<PAGE>
SEMIANNUAL REPORT
June 30, 1999
SAFECO MUTUAL FUNDS
CLASS A AND CLASS B SHARES
------
<TABLE>
<S> <C>
SAFECO STOCK FUNDS
Growth Fund......................................................... 2
Equity Fund......................................................... 8
Income Fund......................................................... 13
Northwest Fund...................................................... 19
Balanced Fund....................................................... 24
International Fund.................................................. 30
Small Company Fund.................................................. 36
U.S. Value Fund..................................................... 41
SAFECO BOND FUNDS
High-Yield Bond Fund................................................ 46
Intermediate-Term U.S. Treasury Fund................................ 53
Managed Bond Fund................................................... 56
SAFECO TAX-EXEMPT BOND FUNDS
Municipal Bond Fund................................................. 62
California Tax-Free Income Fund..................................... 70
Washington State Municipal Bond Fund................................ 75
SAFECO MONEY MARKET FUND
Money Market Fund................................................... 79
</TABLE>
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO GROWTH FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAFECO Growth Fund continued to struggle, with Class A shares returning
3.16%* for the quarter, (6.40%)* year-to-date, and (16.50%)* for the 12 months
ended June 30. Class B shares returned 2.99%* for the quarter, (6.80%)*
year-to-date, and (17.29%)* for the 12 months ended June 30. The average growth
fund returned 7.07%, 11.65% and 18.87% for the same respective periods,
according to Lipper, Inc.
During the second quarter small company stocks began to return to favor. The
Russell 2000 (a small cap index) delivered 15.55%, while the S&P 500 (broad
market indicator) returned 7.05% for the quarter. For the 12 months ended June
30, 1999, the Russell 2000 returned 1.50% and the S&P 500 gained 22.76%.
[PHOTO OF THOMAS M. MAGUIRE]
*Not including the effects of sales charges.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW - CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIOD ENDED JUNE 30, 1999 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A -21.30% 18.12% 13.86% -16.50% 19.53% 14.53%
Class B -21.43% 18.79% 14.28% -17.29% 18.99% 14.28%
</TABLE>
<TABLE>
<CAPTION>
SAFECO SAFECO
INVESTMENT VALUE GROWTH GROWTH S&P
WITH SALES FUND FUND 500
CHARGE CLASS A CLASS B INDEX
<S> <C> <C> <C>
6/30/89 $9,425 $10,000 $10,000
7/31/89 $9,845 $10,445 $10,903
8/31/89 $10,140 $10,758 $11,117
9/30/89 $10,348 $10,979 $11,071
10/31/89 $9,957 $10,564 $10,814
11/30/89 $9,927 $10,533 $11,035
12/31/89 $10,021 $10,632 $11,300
1/31/90 $9,050 $9,601 $10,542
2/28/90 $9,297 $9,864 $10,677
3/31/90 $9,858 $10,459 $10,960
4/30/90 $9,900 $10,504 $10,686
5/31/90 $10,914 $11,581 $11,728
6/30/90 $11,149 $11,829 $11,649
7/31/90 $10,750 $11,406 $11,611
8/31/90 $8,897 $9,439 $10,562
9/30/90 $7,898 $8,380 $10,047
10/31/90 $7,366 $7,816 $10,004
11/30/90 $7,912 $8,395 $10,650
12/31/90 $8,521 $9,041 $10,948
1/31/91 $9,373 $9,944 $11,425
2/28/91 $10,664 $11,314 $12,242
3/31/91 $11,185 $11,868 $12,538
4/30/91 $11,725 $12,440 $12,568
5/31/91 $12,499 $13,260 $13,111
6/30/91 $11,753 $12,470 $12,511
7/31/91 $12,853 $13,637 $13,093
8/31/91 $13,364 $14,180 $13,404
9/30/91 $13,445 $14,266 $13,180
10/31/91 $13,850 $14,695 $13,357
11/30/91 $12,681 $13,455 $12,818
12/31/91 $13,859 $14,705 $14,285
1/31/92 $14,874 $15,781 $14,019
2/28/92 $14,767 $15,668 $14,201
3/31/92 $13,670 $14,504 $13,924
4/30/92 $12,822 $13,605 $14,334
5/31/92 $12,505 $13,267 $14,404
6/30/92 $11,543 $12,247 $14,189
7/31/92 $12,028 $12,761 $14,770
8/31/92 $11,346 $12,039 $14,467
9/30/92 $11,048 $11,721 $14,638
10/31/92 $11,513 $12,216 $14,688
11/30/92 $12,967 $13,759 $15,187
12/31/92 $13,434 $14,254 $15,373
1/31/93 $13,995 $14,848 $15,501
2/28/93 $13,063 $13,859 $15,712
3/31/93 $13,576 $14,404 $16,044
4/30/93 $12,739 $13,516 $15,656
5/31/93 $13,394 $14,211 $16,074
6/30/93 $13,813 $14,656 $16,121
7/31/93 $13,766 $14,605 $16,056
8/31/93 $14,651 $15,544 $16,664
9/30/93 $15,293 $16,226 $16,536
10/31/93 $15,684 $16,641 $16,878
11/30/93 $15,022 $15,939 $16,718
12/31/93 $16,414 $17,417 $16,920
1/31/94 $17,299 $18,354 $17,495
2/28/94 $16,472 $17,477 $17,021
3/31/94 $15,645 $16,600 $16,281
4/30/94 $16,063 $17,043 $16,489
5/31/94 $16,210 $17,199 $16,758
6/30/94 $15,008 $15,923 $16,347
7/31/94 $15,343 $16,279 $16,883
8/31/94 $16,300 $17,295 $17,574
9/30/94 $15,887 $16,856 $17,145
10/31/94 $16,116 $17,099 $17,529
11/30/94 $15,676 $16,633 $16,891
12/31/94 $16,149 $17,134 $17,141
1/31/95 $15,900 $16,870 $17,585
2/28/95 $16,774 $17,797 $18,269
3/31/95 $16,709 $17,729 $18,808
4/30/95 $16,792 $17,817 $19,361
5/31/95 $17,465 $18,530 $20,147
6/30/95 $18,521 $19,652 $20,614
7/31/95 $19,176 $20,345 $21,297
8/31/95 $19,111 $20,277 $21,350
9/30/95 $19,688 $20,890 $22,251
10/31/95 $19,602 $20,797 $22,171
11/30/95 $19,800 $21,008 $23,142
12/31/95 $20,364 $21,606 $23,589
1/31/96 $21,118 $22,406 $24,391
2/28/96 $21,910 $23,246 $24,617
3/31/96 $21,576 $22,892 $24,854
4/30/96 $22,494 $23,866 $25,220
5/31/96 $23,449 $24,879 $25,869
6/30/96 $22,431 $23,799 $25,968
7/31/96 $20,218 $21,451 $24,821
8/31/96 $21,425 $22,732 $25,345
9/30/96 $22,477 $23,848 $26,770
10/31/96 $22,957 $24,343 $27,509
11/30/96 $23,845 $25,268 $29,586
12/31/96 $25,027 $26,508 $29,000
1/31/97 $27,165 $28,761 $30,809
2/28/97 $26,443 $27,979 $31,053
3/31/97 $25,500 $26,962 $29,780
4/30/97 $24,304 $25,694 $31,555
5/31/97 $27,992 $29,575 $33,473
6/30/97 $30,308 $32,001 $34,973
7/31/97 $32,076 $33,847 $37,755
8/31/97 $33,212 $35,020 $35,641
9/30/97 $35,882 $37,806 $37,593
10/30/97 $35,203 $37,086 $36,339
11/30/97 $36,738 $38,666 $38,020
12/31/97 $37,444 $39,416 $38,672
1/31/98 $37,979 $39,913 $39,100
2/28/98 $41,792 $43,874 $41,918
3/31/98 $44,367 $46,539 $44,063
4/30/98 $46,056 $48,298 $44,506
5/31/98 $43,883 $45,988 $43,742
6/30/98 $43,848 $45,917 $45,518
7/31/98 $41,658 $43,555 $45,035
8/31/98 $31,541 $32,968 $38,530
9/30/98 $32,711 $34,158 $40,999
10/31/98 $35,320 $36,823 $44,331
11/30/98 $37,126 $38,670 $47,016
12/31/98 $39,117 $40,748 $49,724
1/31/99 $40,014 $41,647 $51,803
2/28/99 $35,301 $36,730 $50,191
3/31/99 $35,491 $36,877 $52,199
4/30/99 $36,043 $37,428 $54,219
5/31/99 $35,301 $36,638 $52,940
6/30/99 $36,613 $37,978 $55,878
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
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>
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- ------------------------------------------------------------------
While the Fund still lags the broad market and peer group, we began to
outperform in the final days of the period. As investors return to small
companies, as they did in the second quarter, they buy the larger ones first. As
confidence grows, I hope we will see more movement to our names, which are among
the smallest of the small.
Growth Fund is loaded with what I believe to be statistically cheap companies
with seemingly attractive fundamentals. Many of them are very small (under $250
million market capitalization) and most of those are selling for a share price
that is a fraction of their growth rate. By June 30, many of them had yet to
move and a few had hurt us.
Prison Realty Trust, Inc., the largest private owner and operator of prisons
(and formerly one of the Growth Fund's largest positions) hurt us. It fell 50%
as management's "selective" disclosure brought shareholder class action lawsuits
charging fraud.
Rent-A-Center, Inc., suffered when the financial press took issue with its
accounting. After talking with analysts and Rent-A-Center's largest competitor
(Rent-Way, Inc., which we also own) I am comfortable holding and monitoring the
stock. Both companies
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- ----------------------------------------------------------------------
<S> <C>
Chancellor Media Corp. ..................................... 11.5%
(Broadcasting - TV, Radio & Cable)
Conseco, Inc. .............................................. 9.4
(Insurance - Life & Health)
Emmis Communications Corp. (Class A)........................ 5.6
(Broadcasting - TV, Radio & Cable)
Nu Skin Enterprises, Inc. (Class A)......................... 4.6
(Distributors - Food & Health)
MICROS Systems, Inc. ....................................... 3.8
(Computers - Hardware)
Mail-Well, Inc. ............................................ 3.7
(Specialty Printing)
United Stationers, Inc. .................................... 2.8
(Office Equipment & Supplies)
Creditrust Corp. ........................................... 2.8
(Consumer Finance)
NCO Group, Inc. ............................................ 2.7
(Services - Commerical & Consumer)
Dura Pharmaceuticals, Inc. ................................. 2.7
(Health Care - Drugs-Generic & Other)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Mylan Laboratories, Inc. ................................... $18,418
Nu Skin Enterprises, Inc. (Class A)......................... 17,000
Iron Mountain, Inc. ........................................ 16,042
Computer Horizons Corp. .................................... 12,914
Serologicals Corp. ......................................... 11,788
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Amfm, Inc. ................................................. $64,696
Beckman Coulter, Inc. ...................................... 36,234
Conseco, Inc. .............................................. 36,072
NCO Group, Inc. ............................................ 31,970
Prison Realty Corp. ........................................ 30,993
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Broadcasting (TV, Radio & Cable)............................ 17%
Services (Commercial & Consumer) ........................... 10
Insurance (Life & Health)................................... 9
Health Care (Major Pharmaceuticals)......................... 6
Distributors (Food & Health)................................ 5
- ----------------------------------------------------------------------------
</TABLE>
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
provide furnishings and appliances to people who don't have credit or enough
cash.
Conseco continued to produce good earnings and cash flow, and the market
continued to ignore it. Conseco provides insurance and financing to Middle
America. And Middle America is a huge market. In fact, Middle America is what
made Wal-Mart so successful.
Credit is another great force in the American economy. For that reason we own
NCO Group, a collection agency, and Credit Trust, the leading purchaser of agent
credit card receivables.
From a winning position, Family Golf Centers took too big a swing and hasn't
been able to bring the underperforming ice rinks and driving ranges it acquired
up to standard. I think they can.
Broadcasting remains our largest sector. Chancellor Media, our largest
holding, is the fastest growing company in this fast-growing industry and Emmis
is the cheapest. Both stocks are up as radio is benefiting from a strong U.S.
economy and gaining market share from other media.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
WEIGHTINGS AS A PERCENT OF NET ASSETS
COMMON STOCKS
(1) Large: 21% ($4 Bil. and above)
(2) Medium: 7% ($1 Bil.-$4 Bil.)
(3) Small: 71% (Less than $1 Bil.)
(4) Corporate Bonds: 0%
(5) Cash & Other: 1%
With 70% of its sales in Japan, direct marketer Nu Skin Enterprises should
benefit from the Japanese recovery. United Stationers is another great franchise
with a low valuation and great growth prospects.
I choose these stocks not to match a bogey, but for their value and
appreciation potential. Consequently, Growth Fund's performance diverges from
its peers and the market, and I have hit peaks and valleys. It was not long ago
that we were at a peak. We are working to get back there. No, the past is not
predictive, but, SAFECO Growth Fund has historically had very good years
following periods of very bad performance.
Finally, I want you to know I take this position seriously and am committed
to outperform. I ask, and thank you, for your patience. I hope to show you the
wait will be well worth it.
Thomas M. Maguire
- -------------------------------
After completing his MBA at the University of Washington, Thomas M. Maguire
joined the company as an equity analyst in 1981 and today is a Vice President.
From 1984 to 1989, he co-managed the SAFECO Equity Fund.
- 4 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 99.2%
AIR FREIGHT - 0.2%
611,800 *+Dynamex, Inc. ................................... $ 1,759
AUTO PARTS & EQUIPMENT - 0.2%
592,400 *+Precision Auto Care, Inc. ......................... 1,814
BANKS (MAJOR REGIONAL) - 0.7%
308,975 Provident Bankshares Corp. .......................... 7,184
BIOTECHNOLOGY - 0.3%
238,400 *CryoLife, Inc. ..................................... 2,920
BROADCASTING (TV, RADIO & CABLE) - 17.1%
2,138,500 *Chancellor Media Corp. ........................... 117,885
1,156,600 *+Emmis Communications Corp. (Class A) .............. 57,107
CHEMICALS (SPECIALTY) - 0.5%
505,100 *TETRA Technologies, Inc. ........................... 4,641
COMMUNICATION EQUIPMENT - 0.9%
436,900 *Research In Motion, Ltd. ........................... 8,847
COMPUTERS (HARDWARE) - 4.2%
166,200 *Equitrac Corp. ..................................... 3,137
1,127,528 *+MICROS Systems, Inc. ............................. 38,336
128,000 *Optimal Robotics Corp. ............................. 1,272
COMPUTERS (SOFTWARE & SERVICES) - 4.1%
842,700 *Aspen Technology, Inc. ............................. 9,902
500,641 Autodesk, Inc. ..................................... 14,800
210,000 *Cadence Design Systems, Inc. ....................... 2,678
159,300 *Cambridge Technology Partners, Inc. ................ 2,798
212,700 *Ciber, Inc. ........................................ 4,068
7,700 *internet.com Corp. .................................... 97
831,700 *+Phoenix International Ltd., Inc. .................. 5,302
40,000 *topjobs.net, plc (ADR) ................................ 225
314,200 *TRO Learning, Inc. ................................. 1,924
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.8%
250,500 *Action Performance Cos., Inc. .................... $ 8,267
CONSUMER FINANCE - 4.4%
1,025,450 *+Creditrust Corp. ................................. 28,456
397,535 Doral Financial Corp. ............................... 6,857
1,111,200 *+Towne Services, Inc. .............................. 8,751
123,900 *+Waterside Capital Corp. ............................. 852
DISTRIBUTORS (FOOD & HEALTH) - 4.8%
2,338,900 *Nu Skin Enterprises, Inc. (Class A) ................ 46,632
607,840 Weider Nutrition International, Inc. ................ 2,507
ELECTRICAL EQUIPMENT - 0.4%
398,800 *PCD, Inc. .......................................... 4,387
ENTERTAINMENT - 0.4%
121,500 *Championship Auto Racing Teams, Inc. ............... 3,637
FINANCIAL (DIVERSIFIED) - 0.4%
461,900 *+BNC Mortgage, Inc. ................................ 2,887
439,700 *United Panam Financial Corp. ....................... 1,429
HEALTH CARE (DIVERSIFIED) - 1.2%
395,000 *Anesta Corp. ....................................... 8,073
373,635 *Emisphere Technologies, Inc. ....................... 2,639
320,000 *Synaptic Pharmaceutical Corp. ...................... 1,520
HEALTH CARE (DRUGS-GENERIC & OTHER) - 3.6%
2,306,300 *+Dura Pharmaceuticals, Inc. ....................... 27,531
609,000 *+Nastech Pharmaceutical Co., Inc. .................. 2,017
530,000 *PathoGenesis Corp. ................................. 7,519
HEALTH CARE (LONG-TERM CARE) - 0.3%
156,500 *Res-Care, Inc. ..................................... 3,560
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (MAJOR PHARMACEUTICALS) - 5.6%
745,000 Mylan Laboratories, Inc. .......................... $19,743
107,000 *PharmaPrint, Inc. .................................... 535
2,420,756 *+Serologicals Corp. ............................... 19,669
127,400 *SuperGen, Inc. ..................................... 1,951
260,600 Teva Pharmaceutical Industries, Ltd. (ADR) .......... 12,769
327,500 *Zonagen, Inc. ...................................... 3,029
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES) - 2.2%
190,200 *Haemonetics Corp. .................................. 3,816
514,450 *+Lifeline Systems, Inc. ............................ 9,903
886,000 *+PolyMedica Industries, Inc...........................8,860
HEALTH CARE (SPECIALIZED SERVICES) - 1.1%
282,300 *American Healthcorp, Inc..............................2,347
1,149,200 *+Prime Medical Services, Inc. ...................... 8,475
HOUSEWARES - 0.2%
293,200 *Home Products International, Inc. .................. 2,492
INSURANCE (LIFE & HEALTH) - 9.4%
3,162,729 Conseco, Inc. ...................................... 96,266
LEISURE TIME (PRODUCTS) - 2.1%
391,000 *+American Coin Merchandising, Inc. ................. 2,542
2,452,275 *+Family Golf Centers, Inc. ........................ 18,852
LODGING (HOTELS) - 1.5%
622,400 *ResortQuest International, Inc. .................... 5,135
1,528,600 *+Suburban Lodges of America, Inc. .................. 9,840
MACHINERY (DIVERSIFIED) - 0.5%
669,150 Chart Industries, Inc. .............................. 5,270
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MANUFACTURING (DIVERSIFIED) - 2.1%
418,400 *Nortek, Inc. ..................................... $13,101
341,850 *+Recovery Engineering, Inc............................5,811
138,500 *SurModics, Inc. .................................... 2,268
MANUFACTURING (SPECIALIZED) - 0.8%
195,600 *Zomax Optical Media, Inc..............................8,606
OFFICE EQUIPMENT & SUPPLIES - 3.3%
698,400 *+TRM Copy Centers Corp. ............................ 4,583
1,314,100 *United Stationers, Inc. ........................... 28,910
PERSONAL CARE - 0.6%
895,000 *+French Fragrances, Inc. ........................... 6,545
REAL ESTATE INVESTMENT TRUST - 1.1%
1,115,237 Prison Realty Corp. ................................ 10,943
RESTAURANTS - 0.5%
427,100 *+Schlotzsky's, Inc. ................................ 4,671
RETAIL (DEPARTMENT STORES) - 0.9%
266,300 *Rainbow Rentals, Inc, ............................... 3,062
246,000 *Value City Department Stores, Inc. ................. 3,014
133,700 *Whitehall Jewellers, Inc. .......................... 3,568
RETAIL (FOOD CHAINS) - 0.3%
184,500 *NPC International, Inc. ............................ 2,837
RETAIL (GENERAL MERCHANDISE) - 0.4%
422,800 *Central Garden & Pet Co. ........................... 4,334
RETAIL (HOME SHOPPING) - 0.6%
714,900 *+Damark International, Inc. ........................ 5,987
RETAIL (SPECIALTY) - 1.6%
119,300 *1-800 Contacts, Inc. ............................... 2,237
403,200 *+Blue Rhino Corp. .................................. 3,704
354,300 *+Funco, Inc. ....................................... 6,532
271,000 *+Travis Boats & Motors, Inc...........................3,930
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (SPECIALTY-APPAREL) - 1.8%
479,500 *+Concepts Direct, Inc. ........................... $ 4,435
542,213 *+Harold's Stores, Inc. ............................. 3,524
1,634,334 *+Stage Stores, Inc. ............................... 10,623
SERVICES (ADVERTISING/MARKETING) - 0.2%
483,500 *APAC Teleservices, Inc. ............................ 1,571
SERVICES (COMMERCIAL & CONSUMER) - 10.3%
834,400 *Bluegreen Corp. .................................... 4,485
679,200 *Compass International Services Corp. ............... 4,754
495,600 *FirstService Corp. ................................. 7,558
839,900 *+IntelliQuest Information Group, Inc. .............. 6,299
565,800 *Iron Mountain, Inc. ............................... 16,196
206,000 *Navigant International, Inc. 1,622
735,700 *NCO Group, Inc. ................................... 27,957
224,400 *Protection One, Inc. ............................... 1,206
976,600 *Rent-A-Center, Inc. ............................... 23,438
360,700 *Rent-Way, Inc. ..................................... 8,882
263,600 SunSource, Inc. ..................................... 3,410
SERVICES (COMPUTER SYSTEMS) - 0.9%
682,600 *Computer Horizons Corp. ............................ 9,428
SERVICES (EMPLOYMENT) - 0.7%
142,500 *Alternative Resources Corp..............................998
898,600 *+Hall, Kinion & Associates, Inc. ................... 6,290
SPECIALTY PRINTING - 3.7%
2,316,700 *Mail-Well, Inc. ................................... 37,502
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.1%
1,375,685 *CellStar Corp. ................................. $ 10,834
TELEPHONE - 1.3%
676,000 *+Innotrac Corp. ................................... 13,689
-------
TOTAL COMMON STOCKS ............................................... 1,015,058
-------
CORPORATE BONDS - 0.3%
LEISURE TIME (PRODUCTS) - 0.3%
$4,700,000 Family Golf Centers, Inc.
5.75% due 10/15/04 ................................... 2,990
-------
TOTAL CORPORATE BONDS ................................................. 2,990
-------
CASH EQUIVALENTS - 0.0%
INVESTMENT COMPANIES
6,798 SSgA Prime Money Market Portfolio ........................ 7
-------
TOTAL CASH EQUIVALENTS .................................................... 7
-------
TOTAL INVESTMENTS - 99.5% ......................................... 1,018,055
Other Assets, less Liabilities ........................................ 5,075
-------
NET ASSETS ....................................................... $1,023,130
-------
-------
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
+ Affiliated issuer as defined by the Investment Company Act of 1940 (the Fund
controls 5% or more of the outstanding voting shares of the company).
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO EQUITY FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAFECO Equity Fund beat its growth and income peer group for the 12-months
ended June 30, 1999, was virtually neck and neck for the six months, but lagged
during the latest quarter, according to Lipper, Inc.
Equity Fund Class A shares were up 20.42%* and 10.16%* for the 12 and six
months just ended, versus 14.48% and 10.93% for the peers. Class B shares were
up 19.18%* and 9.59%* for the same periods. In the latest three months, the Fund
returned 7.22%* for Class A shares and 6.91%* for Class B shares, compared to
9.04% for the peer group.
The S&P 500 returned 7.05% for the quarter, 12.38% for the six months, and
22.76% for latest 12 months.
[PHOTO OF RICH MEAGLEY]
*Not including the effects of sales charges.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW - CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIOD ENDED JUNE 30, 1999 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A 13.50% 22.05% 18.19% 20.42% 23.50% 18.89%
Class B 14.18% 22.69% 18.59% 19.18% 22.87% 18.59%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT VALUE With Sales Charge
SAFECO SAFECO
EQUITY FUND EQUITY FUND S&P 500
CLASS A CLASS B INDEX
<S> <C> <C> <C>
6/30/89 $9,425 $10,000 $10,000
7/31/89 $10,264 $10,890 $10,903
8/31/89 $10,428 $11,064 $11,117
9/30/89 $10,392 $11,025 $11,071
10/31/89 $10,412 $11,048 $10,814
11/30/89 $10,484 $11,124 $11,035
12/31/89 $10,877 $11,541 $11,300
1/31/90 $9,974 $10,582 $10,542
2/28/90 $10,067 $10,682 $10,677
3/31/90 $10,442 $11,078 $10,960
4/30/90 $10,139 $10,758 $10,686
5/31/90 $11,118 $11,797 $11,728
6/30/90 $11,101 $11,779 $11,649
7/31/90 $10,902 $11,568 $11,611
8/31/90 $9,752 $10,346 $10,562
9/30/90 $9,277 $9,842 $10,047
10/31/90 $9,078 $9,632 $10,004
11/30/90 $9,574 $10,157 $10,650
12/31/90 $9,945 $10,552 $10,948
1/31/91 $10,455 $11,093 $11,425
2/28/91 $11,076 $11,752 $12,242
3/31/91 $11,389 $12,084 $12,538
4/30/91 $11,623 $12,331 $12,568
5/31/91 $12,090 $12,827 $13,111
6/30/91 $11,313 $12,003 $12,511
7/31/91 $12,072 $12,809 $13,093
8/31/91 $12,262 $13,010 $13,404
9/30/91 $12,096 $12,834 $13,180
10/31/91 $12,293 $13,043 $13,357
11/30/91 $11,524 $12,227 $12,818
12/31/91 $12,721 $13,497 $14,285
1/31/92 $13,478 $14,300 $14,019
2/28/92 $13,706 $14,542 $14,201
3/31/92 $13,090 $13,888 $13,924
4/30/92 $13,198 $14,004 $14,334
5/31/92 $13,078 $13,876 $14,404
6/30/92 $12,134 $12,874 $14,189
7/31/92 $12,629 $13,400 $14,770
8/31/92 $12,109 $12,848 $14,467
9/30/92 $12,144 $12,885 $14,638
10/31/92 $12,730 $13,507 $14,688
11/30/92 $13,572 $14,400 $15,187
12/31/92 $13,899 $14,748 $15,373
1/31/93 $14,359 $15,236 $15,501
2/28/93 $14,372 $15,249 $15,712
3/31/93 $15,144 $16,068 $16,044
4/30/93 $14,798 $15,701 $15,656
5/31/93 $16,016 $16,994 $16,074
6/30/93 $16,082 $17,064 $16,121
7/31/93 $15,863 $16,832 $16,056
8/31/93 $16,752 $17,774 $16,664
9/30/93 $17,218 $18,268 $16,536
10/31/93 $17,671 $18,749 $16,878
11/30/93 $17,767 $18,851 $16,718
12/31/93 $18,195 $19,305 $16,920
1/31/94 $19,286 $20,462 $17,495
2/28/94 $18,803 $19,950 $17,021
3/31/94 $18,081 $19,184 $16,281
4/30/94 $18,663 $19,802 $16,489
5/31/94 $19,203 $20,374 $16,758
6/30/94 $18,511 $19,641 $16,347
7/31/94 $18,985 $20,143 $16,883
8/31/94 $20,140 $21,369 $17,574
9/30/94 $20,060 $21,285 $17,145
10/31/94 $20,436 $21,683 $17,529
11/30/94 $20,032 $21,254 $16,891
12/31/94 $20,003 $21,224 $17,141
1/31/95 $20,150 $21,379 $17,585
2/28/95 $20,676 $21,937 $18,269
3/31/95 $20,844 $22,116 $18,808
4/30/95 $21,403 $22,709 $19,361
5/31/95 $21,947 $23,286 $20,147
6/30/95 $22,492 $23,863 $20,614
7/31/95 $22,847 $24,240 $21,297
8/31/95 $23,483 $24,915 $21,350
9/30/95 $24,391 $25,880 $22,251
10/31/95 $24,089 $25,558 $22,171
11/30/95 $24,870 $26,386 $23,142
12/31/95 $25,055 $26,584 $23,589
1/31/96 $25,726 $27,296 $24,391
2/28/96 $25,955 $27,538 $24,617
3/31/96 $26,221 $27,821 $24,854
4/30/96 $26,778 $28,413 $25,220
5/31/96 $27,402 $29,074 $25,869
6/30/96 $27,910 $29,612 $25,968
7/31/96 $26,839 $28,476 $24,821
8/31/96 $27,118 $28,773 $25,345
9/30/96 $28,791 $30,547 $26,770
10/31/96 $29,717 $31,492 $27,509
11/30/96 $31,952 $33,843 $29,586
12/31/96 $31,319 $33,146 $29,000
1/31/97 $33,109 $35,042 $30,809
2/28/97 $33,242 $35,162 $31,053
3/31/97 $31,898 $33,715 $29,780
4/30/97 $32,804 $34,653 $31,555
5/31/97 $34,976 $36,930 $33,473
6/30/97 $36,366 $38,400 $34,973
7/31/97 $38,828 $40,978 $37,755
8/31/97 $36,783 $38,819 $35,641
9/30/97 $38,095 $40,190 $37,593
10/30/97 $36,862 $38,852 $36,339
11/30/97 $38,038 $40,070 $38,020
12/31/97 $38,698 $40,746 $38,672
1/31/98 $39,271 $41,226 $39,100
2/28/98 $42,399 $44,456 $41,918
3/31/98 $43,822 $45,894 $44,063
4/30/98 $43,882 $45,935 $44,506
5/31/98 $43,068 $45,019 $43,742
6/30/98 $44,171 $46,144 $45,518
7/31/98 $43,634 $45,539 $45,035
8/31/98 $37,992 $39,620 $38,530
9/30/98 $40,672 $42,392 $40,999
10/31/98 $44,297 $46,102 $44,331
11/30/98 $47,105 $48,978 $47,016
12/31/98 $48,284 $50,183 $49,724
1/31/99 $49,073 $50,964 $51,803
2/28/99 $48,077 $49,901 $50,191
3/31/99 $49,611 $51,441 $52,199
4/30/99 $52,709 $54,584 $54,219
5/31/99 $51,607 $53,413 $52,940
6/30/99 $53,191 $54,996 $55,878
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
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>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Our performance could at best be described as consistent and, at worst,
boring. Our poorest performing stock, Washington Mutual, was off just 13.5%
during the latest quarter and no member of our portfolio had "news".
The market itself was far more interesting. Investor sentiment, not economic
or company fundamentals, shifted and market leadership took a turn. Big stocks
took a breather (after four years of outperformance), while smaller stocks and
more value-oriented stocks moved ahead.
Our largest seven holdings at the beginning of the quarter-- Microsoft,
Johnson & Johnson, Procter & Gamble, General Electric, Fannie Mae, Intel and
Merck--all lagged the growth and income peer group and the S&P 500 over the
quarter. I am comfortable with these stocks performing poorly on a short-term
basis. In fact, it provides buying opportunities for those of us who invest for
the long-term.
It seemed our more value-oriented names outperformed. Praxair, a chemical
company, began the second quarter with value characteristics (low price to
earnings and price to book ratios) and ended it up 36%. Of our technology stocks
Motorola, HP and IBM beat the growthier fellows, Microsoft and Intel.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- ----------------------------------------------------------------------
<S> <C>
Federal National Mortgage Association....................... 3.4%
(Financial - Diversified)
Procter & Gamble Co. ....................................... 3.4
(Household Products - Non-Durables)
Intel Corp. ................................................ 3.4
(Electronics - Semiconductors)
Abbott Laboratories......................................... 3.3
(Health Care - Diversified)
Johnson & Johnson........................................... 3.3
(Health Care - Diversified)
Microsoft Corp. ............................................ 3.2
(Computers, Software & Services)
Kimberly-Clark Corp. ....................................... 3.1
(Household Products - Non-Durables)
General Electric Co. ....................................... 2.8
(Electrical Equipment)
Gannett Co., Inc. .......................................... 2.8
(Publishing - Newspapers)
Albertson's, Inc. .......................................... 2.7
(Retail - Food Chains)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES COST
(Jan. to June) (000'S)
- ------------------------------------------------------------------------
<S> <C>
Gannett Co., Inc. .......................................... $59,092
Emerson Electric Co. ....................................... 57,969
MCI WorldCom, Inc. ......................................... 46,677
Procter & Gamble Co. ....................................... 42,899
Bestfoods................................................... 42,827
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ------------------------------------------------------------------------
<S> <C>
Motorola, Inc. ............................................. $37,800
Willamette Industries, Inc. ................................ 31,258
Chase Manhattan Corp. ...................................... 24,584
Schlumberger, Ltd. ......................................... 23,613
American Home Products Corp. ............................... 23,032
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
Health Care (Diversified)................................... 11%
Household Products (Non-Durables) .......................... 7
Electrical Equipment........................................ 6
Financial (Diversified)..................................... 5
Banks (Major Regional)...................................... 5
- ------------------------------------------------------------------------
</TABLE>
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Washington Mutual took a 13.5% tumble. The bank's cost-cutting slowed as did
excitement from its recent acquisitions. I still like the company's prospects.
Ninety percent of our assets are invested in what I believe to be
above-average-quality companies in industries with good long-term growth
prospects that I can hold for three to five years. The remaining 10% is invested
in special situations. These companies might be cyclicals or involved in
merger/acquisitions with major cost-cutting potential. They could be
restructuring or beginning a product cycle.
I stayed with what I've done in the past. I added to existing holdings when I
liked their price and sold parts of positions when they were on the high side.
Much of our add-on activity was in stocks that did not perform well: Abbott
Laboratories, Fannie Mae, Intel and Procter & Gamble.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
WEIGHTINGS AS A PERCENT OF NET ASSETS
COMMON STOCKS
(1) Large: 97% ($4 Bil. and above)
(2) Medium: 0% ($1 Bil. - $4 Bil.)
(3) Cash and Other: 3%
I trimmed American Home Products, Citigroup, Dover Corp., and Allied Signal
and sold all the Motorola and Willamette Industries when they reached our price
objectives. By selling Willamette I decreased our exposure to an industry I
think has below-average long-term prospects. I sold 40% of our Lockheed Martin
because it continues to struggle and the fixes don't look easy.
I added MCI Worldcom, which I think is well-positioned in data, voice and
internet services. The stock was not cheap, but should MCI deliver the solid
performance I expect it to, it will be worth it.
We ended the period with just about $2.3 billion invested in 46 companies.
Turnover in the portfolio remained low and steady, at 32.64% (annualized). And,
the character we perceive in our portfolio is unchanged: high quality companies
with predictable earnings growth.
Richard Meagley
- -------------------------------
Rich Meagley joined SAFECO in 1983. After advancing from analyst to Northwest
Fund Manager, he left the company. He re-joined in January 1995 as Equity Fund
Manager. He holds an MBA from the University of Washington, and is a Chartered
Financial Analyst.
- 10 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO EQUITY FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 97.3%
AEROSPACE/DEFENSE - 1.1%
700,000 Lockheed Martin Corp. ............................. $26,075
BANKS (MAJOR REGIONAL) - 5.1%
625,000 Bank of America Corp. .............................. 45,820
1,125,000 Citigroup, Inc. .................................... 53,438
652,200 U.S. Bancorp ........................................ 22,175
BANKS (MONEY CENTER) - 2.5%
700,000 Chase Manhattan Corp. .............................. 60,638
BEVERAGES (ALCOHOLIC) - 1.5%
500,000 Anheuser-Busch Co., Inc. ........................... 35,469
BEVERAGES (NON-ALCOHOLIC) - 1.9%
1,200,000 PepsiCo, Inc. ...................................... 46,425
CHEMICALS - 4.1%
625,000 Du Pont (E.I.) de Nemours & Co. .................... 42,695
1,113,600 Praxair, Inc. ...................................... 54,497
COMPUTERS (HARDWARE) - 4.7%
600,000 Hewlett-Packard Co. ................................ 60,300
400,000 International Business Machines Corp. .............. 51,700
COMPUTERS (NETWORKING) - 0.7%
600,000 *3Com Corp. ........................................ 16,013
COMPUTERS (SOFTWARE & SERVICES) - 3.2%
850,000 *Microsoft Corp. ................................... 76,659
ELECTRICAL EQUIPMENT - 5.5%
1,000,000 Emerson Electric Co. ............................... 62,875
600,000 General Electric Co. ............................... 67,800
ELECTRONICS (SEMICONDUCTORS) - 3.4%
1,350,000 Intel Corp. ........................................ 80,325
ENTERTAINMENT - 1.3%
1,000,000 The Walt Disney Co. ................................ 30,813
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FINANCIAL (DIVERSIFIED) - 5.4%
800,000 Federal Home Loan Mortgage Corp. .................. $46,400
1,200,000 Federal National Mortgage Association ............... 82,050
FOODS - 2.6%
1,250,000 Bestfoods ........................................... 61,875
HEALTH CARE (DIVERSIFIED) - 10.9%
1,750,000 Abbott Laboratories ................................. 79,625
750,000 American Home Products Corp. ....................... 43,125
825,000 Bristol-Myers Squibb Co. ........................... 58,111
800,000 Johnson & Johnson ................................... 78,400
HEALTH CARE (MAJOR PHARMACEUTICALS) - 2.5%
800,000 Merck & Co., Inc. .................................. 59,200
HOUSEHOLD PRODUCTS (NON-DURABLES) - 6.5%
1,300,000 Kimberly-Clark Corp. ............................... 74,100
900,000 Procter & Gamble Co. ............................... 80,325
INSURANCE (MULTI-LINE) - 3.3%
400,000 American International Group, Inc. ................. 46,825
550,000 Hartford Financial Services Group, Inc. ............ 32,072
MANUFACTURING (DIVERSIFIED) - 4.3%
1,000,000 AlliedSignal, Inc. ................................. 63,000
1,138,800 Dover Corp. ........................................ 39,858
OIL (DOMESTIC INTEGRATED) - 1.7%
400,000 Mobil Corp. ........................................ 39,600
OIL (INTERNATIONAL INTEGRATED) - 3.0%
375,000 Exxon Corp. ........................................ 28,922
725,000 Royal Dutch Petroleum Co. (ADR) ..................... 43,681
PERSONAL CARE - 0.9%
400,000 Avon Products, Inc. ................................ 22,200
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO EQUITY FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
PUBLISHING (NEWSPAPERS) - 2.8%
935,000 Gannett Co., Inc. ................................. $66,736
RAILROADS - 0.7%
513,700 Burlington Northern Santa Fe Corp. ................. 15,925
RETAIL (DEPARTMENT STORES) - 2.1%
1,201,000 May Department Stores Co. .......................... 49,091
RETAIL (FOOD CHAINS) - 2.7%
1,267,500 Albertson's, Inc. .................................. 65,355
RETAIL (GENERAL MERCHANDISE) - 0.9%
470,000 Wal-Mart Stores, Inc. .............................. 22,678
SAVINGS & LOANS - 2.6%
1,750,000 Washington Mutual, Inc. ............................ 61,906
SERVICES (DATA PROCESSING) - 1.1%
600,000 Automatic Data Processing, Inc. .................... 26,400
TELECOMMUNICATIONS (LONG DISTANCE) - 2.1%
900,000 AT&T Corp. ......................................... 50,231
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELEPHONE - 4.4%
900,000 Bell Atlantic Corp. ............................. $ 58,838
550,000 *MCI WorldCom, Inc. ................................ 47,438
TOBACCO - 1.9%
1,150,000 Philip Morris Cos., Inc. ........................... 46,216
-------
TOTAL COMMON STOCKS ............................................... 2,323,897
-------
COMMERCIAL PAPER - 2.8%
FINANCIAL (DIVERSIFIED) - 2.8%
67,436,000 Associates First Capital
Corp. 5.60%, due 7/01/99 ............................ 67,436
-------
TOTAL COMMERCIAL PAPER ............................................... 67,436
-------
TOTAL INVESTMENTS - 100.1% ........................................ 2,391,333
Other Assets, less Liabilities ...................................... (3,042)
-------
NET ASSETS ....................................................... $2,388,291
-------
-------
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 12 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INCOME FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO Income Fund Class A shares returned 5.27%* in the second quarter,
1.72%* year-to-date and (4.10%)* for the 12 months ending June 30, 1999. Class B
shares returned 4.99%*, 1.31%* and (4.87%)* for the same respective periods.
These results trail both the broad averages and the Fund's equity-income peers,
which delivered 9.23%, 8.98% and 11.36% for the same respective periods
according to Lipper, Inc. I am personally very disappointed in these returns.
However, as I look through our portfolio and observe the markets, I see cause
for encouragement in a number of areas.
