[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
[PHOTO OF FAMILY AT PLAY OMITTED]
HIGHMARK Annual Report
JULY 31, 1998
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[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
Table of Contents
Letter to Shareholders & Message from the Investment Advisor .............. 1
Management's Discussion & Analysis ........................................ 4
Statements of Net Assets .................................................. 28
Statements of Operations .................................................. 92
Statements of Changes in Net Assets ....................................... 96
Financial Highlights ...................................................... 100
Notes to Financial Statements ............................................. 108
Independent Auditors' Report .............................................. 117
Notice to Shareholders .................................................... 118
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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 or affiliates. 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 the advisor, HighMark Capital Management, Inc. or with
Union Bank of California, N.A.
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<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF GREG KNOPF OMITTED]
GREG KNOPF
DEAR SHAREHOLDER:
We are pleased to report another period of fine performance for many of the
HighMark Funds for the fiscal year ended July 31, 1998. Your HighMark Funds
generally did very well against their peer groups and compared to their standard
benchmarks of investment performance.
HIGHMARK CAPITAL MANAGEMENT, INC.
Effective September 1, 1998, the investment management unit at Union Bank of
California, N.A., investment advisor to HighMark, has been reorganized into a
subsidiary of UnionBanCal Corporation, the holding company of the advisor. The
new entity, called HighMark Capital Management, Inc., will allow us to build on
the successful HighMark name and should give us a greater presence in the
marketplace. We do not expect any changes in the personnel managing your
HighMark Funds as a result of this reorganization.
SMALL CAP VALUE FUND
A new fund, the HighMark Small Cap Value Fund, opened on September 17, 1998.
This fund is managed by our successful Value Momentum team, and is available in
Fiduciary, Retail "A" (front-end load), and Retail "B" (back-end load) classes
of shares. We are excited about the potential of this new fund and the
opportunity it presents to broaden our lineup of funds. We invite you to ask
your investment representative for more information about the Small Cap Value
Fund, or call HighMark at 1-800-433-6884 for a prospectus.
ENHANCED WEB SITE
The HighMark Web site has been significantly enhanced recently, and we encourage
you to visit us on the Web at www.highmark-funds.com. The Web site includes
information about the HighMark fund family and portfolio managers, and also
allows you to view fund performance and download prospectuses. In addition, we
have added a section for investment professionals, as part of our ongoing
commitment to serving this market.
The recent volatility of the financial markets shows the importance of a
well-diversified portfolio and of taking a long-term approach to investing. This
may be a good time to review your portfolio with your investment representative.
We thank you for your continued confidence and investment in HighMark Funds.
Sincerely,
/S/Signature
Greg Knopf
Managing Director, Mutual Funds
HighMark Capital Management, Inc.
September 1998
1
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MESSAGE FROM THE INVESTMENT ADVISOR
[PHOTO OF LUKE MAZUR OMITTED]
LUKE MAZUR
DEAR SHAREHOLDER:
After three years of double-digit gains, the stock market began to show signs of
weariness as the HighMark fiscal year came to a close on July 31, 1998. The
Asian economic crisis appeared to be worsening, exerting downward pressure on
the U.S. economy. At the same time, U.S. corporate earnings began to show little
or no growth. Meanwhile, global demand for the safety and liquidity of U.S.
Treasury bonds pushed yields to record lows, as bond investment performance
began to approach that of equities.
THE ECONOMY: SLOWING BUT NO RECESSION
Although the U.S. economy slowed in the second quarter of 1998, it is still
among the strongest in the world, having grown at an annual rate of nearly 4%
for the past few years. Indeed, the second quarter growth of just 1.6% may have
been an anomaly caused by two temporary conditions, a buildup of inventories
from the first quarter and the General Motors strike, since settled. However, a
third factor, the widening trade deficit, may be more difficult to resolve,
since it results from Asia's devalued currencies. Nevertheless, unemployment
remains under 5%, inflation remains under 2%, the federal budget is generating a
surplus for the first time in 30 years, the housing market remains robust and
consumer confidence is extremely high. Consumer spending, which accounts for
about two-thirds of GDP, has been strong in 1998.
While we don't believe that the impact of the Asian crisis on U.S. economic
growth will be significant, we do believe Asia could be in a recession for the
next year or two if Japan's leaders are unable to stimulate its economy.
Meanwhile, as Europe gets ready for a single currency on January 1, 1999,
European economic activity is looking more positive.
We expect the U.S. economy to grow between 2.5% to 3.0% for 1998. Productivity
gains should continue to offset rising wages. Because of dormant inflation,
long-term interest rates should trade in a range of 5.00% to 6.00%. With a
slowing economy, there is a reasonable possibility that the Federal Reserve
Board will lower short-term interest rates to 5.25% or 5.00% by the end of 1998.
Thus, we remain optimistic on the U.S. economy for the balance of the year.
STOCKS: MARKET SENTIMENT SHIFTS QUICKLY
Despite the recent volatility in the stock market, we believe that there are
many positives underlying the investment landscape. In addition to the generally
positive economic scenario described above, the U.S. continues to be the world
leader in innovation and technology and an increased investment in technology is
leading to greater productivity. Meanwhile, corporate restructuring and merger
and acquisition activity continue to cut corporate overhead. A demographic shift
continues to favor investment in stocks throughout the U.S., Europe and Asia.
The graying of the population is creating greater retirement savings, and more
of that money is flowing into the financial markets.
2
<PAGE>
Still, market sentiment shifts quickly. In mid-July, the Dow Jones Industrial
Average closed above 9300, setting an all-time record. By the end of August, the
Dow had lost more than 1,000 points, as investors became justifiably nervous
about the Russian economy. However, for the long-term investor, these sudden
changes in market sentiment can present great opportunity.
BONDS: THEY'VE COME A LONG WAY
Between August 1, 1997 and July 31, 1998, the benchmark 30-year Treasury bond
yield fell from 6.45% to 5.71%. As a result, bond prices rose about 13.8% during
the period. The Treasury bond is currently yielding very close to its all-time
low. Since bond prices move inversely to yields, interest rates would have to
move further into record territory for bonds to generate capital appreciation.
However, it is also true that inflation is at its lowest level in decades. As a
result, we continue to be bullish on bonds and believe that further capital
appreciation is possible. Meanwhile, bond yields continue to produce income well
in excess of inflation.
Although the Asian crisis is having a negative impact on the world economy, we
believe that the U.S. economy is demonstrating that it is strong enough to
withstand it. As a result, we remain optimistic regarding the U.S. stock and
bond markets.
Sincerely,
/S/Signature
Luke Mazur
Chief Investment Officer
HighMark Capital Management, Inc.
September 1998
3
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[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK GROWTH FUND
PERFORMANCE
For the year ended July 31, 1998, the HighMark Growth Fund returned 22.59%
(Fiduciary Shares).* In comparison, the Lipper Growth Funds Average rose 13.15%
during the period and the Standard & Poor's 500 Composite Index was up 19.28%.
In recognition of the Fund's performance, Morningstar, Inc. recently awarded the
Fund a five-star rating out of a possible five stars for the three-year period
ending 7/31/98.** The Fund was rated among 2,545 funds in the equity category.
FACTORS AFFECTING PERFORMANCE
There are three key reasons why the Fund produced superior performance:
TIMELY SECTOR WEIGHTINGS. In October 1997, our valuation discipline led us to
underweight technology companies after the sector had significantly outperformed
the S&P 500 Index. Meanwhile, the consumer staple sector became more
attractively priced after a sell-off on concerns that the rising U.S. dollar
might result in lower translated foreign earnings, and that consumer demand from
the Far East might slow due to currency devaluations. Indeed, during the period,
the technology sector underperformed and investors returned to consumer staple
companies.
UNDERWEIGHTING ENERGY. The price of oil dropped 41% during the year, which
caused the energy sector to sharply underperform the market. The commodity-based
energy sector generally does not meet our criteria for consistent, sustainable
superior earnings growth, but the Fund did benefit when one energy holding,
Dresser Industries, agreed to be acquired by Halliburton, another oil service
company.
GOOD STOCK SELECTION. Two additions to the portfolio performed particularly well
during the period. IMS Health provides pharmaceutical companies with
prescription market share data used for measuring sales and marketing
effectiveness. The company has a 90% market share and multiyear contracts with
the world's leading pharmaceutical companies. Berkshire Hathaway, a diversified
holding company controlled by the legendary Warren Buffett, derives two-thirds
of its earnings from 100% ownership in businesses that have grown at a 24%
annual rate for the past 30 years. The other third of Berkshire's earnings come
from its well-publicized minority positions in companies such as Coca-Cola,
Gillette, American Express and Walt Disney.
CURRENT STRATEGY & OUTLOOK
The growth style of investing typically outperforms when the economy slows, as
investors yearn for consistent and reliable earnings growth. In managing the
Fund,we will continue to seek a projected composite earnings growth rate
superior to that of the S&P 500 Index, yet the price-earnings multiple of the
composite portfolio is only slightly higher than the S&P 500 Index. We continue
to seek companies with excellent growth potential at reasonable prices and our
long-term outlook is positive.
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* The HighMark Growth Fund (Retail Class A Shares) produced a total return of
22.26% for the period. Including the maximum sales charge of 4.50%, the total
return for the Fund's Retail Class A Shares was 16.76%. The Fund's Retail
Class B Shares, launched on 2/2/98, produced a total synthetic return of
22.06% for the period. Including the maximum contingent deferred sales charge
of 5.00%, the total synthetic return for the Fund's Retail Class B Shares
was 17.21%.
** The ratings are subject to change every month. Past performance is no
guarantee of future results. Morningstar ratings are calculated from a fund's
three-, five- and ten-year average annual returns (if available) in excess of
90-day Treasury bill returns. The Fund received five stars for the three-year
period ending 7/31/98. The top 10% of funds within a rating category receive
five stars.
4
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HIGHMARK GROWTH FUND
TEAM LEADER:
SCOTT CHAPMAN
HIGHMARK CAPITAL
MANAGEMENT, INC.
FUND'S DATE OF INCEPTION:
NOVEMBER 18, 1993 (FIDUCIARY SHARES)
JUNE 20, 1994 (RETAIL CLASS A SHARES)
FEBRUARY 2, 1998 (RETAIL CLASS B SHARES)
NET ASSETS (000):
$449,060 (FIDUCIARY SHARES)
$ 17,173 (RETAIL CLASS A SHARES)
$ 1,948 (RETAIL CLASS B SHARES)
INVESTMENT OBJECTIVE:
THE HIGHMARK GROWTH FUND SEEKS
LONG-TERM CAPITAL APPRECIATION
THROUGH INVESTMENTS IN EQUITY
SECURITIES. THE PRODUCTION OF CURRENT
INCOME IS AN INCIDENTAL OBJECTIVE.
Comparison of Change in the Value of a $10,000
Investment in the HighMark Growth Fund (Fiduciary,
Synthetic Retail Class A or Synthetic Retail Class B
Shares) versus the S&P 500 Composite Index
and the Lipper Growth Funds Average.
[Line graph omitted--plot points as follows:]
<TABLE>
<CAPTION>
HighMark HighMark HighMark
Growth Fund, Growth Fund, Growth Fund, S&P 500 Lipper
Fiduciary Synthetic Retail Synthetic Retail Composite Growth Funds
Shares Class A Shares Class B Shares Index Average
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
11/93 $10,000 $ 9,550 $10,000 $10,000 $10,000
7/94 9,650 9,225 9,650 10,100 9,962
7/95 12,085 11,541 12,085 12,733 12,517
7/96 13,622 13,028 13,622 14,841 13,745
7/97 20,234 19,345 20,234 22,574 19,740
7/98 24,805 23,651 24,498 26,926 22,335
</TABLE>
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Annualized Annualized
One Year 3 Year Inception
Return Return to Date
- --------------------------------------------------------------------------------
Fiduciary Shares 22.59% 27.08% 21.76%
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Retail Class A Shares 22.26% 27.02% 25.87%
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Retail Class A Shares
with load* 16.76% 25.08% 24.46%
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Retail Class B Shares 22.06%+ 26.90%+ 28.71%
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Retail Class B Shares
with load** 17.21%+ 26.28%+ 23.71%
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* REFLECTS 4.50% SALES CHARGE.
** REFLECTS MAXIMUM CDSC OF 5.00%.
+ SYNTHETIC, NOT ACTUAL.
Past performance is not predictive of future results.
5
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[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK VALUE MOMENTUM FUND
PERFORMANCE
For the year ended July 31, 1998, the HighMark Value Momentum Fund returned
9.22% (Fiduciary Shares).* In comparison, the Lipper Growth & Income Funds
Average rose 11.37% during the period and the Standard & Poor's 500 Composite
Index was up 19.28%.
FACTORS AFFECTING PERFORMANCE
Three factors adversely impacted performance in relation to the S&P 500 Index.
First, the value style of investing significantly underperformed growth during
the period. Typically, value does well when earnings are accelerating and the
stock market is weak. Instead, earnings were weakening, and the S&P 500 Index
reached several new highs. Second, small and midcap stocks seriously
underperformed. For example, during the twelve-months ended July 31, 1998, the
Russell 2000 Index, a broad measure of smaller stocks, rose just 2.31%. By and
large, the Fund was not invested in the large liquid growth stocks that
performed so well during the fiscal year. Third, several companies in the
portfolio announced surprisingly poor results. One, Cendant Corporation,
announced accounting irregularities and was forced to restate earnings. Others,
such as Parker Hannifin, Manpower and Wallace Computer, reported very
disappointing profits.
CURRENT STRATEGY & OUTLOOK
Because of market conditions, value investing was at a disadvantage during the
fiscal year. Nevertheless, we continue to have confidence in our stock selection
process. Our system requires us to project earnings and price-earnings multiples
for each company to determine a company's valuation on a normalized basis. In
addition, we have a downside risk process that requires us to determine the
lowest price at which we think a stock might sell given a worst case scenario.
We place a value on each company based on its cash flows, and we have a private
market value for each company based on what we think it is worth to a
knowledgeable buyer. Each stock passes through each one of those systems on a
constantly updated basis, and we think they form a solid core of disciplines
with which to assess a company's value. This system has proven to be very
effective for us.
We believe that a number of stocks in the portfolio offer excellent value. For
example, Fleetwood Enterprises manufactures factory-built housing and travel
vehicles. Factory-built housing continues to gain market share in a solid
housing market, and the travel-trailer business continues to benefit from good
consumer income and low fuel prices. McGraw-Hill, which owns Standard & Poor's
Corporation, Business Week magazine and other media products, has also done
well. This is a broad-based company that has been quite stable and has improved
its rate of profitability. Federated Department Stores is benefiting from
devalued currencies in Asia, where it purchases much of its inventory.
For value stocks to outperform, certain factors beyond our control would have to
take place. First, there would have to be a broad-based recovery in corporate
profits. Second, the stock market would have to fall to a level in which
valuations were considered inexpensive or at least more reasonable.
- -----------
* The HighMark Value Momentum Fund (Retail Class A Shares) produced a total
return of 8.96% for the period. Including the maximum sales charge of 4.50%,
the total return for the Fund's Retail Class A Shares was 4.06%. The Fund's
Retail Class B Shares, launched on 2/2/98, produced a total synthetic return
of 8.73% for the period. Including the maximum contingent deferred sales
charge of 5.00%, the total synthetic return for the Fund's Retail Class B
Shares was 3.73%.
6
<PAGE>
HIGHMARK VALUE MOMENTUM FUND
TEAM LEADER:
RICHARD EARNEST
HIGHMARK CAPITAL
MANAGEMENT, INC.
FUND'S DATE OF INCEPTION:
FEBRUARY 1, 1991 (FIDUCIARY SHARES)
APRIL 2, 1992 (RETAIL CLASS A SHARES)
FEBRUARY 2, 1998 (RETAIL CLASS B SHARES)
NET ASSETS (000):
$863,627 (FIDUCIARY SHARES)
$ 35,325 (RETAIL CLASS A SHARES)
$ 5,202 (RETAIL CLASS B SHARES)
INVESTMENT OBJECTIVE:
THE HIGHMARK VALUE MOMENTUM FUND
SEEKS LONG-TERM CAPITAL GROWTH
WITH A SECONDARY OBJECTIVE OF
INCOME. THE FUND WILL BE INVESTED
PRIMARILY IN STOCKS THAT 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 A DIVIDEND.
Comparison of Change in the Value of a $10,000
Investment in the HighMark Value Momentum Fund
(Fiduciary, Synthetic Retail Class A or
Synthetic Retail Class B Shares) versus the the S&P
500 Composite Index and the Lipper Growth
and Income Funds Average.
[Line graph omitted--plot points as follows:]
<TABLE>
<CAPTION>
HighMark Value HighMark Value HighMark Value
Momentum Fund, Momentum Fund, Momentum Fund, S&P 500 Lipper Growth &
Fiduciary Synthetic Retail Synthetic Retail Composite Income Funds
Shares Class A Shares Class B Shares Index Average
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2/91 $10,000 $ 9,550 $10,000 $10,000 $10,000
7/91 10,637 10,158 10,637 10,694 10,647
7/92 11,865 11,335 11,869 12,065 11,978
7/93 13,339 12,745 13,344 13,116 13,344
7/94 13,909 13,289 13,914 13,788 14,060
7/95 17,443 16,666 17,450 17,383 16,949
7/96 20,376 19,429 20,383 20,260 19,288
7/97 30,054 28,588 30,065 30,817 27,796
7/98 32,825 31,149 32,689 36,759 30,956
</TABLE>
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Annualized Annualized Annualized
One Year 3 Year 5 Year Inception
Return Return Return to Date
- --------------------------------------------------------------------------------
Fiduciary Shares 9.22% 23.46% 19.73% 18.12%
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Retail Class A Shares 8.96% 23.18% 19.57% 18.34%
- --------------------------------------------------------------------------------
Retail Class A Shares
with load* 4.06% 21.31% 18.48% 17.49%
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Retail Class B Shares 8.73%+ 23.27%+ 19.62%+ 3.94%
- --------------------------------------------------------------------------------
Retail Class B Shares
with load** 3.73%+ 22.61%+ 19.43%+ (1.06)%
- --------------------------------------------------------------------------------
* REFLECTS 4.50% SALES CHARGE.
** REFLECTS MAXIMUM CDSC OF 5.00%.
+ SYNTHETIC, NOT ACTUAL.
Past performance is not predictive of future results. Performance presented from
February 1, 1991, (commencement of operations of Fiduciary Shares) and April 2,
1992, (commencement of operations Retail Shares) to April 25, 1997 reflects the
performance of the Stepstone Value Momentum Fund.
7
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[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK INCOME EQUITY FUND
PERFORMANCE
For the year ended July 31, 1998, the HighMark Income Equity Fund returned
10.79% (Fiduciary Shares).* In comparison, the Lipper Equity Income Funds
Average rose 10.48% during the period and the Standard & Poor's 500 Index was up
19.28%.
FACTORS AFFECTING PERFORMANCE
The Fund's star performers were the regional telephone companies, which have
produced unexpectedly strong earnings. These companies have yet to be seriously
affected by deregulation and increased competition. Other positive contributors
to the Fund were in the automotive, health care, insurance and publishing
sectors. For example, Ford rose 66% in price from the beginning of 1998 to the
end of the Fund's fiscal year, and was still trading at a significant discount
to the market. The healthcare and publishing stocks outperformed because of
their steady and reliable earnings. The insurance stocks benefited from falling
interest rates, which boosted stocks and bonds in their investment portfolios.
The Fund's biggest disappointments were petroleum stocks, which suffered from
declining oil prices and expectations that weak economic growth in Asia would
keep oil demand and prices depressed.
CURRENT STRATEGY & OUTLOOK
Three stocks in our portfolio stand out as excellent values. The merger of
NationsBank and Bank of America creates the first truly national banking
franchise in the United States, and is projected to generate $2 billion in
savings by the year 2000. We expect strong earnings growth for McGraw-Hill, a
New York-based publisher with interests in education publishing and financial
services, with such attractive holdings as Business Week magazine and Standard &
Poor's Corporation. Baxter International, a global medical products company, is
generating solid earnings growth and an attractive dividend yield.
Although energy prices are currently depressed, we believe that our petroleum
holdings provide a hedge against an unexpected pickup in inflation. In addition,
oil companies generally have strong balance sheets and their stocks offer
attractive yields.
During the period, we made a slight modification to the Income Equity strategy.
While we continue to require an above-average dividend yield for most
industries, we no longer require it for technology companies. The most
successful technology companies typically reinvest their profits because of the
strong investment opportunities available to them. We don't want to exclude
ourselves from such a vibrant part of the U.S. economy.
- ------------
* The HighMark Income Equity Fund (Retail Class A Shares) produced a total
return of 10.50% for the period. Including the maximum sales charge of 4.50%,
the total return for the Fund's Retail Class A Shares was 5.53%. The Fund's
Retail Class B Shares, launched on 2/2/98, produced a total synthetic return
of 10.31% for the period. Including the maximum contingent deferred sales
charge of 5.00%, the total synthetic return for the Fund's Retail Class B
Shares was 5.31%.
8
<PAGE>
HIGHMARK INCOME EQUITY FUND
TEAM LEADER:
THOMAS ARRINGTON
HIGHMARK CAPITAL
MANAGEMENT, INC.
FUND'S DATE OF INCEPTION:
FEBRUARY 9, 1984 (FIDUCIARY SHARES)
JUNE 20, 1994 (RETAIL CLASS A SHARES)
FEBRUARY 2, 1998 (RETAIL CLASS B SHARES)
NET ASSETS (000):
$670,298 (FIDUCIARY SHARES)
$ 23,024 (RETAIL CLASS A SHARES)
$ 1,816 (RETAIL CLASS B SHARES)
INVESTMENT OBJECTIVE:
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. THE OPPORTUNITY FOR
LONG-TERM GROWTH OF ASSET VALUE IS
A SECONDARY CONSIDERATION.
Comparison of Change in the Value of a $10,000
Investment in the HighMark Income Equity Fund
(Fiduciary, Synthetic Retail Class A or
Synthetic Retail Class B Shares) versus the the
S&P 500 Composite Index and the Lipper
Equity Income Funds Average.
[Line graph omitted--plot points as follows:]
<TABLE>
<CAPTION>
HighMark Income HighMark Income HighMark Income
Equity Fund, Equity Fund, Equity Fund, S&P 500 Lipper Equity
Fiduciary Synthetic Retail Synthetic Retail Composite Income
Shares Class A Shares Class B Shares Index Funds Average
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2/84 $10,000 $ 9,550 $10,000 $10,000 $10,000
7/84 9,656 9,221 9,656 9,788 9,836
7/85 13,213 12,618 13,213 12,965 12,603
7/86 16,865 16,106 16,865 16,649 15,379
7/87 21,400 20,437 21,400 23,192 19,191
7/88 21,089 20,140 21,089 20,465 18,161
7/89 27,028 25,812 27,028 26,989 22,806
7/90 26,785 25,580 26,785 28,738 22,681
7/91 30,163 28,805 30,163 32,396 24,987
7/92 34,998 33,423 34,998 36,550 28,610
7/93 38,410 36,681 38,410 39,733 32,218
7/94 40,035 38,233 40,035 41,771 33,697
7/95 46,945 44,931 46,945 52,661 39,351
7/96 55,517 53,113 55,517 61,376 45,164
7/97 77,795 74,343 77,795 93,360 63,279
7/98 86,190 82,149 85,816 111,359 69,910
</TABLE>
- --------------------------------------------------------------------------------
Annualized Annualized Annualized Annualized
One Year 3 Year 5 Year 10 Year Inception
Return Return Return Return to Date
- --------------------------------------------------------------------------------
Fiduciary Shares 10.79% 22.45% 17.54% 15.12% 15.88%
- --------------------------------------------------------------------------------
Retail Class A Shares 10.50% 22.28% 17.50%+ 15.09%+ 20.73%
- --------------------------------------------------------------------------------
Retail Class A Shares
with load* 5.53% 20.43% 16.42%+ 14.57%+ 19.38%
- --------------------------------------------------------------------------------
Retail Class B Shares 10.31%+ 22.27%+ 17.44%+ 15.07%+ 13.10%
- --------------------------------------------------------------------------------
Retail Class B Shares
with load** 5.31%+ 21.60%+ 17.23%+ 15.07%+ 8.10%
- --------------------------------------------------------------------------------
* REFLECTS 4.50% SALES CHARGE.
** REFLECTS MAXIMUM CDSC OF 5.00%.
+ SYNTHETIC, NOT ACTUAL.
Past performance is not predictive of future results.
9
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[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK BALANCED FUND
PERFORMANCE
For the year ended July 31, 1998, the HighMark Balanced Fund returned 7.31%
(Fiduciary Shares).* In comparison, the Lipper Balanced Funds Average rose
9.75%. Meanwhile, the Standard & Poor's 500 Composite Index was up 19.28% and
the Lehman Brothers Aggregate Bond Index reflected a return of 7.86%.
FACTORS AFFECTING PERFORMANCE
The portfolio's asset allocation strategy shifted slightly towards fixed-income
securities and away from cash equivalents during the fiscal year. As of July 31,
1997, the portfolio included 61.3% equities, 32.5% bonds and 6.2% in cash. By
July 31, 1998, the mix had shifted to 59.2% equities, 38.3% bonds and 2.5% in
cash. Because we believed that inflation would remain benign and that the
Federal Reserve Board would not raise short-term rates, our decision to favor
bonds over cash positively impacted performance.
Another positive factor affecting performance was our decision to lengthen
duration (sensitivity to interest rates) from 101% to 109% of the benchmark. In
a period of falling interest rates, a portfolio with a longer duration tends to
outperform one with a shorter duration. However, our overweighted position in
corporate bonds and mortgage-backed securities was a drag on performance, as
global demand for U.S. Treasury bonds soared as a result of the Asian economic
crisis. The impact of the duration and sector decisions essentially offset each
other. As a result, our fixed income performance virtually matched the
benchmark.
However, the equity component of the portfolio significantly underperformed the
S&P 500 Index, rising only 8%. There were three reasons for this
underperformance. First, the S&P 500 Index performance was concentrated in the
largest 10% to 20% of the companies making up the index, areas where we had
little exposure. Second, the Fund's portfolio included significant exposure to
capital goods, energy and basic materials companies that performed poorly in a
slowing economic environment. Third, the portfolio included a few companies that
reported sudden problems, causing the stock prices to fall sharply.
CURRENT STRATEGY & OUTLOOK
In the fixed-income component, after months of underperformance, we believe that
corporate bonds and mortgage-backed securities now offer compelling value. As a
result, we intend to remain overweighted in these sectors.
In equities, we have retained in our portfolio a number of companies that we
believe are undervalued. Unlike early 1998 when investors seemed unconcerned
about valuations, we believe investors over the long run will be more concerned
about buying good companies at a reasonable price, a trend we hope to take
advantage of in the months ahead.
- ----------
* The HighMark Balanced Fund (Retail Class A Shares) produced a total return of
7.12% for the period. Including the maximum sales charge of 4.50%, the total
return for the Fund's Retail Class A Shares was 2.27%. The Fund's Retail Class
B Shares, launched on 2/2/98, produced a total synthetic return of 6.99% for
the period. Including the maximum contingent deferred sales charge of 5.00%,
the total synthetic return for the Fund's Retail Class B Shares was 1.99%.
10
<PAGE>
HIGHMARK BALANCED FUND
TEAM LEADER:
CARL COLOMBO
HIGHMARK CAPITAL
MANAGEMENT, INC.
FUND'S DATE OF INCEPTION:
FEBRUARY 1, 1991 (FIDUCIARY SHARES)
NOVEMBER 13, 1992 (RETAIL CLASS A SHARES)
FEBRUARY 2, 1998 (RETAIL CLASS B SHARES)
NET ASSETS (000):
$448,783 (FIDUCIARY SHARES)
$ 10,629 (RETAIL CLASS A SHARES)
$ 967 (RETAIL CLASS B SHARES)
INVESTMENT OBJECTIVE:
THE HIGHMARK BALANCED FUND SEEKS
CAPITAL APPRECIATION AND INCOME
WITH A SECONDARY INVESTMENT
OBJECTIVE OF CONSERVATION OF
CAPITAL. UNDER NORMAL MARKET
CONDITIONS, THE FUND INVESTS
BETWEEN 50% TO 70% OF ITS TOTAL
ASSETS IN EQUITY SECURITIES, AT
LEAST 25% IN BONDS AND THE REST IN
CASH EQUIVALENTS.
Comparison of Change in the Value of a $10,000 Investment in the HighMark
Balanced Fund (Fiduciary, Synthetic Retail Class A or Synthetic
Retail Class B Shares) versus the Lehman Brothers Aggregate Bond Index,
the S&P 500 Composite Index and the Lipper Balanced Funds Average.
[Line graph omitted--plot points as follows:]
<TABLE>
<CAPTION>
HighMark HighMark HighMark
Balanced Fund, Balanced Fund, Balanced Fund, Lehman Brothers S&P 500 Lipper
Fiduciary Synthetic Retail Synthetic Retail Aggregate Composite Balanced
Shares Class A Shares Class B Shares Bond Index Index Funds Average
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2/91 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
7/91 10,437 10,437 10,437 10,374 10,694 10,564
7/92 11,600 11,603 11,603 11,907 12,065 11,937
7/93 12,809 12,812 12,812 13,119 13,116 13,208
7/94 13,183 13,188 13,186 13,131 13,788 13,557
7/95 15,701 15,707 15,705 14,459 17,383 15,805
7/96 17,419 17,390 17,423 15,258 20,260 17,363
7/97 22,726 22,621 22,732 16,903 30,817 22,551
7/98 24,387 24,232 24,321 18,232 36,759 24,750
</TABLE>
- --------------------------------------------------------------------------------
Annualized Annualized Annualized
One Year 3 Year 5 Year Inception
Return Return Return to Date
- --------------------------------------------------------------------------------
Fiduciary Shares 7.31% 15.81% 13.75% 13.21%
- --------------------------------------------------------------------------------
Retail Class A Shares 7.12% 15.55% 13.59% 13.42%
- --------------------------------------------------------------------------------
Retail Class A Shares
with load* 2.27% 13.80% 12.56% 12.51%
- --------------------------------------------------------------------------------
Retail Class B Shares 6.99%+ 15.70%+ 13.68%+ 4.32%
- --------------------------------------------------------------------------------
Retail Class B Shares
with load** 1.99%+ 14.94%+ 13.44%+ (0.68)%
- --------------------------------------------------------------------------------
* REFLECTS 4.50% SALES CHARGE.
** REFLECTS MAXIMUM CDSC OF 5.00%.
+ SYNTHETIC, NOT ACTUAL.
Past performance is not predictive of future results. Performance presented from
February 1, 1991 (commencement of operations of Fiduciary Shares) and November
13, 1992 (commencement of operations of Retail Shares) to April 25, 1997
reflects the performance of the Stepstone Balanced Fund.
11
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK BLUE CHIP GROWTH FUND
PERFORMANCE
For the year ended July 31, 1998, the HighMark Blue Chip Growth Fund returned
8.67% (Fiduciary Shares). In comparison, the Lipper Growth Funds Average rose
13.15% during the period while the Standard & Poor's 500 Index was up 19.28%.
FACTORS AFFECTING PERFORMANCE
The Fund underperformed its benchmark for several reasons, including being
overweighted in technology companies. In many cases, the Asian economic crisis
caused orders to be deferred or cancelled. We believed that this situation would
correct itself over time and that the stocks' underperformance represented good
value. Our patience, however, was not rewarded during this twelve-month period.
Moreover, the Fund was overweighted in the health care services industry, which
also underperformed. Managed care companies faced rising medical costs and lower
rates of growth in Medicare reimbursement rates. As the market corrected in late
July, we took the opportunity to add several large blue-chip companies such as
Coca-Cola, General Electric, Gillette, Johnson & Johnson and McDonalds.
CURRENT STRATEGY & OUTLOOK
We believe that the rate of growth in the economy is slowing and that investors
will favor strong, multinational blue-chip growth companies for their reliable
and consistent earnings growth. Low interest rates, low inflation, strong fund
inflows and continued strong earnings growth should sustain valuation levels and
position blue-chip growth stocks well for future performance.
12
<PAGE>
HIGHMARK BLUE CHIP GROWTH FUND
PORTFOLIO MANAGER:
THE FUND IS MANAGED BY
A TEAM OF INVESTMENT
PROFESSIONALS AT HIGHMARK
CAPITAL MANAGEMENT, INC.
FUND'S DATE OF INCEPTION:
FEBRUARY 1, 1994 (FIDUCIARY SHARES)
NET ASSETS (000):
$127,295 (FIDUCIARY SHARES)
INVESTMENT OBJECTIVE:
THE HIGHMARK BLUE CHIP GROWTH FUND
SEEKS LONG-TERM CAPITAL GROWTH BY
INVESTING IN A DIVERSIFIED
PORTFOLIO OF COMMON STOCKS AND
OTHER EQUITY SECURITIES OF
SEASONED, LARGE CAPITALIZATION
COMPANIES.
Comparison of Change in the Value of a $10,000 Investment
in the HighMark Blue Chip Growth Fund (Fiduciary Shares)
versus the S&P 500 Composite Index and the
Lipper Growth Funds Average.
[Line graph omitted--plot points as follows:]
<TABLE>
<CAPTION>
HighMark Blue S&P 500 Lipper
Chip Growth Fund, Composite Growth Funds
Fiduciary Shares Index Average
- ---------------------------------------------------------------------
<S> <C> <C> <C>
2/94 $10,000 $10,000 $10,000
7/94 9,651 9,920 9,538
7/95 12,114 12,506 11,985
7/96 13,548 14,576 13,161
7/97 19,699 22,172 18,900
7/98 21,407 26,446 21,385
</TABLE>
- ---------------------------------------------------------------------
Annualized Annualized
One Year 3 Year Inception
Return Return to Date
- ---------------------------------------------------------------------
Fiduciary Shares 8.67% 20.90% 17.92%
- ---------------------------------------------------------------------
Past performance is not predictive of future results. Performance presented from
February 1, 1994 (commencement of operations of Fiduciary Shares) to April 25,
1997 reflects the performance of the Stepstone Blue Chip Fund.
13
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK EMERGING GROWTH FUND
PERFORMANCE
For the year ended July 31, 1998, the HighMark Emerging Growth Fund returned
3.37% (Fiduciary Shares). In comparison, the Lipper Small Cap Funds Average rose
2.64% during the period while the Russell 2000 Index was up 2.31%.
FACTORS AFFECTING PERFORMANCE
The largest factor affecting overall small cap stock performance during the past
fiscal year was the continuing preference by investors for large cap stocks.
During the period, investment dollars continued to flow into large cap index
funds such as the S&P 500 Index which helped drive up returns. Small cap index
funds did not enjoy the same investor interest, which caused relative
performance to suffer. In addition, within the small cap universe, the "value"
style was more in favor than the "growth" style that the Fund employs. The
Lipper average and the Russell 2000 Index include a mixture of growth and value,
making the comparison with the Emerging Growth Fund difficult. Considering these
negative factors, the Fund performed relatively well due to strong returns and
overweightings in the finance and technology sectors.
CURRENT STRATEGY & OUTLOOK
We believe that the outlook for small cap growth stocks is promising for three
reasons. First, because the economy is slowing, investors may favor companies
that can still post strong earnings. Many of the most rapidly growing companies
are in the small cap area. Second, small cap valuations are very attractive
compared to large cap stocks. At July 31, 1998, the S&P 600 Index, a measure of
small cap stocks, was trading at 16 times 1999 estimated earnings. In contrast,
the S&P 500 Index was trading at 22 times earnings. Third, the weakening Asian
economies are expected to hurt large company earnings more than small cap
profits. According to Merrill Lynch Small Cap Research, large companies have 27%
exposure to foreign sales versus 14% for smaller companies.
Our strategy is to remain overweighted in technology. We believe that this
sector will outperform the general market due to strong expected earnings growth
that can be purchased at reasonable prices. Because many small technology
companies have the ability to dominate their niche, they are able to increase
prices, revenues and earnings, all of which makes them very attractive to
investors as well as potential acquirers.
14
<PAGE>
HIGHMARK EMERGING GROWTH FUND
PORTFOLIO MANAGER:
STEVE RICCIO
BANK OF TOKYO-
MITSUBISHI TRUST CO.
FUND'S DATE OF INCEPTION:
FEBRUARY 1, 1994 (FIDUCIARY SHARES)
NET ASSETS (000):
$68,579 (FIDUCIARY SHARES)
INVESTMENT OBJECTIVE:
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.
Comparison of Change in the Value of a $10,000
Investment in the HighMark Emerging Growth Fund
(Fiduciary Shares) versus the Frank Russell 2000 Growth Index
and the Lipper Small-Cap Funds Average.
[Line graph omitted--plot points as follows:]
<TABLE>
<CAPTION>
HighMark
Emerging Growth Fund, Frank Russell Lipper Small-Cap
Fiduciary Shares 2000 Growth Index Funds Average
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2/94 $10,000 $10,000 $10,000
7/94 9,282 8,923 9,126
7/95 11,888 11,932 12,039
7/96 13,258 12,291 13,352
7/97 16,455 15,396 17,671
7/98 17,010 15,194 18,138
</TABLE>
- ---------------------------------------------------------------------
Annualized Annualized
One Year 3 Year Inception
Return Return to Date
- ---------------------------------------------------------------------
Fiduciary Shares 3.37% 12.68% 12.11%
- ---------------------------------------------------------------------
Past performance is not predictive of future results. Performance presented from
February 1, 1994 (commencement of operations of Fiduciary Shares) to April 25,
1997 reflects the performance of the Stepstone Emerging Growth Fund.
15
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK INTERNATIONAL EQUITY FUND
PERFORMANCE
For the year ended July 31, 1998, the HighMark International Equity Fund
returned -0.82% (Fiduciary Shares). In comparison, the Lipper International
Funds Average returned 6.77%. The unmanaged Morgan Stanley Capital International
EAFE Index, a benchmark made up of companies in 20 nations, returned 5.47% for
the period.
On January 1, 1998, AXA Asset Management Partenaires assumed responsibility as
sub-advisor for the Fund. AXA Asset Management Partenaires is part of the AXA
Group, one of the world's largest money management firms with over $495 billion
under management.
FACTORS AFFECTING PERFORMANCE
Since assuming responsibility as sub-advisor, AXA has been in the process of
realigning the portfolio. Despite this realignment, the Fund continues to
underperform its benchmarks. We believe, however, that these changes will
ultimately have a positive effect on performance. The Fund maintained an
overweighted position in European markets, notably in France, Spain, Portugal,
Italy and Germany. Conversely, the Fund was underweighted in Japan and Southeast
Asia.
The strong performance of the European market has been driven by a pickup in the
economy coupled with the ongoing corporate restructuring process, which has
driven earnings revisions upward. The upcoming euro conversion has been a very
strong deflationary factor because goods and services are increasingly competing
throughout the Continent, not just in the local markets, as consumers anticipate
the arrival of the new single currency on January 1, 1999. In addition,
sustained low interest rates are encouraging individual investors to move into
the equity markets. In Japan, a light weighting in financial stocks and a strong
emphasis on defensive domestic sectors such as pharmaceuticals and utilities
were beneficial.
CURRENT STRATEGY & OUTLOOK
The Fund continues to maintain a very strong weighting in Europe, with about 77%
of the portfolio invested there as of July 31, 1998. As of that date, the
weighting in Japan was about 19%, while the rest of Asia was about 4%.
