<PAGE>
JUNE 30, 1997
SEMIANNUAL
REPORT
TAXABLE BOND
FUNDS
NO-LOAD SHARES
----------
SAFECO High-Yield Bond Fund . . . . . . . . . . . 2
SAFECO GNMA Fund. . . . . . . . . . . . . . . . . 8
SAFECO Intermediate-Term U.S. Treasury Fund . . . 11
SAFECO Managed Bond Fund. . . . . . . . . . . . . 11
[LOGO]
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO HIGH-YIELD BOND FUND
JUNE 30, 1997
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- --------------------------------------------------------------------------------
[PHOTO]
ROBERT KERN
For the six-month period and the year ended June 30, 1997, the SAFECO High-
Yield Bond Fund returned 5.69% for the period and 13.25% for the year. The
average high-yield bond fund generated 5.92% for the period and 14.77% for the
year, according to Lipper Analytical Services. The Merrill Lynch High-Yield
Index posted a total return of 5.95% for the period, and a 12-month return of
14.57%.
Our underperformance was primarily due to our higher weighting in
higher-quality junk bonds. Our more creditworthy bonds returned less than their
lower-rated cousins. However, our portfolio earned Morningstar's highest
risk-adjusted rating. Overall, and for the three and five years ending June 30,
1997, Morningstar gives SAFECO High-Yield Bond Fund five-stars.** Morningstar
proprietary ratings reflect historical risk-adjusted performance through June
30, 1997, and are based on the Fund's performance against 677 and 283 taxable
bond funds for the three- and five-year periods, respectively. Only ten percent
of funds in each investment category receive five stars for a given period. Very
few funds receive five stars across the board.
As of June 30, 1997, the Fund's $58.6 million in net assets were invested
in 82 individual securities in 41 different industries.
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PERFORMANCE OVERVIEW NO LOAD CLASS
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD
[GRAPH]
HIGH-YIELD BOND FUND
Since
1 Year 5 Year Inception
---------------------------------
SAFECO High-Yield Bond Fund 13.25 10.11 9.45
Merrill
HY Index
---------------------
09/30/88 10,000 10,000
10/31/88 10,156 10,144
11/30/88 10,156 10,163
12/31/88 10,271 10,207
01/31/89 10,435 10,374
02/28/89 10,471 10,436
03/31/89 10,404 10,395
04/30/89 10,346 10,399
05/31/89 10,509 10,595
06/30/89 10,653 10,757
07/31/89 10,716 10,800
08/31/89 10,697 10,850
09/30/89 10,647 10,736
10/31/89 10,507 10,470
11/30/89 10,488 10,485
12/31/89 10,475 10,443
01/31/90 10,319 10,161
02/28/90 10,111 10,007
03/31/90 10,316 10,196
04/30/90 10,377 10,259
05/31/90 10,582 10,430
06/30/90 10,702 10,692
07/31/90 10,947 10,961
08/31/90 10,612 10,460
09/30/90 10,216 10,030
10/31/90 9,888 9,736
11/30/90 9,997 9,838
12/31/90 10,098 9,987
01/31/91 10,044 10,192
02/28/91 10,459 11,076
03/31/91 10,828 11,625
04/30/91 11,159 12,026
05/31/91 11,292 12,073
06/30/91 11,415 12,347
07/31/91 11,667 12,678
08/31/91 11,894 12,970
09/30/91 12,073 13,153
10/31/91 12,352 13,600
11/30/91 12,507 13,746
12/31/91 12,551 13,899
01/31/92 12,900 14,369
02/28/92 13,124 14,732
03/31/92 13,265 14,939
04/30/92 13,257 15,017
05/31/92 13,436 15,239
06/30/92 13,610 15,414
07/31/92 13,844 15,714
08/31/92 14,015 15,914
09/30/92 14,188 16,083
10/31/92 13,910 15,876
11/30/92 14,145 16,119
12/31/92 14,292 16,324
01/31/93 14,683 16,713
02/28/93 14,974 17,012
03/31/93 15,229 17,301
04/30/93 15,339 17,420
05/31/93 15,571 17,646
06/30/93 15,866 17,975
07/31/93 16,052 18,156
08/31/93 16,161 18,322
09/30/93 16,216 18,403
10/31/93 16,446 18,753
11/30/93 16,572 18,851
12/31/93 16,709 19,049
01/31/94 17,024 19,461
02/28/94 16,941 19,326
03/31/94 16,342 18,701
04/30/94 16,211 18,469
05/31/94 16,358 18,428
06/30/94 16,429 18,512
07/31/94 16,424 18,634
08/31/94 16,484 18,772
09/30/94 16,478 18,768
10/31/94 16,411 18,818
11/30/94 16,196 18,656
12/31/94 16,333 18,852
01/31/95 16,525 19,117
02/28/95 16,873 19,730
03/31/95 17,027 19,996
04/30/95 17,349 20,513
05/31/95 17,804 21,146
06/30/95 17,894 21,289
07/31/95 18,132 21,566
08/31/95 18,140 21,679
09/30/95 18,361 21,936
10/31/95 18,615 22,116
11/30/95 18,646 22,336
12/31/95 18,888 22,710
01/31/96 19,125 23,089
02/28/96 19,310 23,160
03/31/96 19,246 23,065
04/30/96 19,285 23,097
05/31/96 19,405 23,264
06/30/96 19,455 23,368
07/31/96 19,658 23,510
08/31/96 19,937 23,802
09/30/96 20,341 24,356
10/31/96 20,419 24,567
11/30/96 20,723 25,061
12/31/96 20,850 25,269
01/31/97 21,024 25,459
02/28/97 21,410 25,851
03/31/97 20,963 25,494
04/30/97 21,124 25,821
05/31/97 21,700 26,364
06/30/97 22,032 26,772
* The Fund's inception was September 7, 1988. Graph and average annual return
comparison begins September 30, 1988.
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment in a relevant market index. The index is unmanaged and
includes no operating expenses or transaction costs. Past performance is not
predictive of future results. Principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
-2-
<PAGE>
SAFECO
HIGH-YIELD BOND FUND
S&P CREDIT RATING DISTRIBUTION
AS OF JUNE 30, 1997
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[GRAPH]
CREDIT QUALITY/PORTFOLIO COMPOSITION PERCENT OF NET ASSETS
- -----------------------------------------------------------------------------
BB 20 %
B 66
Not Rated 4
Preferred Stock 6
Cash & Other Assets Less Liabilities 4
---------------------
100 %
=====================
We continued to emphasize investments in noncyclical companies with three
characteristics: Demonstrated good performance, the potential to outperform, and
a level of creditworthiness that provides a measure of protection
to our principal.
I also bought preferred stock and convertible preferreds of such companies.
While adding appreciation potential, these securities have added some
fluctuation to our dividend stream as they pay dividends quarterly rather than
monthly.
Still, they fit our strategy: Build and maintain a core portfolio
structured similarly to the high-yield market to keep the Fund in step with the
market, and supplement the core with securities that offer exceptional
potential.
Our search for companies with the ability to improve revenue and cash-flow
growth lead to the radio industry, which is benefiting from relaxed regulation
and consolidation. Our radio holdings constitute 12.4% of net assets and have
delivered substantial gains. We continue to favor this sector.
We've dropped the home building sector, and for the moment, the grocery
store sector from our portfolio. A slowing economy (which will dampen demand)
and the high capital requirements of home-building, led us to sell our holdings
here. We sold the Fund's grocery holdings, Smith's Food and Drug, and Grand
Union. Smith's was acquired by Fred Meyer in mid-May,
- --------------------------------------------------------------------------------
HIGHLIGHTS
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TOP FIVE HOLDINGS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
Specialty Equipment Companies, Inc.. . . . . . . . . . . . . . . 1.9%
(Machinery - Diversified)
Plastic Specialties & Technologies, Inc. . . . . . . . . . . . . 1.8%
(Manufacturing - Diversified)
AMF Group, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . 1.8%
(Leisure Time Products)
Corporate Express, Inc.. . . . . . . . . . . . . . . . . . . . . 1.8%
(Office Equipment & Supplies)
Commonwealth Aluminum Corporation. . . . . . . . . . . . . . . . 1.8%
(Metals - Fabrications)
TOP FIVE PURCHASES
(January to June) COST (000'S)
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Corporate Express, Inc.. . . . . . . . . . . . . . . . . . . . . $1,014
French Fragrances. . . . . . . . . . . . . . . . . . . . . . . . 1,000
Capstar Broadcasting Cvt. Pfd. . . . . . . . . . . . . . . . . . 1,000
United Refining. . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Sun World International. . . . . . . . . . . . . . . . . . . . . 1,000
TOP FIVE SALES
(January to June) PROCEEDS (000'S)
- --------------------------------------------------------------------------------
Affiliated Newspaper . . . . . . . . . . . . . . . . . . . . . . $615
Smith's Food & Drug. . . . . . . . . . . . . . . . . . . . . . . 584
Scotsman Group, Inc. . . . . . . . . . . . . . . . . . . . . . . 524
Universal Health Services. . . . . . . . . . . . . . . . . . . . 522
Giant Industries, Inc. . . . . . . . . . . . . . . . . . . . . . 515
TOP FIVE INDUSTRIES PERCENT OF NET ASSETS
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Broadcast Media. . . . . . . . . . . . . . . . . . . . . . . . . 12%
Food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5%
Metals - Miscellaneous . . . . . . . . . . . . . . . . . . . . . 4%
Leisure Time . . . . . . . . . . . . . . . . . . . . . . . . . . 4%
Advertising. . . . . . . . . . . . . . . . . . . . . . . . . . . 4%
CURRENT YIELD (30-DAY) . . . . . . . . . . . . . . . . . . . . 8.21%
WEIGHTED AVERAGE MATURITY . . . . . . . . . . . . . . . . . . 7.921 YEARS
-3-
<PAGE>
REPORT FROM THE HIGH-YIELD BOND
FUND MANAGER (Continued)
causing their bonds to trade up to near investment-grade levels. We sold the
position at a gain and reinvested to increase the Fund's current yield. Grand
Union stores continued to struggle in the very competitive Northeast market. We
exited the bonds around $97. At June 30, they were trading at $75.
