<PAGE>
SEMIANNUAL REPORT
June 30, 1999
SAFECO Mutual Funds
Fixed-Income Funds
No-Load Class
--------------
<TABLE>
<CAPTION>
Taxable Bond Funds
<S> <C>
Intermediate-Term U.S. Treasury
Fund............................ 2
GNMA Fund......................... 5
High-Yield Bond Fund.............. 8
Managed Bond Fund................. 14
<CAPTION>
Tax-Exempt Bond Funds
<S> <C>
Municipal Bond Market Overview.... 18
California Tax-Free Income Fund... 19
Municipal Bond Fund............... 23
Washington State Municipal Bond
Fund............................ 30
Intermediate-Term Municipal Bond
Fund............................ 34
Insured Municipal Bond Fund....... 39
<CAPTION>
Money Market Funds
<S> <C>
Money Market Fund................. 44
Tax-Free Money Market Fund........ 48
</TABLE>
[SAFECO LOGO]
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Intermediate-Term
U.S. Treasury Fund
June 30, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO OF RONALD SPAULDING]
RONALD SPAULDING
The SAFECO Intermediate-Term U.S. Treasury Fund fared well against
its peers, but trailed the Merrill Lynch Intermediate U.S. Treasury In-
dex for the quarter, six and 12 months ended June 30. The Fund's returns
for the respective periods were -1.13%, -2.27% and 3.45% versus the
Index's -0.19%, -0.53%, and 4.50%. The average intermediate U.S. trea-
sury fund returned -1.08%, -2.24%, and 2.89% for the three, six and
twelve-month periods ending June 30, 1999 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 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 indexes have no expenses and no cash flow.
In the second quarter I bought both six-month bills and
[PERFORMANCE GRAPH APPEARS HERE]
PERFORMANCE OVERVIEW -- NO LOAD CLASS
<TABLE>
<CAPTION>
Average Annual Total Return for the
periods ended June 30, 1999
- -----------------------------------
<S> <C>
1-Year 3.45%
5-Year 6.48%
10-Year 6.94%
</TABLE>
<TABLE>
<CAPTION>
Investment Values
---------------------------------------
Merrill Lynch
Intermediate-Term Intermediate-Term
U.S. Treasury Fund Treasury Index
$19,560 $20,555
- -------- ------------------ -----------------
<S> <C> <C>
06/30/89 10,000 10,000
07/31/89 10,176 10,204
08/31/89 10,080 10,062
09/30/89 10,122 10,113
10/31/89 10,293 10,320
11/30/89 10,368 10,421
12/31/89 10,389 10,448
01/31/90 10,327 10,388
02/28/90 10,379 10,414
03/31/90 10,374 10,435
04/30/90 10,347 10,398
05/31/90 10,543 10,618
06/31/90 10,650 10,756
07/31/90 10,793 10,911
08/31/90 10,755 10,863
09/30/90 10,796 10,963
10/31/90 10,882 11,115
11/30/90 10,995 11,281
12/31/90 11,132 11,441
01/31/91 11,182 11,557
02/28/91 11,270 11,617
03/31/91 11,350 11,680
04/30/91 11,476 11,801
05/31/91 11,536 11,868
06/30/91 11,550 11,881
07/31/91 11,694 12,009
08/31/91 11,891 12,233
09/30/91 12,069 12,441
10/31/91 12,199 12,582
11/30/91 12,325 12,729
12/31/91 12,638 13,040
01/31/92 12,493 12,909
02/29/92 12,509 12,958
03/31/92 12,464 12,905
04/30/92 12,558 13,023
05/31/92 12,739 13,209
06/30/92 12,938 13,400
07/31/92 13,260 13,649
08/31/92 13,364 13,806
09/30/92 13,613 13,997
10/31/92 13,363 13,825
11/30/92 13,280 13,764
12/31/92 13,467 13,945
01/31/93 13,815 14,206
02/28/93 14,119 14,419
03/31/93 14,176 14,473
04/30/93 14,279 14,587
05/31/93 14,231 14,543
06/30/93 14,576 14,752
07/31/93 14,599 14,783
08/31/93 14,958 15,008
09/30/93 15,043 15,073
10/31/93 15,076 15,100
11/30/93 14,835 15,027
12/31/93 14,927 15,086
01/31/94 15,121 15,236
02/28/94 14,721 15,019
03/31/94 14,412 14,809
04/30/94 14,309 14,709
05/31/94 14,316 14,724
06/30/94 14,288 14,734
07/31/94 14,477 14,917
08/31/94 14,514 14,964
09/30/94 14,357 14,844
10/31/94 14,362 14,847
11/30/94 14,333 14,773
12/31/94 14,389 14,829
01/31/95 14,553 15,075
02/28/95 14,770 15,363
03/31/95 14,846 15,447
04/30/95 15,029 15,625
05/31/95 15,603 16,071
06/30/95 15,708 16,176
07/31/95 15,585 16,187
08/31/95 15,771 16,320
09/30/95 15,945 16,430
10/31/95 16,189 16,614
11/30/95 16,517 16,822
12/31/95 16,797 16,993
01/31/96 16,853 17,139
02/29/96 16,442 16,946
03/31/96 16,269 16,865
04/30/96 16,235 16,812
05/31/96 16,232 16,803
06/30/96 16,350 16,967
07/31/96 16,402 17,019
08/31/96 16,400 17,038
09/30/96 16,583 17,254
10/31/96 16,787 17,535
11/30/96 17,003 17,751
12/31/96 16,862 17,655
01/31/97 16,915 17,720
02/28/97 16,871 17,739
03/31/97 16,665 17,649
04/30/97 16,898 17,846
05/31/97 17,030 17,983
06/30/97 17,199 18,139
07/31/97 17,694 18,479
08/31/97 17,481 18,401
09/30/97 17,743 18,604
10/31/97 18,055 18,820
11/30/97 18,064 18,863
12/31/97 18,260 19,024
01/31/98 18,554 19,280
02/28/98 18,491 19,254
03/31/98 18,527 19,318
04/30/98 18,593 19,404
05/31/98 18,751 19,535
06/30/98 18,909 19,671
07/31/98 18,948 19,749
08/31/98 19,413 20,143
09/30/98 20,084 20,618
10/31/98 19,988 20,665
11/30/98 19,920 20,589
12/31/98 20,014 20,665
01/31/99 20,017 20,764
02/28/99 19,700 20,444
03/31/99 19,784 20,593
04/30/99 19,816 20,657
05/31/99 19,589 20,518
06/30/99 19,560 20,555
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost.
- 2 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 con-
tributed 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.
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 environ-
ment.
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 ma-
turity 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.
- 3 -
<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 10/15/06.............................................4,024
2,500 5.625%, due 5/15/08.............................................2,449
------
TOTAL U.S. GOVERNMENT OBLIGATIONS...................................... 21,299
------
</TABLE>
<TABLE>
<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>
- --------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<S> <C>
Current Yield (30-day) ....... 4.82%
Weighted Average Maturity..... 5.0 years
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 4 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO GNMA Fund
June 30, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO OF PAUL STEVENSON]
PAUL STEVENSON
[PERFORMANCE GRAPH APPEARS HERE]
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
<TABLE>
<CAPTION>
Average Annual Total Return for the
periods ended June 30, 1999
- -----------------------------------
<S> <C>
1-Year 2.71%
5-Year 6.85%
10-Year 7.11%
</TABLE>
<TABLE>
<CAPTION>
Investment Values
---------------------------------------
GNMA Fund Merill Lynch GNMA Index
$19,884 $22,951
---------------------------------------
<S> <C> <C>
06/30/89 10,000 10,000
07/31/89 10,219 10,177
08/31/89 10,082 10,052
09/30/89 10,129 10,095
10/31/89 10,311 10,353
11/30/89 10,424 10,477
12/31/89 10,488 10,539
01/31/90 10,371 10,428
02/28/90 10,419 10,522
03/31/90 10,431 10,535
04/30/90 10,289 10,436
05/31/90 10,604 10,768
06/30/90 10,745 10,945
07/31/90 10,942 11,130
08/31/90 10,844 11,219
09/30/90 10,915 11,321
10/31/90 11,008 11,460
11/30/90 11,253 11,715
12/31/90 11,401 11,909
01/31/91 11,564 12,080
02/28/91 11,630 12,164
03/31/91 11,691 12,257
04/30/91 11,817 12,379
05/31/91 11,911 12,478
06/30/91 11,924 12,496
07/31/91 12,114 12,706
08/31/91 12,309 12,945
09/30/91 12,523 13,179
10/31/91 12,708 13,387
11/30/91 12,772 13,479
12/31/91 13,089 13,813
01/31/92 12,907 13,646
02/29/92 13,013 13,781
03/31/92 12,938 13,694
04/30/92 13,034 13,840
05/31/92 13,285 14,095
06/30/92 13,426 14,316
07/31/92 13,618 14,399
08/31/92 13,758 14,610
09/30/92 13,869 14,719
10/31/92 13,726 14,606
11/30/92 13,784 14,681
12/31/92 13,967 14,861
01/31/93 14,172 15,057
02/28/93 14,327 15,197
03/31/93 14,385 15,290
04/30/93 14,434 15,374
05/31/93 14,477 15,456
06/30/93 14,721 15,602
07/31/93 14,781 15,676
08/31/93 14,936 15,707
09/30/93 14,953 15,715
10/31/93 14,978 15,763
11/30/93 14,835 15,769
12/31/93 14,956 15,925
01/31/94 15,122 16,050
02/28/94 14,893 15,975
03/31/94 14,420 15,560
04/30/94 14,294 15,445
05/31/94 14,343 15,477
06/30/94 14,280 15,444
07/31/94 14,555 15,749
08/31/94 14,587 15,792
09/30/94 14,368 15,615
10/31/94 14,330 15,604
11/30/94 14,206 15,565
12/31/94 14,317 15,731
01/31/95 14,609 16,071
02/28/95 14,951 16,501
03/31/95 15,002 16,582
04/30/95 15,194 16,818
05/31/95 15,613 17,320
06/30/95 15,680 17,433
07/31/95 15,698 17,477
08/31/95 15,867 17,663
09/30/95 16,019 17,847
10/31/95 16,144 17,995
11/30/95 16,332 18,191
12/31/95 16,533 18,423
01/31/95 14,609 16,071
02/28/95 14,951 16,501
03/31/95 15,002 16,582
04/30/95 15,194 16,818
05/31/95 15,613 17,320
06/30/95 15,680 17,433
07/31/95 15,698 17,477
08/31/95 15,867 17,663
09/30/95 16,019 17,847
10/31/95 16,144 17,995
11/30/95 16,332 18,191
12/31/95 16,533 18,423
01/31/96 16,642 18,564
02/29/96 16,417 18,417
03/31/96 16,320 18,392
04/30/96 16,255 18,333
05/31/96 16,219 18,264
06/30/96 16,442 18,471
07/31/96 16,466 18,554
08/31/96 16,464 18,579
09/30/96 16,738 18,879
10/31/96 17,046 19,258
11/30/96 17,299 19,553
12/31/96 17,192 19,450
01/31/97 17,302 19,586
02/28/97 17,341 19,661
03/31/97 17,157 19,476
04/30/97 17,439 19,787
05/31/97 17,590 19,996
06/30/97 17,803 20,229
07/31/97 18,183 20,594
08/31/97 18,117 20,567
09/30/97 18,335 20,833
10/31/97 18,526 21,045
11/30/97 18,556 21,100
12/31/97 18,734 21,306
01/31/98 18,924 21,512
02/28/98 18,961 21,586
03/31/98 19,000 21,680
04/30/98 19,116 21,822
05/31/98 19,248 21,986
06/30/98 19,359 22,046
07/31/98 19,439 22,169
08/31/98 19,710 22,347
09/30/98 19,927 22,623
10/31/98 19,841 22,599
11/30/98 19,933 22,743
12/31/98 20,016 22,841
01/31/99 20,121 22,989
02/28/99 19,966 22,920
03/31/99 20,125 23,069
04/30/99 20,206 23,178
05/31/99 20,021 23,048
06/30/99 19,884 22,951
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost.
The SAFECO GNMA Fund lags its peer group year-to-date, but remains
ahead for the one year. For the quarter, six and 12 months ended June
30, the Fund returned -1.20%, -0.66% and 2.71%.
For the same periods, the Lipper, Inc. average for GNMA Funds was -0.95%,
- -0.53% and 2.62%. The corresponding Merrill GNMA Index returns were -0.51%,
0.47% and 4.10%.
This Fund and its GNMA peers underperformed the Index. I attribute this to
our having the burden of an expense ratio and the fact that most fund managers
have large allocations to the longer 30-year pass-through bonds. Further damp-
ening the Fund's results was our longer average maturity and the fact that the
value of our well-structured, intermediate-term CMOs (which comprise 22.5% of
net assets) fell in sympathy with corporate bonds. I believe the intermediate
CMO sector is so undervalued it will eventually come back to produce superior
numbers, regardless of the direction in interest rates.
As rates rose over the last six months, shorter was better across the
fixed-income markets. However, GNMAs outperformed other types of bonds as they
gained call
- 5 -
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
protection. At higher rates, fewer of the mortgages backing these securities
will be subject to refinancing. This reduced risk of being called and refinanced
increases the bonds value to investors.
We ended second quarter with a 74.2% allocation in 30-year pass-through se-
curities, 22.5% in CMOs and the balance of 3.3% in cash. (The bulk of this cash
has subsequently been put to work in a defensive, premium priced GNMA CMO).
Of the pass-through securities, about 60% are discount coupons (priced be-
low par with longer durations, i.e., sensitivity to changes in interest rates),
25% in current coupons (greater current income and a bit shorter), with the
balance of 15% in premiums (very short and defensive, yet with much less yield).
At quarter-end, the Fund's average life of 8.41 years and duration of 4.45 were
both slightly longer than those of the Lehman GNMA Index, which were 7.84 and
4.32 years respectively.
I have been trading out of longer duration discounts and current coupon
pass-throughs into par or premium-priced CMOs, as I perceived the latter to be
undervalued. Going forward, I expect my trading to take a more defensive tone
based upon my current interest rate and market forecast.
The market's predominant fear continues to be robust growth leading to in-
flationary pressures. Bond investors have been wary for some time that our
current economic nirvana will end. Luckily for the Fed, the markets have done
most of the work. Ten-year interest rates adjusted themselves upward, climbing
more than 1.5% since October.
When the Fed raised the Fed Funds rate by just 0.25% on June 30, Wall Street
called it a yellow tag rather than a red flag. Despite the rate hike to cool
things down, the problem of too much economic growth still hovers. The supply
side of the economic equation sends off friendly statistics, but the demand side
looks a little frightening. The government is running large surpluses,
unemployment is the lowest it has been in decades, the stock market is still on
a tear, consumer confidence and demand are running strong and the Asian
economies are coming back. I feel there is
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GNMA Fund
As of June 30, 1999
(Unaudited)
scant evidence to support a case for a bond market rally given the current eco-
nomic environment.
Within the fixed-income markets, should interest rates continue to rise,
mortgage-backed securities will benefit relative to other types of bonds, from
reduced call risk.
Paul Stevenson
- --------------------------------------------------------------------------------
Paul Stevenson joined SAFECO in 1986 as a mortgage securities analyst. He be-
came the GNMA Fund manager in 1988. Stevenson has a Bachelor of Arts in finance
from Washington State University, an MBA from the University of Washington,
and is a Chartered Financial Analyst.
