<PAGE> 1
================================================================================
ANNUAL
REPORT
SEPTEMBER 30, 1995
MAILING ADDRESS:
SAFECO MUTUAL FUNDS
P.O. BOX 34890
SEATTLE, WA 98124-1890
FOR ACCOUNT INFORMATION
OR TELEPHONE TRANSACTIONS:
NATIONWIDE: 1-800-624-5711
SEATTLE: 545-7319
TTY/TDD: 1-800-438-8718
SAFECO
TAXABLE
BOND FUNDS
SAFECO
INTERMEDIATE-TERM
U.S. TREASURY FUND
SAFECO
GNMA FUND
SAFECO
HIGH-YIELD
BOND FUND
[LOGO] SAFECO
MUTUAL FUNDS
================================================================================
<PAGE> 2
================================================================================
Performance Information
For the Periods Ended September 30, 1995
The performance of the Funds assumes the reinvestment of all interest and
capital gains. Operating expenses have been applied to the Funds, but not to the
indices. If Fund operating expenses had been applied to the indices, their
values would have been lower.
<TABLE>
<CAPTION>
================================================================================
AVERAGE ANNUAL SINCE
TOTAL RETURN 1 YEAR 5 YEAR INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SAFECO High-Yield
Bond Fund 11.43% 12.44% 9.01%*
Merrill Lynch
High-Yield Index 16.88% 16.94% 11.88%
- --------------------------------------------------------------------------------
SAFECO GNMA Fund 11.49% 7.9 7.49%*
Merrill Lynch
GNMA Index 14.29% 9.53% 10.79%
- --------------------------------------------------------------------------------
SAFECO Intermediate-Term
U.S. Treasury Fund 11.07% 8.11% 7.92%*
Merrill Lynch Intermediate-
Term Treasury Index 10.69% 8.43% 8.59%
- --------------------------------------------------------------------------------
</TABLE>
*The SAFECO Intermediate-Term U.S. Treasury and High-Yield Bond Funds' inception
date was Sept. 7, 1988. The SAFECO GNMA Fund inception date was July 15, 1986.
Investment returns are historical and not predictive of future performance. The
Merrill Lynch High-Yield Index, GNMA Index and Intermediate-Term Treasury Index
are representative total return bench-marks for the respective funds.
================================================================================
SAFECO HIGH-YIELD BOND FUND
ILLUSTRATION OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[GRAPH 1] [GRAPH APPEARS HERE COMPARING
THE TOTAL RETURN OF A $10,000
INVESTMENT VALUE AS OF SEPT. 30, 1995 INVESTMENT IN THE FUND MADE ON
THE FUND'S INCEPTION DATE AS
SAFECO HIGH-YIELD BOND FUND: $18,298* COMPARED TO THE PERFORMANCE
OF THE APPLICABLE INDEX.]
MERRILL LYNCH HIGH YIELD INDEX: $21,936
*The Fund's inception was September 7, 1988.
Index graph comparison begins September 30, 1988.
<TABLE>
<CAPTION>
Table of Contents
================================================================================
<S> <C>
President's Letter 2
SAFECO High-Yield Bond Fund 3
SAFECO GNMA Fund 8
SAFECO Intermediate-Term U.S. Treasury Fund 10
Financial Statements 12
Notes to Financial Statements 15
Report of Independent Auditors 21
</TABLE>
================================================================================
<PAGE> 3
<TABLE>
<CAPTION>
=======================================================================================
=======================================================================================
SAFECO GNMA FUND
ILLUSTRATION OF A $10,000 INVESTMENT
- ---------------------------------------------------------------------------------------
<S> <C>
[GRAPH 2] [GRAPH APPEARS HERE COMPARING
THE TOTAL RETURN OF A $10,000
INVESTMENT VALUE AS OF SEPT. 30, 1995 INVESTMENT IN THE FUND MADE
ON THE FUND'S INCEPTION DATE
SAFECO GNMA FUND: $19,395* AS COMPARED TO THE PERFORMANCE
OF THE APPLICABLE INDEX.]
MERRILL LYNCH GNMA INDEX: $23,096
*The Fund's inception was July 15, 1986.
Index graph comparison begins July 31, 1986.
=======================================================================================
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
ILLUSTRATION OF A $10,000 INVESTMENT
- ---------------------------------------------------------------------------------------
[GRAPH 3] [GRAPH APPEARS HERE COMPARING
THE TOTAL RETURN OF A $10,000
INVESTMENT VALUE AS OF SEPT. 30, 1995 INVESTMENT IN THE FUND MADE
ON THE FUND'S INCEPTION DATE
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND: $17,045* AS COMPARED TO THE PERFORMANCE
OF THE APPLICABLE INDEX.]
MERRILL LYNCH INTERMEDIATE-TERM TREASURY INDEX: $17,808
*The Fund's inception was September 7, 1988.
Index graph comparison begins September 30, 1988.
=======================================================================================
</TABLE>
-1-
<PAGE> 4
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Letter from the President
November 1, 1995
Dear Shareholders:
As it was in 1994, so it has been in 1995: The health of the U.S. economy
is the theme driving the financial markets.
The marked difference between the two years is the change in investor
perception of the economy.
[PHOTO] DAVID F. HILL
Investors now seem to see the economy as growing at healthy, sustainable
levels with little inflationary pressure. This change in attitude, coupled with
the concept of declining interest rates, has brought surprising strength to both
the bond and stock markets.
The stock market as measured by the S&P Index climbed 29.71% in the 12
months ending September 30, 1995. The bond market as measured by the Lehman
Brothers Government/Corporate Index returned 14.35% over the same period. These
gains far outpace historical averages.
The slow domestic economic growth, low inflation and falling interest rates
that we are experiencing creates an environment that is traditionally beneficial
for bonds. The same circumstances are generally positive for the stocks of
companies that are able to grow their earnings. Companies whose earnings don't
meet analysts' expectations are likely to disappoint investors. In this climate,
stock picking ability is critical to good performance.