At this time, the U.S. economy continues to perform exceptionally well.
Growth is moderating and inflation pressures are dormant. The high-yield market
recovered from a tough first quarter 1997. It then responded to this favorable
environment by soaring to new highs at a speed which gives one pause. Further
contributing to the favorable conditions and high valuations are a low default
rate and robust cash inflows to the high-yield bond market. As we go forward, I
don't see much threat to this pleasant status quo.
/s/ Robert Kern
Robert Kern
SAFECO High-Yield Bond
Fund Manager
Robert Kern became sole manager of the SAFECO High-Yield Bond Fund on June 30.
He joined SAFECO in 1988 with B.S. degrees in business and accounting from the
Universities of Washington and Puget Sound respectively. Bob is a Certified
Public Accountant and a Chartered Financial Analyst.
** These ratings may change monthly and are calculated for the Fund's three-,
five- and ten-year average annual returns in excess of 90-day T-bill
returns, with appropriate fee adjustments, and a risk factor that reflects
fund performance below 90-day T-bill returns.
PORTFOLIO OF INVESTMENTS
SAFECO
HIGH-YIELD BOND FUND
As of June 30, 1997 (Unaudited)
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- --------------------------------------------------------------------------------
CORPORATE BONDS - 90.2%
ADVERTISING - 4.4%
$1,000 Heritage Media Corp.
8.75%, due 2/15/06 . . . . . . . . . . . . . . . . . . $1,030
1,000 Lamar Advertising Co.
9.625%, due 12/01/06 . . . . . . . . . . . . . . . . . 1,025
500 Universal Outdoor, Inc.
9.75%, due 10/15/06. . . . . . . . . . . . . . . . . . 518
AGRICULTURE/FERTILIZER PRODUCTS - 1.8%
1,000 Sun World International
11.25%, due 4/15/04. . . . . . . . . . . . . . . . . . 1,040
AUTOS & AUTO PARTS - 0.9%
500 Exide Corp.
10.75%, due 12/15/02 . . . . . . . . . . . . . . . . . 526
BEVERAGES - 3.0%
750 Coca-Cola Bottling Group
(Southwest), Inc.
9.00%, due 11/15/03. . . . . . . . . . . . . . . . . . 776
1,000 Cott Corp.
8.50%, due 5/01/07 . . . . . . . . . . . . . . . . . . 995
BROADCAST MEDIA - 6.9%
500 Cablevision Systems Corp.
9.875%, due 5/15/06. . . . . . . . . . . . . . . . . . 534
Century Communications Corp.
500 9.50%, due 3/01/05 . . . . . . . . . . . . . . . . . . 513
500 8.875%, due 1/15/07. . . . . . . . . . . . . . . . . . 489
1,000 Jones Intercable, Inc.
8.875%, due 4/01/07. . . . . . . . . . . . . . . . . . 1,010
500 Lenfest Communications, Inc.
8.375%, due 11/01/05 . . . . . . . . . . . . . . . . . 492
1,000 Young Broadcasting, Inc.
9.00%, due 1/15/06 . . . . . . . . . . . . . . . . . . 980
BUILDING MATERIALS - 0.9%
500 -- Synthetic Industries (144A)
9.25%, due 2/15/07
(acquired 2/11/97) . . . . . . . . . . . . . . . . . . 510
SEE NOTES TO FINANCIAL STATEMENTS
-4-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
AS OF JUNE 30, 1997 (UNAUDITED)
PRINCIPAL
AMOUNT (000'S) VALUE(000'S)
- --------------------------------------------------------------------------------
CHEMICALS - 0.9%
$ 500 Atlantis Group, Inc.
11.00%, due 2/15/03. . . . . . . . . . . . . . . . . . $ 512
COMPUTER SOFTWARE - 2.8%
1,000 Bell & Howell Holdings Co.
11.50%, due 3/01/00
Step Bond. . . . . . . . . . . . . . . . . . . . . . . 805
1,000 -- HMT Technology (144A)
5.75%, due 1/15/04
(acquired 1/21/97) . . . . . . . . . . . . . . . . . . 825
CONTAINERS/PACKAGING - 2.6%
500 Applied Extrusion
Technologies, Inc.
11.50%, due 4/01/02. . . . . . . . . . . . . . . . . . 525
1,000 Owens-Illinois, Inc.
9.75%, due 8/15/04 . . . . . . . . . . . . . . . . . . 1,049
COSMETICS - 2.7%
500 Coty, Inc.
10.25%, due 5/01/05. . . . . . . . . . . . . . . . . . 539
1,000 -- French Fragrances (144A)
10.375%, due 5/15/07
(acquired 5/09/97) . . . . . . . . . . . . . . . . . . 1,030
DRUGS - 2.9%
750 Chattem, Inc.
12.75%, due 6/15/04. . . . . . . . . . . . . . . . . . 836
1,000 IVAX Corp.
6.50%, due 11/15/01. . . . . . . . . . . . . . . . . . 889
ELECTRONICS - 0.9%
500 Plantronics, Inc.
10.00%, due 1/15/01. . . . . . . . . . . . . . . . . . 520
ENTERTAINMENT - 0.9%
500 AMC Entertainment, Inc.
9.50%, due 3/15/09 . . . . . . . . . . . . . . . . . . 510
ENVIRONMENTAL - 2.0%
Allied Waste
North America, Inc. (144A)
1,000 -- 11.30%, due 6/01/02
Step Bond (acquired 5/15/97) . . . . . . . . . . . . . 625
500 -- 10.25%, due 12/01/06
(acquired 12/05/96). . . . . . . . . . . . . . . . . . 535
FINANCIAL - 2.5%
$1,000 -- Americredit (144A)
9.25%, due 2/01/04
(acquired 2/04/97) . . . . . . . . . . . . . . . . . . $ 980
500 DVI, Inc.
9.875%, due 2/01/04. . . . . . . . . . . . . . . . . . 500
FOOD - 4.5%
500 Chiquita Brands
International, Inc.
10.25%, due 11/01/06 . . . . . . . . . . . . . . . . . 532
500 Curtice Burns Foods, Inc.
12.25%, due 2/01/05. . . . . . . . . . . . . . . . . . 554
1,000 -- Gorges/Quik-To-Fix Foods (144A)
11.50%, due 12/01/06
(acquired 11/25/96). . . . . . . . . . . . . . . . . . 1,030
500 International Home Foods, Inc.
10.375%, due 11/01/06. . . . . . . . . . . . . . . . . 515
GAMING - 2.7%
500 Aztar Corp.
13.75%, due 10/01/04 . . . . . . . . . . . . . . . . . 570
500 Boyd Gaming Corporation
9.25%, due 10/01/03. . . . . . . . . . . . . . . . . . 500
500 Station Casinos, Inc.
9.625%, due 6/01/03. . . . . . . . . . . . . . . . . . 495
HARDWARE & TOOLS - 1.4%
750 Shop Vac Corp.
10.625%, due 9/01/03 . . . . . . . . . . . . . . . . . 797
HOSPITAL MANAGEMENT - 2.6%
500 -- Integrated Health (144A)
9.50%, due 9/15/07
(acquired 5/30/97) . . . . . . . . . . . . . . . . . . 511
1,000 Quorum Health Group, Inc.
8.75%, due 11/01/05. . . . . . . . . . . . . . . . . . 1,028
SEE NOTES TO FINANCIAL STATEMENTS
-5-
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
SAFECO HIGH-YIELD BOND FUND
AS OF JUNE 30, 1997 (UNAUDITED)
PRINCIPAL
AMOUNT (000'S) VALUE(000'S)
- --------------------------------------------------------------------------------
HOTELS/MOTELS - 4.0%
$ 500 HMH Properties, Inc.
9.50%, due 5/15/05 . . . . . . . . . . . . . . . . . . $ 520
500 John Q. Hammons Hotels
8.875%, due 2/15/04. . . . . . . . . . . . . . . . . . 505
500 Prime Hospitality Corp.
9.25%, due 1/15/06 . . . . . . . . . . . . . . . . . . 515
750 Wyndham Hotel Corp.
10.50%, due 5/15/06. . . . . . . . . . . . . . . . . . 836
HOUSEHOLD PRODUCTS - 0.9%
500 Ekco Group, Inc.
9.25%, due 4/01/06 . . . . . . . . . . . . . . . . . . 505
INDUSTRIAL PRODUCT & SUPPLIER - 0.9%
500 Printpack, Inc.
10.625%, due 8/15/06 . . . . . . . . . . . . . . . . . 532
LEISURE TIME - 4.4%
1,500 AMF Group, Inc.
12.25%, due 3/15/01
Step Bond. . . . . . . . . . . . . . . . . . . . . . . 1,067
Cinemark USA, Inc.
500 9.625%, due 8/01/08. . . . . . . . . . . . . . . . . . 508
500 -- 9.625%, due 8/01/08
(acquired 6/26/97) . . . . . . . . . . . . . . . . . . 507
500 E & S Holdings Corp.
10.375%, due 10/01/06. . . . . . . . . . . . . . . . . 521
MACHINERY - DIVERSIFIED - 1.9%
1,000 Specialty Equipment
Companies, Inc.
11.375%, due 12/01/03. . . . . . . . . . . . . . . . . 1,091
MANUFACTURING - 1.8%
1,000 Plastic Specialties and
Technologies, Inc.
11.25%, due 12/01/03 . . . . . . . . . . . . . . . . . 1,070
METALS - 4.5%
$ 500 Armco, Inc.