The best news is that the equity markets, which for the past year have been
extremely narrow (a small number of stocks have been responsible for the
indexes'
[PHOTO OF THOMAS RATH]
*Not including the effects of sales charges.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW - CLASS A AND CLASS B SHARES
<TABLE>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIOD ENDED JUNE 30, 1999 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A -9.62% 15.95% 11.55% -4.10% 17.33% 12.21%
Class B -9.63% 16.74% 12.03% -4.87% 16.96% 12.03%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SAFECO SAFECO
VALUE WITH INCOME INCOME S&P
SALES FUND FUND 500
CHARGE CLASS A CLASS B INDEX
<S> <C> <C> <C>
6/30/89 $9,425 $10,000 $10,000
7/31/89 $9,994 $10,604 $10,903
8/31/89 $10,157 $10,777 $11,117
9/30/89 $10,078 $10,693 $11,071
10/31/89 $9,697 $10,290 $10,814
11/30/89 $9,808 $10,406 $11,035
12/31/89 $10,002 $10,612 $11,300
1/31/90 $9,496 $10,076 $10,542
2/28/90 $9,540 $10,123 $10,677
3/31/90 $9,613 $10,200 $10,960
4/30/90 $9,252 $9,817 $10,686
5/31/90 $9,739 $10,334 $11,728
6/30/90 $9,700 $10,292 $11,649
7/31/90 $9,527 $10,108 $11,611
8/31/90 $8,821 $9,359 $10,562
9/30/90 $8,459 $8,975 $10,047
10/31/90 $8,255 $8,758 $10,004
11/30/90 $8,761 $9,295 $10,650
12/31/90 $8,926 $9,471 $10,948
1/31/91 $9,274 $9,840 $11,425
2/28/91 $9,808 $10,406 $12,242
3/31/91 $9,957 $10,564 $12,538
4/30/91 $10,065 $10,679 $12,568
5/31/91 $10,369 $11,002 $13,111
6/30/91 $10,109 $10,725 $12,511
7/31/91 $10,396 $11,030 $13,093
8/31/91 $10,711 $11,364 $13,404
9/30/91 $10,694 $11,347 $13,180
10/31/91 $10,806 $11,465 $13,357
11/30/91 $10,360 $10,992 $12,818
12/31/91 $11,003 $11,674 $14,285
1/31/92 $11,087 $11,763 $14,019
2/28/92 $11,122 $11,801 $14,201
3/31/92 $11,015 $11,687 $13,924
4/30/92 $11,337 $12,029 $14,334
5/31/92 $11,443 $12,142 $14,404
6/30/92 $11,485 $12,186 $14,189
7/31/92 $11,912 $12,639 $14,770
8/31/92 $11,826 $12,547 $14,467
9/30/92 $11,952 $12,681 $14,638
10/31/92 $11,731 $12,447 $14,688
11/30/92 $12,032 $12,767 $15,187
12/31/92 $12,265 $13,012 $15,373
1/31/93 $12,532 $13,296 $15,501
2/28/93 $12,770 $13,549 $15,712
3/31/93 $13,202 $14,008 $16,044
4/30/93 $13,022 $13,817 $15,656
5/31/93 $13,195 $14,000 $16,074
6/30/93 $13,263 $14,073 $16,121
7/31/93 $13,195 $14,000 $16,056
8/31/93 $13,628 $14,460 $16,664
9/30/93 $13,666 $14,500 $16,536
10/31/93 $13,905 $14,752 $16,878
11/30/93 $13,735 $14,573 $16,718
12/31/93 $13,804 $14,646 $16,920
1/31/94 $14,254 $15,124 $17,495
2/28/94 $13,936 $14,785 $17,021
3/31/94 $13,449 $14,270 $16,281
4/30/94 $13,607 $14,437 $16,489
5/31/94 $13,614 $14,445 $16,758
6/30/94 $13,415 $14,233 $16,347
7/31/94 $13,828 $14,673 $16,883
8/31/94 $14,267 $15,137 $17,574
9/30/94 $14,073 $14,932 $17,145
10/31/94 $14,049 $14,906 $17,529
11/30/94 $13,551 $14,377 $16,891
12/31/94 $13,653 $14,486 $17,141
1/31/95 $13,999 $14,853 $17,585
2/28/95 $14,436 $15,318 $18,269
3/31/95 $14,847 $15,752 $18,808
4/30/95 $15,163 $16,088 $19,361
5/31/95 $15,606 $16,559 $20,147
6/30/95 $15,799 $16,763 $20,614
7/31/95 $16,415 $17,417 $21,297
8/31/95 $16,533 $17,543 $21,350
9/30/95 $17,034 $18,074 $22,251
10/31/95 $16,847 $17,875 $22,171
11/30/95 $17,436 $18,500 $23,142
12/31/95 $17,797 $18,883 $23,589
1/31/96 $18,367 $19,487 $24,391
2/28/96 $18,412 $19,535 $24,617
3/31/96 $18,630 $19,767 $24,854
4/30/96 $18,703 $19,844 $25,220
5/31/96 $19,322 $20,501 $25,869
6/30/96 $19,564 $20,757 $25,968
7/31/96 $19,013 $20,173 $24,821
8/31/96 $19,371 $20,553 $25,345
9/30/96 $20,266 $21,503 $26,770
10/31/96 $21,006 $22,276 $27,509
11/30/96 $22,118 $23,435 $29,586
12/31/96 $22,061 $23,352 $29,000
1/31/97 $22,937 $24,281 $30,809
2/28/97 $22,968 $24,303 $31,053
3/31/97 $22,106 $23,381 $29,780
4/30/97 $22,421 $23,693 $31,555
5/31/97 $24,025 $25,370 $33,473
6/30/97 $25,015 $26,391 $34,973
7/31/97 $26,366 $27,798 $37,755
8/31/97 $25,954 $27,363 $35,641
9/30/97 $27,118 $28,561 $37,593
10/30/97 $26,206 $27,587 $36,339
11/30/97 $27,149 $28,561 $38,020
12/31/97 $27,831 $29,271 $38,672
1/31/98 $28,167 $29,736 $39,100
2/28/98 $29,742 $31,387 $41,918
3/31/98 $30,963 $32,648 $44,063
4/30/98 $31,195 $32,868 $44,506
5/31/98 $30,509 $32,121 $43,742
6/30/98 $31,109 $32,742 $45,518
7/31/98 $29,766 $31,305 $45,035
8/31/98 $25,200 $26,481 $38,530
9/30/98 $25,646 $26,938 $40,999
10/31/98 $27,173 $28,528 $44,331
11/30/98 $28,652 $30,057 $47,016
12/31/98 $29,328 $30,744 $49,724
1/31/99 $29,776 $31,200 $51,803
2/28/99 $27,709 $29,009 $50,191
3/31/99 $28,339 $29,666 $52,199
4/30/99 $29,355 $30,703 $54,219
5/31/99 $29,041 $30,335 $52,940
6/30/99 $29,833 $31,147 $55,878
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year," decreasing
to 0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
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.
- 13 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
gains) are broadening and I expect this to continue. The broadening began in
about mid-April as investors became leery of the high valuations of the handful
of mega-cap growth stocks that had driven the market indexes higher.
As investors began to recognize the disparities in prices and bought stocks
that have some value, a number of our holdings benefited. For instance, in the
second quarter, Chancellor Media, a long-term major position in the Fund, and
DuPont, a recent addition, both appreciated 17%. Hewlett-Packard climbed 48%.
Minnesota Mining and Manufacturing was up 22%, while JC Penney and
Kimberly-Clark gained 19 percent. As the market continues to broaden, I expect
more of our "cheap" holdings to participate.
I was more aggressive during the second quarter about reducing or eliminating
losing positions. The decision to cut losses is one of the most difficult
investment decisions to make. While I still believe that patience is a virtue, I
redoubled my scrutiny of companies that stumble or are surrounded by some
controversy.
In that vein, I substantially reduced our position in Prison Realty, with the
goal of eliminating it from the portfolio. The unraveling of Prison Realty was a
significant reason for the
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- ----------------------------------------------------------------------
<S> <C>
Merrill Lynch & Co.
7.875%, Cvt. ............................................. 4.7%
Chancellor Media Corp.
7.00% Cvt. ............................................... 4.6
(Broadcasting - TV, Radio & Cable)
Conseco, Inc. .............................................. 4.4
(Insurance - Life & Health)
Finova Group, Inc. ......................................... 3.6
(Financial Diversified)
Kimberly-Clark Corp. ....................................... 2.9
(Household Products - Non-Durables)
MICROS Systems, Inc. ....................................... 2.9
(Computers - Hardware)
GATX Corp. ................................................. 2.7
(Railroads)
American Home Products Corp. ............................... 2.7
(Health Care - Diversified)
GTE Corp. .................................................. 2.6
(Telephone)
Chase Manhattan Corp. ...................................... 2.5
(Banks - Money Center)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES COST
(Jan. to June) (000'S)
- ------------------------------------------------------------------------
<S> <C>
Cadence Design Systems, Inc. ............................... $ 8,358
Bristol-Myers Squibb Co. ................................... 7,641
Conseco, Inc. .............................................. 5,868
Iron Mountain, Inc. ........................................ 5,406
American Stores Co. ........................................ 4,662
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ------------------------------------------------------------------------
<S> <C>
Chancellor Media Corp. ..................................... $11,537
American Home Products Corp. ............................... 8,118
SCI Systems, Inc. .......................................... 8,021
Exxon Corp. ................................................ 7,411
Automatic Data Processing................................... 7,270
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
Financial (Diversified)..................................... 10%
Health Care (Diversified)................................... 6
Broadcasting (TV, Radio & Cable)............................ 6
Real Estate Investment Trust................................ 5
Insurance (Life & Health)................................... 5
- ------------------------------------------------------------------------
</TABLE>
- 14 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
underperformance of the Fund year-to-date. Painful as it is to sell the stock at
a loss, I believe that the money is better invested elsewhere.
I established four new positions during the quarter. Two, Bristol-Myers
Squibb and Abbott Labs, are in the health care sector, which declined recently
as investors rotated out of health care in search of more cyclical earnings. I
viewed that as an opportunity to establish long-term positions in strong
companies at attractive prices. With the graying of the baby boom generation, I
think these can be core holdings for some time.
The other two newcomers are Cadence Design, which provides electronic design
automation software to major semiconductor manufacturers, and Iron Mountain, a
document storage services company with high recurring revenues and increasing
margins.
I expanded our position in Merrill Lynch 7 7/8% strypes, a security that is
payable with common shares of Ciber, Inc., which is an information technology
services company that I think has great potential.
Conseco was unexplainably flat. We think this very cheap insurance stock will
ultimately be valued higher, primarily due to its acquisition of Green Tree
Financial, and growth of that subsidiary.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
WEIGHTINGS AS A PERCENT OF NET ASSETS
COMMON STOCKS
(1) Large: 54% ($4 Bil. and above)
(2) Medium: 16% ($1 Bil. - $4 Bil.)
(3) Small: 9% (Less than $1 Bil.)
(4) Preferred Stocks: 14%
(5) Corporate Bonds: 4%
(6) Cash and Other: 3%
Finova stands to benefit by the attractive warrants it acquired when it
bought Sirrom Capital. Sirrom takes warrants of the venture stage companies it
makes loans to, some of which are internet companies.
With corporate earnings accelerating and interest rates holding steady, I see
the backdrop for stocks as almost ideal. Still, I remain concerned that
large-cap stocks are overpriced and we could see a 10% to 20% correction.
I continue to manage the Fund using the same fundamental principles that made
it a top quartile fund just one year ago. I look for quality companies that have
dominant market positions, growing revenues and earnings, and reasonable
valuations. I believe that our adherence to these criteria will ultimately be
rewarded. I look forward to being able to report much improved results to you in
future quarters.
Thomas Rath
- -------------------------------
In addition to being an equity and convertible securities portfolio manager at
SAFECO, Rath has been an analyst and portfolio manager at First Interstate Bank
and a principal at Meridian Capital Management. He holds an MBA from the
University of Washington and is a Chartered Financial Analyst.
- 15 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 78.7%
AEROSPACE/DEFENSE - 1.6%
155,000 Lockheed Martin Corp. ............................. $ 5,774
BANKS (MAJOR REGIONAL) - 2.1%
99,111 Bank of America Corp. ............................... 7,266
BANKS (MONEY CENTER) - 2.5%
100,000 Chase Manhattan Corp. ............................... 8,663
BEVERAGES (NON-ALCOHOLIC) - 2.3%
210,000 PepsiCo, Inc. ....................................... 8,124
BROADCASTING (TV, RADIO & CABLE) - 1.0%
68,300 *Emmis Communications Corp. (Class A) ................ 3,372
CHEMICALS - 1.4%
70,000 Du Pont (E.I.) de Nemours Co...........................4,782
COMPUTERS (HARDWARE) - 4.0%
38,500 Hewlett-Packard Co. ................................. 3,869
298,800 *MICROS Systems, Inc. .............................. 10,159
COMPUTERS (PERIPHERALS) - 0.9%
127,200 *Quantum Corp. ...................................... 3,069
COMPUTERS (SOFTWARE & SERVICES) - 1.6%
437,000 *Cadence Design Systems, Inc. ....................... 5,572
ELECTRIC COMPANIES - 3.7%
250,000 NIPSCO Industries, Inc. ............................. 6,453
454,700 USEC, Inc. .......................................... 6,764
ELECTRICAL EQUIPMENT - 1.9%
60,000 General Electric Co. ................................ 6,780
FINANCIAL (DIVERSIFIED) - 5.1%
80,000 Federal National Mortgage Association ................ 5,470
238,760 Finova Group, Inc. ................................. 12,565
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FOODS - 0.8%
110,000 ConAgra, Inc. ..................................... $ 2,929
HEALTH CARE (DIVERSIFIED) - 6.1%
80,000 Abbott Laboratories .................................. 3,640
167,000 American Home Products Corp. ........................ 9,603
120,000 Bristol-Myers Squibb Co. ............................ 8,453
HEALTH CARE (DRUGS-GENERIC & OTHER) - 1.1%
67,000 Pharmacia & Upjohn, Inc. ............................ 3,806
HEALTH CARE (MAJOR PHARMACEUTICALS) - 1.9%
90,000 Merck & Co., Inc. ................................... 6,660
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES) - 0.4%
28,700 Beckman Coulter, Inc. ............................... 1,396
HOUSEHOLD PRODUCTS (NON-DURABLES) - 2.9%
180,000 Kimberly-Clark Corp. ............................... 10,260
INSURANCE (LIFE & HEALTH) - 4.4%
510,000 Conseco, Inc. ...................................... 15,523
INSURANCE (MULTI-LINE) - 1.2%
75,000 Hartford Financial Services Group, Inc. ............. 4,373
LEISURE TIME (PRODUCTS) - 0.3%
144,400 *Family Golf Centers, Inc. .......................... 1,110
LODGING (HOTELS) - 0.6%
320,000 *Suburban Lodges of America, Inc. ................... 2,060
MANUFACTURING (DIVERSIFIED) - 2.0%
80,000 Minnesota Mining & Manufacturing Co. ................ 6,955
OIL (DOMESTIC INTEGRATED) - 2.3%
81,000 Mobil Corp. ......................................... 8,019
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 16 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
OIL (INTERNATIONAL INTEGRATED) - 4.1%
100,000 Royal Dutch Petroleum Co. (ADR) .................... $ 6,025
135,000 Texaco, Inc. ........................................ 8,438
RAILROADS - 2.7%
252,868 GATX Corp. .......................................... 9,625
REAL ESTATE INVESTMENT TRUST - 5.0%
100,000 Equity Residential Properties Trust .................. 4,506
205,000 First Industrial Realty Trust, Inc. ................. 5,625
185,000 Liberty Property Trust ............................... 4,602
307,700 Prison Realty Corp. ................................. 3,019
RETAIL (DEPARTMENT STORES) - 2.0%
145,000 J.C. Penney Co., Inc. ............................... 7,042
RETAIL (FOOD CHAINS) - 2.2%
148,050 Albertson's, Inc. ................................... 7,634
SAVINGS & LOANS - 1.7%
171,000 Washington Mutual, Inc. ............................. 6,049
SERVICES (COMMERCIAL & CONSUMER) - 1.9%
37,300 Central Parking Corp. ............................... 1,278
190,700 *Iron Mountain, Inc. ................................ 5,459
SERVICES (DATA PROCESSING) - 1.1%
90,000 Automatic Data Processing, Inc. ..................... 3,960
TELEPHONE - 2.6%
120,000 GTE Corp. ........................................... 9,090
TOBACCO - 1.1%
93,000 Philip Morris Cos., Inc. ............................ 3,737
WASTE MANAGEMENT - 2.3%
273,200 Landauer, Inc. ...................................... 8,059
------
TOTAL COMMON STOCKS ................................................. 277,615
------
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
PREFERRED STOCKS - 14.1%
BROADCASTING (TV, RADIO & CABLE) - 4.6%
106,000 Chancellor Media Corp.
7.00% Convertible .................................. $16,284
FINANCIAL (DIVERSIFIED) - 4.7%
397,400 Merrill Lynch & Co.
7.875% Convertible .................................. 16,691
INSURANCE (LIFE & HEALTH) - 0.5%
46,300 Conseco Financial Trust Series F
7.00%, due 2/16/01 ................................... 1,861
REAL ESTATE INVESTMENT TRUST - 0.3%
68,900 Prison Realty Trust, Inc.
8.00% Series A ....................................... 1,081
SERVICES (COMMERCIAL & CONSUMER) - 1.8%
311,200 Central Parking
5.25% Convertible .................................... 6,263
TELEPHONE - 2.1%
98,000 Salomon, Inc. 6.25% Exchangeable Convertible to
Cincinnati Bell, Inc. ............................... 7,546
------
TOTAL PREFERRED STOCKS ............................................... 49,726
------
CORPORATE BONDS - 4.2%
COMPUTERS (PERIPHERALS) - 1.2%
$4,500,000 Quantum Corp.
7.00%, due 8/01/04 ................................... 4,230
HEALTH CARE (DRUGS-GENERIC & OTHER) - 1.0%
2,500,000 ALZA Corp.
5.00%, due 5/01/06 ................................... 3,415
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 17 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
LEISURE TIME (PRODUCTS) - 2.1%
$11,500,000 #Family Golf Centers, Inc.
(144A)
5.75%, due 10/15/04 (acquired 10/10/97) ............ $ 7,317
------
TOTAL CORPORATE BONDS ................................................ 14,962
------
CASH EQUIVALENTS - 1.9%
INVESTMENT COMPANIES
6,809,941 SSgA Prime Money Market Portfolio .................... 6,810
------
TOTAL CASH EQUIVALENTS ................................................ 6,810
------
TOTAL INVESTMENTS - 98.9% ........................................... 349,113
Other Assets, less Liabilities ........................................ 3,807
------
NET ASSETS ......................................................... $352,920
------
------
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
# 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 $11,552,316 and
total value is 2.1% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
- 18 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO NORTHWEST FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAFECO Northwest Fund shares outpaced its growth fund peers and the S&P 500
over the quarter and six months ended June 30, 1999. Class A shares returned
14.78%* and 18.11%* and Class B shares 14.51%* and 17.62%* for the same
respective period. The average growth fund returned 7.07% and 11.65%, according
to Lipper, Inc. The S&P 500 returned 7.05% and 12.38% for the respective
periods.
For the latest 12 months, the Fund's Class A shares were up 13.41%*. Class B
shares were up 12.69%*. The peers returned 18.87% and the S&P gained 22.76%.
Northwest stocks have flour-
[PHOTO OF WILLIAM B. WHITLOW JR.]
*Not including the effects of sales charges.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW - CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIOD ENDED JUNE 30, 1999 1 YEAR 5 YEAR SINCE INCEPTION* 1 YEAR 5 YEAR SINCE INCEPTION*
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A 6.89% 15.61% 12.74% 13.41% 16.99% 13.55%
Class B 7.69% 16.36% 13.30% 12.69% 16.57% 13.30%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SAFECO SAFECO
VALUE WITH NORTHWEST NORTHWEST S&P WM GROUP
SALES FUND FUND 500 NW 50
CHARGE CLASS A CLASS B INDEX INDEX
<S> <C> <C> <C> <C>
2/28/91 $9,425 $10,000 $10,000 $10,000
3/31/91 $9,703 $10,295 $10,242 $10,409
4/30/91 $9,987 $10,596 $10,267 $10,666
5/31/91 $10,328 $10,958 $10,710 $11,305
6/30/91 $9,724 $10,317 $10,220 $10,552
7/31/91 $10,303 $10,932 $10,696 $11,063
8/31/91 $10,731 $11,386 $10,949 $11,510
9/30/91 $10,467 $11,106 $10,766 $11,292
10/31/91 $10,363 $10,995 $10,911 $11,285
11/30/91 $9,725 $10,318 $10,471 $10,836
12/31/91 $10,907 $11,573 $11,669 $12,133
1/31/92 $11,378 $12,072 $11,452 $12,767
2/28/92 $11,742 $12,459 $11,601 $12,958
3/31/92 $11,484 $12,185 $11,375 $12,545
4/30/92 $11,081 $11,757 $11,709 $11,973
5/31/92 $11,196 $11,879 $11,766 $11,865
6/30/92 $10,842 $11,504 $11,591 $11,450
7/31/92 $11,092 $11,770 $12,065 $11,567
8/31/92 $10,794 $11,453 $11,818 $11,250
9/30/92 $11,244 $11,931 $11,957 $11,693
10/31/92 $11,620 $12,329 $11,998 $12,156
11/30/92 $12,111 $12,850 $12,406 $12,701
12/31/92 $12,443 $13,202 $12,558 $12,725
1/31/93 $12,493 $13,255 $12,663 $12,821
2/28/93 $11,879 $12,605 $12,835 $12,420
3/31/93 $12,345 $13,098 $13,106 $12,932
4/30/93 $11,841 $12,563 $12,789 $12,641
5/31/93 $12,097 $12,836 $13,130 $12,953
6/30/93 $11,984 $12,715 $13,169 $12,675
7/31/93 $11,884 $12,610 $13,116 $12,220
8/31/93 $12,221 $12,967 $13,612 $12,721
9/30/93 $12,212 $12,957 $13,508 $12,434
10/31/93 $12,370 $13,125 $13,787 $12,881
11/30/93 $12,420 $13,177 $13,656 $13,158
12/31/93 $12,571 $13,338 $13,821 $13,334
1/31/94 $12,793 $13,574 $14,291 $13,737
2/28/94 $13,116 $13,917 $13,904 $13,941
3/31/94 $12,561 $13,328 $13,299 $13,449
4/30/94 $12,531 $13,295 $13,470 $13,409
5/31/94 $12,722 $13,499 $13,689 $13,611
6/30/94 $12,397 $13,154 $13,354 $13,198
7/31/94 $12,580 $13,347 $13,792 $13,300
8/31/94 $13,145 $13,948 $14,356 $14,068
9/30/94 $12,846 $13,629 $14,005 $13,530
10/31/94 $12,723 $13,499 $14,319 $13,449
11/30/94 $12,406 $13,163 $13,798 $13,209
12/31/94 $12,377 $13,131 $14,002 $13,281
1/31/95 $12,530 $13,293 $14,365 $13,224
2/28/95 $12,846 $13,629 $14,924 $13,668
3/31/95 $13,275 $14,084 $15,364 $14,102
4/30/95 $13,449 $14,269 $15,816 $14,526
5/31/95 $13,653 $14,485 $16,458 $14,528
6/30/95 $14,326 $15,201 $16,840 $15,409
7/31/95 $15,073 $15,992 $17,397 $15,993
8/31/95 $15,206 $16,133 $17,440 $16,299
9/30/95 $15,288 $16,220 $18,176 $16,897
10/31/95 $15,107 $16,029 $18,111 $16,507
11/30/95 $15,075 $15,995 $18,904 $16,753
12/31/95 $14,872 $15,780 $19,269 $16,957
1/31/96 $15,014 $15,930 $19,924 $17,518
2/28/96 $15,471 $16,415 $20,110 $17,921
3/31/96 $16,408 $17,409 $20,303 $17,826
4/30/96 $16,854 $17,882 $20,602 $18,898
5/31/96 $17,137 $18,183 $21,132 $19,204
6/30/96 $16,780 $17,803 $21,213 $19,123
7/31/96 $15,986 $16,960 $20,276 $18,188
8/31/96 $16,497 $17,504 $20,704 $19,088
9/30/96 $16,756 $17,778 $21,868 $19,583
10/31/96 $16,331 $17,314 $22,471 $19,446
11/30/96 $17,048 $18,062 $24,168 $20,852
12/31/96 $17,097 $18,101 $23,689 $21,348
1/31/97 $18,337 $19,404 $25,168 $22,302
2/28/97 $18,337 $19,391 $25,366 $22,719
3/31/97 $17,571 $18,565 $24,326 $22,097
4/30/97 $18,191 $19,211 $25,776 $23,084
5/31/97 $19,395 $20,475 $27,343 $24,975
6/30/97 $20,502 $21,636 $28,568 $26,156
7/31/97 $22,276 $23,481 $30,841 $28,542
8/31/97 $21,681 $22,836 $29,115 $27,620
9/30/97 $22,763 $23,958 $30,709 $29,553
10/30/97 $21,681 $22,823 $29,685 $27,603
11/30/97 $22,617 $23,791 $31,058 $29,281
12/31/97 $22,361 $23,518 $31,591 $28,622
1/31/98 $22,141 $23,285 $31,940 $28,511
2/28/98 $24,396 $25,652 $34,242 $31,422
3/31/98 $24,694 $25,954 $35,994 $32,920
4/30/98 $25,290 $26,574 $36,356 $32,795
5/31/98 $23,437 $24,606 $35,732 $31,211
6/30/98 $23,955 $25,128 $37,183 $33,162
7/31/98 $22,465 $23,559 $36,788 $31,136
8/31/98 $17,992 $18,867 $31,475 $26,170
9/30/98 $19,029 $19,941 $33,491 $27,402
10/31/98 $20,209 $21,165 $36,213 $30,458
11/30/98 $21,919 $22,954 $38,407 $33,939
12/31/98 $23,003 $24,076 $40,619 $38,022
1/31/99 $24,377 $25,494 $42,316 $39,949
2/28/99 $23,422 $24,479 $41,000 $39,386
3/31/99 $23,671 $24,729 $42,640 $42,175
4/30/99 $24,194 $25,245 $44,291 $43,883
5/31/99 $25,282 $26,370 $43,245 $43,975
6/30/99 $27,168 $28,318 $45,645 $46,046
</TABLE>
*The Fund's inception was February 7, 1991. Graph and average annual return
comparison begins February 28, 1991.
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
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.
- 19 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ished over the last nine months as the market anticipates renewed growth in
Asian economies. In fact, the export companies that hurt us so badly last year
have helped us year-to-date.
However, because we had a position of size, it was a Seattle-based biotech
that develops vaccines that made the biggest contribution to our portfolio over
the quarter. Corixa is gaining investor visibility through partnerships and
acquisitions.
Helping us continue to outperform is our heavy weighting in technology
stocks. One aspect of my strategy regarding technology stocks is to buy
companies that enable internet use, such as Microsoft, Intel, F5 Networks and
telecommunications providers.
F5 Networks is a company that went public on June 4 with a software product
that improves internet efficiency. We sold our initial investment in F5 after it
spiked 310%, but are retaining the rest at a 2.0% position. Visio and
Hewlett-Packard, other members of our core technology pack, were other big
contributors during the latest quarter.
I reduced my position in three of our telecommunications holdings after
they'd done very well. Nextlink, a local exchange carrier that had gained 162%
in the first
HIGHLIGHTS
-------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- ----------------------------------------------------------------------
<S> <C>
Microsoft Corp. ............................................ 6.8%
(Computers - Software & Services)
Visio Corp. ................................................ 4.7
(Computers - Software & Services)
Costco Companies, Inc. ..................................... 4.6
(Retail - General Merchandise)
Intel Corp. ................................................ 3.7
(Electronics - Semiconductors)
Hewlett-Packard Co. ........................................ 3.6
(Computers - Hardware)
Starbucks Corp. ............................................ 3.5
(Restaurants)
Albertson's, Inc. .......................................... 3.4
(Retail Food Chains)
Schnitzer Steel Industrial, Inc. ........................... 3.4
(Iron & Steel)
Corixa Corp. ............................................... 3.3
(Biotechnology)
Washington Mutual, Inc. .................................... 3.2
(Savings & Loans)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES COST
(Jan. to June) (000'S)
- ------------------------------------------------------------------------
<S> <C>
Mylan Laboratories, Inc. ................................... $ 2,388
Visio Corp. ................................................ 2,346
Western Wireless Corp. (Class A)............................ 1,814
Assisted Living Concepts, Inc. ............................. 1,706
Northwest Airlines Corp. ................................... 1,239
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ------------------------------------------------------------------------
<S> <C>
Eagle Hardware & Garden, Inc. .............................. $ 3,420
Weyerhaeuser Co. ........................................... 2,444
Starbucks Corp. ............................................ 2,113
Microsoft Corp. ............................................ 1,808
Boeing Co. ................................................. 1,736
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
Computers (Software & Services)............................. 15%
Health Care (Major Pharmaceuticals)......................... 5
Banks (Major Regional)...................................... 5
Health Care (Medical Products and Supplies)................. 4
Savings & Loans............................................. 4
- ------------------------------------------------------------------------
</TABLE>
- 20 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
half of '99; Western Wireless of Issaquah, which was up 128%, and Western's
spin-off, Voice Stream.
Microsoft--the largest company in terms of market value in the world, not
just the Northwest--took a breather during the quarter. Microsoft now comprises
62% of the value of our universe of publicly-traded Northwest Companies.
Conversly, Boeing is becoming less a part of the Northwest economy and it's
on the downside of its commercial aircraft cycle. We don't own it.
My overriding strategy is to buy and hold core growth stocks. Washington
Mutual, Microsoft, Costco, Starbucks and Expeditors International are stocks I
intend to keep in our portfolio, despite the vagaries of their short-term
performance. I'll cut their position size and take profits when these stocks are
trading richly; and I will add more shares when a fall from grace drops them
into our buy range.
I've overweighted the Fund with technology and export-related businesses,
which I believe are the true long-term drivers of the Northwest economy.
I also try to take advantage of cyclical and sector opportunities as they
appear. Schnitzer Steel and Northwest Airlines are examples of two special
opportunities we're involved in because of their sensitivity to the unfolding
Asian recovery.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
WEIGHTINGS AS A PERCENT OF NET ASSETS
COMMON STOCKS
Large: 36% ($4 Bil. and above)
Medium: 18% ($1 Bil. - $4 Bil.)
Small: 46% (Less than $1 Bil.)
After the Asia crisis virtually scrapped Schnitzer Steel, I kept the stock as
a value play. Schnitzer has roughly half the West Coast market for scrap steel,
with 30% of its business in Asia. Indeed, Schnitzer has come back nicely with
Asia.
Having concluded that Asia is improving, I initiated our position in
Northwest Airlines, which derives about one-third of its business from Asia.
Expeditors gives us Asian exposure as well. A high percentage of the freight it
moves originates or terminates in the Pacific Rim.
We expect growth in the Northwest economy, slowed by Boeing employment
reductions, to parallel the national economy through 2000. After that we expect
our regional economy fueled by our Far East ties and our edge on technology to
break away.
William B. Whitlow
- ------------------------------------------------------------------
William B. Whitlow, Jr. began his career at SAFECO in 1976 and left in 1980.
Before re-joining SAFECO in April 1997 as Northwest Fund Manager, he was
Director of Research at Pacific Crest Securities. He holds a BA in chemistry
from the U. of Colorado and an MBA from the U. of Calif. at Berkeley. He is a
CFA and a member of the Washington State Governor's Council of Economic
Advisors.
- 21 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO NORTHWEST FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 98.6%
AIR FREIGHT - 3.0%
81,000 Expeditors International of Washington, Inc. ....... $2,207
AIRLINES - 1.7%
38,000 *Northwest Airlines Corp. ........................... 1,235
BANKS (MAJOR REGIONAL) - 4.5%
63,000 U.S. Bancorp ......................................... 2,142
68,000 West Coast Bancorp, Inc. ............................ 1,190
BANKS (REGIONAL) - 2.0%
78,000 Heritage Financial Corp. .............................. 668
79,000 Washington Banking Co. ................................ 830
BIOTECHNOLOGY - 3.3%
139,000 *Corixa Corp. ....................................... 2,476
BUILDING MATERIALS - 3.2%
77,000 TJ International, Inc. .............................. 2,387
CHEMICALS (DIVERSIFIED) - 3.0%
139,500 Penford Corp. ....................................... 2,267
COMPUTERS (HARDWARE) - 4.2%
19,200 *Apex, Inc. ........................................... 394
27,000 Hewlett-Packard Co. ................................. 2,714
COMPUTERS (SOFTWARE & SERVICES) - 14.9%
36,000 *F5 Networks, Inc. .................................. 1,476
56,000 *Microsoft Corp. .................................... 5,051
49,000 *ONYX Software Corp. ................................ 1,060
93,000 *Visio Corp. ........................................ 3,540
ELECTRONICS (SEMICONDUCTORS) - 3.7%
46,000 Intel Corp. ......................................... 2,737
ENGINEERING & CONSTRUCTION - 2.0%
145,000 *Morrison Knudsen Corp. ............................. 1,495
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (DIVERSIFIED) - 1.8%
23,000 American Home Products Corp. ....................... $1,323
HEALTH CARE (DRUGS-GENERIC & OTHER) - 1.5%
77,000 *PathoGenesis Corp. ................................. 1,092
HEALTH CARE (LONG-TERM CARE) - 3.2%
280,000 *Assisted Living Concepts, Inc. (Illiquid) ............. 805
157,000 *Emeritus Corp. ..................................... 1,550
HEALTH CARE (MAJOR PHARMACEUTICALS) - 4.6%
85,000 Mylan Laboratories, Inc. ............................ 2,253
151,000 *Penwest Pharmaceuticals Co. ........................ 1,208
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES) - 4.3%
232,000 *Protocol Systems, Inc. ............................. 2,016
72,000 *SonoSite, Inc. ..................................... 1,224
INSURANCE (LIFE & HEALTH) - 3.0%
76,000 *StanCorp Financial Group, Inc. ..................... 2,280
IRON & STEEL - 3.4%
112,000 Schnitzer Steel Industries, Inc........................2,513
LEISURE TIME (PRODUCTS) - 2.9%
146,100 *Ambassadors International, Inc. .................... 2,173
LODGING (HOTELS) - 1.9%
167,800 *Cavanaughs Hospitality Corp. ....................... 1,416
RESTAURANTS - 3.5%
70,400 *Starbucks Corp. .................................... 2,644
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 22 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO NORTHWEST FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (FOOD CHAINS) - 6.6%
49,120 Albertson's, Inc. .................................. $2,533
86,000 Kroger Co. .......................................... 2,403
RETAIL (GENERAL MERCHANDISE) - 3.7%
35,000 *Costco Companies, Inc. ............................. 2,802
SAVINGS & LOANS - 4.2%
64,000 Riverview Bancorp, Inc. ............................... 720
68,500 Washington Mutual, Inc. ............................. 2,423
SERVICES (DATA PROCESSING) - 2.8%
250,000 *ARIS Corp. ......................................... 2,078
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 3.0%
43,000 *VoiceStream Wireless Corp. ......................... 1,223
37,000 *Western Wireless Corp. (Class A) ...................... 999
TELEPHONE - 2.9%
29,000 *NEXTLINK Communications, Inc. (Class A) ............. 2,157
-----
TOTAL COMMON STOCKS .................................................. 73,701
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CASH EQUIVALENTS - 0.6%
INVESTMENT COMPANIES
411,194 SSgA Prime Money Market Portfolio ................... $ 411
-----
TOTAL CASH EQUIVALENTS .................................................. 411
-----
TOTAL INVESTMENTS - 99.1% ............................................ 74,112
Other Assets, less Liabilities .......................................... 648
-----
NET ASSETS .......................................................... $74,760
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 23 -
<PAGE>
REPORT FROM THE FUND MANAGERS
SAFECO BALANCED FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO Balanced Fund Class A shares returned 6.12%*, 4.38%* and 10.25%*,
in the second quarter, six and 12 months ended June 30. Class B shares returned
6.02%*, 3.96%* and 9.50%* for the same respective periods. The average balanced
fund returned 4.43%, 5.57% and 9.98% respectively, according to Lipper, Inc.
A split benchmark (60% S&P 500 and 40% Lehman Government/Corporate Index)
returned 3.79%, 6.52% and 14.74% for the quarter, six months and year just
ended.
[PHOTO OF REX BENTLEY]
We beat the combined index and peer groups for the latest quarter because
the value style of investing returned to favor. The bonds in the Fund, however,
had a negative total return as interest rates increased.
*Not including the effects of sales charges.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW - CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIOD ENDED JUNE 30, 1999 1 YEAR SINCE INCEPTION* 1 YEAR SINCE INCEPTION*
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 3.91% 10.98% 10.25% 12.92%
Class B 4.50% 11.52% 9.50% 12.19%
</TABLE>
<TABLE>
<CAPTION>
60% S&P 500/
40% LEHMAN
INVESTMENT SAFECO SAFECO BROTHERS
VALUE WITH BALANCED BALANCED GOVERNMENT/
SALES FUND FUND CORPORATE
CHARGE CLASS A CLASS B INDEX
<S> <C> <C> <C>
1/31/96 $9,425 $10,000 $10,000
2/28/96 $9,378 $9,950 $9,971
3/31/96 $9,441 $10,017 $9,995
4/30/96 $9,498 $10,077 $10,056
5/31/96 $9,630 $10,218 $10,204
6/30/96 $9,749 $10,345 $10,282
7/31/96 $9,531 $10,112 $10,019
8/31/96 $9,654 $10,243 $10,137
9/30/96 $9,989 $10,599 $10,551
10/31/96 $10,191 $10,803 $10,824
11/30/96 $10,624 $11,252 $11,394
12/31/96 $10,495 $11,112 $11,208
1/30/97 $10,810 $11,434 $11,633
2/28/97 $10,898 $11,517 $11,698
3/31/97 $10,515 $11,111 $11,354
4/30/97 $10,752 $11,351 $11,826
5/31/97 $11,197 $11,810 $12,302
6/30/97 $11,484 $12,096 $12,692
7/31/97 $12,141 $12,777 $13,453
8/31/97 $11,674 $12,274 $12,941
9/30/97 $11,990 $12,607 $13,447
10/30/97 $11,860 $12,459 $13,264
11/30/97 $12,059 $12,660 $13,660
12/31/97 $12,204 $12,803 $13,858
1/31/98 $12,288 $12,880 $14,028
2/28/98 $12,826 $13,432 $14,624
3/31/98 $13,111 $13,727 $15,091
4/30/98 $13,037 $13,627 $15,212
5/31/98 $12,910 $13,494 $15,106
6/30/98 $12,948 $13,528 $15,535
7/31/98 $12,661 $13,217 $15,441
8/31/98 $11,810 $12,318 $14,224
9/30/98 $12,441 $12,979 $14,933
10/31/98 $13,094 $13,658 $15,619
11/30/98 $13,500 $14,059 $16,224
12/31/98 $13,677 $14,250 $16,800
1/31/99 $13,687 $14,238 $17,269
2/28/99 $13,262 $13,784 $16,782
3/31/99 $13,453 $13,973 $17,219
4/30/99 $14,038 $14,580 $17,635
5/31/99 $14,026 $14,557 $17,313
6/30/99 $14,275 $14,814 $17,867
</TABLE>
*Graph and average annual return comparison begins January 31, 1996,
inception date of the fund.
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
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>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
(A longer comparison against the index reflects that our value style of
investing was out of favor.)
The equity portfolio is currently benefiting from a pro-cyclical tilt. We
are overweighted in strong performing sectors such as basic materials, capital
goods and energy; and underweighted in the poor-performing health care sector.
Our consumer cyclical names including Armstrong, JC Penney, and New York Times
also added value in the last quarter.
We have initiated positions in Xerox, MCI Worldcom, Bank of America, and
Abbott Labs. Concerns abroad gave us the opportunity to purchase Xerox at a
discount. Xerox is transitioning to digital copiers and expanding its retail
channels. MCI Worldcom is well positioned in the communications services
business through data, voice and Internet services. We bought Bank of America,
after it declined on concerns about rising interest rates. We expect earnings to
accelerate from merger savings and increased market share. We purchased Abbott
Labs when the stock slipped on concerns its acquisition of Alza would dilute
earnings. We think Abbott's earnings will accelerate next year.
[PHOTO OF MICHAEL HUGHES]
[PHOTO OF LYNETTE D. SAGVOLD]
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN STOCK HOLDINGS NET ASSETS
- ----------------------------------------------------------------------
<S> <C>
Chase Manhattan Corp. ...................................... 1.9%
(Banks - Money Center)
Mobil Corp. ................................................ 1.8
(Oil - Domestic Integrated)
Kimberly-Clark Corp. ....................................... 1.7
(Household Products - Non-Durables)
GTE Corp. .................................................. 1.7
(Telephone)
Albertson's, Inc. .......................................... 1.6
(Retail - Food Chains)
Banc One Corp. ............................................. 1.5
(Banks - Regional)
Crane Co. .................................................. 1.5
(Manufacturing - Diversified)
ALLTEL Corp. ............................................... 1.4
(Telephone)
Praxair, Inc. .............................................. 1.4
(Chemicals)
Intel Corp. ................................................ 1.3
(Electronics - Semiconductors)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(COMMON STOCKS) COST
(Jan. to June) (000'S)
- ------------------------------------------------------------------------
<S> <C>
ALLTEL Corp. ............................................... $ 315
Abbott Laboratories......................................... 308
Nortel Networks Corp. ...................................... 268
Interpublic Group Cos., Inc. ............................... 265
Mylan Laboratories, Inc. ................................... 264
<CAPTION>
TOP FIVE SALES
(COMMON STOCKS) PROCEEDS
(Jan. to June) (000'S)
- ------------------------------------------------------------------------
<S> <C>
Corning, Inc. .............................................. $ 460
Motorola, Inc. ............................................. 386
Wendy's International, Inc. ................................ 347
Beckman Coulter, Inc. ...................................... 277
Hewlett-Packard Co. ........................................ 214
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE INDUSTRIES PERCENT OF
(COMMON STOCKS) NET ASSETS
- ----------------------------------------------------------------------
<S> <C>
Telephone................................................... 7%
Health Care (Diversified)................................... 4
Manufacturing (Diversified)................................. 4
Oil (Domestic Integrated)................................... 3
Foods....................................................... 3
- ----------------------------------------------------------------------
</TABLE>
- 25 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We eliminated positions in Motorola and Wendy's International as they
approached our price targets. We sold Beckman Coulter because cost savings were
not materializing as we anticipated and revenues continued to be disappointing.
Our belief in value-style investing remains unchanged. We buy stocks with
discount valuation characteristics that have attractive earnings prospects. At
quarter end, the equity portion of the SAFECO Balanced Fund had a P/E ratio
based on 1999 earnings of 19.5 compared to 27.8 for the S&P 500, according to
Baseline. And the projected earnings growth rate for the stocks in our portfolio
is higher than that of the S&P 500.
