<PAGE>
SEMIANNUAL REPORT
June 30, 1998
[PICTURE]
SAFECO MUTUAL FUNDS
FIXED INCOME FUNDS
NO-LOAD CLASS
--------
--------
<TABLE>
TAXABLE BOND FUNDS
<S> <C>
Intermediate-Term U.S. Treasury Fund . . . . . . . . . . . . . . . . . . . . 2
GNMA Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
High-Yield Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Managed Bond Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
TAX-EXEMPT BOND FUNDS
Municipal Bond Market Overview . . . . . . . . . . . . . . . . . . . . . . .19
California Tax-Free Income Fund. . . . . . . . . . . . . . . . . . . . . . .20
Municipal Bond Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Washington State Municipal Bond Fund . . . . . . . . . . . . . . . . . . . .32
Intermediate-Term Municipal Bond Fund. . . . . . . . . . . . . . . . . . . .36
Insured Municipal Bond Fund. . . . . . . . . . . . . . . . . . . . . . . . .41
MONEY MARKET FUNDS
Money Market Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Tax-Free Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . .49
</TABLE>
[LOGO]
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INTERMEDIATE-TERM
U.S. TREASURY FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO]
RONALD SPAULDING
The Intermediate-Term U.S. Treasury Fund beat its peer funds and benchmark
index for the quarter, six months and year ending June 30, 1998.
For the quarter, the Fund returned 2.06%, compared to 1.83% for the Merrill
Lynch Intermediate-Term Treasury Index. The six-month returns were 3.55% for the
Fund versus 3.41% for the index. For the 12 months, it was Fund 9.94% versus
8.45% index. For further comparison, the average intermediate-term U.S. Treasury
fund returned 2.05%, 3.44% and 9.55% for the three-, six- and 12-month periods,
according to Lipper Analytical Services, Inc.
The Fund outperformed its benchmark index because its average maturity at
6.0 years is longer than the index at 3.7 years. During a period of declining
interest rates, which we have experienced, longer maturities perform better,
everything else being equal. The Fund was also overweighted in U.S. agencies,
which outperformed, compared to its benchmark index in June. On June 30, the
Fund
- --------------------------------------------------------------------------------
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIODS ENDED JUNE 30, 1998
-------------------------------------------------------
<S> <C>
1-Year 9.94%
5-Year 5.34%
Since Inception* 7.55%
-------------------------------------------------------
</TABLE>
[GRAPH]
INTERMEDIATE-TERM TREASURY FUND
<TABLE>
<CAPTION>
Merrill Lynch
Intermediate-Term Intermediate-Term
Treasury Fund U.S. Treasury Index
----------------------------------------
<S> <C> <C>
09/30/88 10,000 10,000
10/31/88 10,192 10,136
11/30/88 10,113 10,048
12/31/88 10,125 10,057
01/31/89 10,185 10,156
02/28/89 10,133 10,114
03/31/89 10,151 10,164
04/30/89 10,330 10,351
05/31/89 10,511 10,569
06/30/89 10,751 10,839
07/31/89 10,939 11,060
08/31/89 10,837 10,906
09/30/89 10,882 10,961
10/31/89 11,065 11,186
11/30/89 11,146 11,295
12/31/89 11,169 11,324
01/31/90 11,102 11,259
02/28/90 11,158 11,288
03/31/90 11,152 11,310
04/30/90 11,123 11,270
05/31/90 11,334 11,509
06/30/90 11,449 11,658
07/31/90 11,603 11,826
08/31/90 11,561 11,774
09/30/90 11,606 11,882
10/31/90 11,699 12,047
11/30/90 11,820 12,227
12/31/90 11,968 12,400
01/31/91 12,022 12,526
02/28/91 12,116 12,591
03/31/91 12,202 12,660
04/30/91 12,337 12,791
05/31/91 12,402 12,864
06/30/91 12,417 12,877
07/31/91 12,572 13,016
08/31/91 12,783 13,259
09/30/91 12,976 13,485
10/31/91 13,115 13,637
11/30/91 13,250 13,797
12/31/91 13,586 14,134
01/31/92 13,431 13,991
02/28/92 13,448 14,044
03/31/92 13,399 13,987
04/30/92 13,501 14,115
05/31/92 13,695 14,316
06/30/92 13,909 14,524
07/31/92 14,256 14,793
08/31/92 14,367 14,964
09/30/92 14,634 15,171
10/31/92 14,366 14,985
11/30/92 14,277 14,918
12/31/92 14,478 15,115
01/31/93 14,851 15,397
02/28/93 15,179 15,628
03/31/93 15,241 15,686
04/30/93 15,350 15,810
05/31/93 15,299 15,763
06/30/93 15,670 15,990
07/31/93 15,694 16,022
08/31/93 16,081 16,267
09/30/93 16,172 16,337
10/31/93 16,208 16,366
11/30/93 15,948 16,287
12/31/93 16,048 16,351
01/31/94 16,256 16,514
02/28/94 15,826 16,279
03/31/94 15,493 16,051
04/30/94 15,383 15,942
05/31/94 15,390 15,959
06/30/94 15,361 15,970
07/31/94 15,564 16,168
08/31/94 15,604 16,219
09/30/94 15,434 16,088
10/31/94 15,440 16,092
11/30/94 15,408 16,012
12/31/94 15,468 16,072
01/31/95 15,645 16,339
02/28/95 15,879 16,652
03/31/95 15,960 16,743
04/30/95 16,157 16,935
05/31/95 16,774 17,419
06/30/95 16,886 17,533
07/31/95 16,755 17,545
08/31/95 16,955 17,689
09/30/95 17,142 17,808
10/31/95 17,403 18,008
11/30/95 17,757 18,232
12/31/95 18,059 18,418
01/31/96 18,117 18,576
02/28/96 17,676 18,368
03/31/96 17,490 18,280
04/30/96 17,454 18,222
05/31/96 17,451 18,212
06/30/96 17,577 18,390
07/31/96 17,632 18,447
08/31/96 17,631 18,467
09/30/96 17,828 18,701
10/31/96 18,047 19,006
11/30/96 18,279 19,240
12/31/96 18,128 19,135
01/31/97 18,184 19,206
02/28/97 18,136 19,227
03/31/97 17,915 19,129
04/30/97 18,167 19,343
05/31/97 18,307 19,492
06/30/97 18,489 19,660
07/31/97 19,022 20,029
08/31/97 18,793 19,944
09/30/97 19,075 20,164
10/31/97 19,410 20,398
11/30/97 19,419 20,445
12/31/97 19,631 20,619
01/30/98 19,947 20,897
02/28/98 19,879 20,869
03/31/98 19,917 20,938
04/30/98 19,989 21,032
05/31/98 20,159 21,174
06/30/98 20,327 21,321
</TABLE>
INVESTMENT VALUE
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND: $20,327
-------------------------------------------------------
-------------------------------------------------------
MERRILL LYNCH INTERMEDIATE-TERM TREASURY INDEX: $21,321
-------------------------------------------------------
-------------------------------------------------------
* The Fund's inception was September 7, 1988. Graph and average annual return
comparison begins September 30, 1988.
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment in a relevant market index. The index is unmanaged and
includes no operating expenses or transaction costs. Past performance is not
predictive of future results. Principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
-2-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
had 24% of assets invested in agency securities, while the index had 16%.
The economic environment for bonds has been quite good for the last year.
While the strength in the economy has been worrisome for the bond market, the
moderate rate of price inflation has been just the tonic to keep the bond bears
in check. Problems in Asia, along with good news in inflation, have caused the
Federal Reserve Board (Fed) to be more cautious than they might normally be in
the face of such a strong economy. The Fed has made no move to change interest
rates since March 1997.
The focus of economic problems in Asia shifted to Japan in the second
quarter of 1998. As concerns about Japan grew, the yen weakened against the
dollar and prompted a flight to quality, with many foreigners abandoning their
Asian issues and buying U.S. Treasury securities as a safe haven. We experienced
a bond market rally--especially in the benchmark 30-year treasury--which
had little to do with U.S. economic fundamentals.
The mandate of the Intermediate-Term U.S. Treasury Fund is to buy U.S.
Treasury securities with maturities between three and 10 years. The primary
tool I have to distinguish this Fund from the index and its peers is setting
the average maturity.
We believe the United States is in the middle of a long-term secular
decline in interest rates. While interest rates may rise and fall as dictated
by the business cycle, the general trend is down. For that reason, we want to
maintain the average maturity of the Fund longer than the benchmark index and
benefit from the better performance of longer bonds.
Trading in the Fund has been minimal and has focused on maintaining an
average maturity in the range of 6 to 6.5 years. We have also modestly
increased the weighting in U.S. agencies. That paper now provides relatively
more yield as the spring's strong rally in U.S. Treasuries caused their
yields to fall.
While the long-term outlook is for lower rates, the near-term is more
problematical. For more than a year, we have enjoyed a near perfect bond
environment, with the economy strong and price inflation subdued. The
strength in the economy has continued longer than most forecasters
envisioned, and we are seeing some signs of inflation accelerating. The
Federal Reserve Board, to head off inflation, may be forced to begin raising
interest rates at the end of this year or
-3-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE INTERMEDIATE-
TERM U.S. TREASURY FUND
MANAGER
early in 1999. We believe we can get through this period without the Fed acting,
but concede there is a nearly 50% probability they will begin raising rates by
February 1999.
If the Fed does move to raise rates, I would expect to significantly
shorten the average maturity of the portfolio to be more closely aligned with
the benchmark index.
Ronald Spaulding
- --------------------------------------------------------------------------------
Ronald Spaulding is the chief investment officer of SAFECO Corporation. In 1995,
he became vice president and treasurer of SAFECO Corporation, director of the
insurance subsidiaries, vice chairman of SAFECO Asset Management Company, and
vice president and treasurer of SAFECO Mutual Funds. He holds an M.B.A. from the
University of Washington and is a Chartered Financial Analyst.
PORTFOLIO OF INVESTMENTS
SAFECO
INTERMEDIATE-TERM
U.S. TREASURY FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES - 96.0%
U.S. FEDERAL AGENCY NOTES - 23.5%
$1,500 6.875%, due 11/22/06. . . . . . . . . . . . . . . . . . . $ 1,540
1,500 6.26%, due 9/24/04. . . . . . . . . . . . . . . . . . . . . 1,541
500 5.785%, due 4/14/08 . . . . . . . . . . . . . . . . . . . . . 500
500 5.75%, due 2/15/08. . . . . . . . . . . . . . . . . . . . . . 499
U.S. TREASURY NOTES - 65.4%
2,200 7.75%, due 2/15/01. . . . . . . . . . . . . . . . . . . . . 2,318
1,200 7.50%, due 11/15/01 . . . . . . . . . . . . . . . . . . . . 1,271
2,070 7.25%, due 8/15/04. . . . . . . . . . . . . . . . . . . . . 2,253
1,310 6.875%, due 3/31/00 . . . . . . . . . . . . . . . . . . . . 1,339
3,900 6.50%, due 10/15/06 . . . . . . . . . . . . . . . . . . . . 4,143
U.S. TREASURY PRINCIPAL STRIPS - 7.1%
1,975 0.00%, due 2/15/07 . . . . . . . . . . . . . . . . . . . . 1,227
--------
TOTAL U.S. GOVERNMENT SECURITIES . . . . . . . . . . . . . . . . . . . . .16,631
--------
TEMPORARY INVESTMENTS - 2.8%
INVESTMENT COMPANIES:
480 SSgA Prime Money
Market Portfolio . . . . . . . . . . . . . . . . . . . . . . 480
--------
TOTAL TEMPORARY INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 480
--------
TOTAL INVESTMENTS - 98.8%. . . . . . . . . . . . . . . . . . . . . . . . .17,111
Other Assets, less Liabilities . . . . . . . . . . . . . . . . . . . . . . . 207
--------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,318
--------
--------
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CURRENT YIELD (30-DAY) . . . . . . . . . . . . . . . . 4.78%
WEIGHTED AVERAGE MATURITY. . . . . . . . . . . . . 6.0 YEARS
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-4-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO GNMA FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO]
PAUL STEVENSON
For the quarter ended June 30, 1998, the SAFECO GNMA Fund returned 1.89%
versus 1.71% for the peer group of GNMA funds, according to Lipper Analytical
Services, Inc. For the six and 12 months, the Fund returned 3.33% and 8.74%
compared to the peer group's 3.18% and 8.59%. The Merrill Lynch GNMA index
posted 3.47% and 8.98% for the six- and 12-month periods.
Our underperformance compared to the index is due to expenses, of which the
index has none. I attribute our outperformance of other GNMA funds to timely
trading (moving out of bonds that were susceptible to prepayments) and having
slightly longer bonds than my peers.
I felt interest rates would fall this year, so I completed (and will
continue to complete) trades to capitalize on this stance. My trading activity
was quite heavy and consisted of selling more callable paper, which I felt was
trading too expensively. I replaced seasoned paper and many of the premium
coupon (8.5%+) bonds with more liquid and lower interest rate (6%-7%) bonds or
call-protected Collateralized Mortgage Obligations (CMOs). I also kept the cash
balance to a minimum.
At June 30, the portfolio had a decidedly longer average maturity
- --------------------------------------------------------------------------------
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIODS ENDED JUNE 30, 1998
------------------------------------
<S> <C>
1-Year 8.74%
5-Year 5.63%
10-Year 8.02%
------------------------------------
</TABLE>
[GRAPH]
GNMA Fund
<TABLE>
<CAPTION>
Merrill
GNMA Index
------ ------
<S> <C> <C>
06/30/88 10,000 10,000
07/31/88 9,989 9,962
08/31/88 10,001 9,969
09/30/88 10,167 10,217
10/31/88 10,439 10,465
11/30/88 10,383 10,305
12/31/88 10,372 10,258
01/31/89 10,481 10,435
02/28/89 10,450 10,362
03/31/89 10,460 10,365
04/30/89 10,634 10,564
05/31/89 10,902 10,889
06/30/89 11,168 11,228
07/31/89 11,412 11,427
08/31/89 11,260 11,286
09/30/89 11,311 11,335
10/31/89 11,515 11,624
11/30/89 11,641 11,763
12/31/89 11,713 11,833
01/31/90 11,583 11,709
02/28/90 11,636 11,814
03/31/90 11,650 11,829
04/30/90 11,490 11,717
05/31/90 11,842 12,090
06/30/90 12,000 12,289
07/31/90 12,220 12,497
08/31/90 12,111 12,597
09/30/90 12,191 12,711
10/31/90 12,294 12,867
11/30/90 12,567 13,153
12/31/90 12,733 13,371
01/31/91 12,914 13,563
02/28/91 12,988 13,658
03/31/91 13,056 13,762
04/30/91 13,198 13,899
05/31/91 13,302 14,010
06/30/91 13,317 14,031
07/31/91 13,529 14,266
08/31/91 13,746 14,535
09/30/91 13,985 14,797
10/31/91 14,192 15,031
11/30/91 14,263 15,134
12/31/91 14,618 15,509
01/31/92 14,415 15,321
02/28/92 14,533 15,473
03/31/92 14,449 15,375
04/30/92 14,556 15,539
05/31/92 14,837 15,826
06/30/92 14,995 16,073
07/31/92 15,209 16,167
08/31/92 15,365 16,404
09/30/92 15,489 16,527
10/31/92 15,329 16,400
11/30/92 15,395 16,484
12/31/92 15,598 16,686
01/31/93 15,827 16,906
02/28/93 16,000 17,063
03/31/93 16,065 17,168
04/30/93 16,120 17,262
05/31/93 16,167 17,353
06/30/93 16,440 17,517
07/31/93 16,507 17,601
08/31/93 16,681 17,636
09/30/93 16,699 17,645
10/31/93 16,727 17,699
11/30/93 16,568 17,705
12/31/93 16,702 17,880
01/31/94 16,888 18,021
02/28/94 16,632 17,936
03/31/94 16,104 17,470
04/30/94 15,964 17,341
05/31/94 16,018 17,378
06/30/94 15,947 17,341
07/31/94 16,254 17,683
08/31/94 16,292 17,731
09/30/94 16,046 17,532
10/31/94 16,004 17,520
11/30/94 15,865 17,476
12/31/94 15,988 17,662
01/31/95 16,316 18,044
02/28/95 16,698 18,527
03/31/95 16,754 18,618
04/30/95 16,969 18,883
05/31/95 17,437 19,446
06/30/95 17,510 19,573
07/31/95 17,531 19,623
08/31/95 17,720 19,832
09/30/95 17,891 20,038
10/31/95 18,029 20,205
11/30/95 18,240 20,424
12/31/95 18,464 20,685
01/31/96 18,586 20,844
02/28/96 18,335 20,678
03/31/96 18,227 20,651
04/30/96 18,154 20,584
05/31/96 18,113 20,507
06/30/96 18,363 20,739
07/31/96 18,390 20,832
08/31/96 18,387 20,861
09/30/96 18,692 21,197
10/31/96 19,037 21,623
11/30/96 19,319 21,953
12/31/96 19,199 21,838
01/31/97 19,323 21,991
02/28/97 19,367 22,075
03/31/97 19,161 21,867
04/30/97 19,476 22,216
05/31/97 19,643 22,451
06/30/97 19,882 22,713
07/31/97 20,307 23,123
08/31/97 20,234 23,093
09/30/97 20,476 23,391
10/31/97 20,689 23,629
11/30/97 20,723 23,691
12/31/97 20,922 23,922
01/30/98 21,134 24,153
02/28/98 21,176 24,237
03/31/98 21,219 24,342
04/30/98 21,348 24,502
05/31/98 21,496 24,685
06/30/98 21,619 24,753
</TABLE>
INVESTMENT VALUE
SAFECO GNMA FUND: $21,619
------------------------------------
------------------------------------
MERRILL LYNCH GNMA INDEX: $24,753
------------------------------------
------------------------------------
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment in a relevant market index. The index is unmanaged and
includes no operating expenses or transaction costs. Past performance is not
predictive of future results. Principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
-5-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE GNMA FUND MANAGER
and lower coupon emphasis. Our duration and weighted average maturity were 3.3
and 6.8 years versus 2.2 and 5.2 years for the indices. The Fund's average
coupon and projected yield were 7% and 6.44% versus 7.2% and 6.57%.
Approximately 64% of the portfolio consisted of GNMAs with the balance in CMOs,
Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage
Company (FHLMC) obligations.
The bond market rally continued as interest rates fell during the past
quarter. The Asian financial crisis was a major impetus behind the recent drop
in rates for many reasons. First, overseas buyers have been buying U.S. Treasury
securities as protection against their own falling currencies. Second, the
well-publicized weakness in the Asian economies has made bond market
participants more comfortable with a slowing domestic economy. And, that
slowdown has fueled domestic demand for U.S. bonds. Finally, inflation fears and
the need for the Federal Reserve to raise rates abated, further supporting the
bond markets.
Regarding the mortgage-backed securities market, prepayment fears and
strong demand have been the year's dominant themes. Many Wall Street economists
feel that we have seen the greatest surge in homeowner refinancing. This means
the mortgage-backed securities most susceptible to early prepayments will start
to do better, although I don't feel they represent good value yet.
The second driver in the mortgage-backed market was the overwhelming buy
programs put into place by the two main issuers. FHLMC and FNMA, by some
estimates, have purchased 60%-75% of new MBS issuance this year and show little
pullback for the balance of the year. Add to this demand from domestic
participants who are buying mortgage-backs for their attractive spread over U.S.
Treasury securities, and the mortgage market has done very well in this rally
(except those securities susceptible to early refinance or call risks).
It was no surprise that the longer and more call-protected bonds generally
outperformed. In looking at the various mortgage-back sectors, the major
difference
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CURRENT YIELD (30-DAY) . . . . . . . . . . . . . . . . 5.65%
WEIGHTED AVERAGE MATURITY. . . . . . . . . . . . . 6.8 YEARS
</TABLE>
-6-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
was whether a bond was collateralized with low interest rate (less-callable
discount pools) or high interest rate (more-callable premiums) mortgages.
Discount and longer-maturity securities (6%-7% 30-year mortgages) out-performed
shorter and premium-backed securities (five-year balloons and bonds with 8.5%
and above coupons) by a full percentage point.
The portfolio is currently structured with this combination--a decidedly
longer average maturity and lower-coupon emphasis. I will change that formula
as market conditions dictate, but as long as our outlook for rates stays
favorable, I am happy to hold this bullish stance.
Paul Stevenson
- --------------------------------------------------------------------------------
Paul Stevenson joined SAFECO in 1986 as a mortgage securities analyst. He became
the GNMA Fund manager in 1988. Stevenson has a Bachelor of Arts in finance from
Washington State University, an MBA from the University of Washington, and is a
Chartered Financial Analyst.
PORTFOLIO OF INVESTMENTS
SAFECO
GNMA FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND
AGENCY SECURITIES - 95.8%
COLLATERIZED MORTGAGE OBLIGATION (CMO) - 11.4%
$3,000 7.00%, FNMA REMIC
1993-127J PAC,
due 9/25/22 . . . . . . . . . . . . . . . . . . . . . . . $ 3,136
1,283 6.50%, FNMA REMIC
1993-119 H PAC,
due 7/25/23 . . . . . . . . . . . . . . . . . . . . . . . . 1,304
FEDERAL HOME LOAN MORTGAGE
CORP. (FHLMC) - 8.2%
3,131 6.50%, due 4/15/23. . . . . . . . . . . . . . . . . . . . . 3,192
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (FNMA) - 12.3%
407 10.00%, due 12/01/08. . . . . . . . . . . . . . . . . . . . . 427
1,489 9.00%, due 6/01/22 - 11/01/22 . . . . . . . . . . . . . . . 1,578
2,779 6.50%, due 8/01/23 - 10/01/23 . . . . . . . . . . . . . . . 2,781
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) - 63.9%
1,002 9.50%, due 3/15/20. . . . . . . . . . . . . . . . . . . . . 1,091
9,769 7.50%, due 1/15/22 - 5/15/28. . . . . . . . . . . . . . . .10,056
5,550 7.00%, due 5/15/28. . . . . . . . . . . . . . . . . . . . . 5,632
4,183 6.50%, due 1/20/24 - 3/20/26. . . . . . . . . . . . . . . . 4,158
3,956 6.00%, due 5/15/13. . . . . . . . . . . . . . . . . . . . . 3,926
--------
TOTAL U.S. GOVERNMENT AND AGENCY
SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37,281
--------
TEMPORARY INVESTMENTS - 0.6%
INVESTMENT COMPANIES:
215 SSgA Prime Money
Market Portfolio. . . . . . . . . . . . . . . . . . . . . . . 215
--------
TOTAL TEMPORARY INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 215
--------
TOTAL INVESTMENTS - 96.4%. . . . . . . . . . . . . . . . . . . . . . . . .37,496
Other Assets, less Liabilities . . . . . . . . . . . . . . . . . . . . . . 1,429
--------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $38,925
--------
--------
- --------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-7-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO HIGH-YIELD BOND FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO]
ROBERT KERN
Year to date the SAFECO High-Yield Bond Fund returned 4.37% as compared to
a 4.40% average return for the Lipper Analytical Services, Inc. High Current
Yield Funds group and 4.58% for the Merrill Lynch High-Yield Master Index. For
the year ended June 30, 1998, the Fund returned 11.40% while the peer group
returned 11.45% and the index 11.80%. Our Fund's return is in line with the two
groups, largely because of the well-diversified nature of our holdings.
The below investment grade market was sailing along nicely for the first
quarter of 1998, as cash poured into high-yield mutual funds, and record amounts
of new bonds were issued. Things changed in late April, however, and the waters
became increasingly treacherous to navigate. There are a number of reasons for
the change in market conditions, including a significant deceleration in cash
flowing into high-yield mutual funds beginning in late April, an uptick in the
Moody's default rate over the three months between March to May from 2.18% to
2.53%, indicating an increase in the riskiness of
- --------------------------------------------------------------------------------
PERFORMANCE OVERVIEW -- No-Load Class
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIODS ENDED JUNE 30, 1998
---------------------------------------
<S> <C>
1-Year 11.40%
5-Year 9.12%
Since Inception* 9.65%
---------------------------------------
</TABLE>
[GRAPH]
HIGH-YIELD BOND FUND
<TABLE>
<CAPTION>
High-Yield Merrill Lynch
Bond Fund High-Yield Index
--------- ----------------
<S> <C> <C>
09/30/88 10,000 10,000
10/31/88 10,156 10,144
11/30/88 10,156 10,163
12/31/88 10,271 10,207
01/31/89 10,435 10,374
02/28/89 10,471 10,436
03/31/89 10,404 10,395
04/30/89 10,346 10,399
05/31/89 10,509 10,595
06/30/89 10,653 10,757
07/31/89 10,716 10,800
08/31/89 10,697 10,850
09/30/89 10,647 10,736
10/31/89 10,507 10,470
11/30/89 10,488 10,485
12/31/89 10,475 10,443
01/31/90 10,319 10,161
02/28/90 10,111 10,007
03/31/90 10,316 10,196
04/30/90 10,377 10,259
05/31/90 10,582 10,430
06/30/90 10,702 10,692
07/31/90 10,947 10,961
08/31/90 10,612 10,460
09/30/90 10,216 10,030
10/31/90 9,888 9,736
11/30/90 9,997 9,838
12/31/90 10,098 9,987
01/31/91 10,044 10,192
02/28/91 10,459 11,076
03/31/91 10,828 11,625
04/30/91 11,159 12,026
05/31/91 11,292 12,073
06/30/91 11,415 12,347
07/31/91 11,667 12,678
08/31/91 11,894 12,970
09/30/91 12,073 13,153
10/31/91 12,352 13,600
11/30/91 12,507 13,746
12/31/91 12,551 13,899
01/31/92 12,900 14,369
02/28/92 13,124 14,732
03/31/92 13,265 14,939
04/30/92 13,257 15,017
05/31/92 13,436 15,239
06/30/92 13,610 15,414
07/31/92 13,844 15,714
08/31/92 14,015 15,914
09/30/92 14,188 16,083
10/31/92 13,910 15,876
11/30/92 14,145 16,119
12/31/92 14,292 16,324
01/31/93 14,683 16,713
02/28/93 14,974 17,012
03/31/93 15,229 17,301
04/30/93 15,339 17,420
05/31/93 15,571 17,646
06/30/93 15,866 17,975
07/31/93 16,052 18,156
08/31/93 16,161 18,322
09/30/93 16,216 18,403
10/31/93 16,446 18,753
11/30/93 16,572 18,851
12/31/93 16,709 19,049
01/31/94 17,024 19,461
02/28/94 16,941 19,326
03/31/94 16,342 18,701
04/30/94 16,211 18,469
05/31/94 16,358 18,428
06/30/94 16,429 18,512
07/31/94 16,424 18,634
08/31/94 16,484 18,772
09/30/94 16,478 18,768
10/31/94 16,411 18,818
11/30/94 16,196 18,656
12/31/94 16,333 18,852
01/31/95 16,525 19,117
02/28/95 16,873 19,730
03/31/95 17,027 19,996
04/30/95 17,349 20,513
05/31/95 17,804 21,146
06/30/95 17,894 21,289
07/31/95 18,132 21,566
08/31/95 18,140 21,679
09/30/95 18,361 21,936
10/31/95 18,615 22,116
11/30/95 18,646 22,336
12/31/95 18,888 22,710
01/31/96 19,125 23,089
02/28/96 19,310 23,160
03/31/96 19,246 23,065
04/30/96 19,285 23,097
05/31/96 19,405 23,264
06/30/96 19,455 23,368
07/31/96 19,658 23,510
08/31/96 19,937 23,802
09/30/96 20,341 24,356
10/31/96 20,419 24,567
11/30/96 20,723 25,061
12/31/96 20,850 25,269
01/31/97 21,024 25,459
02/28/97 21,410 25,851
03/31/97 20,963 25,494
04/30/97 21,124 25,821
05/31/97 21,700 26,364
06/30/97 22,032 26,772
07/31/97 22,600 27,482
08/31/97 22,612 27,449
09/30/97 23,003 27,942
10/31/97 22,986 28,085
11/30/97 23,201 28,348
12/31/97 23,517 28,620
01/30/98 24,013 29,077
02/28/98 24,120 29,194
03/31/98 24,409 29,472
04/30/98 24,329 29,598
05/31/98 24,439 29,776
06/30/98 24,544 29,930
</TABLE>
INVESTMENT VALUE
SAFECO HIGH-YIELD BOND FUND: $24,544
---------------------------------------
---------------------------------------
MERRILL LYNCH HIGH-YIELD INDEX: $29,930
---------------------------------------
---------------------------------------
* The Fund's inception was September 7, 1988. Graph and average annual return
comparison begins September 30, 1988.