9.375%, due 11/01/00 . . . . . . . . . . . . . . . . . 512
1,000 Commonwealth Aluminum Corp.
10.75%, due 10/01/06 . . . . . . . . . . . . . . . . . 1,055
500 Oregon Steel Mills, Inc.
11.00%, due 6/15/03. . . . . . . . . . . . . . . . . . 539
500 -- Wells Aluminum Corp. (144A)
10.125%, due 6/01/05
(acquired 5/28/97) . . . . . . . . . . . . . . . . . . 514
OFFICE EQUIPMENT & SUPPLIES - 1.8%
1,200 Corporate Express, Inc.
4.50%, due 7/01/00
Convertible. . . . . . . . . . . . . . . . . . . . . . 1,065
OIL & GAS - 0.9%
500 Crown Central Petroleum Corp.
10.875%, due 2/01/05 . . . . . . . . . . . . . . . . . 525
OIL SERVICES - 4.2%
500 -- ICO, Inc. (144A)
10.375%, due 6/01/07
(acquired 6/09/97) . . . . . . . . . . . . . . . . . . 514
1,000 Snyder Oil Corp.
8.75%, due 6/15/07 . . . . . . . . . . . . . . . . . . 991
1,000 -- United Refining Co. (144A)
10.75%, due 6/15/07
(acquired 6/09/97) . . . . . . . . . . . . . . . . . . 985
PAPER & FOREST PRODUCTS - 2.6%
500 -- The Fonda Group (144A)
9.50%, due 3/01/07
(acquired 2/27/97) . . . . . . . . . . . . . . . . . . 478
500 Specialty Paper
9.375%, due 10/15/06 . . . . . . . . . . . . . . . . . 505
500 Stone Container Corp.
11.875%, due 12/01/98. . . . . . . . . . . . . . . . . 526
SEE NOTES TO FINANCIAL STATEMENTS
-6-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
AS OF JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000'S) VALUE(000'S)
- --------------------------------------------------------------------------------
PETROLEUM & PETROLEUM SERVICES - 0.4%
$ 250 Vintage Petroleum, Inc.
8.625%, due 2/01/09. . . . . . . . . . . . . . . . . . $ 249
RESTAURANTS - 1.8%
1,000 Apple South, Inc.
9.75%, due 6/01/06 . . . . . . . . . . . . . . . . . . 1,050
RETAIL - 0.8%
500 K-Mart Corp.
7.95%, due 2/01/23 . . . . . . . . . . . . . . . . . . 450
RETAIL - GROCERS - 1.7%
1,000 -- Quality Food Centers, Inc. (144A)
8.70%, due 3/15/07
(acquired 3/19/97) . . . . . . . . . . . . . . . . . . 992
RETAIL - OTHER - 1.9%
Petroleum Heat & Power Co.
325 12.25%, due 2/01/05. . . . . . . . . . . . . . . . . . 341
250 9.375%, due 2/01/06. . . . . . . . . . . . . . . . . . 238
500 -- Windy Hill Pet Food Co., Inc. (144A)
9.75%, due 5/15/07
(acquired 5/21/97) . . . . . . . . . . . . . . . . . . 500
SAVINGS & LOAN - SAVINGS BANK - 0.9%
500 -- First Nationwide
Holdings, Inc. (144A)
10.625%, due 10/01/03
(acquired 9/13/96) . . . . . . . . . . . . . . . . . . 552
TELECOMMUNICATIONS - 3.4%
1,000 Paging Network, Inc.
10.00%, due 10/15/08 . . . . . . . . . . . . . . . . . 960
1,000 PhoneTel Technologies
12.00%, due 12/15/06 . . . . . . . . . . . . . . . . . 1,010
TEXTILES - 0.9%
500 Dominion Textile (USA), Inc.
9.25%, due 4/01/06 . . . . . . . . . . . . . . . . . . 521
TRANSPORTATION - 1.8%
1,000 International Shipholding Corp.
9.00%, due 7/01/03 . . . . . . . . . . . . . . . . . . 1,025
UTILITIES - 0.6%
$ 342 Midland Cogeneration
Venture, L. P.
10.33%, due 7/23/02. . . . . . . . . . . . . . . . . . $ 374
UTILITIES - ELECTRIC DISTRIBUTION - 0.9%
500 El Paso Electric Co.
9.40%, due 5/01/11 . . . . . . . . . . . . . . . . . . 544
-------
TOTAL CORPORATE BONDS. . . . . . . . . . . . . . . . . . . . . . . . 52,842
-------
PREFERRED STOCK - 5.5%
BROADCAST MEDIA - 5.5%
5 -- American Radio Systems Corp.
(acquired 1/30/97) . . . . . . . . . . . . . . . . . . 558
10 -- Capstar Broadcast
(acquired 6/17/97) . . . . . . . . . . . . . . . . . . 1,010
5 -- Chancellor Radio
Broadcasting Co.
(acquired 1/23/97) . . . . . . . . . . . . . . . . . . 570
5 SFX Broadcasting, Inc. . . . . . . . . . . . . . . . . 540
5 Sinclair Broadcast
Group, Inc.. . . . . . . . . . . . . . . . . . . . . . 529
-------
TOTAL PREFERRED STOCK. . . . . . . . . . . . . . . . . . . . . . . . 3,207
-------
TEMPORARY INVESTMENTS - 3.2%
INVESTMENT COMPANIES:
1,888 SSgA Money Market
Portfolio. . . . . . . . . . . . . . . . . . . . . . . 1,888
-------
TOTAL TEMPORARY INVESTMENTS. . . . . . . . . . . . . . . . . . . . . 1,888
-------
TOTAL INVESTMENTS - 98.9%. . . . . . . . . . . . . . . . . . . . . . 57,937
Other Assets, less Liabilities . . . . . . . . . . . . . . . . . . . 624
-------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $58,561
-------
-------
- --------------------------------------------------------------------------------
* Securities are exempt from registration and restricted as to resale only to
dealers, or through a dealer to an "accredited investor" or a "qualified
institutional buyer". The total cost of such securities is $13,226,719 and
the total value is 22.6% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
-7-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO GNMA FUND
June 30, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO]
PAUL STEVENSON
The SAFECO GNMA Fund beat its peer group for the period, and nearly matched
the peer group's annual performance by returning 3.56% and 8.27% respectively
for the six-month period and year ended June 30, 1997. The peer group, according
to Lipper Analytical Services, returned 3.37% for the period and 8.29% for the
year.
Our outperformance during the past six months resulted from holding
longer-maturity and call-protected paper, and my efforts to stay fully invested
(leaving little uninvested cash on hand). Fund performance was also enhanced by
several timely swaps designed to take advantage of the bond rally, and by moving
assets from sectors I felt were overpriced to sectors that seemed better valued.
The Fund benefited from a favorable bond market. The robust rallies
experienced by all financial markets, following the Fed Funds rate increase on
March 25, were remarkable.
Stocks rallied, but mortgage securities did too. The markets were obviously
pleased with a projected slowdown of economic growth from the energetic first
quarter, and the continued, seemingly almost nonexistent,
- --------------------------------------------------------------------------------
PERFORMANCE OVERVIEW NO LOAD CLASS
- --------------------------------------------------------------------------------
[GRAPH]
GNMA FUND
1 Year 5 Year 10 Year
-----------------------------
SAFECO GNMA Fund 8.27 5.80 7.71
Merrill
GNMA Index
-------------------
06/30/87 10,000 10,000
07/31/87 10,059 10,026
08/31/87 10,057 9,975
09/30/87 9,857 9,684
10/31/87 9,975 10,047
11/30/87 10,084 10,174
12/31/87 10,171 10,280
01/31/88 10,369 10,733
02/28/88 10,455 10,858
03/31/88 10,423 10,756
04/30/88 10,447 10,683
05/31/88 10,361 10,644
06/30/88 10,572 10,947
07/31/88 10,561 10,906
08/31/88 10,572 10,913
09/30/88 10,748 11,185
10/31/88 11,036 11,456
11/30/88 10,977 11,281
12/31/88 10,965 11,230
01/31/89 11,081 11,424
02/28/89 11,048 11,343
03/31/89 11,058 11,347
04/30/89 11,242 11,564
05/31/89 11,526 11,921
06/30/89 11,807 12,291
07/31/89 12,065 12,509
08/31/89 11,904 12,355
09/30/89 11,958 12,408
10/31/89 12,174 12,725
11/30/89 12,307 12,877
12/31/89 12,383 12,954
01/31/90 12,245 12,818
02/28/90 12,301 12,933
03/31/90 12,316 12,949
04/30/90 12,147 12,827
05/31/90 12,519 13,236
06/30/90 12,686 13,453
07/31/90 12,919 13,680
08/31/90 12,803 13,790
09/30/90 12,888 13,915
10/31/90 12,997 14,086
11/30/90 13,286 14,399
12/31/90 13,461 14,638
01/31/91 13,652 14,848
02/28/91 13,731 14,952
03/31/91 13,803 15,066
04/30/91 13,952 15,215
05/31/91 14,063 15,337
06/30/91 14,079 15,360
07/31/91 14,303 15,618
08/31/91 14,532 15,911
09/30/91 14,785 16,199
10/31/91 15,003 16,455
11/30/91 15,079 16,567
12/31/91 15,454 16,978
01/31/92 15,239 16,772
02/28/92 15,364 16,938
03/31/92 15,275 16,832
04/30/92 15,388 17,011
05/31/92 15,686 17,325
06/30/92 15,852 17,596
07/31/92 16,079 17,699
08/31/92 16,243 17,958
09/30/92 16,375 18,092
10/31/92 16,206 17,953
11/30/92 16,275 18,045
12/31/92 16,490 18,267
01/31/93 16,732 18,507
02/28/93 16,915 18,679
03/31/93 16,983 18,794
04/30/93 17,042 18,897
05/31/93 17,092 18,997
06/30/93 17,380 19,177
07/31/93 17,451 19,268
08/31/93 17,635 19,306
09/30/93 17,654 19,316
10/31/93 17,683 19,375
11/30/93 17,515 19,382
12/31/93 17,657 19,574
01/31/94 17,854 19,728
02/28/94 17,583 19,635
03/31/94 17,025 19,125
04/30/94 16,877 18,984
05/31/94 16,934 19,024
06/30/94 16,859 18,983
07/31/94 17,184 19,358
08/31/94 17,223 19,410
09/30/94 16,964 19,193
10/31/94 16,920 19,180
11/30/94 16,773 19,131
12/31/94 16,903 19,335
01/31/95 17,249 19,754
02/28/95 17,653 20,282
03/31/95 17,712 20,382
04/30/95 17,939 20,671
05/31/95 18,434 21,288
06/30/95 18,512 21,427
07/31/95 18,533 21,481
08/31/95 18,734 21,710
09/30/95 18,914 21,936
10/31/95 19,060 22,119
11/30/95 19,283 22,359
12/31/95 19,519 22,645
01/31/96 19,649 22,818
02/28/96 19,383 22,637
03/31/96 19,269 22,607
04/30/96 19,192 22,534
05/31/96 19,149 22,449
06/30/96 19,413 22,704
07/31/96 19,441 22,805
08/31/96 19,438 22,837
09/30/96 19,761 23,205
10/31/96 20,125 23,671
11/30/96 20,424 24,033
12/31/96 20,297 23,907
01/31/97 20,428 24,074
02/28/97 20,474 24,166
03/31/97 20,256 23,939
04/30/97 20,590 24,321
05/31/97 20,767 24,577
06/30/97 21,019 24,864
The performance graph compares a hypothetical $10,000 investment in the
Fund to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
-8-
<PAGE>
inflationary pressures. The combination of stable monetary policy coupled with
the likelihood of a well thought-out fiscal stimulus/restraint package from
Congress, along with rising consumer fundamentals (lowest unemployment levels
since 1966, highest confidence levels since 1969, and rising income levels),
generated a significant second quarter rally. Only financial instruments
associated with hedging against inflation (such as gold or the new Treasury
inflation-linked notes) and cash equivalent investments failed to participate in
these "feel good" rallies.