HIGHLIGHTS
<TABLE>
<S> <C>
Current Yield (30-day)........ 5.53%
Weighted Average Maturity..... 8.4 years
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
ASSET BACKED SECURITIES - 96.7%
Collateral Mortgage Obligation (CMO) - 22.5%
$1,686 9.00%, due 3/20/22.......................................... $ 1,781
560 7.75%, due 8/25/07.............................................. 579
500 7.00%, due 7/15/23.............................................. 510
3,000 6.50%, due 6/20/29............................................ 2,925
4,000 6.00%, due 4/25/28............................................ 3,822
Federal National Mortgage
Association (FNMA) - 12.8%
1,002 9.00%, due 11/01/22........................................... 1,070
4,421 7.00%, due 1/01/29............................................ 4,379
Government National Mortgage Association (GNMA) - 61.4%
3,092 8.25%, due 5/15/20............................................ 3,242
1,485 7.50%, due 3/15/22............................................ 1,503
1,197 7.50%, due 9/15/22............................................ 1,210
2,682 7.50%, due 3/20/28............................................ 2,709
2,572 7.50%, due 5/15/28............................................ 2,598
1,431 7.00%, due 5/15/23............................................ 1,416
4,590 7.00%, due 5/15/28............................................ 4,530
1,759 6.50%, due 1/20/24............................................ 1,702
915 6.50%, due 11/20/25............................................. 882
838 6.50%, due 3/20/26.............................................. 807
1,926 6.50%, due 8/20/28............................................ 1,852
661 6.00%, due 2/15/29.............................................. 618
2,828 6.00%, due 2/15/29............................................ 2,646
498 6.00%, due 3/15/29.............................................. 467
------
TOTAL ASSET BACKED SECURITIES......................................... 41,248
------
CASH EQUIVALENTS - 3.3%
Investment Companies
1,427 SSgA Prime Money Market Portfolio............................. 1,427
------
TOTAL CASH EQUIVALENTS................................................ 1,427
------
TOTAL INVESTMENTS - 100.0%............................................ 42,675
Other Assets, less Liabilities............................................ (6)
------
NET ASSETS............................................................$42,669
=======
</TABLE>
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO High-Yield Bond Fund
June 30, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO OF ROBERT KERN]
ROBERT KERN
[PERFORMANCE GRAPH APPEARS HERE]
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
<TABLE>
<CAPTION>
Average Annual Total Return for the
periods ended June 30, 1999
- -----------------------------------
<S> <C>
1-Year 1.17%
5-Year 8.61%
10-Year 8.83%
</TABLE>
<TABLE>
<CAPTION>
Investment Values
----------------------------------------------------
Merrill Lynch High-Yield
High-Yield Bond Fund Master II Index
$23,308 $28,072
----------------------------------------------------
<S> <C> <C>
06/30/89 10,000 10,000
07/31/89 10,059 10,040
08/31/89 10,041 10,087
09/30/89 9,994 9,981
10/31/89 9,863 9,733
11/30/89 9,845 9,748
12/31/89 9,833 9,708
01/31/89 9,687 9,446
02/28/89 9,491 9,303
03/31/89 9,683 9,479
04/30/89 9,741 9,538
05/31/89 9,933 9,697
06/30/90 10,046 9,940
07/31/90 10,276 10,190
08/31/90 9,962 9,724
09/30/90 9,590 9,324
10/31/90 9,282 9,051
11/30/90 9,384 9,146
12/31/90 9,479 9,285
01/31/90 9,429 9,475
02/28/90 9,817 10,297
03/31/90 10,164 10,807
04/30/90 10,475 11,180
05/31/90 10,600 11,224
06/30/91 10,716 11,478
07/31/91 10,952 11,786
08/31/91 11,165 12,058
09/30/91 11,333 12,228
10/31/91 11,595 12,643
11/30/91 11,740 12,779
12/31/91 11,782 12,922
01/31/91 12,109 13,358
02/28/91 12,320 13,696
03/31/91 12,452 13,889
04/30/91 12,444 13,961
05/31/91 12,612 14,167
06/30/92 12,776 14,330
07/31/92 12,995 14,609
08/31/92 13,156 14,795
09/30/92 13,318 14,952
10/31/92 13,057 14,759
11/30/92 13,277 14,985
12/31/92 13,416 15,176
01/31/92 13,782 15,538
02/28/92 14,056 15,815
03/31/92 14,295 16,084
04/30/92 14,398 16,195
05/31/92 14,616 16,405
06/30/93 14,893 16,711
07/31/93 15,068 16,879
08/31/93 15,170 17,033
09/30/93 15,221 17,109
10/31/93 15,438 17,434
11/30/93 15,556 17,525
12/31/93 15,684 17,710
01/31/93 15,981 18,092
02/28/93 15,902 17,967
03/31/93 15,340 17,386
04/30/93 15,217 17,170
05/31/93 15,356 17,132
06/30/94 15,422 17,210
07/31/94 15,416 17,323
08/31/94 15,474 17,451
09/30/94 15,467 17,448
10/31/94 15,406 17,494
11/30/94 15,203 17,344
12/31/94 15,332 17,526
01/31/94 15,512 17,772
02/28/94 15,838 18,342
03/31/94 15,983 18,590
04/30/94 16,285 19,070
05/31/94 16,713 19,659
06/30/95 16,797 19,791
07/31/95 17,020 20,049
08/31/95 17,027 20,154
09/30/95 17,235 20,393
10/31/95 17,473 20,561
11/30/95 17,503 20,765
12/31/95 17,730 21,112
01/31/95 17,953 21,465
02/28/95 18,126 21,531
03/31/95 18,066 21,443
04/30/95 18,103 21,473
05/31/95 18,216 21,627
06/30/96 18,262 21,724
07/31/96 18,453 21,856
08/31/96 18,714 22,128
09/30/96 19,094 22,643
10/31/96 19,168 22,839
11/30/96 19,452 23,298
12/31/96 19,572 23,492
01/31/96 19,735 23,668
02/28/96 20,097 24,032
03/31/96 19,678 23,701
04/30/96 19,829 24,005
05/31/96 20,370 24,510
06/30/97 20,682 24,889
07/31/97 21,214 25,549
08/31/97 21,225 25,518
09/30/97 21,592 25,977
10/31/97 21,577 26,110
11/30/97 21,778 26,354
12/31/97 22,076 26,607
01/31/97 22,541 27,032
02/28/97 22,641 27,141
03/31/97 22,913 27,399
04/30/97 22,838 27,516
05/31/97 22,940 27,682
06/30/98 23,039 27,825
07/31/98 23,340 28,002
08/31/98 21,910 26,589
09/30/98 22,275 26,658
10/31/98 22,020 26,089
11/30/98 22,972 27,442
12/31/98 23,058 27,393
01/31/98 23,350 27,763
02/28/98 23,372 27,574
03/31/98 23,688 27,894
04/30/98 24,147 28,404
05/31/99 23,512 28,143
06/30/99 23,308 28,072
</TABLE>
The performance graph compares a hypothetical $10,000 in vestment in the Fund
to a hypothetical investment in a relevant market index. The index is
unmanaged and in cludes 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.
The SAFECO High- Yield Bond Fund outperformed its market index and
peer group for the latest 12 months, but lags them year-to-date. The
Fund returned -1.60% for the quarter ended June 30, 1999. Year-to-date
the Fund returned 1.09%, and for the last 12 months 1.17%. For the quar-
ter, six and 12 months ended June 30, the Merrill Lynch High- Yield Mas-
ter 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%.
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-cou-
pon 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, re-
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Credit Rating Distribution
As a Percent of Net Assets
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Credit Rating Distribution
As a Percent of Net Assets
- ----------------------------
<S> <C>
1. BBB............... 2%
2. BB................ 17%
3. B................. 69%
4. CCC............... 5%
5. Not Rated......... 0%
6. Preferred Stock... 4%
7. Cash & Other...... 3%
-----
100%
-----
-----
</TABLE>
HIGHLIGHTS
ported 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.
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
<TABLE>
<CAPTION>
TOP FIVE Percent of
INDUSTRIES Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Broadcasting (TV, Radio & Cable)............................................ 15%
Telephone................................................................... 13
Auto Parts & Equipment...................................................... 6
Communication Equipment..................................................... 4
Retail (Department Stores).................................................. 4
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE Percent of
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>
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>
<TABLE>
<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
</TABLE>
<TABLE>
<S> <C>
Current Yield (30-day)...... 9.29%
Weighted Average Maturity... 8.0 years
</TABLE>
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 De-
partment 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 member-
ship packages that entitle the member to use any Bally facility.
Liquidity remains an issue in the high yield market. Dealers seem reluctant
to bid on bonds, and oftentimes will 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. Bob is a
Certified Public Accountant and a Chartered Financial Analyst.
- 10 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO High-Yield Bond Fund
As of June 30, 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
Banks (Regional) - 1.5%
1,250 Bay View Capital Corp.
9.125%, due 8/15/07............................................. 1,163
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
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
Chemicals (Specialty) - 0.6%
500 Sovereign Specialty Chemicals, Inc.
9.50%, due 8/01/07................................................ 501
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 11 -
<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>
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
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
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
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 Reources, 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
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
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 12 -
<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>
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 Mills, 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
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 Communications, 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
</TABLE>
<TABLE>
<CAPTION>
SHARES OR PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
$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 (TV, 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
Telephone - 1.3%
10 Global Crossing
Holdings, Ltd.................................................. 1,060
------
TOTAL PREFERRED STOCKS.................................................. 2,986
------
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
=======
- --------------------------------------------------------------------------------
# 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 13 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Managed Bond Fund
June 30, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO OF MICHAEL HUGHES]
MICHAEL HUGHES
[PERFORMANCE GRAPH APPEARS HERE]
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
<TABLE>
<CAPTION>
Average Annual Total Return for the
periods ended June 30, 1999
- -----------------------------------
<S> <C>
1-Year 0.35%
5-Year 5.90%
Since inception* 4.82%
</TABLE>
<TABLE>
<CAPTION>
Investment Values
-------------------------------------------
Lehman Brothers
Managed Bond Fund Govt't/Corp. Index
$12,856 $14,001
-------------------------------------------
<S> <C> <C>
06/30/94 10,000 10,000
07/31/94 9,666 9,755
08/31/94 9,657 9,674
09/30/94 9,666 9,657
10/31/94 9,653 9,634
11/30/94 9,756 9,827
12/31/94 9,780 9,831
01/31/95 9,703 9,683
02/28/95 9,709 9,672
03/31/95 9,680 9,655
04/30/95 9,699 9,718
05/31/95 9,828 9,905
06/30/95 9,991 10,135
07/31/95 10,038 10,203
08/31/95 10,167 10,344
09/30/95 10,533 10,778
10/31/95 10,615 10,864
11/30/95 10,542 10,822
12/31/95 10,673 10,960
01/31/96 10,791 11,072
02/29/96 10,962 11,235
03/31/96 11,178 11,420
04/30/96 11,382 11,588
05/31/96 11,399 11,660
06/30/96 11,127 11,412
07/31/96 11,010 11,317
08/31/96 11,004 11,239
09/30/96 11,009 11,219
10/31/96 11,092 11,370
11/30/96 11,127 11,396
12/31/96 11,147 11,369
01/31/97 11,239 11,571
02/28/97 11,356 11,841
03/31/97 11,486 12,058
04/30/97 11,383 11,925
05/31/97 11,407 11,939
06/30/97 11,383 11,964
07/31/97 11,236 11,822
08/31/97 11,380 11,994
09/30/97 11,470 12,106
10/31/97 11,601 12,251
11/30/97 11,942 12,626
12/31/97 11,776 12,484
01/31/98 11,968 12,680
02/28/98 12,161 12,883
03/31/98 12,180 12,952
04/30/98 12,321 13,088
05/31/98 12,528 13,272
06/30/98 12,478 13,246
07/31/98 12,502 13,287
08/31/98 12,553 13,353
09/30/98 12,691 13,496
10/31/98 12,810 13,634
11/30/98 12,823 13,645
12/31/98 13,108 13,911
01/31/99 13,444 14,308
02/28/99 13,288 14,207
03/31/99 13,321 14,292
04/30/99 13,359 14,326
05/31/99 13,437 14,428
06/30/99 12,856 14,001
</TABLE>
* The Fund's inception was June 25, 1992. Graph and average annual return
comparison begins February 28, 1994.
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost.
The Managed Bond Fund lagged the Lehman Brothers Government/
Corporate Index for the second quarter, year-to-date and one year with
returns of-2.01% vs. -1.10%, -3.77% vs. -2.28% and 0.35% vs. 2.70%. 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 Fund's conservative structure. Traditionally, the Fund
has maintained about half of its assets in intermediate-term bonds with matu-
rities 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, mas-
sive new issue supply and mortgage-backed securities hedging activity. As a
result, the high-quality intermediate-term securities underperformed the
broader market averages and so did our portfolio.
- 14 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
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 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 1993. He graduated magna cum laude with a BS in
finance from the University of Colorado in Boulder and holds an MBA from the
University of Southern California in Los Angeles. He is a Chartered Financial
Analyst.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Credit Rating Distribution
As a Percent of Net Assets
- ----------------------------
<S> <C>
1. AAA............... 73%
2. AA................ 5%
3. A................. 19%
4. Cash & Other...... 3%
-----
100%
-----
-----
</TABLE>
- 15 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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>
<TABLE>
<S> <C>
Current Yield (30-day)..................... 5.46%
Weighted Average Maturity.................. 8.5 years
</TABLE>
PORTFOLIO OF INVESTMENTS
SAFECO Managed Bond Fund
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
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
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
</TABLE>
- 16 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Managed Bond Fund
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
$ 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
------
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
------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
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
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
- 17 -
<PAGE>
Municipal Bond
Market Overview
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO OF STEPHEN C. BAUER]
STEPHEN C. BAUER
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 the un-
pleasant 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.
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 be-
tween 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.
- 18 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO California
Tax-Free Income Fund
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO OF STEPHEN C. BAUER]
STEPHEN C. BAUER
The SAFECO California Tax-Free Fund underperformed its peers for the
quarter and six months ended June 30, 1999. The California Fund returned
- -3.56% and -3.06% for the respective periods versus -2.44% and -1.74%,
the comparable Lipper, Inc. averages for California funds.
The falling market of the last two months was damaging enough to affect the
one-year performance of the Fund, which was 0.44%, while the average California
Fund returned 1.60%. In spite of this, the longer-term numbers are still good.
The two, three, five and ten years ending June 30 found the California Fund
solidly in the top quartile of comparable funds as measured by Lipper, Inc.
(While the Fund was 101 of 105 California funds for the one year, for the two
years just ended it was 19 of 98 funds. It was 15 of 90 for the three years, 6
of 67 funds for the five and 4 of 33 funds for the ten years.)
Lehman Brothers Long Municipal Bond Index shows the June 30 three-, six-
and 12-month returns at -2.51%, -1.68% and 1.98%. It's not surprising the Cali-
fornia Fund was below the index and near the bottom of its peer
[PERFORMANCE GRAPH APPEARS HERE]
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
<TABLE>
<CAPTION>
Average Annual Total Return for the
periods ended June 30, 1999
- -----------------------------------
<S> <C>
1-Year 0.44%
5-Year 7.61%
10-Year 7.44%
</TABLE>
<TABLE>
<CAPTION>
Investment Values
---------------------------------------
California Lehman Brothers
Tax-Free Long Municipal
Income Fund Bond Index
$20,502 $21,876
---------------------------------------
<S> <C> <C>
06/30/89 10,000 10,000
07/31/89 10,115 10,132
08/31/89 9,992 9,978
09/30/89 9,989 9,948
10/31/89 10,085 10,079
11/30/89 10,266 10,293
12/31/89 10,326 10,370
01/31/90 10,212 10,265
02/28/90 10,336 10,380
03/31/90 10,317 10,391
04/30/90 10,160 10,264
05/31/90 10,471 10,554
06/30/90 10,572 10,658
07/31/90 10,773 10,846
08/31/90 10,504 10,587
09/30/90 10,490 10,571
10/31/90 10,754 10,795
11/30/90 11,006 11,068
12/31/90 11,045 11,117
01/31/91 11,214 11,266
02/28/91 11,248 11,345
03/31/91 11,223 11,373
04/30/91 11,397 11,549
05/31/91 11,508 11,685
06/30/91 11,452 11,663
07/31/91 11,628 11,843
08/31/91 11,788 12,013
09/30/91 12,003 12,187
10/31/91 12,132 12,315
11/30/91 12,064 12,330
12/31/91 12,432 12,624
01/31/92 12,389 12,616
02/29/92 12,392 12,636
03/31/92 12,393 12,668
04/30/92 12,484 12,789
05/31/92 12,673 12,976
06/30/92 12,922 13,227
07/31/92 13,359 13,712
08/31/92 13,102 13,528
09/30/92 13,197 13,588
10/31/92 12,829 13,361
11/30/92 13,251 13,737
12/31/92 13,426 13,915
01/31/93 13,566 14,046
02/28/93 14,181 14,700
03/31/93 13,990 14,523
04/30/93 14,195 14,721
05/31/93 14,254 14,843
06/30/93 14,519 15,122
07/31/93 14,501 15,137
08/31/93 14,908 15,525
09/30/93 15,089 15,741
10/31/93 15,090 15,770
11/30/93 14,855 15,580
12/31/93 15,203 15,982
01/31/94 15,430 16,170
02/28/94 15,023 15,635
03/31/94 14,266 14,702
04/30/94 14,215 14,815
05/31/94 14,346 14,988
06/30/94 14,209 14,808
07/31/94 14,539 15,189
08/31/94 14,534 15,221
09/30/94 14,165 14,868
10/31/94 13,823 14,411
11/30/94 13,567 14,031
12/31/94 13,804 14,529
01/31/95 14,438 15,168
02/28/95 15,144 15,785
03/31/95 15,266 15,975
04/30/95 15,198 15,968
05/31/95 16,055 16,648
06/30/95 15,564 16,341
07/31/95 15,634 16,424
08/31/95 15,880 16,656
09/30/95 16,002 16,787
10/31/95 16,428 17,193
11/30/95 17,032 17,636
12/31/95 17,413 17,911
01/31/96 17,350 17,988
02/29/96 17,129 17,769
03/31/96 16,620 17,444
04/30/96 16,472 17,374
05/31/96 16,487 17,383
06/30/96 16,811 17,650
07/31/96 17,003 17,825
08/31/96 16,961 17,802
09/30/96 17,367 18,197
10/31/96 17,584 18,419
11/30/96 18,047 18,815
12/31/96 17,854 18,702
01/31/97 17,664 18,665
02/28/97 17,857 18,866
03/31/97 17,476 18,540
04/30/97 17,744 18,759
05/31/97 18,085 19,123
06/30/97 18,358 19,367
07/31/97 19,319 20,072
08/31/97 18,893 19,805
09/30/97 19,154 20,091
10/31/97 19,319 20,263
11/30/97 19,510 20,444
12/31/97 19,916 20,818
01/31/98 20,130 21,041
02/28/98 20,090 21,030
03/31/98 20,071 21,060
04/30/98 19,836 20,946
05/31/98 20,336 21,356
06/30/98 20,412 21,448
07/31/98 20,429 21,498
08/31/98 20,831 21,882
09/30/98 21,160 22,186
10/31/98 21,032 22,115
11/30/98 21,203 22,228
12/31/98 21,150 22,250
01/31/99 21,419 22,469
02/28/99 21,265 22,374
03/31/99 21,259 22,439
04/30/99 21,243 22,459
05/31/99 20,997 22,282
06/30/99 20,502 21,876
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost.
- 19 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 in 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, essen-
tially 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.
HIGHLIGHTS
<TABLE>
<CAPTION>
TOP FIVE Percent of
TYPES 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>
<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..................................... 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>
Credit Rating Distribution
As a Percent of Net Assets
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Credit Rating Distribution
As a Percent of Net Assets
- ----------------------------
<S> <C>
1. AAA............... 65%
2. AA................ 3%
3. A................. 11%
4. BBB............... 20%
5. Cash & Other...... 1%
-----
100%
-----
-----
</TABLE>
<TABLE>
<S> <C>
Current Yield (30-day)...... 4.66%
Weighted Average Maturity... 25.8 years
</TABLE>
- 20 -
<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)
- -------------------------------------------------------------------------------
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
$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
4,435 Pittsburg Redevelopment Agency
Los Medanos Community Development
Project Tax Allocation
4.625%, due 8/01/21 [AMBAC]................................. 3,942
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 21 -
<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)
- -------------------------------------------------------------------------------
<S> <C>
$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
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
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
$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
------
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 inter-
est and principal.