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment in a relevant market index. The index is unmanaged and
includes no operating expenses or transaction costs. Past performance is not
predictive of future results. Principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
-8-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the market, and continued concerns about Asia's woes, and how this will impact
the domestic U.S. economy. All of these factors contributed to investors
demanding more compensation (yield) for owning "junk" bonds, which in turn led
to lower prices overall.
I have emphasized domestically-oriented companies in my purchases for the
Fund during the first half of the year. The strength in the U.S. economy is
currently coming from domestic consumption, particularly consumers. At the same
time, U.S. exporters are struggling, and our trade deficit is widening.
Companies such as Ziff-Davis, Niagara Mohawk Power, 21st Century Telecom and
Level 3 Communications should do well in this environment, and are among the
names added to the portfolio since year-end.
Ziff-Davis is the largest technology publisher in the country (PC MAGAZINE,
PC WEEK, and COMPUTER SHOPPER are among the numerous titles they produce). In
addition, the company also produces trade shows and conferences worldwide, among
them the Comdex computer events. They are involved in
S&P CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
- ------------------------------------------------------------
[PIE CHART]
<TABLE>
<CAPTION>
<S> <C>
1 BB: 12%
2 B: 76%
3 Not Rated: 5%
4 Preferred Stock: 2%
5 Cash & Other: 5%
</TABLE>
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- ------------------------------------------------------------
<S> <C>
Level 3 Communications, Inc. (144A). . . . . . . . . . .2.5%
(Telephone)
Randall's Food Markets, Inc. . . . . . . . . . . . . . .2.3
(Retail - Food Chains)
Numatics, Inc. (144A). . . . . . . . . . . . . . . . . .2.0
(Manufacturing - Specialized)
Perkins Family Restaurants . . . . . . . . . . . . . . .2.0
(Restaurants)
Tekni-Plex, Inc. . . . . . . . . . . . . . . . . . . . .2.0
(Manufacturing - Diversified)
<CAPTION>
TOP FIVE PURCHASES COST
(Jan. to June) (000's)
- ------------------------------------------------------------
<S> <C>
Level 3 Communications, Inc. (144A). . . . . . . . . .$1,978
Randall's Food Markets, Inc. . . . . . . . . . . . . . 1,845
Numatics, Inc. (144A). . . . . . . . . . . . . . . . . 1,611
Tekni-Plex, Inc. (144A). . . . . . . . . . . . . . . . 1,564
Ziff-Davis, Inc. . . . . . . . . . . . . . . . . . . . 1,497
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000's)
- ------------------------------------------------------------
<S> <C>
Coca-Cola Bottling Group (Southwest), Inc. . . . . . .$1,294
Speedway Motorsports, Inc. . . . . . . . . . . . . . . 1,289
Jitney-Jungle Stores of America, Inc.. . . . . . . . . 1,278
PhoneTel Technologies, Inc.. . . . . . . . . . . . . . 1,088
Plastic Specialties and Technologies, Inc. . . . . . . 1,085
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ------------------------------------------------------------
<S> <C>
Broadcasting (Television, Radio & Cable) . . . . . . . . 11%
Telephone . . . . . . . . . . . . . . . . . . . . . . . .9
Telecommunications (Long Distance) . . . . . . . . . . . .5
Manufacturing (Specialized). . . . . . . . . . . . . . . .4
Entertainment. . . . . . . . . . . . . . . . . . . . . . .4
CURRENT YIELD (30-DAY) . . . . . . . . . . . . . . . 7.93%
WEIGHTED AVERAGE MATURITY. . . . . . . . . . . . 8.3 YEARS
</TABLE>
-9-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE HIGH-YIELD BOND FUND MANAGER
other media as well, and are currently developing a cable channel aimed at
computer users, and an Internet web site.
21st Century is a cable and telecommunications provider targeting the
high-density, multi-dwelling units in the Chicago metropolitan area. They will
provide residents and small businesses with a bundled offering of phone services
in addition to Internet access and cable television. Level 3 is building a
nationwide "Internet-Protocol" (IP) based telephony network that will deliver
voice and data using IP-packet switched technology. Such networks provide cost
savings, additional accessibility, and technological efficiencies.
Niagara Mohawk is an electric utility serving upstate New York. The company
is an improving credit story and is positioned well for the deregulated
electricity market evolving in its service territory over the next two years.
Niagara is selling their generating assets and will become a low-risk
distributor of electricity.
I sold holdings in United Refining, PhoneTel Technologies, and
Gorges/Quick-to-Fix Foods during the quarter because of poor operating
performance, and unfavorable outlooks. Over time, each of these names has seen
leverage increase and cash flow deteriorate.I felt in each case that the high
degree of downside risk warranted our exiting the bonds.
In my last letter to you, I said that I was cautiously optimistic about the
high-yield market. The same can be said today. In the current economic
environment, credit selection, always an important component of my job, will
take on even greater importance. I will continue to look for companies with good
earnings and cash-flow prospects and strong management teams. Thank you for your
continued interest in the SAFECO High-Yield Bond Fund.
Robert Kern
- --------------------------------------------------------------------------------
Robert Kern joined SAFECO in 1988 with B.S. degrees in business and accounting
from the Universities of Washington and Puget Sound respectively. Bob is a
Certified Public Accountant and a Chartered Financial Analyst.
-10-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS - 92.5%
ADVERTISING - 1.4%
$1,000 Lamar Advertising Co.
9.625%, due 12/01/06. . . . . . . . . . . . . . . . . . . .$1,070
AEROSPACE/DEFENSE - 1.3%
1,000 BE Aerospace, Inc.
8.00%, due 3/01/08. . . . . . . . . . . . . . . . . . . . . . 997
AGRICULTURE/FERTILIZER PRODUCTS - 1.4%
1,000 Sun World International
11.25%, due 4/15/04 . . . . . . . . . . . . . . . . . . . . 1,100
ALUMINUM - 2.6%
1,000 Commonwealth Aluminum Corp.
10.75%, due 10/01/06. . . . . . . . . . . . . . . . . . . . 1,050
1,000 Wells Aluminum Corp.
10.125%, due 6/01/05. . . . . . . . . . . . . . . . . . . . 1,050
AUTO PARTS & EQUIPMENT - 2.2%
750 - Breed Technologies, Inc. (144A)
9.25%, due 4/15/08
(acquired 4/20/98). . . . . . . . . . . . . . . . . . . . . . 733
1,000 - Diamond Triumph
Auto Glass, Inc. (144A)
9.25%, due 4/01/08
(acquired 3/25/98). . . . . . . . . . . . . . . . . . . . . 1,017
BANKS (REGIONAL) - 1.6%
1,250 Bay View Capital Corp.
9.125%, due 8/15/07 . . . . . . . . . . . . . . . . . . . . 1,287
BROADCASTING (TELEVISION, RADIO & CABLE) - 8.9%
$1,750 - 21st Century Telecom
Group, Inc. (144A)
12.25%, due 2/15/03 Step
Bond (acquired 2/02/98) . . . . . . . . . . . . . . . . . .$ 980
1,250 Adelphia Communications Corp.
9.25%, due 10/01/02 . . . . . . . . . . . . . . . . . . . . 1,297
500 CSC Holdings, Inc.
9.875%, due 5/15/06 . . . . . . . . . . . . . . . . . . . . . 546
Century Communications Corp.
500 9.50%, due 3/01/05. . . . . . . . . . . . . . . . . . . . . . 541
500 8.875%, due 1/15/07 . . . . . . . . . . . . . . . . . . . . . 530
1,000 Jones Intercable, Inc.
8.875%, due 4/01/07 . . . . . . . . . . . . . . . . . . . . 1,070
500 SFX Broadcasting, Inc.
10.75%, due 5/15/06 . . . . . . . . . . . . . . . . . . . . . 552
500 Sinclair Broadcast Group, Inc.
8.75%, due 12/15/07 . . . . . . . . . . . . . . . . . . . . . 515
1,000 Young Broadcasting, Inc.
9.00%, due 1/15/06. . . . . . . . . . . . . . . . . . . . . 1,040
BUILDING MATERIALS - 0.6%
500 Synthetic Industries, Inc.
9.25%, due 2/15/07 . . . . . . . . . . . . . . . . . . . . . 515
CHEMICALS (SPECIALTY) - 0.6%
500 Sovereign Specialty
Chemicals, Inc.
9.50%, due 8/01/07 . . . . . . . . . . . . . . . . . . . . . 510
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-11-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS EQUIPMENT - 1.9%
$1,500 - National Equipment
Services, Inc. (144A)
10.00%, due 11/30/04
(acquired 11/20/97) . . . . . . . . . . . . . . . . . . . .$1,530
CONTAINERS (PACKAGING & PAPER) - 1.4%
500 Applied Extrusion
Technologies, Inc.
11.50%, due 4/01/02 . . . . . . . . . . . . . . . . . . . . . 527
500 Printpack, Inc.
10.625%, due 8/15/06. . . . . . . . . . . . . . . . . . . . . 535
COSMETICS - 2.0%
500 Coty, Inc.
10.25%, due 5/01/05 . . . . . . . . . . . . . . . . . . . . . 536
1,000 French Fragrances, Inc.
10.375%, due 5/15/07 . . . . . . . . . . . . . . . . . . . 1,070
ELECTRIC COMPANIES - 1.3%
1,500 Niagara Mohawk Power Corp.
8.50%, due 7/01/03
Step Bond . . . . . . . . . . . . . . . . . . . . . . . . . 1,027
ELECTRICAL EQUIPMENT - 1.9%
1,500 - Advanced Lighting
Technologies, Inc. (144A)
8.00%, due 3/15/08
(acquired 6/04/98). . . . . . . . . . . . . . . . . . . . . 1,492
ENTERTAINMENT - 3.5%
1,000 AMC Entertainment, Inc.
9.50%, due 3/15/09. . . . . . . . . . . . . . . . . . . . . 1,000
750 Premier Parks, Inc.
9.25%, due 4/01/06. . . . . . . . . . . . . . . . . . . . . . 774
500 Cinemark USA, Inc. (Series B)
9.625%, due 8/01/08 . . . . . . . . . . . . . . . . . . . . . 515
500 Cinemark USA, Inc. (Series D)
9.625%, due 8/01/08 . . . . . . . . . . . . . . . . . . . . . 515
ENVIRONMENTAL - 1.6%
$1,000 Allied Waste Industries, Inc.
11.30%, due 6/01/02
Step Bond . . . . . . . . . . . . . . . . . . . . . . . . .$ 730
500 Allied Waste North America, Inc.
10.25%, due 12/01/06 . . . . . . . . . . . . . . . . . . . . 547
FINANCIAL (DIVERSIFIED) - 2.0%
1,000 Americredit Corp.
9.25%, due 2/01/04 . . . . . . . . . . . . . . . . . . . . 1,025
500 DVI, Inc.
9.875%, due 2/01/04 . . . . . . . . . . . . . . . . . . . . . 520
FOODS - 1.5%
500 Chiquita Brands International, Inc.
10.25%, due 11/01/06. . . . . . . . . . . . . . . . . . . . . 540
500 Curtice Burns Foods, Inc.
12.25%, due 2/01/05 . . . . . . . . . . . . . . . . . . . . . 552
100 - Eagle Family Foods, Inc. (144A)
8.75%, due 1/15/08
(acquired 1/16/98). . . . . . . . . . . . . . . . . . . . . . .98
GAMING & LOTTERY - 0.7%
500 Aztar Corp.
13.75%, due 10/01/04. . . . . . . . . . . . . . . . . . . . . 568
HEALTH CARE (MEDICAL PRODUCTS
& SUPPLIES) - 0.6%
500 Conmed Corp.
9.00%, due 3/15/08. . . . . . . . . . . . . . . . . . . . . . 497
HEALTH CARE (HOSPITAL MANAGEMENT) - 3.0%
1,250 Integrated Health Services, Inc.
9.50%, due 9/15/07 . . . . . . . . . . . . . . . . . . . . 1,306
1,000 Quorum Health Group, Inc.
8.75%, due 11/01/05 . . . . . . . . . . . . . . . . . . . . 1,030
HOUSEHOLD FURNITURE & APPLIANCES - 2.0%
1,500 Holmes Products Corp.
9.875%, due 11/15/07. . . . . . . . . . . . . . . . . . . . 1,545
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-12-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
IRON & STEEL - 0.6%
$ 500 Armco, Inc.
9.00%, due 9/15/07 . . . . . . . . . . . . . . . . . . . .$ 493
MANUFACTURING (DIVERSIFIED) - 2.0%
1,560 - Tekni-Plex, Inc. (144A)
9.25%, due 3/01/08
(acquired 02/26/98) . . . . . . . . . . . . . . . . . . . . 1,560
MANUFACTURING (SPECIALIZED) - 3.9%
1,500 Flextronics International, Ltd.
8.75%, due 10/15/07 . . . . . . . . . . . . . . . . . . . . 1,511
1,600 - Numatics, Inc. (144A)
9.625%, due 4/01/08
(acquired 3/18/98). . . . . . . . . . . . . . . . . . . . . 1,616
OIL (DOMESTIC) - 0.7%
500 Crown Central Petroleum Corp.
10.875%, due 2/01/05. . . . . . . . . . . . . . . . . . . . . 530
OIL & GAS (DRILLING & EQUIPMENT) - 2.5%
500 ICO, Inc.
10.375%, due 6/01/07 . . . . . . . . . . . . . . . . . . . . 510
1,500 Newpark Resources, Inc.
8.625%, due 12/15/07 . . . . . . . . . . . . . . . . . . . 1,508
PAPER & FOREST PRODUCTS - 0.7%
500 Fibermark, Inc.
9.375%, due 10/15/06. . . . . . . . . . . . . . . . . . . . . 523
PERSONAL CARE - 1.1%
750 Chattem, Inc.
12.75%, due 6/15/04 . . . . . . . . . . . . . . . . . . . . . 840
POWER PRODUCER (INDEPENDENT) - 1.3%
1,000 AES Corp.
8.50%, due 11/01/07 . . . . . . . . . . . . . . . . . . . . 1,010
PUBLISHING - 1.9%
1,500 Ziff-Davis, Inc.
8.50%, due 5/01/08. . . . . . . . . . . . . . . . . . . . . 1,519
RESTAURANTS - 2.0%
1,500 Perkins Family Restaurants
10.125%, due 12/15/07 . . . . . . . . . . . . . . . . . . . 1,583
RETAIL (DEPARTMENT STORES) - 1.7%
$1,250 Specialty Retailers, Inc.
9.00%, due 7/15/07. . . . . . . . . . . . . . . . . . . . .$1,302
RETAIL (FOOD CHAINS) - 2.3%
1,750 Randall's Food Markets, Inc.
9.375%, 7/01/07 . . . . . . . . . . . . . . . . . . . . . . 1,846
RETAIL (OTHER) - 1.0%
750 - Purina Mills, Inc. (144A)
9.00%, due 3/15/10
(acquired 3/06/98). . . . . . . . . . . . . . . . . . . . . . 771
RETAIL (SPECIALTY) - 2.2%
1,250 Big 5 Corp.
10.875%, due 11/15/07 . . . . . . . . . . . . . . . . . . . 1,294
500 Finlay Fine Jewelry Corp.
8.375%, due 5/1/08 . . . . . . . . . . . . . . . . . . . . . 502
SERVICES (COMMERCIAL & CONSUMER) - 3.2%
1,000 - Bluegreen Corp. (144A)
10.50%, due 4/01/08
(acquired 3/26/98). . . . . . . . . . . . . . . . . . . . . 1,000
1,500 Unicco Service Corp.
9.875%, due 10/15/07 . . . . . . . . . . . . . . . . . . . 1,515
TELECOMMUNICATIONS (LONG DISTANCE) - 5.3%
1,250 - Flag Ltd. (144A)
8.25%, due 1/30/08
(acquired 1/23/98). . . . . . . . . . . . . . . . . . . . . 1,263
1,500 - Qwest Communications
International, Inc. (144A)
8.29%, due 2/01/03 Step Bond
(acquired 1/22/98). . . . . . . . . . . . . . . . . . . . . 1,080
2,000 Qwest Communications
International, Inc.
9.47%, due 10/15/07 . . . . . . . . . . . . . . . . . . . . 1,495
500 Telegroup, Inc.
10.50%, due 5/01/00 Step Bond . . . . . . . . . . . . . . . . 398
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-13-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
TELEPHONE - 9.1%
$1,250 GCI, Inc.
9.75%, due 8/01/07. . . . . . . . . . . . . . . . . . . . .$1,313
Intermedia Communication, Inc.
1,000 11.25%, due 7/15/02 Step Bond . . . . . . . . . . . . . . . . 731
1,000 8.875%, due 11/01/07 . . . . . . . . . . . . . . . . . . . 1,022
500 8.50%, due 1/15/08 . . . . . . . . . . . . . . . . . . . . . 500
500 - Intermedia
Communication, Inc. (144A)
8.60%, due 6/01/08
(acquired 5/21/98). . . . . . . . . . . . . . . . . . . . . . 506
2,000 - Level 3
Communications, Inc. (144A)
9.125%, due 5/01/08
(acquired 6/02/98). . . . . . . . . . . . . . . . . . . . . 1,947
2,000 - NEXTLINK
Communications, Inc. (144A)
9.45%, due 4/15/08 Step Bond
(acquired 3/27/98). . . . . . . . . . . . . . . . . . . . . 1,223
TELEPHONE (CELLULAR/WIRELESS) - 1.3%
1,000 Paging Network, Inc.
10.00%, due 10/15/08 . . . . . . . . . . . . . . . . . . . 1,035
TEXTILES (APPAREL) - 1.5%
1,250 Dyersburg Corp.
9.75%, due 9/01/07 . . . . . . . . . . . . . . . . . . . . 1,203
TEXTILES (HOME FURNISHINGS) - 1.3%
1,000 - Maxim Group, Inc. (144A)
9.25%, due 10/15/07 . . . . . . . . . . . . . . . . . . . . 1,028
TEXTILES (SPECIALTY) - 1.3%
1,000 Polymer Group, Inc.
9.00%, due 7/01/07 . . . . . . . . . . . . . . . . . . . . 1,011
TRUCKERS - 1.6%
$ 1,250 Allied Holdings, Inc.
8.625%, due 10/01/07 . . . . . . . . . . . . . . . . . . $ 1,263
-------
TOTAL CORPORATE BONDS. . . . . . . . . . . . . . . . . . . . . . . . . . .73,330
-------
PREFERRED STOCK - 2.2%
BROADCASTING (TELEVISION, RADIO & CABLE) - 2.2%
5 CBS Radio, Inc. . . . . . . . . . . . . . . . . . . . . . . . 625
6 SFX Broadcasting, Inc.. . . . . . . . . . . . . . . . . . . . 601
5 Sinclair Broadcast Group, Inc.. . . . . . . . . . . . . . . . 554
-------
TOTAL PREFERRED STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,780
-------
TEMPORARY INVESTMENTS - 3.2%
COMMERCIAL PAPER:
$2,511 Countrywide Funding Corp. . . . . . . . . . . . . . . . . . 2,511
6.35%, due 7/01/98 -------
INVESTMENT COMPANIES:
1 SSgA Prime Money
Market Portfolio. . . . . . . . . . . . . . . . . . . . . . . . 1
-------
TOTAL TEMPORARY INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . 2,512
-------
TOTAL INVESTMENTS - 97.9%. . . . . . . . . . . . . . . . . . . . . . . . .77,622
Other Assets, less Liabilities . . . . . . . . . . . . . . . . . . . . . . 1,649
-------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $79,271
-------
-------
</TABLE>
- - Securities are exempt from registration and restricted as to resale only to
dealers, or through a dealer to an "accredited investor" or a "qualified
institutional buyer." The total cost of such securities is $17,782,459 and
the total value is 22.5% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
-14-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE FUND MANAGER
SAFECO MANAGED BOND FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO]
MICHAEL HUGHES
The SAFECO Managed Bond Fund outperformed its peer funds for the quarter,
six and 12 months ending June 30, 1998. The Fund returned 2.47% for the quarter
compared to 2.05% for the average intermediate investment grade debt fund
according to Lipper Analytical Services, Inc. The six- and 12-month comparisons
are 3.98% versus 3.61% and 10.43% versus 9.42%, respectively. The Fund's
benchmark index, the Lehman Brothers Government/Corporate Bond Index, which
incurs no fees or expenses, returned 2.61%, 4.17%, and 11.28% for the quarter,
six and 12 months ending June 30, 1998.
Last year, I made some strategic changes to increase the Fund's
competitiveness, adopting a more balanced approach. I limited the range in which
the portfolio's average maturity would be allowed to fluctuate and concentrated
my efforts on creating additional value through sector rotation, yield curve
positioning and credit selection.
The market environment over the last 12 months has been particularly
favorable towards
- --------------------------------------------------------------------------------
PERFORMANCE OVERVIEW -- No-Load Class
- --------------------------------------------------------------------------------
INVESTMENT VALUE
SAFECO MANAGED BOND FUND: $12,811
------------------------------------------
------------------------------------------
LEHMAN BROTHERS GOV'T/CORP. INDEX: $13,634
------------------------------------------
------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIODS ENDED JUNE 30, 1998
------------------------------------------
<S> <C>
1-Year 10.43%
Since Inception* 5.88%
------------------------------------------
</TABLE>
[GRAPH]
MANAGED BOND FUND
<TABLE>
<CAPTION>
Managed Bond Lehman Brothers
Fund Gov't/Corp. Index
------------ -----------------
<S> <C> <C>
02/28/94 10,000 10,000
03/31/94 9,666 9,755
04/30/94 9,657 9,674
05/31/94 9,666 9,657
06/30/94 9,653 9,634
07/31/94 9,757 9,827
08/31/94 9,780 9,831
09/30/94 9,703 9,683
10/31/94 9,709 9,672
11/30/94 9,680 9,655
12/31/94 9,699 9,718
01/31/95 9,828 9,905
02/28/95 9,991 10,135
03/31/95 10,038 10,203
04/30/95 10,167 10,344
05/31/95 10,533 10,778
06/30/95 10,615 10,864
07/31/95 10,541 10,822
08/31/95 10,674 10,960
09/30/95 10,791 11,072
10/31/95 10,962 11,235
11/30/95 11,178 11,420
12/31/95 11,382 11,588
01/31/96 11,400 11,660
02/28/96 11,127 11,412
03/31/96 11,010 11,317
04/30/96 11,004 11,239
05/31/96 11,009 11,219
06/30/96 11,092 11,370
07/31/96 11,127 11,396
08/31/96 11,148 11,369
09/30/96 11,239 11,571
10/31/96 11,357 11,841
11/30/96 11,486 12,058
12/31/96 11,384 11,925
01/31/97 11,407 11,939
02/28/97 11,383 11,964
03/31/97 11,236 11,822
04/30/97 11,380 11,994
05/31/97 11,469 12,106
06/30/97 11,601 12,251
07/31/97 11,942 12,626
08/31/97 11,777 12,484
09/30/97 11,968 12,680
10/31/97 12,161 12,883
11/30/97 12,180 12,952
12/31/97 12,321 13,088
01/31/98 12,528 13,272
02/28/98 12,477 13,246
03/31/98 12,502 13,287
04/30/98 12,553 13,353
05/31/98 12,691 13,496
06/30/98 12,811 13,634
</TABLE>
* The Fund's inception was June 25, 1992. Graph and average annual return
comparison begins February 28, 1994 (initial public offering).
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment in a relevant market index. The index is unmanaged and
includes no operating expenses or transaction costs. Past performance is not
predictive of future results. Principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
-15-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE MANAGED BOND FUND MANAGER
S&P CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
[PIE CHART]
1 AAA: 76%
2 AA: 1%
3 A: 17%
4 BBB: 2%
5 CASH AND OTHER: 4%
fixed-income securities. Inflation is low and shows no signs of accelerating.
The economy, which grew very rapidly during the first quarter, is showing
welcome signs of moderation due to the continuing Asian economic crisis. The
Federal Reserve, which has not changed the Fed Funds Rate since March 1997, is
likely to remain on hold for the next several months, at least. And, the growing
federal budget surplus is shrinking the available supply of U.S. Treasury Bonds,
causing them to richen.
The objective of the Managed Bond Fund is to provide as high a level of
total return as is consistent with relative stability of capital through the
purchase of investment-grade debt securities. Preservation of capital is in part
achieved by the Fund's mandate to maintain a 50% weighting in U.S. government
securities. The Fund makes modest changes in its average maturity in response to
interest rate trends and further distinguishes itself from its index and its
peers through selection.
During the quarter, we moved portions of the portfolio into and out of
investment-grade corporate bonds as this sector cheapened, richened and
cheapened again relative to U.S. Treasuries. We sold some government and
corporate holdings in the very rich 10-year maturity sector of the yield curve
and bought a higher-yielding combination of securities with maturities of two
and 20 years. Finally, we concentrated our holding in issues insulated from the
problems in Asia, such as U.S. Treasuries and agency mortgage-backed securities
and notes.
At quarter end, the Fund held 47% of its assets in U.S. Treasury
obligations, 21% in high-grade corporate bonds, 20% in mortgage-backed
securities, 1% in U.S. agency debentures, and 7% in AAA asset-backed securities.
The portfolio's effective duration was 5.7 years on June 30, 1998, slightly
longer than the duration of the Lehman Brothers Government/Corporate Bond Index
at 5.5 years.
The wild card for the fixed-income markets is the continuing Asian economic
crisis. If the crisis continues to worsen, U.S. economic growth could be
adversely affected. Under this scenario,
-16-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. Treasuries will increase in value due to a flight to quality from global
investors, diminished inflationary pressures, and the perception that the next
Fed move will be to lower interest rates. Corporate bonds would underperform
Treasuries as earnings come under increased pressure. If the Asian economic
crisis abates, U.S. economic growth could re-accelerate, increasing inflationary
pressures and the likelihood of a Fed tightening. Under this scenario, U.S.
Treasuries would decrease in value and corporate bonds would outperform. We will
watch the world economy closely and invest accordingly.
MICHAEL HUGHES
- --------------------------------------------------------------------------------
Michael Hughes joined SAFECO as a portfolio manager in January 1997. He began
his investment career in 1983. He graduated magna cum laude with a B.S. in
finance from the University of Colorado in Boulder and holds an M.B.A. from the
University of Southern California in Los Angeles. He is a Chartered Financial
Analyst.