As is typical in most rallies, the longer-maturity and more call-protected
bonds excelled. Falling U.S. Treasury rates and an exuberant mortgage market
made mortgage investors skittish about shorter-term securities due to "call
risk" (the risk of having a higher-coupon mortgage security called early when
home owners refinance their higher rate mortgages). The star performers amongst
mortgage pass-throughs were 30-year pass-throughs, followed by 15-year and
7-year balloon mortgages respectively, with short-term adjustable mortgages
falling far behind.
In this environment, the Fund was well positioned. The Fund's largest
holdings were in 30-year pass-throughs, which comprised 90% of the portfolio.
One fourth of the 30-year pass-throughs offered discount coupons of 6.5% to 7%,
35% offered current coupons of 7.5%, and the remaining pass-throughs offered
premiums at or above 8%. Well-structured, call-protected Collaterized Mortgage
Obligations (CMOs) comprised five to ten percent of the portfolio. Only one to
three percent of the Fund was invested in cash.
The duration of the Fund's core portfolio is approximately 4.25 years, with
an average life of 8 years and an average coupon of 7.58%, which compare closely
with the various mortgage indices. Generally, my objective was to extend the
duration of the Fund's investments by shunning premium priced securities (which
perform poorly in market rallies), and to seek the best values in
discount-priced mortgage alternatives.
Given the economy, the interest rate outlook, our evaluation of the
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
Current Yield (30-Day) . . . . . . . . . . . . . . . . . . .6.88%
Weighted Average Maturity. . . . . . . . . . . . . . . . . .25.69 years
-9-
<PAGE>
REPORT FROM THE GNMA FUND
MANAGER (CONTINUED)
market, and my years of managing the Fund, there is currently no reason to
change this winning strategy. I plan to keep the Fund's fundamentals (its
duration, average coupon, and average life) in line with major mortgage indices,
and actively seek lucrative and well-priced mortgage sectors in the months
ahead.
/s/ Paul Stevenson
Paul Stevenson,
SAFECO 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.
PORTFOLIO OF INVESTMENTS
SAFECO
GNMA Fund
As of June 30, 1997 (Unaudited)
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND
AGENCY SECURITIES -100.2%
COLLATERIZED MORTGAGE OBLIGATION (CMO) - 8.9%
$2,000 7.00%, FNMA REMIC
1993-226 PH PAC
due 5/25/02. . . . . . . . . . . . . . . . . . . . . . $ 1,807
345 6.00%, FNMA REMIC
1989-52 G PAC
due 8/25/19. . . . . . . . . . . . . . . . . . . . . . 328
1,281 5.35%, Western Mortgage
Financial Corp.
due 6/26/02. . . . . . . . . . . . . . . . . . . . . . 1,181
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (FNMA) - 10.9%
4,206 6.50%, due 8/01/23-10/01/23. . . . . . . . . . . . . . 4,052
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (GNMA) - 80.3%
1,442 9.50%, due 3/15/20 . . . . . . . . . . . . . . . . . . 1,560
8,583 8.50%, due 11/15/24-10/15/25 . . . . . . . . . . . . . 8,953
2,975 8.00%, due 6/15/21-12/15/22. . . . . . . . . . . . . . 3,064
12,000 7.50%, due 1/15/22-4/20/23 . . . . . . . . . . . . . . 12,094
4,212 7.00%, due 4/20/25-3/20/26 . . . . . . . . . . . . . . 4,128
-------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES. . . . . . . . . . . . . 37,167
-------
TEMPORARY INVESTMENTS - 1.3%
INVESTMENT COMPANIES:
461 SSgA Money Market
Portfolio. . . . . . . . . . . . . . . . . . . . . . . 461
-------
TOTAL TEMPORARY INVESTMENTS. . . . . . . . . . . . . . . . . . . . . 461
-------
TOTAL INVESTMENTS - 101.4% . . . . . . . . . . . . . . . . . . . . . 37,628
Liabilities, less Other Assets . . . . . . . . . . . . . . . . . . . (524)
-------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $37,104
-------
-------
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
-10-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INTERMEDIATE-TERM
U.S. TREASURY FUND AND
SAFECO MANAGED BOND FUND
JUNE 30, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO]
MICHAEL C. KNEBEL
A very robust U.S. economy in the first quarter of 1997 prompted a
renewal of inflation fears among bond market participants. The Federal
Reserve added fuel to the fire in March by raising its benchmark Fed Funds
rate from 5 1/4% to 5 1/2%. Consequently, interest rates in general rose
throughout the first four months of the year. But as data began to appear
that suggested a significant slowing in second quarter economic activity, the
market rallied, and rates fell back to where they were when the year started.
A new year, the same old story: an extremely volatile--yet trendless--bond
market.
This kind of environment has persisted throughout the last few years.
Consequently, our returns for both the Intermediate-Term U.S. Treasury Fund and
the Managed Bond Fund have suffered, owing to our portfolios having a duration
that is either too short or too long whenever rates have changed course. We
expect these same market conditions to continue. Thus, this year we've made
several changes to our bond strategy, which should improve our performance in a
wider range of market conditions.
First, we have refined our technique for managing the Funds' sensitivity to
changes in interest rates. While we've retained our fundamental approach of
shortening the Funds' average maturity when rates rise (to protect principal)
and lengthening when rates fall (to capture capital gains), we expect to limit
the magnitude of such changes and to make them less frequently so that the
average maturity of the Fund more closely reflects broad market characteristics.
In so doing, we hope to produce returns which track the market more closely,
while still offering downside protection in bear markets.
Second, we are placing greater emphasis on sources of potential return
other than changes in interest rates, or duration. We will be more active in our
search for mispriced sectors of the markets and in managing our allocations to
those sectors.
Despite these enhancements, our strategy remains the same in two important
ways. We continue to emphasize high quality, intermediate bonds to capture broad
market returns. Therefore, the Funds' average maturity remains limited to ten
years or less. And, as always, changes to the Funds' average maturity are made
in response to, NOT IN ANTICIPATION OF, rate movements. We remain trend
FOLLOWERS, at least until a highly accurate, reliable method is discovered for
predicting future rates.
