<PAGE>
ANNUAL REPORT
December 31, 1999
SAFECO Mutual Funds
Class A and Class B Shares
--------------
SAFECO Stock Funds
<TABLE>
<S> <C>
Growth Fund...................... 2
Equity Fund...................... 7
Income Fund...................... 11
Northwest Fund................... 16
Balanced Fund.................... 20
International Stock Fund......... 26
Small Company Stock Fund......... 32
U.S. Value Fund.................. 36
SAFECO Bond Funds
High-Yield Bond Fund............. 40
Intermediate-Term U.S. Treasury
Fund........................... 46
Managed Bond Fund................ 49
SAFECO Tax-Exempt Bond Funds
Municipal Bond Market Overview... 53
Municipal Bond Fund.............. 54
California Tax-Free Income Fund.. 61
Washington State Municipal Bond
Fund........................... 65
SAFECO Money Market Fund
Money Market Fund................ 69
</TABLE>
[LOGO OF SAFECO(R)]
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Growth Fund
December 31, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO OF THOMAS M. MAGUIRE]
THOMAS M. MAGUIRE
While SAFECO Growth Fund's 1999 performance was disappointing, it
ended on an encouraging note. In the fourth quarter, the Fund
outperformed the S&P 500.
Keeping true to my style--trying to buy growth at a reasonable
price--caused us to underperform as hyper-growth and technology stocks
have driven the market. The Fund has never owned much tech (because valuations
appear excessive, competition is intense, and I'm not comfortable with it).
Until recently, we've been able to hold our own, or outperform, without it.
The second reason for our bad (and good) performance is that I take big
positions. In 1999, a number of them disappointed. Family Golf overex-
[PERFORMANCE GRAPH]
PERFORMANCE OVERVIEW - Class A and Class B Shares
<TABLE>
<CAPTION>
Average Annual Total Return With Sales Charge Without Sales Charge
for the periods ended December 31, 1999 Quarter 1 Year 5 Year 10 Year Quarter 1 Year 5 Year 10 Year
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A 10.05% (3.45)% 18.52% 14.19% 2.43% 16.75% 19.93% 14.86%
Class B 11.64% (3.38)% 19.10% 14.56% 1.62% 16.64% 19.30% 14.56%
S & P 500 Index N/A N/A N/A N/A 21.04% 14.88% 28.54% 18.19%
Lipper, Inc. (Mid-Cap Core Funds) N/A N/A M/A N/A 30.20% 38.27% 21.93% 16.28%
<CAPTION>
SAFECO SAFECO
Growth Fund Growth Fund
With Sales Charge Class A Class B S&P 500 Index
- ----------------- ------------ ------------ ---------------
<S> <C> <C> <C>
12/31/89 9,425 10,000 10,000
1/31/90 8,513 9,031 9,329
2/28/90 8,746 9,278 9,450
3/31/90 9,274 9,837 9,700
4/30/90 9,313 9,880 9,459
5/31/90 10,267 10,892 10,379
6/30/90 10,488 11,126 10,309
7/31/90 10,113 10,728 10,276
8/31/90 8,369 8,878 9,348
9/30/90 7,430 7,882 8,894
10/31/90 6,930 7,352 8,856
11/30/90 7,444 7,896 9,428
12/31/90 8,016 8,503 9,690
1/31/91 8,817 9,353 10,111
2/28/91 10,032 10,642 10,833
3/31/91 10,522 11,162 11,095
4/30/91 11,030 11,700 11,122
5/31/91 11,757 12,472 11,600
6/30/91 11,056 11,729 11,069
7/31/91 12,091 12,827 11,584
8/31/91 12,572 13,336 11,858
9/30/91 12,648 13,417 11,660
10/31/91 13,029 13,821 11,816
11/30/91 11,929 12,655 11,341
12/31/91 13,038 13,831 12,636
1/31/92 13,992 14,843 12,401
2/28/92 13,892 14,737 12,561
3/31/92 12,860 13,642 12,317
4/30/92 12,062 12,796 12,679
5/31/92 11,763 12,478 12,741
6/30/92 10,859 11,519 12,551
7/31/92 11,315 12,003 13,064
8/31/92 10,674 11,323 12,797
9/30/92 10,392 11,024 12,947
10/31/92 10,831 11,490 12,991
11/30/92 12,199 12,941 13,433
12/31/92 12,638 13,406 13,597
1/31/93 13,165 13,966 13,711
2/28/93 12,288 13,035 13,898
3/31/93 12,771 13,548 14,191
4/30/93 11,983 12,712 13,848
5/31/93 12,600 13,367 14,217
6/30/93 12,994 13,784 14,259
7/31/93 12,950 13,737 14,201
8/31/93 13,782 14,620 14,739
9/30/93 14,387 15,262 14,623
10/31/93 14,754 15,651 14,925
11/30/93 14,132 14,991 14,783
12/31/93 15,442 16,381 14,962
1/31/94 16,273 17,263 15,470
2/28/94 15,496 16,438 15,051
3/31/94 14,718 15,613 14,396
4/30/94 15,111 16,030 14,580
5/31/94 15,249 16,177 14,819
6/30/94 14,118 14,976 14,456
7/31/94 14,433 15,311 14,931
8/31/94 15,334 16,266 15,542
9/30/94 14,945 15,854 15,162
10/31/94 15,160 16,082 15,502
11/30/94 14,747 15,644 14,938
12/31/94 15,191 16,115 15,159
1/31/95 14,958 15,867 15,552
2/28/95 15,780 16,739 16,157
3/31/95 15,719 16,675 16,633
4/30/95 15,797 16,758 17,123
5/31/95 16,429 17,428 17,806
6/30/95 17,424 18,483 18,219
7/31/95 18,039 19,136 18,823
8/31/95 17,978 19,071 18,870
9/30/95 18,521 19,648 19,666
10/31/95 18,440 19,561 19,596
11/30/95 18,627 19,759 20,455
12/31/95 19,157 20,322 20,849
1/31/96 19,866 21,074 21,558
2/28/96 20,611 21,865 21,758
3/31/96 20,297 21,531 21,968
4/30/96 21,160 22,447 22,292
5/31/96 22,059 23,400 22,866
6/30/96 21,101 22,384 22,953
7/31/96 19,019 20,176 21,939
8/31/96 20,155 21,380 22,403
9/30/96 21,145 22,430 23,662
10/31/96 21,596 22,895 24,315
11/30/96 22,431 23,766 26,151
12/31/96 23,544 24,932 25,633
1/31/97 25,556 27,051 27,234
2/28/97 24,876 26,315 27,447
3/31/97 23,988 25,359 26,322
4/30/97 22,864 24,167 27,892
5/31/97 26,333 27,817 29,589
6/30/97 28,511 30,098 30,914
7/31/97 30,176 31,835 33,373
8/31/97 31,244 32,938 31,504
9/30/97 33,755 35,558 33,229
10/30/97 33,117 34,881 32,120
11/30/97 34,560 36,368 33,606
12/31/97 35,224 37,073 34,183
1/31/98 35,728 37,540 34,560
2/28/98 39,315 41,266 37,052
3/31/98 41,737 43,772 38,948
4/30/98 43,326 45,426 39,339
5/31/98 41,281 43,254 38,664
6/30/98 41,250 43,187 40,233
7/31/98 39,189 40,965 39,806
8/31/98 29,671 31,008 34,057
9/30/98 30,772 32,127 36,239
10/31/98 33,226 34,633 39,184
11/30/98 34,925 36,371 41,558
12/31/98 36,797 38,326 43,951
1/31/99 37,642 39,171 45,789
2/28/99 33,209 34,547 44,366
3/31/99 33,387 34,685 46,141
4/30/99 33,907 35,202 47,928
5/31/99 33,209 34,460 46,796
6/30/99 34,443 35,720 49,393
7/31/99 33,387 34,598 47,851
8/31/99 32,186 33,321 47,613
9/30/99 32,283 33,390 46,308
10/31/99 32,673 33,770 49,238
11/30/99 34,053 35,168 50,242
12/31/99 37,691 38,447 53,200
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A and
Class B of the Fund to a hypothetical investment in a relevant market index.
Fund performance is derived from the Fund's original class of shares and
reflects the maximum 5.75% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to reflect
Rule 12b-1 fees prior to September 30, 1996 (initial public offering date of
Class A and Class B shares). Such fees will affect subsequent performance.
The index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- 2 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
tended itself by trying to grow too fast and Prison Realty Trust practiced
questionable disclosure. I've eliminated them both. Conseco--despite a number of
positive moves to enhance shareholder value, including more conservative
accounting and significant insider stock purchasing--has continued to decline.
I still like it and will wait with a reduced position, 4.1% of net assets.
Nu Skin disappointed due to problems in their largest market, Japan. I
neither bought nor sold it, as the stock could work out in a few quarters.
Despite having good operating results and good outlooks, Rent-Way and Rent-A-
Center declined on a sell recommendation
- --------------------------------------------------------------------------------
Weightings
As a Percent of Net Assets
- --------------------------
[PIE CHART]
Common Stocks:
1 Large: 9% ($4 Bil. and above)
2 Medium: 23% (1 Bil.-$4 Bil.)
3 Small: 68% (Less than $1 Bil.)
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
TOP TEN HOLDINGS Net Assets
- --------------------------------------------------------------------------------
<S> <C>
MICROS Systems, Inc........................................................ 9.9%
(Computers-Hardware)
NCO Group, Inc............................................................. 5.4
(Services-Commercial & Consumer)
Rent-A-Center, Inc......................................................... 5.3
(Services-Commercial & Consumer)
United Stationers, Inc..................................................... 5.2
(Office Equipment & Supplies)
Conseco, Inc............................................................... 4.1
(Insurance-Life & Health)
Dura Pharmaceuticals, Inc.................................................. 3.7
(Health Care-Drugs-Generic & Other)
Rent-Way, Inc.............................................................. 3.7
(Services-Commercial & Consumer)
Emisphere Technologies, Inc................................................ 3.5
(Health Care-Diversified)
PolyMedica Industries, Inc................................................. 3.4
(Health Care-Medical Products & Supplies)
Mail-Well, Inc............................................................. 2.7
(Specialty Printing)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
For the Year Ended Dec. 31, 1999 Cost
(000's)
- --------------------------------------------------------------------------------
<S> <C>
Rent-A-Center, Inc..................................................... $33,629
NCO Group, Inc......................................................... 31,495
Rent-Way, Inc.......................................................... 30,893
Mylan Laboratories, Inc................................................ 19,149
SFX Entertainment, Inc. (Class A)...................................... 18,500
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
For the Year Ended Dec. 31, 1999 Proceeds
(000's)
- --------------------------------------------------------------------------------
<S> <C>
AMFM, Inc............................................................. $213,927
Emmis Communications Corp. (Class A).................................. 79,866
Conseco, Inc.......................................................... 67,403
NCO Group, Inc........................................................ 43,552
Prison Realty Corp.................................................... 41,637
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE INDUSTRIES Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Services (Commercial & Consumer)............................................ 21%
Computers (Hardware)........................................................ 10
Computers (Software & Services)............................................. 9
Office Equipment & Supplies................................................. 6
Health Care (Major Pharmaceuticals)......................................... 5
</TABLE>
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
that proved unfounded. I used the weakness to buy more. Both companies operate
cash businesses in a growing market. I cut back AMFM and Emmis Communications
at high valuations and invested the proceeds in lower valued names.
My hope for 2000 is that our performance will continue to trend above the
market as investors come to appreciate the combination of growing earnings and
good value. In the meantime, thank you for your patience. The Fund's long-term
record shows that hanging in there may be the best remedy for the suffering.
Thomas M. Maguire
- --------------------------------------------------------------------------------
After completing his MBA at the University of Washington, Thomas M. Maguire
joined the company as an equity analyst in 1981 and today is a Vice President.
From 1984 to 1989, he co-managed the SAFECO Equity Fund.
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Growth Fund
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 100.1%
Air Freight - 0.1%
611,000 *+Dynamex, Inc. (Illiquid++)............................... $ 916
Auto Parts & Equipment - 0.1%
592,400 *+Precision Auto Care, Inc. .................................... 666
Banks (Major Regional) - 0.4%
172,275 Provident Bankshares Corp. ................................... 2,983
Broadcasting (TV, Radio & Cable) - 0.9%
14,000 *AMFM, Inc. .................................................. 1,095
301,900 *Salem Communications Corp. (Class A)......................... 6,830
Chemicals (Specialty) - 0.1%
121,900 *TETRA Technologies, Inc. ...................................... 884
Communication Equipment - 1.3%
239,200 *Research In Motion, Ltd. ................................... 11,048
Computers (Hardware) - 9.9%
1,151,528 *+MICROS Systems, Inc. ...................................... 85,213
Computers (Peripherals) - 0.5%
298,500 *Quantum Corp. - DLT & Storage Systems........................ 4,515
Computers (Software & Services) - 8.8%
731,700 *Aspen Technology, Inc. ..................................... 19,344
450,641 Autodesk, Inc. .............................................. 15,209
573,700 *Cadence Design Systems, Inc. ............................... 13,769
805,800 *Ciber, Inc. ................................................ 22,159
831,700 *+Phoenix International Ltd., Inc. ........................... 3,223
314,200 *TRO Learning, Inc. .......................................... 1,689
Consumer (Jewelry, Novelties & Gifts) - 0.5%
370,500 *Action Performance Cos., Inc. ............................... 4,261
Consumer Finance - 1.7%
471,050 *Creditrust Corp. ............................................ 3,621
397,535 Doral Financial Corp. ........................................ 4,895
1,435,200 *+Towne Services, Inc. ....................................... 5,741
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 4 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Distributors (Food & Health) - 2.7%
2,348,400 *+Nu Skin Enterprises, Inc. (Class A)..................... $ 21,282
516,140 *+Weider Nutrition International, Inc. ...................... 1,903
Entertainment - 2.7%
640,000 *SFX Entertainment, Inc. (Class A).......................... 23,160
Financial (Diversified) - 0.4%
417,300 *+BNC Mortgage, Inc. ........................................ 2,712
439,700 *United Panam Financial Corp. ................................. 852
Health Care (Diversified) - 5.0%
758,700 *+Anesta Corp. ............................................. 13,040
984,435 *+Emisphere Technologies, Inc. ............................. 29,595
Health Care (Drugs - Generic & Other) - 3.9%
2,306,300 *+Dura Pharmaceuticals, Inc. ............................... 32,144
494,900 *+Nastech Pharmaceutical Co., Inc. .......................... 1,670
Health Care (Long-Term Care) - 1.1%
734,600 *Res-Care, Inc. ............................................. 9,366
Health Care (Major Pharmaceuticals) - 5.3%
526,400 Mylan Laboratories, Inc. ................................... 13,259
2,346,756 *+Serologicals Corp. ....................................... 14,081
252,300 Teva Pharmaceutical Industries, Ltd. (ADR).................. 18,087
Health Care (Managed Care) - 0.1%
173,500 *Matria Healthcare, Inc. ...................................... 716
Health Care (Medical Products & Supplies) - 4.3%
560,550 *+Lifeline Systems, Inc. .................................... 8,408
1,245,000 *+PolyMedica Industries, Inc. .............................. 28,791
Health Care (Specialized Services) - 1.6%
552,600 *+American Healthcorp, Inc. ................................. 2,521
1,226,300 *+Prime Medical Services, Inc. ............................. 11,190
Housewares - 0.5%
369,900 *+Home Products International, Inc. ......................... 3,838
Insurance (Lite & Health - 4.1%
1,952,329 Conseco, Inc. .............................................. 34,898
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Leisure Time (Products) - 0.1%
356,900 *+American Coin Merchandising, Inc. ....................... $ 981
Lodging (Hotels) - 0.9%
622,400 *ResortQuest International, Inc. ............................. 2,606
1,026,800 *+Suburban Lodges of America, Inc. ........................... 5,327
Machinery (Diversified) - 0.2%
438,350 Chart Industries, Inc. ....................................... 1,753
Manufacturing (Diversified) - 1.3%
402,400 *Nortek, Inc. ............................................... 11,267
Office Equipment & Supplies - 5.7%
710,000 *+TRM Copy Centers Corp. ..................................... 4,349
1,555,400 *United Stationers, Inc. .................................... 44,426
Personal Care - 0.7%
925,000 *+French Fragrances, Inc. .................................... 5,955
Restaurants - 0.2%
298,600 *Schlotzsky's, Inc. .......................................... 1,978
Retail (Department Stores) - 0.7%
262,300 *Rainbow Rentals, Inc. ....................................... 1,885
246,000 *Value City Department Stores, Inc. .......................... 3,721
Retail (Drug Stores) - 1.0%
217,000 CVS Corp. .................................................... 8,666
Retail (Food Chains) - 0.3%
307,500 *NPC International, Inc. ..................................... 2,422
Retail (Home Shopping) - 1.3%
714,900 *+Damark International, Inc. ................................ 11,260
Retail (Specialty) - 1.6%
623,600 *+Blue Rhino Corp. ........................................... 6,080
354,300 *+Funco, Inc. ................................................ 3,964
271,000 *+Travis Boats & Motors, Inc. ................................ 3,252
Retail (Specialty - Apparel) - 0.8%
479,500 *+Concepts Direct, Inc. ...................................... 5,215
542,213 *+Harold's Stores, Inc. ...................................... 2,033
Services (Commercial & Consumer) - 20.8%
787,700 *Bluegreen Corp. ............................................. 3,938
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
669,700 Central Parking Corp. .................................... $ 12,808
495,600 *FirstService Corp. ......................................... 6,784
494,700 *Iron Mountain, Inc. ....................................... 19,448
103,300 *Modis Professional Services, Inc. .......................... 1,472
1,528,335 *+NCO Group, Inc. .......................................... 46,041
220,200 *Pierce Leahy Corp. ......................................... 9,524
2,288,000 *+Rent-A-Center, Inc. ...................................... 45,331
1,706,100 *+Rent-Way, Inc. ........................................... 31,883
305,800 SunSource, Inc. ............................................. 1,300
Services (Computer Systems) - 1.2%
650,800 *Computer Horizons Corp. ................................... 10,535
Services (Employment) - 2.0%
805,100 *+Hall, Kinion & Associates, Inc. .......................... 17,310
Specialty Printing - 2.7%
1,720,900 *Mail-Well, Inc. ........................................... 23,232
Telecommunications (Cellular/Wireless) - 1.0%
822,685 *CellStar Corp. ............................................. 8,124
Telephone - 1.6%
1,013,400 *+Innotrac Corp. ........................................... 13,934
-------
TOTAL COMMON STOCKS................................................... 858,378
-------
CASH EQUIVALENTS - 0.0%
Investment Companies
4,899 J.P. Morgan Institutional Prime Money Market..................... 5
-------
TOTAL CASH EQUIVALENTS...................................................... 5
-------
TOTAL INVESTMENTS - 100.1%............................................ 858,383
Other Assets, less Liabilities......................................... (1,108)
-------
NET ASSETS........................................................... $857,275
-------
-------
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing security.
+Affiliated issuer as defined by the Investment Company Act of 1940 (the Fund
controls 5% or more of the outstanding voting shares of the company).
++Securities are valued at fair value as determined by, and under the
supervision of, the Board of Trustees.
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Equity Fund
December 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO OF RICHARD MEAGLEY]
RICHARD MEAGLEY
The SAFECO Equity Fund ended the year and latest quarter below the
Lipper, Inc. average for large-cap value funds, and the S&P 500. The
Fund's returns fell short because it is underweighted in technology,
which was the market's best-performing sector, and overweighted in
financials.
As interest rates climbed, mortgage-related stocks such as Washington Mutu-
al, Fannie Mae and Freddie Mac fell beyond reason. Even as analysts raised
earning estimates for Fannie Mae, investors sent the stock down.
I started to broaden our technology holdings-- adding to telecommunication
equipment manufac-turer Lucent Technologies and beginning a position in
CenturyTel which, I
[PERFORMANCE GRAPH]
PERFORMANCE OVERVIEW - Class A and Class B Shares
<TABLE>
<CAPTION>
Average Annual Total Return With Sales Charge Without Sales Charge
for the periods ended December 31, 1999 Quarter 1 Year 5 Year 10 Year Quarter 1 Year 5 Year 10 Year
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A 0.14% 2.86% 19.95% 16.40% 6.24% 9.13% 21.38% 17.09%
Class B 1.12% 3.18% 20.47% 16.75% 6.12% 8.18% 20.66% 16.75%
S&P 500 Index N/A N/A N/A N/A 14.88% 21.04% 28.54% 18.19%
Lipper, Inc. (Large-Cap Value Funds) N/A N/A N/A N/A 8.74% 11.23% 22.56% 15.06%
<CAPTION>
SAFECO SAFECO
Equity Fund Equity Fund S&P 500
With Sales Charge Class A Class B Index
- ----------------- ------------ ----------- ----------
<S> <C> <C> <C>
12/31/89 9,425 10,000 10,000
1/31/90 8,642 9,170 9,329
2/28/90 8,723 9,256 9,450
3/31/90 9,047 9,599 9,700
4/30/90 8,785 9,321 9,459
5/31/90 9,634 10,222 10,379
6/30/90 9,618 10,206 10,309
7/31/90 9,446 10,023 10,276
8/31/90 8,449 8,965 9,348
9/30/90 8,037 8,528 8,894
10/31/90 7,866 8,346 8,856
11/30/90 8,295 8,801 9,428
12/31/90 8,617 9,143 9,690
1/31/91 9,059 9,612 10,111
2/28/91 9,597 10,183 10,833
3/31/91 9,868 10,470 11,095
4/30/91 10,070 10,685 11,122
5/31/91 10,475 11,115 11,600
6/30/91 9,802 10,401 11,069
7/31/91 10,460 11,098 11,584
8/31/91 10,624 11,273 11,858
9/30/91 10,480 11,120 11,660
10/31/91 10,651 11,302 11,816
11/30/91 9,985 10,595 11,341
12/31/91 11,022 11,695 12,636
1/31/92 11,678 12,391 12,401
2/28/92 11,875 12,601 12,561
3/31/92 11,342 12,034 12,317
4/30/92 11,435 12,134 12,679
5/31/92 11,331 12,023 12,741
6/30/92 10,513 11,155 12,551
7/31/92 10,942 11,611 13,064
8/31/92 10,492 11,133 12,797
9/30/92 10,523 11,165 12,947
10/31/92 11,030 11,704 12,991
11/30/92 11,759 12,477 13,433
12/31/92 12,043 12,778 13,597
1/31/93 12,442 13,202 13,711
2/28/93 12,453 13,213 13,898
3/31/93 13,122 13,923 14,191
4/30/93 12,822 13,605 13,848
5/31/93 13,878 14,725 14,217
6/30/93 13,934 14,785 14,259
7/31/93 13,745 14,584 14,201
8/31/93 14,514 15,401 14,739
9/30/93 14,918 15,829 14,623
10/31/93 15,311 16,246 14,925
11/30/93 15,394 16,334 14,783
12/31/93 15,765 16,728 14,962
1/31/94 16,710 17,731 15,470
2/28/94 16,292 17,286 15,051
3/31/94 15,666 16,623 14,396
4/30/94 16,170 17,158 14,580
5/31/94 16,638 17,654 14,819
6/30/94 16,039 17,019 14,456
7/31/94 16,449 17,454 14,931
8/31/94 17,450 18,516 15,542
9/30/94 17,382 18,443 15,162
10/31/94 17,707 18,788 15,502
11/30/94 17,357 18,416 14,938
12/31/94 17,331 18,390 15,159
1/31/95 17,458 18,524 15,552
2/28/95 17,914 19,008 16,157
3/31/95 18,060 19,163 16,633
4/30/95 18,544 19,677 17,123
5/31/95 19,016 20,177 17,806
6/30/95 19,487 20,678 18,219
7/31/95 19,795 21,004 18,823
8/31/95 20,346 21,589 18,870
9/30/95 21,134 22,424 19,666
10/31/95 20,871 22,146 19,596
11/30/95 21,548 22,864 20,455
12/31/95 21,709 23,035 20,849
1/31/96 22,290 23,651 21,558
2/28/96 22,488 23,861 21,758
3/31/96 22,719 24,106 21,968
4/30/96 23,202 24,619 22,292
5/31/96 23,743 25,192 22,866
6/30/96 24,182 25,659 22,953
7/31/96 23,254 24,674 21,939
8/31/96 23,497 24,932 22,403
9/30/96 24,946 26,469 23,662
10/31/96 25,748 27,287 24,315
11/30/96 27,684 29,325 26,151
12/31/96 27,136 28,720 25,633
1/31/97 28,688 30,364 27,234
2/28/97 28,802 30,468 27,447
3/31/97 27,638 29,213 26,322
4/30/97 28,423 30,027 27,892
5/31/97 30,305 32,000 29,589
6/30/97 31,509 33,273 30,914
7/31/97 33,642 35,506 33,373
8/31/97 31,870 33,637 31,504
9/30/97 33,007 34,824 33,229
10/30/97 31,939 33,664 32,120
11/30/97 32,957 34,720 33,606
12/31/97 33,529 35,306 34,183
1/31/98 34,026 35,721 34,560
2/28/98 36,736 38,520 37,052
3/31/98 37,969 39,766 38,948
4/30/98 38,021 39,803 39,339
5/31/98 37,316 39,008 38,664
6/30/98 38,272 39,983 40,233
7/31/98 37,807 39,459 39,806
8/31/98 32,917 34,331 34,057
9/30/98 35,240 36,732 36,239
10/31/98 38,381 39,947 39,184
11/30/98 40,814 42,439 41,558
12/31/98 41,836 43,483 43,951
1/31/99 42,519 44,159 45,789
2/28/99 41,656 43,239 44,366
3/31/99 42,984 44,572 46,141
4/30/99 45,669 47,296 47,928
5/31/99 44,714 46,282 46,796
6/30/99 46,087 47,653 49,393
7/31/99 45,149 46,639 47,851
8/31/99 44,698 46,131 47,613
9/30/99 42,975 44,328 46,308
10/31/99 46,081 47,503 49,238
11/30/99 45,286 46,676 50,242
12/31/99 45,657 46,540 53,200
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A and
Class B of the Fund to a hypothetical investment in a relevant market index.
Fund performance is derived from the Fund's original class of shares and
reflects the maximum 5.75% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to reflect
Rule 12b-1 fees prior to September 30, 1996 (initial public offering date of
Class A and Class B shares). Such fees will affect subsequent performance.
The index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
think, is growing by smart acquisitions. And I look forward to adding to
technology--at reasonable prices.
I remain very cautious about valuations, which explains our weightings in
both technology and finance. In the fourth quarter, I made additions to
Washington Mutual (WaMu) and Albertson's (another company whose stock declined
beyond its bad news). I funded the WaMu additions (and held down our financial
weighting) by eliminating U.S. Bancorp.
I tend to populate the Fund with long-term core positions, which I will
continue to buy and hold when they are down as long as I believe they are good
companies with fixable, short-term problems. If not, I eliminate them, as was
the case with Lock-heed Martin and 3Com. Procter & Gamble, a long-term core
position, is a different story. I sold it down from our largest
Weightings
As a Percent of Net Assets
- --------------------------------------------------------------------------------
[PIE CHART]
Common Stocks:
1 Large: 99% ($4 Bil. and above)
2 Cash & Other: 1%
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
TOP TEN HOLDINGS Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Microsoft Corp............................................................ 4.4%
(Computers-Software & Services)
General Electric Co....................................................... 4.2
(Electrical Equipment)
Federal National Mortgage Association..................................... 3.3
(Financial-Diversified)
Johnson & Johnson......................................................... 3.3
(Health Care-Diversified)
Exxon Mobil Corp.......................................................... 3.3
(Oil-International Integrated)
Washington Mutual, Inc.................................................... 3.1
(Savings & Loans)
Gannett Co., Inc.......................................................... 3.1
(Publishing-Newspapers)
Albertson's, Inc.......................................................... 3.0
(Retail-Food Chains)
Intel Corp................................................................ 2.9
(Electronics-Semiconductors)
Procter & Gamble Co....................................................... 2.9
(Household Products-Non-Durables)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
For the Year Ended Dec. 31, 1999 Cost
(000's)
- --------------------------------------------------------------------------------
<S> <C>
Gannett Co., Inc........................................................ $59,092
Emerson Electric Co..................................................... 57,969
Albertson's, Inc. ...................................................... 55,445
MCI WorldCom, Inc....................................................... 52,758
Procter & Gamble Co..................................................... 51,966
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
For the Year Ended Dec. 31, 1999 Proceeds
(000's)
- --------------------------------------------------------------------------------
<S> <C>
Intel Corp............................................................. $43,679
Procter & Gamble Co.................................................... 43,514
Philip Morris Cos., Inc................................................ 41,637
Motorola, Inc. ........................................................ 37,800
Hewlett-Packard Co. ................................................... 34,112
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE INDUSTRIES Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Health Care (Diversified)................................................... 9%
Telephone................................................................... 7
Electrical Equipment........................................................ 6
Household Products (Non-Durables)........................................... 6
Oil (International Integrated).............................................. 5
</TABLE>
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
holding when it was trading at 32 times 2000 estimated earnings in a broad mar-
ket selling at 25 times.
I believe the Fund is made up of high-quality companies with predictable
earnings growth and positioned to do well in a moderating economy.
Richard Meagley
- --------------------------------------------------------------------------------
Rich Meagley joined SAFECO in 1983. After advancing from analyst to Northwest
Fund Manager, he left the company. He re-joined in January 1995 as Equity Fund
Manager. He holds an MBA from the University of Washington, and is a Chartered
Financial Analyst.
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Equity Fund
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 98.7%
Banks (Major Regional) - 4.3%
682,000 Bank of America Corp..................................... $ 34,228
1,125,000 Citigroup, Inc............................................... 62,508
Banks (Money Center) - 2.1%
600,000 Chase Manhattan Corp. ....................................... 46,612
Beverages (Alcoholic) - 1.6%
500,000 Anheuser-Busch Co., Inc...................................... 35,437
Beverages (Non-Alcoholic) - 2.4%
1,500,000 PepsiCo, Inc. ............................................... 52,875
Chemicals - 3.7%
505,000 Du Pont (E.I.) de Nemours & Co............................... 33,267
1,000,000 Praxair, Inc................................................. 50,312
Computers (Hardware) - 4.0%
400,000 Hewlett-Packard Co........................................... 45,575
400,000 International Business Machines Corp......................... 43,200
Computers (Software & Services) - 4.4%
850,000 *Microsoft Corp.............................................. 99,238
Electrical Equipment - 6.0%
724,500 Emerson Electric Co.......................................... 41,568
600,000 General Electric Co.......................................... 92,850
Electronics (Semiconductors) - 2.9%
800,000 Intel Corp. ................................................. 65,850
Entertainment - 3.3%
1,000,000 The Walt Disney Co. ......................................... 29,250
625,000 Time Warner, Inc............................................. 45,273
Financial (Diversified) - 5.0%
800,000 Federal Home Loan Mortgage Corp.............................. 37,650
1,200,000 Federal National Mortgage Association........................ 74,925
Foods - 2.1%
900,000 Bestfoods.................................................... 47,306
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Equity Fund
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Health Care (Diversified) - 8.7%
1,500,000 Abbott Laboratories..................................... $ 54,469
600,000 American Home Products Corp................................. 23,663
650,000 Bristol-Myers Squibb Co. ................................... 41,722
800,000 Johnson & Johnson........................................... 74,500
Health Care (Major Pharmaceuticals) - 2.2%
730,000 Merck & Co., Inc............................................ 48,956
Household Products (Non-Durables) - 5.6%
900,000 Kimberly-Clark Corp. ....................................... 58,725
600,000 Procter & Gamble Co......................................... 65,738
Insurance (Multi-Line) - 3.6%
500,000 American International Group, Inc........................... 54,063
550,000 Hartford Financial Services Group, Inc...................... 26,056
Manufacturing (Diversified) - 3.6%
750,000 Dover Corp.................................................. 34,031
700,000 Honeywell International, Inc. .............................. 40,381
99,800 Illinois Tool Works, Inc..................................... 6,743
Office Equipment & Supplies - 1.1%
1,100,000 Xerox Corp. ................................................ 24,956
Oil (International Integrated) - 5.2%
903,080 Exxon Mobil Corp............................................ 72,754
725,000 Royal Dutch Petroleum Co. (ADR)............................. 43,817
Publishing (Newspapers) - 3.1%
850,000 Gannett Co., Inc. .......................................... 69,328
Retail (Department Stores) - 1.7%
1,175,000 May Department Stores Co. .................................. 37,894
Retail (Drug Stores) - 2.1%
1,150,000 CVS Corp. .................................................. 45,928
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Retail (Food Chains) - 3.0%
2,100,000 Albertson's, Inc....................................... $ 67,725
Retail (General Merchandise) - 1.5%
470,000 Wal-Mart Stores, Inc. ..................................... 32,489
Savings & Loans - 3.1%
2,700,000 Washington Mutual, Inc. ....................................70,200
Services (Data Processing) - 1.5%
600,000 Automatic Data Processing, Inc. ........................... 32,325
Telecommunications (Equipment) - 1.9%
550,000 Lucent Technologies, Inc................................... 41,147
Telecommunications (Long Distance) - 2.5%
1,100,000 AT&T Corp.................................................. 55,825
Telephone - 6.5%
900,000 Bell Atlantic Corp......................................... 55,406
850,000 CenturyTel, Inc............................................ 40,269
945,000 *MCI WorldCom, Inc......................................... 50,144
--------
TOTAL COMMON STOCKS................................................. 2,207,178
--------
CASH EQUIVALENTS - 1.6%
Investment Companies
36,948,080 J.P. Morgan Institutional Prime Money Market............... 36,948
--------
TOTAL CASH EQUIVALENTS................................................. 36,948
--------
TOTAL INVESTMENTS - 100.3%.......................................... 2,244,126
Other Assets, less Liabilities......................................... (6,942)
--------
NET ASSETS......................................................... $2,237,184
--------
--------
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 10 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Income Fund
December 31, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO OF THOMAS RATH]
THOMAS RATH
The SAFECO Income Fund had a great fourth quarter, yet it wasn't
enough to carry our annual return above the S&P 500. The year, itself,
was characterized by the market's focus on large-cap growth stocks, pri-
marily technology, where we were underweighted in the first half.
Midyear, I made the hardest decision an investor makes. I cut our losses in
the large positions we'd built in Prison Realty, Family Golf and Suburban
Lodges, and redirected assets into higher-quality companies and technology.
Thus, with increased exposure to technology, the Fund outperformed its equity-
income peers for the 4th quarter of 1999.
Reconfiguring the Fund, I sought growth at a reasonable
[PERFORMANCE GRAPH]
PERFORMANCE OVERVIEW - Class A and Class B Shares
<TABLE>
<CAPTION>
Average Annual Total Return With Sales Charge Without Sales Charge
for the periods ended December 31, 1999 Quarter 1 Year 5 Year 10 Year Quarter 1 Year 5 Year 10 Year
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A 5.06% (4.81)% 15.38% 10.81% 11.46% 1.01 % 16.76 % 11.47 %
Class B 6.22% (4.60)% 16.07% 11.24% 11.22% 0.18 % 16.28 % 11.24 %
S & P 500 Index N/A N/A N/A N/A 14.88% 21.04 % 28.54 % 18.19 %
Lipper, Inc. (Equity-Income Funds) N/A N/A M/A N/A 3.80% 3.34 % 17.36 % 12.40 %
<CAPTION>
SAFECO SAFECO
Income Fund Income Fund S&P 500
With Sales Charge Class A Class B Index
----------- ----------- --------
<S> <C> <C> <C>
12/31/89 9,425 10,000 10,000
1/31/90 8,948 9,495 9,329
2/28/90 8,989 9,538 9,450
3/31/90 9,057 9,611 9,700
4/30/90 8,717 9,250 9,459
5/31/90 9,176 9,737 10,379
6/30/90 9,139 9,698 10,309
7/31/90 8,976 9,525 10,276
8/31/90 8,311 8,819 9,348
9/30/90 7,970 8,457 8,894
10/31/90 7,778 8,253 8,856
11/30/90 8,254 8,759 9,428
12/31/90 8,410 8,925 9,690
1/31/91 8,738 9,272 10,111
2/28/91 9,241 9,806 10,833
3/31/91 9,381 9,955 11,095
4/30/91 9,483 10,063 11,122
5/31/91 9,770 10,367 11,600
6/30/91 9,524 10,106 11,069
7/31/91 9,795 10,394 11,584
8/31/91 10,092 10,709 11,858
9/30/91 10,076 10,692 11,660
10/31/91 10,181 10,804 11,816
11/30/91 9,761 10,358 11,341
12/31/91 10,366 11,000 12,636
1/31/92 10,446 11,085 12,401
2/28/92 10,479 11,120 12,561
3/31/92 10,378 11,013 12,317
4/30/92 10,681 11,334 12,679
5/31/92 10,782 11,441 12,741
6/30/92 10,821 11,483 12,551
7/31/92 11,224 11,910 13,064
8/31/92 11,142 11,823 12,797
9/30/92 11,260 11,949 12,947
10/31/92 11,053 11,729 12,991
11/30/92 11,337 12,030 13,433
12/31/92 11,555 12,262 13,597
1/31/93 11,807 12,529 13,711
2/28/93 12,032 12,767 13,898
3/31/93 12,439 13,200 14,191
4/30/93 12,269 13,019 13,848
5/31/93 12,432 13,192 14,217
6/30/93 12,496 13,260 14,259
7/31/93 12,432 13,192 14,201
8/31/93 12,840 13,625 14,739
9/30/93 12,876 13,663 14,623
10/31/93 13,100 13,901 14,925
11/30/93 12,941 13,732 14,783
12/31/93 13,006 13,801 14,962
1/31/94 13,430 14,251 15,470
2/28/94 13,130 13,933 15,051
3/31/94 12,672 13,447 14,396
4/30/94 12,820 13,604 14,580
5/31/94 12,827 13,612 14,819
6/30/94 12,639 13,412 14,456
7/31/94 13,029 13,826 14,931
8/31/94 13,441 14,263 15,542
9/30/94 13,259 14,070 15,162
10/31/94 13,236 14,045 15,502
11/30/94 12,767 13,548 14,938
12/31/94 12,863 13,650 15,159
1/31/95 13,190 13,996 15,552
2/28/95 13,602 14,434 16,157
3/31/95 13,988 14,843 16,633
4/30/95 14,287 15,160 17,123
5/31/95 14,704 15,603 17,806
6/30/95 14,886 15,796 18,219
7/31/95 15,466 16,412 18,823
8/31/95 15,578 16,530 18,870
9/30/95 16,050 17,031 19,666
10/31/95 15,873 16,844 19,596
11/30/95 16,427 17,432 20,455
12/31/95 16,768 17,794 20,849
1/31/96 17,305 18,363 21,558
2/28/96 17,347 18,408 21,758
3/31/96 17,553 18,626 21,968
4/30/96 17,622 18,699 22,292
5/31/96 18,205 19,318 22,866
6/30/96 18,433 19,560 22,953
7/31/96 17,914 19,009 21,939
8/31/96 18,251 19,367 22,403
9/30/96 19,095 20,262 23,662
10/31/96 19,801 20,991 24,315
11/30/96 20,840 22,083 26,151
12/31/96 20,785 22,004 25,633
1/31/97 21,611 22,880 27,234
2/28/97 21,640 22,900 27,447
3/31/97 20,828 22,033 26,322
4/30/97 21,124 22,326 27,892
5/31/97 22,636 23,905 29,589
6/30/97 23,569 24,869 30,914
7/31/97 24,841 26,194 33,373
8/31/97 24,454 25,784 31,504
9/30/97 25,550 26,913 33,229
10/30/97 24,691 25,996 32,120
11/30/97 25,580 26,913 33,606
12/31/97 26,222 27,583 34,183
1/31/98 26,538 28,020 34,560
2/28/98 28,023 29,575 37,052
3/31/98 29,172 30,764 38,948
4/30/98 29,392 30,971 39,339
5/31/98 28,745 30,267 38,664
6/30/98 29,310 30,852 40,233
7/31/98 28,045 29,499 39,806
8/31/98 23,743 24,953 34,057
9/30/98 24,164 25,384 36,239
10/31/98 25,602 26,882 39,184
11/30/98 26,996 28,322 41,558
12/31/98 27,632 28,970 43,951
1/31/99 28,054 29,400 45,789
2/28/99 26,107 27,335 44,366
3/31/99 26,700 27,955 46,141
4/30/99 27,658 28,931 47,928
5/31/99 27,362 28,585 46,796
6/30/99 28,108 29,350 49,393
7/31/99 27,112 28,286 47,851
8/31/99 25,773 26,863 47,613
9/30/99 25,042 26,095 46,308
10/31/99 26,805 27,918 49,238
11/30/99 26,769 27,843 50,242
12/31/99 27,911 28,523 53,200
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A and
Class B of the Fund to a hypothetical investment in a relevant market index.
Fund performance is derived from the Fund's original class of shares and
reflects the maximum 5.75% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to reflect
Rule 12b-1 fees prior to September 30, 1996 (initial public offering date of
Class A and Class B shares). Such fees will affect subsequent performance.
The index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
price. In the case of BEA Systems, the price didn't stay "reasonable" very long.
This company, which provides nuts and bolts software for e-commerce, has
quadrupled since I bought it. Other new positions bought on price breaks that
contributed nicely included telephone equipment manufacturer Nortel Networks,
Cadence Design Systems, Costco and Home Depot.