We're still confident that corporate profits will be sufficiently strong in
Europe to allow the bull market to continue. Corporate managements have done a
good job improving profitability, although returns still lag their U.S.
counterparts. However, the European markets can't go much higher until the Asian
economic crisis stabilizes. In Japan, exporters are benefiting from a weaker
yen, but they must pass on the lower prices to their customers, so the currency
advantage isn't that significant. Despite large corrections in the Southeast
Asian markets, we believe that it is still too early to search for value, and
that there is still substantial negative news yet to be factored into
valuations, especially in the financial sector.
16
<PAGE>
HIGHMARK INTERNATIONAL EQUITY FUND
PORTFOLIO MANAGER:
ROBERT DE GUIGNE
AXA ASSET MANAGEMENT
PARTENAIRES
FUND'S DATE OF INCEPTION:
FEBRUARY 1, 1995 (FIDUCIARY SHARES)
NET ASSETS (000):
$91,970 (FIDUCIARY SHARES)
INVESTMENT OBJECTIVE:
THE HIGHMARK INTERNATIONAL
EQUITY FUND SEEKS TO PROVIDE
LONG-TERM CAPITAL APPRECIATION
BY INVESTING PRIMARILY IN A
DIVERSIFIED PORTFOLIO OF EQUITY
SECURITIES OF NON-U.S. ISSUERS.
Comparison of Change in the Value of a $10,000 Investment
in the HighMark International Equity Fund (Fiduciary Shares)
versus the Morgan Stanley MSCI EAFE Index and the
Lipper International Funds Average.
[Line graph omitted--plot points as follows:]
<TABLE>
<CAPTION>
HighMark International
Equity Fund, Morgan Stanley MSCI Lipper International
Fiduciary Shares EAFE Index Funds Average
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2/95 $10,000 $10,000 $10,000
7/95 11,143 11,368 11,332
7/96 11,650 11,770 11,990
7/97 12,585 13,902 14,921
7/98 12,482 14,663 15,931
</TABLE>
- ---------------------------------------------------------------------
Annualized Annualized
One Year 3 Year Inception
Return Return to Date
- ---------------------------------------------------------------------
Fiduciary Shares (0.82)% 3.86% 6.24%
- ---------------------------------------------------------------------
Past performance is not predictive of future results. Performance presented from
February 1, 1995 (commencement of operations of Fiduciary Shares) to April 25,
1997 reflects the performance of the Stepstone International Equity Fund.
17
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
PERFORMANCE
For the year ended July 31, 1998, the HighMark California Intermediate Tax-Free
Bond Fund produced a total return of 4.75% (Fiduciary Shares).* In comparison,
the Lipper California Intermediate Municipal Debt Funds Average returned 4.35%.
The Fund's performance was ranked 7th out of 31 funds by Lipper, placing it in
the top quartile for this twelve month period. The unmanaged Lehman Brothers
7-year Municipal Bond Index reflected a return of 5.26%.
FACTORS AFFECTING PERFORMANCE
On average, the Fund's duration (sensitivity to interest rates) was generally
longer than the benchmark. During a period of falling interest rates, a
longer-than-average duration is favorable to performance. Although we have no
plans to change its quality focus, the Fund's high credit quality was a slight
negative to performance during the period, as lower-rated bonds produced higher
total returns in California's improving economy. About 75% of the portfolio's
bonds are insured. As a general category, municipal bonds underperformed U.S.
Treasury securities, which benefited from the global flight to quality after
Asia's economic crisis became apparent last fall.
CURRENT STRATEGY & OUTLOOK
We continue to try to improve the portfolio's call protection, a strategy that
is important in a period of generally falling interest rates. A bond with poor
call protection is likely to be redeemed by the issuer when interest rates fall,
forcing the bondholder to reinvest at lower yields.
California's economy, largest among the 50 states and the 7th largest in the
world, has replaced declining aerospace jobs with employment in entertainment,
financial services and high technology. Since California is a major trading
partner with the Far East, the worsening Asian economic crisis is causing
concern. However, the state's robust business climate appears to be withstanding
the Asian crisis, which bodes well for the credit quality of the state's
municipal securities.
Unlike the U.S. Treasury market, the municipal market still offers additional
value for investors willing to buy longer maturities. For example, on July 31,
1998, the ten-year U.S. Treasury note yielded 5.49%, while the two-year note
yielded 5.48%. In contrast, the ten-year municipal bond offered 4.42%, while the
two-year bond yielded 3.82%. Currently, we believe that longer-term municipal
bonds offer very attractive yields on a tax-adjusted basis, particularly for
investors in high tax brackets.
- -----------
* The HighMark California Intermediate Tax-Free Bond (Retail Class A Shares)
produced a total return of 4.66% for the period. Including the maximum sales
charge of 3.00%, the total return for the Fund's Retail Class A Shares was
1.51% for the period.
18
<PAGE>
HIGHMARK CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
TEAM LEADER:
ROBERT BIGELOW
HIGHMARK CAPITAL
MANAGEMENT, INC.
FUND'S DATE OF INCEPTION:
OCTOBER 15, 1993 (FIDUCIARY SHARES)
OCTOBER 15, 1993 (RETAIL CLASS A SHARES)
NET ASSETS (000):
$157,062 (FIDUCIARY SHARES)
$ 12,925 (RETAIL CLASS A SHARES)
INVESTMENT OBJECTIVE:
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. THE FUND INVESTS PRIMARILY
IN BONDS AND NOTES ISSUED BY THE
STATE OF CALIFORNIA, ITS AGENCIES,
INSTRUMENTALITIES, AND POLITICAL
SUBDIVISIONS.
Comparison of Change in the Value of a $10,000
Investment in the HighMark California Intermediate
Tax-Free Bond Fund (Fiduciary or
Retail Class A Shares) versus the Lehman Brothers 7-Year
Municipal Bond Index and the Lipper California
Intermediate Municipal Debt Funds Average.
[Line graph omitted--plot points as follows:]
<TABLE>
<CAPTION>
HighMark California HighMark California Lipper California
Intermediate Tax-Free Intermediate Tax-Free Lehman Brothers Intermediate
Bond Fund, Bond Fund, 7-Year Municipal Municipal Debt
Fiduciary Shares Retail Class A Shares Bond Index Funds Average
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10/93 $10,000 $ 9,700 $10,000 $10,000
7/94 9,702 9,401 9,953 9,914
7/95 10,407 10,086 10,760 10,538
7/96 11,102 10,748 11,307 11,144
7/97 12,079 11,696 12,248 12,063
7/98 12,652 12,241 12,930 12,588
</TABLE>
- ----------------------------------------------------------------------
Annualized Annualized
One Year 3 Year Inception
Return Return to Date
- ----------------------------------------------------------------------
Fiduciary Shares 4.75% 6.73% 4.84%
- ----------------------------------------------------------------------
Retail Class A Shares 4.66% 6.67% 4.78%
- ----------------------------------------------------------------------
Retail Class A Shares
with load* 1.51% 5.60% 4.12%
- ----------------------------------------------------------------------
* REFLECTS 3.00% SALES CHARGE.
Past performance is not predictive of future results. Performance presented from
October 15, 1993 (commencement of operations of Fiduciary and Retail Shares) to
April 25, 1997 reflects the performance of the Stepstone California Intermediate
Tax-Free Bond Fund.
19
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK CONVERTIBLE SECURITIES FUND
PERFORMANCE
For the year ended July 31, 1998, the HighMark Convertible Securities Fund
returned 3.02% (Fiduciary Shares). In comparison, the Lipper Convertible
Securities Average produced a return of 6.96%. The unmanaged Merrill Lynch All
Convertible All Securities Excluding Mandatory Quality Index, formerly the
Merrill Lynch Investment Grade Convertible Securities Index, reflected a return
of 9.46%.
FACTORS AFFECTING PERFORMANCE
The Fund was adversely affected by its small company and technology holdings,
whose convertible bonds performed relatively poorly during late 1997. The
convertible bond market has recently been inundated with speculative companies
that are looking for a cheaper form of financing to execute their business
plans. Currently, the market has a bias for large-capitalization companies, of
which relatively few have issued convertible securities.
Convertibles offer a less volatile way to participate in the equity market
because their prices rise in some proportion to the underlying equity, while
being cushioned somewhat on the downside because of their relatively high fixed
interest payments. However, since convertibles are mostly dependent on the
performance of underlying equities, it is important to be very selective of the
companies issuing the securities. The Fund improved its performance during the
period ended July 31, 1998 because of its focus on sound companies that have
strong and visible financial execution.
CURRENT STRATEGY & OUTLOOK
The Fund has recently done well because it has steered clear of most of the
problems in the small capitalization area. However, our current strategy is not
dependent on the capitalization of the underlying equity but rather on the
company's position in its industry, management strength and demonstrated
performance. As opportunities present themselves due to temporary price
weakness, we will make investments where we have confidence that strong
performance is likely to follow. Convertibles should continue to return a
portion of the appreciation of general equity performance while limiting the
downside, especially if interest rates remain stable or decline.
20
<PAGE>
HIGHMARK CONVERTIBLE SECURITIES FUND
PORTFOLIO MANAGER:
ROBERT FREUND
BANK OF TOKYO-
MITSUBISHI TRUST CO.
FUND'S DATE OF INCEPTION:
FEBRUARY 1, 1994 (FIDUCIARY SHARES)
NET ASSETS (000):
$33,008 (FIDUCIARY SHARES)
INVESTMENT OBJECTIVE:
THE HIGHMARK CONVERTIBLE
SECURITIES FUND SEEKS A
HIGH LEVEL OF CURRENT INCOME
AND CAPITAL APPRECIATION BY
INVESTING IN CONVERTIBLE
SECURITIES.
Comparison of Change in the Value of a $10,000
Investment in the HighMark Convertible Securities
Fund (Fiduciary Shares) versus
the Merrill Lynch All Convertible All Securities Excluding Mandatory
Quality Index and the Lipper Convertible Securities Average.
[Line graph omitted--plot points as follows:]
<TABLE>
<CAPTION>
Highmark Convertible Merrill Lynch All Convertible Lipper Convertible
Securities Fund, All Securities Excluding Securities
Fiduciary Shares Mandatory Quality Index Average
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2/94 $10,000 $10,000 $10,000
7/94 9,648 9,615 9,518
7/95 10,883 11,034 10,847
7/96 11,487 12,360 11,825
7/97 14,601 15,451 15,172
7/98 15,042 16,913 16,228
</TABLE>
- ---------------------------------------------------------------------
Annualized Annualized
One Year 3 Year Inception
Return Return to Date
- ---------------------------------------------------------------------
Fiduciary Shares 3.02% 11.39% 9.26%
- ---------------------------------------------------------------------
Past performance is not predictive of future results. Performance presented from
February 1, 1994 (commencement of operations of Fiduciary Shares) to April 25,
1997 reflects the performance of the Stepstone Convertible Securities Fund.
21
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK GOVERNMENT SECURITIES FUND
PERFORMANCE
For the year ended July 31, 1998, the HighMark Government Securities Fund
returned 7.08% (Fiduciary Shares). In comparison, the Lipper General U.S.
Government Funds Average rose 7.32% during the period while the Lehman Brothers
Intermediate Government Bond Index was up 6.82%.
FACTORS AFFECTING PERFORMANCE
The Fund benefited from being heavily weighted in U.S. Treasury and government
agency securities. Treasury bonds have rallied very strongly as investors around
the world sought liquidity and credit safety. In addition to this flight to
quality, U.S. government securities have benefited from a long period of low
inflation. The Fund benefited from the drop in interest rates by maintaining a
longer duration than the index, especially during calendar 1998. Recently,
corporate bond exposure has been detrimental to the Fund's performance. Despite
the extra yield provided by corporates, they have not been able to keep pace
with the total return provided by comparable Treasury bonds.
CURRENT STRATEGY & OUTLOOK
The Fund continues to be positioned for a further decline in interest rates.
Inflation is likely to remain subdued as increased competition, deregulation,
globalization, and weak overseas economies limit pricing flexibility for
corporations. The Fund remains overweighted in U.S. government agency securities
that provide similar liquidity and credit characteristics compared to
Treasuries, but a higher yield to maturity. Some high-quality corporate bonds
could be added to the portfolio if their yield advantages continue to widen.
22
<PAGE>
HIGHMARK GOVERNMENT SECURITIES FUND
PORTFOLIO MANAGER:
THE FUND IS MANAGED
BY A TEAM OF INVESTMENT
PROFESSIONALS AT HIGHMARK
CAPITAL MANAGEMENT, INC.
FUND'S DATE OF INCEPTION:
FEBRUARY 1, 1994 (FIDUCIARY SHARES)
NET ASSETS (000):
$113,948 (FIDUCIARY SHARES)
INVESTMENT OBJECTIVE:
THE HIGHMARK GOVERNMENT SECURITIES
FUND SEEKS TO ACHIEVE TOTAL RETURN
CONSISTENT WITH THE PRESERVATION
OF CAPITAL BY INVESTING IN A
DIVERSIFIED PORTFOLIO OF
OBLIGATIONS ISSUED OR GUARANTEED
BY THE U.S. GOVERNMENT, ITS
AGENCIES OR INSTRUMENTALITIES.
Comparison of Change in the Value of a $10,000
Investment in the HighMark Government Securities
Fund (Fiduciary Shares) versus
the Lehman Brothers Intermediate Government Bond Index and the
Lipper General U.S. Government Funds Average.
[Line graph omitted--plot points as follows:]
<TABLE>
<CAPTION>
HighMark Government Lehman Brothers Lipper General U.S.
Securities Fund, Intermediate Government
Fiduciary Shares Government Bond Index Funds Average
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
2/94 $10,000 $10,000 $10,000
7/94 9,740 9,841 9,747
7/95 10,613 10,789 10,593
7/96 11,016 11,345 11,046
7/97 12,019 12,499 12,130
7/98 12,870 13,542 13,018
</TABLE>
- ---------------------------------------------------------------------
Annualized Annualized
One Year 3 Year Inception
Return Return to Date
- ---------------------------------------------------------------------
Fiduciary Shares 7.08% 6.64% 5.14%
- ---------------------------------------------------------------------
Past performance is not predictive of future results. Performance presented from
February 1, 1994 (commencement of operations of Fiduciary Shares) to April 25,
1997 reflects the performance of the Stepstone Government Securities Fund.
23
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK BOND & INTERMEDIATE-TERM BOND FUNDS
PERFORMANCE
For the year ended July 31, 1998, the HighMark Bond Fund produced a total return
of 7.41% (Fiduciary Shares).* In comparison, the Lipper Corporate A-Rated Debt
Funds Average produced a 7.04% return and the unmanaged Lehman Brothers
Aggregate Bond Index reflected a return of 7.86%.
For the same period, the HighMark Intermediate-Term Bond Fund produced a return
of 6.37% (Fiduciary Shares).** In comparison, the Lipper Intermediate
Investment-Grade Debt Average produced a 6.81% return and the unmanaged Lehman
Brothers Intermediate Government/Corporate Bond Index returned 6.74%.
FACTORS AFFECTING PERFORMANCE
Interest rates generally declined during the period, boosting bond prices. The
benchmark 30-year U.S. Treasury bond yield fell from 6.45% on August 1, 1997 to
5.71% on July 31, 1998. Similarly, the 10-year U.S. Treasury note fell from
6.18% on August 1, 1997 to 5.49% on July 31, 1998. Both portfolios were
favorably affected by longer-than-average durations (sensitivity to interest
rates) in a falling interest rate environment.
Although a falling interest rate environment is good for most bonds, it
generally causes mortgage-backed securities to underperform Treasury bonds. In a
period of falling interest rates, homeowners tend to refinance their mortgages,
causing bondholders to reinvest at lower rates.
The Asian economic crisis has caused investors to become concerned about U.S.
economic growth, which in turn impacts the creditworthiness of corporations. As
a result, corporate bonds underperformed U.S. government bonds, which benefited
from the global flight to quality.
CURRENT STRATEGY & OUTLOOK
Because of the relative underperformance of corporate bonds, yields are
relatively high compared to Treasury bonds. In some cases, we are able to earn
as much as 90 basis points more for a high-quality corporate bond. That is why
we have recently increased our proportion of corporate bonds in both portfolios,
adding issues by Merrill Lynch, Cable & Wireless, Fannie Mae, Phillips
Petroleum, Raytheon and Travelers. We continue to focus on higher quality
issues. The HighMark Bond Fund and the HighMark Intermediate-Term Bond Fund
carry average credit ratings of AA1 and AA3, respectively.***
- ------------
* The HighMark Bond Fund (Retail Class A Shares) produced a total return of
7.47% for the period. Including the maximum sales charge of 3.00%, the total
return for the Fund's Retail Class A Shares was 4.22%.
** The HighMark Intermediate-Term Bond Fund (Retail Class A Shares) produced a
total return of 6.38% for the period. Including the maximum sales charge of
3.00%, the total return for the Fund's Retail Class A Shares was 3.17%.
*** Moody's ratings as of 7/31/98.
24
<PAGE>
HIGHMARK BOND FUND
TEAM LEADER:
JACK MONTGOMERY
HIGHMARK CAPITAL
MANAGEMENT, INC.
FUND'S DATE OF INCEPTION:
FEBRUARY 15, 1984 (FIDUCIARY SHARES)
JUNE 20, 1994 (RETAIL CLASS A SHARES)
NET ASSETS (000):
$206,125 (FIDUCIARY SHARES)
$ 1,912 (RETAIL CLASS A SHARES)
INVESTMENT OBJECTIVE:
THE HIGHMARK BOND FUND SEEKS
CURRENT INCOME THROUGH INVESTMENTS
IN LONG-TERM, FIXED INCOME
SECURITIES. THE DOLLAR-WEIGHTED
AVERAGE PORTFOLIO MATURITY OF THE
FUND WILL BE FROM FIVE TO TWENTY
YEARS.
Comparison of Change in the Value of a $10,000
Investment in the HighMark Bond Fund (Fiduciary or
Synthetic Retail Class A Shares)
versus the Lehman Brothers Aggregate Bond Index and the
Lipper Corporate A-Rated Average.
[Line graph omitted--plot points as follows:]
<TABLE>
<CAPTION>
HighMark HighMark Bond Lehman Brothers Lipper Corporate
Bond Fund, Fund, Synthetic Aggregate Debt A-Rated
Fiduciary Shares Retail A Shares Bond Index Average
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2/84 $10,000 $ 9,700 $10,000 $10,000
7/84 9,896 9,599 10,119 10,014
7/85 12,322 11,952 12,541 12,350
7/86 15,603 15,135 15,236 14,710
7/87 15,853 15,378 15,923 15,457
7/88 16,779 16,276 17,129 16,576
7/89 19,259 18,681 19,734 18,928
7/90 20,322 19,712 21,127 19,933
7/91 22,149 21,484 23,388 21,865
7/92 25,345 24,585 26,844 25,416
7/93 27,895 27,058 29,577 28,237
7/94 27,019 26,027 29,604 27,946
7/95 29,567 28,445 32,597 30,623
7/96 30,989 29,853 34,399 32,075
7/97 34,271 33,041 38,108 35,568
7/98 36,810 35,509 41,103 38,072
</TABLE>
- --------------------------------------------------------------------------------
Annualized Annualized Annualized Annualized
One Year 3 Year 5 Year 10 Year Inception
Return Return Return Return to Date
- --------------------------------------------------------------------------------
Fiduciary Shares 7.41% 7.58% 5.70% 8.17% 9.34%
- --------------------------------------------------------------------------------
Retail Class A Shares 7.47% 7.68% 5.59%+ 8.11%+ 7.91%
- --------------------------------------------------------------------------------
Retail Class A Shares
with load* 4.22% 6.58% 4.95%+ 7.79%+ 7.12%
- --------------------------------------------------------------------------------
* REFLECTS 3.00% SALES CHARGE.
+ SYNTHETIC, NOT ACTUAL.
Past performance is not predictive of future results.
25
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
HIGHMARK INTERMEDIATE-TERM BOND FUND
TEAM LEADER:
JACK MONTGOMERY
HIGHMARK CAPITAL
MANAGEMENT, INC.
FUND'S DATE OF INCEPTION:
FEBRUARY 1, 1991 (FIDUCIARY SHARES)
FEBRUARY 3, 1992 (RETAIL CLASS A SHARES)
NET ASSETS (000):
$249,520 (FIDUCIARY SHARES)
$ 5,120 (RETAIL CLASS A SHARES)
INVESTMENT OBJECTIVE:
THE HIGHMARK INTERMEDIATE-TERM
BOND FUND SEEKS TOTAL RETURN
THROUGH INVESTMENTS IN
FIXED-INCOME SECURITIES. THE
DOLLAR-WEIGHTED AVERAGE PORTFOLIO
MATURITY OF THE FUND WILL BE THREE
TO TEN YEARS.
Comparison of Change in the Value of a $10,000 Investment in the
HighMark Intermediate-Term Bond Fund (Fiduciary or Synthetic Retail Class A
Shares) versus the Lehman Brothers Intermediate Government/Corporate Index
and the Lipper Intermediate Investment-Grade Debt Average.
[Line graph omitted--plot points as follows:]
<TABLE>
<CAPTION>
HighMark HighMark Lehman Brothers Lipper
Intermediate-Term Intermediate-Term Intermediate Intermediate
Bond Fund, Bond Fund, Synthetic Government/ Investment-Grade
Fiduciary Shares Retail A Shares Corporate Index Debt Average
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2/01 $10,000 $ 9,700 $10,000 $10,000
7/91 10,427 10,114 10,362 10,388
7/92 12,026 11,670 11,826 11,947
7/93 13,127 12,737 12,843 13,131
7/94 13,066 12,666 12,964 13,050
7/95 14,164 13,731 14,106 14,246
7/96 14,749 14,344 14,853 14,943
7/97 16,140 15,650 16,201 16,474
7/98 17,169 16,649 17,292 17,596
</TABLE>
Annualized Annualized Annualized
One Year 3 Year 5 Year Inception
Return Return Return to Date
- -------------------------------------------------------------------------
Fiduciary Shares 6.37% 6.62% 5.52% 7.63%
- -------------------------------------------------------------------------
Retail Class A Shares 6.38% 6.63% 5.50% 6.67%
- -------------------------------------------------------------------------
Retail Class A Shares
with load* 3.17% 5.57% 4.87% 6.18%
- -------------------------------------------------------------------------
* REFLECTS 3.00% SALES CHARGE.
Past performance is not predictive of future results. Performance presented from
February 28, 1991 (commencement of operations of Fiduciary Shares) and February
29, 1992 (commencement of operation of the Retail Shares) to April 25, 1997
reflects the performance of the Stepstone Intermediate-Term Bond Fund.
26
<PAGE>
HIGHMARK TAXABLE MONEY MARKET FUNDS*
OBJECTIVES AND PERFORMANCE
The HighMark Taxable Money Market Funds seek current income with liquidity and
stability of principal. The 100% U.S. Treasury Money Market Fund invests
exclusively in direct U.S. Treasury obligations with maturities of less than 13
months. The U.S. Government Money Market Fund invests in U.S. Treasury and
government agency securities, and in repurchase agreements collateralized by
like instruments. The Diversified Money Market Fund invests in U.S. Treasury and
government agency securities, as well as high-quality short-term obligations
issued by banks and corporations.
The HighMark Taxable Money Market Funds (Fiduciary Shares)** produced the
following one-month effective yields as of July 31, 1998: 100% U.S. Treasury
Money Market Fund: 4.92%; U.S. Government Money Market Fund: 5.13%; Diversified
Money Market Fund: 5.26%.
FACTORS AFFECTING PERFORMANCE
Believing the pace of economic growth would slow as the year progressed, we
extended the average maturities of the Funds in March, which benefited
performance. The 100% U.S. Treasury Money Market Fund gradually shifted assets
away from the Treasury Bill sector, reflecting better availability and higher
yields on coupon-bearing securities. It ended the fiscal year with a weighted
average maturity of 82 days. The U.S. Government Money Market Fund was managed
with a shorter maturity structure due to the higher liquidity needs of the
shareholder base. It ended the year with an average weighted maturity of 45
days. Net inflows to the Diversified Money Market Fund were invested primarily
in six-month securities, with commercial paper and Yankee Dollar certificates of
deposit providing the best value. It ended the period with a 69-day average
weighted maturity.
HIGHMARK CALIFORNIA TAX-FREE MONEY MARKET FUND***
OBJECTIVE AND PERFORMANCE
The HighMark California Tax-Free Money Market Fund seeks as high a level of
current interest income free from federal income tax and California personal
income taxes as is consistent with the preservation of capital and the relative
stability of principal. The Fund's one-month effective yield as of July 31, 1998
(Fiduciary Shares) was 2.77%.**** Using a combined federal and California state
income tax rate of 41.95%, the one-month effective yield is equivalent to a
4.77% taxable yield.
FACTORS AFFECTING PERFORMANCE
The worsening Asian economic crisis is causing a concern, since California is a
major trading partner. However, the state's robust business climate appears to
be withstanding the Asian crisis, which bodes well for the credit quality of the
state's municipal securities.
- ------------
* An investment in the HighMark Taxable 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, U.S.
Government and Diversified Money Market Funds, the one-month effective
yield as of July 31, 1998 was 4.65%, 4.87% and 5.00%, respectively. The
one-month effective yield for U.S. Government Money Market Fund's Retail
Class B Shares, launched on 2/2/98, was 4.42% for the same period.
*** 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 one-month effective yield as of July 31, 1998 for the Retail Class A
Shares of the California Tax-Free Money Market Fund was 2.51%.
27
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
100% U.S. Treasury Money Market Fund
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
U.S. Treasury Bill* -- 5.2%
================================================================================
5.193%, 10/15/98 $50,000 $ 49,469
--------
TOTAL U.S. TREASURY BILL
(Cost $49,469) 49,469
--------
================================================================================
U.S. Treasury Notes -- 93.8%
================================================================================
5.875%, 08/15/98 149,837 149,869
6.125%, 08/31/98 138,925 139,001
4.750%, 09/30/98 68,360 68,294
6.000%, 09/30/98 72,940 73,018
4.750%, 10/31/98 115,398 115,185
5.875%, 10/31/98 134,168 134,308
5.500%, 11/15/98 50,000 50,010
5.875%, 01/31/99 165,405 165,775
--------
TOTAL U.S. TREASURY NOTES
(Cost $895,460) 895,460
--------
TOTAL INVESTMENTS -- 99.0%
(Cost $944,929) 944,929
--------
OTHER ASSETS AND LIABILITIES, NET -- 1.0% 9,891
--------
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Net Assets:
================================================================================
Fund Shares of Fiduciary Class (unlimited
authorization -- no par value) based on
227,684,081 outstanding shares of
beneficial interest $227,684
Fund Shares of Retail Class A (unlimited
authorization -- no par value) based on
727,086,980 outstanding shares of
beneficial interest 727,086
Undistributed net investment income 62
Accumulated net realized loss on investments (12)
--------
TOTAL NET ASSETS -- 100.0% $954,820
========
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 YIELD TO MATURITY AT DATE OF PURCHASE.
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
U.S. Government Money Market Fund
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
U.S. Government Agency
Obligations - Discounted* -- 39.3%
================================================================================
FHLB
5.460%, 09/02/98 $10,000 $ 9,953
FHLMC
5.480%, 08/04/98 15,000 14,993
5.481%, 08/21/98 10,000 9,970
5.479%, 08/26/98 20,000 19,925
5.475%, 09/23/98 10,000 9,920
5.483%, 10/09/98 20,000 19,793
5.491%, 10/09/98 10,000 9,896
5.485%, 12/07/98 10,000 9,809
FNMA
5.506%, 09/25/98 11,000 10,909
5.508%, 10/22/98 10,000 9,876
5.513%, 10/23/98 10,000 9,875
5.522%, 10/23/98 17,900 17,675
SLMA
NEBHELP Inc. (B)
Dir-Pay LOC SLMA
5.519%, 08/12/98 6,509 6,498
--------
TOTAL U.S.GOVERNMENT AGENCY
OBLIGATIONS - DISCOUNTED
(Cost $159,092) 159,092
---------
================================================================================
U.S. Government Agency Obligations -- 33.9%
================================================================================
FFCB
5.375%, 03/02/99 15,000 14,977
FHLB
5.426%, 08/04/98 (A) 10,000 10,000
5.523%, 10/20/98 (A) 10,000 10,000
5.735%, 12/23/98 13,000 13,009
5.579%, 01/27/99 10,000 9,998
FNMA
5.370%, 08/12/98 10,000 9,999
5.300%, 12/10/98 4,365 4,362
5.560%, 12/15/98 10,000 10,000
5.553%, 04/28/99 (A) 10,000 9,996
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
U.S. Government Agency Obligations (continued)
================================================================================
SLMA
5.243%, 08/20/98 (A) $20,000 $ 19,998
5.403%, 09/17/98 (A) 10,000 10,000
5.303%, 11/06/98 (A) 15,000 14,991
--------
TOTAL U.S.GOVERNMENT AGENCY OBLIGATIONS
(Cost $137,330) 137,330
--------
================================================================================
Repurchase Agreements -- 26.8%
================================================================================
Deutsche Bank Securities, Inc.
5.590%, dated 07/31/98, matures
08/03/98, repurchase price
$74,410,361 (collateralized
by U.S. Treasury Bond, par value
$283,790,000, 0.00% - 5.50%,
04/15/00 - 11/15/21: market
value $75,863,318) 74,376 74,376
J.P. Morgan Securities, Inc.
5.580%, dated 07/31/98,
matures 08/03/98, repurchase
price $34,260,522
(collateralized by various
U.S. Government Obligations,
total par value $22,225,000,
10.625%, 08/15/15: market
value $34,930,841) 34,245 34,245
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $108,621) 108,621
--------
TOTAL INVESTMENTS -- 100.0%
(Cost $405,043) 405,043
--------
OTHER ASSETS AND LIABILITIES, NET -- 0.0% 127
--------
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
U.S. Government Money Market Fund (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Net Assets:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization -- no par value)
based on 283,253,052 outstanding shares
of beneficial interest $283,253
Fund Shares of Retail Class A
(unlimited authorization -- no par value)
based on 122,067,630 outstanding shares
of beneficial interest 122,068
Fund Shares of Retail Class B
(unlimited authorization -- no par value)
based on 253 outstanding shares of
beneficial interest --
Accumulated net realized loss on investments (151)
--------
TOTAL NET ASSETS -- 100.0% $405,170
========
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
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS B $1.00
========
- --------------------------------------------------------------------------------
* REPRESENTS THE YIELD TO MATURITY AT THE DATE OF PURCHASE.
(A) ADJUSTABLE RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET
ASSETS IS THE RATE IN EFFECT ON JULY 31, 1998.
(B) SECURITIES SOLD WITHIN THE TERMS OF A PRIVATE PLACEMENT MEMORANDUM, EXEMPT
FROM REGISTRATION UNDER SECTION 3A-4, 4[2] OR 144A OF THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER
"ACCREDITED INVESTORS."
FFCB--FEDERAL FARM CREDIT BANK
FHLB--FEDERAL HOME LOAN BANK
FHLMC--FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
LOC--LETTER OF CREDIT
SLMA--STUDENT LOAN MARKETING ASSOCIATION
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Diversified Money Market Fund
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Certificates of Deposit - Yankee -- 18.4%
================================================================================
ABN AMRO Bank, N.V. Chicago
5.750%, 03/31/99 $50,000 $ 49,984
Bank of Nova Scotia, Portland
5.800%, 10/06/98 15,000 15,005
Banque Nationale de Paris
5.630%, 10/27/98 50,000 50,000
Barclays Bank PLC, New York
5.530%, 02/23/99 50,000 49,986
Barclays Bank PLC, New York (A)
5.528%, 06/01/99 50,000 49,969
Canadian Imperial Bank of
Commerce, New York
5.580%, 08/25/98 50,000 50,000
5.580%, 09/04/98 35,000 35,000
5.665%, 11/16/98 25,000 25,001
Societe Generale, New York
5.780%, 03/31/99 50,000 49,984
Toronto Dominion Bank, New York
5.600%, 12/22/98 50,000 50,002
--------
TOTAL CERTIFICATES OF DEPOSIT - YANKEE
(Cost $424,931) 424,931
--------
================================================================================
Eurodollar Certificates of Deposit -- 4.3%
================================================================================
Abbey National Treasury Service, London
5.580%, 08/26/98 50,000 50,000
Commerzbank A.G., London
5.600%, 12/04/98 48,000 47,996
--------
TOTAL EURODOLLAR CERTIFICATES OF DEPOSIT
(Cost $97,996) 97,996
--------
================================================================================
Eurodollar Time Deposit -- 2.2%
================================================================================
Westdeutsche Landesbank
Girozentrale, London
5.688%, 08/03/98 50,000 50,000
--------
TOTAL EURODOLLAR TIME DEPOSIT
(Cost $50,000) 50,000
--------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Certificates of Deposit -- 2.6%
================================================================================
Bankers Trust Co, New York
5.960%, 08/11/98 $15,000 $ 15,001
Wilmington Trust Co.
5.580%, 08/07/98 45,000 45,000
--------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $60,001) 60,001
--------
================================================================================
Bank Notes -- 2.6%
================================================================================
American Express Centurion Bank (A)
5.596%, 07/14/99 50,000 50,000
Southtrust Bank, N.A. (A)
5.656%, 09/17/98 10,000 10,001
--------
TOTAL BANK NOTES
(Cost $60,001) 60,001
--------
================================================================================
Commercial Paper* -- 54.4%
================================================================================
ABS - TRADE RECEIVABLES -- 14.3%
Asset Securitization Cooperative,
Corp. (B)
5.589%, 08/28/98 50,000 49,793
5.593%, 09/24/98 48,000 47,603
Concord Minutemen Capital
Company LLC (B)
5.608%, 10/07/98 37,844 37,455
Corporate Receivables Corp. (B)
5.594%, 09/21/98 35,000 34,726
5.588%, 10/21/98 24,000 23,703
International Securitization Corp. (B)
5.613%, 09/15/98 10,500 10,427
5.627%, 12/29/98 23,675 23,134
Lexington Parker Capital
Company, LLC (B)
5.726%, 08/06/98 50,000 49,960
5.585%, 09/11/98 50,000 49,685
--------
326,486
--------
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Diversified Money Market Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Commercial Paper (continued)
================================================================================
ABS - DIVERSIFIED FINANCIAL ASSETS -- 8.0%
Beta Finance, Inc. (B)
5.590%, 09/21/98 $25,000 $ 24,805
5.594%, 09/25/98 43,000 42,639
CC (USA) Inc. (B)
5.592%, 08/18/98 29,500 29,423
5.604%, 08/20/98 11,000 10,968
5.597%, 09/02/98 25,000 24,877
Greenwich Funding Corp. (B)
5.606%, 09/15/98 52,014 51,654
--------
184,366
--------
AUTOMOTIVE -- 4.3%
Daimler-Benz North America, Corp.
5.578%, 08/28/98 50,000 49,794
5.600%, 11/20/98 50,000 49,152
--------
98,946
--------
BANKING -- 11.7%
Bankers Trust Corp.
5.610%, 12/18/98 25,000 24,472
J.P. Morgan & Co, Inc.
5.603%, 10/05/98 50,000 49,502
5.598%, 12/04/98 25,000 24,525
5.589%, 12/21/98 34,750 34,002
National Australia
Funding (Del) Inc.
5.584%, 11/10/98 50,000 49,231
NationsBank Corporation
5.609%, 11/13/98 40,000 39,364
UBS Finance (Del) Inc.
5.593%, 12/21/98 50,000 48,923
--------
270,019
--------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Commercial Paper (continued)
================================================================================
BROKERAGE -- 8.3%
Bear Stearns Companies, Inc.
5.589%, 12/21/98 $50,000 $ 48,923
5.601%, 12/21/98 50,000 48,921
Credit Suisse First Boston Inc. (B)
5.587%, 08/25/98 25,000 24,908
Merrill Lynch & Co. Inc.,
5.618%, 09/18/98 50,000 49,634
5.602%, 11/04/98 20,000 19,710
---------
192,096
---------
DIVERSIFIED OPERATIONS -- 5.3%
CIT Group
5.631%, 11/06/98 75,000 73,884
General Electric Capital, Corp.
5.602%, 11/19/98 50,000 49,160
---------
123,044
---------
ELECTRONIC AND ELECTRICAL -- 1.0%
Panasonic Finance (America) (B)
5.586%, 10/09/98 22,500 22,262
---------
OIL & GAS EXPLORATION PRODUCTS
& SERVICES -- 0.4% BP America, Inc.
5.673%, 08/03/98 10,000 9,997
---------
TECHNOLOGY -- 0.5%
International Business Machines Corp.
5.673%, 08/03/98 10,500 10,497
---------
UTILITY -- 0.6%
Electricity Corp. of New Zealand
5.652%, 08/11/98 13,877 13,856
---------
TOTAL COMMERCIAL PAPER
(Cost $1,251,569) 1,251,569
---------
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Diversified Money Market Fund (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Corporate Obligations -- 6.9%
================================================================================
Bankers Trust Corp Ser A Medium
Term Note (A) (B)
5.680%, 08/06/99 $ 30,000 $ 30,000
Goldman Sachs Group LP
Master Demand Note (A)
5.798%, 03/25/99 100,000 100,000
Merrill Lynch & Co. Inc.
Medium Term Note (A)
5.820%, 03/24/99 30,000 30,017
----------
TOTAL CORPORATE OBLIGATIONS
(Cost $160,017) 160,017
----------
================================================================================
U.S. Government Agency Obligations -- 5.0%
================================================================================
FHLB (A)
5.523%, 10/20/98 65,000 64,997
FNMA (A)
5.453%, 03/16/99 50,000 49,984
----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $114,981) 114,981
----------
================================================================================
Repurchase Agreements -- 2.6%
================================================================================
Deutsche Bank Securities, Inc.
5.59%, dated 07/31/98,
matures 08/03/98,
repurchase price $41,434,975
(collateralized by various
U.S. Treasury Bill,
par value $41,474,000,
5.50%-6.875%,
03/31/00-05/31/03;
total market
value $42,244,150) 41,416 41,416
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Repurchase Agreements (continued)
================================================================================
J.P. Morgan Securities, Inc.
5.58%, dated 07/31/98, matures
08/03/98, repurchase price
$19,644,098 (collateralized
by various U.S. Treasury Bills,
total par value $20,917,000, 0.00%,
05/27/99; total market value
$20,028,028) $19,635 $ 19,635
----------
TOTAL REPURCHASE AGREEMENTS
(Cost $61,051) 61,051
----------
TOTAL INVESTMENTS -- 99.0%
(Cost $2,280,547) 2,280,547
----------
OTHER ASSETS AND LIABILITIES, NET -- 1.0% 23,874
----------
================================================================================
Net Assets:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization --
no par value) based on 1,181,354,171
outstanding shares of beneficial
interest 1,181,353
Fund Shares of Retail Class A
(unlimited authorization --
no par value) based on 1,124,487,597
outstanding shares of beneficial
interest 1,124,488
Accumulated net realized loss
on investments (1,420)
----------
TOTAL NET ASSETS -- 100.0% $2,304,421
==========
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 YIELD TO MATURITY AT DATE OF PURCHASE.
(A) ADJUSTABLE RATE SECURITY -- THE RATE REFLECTED ON THE STATEMENT OF NET
ASSETS IS THE RATE IN EFFECT ON JULY 31, 1998.
(B) SECURITIES SOLD WITHIN THE TERMS OF A PRIVATE PLACEMENT MEMORANDUM, EXEMPT
FROM REGISTRATION UNDER SECTION 3A-4, 4[2] OR 144A OF THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER
"ACCREDITED INVESTORS."
