<PAGE>
Semiannual Report
June 30, 1998
[SAFECO LOGO]
SAFECO MUTUAL FUNDS
CLASS A AND CLASS B SHARES
------
<TABLE>
<S> <C>
SAFECO STOCK FUNDS
Growth Fund............................................................. 2
Equity Fund............................................................. 9
Income Fund............................................................. 14
Northwest Fund.......................................................... 20
Balanced Fund........................................................... 25
International Stock Fund................................................ 32
Small Company Stock Fund................................................ 38
U.S. Value Fund......................................................... 43
SAFECO BOND FUNDS
High-Yield Bond Fund.................................................... 48
Intermediate-Term U.S. Treasury Fund.................................... 55
Managed Bond Fund....................................................... 59
SAFECO TAX-EXEMPT BOND FUNDS
Municipal Bond Fund..................................................... 66
California Tax-Free Income Fund......................................... 68
Washington State Municipal Bond Fund.................................... 77
SAFECO MONEY MARKET FUND
Money Market Fund....................................................... 81
</TABLE>
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO GROWTH FUND
June 30, 1998
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- --------------------------------------------------------------------------------
SAFECO Growth Fund remains in the top echelon of stock mutual funds
and ahead of the broad market. Returning 44.68% for Class A shares and
43.49% for Class B shares, not including the effects of sales charges, for the
12 months ending June 30. The Fund outperformed the S&P 500, the Russell 2000
Index and its peer funds. The S&P 500 returned 30.15%, the small-cap benchmark
climbed 16.79%, and the average growth fund delivered 25.38% according to Lipper
Analytical Services, Inc. [PHOTO OF THOMAS M. MAGUIRE]
Lipper ranks SAFECO Growth in the top 3% of growth funds for the one year
ended June 30, 1998. The Fund was 18 of 884
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIODS ENDED JUNE 30, 1998 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C> <C> <C> <C>
Class A 38.17% 24.83% 17.96% 44.68% 25.99% 18.50%
Class B 38.49% 25.50% 18.35% 43.49% 25.66% 18.35%
</TABLE>
INVESTMENT VALUE WITH SALES CHARGE
SAFECO GROWTH FUND CLASS A: $52,147
SAFECO GROWTH FUND CLASS B: $53,892
S&P 500 INDEX: $54,863
<TABLE>
<CAPTION>
SAFECO SAFECO
INVESTMENT VALUE GROWTH FUND GROWTH FUND
WITH SALES CHARGE CLASS A CLASS B S&P 500 INDEX
<S> <C> <C> <C>
06/30/88 $9,550 $10,000 $10,000
07/31/88 $9,525 $9,974 $9,962
08/31/88 $9,364 $9,805 $9,623
09/30/88 $9,826 $10,289 $10,033
10/31/88 $9,826 $10,289 $10,312
11/30/88 $9,839 $10,303 $10,165
12/31/88 $9,998 $10,470 $10,343
01/31/89 $9,998 $10,470 $11,100
02/28/89 $10,278 $10,762 $10,823
03/31/89 $10,537 $11,033 $11,075
04/30/89 $10,537 $11,033 $11,650
05/31/89 $10,965 $11,482 $12,122
06/30/89 $11,208 $11,736 $12,053
07/31/89 $11,208 $11,736 $13,141
08/31/89 $11,707 $12,259 $13,399
09/30/89 $12,306 $12,885 $13,344
10/31/89 $11,841 $12,399 $13,034
11/30/89 $11,805 $12,362 $13,300
12/31/89 $11,917 $12,478 $13,620
01/31/90 $10,762 $11,269 $12,706
02/28/90 $11,056 $11,577 $12,870
03/31/90 $11,723 $12,276 $13,211
04/30/90 $11,773 $12,328 $12,880
05/31/90 $12,979 $13,591 $14,136
06/30/90 $12,541 $13,132 $14,040
07/31/90 $12,785 $13,387 $13,995
08/31/90 $10,580 $11,078 $12,730
09/30/90 $9,393 $9,836 $12,110
10/31/90 $8,761 $9,174 $12,058
11/30/90 $9,410 $9,854 $12,837
12/31/90 $10,134 $10,611 $13,195
01/31/91 $11,146 $11,671 $13,770
02/28/91 $12,682 $13,279 $14,755
03/31/91 $13,302 $13,929 $15,112
04/30/91 $13,944 $14,601 $15,148
05/31/91 $14,864 $15,564 $15,803
06/30/91 $13,977 $14,636 $15,079
07/31/91 $15,286 $16,006 $15,782
08/31/91 $15,893 $16,642 $16,156
09/30/91 $15,990 $16,743 $15,886
10/31/91 $16,471 $17,247 $16,099
11/30/91 $15,081 $15,792 $15,450
12/31/91 $16,482 $17,259 $17,217
01/31/92 $17,688 $18,522 $16,897
02/28/92 $17,562 $18,390 $17,117
03/31/92 $16,257 $17,023 $16,783
04/30/92 $15,249 $15,967 $17,276
05/31/92 $14,871 $15,572 $17,361
06/30/92 $13,728 $14,374 $17,102
07/31/92 $14,304 $14,978 $17,802
08/31/92 $13,494 $14,129 $17,437
09/30/92 $13,138 $13,757 $17,643
10/31/92 $13,692 $14,338 $17,703
11/30/92 $15,422 $16,148 $18,304
12/31/92 $15,976 $16,729 $18,529
01/31/93 $16,643 $17,428 $18,684
02/28/93 $15,534 $16,266 $18,938
03/31/93 $16,145 $16,906 $19,338
04/30/93 $15,149 $15,863 $18,870
05/31/93 $15,929 $16,680 $19,374
06/30/93 $16,427 $17,201 $19,430
07/31/93 $16,371 $17,142 $19,352
08/31/93 $17,423 $18,244 $20,085
09/30/93 $18,187 $19,044 $19,931
10/31/93 $18,652 $19,530 $20,343
11/30/93 $17,865 $18,707 $20,150
12/31/93 $19,521 $20,441 $20,394
01/31/94 $20,572 $21,541 $21,087
02/28/94 $19,589 $20,512 $20,515
03/31/94 $18,606 $19,483 $19,623
04/30/94 $19,103 $20,003 $19,874
05/31/94 $19,278 $20,186 $20,198
06/30/94 $17,847 $18,688 $19,703
07/31/94 $18,246 $19,106 $20,350
08/31/94 $19,385 $20,298 $21,182
09/30/94 $18,893 $19,784 $20,665
10/31/94 $19,165 $20,068 $21,128
11/30/94 $18,643 $19,522 $20,359
12/31/94 $19,205 $20,109 $20,660
01/31/95 $18,909 $19,800 $21,195
02/28/95 $19,949 $20,889 $22,020
03/31/95 $19,872 $20,808 $22,669
04/30/95 $19,971 $20,912 $23,336
05/31/95 $20,769 $21,748 $24,283
06/30/95 $22,027 $23,065 $24,847
07/31/95 $22,804 $23,879 $25,669
08/31/95 $22,728 $23,799 $25,733
09/30/95 $23,414 $24,518 $26,819
10/31/95 $23,311 $24,409 $26,723
11/30/95 $23,548 $24,657 $27,893
12/31/95 $24,218 $25,359 $28,431
01/31/96 $25,115 $26,298 $29,398
02/28/96 $26,056 $27,284 $29,672
03/31/96 $25,659 $26,868 $29,956
04/30/96 $26,750 $28,011 $30,398
05/31/96 $27,887 $29,201 $31,180
06/30/96 $26,675 $27,932 $31,299
07/31/96 $24,044 $25,177 $29,917
08/31/96 $25,479 $26,680 $30,549
09/30/96 $26,731 $27,990 $32,267
10/31/96 $27,302 $28,570 $33,156
11/30/96 $28,357 $29,657 $35,660
12/31/96 $29,764 $31,112 $34,954
01/31/97 $32,307 $33,757 $37,135
02/28/97 $31,447 $32,838 $37,428
03/31/97 $30,325 $31,644 $35,894
04/30/97 $28,904 $30,157 $38,033
05/31/97 $33,289 $34,712 $40,345
06/30/97 $36,043 $37,558 $42,153
07/31/97 $38,147 $39,725 $45,506
08/31/97 $39,498 $41,103 $42,958
09/30/97 $42,672 $44,372 $45,311
10/30/97 $41,427 $43,068 $43,800
11/30/97 $43,690 $45,382 $45,825
12/31/97 $44,530 $46,262 $46,612
01/31/98 $45,166 $46,846 $47,127
02/28/98 $49,701 $51,495 $50,524
03/31/98 $52,764 $54,622 $53,109
04/30/98 $54,772 $56,686 $53,643
05/31/98 $52,187 $53,976 $52,722
06/30/98 $52,147 $53,892 $54,863
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing
to 0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 2 -
<PAGE>
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growth funds for Class A and 25 of 884 funds for Class B.
Despite being down for the quarter -1.17% for Class A shares and -1.34% for
Class B shares, not including the effects of sales charges, the Fund delivered
17.11% for Class A shares and 16.49% for Class B shares, not including the
effect of sales charges for the last six months. The average growth fund went
1.85% for the quarter and 15.11% for the half year. But over longer time periods
I'm more optimistic.
Our performance, the Fund's volatility, and the fact that we are often out of
step with the rest of the market are due to one thing: eclectic stock picking.
Because its good performance was discovered, SAFECO Growth experienced
tremendous asset growth and a drop in its expense ratio. Assets grew from $262
million at June 30, 1997, to $1.6 billion at June 30, 1998.
Because of the cash inflow, I bought some larger caps, notably: Avon, Green
Tree Financial, American Home Products, Philip Morris and Kimberly-Clark. The
advantage of investing in these larger companies is that I can acquire enough
stock to make a difference in the Fund's performance. Additionally, the money
goes right to work and is readily accessible when more intriguing opportunities
arise.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Green Tree Financial Corp. ........................................ 7.5%
(Financial Services Company)
Chancellor Media Corp. ............................................. 6.8
(Radio Stations)
Philip Morris Cos., Inc. ........................................... 4.9
(Food, Beverage & Tobacco Company)
Corrections Corp. of America ........................................ 3.9
(Correctional Institution Management)
Dura Pharmaceuticals, Inc. ......................................... 3.6
(Pharmaceuticals)
Emmis Broadcasting Corp. (Class A) .................................. 3.5
(Radio Stations)
MICROS Systems, Inc. ............................................... 2.7
(Specialty Software Company)
Beckman Coulter, Inc. .............................................. 2.7
(Medical Instruments Manufacturer)
Family Golf Centers, Inc. .......................................... 2.7
(Golf Recreation Centers)
United Stationers, Inc. ............................................ 2.6
(Office Products Distribution)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Chancellor Media Corp. ............................................ $68,488
Corrections Corp. of America ........................................ 67,890
Dura Pharmaceuticals, Inc. ......................................... 64,582
Philip Morris Cos., Inc. ........................................... 62,997
Kimberly-Clark Corp. ............................................... 51,366
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Kimberly-Clark Corp. .............................................. $24,989
*Elan Corp., plc (ADR) .............................................. 16,814
*First Data Corp. .................................................. 16,762
*Res-Care, Inc. .................................................... 14,719
*Boston Scientific Corp. ........................................... 14,712
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Broadcasting (Television, Radio & Cable) ............................ 11%
Financial (Miscellaneous) ............................................. 8
Health Care (Medical Products & Supplies) ............................. 6
Tobacco ............................................................... 5
Services (Commercial & Consumer) ...................................... 5
- -------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 3 -
<PAGE>
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REPORT FROM THE GROWTH FUND MANAGER
Green Tree, a manufactured housing financier that the Fund has
owned in the past, contributed tremendously to the Fund's success so
far in 1998. Its stock fell on an accounting controversy and we
acquired it on the cheap. Then, due to an agreement to merge with Conseco, it
climbed to be one of last quarter's top-performers on the New York Stock
Exchange.
We started buying Avon after its price fell on near-term earnings concerns.
Its long-term focus on cost cutting gives it a great outlook for earnings
growth. Indeed, year to date the stock is up 27% versus the S&P's 18%.
We bought American Home Products when its stock lost weight on a problem with
its diet drugs. Over the last six months, the stock gained 35% versus the S&P
500's 18%. A practiced acquirer, American Home recently announced a merger with
Monsanto that further solidifies its scientific nature and greatly enhances its
long-term growth prospects.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS
Large: 27% ($4 Bil. and above)
Medium: 19% ($1 Bil. - $4 Bil.)
Small: 54% (Less than $1 Bil.)
I like larger caps only when I smell value in them, and that usually arises
from a controversy. My preferred stocks continue to be those that are
undiscovered with ample room to appreciate. My current favorites include: Family
Golf (a consolidator of driving range facilities that has essentially acquired
all its major competition), Dura Pharmaceutical (a smaller pharmaceutical that
has created a niche in respiratory drugs), MICROS Systems (a point of sale
inventory systems provider that is simultaneously cutting costs and expanding
its product line and customer base), United Stationers (the largest player in
the consistent business of office product distribution) and Corrections Corp
(the largest private operator of prisons).
As your fund manager, I am working to invest creatively, keep up our good
results, be thankful when things go well, and remember that nothing lasts
forever.
Thomas M. Maguire
- -------------------------------
After completing his M.B.A. at the University of Washington, Thomas M. Maguire
joined the company as an equity analyst in 1981 and today is a Vice President.
From 1984 to 1989, he co-managed the SAFECO Equity Fund.
- 4 -
<PAGE>
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PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 98.2%
AUTOMOBILES - 0.2%
363,900 *Miller Industries, Inc. .......................... $ 2,820
AUTO PARTS & EQUIPMENT - 0.4%
607,000 *+Precision Auto Care, Inc. ......................... 5,994
BANKS (MAJOR REGIONAL) - 0.7%
405,405 Provident Bankshares Corp. ......................... 11,959
BIOTECHNOLOGY - 0.3%
338,700 *CryoLife, Inc. ..................................... 5,335
BROADCASTING (TELEVISION, RADIO & CABLE) - 10.6%
186,100 *American Tower Corp. (Class A) ...................... 4,641
2,266,898 *Chancellor Media Corp. ........................... 112,566
1,208,700 *+Emmis Broadcasting Corp. (Class A) ................ 57,791
BUILDING MATERIALS - 0.3%
475,100 *Hospitality Worldwide Services ...................... 4,276
CHEMICALS (SPECIALTY) - 0.7%
709,800 *+Tetra Technologies, Inc. ......................... 11,712
COMMUNICATIONS EQUIPMENT - 2.2%
100,000 *Advanced Commmunication Systems, Inc. .............. 1,244
218,000 *DSC Communications Corp. ........................... 6,540
155,700 *NewCom, Inc. ....................................... 1,479
353,000 Scientific-Atlanta, Inc. ............................ 8,957
48,100 Tyler Corp. ........................................... 496
577,300 *World Access, Inc. ................................ 17,319
COMPUTERS (HARDWARE) - 3.0%
146,200 *Equitrac Corp. ..................................... 2,906
1,338,028 *+MICROS Systems, Inc. ............................. 44,280
128,000 *Optimal Robotics Corp. ............................. 1,504
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMPUTERS (PERIPHERALS) - 0.5%
303,500 *Quantum Corp. .................................... $ 6,298
100,000 *Seagate Technology, Inc. ........................... 2,381
COMPUTERS (SOFTWARE & SERVICES) - 1.7%
43,479 *Affiliated Computer Services, Inc. ................. 1,674
1,203,400 *Discreet Logic, Inc. .............................. 13,990
622,500 *+Phoenix International Ltd., Inc. ................. 10,116
295,400 *TRO Learning, Inc. ................................. 2,566
CONSUMER FINANCE - 0.8%
655,300 Doral Financial Corp. .............................. 11,468
118,000 *+Waterside Capital Corp. ........................... 1,342
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.5%
250,500 *Action Performance Cos., Inc. ...................... 8,063
221,000 *Celebrity, Inc. ...................................... 262
CONTAINERS (METAL & GLASS) - 0.1%
221,400 *Ontro, Inc. .......................................... 858
DISTRIBUTORS (FOOD & HEALTH) - 2.6%
1,557,400 *Nu Skin Enterprises, Inc. (Class A) ................ 30,369
728,200 +Weider Nutrition International, Inc. .............. 12,379
DRUGS & HOSPITAL SUPPLY - 0.5%
335,500 *Zonagen, Inc. ...................................... 7,360
ELECTRICAL EQUIPMENT - 1.0%
389,900 *Kent Electronics Corp. ............................. 7,140
424,300 *+PCD, Inc. ......................................... 7,266
189,000 *Ultrak, Inc. ....................................... 1,607
ENGINEERING & CONSTRUCTION - 1.0%
360,400 *+American Buildings Co. ........................... 10,722
393,300 *Morrison Knudsen Corp. ............................. 5,531
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ENTERTAINMENT - 1.4%
376,400 *Championship Auto Racing Teams, Inc. ............. $ 6,869
335,600 *SFX Entertainment, Inc. (Class A) .................. 15,396
FINANCIAL (DIVERSIFIED) - 0.7%
483,600 *+BNC Mortgage, Inc. ................................ 5,320
274,475 *Credit Acceptance Corp. ............................ 2,333
444,700 United Panam Financial Corp. ........................ 4,558
FINANCIAL (MISCELLANEOUS) - 7.5%
2,898,500 Green Tree Financial Corp. ........................ 124,092
FOOTWEAR - 0.0%
48,000 *Rocky Shoes & Boots, Inc. ............................ 684
HEALTH CARE (DIVERSIFIED) - 2.1%
566,100 American Home Products Corp. ....................... 29,296
331,500 *Anesta Corp. ....................................... 4,786
42,000 *OrthAlliance, Inc. (Class A) .......................... 609
HEALTH CARE (DRUGS-GENERAL) - 3.9%
2,665,700 *+Dura Pharmaceuticals, Inc. ....................... 59,645
609,000 *+Nastech Pharmaceutical Co., Inc. .................. 4,948
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 2.5%
162,300 *Andrx Corp. ........................................ 5,965
436,900 *Gensia, Inc. ....................................... 1,748
162,500 Mylan Laboratories, Inc. ............................ 4,885
142,800 *PharmaPrint, Inc. .................................. 1,464
408,500 *Serologicals Corp. ................................ 13,174
255,000 *SuperGen, Inc. ..................................... 2,566
332,100 Teva Pharmaceutical Industries, Ltd. (ADR) .......... 11,686
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.0%
13,363 *AmSurg Corp. (Class A) ................................ 102
86,103 *AmSurg Corp. (Class B) ................................ 603
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (MANAGED CARE) - 0.3%
37,500 *Birner Dental Management Services, Inc. ........... $ 234
356,400 +First Commonwealth, Inc. ........................... 5,346
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 5.9%
246,400 *Anika Therapeutics, Inc. ........................... 3,604
758,800 *Beckman Coulter, Inc. ............................. 44,200
270,100 *Datascope Corp. .................................... 7,175
209,300 Dentsply International, Inc. ........................ 5,233
305,200 *EDAP TMS S.A. (ADR) ................................. 1,431
920,200 *Haemonetics Corp. ................................. 14,723
514,450 *+Lifeline Systems, Inc. ............................ 9,517
886,000 *+PolyMedica Industries, Inc. 7,974
552,800 *Quidel Corp. ....................................... 1,728
138,900 *Senetek, plc (ADR) .................................... 486
156,100 *Urologix, Inc. ..................................... 1,327
162,000 *UroQuest Medical Corp. ............................... 425
HEALTH CARE (SPECIALIZED SERVICES) - 0.5%
282,300 *American Healthcorp, Inc. . 2,788
183,000 *Laboratory Specialists of America, Inc. .............. 858
533,600 *Prime Medical Services, Inc. ....................... 5,003
HOMEBUILDING - 0.1%
57,187 *American Homestar Corp. ............................ 1,369
HOUSEHOLD FURNITURE & APPLIANCES - 0.4%
585,900 *International Comfort Products Corp. ............... 7,104
HOUSEHOLD PRODUCTS (NON-DURABLES) - 1.6%
545,000 Kimberly-Clark Corp. ............................... 25,002
311,500 *U.S. Home & Garden, Inc. ........................... 2,005
HOUSEWARES - 0.2%
293,200 *Home Products International, Inc. .................. 3,408
INSURANCE (LIFE-HEALTH) - 0.5%
170,000 Conseco, Inc. ....................................... 7,948
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
INVESTMENT BANKING/BROKERAGE - 0.3%
217,200 *E*TRADE Group, Inc. .............................. $ 4,982
LEISURE TIME (PRODUCTS) - 3.0%
250,000 *American Coin Merchandising, Inc. .................. 4,938
1,732,875 *+Family Golf Centers, Inc. ........................ 43,863
90,200 *Toymax International, Inc. ........................... 620
LODGING (HOTELS) - 1.4%
1,528,600 *+Suburban Lodges of America, Inc. ................. 23,120
MACHINERY (DIVERSIFIED) - 1.5%
690,700 Chart Industries, Inc. ............................. 16,490
210,800 *Innovative Valve Technologies, Inc. ................ 1,555
836,500 *+ITEQ, Inc. ........................................ 6,221
MANUFACTURING (DIVERSIFIED) - 1.6%
75,600 *ITC Learning Corp. ................................... 491
40,000 *Maverick Tube Corp. .................................. 465
439,100 +Nortek, Inc. ...................................... 13,502
422,850 *+Recovery Engineering, Inc. ........................ 8,906
246,000 *SurModics, Inc. .................................... 2,891
MANUFACTURING (SPECIALIZED) - 1.4%
213,000 Diebold, Inc. ....................................... 6,150
414,000 *+Teardrop Golf Co. ................................. 4,140
695,700 +Telco Systems, Inc. ................................ 9,870
218,600 *Zomax Optical Media, Inc. . 3,361
NATURAL GAS - 0.0%
108,000 Virginia Gas Co. ...................................... 662
OFFICE EQUIPMENT & SUPPLIES - 3.6%
81,600 *Asia Pacific Wire & Cable Corp., Ltd. ................ 428
367,000 Danka Business Systems (ADR) 4,335
244,500 *+Open Plan Systems, Inc. ............................. 565
698,400 *+TRM Copy Centers Corp. ............................ 9,952
668,800 *United Stationers, Inc. ........................... 43,305
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
PERSONAL CARE - 3.3%
475,000 Avon Products, Inc. ............................... $36,813
188,100 *French Fragrances, Inc. ............................ 2,939
727,700 *+Penederm, Inc. ................................... 14,554
REAL ESTATE INVESTMENT TRUST - 4.8%
493,500 CCA Prison Realty Trust ............................. 15,113
2,714,500 *Corrections Corp. of America ....................... 63,791
RESTAURANTS - 1.6%
358,300 Apple South, Inc. ................................... 4,680
446,500 *Rainforest Cafe, Inc. .............................. 6,195
464,300 *Rare Hospitality International, Inc. ............... 6,819
493,000 *+Schlotzsky's, Inc. ................................ 7,888
RETAIL (BUILDING SUPPLIES) - 0.8%
569,800 *Eagle Hardware & Garden, Inc. ..................... 13,177
RETAIL (DEPARTMENT STORES) - 0.8%
179,400 *Marks Brothers Jewelers, Inc. ...................... 3,498
266,300 *Rainbow Rentals, Inc. .............................. 2,829
338,500 *Value City Department Stores, Inc. ................. 7,109
RETAIL (DISCOUNTERS) - 0.1%
354,998 *Filene's Basement Corp. ............................ 1,936
RETAIL (FOOD CHAINS) - 2.3%
1,056,100 American Stores Co. ................................ 25,544
933,279 *NPC International, Inc. ........................... 11,433
RETAIL (GENERAL MERCHANDISE) - 0.3%
60,000 *Happy Kids, Inc. ..................................... 825
264,075 Phillips-Van Heusen Corp. ........................... 3,895
RETAIL (HOME SHOPPING) - 0.4%
734,900 *+Damark International, Inc. ........................ 6,247
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (SPECIALTY) - 0.9%
229,300 *1-800 Contacts, Inc. ............................. $ 3,497
354,300 *+Funco, Inc. ....................................... 5,004
148,200 *Garden Ridge Corp. ................................. 2,871
85,000 *Travis Boats & Motors, Inc. ........................ 2,083
309,400 *West Coast Entertainment Corp. ....................... 522
RETAIL (SPECIALTY-APPAREL) - 2.0%
479,500 *+Concepts Direct, Inc. ............................. 7,312
542,213 *+Harold's Stores, Inc. ............................. 4,134
470,634 *Stage Stores, Inc. ................................ 21,296
SERVICES (ADVERTISING/MARKETING) - 0.4%
183,400 *ACI Telecentrics, Inc. ............................... 115
828,800 *APAC Teleservices, Inc. ............................ 4,843
85,550 LCS Industries, Inc. ................................ 1,251
SERVICES (COMMERCIAL & CONSUMER) - 4.9%
347,400 *Bluegreen Corp. .................................... 3,061
700,200 *+Compass International Services Corp. .............. 6,652
310,000 *FirstService Corp. ................................. 3,953
839,900 *+IntelliQuest Information Group, Inc. .............. 8,399
1,522,600 *NCO Group, Inc. ................................... 33,497
38,000 *Rent-Way, Inc. ..................................... 1,159
587,600 *Renters Choice, Inc. .............................. 16,673
280,000 SunSource, Inc. ..................................... 6,090
88,700 *UBICS, Inc. ........................................ 1,220
SERVICES (DATA PROCESSING) - 0.3%
378,100 *Vanstar Corp. ...................................... 5,506
SERVICES (EMPLOYMENT) - 0.7%
257,900 *ACSYS, Inc. ........................................ 3,546
170,000 *Alternative Resources Corp. ........................ 2,104
898,600 *+Hall, Kinion & Associates, Inc. ................... 6,009
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.6%
2,027,000 *CellStar Corp. ................................. $ 26,224
TELECOMMUNICATIONS (EQUIPMENTL) - 0.2%
174,500 Natural Microsystems Corp. .......................... 2,792
TELEPHONE - 0.4%
601,900 *+Innotrac Corp. .................................... 5,718
TOBACCO - 4.9%
2,063,000 Philip Morris Cos., Inc. ........................... 81,232
-------
TOTAL COMMON STOCKS ............................................... 1,615,688
-------
WARRANTS - 0.0%
COMPUTERS (PERIPHERALS) - 0.0%
32,500 *NewCom, Inc. .......................................... 81
CONTAINERS (METAL & GLASS) - 0.0%
221,400 *Ontro, Inc. .......................................... 152
-------
TOTAL WARRANTS .......................................................... 233
-------
TEMPORARY INVESTMENTS - 2.5%
COMMERCIAL PAPER:
$41,683,000 Countrywide Funding 6.35%, due 7/01/98 .............. 41,683
-------
TOTAL TEMPORARY INVESTMENTS .......................................... 41,683
-------
TOTAL INVESTMENTS - 100.7% ........................................ 1,657,604
Liabilities, less Other Assets ..................................... (11,792)
-------
NET ASSETS ....................................................... $1,645,812
-------
-------
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
+ Affiliated issuer as defined by the Investment Company Act of 1940 (the Fund
controls 5% or more of the outstanding voting shares of the company).