Of our long-term holdings, MICROS Systems climbed almost 83% during the
quarter on the pending launch of its new hotel software product and spin-off of
its Internet reservation system. AMFM and the Merrill Lynch Convertible
Preferred were also big contributors in the fourth quarter. While Finova Group
has yet to deliver, I'm retaining my position. My hope for the new year is
Weightings
As a Percent of Net Assets
- --------------------------------------------------------------------------------
[PIE CHART]
Common Stocks:
1 Large: 63% ($4 Bil. and above)
2 Medium: 19% ($1 Bil.-$4 Bil.)
3 Small: 5% (Less than $1 Bil.)
4 Preferred Stock: 12%
5 Cash & Other: 1%
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
TOP TEN HOLDINGS Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Merrill Lynch & Co. 7.875% Convertible.................................... 7.1%
(Computers-Software & Services)
MICROS Systems, Inc. ..................................................... 5.4
(Computers-Hardware)
AMFM, Inc. 7.00% Convertible.............................................. 3.1
(Broadcasting-TV, Radio & Cable)
Kimberly-Clark Corp. ..................................................... 3.0
(Household Products-Non-Durables)
Hewlett-Packard Co. ...................................................... 2.6
(Computers-Hardware)
Minnesota Mining & Manufacturing Co. ..................................... 2.5
(Manufacturing-Diversified)
General Electric Co. ..................................................... 2.5
(Electrical Equipment)
Finova Group, Inc. ....................................................... 2.4
(Financial-Diversified)
PepsiCo, Inc. ............................................................ 2.4
(Beverages-Non-Alcoholic)
GTE Corp. ................................................................ 2.4
(Telephone)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
For the Year Ended Dec. 31, 1999 Cost
(000's)
- --------------------------------------------------------------------------------
<S> <C>
Conseco, Inc. .......................................................... $8,399
Cadence Design Systems, Inc. ........................................... 8,358
Abbott Laboratories..................................................... 8,032
Bristol-Myers Squibb Co. ............................................... 7,641
Merrill Lynch & Co. 7.875% Convertible.................................. 6,902
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
For the Year Ended Dec. 31, 1999 Proceeds
(000's)
- --------------------------------------------------------------------------------
<S> <C>
AMFM, Inc. 7.00% Convertible........................................... $21,341
American Home Products Corp. .......................................... 13,448
Salomon, Inc. 6.25% Exchangeable Convertible to Cincinnati Bell, Inc. . 11,267
Mobil Corp. ........................................................... 9,734
Conseco, Inc. ......................................................... 8,770
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE INDUSTRIES Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Computers (Software & Services)............................................. 11%
Computers (Hardware)........................................................ 8
Oil (International Integrated).............................................. 6
Health Care (Diversified)................................................... 6
Services (Commercial & Consumer)............................................ 6
</TABLE>
- 12 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
that the Fund's momentum will continue. I expect money coming into market fol-
lowing Y2K to sustain valuations in the short term. Further out is more worri-
some. I feel certain the market will broaden, or correct, and the focus will
return to value. When that happens, those who are already there will be the
winners. For that reason, I'm interested in valuations that can be defended and
will continue to seek growth at a reasonable price.
Thomas Rath
- --------------------------------------------------------------------------------
In addition to being an equity and convertible securities portfolio manager at
SAFECO, Rath has been an analyst and portfolio manager at First Interstate Bank
and a principal at Meridian Capital Management. He holds an MBA from the Uni-
versity of Washington and is a Chartered Financial Analyst.
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Income Fund
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 87.3%
Airlines - 0.9%
128,800 *Northwest Airlines Corp. .................................. $ 2,866
Banks (Major Regional) - 1.6%
99,111 Bank of America Corp. ......................................... 4,974
Banks (Money Center) - 2.3%
90,000 Chase Manhattan Corp. ......................................... 6,992
Beverages (Non-Alcoholic) - 2.4%
210,000 PepsiCo, Inc. ................................................. 7,403
Broadcasting (TV, Radio & Cable) - 1.0%
133,800 *Salem Communications Corp. (Class A).......................... 3,027
Chemicals - 1.5%
70,000 Du Pont (E.I.) de Nemours & Co. ............................... 4,611
Communication Equipment - 2.1%
44,100 Nortel Networks Corp. ......................................... 4,454
34,000 Scientific-Atlanta, Inc. ...................................... 1,891
Computers (Hardware) - 8.0%
70,900 Hewlett-Packard Co. ........................................... 8,078
224,000 *MICROS Systems, Inc. ........................................ 16,576
Computers (Peripherals) - 1.2%
240,000 *Quantum Corp. - DLT & Storage Systems........................ 3,630
Computers (Software & Services) - 3.9%
73,000 *BEA Systems, Inc. ............................................ 5,105
289,500 *Cadence Design Systems, Inc. ................................. 6,948
Distributors (Food & Health) - 0.6%
202,400 *Nu Skin Enterprises, Inc. (Class A)........................... 1,834
Electric Companies - 1.4%
250,000 NIPSCO Industries, Inc. ....................................... 4,469
Electrical Equipment - 2.5%
50,000 General Electric Co. .......................................... 7,738
Electronics (Semiconductors) - 2.0%
75,000 Intel Corp. ................................................... 6,173
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 13 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Financial (Diversified) - 4.1%
80,000 Federal National Mortgage Association....................... $ 4,995
211,060 Finova Group, Inc. ............................................ 7,493
Foods - 0.8%
110,000 ConAgra, Inc. ................................................. 2,482
Health Care (Diversified) - 5.8%
195,800 Abbott Laboratories............................................ 7,110
115,900 American Home Products Corp. .................................. 4,571
97,000 Bristol-Myers Squibb Co. ...................................... 6,226
Health Care (Drugs - Generic & Other) - 1.0%
67,000 Pharmacia & Upjohn, Inc. ...................................... 3,015
Health Care (Major Pharmaceuticals) - 2.2%
100,000 Merck & Co., Inc. ............................................. 6,706
Household Products (Non-Durables) - 3.0%
140,000 Kimberly-Clark Corp. .......................................... 9,135
Insurance (Life & Health) - 1.9%
330,700 Conseco, Inc. ................................................. 5,911
Insurance (Multi-Line) - 1.2%
75,000 Hartford Financial Services Group, Inc. ....................... 3,553
Manufacturing (Diversified) - 2.5%
80,000 Minnesota Mining & Manufacturing Co. .......................... 7,830
Office Equipment & Supplies - 1.0%
112,100 *United Stationers, Inc. ...................................... 3,202
Oil (International Integrated) - 5.9%
59,409 Exxon Mobil Corp. ............................................. 4,786
100,000 Royal Dutch Petroleum Co. (ADR)................................ 6,044
135,000 Texaco, Inc. .................................................. 7,332
Railroads - 1.8%
168,600 GATX Corp. .................................................... 5,690
Real Estate Investment Trust - 4.7%
100,000 Equity Residential Properties Trust............................ 4,269
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
205,000 First Industrial Realty Trust, Inc. ........................ $ 5,625
185,000 Liberty Property Trust......................................... 4,486
Retail (Building Supplies) - 1.3%
57,300 Home Depot, Inc. .............................................. 3,929
Retail (Drug Stores) - 1.6%
126,100 CVS Corp. ..................................................... 5,036
Retail (Food Chains) - 2.2%
206,700 Albertson's, Inc. ............................................. 6,666
Retail (General Merchandise) - 1.4%
46,700 *Costco Companies, Inc. ....................................... 4,261
Savings & Loans - 1.4%
171,000 Washington Mutual, Inc. ....................................... 4,446
Services (Commercial & Consumer) - 4.3%
37,300 Central Parking Corp. ........................................... 713
165,400 *Iron Mountain, Inc. .......................................... 6,502
38,200 *Modis Professional Services, Inc. .............................. 544
52,900 *Pierce Leahy Corp. ........................................... 2,288
45,800 United Parcel Service, Inc. (Class B).......................... 3,160
Services (Data Processing) - 1.1%
65,200 Automatic Data Processing, Inc. ............................... 3,513
Telecommunications (Equipment) - 1.3%
53,100 Lucent Technologies, Inc. ..................................... 3,973
Telephone - 4.5%
104,500 GTE Corp. ..................................................... 7,374
150,300 *Innotrac Corp. ............................................... 2,067
82,950 *MCI WorldCom, Inc. ........................................... 4,402
Waste Management - 0.9%
121,500 Landauer, Inc. ................................................ 2,658
-------
TOTAL COMMON STOCKS.................................................... 268,762
-------
PREFERRED STOCKS - 11.5%
Broadcasting (TV, Radio & Cable) - 3.1%
45,000 AMFM, Inc. 7.00% Convertible................................... 9,681
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 14 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Computers (Software & Services) - 7.1%
414,200 Merrill Lynch & Co. 7.875% Convertible.................... $ 21,797
Services (Commercial & Consumer) - 1.3%
311,200 Central Parking 5.25% Convertible............................ 4,123
-------
TOTAL PREFERRED STOCKS................................................. 35,601
-------
CASH EQUIVALENTS - 1.8%
Investment Companies
5,485,568 J.P. Morgan Institutional Prime Money Market................. 5,486
-------
TOTAL CASH EQUIVALENTS.................................................. 5,486
-------
TOTAL INVESTMENTS - 100.6%............................................ 309,849
Other Assets, less Liabilities......................................... (1,901)
-------
NET ASSETS........................................................... $307,948
-------
-------
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 15 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Northwest Fund
December 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO OF WILLIAM B. WHITLOW]
WILLIAM B. WHITLOW
For the quarter and the year ended December 31, 1999, SAFECO North-
west Fund handily outperformed the Lipper, Inc. average for multi-cap
growth funds and the S&P 500. The Fund's outperformance is due to its
heavy concentration in technology, initial public offerings (IPOs), and
its investing universe.
Technology has surpassed aerospace as the driver of Washington's economy and
is the clear driver of the region's economy, and I've posi tioned the Fund to
take advantage of that. At December 31, 58% of net
[PERFORMANCE GRAPH]
PERFORMANCE OVERVIEW - Class A and Class B Shares
<TABLE>
<CAPTION>
With Sales Charge Without Sales Charge
Average Annual Total Return for the Since Since
for the periods ended December 31, 1999 Quarter 1 Year 5 Year Inception* Quarter 1 Year 5 Year Inception*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A 27.23% 45.06% 21.94% 15.35% 34.99% 53.90% 23.39% 16.12%
Class B 29.61% 47.57% 22.67% 15.83% 34.61% 52.57% 22.84% 15.83%
S & P 500 Index N/A N/A N/A N/A 14.88% 21.04% 28.54% 20.03%
Lipper, Inc. (Multi-Cap Core Funds) N/A N/A N/A N/A 17.95% 22.45% 23.28% N/A
WM Group NW 50 Index N/A N/A N/A N/A 17.57% 27.80% 28.51% 18.43%
</TABLE>
* Graph and average annual return comparison begins February 7, 1991, inception
date of the fund.
<TABLE>
<CAPTION>
SAFECO SAFECO WM Group
Northwest Fund Northwest Fund S&P 500 NW 50
With Sales Charge Class A Class B Index Index
- ----------------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
2/7/91 9,425 10,000 10,000 10,000
2/28/91 9,548 10,130 10,336 10,288
3/31/91 9,762 10,357 10,586 10,692
4/30/91 10,047 10,660 10,611 10,940
5/31/91 10,390 11,024 11,067 11,579
6/30/91 9,782 10,379 10,561 10,791
7/31/91 10,365 10,998 11,052 11,298
8/31/91 10,795 11,454 11,314 11,739
9/30/91 10,531 11,173 11,124 11,500
10/31/91 10,425 11,061 11,273 11,477
11/30/91 9,783 10,380 10,820 11,006
12/31/91 10,973 11,643 12,056 12,308
1/31/92 11,446 12,144 11,831 12,934
2/28/92 11,813 12,533 11,985 13,112
3/31/92 11,553 12,258 11,752 12,677
4/30/92 11,148 11,828 12,096 12,083
5/31/92 11,263 11,950 12,155 11,958
6/30/92 10,908 11,573 11,975 11,524
7/31/92 11,159 11,840 12,464 11,627
8/31/92 10,860 11,522 12,209 11,292
9/30/92 11,312 12,002 12,352 11,722
10/31/92 11,690 12,403 12,395 12,171
11/30/92 12,184 12,927 12,816 12,701
12/31/92 12,518 13,282 12,973 12,709
1/31/93 12,568 13,334 13,081 12,790
2/28/93 11,951 12,680 13,260 12,374
3/31/93 12,419 13,176 13,539 12,869
4/30/93 11,911 12,638 13,212 12,563
5/31/93 12,170 12,912 13,564 12,857
6/30/93 12,056 12,791 13,604 12,564
7/31/93 11,956 12,685 13,549 12,096
8/31/93 12,294 13,044 14,062 12,576
9/30/93 12,285 13,035 13,951 12,276
10/31/93 12,445 13,204 14,240 12,699
11/30/93 12,494 13,257 14,105 12,955
12/31/93 12,647 13,418 14,275 13,110
1/31/94 12,870 13,655 14,760 13,491
2/28/94 13,195 14,000 14,360 13,677
3/31/94 12,637 13,407 13,735 13,178
4/30/94 12,606 13,375 13,911 13,122
5/31/94 12,799 13,580 14,139 13,303
6/30/94 12,472 13,233 13,792 12,881
7/31/94 12,655 13,427 14,245 12,963
8/31/94 13,225 14,031 14,828 13,692
9/30/94 12,923 13,711 14,466 13,150
10/31/94 12,799 13,580 14,790 13,053
11/30/94 12,481 13,243 14,252 12,801
12/31/94 12,450 13,210 14,463 12,853
1/31/95 12,605 13,373 14,838 12,797
2/28/95 12,923 13,711 15,415 13,254
3/31/95 13,354 14,169 15,870 13,673
4/30/95 13,529 14,354 16,337 14,069
5/31/95 13,735 14,573 16,988 14,052
6/30/95 14,412 15,291 17,382 14,890
7/31/95 15,163 16,088 17,959 15,437
8/31/95 15,297 16,230 18,004 15,715
9/30/95 15,379 16,317 18,763 16,273
10/31/95 15,198 16,125 18,696 15,877
11/30/95 15,166 16,091 19,516 16,092
12/31/95 14,962 15,875 19,892 16,267
1/31/96 15,104 16,026 20,568 16,163
2/28/96 15,564 16,514 20,759 16,517
3/31/96 16,506 17,513 20,959 17,046
4/30/96 16,955 17,990 21,268 18,052
5/31/96 17,240 18,292 21,815 18,325
6/30/96 16,881 17,911 21,899 18,227
7/31/96 16,081 17,062 20,932 17,314
8/31/96 16,596 17,609 21,374 18,152
9/30/96 16,857 17,885 22,576 18,602
10/31/96 16,441 17,418 23,198 18,453
11/30/96 17,150 18,171 24,950 19,769
12/31/96 17,199 18,210 24,456 20,211
1/31/97 18,447 19,520 25,983 21,093
2/28/97 18,447 19,508 26,187 21,465
3/31/97 17,676 18,677 25,113 20,851
4/30/97 18,300 19,326 26,611 21,761
5/31/97 19,511 20,598 28,230 23,523
6/30/97 20,625 21,766 29,494 24,612
7/31/97 22,411 23,622 31,840 26,835
8/31/97 21,811 22,973 30,058 25,944
9/30/97 22,900 24,102 31,703 27,737
10/30/97 21,811 22,960 30,645 25,880
11/30/97 22,753 23,933 32,063 27,428
12/31/97 22,495 23,660 32,613 26,784
1/31/98 22,273 23,424 32,973 26,658
2/28/98 24,542 25,805 35,350 29,359
3/31/98 24,842 26,110 37,159 30,733
4/30/98 25,442 26,733 37,533 30,966
5/31/98 23,577 24,753 36,888 29,097
6/30/98 24,099 25,279 38,386 30,896
7/31/98 22,599 23,701 37,978 28,980
8/31/98 18,100 18,980 32,493 24,333
9/30/98 19,144 20,060 34,574 25,456
10/31/98 20,330 21,292 37,384 28,274
11/30/98 22,052 23,092 39,649 31,483
12/31/98 23,140 24,220 41,932 35,244
1/31/99 24,524 25,647 43,686 37,006
2/28/99 23,562 24,626 42,329 36,454
3/31/99 23,813 24,878 44,022 39,007
4/30/99 24,340 25,396 45,727 40,556
5/31/99 25,433 26,529 44,647 40,607
6/30/99 27,331 28,488 47,125 42,487
7/31/99 26,699 27,816 45,654 39,228
8/31/99 26,712 27,802 45,426 39,107
9/30/99 26,382 27,452 44,181 38,312
10/31/99 29,110 30,279 46,977 40,303
11/30/99 31,509 32,769 47,935 40,959
12/31/99 35,612 36,543 50,757 45,043
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A and
Class B of the Fund to a hypothetical investment in a relevant market index.
Fund performance is derived from the Fund's original class of shares and
reflects the maximum 5.75% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to reflect
Rule 12b-1 fees prior to September 30, 1996 (initial public offering date of
Class A and Class B shares). Such fees will affect subsequent performance.
The index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- 16 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
assets were in telecommunications, medical technology and computer-related
companies. Gaining over 200% were F5 Networks, Western Wireless, NEXTLINK,
VoiceStream and SonoSite. They are respectively an Internet software company,
three telecoms and a medical technology company.
We've been very successful taking small positions in numerous start-ups. At
December 31, about 20% of net assets were invested in 11 IPO companies, includ-
ing F5 Networks, WebTrends, Internap Network Services, WatchGuard and Primus
Knowledge Solutions. In general, I give preference to companies that enable,
rather than use, the Internet.
I've been buying Visio (diagramming software) since its acquisition was an-
nounced, as Visio's value will benefit upon con-
- --------------------------------------------------------------------------------
Weightings
As a Percent of Net Assets
- --------------------------------------------------------------------------------
[PIE CHART]
Common Stocks:
1 Large: 42% ($4 Bil. and above)
2 Medium: 17% ($1 Bil. -$4 Bil.)
3 Small: 41% (Less than $1 Bil.)
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
TOP TEN HOLDINGS Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Microsoft Corp............................................................. 5.9%
(Computers-Software & Services)
VoiceStream Wireless Corp.................................................. 5.1
(Telecommunications-Cellular/Wireless)
Visio Corp................................................................. 4.9
(Computers-Software & Services)
NEXTLINK Communications, Inc. (Class A).................................... 3.9
(Telephone)
Hewlett-Packard Co......................................................... 3.6
(Computers-Hardware)
Internap Network Services Corp............................................. 3.5
(Computers-Software & Services)
Expeditors International of Washington, Inc................................ 3.3
(Air Freight)
TJ International, Inc...................................................... 3.2
(Building Materials)
Costco Companies, Inc...................................................... 3.2
(Retail-General Merchandise)
Intel Corp................................................................. 3.1
(Electronics-Semiconductors)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
For the Year Ended Dec. 31, 1999 Cost
(000's)
- --------------------------------------------------------------------------------
<S> <C>
Visio Corp.............................................................. $3,123
Mylan Laboratories, Inc................................................. 3,045
StanCorp Financial Group, Inc........................................... 2,173
Assisted Living Concepts, Inc........................................... 2,068
Northwest Airlines Corp................................................. 1,924
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
For the Year Ended Dec. 31, 1999 Proceeds
(000's)
- --------------------------------------------------------------------------------
<S> <C>
Eagle Hardware & Garden, Inc............................................. $3,420
Weyerhaeuser Co.......................................................... 2,444
F5 Networks, Inc......................................................... 2,286
American Home Products Corp.............................................. 2,117
Starbucks Corp........................................................... 2,113
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE INDUSTRIES Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Computers (Software & Services)............................................. 20%
Telecommunications (Cellular/Wireless)...................................... 7
Computers (Peripherals)..................................................... 6
Retail (Food Chains)........................................................ 6
Computers (Hardware)........................................................ 5
</TABLE>
- 17 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
version to Microsoft stock. TJ International (manufactured wood products)
climbed on news of its takeover by Weyerhaeuser.
To balance our tech concentration, I'm holding substantial positions in
Kroger (Fred Meyer and QFC), Costco, Albertson's, Starbucks and Washington Mu-
tual. I like their defensive qualities and their prices. Even though I am man-
aging in a growth style, I remain sensitive to value and risk.
I believe the Northwest economy will outpace the nation's beyond 2000. Some
of America's fastest-growing companies are headquartered here, and I have tried
to position the SAFECO Northwest Fund to take advantage of them.
William B. Whitlow
- --------------------------------------------------------------------------------
William B. Whitlow began his career at SAFECO in 1976 and left in 1980. Before
rejoining SAFECO in April 1997 as Northwest Fund Manager, he was Director of
Research at Pacific Crest Securities. He holds a BA in chemistry from the U. of
Colorado and an MBA from the U. of Calif. at Berkeley. He is a CFA and a member
of the Washington State Governor's Council of Economic Advisors.
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Northwest Fund
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 100.0%
Air Freight - 3.3%
81,000 Expeditors International of Washington, Inc. ................ $ 3,549
Airlines - 1.4%
67,000 *Northwest Airlines Corp. ...................................... 1,491
Banks (Major Regional) - 2.4%
63,000 U.S. Bancorp ................................................... 1,500
74,800 West Coast Bancorp, Inc. ....................................... 1,010
Banks (Regional) - 1.2%
78,000 Heritage Financial Corp. ......................................... 673
79,000 Washington Banking Co. ........................................... 652
Biotechnology - 1.8%
115,700 *Corixa Corp. .................................................. 1,967
Building Materials - 3.2%
82,000 TJ International, Inc. ......................................... 3,444
Chemicals (Diversified) - 2.2%
137,000 Penford Corp.
Communication Equipment - 1.5%
176,200 *GST Telecommunications, Inc. .................................. 1,597
Computers (Hardware) - 5.3%
57,600 *Apex, Inc. .................................................... 1,858
34,000 Hewlett-Packard Co. ............................................ 3,874
Computers (Peripherals) - 5.7%
63,000 *ImageX.com, Inc. .............................................. 2,638
37,100 *Primus Knowledge Solutions, Inc. ...............................1,681
58,000 *WatchGuard Technologies, Inc. ..................................1,754
Computers (Software & Services) - 20.3%
10,800 *Digimarc Corp. .................................................. 540
12,300 *F5 Networks, Inc. ............................................. 1,402
21,600 *Internap Network Services Corp. ................................3,737
54,500 *Microsoft Corp. ............................................... 6,363
69,000 *ONYX Software Corp. ........................................... 2,553
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 18 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO NORTHWEST FUND
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
110,000 *Visio Corp. ................................................ $ 5,225
24,000 *WebTrends Corp. ................................................1,944
Electronics (Semiconductors) - 3.1%
40,500 Intel Corp. .................................................... 3,334
Engineering & Construction - 1.1%
150,000 *Morrison Knudsen Corp. ........................................ 1,172
Hardware & Tools - 1.0%
141,000 *Jore Corporation............................................... 1,102
Health Care (Diversified) - 1.0%
27,000 American Home Products Corp. ................................... 1,065
Health Care (Drugs - Generic & Other) - 1.1%
56,500 *PathoGenesis Corp. ............................................ 1,211
Health Care (Long-Term Care) - 0.6%
280,000 *Assisted Living Concepts, Inc. .................................. 577
Health Care (Major Pharmaceuticals) - 4.8%
113,000 Mylan Laboratories, Inc. ....................................... 2,846
152,000 *Penwest Pharmaceuticals Co. ................................... 2,318
Health Care (Medical Products & Supplies) - 4.0%
229,000 *Protocol Systems, Inc. ........................................ 2,061
70,000 *SonoSite, Inc. ................................................ 2,214
Insurance (Life & Health) - 2.1%
90,000 StanCorp Financial Group, Inc. ................................. 2,267
Iron & Steel - 1.9%
109,000 Schnitzer Steel Industries, Inc. ............................... 2,071
Leisure Time (Products) - 1.0%
94,000 *Ambassadors International, Inc. ............................... 1,028
Restaurants - 2.8%
125,300 *Starbucks Corp. ............................................... 3,039
Retail (Food Chains) - 5.6%
97,120 Albertson's, Inc. .............................................. 3,132
150,000 * Kroger Co. ................................................... 2,831
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Retail (General Merchandise) - 3.2%
37,000 *Costco Companies, Inc. ..................................... $ 3,376
Savings & Loans - 2.9%
64,000 Riverview Bancorp, Inc. .......................................... 620
97,000 Washington Mutual, Inc. ........................................ 2,522
Services (Commercial & Consumer) - 2.0%
89,500 *N2H2, Inc. .................................................... 2,103
Services (Data Processing) - 2.7%
247,000 *ARIS Corp. .................................................... 2,902
Telecommunications (Cellular/Wireless) - 6.9%
38,500 *VoiceStream Wireless Corp. .................................... 5,479
28,500 *Western Wireless Corp.
(Class A)....................................................... 1,902
Telephone - 3.9%
50,000 *NEXTLINK Communications, Inc. (Class A)........................ 4,153
-------
TOTAL COMMON STOCKS.................................................... 107,140
-------
CASH EQUIVALENTS - 0.6%
Investment Companies
623,728 J.P. Morgan InstitutionalPrime Money Market....................... 624
-------
TOTAL CASH EQUIVALENTS..................................................... 624
-------
TOTAL INVESTMENTS - 100.6%............................................. 107,764
Other Assets, less Liabilities........................................... (614)
-------
NET ASSETS............................................................ $107,150
-------
-------
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 19 -
<PAGE>
REPORT FROM THE FUND MANAGERS
SAFECO Balanced Fund
December 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO OF REX BENTLEY]
REX BENTLEY
For the quarter and year ended December 31, 1999, the SAFECO Balanced Fund
underperformed its aggregate S&P 500/Lehman Gov't./Corp. benchmark and peer
group. The main cause of this was the equity portion of the portfolio, which is
invested using a value style. It suffered as growth stocks performed
considerably better than value stocks.
The fixed-income portion of the Fund beat its benchmark for the quarter, but
underperformed for the year, as it was positioned in the first half of '99 to
take advantage of an economic slowdown that failed to material-
[PERFORMANCE GRAPH]
PERFORMANCE OVERVIEW - Class A and Class B Shares
<TABLE>
<CAPTION>
Average Annual Total Return With Sales Charge Without Sales Charge
for the periods ended December 31, 1999 Quarter 1 Year Since Inception* Quarter 1 Year Since Inception*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A (2.63)% (5.07)% 8.53% 3.33% 0.75 % 10.18%
Class B (1.74)% (4.84)% 8.86% 3.26% (0.01)% 9.46%
60% S&P 500/40% Lehman Brothers Gov't/Corp. Index N/A N/A N/A 8.77% 11.77 % 17.49%
Lipper, Inc. (Balanced Funds) N/A N/A N/A 7.56% 8.69 % N/A%
</TABLE>
* Graph and average annual return comparison begins January 31, 1996, inception
date of the fund.
<TABLE>
<CAPTION>
60% S&P 500/40%
SAFECO SAFECO Lehman Brothers
Balanced Fund Balanced Fund Government/
With Sales Charge Class A Class B Corporate Index
-------------- ------------- ---------------
<S> <C> <C> <C>
1/31/96 9,425 10,000 10,000
2/28/96 9,378 9,950 9,971
3/31/96 9,441 10,017 9,995
4/30/96 9,498 10,077 10,055
5/31/96 9,630 10,218 10,204
6/30/96 9,750 10,345 10,281
7/31/96 9,530 10,112 10,018
8/31/96 9,654 10,243 10,135
9/30/96 9,989 10,599 10,549
10/31/96 10,191 10,803 10,822
11/30/96 10,624 11,252 11,392
12/31/96 10,495 11,112 11,206
1/30/97 10,810 11,434 11,631
2/28/97 10,898 11,517 11,695
3/31/97 10,515 11,111 11,352
4/30/97 10,752 11,351 11,824
5/31/97 11,197 11,810 12,299
6/30/97 11,485 12,096 12,689
7/31/97 12,141 12,777 13,449
8/31/97 11,673 12,274 12,937
9/30/97 11,990 12,607 13,443
10/30/97 11,860 12,460 13,260
11/30/97 12,060 12,660 13,656
12/31/97 12,205 12,803 13,854
1/31/98 12,289 12,880 14,024
2/28/98 12,826 13,432 14,619
3/31/98 13,111 13,726 15,087
4/30/98 13,037 13,627 15,208
5/31/98 12,910 13,494 15,116
6/30/98 12,948 13,528 15,546
7/31/98 12,661 13,217 15,452
8/31/98 11,810 12,318 14,234
9/30/98 12,442 12,979 14,944
10/31/98 13,094 13,658 15,631
11/30/98 13,500 14,059 16,237
12/31/98 13,676 14,250 16,814
1/31/99 13,688 14,238 17,284
2/28/99 13,263 13,784 16,797
3/31/99 13,453 13,973 17,233
4/30/99 14,037 14,580 17,651
5/31/99 14,026 14,557 17,328
6/30/99 14,276 14,814 17,884
7/31/99 13,982 14,497 17,529
8/31/99 13,654 14,146 17,471
9/30/99 13,335 13,799 17,246
10/31/99 13,731 14,210 17,919
11/30/99 13,686 14,175 18,134
12/31/99 13,779 13,748 18,731
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A and
Class B of the Fund to a hypothetical investment in a relevant market index.
Fund performance is derived from the Fund's original class of shares and
reflects the maximum 5.75% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to reflect
Rule 12b-1 fees prior to September 30, 1996 (initial public offering date of
Class A and Class B shares). Such fees will affect subsequent performance.
The index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- 20 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ize. The duration (sensitivity to interest rates) has since been shortened, and
the bond portfolio is positioned in a defensive manner. We intend to keep this
posture until we see evidence of slowing economic growth.
On the stock side, our technology holdings, including Nortel Networks,
Cadence Design Systems, and Apple Computer were the Fund's best performers.
Unfortunately, our value selection criteria resulted in the Fund having a lower
weighting in technology than the S&P 500. (We are overweighted compared to the
Barra Value Index.) Some traditional value sectors in which the Fund is
overweighted--energy stocks, financials and consumer staples--were weak. During
the quarter we exited Bank One, Lockheed Martin, Boeing and New Century
Energies. We also reduced positions in KeyCorp, Conseco and Xerox, taking
losses, in order to reduce gains realized during the year. To increase the
[PHOTO OF MICHAEL HUGHES]
MICHAEL HUGHES
[PHOTO OF LYNETTE D. SAGVOLD]
LYNETTE D. SAGVOLD
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
TOP TEN STOCK HOLDINGS Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Kimberly-Clark Corp. ..................................................... 2.2%
(Household Products - Non-Durables)
Hewlett-Packard Co. ...................................................... 2.0
(Computers - Hardware)
ALLTEL Corp. ............................................................. 1.7
(Telephone)
Nortel Networks Corp. .................................................... 1.7
(Communication Equipment)
Interpublic Group Cos., Inc. ............................................. 1.6
(Services - Advertising/Marketing)
Exxon Mobil Corp. ........................................................ 1.6
(Oil - International Integrated)
Praxair, Inc. ............................................................ 1.5
(Chemicals)
Albertson's, Inc. ........................................................ 1.5
(Retail - Food Chains)
Abbott Laboratories....................................................... 1.5
(Health Care - Diversified)
CenturyTel, Inc. ......................................................... 1.5
(Telephone)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Common Stocks)
For the Year Ended Dec. 31, 1999 Cost
(000's)
- --------------------------------------------------------------------------------
<S> <C>
Xerox Corp. .............................................................. $593
Abbott Laboratories....................................................... 438
ALLTEL Corp. ............................................................. 342
Mylan Laboratories, Inc................................................... 302
Bank of America Corp. .................................................... 295
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
(Common Stocks)
For the Year Ended Dec. 31, 1999 Proceeds
(000's)
- --------------------------------------------------------------------------------
<S> <C>
Corning, Inc. ............................................................ $460
Bell Atlantic Corp. ...................................................... 411
Merck & Co., Inc. ........................................................ 387
Motorola, Inc. ........................................................... 386
Wendy's International, Inc. .............................................. 347
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE INDUSTRIES
(Common Stock) Percent of
Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Telephone............... 7%
Health Care
(Diversified).......... 4
Manufacturing
(Diversified).......... 3
Computers (Hardware).... 3
Oil (International
Integrated)............ 3
</TABLE>
- 21 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
weighting in telecommunications, we replaced Bell Atlantic with SBC Communica-
tions and bought Sprint and Lucent Technologies.
We think we're holding stocks with attractive growth prospects at discount
prices. At year-end, the equity portfolio's price-to-earnings ratio based on
2000 earnings estimates as 17.7 versus 26.4 for the S&P 500.
We believe the Balanced Fund is well positioned in the way the portfolio is
structured and in terms of the allocation split between stocks (61.8%), bonds
(38.1%) and cash (-.4%).
Rex Bentley
Michael Hughes
Lynette D. Sagvold
- --------------------------------------------------------------------------------
Rex Bentley, an MBA from Brigham Young University and Chartered Financial Ana-
lyst, has more than 20 years of investment experience.
Lynette D. Sagvold holds a BA in business administration from the University of
Washington and is a Chartered Financial Analyst. She began her investment ca-
reer in 1981 at Kidder Peabody and was a trust officer for Key Trust and First
Interstate before joining SAFECO in 1995 as a portfolio manager and insurance
analyst.
Michael Hughes joined SAFECO as portfolio manager in January 1997. He began his
investment career in 1983. He graduated magna cum laude with a B.S. in finance
from the University of Colorado in Boulder and holds an MBA from the University
of Southern California in Los Angeles. He is a Chartered Financial Analyst.
Weightings
As a Percent of Net Assets
- --------------------------------------------------------------------------------
[PIE CHART]
Common Stocks:
1 Large: 55% ($4 Bil. and above)
2 Medium: 7% ($1 Bil. -$4 Bil.)
3 Corporate Bonds: 10%
4 Asset Backed Securities: 3%
5 Mortgage Backed Securities: 7%
6 U.S. Government Securities: 18%
- 22 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Balanced Fund
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 61.8%
Banks (Major Regional) - 1.5%
4,500 Bank of America Corp. ......................................... $ 226
5,300 KeyCorp............................................................ 117
Banks (Money Center) - 1.2%
3,600 Chase Manhattan Corp. ............................................. 280
Beverages (Non-Alcoholic) - 1.3%
8,600 PepsiCo, Inc. ..................................................... 303
Chemicals - 2.5%
3,400 Du Pont (E.I.) de Nemours & Co. ................................... 224
7,100 Praxair, Inc. ..................................................... 357
Communication Equipment - 1.7%
3,800 Nortel Networks Corp. ............................................. 384
Computers (Hardware) - 3.1%
2,500 *Apple Computer, Inc. ............................................. 257
4,000 Hewlett-Packard Co................................................. 456
Computers (Peripherals) - 0.9%
14,500 *Quantum Corp. - DLT & Storage Systems............................. 219
Computers (Software & Services) - 2.1%
10,800 *Cadence Design Systems, Inc. ..................................... 259
10,900 *PeopleSoft, Inc. ................................................. 232
Electric Companies - 0.9%
11,700 NIPSCO Industries, Inc. ........................................... 209
Electrical Equipment - 1.1%
4,500 Emerson Electric Co. .............................................. 258
Electronics (Semiconductors) - 1.4%
3,800 Intel Corp. ....................................................... 313
Entertainment - 1.2%
9,500 The Walt Disney Co. ............................................... 278
Financial (Diversified) - 2.0%
3,100 American General Corp. ............................................ 235
3,500 Federal National Mortgage Association.............................. 218
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Foods - 2.2%
11,600 ConAgra, Inc. ................................................ $ 262
6,400 Dean Foods Co. ................................................... 254
Health Care (Diversified) - 4.3%
9,800 Abbott Laboratories............................................... 356
4,700 American Home Products Corp. ..................................... 185
3,300 Bristol-Myers Squibb Co. ......................................... 212
2,600 Johnson & Johnson................................................. 242
Health Care (Major Pharmaceuticals) - 1.3%
11,800 Mylan Laboratories, Inc. ......................................... 297
Household Products (Non-Durables) - 2.2%
7,800 Kimberly-Clark Corp. ............................................. 509
Insurance (Life & Health) - 1.8%
8,600 Conseco, Inc. .................................................... 154
7,900 UnumProvident Corp. .............................................. 253
Insurance (Multi-Line) - 1.5%
7,100 Hartford Financial Services Group, Inc. .......................... 336
Manufacturing (Diversified) - 3.4%
13,400 Crane Co. ........................................................ 266
3,600 Honeywell International, Inc. .................................... 208
3,300 Minnesota Mining & Manufacturing Co. ............................. 323
Office Equipment & Supplies - 0.7%
6,600 Xerox Corp. ...................................................... 150
Oil (Domestic Integrated) - 0.7%
1,900 Atlantic Richfield Co. ........................................... 164
Oil (International Integrated) - 2.7%
4,488 Exxon Mobil Corp. ................................................ 362
4,900 Texaco, Inc. ..................................................... 266
Oil & Gas (Drilling & Equipment) - 0.8%
4,500 Halliburton Co. .................................................. 181
Paper & Forest Products - 1.2%
5,000 International Paper Co. .......................................... 282
Publishing (Newspapers) - 1.1%
5,300 New York Times Co. (Class A)...................................... 260
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 23 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Real Estate Investment Trust - 2.0%
3,200 Equity Residential Properties Trust........................... $ 137
6,800 First Industrial Realty Trust, Inc. .............................. 187
5,800 Liberty Property Trust............................................ 141
Retail (Department Stores) - 1.1%
7,950 May Department Stores Co. ........................................ 256
Retail (Drug Stores) - 1.1%
6,400 CVS Corp. ........................................................ 256
Retail (Food Chains) - 1.5%
11,049 Albertson's, Inc. ................................................ 356
Retail (General Merchandise) - 0.8%
2,100 *Costco Companies, Inc. .......................................... 192
Savings & Loans - 1.1%
9,600 Washington Mutual, Inc. .......................................... 250
Services (Advertising/Marketing) - 1.6%
6,400 Interpublic Group Cos., Inc. ..................................... 369
Services (Commercial & Consumer) - 0.0%
100 United Parcel Service, Inc. (Class B)............................... 7
Telecommunications (Equipment) - 0.9%
2,800 Lucent Technologies, Inc. ........................................ 209
Telecommunications (Long Distance) - 0.3%
900 Sprint Corp. ...................................................... 61
Telephone - 6.6%
4,700 ALLTEL Corp. ..................................................... 389
7,200 CenturyTel, Inc. ................................................. 341
4,700 GTE Corp. ........................................................ 332
4,200 *MCI WorldCom, Inc. .............................................. 223
4,800 SBC Communications, Inc. ......................................... 234
------
TOTAL COMMON STOCKS..................................................... 14,287
------
CORPORATE BONDS - 9.7%
Air Freight - 0.5%
$ 136 Federal Express Corp.
6.845%, due 1/15/19............................................... 126
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Banks (Major Regional) - 0.6%
$ 135 Bank of America Corp.
6.625%, due 6/15/04........................................... $ 132
Financial (Diversified) - 4.3%
200 CIT Group, Inc.
5.57%, due 12/08/03............................................... 188
150 First Union Corp.
6.625%, due 6/15/04............................................... 146
155 Ford Motor Credit Co.
7.375%, due 10/28/09.............................................. 153
150 General Motors Acceptance Corp.
5.95%, due 3/14/03................................................ 145
195 Hertz Corp.
7.00%, due 7/01/04................................................ 193
195 Sears Roebuck Acceptance Corp.
6.25%, due 5/01/09................................................ 172
Manufacturing (Diversified) - 0.9%
210 Tyco International Group SA
6.375%, due 6/15/05............................................... 197
Natural Gas - 0.9%
250 National Fuel Gas Co.
6.00%, due 3/01/09................................................ 220
Publishing (Newspapers) - 0.9%
210 Times-Mirror Co.
6.65%, due 10/15/01............................................... 209
Retail (General Merchandise) - 0.9%
205 Wal-Mart Stores, Inc.
6.15%, due 8/10/01................................................ 203
Telephone - 0.3%
30 AT&T Corp.
5.625%, due 3/15/04................................................ 28
40 AT&T Corp.
6.50%, due 3/15/29................................................. 34
U.S. Federal Agency Notes - 0.4%
95 Federal Home Loan Bank
6.00%, due 11/15/01................................................ 94
------
TOTAL CORPORATE BONDS.................................................... 2,240
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 24 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
ASSET BACKED SECURITIES - 3.5%
Electric Companies - 0.5%
$ 130 ComEd Transitional Funding Trust
5.63%, due 6/25/09............................................ $ 120
Financial (Diversified) - 2.5%
254 Citicorp Mortgage Securities, Inc.
6.50%, due 6/25/29................................................ 228
175 First USA Credit Card Master Trust
5.28%, due 9/18/06................................................ 165
180 Fleet Credit Card Master
6.90%, due 4/16/07................................................ 179
Trucking - 0.5%
115 Ryder Vehicle Lease
6.89%, due 4/15/05................................................ 114
------
TOTAL ASSET BACKED SECURITIES.............................................. 806
------
MORTGAGE BACKED SECURITIES - 6.8%
Federal Home Loan Mortgage Corp.