We believe that the valuation differential between growth and value stocks
remains extraordinary and that value stocks are priced at extremely attractive
levels.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
WEIGHTINGS AS A PERCENT OF NET ASSETS
BALANCED FUND
(1) Large: 55% ($4 Bil. and above)
(2) Medium: 8% ($1 Bil. - $4 Bil.)
(3) Small: 0% (Less than $1 Bil.)
(4) Corporate Bonds: 8%
(5) Asset Backed Securities: 3%
(6) U.S. Government Securities: 20%
(7) Cash and Other: 6%
On the bond side, the conservative structure of our bond portfolio
contributed to its weak performance. About 75% of the bonds in the Fund are U.S.
government and high-quality corporate bonds with maturities of 5 to 10 years.
This maturity range has typically provided a generous yield premium with limited
interest-rate risk.
However, so far this year, securities on this part of the yield curve have
been punished by fears of an extend series of interest rate hikes, massive new
issue supply and mortgage-backed hedging activity. As a result, the high-quality
intermediate securities we hold underperformed the broader market averages.
Still, we are keeping to our goals of yield, quality, and liquidity. At June
30, the bond portfolio's average maturity was 10.87 years.
We currently have 50% of the bonds invested in U.S. Treasuries, 24% in high
quality corporate bonds, 20% in mortgage-backed and asset-backed securities and
6% in U.S. Government agency bonds. The average credit quality of the portfolio
is AA+.
We are currently targeting a 60% equity and 40% fixed-income asset
allocation. At quarter end, SAFECO Balanced Fund was 62.7% in stocks, 35.7% in
bonds, and 1.8% in cash.
Rex L. Bentley
Michael Hughes
Lynette D. Sagvold
- ----------------------------------
Rex Bentley, an MBA from Brigham Young University and Chartered Financial
Analyst, has more than 20 years of investment experience.
Michael Hughes joined SAFECO as portfolio manager in January 1997. He began his
investment career in 1983. He graduated magna cum laude with a BS in finance
from University of Colorado in Boulder and holds an MBA from the University of
Southern California in Los Angeles. He is a Chartered Financial Analyst.
Lynette D. Sagvold holds a BA in business administration from the University of
Washington and is a Chartered Financial Analyst. She began her investment career
in 1981 at Kidder Peabody and was a trust officer for Key Trust and First
Interstate before joining SAFECO as a portfolio manager and insurance analyst.
- 26 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 62.7%
AEROSPACE/DEFENSE - 1.2%
3,600 Boeing Co. ........................................... $159
3,600 Lockheed Martin Corp. ................................. 134
BANKS (MAJOR REGIONAL) - 2.4%
4,000 Bank of America Corp. ................................. 293
9,100 KeyCorp ................................................ 292
BANKS (MONEY CENTER) - 1.9%
5,300 Chase Manhattan Corp. ................................. 459
BANKS (REGIONAL) - 1.5%
6,330 Banc One Corp. ........................................ 377
BEVERAGES (NON-ALCOHOLIC) - 0.9%
6,000 PepsiCo, Inc. ......................................... 232
BUILDING MATERIALS - 1.1%
4,500 Armstrong World Industries, Inc. ...................... 260
CHEMICALS - 2.5%
4,000 Du Pont (E.I.) de Nemours & Co. ....................... 273
6,800 Praxair, Inc. ......................................... 333
COMMUNICATION EQUIPMENT - 1.1%
3,100 Nortel Networks Corp. ................................. 269
COMPUTERS (HARDWARE) - 1.3%
3,100 Hewlett-Packard Co. ................................... 312
COMPUTERS (PERIPHERALS) - 1.0%
10,700 * Quantum Corp. ....................................... 258
COMPUTERS (SOFTWARE & SERVICES) - 1.3%
10,800 *Cadence Design Systems, Inc. ......................... 138
10,900 *PeopleSoft, Inc. ..................................... 188
ELECTRIC COMPANIES - 2.0%
5,200 New Century Energies, Inc. ............................ 202
11,700 NIPSCO Industries, Inc. ............................... 302
ELECTRICAL EQUIPMENT - 1.1%
4,500 Emerson Electric Co. .................................. 283
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ELECTRONICS (SEMICONDUCTORS) - 1.3%
5,600 Intel Corp. .......................................... $333
ENTERTAINMENT - 0.9%
7,000 The Walt Disney Co. ................................... 216
FINANCIAL (DIVERSIFIED) - 1.8%
2,700 American General Corp. ................................ 204
3,500 Federal National Mortgage Association .................. 239
FOODS - 2.5%
11,300 ConAgra, Inc. ......................................... 301
7,600 Dean Foods Co. ........................................ 316
HEALTH CARE (DIVERSIFIED) - 4.2%
7,000 Abbott Laboratories .................................... 319
4,200 American Home Products Corp. .......................... 242
3,300 Bristol-Myers Squibb Co. .............................. 232
2,600 Johnson & Johnson ...................................... 255
HEALTH CARE (MAJOR PHARMACEUTICALS) - 1.8%
2,500 Merck & Co., Inc. ..................................... 185
9,800 Mylan Laboratories, Inc. .............................. 260
HOUSEHOLD PRODUCTS (NON-DURABLES) - 1.7%
7,400 Kimberly-Clark Corp. .................................. 422
INSURANCE (LIFE & HEALTH) - 1.3%
10,800 Conseco, Inc. ......................................... 329
INSURANCE (MULTI-LINE) - 1.2%
5,100 Hartford Financial Services Group, Inc. ............... 297
MANUFACTURING (DIVERSIFIED) - 3.6%
3,700 AlliedSignal, Inc. .................................... 233
11,400 Crane Co. ............................................. 358
3,300 Minnesota Mining & Manufacturing Co. .................. 287
OFFICE EQUIPMENT & SUPPLIES - 1.0%
4,000 Xerox Corp. ........................................... 236
OIL (DOMESTIC INTEGRATED) - 3.0%
3,800 Atlantic Richfield Co. ................................ 318
4,400 Mobil Corp. ........................................... 436
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 27 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
OIL (INTERNATIONAL INTEGRATED) - 1.2%
4,900 Texaco, Inc. ....................................... $ 306
OIL & GAS (DRILLING & EQUIPMENT) - 1.0%
5,400 Halliburton Co. ....................................... 244
PAPER & FOREST PRODUCTS - 1.0%
5,000 International Paper Co. ............................... 253
PUBLISHING (NEWSPAPERS) - 1.1%
7,700 New York Times Co.
(Class A) .............................................. 283
REAL ESTATE INVESTMENT TRUST - 1.9%
3,200 Equity Residential Properties Trust .................... 144
6,800 First Industrial Realty Trust, Inc. ................... 187
5,800 Liberty Property Trust ................................. 144
RETAIL (DEPARTMENT STORES) - 2.1%
6,000 J.C. Penney Co., Inc. ................................. 291
5,850 May Department Stores Co. ............................. 239
RETAIL (FOOD CHAINS) - 1.6%
7,749 Albertson's, Inc. ..................................... 400
SAVINGS & LOANS - 1.2%
8,100 Washington Mutual, Inc. ............................... 287
SERVICES (ADVERTISING/MARKETING) - 1.2%
3,500 Interpublic Group Cos., Inc. .......................... 303
TELEPHONE - 6.5%
4,800 ALLTEL Corp. .......................................... 343
4,700 Bell Atlantic Corp. ................................... 307
7,700 Century Telephone Enterprises, Inc. ................... 306
5,500 GTE Corp. ............................................. 417
2,800 *MCI WorldCom, Inc. ................................... 242
-----
TOTAL COMMON STOCKS .................................................. 15,477
-----
CORPORATE BONDS - 8.4%
AIR FREIGHT - 0.5%
$137,230 Federal Express Corp.
6.845%, due 1/15/19 .................................... 134
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
BANKS (MAJOR REGIONAL) - 0.5%
$135,000 Bank of America Corp.
6.625%, due 6/15/04 .................................. $ 135
ENGINEERING & CONSTRUCTION - 0.3%
75,000 Halliburton Co.
6.75%, due 2/01/27 ...................................... 74
FINANCIAL (DIVERSIFIED) - 5.2%
85,000 Aristar, Inc
7.25%, due 6/15/06 ...................................... 85
200,000 CIT Group, Inc.
5.57%, due 12/08/03 .................................... 191
150,000 First Union Corp.
6.625%, due 6/15/04 .................................... 150
170,000 Ford Motor Credit Co.
5.80%, due 1/12/09 ..................................... 155
150,000 General Motors Acceptance Corp.
5.95%, due 3/14/03 ..................................... 147
195,000 Hertz Corp.
7.00%, due 7/01/04 ..................................... 196
95,000 McDonnell Douglas Corp.
6.83%, due 5/21/01 ...................................... 95
85,000 Merrill Lynch & Co., Inc.
6.00%, due 2/17/09 ...................................... 78
195,000 Sears Roebuck Acceptance Corp.
6.25%, due 5/01/09 ..................................... 183
NATURAL GAS - 0.9%
250,000 National Fuel Gas Co.
6.00%, due 3/01/09 ..................................... 232
RETAIL (DEPARTMENT STORES) - 0.7%
180,000 Nordstrom, Inc.
5.625%, due 1/15/09 .................................... 164
TELEPHONE - 0.3%
30,000 AT&T Corp.
5.625%, due 3/15/04 ..................................... 29
40,000 AT&T Corp.
6.50%, due 3/15/29 ...................................... 36
-----
TOTAL CORPORATE BONDS ................................................. 2,086
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 28 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ASSET BACKED SECURITIES - 3.0%
CONSUMER FINANCE - 0.8%
$210,000 MBNA Master Credit Card Trust
5.90%, due 8/15/11 .................................. $ 198
ELECTRIC COMPANIES - 0.5%
130,000 ComEd Transitional Funding Trust
5.63%, due 6/25/09 ..................................... 123
FINANCIAL (DIVERSIFIED) - 1.7%
254,000 Citicorp Mortgage Securities, Inc.
6.50%, due 6/25/29 ..................................... 244
185,000 Heller Financial Commercial
Mortgage Asset Corp.
6.847%, due 5/15/31 .................................... 184
-----
TOTAL ASSET BACKED SECURITIES ........................................... 749
-----
MORTGAGE BACKED SECURITIES - 4.2%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 2.95%
301,330 6.00%, due 1/01/29 ..................................... 284
226,502 7.00%, due 3/01/12 ..................................... 228
212,607 8.00%, due 2/15/29 ..................................... 218
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 1.22%
242,429 7.00%, due 4/15/28 ..................................... 240
61,323 7.00%, due 8/15/28 ...................................... 61
-----
TOTAL MORTGAGE BACKED
SECURITIES ............................................................ 1,030
-----
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
U.S. GOVERNMENT OBLIGATIONS - 20.1%
U.S. FEDERAL AGENCY NOTES - 2.1%
$200,000 5.125%, due 2/13/04 ................................. $ 192
330,000 6.375%, due 6/15/09 .................................... 327
U.S. TREASURY NOTES - 18.0%
1,025,000 5.375%, due 6/30/00 .................................. 1,026
15,000 5.875%, due 6/30/00 ..................................... 15
545,000 6.375%, due 8/15/02 .................................... 555
885,000 6.50%, due 10/15/06 .................................... 913
245,000 6.50%, due 8/15/05 ..................................... 253
15,000 6.875%, due 3/31/00 ..................................... 15
375,000 7.25%, due 8/15/04 ..................................... 398
1,125,000 7.50%, due 11/15/16 .................................. 1,264
-----
TOTAL U.S. GOVERNMENT
OBLIGATIONS ........................................................... 4,957
-----
CASH EQUIVALENTS - 1.8%
INVESTMENT COMPANIES:
446,861 SSgA Prime Money Market Portfolio ...................... 447
-----
TOTAL CASH EQUIVALENTS .................................................. 447
-----
TOTAL INVESTMENTS - 100.2% ........................................... 24,746
-----
Other Assets, less Liabilities ......................................... (43)
-----
NET ASSETS .......................................................... $24,703
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 29 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INTERNATIONAL STOCK FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO International Stock Fund returned 3.28%* for Class A shares and
2.87%* for Class B shares for the quarter ended June 30, 1999. The EAFE Index
returned 2.19%. For the six months and latest year, Class A shares returned
5.48%* and 3.59%*, while Class B shares returned 4.93%* and 2.56%*,
respectively. The EAFE Index returned 3.24% and 6.05%. Lipper, Inc., reported
average returns for international funds of 5.61%, 7.38% and 4.83% for the
respective quarter, six months and 12 months.
Our overweighting in telecommunications made the greatest contribution to
performance and helped the Fund outperform the EAFE over the latest quarter.
That we lag over the 12-month period is due to our overweighting in the UK which
has underperformed the index and the inclusion of the third quarter of '98, in
which our financial stocks
*Not including the effects of sales charges.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW - CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIOD ENDED JUNE 30, 1999 1 YEAR SINCE INCEPTION* 1 YEAR SINCE INCEPTION*
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A -2.37% 9.08% 3.59% 10.98%
Class B -2.44% 9.50% 2.56% 10.20%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SAFECO SAFECO
VALUE INTERNATIONAL INTERNATIONAL
WITH SALES FUND FUND EAFE
CHARGE CLASS A CLASS B INDEX
<S> <C> <C> <C>
1/31/96 $9,425 $10,000 $10,000
2/28/96 $9,368 $9,940 $10,034
3/31/96 $9,463 $10,040 $10,247
4/30/96 $9,698 $10,290 $10,545
5/31/96 $9,661 $10,250 $10,351
6/30/96 $9,651 $10,240 $10,409
7/31/96 $9,274 $9,840 $10,105
8/31/96 $9,651 $10,240 $10,127
9/30/96 $9,853 $10,454 $10,396
10/31/96 $9,967 $10,565 $10,290
11/30/96 $10,593 $11,229 $10,699
12/31/96 $10,759 $11,391 $10,561
1/30/97 $10,720 $11,340 $10,192
2/28/97 $10,864 $11,482 $10,358
3/31/97 $10,787 $11,411 $10,396
4/30/97 $10,835 $11,451 $10,451
5/31/97 $11,330 $11,966 $11,131
6/30/97 $11,674 $12,320 $11,731
7/31/97 $12,083 $12,744 $11,907
8/31/97 $11,054 $11,643 $11,004
9/30/97 $11,797 $12,421 $11,607
10/30/97 $10,815 $11,381 $10,700
11/30/97 $10,882 $11,441 $10,577
12/31/97 $11,221 $11,787 $10,656
1/31/98 $11,455 $12,032 $11,130
2/28/98 $12,213 $12,820 $11,829
3/31/98 $12,689 $13,311 $12,179
4/30/98 $12,756 $13,352 $12,261
5/31/98 $12,864 $13,464 $12,187
6/30/98 $12,990 $13,586 $12,265
7/31/98 $13,126 $13,720 $12,375
8/31/98 $11,416 $11,920 $10,827
9/30/98 $10,726 $11,194 $10,480
10/31/98 $11,532 $12,022 $11,557
11/30/98 $12,417 $12,933 $12,135
12/31/98 $12,756 $13,280 $12,599
1/31/99 $12,786 $13,301 $12,547
2/28/99 $12,699 $13,209 $12,233
3/31/99 $13,029 $13,546 $12,728
4/30/99 $13,660 $14,190 $13,229
5/31/99 $12,999 $13,464 $12,533
6/30/99 $13,456 $13,935 $13,007
</TABLE>
*Graph and average annual return comparison begins January 31, 1996,
inception date of the fund.
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
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.
- 30 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
were hard hit by the Russian debt crisis.
Telecom stocks have benefited by explosive growth in mobile phone and
internet usage across the globe. Merger and acquisitions have been beneficial
for investors as well. German-quoted Mannesmann made the largest single
contribution to performance as acquisitions increased the value of its network.
Japanese stocks--across a variety of themes--were strong contributors to the
portfolio. Japan has been the best performer among the world's major equity
markets so far this year. Through June 30, The Nikkei 225 Index was ahead by
almost 19%. (Sixteen percent of our net assets are invested here.)
Japanese companies in the technological innovation theme were significant
contributors. Canon unveiled positive earnings news and announced an alliance
with Toshiba to develop flat panel TV screens. Murata Manufacturing overcame
disappointing earnings with a stronger than anticipated order book. And,
investor sentiment toward Sony was bolstered by restructuring plans and
anticipation for Playstation II.
A portion of the portfolio's Japanese exposure was hedged during the quarter
and this added further value to the portfolio.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- ----------------------------------------------------------------------
<S> <C>
ING Group NV................................................ 3.0%
(Banks - Foreign)
Vivendi..................................................... 2.6
(Services - Commercial & Consumer)
Axa......................................................... 2.0
(Insurance - Multi-Line)
USB AG...................................................... 2.0
(Banks - Foreign)
Glaxo Wellcome, plc......................................... 2.0
(Health Care - Major Pharmaceuticals)
Sony Corp. ................................................. 1.9
(Electrical Equipment)
Allied Zurich, plc.......................................... 1.9
(Tobacco)
Prudential Corp., plc....................................... 1.8
(Insurance - Multi-Line)
Takeda Chemical Industries.................................. 1.7
(Health Care - Major Pharmaceuticals)
Canon, Inc. ................................................ 1.7
(Office Equipment & Suppies)
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE COUNTRIES NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
United Kingdom.............................................. 30%
Japan....................................................... 16
Switzerland................................................. 10
Germany..................................................... 9
Netherlands................................................. 9
<CAPTION>
TOP FIVE PURCHASES COST
(Jan. to June) (000'S)
- ------------------------------------------------------------------------
<S> <C>
ING Group, NV............................................... $ 325
Vivendi..................................................... 318
Prudential Corp., plc....................................... 310
Glaxo Wellcome, plc......................................... 305
Telecom Italia SpA.......................................... 241
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ------------------------------------------------------------------------
<S> <C>
Takeda Chemical Industries.................................. $ 173
Telecom Italia SpA.......................................... 137
Mobil Communications Network, Inc. ......................... 113
Safeway, plc................................................ 106
Dai Nippon Printing......................................... 98
- ------------------------------------------------------------------------
</TABLE>
- 31 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A number of stocks in the health care needs theme did not fare well as
investors abandoned them for shares in cyclical companies. While the health care
sector sold off in general, Takeda Chemical did not. The Japanese-quoted company
released better-than-expected profits and announced the sale of its less
profitable agri-chemicals business.
Insurance companies generally underperformed during the quarter because of
concern about rising U.S. interest rates and the negative impact this would have
on their bond portfolios.
In the markets, European equities were helped by a buoyant Wall Street and a
half percent cut in interest rates by the European Central Bank. In the UK,
where 30.3% percent of the Fund's net assets are invested, the Bank of England
was credited for creating a "soft landing" for the economy. The Bank cut
interest rates 2 3/4% in the last nine months.
With massive public sector stimulus, the Japanese equity market outperformed
in the first half of 1999. International investors, particularly Americans,
continue to build up their weightings in the market, adding to the positive
sentiment. However, positive earnings news does not mean economic growth has
materially improved. It means the better quality companies have started to
rebuild margins from very depressed levels. We believe Japan truly is a
stock-picker's market.
While there is no doubt the acute crisis in Southeast Asia is over, we do not
believe the structural weakness exposed by it has been fully corrected. We
remain extremely cautious about investing in the region.
In Europe, we think the euro is increasing competition and are attempting to
identify companies that can significantly grow earnings in the single-currency
environment. We believe that companies in the telecom (14.2% of net assets),
pharmaceutical (8.5% of net assets) and financial service sectors (17.6% of net
assets) are most likely to benefit from the single currency and we have
positioned the portfolio accordingly.
Bank of Ireland
Asset Management (U.S.) Limited
- -------------------------------
The Bank of Ireland Asset Management (U.S.) Limited (BIAM) investment committee
is comprised of senior analysts and economists and headed by the company's chief
financial officer. BIAM has managed international equities since 1966 and began
managing U.S. funds in 1989.
- 32 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 97.1%
AUSTRALIA - 5.0%
2,205 Brambles Industries, Ltd. ........................... $ 58
SERVICES (COMMERCIAL & CONSUMER)
25,650 National Australia Bank, Ltd. ......................... 425
BANKS (FOREIGN)
61,519 News Corp., Ltd. ...................................... 525
PUBLISHING
50,418 Telstra Corp., Ltd. ................................... 289
TELEPHONE
23,227 Westpac Banking Corp., Ltd. ........................... 151
BANKS (FOREIGN)
DENMARK - 0.5%
2,820 Tele Danmark AS-B ...................................... 139
TELEPHONE
FRANCE - 8.3%
2,463 Alcatel ................................................ 347
TELEPHONE
4,545 Axa .................................................... 555
INSURANCE (MULTI-LINE)
3,705 Compagnie Generale des Etablissements Michelin ......... 152
AUTO PARTS & EQUIPMENT
4,240 Total SA ............................................... 547
OIL (INTERNATIONAL INTEGRATED)
9,904 Vivendi ................................................ 803
SERVICES (COMMERCIAL & CONSUMER)
GERMANY - 9.3%
4,670 Bayerische HypoVereinsbank AG 304
BANKS (FOREIGN)
397 Bayerische Motoren Werke AG ............................ 273
AUTOMOBILES
9,455 Hoescht AG ............................................. 428
CHEMICALS
8,125 Mannesmann AG ........................................ 1,213
TELEPHONE
5,815 VEBA AG ................................................ 342
ELECTRIC COMPANIES
283 Viag AG ................................................ 134
MANUFACTURING (DIVERSIFIED)
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HONG KONG - 0.6%
4,400 HSBC Holdings, plc .................................... $160
BANKS (FOREIGN)
ITALY - 2.7%
27,595 Ente Nazionale Idrocarburi SpA ......................... 165
OIL (INTERNATIONAL INTEGRATED)
60,030 Telecom Italia SpA ..................................... 624
TELEPHONE
JAPAN - 15.5%
23,000 Canon, Inc. ........................................... 662
OFFICE EQUIPMENT & SUPPLIES
7,000 Fuji Photo Film Co. ................................... 265
OFFICE EQUIPMENT & SUPPLIES
6,000 Honda Motor Co., Ltd. ................................. 254
AUTOMOBILES
13,000 Kao Corp. ............................................. 365
PERSONAL CARE
600 Keyence Corp. ......................................... 105
ELECTRICAL EQUIPMENT
6,000 Murata Manufacturing Co., Ltd. ........................ 395
ELECTRICAL EQUIPMENT
8 NTT Mobile Communication Network, Inc. ................ 108
TELEPHONE
32 NTT Mobile Communications Network, Inc. (Bonus Issue) ...428
TELEPHONE
2,000 Rohm Co., Ltd. ........................................ 313
ELECTRICAL EQUIPMENT
11,000 Shiseido Co., Ltd. .................................... 165
PERSONAL CARE
6,400 Sony Corp. ............................................ 690
ELECTRICAL EQUIPMENT
16,000 Takeda Chemical Industries ............................. 742
HEALTH CARE (MAJOR PHARMACEUTICALS)
NETHERLANDS - 8.8%
11,448 ABN Amro Holdings NV ................................... 248
BANKS (FOREIGN)
8,730 Elsevier NV ............................................ 101
PUBLISHING
18,357 ING Group NV ........................................... 995
BANKS (FOREIGN)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 33 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
11,180 Koninklijke Ahold NV .................................. $385
RETAIL (FOOD CHAINS)
7,535 Koninklijke KPN NV ..................................... 354
TELEPHONE
5,345 Royal Dutch Petroleum Co. ............................. 313
OIL (INTERNATIONAL INTEGRATED)
6,660 TNT Post Group NV ...................................... 159
SHIPPING
NEW ZEALAND - 0.2%
12,479 Telecom Corp of New Zealand, Ltd. ...................... 53
TELEPHONE
PORTUGAL - 0.3%
5,065 Electricidade de Portugal, SA ........................... 91
ELECTRIC COMPANIES
SINGAPORE - 1.9%
29,200 Development Bank of Singapore, Ltd. ................... 357
BANKS (FOREIGN)
12,000 Singapore Press Holdings, Ltd. ........................ 204
PUBLISHING
SOUTH KOREA - 0.4%
3,050 #Korea Telecom Corp. (ADR) ............................. 114
TELEPHONE
SPAIN - 2.4%
35,850 Banco Santander Central Hispano, SA .................... 374
BANKS (FOREIGN)
6,689 Telefonica SA .......................................... 322
TELEPHONE
SWEDEN - 0.3%
2,350 Telefonaktiebolaget LM Ericsson ......................... 76
TELECOMMUNICATIONS (LONG DISTANCE)
SWITZERLAND - 10.2%
233 Alusuisse-Lonza Holding AG ............................. 272
MANUFACTURING (DIVERSIFIED)
331 Nestle SA .............................................. 597
FOODS
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
364 Novartis AG ........................................... $532
HEALTH CARE (MAJOR PHARMACEUTICALS)
48 Roche Holding AG ....................................... 494
HEALTH CARE (MAJOR PHARMACEUTICALS)
279 Schweizerische Rueckversicherungs-Gesellschaft 532
INSURANCE (MULTI-LINE)
1,725 UBS AG ................................................. 515
BANKS (FOREIGN)
THAILAND - 0.3%
26,100 Bangkok Bank Public Co., Ltd. .......................... 98
BANKS (FOREIGN)
UNITED KINGDOM - 30.3%
42,565 Allied Zurich, plc ..................................... 532
TOBACCO
11,415 AstraZeneca Group, plc ................................. 442
HEALTH CARE (MEDICAL
PRODUCTS & SUPPLIES)
22,525 Barclays, plc .......................................... 657
BANKS (FOREIGN)
40,415 British American Tobacco, plc .......................... 377
TOBACCO
36,440 Cable & Wireless, plc .................................. 464
TELEPHONE
40,860 Cadbury Schweppes plc .................................. 260
BEVERAGES (NON-ALCOHOLIC)
44,460 Diageo, plc ............................................ 463
BEVERAGES (ALCOHOLIC)
11,436 EMI Group, plc .......................................... 92
LEISURE TIME (PRODUCTS)
24,360 Glaxo Wellcome, plc .................................... 677
HEALTH CARE (MAJOR PHARMACEUTICALS)
29,980 Granada Group, plc ..................................... 560
LEISURE TIME (PRODUCTS)
47,840 Hilton Group, plc ...................................... 190
LODGING (HOTELS)
71,330 Ivensys, plc ........................................... 338
MANUFACTURING (DIVERSIFIED)
18,890 Kingfisher, plc ........................................ 217
RETAIL (DRUG STORES)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 34 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
40,190 Lloyds TSB Group, plc ................................. $543
BANKS (FOREIGN)
4,521 National Power, plc ..................................... 33
POWER PRODUCERS (INDEPENDENT)
12,840 National Westminster Bank, plc ......................... 272
BANKS (FOREIGN)
6,950 Pearson, plc ........................................... 141
PUBLISHING
48,430 Prudential Corp., plc .................................. 717
INSURANCE (MULTI-LINE)
5,240 Railtrack Group, plc ................................... 107
RAILROADS
6,715 Safeway, plc ............................................ 27
RETAIL (FOOD CHAINS)
76,784 Shell Transport & Trading Co., plc ..................... 576
OIL (INTERNATIONAL INTEGRATED)
23,100 TI Group, plc .......................................... 156
MANUFACTURING (DIVERSIFIED)
43,620 Vodafone Airtouch, plc ................................. 863
TELEPHONE
7,430 WPP Group, plc .......................................... 63
SERVICES (ADVERTISING/
MARKETING)
-----
TOTAL COMMON STOCKS .................................................. 28,081
-----
TOTAL INVESTMENTS - 97.1% ............................................ 28,081
Domestic Cash .......................................... 593
Foreign Cash ........................................... 109
Other Assets, less
Liabliities ............................................ 126
-----
828
-----
NET ASSETS .......................................................... $28,909
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
# Security traded on NYSE and valued in USD.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
PERCENT OF
NET ASSETS
- -----------------------------------------------------------------------------
<S> <C>
Banks (Foreign) 17.6%
Telephone 14.2
Health Care - (Major Pharmaceuticals) 8.5
Insurance (Multi-line) 6.2
Oil (International Integrated) 5.5
Electrical Equipment 5.2
Machinery (Diversified) 4.2
Publishing 3.4
Office Equipment & Supplies 3.2
Tobacco 3.2
Manufacturing (Diversified) 3.1
Services (Advertising/Marketing) 3.0
Leisure Time (Products) 2.3
Foods 2.1
Automobiles 1.8
Personal Care 1.8
Beverages (Alcoholic) 1.6
Electric Companies 1.5
Health Care (Medical Products & Supplies) 1.5
Chemicals 1.5
Retail (Food Chains) 1.4
Beverages (Non-Alcoholic) 0.9
Retail (Drug Stores) 0.8
Lodging (Hotels) 0.7
Shipping 0.6
Auto Parts & Equipment 0.5
Railroads 0.4
Telecommunications (Long Distance) 0.3
Power Producers (Independent) 0.1
-----
97.1%
-----
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 35 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO SMALL COMPANY STOCK FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO Small Company Fund's performance has been disappointing. For the
quarter, six and 12 months ended June 30, Class A shares returned 1.39%*,
(7.84%)* and (37.11%)*. Class B shares returned 1.22%*, (8.18%)* and (37.64%)*
for the same respective periods. For the same periods the average small company
fund returned 15.56%, 8.56% and 1.93%, according to Lipper, Inc. The Russell
2000 returned 15.55% 9.29% and 1.50%, respectively.
While a few of our stocks were punished for earnings disappointments, a
number of the Fund's holdings simply went unnoticed and continue to bear very
low valuations.
[PHOTO OF GREG EISEN]
*Not including the effects of sales charges.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW - CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIOD ENDED JUNE 30, 1999 1 YEAR SINCE INCEPTION* 1 YEAR SINCE INCEPTION*
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A -40.72% 1.27% -37.11% 3.04%
Class B -40.76% 1.52% -37.64% 2.36%
</TABLE>
<TABLE>
<CAPTION>
SAFECO SAFECO
INVESTMENT SMALL SMALL
VALUE COMPANY COMPANY RUSSELL
WITH SALES FUND FUND 2000
CHARGE CLASS A CLASS B INDEX
<S> <C> <C> <C>
1/31/96 $9,425 $10,000 $10,000
2/28/96 $9,566 $10,150 $10,312
3/31/96 $9,887 $10,490 $10,522
4/30/96 $10,886 $11,550 $11,084
5/31/96 $11,640 $12,350 $11,521
6/30/96 $11,338 $12,030 $11,048
7/31/96 $10,575 $11,220 $10,083
8/31/96 $11,225 $11,910 $10,668
9/30/96 $11,482 $12,183 $11,085
10/31/96 $11,463 $12,151 $10,914
11/30/96 $11,323 $12,003 $11,364
12/31/96 $11,782 $12,479 $11,662
1/30/97 $11,882 $12,575 $11,895
2/28/97 $11,632 $12,299 $11,606
3/31/97 $11,233 $11,876 $11,058
4/30/97 $11,004 $11,611 $11,089
5/31/97 $12,041 $12,712 $12,324
6/30/97 $12,680 $13,368 $12,852
7/31/97 $13,558 $14,279 $13,452
8/31/97 $13,817 $14,554 $13,756
9/30/97 $15,174 $15,972 $14,760
10/30/97 $14,625 $15,380 $14,103
11/30/97 $14,535 $15,284 $14,007
12/31/97 $14,516 $15,254 $14,259
1/31/98 $14,414 $15,134 $14,042
2/28/98 $15,875 $16,652 $15,095
3/31/98 $17,346 $18,181 $15,729
4/30/98 $17,949 $18,810 $15,815
5/31/98 $16,978 $17,769 $14,967
6/30/98 $16,600 $17,368 $15,010
7/31/98 $14,680 $15,340 $13,784
8/31/98 $10,440 $10,895 $11,112
9/30/98 $10,961 $11,427 $11,972
10/31/98 $10,706 $11,156 $12,463
11/30/98 $10,859 $11,307 $13,121
12/31/98 $11,329 $11,795 $13,940
1/31/99 $11,605 $12,077 $14,121
2/28/99 $10,890 $11,329 $12,977
3/31/99 $10,297 $10,700 $13,180
4/30/99 $10,185 $10,570 $14,360
5/31/99 $10,215 $10,603 $14,570
6/30/99 $10,440 $10,830 $15,229
</TABLE>
* Graph and average annual return comparison begins January 31, 1996,
inception date of the fund.
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
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>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Over the past five quarters--as small-cap value stocks grossly underperformed
the broad market--my strategy of purchasing stocks of sound businesses with low
valuations and improving prospects and earnings has failed to provide a
meaningful return. However, small-cap stocks began to be recognized during the
second quarter. Unfortunately, our portfolio, with its $292 million average
market capitalization, has yet to be affirmed.
Still, I believe that other investors will ultimately recognize the value
that I perceive in our portfolio and that recognition will result in a higher
share price.
One significant disappointment this quarter was our largest holding,
Equitrac. Equitrac was slated to be bought out at $25 per share. With financing
in place and due diligence done, the buy-out investment firm renegotiated the
price to $21. That knocked 16% off my anticipated sales price.
I constantly reevaluate the Fund's holdings, asking if the reason I purchased
the stock in the first place still stands. While I eliminated positions that
failed on that account, such as Stage Stores and Platinum Software, I'm holding
those, such as Litchfield Financial Corp, that still make sense.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- ----------------------------------------------------------------------
<S> <C>
Equitrac Corp. ............................................. 7.6%
(Computers - Hardware)
Litchfield Financial Corp. ................................. 5.6
(Financial - Diversified)
Ingles Markets, Inc. ....................................... 4.5
(Retail - Food Chains)
Rollins Truck Leasing Corp. ................................ 4.3
(Trucking)
International Aircraft Investors, Inc. .................... 4.3
(Aerospace/Defense)
Timberline Software Corp. .................................. 3.8
(Computers - Software & Services)
Vallen Corp. ............................................... 3.8
(Health Care - Medical
Products & Supplies)
Imax Corp. ................................................. 3.7
(Manufacturing - Specialized)
Craig Corp. (Class A)....................................... 3.3
(Entertainment)
MICROS Systems, Inc. ....................................... 3.2
(Computers - Hardware)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES COST
(Jan. to June) (000'S)
- ------------------------------------------------------------------------
<S> <C>
Rollins Truck Leasing Corp. ................................ $ 1,363
Imax Corp. ................................................. 1,148
HA-LO Industries, Inc. ..................................... 1,111
Central Parking Corp. ...................................... 959
ResortQuest International, Inc. ............................ 791
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ------------------------------------------------------------------------
<S> <C>
Hooper Holmes, Inc. ........................................ $ 1,599
Emmis Communication Corp. (Class A)......................... 1,262
Wet Seal, Inc. (Class A).................................... 1,191
Landauer, Inc. ............................................. 1,174
Styling Technology Corp. ................................... 957
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
Computers (Hardware)........................................ 13%
Financial (Diversified)..................................... 11
Services (Commercial & Consumer) ........................... 9
Computers (Software & Services)............................. 7
Health Care (Medical
Products & Supplies)...................................... 5
- ------------------------------------------------------------------------
</TABLE>
- 37 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Litchfield makes land and time-share loans, which banks normally do not. The
high yields on these loans provide good return. In fact, Litchfield has a long
record of 20% or better earnings growth, yet their stock is trading at 10 times
earnings. I have to believe patience here will ultimately be rewarded.
I'm also waiting on International Aircraft Investors, a micro-cap that leases
narrow-body aircraft to passenger airlines. If they do nothing, their current
leases assure they'll earn $0.90 per share on what is now a $7 stock. Yet
they've embarked on an expansion plan that could grow earnings 30%. I believe
this is a stock waiting to be "discovered".
I have been buying new names with "larger" capitalizations (greater than $500
million) in order to raise the Fund's average capitalization. We bought Central
Parking, Regis Corp and Rent-A-Center on price dips. Central Parking is the
largest operator of parking facilities in the country, while Regis is the
largest operator of haircutting establishments (Supercuts). Both have very good
cash flow characteristics.
Rent-A-Center is our second holding in the rent-to-own industry, the other
being Rent-Way. Both companies are consolidators and can grow earnings by
bringing their acquired stores' level of profitability up to their existing
stores. These two stocks may stay under pressure until they show the earnings
improvements expected.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
WEIGHTINGS AS A PERCENT OF NET ASSETS
(1) Mid-Cap: 6% ($1 billion - $4 billion)
(2) Small-Cap: 80% (Under $1 billion)
(a) Large: 0% (over $750 million)
(b) Medium: 25% ($250 - $750 million)
(c) Small: 56% (under $250 million)
(3)Cash and Other: 13%
In the first quarter, I bought OfficeMax and Imax. Imax has an exclusive
engagement with Disney to screen Fantasia 2000.
Though our average capitalization grew to $292 million, the Fund is still
tilted towards a value style. At June 30, the portfolio's price/earnings ratio
on year 1999 earnings estimates was 13 times. The Fund's PEG ratio, a ratio of
price/earnings to the company's forward growth rate, was .50 times. It's an
additional indication that the portfolio is inexpensively valued.
Going forward, I'll be searching for more liquid stocks with larger market
capitalizations, while adhering to my discipline of buying solid small company
stocks at attractive valuations.
Greg Eisen
- -------------------------------
Greg Eisen joined SAFECO in 1986. He holds a BA from Rutgers University and is a
certified public accountant and a Chartered Financial Analyst.
- 38 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO SMALL COMPANY STOCK FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 86.6%
AEROSPACE/DEFENSE - 4.3%
194,950 *International Aircraft Investors, Inc. ............ $1,377
BANKS (REGIONAL) - 2.7%
55,010 *Hanmi Bank (Los Angeles, CA) .......................... 866
BROADCASTING (TV, RADIO & CABLE) - 1.9%
12,500 *Emmis Communications Corp. (Class A) .................. 617
COMPUTERS (HARDWARE) - 12.5%
9,900 *Apex, Inc. ........................................... 203
130,300 *Equitrac Corp. ..................................... 2,459
30,400 *MICROS Systems, Inc. ............................... 1,034
35,100 *Optimal Robotics Corp. ............................... 349
COMPUTERS (SOFTWARE & SERVICES) - 6.9%
28,200 *3Dfx Interactive, Inc. ............................... 441
22,000 *ITT Educational Services, Inc. ....................... 573
78,100 Timberline Software Corp. ........................... 1,230
ELECTRONICS (DEFENSE) - 0.8%
33,550 *Comptek Research, Inc. ............................... 270
ENTERTAINMENT - 0.2%
9,400 *Craig Corp. ........................................... 66
FINANCIAL (DIVERSIFIED) - 11.0%
51,000 *Hawthorne Financial Corp. ............................ 829
106,675 Litchfield Financial Corp. .......................... 1,807
78,800 *Ragen MacKenzie Group, Inc. .......................... 936
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES) - 5.4%
254,700 *InnerDyne, Inc. ...................................... 509
76,800 *Vallen Corp. ....................................... 1,229
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
INSURANCE (PROPERTY-CASUALTY) - 2.5%
95,900 *American Safety Insurance Group, Ltd. ............. $ 809
LODGING (HOTELS) - 0.7%
28,000 ResortQuest International, Inc. ....................... 231
MANUFACTURING (DIVERSIFIED) - 3.8%
110,500 Lancer Corp. .......................................... 925
54,300 Motorcar Parts & Accessories, Inc. .................... 292
MANUFACTURING (SPECIALIZED) - 3.7%
52,700 *Imax Corp. ......................................... 1,186
PERSONAL CARE - 2.9%
45,000 *French Fragrances, Inc. .............................. 329
46,600 *Styling Technology Corp. ............................. 606
RESTAURANTS - 1.4%
45,200 *Taco Cabana, Inc. (Class A) ........................... 460
RETAIL (DEPARTMENT STORES) - 1.4%
52,000 *Musicland Stores Corp. ............................... 462
RETAIL (DISCOUNTERS) - 2.7%
72,500 *OfficeMax, Inc. ...................................... 870
RETAIL (FOOD CHAINS) - 4.5%
95,600 Ingles Markets, Inc. ................................ 1,458
SERVICES (ADVERTISING/MARKETING) - 2.2%
72,400 *HA-LO Industries, Inc. ............................... 715
SERVICES (COMMERCIAL & CONSUMER) - 8.5%
28,700 Central Parking Corp. ................................. 983
39,915 *Monro Muffler Brake, Inc. ............................ 319
29,500 *Rent-A-Center, Inc. .................................. 708
29,700 *Rent-Way, Inc. ....................................... 731
TEXTILES (HOME FURNISHINGS) - 2.4%
265,400 *Krause's Furniture, Inc. ............................. 780
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 39 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO SMALL COMPANY STOCK FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TRUCKING - 4.3%
124,500 Rollins Truck Leasing
Corp. .............................................. $1,385
-----
TOTAL COMMON STOCKS .................................................. 28,045
-----
PREFERRED STOCKS - 3.3%
ENTERTAINMENT - 3.3%
152,500 *Craig Corp. (Class A) ............................... 1,077
-----
TOTAL PREFERRED STOCKS ................................................ 1,077
-----
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CASH EQUIVALENTS - 7.7%
INVESTMENT COMPANIES
1,611,461 SSgA Prime Money Market Portfolio .................. $ 1,611
897,303 SSgA U.S. Treasury Money Market Portfolio .............. 897
-----
TOTAL CASH EQUIVALENTS ................................................ 2,509
-----
TOTAL INVESTMENTS - 97.7% ............................................ 31,631
Other Assets, less Liabilities .......................................... 747
-----
NET ASSETS .......................................................... $32,378
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 40 -
<PAGE>
REPORT FROM THE FUND MANAGERS
SAFECO U.S. VALUE FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We are pleased to report that during the second quarter, the market finally
recognized value and rewarded shareholders who stuck with their value-investing
discipline. In the three months ending June 30, the Russell 1000 Value Index
returned 10.8% while the Russell 1000 Growth Index returned just 3.8%.