FHLB -- FEDERAL HOME LOAN BANK
FNMA --FEDERAL NATIONAL MORTGAGE ASSOCIATION
SER -- SERIES
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
California Tax-Free Money Market Fund
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds -- 97.1%
================================================================================
ABAG, California Financial Authority
For Nonprofit Corps. American
Baptist Homes West Project,
Ser C (A)
3.400%, 10/01/27 $9,975 $ 9,975
Alternative Energy Source
Finance Authority, GE Capital
Corporation-Arroyo Energy
Project, VRDN (A) (B) (C)
3.050%, 12/01/20 1,100 1,100
Anaheim Public Improvement
Corporation, 1995 Police
Facilities Refinancing Project,
COP, VRDN, AMBAC Insured
(A) (B) (C)
2.900%, 08/01/08 3,400 3,400
Anaheim, Housing Authority,
Bel Page Project, VRDN
(A) (B) (C)
3.000%, 08/01/20 6,000 6,000
Camarillo, Multi-Family Housing
Revenue, Heritage Park
Apartments, VRDN, (A) (B) (C)
3.000%, 07/15/19 1,900 1,900
Contra Costa, Water District,
TECP
3.400%, 10/15/98 5,000 5,000
3.400%, 10/22/98 5,000 5,000
Dublin, Housing Finance Authority,
Multi-Family, RB, VRDN (A)
3.350%, 06/15/28 2,500 2,500
East Bay, Municipal Utility
District, TECP
3.100%, 08/05/98 8,600 8,600
3.500%, 09/11/98 1,000 1,000
Education Facilities Authority,
Carnegie Institute, TECP
3.550%, 09/11/98 1,000 1,000
3.450%, 10/09/98 5,000 5,000
Education Facilities Authority,
Stanford University, Ser L,
VRDN, RB (A)
2.900%, 10/01/14 1,000 1,000
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
Glendale, Unified School
District, GO, FGIC Insured
5.500%, 09/01/98 $3,420 $ 3,425
Health Facilities Finance
Authority, Catholic
Healthcare, MBIA Insured,
VRDN, RB (A)
3.000%, 07/01/12 1,300 1,300
Health Facilities Finance
Authority, Hospital Revenue
Bond, VRDN, RB, Rabo Bank
Insured (A)
3.450%, 07/01/22 7,600 7,600
Health Facilities Finance
Authority, Pooled Loan
Program, VRDN, RB, Rabo
Bank Insured (A)
2.950%, 06/01/07 5,105 5,105
Health Facilities Finance
Authority, RB
7.625%, 10/01/15 6,150 6,314
Health Facilities Finance
Authority, St. Joseph's
Hospital, VRDN, RB (A) (B)
3.400%, 08/01/98 6,280 6,280
Health Facilities Finance
Authority, Sutter Health,
Ser A, VRDN, RB, (A) (B)
3.500%, 01/10/00 6,900 6,900
Health Facilities Finance
Authority, Adventist Health
Systems, VRDN, RB,
(A) (B) (C)
3.050%, 08/01/21 1,500 1,500
Health Facilities Finance
Authority, Memorial Health
Services, VRDN, RB, (A)
3.050%, 10/01/24 20,240 20,240
Health Facilities Finance
Authority, Pooled Loan
Program, Ser A, VRDN, RB
(A) (B) (C)
2.950%, 09/01/20 2,410 2,410
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
California Tax-Free Money Market Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
Health Facilities Finance
Authority, Pooled Loan
Program, Ser B, VRDN,
RB (A) (B)
2.950%, 10/01/10 $4,100 $ 4,100
Health Facilities Finance
Authority, Santa Barbara
Cottage, Ser B,
VRDN, RB (A) (B) (C)
3.050%, 09/01/05 3,920 3,920
Health Facilities Finance
Authority, Santa Barbara
Cottage, Ser C, VRDN, RB
(A) (B) (C)
3.050%, 09/01/15 6,000 6,000
Health Facilities Finance
Authority, St. Francis Medical,
Ser F, RB, VRDN, MBIA
Insured (A)
3.000%, 07/01/10 3,000 3,000
Irvine Ranch Water District,
VRDN, RB (A)
3.500%, 09/02/20 2,500 2,500
Irvine Ranch Water District,
Consolidated Refunding Ser
1995 B, VRDN, RB (A) (B) (C)
3.500%, 10/01/10 2,000 2,000
Irvine Ranch Water District,
Improvement District, Ser A,
VRDN, RB (A) (B) (C)
3.350%, 11/15/13 1,500 1,500
Irvine Ranch Water District,
Improvement District,VRDN, RB (A)
3.500%, 09/02/23 1,000 1,000
Irvine Ranch Water District,
Improvement District, Ser A,
VRDN RB (A) (B) (C)
3.350%, 11/15/13 1,000 1,000
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
Livermore, Portola Meadows
Apartments Project, VRDN,
RB, (A) (B) (C)
3.150%, 05/01/19 $ 5,100 $ 5,100
Los Angeles, Wastewater System,
Ser A, RB, MBIA Insured
8.500%, 06/01/99 1,775 1,846
Los Angeles, Capital Asset
Lease Corp, TECP
3.200%, 08/13/98 5,800 5,800
3.500%, 09/09/98 3,000 3,000
Los Angeles County,
Metropolitan Transportation
Authority, Ser A,
VRDN, RB MBIA Insured (A)
3.000%, 07/01/20 14,900 14,900
Los Angeles County, Pension
Obligation, Ser B, RB, VRDN
(A) (B) (C)
2.900%, 06/30/07 2,000 2,000
Los Angeles County,
Pension Obligation,
Ser C, RB, VRDN,
AMBAC Insured (A) (B)
2.900%, 06/30/07 10,400 10,400
Los Angeles County,
Public Works
financing Authority,
Regional Park
& Open Space District,
Ser A, RB
5.000%, 10/01/98 12,000 12,024
Los Angeles County, Ser A,
VRDN, RB, FGIC Insured
(A) (B)
2.900%, 07/01/12 5,700 5,700
Los Angeles,
Department of Water & Power,
TECP
3.150%, 10/07/98 4,600 4,600
Los Angeles, Multi-Family
Housing, Ser K, VRDN, RB
(A) (B)
3.350%, 07/01/10 14,200 14,200
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
California Tax-Free Money Market Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
Los Angeles, Transportation
Authority, TECP
3.400%, 09/29/98 $ 2,400 $ 2,400
Los Angeles, California
Community College, District
TRAN
4.250%, 07/29/99 1,200 1,207
Los Angeles, California
Unified School District, GO,
FSA Insured
4.000%, 11/01/98 1,455 1,456
Los Angeles, Unified School
District Authority, Belmont
Learning Complex Project,
Ser A, VRDN (A) (B)
3.200%, 12/01/17 14,900 14,900
Los Angeles Wastewater System,
TECP
3.400%, 11/18/98 5,000 5,000
Metro Water District of
Southern California, TECP
3.400%, 08/07/98 1,800 1,800
3.550%, 09/11/98 1,000 1,000
3.400%, 11/18/98 2,000 2,000
Modesto Multi-Family Housing,
Live Oak Project, VRDN, RB (A) (B)
3.000%, 09/01/24 2,400 2,400
Ontario Industrial Development
Authority, Winsford Partners Project,
Ser A, VRDN, RB (A) (B) (C)
3.200%, 09/01/08 2,000 2,000
Orange County, Apartment
Development Authority, Wood
Canyon Villas, AMT (A) (B)
3.150%, 08/07/98 2,000 2,000
Orange County, Transportation
Authority, TECP
3.600%, 09/09/98 3,000 3,000
Orange County, Water District,
TECP
3.350%, 09/04/98 8,200 8,200
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
Oxnard Housing Authority, Seawind
Apartment Projects, Ser A,
VRDN, RB (A) (B) (C)
3.400%, 12/01/20 $ 2,750 $ 2,750
Pasadena, Rose Bowl
Improvement Project, (A)
3.200%, 12/01/11 1,300 1,300
Pasadena, Rose Bowl Improvement
Project, VRDN, COP
(A) (B) (C)
3.200%, 12/01/16 2,000 2,000
Pollution Control Finance
Authority, Chevron USA
Project, Ser B, VRDN, RB (A)
3.900%, 06/15/05 3,100 3,101
Pollution Control Finance
Authority, Shell Oil, Ser A,
VRDN, RB (A) (B)
3.400%, 10/01/08 4,800 4,800
Pollution Control Finance
Authority, Shell Oil, Ser A,
VRDN, RB, MBIA Insured
(A) (B)
3.400%, 10/01/10 600 600
Pollution Control Finance
Authority, Shell Oil, VRDN,
RB (A) (B)
3.400%, 10/01/06 3,200 3,200
3.400%, 10/01/09 2,500 2,500
Pollution Control Finance
Authority, Shell Oil, Ser A,
VRDN, RB (A) (B)
3.400%, 11/01/00 3,000 3,000
3.400%, 10/01/11 1,100 1,100
Pollution Control Finance
Authority, Southern California
Edison, Ser B,
VRDN, RB, (A) (B)
3.900%, 02/28/08 1,600 1,600
Pollution Control Finance
Authority, Burney Forest,
VRDN, RB (A) (B) (C)
3.500%, 09/01/20 9,200 9,200
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
California Tax-Free Money Market Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
Pollution Control Finance
Authority, Chevron Project,
VRDN, RB (A) (B)
4.000%, 05/15/02 $ 2,585 $ 2,585
Pollution Control Finance
Authority, Delano Project
1989, VRDN, RB (A) (B) (C)
3.500%, 08/01/19 5,500 5,500
Pollution Control Finance
Authority, Delano Project
1990, VRDN, RB (A) (B) (C)
3.500%, 08/01/19 3,200 3,200
Pollution Control Finance
Authority, Delano Project
1991, VRDN, RB (A) (B) (C)
3.500%, 08/01/19 700 700
Pollution Control Finance
Authority, Exxon Project,
VRDN, RB (A) (B) (C)
3.300%, 12/01/12 5,000 5,000
Pollution Control Finance
Authority, Honey Lake Power
Project, VRDN, RB
(A) (B) (C)
3.500%, 09/01/18 3,400 3,400
Pollution Control Finance
Authority, Southern California
Edison, Ser A, VRDN,
RB (A) (B)
3.900%, 02/28/08 23,700 23,700
Pollution Control Finance
Authority, Southern
California Edison, Ser D,
VRDN, RB (A) (B)
3.900%, 02/28/08 12,005 12,005
Rancho Mirage, Eisenhower
Medical Center, VRDN (A) (B)
3.200%, 07/01/22 6,800 6,800
Riverside County, COP,
MBIA Insured
4.000%, 12/01/98 1,505 1,508
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
Riverside County,
Riverside County
Public Facilities,
COP, Ser 1985 A,
VRDN (A) (B) (C)
3.050%, 12/01/15 $14,400 $ 14,400
Sacramento, Municipal Utility
District, RB, VRDN (A) (B)
7.875%, 08/15/16 5,315 5,429
Sacramento, Regional County
Sanitation District
4.000%, 08/01/98 1,875 1,875
San Bernadino County, Housing
Authority, Victoria Terrace,
Project A, VRDN,
RB (A) (B) (C)
3.100%, 06/01/15 2,450 2,450
San Diego, County Teeter
Projects, TECP
3.450%, 10/16/98 7,200 7,200
San Diego, Sales Tax
Revenue Project, TECP
3.600%, 09/09/98 4,000 4,000
San Diego, Transportation
Authority
Sales Tax Revenue, TECP
3.450%, 09/24/98 7,400 7,400
San Francisco, City and
County Referendum, Ser 1,
FGIC Insured
4.500%, 06/15/99 1,015 1,023
San Joaquin County,
California Transportation
Authority, TECP
3.550%, 10/08/98 7,000 7,000
Santa Clara, California
Unified
School District, GO
7.000%, 08/01/98 2,500 2,500
Santa Magarita, Dana Point
Authority, RB, AMBAC Insured
4.250%, 08/01/98 1,905 1,905
School Facility Financing,
Capital Improvement Projects
VRDN, RB (A)
3.050%, 07/01/22 9,600 9,600
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
California Tax-Free Money Market Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
South Coast, Education Agency
TRAN, RB Ser A, MBIA Insured
4.500%, 06/30/99 $ 5,000 $ 5,042
Southern California,
Metro Water District,
Water Revenue Authorization,
Ser B, VRDN, RB (A)
3.100%, 07/01/28 3,200 3,200
Southern California, Metro
Water District, Water Revenue
Authorization,
Ser C, VRDN, RB (A)
2.900%, 07/01/28 1,000 1,000
State Housing Finance Agency,
Multi-Family Housing, Ser B,
VRDN, RB (A) (B) (C)
3.100%, 08/01/38 3,200 3,200
State of California, TECP
3.350%, 10/06/98 3,300 3,300
Statewide Communities
Development Authority, TRAN,
Ser B, FSA Insured
4.750%, 09/30/98 10,000 10,019
Statewide Communities
Development Authority,
North California
Retirement, VRDN, RB
(A) (B) (C)
3.350%, 06/01/26 40,000 40,000
Statewide Communities
Development Authority,
St. Joseph Health System,
COP, VRDN, RB (A) (B)
3.050%, 07/01/08 1,600 1,600
Transportation Finance
Authority, VRDN, RB, (A)
3.300%, 10/01/27 17,500 17,500
Turlock Irrigation District,
Transmission Projects, COP,
Ser A, VRDN (A) (C)
2.950%, 01/01/26 4,050 4,050
Turlock Irrigation District,
Revenue Credit Support,
MBIA Insured
4.500%, 01/01/99 1,030 1,035
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
University of California
Regents,TECP
3.400%, 08/07/98 $ 3,000 $ 3,000
Vista Multi-Family
Housing Rate,
VRDN (A) (B)
3.000%, 05/01/05 2,640 2,640
West Basin Municipal Water
District, Phase II Recycled
Water Project,
Ser B, COP, VRDN (A) (B) (C)
2.850%, 08/01/27 2,200 2,200
West Basin Municipal Water
District, Phase II Recycled
Water Project,
Ser C, COP, VRDN (A) (B) (C)
3.000%, 08/01/27 2,000 2,000
West Covina Redevelopment
Agency, Lakes Public Parking
Project, VRDN, RB (A) (B) (C)
2.900%, 08/01/18 2,505 2,505
--------
TOTAL CALIFORNIA MUNICIPAL BONDS
(Cost $531,124) 531,124
--------
================================================================================
Cash Equivalents -- 2.7%
================================================================================
Provident California Tax
Free Money Market 14,388 14,388
SEI California Tax Free
Money Market 209 209
--------
TOTAL CASH EQUIVALENTS
(Cost $14,597) 14,597
--------
TOTAL INVESTMENTS -- 99.8%
(Cost $545,721) 545,721
--------
OTHER ASSETS AND LIABILITIES, NET -- 0.2% 1,026
--------
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
California Tax-Free Money Market Fund (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Net Assets:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization -- no par value)
based on 241,534,163 outstanding shares
of beneficial interest $241,534
Fund Shares of Retail Class A (unlimited
authorization -- no par value)
based on 305,279,757 outstanding shares
of beneficial interest 305,279
Accumulated net realized loss on investments (66)
--------
TOTAL NET ASSETS -- 100.0% $546,747
========
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 JULY 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
AMT--ALTERNATIVE MINIMUM TAX
COP--CERTIFICATE OF PARTICIPATION
FGIC--FINANCIAL GUARANTY INSURANCE COMPANY
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.
39
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Intermediate-Term Bond Fund
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Corporate Obligations -- 62.9%
================================================================================
AEROSPACE & DEFENSE -- 5.1%
Lockheed Martin
7.450%, 06/15/04 $5,500 $ 5,809
McDonnell Douglas
6.875%, 11/01/06 1,000 1,050
Raytheon
6.750%, 08/15/07 6,000 6,150
--------
13,009
--------
AUTOMOTIVE -- 7.9%
Ford Motor Credit
6.850%, 08/15/00 2,500 2,544
8.200%, 02/15/02 6,000 6,397
6.500%, 02/28/02 2,000 2,028
General Motors Acceptance (C)
8.000%, 10/01/99 4,000 4,095
General Motors
8.950%, 07/02/09 4,455 4,990
--------
20,054
--------
BANKS -- 9.9%
Bankers Trust
7.250%, 01/15/03 3,500 3,627
Bank of Boston
8.375%, 12/15/02 2,500 2,700
Banponce
6.750%, 12/15/05 2,000 2,040
Citicorp
6.750%, 08/15/05 4,075 4,202
First Bank System
6.875%, 09/15/07 3,000 3,120
Fleet Financial
7.125%, 04/15/06 5,000 5,212
Mellon Bank NA
7.000%, 03/15/06 1,500 1,568
Mercantile Bancorp
7.050%, 06/15/04 2,500 2,594
--------
25,063
--------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Corporate Obligations (continued)
================================================================================
ENTERTAINMENT -- 0.8%
Walt Disney
6.375%, 03/30/01 $2,000 $ 2,028
--------
FINANCIAL SERVICES -- 11.3%
Associates Corporation of N.A.
6.000%, 04/15/03 2,000 1,988
Avco Financial Services
7.375%, 08/15/01 3,500 3,636
Bear Stearns
6.500%, 06/15/00 4,000 4,040
Commercial Credit
6.200%, 11/15/01 2,000 2,015
General Electric
Capital Services
6.500%, 11/01/06 2,000 2,058
Golden West Financial
6.700%, 07/01/02 1,000 1,018
Grand Metro Investment
8.625%, 08/15/01 1,000 1,071
Lehman Brothers Holdings
8.750%, 05/15/02 4,000 4,325
Merrill Lynch & Co.
Medium Term Note
6.330%, 08/25/00 1,500 1,511
Morgan Stanley
6.125%, 10/01/03 3,000 2,985
Salomon
7.300%, 05/15/02 4,000 4,150
--------
28,797
--------
FOREIGN GOVERNMENTS -- 3.8%
Province of British Columbia
7.000%, 01/15/03 1,500 1,556
Province of Manitoba
6.125%, 01/19/04 4,000 4,005
Province of Ontario
7.375%, 01/27/03 4,000 4,210
--------
9,771
--------
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Intermediate-Term Bond Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Corporate Obligations (continued)
================================================================================
INDUSTRIAL -- 3.5%
Du Pont (E.I.) de Nemours
6.500%, 09/01/02 $7,000 $ 7,140
Tyco International Limited
6.500%, 11/01/01 1,800 1,816
--------
8,956
--------
INSURANCE -- 3.0%
American General
7.700%, 10/15/99 2,490 2,540
Travelers Property Casualty
6.750%, 04/15/01 5,000 5,094
--------
7,634
--------
MACHINERY -- 0.4%
Caterpillar Tractor
6.000%, 05/01/07 1,000 976
--------
RETAIL -- 4.8%
Bass America
6.750%, 08/01/99 4,000 4,030
Sears Roebuck Acceptance
7.000%, 06/15/07 5,000 5,206
Wal-Mart Stores
6.375%, 03/01/03 3,000 3,056
--------
12,292
--------
TELEPHONES & TELECOMMUNICATION -- 5.5%
Cable and Wireless
Communications
6.625%, 03/06/05 7,000 7,026
New England Telephone &
Telegraph
6.250%, 03/15/03 2,000 2,018
WorldCom
9.375%, 01/15/04 2,091 2,201
7.750%, 04/01/07 2,500 2,691
--------
13,936
--------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Corporate Obligations (continued)
================================================================================
UTILITIES -- 6.9%
Arkansas Electric Cooperative
7.330%, 06/30/08 $2,219 $ 2,355
Oklahoma Gas & Electric
6.650%, 07/15/27 2,500 2,622
Old Dominion Electric
7.480%, 12/01/13 5,550 5,973
Pacific Gas & Electric
8.750%, 01/01/01 3,280 3,489
Panhandle Eastern
7.875%, 08/15/04 3,000 3,240
--------
17,679
--------
TOTAL CORPORATE OBLIGATIONS
(Cost $155,803) 160,195
--------
================================================================================
U.S. Treasury Obligations -- 6.0%
================================================================================
6.250%, 05/31/00 (A) 5,000 5,064
6.125%, 09/30/00 (A) 2,000 2,024
5.875%, 02/15/04 (A) 4,000 4,064
7.250%, 05/15/04 (A) 2,000 2,164
5.875%, 11/15/05 (A) 2,000 2,033
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $15,135) 15,349
--------
================================================================================
U.S. Government Agency Mortgage-
Backed Obligations -- 13.5%
================================================================================
FNMA
6.500%, 12/01/07 1,514 1,523
5.750%, 02/15/08 (A) 2,000 1,981
6.000%, 05/01/09 730 722
6.000%, 09/01/10 1,544 1,526
6.000%, 05/01/11 2,483 2,454
6.000%, 01/01/12 1,792 1,771
6.000%, 03/01/13 2,903 2,869
FHLMC
8.000%, 05/15/00 469 477
7.000%, 09/01/01 6,397 6,494
The accompanying notes are an integral part of the financial statements.
41
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Intermediate-Term Bond Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
U.S. Government Agency Mortgage-
Backed Obligations (continued)
================================================================================
FNMA
6.200%, 09/25/02 $1,000 $ 998
5.450%, 10/10/03 650 640
6.770%, 09/01/05 6,750 7,109
6.850%, 09/12/05 2,000 2,032
6.700%, 11/10/05 3,750 3,796
--------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED OBLIGATIONS
(Cost $33,855) 34,392
--------
================================================================================
Asset-Backed Securities -- 15.0%
================================================================================
American Express Master Trust,
Ser 1994-1A
7.150%, 08/15/99 6,500 6,510
Chase Manhattan Auto Grantor Trust,
Ser 1996B
6.610%, 09/15/02 3,960 3,990
Citibank Credit Card Master
Trust 1997-3 Cl A
6.839%, 02/10/04 3,000 3,061
Citibank Credit Card Master
Trust 1998-3 Cl A
5.800%, 02/07/05 3,400 3,348
Contimortgage Home Equity
Loan Trust, Ser 1995-3
Cl A4,
7.440%, 09/15/12 3,110 3,245
Country Wide Mortgage 1993-2
Cl 4
6.750%, 04/25/08 936 940
EQCC Home Equity Loan Trust,
1996-3 Cl A6
7.400%, 12/15/19 2,500 2,605
Green Tree Financial
6.750%, 06/15/25 2,000 2,042
J.C. Penney Master Credit
Card Trust Series B, Cl A
8.950%, 10/15/01 1,000 1,061
J.C. Penney Master Credit
Card Trust
9.625%, 06/15/00 6,000 6,461
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Asset-Backed Securities (continued)
================================================================================
Residential Funding Mortgage
1992-S36 Cl A4
6.750%, 11/25/07 $ 2,280 $ 2,280
Sears Credit Account
Master Trust,
Ser 1994-1 Cl A
7.000%, 01/15/04 2,500 2,530
--------
TOTAL ASSET-BACKED SECURITIES
(Cost $37,097) 38,073
--------
================================================================================
Commercial Paper -- 5.5%
================================================================================
Engelhard Corporation (B)
5.803%, 08/03/98 10,000 9,997
South Western Electric PLC (B)
5.725%, 08/20/98 3,959 3,947
--------
TOTAL COMMERCIAL PAPER
(Cost $13,944) 13,944
--------
================================================================================
Repurchase Agreements -- 2.8%
================================================================================
J.P. Morgan Securities, Inc.
5.58%, dated 07/31/98,
matures 08/03/98,
repurchase price $4,749,362
(collateralized by
U.S. Treasury Bill, par value
$5,089,000, 0.000%,
07/22/99: market value
$4,842,597) 4,747 4,747
Lehman Brothers, Inc. (B)
5.75%, dated 07/31/98, matures
08/03/98, repurchase price
$2,316,995 (collateralized
by various corporate obligations,
0.00%-5.75%, 08/03/98-08/20/98:
total market value
$2,362,203) 2,316 2,316
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $7,063) 7,063
--------
TOTAL INVESTMENTS -- 105.7%
(Cost $262,897) 269,016
--------
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Intermediate-Term Bond Fund (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (6.4%) $(16,260)
--------
OTHER ASSETS AND LIABILITIES, NET -- 0.7% 1,884
--------
================================================================================
Net Assets:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization -- no par value)
based on 24,188,661 outstanding
shares of beneficial interest $245,806
Fund Shares of Retail Class A (unlimited
authorization -- no par value)
based on 496,361 outstanding shares
of beneficial interest 5,692
Undistributed net investment income 184
Accumulated net realized loss on
investments (3,161)
Net unrealized appreciation on
investments 6,119
--------
TOTAL NET ASSETS -- 100.0% $254,640
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $10.32
======
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL CLASS A $10.31
======
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($10.31 / 97%) $10.63
======
- --------------------------------------------------------------------------------
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT
JULY 31, 1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT
JULY 31, 1998 WAS $15,939,433.
(B) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
(C) VARIABLE RATE SECURITY
CL--CLASS
FHLMC--FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
California Intermediate Tax-Free Bond Fund
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds -- 98.3%
================================================================================
Alameda County,
Santa Rita Jail Project,
COP, MBIA Insured
5.250%, 12/01/04 $ 500 $ 527
Anaheim, Water Revenue Bond,
Callable 04/01/00 @ 102
5.750%, 04/01/04 250 251
Anaheim Public Financing
Authority, Electric Utility
Projects, RB, MBIA Insured
5.500%, 10/01/10 1,750 1,837
Antioch Public Finance
Authority, Police
Facilities Project, Lease RB,
MBIA Insured,
Callable 04/01/03 @ 102
4.550%, 01/01/03 500 506
Atascadero, School District
Participation
Note, MBIA Insured,
Callable 02/01/07 @ 101
5.200%, 08/01/08 1,000 1,055
Bakersfield, Convention Center
Expansion Project, COP,
MBIA Insured
5.000%, 04/01/03 335 348
5.300%, 04/01/06 500 531
Berkeley, Unified School
District, GO,
Ser D, FGIC Insured
8.250%, 08/01/05 345 427
Berkeley, City Pension Insurer,
GO, AMBAC Insured,
4.200%, 06/01/02 820 823
Berkeley, School District,
Ser D,
GO, FGIC Insured
8.250%, 08/01/04 295 357
California Industry, GO, FGIC
Insured, Callable
07/01/05 @100.625
5.500%, 07/01/10 670 708
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
California State Department of
Water, Ser J-2, RB
6.000%, 12/01/06 $ 1,400 $ 1,559
California State, GO
5.400%, 02/01/01 500 500
7.000%, 08/01/02 1,500 1,656
6.000%, 10/01/05 1,300 1,438
6.500%, 09/01/06 1,000 1,149
6.250%, 04/01/08 1,000 1,135
California State Public
Works Board, various
University of California
Projects, Ser A, RB,
Pre-Refunded 12/01/02 @ 102
6.600%, 12/01/22 800 895
California State Public Works,
Dept Corrections-Del Norte,
Ser C, RB,
4.750%, 12/01/05 500 512
California State Public Works,
Various University Calif
Project, Ser A,
AMBAC Insured,
Callable 12/01/07 @ 102
5.100%, 12/01/10 1,000 1,039
Calleguas, Las Virgines
Municipal Water District,
RB, FSA Insured
4.000%, 11/01/02 500 499
Calleguas, Municipal
Water District,
RB, AMBAC Insured,
Pre-Refunded 07/01/01 @ 102
6.250%, 07/01/05 1,000 1,080
Central Coast, Water Authority,
RB, AMBAC Insured,
Callable 10/01/06 @ 102
5.000%, 10/01/07 2,000 2,087
Coachella Valley, Flood
Control Project,
RB, AMBAC Insured
4.500%, 10/01/06 1,045 1,055
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
California Intermediate Tax-Free Bond Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
Coast Community College, Coastline
Community College Center Project,
MBIA Insured, Callable
02/01/06 @ 102
5.200%, 02/01/08 $ 500 $ 522
5.500%, 02/01/11 640 674
Contra Costa, Transportation
Authority Sales Tax Revenue,
Ser A, Callable 03/01/02
@ 102 6.875%, 03/01/07 500 542
Contra Costa, Merrithew
Memorial Hospital Project,
COP, MBIA Insured,
Callable 11/01/07 @ 102
5.200%, 11/01/09 2,000 2,095
5.500%, 11/01/12 2,160 2,273
Contra Costa, Transportation
Authority, Ser A, RB,
FGIC Insured, Callable
08/01/05 @ 100
5.300%, 03/01/06 600 631
Contra Costa Water
Distribution, Ser G,
RB, MBIA Insured, Callable
10/01/04 @ 102
5.700%, 10/01/06 2,500 2,725
Cupertino, COP, Callable
01/01/03 @ 102
5.500%, 01/01/05 500 531
Desert Sands, Union School
District, RB, FSA Insured,
Callable
03/01/05 @102
5.400%, 03/01/08 660 699
5.500%, 03/01/09 565 600
Downey, Civic Center Project,
PN, MBIA Insured
5.300%, 02/01/06 600 634
East Bay, Regal Park District,
Ser C, GO, FGIC Insured
6.500%, 09/01/01 685 734
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
East Bay, Wastewater
Treatment System,
RB, FGIC Insured
6.000%, 06/01/06 $ 750 $ 831
Eastern Municipal
Water District,
PN, FGIC Insured
5.000%, 07/01/03 1,395 1,449
Eastern Municipal
Water District, PN,
Pre-Refunded 07/01/01 @102,
6.600%, 07/01/05 1,120 1,221
Eastern Municipal Water
District, COP, FGIC Insured
5.000%, 07/01/04 1,000 1,041
Eastern Municipal Water
District, PN, Pre-Refunded
11/01/98 @102
6.900%, 11/01/03 1,755 1,950
Education Facilities Authority,
Santa Clara University,
MBIA Insured,
Callable 09/01/06 @ 102
5.100%, 09/01/08 510 534
Educational Facilities
Authority, Pooled
College & Universities Project,
Ser C, RB, MBIA Insured
5.000%, 03/01/05 560 584
Educational Facilities
Authority, Santa
Clara University, RB, MBIA
Insured
5.000%, 09/01/07 400 417
Educational Facilities
Authority, Pooled
College & University Projects C,
RB, MBIA Insured
5.000%, 03/01/06 655 682
Escondido, High School
District, GO,
MBIA Insured,
5.200%, 11/01/06 1,000 1,057
Escondido, Union High School,
GO, Callable 11/06/06 @102
5.600%, 11/01/09 1,000 1,089
The accompanying notes are an integral part of the financial statements.
45
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
California Intermediate Tax-Free Bond Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
Gilroy, Unified School
District, COP,
FSA Insured, Callable
09/01/04 @ 102
5.750%, 09/01/05 $1,235 $ 1,338
Glendale, Union School
District, GO, FGIC Insured
5.500%, 09/01/05 600 645
Hawthorne, School District,
Ser A, GO, FGIC Insured,
4.650%, 11/01/06 1,000 1,020
Health Facilities Finance
Authority, Catholic Health
Facility, AMBAC Insured,
Callable 07/01/05 @ 102
5.750%, 07/01/07 925 1,009
Health Facilities Finance
Authority, Catholic Health
Facility, Ser A,
MBIA Insured, Callable
07/01/04 @ 102
5.000%, 09/01/07 1,500 1,549
Health Facilities Finance
Authority, Catholic
Healthcare West, Ser A,
MBIA Insured
4.400%, 07/01/05 1,000 1,005
Health Facilities Finance
Authority, Cedars Sinai
Medical Center, Ser B,
MBIA Insured, Callable
08/01/07 @ 102
4.750%, 08/01/09 500 504
Hollister, Community Development
Project, GO, AMBAC Insured,
Callable 10/01/07 @102
5.000%, 10/01/08 740 767
Irvine Ranch, Water District
Issue, RB, Callable
08/15/98 @100
7.900%, 08/15/02 500 502
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
Joshua Basin,
Desert Financing Authority,
RB, AMBAC Insured
4.800%, 05/01/08 $ 445 $ 455
4.900%, 05/01/09 465 478
Kern County, Water Agency
District, GO, Callable
11/01/1998 @ 102
5.900%, 05/01/06 300 307
Las Virgenes,
Unified School District,
GO, Ser A, MBIA Insured
5.000%, 11/01/05 1,000 1,046
Los Angeles, Airport RB,
FGIC Insured
6.000%, 05/15/05 1,000 1,101
Los Angeles, GO,
FGIC Insured, Callable
09/01/03 @101
5.800%, 09/01/09 1,000 1,070
Los Angeles,
Airport Revenue Bond,
Ser A, FGIC Insured, Callable
05/15/05 @101
5.500%, 05/15/08 1,000 1,065
Los Angeles,
Wastewater Systems, RB,
FGIC Insured
5.250%, 06/01/07 1,000 1,061
Los Angeles,
County Public Works
Financing Authority,
Regal Park & Open Space
District, RB
5.250%, 10/01/05 1,700 1,802
Los Angeles, Regal Park & Open
Space District, GO
6.000%, 10/01/03 900 978
Los Angeles, Regal Park & Open
Space Dist, GO, Callable
10/01/2007 @ 101
5.500%, 10/01/08 1,870 2,013
Los Angeles, Department of
Airports, RB, Ser B, FGIC
Insured 6.500%, 05/15/04 1,840 2,054
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
California Intermediate Tax-Free Bond Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
Los Angeles, Unified School District,
GO, Ser A, FGIC Insured,
Callable 09/01/03 @ 101
4.600%, 07/01/06 $1,050 $ 1,067
Los Angeles, Department of
Water & Power
6.750%, 04/01/06 1,460 1,568
Los Angeles, Department of
Water & Power, RB, FGIC Insured,
Callable 09/01/04 @ 101
6.800%, 09/01/99 1,000 1,034
Los Angeles, GO, Ser A,
MBIA Insured 5.500%,
09/01/04 700 748
Los Angeles, GO, FGIC Insured,
Callable 09/01/03 @ 101
5.400%, 09/01/06 300 317
Los Angeles, Unified School
District, GO, Ser A, FSA
Insured
4.200%, 11/01/03 930 931
Los Angeles, Unified School
District, GO, FGIC Insured
6.000%, 07/01/07 1,000 1,116
Los Angeles, Wastewater System,
Ser B, RB, MBIA Insured,
Callable 06/01/03 @ 102
5.400%, 06/01/08 300 315
M-S-R Public Power Agency,
San Juan Project, RB, Ser F,
AMBAC Insured,
Callable 07/01/03 @ 102,
6.000%, 07/01/08 230 250
Merced County, Csac Lease,
COP, FSA Insured
6.000%, 10/01/05 640 694
Merced County, COP, FSA Insured
6.000%, 10/01/05 610 656
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
Metropolitan Southern California,
Waterworks Revenue, Ser C,
6.000%, 07/01/07 $1,900 $ 2,121
Metropolitan Water District
of Southern California,
Ser B, RB, MBIA Insured,
Callable 07/01/06 @ 102
5.250%, 07/01/07 1,820 1,931
Metropolitan Water District
of Southern California,
Water District, MBIA
Insured, Callable
07/01/02 @ 102
5.400%, 07/01/04 1,000 1,059
Milpitas Redevelopment Agency,
Tax Allocation,
Redevelopment Project
Area # 1, RB, MBIA Insured
4.600%, 01/15/06 1,040 1,056
Modesto, Community Center, COP,
AMBAC Insured, Callable
11/01/01 @ 102
6.500%, 11/01/07 1,000 1,094
Modesto, District Finance
Authority, Water Project,
RB, AMBAC Insured
5.500%, 09/01/03 400 425
Mojave Water Agency,
Supplemental Water Entitlement,
COP, MBIA Insured
4.950%, 09/01/06 500 518
Mojave Water Agency, Water
Entitlement, GO, MBIA Insured
5.100%, 09/01/08 500 522
Monrovia, Redevelopment Agency
Tax Allocation Project, GO,
AMBAC Insured
4.200%, 05/01/02 500 502
4.300%, 05/01/03 500 504
Mountain View, Los Altos Unified
School District, Ser B, GO,
Callable 05/01/07 @ 102
5.250%, 05/01/08 500 531
5.350%, 05/01/09 755 807
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
California Intermediate Tax-Free Bond Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
Mountain View, Los Altos
Unified School District,
Ser B, GO, Callable
05/01/2007 @ 102
5.650%, 05/01/12 $ 585 $ 629
Mountain View, Tax Allocation
Project, Ser A, MBIA Insured
5.400%, 08/01/08 700 750
Mountain View, Tax Allocation,
Ser A, MBIA Insured
5.600%, 08/01/10 500 537
Newport Beach, Water Services
Capital Improvement Project,
RB, AMBAC Insured
4.100%, 08/01/03 600 599
Northern California Power Agency,
Ser A, MBIA Insured
6.400%, 08/02/02 1,080 1,192
6.400%, 08/01/07 1,420 1,553
Oak Park, Unified School
District, GO, MBIA Insured
5.250%, 05/01/08 1,015 1,073
Orange County, Allen-McColloch
Pipeline, COP, MBIA Insured
5.500%, 07/01/05 2,000 2,140
Orange County, Civic Center
Authority, RB
5.000%, 12/01/98 200 201
Orange County, Transportation
Authority, Measure M, RB,
FGIC Insured
5.500%, 02/15/01 1,000 1,035
5.800%, 02/15/05 1,000 1,084
6.000%, 02/15/07 2,310 2,561
Orange County, Water District
Revenue, Ser A, RB, MBIA Insured,
Callable 08/15/08 @ 102
4.875%, 08/15/10 2,655 2,682
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
Port of Oakland, Ser D, RB,
MBIA Insured
6.500%, 11/01/03 $ 500 $ 556
Redding, Electric System,
Ser A, COP, MBIA Insured
6.150%, 07/01/02 1,000 1,071
Redwood City, Elementary School
District, GO, FGIC Insured
5.500%, 08/01/10 1,140 1,234
Riverside, Water Revenue, RB,
Callable 10/01/98 @ 101.25
5.750%, 04/01/03 250 254
Sacramento, County Sanitation
District, GO, FGIC Insured
5.000%, 08/01/03 1,000 1,040
Sacramento, County Sanitation
District Financing Authority,
RB
5.500%, 12/01/03 1,000 1,065
5.000%, 08/01/04 870 906
Sacramento Municipal Utility
District, Ser C, RB,
FGIC Insured,
Escrowed To Maturity,
Callable 11/15/02 @ 102
5.750%, 11/15/08 570 623
Sacramento Municipal Utility
District, Ser C, RB,
FGIC Insured,
Unrefunded Balance,
Callable 11/15/02 @ 102
5.750%, 11/15/08 380 406
San Bernardino, County
Transportation Authority,
RB, FGIC Insured
6.000%, 03/01/02 360 382
San Bernardino, County
Transportation Authority,
Sales Tax Revenue,
RB, MBIA Insured, Callable
03/01/03 @ 102
6.000%, 03/01/06 1,735 1,917
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
California Intermediate Tax-Free Bond Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
San Bernardino, Municipal Water
Department, RB, FGIC Insured
4.500%, 02/01/00 $ 875 $ 871
4.050%, 02/01/03 425 424
San Bernardino, County
Transportation Authority,
Sales Tax Revenue, RB,
FGIC Insured
6.000%, 03/01/06 1,000 1,074
San Bernardino, County
Transportation Authority,
Sales Tax Revenue, RB,
Ser A, FSA Insured
5.250%, 03/01/07 2,000 2,120
San Diego County, Refunded
Balance, Ser A,
7.000%, 04/01/06 355 395
San Diego County Regional
Transportation Commission,
Sales Tax RB, Ser A,
FGIC Insured
5.250%, 04/01/06 2,100 2,221
San Diego County, Second Sr,
Ser A, ABMAC Insured
6.000%, 04/01/06 3,000 3,319
5.000%, 04/01/08 1,995 2,072
San Diego County Water
Authority Revenue, COP,
Ser A
5.000%, 05/01/04 2,445 2,537
San Diego County, Water
Authority Revenue, RB,
Prerefunded
05/01/01 @ 102
6.400%, 05/01/08 2,000 2,162
San Diego County,
Water Authority Revenue,
Ser A, RB,
4.250%, 05/01/04 1,000 999
San Diego Lease Revenue, RB,
Callable 09/01/04 @ 102
5.500%, 09/01/07 450 481
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
San Diego, Public Facility
Financing Authority,
Sewer Revenue, RB,
FGIC Insured
6.000%, 05/15/06 $2,800 $ 3,101
San Francisco, Bay Area Rapid
Transportation District, RB,
FGIC Insured
5.500%, 07/01/05 2,200 2,362
6.500%, 07/01/07 2,000 2,175
San Francisco Building Authority,
Department General Services,
Lease RB, Ser A
4.500%, 10/01/00 300 303
San Francisco City & County,
GO, Utility Public Safety
Improvement Project, Ser F,
FGIC Insured,
Callable 06/15/01 @ 100
6.500%, 06/15/08 1,000 1,070
San Francisco City & County,
Public Safety Improvements
Project, Ser F,
FGIC Insured, Prerefunded
06/15/01 @ 100
6.500%, 06/15/07 1,000 1,069
San Francisco, New Public
Housing Authority, RB
5.000%, 08/01/03 350 359
San Joaquin County, COP,
MBIA Insured
4.625%, 11/15/05 1,035 1,056
4.800%, 11/15/07 1,000 1,026
San Jose, Redevelopment
Agency, RB,
AMBAC Insured,
5.000%, 08/01/09 1,500 1,558
San Jose, Redevelopment Agency,
Tax Allocation Merged Area
Redevelopment Project,
MBIA Insured
6.000%, 08/01/07 1,100 1,229
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
California Intermediate Tax-Free Bond Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
San Jose,
Redevelopment Agency,
Merged Area Redevelopment
Project, RB, MBIA Insured
6.000%, 08/01/08 $2,000 $ 2,237
San Jose, Tax Allocation -
Merged Area Redevelopment
Project, MBIA Insured
6.000%, 08/01/06 1,000 1,110
Santa Ana, Community
Redevelopment
Agency Tax Allocation,
6.400%, 12/15/10 815 858
Santa Barbara County,
Transportation
Authority, RB, FGIC Insured,
Callable 4/01/04 @ 101,
04/01/06 @ 100
5.000%, 04/01/07 1,000 1,036
Santa Clara County, Financing
Authority Lease, Ser A, RB,
AMBAC Insured
4.600%, 11/15/06 1,350 1,372
Santa Clara, Electric Revenue,
Ser A, MBIA Insured
6.000%, 07/01/05 1,595 1,713
Santa Clara, COP, AMBAC
Insured, Callable
05/15/02 @ 102
Sinking Fund 05/15/06 @ 100
6.000%, 05/15/12 400 428
Santa Cruz County, Public
Facilities Financing Authority,
Tax Allocation,
Callable 09/01/03 @ 102,
MBIA Insured
5.100%, 09/01/05 500 526
Saratoga Unified School District,
Ser A, GO, FGIC Insured,
Callable 09/01/07 @ 102
4.800%, 09/01/08 825 845
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
South Coast, County Water
District, RB,
Callable 11/01/98 @ 100.25
5.900%, 05/01/99 $ 245 $ 247
South Orange County, Public
Financing Authority,
Foothill Area,
Ser C, GO, FGIC Insured
7.500%, 08/15/07 1,000 1,224
Southern California,
Public Power
Authority Crossover,
Ser B, AMBAC Insured
5.900%, 07/01/04 1,000 1,076
Tulare County, Capital
Improvement
Project, Ser A, COP,
MBIA Insured
5.250%, 02/15/05 1,000 1,052
5.375%, 02/15/06 500 531
Turlock, District Revenue,
Ser A, MBIA Insured
6.000%, 01/01/07 1,000 1,111
University of California,
Multiple Purpose Projects,
Ser B, RB, MBIA Insured
4.800%, 09/01/07 1,500 1,536
University of California,
UCLA, RB,
Callable 11/01/03 @ 102
5.000%, 11/01/04 1,000 1,040
Walnut Valley, Badillo/Grand
Transmission Project, COP,
FGIC Insured,
Callable 02/01/02 @ 102
6.125%, 02/01/07 730 774
West Basin Municipal
Water District,
Ser A, COP, AMBAC Insured,
Callable 08/01/07 @ 101
5.000%, 08/01/08 425 440
West Hollywood, COP, FGIC Insured
4.550%, 02/01/09 665 662
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
California Intermediate Tax-Free Bond Fund (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
California Municipal Bonds (continued)
================================================================================
Yorba Linda, Tax Allocation Revenue
Redevelopment Project,
Ser A, MBIA Insured,
4.250%, 09/01/04 $800 $ 802
--------
TOTAL CALIFORNIA MUNICIPAL BONDS
(Cost $160,507) 167,117
--------
================================================================================
Cash Equivalents -- 0.4%
================================================================================
Provident California Tax
Free Money Market 640 640
SEI California Tax Free Money Market 5 5
--------
TOTAL CASH EQUIVALENTS
(Cost $645) 645
--------
TOTAL INVESTMENTS -- 98.7%
(Cost $161,152) $167,762
--------
OTHER ASSETS AND LIABILITIES, NET -- 1.3% 2,225
--------
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Net Assets:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization -- no par value)
based on 15,636,489 outstanding shares
of beneficial interest $151,603
Fund Shares of Retail Class A
(unlimited authorization -- no par value)
based on 1,290,529 outstanding shares
of beneficial interest 12,629
Undistributed net investment income 146
Accumulated net realized loss
on investments (1,001)
Net unrealized appreciation
on investments 6,610
--------
TOTAL NET ASSETS-- 100.0% $169,987
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $10.04
========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL CLASS A $10.01
========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($10.01 / 97%) $10.32
========
- --------------------------------------------------------------------------------
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
SR. -- SENIOR
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Bond Fund
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Corporate Bonds -- 42.6%
================================================================================
AEROSPACE & DEFENSE -- 0.8%
Lockheed Martin
7.700%, 06/15/08 $1,500 $ 1,644
--------
AUTOMOTIVE -- 6.0%
Ford Motor Credit
6.850%, 08/15/00 1,000 1,017
7.000%, 09/25/01 1,500 1,541
6.500%, 02/28/02 4,000 4,055
7.750%, 11/15/02 1,000 1,059
General Motors Acceptance
8.000%, 10/01/99 4,790 4,904
--------
12,576
--------
BANKS -- 6.2%
Bank of Boston
8.375%, 12/15/02 1,250 1,350
Citicorp
6.750%, 08/15/05 4,100 4,228
First Bank System
6.875%, 09/15/07 4,500 4,680
Lehman Brothers
8.375%, 02/15/99 1,000 1,012
Mercantile Bancorp
7.050%, 06/15/04 1,500 1,556
--------
12,826
--------
BEAUTY PRODUCTS -- 0.3%
Procter and Gamble
8.500%, 08/10/09 500 594
--------
COMPUTERS & SERVICES -- 2.4%
IBM
6.500%, 01/15/28 5,000 4,931
--------
ENTERTAINMENT -- 0.7%
Walt Disney
6.375%, 03/30/01 1,500 1,521
--------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Corporate Bonds (continued)
================================================================================
FINANCIAL SERVICES -- 7.4%
Associates Corporation of N.A.