(FHLMC) - 0.8%
190 7.50%, due 10/01/29............................................... 188
Federal National Mortgage Association
(FNMA) - 4.2%
292 6.00%, due 1/01/29................................................ 268
204 7.00%, due 3/01/12................................................ 202
325 8.00%, due 12/01/29............................................... 328
183 8.00%, due 2/15/29................................................ 184
Government National Mortgage Association
(GNMA) - 1.8%
232 7.00%, due 4/15/28................................................ 225
59 7.00%, due 8/15/28................................................. 57
135 7.75%, due 10/15/29............................................... 135
------
TOTAL MORTGAGE BACKED SECURITIES......................................... 1,587
------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
U.S. GOVERNMENT OBLIGATIONS - 18.1%
U.S. Federal Agency Notes - 3.1%
$ 200 5.125%, due 2/13/04.......................................... $ 188
540 6.00%, due 8/15/02............................................... 532
U.S. Treasury Notes - 15.0%
700 5.375%, due 6/30/00.............................................. 699
335 5.875%, due 9/30/02.............................................. 331
100 6.375%, due 8/15/02.............................................. 100
250 6.50%, due 10/15/06.............................................. 249
245 6.50%, due 8/15/05............................................... 245
105 7.25%, due 8/15/04............................................... 108
1,620 7.50%, due 11/15/16............................................ 1,733
------
TOTAL U.S. GOVERNMENT OBLIGATIONS....................................... 4,185
------
CASH EQUIVALENTS - 0.4%
Investment Companies
100 J.P. Morgan Institutional Prime Money Market..................... 100
------
TOTAL CASH EQUIVALENTS.................................................... 100
------
TOTAL INVESTMENTS - 100.3%............................................. 23,205
Other Assets, less Liabilities............................................ (71)
------
NET ASSETS............................................................ $23,134
------
------
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 25 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO International Stock Fund
December 31, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Foreign markets outperformed the U.S. stock market for the first time
since 1993, and the SAFECO International Stock Fund outperformed the EAFE In-
dex for the year and quarter just ended. (The Fund doesn't compare well to the
Lipper average for international funds, as Lipper includes an array of invest-
ment objectives, including emerging markets. The SAFECO Fund is a diversified
portfolio invested in established companies in developed markets.)
Stocks in the Growth in Telecommunications theme benefited by increasing
mobile phone and Internet usage across the globe and, in the fourth quarter,
acquisition activity. Vodafone Airtouch made a hostile bid for Mannesmann. We
took some prof-
[PERFORMANCE GRAPH]
PERFORMANCE OVERVIEW - Class A and Class B Shares
<TABLE>
<CAPTION>
Average Annual Total Return With Sales Charge Without Sales Charge
for the periods ended December 31, 1999 Quarter 1 Year Since Inception* Quarter 1 Year Since Inception*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A 12.83% 21.25% 13.48% 19.70% 28.64% 15.20%
Class B 14.65% 22.48% 13.86% 19.65% 27.48% 14.38%
EAFE Index N/A N/A N/A 16.63% 25.27% 11.75%
Lipper, Inc. (International Funds) N/A N/A N/A 25.73% 40.80% N/A
</TABLE>
* Graph and average annual return comparison begins January 31, 1996, inception
date of the fund.
<TABLE>
<CAPTION>
SAFECO SAFECO
International International
With Sales Charge Fund Class A Fund Class B EAFE Index
- ----------------- ------------- ------------- ----------
<S> <C> <C> <C>
1/31/96 9,425 10,000 10,000
2/28/96 9,359 9,930 10,021
3/31/96 9,463 10,040 10,220
4/30/96 9,698 10,290 10,504
5/31/96 9,661 10,250 10,298
6/30/96 9,651 10,240 10,342
7/31/96 9,274 9,840 10,026
8/31/96 9,651 10,240 10,035
9/30/96 9,853 10,454 10,288
10/31/96 9,967 10,565 10,169
11/30/96 10,593 11,229 10,560
12/31/96 10,759 11,391 10,410
1/30/97 10,720 11,340 10,033
2/28/97 10,863 11,482 10,183
3/31/97 10,787 11,411 10,207
4/30/97 10,835 11,451 10,247
5/31/97 11,330 11,966 10,900
6/30/97 11,673 12,320 11,488
7/31/97 12,083 12,744 11,660
8/31/97 11,054 11,643 10,776
9/30/97 11,797 12,421 11,366
10/30/97 10,816 11,381 10,478
11/30/97 10,882 11,441 10,358
12/31/97 11,222 11,788 10,435
1/31/98 11,455 12,033 10,899
2/28/98 12,213 12,820 11,584
3/31/98 12,689 13,311 11,926
4/30/98 12,757 13,352 12,007
5/31/98 12,864 13,464 11,934
6/30/98 12,990 13,587 12,010
7/31/98 13,126 13,720 12,118
8/31/98 11,416 11,920 10,602
9/30/98 10,726 11,195 10,263
10/31/98 11,533 12,023 11,318
11/30/98 12,417 12,933 11,883
12/31/98 12,757 13,280 12,337
1/31/99 12,786 13,301 12,286
2/28/99 12,699 13,209 11,979
3/31/99 13,029 13,546 12,464
4/30/99 13,660 14,190 12,955
5/31/99 13,000 13,464 12,273
6/30/99 13,456 13,935 12,737
7/31/99 13,690 14,159 13,100
8/31/99 13,728 14,180 13,133
9/30/99 13,709 14,149 13,251
10/31/99 14,204 14,650 13,732
11/30/99 14,953 15,437 14,194
12/31/99 16,410 16,430 15,454
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A and
Class B of the Fund to a hypothetical investment in a relevant market index.
Fund performance is derived from the Fund's original class of shares and
reflects the maximum 5.75% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to reflect
Rule 12b-1 fees prior to September 30, 1996 (initial public offering date of
Class A and Class B shares). Such fees will affect subsequent performance.
The index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- 26 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
its in Mannesmann and Vodafone, but continue to hold both as our outlook for
telecommunications remains bright.
Japan posted one of 1999's strongest performances among global equity mar-
kets, and Japan-ese stocks were strong contributors to our portfolio. At year-
end, Japan was our largest country of investment, with 23.4% of net assets.
Despite selling shares of Sony and Murata Manufacturing, the reduced posi-
tions appreciated in size relative to net assets. Murata Manufacturing climbed
on increasing sales of digital components for electronic appliances such as
cell phones and DVDs. Sony gained on faster-than-anticipated revenue growth and
the news it would team with 3Com's Palm unit. We added to our positions in
Hitachi (electronics) and NTT Mobile Communications (telecom) as their valua-
tions were attractive, and they're in sectors we think will do well.
Virtually, all the European markets' positive performance came in the
year's final months. While the UK's fortunes improved steadily through 1999, it
still underperformed other European markets. In Asia, the rally
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
TOP TEN HOLDINGS Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Mannesmann AG........................................................... 4.3%
(Machinery - Diversified)
Sony Corp............................................................... 3.8
(Electrical Equipment)
NTT Mobile
Communication Network,
Inc.................................................................... 3.4
(Telephone)
ING Groep NV............................................................ 3.1
(Banks - Foreign)
Murata Manufacturing
Co., Ltd............................................................... 3.0
(Electrical Equipment)
Vodafone Airtouch, plc.................................................. 2.9
(Telephone)
Vivendi................................................................. 2.5
(Services - Commercial &
Consumer)
Canon, Inc.............................................................. 2.3
(Office Equipment &
Supplies)
Telecom Italia SpA...................................................... 2.2
(Telephone)
Koninklijke KPN NV...................................................... 2.2
(Telephone)
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE COUNTRIES Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Japan....................................................................... 23%
United Kingdom.............................................................. 23
Netherlands................................................................. 10
France...................................................................... 9
Switzerland................................................................. 9
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
For the Year Ended Dec. 31, 1999 Cost
(000's)
- --------------------------------------------------------------------------------
<S> <C>
ING Group NV............................................................... $603
Vodafone Airtouch, plc..................................................... 511
Prudential, plc............................................................ 446
Axa........................................................................ 436
Roche Holding AG........................................................... 409
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
For the Year Ended Dec. 31, 1999 Proceeds
(000's)
- --------------------------------------------------------------------------------
<S> <C>
Sony Corp................................................................. $463
NTT Mobile Communication Network, Inc..................................... 445
Takeda Chemical Industries................................................ 387
Prudential, plc........................................................... 297
Kingfisher, plc........................................................... 261
</TABLE>
- 27 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
continued unabated to year-end, with Hong Kong, Singapore and Korea the stellar
performers.
While the outlook is generally favorable, valuations are now quite demand-
ing. It will take strong earnings to maintain market momentum.
Bank of Ireland
Asset Management (U.S.) Limited
- --------------------------------------------------------------------------------
The Bank of Ireland Asset Management (U.S.) Limited (BIAM) investment committee
is comprised of senior analysts and economists and headed by the company's
chief financial officer. BIAM has managed international equities since 1966 and
began managing U.S. funds in 1989.
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO International Stock Fund
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 96.6%
Australia - 3.5%
4,055 Brambles Industries, Ltd. ..................................... $ 112
Services (Commercial & Consumer)
25,450 National Australia Bank, Ltd. ..................................... 388
Banks (Foreign)
46,871 News Corp., Ltd. .................................................. 454
Publishing
53,068 Telstra Corp., Ltd. ............................................... 288
Telephone
26,977 Westpac Banking Corp., Ltd. ....................................... 186
Banks (Foreign)
Denmark - 0.6%
3,200 Tele Danmark AS-B.................................................. 238
Telephone
France - 9.2%
2,368 Alcatel............................................................ 544
Telephone
8,214 Aventis SA......................................................... 480
Chemicals
5,285 Axa................................................................ 737
Insurance (Multi-Line)
4,155 Compagnie Generale des Etablissements Michelin..................... 163
Auto Parts & Equipment
5,340 Total SA........................................................... 712
Oil (International Integrated)
11,054 Vivendi............................................................ 998
Services (Commercial & Consumer)
Germany - 7.4%
4,670 Bayerische HypoVereinsbank AG...................................... 319
Banks (Foreign)
13,932 Bayerische Motoren Werke AG........................................ 425
Automobiles
550 Celanese AG......................................................... 10
Chemicals
6,985 Mannesmann AG.................................................... 1,685
Machinery (Diversified)
6,925 VEBA AG............................................................ 336
Electric Companies
8,528 Viag AG............................................................ 156
Manufacturing (Diversified)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 28 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Hong Kong - 1.8%
23,000 Cheung Kong Holdings, Ltd. ................................... $ 292
Real Estate Investment Trust
16,000 Hongkong Electric Holdings, Ltd. .................................. 50
Electric Companies
13,200 HSBC Holdings, plc ............................................... 185
Banks (Foreign)
18,000 Sun Hung Kai Properties, Ltd. .................................... 188
Real Estate Investment Trust
Italy - 2.7%
37,747 Ente Nazionale Idrocarburi SpA.................................... 208
Oil (International Integrated)
61,680 Telecom Italia SpA................................................ 870
Telephone
Japan - 23.4%
1,900 Acom Co., Ltd. ................................................... 186
Consumer Finance
10,000 Bank of Tokyo - Mitsubishi, Ltd. ................................. 139
Banks (Foreign)
23,000 Canon, Inc. ...................................................... 913
Office Equipment & Supplies
8,000 Fuji Photo Film Co. .............................................. 292
Office Equipment & Supplies
28,000 Hitachi, Ltd. .................................................... 449
Electrical Equipment
6,000 Honda Motor Co., Ltd. ............................................ 223
Automobiles
2,000 Hoya Corp. ....................................................... 157
Health Care (Medical Products & Supplies)
14,000 Kao Corp. ........................................................ 399
Personal Care
600 Keyence Corp. .................................................... 243
Electrical Equipment
800 Mabuchi Motor Co., Ltd. .......................................... 139
Electrical Equipment
5,000 Murata Manufacturing Co., Ltd. ................................. 1,173
Electrical Equipment
18 Nippon Telegraph & Telephone Corp. ............................... 308
Telephone
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
35 NTT Mobile Communication Network, Inc. ........................ $ 1,345
Telephone
6,000 Pioneer Corp. ..................................................... 158
Electrical Equipment
1,300 Rohm Co., Ltd. .................................................... 534
Electrical Equipment
13,000 Shiseido Co., Ltd. ................................................ 189
Personal Care
5,100 Sony Corp. ...................................................... 1,511
Electrical Equipment
15,000 Takeda Chemical Industries......................................... 741
Health Care (Major Pharmaceuticals)
1,400 Takefuji Corp. .................................................... 175
Consumer Finance
Netherlands - 10.0%
15,748 ABN Amro Holdings NV............................................... 393
Banks (Foreign)
8,730 Elsevier NV........................................................ 104
Publishing
6,450 Fortis NV.......................................................... 232
Financial (Diversified)
20,162 ING Group NV..................................................... 1,217
Banks (Foreign)
13,345 Koninklijke Ahold NV............................................... 395
Retail (Food Chains)
8,720 Koninklijke KPN NV................................................. 851
Telephone
6,225 Royal Dutch Petroleum Co. ......................................... 381
Oil (International Integrated)
8,535 TNT Post Group NV.................................................. 245
Shipping
2,575 VNU NV............................................................. 135
Publishing
New Zealand - 0.2%
12,479 Telecom Corp of New Zealand, Ltd. .................................. 58
Telephone
Portugal - 0.3%
5,965 Electricidade de Portugal, SA...................................... 104
Electric Companies
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 29 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Singapore - 2.3%
33,123 DBS Group Holdings Ltd. ...................................... $ 543
Banks (Foreign)
13,500 Oversea Chinese Banking Corp. Ltd. ............................... 124
Banks (Foreign)
10,000 Singapore Press Holdings, Ltd. ................................... 217
Publishing
South Korea - 0.9%
3,175 #Korea Telecom Corp. (ADR)........................................ 219
Telephone
3,825 #Pohang Iron & Steel Co., Ltd. (ADR).............................. 129
Iron & Steel
Spain - 2.5%
38,950 Banco Santander Central Hispano, SA............................... 441
Banks (Foreign)
21,968 Telefonica SA..................................................... 549
Telephone
Sweden - 0.5%
3,230 Telefonaktiebolaget LM Ericsson................................... 208
Telecommunications (Long Distance)
Switzerland - 8.6%
233 Alusuisse Lonza Group AG.......................................... 172
Manufacturing (Diversified)
233 Lonza AG.......................................................... 142
Chemicals
349 Nestle SA......................................................... 639
Foods
409 Novartis AG....................................................... 600
Health Care (Major Pharmaceuticals)
57 Roche Holding AG.................................................. 676
Health Care (Major Pharmaceuticals)
317 Schweizerische Rueckversicherungs - Gesellschaft.................. 651
Insurance (Multi-Line)
1,915 UBS AG............................................................ 517
Banks (Foreign)
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
United Kingdom - 22.7%
42,685 Allied Zurich, plc............................................ $ 506
Insurance (Multi-Line)
10,800 AstraZeneca Group, plc............................................ 448
Health Care (MedicalProducts & Supplies)
23,075 Barclays, plc..................................................... 666
Banks (Foreign)
1,629 British Aerospace, plc............................................. 11
Aerospace/Defense
35,546 British American Tobacco, plc..................................... 199
Tobacco
42,640 Cable & Wireless, plc............................................. 721
Telephone
49,110 Cadbury Schweppes, plc............................................ 297
Beverages (Non-Alcoholic)
44,660 Diageo, plc....................................................... 359
Beverages (Alcoholic)
13,386 EMI Group, plc.................................................... 130
Leisure Time (Products)
23,935 Glaxo Wellcome, plc............................................... 678
Health Care (Major Pharmaceuticals)
48,290 Granada Group, plc................................................ 487
Leisure Time (Products)
47,840 Hilton Group, plc................................................. 151
Lodging (Hotels)
63,130 Ivensys, plc...................................................... 342
Manufacturing (Diversified)
37,940 Lloyds TSB Group, plc............................................. 474
Banks (Foreign)
5,100 Marconi, plc....................................................... 90
Communication Equipment
6,921 National Power, plc................................................ 40
Power Producers (Independent)
11,940 National Westminster Bank, plc.................................... 257
Banks (Foreign)
28,650 Old Mutual, plc.................................................... 76
Insurance (Multi-Line)
10,250 Pearson, plc...................................................... 332
Publishing
38,030 Prudential, plc................................................... 746
Insurance (Multi-Line)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 30 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
6,090 Railtrack Group, plc.......................................... $ 100
Railroads
82,231 Shell Transport & Trading Co.,
plc .............................................................. 683
Oil (International Integrated)
8,600 TI Group, plc...................................................... 64
Manufacturing (Diversified)
232,271 Vodafone Airtouch, plc.......................................... 1,145
Telephone
------
TOTAL COMMON STOCKS..................................................... 38,242
------
TOTAL INVESTMENTS - 96.6%............................................... 38,242
Domestic Cash............................................................ 1,109
Foreign Cash................................................................ 26
Other Assets, less Liabliities............................................. 197
------
1,332
------
NET ASSETS............................................................. $39,574
------
------
</TABLE>
- --------------------------------------------------------------------------------
# Security traded on NYSE and valued in USD.
<TABLE>
<CAPTION>
Percent of
Industry Diversification Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Telephone............................................................ 18.0%
Banks (Foreign)...................................................... 14.7
Electrical Equipment................................................. 10.6
Insurance (Multi-line)............................................... 6.9
Health Care (Major Pharmaceuticals).................................. 6.8
Oil (International Integrated)....................................... 5.0
Machinery (Diversified).............................................. 4.3
Publishing........................................................... 3.1
Office Equipment & Supplies.......................................... 3.0
Services (Commercial & Consumer)..................................... 2.8
Manufacturing (Diversified).......................................... 1.9
Automobiles.......................................................... 1.7
Foods................................................................ 1.6
Chemicals............................................................ 1.6
Leisure Time (Products).............................................. 1.6
Health Care (Medical Products & Supplies)............................ 1.5
Personal Care........................................................ 1.5
Electric Companies................................................... 1.2
Real Estate Investment Trust......................................... 1.2
Retail (Food Chains)................................................. 1.0
Consumer Finance..................................................... 0.9
Beverages (Alcoholic)................................................ 0.9
Beverages (Non-Alcoholic)............................................ 0.8
Shipping............................................................. 0.6
Financial (Diversified).............................................. 0.6
Telecommunications (Long Distance)................................... 0.5
Tobacco.............................................................. 0.5
Auto Parts & Equipment............................................... 0.4
Lodging (Hotels)..................................................... 0.4
Iron & Steel......................................................... 0.3
Railroads............................................................ 0.3
Communication Equipment.............................................. 0.2
Power Producers (Independent)........................................ 0.1
Aerospace/Defense.................................................... 0.1
----
96.6%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 31 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Small Company Stock Fund
December 31, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO OF GREG EISEN]
GREG EISEN
For the year 1999, the SAFECO Small Company Fund widely outpaced the
Lipper, Inc. average for small-cap value funds, but not the Russell
2000, which contains both growth and value stocks.
Our value-oriented portfolio languished in the Internet's shadow
during the first half of "99. In the third and fourth quarters, we took advan-
tage of a very hot initial public offering (IPO) market. Several of our long-
held positions started to work and so did new ones I'd taken to increase the
Fund's price/ earnings ratio. As well, Vallen, a stock I held through the
Fund's reconfiguration, was bought out for significant gain.
[PERFORMANCE GRAPH]
PERFORMANCE OVERVIEW - Class A and Class B Shares
<TABLE>
<CAPTION>
Average Annual Total Return With Sales Charge Without Sales Charge
for the periods ended December 31, 1999 Quarter 1 Year Since Inception* Quarter 1 Year Since Inception*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A 19.87% 6.63% 6.55% 27.15% 13.17% 8.17%
Class B 21.90% 7.32% 6.82% 26.90% 12.32% 7.44%
Russell 2000 Index N/A N/A N/A 18.60% 21.39% 14.37%
Lipper, Inc. (Small-Cap Value Funds) N/A N/A N/A 6.59% 6.33% N/A
</TABLE>
* Graph and average annual return comparison begins January 31, 1996, inception
date of the fund.
<TABLE>
<CAPTION>
SAFECO SAFECO
Small Company Small Company Russell 2000
With Sales Charge Class A Class B Index
-------------- -------------- ---------------
<S> <C> <C> <C>
1/31/96 9,425 10,000 10,000
2/28/96 9,566 10,150 10,316
3/31/96 9,887 10,490 10,521
4/30/96 10,886 11,550 11,086
5/31/96 11,640 12,350 11,531
6/30/96 11,338 12,030 11,061
7/31/96 10,575 11,220 10,096
8/31/96 11,225 11,910 10,682
9/30/96 11,483 12,183 11,099
10/31/96 11,463 12,151 10,927
11/30/96 11,323 12,003 11,375
12/31/96 11,782 12,479 11,667
1/30/97 11,882 12,575 11,898
2/28/97 11,632 12,299 11,610
3/31/97 11,233 11,876 11,066
4/30/97 11,004 11,611 11,093
5/31/97 12,041 12,712 12,330
6/30/97 12,680 13,368 12,854
7/31/97 13,558 14,279 13,454
8/31/97 13,817 14,554 13,757
9/30/97 15,174 15,972 14,762
10/30/97 14,625 15,380 14,105
11/30/97 14,535 15,284 14,009
12/31/97 14,516 15,254 14,261
1/31/98 14,414 15,134 14,044
2/28/98 15,875 16,652 15,097
3/31/98 17,346 18,181 15,731
4/30/98 17,949 18,810 15,817
5/31/98 16,978 17,769 14,969
6/30/98 16,600 17,368 15,012
7/31/98 14,680 15,340 13,786
8/31/98 10,440 10,895 11,113
9/30/98 10,961 11,427 11,973
10/31/98 10,706 11,156 12,464
11/30/98 10,859 11,307 13,123
12/31/98 11,329 11,795 13,942
1/31/99 11,605 12,077 14,126
2/28/99 10,890 11,329 12,987
3/31/99 10,297 10,700 13,187
4/30/99 10,185 10,570 14,368
5/31/99 10,216 10,603 14,580
6/30/99 10,440 10,830 15,235
7/31/99 10,614 11,004 14,815
8/31/99 10,052 10,408 14,269
9/30/99 10,083 10,440 14,270
10/31/99 10,113 10,462 14,333
11/30/99 11,544 11,947 15,203
12/31/99 12,821 12,748 16,924
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A and
Class B of the Fund to a hypothetical investment in a relevant market index.
Fund performance is derived from the Fund's original class of shares and
reflects the maximum 5.75% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to reflect
Rule 12b-1 fees prior to September 30, 1996 (initial public offering date of
Class A and Class B shares). Such fees will affect subsequent performance.
The index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- 32 -
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
We benefited as the stock market rewarded hot new tech issues with
unreasonably high first-day gains. Except for a few, we quickly sold almost all
the IPOs we participated in.
Long-time holdings MICROS Systems and Optimal Robotics turned from value to
growth stocks. MICROS was up 83% during the fourth quarter on anticipation
surrounding the spin-off of its internet reservation system. Optimal Robotics'
self-service checkout systems became profitable, and the stock climbed 166%
during the year.
Anything associated with the Internet did well. I let N2H2, an Internet
filtering service used by schools, run from ten to 28, and then cut our
position back to around
Weightings
As a Percent of Net Assets
- -------------------------------------------------------------------------------
[PIE CHART]
Common Stocks:
1 Mid-Cap: 26% ($1 Bil. -$4 Bil.)
2 Small Cap: (Under $1 Bil.):
(a) Large: 4% (Over $750 mil.)
(b) Medium: 44% ($250 mil. -$750 mil.)
(c) Small: 22% (Under $250 mil.)
3 Cash & Other: 4%
- -------------------------------------------------------------------------------
HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
TOP TEN HOLDINGS Net Assets
- -------------------------------------------------------------------------------
<S> <C>
MICROS Systems, Inc. ..................................................... 4.9%
(Computers - Hardware)
Optimal Robotics Corp. ................................................... 4.3
(Computers - Hardware)
International Aircraft Investors, Inc. ................................... 3.8
(Aerospace/Defense)
Imax Corp. ............................................................... 3.6
(Manufacturing - Specialized)
BEA Systems, Inc. ........................................................ 3.4
(Computers - Software & Services)
Emmis Communications Corp. (Class A)...................................... 3.3
(Broadcasting - TV, Radio & Cable)
U.S. Foodservice.......................................................... 2.9
(Distributors - Food & Health)
Timberline Software Corp. ................................................ 2.8
(Computers - Software & Services)
ACT Manufacturing, Inc. .................................................. 2.6
(Electronics - Component Distributors)
Regis Corp. .............................................................. 2.6
(Retail - Specialty)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
For the Year Ended Dec. 31, 1999 Cost
(000's)
- -------------------------------------------------------------------------------
<S> <C>
Rollins Truck Leasing Corp. ............................................ $1,363
Imax Corp. ............................................................. 1,148
HA-LO Industries, Inc. ................................................. 1,111
Central Parking Corp. .................................................. 1,097
Rent-Way, Inc. ......................................................... 946
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
For the Year Ended Dec. 31, 1999 Proceeds
(000's)
- -------------------------------------------------------------------------------
<S> <C>
Equitrac Corp. ......................................................... $2,756
Litchfield Financial Corp. ............................................. 2,514
Vallen Corp. ........................................................... 1,824
Hooper Holmes, Inc. .................................................... 1,599
Styling Technology Corp. ............................................... 1,586
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE INDUSTRIES Net Assets
- -------------------------------------------------------------------------------
<S> <C>
Computers (Software & Services)............................................. 11%
Services (Commercial & Consumer)............................................ 10
Computers (Hardware)........................................................ 9
Trucking.................................................................... 6
Broadcasting (TV, Radio & Cable)............................................ 5
</TABLE>
- 33 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1.2%. I bought BEA Systems (e-commerce software) at a rea-sonable price and by
year-end it was a momentum stock. Emmis Communications, our best non-tech per-
former, gained on e-commerce advertising revenue.
The IPO market was unusually active and can't be counted on for future
gains. However, I will try to participate as long as it remains lucrative,
while remaining wary of valuations which, I believe, will eventually take pre-
cedence. At year-end, the Fund's P/E had climbed to 21.6 times 1999 earnings,
and its weighted market capitalization grew to $835 million. We remain in the
small-cap value camp.
Greg Eisen
- --------------------------------------------------------------------------------
Greg Eisen joined SAFECO in 1986. He holds a BA from Rutgers University and is
a Certified Public Accountant and a Chartered Financial Analyst.
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Small Company Stock Fund
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 95.8%
Aerospace/Defense - 3.8%
186,950 *International Aircraft Investors, Inc. .................... $ 1,168
Air Freight - 1.7%
16,200 Air Express International Corp. ................................ 523
Airlines - 2.1%
23,400 SkyWest, Inc. .................................................. 655
Banks (Regional) - 1.9%
38,610 *Hanmi Bank (Los Angeles, CA)................................... 579
Broadcasting (TV, Radio & Cable) - 5.1%
8,000 *Emmis Communications Corp. (Class A)........................... 997
24,600 *Salem Communications Corp. (Class A)........................... 557
Computers (Hardware) - 9.4%
2,000 *Apex, Inc. ..................................................... 65
20,500 *MICROS Systems, Inc. ........................................ 1,517
35,100 *Optimal Robotics Corp. ...................................... 1,307
Computers (Peripherals) - 3.8%
9,475 *Circle.com..................................................... 117
1,100 *Egreetings Network, Inc. ....................................... 11
18,300 *GRIC Communications, Inc. ..................................... 464
11,000 *Integrated Measurement Systems, Inc. .......................... 155
9,000 *Primus Knowledge Solutions, Inc. .............................. 408
Computers (Software & Services) - 11.4%
15,000 *BEA Systems, Inc. ........................................... 1,049
2,000 *BSQUARE Corp. .................................................. 84
27,500 *Ciber, Inc. ................................................... 756
3,200 *Digimarc Corp. ................................................ 160
38,800 *ITT Educational Services, Inc. ................................ 599
62,800 Timberline Software Corp. ...................................... 844
Distributors (Food & Health) - 2.9%
52,700 *U.S. Foodservice............................................... 883
Electronics (Component Distributors) - 2.6%
21,400 *ACT Manufacturing, Inc. ....................................... 802
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 34 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO SMALL COMPANY STOCK FUND
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Engineering & Construction - 2.1%
34,200 *Astec Industries, Inc. .................................... $ 643
Financial (Diversified) - 2.1%
51,000 *Hawthorne Financial Corp. ..................................... 638
Health Care
(Medical Products & Supplies) - 2.1%
20,700 *SonoSite, Inc. ................................................ 655
Insurance (Property-Casualty) - 2.0%
91,100 *American Safety Insurance Group, Ltd. ......................... 598
Manufacturing (Specialized) - 3.6%
40,700 *Imax Corp. .................................................. 1,114
Oil & Gas (Drilling & Equipment) - 4.5%
26,000 *Marine Drilling Co., Inc. ..................................... 583
15,900 *Rowan Companies, Inc. ......................................... 345
20,000 *UTI Energy Corp. .............................................. 461
Oil & Gas (Exploration & Production) - 0.5%
8,000 *Chieftain International, Inc. ................................. 138
Real Estate Investment Trust - 1.0%
9,700 Alexandria Real Estate Equities, Inc. .......................... 309
Restaurants - 2.3%
87,200 *Taco Cabana, Inc. (Class A).................................... 709
Retail (Department Stores) - 1.5%
53,500 *Musicland Stores Corp. ........................................ 451
Retail (Discounters) - 1.3%
72,500 *OfficeMax, Inc. ............................................... 399
Retail (Drug Stores) - 1.7%
119,000 *Drug Emporium, Inc. ........................................... 528
Retail (Food Chains) - 1.5%
42,000 Ingles Markets, Inc. ........................................... 467
Retail (Specialty) - 2.6%
42,300 Regis Corp. .................................................... 798
Services (Advertising/Marketing) - 2.8%
37,900 *Snyder Communications, Inc. ................................... 730
12,633 *Ventiv Health, Inc. ........................................... 116
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
Services (Commercial & Consumer) - 10.4%
35,700 Central Parking Corp. .................................... $ 683
28,800 *Dollar Thrifty Automotive Group, Inc. ....................... 689
15,800 *N2H2, Inc. .................................................. 371
33,350 *Rent-A-Center, Inc. ......................................... 661
42,200 *Rent-Way, Inc. .............................................. 789
Textiles (Apparel) - 1.5%
31,000 *Cutter & Buck, Inc. ......................................... 469
Trucking - 5.6%
13,800 *Landstar System, Inc. ....................................... 591
52,500 Rollins Truck Leasing Corp. .................................. 627
29,000 *Swift Transportation Co., Inc. .............................. 511
Waste Management - 2.0%
27,500 Landauer, Inc................................................. 602
-----
TOTAL COMMON STOCKS................................................... 29,375
-----
PREFERRED STOCKS - 1.7%
Electric Companies - 0.9%
3,700 Massachusetts Electric Co. ................................... 265
Entertainment - 0.8%
41,200 *Craig Corp. (Class A)........................................ 258
-----
TOTAL PREFERRED STOCKS................................................... 523
-----
CASH EQUIVALENTS - 7.1%
Investment Companies
626,489 AIM Short-Term Investments Co. Liquid Assets Money Market
Portfolio (Institutional Shares).............................. 626
1,537,772 J.P. Morgan Institutional Prime Money Market................ 1,538
-----
TOTAL CASH EQUIVALENTS................................................. 2,164
-----
TOTAL INVESTMENTS - 104.6%............................................ 32,062
Other Assets, less Liabilities........................................ (1,402)
-----
NET ASSETS........................................................... $30,660
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 35 -
<PAGE>
REPORT FROM THE FUND MANAGERS
SAFECO U.S. Value Fund
December 31, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO OF REX BENTLEY]
REX BENTLEY
A favorite Wall Street saying wasn't true in 1999; the rising tide
did not lift all boats. The SAFECO U.S. Value Fund's return was similar
to that of the Russell 1000 Value Index's 6.9%, but much lower than the
S&P 500.
Our investment strategy, owning stocks that appear to be undervalued and
have good growth prospects based on our fundamental analysis, remains the
same. Unfortunately, it's been out of sync with the equity market for the past
two years. (For the two years ended December 31, 1999, the Russell 1000 Growth
Index's annualized return was 35.7% versus
[PERFORMANCE GRAPH]
PERFORMANCE OVERVIEW - Class A and Class B Shares
<TABLE>
<CAPTION>
Average Annual Total Return With Sales Charge Without Sales Charge
for the periods ended December 31, 1999 Quarter 1 Year Since Inception* Quarter 1 Year Since Inception*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A (0.02)% (1.30)% 10.12% 6.11% 4.74% 12.59
Class B 0.96 % (1.07)% 10.87% 5.96% 3.92% 11.81
S & P 500 Index N/A N/A N/A 14.88% 21.04% 27.35
Lipper, Inc. (Large-Cap Value Funds) N/A N/A N/A 8.74% 11.23% N/A
</TABLE>
* Graph and average annual return comparison begins April 30, 1997, inception
date of the fund.
<TABLE>
<CAPTION>
SAFECO SAFECO
U.S. Value Fund U.S. Value Fund
With Sales Charge Class A Class B S&P 500 Index
- ----------------- --------------- --------------- -------------
<S> <C> <C> <C>
4/30/97 9,425 10,000 10,000
5/31/97 10,057 10,660 10,608
6/30/97 10,419 11,041 11,083
7/31/97 11,222 11,882 11,965
8/31/97 10,627 11,241 11,295
9/30/97 10,993 11,616 11,914
10/30/97 10,642 11,245 11,516
11/30/97 10,908 11,525 12,049
12/31/97 11,050 11,663 12,256
1/31/98 11,069 11,663 12,391
2/28/98 11,870 12,508 13,284
3/31/98 12,298 12,946 13,964
4/30/98 12,120 12,748 14,104
5/31/98 11,853 12,466 13,862
6/30/98 11,832 12,435 14,425
7/31/98 11,396 11,965 14,272
8/31/98 9,999 10,494 12,210
9/30/98 10,666 11,193 12,993
10/31/98 11,578 12,142 14,048
11/30/98 12,144 12,748 14,900
12/31/98 12,352 12,967 15,758
1/31/99 12,363 12,956 16,417
2/28/99 11,938 12,509 15,907
3/31/99 12,166 12,738 16,543
4/30/99 13,046 13,652 17,184
5/31/99 13,149 13,750 16,778
6/30/99 13,585 14,208 17,709
7/31/99 13,202 13,783 17,156
8/31/99 12,736 13,293 17,071
9/30/99 12,193 12,716 16,603
10/31/99 12,743 13,293 17,653
11/30/99 12,701 13,239 18,013
12/31/99 12,938 12,975 19,074
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A and
Class B of the Fund to a hypothetical investment in a relevant market index.
Fund performance is derived from the Fund's original class of shares and
reflects the maximum 5.75% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to reflect
Rule 12b-1 fees prior to September 30, 1996 (initial public offering date of
Class A and Class B shares). Such fees will affect subsequent performance.
The index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- 36 -
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
11.2% for the Russell 1000 Value Index.)
Not suprisingly, technology stocks Nortel Networks, Cadence Design Systems,
and Apple Computer were the fund's best performers, while our energy stocks,
most financials, and most consumer staple stocks (three sectors in which the
Fund is over-weighted) were weak.
We replaced Bell Atlantic with SBC Communications and bought Sprint to in-
crease the weighting in telecommunications. To offset a partial sale of Nortel
networks, which had nearly doubled, we took a small position in Lucent Tech-
nologies. We also added Apple Computer. Still, because of our value orienta-
tion, the Fund is underweighted in technology compared to the S&P 500.
We sold our holdings in Bank One, Lockheed Martin, Boeing and New Century
Energies, as the earnings outlook for these companies has weakened. We reduced
positions in KeyCorp, Conseco and Xerox, taking some losses to offset gains
taken during the year.
[PHOTO OF LYNETTE D. SAGVOLD]
LYNETTE D. SAGVOLD
- -------------------------------------------------------------------------------
HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
TOP TEN HOLDINGS Net Assets
- -------------------------------------------------------------------------------
<S> <C>
Kimberly-Clark Corp. .............................................. 3.3%
(Household Products - Non-Durables)
Hewlett-Packard Co. ............................................... 3.2
(Computers - Hardware)
Interpublic Group Cos., Inc. ...................................... 2.8
(Services - Advertising/Marketing)
ALLTEL Corp. ...................................................... 2.8
(Telephone)
GTE Corp. ......................................................... 2.7
(Telephone)
Exxon Mobil Corp. ................................................. 2.7
(Oil - International Integrated)
Nortel Networks Corp. ............................................. 2.7
(Communication Equipment)
Praxair, Inc. ..................................................... 2.7
(Chemicals)
CenturyTel, Inc. .................................................. 2.5
(Telephone)
Abbott Laboratories................................................ 2.5
(Health Care - Diversified)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
For the Year Ended Dec. 31, 1999 Cost
(000's)
- -------------------------------------------------------------------------------
<S> <C>
Xerox Corp. ............................................................... $438
Abbott Laboratories........................................................ 314
ALLTEL Corp. .............................................................. 243
UnumProvident Corp. ....................................................... 220
Emerson Electric Co. ...................................................... 219
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
For the Year Ended Dec. 31, 1999 Proceeds
(000's)
- -------------------------------------------------------------------------------
<S> <C>
Merck & Co., Inc. ........................................................ $361
Corning, Inc. ............................................................ 318
Bell Atlantic Corp. ...................................................... 305
Motorola, Inc. ........................................................... 284
Wendy's International, Inc. .............................................. 276
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE INDUSTRIES Net Assets
- -------------------------------------------------------------------------------
<S> <C>
Telephone................................................................... 11%
Health Care (Diversified)................................................... 7
Manufacturing (Diversified)................................................. 6
Computers (Hardware)........................................................ 5
Chemicals................................................................... 5
</TABLE>
- 37 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At year-end, the Fund's price-to-earnings based on year 2000 earnings esti-
mates was 17.7 versus 26.4 for the S&P 500. The forecasted earnings growth for
our stocks is 13% compared to 10% for the S&P 500. We think we're holding
stocks with attractive growth at discount prices. As well, we fully expect our
style of investing to return to favor and offer attractive returns as it has in
the past.
Rex Bently
Lynette D. Sagvold
- --------------------------------------------------------------------------------
Rex Bently, an MBA from Brigham Young University and Chartered Financial Ana-
lyst, has more than 20 years of investment experience.
Lynette D. Sagvold holds a BA in business administration from the University of
Washington and is a Chartered Financial Analyst. She began her investment ca-
reer in 1981 at Kidder Peabody and was a trust officer for Key Trust and First
Interstate before joining SAFECO in 1995 as a portfolio manager and insurance
analyst.
Weightings
As a Percent of Net Assets
- --------------------------------------------------------------------------------
[PIE CHART]
Common Stocks:
1 Large: 89% ($4 Bil. and above)
2 Medium: 11% ($1 Bil. -$4 Bil.)
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO U.S. Value Fund
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 99.6%
Banks (Major Regional) - 1.7%
3,000 Bank of America Corp........................................... $ 151
1,800 KeyCorp............................................................. 40
Banks (Money Center) - 2.1%
3,000 Chase Manhattan Corp............................................... 233
Beverages (Non-Alcoholic) - 2.2%
6,800 PepsiCo, Inc....................................................... 240
Chemicals - 4.5%
3,100 Du Pont (E.I.) de Nemours & Co..................................... 204
5,800 Praxair, Inc....................................................... 292
Communication Equipment - 2.7%
2,900 Nortel Networks Corp............................................... 293
Computers (Hardware) - 5.0%
1,900 *Apple Computer, Inc............................................... 195
3,100 Hewlett-Packard Co................................................. 353
Computers (Peripherals) - 1.1%
8,100 *Quantum Corp. - DLT & Storage Systems............................ 122
Computers (Software & Services) - 3.4%
8,100 *Cadence Design Systems, Inc....................................... 194
8,300 *PeopleSoft, Inc................................................... 177
Electric Companies - 1.5%
9,200 NIPSCO Industries, Inc............................................. 164
Electrical Equipment - 2.0%
3,800 Emerson Electric Co................................................ 218
Electronics (Semiconductors) - 2.0%
2,700 Intel Corp......................................................... 222
Entertainment - 1.9%
7,300 The Walt Disney Co................................................. 214
Financial (Diversified) - 2.6%
2,100 American General Corp.............................................. 159
2,000 Federal National Mortgage Association.............................. 125
Foods - 3.9%
8,400 ConAgra, Inc....................................................... 190
5,900 Dean Foods Co...................................................... 235
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 38 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO U.S. VALUE FUND
As of December 31, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Health Care (Diversified) - 7.0%
7,500 Abbott Laboratories............................................ $ 272
3,700 American Home Products Corp........................................ 146
2,600 Bristol-Myers Squibb Co............................................ 167
2,000 Johnson & Johnson.................................................. 186
Health Care (Major Pharmaceuticals) - 1.7%
7,400 Mylan Laboratories, Inc............................................ 186
Household Products (Non-Durables) - 3.3%
5,500 Kimberly-Clark Corp................................................ 359
Insurance (Life & Health) - 2.5%
4,500 Conseco, Inc........................................................ 80
6,000 UnumProvident Corp................................................. 192
Insurance (Multi-Line) - 2.3%
5,400 Hartford Financial Services Group, Inc............................. 256
Manufacturing (Diversified) - 5.6%
10,150 Crane Co........................................................... 202
3,080 Honeywell International, Inc....................................... 178
2,400 Minnesota Mining & Manufacturing Co................................ 235
Office Equipment & Supplies - 1.0%
4,800 Xerox Corp......................................................... 109
Oil (Domestic Integrated) - 1.1%
1,400 Atlantic Richfield Co.............................................. 121
Oil (International Integrated) - 4.5%
3,654 Exxon Mobil Corp................................................... 294
3,700 Texaco, Inc........................................................ 201
Oil & Gas (Drilling & Equipment) - 1.5%
4,200 Halliburton Co..................................................... 169
Paper & Forest Products - 1.9%
3,700 International Paper Co............................................. 209
Publishing (Newspapers) - 2.1%
4,700 New York Times Co. (Class A)....................................... 231
Real Estate Investment Trust - 3.2%
2,500 Equity Residential Properties Trust................................ 107
5,100 First Industrial Realty Trust, Inc................................. 140
4,300 Liberty Property Trust............................................. 104
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Retail (Department Stores) - 1.8%
6,150 May Department Stores Co..................................... $ 198
Retail (Drug Stores) - 1.8%
5,000 CVS Corp......................................................... 200
Retail (Food Chains) - 2.5%
8,440 Albertson's, Inc................................................. 272
Retail (General Merchandise) - 1.3%
1,600 *Costco Companies, Inc........................................... 146
Savings & Loans - 1.8%
7,600 Washington Mutual, Inc........................................... 198
Services (Advertising/Marketing) - 2.8%
5,400 Interpublic Group Cos., Inc...................................... 312
Services (Commercial & Consumer) - 0.1%
100 United Parcel Service, Inc. (Class B).............................. 7
Telecommunications (Equipment) - 1.5%
2,200 Lucent Technologies, Inc......................................... 165
Telecommunications (Long Distance) - 0.6%
900 Sprint Corp....................................................... 61
Telephone - 11.1%
3,700 ALLTEL Corp...................................................... 306
5,800 CenturyTel, Inc.................................................. 275
4,200 GTE Corp......................................................... 296
3,000 *MCI WorldCom, Inc............................................... 159
3,700 SBC Communications, Inc.......................................... 180
------
TOTAL COMMON STOCKS.................................................... 10,940
------
CASH EQUIVALENTS - 2.9%
Investment Companies
314,935 J.P. Morgan Institutional Prime Money Market..................... 315
------
TOTAL CASH EQUIVALENTS.................................................... 315
------
TOTAL INVESTMENTS - 102.5%............................................. 11,255
Other Assets, less Liabilities........................................... (272)
------
NET ASSETS............................................................ $10,983
------
------
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 39 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO High-Yield Bond Fund
December 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO OF ROBERT KERN]
ROBERT KERN
High-yield bonds proved to be the best fixed-income investment in
1999. (The Merrill Lynch High-Yield Index returned 2.51%.) The SAFECO
High-Yield Bond Fund proved to be a great choice for high-yield invest-
ors. For the year and quarter ended December 31, 1999, the Fund
outperformed its benchmark index.