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO EQUITY FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the latest quarter and year-to-date, SAFECO Equity Fund delivered
0.80% and 14.14% for Class A shares, along with 0.54% and 13.25% for
Class B shares, not including the effects of sales charges, outpacing the 0.27%
and 12.11% returns posted by the Lipper Analytical Services, Inc. Growth and
Income peer group, but underperforming to the 3.30% and 17.70% posted by the S&P
500 Index. For the 12 months, the fund returned 21.46% for Class A shares and
20.17% for Class B shares, not including the effects of sales charges, lagging
the S&P 500's 30.15%. [PHOTO OF RICH MEAGLEY]
The Fund outpaced its peer funds in the latest periods because the Lipper
group, as a whole, owns more small to mid-cap
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIODS ENDED JUNE 30, 1998 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C> <C> <C> <C>
Class A 16.00% 21.27% 18.56% 21.46% 22.39% 19.11%
Class B 15.17% 21.83% 18.93% 20.17% 22.01% 18.93%
</TABLE>
INVESTMENT VALUE WITH SALES CHARGE
SAFECO EQUITY FUND CLASS A: $54,894
SAFECO EQUITY FUND CLASS B: $56,595
S&P 500 INDEX: $54,863
<TABLE>
<CAPTION>
SAFECO SAFECO
INVESTMENT VALUE EQUITY FUND EQUITY FUND S&P 500
WITH SALES CHARGE CLASS A CLASS B INDEX
<S> <C> <C> <C>
06/30/88 $9,550 $10,000 $10,000
07/31/88 $9,493 $9,941 $9,962
08/31/88 $9,335 $9,775 $9,623
09/30/88 $9,774 $10,235 $10,033
10/31/88 $9,774 $10,235 $10,312
11/30/88 $9,947 $10,415 $10,165
12/31/88 $9,955 $10,424 $10,343
01/31/89 $9,955 $10,424 $11,100
02/28/89 $10,630 $11,131 $10,823
03/31/89 $10,643 $11,144 $11,075
04/30/89 $10,643 $11,144 $11,650
05/31/89 $11,297 $11,829 $12,122
06/30/89 $11,713 $12,265 $12,053
07/31/89 $11,713 $12,265 $13,141
08/31/89 $12,756 $13,357 $13,399
09/30/89 $12,914 $13,523 $13,344
10/31/89 $12,940 $13,550 $13,034
11/30/89 $13,029 $13,643 $13,300
12/31/89 $13,518 $14,155 $13,620
01/31/90 $12,396 $12,980 $12,706
02/28/90 $12,512 $13,101 $12,870
03/31/90 $12,976 $13,587 $13,211
04/30/90 $12,600 $13,194 $12,880
05/31/90 $13,818 $14,469 $14,136
06/30/90 $13,796 $14,446 $14,040
07/31/90 $13,549 $14,187 $13,995
08/31/90 $12,118 $12,689 $12,730
09/30/90 $11,528 $12,071 $12,110
10/31/90 $11,282 $11,814 $12,058
11/30/90 $11,897 $12,458 $12,837
12/31/90 $12,360 $12,942 $13,195
01/31/91 $12,993 $13,606 $13,770
02/28/91 $13,765 $14,414 $14,755
03/31/91 $14,154 $14,820 $15,112
04/30/91 $14,444 $15,124 $15,148
05/31/91 $15,024 $15,732 $15,803
06/30/91 $14,060 $14,722 $15,079
07/31/91 $15,002 $15,709 $15,782
08/31/91 $15,238 $15,956 $16,156
09/30/91 $15,031 $15,740 $15,886
10/31/91 $15,278 $15,998 $16,099
11/30/91 $14,322 $14,997 $15,450
12/31/91 $15,809 $16,554 $17,217
01/31/92 $16,750 $17,539 $16,897
02/28/92 $17,033 $17,836 $17,117
03/31/92 $16,267 $17,034 $16,783
04/30/92 $16,402 $17,175 $17,276
05/31/92 $16,252 $17,018 $17,361
06/30/92 $15,079 $15,790 $17,102
07/31/92 $15,695 $16,435 $17,802
08/31/92 $15,049 $15,758 $17,437
09/30/92 $15,093 $15,804 $17,643
10/31/92 $15,821 $16,567 $17,703
11/30/92 $16,866 $17,661 $18,304
12/31/92 $17,273 $18,087 $18,529
01/31/93 $17,846 $18,686 $18,684
02/28/93 $17,861 $18,703 $18,938
03/31/93 $18,821 $19,708 $19,338
04/30/93 $18,391 $19,258 $18,870
05/31/93 $19,905 $20,843 $19,374
06/30/93 $19,986 $20,928 $19,430
07/31/93 $19,714 $20,643 $19,352
08/31/93 $20,818 $21,799 $20,085
09/30/93 $21,398 $22,406 $19,931
10/31/93 $21,961 $22,995 $20,343
11/30/93 $22,080 $23,121 $20,150
12/31/93 $22,612 $23,678 $20,394
01/31/94 $23,968 $25,097 $21,087
02/28/94 $23,367 $24,468 $20,515
03/31/94 $22,470 $23,529 $19,623
04/30/94 $23,193 $24,286 $19,874
05/31/94 $23,865 $24,989 $20,198
06/30/94 $23,006 $24,090 $19,703
07/31/94 $23,594 $24,705 $20,350
08/31/94 $25,029 $26,209 $21,182
09/30/94 $24,931 $26,106 $20,665
10/31/94 $25,397 $26,594 $21,128
11/30/94 $24,895 $26,068 $20,359
12/31/94 $24,859 $26,030 $20,660
01/31/95 $25,041 $26,221 $21,195
02/28/95 $25,695 $26,906 $22,020
03/31/95 $25,904 $27,124 $22,669
04/30/95 $26,599 $27,852 $23,336
05/31/95 $27,275 $28,560 $24,283
06/30/95 $27,951 $29,268 $24,847
07/31/95 $28,393 $29,730 $25,669
08/31/95 $29,183 $30,558 $25,733
09/30/95 $30,312 $31,741 $26,819
10/31/95 $29,936 $31,347 $26,723
11/30/95 $30,906 $32,363 $27,893
12/31/95 $31,138 $32,605 $28,431
01/31/96 $31,971 $33,477 $29,398
02/28/96 $32,255 $33,775 $29,672
03/31/96 $32,586 $34,122 $29,956
04/30/96 $33,280 $34,848 $30,398
05/31/96 $34,055 $35,659 $31,180
06/30/96 $34,685 $36,319 $31,299
07/31/96 $33,354 $34,925 $29,917
08/31/96 $33,702 $35,290 $30,549
09/30/96 $35,780 $37,466 $32,267
10/31/96 $36,931 $38,624 $33,156
11/30/96 $39,708 $41,508 $35,660
12/31/96 $38,922 $40,652 $34,954
01/31/97 $41,147 $42,979 $37,135
02/28/97 $41,311 $43,126 $37,428
03/31/97 $39,641 $41,350 $35,894
04/30/97 $40,768 $42,502 $38,033
05/31/97 $43,467 $45,294 $40,345
06/30/97 $45,194 $47,097 $42,153
07/31/97 $48,253 $50,258 $45,506
08/31/97 $45,712 $47,612 $42,958
09/30/97 $47,342 $49,293 $45,311
10/30/97 $45,199 $47,013 $43,800
11/30/97 $47,272 $49,146 $45,825
12/31/97 $48,091 $49,974 $46,612
01/31/98 $48,805 $50,562 $47,127
02/28/98 $52,691 $54,524 $50,524
03/31/98 $54,460 $56,288 $53,109
04/30/98 $54,534 $56,339 $53,643
05/31/98 $53,524 $55,215 $52,722
06/30/98 $54,894 $56,595 $54,863
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Funds original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE EQUITY FUND MANAGER
companies, which clearly underperformed the S&P 500.
The Fund lagged the S&P 500 because we have a lower price/ earnings ratio
(P/E). Within the S&P 500, higher P/E stocks outperformed lower P/E stocks.
Even though our orientation to value caused the Fund to lag the index, I
really like the overall strength of our lower-priced, aiming-for-predictable
portfolio. Admission standards for stocks in the Equity Fund are stringent
enough that I have confidence in our holdings, especially in the event of a
market downturn.
Two new names were admitted to the Fund during the quarter Travelers and
Washington Mutual. I intend to hold both for a long time, as both of them are
quality acquirers in consolidating industries. Purchased at slightly less than
13 times its estimated 1999 earnings in a market that is trading at over 21
times the 1999 earnings, Washington Mutual is a sound way for us to participate
in the consolidation of the savings and loan industry.
We paid 15 times Traveler's expected earnings estimate. I bought it after it
announced it would merge with Citicorp to form CitiGroup. In addition to
attractive near-term value, Travelers has the long-term potential
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Chase Manhattan Corp. ............................................. 3.5%
(Bank)
Hartford Financial Services Group, Inc. ............................ 3.0
(Insurance Company)
Microsoft Corp. .................................................... 2.8
(Personal Computer Software)
Abbott Laboratories ................................................. 2.8
(Health Care Products)
Johnson & Johnson ................................................... 2.8
(Health Care Products)
Kimberly-Clark Corp. ............................................... 2.7
(Manufacturing & Marketing Personal Care Products)
Merck & Co., Inc. .................................................. 2.7
(Health Care Products)
Federal National Mortgage Association ............................... 2.6
(Mortgage Loan Banker)
Exxon Corp. ........................................................ 2.5
(Oil/Gas Exploration & Production)
Travelers Group, Inc. .............................................. 2.4
(Insurance Company)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Travelers Group, Inc. ............................................. $46,527
Abbott Laboratories ................................................. 45,417
Proctor & Gamble Co. ............................................... 30,932
Washington Mutual, Inc. ............................................ 28,197
U.S. Bancorp ........................................................ 24,798
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*Houston Industries, Inc. ......................................... $33,294
*Echlin, Inc. ...................................................... 27,667
*First Data Corp. .................................................. 26,602
*SmithKline Beecham, plc (ADR) ...................................... 23,829
American Home Products Corp. ....................................... 22,429
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Health Care (Diversified) ............................................... 9%
Insurance (Multi-Line) ................................................... 7
Oil (International Integrated) ........................................... 7
Household Products (Non-Durables) ........................................ 5
Financial (Diversified) .................................................. 5
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 10 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
to cross-sell its insurance and investor services to Citicorp's
banking and credit clientele and vice versa for Citicorp.
I let go of First Data because I fear that consolidation of the
financial service sector will hurt their core business--the processing of
merchant transactions. Other positions eliminated during the most recent quarter
include Columbia/HCA, PacifiCare Health Systems, and Electronic Data Systems,
which I did to further improve the quality of our holdings and to decrease the
volatility of our returns.
While my intent is to build a portfolio of companies that I can comfortably
hold through thick and thin, I am sensitive to the fact that valuation matters.
Hence, I sold the fourth position, Houston, because it had reached our target
price.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS
Large: 95% ($4 Bil. and above)
Medium: 1% ($1 Bil. - $4 Bil.)
Cash and Other: 4%
I also sold part of Microsoft, Wal-Mart, General Electric, DuPont, PepsiCo
and American Home Products when these companies began to look expensive. On the
flip side, I added to our holdings in Hewlett-Packard, Dover, Fannie Mae, Intel
and Bell Atlantic when their prices looked right.
The theme to all this, which is evidenced in our portfolio and in our low
turnover, is that we are long-term investors, holding above-average companies in
more predictable industries. For example, there are currently no technical or
cyclical companies in our top ten.
The market is expensive, which has made me a very cost-and quality-conscious
manager. I am making a concerted effort not to pay too much for a stock in a
market that seems overpriced, or reach too far in a market that seems
precipitous. I am holding companies I want to own--companies whose long-term
outlooks give me solace.
Rich Meagley
- -------------------------------
Rich Meagley joined SAFECO in 1983. After advancing from analyst to Northwest
Fund Manager, he left the company. He re-joined in January 1995 as Equity Fund
Manager. He holds an M.B.A. from the University of Washington, and is a
Chartered Financial Analyst.
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO EQUITY FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 96.2%
AEROSPACE/DEFENSE - 4.3%
900,000 Boeing Co. ........................................ $40,106
360,000 Lockheed Martin Corp. .............................. 38,115
BANKS (MAJOR REGIONAL) - 3.9%
575,000 NationsBank Corp. .................................. 43,988
652,200 U.S. Bancorp ........................................ 28,045
BANKS (MONEY CENTER) - 3.5%
850,000 Chase Manhattan Corp. .............................. 64,175
BEVERAGES (ALCOHOLIC) - 2.3%
875,000 Anheuser-Busch Co., Inc. ........................... 41,289
BEVERAGES (NON-ALCOHOLIC) - 1.2%
530,000 PepsiCo, Inc. ...................................... 21,829
CHEMICALS - 3.9%
450,000 Du Pont (E.I.) de Nemours & Co. .................... 33,581
799,600 Praxair, Inc. ...................................... 37,431
COMMUNICATIONS EQUIPMENT - 1.5%
525,000 Motorola, Inc. ..................................... 27,595
COMPUTERS (HARDWARE) - 3.7%
610,000 Hewlett-Packard Co. ................................ 36,524
275,000 International Business Machines Corp. .............. 31,573
COMPUTERS (NETWORKING) - 1.0%
585,000 *3Com Corp. ........................................ 17,952
COMPUTERS (SOFTWARE & SERVICES) - 2.8%
475,000 *Microsoft Corp. ................................... 51,478
ELECTRICAL EQUIPMENT - 2.2%
435,000 General Electric Co. ............................... 39,585
ELECTRONICS (SEMICONDUCTORS) - 2.2%
550,000 Intel Corp. ........................................ 40,769
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ENTERTAINMENT - 2.1%
365,000 Walt Disney Co. ................................... $38,348
FINANCIAL (DIVERSIFIED) - 4.6%
800,000 Federal Home Loan Mortgage Corp. ................... 37,650
785,000 Federal National Mortgage Association ............... 47,689
HEALTH CARE (DIVERSIFIED) - 9.3%
1,250,000 Abbott Laboratories ................................. 51,094
700,000 American Home Products Corp. ....................... 36,225
285,000 Bristol-Myers Squibb Co. ........................... 32,757
690,000 Johnson & Johnson ................................... 50,888
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 2.7%
365,000 Merck & Co., Inc. .................................. 48,819
HOUSEHOLD PRODUCTS (NON-DURABLES) - 4.7%
1,100,000 Kimberly-Clark Corp. ............................... 50,463
390,000 Procter & Gamble Co. ............................... 35,514
INSURANCE (MULTI-LINE) - 7.1%
217,000 American International Group, Inc. ................. 31,682
475,000 Hartford Financial Services Group, Inc. ............ 54,328
740,000 Travelers Group, Inc. .............................. 44,863
MANUFACTURING (DIVERSIFIED) - 3.9%
1,000,000 AlliedSignal, Inc. ................................. 44,375
820,000 Dover Corp. ........................................ 28,085
OIL (DOMESTIC INTEGRATED) - 2.2%
535,000 Mobil Corp. ........................................ 40,994
OIL (INTERNATIONAL INTEGRATED) - 6.5%
635,000 Exxon Corp. ........................................ 45,283
600,000 Royal Dutch Petroleum Co. (ADR) ..................... 32,888
700,000 Texaco, Inc. ....................................... 41,781
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 12 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO EQUITY FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
OIL & GAS (DRILLING & EQUIPMENT) - 1.1%
300,000 Schlumberger Ltd. ................................. $20,494
PAPER & FOREST PRODUCTS - 1.0%
548,000 Willamette Industries, Inc. ........................ 17,536
RAILROADS - 2.0%
370,000 Burlington Northern Santa Fe Corp. ................. 36,329
RETAIL (DEPARTMENT STORES) - 1.4%
400,000 May Department Stores Co. ........................... 26,200
RETAIL (FOOD CHAINS) - 3.8%
550,000 Albertson's, Inc. .................................. 28,497
1,700,000 American Stores Co. ................................ 41,119
RETAIL (GENERAL MERCHANDISE) - 1.4%
435,000 Wal-Mart Stores, Inc. .............................. 26,426
SAVINGS & LOANS- 1.4%
600,000 Washington Mutual, Inc. ............................ 26,063
SERVICES (DATA PROCESSING) - 1.2%
300,000 Automatic Data Processing, Inc. .................... 21,862
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELECOMMUNICATIONS (LONG DISTANCE) - 1.7%
550,000 AT&T Corp. ...................................... $ 31,419
TELEPHONE - 3.5%
800,000 Bell Atlantic Corp. ................................ 36,500
500,000 GTE Corp. .......................................... 27,812
TOBACCO - 2.1%
1,000,000 Philip Morris Cos., Inc. ........................... 39,375
-------
TOTAL COMMON STOCKS ............................................... 1,767,393
-------
TEMPORARY INVESTMENTS - 3.7%
COMMERCIAL PAPER:
$68,750,000 Lehman Brothers Holdings, Inc. 6.40%, due 7/01/98 ... 68,750
-------
TOTAL TEMPORARY INVESTMENTS .......................................... 68,750
-------
TOTAL INVESTMENTS - 99.9% ......................................... 1,836,143
Other Assets, less Liabilities ........................................ 2,230
-------
NET ASSETS ....................................................... $1,838,373
-------
-------
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 13 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INCOME FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAFECO Income Fund continues to perform very well with total returns
that exceed its peer funds for the quarter, six months and year ending
June 30, 1998.
