<PAGE> 1
September 30, 1996
[Mt. Rainier, Washington PHOTO]
ANNUAL
REPORT
SAFECO High-Yield Bond Fund
SAFECO GNMA Fund
SAFECO Intermediate-Term U.S. Treasury Fund
[SAFECO LOGO]
<PAGE> 2
PERFORMANCE INFORMATION
September 30, 1996
SAFECO HIGH-YIELD BOND FUND*
Illustration of a $10,000 Investment
<TABLE>
<CAPTION>
Merrill
HY Index
-------------------
<S> <C> <C>
09/30/88 10,000 10,000
10/31/88 10,121 10,144
11/30/88 10,122 10,163
12/31/88 10,236 10,207
01/31/89 10,399 10,374
02/28/89 10,435 10,436
03/31/89 10,368 10,395
04/30/89 10,311 10,399
05/31/89 10,473 10,595
06/30/89 10,617 10,757
07/31/89 10,679 10,800
08/31/89 10,660 10,850
09/30/89 10,610 10,736
10/31/89 10,471 10,470
11/30/89 10,452 10,485
12/31/89 10,439 10,443
01/31/90 10,283 10,161
02/28/90 10,077 10,007
03/31/90 10,280 10,196
04/30/90 10,341 10,259
05/31/90 10,545 10,430
06/30/90 10,665 10,692
07/31/90 10,910 10,961
08/31/90 10,576 10,460
09/30/90 10,181 10,030
10/31/90 9,854 9,736
11/30/90 9,963 9,838
12/31/90 10,063 9,987
01/31/91 10,010 10,192
02/28/91 10,423 11,076
03/31/91 10,791 11,625
04/30/91 11,120 12,026
05/31/91 11,253 12,073
06/30/91 11,376 12,347
07/31/91 11,627 12,678
08/31/91 11,854 12,970
09/30/91 12,032 13,153
10/31/91 12,310 13,600
11/30/91 12,464 13,746
12/31/91 12,508 13,899
01/31/92 12,856 14,369
02/28/92 13,079 14,732
03/31/92 13,220 14,939
04/30/92 13,212 15,017
05/31/92 13,390 15,239
06/30/92 13,563 15,414
07/31/92 13,796 15,714
08/31/92 13,967 15,914
09/30/92 14,140 16,083
10/31/92 13,862 15,876
11/30/92 14,096 16,119
12/31/92 14,243 16,324
01/31/93 14,632 16,713
02/28/93 14,922 17,012
03/31/93 15,176 17,301
04/30/93 15,286 17,420
05/31/93 15,517 17,646
06/30/93 15,811 17,975
07/31/93 15,997 18,156
08/31/93 16,106 18,322
09/30/93 16,160 18,403
10/31/93 16,389 18,753
11/30/93 16,515 18,851
12/31/93 16,652 19,049
01/31/94 16,966 19,461
02/28/94 16,883 19,326
03/31/94 16,286 18,701
04/30/94 16,155 18,469
05/31/94 16,302 18,428
06/30/94 16,373 18,512
07/31/94 16,367 18,634
08/31/94 16,427 18,772
09/30/94 16,421 18,768
10/31/94 16,355 18,818
11/30/94 16,140 18,656
12/31/94 16,277 18,852
01/31/95 16,468 19,117
02/28/95 16,815 19,730
03/31/95 16,968 19,996
04/30/95 17,289 20,513
05/31/95 17,743 21,146
06/30/95 17,833 21,289
07/31/95 18,069 21,566
08/31/95 18,077 21,679
09/30/95 18,298 21,936
10/31/95 18,551 22,116
11/30/95 18,582 22,336
12/31/95 18,823 22,710
01/31/96 19,060 23,089
02/28/96 19,243 23,160
03/31/96 19,180 23,065
04/30/96 19,219 23,097
05/31/96 19,339 23,264
06/30/96 19,388 23,368
07/31/96 19,591 23,510
08/31/96 19,869 23,802
09/30/96 20,271 24,356
</TABLE>
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. 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 benchmarks for
the respective funds.
<TABLE>
<CAPTION>
--------------------------------
10 YEAR OR
AVERAGE ANNUAL SINCE
TOTAL RETURN 1 YEAR 5 YEAR INCEPTION
--------------------------------
<S> <C> <C> <C>
SAFECO High-Yield Bond Fund* 10.79% 11.00% 9.23%
Merrill Lynch High-Yield Index 11.03% 13.13% 11.77%
----- ----- -----
SAFECO GNMA Fund 4.48% 5.97% 7.14%
Merrill Lynch GNMA Index 5.79% 7.45% 9.12%
----- ----- -----
SAFECO Intermediate-Term U.S. Treasury Fund* 4.00% 6.56% 7.42%
Merrill Lynch Intermediate-Term Treasury Index 5.02% 6.76% 8.14%
----- ----- -----
</TABLE>
*The Fund's inception was September 7, 1988. Index graph and average annual
return comparison begin September 30, 1988.
<PAGE> 3
SAFECO GNMA FUND
ILLUSTRATION OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
Merrill
GNMA Index
---------------------
<S> <C> <C>
09/30/86 10,000 10,000
10/31/86 10,071 10,130
11/30/86 10,128 10,304
12/31/86 10,164 10,353
01/31/87 10,272 10,490
02/28/87 10,363 10,591
03/31/87 10,352 10,594
04/30/87 9,943 10,263
05/31/87 9,922 10,227
06/30/87 10,082 10,410
07/31/87 10,141 10,437
08/31/87 10,139 10,383
09/30/87 9,937 10,081
10/31/87 10,056 10,459
11/30/87 10,166 10,591
12/31/87 10,254 10,701
01/31/88 10,454 11,173
02/28/88 10,540 11,302
03/31/88 10,508 11,196
04/30/88 10,532 11,120
05/31/88 10,446 11,080
06/30/88 10,658 11,396
07/31/88 10,647 11,352
08/31/88 10,659 11,360
09/30/88 10,836 11,643
10/31/88 11,126 11,926
11/30/88 11,066 11,743
12/31/88 11,055 11,690
01/31/89 11,171 11,891
02/28/89 11,138 11,808
03/31/89 11,149 11,812
04/30/89 11,334 12,038
05/31/89 11,620 12,409
06/30/89 11,903 12,795
07/31/89 12,163 13,022
08/31/89 12,001 12,861
09/30/89 12,056 12,917
10/31/89 12,273 13,247
11/30/89 12,408 13,405
12/31/89 12,484 13,484
01/31/90 12,345 13,343
02/28/90 12,402 13,462
03/31/90 12,417 13,480
04/30/90 12,246 13,352
05/31/90 12,621 13,778
06/30/90 12,790 14,004
07/31/90 13,024 14,241
08/31/90 12,908 14,229
09/30/90 12,993 14,358
10/31/90 13,104 14,534
11/30/90 13,394 14,857
12/31/90 13,571 15,104
01/31/91 13,764 15,320
02/28/91 13,843 15,428
03/31/91 13,915 15,545
04/30/91 14,066 15,700
05/31/91 14,178 15,826
06/30/91 14,194 15,849
07/31/91 14,420 16,115
08/31/91 14,651 16,418
09/30/91 14,906 16,714
10/31/91 15,126 16,979
11/30/91 15,202 17,094
12/31/91 15,581 17,519
01/31/92 15,364 17,306
02/28/92 15,490 17,478
03/31/92 15,400 17,367
04/30/92 15,514 17,552
05/31/92 15,814 17,877
06/30/92 15,982 18,156
07/31/92 16,210 18,262
08/31/92 16,376 18,530
09/30/92 16,508 18,668
10/31/92 16,338 18,525
11/30/92 16,408 18,619
12/31/92 16,624 18,848
01/31/93 16,869 19,097
02/28/93 17,054 19,273
03/31/93 17,122 19,392
04/30/93 17,181 19,499
05/31/93 17,231 19,602
06/30/93 17,522 19,787
07/31/93 17,594 19,882
08/31/93 17,779 19,921
09/30/93 17,798 19,931
10/31/93 17,828 19,992
11/30/93 17,658 19,999
12/31/93 17,801 20,197
01/31/94 17,999 20,356
02/28/94 17,727 20,260
03/31/94 17,164 19,734
04/30/94 17,015 19,588
05/31/94 17,073 19,629
06/30/94 16,997 19,587
07/31/94 17,324 19,974
08/31/94 17,364 20,028
09/30/94 17,103 19,804
10/31/94 17,058 19,791
11/30/94 16,910 19,740
12/31/94 17,041 19,951
01/31/95 17,390 20,382
02/28/95 17,797 20,928
03/31/95 17,857 21,030
04/30/95 18,086 21,329
05/31/95 18,584 21,966
06/30/95 18,663 22,109
07/31/95 18,685 22,165
08/31/95 18,887 22,401
09/30/95 19,068 22,634
10/31/95 19,215 22,823
11/30/95 19,441 23,070
12/31/95 19,679 23,365
01/31/96 19,809 23,544
02/28/96 19,541 23,357
03/31/96 19,427 23,327
04/30/96 19,349 23,251
05/31/96 19,306 23,164
06/30/96 19,571 23,427
07/31/96 19,600 23,531
08/31/96 19,597 23,564
09/30/96 19,923 23,944
</TABLE>
SAFECO Intermediate-Term U.S. Treasury Fund*
ILLUSTRATION OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
Int Treas Merrill
------------------
<S> <C> <C>
09/30/88 10,000 10,000
10/31/88 10,135 10,136
11/30/88 10,055 10,048
12/31/88 10,067 10,057
01/31/89 10,127 10,156
02/28/89 10,076 10,114
03/31/89 10,093 10,164
04/30/89 10,271 10,351
05/31/89 10,452 10,569