6.000%, 04/15/03 $2,000 $ 1,987
General Electric Capital
Services
6.500%, 11/01/06 3,500 3,601
Golden West Financial
6.700%, 07/01/02 2,800 2,849
Merrill Lynch & Co.
Medium Term Note
6.330%, 08/25/00 3,000 3,023
Morgan Stanley
6.125%, 10/01/03 1,300 1,294
Salomon Brothers
7.300%, 05/15/02 1,000 1,038
Sears Finance
7.000%, 06/15/07 1,500 1,562
--------
15,354
--------
FOOD, BEVERAGE & TOBACCO -- 0.5%
Philip Morris
7.750%, 01/15/27 1,000 1,069
--------
FOREIGN GOVERNMENTS -- 2.1%
Hydro Quebec
8.050%, 07/07/24 1,125 1,320
Province of British Columbia
7.000%, 01/15/03 1,500 1,556
Province of Ontario
7.375%, 01/27/03 1,500 1,579
--------
4,455
--------
INDUSTRIAL -- 1.6%
Caterpillar Tractor
6.000%, 05/01/07 3,360 3,280
--------
INSURANCE -- 3.7%
American General
7.700%, 10/15/99 1,500 1,530
Travelers Property Casualty
6.750%, 04/15/01 6,000 6,113
--------
7,643
--------
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Bond Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Corporate Bonds (continued)
================================================================================
METALS & MINING -- 0.7%
Potash
7.125%, 06/15/07 $1,500 $ 1,541
--------
PETROLEUM REFINING -- 1.0%
Phillips Petroleum
Callable 03/15/08 @ 102.7
7.125%, 03/15/28 2,000 2,018
--------
PRINTING & PUBLISHING -- 1.9%
E.W. Scripps
6.375%, 10/15/02 4,000 4,030
--------
RETAIL -- 2.1%
Bass America
6.750%, 08/01/99 200 202
JC Penney
6.000%, 05/01/06 1,230 1,192
Wal-Mart Stores
6.375%, 03/01/03 2,850 2,903
--------
4,297
--------
TELEPHONES & TELECOMMUNICATION -- 5.2%
Bell Atlantic
8.000%, 10/15/29 2,980 3,546
Cable and Wireless Communications
6.625%, 03/06/05 4,500 4,517
New England Telephone & Telegraph
6.250%, 03/15/03 1,500 1,513
7.875%, 11/15/29 1,000 1,180
--------
10,756
--------
TOTAL CORPORATE BONDS
(Cost $86,327) 88,535
--------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
U.S. Government Agency Obligations -- 27.6%
================================================================================
FHLB
8.375%, 10/25/99 $ 300 $ 309
FHLMC
7.000%, 02/20/18 3,105 3,125
6.250%, 01/15/24 2,000 1,969
FNMA
9.050%, 04/10/00 3,000 3,161
6.200%, 09/25/02 2,000 1,995
5.450%, 10/10/03 3,800 3,744
6.850%, 09/12/05 2,000 2,032
6.700%, 11/10/05 1,000 1,012
5.750%, 02/15/08 (A) 2,000 1,981
6.500%, 03/25/13 1,500 1,496
6.500%, 03/01/24 1,323 1,317
8.000%, 08/01/24 257 266
8.000%, 09/01/24 38 40
8.000%, 10/01/24 140 146
8.500%, 05/01/25 899 938
6.500%, 01/01/26 780 776
6.500%, 05/01/26 884 880
8.000%, 07/01/26 1,309 1,357
6.000%, 12/01/27 1,978 1,924
6.500%, 01/01/28 1,006 1,001
6.500%, 02/01/28 1,975 1,966
6.500%, 03/01/28 1,996 1,988
6.500%, 04/01/28 4,939 4,915
6.000%, 07/22/28 1,000 971
GNMA
8.000%, 04/15/17 378 393
8.000%, 05/15/17 186 193
6.500%, 06/15/23 2,359 2,353
6.500%, 12/15/23 1,301 1,298
6.500%, 01/15/24 513 512
7.000%, 01/15/24 620 630
7.500%, 01/15/24 1,029 1,062
6.500%, 02/15/24 850 848
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Bond Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
U.S. Government Agency Obligations (continued)
================================================================================
GNMA (continued)
7.500%, 02/15/24 $1,221 $ 1,259
7.000%, 04/15/24 1,540 1,564
7.500%, 09/15/25 771 795
6.500%, 10/15/25 781 780
6.500%, 04/15/26 1,831 1,827
7.500%, 02/15/27 968 998
7.500%, 06/15/27 530 546
7.500%, 07/15/27 1,859 1,914
7.500%, 08/15/27 1,037 1,071
--------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $55,384) 57,352
--------
================================================================================
U.S. Treasury Obligations -- 13.4%
================================================================================
U.S. Treasury Bond
10.375%, 11/15/12 (A) 3,000 3,993
7.250%, 05/15/16 9,850 11,426
8.750%, 08/15/20 4,860 6,612
7.250%, 08/15/22 (A) 1,500 1,775
7.125%, 02/15/23 2,800 3,272
U.S. Treasury Notes
8.500%, 11/15/00 420 447
6.625%, 06/30/01 300 309
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $24,766) 27,834
--------
================================================================================
Asset-Backed Securities -- 7.9%
================================================================================
Chase Manhattan
Auto Grantor Trust
6.610%, 09/15/02 660 665
Citibank Credit Card Master
Trust 1997-3 Cl A
6.839%, 02/10/04 2,700 2,755
Citibank Credit Card Master
Trust 1998-3 Cl A
5.800%, 02/07/05 2,000 1,969
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Asset-Backed Securities (continued)
================================================================================
EQCC Home Equity Loan Trust
1995-2 Cl A4
7.800%, 12/15/10 $2,200 $ 2,302
EQCC Home Equity Loan Trust
1996-3 Cl A6
7.400%, 12/15/19 2,500 2,605
Green Tree Financial 1995-9
Cl A
6.800%, 01/15/27 2,500 2,577
J.C. Penney Master Credit
Card Trust
9.625%, 06/15/00 1,500 1,615
Standard Credit Card Master
Trust 1993-3
5.500%, 02/07/00 2,000 1,998
--------
TOTAL ASSET-BACKED SECURITIES
(Cost $16,072) 16,486
--------
================================================================================
Collateralized Mortgage Obligations -- 5.9%
================================================================================
American Express Master
Trust 1998-1
5.900%, 04/15/04 4,000 4,040
Contimortgage Home Equity
Loan Trust 1994-4 Cl A3
8.090%, 09/15/09 1,675 1,752
Contimortgage Home Equity
Loan Trust 1995-2 Cl A4
8.050%, 07/15/12 1,000 1,050
Contimortgage Home Equity
Loan Trust, 1995-3 Cl A4
7.440%, 09/15/12 1,000 1,043
Country Wide Mortgage 1993-2 Cl 4
6.750%, 04/25/08 393 395
GE Capital Mortgage Service
1994-1 Cl A6
6.500%, 01/25/24 2,650 2,638
Residential Funding Mortgage
1992-S36 Cl A4
6.750%, 11/25/07 1,413 1,414
--------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $11,828) 12,332
--------
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Bond Fund (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Repurchase Agreements -- 4.9%
================================================================================
J.P. Morgan Securities, Inc.
5.58%, dated 07/31/98,
matures 08/03/98, repurchase
price $3,657,906
(collateralized by
U.S. Treasury Bill,
par value $3,827,000, 0.00%,
07/22/98: market value
$3,729,531) $3,656 $ 3,656
Lehman Brothers, Inc. (B)
5.75%, dated 07/31/98,
matures 08/03/98,
repurchase price $6,648,184
(collateralized by various
corporate obligations,
0.00%-5.75%, 08/03/98:
total market value
$6,777,900) 6,645 6,645
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $10,301) 10,301
--------
TOTAL INVESTMENTS -- 102.3%
(Cost $204,678) 212,840
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (3.2%) (6,645)
--------
OTHER ASSETS AND LIABILITIES, NET -- 0.9% 1,842
--------
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Net Assets:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization --
no par value) based on 19,061,377
outstanding shares of
beneficial interest $200,926
Fund Shares of Retail Class A
(unlimited authorization --
no par value) based on 178,209
outstanding shares of beneficial
interest 1,885
Undistributed net investment income 245
Accumulated net realized loss
on investments (3,181)
Net unrealized appreciation
on investments 8,162
--------
TOTAL NET ASSETS -- 100.0% $208,037
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $10.81
========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL CLASS A $10.73
========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($10.73 / 97%) $11.06
========
- --------------------------------------------------------------------------------
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT JULY 31,
1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT JULY 31,
1988 WAS $6,505,604.
(B) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
CL--CLASS
FHLB--FEDERAL HOME LOAN BANK
FHLMC--FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
The accompanying notes are an integral part of the financial statements.
55
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Convertible Securities Fund
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Convertible Bonds -- 53.7%
================================================================================
AUTOMOTIVE -- 1.6%
Magna International
5.000%, 10/15/02 $ 400 $ 515
--------
BROADCASTING, NEWSPAPERS & ADVERTISING -- 7.7%
Clear Channel Communications
2.625%, 04/01/03 1,250 1,392
Getty Images (A)
4.750%, 06/01/03 1,200 1,148
--------
2,540
--------
COMMUNICATIONS -- 2.8%
Brightpoint (A)
0.000%, 03/11/18 2,250 908
--------
ENVIRONMENTAL SERVICES -- 6.4%
U.S. Filter
4.500%, 12/15/01 825 838
Waste Management
4.000%, 02/01/02 700 952
WMX Technologies
2.000%, 01/24/05 300 332
--------
2,122
--------
HOTELS & LODGING -- 1.4%
Hilton Hotels
5.000%, 05/15/06 450 450
--------
INSURANCE -- 1.8%
Penn Treaty American
6.250%, 12/01/03 500 593
--------
MACHINERY -- 6.1%
Solectron (A)
6.000%, 03/01/06 1,100 1,679
Thermo Electron
4.250%, 01/01/03 375 352
--------
2,031
--------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Convertible Bonds (continued)
================================================================================
MEDICAL PRODUCTS & SERVICES -- 3.5%
Alza
5.000%, 05/01/06 $ 500 $ 604
Assisted Living Concepts
6.000%, 11/01/02 250 236
Integrated Health Services
5.750%, 01/01/01 300 318
--------
1,158
--------
PETROLEUM & FUEL PRODUCTS -- 7.7%
Diamond Offshore Drilling (Loews)
3.125%, 09/15/07 1,275 1,106
Halter Marine Group
4.500%, 09/15/04 1,050 889
Parker Drilling
5.500%, 08/01/04 700 562
--------
2,557
--------
RETAIL -- 13.1%
Federated Department Stores
5.000%, 10/01/03 400 636
Home Depot
3.250%, 10/01/01 625 1,171
Nine West Group (A)
5.500%, 07/15/03 750 599
Rite Aid (A)
5.250%, 09/15/02 750 966
Staples (A)
4.500%, 10/01/00 425 967
--------
4,339
--------
SEMI-CONDUCTORS/INSTRUMENTS -- 1.6%
Adaptec (A)
4.750%, 02/01/04 675 512
--------
TOTAL CONVERTIBLE BONDS
(Cost $16,190) 17,725
--------
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Convertible Securities Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks -- 8.6%
================================================================================
AIR TRANSPORTATION -- 1.6%
AMR* 7,594 $ 542
--------
BANKS -- 2.5%
Citicorp 3,000 510
First Union 5,266 317
--------
827
--------
MISCELLANEOUS BUSINESS SERVICES -- 1.4%
First Data 16,088 466
--------
TELEPHONES & TELECOMMUNICATION-- 3.1%
Intermedia Communications 233 9
WorldCom* 19,187 1,015
--------
1,024
--------
TOTAL COMMON STOCKS
(Cost $1,532) 2,859
--------
================================================================================
Preferred Stocks -- 18.5%
================================================================================
COMPUTERS & SERVICES -- 2.1%
Microsoft, Ser A 7,325 698
--------
ENERGY & POWER -- 1.9%
MCN Financing 13,750 620
--------
ENTERTAINMENT -- 1.9%
Metromedia International* 13,500 618
--------
INSURANCE -- 1.9%
SunAmerica 13,000 631
--------
MISCELLANEOUS BUSINESS SERVICES -- 3.6%
Cendant 38,000 1,182
--------
MISCELLANEOUS TRANSPORTATION -- 1.5%
Fleetwood Capital Trust* (A) 10,000 501
--------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Preferred Stocks (continued)
================================================================================
PAPER & PAPER PRODUCTS -- 0.9%
International Paper 6,500 $ 318
--------
PRINTING & PUBLISHING -- 1.8%
Hollinger International 40,000 583
--------
TELEPHONES & TELECOMMUNICATION -- 2.9%
Intermedia Communications* (A) 20,000 955
--------
TOTAL PREFERRED STOCKS
(Cost $5,942) 6,106
--------
================================================================================
Regulated Investment Companies -- 9.8%
================================================================================
Dollar General, STRYPES*
05/15/01 25,000 1,006
FirstPlus Financial Group,
TIMES 08/15/00 33,000 1,320
S&P 500 Depositary Receipt,
SPYDRS 8,000 894
--------
TOTAL REGULATED INVESTMENT COMPANIES
(Cost $3,377) 3,220
--------
================================================================================
Repurchase Agreement -- 8.7%
================================================================================
BZW Securities, Inc.
5.59%, dated 07/31/98,
matures 08/03/98,
repurchase price $2,873,599
(collateralized by
U.S. Treasury Note,
par value $2,896,000, 5.50%,
11/15/98: market value
$2,930,225) $2,872 2,872
--------
TOTAL REPURCHASE AGREEMENT
(Cost $2,872) 2,872
--------
TOTAL INVESTMENTS -- 99.3%
(Cost $29,913) 32,782
--------
OTHER ASSETS AND LIABILITIES, NET -- 0.7% 226
--------
The accompanying notes are an integral part of the financial statements.
57
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Convertible Securities Fund (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Net Assets:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization -- no par value)
based on 2,860,557 outstanding shares
of beneficial interest $ 29,955
Undistributed net investment income 62
Accumulated net realized gain on investments 122
Net unrealized appreciation on investments 2,869
--------
TOTAL NET ASSETS -- 100.0% $33,008
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $11.54
========
- --------------------------------------------------------------------------------
*NON-INCOME PRODUCING SECURITY
(A) SECURITIES SOLD WITHIN THE TERMS OF A PRIVATE PLACEMENT MEMORANDUM, EXEMPT
FROM REGISTRATION UNDER SECTION 4(2) OR 144A OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER
"ACCREDITED INVESTORS."
SPYDRS -- STANDARD AND POOR DEPOSITORY RECEIPTS
STRYPES -- STRUCTURED YIELD PRODUCT EXCHANGE SECURITIES
TIMES -- TRUST ISSUED MANDATORY EXCHANGE SECURITIES
SER -- SERIES
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Government Securities Fund
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
U.S. Treasury Obligations -- 41.6%
================================================================================
U.S. Treasury Bonds
5.875%, 02/28/99 $ 200 $ 201
6.250%, 03/31/99 1,000 1,005
6.500%, 04/30/99 5,250 5,290
5.875%, 07/31/99 (A) 1,500 1,505
7.750%, 01/31/00 (A) 1,500 1,548
6.750%, 04/30/00 1,000 1,020
5.750%, 11/15/00 (A) 4,800 4,824
7.750%, 02/15/01 2,000 2,104
6.375%, 09/30/01 1,500 1,535
7.500%, 11/15/01 2,000 2,115
5.500%, 01/31/03 (A) 1,500 1,495
7.250%, 05/15/04 1,580 1,709
8.125%, 08/15/19 (A) 1,000 1,277
6.625%, 02/15/27 (A) 11,700 13,066
6.125%, 11/15/27 (A) 8,250 8,716
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $44,938) 47,410
--------
================================================================================
U.S. Government Agency Obligations -- 46.2%
================================================================================
Aid-Israel
7.125%, 08/15/99 2,000 2,027
FNMA
5.625%, 03/15/01 (A) 18,500 18,483
5.250%, 01/15/03 13,500 13,238
5.750%, 06/15/05 6,000 5,963
5.750%, 02/15/08 (A) 11,750 11,639
6.000%, 05/15/08 1,250 1,261
--------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $52,448) 52,611
--------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Corporate Obligations -- 9.7%
================================================================================
SUPRA-NATIONAL -- 4.4%
Asian Development Bank
5.750%, 05/19/03 $5,000 $ 4,981
---------
FINANCIAL SERVICES -- 5.3%
Associates Corp. of N.A.
6.500%, 07/15/02 1,000 1,013
Donaldson, Lufkin & Jenrette
6.500%, 06/01/08 5,000 5,019
--------
6,032
--------
TOTAL CORPORATE OBLIGATIONS
(Cost $11,021) 11,013
--------
================================================================================
Commercial Paper -- 13.1%
================================================================================
Engelhard Corporation (B)
5.803%, 08/03/98 5,000 4,998
Mitsubishi Motors Credit (B)
5.697%, 08/05/98 5,000 4,997
South Western Electric PLC (B)
5.725%, 08/20/98 5,000 4,985
--------
TOTAL COMMERCIAL PAPER
(Cost $14,980) 14,980
--------
================================================================================
Corporate Obligation -- 4.4%
================================================================================
Household CCMT ABT 96, Ser A (B)
5.656%, 01/15/99 5,000 5,000
--------
TOTAL CORPORATE OBLIGATION
(Cost $5,000) 5,000
--------
The accompanying notes are an integral part of the financial statements.
59
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Government Securities Fund (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Repurchase Agreements -- 10.6%
================================================================================
BZW Securities, Inc.
5.59%, dated 07/31/98,
matures 08/03/98, repurchase
price $1,269,684
(collateralized by U.S. Treasury Note,
par value $1,307,000, 5.50%, 11/15/98:
market value $1,322,446) $ 1,269 $ 1,269
Lehman Brothers, Inc. (B)
5.75%, dated 07/31/98,
matures 08/03/98, repurchase
price $10,780,777
(collateralized by various
corporate obligations
0.00%-5.75%, 08/03/98-
01/15/99; total market
value $10,991,126) 10,775 10,775
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $12,044) 12,044
--------
TOTAL INVESTMENTS -- 125.6%
(Cost $140,431) 143,058
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (27.0%) (30,755)
--------
OTHER ASSETS AND LIABILITIES, NET -- 1.4% 1,645
--------
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Net Assets:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization -- no
par value) based on 11,659,153
outstanding shares of beneficial
interest $112,940
Undistributed net investment income 113
Accumulated net realized loss
on investments (1,732)
Net unrealized appreciation
on investments 2,627
--------
TOTAL NET ASSETS -- 100.0% $113,948
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $9.77
========
- --------------------------------------------------------------------------------
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT JULY 31,
1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT JULY 31,
1998 WAS $29,701,858.
(B) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
(C) FLOATING RATE SECURITY--THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT ON JULY 31, 1998.
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Balanced Fund
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks -- 59.2%
================================================================================
AEROSPACE & DEFENSE -- 0.9%
B.F. Goodrich 42,400 $ 1,720
Lockheed Martin 25,650 2,557
--------
4,277
--------
AGRICULTURE -- 0.3%
Dole Food (A) 30,000 1,414
--------
AIR TRANSPORTATION -- 0.7%
FDX * (A) 11,000 668
KLM Royal Dutch Air* 58,844 2,442
--------
3,110
--------
AIRCRAFT -- 1.1%
Allied Signal (A) 46,500 2,023
Textron 40,000 2,955
--------
4,978
--------
APPAREL/TEXTILES -- 0.3%
Donna Karan
International* (A) 105,000 1,437
--------
AUTO RENTAL AND LEASING-- 0.4%
Rollins Truck Leasing 139,200 1,618
--------
AUTOMOTIVE -- 1.2%
Chrysler (A) 63,110 3,735
TRW 31,000 1,680
--------
5,415
--------
BANKS -- 2.8%
Bank of New York 48,000 3,072
Bank United, Cl A* 30,000 1,339
BankBoston 50,000 2,419
Chase Manhattan Bank 8,400 635
First Union 20,000 1,205
J.P. Morgan 14,700 1,852
Norwest 35,600 1,279
Wilmington Trust 14,000 830
--------
12,631
--------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
BEAUTY PRODUCTS -- 0.2%
Avon Products 11,000 $ 952
--------
CHEMICALS -- 3.2%
Agrium 113,000 1,349
Cabot (A) 76,000 2,066
Du Pont (E. I.) de Nemours 38,600 2,393
Engelhard 91,700 1,914
Georgia Gulf 60,600 1,333
Monsanto 61,000 3,454
Morton International 83,800 2,027
--------
14,536
--------
COMMUNICATIONS EQUIPMENT -- 0.6%
Motorola (A) 49,100 2,565
--------
COMPUTERS & SOFTWARE SERVICES -- 2.5%
Compaq Computer 82,500 2,712
Computer Associates
International 44,437 1,475
Hewlett Packard 36,000 1,998
IBM 35,200 4,664
Microsoft* 7,200 792
--------
11,641
--------
CONSTRUCTION MATERIALS -- 0.9%
Armstrong World Industries 28,463 1,754
Lafarge (A) 61,000 2,379
--------
4,133
--------
DIVERSIFIED OPERATIONS -- 1.6%
Corning 41,600 1,277
General Electric 52,600 4,698
Minnesota Mining &
Manufacturing (A) 15,750 1,179
--------
7,154
--------
The accompanying notes are an integral part of the financial statements.
61
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Balanced Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
DRUGS -- 4.2%
American Home Products 60,000 $ 3,090
Amgen* 46,000 3,378
Astra, Cl A, ADR* 34,800 666
Bristol-Myers Squibb 21,400 2,438
Johnson & Johnson 6,400 494
Merck 24,800 3,058
SmithKline Beecham ADR (A) 56,000 3,206
Warner Lambert 42,500 3,211
--------
19,541
--------
ELECTRICAL UTILITIES -- 0.6%
Duke Energy 10,000 571
FirstEnergy* 50,700 1,397
PacifiCorp 43,000 922
--------
2,890
--------
ELECTRONICS -- 0.2%
AMP 29,500 867
--------
ENTERTAINMENT -- 1.6%
Circus Circus Enterprises* (A) 52,200 714
Mirage Resorts* (A) 68,000 1,462
Viacom, Cl B* (A) 32,500 2,226
Walt Disney 90,000 3,099
--------
7,501
--------
FINANCIAL SERVICES -- 2.7%
American Express 30,000 3,311
Fannie Mae 69,700 4,321
Travelers Group (A) 74,197 4,971
--------
12,603
--------
FOOD, BEVERAGE & TOBACCO -- 2.7%
Anheuser Busch 31,200 1,613
Archer-Daniels-Midland 115,692 1,981
Coca-Cola Company 11,400 920
Hershey Foods 10,000 631
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
FOOD, BEVERAGE & TOBACCO (CONTINUED)
PepsiCo 50,700 $ 1,968
Philip Morris Companies 69,900 3,062
Universal Foods 103,400 2,365
--------
12,540
--------
FORESTRY -- 0.2%
Rayonier 25,000 1,055
--------
GAS/NATURAL GAS -- 1.9%
Coastal 70,000 2,293
Eastern Enterprises (A) 35,900 1,434
Sempra Energy* (A) 53,008 1,335
Williams Companies 116,400 3,732
--------
8,794
--------
HOTELS & LODGING -- 0.3%
Hilton Hotels 50,000 1,259
--------
HOUSEHOLD FURNITURE & FIXTURES -- 0.3%
Leggett & Platt 52,400 1,405
--------
INSURANCE -- 3.2%
AFLAC (A) 75,000 2,578
Allstate 56,522 2,399
Equitable Companies 40,000 3,003
Hartford Financial
Services Group 55,200 2,874
HSB Group (A) 49,350 2,563
Jefferson Pilot 11,925 672
Marsh & McLennan 13,350 815
--------
14,904
--------
LEASING & RENTING -- 0.6%
Comdisco 126,750 1,957
Xtra 15,000 928
--------
2,885
--------
LEISURE PRODUCTS -- 0.1%
Mattel 5,600 215
--------
The accompanying notes are an integral part of the financial statements.
62
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Balanced Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
MACHINERY -- 3.3%
Baker Hughes (A) 84,200 $ 2,058
Deere (A) 41,200 1,656
Dresser Industries 71,500 2,525
Global Industries
Technologies* 104,900 1,410
Ingersoll Rand (A) 45,250 1,999
Parker-Hannifin 52,500 1,801
Tenneco 67,600 2,451
Toro 40,000 1,085
--------
14,985
--------
MEASURING DEVICES -- 0.6%
Mallinckrodt 45,000 1,246
Tektronix 57,250 1,567
--------
2,813
--------
MEDICAL PRODUCTS & SERVICES -- 1.0%
Baxter International 46,500 2,778
Tenet Healthcare* 63,000 1,886
--------
4,664
--------
MISCELLANEOUS BUSINESS SERVICES -- 2.0%
Electronic Data Systems 63,100 2,220
Equifax (A) 40,000 1,635
First Data (A) 63,000 1,823
Reuters Group PLC ADR (A) 33,866 1,981
Wallace Computer Services 80,400 1,568
--------
9,227
--------
MISCELLANEOUS TRANSPORTATION -- 0.1%
Fleetwood Enterprises 10,000 357
--------
OFFICE SUPPLIES -- 0.5%
Avery Dennison (A) 40,000 2,303
--------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
PAPER & PAPER PRODUCTS-- 1.1%
Kimberly-Clark 33,800 $ 1,519
Mead (A) 38,000 1,142
Weyerhaeuser 25,600 1,075
Willamette Industries 50,300 1,424
--------
5,160
--------
PETROLEUM & FUEL PRODUCTS -- 1.1%
Occidental Petroleum 81,700 1,818
Phillips Petroleum 31,300 1,383
Union Pacific Resources Group 143,504 2,009
--------
5,210
--------
PETROLEUM REFINING -- 3.3%
Amoco 62,200 2,597
Chevron (A) 35,300 2,917
Mobil 35,200 2,455
Royal Dutch Petroleum 39,200 1,999
Ultramar Diamond Shamrock* 79,200 2,074
Unocal 30,000 983
USX-Marathon Group 62,000 2,116
--------
15,141
--------
PRECIOUS METALS -- 0.4%
Barrick Gold (A) 114,636 1,877
--------
PRINTING & PUBLISHING -- 0.8%
Houghton Mifflin 50,000 1,575
Media General 45,000 2,095
--------
3,670
--------
RAILROADS -- 0.5%
Burlington Northern Santa Fe 23,700 2,440
--------
The accompanying notes are an integral part of the financial statements.
63
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Balanced Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
REAL ESTATE -- 2.0%
BRE Properties, Cl A 53,600 $ 1,353
CBL & Associates Properties 69,100 1,680
First Industrial Realty Trust 80,000 2,210
Kimco Realty Depository Share 11,520 296
Kimco Realty Corp. 32,000 1,184
JP Realty 75,700 1,675
Post Properties 22,200 881
--------
9,279
--------
RETAIL -- 2.9%
American Stores (A) 84,000 1,948
Costco* (A) 45,000 2,554
Federated Department
Stores* (A) 32,000 1,694
J.C. Penney 30,000 1,761
McDonald's 41,500 2,773
Sears Roebuck and Company 48,600 2,466
--------
13,196
--------
RUBBER & PLASTIC -- 0.3%
Mark IV Industries 65,100 1,253
--------
SEMI-CONDUCTORS/INSTRUMENTS -- 1.1%
Applied Materials* (A) 62,000 2,077
Intel 37,500 3,166
--------
5,243
--------
TELEPHONES & TELECOMMUNICATION -- 2.6%
AirTouch Communications* (A) 45,300 2,664
Bell Atlantic 84,800 3,848
Century Telephone Enterprises 30,000 1,493
Frontier 43,400 1,457
SBC Communications 64,000 2,616
--------
12,078
--------
WHOLESALE -- 0.3%
Arrow Electronics* 68,000 1,364
--------
TOTAL COMMON STOCKS
(Cost $171,701) 272,580
--------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
U.S. Treasury Obligations -- 8.9%
================================================================================
U.S. Treasury Notes
7.125%, 02/29/00 $1,500 $ 1,536
6.125%, 09/30/00 1,500 1,518
5.750%, 10/31/00 700 703
5.625%, 02/28/01 3,000 3,008
6.250%, 04/30/01 1,000 1,018
6.500%, 05/31/01 2,000 2,049
6.625%, 06/30/01 1,000 1,028
6.500%, 08/31/01 3,000 3,079
7.500%, 11/15/01 6,000 6,344
5.875%, 11/30/01 2,000 2,019
6.250%, 06/30/02 3,400 3,480
6.250%, 02/15/03 1,000 1,027
5.875%, 02/15/04 500 508
6.500%, 05/15/05 4,500 4,733
6.500%, 08/15/05 4,500 4,741
6.875%, 05/15/06 1,000 1,079
7.000%, 07/15/06 2,500 2,720
6.625%, 05/15/07 400 428
--------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $39,624) 41,018
--------
================================================================================
U.S. Government Agency Mortgage-Backed Bonds -- 11.2%
================================================================================
FHLMC
6.000%, 02/01/28 2,945 2,864
FNMA
7.500%, 08/01/01 1,785 1,817
5.450%, 10/10/03 1,950 1,921
6.850%, 09/12/05 1,400 1,423
6.000%, 05/15/08 2,000 2,017
6.500%, 03/01/24 367 366
8.000%, 08/01/24 596 618
8.000%, 05/01/25 2,652 2,749
7.000%, 09/01/25 1,668 1,692
8.000%, 07/01/26 654 678
The accompanying notes are an integral part of the financial statements.
64
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Balanced Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
U.S. Government Agency Mortgage-Backed Bonds (continued)
================================================================================
FNMA (continued)
7.000%, 09/01/26 $1,246 $ 1,264
7.500%, 09/01/26 1,083 1,113
7.000%, 12/01/26 1,704 1,729
7.500%, 03/01/27 1,303 1,339
6.500%, 10/01/27 1,360 1,354
6.500%, 12/01/27 2,480 2,468
7.000%, 12/01/27 2,616 2,654
6.000%, 03/01/28 3,941 3,829
6.000%, 05/01/28 1,008 979
GNMA
6.500%, 09/15/08 2,826 2,852
6.000%, 11/15/08 1,914 1,900
6.500%, 06/15/23 252 252
6.500%, 02/15/24 84 85
7.500%, 05/15/24 336 346
7.500%, 09/15/25 837 861
7.000%, 02/15/26 880 894
6.500%, 04/15/26 889 887
7.000%, 08/15/26 2,310 2,347
7.500%, 09/15/26 3,023 3,115
7.500%, 01/15/27 2,324 2,392
7.000%, 10/15/27 1,956 1,987
6.500%, 05/15/28 997 995
--------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED BONDS
(Cost $50,657) 51,787
--------
================================================================================
Corporate Obligations -- 16.9%
================================================================================
AirTouch Communications
6.650%, 05/01/08 2,000 2,013
Allied-Signal
6.200%, 02/01/08 4,000 3,975
American General
6.250%, 12/18/02 2,000 2,005
6.750%, 06/15/05 2,000 2,048
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Corporate Obligations (continued)
================================================================================
American Telephone & Telegraph
7.500%, 06/01/06 $2,000 $2,160
Associates of North America
7.875%, 09/30/01 2,000 2,105
Avco Financial Services
7.375%, 08/15/01 2,000 2,078
Bankers Trust NY
7.500%, 11/15/15 2,000 2,133
Bass America
6.750%, 08/01/99 595 599
Bell Atlantic
8.000%, 10/15/29 175 208
Bell Atlantic New York Telephone
6.500%, 04/15/28 3,000 2,966
Caterpillar Tractor
6.000%, 05/01/07 605 591
Chemical Bank
6.700%, 08/15/08 1,500 1,536
Chesapeake & Potomac Telephone
of Maryland
6.000%, 05/01/03 1,500 1,498
Citicorp
6.750%, 08/15/05 450 464
Dow Chemical Non-Redeemable
Prior To Maturity
6.850%, 08/15/13 2,000 2,063
Du Pont (E.I.) de Nemours
6.750%, 09/01/07 3,000 3,116
Fannie Mae Medium Term
Note (Unsecured)
6.375%, 06/29/05 2,000 1,987
First Bank System
6.875%, 09/15/07 500 520
First Chicago NBD
6.125%, 02/15/06 1,000 985
First National Bank of Boston
8.000%, 09/15/04 2,000 2,170
The accompanying notes are an integral part of the financial statements.