* The provider of the guarantee of timely payment of both principal and inter-
est 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
- 22 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Municipal Bond Fund
June 30, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO OF STEPHEN C. BAUER]
STEPHEN C. BAUER
For the six months ending June 30, 1999, SAFECO Municipal Bond Fund had a
return of -1.86%, while the average general municipal fund returned -1.82%
according to Lipper, Inc. The second quarter returns were as close. The Fund
returned -2.29% to the peer's -2.28%. Performance for the latest 12 months was
slightly better with the Fund at 1.43% compared to the average of 1.14%.
The long-term performance of the Fund is still excellent and for the two-,
three-, and five-year periods ending June 30, 1999, the Fund ranks in the top
decile for performance among its peers as measured by Lipper, Inc. (The Fund
ranks 107 of 260 general muni funds for the one year, but 6 of 229 for the two
years; 11 of 202 for the three years; 8 of 155 for the five years and 13 of 76
for the 10 years.)
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%. As has been
the case 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
[PERFORMANCE GRAPH APPEARS HERE]
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
<TABLE>
<CAPTION>
Average Annual Total Return for the
periods ended June 30, 1999
- -----------------------------------
<S> <C>
1-Year 1.43%
5-Year 7.30%
10-Year 7.41%
</TABLE>
<TABLE>
<CAPTION>
Investment Values
-----------------------------------------------
Lehman Brothers
Municipal Bond Fund Long Municipal Bond Index
$20,435 $21,876
-----------------------------------------------
<S> <C> <C>
06/30/89 10,000 10,000
07/31/89 10,103 10,132
08/31/89 10,013 9,978
09/30/89 10,005 9,948
10/31/89 10,103 10,079
11/30/89 10,284 10,293
12/31/89 10,347 10,370
01/31/90 10,226 10,265
02/28/90 10,344 10,380
03/31/90 10,329 10,391
04/30/90 10,170 10,264
05/31/90 10,492 10,554
06/30/90 10,590 10,658
07/31/90 10,793 10,846
08/31/90 10,511 10,587
09/30/90 10,491 10,571
10/31/90 10,691 10,795
11/30/90 10,989 11,068
12/31/90 11,035 11,117
01/31/91 11,209 11,266
02/28/91 11,258 11,345
03/31/91 11,272 11,373
04/30/91 11,460 11,549
05/31/91 11,576 11,685
06/30/91 11,537 11,663
07/31/91 11,719 11,843
08/31/91 11,898 12,013
09/30/91 12,089 12,187
10/31/91 12,217 12,315
11/30/91 12,178 12,330
12/31/91 12,555 12,624
01/31/92 12,446 12,616
02/29/92 12,479 12,636
03/31/92 12,463 12,668
04/30/92 12,581 12,789
05/31/92 12,793 12,976
06/30/92 13,070 13,227
07/31/92 13,573 13,712
08/31/92 13,294 13,528
09/30/92 13,320 13,588
10/31/92 13,030 13,361
11/30/92 13,429 13,737
12/31/92 13,654 13,915
01/31/93 13,787 14,046
02/28/93 14,384 14,700
03/31/93 14,157 14,523
04/30/93 14,352 14,721
05/31/93 14,434 14,843
06/30/93 14,730 15,122
07/31/93 14,673 15,137
08/31/93 15,063 15,525
09/30/93 15,232 15,741
10/31/93 15,273 15,770
11/30/93 15,081 15,580
12/31/93 15,383 15,982
01/31/94 15,570 16,170
02/28/94 15,109 15,635
03/31/94 14,341 14,702
04/30/94 14,355 14,815
05/31/94 14,527 14,988
06/30/94 14,367 14,808
07/31/94 14,698 15,189
08/31/94 14,708 15,221
09/30/94 14,345 14,868
10/31/94 14,038 14,411
11/30/94 13,750 14,031
12/31/94 14,114 14,529
01/31/95 14,633 15,168
02/28/95 15,248 15,785
03/31/95 15,360 15,975
04/30/95 15,336 15,968
05/31/95 16,049 16,648
06/30/95 15,705 16,341
07/31/95 15,781 16,424
08/31/95 15,985 16,656
09/30/95 16,104 16,787
10/31/95 16,441 17,193
11/30/95 16,896 17,636
12/31/95 17,146 17,911
01/31/96 17,201 17,988
02/29/96 17,011 17,769
03/31/96 16,623 17,444
04/30/96 16,498 17,374
05/31/96 16,525 17,383
06/30/96 16,769 17,650
07/31/96 16,974 17,825
08/31/96 16,914 17,802
09/30/96 17,256 18,197
10/31/96 17,459 18,419
11/30/96 17,849 18,815
12/31/96 17,690 18,702
01/31/97 17,605 18,665
02/28/97 17,788 18,866
03/31/97 17,484 18,540
04/30/97 17,706 18,759
05/31/97 18,002 19,123
06/30/97 18,228 19,367
07/31/97 18,971 20,072
08/31/97 18,644 19,805
09/30/97 18,902 20,091
10/31/97 19,049 20,263
11/30/97 19,192 20,444
12/31/97 19,580 20,818
01/31/98 19,782 21,041
02/28/98 19,771 21,030
03/31/98 19,775 21,060
04/30/98 19,598 20,946
05/31/98 20,024 21,356
06/30/98 20,148 21,448
07/31/98 20,181 21,498
08/31/98 20,537 21,882
09/30/98 20,816 22,186
10/31/98 20,707 22,115
11/30/98 20,801 22,228
12/31/98 20,824 22,250
01/31/99 21,060 22,469
02/28/99 20,915 22,374
03/31/99 20,914 22,439
04/30/99 20,991 22,459
05/31/99 20,821 22,282
06/30/99 20,435 21,876
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment in a relevant market index. The index is unmanaged and
includes no operating expenses or transaction costs. Past performance is not
predictive of future results. Principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
- 23 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 ad-
ditional call protection for free.
<TABLE>
<CAPTION>
HIGHLIGHTS
<S> <C>
Current Yield (30-day)........ 4.57%
Weighted Average Maturity..... 23.9 years
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE Percent of
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>
<TABLE>
<CAPTION>
TOP FIVE Percent of
STATES Net Assets
- --------------------------------------------------------------------------------
<S> <C>
California................................................................. 17%
Washington................................................................. 14
Indiana.................................................................... 8
Texas...................................................................... 8
District of Columbia....................................................... 6
</TABLE>
Credit Rating Distribution
As a Percent of Net Assets
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Credit Rating Distribution
As a Percent of Net Assets
- ----------------------------
<S> <C>
1. AAA............... 40%
2. AA................ 24%
3. A................. 17%
4. BBB............... 15%
5. B................. 1%
6. Not Rated......... 1%
7. Cash & Other...... 2%
-----
100%
=====
</TABLE>
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.
- 24 -
<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 1/01/23.............................................. 1,358
2,500 +Los Angeles County
Certificates of Participation
(Disney Parking Project)
5.50%, due 9/01/21
(Prerefunded 3/01/03 @ 100)..................................... 2,604
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
$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
8,010 San Joaquin County Public
Facilities Financing Corp.
Certificates of Participation
Capital Facitlities Project
4.75%, due 11/15/19 [MBIA]...................................... 7,288
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 25 -
<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>
$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
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
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
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
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
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 26 -
<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>
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
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
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
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
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
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 27 -
<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>
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
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
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
$ 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
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
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 28 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
$ 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
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
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
$ 4,000 Washington Public Power Supply
System Nuclear Project #2 Revenue
6.30%, due 7/01/12........................................... $ 4,388
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
-------
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
- 29 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Washington State
Municipal Bond Fund
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BEVERLY R. DENNY
[PERFORMANCE GRAPH APPEARS HERE]
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
<TABLE>
<CAPTION>
Average Annual Total Return for the
periods ended June 30, 1999
- -----------------------------------
<S> <C>
1-Year 1.45%
5-Year 6.67%
Since inception* 5.31%
</TABLE>
<TABLE>
<CAPTION>
Investment Values
-----------------------------------------------
Washington State Lehman Brothers
Municipal Bond Fund Long Municipal Bond Index
$13,818 $15,064
-----------------------------------------------
<S> <C> <C>
03/31/93 10,000 10,000
07/31/93 10,082 10,137
08/31/93 10,107 10,221
09/30/93 10,350 10,413
10/31/93 10,319 10,423
11/30/93 10,600 10,690
12/31/93 10,723 10,839
01/31/94 10,743 10,859
02/28/94 10,573 10,728
03/31/94 10,789 11,005
04/30/94 10,955 11,135
05/31/94 10,580 10,766
06/30/94 9,988 10,123
07/31/94 10,036 10,201
08/31/94 10,177 10,321
09/30/94 10,003 10,197
10/31/94 10,255 10,459
11/30/94 10,219 10,481
12/31/94 9,971 10,238
01/31/95 9,705 9,923
02/28/95 9,478 9,661
03/31/95 9,855 10,004
04/30/95 10,257 10,444
05/31/95 10,646 10,870
06/30/95 10,700 11,000
07/31/95 10,669 10,995
08/31/95 11,101 11,463
09/30/95 10,898 11,252
10/31/95 10,965 11,310
11/30/95 11,107 11,469
12/31/95 11,186 11,559
01/31/96 11,428 11,839
02/29/96 11,693 12,144
03/31/96 11,815 12,333
04/30/96 11,864 12,386
05/31/96 11,755 12,235
06/30/96 11,528 12,011
07/31/96 11,465 11,963
08/31/96 11,488 11,969
09/30/96 11,621 12,154
10/31/96 11,739 12,274
11/30/96 11,705 12,258
12/31/96 11,934 12,530
01/31/97 12,038 12,683
02/28/97 12,244 12,956
03/31/97 12,175 12,878
04/30/97 12,105 12,852
05/31/97 12,223 12,991
06/30/97 12,014 12,766
07/31/97 12,168 12,917
08/31/97 12,367 13,168
09/30/97 12,501 13,336
10/31/97 12,917 13,822
11/30/97 12,760 13,638
12/31/97 12,920 13,834
01/31/98 12,993 13,953
02/28/98 13,076 14,077
03/31/98 13,263 14,335
04/30/98 13,385 14,488
05/31/98 13,404 14,481
06/30/98 13,425 14,501
07/31/98 13,327 14,423
08/31/98 13,561 14,706
09/30/98 13,621 14,769
10/31/98 13,661 14,803
11/30/98 13,870 15,068
12/31/98 14,058 15,277
01/31/99 13,996 15,228
02/28/99 14,044 15,306
03/31/99 14,058 15,321
04/30/99 14,182 15,472
05/31/99 14,117 15,407
06/30/99 13,818 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 the Fund
to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost.
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 in 1991. She holds an MBA from the University
of Virginia and a BS in finance/economics from Babson College. She is a Chart-
ered Financial Analyst.
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.
For the quarter, half and full year, the Washington Municipal Bond Fund re-
turned -2.10%, -1.71% and 1.45%, respectively. The peer group of eight deliv-
ered -2.43%, -1.67% and 1.45%, respectively.
Lehman Brothers Long Municipal Bond Index shows three-,
- 30 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<S> <C>
Current Yield (30-day)...... 4.58%
Weighted Average Maturity... 23.6 years
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE
TYPES OF Percent 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>
<TABLE>
<CAPTION>
TOP FIVE Percent of
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>
Credit Rating Distribution
As a Percent of Net Assets
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Credit Rating Distribution
As a Percent of Net Assets
- ----------------------------
<S> <C>
1. AAA............... 48%
2. AA................ 30%
3. A................. 14%
4. Not Rated......... 4%
5. Cash & Other...... 4%
-----
100%
-----
-----
</TABLE>
- 31 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Washington State Municipal Bond Fund
As of June 30, 1999
(Unaudited)
SEE NOTES TO FINANCIAL STATEMENTS
<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 Facilities 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
</TABLE>
<TABLE>
<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
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 32 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
As of June 30, 1999
(Unaudited)
SEE NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
$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
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
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
$250 Washington State Housing
Finance Commission Revenue
(Horizon House Project)
6.125%, due 7/01/27 [Asset Guaranty].......................... $ 263
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 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]........................ 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
- 33 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Intermediate-Term
Municipal Bond Fund
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO OF MARY V. METASTASIO]
MARY V. METASTASIO
[PERFORMANCE GRAPH APPEARS HERE]
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
<TABLE>
<CAPTION>
Average Annual Total Return for the
periods ended June 30, 1999
- -----------------------------------
<S> <C>
1-Year 2.29%
5-Year 5.56%
Since Inception* 4.96%
</TABLE>
<TABLE>
<CAPTION>
Investment Values
-------------------------------------
Intermediate-Term Lehman Brothers
Municipal 7-Year Municipal
Bond Fund Bond Index
$13,532 $14,063
-------------------------------------
<S> <C> <C>
06/30/93 10,000 10,000
07/31/93 10,021 10,062
08/31/93 10,062 10,092
09/30/93 10,222 10,277
10/31/93 10,204 10,278
11/30/93 10,414 10,461
12/31/93 10,575 10,575
01/31/94 10,627 10,602
02/28/94 10,534 10,508
03/31/94 10,719 10,701
04/30/94 10,846 10,816
05/31/94 10,576 10,581
06/30/94 10,241 10,299
07/31/94 10,284 10,375
08/31/94 10,362 10,427
09/30/94 10,327 10,408
10/31/94 10,455 10,555
11/30/94 10,528 10,610
12/31/94 10,340 10,509
01/31/95 10,152 10,403
02/28/95 9,931 10,251
03/31/95 10,117 10,407
04/30/95 10,347 10,601
05/31/95 10,625 10,840
06/30/95 10,749 10,953
07/31/95 10,797 10,982
08/31/95 11,105 11,274
09/30/95 11,059 11,265
10/31/95 11,186 11,408
11/30/95 11,301 11,543
12/31/95 11,341 11,587
01/31/96 11,470 11,688
02/29/96 11,587 11,816
03/31/96 11,656 11,879
04/30/96 11,776 11,994
05/31/96 11,762 11,953
06/30/96 11,569 11,837
07/31/96 11,548 11,816
08/31/96 11,513 11,798
09/30/96 11,563 11,889
10/31/96 11,709 11,988
11/30/96 11,728 11,994
12/31/96 11,818 12,102
01/31/97 11,950 12,233
02/28/97 12,140 12,437
03/31/97 12,093 12,399
04/30/97 12,115 12,444
05/31/97 12,216 12,547
06/30/97 12,065 12,386
07/31/97 12,098 12,450
08/31/97 12,268 12,607
09/30/97 12,396 12,728
10/31/97 12,686 13,023
11/30/97 12,565 12,931
12/31/97 12,721 13,068
01/31/98 12,777 13,145
02/28/98 12,821 13,191
03/31/98 13,000 13,353
04/30/98 13,092 13,493
05/31/98 13,091 13,505
06/30/98 13,091 13,505
07/31/98 13,005 13,427
08/31/98 13,196 13,624
09/30/98 13,228 13,663
10/31/98 13,267 13,708
11/30/98 13,457 13,916
12/31/98 13,602 14,096
01/31/99 13,627 14,117
02/28/99 13,634 14,155
03/31/99 13,692 14,185
04/30/99 13,835 14,392
05/31/99 13,784 14,311
06/30/99 13,532 14,063
</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 the Fund
to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may fluctuate
so that shares, when re
The SAFECO Intermediate-Term Municipal Bond Fund returned -1.72% for
the three months, -1.17% for the six months and 2.29% for the 12 months
ending June 30, 1999. The Lehman Brothers 7-year Index figures were -
1.70%, -0.87% and 2.92%, respectively, for the three periods. The coin-
ciding Lipper, Inc. averages for intermediate-term municipal bond funds
were -1.75%, -1.27% and 1.95%.
While the Fund was ahead of the peer group for all periods, it lagged the
Index, due to the fact that the fund has expenses and cash flow while the Index
does not.
The intermediate municipal bond market, like all debt markets, fell
during the first six months of 1999, and the second quarter was worse
than the first. That's the bad news.
The silver lining in this cloud was that the much weaker market made conditions
attractive for selling some shorter-maturity bonds and replacing them with
longer, higher-yielding bonds. We benefited from the drop in prices as the
shorter bonds fell less than the longer ones we were buying.
- 34 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We sold several smaller pieces to buy some Seattle GO 5.375% due 12/1/10,
and some Philadelphia Parking Authority 4.875% due 9/1/09. I plan to continue
in this vein to further extend the maturity of the Fund from 6.4 years at June
30 to about seven years.
Mary V. Metastasio
- --------------------------------------------------------------------------------
Mary V. Metastasio joined SAFECO's investment department in 1985 as a securi-
ties analyst and began managing the SAFECO Intermediate-Term Municipal Bond
Fund in 1996. She holds a BA in Dramatic Art from Whitman College and an MBA
from the University of Washington. Metastasio is chairman of the National
Federation of Municipal Analysts.