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
BONDS BY TYPE NET ASSETS
- ------------------------------------------------------------
<S> <C>
U.S. Treasury Securities . . . . . . . . . . . . . . . . 47%
Asset-Backed Securities. . . . . . . . . . . . . . . . . 27
Corporate Bonds. . . . . . . . . . . . . . . . . . . . . 22
Cash and Other . . . . . . . . . . . . . . . . . . . . . .4
-----
100%
-----
-----
CURRENT YIELD (30-DAY) . . . . . . . . . . . . . . . . 4.70%
WEIGHTED AVERAGE MATURITY. . . . . . . . . . . . . 8.7 YEARS
</TABLE>
PORTFOLIO OF INVESTMENTS
SAFECO MANAGED
BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSET-BACKED SECURITIES - 26.8%
COLLATERIZED MORTGAGE OBLIGATION (CMO) - 19.8%
$150 FHLMC REMIC 1587
6.50%, due 10/15/08 . . . . . . . . . . . . . . . . . . . . .$152
150 FNMA 1997-M5 C
6.74%, due 8/25/07. . . . . . . . . . . . . . . . . . . . . . 157
130 FNMA G93-33J
6.75%, due 6/25/22. . . . . . . . . . . . . . . . . . . . . . 134
150 FNMA REMIC 1993-11
7.35%, due 6/25/07. . . . . . . . . . . . . . . . . . . . . . 155
75 FNMA REMIC 1992-108
7.00%, due 7/25/07. . . . . . . . . . . . . . . . . . . . . . .78
125 FNMA REMIC 1993-44PH
6.75%, due 5/25/19. . . . . . . . . . . . . . . . . . . . . . 128
100 FNMA REMIC 1993-23
6.70%, due 7/25/19. . . . . . . . . . . . . . . . . . . . . . 101
200 FNMA REMIC 1993-55
6.50%, due 2/25/05. . . . . . . . . . . . . . . . . . . . . . 204
CONSUMER (FINANCE) - 3.5%
108 AFG Receivables Trust
6.20%, due 2/15/03. . . . . . . . . . . . . . . . . . . . . . 108
90 Premier Auto Trust
6.20%, due 1/06/01. . . . . . . . . . . . . . . . . . . . . . 90
FINANCIAL (DIVERSIFIED) - 2.0%
38 Chevy Chase Auto ABS
Series 1996-1 (Class A)
6.60%, due 12/15/02 . . . . . . . . . . . . . . . . . . . . . 38
74 DLJ Commercial Mortgage Corp.
1998-CF1 A1A
6.14%, due 10/15/06 . . . . . . . . . . . . . . . . . . . . . 74
MANUFACTURING (SPECIALIZED) - 1.5%
85 Harley Davidson Eagle
6.20%, due 1/15/03 . . . . . . . . . . . . . . . . . . . . . 86
-----
TOTAL ASSET-BACKED SECURITIES. . . . . . . . . . . . . . . . . . . . . . . 1,505
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-17-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MANAGED BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS - 21.3%
AUTOMOBILES - 2.2%
$120 Hertz Corp. Notes
7.00%, due 7/01/04. . . . . . . . . . . . . . . . . . . . . $ 125
BANKS (MAJOR REGIONAL) - 0.9%
50 U.S. Bancorp
6.75%, due 10/15/05 . . . . . . . . . . . . . . . . . . . . . 52
BUILDING MATERIALS - 1.8%
100 Hanson Overseas
6.75%, due 9/15/05 . . . . . . . . . . . . . . . . . . . . . 103
ENGINEERING & CONSTRUCTION - 1.9%
97 Halliburton Co.
6.75%, due 2/01/27. . . . . . . . . . . . . . . . . . . . . . 106
FINANCE (CONSUMER) - 1.7%
90 Household Finance Corp.
7.25%, due 7/15/03 . . . . . . . . . . . . . . . . . . . . . 94
FINANCIAL (DIVERSIFIED) - 4.6%
105 General Motors Acceptance Corp.
6.875%, due 7/15/01 . . . . . . . . . . . . . . . . . . . . . 108
St. Paul Companies, Inc.
80 7.33%, due 8/18/06. . . . . . . . . . . . . . . . . . . . . . 87
60 7.05%, due 3/07/07. . . . . . . . . . . . . . . . . . . . . . 64
INVESTMENT BANKING/BROKERAGE - 3.7%
95 Donaldson, Lufkin & Jenrette, Inc.
6.90%, due 10/01/07 . . . . . . . . . . . . . . . . . . . . . 99
115 Lehman Brothers Holding, Inc.
6.05%, due 4/15/08. . . . . . . . . . . . . . . . . . . . . . 115
RETAIL (COMPUTERS & ELECTRIC) - 3.0%
160 Tandy Corp.
6.95%, due 9/1/07 . . . . . . . . . . . . . . . . . . . . . . 166
RETAIL (GENERAL MERCHANDISE) - 1.4%
75 Sears Roebuck Acceptance Corp.
6.75%, due 9/15/05. . . . . . . . . . . . . . . . . . . . . . 77
-------
TOTAL CORPORATE BONDS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,196
-------
U.S. GOVERNMENT SECURITIES - 47.7%
U.S. FEDERAL AGENCY NOTES - 0.9%
$ 50 Federal Home Loan
Mortgage Corp.
6.943%, due 3/21/07 . . . . . . . . . . . . . . . . . . . . $ 54
U.S. TREASURY NOTES - 18.3%
50 7.50%, due 11/15/16 . . . . . . . . . . . . . . . . . . . . . 60
325 7.25%, due 8/15/04. . . . . . . . . . . . . . . . . . . . . . 354
265 6.50%, due 10/15/06 . . . . . . . . . . . . . . . . . . . . . 281
325 6.375%, due 9/30/01 . . . . . . . . . . . . . . . . . . . . . 333
U.S. TREASURY PRINCIPAL STRIP - 28.5%
710 0.00%, due 5/15/07. . . . . . . . . . . . . . . . . . . . . . 435
1,875 0.00%, due 2/15/07. . . . . . . . . . . . . . . . . . . . . 1,164
-------
TOTAL U.S. GOVERNMENT SECURITIES . . . . . . . . . . . . . . . . . . . . . 2,681
-------
TEMPORARY INVESTMENTS - 3.7%
INVESTMENT COMPANIES:
210 SSgA Prime Money
Market Portfolio. . . . . . . . . . . . . . . . . . . . . . . 210
-------
TOTAL TEMPORARY INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 210
-------
TOTAL INVESTMENTS - 99.5%. . . . . . . . . . . . . . . . . . . . . . . . . 5,592
Other Assets, less Liabilities . . . . . . . . . . . . . . . . . . . . . . . .26
-------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$5,618
-------
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-18-
<PAGE>
MUNICIPAL BOND
MARKET OVERVIEW
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO]
STEPHEN C. BAUER
The municipal bond market was little changed for the quarter and six months
ending June 30, 1998, and total returns were modest for both periods.
In a flat market, the three keys to performance are: 1. staying fully
invested since bonds yield more than money market instruments; 2. holding the
longest bonds available because longer bonds yield more than shorter ones; and
3. buying lower-quality bonds because lower-rated bonds yield more than
higher-rated ones. I have consistently practiced the first two strategies, but I
am reluctant to downgrade quality. The meager additional yields that
lower-quality bonds currently offer don't seem worth the additional risk.
Fortunately, two out of three has been good enough to produce good results.
Over the last six months, long-term municipal yields fluctuated only
slightly to end the period at 5.22%. The taxable bond market rallied much more
aggressively and long Treasury yields fell to 5.63% on June 30. (On June 15, the
U.S .Treasury 30-year bond closed at a yield of 5.57%, the lowest yield in the
18-year history of the long-term government bond.)
The underperformance by the tax-exempt market caused the ratio of
tax-exempt to taxable bond yields to rise to 93%. This means munis currently pay
on a tax-free basis 93% of what a similar-length taxable treasury bond yields.
This is the highest ratio since 1995 and compares to 84% one year ago.
There are two reasons for the extraordinary cheapness of the muni market:
low absolute yields and heavy new issue supply. Yields near 25-year lows,
coupled with the record-high stock market returns, have created little demand
for long-term muni bonds. On top of this is a new issue market that brought $146
billion in supply over the last six months.
At the same time, the U.S. Treasury market has enjoyed
increased demand from foreign investors fleeing weakened Asian currencies and
benefited by shrinking supply due to the Federal budget surplus. It is no
surprise that munis are cheap compared to Treasuries. And that creates an
attractive opportunity for high tax bracket bond investors.
In the extremely stable market that municipal bonds have enjoyed this year,
the only aberration is the relationship between tax-exempt and taxable bonds. As
long as current economic conditions persist, however, I don't see this changing.
Historically, low rates will continue to encourage issuers of new debt while
discouraging investors. The best hope for the municipal market is a correction
in the stock market, which would encourage equity buyers to reevaluate their
asset allocation and to see bonds in a more attractive light.
-19-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO CALIFORNIA
TAX-FREE INCOME FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO]
STEPHEN C. BAUER
For the year ended June 30, 1998, the California Tax-Free Income Fund was
truly the best of the bunch. With a total return of 11.19%, Lipper Analytical
Services, Inc. ranked it first of 100 California tax-exempt funds, which
returned 8.61% on average. (For the 5 and 10 years, the Fund was 5th of 57 funds
and 1st of 30.) For the six months, the Fund returned 2.49% to the peer group's
2.28%.
The Fund also outperformed the Lehman Brothers Long Municipal Bond Fund
Index, which returned 10.77% for the 12 months. This is due to our strategy of
staying fully invested in long, call-protected bonds.
The California Tax-Free Income Fund had little activity during the last
six months. I took advantage of the slight downtick in prices in May to do
two swaps in order to partially offset gains taken earlier this year.
Stephen C. Bauer
- --------------------------------------------------------------------------------
Stephen C. Bauer joined SAFECO in 1971 as a fixed-income analyst. He became a
fund manager with the inception of the SAFECO Municipal Bond Fund in 1981, and
is President of SAFECO Asset Management Company. Bauer holds a B.S. in
microbiology and an M.B.A. from the University of Washington.
- --------------------------------------------------------------------------------
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIODS ENDED JUNE 30, 1998
--------------------------------------------------
<S> <C>
1-Year 11.19%
5-Year 7.05%
10-Year 8.78%
--------------------------------------------------
</TABLE>
[GRAPH]
CALIFORNIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
Lehman Brothers
California Tax-Free Long Municipal
Income Fund Bond Index
--------------- --------------
<S> <C> <C>
06/30/88 10,000 10,000
07/31/88 10,027 10,067
08/31/88 10,072 10,107
09/30/88 10,309 10,336
10/31/88 10,615 10,571
11/30/88 10,455 10,457
12/31/88 10,676 10,639
01/31/89 10,932 10,890
02/28/89 10,774 10,737
03/31/89 10,769 10,746
04/30/89 11,019 11,061
05/31/89 11,243 11,318
06/30/89 11,364 11,490
07/31/89 11,494 11,642
08/31/89 11,354 11,465
09/30/89 11,351 11,430
10/31/89 11,461 11,581
11/30/89 11,665 11,827
12/31/89 11,734 11,914
01/31/90 11,604 11,794
02/28/90 11,745 11,927
03/31/90 11,724 11,939
04/30/90 11,546 11,793
05/31/90 11,899 12,126
06/30/90 12,013 12,245
07/31/90 12,242 12,461
08/31/90 11,937 12,165
09/30/90 11,920 12,146
10/31/90 12,221 12,403
11/30/90 12,506 12,717
12/31/90 12,552 12,773
01/31/91 12,743 12,945
02/28/91 12,782 13,036
03/31/91 12,753 13,067
04/30/91 12,951 13,269
05/31/91 13,077 13,426
06/30/91 13,014 13,400
07/31/91 13,214 13,607
08/31/91 13,396 13,803
09/30/91 13,639 14,003
10/31/91 13,786 14,149
11/30/91 13,709 14,167
12/31/91 14,127 14,504
01/31/92 14,079 14,496
02/28/92 14,082 14,518
03/31/92 14,083 14,555
04/30/92 14,187 14,694
05/31/92 14,401 14,909
06/30/92 14,684 15,197
07/31/92 15,180 15,754
08/31/92 14,889 15,543
09/30/92 14,996 15,612
10/31/92 14,579 15,351
11/30/92 15,058 15,783
12/31/92 15,257 15,988
01/31/93 15,416 16,139
02/28/93 16,115 16,889
03/31/93 15,897 16,686
04/30/93 16,130 16,914
05/31/93 16,197 17,054
06/30/93 16,499 17,375
07/31/93 16,478 17,392
08/31/93 16,941 17,838
09/30/93 17,147 18,086
10/31/93 17,147 18,120
11/30/93 16,881 17,901
12/31/93 17,275 18,362
01/31/94 17,533 18,579
02/28/94 17,072 17,964
03/31/94 16,211 16,892
04/30/94 16,152 17,022
05/31/94 16,303 17,221
06/30/94 16,147 17,014
07/31/94 16,521 17,452
08/31/94 16,516 17,488
09/30/94 16,097 17,082
10/31/94 15,707 16,558
11/30/94 15,417 16,121
12/31/94 15,686 16,693
01/31/95 16,406 17,427
02/28/95 17,208 18,137
03/31/95 17,347 18,355
04/30/95 17,270 18,346
05/31/95 18,244 19,128
06/30/95 17,686 18,775
07/31/95 17,766 18,871
08/31/95 18,045 19,137
09/30/95 18,184 19,287
10/31/95 18,668 19,754
11/30/95 19,354 20,264
12/31/95 19,787 20,580
01/31/96 19,715 20,668
02/28/96 19,464 20,416
03/31/96 18,886 20,042
04/30/96 18,718 19,962
05/31/96 18,736 19,972
06/30/96 19,103 20,280
07/31/96 19,321 20,480
08/31/96 19,274 20,454
09/30/96 19,735 20,908
10/31/96 19,982 21,163
11/30/96 20,508 21,618
12/31/96 20,288 21,488
01/31/97 20,073 21,445
02/28/97 20,292 21,677
03/31/97 19,858 21,302
04/30/97 20,163 21,553
05/31/97 20,551 21,971
06/30/97 20,861 22,253
07/31/97 21,952 23,063
08/31/97 21,469 22,756
09/30/97 21,766 23,084
10/31/97 21,954 23,282
11/30/97 22,170 23,489
12/31/97 22,632 23,919
01/30/98 22,875 24,175
02/28/98 22,829 24,163
03/31/98 22,808 24,197
04/30/98 22,541 24,066
05/31/98 23,108 24,538
06/30/98 23,194 24,643
</TABLE>
INVESTMENT VALUE
SAFECO CALIFORNIA TAX-FREE INCOME FUND: $23,194
--------------------------------------------------
--------------------------------------------------
LEHMAN BROTHERS LONG MUNICIPAL BOND INDEX: $24,643
--------------------------------------------------
--------------------------------------------------
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment in a relevant market index. The index is unmanaged and
includes no operating expenses or transaction costs. Past performance is not
predictive of future results. Principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
-20-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOP FIVE PERCENT OF
TYPES OF BONDS NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Local General Obligation - Limited Tax . . . . . . . . . . . . . . . . . . . 17%
Lease Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Hospital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Toll Road. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Utilities - Water. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
San Francisco Bay Area Rapid Transit
District . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.5%
Los Angeles Wastewater System. . . . . . . . . . . . . . . . . . . . . . . .4.5
Airports Commission City and County of
San Francisco International Airport. . . . . . . . . . . . . . . . . . . .4.4
San Joaquin Hills Transportation
Corridor Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.4
Redding Joint Powers Financing Authority
Solid Waste and Corporation Yard . . . . . . . . . . . . . . . . . . . . .4.3
CURRENT YIELD (30-DAY) . . . . . . . . . . . . . . . . . . . . . . . . . . 4.38%
WEIGHTED AVERAGE MATURITY. . . . . . . . . . . . . . . . . . . . . . .24.1 YEARS
</TABLE>
S&P CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
[PIE CHART]
1 AAA: 58%
2 AA: 3%
3 A: 15%
4 BBB: 13%
5 Not Rated: 3%
6 Cash and Other: 8%
PORTFOLIO OF INVESTMENTS
SAFECO
CALIFORNIA
TAX-FREE
INCOME FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
BONDS* - 92.4%
$5,000 Airports Commission City and
County of San Francisco
International Airport Revenue
4.90%, due 5/01/19 [MBIA] . . . . . . . . . . . . . . . . $4,823
4,750 Arcade Water District Water
Revenue
5.00%, due 11/01/27 [FGIC]. . . . . . . . . . . . . . . . .4,621
California Health Facilities
Financing Authority Insured
Health Facility Revenue
(Catholic Health Care West)
2,250 4.75%, due 7/01/19 [MBIA] . . . . . . . . . . . . . . . . .2,122
2,500 5.125%, due 7/01/24 . . . . . . . . . . . . . . . . . . . .2,453
3,715 California Statewide Communities
Development Authority
Certificates of Participation
(Children's Hospital of
Los Angeles)
4.75%, due 6/01/21 [MBIA] . . . . . . . . . . . . . . . . .3,488
20 Concord Redevelopment Agency
Tax Allocation Central Concord
Redevelopment Project
8.00%, due 7/01/18. . . . . . . . . . . . . . . . . . . . . . 21
3,750 Culver City Redevelopment
Financing Authority
Tax Allocation Revenue
4.60%, due 11/01/20 [AMBAC] . . . . . . . . . . . . . . . .3,469
4,195 Foothill/Eastern Transportation
Corridor Agency
Toll Road Revenue
5.00%, due 1/01/35. . . . . . . . . . . . . . . . . . . . .3,993
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-21-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
$ 670 Inglewood Insured Hospital
Revenue
(Daniel Freeman Hospital)
6.75%, due 5/01/13 . . . . . . . . . . . . . . . . . . . $ 731
1,200 - Los Angeles Convention and
Exhibition Center
Authority Certificates of
Participation
9.00%, due 12/01/20 (Prerefunded
12/01/05 @ 100) . . . . . . . . . . . . . . . . . . . . . .1,560
3,800 Los Angeles Department of
Water and Power
Waterworks Revenue
4.75%, due 11/15/19 [FGIC]. . . . . . . . . . . . . . . . .3,604
5,000 Los Angeles Wastewater
System Revenue
5.00%, due 6/01/28 [FGIC] . . . . . . . . . . . . . . . . .4,871
3,585 Metropolitan Water District of
Southern California
Waterworks Revenue
5.00%, due 07/01/37 . . . . . . . . . . . . . . . . . . . .3,472
2,500 Northern California Power
Agency
Geothermal Project Revenue
5.00%, due 07/01/09 . . . . . . . . . . . . . . . . . . . .2,500
Palm Desert Financing Authority
Tax Allocation Revenue
2,595 5.625%, due 4/01/23 [MBIA]. . . . . . . . . . . . . . . . .2,720
4,260 5.10%, due 10/01/27 [MBIA]. . . . . . . . . . . . . . . . .4,183
2,350 Palomar Pomerado Health System
California Insured Revenue
4.75%, due 11/01/23 [MBIA]. . . . . . . . . . . . . . . . .2,199
4,435 Pittsburg Redevelopment Agency
Los Medanos Community
Development Project
Tax Allocation
4.625%, due 8/01/21 [AMBAC] . . . . . . . . . . . . . . . .4,111
Pleasanton Joint Powers
Financing Authority
Reassessment Revenue
1,610 6.20%, due 9/02/17. . . . . . . . . . . . . . . . . . . . 1,696
1,785 6.15%, due 9/02/12 . . . . . . . . . . . . . . . . . . . .1,917
4,900 Redding Joint Powers
Financing Authority
Solid Waste and Corporation
Yard Revenue
5.00%, due 1/01/23. . . . . . . . . . . . . . . . . . . . .4,680
2,000 Riverside County Certificates
of Participation
(Capital Projects)
6.125%, due 11/01/21. . . . . . . . . . . . . . . . . . . .2,167
2,500 San Bernardino County
Cerificates of Participation
(Medical Center Financing
Project)
5.50%, due 8/01/24. . . . . . . . . . . . . . . . . . . . .2,537
4,000 San Diego County Certificates of
Participation Central Jail
5.00%, due 10/01/25 [AMBAC] . . . . . . . . . . . . . . . .3,895
5,000 San Francisco Bay Area Rapid
Transit District Revenue
5.00%, due 7/01/28 [AMBAC]. . . . . . . . . . . . . . . . .4,871
4,000 San Gabriel Valley School Finance
Authority Revenue (Pamona
Unified School District)
5.50%, due 2/01/24. . . . . . . . . . . . . . . . . . . . .4,068
5,000 San Joaquin Hills Transportation
Corridor Agency Senior Lien
Toll Road Revenue
5.00%, due 1/01/33. . . . . . . . . . . . . . . . . . . . .4,764
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-22-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
$4,000 San Jose Redevelopment Agency
(Merged Area Redevelopment
Project Tax Allocation)
4.75%, due 8/01/22. . . . . . . . . . . . . . . . . . . . $3,733
3,000 Santa Rosa Wastewater Revenue
(Subregional Wastewater Project)
5.00%, due 9/01/22 [FGIC] . . . . . . . . . . . . . . . . .2,926
Southern California Public Power
Authority Power Project Revenue
(Multiple Projects)
2,665 - 5.50%, due 7/01/20 (Prerefunded
7/01/00 @ 100). . . . . . . . . . . . . . . . . . . . . . .2,751
1,335 5.50%, due 7/01/20. . . . . . . . . . . . . . . . . . . . .1,343
900 Stanislaus Waste to Energy
Financing Agency Solid Waste
Facility Revenue
7.625%, due 1/01/10 . . . . . . . . . . . . . . . . . . . . .953
State of California General
Obligation Bonds
2,500 5.625%, due 09/01/24. . . . . . . . . . . . . . . . . . . .2,615
1,075 5.625%, due 10/01/23 [FGIC] . . . . . . . . . . . . . . . .1,124
--------
TOTAL BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100,981
--------
TEMPORARY INVESTMENTS - 6.0%
INVESTMENT COMPANIES:
1,115 Provident Bankshares Corp.. . . . . . . . . . . . . . . 1,115
5,461 SEI Tax-Exempt Trust
Institutional Tax-Free
Portfolio . . . . . . . . . . . . . . . . . . . . . . . . .5,461
--------
TOTAL TEMPORARY INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . .6,576
--------
TOTAL INVESTMENTS - 98.4%. . . . . . . . . . . . . . . . . . . . . . . .107,557
Other Assets, less Liabilities . . . . . . . . . . . . . . . . . . . . . .1,792
--------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $109,349
--------
--------
</TABLE>
- --------------------------------------------------------------------------------
* The provider of the guarantee of timely payment of both principal and interest
is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio and the percentage of the portfolio
they guarantee at the period end are as follows:
<TABLE>
<S> <C> <C>
MBIA: Municipal Bond Investors
Assurance Corp.. . . . . . . . . . . . . . . . . . . . . .18.2%
AMBAC: AMBAC Indemnity Corp.. . . . . . . . . . . . . . . . . . .15.2
FGIC: Financial Guaranty Insurance Corp. . . . . . . . . . . . .15.9
--------
49.3%
--------
--------
</TABLE>
- - Prerefunded bonds are collateralized by securities (generally U.S. Treasury
securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
SEE NOTES TO FINANCIAL STATEMENTS
-23-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO MUNICIPAL BOND FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO]
STEPHEN C. BAUER
The SAFECO Municipal Bond Fund returned 2.90% for the six months and 10.53%
for the 12 months ended June 30, 1998, outperforming its peer group's 2.26% and
8.39% total returns, according to Lipper Analytical Services, Inc. Lipper's
total return ranking of general municipal bond funds placed the SAFECO Fund at
7th of 233 funds for the one year, 16th of 124 funds for the five years and 12th
of 70 funds for the 10 years ended June 30, 1998.
The Fund slightly under-performed the 10.77% posted by the Lehman Brothers
Long Municipal Bond Index, but that is to be expected. It's nearly impossible
for a bond fund to beat a bond index because the index has no expenses, no cash
and no call features. The difference between the performance of the Fund and its
peer group is the better measure of success.
Activity in the Municipal Bond Fund was directed at attractive new
issues in the marketplace. Two new positions for the Fund were District of
Columbia G.O. 5.25%, due 2027 at a yield of 5.39%, and Washington State
Health Care Facilities
- --------------------------------------------------------------------------------
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIODS ENDED JUNE 30, 1998
--------------------------------------------------
<S> <C>
1-Year 10.53%
5-Year 6.46%
10-Year 8.65%
--------------------------------------------------
</TABLE>
[GRAPH]
MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
Lehman Brothers
Municipal Bond Long Municipal
Fund Bond Index
-------------- --------------
<S> <C> <C>
06/30/88 10,000 10,000
07/31/88 10,051 10,067
08/31/88 10,103 10,107
09/30/88 10,329 10,336
10/31/88 10,613 10,571
11/30/88 10,489 10,457
12/31/88 10,697 10,639
01/31/89 10,944 10,890
02/28/89 10,780 10,737
03/31/89 10,780 10,746
04/30/89 11,033 11,061
05/31/89 11,240 11,318
06/30/89 11,382 11,490
07/31/89 11,498 11,642
08/31/89 11,397 11,465
09/30/89 11,387 11,430
10/31/89 11,498 11,581
11/30/89 11,705 11,827
12/31/89 11,776 11,914
01/31/90 11,639 11,794
02/28/90 11,773 11,927
03/31/90 11,756 11,939
04/30/90 11,576 11,793
05/31/90 11,942 12,126
06/30/90 12,053 12,245
07/31/90 12,284 12,461
08/31/90 11,964 12,165
09/30/90 11,941 12,146
10/31/90 12,169 12,403
11/30/90 12,507 12,717
12/31/90 12,559 12,773
01/31/91 12,758 12,945
02/28/91 12,813 13,036
03/31/91 12,829 13,067
04/30/91 13,044 13,269
05/31/91 13,176 13,426
06/30/91 13,130 13,400
07/31/91 13,339 13,607
08/31/91 13,542 13,803
09/30/91 13,758 14,003
10/31/91 13,905 14,149
11/30/91 13,861 14,167
12/31/91 14,290 14,504
01/31/92 14,166 14,496
02/28/92 14,203 14,518
03/31/92 14,185 14,555
04/30/92 14,319 14,694
05/31/92 14,560 14,909
06/30/92 14,875 15,197
07/31/92 15,448 15,754
08/31/92 15,131 15,543
09/30/92 15,161 15,612
10/31/92 14,830 15,351
11/30/92 15,284 15,783
12/31/92 15,540 15,988
01/31/93 15,692 16,139
02/28/93 16,370 16,889
03/31/93 16,114 16,686
04/30/93 16,335 16,914
05/31/93 16,428 17,054
06/30/93 16,765 17,375
07/31/93 16,701 17,392
08/31/93 17,145 17,838
09/30/93 17,337 18,086
10/31/93 17,384 18,120
11/30/93 17,164 17,901
12/31/93 17,508 18,362
01/31/94 17,720 18,579
02/28/94 17,196 17,964
03/31/94 16,323 16,892
04/30/94 16,338 17,022
05/31/94 16,534 17,221
06/30/94 16,351 17,014
07/31/94 16,728 17,452
08/31/94 16,740 17,488
09/30/94 16,326 17,082
10/31/94 15,977 16,558
11/30/94 15,649 16,121
12/31/94 16,064 16,693
01/31/95 16,655 17,427
02/28/95 17,354 18,137
03/31/95 17,481 18,355
04/30/95 17,455 18,346
05/31/95 18,267 19,128
06/30/95 17,876 18,775
07/31/95 17,961 18,871
08/31/95 18,193 19,137
09/30/95 18,329 19,287
10/31/95 18,713 19,754
11/30/95 19,231 20,264
12/31/95 19,514 20,580
01/31/96 19,577 20,668
02/28/96 19,362 20,416
03/31/96 18,919 20,042
04/30/96 18,777 19,962
05/31/96 18,808 19,972
06/30/96 19,085 20,280
07/31/96 19,319 20,480
08/31/96 19,250 20,454
09/30/96 19,639 20,908
10/31/96 19,871 21,163
11/30/96 20,314 21,618
12/31/96 20,134 21,488
01/31/97 20,038 21,445
02/28/97 20,245 21,677
03/31/97 19,900 21,302
04/30/97 20,151 21,553
05/31/97 20,489 21,971
06/30/97 20,747 22,253
07/31/97 21,592 23,063
08/31/97 21,220 22,756
09/30/97 21,513 23,084
10/31/97 21,681 23,282
11/30/97 21,844 23,489
12/31/97 22,285 23,919
01/30/98 22,515 24,175
02/28/98 22,502 24,163
03/31/98 22,507 24,197
04/30/98 22,306 24,066
05/31/98 22,790 24,538
06/30/98 22,931 24,643
</TABLE>
INVESTMENT VALUE
SAFECO MUNICIPAL BOND FUND: $22,931
--------------------------------------------------
--------------------------------------------------
LEHMAN BROTHERS LONG MUNICIPAL BOND INDEX: $24,643
--------------------------------------------------
--------------------------------------------------
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment in a relevant market index. The index is unmanaged and
includes no operating expenses or transaction costs. Past performance is not
predictive of future results. Principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
-24-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Authority for Swedish Health System 5.25%, due 2026 at 5.58% yield. Both issues
were insured and carry AAA ratings.