06/30/89 10,689 10,839
07/31/89 10,877 11,060
08/31/89 10,776 10,906
09/30/89 10,820 10,961
10/31/89 11,002 11,186
11/30/89 11,082 11,295
12/31/89 11,105 11,324
01/31/90 11,039 11,259
02/28/90 11,095 11,288
03/31/90 11,088 11,310
04/30/90 11,060 11,270
05/31/90 11,270 11,509
06/30/90 11,384 11,658
07/31/90 11,537 11,826
08/31/90 11,496 11,774
09/30/90 11,540 11,882
10/31/90 11,632 12,047
11/30/90 11,753 12,227
12/31/90 11,900 12,400
01/31/91 11,953 12,526
02/28/91 12,047 12,591
03/31/91 12,132 12,660
04/30/91 12,267 12,791
05/31/91 12,331 12,864
06/30/91 12,346 12,877
07/31/91 12,500 13,016
08/31/91 12,711 13,259
09/30/91 12,902 13,485
10/31/91 13,041 13,637
11/30/91 13,175 13,797
12/31/91 13,509 14,134
01/31/92 13,355 13,991
02/28/92 13,371 14,044
03/31/92 13,323 13,987
04/30/92 13,425 14,115
05/31/92 13,617 14,316
06/30/92 13,830 14,524
07/31/92 14,175 14,793
08/31/92 14,286 14,964
09/30/92 14,551 15,171
10/31/92 14,284 14,985
11/30/92 14,196 14,918
12/31/92 14,396 15,115
01/31/93 14,767 15,397
02/28/93 15,093 15,628
03/31/93 15,154 15,686
04/30/93 15,263 15,810
05/31/93 15,212 15,763
06/30/93 15,581 15,990
07/31/93 15,605 16,022
08/31/93 15,990 16,267
09/30/93 16,080 16,337
10/31/93 16,116 16,366
11/30/93 15,858 16,287
12/31/93 15,956 16,351
01/31/94 16,164 16,514
02/28/94 15,736 16,279
03/31/94 15,405 16,051
04/30/94 15,296 15,942
05/31/94 15,302 15,959
06/30/94 15,273 15,970
07/31/94 15,476 16,168
08/31/94 15,515 16,219
09/30/94 15,346 16,088
10/31/94 15,352 16,092
11/30/94 15,321 16,012
12/31/94 15,380 16,072
01/31/95 15,556 16,339
02/28/95 15,789 16,652
03/31/95 15,870 16,743
04/30/95 16,065 16,935
05/31/95 16,679 17,419
06/30/95 16,790 17,533
07/31/95 16,660 17,545
08/31/95 16,858 17,689
09/30/95 17,045 17,808
10/31/95 17,304 18,008
11/30/95 17,656 18,232
12/31/95 17,956 18,418
01/31/96 18,014 18,576
02/28/96 17,575 18,368
03/31/96 17,391 18,280
04/30/96 17,355 18,222
05/31/96 17,351 18,212
06/30/96 17,477 18,390
07/31/96 17,532 18,447
08/31/96 17,530 18,467
09/30/96 17,726 18,701
</TABLE>
* The Fund's inception was September 7, 1988. Index graph comparison begins
September 30, 1988.
<PAGE> 4
LETTER FROM THE PRESIDENT
SEPTEMBER 30, 1996
[PHOTO OF DAVID F. HILL]
DEAR
SHAREHOLDER:
Ambiguous economic indicators seemed to fuel investor unease, resulting in
significant volatility in the financial markets over the last six months. Still,
the net effect on the major asset classes was unsurprising: The broad stock
market as measured by the S&P rose, bond values declined slightly, and money
rates were relatively unchanged.
Those who had bailed out of the stock market in fear of the "coming
decline" missed out. Those of you who followed the rule of staying in the stock
market, but only with money that you can tolerate moving up and down, were
rewarded.
The S&P was up and down, and down severely in July, but finished the six
months with a 7.71% gain.
While some market watchers heralded the July downturn as the end of the
long-running bull market, it was not the case. The Dow Jones Industrial Average
closed the third quarter flirting with the 6000 barrier. And the S&P's latest
12-month return of 20.31% is far ahead of 14.95%, its average annual return over
the last ten years. It is unrealistic to expect the stock market to continue to
outgain its historical averages year after year. For that reason we advise that
the money you need for nearer-term goals be invested in more stable investments.
Small Stocks proved more volatile than the larger market--gaining more in
1995 and giving back more in 1996. The Russell Small Company Index was up
15.79%, and NASDAQ gained 17.57% compared to the S&P's 20.31% gain for the year
ended September 30. Returning 8.94%, international stocks as measured by the
EAFE Index continued to substantially lag the U.S. market.
Bond index returns were generally below their 10-year average annual
return.
Interest rates continued to rise during the six-month period, but the
increase was less dramatic than that experienced in the first quarter of 1996.
Thirty-year U.S. Treasury yields went from 6.67% on March 31 to 6.92% on
September 30. Since June, rates have gyrated within a fairly
-2-
<PAGE> 5
narrow range, and the third quarter ended with interest rates basically
unchanged.
At this writing, bonds are earning their coupons and holding their values.
This is what we want from bonds--income and relative stability of principal.
Municipal bonds, long suppressed by cries for flat taxes, outperformed
Treasury bonds during the last six months as the flat-tax advocates were
eliminated from political contention.
While the economy so far in 1996 has been more robust than we expected,
its overall pace of growth has been modest, and recently has shown signs of
moderating further.
Despite rising nearly one full percentage point since January, interest
rates remain near 30-year lows--levels that are more likely to contribute to
growing, not to slowing the economy. Meanwhile, the inflation rate, which is
reasonably low by historical standards, is slowly increasing. And, the Fed has
declined to raise interest rates to brake the economy. We can only assume the
Fed is watching to see if today's higher interest rates will adequately slow
economic growth, effectively exorcising the specter of inflation.
TABLE OF CONTENTS
SAFECO HIGH-YIELD BOND FUND .................. 4
SAFECO GNMA FUND ............................. 12
SAFECO INTERMEDIATE TERM
U.S. TREASURY FUND ........................... 16
FINANCIAL STATEMENTS ......................... 18
NOTES TO FINANCIAL STATEMENTS ................ 21
Our view on the economy is that we will see a slowing of GDP growth in
1997 and that inflation will remain under control. The year 1997 could be quite
similar to 1996.
And, while we will manage your portfolios with due care and caution given
the current environment, our philosophy on investing has little to do with our
economic outlook. Fund investors should select their investments based on their
objectives, their time horizons and their comfort level.
/S/ David F. Hill
_______________________________
David F. Hill, President
-3-
<PAGE> 6
REPORT FROM THE FUND MANAGER
SAFECO HIGH-YIELD BOND FUND
September 30, 1996
According to Lipper Analytical Services, the average high-yield mutual
fund generated a total return of 12.92% during the twelve months ended September
30, 1996. With a total return of 10.79%, the SAFECO High-Yield Bond Fund
underperformed the average high-yield fund and the Merrill Lynch High-Yield
Index, which posted a total return of 11.03%.
The underperformance against the peer group and Index was primarily due to
holding a greater percentage of higher-quality junk bonds than the average fund.