HIGHLIGHTS
<TABLE>
<S> <C>
Current Yield (30-day)........ 3.59%
Weighted Average Maturity..... 6.4 years
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE HOLDINGS Net Assets
- --------------------------------------------------------------------------------
<S> <C>
North Carolina Municipal Power Agency #1 Catawba Electric Revenue......... 5.3%
New York State Housing Finance Agency Health Facilities Revenue........... 5.1
Mississippi Hospital Equipment and Facilities Authority Revenue
(Mississippi Baptist Medical Center)..................................... 4.2
Oklahoma Industries Authority Health Facilities Revenue (Sisters of Mercy
Health System, St. Louis, Inc.).......................................... 4.2
Trinity River Authority Revenue (Tarrant County Water Project)............ 4.2
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE STATES Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Washington.................................................................. 20%
Illinois.................................................................... 16
New York.................................................................... 11
Texas....................................................................... 10
California.................................................................. 8
</TABLE>
Credit Rating Distribution
As a Percent of Net Assets
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Credit Rating Distribution
As a Percent of Net Assets
- ----------------------------
<S> <C>
1. AAA............... 63%
2. AA................ 15%
3. A................. 14%
4. BBB............... 10%
5. Cash & Other...... -2%
-----
100%
-----
-----
</TABLE>
- 35 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Intermediate-TermMunicipal Bond Fund
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
MUNICIPAL BONDS* - 99.3%
California - 7.5%
$220 Pleasanton Joint Powers Financing
Authority Reassessment Revenue
5.80%, due 9/02/02............................................. $ 228
380 +Sacramento Municipal Utility
District Electric Revenue
5.50%, due 2/01/11 (Escrowed to Maturity)......................... 393
500 Santa Margarita Dana Point
Authority Revenue
5.375%, due 8/01/04[MBIA]......................................... 525
Connecticut - 3.6%
100 Connecticut Housing Finance
Authority Housing Mortage
Finance Program
5.40%, due 5/15/03................................................ 103
400 East Haven Connecticut
General Obligation
6.50%, due 9/01/05[FGIC].......................................... 440
District of Columbia - 3.1%
285 District of Columbia
General Obligation
5.30%, due 6/01/03................................................ 290
15 +District of Columbia
General Obligation
5.30%, due 6/01/03 (Escrowed to Maturity).......................... 15
140 District of Columbia
General Obligation
5.75%, due 6/01/03................................................ 145
10 +District of Columbia
General Obligation
5.75%, due 6/01/03 (Escrowed to Maturity).......................... 10
Georgia - 0.7%
100 Georgia Municipal Electric
Authority General Power Revenue
5.75%, due 1/01/03................................................ 104
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
Illinois - 16.1%
$500 Chicago Illinois Project Series A
5.25%, due 1/01/10 [FGIC]...................................... $ 506
300 Illinois Health Facilities
Authorities Revenue
(Masonic Medical Center)
5.20%, due 10/01/03............................................... 305
500 Joliet Waterworks and Sewage Revenue
7.00%, due 1/01/05 [FGIC]......................................... 555
500 Metropolitan Pier and Exposition
Authority McCormick Place
Expansion Project
5.50%, due 6/15/03 [MBIA]......................................... 518
65 Metropolitan Pier and Exposition
Authority McCormick Place
Expansion Project
5.90%, due 6/15/03................................................. 68
35 +Metropolitan Pier and Exposition
Authority McCormick Place
Expansion Project
5.90%, due 6/15/03 (Escrowed to Maturity).......................... 37
400 Peoria General Obligation
5.00%, due 1/01/06 [FGIC]......................................... 404
Indiana - 1.4%
100 Indiana Bond Bank State Revolving Fund Program
5.90%, due 2/01/03................................................ 105
100 Indianapolis Local Public
Improvement Bond Bank
Transportation Revenue
5.80%, due 7/01/03................................................ 105
Kentucky - 3.4%
500 Kentucky State Property and
Buildings Commission Revenue
5.50%, due 9/01/04................................................ 520
Louisiana - 0.6%
85 Louisana Public Facilities Authority
Student Loan Revenue
6.20%, due 3/01/01................................................. 87
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 36 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
Maine - 2.1%
$300 Maine Munipal Bond Bank
5.00%, due 11/01/09 [FSA]...................................... $ 301
Massachusetts - 2.7%
400 Massachusetts Water Resources
Authority General Revenue
5.25%, due 12/01/08............................................... 407
Mississippi - 4.1%
600 Mississippi Hospital Equipment and
Facilities Authority Revenue
(Mississippi Baptist Medical Center)
5.40%, due 5/01/04 [MBIA]......................................... 618
New Jersey - 0.6%
90 New Jersey Housing and Mortgage
Finance Agency Housing Revenue
6.00%, due 11/01/02................................................ 93
New York - 10.4%
100 Metropolitan Transportation
Authority Transit Facilities Service
Contract Revenue
5.375%, due 7/01/02............................................... 103
400 New York City Municipal Water
Finance Authority Water and Sewer
System Revenue
5.00%, due 6/15/03................................................ 407
700 New York State Housing
Finance Agency Health Facilities Revenue
6.375%, due 11/01/04.............................................. 751
300 Port Authority New York &
New Jersey Consolidated Revenue
5.00%, due 10/01/09 [FGIC]........................................ 302
North Carolina - 6.7%
210 North Carolina Eastern Municipal
Power Agency System Revenue
5.50%, due 1/01/02................................................ 212
800 North Carolina Municipal
Power Agency #1 Catawba Electric Revenue
4.10%, due 1/01/05 [AMBAC]........................................ 781
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
Oklahoma - 3.8%
$600 +Oklahoma Industries Authority Health
Facilities Revenue (Sisters of
Mercy Health System, St. Louis, Inc.)
5.20%, due 6/01/05
(Escrowed to Maturity)......................................... $ 616
Pennsylvania - 3.4%
500 Philadelphia Parking Authority
Airport Parking Revenue
4.875%, due 9/01/09 [FSA]......................................... 494
Texas - 9.4%
250 Austin Combined Utility Systems Revenue
5.25%, due 11/15/06............................................... 264
100 +Coastal Bend Health Facility
Development Corp. Health Services
Revenue (Incarnate Word)
5.70%, due 1/01/03 [AMBAC]
(Escrowed to Maturity)............................................ 104
100 Houston Water and Sewer System
Junior Lien Revenue
5.75%, due 12/01/02............................................... 104
350 Socorro Independent School District
Unlimited Tax General Obligation
5.80%, due 2/15/11................................................ 366
600 +Trinity River Authority Revenue
(Tarrant County Water Project)
5.25%, due 2/01/05 [AMBAC]
(Partially Prerefunded 2/01/03 @ 100)............................. 612
Washington - 19.8%
400 Clark County Public Utility District #1
Generating System Revenue
6.00%, due 1/01/07 [FGIC]......................................... 427
360 King County Housing Authority
Pooled Housing Revenue
4.70%, due 7/01/08................................................ 352
500 Seattle Library Facilities
5.375%, due 12/01/10.............................................. 515
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 37 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
$500 +Snohomish and Island Counties
School District #401 General
Obligation (Stanwood)
5.90%, due 12/15/11 [MBIA]
(Prerefunded 12/15/05 @ 100).................................. $ 537
500 Tacoma Electric System Revenue
5.80%, due 1/01/04 [FGIC]......................................... 525
100 Washington Health Care Facilities
Authority Revenue (Empire Health
Service, Spokane)
5.50%, due 11/01/03 [MBIA]........................................ 104
300 Washington Public Power Supply
System Nuclear Project #2 Revenue
4.80%, due 7/01/04................................................ 302
200 Washington Public Power Supply
System Nuclear Project #2 Revenue
5.30%, due 7/01/02................................................ 205
------
TOTAL MUNICIPAL BONDS.................................................. 14,966
------
CASH EQUIVALENTS - 3.9%
Investment Companies
570 Federated Tax-Exempt
Money Market Fund, Inc............................................ 570
------
TOTAL CASH EQUIVALENTS.................................................... 570
------
TOTAL INVESTMENTS - 103.2%............................................. 15,536
Other Assets, less Liabilities........................................... (857)
------
NET ASSETS............................................................ $14,679
=======
</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>
<C> <S>
MBIA: Municipal Bond Investors
Assurance Corp. ................................................. 14.8%
FGIC: Financial Guaranty
Insurance Corp. ................................................. 20.3
AMBAC: AMBAC Indemnity Corp. ............................................ 9.6
FSA: Financial Security
Assurance, Inc. .................................................. 5.1
-----
49.9%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 38 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Insured Municipal Bond Fund
June 30, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
STEPHEN C. BAUER
[PERFORMANCE GRAPH APPEARS HERE]
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
<TABLE>
<CAPTION>
Average Annual Total Return for the
periods ended June 30, 1999
- -----------------------------------
<S> <C>
1-Year 0.56%
5-Year 7.47%
Since inception* 5.56%
</TABLE>
<TABLE>
<CAPTION>
Investment Values
-------------------------------------------------------
Insured Municipal Lehman Brothers
Bond Fund Long Insured Municipal Bond Index
$14,025 $14,913
-------------------------------------------------------
<S> <C> <C>
06/30/93 10,000 10,000
07/31/93 10,054 10,146
08/31/93 10,080 10,239
09/30/93 10,312 10,430
10/31/93 10,217 10,438
11/30/93 10,555 10,710
12/31/93 10,716 10,849
01/31/94 10,720 10,861
02/28/94 10,482 10,719
03/31/94 10,764 10,992
04/30/94 10,908 11,117
05/31/94 10,453 10,726
06/30/94 9,780 10,061
07/31/94 9,826 10,152
08/31/94 9,946 10,275
09/30/94 9,781 10,152
10/31/94 10,133 10,430
11/30/94 10,086 10,433
12/31/94 9,769 10,183
01/31/95 9,482 9,872
02/28/95 9,287 9,647
03/31/95 9,642 9,983
04/30/95 10,042 10,430
05/31/95 10,564 10,851
06/30/95 10,619 10,977
07/31/95 10,544 10,973
08/31/95 11,163 11,440
09/30/95 10,845 11,220
10/31/95 10,878 11,268
11/30/95 11,039 11,424
12/31/95 11,115 11,507
01/31/96 11,420 11,800
02/29/96 11,800 12,109
03/31/96 11,991 12,302
04/30/96 11,995 12,366
05/31/96 11,849 12,194
06/30/96 11,569 11,950
07/31/96 11,470 11,891
08/31/96 11,480 11,894
09/30/96 11,645 12,078
10/31/96 11,794 12,200
11/30/96 11,750 12,182
12/31/96 12,046 12,461
01/31/97 12,138 12,610
02/28/97 12,456 12,894
03/31/97 12,299 12,804
04/30/97 12,152 12,759
05/31/97 12,280 12,893
06/30/97 12,051 12,649
07/31/97 12,262 12,800
08/31/97 12,484 13,056
09/30/97 12,663 13,211
10/31/97 13,227 13,716
11/30/97 12,966 13,502
12/31/97 13,136 13,695
01/31/98 13,242 13,787
02/28/98 13,336 13,875
03/31/98 13,614 14,226
04/30/98 13,733 14,389
05/31/98 13,698 14,362
06/30/98 13,689 14,381
07/31/98 13,558 14,280
08/31/98 13,886 14,589
09/30/98 13,946 14,651
10/31/98 13,976 14,678
11/30/98 14,256 14,973
12/31/98 14,491 15,199
01/31/99 14,369 15,147
02/28/99 14,442 15,232
03/31/99 14,418 15,232
04/30/99 14,630 15,380
05/31/99 14,503 15,298
06/30/99 14,025 14,913
</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 the Fund
to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost.
The SAFECO Insured Municipal Bond Fund underperformed its peers for the
three and six months ended June 30, 1999, returning -3.21% and -2.73% to -
2.50% and -2.04%, the respective Lipper, Inc. averages for insured muni funds.
The one-year performance number, 0.56%, was positive, but still below the peer
group average of 1.12%.
Lehman Brothers Long Insured Municipal Bond Index shows three-, six- and
12-month returns at -2.85%,-2.10% and 1.78%, respectively.
It's not surprising the Fund was below the Index and near the bottom of
its peer group. As has been the case in other declining markets, the Fund's
longer than average maturity structure and fully invested philosophy causes it
to lag when rates rise. In spite of this, the long-term performance of the In-
sured Municipal Bond Fund is still excellent and for the two-, three-, and
five-year periods ending June 30, the Fund ranked in the top decile when com-
pared to other insured municipal funds by Lipper, Inc. (While the Fund was 38
of 48 insured funds for the one-year period, it was 3 of 47 for the two years,
3 of 44 for the three and 2 of 32 funds for the five years.)
- 39 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I took advantage of the declining market. In April, I sold Detroit Sewer
Revenue 5.00% due 7/1/27 and bought Central Puget Sound Regional Transportation
Authority 4.75% due 2/1/28. By doing so, we picked up 2 basis points (2/100 of
1%) of yield and over four points of call protection. This was the first oppor-
tunity in many months to do this type of swap without giving up yield. If rates
drop to 5% or lower and refinancing resumes, the additional call protection
should enable the Central Puget Sound bonds to outperform.
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.
HIGHLIGHTS
<TABLE>
<S> <C>
Current Yield (30-day)........... 4.42%
Weighted Average Maturity........ 24.2 years
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE HOLDINGS Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Upper Occoquan Sewage Authority
Regional Sewer System Revenue............................................ 5.1%
Washington Convention Center Authority
Dedicated Tax Revenue.................................................... 4.8
Gulf Environment Services, Inc. Water and
Sewer Revenue............................................................ 4.0
University of Michigan Hospital Revenue
(St. John Health System)................................................. 4.0
Allegheny County Hospital Development
Authority Revenue (Catholic Health East)................................. 3.9
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE STATES Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Washington................................................................. 16%
Massachusetts.............................................................. 13
Pennsylvania................................................................ 8
Michigan.................................................................... 7
California.................................................................. 7
</TABLE>
Credit Rating Distribution
As a Percent of Net Assets
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Credit Rating Distribution
As a Percent of Net Assets
- ----------------------------
<S> <C>
1. AAA............... 94%
2. Cash & Other...... 6%
-----
100%
-----
-----
</TABLE>
- 40 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Insured Municipal Bond Fund
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
MUNICIPAL BONDS* - 93.9%
Alabama - 6.2%
$ 600 +Alabama Agriculture and
Mechanical University Revenue
5.50%, due 11/01/20 [MBIA]
(Prerefunded 11/01/05 @ 102).................................. $ 640
750 Jefferson County Sewer
Revenue 5.70%, due 2/01/20 [FGIC]................................ 765
California - 6.6%
385 Fresno Sewer System Revenue
4.50%, due 9/01/23 [AMBAC]....................................... 334
600 Los Angeles County Sanitation
District Financing Authority Revenue
(Capital Projects)
5.25%, due 10/01/19 [MBIA]....................................... 591
650 Los Angeles Wastewater System
Revenue
4.70%, due 11/01/19 [FGIC]....................................... 591
District of Columbia - 4.8%
1,250 Washington Convention Center
Authority Dedicated Tax Revenue
4.75%, due 10/01/28 [AMBAC].................................... 1,100
Florida - 4.0%
1,000 Gulf Environment Services, Inc.
Water and Sewer Revenue
5.00%, due 10/01/27 [MBIA]....................................... 919
Indiana - 3.1%
100 +Indiana Municipal Power Agency
Power Supply System Revenue
6.125%, due 1/01/13 [MBIA]
(Escrowed to Maturity)........................................... 109
250 Indiana State Office Building
Commission Capital Complex
Revenue
5.25%, due 7/01/15 [AMBAC]....................................... 244
350 Indianapolis Gas Utility Revenue
5.375%, due 6/01/21 [FGIC]....................................... 343
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
Iowa - 1.1%
$ 250 Marshalltown Pollution Control
Revenue (Iowa Electric Light and
Power Co. Project)
5.50%, due 11/01/23 [MBIA].................................... $ 250
Massachusetts - 13.1%
750 Massachusetts Bay Transportation
Authority Revenue
5.00%, due 3/01/27 [FGIC]........................................ 697
600 Massachusetts Housing Finance
Agency Housing Revenue
6.20%, due 7/01/38 [AMBAC]....................................... 629
850 Massachusetts Turnpike Authority
Metropolitan Highway System
Revenue
5.125%, due 1/01/23 [MBIA]....................................... 808
1,000 Massachusetts Water Resources
Authority Revenue
4.75%, due 8/01/37 [FSA]......................................... 865
Michigan - 6.8%
600 +Huron Valley School District General
Obligation
5.75%, due 5/01/22 [FGIC]
(Prerefunded 5/01/07 @ 100)...................................... 640
1,000 University of Michigan Hospital
Revenue (St. John Health System)
5.00%, due 5/15/28 [AMBAC]....................................... 913
Minnesota - 1.4%
350 Minneapolis and St. Paul Housing
and Redevelopment Authority Health
Care System Revenue (HealthSpan)
4.75%, due 11/15/18 [AMBAC]...................................... 322
New York - 3.8%
900 Long Island Power Authority
Electric System Revenue
5.125%, due 12/01/22 [FSA]....................................... 860
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 41 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INSURED MUNICIPAL BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
North Carolina - 0.5%
$ 125 North Carolina Eastern
Municipal Power Agency
Power System Revenue
5.50%, due 1/01/17 [FGIC]..................................... $ 125
Pennsylvania - 8.3%
1,000 Allegheny County Hospital
Development Authority Revenue
(Catholic Health East)
4.875%, due 11/15/26 [AMBAC]...................................... 896
445 Centre County University
Area Joint Authority
Sewer Revenue
4.75%, due 11/01/20 [MBIA]........................................ 404
650 Pittsburgh Water and Sewer
Authority Revenue
4.75%, due 9/01/16 [FGIC]......................................... 599
South Carolina - 3.9%
1,000 Piedmont Municipal Power
Agency Electric Revenue
4.75%, due 1/01/25 [MBIA]......................................... 890
Texas - 5.5%
750 Austin Combined Utility
Revenue
4.25%, due 5/15/28 [MBIA]......................................... 600
250 Harris County Toll Road
Unlimited Tax Revenue
5.50%, due 8/15/21 [FGIC]......................................... 250
300 Lower Colorado River Authority
Junior Lien Revenue
5.625%, due 1/01/17 [FSA]......................................... 303
10 +Lower Colorado River Authority
Junior Lien Revenue
5.625%, due 1/01/17 [FSA]
(Prerefunded 1/01/15 @ 100)........................................ 10
95 Sabine River Authority
Pollution Control Revenue
(Texas Utilities Electric Co.
Project)
6.55%, due 10/01/22 [FGIC]........................................ 101
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Utah - 3.9%
$1,000 Murray City Hospital Revenue
(IHC Health Service, Inc.)