Beyond that, it's not our practice to prognosticate. We don't believe we
can predict short-term trends or be successful timing the market. So, we try to
stay fully invested in the best positions at the best prices we can find.
We urge investors to take a longer view to investing as well.
Our advice is, as always, don't try to divine what the market will do
tomorrow or next month. Concentrate instead on making sure your investment
vehicles are of high quality and that they match the time horizons of your
investment objectives.
To help investors do that, we offer educational materials, including the
SAFECO Mutual Funds Personal Financial Planning Program. Please call us for your
free copy of this educational booklet and planning worksheets. For automated
performance information, try our new menu-driven price and yield line. We've
upgraded and expanded this service to provide historical performance as well as
dividends and capital gain information. To access it simply dial 800-835-4391
(545-5113 in Seattle).
As always, we truly value your continued confidence in SAFECO Mutual Funds.
Sincerely,
/s/ David F. Hill
- ------------------------
David F. Hill, President
================================================================================
-2-
<PAGE> 5
================================================================================
Report from the Fund Manager
SAFECO High-Yield Bond Fund
November 1, 1995
During the 12 months ended September 30, 1995 the high-yield market rallied
in response to declining interest rates, rising stock prices and strong cash
flows into high-yield mutual funds. During this period, the broad general market
as represented by the Merrill Lynch High Yield Index gained 16.88%. The average
return for the 108 high-yield bond funds tracked by Lipper Analytical Services
was 11.76% With a total return of 11.43%, the SAFECO High-Yield Bond Fund
underperformed the index and peer-group average.
The Fund's underperformance was due primarily to two factors. First, the
Fund purchases higher quality high-yield bonds. This strategy causes the Fund to
underperform when the market rises, as higher quality securities tend to
underperform riskier, lower quality securities when the market rallies.
It should be noted that the converse is also true. When the high-yield
market trades down, higher quality securities tend to do better than lower
quality securities. This strategy of purchasing higher quality junk bonds served
investors well during the high-yield market's 1994 downturn when the Fund
outperformed the average high-yield fund monitored by Lipper.
The second factor affecting performance was cash flow. The Fund experienced
greater inflows than the average fund over the past 12 months. According to
Lipper, high-yield mutual fund net assets increased 17%. During the period, the
net assets of the Fund increased 44%. As a result, the Fund was overweighted in
cash relative to its peers. And, as cash investments return less than high yield
bonds, our performance suffered.
[PHOTO] KURT HAVNAER
In light of the recent slowdown in economic activity in the U.S., we
concentrated our purchases on bonds issued by companies in non-cyclical
industries. Examples include UNIVERSAL HEALTH SERVICES, a hospital operator;
FLAGSTAR, the operator of Denny's Restaurants; OWENS-ILLINOIS, a glass and
plastic container manufacturer; and APPLIED EXTRUSION TECHNOLOGIES, a
manufacturer of flexible packaging for food products such as candy bars and
potato chips.
At September 30, the Fund held bonds issued by 71 different companies in 34
different industries.
Given an outlook for a moderation in economic growth, we anticipate a
continued focus on bonds issued by companies in industries that are not highly
sensitive to the economic cycle.
Most economists expect inflation to remain subdued and economic growth to
be slow over the next few quarters. Interest rates are expected to stabilize or
decline in this slow growth, low inflation environment. The outlook for the
high-yield market in this environment is positive for two reasons. First, demand
for high-yield bonds should be strong as investors, stretching for higher
yields, continue to invest money into high-yield funds. Second, credit quality
should not deteriorate significantly as moderate economic growth will prevent
corporate earnings and cash flows from declining rapidly.
(Continued on next page.)
================================================================================
-3-
<PAGE> 6
================================================================================
Highlights
SAFECO High-Yield
Bond Fund
As of September 30, 1995
================================================================================
SAFECO HIGH-YIELD BOND FUND
S&P CREDIT RATING DISTRIBUTION
AS OF SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
[GRAPH 4]
[PIE CHART APPEARS HERE]
CCC: 1.1%
D: 0.7%
NOT RATED: 1.2%
CASH AND OTHER ASSETS, LESS LIABILITIES: 9.6%
BBB: 4.1%
================================================================================
SAFECO HIGH-YIELD BOND FUND
TOP FIVE INDUSTRIES AS A PERCENT OF NET ASSETS
AS OF SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
[GRAPH 5]
[BAR CHART APPEARS HERE]
Containers: 6.3%
Miscellaneous: 5.9%
Broadcast Media: 5.3%
Oil & Gas: 5.2%
Retail Grocers: 5.2%
CURRENT YIELD (30-DAY) 9.35%
================================================================================
WEIGHTED AVERAGE MATURITY (IN YEARS) 7.75
Report from the High-Yield Bond Fund Manager (Continued)
The longer-term outlook for the high-yield market is mixed as the economy
may fall into a recession at the end of 1996, or early 1997. Should economic
activity deteriorate meaningfully, corporate earnings and cash flows would
decline, resulting in a weakening of credit quality and an increase in default
rates. In this environment, high-yield returns would be negatively impacted by
declining high-yield bond prices. To reduce return volatility and protect
against the decline in credit quality that would result from a recession, the
Fund will continue its long-standing strategy of purchasing higher-quality junk
bonds and diversifying by both issuer and industry.
/s/ Kurt Kavnaer
- ------------------------------------------
Kurt Havnaer, High-Yield Bond Fund Manager
- --------------------------------------------------------------------------------
Kurt Havnaer joined SAFECO Asset Management in 1991 as a fixed income
securities analyst. He became fund manager in January, 1995. Mr. Havnaer holds
an M.B.A. from Seattle University and a B.A. from the University of Washington.
He is a Certified Public Accountant as well as a Chartered Financial Analyst.