According to Merrill Lynch, lower-quality junk bonds outperformed higher-quality
junk bonds by a wide margin during the past twelve months.
While the SAFECO High-Yield Fund's returns have been lower than our peers
(due to our bias toward higher-quality securities), our risk-adjusted ratings
have been higher.
[PHOTO OF KURT HAVNAER]
During the past year, the demand for high-yield bonds was strong as both
individual investors and institutions continued to pour money into the
high-yield market. Over the same time period, the return on high-yield bonds
exceeded the return on investment grade corporate bonds, treasuries and
mortgage-backed securities by a wide margin.
Over the past few months, I concentrated on purchasing securities issued
by companies in noncyclical (not highly sensitive to the economic cycle)
industries as my long-run outlook continues to call for a slowdown in economic
growth. Securities falling into this category include bonds issued by Chattem,
Inc., a manufacturer and marketer of branded health and beauty care products,
Printpack, Inc., one of the largest domestic manufacturers and converters of
flexible packaging products, and Shop Vac Corp., a manufacturer of popular
wet-dry vacuums.
The Fund continues to maintain a well-diversified portfolio of high-yield
bonds. On September 30, it held 78 bonds issued by companies in 43 different
industries.
-4-
<PAGE> 7
Because the Fund is well-diversified, a default on an individual security or a
decline in one industry should not significantly impair the Fund's performance.
Recently released economic data suggest that economic growth may be
slowing from the strong pace of the first half of 1996. Although inflation at
the consumer level is well behaved, wage pressure seems to be building in the
labor markets. If wages begin to increase and businesses are unable to pass on
those increased costs in the form of higher prices, corporate profit margins and
earnings may decline.
If the economy slows and corporate earnings decline, credit quality in the
high-yield market would probably deteriorate. Under these circumstances,
higher-quality, noncyclical junk bonds should outperform lower-quality junk
bonds. Given this outlook, I will maintain an overall bias toward higher-quality
securities.
Despite their higher credit risk, junk bonds can be an attractive addition
to a well-diversified investment portfolio. While junk
(Continued on next page.)
HIGHLIGHTS
AS OF SEPTEMBER 30, 1996
SAFECO
HIGH-YIELD BOND FUND
S&P CREDIT RATING DISTRIBUTION
AS OF SEPTEMBER 30, 1996
CCC ......................................... 1%
NOT RATED ................................... 1%
CASH AND OTHER ASSETS, LESS LIABILITIES ..... 11%
B ........................................... 59%
BB .......................................... 28%
SAFECO
HIGH-YIELD BOND FUND
TOP FIVE INDUSTRIES
AS A PERCENT OF NET ASSETS
AS OF SEPTEMBER 30, 1996
CABLE ........................................ 8%
ENTERTAINMENT ................................ 5%
HOSPITAL
MANAGEMENT .................................... 5%
HOTELS/MOTELS ................................ 5%
CONTAINERS/
PACKAGING .................................... 4%
CURRENT YIELD (30-DAY) ............... 8.83%
-------------------------------------------------
WEIGHTED AVERAGE MATURITY ............ 6.9 YEARS
-5-
<PAGE> 8
REPORT FROM THE
HIGH-YIELD BOND FUND MANAGER (Continued)
bonds are considered below investment-grade securities, the long-run performance
of the high-yield market is highly respectable. Well-diversified portfolios of
junk bonds can provide many investors with the following benefits:
HIGH CURRENT INCOME: The high yields on junk bonds can provide investors
with a high level of current income.
HISTORICALLY HIGH TOTAL RETURNS: While the credit risks of high-yield
bonds exceed those of other types of bonds, so have the returns. Returns on
high-yield bonds have exceeded the returns on U.S. Government securities
(Government bonds which include treasuries and mortgage-backs guarantee
principal and income if held to maturity; junk bonds do not) and
investment-grade corporate securities during the five, ten and fifteen years
ended September 30, 1996, according to Morningstar.
RELATIVELY LOW VOLATILITY: Measured by standard deviation (a measure of
volatility), junk bond returns for the five years ended September 30, 1996, were
less volatile than the returns on both stocks and treasury bonds. For that
period, according to Morningstar, high-yield bonds had an annualized standard
deviation of 4.64, treasuries had one of 5.26, and the S&P standard deviation
was 10.85.
DIVERSIFICATION: The returns on high-yield bonds are not highly correlated
with the returns on other asset classes. Because of this, investors may be able
to reduce overall volatility by adding junk bonds to their portfolios.
Going forward, I will use fundamental research to identify bonds that
represent good relative value, to bring the best "junk" bonds have to offer to
your portfolio.
/s/ Kurt Havnaer
_____________________________
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.
-6-
<PAGE> 9
HIGHLIGHTS
SAFECO HIGH-YIELD BOND FUND (Continued)
As of September 30, 1996
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS Percent of Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Boyd Gaming Corp ................................................... 4.4%
(Entertainment)
Jones Intercable, Inc .............................................. 2.3%
(Cable)
Specialty Equipment Co ............................................. 2.2%
(Machinery)
Owens-Illinois, Inc ................................................ 2.2%
(Containers/Packaging)
Quorum Health Group, Inc ........................................... 2.1%
(Hospital Management)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(April through September) Cost
- --------------------------------------------------------------------------------
<S> <C>
Stone Container Corp. .................................. $3,405,246
Chiquita Brands International, Inc. .................... 3,015,166
Boyd Gaming Corp. ...................................... 2,100,00
Quorum Health Group, Inc. .............................. 1,317,925
Century Communications Corp. ........................... 1,072,500
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
(April through September) Proceeds
- --------------------------------------------------------------------------------
<S> <C>
Chiquita Brands International, Inc. .................... $3,540,950
Stone Container Corp. .................................. 3,398,173
Quorum Health Group, Inc. .............................. 1,317,688
Mark IV Industries, Inc. ............................... 953,485
AMF Group, Inc. ........................................ 750,000
</TABLE>
-7-
<PAGE> 10
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of September 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
CORPORATE BONDS - 89.7%
Advertising - 2.0%
$1,000 Heritage Media Corp.
8.75%, due 2/15/06 ................................ $ 948
Agriculture/Fertilizer Products - 1.1%
500 Arcadian Partners, L.P.
10.75%, due 5/01/05 ............................... 550
Autos & Auto Parts - 1.1%
500 Exide Corp.
10.75%, due 12/15/02 .............................. 521
Beverage - 1.6%
750 Coca-Cola Bottling Group
(Southwest), Inc.
9.00%, due 11/15/03 ............................... 758
Broadcast Media - 2.1%
500 Sinclair Broadcast Group, Inc.
10.00%, due 9/30/05 ............................... 503
500 Young Broadcasting Corp.
9.00%, due 1/15/06 ................................ 470
Cable - 7.5%
500 Cablevision Systems Corp.
9.875%, due 5/15/06 ............................... 500
Century Communications Corp.
500 11.875%, due 10/15/03 ............................. 536
500 9.50%, due 3/01/05 ................................ 499
Jones Intercable, Inc.
1,000 11.50%, due 7/15/04 ............................... 1,094
500 9.625%, due 3/15/02 ............................... 520
500 Lenfest Communications, Inc.
8.375%, due 11/01/05 .............................. 470
Chemicals - 1.0%
$ 500 Atlantis Group, Inc.
11.00%, due 2/15/03 ............................... 495
Commercial Services - 1.0%
500 Primark Corp.
8.75%, due 10/15/00 ............................... 500
Computer Software - 1.5%
1,000 Bell & Howell Holdings Co.
0.00%/11.50%, due 3/01/05 ......................... 700
Conglomerates - 1.1%
500 Figgie International, Inc.
9.875%, due 10/01/99 .............................. 514
Containers/Packaging - 4.3%
500 Applied Extrusion
Technologies, Inc.
11.50%, due 4/01/02 ............................... 514
Owens-Illinois, Inc.
1,000 9.75%, due 8/15/04 . ............................. 1,028
500 10.25%, due 4/01/99 ............................... 508
Cosmetics - 1.1%
500 Coty, Inc.
10.25%, due 5/01/05 ............................... 530
Drugs - 1.6%
750 Chattem, Inc.
12.75%, due 6/15/04 ............................... 782
Electronics - 1.1%
500 Plantronics, Inc.
10.00%, due 1/15/01 ............................... 513
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-8-
<PAGE> 11
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO HIGH-YIELD BOND FUND
AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
Entertainment - 5.4%
$ 500 Alliance Entertainment Corp.
11.25%, due 7/15/05 . ............................. $ 470
2,000 Boyd Gaming Corp.