-11-
<PAGE>
REPORT FROM THE FUND MANAGER (CONTINUED)
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM U.S. TREASURY FUND
PERFORMANCE OVERVIEW No Load Class
- --------------------------------------------------------------------------------
[GRAPH]
INTERMEDIATE-TERM TREASURY FUND
Since
1 Year 5 Year Inception
--------------------------------
SAFECO Intermediate-Term U.S. Treasury Fund 5.19 5.86 7.28
Merrill Lynch Intermediate-Term Treasury Index 6.91 6.24 7.98
Int Treas Merrill
--------------------------------
09/30/88 10,000 10,000
10/31/88 10,192 10,136
11/30/88 10,113 10,048
12/31/88 10,125 10,057
01/31/89 10,185 10,156
02/28/89 10,133 10,114
03/31/89 10,151 10,164
04/30/89 10,330 10,351
05/31/89 10,511 10,569
06/30/89 10,751 10,839
07/31/89 10,939 11,060
08/31/89 10,837 10,906
09/30/89 10,882 10,961
10/31/89 11,065 11,186
11/30/89 11,146 11,295
12/31/89 11,169 11,324
01/31/90 11,102 11,259
02/28/90 11,158 11,288
03/31/90 11,152 11,310
04/30/90 11,123 11,270
05/31/90 11,334 11,509
06/30/90 11,449 11,658
07/31/90 11,603 11,826
08/31/90 11,561 11,774
09/30/90 11,606 11,882
10/31/90 11,699 12,047
11/30/90 11,820 12,227
12/31/90 11,968 12,400
01/31/91 12,022 12,526
02/28/91 12,116 12,591
03/31/91 12,202 12,660
04/30/91 12,337 12,791
05/31/91 12,402 12,864
06/30/91 12,417 12,877
07/31/91 12,572 13,016
08/31/91 12,783 13,259
09/30/91 12,976 13,485
10/31/91 13,115 13,637
11/30/91 13,250 13,797
12/31/91 13,586 14,134
01/31/92 13,431 13,991
02/28/92 13,448 14,044
03/31/92 13,399 13,987
04/30/92 13,501 14,115
05/31/92 13,695 14,316
06/30/92 13,909 14,524
07/31/92 14,256 14,793
08/31/92 14,367 14,964
09/30/92 14,634 15,171
10/31/92 14,366 14,985
11/30/92 14,277 14,918
12/31/92 14,478 15,115
01/31/93 14,851 15,397
02/28/93 15,179 15,628
03/31/93 15,241 15,686
04/30/93 15,350 15,810
05/31/93 15,299 15,763
06/30/93 15,670 15,990
07/31/93 15,694 16,022
08/31/93 16,081 16,267
09/30/93 16,172 16,337
10/31/93 16,208 16,366
11/30/93 15,948 16,287
12/31/93 16,048 16,351
01/31/94 16,256 16,514
02/28/94 15,826 16,279
03/31/94 15,493 16,051
04/30/94 15,383 15,942
05/31/94 15,390 15,959
06/30/94 15,361 15,970
07/31/94 15,564 16,168
08/31/94 15,604 16,219
09/30/94 15,434 16,088
10/31/94 15,440 16,092
11/30/94 15,408 16,012
12/31/94 15,468 16,072
01/31/95 15,645 16,339
02/28/95 15,879 16,652
03/31/95 15,960 16,743
04/30/95 16,157 16,935
05/31/95 16,774 17,419
06/30/95 16,886 17,533
07/31/95 16,755 17,545
08/31/95 16,955 17,689
09/30/95 17,142 17,808
10/31/95 17,403 18,008
11/30/95 17,757 18,232
12/31/95 18,059 18,418
01/31/96 18,117 18,576
02/28/96 17,676 18,368
03/31/96 17,490 18,280
04/30/96 17,454 18,222
05/31/96 17,451 18,212
06/30/96 17,577 18,390
07/31/96 17,632 18,447
08/31/96 17,631 18,467
09/30/96 17,828 18,701
10/31/96 18,047 19,006
11/30/96 18,279 19,240
12/31/96 18,128 19,135
01/31/97 18,184 19,206
02/28/97 18,136 19,227
03/31/97 17,915 19,129
04/30/97 18,167 19,343
05/31/97 18,307 19,492
06/30/97 18,489 19,660
* The Fund's inception was September 7, 1988. Graph and average annual return
comparison begins September 30, 1988.
The performance graph compares a hypothetical $10,000 investment in the
Fund to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
THE SAFECO INTERMEDIATE TERM U.S. TREASURY FUND returned 2.0% for the
six-month period and 5.19% for the year ended June 30, 1997. On average,
intermediate-term Treasury funds, as measured by Lipper Analytical Services,
had a six-month return of 2.17% and a 12-month return of 6.51%. The sector,
as measured by the Merrill Lynch Intermediate Treasury Index (which includes
no operating expenses or transaction costs), returned 6.91% for the year.
We bought high-quality U.S. government agency securities to increase the
Fund's yield. We've also adjusted the mix of Treasury holdings to maximize
yield, while maintaining a relatively short average maturity overall.
SAFECO INTERMEDIATE-
TERM U.S. TREASURY FUND
- --------------------------------------------------------------------------------
Current Yield (30-Day) . . . . . . . . . . . . . . . . . . . . .5.71%
Weighted Average Maturity. . . . . . . . . . . . . . . . . 5.90 years
THE SAFECO MANAGED BOND FUND
- --------------------------------------------------------------------------------
Current Yield (30-Day) . . . . . . . . . . . . . . . . . . . . .5.43%
Weighted Average Maturity. . . . . . . . . . . . . . . . . 6.02 years
THE SAFECO MANAGED BOND FUND returned 1.91% for the six-month period and
4.59% for the year ended June 30, 1997. The sector as a whole, as measured by
the Lehman Brothers Government/Corporate Bond Index, returned 2.75% for the
period, and 7.75% for the year.
We reduced the Managed Bond Fund's overall allocation to corporate
-12-
<PAGE>
SAFECO MANAGED BOND FUND
S&P CREDIT RATING DISTRIBUTION
AS A PERCENTAGE OF NET ASSETS
- --------------------------------------------------------------------------------
[CHART]
S&P CREDIT RATING DISTRIBUTION PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
AAA 81%
AA 1
A 13
Cash & Other Assets, Less Liabilities 5
----
100%
----
----
bonds from 26% to 16% over the six-month period because of the increasing risk
that the difference between Treasury and corporate yields would widen, causing
corporate bond values to fall. With our remaining corporate holdings, "we moved
out the yield curve," lengthening maturities and increasing the Fund's yield in
the process. To improve diversification, we reduced the average position in a
given company while increasing the number of different companies whose bonds we
hold.
/s/ Michael C. Knebel
Michael Knebel, Portfolio Manager
SAFECO Intermediate-Term
U.S. Treasury Fund and
SAFECO Managed Bond Fund
- --------------------------------------------------------------------------------
Michael Knebel oversees SAFECO Corporation's entire taxable bond operation. He
has 13 years investment experience, an MBA from the University of Minnesota and
is a Chartered Financial Analyst.
SAFECO MANAGED BOND FUND
- --------------------------------------------------------------------------------
BONDS BY TYPE PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
U.S. Treasury Securities . . . . . . . . . . . . . . . . . 76%
Financial & Banking. . . . . . . . . . . . . . . . . . . . 12%
Building Materials . . . . . . . . . . . . . . . . . . . . 1%
Retail . . . . . . . . . . . . . . . . . . . . . . 4%
FHLMC . . . . . . . . . . . . . . . . . . . . . . 2%
Cash, Temporary Investments and Other. . . . . . . . . . . 5%
----
100%
----
----
- --------------------------------------------------------------------------------
MANAGED BOND FUND
PERFORMANCE OVERVIEW NO LOAD CLASS
- --------------------------------------------------------------------------------
[GRAPH]
MANAGED BOND FUND
Since
1 Year Inception
------------------------
SAFECO Managed Bond Fund 4.59 4.56
Managed Lehman
------------------------
02/28/94 10,000 10,000
03/31/94 9,666 9,755
04/30/94 9,657 9,674
05/31/94 9,666 9,657
06/30/94 9,653 9,634
07/31/94 9,757 9,827
08/31/94 9,780 9,831
09/30/94 9,703 9,683
10/31/94 9,709 9,672
11/30/94 9,680 9,655
12/31/94 9,699 9,718
01/31/95 9,828 9,905
02/28/95 9,991 10,135
03/31/95 10,038 10,203
04/30/95 10,167 10,344
05/31/95 10,533 10,778
06/30/95 10,615 10,864
07/31/95 10,541 10,822
08/31/95 10,674 10,960
09/30/95 10,791 11,072
10/31/95 10,962 11,235
11/30/95 11,178 11,420
12/31/95 11,382 11,588
01/31/96 11,400 11,660
02/28/96 11,127 11,412
03/31/96 11,010 11,317
04/30/96 11,004 11,239
05/31/96 11,009 11,219
06/30/96 11,092 11,370
07/31/96 11,127 11,396
08/31/96 11,148 11,369
09/30/96 11,239 11,571
10/31/96 11,357 11,841
11/30/96 11,486 12,058
12/31/96 11,384 11,925
01/31/97 11,407 11,939
02/28/97 11,383 11,964
03/31/97 11,236 11,822
04/30/97 11,380 11,994
05/31/97 11,469 12,106
06/30/97 11,601 12,251
* The Fund's inception was June 25, 1992. Graph and average annual return
comparison begins February 28, 1994 (initial public offering).
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment in a relevant market index. The index is unmanaged and
includes no operating expenses or transaction costs. Past performance is not
predictive of future results. Principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
-13-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
As of June 30, 1997 (Unaudited)
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES - 98.6%
U.S. FEDERAL AGENCY NOTES - 6.4%
$1,000 6.875%, due 11/22/06 . . . . . . . . . . . . . . . . . $ 982
U.S. TREASURY NOTES - 86.6%
2,450 7.75%, due 2/15/01 . . . . . . . . . . . . . . . . . . 2,563
1,300 7.50%, due 11/15/01 . . . . . . . . . . . . . . . . . 1,355
3,470 7.25%, due 8/15/04 . . . . . . . . . . . . . . . . . . 3,617
3,310 6.875%, due 3/31/00 . . . . . . . . . . . . . . . . . 3,364
2,375 6.50%, due 10/15/06 . . . . . . . . . . . . . . . . . 2,364
U.S. TREASURY PRINCIPAL STRIPS - 5.6%
1,625 0.00%, due 2/15/07 . . . . . . . . . . . . . . . . . . 861
-------
TOTAL U.S. GOVERNMENT SECURITIES . . . . . . . . . . . . . . . . . . 15,106
-------
TEMPORARY INVESTMENTS - 0.2%
INVESTMENT COMPANIES:
$ 26 SSgA Money Market
Portfolio . . . . . . . . . . . . . . . . . . . . . . $ 26
-------
TOTAL TEMPORARY INVESTMENTS. . . . . . . . . . . . . . . . . . . . . 26
-------
TOTAL INVESTMENTS - 98.8%. . . . . . . . . . . . . . . . . . . . . . 15,132
Other Assets, less Liabilities . . . . . . . . . . . . . . . . . . . 180
-------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,312
-------
-------
SEE NOTES TO FINANCIAL STATEMENTS
-14-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO MANAGED BOND FUND
As of June 30, 1997 (Unaudited)
PRINCIPAL
AMOUNT/(000's) VALUE (000's)
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 1.5%
Financial - 1.5%
$ 67 Chevy Chase Auto ABS
Series 1996-1, Class A
6.60%, due 12/15/02. . . . . . . . . . . . . . . . . . $ 67
-------
TOTAL ASSET-BACKED SECURITIES. . . . . . . . . . . . . . . . . . . . 67
-------
CORPORATE BONDS - 18.0%
BANK - DOMESTIC - 1.1%
50 Banc One Corp.
7.60%, due 5/01/07 . . . . . . . . . . . . . . . . . . 51
BANK - MAJOR REGION - 1.5%
75 ABN Amro Bank
7.125%, due 6/18/07. . . . . . . . . . . . . . . . . . 75
BUILDING MATERIALS - 1.5%
70 Hanson Overseas
6.75%, due 9/15/05 . . . . . . . . . . . . . . . . . . 68
FINANCIAL - DIVERSIFIED - 3.7%
100 Federal Home Loan
Mortgage Corp.