4.75%, due 5/15/20 [MBIA]..................................... $ 895
Virginia - 5.1%
1,300 Upper Occoquan Sewage
Authority Regional Sewer
System Revenue
4.75%, due 7/01/29 [MBIA]....................................... 1,161
Washington - 15.6%
700 CDP-King County Ill Lease
Revenue (King Street Center
Project)
5.25%, due 6/01/26 [MBIA]......................................... 671
1,000 Central Puget Sound
Regional Transportation
Authority Motor Vehicle Tax
4.75%, due 2/01/28 [FGIC]......................................... 885
100 King County Public Hospital
District #1 Hospital
Facilities Revenue (Valley
Medical Center)
5.50%, due 9/01/17 [AMBAC]........................................ 100
250 +Richland Water and Sewer
Improvement Revenue
5.625%, due 4/01/12 [MBIA]
(Prerefunded 4/01/03 @ 101)....................................... 263
530 Snohomish County Public
Utility District #1 Electric
Revenue
5.50%, due 1/01/20 [FGIC]......................................... 530
900 Washington Health Care
Facilities Authority Revenue
(Swedish Hospital System)
5.25%, due 11/15/26 [AMBAC]....................................... 851
250 Yakima-Tieton Irrigation
District Revenue
6.20%, due 6/01/19 [FSA].......................................... 266
------
TOTAL MUNICIPAL BONDS.................................................. 21,420
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 42 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INSURED MUNICIPAL BOND FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
CASH EQUIVALENTS - 5.1%
Investment Companies
$1,141 Federated Tax-Exempt Money
Market Fund, Inc. .............................................. $ 1,141
20 SEI Tax-Exempt Trust
Institutional Tax-Free Portfolio..................................... 20
------
TOTAL CASH EQUIVALENTS................................................... 1,161
------
TOTAL INVESTMENTS - 99.0%............................................... 22,581
Other Assets, less Liabilities............................................. 231
------
NET ASSETS............................................................. $22,812
======
</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>
<C> <S>
MBIA: Municipal Bond Investors Assurance Corp. ........................ 36.3%
FGIC: Financial Guaranty
Insurance Corp. ................................................. 24.5
AMBAC: AMBAC Indemnity Corp. ........................................... 23.9
FSA: Financial Security
Assurance, Inc. ................................................. 10.2
-----
94.9%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 43 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Money Market Fund
June 30, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO OF NAOMI URATA]
NAOMI URATA
SAFECO Money Market Fund returns were at or above the average money market
fund for the quarter, six and 12 months ended June 30, according to Lipper, Inc.
The Fund returned 1.03%, 2.12% and 4.75%, respectively. The Lipper, Inc. money
fund averages for the same respective periods were 1.03%, 2.09% and 4.51%.
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 float-
ers, all of which yielded more than 90-day commercial paper.
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 com-
mercial paper rates. The banks work with the rating agencies to set up diver-
sification standards that result in top-tier short-term ratings. I hope to ap-
prove additional 144a issuers.
Regarding the Fund's diversification, assets were diversified among dif-
ferent industries so that
- 44 -
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
no more than 25% of assets were invested in any one sector. All the securities
purchased had at least two ratings in the top category, 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% in-
crease 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
<TABLE>
<S> <C>
Weighted Average Maturity.. 69 days
Total Return (1 year)...... 4.75%
</TABLE>
Naomi Urata
- -------------------------------------------------------------------------------
Naomi Urata joined SAFECO in 1993 as a fixed-income analyst and began managing
the SAFECO Money Market Fund in August of 1994. She holds a Masters in Manage-
ment from Yale University and is a Chartered Financial Analyst.
- 45 -
<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) - 8.5%
$10,000 Deutsche Bank
5.13%, due 4/20/00.......................................... $ 9,995
9,000 Societe Generale, NY
5.67%, due 8/06/99............................................. 9,000
Banks (Major Regional) - 3.6%
8,000 Credit Suisse First Boston
5.715%, due 7/19/99............................................ 8,000
Banks (Regional) - 4.5%
10,000 Dresdner Bank
5.14%, due 12/02/99........................................... 10,002
-------
TOTAL CERTIFICATES OF DEPOSIT.......................................... 36,996
-------
COMMERCIAL PAPER - 48.1%
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) - 23.8%
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
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
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
$ 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%
6,500 Cooper Associates
4.93%, due 7/02/99............................................ 6,499
1,000 Cooper Associates
5.37%, due 7/16/99.............................................. 998
------
TOTAL COMMERCIAL PAPER................................................. 81,687
------
CORPORATE BONDS - 28.9%
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 - 3.5%
5,000 Countrywide Home Loans, Inc.
5.195%, due 1/11/00........................................... 5,000
2,710 Homeside Lending, Inc.
6.875%, due 5/15/00........................................... 2,746
Financial (Diversified) - 11.8%
2,400 Aristar, Inc.
7.50%, due 7/01/99............................................ 2,400
3,250 Countrywide Funding Corp.
8.41%, due 11/17/99........................................... 3,288
2,000 Heller Financial, Inc.
5.625%, due 3/15/00........................................... 2,005
1,000 Heller Financial, Inc.
6.50%, due 5/15/00............................................ 1,011
8,100 Morgan Stanley Dean Witter Co.
5.142%, due 3/13/01
Put Date 9/13/99.............................................. 8,100
9,655 Presbyterian Homes & Services
5.33%, due 12/01/28,
Put Date 7/02/99.............................................. 9,655
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 46 -
<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>
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 - 10.5%
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
4,000 Shearson Lehman Brothers Holdings, Inc.
6.15%, due 3/15/00........................................... 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
------
MUNICIPAL BONDS - 5.8%
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 1/01/28,
Put Date 7/01/99............................................. 2,085
Muni's (Taxable) - 6.0%
1,000 Breckenridge Terrace LLC Tax Revenue
5.1425%, due 5/01/39
Put Date 7/01/99............................................. 1,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
$ 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
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
-------
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 $222,771 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
- 47 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Tax-Free Money Market Fund
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO OF MARY V. METASTASIO]
MARY V. METASTASIO
The SAFECO Tax-Free Money Market Fund began the second quarter of 1999 with
a 7-day yield of 2.67%, and ended it at 2.97%.
For the three, six and 12 months ended June 30, the Fund returned 0.69%,
1.33% and 2.86%, respectively. This exceeded the average returns of its peer
group as measured by Lipper, Inc. for those periods (0.66%, 1.24% and 2.68%,
respectively) as well as for the five and ten years ended June 30.
Across periods, the SAFECO Fund is in the top 25% of all tax-exempt money
market funds, according to Lipper, Inc. (For the one, five and ten years ended
June 30, the Fund is 18 of 128 funds, 24 of 106 funds and 13 of 68 Funds).
Tax-exempt money market rates rose in fits and starts as the second quarter
unfolded. This was partly due to a $10 billion drop in tax-free assets to $187
billion at quarter end. There were also other economic factors that added to
the mix. The first was the annual post-April 15th interest rate pop, as
shareholders made redemptions to pay income taxes and demand fell relative to
supply.
In May, things were quiet, in fact, rather dull, as the short-term, tax-ex-
empt market prepared for the next annual event, the June
HIGHLIGHTS
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
SAFECO Tax-Free Money Market Fund*
Tax Brackets
- ------------
<C> <S> <C>
Actual Yield............ 2.97%
15% Tax-Equivalent Yield.... 3.49%
28% Tax-Equivalent Yield.... 4.13%
31% Tax-Equivalent Yield.... 4.30%
36% Tax-Equivalent Yield.... 4.64%
39.6% Tax-Equivalent Yield.... 4.92%
<CAPTION>
Three-Month Treasury Bill**
<S> <C>
Taxable Yield........... 4.71%
</TABLE>
* Represents the SAFECO Tax-Free Money Market Fund
actual yield on June 30, 1999, and related tax-
equivalent yields assuming various shareholder tax
brackets. Tax equivalent yield comparisons may vary
with market conditions.
** Represents the Three-Month Treasury Bill yield on
June 30, 1999.
<TABLE>
<S> <C>
Weighted Average Maturity......... 25.8 years
Current Yield (30-day)............ 4.66%
</TABLE>
- 48 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
note season. (Since many municipalities' fiscal years end on June 30, this is a
popular time to issue one-year paper.) There was a special twist to the whole
event this year, however, as the market anticipated the June 30 meeting of the
Federal Reserve Board. Note deals that were priced late in the month came 0.30%
cheaper than deals priced in early June, as the market built in an anticipated
increase in short-term rates.
While we buy some notes, we generally extend the maturity of the SAFECO
Tax-Free Money Market Fund using put bonds. These are generally priced more at-
tractively than notes, and they are marketed throughout the year. This enables
us to avoid traveling with the pack as it moves through the June note season in
search of the elusive bargain.
The structure of our Fund is still the barbell we are so fond of. Current-
ly, 67% of the Fund is invested in variable rate demand notes, 29% in put
bonds, 3% in municipal notes, and 1% in commercial paper. The only change since
March 31 is our small investment in notes and a corresponding decrease in put
bonds. Our average maturity has risen one day to 55 days.
As for the future, I cannot and will not attempt to predict it. I will con-
tinue to manage the SAFECO Tax-Free Money Market Fund as I have always, with an
eye toward safety as well as value.
Mary V. Metastasio
- --------------------------------------------------------------------------------
Mary V. Metastasio joined SAFECO's investment department in 1985 as a securi-
ties analyst and began managing the SAFECO Tax-Free Money Market Fund in 1987.
She holds a BA in Dramatic Art from Whitman College and an MBA from the Univer-
sity of Washington. Metastasio is chairman of the National Federation of Munic-
ipal Analysts.
- 49 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Tax-Free Money Market Fund
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
MUNICIPAL BONDS - 99.4%
Alabama - 0.5%
$ 400 North Alabama Environmental
Import Authority Pollution
Control Revenue
3.85%, due 12/01/00
Put Date 7/01/99............................................. $ 400
Alaska - 3.2%
2,485 Alaska Industrial Development
and Export Authority Reveue
3.60%, due 7/01/01
Put Date 7/03/99.............................................. 2,485
Arizona - 3.6%
1,000 Apache County Industrial
Development Revenue
(Tucson Electric Power Co.)
3.55%, due 12/15/18
Put Date 7/15/99.............................................. 1,000
800 Pima County Industrial
Development Authority Revenue
(Tucson Electric Power Co.)
3.55%, due 12/01/22
Put Date 7/15/99................................................ 800
1,000 Tucson Industrial Development
Authority Revenue (Tuscon City
Center Parking)
3.825%, due 6/01/15
Put Date 9/01/99.............................................. 1,000
California - 2.0%
700 Regional Airports Improvement
Revenue (American Airlines, Inc.)
3.85%, due 12/01/25
Put Date 7/01/99................................................ 700
200 Regional Airports Improvement
Revenue (American Airlines, Inc.)
Series A
3.85%, due 12/01/24
Put Date 7/01/99................................................ 200
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
$ 700 Regional Airports Improvement
Revenue (American Airlines, Inc.)
Series C
3.85%, due 12/01/24
Put Date 07/01/99........................................... $ 700
District of Columbia - 7.0%
3,000 District of Columbia Housing
Finance Agency Multifamily
Housing Revenue (McClean)
4.25%, due 12/01/05
Put Date 9/01/99.............................................. 3,000
2,500 District of Columbia Revenue
Supplemental Student Loan
4.50%, due 7/01/04
Put Date 7/01/99.............................................. 2,500
Florida - 3.8%
2,000 Florida Housing Finance Agency
Multifamily Housing Revenue
(Iona Lakes Project)
3.25%, due 4/01/04
Put Date 10/01/99............................................. 2,000
1,000 Putnam County Developement
Authority Pollution Control Revenue
3.125%, due 12/15/09
Put Date 12/15/99............................................. 1,000
Georgia - 3.7%
2,920 Marietta Housing Authority
Multifamily Revenue
3.20%, due 1/15/09
Put Date 7/15/99.............................................. 2,920
Illinois - 18.0%
3,120 Chicago O'Hare International
Airport Revenue Series A
3.30%, due 1/01/15
Put Date 7/01/99.............................................. 3,120
770 Chicago O'Hare International
Airport Revenue Series B
3.30%, due 1/01/15
Put Date 7/01/99................................................ 770
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 50 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO TAX-FREE MONEY MARKET FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
$3,000 Illinois Development Finance
Authority Revenue (Sinai
Community Institute Project)
3.70%, due 3/01/22
Put Date 7/01/99............................................ $ 3,000
1,300 Illinois Development Finance
Authority Revenue (Countryside
Montessori Schools)
3.70%, due 6/01/17
Put Date 9/01/99.............................................. 1,300
3,900 Illinois Health Facilities Authority
Revenue (Swedish Covenant Hospital)
3.30%, due 8/01/25
Put Date 7/01/99.............................................. 3,900
2,000 Jackson-Union Regional Port
District Revenue
3.35%, due 4/01/24
Put Date 7/03/99.............................................. 2,000
Iowa - 8.2%
3,000 Iowa Finance Authority Revenue
(Wheaton Franciscan Services)
3.30%, due 8/15/24
Put Date 7/01/99.............................................. 3,000
2,000 Iowa School Corporations
Warrant Certificates
4.00%, due 6/24/00............................................ 2,015
1,400 Polk County Hospital Equipment
and Improvement Revenue
3.50%, due 12/01/05
Put Date 7/03/99.............................................. 1,400
Kansas - 1.4%
1,100 Wichita Revenue (CSJ Health
Systems)
4.25%, due 10/01/11
Put Date 7/03/99.............................................. 1,100
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
Kentucky - 1.3%
$1,000 Clark County Pollution Control
Revenue (Kansas City Power
and Light)
3.10%, due 10/15/14
Put Date 10/15/99........................................... $ 1,000
Louisiana - 1.3%
1,000 Louisiana Public Facilities
Authority Revenue
3.75%, due 12/01/13
Put Date 9/01/99.............................................. 1,000
Maryland - 0.4%
300 Montgomery County Industrial
Development Revenue
(Information Systems and
Networks)
3.40%, due 4/01/14
Put Date 7/01/99................................................ 300
Missouri - 3.5%
2,100 Kansas City Industrial
Development Authority
Multifamily Housing Revenue
(Coach House II Project)
3.30%, due 12/01/15
Put Date 7/01/99.............................................. 2,100
600 Kansas City Industrial
Development Authority
Multifamily Housing Revenue
(J.C. Nichols Co. Project)
3.30%, due 5/01/15
Put Date 7/01/99................................................ 600
Montana - 2.2%
1,705 Havre Industrial Development
Revenue (Safeway, Inc. Projects)
3.35%, due 6/01/06
Put Date 12/01/99............................................. 1,705
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 51 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO TAX-FREE MONEY MARKET FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
Oklahoma - 2.6%
$1,000 Oklahoma Water Resources
Revenue Board State Loan
Program
2.90%, due 9/01/32
Put Date 9/01/99............................................ $ 1,000
1,000 Oklahoma Water Resources
Revenue Board State Loan
Program Series A
2.90%, due 9/01/23
Put Date 9/01/99.............................................. 1,000
Pennsylvania - 4.4%
1,955 Commonwealth Tax Exempt
Mortgage Trust
3.35%, due 11/01/05
Put Date 7/01/99.............................................. 1,955
1,490 Washington County Authority
Lease Revenue (Higher
Education Pooled Equipment
Leasing Project)
3.45%, due 11/01/05
Put Date 7/01/99.............................................. 1,490
South Carolina - 3.5%
400 South Carolina Jobs Economic
Development Authority Revenue
(St. Francis Hospital)
3.85%, due 7/01/22
Put Date 7/01/99................................................ 400
2,345 York County Pollution Control
Revenue
3.00%, due 9/15/14
Put Date 9/15/99.............................................. 2,345
Tennessee - 4.4%
3,400 Hamilton County Industrial
Development Revenue (Komatsu
American Manufacturing Corp.)
4.25%, due 11/01/05
Put Date 7/03/99.............................................. 3,400
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
Texas - 5.4%
$ 400 Grapevine Industrial
Development Revenue
(American Airlines, Inc.)
Series A2
3.85%, due 12/01/24
Put Date 7/01/99............................................ $ 9,400
1,000 Grapevine Industrial
Development Revenue
(American Airlines, Inc.)