10.75%, due 9/01/03 . ............................. 2,103
Financial - 1.1%
500 Scotsman Group, Inc.
9.50%, due 12/15/00 ............................... 508
Food - 2.6%
500 Chiquita Brands International, Inc.
10.25%, due 11/01/06 .............................. 520
250 Foodbrands America, Inc.
10.75%, due 5/15/06 ............................... 256
500 Specialty Foods Corp.
11.125%, due 10/01/02 ............................. 465
Gaming - 2.1%
500 Aztar Corp.
11.00%, due 10/15/02 .............................. 506
500 Station Casinos, Inc.
9.625%, due 6/01/03 ............................... 485
Hardware & Tools - 0.5%
250 Shop Vac Corp.
10.625%, due 9/10/03 .............................. 258
Health Care - 1.1%
500 GranCare, Inc.
Senior Subordinated Notes
9.375%, due 9/15/05 ............................... 523
Home Building - 1.5%
500 Beazer Homes USA, Inc.
9.00%, due 3/01/04 ................................ 475
250 Toll Brothers, Inc.
10.50%, due 3/15/02 ............................... 261
Hospital Management - 4.8%
$ 500 ORNDA Healthcorp
12.25%, due 5/15/02 . ............................. 539
250 Paracelsus Healthcare Corp.
10.00%, due 8/15/06 ............................... 257
1,000 Quorum Health Group, Inc.
8.75%, due 11/01/05 ............................... 1,005
500 Universal Health Services, Inc.
8.75%, due 8/15/05 ................................ 503
Hotels/Motels - 4.6%
500 HMH Properties, Inc.
9.50%, due 5/15/05 ................................ 501
500 John Q. Hammons Hotels
8.875%, due 2/15/04 ............................... 479
500 Prime Hospitality Corp.
9.25%, due 1/15/06 ................................ 499
750 Wyndham Hotel Corp.
10.50%, due 5/15/06 .............................. 780
Household Products - 1.0%
500 Ekco Group, Inc.
9.25%, due 4/01/06 ................................ 479
Industrial Product & Supplier - 3.7%
1,000 American Telecasting
0.00%/14.50%, due 6/15/04 ......................... 748
500 Curtice Burns Foods
12.25%, due 2/01/05 ............................... 490
500 Printpack, Inc.
10.625%, due 8/15/06 .............................. 513
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-9-
<PAGE> 12
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO HIGH-YIELD BOND FUND
AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
Leisure Time - 4.0%
$1,500 AMF Group, Inc.
0.00%/12.25%, due 3/15/06 ......................... $ 900
500 Cinemark USA, Inc.
9.625%, due 8/01/08 ............................... 495
500 E & S Holdings Corp.
10.375%, due 10/01/06 ............................. 508
Machinery - 2.8%
500 International Semi-Tech
Microelectronics, Inc.
0.00%/11.50%, due 8/15/03 ......................... 304
1,000 Specialty Equipment
Companies, Inc.
11.375%, due 12/01/03 ............................. 1,065
Manufacturing - 1.0%
500 Plastic Specialties and
Technologies, Inc.
11.25%, due 12/01/03 .............................. 500
Metals - 1.1%
500 Commonwealth Aluminum Corp.
10.75%, due 10/01/06 .............................. 513
Miscellaneous - 2.9%
$1,365 Foamex, L.P.
9.50%, due 6/01/00 ................................ 369
1,000 International Shipholding Corp.
9.00%, due 7/01/03 ................................ 982
Office Equipment & Supplies - 0.5%
223 ANACOMP, Inc.
11.625%, due 9/30/99 ............................. 227
Oil & Gas - 3.3%
$500 Crown Central Petroleum Corp.
10.875%, due 2/01/05 .............................. 507
500 Giant Industries, Inc.
9.75%, due 11/15/03 ............................... 504
500 Nuevo Energy Co.
12.50%, due 6/15/02 ............................... 537
Paper & Forest Products - 1.1%
500 Stone Container Corp.
11.875%, due 12/01/98 ............................. 535
Real Estate - 1.0%
500 Ryland Group
10.50%, due 7/15/02 ............................... 502
Restaurants - 2.5%
750 Apple South, Inc.
9.75%, due 6/01/06 ............................... 739
500 Flagstar Cos., Inc.
10.75%, due 9/15/01 ............................... 444
Retail - Department Stores - 0.8%
500 K-Mart Corp.
7.95%, due 2/01/23 ................................ 376
Retail - Grocers - 2.7%
398 Grand Union Co.
12.00%, due 9/01/04 .............................. 401
500 Smith's Food & Drug Centers, Inc.
11.25%, due 5/15/07 ............................... 532
500 Southland Corp.
4.50%, due 6/15/04 ................................ 376
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-10-
<PAGE> 13
PORTFOLIO OF INVESTMENTS (Cotinued)
SAFECO HIGH-YIELD BOND FUND
AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
Retail - Other - 1.2%
Petroleum Heat & Power Co.
$325 12.25%, due 2/01/05 ............................... 358
250 9.375%, due 2/01/06 ............................... 238
Savings & Loan - 1.1%
500 First Nationwide Escrow
10.625%, due 10/01/03 ............................. 522
Steel - 1.4%
500 Armco, Inc.
9.375%, due 11/01/00 .............................. 500
177 Weirton Steel Corp.
10.875%, due 10/15/99 . .......................... 184
Telecommunications - 1.1%
500 CAI Wireless Systems, Inc.
12.25%, due 9/15/02 ............................... 517
Textiles - 1.0%
500 Dominion Textile (USA), Inc.
9.25%, due 4/01/06 ................................ 497
Utilities - 3.7%
500 El Paso Electric Co.
9.40%, due 5/01/11 ................................ 515
367 Beaver Valley Funding Corp.
8.625%, due 6/01/07 ............................... 342
500 First PV Funding
10.15%, due 1/15/16 ............................... 527
360 Midland Cogeneration
Venture, L. P
10.33%, due 7/23/02 ............................... 378
-------
TOTAL CORPORATE BONDS ......................................... $42,970
-------
TEMPORARY INVESTMENTS - 9.5%
Investment Companies:
$2,419 Short-Term Investments Co.
(Prime Portfolio) .. .............................. $ 2,419
2,090 Short-Term Investments Co.
(U.S. Treasury Portfolio) ......................... 2,090
-------
TOTAL TEMPORARY INVESTMENTS ................................... 4,509
-------
TOTAL INVESTMENTS - 99.2% ..................................... 47,479
Other Assets, less Liabilities ................................ 401
-------
NET ASSETS .................................................... $47,880
=======
</TABLE>
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
-11-
<PAGE> 14
REPORT FROM THE FUND MANAGER
SAFECO GNMA FUND
September 30, 1996
For the 12 months ended September 30, 1996, the SAFECO GNMA Fund returned
4.48%, slightly more than 4.45%, the average return for GNMA funds calculated by
Lipper Analytical Services. The Merrill Lynch GNMA Index, which does not include
cash or expenses, returned 5.79%.
An emphasis on 30-year pass-through mortgages and conducting few
transactions benefited the Fund over the last six months. The period itself was
dominated by other investors adjusting their portfolios to whatever direction
they presumed the Federal Reserve would take interest rates.
Interest rates climbed (and bond prices fell) for much of the period in
anticipation of a rate hike. However, by September 30, a general consensus that
the Fed would leave rates unchanged took hold. Rates fell back accordingly.
Over the last six months the mortgage sector outperformed all domestic
taxable fixed-income sectors except junk bonds. (Unlike junk bonds, which entail
higher default risks, mortgage-backed securities are a source for higher yields
with little credit risk.)
[PHOTO OF PAUL STEVENSON]
Strong demand, low supply and an interest-rate environment favoring
higher-yielding securities, helped mortgage-backs outperform. Demand was strong
as the government agencies continued substantial buying programs and
institutional fixed-income buyers searched under every stone for extra yield.
Meanwhile, there was a dearth of new issuance due to the rise in interest rates.
(As interest rates rise, the number of people refinancing their existing
higher-rate mortgages falls off, reducing the volume of new issuance.)
As the highest yielding bond sectors outperformed, so did the highest
yielding securities within the sectors. Among mortgage-backs, 30-year
pass-throughs marginally outperformed the 15-year sector. The extra yield that
the longer securities provided overcame the slight price deterioration caused by
the rise in rates.