Stephen C. Bauer
- --------------------------------------------------------------------------------
Stephen C. Bauer joined SAFECO in 1971 as a fixed-income analyst. He became a
fund manager with the inception of the SAFECO Municipal Bond Fund in 1981, and
is President of SAFECO Asset Management Company. Bauer holds a B.S. in
microbiology and an M.B.A. from the University of Washington.
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CURRENT YIELD (30-DAY) . . . . . . . . . . . . . . . . . . . . . . . . . .4.66%
WEIGHTED AVERAGE MATURITY. . . . . . . . . . . . . . . . . . . . . . 24.1 YEARS
<CAPTION>
PERCENT OF
TOP FIVE STATES NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22%
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Texas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
San Joaquin Hills Transportation
Corridor Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6%
Illinois Educational Facilities Authority. . . . . . . . . . . . . . . . . 3.7
Wyoming Community Development. . . . . . . . . . . . . . . . . . . . . . . 3.6
Alaska Housing Finance Corp. . . . . . . . . . . . . . . . . . . . . . . . 3.2
Austin Combined Utility System . . . . . . . . . . . . . . . . . . . . . . 3.1
</TABLE>
S&P CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
[PIE CHART]
1. AAA: 40%
2. AA: 21%
3. A: 22%
4. BBB: 11%
5. BB: 1%
6. Not Rated: 3%
7. Cash and Other: 2%
-25-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
BONDS* - 97.8%
ALABAMA - 1.7%
$2,000 Alabama Special Care, Facilities
Financing Authority of
Birmingham (Daughters of
Charity, Providence Hospital and
St. Vincent's Hospital)
5.00%, due 11/01/25 . . . . . . . . . . . . . . . . . . .$ 1,914
1,310 Board of Trustees Alabama
Agriculture and Mechanical
University Revenue
5.50%, due 11/01/20 [MBIA] . . . . . . . . . . . . . . . . .1,429
1,000 Citronelle Industrial Development
Board Pollution Control Revenue
8.00%, due 12/01/12 . . . . . . . . . . . . . . . . . . . .1,080
4,250 Jefferson County Sewer Revenue
5.70%, due 2/01/20 [FGIC]. . . . . . . . . . . . . . . . . .4,492
ALASKA - 3.3%
495 Alaska Housing Finance Corp.
Collateralized (Veterans
Mortgage Program)
6.50%, due 6/01/31 . . . . . . . . . . . . . . . . . . . . . .509
17,000 Alaska Housing Finance Corp
(General Housing Purpose)
5.00%, due 12/01/18 . . . . . . . . . . . . . . . . . . . 16,596
ARIZONA - 1.8%
9,800 Phoenix Civic Improvement Corp.
Wastewater System Lease
Revenue
4.75%, due 7/01/23 . . . . . . . . . . . . . . . . . . . . .9,252
CALIFORNIA - 21.9%
3,600 Airports Commission City and
County of San Francisco
International Airport Revenue
6.00%, due 5/01/25 [FGIC]. . . . . . . . . . . . . . . . . .3,903
1,500 Foothill/Eastern Transportation
Corridor Agency Toll Road
Revenue
5.00%, due 1/01/35 . . . . . . . . . . . . . . . . . . . . .1,428
2,500 Los Angeles County Certificates
of Participation (Disney Parking
Project)
5.50%, due 9/01/21 . . . . . . . . . . . . . . . . . . . . .2,510
13,000 Los Angeles Department of Water
and Power Electric Plant Revenue
5.25%, due 11/15/26 . . . . . . . . . . . . . . . . . . . 13,031
5,000 Los Angeles Wastewater System
Revenue
4.70%, due 11/01/19 [FGIC] . . . . . . . . . . . . . . . . .4,710
2,200 Metropolitan Water District of
Southern California Waterworks
Revenue
5.75%, due 3/01/14 . . . . . . . . . . . . . . . . . . . . .2,236
5,250 Northern California Power
Agency Geothermal Project
Revenue
5.00%, due 7/01/09 . . . . . . . . . . . . . . . . . . . . .5,251
Pittsburg Redevelopment Agency
Los Medanos Community
Development Project Tax
Allocation
11,995 5.80%, due 8/01/34 [FSA] . . . . . . . . . . . . . . . . . 13,103
6,400 4.625%, due 8/01/21 [AMBAC] . . . . . . . . . . . . . . . .5,933
2,000 Redding Joint Powers Financing
Authority Solid Waste and
Corporation Yard Revenue
5.00%, due 1/01/23 . . . . . . . . . . . . . . . . . . . . .1,910
8,750 Sacramento County Sanitation
District Finance Authority
Revenue
4.75%, due 12/01/23 . . . . . . . . . . . . . . . . . . . .8,233
10,000 San Francisco Bay Area Rapid
Transit District Revenue
5.00%, due 7/01/28 [AMBAC] . . . . . . . . . . . . . . . . .9,742
1,700 San Francisco City and County
Redevelopment Financing
Authority Tax Allocation Revenue
4.75%, due 8/01/18 [FGIC]. . . . . . . . . . . . . . . . . .1,611
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-26-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
CALIFORNIA (CONTINUED)
$ 8,010 San Joaquin County Public
Facilities Financing Corp.
Certificates of Participation
Capital Facilities Project
4.75%, due 11/15/19 [MBIA] . . . . . . . . . . . . . . . .$ 7,587
25,000 San Joaquin Hills Transportation
Corridor Agency Senior Lien Toll
Road Revenue
5.00%, due 1/01/33 . . . . . . . . . . . . . . . . . . . . 23,818
Southern California Public Power
Authority Power Project Revenue
(Multiple Projects)
4,085 - 5.50%, due 7/01/20 (Prerefunded
7/01/00 @ 100) . . . . . . . . . . . . . . . . . . . . . . .4,217
3,165 5.50%, due 7/01/20 . . . . . . . . . . . . . . . . . . . . .3,183
COLORADO - 0.3%
1,000 Colorado Housing Finance
Authority Multi-Family
Mortgage Revenue
8.30%, due 10/01/23 . . . . . . . . . . . . . . . . . . . .1,100
220 Colorado Housing Finance
Authority Single Family
Residential Housing Revenue
8.75%, due 9/01/17 . . . . . . . . . . . . . . . . . . . . . .225
DISTRICT OF COLUMBIA - 1.9%
10,000 District of Columbia General
Obligation
5.25%, due 6/01/27 [MBIA]. . . . . . . . . . . . . . . . . .9,955
FLORIDA - 0.6%
2,750 Mid-Bay Bridge Authority
Revenue
6.05%, due 10/01/22 . . . . . . . . . . . . . . . . . . . .2,947
GEORGIA - 2.4%
6,750 Atlanta Water and Sewage
Revenue
4.50%, due 1/01/18 . . . . . . . . . . . . . . . . . . . . .6,261
5,000 Municipal Electric Authority
Project One Special Obligation
Fourth Crossover Series
6.50%, due 1/01/20 . . . . . . . . . . . . . . . . . . . . .5,864
ILLINOIS - 7.1%
Illinois Dedicated Tax Revenue
(Civic Center)
3,975 7.00%, due 12/15/10 [AMBAC]. . . . . . . . . . . . . . . . .4,315
1,525 - 7.00%, due 12/15/10 [AMBAC]
(Prerefunded 12/15/00 @ 102) . . . . . . . . . . . . . . . .1,662
17,500 Illinois Educational Facilities
Authority Adjustable Demand
Revenue (University of Chicago)
5.70%, due 12/01/25. . . . . . . . . . . . . . . . . . . . 19,048
5,000 Metropolitan Pier and Exposition
Authority McCormick Place
Convention Complex Hospitality
Facilities Revenue
7.00%, due 7/01/26 . . . . . . . . . . . . . . . . . . . . .6,307
4,770 University of Illinois
Auxiliary Facilities System
Revenue
5.75%, due 4/01/22 . . . . . . . . . . . . . . . . . . . . .4,948
INDIANA - 5.2%
200 Beech Grove Economic
Development Revenue
(Westvaco Corp.)
8.75%, due 7/01/10 . . . . . . . . . . . . . . . . . . . . . .204
11,000 - East Chicago Elementary School
Building Corp. First Mortgage
7.00%, due 1/15/16 (Prerefunded
1/15/03 @ 102) . . . . . . . . . . . . . . . . . . . . . . 12,438
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-27-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
INDIANA (CONTINUED)
$ 7,715 Hammond Multi-School Building
Corp.
First Mortgage Revenue
6.20%, due 7/10/15 . . . . . . . . . . . . . . . . . . . .$ 8,242
6,450 Indianapolis Gas Utility System
Revenue
4.00%, due 6/01/11 [FGIC] . . . . . . . . . . . . . . . . .6,052
KENTUCKY - 2.3%
12,000 Louisville and Jefferson Counties
Metropolitan Sewer
District Sewer and Drain System
Revenue
5.00%, due 5/15/30 [FGIC]. . . . . . . . . . . . . . . . . 11,646
MARYLAND - 1.9%
5,125 Baltimore Project and Revenue
(Water Projects)
5.00%, due 7/01/24 [FGIC]. . . . . . . . . . . . . . . . . .5,140
5,000 Maryland Health and Higher
Educational Facilities Authority
Revenue (University of Maryland
Medical System)
4.75%, due 7/01/23 [FGIC]. . . . . . . . . . . . . . . . . .4,694
MASSACHUSETTS - 4.0%
8,295 Massachusetts Bay
Transportation Authority
General Transportation System
5.00%, due 3/01/27 [FGIC]. . . . . . . . . . . . . . . . . .8,061
5,140 Massachusetts Housing Finance
Agency (Rental Housing and
Mortgage Revenue)
6.20%, due 7/01/38 [AMBAC] . . . . . . . . . . . . . . . . .5,466
Massachusetts Water Resources
Authority General Revenue
4,500 6.00%, due 4/01/20 . . . . . . . . . . . . . . . . . . . . .4,664
2,500 4.75%, due 12/01/23 . . . . . . . . . . . . . . . . . . . .2,326
MICHIGAN - 1.4%
5,250 Detroit Water Supply System
Revenue
4.75%, due 7/01/19 [FGIC]. . . . . . . . . . . . . . . . . 4,982
2,000 University of Michigan Hospital
Revenue
6.375%, due 12/01/24 . . . . . . . . . . . . . . . . . . . .2,110
MISSOURI - 2.0%
5,000 Missouri Health and Education
Facilities Authority
Educational Facilities Revenue
5.00%, due 11/15/37. . . . . . . . . . . . . . . . . . . . .4,857
5,000 University of Missouri System
Facilities Revenue
5.80%, due 11/01/27. . . . . . . . . . . . . . . . . . . . .5,328
NEW JERSEY - 0.3%
1,275 - New Jersey Turnpike Authority
Revenue
10.375%, due 1/01/03 (Escrowed
to Maturity) . . . . . . . . . . . . . . . . . . . . . . . .1,472
NEW MEXICO - 0.5%
2,500 Farmington Collateralized
Pollution Control Revenue
(Tucson Gas and Electric Co.)
6.10%, due 1/01/08 . . . . . . . . . . . . . . . . . . . . .2,502
NEW YORK - 6.6%
4,025 Long Island Power Authority
Electric System General Revenue
5.25%, due 12/01/26. . . . . . . . . . . . . . . . . . . . .3,984
New York City Municipal Water
Finance Authority Water and
Sewer System Revenue
2,205 6.00%, due 6/15/19 . . . . . . . . . . . . . . . . . . . . .2,254
2,100 5.00%, due 6/15/17 [FGIC] . . . . . . . . . . . . . . . . .2,072
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-28-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
NEW YORK (CONTINUED)
New York Dormitory Authority
State University Educational
Facilities Revenue
$ 4,400 7.50%, due 5/15/11 . . . . . . . . . . . . . . . . . . . .$ 5,364
5,250 7.50%, due 5/15/13 . . . . . . . . . . . . . . . . . . . . .6,679
5,500 5.25%, due 5/15/15 . . . . . . . . . . . . . . . . . . . . .5,668
1,500 5.00%, due 7/01/15 . . . . . . . . . . . . . . . . . . . . .1,497
6,500 Urban Development Corp.
Correctional Facilities Revenue
5.375%, due 1/01/25 . . . . . . . . . . . . . . . . . . . .6,531
NORTH CAROLINA - 2.3%
11,000 North Carolina Eastern Municipal
Power Agency Power System
Revenue
6.00%, due 1/01/22 . . . . . . . . . . . . . . . . . . . . 11,766
OKLAHOMA - 1.2%
5,590 McGee Creek Authority Water
Revenue
6.00%, due 1/01/23 [MBIA] . . . . . . . . . . . . . . . . .6,349
PENNSYLVANIA - 0.9%
5,000 Centre County University Area
Joint Authority Sewer Revenue
4.75%, due 11/01/20 [MBIA] . . . . . . . . . . . . . . . . .4,730
SOUTH CAROLINA - 1.3%
1,040 Charleston County Pollution
Control Facilities Revenue
5.90%, due 8/01/03 . . . . . . . . . . . . . . . . . . . .1,041
5,500 Pickens and Richland Counties
Hospital Facilities Revenue
5.75%, due 8/01/21 [AMBAC] . . . . . . . . . . . . . . . . .5,626
TEXAS - 9.4%
10,000 Austin Combined Utility System
Revenue
12.50%, due 11/15/07 [MBIA] . . . . . . . . . . . . . . . 15,884
Austin Water, Sewer and Electric
Revenue
3,825 14.00%, due 11/15/01 . . . . . . . . . . . . . . . . . . . .4,453
65 - 14.00%, due 11/15/01
(Prerefunded 5/15/99 @ 100). . . . . . . . . . . . . . . . . . 67
60 - 14.00%, due 11/15/01
(Prerefunded various
dates/prices). . . . . . . . . . . . . . . . . . . . . . . . . 67
1,600 - Coastal Industrial Water Authority
Water Revenue
5.50%, due 12/15/09
(Escrowed to Maturity) . . . . . . . . . . . . . . . . . . .1,628
2,000 Houston Water and Sewer System
Junior Lien Revenue
5.375%, due 12/01/27 [FGIC]. . . . . . . . . . . . . . . . .2,042
15,000 Matagorda County Navigation
District #1
5.15%, due 11/01/29 [MBIA] . . . . . . . . . . . . . . . . 14,769
2,260 Texas Municipal Power Agency
Revenue
5.50%, due 9/01/13 [FGIC]. . . . . . . . . . . . . . . . . .2,261
7,500 Waco Texas Health Facilities
Development Corp.
Hospital Revenue
5.00%, due 11/01/25. . . . . . . . . . . . . . . . . . . . .7,303
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-29-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
UTAH - 0.4%
$1,900 Intermountain Power Agency
Power Supply Revenue
6.00%, due 7/01/23 . . . . . . . . . . . . . . . . . . . . $1,917
VIRGINIA - 0.2%
1,055 - Richmond Metropolitan
Expressway Authority Revenue
5.60%, due 1/15/13
(Escrowed to Maturity) . . . . . . . . . . . . . . . . . . .1,100
WASHINGTON - 13.1%
7,000 CDP-King County III Lease
Revenue (King Street Center
Project)
5.25%, due 6/01/26 [MBIA]. . . . . . . . . . . . . . . . . .6,979
Douglas County Public Utility
District #1 Wells Hydroelectric
Revenue
5,055 8.75%, due 9/01/18 . . . . . . . . . . . . . . . . . . . . .6,662
2,200 8.75%, due 9/01/18 . . . . . . . . . . . . . . . . . . . . .2,951
2,500 Everett School District #2
Snohomish County Unlimited Tax
General Obligation
6.20%, due 12/01/12 [MBIA] . . . . . . . . . . . . . . . . .2,786
2,200 King County Housing Authority
Pooled Housing Revenue
6.80%, due 3/01/26 . . . . . . . . . . . . . . . . . . . . .2,345
1,650 King County Limited Tax General
Obligation (Various Purpose)
4.75%, due 1/01/19 . . . . . . . . . . . . . . . . . . . . .1,561
2,255 King County Public Hospital
District #1 Hospital Facilities
Revenue (Valley Medical Center)
5.50%, due 9/01/17 [AMBAC] . . . . . . . . . . . . . . . . .2,282
4,800 Lewis County Public Utility
District #1 Cowlitz Falls
Hydroelectric Project Revenue
6.00%, due 10/01/24 . . . . . . . . . . . . . . . . . . . .5,014
4,000 Port of Seattle Revenue
6.00%, due 12/01/14 [AMBAC]. . . . . . . . . . . . . . . . .4,189
2,944 Seattle Housing Authority Low
Income Housing Revenue (Mt.
Zion Project)
6.60%, due 8/20/38 . . . . . . . . . . . . . . . . . . . . .3,238
3,000 Washington Health Care Facilities
Authority Revenue (Fred
Hutchinson Cancer Research
Center)
7.375%, due 1/01/18 . . . . . . . . . . . . . . . . . . . .3,270
10,000 Washington Health Care Facilities
Authority Revenue (Swedish
Hospital Medical Center)
5.25%, due 11/15/26 [AMBAC]. . . . . . . . . . . . . . . . .9,956
8,500 Washington Public Power Supply
System Nuclear Project #1
Revenue
6.00%, due 7/01/17 . . . . . . . . . . . . . . . . . . . . .8,832
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-30-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
WASHINGTON (CONTINUED)
$ 4,000 Washington Public Power Supply
System Nuclear Project #2
Revenue
6.30%, due 7/01/12 . . . . . . . . . . . . . . . . . . . $ 4,536
2,610 Washington Public Power Supply
System Nuclear Project #3
Revenue
5.50%, due 7/01/18 . . . . . . . . . . . . . . . . . . . . .2,621
WISCONSIN - 0.2%
1,000 Wisconsin Health and Educational
Facilities Authority Revenue
6.00%, due 10/01/12 [MBIA] . . . . . . . . . . . . . . . . .1,024
WYOMING - 3.6%
18,375 Wyoming Community
Development Authority Housing
Revenue
5.60%, due 6/01/29 . . . . . . . . . . . . . . . . . . . . 18,637
-------
TOTAL BONDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .502,429
-------
TEMPORARY INVESTMENTS - 0.7%
INVESTMENT COMPANIES:
$3,471 Federated Tax-Exempt
Money Market Fund, Inc.. . . . . . . . . . . . . . . . . $ 3,471
--------
TOTAL TEMPORARY INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . .3,471
--------
TOTAL INVESTMENTS - 98.5%. . . . . . . . . . . . . . . . . . . . . . . .505,900
Other Assets, less Liabilities . . . . . . . . . . . . . . . . . . . . . .7,815
--------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $513,715
--------
--------
- --------------------------------------------------------------------------------
* The provider of the guarantee of timely payment of both principal and interest
is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio and the percentage of the portfolio
they guarantee at the period end are as follows:
MBIA: Municipal Bond Investors
Assurance Corp. . . . . . . . . . . . . . . . . . . . . . . . .14.1%
FGIC: Financial Guaranty Insurance Corp. . . . . . . . . . . . . . .12.2
AMBAC: AMBAC Indemnity Corp. . . . . . . . . . . . . . . . . . . . . . 9.7
FSA: Financial Security
Assurance, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 2.6
--------
38.6%
--------
--------
</TABLE>
- - Prerefunded bonds are collateralized by securities (generally U.S. Treasury
securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
SEE NOTES TO FINANCIAL STATEMENTS
-31-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO]
BEVERLY R. DENNY
The SAFECO Washington State Municipal Bond Fund returned 8.96% for the year
ending June 30,1998, outperforming 8.91%, the Lipper Analytical Services, Inc.
average for Washington funds. The Fund also bested its peers for the six months,
returning 2.69% versus the competition's 2.65%.
The Fund came in below the Lehman Brothers Long Municipal Bond Index return
of 10.77%, which is a national index and not as valid a performance yardstick as
other Washington funds which participate in a limited market that is currently
high-priced with few attractive selections. This is due to a scarcity of long
local bonds, high demand and the type of deals coming to market. Further skewing
the comparison is the fact that a bond index has no expenses, no cash and no
call features.
The Fund had a large inflow of cash (about 5 percent of net assets) at the
end of the first quarter. I bought Spokane General Obligation (GOs) bonds on
March 23. Unfortunately, Murphy's Law
- --------------------------------------------------------------------------------
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIODS ENDED JUNE 30, 1998
-----------------------------------------------------
<S> <C>
1-Year 8.96%
5-Year 5.64%
Since Inception* 6.06%
-----------------------------------------------------
</TABLE>
[GRAPH]
WASHINGTON STATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
Lehman Brothers
Washington State Long Municipal
Municipal Bond Fund Bond Index
------------------- --------------
<S> <C> <C>
03/31/93 10,000 10,000
04/30/93 10,065 10,137
05/31/93 10,107 10,221
06/30/93 10,351 10,413
07/31/93 10,319 10,423
08/31/93 10,600 10,690
09/30/93 10,723 10,839
10/31/93 10,742 10,859
11/30/93 10,573 10,728
12/31/93 10,788 11,005
01/31/94 10,956 11,135
02/28/94 10,581 10,766
03/31/94 9,988 10,123
04/30/94 10,035 10,201
05/31/94 10,177 10,321
06/30/94 10,003 10,197
07/31/94 10,255 10,459
08/31/94 10,219 10,481
09/30/94 9,971 10,238
10/31/94 9,705 9,923
11/30/94 9,478 9,661
12/31/94 9,855 10,004
01/31/95 10,258 10,444
02/28/95 10,645 10,870
03/31/95 10,701 11,000
04/30/95 10,669 10,995
05/31/95 11,100 11,463
06/30/95 10,899 11,252
07/31/95 10,965 11,310
08/31/95 11,107 11,469
09/30/95 11,185 11,559
10/31/95 11,428 11,839
11/30/95 11,692 12,144
12/31/95 11,816 12,333
01/31/96 11,864 12,386
02/28/96 11,754 12,235
03/31/96 11,528 12,011
04/30/96 11,465 11,963
05/31/96 11,488 11,969
06/30/96 11,621 12,154
07/31/96 11,739 12,274
08/31/96 11,705 12,258
09/30/96 11,934 12,530
10/31/96 12,038 12,683
11/30/96 12,244 12,956
12/31/96 12,174 12,878
01/31/97 12,105 12,852
02/28/97 12,223 12,991
03/31/97 12,014 12,766
04/30/97 12,168 12,917
05/31/97 12,367 13,168
06/30/97 12,501 13,336
07/31/97 12,917 13,822
08/31/97 12,760 13,638
09/30/97 12,920 13,834
10/31/97 12,993 13,953
11/30/97 13,076 14,077
12/31/97 13,263 14,335
01/30/98 13,385 14,488
02/28/98 13,404 14,481
03/31/98 13,425 14,501
04/30/98 13,328 14,423
05/31/98 13,561 14,706
06/30/98 13,621 14,769
</TABLE>
INVESTMENT VALUE
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND: $13,621
-----------------------------------------------------
-----------------------------------------------------
LEHMAN BROTHERS LONG MUNICIPAL BOND INDEX: $14,769
-----------------------------------------------------
-----------------------------------------------------
* The Fund's inception was March 18, 1993. Graph and average annual return
comparison begins March 31, 1993.
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment in a relevant market index. The index is unmanaged and
includes no operating expenses or transaction costs. Past performance is not
predictive of future results. Principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
-32-
<PAGE>
applied, and the money left in early April, necessitating the sale of the
Whatcom GOs. In May, the Fund received another large inflow. I bought Seattle
Water System Revenue bonds, and a new issue of Seattle Wastewater bonds came to
market. Neither one was cheap, but preferable to money market rates. Both
Seattle bonds have good structure with 5% coupons and 2027 maturities that
extend the Fund's duration.
As of June 15, the Fund may invest in bonds subject to the Alternative
Minimum Tax (AMT). As always, I will continue to look for long, discount bonds
that represent value in the market. With a longer duration, the Fund should
outperform its peer Washington Funds during market rallies when interest rates
drop.
Beverly R. Denny
- --------------------------------------------------------------------------------
Beverly R. Denny came to SAFECO in 1991. She holds an MBA from the University of
Virginia and a B.S. in finance/economics from Babson College. She is a Chartered
Financial Analyst.