5.78%, due 10/22/03. . . . . . . . . . . . . . . . . . 95
75 Student Loan Marketing
Association
6.375%, due 2/11/00. . . . . . . . . . . . . . . . . . 75
FINANCE - MISC. - 6.4%
110 Ford Motor Credit Co.
7.20%, due 6/15/07 . . . . . . . . . . . . . . . . . . 110
70 Lehman Brother Holdings, Inc.
7.375%, due 5/15/04. . . . . . . . . . . . . . . . . . 71
115 Smith Barney Holdings
6.625%, due 11/15/03 . . . . . . . . . . . . . . . . . 113
RETAIL - 1.6%
$ 75 Sears Roebuck Acceptance Corp.
6.75%, due 9/15/05 . . . . . . . . . . . . . . . . . . $ 74
RETAIL - DEPARTMENT STORES - 2.2%
100 J.C. Penney Co., Inc.
7.60%, due 4/01/07 . . . . . . . . . . . . . . . . . . 104
-------
TOTAL CORPORATE BONDS. . . . . . . . . . . . . . . . . . . . . . . . 836
-------
U.S. GOVERNMENT SECURITIES - 75.5%
U. S. TREASURY NOTES - 54.0%
305 7.25%, due 8/15/04 . . . . . . . . . . . . . . . . . . 318
430 6.875%, due 3/31/00. . . . . . . . . . . . . . . . . . 437
465 6.50%, due 10/15/06. . . . . . . . . . . . . . . . . . 463
600 6.375%, due 9/30/01. . . . . . . . . . . . . . . . . . 600
685 5.75%, due 12/31/98. . . . . . . . . . . . . . . . . . 683
U. S. TREASURY PRINCIPAL STRIP - 21.5%
1,875 0.00%, due 2/15/07 . . . . . . . . . . . . . . . . . . 993
-------
TOTAL U.S. GOVERNMENT SECURITIES . . . . . . . . . . . . . . . . . . 3,494
-------
TEMPORARY INVESTMENTS - 4.6%
INVESTMENT COMPANIES:
213 SSgA Money Market
Portfolio. . . . . . . . . . . . . . . . . . . . . . . 213
-------
TOTAL TEMPORARY INVESTMENTS. . . . . . . . . . . . . . . . . . . . . 213
-------
TOTAL INVESTMENTS - 99.6%. . . . . . . . . . . . . . . . . . . . . . 4,610
Other Assets, less Liabilities . . . . . . . . . . . . . . . . . . . 16
-------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,626
-------
-------
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
-15-
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO
SAFECO SAFECO INTERMEDIATE-TERM MANAGED
(In Thousands, Except HIGH-YIELD GNMA U.S. TREASURY BOND
Per-Share Amounts) BOND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at Cost $ 56,041 $ 36,805 $ 15,171 $ 4,568
--------- --------- --------- ---------
--------- --------- --------- ---------
Investments, at Value $ 57,937 $ 37,628 $ 15,132 $ 4,610
Receivables
Trust Shares Sold $ 14 2,476 -- --
Dividends and Interest 1,142 235 275 43
Deferred Organization Expense -- -- -- 10
--------- --------- --------- ---------
Total Assets 59,093 40,339 15,407 4,663
LIABILITIES
Payables
Trust Shares Redeemed -- 2,985 -- --
Dividends 485 211 72 19
Investment Advisory Fees 32 21 7 2
Organization Expense -- -- -- 10
Other 15 18 16 6
--------- --------- --------- ---------
Total Liabilities 532 3,235 95 37
--------- --------- --------- ---------
NET ASSETS $ 58,561 $ 37,104 $ 15,312 $ 4,626
--------- --------- --------- ---------
--------- --------- --------- ---------
NO LOAD CLASS:
Net Assets $ 58,338 $ 37,104 $ 14,652 $ 4,286
Trust Shares Outstanding 6,551 3,957 1,462 $ 517
--------- --------- --------- ---------
Net Asset Value, Offering Price and
Redemption Price Per Share $ 8.91 $ 9.38 $ 10.02 $ 8.30
--------- --------- --------- ---------
--------- --------- --------- ---------
CLASS A:
Net Assets $ 122 -- $ 366 $ 140
Trust Shares Outstanding 14 37 $ 17
--------- --------- ---------
Net Asset Value and Redemption
Price Per Share $ 8.90 $ 10.03 $ 8.30
--------- --------- ---------
--------- --------- ---------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 9.32 $ 10.50 $ 8.69
--------- --------- ---------
--------- --------- ---------
CLASS B:
Net Assets $ 101 -- $ 294 $ 200
Trust Shares Outstanding 11 29 24
--------- --------- ---------
Net Asset Value and Offering
Price Per Share* $ 8.90 $ 10.03 $ 8.30
--------- --------- ---------
--------- --------- ---------
</TABLE>
* Redemption price per share is the net asset value less any applicable
contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
-16-
<PAGE>
STATEMENTS OF OPERATIONS
For the Six-Month Period Ended June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO
SAFECO SAFECO INTERMEDIATE-TERM MANAGED
HIGH-YIELD GNMA U.S. TREASURY BOND
(In Thousands) BOND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 2,655 $ 1,418 $ 507 $ 137
EXPENSES
Investment Advisory Fees 172 122 42 11
Transfer Agent Fees 38 32 12 --
Shareholder Services Fees-Class A -- -- 1 --
Shareholder Services Fees-Class B -- -- 1 --
Distribution Fees-Class B 1 -- 1 1
Legal and Auditing Fees 8 8 7 7
Custodian Fees 10 7 2 3
Reports to Shareholders 8 4 4 --
Trustees' Fees 2 2 2 2
Loan Interest 4 2 -- --
Amortization of
Organization Expenses -- -- -- 3
--------- --------- --------- ---------
Total Expenses 243 177 72 27
--------- --------- --------- ---------
NET INVESTMENT INCOME 2,412 1,241 435 110
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss)
on Investments (24) 198 (85) (73)
Net Change in Unrealized
Appreciation (Depreciation) 663 (116) (43) 45
--------- --------- --------- ---------
NET GAIN (LOSS) ON INVESTMENTS 639 82 (128) (28)
--------- --------- --------- ---------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 3,051 $ 1,323 $307 $82
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-17-
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO HIGH-YIELD BOND FUND SAFECO GNMA FUND
------------------------------------- -------------------------------------
SIX- THREE- SIX- THREE-
MONTH MONTH MONTH MONTH
PERIOD PERIOD YEAR PERIOD PERIOD YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30 DEC. 31 SEPT. 30 JUNE 30 DEC. 31 SEPT. 30
- -----------------------------------------------------------------------------------------------------------------------------------
(In Thousands) 1997 1996 1996 1997 1996 1996
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 2,412 $ 1,092 $ 3,696 $ 1,241 $ 644 $ 2,711
Net Realized Gain (Loss) from
Investments (24) (426) 504 198 31 (416)
Net Change in Unrealized
Appreciation (Depreciation) 663 597 46 (116) 403 (453)
------- ------- ------- ------- ------- -------
Net Change in Net Assets
Resulting from Operations 3,051 1,263 4,246 1,323 1,078 1,842
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income
No-Load Class (2,404) (1,092) (3,696) (1,241) (644) (2,711)
Class A (4) -- -- -- -- --
Class B (4) -- -- -- -- --
NET REALIZED GAIN ON
INVESTMENTS - NO-LOAD -- -- -- -- -- --
------- ------- ------- ------- ------- -------
TOTAL (2,412) (1,092) (3,696) (1,241) (644) (2,711)
NET TRUST SHARE TRANSACTIONS
No-Load Class 7,603 2,247 8,152 (2,521) (594) (3,483)
Class A 21 -- -- -- -- --
Class B -- -- -- -- -- --
------- ------- ------- ------- ------- -------
TOTAL 7,624 2,247 8,152 (2,521) (594) (3,483)
------- ------- ------- ------- ------- -------
TOTAL CHANGE IN NET ASSETS 8,263 2,418 8,702 (2,439) (160) (4,352)
NET ASSETS AT BEGINNING OF PERIOD 50,298 47,880 39,178 39,543 39,703 44,055
------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PERIOD $58,561 $50,298 $47,880 $37,104 $39,543 $39,703
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND
AMOUNTS
SHARES:
Sales 8,725 1,190 6,549 345 107 694
Reinvestments 136 78 251 77 48 198
Redemptions (7,989) (1,013) (5,863) (691) (218) (1,267)
------- ------- ------- ------- ------- -------
NET CHANGE 872 255 937 (269) (63) 375
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
AMOUNTS:
Sales $77,005 $10,466 $56,960 $ 3,204 $ 1,008 $ 6,526
Reinvestments 1,199 690 2,181 716 447 1,858
Redemptions (70,580) (8,909) (50,989) (6,441) (2,049) (11,867)
------- ------- ------- ------- ------- -------
NET CHANGE $ 7,624 $ 2,247 $ 8,152 $(2,521) $ (594) $(3,483)
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-18-
<PAGE>
<TABLE>
<CAPTION>
SAFECO INTERMEDIATE-TERM SAFECO MANAGED
U.S. TREASURY FUND BOND FUND
-------------------------------------- -----------------------
SIX- THREE- SIX-
MONTH MONTH MONTH
PERIOD PERIOD YEAR PERIOD YEAR
ENDED END ENDED ENDED ENDED
JUNE 30 DEC. 31 SEPT. 30 JUNE 30 DEC. 31
-------------------------------------- -----------------------
(In Thousands) 1997 1996 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 435 $ 242 $ 758 $ 110 $ 208
Net Realized Gain (Loss) from
Investments (85) (125) 290 (73) 2
Net Change in Unrealized
Appreciation (Depreciation) (43) 144 (496) 45 (210)
-------- -------- -------- -------- --------
Net Change in Net Assets
Resulting from Operations 307 261 552 82 0
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income
No-Load Class (409) (232) (758) (105) (206)
Class A (20) (8) -- (3) (1)
Class B (6) (2) -- (2) (1)
NET REALIZED GAIN ON
INVESTMENTS - NO-LOAD -- -- -- -- (2)
-------- -------- -------- -------- --------
TOTAL (435) (242) (758) (110) (210)
NET TRUST SHARE TRANSACTIONS
No-Load Class 95 189 900 98 (72)
Class A (333) 607 100 1 140
Class B 72 123 100 100 100
-------- -------- -------- -------- --------