For the quarter the U.S. Value Fund's Class A shares returned 11.67%*. Class
B shares returned 11.54%*. These outperformed the Russell 1000 Value Index, the
S&P 500's 7.05%, and the Lipper Growth & Income peer group's 9.04%.
This new life for value investors came after the Russell 1000 Growth Index
had outperformed the Russell 1000 Value Index, 47.5% to 17.3%, over the five
previous quarters. This disparity is reflected in the six- and 12-month returns.
[PHOTO OF REX BENTLEY]
*Not including the effects of sales charges.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW - CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIOD ENDED JUNE 30, 1999 1 YEAR SINCE INCEPTION* 1 YEAR SINCE INCEPTION*
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 8.22% 15.19% 14.82% 18.38%
Class B 9.26% 16.44% 14.26% 17.60%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SAFECO SAFECO
VALUE U.S. VALUE U.S. VALUE S&P
WITH SALES FUND FUND 500
CHARGE CLASS A CLASS B INDEX
<S> <C> <C> <C>
4/30/97 $9,425 $10,000 $10,000
5/31/97 $10,056 $10,660 $10,608
6/30/97 $10,420 $11,041 $11,083
7/31/97 $11,222 $11,882 $11,965
8/31/97 $10,627 $11,241 $11,295
9/30/97 $10,992 $11,616 $11,914
10/30/97 $10,643 $11,245 $11,516
11/30/97 $10,908 $11,525 $12,049
12/31/97 $11,049 $11,663 $12,256
1/31/98 $11,069 $11,663 $12,391
2/28/98 $11,869 $12,507 $13,284
3/31/98 $12,298 $12,946 $13,964
4/30/98 $12,120 $12,747 $14,104
5/31/98 $11,853 $12,466 $13,862
6/30/98 $11,832 $12,435 $14,425
7/31/98 $11,396 $11,965 $14,272
8/31/98 $9,999 $10,494 $12,211
9/30/98 $10,665 $11,193 $12,993
10/31/98 $11,579 $12,143 $14,049
11/30/98 $12,144 $12,747 $14,900
12/31/98 $12,352 $12,967 $15,758
1/31/99 $12,362 $12,956 $16,417
2/28/99 $11,938 $12,509 $15,906
3/31/99 $12,166 $12,738 $16,542
4/30/99 $13,046 $13,653 $17,183
5/31/99 $13,149 $13,750 $16,777
6/30/99 $13,586 $14,208 $17,708
</TABLE>
*Graph and total return comparison begins April 30, 1997, inception date of
the fund.
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund's Class A shares returned 9.98%* and 14.82%* while Class B shares
returned 9.57%* and 14.26%* for the year to date and the last twelve months,
respectively. For the same periods, the S&P 500 returned 12.38% and 22.76%.
While one quarter certainly doesn't make up for the previous five, it is at
the very least a good start. We think three main factors brought investors back
to value. One is the recent strength shown by some foreign economies, especially
in Asia, which increases world demand and reduces excess capacity. This in turn
should remove some of the price pressure on pricing of goods and materials.
Second, the rise in interest rates makes future earnings worth less today.
Third, and perhaps most important, the premium valuation of growth stocks
relative to value stocks was at an all-time high. As happens over and over, the
market went too far one way, then reversed course.
Helping the Fund outperform the indexes was our pro-cyclical tilt. We were
overweighted in strong performing sectors such as basic materials, capital goods
and energy; and underweighted in the poor-performing health care
[PHOTO OF LYNETTE D. SAGVOLD]
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- ----------------------------------------------------------------------
<S> <C>
Chase Manhattan Corp. ...................................... 2.9%
(Banks - Money Center)
GTE Corp. .................................................. 2.7
(Telephone)
Mobil Corp. ................................................ 2.7
(Oil - Domestic Integrated)
Kimberly-Clark Corp. ....................................... 2.7
(Household Products - Non-Durables)
Crane Co. .................................................. 2.4
(Manufacturing - Diversified)
ALLTEL Corp. ............................................... 2.2
(Telephone)
Albertson's, Inc. .......................................... 2.2
(Retail Food Chains)
Intel Corp. ................................................ 2.1
(Electronics - Semiconductors)
Dean Foods Co. ............................................. 2.1
(Foods)
Conseco, Inc. .............................................. 2.1
(Insurance - Health & Life)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES COST
(Jan. to June) (000'S)
- ------------------------------------------------------------------------
<S> <C>
ALLTEL Corp. ............................................... $ 242
Abbott Laboratories......................................... 220
Emerson Electric Co. ....................................... 219
Nortel Networks Corp. ...................................... 211
Interpublic Group Cos., Inc. ............................... 204
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ------------------------------------------------------------------------
<S> <C>
Corning, Inc. .............................................. $ 318
Merck & Co., Inc. .......................................... 288
Motorola, Inc. ............................................. 284
Wendy's International, Inc. ................................ 276
Beckman Coulter, Inc. ...................................... 217
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
Telephone................................................... 10%
Health Care (Diversified)................................... 7
Manufacturing (Diversified)................................. 6
Oil (Domestic Integrated)................................... 5
Foods....................................................... 4
</TABLE>
- 42 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
sector. Our consumer cyclical names including Armstrong, JC Penney, and New York
Times, also added value. Being underweighted in technology and overweighted in
financials in a rising interest-rate environment had a dampening effect on
performance.
During the second quarter of 1999 we initiated positions in Xerox, MCI
Worldcom, Bank of America, and Abbott Labs. Concerns about business in Brazil
and Europe gave us the opportunity to purchase Xerox at a discount. Xerox is
transitioning to digital copiers and expanding in retail channels that serve the
small business and home office markets.
MCI Worldcom is well positioned in the communications services business
through data, voice and Internet services. We bought the stock on a dip and
believe that the strong earnings growth prospects justify the premium valuation.
We bought Bank of America, after the stock declined on concerns about rising
interest rates. Earnings should begin to accelerate from merger savings and
increased market share.
We purchased Abbott Labs at a discount after the stock had fallen on concerns
that its acquisition of Alza, a leading drug delivery company, would dilute
earnings. We think Abbot's earnings will accelerate next year.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
WEIGHTINGS AS A PERCENT OF NET ASSETS
(1) Large: 84% ($4 Bil. and above)
(2) Medium: 13% ($1 Bil. - $4 Bil.)
(3) Small: 0% (Less than $1 Bil.)
(4) Cash & Other: 3%
We eliminated positions in Motorola and Wendy's International as they
approached our price targets. We sold Beckman Coulter because cost savings were
not materializing as we anticipated and revenues in Japan and Germany continued
to be disappointing.
At June 30, the SAFECO U.S. Value Fund's P/E ratio based on 1999 earnings was
19.5, compared to 27.8 for the S&P 500. Regarding the markets, we believe that
the valuation differential between growth and value stocks is still too large.
In our opinion, value stocks are priced at extremely attractive levels.
Our strategy in managing the Fund and our belief in value-style investing
remains unchanged. We will continue to buy stocks with discount value
characteristics that have attractive earnings prospects. We hope that will prove
rewarding in the future.
Rex Bentley
Lynette D. Sagvold
- ------------------
Rex Bentley, an MBA from Brigham Young University and Chartered Financial
Analyst, has more than 20 years of investment experience.
Lynette D. Sagvold holds a BA in business administration from the University of
Washington and is a Chartered Financial Analyst. She began her investment career
in 1981 at Kidder Peabody and was a trust officer for Key Trust and First
Interstate before joining SAFECO as a portfolio manager and insurance analyst.
- 43 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO U.S. VALUE FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 97.2%
AEROSPACE/DEFENSE - 1.9%
2,600 Boeing Co. ........................................... $115
2,800 Lockheed Martin Corp. ................................. 104
BANKS (MAJOR REGIONAL) - 3.9%
3,000 Bank of America Corp. ................................. 220
7,400 KeyCorp ................................................ 238
BANKS (MONEY CENTER) - 2.9%
3,900 Chase Manhattan Corp. ................................. 338
BANKS (REGIONAL) - 1.8%
3,640 Banc One Corp. ........................................ 217
BEVERAGES (NON-ALCOHOLIC) - 1.6%
5,000 PepsiCo, Inc. ......................................... 193
BUILDING MATERIALS - 1.7%
3,500 Armstrong World Industries, Inc..........................202
CHEMICALS - 3.8%
3,100 Du Pont (E.I.) de Nemours & Co...........................212
4,800 Praxair, Inc. ......................................... 235
COMMUNICATION EQUIPMENT - 1.7%
2,300 Nortel Networks Corp. ................................. 200
COMPUTERS (HARDWARE) - 2.0%
2,300 Hewlett-Packard Co. ................................... 231
COMPUTERS (PERIPHERALS) - 1.7%
8,100 *Quantum Corp. ........................................ 195
COMPUTERS (SOFTWARE & SERVICES) - 2.1%
8,100 *Cadence Design Systems, Inc. ......................... 103
8,300 *PeopleSoft, Inc. ..................................... 143
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ELECTRIC COMPANIES - 3.2%
3,700 New Century Energies, Inc. ........................... $144
9,200 NIPSCO Industries, Inc. ............................... 237
ELECTRICAL EQUIPMENT - 2.0%
3,800 Emerson Electric Co. .................................. 239
ELECTRONICS (SEMICONDUCTORS) - 2.1%
4,200 Intel Corp. ........................................... 250
ENTERTAINMENT - 1.4%
5,500 The Walt Disney Co. ................................... 169
FINANCIAL (DIVERSIFIED) - 2.5%
2,100 American General Corp. ................................ 158
2,000 Federal National Mortgage Association .................. 137
FOODS - 4.0%
8,400 ConAgra, Inc. ......................................... 224
5,900 Dean Foods Co. ........................................ 245
HEALTH CARE (DIVERSIFIED) - 6.7%
5,000 Abbott Laboratories .................................... 228
3,200 American Home Products Corp. . 184
2,600 Bristol-Myers Squibb Co. .............................. 183
2,000 Johnson & Johnson ...................................... 196
HEALTH CARE (MAJOR PHARMACEUTICALS) - 2.3%
1,000 Merck & Co., Inc. ...................................... 74
7,400 Mylan Laboratories, Inc. .............................. 196
HOUSEHOLD PRODUCTS (NON-DURABLES) - 2.7%
5,500 Kimberly-Clark Corp. .................................. 314
INSURANCE (LIFE & HEALTH) - 2.1%
8,000 Conseco, Inc. ......................................... 244
INSURANCE (MULTI-LINE) - 2.0%
4,000 Hartford Financial Services Group, Inc. ............... 233
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 44 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO U.S. VALUE FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MANUFACTURING (DIVERSIFIED) - 5.6%
2,800 AlliedSignal, Inc. ................................... $176
8,950 Crane Co. ............................................. 281
2,400 Minnesota Mining & Manufacturing Co. .................. 209
OFFICE EQUIPMENT & SUPPLIES - 1.5%
3,000 Xerox Corp. ........................................... 177
OIL (DOMESTIC INTEGRATED) - 4.5%
2,600 Atlantic Richfield Co. ................................ 217
3,200 Mobil Corp. ........................................... 317
OIL (INTERNATIONAL INTEGRATED) - 2.0%
3,700 Texaco, Inc. .......................................... 231
OIL & GAS (DRILLING & EQUIPMENT) - 1.6%
4,200 Halliburton Co. ....................................... 190
PAPER & FOREST PRODUCTS - 1.6%
3,700 International Paper Co. ............................... 187
PUBLISHING (NEWSPAPERS) - 1.8%
5,900 New York Times Co.
(Class A) .............................................. 217
REAL ESTATE INVESTMENT TRUST - 3.0%
2,500 Equity Residential Properties Trust .................... 113
5,100 First Industrial Realty Trust, Inc. ................... 140
4,300 Liberty Property Trust ................................. 107
RETAIL (DEPARTMENT STORES) - 3.3%
4,100 J.C. Penney Co., Inc. ................................. 199
4,650 May Department Stores Co. ............................. 190
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (FOOD CHAINS) - 2.2%
5,040 Albertson's, Inc. .................................. $ 260
SAVINGS & LOANS - 1.9%
6,400 Washington Mutual, Inc. ............................... 226
SERVICES (ADVERTISING/MARKETING) - 2.0%
2,700 Interpublic Group Cos., Inc. .......................... 234
TELEPHONE - 10.4%
3,700 ALLTEL Corp. .......................................... 265
3,700 Bell Atlantic Corp. ................................... 242
5,800 Century Telephone Enterprises, Inc. ................... 231
4,200 GTE Corp. ............................................. 318
2,000 *MCI WorldCom, Inc. ................................... 173
-----
TOTAL COMMON STOCKS .................................................. 11,500
-----
CASH EQUIVALENTS - 3.3%
INVESTMENT COMPANIES
385,544 SSgA Prime Money Market Portfolio ...................... 386
-----
TOTAL CASH EQUIVALENTS .................................................. 386
-----
TOTAL INVESTMENTS - 100.5% ........................................... 11,886
Other Assets, less Liabilities ......................................... (59)
-----
NET ASSETS .......................................................... $11,827
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 45 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO HIGH-YIELD BOND FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO High-Yield Bond Fund outperformed its market index for the latest
12 months. For the quarter ending June 30, 1999, Class A shares returned
(1.67%)* and Class B shares returned (1.99%)*. Year-to-date the Fund returned
0.96%* for Class A shares and 0.43%* for Class B shares. For the last 12 months
Class A shares returned 1.07%* and Class B shares returned 0.05%*. For the
quarter, six and 12 months ended June 30, the Merrill Lynch High Yield Master II
Index returned 0.65%, 2.49% and 0.90% respectively, while the average returns on
the Lipper High Current Yield Funds group were 0.68%, 3.56%, and 1.45%, for the
same respective periods.
[PHOTO OF ROBERT KERN]
*Not including the effects of sales charges.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW - CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIOD ENDED JUNE 30, 1999 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A -3.48% 7.50% 8.27% 1.07% 8.50% 8.77%
Class B -4.95% 7.75% 8.55% 0.05% 8.05% 8.55%
</TABLE>
<TABLE>
<CAPTION>
SAFECO SAFECO MERRILL
INVESTMENT HIGH- HIGH- LYNCH
VALUE YIELD YIELD HIGH
WITH SALES BOND FUND BOND FUND YIELD
CHARGE CLASS A CLASS B INDEX
<S> <C> <C> <C>
6/30/89 9,550 10,000 10,000
7/31/89 9,606 10,059 10,040
8/31/89 9,589 10,041 10,087
9/30/89 9,545 9,994 9,981
10/31/89 9,419 9,863 9,733
11/30/89 9,402 9,845 9,748
12/31/89 9,390 9,833 9,708
1/31/90 9,251 9,687 9,446
2/28/90 9,064 9,491 9,303
3/31/90 9,248 9,683 9,479
4/30/90 9,302 9,741 9,538
5/31/90 9,486 9,933 9,697
6/30/90 9,593 10,046 9,940
7/31/90 9,814 10,276 10,190
8/31/90 9,513 9,962 9,724
9/30/90 9,158 9,590 9,324
10/31/90 8,865 9,282 9,051
11/30/90 8,962 9,384 9,146
12/31/90 9,053 9,479 9,285
1/31/91 9,004 9,429 9,475
2/28/91 9,376 9,817 10,297
3/31/91 9,707 10,164 10,807
4/30/91 10,004 10,475 11,180
5/31/91 10,122 10,600 11,224
6/30/91 10,233 10,716 11,478
7/31/91 10,459 10,952 11,786
8/31/91 10,663 11,165 12,058
9/30/91 10,823 11,333 12,228
10/31/91 11,073 11,595 12,643
11/30/91 11,212 11,740 12,779
12/31/91 11,252 11,782 12,922
1/31/92 11,564 12,109 13,358
2/28/92 11,765 12,320 13,696
3/31/92 11,891 12,452 13,889
4/30/92 11,885 12,444 13,961
5/31/92 12,044 12,612 14,167
6/30/92 12,200 12,776 14,330
7/31/92 12,410 12,995 14,609
8/31/92 12,565 13,156 14,795
9/30/92 12,719 13,318 14,952
10/31/92 12,469 13,057 14,759
11/30/92 12,681 13,277 14,985
12/31/92 12,812 13,416 15,176
1/31/93 13,162 13,782 15,538
2/28/93 13,423 14,056 15,815
3/31/93 13,651 14,295 16,084
4/30/93 13,750 14,398 16,195
5/31/93 13,959 14,616 16,405
6/30/93 14,222 14,893 16,711
7/31/93 14,390 15,068 16,879
8/31/93 14,488 15,170 17,033
9/30/93 14,536 15,221 17,109
10/31/93 14,743 15,438 17,434
11/30/93 14,856 15,556 17,525
12/31/93 14,979 15,684 17,710
1/31/94 15,261 15,981 18,092
2/28/94 15,187 15,902 17,967
3/31/94 14,650 15,340 17,386
4/30/94 14,532 15,217 17,170
5/31/94 14,664 15,356 17,132
6/30/94 14,728 15,422 17,210
7/31/94 14,723 15,416 17,323
8/31/94 14,777 15,474 17,451
9/30/94 14,772 15,467 17,448
10/31/94 14,712 15,406 17,494
11/30/94 14,518 15,203 17,344
12/31/94 14,641 15,332 17,526
1/31/95 14,814 15,512 17,772
2/28/95 15,126 15,838 18,342
3/31/95 15,263 15,983 18,590
4/30/95 15,552 16,285 19,070
5/31/95 15,961 16,713 19,659
6/30/95 16,041 16,797 19,791
7/31/95 16,254 17,020 20,049
8/31/95 16,261 17,027 20,154
9/30/95 16,460 17,235 20,393
10/31/95 16,686 17,473 20,561
11/30/95 16,716 17,503 20,765
12/31/95 16,932 17,730 21,112
1/31/96 17,145 17,953 21,465
2/28/96 17,310 18,126 21,531
3/31/96 17,254 18,066 21,443
4/30/96 17,288 18,103 21,473
5/31/96 17,396 18,216 21,627
6/30/96 17,440 18,262 21,724
7/31/96 17,622 18,453 21,856
8/31/96 17,873 18,714 22,128
9/30/96 18,235 19,094 22,643
10/31/96 18,305 19,168 22,839
11/30/96 18,577 19,452 23,298
12/31/96 18,691 19,572 23,492
1/31/97 18,848 19,735 23,668
2/28/97 19,192 20,084 24,032
3/31/97 18,790 19,651 23,701
4/30/97 18,910 19,765 24,005
5/31/97 19,448 20,314 24,510
6/30/97 19,720 20,586 24,889
7/31/97 20,225 21,101 25,549
8/31/97 20,232 21,098 25,518
9/30/97 20,577 21,446 25,977
10/31/97 20,558 21,414 26,110
11/30/97 20,768 21,622 26,354
12/31/97 21,025 21,875 26,607
1/31/98 21,461 22,317 27,032
2/28/98 21,575 22,419 27,141
3/31/98 21,804 22,641 27,399
4/30/98 21,751 22,570 27,516
5/31/98 21,844 22,649 27,682
6/30/98 21,910 22,701 27,825
7/31/98 22,217 22,999 28,002
8/31/98 20,828 21,546 26,589
9/30/98 21,198 21,911 26,658
10/31/98 20,929 21,615 26,089
11/30/98 21,830 22,529 27,442
12/31/98 21,932 22,615 27,393
1/31/99 22,207 22,883 27,763
2/28/99 22,198 22,859 27,574
3/30/99 22,520 23,174 27,894
4/30/99 22,951 23,600 28,404
5/31/99 22,318 22,932 28,143
6/30/99 22,144 22,713 28,072
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
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.
- 46 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Interest rates have risen over the last six months and the second quarter was
an especially difficult one. Our bonds, with longer durations (sensitivity to
interest rate changes) because of lower coupons, non-callable or zero-coupon
structures were hit especially hard; including our holdings in Ball Corp.,
Federal Mogul and Nextlink. (The Fund's duration of 5.60 is longer than the
Merrill Lynch High Yield Master II Index's 5.07.)
Specialty Retailers (Stage Stores), Numatics, and United Industries also
suffered. Specialty Retailers, the operator of Stage Stores, located primarily
in the Midwest and Southern states, reported continued weak sales. Prime markets
for these stores are located in areas that depend on either agriculture or oil
for their economic well being. Extremes in weather have hurt agriculture, while
low prices for petroleum and natural gas dampened the oil side of the equation.
In addition, management made a number of merchandising mistakes.
Numatics was downgraded to CCC+ by S&P at the end of the second quarter
because of poor financial performance. Ironically, results at the company are
actually looking better. The company, a manufacturer of specialty valves, has a
unique product line, excellent distribution capabilities and a fine reputation.
I'll continue to hold these bonds.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- ----------------------------------------------------------------------
<S> <C>
American Axle & Manufacturing Holdings, Inc. ............... 2.6%
(Auto Parts & Equipment)
Ames Department Stores, Inc. ............................... 2.6
(Retail-Department Stores)
Level 3 Communications, Inc. ............................... 2.4
(Telephone)
Randall's Food Markets, Inc. ............................... 2.4
(Retail-Food Chains)
Hayes Lemmerz International, Inc. .......................... 2.2
(Auto Parts & Equipment)
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
Broadcasting (TV, Radio & Cable)............................ 15%
Telephone................................................... 13
Auto Parts & Equipment...................................... 6
Communication Equipment..................................... 4
Retail (Department Stores).................................. 4
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ------------------------------------------------------------------------
<S> <C>
AES Corp. .................................................. $ 1,986
Lenfest Communications, Inc. ............................... 1,590
Chiquita Brands International, Inc. ........................ 1,575
Ackerley Group, Inc. ....................................... 1,517
Unicco Service Corp. ....................................... 1,516
<CAPTION>
TOP FIVE PURCHASES COST
(Jan. to June) (000'S)
- ------------------------------------------------------------------------
<S> <C>
Ames Department Stores, Inc. ............................... $ 2,000
American Axle & Manufacturing Holdings, Inc. ............... 1,984
Level 3 Communications, Inc. ............................... 1,890
Lenfest Communications, Inc. ............................... 1,591
Criimi Mae Commercial Mortgage Trust........................ 1,588
</TABLE>
CURRENT YIELD (30-DAY) CLASS A ......................................... 7.79%
CURRENT YIELD (30-DAY) CLASS B ......................................... 7.20%
WEIGHTED AVERAGE MATURITY .......................................... 8.0 YEARS
- 47 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
United Industries manufactures lower-priced lines of garden fertilizers and
insecticides. At June 30, they announced that their board had replaced the CEO
due to lower-than-expected sales for one of its product lines. The other lines
were selling on plan. I am monitoring this situation carefully.
Among new names added to the portfolio in the second quarter are Ames
Department Stores and Bally Total Fitness. The former is an operator of discount
stores in the northeastern part of the U.S. and I thought they offered good
relative value for their industry group and credit rating.
Bally Total Fitness operates health clubs across the U.S. The company has
reported excellent results due to their ability to sell higher-priced membership
packages that entitle the member to use any Bally facility.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CREDIT RATING DISTRIBUTION AS A PERCENT OF NET ASSETS
(1) BBB: 2%
(2) BB: 17%
(3) B: 69%
(4) CCC: 5%
(5) Not Rated: 0%
(6) Preferred Stocks: 4%
(7) Cash and Other: 3%
Liquidity remains an issue in the high yield market. Dealers seem reluctant
to bid on bonds, and oftentimes will often do so only at substantially lower
prices. To avoid selling our bonds at deep discounts in a difficult market I am
letting cash creep up as we move into year-end.
As well, I have been working to raise the average coupon of bonds held in the
Fund in order to improve our dividend yield. Both the Ames and Bally's bonds
have high coupons and are examples of this strategy. I will continue to look for
bonds that I believe represent good relative value, and provide good total
return potential and yield.
Robert Kern
- -------------------------------
Robert Kern joined SAFECO in 1988 with BS degrees in business and accounting
from the Universities of Washington and Puget Sound, respectively. Robert is a
Certified Public Accountant and a Chartered Financial Analyst.
- 48 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
<C> <S>
- -----------------------------------------------------------------------------
ASSET BACKED SECURITIES - 2.1%
FINANCIAL (DIVERSIFIED) - 2.0%
$2,000 Criimi Mae Commercial Mortgage Trust Series 1998-C1 Class B
7.00%, due 11/02/11 ................................. $1,588
-----
TOTAL ASSET BACKED SECURITIES ........................................ 1,588
-----
CORPORATE BONDS - 91.3%
AGRICULTURAL PRODUCTS - 2.1%
600 #Scott's Company (144A)
8.625%, due 1/15/09 (acquired 1/14/99) ................. 590
1,000 Sun World International, Inc.
11.25%, due 4/15/04 .................................. 1,050
AIR FREIGHT - 1.8%
1,500 Atlas Air, Inc.
9.375%, due 11/15/06 ................................. 1,425
AIRLINES - 1.9%
1,500 Northwest Airlines, Inc.
8.70%, due 3/15/07 ................................... 1,474
ALUMINUM - 2.5%
1,000 Commonwealth Aluminum Corp.
10.75%, due 10/01/06 ................................... 991
1,000 Wells Aluminum Corp.
10.125%, due 6/01/05 ................................... 980
AUTO PARTS & EQUIPMENT - 6.1%
2,000 American Axle & Manufacturing Holdings, Inc.
9.75%, due 3/01/09 ................................... 2,000
1,000 Federal-Mogul Corp.
8.80%, due 4/15/07 ................................... 1,008
1,750 #Hayes Lemmerz
International, Inc. (144A)
8.25%, due 12/15/08
(acquired 12/07/98) .................................. 1,667
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
BANKS (REGIONAL) - 1.5%
$1,250 Bay View Capital Corp.
9.125%, due 8/15/07 ................................. $1,163
BROADCASTING (TV, RADIO & CABLE) - 11.5%
1,750 21st Century Telecom Group, Inc.
12.25%, beg. 2/15/03
Step Bond due 2/15/08 .................................. 718
500 #Adelphia Communications Corp. (144A)
7.75%, due 1/15/09
(acquired 1/6/99) ...................................... 462
1,250 #Bresnan Communications Group (144A)
9.25%, beg. 2/01/04
Step Bond due 2/01/09
(acquired 1/25/99) ..................................... 813
3,000 Century Communications Corp.
0.00%, due 1/15/08
(Discount Note) ...................................... 1,335
500 Century Communications Corp.
8.875%, due 1/15/07 .................................... 500
500 Century Communications Corp.
9.50%, due 3/01/05 ..................................... 514
1,000 Chancellor Media Corp.
9.00%, due 10/01/08 .................................. 1,018
1,000 Jones Intercable, Inc.
8.875%, due 4/01/07 .................................. 1,064
329 SFX Broadcasting, Inc.
10.75%, due 5/15/06 .................................... 357
1,000 #Susquehanna Media Co. (144A)
8.50%, due 5/15/09
(acquired 5/07/99) ..................................... 985
1,000 Young Broadcasting, Inc.
9.00%, due 1/15/06 ..................................... 978
BUILDING MATERIALS - 0.6%
500 Synthetic Industries, Inc.
9.25%, due 2/15/07 ..................................... 513
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 49 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CHEMICALS (SPECIALTY) - 0.6%
$ 500 Sovereign Specialty Chemicals, Inc.
9.50%, due 8/01/07 ................................... $ 501
COMMUNICATION EQUIPMENT - 3.8%
1,500 National Equipment Services, Inc. (Series B)
10.00%, due 11/30/04 ................................. 1,515
500 National Equipment Services, Inc. (Series D)
10.00%, due 11/30/04 ................................... 505
1,000 Rhythms NetConnections, Inc.
12.75%, due 4/15/09 .................................... 935
CONTAINERS & PACKAGING (PAPER) - 1.2%
500 #Packaging Corporation of America (144A)
9.625%, due 4/01/09
(acquired 3/31/99) ..................................... 508
500 Printpak Inc.
10.625%, due 8/15/06 ................................... 475
ENTERTAINMENT - 2.9%
500 Cinemark USA, Inc.
(Series B)
9.625%, due 8/01/08 .................................... 490
500 Cinemark USA, Inc.
(Series D)
9.625%, due 8/01/08 .................................... 490
1,250 Premier Parks, Inc.
9.25%, due 4/01/06 ................................... 1,231
HEALTH CARE (HOSPITAL MANAGEMENT) - 1.5%
1,500 Genesis Health Ventures, Inc.
9.25%, due 10/01/06 .................................. 1,200
HOUSEHOLD FURNISHINGS & APPLIANCES - 1.2%
1,000 Holmes Products Corp.
9.875%, due 11/15/07 ................................... 968
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HOUSEHOLD PRODUCTS (NON-DURABLES) - 1.7%
$1,500 #United Industries Corp. (144A)
9.875%, due 4/01/09
(acquired 3/19/99) .................................. $1,365
LODGING (HOTELS) - 1.8%
1,500 HMH Properties, Inc.
7.875%, due 8/01/08 .................................. 1,384
MANUFACTURING (DIVERSIFIED) - 3.2%
1,000 #Nortek, Inc. (144A)
8.875%, due 8/01/08
(acquired 7/28/98) ..................................... 980
1,560 Tekni-Plex, Inc.
9.25%, due 3/01/08 ................................... 1,521
MANUFACTURING (SPECIALIZED) - 3.6%
1,500 Flextronics International, Ltd.
8.75%, due 10/15/07 .................................. 1,493
1,600 Numatics, Inc.
9.625%, due 4/01/08 .................................. 1,296
OIL & GAS (DRILLING & EQUIPMENT) - 1.9%
1,500 Newpark Resources, Inc.
8.625%, due 12/15/07 ................................. 1,448
OIL & GAS (EXPLORATION & PRODUCTION) - 1.9%
1,500 Ocean Energy, Inc.
8.375%, due 7/01/08 .................................. 1,455
PAPER & FOREST PRODUCTS - 0.6%
500 FiberMark Inc.
9.375%, due 10/15/06 ................................... 500
PERSONAL CARE - 0.3%
250 Revlon Consumer Products
8.625%, due 2/01/08 .................................... 234
PUBLISHING - 3.1%
1,000 Big Flower Holdings, Inc.
8.625%, due 12/01/08 ................................... 920
1,500 World Color Press, Inc.
8.375%, due 11/15/08 ................................. 1,493
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 50 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RESTAURANTS - 2.0%
$1,500 Perkins Family Restaurants
10.125%, due 12/15/07 ............................... $1,560
RETAIL (DEPARTMENT STORES) - 3.7%
2,000 #Ames Department Stores,
Inc. (144A)
10.00%, due 4/15/06
(acquired 4/20/99) ................................... 1,963
1,440 Specialty Retailers, Inc.
9.00%, due 7/15/07 ..................................... 864
RETAIL (FOOD CHAINS) - 2.4%
1,750 Randall's Food Markets, Inc.
9.375%, due 7/01/07 .................................. 1,838
RETAIL (SPECIALTY) - 2.4%
1,250 Big 5 Corp.
10.875%, due 11/15/07 ................................ 1,275
750 Purina Mill, Inc.
9.00%, due 3/15/10 ..................................... 563
SERVICES (ADVERTISING/MARKETING) - 1.3%
1,000 Lamar Advertising Co.
9.625%, due 12/01/06 ................................. 1,030
SERVICES (COMMERCIAL & CONSUMER) - 2.5%
1,000 Bally Total Fitness Holdings
9.875%, due 10/15/07 ................................... 970
1,000 #United Rentals, Inc. (144A)
9.00%, due 4/01/09
(acquired 3/16/99) ..................................... 980
SERVICES (COMPUTER SYSTEMS) - 2.0%
1,500 Verio, Inc.
11.25%, due 12/01/08 ................................. 1,571
TELECOMMUNICATIONS (LONG DISTANCE) - 1.5%
1,250 Flag, Ltd.
8.25%, due 1/30/08 ................................... 1,175
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELEPHONE - 11.7%
$1,250 GCI, Inc.
9.75%, due 8/01/07 .................................. $1,231
1,000 Intermedia Communications, Inc.
11.25%, beg. 7/15/02
Step Bond due 7/15/07 .................................. 713
500 Intermedia Communication, Inc.
8.60%, due 6/01/08 ..................................... 460
1,000 Intermedia Communications, Inc.
8.875%, due 11/01/07 ................................... 938
3,000 Level 3 Communications, Inc.
10.50%, beg. 12/01/03
Step Bond due 12/01/08 ............................... 1,845
1,500 Metromedia Fiber Network, Inc.
10.00%, due 11/15/08 ................................. 1,541
1,000 NEXTLINK Communications, Inc.
10.75%, due 11/15/08 ................................. 1,023
2,000 NEXTLINK Communications, Inc.
9.45%, beg. 4/15/03
Step Bond due 4/15/08 ................................ 1,190
TEXTILES (SPECIALTY) - 1.2%
1,000 Polymer Group, Inc.
9.00%, due 7/01/07 ..................................... 970
TRUCKING - 1.5%
1,250 Allied Holdings, Inc.
8.625%, due 10/01/07 ................................. 1,175
-----
TOTAL CORPORATE BONDS ............................................... 69,380
-----
PREFERRED STOCKS - 3.9%
BROADCASTING (TELEVISION, RADIO & CABLE) - 1.1%
3 Capstar Communications, Inc. .......................... 348
5 Sinclair Broadcast Group, Inc. ........................ 523
CONTAINERS & PACKAGING (PAPER) - 1.3%
10 #Packaging Corporation of America (144A)
(acquired 3/31/99) ................................... 1,055
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 51 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELEPHONE - 1.3%
$ 10 Global Crossing Holdings, Ltd.........................$1,060
-----
TOTAL PREFERRED STOCKS ................................................ 2,986
-----
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CASH EQUIVALENTS - 1.5%
INVESTMENT COMPANIES
$1,146 SSgA Prime Money Market Portfolio ................... $1,146
-----
TOTAL CASH EQUIVALENTS ................................................ 1,146
-----
TOTAL INVESTMENTS - 98.8% ........................................... 75,100
Other Assets, less Liabilities .......................................... 902
-----
NET ASSETS ......................................................... $76,002
-----
-----
- -----------------------------------------------------------------------------
</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 $11,686,079 and the
total value is 15.0% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
- 52 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INTERMEDIATE-TERM
U.S. TREASURY FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO Intermediate-Term U.S. Treasury Fund fared well against its peers,
but trailed the Merrill Lynch Intermediate U.S. Treasury Index for the quarter,
six and 12 months ended June 30. The Fund's returns for the respective periods
were (1.22%)*, (2.35%)* and 3.07%* for Class A shares and (1.42%)*, (2.71%)* and
2.35%* for Class B shares. The Index returned (0.19%), (0.53%), and 4.50%. For
the same periods, the average intermediate-term U.S. treasury fund returned
(1.08%), (2.24%), and 2.89% , according to Lipper, Inc.
The Fund lagged its Index because its average maturity was longer than the
Index's. Through all of 1998 the Fund was significantly longer with an average
maturity of 6 years. Early in January 1999
[PHOTO OF RONALD SPAULDING]
*Not including the effects of sales charges.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW - CLASS A AND CLASS B SHARES
<TABLE>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIOD ENDED JUNE 30, 1999 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A -1.57% 5.33% 6.36% 3.07% 6.30% 6.85%
Class B -2.65% 5.58% 6.65% 2.35% 5.90% 6.65%
</TABLE>
<TABLE>
<CAPTION>
MERRILL
INTERMEDIATE- INTERMEDIATE- LYNCH
INVESTMENT TERM TERM INTERMEDIATE-
VALUE U.S. TREASURY U.S. TREASURY TERM
WITH SALES FUND FUND TREASURY
CHARGE CLASS A CLASS B INDEX
<S> <C> <C> <C>
6/30/89 $9,550 $10,000 $10,000
7/31/89 $9,718 $10,176 $10,204
8/31/89 $9,627 $10,080 $10,062
9/30/89 $9,667 $10,122 $10,113
10/31/89 $9,830 $10,293 $10,320
11/30/89 $9,901 $10,368 $10,421
12/31/89 $9,922 $10,389 $10,448
1/31/90 $9,862 $10,327 $10,388
2/28/90 $9,912 $10,379 $10,414
3/31/90 $9,906 $10,374 $10,435
4/30/90 $9,881 $10,347 $10,398
5/31/90 $10,069 $10,543 $10,618
6/30/90 $10,171 $10,650 $10,756
7/31/90 $10,308 $10,793 $10,911
8/31/90 $10,271 $10,755 $10,863
9/30/90 $10,310 $10,796 $10,963
10/31/90 $10,392 $10,882 $11,115
11/30/90 $10,500 $10,995 $11,281
12/31/90 $10,631 $11,132 $11,441
1/31/91 $10,679 $11,182 $11,557
2/28/91 $10,763 $11,270 $11,617
3/31/91 $10,839 $11,350 $11,680
4/30/91 $10,960 $11,476 $11,801
5/31/91 $11,016 $11,536 $11,868
6/30/91 $11,030 $11,550 $11,881
7/31/91 $11,167 $11,694 $12,009
8/31/91 $11,356 $11,891 $12,233
9/30/91 $11,527 $12,069 $12,441
10/31/91 $11,650 $12,199 $12,582
11/30/91 $11,770 $12,325 $12,729
12/31/91 $12,070 $12,638 $13,040
1/31/92 $11,931 $12,493 $12,909
2/28/92 $11,946 $12,509 $12,958
3/31/92 $11,903 $12,464 $12,905
4/30/92 $11,994 $12,558 $13,023
5/31/92 $12,166 $12,739 $13,209
6/30/92 $12,356 $12,938 $13,400
7/31/92 $12,664 $13,260 $13,649
8/31/92 $12,763 $13,364 $13,806
9/30/92 $13,000 $13,613 $13,997
10/31/92 $12,762 $13,363 $13,825
11/30/92 $12,683 $13,280 $13,764
12/31/92 $12,861 $13,467 $13,945
1/31/93 $13,193 $13,815 $14,206
2/28/93 $13,484 $14,119 $14,419
3/31/93 $13,539 $14,176 $14,473
4/30/93 $13,636 $14,279 $14,587
5/31/93 $13,591 $14,231 $14,543
6/30/93 $13,920 $14,576 $14,752
7/31/93 $13,941 $14,599 $14,783
8/31/93 $14,286 $14,958 $15,008
9/30/93 $14,366 $15,043 $15,073
10/31/93 $14,398 $15,076 $15,100
11/30/93 $14,168 $14,835 $15,027
12/31/93 $14,256 $14,927 $15,086
1/31/94 $14,441 $15,121 $15,236
2/28/94 $14,058 $14,721 $15,019
3/31/94 $13,763 $14,412 $14,809
4/30/94 $13,666 $14,309 $14,709
5/31/94 $13,671 $14,316 $14,724
6/30/94 $13,646 $14,288 $14,734
7/31/94 $13,827 $14,477 $14,917
8/31/94 $13,862 $14,514 $14,964
9/30/94 $13,710 $14,357 $14,844
10/31/94 $13,716 $14,362 $14,847
11/30/94 $13,687 $14,333 $14,773
12/31/94 $13,741 $14,389 $14,829
1/31/95 $13,898 $14,553 $15,075
2/28/95 $14,106 $14,770 $15,363
3/31/95 $14,178 $14,846 $15,447
4/30/95 $14,353 $15,029 $15,625
5/31/95 $14,901 $15,603 $16,071
6/30/95 $15,001 $15,708 $16,176
7/31/95 $14,885 $15,585 $16,187
8/31/95 $15,061 $15,771 $16,320
9/30/95 $15,228 $15,945 $16,430
10/31/95 $15,460 $16,189 $16,614
11/30/95 $15,774 $16,517 $16,822
12/31/95 $16,042 $16,797 $16,993
1/31/96 $16,094 $16,853 $17,139
2/28/96 $15,702 $16,442 $16,946
3/31/96 $15,537 $16,269 $16,865
4/30/96 $15,505 $16,235 $16,812
5/31/96 $15,501 $16,232 $16,803
6/30/96 $15,614 $16,350 $16,967
7/31/96 $15,663 $16,402 $17,019
8/31/96 $15,662 $16,400 $17,038
9/30/96 $15,837 $16,583 $17,254
10/31/96 $16,029 $16,774 $17,535
11/30/96 $16,232 $16,993 $17,751
12/31/96 $16,094 $16,840 $17,655
1/31/97 $16,139 $16,864 $17,720
2/28/97 $16,108 $16,824 $17,739
3/31/97 $15,906 $16,606 $17,649
4/30/97 $16,106 $16,810 $17,846
5/31/97 $16,218 $16,928 $17,983
6/30/97 $16,391 $17,099 $18,139
7/31/97 $16,856 $17,577 $18,479
8/31/97 $16,648 $17,350 $18,401
9/30/97 $16,897 $17,595 $18,604
10/31/97 $17,176 $17,873 $18,820
11/30/97 $17,182 $17,868 $18,863
12/31/97 $17,386 $18,066 $19,024
1/31/98 $17,660 $18,326 $19,280
2/28/98 $17,578 $18,243 $19,254
3/31/98 $17,606 $18,265 $19,318
4/30/98 $17,664 $18,317 $19,404
5/31/98 $17,809 $18,458 $19,535
6/30/98 $17,970 $18,599 $19,671
7/31/98 $17,981 $18,620 $19,749
8/31/98 $18,434 $19,061 $20,143
9/30/98 $19,064 $19,703 $20,618
10/31/98 $18,981 $19,603 $20,665
11/30/98 $18,889 $19,497 $20,589
12/31/98 $18,965 $19,564 $20,665
1/31/99 $18,962 $19,551 $20,764
2/28/99 $18,657 $19,225 $20,444
3/30/99 $18,749 $19,308 $20,593
4/30/99 $18,756 $19,302 $20,657
5/31/99 $18,554 $19,081 $20,518
6/30/99 $18,520 $19,035 $20,555
</TABLE>
The performance graph compares a hypothetical $10,000 investment in
Class A and Class B of each Fund to a hypothetical investment in a relevant
market index. Fund performance is derived from the Fund's original class of
shares and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
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.