================================================================================
-4-
<PAGE> 7
================================================================================
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS PERCENT OF NET ASSETS
================================================================================
<S> <C>
Owens-Illinios, Inc. 3.9%
(Containers)
ADT Operations, Inc. 2.7%
(Electronic Security Systems)
Century Communications Corp. 2.6%
(Cable Television Operator)
John Q. Hammons Hotels 2.4%
(Hotel Operator)
Southland Corp. 1.8%
(Retail Specialty Stores)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES (APRIL THROUGH SEPT.) COST
================================================================================
<S> <C>
HMH Properties, Inc. $963,370
Applied Extrusion Technologies, Inc. 538,750
Crown Central Petroleum Corp. 528,750
IMO Industries, Inc. 516,875
Owens-Illinios, Inc. 508,750
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PERFORMERS (APRIL THROUGH SEPT.) PERCENT RETURN
================================================================================
<S> <C>
Parisian, Inc. 20.9%
(Retail Department Stores)
International Semi-Tech Microelectronics, Inc. 20.5%
(Consumer Durables Distributor)
*Foodmaker 14.5%
(Restaurant/Food Services)
Beazer Homes USA, Inc. 10.7%
(Homebuilder)
Continental Homes Holding Corp. 10.6%
(Homebuilder)
</TABLE>
<TABLE>
<CAPTION>
BOTTOM FIVE PERFORMERS (APRIL THROUGH SEPT.) PERCENT RETURN
================================================================================
<S> <C>
*ANACOMP, Inc. -25.4%
(Micrographics Products and Services)
Penn Traffic Co. -11.2%
(Grocery Stores)
Anchor Glass Container Corp. -9.7%
(Containers)
Musicland Group -6.7%
(Retail Specialty Stores)
Atlantis Group, Inc. -6.1%
(Plastics Manufacturer)
- --------------------------------------------------------------------------------
</TABLE>
*Security sold, no longer in Portfolio.
Portfolio of Investments
SAFECO High-Yield Bond Fund
As of September 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
================================================================================
<S> <C>
CORPORATE BONDS - 90.4%
ADVERTISING - 1.4%
$ 500 Heritage Media Corp.
11.00%, due 10/01/02 $531
AGRICULTURE/FERTILIZER PRODUCTS - 1.3%
500 Arcadian Partners, L.P. 10.75%, due 5/01/05 525
AUTOS - 1.4%
500 Exide Corp. 10.75%, due 12/15/02 531
BEVERAGE - 1.3%
500 Coca-Cola Bottling Group (Southwest), Inc.
9.00%, due 11/15/03 495
BROADCAST MEDIA - 5.3%
250 Cablevision Systems Corp.
10.75%, due 4/01/04 263
1,000 Century Communications Corp.
9.50%, due 3/01/05 1,003
250 - Sinclair Broadcast Group, Inc.
10.00%, due 9/30/05 254
500 Young Broadcasting, Inc.
11.75%, due 11/15/04 555
CHEMICALS - 3.0%
500 Atlantis Group, Inc. 11.00%, due 2/15/03 465
175 - OSI Specialties, Inc. 9.25%, due 10/01/03 191
500 UCC Investors Holding, Inc.
10.50%, due 5/01/02 515
COMMERCIAL SERVICES - 1.3%
500 - Primark Corp. 8.75%, due 10/15/00 508
CONGLOMERATES - 1.3%
500 Figgie International, Inc.
9.875%, due 10/01/99 502
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
================================================================================
-5-
<PAGE> 8
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND (CONTINUED)
As of September 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
================================================================================
<S> <C>
CONTAINERS - 6.3%
$ 500 - Anchor Glass Container Corp.
9.875%, due 12/15/08 $ 407
500 - Applied Extrusion Technologies, Inc.
11.50%, due 4/01/02 535
1,500 Owens-Illinois, Inc. 9.75%, due 8/15/04 1,537
COSMETICS - 1.3%
500 - Coty, Inc. 10.25%, due 5/01/05 523
ELECTRONICS - 2.6%
500 - IMO Industries, Inc. 12.00%, due 11/01/01 514
500 Plantronics, Inc. 10.00%, due 1/15/01 507
ENTERTAINMENT - 4.0%
500 ACT III Theatres 11.875%, due 2/01/03 529
500 - Alliance Entertainment Corp.
11.25%, due 7/15/05 500
500 AMC Entertainment, Inc.
12.625%, due 8/01/02 555
FINANCIAL - 3.9%
500 Comdata Network, Inc.
12.50%, due 12/15/99 559
500 - Scotsman Group, Inc. 9.50%, due 12/15/00 490
500 Western Financial Savings Bank
8.50%, due 7/01/03 499
FOOD - 1.3%
500 Chiquita Brands International
10.50%, due 8/01/04 515
GAMING - 3.7%
500 Aztar Corp. 11.00%, due 10/15/02 476
500 - Bally's Park Place, Inc. 9.25%, due 3/15/04 486
500 Station Casinos, Inc. 9.625%, due 6/01/03 475
HOME BUILDING - 3.9%
500 Beazer Homes USA, Inc.
9.00%, due 3/01/04 465
500 Continental Homes Holding Corp.
12.00%, due 8/01/99 520
300 K. Hovnanian Enterprises
11.25%, due 4/15/02 278
250 Toll Brothers, Inc. 10.50%, due 3/15/02 257
HOSPITAL MANAGEMENT - 4.0%
500 ORNDA Healthcorp 12.25%, due 5/15/02 550
500 Tenet Healthcare Corp.
9.625%, due 9/01/02 528
500 - Universal Health Services, Inc.
