 52,982 0.30%
1993 1.00 0.025 -- (0.025) -- 1.00 2.61% 45,521 0.30%
RETAIL CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 $1.00 0.015 -- (0.015) -- $1.00 3.00%* $252,910 0.55%*
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $1.00 0.015 -- (0.015) -- $1.00 2.99%* $217,229 0.55%*
FOR THE YEARS ENDED JANUARY 31,:
1997 $1.00 0.027 -- (0.027) -- $1.00 2.78% $150,688 0.60%
1996 1.00 0.031 -- (0.031) -- 1.00 3.14% 81,177 0.61%
1995 1.00 0.023 -- (0.023) -- 1.00 2.33% 49,494 0.62%
1994 1.00 0.018 -- (0.018) -- 1.00 1.80% 52,220 0.63%
1993 1.00 0.022 -- (0.022) -- 1.00 2.27% 8,542 0.63%
- ---------------------------------
U.S. GOVERNMENT MONEY MARKET FUND
- ---------------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 $1.00 0.025 -- (0.025) -- $1.00 5.05%* $222,908 0.51%*
FOR THE YEARS ENDED JULY 31,:
1997 $1.00 0.047 -- (0.047) -- $1.00 4.78% $252,995 0.70%
1996 1.00 0.048 -- (0.048) -- 1.00 4.88% 151,483 0.77%
1995 1.00 0.048 -- (0.048) -- 1.00 4.87% 159,747 0.78%
1994 1.00 0.027 -- (0.027) -- 1.00 2.74% 162,094 0.78%
1993 1.00 0.027 -- (0.027) -- 1.00 2.72% 166,182 0.71%
RETAIL CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 $1.00 0.024 -- (0.024) -- $1.00 4.85%* $ 52,176 0.76%*
FOR THE YEARS ENDED JULY 31,:
1997 $1.00 0.046 -- (0.046) -- $1.00 4.70% $ 42,797 0.78%
1996 1.00 0.048 -- (0.048) -- 1.00 4.86% 75,714 0.79%
1995 1.00 0.048 -- (0.048) -- 1.00 4.86% 48,474 0.78%
1994 1.00 0.027 -- (0.027) -- 1.00 2.74% 24,055 0.77%
1993 1.00 0.027 -- (0.027) -- 1.00 2.72% 37,332 0.71%
</TABLE>
RATIO OF
RATIO NET INVESTMENT
OF EXPENSES RATIO OF INCOME TO
AVERAGE NET INVESTMENT AVERAGE
NET ASSETS INCOME NET ASSETS
EXCLUDING TO AVERAGE EXCLUDING
FEE WAIVERS NET ASSETS FEE WAIVERS
- ---------------------------------------------------
- -------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- -------------------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 0.78%* 3.20%* 2.72%*
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.69%* 3.36%* 2.96%*
FOR THE YEARS ENDED JANUARY 31,:
1997 0.49% 3.08% 2.86%
1996 0.49% 3.43% 3.22%
1995 0.50% 2.66% 2.45%
1994 0.54% 2.09% 1.85%
1993 0.54% 2.53% 2.29%
RETAIL CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 1.03%* 2.96%* 2.48%*
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.97%* 3.02%* 2.59%*
FOR THE YEARS ENDED JANUARY 31,:
1997 0.88% 2.75% 2.47%
1996 0.88% 3.09% 2.82%
1995 0.90% 2.33% 2.05%
1994 0.94% 1.76% 1.45%
1993 0.94% 2.21% 1.90%
- ---------------------------------
U.S. GOVERNMENT MONEY MARKET FUND
- ---------------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 0.78%* 5.07%* 4.79%*
FOR THE YEARS ENDED JULY 31,:
1997 0.95% 4.69% 4.44%
1996 1.00% 4.76% 4.53%
1995 1.02% 4.76% 4.52%
1994 0.94% 2.70% 2.54%
1993 0.74% 2.67% 2.65%
RETAIL CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 1.03%* 4.82%* 4.54%*
FOR THE YEARS ENDED JULY 31,:
1997 1.22% 4.60% 4.16%
1996 1.26% 4.77% 4.30%
1995 1.27% 4.82% 4.33%
1994 1.17% 2.63% 2.23%
1993 0.79% 2.67% 2.59%
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
* ANNUALIZED.