- 53 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I had sold ten-year Treasury Notes, bought six-month Treasury Bills and
shortened the maturity a full year as a defensive measure against rising
interest rates. That trade was enough to outpace our peer group for the 12 month
period, but not the Index, which is difficult for any fund to beat as indexs
have no expenses and no cash flow.
In the second quarter I bought both six-month bills and ten-year notes to
keep the average maturity short. By June 30, I'd shortened it to 5.0 years. This
compares to 3.7 years for the Index. We remained longer, and in the
rising-interest-rate world of the first half of 1999, being longer contributed
to our lagging performance.
An intermediate-term U.S. Treasury fund can truly distinguish itself only by
having a significantly longer or shorter average maturity than the index or peer
group. In most market conditions I anticipate maintaining an average maturity
longer than the Index. Longer bonds generally yield more than shorter bonds. By
being somewhat longer than the Index, I would expect the Fund to outperform
during periods of stable or falling interest rates. In periods of rising rates,
I will shorten the average maturity, but I don't expect to be significantly
shorter than the Index. If I can match or beat the index in
periods of stable and falling interest rates and lag somewhat in periods of
rising rates, I expect to provide, relatively good long-run performance.
HIGHLIGHTS
-------------------------------
CURRENT YIELD (30-DAY) CLASS A ......................................... 3.22%
CURRENT YIELD (30-DAY) CLASS B ......................................... 2.68%
WEIGHTED AVERAGE MATURITY .......................................... 5.0 YEARS
The trades discussed above illustrate my strategy of shortening maturities as
interest rates rise. In retrospect, I wish I had shortened more, but even those
modest moves helped preserve shareholder capital in a difficult environment.
Prices for intermediate U.S. Treasury Notes have declined substantially since
hitting a peak last fall. The ten-year U.S. Treasury issued in May, 1998 peaked
at 111.50 in October 1998 and bottomed at 96.375 in late June 1999, a decline of
13.5%. Put another way, the yield on that note increased from 4.16% to 6.16% in
a period of six months. I believe the worst of the increase in rates is behind
us, but I think it's possible the Federal Reserve Board will raise interest
rates again before the summer is over. Given that possibility I expect to
maintain the defensive posture of a shorter maturity for the immediate future.
If the economy does slow later in the year as I expect and the Fed is no
longer likely to increase interest rates, then I will lengthen the average
maturity of the Fund, probably to 6 years.
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 MBA from the
University of Washington and is a Chartered Financial Analyst.
- 54 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
<C> <S>
- -----------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS - 97.5%
U.S. FEDERAL AGENCY NOTES - 18.1%
$1,500 6.875%, due 11/22/06 ............................... $ 1,498
1,500 6.26%, due 9/24/04 ................................... 1,499
500 5.785%, due 4/14/08 .................................... 476
500 5.75%, due 2/15/08 ..................................... 477
U.S. TREASURY BILLS / STRIPS - 17.5%
2,600 4.305%, due 9/30/99 .................................. 2,569
1,975 0.00%, due 2/15/07 ................................... 1,256
U.S. TREASURY NOTES - 61.9%
2,200 7.75%, due 2/15/01 ................................... 2,276
1,200 7.50%, due 11/15/01 .................................. 1,250
2,070 7.25%, due 8/15/04 ................................... 2,199
1,310 6.875%, due 3/31/00 .................................. 1,326
3,900 6.50%, due 10/15/00 .................................. 4,024
2,500 5.625%, due 5/15/08 .................................. 2,449
-----
TOTAL U.S. GOVERNMENT OBLIGATIONS .................................... 21,299
-----
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CASH EQUIVALENTS - 1.8%
INVESTMENT COMPANIES
$389 SSgA Prime Money Market Portfolio ................... $ 389
-----
TOTAL CASH EQUIVALENTS .................................................. 389
-----
TOTAL INVESTMENTS - 99.3% ............................................ 21,688
Other Assets, less Liabilities .......................................... 159
-----
NET ASSETS .......................................................... $21,847
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 55 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO MANAGED BOND FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Managed Bond Fund lagged the Lehman Brothers Government/ Corporate Index
for the second quarter, year-to-date and one-year. Class A shares returned
(2.23%)*, (4.19%)*, and (0.48%)* while Class B shares returned (2.30%)*,
(4.42%)*, and (1.16%)* for the quarter, year-to-date and one-year periods,
respectively. The index produced (2.28%), 0.35% and 2.70% for the same
respective periods. The Fund also trailed its Lipper, Inc. peer group, which
returned (1.11%), (1.60%) and 2.00% for the respective three-, six-and 12-month
periods.
Paradoxically, the largest single factor contributing to this year's
underperformance is the
[PHOTO OF MICHAEL HUGHES]
*Not including the effects of sales charges.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW - CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIOD ENDED JUNE 30, 1999 1 YEAR 5 YEAR SINCE INCEPTION* 1 YEAR 5 YEAR SINCE INCEPTION*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A -4.96% 4.65% 3.66% -0.48% 5.62% 4.56%
Class B -6.10% 4.79% 3.94% -1.16% 5.12% 4.10%
</TABLE>
<TABLE>
<CAPTION>
SAFECO SAFECO LEHMAN
MANAGED MANAGED BROTHERS
INVESTMENT VALUE BOND BOND GOVERNMENT/
WITH SALES FUND FUND CORPORATE
CHARGE CLASS A CLASS B INDEX
<S> <C> <C> <C>
2/28/94 $9,550 $10,000 $10,000
3/31/94 $9,231 $9,666 $9,755
4/30/94 $9,223 $9,657 $9,674
5/31/94 $9,231 $9,666 $9,657
6/30/94 $9,218 $9,653 $9,634
7/31/94 $9,318 $9,756 $9,827
8/31/94 $9,340 $9,780 $9,831
9/30/94 $9,266 $9,703 $9,683
10/31/94 $9,272 $9,709 $9,672
11/30/94 $9,245 $9,680 $9,655
12/31/94 $9,263 $9,699 $9,718
1/31/95 $9,386 $9,828 $9,905
2/28/95 $9,541 $9,991 $10,135
3/31/95 $9,587 $10,038 $10,203
4/30/95 $9,709 $10,167 $10,344
5/31/95 $10,059 $10,533 $10,778
6/30/95 $10,137 $10,615 $10,864
7/31/95 $10,067 $10,542 $10,822
8/31/95 $10,193 $10,673 $10,960
9/30/95 $10,305 $10,791 $11,072
10/31/95 $10,469 $10,962 $11,235
11/30/95 $10,675 $11,178 $11,420
12/31/95 $10,870 $11,382 $11,588
1/31/96 $10,887 $11,399 $11,660
2/28/96 $10,627 $11,127 $11,412
3/31/96 $10,514 $11,010 $11,317
4/30/96 $10,509 $11,004 $11,239
5/31/96 $10,514 $11,009 $11,219
6/30/96 $10,593 $11,092 $11,370
7/31/96 $10,626 $11,127 $11,396
8/31/96 $10,646 $11,147 $11,369
9/30/96 $10,734 $11,239 $11,571
10/31/96 $10,843 $11,347 $11,841
11/30/96 $10,965 $11,467 $12,058
12/31/96 $10,877 $11,368 $11,925
1/31/97 $10,884 $11,368 $11,939
2/28/97 $10,858 $11,336 $11,964
3/31/97 $10,715 $11,179 $11,822
4/30/97 $10,863 $11,327 $11,994
5/31/97 $10,946 $11,406 $12,106
6/30/97 $11,056 $11,511 $12,251
7/31/97 $11,378 $11,839 $12,626
8/31/97 $11,231 $11,664 $12,484
9/30/97 $11,397 $11,842 $12,680
10/31/97 $11,577 $12,021 $12,883
11/30/97 $11,592 $12,028 $12,952
12/31/97 $11,723 $12,154 $13,088
1/31/98 $11,917 $12,343 $13,272
2/28/98 $11,866 $12,276 $13,246
3/31/98 $11,885 $12,284 $13,287
4/30/98 $11,927 $12,303 $13,353
5/31/98 $12,066 $12,435 $13,496
6/30/98 $12,175 $12,536 $13,634
7/31/98 $12,168 $12,532 $13,645
8/31/98 $12,449 $12,798 $13,911
9/30/98 $12,764 $13,113 $14,308
10/31/98 $12,605 $12,936 $14,207
11/30/98 $12,625 $12,948 $14,292
12/31/98 $12,646 $12,965 $14,326
1/31/99 $12,700 $13,013 $14,428
2/28/99 $12,347 $12,644 $14,085
3/31/99 $12,393 $12,683 $14,155
4/30/99 $12,395 $12,692 $14,191
5/31/99 $12,218 $12,488 $14,044
6/30/99 $12,116 $12,391 $14,001
</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 Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
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.
- 56 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Fund's conservative structure. Traditionally, the Fund has maintained about half
of its assets in intermediate-term bonds with maturities between 5 to 10 years,
invested primarily in U.S. governments and high-quality corporates. In this
maturity range, the fixed-income investor usually receives a generous yield
premium and limited interest rate risk.
However, securities on this part of the yield curve have been punished so far
this year by fears of prolonged Federal Reserve interest rate hikes, massive new
issue supply and mortgage-backed securities hedging activity. As a result, the
high-quality intermediate-term securities underper-
HIGHLIGHTS
-------------------------------
<TABLE>
<CAPTION>
PERCENT OF
BONDS BY TYPE NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
U.S. Government Obligations................................. 52%
Asset Backed Securities..................................... 9
Mortgage Backed Securities.................................. 12
Corporate Bonds............................................. 24
Cash & Other................................................ 3
----
100%
----
----
</TABLE>
CURRENT YIELD (30-DAY) CLASS A ......................................... 2.92%
CURRENT YIELD (30-DAY) CLASS B ......................................... 2.66%
WEIGHTED AVERAGE MATURITY .......................................... 8.5 YEARS
formed the broader market averages and so did our portfolio.
Surprisingly robust economic growth during the quarter fed fears that the
Federal Reserve would embark on an extended series of interest rate increases.
As expected, the Fed did raise the Fed Funds rate by a quarter of a point on
June 30, citing concerns about inflation. Interest rates increased by roughly
0.5%, with yields in the 5-to 10-year range increasing the most.
I continued to take steps to improve overall portfolio yield, quality, and
liquidity. For example, I sold bonds issued by The Tandy Corporation (Radio
Shack) and purchased paper issued by Sears. The Tandy bonds were part of a $150
million issue that rarely traded, while the Sears bonds were part of a $750
million issue that was very actively traded.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CREDIT RATING DISTRIBUTION AS A PERCENT OF NET ASSETS
(1) AAA: 73%
(2) AA: 5%
(3) A: 19%
(4) Cash & Other: 3%
I have tried to structure the portfolio to perform very well on a relative
basis should economic or market conditions deteriorate. The Fund holds 65% of
its assets in U.S. government securities. During the second quarter, I shortened
the Fund's average
- 57 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
maturity from 8.8 years to 8.5 years, and may shorten it further in the weeks
ahead.
Going forward, the markets will agonize over each new piece of economic news.
It is unlikely we are going to see any concrete signs of economic moderation in
the near-term (six to eight weeks) and the market will continue to trade under a
cloud of potential Fed increases. In the fall, I think the Fed will be less
likely to raise rates for three reasons. One, the increases we've seen
year-to-date will have begun to slow the economy. Two, August through October
are historically bad months for the stock market and the Fed is unlikely to
raise rates in the face of potential financial market dislocations. And, three,
with Y2K concerns casting a potentially dark shadow over the market, the Fed
will not want to do anything to make the situation worse.
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 BS in finance
from University of Colorado in Boulder and holds an MBA from the University of
Southern California in Los Angeles. He is a Chartered Financial Analyst.
- 58 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MANAGED BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
<C> <S>
- -----------------------------------------------------------------------------
ASSET BACKED SECURITIES - 8.9%
CONSUMER FINANCE - 2.1%
$175 MBNA Master Credit Card Trust
5.90%, due 8/15/11 .................................... $165
ELECTRIC COMPANIES - 1.5%
125 ComEd Transitional Funding Trust
5.63%, due 6/25/09 ..................................... 118
FINANCIAL (DIVERSIFIED) - 4.3%
18 Chevy Chase Auto
Receivables Trust (Class A)
6.60%, due 12/15/02 ..................................... 18
230 Citicorp Mortgage Securities, Inc.
6.50%, due 6/25/29 ..................................... 221
100 Heller Financial Commercial
Mortgage Asset Corp.
6.847%, due 5/15/31 ..................................... 99
MANUFACTURING (SPECIALIZED) - 1.1%
85 Harley Davidson Eagle
6.20%, due 1/15/03 ...................................... 85
----
TOTAL ASSET BACKED SECURITIES ........................................... 707
----
CORPORATE BONDS - 23.5%
AIR FREIGHT - 1.6%
127 Federal Express Corp.
6.845%, due 1/15/19 .................................... 124
BANKS (MAJOR REGIONAL) - 1.5%
120 Bank of America Corp.
6.625%, due 6/15/04 .................................... 120
ENGINEERING & CONSTRUCTION - 1.2%
97 Halliburton Co.
6.75%, due 2/01/27 ...................................... 96
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FINANCIAL (DIVERSIFIED) - 13.6%
$135 Aristar, Inc
7.25%, due 6/15/06 ................................... $ 136
110 CIT Group, Inc.
5.57%, due 12/08/03 .................................... 105
125 First Union Corp.
6.625%, due 6/15/04 .................................... 125
160 Ford Motor Credit Co.
5.80%, due 1/12/09 ..................................... 146
150 General Motors Acceptance Corp.
5.95%, due 3/14/03 ..................................... 147
190 Hertz Corp.
7.00%, due 7/01/04 ..................................... 191
85 Merrill Lynch & Co., Inc.
6.00%, due 2/17/09 ...................................... 78
160 Sears Roebuck Acceptance Corp.
6.25%, due 5/01/09 ..................................... 150
NATURAL GAS - 2.8%
240 National Fuel Gas Co.
6.00%, due 3/01/09 ..................................... 223
RETAIL (DEPARTMENT STORES) - 1.9%
165 Nordstrom, Inc.
5.625%, due 1/15/09 .................................... 150
TELEPHONE - 0.8%
30 AT&T Corp.
5.625%, due 3/15/04 ..................................... 29
40 AT&T Corp.
6.50%, due 3/15/29 ...................................... 36
----
TOTAL CORPORATE BONDS ................................................. 1,857
----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 59 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MANAGED BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MORTGAGE BACKED SECURITIES - 12.4%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 7.2%
$ 59 6.00%, due 1/01/29 .................................... $ 56
217 7.00%, due 3/01/12 ..................................... 218
204 8.00%, due 2/15/29 ..................................... 210
80 8.00%, due 4/01/08 ...................................... 82
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 5.3%
233 7.00%, due 4/15/28 ..................................... 230
189 7.00%, due 8/15/28 ..................................... 186
----
TOTAL MORTGAGE BACKED SECURITIES ........................................ 983
----
U.S. GOVERNMENT OBLIGATIONS - 51.9%
U.S. FEDERAL AGENCY NOTES - 12.5%
35 5.125%, due 2/13/04 ..................................... 34
360 6.375%, due 6/15/09 .................................... 356
600 6.62%, due 6/25/07 ..................................... 603
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
U.S. TREASURY NOTES - 39.4%
$ 200 4.25%, due 11/15/03 .................................. $ 189
630 5.375%, due 6/30/00 .................................... 630
185 5.875%, due 6/30/00 .................................... 186
200 6.375%, due 8/15/02 .................................... 204
520 6.50%, due 10/15/06 .................................... 537
15 6.875%, due 3/31/00 ..................................... 15
195 7.25%, due 8/15/04 ..................................... 207
1,025 7.50%, due 11/15/16 .................................. 1,152
----
TOTAL U.S. GOVERNMENT OBLIGATIONS ..................................... 4,113
----
CASH EQUIVALENTS - 2.8%
INVESTMENT COMPANIES
221 SSgA Prime Money Market Portfolio ...................... 221
----
TOTAL CASH EQUIVALENTS .................................................. 221
----
TOTAL INVESTMENTS - 99.5% ............................................. 7,881
Other Assets, less Liabilities ........................................... 37
----
NET ASSETS ........................................................... $7,918
----
----
- -----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 60 -
<PAGE>
OVERVIEW OF THE
SAFECO MUNICIPAL BOND MARKET
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
While municipal market prices fell during the first two quarters of the
year--the Bond Buyer 40 Yield-to-Maturity Index yield began 1999 at 5.16% and
finished in June at 5.55%--things were even worse in the second quarter than
they were in the first quarter.
After trading in a very narrow range for over a year, the long-term muni bond
market broke out in the spring of 1999. Unfortunately, it broke in an unpleasant
direction. Rates began to rise late in April and by the end of June, long-term
tax-exempt yields were at 5.55%, up 0.38% from the beginning of the year.
[PHOTO OF STEPHEN C. BAUER]
Although the performance of the muni market was poor, it was substantially
better than that of the U.S. Treasury bond market. This outperformance by
municipals returned the ratio of tax-exempt yields to taxable yields to the
90-93% range. From September 1998 to January 1999 munis had yielded more than
100% of their treasury counterparts. We think that the level of equilibration
between the two markets is around 87%, but it is impossible to say when that
might come about. Until then munis offer a more attractive income stream on an
after-tax basis.
The reason for the increase in yields in the bond market is the fear of
inflation, which erodes the purchasing power of the fixed stream of dollars paid
by bonds. Although there is no sign of increasing inflation, in years past the
current combination of strong economic growth coupled with low levels of
unemployment has meant rising wages which ultimately meant rising prices.
Whether the same rules apply in 1999 is unclear, but in the meantime the Federal
Reserve took a modest step to cool things down by slightly raising short-term
interest rates. It is entirely possible that they may take further action if
conditions remain unchanged.
Will the Fed tighten? Is the bond market correction over? Will inflation
increase? We don't know. We do know that the financial markets always anticipate
and then overreact to news, and this is no exception. At times like these, we
are taking advantage of the dislocations and inefficiencies that accompany a
bear market in order to benefit the Funds' performance over the long term.
- 61 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO MUNICIPAL BOND FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the six months ending June 30, 1999, SAFECO Municipal Bond Fund Class A
shares returned (2.02%)*. Class B shares returned (2.37%)*. The average general
municipal fund returned (1.82%), according to Lipper, Inc. For the second
quarter Class A shares returned (2.45%)* and Class B shares (2.62%)*. The peer's
returned (2.28%). Performance for the latest 12 months was slightly better with
Class A shares returning 0.96%* and 0.35%* for Class B, compared to the average
of 1.14%.
Lehman Brothers Long Municipal Bond Index shows three-, six- and 12-month
returns for the periods ending June 30 at (2.51%), (1.68%) and 1.98%,
respectively. As has been the case
[PHOTO OF STEPHEN C. BAUER]
*Not including the effects of sales charges.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW - CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIOD ENDED JUNE 30, 1999 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A -3.58% 6.07% 6.79% 0.96% 7.05% 7.28%
Class B -4.65% 6.35% 7.09% 0.35% 6.66% 7.09%
</TABLE>
<TABLE>
<CAPTION>
LEHMAN
SAFECO SAFECO BROTHERS
INVESTMENT MUNICIPAL MUNICIPAL LONG
VALUE BOND BOND MUNICIPAL
WITH SALES FUND FUND BOND
CHARGE CLASS A CLASS B INDEX
<S> <C> <C> <C>
6/30/1989 9,550 10,000 10,000
7/31/1989 9,648 10,103 10,132
8/31/1989 9,563 10,013 9,978
9/30/1989 9,554 10,005 9,948
10/31/1989 9,648 10,103 10,079
11/30/1989 9,821 10,284 10,293
12/31/1989 9,881 10,347 10,370
1/31/1990 9,766 10,226 10,265
2/28/1990 9,879 10,344 10,380
3/31/1990 9,864 10,329 10,391
4/30/1990 9,713 10,170 10,264
5/31/1990 10,020 10,492 10,554
6/30/1990 10,113 10,590 10,658
7/31/1990 10,307 10,793 10,846
8/31/1990 10,039 10,511 10,587
9/30/1990 10,019 10,491 10,571
10/31/1990 10,210 10,691 10,795
11/30/1990 10,495 10,989 11,068
12/31/1990 10,538 11,035 11,117
1/31/1991 10,705 11,209 11,266
2/28/1991 10,752 11,258 11,345
3/31/1991 10,765 11,272 11,373
4/30/1991 10,945 11,460 11,549
5/31/1991 11,056 11,576 11,685
6/30/1991 11,017 11,537 11,663
7/31/1991 11,192 11,719 11,843
8/31/1991 11,363 11,898 12,013
9/30/1991 11,544 12,089 12,187
10/31/1991 11,668 12,217 12,315
11/30/1991 11,630 12,178 12,330
12/31/1991 11,991 12,555 12,624
1/31/1992 11,886 12,446 12,616
2/28/1992 11,917 12,479 12,636
3/31/1992 11,902 12,463 12,668
4/30/1992 12,015 12,581 12,789
5/31/1992 12,218 12,793 12,976
6/30/1992 12,481 13,070 13,227
7/31/1992 12,962 13,573 13,712
8/31/1992 12,696 13,294 13,528
9/30/1992 12,721 13,320 13,588
10/31/1992 12,443 13,030 13,361
11/30/1992 12,824 13,429 13,737
12/31/1992 13,039 13,654 13,915
1/31/1993 13,166 13,787 14,046
2/28/1993 13,736 14,384 14,700
3/31/1993 13,521 14,157 14,523
4/30/1993 13,706 14,352 14,721
5/31/1993 13,785 14,434 14,843
6/30/1993 14,068 14,730 15,122
7/31/1993 14,013 14,673 15,137
8/31/1993 14,386 15,063 15,525
9/30/1993 14,547 15,232 15,741
10/31/1993 14,586 15,273 15,770
11/30/1993 14,402 15,081 15,580
12/31/1993 14,691 15,383 15,982
1/31/1994 14,868 15,570 16,170
2/28/1994 14,429 15,109 15,635
3/31/1994 13,696 14,341 14,702
4/30/1994 13,709 14,355 14,815
5/31/1994 13,874 14,527 14,988
6/30/1994 13,720 14,367 14,808
7/31/1994 14,036 14,698 15,189
8/31/1994 14,046 14,708 15,221
9/30/1994 13,699 14,345 14,868
10/31/1994 13,406 14,038 14,411
11/30/1994 13,131 13,750 14,031
12/31/1994 13,479 14,114 14,529
1/31/1995 13,975 14,633 15,168
2/28/1995 14,562 15,248 15,785
3/31/1995 14,668 15,360 15,975
4/30/1995 14,646 15,336 15,968
5/31/1995 15,327 16,049 16,648
6/30/1995 14,999 15,705 16,341
7/31/1995 15,071 15,781 16,424
8/31/1995 15,265 15,985 16,656
9/30/1995 15,380 16,104 16,787
10/31/1995 15,701 16,441 17,193
11/30/1995 16,136 16,896 17,636
12/31/1995 16,373 17,146 17,911
1/31/1996 16,427 17,201 17,988
2/28/1996 16,246 17,011 17,769
3/31/1996 15,875 16,623 17,444
4/30/1996 15,756 16,498 17,374
5/31/1996 15,782 16,525 17,383
6/30/1996 16,014 16,769 17,650
7/31/1996 16,211 16,974 17,825
8/31/1996 16,153 16,914 17,802
9/30/1996 16,478 17,256 18,197
10/31/1996 16,669 17,444 18,419
11/30/1996 17,049 17,821 18,815
12/31/1996 16,894 17,647 18,702
1/31/1997 16,806 17,547 18,665
2/28/1997 16,973 17,715 18,866
3/31/1997 16,677 17,397 18,540
4/30/1997 16,869 17,603 18,759
5/31/1997 17,159 17,882 19,123
6/30/1997 17,356 18,091 19,367
7/31/1997 18,070 18,813 20,072
8/31/1997 17,751 18,473 19,805
9/30/1997 17,977 18,711 20,091
10/31/1997 18,123 18,841 20,263
11/30/1997 18,251 18,968 20,444
12/31/1997 18,613 19,334 20,818
1/31/1998 18,782 19,490 21,041
2/28/1998 18,763 19,464 21,030
3/31/1998 18,770 19,450 21,060
4/30/1998 18,593 19,259 20,946
5/31/1998 18,977 19,660 21,356
6/30/1998 19,102 19,766 21,448
7/31/1998 19,127 19,781 21,498
8/31/1998 19,459 20,114 21,882
9/30/1998 19,717 20,371 22,186
10/31/1998 19,590 20,242 22,115
11/30/1998 19,685 20,316 22,228
12/31/1998 19,684 20,316 22,250
1/31/1999 19,916 20,531 22,469
2/28/1999 19,775 20,387 22,374
3/31/1999 19,769 20,369 22,439
4/30/1999 19,837 20,412 22,459
5/31/1999 19,669 20,228 22,282
6/30/1999 19,285 19,835 21,876
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
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.
- 62 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
in the past, the Fund's longer maturity and fully invested philosophy causes it
to lag the Index and peer group in declining markets.
Although no investor likes to see prices decline (unless he or she is all in
cash and waiting to reinvest), adversity in the bond market can create
opportunity. I was able to execute several transactions in the Fund that weren't
possible when the market was rising or stable. In April, by trading Louisville
and Jefferson County Metropolitan Sewer District 5.00% due 5/15/30 for Piedmont
Municipal Power Agency 4.75% due 1/1/25, I was able to pick up 14 basis points
(14/100 of 1%) of yield as well as over 5 points of additional call protection.
Although the additional call protection is worth nothing when interest rates are
rising, if they drop to 5% or lower and refinancing resumes, the Piedmont bonds
should have superior performance.
In early May I swapped Missouri State Health and Education 5.00% bonds for
4.75% bonds. Each of these have the same yield, but the 4.75% bonds give us
additional call protection for free.
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 BS in
microbiology and an MBA from the University of Washington.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CREDIT RATING DISTRIBUTION AS A PERCENT OF NET ASSETS
(1) AAA: 40%
(2) AA: 24%
(3) A: 17%
(4) BBB: 15%
(5) B: 1%
(6) Not Rated: 1%
(7) Cash & Other: 2%
HIGHLIGHTS
------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE STATES NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
California.................................................. 17%
Washington.................................................. 14
Indiana..................................................... 8
Texas....................................................... 8
District of Columbia........................................ 6
</TABLE>
CURRENT YIELD (30-DAY) CLASS A ......................................... 3.61%
CURRENT YIELD (30-DAY) CLASS B ......................................... 3.16%
WEIGHTED AVERAGE MATURITY ......................................... 23.9 YEARS
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
Washington Convention Center Authority Dedicated Tax
Revenue................................................... 4.3%
San Joaquin Hills Transportation Corridor Agency Senior Lien
Toll Road Revenue......................................... 4.3
Illinois Educational Facilities Authority Adjustable Demand
Revenue (University of Chicago)........................... 3.5
Wyoming Community Development Authority Housing Revenue..... 3.5
Indiana State Development Finance Authority Environmental
Revenue .................................................. 3.1
</TABLE>
- 63 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MUNICIPAL BONDS* - 97.9%
ALABAMA - 1.6%
$ 1,310 +Alabama Agriculture and Mechanical University Revenue
5.50%, due 11/01/20 [MBIA] (Prerefunded
11/01/05@102) ...................................... $ 1,397
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 .......... 1,818
1,000 Cintronelle Industrial Development Board Pollution Control
Revenue 8.00%, due 12/01/12 .......................... 1,044
4,250 Jefferson County Sewer Revenue 5.70%, due 2/01/20
[FGIC] ............................................... 4,335
ALASKA - 3.1%
17,000 Alaska Housing Finance Corp. (General Housing Purpose)
5.00%, due 12/01/18 ................................. 15,993
190 Alaska Housing Finance Corp. Collateralized (Veterans
Mortgage Program) 6.50%, due 6/01/31 ................... 194
ARIZONA - 1.7%
9,800 Phoenix Civic Improvement Corp. Wastewater System Lease
Revenue 4.75%, due 7/01/23 ........................... 8,924
CALIFORNIA - 17.4%
1,500 Foothill/Eastern Transportation Corridor Agency Toll Road
Revenue 5.00%, due 1/01/35 ........................... 1,358
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CALIFORNIA (CONTINUED)
$ 2,500 +Los Angeles County Certificates of Participation (Disney
Parking Project) 5.50%, due 9/01/21 (Prerefunded
3/01/03@100) ....................................... $ 2,604
13,000 Los Angeles Department of Water and Power Electric Plant
Revenue 5.25%, due 11/15/26 ......................... 12,632
5,000 Los Angeles Wastewater System Revenue 4.70%, due 11/01/19
[FGIC] ............................................... 4,546
1,700 Northern California Power Agency Geothermal Project Revenue
5.00%, due 7/01/09 ................................... 1,682
3,550 +Northern California Power Agency Geothermal Project Revenue
5.00%, due 7/01/09 (Prerefunded 7/01/08@100) ......... 3,609
6,400 Pittsburg Redevelopment Agency Los Medanos Community
Development Project Tax Allocation 4.625%, due 8/01/21
[AMBAC] .............................................. 5,689
11,995 Pittsburg Redevelopment Agency Los Medanos Community
Development Project Tax Allocation 5.80%, due 8/01/34
[FSA] ............................................... 12,479
2,000 Redding Joint Powers Financing Authority Solid Waste and
Corporation Yard Revenue 5.00%, due 1/01/23 .......... 1,854
8,750 Sacramento County Sanitation District Finance Authority
Revenue 4.75%, due 12/01/23 .......................... 7,863
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 64 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CALIFORNIA (CONTINUED)
$ 8,010 San Joaquin County Public Facilities Financing Corp.
Certificates of Participation Capital Facilities Project
4.75%, due 11/15/19 [MBIA] ......................... $ 7,288
25,000 San Joaquin Hills Transportation Corridor Agency Senior Lien
Toll Road Revenue 5.00%, due 1/01/33 ................ 22,673
3,165 Southern California Public Power Authority Power Project
Revenue (Multiple Projects) 5.50%, due 7/01/20 ....... 3,166
4,085 +Southern California Public Power Authority Power Project
Revenue (Multiple Projects) 5.50%, due 7/01/20 (Prerefunded
7/01/00@100) ......................................... 4,172
COLORADO - 0.2%
1,000 Colorado Housing Finance Authority Multi-Family Mortgage
Revenue 8.30%, due 10/01/23 .......................... 1,107
DISTRICT OF COLUMBIA - 6.1%
10,000 District of Columbia General Obligation 5.25%, due 6/01/27
[MBIA] ............................................... 9,590
26,000 Washington Convention Center Authority Dedicated Tax Revenue
4.75%, due 10/01/28 [AMBAC] ......................... 22,870
FLORIDA - 0.5%
2,750 Mid-Bay Bridge Authority Revenue 6.05%, due
10/01/22 ............................................. 2,866
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
GEORGIA - 2.3%
$ 6,750 +Atlanta Water and Sewage Revenue 4.50%, due 1/01/18
(Prerefunded 1/01/04@100) .......................... $ 6,764
5,000 Municipal Electric Authority Project One Special Obligation
Fourth Crossover Series 6.50%, due 1/01/20 ........... 5,584
HAWAII - 0.4%
2,420 Honolulu, Hawaii City and County Waste Water System Revenue
4.75%, due 7/01/28 [FGIC] ............................ 2,149
ILLINOIS - 5.6%
17,500 +Illinois Educational Facilities Authority Adjustable Demand
Revenue (University of Chicago) 5.70%, due 12/01/25
(Prerefunded 12/01/03@102) .......................... 18,685
5,000 Metropolitan Pier and Exposition Authority Mccormick Place
Convention Complex Hospitality Facilities Revenue 7.00%, due
7/01/26 .............................................. 5,829
4,770 University of Illinois Auxiliary Facilities System Revenue
5.75%, due 4/01/22 ................................... 4,856
INDIANA - 8.1%
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)..........................................12,108
7,715 Hammond Multi-School Building Corp. First Mortgage Revenue
6.20%, due 7/10/15 ................................... 8,063
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 65 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
INDIANA (CONTINUED)
$17,550 Indiana State Development Finance Authority Environmental
Revenue 5.60%, due 12/10/32 ........................ $16,493
6,450 +Indianapolis Gas Utility System Revenue 4.00%, due 6/01/11
[FGIC] (Escrowed to Maturity) ........................ 5,881
KENTUCKY - 0.7%
4,000 Louisville and Jefferson Counties Metropolitan Sewer
District Sewer and Drain System Revenue 5.00%, due 5/15/30
[FGIC] ............................................... 3,715
MARYLAND - 1.8%
5,125 Baltimore Project and Revenue (Water Projects) 5.00%, due
7/01/24 [FGIC] ....................................... 4,900
5,000 Maryland Health and Higher Educational Facilities Authority
Revenue (University of Maryland Medical System) 4.75%, due
7/01/23 [FGIC] ....................................... 4,522
MASSACHUSETTS - 2.3%
5,140 Massachusetts Housing Finance Agency Housing Revenue 6.20%,
due 7/01/38 [AMBAC] .................................. 5,384
2,500 Massachusetts Water Resources Authority Revenue 4.75%, due
12/01/23 ............................................. 2,204
4,500 +Massachusetts Water Resources Authority Revenue 6.00%, due
4/01/20 (Prerefunded 4/01/00@100) .................... 4,588
MICHIGAN - 1.3%
5,250 Detroit Water Supply System Revenue 4.75%, due 7/01/19
[FGIC] ............................................... 4,776
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MICHIGAN (CONTINUED)
$2,000 +University of Michigan Hospital Revenue 6.375%, due
12/01/24 (Prerefunded 12/01/00@100) ................. $2,070
MISSOURI - 1.8%
4,000 Missouri Health and Education Facilities Authority
Educational Facilities Revenue 4.75%, due 11/15/37 ... 3,454
1,000 Missouri Health and Education Facilities Authority
Educational Facilities Revenue 5.00%, due 11/15/37 ..... 913
5,000 University of Missouri System Facilities Revenue 5.80%, due
11/01/27 ............................................. 5,148
NEW JERSEY - 0.2%
1,070 +New Jersey Turnpike Authority Revenue 10.375%, due 1/01/03
(Escrowed to Maturity) ............................... 1,200
NEW MEXICO - 0.5%
2,420 Farmington Collateralized Pollution Control Revenue (Tucson
Gas and Electric Co.) 6.10%, due 1/01/08 2,421
NEW YORK - 5.8%
4,025 Long Island Power Authority Electric System General Revenue
5.25%, due 12/01/26 .................................. 3,834
2,100 New York City Municipal Water Finance Authority Water and
Sewer System Revenue 5.00%, due 6/15/17 [FGIC] ....... 2,009
1,500 New York Dormitory Authority State University Educational
Facilities Revenue 5.00%, due 7/01/15 ................ 1,461
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 66 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
NEW YORK (CONTINUED)
$ 5,500 New York Dormitory Authority State University Educational
Facilities Revenue 5.25%, due 5/15/15 .............. $ 5,470
4,400 New York Dormitory Authority State University Educational
Facilities Revenue 7.50%, due 5/15/11 ................ 5,140
5,250 New York Dormitory Authority State University Educational
Facilities Revenue 7.50%, due 5/15/13 ................ 6,450
6,500 Urban Development Corp. Correctional Facilities Revenue
5.375%, due 1/01/25 .................................. 6,294
NORTH CAROLINA - 2.1%
11,000 North Carolina Eastern Municipal Power Agency Power System
Revenue 6.00%, due 1/01/22 .......................... 11,122
OKLAHOMA - 1.1%
5,590 McGee Creek Authority Water Revenue 6.00%, due 1/01/23
[MBIA] ............................................... 6,026
PENNSYLVANIA - 0.9%
5,000 Centre County University Area Joint Authority Sewer Revenue
4.75%, due 11/01/20 [MBIA] ........................... 4,538
SOUTH CAROLINA - 4.6%
945 Charleston County Pollution Control Facilities Revenue
5.90%, due 8/01/03 ..................................... 946
5,500 Pickens and Richland Counties Hospital Facilities Revenue
5.75%, due 8/01/21 [AMBAC] ........................... 5,529
4,705 Piedmont Municipal Power Agency Electric Revenue 4.75%, due
1/01/25 [MBIA] ....................................... 4,189
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
SOUTH CAROLINA (CONTINUED)
$15,000 Piedmont Municipal Power Agency South Carolina Electric
Revenue 5.25%, due 1/01/21 [MBIA] .................. $13,685
TEXAS - 8.0%
7,000 Austin Combined Utility Revenue 4.25%, due 5/15/28
[MBIA] ............................................... 5,604
10,000 Austin Combined Utility System Revenue 12.50%, due 11/15/07
[MBIA] .............................................. 15,014
10 Austin Water, Sewer and Electric Revenue 14.00%, due
11/15/01 ................................................ 10
2,910 Austin Water, Sewer and Electric Revenue 14.00%, due
11/15/01 ............................................. 3,285
20 +Austin Water, Sewer and Electric Revenue 14.00%, due
11/15/01 (Escrowed to Maturity) ......................... 23
30 +Austin Water, Sewer and Electric Revenue 14.00%, due
11/15/01 (Prerefunded Various Dates/Prices) ............. 34
2,000 Houston Water and Sewer System Junior Lien Revenue Bond
5.375%, due 12/01/27 [FGIC] .......................... 1,961
4,000 Lower Colorado River Authority Junior Lien Revenue 4.75%,
due 1/01/28 [FSA] .................................... 3,550
4,000 Matagorda County Navigation District #1 5.15%, due 11/01/29
[MBIA] ............................................... 3,766
2,260 Texas Municipal Power Agency Revenue 5.50%, due 9/01/13
[FGIC] ............................................... 2,263
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 67 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEXAS (CONTINUED)
$ 7,500 Waco Texas Health Facilities Development Corp. Hospital
Revenue 5.00%, due 11/01/25 . $ 6,779
UTAH - 0.4%
1,900 +Intermountain Power Agency Power Supply Revenue 6.00%, due
7/01/23 (Prerefunded 7/01/99@100) .................... 1,900
VIRGINIA - 1.5%
1,005 +Richmond Metropolitan Expressway Authority Revenue 5.60%,
due 1/15/13 (Escrowed to Maturity) ................... 1,005
8,000 Upper Occoquan Sewage Authority Regional Sewer System
Revenue 4.75%, due 7/01/29 [MBIA] .................... 7,145
WASHINGTON - 14.1%
7,000 CDP-King County III Lease Revenue (King Street Center
Project) 5.25%, due 6/01/26 [MBIA] ................... 6,708
14,680 Central Puget Sound Regional Transportation Authority Motor
Vehicle Tax 4.75%, due 2/01/28 [FGIC] ............... 12,987
5,055 Douglas County Public Utility District #1 Wells
Hydroelectric Revenue 8.75%, due 9/01/18 ............. 6,352
2,200 +Douglas County Public Utility District #1 Wells
Hydroelectric Revenue 8.75%, due 9/01/18 (Prerefunded
9/01/06@106) ......................................... 2,829
2,500 +Everett School District #2 Snohomish County Unlimited Tax
General Obligation 6.20%, due 12/01/12 [MBIA] (Prerefunded
12/01/03@102)..........................................2,724
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
WASHINGTON (CONTINUED)
$ 2,200 King County Housing Authority Pooled Housing Revenue 6.80%,
due 3/01/26 ........................................ $ 2,325
1,650 King County Limited Tax General Obligation (Various
Purposes) 4.75%, due 1/01/19 ......................... 1,503
2,255 King County Public Hospital District #1 Hospital Facilities
Revenue (Valley Medical Center) 5.50%, due 9/01/17
[AMBAC] .............................................. 2,247
4,800 Lewis County Public Utility District #1 Cowlitz Falls
Hydroelectric Project Revenue 6.00%, due 10/01/24 .... 4,948
4,000 +Port of Seattle Revenue 6.00%, due 12/01/14 [AMBAC]
(Prerefunded 12/01/00@100) 4,122
2,937 Seattle Housing Authority Low Income Housing Revenue (Mt.
Zion Project) 6.60%, due 8/20/38 ..................... 3,200
5,940 Vancouver Washington Housing Authority Revenue (Springbrook
Square) 5.65%, due 3/01/31 ........................... 5,728
3,000 Washington Health Care Facilities Authority Revenue (Fred
Hutchinson Cancer Research Center) 7.375%, due
1/01/18 .............................................. 3,186
8,500 +Washington Public Power Supply System Nuclear Project #1
Revenue 6.00%, due 7/01/17 (Prerefunded
7/01/00@100) ......................................... 8,711
4,000 Washington Public Power Supply System Nuclear Project #2
Revenue 6.30%, due 7/01/12 ........................... 4,388
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 68 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
WASHINGTON (CONTINUED)
$ 2,610 Washington Public Power Supply System Nuclear Project #3
Revenue 5.50%, due 7/01/18 [AMBAC] ................. $ 2,595
WISCONSIN - 0.2%
1,000 Wisconsin Health and Education Facilities Authority Revenue
6.00%, due 10/01/12 [MBIA] ........................... 1,005
WYOMING - 3.5%
18,375 Wyoming Community Development Authority Housing Revenue
5.60%, due 6/01/29 .................................. 18,374
------
TOTAL MUNICIPAL BONDS ............................................... 516,625
------
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CASH EQUIVALENTS - 0.9%
INVESTMENT COMPANIES
$4,897 Federated Tax-Exempt Money Market Fund, Inc. ...... $ 4,897
------
TOTAL CASH EQUIVALENTS ................................................ 4,897
------
TOTAL INVESTMENTS - 98.8% ........................................... 521,522
Other Assets, less Liabilities ........................................ 6,397
------
NET ASSETS ......................................................... $527,919
------
------
- -----------------------------------------------------------------------------
</TABLE>
+ Prerefunded bonds are collateralized by securites (generally U.S. Treasury
securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
* 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>
Municipal Bond Investors
Assurance Corp. [MBIA].......... 17.0%
Financial Guaranty Insurance
Corp. [FGIC].................... 10.4
AMBAC Indemnity Corp. [AMBAC].... 9.3
Financial Security Assurance,
Inc. [FSA]...................... 3.1
----
39.7%
----
----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 69 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO CALIFORNIA TAX-FREE INCOME FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO California Tax Free Fund underperformed its peers for the quarter
and six months ended June 30, 1999. The California Fund returned (3.71%)* and
(3.20%)* for Class A shares for the respective periods and (3.89%)* and (3.54%)*
for Class B shares. The comparable Lipper, Inc. averages for California funds
were (2.44%) and (1.74%).