-12-
<PAGE> 15
When rates stay within a fairly tight-to-slightly-rising range, as they
have, "seasoned" loans perform quite well. "Seasoned" GNMAs are backed by home
mortgages with higher interest rates (8.5% and above) that have survived a few
refinancing booms. They provide a lot of current income, yet are less sensitive
to falling interest rates. Approximately 27% of the Fund is allocated to these
types of bonds.
Trading activity was light over the last six months as I felt comfortable
with the existing holdings and structure of the portfolio. The few trades
transacted could be classified as defensive. I reduced our allocation to
lower-coupon, discount pass-throughs in favor of higher-coupon, slightly
seasoned pass-throughs. I also purchased $4.5 million (approximately 11% of net
assets) of a very stable four-year collateralized mortgage obligation backed by
30-year GNMA 7.5% pass-throughs. This bond should provide price stability
similar to an intermediate U.S. Treasury note, but yields more than 0.5% more
than the equivalent treasury.
The portfolio's current structure uses 30-year GNMA pass-throughs for
income, and to a lesser extent U.S. Treasury securities and CMOs for enhanced
price performance. At September 30, the SAFECO GNMA Fund was fully invested with
approximately 84% of net assets allocated to mortgage pass-throughs (75% GNMA,
9% FNMA), 11% to intermediate CMOs, and 5% to intermediate U.S. Treasuries. This
allocation was based on my interest-rate outlook and its refinancing
implications, my ability to identify rich or cheap sectors (i.e., CMOs are
currently cheap alternatives) and my analysis of which asset classes would
provide the best overall return profile given the current market conditions.
The average life for the Fund was 8.2 years, the same as that of the
Lehman GNMA Index. The Fund's effective duration was 4.3 years compared to the
Index's 4.1 year duration. Our average
(Continued on next page.)
-13-
<PAGE> 16
REPORT FROM THE
GNMA FUND MANAGER (Continued)
coupon was 7.7%, versus 7.8% for the Index.
Given my economic outlook for slowing economic growth over the next few
quarters, continued benign inflationary pressure, and moderate volatility in the
markets, I believe interest rates will stay within a fairly narrow band over the
balance of this election year. Since the demand picture is expected to remain
quite strong (barring a major rally), the outlook for mortgage-backed
securities, and for your Fund, is quite good.
/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, an MBA from the University of Washington, and is a
Chartered Financial Analyst.
HIGHLIGHTS
As of September 30, 1996
SAFECO GNMA FUND
Current 30-Day Yield
For the Six Months Ended September 30, 1996
- --------------------------------------------------------------------------------
GNMA FUND
DATE SEC YIELD
04/30/96 6.51
05/31/96 6.47
06/28/96 6.48
07/31/96 6.93
08/30/96 6.93
09/30/96 6.75
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 Six Months Ended September 30, 1996
- --------------------------------------------------------------------------------
SAFECO INTERMEDIATE-TERM V.S. TREASURY FUND
DATE SEC YIELD
04/30/96 4.86
05/31/96 4.96
06/28/96 4.92
07/31/96 5.30
08/30/96 5.26
09/30/96 5.66
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.
-14-
<PAGE> 17
PORTFOLIO OF INVESTMENTS
SAFECO GNMA FUND
As of September 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(000'S) VALUE(000'S)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND
AGENCY SECURITIES - 99.6%
<S> <C>
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (FNMA) - 20.8%
$ 4,500 CMO (PAC 1)
7.00%, due 6/17/26 ............................ $ 4,510
3,935 6.50%, due 10/01/23 ........................... 3,718
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (GNMA) - 74.0%
2,391 9.50%, due 4/15/16 - 3/15/20 .................. 2,574
870 9.00%, due 8/15/11 - 9/15/11 .................. 918
7,698 8.50%, due 8/20/21 - 8/20/22 .................. 7,909
4,362 8.00%, due 6/15/21 - 12/15/22 ................. 4,426
13,660 7.50%, due 1/15/22 - 4/20/23 .................. 13,543
U.S. TREASURY NOTES - 4.8%
750 5.75%, due 10/31/00 ........................... 732
1,250 5.75%, due 8/15/03 ............................ 1,192
--------
TOTAL U.S. GOVERNMENT
AND AGENCY SECURITIES ..................................... 39,522
--------
TEMPORARY INVESTMENTS - 1.6%
INVESTMENT COMPANIES:
646 Short-Term Investments Co.
(Prime Portfolio) ............................. 646
--------
TOTAL TEMPORARY INVESTMENTS ............................... 646
--------
TOTAL INVESTMENTS - 101.2% ................................ 40,168
Liabilities, less Other Assets ............................ (465)
--------
NET ASSETS ................................................ $39,703
========
- --------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-15-
<PAGE> 18
REPORT FROM THE FUND MANAGER
SAFECO INTERMEDIATE-TERM
U.S. TREASURY FUND
September 30, 1996
The total return of the SAFECO Intermediate-Term U.S. Treasury Fund is
ahead of the peer group for the six and twelve months just ended. Your Fund's
return for the six months ending September 30 was 1.93% and the twelve-month
return was 4.00%. The average intermediate-term treasury fund, as measured by
Lipper Analytical Services, had six- and twelve-month returns of 1.74% and
3.59%, respectively. The Merrill Lynch Intermediate-Term Treasury Index (which
doesn't incur investment expenses or transaction costs) returned 2.31% for six
months and 5.02% for twelve months.
Interest rates continued to rise during the six-month period ending
September 30, 1996, but the increase was less dramatic than that experienced in
February and March of this year. In fact, rates have gyrated within a fairly
narrow range since June, suggesting the worst may be over for bond investors in
1996.
Because rates did rise, the Intermediate-Term Treasury Fund's six-month
performance benefited from our decision to reduce the average maturity of the
Fund. By doing so, we managed to insulate the Fund from the caustic effect that
rising rates have on bond prices.
[PHOTO] MICHAEL C. KNEBEL
Throughout the period, we maintained the Fund's average maturity at a
shorter-than-average three years. Other funds, which tended to have longer
average maturities (and hence, a greater price sensitivity to changes in
interest rates) had slightly lower returns than ours. The market index had
higher returns than the Fund and its peers for the twelve and six months because
it fails to take into account any investment expenses.
In addition to shortening maturities, a number of other trades were made
during the period to enhance the yield of the Fund.
The bond market seems to be nearing a crossroads:
- - While the economy so far in 1996 has been more robust than we expected,
its overall pace has been modest, and recently has shown signs of
moderating further.
- - The inflation rate remains reasonably low by historical standards, but is
slowly increasing. Job growth has been healthy this year, with an
-16-
<PAGE> 19
average of over 200,000 new jobs being created each month.
- - Although interest rates have risen nearly one full percentage point since
January, they remain near 30-year lows--levels that are more apt to
contribute to growing, not slowing the economy.
The question bond investors now face is this: Will the economy slow enough
in the coming months to avert a rate hike by the Federal Reserve Board?
While we still expect the economy to slow and inflation to remain under
control in the coming months, we also remain cautious in the face of so many
ambiguous market signals. We'll maintain the defensive, short-maturity posture
of the Fund until we receive the kind of economic signals which will enable
rates to resume their downward trend.
/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 at 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, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
U.S. TREASURY NOTES - 96.4%
U.S. Treasury Notes - 84.1%
$ 350 8.50%, due 4/15/97 ............................... $ 355
1,925 7.75%, due 2/15/01 ............................... 2,019
1,300 7.50%, due 11/15/01 .............................. 1,357
825 7.50%, due 2/15/05 ............................... 867
5,235 7.25%, due 11/15/96 .............................. 5,248
1,850 6.25%, due 2/15/03 ............................... 1,821
670 6.00%, due 10/15/99 .............................. 665
U.S. TREASURY PRINCIPAL STRIPS - 12.3%
2,160 0.00%, due 8/15/99 ............................... 1,807
-------
TOTAL U.S. GOVERNMENT SECURITIES ............................. 14,139
-------
TEMPORARY INVESTMENTS - 0.9% INVESTMENT COMPANIES:
137 Short-Term Investments Co. .......................
(Prime Portfolio) ................................ 137
-------
TOTAL TEMPORARY INVESTMENTS .................................. 137
-------
TOTAL INVESTMENTS - 97.3% .................................... 14,276
Other Assets, less Liabilities ............................... 392
-------
NET ASSETS ................................................... $14,668
=======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-17-
<PAGE> 20
STATEMENTS OF ASSETS AND LIABILITIES
As of September 30, 1996
<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 $38,986 and
$14,279, respectively) -- $39,522 $14,139
Corporate Bonds
(Identified Cost $42,334) $42,970 -- --
Temporary Investments 4,509 646 137
------- ------- -------
Total Investments 47,479 40,168 14,276
Receivables
Investment Securities Sold -- 3,225 --
Interest 1,034 270 255
Trust Shares Sold 175 62 202
------- ------- -------
Total Assets 48,688 43,725 14,733
LIABILITIES
Payables
Investment Securities Purchased 507 3,853 --
Trust Shares Redeemed 124 53 2
Dividends 130 69 39
Investment Advisory Fees 24 22 7
Other 23 25 17
------- ------- -------
Total Liabilities 808 4,022 65
------- ------- -------
NET ASSETS $47,880 $39,703 $14,668
======= ======= =======
- ----------------------------------------------------------------------------------------------------
NO LOAD CLASS:
Net Assets $47,880 $39,703 $14,468
Trust Shares Outstanding 5,448 4,289 1,433
------- ------- -------
Net Asset Value, Offering Price and
Redemption Price Per Share $ 8.79 $ 9.26 $ 10.10
======= ======= =======
CLASS A:
Net Assets $ 100
Trust Shares Outstanding 10
-------
Net Asset Value, Offering Price and
Redemption Price Per Share $ 10.10
=======
Maximum Offering Price Per Share
(Net Assets Value Plus Sales Charge of 4.5%) $ 10.58
=======
CLASS B:
Net Assets $ 100
Trust Shares Outstanding 10
-------
Net Asset Value, Offering Price and
Redemption Price Per Share $ 10.10
=======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-18-
<PAGE> 21
STATEMENTS OF OPERATIONS
For the Year Ended September 30, 1996
<TABLE>
<CAPTION>
SAFECO SAFECO
HIGH-YIELD SAFECO INTERMEDIATE-TERM
(In Thousands) BOND FUND GNMA FUND U.S. TREASURY FUND
- ----------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C> <C>
Interest $ 4,084 $ 3,144 $ 902
EXPENSES
Investment Advisory Fees 255 270 78
Shareholder Servicing Costs 90 111 39
Legal and Auditing Fees 14 14 13
Custodian Fees 13 18 5
Reports to Shareholders 10 14 4
Trustee Fees 5 5 5
Loan Interest Expense 1 1 --
------- ------- -------
Total Expenses 388 433 144
------- ------- -------
NET INVESTMENT INCOME 3,696 2,711 758
------- ------- -------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on Investments 504 (416) 290
Net Change in Unrealized
Appreciation (Depreciation) 46 (453) (496)
------- ------- -------
NET GAIN (LOSS) ON INVESTMENTS 550 (869) (206)
------- ------- -------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 4,246 $ 1,842 $ 552
======= ======= =======
- ----------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-19-
<PAGE> 22
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) 1996 1995 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income $ 3,696 $ 2,996 $ 2,711 $ 2,847 $ 758 $ 720
Net Realized Gain (Loss) on
Investments 504 (579) (416) (1,292) 290 7
Net Change in Unrealized
Appreciation (Depreciation) 46 1,459 (453) 3,055 (496) 638
-------- -------- -------- -------- -------- --------
Net Change in Net Assets
Resulting from Operations 4,246 3,876 1,842 4,610 552 1,365
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income (3,696) (2,996) (2,711) (2,847) (758) (720)
TRUST SHARE TRANSACTIONS 8,152 11,086 (3,483) (3,884) 1,100 (238)
-------- -------- -------- -------- -------- --------
TOTAL CHANGE IN NET ASSETS 8,702 11,966 (4,352) (2,121) 894 407
NET ASSETS AT BEGINNING OF PERIOD 39,178 27,212 44,055 46,176 13,774 13,367
-------- -------- -------- -------- -------- --------
NET ASSETS AT End of Period $ 47,880 $ 39,178 $ 39,703 $ 44,055 $ 14,668 $ 13,774
======== ======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
TRUST SHARE TRANSACTIONS
INCREASE (DECREASE) IN TRUST SHARES
Sales 6,549 7,306 694 927 1,516 431
Reinvestments 251 190 198 215 35 37
Redemptions (5,863) (6,168) (1,267) (1,582) (1,444) (495)
-------- -------- -------- -------- -------- --------
NET CHANGE 937 1,328 (375) (440) 107 (27)
======== ======== ======== ======== ======== ========
INCREASE (DECREASE) IN AMOUNTS
Sales $ 56,960 $ 62,149 $ 6,526 $ 8,523 $ 18,860 $ 4,265
Reinvestments 2,181 1,463 1,858 1,976 358 374
Redemptions (50,989) (52,526) (11,867) (14,383) (18,118) (4,877)
-------- -------- -------- -------- -------- --------
NET CHANGE $ 8,152 $ 11,086 $ (3,483) $ (3,884) $ 1,100 $ (238)
======== ======== ======== ======== ======== ========
AS OF SEPTEMBER 30, 1996:
Trust Shares Authorized Unlimited Unlimited Unlimited
Par Value Per Share $ .001 $ .001 $ .001
Paid in Capital $ 48,111 $ 42,338 $ 14,879
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO FINANCIAL STATEMENTS
-20-
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
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.
NEW CLASS OF SHARES. Effective September 30, 1996, the Intermediate-Term
U.S. Treasury Fund began issuing two new classes of shares--Class A and Class B
shares. Unlike the no-load class of shares (which are sold directly to the
shareholder with no associated sales or distribution charges), these new classes
of shares are sold by financial professionals to shareholders and have
associated sales and distribution charges. Each class of shares represents an
interest in the net assets of the Fund. Financial highlights (See Note 6) are
provided only for the no-load class of shares since the new classes of shares
were first issued on the last day of the fiscal year.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by each Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
permits management to make certain estimates and assumptions at the date of the
financial statements.
SECURITY VALUATION. 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
(Continued on next page.)
-21-
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (Continued)
between securities in determining value. Short-term investments purchased at par
are valued at cost. All other 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 and are
subject to market fluctuation during this period. These securities begin earning
interest on the settlement date. As commitments to purchase when-issued
securities become fixed, the Fund establishes a segregated asset account equal
to the total obligation.
INCOME RECOGNITION. Interest is accrued on portfolio investments daily.
The Funds have not elected to amortize premium on securities purchased above par
value.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net investment income is
declared as a dividend to shareholders of record as of the close of each
business day and payment is made as of the last business day of each month. Net
gains realized from security transactions, if any, are normally distributed to
shareholders at the end of 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.
-22-
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (Continued)
3. ACCUMULATED UNDISTRIBUTED REALIZED LOSS
The Funds had the following amounts of accumulated undistributed net
realized loss on investment transactions at September 30, 1996 (after
reclassifying $885,000 of expired capital loss carryforwards to paid-in capital
in the GNMA Fund). For federal income tax purposes, these represent capital loss
carryforwards which expire as follows:
<TABLE>
<CAPTION>
(In Thousands) AMOUNTS EXPIRATION DATES
- --------------------------------------------------------------------------------
<S> <C> <C>
SAFECO High-Yield Bond Fund $ (867) 1997-2002
SAFECO GNMA Fund (3,171) 1996-2003
SAFECO Intermediate-Term U.S. Treasury Fund (71) 2001
- --------------------------------------------------------------------------------
</TABLE>
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, 1996
(including $0, $19,790, and $31,294,
respectively, of U.S. Government obligations) $ 42,265 $ 19,790 $ 31,294
======== ======== ========
SALES FOR THE YEAR ENDED SEPTEMBER 30, 1996
(including $0, $23,108, and $30,701,
respectively, of U.S. Government obligations) $ 35,422 $ 23,108 $ 30,701
======== ======== ========
UNREALIZED APPRECIATION (DEPRECIATION)
AT SEPTEMBER 30, 1996
Aggregate gross unrealized appreciation
for investment securities in which there
is an excess of value over identified cost $ 1,067 $ 844 $ 35
Aggregate gross unrealized depreciation
for investment securities in which there
is an excess of identified cost over value (431) (308) (175)
-------- -------- --------
NET UNREALIZED APPRECIATION (DEPRECIATION) $ 636 $ 536 $ (140)
======== ======== ========
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-23-
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (Continued)
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, 1996, SAFECO Corporation owned 500,000 shares (or 9%) of
the SAFECO High-Yield Bond Fund and SAFECO Insurance Company of America owned
500,000 shares (or 35%) 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 commercial bank interest
rates.