The year itself ended on a high note, with the best returns coming in the
fourth quarter. Fewer-than-expected new issues and stable cash flows lent a
positive technical tone to the market, and nearly all the Fund's holdings showed
some price increase. Cable and telecommunication issues such as Bresnan,
Metromedia Fiber, Psinet, and Rhythms
[PERFORMANCE GRAPH]
PERFORMANCE OVERVIEW - Class A and Class B Shares
<TABLE>
<CAPTION>
Average Annual Total Return With Sales Charge Without Sales Charge
for the periods ended December 31, 1999 Quarter 1 Year 5 Year 10 Year Quarter 1 Year 5 Year 10 Year
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (1.16)% (1.10)% 8.17% 8.73% 3.49% 3.52% 9.17% 9.23%
Class B (1.68)% (2.04)% 8.38% 8.98% 3.32% 2.73% 8.67% 8.98%
Merrill Lynch High-Yield Master II Index N/A N/A N/A N/A 1.36% 2.51% 9.89% 11.34%
Lipper, Inc. (High Current Yield Funds) N/A N/A N/A N/A 2.54% 4.53% 8.89% 10.08%
<CAPTION>
SAFECO SAFECO
High-Yield Bond High-Yield Bond Merrill Lynch
With Sales Charge Fund Class A Fund Class B High-Yield Index
--------------- --------------- ----------------
<S> <C> <C> <C>
12/31/89 9,550 10,000 10,000
1/31/90 9,408 9,851 9,844
2/28/90 9,219 9,653 9,696
3/31/90 9,405 9,848 9,871
4/30/90 9,461 9,907 9,940
5/31/90 9,647 10,102 10,105
6/30/90 9,757 10,217 10,362
7/31/90 9,981 10,451 10,619
8/31/90 9,675 10,131 10,134
9/30/90 9,314 9,753 9,710
10/31/90 9,015 9,440 9,432
11/30/90 9,114 9,544 9,532
12/31/90 9,206 9,640 9,676
1/31/91 9,157 9,589 9,875
2/28/91 9,535 9,985 10,731
3/31/91 9,872 10,337 11,252
4/30/91 10,173 10,653 11,651
5/31/91 10,295 10,780 11,696
6/30/91 10,407 10,898 11,955
7/31/91 10,637 11,138 12,284
8/31/91 10,844 11,355 12,562
9/30/91 11,007 11,526 12,744
10/31/91 11,261 11,792 13,176
11/30/91 11,402 11,940 13,315
12/31/91 11,443 11,982 13,467
1/31/92 11,761 12,315 13,921
2/28/92 11,965 12,529 14,269
3/31/92 12,094 12,664 14,474
4/30/92 12,087 12,656 14,549
5/31/92 12,250 12,827 14,756
6/30/92 12,408 12,993 14,934
7/31/92 12,621 13,216 15,225
8/31/92 12,778 13,380 15,418
9/30/92 12,935 13,545 15,582
10/31/92 12,681 13,279 15,378
11/30/92 12,896 13,504 15,617
12/31/92 13,030 13,644 15,815
1/31/93 13,386 14,017 16,184
2/28/93 13,652 14,295 16,473
3/31/93 13,884 14,538 16,762
4/30/93 13,984 14,644 16,877
5/31/93 14,196 14,865 17,096
6/30/93 14,465 15,146 17,415
7/31/93 14,634 15,324 17,586
8/31/93 14,734 15,429 17,751
9/30/93 14,784 15,481 17,830
10/31/93 14,994 15,700 18,160
11/30/93 15,108 15,821 18,264
12/31/93 15,234 15,952 18,456
1/31/94 15,521 16,253 18,855
2/28/94 15,445 16,174 18,724
3/31/94 14,899 15,602 18,119
4/30/94 14,779 15,476 17,984
5/31/94 14,914 15,617 17,855
6/30/94 14,979 15,685 17,936
7/31/94 14,973 15,679 18,044
8/31/94 15,028 15,737 18,187
9/30/94 15,023 15,731 18,184
10/31/94 14,962 15,667 18,231
11/30/94 14,766 15,462 18,075
12/31/94 14,891 15,593 18,260
1/31/95 15,066 15,776 18,521
2/28/95 15,383 16,108 19,115
3/31/95 15,523 16,255 19,373
4/30/95 15,817 16,562 19,864
5/31/95 16,232 16,997 20,488
6/30/95 16,314 17,083 20,626
7/31/95 16,531 17,310 20,894
8/31/95 16,538 17,318 21,004
9/30/95 16,740 17,529 21,248
10/31/95 16,971 17,771 21,427
11/30/95 17,000 17,801 21,640
12/31/95 17,220 18,032 21,992
1/31/96 17,436 18,258 22,370
2/28/96 17,604 18,434 22,439
3/31/96 17,547 18,374 22,337
4/30/96 17,583 18,411 22,378
5/31/96 17,692 18,526 22,539
6/30/96 17,737 18,573 22,629
7/31/96 17,922 18,767 22,778
8/31/96 18,177 19,033 23,055
9/30/96 18,545 19,419 23,598
10/31/96 18,616 19,494 23,802
11/30/96 18,893 19,783 24,275
12/31/96 19,009 19,905 24,482
1/31/97 19,168 20,072 24,666
2/28/97 19,518 20,427 25,046
3/31/97 19,109 19,986 24,701
4/30/97 19,232 20,102 25,018
5/31/97 19,778 20,660 25,539
6/30/97 20,056 20,936 25,939
7/31/97 20,570 21,461 26,627
8/31/97 20,576 21,457 26,582
9/30/97 20,927 21,811 27,073
10/31/97 20,907 21,779 27,211
11/30/97 21,122 21,991 27,454
12/31/97 21,383 22,248 27,730
1/30/98 21,827 22,698 28,166
2/28/98 21,942 22,801 28,280
3/31/98 22,175 23,027 28,555
4/30/98 22,120 22,954 28,678
5/31/98 22,215 23,035 28,835
6/30/98 22,283 23,088 28,999
7/31/98 22,594 23,391 29,184
8/31/98 21,183 21,913 27,711
9/30/98 21,559 22,284 27,783
10/31/98 21,285 21,983 27,183
11/30/98 22,202 22,913 28,600
12/31/98 22,306 23,001 28,549
1/31/99 22,584 23,273 28,922
2/28/99 22,576 23,248 28,724
3/31/99 22,903 23,568 29,071
4/30/99 23,342 24,001 29,603
5/31/99 22,698 23,323 29,332
6/30/99 22,520 23,098 29,259
7/31/99 22,553 23,119 29,292
8/31/99 22,408 22,982 28,989
9/30/99 22,312 22,870 28,872
10/31/99 22,383 22,929 28,716
11/30/99 22,787 23,332 29,090
12/31/99 23,091 23,158 29,266
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A and
Class B of the Fund to a hypothetical investment in a relevant market index.
Fund performance is derived from the Fund's original class of shares and
reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to reflect
Rule 12b-1 fees prior to September 30, 1996 (initial public offering date of
Class A and Class B shares). Such fees will affect subsequent performance.
The index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- 40 -
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Credit Rating Distribution
As a Percent of Net Assets
- -------------------------------------------------------------------------------
[PIE CHART]
Bonds:
1 BBB: 2%
2 BB: 11%
3 B: 76%
4 CCC: 3%
5 Not Rated: 1%
6 Preferred Stock: 5%
7 Cash & Other: 2%
NetConnections were the best performers. 21st Century Telecom also rose
significantly in price on the news that RCN Corp. was acquiring the company. I
used the price increase to reduce our exposure to Intermedia Telecom.
I bought preferred stock in CSC Holdings, the parent company of Cablevision
Systems, which serves New York, operates several cable channels and owns a
number of sports franchises. I chose the preferred stock as it yields
substantially more than the bonds of this well-rated company.
In addition to being overweighted in cable and telecommunication issues, our
large exposure to single-B-rated paper helped us outperform. That rating
category turned in the best performance in the high-yield market.
The 30-day yield on the Fund climbed to end the year at 9.47%, while the
modified duration (sensitivity to interest rates) declined to 5.2 years. I will
continue to emphasize higher yields and lower interest-rate sensitivity in order
to minimize volatility in the Fund. I do expect volatility in the market. Robust
economic growth and tight labor markets make increases in the Fed funds likely,
and both the equity and bond markets traded off early in 2000 in anticipation of
Fed action.
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.
- 41 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<CAPTION>
Percent of
TOP FIVE INDUSTRIES Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Telephone................................................................... 15%
Broadcasting (TV, Radio & Cable)............................................ 13
Auto Parts & Equipment...................................................... 6
Manufacturing (Diversified)................................................. 5
Telecommunications (Long Distance).......................................... 4
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE HOLDINGS Net Assets
- --------------------------------------------------------------------------------
<S> <C>
McLeodUSA, Inc. .......................................................... 2.7%
(Telephone)
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)
Allied Waste Industries................................................... 2.4
(Waste Management)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
For the year ended December 31, 1999 Cost
(000's)
- --------------------------------------------------------------------------------
<S> <C>
McLeodUSA, Inc. ......................................................... $2,041
Ames Department Stores, Inc. ............................................ 2,000
Allied Waste Industries.................................................. 1,993
American Axle & Manufacturing Holdings, Inc. ............................ 1,984
Level 3 Communications, Inc. ............................................ 1,890
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES Proceeds
For the year ended December 31, 1999 (000's)
- --------------------------------------------------------------------------------
<S> <C>
AES Corp. ............................................................... $1,965
Randall's Food Markets, Inc. ............................................ 1,923
Lenfest Communications, Inc. ............................................ 1,590
Qwest Communications, International Inc. ................................ 1,590
Comcast Corp. ........................................................... 1,575
</TABLE>
<TABLE>
<S> <C>
Current Yield (30-day)
Class A.............................. 7.98%
Current Yield (30-day)
Class B.............................. 7.48%
Weighted Average Maturity............. 8.2 years
</TABLE>
- 42 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO High-Yield Bond Fund
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
ASSET BACKED SECURITIES - 2.1%
Financial (Diversified) - 2.1%
$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 - 89.9%
Agricultural Products - 3.4%
1,600 #The Scott's Company (144A) 8.625%, due 1/15/09 (acquired 1/14/99)..
1,552
1,000 Sun World International, Inc. 11.25%, due 4/15/04............. 1,020
Air Freight - 1.9%
1,500 Atlas Air, Inc. 9.375%, due 11/15/06.......................... 1,447
Airlines - 1.2%
1,000 Northwest Airlines, Inc. 8.52%, due 4/07/04..................... 929
Aluminum - 2.6%
1,000 Commonwealth Aluminum Corp. 10.75%, due 10/01/06.............. 1,010
1,000 Wells Aluminum Corp. 10.125%, due 6/01/05....................... 962
Auto Parts & Equipment - 6.0%
2,000 American Axle & Manufacturing Holdings, Inc.
9.75%, due 3/01/09............................................ 2,015
1,000 Federal-Mogul Corp. 8.80%, due 4/15/07.......................... 971
1,750 Hayes Lemmerz International, Inc. 8.25%, due 12/15/08......... 1,610
Broadcasting (TV, Radio & Cable) - 10.6%
750 21st Century Telecom Group, Inc. 12.25%, beg. 2/15/03 Step Bond due
2/15/08......................................................... 501
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
$1,000 Adelphia Communications Corp. 9.875%, due 3/01/05........... $ 1,015
319 AMFM Operating, Inc. 12.625%, due 10/31/06...................... 362
2,250 Bresnan Communications Group 9.25%, beg. 2/01/04
Step Bond due 2/01/09......................................... 1,552
500 Century Communications Corp. 9.50%, due 3/01/05................. 501
1,000 Chancellor Media Corp. 9.00%, due 10/01/08.................... 1,040
1,000 Charter Communications Holdings 8.625%, due 4/01/09............. 924
250 Classic Cable, Inc. 9.375%, due 8/01/09......................... 246
1,000 Falcon Holdings Group 8.375%, due 4/15/10..................... 1,009
1,000 Young Broadcasting, Inc. 9.00%, due 1/15/06..................... 962
Chemicals (Specialty) - 0.7%
500 Sovereign Specialty Chemicals, Inc. 9.50%, due 8/01/07.......... 502
Communication Equipment - 3.9%
1,500 National Equipment Services, Inc. (Series B)
10.00%, due 11/30/04.......................................... 1,500
500 National Equipment Services, Inc. (Series D)
10.00%, due 11/30/04............................................ 500
1,000 Rhythms NetConnections, Inc. 12.75%, due 4/15/09................ 968
Computers (Software & Services) - 2.0%
1,500 PSINet, Inc. 11.00%, due 8/01/09.............................. 1,545
Containers & Packaging (Paper) - 1.3%
500 Packaging Corporation of America 9.625%, due 4/01/09............ 511
500 Printpak, Inc. 10.625%, due 8/15/06............................. 480
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 43 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
Entertainment - 2.8%
$ 500 Cinemark USA, Inc. (Series B) 9.625%, due 8/01/08............ $ 450
500 Cinemark USA, Inc. (Series D) 9.625%, due 8/01/08................ 450
1,250 Premier Parks, Inc. 9.25%, due 4/01/06......................... 1,228
Household Furnishings & Appliances - 1.0%
1,000 Holmes Products Corp. 9.875%, due 11/15/07....................... 730
Lodging (Hotels) - 0.6%
500 HMH Properties, Inc. 7.875%, due 8/01/08......................... 446
Manufacturing (Diversified) - 4.7%
1,000 Nortek, Inc. 8.875%, due 8/01/08................................. 950
1,560 Tekni-Plex, Inc. 9.25%, due 3/01/08............................ 1,583
1,000 #Tenneco, Inc. (144A) 11.625%, due 10/15/09 (acquired 10/08/99)......
1,020
Manufacturing (Specialized) - 2.9%
1,500 Flextronics International, Ltd. 8.75%, due 10/15/07............ 1,462
1,000 Numatics, Inc. 9.625%, due 4/01/08............................... 750
Oil & Gas (Drilling & Equipment) - 1.8%
1,500 Newpark Reources, Inc. 8.625%, due 12/15/07.................... 1,395
Oil & Gas (Exploration & Production) - 3.6%
1,500 Ocean Energy, Inc. 8.375%, due 7/01/08......................... 1,440
1,275 Vintage Petroleum Corp. 9.75%, due 6/30/09..................... 1,304
Paper & Forest Products - 0.7%
500 FiberMark, Inc.
9.375%, due 10/15/06............................................. 499
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Power Producers (Independent) - 1.6%
$ 250 AES Corp.
9.50%, due 6/01/09........................................... $ 252
1,000 Chesapeake Energy Corp. 9.625%, due 5/01/05...................... 942
Restaurants - 2.0%
1,500 Perkins Family Restaurants 10.125%, due 12/15/07............... 1,515
Retail (Department Stores) - 3.7%
2,000 Ames Department Stores, Inc. 10.00%, due 4/15/06............... 1,960
1,440 Specialty Retailers, Inc. 9.00%, due 7/15/07..................... 839
Retail (Specialty) - 1.6%
1,250 Big 5 Corp.
10.875%, due 11/15/07.......................................... 1,231
Services (Advertising/Marketing) - 1.3%
1,000 Lamar Advertising Co. 9.625%, due 12/01/06..................... 1,020
Services (Commercial & Consumer) - 3.8%
1,000 Bally Total Fitness Holdings 9.875%, due 10/15/07................ 970
1,000 United Rentals, Inc. 9.00%, due 4/01/09.......................... 945
1,000 United Rentals, Inc. Series B 9.25%, due 1/15/09................. 960
Services (Computer Systems) - 2.7%
500 #Verio, Inc. (144A) 10.625%, due 11/15/09 (acquired 11/16/99).....513
1,500 Verio, Inc.
11.25%, due 12/01/08........................................... 1,575
Telecommunications (Cellular/Wireless) - 0.5%
250 #VoiceStream Wireless Corp. (144A)
10.375%, due 11/15/09 (acquired 11/04/99)........................ 258
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 44 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
$ 250 #VoiceStream Wireless Corp. (144A) 11.875%, beg. 11/15/04
Step Bond due 11/15/09 (acquired 11/04/99)................... $ 150
Telecommunications (Long Distance) - 4.2%
1,250 Flag, Ltd.
8.25%, due 1/30/08............................................. 1,150
1,000 RCN Corp.
10.125%, due 1/15/10............................................. 995
1,000 Williams Communication Group, Inc.
10.875%, due 10/01/09.......................................... 1,045
Telephone - 13.3%
1,250 GCI, Inc.
9.75%, due 8/01/07............................................. 1,163
1,000 Intermedia Communications, Inc. 11.25%, beg. 7/15/02
Step Bond due 7/15/07............................................ 740
3,000 Level 3 Communications, Inc. 10.50%, beg. 12/01/03
Step Bond due 12/01/08......................................... 1,815
2,000 McLeodUSA, Inc. 9.50%, due 11/01/08............................ 2,025
1,500 Metromedia Fiber Network, Inc. 10.00%, due 11/15/08............ 1,534
500 Metromedia Fiber Network, Inc. 10.00%, due 12/15/09.............. 513
1,000 NEXTLINK Communications, Inc. 10.75%, due 11/15/08............. 1,030
2,000 NEXTLINK Communications, Inc. 9.45%, beg. 4/15/03
Step Bond due 4/15/08.......................................... 1,280
Textiles (Specialty) - 1.2%
1,000 Polymer Group, Inc. 9.00%, due 7/01/07........................... 970
Waste Management - 2.3%
2,000 Allied Waste Industies 10.00%, due 8/01/09..................... 1,790
------
TOTAL CORPORATE BONDS.................................................. 68,521
------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
PREFERRED STOCKS - 5.3%
Broadcasting (TV, Radio & Cable) - 2.4%
12 CSC Holdings, Inc.
11.125%, due 4/01/08............................................ $ 1,326
5 Sinclair Broadcast Group, Inc.
11.625%, due 3/15/09................................................ 485
Containers & Packaging (Paper) - 1.6%
11 Packaging Corporation of America 12.375%, due 4/01/10............. 1,159
Telephone - 1.3%
10 Global Crossing Holdings, Ltd.
10.50%, due 12/01/08.............................................. 1,005
-------
TOTAL PREFERRED STOCKS................................................... 3,975
-------
CASH EQUIVALENTS - 2.0%
Investment Companies
1,533 J.P. Morgan Institutional Prime Money Market...................... 1,533
-------
TOTAL CASH EQUIVALENTS................................................... 1,533
-------
TOTAL INVESTMENTS - 99.3%............................................... 75,617
Other Assets, less Liabilities............................................. 569
-------
NET ASSETS............................................................. $76,186
-------
-------
- --------------------------------------------------------------------------------
# Securities are exempt from registration and restricted as to resale only to
dealers, or through a dealer to an "accredited investor" or a "qualified
institutional buyer". The total cost of such securities is $3,461,163 and the
total value is 4.6% of net assets.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 45 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Intermediate-Term
U.S. Treasury Fund
December 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO OF RONALD SPAULDING]
RONALD SPAULDING
The Intermediate-Term U.S. Treasury Fund trailed the Merrill Lynch
Intermediate-Term Treasury Index. Class A shares outpaced the peer group
for the year and quarter, while Class B shares trailed.
Interest rates moved irregularly but inexorably higher through the year as
investors focused on eco-nomic strength, some inflationary signs, and the near
certainty that the Fed-eral Reserve Board would raise short-term interest rates.
The Fed did move three times during the year, with the most recent tightening
move sending short-term rates to 5.50%. The five-year U.S.
[PERFORMANCE GRAPH]
PERFORMANCE OVERVIEW - Class A and Class B Shares
<TABLE>
<CAPTION>
Average Annual Total Return With Sales Charge Without Sales Charge
for the periods ended December 31, 1999 Quarter 1 Year 5 Year 10 Year Quarter 1 Year 5 Year 10 Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (4.98)% (6.68)% 5.21% 5.96% (0.50)% (2.26)% 6.17% 6.45%
Class B (5.56)% (7.62)% 5.38% 6.21% (0.65)% (2.97)% 5.70% 6.21%
Merrill Lynch Intermediate-Term Treasury Index N/A N/A N/A N/A (0.02)% 0.55 % 6.98% 7.12%
Lipper, Inc. (Intermediate U.S. Treasury Funds) N/A N/A N/A N/A (0.61)% (2.27)% 6.58% 6.66%
<CAPTION>
SAFECO SAFECO
Intermediate-Term Intermediate-Term Merrill Lynch
U.S. Treasury Fund U.S. Treasury Fund Intermediate-Term
With Sales Charge Class A Class B Treasury Index
----------------- ------------------- ------------------
<S> <C> <C> <C>
12/31/89 9,550 10,000 10,000
1/31/90 9,496 9,941 9,948
2/28/90 9,543 9,990 9,973
3/31/90 9,538 9,985 9,990
4/30/90 9,513 9,959 9,957
5/31/90 9,694 10,148 10,168
6/30/90 9,792 10,251 10,298
7/31/90 9,924 10,389 10,448
8/31/90 9,888 10,351 10,403
9/30/90 9,926 10,391 10,493
10/31/90 10,006 10,474 10,644
11/30/90 10,110 10,583 10,803
12/31/90 10,236 10,716 10,956
1/31/91 10,282 10,764 11,067
2/28/91 10,362 10,848 11,125
3/31/91 10,436 10,925 11,178
4/30/91 10,552 11,046 11,301
5/31/91 10,607 11,104 11,365
6/30/91 10,620 11,117 11,372
7/31/91 10,752 11,256 11,500
8/31/91 10,933 11,446 11,712
9/30/91 11,098 11,618 11,914
10/31/91 11,217 11,743 12,049
11/30/91 11,332 11,864 12,188
12/31/91 11,620 12,164 12,488
1/31/92 11,487 12,026 12,362
2/28/92 11,501 12,040 12,406
3/31/92 11,460 11,997 12,358
4/30/92 11,547 12,088 12,471
5/31/92 11,713 12,262 12,644
6/30/92 11,896 12,454 12,832
7/31/92 12,192 12,764 13,071
8/31/92 12,288 12,864 13,221
9/30/92 12,516 13,103 13,404
10/31/92 12,287 12,863 13,237
11/30/92 12,211 12,783 13,181
12/31/92 12,383 12,963 13,354
1/31/93 12,702 13,297 13,599
2/28/93 12,983 13,591 13,803
3/31/93 13,035 13,646 13,859
4/30/93 13,128 13,744 13,969
5/31/93 13,085 13,698 13,927
6/30/93 13,402 14,030 14,127
7/31/93 13,423 14,052 14,154
8/31/93 13,754 14,398 14,373
9/30/93 13,832 14,480 14,435
10/31/93 13,862 14,512 14,455
11/30/93 13,640 14,279 14,390
12/31/93 13,725 14,368 14,446
1/31/94 13,903 14,555 14,590
2/28/94 13,536 14,170 14,383
3/31/94 13,251 13,872 14,182
4/30/94 13,157 13,773 14,083
5/31/94 13,162 13,779 14,100
6/30/94 13,138 13,753 14,110
7/31/94 13,312 13,936 14,280
8/31/94 13,346 13,971 14,330
9/30/94 13,200 13,819 14,214
10/31/94 13,205 13,824 14,218
11/30/94 13,178 13,796 14,147
12/31/94 13,230 13,850 14,198
1/31/95 13,381 14,008 14,436
2/28/95 13,581 14,217 14,712
3/31/95 13,650 14,290 14,793
4/30/95 13,818 14,466 14,957
5/31/95 14,346 15,019 15,390
6/30/95 14,442 15,119 15,491
7/31/95 14,330 15,002 15,501
8/31/95 14,501 15,180 15,628
9/30/95 14,661 15,348 15,731
10/31/95 14,884 15,582 15,910
11/30/95 15,187 15,899 16,109
12/31/95 15,445 16,169 16,267
1/31/96 15,495 16,221 16,412
2/28/96 15,117 15,826 16,228
3/31/96 14,959 15,660 16,144
4/30/96 14,928 15,627 16,099
5/31/96 14,925 15,624 16,090
6/30/96 15,033 15,738 16,242
7/31/96 15,081 15,787 16,298
8/31/96 15,079 15,785 16,313
9/30/96 15,247 15,962 16,523
10/31/96 15,433 16,145 16,792
11/30/96 15,628 16,357 16,995
12/31/96 15,495 16,210 16,906
1/31/97 15,538 16,232 16,969
2/28/97 15,508 16,194 16,988
3/31/97 15,315 15,985 16,901
4/30/97 15,506 16,180 17,090
5/31/97 15,614 16,293 17,218
6/30/97 15,781 16,459 17,370
7/31/97 16,229 16,918 17,696
8/31/97 16,028 16,700 17,614
9/30/97 16,267 16,936 17,815
10/31/97 16,537 17,203 18,022
11/30/97 16,543 17,199 18,057
12/31/97 16,739 17,389 18,217
1/30/98 17,003 17,640 18,459
2/28/98 16,924 17,560 18,435
3/31/98 16,951 17,580 18,500
4/30/98 17,006 17,631 18,582
5/31/98 17,146 17,767 18,701
6/30/98 17,301 17,902 18,837
7/31/98 17,312 17,922 18,911
8/31/98 17,747 18,347 19,289
9/30/98 18,355 18,965 19,745
10/31/98 18,274 18,869 19,786
11/30/98 18,186 18,767 19,716
12/31/98 18,260 18,831 19,789
1/31/99 18,256 18,818 19,877
2/28/99 17,962 18,505 19,572
3/31/99 18,051 18,585 19,722
4/30/99 18,058 18,579 19,782
5/31/99 17,863 18,367 19,650
6/30/99 17,831 18,322 19,684
7/31/99 17,785 18,279 19,703
8/31/99 17,788 18,252 19,744
9/30/99 17,937 18,392 19,901
10/31/99 17,944 18,387 19,931
11/30/99 17,933 18,365 19,943
12/31/99 17,847 17,774 19,898
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A and
Class B of the Fund to a hypothetical investment in a relevant market index.
Fund performance is derived from the Fund's original class of shares and
reflects the maximum 5.75% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to reflect
Rule 12b-1 fees prior to September 30, 1996 (initial public offering date of
Class A and Class B shares). Such fees will affect subsequent performance.
The index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- 46 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Treasury, a representative holding of the Fund, started 1999 at 4.5% and
finished at 6.25%.
The Fund suffered from rising interest rates more than its comparable in-
dex, because its average maturity (even though I short-ened it by one year, as
it became clear that interest rates were trending upward) remained longer than
the average maturity of the index. At year-end, the average maturity of the
Fund was 4.6 years and the index's was 3.6 years.
I expect 2000 will offer more of the same, at least in the first half. We
believe the Fed will raise short-term interest rates in February from 5.50% to
6.00% and then desist. I've positioned the Fund for this likelihood. With its
somewhat longer average maturity, it may suffer more from a rate hike, but it
should do better in the stable interest-rate environment I expect to follow.
The risk to this scenario is that the economy continues to boom, the stock
market continues to soar, and the Fed, fretting about inflation in general and
equity assets in particular, would try to deflate the stock market with a
string of rate increases. Bond investors would suffer from this medicine.
This concludes my time as your portfolio manager. As my successor, Naomi
Urata will closely monitor the bond market and work to position the Fund to
make the best of the situation, whether rates are rising or falling.
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.
- 47 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Intermediate-Term
U.S. Treasury Fund
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
U.S. GOVERNMENT OBLIGATIONS - 97.5%
U.S. Federal Agency Notes - 18.4%
$ 500 5.75%, due 2/15/08.............................................. $ 460
500 5.785%, due 4/14/08................................................ 460
1,500 6.26%, due 9/24/04............................................... 1,463
1,500 6.875%, due 11/22/06............................................. 1,452
U.S. Treasury Bills/Strips - 5.9%
1,975 0.00%, due 2/15/07............................................... 1,238
U.S. Treasury Notes - 73.2%
2,500 5.625%, due 5/15/08.............................................. 2,352
2,600 5.875%, due 6/30/00.............................................. 2,603
3,900 6.50%, due 10/15/06.............................................. 3,889
810 6.875%, due 3/31/00................................................ 813
2,070 7.25%, due 8/15/04............................................... 2,136
1,200 7.50%, due 11/15/01.............................................. 1,226
2,200 7.75%, due 2/15/01............................................... 2,238
------
TOTAL U.S. GOVERNMENT OBLIGATIONS....................................... 20,330
------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
CASH EQUIVALENTS - 1.1%
Investment Companies
$ 221 J.P. Morgan Institutional Prime Money Market................... $ 221
------
TOTAL CASH EQUIVALENTS..................................................... 221
------
TOTAL INVESTMENTS - 98.6%............................................... 20,551
Other Assets, less Liabilities............................................. 285
------
NET ASSETS............................................................. $20,836
------
------
</TABLE>
- --------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<S> <C>
Current
Yield (30-day) Class A.......... 4.69%
Current Yield (30-day) Class B... 4.29%
Weighted Average Maturity........ 4.7 years
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 48 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Managed Bond Fund
December 31, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO OF MICHAEL HUGHES]
MICHAEL HUGHES
While the performance of the Managed Bond Fund continued to improve
during the last quarter, regrettably, trailed the benchmark at year end.
And the absolute performance of both ventured back into negative terri-
tory.
1999 was the worst year for the bond market since 1994, and the only other
year to post a negative annual return since 1973. Most of the Fund's
underperformance in the year occurred during the first half of 1999 -- when I
was optimistic. I thought economic growth would slow, inflation would remain
low and bonds would be stable, and had positioned the
[PERFORMANCE GRAPH]
PERFORMANCE OVERVIEW - Class A and Class B Shares
<TABLE>
<CAPTION>
With Sales Charge Without Sales Charge
Average Annual Total Return Since Since
for the periods ended December 31, 1999 Quarter 1 Year 5 Year Inception* Quarter 1 Year 5 Year Inception*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (5.02)% (8.57)% 4.55% 3.33% (0.53)% (4.24)% 5.51% 4.15%
Class B (5.66)% (9.55)% 4.58% 3.50% (0.75)% (4.98)% 4.90% 3.64%
Lehman Brothers Gov't/Corp. Bond Index N/A N/A N/A N/A (0.41)% (2.15)% 7.61% 5.96%
Lipper, Inc. (Intermediate Investment-Grade Debt Funds) N/A N/A N/A N/A (0.20)% (1.31)% 6.80% N/A
</TABLE>
* The Fund's inception was June 25, 1992. Graph and average annual return
comparison begins February 28, 1994.
<TABLE>
<CAPTION>
SAFECO SAFECO Lehman Brothers
Managed Bond Managed Bond Government/
With Sales Charge Fund Class A Fund Class B Corporate Index
------------ ------------ ---------------
<S> <C> <C> <C>
2/28/94 9,550 10,000 10,000
3/31/94 9,230 9,666 9,755
4/30/94 9,222 9,657 9,675
5/31/94 9,230 9,666 9,657
6/30/94 9,217 9,653 9,634
7/31/94 9,317 9,757 9,827
8/31/94 9,339 9,780 9,831
9/30/94 9,265 9,703 9,682
10/31/94 9,271 9,709 9,671
11/30/94 9,244 9,680 9,654
12/31/94 9,262 9,699 9,717
1/31/95 9,385 9,828 9,904
2/28/95 9,540 9,991 10,134
3/31/95 9,586 10,038 10,202
4/30/95 9,708 10,167 10,344
5/31/95 10,058 10,533 10,777
6/30/95 10,136 10,615 10,864
7/31/95 10,066 10,541 10,822
8/31/95 10,192 10,674 10,960
9/30/95 10,304 10,791 11,072
10/31/95 10,468 10,962 11,234
11/30/95 10,674 11,178 11,419
12/31/95 10,869 11,382 11,587
1/31/96 10,885 11,400 11,659
2/28/96 10,625 11,127 11,412
3/31/96 10,513 11,010 11,316
4/30/96 10,508 11,004 11,239
5/31/96 10,513 11,009 11,220
6/30/96 10,592 11,092 11,369
7/31/96 10,625 11,127 11,396
8/31/96 10,645 11,148 11,368
9/30/96 10,732 11,239 11,570
10/31/96 10,842 11,347 11,840
11/30/96 10,963 11,467 12,058
12/31/96 10,863 11,369 11,924
1/31/97 10,883 11,368 11,938
2/28/97 10,857 11,335 11,963
3/31/97 10,714 11,179 11,821
4/30/97 10,862 11,327 11,994
5/31/97 10,945 11,406 12,106
6/30/97 11,054 11,511 12,251
7/31/97 11,377 11,839 12,626
8/31/97 11,230 11,664 12,484
9/30/97 11,396 11,843 12,680
10/31/97 11,576 12,007 12,883
11/30/97 11,591 12,028 12,951
12/31/97 11,722 12,154 13,087
1/30/98 11,916 12,343 13,272
2/28/98 11,864 12,276 13,245
3/31/98 11,884 12,284 13,285
4/30/98 11,926 12,303 13,352
5/31/98 12,065 12,435 13,496
6/30/98 12,174 12,536 13,633
7/31/98 12,166 12,532 13,644
8/31/98 12,448 12,798 13,911
9/30/98 12,763 13,112 14,308
10/31/98 12,604 12,936 14,207
11/30/98 12,624 12,948 14,292
12/31/98 12,645 12,965 14,327
1/31/99 12,699 13,014 14,429
2/28/99 12,346 12,644 14,086
3/31/99 12,392 12,683 14,156
4/30/99 12,394 12,692 14,191
5/31/99 12,216 12,487 14,044
6/30/99 12,115 12,391 14,001
7/31/99 12,074 12,326 13,962
8/31/99 12,048 12,292 13,951
9/30/99 12,174 12,412 14,076
10/31/99 12,192 12,423 14,113
11/30/99 12,187 12,406 14,105
12/31/99 12,109 11,864 14,019
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A and
Class B of the Fund to a hypothetical investment in a relevant market index.
Fund performance is derived from the Fund's original class of shares and
reflects the maximum 5.75% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to reflect
Rule 12b-1 fees prior to September 30, 1996 (initial public offering date of
Class A and Class B shares). Such fees will affect subsequent performance.
The index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- 49 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Credit Rating Distribution
As a Percent of Net Assets
- --------------------------------------------------------------------------------
[PIE CHART]
Bonds:
1 AAA:70%
2 AA:4%
3 A:21%
4 Cash & Other:5%
portfolio accordingly. Consequently, the duration (sensitivity to changes in
interest rates) of the portfolio was too high.
The strength of the global economic recovery fueled domestic demand and
added to our own economic growth. A reversal of the late 1998 flight to quality
(demand for the safety of U.S. Treasuries) caused a sharp increase in yields and
volatility in the market. Finally, even though actual inflation fell, fears of
inflation caused the market to act as though inflation were rising.
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
BONDS BY TYPE Net Assets
- --------------------------------------------------------------------------------
<S> <C>
U.S. Government Obligations................................................ 44%
Asset Backed Securities.................................................... 10
Mortgage Backed Securities................................................. 16
Corporate Bonds............................................................ 25
Cash & Other............................................................... 5
----
100%
====
</TABLE>
<TABLE>
<S> <C>
Current Yield (30-day) Class A... 5.56%
Current Yield (30-day) Class B... 5.18%
Weighted Average Maturity........ 7.5 years
</TABLE>
- --------------------------------------------------------------------------------
About halfway through the year, in order to soften the blow of in-creasing
economic growth and higher interest rates, I reduced the portfolio's duration
and increased its yield. As a result, our rel-ative and absolute performance
improved.
I intend to maintain the Fund's defensive posture until we have concrete
signs that higher interest rates are finally slowing the economy. In the
meantime, I see robust growth prompting the Federal Reserve to "tap on the
brakes" with a couple of rate increases. This should result in slightly higher
interest rates, a flatter or possibly inverted yield curve and, finally, a
slower economy.
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 fi-
nance from the University of Colorado in Boulder and holds an MBA from the Uni-
versity of Southern California in Los Angeles. He is a Chartered Financial Ana-
lyst.
- 50 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Managed Bond Fund
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
ASSET BACKED SECURITIES - 9.9%
Electric Companies - 1.4%
$125 ComEd Transitional Funding Trust 5.63%, due 6/25/09............... $116
Financial (Diversified) - 6.5%
11 Chevy Chase Auto Receivables Trust (Class A)
6.60%, due 12/15/02................................................. 11
230 Citicorp Mortgage Securities, Inc. 6.50%, due 6/25/29.............. 206
165 First USA Credit Card Master Trust 5.28%, due 9/18/06.............. 156
165 Fleet Credit Card Master
6.90%, due 4/16/07................................................. 165
Manufacturing (Specialized) - 0.8%
63 Harley-Davidson Eagle 6.20%, due 1/15/03............................ 63
Trucking - 1.2%
100 Ryder Vehicle Lease 6.89%, due 4/15/05.............................. 99
-------
TOTAL ASSET BACKED SECURITIES.............................................. 816
-------
CORPORATE BONDS - 24.8%
Air Freight - 1.4%
126 Federal Express Corp. 6.845%, due 1/15/19.......................... 117
Banks (Major Regional) - 1.4%
120 Bank of America Corp. 6.625%, due 6/15/04.......................... 117
Electric Companies - 1.8%
145 Central Power & Light Co. 7.50%, due 12/01/02...................... 146
Financial (Diversified) - 10.2%
110 CIT Group, Inc.
5.57%, due 12/08/03................................................ 103
125 First Union Corp. 6.625%, due 6/15/04.............................. 122
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
$145 Ford Motor Credit Co. 7.375%, due 10/28/09...................... $ 143
150 General Motors Acceptance Corp. 5.95%, due 3/14/03................. 145
190 Hertz Corp.
7.00%, due 7/01/04................................................. 188
160 Sears Roebuck Acceptance Corp. 6.25%, due 5/01/09.................. 141
Manufacturing (Diversified) - 2.2%
190 Tyco International Group SA 6.375%, due 6/15/05.................... 178
Natural Gas - 2.5%
240 National Fuel Gas Co. 6.00%, due 3/01/09........................... 211
Publishing (Newspapers) - 2.3%
195 Times-Mirror Co. 6.65%, due 10/15/01............................... 194
Retail (General Merchandise) - 2.2%
185 Wal-Mart Stores, Inc. 6.15%, due 8/10/01........................... 184
Telephone - 0.8%
30 AT&T Corp.
5.625%, due 3/15/04................................................. 28
40 AT&T Corp.
6.50%, due 3/15/29.................................................. 34
-------
TOTAL CORPORATE BONDS.................................................... 2,051
-------
MORTGAGE BACKED SECURITIES - 16.4%
Federal Home Loan Mortgage Corp. (FHLMC) - 2.1%
180 7.50%, due 10/01/29................................................ 178
Federal National Mortgage Association (FNMA) - 8.1%
57 6.00%, due 1/01/29.................................................. 53
196 7.00%, due 3/01/12................................................. 194
170 8.00%, due 12/01/29................................................ 172
176 8.00%, due 2/15/29................................................. 177
71 8.00%, due 4/01/08.................................................. 72
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 51 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MANAGED BOND FUND
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Government National Mortgage Association (GNMA) - 6.2%
$223 7.00%, due 4/15/28.............................................. $ 215
182 7.00%, due 8/15/28................................................. 176
125 7.75%, due 10/15/29................................................ 125
-------
TOTAL MORTGAGE BACKED SECURITIES......................................... 1,362
-------
U.S. GOVERNMENT OBLIGATIONS - 43.9%
U.S. Federal Agency Notes - 9.8%
825 6.00%, due 8/15/02................................................. 813
U.S. Treasury Notes - 34.1%
100 4.25%, due 11/15/03................................................. 93
425 5.375%, due 6/30/00................................................ 424
155 5.875%, due 9/30/02................................................ 153
105 6.375%, due 8/15/02................................................ 105
340 6.50%, due 10/15/06................................................ 339
40 7.25%, due 8/15/04.................................................. 41
1,560 7.50%, due 11/15/16.............................................. 1,669
-------
TOTAL U.S. GOVERNMENT OBLIGATIONS........................................ 3,637
-------
CASH EQUIVALENTS - 4.1%
Investment Companies
337 J.P. Morgan Institutional Prime Money Market....................... 337
-------
TOTAL CASH EQUIVALENTS..................................................... 337
-------
TOTAL INVESTMENTS - 99.1%................................................ 8,203
Other Assets, less Liabilities.............................................. 75
-------
NET ASSETS.............................................................. $8,278
-------
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 52 -
<PAGE>
Municipal Bond
Market Overview
December 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO OF STEPHEN C. BAUER]
STEPHEN C. BAUER
The rise in interest rates continued during the fourth quarter, mak-
ing 1999 the worst year in the bond market since 1994, and ending it on
a negative note for long-term tax-exempt investors.