8.75%, due 8/15/05 488
HOTELS/MOTELS- 4.9%
500 - HMH Properties, Inc. 9.50%, due 5/15/05 490
1,000 John Q. Hammons Hotels
8.875%, due 2/15/04 930
500 - La Quinta Inns, Inc. 9.25%, DUE 5/15/05 518
INSURANCE - 1.3%
500 American Financial 9.75%, due 4/20/04 498
MACHINERY - 0.7%
500 International Semi-Tech Microelectronics, Inc.
0.00%/11.50%, due 8/15/03 265
MANUFACTURING - 1.2%
500 Plastic Specialties and Technologies, Inc.
11.25%, due 12/01/03 452
MISCELLANEOUS - 5.9%
1,000 ADT Operations, Inc. 9.25%, due 8/01/03 1,045
365 Foamex, L.P. 9.50%, due 6/01/00 365
500 International Shipholding Corp.
9.00%, due 7/01/03 493
500 US Leather, Inc. 10.25%, due 7/31/03 415
</TABLE>
See Notes to Financial Statements
================================================================================
-6-
<PAGE> 9
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND (CONTINUED)
As of September 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
================================================================================
<S> <C>
OFFICE EQUIPMENT & SUPPLIES - 0.7%
$ 296 ANACOMP, Inc. 12.25%, due 10/26/97 $ 295
OIL & GAS - 5.2%
500 - Crown Central Petroleum Corp.
10.875%, due 2/01/05 525
500 Giant Industries, Inc. 9.75%, due 11/15/03 492
500 Mesa Capital Corp.
0.00%/12.75%, due 6/30/98 463
500 Nuevo Energy Co. 12.50%, due 6/15/02 544
PAPER & FOREST PRODUCTS - 1.4%
500 Stone Container Corp.
11.875%, due 12/01/98 539
REAL ESTATE - 1.3%
500 Ryland Group 10.50%, due 7/15/02 501
RESTAURANTS - 1.2%
500 - Flagstar Cos., Inc. 10.75%, due 9/15/01 466
RETAIL - DEPARTMENT STORES - 1.7%
250 Loehmann's Holdings 13.75%, due 2/15/99 251
500 Parisian, Inc. 9.875%, due 7/15/03 420
RETAIL - GROCERS - 5.2%
398 Grand Union Co. 11.25%, due 7/15/00 382
500 Penn Traffic Co. 9.625%, due 4/15/05 410
500 Safeway, Inc. 9.30%, due 2/01/07 545
1,000 Southland Corp. 4.50%, due 6/15/04 708
RETAIL - OTHER - 3.0%
500 Musicland Group 9.00%, due 6/15/03 399
Petroleum Heat & Power Co.
500 12.25%, due 2/01/05 540
250 9.375%, due 2/01/06 232
STEEL - 2.8%
500 Armco, Inc. 9.375%, due 11/01/00 493
600 Weirton Steel Corp. 10.875%, due 10/15/99 607
TEXTILES - 1.5%
500 Fieldcrest Mills, Inc.
11.25%, due 6/15/04 521
84 JPS Textile Group, Inc.
10.25%, due 6/01/99 71
TRANSPORTATION - 1.7%
479 Delta Air Lines, Inc. 9.875%, due 4/30/08 543
113 Worldcorp, Inc. 13.875%, due 8/15/97 110
Utilities - 3.4%
457 Beaver Valley Funding Corp.
8.625%, due 6/01/07 410
500 First PV Funding 10.15%, due 1/15/16 518
402 Midland Cogeneration Venture, L. P.
10.33%, due 7/23/02 419
-------
TOTAL CORPORATE BONDS 35,406
-------
SHORT-TERM INVESTMENTS - 4.9%
INVESTMENT COMPANIES:
3 Short-Term Investments Co.
(Prime Portfolio) 3
U.S. AGENCY NOTES:
1,939 Federal Home Loan Mortgage Corp.
6.30%, due 10/02/95 1,939
-------
TOTAL SHORT-TERM INVESTMENTS 1,942
-------
TOTAL INVESTMENTS - 95.3% 37,348
Other Assets, less Liabilities 1,830
-------
NET ASSETS $39,178
=======
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
================================================================================
-7-
<PAGE> 10
================================================================================
Report From The Fund Manager
SAFECO GNMA Fund
November 1, 1995
For the 12 months ended September 30, 1995, the SAFECO GNMA Fund returned
11.49%. The average total return posted by GNMA Funds was 12.59% according to
Lipper Analytical Services while the Merrill Lynch GNMA Index posted 14.29%.
Poor results from the fourth quarter 1994 held our 12-month performance
below that of the index and peer group. At that time, the Fund was overweighted
in intermediate-term securities, the sector most heavily battered in 1994.
The last six months however have been great for all bond market
participants, including your Fund. Bonds continued to rally as interest rates
continued to decline.
As has been the case most of this year - and as happens when markets rally
- - the longer, lower coupon (discount) bonds performed best. In the mortgage
market, the 30-year sector outperformed both the 15-year and the five- and
seven-year balloon mortgage sectors. Of bonds with equal maturities, the
lower coupons outperformed higher fixed-coupons.
(Bonds with coupons that bear less than the market rate sell at a discount.
Because the rates associated with discount bonds are already low, they are
typically not called in and refinanced when rates fall. Thus, they maintain the
appreciation potential associated with their maturity.)
Of the three predominant types of mortgage pass-through securities, GNMAs
provided slightly better total returns than similar FHLMC or FNMA securities.
At last report I had sold the intermediate securities that cost us dearly
and repositioned the portfolio into a "barbell" composed of very-long and
very-short maturities. I've since dismantled the shorter end of the barbell. I
sold or allowed to mature the 18.2% of net assets we'd invested in agency
discount notes and cash.
[PHOTO] Paul Stevenson
I invested the proceeds into 30-year 7% and 7 1/2% GNMA pass-throughs,
bringing the fund's duration, coupon and maturity profiles more in line with the
Merrill Lynch GNMA Index. On September 30, the effective duration (sensitivity
to interest rates) for the SAFECO GNMA Fund was 4.7 versus 4.6 for the index,
and the average coupon was 7.70% versus 8.03%.