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CURRENT YIELD (30-DAY) . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03%
WEIGHTED AVERAGE MATURITY . . . . . . . . . . . . . . . . . . . . . . 23.9 YEARS
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Renton Limited Tax
General Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5%
Housing Authority of Vancouver Clark County
Pooled Housing Revenue . . . . . . . . . . . . . . . . . . . . . . . . . 4.3
Grant County Public Utility District #2
Wanapum Hydroelectric Revenue. . . . . . . . . . . . . . . . . . . . . . 4.1
Washington Higher Education
Facilities Authority Revenue
and Refunding Revenue
(Gonzaga University Project) . . . . . . . . . . . . . . . . . . . . . 4.1
Washington State Housing
Finance Commission Housing
and Nonprofit Revenue (Seattle
University Auxiliary Service Project). . . . . . . . . . . . . . . . . . 4.0
<CAPTION>
TOP FIVE PERCENT OF
TYPES OF BONDS NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Housing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18%
Local General Obligation - Limited Tax . . . . . . . . . . . . . . . . . . .13
Hospital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
University Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Electric Utility - Hydroelectric . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
S&P CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
- ---------------------------------------
[PIE CHART]
1. AAA: 46%
2. AA: 26%
3. A: 17%
4. Not Rated: 11%
-33-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
BONDS* - 100.3%
ILLINOIS - 2.4%
$200 Wood Dale Industrial
Development Revenue
4.75%, due 9/01/25. . . . . . . . . . . . . . . . . . . . .$200
WASHINGTON - 97.9%
300 Bellingham Housing Authority
Housing Revenue
(Cascade Meadows)
5.20%, due 11/1/27 [MBIA] . . . . . . . . . . . . . . . . . 296
315 Grant County Public Utility
District #2 Wanapum
Hydroelectric Revenue
6.375%, due 1/01/23 . . . . . . . . . . . . . . . . . . . . 336
350 Housing Authority of Vancouver
Clark County Pooled Housing
Revenue
5.50%, due 3/1/28 . . . . . . . . . . . . . . . . . . . . . 351
100 Kent Limited Tax General
Obligation
5.75%, due 12/01/26 [MBIA]. . . . . . . . . . . . . . . . . 106
300 King County Housing Authority
Pooled Housing Revenue
6.80%, due 3/01/26. . . . . . . . . . . . . . . . . . . . . 320
250 King County Limited Tax
General Obligation
(Various Purposes)
4.75%, due 1/01/19. . . . . . . . . . . . . . . . . . . . . 237
200 King County Public Hospital
District #1 Hospital Facilities
Revenue (Valley Medical Center)
5.25%, due 9/01/15 [AMBAC]. . . . . . . . . . . . . . . . . 201
200 Kitsap County School District #401
Unlimited Tax General Obligation
(Central Kitsap)
5.50%, due 12/01/11 . . . . . . . . . . . . . . . . . . . . 209
100 Kitsap County Sewer Revenue
5.75%, due 7/01/16 [MBIA] . . . . . . . . . . . . . . . . . 105
250 Klickitat County Public Utility
District # 1 Electric Revenue
5.75%, due 10/01/27 [FGIC]. . . . . . . . . . . . . . . . . 263
100 Lewis County Public Utility
District #1 Cowlitz Falls
Hydroelectric Project Revenue
6.00%, due 10/01/24 . . . . . . . . . . . . . . . . . . . . 104
200 Municipality of Metropolitan
Seattle General Obligation
5.65%, due 1/01/20. . . . . . . . . . . . . . . . . . . . . 206
200 Municipality of Metropolitan
Seattle Sewer Revenue
6.30%, due 1/01/33 [MBIA] . . . . . . . . . . . . . . . . . 217
350 Renton Limited Tax General
Obligation
5.75%, due 12/01/17 [MBIA]. . . . . . . . . . . . . . . . . 371
Seattle Drainage and Wastewater
Utility Improvement Revenue
175 5.25%, due 12/01/25 [MBIA]. . . . . . . . . . . . . . . . . 175
200 5.00%, due 11/01/27 . . . . . . . . . . . . . . . . . . . . 194
250 Seattle Housing Authority Low
Income Housing Revenue
(Mt. Zion Project)
6.60%, due 8/20/38. . . . . . . . . . . . . . . . . . . . . 275
300 Seattle Municipal Light and
Power Revenue
5.00%, due 7/01/20. . . . . . . . . . . . . . . . . . . . . 293
Seattle Water System Revenue
200 5.25%, due 12/01/23 . . . . . . . . . . . . . . . . . . . . 201
300 5.00%, due 10/01/27 [FGIC]. . . . . . . . . . . . . . . . . 290
300 Spokane County General
Obligation
5.10%, due 12/01/18 . . . . . . . . . . . . . . . . . . . . 298
100 Tacoma Sold Waste Utilities
Revenue
5.50%, due 12/01/19 [AMBAC] . . . . . . . . . . . . . . . . 104
200 Tukwila Limited Tax General
Obligation
5.90%, due 1/01/14. . . . . . . . . . . . . . . . . . . . . 214
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-34-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
$100 Washington Certificates of
Participation Municipal
Lease Obligation (State Office
Building Project)
6.00%, due 4/01/12. . . . . . . . . . . . . . . . . . . . .$105
200 Washington Health Care Facilities
Authority Revenue (Franciscan
Health System/St. Joseph
Hospital and Health Care Center,
Tacoma)
5.625%, due 1/01/13 [MBIA]. . . . . . . . . . . . . . . . . 209
150 Washington Health Care Facilities
Authority Revenue (Grays Harbor
Medical Center)
5.90%, due 7/01/23. . . . . . . . . . . . . . . . . . . . . 158
250 Washington Health Care Facilities
Authority Revenue (Highline
Community Hospital)
5.00%, due 8/15/21. . . . . . . . . . . . . . . . . . . . . 238
200 Washington Health Care Facilities
Authority Revenue (Northwest
Hospital, Seattle)
5.75%, due 11/15/23 [AMBAC] . . . . . . . . . . . . . . . . 208
100 Washington Health Care Facilities
Authority Revenue (Swedish
Hospital Medical System)
6.30%, due 11/15/22 [AMBAC] . . . . . . . . . . . . . . . . 110
250 Washington Higher Education
Facilities Authority Revenue
(Pacific Lutheran University
Project)
5.70%, due 11/01/26 . . . . . . . . . . . . . . . . . . . . 262
350 Washington Higher Education
Facilities Authority Revenue and
Refunding Revenue (Gonzaga
University Project)
4.75%, due 4/01/22 [MBIA] . . . . . . . . . . . . . . . . . 331
250 Washington State Housing
Finance Commission Revenue
(Horizon House Project)
6.125%, due 7/01/27 [MBIA]. . . . . . . . . . . . . . . . . 265
325 Washington State Housing
Finance Commission Housing and
Nonprofit Revenue (Seattle
University Auxiliary Service
Project)
5.30%, due 7/01/31. . . . . . . . . . . . . . . . . . . . . 324
200 Washington State Various
Purpose General Obligation
5.25%, due 1/01/19. . . . . . . . . . . . . . . . . . . . . 201
200 Yakima-Tieton Irrigation District
Revenue
6.20%, due 6/01/19 [FSA]. . . . . . . . . . . . . . . . . . 217
-------
TOTAL BONDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,194
-------
TEMPORARY INVESTMENTS - 2.0%
INVESTMENT COMPANIES:
164 Federated Tax-Exempt
Money Market Fund, Inc. . . . . . . . . . . . . . . . . . . 164
-------
TOTAL TEMPORARY INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . 164
-------
TOTAL INVESTMENTS - 102.3% . . . . . . . . . . . . . . . . . . . . . . . 8,358
Liabilities, less Other Assets . . . . . . . . . . . . . . . . . . . . . .(190)
-------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$8,168
-------
-------
- --------------------------------------------------------------------------------
* The provider of the guarantee of timely payment of both principal and
interest is identified in the brackets at the end of each bond
description. The guarantors applicable to this portfolio and the percentage
of the portfolio they guarantee at period end are as follows:
MBIA: Municipal Bond Investors
Assurance Corp.. . . . . . . . . . . . . . . . . . . . . . . .24.8%
AMBAC: AMBAC Indemnity Corp.. . . . . . . . . . . . . . . . . . . . . 7.5
FGIC: Financial Guaranty
Insurance Corp.. . . . . . . . . . . . . . . . . . . . . . . . 6.6
FSA: Financial Security
Assurance, Inc.. . . . . . . . . . . . . . . . . . . . . . . . 2.6
-------
41.5%
-------
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-35-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INTERMEDIATE-TERM
MUNICIPAL BOND FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO]
MARY V. METASTASIO
For the year ending June 30, 1998, the SAFECO Intermediate-Term
Municipal Bond Fund returned 6.72%, compared to 6.69% for the peer group
defined by Lipper Analytical Services, Inc., and 7.34% for the Lehman 7-Year
Municipal Bond Index. For the year to date, the Fund returned 1.76% while its
peers and the index returned 2.05% and 2.32%, respectively.
Bond portfolios typically underperform bond indexes because indexes are
"paper" portfolios with no expenses, no cash and no call features. The
difference in the performance of the Fund and its peer group is the better
measure of success.
After starting the year with a brief uptick, the intermediate municipal
bond market has traded in a narrow range, and there are no clear signals that
anything else is on the horizon. Cash flow into municipal bonds has been
lacking, and activity in the Fund was very limited. I did only one trade during
the quarter,
- --------------------------------------------------------------------------------
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIODS ENDED JUNE 30, 1998
-----------------------------------------------------
<S> <C>
1-Year 6.72%
5-Year 5.29%
Since Inception* 5.47%
-----------------------------------------------------
</TABLE>
[GRAPH]
INTERMEDIATE-TERM MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
Lehman Brothers
Intermediate-Term 7-Year Municipal
Municipal Bond Fund Bond Index
------------------- ----------------
<S> <C> <C>
03/31/93 10,000 10,000
04/30/93 10,044 10,062
05/31/93 10,062 10,092
06/30/93 10,222 10,277
07/31/93 10,204 10,278
08/31/93 10,414 10,461
09/30/93 10,575 10,575
10/31/93 10,627 10,602
11/30/93 10,535 10,508
12/31/93 10,719 10,701
01/31/94 10,846 10,816
02/28/94 10,576 10,581
03/31/94 10,240 10,299
04/30/94 10,285 10,375
05/31/94 10,363 10,427
06/30/94 10,327 10,408
07/31/94 10,454 10,555
08/31/94 10,527 10,610
09/30/94 10,339 10,509
10/31/94 10,152 10,403
11/30/94 9,932 10,251
12/31/94 10,117 10,407
01/31/95 10,347 10,601
02/28/95 10,625 10,840
03/31/95 10,749 10,953
04/30/95 10,797 10,982
05/31/95 11,105 11,274
06/30/95 11,060 11,265
07/31/95 11,186 11,408
08/31/95 11,301 11,543
09/30/95 11,341 11,587
10/31/95 11,470 11,688
11/30/95 11,587 11,816
12/31/95 11,656 11,879
01/31/96 11,776 11,994
02/28/96 11,762 11,953
03/31/96 11,570 11,837
04/30/96 11,548 11,816
05/31/96 11,513 11,798
06/30/96 11,563 11,889
07/31/96 11,709 11,988
08/31/96 11,728 11,994
09/30/96 11,817 12,102
10/31/96 11,951 12,233
11/30/96 12,140 12,437
12/31/96 12,093 12,399
01/31/97 12,114 12,444
02/28/97 12,216 12,547
03/31/97 12,065 12,386
04/30/97 12,098 12,450
05/31/97 12,268 12,607
06/30/97 12,396 12,728
07/31/97 12,687 13,023
08/31/97 12,566 12,931
09/30/97 12,720 13,068
10/31/97 12,778 13,145
11/30/97 12,821 13,191
12/31/97 13,000 13,353
01/30/98 13,092 13,493
02/28/98 13,092 13,505
03/31/98 13,091 13,505
04/30/98 13,005 13,427
05/31/98 13,196 13,624
06/30/98 13,229 13,663
</TABLE>
INVESTMENT VALUE
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND: $13,229
-----------------------------------------------------
-----------------------------------------------------
LEHMAN BROTHERS 7-YEAR MUNICIPAL BOND INDEX: $13,663
-----------------------------------------------------
-----------------------------------------------------
* The Fund's inception was March 18, 1993. Graph and average annual return
comparison begins March 31, 1993.
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment in a relevant market index. The index is unmanaged and
includes no operating expenses or transaction costs. Past performance is not
predictive of future results. Principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
-36-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
a purchase of $300,000 par of Maine Municipal Bond Bank FSA insured 5% due
11/01/09 at a yield of 4.87%.
In recent quarters, I have actually sold more securities than I have
purchased. The Fund has, therefore, shortened in maturity and duration which
takes us out of our normal "longer" style and hurts us in performance. I have
resisted doing many swaps to extend maturity, as this would subject our
shareholders to capital gains. However, I am taking another look at this. Taking
a moderate amount of capital gains is not a terrible price to pay to better
structure the portfolio.
Mary V. Metastasio
- --------------------------------------------------------------------------------
Mary V. Metastasio joined SAFECO's investment department in 1985 as a securities
analyst and began managing the SAFECO Intermediate-Term Municipal Bond Fund in
1996. She holds a B.A. in Dramatic Art from Whitman College and an M.B.A. from
the University of Washington.
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENT YIELD (30-DAY) . . . . . . . . . . . . . . . . . . . . . . . . . .3.74%
WEIGHTED AVERAGE MATURITY. . . . . . . . . . . . . . . . . . . . . . 6.7 YEARS
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
North Carolina Municipal Power Agency
#1 Catawba Electric Revenue. . . . . . . . . . . . . . . . . . . . . . . 5.5%
New York State Housing Finance Agency
Health Facilities Revenue . . . . . . . . . . . . . . . . . . . . . . . 5.4
Mississippi Hospital Equipment and
Facilities Authority (Mississippi
Baptist Medical Center). . . . . . . . . . . . . . . . . . . . . . . . . 4.4
Oklahoma Industries Authority Health
Facilities (Sisters of Mercy Health
System, St. Louis, Inc.) . . . . . . . . . . . . . . . . . . . . . . . . 4.4
Trinity River Authority (Tarrant
County Water Project). . . . . . . . . . . . . . . . . . . . . . . . . . 4.3
<CAPTION>
PERCENT OF
TOP FIVE STATES NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15%
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Texas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
S&P CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
[PIE CHART]
1. AAA: 59%
2. AA: 9%
3. A: 15%
4. BBB: 9%
5. BB: 3%
6. Not Rated: 2%
7. Cash and Other: 3%
-37-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
BONDS* - 96.8%
CALIFORNIA - 8.4%
$225 Pleasanton Joint Powers
Financing Authority
Reassessment Revenue
5.80%, due 9/02/02. . . . . . . . . . . . . . . . . . . . . $237
405 Sacramento Municipal Utility
District Electric Revenue
5.50%, due 2/01/11. . . . . . . . . . . . . . . . . . . . . .428
500 Santa Margarita Dana Point
Authority Revenue
5.375%, due 8/01/04 [MBIA]. . . . . . . . . . . . . . . . . .532
CONNECTICUT - 3.9%
100 Connecticut Housing Finance
Authority Housing Mortgage
Finance Program
5.40%, due 5/15/03. . . . . . . . . . . . . . . . . . . . . .103
400 East Haven Connecticut General
Obligation
6.50%, due 9/01/05 [FGIC] . . . . . . . . . . . . . . . . . .453
DISTRICT OF COLUMBIA - 3.3%
District of Columbia General
Obligation
150 5.75%, due 6/01/03. . . . . . . . . . . . . . . . . . . . . .158
300 5.30%, due 6/01/03. . . . . . . . . . . . . . . . . . . . . .308
GEORGIA - 0.7%
100 Georgia Municipal Electric
Authority General Power Revenue
5.75%, due 1/01/03. . . . . . . . . . . . . . . . . . . . . .106
ILLINOIS - 14.2%
100 Illinois Health Facilities Authority
Revenue (Brokaw-Mennonite
Association)
5.60%, due 8/15/01 [FGIC] . . . . . . . . . . . . . . . . . .104
300 Illinois Health Facilities Authority
Revenue (Masonic Medical
Center)
5.20%, due 10/01/03 . . . . . . . . . . . . . . . . . . . . .310
500 Joliet Waterworks and Sewage
Revenue
7.00%, due 1/01/05 [FGIC] . . . . . . . . . . . . . . . . . .573
Metropolitan Pier and Exposition
Authority McCormick Place
Expansion Project
100 5.90%, due 6/15/03. . . . . . . . . . . . . . . . . . . . . .107
500 5.50%, due 6/15/03 [MBIA] . . . . . . . . . . . . . . . . . .529
400 Peoria General Obligation
5.00%, due 1/01/06 [FGIC] . . . . . . . . . . . . . . . . . .413
INDIANA - 3.0%
200 Hammond Multi-School Building
Corp. First Mortgage (Lake
County)
5.50%, due 1/15/03. . . . . . . . . . . . . . . . . . . . . .211
100 Indiana Bond Bank State
Revolving Fund Program
5.90%, due 2/01/03. . . . . . . . . . . . . . . . . . . . . .107
100 Indianapolis Local Public
Improvement Bond Bank
Transportation Revenue
5.80%, due 7/01/03. . . . . . . . . . . . . . . . . . . . . .107
KENTUCKY - 3.7%
500 Kentucky State Property and
Buildings Commission Revenue
5.50%, due 9/01/04. . . . . . . . . . . . . . . . . . . . . .532
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-38-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
LOUISIANA - 1.4%
$100 Louisiana Correctional Facilities
Corp. Lease Revenue
5.55%, due 12/15/02 [FSA] . . . . . . . . . . . . . . . . . $105
85 Louisiana Public Facilities
Authority Student Loan Revenue
6.20%, due 3/01/01. . . . . . . . . . . . . . . . . . . . . . 89
MASSACHUSETTS - 2.9%
400 Massachusetts Water Resources
Authority General Revenue
5.25%, due 12/01/08 . . . . . . . . . . . . . . . . . . . . .422
MAINE - 2.1%
300 Maine Municipal Bond Bank
5.00%, due 11/01/09 [FSA] . . . . . . . . . . . . . . . . . .307
MISSISSIPPI - 4.4%
600 Mississippi Hospital Equipment
and Facilities Authority Revenue
(Mississippi Baptist Medical
Center)
5.40%, due 5/01/04 [MBIA] . . . . . . . . . . . . . . . . . .632
NEW JERSEY - 0.7%
100 New Jersey Housing and
Mortgage Finance Agency
Housing Revenue
6.00%, due 11/01/02 . . . . . . . . . . . . . . . . . . . . .104
NEW YORK - 9.7%
100 Metropolitan Transportation
Authority Transit Facilities Service
Contract Revenue
5.375%, due 7/01/02 . . . . . . . . . . . . . . . . . . . . .104
400 New York City Municipal Water
Finance Authority Water
and Sewer System Revenue
5.00%, due 6/15/03. . . . . . . . . . . . . . . . . . . . . .413
100 New York Dormitory Authority
State University Educational
Facilities Revenue
5.75%, due 5/15/01. . . . . . . . . . . . . . . . . . . . . .104
700 New York State Housing Finance
Agency Health Facilities Revenue
6.375%, due 11/01/04 . . . . . . . . . . . . . . . . . . . .771
NORTH CAROLINA - 7.0%
210 North Carolina Eastern Municipal
Power Agency System Revenue
5.50%, due 1/01/02. . . . . . . . . . . . . . . . . . . . . .217
800 North Carolina Municipal Power
Agency #1 Catawba Electric
Revenue
4.10%, due 1/01/05 [AMBAC]. . . . . . . . . . . . . . . . . .788
OKLAHOMA - 4.4%
600 Oklahoma Industries Authority
Health Facilities Revenue
(Sisters of Mercy Health System,
St. Louis, Inc.)
5.20%, due 6/01/05. . . . . . . . . . . . . . . . . . . . . .627
PENNSYLVANIA - 1.8%
250 Philadelphia Water and
Wastewater Revenue
5.00%, due 6/15/02. . . . . . . . . . . . . . . . . . . . . .256
TEXAS - 10.3%
250 Austin Combined Utility Systems
Revenue
5.25%, due 11/15/06 . . . . . . . . . . . . . . . . . . . . .272
100 Coastal Bend Health Facility
Development Corp. Health
Services Revenue
(Incarnate Word)
5.70%, due 1/01/03 [AMBAC]. . . . . . . . . . . . . . . . . .106
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-39-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
TEXAS (CONTINUED)
$100 Houston Water and Sewer System
Junior Lien Revenue
5.75%, due 12/01/02 . . . . . . . . . . . . . . . . . . . . $106
350 Socorro Independent School
District Unlimited Tax General
Obligation
5.80%, due 2/15/11. . . . . . . . . . . . . . . . . . . . . .375
600 Trinity River Authority Revenue
(Tarrant County Water Project)
5.25%, due 2/01/05 [AMBAC]. . . . . . . . . . . . . . . . . .622
WASHINGTON - 14.9%
400 Clark County Public Utility
District #1 Generating System
Revenue
6.00%, due 1/01/07 [FGIC] . . . . . . . . . . . . . . . . . .442
500 Snohomish and Island Counties
School District #401 General
Obligation (Stanwood)
5.90%, due 12/15/11 [MBIA]. . . . . . . . . . . . . . . . . .538
500 Tacoma Electric System Revenue
5.80%, due 1/01/04 [FGIC] . . . . . . . . . . . . . . . . . .537
100 Washington Health Care Facilities
Authority Revenue (Empire Health
Service, Spokane)
5.50%, due 11/01/03 [MBIA]. . . . . . . . . . . . . . . . . .106
Washington Public Power Supply
System Nuclear Project #2
Revenue
200 5.30%, due 7/01/02. . . . . . . . . . . . . . . . . . . . . .208
300 4.80%, due 7/01/04. . . . . . . . . . . . . . . . . . . . . .305
-------
TOTAL BONDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,874
-------
TEMPORARY INVESTMENTS - 2.0%
INVESTMENT COMPANIES:
292 Federated Tax-Exempt
Money Market Fund, Inc. . . . . . . . . . . . . . . . . . . 292
-------
TOTAL TEMPORARY INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . .292
-------
TOTAL INVESTMENTS - 98.8%. . . . . . . . . . . . . . . . . . . . . . . . 14,166
Other Assets, less Liabilities . . . . . . . . . . . . . . . . . . . . . . .168
-------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$14,334
-------
-------
- --------------------------------------------------------------------------------
*The provider of the guarantee of timely payment of both principal and interest
is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio and the percentage of portfolio bonds
they guarantee at the period end are as follows:
FGIC: Financial Guaranty
Insurance Corp.. . . . . . . . . . . . . . . . . . . . . . . .17.8%
MBIA: Municipal Bond Investors
Assurance Corp.. . . . . . . . . . . . . . . . . . . . . . . .16.5
AMBAC: AMBAC Indemnity Corp.. . . . . . . . . . . . . . . . . . . . .10.7
FSA: Financial Security
Assurance, Inc.. . . . . . . . . . . . . . . . . . . . . . . . 2.9
--------
47.9%
--------
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-40-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INSURED MUNICIPAL BOND FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO]
STEPHEN C. BAUER
Returning 10.14% for the 12 months ended June 30, 1998, while the average
insured muni returned 7.99%, the SAFECO Insured Municipal Bond Fund was 2nd of
the 51 insured tax-exempt funds tracked by Lipper Analytical Services, Inc. (For
the three and five years, the Fund was 2nd of 45 funds and 4th of 28 funds.)
For the six months, the Fund returned 2.44% to the peer group's 2.05%.
The Fund underperformed the Lehman Long Insured Municipal Bond Index, which
returned 10.89% for the 12 months. It's nearly impossible for a bond fund to
beat a bond index because the index has no expenses, no cash and no call
features. Again, the difference in the performance of the Fund and its
competitors is the better measure of success.
The Insured Municipal Bond Fund continued its program of swapping to improve
call protection and also bought three new issues. The ability to protect our
portfolio from being called and refinanced at almost no cost continues to be an
irresistibly attractive combination.
- --------------------------------------------------------------------------------
Stephen C. Bauer
Stephen C. Bauer joined SAFECO in 1971 as a fixed-income analyst. He became a
fund manager with the inception of the SAFECO Municipal Bond Fund in 1981,
and is President of SAFECO Asset Management Company. Bauer holds a B.S. in
microbiology and an M.B.A. from the University of Washington.
- --------------------------------------------------------------------------------
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIODS ENDED JUNE 30, 1998
----------------------------------------------------------
<S> <C>
1-Year 10.14%
5-Year 6.23%
Since Inception* 6.54%
----------------------------------------------------------
</TABLE>
[GRAPH]
INSURED MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
Lehman Brothers
Insured Municipal Long Insured
Bond Fund Municipal Bond Index
----------------- --------------------
<S> <C> <C>
03/31/93 10,000 10,000
04/30/93 10,039 10,146
05/31/93 10,080 10,239
06/30/93 10,311 10,430
07/31/93 10,217 10,438
08/31/93 10,556 10,710
09/30/93 10,716 10,849
10/31/93 10,720 10,861
11/30/93 10,482 10,719
12/31/93 10,764 10,992
01/31/94 10,908 11,117
02/28/94 10,453 10,726
03/31/94 9,780 10,061
04/30/94 9,826 10,152
05/31/94 9,946 10,275
06/30/94 9,781 10,152
07/31/94 10,133 10,430
08/31/94 10,086 10,433
09/30/94 9,769 10,183
10/31/94 9,482 9,872
11/30/94 9,287 9,647
12/31/94 9,642 9,983
01/31/95 10,042 10,430
02/28/95 10,564 10,851
03/31/95 10,619 10,977
04/30/95 10,543 10,973
05/31/95 11,163 11,440
06/30/95 10,845 11,220
07/31/95 10,878 11,268
08/31/95 11,039 11,424
09/30/95 11,115 11,507
10/31/95 11,420 11,800
11/30/95 11,800 12,109
12/31/95 11,992 12,302
01/31/96 11,994 12,366
02/28/96 11,850 12,194
03/31/96 11,569 11,950
04/30/96 11,470 11,891
05/31/96 11,481 11,894
06/30/96 11,645 12,078
07/31/96 11,795 12,200
08/31/96 11,750 12,182
09/30/96 12,046 12,461
10/31/96 12,138 12,610
11/30/96 12,456 12,894
12/31/96 12,299 12,804
01/31/97 12,152 12,759
02/28/97 12,280 12,893
03/31/97 12,051 12,649
04/30/97 12,262 12,800
05/31/97 12,484 13,056
06/30/97 12,663 13,211
07/31/97 13,227 13,716
08/31/97 12,967 13,502
09/30/97 13,136 13,695
10/31/97 13,242 13,787
11/30/97 13,336 13,875
12/31/97 13,614 14,226
01/30/98 13,733 14,389
02/28/98 13,698 14,362
03/31/98 13,689 14,381
04/30/98 13,557 14,280
05/31/98 13,886 14,589
06/30/98 13,947 14,651
</TABLE>
INVESTMENT VALUE
SAFECO INSURED MUNICIPAL BOND FUND: $13,947
----------------------------------------------------------
----------------------------------------------------------
LEHMAN BROTHERS LONG INSURED MUNICIPAL BOND INDEX: $14,651
----------------------------------------------------------
----------------------------------------------------------
* The Fund's inception was March 18, 1993. Graph and average annual return
comparison begins March 31, 1993.
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment in a relevant market index. The index is unmanaged and
includes no operating expenses or transaction costs. Past performance is not
predictive of future results. Principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
-41-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CURRENT YIELD (30-DAY) . . . . . . . . . . . . . . . . . . . . . . . . . .4.18%
WEIGHTED AVERAGE MATURITY. . . . . . . . . . . . . . . . . . . . . . 25.5 YEARS
<CAPTION>
PERCENT OF
TOP FIVE STATES NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17%
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Massachusetts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
University of Michigan Hosptial Revenue
(St. John Health System) . . . . . . . . . . . . . . . . . . . . . . . . 4.8%
Gulf Environment Services, Inc.. . . . . . . . . . . . . . . . . . . . . . 4.7
Allegheny County Hospital
Development Authority Revenue
(Catholic Health East) . . . . . . . . . . . . . . . . . . . . . . . . . 4.7
Washington Health Care
Facilities Authority Revenue
(Swedish Hospital System). . . . . . . . . . . . . . . . . . . . . . . . 4.4
Long Island Power Authority
Electric System General Revenue. . . . . . . . . . . . . . . . . . . . . 4.4
</TABLE>
S&P CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
[PIE CHART]
1. AAA: 95%
2. Not Rated: 4%
3. Cash and Other: 1%
PORTFOLIO OF INVESTMENTS
SAFECO INSURED MUNICIPAL BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
BONDS* - 99.1%
ALABAMA - 7.2%
$ 600 Board of Trustee Alabama
Agriculture and Mechanical
University Revenue
5.50%, due 11/01/20 [MBIA]. . . . . . . . . . . . . . . . . $654
750 Jefferson County Sewer Revenue
5.70%, due 2/01/20 [FGIC] . . . . . . . . . . . . . . . . . .793
CALIFORNIA - 14.3%
385 Fresno Sewer System Revenue
4.50%, due 9/01/23 [AMBAC] . . . . . . . . . . . . . . . . .349
600 Los Angeles County Sanitation
District Financing Authority
Revenue (Capital Projects)
5.25%, due 10/01/19 [MBIA]. . . . . . . . . . . . . . . . . .601
500 Los Angeles Department of Water
and Power Electric Plant Revenue
4.25%, due 11/15/14 [MBIA]. . . . . . . . . . . . . . . . . .455
650 Los Angeles Wastewater
System Revenue
4.70%, due 11/01/19 [FGIC]. . . . . . . . . . . . . . . . . .612
750 San Diego County Certificate of
Participation Central Jail
5.00%, due 10/01/25 [AMBAC] . . . . . . . . . . . . . . . . .730
145 University of California Revenue
(Multiple Purpose Projects)
4.75%, due 9/01/15 [AMBAC]. . . . . . . . . . . . . . . . . .140
FLORIDA - 4.8%
1,000 Gulf Environment Services, Inc.