According to the Bond Buyer 40 Yield-to-Maturity Index, 30-year tax-
exempt yields at the beginning of 1999 were 5.17%. They ended the second quar-
ter at 5.54%, the third at 5.89%, and the year at 6.22%, over 1% higher than
where they began. Inflation concerns were behind the rise in yields.
When rates rise, bond values fall. And the longer SAFECO Municipal Bond
Funds typically fall farther when rates rise for the same reasons they climb
higher when rates are dropping: Our strategy is to stay fully invested in long-
term bonds and to favor discounts. There is no arguing: longer bonds--though
more volatile--yield more than shorter ones. And, discount bonds--though more
volatile--offer greater appreciation potential. For investors who prefer a more
stable investment, SAFECO offers an intermediate-term municipal bond fund.
At the beginning of 1999, long-term tax-exempt bonds were yielding
100% of the yield on 30-year Treasury bonds. At mid-year, this ratio
had dropped to 90%, as munis strongly outperformed Treasuries during
the
spring. In mid-August, munis cheapened; their yields climbed from 92% to 98% of
Treasury yields. The markets generally tracked each other in the fourth quar-
ter, and the year ended with the ratio at 96%, still historically cheap for
tax-exempt bonds.
Although there has been no evidence of increasing inflation (the nemesis of
fixed-income investors), the bond markets are still fixated on the Federal Re-
serve and its program of slowing the economy through interest rate increases.
Until there is hard evidence of the slower growth that many economists are
forecasting, it seems the Fed will continue its tight money policy, making a
bond market rally difficult. When that day of relief arrives, we expect it to
be dramatic and extensive since all possible bad news seems to be priced into
today's bond market.
- 53 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Municipal Bond Fund
December 31, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO OF STEPHEN C. BAUER]
STEPHEN C. BAUER
In the negative market of 1999, the SAFECO Municipal Bond Fund
fared surprisingly well against the Lehman Brothers Long Municipal Bond
Index, but underperformed its peers over the shorter time horizon of
one year. We generally underperform when rates rise because of our core
strategy of staying fully invested in long-term bonds (which are more
sensitive to changes in interest rates) in order to maximize tax-exempt
yield.
The SAFECO Municipal Bond Fund benefited from a type of transaction that
became popular in 1999--the retirement of debt by tender offer, rather than
outright call or advance refunding. When the bonds to be retired are not (or not
yet) callable, creative investment bankers offer
[PERFORMANCE GRAPH]
PERFORMANCE OVERVIEW - Class A and Class B Shares
<TABLE>
<CAPTION>
Average Annual Total Return With Sales Charge Without Sales Charge
for the periods ended December 31, 1999 Quarter 1 Year 5 Year 10 Year Quarter 1 Year 5 Year 10 Year
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (6.47)% (10.68)% 5.45% 5.93% (2.05)% (6.47)% 6.43% 6.42%
Class B (7.08)% (11.61)% 5.66% 6.19% (2.24)% (7.14)% 5.97% 6.19%
Lehman Brothers Long Municipal Bond Index N/A N/A N/A N/A (2.52)% (6.67)% 7.41% 7.19%
Lipper, Inc. (General Municipal Bond Funds) N/A N/A N/A N/A (1.55)% (4.63)% 5.77% 6.19%
<CAPTION>
SAFECO SAFECO Lehman Brothers
Municipal Bond Municipal Bond Long Municipal
With Sales Charge Fund Class A Fund Class B Bond Index
-------------- --------------- ---------------
<S> <C> <C> <C>
12/31/89 9,550 10,000 10,000
1/31/90 9,440 9,884 9,899
2/28/90 9,548 9,997 10,011
3/31/90 9,535 9,983 10,021
4/30/90 9,389 9,830 9,898
5/31/90 9,686 10,141 10,178
6/30/90 9,775 10,235 10,278
7/31/90 9,963 10,431 10,459
8/31/90 9,703 10,160 10,210
9/30/90 9,685 10,140 10,194
10/31/90 9,870 10,334 10,410
11/30/90 10,144 10,621 10,674
12/31/90 10,186 10,665 10,721
1/31/91 10,347 10,834 10,865
2/28/91 10,392 10,881 10,941
3/31/91 10,405 10,895 10,968
4/30/91 10,579 11,077 11,137
5/31/91 10,686 11,189 11,268
6/30/91 10,650 11,150 11,247
7/31/91 10,819 11,327 11,421
8/31/91 10,983 11,500 11,585
9/30/91 11,159 11,684 11,753
10/31/91 11,278 11,808 11,876
11/30/91 11,242 11,770 11,891
12/31/91 11,590 12,135 12,174
1/31/92 11,489 12,030 12,167
2/28/92 11,519 12,061 12,186
3/31/92 11,505 12,046 12,217
4/30/92 11,613 12,160 12,333
5/31/92 11,809 12,365 12,513
6/30/92 12,064 12,632 12,756
7/31/92 12,529 13,118 13,223
8/31/92 12,272 12,849 13,046
9/30/92 12,296 12,874 13,103
10/31/92 12,028 12,594 12,885
11/30/92 12,396 12,979 13,248
12/31/92 12,604 13,197 13,420
1/31/93 12,727 13,325 13,546
2/28/93 13,277 13,902 14,176
3/31/93 13,069 13,684 14,005
4/30/93 13,248 13,871 14,197
5/31/93 13,324 13,951 14,314
6/30/93 13,598 14,237 14,584
7/31/93 13,545 14,182 14,598
8/31/93 13,905 14,559 14,972
9/30/93 14,061 14,722 15,180
10/31/93 14,099 14,763 15,209
11/30/93 13,921 14,576 15,025
12/31/93 14,200 14,868 15,412
1/31/94 14,372 15,048 15,594
2/28/94 13,947 14,603 15,078
3/31/94 13,239 13,861 14,178
4/30/94 13,251 13,874 14,287
5/31/94 13,410 14,041 14,454
6/30/94 13,262 13,886 14,281
7/31/94 13,567 14,205 14,648
8/31/94 13,577 14,215 14,679
9/30/94 13,242 13,864 14,338
10/31/94 12,958 13,568 13,898
11/30/94 12,692 13,289 13,531
12/31/94 13,028 13,641 14,011
1/31/95 13,508 14,143 14,627
2/28/95 14,075 14,737 15,223
3/31/95 14,178 14,845 15,406
4/30/95 14,157 14,823 15,399
5/31/95 14,815 15,512 16,055
6/30/95 14,498 15,180 15,758
7/31/95 14,568 15,253 15,839
8/31/95 14,756 15,450 16,063
9/30/95 14,866 15,565 16,189
10/31/95 15,177 15,891 16,580
11/30/95 15,597 16,331 17,008
12/31/95 15,827 16,571 17,273
1/31/96 15,878 16,625 17,347
2/28/96 15,703 16,442 17,136
3/31/96 15,345 16,066 16,822
4/30/96 15,229 15,945 16,755
5/31/96 15,254 15,972 16,763
6/30/96 15,479 16,207 17,022
7/31/96 15,669 16,406 17,190
8/31/96 15,613 16,347 17,168
9/30/96 15,929 16,678 17,549
10/31/96 16,124 16,860 17,763
11/30/96 16,480 17,224 18,145
12/31/96 16,330 17,057 18,036
1/31/97 16,244 16,960 18,000
2/28/97 16,406 17,122 18,194
3/31/97 16,120 16,815 17,880
4/30/97 16,306 17,013 18,091
5/31/97 16,586 17,284 18,441
6/30/97 16,776 17,485 18,678
7/31/97 17,466 18,184 19,357
8/31/97 17,158 17,855 19,100
9/30/97 17,377 18,085 19,375
10/31/97 17,518 18,211 19,542
11/30/97 17,642 18,333 19,715
12/31/97 17,991 18,661 20,076
1/30/98 18,155 18,838 20,291
2/28/98 18,136 18,812 20,281
3/31/98 18,143 18,799 20,309
4/30/98 17,972 18,615 20,200
5/31/98 18,343 19,003 20,596
6/30/98 18,464 19,105 20,684
7/31/98 18,488 19,119 20,732
8/31/98 18,809 19,441 21,104
9/30/98 19,059 19,689 21,397
10/31/98 18,936 19,565 21,328
11/30/98 19,028 19,636 21,437
12/31/98 19,026 19,636 21,458
1/31/99 19,251 19,844 21,668
2/28/99 19,115 19,705 21,577
3/31/99 19,109 19,688 21,640
4/30/99 19,174 19,729 21,659
5/31/99 19,013 19,551 21,488
6/30/99 18,640 19,171 21,096
7/31/99 18,617 19,122 21,086
8/31/99 18,284 18,768 20,652
9/30/99 18,167 18,651 20,545
10/31/99 17,844 18,292 20,063
11/30/99 18,009 18,451 20,343
12/31/99 17,795 17,737 20,027
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A and
Class B of the Fund to a hypothetical investment in a relevant market index.
Fund performance is derived from the Fund's original class of shares and
reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to reflect
Rule 12b-1 fees prior to September 30, 1996 (initial public offering date of
Class A and Class B shares). Such fees will affect subsequent performance.
The index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- 54 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
to purchase them at a price set by the issuer or determined by the holders in
competition (a "Dutch auction").
The Fund sold bonds having a face value of $17,525,000 at prices signifi-
cantly above market levels to three issuers. The Long Island Power Authority
and Lower Colorado Power Authority conducted Dutch auction tenders, and the
Daughters of Charity National Health System offered to purchase two issues held
by the Fund at a fixed price. Facing deregulation, electric utilities are re-
structuring their balance sheets to become more competitive, while tenders for
hospital bonds were associated with consolidation.
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) Class A...... 4.45%
Current Yield (30-day) Class B...... 3.92%
Weighted Average Maturity........... 23.2 years
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE HOLDINGS Net Assets
- --------------------------------------------------------------------------------
<S> <C>
San Joaquin Hills Transportation Corridor Agency Senior Lien Toll Road
Revenue.................................................................. 4.3%
Illinois Educational Facilities Authority Adjustable Demand Revenue
(University of Chicago).................................................. 3.9
Wyoming Community Development Authority Housing Revenue................... 3.6
Alaska Housing Finance Corp. (General Housing Purpose).................... 3.1
Austin Combined Utility System Revenue.................................... 3.1
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE STATES Net Assets
- --------------------------------------------------------------------------------
<S> <C>
California.................................................................. 18%
Washington.................................................................. 12
Indiana..................................................................... 9
Texas....................................................................... 8
Illinois.................................................................... 6
</TABLE>
[PIE CHART]
Credit Rating Distribution
As a Percent of Net Assets
- --------------------------
Municipal Bonds:
1 AAA: 40%
2 AA: 24%
3 A: 16%
4 BBB: 16%
5 Not Rated: 1%
6 Cash & Other: 3%
- 55 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Municipal Bond Fund
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
MUNICIPAL BONDS* - 97.1%
Alabama - 1.9%
$1,310 + Alabama Agriculture and Mechanical University Revenue 5.50%, due
11/01/20 [MBIA] (Prerefunded 11/01/05 @ 102)................ $ 1,371
4,000 Jefferson County Sewer Revenue 5.00%, due 2/01/33 [FGIC]...... 3,299
4,250 Jefferson County Sewer Revenue 5.70%, due 2/01/20 [FGIC]...... 4,084
Alaska - 3.1%
17,000 Alaska Housing Finance Corp. (General Housing Purpose) 5.00%, due
12/01/18..................................................... 14,745
135 Alaska Housing Finance Corp. Collateralized (Veterans Mortgage
Program)
6.50%, due 6/01/31.............................................. 136
Arizona - 1.7%
9,800 Phoenix Civic Improvement Corp. Wastewater System Lease Revenue
4.75%, due 7/01/23............................................ 8,002
California - 17.8%
1,500 Foothill/Eastern Transportation Corridor Agency Toll Road Revenue
5.00%, due 1/01/35............................................ 1,201
2,500 + Los Angeles County Certificates of Participation (Disney Parking
Project)
5.50%, due 9/01/21 (Prerefunded 3/01/03 @ 100)................ 2,570
13,000 Los Angeles Department of Water and Power Electric Plant Revenue
5.25%, due 11/15/26.......................................... 11,564
5,000 Los Angeles Wastewater System Revenue
4.70%, due 11/01/19 [FGIC].................................... 4,184
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
$1,700 Northern California Power Agency Geothermal Project Revenue
5.00%, due 7/01/09.......................................... $ 1,643
3,550 + Northern California Power Agency Geothermal Project Revenue
5.00%, due 7/01/09 (Prerefunded 7/01/08 @ 100)................ 3,530
6,400 Pittsburg Redevelopment Agency Los Medanos Community Development
Project Tax Allocation
4.625%, due 8/01/21 [AMBAC]................................... 5,229
11,995 Pittsburg Redevelopment Agency Los Medanos Community Development
Project Tax Allocation
5.80%, due 8/01/34 [FSA]..................................... 11,594
2,000 Redding Joint Powers Financing Authority Solid Waste and Corporation
Yard Revenue 5.00%, due 1/01/23............................... 1,691
8,750 Sacramento County Sanitation District Finance Authority Revenue
4.75%, due 12/01/23........................................... 7,188
8,010 San Joaquin County Public Facilities Financing Corp. Certificates of
Participation Capital Facilities Project 4.75%, due 11/15/19 [MBIA].
6,741
25,000 San Joaquin Hills Transportation Corridor Agency Senior Lien Toll
Road Revenue
5.00%, due 1/01/33........................................... 20,100
3,165 Southern California Public Power Authority Power Project Revenue
(Multiple Projects)
5.50%, due 7/01/20............................................ 2,962
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 56 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
$4,085 + Southern California Public Power Authority Power Project Revenue
(Multiple Projects)
5.50%, due 7/01/20 (Prerefunded 7/01/00 @ 100).............. $ 4,117
Colorado - 0.2%
1,000 Colorado Housing Finance Authority Multi-Family Mortgage Revenue
8.30%, due 10/01/23........................................... 1,084
District of Columbia - 4.6%
10,000 District of Columbia General Obligation
5.25%, due 6/01/27 [MBIA]..................................... 8,568
16,500 Washington Convention Center Authority Dedicated Tax Revenue 4.75%,
due 10/01/28 [AMBAC]......................................... 12,958
Florida - 0.6%
2,750 Mid-Bay Bridge Authority Revenue
6.05%, due 10/01/22........................................... 2,576
Georgia - 2.5%
6,750 + Atlanta Water and Sewage Revenue
4.50%, due 1/01/18 (Prerefunded 1/01/04 @ 100)................ 6,687
5,000 Municipal Electric Authority Project One Special Obligation Fourth
Crossover Series 6.50%, due 1/01/20........................... 5,200
Hawaii - 2.5%
13,000 Honolulu City and County Wastewater System Revenue 4.50%, due
7/01/28 [FGIC]................................................ 9,836
2,420 Honolulu City and County Wastewater System Revenue 4.75%, due
7/01/28 [FGIC]................................................ 1,924
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
Illinois - 6.0%
$17,500 + Illinois Educational Facilities Authority Adjustable Demand
Revenue (University of Chicago) 5.70%, due 12/01/25 (Prerefunded
12/01/03 @ 102)............................................ $18,365
5,000 + Metropolitan Pier and Exposition Authority Mccormick Place
Convention Complex Hospitality Facilities Revenue
7.00%, due 7/01/26
(Escrowed to Maturity)....................................... 5,618
4,770 University of Illinois Auxiliary Facilities System Revenue
5.75%, due 4/01/22........................................... 4,568
Indiana - 8.5%
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).............. 11,884
7,715 Hammond Multi-School Building Corp. First Mortgage Revenue 6.20%,
due 7/10/15.................................................. 7,754
17,550 Indiana State Development Finance Authority Environmental Revenue
5.60%, due 12/10/32......................................... 14,451
6,450 + Indianapolis Gas Utility System Revenue
4.00%, due 6/01/11 [FGIC] (Escrowed to Maturity)............. 5,678
Maryland - 1.8%
5,125 Baltimore Project and Revenue (Water Projects) 5.00%, due 7/01/24
[FGIC]....................................................... 4,448
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 57 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
$5,000 Maryland Health and Higher Educational Facilities Authority Revenue
(University of Maryland Medical System) 4.75%, due 7/01/23 [FGIC]...
$ 4,088
Massachusetts - 3.4%
5,750 Massachusetts Bay Transportation Authority System Revenue
4.50%, due 3/01/26 [MBIA]..................................... 4,407
5,140 Massachusetts Housing Finance Agency Housing Revenue 6.20%, due
7/01/38 [AMBAC]............................................... 5,154
2,500 Massachusetts Water Resources Authority Revenue 4.75%, due 12/01/23.
2,001
4,500 + Massachusetts Water Resources Authority Revenue 6.00%, due 4/01/20
(Prerefunded 4/01/00 @ 100)................................... 4,522
Michigan - 1.3%
5,250 Detroit Water Supply System Revenue
4.75%, due 7/01/19 [FGIC]..................................... 4,328
2,000 + University of Michigan Hospital Revenue
6.375%, due 12/01/24 (Prerefunded 12/01/00 @ 100)............. 2,041
Missouri - 0.8%
4,000 Missouri Health and Education Facilities Authority Educational
Facilities Revenue 4.75%, due 11/15/37........................ 3,046
1,000 Missouri Health and Education Facilities Authority Educational
Facilities Revenue 5.00%, due 11/15/37.......................... 806
</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)................. $ 1,180
New Mexico - 0.5%
2,420 Farmington Collateralized Pollution Control Revenue (Tucson Gas and
Electric Co.) 6.10%, due 1/01/08.............................. 2,345
New York - 5.4%
2,100 New York City Municipal Water Finance Authority Water and Sewer
System Revenue 5.00%, due 6/15/17 [FGIC]...................... 1,862
1,500 New York Dormitory Authority State University Educational Facilities
Revenue 5.00%, due 7/01/15.................................... 1,386
5,500 New York Dormitory Authority State University Educational Facilities
Revenue 5.25%, due 5/15/15.................................... 5,168
4,400 New York Dormitory Authority State University Educational Facilities
Revenue 7.50%, due 5/15/11.................................... 5,003
5,250 New York Dormitory Authority State University Educational Facilities
Revenue 7.50%, due 5/15/13.................................... 6,174
6,500 Urban Development Corp. Correctional Facilities Revenue 5.375%, due
1/01/25....................................................... 5,696
North Carolina - 2.1%
11,000 North Carolina Eastern Municipal Power Agency Power System Revenue
6.00%, due 1/01/22............................................ 9,968
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 58 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
Oklahoma - 1.2%
$ 5,590 McGee Creek Authority Water Revenue
6.00%, due 1/01/23 [MBIA]................................... $ 5,640
Pennsylvania - 1.5%
5,000 Centre County University Area Joint Authority Sewer Revenue
4.75%, due 11/01/20 [MBIA].................................... 4,087
3,500 Pennsylvania Turnpike Common Oil Franchise Tax Revenue
4.75%, due 12/01/27 [AMBAC]................................... 2,791
South Carolina - 4.6%
755 Charleston County Pollution Control Facilities Revenue
5.90%, due 8/01/03.............................................. 755
5,500 Pickens and Richland Counties Hospital Facilities Revenue
5.75%, due 8/01/21 [AMBAC].................................... 5,214
4,705 Piedmont Municipal Power Agency Electric Revenue
4.75%, due 1/01/25 [MBIA]..................................... 3,743
15,000 Piedmont Municipal Power Agency South Carolina Electric Revenue
5.25%, due 1/01/21 [MBIA].................................... 12,219
Texas - 7.9%
7,000 Austin Combined Utility Revenue 4.25%, due 5/15/28 [MBIA]..... 5,070
10,000 Austin Combined Utility System Revenue
12.50%, due 11/15/07 [MBIA].................................. 14,601
2,065 Austin Water, Sewer and Electric Revenue
14.00%, due 11/15/01.......................................... 2,268
280 + Austin Water, Sewer and Electric Revenue
14.00%, due 11/15/01 (Escrowed to Maturity)..................... 312
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
$ 30 + Austin Water, Sewer and Electric Revenue
14.00%, due 11/15/01 (Prerefunded Various Dates/Prices)...... $ 33
2,000 Houston Water and Sewer System Junior Lien Revenue Bond 5.375%, due
12/01/27 [FGIC]............................................... 1,787
4,000 Matagorda County Navigation District #1
5.15%, due 11/01/29 [MBIA].................................... 3,391
5,350 North East Texas School District General Obligation
4.50%, due 10/01/28 [PSF]..................................... 4,049
4,500 San Antonio Electric & Gas Revenue 4.50%, due 2/01/21......... 3,535
2,260 Texas Municipal Power Agency Revenue
5.50%, due 9/01/13 [FGIC]..................................... 2,234
Virginia - 1.0%
4,500 Prince William County Authority Water and Sewer Systems Revenue
4.75%, due 7/01/29 [FGIC]..................................... 3,586
1,005 + Richmond Metropolitan Expressway Authority Revenue
5.60%, due 1/15/13 (Escrowed to Maturity)..................... 1,006
Washington - 12.4%
7,000 CDP-King County III Lease Revenue (King Street Center Project)
5.25%, due 6/01/26 [MBIA]..................................... 6,076
5,055 Douglas County Public Utility District #1 Wells Hydroelectric
Revenue 8.75%, due 9/01/18.................................... 6,192
2,200 + Douglas County Public Utility District #1 Wells Hydroelectric
Revenue 8.75%, due 9/01/18 (Prerefunded 9/01/06 @ 106)........ 2,756
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 59 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
$2,500 + Everett School District #2 Snohomish County Unlimited Tax General
Obligation
6.20%, due 12/01/12 [MBIA] (Prerefunded
12/01/03 @ 102)............................................. $ 2,670
2,200 King County Housing Authority Pooled Housing Revenue 6.80%, due
3/01/26....................................................... 2,251
1,650 King County Limited Tax General Obligation (Various Purposes) 4.75%,
due 1/01/19................................................... 1,374
2,255 King County Public Hospital District #1 Hospital Facilities Revenue
(Valley Medical Center) 5.50%, due 9/01/17 [AMBAC]............ 2,114
4,800 Lewis County Public Utility District #1 Cowlitz Falls Hydroelectric
Project Revenue 6.00%, due 10/01/24........................... 4,703
4,000 + Port of Seattle Revenue 6.00%, due 12/01/14 [AMBAC] (Prerefunded
12/01/00 @ 100)............................................... 4,069
2,930 Seattle Housing Authority Low Income Housing Revenue (Mt. Zion
Project)
6.60%, due 8/20/38............................................ 3,042
5,940 Vancouver Washington Housing Authority Revenue (Springbrook Square)
5.65%, due 3/01/31............................................ 5,142
3,000 Washington Health Care Facilities Authority Revenue (Fred Hutchinson
Cancer Research Center)
7.375%, due 1/01/18........................................... 3,126
8,500 + Washington Public Power Supply System Nuclear Project #1 Revenue
6.00%, due 7/01/17 (Prerefunded 7/01/00 @ 100)................ 8,582
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
$4,000 Washington Public Power Supply System Nuclear Project #2 Revenue
6.30%, due 7/01/12.......................................... $ 4,246
2,610 Washington Public Power Supply System Nuclear Project #3 Revenue
5.50%, due 7/01/18 [AMBAC]..................................... 2,421
Wyoming - 3.6%
18,375 Wyoming Community Development Authority Housing Revenue
5.60%, due 6/01/29............................................ 16,845
-------
TOTAL MUNICIPAL BONDS.................................................. 458,859
-------
CASH EQUIVALENTS - 1.4%
Investment Companies
6,341 Federated Tax-Exempt Money Market Fund, Inc.................... 6,341
-------
TOTAL CASH EQUIVALENTS................................................... 6,341
-------
TOTAL INVESTMENTS - 98.5%.............................................. 465,200
Other Assets, less Liabilities........................................... 7,318
-------
NET ASSETS............................................................ $472,518
-------
-------
</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]........................... 17.1%
Financial Guaranty Insurance Corp. [FGIC]................................. 11.2
AMBAC Indemnity Corp. [AMBAC]............................................. 8.7
Financial Security Assurance, Inc. [FSA].................................. 2.5
Texas Permanent School Fund [PSF]......................................... 0.9
-------
40.4%
-------
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 60 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO California
Tax-Free Income Fund
December 31, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO OF STEPHEN C. BAUER]
STEPHEN C. BAUER
In the negative environment of 1999, the California Tax-Free Income
Fund with its long (25.5-year) average-weighted maturity fared poorly.
Our core strategy of staying fully invested in long-term bonds
(which are more sensitive to changes in interest rates) produced below-
average returns as interest rates rose, just as it has produced superior
results when rates dropped. Over the longer term, the California Fund still
looks good.
As the California economy rebounded from its slump of a few years ago,
the normal premium for California tax-exempt bonds (the 10-15
[PERFORMANCE GRAPH]
PERFORMANCE OVERVIEW - Class A and Class B Shares
<TABLE>
<CAPTION>
Average Annual Total Return With Sales Charge Without Sales Charge
for the periods ended December 31, 1999 Quarter 1 Year 5 Year 10 Year Quarter 1 Year 5 Year 10 Year
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (7.91)% (13.48)% 5.66% 5.82% (3.55)% (9.41)% 6.64% 6.31%
Class B (8.50)% (14.41)% 5.80% 6.05% (3.73)% (10.07)% 6.12% 6.05%
Lehman Brothers Long Municipal Bond Index N/A N/A N/A N/A (2.52)% (6.67)% 7.41% 7.19%
Lipper, Inc. (California Municipal Bond Funds) N/A N/A N/A N/A (2.10)% (5.16)% 6.10% 6.12%
<CAPTION>
SAFECO SAFECO
California Tax-Free California Tax-Free Lehman Brothers
Income Fund Income Fund Long Municipal
With Sales Charge Class A Class B Bond Index
------------------- ------------------- ---------------
<S> <C> <C> <C>
12/31/89 9,550 10,000 10,000
1/31/90 9,445 9,889 9,899
2/28/90 9,560 10,010 10,011
3/31/90 9,542 9,992 10,021
4/30/90 9,397 9,840 9,898
5/31/90 9,685 10,141 10,178
6/30/90 9,778 10,238 10,278
7/31/90 9,964 10,433 10,459
8/31/90 9,716 10,173 10,210
9/30/90 9,702 10,159 10,194
10/31/90 9,947 10,415 10,410
11/30/90 10,179 10,659 10,674
12/31/90 10,216 10,697 10,721
1/31/91 10,372 10,860 10,865
2/28/91 10,403 10,893 10,941
3/31/91 10,380 10,869 10,968
4/30/91 10,541 11,037 11,137
5/31/91 10,644 11,145 11,268
6/30/91 10,592 11,091 11,247
7/31/91 10,755 11,261 11,421
8/31/91 10,903 11,416 11,585
9/30/91 11,102 11,624 11,753
10/31/91 11,221 11,749 11,876
11/30/91 11,158 11,684 11,891
12/31/91 11,499 12,040 12,174
1/31/92 11,459 11,998 12,167
2/28/92 11,462 12,001 12,186
3/31/92 11,463 12,003 12,217
4/30/92 11,547 12,090 12,333
5/31/92 11,721 12,273 12,513
6/30/92 11,951 12,514 12,756
7/31/92 12,355 12,937 13,223
8/31/92 12,118 12,689 13,046
9/30/92 12,206 12,780 13,103
10/31/92 11,867 12,425 12,885
11/30/92 12,256 12,833 13,248
12/31/92 12,418 13,003 13,420
1/31/93 12,548 13,138 13,546
2/28/93 13,116 13,734 14,176
3/31/93 12,939 13,549 14,005
4/30/93 13,129 13,747 14,197
5/31/93 13,183 13,804 14,314
6/30/93 13,429 14,061 14,584
7/31/93 13,412 14,043 14,598
8/31/93 13,789 14,438 14,972
9/30/93 13,956 14,613 15,180
10/31/93 13,957 14,614 15,209
11/30/93 13,740 14,386 15,025
12/31/93 14,061 14,723 15,412
1/31/94 14,271 14,942 15,594
2/28/94 13,896 14,550 15,078
3/31/94 13,194 13,815 14,178
4/30/94 13,147 13,766 14,287
5/31/94 13,270 13,894 14,454
6/30/94 13,142 13,761 14,281
7/31/94 13,447 14,080 14,648
8/31/94 13,443 14,076 14,679
9/30/94 13,102 13,718 14,338
10/31/94 12,785 13,387 13,898
11/30/94 12,548 13,139 13,531
12/31/94 12,768 13,369 14,011
1/31/95 13,354 13,982 14,627
2/28/95 14,006 14,666 15,223
3/31/95 14,120 14,784 15,406
4/30/95 14,057 14,718 15,399
5/31/95 14,850 15,549 16,055
6/30/95 14,396 15,073 15,758
7/31/95 14,460 15,141 15,839
8/31/95 14,688 15,379 16,063
9/30/95 14,801 15,498 16,189
10/31/95 15,195 15,910 16,580
11/30/95 15,752 16,494 17,008
12/31/95 16,105 16,863 17,273
1/31/96 16,047 16,802 17,347
2/28/96 15,843 16,588 17,136
3/31/96 15,372 16,096 16,822
4/30/96 15,235 15,952 16,755
5/31/96 15,250 15,967 16,763
6/30/96 15,548 16,280 17,022
7/31/96 15,726 16,467 17,190
8/31/96 15,687 16,426 17,168
9/30/96 16,063 16,819 17,549
10/31/96 16,274 17,016 17,763
11/30/96 16,699 17,450 18,145
12/31/96 16,518 17,249 18,036
1/31/97 16,340 17,053 18,000
2/28/97 16,528 17,240 18,194
3/31/97 16,159 16,844 17,880
4/30/97 16,403 17,089 18,091
5/31/97 16,715 17,404 18,441
6/30/97 16,964 17,647 18,678
7/31/97 17,847 18,541 19,357
8/31/97 17,451 18,133 19,100
9/30/97 17,689 18,369 19,375
10/31/97 17,838 18,512 19,542
11/30/97 18,010 18,681 19,715
12/31/97 18,382 19,053 20,076
1/30/98 18,575 19,241 20,291
2/28/98 18,535 19,188 20,281
3/31/98 18,514 19,153 20,309
4/30/98 18,294 18,913 20,200
5/31/98 18,749 19,372 20,596
6/30/98 18,815 19,428 20,684
7/31/98 18,827 19,427 20,732
8/31/98 19,193 19,794 21,104
9/30/98 19,491 20,091 21,397
10/31/98 19,361 19,947 21,328
11/30/98 19,510 20,091 21,437
12/31/98 19,434 20,002 21,458
1/31/99 19,694 20,259 21,668
2/28/99 19,548 20,082 21,577
3/31/99 19,538 20,075 21,640
4/30/99 19,518 20,041 21,659
5/31/99 19,288 19,793 21,488
6/30/99 18,813 19,294 21,096
7/31/99 18,756 19,224 21,086
8/31/99 18,372 18,818 20,652
9/30/99 18,253 18,685 20,545
10/31/99 17,770 18,163 20,063
11/30/99 17,947 18,350 20,343
12/31/99 17,606 17,498 20,027
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A and
Class B of the Fund to a hypothetical investment in a relevant market index.
Fund performance is derived from the Fund's original class of shares and
reflects the maximum 5.75% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to reflect
Rule 12b-1 fees prior to September 30, 1996 (initial public offering date of
Class A and Class B shares). Such fees will affect subsequent performance.
The index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- 61 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
basis-point advantage over national names) returned and was evidenced through-
out 1999.
The primary activity in the California Fund during 1999 was tax swapping
(simultaneously buying and selling similar bonds to realize losses for tax rea-
sons). I was able to offset all gains for the year as well as carry forward ad-
ditional losses to use in years to come. I hope to use them, and do additional
tax swaps, in 2000. I also sold many of the advance-refunded bonds that we had
accumulated in recent years.
The Fund is positioned for a dramatic rebound should rates decline.
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>
Percent of
TOP FIVE TYPES OF BONDS Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Local General Obligation (Limited Tax)...................................... 16%
Lease Rental................................................................ 16
Utilities (Water)........................................................... 9
Toll Road................................................................... 8
Hospital.................................................................... 8
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE HOLDINGS Net Assets
- --------------------------------------------------------------------------------
<S> <C>
East Bay Municipal Utility District Water System Revenue ................. 5.4%
State of California General Obligation Bonds.............................. 5.1
Airports Commission City and County of San Francisco International Airport
Revenue.................................................................. 5.0
California Educational Facilities Authority Revenue (Institute of
Technology).............................................................. 4.9
Redding Joint Powers Financing Authority Solid Waste and Corporation Yard
Revenue.................................................................. 4.7
</TABLE>
[PIE CHART]
Credit Rating Distribution
As a Percent of Net Assets
- --------------------------------------------------------------------------------
Municipal Bonds:
1 AAA: 55%
2 AA: 8%
3 A: 14%
4 BBB: 21%
5 Cash & Other: 2%
<TABLE>
<S> <C>
Current Yield (30-day) Class A...... 4.62%
Current Yield (30-day) Class B...... 4.09%
Weighted Average Maturity........... 25.5 years
</TABLE>
- 62 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE
INCOME FUND
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
MUNICIPAL BONDS* - 98.1%
California - 98.1%
$5,000 Airports Commission City and County of San Francisco International
Airport Revenue 4.90%, due 5/01/19 [MBIA]................... $ 4,333
2,200 Alameda Corridor Transportation Authority Revenue
4.75%, due 10/01/25 [MBIA].................................... 1,799
5,500 California Educational Facilities Authority Revenue (Institute of
Technology) 4.50%, due 10/01/28............................... 4,284
2,250 California Health Facilities Financing Authority Insured Health
Facility Revenue (Catholic Health Care West) 4.75%, due 7/01/19
[MBIA]........................................................ 1,875
3,715 California Statewide Communities Development Authority Certificates
of Participation (Childrens Hospital of Los Angeles)
4.75%, due 6/01/21 [MBIA]..................................... 3,085
20 Concord Redevelopment Agency Tax Allocation Central Concord
Redevelopment Project 8.00%, due 7/01/18 [BIG]................... 20
3,750 Culver City Redevelopment Financing Authority Tax Allocation Revenue
4.60%, due 11/01/20 [AMBAC]................................... 3,071
5,000 Duarte California Certificates of Participation City of Hope Medical
Center
5.25%, due 4/01/31............................................ 3,916
6,000 East Bay Municipal Utility District Water System Revenue (Alameda
and Contra Costa Counties) 4.75%, due 6/01/34 [MBIA].......... 4,753
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
$4,195 Foothill/Eastern Transportation Corridor Agency Toll Road Revenue
5.00%, due 1/01/35.......................................... $ 3,358
4,600 Long Beach Financial Authority Lease Revenue
5.00%, due 10/01/27 [MBIA].................................... 3,930
1,200 + Los Angeles Convention and Exhibition Center Authority
Certificates of Participation
9.00%, due 12/01/20 (Prerefunded 12/01/05 @ 100).............. 1,464
3,800 Los Angeles Department of Water and Power Waterworks Revenue 4.75%,
due 11/15/19 [FGIC]........................................... 3,210
3,585 Metropolitan Water District of Southern California Waterworks
Revenue
5.00%, due 7/01/37............................................ 2,975
810 Northern California Power Agency Geothermal Project Revenue 5.00%,
due 7/01/09..................................................... 783
2,350 Palomar Pomerado Health System California Insured Revenue 4.75%, due
11/01/23 [MBIA]............................................... 1,926
4,435 Pittsburg Redevelopment Agency Los Medanos Community Development
Project Tax Allocation
4.625%, due 8/01/21 [AMBAC]................................... 3,623
1,745 Pleasanton Joint Powers Financing Authority Reassessment Revenue
6.15%, due 9/02/12............................................ 1,765
1,575 Pleasanton Joint Powers Financing Authority Reassessment Revenue
6.20%, due 9/02/17............................................ 1,554
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 63 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE
INCOME FUND
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
$4,900 Redding Joint Powers Financing Authority Solid Waste and Corporation
Yard Revenue 5.00%, due 1/01/23............................. $ 4,142
5,000 Sacramento City Financing Authority Lease Revenue (Cal EPA Building)
4.75%, due 5/01/23............................................ 4,133
2,500 San Bernardino County Certificates of Participation (Medical Center
Financing Project)
5.50%, due 8/01/24............................................ 2,217
4,000 San Gabriel Valley School Finance Authority Revenue (Pamona Unified
School District)
5.50%, due 2/01/24............................................ 3,579
5,000 San Joaquin Hills Transportation Corridor Agency Senior Lien Toll
Road Revenue
5.00%, due 1/01/33............................................ 4,020
4,000 San Jose Redevelopment Agency (Merged Area Redevelopment Project Tax
Allocation) 4.75%, due 8/01/22................................ 3,197
2,500 South County Regional Wastewater Authority Revenue 5.00%, due
8/01/22 [MBIA]................................................ 2,173
1,335 Southern California Public Power Authority Power Project Revenue
(Multiple Projects) 5.50%, due 7/01/20........................ 1,249
880 Stanislaus Waste to Energy Financing Agency Solid Waste Facility
Revenue 7.625%, due 1/01/10..................................... 899
5,500 State of California General Obligation Bonds 4.75%, due 4/01/29.....
4,429
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
$4,635 Thousand Oaks Certificate of Participation Wastewater System Revenue
4.875%, due 10/01/23 [FSA]...................................$ 3,887
------
TOTAL MUNICIPAL BONDS.................................................. 85,649
------
CASH EQUIVALENTS - 0.0%
Investment Companies
1 SEI Tax Exempt Institutional Tax-Free Portfolio................... 1
------
TOTAL CASH EQUIVALENTS...................................................... 1
------
TOTAL INVESTMENTS - 98.1%.............................................. 85,650
Other Assets, less Liabilities.......................................... 1,671
------
NET ASSETS............................................................ $87,321
------
------
</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]........................... 27.9%
Financial Guaranty Insurance Corp. [FGIC]................................. 3.7
AMBAC Indemnity Corp. [AMBAC]............................................. 7.8
Financial Security Assurance, Inc. [FSA].................................. 4.5
-------
43.9%
-------
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 64 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Washington State
Municipal Bond Fund
December 31, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO OF BEVERLY R. DENNY]
BEVERLY R. DENNY
The Washington State Municipal Bond Fund Class A shares beat the
Lipper average for Washington Funds and the Lehman Long Municipal Bond
Index for both the quarter and year. Class B shares outperformed the Lipper
average for the quarter, but trailed for the year.
Municipal bond prices continued to fall during the fourth quarter. To take
advantage of increasing yields, I bought Washington State Housing Authority
Tacoma Lutheran Home
[PERFORMANCE GRAPH]
PERFORMANCE OVERVIEW - Class A and Class B Shares
<TABLE>
<CAPTION>
With Sales Charge Without Sales Charge
Average Annual Total Return Since Since
for the periods ended December 31, 1999 Quarter 1 Year 5 Year Inception* Quarter 1 Year 5 Year Inception*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (6.30)% (10.82)% 4.74% 3.24% (1.88)% (6.60)% 5.70% 3.95%
Class B (6.94)% (11.77)% 4.88% 3.59% (2.10)% (7.30)% 5.21% 3.59%
Lehman Brothers Long Municipal Bond Index N/A N/A N/A N/A (2.52)% (6.67)% 7.41% 5.44%
Lipper, Inc. (Washington State Municipal Bond Funds) N/A N/A N/A N/A (1.95)% (6.54)% 6.19% N/A
</TABLE>
* The Fund's inception date was March 18, 1993. Graph and average annual return
comparison begins on March 31, 1993.