I intend to maintain the portfolio's average life close to that of the
broad market as depicted by the Merrill Lynch GNMA Index, while actively
managing our assets among the most attractive mortgage sectors.
As the portfolio stands now, the Fund is fully invested in 30-year GNMA
pass-through securities. Approximately 39% of net assets are in seasoned
premiums (older mortgage-backs paying 8% and above that are less likely to be
refinanced due to their age). About 22% of net assets are in 7.5% coupons, and
the remaining 39% is in discount GNMA pass-throughs with coupons of and below
7%.
I've tried to balance the portfolio investments in the mortgage sectors
that will provide the best value given the current and projected economic and
interest rate outlooks.
The Fed currently seems to be in a holding pattern . Most likely they will
not ease interest rates until they
================================================================================
-8-
<PAGE> 11
================================================================================
receive confirmation that moderate growth and low inflation will hold, and have
digested the implications of the Congressional budget negotiations.
In this economic and policy environment I expect interest rates to be
fairly tame with a slight bias towards lower rates. I believe bond market
participants in general should expect excellent performance through year-end.
Mortgage-backed securities, in particular, will do well if interest rates stay
relatively flat. If interest rates drop significantly, mortgage-backs would lag
the corporate and Treasury markets due to investor's preference for these more
call-protected alternatives.
/s/ Paul Stevenson
- ---------------------------------
Paul Stevenson, GNMA Fund Manager
Paul Stevenson joined SAFECO in 1986 as mortgage securities analyst. He
became GNMA Fund manager in 1988. Stevenson has a Bachelor of Arts in finance
from Washington State University and is a Chartered Financial Analyst.
Portfolio of Investments
SAFECO GNMA Fund
As of September 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
================================================================================
<S> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES - 99.2%
Government National Mortgage Association (GNMA) - 99.2%
$ 30 11.00%, due 9/15/15 $ 33
41 10.25%, due 1/15/21 45
4,008 9.50%, due 4/15/16 - 2/20/21 4,292
1,077 9.00%, due 8/15/11 - 9/15/11 1,114
6,277 8.50%, due 2/20/17 - 5/20/22 6,506
5,039 8.00%, due 6/15/21 - 12/15/22 5,191
9,672 7.50%, due 9/15/22 - 4/20/23 9,750
14,561 7.00%, due 4/15/23 - 3/15/24 14,387
2,478 -6.50%, due 10/15/23 - 4/15/24 2,390
-------
TOTAL U.S. GOVERNMENT
AND AGENCY SECURITIES 43,708
-------
SHORT-TERM INVESTMENTS -0.5%
INVESTMENT COMPANIES:
207 Short-Term Investments Co.
(Prime Portfolio) 207
-------
TOTAL SHORT-TERM INVESTMENTS 207
-------
TOTAL INVESTMENTS - 99.7% 43,915
Other Assets, less Liabilities 140
-------
NET ASSETS $44,055
=======
- --------------------------------------------------------------------------------
</TABLE>
- - New to Portfolio since last Report.
See Notes to Financial Statements
================================================================================
-9-
<PAGE> 12
================================================================================
Highlights
As of September 30, 1995
================================================================================
SAFECO GNMA Fund
CURRENT 30-DAY YIELD
FOR THE YEAR ENDED SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
[GRAPH 6]
SAFECO GNMA FUND
This graph depicts the average 30-day current yield at month-end for the SAFECO
GNMA Fund.
================================================================================
SAFECO Intermediate-Term
U.S. Treasury Fund
CURRENT 30-DAY YIELD
FOR THE YEAR ENDED SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
[GRAPH 7]
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
This graph depicts the average 30-day current yield at month-end for the SAFECO
Intermediate-Term U.S. Treasury Fund.
These graphs represent historical data and are not predictive of future yields.
Report from the Fund Manager
SAFECO Intermediate-Term
U.S. Treasury Fund
November 1, 1995
Interest rates continued their dramatic fall during the spring and summer
months; relegating the bear market of 1994 to a vague, unpleasant memory, and
providing your Fund with robust returns.
For the 12 months ended September 30, 1995, the SAFECO Intermediate-Term
U.S. Treasury Fund returned 11.07%. Meanwhile, the average return of
intermediate-term treasury funds was 10.54% according to Lipper Analytical
Services, and the Merrill Lynch Intermediate-Term Treasury Index returned
10.69%. For the 6 months just ended, the Fund was up 7.40%.
Extending our average maturity from 5.2 years on March 31 to around 7 years
on September 30 and holding 10-year strips (also known as zero-coupon bonds)
helped the Fund outperform its benchmarks.
Early in the third quarter, we sold 2-, 4- and 8-year treasury notes and
bought 10-year strips. The latter are so called because the interest payment is
stripped away from the bond. The holder owns only the right to collect the
principal value at maturity. Strips, which are sold at deep discounts because
they provide no income stream, appreciate faster than traditional securities
when the bond market rallies, as it has so far in 1995. (Strips also fall faster
when the market turns downward.)
On September 30, about 19.8% of net assets were invested in U.S. Treasury
strips. Our average maturity of 7 years was longer than the broad market's 3.7
years as represented by the Merrill Lynch Intermediate-Term Treasury Index.
The portfolio reflects the more cheerful outlook that has replaced last
year's fears. Indeed, inflation
================================================================================
-10-
<PAGE> 13
================================================================================
[PHOTO] Michael C. Knebel
pressures seem to have subsided as indicated by slowdowns in employment growth
and consumer spending, and as validated by the Federal Reserve Board's July 6th
lowering of the Fed Funds rate.
With that lowering, the Fed signaled to bond investors that it expects
slower, more sustainable economic growth, with little risk of inflation above
the 3% level. Such an environment should be very constructive for the financial
markets in general, and for bond investors in particular.