Total (166) 919 1,100 199 168
-------- -------- -------- -------- --------
TOTAL CHANGE IN NET ASSETS (294) 938 894 171 (42)
NET ASSETS AT BEGINNING OF PERIOD 15,606 14,668 13,774 4,455 4,497
-------- -------- -------- -------- --------
Net Assets at End of Period $ 15,312 $ 15,606 $ 14,668 $ 4,626 $ 4,455
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND
AMOUNTS
SHARES:
Sales 193 149 1,516 14 30
Reinvestments 17 12 35 10 24
Redemptions (226) (70) (1,444) 0 (33)
-------- -------- -------- -------- --------
NET CHANGE (16) 91 107 24 21
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
AMOUNTS:
Sales $ 1,924 $ 1,515 $ 18,860 $ 114 $ 246
Reinvestments 175 117 358 85 201
Redemptions (2,265) (713) (18,118) 0 (279)
-------- -------- -------- -------- --------
Net Change $ (166) $ 919 $ 1,100 $ 199 $ 168
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-19-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The SAFECO Taxable Bond Trust (consisting of the SAFECO High-Yield Bond
Fund, SAFECO GNMA Fund, and SAFECO Intermediate-Term U.S. Treasury Fund) and the
SAFECO Managed Bond Trust (consisting of the SAFECO Managed Bond Fund) (together
"the Funds") are registered under the Investment Company Act of 1940, as
amended, as diversified, open-end management investment companies.
Effective September 30, 1996, the Intermediate-Term U.S. Treasury Fund and
Managed Bond Fund began issuing two new classes of shares--Class A and Class B
shares (collectively, "Advisor Classes"). Effective January 31, 1997, the High-
Yield Bond Fund also began issuing Advisor Classes. Unlike the no-load class of
shares (which are sold directly to the shareholder with no associated sales and
distribution charges), these new classes of shares are sold by financial
advisors to shareholders and have associated sales and distribution charges.
Each class of shares represents an interest in the net assets of the Fund.
In connection with issuing the new Advisor Classes, the Intermediate-Term
U.S. Treasury, Managed Bond, and High-Yield Bond Funds adopted a Plan of
Distribution (the "Plan"). Under the Plan, each Advisor Class pays the
distributor, SAFECO Securities Corp., for selling its shares at the annual rate
of .25% of the average daily net assets of the Advisor Class. Class B shares
also pay the distributor a distribution fee at the annual rate of .75% of the
average daily net assets of the Class B shares.
Under the Plans, the distributor uses the service fees primarily to
compensate persons selling Advisor Class shares for providing ongoing services
and the maintenance of shareholder accounts. The distributor uses the
distribution fees primarily to offset the commissions it pays to financial
advisors for selling Class B shares.
2. SIGNIFICANT
ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by 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 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.
-20-
<PAGE>
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
Managed Bond Fund has elected to amortize premium on securities purchased above
par value. The Funds in the Taxable Bond Trust 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 December.
FEDERAL INCOME AND EXCISE TAXES. Each Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies by distributing substantially all taxable income to their shareholders
in a manner which results in no tax to the Funds. Therefore, no federal income
or excise tax provision is required.
3. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
SAFECO SAFECO
SAFECO SAFECO INTERMEDIATE-TERM MANAGED
HIGH-YIELD GNMA U.S. TREASURY BOND
(In Thousands) BOND FUND FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PURCHASES FOR THE SIX-MONTH
PERIOD ENDED JUNE 30, 1997
(excluding short-term securities
and including $0, $22,585, $8,965,
and $4,186 respectively, of U.S.
Government obligations) $ 25,949 $ 22,585 $ 8,965 $ 5,834
--------- --------- --------- ---------
--------- --------- --------- ---------
SALES FOR THE SIX-MONTH
PERIOD ENDED JUNE 30, 1997
(excluding short-term securities
and including $0, $24,651, $9,118,
and $4,486 respectively, of U.S.
Government obligations) $ 19,445 $ 24,651 $ 9,118 $ 5,718
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
-21-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. COMPONENTS OF NET ASSETS
At June 30, 1997, the components of net assets were as follows:
<TABLE>
<CAPTION>
SAFECO SAFECO
SAFECO SAFECO INTERMEDIATE-TERM MANAGED
HIGH-YIELD GNMA U.S. TREASURY BOND
(In Thousands) BOND FUND FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate gross unrealized appreciation
for investment securities in which
there is an excess of value over
identified cost $ 2,132 $ 892 $ 77 $ 43
Aggregate gross unrealized depreciation
for investment securities in which
there is an excess of identified cost
over value (236) (69) (116) (1)
---------- ---------- ---------- ----------
Net unrealized appreciation
(depreciation) $ 1,896 $ 823 $ (39) $ 42
Accumulated net realized (loss) on
investment transactions* (1,317) (2,784) (281) (73)
Paid in capital (par value $.001,
unlimited shares authorized) 57,982 39,065 15,632 4,657
---------- ---------- ---------- ----------
NET ASSETS AT JUNE 30, 1997 $ 58,561 $ 37,104 $ 15,312 $ 4,626
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
* The above accumulated net realized losses on investment transactions
represent capital loss carryforwards for federal income tax purposes, which
expire as follows:
(In Thousands) AMOUNTS EXPIRATION DATES
- --------------------------------------------------------------------------------
SAFECO High-Yield Bond Fund $(1,317) 1997-2005
SAFECO GNMA Fund (2,784) 1999-2003
SAFECO Intermediate-Term U.S. Treasury Fund (281) 2001-2005
SAFECO Managed Bond Fund (73) 2005
5. INVESTMENT ADVISORY FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
SAFECO Asset Management Company receives investment advisory fees from the
Funds. These fees are based on a percentage of each day's net assets, which, on
an annual basis, are as follows:
HIGH-YIELD & GNMA FUNDS INTERMEDIATE-TERM U.S. TREASURY FUND
First $250 million .65% First $250 million .55%
Next $250 million .55 Next $250 million .45
Next $250 million .45 Next $250 million .35
Over $750 million .35 Over $750 million .25
MANAGED BOND FUND
First $100 million .50%
Next $150 million .40
Over $250 million .35
-22-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
TRANSFER AGENT FEES. SAFECO Services Corporation receives transfer agent
fees.
NOTES PAYABLE AND INTEREST EXPENSE. The Funds may borrow money for
temporary purposes from SAFECO Corporation or its affiliates. Interest rates
equivalent to commercial bank interest rates are charged on loans over $100,000.
No interest is charged on loans under $100,000.
AFFILIATE OWNERSHIP. At June 30, 1997, SAFECO Corporation owned 500,000
shares (8%) of the High-Yield Bond Fund, SAFECO Insurance Company of America
owned 500,000 shares (33%) of the Intermediate-Term U.S. Treasury Fund, and
SAFECO Asset Management Company owned 39,599 shares (7%) of the Managed Bond
Fund.
DEFERRED ORGANIZATION EXPENSES. Costs related to the organization of the
Managed Bond Fund have been deferred and are being amortized to operations over
a period of sixty months. These costs were advanced by SAFECO Asset Management
Company and are being reimbursed by the Fund over a sixty-month period.
-23-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO HIGH-YIELD BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX- THREE-
MONTH MONTH
PERIOD PERIOD
ENDE ENDED
JUNE 30 DEC. 31 YEAR ENDED SEPTEMBER 30
---------------------------------------------------------------
1997 1996 1996 1995 1994 1993
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 8.82 $ 8.79 $ 8.68 $ 8.55 $ 9.22 $ 8.92
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.40 0.19 0.78 0.79 0.82 0.91
Net Realized and Unrealized
Gain (Loss) on Investments 0.09 0.03 0.11 0.13 (0.67) 0.30
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.49 0.22 0.89 0.92 0.15 1.21
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.40) (0.19) (0.78) (0.79) (0.82) (0.91)
------- ------- ------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 8.91 $ 8.82 $ 8.79 $ 8.68 $ 8.55 $ 9.22
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
TOTAL RETURN 5.67%* 2.50%* 10.79% 11.43% 1.61% 14.29%
NET ASSETS AT END OF PERIOD (000's) $58,338 $50,298 $47,880 $39,178 $27,212 $28,291
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.91%** 0.90%** 0.94% 1.01% 1.03% 1.09%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 9.10%** 8.56%** 8.99% 9.28% 9.26% 9.94%
PORTFOLIO TURNOVER RATE 77.84%** 35.01%** 92.65% 38.03% 63.02% 50.27%
</TABLE>
- ------------------------------------------------------------------------------
* Not annualized.