5.00%, due 10/01/27 [MBIA]. . . . . . . . . . . . . . . . . .954
IDAHO - 4.2%
900 Idaho State Building Authority
State Building Revenue
4.75%, due 9/01/25 [MBIA] . . . . . . . . . . . . . . . . . .850
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-42-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INSURED MUNICIPAL BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
ILLINOIS - 2.4%
$500 Chicago General Obligation
5.125%, due 1/01/25 [FGIC]. . . . . . . . . . . . . . . . . $491
INDIANA - 3.6%
100 Indiana Municipal Power Agency
Power Supply System Revenue
6.125%, due 1/01/13 [MBIA] . . . . . . . . . . . . . . . . .114
250 Indiana State Office Building
Commission Capital Complex
Revenue
5.25%, due 7/01/15 [AMBAC]. . . . . . . . . . . . . . . . . .251
350 Indianapolis Gas Utility Revenue
5.375%, due 6/01/21 [FGIC] . . . . . . . . . . . . . . . . .354
IOWA - 1.3%
250 Marshalltown Pollution Control
Revenue (Iowa Electric Light
and Power Co. Project)
5.50%, due 11/01/23 [MBIA] . . . . . . . . . . . . . . . . .257
MASSACHUSETTS - 10.9%
750 Massachusetts Bay
Transportation Authority
5.00%, due 3/01/27 [FGIC] . . . . . . . . . . . . . . . . . .729
600 Massachusetts Housing Finance
Agency (Rental Housing and
Mortgage Revenue)
6.20%, due 7/01/38 [AMBAC]. . . . . . . . . . . . . . . . . .638
850 Massachusetts Turnpike Authority
Metropolitan Highway System
Revenue
5.125%, due 1/01/23 [MBIA]. . . . . . . . . . . . . . . . . .839
MICHIGAN - 13.7%
850 Detroit Sewage Disposal
System Revenue
5.00%, due 7/01/27 [MBIA] . . . . . . . . . . . . . . . . . .826
350 Detroit Water Supply System
Revenue
5.00%, due 7/01/23 [FGIC] . . . . . . . . . . . . . . . . . .341
600 Huron Valley School District
General Obligation
5.75%, due 5/01/22 [FGIC] . . . . . . . . . . . . . . . . . .632
1,000 University of Michigan Hospital
Revenue (St. John Health System)
5.00%, due 5/15/28 [AMBAC] . . . . . . . . . . . . . . . . .962
MINNESOTA - 1.6%
350 Minneapolis and St. Paul Housing
and Redevelopment
Authority Health Care System
Revenue (HealthSpan)
4.75%, due 11/15/18 [AMBAC] . . . . . . . . . . . . . . . . .331
NEW YORK - 4.4%
900 Long Island Power Authority
Electric System General Revenue
5.125%, due 12/01/22 [FSA]. . . . . . . . . . . . . . . . . .888
NORTH CAROLINA - 0.6%
125 North Carolina Eastern Municipal
Power Agency Power System
Revenue
5.50%, due 1/01/17 [FGIC] . . . . . . . . . . . . . . . . . .127
PENNSYLVANIA - 9.8%
1,000 Allegheny County Hospital
Development Authority Revenue
(Catholic Health East)
4.875%, due 11/15/26 [AMBAC]. . . . . . . . . . . . . . . . .946
650 Pittsburgh Water and Sewer
Authority Revenue
4.75%, due 9/01/16 [FGIC] . . . . . . . . . . . . . . . . . .620
445 University Area Joint Authority
Sewer Revenue
4.75%, due 11/01/20 [MBIA] . . . . . . . . . . . . . . . . .421
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-43-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INSURED MUNICIPAL BOND FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
TEXAS - 3.4%
$250 Harris County Toll Road
Unlimited Tax Revenue
5.50%, due 8/15/21 [FGIC] . . . . . . . . . . . . . . . . . $257
Lower Colorado River Authority
Junior Lien Revenue
300 5.625%, due 1/01/17 [FSA] . . . . . . . . . . . . . . . . . .308
10 - 5.625%, due 1/01/17 [FSA]
(Prerefunded 1/01/15 @ 100) . . . . . . . . . . . . . . . . . 11
95 Sabine River Authority Pollution
Control Revenue (Texas Utilities
Electric Co. Project)
6.55%, due 10/01/22 [FGIC] . . . . . . . . . . . . . . . . .104
WASHINGTON - 16.9%
700 CDP-King County III Lease
Revenue (King Street Center
Project)
5.25%, due 6/01/26 [MBIA] . . . . . . . . . . . . . . . . . .698
100 King County Public Hospital
District #1 Hospital Facilities
Revenue (Valley Medical Center)
5.50%, due 9/01/17 [AMBAC] . . . . . . . . . . . . . . . . .101
500 Municipality of Metropolitan
Seattle Sewer Revenue
6.30%, due 1/01/33 [MBIA] . . . . . . . . . . . . . . . . . .543
250 Richland Water and Sewer
Improvement Revenue
5.625%, due 4/01/12 [MBIA] . . . . . . . . . . . . . . . . .263
530 Snohomish County Public Utility
District #1 Electric Revenue
5.50%, due 1/01/20 [FGIC] . . . . . . . . . . . . . . . . . .539
100 Washington Health Care Facilities
Authority Revenue (Swedish
Hospital Medical System)
6.30%, due 11/15/22 [AMBAC] . . . . . . . . . . . . . . . . .110
900 Washington Health Care Facilities
Authority Revenue (Swedish
Hospital System)
5.25%, due 11/15/26 [AMBAC] . . . . . . . . . . . . . . . . .896
250 Yakima-Tieton Irrigation
District Revenue
6.20%, due 6/01/19 [FSA] . . . . . . . . . . . . . . . . . .272
-------
TOTAL BONDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,007
-------
TOTAL INVESTMENTS - 99.1%. . . . . . . . . . . . . . . . . . . . . . . . 20,007
Other Assets, less Liabilities . . . . . . . . . . . . . . . . . . . . . . .179
-------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$20,186
-------
-------
- --------------------------------------------------------------------------------
*The provider of the guarantee of timely payment of both principal and interest
is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio and the percentage of portfolio bonds
they guarantee at the period end are as follows:
MBIA: Municipal Bond Investors
Assurance Corp.. . . . . . . . . . . . . . . . . . . . . . . .37.4%
FGIC: Financial Guaranty
Insurance Corp.. . . . . . . . . . . . . . . . . . . . . . . .28.0
AMBAC: AMBAC Indemnity Corp.. . . . . . . . . . . . . . . . . . . . .17.7
FSA: Financial Security
Assurance, Inc.. . . . . . . . . . . . . . . . . . . . . . . . 7.4
-------
90.5%
-------
-------
</TABLE>
- -Prerefunded bonds are collateralized by securities (generally U.S. Treasury
securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
SEE NOTES TO FINANCIAL STATEMENTS
-44-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO MONEY MARKET FUND
June 30, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO
NAOMI URATA
In the 12-month period ending June 30, 1998, the SAFECO Money Market Fund's
total return was 4.97%, slightly higher than the average money fund return of
4.96%, as calculated by Lipper Analytical Services, Inc. The Money Market
Fund's return was very attractive compared to the Consumer Price Index, which
rose 1.68% for the 12 months ending June 30, 1998.
For the six months, the Fund returned 2.44% compared to its peer funds'
return of 2.42%, according to Lipper Analytical Services, Inc.
Interest rates from 1 to 120 days remained inverted over the first half of
the year (the one-day rate was more than the 120-day rate), reflecting a belief
that the Federal Reserve will not change the Federal Funds rate in the near
term. From 120 days out to one year, yields climbed sharply, reflecting the
possibility that the Fed may take action toward the end of the year.
It appears that the Fed will hold rates steady for the third quarter, but
may increase rates slightly toward the end of the year if growth continues at a
high pace. On the one hand, the Asian crisis is expected to slow the Gross
Domestic Product growth from 5.4% in the first quarter to about 1.2% due to a
deterioration in trade and a reduction in inventories. On the other hand,
consumer spending remains very strong, and we see a modest pickup in consumer
prices, especially medical care.
As a result, I have been buying securities with short maturities out to 30
days and long securities in the one-year area. This lowered the average
maturity of the Fund from 83 days on December 31, 1997 to 53 days on June 30,
1998. As the one-year pieces mature, I plan to buy more, although the yields are
lower now than when I first started buying them a year ago.
-45-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
REPORT FROM THE MONEY MARKET FUND MANAGER
I diversify the portfolio so that I have no more than 5% of any one issuer.
I look for issuers with a large amount of commercial paper to distribute or with
slightly lower ratings as their offerings are often cheaper. I added some new
names to the portfolio to take advantage of the attractive overnight rates. Two
large issuers of overnight securities I added were BP America, a subsidiary of
British Petroleum, and UBS Finance, a financing arm of Union Bank of
Switzerland. I hold a number of floating rate securities with
- -------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
WEIGHTED AVERAGE MATURITY 53 DAYS
TOTAL RETURN (1 YEAR) 4.97%
</TABLE>
attractive yields. If the Fed should start to raise rates, these floaters
will help the Fund to respond quickly as their interest rates roll to the higher
levels.
Naomi Urata
- --------------------------------------------------------------------------------
Naomi Urata joined SAFECO in 1993 as a fixed-income analyst and began managing
the SAFECO Money Market Fund in August of 1994. She holds a Masters in
Management from Yale University and is a Chartered Financial Analyst.
-46-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MONEY MARKET FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER, BANK NOTES,
CERTIFICATES OF DEPOSIT AND
FLOATING RATE NOTES -- 88.4%
BANKS (FOREIGN) - 4.5%
$8,100 Bayerische LandesBank
5.81%, due 12/17/98 . . . . . . . . . . . . . . . . . . . .$8,098
BANKS (MAJOR REGIONAL) - 13.4%
8,000 Bankers Trust
5.91%, due 8/07/98. . . . . . . . . . . . . . . . . . . . . 8,000
BancBoston
5,000 5.90%, due 7/23/98. . . . . . . . . . . . . . . . . . . . . 5,000
3,000 5.84%, due 8/05/98. . . . . . . . . . . . . . . . . . . . . 3,000
8,000 - Fleet National Bank
6.01%, due 4/15/99. . . . . . . . . . . . . . . . . . . . . 8,024
BANKS (REGIONAL) - 4.0%
7,100 - American Express
Centurion Bank
5.58%, due 1/14/99. . . . . . . . . . . . . . . . . . . . . 7,100
CHEMICALS - 2.2%
4,000 Formosa Plastics Corp.
5.53%, due 7/08/98. . . . . . . . . . . . . . . . . . . . . 3,996
FINANCE (AUTO) - 2.7%
4,800 General Motors
Acceptance Corp.
7.50%, due 6/01/99. . . . . . . . . . . . . . . . . . . . . 4,874
FINANCE (CONSUMER) - 1.6%
2,871 Associates Corp. of
North America
6.10%, due 7/01/98. . . . . . . . . . . . . . . . . . . . . 2,871
FINANCE (DIVERSIFIED & BUSINESS) - 12.5%
Finova Capital Corp.
5,469 6.50%, due 7/01/98. . . . . . . . . . . . . . . . . . . . . 5,469
4,000 5.54%, due 7/16/98. . . . . . . . . . . . . . . . . . . . . 3,991
4,000 Heller Financial, Inc.
5.63%, due 7/02/98. . . . . . . . . . . . . . . . . . . . . 3,999
9,000 - PHH Corp.
5.60%, due 11/03/98 . . . . . . . . . . . . . . . . . . . . 8,996
FINANCE (MORTGAGE CO.) - 4.4%
Countrywide Funding
4,000 5.65%, due 7/02/98. . . . . . . . . . . . . . . . . . . . . 3,999
4,000 5.54%, due 7/09/98. . . . . . . . . . . . . . . . . . . . . 3,995
HEALTH CARE (LONG-TERM CARE) - 0.8%
1,450 -+ Bowie Assisted Living L.L.C.
5.75%, due 7/01/23. . . . . . . . . . . . . . . . . . . . . 1,450
INVESTMENTS (BANK/BROKERAGE) - 18.8%
8,000 #- Goldman Sachs and
Company (144A)
5.66%, due 7/13/99
(acquired 4/08/98). . . . . . . . . . . . . . . . . . . . . 8,000
8,000 -+ Shearson Lehman
Hutton Holding, Inc.
5.78%, due 5/23/01. . . . . . . . . . . . . . . . . . . . . 8,000
Merrill Lynch & Co., Inc.
8,200 - 5.73%, due 12/21/98 . . . . . . . . . . . . . . . . . . . . 8,200
1,594 5.70%, due 7/02/98. . . . . . . . . . . . . . . . . . . . . 1,594
Salomon Smith Barney
Holdings, Inc.
4,000 5.59%, due 7/10/98. . . . . . . . . . . . . . . . . . . . . 3,994
4,000 5.54%, due 7/17/98. . . . . . . . . . . . . . . . . . . . . 3,990
MUNI'S (MUNICIPALITIES) - 5.5%
2,970 -+ Chicago, Illinois General
Obligation Unlimited
5.65%, due 1/01/01. . . . . . . . . . . . . . . . . . . . . 2,970
7,000 City of St. Paul Minnesota
5.72%, due 8/14/98. . . . . . . . . . . . . . . . . . . . . 7,000
MUNI'S (STATES) - 1.2%
2,085 -+ Maryland Health and Higher
Education Facilities Authority
3.55%, due 1/01/28. . . . . . . . . . . . . . . . . . . . . 2,085
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-47-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO MONEY MARKET FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C> <C>
MUNI'S (TAXABLE) - 2.8%
$2,000 -+ Business Financial Authority of
the State of New Hampshire
5.70%, due 6/01/28. . . . . . . . . . . . . . . . . . . . .$2,000
1,000 -+ Village Green Finance Co. L.L.C.
5.61%, due 11/01/22 . . . . . . . . . . . . . . . . . . . . 1,000
2,000 -+ Wake Forest University
5.61%, due 7/01/17. . . . . . . . . . . . . . . . . . . . . 2,000
OIL (DOMESTIC INTEGRATED) - 5.1%
8,820 + BP America, Inc.
10.00%, due 7/01/18 . . . . . . . . . . . . . . . . . . . . 9,231
RETAIL (GENERAL MERCHANDISE) - 4.5%
8,000 -+ Racetrac Capital, L.L.C.
5.61%, due 4/01/18. . . . . . . . . . . . . . . . . . . . . 8,000
TOBACCO - 4.3%
B.A.T. Capital Corp.
4,000 5.70%, due 7/14/98. . . . . . . . . . . . . . . . . . . . . 3,992
4,000 5.62%, due 7/14/98. . . . . . . . . . . . . . . . . . . . . 3,992
-------
TOTAL COMMERCIAL PAPER, BANK NOTES, CERTIFICATES OF DEPOSIT AND
FLOATING RATE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . 158,910
-------
CORPORATE BONDS - 14.9%
BANKS (FOREIGN) - 4.5%
8,000 Abbey National Bank
5.875%, due 12/22/98. . . . . . . . . . . . . . . . . . . . 7,997
BANKS (MAJOR REGIONAL) - 4.4%
8,000 - U.S. Bank Corp.
5.52%, due 10/21/98 . . . . . . . . . . . . . . . . . . . . 7,998
FINANCE (DIVERSIFIED & BUSINESS) - 4.5%
8,100 -+ Morgan Stanley, Dean Witter,
Discover and Co.
5.79%, due 3/13/01. . . . . . . . . . . . . . . . . . . . . 8,100
TOBACCO - 1.5%
2,671 Philip Morris Cos., Inc.
7.375%, due 2/15/99 . . . . . . . . . . . . . . . . . . . . 2,696
--------
TOTAL CORPORATE BONDS. . . . . . . . . . . . . . . . . . . . . . . . . . .26,791
--------
U.S. GOVERNMENT AND AGENCY SECURITIES - 0.3%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
DISCOUNT NOTES
500 5.30%, due 8/25/98. . . . . . . . . . . . . . . . . . . . . . 500
--------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES . . . . . . . . . . . . . . . . 500
--------
TOTAL INVESTMENTS - 103.6% . . . . . . . . . . . . . . . . . . . . . . . 186,201
Liabilities, less Other Assets . . . . . . . . . . . . . . . . . . . . . (6,546)
--------
NET ASSETS. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . .$179,655
--------
--------
- -------------------------------------------------------------------------------
</TABLE>
+ The fund has a right to sell the specified security at an exercise price
equal to the amortized cost of the security plus interest, if any.
# Security is exempt from registration and restricted as to resale only to
dealers, or through a dealer to an "accredited investor" or a "qualified
institutional buyer." The market value of such security is $8,000,000 and
represents 4.5% of net assets.
- - Securities have variable rates which change periodically based on
specified market rates or indices. Rates shown are those in effect on
June 30, 1998.
SEE NOTES TO FINANCIAL STATEMENTS
-48-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO TAX-FREE MONEY MARKET FUND
June 30, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO]
MARY V. METASTASIO
The SAFECO Tax-Free Money Market started 1998 with a seven-day average
yield of 3.44% and ended the second quarter at 3.19%. The Fund's performance
placed it in the 78th percentile for the quarter (29 of 136 funds), the 76th
percentile year to date (32 of 136), and the 73rd for the one-year period (35
of 133 funds), according to Lipper Analytical Services, Inc. (For the 5 and
10 years, the Fund was 35 of 124 funds and 12 of 68 funds.)
Our barbell strategy (a balance of longer and shorter securities)
continues to be successful.
The Tax-Exempt Money Market Fund has, of late, been marked by two main
characteristics--a voracious appetite for paper and low issuance. Tax-free
money market funds continue to bring in assets, although the pace has
recently slowed. Unfortunately for hungry buyers, issuance of short-term
tax-exempt securities has been low. Note, issuance has been low for several
years now, due to the improved economic health of states and municipalities.
Variable-rate issuance is dropping because low long-term interest rates and a
flat yield curve make locking in low long-term rates more appealing to
issuers than playing the variable rate game. These factors obviously conspire
to keep yields low.
So what is the SAFECO Tax-Free Money Market Fund doing in this
environment? Our barbell strategy, as I mentioned before, lives on, and
continues to work well for us. As of quarter end, we had 63% of the Fund's
assets invested in variable rate demand options, 29% in put bonds, and 4%
each in notes and commercial
-49-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
REPORT FROM THE TAX-FREE MONEY MARKET FUND MANAGER
paper. This represents a 3% increase in puts and a corresponding decrease in
variable rate securities and notes. There is no master plan behind the
change, and it merely represents cyclical factors in cash flows and the
market in general.
My outlook for the market (keeping in mind that I have no ability
whatsoever to predict the future) consists mainly of seeing no indication
that there will be any change any time soon. There is no reason to think cash
inflows will dwindle to a halt or that issuers will start issuing with wild
abandon.
Mary V. Metastasio
- -------------------------------------------------------------------------------
Mary V. Metastasio joined SAFECO's Investment Department in 1985 as a
securities analyst and began managing the SAFECO Tax-Free Money Market Fund
in 1987. She holds a B.A. in Dramatic Art from Whitman College and an M.B.A.
from the University of Washington.
- -------------------------------------------------------------------------------
HIGHLIGHTS
- -------------------------------------------------------------------------------
COMPARISON OF THE FUND'S
TAX-EQUIVALENT YIELDS TO THE
THREE-MONTH TREASURY BILL YIELD
- -------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Tax Brackets
- -------------------------------------------------
SAFECO Tax-Free Money Market Fund*
Actual Yield 3.19
Tax-Equivalent Yield 3.75
Tax-Equivalent Yield 4.43
Tax-Equivalent Yield 4.62
Tax-Equivalent Yield 4.98
Tax-Equivalent Yield 5.28
- -------------------------------------------------
THREE-MONTH TREASURY BILL**
- -------------------------------------------------
Taxable Yield 5.08
- -------------------------------------------------
</TABLE>
[CHART]
* Represents the SAFECO Tax-Free Money Market Fund actual yield on June 30,
1998, and related tax-equivalent yields assuming various shareholder tax
brackets. Tax-equivalent yield comparisons vary with market conditions.
** Represents the Three-Month Treasury Bill yield on June 30, 1998.
<TABLE>
<S> <C>
WEIGHTED AVERAGE MATURITY. . . . . . . . . . . . . . . . . . . . . . . . 45 DAYS
AVERAGE ANNUAL RETURN (1 YEAR) . . . . . . . . . . . . . . . . . . . . . . 3.16%
</TABLE>
-50-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO TAX-FREE MONEY MARKET FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS - 101.8%
ALASKA - 3.4%
$2,575 Alaska Industrial Development
and Export Authority Revenue
3.65%, due 7/01/01,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . .$2,575
ARIZONA - 3.7%
1,000 Apache County Industrial
Development Authority
Pollution Control Revenue
(Tucson Electric Power Co.
Project)
3.55%, due 12/15/98,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . 1,000
800 Pima County Industrial
Development Authority Revenue
(Tucson Electric Power Co.
Projects)
3.55%, due 12/01/22,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . . 800
1,000 Tucson Industrial Development
Authority Revenue (Tucson City
Center Parking Garage Project)
3.625%, due 6/01/15,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . 1,000
CALIFORNIA - 1.3%
1,000 California Student Education Loan
Marketing Corp. (Student Loan
Revenue)
3.85%, due 11/01/02,
put date 11/01/98 . . . . . . . . . . . . . . . . . . . . . 1,000
DISTRICT OF COLUMBIA - 7.8%
2,920 District of Columbia Supplemental
Student Loan Revenue
4.50%, due 7/01/04,
put date 7/01/98. . . . . . . . . . . . . . . . . . . . . . 2,920
3,000 District of Columbia Housing
Finance Agency Multifamily
Housing Revenue (McClean)
4.35%, due 12/01/05,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . 3,000
FLORIDA - 6.7%
595 Dade County Equipment Special
Obligation Revenue
3.70%, due 10/01/99,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . . 595
755 Dade County Equipment Special
Obligation Revenue
3.70%, due 10/01/99,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . . 755
2,000 Florida Housing Finance Agency
Multifamily Revenue
(Iona Lakes Project)
3.85%, due 4/01/04,
put date 4/01/99. . . . . . . . . . . . . . . . . . . . . . 2,000
1,750 Florida Housing Finance Agency
Multifamily Revenue
(Wood Forest II Project)
4.10%, due 12/01/09,
put date 12/01/98 . . . . . . . . . . . . . . . . . . . . . 1,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-51-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO TAX-FREE MONEY MARKET FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C> <C>
GEORGIA - 4.1%
$1,100 Burke County Development
Authority
3.95%, due 7/01/24,
put date 7/01/98. . . . . . . . . . . . . . . . . . . . . .$1,100
2,000 Marietta Housing Authority
Multifamily Housing Revenue
(Falls at Bells Ferry)
3.65%, due 1/15/09,
put date 1/15/99. . . . . . . . . . . . . . . . . . . . . . 2,001
ILLINOIS - 15.5%
3,020 Chicago - O'Hare International
Airport Revenue 1984 A
3.50%, due 1/01/15,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . 3,020
580 Chicago - O'Hare International
Airport Revenue 1984 B
3.50%, due 1/01/15,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . . 580
1,300 Illinois Development Finance
Authority Revenue (Countryside
Community Institute Project)
3.55%, due 6/01/17,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . 1,300
3,000 Illinois Development Finance
Authority Revenue (Sinai
Community Institute Project)
3.55%, due 3/01/22,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . 3,000
3,800 Illinois Development Finance
Authority Revenue (Swedish
Community Institute Project)
3.55%, due 8/01/25,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . 3,800
IOWA - 5.0%
1,000 Iowa School Corporations
Warrant Certificate
4.25%, due 1/28/99. . . . . . . . . . . . . . . . . . . . . 1,004
2,750 Polk County Hospital Equipment
and Improvement Revenue
3.60%, due 12/01/05,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . 2,750
KANSAS - 4.2%
2,100 Burlington Pollution Control
Revenue (Kansas City Power
and Light)
3.55%, due 9/01/15,
put date 7/17/98. . . . . . . . . . . . . . . . . . . . . . 2,100
1,100 Wichita Revenue
(CSJ Health System)
4.35%, due 10/01/11,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . 1,100
KENTUCKY - 1.3%
1,000 Clark County Pollution Control
Revenue (Kansas City Power
and Light)
3.60%, due 10/15/14,
put date 10/15/98 . . . . . . . . . . . . . . . . . . . . . 1,000
LOUISIANA - 1.3%
1,000 Louisiana Public Facilities
Authority Multifamily Housing
Revenue (Kingston Village
Apartments Project)
3.70%, due 12/01/13,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . 1,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-52-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO TAX-FREE MONEY MARKET FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C> <C>
MARYLAND - 3.0%
$2,000 Howard County Multifamily
Housing Revenue (Sherwood
Crossing Ltd. Partnership)
3.80%, due 6/01/08,
put date 12/01/98 . . . . . . . . . . . . . . . . . . . . .$2,000
300 Montgomery County Industrial
Development Revenue
(Information Systems &
Networks)
3.90%, due 4/01/14,
put date 7/01/98. . . . . . . . . . . . . . . . . . . . . . . 300
MISSOURI - 5.7%
2,100 Kansas City Industrial
Development Authority Multifamily
Housing Revenue
(Coach House II Project)
4.25%, due 12/01/15,
put date 7/01/98. . . . . . . . . . . . . . . . . . . . . . 2,100
600 Kansas City Industrial
Development Authority Multifamily
Housing Revenue
(J.C. Nichols Co.)
4.25%, due 5/01/15,
put date 7/01/98. . . . . . . . . . . . . . . . . . . . . . . 600
1,600 St. Louis Planned Industrial
Expansion Authority Industrial
Development Revenue
(Italgrani U.S.A., Inc.)