103
<PAGE>
<TABLE>
<CAPTION>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
FINANCIAL HIGHLIGHTS
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 JANUARY 31,:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $10.30 0.304 0.097 (0.321) -- $10.38 3.88% $134,548 0.75%* 1.00%*
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
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 CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 $10.29 0.301 0.100 (0.321) -- $10.37 3.88% $ 4,845 0.75%* 1.25%*
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 JANUARY 31,:
1998 $10.01 0.209 0.120 (0.229) -- $10.11 3.34% $ 17,557 0.24%* 1.04%*
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 CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 $ 9.99 0.222 0.106 (0.229) -- $10.09 3.35% $ 13,150 0.24%* 1.28%*
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%*
</TABLE>
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 JANUARY 31,:
1998 5.82%* 5.57%* 12%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
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 CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 5.82%* 5.32%* 12%
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 JANUARY 31,:
1998 4.44%* 3.65%* 8%
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 CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 4.44%* 3.40%* 8%
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%
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.
The accompanying notes are an integral part of the financial statements.
104
<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
- ----------------------------------------------------------------------------------------------------------------------------
- ---------
BOND FUND
- ---------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $10.67 0.310 0.188 (0.328) -- $10.84 4.67% $92,607 0.75%* 1.02%*
FOR THE YEARS ENDED JULY 31,:
1997 $10.23 0.628 0.421 (0.609) -- $10.67 10.59% $71,571 0.85% 1.42%
1996 10.38 0.660 (0.160) (0.650) -- 10.23 4.81% 60,374 0.89% 1.61%
1995 10.11 0.640 0.270 (0.640) -- 10.38 9.43% 59,758 0.92% 1.64%
1994 11.13 0.630 (0.970) (0.630) -- 10.11 (3.14)% 64,185 0.86% 1.37%
1993 11.02 0.700 0.350 (0.700) -- 11.13 10.07% 33,279 0.93% 1.55%
RETAIL CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 $10.59 0.308 0.170 (0.328) -- $10.74 4.61% $ 865 0.75%* 1.27%*
FOR THE YEARS ENDED JULY 31,:
1997 $10.15 0.642 0.403 (0.609) -- $10.59 10.68% $ 606 0.85% 1.68%
1996 10.29 0.690 (0.180) (0.650) -- 10.15 4.95% 1,157 0.89% 1.85%
1995 10.04 0.660 0.230 (0.640) -- 10.29 9.29% 558 0.92% 1.89%
1994 10.12 0.070 (0.050) (0.100) -- 10.04 (3.81)%(B) 7 0.99%* 2.96%*
- ---------------------------
CONVERTIBLE SECURITIES FUND
- ---------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 $12.41 0.176 (0.551) (0.183) (0.822) $11.03 (3.08)% $28,431 0.85%* 1.13%*
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%* 1.00%*
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% 0.85%
1996 9.08 0.407 1.350 (0.404) -- 10.43 19.67% 16,668 0.85% 0.85%
1995 (3) 10.00 0.354 (0.930) (0.343) -- 9.08 (5.83)% 10,297 0.85% 0.85%
- --------------------------
GOVERNMENT SECURITIES FUND
- --------------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 $ 9.64 0.271 0.156 (0.287) -- $ 9.78 4.52% $69,696 0.75%* 1.03%*
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%* 0.88%*
FOR THE YEARS ENDED JANUARY 31,:
1997 $ 9.94 0.524 (0.505) (0.520) -- $ 9.44 0.34% $51,382 0.74% 0.74%
1996 9.07 0.556 0.870 (0.556) -- 9.94 16.16% 46,725 0.75% 0.75%
1995 (3) 10.00 0.491 (0.950) (0.475) -- 9.07 (4.49)% 32,178 0.75% 0.75%
</TABLE>
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 SIX MONTH PERIOD ENDED JANUARY 31,:
1998 5.88%* 5.61%* 11% n/a
FOR THE YEARS ENDED JULY 31,:
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 CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 5.88%* 5.36%* 11% n/a
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 JANUARY 31,:
1998 2.95%* 2.67%* 23% 0.0600
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 JANUARY 31,:
1998 5.60%* 5.32%* 27% n/a
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
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.
105
<PAGE>
<TABLE>
<CAPTION>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
FINANCIAL HIGHLIGHTS
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 JANUARY 31,:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $16.46 0.214 0.330 (0.231) (0.442) $16.33 3.38% $409,872 0.90%* 1.09%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
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 CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 $16.45 0.191 0.331 (0.210) (0.442) $16.32 3.24% $ 9,749 1.15%* 1.34%
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%
</TABLE>
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 JANUARY 31,:
1998 *2.60%* 2.42%* 10% 0.0600
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
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 CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 2.35%* 2.17%* 10% 0.0600
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
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.
The accompanying notes are an integral part of the financial statements.