[PHOTO OF STEPHEN C. BAUER]
The falling market of the last two months was damaging enough to affect the
one-year performance of the Fund, which was (0.01%)* for Class A shares and
(0.69%)* for Class B shares, while the average California Fund returned 1.60%.
Lehman Brothers Long Municipal Bond Index shows the June 30 three-, six- and
12-month returns at (2.51%), (1.68%) and
*Not including the effects of sales charges.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW - CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIODS ENDED JUNE 30, 1999 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A -4.51% 6.45% 6.87% -0.01% 7.44% 7.36%
Class B -5.66% 6.69% 7.14% -0.69% 6.99% 7.14%
</TABLE>
<TABLE>
<CAPTION>
LEHMAN
SAFECO SAFECO BROTHERS
INVESTMENT CALIFORNIA CALIFORNIA LONG
VALUE TAX-FREE TAX-FREE MUNICIPAL
WITH SALES INCOME FUND INCOME FUND BOND
CHARGE CLASS A CLASS B INDEX
<S> <C> <C> <C>
6/30/1989 $9,550 $10,000 $10,000
7/31/1989 $9,660 $10,115 $10,132
8/31/1989 $9,542 $9,992 $9,978
9/30/1989 $9,540 $9,989 $9,948
10/31/1989 $9,632 $10,085 $10,079
11/30/1989 $9,804 $10,266 $10,293
12/31/1989 $9,861 $10,326 $10,370
1/31/1990 $9,752 $10,212 $10,265
2/28/1990 $9,871 $10,336 $10,380
3/31/1990 $9,853 $10,317 $10,391
4/30/1990 $9,703 $10,160 $10,264
5/31/1990 $10,000 $10,471 $10,554
6/30/1990 $10,096 $10,572 $10,658
7/31/1990 $10,289 $10,773 $10,846
8/31/1990 $10,032 $10,504 $10,587
9/30/1990 $10,017 $10,490 $10,571
10/31/1990 $10,271 $10,754 $10,795
11/30/1990 $10,511 $11,006 $11,068
12/31/1990 $10,548 $11,045 $11,117
1/31/1991 $10,709 $11,214 $11,266
2/28/1991 $10,741 $11,248 $11,345
3/31/1991 $10,718 $11,223 $11,373
4/30/1991 $10,884 $11,397 $11,549
5/31/1991 $10,990 $11,508 $11,685
6/30/1991 $10,937 $11,452 $11,663
7/31/1991 $11,105 $11,628 $11,843
8/31/1991 $11,258 $11,788 $12,013
9/30/1991 $11,462 $12,003 $12,187
10/31/1991 $11,586 $12,132 $12,315
11/30/1991 $11,521 $12,064 $12,330
12/31/1991 $11,873 $12,432 $12,624
1/31/1992 $11,832 $12,389 $12,616
2/28/1992 $11,835 $12,392 $12,636
3/31/1992 $11,836 $12,393 $12,668
4/30/1992 $11,923 $12,484 $12,789
5/31/1992 $12,102 $12,673 $12,976
6/30/1992 $12,340 $12,922 $13,227
7/31/1992 $12,758 $13,359 $13,712
8/31/1992 $12,513 $13,102 $13,528
9/30/1992 $12,603 $13,197 $13,588
10/31/1992 $12,253 $12,829 $13,361
11/30/1992 $12,655 $13,251 $13,737
12/31/1992 $12,822 $13,426 $13,915
1/31/1993 $12,956 $13,566 $14,046
2/28/1993 $13,543 $14,181 $14,700
3/31/1993 $13,361 $13,990 $14,523
4/30/1993 $13,556 $14,195 $14,721
5/31/1993 $13,612 $14,254 $14,843
6/30/1993 $13,866 $14,519 $15,122
7/31/1993 $13,848 $14,501 $15,137
8/31/1993 $14,237 $14,908 $15,525
9/30/1993 $14,410 $15,089 $15,741
10/31/1993 $14,411 $15,090 $15,770
11/30/1993 $14,186 $14,855 $15,580
12/31/1993 $14,518 $15,203 $15,982
1/31/1994 $14,735 $15,430 $16,170
2/28/1994 $14,347 $15,023 $15,635
3/31/1994 $13,623 $14,266 $14,702
4/30/1994 $13,575 $14,215 $14,815
5/31/1994 $13,701 $14,346 $14,988
6/30/1994 $13,570 $14,209 $14,808
7/31/1994 $13,885 $14,539 $15,189
8/31/1994 $13,880 $14,534 $15,221
9/30/1994 $13,528 $14,165 $14,868
10/31/1994 $13,200 $13,823 $14,411
11/30/1994 $12,956 $13,567 $14,031
12/31/1994 $13,183 $13,804 $14,529
1/31/1995 $13,788 $14,438 $15,168
2/28/1995 $14,462 $15,144 $15,785
3/31/1995 $14,579 $15,266 $15,975
4/30/1995 $14,514 $15,198 $15,968
5/31/1995 $15,333 $16,055 $16,648
6/30/1995 $14,863 $15,564 $16,341
7/31/1995 $14,930 $15,634 $16,424
8/31/1995 $15,165 $15,880 $16,656
9/30/1995 $15,283 $16,002 $16,787
10/31/1995 $15,689 $16,428 $17,193
11/30/1995 $16,265 $17,032 $17,636
12/31/1995 $16,629 $17,413 $17,911
1/31/1996 $16,569 $17,350 $17,988
2/28/1996 $16,358 $17,129 $17,769
3/31/1996 $15,872 $16,620 $17,444
4/30/1996 $15,731 $16,472 $17,374
5/31/1996 $15,746 $16,487 $17,383
6/30/1996 $16,054 $16,811 $17,650
7/31/1996 $16,238 $17,003 $17,825
8/31/1996 $16,198 $16,961 $17,802
9/30/1996 $16,586 $17,367 $18,197
10/31/1996 $16,790 $17,570 $18,419
11/30/1996 $17,243 $18,019 $18,815
12/31/1996 $17,055 $17,811 $18,702
1/31/1997 $16,872 $17,608 $18,665
2/28/1997 $17,066 $17,802 $18,866
3/31/1997 $16,684 $17,393 $18,540
4/30/1997 $16,936 $17,646 $18,759
5/31/1997 $17,259 $17,971 $19,123
6/30/1997 $17,516 $18,222 $19,367
7/31/1997 $18,428 $19,145 $20,072
8/31/1997 $18,019 $18,724 $19,805
9/30/1997 $18,265 $18,967 $20,091
10/31/1997 $18,418 $19,115 $20,263
11/30/1997 $18,596 $19,289 $20,444
12/31/1997 $18,979 $19,674 $20,818
1/31/1998 $19,179 $19,868 $21,041
2/28/1998 $19,138 $19,813 $21,030
3/31/1998 $19,117 $19,777 $21,060
4/30/1998 $18,889 $19,529 $20,946
5/31/1998 $19,360 $20,004 $21,356
6/30/1998 $19,428 $20,062 $21,448
7/31/1998 $19,439 $20,061 $21,498
8/31/1998 $19,817 $20,439 $21,882
9/30/1998 $20,125 $20,745 $22,186
10/31/1998 $19,991 $20,597 $22,115
11/30/1998 $20,144 $20,745 $22,228
12/31/1998 $20,067 $20,654 $22,250
1/31/1999 $20,335 $20,919 $22,469
2/28/1999 $20,184 $20,736 $22,374
3/31/1999 $20,173 $20,729 $22,439
4/30/1999 $20,153 $20,694 $22,459
5/31/1999 $19,915 $20,437 $22,282
6/30/1999 $19,426 $19,922 $21,876
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
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.
- 70 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
1.98%, respectively. It's not surprising the California Fund was below the index
and near the bottom of its peer group because our long average maturity and
philosophy of keeping the Fund fully invested causes it to lag as interest rates
rise.
As prices declined during the last two months, I was able to add value to the
Fund through transactions that hadn't been possible for many months. In May, I
swapped Palm Desert Financing Authority 5.10% due 10/1/27 for San Diego Water
Authority 4.75% due 8/1/28. If I'd made that swap in 1998 and/or the first
quarter of 1999, I would have had to give up yield. In the turbulence of a
falling market, I was able to make the trade without giving up yield,
essentially gaining more than 5 points of call protection at no cost. Although
the additional call protection is currently worth nothing, if rates drop to 5%
or lower and refinancing resumes, it'll be worth a lot.
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 BS in
microbiology and an MBA from the University of Washington.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CREDIT RATING DISTRIBUTION AS A PERCENT OF NET ASSETS
(1) AAA: 65%
(2) AA: 3%
(3) A: 11%
(4) BBB: 20%
(5) Cash & Other: 1%
HIGHLIGHTS
------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE TYPE OF BONDS NET ASSETS
- ----------------------------------------------------------------------
<S> <C>
Utilities - Water........................................... 15%
Local General Obligation - Limited Tax...................... 12
Utilities - Sewer........................................... 11
Lease Rental................................................ 10
State General Obligation.................................... 8
</TABLE>
CURRENT YIELD (30-DAY) CLASS A ......................................... 3.49%
CURRENT YIELD (30-DAY) CLASS B ......................................... 3.04%
WEIGHTED AVERAGE MATURITY ......................................... 25.8 YEARS
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
East Bay Municipal Utility District Water System Revenue.... 4.8%
Thousand Oaks Certificate of Participation
Wastewater System Revenue................................. 4.4
Los Angeles Wastewater System Revenue Wastewater System
Revenue................................................... 4.3
California Educational Facilities Authority Revenue
(Institute of Technology)................................. 4.3
Airports Commission City and
County of San Francisco International Airport Revenue..... 4.3
</TABLE>
- 71 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MUNICIPAL BONDS* - 99.2%
CALIFORNIA - 99.2%
$5,000 Airports Commission City and County of San Francisco
International Airport Revenue
4.90%, due 5/01/19
[MBIA] .............................................. $4,699
4,750 Arcade Water District Water Revenue
5.00%, due 11/01/27 [FGIC] ........................... 4,469
5,500 California Educational Facilities Authority Revenue
(Institute of Technology)
4.50%, due 10/01/28 .................................. 4,702
2,250 California Health Facilities Financing Authority Insured
Health Facility Revenue
(Catholic Health Care West)
4.75%, due 7/01/19 [MBIA] ............................ 2,049
3,715 California Statewide Communities Development Authority
Certificates of Participation (Childrens Hospital of Los
Angeles)
4.75%, due 6/01/21 [MBIA] ............................ 3,341
20 Concord Redevelopment Agency Tax Allocation Central Concord
Redevelopment Project
8.00%, due 7/01/18 [BIG] ................................ 21
3,750 Culver City Redevelopment Financing Authority Tax Allocation
Revenue
4.60%, due 11/01/20
[AMBAC] .............................................. 3,333
5,000 Duarte California
Certificates of Participation
City of Hope Medical Center
5.25%, due 4/01/31 ................................... 4,536
6,000 East Bay Municipal Utility District Water System Revenue
(Alameda and Contra Costa Counties)
4.75%, due 6/01/34 [MBIA] ............................ 5,313
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$4,195 Foothill/Eastern Transportation Corridor Agency Toll Road
Revenue
5.00%, due 1/01/35 .................................. $3,797
1,200 +Los Angeles Convention and Exhibition Center Authority
Certificates of Participation 9.00%, due 12/01/20
(Prerefunded 12/01/05@100).............................1,504
3,000 Los Angeles County California Metropolitan Transportation
Authority Sales Tax Revenue
4.75%, due 7/01/28 [FSA] ............................. 2,680
3,800 Los Angeles Department of Water and Power Waterworks Revenue
4.75%, due 11/15/19 [FGIC] ........................... 3,479
5,000 Los Angeles Wastewater
System Revenue
5.00%, due 6/01/28 [FGIC] ............................ 4,702
3,585 Metropolitan Water District of Southern California
Waterworks Revenue
5.00%, due 7/01/37 ................................... 3,317
810 Northern California Power Agency Geothermal
Project Revenue
5.00%, due 7/01/09 ..................................... 801
1,690 +Northern California Power Agency Geothermal
Project Revenue
5.00%, due 7/01/09
(Prerefunded 7/01/08@100) ............................ 1,718
2,595 Palm Desert Financing Authority Tax Allocation Revenue
5.625%, due 4/01/23
[MBIA] ............................................... 2,643
2,350 Palomar Pomerado Health System California Insured Revenue
4.75%, due 11/01/23
[MBIA] ............................................... 2,100
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 72 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$4,435 Pittsburg Redevelopment Agency Los Medanos Community
Development Project Tax Allocation
4.625%, due 8/01/21
[AMBAC] ............................................. $3,942
1,755 Pleasanton Joint Powers Financing Authority Reassessment
Revenue
6.15%, due 9/02/12 ................................... 1,850
1,580 Pleasanton Joint Powers Financing Authority Reassessment
Revenue
6.20%, due 9/02/17 ................................... 1,638
4,900 Redding Joint Powers Financing Authority Solid Waste and
Corporation Yard Revenue
5.00%, due 1/01/23 ................................... 4,542
2,000 +Riverside County Certificates of
Participation
(Capital Projects)
6.125%, due 11/01/21 (Prerefunded 11/01/01@102) ...... 2,133
5,000 Sacramento City Financing Authority Lease Revenue
(Cal EPA Building)
4.75%, due 5/01/23 ................................... 4,493
2,500 San Bernardino County Certificates of Participation (Medical
Center Financing Project)
5.50%, due 8/01/24 ................................... 2,486
4,000 San Diego Water System Revenue
Certificate of Participation
4.75%, due 8/01/28 [FGIC] ............................ 3,572
4,000 San Gabriel Valley School Finance Authority Revenue (Pamona
Unified School
District)
5.50%, due 2/01/24 ................................... 3,984
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$5,000 San Joaquin Hills
Transportation Corridor Agency
Senior Lien Toll Road Revenue
5.00%, due 1/01/33 .................................. $4,535
4,000 San Jose Redevelopment Agency (Merged Area Redevelopment
Project Tax Allocation)
4.75%, due 8/01/22 ................................... 3,586
3,000 Santa Rosa Wastewater Revenue
(Subregional Wastewater Project)
5.00%, due 9/01/22 [FGIC] ............................ 2,838
1,335 Southern California Public Power Authority Power
Project Revenue
(Multiple Projects)
5.50%, due 7/01/20 ................................... 1,335
880 Stanislaus Waste to Energy Financing Agency Solid
Waste Facility Revenue
7.625%, due 1/01/10 .................................... 907
1,075 State of California
General Obligation Bonds
5.625%, due 10/01/23
[FGIC] ............................................... 1,092
2,500 State of California
General Obligation Bonds
5.625%, due 9/01/24 .................................. 2,542
5,335 Thousand Oaks Certificate of Participation Wastewater System
Revenue
4.875%, due 10/01/23
[FSA] ................................................ 4,898
------
TOTAL MUNICIPAL BONDS ............................................... 109,576
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 73 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TOTAL INVESTMENTS - 99.2% .......................................... $109,576
Other Assets, less Liabilities .......................................... 846
------
NET ASSETS ......................................................... $110,422
------
------
- -----------------------------------------------------------------------------
</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.
* 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>
Municipal Bond Investors Assurance
Corp. [MBIA]....................... 18.4%
Financial Guaranty Insurance Corp.
[FGIC]............................. 18.4
AMBAC Indemnity Corp. [AMBAC]...... 6.6
Financial Security Assurance, Inc.
[FSA].............................. 6.9
Bond Investors Guaranty Insurance
Co. [BIG].......................... 6.6
----
57.0%
-----
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 74 -
<PAGE>
REPORT FROM THE FUND MANAGER
THE SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund outperformed Lipper, Inc.'s Washington State Municipal Fund average
for the quarter, six-and 12-months ended June 30, 1999. This performance can be
partially attributed to our large holdings in the housing sector, which was the
second-best performing category year-to-date, according to the Lehman Revenue
Bond Index.
[PHOTO OF BEVERLY R. DENNY]
For the quarter, half and full year, the Washington Municipal Bond Fund Class
A shares returned (2.20%)*, (1.98%)* and 0.69%, while Class B shares returned
(2.37%)*, (2.32%)*, and 0.02%*, respectively. The peer
*Not including the effects of sales charges.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW - CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIOD ENDED JUNE 30, 1999 1 YEAR 5 YEAR SINCE INCEPTION* 1 YEAR 5 YEAR SINCE INCEPTION*
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A -3.84% 5.44% 4.33% 0.69% 6.41% 5.10%
Class B -4.98% 5.68% 4.78% 0.02% 6.00% 4.78%
</TABLE>
<TABLE>
<CAPTION>
SAFECO SAFECO
WASHINGTON WASHINGTON LEHMAN
STATE STATE BROTHERS
INVESTMENT MUNICIPAL MUNICIPAL LONG
VALUE BOND BOND MUNICIPAL
WITHOUT FUND FUND BOND
SALES CHARGE CLASS A CLASS B INDEX
<S> <C> <C> <C>
3/31/93 $9,550 $10,000 $10,000
4/30/93 $9,612 $10,065 $10,137
5/31/93 $9,653 $10,107 $10,221
6/30/93 $9,885 $10,350 $10,413
7/31/93 $9,855 $10,319 $10,423
8/31/93 $10,123 $10,600 $10,690
9/30/93 $10,241 $10,723 $10,839
10/31/93 $10,259 $10,743 $10,859
11/30/93 $10,098 $10,573 $10,728
12/31/93 $10,303 $10,789 $11,005
1/31/94 $10,462 $10,955 $11,135
2/28/94 $10,104 $10,580 $10,766
3/31/94 $9,538 $9,988 $10,123
4/30/94 $9,584 $10,036 $10,201
5/31/94 $9,720 $10,177 $10,321
6/30/94 $9,553 $10,003 $10,197
7/31/94 $9,794 $10,255 $10,459
8/31/94 $9,759 $10,219 $10,481
9/30/94 $9,522 $9,971 $10,238
10/31/94 $9,268 $9,705 $9,923
11/30/94 $9,051 $9,478 $9,661
12/31/94 $9,412 $9,855 $10,004
1/31/95 $9,796 $10,257 $10,444
2/28/95 $10,166 $10,646 $10,870
3/31/95 $10,220 $10,700 $11,000
4/30/95 $10,189 $10,669 $10,995
5/31/95 $10,601 $11,101 $11,463
6/30/95 $10,408 $10,898 $11,252
7/31/95 $10,471 $10,965 $11,310
8/31/95 $10,607 $11,107 $11,469
9/30/95 $10,682 $11,186 $11,559
10/31/95 $10,914 $11,428 $11,839
11/30/95 $11,166 $11,693 $12,144
12/31/95 $11,284 $11,815 $12,333
1/31/96 $11,330 $11,864 $12,386
2/28/96 $11,225 $11,755 $12,235
3/31/96 $11,009 $11,528 $12,011
4/30/96 $10,949 $11,465 $11,963
5/31/96 $10,972 $11,488 $11,969
6/30/96 $11,099 $11,621 $12,154
7/31/96 $11,210 $11,739 $12,274
8/31/96 $11,178 $11,705 $12,258
9/30/96 $11,397 $11,934 $12,530
10/31/96 $11,494 $12,028 $12,683
11/30/96 $11,700 $12,248 $12,956
12/31/96 $11,619 $12,166 $12,878
1/31/97 $11,551 $12,087 $12,852
2/28/97 $11,661 $12,183 $12,991
3/31/97 $11,459 $11,976 $12,766
4/30/97 $11,604 $12,118 $12,917
5/31/97 $11,791 $12,293 $13,168
6/30/97 $11,915 $12,414 $13,336
7/31/97 $12,320 $12,828 $13,822
8/31/97 $12,156 $12,661 $13,638
9/30/97 $12,305 $12,794 $13,834
10/31/97 $12,372 $12,867 $13,953
11/30/97 $12,448 $12,938 $14,077
12/31/97 $12,622 $13,109 $14,335
1/31/98 $12,734 $13,216 $14,488
2/28/98 $12,749 $13,211 $14,481
3/31/98 $12,764 $13,219 $14,501
4/30/98 $12,678 $13,123 $14,423
5/31/98 $12,893 $13,338 $14,706
6/30/98 $12,945 $13,385 $14,769
7/31/98 $12,968 $13,411 $14,803
8/31/98 $13,172 $13,603 $15,068
9/30/98 $13,346 $13,774 $15,277
10/31/98 $13,260 $13,679 $15,228
11/30/98 $13,303 $13,717 $15,306
12/31/98 $13,298 $13,705 $15,321
1/31/99 $13,400 $13,802 $15,472
2/28/99 $13,335 $13,727 $15,407
3/31/99 $13,329 $13,713 $15,451
4/30/99 $13,350 $13,727 $15,465
5/31/99 $13,240 $13,605 $15,343
6/30/99 $13,036 $13,388 $15,064
</TABLE>
*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 Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
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.
- 75 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
group of eight delivered (2.43%), (1.67%) and 1.45% for the same respective
periods.
Lehman Brothers Long Municipal Bond Index shows three-, six- and 12-month
returns at (2.51%), (1.68%) and 1.98%, respectively. This is a national Index.
The difference in the Fund and the Index's performance is due to the fact the
index has no expenses, cash holdings or call features.
I continue to look for long bonds that represent value in the market and for
opportunities to improve call protection. I do not try to position the portfolio
based on interest rate predictions.
Beverly R. Denny
- ------------------
Beverly R. Denny came to SAFECO from T. Rowe Price in 1991. She holds an MBA
from the University of Virginia and a BS in finance/ economics from Babson
College. She is a Chartered Financial Analyst.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CREDIT RATING DISTRIBUTION AS A PERCENT OF NET ASSETS
(1) AAA: 48%
(2) AA: 30%
(3) A: 14%
(4) Not Rated: 4%
(5) Cash & Other: 4%
HIGHLIGHTS
-------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE TYPE OF BONDS NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
Housing (Multi-Family)...................................... 24%
Local General Obligaton - Limited Tax....................... 18
Hospital.................................................... 14
University Revenue.......................................... 11
Utilities - Water........................................... 9
</TABLE>
CURRENT YIELD (30-DAY) CLASS A ......................................... 2.49%
CURRENT YIELD (30-DAY) CLASS B ......................................... 2.04%
WEIGHTED AVERAGE MATURITY ......................................... 23.6 YEARS
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
Renton Limited Tax General Obligation....................... 4.7%
Vancouver Washington Housing Authority Revenue (Clark
County) .................................................. 4.5
Vancouver Washington Housing Authority Revenue (Springbrook
Square)................................................... 4.4
King County Housing Authority Pooled
Housing Revenue........................................... 4.1
Washington Higher Education Facilities Authority Revenue and
Refunding Revenue (Gonzaga University Project)............ 4.1
</TABLE>
- 76 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
<C> <S>
- -----------------------------------------------------------------------------
MUNICIPAL BONDS* - 96.4%
WASHINGTON - 96.4%
$300 Bellingham Housing Authority Revenue (Cascade Meadows)
5.20%, due 11/01/27
[MBIA] ................................................ $287
100 Kent Limited Tax General Obligation
5.75%, due 12/01/26 [MBIA] ............................. 102
300 King County Housing Authority Pooled Housing Revenue
6.80%, due 3/01/26 ..................................... 317
250 King County Limited Tax General Obligation (Various
Purposes)
4.75%, due 1/01/19 ..................................... 228
200 King County Public Hospital District #1 Hospital Facilites
Revenue(Valley Medical Center)
5.25%, due 9/01/15 [AMBAC] ............................. 196
200 Kitsap County School District #401 Unlimited Tax General
Obligation (Central Kitsap)
5.50%, due 12/01/11 .................................... 206
100 Kitsap County Sewer Revenue
5.75%, due 7/01/16 [MBIA] .............................. 103
250 Klickitat County Public Utility District #1 Electric Revenue
5.75%, due 10/01/27 [FGIC] ............................. 254
100 Lewis County Public Utility District #1 Cowlitz Falls
Hydroelectric Project Revenue
6.00%, due 10/01/24 .................................... 103
200 Municipality of Metropolitan Seattle General Obligation
5.65%, due 1/01/20 ..................................... 202
350 Renton Limited Tax General Obligation
5.75%, due 12/01/17 [MBIA] ............................. 361
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$200 Seattle Drainage and Wastewater Utility Improvement Revenue
5.00%, due 11/01/27 ................................... $184
175 Seattle Drainage and Wastewater Utility Improvement Revenue
5.25%, due 12/01/25 [MBIA] ............................. 167
250 Seattle Housing Authority Low Income Housing Revenue
(Mt. Zion Project)
6.60%, due 8/20/38 ..................................... 272
300 Seattle Municipal Light and Power Revenue
5.00%, due 7/01/20 ..................................... 282
300 Seattle Water System Revenue
5.00%, due 10/01/27 [FGIC] ............................. 277
200 Seattle Water System Revenue
5.25%, due 12/01/23 .................................... 191
300 Spokane County General Obligation
5.10%, due 12/01/18 .................................... 289
100 Tacoma Solid Waste Utilities Revenue
5.50%, due 12/01/19
[AMBAC] ................................................ 100
200 Tukwila Limited Tax General Obligation
5.90%, due 1/01/14 ..................................... 209
350 Vancouver Washington Housing Authority Revenue (Clark
County)
5.50%, due 3/01/28 ..................................... 346
350 Vancouver Washington Housing Authority Revenue (Springbrook
Square)
5.65%, due 3/01/31 ..................................... 337
200 +Washington Health Care Facilities Authority Revenue
(Franciscan Health System/St. Joseph Hospital, Tacoma)
5.625%, due 1/01/13 [MBIA]
(Escrowed to Maturity) ................................. 203
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 77 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$150 Washington Health Care Facilities Authority Revenue (Grays
Harbor Medical Center)
5.90%, due 7/01/23
[Asset Guaranty] ...................................... $153
250 Washington Health Care Facilities Authority Revenue
(Highline Community Hospital)
5.00%, due 8/15/21
[Asset Guaranty] ....................................... 229
200 Washington Health Care Facilities Authority Revenue
(Northwest Hospital, Seattle)
5.75%, due 11/15/23
[AMBAC] ................................................ 202
100 +Washington Health Care Facilities Authority Revenue
(Swedish Hospital Medical System)
6.30%, due 11/15/22 (Prerefunded
11/15/02@102) .......................................... 108
250 Washington Higher Education Facilities Authority Revenue
(Pacific Lutheran University Project)
5.70%, due 11/01/26
[Connie Lee] ........................................... 252
350 Washington Higher Education Facilities Authority Revenue and
Refunding Revenue (Gonzaga University Project)
4.75%, due 4/01/22 [MBIA] .............................. 314
325 Washington State Housing Finance Commission Housing and
Nonprofit Revenue (Seattle University Auxiliary Service
Project)
5.30%, due 7/01/31 ..................................... 301
250 Washington State Housing Finance Commission Revenue (Horizon
House Project)
6.125%, due 7/01/27
[Asset Guaranty] ....................................... 263
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$200 Washington State Various Purpose General Obligation
5.25%, due 1/01/19 .................................... $194
200 Yakima-Tieton Irrigation District Revenue
6.20%, due 6/01/19 [FSA] ............................... 213
----
TOTAL MUNICIPAL BONDS ................................................. 7,447
----
CASH EQUIVALENTS - 2.6%
INVESTMENT COMPANIES
$201 Federated Tax-Exempt Money Market Fund, Inc. ........ $ 201
----
TOTAL CASH EQUIVALENTS .................................................. 201
----
TOTAL INVESTMENTS - 99.0% ............................................. 7,648
Other Assets, less Liabilities ........................................... 80
----
NET ASSETS ........................................................... $7,728
----
----
- -----------------------------------------------------------------------------
</TABLE>
+ Prerefunded bonds are collateralized by securites (generally U.S. Treasury
Securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
* 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>
Municipal Bond Investors
Assurance Corp. [MBIA] ............ 20.1%
Financial Guaranty Insurance Corp.
[FGIC]............................. 6.9
AMBAC Indemnity Corp. [AMBAC]...... 6.5
Financial Security Assurance, Inc.
[FSA].............................. 2.8
Asset Guaranty Insurance Co........ 8.4
Connie Lee Insurance Co............ 3.3
----
48.1%
----
----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 78 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO MONEY MARKET MUTUAL FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAFECO Money Market Fund returned 1.02%*, 2.11%* and 4.67%* for Class A
shares and 0.99%*, 2.08%* and 4.53%* for Class B shares for the quarter, six and
12 months ended June 30, 1999, respectively. The Lipper, Inc. money fund
averages for the same periods were 1.03%, 2.09% and 4.51%, for the same
respective periods.
The 12-month return on the Fund was significantly higher than the 2.0%
year-over-year increase in the Consumer Price Index as well. I attribute our
above-average performance to owning the one-year paper of tier-one issuers with
some second-tier ratings, taxable municipal floaters and corporate floaters, all
of which yielded more than 90-day commercial paper.
[PHOTO OF NAOMI URATA]
The average maturity of the fund is 69 days, longer than the 61-day average
maturity of the other funds in my peer group according to IBC Financial Data,
Inc. This longer average maturity could hurt the Fund's performance should
short-term rates move further upward. I had adopted a longer maturity and added
one-year securities before the interest rate outlook changed to increasing
rates. The one-year pieces were issued by Deutsche Bank, Goldman Sachs, Heller
Financial, and Homeside Lending.
I added new names after shareholders approved the increase in 144a paper
allowed in the Fund. This paper is about 5-10 basis points (5 to 10/100 of 1%)
cheaper than similarly rated public issues. New names include CC USA Inc.,
Dorada Finance and Moat Funding. These are all asset-backed commercial paper
programs that commercial banks use to fund their loans. Creating and selling
commercial paper, the bank earns the spread between their loans and the
commercial paper rates. The banks work with the rating agencies to set up
diversification standards that result in top-tier short-term ratings. I hope to
approve additional 144a issuers.
Regarding the Fund's diversification, assets were diversified among different
industries so that no more than 25% assets were invested in any one sector. All
the securities purchased had at least two ratings in the top category,
*Not including the effects of sales charges.
- 79 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
giving the Fund a Tier One status. The average maturity of the Fund was no
longer than 90 days at any point in time during the quarter and the maturity of
individual investments was no longer than 397 days.
Regarding the short-term fixed-income market, rates held steady in the second
quarter until the middle of May. At that time, short-term rates rose sharply
from 4.90% to 5.20% in anticipation of the Federal Reserve's 0.25% increase in
the Fed Funds rate on June 30, 1999. The Fed announced a return to a neutral
bias after the meeting. Some economists believe that another rate hike could
occur in 1999 or 2000 due to the recovery of the global economy. On the other
hand, others believe that the Fed will not raise rates in order to ensure
liquidity for the banking system as we approach Y2K. In the meantime, I will
attempt to shorten my average maturity and look for more 144a issuers with
greater yields than traditional names.
HIGHLIGHTS
-------------------------------
7-DAY WEIGHTED AVERAGE MATURITY ...................................... 69 DAYS
TOTAL RETURN (1 YEAR) CLASS-A .......................................... 4.67%
TOTAL RETURN (1 YEAR) CLASS-B .......................................... 4.53%
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 Master in Management
from Yale University and is a Chartered Financial Analyst.
- 80 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MONEY MARKET FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CERTIFICATES OF DEPOSIT - 16.5%
BANKS (FOREIGN) - 13.0%
$10,000 Deutsche Bank
5.13%, due 4/20/00 .................................. $9,995
10,000 Dresdner Bank
5.14%, due 12/02/99 ................................. 10,002
9,000 Societe Generale, NY
5.67%, due 8/06/99 ................................... 9,000
INVESTMENT BANKING & BROKERAGE - 3.6%
8,000 Credit Suisse First Boston
5.715%, due 7/19/99 .................................. 8,000
------
TOTAL CERTIFICATES OF DEPOSIT ........................................ 36,996
------
COMMERCIAL PAPER - 36.5%
AGRICULTURAL PRODUCTS - 4.5%
10,000 Cargill, Inc.
5.70%, due 7/01/99 .................................. 10,000
BANKS (FOREIGN) - 2.2%
5,000 UBS Finance, Inc.
4.90%, due 12/22/99 .................................. 4,882
CHEMICALS - 2.7%
6,000 Formosa Plastic
4.90%, due 7/08/99 ................................... 5,994
FINANCIAL (DIVERSIFIED) - 20.2%
5,390 Associates First Capital Corp.
5.60%, due 7/01/99 ................................... 5,390
6,000 CC USA, Inc.
4.93%, due 7/22/99 ................................... 5,983
5,000 CIT Group
4.94%, due 7/07/99 ................................... 4,996
5,000 Finova Capital
4.94%, due 7/15/99 ................................... 4,990
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$ 6,000 Finova Capital
4.95%, due 7/13/99 ................................. $ 5,990
3,000 Moat Funding LLC
4.98%, due 7/13/99 ................................... 2,995
6,000 Moat Funding LLC
5.07%, due 7/13/99 ................................... 5,990
2,000 Moat Funding LLC
5.29%, due 8/02/99 ................................... 1,991
5,000 PHH Corporation
5.35%, due 7/01/99 ................................... 5,000
2,000 Salomon Smith Barney
4.87%, due 7/06/99 ................................... 1,999
8,000 Salomon Smith Barney
5.25%, due 7/09/99 ................................... 7,991
TRUCKS & PARTS - 3.3%
1,000 Cooper Associates Tractor Dealers
5.37%, due 7/16/99 ..................................... 998
6,500 Cooperative Associates Tractor Dealers
4.93%, due 7/02/99 ................................... 6,499
------
TOTAL COMMERCIAL PAPER ............................................... 81,687
------
CORPORATE BONDS - 34.9%
BANKS (REGIONAL) - 5.4%
12,000 American Express Centurion Bank
4.95%, due 4/24/00
Put Date 7/24/99 .................................... 12,000
CONSUMER FINANCE - 4.9%
3,250 Countrywide Funding Corp.
8.41%, due 11/17/99 .................................. 3,288
5,000 Countrywide Home Loans, Inc.
5.195%, due 1/11/00 .................................. 5,000
2,710 Homeside Lending, Inc.
8.875%, due 5/15/00 .................................. 2,746
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 81 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MONEY MARKET FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FINANCIAL (DIVERSIFED) - 2.4%
$2,400 Aristar, Inc.
7.50%, due 7/01/99 .................................. $2,400
2,000 Heller Financial, Inc.
5.825%, due 3/15/00 .................................. 2,005
1,000 Heller Financial, Inc.
6.50%, due 5/15/00 ................................... 1,011
HEALTH CARE (LONG-TERM CARE) - 1.3%
2,950 Bowie Assisted Living
5.80%, due 7/01/23
Put Date 7/01/99 ..................................... 2,950
HOMEBUILDING - 3.1%
7,033 Summer Station Apartments, LLC
5.22%, due 6/01/19
Put Date 7/01/99 ..................................... 7,033
INVESTMENT BANKING & BROKERAGE - 14.1%
3,500 #Goldman Sachs Group, L.P.
(144A)
5.15%, due 4/19/00 ................................... 3,500
8,000 Goldman Sachs Group, L.P.
5.08%, due 5/12/00
Put Date 7/15/99 ..................................... 8,000
8,000 Lehman Brothers Holdings, Inc.
5.14875%, due 5/23/01
Put Date 7/21/99 ..................................... 8,000
8,100 Morgan Stanley Dean Witter Co.
5.142%, due 3/13/01
Put Date 9/13/99 ..................................... 8,100
4,000 Shearson, Lehman Brothers
Holdings, Inc.
6.15%, due 8/15/00 ................................... 4,014
RETAIL (GENERAL MERCHANDISE) - 3.6%
8,000 Racetrac Capital, L.L.C.
5.22%, due 4/01/18
Put Date 7/01/99 ..................................... 8,000
------
TOTAL CORPORATE BONDS ................................................ 78,048
------
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MUNICIPAL BONDS - 11.4%
MUNI'S (STATES) - 1.0%
$ 200 Maryland Health and Higher
Education Facilities Authority
5.30%, due 7/01/27
Put Date 7/01/99 ..................................... $ 200
2,085 Maryland Health and Higher
Education Facilities Authority
5.45%, due 1/01/26
Put Date 7/01/99 ..................................... 2,085
MUNI'S (TAXABLE) - 10.4%
1,000 Breckenridge Terrance LLC
Tax Revenue
5.1425%, due 5/01/39
Put Date 7/01/99 ..................................... 1,000
2,000 Eagle County Colorado Housing Facilities Revenue
5.142%, due 5/01/39
Put Date 7/01/99 ..................................... 2,000
3,600 New Hampshire Business Finance Authority Revenue
5.30%, due 6/01/28
Put Date 7/01/99 ..................................... 3,600
9,655 Presbyterian Homes & Services
5.33%, due 12/01/28
Put Date 7/02/99 ..................................... 9,655
5,000 Village Green Finance Co.
5.22%, due 11/01/22
Put Date 7/01/99 ..................................... 5,000
2,000 Wake Forest University
5.22%, due 7/01/17
Put Date 7/01/99 ..................................... 2,000
------
TOTAL MUNICIPAL BONDS ................................................ 25,540
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 82 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MONEY MARKET FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
U.S. GOVERNMENT OBLIGATIONS - 0.2%
U.S. FEDERAL AGENCY NOTES - 0.2%
$500 Federal National Mortgage Association
5.96%, due 7/23/99 ................................. $ 500
------
TOTAL U.S. GOVERNMENT OBLIGATIONS ....................................... 500
------
TOTAL INVESTMENTS - 99.5% ........................................... 222,771
Other Assets, less Liabilities ........................................ 1,114
------
NET ASSETS ......................................................... $223,885
------
------
- -----------------------------------------------------------------------------
</TABLE>
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.
# 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 $3,500,000 and the
total value is 1.6% of net assets.
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 6/30/99. These rates change periodically based on
specified market rate or indices.