3.90%, due 6/01/03,
put date 7/01/98. . . . . . . . . . . . . . . . . . . . . . 1,600
MONTANA - 2.5%
1,855 Havre Industrial Development
Revenue (Safeway, Inc. Projects)
3.80%, due 6/01/06,
put date 12/01/98 . . . . . . . . . . . . . . . . . . . . . 1,855
OKLAHOMA - 1.3%
1,000 Oklahoma Water Resources
Board State Loan Program
Revenue
3.55%, due 9/01/23,
put date 9/01/98. . . . . . . . . . . . . . . . . . . . . . 1,000
OREGON - 1.3%
1,000 Klamath Falls Electric Revenue
3.80%, due 5/01/23,
put date 5/03/99. . . . . . . . . . . . . . . . . . . . . . 1,000
PENNSYLVANIA - 4.0%
1,560 Commonwealth Tax Exempt
Mortgage Trust
3.90%, due 11/01/05,
put date 11/01/98 . . . . . . . . . . . . . . . . . . . . . 1,560
1,490 Washington County Authority
(Higher Education Pooled
Equipment and Leasing Project)
3.65%, due 11/01/05,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . 1,490
SOUTH CAROLINA - 2.0%
1,500 York County Pollution Control
Revenue (North Carolina Electric
Membership Corp. Project)
3.50%, due 9/15/14,
put date 9/15/98. . . . . . . . . . . . . . . . . . . . . . 1,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-53-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO TAX-FREE MONEY MARKET FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C> <C>
TENNESSEE - 5.2%
$3,400 Hamilton County Industrial
Development Revenue (Komatsu
American Manufacturing Corp.)
4.35%, due 11/01/05,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . .$3,400
500 Knox County Industrial
Development Board Industrial
Development Revenue (Service
Merchandise)
3.75%, due 12/15/08,
put date 7/01/98. . . . . . . . . . . . . . . . . . . . . . . 500
TEXAS - 11.1%
1,000 Harris County Housing Finance
Corp. Multifamily Housing
Revenue (Arbor II, Ltd. Project)
3.95%, due 10/01/05,
put date 10/01/98 . . . . . . . . . . . . . . . . . . . . . 1,000
1,000 North Central Texas Health
Facilities Development Corp.
Hospital Revenue (Presbyterian
Medical Center Project) 1985 D
4.00%, due 12/01/15,
put date 7/01/98. . . . . . . . . . . . . . . . . . . . . . 1,000
2,400 North Central Texas Health
Facilities Development Corp.
Hospital Revenue (Presbyterian
Medical Center Project) 1985 C
4.00%, due 12/01/15,
put date 7/01/98. . . . . . . . . . . . . . . . . . . . . . 2,400
1,000 Sabine River Industrial
Development Authority (Northeast
Texas Electric Cooperative, Inc.
Project)
3.45%, due 8/15/14,
put date 8/15/98. . . . . . . . . . . . . . . . . . . . . . 1,000
2,000 State of Texas Tax and Revenue
Anticipation Notes
4.75%, due 8/31/98. . . . . . . . . . . . . . . . . . . . . 2,003
1,000 Tarrant County Housing Finance
Corp. Multifamily Housing
Revenue (Lincoln Meadows
Project)
4.05%, due 12/01/14,
put date 12/01/98 . . . . . . . . . . . . . . . . . . . . . 1,000
VIRGINIA - 1.3%
1,000 Peninsula Ports Authority of
Virginia Port Facility Revenue
(CSX Transportation, Inc. Project)
3.75%, due 12/15/12,
put date 7/28/98. . . . . . . . . . . . . . . . . . . . . . 1,000
WASHINGTON - 10.1%
2,000 Richland Golf Enterprise Revenue
3.60%, due 12/01/21,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . 2,000
1,955 Washington State Housing
Finance Commission Revenue
(Pioneer Human Services)
3.60%, due 7/01/11,
put date 7/07/98. . . . . . . . . . . . . . . . . . . . . . 1,955
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-54-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO TAX-FREE MONEY MARKET FUND
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C> <C>
WASHINGTON - (CONTINUED)
$1,370 Washington State Housing
Finance Commission Revenue
(YMCA of Greater Seattle
Program)
4.00%, due 7/01/11,
put date 7/01/98. . . . . . . . . . . . . . . . . . . . . .$1,370
2,330 Washington State Housing
Finance Commission Revenue
(YMCA of Snohomish County
Program)
4.30%, due 8/01/19,
put date 7/01/98. . . . . . . . . . . . . . . . . . . . . . 2,330
-------
TOTAL MUNICIPAL BONDS. . . . . . . . . . . . . . . . . . . . . . . . . . .77,113
-------
TOTAL INVESTMENTS - 101.8% . . . . . . . . . . . . . . . . . . . . . . . $77,113
Liabilities, less Other Assets . . . . . . . . . . . . . . . . . . . . . (1,392)
-------
NET ASSETS. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $75,721
------
------
</TABLE>
- -------------------------------------------------------------------------------
Securities with a maturity of more than thirteen months have variable rates
and/or demand features which qualify them as short-term securities. Rates shown
are those in effect on June 30, 1998. These rates change periodically based on
specified market rate or indices.
- -------------------------------------------------------------------------------
If a put date is indicated, the Fund has a right to sell a specified underlying
security at an exercise price equal to the amortized cost of the underlying
security plus interest, if any, as of that date.
- -------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
-55-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO
INTERMEDIATE-TERM SAFECO SAFECO MANAGED
(In Thousands, Except U.S. TREASURY GNMA HIGH-YELD BOND
Per-Share Amounts) BOND FUND FUND BOND FUND FUND
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at Cost $ 16,573 $ 36,955 $ 75,638 $ 5,398
--------- --------- --------- ---------
--------- --------- --------- ---------
Investments, at Value $ 17,111 $ 37,496 $ 77,622 $ 5,592
Cash -- -- -- --
Receivables
Investment Securities Sold -- 1,326 -- --
Trust Shares Sold 342 136 1,071 7
Interest 265 228 1,528 53
Deferred Organization Expense -- -- -- 4
--------- --------- --------- ---------
Total Assets 17,718 39,186 80,221 5,656
LIABILITIES
Payables
Investment Securities Purchased -- 20 -- --
Trust Shares Redeemed 302 20 377 --
Dividends 75 181 500 20
Investment Advisory Fees 8 21 42 3
Notes Payable -- -- -- --
Organization Expense -- -- -- --
Other 15 19 31 15
--------- --------- --------- ---------
Total Liabilities 400 261 950 38
--------- --------- --------- ---------
NET ASSETS $ 17,318 $ 38,925 $ 79,271 $ 5,618
--------- --------- --------- ---------
--------- --------- --------- ---------
NO-LOAD CLASS:
Net Assets $ 16,271 $ 38,925 $ 77,345 $ 5,224
Trust Shares Outstanding 1,561 4,056 8,456 598
--------- --------- --------- ---------
Net Asset Value, Offering Price, and
Redemption Price Per Share $ 10.42 $ 9.60 $ 9.15 $ 8.73
--------- --------- --------- ---------
--------- --------- --------- ---------
CLASS A:
Net Assets $ 425 -- $ 1,341 $ 215
Trust Shares Outstanding 41 147 25
--------- --------- ---------
Net Asset Value and Redemption
Price Per Share $ 10.43 $ 9.14 $ 8.74
--------- --------- ---------
--------- --------- ---------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 10.92 $ 9.57 $ 9.15
--------- --------- ---------
--------- --------- ---------
CLASS B:
Net Assets $ 622 -- $ 585 $ 179
Trust Shares Outstanding 60 64 20
--------- --------- ---------
Net Asset Value and Offering
Price Per Share* $ 10.42 $ 9.14 $ 8.73
--------- --------- ---------
--------- --------- ---------
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Redemption price per share is the net asset value less any applicable
contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
-56-
<PAGE>
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
CALIFORNIA SAFECO WASHINGTON STATE INTERMEDIATE-TERM INSURED
TAX-FREE MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
INCOME FUND BOND FUND BOND FUND BOND FUND BOND FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at Cost $ 99,439 $ 444,450 $ 7,923 $ 13,451 $ 18,865
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Investments, at Value $ 107,557 $ 505,900 $ 8,358 $ 14,166 $ 20,007
Cash -- -- -- -- --
Receivables
Investment Securities Sold -- -- -- -- --
Trust Shares Sold 526 2,231 7 27 34
Interest 1,775 8,034 137 210 297
Deferred Organization Expense -- -- -- -- --
--------- --------- --------- --------- ---------
Total Assets 109,858 516,165 8,502 14,403 20,338
LIABILITIES
Payables
Investment Securities Purchased -- -- 291 -- --
Trust Shares Redeemed 44 115 -- 5 --
Dividends 397 2,101 29 48 70
Investment Advisory Fees 48 175 4 6 11
Notes Payable -- -- -- -- 61
Organization Expense -- -- -- -- --
Other 20 59 10 10 10
--------- --------- --------- --------- ---------
Total Liabilities 509 2,450 334 69 152
--------- --------- --------- --------- ---------
NET ASSETS $ 109,349 $513,715 $ 8,168 $ 14,334 $ 20,186
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
NO-LOAD CLASS:
Net Assets $ 107,815 $ 512,016 $ 7,722 $ 14,334 $ 20,186
Trust Shares Outstanding 8,334 35,143 703 1,317 1,772
--------- --------- --------- --------- ---------
Net Asset Value, Offering Price, and
Redemption Price Per Share $ 12.94 $ 14.57 $ 10.99 $ 10.88 $ 11.39
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
CLASS A:
Net Assets $ 686 $ 879 $ 203 -- --
Trust Shares Outstanding 53 60 18
--------- --------- ---------
Net Asset Value and Redemption
Price Per Share $ 12.95 $ 14.58 $ 11.00
--------- --------- ---------
--------- --------- ---------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 13.56 $ 15.27 $ 11.52
--------- --------- ---------
--------- --------- ---------
CLASS B:
Net Assets $ 848 $ 820 $ 243 -- --
Trust Shares Outstanding 66 56 22
--------- --------- ---------
Net Asset Value and Offering
Price Per Share* $ 12.94 $ 14.55 $ 11.01
--------- --------- ---------
--------- --------- ---------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-57-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
As of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
SAFECO
SAFECO TAX-FREE
(In Thousands, Except MONEY MARKET MONEY MARKET
Per-Share Amounts) FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at Cost $ 186,201 $ 77,113
--------- ---------
--------- ---------
Investments, at Value $ 186,201 $ 77,113
Cash -- 4
Receivables
Investment Securities Sold -- --
Trust Shares Sold 1,514 390
Interest 2,026 478
Deferred Organization Expense -- --
--------- ---------
Total Assets 189,741 77,985
LIABILITIES
Payables
Investment Securities Purchased -- 1,500
Trust Shares Redeemed 9,203 332
Dividends 724 199
Investment Advisory Fees 78 32
Notes Payable -- 186
Organization Expense -- --
Other 81 15
--------- ---------
Total Liabilities 10,086 2,264
--------- ---------
NET ASSETS $ 179,655 $ 75,721
--------- ---------
--------- ---------
NO-LOAD CLASS:
Net Assets $ 178,492 $ 75,721
Trust Shares Outstanding 178,492 75,721
--------- ---------
Net Asset Value, Offering Price, and
Redemption Price Per Share $ 1.00 $ 1.00
--------- ---------
--------- ---------
CLASS A:
Net Assets $ 840 --
Trust Shares Outstanding 840
---------
Net Asset Value and Redemption
Price Per Share $ 1.00
---------
---------
CLASS B:
Net Assets $ 323 --
Trust Shares Outstanding 323
---------
Net Asset Value and Offering
Price Per Share* $ 1.00
---------
---------
- --------------------------------------------------------------------------------
</TABLE>
* Redemption price per share is the net asset value less any applicable
contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
-58-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six-Month Period Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO
INTERMEDIATE-TERM SAFECO SAFECO MANAGED
U.S. TREASURY GNMA HIGH-YIELD BOND
(In Thousands) FUND FUND BOND FUND FUND
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 545 $ 1,324 $ 3,517 $ 156
Dividends -- -- 45 --
--------- --------- --------- ---------
Total Investment Income 545 1,324 3,562 156
EXPENSES
Investment Advisory 46 124 254 13
Transfer Agent 23 33 60 1
Shareholder Services-Class A -- -- 1 --
-Class B 1 -- -- --
Distribution-Class B 2 -- 2 1
Legal and Auditing 7 8 8 7
Custodian 1 1 3 1
Reports to Shareholders 3 5 9 1
Trustees 3 3 3 3
Interest -- 1 7 --
Amortization of
Organization Expenses -- -- -- 3
Other 1 9 13 2
--------- --------- --------- ---------
Total Expenses 87 184 360 32
--------- --------- --------- ---------
NET INVESTMENT INCOME 458 1,140 3,202 124
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net Realized Gain
on Investments 4 948 468 46
Net Change in Unrealized
Appreciation 118 (835) (443) 35
--------- --------- --------- ---------
NET GAIN (LOSS) ON INVESTMENTS 122 113 25 81
--------- --------- --------- ---------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 580 $ 1,253 $ 3,227 $ 205
--------- --------- --------- ---------
--------- --------- --------- ---------
- ----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-59-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six-Month Period Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO
CALIFORNIA SAFECO WASHINGTON STATE
TAX-FREE MUNICIPAL MUNICIPAL
(In Thousands) INCOME FUND BOND FUND BOND FUND
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 2,710 $ 14,065 $ 222
Dividends -- -- --
--------- --------- ---------
Total Investment Income 2,710 14,065 222
EXPENSES
Investment Advisory 271 1,051 25
Transfer Agent 36 159 1
Shareholder Services-Class A -- 1 --
-Class B 1 1 --
Distribution-Class B 2 2 1
Legal and Auditing 9 12 8
Custodian 5 12 1
Reports to Shareholders 4 17 1
Trustees 3 4 3
Interest -- -- --
Amortization of
Organization Expenses -- -- --
Other 9 39 2
--------- --------- ---------
Total Expenses 340 1,298 42
--------- --------- ---------
NET INVESTMENT INCOME 2,370 12,767 180
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net Realized Gain
on Investments 2,640 7,955 203
Net Change in Unrealized
Appreciation (2,620) (6,163) (174)
--------- --------- ---------
NET GAIN (LOSS) ON INVESTMENTS 20 1,792 29
--------- --------- ---------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 2,390 $ 14,559 $ 209
--------- --------- ---------
--------- --------- ---------
- ------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-60-
<PAGE>
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
INTERMEDIATE-TERM INSURED SAFECO TAX-FREE
MUNICIPAL MUNICIPAL MONEY MARKET MONEY MARKET
(In Thousands) BOND FUND FUND FUND FUND
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 355 $ 476 $ 5,031 $ 1,422
Dividends -- -- -- --
--------- --------- --------- ---------
Total Investment Income 355 476 5,031 1,422
EXPENSES
Investment Advisory 38 59 443 192
Transfer Agent 5 7 227 31
Shareholder Services-Class A -- -- -- --
-Class B -- -- -- --
Distribution-Class B -- -- -- --
Legal and Auditing 7 7 9 8
Custodian 1 1 7 2
Reports to Shareholders 1 1 13 3
Trustees 3 3 3 3
Interest 1 -- -- --
Amortization of
Organization Expenses 1 1 -- --
Other 2 3 6 2
--------- --------- --------- ---------
Total Expenses 59 82 708 241
--------- --------- --------- ---------
NET INVESTMENT INCOME 296 394 4,323 1,181
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net Realized Gain
on Investments 11 428 -- --
Net Change in Unrealized
Appreciation (56) (355) -- --
--------- --------- --------- ---------
NET GAIN (LOSS) ON INVESTMENTS (45) 73 -- --
--------- --------- --------- ---------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 251 $ 467 $ 4,323 $ 1,181
--------- --------- --------- ---------
--------- --------- --------- ---------
- ----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-61-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO INTERMEDIATE-TERM
U.S. TREASURY FUND SAFECO GNMA FUND
--------------------------- ------------------------
SIX-MONTH FOR THE SIX-MONTH FOR THE
PERIOD ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31
(In Thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 458 $ 886 $ 1,140 $ 2,425
Net Realized Gain (Loss) on
Investments 4 (57) 948 411
Net Change in Unrealized
Appreciation 118 416 (835) 437
--------- --------- --------- ---------
Net Change in Net Assets
Resulting from Operations 580 1,245 1,253 3,273
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income
No-Load Class (436) (844) (1,140) (2,425)
Class A (10) (30) -- --
Class B (12) (12) -- --
Net Realized Gain on Investments
No-Load Class -- -- -- --
Class A -- -- -- --
Class B -- -- -- --
--------- --------- --------- ---------
TOTAL (458) (886) (1,140) (2,425)
NET TRUST SHARE TRANSACTIONS
No-Load Class 457 674 640 (2,219)
Class A 57 (346) -- --
Class B 187 202 -- --
--------- --------- --------- ---------
Total 701 530 640 (2,219)
--------- --------- --------- ---------
TOTAL CHANGE IN NET ASSETS 823 889 753 (1,371)
NET ASSETS AT BEGINNING OF PERIOD 16,495 15,606 38,172 39,543
--------- --------- --------- ---------
NET ASSETS AT END OF PERIOD $ 17,318 $ 16,495 $ 38,925 $ 38,172
--------- --------- --------- ---------
--------- --------- --------- ---------
- ----------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND TRUST SHARES AND AMOUNTS
SHARES:
Sales 330 1,062 588 872
Reinvestments 23 43 85 181
Redemptions (286) (1,054) (606) (1,290)
--------- --------- --------- ---------
NET CHANGE 67 51 67 (237)
--------- --------- --------- ---------
--------- --------- --------- ---------
AMOUNTS:
Sales $ 3,428 $ 10,738 $ 5,641 $ 8,219
Reinvestments 239 434 819 1,705
Redemptions (2,966) (10,642) (5,820) (12,143)
--------- --------- --------- ---------
NET CHANGE $ 701 $ 530 $ 640 $ (2,219)
--------- --------- --------- ---------
--------- --------- --------- ---------
- ----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-62-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
SAFECO SAFECO
HIGH-YIELD MANAGED
BOND FUND BOND FUND
--------------------------- ------------------------
SIX-MONTH FOR THE SIX-MONTH FOR THE
PERIOD ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31
(In Thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 3,202 $ 5,097 $ 124 $ 227
Net Realized Gain (Loss) on
Investments 468 954 46 (21)
Net Change in Unrealized
Appreciation (443) 1,194 35 163
--------- --------- --------- ---------
Net Change in Net Assets
Resulting from Operations 3,227 7,245 205 369
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income
No-Load Class (3,166) (5,073) (118) (216)
Class A (20) (11) (4) (7)
Class B (16) (13) (2) (4)
Net Realized Gain on Investments
No-Load Class -- -- -- --
Class A -- -- -- --
Class B -- -- -- --
--------- --------- --------- ---------
TOTAL (3,202) (5,097) (124) (227)
NET TRUST SHARE TRANSACTIONS
No-Load Class 6,258 18,821 521 280
Class A 1,084 155 66 2
Class B 232 250 57 14
--------- --------- --------- ---------
Total 7,574 19,226 644 296
--------- --------- --------- ---------
TOTAL CHANGE IN NET ASSETS 7,599 21,374 725 438
NET ASSETS AT BEGINNING OF PERIOD 71,672 50,298 4,893 4,455
--------- --------- --------- ---------
NET ASSETS AT END OF PERIOD $ 79,271 $ 71,672 $ 5,618 $ 4,893
--------- --------- --------- ---------
--------- --------- --------- ---------
- ----------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND TRUST SHARES AND AMOUNTS
SHARES:
Sales 5,009 12,626 85 439
Reinvestments 238 362 3 18
Redemptions (4,433) (10,838) (14) (422)
--------- --------- --------- ---------
NET CHANGE 814 2,150 74 35
--------- --------- --------- ---------
--------- --------- --------- ---------
AMOUNTS:
Sales $ 46,224 $ 112,308 $ 735 $ 3,703
Reinvestments 2,197 3,238 30 152
Redemptions (40,847) (96,320) (121) (3,559)
--------- --------- --------- ---------
NET CHANGE $ 7,574 $ 19,226 $ 644 $ 296
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
SAFECO
CALIFORNIA SAFECO
TAX-FREE MUNICIPAL
INCOME FUND BOND FUND
------------------------- ------------------------
SIX-MONTH FOR THE SIX-MONTH FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31
(In Thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 2,370 $ 3,764 $ 12,767 $ 25,677
Net Realized Gain (Loss) on
Investments $ 2,640 367 7,955 6,632
Net Change in Unrealized
Appreciation (2,620) 4,618 (6,163) 17,239
---------- ---------- ---------- ----------
Net Change in Net Assets
Resulting from Operations 2,390 8,749 14,559 49,548
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income
No-Load Class (2,347) (3,744) (12,744) (25,652)
Class A (12) (9) (13) (17)
Class B (11) (11) (10) (8)
Net Realized Gain on Investments
No-Load Class -- (360) -- (5,345)
Class A -- (2) -- (4)
Class B -- (2) -- (4)
---------- ---------- ---------- ----------
TOTAL (2,370) (4,128) (12,767) (31,030)
NET TRUST SHARE TRANSACTIONS
No-Load Class 19,417 11,712 7,288 3,479
Class A 227 326 482 66
Class B 345 374 315 382
---------- ---------- ---------- ----------
Total 19,898 12,412 8,085 3,927
---------- ---------- ---------- ----------
TOTAL CHANGE IN NET ASSETS 20,009 17,033 9,877 22,445
NET ASSETS AT BEGINNING OF PERIOD 89,340 72,307 503,838 481,393
---------- ---------- ---------- ----------
NET ASSETS AT END OF PERIOD $ 109,349 $ 89,340 $ 513,715 $ 503,838
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
- ----------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND TRUST SHARES AND AMOUNTS
SHARES:
Sales 2,294 2,534 3,086 6,156
Reinvestments 114 231 549 1,401
Redemptions (862) (1,773) (3,079) (7,286)
---------- ---------- ---------- ----------
NET CHANGE 1,546 992 556 (271)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
AMOUNTS:
Sales $ 29,665 $ 31,480 $ 44,826 $ 86,878
Reinvestments 1,474 2,867 7,961 19,903
Redemptions (11,150) (21,935) (44,702) (102,854)
---------- ---------- ---------- ----------
NET CHANGE $ 19,989 $ 12,412 $ 8,085 $ 3,927
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
- ----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-63-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO WASHINGTON STATE SAFECO INTERMEDIATE-TERM
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
--------------------------- ------------------------
SIX-MONTH FOR THE SIX-MONTH FOR THE
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31
(In Thousands) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 180 $ 349 $ 296 $ 609
Net Realized Gain (Loss) on
Investments 203 (9) 11 15
Net Change in Unrealized
Appreciation (174) 321 (56) 388
---------- ---------- ---------- ---------
Net Change in Net Assets
Resulting from Operations 209 661 251 1,012
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income
No-Load Class (170) (326) (296) (609)
Class A (6) (15) -- --
Class B (4) (8) -- --
Net Realized Gain on Investments
No-Load Class -- -- -- --
Class A -- -- -- --
Class B -- -- -- --
---------- ---------- ---------- ---------
TOTAL (180) (349) (296) (609)
NET TRUST SHARE TRANSACTIONS
No-Load Class 407 440 599 (795)
Class A (159) 11 -- --
Class B 4 19 -- --
---------- ---------- ---------- ---------
Total 252 470 599 (795)
---------- ---------- ---------- ---------
TOTAL CHANGE IN NET ASSETS 281 782 554 (392)
NET ASSETS AT BEGINNING OF PERIOD 7,887 7,105 13,780 14,172
---------- ---------- ---------- ---------
NET ASSETS AT END OF PERIOD $ 8,168 $ 7,887 $ 14,334 $ 13,780
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
- ---------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND TRUST SHARES AND AMOUNTS
SHARES:
Sales 115 601 155 204
Reinvestments 4 7 15 29
Redemptions (96) (563) (115) (307)
---------- ---------- ---------- ---------
NET CHANGE 23 45 55 (74)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
AMOUNTS:
Sales $ 1,258 $ 6,413 $ 1,692 $ 2,179
Reinvestments 42 78 159 312
Redemptions (1,048) (6,021) (1,252) (3,286)
---------- ---------- ---------- ---------
NET CHANGE $ 252 $ 470 $ 599 $ (795)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-64-
<PAGE>
<TABLE>
<CAPTION>
SAFECO INSURED SAFECO SAFECO TAX-FREE
MUNICIPAL BOND FUND MONEY MARKET FUND MONEY MARKET BOND FUND
--------------------------- ------------------------ ----------------------
SIX-MONTH FOR THE SIX-MONTH FOR THE SIX-MONTH FOR THE
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
(In Thousands) 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 394 $ 665 $ 4,323 $ 8,347 $ 1,181 $ 2,278
Net Realized Gain (Loss) on
Investments 428 70 -- -- -- --
Net Change in Unrealized
Appreciation (355) 766 -- -- -- --
---------- ---------- ---------- --------- --------- --------
Net Change in Net Assets
Resulting from Operations 467 1,501 4,323 8,347 1,181 2,278
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income
No-Load Class (394) (665) (4,297) (8,324) (1,181) (2,278)
Class A (17) (15) -- --
Class B (9) (8) -- --
Net Realized Gain on Investments
No-Load Class -- -- -- -- -- --
Class A -- -- -- -- -- --
Class B -- -- -- -- -- --
---------- ---------- ---------- --------- --------- --------
TOTAL (394) (665) (4,323) (8,347) (1,181) (2,278)
NET TRUST SHARE TRANSACTIONS
No-Load Class $ 3,597 $ 2,493 $ 1,869 $ 15,267 $ 284 $ 2,273
Class A -- -- 303 243 -- --
Class B -- -- (91) 307 -- --
---------- ---------- ---------- --------- --------- --------
Total 3,597 2,493 2,081 15,817 284 2,273
---------- ---------- ---------- --------- --------- --------
TOTAL CHANGE IN NET ASSETS 3,760 3,329 2,081 15,817 284 2,273
NET ASSETS AT BEGINNING OF PERIOD 16,516 13,187 177,574 161,757 75,437 73,164
---------- ---------- ---------- --------- --------- --------
NET ASSETS AT END OF PERIOD $ 20,186 $ 16,516 $ 179,655 $ 177,574 $ 75,721 $ 75,437
---------- ---------- ---------- --------- --------- --------
---------- ---------- ---------- --------- --------- --------
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND TRUST SHARES AND AMOUNTS
SHARES:
Sales 572 1,204 219,511 322,894 39,769 64,208
Reinvestments 15 23 4,013 7,794 1,079 2,055
Redemptions (269) (1,000) (221,443) (314,871) (40,564) (63,990)
---------- ---------- ---------- --------- --------- --------
NET CHANGE 318 227 2,081 15,817 284 2,273
---------- ---------- ---------- --------- --------- --------
---------- ---------- ---------- --------- --------- --------
AMOUNTS:
Sales $ 6,475 $ 13,174 $ 219,511 $ 322,894 $ 39,769 $ 64,208
Reinvestments 171 247 4,013 7,794 1,079 2,055
Redemptions (3,049) (10,928) (221,443) (314,871) (40,564) (63,990)
---------- ---------- ---------- --------- --------- --------
NET CHANGE $ 3,597 $ 2,493 $ 2,081 $ 15,817 $ 284 $ 2,273
---------- ---------- ---------- --------- --------- --------
---------- ---------- ---------- --------- --------- --------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-65-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
This financial report is on 11 of the SAFECO Mutual Funds. Each Fund is a
series of one of the following trusts listed below. Each trust is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company.