106
<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 JANUARY 31,:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $17.36 0.014 0.599 (0.022) (3.540) $14.41 4.39% $324,697 0.90%* 1.09%*
FOR THE YEARS ENDED JULY 31,:
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 CLASS A SHARES
FOR THE YEARS ENDED JANUARY 31,:
1998 $17.39 (0.003) 0.590 (0.007) (3.540) $14.43 4.21% $ 9,796 1.15%* 1.34%*
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) -- -- --
</TABLE>
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 JANUARY 31,:
1998 0.17%* (0.01)%* 46% 0.0598
FOR THE YEARS ENDED JULY 31,:
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 CLASS A SHARES
FOR THE YEARS ENDED JANUARY 31,:
1998 (0.08)%* (0.26)%* 46% 0.0598
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
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.
107
<PAGE>
<TABLE>
<CAPTION>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
FINANCIAL HIGHLIGHTS
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 JANUARY 31,:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $25.48 0.166 0.956 (0.178) (0.164) $26.26 4.43% $539,038 0.81%* 1.09%*
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $21.57 0.132 3.955 (0.176) -- $25.48 19.06% $463,434 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 CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 $25.48 0.132 0.947 (0.145) (0.164) $26.25 4.29% $ 28,438 1.06%* 1.34%*
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 SIX MONTH PERIOD ENDED JANUARY 31,:
1998 $18.21 0.164 0.194 (0.171) (1.776) $16.62 2.02% $353,49 0.91%* 1.09%*
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 CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 $18.24 0.144 0.190 (0.148) (1.776) $16.65 1.88% $ 18,237 1.16%* 1.34%*
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%*
</TABLE>
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 JANUARY 31,:
1998 1.31%* 1.03%* 1% 0.0599
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
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 CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 1.05%* 0.77%* 1% 0.0599
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 SIX MONTH PERIOD ENDED JANUARY 31,:
1998 1.85%* 1.67%* 23% 0.0584
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 CLASS A SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
1998 1.59%* 1.41%* 23% 0.0584
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
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.
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
- ----------------------------------------------------------------------------------------------------------------------------
- ---------------------
BLUE CHIP GROWTH FUND
- ---------------------
FIDUCIARY SHARES
FOR THE SIX MONTH PERIOD ENDED JANUARY 31,:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $17.32 0.028 (0.303) (0.030) (2.425) $14.59 (1.43)% $108,905 0.82%* 1.10%*
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
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 JANUARY 31,:
1998 $14.39 (0.009) 0.049 (0.002) (2.033) $12.39 0.17% $ 67,606 1.03%* 1.31%*
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 JANUARY 31,:
1998 $38.69 0.201 (4.901) (0.592) (0.367) $33.03 (12.25)% $ 56,301 1.32%* 1.60%*
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%
</TABLE>
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 JANUARY 31,:
1998 0.35%* 0.08%* 60% 0.0599
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
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 JANUARY 31,:
1998 (0.14)%* (0.42)%* 114% 0.0529
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 JANUARY 31,:
1998 (0.04)%* (0.32)%* 68% 0.0284
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
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.
109
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD ENDED JANUARY 31, 1998
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 three classes of shares, Class A and Class B
shares (collectively called the "Retail Shares") and Fiduciary Shares. The
Retail Class B Shares commenced operations on February 2, 1998. 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.
2. SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------
The following is a summary of significant accounting policies followed by the
Funds.
BASIS OF PRESENTATION OF STATEMENTS -- 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 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
110
<PAGE>
- --------------------------------------------------------------------------------
that is due to changes in the foreign exchange rates from that which is due to
changes in market prices of such securities.
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.
111
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income for
the money market funds are declared daily and paid monthly. Each of the
non-money 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 Investments Fund Resources (the
"Administrator"), a Delaware business trust, became the Administrator for the
Funds. SEI Investments 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 August 1, 1997 to January 31, 1998 the
Administrator agreed to waive its fee to the rate of .18% of the average daily
net assets of the Funds.
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. During the
period August 1, 1997 to November 30, 1997 UBOC voluntarily agreed to reduce its
fee to 0.03% (with the exception of California Intermediate Tax Free Fund for
which UBOC agreed to waive its fee to 0.00%). Effective December 1, 1997, UBOC
terminated its waiver. At that time, the Administrator voluntarily agreed to
waive a portion of its fee to keep the net administrative fee of the Fund at
0.18%.
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 Funds have 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.
The Intermediate-Term Bond, California Intermediate Tax-Free Bond and Bond Funds
are currently waiving all distribution fees.
The Funds have also adopted a Shareholder Service Plan permitting payment of
compensation to service providers,
112
<PAGE>
- --------------------------------------------------------------------------------
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 August 1, 1997
to January 31, 1998, Union Bank of California, N.A. received shareholder
servicing fees from the Funds in the amount of approximately $577,000.
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.
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, 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 six months ended January 31,
1998 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 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.