Our portfolio is positioned to take advantage of this optimistic scenario.
Its longer maturity profile should allow the Fund to appreciate further, should
rates continue their gradual descent.
/s/MICHAEL C. KNEBEL
Michael C. Knebel,
Intermediate-Term U.S. Treasury Fund Manager
- -------------------------------------------------------------------------------
Mike Knebel has managed bond portfolios for SAFECO since 1989. Before that he
managed municipal bond and money market funds for Lutheran Brotherhood. He
earned his M.B.A. in Finance from the University of Minnesota, and he is a
Chartered Financial Analyst.
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM
U.S. TREASURY FUND
As of September 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000's) MARKET VALUE (000's)
================================================================================
<S> <C>
U.S. GOVERNMENT SECURITIES - 98.9%
U.S. TREASURY NOTES - 79.1%
$ 750 8.50%, due 4/15/97 $ 779
1,925 7.75%, due 2/15/01 2,073
800 7.50%, due 11/15/01 857
6,475 6.25%, due 2/15/03 6,509
670 6.00%, due 10/15/99 671
U.S. TREASURY STRIPS - 19.8%
4,995 0.00%, due 5/15/05 2,730
---------
TOTAL U.S. GOVERNMENT SECURITIES 13,619
---------
SHORT-TERM INVESTMENTS - 0.5%
INVESTMENT COMPANIES:
66 Short-Term Investments Co.
(Prime Portfolio) 66
---------
TOTAL SHORT-TERM INVESTMENTS 66
---------
TOTAL INVESTMENTS - 99.4% 13,685
Other Assets, less Liabilities 89
---------
NET ASSETS $ 13,774
=========
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
================================================================================
- 11 -
<PAGE> 14
================================================================================
STATEMENTS OF ASSETS AND LIABILITIES
As of September 30, 1995
<TABLE>
<CAPTION>
SAFECO SAFECO
HIGH-YIELD SAFECO INTERMEDIATE-TERM
(In Thousands, Except Per-Share Amounts) BOND FUND GNMA FUND U.S. TREASURY FUND
========================================================================================================================
<S> <C> <C> <C>
ASSETS
Investments, at Value:
U.S. Government and Agency Obligations
(Identified Cost $42,719 and $13,263, respectively) $ 43,708 $ 13,619
Corporate Bonds (Identified Cost $34,816) $ 35,406 -- --
Short-Term Investments 1,942 207 66
-------- -------- --------
Total Investments 37,348 43,915 13,685
Receivables
Interest 978 275 140
Capital Stock Sold 990 -- 1
-------- -------- --------
Total Assets 39,316 44,190 13,826
-------- -------- --------
LIABILITIES
Payables
Dividends 100 70 32
Investment Advisory Fees 19 22 6
Capital Stock Redeemed -- 21 --
Other 19 22 14
-------- -------- --------
Total Liabilities 138 135 52
-------- -------- --------
Net Assets $ 39,178 $ 44,055 $ 13,774
======== ======== ========
Shares Outstanding (Note 2) 4,511 4,664 1,346
======== ======== ========
Net Asset Value Per Share
(Net Assets Divided by Shares Outstanding) $ 8.68 $ 9.45 $ 10.24
======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
===============================================================================
- 12 -
<PAGE> 15
STATEMENTS OF OPERATIONS
For the Year Ended September 30, 1995
<TABLE>
<CAPTION>
SAFECO SAFECO
HIGH-YIELD SAFECO INTERMEDIATE-TERM
(In Thousands) BOND FUND GNMA FUND U.S. TREASURY FUND
=========================================================================================================================
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 3,322 $ 3,285 $ 846
EXPENSES
Investment Advisory Fees (Note 5) 206 276 71
Shareholder Servicing Fees (Note 5) 78 120 33
Legal and Auditing Fees 13 14 13
Custodian Fees 11 14 2
Loan Interest Expense 9 2 --
Reports to Shareholders 3 7 2
Trustees' Fees 6 5 5
------- ------- -------
Total Expenses 326 438 126
------- ------- -------
NET INVESTMENT INCOME 2,996 2,847 720
------- ------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on Investment Transactions (579) (1,292) 7
Net Change in Unrealized Appreciation (Note 4) 1,459 3,055 638
------- ------- -------
NET GAIN ON INVESTMENTS 880 1,763 645
------- ------- -------
Net Change in Net Assets Resulting from Operations $ 3,876 $ 4,610 $ 1,365
======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
===============================================================================
- 13 -
<PAGE> 16
===============================================================================
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended September 30
<TABLE>
<CAPTION>
SAFECO SAFECO
HIGH-YIELD SAFECO INTERMEDIATE-TERM
BOND FUND GNMA FUND U.S. TREASURY FUND
--------------------- --------------------- ---------------------
(In Thousands) 1995 1994 1995 1994 1995 1994
================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 2,996 $ 2,842 $ 2,847 $ 3,439 $ 720 $ 720
Net Realized Gain (Loss) on
Investment Transactions (579) (76) (1,292) (1,263) 7 (368)
Net Change in
Unrealized Appreciation 1,459 (2,053) 3,055 (4,476) 638 (1,044)
-------- -------- -------- -------- -------- --------
Net Change in Net Assets
Resulting from Operations 3,876 713 4,610 (2,300) 1,365 (692)
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income (2,996) (2,842) (2,847) (3,439) (720) (720)
TRUST SHARE TRANSACTIONS 11,084 1,050 (3,884) (10,805) (238) 73
-------- -------- -------- -------- -------- --------
TOTAL CHANGE IN NET ASSETS 11,966 (1,079) (2,121) (16,544) 407 (1,339)
NET ASSETS AT BEGINNING OF PERIOD 27,212 28,291 46,176 62,720 13,367 14,706
-------- -------- -------- -------- -------- --------
Net Assets at End of Period $ 39,178 $ 27,212 $ 44,055 $ 46,176 $ 13,774 $ 13,367
======== ======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN TRUST SHARES
Sales 7,306 8,935 927 1,338 431 426
Reinvestments 190 167 215 259 37 39
Redemptions (6,168) (8,987) (1,582) (2,745) (495) (462)
-------- -------- -------- -------- -------- --------
Net Change 1,328 115 (440) (1,148) (27) 3
======== ======== ======== ======== ======== ========
INCREASE (DECREASE) IN AMOUNTS
Sales $ 62,147 $ 80,820 $ 8,523 $ 12,898 $ 4,265 $ 4,361
Reinvestments 1,463 1,499 1,976 2,466 374 402
Redemptions (52,526) (81,269) (14,383) (26,169) (4,877) (4,690)
-------- -------- -------- -------- -------- --------
Net Change $ 11,084 $ 1,050 $ (3,884) $(10,805) $ (238) $ 73
======== ======== ======== ======== ======== ========
</TABLE>
See Notes to Financial Statements
===============================================================================
- 14 -
<PAGE> 17
===============================================================================
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
SAFECO High-Yield Bond Fund, SAFECO GNMA Fund, and SAFECO Intermediate-Term
U.S. Treasury Fund (together "the Funds") are registered under the Investment
Company Act of 1940, as amended, as diversified, open-end management investment
companies. The following is a summary of significant accounting policies
consistently followed by each Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
The SAFECO GNMA Fund was previously known as the SAFECO U.S. Government
Securities Fund. Effective January 31, 1994, the name of the Fund was changed to
the SAFECO GNMA Fund in order to more precisely describe the Fund and the type
of securities which it intends to primarily hold.