SAFECO Taxable Bond Trust
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund
SAFECO Managed Bond Trust
SAFECO Managed Bond Fund
SAFECO Tax-Exempt Bond Trust
SAFECO California Tax-Free Income Fund
SAFECO Municipal Bond Fund
SAFECO Washington State Municipal Bond Fund
SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Money Market Trust
SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund
Effective September 30, 1996, the Intermediate-Term U.S. Treasury, Managed
Bond, California Tax-Free Income, Municipal Bond, Washington State Municipal
Bond, and Money Market Funds began issuing two new classes of shares -- Class A
and Class B shares (collectively, "Advisor Classes"). Effective January 31,
1997, the High-Yield Bond Fund also began issuing Advisor Classes. Unlike the
no-load class of shares (which are sold directly to the shareholder with no
associated sales and distribution charges), these new classes of shares are sold
by financial advisors to shareholders and have associated sales and distribution
charges. Each class of shares represents an interest in the net assets of the
fund.
In connection with issuing the new Advisor Classes, all of the
above-mentioned funds (except the Money Market Fund) adopted a Plan of
Distribution ("the Plan"). Under the Plan, each Advisor Class pays the
distributor, SAFECO Securities Corp., for selling its shares at the annual
-66-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
rate of .25% of the average daily net assets of the Advisor Class. Class B
shares also pay the distributor a distribution fee at the annual rate of .75% of
the average daily net assets of the Class B shares.
Under the Plans, the distributor uses the service fees primarily to
compensate persons selling Advisor Class shares for providing ongoing services
and the maintenance of shareholder accounts. The distributor uses the
distribution fees primarily to offset the commissions it pays to financial
advisors for selling Class B shares.
2. SIGNIFICANT
ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by each Fund in the preparation of its financial statements. Policies
are in conformity with generally accepted accounting principles, which permits
management to make certain estimates and assumptions at the date of the
financial statements.
SECURITY VALUATION. Bonds are stated on the basis of valuations provided by
a pricing service, which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities and
various relationships between securities in determining value. When valuations
are not readily available, securities are valued at fair value as determined in
good faith by the Board of Trustees. Investments in equity securities are valued
at the last reported sales price, unless there are no transactions in which case
they are valued at the last reported bid price. Other temporary investments
purchased at par are valued at cost.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade
date. The cost of the portfolios is the same for financial statement and
Federal income tax purposes. Realized gains and losses from security
transactions are determined using the identified cost basis.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Securities purchased on a
when-issued or delayed basis may be settled a month or more after the trade
date. The securities purchased are carried in the portfolio at market and are
subject to market fluctuation during this period. These securities begin
earning interest on the settlement date. As commitments to purchase
when-issued securities become fixed, the Funds segregate liquid assets in an
amount equal to the total obligation.
INCOME RECOGNITION. Bond premiums and original issue discounts are
amortized to either call or maturity dates. In the Tax-Exempt Bond Trust,
-67-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
market discount on bonds purchased after April 30, 1993 is recorded as taxable
income at disposition. Interest is accrued on bonds and temporary investments
daily. The Managed Bond Fund has elected to amortize premiums on securities
purchased above par value. The funds in the Taxable Bond Trust have not elected
to amortize premiums on securities purchased above par value.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net investment income is
declared as a dividend to shareholders of record as of the close of each
business day and payment is made as of the last business day of each month. Net
gains realized from security transactions, if any, are normally distributed to
shareholders at the end of December.
FEDERAL INCOME AND EXCISE TAXES. Each Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies by distributing substantially all taxable income to their shareholders
in a manner which results in no tax to the Funds. Therefore, no Federal income
or excise tax provision is required. In addition, the funds in the Tax-Exempt
Bond Trust and the Tax-Free Money Market Fund intend to satisfy conditions which
will enable them to pay dividends which, for shareholders, are exempt from
Federal income taxes. Any portion of dividends representing net short-term
capital gains, however, is not exempt and is treated as taxable dividends for
Federal income tax purposes.
3. INVESTMENT TRANSACTIONS
Following is a summary of investment transactions during the period ended
June 30, 1998.
<TABLE>
<CAPTION>
(In Thousands) PURCHASES* SALES**
- ------------------------------------------------------------------------------
<S> <C> <C>
Intermediate-Term U.S. Treasury Fund $ 996 $ 519
GNMA Fund 27,428 27,490
High-Yield Bond Fund 27,701 21,482
Managed Bond Fund 2,835 2,330
California Tax-Free Income Fund 38,680 24,937
Municipal Bond Fund 90,455 84,148
Washington State Municipal Bond Fund 3,472 3,326
Intermediate-Term Municipal Bond Fund 303 601
Insured Municipal Bond Fund 8,605 3,551
</TABLE>
* Excludes short-term securities. Purchases include $996, $27,428, $0, and
$1,043 of U.S. Government securities for Intermediate-Term U.S. Treasury,
GNMA, High-Yield, and Managed Bond Funds, respectively.
** Excludes short-term securities. Sales include $519, $27,490, $0, and $1,013
of U.S. Government securities for Intermediate-Term U.S. Treasury, GNMA,
High-Yield, and Managed Bond Funds, respectively.
-68-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. COMPONENTS OF NET ASSETS
At June 30, 1998, the components of net assets were as follows:
<TABLE>
<CAPTION>
SAFECO
INTERMEDIATE-TERM SAFECO SAFECO
U.S. TREASURY GNMA HIGH-YIELD
(In Thousands) FUND FUND BOND FUND
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate gross unrealized appreciation
on investments in which there is an
excess of value over identified cost $ 566 $ 559 $ 2,312
Aggregate gross unrealized depreciation
on investments in which there is an
an excess of identified cost over value (28) (18) (328)
---------- ---------- ----------
Net unrealized appreciation 538 541 1,984
Accumulated net realized gain (loss) on
investment transactions (249)* (1,623)* 129*
Paid-in capital (par value $.001,
unlimited shares authorized) 17,029 40,007 77,158
---------- ---------- ----------
NET ASSETS AT JUNE 30, 1998 $ 17,318 $ 38,925 $ 79,271
---------- ---------- ----------
---------- ---------- ----------
- ------------------------------------------------------------------------------------------
<CAPTION>
SAFECO
SAFECO CALIFORNIA SAFECO
MANAGED TAX-FREE MUNICIPAL
(In Thousands) BOND FUND INCOME FUND BOND FUND
- ------------------------------------------------------------------------------------------
<S> <C>
Aggregate gross unrealized appreciation
on investments in which there is an
excess of value over identified cost $ 194 $ 8,351 $ 61,628
Aggregate gross unrealized depreciation
on investments in which there is an
an excess of identified cost over value -- (233) (178)
---------- ---------- ----------
Net unrealized appreciation 194 8,118 61,450
Accumulated net realized gain (loss) on
investment transactions 25* 2,640 7,955
Paid-in capital (par value $.001,
unlimited shares authorized) 5,399 98,591 444,310
---------- ---------- ----------
NET ASSETS AT JUNE 30, 1998 $ 5,618 $ 109,349 $ 513,715
---------- ---------- ----------
---------- ---------- ----------
- ------------------------------------------------------------------------------------------
</TABLE>
* At December 31, 1997, these funds had the following amounts of accumulated
net realized losses on investment transactions that represented capital
loss carryforwards for Federal income tax purposes, which expire as
follows:
<TABLE>
<CAPTION>
AMOUNTS EXPIRATION DATES
------- ----------------
<S> <C> <C>
Intermediate-Term U.S. Treasury Fund $ 253 2001-2005
GNMA Fund 2,571 1999-2003
High-Yield Bond Fund 339 1998-2000
Managed Bond Fund 21 2005
</TABLE>
-69-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO
WASHINGTON STATE INTERMEDIATE-TERM SAFECO
MUNICIPAL MUNICIPAL INSURED MUNICIPAL
(In Thousands) BOND FUND BOND FUND BOND FUND
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate gross unrealized appreciation
on investments in which there is an
excess of value over identified cost $ 436 $ 715 $ 1,180
Aggregate gross unrealized depreciation
on investments in which there is an
an excess of identified cost over value (1) -- (38)
---------- ---------- ----------
Net unrealized appreciation 435 715 1,142
Accumulated net realized gain (loss) on
investment transactions 203 11 428
Paid-in capital (par value $.001,
unlimited shares authorized) 7,530 13,608 18,616
---------- ---------- ----------
NET ASSETS AT JUNE 30, 1998 $ 8,168 $ 14,334 $ 20,186
---------- ---------- ----------
---------- ---------- ----------
- -------------------------------------------------------------------------------------------------------
<CAPTION>
SAFECO
SAFECO TAX-FREE
MONEY MARKET MONEY MARKET
(In Thousands) FUND FUND
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aggregate gross unrealized appreciation
on investments in which there is an
excess of value over identified cost $ -- $ --
Aggregate gross unrealized depreciation
on investments in which there is an
an excess of identified cost over value -- --
---------- ----------
Net unrealized appreciation -- --
Accumulated net realized gain (loss) on
investment transactions -- --
Paid-in capital (par value $.001,
unlimited shares authorized) 179,655 75,721
---------- ----------
NET ASSETS AT JUNE 30, 1998 $ 179,655 $ 75,721
---------- ----------
---------- ----------
- -------------------------------------------------------------------------------------------------------
</TABLE>
-70-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. INVESTMENT ADVISORY FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES. SAFECO Asset Management Company receives
investment advisory fees from the Funds. These fees are based on a percentage of
each day's net assets, which, on an annual basis, are as follows:
<TABLE>
<S> <C> <C> <C>
INTERMEDIATE-TERM U.S. TREASURY FUND: GNMA & HIGH-YIELD BOND FUNDS:
First $250 million .55% First $250 million .65%
Next $250 million .45 Next $250 million .55
Next $250 million .35 Next $250 million .45
Over $750 million .25 Over $750 million .35
MANAGED BOND FUND: MUNICIPAL & CALIFORNIA FUNDS:
First $100 million .50% First $100 million .55%
Next $150 million .40 Next $150 million .45
Over $250 million .35 Next $250 million .35
Over $500 million .25
INTERMEDIATE MUNICIPAL FUND: INSURED & WASHINGTON FUNDS:
First $250 million .55% First $250 million .65%
Next $250 million .45 Next $250 million .55
Next $250 million .35 Next $250 million .45
Over $750 million .25 Over $750 million .35
MONEY MARKET FUND: TAX-FREE MONEY MARKET FUND:
First $250 million .50% First $100 million .50%
Next $250 million .40 Next $150 million .40
Next $250 million .30 Next $250 million .30
Over $750 million .25 Over $500 million .20
</TABLE>
TRANSFER AGENT FEES. SAFECO Services Corporation receives transfer agent
fees.
NOTES PAYABLE AND INTEREST EXPENSE. The Funds may borrow money for
temporary purposes from SAFECO Corporation or its affiliates. Interest rates
equivalent to commercial bank interest rates are charged on loans over $100,000.
No interest is charged on loans under $100,000. At June 30, 1998, the Insured
Municipal Bond Fund had a 0% note payable to SAFECO Services of $61,175 and the
Tax-Free Money Market had a 5.52% note payable to SAFECO Services of $185,765.
The notes were repaid on July 1, 1998 and July 2, 1998, respectively.
-71-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
LINE OF CREDIT. The Trust, together with all other management investment
companies for which SAFECO Asset Management Company serves as investment
advisor, has line of credit arrangements with certain financial institutions.
Under these arrangements, $75 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at June 30, 1998.
AFFILIATE OWNERSHIP. At June 30, 1998, SAFECO Insurance Company of America
owned 500,000 shares (or 30%) of the Intermediate-Term U.S. Treasury Fund,
502,372 shares (or 68%) of the Washington Fund, 397,434 (or 30%) of the
Intermediate Municipal Fund, and 605,644 (or 34%) of the Insured Fund. SAFECO
Asset Management Company owned 452,103 shares (or 70%) of the Managed Bond Fund.
DEFERRED ORGANIZATION EXPENSES. Costs related to the organization of the
Managed Bond Fund have been deferred and are being amortized to operations over
a period of sixty months. These costs were advanced by the affiliates and are
being reimbursed by the Fund over the same time period.
DEALER CONCESSIONS. SAFECO Securities, Inc. retained the following amounts
in dealer commissions from sales of Class A Shares during the period ended June
30, 1998:
<TABLE>
<CAPTION>
COMMISSIONS
RETAINED
- --------------------------------------------------------------------------------
<S> <C>
Intermediate-Term U.S. Treasury Fund $ 295
High-Yield Bond Fund 4,118
Managed Bond Fund 396
California Tax-Free Income Fund 1,275
Municipal Bond Fund 1,268
Washington State Municipal Bond Fund 5
- --------------------------------------------------------------------------------
</TABLE>
-72-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
THREE-
SIX-MONTH FOR THE MONTH
PERIOD YEAR PERIOD
ENDED ENDED ENDED FOR THE YEAR ENDED
JUNE 30 DEC. 31 DEC. 31 SEPTEMBER 30
----------------------------------------------------------------------------------
1998 1997 1996 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.34 $ 10.11 $ 10.10 $ 10.24 $ 9.74 $ 10.74
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.28 0.58 0.16 0.54 0.55 0.52
Net Realized and Unrealized
Gain (Loss) on Investments 0.08 0.23 0.01 (0.14) 0.50 (1.00)
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.36 0.81 0.17 0.40 1.05 (0.48)
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.28) (0.58) (0.16) (0.54) (0.55) (0.52)
-------- -------- -------- -------- -------- --------
Total Distributions (0.28) (0.58) (0.16) (0.54) (0.55) (0.52)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 10.42 $ 10.34 $ 10.11 $ 10.10 $ 10.24 $ 9.74
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
TOTAL RETURN 3.55%* 8.29% 1.68%* 4.00% 11.07% (4.56%)
NET ASSETS AT END OF PERIOD (000's) $ 16,271 $ 15,698 $ 14,679 $ 14,668 $ 13,774 $ 13,367
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 1.00%** 0.92% 0.85%**+ 1.01% 0.96% 0.90%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.49%** 5.74% 6.30%** 5.30% 5.51% 5.08%
PORTFOLIO TURNOVER RATE 6.43%** 82.36% 125.42%** 294.25% 124.90% 75.46%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Excluding the reimbursements, the
annualized ratio of expenses to average net assets for the period ended
December 31, 1996, would have been 1.07%.
-73-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GNMA FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
THREE-
SIX-MONTH FOR THE MONTH
PERIOD YEAR PERIOD
ENDED ENDED ENDED FOR THE YEAR ENDED
JUNE 30 DEC. 31 DEC. 31 SEPTEMBER 30
----------------------------------------------------------------------------------
1998 1997 1996 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 9.57 $ 9.36 $ 9.26 $ 9.45 $ 9.05 $ 10.03
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.29 0.60 0.15 0.60 0.60 0.60
Net Realized and Unrealized
Gain (Loss) on Investments 0.03 0.21 0.10 (0.19) 0.40 (0.98)
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.32 0.81 0.25 0.41 1.00 (0.38)
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.29) (0.60) (0.15) (0.60) (0.60) (0.60)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 9.60 $ 9.57 $ 9.36 $ 9.26 $ 9.45 $ 9.05
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
TOTAL RETURN 3.33%* 8.97% 2.71%* 4.48% 11.49% (3.91%)
NET ASSETS AT END OF PERIOD (000's) $ 38,925 $ 38,172 $ 39,543 $ 39,703 $ 44,055 $ 46,176
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.97%** 0.93% 1.01%** 1.03% 1.01% 0.95%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 6.00%** 6.40% 6.43%** 6.42% 6.55% 6.26%
PORTFOLIO TURNOVER RATE 150.84%** 82.70% 51.06%** 47.45% 131.24% 55.12%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-74-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO HIGH-YIELD BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
THREE-
SIX-MONTH FOR THE MONTH
PERIOD YEAR PERIOD
ENDED ENDED ENDED FOR THE YEAR ENDED
JUNE 30 DEC. 31 DEC. 31 SEPTEMBER 30
----------------------------------------------------------------------------------
1998 1997 1996 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 9.13 $ 8.82 $ 8.79 $ 8.68 $ 8.55 $ 9.22
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.37 0.77 0.19 0.78 0.79 0.82
Net Realized and Unrealized
Gain (Loss) on Investments 0.02 0.31 0.03 0.11 0.13 (0.67)
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.39 1.08 0.22 0.89 0.92 0.15
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.37) (0.77) (0.19) (0.78) (0.79) (0.82)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 9.15 $ 9.13 $ 8.82 $ 8.79 $ 8.68 $ 8.55
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
TOTAL RETURN 4.37%* 12.79% 2.50%* 10.79% 11.43% 1.61%
NET ASSETS AT END OF PERIOD (000's) $ 77,345 $ 71,058 $ 50,298 $ 47,880 $ 39,178 $ 27,212
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.91%** 0.91% 0.90%** 0.94% 1.01% 1.03%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 8.20%** 8.58% 8.56%** 8.99% 9.28% 9.26%
PORTFOLIO TURNOVER RATE 56.72%** 85.06% 35.01%** 92.65% 38.03% 63.02%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-75-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MANAGED BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD
ENDED FOR THE YEAR ENDED
JUNE 30 DECEMMBER 31
--------------------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 8.60 $ 8.35 $ 8.77 $ 8.15 $ 9.08
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.21 0.42 0.41 0.44 0.27
Net Realized and Unrealized
Gain (Loss) on Investments 0.13 0.25 (0.42) 0.94 (0.93)
-------- -------- -------- -------- --------
Total from Investment Operations 0.34 0.67 (0.01) 1.38 (0.66)
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.21) (0.42) (0.41) (0.44) (0.27)
Distributions from
Realized Gains -- -- -- (0.32) --
-------- -------- -------- -------- --------
Total Distributions (0.21) (0.42) (0.41) (0.76) (0.27)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 8.73 $ 8.60 $ 8.35 $ 8.77 $ 8.15
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN 3.98%* 8.23% 0.02% 17.35% (3.01%)#
NET ASSETS AT END OF PERIOD (000's) $ 5,224 $ 4,627 $ 4,215 $ 4,497 $ 4,627
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 1.19%** 1.15% 1.27% 1.16% 1.37%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.85%** 4.98% 4.86% 5.14% 4.47%
PORTFOLIO TURNOVER RATE 93.68%** 176.50% 136.29% 78.78% 129.56%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
# Total return from February 28, 1994 (initial public offering) to December
31, 1994; not annualized.
-76-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
NINE-
SIX-MONTH FOR THE MONTH
PERIOD YEAR PERIOD
ENDED ENDED ENDED FOR THE YEAR ENDED
JUNE 30 DEC. 31 DEC. 31 MARCH 31
--------------------------------------------------------------------
1998 1997 1996 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 12.93 $ 12.22 $ 11.86 $ 11.54 $ 11.51
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.31 0.60 0.47 0.62 0.63
Net Realized and Unrealized
Gain on Investments 0.01 0.76 0.39 0.40 0.13
-------- -------- -------- -------- --------
Total from Investment Operations 0.32 1.36 0.86 1.02 0.76
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.31) (0.60) (0.47) (0.62) (0.63)
Distributions from
Realized Gains -- (0.05) (0.03) (0.08) (0.10)
-------- -------- -------- -------- --------
Total Distributions (0.31) (0.65) (0.50) (0.70) (0.73)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 12.94 $ 12.93 $ 12.22 $ 11.86 $ 11.54
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN 2.49%* 11.55% 7.42%* 8.87% 7.01%
NET ASSETS AT END OF PERIOD (000's) $107,815 $ 88,379 $ 72,084 $ 70,546 $ 64,058
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.68%** 0.68% 0.69%** 0.68% 0.70%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.79%** 4.88% 5.21%** 5.12% 5.65%
PORTFOLIO TURNOVER RATE 52.97%** 9.83% 10.52%** 16.25% 44.10%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-77-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
NINE-
SIX-MONTH FOR THE MONTH
PERIOD YEAR PERIOD
ENDED ENDED ENDED FOR THE YEAR ENDED
JUNE 30 DEC. 31 DEC. 31 MARCH 31
------------------------------------------------------------------------
1998 1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 14.52 $ 13.98 $ 13.69 $ 13.36 $ 13.27
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.37 0.75 0.57 0.76 0.77
Net Realized and Unrealized
Gain on Investments 0.05 0.70 0.29 0.33 0.12
-------- -------- -------- -------- --------
Total from Investment Operations 0.42 1.45 0.86 1.09 0.89
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.37) (0.75) (0.57) (0.76) (0.77)
Distributions from
Realized Gains -- (0.16) -- -- (0.03)
-------- -------- -------- -------- --------
Total Distributions (0.37) (0.91) (0.57) (0.76) (0.80)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 14.57 $ 14.52 $ 13.98 $ 13.69 $ 13.36
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN 2.90%* 10.68% 6.42%* 8.23% 7.10%
NET ASSETS AT END OF PERIOD (000's) $ 512,016 $502,946 $ 480,970 $ 480,643 $ 472,569
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.51%** 0.51% 0.53%** 0.54% 0.56%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.07%** 5.31% 5.53%** 5.47% 5.96%
PORTFOLIO TURNOVER RATE 33.99%** 13.52% 6.66%** 12.60% 26.96%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-78-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
NINE-
SIX-MONTH FOR THE MONTH
PERIOD YEAR PERIOD
ENDED ENDED ENDED FOR THE YEAR ENDED
JUNE 30 DEC. 31 DEC. 31 MARCH 31
------------------------------------------------------------------------
1998 1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.95 $ 10.53 $ 10.34 $ 10.10 $ 9.91
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.25 0.50 0.37 0.50 0.49
Net Realized and Unrealized
Gain on Investments 0.04 0.42 0.20 0.27 0.19
-------- -------- -------- -------- --------
Total from Investment Operations 0.29 0.92 0.57 0.77 0.68
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.25) (0.50) (0.37) (0.50) (0.49)
Distributions from
Realized Gains -- -- (0.01) (0.03) --
-------- -------- -------- -------- --------
Total Distributions (0.25) (0.50) (0.38) (0.53) (0.49)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 10.99 $ 10.95 $ 10.53 $ 10.34 $ 10.10
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN 2.69%* 8.94% 5.61%* 7.73% 7.13%
NET ASSETS AT END OF PERIOD (000's) $ 7,722 $ 7,288 $ 6,558 $ 6,489 $ 5,953
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 1.04%** 1.02% 1.10%** 1.07% 1.09%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.63%** 4.68% 4.78%** 4.78% 5.06%
PORTFOLIO TURNOVER RATE 85.85%** 11.67% 15.96%** 20.86% 9.23%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-79-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
NINE-
SIX-MONTH FOR THE MONTH
PERIOD YEAR PERIOD
ENDED ENDED ENDED FOR THE YEAR ENDED
JUNE 30 DEC. 31 DEC. 31 MARCH 31
------------------------------------------------------------------------
1998 1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.92 $ 10.61 $ 10.49 $ 10.17 $ 10.13
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.23 0.47 0.35 0.45 0.45
Net Realized and Unrealized
Gain (Loss) on Investments (0.04) 0.31 0.12 0.32 0.04
-------- -------- -------- -------- --------
Total from Investment Operations 0.19 0.78 0.47 0.77 0.49
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.23) (0.47) (0.35) (0.45) (0.45)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 10.88 $ 10.92 $ 10.61 $ 10.49 $ 10.17
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN 1.76%* 7.50% 4.53%* 7.63% 4.97%
NET ASSETS AT END OF PERIOD (000's) $ 14,334 $ 13,780 $ 14,172 $ 14,981 $ 13,762
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.85%** 0.83% 0.89%** 0.84% 0.85%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.26%** 4.37% 4.40%** 4.29% 4.46%
PORTFOLIO TURNOVER RATE 4.43%** 10.52% 12.81%** 9.12% 4.27%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-80-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INSURED MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
NINE-
SIX-MONTH FOR THE MONTH
PERIOD YEAR PERIOD
ENDED ENDED ENDED FOR THE YEAR ENDED
JUNE 30 DEC. 31 DEC. 31 MARCH 31
------------------------------------------------------------------------
1998 1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.36 $ 10.74 $ 10.46 $ 10.05 $ 9.73
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.24 0.50 0.37 0.48 0.48
Net Realized and Unrealized
Gain on Investments 0.03 0.62 0.28 0.41 0.32
-------- -------- -------- -------- --------
Total from Investment Operations 0.27 1.12 0.65 0.89 0.80
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.24) (0.50) (0.37) (0.48) (0.48)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 11.39 $ 11.36 $ 10.74 $ 10.46 $ 10.05
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN 2.44%* 10.70% 6.31%* 8.95% 8.58%
NET ASSETS AT END OF PERIOD (000's) $ 20,186 $16,516 $ 13,187 $ 11,758 $ 8,163
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.90%** 0.92% 1.00%** 0.99% 1.08%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.33%** 4.56% 4.66%** 4.53% 5.11%
PORTFOLIO TURNOVER RATE 41.46%** 13.02% 14.86%** 3.71% 14.76%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-81-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MONEY MARKET FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
NINE-
SIX-MONTH FOR THE MONTH
PERIOD YEAR PERIOD
ENDED ENDED ENDED FOR THE YEAR ENDED
JUNE 30 DEC. 31 DEC. 31 MARCH 31
-------------------------------------------------------------------
1998 1997 1996 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.02 0.05 0.03 0.05 0.04
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.02) (0.05) (0.03) (0.05) (0.04)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN 2.44%* 4.93% 3.54%* 5.15% 4.20%
NET ASSETS AT END OF PERIOD (000's) $178,492 $176,623 $161,356 $165,122 $171,958
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.80%** 0.78% 0.81%** 0.78% 0.78%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.88%** 4.82% 4.66%** 5.04% 4.21%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-82-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO TAX-FREE MONEY MARKET FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
NINE-
SIX-MONTH FOR THE MONTH
PERIOD YEAR PERIOD
ENDED ENDED ENDED FOR THE YEAR ENDED
JUNE 30 DEC. 31 DEC. 31 MARCH 31
-------------------------------------------------------------------
1998 1997 1996 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.02 0.03 0.02 0.03 0.03
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.02) (0.03) (0.02) (0.03) (0.03)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN 1.54%* 3.12% 2.29%* 3.44% 2.84%
NET ASSETS AT END OF PERIOD (000's) $ 75,721 $ 75,437 $ 73,164 $ 79,702 $ 77,320
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.63%** 0.63% 0.65%** 0.65% 0.64%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 3.08%** 3.11% 3.03%** 3.40% 2.79%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
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<PAGE>
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<PAGE>
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-85-
<PAGE>
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-86-
<PAGE>
SAFECO FAMILY OF FUNDS
STABILITY OF PRINCIPAL
SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund
TAXABLE BOND INCOME
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund
SAFECO Managed Bond Fund
TAX-FREE BOND INCOME
SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
HIGH CURRENT INCOME
WITH LONG-TERM GROWTH
SAFECO Income Fund
SAFECO Balanced Fund
LONG-TERM GROWTH
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Northwest Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
SAFECO U.S. Value Fund
For more complete information on any SAFECO Mutual Fund, including management
fees and expenses, call or write for a free Prospectus. Please read it carefully
before you invest or send money.
-87-
<PAGE>
SAFECO TAXABLE BOND FUNDS
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
David H. Longhurst
Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
CLIENT SERVICES*:
Monday-Friday,
5:30am-7:00pm Pacific Time
NATIONWIDE: 1-800-624-5711
DEAF AND HARD OF HEARING
TTY/TDD SERVICE: 1-800-438-8718
* All telephone calls are tape-recorded for your protection.
FOR 24-HOUR AUTOMATED
PERFORMANCE INFORMATION
AND TRANSACTIONS:
NATIONWIDE: 1-800-835-4391
MAILING ADDRESS:
SAFECO Mutual Funds
P.O. Box 34890
Seattle, WA 98124-1890
INTERNET:
www.safecofunds.com
EMAIL: [email protected]
GMF 997 8/98
[LOGO] Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
- -TM- A trademark of SAFECO Corporation.