-24-
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (Continued)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO HIGH-YIELD BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
--------------------------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 8.68 $ 8.55 $ 9.22 $ 8.92 $ 8.35
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.78 0.79 0.82 0.91 0.83
Net Realized and Unrealized
Gain (Loss) on Investments 0.11 0.13 (0.67) 0.30 0.57
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.89 0.92 0.15 1.21 1.40
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.78) (0.79) (0.82) (0.91) (0.83
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE AT END OF PERIOD $ 8.79 $ 8.68 $ 8.55 $ 9.22 $ 8.92
========== ========== ========== ========== ==========
TOTAL RETURN 10.79% 11.43% 1.61% 14.29% 17.52%
NET ASSETS AT END OF PERIOD (000'S) $ 47,880 $ 39,178 $ 27,212 $ 28,291 $ 19,672
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.94% 1.01% 1.03% 1.09% 1.05%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 8.99% 9.28% 9.26% 9.94% 9.66%
PORTFOLIO TURNOVER RATE 92.65% 38.03% 63.02% 50.27% 40.66%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
-25-
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (Continued)
6. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO GNMA FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
THE YEAR ENDED SEPTEMBER 30
--------------------------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.45 $ 9.05 $ 10.03 $ 9.95 $ 9.68
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.60 0.60 0.60 0.67 0.73
Net Realized and Unrealized
Gain (Loss) on Investments (0.19) 0.40 (0.98) 0.08 0.27
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.41 1.00 (0.38) 0.75 1.00
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.60) (0.60) (0.60) (0.67) (0.73)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE AT END OF PERIOD $ 9.26 $ 9.45 $ 9.05 $ 10.03 $ 9.95
========== ========== ========== ========== ==========
TOTAL RETURN 4.48% 11.49% -3.91% 7.81% 10.75%
NET ASSETS AT END OF PERIOD (000'S) $ 39,703 $ 44,055 $ 46,176 $ 62,720 $ 56,474
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 1.03% 1.01% 0.95% 0.93% 0.94%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 6.42% 6.55% 6.26% 6.71% 7.49%
PORTFOLIO TURNOVER RATE 47.75% 131.24% 55.12% 70.96% 24.66%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
-26-
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (Continued)
6. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.24 $ 9.74 $ 10.74 $ 10.69 $ 10.20
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.54 0.55 0.52 0.60 0.72
Net Realized and Unrealized
Gain (Loss) on Investments (0.14) 0.50 (1.00) 0.49 0.54
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.40 1.05 (0.48) 1.09 1.26
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.54) (0.55) (0.52) (0.60) (0.72)
Distributions from
Capital Gains -- -- -- (0.44) (0.05)
---------- ---------- ---------- ---------- ----------
Total Distributions (0.54) (0.55) (0.52) (1.04) (0.77)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE AT END OF PERIOD $ 10.10 $ 10.24 $ 9.74 $ 10.74 $ 10.69
========== ========== ========== ========== ==========
TOTAL RETURN 4.00% 11.07% -4.56% 10.51% 12.78%
NET ASSETS AT END OF PERIOD (000'S) $ 14,668 $ 13,774 $ 13,367 $ 14,706 $ 12,205
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 1.01% 0.96% 0.90% 0.99% 0.98%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.30% 5.51% 5.08% 5.52% 6.89%
PORTFOLIO TURNOVER RATE 294.25% 124.90% 75.46% 104.94% 37.19%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
-27-
<PAGE> 30
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,
1996, 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 of the five years 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, 1996, 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, 1996, 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 generally accepted accounting principles.
/s/Ernst & Young LLP
Seattle, Washington
November 1, 1996
-28-
<PAGE> 31
SAFECO FAMILY OF FUNDS
STABILITY OF PRINCIPAL
SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund
TAXABLE BOND INCOME
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund
SAFECO Managed Bond Fund
TAX-FREE BOND INCOME
SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
HIGH CURRENT INCOME
WITH LONG-TERM GROWTH
SAFECO Income Fund
SAFECO Balanced Fund
LONG-TERM GROWTH
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Northwest Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
For more complete information on any SAFECO Mutual Fund, including management
fees and expenses, call or write for a free Prospectus. Please read it carefully
before you invest or send money.
-29-
<PAGE> 32
SAFECO TAXABLE BOND FUNDS
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
U.S. Bank of Washington, N.A.
FOR SHAREHOLDER SERVICE:
Monday-Friday,
5:30am-7:00pm Pacific Time
Nationwide: 1-800-624-5711
Seattle: 545-7319
TTY/TDD: 1-800-438-8718
FOR ACCOUNT INFORMATION,
YIELDS, PRICES AND
PERFORMANCE INFORMATION:
24 hours a day, 7 days a week
Nationwide: 1-800-835-4391
Seattle: 545-5113
MAILING ADDRESS:
SAFECO Mutual Funds
P.O. Box 34890
Seattle, WA 98124-1890
HOME PAGE:
http://networth.galt.com/
www/home/mutual/safeco
E-mail: [email protected]
GMF 660 11/96
[LOGO]Printed on Recycled Paper.
This report must be preceded or accompanied by a current prospectus.
(R) Registered trademark of SAFECO Corporation.
<PAGE> 33
High-Yield Bond Fund
Since
1 Year 5 Year Inception
-------------------------------
SAFECO High-Yield Bond Fund 10.79 11.00 9.23
Merrill Lynch High-Yield Index 6.53 12.18 11.19
Merrill
HY Index
-------------------
09/30/88 10,000 10,000
10/31/88 10,121 10,144
11/30/88 10,122 10,163
12/31/88 10,236 10,207
01/31/89 10,399 10,374
02/28/89 10,435 10,436
03/31/89 10,368 10,395
04/30/89 10,311 10,399
05/31/89 10,473 10,595
06/30/89 10,617 10,757
07/31/89 10,679 10,800
08/31/89 10,660 10,850
09/30/89 10,610 10,736
10/31/89 10,471 10,470
11/30/89 10,452 10,485
12/31/89 10,439 10,443
01/31/90 10,283 10,161
02/28/90 10,077 10,007
03/31/90 10,280 10,196
04/30/90 10,341 10,259
05/31/90 10,545 10,430
06/30/90 10,665 10,692
07/31/90 10,910 10,961
08/31/90 10,576 10,460
09/30/90 10,181 10,030
10/31/90 9,854 9,736
11/30/90 9,963 9,838
12/31/90 10,063 9,987
01/31/91 10,010 10,192
02/28/91 10,423 11,076
03/31/91 10,791 11,625
04/30/91 11,120 12,026
05/31/91 11,253 12,073
06/30/91 11,376 12,347
07/31/91 11,627 12,678
08/31/91 11,854 12,970
09/30/91 12,032 13,153
10/31/91 12,310 13,600
11/30/91 12,464 13,746
12/31/91 12,508 13,899
01/31/92 12,856 14,369
02/28/92 13,079 14,732
03/31/92 13,220 14,939
04/30/92 13,212 15,017