Series B2
3.85%, due 12/01/24
Put Date 07/01/99............................................. 1,000
910 Harris County Housing Finance
Corp. Multifamily Housing
Revenue (Arbor II, Ltd. Project)
3.95%, due 10/01/05
Put Date 10/01/99............................................... 910
200 Lone Star Airport Improvement
Authority Revenue (American
Airlines, Inc.) Series B4
3.85%, due 12/01/14
Put Date 7/01/99................................................ 200
400 Lone Star Airport Improvement
Authority Revenue (American
Airlines, Inc.) Series B5
3.85%, due 12/01/14
Put Date 7/01/99................................................ 400
310 North Central Texas Health
Facilities Development
(Presbyterian Medical Center)
3.85%, due 12/01/15
Put Date 7/01/99................................................ 310
1,000 Sabine River Industrial
Development Authority
2.75%, due 8/15/14
Put Date 8/15/99.............................................. 1,000
Virginia - 4.9%
2,500 Harrisonburg Redevelopment
and Housing Authority
Multifamily Housing Revenue
3.20%, due 2/01/26
Put Date 8/01/99.............................................. 2,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 52 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO TAX-FREE MONEY MARKET FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
$1,300 Peninsula Ports Authority of
Virginia Coal Terminal Revenue
Series C
3.85%, due 7/01/16
Put Date 7/01/99............................................ $ 1,300
Washington - 11.6%
3,630 Richland Golf Enterprise Revenue
3.55%, due 12/01/21
Put Date 7/03/99.............................................. 3,630
1,865 Washington State Housing
Finance Commission Housing
Revenue (Pioneer Human Services)
3.75%, due 7/01/11
Put Date 7/01/99.............................................. 1,865
1,315 Washington State Housing
Finance Commission Revenue
(YMCA of Greater Seattle)
3.50%, due 7/01/11
Put Date 7/01/99.............................................. 1,315
2,225 Washington State Housing
Finance Commission Revenue
(YMCA Snohomish County)
4.50%, due 8/01/19
Put Date 7/01/99.............................................. 2,225
Wyoming - 2.5%
1,975 Rock Springs Industrial
Development Revenue
(Safeway, Inc. Project)
3.00%, due 3/01/02
Put Date 9/01/99.............................................. 1,975
------
TOTAL MUNICIPAL BONDS................................................. 77,634
------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
COMMERCIAL PAPER - 1.3%
Virginia - 1.3%
$1,000 Peninsula Ports Authority Revenue
3.10%, due 12/15/12
Put Date 8/04/99............................................ $ 1,000
------
TOTAL COMMERCIAL PAPER................................................. 1,000
------
CASH EQUIVALENTS - 0.4%
Investment Companies
299 Federated Tax-Exempt
Money Market Fund, Inc. ........................................ 299
------
TOTAL CASH EQUIVALENTS................................................... 299
------
TOTAL INVESTMENTS - 101.1%............................................ 78,933
Other Assets, less Liabilities.......................................... (835)
------
NET ASSETS........................................................... $78,098
======
- --------------------------------------------------------------------------------
</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 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
- 53 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
(In Thousands, Except Intermediate-Term GNMA High-Yield Managed
Per-Share Amounts) U.S Treasury Fund Fund Bond Fund Bond Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments, at Cost $21,704 $43,388 $78,501 $8,125
======= ======= ======= ======
Investments, at Value $21,688 $42,675 $75,100 $7,881
Receivables
Trust Shares Sold -- -- 26 --
Interest 283 249 1,532 77
From Advisor 5 -- -- 12
------- ------- ------- ------
Total Assets 21,976 42,924 76,658 7,970
Liabilities
Payables
Investment Securities
Purchased -- -- -- --
Dividends 96 209 571 33
Investment Advisory Fees 10 19 41 3
Transfer Agent Fees 4 7 14 1
Other 19 20 30 15
------- ------- ------- ------
Total Liabilities 129 255 656 52
------- ------- ------- ------
Net Assets $21,847 $42,669 $76,002 $7,918
======= ======= ======= ======
No-Load Class:
Net Assets $20,013 $42,669 $72,346 $6,722
Trust Shares Outstanding 1,954 4,585 8,483 828
------- ------- ------- ------
Net Asset Value, Offering
Price, and Redemption Price
Per Share $ 10.24 $ 9.31 $ 8.53 $ 8.12
======= ======= ======= ======
Class A:
Net Assets $ 940 -- $ 1,534 $ 403
Trust Shares Outstanding 91 180 50
------- ------- ------
Net Asset Value and Redemption
Price Per Share $ 10.26 $ 8.53 $ 8.11
======= ======= ======
Maximum Offering Price Per
Share (Net Asset Value Plus
Sales Charge of 4.5%) $ 10.74 $ 8.93 $ 8.49
======= ======= ======
Class B:
Net Assets $ 894 -- $ 2,122 $ 793
Trust Shares Outstanding 87 249 98
------- ------- ------
Net Asset Value and Offering
Price Per Share * $ 10.25 $ 8.52 $ 8.11
======= ======= ======
</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
- 54 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO SAFECO
(In Thousands, Except California Tax-Free Municipal Washington State Intermediate-Term Insured Municipal
Per-Share Amounts) Income Fund Bond Fund Municipal Bond Fund Municipal Bond Fund Bond Fund
- ------------------------------------- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Investments, at Cost $106,902 $481,704 $7,488 $15,150 $22,540
======== ======== ====== ======= =======
Investments, at Value $109,576 $521,522 $7,648 $15,536 $22,581
Receivables
Trust Shares Sold 5 50 -- -- --
Interest 1,348 8,833 123 224 338
From Advisor -- -- 2 -- --
-------- -------- ------ ------- -------
Total Assets 110,929 530,405 7,773 15,760 22,919
Liabilities
Payables
Investment Securities
Purchased -- -- -- 1,012 --
Dividends 435 2,199 30 51 84
Investment Advisory Fees 46 208 3 6 10
Transfer Agent Fees 7 27 -- 1 2
Other 19 52 12 11 11
-------- -------- ------ ------- -------
Total Liabilities 507 2,486 45 1,081 107
-------- -------- ------ ------- -------
Net Assets $110,422 $527,919 $7,728 $14,679 $22,812
======== ======== ====== ======= =======
No-Load Class:
Net Assets $108,615 $525,375 $7,257 $14,679 $22,812
Trust Shares Outstanding 8,994 37,971 700 1,376 2,113
-------- -------- ------ ------- -------
Net Asset Value, Offering
Price, and Redemption Price
Per Share $ 12.08 $ 13.84 $10.37 $ 10.67 $ 10.79
======== ======== ====== ======= =======
Class A:
Net Assets $ 900 $ 1,013 $ 203 -- --
Trust Shares Outstanding 75 73 19
-------- -------- ------
Net Asset Value and Redemption
Price Per Share $ 12.08 $ 13.84 $10.37
======== ======== ======
Maximum Offering Price Per
Share (Net Asset Value Plus
Sales Charge of 4.5%) $ 12.65 $ 14.49 $10.86 -- --
======== ======== ======
Class B:
Net Assets $ 907 $ 1,531 $ 268 -- --
Trust Shares Outstanding 75 111 26
-------- -------- ------
Net Asset Value and Offering
Price Per Share * $ 12.07 $ 13.82 $10.38
======== ======== ======
</TABLE>
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
-55-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO
(In Thousands, Except Per-Share Money Market Tax-Free Money
Amount) Fund Market Fund
- --------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at Cost $222,771 $78,933
======== =======
Investments, at Value 222,771 78,933
Receivables
Trust Shares Sold 62 --
Interest 2,021 382
From Advisor -- --
-------- -------
Total Assets 224,854 79,315
Liabilities
Payables
Investment Securities Purchased -- 1,000
Dividends 745 170
Investment Advisory Fees 94 28
Transfer Agent Fees 56 5
Other 74 14
-------- -------
Total Liabilities 969 1,217
-------- -------
Net Assets $223,885 $78,098
======== =======
No-Load Class:
Net Assets $218,163 $78,098
Trust Shares Outstanding 218,163 78,098
-------- -------
Net Asset Value, Offering Price,
and Redemption Price
Per Share $ 1.00 $ 1.00
======== =======
Class A:
Net Assets $ 4,319 --
Trust Shares Outstanding 4,319
--------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 1.00
========
Class B:
Net Assets $ 1,403 --
Trust Shares Outstanding 1,403
--------
Net Asset Value Offering and
Redemption Price Per Share $1.00
========
</TABLE>
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
-56-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements of Operations
For the Six-Month Period Ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
Intermediate-Term GNMA High-Yield Managed
(In Thousands) U.S. Treasury Fund Fund Bond Fund Bond Fund
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Interest $ 676 $1,431 $3,750 $ 225
Dividends -- -- 81 --
------ ------ ------ -----
Total Investment Income 676 1,431 3,831 225
Expenses
Investment Advisory 62 131 273 19
Transfer Agent 25 41 84 7
Fund Accounting and
Administration 3 7 12 2
Shareholder Service-Class A 1 -- 4 1
-Class B 1 -- 2 1
Distribution -Class B 3 -- 7 2
Legal and Auditing 9 9 10 9
Custodian 2 2 3 1
Reports to Shareholders 4 6 14 2
Trustees 2 2 2 2
Interest -- -- 13 --
Other 6 5 9 8
------ ------ ------ -----
Total Expenses Before
Reimbursement 118 203 433 54
Expense Reimbursement (5) -- -- (12)
------ ------ ------ -----
Total Expenses After
Reimbursement 113 203 433 42
------ ------ ------ -----
Net Investment Income 563 1,228 3,398 183
Net Realized and Unrealized Gain
(Loss) on Investments
Net Realized Gain (Loss)
on Investments (21) (159) 356 (151)
Net Change in Unrealized
Appreciation (Depreciation (1,085) (1,371) (2,831) (347)
------ ------ ------ -----
Net Gain (Loss) on Investments (1,106) (1,530) (2,475) (498)
------ ------ ------ -----
Net Change in Net Assets
Resulting from Operations $ (543)$ (302) $ 923 $ (315)
====== ====== ====== =====
- ------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-57-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six-Month Period Ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO
California SAFECO Washington State
Tax-Free Municipal Municipal
(In Thousands) Income Fund Bond Fund Bond Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income
Interest $ 2,969 $ 14,756 $ 209
Dividends -- -- --
------- -------- -----
Total Investment Income 2,969 14,756 209
Expenses
Investment Advisory 298 1,142 23
Transfer Agent 44 159 2
Fund Accounting and Administration 19 41 2
Shareholder Service-Class A 1 1 --
-Class B 1 2 --
Distribution -Class B 3 5 1
Legal and Auditing 10 21 9
Custodian 4 12 1
Reports to Shareholders 14 56 1
Trustees 2 3 2
Interest -- -- --
Other 3 22 1
------- -------- -----
Total Expenses Before
Reimbursement/Waiver 399 1,464 42
Expense Reimbursement/Waiver -- -- (2)
------- -------- -----
Total Expenses After Reimbursement 399 1,464 40
------- -------- -----
Net Investment Income 2,570 13,292 169
Net Realized and Unrealized Gain
(Loss) on Investments
Net Realized Gain (Loss) on
Investments 148 1,361 6
Net Change in Unrealized
Appreciation (Depreciation) (6,285) (24,752) (315)
------- -------- -----
Net Gain (Loss) on Investments (6,137) (23,391) (309)
------- -------- -----
Net Change in Net Assets Resulting
from Operations $(3,567) $(10,099) $(140)
======= ======== =====
- ------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-58-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (Continued)
For the Six-Month Period Ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
Intermediate-Term Insured SAFECO Tax-Free
Municipal Municipal Money Market Money Market
(In Thousands) Bond Fund Bond Fund Fund Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Interest $ 371 $ 623 $5,750 $1,297
Dividends -- -- -- --
----- ------ ------ ------
Total Investment Income 371 623 5,750 1,297
Expenses
Investment Advisory 39 72 555 192
Transfer Agent 5 10 329 29
Fund Accounting and Administration 2 4 31 12
Shareholder Service-Class A -- -- -- --
-Class B -- -- -- --
Distribution -Class B -- -- -- --
Legal and Auditing 9 8 13 10
Custodian 1 1 9 3
Reports to Shareholders 2 3 37 9
Trustees 2 3 2 2
Interest -- -- 1 1
Other 1 3 21 5
----- ------ ------ ------
Total Expenses Before
Reimbursement/Waiver 61 104 998 263
Expense Reimbursement/Waiver -- -- -- (6)
----- ------ ------ ------
Total Expenses After Reimbursement 61 104 998 257
----- ------ ------ ------
Net Investment Income 310 519 4,752 1,040
Net Realized and Unrealized Gain
(Loss) on Investments
Net Realized Gain (Loss) on
Investments 21 174 -- --
Net Change in Unrealized
Appreciation (Depreciation) (517) (1,336) -- --
----- ------ ------ ------
Net Gain (Loss) on Investments (496) (1,162) -- --
----- ------ ------ ------
Net Change in Net Assets Resulting
from Operations $(186) $ (643) $4,752 $1,040
===== ====== ====== ======
- -------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-59-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SAFECO
Intermediate-Term
U.S. Treasury SAFECO
Fund GNMA Fund
------------------ ------------------
Six-Month Six-Month
Period Year Period Year
Ended Ended Ended Ended
June 30 Dec. 31 June 30 Dec. 31
(In Thousands) 1999 1998 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net Investment Income $ 563 $ 1,045 $ 1,228 $ 2,333
Net Realized Gain (Loss) on
Investments (21) 4 (159) 986
Net Change in Unrealized Appreciation
(Depreciation) (1,085) 648 (1,371) (717)
------- ------- ------- -------
Net Change in Net Assets Resulting
from Operations (543) 1,697 (302) 2,602
Dividends to Shareholders from
Net Investment Income
No-Load Class (526) (992) (1,228) (2,333)
Class A (20) (26) -- --
Class B (17) (27) -- --
Net Realized Gain on Investments
No-Load Class -- -- -- --
Class A -- -- -- --
Class B -- -- -- --
------- ------- ------- -------
Total (563) (1,045) (1,228) (2,333)
Net Trust Share Transactions
No-Load Class (3,024) 7,754 2,054 3,704
Class A 147 450 -- --
Class B 148 331 -- --
------- ------- ------- -------
Total (2,729) 8,535 2,054 3,704
------- ------- ------- -------
Total Change in Net Assets (3,835) 9,187 524 3,973
Net Assets at Beginning of Period 25,682 16,495 42,145 38,172
------- ------- ------- -------
Net Assets at End of Period $21,847 $25,682 $42,669 $42,145
======= ======= ======= =======
- ------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-60-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SAFECO
SAFECO SAFECO California SAFECO
High-Yield Managed Tax-Free Municipal
Bond Fund Bond Fund Income Fund Bond Fund
------------------ ------------------ ------------------- -------------------
Six-Month Six-Month Six-Month Six-Month
Period Year Period Year Period Year Period Year
Ended Ended Ended Ended Ended Ended Ended Ended
June 30 Dec. 31 June 30 Dec. 31 June 30 Dec. 31 June 30 Dec. 31
(In Thousands) 1999 1998 1999 1998 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations
Net Investment Income $ 3,398 $ 6,383 $ 183 $ 278 $ 2,570 $ 4,928 $ 13,292 $ 25,941
Net Realized Gain (Loss) on
Investments 356 (57) (151) 237 148 3,251 1,361 8,894
Net Change in Unrealized Appreciation
(Depreciation) (2,831) (2,997) (347) (56) (6,285) (1,778) (24,752) (3,043)
------- ------- ------ ------ -------- -------- -------- --------
Net Change in Net Assets Resulting
from Operations 923 3,329 (315) 459 (3,567) 6,401 (10,099) 31,792
Dividends to Shareholders from
Net Investment Income
No-Load Class (3,227) (6,205) (162) (262) (2,536) (4,878) (13,241) (25,876)
Class A (110) (127) (8) (9) (18) (24) (23) (33)
Class B (61) (51) (13) (7) (16) (26) (28) (32)
Net Realized Gain on Investments
No-Load Class -- -- -- (192) -- (3,208) -- (8,852)
Class A -- -- -- (8) -- (19) -- (16)
Class B -- -- -- (15) -- (27) -- (22)
------- ------- ------ ------ -------- -------- -------- --------
Total (3,398) (6,383) (183) (493) (2,570) (8,182) (13,292) (34,831)
Net Trust Share Transactions
No-Load Class (5,033) 11,564 396 2,153 2,196 25,835 8,795 39,941
Class A (1,345) 2,818 131 151 271 232 112 557
Class B 814 1,041 314 412 30 436 222 884
------- ------- ------ ------ -------- -------- -------- --------
Total (5,564) 15,423 841 2,716 2,497 26,503 9,129 41,382
------- ------- ------ ------ -------- -------- -------- --------
Total Change in Net Assets (8,039) 12,369 343 2,682 (3,640) 24,722 (14,262) 38,343
Net Assets at Beginning of Period 84,041 71,672 7,575 4,893 114,062 89,340 542,181 503,838
------- ------- ------ ------ -------- -------- -------- --------
Net Assets at End of Period $76,002 $84,041 $7,918 $7,575 $110,422 $114,062 $527,919 $542,181
======= ======= ====== ====== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-61-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO
Washington State Intermediate-Term
Municipal Municipal
Bond Fund Bond Fund
------------------ ------------------
Six-Month Six-Month
Period Year Period Year
Ended Ended Ended Ended
June 30 Dec. 31 June 30 Dec. 31
(In Thousands) 1999 1998 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net Investment Income $ 169 $ 359 $ 310 $ 613
Net Realized Gain (Loss) on
Investments 6 246 21 11
Net Change in Unrealized Appreciation
(Depreciation) (315) (133) (517) 132
------ ------ ------- -------
Net Change in Net Assets Resulting
from Operations (140) 472 (186) 756
Dividends to Shareholders from
Net Investment Income
No-Load Class (161) (343) (310) (613)
Class A (4) (9) -- --
Class B (4) (7) -- --
Net Realized Gain on Investments
No-Load Class -- (224) -- (6)
Class A -- (6) -- --
Class B -- (7) -- --
------ ------ ------- -------
Total (169) (596) (310) (619)
Net Trust Share Transactions
No-Load Class (164) 541 (312) 1,570
Class A 1 (149) -- --
Class B 33 12 -- --
------ ------ ------- -------
Total (130) 404 (312) 1,570
------ ------ ------- -------
Total Change in Net Assets (439) 280 (808) 1,707
Net Assets at Beginning of Period 8,167 7,887 15,487 13,780
------ ------ ------- -------
Net Assets at End of Period $7,728 $8,167 $14,679 $15,487
====== ====== ======= =======
- ------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-62-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (Continued
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO
Insured SAFECO Tax-Free
Municipal Money Market Money Market
Bond Fund Fund Fund
--------------------- ------------------------ ---------------------------
Six-Month Six-Month Six-Month
Period Year Period Year Period Year
Ended Ended Ended Ended Ended Ended
June 30 Dec. 31 June 30 Dec. 31 June 30 Dec. 31
(In Thousands) 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C> <C>
Operations
Net Investment Income $ 519 $ 881 $ 4,752 $ 9,987 $ 1,040 $ 2,362
Net Realized Gain (Loss) on
Investments 174 430 -- -- -- --
Net Change in Unrealized Appreciation
(Depreciation) (1,336) (121) -- -- -- --
------- ------- -------- -------- ------- -------
Net Change in Net Assets Resulting
from Operations (643) 1,190 4,752 9,987 1,040 2,362
Dividends to Shareholders from
Net Investment Income
No-Load Class (519) (881) (4,676) (9,906) (1,040) (2,362)
Class A -- -- (57) (57) -- --
Class B -- -- (19) (24) -- --
Net Realized Gain on Investments
No-Load Class -- (427) -- -- -- --
Class A -- -- -- -- -- --
Class B -- -- -- -- -- --
------- ------- -------- -------- ------- -------
Total (519) (1,308) (4,752) (9,987) (1,040) (2,362)
Net Trust Share Transactions
No-Load Class (1,024) 8,600 (6,310) 47,850 641 2,020
Class A -- -- 2,133 1,649 -- --
Class B -- -- 733 256 -- --
------- ------- -------- -------- ------- -------
Total (1,024) 8,600 (3,444) 49,755 641 2,020
------- ------- -------- -------- ------- -------
Total Change in Net Assets (2,186) 8,482 (3,444) 49,755 641 2,020
Net Assets at Beginning of Period 24,998 16,516 227,329 177,574 77,457 75,437
------- ------- -------- -------- ------- -------
Net Assets at End of Period $22,812 $24,998 $223,885 $227,329 $78,098 $77,457
======= ======= ======== ======== ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-63-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
1. GENERAL
This financial report is on 11 of the SAFECO Mutual Funds. Each Fund is a
series of one of the following trusts listed below. Each trust is registered
under the Investment Company Act of 1940, as amended, as a diversified, openend
management investment company.