In the second quarter, six and 12 months just ended, the Fund returned .47%,
11.78% and 24.36% for Class A shares and .29%, 11.85% and 24.06% for Class B
shares, not including the effects of sales charges, respectively. That exceeds
- -.97%, 9.13% and 20.95%, the comparable returns for the average equity-income
fund reported by Lipper Analytical Services, Inc., for the same three periods.
The S&P 500 returned 3.30%, 17.70% and 30.15%, also for the same three periods.
[PHOTO OF THOMAS RATH]
While the Fund didn't match the S&P 500 (due to its non-stock
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIODS ENDED JUNE 30, 1998 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C> <C> <C> <C>
Class A 18.76% 17.50% 13.72% 24.36% 18.59% 14.24%
Class B 19.06% 18.19% 14.15% 24.06% 18.40% 14.15%
</TABLE>
INVESTMENT VALUE WITH SALES CHARGE
SAFECO INCOME FUND CLASS A: $36,161
SAFECO INCOME FUND CLASS B: $37,560
S&P 500 INDEX: $54,863
<TABLE>
<CAPTION>
SAFECO SAFECO
INVESTMENT VALUE INCOME FUND INCOME FUND S&P 500
WITH SALES CHARGE CLASS A CLASS B INDEX
<S> <C> <C> <C>
06/30/88 $9,550 $10,000 $10,000
07/31/88 $9,570 $10,021 $9,962
08/31/88 $9,410 $9,853 $9,623
09/30/88 $9,681 $10,137 $10,033
10/31/88 $9,681 $10,137 $10,312
11/30/88 $9,829 $10,293 $10,165
12/31/88 $9,752 $10,212 $10,343
01/31/89 $9,752 $10,212 $11,100
02/28/89 $10,191 $10,671 $10,823
03/31/89 $10,235 $10,717 $11,075
04/30/89 $10,235 $10,717 $11,650
05/31/89 $10,624 $11,124 $12,122
06/30/89 $10,955 $11,472 $12,053
07/31/89 $10,955 $11,472 $13,141
08/31/89 $11,617 $12,164 $13,399
09/30/89 $11,714 $12,266 $13,344
10/31/89 $11,272 $11,803 $13,034
11/30/89 $11,400 $11,938 $13,300
12/31/89 $11,626 $12,174 $13,620
01/31/90 $11,039 $11,559 $12,706
02/28/90 $11,090 $11,612 $12,870
03/31/90 $11,174 $11,700 $13,211
04/30/90 $10,755 $11,262 $12,880
05/31/90 $11,321 $11,854 $14,136
06/30/90 $11,275 $11,807 $14,040
07/31/90 $11,074 $11,596 $13,995
08/31/90 $10,254 $10,737 $12,730
09/30/90 $9,832 $10,296 $12,110
10/31/90 $9,596 $10,048 $12,058
11/30/90 $10,183 $10,663 $12,837
12/31/90 $10,376 $10,865 $13,195
01/31/91 $10,780 $11,288 $13,770
02/28/91 $11,401 $11,938 $14,755
03/31/91 $11,574 $12,119 $15,112
04/30/91 $11,699 $12,251 $15,148
05/31/91 $12,053 $12,621 $15,803
06/30/91 $11,750 $12,303 $15,079
07/31/91 $12,084 $12,653 $15,782
08/31/91 $12,450 $13,037 $16,156
09/30/91 $12,431 $13,017 $15,886
10/31/91 $12,561 $13,152 $16,099
11/30/91 $12,042 $12,610 $15,450
12/31/91 $12,789 $13,392 $17,217
01/31/92 $12,887 $13,495 $16,897
02/28/92 $12,929 $13,538 $17,117
03/31/92 $12,804 $13,407 $16,783
04/30/92 $13,178 $13,799 $17,276
05/31/92 $13,302 $13,929 $17,361
06/30/92 $13,350 $13,980 $17,102
07/31/92 $13,847 $14,499 $17,802
08/31/92 $13,746 $14,394 $17,437
09/30/92 $13,892 $14,547 $17,643
10/31/92 $13,636 $14,279 $17,703
11/30/92 $13,986 $14,645 $18,304
12/31/92 $14,256 $14,928 $18,529
01/31/93 $14,567 $15,253 $18,684
02/28/93 $14,843 $15,543 $18,938
03/31/93 $15,346 $16,069 $19,338
04/30/93 $15,137 $15,850 $18,870
05/31/93 $15,338 $16,060 $19,374
06/30/93 $15,417 $16,144 $19,430
07/31/93 $15,338 $16,060 $19,352
08/31/93 $15,841 $16,588 $20,085
09/30/93 $15,885 $16,634 $19,931
10/31/93 $16,162 $16,924 $20,343
11/30/93 $15,966 $16,718 $20,150
12/31/93 $16,045 $16,801 $20,394
01/31/94 $16,569 $17,350 $21,087
02/28/94 $16,199 $16,962 $20,515
03/31/94 $15,633 $16,370 $19,623
04/30/94 $15,816 $16,561 $19,874
05/31/94 $15,825 $16,571 $20,198
06/30/94 $15,593 $16,328 $19,703
07/31/94 $16,074 $16,832 $20,350
08/31/94 $16,583 $17,364 $21,182
09/30/94 $16,358 $17,129 $20,665
10/31/94 $16,330 $17,099 $21,128
11/30/94 $15,751 $16,493 $20,359
12/31/94 $15,870 $16,618 $20,660
01/31/95 $16,273 $17,039 $21,195
02/28/95 $16,781 $17,572 $22,020
03/31/95 $17,257 $18,070 $22,669
04/30/95 $17,626 $18,456 $23,336
05/31/95 $18,140 $18,995 $24,283
06/30/95 $18,365 $19,230 $24,847
07/31/95 $19,081 $19,980 $25,669
08/31/95 $19,219 $20,124 $25,733
09/30/95 $19,801 $20,734 $26,819
10/31/95 $19,583 $20,506 $26,723
11/30/95 $20,267 $21,222 $27,893
12/31/95 $20,687 $21,662 $28,431
01/31/96 $21,349 $22,355 $29,398
02/28/96 $21,402 $22,410 $29,672
03/31/96 $21,656 $22,676 $29,956
04/30/96 $21,740 $22,765 $30,398
05/31/96 $22,460 $23,518 $31,180
06/30/96 $22,741 $23,813 $31,299
07/31/96 $22,101 $23,142 $29,917
08/31/96 $22,517 $23,578 $30,549
09/30/96 $23,558 $24,668 $32,267
10/31/96 $24,416 $25,555 $33,156
11/30/96 $25,710 $26,885 $35,660
12/31/96 $25,643 $26,789 $34,954
01/31/97 $26,662 $27,854 $37,135
02/28/97 $26,698 $27,880 $37,428
03/31/97 $25,695 $26,823 $35,894
04/30/97 $26,061 $27,180 $38,033
05/31/97 $27,926 $29,103 $40,345
06/30/97 $29,078 $30,276 $42,153
07/31/97 $30,647 $31,889 $45,506
08/31/97 $30,169 $31,390 $42,958
09/30/97 $31,521 $32,764 $45,311
10/30/97 $30,191 $31,365 $43,800
11/30/97 $31,558 $32,764 $45,825
12/31/97 $32,350 $33,580 $46,612
01/31/98 $32,741 $34,112 $47,127
02/28/98 $34,572 $36,005 $50,524
03/31/98 $35,990 $37,452 $53,109
04/30/98 $36,261 $37,705 $53,643
05/31/98 $35,463 $36,848 $52,722
06/30/98 $36,161 $37,560 $54,863
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Funds original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 14 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
investments), it continues to produce superior risk-adjusted returns. The Fund's
beta (a measure of price volatility relative to the S&P 500) of .71 indicates
that the Fund's volatility is 71% percent that of the S&P 500. Over the same
three-year period, the Fund's average annual total return (25.71%) has been 85%
that of S&P's (30.19%). In short, Income Fund shareholders have gotten 85% of
the S&P 500's return for 71% of the risk.
I cut back American Home Products, formerly the largest holding of the Fund,
to a normal position size, 2.5% of net assets. Having appreciated 42% in nine
months, the stock's upside potential became less compelling.
Conversely, I increased two of our holdings, CCA Prison Real Estate
Investment Trust (REIT) and Chancellor Media convertible preferred, to 5.1% and
5.3%, respectively, of net assets when they declined on reasons unrelated to
their business prospects. I further increased our stake in radio broadcasting,
an industry on which I am very positive, by buying Emmis Broadcasting on a
secondary offering. It was very cheap relative to its peers.
I established several other new positions. I bought Hewlett-Packard and SCI
Systems
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Chancellor Media Corp.
7.00% Convertible ................................................ 5.3%
(Radio Stations)
CCA Prison Realty Trust ............................................. 5.1
(Correctional Facilities Leasing)
Family Golf Centers, Inc. Cvt.
5.75%, due 10/15/04 ............................................... 4.2
(Golf Recreation Centers)
Green Tree Financial Corp. ......................................... 3.7
(Financial Services Company)
Merrill Lynch & Co.
7.875%, Cvt. ..................................................... 3.6
(Financial Management)
MICROS Systems, Inc. ............................................... 3.0
(Specialty Software Company)
American Home Products Corp. ....................................... 2.5
(Pharmaceuticals)
Chase Manhattan Corp. .............................................. 2.5
(Bank)
Central Parking (144A)
5.25% Convertible ................................................. 2.4
(Parking Services)
GATX Corp. ......................................................... 2.3
(Railway & Terminal Operator)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
CCA Prison Realty Trust ............................................ $16,231
Merrill Lynch & Co. 7.875%, Cvt. ................................... 13,728
Central Parking (144A) 5.25%, Cvt. ................................. 11,810
SCI Systems, Inc. (144A)
5.00%, due 5/01/06 ................................................ 10,921
CCA Prison Realty Trust
8.00% Series A Pfd ................................................. 8,000
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
American Home Products Corp. ...................................... $11,029
*U.S. Bancorp ....................................................... 10,067
*First Data Corp. ................................................... 8,669
Family Golf Centers, Inc.
5.75%, due 10/15/04 ................................................ 7,224
*Xilinx, Inc. 5.25%, due 11/01/02 .................................... 7,220
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Real Estate Investment Trust ............................................ 8%
Broadcasting (Television, Radio & Cable) ................................. 7
Financial (Diversified) .................................................. 6
Oil (International Integrated) ........................................... 5
Leisure Time (Products) .................................................. 5
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 15 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE INCOME FUND MANAGER
convertible debentures when the stocks declined in sympathy with the tech sector
to prices that I thought represented excellent value. I purchased Suburban
Lodges because I judged the stock to have very little downside risk and
tremendous upside potential. Finally, I established a new position in Newell
Financial convertible preferred because the stock looked cheap relative to its
three-year growth prospects and to other companies in the housewares sector.
Five holdings were eliminated from the portfolio. I sold Home Depot
convertible and U.S. Bancorp stock for attractive gains after both companies'
stock appreciated to lofty valuation levels. I sold Adaptec, after having
purchased it just last quarter, because of deteriorating prospects for the
company. I sold First Data and Northwest Natural Gas for similar
reasons--lackluster prospects.
As of quarter end, the Income Fund was composed of 66% common stocks, 18%
preferred stock, 10% convertible bonds and 6% cash equivalents. Of the common
stock portion, 7% is invested in Real Estate Investment Trust (REIT) stocks.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS
Large: 42% ($4 Bil. and above)
Medium: 8% ($1 Bil. - $4 Bil.)
Small: 16% (Less than $1 Bil.)
Preferred Stocks: 18%
Corporate Bonds: 10%
Cash and Other: 6%
On the whole, I would say that the portfolio is more defensively positioned
now than it was six months ago, or any other time during my tenure as portfolio
manager. I continue to believe that there is very little margin of safety built
into current stock market valuations. I think the primary source of risk to
these valuations is earnings, more specifically, disappointing earnings at some
of the large multinationals in the S&P 500.
The fund is still positioned to deliver a yield that is higher than the S&P
500. We are invested with exposure to domestic companies and to small- and
mid-capitalization stocks and convertibles, areas that I believe will tend to
outperform over the next 12 months or so. As always, I continue to focus on
investing in higher quality companies with growing revenues and earnings as long
as they are selling at reasonable prices.
Thomas Rath
- -------------------------------
In addition to being an equity and convertible securities portfolio manager at
SAFECO, Rath has been an analyst and portfolio manager at First Interstate Bank
and a principal at Meridian Capital Management. He holds an MBA from the
University of Washington and is a Chartered Financial Analyst.
- 16 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 66.4%
AEROSPACE/DEFENSE - 1.3%
60,000 Lockheed Martin Corp. ............................. $ 6,353
BANKS (MAJOR REGIONAL) - 2.3%
99,111 NationsBank Corp. ................................... 7,582
92,200 Norwest Corp. ....................................... 3,446
BANKS (MONEY CENTER) - 2.5%
160,000 Chase Manhattan Corp. .............................. 12,080
BEVERAGES (ALCOHOLIC) - 1.8%
180,600 Anheuser-Busch Co., Inc. ............................ 8,522
BROADCASTING (TELEVISION, RADIO & CABLE) - 1.5%
148,000 *Emmis Broadcasting Corp. (Class A) .................. 7,076
COMPUTERS (HARDWARE) - 4.0%
80,500 Hewlett-Packard Co. ................................. 4,820
437,100 *MICROS Systems, Inc. .............................. 14,465
ELECTRIC COMPANIES - 1.5%
250,000 NIPSCO Industries, Inc. ............................. 7,000
ELECTRICAL EQUIPMENT - 1.9%
105,000 AMP, Inc. ........................................... 3,609
60,000 General Electric Co. ................................ 5,460
FINANCIAL (DIVERSIFIED) - 1.9%
70,000 Federal National Mortgage Association ................ 4,253
175,100 Medallion Financial Corp. ........................... 4,815
FINANCIAL (MISCELLANEOUS) - 3.7%
410,000 Green Tree Financial Corp. .......................... 17,553
FOODS - 0.7%
110,000 *ConAgra, Inc. ...................................... 3,486
HEALTH CARE (DIVERSIFIED) - 2.5%
235,000 American Home Products Corp. ....................... 12,161
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (DRUGS-GENERAL) - 1.0%
208,000 Dura Pharmaceuticals, Inc. ......................... $ 4,654
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 1.3%
45,000 Merck & Co., Inc. ................................... 6,019
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 1.8%
144,600 Beckman Coulter, Inc. ............................... 8,423
HOUSEHOLD PRODUCTS (NON-DURABLES) - 1.7%
180,000 Kimberly-Clark Corp. ................................ 8,258
INSURANCE (MULTI-LINE) - 1.7%
70,000 Hartford Financial Services Group, Inc. ............. 8,006
LEISURE TIME (PRODUCTS) - 0.4%
114,900 Sturm, Ruger & Co., Inc. ............................ 1,925
LODGING (HOTELS) - 0.9%
285,000 *Suburban Lodges of America, Inc. ................... 4,311
MANUFACTURING (DIVERSIFIED) - 0.9%
55,000 Minnesota Mining & Manufacturing Co. ................ 4,520
OFFICE EQUIPMENT & SUPPLIES - 1.0%
440,000 Unisource Worldwide, Inc. ........................... 4,758
OIL (DOMESTIC INTEGRATED) - 2.2%
140,000 Mobil Corp. ........................................ 10,727
OIL (INTERNATIONAL INTEGRATED) - 4.6%
100,000 Exxon Corp. ......................................... 7,131
100,000 Royal Dutch Petroleum Co. (ADR) ...................... 5,481
160,000 Texaco, Inc. ........................................ 9,550
PAPER & FOREST PRODUCTS - 0.7%
70,000 Weyerhaeuser Co. .................................... 3,233
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 17 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
PERSONAL CARE - 1.1%
70,000 Avon Products, Inc. ............................... $ 5,425
RAILROADS - 2.3%
252,868 GATX Corp. ......................................... 11,095
REAL ESTATE INVESTMENT TRUST - 7.1%
790,900 CCA Prison Realty Trust ............................. 24,221
155,000 First Industrial Realty Trust, Inc. ................. 4,931
185,000 Liberty Property Trust ............................... 4,729
RETAIL (DEPARTMENT STORES) - 1.8%
120,000 J.C. Penney Co., Inc. ............................... 8,677
RETAIL (FOOD CHAINS) - 1.0%
191,000 American Stores Co. ................................. 4,620
SAVINGS & LOANS - 1.5%
171,000 Washington Mutual, Inc. ............................. 7,428
SERVICES (DATA PROCESSING) - 2.0%
135,000 Automatic Data Processing, Inc. ..................... 9,838
TELEPHONE - 1.9%
160,000 GTE Corp. ........................................... 8,900
TOBACCO - 2.2%
268,300 Philip Morris Cos., Inc. ........................... 10,564
WASTE MANAGEMENT - 1.7%
275,900 Landauer, Inc. ...................................... 8,243
------
TOTAL COMMON STOCKS ................................................. 318,348
------
PREFERRED STOCKS - 17.7%
BROADCASTING (TELEVISION, RADIO & CABLE) - 5.3%
180,000 Chancellor Media Corp.
7.00% Convertible ................................... 25,290
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMPUTERS (NETWORKING) - 0.9%
100,000 #Vanstar Financing Trust (144A) 6.75% Convertible (acquired
9/27/97) ........................................... $ 4,075
CONTAINERS (METAL & GLASS) - 1.7%
177,000 Crown Cork & Seal
4.50% Convertible .................................... 7,921
CONTAINERS & PACKAGING - 0.7%
40,500 Newell Financial Trust
5.25% Convertible .................................... 2,354
20,000 #Newell Financial Trust (144A) 5.25% Convertible (acquired
6/29/98) ............................................. 1,163
FINANCIAL (DIVERSIFIED) - 3.6%
245,000 Merrill Lynch & Co.
7.875% Covertible ................................... 17,150
OIL & GAS (EXPLORATION & PRODUCTION) - 0.2%
19,600 Nuevo Energy Co.
$2.875 Convertible ..................................... 895
REAL ESTATE INVESTMENT TRUST - 1.3%
280,000 CCA Prison Realty Trust
8.00% Series A Pfd ................................... 6,457
SERVICES (COMMERCIAL & CONSTRUCTION) - 2.3%
456,200 #Central Parking (144A)
5.25% Convertible (acquired 3/18/98) ................ 11,291
TELEPHONE - 1.7%
148,000 Salomon, Inc.
6.25% Exchangeable Convertible to Cincinnati Bell,
Inc. ................................................ 8,279
------
TOTAL PREFERRED STOCKS ............................................... 84,875
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 18 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CORPORATE BONDS - 10.2%
CONVERTIBLE SUBORDINATED DEBENTURES:
COMPUTERS (PERIPHERALS) - 1.7%
$ 8,500,000 Quantum Corp.
7.00%, due 8/01/04 ................................. $ 8,118
ELECTRICAL EQUIPMENT - 2.2%
6,500,000 #SCI Systems, Inc. (144A)
5.00%, due 5/01/06 (acquired 4/15/98) ............... 10,676
EQUIPMENT (SEMICONDUCTORS) - 1.3%
8,000,000 #Cymer, Inc. (144A)
7.25%, due 8/05/00 Step Bond (acquired 10/02/97) ..... 6,050
INSURANCE (MULTI-LINE) - 0.9%
4,750,000 Loews Corp.