05/31/92 13,390 15,239
06/30/92 13,563 15,414
07/31/92 13,796 15,714
08/31/92 13,967 15,914
09/30/92 14,140 16,083
10/31/92 13,862 15,876
<PAGE> 34
11/30/92 14,096 16,119
12/31/92 14,243 16,324
01/31/93 14,632 16,713
02/28/93 14,922 17,012
03/31/93 15,176 17,301
04/30/93 15,286 17,420
05/31/93 15,517 17,646
06/30/93 15,811 17,975
07/31/93 15,997 18,156
08/31/93 16,106 18,322
09/30/93 16,160 18,403
10/31/93 16,389 18,753
11/30/93 16,515 18,851
12/31/93 16,652 19,049
01/31/94 16,966 19,461
02/28/94 16,883 19,326
03/31/94 16,286 18,701
04/30/94 16,155 18,469
05/31/94 16,302 18,428
06/30/94 16,373 18,512
07/31/94 16,367 18,634
08/31/94 16,427 18,772
09/30/94 16,421 18,768
10/31/94 16,355 18,818
11/30/94 16,140 18,656
12/31/94 16,277 18,852
01/31/95 16,468 19,117
02/28/95 16,815 19,730
03/31/95 16,968 19,996
04/30/95 17,289 20,513
05/31/95 17,743 21,146
06/30/95 17,833 21,289
07/31/95 18,069 21,566
08/31/95 18,077 21,679
09/30/95 18,298 21,936
10/31/95 18,551 22,116
11/30/95 18,582 22,336
12/31/95 18,823 22,710
01/31/96 19,060 23,089
02/28/96 19,243 23,160
03/31/96 19,180 23,065
04/30/96 19,219 23,097
05/31/96 19,339 23,264
06/30/96 19,388 23,368
07/31/96 19,591 23,510
08/31/96 19,869 23,802
09/30/96 20,271 24,356
<PAGE> 35
GNMA Fund
1 Year 5 Year 10 Year
-------------------------------
SAFECO GNMA Fund 4.48 5.97 7.14
Merrill Lynch GNMA Mortgage Index 3.50 6.99 8.89
Merrill
GNMA Index
---------------------
09/30/86 10,000 10,000
10/31/86 10,071 10,130
11/30/86 10,128 10,304
12/31/86 10,164 10,353
01/31/87 10,272 10,490
02/28/87 10,363 10,591
03/31/87 10,352 10,594
04/30/87 9,943 10,263
05/31/87 9,922 10,227
06/30/87 10,082 10,410
07/31/87 10,141 10,437
08/31/87 10,139 10,383
09/30/87 9,937 10,081
10/31/87 10,056 10,459
11/30/87 10,166 10,591
12/31/87 10,254 10,701
01/31/88 10,454 11,173
02/28/88 10,540 11,302
03/31/88 10,508 11,196
04/30/88 10,532 11,120
05/31/88 10,446 11,080
06/30/88 10,658 11,396
07/31/88 10,647 11,352
08/31/88 10,659 11,360
09/30/88 10,836 11,643
10/31/88 11,126 11,926
11/30/88 11,066 11,743
12/31/88 11,055 11,690
01/31/89 11,171 11,891
02/28/89 11,138 11,808
03/31/89 11,149 11,812
04/30/89 11,334 12,038
05/31/89 11,620 12,409
06/30/89 11,903 12,795
07/31/89 12,163 13,022
08/31/89 12,001 12,861
09/30/89 12,056 12,917
10/31/89 12,273 13,247
11/30/89 12,408 13,405
12/31/89 12,484 13,484
01/31/90 12,345 13,343
02/28/90 12,402 13,462
03/31/90 12,417 13,480
04/30/90 12,246 13,352
05/31/90 12,621 13,778
06/30/90 12,790 14,004
07/31/90 13,024 14,241
08/31/90 12,908 14,229
09/30/90 12,993 14,358
10/31/90 13,104 14,534
11/30/90 13,394 14,857
<PAGE> 36
12/31/90 13,571 15,104
01/31/91 13,764 15,320
02/28/91 13,843 15,428
03/31/91 13,915 15,545
04/30/91 14,066 15,700
05/31/91 14,178 15,826
06/30/91 14,194 15,849
07/31/91 14,420 16,115
08/31/91 14,651 16,418
09/30/91 14,906 16,714
10/31/91 15,126 16,979
11/30/91 15,202 17,094
12/31/91 15,581 17,519
01/31/92 15,364 17,306
02/28/92 15,490 17,478
03/31/92 15,400 17,367
04/30/92 15,514 17,552
05/31/92 15,814 17,877
06/30/92 15,982 18,156
07/31/92 16,210 18,262
08/31/92 16,376 18,530
09/30/92 16,508 18,668
10/31/92 16,338 18,525
11/30/92 16,408 18,619
12/31/92 16,624 18,848
01/31/93 16,869 19,097
02/28/93 17,054 19,273
03/31/93 17,122 19,392
04/30/93 17,181 19,499
05/31/93 17,231 19,602
06/30/93 17,522 19,787
07/31/93 17,594 19,882
08/31/93 17,779 19,921
09/30/93 17,798 19,931
10/31/93 17,828 19,992
11/30/93 17,658 19,999
12/31/93 17,801 20,197
01/31/94 17,999 20,356
02/28/94 17,727 20,260
03/31/94 17,164 19,734
04/30/94 17,015 19,588
05/31/94 17,073 19,629
06/30/94 16,997 19,587
07/31/94 17,324 19,974
08/31/94 17,364 20,028
09/30/94 17,103 19,804
10/31/94 17,058 19,791
11/30/94 16,910 19,740
12/31/94 17,041 19,951
01/31/95 17,390 20,382
02/28/95 17,797 20,928
03/31/95 17,857 21,030
04/30/95 18,086 21,329
05/31/95 18,584 21,966
06/30/95 18,663 22,109
07/31/95 18,685 22,165
08/31/95 18,887 22,401
09/30/95 19,068 22,634
10/31/95 19,215 22,823
<PAGE> 37
11/30/95 19,441 23,070
12/31/95 19,679 23,365
01/31/96 19,809 23,544
02/28/96 19,541 23,357
03/31/96 19,427 23,327
04/30/96 19,349 23,251
05/31/96 19,306 23,164
06/30/96 19,571 23,427
07/31/96 19,600 23,531
08/31/96 19,597 23,564
09/30/96 19,923 23,944
<PAGE> 38
Intermediate-Term Treasury Fund
Since
1 Year 5 Year Inception
-----------------------------
SAFECO Intermediate-Term U.S. Treasury Fund 4.00 6.56 7.42
Merrill Lynch Intermediate-Term Treasury Index 3.27 6.40 7.91
Int Treas Merrill
------------------
09/30/88 10,000 10,000
10/31/88 10,135 10,136
11/30/88 10,055 10,048
12/31/88 10,067 10,057
01/31/89 10,127 10,156
02/28/89 10,076 10,114
03/31/89 10,093 10,164
04/30/89 10,271 10,351
05/31/89 10,452 10,569
06/30/89 10,689 10,839
07/31/89 10,877 11,060
08/31/89 10,776 10,906
09/30/89 10,820 10,961
10/31/89 11,002 11,186
11/30/89 11,082 11,295
12/31/89 11,105 11,324
01/31/90 11,039 11,259
02/28/90 11,095 11,288
03/31/90 11,088 11,310
04/30/90 11,060 11,270
05/31/90 11,270 11,509
06/30/90 11,384 11,658
07/31/90 11,537 11,826
08/31/90 11,496 11,774
09/30/90 11,540 11,882
10/31/90 11,632 12,047
11/30/90 11,753 12,227
12/31/90 11,900 12,400
01/31/91 11,953 12,526
02/28/91 12,047 12,591
03/31/91 12,132 12,660
04/30/91 12,267 12,791
05/31/91 12,331 12,864
06/30/91 12,346 12,877
07/31/91 12,500 13,016
08/31/91 12,711 13,259
09/30/91 12,902 13,485
10/31/91 13,041 13,637
11/30/91 13,175 13,797
12/31/91 13,509 14,134
01/31/92 13,355 13,991
02/28/92 13,371 14,044
03/31/92 13,323 13,987
04/30/92 13,425 14,115
05/31/92 13,617 14,316
06/30/92 13,830 14,524
07/31/92 14,175 14,793
08/31/92 14,286 14,964
09/30/92 14,551 15,171
10/31/92 14,284 14,985
11/30/92 14,196 14,918
12/31/92 14,396 15,115
<PAGE> 39
01/31/93 14,767 15,397
02/28/93 15,093 15,628
03/31/93 15,154 15,686
04/30/93 15,263 15,810
05/31/93 15,212 15,763
06/30/93 15,581 15,990
07/31/93 15,605 16,022
08/31/93 15,990 16,267
09/30/93 16,080 16,337
10/31/93 16,116 16,366
11/30/93 15,858 16,287
12/31/93 15,956 16,351
01/31/94 16,164 16,514
02/28/94 15,736 16,279
03/31/94 15,405 16,051
04/30/94 15,296 15,942
05/31/94 15,302 15,959
06/30/94 15,273 15,970
07/31/94 15,476 16,168
08/31/94 15,515 16,219
09/30/94 15,346 16,088
10/31/94 15,352 16,092
11/30/94 15,321 16,012
12/31/94 15,380 16,072
01/31/95 15,556 16,339
02/28/95 15,789 16,652
03/31/95 15,870 16,743
04/30/95 16,065 16,935
05/31/95 16,679 17,419
06/30/95 16,790 17,533
07/31/95 16,660 17,545
08/31/95 16,858 17,689
09/30/95 17,045 17,808
10/31/95 17,304 18,008
11/30/95 17,656 18,232
12/31/95 17,956 18,418
01/31/96 18,014 18,576
02/28/96 17,575 18,368
03/31/96 17,391 18,280
04/30/96 17,355 18,222
05/31/96 17,351 18,212
06/30/96 17,477 18,390
07/31/96 17,532 18,447
08/31/96 17,530 18,467
09/30/96 17,726 18,701