SEE NOTES TO FINANCIAL STATEMENTS
- 83 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
(In Thousands, Except Per-Share GROWTH EQUITY INCOME
Amounts) FUND FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments, at Cost $ 1,096,054 $ 1,637,810 $ 279,029
----------- ----------- -----------
----------- ----------- -----------
Investments, at Value
Unaffiliated Issuers $ 678,479 $ 2,391,333 $ 349,113
Affiliated Issuers 339,576 -- --
----------- ----------- -----------
Total Investments at Value 1,018,055 2,391,333 349,113
Cash -- -- --
Receivables
Investment Securities Sold 5,508 -- 4,517
Trust Shares Sold 3,668 466 1
Dividends and Interest 591 2,372 1,161
From Advisor -- -- --
Forward Currency Contracts Open,
Net -- -- --
Deferred Organization Expense -- -- --
----------- ----------- -----------
Total Assets 1,027,822 2,394,171 354,792
LIABILITIES
Payables
Investment Securities Purchased 2,823 -- --
Trust Shares Redeemed 98 10 --
Notes Payable 960 -- --
Dividends -- 4,135 1,545
Investment Advisory Fees 534 1,144 197
Other 277 591 130
----------- ----------- -----------
Total Liabilities 4,692 5,880 1,872
----------- ----------- -----------
NET ASSETS $ 1,023,130 $ 2,388,291 $ 352,920
----------- ----------- -----------
----------- ----------- -----------
NO-LOAD CLASS:
Net Assets $ 979,079 $ 2,299,349 $ 347,944
Trust Shares Outstanding 46,041 90,116 14,757
----------- ----------- -----------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 21.27 $ 25.52 $ 23.58
----------- ----------- -----------
----------- ----------- -----------
CLASS A:
Net Assets $ 29,259 $ 63,481 $ 2,498
Trust Shares Outstanding 1,380 2,485 105
----------- ----------- -----------
Net Asset Value and Redemption
Price Per Share $ 21.21 $ 25.55 $ 23.71
----------- ----------- -----------
----------- ----------- -----------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 5.75%) $ 22.50 $ 27.11 $ 25.16
----------- ----------- -----------
----------- ----------- -----------
CLASS B:
Net Assets $ 14,792 $ 25,461 $ 2,478
Trust Shares Outstanding 715 1,003 104
----------- ----------- -----------
Net Asset Value and Offering Price
Per Share* $ 20.70 $ 25.37 $ 23.72
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
* For Class B shares, the redemption price per share may be lower as a result
of applying contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
- 84 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO SAFECO
NORTHWEST BALANCED INTERNATIONAL SMALL COMPANY U.S. VALUE
FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at Cost $ 51,738 $ 22,726 $ 22,121 $ 33,225 $ 10,361
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
Investments, at Value
Unaffiliated Issuers $ 74,112 $ 24,746 $ 28,081 $ 31,631 $ 11,886
Affiliated Issuers -- -- -- -- --
----------- ----------- --------------- --------------- -----------
Total Investments at Value 74,112 24,746 28,081 31,631 11,886
Cash -- -- 701 -- --
Receivables
Investment Securities Sold 706 50 49 751 --
Trust Shares Sold -- -- 120 -- 2
Dividends and Interest 21 134 88 20 18
From Advisor 11 13 11 21 13
Forward Currency Contracts Open,
Net -- -- 25 -- --
Deferred Organization Expense -- 6 6 6 11
----------- ----------- --------------- --------------- -----------
Total Assets 74,850 24,949 29,081 32,429 11,930
LIABILITIES
Payables
Investment Securities Purchased -- 59 90 -- 43
Trust Shares Redeemed -- -- -- 3
Notes Payable -- -- -- -- --
Dividends -- 141 -- -- 23
Investment Advisory Fees 40 14 24 19 7
Other 50 32 58 29 30
----------- ----------- --------------- --------------- -----------
Total Liabilities 90 246 172 51 103
----------- ----------- --------------- --------------- -----------
NET ASSETS $ 74,760 $ 24,703 $ 28,909 $ 32,378 $ 11,827
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
NO-LOAD CLASS:
Net Assets $ 68,821 $ 20,855 $ 27,049 $ 30,338 $ 10,774
Trust Shares Outstanding 3,281 1,652 1,949 2,929 821
----------- ----------- --------------- --------------- -----------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 20.97 $ 12.62 $ 13.88 $ 10.36 $ 13.12
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
CLASS A:
Net Assets $ 2,632 $ 1,192 $ 873 $ 891 $ 301
Trust Shares Outstanding 127 94 63 87 23
----------- ----------- --------------- --------------- -----------
Net Asset Value and Redemption
Price Per Share $ 20.74 $ 12.64 $ 13.85 $ 10.22 $ 13.11
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 5.75%) $ 22.01 $ 13.41 $ 14.69 $ 10.84 $ 13.91
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
CLASS B:
Net Assets $ 3,307 $ 2,656 $ 987 $ 1,149 $ 752
Trust Shares Outstanding 162 210 72 115 58
----------- ----------- --------------- --------------- -----------
Net Asset Value and Offering Price
Per Share* $ 20.36 $ 12.64 $ 13.63 $ 9.99 $ 13.05
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
</TABLE>
- --------------------------------------------------------------------------------
* For Class B shares, the redemption price per share may be lower as a result
of applying contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
- 85 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SAFECO
INTERMEDIATE-
SAFECO TERM SAFECO
(In Thousands, Except Per-Share HIGH-YIELD U.S. TREASURY MANAGED
Amounts) BOND FUND FUND BOND FUND
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments, at Cost $ 78,501 $ 21,704 $ 8,125
------------- ------------- -------------
------------- ------------- -------------
Investments, at Value $ 75,100 $ 21,688 $ 7,881
Receivables
Trust Shares Sold 26 -- --
Interest 1,532 283 77
From Advisor -- 5 12
------------- ------------- -------------
Total Assets 76,658 21,976 7,970
LIABILITIES
Payables
Investment Securities Purchased -- -- --
Dividends 571 96 33
Investment Advisory Fees 41 10 3
Transfer Agent Fees 14 4 1
Other 30 19 15
------------- ------------- -------------
Total Liabilities 656 129 52
------------- ------------- -------------
NET ASSETS $ 76,002 $ 21,847 $ 7,918
------------- ------------- -------------
------------- ------------- -------------
NO-LOAD CLASS:
Net Assets $ 72,346 $ 20,013 $ 6,722
Trust Shares Outstanding 8,483 1,954 828
------------- ------------- -------------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 8.53 $ 10.24 $ 8.12
------------- ------------- -------------
------------- ------------- -------------
CLASS A:
Net Assets $ 1,534 $ 940 $ 403
Trust Shares Outstanding 180 91 50
------------- ------------- -------------
Net Asset Value and Redemption
Price Per Share $ 8.53 $ 10.26 $ 8.11
------------- ------------- -------------
------------- ------------- -------------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 8.93 $ 10.74 $ 8.49
------------- ------------- -------------
------------- ------------- -------------
CLASS B:
Net Assets $ 2,122 $ 894 $ 793
Trust Shares Outstanding 249 87 98
------------- ------------- -------------
Net Asset Value and Offering Price
Per Share* $ 8.52 $ 10.25 $ 8.11
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
* For Class B shares, the redemption price per share may be lower as a result
of applying contingent deferred sales charge.
** Also represents offering price per share.
SEE NOTES TO FINANCIAL STATEMENTS
- 86 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO
SAFECO CALIFORNIA WASHINGTON STATE SAFECO
MUNICIPAL TAX-FREE MUNICIPAL BOND MONEY MARKET
BOND FUND INCOME FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at Cost $ 481,704 $ 106,902 $ 7,488 $ 222,771
------------- ------------- ----------------- -----------------
------------- ------------- ----------------- -----------------
Investments, at Value $ 521,522 $ 109,576 $ 7,648 222,771
Receivables
Trust Shares Sold 50 5 -- 62
Interest 8,833 1,348 123 2,021
From Advisor -- -- 2 --
------------- ------------- ----------------- -----------------
Total Assets 530,405 110,929 7,773 224,854
LIABILITIES
Payables
Investment Securities Purchased -- -- -- --
Dividends 2,199 435 30 745
Investment Advisory Fees 208 46 3 94
Transfer Agent Fees 27 7 -- 56
Other 52 19 12 74
------------- ------------- ----------------- -----------------
Total Liabilities 2,486 507 45 969
------------- ------------- ----------------- -----------------
NET ASSETS $ 527,919 $ 110,422 $ 7,728 $ 223,885
------------- ------------- ----------------- -----------------
------------- ------------- ----------------- -----------------
NO-LOAD CLASS:
Net Assets $ 525,375 $ 108,615 $ 7,257 $ 218,163
Trust Shares Outstanding 37,971 8,994 700 218,163
------------- ------------- ----------------- -----------------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 13.84 $ 12.08 $ 10.37 $ 1.00
------------- ------------- ----------------- -----------------
------------- ------------- ----------------- -----------------
CLASS A:
Net Assets $ 1,013 $ 900 $ 203 $ 4,319
Trust Shares Outstanding 73 75 19 4,319
------------- ------------- ----------------- -----------------
Net Asset Value and Redemption
Price Per Share $ 13.84 $ 12.08 $ 10.37 $ 1.00**
------------- ------------- ----------------- -----------------
------------- ------------- ----------------- -----------------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 14.49 $ 12.65 $ 10.86 --
------------- ------------- ----------------- -----------------
------------- ------------- ----------------- -----------------
CLASS B:
Net Assets $ 1,531 $ 907 $ 268 $ 1,403
Trust Shares Outstanding 111 75 26 1,403
------------- ------------- ----------------- -----------------
Net Asset Value and Offering Price
Per Share* $ 13.82 $ 12.07 $ 10.38 $ 1.00
------------- ------------- ----------------- -----------------
------------- ------------- ----------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
* For Class B shares, the redemption price per share may be lower as a result
of applying contingent deferred sales charge.
** Also represents offering price per share.
SEE NOTES TO FINANCIAL STATEMENTS
- 87 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six-Month Period Ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
GROWTH EQUITY INCOME
(In Thousands) FUND FUND FUND
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends (Net of Foreign Taxes
Withheld of $37 in the
International Fund) $ 3,293 $ 16,404 $ 5,613
Interest 139 1,707 752
---------- ---------- ----------
Total Investment Income 3,432 18,111 6,365
EXPENSES
Investment Advisory 3,180 5,780 1,184
Transfer Agent 1,839 2,100 369
Fund Accounting and Administration 58 102 35
Shareholder Service - Class A 36 70 3
- Class B 18 26 3
Distribution - Class B 55 78 8
Legal and Auditing 46 63 19
Custodian 35 47 11
Registration 13 20 7
Reports to Shareholders 279 375 64
Trustees 4 5 3
Amortization of Organization
Expenses -- -- --
Loan Interest Expense 271 -- --
Other 60 53 10
---------- ---------- ----------
Total Expenses Before
Reimbursement 5,894 8,719 1,716
Expense Reimbursement -- -- --
---------- ---------- ----------
Total Expenses After Reimbursement 5,894 8,719 1,716
---------- ---------- ----------
NET INVESTMENT INCOME (LOSS) (2,462) 9,392 4,649
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain (Loss) from:
Investments in Unaffiliated
Issuers (4,909) 80,315 23,180
Investments in Affiliated Issuers (20,278) -- --
Foreign Currency Transactions -- -- --
---------- ---------- ----------
Total Net Realized Gain
(Loss) (25,187) 80,315 23,180
Net Change in Unrealized
Appreciation (Depreciation) (69,415) 128,744 (22,382)
---------- ---------- ----------
NET GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY (94,602) 209,059 798
---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ (97,064) $ 218,451 $ 5,447
---------- ---------- ----------
---------- ---------- ----------
- -----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 88 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO SAFECO
NORTHWEST BALANCED INTERNATIONAL SMALL COMPANY U.S. VALUE
FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends (Net of Foreign Taxes
Withheld of $37 in the
International Fund) $ 186 $ 147 $ 254 $ 81 $ 113
Interest 22 268 27 55 4
---------- ------------- -------------- -------------- ----------
Total Investment Income 208 415 281 136 117
EXPENSES
Investment Advisory 244 83 139 134 40
Transfer Agent 99 33 36 51 12
Fund Accounting and Administration 11 4 4 5 2
Shareholder Service - Class A 3 1 1 1 --
- Class B 3 3 1 1 1
Distribution - Class B 10 9 3 4 2
Legal and Auditing 10 8 11 9 11
Custodian 4 2 22 5 2
Registration 6 5 5 6 4
Reports to Shareholders 12 4 5 10 2
Trustees 2 3 3 2 3
Amortization of Organization
Expenses -- 2 2 2 2
Loan Interest Expense -- -- -- -- --
Other 2 1 1 2 1
---------- ------------- -------------- -------------- ----------
Total Expenses Before
Reimbursement 406 158 233 232 82
Expense Reimbursement (11) (13) (11) (21) (12)
---------- ------------- -------------- -------------- ----------
Total Expenses After Reimbursement 395 145 222 211 70
---------- ------------- -------------- -------------- ----------
NET INVESTMENT INCOME (LOSS) (187) 270 59 (75) 47
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain (Loss) from:
Investments in Unaffiliated
Issuers 10,338 714 (112) (6,224) 753
Investments in Affiliated Issuers -- -- -- -- --
Foreign Currency Transactions -- -- 136 -- --
---------- ------------- -------------- -------------- ----------
Total Net Realized Gain
(Loss) 10,338 714 24 (6,224) 753
Net Change in Unrealized
Appreciation (Depreciation) 1,530 80 1,396 3,654 266
---------- ------------- -------------- -------------- ----------
NET GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY 11,868 794 1,420 (2,570) 1,019
---------- ------------- -------------- -------------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 11,681 $ 1,064 $ 1,479 $ (2,645) $ 1,066
---------- ------------- -------------- -------------- ----------
---------- ------------- -------------- -------------- ----------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 89 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six-Month Period Ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SAFECO
INTERMEDIATE-
SAFECO TERM SAFECO
HIGH-YIELD U.S. TREASURY MANAGED
(In Thousands) BOND FUND FUND BOND FUND
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 3,750 $ 676 $ 225
Dividends 81 -- --
------------- ------------- -------------
Total Investment Income 3,831 676 225
EXPENSES
Investment Advisory 273 62 19
Transfer Agent 84 25 7
Fund Accounting and Administration 12 3 2
Shareholder Service - Class A 4 1 1
- Class B 2 1 1
Distribution - Class B 7 3 2
Legal and Auditing 10 9 9
Custodian 3 2 1
Reports to Shareholders 14 4 2
Trustees 2 2 2
Interest 13 -- --
Other 9 6 8
------------- ------------- -------------
Total Expenses Before
Reimbursement 433 118 54
Expense Reimbursement -- (5) (12)
------------- ------------- -------------
Total Expenses After Reimbursement 433 113 42
------------- ------------- -------------
NET INVESTMENT INCOME 3,398 563 183
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net Realized Gain (Loss) on
Investments 356 (21) (151)
Net Change in Unrealized
Appreciation (Depreciation) (2,831) (1,085) (347)
------------- ------------- -------------
NET GAIN (LOSS) ON INVESTMENTS (2,475) (1,106) (498)
------------- ------------- -------------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 923 $ (543) $ (315)
------------- ------------- -------------
------------- ------------- -------------
- --------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 90 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO
SAFECO CALIFORNIA WASHINGTON STATE SAFECO
MUNICIPAL TAX-FREE MUNICIPAL BOND MONEY MARKET
BOND FUND INCOME FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 14,756 $ 2,969 $ 209 $ 5,750
Dividends -- -- -- --
------------- ------------- ----------------- -----------------
Total Investment Income 14,756 2,969 209 5,750
EXPENSES
Investment Advisory 1,142 298 23 555
Transfer Agent 159 44 2 329
Fund Accounting and Administration 41 19 2 31
Shareholder Service - Class A 1 1 -- --
- Class B 2 1 -- --
Distribution - Class B 5 3 1 --
Legal and Auditing 21 10 9 13
Custodian 12 4 1 9
Reports to Shareholders 56 14 1 37
Trustees 3 2 2 2
Interest -- -- -- 1
Other 22 3 1 21
------------- ------------- ----------------- -----------------
Total Expenses Before
Reimbursement 1,464 399 42 998
Expense Reimbursement -- -- (2) --
------------- ------------- ----------------- -----------------
Total Expenses After Reimbursement 1,464 399 40 998
------------- ------------- ----------------- -----------------
NET INVESTMENT INCOME 13,292 2,570 169 4,752
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net Realized Gain (Loss) on
Investments 1,361 148 6 --
Net Change in Unrealized
Appreciation (Depreciation) (24,752) (6,285) (315) --
------------- ------------- ----------------- -----------------
NET GAIN (LOSS) ON INVESTMENTS (23,391) (6,137) (309) --
------------- ------------- ----------------- -----------------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ (10,099) $ (3,567) $ (140) $ 4,752
------------- ------------- ----------------- -----------------
------------- ------------- ----------------- -----------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 91 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO GROWTH FUND
------------------------------
SIX-MONTH
PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31
(In Thousands) 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ (2,462) $ (918)
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions (25,187) 44,781
Net Change in Unrealized
Appreciation (Depreciation) (69,415) (92,841)
------------ ---------------
Net Change in Net Assets
Resulting from Operations (97,064) (48,978)
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class -- --
- Class A -- --
- Class B -- --
Net Realized Gain on Investments
- No Load Class -- (43,556)
- Class A -- (1,055)
- Class B -- (497)
------------ ---------------
Total -- (45,108)
NET TRUST SHARE TRANSACTIONS
No-Load Class (321,526) 846,267
Class A (2,156) 32,104
Class B 370 15,181
------------ ---------------
Total (323,312) 893,552
------------ ---------------
TOTAL CHANGE IN NET ASSETS (420,376) 799,466
NET ASSETS AT BEGINNING OF PERIOD 1,443,506 644,040
------------ ---------------
NET ASSETS AT END OF PERIOD $ 1,023,130 $ 1,443,506
------------ ---------------
------------ ---------------
- -------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 92 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO EQUITY FUND SAFECO INCOME FUND SAFECO NORTHWEST FUND
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31 JUNE 30 DECEMBER 31 JUNE 30 DECEMBER 31
1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 9,392 $ 17,446 $ 4,649 $ 10,977 $ (187) $ (373)
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 80,315 79,369 23,180 20,424 10,338 1,091
Net Change in Unrealized
Appreciation (Depreciation) 128,744 295,679 (22,382) (10,865) 1,530 1,410
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 218,451 392,494 5,447 20,536 11,681 2,128
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class (9,222) (17,149) (4,600) (10,921) -- --
- Class A (194) (343) (24) (33) -- --
- Class B -- -- (16) (22) -- --
Net Realized Gain on Investments
- No Load Class -- (76,799) -- (20,354) -- (658)
- Class A -- (1,908) -- (105) -- (23)
- Class B -- (656) -- (110) -- (28)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL (9,416) (96,855) (4,640) (31,545) -- (709)
NET TRUST SHARE TRANSACTIONS
No-Load Class 72,761 246,560 (52,115) 8,124 (5,561) (2,513)
Class A 7,787 37,060 414 1,405 22 831
Class B 6,245 12,194 286 1,483 213 1,475
------------ ------------ ------------ ------------ ------------ ------------
TOTAL 86,793 295,814 (51,415) 11,012 (5,326) (207)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL CHANGE IN NET ASSETS 295,828 591,453 (50,608) 3 6,355 1,212
NET ASSETS AT BEGINNING OF PERIOD 2,092,463 1,501,010 403,528 403,525 68,405 67,193
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF PERIOD $ 2,388,291 $ 2,092,463 $ 352,920 $ 403,528 $ 74,760 $ 68,405
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 93 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO BALANCED FUND
------------------------------
SIX-MONTH
PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31
(In Thousands) 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 270 $ 505
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 714 890
Net Change in Unrealized
Appreciation (Depreciation) 80 679
--------------- ------------
Net Change in Net Assets
Resulting from Operations 1,064 2,074
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class (241) (476)
- Class A (11) (12)
- Class B (17) (16)
Net Realized Gain on Investments
- No Load Class -- (771)
- Class A -- (36)
- Class B -- (83)
--------------- ------------
Total (269) (1,394)
NET TRUST SHARE TRANSACTIONS
No-Load Class 1,042 4,868
Class A 262 660
Class B 518 1,675
--------------- ------------
Total 1,822 7,203
--------------- ------------
TOTAL CHANGE IN NET ASSETS 2,617 7,883
NET ASSETS AT BEGINNING OF PERIOD 22,086 14,203
--------------- ------------
NET ASSETS AT END OF PERIOD $ 24,703 $ 22,086
--------------- ------------
--------------- ------------
- -------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 94 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO INTERNATIONAL FUND SAFECO SMALL COMPANY FUND SAFECO U.S. VALUE FUND
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31 JUNE 30 DECEMBER 31 JUNE 30 DECEMBER 31
1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 59 $ 14 $ (75) $ (220) $ 47 $ 102
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 24 (910) (6,224) (4,172) 753 464
Net Change in Unrealized
Appreciation (Depreciation) 1,396 3,209 3,654 (9,513) 266 598
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 1,479 2,313 (2,645) (13,905) 1,066 1,164
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class -- -- -- -- (47) (102)
- Class A -- -- -- -- (1) (1)
- Class B -- -- -- -- -- --
Net Realized Gain on Investments
- No Load Class -- -- -- -- -- (428)
- Class A -- -- -- -- -- (9)
- Class B -- -- -- -- -- (27)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL -- -- -- -- (48) (567)
NET TRUST SHARE TRANSACTIONS
No-Load Class 3,535 5,155 (2,347) 25,617 (170) 377
Class A 209 273 (245) 1,449 66 69
Class B 169 396 199 930 61 392
------------ ------------ ------------ ------------ ------------ ------------
TOTAL 3,913 5,824 (2,393) 27,996 (43) 838
------------ ------------ ------------ ------------ ------------ ------------
TOTAL CHANGE IN NET ASSETS 5,392 8,137 (5,038) 14,091 975 1,435
NET ASSETS AT BEGINNING OF PERIOD 23,517 15,380 37,416 23,325 10,852 9,417
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF PERIOD $ 28,909 $ 23,517 $ 32,378 $ 37,416 $ 11,827 $ 10,852
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 95 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO HIGH-YIELD BOND FUND
------------------------------
SIX-MONTH
PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31
(In Thousands) 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 3,398 $ 6,383
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 356 (57)
Net Change in Unrealized
Appreciation (Depreciation) (2,831) (2,997)
------------ ---------------
Net Change in Net Assets
Resulting from Operations 923 3,329
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class (3,227) (6,205)
- Class A (110) (127)
- Class B (61) (51)
Net Realized Gain on Investments
- No Load Class -- --
- Class A -- --
- Class B -- --
------------ ---------------
Total (3,398) (6,383)
NET TRUST SHARE TRANSACTIONS
No-Load Class (5,033) 11,564
Class A (1,345) 2,818
Class B 814 1,041
------------ ---------------
Total (5,564) 15,423
------------ ---------------
TOTAL CHANGE IN NET ASSETS (8,039) 12,369
NET ASSETS AT BEGINNING OF PERIOD 84,041 71,672
------------ ---------------
NET ASSETS AT END OF PERIOD $ 76,002 $ 84,041
------------ ---------------
------------ ---------------
- -------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 96 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO INTERMEDIATE-TERM
U.S. TREASURY FUND SAFECO MANAGED BOND FUND SAFECO MUNICIPAL BOND FUND
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31 JUNE 30 DECEMBER 31 JUNE 30 DECEMBER 31
1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 563 $ 1,045 $ 183 $ 278 $ 13,292 $ 25,941
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions (21) 4 (151) 237 1,361 8,894
Net Change in Unrealized
Appreciation (Depreciation) (1,085) 648 (347) (56) (24,752) (3,043)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (543) 1,697 (315) 459 (10,099) 31,792
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class (526) (992) (162) (262) (13,241) (25,876)
- Class A (20) (26) (8) (9) (23) (33)
- Class B (17) (27) (13) (7) (28) (32)
Net Realized Gain on Investments
- No Load Class -- -- -- (192) -- (8,852)
- Class A -- -- -- (8) -- (16)
- Class B -- -- -- (15) -- (22)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL (563) (1,045) (183) (493) (13,292) (34,831)
NET TRUST SHARE TRANSACTIONS
No-Load Class (3,024) 7,754 396 2,153 8,795 39,941
Class A 147 450 131 151 112 557
Class B 148 331 314 412 222 884
------------ ------------ ------------ ------------ ------------ ------------
TOTAL (2,729) 8,535 841 2,716 9,129 41,382
------------ ------------ ------------ ------------ ------------ ------------
TOTAL CHANGE IN NET ASSETS (3,835) 9,187 343 2,682 (14,262) 38,343
NET ASSETS AT BEGINNING OF PERIOD 25,682 16,495 7,575 4,893 542,181 503,838
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF PERIOD $ 21,847 $ 25,682 $ 7,918 $ 7,575 $ 527,919 $ 542,181
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 97 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO CALIFORNIA TAX-FREE
INCOME FUND
------------------------------
SIX-MONTH
PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31
(In Thousands) 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 2,570 $ 4,928
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 148 3,251
Net Change in Unrealized
Appreciation (Depreciation) (6,285) (1,778)
------------ ---------------
Net Change in Net Assets
Resulting from Operations (3,567) 6,401
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class (2,536) (4,878)
- Class A (18) (24)
- Class B (16) (26)
Net Realized Gain on Investments
- No Load Class -- (3,208)
- Class A -- (19)
- Class B -- (27)
------------ ---------------
Total (2,570) (8,182)
NET TRUST SHARE TRANSACTIONS
No-Load Class 2,196 25,835
Class A 271 232
Class B 30 436
------------ ---------------
Total 2,497 26,503
------------ ---------------
TOTAL CHANGE IN NET ASSETS (3,640) 24,722
NET ASSETS AT BEGINNING OF PERIOD 114,062 89,340
------------ ---------------
NET ASSETS AT END OF PERIOD $ 110,422 $ 114,062
------------ ---------------
------------ ---------------
- -------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 98 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND SAFECO MONEY MARKET FUND
--------------------------- ---------------------------
SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31 JUNE 30 DECEMBER 31
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 169 $ 359 $ 4,752 $ 9,987
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 6 246 -- --
Net Change in Unrealized
Appreciation (Depreciation) (315) (133) -- --
------------ ------------ ------------ ------------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (140) 472 4,752 9,987
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class (161) (343) (4,676) (9,906)
- Class A (4) (9) (57) (57)
- Class B (4) (7) (19) (24)
Net Realized Gain on Investments
- No Load Class -- (224) -- --
- Class A -- (6) -- --
- Class B -- (7) -- --
------------ ------------ ------------ ------------
TOTAL (169) (596) (4,752) (9,987)
NET TRUST SHARE TRANSACTIONS
No-Load Class (164) 541 (6,310) 47,850
Class A 1 (149) 2,133 1,649
Class B 33 12 733 256
------------ ------------ ------------ ------------
TOTAL (130) 404 (3,444) 49,755
------------ ------------ ------------ ------------
TOTAL CHANGE IN NET ASSETS (439) 280 (3,444) 49,755
NET ASSETS AT BEGINNING OF PERIOD 8,167 7,887 227,329 177,574
------------ ------------ ------------ ------------
NET ASSETS AT END OF PERIOD $ 7,728 $ 8,167 $ 223,885 $ 227,329
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 99 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
This financial report is on the 15 SAFECO Mutual Funds that issue Class A and
Class B shares (collectively, "Advisor Classes"). Each Fund is a series of one
of the following trusts (each a "Trust") listed below. Each Trust is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company.
SAFECO Common Stock Trust
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Income Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
SAFECO U.S. Value Fund
SAFECO Taxable Bond Trust
SAFECO High-Yield Bond Fund
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO Managed Bond Trust
SAFECO Managed Bond Fund
SAFECO Tax-Exempt Bond Trust
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
SAFECO Money Market Trust
SAFECO Money Market Fund
Effective September 30, 1996, certain SAFECO Mutual Funds began issuing two
new classes of shares--Class A and Class B shares. These classes of shares are
sold by financial advisors to shareholders and have associated sales and
distribution charges, unlike the no-load class of shares (which are sold
directly to the shareholder with no associated sales or distribution charges).
Each class of shares represents an interest in the net assets of the fund.
In connection with issuing the Advisor Classes, the Funds adopted a Plan of
Distribution (the "Plan"). Under the Plan, each Advisor
- 100 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Class (with the exception of the Money Market Fund Advisor Classes) pays a
service fee to the distributor, SAFECO Securities, Inc., for selling its shares
at the annual 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 the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles.
SECURITY VALUATION. 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. 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.
Temporary investments are valued at amortized cost which approximates market.
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 for the Taxable Bond Trust, Managed Bond Trust and
Tax-Exempt Bond Trust may be settled a month or more after the trade date. The
securities purchased are carried in the
- 101 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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. Dividend income less foreign taxes withheld (if any) for
the Common Stock Trust is recorded on the ex-dividend date or upon receipt of
ex-dividend notification in the case of certain foreign securities. Bond
premiums and original issue discounts are amortized to either call or maturity
dates for the Managed Bond Trust, Tax-Exempt Bond Trust and Money Market Trust.
Market discount on bonds purchased after April 30, 1993 is recorded as taxable
income at disposition for the Tax-Exempt Bond Trust. Interest is accrued on
bonds and temporary investments and bonds daily.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. For the Growth, Northwest,
International, and Small Company Funds, net investment income (if any) is
declared as a dividend to shareholders as of the last business day (ex-dividend
date) of December. For the Equity, Income, Balanced, and U.S. Value Funds, net
investment income (if any) is distributed as of the last business day of March,
June, September and December. Net investment income for the Taxable Bond Trust,
Managed Bond Trust, Tax-Exempt Bond Trust and Money Market Trust is declared as
a dividend to shareholders as of the close of each business day and payment is
made as of the last business day of each month. Net realized gains on
investments, if any, are normally distributed to shareholders at the end of
December.
Income dividends and capital gain distributions are determined in accordance
with income tax regulation which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign exchange contracts. Undistributed/ overdistributed net investment income
may include temporary financial reporting and tax basis differences which will
reverse in the subsequent year.
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
- 102 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 Tax-Exempt Bond Trust intends 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.
In addition, income which is derived from amortization on bonds purchased below
their issued price after April 30, 1993, is treated as ordinary income for
Federal income tax purposes.
FOREIGN CURRENCY TRANSLATION. The accounting records of the International
Fund are maintained in U.S. dollars. All assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars at prevailing
exchange rates. Purchases and sales of investment securities, and dividend and
interest income, are translated at the rates of exchange prevailing on the
respective dates of such transactions. The International Fund does not isolate
that portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments. Reported net realized
gains or losses from foreign currency transactions arise from gains or losses
realized between the trade and settlement dates on securities transactions, the
difference between the amounts of dividends, interest, and foreign withholding
taxes recorded on the International Fund's books and the U.S. dollar equivalent
of the amounts actually received or paid. Net unrealized foreign exchange gains
and losses arise from changes in the value of assets and liabilities other than
investments in securities, resulting from changes in the exchange rate.
FOREIGN EXCHANGE CONTRACTS. The International Fund may enter into foreign
currency exchange contracts as a way of managing foreign exchange rate risk. The
International Fund may enter into these contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date as a hedge or
cross-hedge against either specific transactions or portfolio positions. The
objective of the
- 103 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
International Fund's foreign currency hedging transactions is to reduce the risk
that the U.S. dollar value of the International Fund's foreign currency
denominated securities will decline in value due to changes in foreign currency
exchange rates. All foreign currency exchange contracts are "marked-to-market"
daily at the applicable translation rates resulting in unrealized gains or
losses. Realized and unrealized gains or losses on foreign currency contracts
are recorded on settlement date of the foreign currency exchange contract and
are included in the Statements of Assets and Liabilities and the Statement of
Operations. Risks may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
- 104 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT TRANSACTIONS
Following is a summary of investment transactions (excluding short-term
securities) during the six-month period ended June 30, 1999:
<TABLE>
<CAPTION>
(In Thousands) PURCHASES SALES
- --------------------------------------------------------------------
<S> <C> <C>
Growth Fund $178,152 $528,017
Equity Fund 474,703 344,093
Income Fund 64,771 112,214
Northwest Fund 17,778 24,047
Balanced Fund 16,033 14,519
International Fund 9,232 1,448
Small Company Fund 15,108 16,334
U.S. Value Fund 3,503 3,927
High-Yield Bond Fund 31,744 33,575
Intermediate-Term U.S. Treasury Fund 13,553 15,815
Managed Bond Fund 8,195 7,527
Municipal Bond Fund 51,997 48,823
California Tax-Free Income Fund 12,813 8,408
Washington State Municipal Fund -- 106
- --------------------------------------------------------------------
</TABLE>
Purchases include $7,265, $13,553, and $4,494 of U.S. Government Securities for
Balanced, Intermediate-Term U.S. Treasury, and Managed Bond Funds, respectively.
Sales include $6,075, $15,815, and $3,893 of U.S. Government Securities for
Balanced, Intermediate-Term U.S. Treasury, and Managed Bond Funds, respectively.
- 105 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. TRUST SHARE TRANSACTIONS
Following is a summary of transactions in Fund shares and the related amounts
(in thousands):
<TABLE>
<CAPTION>
SAFECO GROWTH FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 17,684 89,342 400 1,454 153 681
Reinvestments 2 1,873 -- 45 -- 22
Redemptions (33,072) (58,229) (508) (193) (139) (65)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE (15,386) 32,986 (108) 1,306 14 638
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 378,804 $ 2,179,487 $ 8,633 $ 35,247 $ 3,202 $ 16,101
Reinvestments 36 42,509 3 1,009 3 486
Redemptions (700,366) (1,375,729) (10,792) (4,152) (2,835) (1,406)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ (321,526) $ 846,267 $ (2,156) $ 32,104 $ 370 $ 15,181
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO EQUITY FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 15,646 29,980 493 2,002 307 604
Reinvestments 210 3,861 5 97 -- 28
Redemptions (12,841) (23,017) (177) (306) (48) (70)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE 3,015 10,824 321 1,793 259 562
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 376,416 $ 654,422 $ 11,904 $ 41,546 $ 7,423 $ 13,097
Reinvestments 5,002 88,790 117 2,241 2 650
Redemptions (308,657) (496,652) (4,234) (6,727) (1,180) (1,553)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ 72,761 $ 246,560 $ 7,787 $ 37,060 $ 6,245 $ 12,194
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 106 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO INCOME FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 1,055 4,553 32 66 23 62
Reinvestments 120 1,175 1 5 1 5
Redemptions (3,432) (5,541) (16) (14) (12) (8)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE (2,257) 187 17 57 12 59
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 24,629 $ 114,102 $ 767 $ 1,627 $ 556 $ 1,545
Reinvestments 2,708 27,902 13 119 12 123
Redemptions (79,452) (133,880) (366) (341) (282) (185)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ (52,115) $ 8,124 $ 414 $ 1,405 $ 286 $ 1,483
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO NORTHWEST FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 482 987 18 77 21 106
Reinvestments -- 31 -- 2 -- 1
Redemptions (788) (1,165) (17) (31) (9) (28)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE (306) (147) 1 48 12 79
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 8,840 $ 17,313 $ 337 $ 1,349 $ 376 $ 1,882
Reinvestments -- 549 -- 29 -- 27
Redemptions (14,401) (20,375) (315) (547) (163) (434)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ (5,561) $ (2,513) $ 22 $ 831 $ 213 $ 1,475
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 107 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. TRUST SHARE TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
SAFECO BALANCED FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 298 1,183 42 72 54 148
Reinvestments 6 66 -- 3 1 7
Redemptions (218) (860) (21) (20) (13) (16)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE 86 389 21 55 42 139
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 3,634 $ 14,335 $ 517 $ 862 $ 671 $ 1,783
Reinvestments 74 798 5 41 7 91
Redemptions (2,666) (10,265) (260) (243) (160) (199)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ 1,042 $ 4,868 $ 262 $ 660 $ 518 $ 1,675
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO INTERNATIONAL FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 1,597 2,000 37 28 15 40
Reinvestments -- -- -- -- -- --
Redemptions (1,330) (1,600) (22) (6) (3) (9)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE 267 400 15 22 12 31
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 21,457 $ 25,289 $ 504 $ 343 $ 207 $ 511
Reinvestments -- -- -- -- -- --
Redemptions (17,922) (20,134) (295) (70) (38) (115)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ 3,535 $ 5,155 $ 209 $ 273 $ 169 $ 396
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 108 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SMALL COMPANY FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 2,044 9,098 23 108 31 87
Reinvestments -- -- -- -- -- --
Redemptions (2,265) (7,540) (46) (16) (12) (20)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE (221) 1,558 (23) 92 19 67
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 21,611 $ 137,539 $ 237 $ 1,634 $ 325 $ 1,156
Reinvestments -- -- -- -- -- --
Redemptions (23,958) (111,922) (482) (185) (126) (226)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ (2,347) $ 25,617 $ (245) $ 1,449 $ 199 $ 930
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO U.S. VALUE FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 98 225 8 7 7 34
Reinvestments 1 17 -- -- -- 2
Redemptions (116) (215) (2) (1) (2) (3)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE (17) 27 6 6 5 33
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 1,229 $ 2,687 $ 97 $ 81 $ 87 $ 410
Reinvestments 10 203 -- 4 -- 21
Redemptions (1,409) (2,513) (31) (16) (26) (39)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ (170) $ 377 $ 66 $ 69 $ 61 $ 392
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 109 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. TRUST SHARE TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
SAFECO HIGH-YIELD BOND FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 4,507 9,834 69 319 115 138
Reinvestments 215 466 8 11 5 5
Redemptions (5,311) (9,014) (235) (21) (28) (25)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE (589) 1,286 (158) 309 92 118
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 39,745 $ 88,489 $ 611 $ 2,907 $ 1,019 $ 1,223
Reinvestments 1,893 4,195 72 94 43 44
Redemptions (46,671) (81,120) (2,028) (183) (248) (226)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ (5,033) $ 11,564 $ (1,345) $ 2,818 $ 814 $ 1,041
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 432 1,506 31 50 40 76
Reinvestments 26 53 1 2 1 2
Redemptions (744) (837) (18) (10) (27) (47)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE (286) 722 14 42 14 31
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 4,530 $ 16,057 $ 325 $ 539 $ 423 $ 799
Reinvestments 273 561 13 20 13 23
Redemptions (7,827) (8,864) (191) (109) (288) (491)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ (3,024) $ 7,754 $ 147 $ 450 $ 148 $ 331
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 110 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO MANAGED BOND FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 151 329 17 31 46 48
Reinvestments 7 18 1 1 1 2
Redemptions (112) (103) (2) (15) (10) (3)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE 46 244 16 17 37 47
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 1,268 $ 2,905 $ 145 $ 271 $ 391 $ 420
Reinvestments 59 157 5 10 8 15
Redemptions (931) (909) (19) (130) (85) (23)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ 396 $ 2,153 $ 131 $ 151 $ 314 $ 412
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO MUNICIPAL BOND FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 3,807 7,648 8 41 19 59
Reinvestments 496 1,598 1 2 1 3
Redemptions (3,705) (6,515) (1) (4) (4) (1)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE 598 2,731 8 39 16 61
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 54,695 $ 111,887 $ 118 $ 596 $ 268 $ 859
Reinvestments 7,120 23,242 8 26 18 41
Redemptions (53,020) (95,188) (14) (65) (64) (16)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ 8,795 $ 39,941 $ 112 $ 557 $ 222 $ 884
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 111 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. TRUST SHARE TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
SAFECO CALIFORNIA TAX-FREE INCOME FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 1,670 4,348 29 28 4 41
Reinvestments 129 494 1 2 1 3
Redemptions (1,635) (2,846) (8) (12) (3) (10)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE 164 1,996 22 18 2 34
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 21,124 $ 56,554 $ 367 $ 366 $ 52 $ 522
Reinvestments 1,640 6,359 11 25 10 39
Redemptions (20,568) (37,078) (107) (159) (32) (125)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ 2,196 $ 25,835 $ 271 $ 232 $ 30 $ 436
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 21 284 -- 1 3 --
Reinvestments 3 13 -- 1 -- 1
Redemptions (39) (247) -- (15) -- --
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE (15) 50 -- (13) 3 1
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 227 $ 3,139 $ -- $ 7 $ 31 $ 3
Reinvestments 31 137 2 7 2 9
Redemptions (423) (2,735) -- (163) -- --
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ (165) $ 541 $ 2 $ (149) $ 33 $ 12
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 112 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO MONEY MARKET FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 240,055 491,508 4,384 3,057 1,271 1,672
Reinvestments 3,821 9,260 44 51 14 17
Redemptions (250,186) (452,918) (2,295) (1,459) (552) (1,433)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE (6,310) 47,850 2,133 1,649 733 256
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 240,055 $ 491,508 $ 4,384 $ 3,057 $ 1,271 $ 1,672
Reinvestments 3,821 9,260 44 51 14 17
Redemptions (250,186) (452,918) (2,295) (1,459) (552) (1,433)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ (6,310) $ 47,850 $ 2,133 $ 1,649 $ 733 $ 256
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 113 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. COMPONENTS OF NET ASSETS
At June 30, 1999, the components of net assets were as follows:
<TABLE>
<CAPTION>
GROWTH EQUITY INCOME NORTHWEST
(In Thousands) FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized
Appreciation on Investments in
Which There Is an Excess of Value
Over Identified Cost $ 185,959 $ 784,781 $ 99,381 $ 28,371
Aggregate Gross Unrealized
Depreciation on Investents in
Which There Is an Excess of
Identified Cost Over Value (263,958) (31,258) (29,297) (5,997)
----------- ---------- -------------- --------------
NET UNREALIZED APPRECIATION
(DEPRECIATION) (77,999) 753,523 70,084 22,374
ACCUMULATED NET INVESTMENT INCOME
(LOSS) (2,462) -- -- (187)
ACCUMULATED NET REALIZED GAIN (LOSS)
ON INVESTMENTS (26,415) 80,386 23,040 10,712
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 1,130,006 1,554,382 259,796 41,861
----------- ---------- -------------- --------------
NET ASSETS AT JUNE 30, 1999 $ 1,023,130 $ 2,388,291 $ 352,920 $ 74,760
----------- ---------- -------------- --------------
----------- ---------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
SMALL
BALANCED INTERNATIONAL COMPANY U.S. VALUE
FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized
Appreciation on Investments and
Foreign Currency in Which There Is
an Excess of Value Over Identified
Cost $ 2,714 $ 6,421 $ 2,491 $ 1,923
Aggregate Gross Unrealized
Depreciation on Investments and
Foreign Currency in Which There Is
an Excess of Identified Cost Over
Value (694) (436) (4,085) (398)
----------- ---------- -------------- --------------
NET UNREALIZED APPRECIATION
(DEPRECIATION) 2,020 5,985 (1,594) 1,525
ACCUMULATED NET INVESTMENT INCOME
(LOSS) -- 59 (75) --
ACCUMULATED NET REALIZED (LOSS) ON
INVESTMENTS 713 (742)* (10,396)* 753
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 21,970 23,607 44,443 9,549
----------- ---------- -------------- --------------
NET ASSETS AT JUNE 30, 1999 $ 24,703 $ 28,909 $ 32,378 $ 11,827
----------- ---------- -------------- --------------
----------- ---------- -------------- --------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
- 114 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
HIGH-YIELD INTERMEDIATE-TERM MANAGED MUNICIPAL
(In Thousands) BOND FUND U.S TREASURY FUND BOND FUND BOND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized
Appreciation on Investments in
Which There Is an Excess of Value
Over Identified Cost $ 640 $ 240 $ 5 $ 46,151
Aggregate Gross Unrealized
Depreciation on Investents in
Which There Is an Excess of
Identified Cost Over Value (4,041) (256) (249) (6,333)
----------- ---------- -------------- --------------
NET UNREALIZED APPRECIATION
(DEPRECIATION) (3,401) (16) (244) 39,818
ACCUMULATED NET REALIZED GAIN (LOSS)
ON INVESTMENT TRANSACTIONS (40)* (270)* (151) 1,360
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 79,443 22,133 8,313 486,741
----------- ---------- -------------- --------------
NET ASSETS AT JUNE 30, 1999 $ 76,002 $ 21,847 $ 7,918 $ 527,919
----------- ---------- -------------- --------------
----------- ---------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
WASHINGTON
CALIFORNIA STATE
TAX-FREE MUNICIPAL MONEY MARKET
INCOME FUND BOND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized
Appreciation on Investments in
Which There Is an Excess of Value
Over Identified Cost $ 5,547 $ 260 $ --
Aggregate Gross Unrealized
Depreciation on Investents in
Which There Is an Excess of
Identified Cost Over Value (2,873) (100) --
---------- -------------- --------------
NET UNREALIZED APPRECIATION 2,674 160 --
ACCUMULATED NET REALIZED GAIN ON
INVESTMENT TRANSACTIONS 148 6 --
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 107,600 7,562 223,885
---------- -------------- --------------
NET ASSETS AT JUNE 30, 1999 $ 110,422 $ 7,728 $ 223,885
---------- -------------- --------------
---------- -------------- --------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* At December 31, 1998, 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>
EXPIRATION
AMOUNTS DATES
----------- ---------
<S> <C> <C>
International Fund $ 766 2006
Small Company Fund 4,172 2006
High-Yield Bond Fund 396 2004-2006
Intermediate-Term U.S. Treasury Fund 249 2001-2005
</TABLE>
- 115 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONSWITH AFFILIATES
INVESTMENT ADVISORY FEES. Effective May 1, 1999, shareholders approved an
amended and restated investment advisory contract with SAFECO Asset Management
Company. The fees paid by the Funds under the new contract are based on a
percentage of each day's net assets, which, on an annual basis, are as follows:
<TABLE>
<S> <C>
GROWTH, EQUITY, INCOME, NORTHWEST, INTERNATIONAL FUND:
BALANCED AND U.S. VALUE FUNDS: First $250 million 1.00%
First $250 million .70% Next $500 million .90
Next $500 million .65 Over $750 million .80
Next $500 million .60
Over $1.25 billion .55
SMALL COMPANY FUND: MANAGED BOND FUND:
First $250 million .75% First $750 million .50%
Next $500 million .70 Next $500 million .45
Next $500 million .65 Over $1.25 billion .40
Over $1.25 billion .60
INTERMEDIATE-TERM U.S. TREASURY, GNMA MONEY MARKET FUND:
AND HIGH-YIELD BOND FUNDS: First $250 million .50%
First $250 million .55% Next $500 million .45
Next $500 million .50 Next $500 million .40
Next $500 million .45 Over $1.25 billion .35
Over $1.25 billion .40
MUNICIPAL, CALIFORNIA AND WASHINGTON
FUNDS:
First $250 million .50
Next $500 million .45
Over $750 million .40
</TABLE>
- 116 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SAFECO Asset Management Company pays sub-advisory fees to Bank of Ireland
Asset Management Company (U.S.) Limited for providing investment research and
advice to the International Fund.