65
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Balanced Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Corporate Obligations (continued)
================================================================================
Ford Motor
6.500%, 08/01/18 $2,000 $ 1,973
Ford Motor Credit
6.850%, 08/15/00 250 254
6.500%, 02/28/02 500 507
6.125%, 01/09/06 3,250 3,205
General Motors Acceptance
Step-Up Note
8.000%, 10/01/99 555 568
GMAC
6.125%, 01/22/08 3,000 2,936
Golden West Financial
6.700%, 07/01/02 150 153
GTE
6.840%, 04/15/18 3,000 3,019
Hydro Quebec
8.050%, 07/07/24 150 176
IBM
8.375%, 11/01/19 200 243
JC Penney
6.000%, 05/01/06 100 97
Johnson Controls
6.300%, 02/01/08 2,000 1,990
Joseph E. Seagram & Sons
7.000%, 04/15/08 1,500 1,560
Lehman Brothers Holding
8.500%, 05/01/07 2,000 2,273
Litton Industries Call
@ Make Whole
+18.75. Long 1st Cpn
6.750%, 04/15/18 2,500 2,500
Lockheed Martin
7.700%, 06/15/08 2,000 2,193
New England Telephone & Telegraph
7.875%, 11/15/29 250 295
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Corporate Obligations (continued)
================================================================================
Panhandle Eastern
7.875%, 08/15/04 $1,000 $ 1,080
Phillips Petroleum
6.650%, 07/15/18 1,000 984
Province of British Columbia
7.000%, 01/15/03 1,500 1,556
Ralston Purina
7.750%, 10/01/15 2,000 2,215
Raytheon
6.550%, 03/15/10 2,000 1,998
Royal Bank of Scotland
6.375%, 02/01/11 2,500 2,444
Sears Roebuck Acceptance Medium
Term Note
6.900%, 08/01/03 2,000 2,050
U.S. West Capital Funding
6.375%, 07/15/08 2,000 1,980
Wal-Mart
6.375%, 03/01/03 450 458
5.875%, 10/15/05 2,000 1,985
--------
TOTAL CORPORATE OBLIGATIONS
(Cost $75,752) 77,912
--------
================================================================================
Asset Backed Securities -- 1.1%
================================================================================
American Express Master Trust,
Ser 1994-1, Cl A
7.150%, 08/15/99 1,500 1,502
Citibank Credit Card Master
Trust 1997-3 Cl A
6.839%, 02/10/04 100 102
Contimortgage Home Equity
Loan Trust, Ser 1994-4, Cl A3
8.090%, 09/15/09 300 314
The accompanying notes are an integral part of the financial statements.
66
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Balanced Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Asset Backed Securities (continued)
================================================================================
Contimortgage Home Equity
Loan Trust, Ser 1995-3, Cl A4
7.440%, 09/15/12 $ 200 $ 209
Equity Capital Home Equity Loan
Trust, Ser 1996-3, Cl A6
7.400%, 12/15/19 450 469
Green Tree Financial, Ser 1995-9,
Cl A5
6.800%, 01/15/27 350 361
J.C. Penney Master Credit Card
Trust, Ser C, Cl A
9.625%, 06/15/00 1,000 1,077
Standard Credit Card Master
Trust, Ser 1993-3
5.500%, 02/07/00 650 649
--------
TOTAL ASSET BACKED SECURITIES
(Cost $4,550) 4,683
--------
================================================================================
Commercial Paper -- 2.8%
================================================================================
Orange & Rockland Utility (B)
5.724%, 08/11/98 5,000 4,992
South Western Electric PLC (B)
5.722%, 08/13/98 8,000 7,985
---------
TOTAL COMMERCIAL PAPER
(Cost $12,977) 12,977
--------
================================================================================
Corporate Obligations -- 2.2%
================================================================================
Sigma Finance, Inc. (B)
5.750%, 11/10/98 5,000 5,000
Societe General, NY FYCD (B)
5.760%, 08/25/98 5,000 5,000
---------
TOTAL CORPORATE OBLIGATIONS
(Cost $10,000) 10,000
---------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Repurchase Agreements -- 7.9%
================================================================================
J.P. Morgan Securities, Inc.
5.58%, dated 07/31/98, matures
08/03/98, repurchase price
$8,515,037 (collateralized
by U.S. Treasury Bill,
par value $9,141,000,
0.00%, 07/22/99: market
value $8,681,345) $ 8,511 $ 8,511
Lehman Brothers, Inc. (B)
5.75%, dated 07/31/98, matures
08/03/98, repurchase price
$27,957,998 (collateralized
by various corporate
obligations, 0.00%-5.75%,
08/03/98-11/10/98: total market
value $28,503,501) 27,945 27,945
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $36,456) 36,456
--------
TOTAL INVESTMENTS -- 110.2%
(Cost $401,717) 507,413
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (11.1%) (50,922)
--------
OTHER ASSETS AND LIABILITIES, NET -- 0.9% 3,888
----------
The accompanying notes are an integral part of the financial statements.
67
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Balanced Fund (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Net Assets:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization --
no par value) based on
26,817,522 outstanding shares
of beneficial interest $329,791
Fund Shares of Retail Class A
(unlimited authorization --
no par value) based on
635,462 outstanding shares
of beneficial interest 7,691
Fund Shares of Retail Class B
(unlimited authorization --
no par value) based on
57,833 outstanding shares
of beneficial interest 996
Undistributed net investment income 302
Accumulated net realized gain
on investments 15,903
Net unrealized appreciation
on investments 105,696
--------
TOTAL NET ASSETS -- 100.0% $460,379
========
- --------------------------------------------------------------------------------
DESCRIPTION VALUE
- --------------------------------------------------------------------------------
================================================================================
Net Assets (continued)
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $16.73
========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL CLASS A $16.73
========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($16.73 / 95.5%) $17.52
========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL CLASS B $16.73
========
- --------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITY
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT JULY 31,
1998. (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT JULY 31,
1998 WAS $49,307,453.
(B) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
ADR -- AMERICAN DEPOSITORY RECEIPT
CL -- CLASS
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
SER -- SERIES
The accompanying notes are an integral part of the financial statements.
68
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Growth Fund
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks -- 97.6%
================================================================================
AEROSPACE & DEFENSE -- 0.5%
B.F. Goodrich 63,265 $ 2,566
--------
AIR TRANSPORTATION -- 0.9%
FDX* (A) 30,730 1,865
Southwest Airlines 78,610 2,589
--------
4,454
--------
APPAREL/TEXTILES -- 1.0%
Cintas 102,800 5,224
--------
BANKS -- 4.3%
Banc One (A) 22,102 1,142
BankAmerica 55,510 4,982
Chase Manhattan Bank 7,210 545
Fleet Financial Group 14,880 1,279
Northern Trust Corp. 33,610 2,475
State Street Bank (A) 36,980 2,563
U.S. Bancorp 125,481 5,772
Washington Mutual (A) 74,970 2,994
Wells Fargo 1,385 493
--------
22,245
--------
BEAUTY PRODUCTS -- 2.9%
Avon Products 103,670 8,967
Colgate-Palmolive (A) 57,190 5,287
Proctor & Gamble 8,730 693
--------
14,947
--------
BROADCASTING, NEWSPAPERS & ADVERTISING -- 3.3%
Comcast, Cl A (A) 186,270 8,458
Gannett 72,320 4,624
Interpublic Group (A) 43,840 2,641
Univision Communications* 34,660 1,265
--------
16,988
--------
CHEMICALS -- 0.9%
Du Pont (E. I.) de Nemours 75,740 4,696
--------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
COMMUNICATIONS EQUIPMENT -- 0.7%
Nokia ADR 43,800 $ 3,816
--------
COMPUTERS & SERVICES -- 2.2%
Cisco Systems* 53,157 5,090
Computer Sciences* 39,710 2,541
EMC* 80,240 3,932
--------
11,563
--------
COMPUTERS & SOFTWARE SERVICES -- 5.2%
America Online* (A) 53,670 6,279
Compaq Computer 80,290 2,640
Dell Computer* 5,696 619
Fiserv* (A) 93,712 4,135
Hewlett Packard 15,855 880
Microsoft* 112,660 12,386
Parametric Technology* (A) 18,800 256
--------
27,195
--------
DIVERSIFIED OPERATIONS -- 6.4%
Berkshire Hathaway, Cl B* (A) 8,572 20,076
General Electric 143,950 12,857
--------
32,933
--------
DRUGS -- 11.9%
Abbott Labs 74,524 3,097
Alza* (A) 129,555 5,036
Amgen* 19,246 1,413
Bristol-Myers Squibb 89,900 10,243
Eli Lilly 68,662 4,618
Johnson & Johnson 73,500 5,678
Merck 19,395 2,392
Pfizer 106,700 11,737
Schering Plough 76,210 7,373
Warner Lambert 136,140 10,287
--------
61,874
--------
The accompanying notes are an integral part of the financial statements.
69
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Growth Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
ENTERTAINMENT -- 2.7%
Mirage Resorts* (A) 210,990 $ 4,536
Walt Disney 269,244 9,272
--------
13,808
--------
FINANCIAL SERVICES -- 7.3%
American Express 79,965 8,826
Fannie Mae 161,075 9,987
Franklin Resources (A) 102,460 4,463
MBNA 77,367 2,592
Travelers Group (A) 175,845 11,782
--------
37,650
--------
FOOD, BEVERAGE & TOBACCO -- 5.0%
Coca Cola Company 222,196 17,928
Hershey Foods 68,340 4,314
PepsiCo 32,090 1,245
Wrigley, Wm. Jr. 25,770 2,311
--------
25,798
--------
HOUSEHOLD PRODUCTS -- 2.9%
Gillette 289,594 15,168
--------
INSURANCE -- 4.4%
Allstate 100,886 4,281
American International Group 47,816 7,211
First Health Group 17,380 428
Hartford Financial
Services Group 48,220 2,510
Marsh & McLennan 82,755 5,053
Mutual Risk Management (A) 80,242 3,059
--------
22,542
--------
LEISURE -- 3.4%
Carnival, Cl A 173,150 6,396
Mattel 283,632 10,902
Nike, Cl B 10,952 487
--------
17,785
--------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
MACHINERY -- 3.2%
Danaher 91,780 $ 3,746
Dresser Industries 175,055 6,182
Emerson Electric 7,340 436
Illinois Tool Works (A) 77,400 4,339
Ingersoll Rand (A) 46,957 2,075
--------
16,778
--------
MEDICAL PRODUCTS & SERVICES -- 8.1%
Covance* 24,380 584
IMS HEALTH Inc. 364,360 22,886
Medtronic 91,150 5,646
Safeskin* 280,640 10,542
Stryker (A) 53,900 2,341
--------
41,999
--------
MISCELLANEOUS BUSINESS SERVICES -- 1.7%
Automatic Data Processing 34,315 2,323
Electronic Data Systems 10,965 386
First Data (A) 15,801 457
Robert Half International* 107,844 5,743
--------
8,909
--------
MISCELLANEOUS CONSUMER SERVICES -- 0.4%
Service International 51,305 1,943
--------
PETROLEUM SERVICES -- 1.3%
Schlumberger (A) 111,440 6,749
--------
PRINTING & PUBLISHING -- 1.9%
McGraw-Hill 30,450 2,495
R.R. Donnelley & Sons 55,380 2,354
Washington Post, Cl B 8,987 4,893
--------
9,742
--------
PROFESSIONAL SERVICES -- 1.3%
Devry* 333,500 6,795
--------
The accompanying notes are an integral part of the financial statements.
70
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Growth Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
RETAIL -- 8.5%
Costco* (A) 176,125 $ 9,995
Harley-Davidson (A) 83,700 3,317
Home Depot 218,304 9,141
Kohls* 187,090 9,167
McDonald's 98,428 6,576
Safeway* (A) 137,180 6,079
--------
44,275
--------
SEMI-CONDUCTORS/INSTRUMENTS -- 2.8%
Applied Materials* (A) 64,740 2,169
Intel 100,538 8,489
Texas Instruments 44,790 2,657
Xilinx* (A) 32,630 1,224
--------
14,539
--------
SPECIALTY MACHINERY -- 0.5%
Solectron* 55,850 2,681
--------
TELEPHONES & TELECOMMUNICATION -- 2.0%
AirTouch Communications* 110,550 6,502
Lucent Technologies 38,866 3,593
--------
10,095
--------
TOTAL COMMON STOCKS
(Cost $358,219) 505,757
--------
================================================================================
Commercial Paper -- 6.8%
================================================================================
Bridgestone/Firestone (B) (C)
5.760%, 08/10/98 $10,500 10,485
Mitsubishi Motors Credit (B)
5.697%, 08/05/98 10,000 9,994
5.715%, 08/20/98 7,000 6,979
South Western Electric PLC
(B) (C)
5.722%, 08/13/98 8,032 8,017
--------
TOTAL COMMERICIAL PAPER
(Cost $35,475) 35,475
--------
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Corporate Bonds -- 4.8%
================================================================================
Bankers Trust (B) (C)
5.702%, 09/11/98 $ 5,000 $ 5,000
Household CCMT ABT 96 Series
(B) (C)
5.656%, 01/15/99 10,000 10,000
Sigma Finance (B) (C)
5.750%, 11/10/98 5,000 5,000
Societe General, NY FYCD
(B) (C)
5.760%, 08/25/98 5,000 5,000
--------
TOTAL CORPORATE BONDS
(Cost $24,995) 25,000
--------
================================================================================
Repurchase Agreements -- 9.9%
================================================================================
J.P. Morgan Securities, Inc.
5.58%, dated 07/31/98, matures
08/03/98, repurchase price
$21,774,425 (collateralized by
various U.S. Treasury Bills, par
value $23,190,000, 0.00%,
02/04/99-06/24/99: market
value $22,199,992) 21,764 21,764
Lehman Brothers, Inc. (B) (C)
5.75%, dated 07/31/98,
matures 08/03/98, repurchase
price $29,494,190
(collateralized by various
corporate obligations,
0.00%-5.75%, : total market
value $30,069,665) 29,480 29,480
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $51,244) 51,244
--------
TOTAL INVESTMENTS -- 119.1%
(Cost $469,933) 617,476
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (17.3%) (89,955)
--------
OTHER ASSETS AND LIABILITIES, NET -- (1.8%) (9,340)
--------
The accompanying notes are an integral part of the financial statements.
71
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Growth Fund (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Net Assets:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization --
no par value) based on
29,492,647 outstanding shares
of beneficial interest $321,467
Fund Shares of Retail Class A
(unlimited authorization --
no par value) based on 1,014,423
outstanding shares of
beneficial interest 14,852
Fund Shares of Retail Class B
(unlimited authorization --
no par value) based on 115,600
outstanding shares of beneficial
interest 1,916
Accumulated net realized gain
on investments 32,403
Net unrealized appreciation
on investments 147,543
--------
TOTAL NET ASSETS -- 100.0% $518,181
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $16.92
========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL CLASS A $16.93
========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($16.93 / 95.5%) $17.73
========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL CLASS B $16.85
========
- --------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITY
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT JULY 31,
1998. (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT JULY 31,
1998 WAS $87,400,990.
(B) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
(C) FLOATING RATE SECURITIES
ADR -- AMERICAN DEPOSITORY RECEIPT
CL -- CLASS
The accompanying notes are an integral part of the financial statements.
72
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Value Momentum Fund
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks -- 95.4%
================================================================================
AEROSPACE & DEFENSE -- 0.2%
Raytheon Company, Cl B 31,800 $ 1,759
--------
AIR TRANSPORTATION -- 0.1%
Southwest Airlines (A) 19,500 642
--------
APPAREL/TEXTILES -- 0.1%
V.F. Corporation 20,000 941
--------
AUTOMOTIVE -- 2.0%
Arvin Industries 150,000 5,831
Ford Motor 101,000 5,751
TRW (A) 115,300 6,248
--------
17,830
--------
BANKS -- 6.0%
Banc One (A) 91,447 4,727
Bank United, Cl A* 140,000 6,247
BankAmerica 122,700 11,012
Bankers Trust 55,000 6,163
Chase Manhattan Bank 48,800 3,690
First Union 110,000 6,627
Fleet Financial Group 25,100 2,157
J.P. Morgan 35,400 4,460
Providian Financial 85,000 6,678
Wilmington Trust 50,000 2,966
--------
54,727
--------
BUILDING -- 1.8%
Fleetwood Enterprises (A) 147,800 5,275
Lafarge (A) 175,000 6,825
Masco 52,000 1,485
Southdown 37,775 2,363
--------
15,948
--------
CHEMICALS -- 3.7%
Avery Dennison (A) 189,000 10,879
Cabot (A) 146,000 3,969
Dow Chemical (A) 20,350 1,847
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
CHEMICALS (CONTINUED)
Du Pont (E.I.) de Nemours 114,600 $ 7,105
Engelhard 226,000 4,718
Wellman (A) 160,000 3,170
W.R. Grace & Co.* 104,000 1,736
--------
33,424
--------
COMMUNICATIONS EQUIPMENT -- 1.2%
CTS 225,000 6,595
Harris (Del) 120,000 4,755
--------
11,350
--------
COMPUTERS & SERVICES -- 4.1%
Cisco Systems* 90,000 8,617
Electronic Data Systems 48,200 1,696
Equifax (A) 165,000 6,744
Hewlett Packard 154,000 8,547
IBM 85,000 11,262
--------
36,866
--------
DIVERSIFIED OPERATIONS -- 2.3%
General Electric 182,800 16,326
Textron (A) 60,000 4,433
--------
20,759
--------
DRUGS -- 6.8%
American Home Products 167,000 8,600
Amgen* 107,700 7,909
Bristol Myers Squibb 64,000 7,292
Merck 95,000 11,715
Monsanto 118,000 6,682
Novo-Nordisk ADR 25,000 1,650
SmithKline Beecham, ADR (A) 174,000 9,961
Watson Pharmaceuticals* (A) 171,500 7,739
--------
61,548
--------
The accompanying notes are an integral part of the financial statements.
73
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Value Momentum Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
ELECTRICAL UTILITIES -- 0.1%
General Public Utilities 36,000 $ 1,287
--------
FINANCIAL SERVICES -- 5.4%
Aames Financial (A) 300,000 3,375
Associates First Capital 26,470 2,056
Bear Stearns (A) 116,504 6,553
Fannie Mae 200,300 12,419
Morgan Stanley, Dean Witter,
Discover (A) 140,000 12,189
Travelers Group (A) 179,501 12,027
--------
48,619
--------
FOOD, BEVERAGE & TOBACCO -- 4.5%
Dole Food (A) 145,000 6,833
IBP (A) 130,000 2,559
PepsiCo 28,400 1,102
Philip Morris Companies 225,000 9,858
Ralston-Ralston Purina Group 110,700 3,563
Sara Lee 121,000 6,065
Universal 155,000 5,396
Universal Foods 255,000 5,833
--------
41,209
--------
GAS/NATURAL GAS -- 4.5%
Coastal 280,000 9,170
Eastern Enterprises 168,100 6,713
MCN (A) 150,000 3,722
Oneok* (A) 150,000 5,119
Questar (A) 473,000 8,810
Sonat 50,000 1,462
Williams Companies 180,000 5,771
--------
40,767
--------
GLASS PRODUCTS -- 0.6%
Corning 34,000 1,043
PPG Industries (A) 63,500 4,024
--------
5,067
--------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
HOTELS & LODGING -- 0.3%
Hilton Hotels 95,000 $ 2,393
--------
HOUSEHOLD FURNITURE & FIXTURES -- 1.1%
Leggett & Platt (A) 376,000 10,081
--------
INSURANCE -- 4.2%
Aegon N.V., ADR* 73,848 6,776
Allstate 146,952 6,236
Chubb 68,000 4,990
Lincoln National 20,000 1,915
Marsh & McLennan 144,750 8,839
Mutual Risk Management (A) 28,000 1,067
Torchmark (A) 183,000 8,018
--------
37,841
--------
LEASING & RENTING -- 3.3%
Comdisco 574,503 8,869
GATX 176,000 6,754
Rollins Truck Leasing 802,500 9,329
Ryder System 14,900 432
Xtra 70,000 4,331
--------
29,715
--------
LEISURE PRODUCTS -- 1.6%
Hasbro 245,000 8,866
Mattel 138,350 5,318
--------
14,184
--------
MACHINERY -- 3.8%
Caterpillar 116,000 5,626
Deere (A) 91,000 3,657
Dresser Industries 215,700 7,617
Emerson Electric 21,600 1,284
Kennametal 181,500 5,865
Parker-Hannifin (A) 178,000 6,108
Rockwell International* 45,000 1,831
Toro 92,500 2,509
--------
34,497
--------
The accompanying notes are an integral part of the financial statements.
74
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Value Momentum Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
MEASURING DEVICES -- 1.0%
Perkin Elmer 43,000 $ 2,521
Tektronix (A) 232,500 6,365
--------
8,886
--------
MEDICAL PRODUCTS & SERVICES -- 4.2%
Baxter International (A) 156,000 9,321
Becton, Dickinson (A) 100,000 8,263
Fresenius National Medical
Care, ADR* 98,613 2,028
Mallinckrodt 110,000 3,046
Manor Care (A) 135,000 5,037
Novacare* 400,000 4,000
Tenet Healthcare* 210,000 6,287
--------
37,982
--------
MISCELLANEOUS BUSINESS SERVICES -- 1.6%
Cendant* 372,479 6,449
First Data (A) 15,000 434
Manpower 128,100 3,443
Wallace Computer Services (A) 240,000 4,680
--------
15,006
--------
OFFICE FURNITURE & FIXTURES -- 0.6%
Hon Industries (A) 200,000 5,738
--------
PAPER & PAPER PRODUCTS -- 2.0%
Kimberly-Clark 199,920 8,984
Weyerhaeuser (A) 106,800 4,486
Willamette Industries 152,500 4,318
--------
17,788
--------
PETROLEUM & FUEL PRODUCTS -- 4.0%
Amoco 37,000 1,545
British Petroleum PLC, ADR (A) 16,142 1,295
Chevron (A) 78,500 6,486
Exxon 19,000 1,332
Halliburton (A) 31,000 1,126
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
PETROLEUM & FUEL PRODUCTS (CONTINUED)
Mobil 142,000 $ 9,905
Occidental Petroleum 246,700 5,489
Phillips Petroleum 22,000 972
Royal Dutch Petroleum 106,000 5,406
Union Pacific Resources (A) 165,408 2,316
--------
35,872
--------
PETROLEUM REFINING -- 1.2%
Ashland 30,000 1,556
Sempra Energy* (A) 312,544 7,872
Valero Energy 50,000 1,197
--------
10,625
--------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 1.4%
Xerox 118,700 12,530
--------
PRINTING & PUBLISHING -- 2.1%
Banta 250,000 7,594
Houghton Mifflin (A) 150,000 4,725
McGraw-Hill 85,000 6,965
--------
19,284
--------
PROFESSIONAL SERVICES -- 0.5%
ServiceMaster 140,000 4,760
--------
RAILROADS -- 1.3%
Burlington Northern Santa Fe 71,100 7,319
Florida East Coast
Railway (A) 160,000 4,320
--------
11,639
--------
REAL ESTATE -- 4.0%
BRE Properties, Cl A 248,262 6,269
CBL Associates Properties 260,000 6,321
First Industrial Realty Trust 200,000 5,525
Kimco Realty Depository Share* 32,400 832
Kimco Realty 90,000 3,330
JP Realty 208,000 4,602
The accompanying notes are an integral part of the financial statements.
75
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Value Momentum Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
REAL ESTATE (CONTINUED)
Meditrust 30,700 $ 691
Post Properties 185,000 7,342
Reckson Associates 60,000 1,361
Reckson Service Industries* 24,000 51
--------
36,324
--------
RETAIL -- 3.9%
Dayton-Hudson (A) 258,000 12,336
Federated Department
Stores* (A) 216,700 11,472
J.C. Penney 18,200 1,068
Kroger* 60,000 2,839
Sears Roebuck 153,700 7,800
--------
35,515
--------
RUBBER & PLASTIC -- 1.5%
Hanna 180,000 2,666
Sealed Air Corp.* (A) 55,744 2,230
Sealed Air Convertible, Ser A 49,400 2,204
Sonoco Products 220,000 6,435
--------
13,535
--------
SEMI-CONDUCTORS/INSTRUMENTS -- 2.1%
Applied Materials* (A) 125,000 4,188
Avnet (A) 60,000 3,293
Intel 139,000 11,737
--------
19,218
--------
STEEL & STEEL WORKS -- 0.8%
Aluminum Company of
America (A) 39,000 2,703
Harsco (A) 96,000 4,146
--------
6,849
--------
TELEPHONES & TELECOMMUNICATIONS -- 5.5%
AT&T 102,000 6,184
Bell Atlantic 173,000 7,850
Century Telephone Enterprises 202,500 10,074
Frontier 130,000 4,363
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
TELEPHONES & TELECOMMUNICATIONS (CONTINUED)
GTE 118,000 $ 6,416
Lucent Technologies 59,058 5,459
SBC Communications (A) 228,034 9,321
--------
49,667
--------
TOTAL COMMON STOCKS
(Cost $523,288) 862,672
--------
================================================================================
Commercial Paper -- 8.9%
================================================================================
Bridgestone/Firestone (B)
5.661%, 08/05/98 $ 9,000 8,994
5.760%, 08/10/98 10,500 10,485
Boston Gas Company (B)
5.642%, 09/10/98 11,745 11,672
McKesson Corporation (B)
5.746%, 08/03/98 12,500 12,496
Mitsubishi Motors Credit (B)
5.697%, 08/05/98 10,000 9,994
5.715%, 08/20/98 10,000 9,970
National Power PLC (B)
5.657%, 08/20/98 8,637 8,611
South Western Electric PLC (B)
5.705%, 08/06/98 8,414 8,407
--------
TOTAL COMMERCIAL PAPER
(Cost $80,629) 80,629
--------
================================================================================
Corporate Bonds -- 3.9%
================================================================================
Bankers Trust, NY (B) (C)
5.702%, 09/11/98 5,000 5,000
Household CCMT ABT 96 (B) (C)
5.656%, 01/15/99 20,000 20,000
Sigma Finance (B) (C)
5.750%, 11/10/98 5,000 5,000
Societe General, NY FYCD (B) (C)
5.760%, 08/25/98 5,000 5,000
--------
TOTAL CORPORATE BONDS
(Cost $35,000) 35,000
--------
The accompanying notes are an integral part of the financial statements.
76
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Value Momentum Fund (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Repurchase Agreements -- 9.9%
================================================================================
J.P. Morgan Securities, Inc.
5.58%, dated 07/31/98, matures
08/03/98, repurchase price $44,458,296
(collateralized by various U.S.
Government Obligations, total par
value $27,873,000, 13.25%, 05/15/14:
total market value $45,327,105) $44,437 $ 44,438
HSBC Securities, Inc. (B) ----------
5.83%, dated 07/31/98, matures
08/03/98, repurchase price $25,012,145
(collateralized by various corporate
obligations, 0.00%-5.830%, 08/03/98-
11/10/98: total market value
$25,500,000) 25,000 25,000
Lehman Brothers, Inc. (B) ----------
5.750%, dated 07/31/98, matures
08/03/98, repurchase price $20,367,754
(collateralized by various corporate
obligations, 0.00%-5.83%, 08/03/98-
11/10/98: total market value
$20,765,160) 20,358 20,358
----------
TOTAL REPURCHASE AGREEMENTS
(Cost $89,796) 89,796
----------
TOTAL INVESTMENTS -- 118.1%
(Cost $728,713) 1,068,097
----------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (17.8%) (160,987)
----------
OTHER ASSETS AND LIABILITIES,
NET -- (0.3%) (2,956)
----------
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Net Assets:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization -- no par
value) based on 31,620,042
outstanding shares of beneficial interest $ 517,893
Fund Shares of Retail Class A
(unlimited authorization -- no par
value) based on 1,294,257 outstanding
shares of beneficial interest 24,766
Fund Shares of Retail Class B
(unlimited authorization -- no par value)
based on 189,975 outstanding shares
of beneficial interest 5,439
Undistributed net investment income 433
Accumulated net realized gain on investments 16,239
Net unrealized appreciation on investments 339,384
----------
TOTAL NET ASSETS -- 100.0% $ 904,154
==========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $27.31
==========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL CLASS A $27.31
==========
MAXIMUM OFFERING PRICE PER SHARE -
RETAIL CLASS A ($27.31 / 95.5%) $28.60
==========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL CLASS B $27.28
==========
- --------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITY.
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT
JULY 31, 1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN AT
JULY 31, 1998 WAS $155,747,978.
(B) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
(C) FLOATING RATE SECURITY--THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JULY 31, 1998.
ADR -- AMERICAN DEPOSITORY RECEIPT
CL -- CLASS
The accompanying notes are an integral part of the financial statements.
77
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Income Equity Fund
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks -- 98.0%
================================================================================
AEROSPACE & DEFENSE -- 0.9%
B.F. Goodrich 157,710 $ 6,397
--------
AUTOMOTIVE -- 3.0%
Ford Motor 363,100 20,674
--------
BANKS -- 17.4%
Banc One (A) 186,773 9,654
Chase Manhattan Bank 223,225 16,881
First Union (A) 484,875 29,214
Fleet Financial Group 252,700 21,716
National City 215,175 14,390
NationsBank (A) 363,425 28,983
--------
120,838
--------
BEAUTY PRODUCTS -- 2.8%
Avon Products 187,000 16,175
International Flavors &
Fragrances (A) 83,040 3,488
--------
19,663
--------
BUSINESS SERVICES -- 1.0%
Pitney Bowes 134,750 6,805
--------
CHEMICALS -- 1.3%
Du Pont (E. I.) de Nemours 151,675 9,404
--------
COMPUTERS & SERVICES -- 5.1%
Hewlett Packard 233,050 12,934
IBM 170,350 22,571
--------
35,505
--------
DIVERSIFIED OPERATIONS -- 3.3%
General Electric 211,775 18,914
Thomas & Betts (A) 99,525 4,080
--------
22,994
--------
DRUGS -- 8.6%
Abbott Labs 202,900 8,433
Bristol-Myers Squibb 238,875 27,217
Merck (A) 85,325 10,522
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
DRUGS (CONTINUED)
Pharmacia & Upjohn 152,375 $ 7,219
SmithKline Beecham, ADR 113,150 6,478
--------
59,869
--------
ELECTRICAL UTILITIES -- 1.0%
Duke Energy 62,650 3,579
FPL Group 57,950 3,524
--------
7,103
--------
ENVIRONMENTAL SERVICES -- 0.8%
Browning-Ferris
Industries (A) 155,800 5,482
--------
FINANCIAL SERVICES -- 2.9%
Associates First Capital 80,368 6,244
Fannie Mae 224,225 13,902
--------
20,146
--------
FOOD, BEVERAGE & TOBACCO -- 1.0%
General Mills 31,800 1,970
H.J. Heinz 57,475 3,168
Philip Morris 37,975 1,664
--------
6,802
--------
GAS/NATURAL GAS -- 3.0%
Enron Corporation 134,850 7,139
Williams Companies 430,050 13,788
--------
20,927
--------
GLASS PRODUCTS -- 0.4%
PPG Industries 47,950 3,039
--------
INSURANCE -- 9.2%
American General 193,050 13,188
Jefferson Pilot (A) 157,262 8,866
Lincoln National (A) 61,350 5,874
Marsh & McLennan 436,537 26,656
St. Paul Companies 260,750 9,436
--------
64,020
--------
The accompanying notes are an integral part of the financial statements.
78
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Income Equity Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
MACHINERY -- 3.1%
Dresser Industries 178,290 $ 6,296
Emerson Electric 115,700 6,877
National Service
Industries (A) 159,875 8,303
--------
21,476
--------
MEDICAL PRODUCTS & SERVICES -- 3.7%
Baxter International (A) 429,200 25,645
--------
PAPER & PAPER PRODUCTS -- 0.6%
Kimberly-Clark 91,850 4,127
--------
PETROLEUM & FUEL PRODUCTS -- 11.7%
Amoco 160,850 6,715
Atlantic Richfield 118,325 8,017
Chevron (A) 98,475 8,136
Exxon 417,100 29,249
Mobil 148,375 10,349
Phillips Petroleum 177,900 7,861
Texaco 183,525 11,161
--------
81,488
--------
PRINTING & PUBLISHING -- 6.3%
McGraw-Hill 292,775 23,989
R.R. Donnelley & Sons (A) 467,100 19,852
--------
43,841
--------
RETAIL -- 3.6%
J.C. Penney 137,473 8,068
May Department Stores 121,300 7,786
Sears Roebuck & Company 178,450 9,056
--------
24,910
--------
SPECIALTY MACHINERY -- 1.2%
Cooper Industries 156,700 8,217
--------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
TELEPHONES & TELECOMMUNICATION -- 6.1%
Ameritech 156,225 $ 7,684
AT&T 108,250 6,563
Bell Atlantic 139,040 6,309
GTE 129,775 7,057
SBC Communications (A) 172,200 7,039
U.S. West (A) 140,929 7,522
--------
42,174
--------
TOTAL COMMON STOCKS
(Cost $544,094) 681,546
--------
================================================================================
Commercial Paper -- 7.0%
================================================================================
McKesson Corporation (B) (C)
5.746%, 08/03/98 $12,500 12,486
Mitsubishi Motors Credit
Corporation (B) (C)
5.697%, 08/05/98 5,000 4,997
5.715%, 08/20/98 10,000 9,970
National Power PLC (B) (C)
5.657%, 08/20/98 8,000 7,976
South Western Electric PLC (B) (C)
5.705%, 08/06/98 8,000 7,992
5.725%, 08/20/98 5,000 4,985
--------
TOTAL COMMERCIAL PAPER
(Cost $48,406) 48,406
--------
================================================================================
Corporate Bonds -- 2.9%
================================================================================
Household CCMT ABT 96 Ser A-4 (B) (C)
5.656%, 01/15/99 5,000 5,000
Sigma Finance (B) (C)
5.750%, 11/10/98 5,000 5,000
Societe General, NY FYCD (B) (C)
5.760%, 08/25/98 10,000 10,000
--------
TOTAL CORPORATE BONDS
(Cost $20,000) 20,000
--------
The accompanying notes are an integral part of the financial statements.
79
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Income Equity Fund (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000)VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Repurchase Agreements -- 5.4%
================================================================================
J.P. Morgan Securities, Inc.
5.58%, dated 07/31/98,
matures 08/03/98, repurchase
price $12,805,269 (collateralized
by U.S. Government obligations,
par value $13,747,000, 0.00%,
07/22/99: market value
$13,055,732) $12,799 $ 12,799
Lehman Brothers, Inc. (B)
5.75%, dated 07/31/98,
matures 08/03/98, repurchase
price $24,491,057 (collateralized
by various corporate obligations,
0.00%-5.75%, 08/03/98-
01/15/99: total market
value $24,968,914) 24,479 24,479
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $37,278) 37,278
--------
TOTAL INVESTMENTS -- 113.3%
(Cost $649,778) 787,230
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (13.4%) (92,885)
--------
OTHER ASSETS AND LIABILITIES,
NET -- 0.1% 793
--------
================================================================================
Net Assets:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization -- no par
value) based on 37,405,501
outstanding shares of beneficial
interest 468,286
Fund Shares of Retail Class A
(unlimited authorization -- no par
value) based on 1,282,736
outstanding shares of beneficial
interest 19,677
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Net Assets (continued)
================================================================================
Fund Shares of Retail Class B
(unlimited authorization -- no
par value) based on 101,381
outstanding shares of beneficial
interest $ 1,849
Undistributed net investment income 168
Accumulated net realized gain
on investments 67,706
Net unrealized appreciation
on investments 137,452
--------
TOTAL NET ASSETS -- 100.0% $695,138
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $17.92
========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL CLASS A $17.95
========
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($17.95 / 95.5%) $18.80
========
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE -- RETAIL CLASS B $17.90
========
- --------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITY
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT
JULY 31, 1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN
AT JULY 31, 1998 WAS $90,537,177.
(B) THIS SECURITY WAS PURCHASED WITH CASH COLLATERAL HELD FROM
SECURITIES LENDING.
(C) FLOATING RATE SECURITY--THE RATE REFLECTED ON THE STATEMENT ON
NET ASSETS IS THE RATE IN EFFECT ON JULY 31, 1998.
ADR -- AMERICAN DEPOSITORY RECEIPT
SER -- SERIES
The accompanying notes are an integral part of the financial statements.
80
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Blue Chip Growth Fund
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks -- 98.3%
================================================================================
AIR TRANSPORTATION -- 1.2%
AMR*(A) 22,000 $ 1,572
--------
AIRCRAFT -- 1.1%
Allied Signal 33,200 1,444
--------
APPAREL/TEXTILES -- 0.8%
Cintas 20,000 1,016
--------
BANKS -- 12.0%
Bank of Boston 28,800 1,393
Chase Manhattan Bank 27,000 2,042
Citicorp 13,500 2,295
Comerica 30,000 2,021
First Union 29,322 1,767
NationsBank (A) 26,524 2,115
STAR BANC (A) 29,500 2,076
U.S. Bancorp 33,000 1,518
--------
15,227
--------
BEAUTY PRODUCTS -- 2.0%
Avon Products 15,000 1,297
Colgate-Palmolive 13,200 1,220
--------
2,517
--------
BROADCASTING, NEWSPAPERS &
ADVERTISING -- 1.0%
Comcast, Cl A 27,600 1,253
--------
COMPUTERS & SERVICES -- 1.8%
Dell Computer* 21,000 2,280
--------
COMPUTERS & SOFTWARE SERVICES -- 7.4%
America Online* (A) 16,000 1,872
Cisco Systems* 25,000 2,394
EMC*(A) 45,000 2,205
HBO 10,600 312
Microsoft* 21,000 2,309
Peoplesoft* (A) 8,300 313
--------
9,405
--------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
DIVERSIFIED OPERATIONS -- 6.1%
Berkshire Hathaway* 1,680 $ 3,935
General Electric 43,600 3,894
--------
7,829
--------
DRUGS -- 9.8%
Eli Lilly 29,852 2,008
Forest Laboratories* 58,400 2,190
Johnson & Johnson 16,200 1,251
Pfizer 23,000 2,530
Schering Plough 16,000 1,548
Warner Lambert 38,700 2,924
--------
12,451
--------
ENTERTAINMENT -- 2.0%
Walt Disney 72,800 2,507
--------
ENVIRONMENTAL SERVICES -- 1.0%
U.S. Filter* (A) 46,000 1,242
--------
FINANCIAL SERVICES -- 5.7%
American Express 17,000 1,876
Fannie Mae 40,700 2,523
Franklin Resources 30,000 1,307
Merrill Lynch (A) 15,400 1,501
--------
7,207
--------
FOOD, BEVERAGE & TOBACCO -- 7.2%
Coca Cola Company 56,000 4,519
Hershey Foods 1,500 95
PepsiCo 41,600 1,615
Philip Morris Companies 35,000 1,533
Sara Lee 27,600 1,383
--------
9,145
--------
HOUSEHOLD PRODUCTS -- 3.5%
Clorox 7,500 769
Gillette 71,000 3,719
--------
4,488
--------
The accompanying notes are an integral part of the financial statements.