SECURITY VALUATION. Investment securities are stated on the basis of
valuations provided by a pricing service, which uses information with respect to
transactions in securities, quotations from securities dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Short-term investments are valued at amortized
cost.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade
date. The cost of the portfolio is the same for financial statement and federal
income tax purposes. Realized gains and losses from security transactions are
determined using the identified cost basis.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Securities purchased on a
when-issued or delayed basis may be settled a month or more after the trade
date. The securities purchased are carried in the portfolio at market value and
are subject to market fluctuation during this period. These securities begin
earning interest on the settlement date. As commitments to purchase when-issued
securities become fixed, a Fund establishes a segregated asset account equal to
the total obligation.
INCOME RECOGNITION. Interest is accrued on portfolio investments daily.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net investment income is
declared as a dividend to shareholders of record as of the close of each
business day and payment is made as of the last business day of each month. Net
gains realized from security transactions, if any, are normally distributed to
shareholders at the end of September and December.
FEDERAL INCOME AND EXCISE TAXES. The Funds intend to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies by distributing substantially all taxable income to their shareholders
in a manner which results in no tax to the Funds. Therefore, no federal income
or excise tax provision is required.
===============================================================================
- 15 -
<PAGE> 18
===============================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. TRUST SHARE INFORMATION
(As of September 30, 1995)
<TABLE>
<CAPTION>
SAFECO SAFECO
HIGH-YIELD SAFECO INTERMEDIATE-TERM
BOND FUND GNMA FUND U.S. TREASURY FUND
===========================================================================================================
<S> <C> <C> <C>
Trust Shares Authorized Unlimited Unlimited Unlimited
Par Value Per Share $ .001 $ .001 $ .001
Paid in Capital $39,959 $46,706 $13,779
- -----------------------------------------------------------------------------------------------------------
</TABLE>
3. ACCUMULATED UNDISTRIBUTED CAPITAL LOSS
The Funds had the following amounts of accumulated undistributed net
realized loss on investment transactions at September 30, 1995. For federal
income tax purposes, these represent capital loss carryforwards which expire as
follows:
<TABLE>
<CAPTION>
AMOUNTS EXPIRATION DATES
================================================================================================
<S> <C> <C>
SAFECO High-Yield Bond Fund $ (1,371) 1998-2003
SAFECO GNMA Fund (3,640) 1996-2003
SAFECO Intermediate-Term U.S. Treasury Fund (361) 2002
- ------------------------------------------------------------------------------------------------
</TABLE>
===============================================================================
- 16 -
<PAGE> 19
===============================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
SAFECO SAFECO
HIGH-YIELD SAFECO INTERMEDIATE-TERM
(In Thousands) BOND FUND GNMA FUND U.S. TREASURY FUND
================================================================================================================================
<S> <C> <C> <C>
Purchases for the Year Ended September 30, 1995
(including $0, $55,819, and $16,030, respectively,
of U.S. Government obligations) $ 17,808 $ 55,819 $ 16,030
======== ======== ========
Sales for the Year Ended September 30, 1995
(including $0, $58,799, and $16,099, respectively,
of U.S. Government obligations) $ 11,525 $ 58,799 $ 16,099
======== ======== ========
UNREALIZED APPRECIATION (DEPRECIATION) AT SEPTEMBER 30, 1995
Aggregate Gross Unrealized Appreciation for Investment Securities
in Which There is an Excess of Value Over Identified Cost $ 1,312 $ 1,208 $ 368
Aggregate Gross Unrealized Depreciation for Investment Securities
in Which There is an Excess of Identified Cost Over Value (772) (219) (12)
-------- -------- --------
Net Unrealized Appreciation $ 590 $ 989 $ 356
======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5. INVESTMENT ADVISORY FEES AND
OTHER TRANSACTIONS WITH AFFILIATES
SAFECO Asset Management Company receives investment advisory fees from
the Funds. For the SAFECO High-Yield Bond Fund and the SAFECO GNMA Fund, the fee
is based on average daily net assets at the annual rate of 65/100 of one percent
on the first $250 million declining in three levels to 35/100 of one percent on
net assets over $750 million. For the SAFECO Intermediate-Term U.S. Treasury
Fund the fee is based on average daily net assets at the annual rate of 55/100
of one percent on the first $250 million declining in three levels to 25/100 of
one percent on net assets over $750 million. SAFECO Services Corporation
receives shareholder servicing fees. At September 30, 1995, SAFECO Corporation
owned 500,000 shares (or 11.1%) of the SAFECO High-Yield Bond Fund and SAFECO
Insurance Company of America owned 500,000 shares (or 37.2%) of the SAFECO
Intermediate-Term U.S. Treasury Fund. The Funds may borrow money for temporary
purposes from SAFECO Corporation or its affiliates at interest rates equivalent
to commerical bank interest rates.