3.125%, due 9/15/07 .................................. 4,388
LEISURE TIME (PRODUCTS) - 4.1%
16,400,000 #Family Golf Centers, Inc. (144A) 5.75%, due 10/15/04
(acquired 10/10/97) ................................. 19,905
------
TOTAL CORPORATE BONDS ................................................ 49,137
------
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 6.0%
COMMERCIAL PAPER:
$ 5,806,000 Countrywide Funding Corp. 6.35%, due 7/01/98 ....... $ 5,806
22,250,000 Lehman Brothers Holdings, Inc. 6.40%, due 7/01/98 ... 22,250
INVESTMENT COMPANIES:
993,043 SSgA Prime Money Market Portfolio ...................... 993
------
TOTAL TEMPORARY INVESTMENTS .......................................... 29,049
------
TOTAL INVESTMENTS - 100.3% .......................................... 481,409
Liabilities, less Other Assets ...................................... (1,508)
------
NET ASSETS ......................................................... $479,901
------
------
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
# 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 $52,761,430 and
total value is 11.1% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
- 19 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO NORTHWEST FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the quarter ended June 30, 1998, the SAFECO Northwest Fund returned
- -2.99% for Class A shares and -3.18% for Class B shares, not including the
effects of sales charges. The average growth fund returned 1.85% according to
Lipper Analytical Services, Inc. For the six months, the Fund returned 7.13% for
Class A shares and 6.85% for Class B shares, not including the effects of sales
charges, versus the Lipper average of 15.11%. For the latest 12 months, the Fund
was at 16.85% for Class A shares and 16.14% for Class B shares, not including
the effects of sales charges, and the peer group at 25.38%. The WM Group
Northwest 50 Index returned 0.74% for the quarter, 15.87% for the six months and
[PHOTO OF WILLIAM B. WHITLOW]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE WITH SALES CHARGE WITHOUT SALES CHARGE
PERIODS ENDED JUNE 30, 1998 1 YEAR 5 YEAR SINCE INCEPTION* 1 YEAR 5 YEAR SINCE INCEPTION*
<S> <C> <C> <C> <C> <C> <C>
Class A 11.59% 13.81% 12.85% 16.85% 14.86% 13.56%
Class B 11.14% 14.36% 13.39% 16.14% 14.60% 13.39%
</TABLE>
INVESTMENT VALUE WITH SALES CHARGE
SAFECO NORTHWEST FUND CLASS A: $24,273
SAFECO NORTHWEST FUND CLASS B: $25,129
S&P 500 INDEX: $37,183
WM GROUP NW 50 INDEX: $33,162
<TABLE>
<CAPTION>
SAFECO SAFECO WM GROUP
INVESTMENT VALUE NORTHWEST FUND NORTHWEST FUND S&P 500 NW 50
WITH SALES CHARGE CLASS A CLASS B INDEX INDEX
<S> <C> <C> <C> <C>
02/28/91 $9,550 $10,000 $10,000 $10,000
03/31/91 $9,832 $10,295 $10,242 $10,409
04/30/91 $10,120 $10,597 $10,267 $10,666
05/31/91 $10,465 $10,958 $10,710 $11,305
06/30/91 $9,853 $10,317 $10,220 $10,552
07/31/91 $10,440 $10,932 $10,696 $11,063
08/31/91 $10,873 $11,385 $10,949 $11,510
09/30/91 $10,606 $11,106 $10,766 $11,292
10/31/91 $10,500 $10,995 $10,911 $11,285
11/30/91 $9,854 $10,318 $10,471 $10,836
12/31/91 $11,052 $11,573 $11,669 $12,133
01/31/92 $11,529 $12,072 $11,452 $12,767
02/28/92 $11,898 $12,459 $11,601 $12,958
03/31/92 $11,637 $12,185 $11,375 $12,545
04/30/92 $11,228 $11,757 $11,709 $11,973
05/31/92 $11,345 $11,879 $11,766 $11,865
06/30/92 $10,987 $11,504 $11,591 $11,450
07/31/92 $11,240 $11,769 $12,065 $11,567
08/31/92 $10,938 $11,453 $11,818 $11,250
09/30/92 $11,394 $11,931 $11,957 $11,693
10/31/92 $11,774 $12,329 $11,998 $12,156
11/30/92 $12,272 $12,850 $12,406 $12,701
12/31/92 $12,608 $13,202 $12,558 $12,725
01/31/93 $12,658 $13,255 $12,663 $12,821
02/28/93 $12,037 $12,605 $12,835 $12,420
03/31/93 $12,508 $13,097 $13,106 $12,932
04/30/93 $11,997 $12,563 $12,789 $12,641
05/31/93 $12,258 $12,835 $13,130 $12,953
06/30/93 $12,143 $12,715 $13,169 $12,675
07/31/93 $12,042 $12,610 $13,116 $12,220
08/31/93 $12,383 $12,966 $13,612 $12,721
09/30/93 $12,374 $12,957 $13,508 $12,434
10/31/93 $12,534 $13,125 $13,787 $12,881
11/30/93 $12,585 $13,178 $13,656 $13,158
12/31/93 $12,738 $13,338 $13,821 $13,334
01/31/94 $12,963 $13,574 $14,291 $13,737
02/28/94 $13,290 $13,917 $13,904 $13,941
03/31/94 $12,728 $13,327 $13,299 $13,449
04/30/94 $12,697 $13,295 $13,470 $13,409
05/31/94 $12,892 $13,499 $13,689 $13,611
06/30/94 $12,562 $13,154 $13,354 $13,198
07/31/94 $12,746 $13,347 $13,792 $13,300
08/31/94 $13,320 $13,948 $14,356 $14,068
09/30/94 $13,016 $13,629 $14,005 $13,530
10/31/94 $12,892 $13,499 $14,319 $13,449
11/30/94 $12,571 $13,164 $13,798 $13,209
12/31/94 $12,540 $13,131 $14,002 $13,281
01/31/95 $12,695 $13,294 $14,365 $13,224
02/28/95 $13,016 $13,629 $14,924 $13,668
03/31/95 $13,451 $14,085 $15,364 $14,102
04/30/95 $13,627 $14,269 $15,816 $14,526
05/31/95 $13,834 $14,486 $16,458 $14,528
06/30/95 $14,516 $15,200 $16,840 $15,409
07/31/95 $15,273 $15,992 $17,397 $15,993
08/31/95 $15,407 $16,133 $17,440 $16,299
09/30/95 $15,490 $16,220 $18,176 $16,897
10/31/95 $15,307 $16,029 $18,111 $16,507
11/30/95 $15,275 $15,995 $18,904 $16,753
12/31/95 $15,070 $15,780 $19,269 $16,957
01/31/96 $15,213 $15,930 $19,924 $17,518
02/28/96 $15,677 $16,415 $20,110 $17,921
03/31/96 $16,625 $17,409 $20,303 $17,826
04/30/96 $17,078 $17,882 $20,602 $18,898
05/31/96 $17,365 $18,183 $21,132 $19,204
06/30/96 $17,003 $17,804 $21,213 $19,123
07/31/96 $16,197 $16,960 $20,276 $18,188
08/31/96 $16,716 $17,503 $20,704 $19,088
09/30/96 $16,978 $17,778 $21,868 $19,583
10/31/96 $16,547 $17,314 $22,471 $19,446
11/30/96 $17,274 $18,062 $24,168 $20,852
12/31/96 $17,323 $18,101 $23,689 $21,348
01/31/97 $18,580 $19,404 $25,168 $22,302
02/28/97 $18,580 $19,391 $25,366 $22,719
03/31/97 $17,804 $18,565 $24,326 $22,097
04/30/97 $18,432 $19,211 $25,776 $23,084
05/31/97 $19,652 $20,475 $27,343 $24,975
06/30/97 $20,773 $21,636 $28,568 $26,156
07/31/97 $22,572 $23,481 $30,841 $28,542
08/31/97 $21,968 $22,836 $29,115 $27,620
09/30/97 $23,065 $23,958 $30,709 $29,553
10/30/97 $21,796 $22,642 $29,685 $27,603
11/30/97 $22,917 $23,791 $31,058 $29,281
12/31/97 $22,657 $23,518 $31,591 $28,622
01/31/98 $22,434 $23,284 $31,940 $28,511
02/28/98 $24,719 $25,651 $34,242 $31,422
03/31/98 $25,021 $25,954 $35,994 $32,920
04/30/98 $25,626 $26,573 $36,356 $32,795
05/31/98 $23,747 $24,606 $35,732 $31,211
06/30/98 $24,273 $25,129 $37,183 $33,162
</TABLE>
* The Funds inception was February 7, 1991. Graph and average annual return
comparison begins February 28, 1991.
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Funds original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 20 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
26.80% for the one year.
The reasons for our underperformance involve the nature of our investing
universe. Tech stocks and Asia-affected stocks did poorly, and the Northwest
economy has more tech stocks and roughly twice the Asian exposure of other
regions. Further exacerbating the situation is our ownership of a lot of small-
cap stocks, which also did poorly. (In the latest quarter, the Russell 2000
Index, which has a median market cap of $395 million versus the Fund's $516
million, tumbled 4.6%.)
Innova, a small, communications tech stock affected by Asia cascaded 67% over
the quarter as the yen declined, advancing the Japanese's competitive position.
Both Lattice Semiconductor and Sequent Computer suffered substantial declines
for the quarter (45% and 34%, respectively) as Asian orders dwindled. Boeing's
postponement of a major order further hurt Sequent. Boeing was down 9% for the
six months, but appears to be overcoming the problems created by their attempt
to increase production 140%--a difficult task for any management.
Seattle FilmWorks share price fell, so I bought more. I anticipate better
earnings and exciting new product developments going
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Microsoft Corp. ................................................... 5.6%
(Personal Computer Software)
Eagle Hardware & Garden, Inc. ...................................... 5.2
(Home Improvement Center)
Physio-Control International Corp. ................................. 4.8
(Medical Equipment Manufacturer)
Costco Companies, Inc. ............................................. 4.3
(Wholesale Membership Warehouse)
Starbucks Corp. .................................................... 4.0
(Beverage Retailer)
Morrison Knudsen Corp. ............................................. 3.8
(Engineering & Construction Services)
Boeing Co. ......................................................... 3.4
(Aerospace)
Washington Mutual, Inc. ............................................ 3.3
(Savings & Loan)
Weyerhaeuser Co. ................................................... 3.3
(Forestry Products)
Expeditors International of Washington, Inc. ....................... 3.2
(Freight Forwarding)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Weyerhaeuser Co. ................................................... $2,394
Morrison Knudsen Corp. .............................................. 2,204
Seattle FilmWorks, Inc. ............................................. 1,773
Ambassadors International, Inc. ..................................... 1,575
Innova Corp. ........................................................ 1,402
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*Alaska Air Group, Inc. ............................................ $3,597
Burlington Northern Santa Fe Corp. .................................. 1,430
*NIKE, Inc. ......................................................... 1,341
*Mentor Graphics Corp. .............................................. 1,305
Albertson's, Inc. ................................................... 1,170
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Savings & Loan Companies ............................................... 10%
Health Care (Medical Products & Supplies) ................................ 8
Computers (Software & Services) .......................................... 6
Banks (Major Regional) ................................................... 5
Retail (Building Supplies) ............................................... 5
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 21 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE NORTHWEST FUND MANAGER
forward. I am not going to sell these hard hit stocks. I think they represent a
lot of potential. Eagle Hardware did. We held it through hardware's hard times
last year, and in the last three months, it gained 31%.
We've also benefited from researching, visiting and buying Morrison Knudsen
before Wall Street discovered it. Rescued from chapter 11, given a clean slate
and honest management, this construction engineering company is putting together
positive earnings.
Physio-Control (defibrillators) was up over 50% in the last quarter on the
news that it would be purchased by Medtronic. Microsoft did well, as usual, up
68% in the last six months. Starbuck's stock continues to perk, as it expands in
Europe, and Costco is doing well adding new services.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS
Large: 39% ($4 Bil. and above)
Medium: 3% ($1 Bil. - $4 Bil.)
Small: 58% (Less than $1 Bil.)
With lumber near the bottom of the cycle, I took a full position in
Weyerhaeuser. The company represented the best value in the group and has a new
CEO, from whom we expect good things.
I also bought Ambassadors International, a Spokane-based specialty travel
company, and Cavanaugh, a Spokane-based hotel chain. In addition, I participated
in the IPO of Washington Banking. My strategy here is to take small positions of
small banks in healthy economies.
In summary, I feel pretty shaken by the last six months, but whole. I like
the valuations of the 38 stocks that comprise the Fund and their outlooks. Our
outlook for the Northwest Economy is that it will slow, but continue to
outperform the nation. We don't know what toll Asia will take, so we have
limited our exposure there. I expect technology to become a bigger component of
our economy and offer more consistent growth as the sector matures. It also
seems to me, that smaller undervalued companies are bound to return to favor and
that good things come to those who wait.
William B. Whitlow
- -------------------------------
William B. Whitlow began his career at SAFECO in 1976 and left in 1980. Before
re-joining SAFECO in April 1997 as Northwest Fund Manager, he was Director of
Research at Pacific Crest Securities. He holds a BA in chemistry from the U. of
Colorado and an MBA from the U. of Calif. at Berkeley. He is a CFA and a member
of the Washington State Governor's Council of Economic Advisors.
- 22 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO NORTHWEST FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 99.4%
AEROSPACE/DEFENSE - 3.4%
57,000 Boeing Co. ......................................... $2,540
AIR FREIGHT - 3.2%
53,000 Expeditors International of Washington, Inc. ........ 2,332
BANKS (DOMESTIC) - 1.2%
60,000 Heritage Financial Corp. .............................. 885
BANKS (MAJOR REGIONAL) - 5.3%
53,625 U.S. Bancorp ......................................... 2,306
65,962 West Coast Bancorp, Inc. ............................ 1,624
BANKS (REGIONAL) - 1.1%
59,000 *Washington Banking Co. ............................... 796
BIOTECHNOLOGY - 0.9%
98,000 *Corixa Corp. ......................................... 674
BUILDING MATERIALS - 2.8%
68,000 TJ International, Inc. .............................. 2,049
CHEMICALS (DIVERSIFIED) - 2.8%
68,000 Penford Corporation .................................. 2,057
COMMUNICATIONS (EQUIPMENT) - 3.5%
75,000 GST Telecommunications, Inc. . 1,083
291,500 *Innova Corp. ....................................... 1,494
COMPUTERS (HARDWARE) - 4.4%
30,000 Hewlett-Packard Co. ................................. 1,796
125,000 *Sequent Computer Systems, Inc. ..................... 1,508
COMPUTERS (SOFTWARE & SERVICES) - 5.6%
38,500 *Microsoft Corp. .................................... 4,172
ELECTRONICS (SEMOCONDUCTORS) - 3.9%
31,000 Intel Corp. ......................................... 2,298
21,700 *Lattice Semiconductor Corp. .......................... 616
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ENGINEERING & CONSTRUCTION - 3.8%
200,000 *Morrison Knudsen Corp. ............................ $2,813
HEALTH CARE (LONG TERM CARE) - 3.0%
189,000 *Emeritus Corp. ..................................... 2,233
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 7.9%
135,000 *Physio-Control International Corp. ................. 3,552
268,000 *Protocol Systems, Inc. ............................. 2,311
IRON & STEEL - 2.9%
90,000 Schnitzer Steel Industries, Inc. 2,126
LEISURE TIME (PRODUCTS) - 2.5%
60,000 *Ambassadors International, Inc. .................... 1,819
LODGING (HOTELS) - 1.6%
89,600 *Cavanaughs Hospitality Corp. ....................... 1,170
PAPER & FOREST PRODUCTS - 3.2%
52,000 Weyerhaeuser Co. .................................... 2,402
PHOTOGRAPHY/IMAGING - 3.1%
293,000 *Seattle FilmWorks, Inc. ............................ 2,262
RAILROADS - 0.6%
4,700 Burlington Northern Santa Fe Corp. .................... 461
RESTAURANTS - 4.0%
56,000 *Starbucks Corp. .................................... 2,993
RETAIL (BUILDING SUPPLIES) - 5.2%
167,000 *Eagle Hardware & Garden, Inc. ...................... 3,862
RETAIL (DEPARTMENT STORES) - 3.0%
53,000 *Fred Meyer, Inc. ................................... 2,253
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 23 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO NORTHWEST FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (FOOD CHAINS) - 2.4%
34,000 Albertson's, Inc. ................................. $ 1,762
RETAIL (GENERAL MERCHANDISE) - 4.3%
50,000 *Costco Companies, Inc. ............................. 3,153
SAVINGS & LOANS - 9.7%
30,000 InterWest Bancorp, Inc. ............................. 1,301
64,000 Riverview Bancorp, Inc. ............................. 1,064
84,000 *Sterling Financial Corp. ........................... 1,911
55,800 Washington Mutual, Inc. ............................. 2,424
19,829 WesterFed Financial Corp. ............................. 486
TELECOMMUNICATIONS (LONG DISTANCE) - 1.3%
158,000 *General Communications, Inc. (Class A) ................ 958
TELEPHONE - 2.8%
54,000 *NEXTLINK Communications, Inc. (Class A) ............. 2,044
-----
TOTAL COMMON STOCKS .................................................. 73,590
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 0.9%
INVESTMENT COMPANIES:
$674,495 SSgA Prime Money Market Portfolio ................... $ 674
-----
TOTAL TEMPORARY INVESTMENTS ............................................. 674
-----
TOTAL INVESTMENTS - 100.3% ........................................... 74,264
Liabilities, less Other Assets ........................................ (265)
-----
NET ASSETS .......................................................... $73,999
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 24 -
<PAGE>
REPORT FROM THE FUND MANAGERS
SAFECO BALANCED FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the quarter, year-to-date and 12-month periods ended June 30, the
Balanced Fund returned -1.2%, 6.1% and 12.7% for Class A shares and -1.4%, 5.7%
and 11.8% for Class B shares, not including the effects of sales charges. This
compares unfavorably to the average balanced fund, which returned 1.2%, 8.9% and
17.6% for the same periods, according to Lipper Analytical Services, Inc. A
composite 60%/40% of the S&P 500 and the Lehman Government/Corporate Index
returned 3.02%, 12.29% and 22.60%.
There are three main reasons the SAFECO Balanced Fund lagged other balanced
mutual funds and the composite index. All of them have to do with our
conservatism. [PHOTO OF REX BENTLEY]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998 1 YEAR SINCE INCEPTION* 1 YEAR SINCE INCEPTION*
<S> <C> <C> <C> <C>
Class A 7.67% 11.89% 12.74% 14.04%
Class B 6.84% 12.27% 11.84% 13.32%
</TABLE>
INVESTMENT VALUE WITH SALES CHARGE
SAFECO BALANCED FUND CLASS A: $13,120
SAFECO BALANCED FUND CLASS B: $13,228
60% S&P 500/40%
LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX: $15,535
<TABLE>
<CAPTION>
60% S&P 500/40%
SAFECO SAFECO LEHMAN BROTHERS
INVESTMENT VALUE BALANCED FUND BALANCED FUND GOVERNMENT/
WITH SALES CHARGE CLASS A CLASS B CORPORATE INDEX
<S> <C> <C> <C>
01/30/96 $9,550 $10,000 $10,000
02/28/96 $9,502 $9,950 $9,971
03/31/96 $9,566 $10,017 $9,995
04/30/96 $9,624 $10,077 $10,056
05/31/96 $9,758 $10,218 $10,204
06/30/96 $9,879 $10,345 $10,282
07/31/96 $9,657 $10,112 $10,019
08/31/96 $9,782 $10,243 $10,136
09/30/96 $10,122 $10,599 $10,550
10/31/96 $10,326 $10,803 $10,823
11/30/96 $10,765 $11,252 $11,393
12/31/96 $10,635 $11,112 $11,207
01/30/97 $10,953 $11,434 $11,632
02/28/97 $11,042 $11,517 $11,697
03/31/97 $10,654 $11,111 $11,354
04/30/97 $10,895 $11,351 $11,826
05/31/97 $11,345 $11,810 $12,302
06/30/97 $11,637 $12,096 $12,691
07/31/97 $12,302 $12,777 $13,452
08/31/97 $11,828 $12,274 $12,940
09/30/97 $12,149 $12,607 $13,447
10/30/97 $11,946 $12,386 $13,264
11/30/97 $12,220 $12,660 $13,660
12/31/97 $12,367 $12,803 $13,858
01/31/98 $12,452 $12,880 $14,028
02/28/98 $12,996 $13,432 $14,623
03/31/98 $13,285 $13,726 $15,090
04/30/98 $13,210 $13,627 $15,212
05/31/98 $13,081 $13,494 $15,105
06/30/98 $13,120 $13,228 $15,535
</TABLE>
* Graph and average annual return comparison begins January 31, 1996,
inception date of the fund.
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 25 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE BALANCED FUND MANAGERS
In a period when the ideal asset mix was growth stocks, long bonds, and as
much equity exposure as possible, we owned value stocks, intermediate bonds and
had a mid-range equity allocation. While our strategy has underperformed
recently, there is ample historical evidence that our equity and fixed income
strategies produce better risk-adjusted returns over time, and we are confident
they will again.
The biggest factor working against us was our equity investment style, which
favors low price/earnings ratios (P/E), high dividends and low price-to-book
value. As most of the S&P 500's gains over the past year have come from high P/E
stocks, funds using a growth style have produced much better
[PHOTO OF LYNETTE SAGVOLD]
[PHOTO OF MICHAEL HUGHES]
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN STOCK HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Hartford Financial Services Group, Inc. ........................... 1.9%
(Insurance Company)
Kimberely-Clark Corp. .............................................. 1.8
(Manufacturing & Marketing Personal Care Products)
Mobil Corp. ........................................................ 1.7
(Oil/Gas Exploration & Production)
Texaco, Inc. ....................................................... 1.6
(Oil/Gas Exploration & Production)
Boeing Co. ......................................................... 1.6
(Aerospace)
GTE Corp. .......................................................... 1.5
(Telecommunications)
Chase Manhattan Corp. .............................................. 1.5
(Bank)
Avon Products, Inc. ................................................ 1.5
(Beauty Care Products)
Anheuser-Busch Co., Inc. ........................................... 1.5
(Brewery)
Merck & Co., Inc. .................................................. 1.5
(Health Care Products)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(COMMON STOCKS)
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Texaco, Inc. ......................................................... $301
KeyCorp ................................................................ 258
Dean Foods Co. ........................................................ 221
American General Corp. ................................................ 215
Beckman Coulter, Inc. ................................................. 204
<CAPTION>
TOP FIVE SALES
(COMMON STOCKS) PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*Amoco Corp. ......................................................... $290
*Bestfoods ............................................................. 255
*General Signal Corp. ................................................. 238
*Harsco Corp. ......................................................... 203
American Home Products Corp. .......................................... 197
<CAPTION>
TOP FIVE INDUSTRIES PERCENT OF
(COMMON STOCKS) NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Manufacturing (Diversified) ............................................. 4%
Telephone ................................................................ 4
Oil (Domestic Integrated) ................................................ 3
Health Care (Diversified) ................................................ 3
Foods .................................................................... 3
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 26 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
returns than our value style has delivered. (The report on the SAFECO U.S. Value
Fund on page 43 provides a detailed discussion of how value stocks have lagged
stocks with growth characteristics by a wide margin.)