81
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Blue Chip Growth Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
INSURANCE -- 1.5%
American International Group 12,900 $ 1,945
--------
LEISURE -- 2.4%
Carnival, Cl A 34,200 1,263
Mattel 48,400 1,860
--------
3,123
--------
MACHINERY -- 1.0%
Dresser Industries 36,200 1,278
--------
MEDICAL PRODUCTS & SERVICES -- 7.9%
Boston Scientific* (A) 35,300 2,705
Healthsouth* (A) 75,500 1,897
Ims Health Inc* 42,500 2,670
Medtronic 25,700 1,592
Safeskin* 32,700 1,228
--------
10,092
--------
MISCELLANEOUS BUSINESS SERVICES -- 1.7%
Cendant* 51,000 883
Robert Half International* 23,400 1,246
--------
2,129
--------
PETROLEUM REFINING -- 2.8%
Exxon 30,000 2,104
Mobil 15,800 1,102
Royal Dutch Petroleum 8,000 408
--------
3,614
--------
PRINTING & PUBLISHING -- 1.2%
Tribune 22,000 1,480
--------
PROFESSIONAL SERVICES -- 0.5%
Devry* 30,100 613
--------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
RETAIL -- 11.5%
Bed Bath & Beyond* 28,000 $ 1,208
Costco* (A) 14,500 823
CVS Corp. 40,000 1,640
General Nutrition* 30,500 873
Harley-Davidson 32,700 1,296
Home Depot 40,000 1,675
Kohls* 25,400 1,245
Lowe's 40,000 1,540
McDonald's 19,200 1,283
Safeway* (A) 48,000 2,127
Staples* 30,000 986
--------
14,696
--------
SEMI-CONDUCTORS/INSTRUMENTS -- 1.6%
Adaptec* 5,000 58
Intel 22,700 1,917
--------
1,975
--------
SPECIALTY MACHINERY -- 0.5%
Solectron* 12,500 600
--------
TELEPHONES & TELECOMMUNICATION -- 3.1%
AirTouch Communications* 22,500 1,323
WorldCom*(A) 50,000 2,644
--------
3,967
--------
TOTAL COMMON STOCKS
(Cost $105,019) 125,095
--------
================================================================================
Corporate Bonds -- 5.9%
================================================================================
Household CCMT ABT 96 Ser A4 (B) (C)
5.656%, 01/15/99 $5,000 5,000
Sigma Finance Inc. (B) (C)
5.750%, 11/10/98 2,500 2,500
--------
TOTAL CORPORATE BONDS
(Cost $7,500) 7,500
--------
The accompanying notes are an integral part of the financial statements.
82
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Blue Chip Growth Fund (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Commercial Paper -- 11.8%
================================================================================
Mitsubishi Motors Credit (B) (C)
5.697%, 08/05/98 $ 5,000 $ 4,997
Orange & Rockland Utility (B) (C)
5.724%, 08/11/98 5,000 4,992
South Western Electric PLC (B) (C)
5.766%, 08/27/98 5,000 4,982
--------
TOTAL COMMERCIAL PAPER
(Cost $14,971) 14,971
--------
================================================================================
Repurchase Agreements -- 14.2%
================================================================================
BZW Securities, Inc.
5.59%, dated 07/31/98,
matures 08/03/98, repurchase
price $1,962,513 (collateralized
by U.S. Treasury Note, par
value $1,978,000, 5.50%,
11/15/98: market value
$2,001,376) 1,962 1,962
Lehman Brothers, Inc. (B)
5.75%, dated 07/31/98, matures
08/03/98, repurchase price
$16,183,393 (collateralized
by various corporate
obligations, 0.00%-5.75%,
08/03/98- 11/10/98: total
market value $16,499,155) 16,176 16,176
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $18,138) 18,138
--------
TOTAL INVESTMENTS -- 130.2%
(Cost $145,628) 165,704
--------
RECEIVABLE FOR SECURITIES SOLD -- 35.8% 45,597
--------
PAYABLE FOR SECURITIES
PURCHASED -- (35.5%) (45,207)
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (30.4%) (38,647)
--------
OTHER ASSETS AND LIABILITIES,
NET -- (0.1% ) (152)
--------
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Net Assets
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization -- no
par value) based on 7,936,141
outstanding shares of beneficial
interest $ 93,722
Undistributed net investment income 11
Accumulated net realized gain
on investments 13,486
Net unrealized appreciation
on investments 20,076
--------
TOTAL NET ASSETS -- 100.0% $127,295
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $16.04
========
- --------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITY
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT
JULY 31, 1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN
AT JULY 31, 1998 WAS $21,817,470.
(B) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
(C) FLOATING RATE SECURITY--THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JULY 31, 1998.
ADR -- AMERICAN DEPOSITORY RECIEPT
CL -- CLASS
SER -- SERIES
The accompanying notes are an integral part of the financial statements.
83
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Emerging Growth Fund
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks --92.5%
================================================================================
AEROSPACE & DEFENSE -- 0.7%
Simula* (A) 30,000 $ 487
--------
AIR TRANSPORTATION -- 1.1%
Atlantic Coast Air* 20,000 527
Mesaba Holdings* 10,000 235
--------
762
--------
APPAREL/TEXTILES -- 0.9%
Interface 37,000 606
--------
AUTOMOTIVE -- 0.8%
Strattec Strategy 20,000 560
--------
BANKS -- 15.5%
Bay View Capital 25,000 692
Commercial Federal 42,000 1,181
Cullen/Frost Bankers 17,400 924
Downey Financial 31,500 1,024
FirstFed Financial* 60,000 1,305
Hibernia, Cl A 25,000 472
Long Island Bancorp 15,000 860
Mellon Bank 2,500 168
Peoples Heritage
Financial Group 20,000 453
Provident Bankshares (A) 45,000 1,204
Reliance Bancorp 20,000 675
Resource Bancshares
Mortgage Group 20,000 389
TR Financial 35,000 1,321
--------
10,668
--------
BEAUTY PRODUCTS -- 1.1%
Natures Sunshine Products 20,000 415
Pure World* 25,000 341
--------
756
--------
BROADCASTING, NEWSPAPERS &
ADVERTISING -- 3.7%
Capstar Broadcasting, Cl A* 37,000 911
Getty Images Inc.* (A) 25,000 491
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
BROADCASTING, NEWSPAPERS & ADVERTISING (CONTINUED)
Snyder Communications* (A) 25,000 $ 1,123
--------
2,525
--------
BUILDING & CONSTRUCTION -- 1.2%
Morrison Knudsen 30,000 401
Toll Brothers* 15,000 393
--------
794
--------
COMMUNICATIONS EQUIPMENT -- 3.7%
Broadcom Corporation,
Cl A* (A) 25,000 1,569
Intervoice* 25,000 464
Polycom* 20,000 332
Powerwave Technologies* (A) 15,000 197
--------
2,562
--------
COMPUTERS & SERVICES -- 2.6%
Dialogic 10,000 352
Fore Systems* 25,000 595
Splash Technologies Holdings* 20,000 456
Technology Solutions* 15,000 382
--------
1,785
--------
COMPUTERS & SOFTWARE SERVICES -- 12.3%
FileNet* 25,000 606
ISS Group* 26,400 1,228
Legato Systems* 20,000 870
Mercury Interactive* 14,000 579
New Era of Networks* 10,000 365
Open Text 12,500 194
Pegasystems* (A) 11,000 309
Peregrine Systems* (A) 20,000 680
Platinum Software 20,000 408
Platinum Technology* (A) 30,000 948
Progress Software 22,500 458
Saville Systems Ireland, ADR* 20,000 505
Timberline Software 20,000 448
Veritas Software* 15,000 842
--------
8,440
--------
The accompanying notes are an integral part of the financial statements.
84
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Emerging Growth Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
CONSUMER PRODUCTS -- 0.3%
Stride Rite 20,000 $ 242
--------
DRUGS -- 1.2%
Medarex* 50,000 269
Medco Research* 15,000 367
Spiros Development II* 11,500 190
--------
826
--------
ENTERTAINMENT -- 1.6%
Cinar Films, Class B* 20,000 450
Family Golf Centers* (A) 20,000 495
Players International* 30,000 146
--------
1,091
--------
ENVIRONMENTAL SERVICES -- 3.8%
Allied Waste Industries* 20,000 565
American Disposal Services* 35,000 1,343
Superior Services* 25,000 703
--------
2,611
--------
FINANCIAL SERVICES -- 1.4%
Raymond James Financial 20,000 512
Waddell & Reed
Financial, Cl A* 20,000 441
--------
953
--------
FOOD, BEVERAGE & TOBACCO -- 0.3%
Horizon Organic Holding 15,000 234
--------
HOUSEHOLD FURNITURE & FIXTURES -- 1.2%
Ethan Allen Interiors 20,000 826
--------
INSURANCE -- 1.6%
Arm Financial Group* 25,000 620
Healthcare Recoveries* 30,000 491
--------
1,111
--------
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
LEISURE PRODUCTS -- 0.2%
Toymax International* (A) 15,000 $ 111
--------
MACHINERY -- 0.5%
Dresser Industries 10,000 353
--------
MEDICAL PRODUCTS & SERVICES -- 3.7%
ATS Medical* 30,000 214
Cambridge Heart* 30,000 216
PSS World Medical Inc.* 20,000 311
Safeskin* 20,000 751
Steris* 10,500 640
Theragenics* 7,500 123
Veterinary Centers of America* 15,000 283
--------
2,538
--------
MISCELLANEOUS BUSINESS SERVICES -- 3.6%
American Management Systems 20,000 600
AnswerThink Consulting Group * 20,000 432
G. & K. Services 15,000 746
Informix* 20,000 131
Staffmark* 20,000 535
--------
2,444
--------
MISCELLANEOUS CONSUMER SERVICES -- 5.6%
Carriage Services* 31,000 686
Central Parking 20,000 1,004
Equity International* 25,000 542
Rock of Ages* 50,000 669
Stewart Enterprises, Cl A 40,000 909
--------
3,810
--------
PETROLEUM & FUEL PRODUCTS -- 1.1%
Gulf Island Fabrication* 15,000 270
Key Energy Group* 10,000 108
Vintage Petroleum 25,000 358
--------
736
--------
The accompanying notes are an integral part of the financial statements.
85
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Emerging Growth Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
PROFESSIONAL SERVICES -- 4.1%
Caliber Learning Network* 41,000 $ 410
Educational Management* 20,000 740
ITT Educational Services* 25,000 791
Sylvan Learning Systems* (A) 30,000 851
--------
2,792
--------
RETAIL -- 6.8%
Action Performance* (A) 30,000 900
American Eagle Outfitters* 20,000 988
CKE Restaurants 12,000 449
Cybershop International* (A) 10,000 103
Kmart* 10,000 163
N2K* 5,000 71
Onsale Inc* (A) 10,000 247
Party City* 15,000 339
Pier 1 Imports 26,250 409
Sportsline USA* (A) 20,000 530
Williams Sonoma* 15,000 496
--------
4,695
--------
RUBBER & PLASTIC -- 1.3%
Carlisle 20,000 879
--------
SEMI-CONDUCTORS/INSTRUMENTS -- 4.4%
MMC Networks* 25,000 538
National Semiconductor* (A) 20,000 246
Sanmina* (A) 21,000 958
Sci Systems* (A) 20,000 788
Vitesse Semiconductor* 15,000 493
--------
3,023
--------
TELEPHONES & TELECOMMUNICATIONS -- 6.2%
Advanced Fibre Communication* 27,500 548
Alpine Group* 21,500 390
Clearnet, Cl A* 15,000 165
Intermedia Communications* (A) 12,000 444
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Common Stocks (continued)
================================================================================
TELEPHONES & TELECOMMUNICATIONS (CONTINUED)
Metromedia International
Group* 35,000 $ 339
Positron Fiber Systems 18,000 185
Smartalk Teleservices* (A) 20,000 331
Star Telecommunications* (A) 20,000 368
Winstar Communications* (A) 25,000 825
World Access* (A) 15,000 431
Xircom* 10,000 208
--------
4,234
--------
TOTAL COMMON STOCKS
(Cost $63,610) 63,454
--------
================================================================================
Corporate Bonds -- 3.7%
================================================================================
Sigma Finance (B) (C)
5.750%, 11/10/98 $2,500 2,500
--------
TOTAL CORPORATE BONDS
(Cost $2,500) 2,500
--------
================================================================================
Commercial Paper -- 8.9%
================================================================================
Orange & Rockland Utility (B) (C)
5.724%, 08/11/98 3,150 3,145
South Western Electric PLC (B) (C)
5.725%, 08/20/98 3,000 2,991
--------
TOTAL COMMERCIAL PAPER
(Cost $6,136) 6,136
--------
================================================================================
Repurchase Agreements -- 18.6%
================================================================================
BZW Securities, Inc.
5.59%, dated 07/31/98, matures
08/03/98, repurchase price
$6,776,975 (collateralized by
U.S. Treasury Note 5.50%,
11/15/98, par value
$6,829,000: market
value $6,909,705) 6,774 6,774
The accompanying notes are an integral part of the financial statements.
86
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
Emerging Growth Fund (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Repurchase Agreements (continued)
================================================================================
Lehman Brothers, Inc. (B)
5.75%, dated 07/31/98, matures
08/03/98, repurchase price $5,966,722
(collateralized by U.S. Treasury Note,
5.50%, 11/15/98: market
value $6,909,706) $5,964 $ 5,964
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $12,738) 12,738
--------
TOTAL INVESTMENTS -- 123.7%
(Cost $84,984) 84,828
--------
PAYABLE UPON RETURN OF
SECURITIES LOANED -- (21.3%) (14,600)
--------
OTHER ASSETS AND LIABILITIES,
NET -- (2.4%) (1,649)
--------
================================================================================
Net Assets:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization -- no par
value) based on 5,362,976 outstanding
shares of beneficial interest 59,539
Overdistributed net investment income (2)
Accumulated net realized gain
on investments 9,198
Net unrealized depreciation
on investments (156)
--------
TOTAL NET ASSETS -- 100.0% $ 68,579
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $12.79
========
- --------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITY
(A) THIS SECURITY OR A PARTIAL POSITION OF THIS SECURITY IS ON LOAN AT
JULY 31, 1998 (SEE FOOTNOTE 2). THE TOTAL VALUE OF SECURITIES ON LOAN
AT JULY 31, 1998 WAS $14,100,996.
(B) THIS SECURITY PURCHASED WITH CASH COLLATERAL HELD FROM SECURITIES LENDING.
(C) FLOATING RATE SECURITY--THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS
IS THE RATE IN EFFECT ON JULY 31, 1998.
ADR--AMERICAN DEPOSITORY RECEIPT
CL--CLASS
The accompanying notes are an integral part of the financial statements.
87
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
International Equity Fund
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Foreign Common Stocks -- 94.9%
================================================================================
AUSTRALIA -- 1.7%
Australia & New Zealand
Bank Group 13,000 $ 84
Brambles Industries 6,700 142
Broken Hill Proprietary 17,900 145
National Australia Bank 14,000 195
News Corporation 30,000 219
Pioneer International 35,300 82
Rio Tinto 6,700 73
Smith Howard 18,000 106
Southcorp Holdings 31,000 83
WMC 14,600 44
Westpac Banking 31,500 199
Woolworths 48,000 146
--------
1,518
--------
AUSTRIA -- 0.8%
Bank Austria 6,230 493
OMV 1,670 213
--------
706
--------
BELGIUM -- 0.9%
Dexia 4,970 816
--------
FINLAND -- 1.8%
Nokia Oyj, Cl A 15,980 1,404
Nokia, Cl A 2,480 218
--------
1,622
--------
FRANCE -- 11.3%
Accor 3,220 862
Compagnie de Saint-Gobain 4,970 870
Comptoirs Modernes 1,452 803
Credit Commercial de France 7,130 631
Elf Aquitaine 4,295 557
France Telecom 25,210 1,717
Groupe Danone 3,630 1,094
Legrand 3,280 863
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Foreign Common Stocks (continued)
================================================================================
FRANCE (CONTINUED)
Pernod Ricard 11,710 $ 825
Renault 15,100 802
Rhodia* 6,042 151
Rhone Poulenc, Cl A 14,310 783
SGS-Thomson Microelectronics,
NV, ADR 6,890 438
--------
10,396
--------
GERMANY -- 9.4%
Adidas 5,050 733
Allianz 2,420 868
Bayer 13,920 632
Bayerische Motoren Werke* 880 850
Bayerische Vereinsbank 10,820 1,022
BMW 176 167
Commerzbank 8,980 341
Daimler Benz 9,240 946
Mannesmann 15,400 1,641
Siemens 9,500 706
Veba 12,250 723
--------
8,629
--------
HONG KONG -- 1.5%
Cheung Kong Holdings 29,000 126
China Telecom (Hong Kong)* 184,000 270
Hang Seng Bank 21,500 105
Hong Kong Electric 54,000 169
Hong Kong Telecommunications 180,000 339
Hutchison Whampoa 60,000 288
Sun Hung Kai Properties 28,000 104
--------
1,401
--------
ITALY -- 5.6%
Alleanza Assicurazioni 47,320 646
Autogrill 50,700 349
Banca Intesa 62,310 370
Credito Italiano 200,950 1,149
The accompanying notes are an integral part of the financial statements.
88
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
International Equity Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Foreign Common Stocks (continued)
================================================================================
ITALY (CONTINUED)
ENI SPA 114,790 $ 747
INA 123,800 393
Istituto Bancario San Paolo
di Torino 30,620 535
Telecom Italia 168,090 991
--------
5,180
--------
JAPAN -- 18.7%
Bridgestone 27,000 654
Canon 32,000 730
Credit Saison 17,000 327
Dai Nippon Printing 28,000 445
East Japan Railway 131 630
Fuji Photo Film 20,000 737
Fujitsu 41,000 448
Honda Motor 33,000 1,230
Industrial Bank of Japan 760 4
Kao 16,000 263
Mitsubishi Estate 35,000 305
Mitsui Mining & Smelting* 110,000 492
Mitsukoshi 121,000 319
NEC 51,000 472
Nintendo 4,200 399
Nippon Steel 187,000 326
Nippon Telegraph & Telephone 210 1,816
NTT Data 14 544
Osaka Gas 148,000 342
Rohm Company 6,000 647
Shizuoka Bank 52,000 510
Sony 13,300 1,131
Sumitomo Bank 80,000 754
Sumitomo Chemical 141,000 423
Sumitomo Special Metals 39,000 782
Takeda Chemical 30,000 770
Tokio Marine & Fire Insurance 47,000 475
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Foreign Common Stocks (continued)
================================================================================
JAPAN (CONTINUED)
Tokyo Electric Power 28,000 $ 525
Toyota Motor 27,000 663
--------
17,163
--------
MALAYSIA -- 0.1%
Petronas Gas 33,000 57
Tan Jong 8,000 10
Telekom Malaysia 27,000 42
--------
109
--------
NETHERLANDS -- 5.2%
Aegon 1,243 114
Akzo Nobel 10,050 512
Hagemeyer 3,972 168
ING Groep 18,097 1,369
Philips Electronics 9,010 730
Royal Dutch Petroleum 23,400 1,195
Unilever 10,380 743
--------
4,831
--------
PORTUGAL -- 1.1%
Banco Espirito Santo 16,032 579
Portugal Telecom 8,350 479
--------
1,058
--------
SINGAPORE -- 0.4%
City Developments 12,000 34
Natsteel Electronics 26,000 49
Overseas Chinese Bank 15,000 53
Singapore Airlines 7,000 35
Singapore Press Holdings 8,932 63
Singapore Tech Engineering 59,000 44
Singapore Telecommunications 64,000 97
--------
375
--------
The accompanying notes are an integral part of the financial statements.
89
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
International Equity Fund (continued)
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Foreign Common Stocks (continued)
================================================================================
SPAIN -- 2.6%
Banco Central Hispano 17,677 $ 666
Banco Santander 7,440 210
Cortefiel 11,290 259
Endesa 41,330 911
Grupo Acciona 1,460 390
--------
2,436
--------
SWEDEN -- 3.0%
Astra AB, Cl A 35,233 678
Electrolux AB 42,500 679
Ericsson, Cl B 31,960 897
Volvo, Cl B 15,500 479
--------
2,733
--------
SWITZERLAND -- 8.0%
Alusuisse Lonza, Reg 280 343
Credit Suisse Holdings, Reg 3,220 811
Nestle SA, Reg 520 1,080
Novartis SA, Reg 570 962
Rieter 420 322
Roche Holdings 109 1,174
Schindler Holding 170 248
Sulzer AG 260 200
UBS AG, Reg 3,293 1,430
Zuerich Versicherung, Reg 980 779
--------
7,349
--------
UNITED KINGDOM -- 22.8%
Abbey National 19,080 347
Alliance & Leicester 25,830 363
BAA 468 5
Bank of Scotland 94,740 1,037
Bank of Ireland 34,040 689
Barclays 37,250 1,064
British Aerospace 57,600 439
British Petroleum 64,960 863
- --------------------------------------------------------------------------------
DESCRIPTION SHARES/PAR (000) VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Foreign Common Stocks (continued)
================================================================================
UNITED KINGDOM (CONTINUED)
British Telecom 39,282 $ 569
CMG 80,360 2,834
Compass Group 97,339 1,009
Glaxo Wellcome 51,713 1,594
HSBC Holdings 20,920 520
Lloyds TSB Group 100,550 1,370
Misys 24,478 1,197
Norwich Union 66,960 523
Prudential 95,463 1,309
Reed International 90,310 867
SmithKline Beecham 100,220 1,164
Southern Electric 46,800 424
Vodafone Group 103,930 1,433
Zeneca Group 35,880 1,360
--------
20,980
--------
TOTAL FOREIGN COMMON STOCKS
(Cost $73,206) 87,302
--------
================================================================================
Foreign Preferred Stock -- 2.0%
================================================================================
GERMANY -- 2.0%
SAP* 2,480 1,834
--------
TOTAL FOREIGN PREFERRED STOCK
(Cost $946) 1,834
--------
================================================================================
Cash Equivalent -- 0.6%
================================================================================
SEI Daily Income Money Market $500 500
--------
TOTAL CASH EQUIVALENT
(Cost $500) 500
--------
TOTAL INVESTMENTS -- 97.5%
(Cost $74,652) 89,636
--------
OTHER ASSETS AND LIABILITIES,
NET -- 2.5% 2,334
--------
The accompanying notes are an integral part of the financial statements.
90
<PAGE>
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------
International Equity Fund (concluded)
- --------------------------------------------------------------------------------
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
================================================================================
Net Assets:
================================================================================
Fund Shares of Fiduciary Class
(unlimited authorization -- no par
value) based on 2,464,336 outstanding
shares of beneficial interest $ 83,737
Undistributed net investment income 325
Accumulated net realized loss
on investments (7,063)
Net unrealized depreciation on forward
foreign currency contracts, foreign
currency and translation of other
assets and liabilities in foreign
currency (13)
Net unrealized appreciation
on investments 14,984
--------
TOTAL NET ASSETS -- 100.0% $ 91,970
========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- FIDUCIARY CLASS $37.32
========
- --------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITY
CL -- CLASS
REG -- REGISTERED
ADR -- AMERICAN DEPOSITORY RECEIPT
The accompanying notes are an integral part of the financial statements.
91
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS (000)
- ------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JULY 31, 1998
100%
U.S.TREASURY U.S. GOVERNMENT DIVERSIFIED CALIFORNIA TAX-FREE
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
------------ --------------- ------------ -------------------
<S> <C> <C> <C> <C>
Interest Income .................................. $51,120 $16,795 $117,718 $15,691
Dividend Income .................................. -- -- -- --
------- ------- -------- -------
Total Investment Income ............... 51,120 16,795 117,718 15,691
------- ------- -------- -------
Expenses:
Administrative Fees ........................... 1,907 604 4,167 925
Administrative Fees Waived .................... (191) (60) (416) (93)
Investment Advisor Fees ....................... 2,860 907 6,251 1,388
Investment Advisor Fees Waived ................ (476) -- -- (925)
Shareholder Servicing Fees Fiduciary .......... 662 584 2,728 505
Shareholder Servicing Fees Retail Class A ..... 1,721 172 2,481 652
Shareholder Servicing Fees Retail Class B ..... -- -- -- --
Shareholder Servicing Fees Waived ............. (2,383) (756) (5,209) (1,157)
Custodian Fees ................................ 95 30 209 46
Professional Fees ............................. 50 30 62 10
Registration Fees ............................. 31 6 73 32
Transfer Agency Fees .......................... 52 21 80 22
Distribution Fees Retail Class A .............. 1,721 172 2,481 652
Distribution Fees Retail Class B .............. -- -- -- --
Distribution Fees Waived ...................... -- -- -- --
Insurance Fees ................................ 10 3 11 1
Trustees Fees ................................. 15 3 7 2
Printing Fees ................................. 42 15 59 26
Miscellaneous Fees ............................ 1 2 7 --
------- ------- -------- -------
Total Expenses ........................ 6,117 1,733 12,991 2,086
Reduction of Expenses (1) ............. (25) (8) (54) (12)
------- ------- -------- -------
Total Net Expenses .................... 6,092 1,725 12,937 2,074
------- ------- -------- -------
Net Investment Income ......................... 45,028 15,070 104,781 13,617
------- ------- -------- -------
Net Realized Gain (Loss) on Investments .......... 2 7 2 (2)
------- ------- -------- -------
Change in Unrealized Appreciation (Depreciation)
on Investments ................................ -- -- -- --
------- ------- -------- -------
Net Realized and Unrealized Gain (Loss) on
Investments ................................... 2 7 2 (2)
------- ------- -------- -------
Increase in Net Assets Resulting from
Operations .................................... $45,030 $15,077 $104,783 $13,615
======= ======= ======== =======
- -------------------------------------------------------------------------------------------------------------------
CALIFORNIA
INTERMEDIATE
INTERMEDIATE- TAX-FREE CONVERTIBLE
TERM BOND BOND BOND SECURITIES
FUND FUND FUND FUND
------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Interest Income .................................. $11,416 $3,223 $7,851 $ 381
Dividend Income .................................. -- -- -- 833
------- ------ ------ ------
Total Investment Income ............... 11,416 3,223 7,851 1,214
------- ------ ------ ------
Expenses:
Administrative Fees ........................... 346 133 237 59
Administrative Fees Waived .................... (35) (16) (24) (6)
Investment Advisor Fees ....................... 864 333 593 176
Investment Advisor Fees Waived ................ -- (245) -- --
Shareholder Servicing Fees Fiduciary .......... 420 134 294 73
Shareholder Servicing Fees Retail Class A ..... 12 33 3 --
Shareholder Servicing Fees Retail Class B ..... -- -- -- --
Shareholder Servicing Fees Waived ............. (380) (167) (285) (73)
Custodian Fees ................................ 17 7 12 3
Professional Fees ............................. 9 5 11 4
Registration Fees ............................. 15 24 15 3
Transfer Agency Fees .......................... 11 14 20 1
Distribution Fees Retail Class A .............. 12 33 2 --
Distribution Fees Retail Class B .............. -- -- -- --
Distribution Fees Waived ...................... (12) (33) (2) --
Insurance Fees ................................ 2 -- -- 1
Trustees Fees ................................. 4 4 3 2
Printing Fees ................................. 14 8 13 4
Miscellaneous Fees ............................ 1 1 4 4
------- ------ ------ ------
Total Expenses ........................ 1,300 268 896 251
Reduction of Expenses (1) ............. (4) (2) (3) (1)
------- ------ ------ ------
Total Net Expenses .................... 1,296 266 893 250
------- ------ ------ ------
Net Investment Income ......................... 10,120 2,957 6,958 964
------- ------ ------ ------
Net Realized Gain (Loss) on Investments .......... 768 305 122 559
------- ------ ------ ------
Change in Unrealized Appreciation (Depreciation)
on Investments ................................ (25) 1,305 1,732 (638)
------- ------ ------ ------
Net Realized and Unrealized Gain (Loss) on
Investments ................................... 743 1,610 1,854 (79)
------- ------ ------ ------
Increase in Net Assets Resulting from
Operations .................................... $10,863 $4,567 $8,812 $ 885
======= ====== ====== ======
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) SEE NOTE 3.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
92 & 93
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS (000)
- ----------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JULY 31, 1998
GOVERNMENT VALUE
SECURITIES BALANCED GROWTH MOMENTUM
FUND FUND FUND FUND
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest Income ........................................ $4,944 $10,933 $ 600 $ 2,292
Dividend Income ........................................ -- 4,597 3,150 11,296
Less: Foreign Taxes withheld, net of reclaims .......... -- -- -- --
------ ------- ------- -------
Total Investment Income ..................... 4,944 15,530 3,750 13,588
------ ------- ------- -------
Expenses:
Administrative Fees ................................. 161 868 755 1,317
Administration Fees Waived .......................... (16) (100) (86) (132)
Investment Advisor Fees ............................. 403 2,603 2,265 3,952
Investment Advisor Fees Waived ...................... -- -- -- --
Shareholder Servicing Fees Fiduciary ................ 201 1,059 917 1,570
Shareholder Servicing Fees Retail Class A ........... -- 25 26 73
Shareholder Servicing Fees Retail Class B ........... -- -- 1 4
Shareholder Servicing Fees Waived ................... (201) (650) (566) (1,643)
Custodian Fees ...................................... 8 43 38 66
Professional Fees ................................... 8 16 17 22
Registration Fees ................................... 18 20 21 36
Transfer Agency Fees ................................ 2 29 21 39
Distribution Fees Retail Class A .................... -- 25 26 72
Distribution Fees Retail Class B .................... -- 1 3 11
Distribution Fees Waived ............................ -- -- -- --
Insurance Fees ...................................... 2 4 3 3
Trustees Fees ....................................... 5 9 6 15
Printing Fees ....................................... 8 24 23 40
Miscellaneous Fees .................................. 7 3 4 10
------ ------- ------- -------
Total Expenses .............................. 606 3,979 3,474 5,455
Reduction of Expenses (1) ................... (2) (11) (10) (17)
------ ------- ------- -------
Total Net Expenses .......................... 604 3,968 3,464 5,438
------ ------- ------- -------
Net Investment Income ............................... 4,340 11,562 286 8,150
------ ------- ------- -------
Net Realized Gain (Loss) on Investments ................ 348 21,780 58,251 16,588
------ ------- ------- -------
Net Realized Gain (Loss) on Option Contracts ........... -- -- -- --
------ ------- ------- -------
Net Realized Loss on Foreign Currency Transactions ..... -- -- -- --
------ ------- ------- -------
Change in Unrealized Appreciation (Depreciation)
on Investments ...................................... 906 (4,261) 16,670 7,625
------ ------- ------- -------
Change in Unrealized Appreciation on Foreign Currency .. -- -- -- --
------ ------- ------- -------
Net Realized and Unrealized Gain on Investments ........ 1,254 17,519 74,921 24,213
------ ------- ------- -------
Increase in Net Assets Resulting from Operations ....... $5,594 $29,081 $75,207 $32,363
====== ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------
INCOME BLUE CHIP EMERGING INTERNATIONAL
EQUITY GROWTH GROWTH EQUITY
FUND FUND FUND FUND
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Interest Income ........................................ $ 577 $ 536 $ 474 $ 93
Dividend Income ........................................ 11,420 912 303 1,419
Less: Foreign Taxes withheld, net of reclaims .......... -- -- -- (152)
------- ------- ------- -------
Total Investment Income ..................... 11,997 1,448 777 1,360
------- ------- ------- -------
Expenses:
Administrative Fees ................................. 942 227 144 132
Administration Fees Waived .......................... (94) (23) (14) (13)
Investment Advisor Fees ............................. 2,826 680 577 629
Investment Advisor Fees Waived ...................... -- -- -- --
Shareholder Servicing Fees Fiduciary ................ 1,130 283 180 166
Shareholder Servicing Fees Retail Class A ........... 46 -- -- --
Shareholder Servicing Fees Retail Class B ........... 1 -- -- --
Shareholder Servicing Fees Waived ................... (706) (283) (180) (166)
Custodian Fees ...................................... 47 12 7 100
Professional Fees ................................... 30 6 6 9
Registration Fees ................................... 40 9 5 14
Transfer Agency Fees ................................ 50 3 2 2
Distribution Fees Retail Class A .................... 46 -- -- --
Distribution Fees Retail Class B .................... 3 -- -- --
Distribution Fees Waived ............................ -- -- -- --
Insurance Fees ...................................... 1 1 1 --
Trustees Fees ....................................... 8 2 5 1
Printing Fees ....................................... 18 14 9 6
Miscellaneous Fees .................................. 7 1 3 11
------- ------- ------- -------
Total Expenses .............................. 4,395 932 745 891
Reduction of Expenses (1) ................... (12) (3) (2) (2)
------- ------- ------- -------
Total Net Expenses .......................... 4,383 929 743 889
------- ------- ------- -------
Net Investment Income ............................... 7,614 519 34 471
------- ------- ------- -------
Net Realized Gain (Loss) on Investments ................ 75,433 16,737 14,448 (6,100)
------- ------- ------- -------
Net Realized Gain (Loss) on Option Contracts ........... -- 17 (410) --
------- ------- ------- -------
Net Realized Loss on Foreign Currency Transactions ..... -- -- -- (142)
------- ------- ------- -------
Change in Unrealized Appreciation (Depreciation)
on Investments ...................................... (50,106) (7,709) (12,019) 9,175
------- ------- ------- -------
Change in Unrealized Appreciation on Foreign Currency .. -- -- -- 28
------- ------- ------- -------
Net Realized and Unrealized Gain on Investments ........ 25,327 9,045 2,019 2,961
------- ------- ------- -------
Increase in Net Assets Resulting from Operations ....... $32,941 $ 9,564 $ 2,053 $ 3,432
======= ======= ======= =======
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) SEE NOTE 3.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
94 & 95
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS (000)
- ----------------------------------------------------------------------------------------------------------------
100% U.S. TREASURY U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
FUND FUND
------------------------ -------------------------
08/01/97 08/01/96 08/01/97 08/01/96
TO 07/31/98 TO 07/31/97 TO 07/31/98 TO 07/31/97
------------------------ -------------------------
<S> <C> <C> <C> <C>
Investment Activities From Operations:
Net Investment Income .................................. $ 45,028 $ 19,694 $ 15,070 $ 10,584
Net Realized Gain (Loss) on Investments ................ 2 46 7 18
Change in Unrealized Appreciation (Depreciation)
on Investments ....................................... -- -- -- --
---------- -------- ----------- -----------
Net Increase in Net Assets Resulting From Operations ... 45,030 19,740 15,077 10,602
---------- -------- ----------- -----------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares ..................................... (13,003) (9,631) (11,796) (8,350)
Retail A Shares ...................................... (32,025) (10,063) (3,274) (2,234)
Retail B Shares ...................................... -- -- -- --
Capital Gains:
Fiduciary Shares ..................................... -- -- -- --
Retail A Shares ...................................... -- -- -- --
Retail B Shares ...................................... -- -- -- --
---------- -------- ----------- -----------
Total Distributions ................................ (45,028) (19,694) (15,070) (10,584)
---------- -------- ----------- -----------
Change in Net Assets ..................................... 2 46 7 18
---------- -------- ----------- -----------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark .............................. -- 181,083 -- --
Proceeds in connection with the acquisition of
Common Trust Fund Assets ........................... -- -- -- --
Proceeds from Shares Issued .......................... 678,448 444,667 1,374,048 1,103,212
Reinvestment of Distributions ........................ 635 740 256 253
Cost of Shares Redeemed .............................. (694,817) (556,386) (1,344,194) (1,001,968)
---------- -------- ----------- -----------
Total Fiduciary Share Transactions ................. (15,734) 70,104 30,110 101,497
---------- -------- ----------- -----------
Retail Class A Shares:
Proceeds from the reorganization of
Stepstone or Highmark .............................. -- 436,482 -- --
Proceeds from Shares Issued .......................... 1,308,435 526,646 369,119 331,210
Reinvestment of Distributions ........................ 31,361 8,189 2,968 2,297
Cost of Shares Redeemed .............................. (1,171,680) (512,994) (292,826) (366,427)
---------- -------- ----------- -----------
Total Retail Class A Share Transactions ............ 168,116 458,323 79,261 (32,920)
---------- -------- ----------- -----------
Retail Class B Shares:
Proceeds from Shares Issued .......................... -- -- -- --
Reinvestment of Distributions ........................ -- -- -- --
Cost of Shares Redeemed .............................. -- -- -- --
---------- -------- ----------- -----------
Total Retail Class B Share Transactions ............ -- -- -- --
---------- -------- ----------- -----------
Net Increase in Net Assets From Share Transactions ....... 152,382 528,427 109,371 68,577
---------- -------- ----------- -----------
Total Increase in Net Assets ....................... 152,384 528,473 109,378 68,595
---------- -------- ----------- -----------
Net Assets:
Beginning of Period .................................... 802,436 273,963 295,792 227,197
---------- -------- ----------- -----------
End of Period .......................................... $ 954,820 $802,436 $ 405,170 $ 295,792
========== ======== =========== ===========
DIVERSIFIED CALIFORNIA TAX-FREE
MONEY MARKET MONEY MARKET
FUND FUND
------------------------ ------------------------
08/01/97 02/01/97 08/01/97 02/01/97
TO 07/31/98 TO 07/31/97 TO 07/31/98 TO 07/31/97
------------------------ ------------------------
<S> <C> <C> <C> <C>
Investment Activities From Operations:
Net Investment Income .................................. $ 104,781 $ 36,038 $ 13,617 $ 4,100
Net Realized Gain (Loss) on Investments ................ 2 31 (2) --
Change in Unrealized Appreciation (Depreciation)
on Investments ....................................... -- -- -- --
---------- ---------- ---------- --------
Net Increase in Net Assets Resulting From Operations ... 104,783 36,069 13,615 4,100
---------- ---------- ---------- --------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares ..................................... (56,174) (20,558) (6,202) (1,618)
Retail A Shares ...................................... (48,607) (15,480) (7,416) (2,478)
Retail B Shares ...................................... -- -- -- --
Capital Gains:
Fiduciary Shares ..................................... -- -- -- --
Retail A Shares ...................................... -- -- -- --
Retail B Shares ...................................... -- -- -- --
---------- ---------- ---------- --------
Total Distributions ................................ (104,781) (36,038) (13,618) (4,096)
---------- ---------- ---------- --------
Change in Net Assets ..................................... 2 31 (3) 4
---------- ---------- ---------- --------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark .............................. -- 283,586 -- 114,246
Proceeds in connection with the acquisition of
Common Trust Fund Assets ........................... 33,913 -- -- --
Proceeds from Shares Issued .......................... 2,317,898 2,066,619 455,192 131,018
Reinvestment of Distributions ........................ 9,864 4,034 16 6
Cost of Shares Redeemed .............................. (2,153,396) (1,905,972) (373,015) (122,182)
---------- ---------- ---------- --------
Total Fiduciary Share Transactions ................. 208,279 448,267 82,193 123,088
---------- ---------- ---------- --------
Retail Class A Shares:
Proceeds from the reorganization of
Stepstone or Highmark .............................. -- 139,246 -- 61,460
Proceeds from Shares Issued .......................... 1,900,298 621,422 512,922 159,066
Reinvestment of Distributions ........................ 47,070 14,984 7,326 2,370
Cost of Shares Redeemed .............................. (1,622,743) (552,572) (432,217) (156,357)
---------- ---------- ---------- --------
Total Retail Class A Share Transactions ............ 324,625 223,080 88,031 66,539
---------- ---------- ---------- --------
Retail Class B Shares:
Proceeds from Shares Issued .......................... -- -- -- --
Reinvestment of Distributions ........................ -- -- -- --
Cost of Shares Redeemed .............................. -- -- -- --
---------- ---------- ---------- --------
Total Retail Class B Share Transactions ............ -- -- -- --
---------- ---------- ---------- --------
Net Increase in Net Assets From Share Transactions ....... 532,904 671,347 170,224 189,627
---------- ---------- ---------- --------
Total Increase in Net Assets ....................... 532,906 671,378 170,221 189,631
---------- ---------- ---------- --------
Net Assets:
Beginning of Period .................................... 1,771,515 1,100,137 376,526 186,895
---------- ---------- ---------- --------
End of Period .......................................... $2,304,421 $1,771,515 $ 546,747 $376,526
========== ========== ========== ========
INTERMEDIATE- CALIFORNIA INTERMEDIATE
TERM BOND TAX-FREE BOND
FUND FUND
------------------------ ------------------------
08/01/97 02/01/97 08/01/97 02/01/97
TO 07/31/98 TO 07/31/97 TO 07/31/98 TO 07/31/97
------------------------ ------------------------
<S> <C> <C> <C> <C>
Investment Activities From Operations:
Net Investment Income .................................. $ 10,120 $ 4,793 $ 2,957 $ 387
Net Realized Gain (Loss) on Investments ................ 768 (364) 305 4
Change in Unrealized Appreciation (Depreciation)
on Investments ....................................... (25) 2,370 1,305 576
-------- -------- -------- -------
Net Increase in Net Assets Resulting From Operations ... 10,863 6,799 4,567 967
-------- -------- -------- -------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares ..................................... (9,859) (4,648) (2,294) (202)
Retail A Shares ...................................... (296) (157) (555) (176)
Retail B Shares ...................................... -- -- -- --
Capital Gains:
Fiduciary Shares ..................................... -- -- -- --
Retail A Shares ...................................... -- -- -- --
Retail B Shares ...................................... -- -- -- --
-------- -------- -------- -------
Total Distributions ................................ (10,155) (4,805) (2,849) (378)
-------- -------- -------- -------
Change in Net Assets ..................................... 708 1,994 1,718 589
-------- -------- -------- -------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark .............................. -- -- -- --
Proceeds in connection with the acquisition of
Common Trust Fund Assets ........................... 153,900 -- 137,628 --
Proceeds from Shares Issued .......................... 33,011 13,541 21,826 4,761
Reinvestment of Distributions ........................ 5,544 3,112 300 93
Cost of Shares Redeemed .............................. (96,305) (16,318) (15,638) (1,268)
-------- -------- -------- -------
Total Fiduciary Share Transactions ................. 96,150 335 144,116 3,586
-------- -------- -------- -------
Retail Class A Shares:
Proceeds from the reorganization of
Stepstone or Highmark .............................. -- -- -- --
Proceeds from Shares Issued .......................... 414 126 8,581 5,443
Reinvestment of Distributions ........................ 295 157 425 160
Cost of Shares Redeemed .............................. (727) (436) (7,359) (498)
-------- -------- -------- -------
Total Retail Class A Share Transactions ............ (18) (153) 1,647 5,105
-------- -------- -------- -------
Retail Class B Shares:
Proceeds from Shares Issued .......................... -- -- -- --
Reinvestment of Distributions ........................ -- -- -- --
Cost of Shares Redeemed .............................. -- -- -- --
-------- -------- -------- -------
Total Retail Class B Share Transactions ............ -- -- -- --
-------- -------- -------- -------
Net Increase in Net Assets From Share Transactions ....... 96,132 182 145,763 8,691
-------- -------- -------- -------
Total Increase in Net Assets ....................... 96,840 2,176 147,481 9,280
-------- -------- -------- -------
Net Assets:
Beginning of Period .................................... 157,800 155,624 22,506 13,226
-------- -------- -------- -------
End of Period .......................................... $254,640 $157,800 $169,987 $22,506
======== ======== ======== =======
BOND CONVERTIBLE SECURITIES
FUND FUND
------------------------ ------------------------
08/01/97 08/01/96 08/01/97 02/01/97
TO 07/31/98 TO 07/31/97 TO 07/31/98 TO 07/31/97
------------------------ ------------------------
<S> <C> <C> <C> <C>
Investment Activities From Operations:
Net Investment Income .................................. $ 6,958 $ 3,883 $ 964 $ 367
Net Realized Gain (Loss) on Investments ................ 122 (119) 559 1,124
Change in Unrealized Appreciation (Depreciation)
on Investments ....................................... 1,732 2,823 (638) 718
-------- ------- ------- -------
Net Increase in Net Assets Resulting From Operations ... 8,812 6,587 885 2,209
-------- ------- ------- -------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares ..................................... (6,823) (3,682) (920) (371)
Retail A Shares ...................................... (58) (50) -- --
Retail B Shares ...................................... -- -- -- --
Capital Gains:
Fiduciary Shares ..................................... -- -- (1,783) --
Retail A Shares ...................................... -- -- -- --
Retail B Shares ...................................... -- -- -- --
-------- ------- ------- -------
Total Distributions ................................ (6,881) (3,732) (2,703) (371)
-------- ------- ------- -------
Change in Net Assets ..................................... 1,931 2,855 (1,818) 1,838
-------- ------- ------- -------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark .............................. -- -- -- --
Proceeds in connection with the acquisition of
Common Trust Fund Assets ........................... 100,626 -- -- --
Proceeds from Shares Issued .......................... 57,404 20,964 16,944 5,864
Reinvestment of Distributions ........................ 3,832 2,935 2,698 371
Cost of Shares Redeemed .............................. (29,230) (15,525) (10,154) (3,864)
-------- ------- ------- -------
Total Fiduciary Share Transactions ................. 132,632 8,374 9,488 2,371
-------- ------- ------- -------
Retail Class A Shares:
Proceeds from the reorganization of
Stepstone or Highmark .............................. -- -- -- --
Proceeds from Shares Issued .......................... 1,333 222 -- --
Reinvestment of Distributions ........................ 44 53 -- --
Cost of Shares Redeemed .............................. (80) (858) -- --
-------- ------- ------- -------
Total Retail Class A Share Transactions ............ 1,297 (583) -- --
-------- ------- ------- -------
Retail Class B Shares:
Proceeds from Shares Issued .......................... -- -- -- --
Reinvestment of Distributions ........................ -- -- -- --
Cost of Shares Redeemed .............................. -- -- -- --
-------- ------- ------- -------
Total Retail Class B Share Transactions ............ -- -- -- --
-------- ------- ------- -------
Net Increase in Net Assets From Share Transactions ....... 133,929 7,791 9,488 2,371
-------- ------- ------- -------
Total Increase in Net Assets ....................... 135,860 10,646 7,670 4,209
-------- ------- ------- -------
Net Assets:
Beginning of Period .................................... 72,177 61,531 25,338 21,129
-------- ------- ------- -------
End of Period .......................................... $208,037 $72,177 $33,008 $25,338
======== ======= ======= =======
<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.