SAFECO Taxable Bond Trust
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund
SAFECO Managed Bond Trust
SAFECO Managed Bond Fund
SAFECO Tax-Exempt Bond Trust
SAFECO California Tax-Free Income Fund
SAFECO Municipal Bond Fund
SAFECO Washington State Municipal Bond Fund
SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Money Market Trust
SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund
Effective September 30, 1996, the Intermediate-Term U.S. Treasury, Managed
Bond, California Tax-Free Income, Municipal Bond, Washington State Municipal
Bond, and Money Market Funds began issuing two new classes of shares-Class A and
Class B shares (collectively, "Advisor Classes"). Effective January 31, 1997,
the High-Yield Bond Fund also began issuing Advisor Classes. Unlike the no-load
class of shares (which are sold directly to the shareholder with no associated
sales and distribution charges), these classes of shares are sold by financial
advisors to shareholders and have associated sales and distribution charges.
Each class of shares represents an interest in the net assets of the fund.
In connection with issuing the new Advisor Classes, all of the above
mentioned funds (except the Money Market Fund) adopted a Plan of Distribution
("the Plan"). Under the Plan, each Advisor Class pays a service fee to the
distributor, SAFECO Securities Corp., for selling its shares at the annual rate
of .25% of the average daily net assets of the Advisor
-64-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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. Bonds are stated on the basis of valuations provided by
a pricing service, which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities and
various relationships between securities in determining value. When valuations
are not readily available, securities are valued at fair value as determined in
good faith by the Board of Trustees. Investments in equity securities are valued
at the last reported sales price, unless there are no transactions in which case
they are valued at the last reported bid price. Investments in the money market
funds consist of short-term securities maturing within thirteen months from the
date of purchase. Securities in the Tax-Free Money Market Fund with maturities
of more than thirteen months have floating rates and/or demand features which
qualify them as short-term securities. Securities purchased at par are valued at
cost. All other securities in the money market funds are valued at amortized
cost, which approximates market value. Other temporary investments purchased at
par are valued at cost.
Security Transactions. Security transactions are recorded on the trade date.
The cost of the portfolios is the same for financial statement and Federal
income tax purposes. Realized gains and losses from security transactions are
determined using the identified cost basis.
Securities Purchased on a When-Issued Basis. Securities purchased on a when
issued or delayed basis may be settled a month or more after
-65-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
the trade date. The securities purchased are carried in the portfolio at market
and are subject to market fluctuation during this period. These securities begin
earning interest on the settlement date. As commitments to purchase when-issued
securities become fixed, the Funds segregate liquid assets in an amount equal to
the total obligation.
Income Recognition. Bond premiums and original issue discounts are amortized
to either call or maturity dates. In the Tax-Exempt Bond Trust, market discount
on bonds purchased after April 30, 1993 is recorded as taxable income at
disposition. Interest is accrued on bonds and temporary investments daily. The
Managed Bond Fund has elected to amortize premiums on securities purchased above
par value. The funds in the Taxable Bond Trust have not elected to amortize
premiums on securities purchased above par value.
Dividends and Distributions to Shareholders. Net investment income is
declared as a dividend to shareholders of record as of the close of each
business day and payment is made as of the last business day of each month. Net
gains realized from security transactions, if any, are normally distributed to
shareholders at the end of December.
Federal Income and Excise Taxes. Each Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies by distributing substantially all taxable income to their shareholders
in a manner which results in no tax to the Funds. Therefore, no Federal income
or excise tax provision is required. In addition, the Tax-Exempt Bond Trust and
the Tax-Free Money Market Fund intend to satisfy conditions which will enable
them to pay dividends which, for shareholders, are exempt from Federal income
taxes. Any portion of dividends representing net short-term capital gains,
however, is not exempt and is treated as taxable dividends for Federal income
tax purposes.
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.
-66-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT TRANSACTIONS
Following is a summary of investment transactions (excluding short-term
securities) during the period ended June 30, 1999.
<TABLE>
<CAPTION>
(In Thousands) Purchases Sales
- ------------------------------------------------------------------
<S> <C> <C>
Intermediate-Term U.S. Treasury Fund $13,553 $15,815
GNMA Fund 33,027 31,677
High-Yield Bond Fund 31,744 33,575
Managed Bond Fund 8,195 7,527
California Tax-Free Income Fund 12,813 8,408
Municipal Bond Fund 51,997 48,823
Washington State Municipal Bond Fund -- 106
Intermediate-Term Municipal Bond Fund 1,543 804
Insured Municipal Bond Fund 2,791 3,975
- ------------------------------------------------------------------
</TABLE>
Purchases include $13,553 and $4,494 of U.S. Government securities in the In-
termediate-Term U.S. Treasury and Managed Bond Funds, respectively.
Sales include $15,815 and $3,893 of U.S. Government securities in the Interme-
diate-Term U.S. Treasury and Managed Bond Funds, respectively.
-67-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. TRUST SHARE TRANSACTIONS
Following is a summary of transactions in Fund Shares and the related
amount (in thousands):
<TABLE>
<CAPTION>
SAFECO Intermediate-Term U.S. Treasury Fund
----------------------------------------------------------
No-Load Class A Class B
------------------ ------------------ ------------------
Six-Month Six-Month Six-Month
Period Year Period Year Period Year
Ended Ended Ended Ended Ended 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>
<TABLE>
<CAPTION>
SAFECO GNMA Fund SAFECO High-Yield Bond Fund
------------------ ---------------------------------------------------------
No-Load No-Load Class A Class B
------------------ ------------------- ----------------- -----------------
Six-Month Six-Month Six-Month Six-Month
Period Year Period Year Period Year Period Year
Ended Ended Ended Ended Ended Ended Ended Ended
June 30 Dec. 31 June 30 Dec. 31 June 30 Dec. 31 June 30 Dec. 31
1999 1998 1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares:
Sales 776 1,678 4,507 9,834 69 319 115 138
Reinvestments 79 174 215 466 8 11 5 5
Redemptions (641) (1,469) (5,311) (9,014) (235) (21) (28) (25)
------- -------- -------- -------- ------- ------ ------ ------
Net Change 214 383 (589) 1,286 (158) 309 92 118
======= ======== ======== ======== ======= ====== ====== ======
Amounts:
Sales $ 7,415 $ 16,177 $ 39,745 $ 88,489 $ 611 $2,907 $1,019 $1,223
Reinvestments 743 1,677 1,893 4,195 72 94 43 44
Redemptions (6,104) (14,150) (46,671) (81,120) (2,028) (183) (248) (226)
------- -------- -------- -------- ------- ------ ------ ------
Net Change $ 2,054 $ 3,704 $ (5,033) $ 11,564 $(1,345) $2,818 $ 814 $1,041
======= ======== ======== ======== ======= ====== ====== ======
- --------------------------------------------------------------------------------------------
</TABLE>
-68-
<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 Year Period Year Period Year
Ended Ended Ended Ended Ended 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
======== ======== ===== ===== ==== =====
- ---------------------------------------------------------------------------
<CAPTION>
SAFECO California Tax-Free Income Fund
-----------------------------------------------------------
No-Load Class A Class B
------------------- ------------------ ------------------
Six-Month Six-Month Six-Month
Period Year Period Year Period Year
Ended Ended Ended Ended Ended 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>
-69-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. TRUST SHARE TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
SAFECO Municipal Bond Fund
-----------------------------------------------------------
No-Load Class A Class B
------------------- ------------------ ------------------
Six-Month Six-Month Six-Month
Period Year Period Year Period Year
Ended Ended Ended Ended Ended 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
======== ======== ==== ===== ==== ====
- ---------------------------------------------------------------------------
<CAPTION>
SAFECO Washington Municipal Bond Fund
-----------------------------------------------------------
No-Load Class A Class B
------------------- ------------------ ------------------
Six-Month Six-Month Six-Month
Period Year Period Year Period Year
Ended Ended Ended Ended Ended 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>
-70-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO Intermediate-
Term SAFECO Insured
Municipal Bond Fund Municipal Bond Fund
------------------------ ------------------------
No-Load No-Load
------------------------ ------------------------
Six-Month Year Ended Six-Month Year Ended
Period Ended Dec. 31 Period Ended Dec. 31
June 30 1999 1998 June 30 1999 1998
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares:
Sales 106 316 341 1,357
Reinvestments 14 31 22 59
Redemptions (149) (204) (456) (665)
------ ------- ------- -------
Net Change (29) 143 (93) 751
====== ======= ======= =======
Amounts:
Sales $1,163 $ 3,457 $ 3,844 $15,554
Reinvestments 154 345 246 676
Redemptions (1,629) (2,232) (5,114) (7,630)
------ ------- ------- -------
Net Change $ (312) $ 1,570 $(1,024) $ 8,600
====== ======= ======= =======
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO Tax-Free
SAFECO Money Market Fund Money Market Fund
------------------------------------------------------------ -------------------
No-Load Class A Class B No-Load
-------------------- ------------------ ------------------ -------------------
Six-Month Six-Month Six-Month Six-Month
Period Year Period Year Period Year Period Year
Ended Ended Ended Ended Ended Ended Ended Ended
June 30 Dec. 31 June 30 Dec. 31 June 30 Dec. 31 June 30 Dec. 31
1999 1998 1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares:
Sales 240,055 491,508 4,384 3,057 1,271 1,672 37,685 75,307
Reinvestments 3,821 9,260 44 51 14 17 841 2,153
Redemptions (250,186) (452,918) (2,295) (1,459) (552) (1,433) (37,885) (75,440)
--------- --------- ------- ------- ------ ------- -------- --------
Net Change (6,310) 47,850 2,133 1,649 733 256 641 2,020
========= ========= ======= ======= ====== ======= ======== ========
Amounts:
Sales $ 240,055 $ 491,508 $ 4,384 $ 3,057 $1,271 $ 1,672 $ 37,685 $ 75,307
Reinvestments 3,821 9,260 44 51 14 17 841 2,153
Redemptions (250,186) (452,918) (2,295) (1,459) (552) (1,433) (37,885) (75,440)
--------- --------- ------- ------- ------ ------- -------- --------
Net Change $ (6,310) $ 47,850 $ 2,133 $ 1,649 $ 733 $ 256 $ 641 $ 2,020
========= ========= ======= ======= ====== ======= ======== ========
- -------------------------------------------------------------------------------------------------
</TABLE>
-71-
<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>
SAFECO SAFECO SAFECO
Intermediate-Term GNMA High-Yield
(In Thousands) U.S.Treasury Fund Fund Bond Fund
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate Gross
Unrealized Appreciation
on Investments in Which
There Is an Excess of
Value Over Identified
Cost $ 240 $ 149 $ 640
Aggregate Gross
Unrealized Depreciation
on Investments in Which
There Is an Excess of
Identified Cost Over
Value (256) (862) (4,041)
------- -------- --------
Net Unrealized
(Depreciation) (16) (713) (3,401)
Accumulated Net Realized
Gain (Loss) on
Investment Transactions (270)* (1,743)* (40)*
Paid in Capital (Par
Value $.001, Unlimited
Shares Authorized) 22,133 45,125 79,443
------- -------- --------
Net Assets at June 30, 1999 $21,847 $ 42,669 $ 76,002
======= ======== ========
<CAPTION>
SAFECO SAFECO SAFECO
Managed California Tax-Free Municipal
(In Thousands) Bond Fund Income Fund Bond Fund
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate Gross
Unrealized Appreciation
on Investments in Which
There Is an Excess of
Value Over Identified
Cost $ 5 $ 5,547 $ 46,151
Aggregate Gross
Unrealized Depreciation
on Investments in Which
There Is an Excess of
Identified Cost Over
Value (249) (2,873) (6,333)
------- -------- --------
Net Unrealized
Appreciation/(Depreciation) (244) 2,674 39,818
Accumulated Net Realized
Gain (Loss) on
Investment Transactions (151) 148 1,360
Paid in Capital (Par
Value $.001, Unlimited
Shares Authorized) 8,313 107,600 486,741
------- -------- --------
Net Assets at June 30, 1999 $ 7,918 $110,422 $527,919
======= ======== ========
- ------------------------------------------------------------------------------------
</TABLE>
-72-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
Washington Intermediate- SAFECO SAFECO Tax-
State Term Insured Money Free Money
Municipal Municipal Municipal Market Market
(In Thousands) Bond Fund Bond Fund Bond Fund Fund Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate Gross
Unrealized
Appreciation on
Investments in
Which There Is an
Excess of Value
Over Identified
Cost $ 260 $ 445 $ 710 $ -- $ --
Aggregate Gross
Unrealized
Depreciation on
Investments in
Which There Is an
Excess of
Identified Cost
Over Value (100) (59) (669) -- --
------ ------- ------- -------- -------
Net Unrealized
Appreciation 160 386 41 -- --
Accumulated Net
Realized Gain
(Loss) on
Investment
Transactions 6 21 173 -- --
Paid in Capital
(Par Value $.001,
Unlimited Shares
Authorized) 7,562 14,272 22,598 223,885 78,098
------ ------- ------- -------- -------
Net Assets at June
30, 1999 $7,728 $14,679 $22,812 $223,885 $78,098
====== ======= ======= ======== =======
- -----------------------------------------------------------------------------
</TABLE>
* At December 31, 1998, these funds had the following amounts of net realized
losses on investment transactions that represented capital loss carryforwards
for Federal income tax purposes, which expire as follows:
<TABLE>
<CAPTION>
Amounts Expiration Dates
------- ----------------
<S> <C> <C>
Intermediate-Term U.S. Treasury Fund $ 249 2001-2005
GNMA Fund 1,584 2001-2003
High-Yield Bond Fund 396 2004-2006
</TABLE>
-73-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. INVESTMENT ADVISORY FEES AND OTHER
TRANSACTIONS WITH 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>
<CAPTION>
Intermediate-Term U.S.
Treasury, GNMA and
High-Yield Bond
Funds: Managed Bond Fund:
<S> <C> <C> <C>
First $250 million .55% First $750 million .50%
Next $500 million .50 Next $500 million .45
Next $500 million .45 Over $1.25 billion .40
Over $1.25 billion .40
</TABLE>
<TABLE>
<CAPTION>
Intermediate-Term
Municipal, Money Market and Tax-
California, Insured Free Money Market
and Washington Funds: Funds:
<S> <C> <C> <C>
First $250 million .50% First $250 million .50%
Next $500 million .45 Next $500 million .45
Over $750 million .40 Next $500 million .40
Over $1.25 billion .35
</TABLE>
Fund Accounting and Fund Administration Fees. Beginning May 1, 1999, SAFECO
Asset Management Company receives a fee for these services based on a percent-
age of each day's net assets, which, on an annual basis is as follows:
<TABLE>
Fund Accounting: Fund Administration:
<S> <C> <C> <C>
First $200 million .04% First $200 million .05%
Over $200 million .01 Over $200 million .01
</TABLE>
-74-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 line of credit arrangements with certain financial institutions.
Under these arrangements, $175 million is available to meet short-term
financing needs. No balance was outstanding under these arrangements at June 30,
1999.
Affiliate Ownership. At June 30, 1999, SAFECO Insurance Company of America
owned 500,000 shares (or 23%) of the Intermediate-Term U.S. Treasury Fund,
502,372 shares (or 67%) of the Washington Fund, 397,434 (or 29%) of the
Intermediate Municipal Fund, and 605,644 (or 29%) of the Insured Fund. SAFECO
Asset Management Company owned 452,103 shares (or 46%) of the Managed Bond Fund.
Expense Reimbursement. Beginning May 1, 1999, SAFECO Asset Management
Company agreed to reimburse the Funds for operating expense (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 and Tax-
Free Money Market Funds and .40% for all other Funds.
Fee Waiver. SAFECO Asset Management has agreed to waive .06% of investment
advisory fees in the Tax-Free Money Market Fund for the one year period from May
1, 1999 to May 1, 2000.
-75-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Dealer Concessions. SAFECO Securities, Inc. retained the following amounts
in dealer commissions from sales of Class A Shares for the period ended June
30, 1999:
<TABLE>
<CAPTION>
Commissions
Retained
- -------------------------------------------------
<S> <C>
Intermediate-Term U.S. Treasury Fund $ 62
High-Yield Bond Fund 3,030
Managed Bond Fund 529
California Tax-Free Income Fund 1,053
Municipal Bond Fund 87
Washington State Municipal Bond Fund 0
- -------------------------------------------------
</TABLE>
-76-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO Intermediate-Term U.S. Treasury Fund
No-Load Class
<TABLE>
<CAPTION>
Six-Month Three-Month
Period Ended For the Year Ended Period Ended For the Year Ended
June 30 December 31 December 31 September 30
------------------------------------------------------------------------------
1999 1998 1997 1996 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 10.74 $ 10.34 $ 10.11 $ 10.10 $ 10.24 $ 9.74
Income from Investment
Operations
Net Investment Income 0.26 0.57 0.58 0.16 0.54 0.55
Net Realized and
Unrealized Gain (Loss)
on Investments (0.50) 0.40 0.23 0.01 (0.14) 0.50
------- --------- --------- -------- --------- ---------
Total from Investment
Operations (0.24) 0.97 0.81 0.17 0.40 1.05
Less Distributions
Dividends from Net
Investment Income (0.26) (0.57) (0.58) (0.16) (0.54) (0.55)
------- --------- --------- -------- --------- ---------
Net Asset Value at End
of Period $ 10.24 $ 10.74 $ 10.34 $ 10.11 $ 10.10 $ 10.24
======= ========= ========= ======== ========= =========
Total Return (2.27%)* 9.61% 8.29% 1.68%* 4.00% 11.07%
Net Assets at End of
Period (000's) $20,013 $ 25,682 $ 15,698 $ 14,679 $ 14,668 $ 13,774
Ratio of Expenses to
Average Net Assets 0.95%**+ 0.90% 0.92% 0.85%**+ 1.01% 0.96%
Ratio of Net Investment
Income to Average Net
Assets 5.06%** 5.38% 5.74% 6.30%** 5.30% 5.51%
Portfolio Turnover Rate 28.35%** 2.83% 82.36% 125.42%** 294.25% 124.90%
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Excluding the reimbursements, the
annualized ratio of expenses to average net assets for the period ended June
30, 1999 and December 31, 1996 would have been 1.00% and 1.07%, respectively.