**Annualized.
-24-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO HIGH-YIELD BOND FUND
CLASS A CLASS B
---------- ----------
FIVE-MONTH FIVE-MONTH
PERIOD PERIOD
ENDED ENDED
JUNE 30 JUNE 30
---------------------------------
1997 1997
- ----------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 8.83 $ 8.83
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.33 0.30
Net Realized and Unrealized
Gain on Investments 0.07 0.07
---------- ----------
Total from Investment Operations 0.40 0.37
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.33) (0.30)
Net Asset Value at End of Period $ 8.90 $ 8.90
---------- ----------
---------- ----------
TOTAL RETURN 5.51%* 5.18%*
NET ASSETS AT END OF PERIOD (000'S) $ 122 $ 101
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 1.03%** 1.79%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 7.51%** 6.93%**
PORTFOLIO TURNOVER RATE 77.84%** 77.84%**
- --------------------------------------------------------------------------------
* Not annualized. Total return excludes the effects of sales charges. If
sales charges were included, the total return would be lower.
** Annualized.
-25-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GNMA FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX- THREE-
MONTH MONTH
PERIOD PERIOD
ENDED ENDED
JUNE 30 DEC. 31 YEAR ENDED SEPTEMBER 30
---------------------------------------------------------------------------------
1997 1996 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 9.36 $ 9.26 $ 9.45 $ 9.05 $ 10.03 $ 9.95
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.31 0.15 0.60 0.60 0.60 0.67
Net Realized and Unrealized
Gain (Loss) on Investments 0.02 0.10 (0.19) 0.40 (0.98) 0.08
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.33 0.25 0.41 1.00 (0.38) 0.75
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.31) (0.15) (0.60) (0.60) (0.60) (0.67)
Net Asset Value at End of Period $ 9.38 $ 9.36 $ 9.26 $ 9.45 $9.05 $ 10.03
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
TOTAL RETURN 3.56%* 2.71%* 4.48% 11.49% -3.91% 7.81%
NET ASSETS AT END OF PERIOD (000'S) $37,104 $39,543 $39,703 $44,055 $46,176 $62,720
------- ------- ------- ------- ------- -------
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.95%** 1.01%** 1.03% 1.01% 0.95% 0.93%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 6.63%** 6.43%** 6.42% 6.55% 6.26% 6.71%
PORTFOLIO TURNOVER RATE 120.92%** 51.06%** 47.45% 131.24% 55.12% 70.96%
</TABLE>
- --------------
* Not annualized.
** Annualized.
-26-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX- THREE-
MONTH MONTH
PERIOD PERIOD
ENDED ENDED
JUNE 30 DEC. 31 YEAR ENDED SEPTEMBER 30
---------------------------------------------------------------------------------
1997 1996 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.11 $ 10.10 $ 10.24 $ 9.74 $ 10.74 $ 10.69
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.29 0.16 0.54 0.55 0.52 0.60
Net Realized and Unrealized
Gain (Loss) on Investments (0.09) 0.01 (0.14) 0.50 (1.00) 0.49
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.20 0.17 0.40 1.05 (0.48) 1.09
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.29) (0.16) (0.54) (0.55) (0.52) (0.60)
Distributions from Realized Gains -- -- -- -- -- (0.44)
------- ------- ------- ------- ------- -------
Total Distributions (0.29) (0.16) (0.54) (0.55) (0.52) (1.04)
------- ------- ------- ------- ------- -------
Net Asset Value at End of Period $10.02 $ 10.11 $ 10.10 $ 10.24 $ 9.74 $ 10.74
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
TOTAL RETURN 1.99%* 1.68%* 4.00% 11.07% -4.56% 10.51%
NET ASSETS AT END OF PERIOD (000'S) $14,652 $14,679 $14,668 $13,774 $13,367 $14,706
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.91%** 0.85%**+ 1.01% 0.96% 0.90% 0.99%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.80%** 6.30%** 5.30% 5.51% 5.08% 5.52%
PORTFOLIO TURNOVER RATE 119.98%** 125.42%** 294.25% 124.90% 75.46% 104.94%
</TABLE>
- --------------
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would be 1.07%
-27-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------ ------------------------------
SIX-MONTH THREE-MONTH SIX-MONTH THREE-MONTH
PERIOD PERIOD PERIOD PERIOD
ENDED ENDED ENDED ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31
------------------------------ ------------------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.11 $ 10.10 $ 10.12 $ 10.10
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.26 0.15 0.24 0.14
Net Realized and Unrealized
Gain (Loss) on Investments (0.08) 0.01 (0.09) 0.02
---------- ---------- ---------- ----------
Total from Investment Operations 0.18 0.16 0.15 0.16
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.26) (0.15) (0.24) (0.14)
---------- ---------- ---------- ----------
Net Asset Value at End of Period $ 10.03 $ 10.11 $ 10.03 $ 10.12
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
TOTAL RETURN 1.84%* 1.63%* 1.53%* 1.55%*
NET ASSETS AT END OF PERIOD (000'S) $ 366 $ 704 $ 294 $ 223
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 1.42%** 1.07%**+ 1.84%** 1.72%**+
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.29%** 6.07%** 4.87%** 5.35%**
PORTFOLIO TURNOVER RATE 119.98%** 125.42%** 119.98%** 125.42%**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized. Total return excludes the effects of sales charges. If
sales charges were included, the total return would be lower.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would be 1.30% and 1.95% for Class A and
Class B, respectively.
-28-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
6. FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO MANAGED BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD
ENDED
JUNE 30 YEAR ENDED DECEMBER 31
1997 1996 1995 1994 1993+
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 8.35 $ 8.77 $ 8.15 $ 9.08 $ 9.57
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.21 0.41 0.44 0.27 (0.62)
Net Realized and Unrealized
Gain (Loss) on Investments (0.05) (0.42) 0.94 (0.93) 0.15
------- ------- ------- ------- -------
Total from Investment Operations 0.16 (0.01) 1.38 (0.66) (0.47)
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.21) (0.41) (0.44) (0.27) --
Distributions from Realized Gains -- -- (0.32) -- (0.02)
------- ------- ------- ------- -------
Total Distributions (0.21) (0.41) (0.76) (0.27) (0.02)
------- ------- ------- ------- -------
Net Asset Value at End of Period $ 8.30 $ 8.35 $ 8.77 $ 8.15 $ 9.08
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN 1.91%* 0.02% 17.35% -3.01% N/A
NET ASSETS AT END OF PERIOD (000'S) $ 4,286 $ 4,215 $4,497 $ 4,627 $ 91
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 1.18%** 1.27% 1.16% 1.37% 11.75%
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS 5.03%** 4.86% 5.14% 4.47% -6.75%
PORTFOLIO TURNOVER RATE 266.20%** 136.29% 78.78% 129.56% NONE
</TABLE>
- ----------------
+ Financial highlights relate only to the performance of the initial seed
investment of SAFECO Asset Management Company. Trust shares were not
available to the public until 1994.
Total return from February 28, 1994 (initial public offering) to December
31, 1994; not annualized.
* Not annualized.
** Annualized.
-29-
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO MANAGED BOND FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------ ------------------------------
SIX-MONTH THREE-MONTH SIX-MONTH THREE-MONTH
PERIOD PERIOD PERIOD PERIOD
ENDED ENDED ENDED ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31
------------------------------ ------------------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 8.35 $ 8.35 $ 8.35 $8.35
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.19 0.11 0.16 0.09
Net Realized and Unrealized
Gain (Loss) on Investments (0.05) -- (0.05) --
---------- ---------- ---------- ----------
Total from Investment Operations 0.14 0.11 0.11 0.09
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.19) (0.11) (0.16) (0.09)
---------- ---------- ---------- ----------
NET ASSET VALUE AT END OF PERIOD $ 8.30 $ 8.35 $ 8.30 $ 8.35
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
TOTAL RETURN 1.64%* 1.34%* 1.25%* 1.15%*
NET ASSETS AT END OF PERIOD (000'S) $ 140 $ 140 $ 200 $ 100
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 1.47%** 1.30%** 2.17%** 2.07%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.73%** 5.22%** 3.83%** 4.45%**
PORTFOLIO TURNOVER RATE 266.20%** 136.29%** 266.20%** 136.29%**
</TABLE>
- ----------------
* Not annualized. Total return excludes the effects of sales charges. If
sales charges were included, the total return would be lower.
** Annualized.
-30-
<PAGE>
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
SAFECO U.S. Value 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.
-31-
<PAGE>
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:
State Street Bank
AUDITOR:
Ernst & Young, LLP
FOR SHAREHOLDER SERVICE:
Monday-Friday,
5:30am-7:00pm Pacific Time
NATIONWIDE: 1-800-624-5711
SEATTLE: (206) 545-7319
Deaf and Hard of Hearing
TTY/TDD SERVICE: 1-800-438-8718
FOR 24-HOUR AUTOMATED
PERFORMANCE INFORMATION
AND TRANSACTIONS:
NATIONWIDE: 1-800-835-4391
SEATTLE: (206) 545-5113
MAILING ADDRESS:
SAFECO Mutual Funds
P.O. Box 34890
Seattle, WA 98124-1890
INTERNET:
http://www.safecofunds.com
E-MAIL: [email protected]
GMF 660 8/97
[Logo] Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
- -Registered Trademark- Registered trademark of SAFECO Corporation.