<TABLE>
<CAPTION>
SAFECO SAFECO
Washington State Washington State Lehman Brothers
Municipal Bond Fund Municipal Bond Fund Long Municipal
With Sales Charge Class A Class B Bond Index
------------------- ------------------- ---------------
<S> <C> <C> <C>
3/31/93 9,550 10,000 10,000
4/30/93 9,693 10,146 10,137
5/31/93 9,733 10,188 10,221
6/30/93 9,967 10,433 10,413
7/31/93 9,936 10,401 10,423
8/31/93 10,207 10,684 10,690
9/30/93 10,326 10,808 10,839
10/31/93 10,344 10,828 10,859
11/30/93 10,182 10,658 10,728
12/31/93 10,389 10,874 11,005
1/31/94 10,550 11,043 11,135
2/28/94 10,189 10,665 10,766
3/31/94 9,618 10,068 10,123
4/30/94 9,664 10,115 10,201
5/31/94 9,801 10,259 10,321
6/30/94 9,633 10,083 10,197
7/31/94 9,876 10,337 10,459
8/31/94 9,840 10,300 10,481
9/30/94 9,602 10,050 10,238
10/31/94 9,345 9,782 9,923
11/30/94 9,127 9,553 9,661
12/31/94 9,490 9,934 10,004
1/31/95 9,878 10,339 10,444
2/28/95 10,251 10,730 10,870
3/31/95 10,305 10,786 11,001
4/30/95 10,274 10,754 10,995
5/31/95 10,689 11,189 11,463
6/30/95 10,495 10,986 11,252
7/31/95 10,559 11,053 11,310
8/31/95 10,695 11,195 11,469
9/30/95 10,771 11,275 11,559
10/31/95 11,005 11,519 11,839
11/30/95 11,259 11,786 12,144
12/31/95 11,378 11,910 12,333
1/31/96 11,425 11,959 12,386
2/28/96 11,319 11,848 12,236
3/31/96 11,101 11,620 12,011
4/30/96 11,040 11,556 11,963
5/31/96 11,063 11,580 11,969
6/30/96 11,191 11,714 12,154
7/31/96 11,304 11,832 12,274
8/31/96 11,271 11,798 12,258
9/30/96 11,492 12,029 12,530
10/31/96 11,601 12,147 12,683
11/30/96 11,797 12,345 12,956
12/31/96 11,716 12,263 12,878
1/31/97 11,647 12,183 12,852
2/28/97 11,759 12,280 12,991
3/31/97 11,555 12,071 12,766
4/30/97 11,700 12,214 12,917
5/31/97 11,889 12,391 13,168
6/30/97 12,014 12,513 13,336
7/31/97 12,423 12,930 13,822
8/31/97 12,258 12,762 13,638
9/30/97 12,408 12,897 13,834
10/31/97 12,475 12,970 13,953
11/30/97 12,552 13,041 14,077
12/31/97 12,727 13,213 14,335
1/30/98 12,840 13,322 14,488
2/28/98 12,855 13,316 14,481
3/31/98 12,870 13,324 14,501
4/30/98 12,784 13,227 14,423
5/31/98 13,001 13,445 14,706
6/30/98 13,054 13,492 14,769
7/31/98 13,076 13,518 14,803
8/31/98 13,282 13,712 15,069
9/30/98 13,457 13,884 15,278
10/31/98 13,371 13,788 15,229
11/30/98 13,414 13,826 15,306
12/31/98 13,410 13,814 15,321
1/31/99 13,513 13,913 15,471
2/28/99 13,446 13,837 15,406
3/31/99 13,440 13,822 15,451
4/30/99 13,462 13,836 15,465
5/31/99 13,351 13,714 15,343
6/30/99 13,144 13,494 15,063
7/31/99 13,114 13,455 15,056
8/31/99 12,868 13,195 14,746
9/30/99 12,764 13,081 14,669
10/31/99 12,552 12,858 14,326
11/30/99 12,665 12,964 14,526
12/31/99 12,524 12,336 14,300
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A and
Class B of each Fund to a hypothetical investment in a relevant market index.
Fund performance is derived from the Fund's original class of shares and
reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to reflect
Rule 12b-1 fees prior to September 30, 1996 (initial public offering date of
Class A and Class B shares). Such fees will affect subsequent performance.
The index is unmanaged and includes no operating expenses or transaction costs.
Past performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- 65 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5.85%, due 1/01/24, at par in the third quarter and had virtually no activ-
ity during the fourth quarter.
Initiative 695, instituting a flat $30 vehicle registration fee and requir-
ing a vote for any tax increase, passed. The effect of the lowered revenue flow
into state and county transportation funds and to some local budgets will be
significant. How it will affect credit ratings in the state remains to be seen.
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.
- --------------------------------------------------------------------------------
To New Investors:
The SAFECO Washington State Municipal Bond Fund was closed on January 20,
2000 and will be liquidated on March 31, 2000.
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Current Yield (30-day) Class A.... 4.78%
Current Yield (30-day) Class B.... 4.59%
Weighted Average Maturity......... 23.0 years
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE TYPES OF BONDS Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Housing (Multi-Family)...................................................... 20%
Local General Obligation (Limited Tax)...................................... 18
Hospital.................................................................... 18
University Revenue.......................................................... 11
Utilities (Water)........................................................... 9
</TABLE>
<TABLE>
<CAPTION>
Percent of
TOP FIVE HOLDINGS Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Renton Limited Tax General Obligation..................................... 4.7%
Vancouver Washington Housing Authority Revenue (Clark County)............. 4.2
King County Housing Authority Pooled Housing Revenue...................... 4.2
Vancouver Washington Housing Authority Revenue (Springbrook Square)....... 4.2
Washington Higher Education Facilities Authority Revenue and Refunding
Revenue (Gonzaga University Project)..................................... 3.9
</TABLE>
Credit Rating Distribution
As a Percent of Net Assets
- --------------------------
[PIE CHART]
Municipal Bonds:
1 AAA: 40%
2 AA: 37%
3 A: 14%
4 Not Rated: 4%
5 Cash & Other: 5%
- 66 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Washington State
Municipal Bond Fund
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
MUNICIPAL BONDS* - 95.4%
Washington - 95.4%
$100 Kent Limited Tax General Obligation 5.75%, due 12/01/26 [MBIA]. $ 95
300 King County Housing Authority Pooled Housing Revenue
6.80%, due 3/01/26................................................ 307
250 King County Limited Tax General Obligation (Various Purposes)
4.75%, due 1/01/19................................................ 208
200 King County Public Hospital District #1 Hospital Facilites Revenue
(Valley Medical Center) 5.25%, due 9/01/15 [AMBAC]................ 184
200 Kitsap County School District #401 Unlimited Tax General Obligation
(Central Kitsap)
5.50%, due 12/01/11............................................... 200
100 Kitsap County Sewer Revenue 5.75%, due 7/01/16 [MBIA].............. 99
250 Klickitat County Public Utility District #1 Electric Revenue
5.75%, due 10/01/27 [FGIC]........................................ 235
100 Lewis County Public Utility District #1 Cowlitz Falls Hydroelectric
Project Revenue
6.00%, due 10/01/24................................................ 98
200 Municipality of Metropolitan Seattle General Obligation
5.65%, due 1/01/20................................................ 192
350 Renton Limited Tax General Obligation
5.75%, due 12/01/17 [MBIA]........................................ 345
200 Seattle Drainage and Wastewater Utility Improvement Revenue
5.00%, due 11/01/27............................................... 167
175 Seattle Drainage and Wastewater Utility Improvement Revenue
5.25%, due 12/01/25 [MBIA]........................................ 152
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
$250 Seattle Housing Authority Low Income Housing Revenue (Mt. Zion
Project)
6.60%, due 8/20/38............................................. $ 260
300 Seattle Municipal Light and Power Revenue
5.00%, due 7/01/20................................................ 258
300 Seattle Water System Revenue 5.00%, due 10/01/27 [FGIC]........... 249
200 Seattle Water System Revenue 5.25%, due 12/01/23.................. 176
300 Spokane County General Obligation 5.10%, due 12/01/18............. 268
100 Tacoma Solid Waste Utilities Revenue
5.50%, due 12/01/19 [AMBAC]........................................ 93
200 Tukwila Limited Tax General Obligation
5.90%, due 1/01/14................................................ 201
350 Vancouver Washington Housing Authority Revenue (Clark County) 5.50%,
due 3/01/28....................................................... 308
350 Vancouver Washington Housing Authority Revenue (Springbrook Square)
5.65%, due 3/01/31................................................ 303
200 + Washington Health Care Facilities Authority Revenue (Franciscan
Health System/St. Joseph Hospital, Tacoma)
5.625%, due 1/01/13 [MBIA] (Escrowed to Maturity)................. 198
150 Washington Health Care Facilities Authority Revenue (Grays Harbor
Medical Center)
5.90%, due 7/01/23 [Asset Guaranty]............................... 140
250 Washington Health Care Facilities Authority Revenue (Highline
Community Hospital)
5.00%, due 8/15/21 [Asset Guaranty]............................... 205
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 67 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
$200 Washington Health Care Facilities Authority Revenue (Northwest
Hospital, Seattle)
5.75%, due 11/15/23 [AMBAC].................................... $ 187
100 + Washington Health Care Facilities Authority Revenue (Swedish
Hospital Medical System)
6.30%, due 11/15/22 (Prerefunded 11/15/02 @ 102).................. 106
250 Washington Higher Education Facilities Authority Revenue (Pacific
Lutheran University Project)
5.70%, due 11/01/26 [Connie Lee].................................. 232
350 Washington Higher Education Facilities Authority Revenue and Refunding
Revenue (Gonzaga University Project)
4.75%, due 4/01/22 [MBIA]......................................... 283
300 Washington State Housing Community Non-Profit Housing Revenue (Tacoma
Lutheran Home) 5.85%, due 1/01/24................................. 279
325 Washington State Housing Finance Commission Housing and Nonprofit
Revenue (Seattle University Auxiliary Service Project) 5.30%, due
7/01/31........................................................... 267
250 Washington State Housing Finance Commission Revenue (Horizon House
Project)
6.125%, due 7/01/27 [Asset Guaranty].............................. 254
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
$200 Washington State Various Purpose General Obligation
5.25%, due 1/01/19.............................................. $ 181
200 Yakima-Tieton Irrigation District Revenue
6.20%, due 6/01/19 [FSA]........................................... 201
-------
TOTAL MUNICIPAL BONDS.................................................... 6,931
-------
CASH EQUIVALENTS - 3.2%
Investment Companies
230 Federated Tax-Exempt Money Market Fund, Inc........................ 230
-------
TOTAL CASH EQUIVALENTS..................................................... 230
-------
TOTAL INVESTMENTS - 98.6%................................................ 7,161
Other Assets, less Liabilities............................................. 105
-------
NET ASSETS.............................................................. $7,266
-------
-------
</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]........................... 16.9%
Financial Guaranty Insurance
Corp. [FGIC]............................................................. 7.0
AMBAC Indemnity Corp. [AMBAC]............................................. 6.7
Financial Security Assurance, Inc. [FSA].................................. 2.9
Asset Guaranty Insurance Co. [Asset Guaranty]............................. 8.7
Connie Lee Insurance Co. [Connie Lee]..................................... 3.3
-------
45.5%
-------
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 68 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO Money Market Fund
December 31, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO OF NAOMI URATA]
NAOMI URATA
The SAFECO Money Market Fund outpaced the average taxable money mar-
ket fund for the fourth quarter and the year 1999. The 12-month return
on the Fund was significantly higher than the 2.7% yearly increase in
the Consumer Price Index as well.
Our above-average performance is mostly attributable to shortening the av-
erage maturity of the Fund and holding "floaters." (See discussion below.)
Facing the risk that the Fed might raise short-term interest rates, I sig-
nificantly shortened the average maturity of the Fund from a high of 88 days
in April to 43 days at year-end. Indeed, the Fed raised rates three times dur-
ing the year from 4.75% to 5.50%, most recently in November. Being shorter
than the 53-day maturity of the average money fund reported by IBC Financial
Data has enabled me to capture higher rates a bit sooner than my peers. For
example, three-month commercial paper rates rose from a low of 4.73% in April
to 5.75% at year-end. Very close to Y2K, I was able to reinvest in commercial
paper at yields in the 6% range.
I bought several corporate floaters that change yields as rates rise. The
Fund also owns several taxable municipal seven-day floaters that are even more
sensitive to rate changes, and yield 10 to 25 basis points higher than similarly
rated 30-day commercial paper. At year-end, rates on our taxable municipals
spiked as high as 7.85%, albeit only for a week. These investments are
particularly favorable in a Fed-tightening environment, as they capture any rate
in-creases within seven days.
As the economy continues at a strong pace with low unemploy-
- -------------------------------------------------------------------------------
HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Annual Total Return for the
periods ended December 31, 1999 QUARTER 1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C> <C>
SAFECO Money Market Fund Class A............. 1.28% 4.64% 4.92% 4.75%
SAFECO Money Market Fund Class B............. 1.34% 4.65% 4.88% 4.73%
Lipper, Inc. (Money Market Funds)............ 1.22% 4.49% 4.95% 4.80%
</TABLE>
Weighted Average Maturity 43 days
- 69 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ment and hints of rising inflation, the Fed is likely to raise rates again. In
anticipation, the market has already priced 0.5% of tightening into short-term
rates. I will maintain a short average maturity until I see signs that rates
have stabilized, and will continue to seek yield while working to maintain
safety in volatile market conditions.
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.
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Money Market Fund
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
CERTIFICATES OF DEPOSIT - 4.2%
Banks (Foreign) - 4.2%
$10,000 Deutsche Bank 5.13%, due 4/20/00........................... $ 9,998
------
TOTAL CERTIFICATES OF DEPOSIT............................................ 9,998
------
COMMERCIAL PAPER - 33.7%
Automobiles - 1.2%
3,000 Ford Motor Credit Co. 6.39%, due 1/07/00...................... 2,998
Consumer Finance - 6.4%
11,000 Aristar, Inc.
5.85%, due 2/04/00........................................... 10,943
4,500 Countrywide Funding Corp.
6.18%, due 1/05/00............................................ 4,498
Financial (Diversified) - 16.6%
6,000 Apreco
6.07%, due 1/19/00............................................ 5,984
1,200 Apreco
7.00%, due 1/18/00............................................ 1,196
5,000 Finova Capital
6.00%, due 1/28/00............................................ 4,979
6,400 Heller Financial, Inc.
6.03%, due 2/03/00............................................ 6,367
4,000 Moat Funding LLC
6.00%, due 2/10/00............................................ 3,975
4,450 Moat Funding LLC
6.10%, due 1/31/00............................................ 4,429
1,000 Moat Funding LLC
6.80%, due 1/13/00.............................................. 998
5,000 PHH Corporation
6.25%, due 1/10/00............................................ 4,994
5,000 PHH Corporation
6.25%, due 1/13/00............................................ 4,991
2,000 PHH Corporation
6.25%, due 1/25/00............................................ 1,992
Retail (General Merchandise) - 4.2%
5,000 Sears Roebuck Acceptance Corp.
6.05%, due 1/14/00............................................ 4,991
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 70 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MONEY MARKET FUND
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
$ 5,000 Sears Roebuck Acceptance Corp.
6.15%, due 1/21/00......................................... $ 4,985
Telecommunications (Long Distance) - 2.1%
5,000 MCI Capital Corp. 6.55%, due 1/26/00.......................... 4,979
Trucks & Parts - 3.2%
5,700 Cooperative Association of Tractor Dealers
6.60%, due 1/06/00............................................ 5,697
1,000 Cooperative Association of Tractor Dealers
6.90%, due 1/21/00.............................................. 997
1,000 Cooperative Association of Tractor Dealers
7.15%, due 1/06/00.............................................. 999
------
TOTAL COMMERCIAL PAPER...................................................80,992
------
CORPORATE BONDS - 44.8%
Banks (Major Regional) - 4.8%
4,000 MBNA America Bank
5.51%, due 4/13/00
Put Date 1/13/00.............................................. 3,999
2,500 MBNA Corp.
6.42%, due 3/09/00............................................ 2,499
5,000 MBNA Corp.
6.695%, due 9/01/00
Put Date 3/01/00.............................................. 5,006
Banks (Regional) - 5.0%
12,000 American Express Centurion Bank
5.70%, due 4/24/00
Put Date 1/01/00............................................. 12,000
Consumer Finance - 4.4%
1,630 Countrywide Funding Corp. 5.62%, due 10/16/00................. 1,619
500 Countrywide Funding Corp.
7.32%, due 8/15/00.............................................. 504
5,000 Countrywide Home Loans, Inc. 5.195%, due 1/11/00.............. 5,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
$ 3,460 Homeside Lending, Inc. 6.875%, due 5/15/00................ $ 3,476
Financial (Diversified) - 8.0%
3,500 Finova Capital Corp. 6.375%, due 10/15/00.................... 3,493
1,665 Finova Capital Corp. 8.00%, due 2/01/00...................... 1,667
2,000 Heller Financial, Inc. 5.625%, due 3/15/00................... 2,002
1,000 Heller Financial, Inc. 6.50%, due 5/15/00.................... 1,005
11,000 # Textron Financial Corp. (144A) 5.92%, due 5/12/00
Put Date 1/01/00............................................ 11,000
Health Care (Specialized Services) - 2.0%
4,700 Everett Clinic
6.95%, due 12/01/21
Put Date 1/06/00............................................. 4,700
Homebuilding - 2.9%
6,933 Summer Station Apartments, LLC 6.49%, due 6/01/19 Put Date 1/05/00.
6,933
Insurance (Life & Health) - 4.6%
11,000 First Allamerica Financial 6.235%, due 8/05/04 Put Date 2/03/00....
11,000
Investment Banking & Brokerage - 13.1%
3,500 # Goldman Sachs Group, L.P. (144A) 5.15%, due 4/19/00........ 3,500
8,000 # Goldman Sachs Group, L.P. (144A) 6.20125%, due 1/12/01
Put Date 1/15/00............................................. 8,000
4,000 Lehman Brothers Holdings, Inc. 6.15%, due 3/15/00............ 4,004
8,000 Lehman Brothers Holdings, Inc. 6.595%, due 5/23/01
Put Date 1/23/00............................................. 8,000
8,100 Morgan Stanley Dean Witter Co. 5.61125%, due 3/13/01
Put Date 12/12/00............................................ 8,100
-----
TOTAL CORPORATE BONDS..................................................107,507
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 71 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MONEY MARKET FUND
As of December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<C> <S>
MUNICIPAL BONDS - 12.3%
Health Care (Diversified) - 1.6%
$ 100 Bell County Health Facilities Development Revenue
6.50%, due 7/01/00
Put Date 1/06/00.......................................... $ 100
150 Maury County Health and Educational Facilities Board
Healthcare Revenue 6.50%, due 12/01/00 Put Date 1/06/00........ 150
3,600 New Hampshire Business Finance Authority Revenue 6.85%, due 6/01/28
Put Date 1/06/00............................................. 3,600
Health Care (Long-Term Care) - 5.4%
3,150 Bowie Assisted Living 7.90%, due 7/01/23 Put Date 1/05/00.... 3,150
200 Maryland Health and Higher Education Facilities Authority Revenue
6.80%, due 7/01/27
Put Date 1/06/00............................................... 200
2,085 Maryland Health and Higher Education Facilities Authority Revenue
7.85%, due 1/01/28
Put Date 1/05/00............................................. 2,085
2,600 Maryland Health and Higher Education Facilities Authority Revenue
7.85%, due 7/01/29
Put Date 1/05/00............................................. 2,600
4,900 Village Green Finance Co. 6.49%, due 11/01/22 Put Date 1/05/00.....
4,900
Homebuilding - 1.2%
1,000 Breckenridge Terrace LLC Tax Revenue
5.8775%, due 5/01/39 Put Date 1/06/00........................ 1,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<C> <S>
$ 2,000 Eagle County Colorado Housing Facilities Revenue
5.878%, due 5/01/39
Put Date 1/06/00........................................... $ 2,000
Retail (General Merchandise) - 3.3%
8,000 Racetrac Capital, LLC 6.49%, due 4/01/18
Put Date 1/05/00.............................................. 8,000
Services (Commercial & Consumer) - 0.8%
2,000 Wake Forest University 6.49%, due 7/01/17 Put Date 1/05/00.... 2,000
------
TOTAL MUNICIPAL BONDS................................................... 29,785
------
CASH EQUIVALENTS - 4.6%
Investment Companies
11,147 J.P. Morgan Institutional Prime Money Market................ 11,147
-------
TOTAL CASH EQUIVALENTS.................................................. 11,147
-------
TOTAL INVESTMENTS - 99.6%.............................................. 239,429
Other Assets, less Liabilities........................................... 1,030
-------
NET ASSETS............................................................ $240,459
-------
-------
</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 12/31/99. These rates change periodically based on
specified market rate or indices.
#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 $22,500,000 and the
total value is 9.4% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
- 72 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page left blank intentionally.
- 73 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
As of December 31, 1999
<TABLE>
<CAPTION>
SAFECO SAFECO
(In Thousands, Except Growth Equity
Per-Share Amounts) Fund Fund
- ----------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at Cost $858,375 $1,546,368
======== ==========
Investments, at Value
Unaffiliated Issuers $388,533 $2,244,126
Affiliated Issuers 469,850 --
-------- ----------
Total Investments at Value 858,383 2,244,126
Cash -- --
Receivables
Investment Securities Sold 3,600 --
Trust Shares Sold 1,531 1,471
Dividends and Interest 464 2,274
From Advisor 169 10
Deferred Organization Expense -- --
-------- ----------
Total Assets 864,147 2,247,881
Liabilities
Payables
Investment Securities Purchased 3,813 --
Trust Shares Redeemed 1,783 3,493
Notes Payable 350 --
Dividends -- 5,375
Investment Advisory Fees 523 1,275
Forward Currency Contracts Open, Net -- --
Other 403 554
-------- ----------
Total Liabilities 6,872 10,697
-------- ----------
Net Assets $857,275 $2,237,184
======== ==========
No-Load Class:
Net Assets $815,041 $2,147,299
Trust Shares Outstanding 34,982 89,379
-------- ----------
Net Asset Value, Offering Price, and Redemption Price
Per Share $ 23.30 $ 24.02
======== ==========
Class A:
Net Assets $ 27,597 $ 61,625
Trust Shares Outstanding 1,189 2,561
-------- ----------
Net Asset Value and Redemption Price Per Share $ 23.21 $ 24.06
======== ==========
Maximum Offering Price Per Share (Net Asset Value Plus
Sales Charge of 5.75%) $ 24.63 $ 25.53
======== ==========
Class B:
Net Assets $ 14,637 $ 28,260
Trust Shares Outstanding 649 1,186
-------- ----------
Net Asset Value and Offering Price Per Share* $ 22.57 $ 23.83
======== ==========
- ----------------------------------------------------------------------------
</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
- 74 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO SAFECO SAFECO
Income Northwest Balanced International Small Company U.S. Value
Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$234,471 $ 58,723 $21,974 $25,673 $28,117 $10,048
======== ======== ======= ======= ======= =======
$309,849 $107,764 $23,205 $38,242 $32,062 $11,255
-- -- -- -- -- --
-------- -------- ------- ------- ------- -------
309,849 107,764 23,205 38,242 32,062 11,255
-- -- -- 1,135 -- --
232 -- -- -- -- --
20 844 55 305 118 1
727 31 130 51 24 18
1 -- 4 -- 6 7
-- -- 4 4 4 9
-------- -------- ------- ------- ------- -------
310,829 108,639 23,398 39,737 32,214 11,290
-- -- -- -- 1,406 --
1,121 130 61 14 113 16
-- -- -- -- -- --
1,475 1,253 173 -- -- 266
209 71 17 36 22 8
-- -- -- 50 -- --
76 35 13 63 13 17
-------- -------- ------- ------- ------- -------
2,881 1,489 264 163 1,554 307
-------- -------- ------- ------- ------- -------
$307,948 $107,150 $23,134 $39,574 $30,660 $10,983
======== ======== ======= ======= ======= =======
$303,537 $ 97,534 $18,008 $36,967 $28,319 $ 9,905
13,555 3,851 1,524 2,181 2,225 829
-------- -------- ------- ------- ------- -------
$ 22.39 $ 25.33 $ 11.81 $ 16.95 $ 12.73 $ 11.95
======== ======== ======= ======= ======= =======
$ 2,046 $ 4,774 $ 2,573 $ 1,215 $ 1,067 $ 331
91 191 217 72 85 28
-------- -------- ------- ------- ------- -------
$ 22.52 $ 25.01 $ 11.87 $ 16.89 $ 12.55 $ 11.94
======== ======== ======= ======= ======= =======
$ 23.89 $ 26.54 $ 12.59 $ 17.92 $ 13.32 $ 12.67
======== ======== ======= ======= ======= =======
$ 2,365 $ 4,842 $ 2,553 $ 1,392 $ 1,274 $ 747
105 198 216 84 104 63
-------- -------- ------- ------- ------- -------
$ 22.53 $ 24.46 $ 11.83 $ 16.56 $ 12.22 $ 11.88
======== ======== ======= ======= ======= =======
- -----------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 75 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
As of December 31, 1999
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
(In Thousands, Except High-Yield Intermediate-Term Managed
Per-Share Amounts) Bond Fund U.S. Treasury Fund Bond Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments, at Cost $78,293 $21,103 $8,541
======= ======= ======
Investments, at Value $75,617 $20,551 $8,203
Receivables
Investment Securities Sold -- -- --
Trust Shares Sold 79 61 --
Interest 1,511 282 97
Other 26 1 2
------- ------- ------
Total Assets 77,233 20,895 8,302
Liabilities
Payables
Trust Shares Redeemed 786 2 --
Notes Payable -- -- --
Dividends 199 37 18
Investment Advisory Fees 39 11 4
Transfer Agent Fees 14 5 2
Other 9 4 --
------- ------- ------
Total Liabilities 1,047 59 24
------- ------- ------
Net Assets $76,186 $20,836 $8,278
======= ======= ======
No-Load Class:
Net Assets $73,004 $19,092 $6,781
Trust Shares Outstanding 8,711 1,912 858
------- ------- ------
Net Asset Value, Offering Price, and
Redemption Price Per Share $ 8.38 $ 9.99 $ 7.90
======= ======= ======
Class A:
Net Assets $ 1,583 $ 958 $ 573
Trust Shares Outstanding 189 96 73
------- ------- ------
Net Asset Value and Redemption Price
Per Share $ 8.38 $ 10.00 $ 7.90
======= ======= ======
Maximum Offering Price Per Share (Net
Asset Value Plus Sales Charge of
4.5%) $ 8.77 $ 10.47 $ 8.27
======= ======= ======
Class B:
Net Assets $ 1,599 $ 786 $ 924
Trust Shares Outstanding 191 78 117
------- ------- ------
Net Asset Value and Offering Price
Per Share* $ 8.38 $ 9.99 $ 7.89
======= ======= ======
- -------------------------------------------------------------------------------
</TABLE>
* For Class B shares, the redemption price per share may be lower as a result
of applying contingent deferred sales charge.
** Also represents offering price per share.
SEE NOTES TO FINANCIAL STATEMENTS
- 76 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
Municipal California Tax-Free Washington State Money Market
Bond Fund Income Fund Municipal Bond Fund Fund
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
$458,045 $90,766 $7,522 $239,429
======== ======= ====== ========
$465,200 $85,650 $7,161 $239,429
-- 1,674 -- --
22 15 -- 400
8,717 1,622 132 1,699
-- -- -- 43
-------- ------- ------ --------
473,939 88,961 7,293 241,571
356 55 -- 863
-- 1,425 -- --
798 100 24 43
207 41 3 109
27 7 -- 66
33 12 -- 31
-------- ------- ------ --------
1,421 1,640 27 1,112
-------- ------- ------ --------
$472,518 $87,321 $7,266 $240,459
======== ======= ====== ========
$470,267 $85,782 $6,748 $235,926
36,472 7,771 699 235,926
-------- ------- ------ --------
$ 12.89 $ 11.04 $ 9.65 $ 1.00
======== ======= ====== ========
$ 929 $ 740 $ 191 $ 3,554
72 67 20 3,554
-------- ------- ------ --------
$ 12.90 $ 11.05 $ 9.65 $ 1.00**
======== ======= ====== ========
$ 13.51 $ 11.57 $10.10 $ --
======== ======= ====== ========
$ 1,322 $ 799 $ 327 $ 979
103 72 34 979
-------- ------- ------ --------
$ 12.88 $ 11.04 $ 9.66 $ 1.00
======== ======= ====== ========
- ---------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 77 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements of Operations
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
SAFECO SAFECO
Growth Equity
(In Thousands) Fund Fund
- ---------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Dividends (Net of Foreign Taxes Withheld of $61 in the
International Fund) $ 4,423 $ 32,457
Interest 239 2,991
-------- --------
Total Investment Income 4,662 35,448
Expenses
Investment Advisory 6,137 12,814
Transfer Agent 3,113 4,329
Fund Accounting and Administration 219 408
Shareholder Service--Class A 71 148
--Class B 36 61
Distribution--Class B 108 182
Legal and Auditing 123 196
Custodian 79 125
Registration 50 69
Reports to Shareholders 701 699
Trustees 12 14
Interest 390 1
Other 232 317
-------- --------
Total Expenses Before Reimbursement 11,271 19,363
Expense Reimbursement (576) (24)
-------- --------
Total Expenses After Reimbursement 10,695 19,339
-------- --------
Net Investment Income (Loss) (6,033) 16,109
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency
Net Realized Gain (Loss) from:
Investments in Unaffiliated Issuers 33,689 108,654
Investments in Affiliated Issuers (63,935) --
Foreign Currency Transactions -- --
-------- --------
Total Net Realized Gain (Loss) (30,246) 108,654
Net Change in Unrealized Appreciation (Depreciation) 8,592 72,979
-------- --------
Net Gain (Loss) on Investments and Foreign Currency (21,654) 181,633
-------- --------
Net Change in Net Assets Resulting from Operations $(27,687) $197,742
======== ========
- ---------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 78 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO SAFECO SAFECO
Income Northwest Balanced International Small Company U.S. Value
Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 9,667 $ 365 $ 284 $ 453 $ 112 $219
1,229 59 560 44 105 16
-------- ------- ----- ------ ------- ----
10,896 424 844 497 217 235
2,300 534 166 301 239 80
716 216 68 83 92 26
139 48 14 19 17 7
6 7 4 2 2 1
6 8 6 2 3 2
17 24 19 8 8 5
50 24 20 22 21 19
25 8 6 47 12 4
22 17 14 13 12 15
94 25 12 9 33 10
7 6 6 6 6 6
-- -- -- -- 1 --
55 12 7 9 13 6
-------- ------- ----- ------ ------- ----
3,437 929 342 521 459 181
(8) (61) (50) (73) (79) (42)
-------- ------- ----- ------ ------- ----
3,429 868 292 448 380 139
-------- ------- ----- ------ ------- ----
7,467 (444) 552 49 (163) 96
11,161 8,020 438 576 (5,990) 451
-- -- -- -- -- --
-- -- -- (88) -- --
-------- ------- ----- ------ ------- ----
11,161 8,020 438 488 (5,990) 451
(17,088) 28,195 (709) 7,927 9,193 (51)
-------- ------- ----- ------ ------- ----
(5,927) 36,215 (271) 8,415 3,203 400
-------- ------- ----- ------ ------- ----
$ 1,540 $35,771 $ 281 $8,464 $ 3,040 $496
======== ======= ===== ====== ======= ====
- -----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 79 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements of Operations
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
High-Yield Intermediate-Term Managed
(In Thousands) Bond Fund U.S. Treasury Fund Bond Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income
Interest $ 7,373 $ 1,376 $ 481
Dividends 210 -- --
------- ------- -----
Total Investment Income 7,583 1,376 481
Expenses
Investment Advisory 482 123 40
Transfer Agent 167 56 15
Fund Accounting and Administration 48 13 5
Shareholder Service--Class A 5 2 1
--Class B 5 2 2
Distribution--Class B 14 6 6
Legal and Auditing 25 20 19
Custodian 8 3 3
Reports to Shareholders 33 9 7
Trustees 6 6 6
Interest 13 -- --
Other 37 21 20
------- ------- -----
Total Expenses Before Reimbursement 843 261 124
Expense Reimbursement (41) (42) (40)
------- ------- -----
Total Expenses After Reimbursement 802 219 84
------- ------- -----
Net Investment Income 6,781 1,157 397
Net Realized and Unrealized Gain
(Loss) on Investments
Net Realized Gain (Loss) on
Investments (1,769) (33) (274)
Net Change in Unrealized
Appreciation (Depreciation) (2,107) (1,619) (441)
------- ------- -----
Net Gain (Loss) on Investments (3,876) (1,652) (715)
------- ------- -----
Net Change in Net Assets Resulting
from Operations $ 2,905 $ (495) $(318)
======= ======= =====
- --------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 80 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
Municipal California Tax-Free Washington State Money Market
Bond Fund Income Fund Municipal Bond Fund Fund
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 29,611 $ 5,849 $ 428 $12,532
-- -- -- --
-------- -------- ----- -------
29,611 5,849 428 12,532
2,359 553 42 1,166
318 87 4 693
164 63 4 127
2 2 1 --
4 2 1 --
11 7 2 --
64 29 19 38
29 11 2 21
107 30 1 89
8 6 6 7
3 1 -- 1
107 21 4 91
-------- -------- ----- -------
3,176 812 86 2,233
-- -- (10) (338)
-------- -------- ----- -------
3,176 812 76 1,895
-------- -------- ----- -------
26,435 5,037 352 10,637
(1,564) (1,041) (6) --
(57,414) (14,076) (837) --
-------- -------- ----- -------
(58,978) (15,117) (843) --
-------- -------- ----- -------
$(32,543) $(10,080) $(491) $10,637
======== ======== ===== =======
- ------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 81 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SAFECO Growth Fund
------------------------
Year Ended December 31
(In Thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net Investment Income (Loss) $ (6,033) $ (918)
Net Realized Gain (Loss) on Investments and
Foreign Currency Transactions (30,246) 44,781
Net Change in Unrealized Appreciation (Depreciation) 8,592 (92,841)
----------- -----------
Net Change in Net Assets Resulting from Operations (27,687) (48,978)
Dividends to Shareholders from
Net Investment Income
No-Load Class -- --
Class A -- --
Class B -- --
Net Realized Gain on Investments
No-Load Class -- (43,556)
Class A -- (1,055)
Class B -- (497)
----------- -----------
Total -- (45,108)
Net Trust Share Transactions
No-Load Class (551,458) 846,267
Class A (6,151) 32,104
Class B (935) 15,181
----------- -----------
Total (558,544) 893,552
----------- -----------
Total Change in Net Assets (586,231) 799,466
Net Assets at Beginning of Period 1,443,506 644,040
----------- -----------
Net Assets at End of Period $ 857,275 $ 1,443,506
=========== ===========
- -------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 82 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO Equity Fund SAFECO Income Fund SAFECO Northwest Fund
- ------------------------ ------------------------ -----------------------
Year Ended December 31 Year Ended December 31 Year Ended December 31
1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 16,109 $ 17,446 $ 7,467 $ 10,977 $ (444) $ (373)
108,654 79,369 11,161 20,424 8,020 1,091
72,979 295,679 (17,088) (10,865) 28,195 1,410
- ----------- ----------- ----------- ----------- ----------- ----------
197,742 392,494 1,540 20,536 35,771 2,128
(15,806) (17,149) (7,391) (10,921) -- --
(255) (343) (42) (33) -- --
-- -- (25) (22) -- --
(104,376) (76,799) (10,871) (20,354) (7,222) (658)
(2,993) (1,908) (73) (105) (358) (23)
(1,372) (656) (85) (110) (370) (28)
- ----------- ----------- ----------- ----------- ----------- ----------
(124,802) (96,855) (18,487) (31,545) (7,950) (709)
51,436 246,560 (79,020) 8,124 8,418 (2,513)
9,565 37,060 99 1,405 1,472 831
10,780 12,194 288 1,483 1,034 1,475
- ----------- ----------- ----------- ----------- ----------- ----------
71,781 295,814 (78,633) 11,012 10,924 (207)
- ----------- ----------- ----------- ----------- ----------- ----------
144,721 591,453 (95,580) 3 38,745 1,212
2,092,463 1,501,010 403,528 403,525 68,405 67,193
- ----------- ----------- ----------- ----------- ----------- ----------
$ 2,237,184 $ 2,092,463 $ 307,948 $ 403,528 $ 107,150 $ 68,405
=========== =========== =========== =========== =========== ==========
- ----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 83 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SAFECO SAFECO
Balanced Fund International Fund
------------------------ -----------------------
Year Ended December 31 Year Ended December 31
(In Thousands) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net Investment Income
(Loss) $ 552 $ 505 $ 49 $ 14
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 438 890 488 (910)
Net Change in Unrealized
Appreciation
(Depreciation) (709) 679 7,927 3,209
----------- ----------- ----------- -----------
Net Change in Net Assets
Resulting from Operations 281 2,074 8,464 2,313
Dividends to Shareholders
from Net Investment Income
No-Load Class (481) (476) -- --
Class A (32) (12) -- --
Class B (37) (16) -- --
Net Realized Gain on
Investments
No-Load Class (344) (771) -- --
Class A (49) (36) -- --
Class B (49) (83) -- --
----------- ----------- ----------- -----------
Total (992) (1,394) -- --
Net Trust Share Transactions
No-Load Class (547) 4,868 6,926 5,155
Class A 1,732 660 338 273
Class B 574 1,675 329 396
----------- ----------- ----------- -----------
Total 1,759 7,203 7,593 5,824
----------- ----------- ----------- -----------
Total Change in Net Assets 1,048 7,883 16,057 8,137
Net Assets at Beginning of
Period 22,086 14,203 23,517 15,380
----------- ----------- ----------- -----------
Net Assets at End of Period $ 23,134 $ 22,086 $ 39,574 $ 23,517
=========== =========== =========== ===========
- --------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 84 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO
SAFECO SAFECO High-Yield
Small Company Fund U.S. Value Fund Bond Fund
- -------------------- ---------------------- ------------------------------
Year Ended Year Ended
December 31 December 31 Year Ended December 31
1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ (163) $ (220) $ 96 $ 102 $ 6,781 $ 6,383
(5,990) (4,172) 451 464 (1,769) (57)
9,193 (9,513) (51) 598 (2,107) (2,997)
- ------- -------- ------- ------- ----------- -----------
3,040 (13,905) 496 1,164 2,905 3,329
-- -- (93) (102) (6,470) (6,205)
-- -- (1) (1) (178) (127)
-- -- -- -- (133) (51)
-- -- (408) (428) -- --
-- -- (14) (9) -- --
-- -- (30) (27) -- --
- ------- -------- ------- ------- ----------- -----------
-- (546) (567) (6,781) (6,383)
(9,618) 25,617 (70) 377 (3,042) 11,564
(272) 1,449 125 69 (1,269) 2,818
94 930 126 392 332 1,041
- ------- -------- ------- ------- ----------- -----------
(9,796) 27,996 181 838 (3,979) 15,423
- ------- -------- ------- ------- ----------- -----------
(6,756) 14,091 131 1,435 (7,855) 12,369
37,416 23,325 10,852 9,417 84,041 71,672
- ------- -------- ------- ------- ----------- -----------
$30,660 $ 37,416 $10,983 $10,852 $ 76,186 $ 84,041
======= ======== ======= ======= =========== ===========
- ----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 85 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SAFECO SAFECO
Intermediate-Term Managed
U.S. Treasury Fund Bond Fund
------------------ --------------
Year Ended Year Ended
December 31 December 31
(In Thousands) 1999 1998 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net Investment Income $ 1,157 $ 1,045 $ 397 $ 278
Net Realized Gain (Loss) on Investments (33) 4 (274) 237
Net Change in Unrealized Appreciation
(Depreciation) (1,619) 648 (441) (56)
--------- --------- ------ ------
Net Change in Net Assets Resulting from
Operations (495) 1,697 (318) 459
Dividends to Shareholders from
Net Investment Income
No-Load Class (1,077) (992) (346) (262)
Class A (44) (26) (19) (9)
Class B (36) (27) (32) (7)
Net Realized Gain on Investments
No-Load Class -- -- -- (192)
Class A -- -- -- (8)
Class B -- -- -- (15)
--------- --------- ------ ------
Total (1,157) (1,045) (397) (493)
Net Trust Share Transactions
No-Load Class (3,442) 7,754 637 2,153
Class A 188 450 311 151
Class B 60 331 470 412
--------- --------- ------ ------
Total (3,194) 8,535 1,418 2,716
--------- --------- ------ ------
Total Change in Net Assets (4,846) 9,187 703 2,682
Net Assets at Beginning of Period 25,682 16,495 7,575 4,893
--------- --------- ------ ------
Net Assets at End of Period $ 20,836 $ 25,682 $8,278 $7,575
========= ========= ====== ======
- ------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 86 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
Municipal California Tax-Free Washington State
Bond Fund Income Fund Municipal Bond Fund
- ------------------- --------------------------- ---------------------------
Year Ended
December 31 Year Ended December 31 Year Ended December 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 26,435 $ 25,941 $ 5,037 $ 4,928 $ 352 $ 359
(1,564) 8,894 (1,041) 3,251 (6) 246
(57,414) (3,043) (14,076) (1,778) (837) (133)
- -------- -------- ----------- ----------- ----------- -----------
(32,543) 31,792 (10,080) 6,401 (491) 472
(26,332) (25,876) (4,966) (4,878) (333) (343)
(46) (33) (38) (24) (9) (9)
(57) (32) (33) (26) (10) (7)
-- (8,852) -- (3,208) -- (224)
-- (16) -- (19) -- (6)
-- (22) -- (27) -- (7)
- -------- -------- ----------- ----------- ----------- -----------
(26,435) (34,831) (5,037) (8,182) (352) (596)
(10,899) 39,941 (11,817) 25,835 (177) 541
96 557 189 232 5 (149)
118 884 4 436 114 12
- -------- -------- ----------- ----------- ----------- -----------
(10,685) 41,382 (11,624) 26,503 (58) 404
- -------- -------- ----------- ----------- ----------- -----------
(69,663) 38,343 (26,741) 24,722 (901) 280
542,181 503,838 114,062 89,340 8,167 7,887
- -------- -------- ----------- ----------- ----------- -----------
$472,518 $542,181 $ 87,321 $ 114,062 $7,266 $8,167
======== ======== =========== =========== =========== ===========
- --------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 87 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SAFECO
Money Market Fund
------------------------
Year Ended December 31
(In Thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net Investment Income $ 10,637 $ 9,987
Net Realized Gain (Loss) on Investments -- --
Net Change in Unrealized Appreciation (Depreciation) -- --
----------- -----------
Net Change in Net Assets Resulting from Operations 10,637 9,987
Dividends to Shareholders from
Net Investment Income
No-Load Class (10,421) (9,906)
Class A (168) (57)
Class B (48) (24)
Net Realized Gain on Investments
No-Load Class -- --
Class A -- --
Class B -- --
----------- -----------
Total (10,637) (9,987)
Net Trust Share Transactions
No-Load Class 11,453 47,850
Class A 1,368 1,649
Class B 309 256
----------- -----------
Total 13,130 49,755
----------- -----------
Total Change in Net Assets 13,130 49,755
Net Assets at Beginning of Period 227,329 177,574
----------- -----------
Net Assets at End of Period $240,459 $ 227,329
=========== ===========
- -------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 88 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Financial Statements
1. GENERAL
This financial report is on the 15 SAFECO Mutual Funds that issue Class A
and Class B shares. Each Fund is a series of one of the following trusts (each
a "Trust") listed below. Each Trust is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment com-
pany.