During the period August 1, 1997 to December 31, 1997 the Advisor and Tokyo-
Mitsubishi Asset Management (U.K.), Ltd. were parties to a Sub-Advisory
Agreement for the International Equity Fund. Tokyo-Mitsubishi Asset Management
(U.K.), Ltd. was entitled to a fee of 0.30% of the average daily nets
assets of the Funds.
On January 1, 1998 the Advisor and AXA Asset Management Partenaires ("AXA")
entered into an investment sub-advisory agreement for the International Equity
Fund. AXA is entitled to a fee of .30% of the average daily net assets of the
Funds.
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 $ 32,890 $ 14,510
California Intermediate
Tax-Free Bond 10,450 2,165
Bond 22,675 8,078
Convertible Securities 6,509 5,152
Government Securities 15,418 16,300
Balanced 54,649 40,362
Growth 149,685 139,543
Value Momentum 72,058 5,970
Income Equity 85,497 83,370
Blue Chip Growth 54,619 62,552
Emerging Growth 71,120 70,257
International Equity 37,480 31,534
113
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 January 31, 1998 for each portfolio
was as follows:
APPRECIATION DEPRECIATION TOTAL
(000'S) (000'S) (000'S)
-------- ------- -------
Intermediate-Term Bond $ 4,320 $ -- $ 4,320
California Intermediate
Tax-Free Bond 1,034 -- 1,034
Bond 3,969 (307) 3,662
Convertible Securities 3,360 (1,341) 2,019
Government Securities 2,705 -- 2,705
Balanced 105,870 (4,368) 101,502
Growth 74,459 (4,209) 70,250
Value Momentum 215,541 (6,815) 208,726
Income Equity 82,745 (3,496) 79,249
Blue Chip Growth 16,948 (6,372) 10,576
Emerging Growth 10,021 (3,908) 6,113
International Equity 5,864 (1,075) 4,789
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
07/31/97 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 5,746
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.
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.
114
<PAGE>
7. OPTION CONTRACTS
- -------------------
Transactions in covered call options and purchased put options during the period
ended January 31, 1998 are summarized as follows:
BLUE CHIP GROWTH
----------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- -------------------------------------- ---------- ---------
Option written and outstanding at
beginning of period 270 $ 32,299
Call option written during period 1,399 585,696
Call option exercised during period -- --
Call option expired during period (270) (32,299)
Call option closed during period (534) (194,679)
---------- ---------
Option written and outstanding at end
of period 865 $ 391,017
========== =========
EMERGING GROWTH
----------------------
NUMBER OF
WRITTEN OPTION TRANSACTION CONTRACTS PREMIUM
- -------------------------------------- ---------- ---------
Option written and outstanding at
beginning of period 1,029 $ 244,745
Call option written during period 2,232 475,583
Call option exercised during period (457) (134,575)
Call option expired during period (1,422) (256,566)
Call option closed during period (872) (236,720)
---------- ---------
Option written and outstanding at end
of period 510 $ 92,467
========== =========
BLUE CHIP GROWTH
----------------------
NUMBER OF
PURCHASE OPTION TRANSACTION CONTRACTS PREMIUM
- -------------------------------------- ---------- ---------
Purchased put option outstanding at
beginning of period 10 $ 833
Put option purchased during period -- --
Put option sold during period -- --
Put option expired during period (10) (833)
Put option exercised during period -- --
---------- ---------
Purchased put option outstanding at end
of period -- $ --
========== =========
EMERGING GROWTH
----------------------
NUMBER OF
PURCHASE OPTION TRANSACTION CONTRACTS PREMIUM
- -------------------------------------- ---------- ---------
Purchase put option outstanding at
beginning of period 267 $ 97,342
Put option purchased during period 1,242 253,177
Put option sold during period (240) (8,575)
Put option expired during period (292) (99,831)
Put option exercised during period (602) (146,963)
---------- ---------
Purchased put option outstanding at
end of period 375 $ 95,150
========== =========
115
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
NOTES
<PAGE>
Thank you for
your investment.
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
Mutual Funds:
[bullet] are not FDIC insured
[bullet] have no bank guarantee
[bullet] may lose value
<PAGE>
[Family photo omitted]
For further information
call 1-800-433-6884
or visit our Web site at www.highmark-funds.com
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK SEMI-ANNUAL REPORT
January 31, 1998
Investment Advisor
Pacific Alliance
the investment advisory
division of Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
Sub-Advisor
Bank of Tokyo-Mitsubishi Trust Company
1251 Avenue of the Americas
New York, NY 10116
Sub-Advisor
AXA Asset Management Partenaires
46, Avenue de la Grande Armee
Paris, 75017, France
Custodian
Union Bank of California, N.A.
475 Sansome Street
Post Office Box 45000
San Francisco, CA 94104
Administrator & Distributor
SEI Investments Fund Resources &
SEI Investments Distribution Co.
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
84808