-77-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GNMA FUND
No-Load Class
<TABLE>
<CAPTION>
Six-Month Three-Month For the Year
Period Ended For the Year Ended Period Ended Ended
June 30 December 31 December 31 September 30
----------------------------------------------------------------------
1999 1998 1997 1996 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 9.64 $ 9.57 $ 9.36 $ 9.26 $ 9.45 $ 9.05
Income from Investment
Operations
Net Investment Income 0.27 0.57 0.60 0.15 0.60 0.60
Net Realized and
Unrealized Gain (Loss)
on Investments (0.33) 0.07 0.21 0.10 (0.19) 0.40
------- --------- --------- ------- ------- -------
Total from Investment
Operations (0.06) 0.64 0.81 0.25 0.41 1.00
Less Distributions
Dividends from Net
Investment Income (0.27) (0.57) (0.60) (0.15) (0.60) (0.60)
------- --------- --------- ------- ------- -------
Net Asset Value at End
of Period $ 9.31 $ 9.64 $ 9.57 $ 9.36 $ 9.26 $ 9.45
======= ========= ========= ======= ======= =======
Total Return (0.66%)* 6.84% 8.97% 2.71%* 4.48% 11.49%
Net Assets at End of
Period (000's) $42,669 $ 42,145 $ 38,172 $39,543 $39,703 $44,055
Ratio of Expenses to
Average Net Assets 0.96%** 0.94% 0.93% 1.01%** 1.03% 1.01%
Ratio of Net Investment
Income to Average Net
Assets 5.81%** 5.90% 6.40% 6.43%** 6.42% 6.55%
Portfolio Turnover Rate 152.71%** 104.63% 82.70% 51.06%** 47.45% 131.24%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
-78-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO High-Yield Bond Fund
No-Load Class
<TABLE>
<CAPTION>
Six-Month Three-Month
Period Ended For the Year Ended Period Ended For the Year Ended
June 30 December 31 December 31 September 30
-------------------------------------------------------------------------
1999 1998 1997 1996 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 8.78 $ 9.13 $ 8.82 $ 8.79 $ 8.68 $ 8.55
Income from Investment
Operations
Net Investment Income 0.35 0.74 0.77 0.19 0.78 0.79
Net Realized and
Unrealized Gain (Loss)
on Investments (0.25) (0.35) 0.31 0.03 0.11 0.13
------- --------- --------- ------- --------- ---------
Total from Investment
Operations 0.10 0.39 1.08 0.22 0.89 0.92
Less Distributions
Dividends from Net
Investment Income (0.35) (0.74) (0.77) (0.19) (0.78) (0.79)
------- --------- --------- ------- --------- ---------
Net Asset Value at End
of Period $ 8.53 $ 8.78 $ 9.13 $ 8.82 $ 8.79 $ 8.68
======= ========= ========= ======= ========= =========
Total Return 1.09%* 4.45% 12.79% 2.50%* 10.79% 11.43%
Net Assets at End of
Period (000's) $72,346 $ 84,041 $ 71,058 $50,298 $ 47,880 $ 39,178
Ratio of Expenses to
Average Net Assets 1.00%** 0.92% 0.91% 0.90%** 0.94% 1.01%
Ratio of Net Investment
Income to Average Net
Assets 8.12%** 8.26% 8.58% 8.56%** 8.99% 9.28%
Portfolio Turnover Rate 81.49%** 64.22% 85.06% 35.01%** 92.65% 38.03%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
- 79 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO Managed Bond Fund
No-Load Class
<TABLE>
<CAPTION>
Six-Month
Period Ended For the Year Ended
June 30 December 31
------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 8.64 $ 8.60 $ 8.35 $ 8.77 $ 8.15
Income from Investment Operations
Net Investment Income 0.20 0.42 0.42 0.41 0.44
Net Realized and Unrealized
Gain (Loss) on Investments (0.52) 0.29 0.25 (0.42) 0.94
------ ------ ------ ------ ------
Total from Investment
Operations (0.32) 0.71 0.67 (0.01) 1.38
Less Distributions
Dividends from Net Investment
Income (0.20) (0.42) (0.42) (0.41) (0.44)
Distributions from Realized
Gains -- (0.25) -- -- (0.32)
------ ------ ------ ------ ------
Total Distributions (0.20) (0.67) (0.42) (0.41) (0.76)
------ ------ ------ ------ ------
Net Asset Value at End of
Period $ 8.12 $ 8.64 $ 8.60 $ 8.35 $ 8.77
====== ====== ====== ====== ======
Total Return (3.77%)* 8.43% 8.23% 0.02% 17.35%
Net Assets at End of Period
(000's) $6,722 $7,575 $4,627 $4,215 $4,497
Ratio of Expenses to Average
Net Assets 0.95%**+ 1.16% 1.15% 1.27% 1.16%
Ratio of Net Investment Income
to Average Net Assets 4.84%** 4.79% 4.98% 4.86% 5.14%
Portfolio Turnover Rate 202.88%** 132.76% 176.50% 136.29% 78.78%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Net of reimbursement by advisor. Absent the reimbursement, the ratio of ex-
penses to average net assets would have been 1.26% for the period ended June
30, 1999.
-80-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO California Tax-Free Income Fund
No-Load Class
<TABLE>
<CAPTION>
Six-Month For the Year Nine-Month For the
Period Ended Ended Period Ended Year Ended
June 30 December 31 December 31 March 31
--------------------------------------------------------------
1999 1998 1997 1996 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 12.74 $ 12.93 $ 12.22 $ 11.86 $ 11.54
Income from Investment
Operations
Net Investment Income 0.28 0.60 0.60 0.47 0.62
Net Realized and
Unrealized Gain on
Investments (0.66) 0.18 0.76 0.39 0.40
-------- -------- ------- ------- -------
Total from Investment
Operations (0.38) 0.78 1.36 0.86 1.02
Less Distributions
Dividends from Net
Investment Income (0.28) (0.60) (0.60) (0.47) (0.62)
Distributions from
Realized Gains -- (0.37) (0.05) (0.03) (0.08)
-------- -------- ------- ------- -------
Total Distributions (0.28) (0.97) (0.65) (0.50) (0.70)
-------- -------- ------- ------- -------
Net Asset Value at End
of Period $ 12.08 $ 12.74 $ 12.93 $ 12.22 $ 11.86
======== ======== ======= ======= =======
Total Return (3.06%)* 6.19% 11.55% 7.42%* 8.87%
Net Assets at End of
Period (000's) $108,615 $114,062 $88,379 $72,084 $70,546
Ratio of Expenses to
Average Net Assets 0.69%** 0.68% 0.68% 0.69%** 0.68%
Ratio of Net Investment
Income to Average Net
Assets 4.52%** 4.60% 4.88% 5.21%** 5.12%
Portfolio Turnover Rate 15.27%** 38.78% 9.83% 10.52%** 16.25%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
-81-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO Municipal Bond Fund
No-Load Class
<TABLE>
<CAPTION>
Six-Month For the Nine-Month For the
Period Ended Year Ended Period Ended Year Ended
June 30 December 31 December 31 March 31
-----------------------------------------------------------
1999 1998 1997 1996 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 14.45 $ 14.52 $ 13.98 $ 13.69 $ 13.36
Income from Investment
Operations
Net Investment Income 0.35 0.73 0.75 0.57 0.76
Net Realized and
Unrealized Gain on
Investments (0.61) 0.17 0.70 0.29 0.33
-------- -------- -------- -------- --------
Total from Investment
Operations (0.26) 0.90 1.45 0.86 1.09
Less Distributions
Dividends from Net
Investment Income (0.35) (0.73) (0.75) (0.57) (0.76)
Distributions from
Realized Gains -- (0.24) (0.16) -- --
-------- -------- -------- -------- --------
Total Distributions (0.35) (0.97) (0.91) (0.57) (0.76)
-------- -------- -------- -------- --------
Net Asset Value at End
of Period $ 13.84 $ 14.45 $ 14.52 $ 13.98 $ 13.69
======== ======== ======== ======== ========
Total Return (1.86%)* 6.35% 10.68% 6.42%* 8.23%
Net Assets at End of
Period (000's) $525,375 $542,181 $502,946 $480,970 $480,643
Ratio of Expenses to
Average Net Assets 0.54%** 0.51% 0.51% 0.53%** 0.54%
Ratio of Net Investment
Income to Average Net
Assets 4.98%** 5.01% 5.31% 5.53%** 5.47%
Portfolio Turnover Rate 18.72%** 20.80% 13.52% 6.66%** 12.60%
- --------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-82-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
No-Load Class
<TABLE>
<CAPTION>
Six-Month For the Nine-Month For the
Period Ended Year Ended Period Ended Year Ended
June 30 December 31 December 31 March 31
---------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $10.78 $10.95 $10.53 $10.34 $10.10
Income from Investment
Operations
Net Investment Income 0.23 0.50 0.50 0.37 0.50
Net Realized and
Unrealized Gain (Loss)
on Investments (0.41) 0.15 0.42 0.20 0.27
------ ------ ------ ------ ------
Total from Investment
Operations (0.18) 0.65 0.92 0.57 0.77
Less Distributions
Dividends from Net
Investment Income (0.23) (0.50) (0.50) (0.37) (0.50)
Distributions from
Realized Gains -- (0.32) -- (0.01) (0.03)
------ ------ ------ ------ ------
Total Distributions (0.23) (0.82) (0.50) (0.38) (0.53)
------ ------ ------ ------ ------
Net Asset Value at End
of Period $10.37 $10.78 $10.95 $10.53 $10.34
====== ====== ====== ====== ======
Total Return (1.71%)* 5.99% 8.94% 5.61%* 7.73%
Net Assets at End of
Period (000's) $7,257 $8,167 $7,288 $6,558 $6,489
Ratio of Expenses to
Average Net Assets 1.00%**+ 1.03% 1.02% 1.10%** 1.07%
Ratio of Net Investment
Income to Average Net
Assets 4.42%** 4.50% 4.68% 4.78%** 4.78%
Portfolio Turnover Rate 0.00%** 33.18% 11.67% 15.96%** 20.86%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Net of reimbursement by advisor. Absent the reimbursement, the ratio of
expenses to average net assets would have been 1.05% for the period ended
June 30, 1999.
-83-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
No-Load Class
<TABLE>
<CAPTION>
Six-Month Nine-Month For the
Period Ended For the Year Ended Period Ended Year Ended
June 30 December 31 December 31 March 31
------------------------------------------------------------
1999 1998 1997 1996 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 11.02 $ 10.92 $ 10.61 $ 10.49 $ 10.17
Income from Investment
Operations
Net Investment Income 0.22 0.47 0.47 0.35 0.45
Net Realized and
Unrealized Gain (Loss)
on Investments (0.35) 0.10 0.31 0.12 0.32
------- --------- --------- ------- -------
Total from Investment
Operations (0.13) 0.57 0.78 0.47 0.77
Less Distributions
Dividends from Net
Investment Income (0.22) (0.47) (0.47) (0.35) (0.45)
------- --------- --------- ------- -------
Net Asset Value at End
of Period $ 10.67 $ 11.02 $ 10.92 $ 10.61 $ 10.49
======= ========= ========= ======= =======
Total Return (1.17%)* 5.33% 7.50% 4.53%* 7.63%
Net Assets at End of
Period (000's) $14,679 $ 15,487 $ 13,780 $14,172 $14,981
Ratio of Expenses to
Average Net Assets 0.82%** 0.83% 0.83% 0.89%** 0.84%
Ratio of Net Investment
Income to Average
Net Assets 4.20%** 4.25% 4.37% 4.40%** 4.29%
Portfolio Turnover Rate 11.09%** 4.29% 10.52% 12.81%** 9.12%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
-84-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INSURED MUNICIPAL BOND FUND
No-Load Class
<TABLE>
<CAPTION>
Six-Month Nine-Month For the
Period Ended For the Year Ended Period Ended Year Ended
June 30 December 31 December 31 March 31
---------------------------------------------------------------
1999 1998 1997 1996 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 11.33 $ 11.36 $ 10.74 $ 10.46 $ 10.05
Income from Investment
Operations
Net Investment Income 0.24 0.49 0.50 0.37 0.48
Net Realized and
Unrealized Gain (Loss)
on Investments (0.54) 0.17 0.62 0.28 0.41
------- --------- --------- ------- -------
Total from Investment
Operations (0.30) 0.66 1.12 0.65 0.89
Less Distributions
Dividends from Net
Investment Income (0.24) (0.49) (0.50) (0.37) (0.48)
Distributions from
Realized Gains -- (0.20) -- -- --
------- --------- --------- ------- -------
Total Distributions (0.24) (0.69) (0.50) (0.37) (0.48)
------- --------- --------- ------- -------
Net Asset Value at End
of Period $ 10.79 $ 11.33 $ 11.36 $ 10.74 $ 10.46
======= ========= ========= ======= =======
Total Return (2.73%)* 5.90% 10.70% 6.31%* 8.95%
Net Assets at End of
Period (000's) $22,812 $ 24,998 $ 16,516 $13,187 $11,758
Ratio of Expenses to
Average Net Assets 0.87%** 0.88% 0.92% 1.00%** 0.99%
Ratio of Net Investment
Income to Average Net
Assets 4.28%** 4.29% 4.56% 4.66%** 4.53%
Portfolio Turnover Rate 24.51%** 27.30% 13.02% 14.86%** 3.71%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
-85-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MONEY MARKET FUND
No-Load Class
<TABLE>
<CAPTION>
Six-Month Nine-Month For the
Period Ended For the Year Ended Period Ended Year Ended
June 30 December 31 December 31 March 31
---------------------------------------------------------------
1999 1998 1997 1996 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment
Operation
Net Investment Income 0.02 0.05 0.05 0.03 0.05
Less Distributions
Dividends from Net
Investment Income (0.02) (0.05) (0.05) (0.03) (0.05)
-------- --------- --------- -------- --------
Net Asset Value at End
of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ========= ========= ======== ========
Total Return 2.12%* 5.08% 4.93% 3.54%* 5.15%
Net Assets at End of
Period (000's) $218,163 $ 227,329 $ 176,623 $161,356 $165,122
Ratio of Expenses to
Average Net Assets 0.90%** 0.79% 0.78% 0.81%** 0.78%
Ratio of Net Investment
Income to Average Net
Assets 4.28%** 4.97% 4.82% 4.66%** 5.04%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
-86-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO TAX-FREE MONEY MARKET FUND
No-Load Class
<TABLE>
<CAPTION>
Six-Month For the Nine-Month For the
Period Ended Year Ended Period Ended Year Ended
June 30 December 31 December 31 March 31
-----------------------------------------------------------
1999 1998 1997 1996 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment
Operations
Net Investment Income 0.02 0.03 0.03 0.02 0.03
Less Distributions
Dividends from Net
Investment Income (0.02) (0.03) (0.03) (0.02) (0.03)
------- ------- ------- ------- -------
Net Asset Value at End
of
Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return 1.33%* 3.07% 3.12% 2.29%* 3.44%
Net Assets at End of
Period (000's) $78,098 $77,457 $75,437 $73,164 $79,702
Ratio of Expenses to
Average Net Assets 0.67%**+ 0.63% 0.63% 0.65%** 0.65%
Ratio of Net Investment
Income to Average Net
Assets 2.70%** 3.04% 3.11% 3.03%** 3.40%
- -------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Net of fee waiver by advisor. Absent the waiver, the ratio of expenses to
average net assets would have been .68% for the period ended June 30, 1999.
-87-
<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 antici-
pate 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.
-88-
<PAGE>
<TABLE>
<S> <C>
SAFECO FIXED-INCOME FUNDS CLIENT SERVICES*:
BOARD OF TRUSTEES: Monday-Friday,
Boh A. Dickey, Chairman 5:30am-7:00pm Pacific Time
Barbara J. Dingfield
David F. Hill Nationwide: 1-800-624-5711
Richard W. Hubbard
Richard E. Lundgren Deaf and Hard of Hearing
Larry L. Pinnt TTY/TDD Service: 1-800-438-8718
John W. Schneider
* All telephone calls are tape-
OFFICERS: recorded for your protection.
David F. Hill, President
Ronald L. Spaulding FOR 24-HOUR AUTOMATED
Vice President and Treasurer PERFORMANCE INFORMATION
Neal A. Fuller AND TRANSACTIONS:
Vice President and Controller
David H. Longhurst Nationwide: 1-800-835-4391
Assistant Controller
INVESTMENT ADVISOR: MAILING ADDRESS:
SAFECO Asset Management Company
SAFECO Mutual Funds
DISTRIBUTOR: P.O. Box 34890
SAFECO Securities, Inc. Seattle, WA 98124-1890
TRANSFER AGENT: INTERNET:
SAFECO Services Corporation www.safecofunds.com
CUSTODIAN: EMAIL: [email protected]
State Street Bank
</TABLE>
GMF 1055 8/99
[RECYCLE LOGO] Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
(R) A registered trademark of SAFECO Corporation.