96 & 97
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS (000)
- -------------------------------------------------------------------------------------------------------------
GOVERNMENT SECURITIES BALANCED
FUND FUND
------------------------ ------------------------
08/01/97 02/01/97 08/01/97 02/01/97
TO 07/31/98 TO 07/31/97 TO 07/31/98 TO 07/31/97
------------------------ ------------------------
<S> <C> <C> <C> <C>
Investment Activities From Operations:
Net Investment Income ................................. $ 4,340 $ 1,588 $ 11,562 $ 5,151
Net Realized Gain (Loss) on Investments ............... 348 (287) 21,780 7,454
Net Realized Gain (Loss) on Option Contracts .......... -- -- -- --
Net Realized Loss on Foreign Currency Transactions .... -- -- -- --
Change in Unrealized Appreciation (Depreciation)
on Investments ...................................... 906 1,569 (4,261) 36,114
Change in Unrealized Appreciation (Depreciation)
on Foreign Currency ................................. -- -- -- --
-------- ------- -------- --------
Net Increase in Net Assets Resulting From Operations .... 5,594 2,870 29,081 48,719
-------- ------- -------- --------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares .................................... (4,344) (1,582) (11,577) (4,955)
Retail A Shares ..................................... -- -- (248) (113)
Retail B Shares ..................................... -- -- (4) --
Capital Gains:
Fiduciary Shares .................................... -- -- (10,762) (5,775)
Retail A Shares ..................................... -- -- (250) (150)
Retail B Shares ..................................... -- -- -- --
-------- ------- -------- --------
Total Distributions ............................... (4,344) (1,582) (22,841) (10,993)
-------- ------- -------- --------
Change in Net Assets .................................... 1,250 1,288 6,240 37,726
-------- ------- -------- --------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark ............................. -- -- -- 44,366
Proceeds in connection with the acquisition of
Common Trust Fund Assets .......................... -- -- 15,276 --
Proceeds from Shares Issued ......................... 88,628 14,934 96,493 49,160
Reinvestment of Distributions ....................... 4,319 1,582 22,162 10,043
Cost of Shares Redeemed ............................. (37,505) (11,930) (91,701) (47,541)
-------- ------- -------- --------
Total Fiduciary Share Transactions ................ 55,442 4,586 42,230 56,028
-------- ------- -------- --------
Retail Class A Shares:
Proceeds from the reorganization of
Stepstone or Highmark ............................. -- -- -- 594
Proceeds from Shares Issued ......................... -- -- 2,541 872
Reinvestment of Distributions ....................... -- -- 479 262
Cost of Shares Redeemed ............................. -- -- (1,763) (2,190)
-------- ------- -------- --------
Total Retail Class A Share Transactions ........... -- -- 1,257 (462)
-------- ------- -------- --------
Retail Class B Shares:
Proceeds from Shares Issued ......................... -- -- 1,008 --
Reinvestment of Distributions ....................... -- -- 4 --
Cost of Shares Redeemed ............................. -- -- (16) --
-------- ------- -------- --------
Total Retail Class B Share Transactions ........... -- -- 996 --
-------- ------- -------- --------
Net Increase (Decrease) in Net Assets From
Share Transactions .................................... 55,442 4,586 44,483 55,566
-------- ------- -------- --------
Total Increase in Net Assets ...................... 56,692 5,874 50,723 93,292
-------- ------- -------- --------
Net Assets:
Beginning of Period ................................... 57,256 51,382 409,656 316,364
-------- ------- -------- --------
End of Period ......................................... $113,948 $57,256 $460,379 $409,656
======== ======= ======== ========
- -------------------------------------------------------------------------------------------------------------
GROWTH VALUE MOMENTUM
FUND FUND
------------------------ ------------------------
08/01/97 08/01/96 08/01/97 02/01/97
TO 07/31/98 TO 07/31/97 TO 07/31/98 TO 07/31/97
------------------------ ------------------------
<S> <C> <C> <C> <C>
Investment Activities From Operations:
Net Investment Income ................................. $ 286 $ 432 $ 8,150 $ 3,065
Net Realized Gain (Loss) on Investments ............... 58,251 40,894 16,588 2,055
Net Realized Gain (Loss) on Option Contracts .......... -- -- -- --
Net Realized Loss on Foreign Currency Transactions .... -- -- -- --
Change in Unrealized Appreciation (Depreciation)
on Investments ...................................... 16,670 28,516 7,625 68,691
Change in Unrealized Appreciation (Depreciation)
on Foreign Currency ................................. -- -- -- --
-------- -------- -------- --------
Net Increase in Net Assets Resulting From Operations .... 75,207 69,842 32,363 73,811
-------- -------- -------- --------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares .................................... (497) (354) (7,844) (2,920)
Retail A Shares ..................................... (4) (12) (296) (115)
Retail B Shares ..................................... -- -- (6) --
Capital Gains:
Fiduciary Shares .................................... (63,262) (3,457) (3,243) --
Retail A Shares ..................................... (1,951) (229) (161) --
Retail B Shares ..................................... -- -- -- --
-------- -------- -------- --------
Total Distributions ............................... (65,714) (4,052) (11,550) (3,035)
-------- -------- -------- --------
Change in Net Assets .................................... 9,493 65,790 20,813 70,776
-------- -------- -------- --------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark ............................. -- 184,625 -- --
Proceeds in connection with the acquisition of
Common Trust Fund Assets .......................... 110,041 -- 298,528 --
Proceeds from Shares Issued ......................... 113,184 29,160 200,308 110,431
Reinvestment of Distributions ....................... 44,542 3,648 8,410 2,053
Cost of Shares Redeemed ............................. (76,109) (24,942) (126,506) (34,176)
-------- -------- -------- --------
Total Fiduciary Share Transactions ................ 191,658 192,491 380,740 78,308
-------- -------- -------- --------
Retail Class A Shares:
Proceeds from the reorganization of
Stepstone or Highmark ............................. -- 3,366 -- --
Proceeds from Shares Issued ......................... 9,352 1,023 16,308 2,942
Reinvestment of Distributions ....................... 1,763 234 442 113
Cost of Shares Redeemed ............................. (1,696) (1,547) (3,772) (1,400)
-------- -------- -------- --------
Total Retail Class A Share Transactions ........... 9,419 3,076 12,978 1,655
-------- -------- -------- --------
Retail Class B Shares:
Proceeds from Shares Issued ......................... 1,949 -- 5,561 --
Reinvestment of Distributions ....................... -- -- 5 --
Cost of Shares Redeemed ............................. (33) -- (127) --
-------- -------- -------- --------
Total Retail Class B Share Transactions ........... 1,916 -- 5,439 --
-------- -------- -------- --------
Net Increase (Decrease) in Net Assets From
Share Transactions .................................... 202,993 195,567 399,157 79,963
-------- -------- -------- --------
Total Increase in Net Assets ...................... 212,486 261,357 419,970 150,739
-------- -------- -------- --------
Net Assets:
Beginning of Period ................................... 305,695 44,338 484,184 333,445
-------- -------- -------- --------
End of Period ......................................... $518,181 $305,695 $904,154 $484,184
======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------
INCOME EQUITY BLUE CHIP GROWTH
FUND FUND
------------------------ ------------------------
08/01/97 08/01/96 08/01/97 02/01/97
TO 07/31/98 TO 07/31/97 TO 07/31/98 TO 07/31/97
------------------------ ------------------------
<S> <C> <C> <C> <C>
Investment Activities From Operations:
Net Investment Income ................................. $ 7,614 $ 7,455 $ 519 $ 464
Net Realized Gain (Loss) on Investments ............... 75,433 34,297 16,737 8,315
Net Realized Gain (Loss) on Option Contracts .......... -- -- 17 21
Net Realized Loss on Foreign Currency Transactions .... -- -- -- --
Change in Unrealized Appreciation (Depreciation)
on Investments ...................................... (50,106) 65,148 (7,709) 7,929
Change in Unrealized Appreciation (Depreciation)
on Foreign Currency ................................. -- -- -- --
-------- -------- -------- -------
Net Increase in Net Assets Resulting From Operations .... 32,941 106,900 9,564 16,729
-------- -------- -------- -------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares .................................... (7,261) (7,008) (531) (447)
Retail A Shares ..................................... (263) (263) -- --
Retail B Shares ..................................... (3) -- -- --
Capital Gains:
Fiduciary Shares .................................... (34,725) (19,912) (14,205) --
Retail A Shares ..................................... (1,703) (761) -- --
Retail B Shares ..................................... -- -- -- --
-------- -------- -------- -------
Total Distributions ............................... (43,955) (27,944) (14,736) (447)
-------- -------- -------- -------
Change in Net Assets .................................... (11,014) 78,956 (5,172) 16,282
-------- -------- -------- -------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark ............................. -- -- -- --
Proceeds in connection with the acquisition of
Common Trust Fund Assets .......................... 344,504 -- -- --
Proceeds from Shares Issued ......................... 70,835 48,928 65,918 17,168
Reinvestment of Distributions ....................... 34,479 24,742 14,663 447
Cost of Shares Redeemed ............................. (121,446) (59,638) (44,997) (17,696)
-------- -------- -------- -------
Total Fiduciary Share Transactions ................ 328,372 14,032 35,584 (81)
-------- -------- -------- -------
Retail Class A Shares:
Proceeds from the reorganization of
Stepstone or Highmark ............................. -- -- -- --
Proceeds from Shares Issued ......................... 9,577 3,294 -- --
Reinvestment of Distributions ....................... 1,938 1,039 -- --
Cost of Shares Redeemed ............................. (2,461) (3,247) -- --
-------- -------- -------- -------
Total Retail Class A Share Transactions ........... 9,054 1,086 -- --
-------- -------- -------- -------
Retail Class B Shares:
Proceeds from Shares Issued ......................... 1,881 -- -- --
Reinvestment of Distributions ....................... 3 -- -- --
Cost of Shares Redeemed ............................. (35) -- -- --
-------- -------- -------- -------
Total Retail Class B Share Transactions ........... 1,849 -- -- --
-------- -------- -------- -------
Net Increase (Decrease) in Net Assets From
Share Transactions .................................... 339,275 15,118 35,584 (81)
-------- -------- -------- -------
Total Increase in Net Assets ...................... 328,261 94,074 30,412 16,201
-------- -------- -------- -------
Net Assets:
Beginning of Period ................................... 366,877 272,803 96,883 80,682
-------- -------- -------- -------
End of Period ......................................... $695,138 $366,877 $127,295 $96,883
======== ======== ======== =======
- ------------------------------------------------------------------------------------------------------------
EMERGING GROWTH INTERNATIONAL EQUITY
FUND FUND
------------------------ ------------------------
08/01/97 02/01/97 08/01/97 02/01/97
TO 07/31/98 TO 07/31/97 TO 07/31/98 TO 07/31/97
------------------------ ------------------------
<S> <C> <C> <C> <C>
Investment Activities From Operations:
Net Investment Income ................................. $ 34 $ 73 $ 471 $ 280
Net Realized Gain (Loss) on Investments ............... 14,448 3,445 (6,100) (207)
Net Realized Gain (Loss) on Option Contracts .......... (410) (320) -- --
Net Realized Loss on Foreign Currency Transactions .... -- -- (142) (59)
Change in Unrealized Appreciation (Depreciation)
on Investments ...................................... (12,019) 1,474 9,175 5,628
Change in Unrealized Appreciation (Depreciation)
on Foreign Currency ................................. -- -- 28 (27)
------- ------- ------- -------
Net Increase in Net Assets Resulting From Operations .... 2,053 4,672 3,432 5,615
------- ------- ------- -------
Distributions to Shareholders:
Net Investment Income:
Fiduciary Shares .................................... (43) (57) (789) --
Retail A Shares ..................................... -- -- -- --
Retail B Shares ..................................... -- -- -- --
Capital Gains:
Fiduciary Shares .................................... (9,793) -- (484) --
Retail A Shares ..................................... -- -- -- --
Retail B Shares ..................................... -- -- -- --
------- ------- ------- -------
Total Distributions ............................... (9,836) (57) (1,273) --
------- ------- ------- -------
Change in Net Assets .................................... (7,783) 4,615 2,159 5,615
------- ------- ------- -------
Share Transactions:
Fiduciary Shares:
Proceeds from the reorganization of
Stepstone or Highmark ............................. -- -- -- --
Proceeds in connection with the acquisition of
Common Trust Fund Assets .......................... -- -- -- --
Proceeds from Shares Issued ......................... 32,520 16,568 46,760 3,528
Reinvestment of Distributions ....................... 9,757 57 709 --
Cost of Shares Redeemed ............................. (32,251) (12,060) (10,125) (3,049)
------- ------- ------- -------
Total Fiduciary Share Transactions ................ 10,026 4,565 37,344 479
------- ------- ------- -------
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 ........... -- -- -- --
------- ------- ------- -------
Retail Class B Shares:
Proceeds from Shares Issued ......................... -- -- -- --
Reinvestment of Distributions ....................... -- -- -- --
Cost of Shares Redeemed ............................. -- -- -- --
------- ------- ------- -------
Total Retail Class B Share Transactions ........... -- -- -- --
------- ------- ------- -------
Net Increase (Decrease) in Net Assets From
Share Transactions .................................... 10,026 4,565 37,344 479
------- ------- ------- -------
Total Increase in Net Assets ...................... 2,243 9,180 39,503 6,094
------- ------- ------- -------
Net Assets:
Beginning of Period ................................... 66,336 57,156 52,467 46,373
------- ------- ------- -------
End of Period ......................................... $68,579 $66,336 $91,970 $52,467
======= ======= ======= =======
<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>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
<TABLE>
<CAPTION>
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 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
- ---------------------- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------
100% U.S. TREASURY MONEY MARKET FUND
- ------------------------------------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
1998 $1.00 0.049 -- (0.049) -- $1.00 5.02% $227,733 0.46%
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%
RETAIL CLASS A SHARES
FOR THE YEARS ENDED JULY 31,:
1998 $1.00 0.047 -- (0.047) -- $1.00 4.75% $727,087 0.71%
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%
- ---------------------------------
U.S. GOVERNMENT MONEY MARKET FUND
- ---------------------------------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
1998 $1.00 0.050 -- (0.050) -- $1.00 5.16% $283,096 0.51%
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%
RETAIL CLASS A SHARES
FOR THE YEARS ENDED JULY 31,:
1998 $1.00 0.048 -- (0.048) -- $1.00 4.90% $122,074 0.76%
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%
RETAIL CLASS B SHARES
FOR THE PERIOD ENDED JULY 31,:
1998 (1) $1.00 0.021 -- (0.021) -- $1.00 4.25%* $ -- 1.26%*
- ------------------------------------------------------
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
- ------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------
100% U.S. TREASURY MONEY MARKET FUND
- ------------------------------------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
1998 0.78% 4.91% 4.59%
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%
RETAIL CLASS A SHARES
FOR THE YEARS ENDED JULY 31,:
1998 1.03% 4.65% 4.33%
1997 1.10% 4.55% 4.17%
1996 1.23% 4.64% 4.15%
1995 1.22% 4.68% 4.19%
1994 1.15% 2.68% 2.27%
- ---------------------------------
U.S. GOVERNMENT MONEY MARKET FUND
- ---------------------------------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
1998 0.79% 5.05% 4.77%
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%
RETAIL CLASS A SHARES
FOR THE YEARS ENDED JULY 31,:
1998 1.04% 4.80% 4.52%
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%
RETAIL CLASS B SHARES
FOR THE PERIOD ENDED JULY 31,:
1998 (1) 1.54%* 4.30%* 4.02%*
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
* ANNUALIZED.
(1) COMMENCED OPERATIONS ON FEBRUARY 2, 1998.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
100
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES DISTRIBUTIONS
NET --------------------------- --------------------- NET NET
ASSET NET REALIZED ASSET ASSETS,
VALUE, NET AND UNREALIZED NET CONTRIBUTION VALUE, END
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT CAPITAL OF END TOTAL OF PERIOD
OF PERIOD INCOME ON INVESTMENTS INCOME GAINS CAPITAL OF PERIOD RETURN (000)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------
DIVERSIFIED MONEY MARKET FUND
- -----------------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $1.00 0.051 -- (0.051) -- -- $1.00 5.27% $1,180,141
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $1.00 0.025 -- (0.025) -- -- $1.00 5.11%* $ 971,858
FOR THE YEARS ENDED JANUARY 31,:
1997 $1.00 0.049 -- (0.049) -- -- $1.00 5.03% $ 523,571
1996 1.00 0.054 -- (0.054) -- -- 1.00 5.57% 503,080
1995 1.00 0.039 (0.001) (0.039) -- 0.001 1.00 3.99% 536,754
1994 1.00 0.029 -- (0.029) -- -- 1.00 2.99% 498,795
RETAIL CLASS A SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $1.00 0.049 -- (0.049) -- -- $1.00 5.01% $1,124,280
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $1.00 0.024 -- (0.024) -- -- $1.00 4.86%* $ 799,657
FOR THE YEARS ENDED JANUARY 31,:
1997 $1.00 0.047 -- (0.047) -- -- $1.00 4.78% $ 576,566
1996 1.00 0.052 -- (0.052) -- -- 1.00 5.31% 259,608
1995 1.00 0.037 -- (0.037) -- -- 1.00 3.78% 111,267
1994 1.00 0.027 -- (0.027) -- -- 1.00 2.77% 86,291
- -------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- -------------------------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $1.00 0.031 -- (0.031) -- -- $1.00 3.14% $ 241,487
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $1.00 0.016 -- (0.016) -- -- $1.00 3.28%* $ 159,297
FOR THE YEARS ENDED JANUARY 31,:
1997 $1.00 0.031 -- (0.031) -- -- $1.00 3.12% $ 36,207
1996 1.00 0.034 -- (0.034) -- -- 1.00 3.48% 42,923
1995 1.00 0.026 -- (0.026) -- -- 1.00 2.67% 52,050
1994 1.00 0.021 -- (0.021) -- -- 1.00 2.13% 52,982
RETAIL CLASS A SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $1.00 0.028 -- (0.028) -- -- $1.00 2.89% $ 305,260
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $1.00 0.015 -- (0.015) -- -- $1.00 2.99%* $ 217,229
FOR THE YEARS ENDED JANUARY 31,:
1997 $1.00 0.027 -- (0.027) -- -- $1.00 2.78% $ 150,688
1996 1.00 0.031 -- (0.031) -- -- 1.00 3.14% 81,177
1995 1.00 0.023 -- (0.023) -- -- 1.00 2.33% 49,494
1994 1.00 0.018 -- (0.018) -- -- 1.00 1.80% 52,220
- --------------------------------------------------------------------
RATIO OF
RATIO NET INVESTMENT
OF EXPENSES RATIO OF INCOME TO
RATIO TO AVERAGE NET INVESTMENT AVERAGE
EXPENSES NET ASSETS INCOME NET ASSETS
TO AVERAGE EXCLUDING TO AVERAGE EXCLUDING
NET ASSETS FEE WAIVERS NET ASSETS FEE WAIVERS
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------
DIVERSIFIED MONEY MARKET FUND
- -----------------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 0.50% 0.77% 5.15% 4.88%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.48%* 0.64%* 5.07%* 4.90%*
FOR THE YEARS ENDED JANUARY 31,:
1997 0.49% 0.49% 4.93% 4.93%
1996 0.50% 0.50% 5.43% 5.43%
1995 0.50% 0.50% 3.93% 3.93%
1994 0.49% 0.49% 2.93% 2.93%
RETAIL CLASS A SHARES
FOR THE YEAR ENDED JULY 31,:
1998 0.75% 1.02% 4.90% 4.63%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.72%* 0.95%* 4.82%* 4.59%*
FOR THE YEARS ENDED JANUARY 31,:
1997 0.73% 0.88% 4.69% 4.54%
1996 0.75% 0.90% 5.16% 5.01%
1995 0.70% 0.90% 3.79% 3.59%
1994 0.70% 0.89% 2.71% 2.52%
- -------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
- -------------------------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 0.31% 0.78% 3.07% 2.60%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.28%* 0.69%* 3.36%* 2.96%*
FOR THE YEARS ENDED JANUARY 31,:
1997 0.27% 0.49% 3.08% 2.86%
1996 0.28% 0.49% 3.43% 3.22%
1995 0.29% 0.50% 2.66% 2.45%
1994 0.30% 0.54% 2.09% 1.85%
RETAIL CLASS A SHARES
FOR THE YEAR ENDED JULY 31,:
1998 0.56% 1.03% 2.84% 2.37%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.55%* 0.97%* 3.02%* 2.59%*
FOR THE YEARS ENDED JANUARY 31,:
1997 0.60% 0.88% 2.75% 2.47%
1996 0.61% 0.88% 3.09% 2.82%
1995 0.62% 0.90% 2.33% 2.05%
1994 0.63% 0.94% 1.76% 1.45%
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
*ANNUALIZED.
</FN>
</TABLE>
101
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------
INTERMEDIATE-TERM BOND FUND
- ---------------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $10.30 0.613 0.021 (0.616) -- $10.32 6.37% $249,520 0.75%
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%*
FOR THE YEARS ENDED JANUARY 31,:
1997 $10.62 0.599 (0.460) (0.595) -- $10.16 1.43% $150,411 0.67%
1996 9.67 0.609 0.951 (0.609) -- 10.62 16.58% 132,942 0.68%
1995 10.72 0.589 (1.034) (0.590) (0.015) 9.67 (4.11)% 109,848 0.71%
1994 10.57 0.598 0.352 (0.595) (0.205) 10.72 9.22% 130,308 0.69%
RETAIL CLASS A SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $10.29 0.609 0.031 (0.616) -- $10.31 6.38% $ 5,120 0.75%
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%*
FOR THE YEARS ENDED JANUARY 31,:
1997 $10.61 0.602 (0.462) (0.595) -- $10.16 1.54% $ 5,213 0.67%
1996 9.67 0.609 0.940 (0.609) -- 10.61 16.48% 6,417 0.68%
1995 10.72 0.589 (1.034) (0.590) (0.015) 9.67 (4.11)% 6,645 0.71%
1994 10.57 0.615 0.335 (0.595) (0.205) 10.72 9.23% 9,308 0.69%
- ------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
- ------------------------------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $10.01 0.457 0.008 (0.435) -- $10.04 4.75% $157,062 0.42%
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%*
FOR THE YEARS ENDED JANUARY 31,:
1997 $ 9.85 0.430 (0.078) (0.442) -- $ 9.76 3.72% $ 7,435 0.20%
1996 8.95 0.518 0.873 (0.487) -- 9.85 15.83% 4,196 0.24%
1995 10.04 0.460 (1.098) (0.452) -- 8.95 (6.33)% 12,793 0.50%
1994 (1) 10.00 0.117 0.028 (0.105) -- 10.04 5.01%* 22,197 0.50%*
RETAIL CLASS A SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $ 9.99 0.423 0.032 (0.435) -- $10.01 4.66% $ 12,925 0.31%
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%*
FOR THE YEARS ENDED JANUARY 31,:
1997 $ 9.84 0.458 (0.112) (0.442) -- $ 9.74 3.62% $ 5,791 0.20%
1996 8.94 0.470 0.918 (0.487) -- 9.84 15.84% 4,266 0.23%
1995 10.03 0.439 (1.077) (0.452) -- 8.94 (6.33)% 4,882 0.50%
1994 (1) 10.00 0.115 0.020 (0.105) -- 10.03 4.67%* 2,830 0.50%*
- ---------------------------------------------------------------
RATIO OF
RATIO NET INVESTMENT
OF EXPENSES RATIO OF INCOME TO
AVERAGE NET INVESTMENT AVERAGE
NET ASSETS INCOME NET ASSETS PORTFOLIO
EXCLUDING TO AVERAGE EXCLUDING TURNOVER
FEE WAIVERS NET ASSETS FEE WAIVERS RATE
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------
INTERMEDIATE-TERM BOND FUND
- ---------------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 0.99% 5.86% 5.61% 51%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.82%* 6.17%* 6.04%* 58%
FOR THE YEARS ENDED JANUARY 31,:
1997 0.68% 5.93% 5.92% 106%
1996 0.68% 5.97% 5.97% 147%
1995 0.71% 5.89% 5.89% 95%
1994 0.69% 5.56% 5.56% 72%
RETAIL CLASS A SHARES
FOR THE YEAR ENDED JULY 31,:
1998 1.24% 5.83% 5.34% 51%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 1.14%* 6.17%* 5.71%* 58%
FOR THE YEARS ENDED JANUARY 31,:
1997 1.08% 5.91% 5.50% 106%
1996 1.09% 5.99% 5.58% 147%
1995 1.11% 5.87% 5.47% 95%
1994 1.09% 5.51% 5.11% 72%
- ------------------------------------------
CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
- ------------------------------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 1.04% 4.46% 3.84% 23%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.91%* 4.56%* 3.85%* 5%
FOR THE YEARS ENDED JANUARY 31,:
1997 0.85% 4.69% 4.04% 6%
1996 0.71% 4.97% 4.50% 30%
1995 0.72% 4.84% 4.62% 22%
1994 (1) 0.73%* 4.31%* 4.08% 19%
RETAIL CLASS A SHARES
FOR THE YEAR ENDED JULY 31,:
1998 1.29% 4.37% 3.39% 23%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 1.22%* 4.55%* 3.54%* 5%
FOR THE YEARS ENDED JANUARY 31,:
1997 1.25% 4.69% 3.64% 6%
1996 1.12% 4.93% 4.04% 30%
1995 1.12% 4.92% 4.30% 22%
1994 (1) 1.13%* 4.26%* 3.63%* 19%
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
* ANNUALIZED.
** TOTAL RETURN DOES NOT REFLECT THE SALES CHARGE.
(1) COMMENCED OPERATIONS ON OCTOBER 15, 1993.
</FN>
</TABLE>
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
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------
BOND FUND
- ---------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
1998 $10.67 0.615 0.150 (0.627) -- $10.81 7.41% $206,125 0.75%
1997 10.23 0.628 0.421 (0.609) -- 10.67 10.59% 71,571 0.85%
1996 10.38 0.660 (0.160) (0.650) -- 10.23 4.81% 60,374 0.89%
1995 10.11 0.640 0.270 (0.640) -- 10.38 9.43% 59,758 0.92%
1994 11.13 0.630 (1.020) (0.630) -- 10.11 (3.14)% 64,185 0.86%
RETAIL CLASS A SHARES
FOR THE YEARS ENDED JULY 31,:
1998 $10.59 0.605 0.162 (0.627) -- $10.73 7.47% $ 1,912 0.75%
1997 10.15 0.642 0.403 (0.609) -- 10.59 10.68% 606 0.85%
1996 10.29 0.690 (0.180) (0.650) -- 10.15 4.95% 1,157 0.89%
1995 10.04 0.660 0.230 (0.640) -- 10.29 9.29% 558 0.92%
1994 10.12 0.070 (0.050) (0.100) -- 10.04 (3.81)%(A) 7 0.99%*
- --------------------- ------
CONVERTIBLE SECURITIES FUND
- ---------------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $12.41 0.382 (0.065) (0.369) (0.822) $11.54 3.02% $ 33,008 0.85%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $11.58 0.183 0.833 (0.186) -- $12.41 8.92% $ 25,338 0.85%*
FOR THE YEARS ENDED JANUARY 31,:
1997 $10.43 0.376 1.423 (0.378) (0.270) $11.58 17.72% $ 21,129 0.85%
1996 9.08 0.407 1.350 (0.404) -- 10.43 19.67% 16,668 0.85%
1995 (1) 10.00 0.354 (0.930) (0.343) -- 9.08 (5.83)% 10,297 0.85%
- --------------------------
GOVERNMENT SECURITIES FUND
- --------------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $ 9.64 0.523 0.142 (0.533) -- $ 9.77 7.08% $113,948 0.75%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $ 9.44 0.268 0.203 (0.269) -- $ 9.64 5.08% $ 57,256 0.73%*
FOR THE YEARS ENDED JANUARY 31,:
1997 $ 9.94 0.524 (0.505) (0.520) -- $ 9.44 0.34% $ 51,382 0.74%
1996 9.07 0.556 0.870 (0.556) -- 9.94 16.16% 46,725 0.75%
1995 (1) 10.00 0.491 (0.950) (0.475) -- 9.07 (4.49)% 32,178 0.75%
- ---------------------------------------------------------------
RATIO OF
RATIO NET INVESTMENT
OF EXPENSES RATIO OF INCOME TO
AVERAGE NET INVESTMENT AVERAGE
NET ASSETS INCOME NET ASSETS PORTFOLIO
EXCLUDING TO AVERAGE EXCLUDING TURNOVER
FEE WAIVERS NET ASSETS FEE WAIVERS RATE
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------
BOND FUND
- ---------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
1998 1.02% 5.86% 5.60% 16%
1997 1.42% 6.11% 5.54% 14%
1996 1.61% 6.10% 5.38% 21%
1995 1.64% 6.35% 5.62% 36%
1994 1.37% 6.11% 5.60% 44%
RETAIL CLASS A SHARES
FOR THE YEARS ENDED JULY 31,:
1998 1.26% 5.85% 5.33% 16%
1997 1.68% 6.10% 5.27% 14%
1996 1.85% 6.10% 5.14% 21%
1995 1.89% 6.29% 5.32% 36%
1994 2.96%* 5.77%* 3.80%* 44%
- ---------------------------
CONVERTIBLE SECURITIES FUND
- ---------------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 1.12% 3.28% 3.01% 50%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 1.00%* 3.25%* 3.10%* 33%
FOR THE YEARS ENDED JANUARY 31,:
1997 0.85% 3.47% 3.47% 89%
1996 0.85% 4.14% 4.14% 46%
1995 (1) 0.85% 3.87% 3.87% 36%
- --------------------------
GOVERNMENT SECURITIES FUND
- --------------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 1.02% 5.39% 5.12% 62%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.88%* 5.79%* 5.64%* 40%
FOR THE YEARS ENDED JANUARY 31,:
1997 0.74% 5.59% 5.59% 186%
1996 0.75% 5.89% 5.89% 239%
1995 (1) 0.75% 5.46% 5.46% 184%
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(A) 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.
(1) COMMENCED OPERATIONS ON FEBRUARY 1, 1994.
</FN>
</TABLE>
103
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------
BALANCED FUND
- -------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $16.46 0.446 0.724 (0.458) (0.442) $16.73 7.31% $448,783 0.91%
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%*
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%
1996 11.45 0.415 2.831 (0.417) (0.362) 13.92 28.93% 233,878 0.80%
1995 12.21 0.390 (0.756) (0.391) (0.003) 11.45 (2.95)% 167,434 0.80%
1994 11.50 0.394 0.928 (0.391) (0.221) 12.21 11.79% 152,189 0.69%
RETAIL CLASS A SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $16.45 0.402 0.736 (0.416) (0.442) $16.73 7.12% $ 10,629 1.16%
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%*
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%
1996 11.45 0.406 2.825 (0.406) (0.362) 13.91 28.73% 8,422 0.89%
1995 12.21 0.393 (0.758) (0.392) (0.003) 11.45 (2.95)% 7,128 0.79%
1994 11.50 0.397 0.925 (0.391) (0.221) 12.21 11.79% 7,292 0.69%
RETAIL CLASS B SHARES
FOR THE PERIOD ENDED JULY 31,:
1998 (1) $16.55 0.155 0.197 (0.175) -- $16.73 4.32%* $ 967 1.80%*
- ---------------------------------------------------------------
RATIO OF
RATIO NET INVESTMENT
OF EXPENSES RATIO OF INCOME TO
AVERAGE NET INVESTMENT AVERAGE
NET ASSETS INCOME NET ASSETS PORTFOLIO
EXCLUDING TO AVERAGE EXCLUDING TURNOVER
FEE WAIVERS NET ASSETS FEE WAIVERS RATE
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------
BALANCED FUND
- -------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 1.08% 2.67% 2.50% 22%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.98%* 2.99% 2.85%* 10%
FOR THE YEARS ENDED JANUARY 31,:
1997 0.79% 3.48% 3.48% 27%
1996 0.80% 3.20% 3.20% 26%
1995 0.80% 3.41% 3.41% 48%
1994 0.79% 3.35% 3.25% 49%
RETAIL CLASS A SHARES
FOR THE YEAR ENDED JULY 31,:
1998 1.33% 2.42% 2.24% 22%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 1.30%* 2.75%* 2.53%* 10%
FOR THE YEARS ENDED JANUARY 31,:
1997 1.19% 3.22% 3.07% 27%
1996 1.20% 3.12% 2.81% 26%
1995 1.19% 3.41% 3.01% 48%
1994 1.19% 3.26% 2.76% 49%
RETAIL CLASS B SHARES
FOR THE PERIOD ENDED JULY 31,:
1998 (1) 1.83%* 1.77%* 1.74%* 22%
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
* ANNUALIZED.