SAFECO Common Stock Trust
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Income Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
SAFECO U.S. Value Fund
SAFECO Taxable Bond Trust
SAFECO High-Yield Bond Fund
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO Managed Bond Trust
SAFECO Managed Bond Fund
SAFECO Tax-Exempt Bond Trust
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
SAFECO Money Market Trust
SAFECO Money Market Fund
Effective September 30, 1996, certain SAFECO Mutual Funds began issuing two
classes of shares--Class A and Class B shares. These classes of shares are sold
by financial advisors to shareholders and have associated sales and distribu-
tion charges, unlike the no-load class of shares (which are sold directly to
the shareholder with no associated sales or distribution charges). Each class
of shares represents an interest in the net assets of the fund.
In connection with issuing Class A and Class B shares, all of the above
mentioned funds (except the Money Market Fund) adopted a plan of Distribution
("the Plan"). Under the Plan, Class A and Class B shares
- 89 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
pay 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 Advi-
sor 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 Plan, the distributor uses the service fees primarily to compen-
sate persons selling Class A and Class B shares for providing ongoing services
and the maintenance of shareholder accounts. The distributor uses the distribu-
tion fees primarily to offset the commissions it pays to financial advisors for
selling Class B shares.
Subsequent Event. On January 20, 2000, the Board of Trustees voted to liq-
uidate and dissolve the SAFECO Washington State Municipal Bond Fund on March
31, 2000. Current shareholders may sell their shares or continue to hold them
until the liquidation date, when the then-current value of their investment
will be returned to them.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles.
Security Valuation. Investments in equity securities are valued at the last
reported sales price, unless there are no transactions in which case they are
valued at the last reported bid price. Bonds are stated on the basis of valua-
tions 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 determin-
ing value. When valuations are not readily available, securities are valued at
fair value as determined in good faith by the board of trustees. Temporary in-
vestments are valued at amortized cost which approximates market.
Security Transactions. Security transactions are recorded on the trade
date. The cost of the portfolios is the same for financial statement and fed-
eral income tax purposes. Realized gains and losses from security transactions
are determined using the identified cost basis.
- 90 -
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Securities Purchased on a When-Issued Basis. Securities purchased on a
when-issued or delayed basis for the Taxable Bond Trust, Managed Bond Trust
and Tax-Exempt Bond Trust may be settled a month or more after the trade date.
The securities purchased are carried in the portfolio at market and are sub-
ject to market fluctuation during this period. These securities begin earning
interest on the settlement date. As commitments to purchase when-issued secu-
rities become fixed, the Funds segregate liquid assets in an amount equal to
the total obligation.
Income Recognition. Dividend income less foreign taxes withheld (if any)
for the Common Stock Trust is recorded on the ex-dividend date or upon receipt
of ex-dividend notification in the case of certain foreign securities. Bond
premiums and original issue discounts are amortized to either call or maturity
dates for the Managed Bond Trust, Tax-Exempt Bond Trust and Money Market
Trust. Market discount on bonds purchased after April 30, 1993 is recorded as
taxable income at disposition for the Tax-Exempt Bond Trust. Interest is ac-
crued on bonds and temporary investments daily.
Dividends and Distributions to Shareholders. For the Growth, Northwest,
International, and Small Company Funds, net investment income (if any) is de-
clared as a dividend to shareholders as of the last business day (ex-dividend
date) of December. For the Equity, Income, Balanced, and U.S. Value Funds, net
investment income (if any) is distributed as of the last business day of
March, June, September and December. Net investment income for the Taxable
Bond Trust, Managed Bond Trust, Tax- Exempt Bond Trust and Money Market Trust
is declared as a dividend to shareholders as of the close of each business day
and payment is made as of the last business day of each month. Net realized
gains on investments, if any, are normally distributed to shareholders at the
end of December.
Income dividends and capital gain distributions are determined in accor-
dance with income tax regulation which may differ from generally accepted ac-
counting principles. These differences are primarily due to differing treat-
ments for foreign exchange contracts and wash sale deferrals.
Undistributed/overdistributed net investment income may include temporary fi-
nancial reporting and tax basis differences which will reverse in the subse-
quent year.
- 91 -
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Federal Income and Excise Taxes. Each Fund intends to comply with the re-
quirements of the Internal Revenue Code applicable to regulated investment
companies by distributing substantially all taxable income to their sharehold-
ers in a manner which results in no tax to the Funds. Therefore, no federal
income or excise tax provision is required. In addition, the Tax-Exempt Bond
Trust intends to satisfy conditions which will enable them to pay dividends
which, for shareholders, are exempt from Federal income taxes. Any portion of
dividends representing net short-term capital gains, however, is not exempt
and is treated as taxable dividends for Federal income tax purposes. In addi-
tion, income which is derived from amortization on bonds purchased below their
issued price after April 30, 1993, is treated as ordinary income for Federal
income tax purposes.
Foreign Currency Translation. The accounting records of the International
Fund are maintained in U.S. dollars. All assets and liabilities initially ex-
pressed in foreign currencies are converted into U.S. dollars at prevailing
exchange rates. Purchases and sales of investment securities, and dividend and
interest income, are translated at the rates of exchange prevailing on the re-
spective dates of such transactions. The International Fund does not isolate
that portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments. Reported net realized
gains or losses from foreign currency transactions arise from gains or losses
realized between the trade and settlement dates on securities transactions,
the difference between the amounts of dividends, interest, and foreign with-
holding taxes recorded on the International Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and lia-
bilities other than investments in securities, resulting from changes in the
exchange rate.
Foreign Exchange Contracts. The International Fund may enter into foreign
currency exchange contracts as a way of managing foreign exchange rate risk.
The International Fund may enter into these contracts for the purchase or sale
of a specific foreign currency at a fixed price on a
- 92 -
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
future date as a hedge or cross-hedge against either specific transactions or
portfolio positions. The objective of the International Fund's foreign cur-
rency hedging transactions is to reduce the risk that the U.S. dollar value of
the International Fund's foreign currency denominated securities will decline
in value due to changes in foreign currency exchange rates. All foreign cur-
rency exchange contracts are "marked-to-market" daily at the applicable trans-
lation rates resulting in unrealized gains or losses. Realized and unrealized
gains or losses on foreign currency contracts are recorded on settlement date
of the foreign currency exchange contract and are included in the Statements
of Assets and Liabilities and the Statement of Operations. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
Estimates. The preparation of financial statements in conformity with gen-
erally 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 report-
ing period. Actual results could differ from those estimates.
- 93 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENT TRANSACTIONS
Following is a summary of investment transactions (excluding short-term se-
curities) during the year ended December 31, 1999:
<TABLE>
<CAPTION>
(In Thousands) Purchases Sales
---------------------------------------------------------
<S> <C> <C>
Growth Fund $399,709 $982,167
Equity Fund 781,123 739,806
Income Fund 141,183 219,682
Northwest Fund 39,376 36,553
Balanced Fund 22,971 21,580
International Stock Fund 17,229 6,580
Small Company Stock Fund 33,971 40,195
U.S. Value Fund 5,670 6,031
High-Yield Bond Fund 54,727 55,379
Intermediate-Term U.S. Treasury Fund 16,163 18,918
Managed Bond Fund 12,400 11,302
Municipal Bond Fund 86,155 105,208
California Tax-Free Income Fund 25,935 36,533
Washington State Municipal Fund 700 790
---------------------------------------------------------
</TABLE>
Purchases include $8,965, $16,163, and $6,821 of U.S. Government securities for
Balanced, Intermediate-Term U.S. Treasury, and Managed Bond Funds, respective-
ly.
Sales include $8,409, $18,918, and $6,575 of U.S. Government securities for
Balanced, Intermediate-Term U.S. Treasury, and Managed Bond Funds, respective-
ly.
- 94 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
4.TRUST SHARE TRANSACTIONS
Following is a summary of transactions in shares and the related amounts
(in thousands):
<TABLE>
<CAPTION>
SAFECO Growth Fund
-------------------------------------------------------------
No-Load Class A Class B
------------------------ ----------------- ----------------
For the Year Ended December 31
-------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Sales 26,975 89,342 536 1,454 211 681
Reinvestments -- 1,873 -- 45 -- 22
Redemptions (53,419) (58,229) (835) (193) (264) (65)
----------- ----------- -------- ------- ------- -------
Net Change (26,444) 32,986 (299) 1,306 (53) 638
=========== =========== ======== ======= ======= =======
Amounts:
Sales $ 571,275 $ 2,179,487 $ 11,412 $35,247 $ 4,371 $16,101
Reinvestments -- 42,509 -- 1,009 -- 486
Redemptions (1,122,733) (1,375,729) (17,563) (4,152) (5,306) (1,406)
----------- ----------- -------- ------- ------- -------
Net Change $ (551,458) $ 846,267 $ (6,151) $32,104 $ (935) $15,181
=========== =========== ======== ======= ======= =======
- -----------------------------------------------------------------------------
<CAPTION>
SAFECO Equity Fund
-------------------------------------------------------------
No-Load Class A Class B
------------------------ ----------------- ----------------
For the Year Ended December 31
-------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Sales 22,947 29,980 784 2,002 540 604
Reinvestments 4,755 3,861 132 97 57 28
Redemptions (25,424) (23,017) (518) (306) (156) (70)
----------- ----------- -------- ------- ------- -------
Net Change 2,278 10,824 398 1,793 441 562
=========== =========== ======== ======= ======= =======
Amounts:
Sales $ 559,406 $ 654,422 $ 19,136 $41,546 $13,214 $13,097
Reinvestments 114,357 88,790 3,189 2,241 1,359 650
Redemptions (622,327) (496,652) (12,760) (6,727) (3,793) (1,553)
----------- ----------- -------- ------- ------- -------
Net Change $ 51,436 $ 246,560 $ 9,565 $37,060 $10,780 $12,194
=========== =========== ======== ======= ======= =======
- -----------------------------------------------------------------------------
</TABLE>
- 95 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SAFECO Income Fund
---------------------------------------------------------------
No-Load Class A Class B
----------------------- ----------------- -----------------
For the Year Ended December 31
---------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Sales 1,419 4,553 41 66 35 62
Reinvestments 717 1,175 4 5 4 5
Redemptions (5,594) (5,541) (42) (14) (27) (8)
--------- --------- ------ ------ ------ ------
Net Change (3,458) 187 3 57 12 59
========= ========= ====== ====== ====== ======
Amounts:
Sales $ 32,738 $ 114,102 $ 951 $1,627 $ 808 $1,545
Reinvestments 16,035 27,902 92 119 98 123
Redemptions (127,793) (133,880) (944) (341) (618) (185)
--------- --------- ------ ------ ------ ------
Net Change $ (79,020) $ 8,124 $ 99 $1,405 $ 288 $1,483
========= ========= ====== ====== ====== ======
- -------------------------------------------------------------------------------
<CAPTION>
SAFECO Northwest Fund
---------------------------------------------------------------
No-Load Class A Class B
----------------------- ----------------- -----------------
For the Year Ended December 31
---------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Sales 1,370 987 78 77 49 106
Reinvestments 238 31 13 2 14 1
Redemptions (1,343) (1,165) (26) (31) (16) (28)
--------- --------- ------ ------ ------ ------
Net Change 265 (147) 65 48 47 79
========= ========= ====== ====== ====== ======
Amounts:
Sales $ 29,203 $ 17,313 $1,632 $1,349 $1,006 $1,882
Reinvestments 6,029 549 331 29 342 27
Redemptions (26,814) (20,375) (491) (547) (314) (434)
--------- --------- ------ ------ ------ ------
Net Change $ 8,418 $ (2,513) $1,472 $ 831 $1,034 $1,475
========= ========= ====== ====== ====== ======
- -------------------------------------------------------------------------------
</TABLE>
- 96 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
4.TRUST SHARE TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
SAFECO Balanced Fund
------------------------------------------------------------
No-Load Class A Class B
--------------------- ---------------- -----------------
For the Year Ended December 31
------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Sales 453 1,183 176 72 93 148
Reinvestments 44 66 7 3 7 7
Redemptions (539) (860) (39) (20) (52) (16)
-------- -------- ------ ----- ------ ------
Net Change (42) 389 144 55 48 139
======== ======== ====== ===== ====== ======
Amounts:
Sales $ 5,531 $ 14,335 $2,126 $ 862 $1,129 $1,783
Reinvestments 527 798 75 41 81 91
Redemptions (6,605) (10,265) (469) (243) (636) (199)
-------- -------- ------ ----- ------ ------
Net Change $ (547) $ 4,868 $1,732 $ 660 $ 574 $1,675
======== ======== ====== ===== ====== ======
- ----------------------------------------------------------------------------
<CAPTION>
SAFECO International Fund
------------------------------------------------------------
No-Load Class A Class B
--------------------- ---------------- -----------------
For the Year Ended December 31
------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Sales 3,678 2,000 47 28 35 40
Reinvestments -- -- -- -- -- --
Redemptions (3,179) (1,600) (23) (6) (11) (9)
-------- -------- ------ ----- ------ ------
Net Change 499 400 24 22 24 31
======== ======== ====== ===== ====== ======
Amounts:
Sales $ 52,012 $ 25,289 $ 654 $ 343 $ 482 $ 511
Reinvestments -- -- -- -- -- --
Redemptions (45,086) (20,134) (316) (70) (153) (115)
-------- -------- ------ ----- ------ ------
Net Change $ 6,926 $ 5,155 $ 338 $ 273 $ 329 $ 396
======== ======== ====== ===== ====== ======
- ----------------------------------------------------------------------------
</TABLE>
- 97 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SAFECO Small Company Fund
----------------------------------------------------------------------
No-Load Class A Class B
------------------------- ------------------- ------------------
For the Year Ended December 31
----------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Sales 3,426 9,098 33 108 40 87
Reinvestments -- -- -- -- -- --
Redemptions (4,351) (7,540) (59) (16) (31) (20)
-------- --------- ----- ------ ---- ------
Net Change (925) 1,558 (26) 92 9 67
======== ========= ===== ====== ==== ======
Amounts:
Sales $ 36,187 $ 137,539 $ 347 $1,634 $405 $1,156
Reinvestments -- -- -- -- -- --
Redemptions (45,805) (111,922) (619) (185) (311) (226)
-------- --------- ----- ------ ---- ------
Net Change $ (9,618) $ 25,617 $(272) $1,449 $ 94 $ 930
======== ========= ===== ====== ==== ======
- ---------------------------------------------------------------------------------------
<CAPTION>
SAFECO U.S. Value Fund
----------------------------------------------------------------------
No-Load Class A Class B
------------------------- ------------------- ------------------
For the Year Ended December 31
----------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Sales 163 225 15 7 16 34
Reinvestments 17 17 1 -- 2 2
Redemptions (189) (215) (5) (1) (8) (3)
-------- --------- ----- ------ ---- ------
Net Change (9) 27 11 6 10 33
======== ========= ===== ====== ==== ======
Amounts:
Sales $ 2,043 $ 2,687 $ 179 $ 81 $196 $ 410
Reinvestments 202 203 9 4 25 21
Redemptions (2,315) (2,513) (63) (16) (95) (39)
-------- --------- ----- ------ ---- ------
Net Change $ (70) $ 377 $ 125 $ 69 $126 $ 392
======== ========= ===== ====== ==== ======
- ---------------------------------------------------------------------------------------
</TABLE>
- 98 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
4.TRUST SHARE TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
SAFECO High-Yield Bond Fund
--------------------------------------------------------------
No-Load Class A Class B
--------------------- ------------------ -----------------
For the Year Ended December 31
--------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Sales 7,351 9,834 127 319 129 138
Reinvestments 523 466 14 11 15 5
Redemptions (8,235) (9,014) (290) (21) (110) (25)
-------- -------- ------- ------ ------ ------
Net Change (361) 1,286 (149) 309 34 118
======== ======== ======= ====== ====== ======
Amounts:
Sales $ 63,720 $ 88,489 $ 1,097 $2,907 $1,136 $1,223
Reinvestments 4,482 4,195 122 94 123 44
Redemptions (71,244) (81,120) (2,488) (183) (927) (226)
-------- -------- ------- ------ ------ ------
Net Change $ (3,042) $ 11,564 $(1,269) $2,818 $ 332 $1,041
======== ======== ======= ====== ====== ======
- ------------------------------------------------------------------------------
<CAPTION>
SAFECO Intermediate-Term U.S. Treasury Fund
--------------------------------------------------------------
No-Load Class A Class B
--------------------- ------------------ -----------------
For the Year Ended December 31
--------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Sales 666 1,506 58 50 55 76
Reinvestments 65 53 4 2 3 2
Redemptions (1,059) (837) (43) (10) (53) (47)
-------- -------- ------- ------ ------ ------
Net Change (328) 722 19 42 5 31
======== ======== ======= ====== ====== ======
Amounts:
Sales $ 6,902 $ 16,057 $ 599 $ 539 $ 574 $ 799
Reinvestments 669 561 37 20 31 23
Redemptions (11,013) (8,864) (448) (109) (545) (491)
-------- -------- ------- ------ ------ ------
Net Change $ (3,442) $ 7,754 $ 188 $ 450 $ 60 $ 331
======== ======== ======= ====== ====== ======
- ------------------------------------------------------------------------------
</TABLE>
- 99 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SAFECO Managed Bond Fund
-------------------------------------------------------------------
No-Load Class A Class B
------------------------- ----------------- -----------------
For the Year Ended December 31
-------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Sales 259 329 44 31 69 48
Reinvestments 19 18 2 1 3 2
Redemptions (202) (103) (7) (15) (16) (3)
--------- -------- ---- ----- ----- ----
Net Change 76 244 39 17 56 47
========= ======== ==== ===== ===== ====
Amounts:
Sales $ 2,143 $ 2,905 $355 $ 271 $ 578 $420
Reinvestments 155 157 15 10 27 15
Redemptions (1,661) (909) (58) (130) (136) (23)
--------- -------- ---- ----- ----- ----
Net Change $ 637 $ 2,153 $312 $ 151 $ 469 $412
========= ======== ==== ===== ===== ====
- ------------------------------------------------------------------------------------
<CAPTION>
SAFECO Municipal Bond Fund
-------------------------------------------------------------------
No-Load Class A Class B
------------------------- ----------------- -----------------
For the Year Ended December 31
-------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Sales 6,634 7,648 9 41 27 59
Reinvestments 1,231 1,598 1 2 3 3
Redemptions (8,766) (6,515) (3) (4) (22) (1)
--------- -------- ---- ----- ----- ----
Net Change (901) 2,731 7 39 8 61
========= ======== ==== ===== ===== ====
Amounts:
Sales $ 92,371 $111,887 $125 $ 596 $ 369 $859
Reinvestments 16,926 23,242 18 26 43 41
Redemptions (120,196) (95,188) (47) (65) (294) (16)
--------- -------- ---- ----- ----- ----
Net Change $ (10,899) $ 39,941 $ 96 $ 557 $ 118 $884
========= ======== ==== ===== ===== ====
- ------------------------------------------------------------------------------------
</TABLE>
- 100 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
4.TRUST SHARE TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
SAFECO California Tax-Free Income Fund
--------------------------------------------------------------------
No-Load Class A Class B
------------------------ ------------------ ------------------
For the Year Ended December 31
--------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Sales 2,144 4,348 30 28 14 41
Reinvestments 321 494 3 2 2 3
Redemptions (3,524) (2,846) (19) (12) (17) (10)
-------- -------- ----- ----- ----- -----
Net Change (1,059) 1,996 14 18 (1) 34
======== ======== ===== ===== ===== =====
Amounts:
Sales $ 26,624 $ 56,554 $ 384 $ 366 $ 176 $ 522
Reinvestments 3,849 6,359 30 25 26 39
Redemptions (42,290) (37,078) (225) (159) (198) (125)
-------- -------- ----- ----- ----- -----
Net Change $(11,817) $ 25,835 $ 189 $ 232 $ 4 $ 436
======== ======== ===== ===== ===== =====
- -------------------------------------------------------------------------------------
<CAPTION>
SAFECO Washington State Municipal Bond Fund
--------------------------------------------------------------------
No-Load Class A Class B
------------------------ ------------------ ------------------
For the Year Ended December 31
--------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Sales 90 284 -- 1 10 --
Reinvestments 8 13 1 1 1 1
Redemptions (114) (247) -- (15) -- --
-------- -------- ----- ----- ----- -----
Net Change (16) 50 1 (13) 11 1
======== ======== ===== ===== ===== =====
Amounts:
Sales $ 903 $ 3,139 $ -- $ 7 $ 107 $ 3
Reinvestments 81 137 5 7 7 9
Redemptions (1,161) (2,735) -- (163) -- --
-------- -------- ----- ----- ----- -----
Net Change $ (177) $ 541 $ 5 $(149) $ 114 $ 12
======== ======== ===== ===== ===== =====
- -------------------------------------------------------------------------------------
</TABLE>
- 101 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SAFECO Money Market Fund
--------------------------------------------------------
No-Load Class A Class B
-------------------- ---------------- ----------------
For the Year Ended December 31
--------------------------------------------------------
1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Sales 468,818 491,508 8,404 3,057 2,303 1,672
Reinvestments 9,827 9,260 157 51 41 17
Redemptions (467,192) (452,918) (7,193) (1,459) (2,035) (1,433)
--------- --------- ------- ------- ------- -------
Net Change 11,453 47,850 1,368 1,649 309 256
========= ========= ======= ======= ======= =======
Amounts:
Sales $ 468,818 $ 491,508 $ 8,404 $ 3,057 $ 2,303 $ 1,672
Reinvestments 9,827 9,260 157 51 41 17
Redemptions (467,192) (452,918) (7,193) (1,459) (2,035) (1,433)
--------- --------- ------- ------- ------- -------
Net Change $ 11,453 $ 47,850 $ 1,368 $ 1,649 $ 309 $ 256
========= ========= ======= ======= ======= =======
- ------------------------------------------------------------------------
</TABLE>
- 102 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
5. COMPONENTS OF NET ASSETS
At December 31, 1999, the components of net assets were as follows:
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
Growth Equity Income Northwest
(In Thousands) Fund Fund Fund Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross
Unrealized Appreciation
on Investments in Which
There Is an Excess of
Value Over Identified
Cost
$ 196,433 $ 777,023 $ 97,121 $ 53,171
Aggregate Gross
Unrealized Depreciation
on Investments in Which
There Is an Excess of
Identified Cost Over
Value
(196,425) (79,265) (21,743) (4,130)
--------- ---------- -------- --------
Net Unrealized
Appreciation 8 697,758 75,378 49,041
Accumulated Net Realized
(Loss) on Investments
Wash Sale Deferral* (351) -- -- --
Other (31,148)** -- -- --
Paid in Capital (Par
Value $.001, Unlimited
Shares Authorized) 888,766 1,539,426 232,570 58,109
--------- ---------- -------- --------
Net Assets at December
31, 1999 $ 857,275 $2,237,184 $307,948 $107,150
========= ========== ======== ========
<CAPTION>
SAFECO SAFECO
SAFECO SAFECO Small U.S.
Balanced International Company Value
(In Thousands) Fund Fund Fund Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross
Unrealized Appreciation
on Investments and
Forward Contracts in
Which There is an
Excess of Value Over
Identified Cost
$ 2,539 $ 13,205 $ 6,624 $ 1,921
Aggregate Gross
Unrealized Depreciation
on Investments and
Forward Contracts in
Which There is an
Excess of Identified
Cost Over Value
(1,308) (687) (2,679) (714)
--------- ---------- -------- --------
Net Unrealized
Appreciation 1,231 12,518 3,945 1,207
Accumulated Net Realized
(Loss) on Investments:
Wash Sale Deferral* (5) (30) -- --
Other -- (160)** (10,162)** --
Paid in Capital (Par
Value $.001, Unlimited
Shares Authorized) 21,908 27,246 36,877 9,776
--------- ---------- -------- --------
Net Assets at December
31, 1999 $ 23,134 $ 39,574 $ 30,660 $ 10,983
========= ========== ======== ========
</TABLE>
- 103 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SAFECO
Intermediate- SAFECO
SAFECO Term Managed SAFECO
High-Yield U.S. Treasury Bond Municipal
(In Thousands) Bond Fund Fund Fund Bond Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross
Unrealized Appreciation
on Investments in Which
There Is an Excess of
Value Over Identified
Cost $ 685 $ 42 $ -- $ 27,156
Aggregate Gross
Unrealized Depreciation
on Investments in Which
There Is an Excess of
Identified Cost Over
Value (3,361) (594) (338) (20,001)
------- ------- ------ --------
Net Unrealized
Appreciation
(Depreciation) (2,676) (552) (338) 7,155
Accumulated Net Realized
Gain (Loss) on
Investments:
Wash Sale Deferral* -- -- (26) --
Other (2,166)** (282)** (248)** (1,565)**
Paid in Capital (Par
Value $.001, Unlimited
Shares Authorized) 81,028 21,670 8,890 466,928
------- ------- ------ --------
Net Assets at December
31, 1999 $76,186 $20,836 $8,278 $472,518
======= ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
SAFECO SAFECO
California Washington SAFECO
Tax-Free State Money
Income Municipal Market
(In Thousands) Fund Bond Fund Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments in Which There Is an
Excess of Value Over Identified Cost $ 1,501 $ 80 $ --
Aggregate Gross Unrealized Depreciation
on Investments in Which There Is an
Excess of Identified Cost Over Value (6,617) (441) --
------- ------ --------
Net Unrealized Appreciation
(Depreciation) (5,116) (361) --
Accumulated Net Realized Gain (Loss) on
Investments (1,042)** (6)** --
Paid in Capital (Par Value $.001,
Unlimited Shares Authorized) 93,479 7,633 240,459
------- ------ --------
Net Assets at December 31, 1999 $87,321 $7,266 $240,459
======= ====== ========
</TABLE>
- --------------------------------------------------------------------------------
* Represents accumulated realized losses not currently available to offset fu-
ture distributions.
** At December 31, 1999, these funds had the following amounts of accumulated
net realized losses on investment transactions that represented capital
loss carryforwards for Federal income tax purposes, which expire as fol-
lows:
<TABLE>
<CAPTION>
Amounts Expiration Dates
------- ----------------
<S> <C> <C>
Growth Fund $31,148 2006-2007
International Fund 160 2006-2007
Small Company Fund 10,162 2006-2007
High-Yield Bond Fund 2,166 2004-2007
Intermediate-Term U.S. Treasury Fund 282 2001-2006
Managed Bond Fund 248 2007
Municipal Bond Fund 1,565 2007
California Tax-Free Income Fund 1,042 2007
Washington State Municipal Bond Fund 6 2007
</TABLE>
- 104 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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 per-
centage of each day's net assets, which, on an annual basis, are as follows:
<TABLE>
<S> <C>
International Fund:
First $250 million 1.00%
Next $500 million .90
Over $750 million .80
</TABLE>
<TABLE>
<S> <C>
Growth, Equity, Income,
Northwest, Balanced and
U.S. Value Funds:
First $250 million .70%
Next $500 million .65
Next $500 million .60
Over $1.25 billion .55
</TABLE>
<TABLE>
<S> <C>
Small Company Fund:
First $250 million .75%
Next $500 million .70
Next $500 million .65
Over $1.25 billion .60
</TABLE>
<TABLE>
<S> <C>
High-Yield Bond Fund:
First $250 million .65%
Next $500 million .55
Over $750 million .50
</TABLE>
<TABLE>
<S> <C>
Intermediate-Term U.S.
Treasury Fund
First $250 million .55%
Next $500 million .50
Next $500 million .45
Over $1.25 billion .40
</TABLE>
<TABLE>
<S> <C>
Managed Bond Fund:
First $750 million .50%
Next $500 million .45
Over $1.25 billion .40
</TABLE>
<TABLE>
<S> <C>
Money Market Fund:
First $250 million .50%
Next $500 million .45
Next $500 million .40
Over $1.25 billion .35
</TABLE>
<TABLE>
<S> <C>
Municipal, California and
Washington Funds:
First $250 million .50%
Next $500 million .45
Over $750 million .40
</TABLE>
SAFECO Asset Management Company pays sub-advisory fees to Bank of Ireland
Asset Management Company (U.S.) Limited for providing investment research and
advice to the International Fund.
- 105 -
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Fund Accounting and Fund Administration Fees. Beginning May 1, 1999,
SAFECO Asset Management Company receives a fee for these services based on a
percentage of each day's net assets, which, on an annual basis is as follows:
<TABLE>
<S> <C>
Fund Accounting:
First $200 million .04%
Over $200 million .01
Fund Administration:
First $200 million .05%
Over $200 million .01
</TABLE>
Transfer Agent, Shareholder Service, and Distribution Fees. SAFECO Serv-
ices Corporation receives transfer agent fees. SAFECO Securities, Inc. re-
ceives shareholder service and distribution fees.
Notes Payable and Interest Expense. The Funds may borrow money for tempo-
rary purposes from SAFECO Corporation or its affiliates at rates equivalent to
commercial bank interest rates. At December 31, 1999, the Growth Fund had a
5.50% note payable to SAFECO Life Limited Maturity of $350,000. The note was
repaid on January 10, 2000. At December 31, 1999, the California Tax-Free In-
come Fund had a 5.51% note payable to SAFECO Life Limited Maturity of
$1,425,000. The note was repaid on January 4, 2000.
Line of Credit. The Trusts, together with all other management investment
companies for which SAFECO Asset Management Company serves as investment advi-
sor, has a line of credit arrangements with certain financial institutions.
Under these arrangements, $200 million is available to meet short-term financ-
ing needs. No balance was outstanding under these arrangements at December 31,
1999.
Affiliate Ownership. At December 31, 1999, SAFECO Insurance Company of
America owned 450,000 shares (11% of outstanding shares) of the Northwest
Fund, 500,000 shares (24%) of the Intermediate-Term U.S. Treasury Fund and
502,372 shares (67%) of the Washington Fund. During the same period SAFECO As-
set Management Company owned 688,168 shares (30%) of the International Fund,
519,268 shares (27%) of the Balanced Fund, 500,000 shares (55%) of the U.S.
Value Fund, and 452,103 shares (43%) of the Managed Bond Fund.
Expense Reimbursement. Beginning May 1, 1999, SAFECO Asset Management Com-
pany agreed to reimburse the Funds for operating expenses
- 106 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(i.e., all expenses except investment advisory, distribution, service fees, and
interest) which exceed, on an annual basis, 0.30% of the average daily net as-
sets for the Money Market Fund and 0.40% for all other Funds.
Dealer Concessions. SAFECO Securities, Inc. retained the following amounts
in dealer commissions from sales of Class A Shares for the year ended December
31, 1999:
<TABLE>
<CAPTION>
Commissions
Retained
------------------------------------------
<S> <C>
Growth Fund $10,556
Equity Fund 33,040
Income Fund 2,855
Northwest Fund 4,730
Balanced Fund 3,046
International Fund 1,276
Small Company Fund 1,273
U.S. Value Fund 678
High-Yield Bond Fund 3,523
Intermediate-Term U.S.
Treasury Fund 665
Managed Bond Fund 791
Municipal Bond Fund 461
California Tax-Free Income
Fund 1,321
------------------------------------------
</TABLE>
- 107 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. INVESTMENTS IN AFFILIATES
Each of the companies listed below is an affiliate of the Growth Fund be-
cause the Fund owned at least 5% of the company's voting securities during the
year ended December 31, 1999.
<TABLE>
<CAPTION>
Market
(In Thousands) Shares at Shares at Value
Beginning End December
Security of Period Additions Reductions of Period Dividends 31 1999
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
*American Buildings Co. 360 -- (360) -- -- $ --
American Coin
Merchandising, Inc. 391 -- (34) 357 -- 981
American Healthcorp,
Inc. 282 335 (64) 553 -- 2,521
Anesta Corp. 347 516 (104) 759 -- 13,040
Blue Rhino Corp. -- 624 -- 624 -- 6,080
BNC Mortgage, Inc. 484 -- (67) 417 -- 2,712
Concepts Direct, Inc. 480 -- -- 480 -- 5,215
*Creditrust Corp. 489 549 (567) 471 -- --
Damark International,
Inc. 755 -- (40) 715 -- 11,260
*Discreet Logic, Inc. 1,618 -- (1,618)+ -- -- --
Dura Pharmaceuticals,
Inc. 2,546 -- (240) 2,306 -- 32,144
Dynamex, Inc. 642 -- (31) 611 -- 917
Emisphere Technologies,
Inc. -- 984 -- 984 -- 29,595
*Emmis Communications
Corp. (Class A) 1,242 49 (1,291) -- -- --
*Family Golf Centers,
Inc. 2,512 -- (2,512) -- -- --
*First Commonwealth,
Inc. 344 -- (344) -- -- --
French Fragrances, Inc. 895 30 -- 925 -- 5,955
Funco, Inc. 354 -- -- 354 -- 3,964
Hall, Kinion &
Associates, Inc. 899 -- (94) 805 -- 17,310
Harold's Stores, Inc. 542 -- -- 542 -- 2,033
Home Products
International, Inc. 293 77 -- 370 -- 3,838
Innotrac Corp. 676 337 -- 1,013 -- 13,934
*IntelliQuest
Information Group, Inc. 840 -- (840) -- -- --
Lifeline Systems, Inc. 514 54 (7) 561 -- 8,408
MICROS Systems, Inc. 1,202 24 (74) 1,152 -- 85,213
NCO Group, Inc. 1,456 1,215 (1,143) 1,528 -- 46,041
Nastech Pharmaceutical
Co., Inc. 609 -- (114) 495 -- 1,670
Nu Skin Enterprises,
Inc. (Class A) 1,505 843 -- 2,348 -- 21,282
*Open Plan Systems, Inc. 245 -- (245) -- -- --
Phoenix International
Ltd., Inc. 623 209 -- 832 -- 3,223
PolyMedica Industries,
Inc. 886 359 -- 1,245 -- 28,791
Precision Auto Care,
Inc. 607 -- (15) 592 -- 666
Prime Medical Services,
Inc. 1,121 105 -- 1,226 -- 11,190
*Recovery Engineering,
Inc. 342 -- (342) -- -- --
Rent-A-Center, Inc. 741 1,592 (45) 2,288 -- 45,331
Rent-Way, Inc. 108 1,609 (11) 1,706 -- 31,883
*Schlotzsky's, Inc. 493 -- (194) 299 -- --
Serologicals Corp. 543 1,903 (99) 2,347 -- 14,081
*Sirrom Capital Corp. 3,723 -- (3,723)++ -- -- --
*Stage Stores, Inc. 2,112 -- (2,112) -- -- --
Suburban Lodges of
America, Inc. 1,529 -- (502) 1,027 -- 5,327
TRM Copy Centers Corp. 698 12 -- 710 -- 4,349
*Teardrop Golf Co. 314 -- (314) -- -- --
*TETRA Technologies,
Inc. 710 -- (588) 122 -- --
Towne Services, Inc. 817 638 (20) 1,435 -- 5,741
Travis Boats & Motors,
Inc. 153 118 -- 271 -- 3,252
*Waterside Capital Corp. 118 6** (124) -- -- --
Weider Nutrition
International, Inc. 728 -- (212) 516 90 1,903
--------
$469,850
========
- ------------------------------------------------------------------------------------------
</TABLE>
*Company was not an affiliate at the end of the period.
**Represents a 5% Stock Dividend
+Acquired by Autodesk, Inc.
++Acquired by Finova Group, Inc.
- 108 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
8. COMMITMENTS.
At December 31, 1999, the International Fund had open forward foreign cur-
rency exchange contracts obligating it to receive or deliver the following for-
eign currencies:
<TABLE>
<CAPTION>
(In Thousands)
U.S. Dollar Unrealized
Currency In Exchange Settlement Value as of Appreciation
to be Delivered For Date Dec. 31, 1999 (Depreciation)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
59,303 Japanese Yen $ 560 01/18/00 $ 582 ($22)
31,308 Japanese Yen 302 02/09/00 308 (6)
41,366 Japanese Yen 399 02/18/00 408 (9)
35,384 Japanese Yen 339 02/24/00 349 (10)
24,834 Japanese Yen 242 02/29/00 245 (3)
------ ------ ----
$1,842 $1,892 ($50)
====== ====== ====
</TABLE>
9. NET INVESTMENT LOSS.
The Growth, Northwest, International and Small Company Funds had net in-
vestment losses for the year ended December 31, 1999. For the Northwest Fund,
this amount was netted against short-term capital gains to reduce the short-
term capital gain distribution. For the Growth, International and Small Company
Funds, these amounts were recorded as a reduction of paid in capital.