The second factor that worked against the relative returns for the Balanced
Fund is our fixed-income strategy. While we favor intermediate maturities, long
bonds provided considerably higher returns over the past quarter and year as
rates declined.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS
COMMON STOCKS
Large: 50% ($4 Bil. and above)
Medium: 8% ($1 Bil. - $4 Bil.)
Small: 1% (Less than $1 Bil.)
Corporate Bonds: 12%
Asset Backed Securities: 6%
U.S. Government Securities: 20%
Cash and Other: 3%
Our allocation to stocks of just below 60% (in an allowable range of 50% to
70% equities) also hurt us. While a more aggressive equity weighting would have
improved our relative returns, we are comfortable with this asset mix in a stock
market that is selling at 21 times its expected earnings.
During the quarter, additions to the portfolio included: New York Times
Company, Century Telephone Enterprises, KeyCorp, Halliburton, and Dean Foods. We
deleted positions in Harsco, First Data Corp., Baxter International, and
Bestfoods.
The swap out of Bestfoods and into Dean Foods is a good example of value
investing. While both companies are expected to grow around 12% over the long-
term, Dean Foods sells at a P/E of less than 18 times next year's earnings,
while Bestfoods' P/E was just over 26 times when we sold it. By purchasing Dean
Foods, we get the same expected growth rate at a 30% lower P/E.
In the fixed-income portion of the portfolio, we sold some holdings in the
very rich 10-year maturity sector of the yield curve and bought a higher
yielding combination of securities with maturities of two and 20 years. The swap
was essentially duration neutral.
We concentrated our holdings in issues insulated from the problems in Asia,
such as U.S. Treasuries and agency mortgage-backed securities and notes. We also
moved into and out of the investment-grade corporate bonds as this sector
cheapened, richened, and cheapened again relative to U.S. Treasuries.
- 27 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE BALANCED FUND MANAGERS
At quarter end, the fixed-income assets we held were 54% in U.S. Treasury
obligations, 31% in high-grade corporate bonds, 13% in mortgage-backed
securities, and 2% in AAA asset-backed securities. The effective duration was
5.6 years on June 30, 1998, slightly longer than the duration of the Lehman
Brothers Government/Corporate Bond Index at 5.5 years.
Rex Bentley, Stocks
Lynette D. Sagvold, Stocks
Michael Hughes, Bonds
- -------------------------------
Rex Bentley, an MBA from Brigham Young University and Chartered Financial
Analyst, has more than 20 years of investment experience.
Lynette D. Sagvold holds a BA in business administration from the University of
Washington and is a Chartered Financial Analyst. She began her investment career
in 1981 at Kidder Peabody and was a trust officer for Key Trust and First
Interstate before joining SAFECO as a portfolio manager and insurance analyst.
Michael Hughes joined SAFECO as portfolio manager in January 1997. He began his
investment career in 1983. He graduated magna cum laude with a B.S. in finance
from University of Colorado in Boulder and holds an MBA from the University of
Southern California in Los Angeles. He is a Chartered Financial Analyst.
- 28 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 58.8%
AEROSPACE/DEFENSE - 1.6%
6,600 Boeing Co. ........................................... $294
BANKS (MAJOR REGIONAL) - 2.5%
6,300 KeyCorp ................................................ 224
3,100 NationsBank Corp. ..................................... 237
BANKS (MONEY CENTER) - 1.5%
3,600 Chase Manhattan Corp. ................................. 272
BANKS (REGIONAL) - 1.1%
3,630 Banc One Corp. ........................................ 204
BEVERAGES (ALCOHOLIC) - 1.4%
5,700 Anheuser-Busch Co., Inc. .............................. 269
BUILDING MATERIALS - 1.1%
3,100 Armstrong World Industries, Inc. 209
CHEMICALS - 1.4%
5,600 Praxair, Inc. ......................................... 262
COMMUNICATIONS EQUIPMENT - 1.1%
3,800 Motorola, Inc. ........................................ 200
COMPUTERS (HARDWARE) - 1.8%
4,000 Hewlett-Packard Co. ................................... 239
7,900 *Sequent Computer Systems, Inc. ........................ 95
COMPUTERS (PERIPHERALS) - 0.5%
4,700 *Quantum Corp. ......................................... 98
ELECTRIC COMPANIES - 2.3%
9,200 NIPSCO Industries, Inc. ............................... 258
3,700 New Century Energies, Inc. ............................ 168
ELECTRICAL EQUIPMENT - 0.6%
3,300 AMP, Inc. ............................................. 113
ELECTRONICS (SEMICONDUCTORS) - 1.0%
2,500 Intel Corp. ........................................... 185
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FINANCIAL (DIVERSIFIED) - 2.3%
3,400 American General Corp. ............................... $242
3,000 Federal National Mortgage Association .................. 182
FOODS - 2.8%
8,100 ConAgra, Inc. ......................................... 257
4,600 Dean Foods Co. ........................................ 253
HEALTH CARE (DIVERSIFIED) - 2.9%
3,200 Abbott Laboratories .................................... 131
4,000 American Home Products Corp. . 207
2,800 Johnson & Johnson ...................................... 207
HEALTH CARE (DRUGS-MAJOR PHARMUCEUTICALS) - 1.4%
2,000 Merck & Co., Inc. ..................................... 267
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 1.3%
4,000 Beckman Coulter, Inc. ................................. 233
HOUSEHOLD PRODUCTS (NON-DURABLES) - 1.8%
7,100 Kimberly-Clark Corp. .................................. 326
INSURANCE (MULTI-LINE) - 1.9%
3,000 Hartford Financial Services Group, Inc. ............... 343
MANUFACTURING (DIVERSIFIED) - 4.3%
3,800 AlliedSignal, Inc. .................................... 169
6,600 Corning, Inc. ......................................... 229
4,500 Crane Co. ............................................. 219
2,100 Minnesota Mining & Manufacturing Co. .................. 173
OFFICE EQUIPMENT & SUPPLIES - 0.6%
10,000 Unisource Worldwide, Inc. ............................. 108
OIL (DOMESTIC INTEGRATED) - 3.1%
3,300 Atlantic Richfield Co. ................................ 258
4,100 Mobil Corp. ........................................... 314
OIL (INTERNATIONAL INTEGRATED) - 1.6%
5,000 Texaco, Inc. .......................................... 298
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 29 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
OIL & GAS (DRILLING & EQUIPMENT) - 0.9%
3,600 Halliburton Co. .................................... $ 160
PAPER & FOREST PRODUCTS - 1.0%
4,400 International Paper Co. ............................... 189
PERSONAL CARE - 1.5%
3,500 Avon Products, Inc. ................................... 271
PUBLISHING (NEWSPAPERS) - 0.8%
2,000 New York Times Co. (Class A) ........................... 158
RAILROADS - 1.1%
2,100 Burlington Northern Santa Fe Corp. .................... 206
REAL ESTATE INVESTMENT TRUST - 1.2%
3,500 First Industrial Realty Trust, Inc. . 111
4,100 Liberty Property Trust ................................. 105
RETAIL (DEPARTMENT STORES) - 2.6%
3,600 J.C. Penney Co., Inc. ................................. 260
3,300 May Department Stores Co. ............................. 216
RETAIL (FOOD CHAINS) - 1.2%
9,500 American Stores Co. ................................... 230
SERVICES (DATA PROCESSING) - 2.1%
3,000 Automatic Data Processing, Inc. 219
4,200 Electronic Data Systems Corp. ......................... 168
TELEPHONE - 3.6%
4,800 Bell Atlantic Corp. ................................... 219
3,500 Century Telephone Enterprises, Inc. ................... 161
5,100 GTE Corp. ............................................. 284
TOBACCO - 0.9%
4,200 Philip Morris Cos., Inc. .............................. 165
-----
TOTAL COMMON STOCKS .................................................. 10,865
-----
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CORPORATE BONDS - 11.9%
BANKING & FINANCE - 0.6%
$100,000 Grand Metropolitan Investment Corp.
8.625%, due 8/15/01 ................................... $107
BANKS (MAJOR REGIONAL) - 0.5%
100,000 Norwest Corp. (MTN)
6.25%, due 3/15/01 ..................................... 101
BANKS (MONEY CENTER) - 1.2%
100,000 BankAmerica Corp.
9.50%, due 4/01/01 ..................................... 109
100,000 Citicorp
7.625%, due 5/01/05 .................................... 108
BANKS (REGIONAL) - 0.3%
60,000 U.S. Bancorp.
6.75%, due 10/15/05 ..................................... 62
BUILDING MATERIALS - 0.7%
125,000 Hanson Overseas
6.75%, due 9/15/05 ..................................... 129
ELECTRIC COMPANIES - 0.3%
50,000 Oklahoma Gas & Electric Energy Corp.
6.50%, due 7/15/17 ...................................... 52
ENGINEERING & CONSTRUCTION - 0.4%
75,000 Halliburton Co.
6.75%, due 2/01/27 ...................................... 82
FINANCE (CONSUMER) - 0.5%
85,000 Household Finance Corp.
7.25%, due 7/15/03 ...................................... 89
FINANCIAL (DIVERSIFIED) - 2.1%
80,000 General Motors Acceptance Corp.
6.875%, due 7/15/01 ..................................... 82
100,000 Hertz Corp.
7.00%, due 7/01/04 ..................................... 104
St. Paul Companies, Inc.
75,000 7.33%, due 8/18/06 ...................................... 81
110,000 7.05%, due 3/07/07 ..................................... 118
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 30 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FINANCIAL (MISCELLANEOUS) - 1.1%
$100,000 Commercial Credit Co.
5.875%, due 1/15/03 .................................. $ 99
95,000 McDonnell Douglas Corp.
6.83%, due 5/21/01 ...................................... 97
INVESTMENT BANKING/BROKERAGE - 1.3%
130,000 Donaldson Lufkin & Jenrette, Inc.
6.90%, due 10/01/07 .................................... 135
105,000 Lehman Brothers Holdings, Inc.
6.50%, due 4/15/08 ..................................... 105
PETROLEUM & PETROLEUM SERVICES - 0.5%
100,000 Texaco Capital, Inc.
6.19%, due 7/09/03 ..................................... 101
RETAIL (COMPUTERS & ELECTRONICS) - 1.1%
200,000 Tandy Corp.
6.95%, due 9/01/07 ..................................... 208
RETAIL (GENERAL MERCHANDISE) - 0.6%
100,000 Sears Roebuck Acceptance Corp.
6.90%, due 8/01/03 ..................................... 104
RETAIL (SPECIALTY) - 0.3%
50,000 Bausch & Lomb, Inc.
6.56%, due 8/12/26 ...................................... 51
UTILITIES - 0.4%
75,000 Allegheny Generating Co.
5.625%, due 9/01/03 ..................................... 73
-----
TOTAL CORPORATE BONDS ................................................. 2,197
-----
U.S. GOVERNMENT SECURITIES - 20.5%
U.S. TREASURY NOTES - 20.5%
1,165,000 7.50%, due 11/15/16 .................................. 1,399
1,900,000 7.25%, due 8/15/04 ................................... 2,068
240,000 6.875%, due 3/31/00 .................................... 245
45,000 6.375%, due 9/30/01 ..................................... 46
25,000 5.75%, due 12/31/98 ..................................... 25
-----
TOTAL U.S. GOVERNMENT SECURITIES ...................................... 3,783
-----
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ASSET BACKED SECURITIES - 5.9%
COLLATERIZED MORTGAGE OBLIGATION (CMO) - 4.6%
$196,802 DLJ MTG 1998-CF1 A1A
6.14%, due 10/15/06 ................................. $ 197
200,000 FHLMC REMIC 1688
6.00%, due 10/15/07 .................................... 200
125,000 FNMA G93-33J
6.75%, due 6/25/22 ..................................... 129
100,000 FNMA REMIC 1993-23
6.70%, due 7/25/19 ..................................... 101
125,000 FNMA REMIC 1993-44PH
6.75%, due 5/25/19 ..................................... 128
100,000 FNMA REMIC 1993-55
6.50%, due 2/25/05 ..................................... 102
CONSUMER (FINANCE) - 0.9%
93,386 AFG Receivables Trust
6.20%, due 2/15/03 ...................................... 94
75,000 Premier Auto Trust
6.20%, due 1/06/01 ...................................... 75
FINANCIAL (DIVERSIFIED) - 0.4%
75,000 FNMA (Class C)
6.74%, due 8/25/07 ...................................... 79
-----
TOTAL ASSET BACKED SECURITIES ......................................... 1,105
-----
TEMPORARY INVESTMENTS - 2.5%
INVESTMENT COMPANIES:
469,897 SSgA Prime Money Market Portfolio ...................... 470
-----
TOTAL TEMPORARY INVESTMENTS ............................................. 470
-----
TOTAL INVESTMENTS - 99.6% ............................................ 18,420
Other Assets, less Liabilities ........................................... 66
-----
NET ASSETS .......................................................... $18,486
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 31 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INTERNATIONAL STOCK FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO International Stock Fund returned 11.28% for Class A and 10.29%
for Class B shares, not including the effects of sales charges, for the 12-month
period ended June 30. Year-to-date the fund returned 15.76% for Class A and
15.26% for Class B shares, not including the effects of sales charges. For the
six and 12-months the international funds tracked by Lipper Analytical Services,
Inc. returned 15.50% and 8.19%. The EAFE index posted 15.10% and 4.55%.
Strength in our investing themes and cautiousness in approaching Asia helped
the portfolio outperform.
Stocks in Growth in Telecommunications, which comprise 8.82% of net assets,
were the largest contributors year to date. German-quoted Mannesmann, our
largest holding at 4.2% of net assets, reported ever-increasing
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIODS ENDED JUNE 30, 1998 1 YEAR SINCE INCEPTION* 1 YEAR SINCE INCEPTION*
<S> <C> <C> <C> <C>
Class A 6.27% 12.04% 11.28% 14.20%
Class B 5.29% 12.48% 10.29% 13.52%
</TABLE>
INVESTMENT VALUE WITH SALES CHARGE
SAFECO INTERNATIONAL FUND CLASS A: $13,162
SAFECO INTERNATIONAL FUND CLASS B: $13,287
EAFE INDEX: $12,265
<TABLE>
<CAPTION>
SAFECO SAFECO
INVESTMENT VALUE INTERNATIONAL INTERNATIONAL
WITH SALES CHARGE FUND CLASS A FUND CLASS B EAFE INDEX
<S> <C> <C> <C>
01/30/96 $9,550 $10,000 $10,000
02/28/96 $9,493 $9,940 $9,650
03/31/96 $9,588 $10,040 $9,808
04/30/96 $9,827 $10,290 $9,843
05/31/96 $9,789 $10,250 $9,896
06/30/96 $9,779 $10,240 $10,540
07/31/96 $9,397 $9,840 $11,121
08/31/96 $9,779 $10,240 $11,301
09/30/96 $9,984 $10,454 $10,457
10/31/96 $10,099 $10,565 $11,042
11/30/96 $10,733 $11,229 $10,194
12/31/96 $10,901 $11,391 $10,090
01/30/97 $10,863 $11,340 $10,178
02/28/97 $11,007 $11,482 $10,630
03/31/97 $10,930 $11,411 $11,299
04/30/97 $10,978 $11,451 $11,633
05/31/97 $11,481 $11,966 $11,711
06/30/97 $11,828 $12,320 $11,640
07/31/97 $12,243 $12,744 $11,715
08/31/97 $11,201 $11,643 $11,044
09/30/97 $11,954 $12,421 $11,662
10/30/97 $10,872 $11,290 $10,766
11/30/97 $11,027 $11,441 $10,656
12/31/97 $11,370 $11,788 $10,749
01/31/98 $11,607 $12,033 $11,241
02/28/98 $12,375 $12,820 $11,962
03/31/98 $12,857 $13,311 $12,330
04/30/98 $12,926 $13,352 $12,413
05/31/98 $13,034 $13,464 $12,339
06/30/98 $13,162 $13,287 $12,265
</TABLE>
* Graph and average annual return comparison begins January 31, 1996,
inception date of the fund.
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 32 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
earnings. Stocks quoted in Leading Consumer Franchises also did quite well.
Nestle (3.3% of net assets) announced sales growth while analysts predict
substantial cost savings from recent acquisitions.
At 20% of net assets, Banking and Finance currently comprise our largest
sector. Good prospects for continued economic recovery buoyed by low interest
rates and expectations for further consolidation contributed to a run up for
European Financial stocks. Within the portfolio, Banco de Santander, which
announced it would acquire another Spanish bank, was a standout.
Stocks in Healthcare Needs had a good first quarter led by Zeneca, which
posted significant increases in profits and sales. Glaxo Wellcome advanced and
then retreated on the news that it would and then would not merge with
SmithKline Beecham.
Most of the portfolio's negative contributions came from stocks either quoted
in or with significant earnings' exposure to Asia.
The portfolio's hedging program remains in place and has
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Mannesmann AG ...................................................... 4.2%
(Machinery & Engineering)
Internationale Nederladen Groep NV .................................. 4.1
(Banking & Finance)
Nestle SA ........................................................... 3.3
(Food)
Novartis AG ......................................................... 3.1
(Pharmaceuticals)
Schweizerische Rueckversicherungs- Gesellschaft ..................... 2.9
(Insurance)
Barclays, plc ....................................................... 2.8
(Banking & Finance)
B.A.T. Industries, plc .............................................. 2.7
(Tobacco)
Sony Corp. ......................................................... 2.7
(Audio/Video Products)
News Corp., Ltd. ................................................... 2.6
(Television & Publishing)
Canon, Inc. ........................................................ 2.6
(Office Equipment)
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE COUNTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
United Kingdom ......................................................... 30%
Japan ................................................................... 13
Switzerland ............................................................. 13
Germany ................................................................. 10
Netherlands ............................................................. 10
<CAPTION>
TOP FIVE PURCHASES COST
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Union Bank of Switzerland AG .......................................... $284
Alcatel Alsthom ........................................................ 216
Vivendi ................................................................ 205
Internationale Nederlanden Groep NV .................................... 197
Axa .................................................................... 192
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Novartis AG ........................................................... $261
Siemens AG ............................................................. 221
Schweizerische Rueckversicherungs- Gesellschaft ........................ 211
*BTR, plc .............................................................. 153
*General Electric Co., plc ............................................. 113
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 33 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE INTERNATIONAL STOCK FUND MANAGER
added value over the year to date. We maintain hedges against the Japanese yen,
the German deutschemark, the Swiss franc and the British pound.
Our largest concentration of equities (30.20% of net assets) is in the UK.
Stocks there benefited by the lowest interest rate levels in more than 30 years.
The Bank of England gave the market a jolt at the beginning of June with a
surprise 25 basis points increase in rates. Also of interest, in the UK the
mid-cap sector continued its outperformance of large-cap stocks.
Low bond yields, the receding Asian crisis, a positive Wall Street backdrop,
surging liquidity as International managers cutback their allocations to Asia,
satisfactory corporate earnings and the prospect of further consolidation all
played a part in pushing the Continental European markets higher. Italy and
Spain performed especially well. Though interest-rate fears shadowed the start
of the second quarter, by May the continental markets were strong again.
Asian markets rebounded during February to have the majority of the year's
gains erased during April. Hong Kong was very weak in the second quarter with
two-thirds of announced company earnings coming in below expectations. Asian
markets remained on the downward spiral during June, dragged down by weaker
currencies, falling property prices, and an ever-rising number of non-performing
loans in the financial sector.
Sentiment regarding Japan remains somewhat negative, following uninspiring
Japanese government packages and the yen's continued weakening against the
dollar. However, we see signs of reform on the margins. Share buybacks, mergers
and acquisitions, together with corporate restructuring, gives us cause for
optimism about Japan on a company-by-company basis, and we currently have 13.4%
of net assets invested there. We will remain highly selective in our approach to
the rest of Asia.
Our focus remains primarily on European-quoted companies, particularly in the
telecom, pharmaceutical and financial sectors. We believe that in the short-term
these companies are best poised to outperform.
We will continue to maintain a fully invested portfolio using a fundamental,
value-oriented prospective.
Bank of Ireland
Asset Management (U.S.) Limited
- -------------------------------
The Bank of Ireland Asset Management (U.S.) Limited (BIAM) investment committee
is comprised of senior analysts and economists and headed by the company's chief
financial officer. BIAM has managed international equities since 1966 and began
managing U.S. funds in 1989.