** TOTAL RETURN DOES NOT REFLECT THE SALES CHARGE.
(1) COMMENCED OPERATIONS ON FEBRUARY 2, 1998.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
104
<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
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------
GROWTH FUND
- -----------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
1998 $17.36 0.017 3.108 (0.033) (3.532) $16.92 22.59% $499,060 0.91%
1997 12.58 0.057 5.773 (0.053) (0.996) 17.36 48.54% 297,879 0.92%
1996 11.87 0.120 1.350 (0.120) (0.640) 12.58 12.72% 41,495 0.93%
1995 9.76 0.150 2.260 (0.150) (0.150) 11.87 25.23% 25,096 0.79%
1994 10.00 0.050 (0.240) (0.050) -- 9.76 (1.87)% 15,254 0.77%
RETAIL CLASS A SHARES
FOR THE YEARS ENDED JULY 31,:
1998 $17.39 (0.018) 3.100 (0.015) (3.532) $16.93 22.26% $ 17,173 1.16%
1997 12.60 0.049 5.784 (0.048) (0.996) 17.39 48.49% 7,816 1.04%
1996 11.87 0.110 1.380 (0.120) (0.640) 12.60 12.88% 2,843 0.93%
1995 9.77 0.150 2.250 (0.150) (0.150) 11.87 25.10% 1,218 0.84%
1994 9.74 -- 0.040 (0.010) -- 9.77 (1.77)%(A) -- --
RETAIL CLASS B SHARES
FOR THE PERIOD ENDED JULY 31,:
1998 (1) $14.76 (0.035) 2.125 -- -- $16.85 28.71%* $ 1,948 1.81%*
- ---------------------------------------------------------------
RATIO OF
RATIO NET INVESTMENT
OF EXPENSES RATIO OF INCOME TO
AVERAGE NET INVESTMENT AVERAGE
NET ASSETS INCOME NET ASSETS PORTFOLIO
EXCLUDING TO AVERAGE EXCLUDING TURNOVER
FEE WAIVERS NET ASSETS FEE WAIVERS RATE
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------
GROWTH FUND
- -----------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
1998 1.08% 0.08% (0.09)% 67%
1997 1.24% 0.39% 0.07% 118%
1996 1.67% 0.98% 0.23% 79%
1995 1.92% 1.40% 0.26% 68%
1994 2.61% 0.86% (0.98)% 123%
RETAIL CLASS A SHARES
FOR THE YEARS ENDED JULY 31,:
1998 1.34% (0.17)% (0.35)% 67%
1997 1.49% 0.28% (0.18)% 118%
1996 1.91% 0.96% (0.02)% 79%
1995 2.11% 1.17% (0.10)% 68%
1994 -- -- -- 123%
RETAIL CLASS B SHARES
FOR THE PERIOD ENDED JULY 31,:
1998 (1) 1.84%* (0.94)%* (0.97)%* 67%
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(A) 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.
(1) COMMENCED OPERATIONS ON FEBRUARY 2, 1998.
</FN>
</TABLE>
105
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------
VALUE MOMENTUM FUND
- -------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $25.48 0.332 2.003 (0.341) (0.164) $27.31 9.22% $863,627 0.81%
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%*
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%
1996 13.40 0.331 5.063 (0.337) (0.408) 18.05 40.88% 222,065 0.80%
1995 14.27 0.318 (0.817) (0.317) (0.054) 13.40 (3.48)% 150,138 0.81%
1994 12.76 0.292 1.538 (0.290) (0.030) 14.27 14.56% 140,609 0.77%
RETAIL CLASS A SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $25.48 0.262 2.007 (0.275) (0.164) $27.31 8.96% $ 35,325 1.06%
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%*
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%
1996 13.40 0.320 5.060 (0.323) (0.408) 18.05 40.77% 11,801 0.89%
1995 14.27 0.321 (0.820) (0.317) (0.054) 13.40 (3.48)% 9,777 0.81%
1994 12.75 0.297 1.543 (0.290) (0.030) 14.27 14.65% 9,346 0.77%
RETAIL CLASS B SHARES
FOR THE PERIOD ENDED JULY 31,:
1998 (1) $26.82 0.046 0.479 (0.064) -- $27.28 3.94%* $ 5,202 1.81%*
- ------------------
INCOME EQUITY FUND
- ------------------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
1998 $18.21 0.305 1.486 (0.302) (1.776) $17.92 10.79% $670,298 0.92%
1997 14.27 0.372 5.019 (0.368) (1.083) 18.21 40.13% 352,725 0.99%
1996 13.00 0.420 1.930 (0.420) (0.660) 14.27 18.25% 262,660 1.03%
1995 11.92 0.440 1.500 (0.440) (0.420) 13.00 17.26% 221,325 1.06%
1994 12.13 0.390 0.120 (0.390) (0.330) 11.92 4.23% 213,328 1.06%
RETAIL CLASS A SHARES
FOR THE YEARS ENDED JULY 31,:
1998 $18.24 0.262 1.486 (0.258) (1.776) $17.95 10.50% $ 23,024 1.17%
1997 14.29 0.363 5.028 (0.358) (1.083) 18.24 39.97% 14,152 1.06%
1996 13.03 0.420 1.920 (0.420) (0.660) 14.29 18.21% 10,143 1.03%
1995 11.92 0.420 1.550 (0.440) (0.420) 13.03 17.52% 3,881 1.06%
1994 (2) 11.85 0.040 0.080 (0.050) -- 11.92 4.23%(A) 24 1.10%*
RETAIL CLASS B SHARES
FOR THE PERIOD ENDED JULY 31,:
1998 (1) $16.88 0.057 1.034 (0.072) -- $17.90 13.10%* $ 1,816 1.82%*
- ---------------------------------------------------------------
RATIO OF
RATIO NET INVESTMENT
OF EXPENSES RATIO OF INCOME TO
AVERAGE NET INVESTMENT AVERAGE
NET ASSETS INCOME NET ASSETS PORTFOLIO
EXCLUDING TO AVERAGE EXCLUDING TURNOVER
FEE WAIVERS NET ASSETS FEE WAIVERS RATE
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------------
VALUE MOMENTUM FUND
- -------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 1.08% 1.25% 0.98% 7%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.94%* 1.65%* 1.49%* 1%
FOR THE YEARS ENDED JANUARY 31,:
1997 0.79% 2.26% 2.26% 9%
1996 0.80% 2.07% 2.07% 20%
1995 0.81% 2.36% 2.36% 6%
1994 0.79% 2.19% 2.17% 5%
RETAIL CLASS A SHARES
FOR THE YEAR ENDED JULY 31,:
1998 1.33% 0.99% 0.72% 7%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 1.25%* 1.40%* 1.17%* 1%
FOR THE YEARS ENDED JANUARY 31,:
1997 1.19% 2.01% 1.86% 9%
1996 1.20% 2.00% 1.69% 20%
1995 1.21% 2.37% 1.97% 6%
1994 1.20% 2.12% 1.69% 5%
RETAIL CLASS B SHARES
FOR THE PERIOD ENDED JULY 31,:
1998 (1) 1.84%* 0.15%* 0.13%* 7%
- ------------------
INCOME EQUITY FUND
- ------------------
FIDUCIARY SHARES
FOR THE YEARS ENDED JULY 31,:
1998 1.09% 1.63% 1.45% 69%
1997 1.21% 2.39% 2.17% 46%
1996 1.27% 2.95% 2.71% 42%
1995 1.30% 3.59% 3.34% 37%
1994 1.10% 3.29% 3.24% 34%
RETAIL CLASS A SHARES
FOR THE YEARS ENDED JULY 31,:
1998 1.34% 1.39% 1.22% 69%
1997 1.46% 2.32% 1.92% 46%
1996 1.51% 2.89% 2.41% 42%
1995 1.55% 3.06% 2.57% 37%
1994 (2) 1.33%* 0.93%* 0.71%* 34%
RETAIL CLASS B SHARES
FOR THE PERIOD ENDED JULY 31,:
1998 (1) 1.85%* 0.38%* 0.36%* 69%
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(A) 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.
(1) COMMENCED OPERATIONS ON FEBRUARY 2, 1998.
(2) COMMENCED OPERATIONS ON JUNE 20, 1994.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
106
<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
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------
BLUE CHIP GROWTH FUND
- ---------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $17.32 0.073 1.143 (0.075) (2.425) $16.04 8.67% $127,295 0.82%
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%*
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%
1996 9.53 0.174 3.311 (0.180) (0.203) 12.63 36.95% 63,410 0.83%
1995 (1) 10.00 0.167 (0.479) (0.158) -- 9.53 (3.10)% 39,319 0.85%
- --------------------
EMERGING GROWTH FUND
- --------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $14.39 0.006 0.432 (0.008) (2.033) $12.79 3.37% $ 68,579 1.03%
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%*
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%
1996 9.42 0.026 2.807 (0.033) (0.277) 11.94 30.24% 41,770 1.05%
1995 (1) 10.00 0.086 (0.535) (0.080) (0.051) 9.42 (4.48)% 23,928 1.05%
- -------------------------
INTERNATIONAL EQUITY FUND
- -------------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 $38.69 0.767 (1.178) (0.592) (0.367) $37.32 (0.82)% $ 91,970 1.34%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 $34.52 0.212 3.958 -- -- $38.69 12.08% $ 52,467 1.22%*
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%
1996 (2) 33.51 0.447 4.084 (0.446) (0.105) 37.49 13.56% 44,188 1.16%
- ---------------------------------------------------------------
RATIO OF
RATIO NET INVESTMENT
OF EXPENSES RATIO OF INCOME TO
AVERAGE NET INVESTMENT AVERAGE
NET ASSETS INCOME NET ASSETS PORTFOLIO
EXCLUDING TO AVERAGE EXCLUDING TURNOVER
FEE WAIVERS NET ASSETS FEE WAIVERS RATE
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------
BLUE CHIP GROWTH FUND
- ---------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 1.09% 0.46% 0.19% 168%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 0.95%* 1.09%* 0.94%* 54%
FOR THE YEARS ENDED JANUARY 31,:
1997 0.84% 1.21% 1.21% 80%
1996 0.83% 1.54% 1.54% 69%
1995 (1) 0.85% 1.84% 1.84% 89%
- --------------------
EMERGING GROWTH FUND
- --------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 1.30% 0.05% (0.22)% 289%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 1.16%* 0.26%* 0.10%* 116%
FOR THE YEARS ENDED JANUARY 31,:
1997 1.04% 0.06% 0.06% 134%
1996 1.05% 0.22% 0.22% 131%
1995 (1) 1.05% 1.01% 1.01% 123%
- -------------------------
INTERNATIONAL EQUITY FUND
- -------------------------
FIDUCIARY SHARES
FOR THE YEAR ENDED JULY 31,:
1998 1.61% 0.71% 0.44% 72%
FOR THE SIX MONTH PERIOD ENDED JULY 31,:
1997 1.41%* 1.16%* 0.97%* 18%
FOR THE YEARS ENDED JANUARY 31,:
1997 1.28% 0.60% 0.50% 29%
1996 (2) 1.36% 1.31% 1.11% 21%
<FN>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
* ANNUALIZED
(1) COMMENCED OPERATIONS ON FEBRUARY 1, 1994.
(2) COMMENCED OPERATIONS ON FEBRUARY 1, 1995.
</FN>
</TABLE>
107
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
NOTES TO FINANCIAL STATEMENTS
JULY 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 U.S. Government Money Market Fund, the
Diversified Money Market Fund and the California Tax-Free 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
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 prior periods beginning on the first day
of the accounting survivor's fiscal year (August 1, 1996 and February 1, 1997,
respectively).
SECURITY VALUATION -- Investment securities held by the Money Market Funds are
stated at amortized cost, which approximates market value. Under this valuation
method, purchase discounts and premiums are accreted and amortized ratably to
maturity and are included in interest income.
Investments in equity securities held by the Non-Money Market Funds that are
traded on a national securities exchange (or reported on the NASDAQ national
market system) are stated at the last quoted sales price if readily available
for such equity securities on each business day; other equity securities traded
in the over-the-counter market and listed equity securities for which no sale
was reported on that date are stated at the last quoted bid price. Option
contracts are valued at the last quoted bid price as quoted on the primary
exchange or board of trade on which such option contracts are traded. Debt
obligations exceeding sixty days to maturity for which market quotations are
readily available are valued at the most recently quoted bid price. Debt
obligations with sixty days or less remaining until maturity may be valued at
their amortized cost. Restricted securities for which quotations are not readily
available are valued at fair value using methods determined in good faith under
general Trustee supervision.
FOREIGN CURRENCY TRANSLATION -- The books and records of the International
Equity Fund are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars on the following basis: (I) market value of
investment securities, other assets and liabilities at the current rate of
exchange; and (II) purchases and sales of investment securities, income and
expenses at the relevant rates of exchange prevailing on the respective dates of
such transactions.
The International Equity Fund does not isolate the portion of gains and losses
on investments in securities that is due to changes in the foreign exchange
rates
108
<PAGE>
- --------------------------------------------------------------------------------
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. 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 in accordance with generally accepted accounting
principles 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.
109
<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", differences attributable to the classification of capital gains and
net investment income for tax distribution purposes, as of July 31, 1998, have
been reclassified between accumulated net realized gains/losses and
undistributed net income, as appropriate. These reclassifications had no effect
on net asset value.
3. TRANSACTIONS WITH AFFILIATES
- --------------------------------------------------------------------------------
Effective February 15, 1997, SEI Investments Mutual Funds Services (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 July 31, 1998 the
Administrator voluntarily 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. For the period from August 1, 1997 to June 31, 1998, UBOC
received sub- administration fees from the Funds in the amount of $2,637,000.
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 Distribution Plans (the "Plans") on behalf of
Retail A Shares and Retail B Shares pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The Plans provide that Retail A Shares and Retail B Shares
will bear the cost of their distribution expenses. The Distributor, as
compensation for its services under the Plan, receives a distribution fee,
computed daily and payable monthly, of 0.25% of the average daily net assets
attributable to each Fund's Retail A Shares and 0.75% of the average daily net
assets attributable to each Fund's Retail B Shares. The Intermediate-Term Bond,
California Intermediate Tax-Free Bond and Bond Funds are currently waiving all
distribution fees.
The Funds have also adopted Shareholder Service Plans permitting payment of
compensation to service providers, that may include Union Bank of California,
N.A., Bank
110
<PAGE>
- --------------------------------------------------------------------------------
of Tokyo-Mitsubishi, Ltd., or their respective affiliates, that have agreed to
provide certain shareholder support services for their customers who own Retail
A, Retail B 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 July 31, 1998,
Union Bank of California, N.A. received shareholder servicing fees from the
Funds in the amount of approximately $1,351,000. Union Bank of California, N.A.
acts as custodian ("the Custodian") for the Funds. Fees of the Custodian are
being paid on the basis of net assets of the Funds.
Certain officers of the Funds are also officers and/or Directors of the
Administrator. The Funds pay each unaffiliated Trustee an annual fee for
attendance at quarterly, interim and committee meetings. Compensation of
officers is paid by the Administrator.
4. INVESTMENT ADVISORY AGREEMENT
- --------------------------------------------------------------------------------
The Funds and HighMark Capital Management, Inc. a subsidiary of UnionBanCal
Corporation, formerly 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 U.S. Government Money Market Fund, the
Diversified Money Market Fund, and the California Tax-Free 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 year
ended July 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. Effective
July 28,1998, Bank of Tokyo-Mitsubishi Trust Company ceased providing
sub-advisory services to the Blue Chip Growth and Government Securities Funds.
Highmark Capital Management, Inc. provides investment advisory services to each
Fund pursuant to an investment advisory agreement dated April 1, 1996. 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 Fund for which it acts as Sub-Advisor.
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 Fund.
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
Fund.
111
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
5. INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
The purchases and sales (including maturities) of investment securities other
than short-term securities were as follows:
INVESTMENT
SECURITIES
--------------------
PURCHASES SALES
(000'S) (000'S)
-------- --------
Intermediate-Term Bond ...... $175,620 $ 82,817
California Intermediate
Tax-Free Bond ............. 156,219 15,960
Bond ........................ 147,795 18,620
Convertible Securities ...... 18,759 12,349
Government Securities ....... 100,513 46,617
Balanced .................... 134,350 90,986
Growth ...................... 351,681 252,485
Value Momentum .............. 298,592 43,584
Income Equity ............... 542,454 328,205
Blue Chip Growth ............ 200,684 176,222
Emerging Growth ............. 186,997 184,997
International Equity ........ 82,041 46,937
Cost for financial statement purposes differs from cost for Federal income tax
purposes primarily due to the deferral of certain losses under Federal income
tax regulations. The aggregate gross unrealized appreciation and depreciation
for Federal income tax purposes at July 31, 1998 for each portfolio was as
follows:
APPRECIATION DEPRECIATION TOTAL
(000'S) (000'S) (000'S)
------------ ------------ -------
Intermediate-Term Bond .... $ 6,211 $ (92) $ 6,119
California Intermediate
Tax-Free Bond ........... 6,684 (74) 6,610
Bond ...................... 8,449 (287) 8,162
Convertible Securities .... 4,869 (2,000) 2,869
Government Securities ..... 2,630 (67) 2,563
Balanced .................. 114,523 (8,833) 105,690
Growth .................... 154,837 (7,851) 146,986
Value Momentum ............ 368,101 (28,717) 339,384
Income Equity ............. 147,650 (10,441) 137,209
Blue Chip Growth .......... 22,884 (2,880) 20,004
Emerging Growth ........... 5,264 (5,644) (380)
International Equity ...... 11,752 (2,860) 8,892
The Funds have capital loss carryforwards at July 31, 1998, to the extent
provided in the regulations for federal income tax as follows:
<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYOVER EXPIRES EXPIRES EXPIRES EXPIRES EXPIRES EXPIRES
07/31/98 2001 2002 2003 2004 2005 2006
------------ --------- ---------- --------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Money Market ........... $ 149,444 $149,444 $ -- $ -- $ -- $ -- $ --
Diversified
Money Market ........... 1,420,929 300,452 29,246 1,078,029 13,202 -- --
Cal. Tax-Free
Money Market ........... 64,602 -- 24,741 24,115 -- -- 15,746
Bond ..................... 3,179,541 -- 2,679,139 -- 69,995 430,407 --
Int.-Term Bond ........... 3,160,224 -- -- 1,196,317 -- 1,963,907 --
Cal. Int. Tax-Free Bond .. 1,001,080 -- -- 279,938 711,043 10,099 --
Government Securities .... 1,668,433 -- -- 247,809 -- 1,420,624 --
International Equity ..... 971,846 -- -- -- -- -- 971,846
</TABLE>
The U.S. Treasury Money Market Fund and the International Equity Fund had post
10/31 loss deferrals of $3,641 and $6,077,003, 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 and political 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.
112
<PAGE>
7. COMMON TRUST FUND CONVERSIONS
- --------------------------------------------------------------------------------
On April 24, 1998, certain common trust funds of Union Bank of California, N.A.
were converted into the HighMark Funds. The assets, which consisted of
securities and related receivables less liabilities, were converted on a
tax-free basis. The Funds involved in the conversion are as follows:
UNREALIZED
COMMON TRUST FUND HIGHMARK FUND APPRECIATION
PT Income Equity Income Equity ............... $ 88,061
PT Balanced Balanced .................... 3,468
PT Growth A & B Growth ...................... 36,913
PT Diversified Bond A & B Bond ........................ 4,162
PT Intermediate Bond A & B Intermediate-Term Bond ...... 2,778
PT Value Momentum A & B Value Momentum .............. 141,260
PT Prime Money Market Diversified Money Market .... --
PT California Tax-Free Bond California Intermediate
Tax-Free Bond ............ 4,581
8. OPTION CONTRACTS
- --------------------------------------------------------------------------------
Transactions in covered call options and purchased put options during the period
ended July 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 ........... 4,317 1,413,874
Call option exercised during period ......... (1,984) (740,661)
Call option expired during period ........... (1,364) (373,893)
Call option closed during period ............ (1,239) (331,619)
------ ----------
Option written and outstanding at end
of period ................................... -- $ --
====== ==========
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 ............. 4,839 1,039,159
Call option exercised during period ........... (1,167) (264,084)
Call option expired during period ............. (2,312) (462,421)
Call option closed during period .............. (2,389) (557,399)
------- ----------
Option written and outstanding at end
of period ..................................... -- $ --
====== ==========
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 ............ 772 163,178
Put option sold during period ................. (455) (104,194)
Put option expired during period .............. (327) (59,817)
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 ............ 3,288 819,430
Put option sold during period ................. (1,012) (148,749)
Put option expired during period .............. (1,517) (409,787)
Put option exercised during period ............ (1,026) (358,236)
------- --------
Purchased put option outstanding at
end of period ................................. -- $ --
======= ========
113
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. SHARES ISSUED AND REDEEMED (000):
- --------------------------------------------------------------------------------
Transactions in Fund Shares were as follows:
<TABLE>
<CAPTION>
100% U.S. TREASURY U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
FUND FUND
------------------------ -------------------------
08/01/97 08/01/96 08/01/97 08/01/96
TO 07/31/98 TO 07/31/97 TO 07/31/98 TO 07/31/97
------------------------ -------------------------
<S> <C> <C> <C> <C>
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of Stepstone or Highmark ..... -- 181,083 -- --
Issued in connection with the acquisition of
Common Trust Fund Assets .................................. -- -- -- --
Issued ...................................................... 678,448 444,667 1,374,048 1,103,212
Issued in Lieu of Cash Distributions ........................ 635 740 256 253
Redeemed .................................................... (694,817) (556,386) (1,344,194) (1,001,968)
---------- --------- ----------- -----------
Total Fiduciary Share Transactions ........................ (15,734) 70,104 30,110 101,497
---------- --------- ----------- -----------
Retail A Shares:
Issued from the reorganization of Stepstone or Highmark ..... -- 436,482 -- --
Issued ...................................................... 1,308,434 526,646 369,119 331,210
Issued in Lieu of Cash Distributions ........................ 31,361 8,189 2,968 2,297
Redeemed .................................................... (1,171,680) (512,994) (292,826) (366,427)
---------- --------- ----------- -----------
Total Retail A Share Transactions ......................... 168,115 458,323 79,261 (32,920)
---------- --------- ----------- -----------
Net Increase in Share Transactions .......................... 152,381 528,427 109,371 68,577
========== ========= =========== ===========
- ----------------------------------------------------------------------------------------------------------------------
DIVERSIFIED CALIFORNIA TAX-FREE
MONEY MARKET MONEY MARKET
FUND FUND
------------------------ ------------------------
08/01/97 02/01/97 08/01/97 02/01/97
TO 07/31/98 TO 07/31/97 TO 07/31/98 TO 07/31/97
------------------------ ------------------------
<S> <C> <C> <C> <C>
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of Stepstone or Highmark ..... -- 283,586 -- 114,246
Issued in connection with the acquisition of
Common Trust Fund Assets .................................. 33,913 -- -- --
Issued ...................................................... 2,317,898 2,066,619 455,192 131,018
Issued in Lieu of Cash Distributions ........................ 9,864 4,034 16 6
Redeemed .................................................... (2,153,396) (1,905,972) (373,015) (122,182)
----------- ----------- --------- ---------
Total Fiduciary Share Transactions ........................ 208,279 448,267 82,193 123,088
----------- ----------- --------- ---------
Retail A Shares:
Issued from the reorganization of Stepstone or Highmark ..... -- 139,246 -- 61,460
Issued ...................................................... 1,900,298 621,422 512,922 159,066
Issued in Lieu of Cash Distributions ........................ 47,070 14,984 7,326 2,370
Redeemed .................................................... (1,622,743) (552,572) (432,217) (156,357)
----------- ----------- --------- ---------
Total Retail A Share Transactions ......................... 324,625 223,080 88,031 66,539
----------- ----------- --------- ---------
Net Increase in Share Transactions .......................... 532,904 671,347 170,224 189,627
=========== =========== ========= =========
- ----------------------------------------------------------------------------------------------------------------------
INTERMEDIATE- CALIFORNIA INTERMEDIATE
TERM BOND TAX-FREE BOND
FUND FUND
------------------------ ------------------------
08/01/97 02/01/97 08/01/97 02/01/97
TO 07/31/98 TO 07/31/97 TO 07/31/98 TO 07/31/97
------------------------ ------------------------
<S> <C> <C> <C> <C>
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of Stepstone or Highmark ..... -- -- -- --
Issued in connection with the acquisition of
Common Trust Fund Assets .................................. 14,956 -- 13,818 --
Issued ...................................................... 3,217 1,339 2,217 486
Issued in Lieu of Cash Distributions ........................ 540 309 30 10
Redeemed .................................................... (9,352) (1,618) (1,557) (129)
------- ------ ------- -------
Total Fiduciary Share Transactions ........................ 9,361 30 14,508 367
------- ------ ------- -------
Retail A Shares:
Issued from the reorganization of Stepstone or Highmark ..... -- -- -- --
Issued ...................................................... 42 13 860 563
Issued in Lieu of Cash Distributions ........................ 29 16 43 16
Redeemed .................................................... (70) (44) (735) (51)
------- ------ ------- -------
Total Retail A Share Transactions ......................... 1 (15) 168 528
------- ------ ------- -------
Net Increase in Share Transactions .......................... 9,362 15 14,676 895
======= ====== ======= =======
- -----------------------------------------------------------------------------------------------------------------------
BOND CONVERTIBLE SECURITIES
FUND FUND
------------------------ ------------------------
08/01/97 08/01/96 08/01/97 02/01/97
TO 07/31/98 TO 07/31/97 TO 07/31/98 TO 07/31/97
------------------------ ------------------------
<S> <C> <C> <C> <C>
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of Stepstone or Highmark ..... -- -- -- --
Issued in connection with the acquisition of
Common Trust Fund Assets .................................. 9,361 -- -- --
Issued ...................................................... 5,348 2,017 1,447 526
Issued in Lieu of Cash Distributions ........................ 357 283 237 32
Redeemed .................................................... (2,711) (1,494) (865) (341)
------- ------- ------- -------
Total Fiduciary Share Transactions ........................ 12,355 806 819 217
------- ------- ------- -------
Retail A Shares:
Issued from the reorganization of Stepstone or Highmark ..... -- -- -- --
Issued ...................................................... 124 21 -- --
Issued in Lieu of Cash Distributions ........................ 4 5 -- --
Redeemed .................................................... (7) (83) -- --
------- ------- ------- -------
Total Retail A Share Transactions ......................... 121 (57) -- --
------- ------- ------- -------
Net Increase in Share Transactions .......................... 12,476 749 819 217
======= ======= ======= =======
GOVERNMENT SECURITIES BALANCED
FUND FUND
------------------------ ------------------------
08/01/97 02/01/97 08/01/97 02/01/97
TO 07/31/98 TO 07/31/97 TO 07/31/98 TO 07/31/97
------------------------ ------------------------
<S> <C> <C> <C> <C>
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of Stepstone or Highmark .... -- -- -- 3,120
Issued in connection with the acquisition of
Common Trust Fund Assets ................................. -- -- 881 --
Issued ..................................................... 9,129 1,599 5,729 3,210
Issued in Lieu of Cash Distributions ....................... 446 169 1,346 683
Redeemed ................................................... (3,854) (1,273) (5,471) (3,134)
------- ------- ------- -------
Total Fiduciary Share Transactions ....................... 5,721 495 2,485 3,879
------- ------- ------- -------
Retail A Shares:
Issued from the reorganization of Stepstone or Highmark .... -- -- -- 42
Issued ..................................................... -- -- 151 56
Issued in Lieu of Cash Distributions ....................... -- -- 29 18
Redeemed ................................................... -- -- (105) (144)
------- ------- ------- -------
Total Retail A Share Transactions ........................ -- -- 75 (28)
------- ------- ------- -------
Retail B Shares:
Issued ..................................................... -- -- 59 --
Issued in Lieu of Cash Distributions ....................... -- -- -- --
Redeemed ................................................... -- -- (1) --
------- ------- ------- -------
Total Retail B Share Transactions ........................ -- -- 58 --
------- ------- ------- -------
Net Increase in Share Transactions ......................... 5,721 495 2,618 3,851
======= ======= ======= =======
GROWTH VALUE MOMENTUM
FUND FUND
------------------------ ------------------------
08/01/97 08/01/96 08/01/97 02/01/97
TO 07/31/98 TO 07/31/97 TO 07/31/98 TO 07/31/97
------------------------ ------------------------
<S> <C> <C> <C> <C>
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of Stepstone or Highmark .... -- 13,293 -- --
Issued in connection with the acquisition of
Common Trust Fund Assets ................................. 6,689 -- 10,319 --
Issued ..................................................... 7,071 1,944 7,388 4,899
Issued in Lieu of Cash Distributions ....................... 3,216 264 315 91
Redeemed ................................................... (4,643) (1,642) (4,589) (1,521)
------- ------- ------- -------
Total Fiduciary Share Transactions ....................... 12,333 13,859 13,433 3,469
------- ------- ------- -------
Retail A Shares:
Issued from the reorganization of Stepstone or Highmark .... -- 242 -- --
Issued ..................................................... 543 68 600 130
Issued in Lieu of Cash Distributions ....................... 127 17 16 5
Redeemed ................................................... (105) (103) (136) (61)
------- ------- ------- -------
Total Retail A Share Transactions ........................ 565 224 480 74
------- ------- ------- -------
Retail B Shares:
Issued ..................................................... 118 -- 194 --
Issued in Lieu of Cash Distributions ....................... -- -- -- --
Redeemed ................................................... (2) -- (4) --
------- ------- ------- -------
Total Retail B Share Transactions ........................ 116 -- 190 --
------- ------- ------- -------
Net Increase in Share Transactions ......................... 13,014 14,083 14,103 3,543
======= ======= ======= =======
INCOME EQUITY BLUE CHIP GROWTH
FUND FUND
------------------------ ------------------------
08/01/97 08/01/96 08/01/97 02/01/97
TO 07/31/98 TO 07/31/97 TO 07/31/98 TO 07/31/97
------------------------ ------------------------
<S> <C> <C> <C> <C>
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of Stepstone or Highmark .... -- -- -- --
Issued in connection with the acquisition of
Common Trust Fund Assets ................................. 18,743 -- -- --
Issued ..................................................... 3,942 3,110 4,109 1,198
Issued in Lieu of Cash Distributions ....................... 2,054 1,630 989 30
Redeemed ................................................... (6,700) (3,787) (2,754) (1,199)
------- ------- ------- -------
Total Fiduciary Share Transactions ....................... 18,039 953 2,344 29
------- ------- ------- -------
Retail A Shares:
Issued from the reorganization of Stepstone or Highmark .... -- -- -- --
Issued ..................................................... 527 204 -- --
Issued in Lieu of Cash Distributions ....................... 115 68 -- --
Redeemed ................................................... (135) (206) -- --
------- ------- ------- -------
Total Retail A Share Transactions ........................ 507 66 -- --
------- ------- ------- -------
Retail B Shares:
Issued ..................................................... 103 -- -- --
Issued in Lieu of Cash Distributions ....................... -- -- -- --
Redeemed ................................................... (2) -- -- --
------- ------- ------- -------
Total Retail B Share Transactions ........................ 101 -- -- --
------- ------- ------- -------
Net Increase in Share Transactions ......................... 18,647 1,019 2,344 29
======= ======= ======= =======
EMERGING GROWTH INTERNATIONAL EQUITY
FUND FUND
------------------------ ------------------------
08/01/97 02/01/97 08/01/97 02/01/97
TO 07/31/98 TO 07/31/97 TO 07/31/98 TO 07/31/97
------------------------ ------------------------
<S> <C> <C> <C> <C>
Shares Issued and Redeemed:
Fiduciary Shares:
Issued from the reorganization of Stepstone or Highmark .... -- -- -- --
Issued in connection with the acquisition of
Common Trust Fund Assets ................................. -- -- -- --
Issued ..................................................... 2,362 1,332 1,372 96
Issued in Lieu of Cash Distributions ....................... 760 5 20 --
Redeemed ................................................... (2,369) (961) (284) (84)
------- ------ ------ ------
Total Fiduciary Share Transactions ....................... 753 376 1,108 12
------- ------ ------ ------
Retail A Shares:
Issued from the reorganization of Stepstone or Highmark .... -- -- -- --
Issued ..................................................... -- -- -- --
Issued in Lieu of Cash Distributions ....................... -- -- -- --
Redeemed ................................................... -- -- -- --
------- ------ ------ ------
Total Retail A Share Transactions ........................ -- -- -- --
------- ------ ------ ------
Retail B Shares:
Issued ..................................................... -- -- -- --
Issued in Lieu of Cash Distributions ....................... -- -- -- --
Redeemed ................................................... -- -- -- --
------- ------ ------ ------
Total Retail B Share Transactions ........................ -- -- -- --
------- ------ ------ ------
Net Increase in Share Transactions ......................... 753 376 1,108 12
======= ====== ====== ======
</TABLE>
114 & 115
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. SUBSEQUENT EVENTS
- --------------------------------------------------------------------------------
Effective September 17, 1998 the Small Cap Value Fund commenced operations.
On September 23, 1998, the Board of Trustees of HighMark approved, subject to
shareholder approval, the reorganization of the Blue Chip Growth Fund into the
Growth Fund and the Government Securities Fund into the Bond Fund. Under the
terms of a Plan of Reorganization, the Growth and Bond Funds would acquire all
of the assets and stated liabilities of the Blue Chip Growth and Government
Securities Funds, respectively. The proposed reorganization is expected to take
place on or about January 8, 1999. The Board also approved, subject to
shareholder approval, the liquidation of the assets of the Convertible
Securities Fund. It is expected that the Convertible Securities Fund will cease
operations on or about December 31, 1998.
11. SHAREHOLDER VOTING RESULTS (UNAUDITED)
- --------------------------------------------------------------------------------
At a shareholder meeting held on March 31, 1998, the shareholders of the
International Equity Fund voted to approve a new sub-investment advisory
agreement between HighMark Capital Management, Inc. (formerly, Pacific Alliance)
and AXA Asset Management Partenaires. The results of the voting were as follows:
INTERNATIONAL EQUITY FUND
- -------------------------
FOR 265,750 87.24% of shares voted 48.46% of shares outstanding
AGAINST 38,658 12.69% of shares voted 7.05% of shares outstanding
ABSTAIN 203 0.07% of shares voted 0.04% of shares outstanding
116
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
HIGHMARK FUNDS:
We have audited the accompanying statements of net assets of HighMark Funds (the
"Funds"), including 100% U.S. Treasury Money Market Fund, U.S. Government Money
Market Fund, Diversified Money Market Fund, California Tax-Free Money Market
Fund, Intermediate-Term Bond Fund, California Intermediate Tax-Free Bond Fund,
Bond Fund, Convertible Securities Fund, Government Securities Fund, Balanced
Fund, Growth Fund, Value Momentum Fund, Income Equity Fund, Blue Chip Growth
Fund, Emerging Growth Fund, and International Equity Fund as of July 31, 1998,
and the related statements of operations for the year then ended, statements of
changes in net assets for the periods ended July 31, 1998 and July 31, 1997, and
financial highlights for the periods ended July 31, 1998, July 31, 1997, and
July 31, 1996, respectively. These financial statements and financial highlights
are the responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits. The financial highlights for the fiscal periods ended July 31,
1995 and prior were audited by other auditors whose report, dated September 22,
1995, expressed an unqualified opinion on those statements. The financial
highlights for the fiscal periods ended January 31, 1997 and prior were audited
by other auditors whose report, dated March 15, 1997, expressed an unqualified
opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1998 by correspondence with the custodians and brokers, and where replies
were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Funds as of July
31, 1998, the results of their operations, the changes in their net assets, and
the financial highlights for the respective stated periods, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Francisco, CA
September 14, 1998
117
<PAGE>
[LOGO OMITTED] HIGHMARK [SERVICE MARK] FUNDS
NOTICE TO SHAREHOLDERS OF THE HIGHMARK FUNDS (Unaudited)
- --------------------------------------------------------------------------------
For shareholders that do not have a July 31, 1998 tax year end, this notice is
for informational purposes only. For shareholders with a July 31, 1998 tax year
end, please consult your tax advisor as to the pertinence of this notice.
For the fiscal year ended July 31, 1998, each Portfolio is designating the
following items with regard to distributions paid during the year.
<TABLE>
<CAPTION>
LONG TERM MID TERM
(20% RATE) (28% RATE) ORDINARY
CAPITAL GAINS CAPITAL GAINS INCOME TAX EXEMPT
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTION INCOME
FUND (TAX BASIS) (TAX BASIS) (TAX BASIS) DISTRIBUTION TOTAL
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
100% U.S. Treasury Money Market .............. 0% 0% 100% 0% 100%
U.S. Government Money Market ................. 0% 0% 100% 0% 100%
Diversified Money Market ..................... 0% 0% 100% 0% 100%
California Tax-Free Money Market ............. 0% 0% 0% 100% 100%
Intermediate-Term Bond ....................... 0% 0% 100% 0% 100%
California Intermediate Tax-Free Bond ........ 0% 0% 0% 100% 100%
Bond ......................................... 0% 0% 100% 0% 100%
Convertible Securities ....................... 30% 2% 68% 0% 100%
Government Securities ........................ 0% 0% 100% 0% 100%
Balanced ..................................... 46% 3% 51% 0% 100%
Growth ....................................... 84% 11% 5% 0% 100%
Value Momentum ............................... 5% 19% 76% 0% 100%
Income Equity ................................ 39% 39% 22% 0% 100%
Blue Chip Growth ............................. 34% 58% 8% 0% 100%
Emerging Growth .............................. 45% 40% 15% 0% 100%
International Equity ......................... 0% 35% 65% 0% 100%
QUALIFYING FOREIGN
FUND DIVIDENDS(1) TAX CREDIT (4)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
100% U.S. Treasury Money Market .............. 0% 0%
U.S. Government Money Market ................. 0% 0%
Diversified Money Market ..................... 0% 0%
California Tax-Free Money Market ............. 0% 0%
Intermediate-Term Bond ....................... 0% 0%
California Intermediate Tax-Free Bond ........ 0% 0%
Bond ......................................... 0% 0%
Convertible Securities ....................... 27% 0%
Government Securities ........................ 0% 0%
Balanced ..................................... 33% 0%
Growth ....................................... 55% 0%
Value Momentum ............................... 45% 0%
Income Equity ................................ 88% 0%
Blue Chip Growth ............................. 36% 0%
Emerging Growth .............................. 19% 0%
International Equity ......................... 0% 16%
<FN>
- -------------
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
(2) For residents of California, Connecticut and New York: The 100% U.S.
Treasury Money Market, U.S. Government Money Market and Government
Securities Funds met the quarterly diversification test for the fiscal
quarters ended during July 31, 1998.
(3) For residents of California, the California Intermediate Tax-Free Bond and
California Tax-Free Money Market Funds met the quarterly diversification
test for the fiscal quarter ended during July 31, 1998.
(4) The foreign tax credit is based on the percentage of ordinary income of
each fund.
</FN>
</TABLE>
118
<PAGE>
NOTES
- --------------------------------------------------------------------------------
<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>
[PHOTO OF FAMILY AT PLAY 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 ANNUAL REPORT
July 31, 1998
HighMark Funds Service Providers:
Investment Advisor
HighMark Capital Management, Inc.
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 Mutual Funds Services &
SEI Investments Distribution Co.
Oaks, PA 19456
Legal Counsel
Ropes & Gray
One Franklin Square
1301 K Street, N.W., Suite 800 East
Washington, D.C. 20005
Auditors
Deloitte & Touche LLP
50 Fremont Street
San Francisco, CA 94105-2230
84806 (7/98)