FUND ACCOUNTING AND FUND ADMINISTRATION FEES. Beginning May 1, 1999, SAFECO
Asset Management Company receives a fee for these services based on a percentage
of each day's net assets, which, on an annual basis is as follows:
<TABLE>
<S> <C>
FUND ACCOUNTING: FUND ADMINISTRATION:
First $200 million .04% First $200 million .05%
Over $200 million .01 Over $200 million .01
</TABLE>
TRANSFER AGENT, SHAREHOLDER SERVICE, AND DISTRIBUTION FEES. SAFECO Services
Corporation receives transfer agent, shareholder service, and distribution fees.
NOTES PAYABLE AND INTEREST EXPENSE. The Funds may borrow money for temporary
purposes from SAFECO Corporation or its affiliates at rates equivalent to
commercial bank interest rates.
LINE OF CREDIT. The Trust, together with all other management investment
companies for which SAFECO Asset Management Company serves as investment
advisor, has a line of credit arrangements with certain financial institutions.
Under these arrangements, $175 million is available to meet short-term financing
needs. At June 30, 1999, the Growth Fund had a 6.4375% note payable to State
Street Bank of $960,000. The note was repaid on 7/1/99.
AFFILIATE OWNERSHIP. At December 31, 1998, SAFECO Insurance Company of
America owned 450,000 shares (13% of outstanding shares) of the Northwest Fund,
500,000 shares (23%) of the Intermediate-Term U.S. Treasury Fund and 502,372
shares (67%) of the Washington Municipal Bond Fund. During the same period
SAFECO Asset Management Company owned 688,168 shares (33%) of the International
Fund, 519,268 shares (27%) of the Balanced Fund, 500,000 shares (56%) of the
U.S. Value Fund, and 452,103 shares (46%) of the Managed Bond Fund.
EXPENSE REIMBURSEMENT. Beginning May 1, 1999, SAFECO Asset Management Company
agreed to reimburse the Funds for operating
- 117 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
expenses (i.e., all expenses except investment advisory, distribution and
service fees) which exceed, on an annual basis, .30% of the average daily net
assets for the Money Market Fund and .40% for all other Funds.
DEALER CONCESSIONS. SAFECO Securities, Inc. retained the following amounts in
dealer commissions from sales of Class A Shares during the six-month period
ended June 30, 1999:
<TABLE>
<CAPTION>
COMMISSIONS
RETAINED
- -----------------------------------------------------
<S> <C>
Growth Fund $ 14,969
Equity Fund 24,549
Income Fund 1,756
Northwest Fund 1,069
Balanced Fund 1,993
International Fund 807
Small Company Fund 652
U.S. Value Fund 176
High-Yield Bond Fund 3,031
Intermediate-Term U.S. Treasury Fund 62
Managed Bond Fund 529
Municipal Bond Fund 87
California Tax-Free Income Fund 1,053
Washington State Municipal Bond Fund 0
- -----------------------------------------------------
</TABLE>
- 118 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. INVESTMENTS IN AFFILIATES
Each of the companies listed below is an affiliate of the Growth Fund because
the Fund owned at least 5% of the company's voting securities during the
six-month period ended June 30, 1999.
<TABLE>
<CAPTION>
(In Thousands) SHARES AT SHARES AT MARKET VALUE
BEGINNING END OF JUNE 30
SECURITY OF PERIOD ADDITIONS REDUCTIONS PERIOD DIVIDENDS 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
*American Buildings Co. 360 -- (360) -- -- --
American Coin
Merchandising, Inc. 391 -- -- 391 -- $ 2,542
Blue Rhino Corp. -- 403 -- 403 -- 3,704
BNC Mortgage, Inc. 484 -- (22) 462 -- 2,887
Concepts Direct, Inc. 480 -- -- 480 -- 4,435
Creditrust Corp. 489 536 -- 1,025 -- 28,456
Damark International, Inc. 755 -- (40) 715 -- 5,987
*Discreet Logic, Inc. 1,618 -- (1,618)+ -- -- --
Dura Pharmaceuticals, Inc. 2,546 -- (240) 2,306 -- 27,531
Dynamex, Inc. 642 -- (30) 612 -- 1,759
Emmis Communications Corp.
(Class A) 1,242 49 (134) 1,157 -- 57,107
Family Golf Centers, Inc. 2,512 -- (60) 2,452 -- 18,852
*First Commonwealth, Inc. 344 -- (344) -- -- --
French Fragrances, Inc. 895 -- -- 895 -- 6,545
Funco, Inc. 354 -- -- 354 -- 6,532
Hall, Kinion & Associates,
Inc. 899 -- -- 899 -- 6,290
Harold's Stores, Inc. 542 -- -- 542 -- 3,524
Innotrac Corp. 676 -- -- 676 -- 13,689
IntelliQuest Information
Group, Inc. 840 -- -- 840 -- 6,299
Lifeline Systems, Inc. 514 -- -- 514 -- 9,903
MICROS Systems, Inc. 1,202 -- (74) 1,128 -- 38,336
*NCO Group, Inc. 1,456 184 (904) 736 -- --
Nastech Pharmaceutical Co.,
Inc. 609 -- -- 609 -- 2,017
*Open Plan Systems, Inc. 245 -- (245) -- -- --
Phoenix International Ltd.,
Inc. 623 209 -- 832 -- 5,302
PolyMedica Industries, Inc. 886 -- -- 886 -- 8,860
Precision Auto Care, Inc. 607 -- (15) 592 -- 1,814
Prime Medical Services,
Inc. 1,121 28 -- 1,149 -- 8,475
Recovery Engineering, Inc. 342 -- -- 342 -- 5,811
Schlotzsky's, Inc. 493 -- (66) 427 -- 4,671
Serologicals Corp. 543 1,903 (25) 2,421 -- 19,669
*Sirrom Capital Corp. 3,723 -- (3,723)++ -- -- --
Stage Stores, Inc. 2,112 -- (478) 1,634 -- 10,623
Suburban Lodges of America,
Inc. 1,529 -- -- 1,529 -- 9,840
TRM Copy Centers Corp. 698 -- -- 698 -- 4,583
*Teardrop Golf Co. 314 -- (314) -- -- --
*TETRA Technologies, Inc. 710 -- (205) 505 -- --
Towne Services, Inc. 817 294 -- 1,111 -- 8,751
Travis Boats & Motors, Inc. 153 118 -- 271 -- 3,930
Waterside Capital Corp. 118 6** -- 124 -- 852
-------------
$339,576
-------------
-------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Company was not an affiliate at the end of the period.
** Represents a 5% Stock Dividend.
+ Acquired by Autodesk, Inc.
++ Acquired by Finova Group, Inc.
- 119 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. COMMITMENTS.
At June 30, 1999, the International Fund had open forward foreign currency
exchange contracts obligating it to receive or deliver the following foreign
currencies:
<TABLE>
<CAPTION>
(In Thousands)
U.S. DOLLAR UNREALIZED
CURRENCY IN EXCHANGE SETTLEMENT VALUE AS OF APPRECIATION
TO BE DELIVERED FOR DATE JUNE 30, 1999 (DEPRECIATION)
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
40,009 Japanese Yen $ 338 7/02/99 $ 331 $ 7
(40,009) Japanese Yen (329) 7/02/99 (331) 2
66,863 Japanese Yen 571 7/21/99 555 16
38,621 Japanese Yen 320 8/18/99 322 (2)
36,158 Japanese Yen 294 8/24/99 301 (7)
27,206 Japanese Yen 226 8/31/99 227 (1)
31,961 Japanese Yen 266 9/09/99 267 (1)
60,190 Japanese Yen 514 9/16/99 503 11
------------ ------- -----
$ 2,200 $ 2,175 $ 25
------------ ------- -----
------------ ------- -----
</TABLE>
- 120 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GROWTH FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 22.66 $ 22.39 $ 16.97 $ 15.45
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) (0.06) (0.05) (0.02) (0.02)
Net Realized and Unrealized Gain
(Loss) on Investments (1.39) 1.05 8.44 1.77
------ ------ ------ ------
Total from Investment Operations (1.45) 1.00 8.42 1.75
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- -- --
Distributions from Realized Gains -- (0.73) (3.00) (0.23)
------ ------ ------ ------
Total Distributions -- (0.73) (3.00) (0.23)
------ ------ ------ ------
NET ASSET VALUE AT END
OF PERIOD $ 21.21 $ 22.66 $ 22.39 $ 16.97
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ (6.40%)* 4.47% 49.61% 11.35%*
NET ASSETS AT END OF PERIOD (000'S) $ 29,259 $ 33,712 $ 4,076 $ 187
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.19%** 1.00% 1.06% 1.12%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (0.60%)** (0.40%) (.33%) (.58%)**
PORTFOLIO TURNOVER RATE 30.60%** 54.58% 82.57% 82.93%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 121 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GROWTH FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 22.21 $ 22.19 $ 16.94 $ 15.45
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) (0.15) (0.15) (0.08) (0.05)
Net Realized and Unrealized Gain
(Loss) on Investments (1.36) 0.90 8.33 1.77
------ ------ ------ ------
Total from Investment Operations (1.51) 0.75 8.25 1.72
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- -- --
Distributions from Realized Gains -- (0.73) (3.00) (0.23)
------ ------ ------ ------
Total Distributions -- (0.73) (3.00) (0.23)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 20.70 $ 22.21 $ 22.19 $ 16.94
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ (6.80%)* 3.38% 48.70% 11.15%*
NET ASSETS AT END OF PERIOD (000'S) $ 14,792 $ 15,569 $ 1,402 $ 116
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.12%** 1.91% 1.88% 1.87%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (1.50%)** (1.28%) (1.16%) (1.38%)**
PORTFOLIO TURNOVER RATE 30.60%** 54.58% 82.57% 82.93%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 122 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO EQUITY FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 23.27 $ 19.55 $ 16.62 $ 15.85
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.08 0.18 0.14 0.04
Net Realized and Unrealized Gain on
Investments 2.28 4.65 3.77 1.35
------ ------ ------ ------
Total from Investment Operations 2.36 4.83 3.91 1.39
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.08) (0.18) (0.14) (0.04)
Distributions from Realized Gains -- (0.93) (0.84) (0.58)
------ ------ ------ ------
Total Distributions (0.08) (1.11) (0.98) (0.62)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 25.55 $ 23.27 $ 19.55 $ 16.62
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ 10.16%* 24.77% 23.56% 8.78%*
NET ASSETS AT END OF PERIOD (000'S) $ 63,481 $ 50,354 $ 7,247 $ 2,894
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.95%** 0.88% 1.24% 0.97%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 0.70%** 0.89% 0.74% 1.38%**
PORTFOLIO TURNOVER RATE 32.64%** 32.94% 34.26% 59.34%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 123 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO EQUITY FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 23.15 $ 19.55 $ 16.60 $ 15.85
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) 0.03 (0.03) 0.02 0.02
Net Realized and Unrealized Gain on
Investments 2.19 4.56 3.79 1.33
------ ------ ------ ------
Total from Investment Operations 2.22 4.53 3.81 1.35
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- (0.02) (0.02)
Distributions from Realized Gains -- (0.93) (0.84) (0.58)
------ ------ ------ ------
Total Distributions -- (0.93) (0.86) (0.60)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 25.37 $ 23.15 $ 19.55 $ 16.60
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ 9.59%* 23.16% 22.93% 8.50%*
NET ASSETS AT END OF PERIOD (000'S) $ 25,461 $ 17,232 $ 3,565 $ 355
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.96%** 1.94% 1.81% 1.75%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (0.31%)** (0.21%) 0.12% 0.51%**
PORTFOLIO TURNOVER RATE 32.64%** 32.94% 34.26% 59.34%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 124 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INCOME FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 23.55 $ 24.02 $ 21.15 $ 20.03
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.24 0.48 0.51 0.12
Net Realized and Unrealized Gain on
Investments 0.16 0.81 4.98 1.65
------ ------ ------ ------
Total from Investment Operations 0.40 1.29 5.49 1.77
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.24) (0.48) (0.51) (0.12)
Distributions from Realized Gains -- (1.28) (2.11) (0.53)
------ ------ ------ ------
Total Distributions (0.24) (1.76) (2.62) (0.65)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 23.71 $ 23.55 $ 24.02 $ 21.15
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ 1.72%* 5.38% 26.15% 8.85%*
NET ASSETS AT END OF PERIOD (000'S) $ 2,498 $ 2,073 $ 742 $ 193
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.37%** 1.34% 1.14% 1.03%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 2.15%** 2.16% 2.50% 2.66%**
PORTFOLIO TURNOVER RATE 37.19%** 46.14% 52.14% 37.84%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 125 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INCOME FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 23.57 $ 23.95 $ 21.12 $ 20.03
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.15 0.30 0.38 0.10
Net Realized and Unrealized Gain on
Investments 0.15 0.90 4.94 1.62
------ ------ ------ ------
Total from Investment Operations 0.30 1.20 5.32 1.72
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.15) (0.30) (0.38) (0.10)
Distributions from Realized Gains -- (1.28) (2.11) (0.53)
------ ------ ------ ------
Total Distributions (0.15) (1.58) (2.49) (0.63)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 23.72 $ 23.57 $ 23.95 $ 21.12
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ 1.31%* 5.03% 25.35% 8.60%*
NET ASSETS AT END OF PERIOD (000'S) $ 2,478 $ 2,176 $ 798 $ 112
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.13%** 2.08% 1.83% 1.79%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 1.40%** 1.45% 1.79% 1.99%**
PORTFOLIO TURNOVER RATE 37.19%** 46.14% 52.14% 37.84%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 126 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO NORTHWEST FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 17.56 $ 17.25 $ 14.06 $ 13.78
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) (0.08) (0.16) (0.06) (0.01)
Net Realized and Unrealized Gain on
Investments 3.26 0.66 4.39 0.29
------ ------ ------ ------
Total from Investment Operations 3.18 0.50 4.33 0.28
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- -- --
Distributions from Realized Gains -- (0.19) (1.14) --
------ ------ ------ ------
Total Distributions -- (0.19) (1.14) --
------ ------ ------ ------
NET ASSET VALUE AT END
OF PERIOD $ 20.74 $ 17.56 $ 17.25 $ 14.06
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ 18.11%* 2.87% 30.79% 2.03%*
NET ASSETS AT END OF PERIOD (000'S) $ 2,632 $ 2,208 $ 1,354 $ 369
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.49%**++ 1.70% 1.42% 1.40%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (0.87%)** (1.06%) (.61%) (.39%)**
PORTFOLIO TURNOVER RATE 53.27%** 50.40% 55.42% 67.32%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursement by advisor. Absent the reimbursement, the annualized
ratio of expenses to average net assets would have been 1.52%.
- 127 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO NORTHWEST FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 17.31 $ 17.09 $ 14.03 $ 13.78
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) (0.14) (0.23) (0.10) (0.03)
Net Realized and Unrealized Gain on
Investments 3.19 0.64 4.30 0.28
------ ------ ------ ------
Total from Investment Operations 3.05 0.41 4.20 0.25
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- -- --
Distributions from Realized Gains -- (0.19) (1.14) --
------ ------ ------ ------
Total Distributions -- (0.19) (1.14) --
NET ASSET VALUE AT END
OF PERIOD $ 20.36 $ 17.31 $ 17.09 $ 14.03
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ 17.62%* 2.37% 29.93% 1.81%*
NET ASSETS AT END OF PERIOD (000'S) $ 3,307 $ 2,603 $ 1,204 $ 232
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.24%**++ 2.30% 2.09% 2.18%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (1.62%)** (1.66%) (1.30%) (1.19%)**
PORTFOLIO TURNOVER RATE 53.27%** 50.40% 55.42% 67.32%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursement by advisor. Absent the reimbursement, the annualized
ratio of expenses to average net assets would have been 2.27%.
- 128 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO BALANCED FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 12.23 $ 11.60 $ 10.69 $ 10.38
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.12 0.25 0.28 0.09
Net Realized and Unrealized Gain on
Investments 0.41 1.14 1.45 0.44
------ ------ ------ ------
Total from Investment Operations 0.53 1.39 1.73 0.53
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.12) (0.25) (0.28) (0.09)
Distributions from Realized Gains -- (0.51) (0.54) (0.13)
------ ------ ------ ------
Total Distributions (0.12) (0.76) (0.82) (0.22)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 12.64 $ 12.23 $ 11.60 $ 10.69
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ 4.38%* 12.06% 16.29% 5.07%*
NET ASSETS AT END OF PERIOD (000'S) $ 1,192 $ 893 $ 205 $ 110
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.49%**++ 1.67% 1.52% 1.35%**++
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 2.18%** 2.23% 2.55% 3.01%**
PORTFOLIO TURNOVER RATE 131.47%** 74.76% 101.22% 36.10%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets for the period ended June 30, 1999,
and December 31, 1996 would have been 1.61% and 1.52%, respectively.
- 129 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO BALANCED FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 12.24 $ 11.60 $ 10.70 $ 10.38
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.08 0.15 0.18 0.06
Net Realized and Unrealized Gain on
Investments 0.40 1.15 1.44 0.45
------ ------ ------ ------
Total from Investment Operations 0.48 1.30 1.62 0.51
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.08) (0.15) (0.18) (0.06)
Distributions from Realized Gains -- (0.51) (0.54) (0.13)
------ ------ ------ ------
Total Distributions (0.08) (0.66) (0.72) (0.19)
NET ASSET VALUE AT END
OF PERIOD $ 12.64 $ 12.24 $ 11.60 $ 10.70
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ 3.96%* 11.30% 15.21% 4.85%*
NET ASSETS AT END OF PERIOD (000'S) $ 2,656 $ 2,056 $ 331 $ 115
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.24%**++ 2.34% 2.28% 2.11%**++
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 1.43%** 1.55% 1.78% 2.23%**
PORTFOLIO TURNOVER RATE 131.47%** 74.76% 101.22% 36.10%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets for the period ended June 30, 1999,
and December 31, 1996 would have been 2.36% and 1.52%, respectively.
- 130 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERNATIONAL FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.13 $ 11.55 $ 11.29 $ 10.39
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) 0.01 (0.02) 0.20 --
Net Realized and Unrealized Gain on
Investments and Foreign Currency
Transactions 0.71 1.60 0.29 0.95
------ ------ ------ ------
Total from Investment Operations 0.72 1.58 0.49 0.95
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- (0.21) (0.05)
Distributions from Realized Gains -- -- (0.02) --
------ ------ ------ ------
Total Distributions -- -- (0.23) (0.05)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 13.85 $ 13.13 $ 11.55 $ 11.29
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ 5.48%* 13.68% 4.30% 9.19%*
NET ASSETS AT END OF PERIOD (000'S) $ 873 $ 629 $ 295 $ 154
RATIO OF EXPENSES TO AVERAGE NET
ASSETS++ 1.99%** 2.14% 1.87% 1.41%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS 0.18%** (.47%) 0.26% (.23%)**
PORTFOLIO TURNOVER RATE 12.03%** 25.62% 22.13% 18.51%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would have been 2.08%, 2.31%, 2.13% and
1.72% for the period or year ended June 30, 1999, December 31, 1998, 1997
and 1996, respectively.
- 131 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERNATIONAL FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 12.99 $ 11.53 $ 11.28 $ 10.39
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income (0.04) (0.11) 0.18 --
Net Realized and Unrealized Gain
(Loss) on Investments and Foreign
Currency Transactions 0.68 1.57 0.22 0.93
------ ------ ------ ------
Total from Investment Operations 0.64 1.46 0.40 0.93
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- (0.13) (0.04)
Distributions from Realized Gains -- -- (0.02) --
------ ------ ------ ------
Total Distributions -- -- (0.15) (0.04)
NET ASSET VALUE AT END
OF PERIOD $ 13.63 $ 12.99 $ 11.53 $ 11.28
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ 4.93%* 12.66% 3.48% 8.96%*
NET ASSETS AT END OF PERIOD (000'S) $ 987 $ 777 $ 331 $ 112
RATIO OF EXPENSES TO AVERAGE NET
ASSETS++ 2.93%** 3.02% 2.64% 2.17%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (0.75%)** (1.33%) 0.51% (1.15%)**
PORTFOLIO TURNOVER RATE 12.03%** 25.62% 22.13% 18.51%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would have been 3.02%, 3.19%, 2.90% and
2.47% for the period or year ended June 30, 1999, and December 31, 1998,
1997 and 1996, respectively.
- 132 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO SMALL COMPANY FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.09 $ 14.21 $ 11.81 $ 11.51
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) (0.05) (0.08) (0.06) (0.01)
Net Realized and Unrealized Gain
(Loss) on Investments (0.82) (3.04) 2.80 0.31
------------- ------------- ------------- ------
Total from Investment Operations (0.87) (3.12) 2.74 0.30
LESS DISTRIBUTIONS
Distributions from Realized Gains -- -- (0.34) --
------------- ------------- ------------- ------
Total Distributions -- -- (0.34) --
------------- ------------- ------------- ------
NET ASSET VALUE AT END OF PERIOD $ 10.22 $ 11.09 $ 14.21 $ 11.81
------------- ------------- ------------- ------
------------- ------------- ------------- ------
TOTAL RETURN+ (7.84%)* (21.96%) (23.21%) (2.61%)*
NET ASSETS AT END OF PERIOD (000'S) $ 891 1,220 $ 271 $ 135
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.73%**++ 1.66% 1.52% 1.42%**++
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (0.90%)** (0.99%) (.60%) (.50%)**
PORTFOLIO TURNOVER RATE 98.30%** 90.23% 60.81% 73.47%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets for the period ended June 30, 1999,
and December 31, 1996 would have been 1.86% and 1.62%, respectively.
- 133 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO SMALL COMPANY FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.88 $ 14.07 $ 11.79 $ 11.51
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.08) (0.15) (0.10) (0.04)
Net Realized and Unrealized Gain
(Loss) on Investments (0.81) (3.04) 2.72 0.32
------------- ------------- ------------- ------
Total from Investment Operations (0.89) (3.19) 2.62 0.28
LESS DISTRIBUTIONS
Distributions from Realized Gains -- -- (0.34) --
------------- ------------- ------------- ------
Total Distributions -- -- (0.34) --
------------- ------------- ------------- ------
NET ASSET VALUE AT END OF PERIOD $ 9.99 $ 10.88 $ 14.07 $ 11.79
------------- ------------- ------------- ------
------------- ------------- ------------- ------
TOTAL RETURN+ (8.18%)* (22.67%) 22.23% 2.43%*
NET ASSETS AT END OF PERIOD (000'S) $ 1,149 1,034 $ 396 $ 103
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.51%**++ 2.64% 2.29% 2.18%**++
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (1.70%)** (1.91%) (1.35%) (1.28%)**
PORTFOLIO TURNOVER RATE 98.30%** 90.23% 60.81% 73.47%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets for the period ended June 30, 1999,
and December 31, 1996 would have been 2.64% and 2.41%, respectively.
- 134 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO U.S. VALUE FUND
CLASS A
<TABLE>
<CAPTION>
APRIL 30, 1997
SIX-MONTH FOR THE YEAR (COMMENCEMENT OF
PERIOD ENDED ENDED OPERATIONS)
JUNE 30 DECEMBER 31 TO DECEMBER 31
-----------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.93 $ 11.18 $ 10.00
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.01 0.05 0.08
Net Realized and Unrealized Gain on
Investments 1.18 1.27 1.65
------------- ------ -------
Total from Investment Operations 1.19 1.32 1.73
------------- ------ -------
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.01) (0.05) (0.08)
Distributions from Realized Gains -- (0.52) (0.47)
------------- ------ -------
Total Distributions (0.01) (0.57) (0.55)
------------- ------ -------
NET ASSET VALUE AT END OF PERIOD $ 13.11 $ 11.93 $ 11.18
------------- ------ -------
------------- ------ -------
TOTAL RETURN+ 9.98%* 11.79% 17.24%*
NET ASSETS AT END OF PERIOD (000'S) $ 301 $ 210 $ 133
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.70%**++ 2.07% 1.48%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 0.50%** 0.18% 1.03%**
PORTFOLIO TURNOVER RATE 65.91%** 55.15% 36.37%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursement by advisor. Absent the reimbursement, the annualized
ratio of expenses to average net assets would have been 1.93%.
- 135 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO U.S. VALUE FUND
CLASS B
<TABLE>
<CAPTION>
APRIL 30, 1997
SIX-MONTH FOR THE YEAR (COMMENCEMENT OF
PERIOD ENDED ENDED OPERATIONS)
JUNE 30 DECEMBER 31 TO DECEMBER 31
-----------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.91 $ 11.18 $ 10.00
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) (0.01) (0.03) 0.02
Net Realized and Unrealized Gain on
Investments 1.15 1.28 1.65
------ ------ -------
Total from Investment Operations 1.14 1.25 1.67
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- (0.02)
Distributions from Realized Gains -- (0.52) (0.47)
------ ------ -------
Total Distributions -- (0.52) (0.49)
------ ------ -------
NET ASSET VALUE AT END OF PERIOD $ 13.05 $ 11.91 $ 11.18
------ ------ -------
------ ------ -------
TOTAL RETURN+ 9.57%* 11.18% 16.63%*
NET ASSETS AT END OF PERIOD (000'S) $ 752 $ 628 $ 221
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.40%**++ 2.59% 2.29%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (0.24%)** (0.35%) 0.20%**
PORTFOLIO TURNOVER RATE 65.91%** 55.15% 36.37%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursement by advisor. Absent the reimbursement, the annualized
ratio of expenses to average net assets would have been 2.63%.
- 136 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO HIGH-YIELD BOND FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE YEAR ELEVEN-MONTH
PERIOD ENDED ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31++
-----------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 8.78 $ 9.12 $ 8.83
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.34 0.72 0.69
Net Realized and Unrealized Gain
(Loss) on Investments (0.25) (0.34) 0.29
------ ------ ------
Total from Investment Operations 0.09 0.38 0.98
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.34) (0.72) (0.69)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 8.53 $ 8.78 $ 9.12
------ ------ ------
------ ------ ------
TOTAL RETURN+ 0.96%* 4.32% 12.49%*
NET ASSETS AT END OF PERIOD (000'S) $ 1,534 $ 2,964 $ 259
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.24%** 1.12% 1.10%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 7.88%** 8.11% 7.65%**
PORTFOLIO TURNOVER RATE 81.49%** 64.22% 85.06%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ For the period from January 31, 1997 (initial issue date of Class A and
Class B shares) through December 31, 1997.
- 137 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO HIGH-YIELD BOND FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE YEAR ELEVEN-MONTH
PERIOD ENDED ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31++
-----------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 8.78 $ 9.12 $ 8.83
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.30 0.64 0.63
Net Realized and Unrealized Gain
(Loss) on Investments (0.26) (0.34) 0.29
------ ------ ------
Total from Investment Operations 0.04 0.30 0.92
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.30) (0.64) (0.63)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 8.52 $ 8.78 $ 9.12
------ ------ ------
------ ------ ------
TOTAL RETURN+ 0.43%* 3.39% 11.77%*
NET ASSETS AT END OF PERIOD (000'S) $ 2,122 $ 1,381 $ 355
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.13%** 2.06% 1.81%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 7.09%** 7.15% 6.87%**
PORTFOLIO TURNOVER RATE 81.49%** 64.22% 85.06%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ For the period from January 31, 1997 (initial issue date of Class A and
Class B shares) through December 31, 1997.
- 138 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.75 $ 10.35 $ 10.11 $ 10.10
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.24 0.52 0.55 0.15
Net Realized and Unrealized Gain
(Loss) on Investments (0.49) 0.40 0.24 0.01
------ ------ ------ ------
Total from Investment Operations (0.25) 0.92 0.79 0.16
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.24) (0.52) (0.55) (0.15)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 10.26 $ 10.75 $ 10.35 $ 10.11
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ (2.35%)* 9.08% 8.03% 1.63%*
NET ASSETS AT END OF PERIOD (000'S) $ 940 $ 833 $ 365 $ 704
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.31%**++ 1.40% 1.32% 1.07%**++
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.70%** 4.84% 5.36% 6.07%**
PORTFOLIO TURNOVER RATE 28.35%** 2.83% 82.36% 125.42%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets for the period ended June 30, 1999,
and December 31, 1996 would have been 1.36% and 1.30%, respectively.
- 139 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.74 $ 10.35 $ 10.12 $ 10.10
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.20 0.45 0.48 0.14
Net Realized and Unrealized Gain
(Loss) on Investments (0.49) 0.39 0.23 0.02
------ ------ ------ ------
Total from Investment Operations (0.29) 0.84 0.71 0.16
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.20) (0.45) (0.48) (0.14)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 10.25 $ 10.74 $ 10.35 $ 10.12
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ (2.71%)* 8.30% 7.27% 1.55%*
NET ASSETS AT END OF PERIOD (000'S) $ 894 $ 788 $ 432 $ 223
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.07%**++ 2.00% 1.87% 1.72%**++
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 3.95%** 4.28% 4.78% 5.35%**
PORTFOLIO TURNOVER RATE 28.35%** 2.83% 82.36% 125.42%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets for the period ended June 30, 1999,
and December 31, 1996 would have been 2.12% and 1.95%, respectively.
- 140 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MANAGED BOND FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 8.65 $ 8.60 $ 8.35 $ 8.35
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.18 0.37 0.39 0.11
Net Realized and Unrealized Gain
(Loss) on Investments (0.54) 0.30 0.25 --
------ ------ ------ ------
Total from Investment Operations (0.36) 0.67 0.64 0.11
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.18) (0.37) (0.39) (0.11)
Distributions from Realized Gains -- (0.25) -- --
------ ------ ------ ------
Total Distributions (0.18) (0.62) (0.39) (0.11)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 8.11 $ 8.65 $ 8.60 $ 8.35
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ (4.19%)* 7.87% 7.78% 1.34%*
NET ASSETS AT END OF PERIOD (000'S) $ 403 $ 295 $ 146 $ 140
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.37%**++ 1.86% 1.45% 1.30%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.46%** 4.09% 4.68% 5.22%**
PORTFOLIO TURNOVER RATE 202.88%** 132.76% 176.50% 136.29%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursement by advisor. Absent the reimbursement, the annualized
ratio of expenses to average net assets would have been 1.68%.
- 141 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MANAGED BOND FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 8.64 $ 8.60 $ 8.35 $ 8.35
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.15 0.28 0.32 0.09
Net Realized and Unrealized Gain
(Loss) on Investments (0.53) 0.29 0.25 --
------ ------ ------ ------
Total from Investment Operations (0.38) 0.57 0.57 0.09
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.15) (0.28) (0.32) (0.09)
Distributions from Realized Gains -- (0.25) -- --
------ ------ ------ ------
Total Distributions (0.15) (0.53) (0.32) (0.09)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 8.11 $ 8.64 $ 8.60 $ 8.35
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ (4.42%)* 6.67% 6.91% 1.15%*
NET ASSETS AT END OF PERIOD (000'S) $ 793 $ 523 $ 120 $ 100
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.12%**++ 2.89% 2.23% 2.07%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 3.72%** 3.07% 3.79% 4.45%**
PORTFOLIO TURNOVER RATE 202.88%** 132.76% 176.50% 136.29%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursement by advisor. Absent the reimbursement, the annualized
ratio of expenses to average net assets would have been 2.43%.
- 142 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 14.45 $ 14.53 $ 13.99 $ 13.82
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.32 0.66 0.68 0.18
Net Realized and Unrealized Gain
(Loss) on Investments (0.61) 0.16 0.70 0.17
------ ------ ------ ------
Total from Investment Operations (0.29) 0.82 1.38 0.35
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.32) (0.66) (0.68) (0.18)
Distributions from Realized Gains -- (0.24) (0.16) --
------ ------ ------ ------
Total Distributions (0.32) (0.90) (0.84) (0.18)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 13.84 $ 14.45 $ 14.53 $ 13.99
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ (2.02%)* 5.75% 10.17% 2.52%*
NET ASSETS AT END OF PERIOD (000'S) $ 1,013 $ 946 $ 390 $ 311
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.87%** 0.98% 0.95% 0.82%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.65%** 4.51% 4.86% 5.04%**
PORTFOLIO TURNOVER RATE 18.72%** 20.80% 13.52% 6.66%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 143 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
----------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 14.43 $ 14.52 $ 13.98 $ 13.82
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.27 0.57 0.60 0.15
Net Realized and Unrealized Gain
(Loss) on Investments (0.61) 0.15 0.70 0.16
------ ------ ------ ------
Total from Investment Operations (0.34) 0.72 1.30 0.31
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.27) (0.57) (0.60) (0.15)
Distributions from Realized Gains -- (0.24) (0.16) --
------ ------ ------ ------
Total Distributions (0.27) (0.81) (0.76) (0.15)
NET ASSET VALUE AT END OF PERIOD $ 13.82 $ 14.43 $ 14.52 $ 13.98
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ (2.37%)* 5.08% 9.56% 2.27%*
NET ASSETS AT END OF PERIOD (000'S) $ 1,531 $ 1,375 $ 502 $ 112
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.59%** 1.61% 1.53% 1.50%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 3.93%** 3.89% 4.22% 4.42%**
PORTFOLIO TURNOVER RATE 18.72%** 20.80% 13.52% 6.66%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 144 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE YEAR THREE-MONTH
PERIOD ENDED ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
-------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 12.74 $ 12.94 $ 12.23 $ 12.07
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.26 0.55 0.58 0.15
Net Realized and Unrealized Gain
(Loss) on Investments (0.66) 0.17 0.76 0.19
Total from Investment Operations (0.40) 0.72 1.34 0.34
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.26) (0.55) (0.58) (0.15)
Distributions from Realized Gains -- (0.37) (0.05) (0.03)
------ ------ ------ ------
Total Distributions (0.26) (0.92) (0.63) (0.18)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 12.08 $ 12.74 $ 12.94 $ 12.23
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ (3.20%)* (5.73%) (11.29%) (2.83%)*
NET ASSETS AT END OF PERIOD (000'S) $ 900 $ 678 $ 460 $ 122
RATIO OF EXPENSES TO AVERAGE NET ASSETS (0.97%)** (1.04%) (0.91%) (0.89%)**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (4.27%)** (4.25%) (4.52%) (4.84%)**
PORTFOLIO TURNOVER RATE (15.27%)** (38.78%) 9.83% 10.52%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 145 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE YEAR THREE-MONTH
PERIOD ENDED ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
-------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 12.73 $ 12.93 $ 12.22 $ 12.07
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.22 0.46 0.48 0.12
Net Realized and Unrealized Gain
(Loss) on Investments (0.66) 0.17 0.76 0.18
------ ------ ------ ------
Total from Investment Operations (0.44) 0.63 1.24 0.30
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.22) (0.46) (0.48) (0.12)
Distributions from Realized Gains -- (0.37) (0.05) (0.03)
------ ------ ------ ------
Total Distributions (0.22) (0.83) (0.53) (0.15)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 12.07 $ 12.73 $ 12.93 $ 12.22
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ (3.54%)* (4.98%) (10.46%) (2.56%)*
NET ASSETS AT END OF PERIOD (000'S) $ 907 $ 927 $ 501 $ 101
RATIO OF EXPENSES TO AVERAGE NET ASSETS (1.70%)** (1.76%) (1.63%) (1.64%)**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (3.52%)** (3.45%) (3.71%) (4.08%)**
PORTFOLIO TURNOVER RATE (15.27%)** (38.78%) (9.83%) (10.52%)**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 146 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE YEAR THREE-MONTH
PERIOD ENDED ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
-------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.79 $ 10.95 $ 10.53 $ 10.45
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.21 0.42 0.46 0.12
Net Realized and Unrealized Gain
(Loss) on Investments (0.42) 0.16 0.42 0.09
------ ------ ------ ------
Total from Investment Operations (0.21) 0.58 0.88 0.21
Less Distributions
Dividends from
Net Investment Income (0.21) (0.42) (0.46) (0.12)
Distributions from Realized Gains -- (0.32) -- (0.01)
------ ------ ------ ------
Total Distributions (0.21) (0.74) (0.46) (0.13)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 10.37 $ 10.79 $ 10.95 $ 10.53
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ (1.98%)* (5.36%) (8.64%) (1.94%)*
NET ASSETS AT END OF PERIOD (000'S) $ 203 $ 209 $ 360 $ 336
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (1.38%)++** (1.67%) (1.32%) (1.31%)**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (4.04%)** (3.88%) (4.39%) (4.49%)**
PORTFOLIO TURNOVER RATE (0.00%)** (33.18%) (11.67%) (15.96)**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursement by advisor. Absent the reimbursement, the annualized
ratio of expenses to average net assets would have been 1.43%.
- 147 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE YEAR THREE-MONTH
PERIOD ENDED ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
-------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.80 $ 10.97 $ 10.55 $ 10.45
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.17 0.34 0.38 0.10
Net Realized and Unrealized Gain
(Loss)
on Investments (0.42) 0.15 0.42 0.11
------ ------ ------ ------
Total from Investment Operations (0.25) 0.49 0.80 0.21
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.17) (0.34) (0.38) (0.10)
Distributions from Realized Gains -- (0.32) -- (0.01)
------ ------ ------ ------
Total Distributions (0.17) (0.66) (0.38) (0.11)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 10.38 $ 10.80 $ 10.97 $ 10.55
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ (2.32%)* (4.55%) (7.75%) (1.94%)*
NET ASSETS AT END OF PERIOD (000'S) $ 268 $ 246 $ 239 $ 211
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (2.10%)**++ 2.39% 2.13% 2.06%**
Ratio of Net Investment Income
to Average Net Assets (3.33%)** 3.13% 3.58% 3.71%**
PORTFOLIO TURNOVER RATE (0.00%)** 33.18% 11.67% 15.96%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursement by advisor. Absent the reimbursement, the annualized
ratio of expenses to average net assets would have been 2.15%.
- 148 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MONEY MARKET FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE YEAR THREE-MONTH
PERIOD ENDED ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
-------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From
Investment Operations
Net Investment Income 0.02 0.05 0.05 0.01
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.02) (0.05) (0.05) (0.01)
------ ------ ------ ------
Net Asset Value at End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN 2.11%* 4.92% 4.97% 1.21%*
NET ASSETS AT END OF PERIOD
(000'S) $ 4,319 $ 2,186 $ 537 $ 295
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.92%** 0.92% 0.72% 0.55%**
Ratio of Net Investment Incometo
Average Net Assets 4.27%** 4.87% 4.91% 5.01%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
- 149 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
9. Financial Highlights
(For a Share Outstanding Throughout the Period)
SAFECO MONEY MARKET FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE YEAR THREE-MONTH
PERIOD ENDED ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
-------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.02 0.05 0.05 0.01
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.02) (0.05) (0.05) (0.01)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN 2.08%* 4.76% $ 4.94% 1.21%*
NET ASSETS AT END OF PERIOD (000'S) $ 1,403 $ 670 $ 414 $ 106
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.97%** 1.05% 0.78% 0.54%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.21%** 4.71% 4.85% 4.96%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
- 150 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
YEAR 2000 READINESS
Preparing for Year 2000 is a high priority for SAFECO Asset Management and
its parent, SAFECO Corporation. A corporate-wide Year 2000 team has been active
for an extended period of time, and has devoted considerable resources to help
achieve Year 2000 readiness. SAFECO Asset Management Company does not anticipate
that Year 2000-related issues will have a material impact on its ability to
continue to provide the Funds with service at current levels. Although SAFECO
Asset Management has taken steps to prepare for Year 2000, it could be
negatively impacted by what its business partners have done or have failed to
do.
Likewise, Year 2000 poses risks to each of the companies in the Funds'
investment portfolio. Thus, portfolio managers consider Year 2000 readiness as
one of the many factors in making an investment decision. Year 2000 also poses
potential risks to worldwide markets and economies.
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES
<PAGE>
SAFECO COMMON STOCK 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
Chase Manhattan Bank
(International Fund)
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 4068 8/99
[RECYCLE LOGO] Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
- -Registered Trademark- A registered trademark of SAFECO Corporation.