- 34 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 97.4%
AUSTRALIA - 5.0%
24,900 National Australia Bank, Ltd. ........................ $328
(Banking & Finance)
59,600 News Corp., Ltd. ...................................... 485
(Television & Publishing)
41,800 Telstra Corp., Ltd. ................................... 107
(Telecommunications)
CANADA - 0.6%
1,800 Royal Bank of Canada ................................... 108
(Banking & Finance)
DENMARK - 0.5%
930 Tele Danmark AS-B ....................................... 89
(Telecommunications)
FRANCE - 6.2%
1,108 Alcatel Alsthom ........................................ 225
(Telecommunications)
1,730 Axa .................................................... 194
(Multi-Line Insurance)
2,830 Michelin "B" ........................................... 163
(Tire & Rubber)
2,530 Total SA ............................................... 329
(Oil & Gas)
1,094 Vivendi ................................................ 233
(Holding Co. - Diversified)
GERMANY - 9.8%
154 Bayerische Motoren Werke AG ............................ 155
(Automobiles)
2,570 Bayerische Vereinsbank AG .............................. 218
(Banking & Finance)
5,455 Hoechst AG ............................................. 274
(Chemicals)
7,500 Mannesmann AG .......................................... 771
(Machinery & Engineering)
3,915 VEBA AG ................................................ 263
(Utilities - Electric)
204 Viag AG ................................................ 140
(Manufacturing - Diversified)
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HONG KONG - 1.1%
8,200 HSBC Holdings, plc .................................... $201
(Banking & Finance)
IRELAND - 0.1%
9,900 Smurfit (Jefferson) Group ............................... 29
(Paper Products)
ITALY - 2.1%
14,053 Ente Nazionale Idrocarburi SpA .......................... 92
(Oil & Gas)
39,933 Telecom Italia SpA ..................................... 294
(Telecommunications)
JAPAN - 13.4%
21,000 Canon, Inc. ........................................... 477
(Office Equipment)
9,000 Dai Nippon Printing Co., Ltd. ......................... 144
(Commercial Printing)
8,000 Honda Motor Co., Ltd. ................................. 285
(Automobiles)
11,000 Kao Corp. ............................................. 170
(Cosmetics & Toiletries)
900 Keyence Corp. .......................................... 98
(Electronics)
4,000 Murata Manufacturing Co., Ltd. ........................ 130
(Electronics)
2,000 Rohm Co., Ltd. ........................................ 206
(Electronics)
10,000 Shiseido Co., Ltd. .................................... 114
(Cosmetics & Toiletries)
5,700 Sony Corp. ............................................ 491
(Audio/Video Products)
14,000 Takeda Chemical Industries ............................. 373
(Medical - Drugs)
MALAYSIA - 0.2%
16,000 Hume Industries Berhad .................................. 12
(Building Materials)
45,000 Sime Darby Berhad ....................................... 31
(Conglomerates)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 35 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MEXICO - 0.3%
35,500 Grupo Financiero Series B ............................. $ 67
(Banking & Finance)
NETHERLANDS - 9.6%
7,148 ABN Amro Holdings NV ................................... 167
(Banking & Finance)
9,450 Elsevier NV ............................................ 143
(Publishing)
11,522 Internationale Nederlanden Groep NV .................... 755
(Banking & Finance)
3,275 Koninklijke Ahold NV ................................... 105
(Retail Grocery)
5,160 Koninklijke KPN NV ..................................... 199
(Telecommunications)
2,800 Koninklijke Numico NV ................................... 88
(Food)
3,480 Royal Dutch Petroleum Co. ............................. 193
(Oil & Gas)
5,160 TNT Post Group NV ...................................... 132
(Commercial Services)
PHILIPPINES - 0.2%
35,300 San Miguel Corp. (Class B) .............................. 46
(Wine & Spirits, Food)
PORTUGAL - 0.3%
2,175 Electricidade de Portugal, S.A. ........................ 51
(Electric - Integrated)
SINGAPORE - 2.1%
27,000 City Developments, Ltd. ................................ 75
(Real Estate)
31,200 Development Bank of Singapore, Ltd. ................... 173
(Banking & Finance)
17,800 Fraser & Neave, Ltd. ................................... 48
(Beverages)
13,972 Singapore Press Holdings, Ltd. ......................... 93
(Publishing)
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
SPAIN - 2.0%
13,260 Banco Santander SA .................................... $340
(Banking & Finance)
550 Telefonica S.A. ........................................ 25
(Telecommunications)
SWITZERLAND - 13.4%
142 Alusuisse-Lonza Holding AG ............................. 180
(Holding Co. - Diversified)
287 Nestle SA .............................................. 614
(Food)
344 Novartis AG ............................................ 572
(Pharmaceuticals)
25 Roche Holding AG ....................................... 246
(Pharmaceuticals)
211 Schweizerische Rueckversicherungs-Gesellschaft 534
(Insurance)
910 Union Bank of Switzerland AG ........................... 338
(Banking & Finance)
THAILAND - 0.3%
45,000 Bangkok Bank Public Co., Ltd. ........................... 56
(Banking & Finance)
UNITED KINGDOM - 30.2%
51,030 B.A.T. Industries, plc ................................. 509
(Tobacco)
17,950 Barclays, plc .......................................... 518
(Banking & Finance)
20,050 Cable & Wireless, plc .................................. 244
(Telecommunications)
12,530 Cadbury Schweppes, plc ................................. 194
(Beverages)
24,630 Diageo, plc ............................................ 293
(Beverages)
14,560 Glaxo Wellcome, plc .................................... 438
(Pharmaceuticals)
21,950 Granada Group, plc ..................................... 404
(Leisure)
8,550 Kingfisher, plc ........................................ 138
(Retail - Drug Store)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 36 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
31,340 Ladbroke Group, plc ................................. $ 173
(Hotels & Property Management)
28,090 Lloyds Bank, plc ....................................... 392
(Banking & Finance)
4,720 National Westminster Bank, plc .......................... 84
(Banking & Finance)
26,420 Prudential Corp., plc .................................. 348
(Insurance)
24,010 Safeway, plc ........................................... 158
(Retail - Grocery)
7,400 Scottish Power, plc ..................................... 65
(Utilities - Electric)
44,350 Shell Transport & Trading Co., plc ..................... 311
(Oil & Gas)
14,950 Siebe, plc ............................................. 299
(Industrial & Electronic Equipment)
23,100 TI Group, plc .......................................... 177
(Manufacturing)
35,720 Vodafone Group, plc .................................... 453
(Telecommunications)
9,465 Zeneca Group, plc ...................................... 405
(Pharmaceuticals)
-----
TOTAL COMMON STOCKS .................................................. 18,072
-----
TOTAL INVESTMENTS - 97.4% ............................................ 18,072
Domestic Cash .......................................... 666
Foreign Cash ............................................ 68
Liabilities, less Other
Assets ............................................... (257)
-----
477
-----
NET ASSETS .......................................................... $18,549
-----
-----
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
PERCENT OF
NET ASSETS
- -----------------------------------------------------------------------------
<S> <C>
Banking & Finance 20.2%
Pharmaceuticals 11.0
Telecommunications 8.8
Food 6.2
Insurance 5.8
Electrical Equipment & Electronics 5.0
Oil & Gas 5.0
Machinery - Diversified 4.2
Publishing 3.9
Automobiles 3.1
Leisure Time 3.1
Tobacco 2.7
Office Equipment & Supplies 2.6
Electric Utility 2.0
Manufacturing 1.7
Building Materials 1.7
Cosmetics 1.5
Chemicals 1.5
Construction & Engineering 1.3
Beverages 1.3
Holding Company Diversified 1.1
Tire & Rubber 0.9
Retail - Grocer 0.8
Retail - Drug Stores 0.7
Transportation 0.7
Real Estate 0.4
Paper & Forest Products 0.2
----
97.4%
----
----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 37 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO SMALL COMPANY STOCK FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO Small Company Stock Fund finished the six and twelve months
ending June 30, 1998 far ahead of its peers and benchmark index.
For the latest six months, the Fund earned 14.36% for Class A shares and
13.86% for Class B shares, not including the effects of sales charges, more than
double the 6.48% return of the average small cap fund, according to Lipper
Analytical Services, Inc. and the 5.27% return of the Russell 2000 Index.
[PHOTO OF GREG EISEN]
For the last 12 months, the Fund earned a return of 30.92% for Class A shares
and 29.91% for Class B shares, not including the effects of sales charges,
versus the peer group's 17.68%. The Russell 2000 Index returned 16.79%.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIODS ENDED JUNE 30, 1998 1 YEAR SINCE INCEPTION* 1 YEAR SINCE INCEPTION*
<S> <C> <C> <C> <C>
Class A 25.03% 24.01% 30.92% 26.39%
Class B 24.91% 24.76% 29.91% 25.66%
</TABLE>
INVESTMENT VALUE WITH SALES CHARGE
SAFECO SMALL COMPANY FUND CLASS A: $16,820
SAFECO SMALL COMPANY FUND CLASS B: $17,068
RUSSELL 2000 INDEX: $15,010
<TABLE>
<CAPTION>
SAFECO SAFECO
INVESTMENT VALUE SMALL COMPANY SMALL COMPANY RUSSELL 2000
WITH SALES CHARGE FUND CLASS A FUND CLASS B INDEX
<S> <C> <C> <C>
01/30/96 $9,550 $10,000 $10,000
02/28/96 $9,693 $10,150 $10,312
03/31/96 $10,018 $10,490 $10,522
04/30/96 $11,030 $11,550 $11,084
05/31/96 $11,794 $12,350 $11,521
06/30/96 $11,489 $12,030 $11,048
07/31/96 $10,715 $11,220 $10,083
08/31/96 $11,374 $11,910 $10,668
09/30/96 $11,635 $12,183 $11,085
10/31/96 $11,615 $12,151 $10,914
11/30/96 $11,473 $12,003 $11,364
12/31/96 $11,938 $12,479 $11,662
01/30/97 $12,039 $12,575 $11,895
02/28/97 $11,786 $12,299 $11,606
03/31/97 $11,382 $11,876 $11,058
04/30/97 $11,150 $11,611 $11,089
05/31/97 $12,201 $12,712 $12,324
06/30/97 $12,848 $13,368 $12,852
07/31/97 $13,737 $14,279 $13,452
08/31/97 $14,000 $14,554 $13,756
09/30/97 $15,375 $15,972 $14,760
10/30/97 $14,677 $15,231 $14,103
11/30/97 $14,728 $15,284 $14,007
12/31/97 $14,709 $15,254 $14,259
01/31/98 $14,605 $15,134 $14,042
02/28/98 $16,085 $16,652 $15,095
03/31/98 $17,576 $18,181 $15,729
04/30/98 $18,187 $18,810 $15,815
05/31/98 $17,203 $17,769 $14,967
06/30/98 $16,820 $17,068 $15,010
</TABLE>
* Graph and average annual return comparison begins January 31, 1996,
inception date of the fund.
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 38 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
The six and 12-month outperformance is due to large gains in numerous
individual stocks. In other words, the results are attributable to stock
selection. As of June 30, three of our stocks-- Penederm, Platinum Software, and
Ovid Technologies--were up 100% or better on a year-to-date basis. Each of these
was purchased in a large enough weighting to contribute meaningfully to the
return of the Fund. Many of our other picks had double-digit gains.
Penederm, already our largest position, increased substantially on the news
it would be purchased by Mylan. Platinum Software is simply a company with a
good product (enterprise software) that overcame poor management. Ovid, an
internet stock that aggregates and sells access to published medical
information, remains one of my favorites. The company is already profitable
building a great franchise and positioning itself as the gatekeeper to medical
information retrieval. Stage Stores, a retailer making cosmopolitan margins in
lower cost locations, also held its place in our top ten.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Penederm, Inc. .................................................... 5.3%
(Drug Delivery System)
Cole National Corp. (Class A) ....................................... 4.4
(Specialty Retailer)
Platinum Software Corp. ............................................ 4.2
(Applications Software)
Litchfield Financial Corp. ......................................... 3.9
(Financial Services)
Chart Industries, Inc. ............................................. 3.8
(Industrial Equipment)
Walker Interactive Systems, Inc. ................................... 3.5
(Software Services)
Stage Stores, Inc. ................................................. 3.4
(Retail Store)
Ovid Technologies, Inc. ............................................ 3.4
(Software Developer)
Zindart Limited (ADR) ............................................... 3.3
(Manufacturer)
Equitrac Corp. ..................................................... 3.1
(Computer System Solutions)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Walker Interactive Systems, Inc. ................................... $2,510
Pentegra Dental Group, Inc. ......................................... 2,095
Chart Industries, Inc. .............................................. 1,904
Zindart Limited (ADR) ................................................ 1,880
Innova Corp. ........................................................ 1,770
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*Ocwen Asset Investment Corp. ...................................... $1,393
*Essex Property Trust, Inc. ......................................... 1,381
*Tracor, Inc. ....................................................... 1,324
*World Access, Inc. ................................................. 1,187
*Dynamex, Inc. ...................................................... 1,125
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Personal Care .......................................................... 11%
Computers (Software & Services) ......................................... 10
Manufacturing (Diversified) .............................................. 7
Health Care (Specialized Services) ....................................... 6
Health Care (Medical Products & Supplies) ................................ 6
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 39 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE SMALL COMPANY STOCK FUND MANAGER
Litchfield Financial is new to our top holdings and has consistent earnings
growth. It is a financial services company that specializes in rural land and
time-share loans. I increase our holdings with them each time the price moves
into the range of what I think represents good value.
Chart Industries manufactures gas containment tanks and related equipment. It
has currently come under some pressure, but has earnings growth and free cash
flow that look good for the long term. Furthermore, Chart's acquisition of a
similar UK company should soon add to earnings in what is already a profitable
business.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS
Mid-Cap: 3% ($1 billion - $4 billion)
Small-Cap: 90% (under $1 billion)
Large: 0% (over $750 million)
Medium: 19% ($250 - $750 million)
Small: 71% (under $250 million)
Cash and Other: 7%
We witnessed a full 10% correction in the Russell 2000 Index from April 21st
to late June, something the large cap universe did not have to
endure.
Looking at the rest of 1998, the small cap sector is very well
positioned compared to large caps. As a group they are cheaper on
most valuation measures, and I believe they can grow earnings at a
faster rate than the S&P 500.
The Fund will remain invested in broadly diversified small cap stocks that we
believe are good businesses at good values relative to their earnings prospects,
or cheap by some other yardstick. It will also remain broadly diversified across
a range of industry sectors.
Greg Eisen
- -------------------------------
Greg Eisen joined SAFECO in 1986. He holds a BA from Rutgers University and is a
certified public accountant and a Chartered Financial Analyst.
- 40 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO SMALL COMPANY STOCK FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 88.2%
AEROSPACE/DEFENSE - 4.9%
147,750 *Hawker Pacific Aerospace ........................... $1,644
134,950 *International Aircraft Investors .................... 1,164
BANKS (MAJOR REGIONAL) - 0.1%
4,800 UnionBancorp, Inc. ..................................... 89
BANKS (REGIONAL) - 2.8%
40,300 *Cowlitz Bancorp ....................................... 484
49,459 *Hanmi Bank (Los Angeles, CA) .......................... 977
11,300 *VRB Bancorp ........................................... 113
BIOTECHNOLOGY - 0.3%
124,300 *Energy BioSystems Corp. .............................. 171
COMMUNICATIONS EQUIPMENT - 0.5%
55,500 *Innova Corp. ......................................... 284
COMPUTERS (HARDWARE) - 6.2%
89,600 *Equitrac Corp. ..................................... 1,781
37,600 *MICROS Systems, Inc. ............................... 1,244
42,600 *Optimal Robotics Corp. ............................... 500
COMPUTERS (SOFTWARE & SERVICES) - 10.0%
98,650 *Platinum Software Corp. ............................ 2,404
54,200 *SPSS, Inc. ......................................... 1,260
135,400 *Walker Interactive Systems, Inc. ................... 1,997
ELECTRICAL EQUIPMENT - 1.3%
111,000 *Integrated Sensor Solutions, Inc. .................... 590
22,570 *ZEVEX International, Inc. ............................ 161
FINANCIAL (DIVERSIFIED) - 6.2%
106,675 Litchfield Financial Corp. .......................... 2,240
84,100 *Ragen Mackenzie Group, Inc. ........................ 1,272
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 6.2%
32,800 Hooper Holmes, Inc. ................................. $ 689
500,000 *InnerDyne, Inc. .................................... 1,281
79,000 *Vallen Corp. ....................................... 1,570
HEALTH CARE (SPECIALIZED SERVICES) - 6.3%
80,900 *Ovid Technologies, Inc. ............................ 1,921
245,000 *Pentegra Dental Group, Inc. ........................ 1,684
INSURANCE (PROPERTY-CASUALTY) - 1.0%
49,500 *American Safety Insurance Group, Ltd. ................ 582
MACHINERY (DIVERSIFIED) - 3.8%
91,000 Chart Industries, Inc. .............................. 2,173
MANUFACTURING (DIVERSIFIED) - 7.5%
73,300 *Lancer Corp. ....................................... 1,182
187,000 *Plasma-Therm, Inc. ................................. 1,169
138,600 *Zindart Limited (ADR) ............................... 1,880
OIL & GAS (EXPLORATION & PRODUCTION) - 1.7%
134,700 Patina Oil & Gas Corp. ................................ 943
PERSONAL CARE - 10.7%
83,000 *French Fragrances, Inc. ............................ 1,297
150,400 *Penederm, Inc. ..................................... 3,008
75,900 *Styling Technology Corp. ........................... 1,746
PHOTOGRAPHY/IMAGING - 2.2%
164,200 *Seattle FilmWorks, Inc. ............................ 1,267
RETAIL (FOOD CHAINS) - 2.9%
115,000 Ingles Markets, Inc. ................................ 1,667
RETAIL (SPECIALTY) - 4.4%
61,900 *Cole National Corp. (Class A) ....................... 2,476
RETAIL (SPECIALTY-APPAREL) - 3.4%
43,000 *Stage Stores, Inc. ................................. 1,946
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 41 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO SMALL COMPANY STOCK FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
SAVINGS & LOANS - 1.0%
16,825 Community Savings Bankshares, Inc. ................. $ 555
SERVICES (COMMERCIAL & CONSUMER) - 3.6%
39,515 *Monro Muffler Brake, Inc. ............................ 622
38,900 *StaffMark, Inc. .................................... 1,425
TEXTILES (HOME FURNISHINGS) - 1.2%
265,400 *Krause's Furniture, Inc. ............................. 697
-----
TOTAL COMMON STOCKS .................................................. 50,155
-----
PREFERRED STOCK - 2.2%
ENTERTAINMENT - 2.2%
112,000 *Craig Corp. (Class A) ............................... 1,253
-----
TOTAL PREFERRED STOCK ................................................. 1,253
-----
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 6.7%
COMMERCIAL PAPER:
$3,782,000 Finova Capital Corp. 6.50%, due 7/01/98 ............ $ 3,782
INVESTMENT COMPANIES:
976 SSgA Prime Money Market Portfolio ........................ 1
-----
TOTAL TEMPORARY INVESTMENTS ........................................... 3,783
-----
TOTAL INVESTMENTS - 97.1% ............................................ 55,191
Other Assets, less Liabilities ........................................ 1,674
-----
NET ASSETS .......................................................... $56,865
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 42 -
<PAGE>
REPORT FROM THE FUND MANAGERS
SAFECO U.S. VALUE FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
It seemed that the more "value" orientation a Fund had, the worse the fund
performed in the second quarter compared to the S&P 500 Index. Indeed, the Value
Fund lagged the S&P 500 by a wide margin, returning -3.79% for Class A shares
and -3.95% for Class B shares, not including the effects of sales charges, for
the quarter ended June 30, 1998, compared to the S&P 500's return of 3.30%.
[PHOTO OF REX BENTLEY]
For the six month period ended June 30, 1998, the Fund returned 7.08% for
Class A shares and 6.62% for Class B shares; not including the effects of sales
charges, compared to the S&P 500's return of 17.70%.
The biggest factor working against us over the last quarter and year has been
our value
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIODS ENDED JUNE 30, 1998 1 YEAR SINCE INCEPTION* 1 YEAR SINCE INCEPTION*
<S> <C> <C> <C> <C>
Class A 8.45% 16.82% 13.56% 21.52%
Class B 7.62% 17.20% 12.62% 20.53%
</TABLE>
INVESTMENT VALUE WITH SALES CHARGE
SAFECO U.S. VALUE FUND CLASS A: $11,989
SAFECO U.S. VALUE FUND CLASS B: $12,035
S&P 500 INDEX: $14,425
<TABLE>
<CAPTION>
SAFECO SAFECO
INVESTMENT VALUE U.S. VALUE FUND U.S. VALUE FUND
WITH SALES CHARGE CLASS A CLASS B S&P 500 INDEX
<S> <C> <C> <C>
04/30/97 $9,550 $10,000 $10,000
05/31/97 $10,190 $10,660 $10,608
06/30/97 $10,558 $11,041 $11,083
07/31/97 $11,371 $11,882 $11,965
08/31/97 $10,768 $11,241 $11,295
09/30/97 $11,139 $11,616 $11,914
10/30/97 $10,678 $11,135 $11,516
11/30/97 $11,052 $11,525 $12,049
12/31/97 $11,196 $11,663 $12,256
01/31/98 $11,216 $11,663 $12,391
02/28/98 $12,027 $12,508 $13,284
03/31/98 $12,461 $12,946 $13,964
04/30/98 $12,280 $12,748 $14,104
05/31/98 $12,010 $12,466 $13,839
06/30/98 $11,989 $12,035 $14,425
</TABLE>
* The Funds inception was April 30, 1997. Graph and total return comparison
begins April 30, 1997, inception date of the fund.
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 43 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE U.S. VALUE FUND MANAGERS
investment style. Because most of the S&P 500's gains have of late come from
"growth" stocks, funds using a growth style produced much the better returns.
While our strategy has underperformed recently, there is ample historical
evidence that value investing produces better risk-adjusted returns over time
and we are confident that they will again.
There are three main measures used to determine if a portfolio is employing a
value style. They are: 1) a price/earnings ratio (P/E) lower than the market, 2)
a current yield higher than the market, 3) a lower than market price-to-book
value. Here's how the U.S. Value holdings and the S&P 500 differed based on
those attributes on June 30: the Fund's holdings had a P/E of 16.4 while the
market was priced at 22.1 times 1999 earnings estimates. The yield on the Fund's
holdings was 2.1% versus the index's 1.3%. The Funds holdings had an average
price to book ratio of 3.3% versus 4.3% for the S&P 500.