- 109 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GROWTH FUND
Class A
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
-------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 22.66 $ 22.39 $ 16.97 $15.45
Income From Investment
Operations
Net Investment Income
(Loss) (0.19) (0.05) (0.02) (0.02)
Net Realized and Unrealized
Gain on Investments 0.74 1.05 8.44 1.77
---------- ---------- --------- ------
Total from Investment
Operations 0.55 1.00 8.42 1.75
Less Distributions
Distributions from Realized
Gains -- (0.73) (3.00) (0.23)
---------- ---------- --------- ------
Net Asset Value at End of
Period $ 23.21 $ 22.66 $ 22.39 $16.97
========== ========== ========= ======
Total Return+ 2.43% 4.47% 49.61% 11.35%*
Net Assets at End of Period
(000's) $ 27,597 $ 33,712 $ 4,076 $ 187
Ratio of Gross Expenses to
Average Net Assets 1.34% 1.00% 1.06% 1.12%*
Ratio of Net Expenses to
Average Net Assets 1.23% 1.00% 1.06% 1.12%*
Ratio of Net Investment
Income (Loss) to Average
Net Assets (0.80%) (0.40%) (0.33%) (0.58%)**
Portfolio Turnover Rate 38.32% 54.58% 82.57% 82.93%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 110 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GROWTH FUND
Class B
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
-------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 22.21 $ 22.19 $ 16.94 $15.45
Income From Investment
Operations
Net Investment Income
(Loss) (0.35) (0.15) (0.08) (0.05)
Net Realized and Unrealized
Gain on Investments 0.71 0.90 8.33 1.77
---------- ---------- --------- ------
Total from Investment
Operations 0.36 0.75 8.25 1.72
Less Distributions
Distributions from Realized
Gains -- (0.73) (3.00) (0.23)
---------- ---------- --------- ------
Net Asset Value at End of
Period $ 22.57 $ 22.21 $ 22.19 $16.94
========== ========== ========= ======
Total Return+ 1.62% 3.38% 48.70% 11.15%*
Net Assets at End of Period
(000's) $ 14,637 $ 15,569 $ 1,402 $ 116
Ratio of Gross Expenses to
Average Net Assets 2.24% 1.91% 1.88% 1.87%**
Ratio of Net Expenses to
Average Net
Assets 2.03% 1.91% 1.88% 1.87%**
Ratio of Net Investment
Income (Loss) to Average
Net Assets (1.59%) (1.28%) (1.16%) (1.38%)**
Portfolio Turnover Rate 38.32% 54.58% 82.57% 82.93%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 111 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO EQUITY FUND
Class A
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
------------------------------------------
1999 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 23.27 $ 19.55 $ 16.62 $15.85
Income From Investment
Operations
Net Investment Income 0.11 0.18 0.14 0.04
Net Realized and Unrealized
Gain on Investments 2.02 4.65 3.77 1.35
---------- ---------- --------- ------
Total from Investment
Operations 2.13 4.83 3.91 1.39
Less Distributions
Dividends from Net
Investment Income (0.11) (0.18) (0.14) (0.04)
Distributions from Realized
Gains (1.23) (0.93) (0.84) (0.58)
---------- ---------- --------- ------
Total Distributions (1.34) (1.11) (0.98) (0.62)
---------- ---------- --------- ------
Net Asset Value at End of
Period $ 24.06 $ 23.27 $ 19.55 $16.62
========== ========== ========= ======
Total Return+ 9.13% 24.77% 23.56% 8.78%*
Net Assets at End of Period
(000's) $ 61,625 $ 50,354 $ 7,247 $2,894
Ratio of Expenses to Average
Net
Assets 1.12% 0.88% 1.24% 0.97%**
Ratio of Net Investment
Income to Average Net
Assets 0.44% 0.89% 0.74% 1.38%**
Portfolio Turnover Rate 33.66% 32.94% 34.26% 59.34%**
- -------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 112 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO EQUITY FUND
Class B
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
-------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 23.15 $ 19.55 $ 16.60 $15.85
Income From Investment
Operations
Net Investment Income (Loss) (0.07) (0.03) 0.02 0.02
Net Realized and Unrealized
Gain on Investments 1.98 4.56 3.79 1.33
---------- ---------- --------- ------
Total from Investment
Operations 1.91 4.53 3.81 1.35
Less Distributions
Dividends from Net
Investment Income -- -- (0.02) (0.02)
Distributions from Realized
Gains (1.23) (0.93) (0.84) (0.58)
---------- ---------- --------- ------
Total Distributions (1.23) (0.93) (0.86) (0.60)
---------- ---------- --------- ------
Net Asset Value at End of
Period $ 23.83 $ 23.15 $ 19.55 $16.60
========== ========== ========= ======
Total Return+ 8.18% 23.16% 22.93% 8.50%*
Net Assets at End of Period
(000's) $ 28,260 $ 17,232 $ 3,565 $ 355
Ratio of Gross Expenses to
Average Net Assets 2.05% 1.94% 1.81% 1.75%**
Ratio of Net Expenses to
Average Net
Assets 1.95% 1.94% 1.81% 1.75%**
Ratio of Net Investment
Income (Loss) to Average Net
Assets (0.41%) (0.21%) 0.12% 0.51%**
Portfolio Turnover Rate 33.66% 32.94% 34.26% 59.34%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 113 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INCOME FUND
Class A
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 23.55 $ 24.02 $ 21.15 $20.03
Income From Investment
Operations
Net Investment Income 0.42 0.48 0.51 0.12
Net Realized and Unrealized
Gain (Loss) on Investments (0.20) 0.81 4.98 1.65
---------- ---------- ---------- ------
Total from Investment
Operations 0.22 1.29 5.49 1.77
Less Distributions
Distributions from Net
Investment Income (0.42) (0.48) (0.51) (0.12)
Distributions from Realized
Gains (0.83) (1.28) (2.11) (0.53)
---------- ---------- ---------- ------
Total Distributions (1.25) (1.76) (2.62) (0.65)
---------- ---------- ---------- ------
Net Asset Value at End of
Period $ 22.52 $ 23.55 $ 24.02 $21.15
========== ========== ========== ======
Total Return+ 1.01% 5.38% 26.15% 8.85%*
Net Assets at End of Period
(000's) $ 2,046 $ 2,073 $ 742 $ 193
Ratio of Gross Expenses to
Average Net Assets 1.47% 1.34% 1.14% 1.03%**
Ratio of Net Expenses to
Average Net
Assets 1.31% 1.34% 1.14% 1.03%**
Ratio of Net Investment
Income to Average Net
Assets 1.84% 2.16% 2.50% 2.66%**
Portfolio Turnover Rate 42.25% 46.14% 52.14% 37.84%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 114 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INCOME FUND
Class B
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 23.57 $ 23.95 $ 21.12 $20.03
Income From Investment
Operations
Net Investment Income 0.25 0.30 0.38 0.10
Net Realized and Unrealized
Gain (Loss) on Investments (0.21) 0.90 4.94 1.62
---------- ---------- ---------- ------
Total from Investment
Operations 0.04 1.20 5.32 1.72
Less Distributions
Distributions from Net
Investment Income (0.25) (0.30) (0.38) (0.10)
Distributions from Realized
Gains (0.83) (1.28) (2.11) (0.53)
---------- ---------- ---------- ------
Total Distributions (1.08) (1.58) (2.49) (0.63)
---------- ---------- ---------- ------
Net Asset Value at End of
Period $ 22.53 $ 23.57 $ 23.95 $21.12
========== ========== ========== ======
Total Return+ 0.18% 5.03% 25.35% 8.60%*
Net Assets at End of Period
(000's) $ 2,365 $ 2,176 $ 798 $ 112
Ratio of Gross Expenses to
Average Net Assets 2.22% 2.08% 1.83% 1.79%**
Ratio of Net Expenses to
Average Net
Assets 2.06% 2.08% 1.83% 1.79%**
Ratio of Net Investment
Income to Average Net
Assets 1.09% 1.45% 1.79% 1.99%**
Portfolio Turnover Rate 42.25% 46.14% 52.14% 37.84%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 115 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO NORTHWEST FUND
Class A
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
-----------------------------------------
1999 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 17.56 $ 17.25 $ 14.06 $13.78
Income From Investment
Operations
Net Investment Income
(Loss) (0.12) (0.16) (0.06) (0.01)
Net Realized and
Unrealized Gain on
Investments 9.58 0.66 4.39 0.29
---------- ---------- ---------- ------
Total from Investment
Operations 9.46 0.50 4.33 0.28
Less Distributions
Distributions from
Realized Gains (2.01) (0.19) (1.14) --
---------- ---------- ---------- ------
Net Asset Value at End of
Period $ 25.01 $ 17.56 $ 17.25 $14.06
========== ========== ========== ======
Total Return+ 53.90% 2.87% 30.79% 2.03%*
Net Assets at End of
Period (000's) $ 4,774 $ 2,208 $ 1,354 $ 369
Ratio of Gross Expenses to
Average Net Assets 1.56% 1.70% 1.42% 1.40%**
Ratio of Net Expenses to
Average Net
Assets 1.36% 1.70% 1.42% 1.40%**
Ratio of Net Investment
Income (Loss) to Average
Net Assets (0.81%) (1.06%) (0.61%) (0.39%)**
Portfolio Turnover Rate 48.52% 50.40% 55.42% 67.32%**
- -------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 116 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO NORTHWEST FUND
Class B
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 17.31 $ 17.09 $ 14.03 $13.78
Income From Investment
Operations
Net Investment Income
(Loss) (0.25) (0.23) (0.10) (0.03)
Net Realized and Unrealized
Gain on Investments 9.41 0.64 4.30 0.28
---------- ---------- ---------- ------
Total from Investment
Operations 9.16 0.41 4.20 0.25
Less Distributions
Distributions from Realized
Gains (2.01) (0.19) (1.14) --
---------- ---------- ---------- ------
Net Asset Value at End of
Period $ 24.46 $ 17.31 $ 17.09 $14.03
========== ========== ========== ======
Total Return+ 52.57% 2.37% 29.93% 1.81%*
Net Assets at End of Period
(000's) $ 4,842 $ 2,603 $ 1,204 $ 232
Ratio of Gross Expenses to
Average Net Assets 2.32% 2.30% 2.09% 2.18%
Ratio of Net Expenses to
Average Net
Assets 2.12% 2.30% 2.09% 2.18%*
Ratio of Net Investment
Income (Loss) to Average
Net Assets (1.56%) (1.66%) (1.30%) (1.19%)
Portfolio Turnover Rate 48.52% 50.40% 55.42% 67.32%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 117 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO BALANCED FUND
Class A
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
-------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 12.23 $ 11.60 $ 10.69 $10.38
Income From Investment
Operations
Net Investment Income 0.22 0.25 0.28 0.09
Net Realized and Unrealized
Gain (Loss) on Investments (0.13) 1.14 1.45 0.44
--------- --------- ---------- ------
Total from Investment
Operations 0.09 1.39 1.73 0.53
Less Distributions
Dividends from Net Investment
Income (0.22) (0.25) (0.28) (0.09)
Distributions from Realized
Gains (0.23) (0.51) (0.54) (0.13)
--------- --------- ---------- ------
Total Distributions (0.45) (0.76) (0.82) (0.22)
--------- --------- ---------- ------
Net Asset Value at End of
Period $ 11.87 $ 12.23 $ 11.60 $10.69
========= ========= ========== ======
Total Return+ 0.75% 12.06% 16.29% 5.07%*
Net Assets at End of Period
(000's) $ 2,573 $ 893 $ 205 $ 110
Ratio of Gross Expenses to
Average Net Assets 1.68% 1.67% 1.52% 1.70%**
Ratio of Net Expenses to
Average Net Assets 1.36% 1.67% 1.52% 1.35%**
Ratio of Net Investment Income
to Average Net Assets 2.16% 2.23% 2.55% 3.01%**
Portfolio Turnover Rate 94.73% 74.76% 101.22% 36.10%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 118 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO BALANCED FUND
Class B
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
-------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 12.24 $ 11.60 $ 10.70 $10.38
Income From Investment
Operations
Net Investment Income 0.18 0.15 0.18 0.06
Net Realized and Unrealized
Gain (Loss) on Investments (0.18) 1.15 1.44 0.45
--------- --------- ---------- ------
Total from Investment
Operations 0.00 1.30 1.62 0.51
Less Distributions
Dividends from Net Investment
Income (0.18) (0.15) (0.18) (0.06)
Distributions from Realized
Gains (0.23) (0.51) (0.54) (0.13)
--------- --------- ---------- ------
Total Distributions (0.41) (0.66) (0.72) (0.19)
--------- --------- ---------- ------
Net Asset Value at End of
Period $ 11.83 $ 12.24 $ 11.60 $10.70
========= ========= ========== ======
Total Return+ (0.01%) 11.30% 15.21% 4.85%*
Net Assets at End of Period
(000's) $ 2,553 $ 2,056 $ 331 $ 115
Ratio of Gross Expenses to
Average Net Assets 2.46% 2.34% 2.28% 2.46%**
Ratio of Net Expenses to
Average Net Assets 2.14% 2.34% 2.28% 1.52%**
Ratio of Net Investment Income
to Average Net Assets 1.43% 1.55% 1.78% 2.23%**
Portfolio Turnover Rate 94.73% 74.76% 101.22% 36.10%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 119 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERNATIONAL FUND
Class A
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
-------------------------------------------
1999 1998 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 13.13 $ 11.55 $ 11.29 $10.39
Income From Investment
Operations
Net Investment Income
(Loss) (0.01) (0.04) 0.20 --
Net Realized and Unrealized
Gain on Investments and
Foreign Currency
Transactions 3.77 1.62 0.29 0.95
---------- ---------- ---------- ------
Total from Investment
Operations 3.76 1.58 0.49 0.95
Less Distributions
Distributions from Net
Investment Income -- -- (0.21) (0.05)
Distributions from Realized
Gains -- -- (0.02) --
---------- ---------- ---------- ------
Total Distributions -- -- (0.23) (0.05)
---------- ---------- ---------- ------
Net Asset Value at End of
Period $ 16.89 $ 13.13 $ 11.55 $11.29
========== ========== ========== ======
Total Return+ 28.64% 13.68% 4.30% 9.19%*
Net Assets at End of Period
(000's) $ 1,215 $ 629 $ 295 $ 154
Ratio of Gross Expenses to
Average Net Assets 2.11% 2.31% 2.13% 1.72%**
Ratio of Net Expenses to
Average Net
Assets 1.73% 2.14% 1.87% 1.41%**
Ratio of Net Investment
Income (Loss) to Average
Net Assets (0.06%) (0.47%) 0.26% (0.23%)**
Portfolio Turnover Rate 23.56% 25.62% 22.13% 18.51%**
- ---------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 120 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERNATIONAL FUND
Class B
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
-------------------------------------------
1999 1998 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 12.99 $ 11.53 $ 11.28 $10.39
Income From Investment
Operations
Net Investment Income
(Loss) (0.10) (0.11) 0.18 --
Net Realized and Unrealized
Gain on Investments and
Foreign Currency
Transactions 3.67 1.57 0.22 0.93
---------- ---------- ---------- ------
Total from Investment
Operations 3.57 1.46 0.40 0.93
Less Distributions
Dividends from Net
Investment Income -- -- (0.13) (0.04)
Distributions from Realized
Gains -- -- (0.02) --
---------- ---------- ---------- ------
Total Distributions -- -- (0.15) (0.04)
---------- ---------- ---------- ------
Net Asset Value at End of
Period $ 16.56 $ 12.99 $ 11.53 $11.28
========== ========== ========== ======
Total Return+ 27.48% 12.66% 3.48% 8.96%*
Net Assets at End of Period
(000's) $ 1,392 $ 777 $ 331 $ 112
Ratio of Gross Expenses to
Average Net Assets 3.02% 3.19% 2.90% 2.47%**
Ratio of Net Expenses to
Average Net
Assets 3.02% 2.64% 2.17%**
Ratio of Net Investment
Income (Loss) to Average
Net Assets (0.84%) (1.33%) 0.51% (1.15%)**
Portfolio Turnover Rate 23.56% 25.62% 22.13% 18.51%**
- ---------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 121 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO SMALL COMPANY FUND
Class A
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
--------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 11.09 $ 14.21 $ 11.81 $11.51
Income From Investment
Operations
Net Investment Income (Loss) (0.09) (0.08) (0.06) (0.01)
Net Realized and Unrealized
Gain (Loss) on Investments 1.55 (3.04) 2.80 0.31
---------- ---------- --------- ------
Total from Investment
Operations 1.46 (3.12) 2.74 0.30
Less Distributions
Distributions from Realized
Gains -- -- (0.34) --
---------- ---------- --------- ------
Total Distributions -- -- (0.34) --
---------- ---------- --------- ------
Net Asset Value at End of
Period $ 12.55 $ 11.09 $ 14.21 $11.81
========== ========== ========= ======
Total Return+ 13.17% (21.96%) 23.21% 2.61%*
Net Assets at End of Period
(000's) $ 1,067 $ 1,220 $ 271 $ 135
Ratio of Gross Expenses to
Average Net Assets 1.97% 1.66% 1.52% 1.62%
Ratio of Net Expenses to
Average Net Assets 1.47% 1.66% 1.52% 1.42%
Ratio of Net Investment
Income (Loss) to Average Net
Assets (0.79%) (0.99%) (0.60%) (0.50%)
Portfolio Turnover Rate 116.58% 90.23% 60.81% 73.47%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 122 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO SMALL COMPANY FUND
Class B
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
--------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 10.88 $ 14.07 $ 11.79 $11.51
Income From Investment
Operations
Net Investment Income
(Loss) (0.16) (0.15) (0.10) (0.04)
Net Realized and Unrealized
Gain (Loss) on Investments 1.50 (3.04) 2.72 0.32
---------- ---------- --------- ------
Total from Investment
Operations 1.34 (3.19) 2.62 0.28
Less Distributions
Distributions from Realized
Gains -- -- (0.34) --
---------- ---------- --------- ------
Total Distributions -- -- (0.34) --
---------- ---------- --------- ------
Net Asset Value at End of
Period $ 12.22 $ 10.88 $ 14.07 $11.79
========== ========== ========= ======
Total Return+ 12.32% (22.67%) 22.23 2.43%*
Net Assets at End of Period
(000's) $ 1,274 $ 1,034 $ 396 $ 103
Ratio of Gross Expenses to
Average Net Assets 2.75% 2.64% 2.29% 2.41%**
Ratio of Net Expenses to
Average Net Assets 2.21% 2.64% 2.29% 2.18%**
Ratio of Net Investment
Income (Loss) to Average
Net Assets (1.55%) (1.91%) (1.35%) (1.28%)**
Portfolio Turnover Rate 116.58% 90.23% 60.81% 73.47%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 123 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO U.S. VALUE FUND
Class A
<TABLE>
<CAPTION>
April 30,
1997
(Commencement
of
For the Year Ended Operations)
December 31 December 31
-------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value at Beginning of Period $ 11.93 $ 11.18 $10.00
Income From Investment Operations
Net Investment Income 0.03 0.05 0.08
Net Realized and Unrealized Gain on
Investments 0.54 1.27 1.65
--------- --------- ------
Total from Investment Operations 0.57 1.32 1.73
Less Distributions
Dividends from Net Investment Income (0.06) (0.05) (0.08)
Distributions from Realized Gains (0.50) (0.52) (0.47)
--------- --------- ------
Total Distributions (0.56) (0.57) (0.55)
--------- --------- ------
Net Asset Value at End of Period $ 11.94 $ 11.93 $11.18
========= ========= ======
Total Return+ 4.74% 11.79% 17.24%*
Net Assets at End of Period (000's) $ 331 $ 210 $ 133
Ratio of Gross Expenses to Average Net
Assets 2.02% 2.07% 1.48%**
Ratio of Net Expenses to Average Net
Assets 1.40% 2.07% 1.48%**
Ratio of Net Investment Income to
Average Net Assets 0.66% 0.18% 1.03%**
Portfolio Turnover Rate 52.15% 55.15% 36.37%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 124 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO U.S. VALUE FUND
Class B
<TABLE>
<CAPTION>
April 30,
1997
(Commencement
of
For the Year Ended Operations)
December 31 December 31
---------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value at Beginning of Period $ 11.91 $ 11.18 $10.00
Income From Investment Operations
Net Investment Income (Loss) (0.01) (0.03) 0.02
Net Realized and Unrealized Gain on
Investments 0.48 1.28 1.65
--------- --------- ------
Total from Investment Operations 0.47 1.25 1.67
Less Distributions
Dividends from Net Investment Income -- -- (0.02)
Distributions from Realized Gains (0.50) (0.52) (0.47)
--------- --------- ------
Total Distributions (0.50) (0.52) (0.49)
--------- --------- ------
Net Asset Value at End of Period $ 11.88 $ 11.91 $11.18
========= ========= ======
Total Return+ 3.92% 11.18% 16.63%*
Net Assets at End of Period (000's) $ 747 $ 628 $ 221
Ratio of Gross Expenses to Average Net
Assets 2.73% 2.59% 2.29%**
Ratio of Net Expenses to Average Net
Assets 2.18% 2.59% 2.29%**
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.10%) (0.35%) 0.20%**
Portfolio Turnover Rate 52.15% 55.15% 36.37%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 125 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO HIGH-YIELD BOND FUND
Class A
<TABLE>
<CAPTION>
Eleven-Month
For the Year Ended Period Ended
December 31 December 31++
-------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value at Beginning of Period $ 8.78 $ 9.12 $ 8.83
Income From Investment Operations
Net Investment Income 0.69 0.72 0.69
Net Realized and Unrealized Gain (Loss) on
Investments (0.40) (0.34) 0.29
--------- --------- ------
Total from Investment Operations 0.29 0.38 0.98
Less Distributions
Dividends from Net Investment Income (0.69) (0.72) (0.69)
--------- --------- ------
Net Asset Value at End of Period $ 8.38 $ 8.78 $ 9.12
========= ========= ======
Total Return+ 3.52% 4.32% 12.49%*
Net Assets at End of Period (000's) $ 1,583 $ 2,964 $ 259
Ratio of Gross Expenses to Average Net
Assets 1.35% 1.12% 1.10%**
Ratio of Net Expenses to Average Net
Assets 1.18% 1.12% 1.10%**
Ratio of Net Investment Income to
Average Net Assets 8.01% 8.11% 7.65%**
Portfolio Turnover Rate 70.65% 64.22% 85.06%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ For the period from January 31, 1997 (initial issue date of Class A and
Class B shares) through December 31, 1997.
- 126 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO HIGH-YIELD BOND FUND
Class B
<TABLE>
<CAPTION>
Eleven-Month
For the Year Ended Period Ended
December 31 December 31++
-------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value at Beginning of Period $ 8.78 $ 9.12 $ 8.83
Income From Investment Operations
Net Investment Income 0.63 0.64 0.63
Net Realized and Unrealized Gain (Loss) on
Investments (0.40) (0.34) 0.29
--------- --------- ------
Total from Investment Operations 0.23 0.30 0.92
Less Distributions
Dividends from Net Investment Income (0.63) (0.64) (0.63)
--------- --------- ------
Net Asset Value at End of Period $ 8.38 $ 8.78 $ 9.12
========= ========= ======
Total Return+ 2.73% 3.39% 11.77%*
Net Assets at End of Period (000's) $ 1,599 $ 1,381 $ 355
Ratio of Gross Expenses to Average Net
Assets 2.19% 2.06% 1.81%**
Ratio of Net Expenses to Average Net
Assets 1.97% 2.06% 1.81%**
Ratio of Net Investment Income to
Average Net Assets 7.34% 7.15% 6.87%**
Portfolio Turnover Rate 70.65% 64.22% 85.06%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ For the period from January 31, 1997 (initial issue date of Class A and
Class B shares) through December 31, 1997.
- 127 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
Class A
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 10.75 $ 10.35 $ 10.11 $ 10.10
Income From Investment
Operations
Net Investment Income 0.51 0.52 0.55 0.15
Net Realized and Unrealized
Gain (Loss) on Investments (0.75) 0.40 0.24 0.01
---------- ---------- ---------- -------
Total from Investment
Operations (0.24) 0.92 0.79 0.16
Less Distributions
Distributions from Net
Investment Income (0.51) (0.52) (0.55) (0.15)
---------- ---------- ---------- -------
Net Asset Value at End of
Period $ 10.00 $ 10.75 $ 10.35 $ 10.11
========== ========== ========== =======
Total Return+ (2.26%) 9.08% 8.03% 1.63%*
Net Assets at End of Period
(000's) $ 958 $ 833 $ 365 $ 704
Ratio of Gross Expenses to
Average Net Assets 1.49% 1.40% 1.32% 1.30%**
Ratio of Net Expenses to
Average Net
Assets 1.21% 1.40% 1.32% 1.07%**
Ratio of Net Investment
Income to Average Net
Assets 4.97% 4.84% 5.36% 6.07%**
Portfolio Turnover Rate 13.93% 2.83% 82.36% 125.42%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 128 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
Class B
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 10.74 $ 10.35 $ 10.12 $ 10.10
Income From Investment
Operations
Net Investment Income 0.43 0.45 0.48 0.14
Net Realized and Unrealized
Gain (Loss) on Investments (0.75) 0.39 0.23 0.02
---------- ---------- ---------- -------
Total from Investment
Operations (0.32) 0.84 0.71 0.16
Less Distributions
Distributions from Net
Investment Income (0.43) (0.45) (0.48) (0.14)
---------- ---------- ---------- -------
Net Asset Value at End of
Period $ 9.99 $ 10.74 $ 10.35 $ 10.12
========== ========== ========== =======
Total Return+ (2.97%) 8.30% 7.27% 1.55%*
Net Assets at End of Period
(000's) $ 786 $ 788 $ 432 $ 223
Ratio of Gross Expenses to
Average Net Assets 2.27% 2.00% 1.87% 1.95%**
Ratio of Net Expenses to
Average Net
Assets 1.96% 2.00% 1.87% 1.72%**
Ratio of Net Investment
Income to Average Net
Assets 4.20% 4.28% 4.78% 5.35%**
Portfolio Turnover Rate 13.93% 2.83% 82.36% 125.42%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 129 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MANAGED BOND FUND
Class A
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
---------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 8.65 $ 8.60 $ 8.35 $ 8.35
Income From Investment
Operations
Net Investment Income 0.39 0.37 0.39 0.11
Net Realized and Unrealized
Gain (Loss) on Investments (0.75) 0.30 0.25 --
---------- ---------- ---------- -------
Total from Investment
Operations (0.36) 0.67 0.64 0.11
Less Distributions
Dividends from Net
Investment Income (0.39) (0.37) (0.39) (0.11)
Distributions from Realized
Gains -- (0.25) -- --
---------- ---------- ---------- -------
Total Distributions (0.39) (0.62) (0.39) (0.11)
---------- ---------- ---------- -------
Net Asset Value at End of
Period $ 7.90 $ 8.65 $ 8.60 $ 8.35
========== ========== ========== =======
Total Return+ (4.24%) 7.87% 7.78% 1.34%*
Net Assets at End of Period
(000's) $ 573 $ 295 $ 146 $ 140
Ratio of Gross Expenses to
Average Net Assets 1.87% 1.86% 1.45% 1.30%**
Ratio of Net Expenses to
Average Net Assets 1.21% 1.86% 1.45% 1.30%**
Ratio of Net Investment
Income to Average Net
Assets 4.79% 4.09% 4.68% 5.22%**
Portfolio Turnover Rate 146.87% 132.76% 176.50% 136.29%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 130 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MANAGED BOND FUND
Class B
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
---------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 8.64 $ 8.60 $ 8.35 $ 8.35
Income From Investment
Operations
Net Investment Income 0.32 0.28 0.32 0.09
Net Realized and Unrealized
Gain (Loss) on Investments (0.75) 0.29 0.25 --
---------- ---------- ---------- -------
Total from Investment
Operations (0.43) 0.57 0.57 0.09
Less Distributions
Dividends from Net
Investment Income (0.32) (0.28) (0.32) (0.09)
Distributions from Realized
Gains -- (0.25) -- --
---------- ---------- ---------- -------
Total Distributions (0.32) (0.53) (0.32) (0.09)
---------- ---------- ---------- -------
Net Asset Value at End of
Period $ 7.89 $ 8.64 $ 8.60 $ 8.35
========== ========== ========== =======
Total Return+ (4.98%) 6.67% 6.91% 1.15%*
Net Assets at End of Period
(000's) $ 924 $ 523 $ 120 $ 100
Ratio of Gross Expenses to
Average Net Assets 2.61% 2.89% 2.23% 2.07%**
Ratio of Net Expenses to
Average Net Assets 1.94% 2.89% 2.23% 2.07%**
Ratio of Net Investment
Income to Average Net
Assets 4.02% 3.07% 3.79% 4.45%**
Portfolio Turnover Rate 146.87% 132.76% 176.50% 136.29%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 131 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND FUND
Class A
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 14.45 $ 14.53 $ 13.99 $13.82
Income From Investment
Operations
Net Investment Income 0.64 0.66 0.68 0.18
Net Realized and Unrealized
Gain (Loss) on Investments (1.55) 0.16 0.70 0.17
---------- ---------- ---------- ------
Total from Investment
Operations (0.91) 0.82 1.38 0.35
Less Distributions
Dividends from Net
Investment Income (0.64) (0.66) (0.68) (0.18)
Distributions from Realized
Gains -- (0.24) (0.16) --
---------- ---------- ---------- ------
Total Distributions (0.64) (0.90) (0.84) (0.18)
---------- ---------- ---------- ------
Net Asset Value at End of
Period $ 12.90 $ 14.45 $ 14.53 $13.99
========== ========== ========== ======
Total Return+ (6.47%) 5.75% 10.17% 2.52%*
Net Assets at End of Period
(000's) $ 929 $ 946 $ 390 $ 311
Ratio of Expenses to Average
Net
Assets 0.98% 0.98% 0.95% 0.82%**
Ratio of Net Investment
Income to Average Net
Assets 4.66% 4.51% 4.86% 5.04%**
Portfolio Turnover Rate 16.84% 20.80% 13.52% 6.66%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 132 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND FUND
Class B
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 14.43 $ 14.52 $ 13.98 $13.82
Income From Investment
Operations
Net Investment Income 0.54 0.57 0.60 0.15
Net Realized and Unrealized
Gain (Loss) on Investments (1.55) 0.15 0.70 0.16
---------- ---------- ---------- ------
Total from Investment
Operations (1.01) 0.72 1.30 0.31
Less Distributions
Dividends from Net
Investment Income (0.54) (0.57) (0.60) (0.15)
Distributions from Realized
Gains -- (0.24) (0.16) --
---------- ---------- ---------- ------
Total Distributions (0.54) (0.81) (0.76) (0.15)
---------- ---------- ---------- ------
Net Asset Value at End of
Period $ 12.88 $ 14.43 $ 14.52 $13.98
========== ========== ========== ======
Total Return+ (7.14%) 5.08% 9.56% 2.27%*
Net Assets at End of Period
(000's) $ 1,322 $ 1,375 $ 502 $ 112
Ratio of Expenses to Average
Net
Assets 1.70% 1.61% 1.53% 1.50%**
Ratio of Net Investment
Income to Average Net
Assets 3.94% 3.89% 4.22% 4.42%**
Portfolio Turnover Rate 16.84% 20.80% 13.52% 6.66%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 133 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
Class A
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 12.74 $ 12.94 $ 12.23 $12.07
Income From Investment
Operations
Net Investment Income 0.52 0.55 0.58 0.15
Net Realized and Unrealized
Gain (Loss) on Investments (1.69) 0.17 0.76 0.19
---------- ---------- ---------- ------
Total from Investment
Operations (0.17) 0.72 1.34 0.34
Less Distributions
Dividends from Net
Investment Income (0.52) (0.55) (0.58) (0.15)
Distributions from Realized
Gains -- (0.37) (0.05) (0.03)
---------- ---------- ---------- ------
Total Distributions (0.52) (0.92) (0.63) (0.18)
---------- ---------- ---------- ------
Net Asset Value at End of
Period $ 11.05 $ 12.74 $ 12.94 $12.23
========== ========== ========== ======
Total Return+ (9.41%) 5.73% 11.29% 2.83%*
Net Assets at End of Period
(000's) $ 740 $ 678 $ 460 $ 122
Ratio of Expenses to Average
Net
Assets 1.07% 1.04% 0.91% 0.89%**
Ratio of Net Investment
Income to Average Net
Assets 4.36% 4.25% 4.52% 4.84%**
Portfolio Turnover Rate 24.66% 38.78% 9.83% 10.52%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 134 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
Class B
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
-------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 12.73 $ 12.93 $ 12.22 $12.07
Income From Investment
Operations
Net Investment Income 0.43 0.46 0.48 0.12
Net Realized and Unrealized
Gain (Loss) on Investments (1.69) 0.17 0.76 0.18
---------- --------- --------- ------
Total from Investment
Operations (1.26) 0.63 1.24 0.30
Less Distributions
Dividends from Net Investment
Income (0.43) (0.46) (0.48) (0.12)
Distributions from Realized
Gains -- (0.37) (0.05) (0.03)
---------- --------- --------- ------
Total Distributions (0.43) (0.83) (0.53) (0.15)
---------- --------- --------- ------
Net Asset Value at End of
Period $ 11.04 $ 12.73 $ 12.93 $12.22
========== ========= ========= ======
Total Return+ (10.07%) 4.98% 10.46% 2.56%*
Net Assets at End of Period
(000's) $ 799 $ 927 $ 501 $ 101
Ratio of Expenses to Average
Net
Assets 1.80% 1.76% 1.63% 1.64%**
Ratio of Net Investment Income
to Average Net Assets 3.63% 3.45% 3.71% 4.08%**
Portfolio Turnover Rate 24.66% 38.78% 9.83% 10.52%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 135 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
Class A
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 10.79 $ 10.95 $ 10.53 $10.45
Income From Investment
Operations
Net Investment Income 0.44 0.42 0.46 0.12
Net Realized and Unrealized
Gain (Loss) on Investments (1.14) 0.16 0.42 0.09
---------- ---------- ---------- ------
Total from Investment
Operations (0.70) 0.58 0.88 0.21
Less Distributions
Dividends from Net
Investment Income (0.44) (0.42) (0.46) (0.12)
Distributions from Realized
Gains -- (0.32) -- (0.01)
---------- ---------- ---------- ------
Total Distributions (0.44) (0.74) (0.46) (0.13)
---------- ---------- ---------- ------
Net Asset Value at End of
Period $ 9.65 $ 10.79 $ 10.95 $10.53
========== ========== ========== ======
Total Return+ (6.60%) 5.36% 8.64% 1.94%*
Net Assets at End of Period
(000's) $ 191 $ 209 $ 360 $ 336
Ratio of Gross Expenses to
Average Net Assets 1.56% 1.67% 1.32% 1.31%**
Ratio of Net Expenses to
Average Net
Assets 1.22% 1.67% 1.32% 1.31%**
Ratio of Net Investment
Income to
Average Net Assets 4.32% 3.88% 4.39% 4.49%**
Portfolio Turnover Rate 9.42% 33.18% 11.67% 15.96%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 136 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
Class B
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
------------------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 10.80 $ 10.97 $ 10.55 $10.45
Income From Investment
Operations
Net Investment Income 0.37 0.34 0.38 0.10
Net Realized and Unrealized
Gain (Loss) on Investments (1.14) 0.15 0.42 0.11
---------- ---------- ---------- ------
Total from Investment
Operations (0.77) 0.49 0.80 0.21
Less Distributions
Dividends from Net
Investment Income (0.37) (0.34) (0.38) (0.10)
Distributions from Realized
Gains -- (0.32) -- (0.01)
---------- ---------- ---------- ------
Total Distributions (0.37) (0.66) (0.38) (0.11)
---------- ---------- ---------- ------
Net Asset Value at End of
Period $ 9.66 $ 10.80 $ 10.97 $10.55
========== ========== ========== ======
Total Return+ (7.30%) 4.55% 7.75% 1.94%*
Net Assets at End of Period
(000's) $ 327 $ 246 $ 239 $ 211
Ratio of Gross Expenses to
Average Net Assets 2.24% 2.39% 2.13% 2.06%**
Ratio of Net Expenses to
Average Net
Assets 1.94% 2.39% 2.13% 2.06%**
Ratio of Net Investment
Income to
Average Net Assets 3.62% 3.13% 3.58% 3.71%**
Portfolio Turnover Rate 9.42% 33.18% 11.67% 15.96%**
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 137 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MONEY MARKET FUND
Class A
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
---------------------------------------
1999 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 1.00 $ 1.00 $ 1.00 $1.00
Income From Investment
Operations
Net Investment Income 0.05 0.05 0.05 0.01
Less Distributions
Dividends from Net
Investment Income (0.05) (0.05) (0.05) (0.01)
---------- ---------- --------- -----
Net Asset Value at End of
Period $ 1.00 $ 1.00 $ 1.00 $1.00
========== ========== ========= =====
Total Return+ 4.64% 4.92% 4.97% 1.21%*
Net Assets at End of Period
(000's) $ 3,554 $ 2,186 $ 537 $ 295
Ratio of Gross Expenses to
Average Net
Assets 1.00% 0.92% 0.72% 0.55%**
Ratio of Net Expenses to
Average Net
Assets 0.80% 0.92% 0.72% 0.55%**
Ratio of Net Investment
Income to
Average Net Assets 4.60% 4.87% 4.91% 5.01%**
- -------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
- 138 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MONEY MARKET FUND
Class B
<TABLE>
<CAPTION>
Three-Month
Period Ended
For the Year Ended December 31 December 31
---------------------------------------
1999 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 1.00 $ 1.00 $ 1.00 $1.00
Income From Investment
Operations
Net Investment Income 0.05 0.05 0.05 0.01
Less Distributions
Dividends from Net
Investment Income (0.05) (0.05) (0.05) (0.01)
---------- ---------- ---------- -----
Net Asset Value at End of
Period $ 1.00 $ 1.00 $ 1.00 $1.00
========== ========== ========== =====
Total Return+ 4.65% 4.76% 4.94% 1.21%*
Net Assets at End of Period
(000's) $ 979 $ 670 $ 414 $ 106
Ratio of Gross Expenses to
Average Net
Assets 1.08% 1.05% 0.78% 0.54%**
Ratio of Net Expenses to
Average Net
Assets 0.82% 1.05% 0.78% 0.54%**
Ratio of Net Investment
Income to
Average Net Assets 4.56% 4.71% 4.85% 4.96%**
- -------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
- 139 -
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Board of Trustees and Shareholders of the SAFECO Common Stock Trust,
SAFECO Taxable Bond Trust, SAFECO Managed Bond Trust, SAFECO Tax-Exempt Bond
Trust, and SAFECO Money Market Trust
We have audited the accompanying statements of assets and liabilities, in-
cluding the portfolios of investments, of the SAFECO Common Stock Trust (com-
prising, respectively, the SAFECO Growth Fund, SAFECO Equity Fund, SAFECO In-
come Fund, SAFECO Northwest Fund, SAFECO Balanced Fund, SAFECO International
Stock Fund, SAFECO Small Company Stock Fund, and SAFECO U.S. Value Fund), the
SAFECO Taxable Bond Trust (comprising, respectively, the SAFECO High-Yield
Bond Fund, and SAFECO Intermediate-Term U.S. Treasury Fund), the SAFECO Man-
aged Bond Trust (comprising the Managed Bond Fund), the SAFECO Tax-Exempt Bond
Trust (comprising, respectively, the SAFECO Municipal Bond Fund, SAFECO Cali-
fornia Tax-Free Income Fund, and SAFECO Washington State Municipal Bond Fund),
and the SAFECO Money Market Trust (comprising the SAFECO Money Market Fund) as
of December 31, 1999, and the related statements of operations, the statements
of changes in net assets and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Trusts' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and per-
form the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An au-
dit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our proce-
dures included confirmation of securities owned as of December 31, 1999, by
correspondence with the custodians and brokers. An audit also includes assess-
ing the accounting principles used and significant estimates made by manage-
ment, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective funds of the SAFECO Common Stock Trust,
- 140 -
<PAGE>
the SAFECO Taxable Bond Trust, the SAFECO Managed Bond Trust, the SAFECO Tax-
Exempt Bond Trust, and the SAFECO Money Market Trust as listed above at Decem-
ber 31, 1999, the results of their operations, the changes in their net assets
and financial highlights for each of the periods referred to above, in confor-
mity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Seattle, Washington
February 4, 2000
- 141 -
<PAGE>
Year 2000 Readiness (Unaudited)
All Year 2000 readiness work was completed prior to December 31, 1999. The
Funds have experienced no disruption in their operations or service levels, and
do not expect to incur any future disruptions or expense in connection with the
Year 2000 issue.
Shareholder Meeting (Unaudited)
A joint special meeting of the Funds' shareholders was held on March 30,
1999, at which time the shareholders voted to approve changes to the Funds'
fundamental investment policies and approved an amended and restated investment
advisory contract, including a change in the fee structure. Shareholders
elected the Board of Trustees and ratified the selection of Ernst & Young LLP
as independent auditors. The results of that meeting are presented below.
<TABLE>
<CAPTION>
(In Thousands)
Proposal Trust/Fund For Against Abstain
-------- --------------------------------- ------- ------- -------
<C> <S> <C> <C> <C>
Fundamental Growth Fund...................... 24,660 1,336 6,430
Investment Equity Fund...................... 38,199 2,881 6,711
Policies Income Fund...................... 8,319 551 805
Northwest Fund................... 2,010 175 247
International Fund............... 1,359 51 100
Balanced Fund.................... 1,145 8 74
Small Company Fund............... 1,624 76 368
U.S. Value Fund.................. 524 38 117
High-Yield Bond Fund............. 4,389 275 1,333
Intermediate-Term U.S. Treasury
Fund............................. 1,275 25 77
Managed Bond Fund................ 599 12 27
Municipal Bond Fund.............. 20,932 1,908 2,648
California Tax-Free Income Fund.. 4,549 188 699
Washington State Municipal Bond
Fund............................. 394 260 47
Money Market Fund................ 113,201 5,139 7,603
Investment Growth Fund...................... 22,587 3,380 6,459
Advisory Equity Fund...................... 36,457 4,598 6,737
Contract Income Fund...................... 7,942 908 824
Northwest Fund................... 1,963 220 244
International Fund............... 1,318 103 88
Balanced Fund.................... 1,098 54 76
Small Company Fund............... 1,563 146 360
U.S. Value Fund.................. 531 41 108
High-Yield Bond Fund............. 4,226 466 1,305
Intermediate-Term U.S. Treasury
Fund............................. 1,214 84 79
Managed Bond Fund................ 594 18 25
Municipal Bond Fund.............. 19,449 3,305 2,734
California Tax-Free Income Fund.. 4,406 254 776
Washington State Municipal Bond
Fund............................. 401 270 31
Money Market Fund................ 110,460 7,606 7,877
</TABLE>
- 142 -
<PAGE>
<TABLE>
<CAPTION>
Proposal Trust/Fund For Against Abstain
-------- ------------------------------------ ------- ------- -------
<C> <S> <C> <C> <C>
Elect Boh A.
Dickey Common Stock Trust.................. 93,436 4,372
Taxable Bond Trust.................. 9,720 505
Tax-Exempt Bond Trust............... 33,179 1204
Money Market Trust.................. 170,319 6,116
Managed Bond Trust.................. 625 12
Elect Barbara J.
Dingfield Common Stock Trust.................. 93,416 4,392
Taxable Bond Trust.................. 9,687 538
Tax-Exempt Bond Trust............... 33,206 1,177
Money Market Trust.................. 169,394 7,041
Managed Bond Trust.................. 625 12
Elect David F.
Hill Common Stock Trust.................. 93,451 4,356
Taxable Bond Trust.................. 9,725 500
Tax-Exempt Bond Trust............... 33,202 1,181
Money Market Trust.................. 170,290 6,145
Managed Bond Trust.................. 625 12
Elect Richard W.
Hubbard Common Stock Trust.................. 93,430 4,377
Taxable Bond Trust.................. 9,710 515
Tax-Exempt Bond Trust............... 33,205 1,178
Money Market Trust.................. 169,808 6,627
Managed Bond Trust.................. 625 12
Elect Richard E.
Lundgren Common Stock Trust.................. 93,463 4,344
Taxable Bond Trust.................. 9,715 510
Tax-Exempt Bond Trust............... 33,232 1,151
Money Market Trust.................. 169,870 6,565
Managed Bond Trust.................. 625 12
Elect Larry L.
Pinnt Common Stock Trust.................. 93,456 4,351
Taxable Bond Trust.................. 9,716 509
Tax-Exempt Bond Trust............... 33,224 1,159
Money Market Trust.................. 169,699 6,736
Managed Bond Trust.................. 625 12
Elect John W.
Schneider Common Stock Trust.................. 93,467 4,340
Taxable Bond Trust.................. 9,717 508
Tax-Exempt Bond Trust............... 33,202 1,182
Money Market Trust.................. 169,829 6,606
Managed Bond Trust.................. 625 12
Selection of
Ernst & Common Stock Trust.................. 93,848 1,313 2,648
Young LLP Taxable Bond Trust.................. 9,790 147 287
Tax-Exempt Bond Trust............... 33,312 470 601
Money Market Trust.................. 168,894 1,937 5,604
Managed Bond Trust.................. 624 12 1
</TABLE>
- 143 -
<PAGE>
SAFECO COMMON STOCK FUNDS
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding Vice President and Treasurer
Neal A. Fuller Vice President and Controller
David H. Longhurst Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
Chase Manhattan Bank
(International Fund)
GMF 4068 2/00
[LOGO] Printed on Recycled Paper.
This report must be preceded or accompanied by a current prospectus.
(R) A registered trademark of SAFECO Corporation.
CLIENT SERVICES*:
Monday-Friday,
5:30am-7:00pm Pacific Time
Nationwide: 1-800-624-5711
Deaf and Hard of Hearing TTY/TDD Service: 1-800-438-8718
* All telephone calls are tape-recorded for your protection.
FOR 24-HOUR AUTOMATED PERFORMANCE INFORMATION AND TRANSACTIONS:
Nationwide: 1-800-835-4391
MAILING ADDRESS:
SAFECO Mutual Funds
P.O. Box 34890
Seattle, WA 98124-1890
INTERNET:
www.safecofunds.com
EMAIL: [email protected]