================================================================================
- 17 -
<PAGE> 20
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO HIGH-YIELD BOND FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
----------------------------------------------------------
1995 1994 1993 1992 1991
==================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 8.55 $ 9.22 $ 8.92 $ 8.35 $ 7.94
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.79 0.82 0.91 0.83 0.93
Net Realized and Unrealized Gain (Loss)
on Investments 0.13 (0.67) 0.30 0.57 0.41
--------- ---------- --------- --------- ---------
Total from Investment Operations 0.92 0.15 1.21 1.40 1.34
--------- ---------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.79) (0.82) (0.91) (0.83) (0.93)
--------- ---------- --------- --------- ---------
Net Asset Value at End of Period $ 8.68 $ 8.55 $ 9.22 $ 8.92 $ 8.35
========= ========== ========= ========= =========
TOTAL RETURN 11.43% 1.61% 14.29% 17.52% 18.18%
NET ASSETS AT END OF PERIOD (000'S) $ 39,178 $ 27,212 $ 28,291 $ 19,672 $ 11,931
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.01% 1.03% 1.09% 1.05% 1.11%
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 9.28% 9.26% 9.94% 9.66% 11.51%
PORTFOLIO TURNOVER RATE 38.03% 63.02% 50.27% 40.66% 32.46%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
- 18 -
<PAGE> 21
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GNMA FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
----------------------------------------------------------
1995 1994 1993 1992 1991
==================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.05 $ 10.03 $ 9.95 $ 9.68 $ 9.16
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.60 0.60 0.67 0.73 0.78
Net Realized and Unrealized Gain (Loss)
on Investments 0.40 (0.98) 0.08 0.27 0.52
------- ------- ------- ------- -------
Total from Investment Operations 1.00 (0.38) 0.75 1.00 1.30
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.60) (0.60) (0.67) (0.73) (0.78)
------- ------- ------- ------- -------
Net Asset Value at End of Period $ 9.45 $ 9.05 $ 10.03 $ 9.95 $ 9.68
======= ======= ======= ======= =======
TOTAL RETURN 11.49% -3.91% 7.81% 10.75% 14.72%
NET ASSETS AT END OF PERIOD (000'S) $44,055 $46,176 $62,720 $56,474 $42,207
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.01% 0.95% 0.93% 0.94% 0.97%
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.55% 6.26% 6.71% 7.49% 8.23%
PORTFOLIO TURNOVER RATE 131.24% 55.12% 70.96% 24.66% 43.80%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
-19-
<PAGE> 22
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
----------------------------------------------------------
1995 1994 1993 1992 1991
==================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.74 $ 10.74 $ 10.69 $ 10.20 $ 9.83
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.55 0.52 0.60 0.72 0.75
Net Realized and Unrealized Gain (Loss)
on Investments 0.50 (1.00) 0.49 0.54 0.37
------- ------- ------- ------- ------
Total from Investment Operations 1.05 (0.48) 1.09 1.26 1.12
------- ------- ------- ------- ------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.55) (0.52) (0.60) (0.72) (0.75)
Distributions from Capital Gains -- -- (0.44) (0.05) --
------- ------- ------- ------- ------
Total Distributions (0.55) (0.52) (1.04) (0.77) (0.75)
------- ------- ------- ------- ------
Net Asset Value at End of Period $ 10.24 $ 9.74 $ 10.74 $ 10.69 $10.20
======= ======= ======= ======= ======
TOTAL RETURN 11.07% -4.56% 10.51% 12.78% 11.80%
NET ASSETS AT END OF PERIOD (000'S) $13,774 $13,367 $14,706 $12,205 $9,458
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.96% 0.90% 0.99% 0.98% 1.00%
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 5.51% 5.08% 5.52% 6.89% 7.45%
PORTFOLIO TURNOVER RATE 124.90% 75.46% 104.94% 37.19% 9.51%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
-20-
<PAGE> 23
================================================================================
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF THE
SAFECO TAXABLE BOND TRUST
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments in securities, of the SAFECO Taxable
Bond Trust (comprising, respectively, the SAFECO High-Yield Bond Fund, SAFECO
GNMA Fund, and SAFECO Intermediate-Term U.S. Treasury Fund) as of September 30,
1995, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each in the period then ended. These
financial statements and financial highlights are the responsibility of the
Trust's 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective funds constituting the SAFECO Taxable Bond Trust at
September 30, 1995, and the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with the generally accepted accounting
principles.
/s/ Ernst & Young LLP
Seattle, Washington
October 26, 1995
================================================================================
-21-
<PAGE> 24
================================================================================
SAFECO TAXABLE FUNDS
BOARD OF TRUSTEES BULK RATE
BOH A. DICKEY, CHAIRMAN U.S. POSTAGE
BARBARA J. DINGFIELD PAID
RICHARD W. HUBBARD SAFECO
RICHARD E. LUNDGREN INSURANCE CO.
I.D. MCCLEAN
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
INVESTMENT ADVISER
SAFECO ASSET
MANAGEMENT COMPANY
DISTRIBUTOR
SAFECO SECURITIES, INC.
TRANSFER AGENT
SAFECO SERVICES CORPORATION
CUSTODIAN
U.S. BANK OF WASHINGTON N.A.