[PHOTO OF LYNETTE SAGVOLD]
Stocks in the S&P 500 with classic value characteristics dramatically
underperformed in the
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Mobil Corp. ....................................................... 3.0%
(Oil/Gas Exploration & Production)
Hartford Financial Services Group, Inc. ............................ 3.0
(Insurance Company)
Boeing Co. ......................................................... 2.7
(Aerospace)
Texaco, Inc. ....................................................... 2.7
(Oil/Gas Exploration & Production)
Kimberly-Clark Corp. ............................................... 2.6
(Manufacturing & Marketing Personal Care Products)
GTE Corp. .......................................................... 2.6
(Telecommunications)
Avon Products, Inc. ................................................ 2.6
(Beauty Care Products)
NIPSCO Industries, Inc. ............................................ 2.5
(Utility Holdings Company)
Merck & Co., Inc. .................................................. 2.5
(Health Care Products)
J.C. Penney Co., Inc. .............................................. 2.4
(Department Store)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Texaco, Inc. ......................................................... $289
KeyCorp ................................................................ 232
Dean Foods Co. ........................................................ 221
American General Corp. ................................................ 215
Beckman Coulter, Inc. ................................................. 172
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*Bestfoods ............................................................ $251
*Amoco Corp. .......................................................... 248
*General Signal Corp. ................................................. 226
*Harsco Corp. ......................................................... 181
*B.F. Goodrich Co. .................................................... 178
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Manufacturing (Diversified) ............................................. 7%
Telephone ................................................................ 6
Oil (Domestic Integrated) ................................................ 5
Health Care (Diversified) ................................................ 5
Retail (Department Stores) ............................................... 4
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 44 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
three, six and 12-month periods. For the one year, S&P stocks with P/Es less
than 22 returned 15.3% while those with P/Es greater than 22 posted 46.4%
returns. Stocks yielding above the S&P 500 average returned 13.7%. Stocks with
lower than market price to book ratios returned just 13.6%.
It is somewhat heartening to note that even though stocks with high P/Es have
been the market's best performers, our selection of value stocks out-performed
the value members of the S&P 500.
It seems, in general, that the higher the P/E the better a stock has
performed. This has led some market pundits to quip that valuations no longer
matter. We continue to believe that valuation, or price, does matter, and at
some point it will become extremely important. While we don't know when that
time will come, we believe it will be soon.
During the quarter, additions to the portfolio included New York Times
Company, Century Telephone Enterprises, KeyCorp, Halliburton, and Dean Foods. We
deleted positions in Harsco, First Data Corp., Baxter International, and
Bestfoods.
The swap out of Bestfoods and into Dean Foods is a good example of value
investing. While both companies are expected to grow around 12% over the
long-term, Dean Foods sells at a P/E of less than 18 times next year's earnings,
while Bestfoods' P/E was just over 26 times when we sold it. By purchasing Dean
Foods, we get the same expected growth rate at a 30% lower P/E.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS
Large: 82% ($4 Bil. and above)
Medium: 13% ($1 Bil. - $4 Bil.)
Small: 2% (Less than $1 Bil.)
Cash & Other: 3%
We remain convinced that over time, owning less expensive stocks relative to
their future prospects will be more rewarding than owning expensive stocks. We
expect this to be true both on an absolute and on a risk-adjusted basis. Our
task is to find value in an expensive market environment, and to wait patiently.
Rex Bentley
Lynette D. Sagvold
- -------------------------------
Rex Bentley, an MBA from Brigham Young University and Chartered Financial
Analyst, has more than 20 years of investment experience.
Lynette D. Sagvold holds a BA in business administration from the University of
Washington and is a Chartered Financial Analyst. She began her investment career
in 1981 at Kidder Peabody and was a trust officer for Key Trust and First
Interstate before joining SAFECO as a portfolio manager and insurance analyst.
- 45 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO U.S. VALUE FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 97.0%
AEROSPACE/DEFENSE - 2.7%
6,500 Boeing Co. ........................................... $290
BANKS (MAJOR REGIONAL) - 4.0%
5,600 Keycorp ................................................ 199
3,100 NationsBank Corp. ..................................... 237
BANKS (MONEY CENTER) - 2.4%
3,400 Chase Manhattan Corp. ................................. 257
BANKS (REGIONAL) - 1.9%
3,640 Banc One Corp. ........................................ 203
BEVERAGES (ALCOHOLIC) - 2.3%
5,300 Anheuser-Busch Co., Inc. .............................. 250
BUILDING MATERIALS - 1.6%
2,600 Armstrong World Industries, Inc. 175
CHEMICALS - 2.1%
4,800 Praxair, Inc. ......................................... 225
COMMUNICATIONS EQUIPMENT - 1.8%
3,700 Motorola, Inc. ........................................ 194
COMPUTERS (HARDWARE) - 2.9%
3,900 Hewlett-Packard Co. ................................... 234
6,900 *Sequent Computer Systems, Inc. ........................ 83
COMPUTERS (PERIPHERALS) - 0.9%
4,700 *Quantum Corp. ......................................... 98
ELECTRIC COMPANIES - 3.8%
9,600 NIPSCO Industries, Inc. ............................... 269
3,200 New Century Energies, Inc. ............................ 145
ELECTRICAL EQUIPMENT - 1.1%
3,400 AMP, Inc. ............................................. 117
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ELECTRONICS (SEMICONDUCTORS) - 1.6%
2,400 Intel Corp. .......................................... $178
FINANCIAL (DIVERSIFIED) - 3.9%
3,400 American General Corp. ................................ 242
3,000 Federal National Mortgage Association .................. 182
FOODS - 4.4%
7,000 ConAgra, Inc. ......................................... 222
4,600 Dean Foods Co. ........................................ 253
HEALTH CARE (DIVERSIFIED) - 5.1%
3,000 Abbott Laboratories .................................... 123
3,800 American Home Products Corp. . 197
3,100 Johnson & Johnson ...................................... 229
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 2.5%
2,000 Merck & Co., Inc. ..................................... 267
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 1.8%
3,400 Beckman Coulter, Inc. ................................. 198
HOUSEHOLD PRODUCTS (NON-DURABLES) - 2.6%
6,200 Kimberly-Clark Corp. .................................. 284
INSURANCE (MULTI-LINE) - 3.0%
2,800 Hartford Financial Services Group, Inc. ............... 320
MANUFACTURING (DIVERSIFIED) - 6.6%
3,500 AlliedSignal, Inc. .................................... 155
5,800 Corning, Inc. ......................................... 202
4,500 Crane Co. ............................................. 219
1,700 Minnesota Mining & Manufacturing Co. .................. 140
OFFICE EQUIPMENT & SUPPLIES - 1.3%
12,900 Unisource Worldwide, Inc. ............................. 139
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 46 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO U.S. VALUE FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
OIL (DOMESTIC INTEGRATED) - 5.3%
3,200 Atlantic Richfield Co. ............................... $250
4,200 Mobil Corp. ........................................... 322
OIL (INTERNATIONAL INTEGRATED) - 2.6%
4,800 Texaco, Inc. .......................................... 286
OIL & GAS (DRILLING & EQUIPMENT) - 1.5%
3,600 Halliburton Co. ....................................... 160
PAPER & FOREST PRODUCTS - 1.6%
4,000 International Paper Co. ............................... 172
PERSONAL CARE - 2.6%
3,600 Avon Products, Inc. ................................... 279
PUBLISHING (NEWSPAPERS) - 1.5%
2,000 New York Times Co.
(Class A) .............................................. 159
RAILROADS - 1.8%
2,000 Burlington Northern Santa Fe Corp. .................... 196
REAL ESTATE INVESTMENT TRUST - 1.9%
2,900 First Industrial Realty Trust, Inc. .................... 92
4,300 Liberty Property Trust ................................. 110
RETAIL (DEPARTMENT STORES) - 4.4%
3,600 J.C. Penney Co., Inc. ................................. 260
3,300 May Department Stores Co. ............................. 216
RETAIL (FOOD CHAINS) - 1.9%
8,400 American Stores Co. ................................... 203
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
SERVICES (DATA PROCESSING) - 3.9%
3,100 Automatic Data Processing, Inc. .................... $ 226
4,800 Electronic Data Systems Corp. ......................... 192
TELEPHONE - 6.1%
4,800 Bell Atlantic Corp. ................................... 219
3,500 Century Telephone Enterprises, Inc. ................... 161
5,100 GTE Corp. ............................................. 284
TOBACCO - 1.6%
4,300 Philip Morris Cos., Inc. .............................. 169
-----
TOTAL COMMON STOCKS .................................................. 10,482
-----
TEMPORARY INVESTMENTS - 3.6%
INVESTMENT COMPANIES:
$391,037 SSgA Prime Money Market Portfolio ...................... 391
-----
TOTAL TEMPORARY INVESTMENTS ............................................. 391
-----
TOTAL INVESTMENTS - 100.6% ........................................... 10,873
Liabilities, less Other Assets ......................................... (66)
-----
NET ASSETS .......................................................... $10,807
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 47 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO HIGH-YIELD BOND FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Year to date, and for the last 12 months the SAFECO High Yield Bond Fund
returned 4.21% and 11.10% for Class A shares and 3.78% and 10.27% for Class B
shares, not including the effects of sales charges, respectively, while the
average high-yield fund returned 4.40% and 11.45% according to Lipper Analytical
Services, Inc. The Merrill Lynch High Yield Master Index returned 4.58% and
11.80%. Our Fund's return is in line with the two groups, largely because of the
well-diversified nature of our holdings.
[PHOTO OF ROBERT KERN]
The below investment grade market was sailing along nicely for the first
quarter of 1998, as cash poured into high-yield mutual funds, and record amounts
of new bonds were issued. Things changed in late April however, and the waters
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIODS ENDED JUNE 30, 1998 1 YEAR 5 YEAR SINCE INCEPTION* 1 YEAR 5 YEAR SINCE INCEPTION*
<S> <C> <C> <C> <C> <C> <C>
Class A 6.10% 8.03% 9.08% 11.10% 9.03% 9.60%
Class B 5.27% 8.51% 9.48% 10.27% 8.80% 9.48%
</TABLE>
INVESTMENT VALUE WITH SALES CHARGE
SAFECO HIGH-YIELD BOND FUND CLASS A: $23,341
SAFECO HIGH-YIELD BOND FUND CLASS B: $24,184
MERRILL LYNCH HIGH-YIELD INDEX: $29,930
<TABLE>
<CAPTION>
SAFECO SAFECO
INVESTMENT VALUE HIGH-YIELD BOND HIGH-YIELD BOND MERRILL LYNCH
WITH SALES CHARGE FUND CLASS A FUND CLASS B HIGH-YIELD INDEX
<S> <C> <C> <C>
09/30/88 $9,550 $10,000 $10,000
10/31/88 $9,699 $10,156 $10,144
11/30/88 $9,699 $10,156 $10,163
12/31/88 $9,809 $10,271 $10,207
01/31/89 $9,965 $10,435 $10,374
02/28/89 $10,000 $10,471 $10,436
03/31/89 $9,936 $10,404 $10,395
04/30/89 $9,881 $10,346 $10,399
05/31/89 $10,036 $10,509 $10,595
06/30/89 $10,174 $10,653 $10,757
07/31/89 $10,234 $10,716 $10,800
08/31/89 $10,216 $10,697 $10,850
09/30/89 $10,168 $10,647 $10,736
10/31/89 $10,034 $10,507 $10,470
11/30/89 $10,016 $10,488 $10,485
12/31/89 $10,003 $10,475 $10,443
01/31/90 $9,855 $10,319 $10,161
02/28/90 $9,656 $10,111 $10,007
03/31/90 $9,852 $10,316 $10,196
04/30/90 $9,910 $10,377 $10,259
05/31/90 $10,105 $10,582 $10,430
06/30/90 $10,220 $10,702 $10,692
07/31/90 $10,455 $10,947 $10,961
08/31/90 $10,135 $10,612 $10,460
09/30/90 $9,756 $10,216 $10,030
10/31/90 $9,443 $9,888 $9,736
11/30/90 $9,547 $9,997 $9,838
12/31/90 $9,644 $10,098 $9,987
01/31/91 $9,592 $10,044 $10,192
02/28/91 $9,988 $10,459 $11,076
03/31/91 $10,341 $10,828 $11,625
04/30/91 $10,657 $11,159 $12,026
05/31/91 $10,784 $11,292 $12,073
06/30/91 $10,901 $11,415 $12,347
07/31/91 $11,142 $11,667 $12,678
08/31/91 $11,359 $11,894 $12,970
09/30/91 $11,530 $12,073 $13,153
10/31/91 $11,796 $12,352 $13,600
11/30/91 $11,944 $12,507 $13,746
12/31/91 $11,987 $12,551 $13,899
01/31/92 $12,319 $12,900 $14,369
02/28/92 $12,534 $13,124 $14,732
03/31/92 $12,668 $13,265 $14,939
04/30/92 $12,661 $13,257 $15,017
05/31/92 $12,832 $13,436 $15,239
06/30/92 $12,997 $13,610 $15,414
07/31/92 $13,221 $13,844 $15,714
08/31/92 $13,385 $14,015 $15,914
09/30/92 $13,550 $14,188 $16,083
10/31/92 $13,284 $13,910 $15,876
11/30/92 $13,509 $14,145 $16,119
12/31/92 $13,649 $14,292 $16,324
01/31/93 $14,022 $14,683 $16,713
02/28/93 $14,300 $14,974 $17,012
03/31/93 $14,543 $15,229 $17,301
04/30/93 $14,649 $15,339 $17,420
05/31/93 $14,870 $15,571 $17,646
06/30/93 $15,152 $15,866 $17,975
07/31/93 $15,329 $16,052 $18,156
08/31/93 $15,434 $16,161 $18,322
09/30/93 $15,486 $16,216 $18,403
10/31/93 $15,706 $16,446 $18,753
11/30/93 $15,826 $16,572 $18,851
12/31/93 $15,957 $16,709 $19,049
01/31/94 $16,258 $17,024 $19,461
02/28/94 $16,179 $16,941 $19,326
03/31/94 $15,607 $16,342 $18,701
04/30/94 $15,481 $16,211 $18,469
05/31/94 $15,622 $16,358 $18,428
06/30/94 $15,690 $16,429 $18,512
07/31/94 $15,685 $16,424 $18,634
08/31/94 $15,742 $16,484 $18,772
09/30/94 $15,736 $16,478 $18,768
10/31/94 $15,673 $16,411 $18,818
11/30/94 $15,467 $16,196 $18,656
12/31/94 $15,598 $16,333 $18,852
01/31/95 $15,782 $16,525 $19,117
02/28/95 $16,113 $16,873 $19,730
03/31/95 $16,261 $17,027 $19,996
04/30/95 $16,568 $17,349 $20,513
05/31/95 $17,003 $17,804 $21,146
06/30/95 $17,089 $17,894 $21,289
07/31/95 $17,316 $18,132 $21,566
08/31/95 $17,323 $18,140 $21,679
09/30/95 $17,535 $18,361 $21,936
10/31/95 $17,777 $18,615 $22,116
11/30/95 $17,807 $18,646 $22,336
12/31/95 $18,038 $18,888 $22,710
01/31/96 $18,265 $19,125 $23,089
02/28/96 $18,441 $19,310 $23,160
03/31/96 $18,380 $19,246 $23,065
04/30/96 $18,418 $19,285 $23,097
05/31/96 $18,532 $19,405 $23,264
06/30/96 $18,579 $19,455 $23,368
07/31/96 $18,774 $19,658 $23,510
08/31/96 $19,040 $19,937 $23,802
09/30/96 $19,426 $20,341 $24,356
10/31/96 $19,500 $20,419 $24,567
11/30/96 $19,790 $20,723 $25,061
12/31/96 $19,912 $20,850 $25,269
01/31/97 $20,078 $21,024 $25,459
02/28/97 $20,445 $21,397 $25,851
03/31/97 $20,017 $20,934 $25,494
04/30/97 $20,145 $21,056 $25,821
05/31/97 $20,718 $21,641 $26,364
06/30/97 $21,008 $21,931 $26,772
07/31/97 $21,547 $22,480 $27,482
08/31/97 $21,554 $22,476 $27,449
09/30/97 $21,921 $22,847 $27,942
10/31/97 $21,924 $22,838 $28,085
11/30/97 $22,125 $23,035 $28,348
12/31/97 $22,398 $23,304 $28,620
01/31/98 $22,863 $23,775 $29,077
02/28/98 $22,984 $23,883 $29,194
03/31/98 $23,228 $24,120 $29,472
04/30/98 $23,171 $24,044 $29,598
05/31/98 $23,270 $24,129 $29,776
06/30/98 $23,341 $24,184 $29,930
</TABLE>
*The Funds 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 Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 48 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
became increasingly treacherous to navigate. There are a number of reasons for
the change in market conditions including a significant deceleration in cash
flowing into high yield mutual funds beginning in late April, an uptick in the
Moody's default rate over the three months between March to May from 2.18% to
2.53%, indicating an increase in the riskiness of the market, and continued
concerns about Asia's woes, and how this will impact the domestic U.S. economy.
All of these factors contributed to investors demanding more compensation
(yield) for owning "junk" bonds, which in turn led to lower prices overall.
I have emphasized domestically-oriented companies in my purchases for the
Fund during the first half of the year. The strength in the U.S. economy is
currently coming from domestic consumption, particularly consumers. At the same
time, U.S. exporters are struggling, and our trade deficit is widening.
Companies such as Ziff-Davis, Niagara Mohawk Power, 21st Century Telecom and
Level 3 Communications should do well in this environment, and are among the
names added to the portfolio since year-end.
Ziff-Davis is the largest technology publisher in the country (PC MAGAZINE,
PC WEEK, and COMPUTER SHOPPER are among the numerous titles they produce). In
addition, the company also produces trade shows and conferences worldwide, among
them the Comdex computer events. They
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Level 3 Communications, Inc. (144A) ................................ 2.5%
(Telephone)
Randall's Food Markets, Inc. ....................................... 2.3
(Retail - Food Chains)
Numatics, Inc. (144A) ............................................... 2.0
(Manufacturing - Specialized)
Perkins Family Restaurants .......................................... 2.0
(Restaurants)
Tekni-Plex, Inc. (144A) ............................................. 2.0
(Manufacturing - Diversified)
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Broadcasting (Television, Radio & Cable) ............................ 11%
Telephone ............................................................. 9
Telecommunication (Long Distance) ..................................... 5
Manufacturing - (Specialized) ......................................... 4
Entertainment ......................................................... 4
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Level 3 Communications, Inc. (144A) ................................. $1,978
Randall's Food Markets, Inc. ........................................ 1,845
Numatics, Inc. (144A) ................................................ 1,611
Tekni-Plex, Inc.(144A) ............................................... 1,564
Ziff-Davis, Inc. .................................................... 1,497
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Coca Cola Bottling Group (Southwest), Inc. ......................... $1,294
Speedway Motorsports, Inc. .......................................... 1,289
Jitney-Jungle Stores of America, Inc. ............................... 1,278
PhoneTel Technologies, Inc. ......................................... 1,088
Plastic Specialties and Technologies, Inc. ........................... 1,085
</TABLE>
CURRENT YIELD (30-DAY) CLASS A ......................................... 7.34%
CURRENT YIELD (30-DAY) CLASS B ......................................... 6.81%
WEIGHTED AVERAGE MATURITY .......................................... 8.3 YEARS
- 49 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE HIGH-YIELD BOND FUND MANAGER
are involved in other media as well, and are currently developing a cable
channel aimed at computer users, and an Internet website.
21st Century is a cable and telecommunications provider targeting the
high-density, multi-dwelling units in the Chicago metropolitan area. They will
provide residents and small businesses with a bundled offering of phone services
in addition to internet access and cable television. Level 3 is building a
nationwide "Internet-Protocol" (IP) based telephony network that will deliver
voice and data using IP-packet switched technology. Such networks provide cost
savings, additional accessibility, and technological efficiencies.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
S&P CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
BB: 12%
B: 76%
Not Rated: 5%
Preferred Stock: 2%
Cash & Other: 5%
Niagara Mohawk is an electric utility serving upstate New York. The company
is an improving credit story and is positioned well for the deregulated
electricity market evolving in its service territory over the next two years.
Niagara is selling their generating assets and will become a low-risk
distributor of electricity.
I sold holdings in United Refining, PhoneTel Technologies, and
Gorges/Quick-to-Fix Foods during the quarter because of poor operating
performance, and unfavorable outlooks. Over time, each of these names has seen
leverage increase and cash flow deteriorate. I felt in each case that the high
degree of downside risk warranted our exiting the bonds.
In my last letter to you, I said that I was cautiously optimistic about the
high yield market. The same can be said today. In the current economic
environment, credit selection, always an important component of my job, will
take on even greater importance. I will continue to look for companies with good
earnings and cash-flow prospects and strong management teams. Thank you for your
continued interest in the SAFECO High Yield Bond Fund.
Robert Kern
- -------------------------------
Robert Kern joined SAFECO in 1988 with B.S. degrees in business and accounting
from the Universities of Washington and Puget Sound respectively. Robert is a
Certified Public Accountant and a Chartered Financial Analyst.
- 50 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
<C> <S>
- -----------------------------------------------------------------------------
CORPORATE BONDS - 92.5%
ADVERTISING - 1.4%
$1,000 Lamar Advertising Co.
9.625%, due 12/01/06 ............................... $1,070
AEROSPACE/DEFENSE - 1.3%
1,000 BE Aerospace, Inc.
8.00%, due 3/01/08 ..................................... 997
AGRICULTURE/FERTILIZER PRODUCTS - 1.4%
1,000 Sun World International
11.25%, due 4/15/04 .................................. 1,100
ALUMINUM - 2.6%
1,000 Commonwealth Aluminum Corp.
10.75%, due 10/01/06 ................................. 1,050
1,000 Wells Aluminum Corp.
10.125%, due 6/01/05 ................................. 1,050
AUTO PARTS & EQUIPMENT - 2.2%
750 #Breed Technologies, Inc. (144A)
9.25%, due 4/15/08 (acquired 4/20/98) .................. 733
1,000 #Diamond Triumph Auto Glass, Inc. (144A)
9.25%, due 4/01/08 (acquired 3/25/98) ................ 1,017
BANKS (REGIONAL) - 1.6%
1,250 Bay View Capital Corp.
9.125%, due 8/15/07 .................................. 1,287
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
BROADCASTING (TELEVISION, RADIO & CABLE) - 8.9%
$1,750 #21st Century Telecom Group, Inc. (144A)
12.25%, due 2/15/03 Step Bond (acquired 2/02/98) .... $ 980
1,250 Adelphia Communications Corp.
9.25%, due 10/01/02 .................................. 1,297
500 CSC Holdings, Inc.
9.875%, due 5/15/06 .................................... 546
500 Century Communications Corp.
9.50%, due 3/01/05 ..................................... 541
500 Century Communications Corp.
8.875%, due 1/15/07 .................................... 530
1,000 Jones Intercable, Inc.
8.875%, due 4/01/07 .................................. 1,070
500 SFX Broadcasting, Inc.
10.75%, due 5/15/06 .................................... 552
500 Sinclair Broadcast Group, Inc.
8.75%, due 12/15/07 .................................... 515
1,000 Young Broadcasting, Inc.
9.00%, due 1/15/06 ................................... 1,040
BUILDING MATERIALS - 0.6%
500 Synthetic Industries, Inc.
9.25%, due 2/15/07 ..................................... 515
CHEMICALS (SPECIALTY) - 0.6%
500 Sovereign Specialty Chemicals, Inc.
9.50%, due 8/01/07 ..................................... 510
COMMUNICATIONS EQUIPMENT - 1.9%
1,500 #National Equipment Services, Inc. (144A)
10.00%, due 11/30/04 (acquired 11/20/97) ............. 1,530
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 51 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CONTAINERS (PACKAGING & PAPER) - 1.4%
$ 500 Applied Extrusion Technologies, Inc.
11.50%, due 4/01/02 ................................. $ 527
500 Printpack, Inc.
10.625%, due 8/15/06 ................................... 535
COSMETICS - 2.0%
500 Coty, Inc.
10.25%, due 5/01/05 .................................... 536
1,000 French Fragrances, Inc.
10.375%, due 5/15/07 ................................. 1,070
ELECTRIC COMPANIES - 1.3%
1,500 Niagara Mohawk Power Corp.
8.50%, due 7/01/03 Step Bond ......................... 1,027
ELECTRICAL EQUIPMENT - 1.9%
1,500 #Advanced Lighting Technologies, Inc. (144A)
8.00%, due 3/15/08 (acquired 6/04/98) ................ 1,492
ENTERTAINMENT - 3.5%
1,000 AMC Entertainment, Inc.
9.50%, due 3/15/09 ................................... 1,000
750 Premier Parks, Inc.
9.25%, due 4/01/06 ..................................... 774
500 Cinemark USA, Inc. (Series B)
9.625%, due 8/01/08 .................................... 515
500 Cinemark USA, Inc. (Series D)
9.625%, due 8/01/08 .................................... 515
ENVIRONMENTAL - 1.6%
1,000 Allied Waste Industries, Inc.
11.30%, due 6/01/02 Step Bond .......................... 730
500 Allied Waste North America, Inc.
10.25%, due 12/01/06 ................................... 547
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FINANCIAL (DIVERSIFIED) - 2.0%
$1,000 Americredit Corp.
9.25%, due 2/01/04 ................................. $1,025
500 DVI, Inc.
9.875%, due 2/01/04 .................................... 520
FOODS - 1.5%
500 Chiquita Brands International, Inc.
10.25%, due 11/01/06 ................................... 540
500 Curtice Burns Foods, Inc.
12.25%, due 2/01/05 .................................... 552
100 #Eagle Family Foods, Inc. (144A)
8.75%, due 1/15/08 (acquired 1/16/98) .................. 98
GAMING & LOTTERY - 0.7%
500 Aztar Corp.
13.75%, due 10/01/04 ................................... 568
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.6%
500 Conmed Corp.
9.00%, due 3/15/08 ..................................... 497
HEALTH CARE (HOSPITAL MANAGEMENT) - 3.0%
1,250 Integrated Health Services, Inc.
9.50%, due 9/15/07 ................................... 1,306
1,000 Quorum Health Group, Inc.
8.75%, due 11/01/05 .................................. 1,030
HOUSEHOLD FURNITURE & APPLIANCES - 2.0%
1,500 Holmes Products Corp.
9.875%, due 11/15/07 ................................. 1,545
IRON & STEEL - 0.6%
500 Armco, Inc.
9.00%, due 9/15/07 ..................................... 493
MANUFACTURING (DIVERSIFIED) - 2.0%
1,560 #Tekni-Plex, Inc. (144A)
9.25%, due 3/01/08 (acquired 02/26/98) ............... 1,560
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 52 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MANUFACTURING (SPECIALIZED) - 3.9%
$1,500 Flextronics International, Ltd.
8.75%, due 10/15/07 ................................ $1,511
1,600 #Numatics, Inc. (144A)
9.625%, due 4/01/08 (acquired 3/18/98) ............... 1,616
OIL (DOMESTIC) - 0.7%
500 Crown Central Petroleum Corp.
10.875%, due 2/01/05 ................................... 530
OIL & GAS (DRILLING & EQUIPMENT) - 2.5%
500 ICO, Inc.
10.375%, due 6/01/07 ................................... 510
1,500 Newpark Resources, Inc.
8.625%, due 12/15/07 ................................. 1,508
PAPER & FOREST PRODUCTS - 0.7%
500 Fibermark, Inc.
9.375%, due 10/15/06 ................................... 523
PERSONAL CARE - 1.1%
750 Chattem, Inc.
12.75%, due 6/15/04 .................................... 840
POWER PRODUCER (INDEPENDENT) - 1.3%
1,000 AES Corp.
8.50%, due 11/01/07 .................................. 1,010
PUBLISHING - 1.9%
1,500 Ziff-Davis, Inc.
8.50%, due 5/01/08 ................................... 1,519
RESTAURANTS - 2.0%
1,500 Perkins Family Restaurants
10.125%, due 12/15/07 ................................ 1,583
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (DEPARTMENT STORES) - 1.7%
1,250 Specialty Retailers, Inc.
9.00%, due 7/15/07 ................................... 1,302
RETAIL (FOOD CHAINS) - 2.3%
$1,750 Randall's Food Markets, Inc.
9.375%, 7/01/07 .................................... $1,846
RETAIL (OTHER) - 1.0%
750 #Purina Mills, Inc. (144A)
9.00%, due 3/15/10 (acquired 3/06/98) .................. 771
RETAIL (SPECIALTY) - 2.2%
1,250 Big 5 Corp.
10.875%, due 11/15/07 ................................ 1,294
500 Finlay Fine Jewelry Corp.
8.375%, due 5/1/08 ..................................... 502
SERVICES (COMMERCIAL & CONSUMER) - 3.2%
1,000 #Bluegreen Corp. (144A)
10.50%, due 4/01/08 (acquired 3/26/98) ............... 1,000
1,500 Unicco Service Corp.
9.875%, due 10/15/07 ................................. 1,515
TELECOMMUNICATIONS (LONG DISTANCE) - 5.3%
1,250 #Flag Ltd. (144A)
8.25%, due 1/30/08 (acquired 1/23/98) ................ 1,263
1,500 #Qwest Communications International, Inc. (144A)
8.29%, due 2/01/03 Step Bond (acquired 1/22/98) ...... 1,080
2,000 Qwest Communications International, Inc.
9.47%, due 10/15/07 .................................. 1,495
500 Telegroup, Inc.
10.50%, due 5/01/00 Step Bond .......................... 398
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 53 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELEPHONE - 9.1%
$1,250 GCI, Inc.
9.75%, due 8/01/07 ................................. $1,313
1,000 Intermedia Communication, Inc.
11.25%, due 7/15/02 Step Bond .......................... 731
Intermedia Communication, Inc.
1,000 8.875%, due 11/01/07 ................................. 1,022
500 8.50%, due 1/15/08 ..................................... 500
500 #Intermedia Communication, Inc. (144A)
8.60%, due 6/01/08 (acquired 5/21/98) .................. 506
2,000 #Level 3 Communications, Inc. (144A)
9.125%, due 5/01/08 (acquired 6/02/98) ............... 1,947
2,000 #NEXTLINK Communications, Inc. (144A)
9.45%, due 4/15/08 Step Bond (acquired 3/27/98) ...... 1,223
TELEPHONE (CELLULAR/WIRELESS) - 1.3%
1,000 Paging Network, Inc.
10.00%, due 10/15/08 ................................. 1,035
TEXTILES (APPAREL) - 1.5%
1,250 Dyersburg Corp.
9.75%, due 9/01/07 ................................... 1,203
TEXTILES (HOME FURNISHINGS) - 1.3%
1,000 #Maxim Group, Inc. (144A)
9.25%, due 10/15/07 .................................. 1,028
TEXTILES (SPECIALTY) - 1.3%
1,000 Polymer Group, Inc.
9.00%, due 7/01/07 ................................... 1,011
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TRUCKERS - 1.6%
$1,250 Allied Holdings, Inc.
8.625%, due 10/01/07 .............................. $ 1,263
-----
TOTAL CORPORATE BONDS ............................................... 73,330
-----
PREFERRED STOCK - 2.2%
BROADCASTING (TELEVISION, RADIO & CABLE) - 2.2%
5 CBS Radio, Inc. ....................................... 625
6 SFX Broadcasting, Inc. ................................ 601
5 Sinclair Broadcast Group, Inc. ........................ 554
-----
TOTAL PREFERRED STOCK ................................................. 1,780
-----
TEMPORARY INVESTMENTS - 3.2%
COMMERCIAL PAPER:
$2,511 Countrywide Funding Corp.
6.35%, due 7/01/98 ................................... 2,511
INVESTMENT COMPANIES:
862 SSgA Prime Money Market Portfolio ........................ 1
-----
TOTAL TEMPORARY INVESTMENTS ........................................... 2,512
-----
TOTAL INVESTMENTS - 97.9% ........................................... 77,622
Other Assets, less Liabilities ........................................ 1,649
-----
NET ASSETS ......................................................... $79,271
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
# 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 $17,782,459 and the
total value is 22.51% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
- 54 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INTERMEDIATE-TERM
U.S. TREASURY FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Intermediate-Term U.S. Treasury Fund beat its peer funds and benchmark
index for the quarter, six months and year ending June 30, 1998.
For the quarter the fund returned 2.06% for Class A shares and 1.83% for
Class B shares, not including the effects of sales charges, compared to 1.83%
for the Merrill Lynch Intermediate-Term Treasury Index. The six-month returns
were 3.35% for Class A shares and 2.95% for Class B shares, not including the
effects of sales charges, for the fund versus 3.45% for the index. For the 12
months, it was Fund 9.63% for Class A shares and 8.77% for Class B shares, not
[PHOTO OF RONALD SPAULDING]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIODS ENDED JUNE 30, 1998 1 YEAR 5 YEAR SINCE INCEPTION* 1 YEAR 5 YEAR SINCE INCEPTION*
<S> <C> <C> <C> <C> <C> <C>
Class A 4.70% 4.27% 6.99% 9.63% 5.24% 7.49%
Class B 3.77% 4.66% 7.36% 8.77% 4.99% 7.36%
</TABLE>
INVESTMENT VALUE WITH SALES CHARGE
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND CLASS A: $19,318
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND CLASS B: $19,994
MERRILL LYNCH INTERMEDIATE-TERM TREASURY INDEX: $21,321
<TABLE>
<CAPTION>
SAFECO SAFECO
INTERMEDIATE-TERM INTERMEDIATE-TERM MERRILL LYNCH
INVESTMENT VALUE U.S. TREASURY FUND U.S. TREASURY FUND INTERMEDIATE-TERM
WITH SALES CHARGE CLASS A CLASS B TREASURY INDEX
<S> <C> <C> <C>
09/30/88 $9,550 $10,000 $10,000
10/31/88 $9,734 $10,192 $10,136
11/30/88 $9,658 $10,113 $10,048
12/31/88 $9,669 $10,125 $10,057
01/31/89 $9,727 $10,185 $10,156
02/28/89 $9,677 $10,133 $10,114
03/31/89 $9,694 $10,151 $10,164
04/30/89 $9,865 $10,330 $10,351
05/31/89 $10,038 $10,511 $10,569
06/30/89 $10,267 $10,751 $10,839
07/31/89 $10,447 $10,939 $11,060
08/31/89 $10,350 $10,837 $10,906
09/30/89 $10,392 $10,882 $10,961
10/31/89 $10,567 $11,065 $11,186
11/30/89 $10,644 $11,146 $11,295
12/31/89 $10,666 $11,169 $11,324
01/31/90 $10,603 $11,102 $11,259
02/28/90 $10,656 $11,158 $11,288
03/31/90 $10,650 $11,152 $11,310
04/30/90 $10,623 $11,123 $11,270
05/31/90 $10,824 $11,334 $11,509
06/30/90 $10,934 $11,449 $11,658
07/31/90 $11,081 $11,603 $11,826
08/31/90 $11,041 $11,561 $11,774
09/30/90 $11,084 $11,606 $11,882
10/31/90 $11,172 $11,699 $12,047
11/30/90 $11,288 $11,820 $12,227
12/31/90 $11,430 $11,968 $12,400
01/31/91 $11,481 $12,022 $12,526
02/28/91 $11,571 $12,116 $12,591
03/31/91 $11,653 $12,202 $12,660
04/30/91 $11,782 $12,337 $12,791
05/31/91 $11,844 $12,402 $12,864
06/30/91 $11,858 $12,417 $12,877
07/31/91 $12,006 $12,572 $13,016
08/31/91 $12,208 $12,783 $13,259
09/30/91 $12,392 $12,976 $13,485
10/31/91 $12,525 $13,115 $13,637
11/30/91 $12,654 $13,250 $13,797
12/31/91 $12,975 $13,586 $14,134
01/31/92 $12,827 $13,431 $13,991
02/28/92 $12,843 $13,448 $14,044
03/31/92 $12,796 $13,399 $13,987
04/30/92 $12,894 $13,501 $14,115
05/31/92 $13,079 $13,695 $14,316
06/30/92 $13,284 $13,909 $14,524
07/31/92 $13,614 $14,256 $14,793
08/31/92 $13,721 $14,367 $14,964
09/30/92 $13,976 $14,634 $15,171
10/31/92 $13,720 $14,366 $14,985
11/30/92 $13,635 $14,277 $14,918
12/31/92 $13,827 $14,478 $15,115
01/31/93 $14,183 $14,851 $15,397
02/28/93 $14,496 $15,179 $15,628
03/31/93 $14,555 $15,241 $15,686
04/30/93 $14,659 $15,350 $15,810
05/31/93 $14,611 $15,299 $15,763
06/30/93 $14,965 $15,670 $15,990
07/31/93 $14,988 $15,694 $16,022
08/31/93 $15,358 $16,081 $16,267
09/30/93 $15,444 $16,172 $16,337
10/31/93 $15,478 $16,208 $16,366
11/30/93 $15,231 $15,948 $16,287
12/31/93 $15,326 $16,048 $16,351
01/31/94 $15,525 $16,256 $16,514
02/28/94 $15,114 $15,826 $16,279
03/31/94 $14,796 $15,493 $16,051
04/30/94 $14,691 $15,383 $15,942
05/31/94 $14,697 $15,390 $15,959
06/30/94 $14,669 $15,361 $15,970
07/31/94 $14,864 $15,564 $16,168
08/31/94 $14,902 $15,604 $16,219
09/30/94 $14,739 $15,434 $16,088
10/31/94 $14,745 $15,440 $16,092
11/30/94 $14,715 $15,408 $16,012
12/31/94 $14,772 $15,468 $16,072
01/31/95 $14,941 $15,645 $16,339
02/28/95 $15,165 $15,879 $16,652
03/31/95 $15,242 $15,960 $16,743
04/30/95 $15,430 $16,157 $16,935
05/31/95 $16,019 $16,774 $17,419
06/30/95 $16,126 $16,886 $17,533
07/31/95 $16,001 $16,755 $17,545
08/31/95 $16,192 $16,955 $17,689
09/30/95 $16,371 $17,142 $17,808
10/31/95 $16,620 $17,403 $18,008
11/30/95 $16,958 $17,757 $18,232
12/31/95 $17,246 $18,059 $18,418
01/31/96 $17,302 $18,117 $18,576
02/28/96 $16,880 $17,676 $18,368
03/31/96 $16,703 $17,490 $18,280
04/30/96 $16,668 $17,454 $18,222
05/31/96 $16,665 $17,451 $18,212
06/30/96 $16,786 $17,577 $18,390
07/31/96 $16,839 $17,632 $18,447
08/31/96 $16,837 $17,631 $18,467
09/30/96 $17,025 $17,828 $18,701
10/31/96 $17,232 $18,033 $19,006
11/30/96 $17,450 $18,269 $19,240
12/31/96 $17,302 $18,104 $19,135
01/31/97 $17,350 $18,129 $19,206
02/28/97 $17,317 $18,087 $19,227
03/31/97 $17,100 $17,853 $19,129
04/30/97 $17,314 $18,071 $19,343
05/31/97 $17,435 $18,198 $19,492
06/30/97 $17,621 $18,382 $19,660
07/31/97 $18,121 $18,896 $20,029
08/31/97 $17,897 $18,652 $19,944
09/30/97 $18,164 $18,916 $20,164
10/31/97 $18,465 $19,214 $20,398
11/30/97 $18,472 $19,209 $20,445
12/31/97 $18,691 $19,421 $20,619
01/31/98 $18,986 $19,701 $20,897
02/28/98 $18,898 $19,613 $20,869
03/31/98 $18,927 $19,635 $20,938
04/30/98 $18,989 $19,691 $21,032
05/31/98 $19,146 $19,844 $21,174
06/30/98 $19,318 $19,994 $21,321
</TABLE>
*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 Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 55 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE INTERMEDIATE-TERM U.S. TREASURY FUND MANAGER
including the effects of sales charges, versus 8.44% index. For further
comparison, the average intermediate-term U.S. Treasury fund returned 3.44% for
the six and 9.55% for 12 months according to Lipper Analytical Services, Inc.
The fund outperformed its benchmark index because its average maturity at 6.0
years is longer than the index at 3.7 years. During a period of declining
interest rates, which we have experienced, longer maturities perform better,
everything else being equal. The Fund was also overweighted in U.S. agencies,
which outperformed, compared to its benchmark index in June. On June 30 the Fund
had 24% of assets invested in U.S. agency securities while the index had 16%.
The economic environment for bonds has been quite good for the last year.
While the strength in the economy has been worrisome for the bond market, the
moderate rate of price inflation has been just the tonic to keep the bond bears
in check. Problems in Asia along with good news in inflation, have caused the
Federal Reserve Board (Fed) to be
HIGHLIGHTS
-------------------------------
CURRENT YIELD (30-DAY) CLASS A ......................................... 4.21%
CURRENT YIELD (30-DAY) CLASS B ......................................... 3.84%
WEIGHTED AVERAGE MATURITY .......................................... 6.0 YEARS
more cautious than they might normally be in the face of such a strong economy.
The Fed has made no move to change interest rates since March 1997.
The focus of economic problems in Asia shifted to Japan in the second quarter
of 1998. As concerns about Japan grew, the yen weakened against the dollar and
prompted a flight to quality, with many foreigners abandoning their Asian issues
and buying U.S. Treasury securities as a safe haven. We experienced a bond
market rally--especially in the benchmark 30-year treasury-- which had little to
do with U.S. economic fundamentals.
The mandate of the Intermediate-Term U.S. Treasury Fund is to buy U.S.
Treasury securities with maturities between three and 10 years. The primary tool
I have to distinguish this Fund from the index and its peers is setting the
average maturity.
We believe the United States is in the middle of a long-term secular decline
in interest rates. While interest rates may rise and fall as dictated by the
business cycle, the general trend is down. For that reason, we want to maintain
the average maturity of the fund longer than the its benchmark index and benefit
from the
- 56 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
better performance of longer bonds.
Trading in the fund has been minimal and has focused on maintaining an
average maturity in the range of 6 to 6.5 years. We have also modestly increased
the weighting in U.S. agencies. That paper now provides relatively more yield as
the spring's strong rally in U.S. Treasuries caused their yields to fall.
While the long-term outlook is for lower rates, the near- term is more
problematical. For more than a year we have enjoyed a near perfect bond
environment, with the economy strong and price inflation subdued. The strength
in the economy has continued longer than most forecasters envisioned, and we are
seeing some signs of inflation accelerating. The Federal Reserve Board, to head
off inflation, may be forced to begin raising interest rates at the end of this
year or early in 1999. We believe we can get through this period without the Fed
acting, but concede there is a nearly 50% probability they will begin raising
rates by February 1999.
If the Fed does move to raise rates, I would expect to significantly shorten
the average maturity of the portfolio to be more closely aligned with the
benchmark index.
Ronald Spaulding
- -------------------------------
Ronald Spaulding is the chief investment officer of SAFECO Corporation. In 1995,
he became vice president and treasurer of SAFECO Corporation, director of the
insurance subsidiaries, vice chairman of SAFECO Asset Management Company, and
vice president and treasurer of SAFECO Mutual Funds. He holds an M.B.A. from the
University of Washington and is a Chartered Financial Analyst.
- 57 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
<C> <S>
- -----------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES - 96.0%
U.S. FEDERAL AGENCY NOTES - 23.5%
$1,500 6.875%, due 11/22/06 ............................... $ 1,540
1,500 6.26%, due 9/24/04 ................................... 1,541
500 5.785%, due 4/14/08 .................................... 500
500 5.75%, due 2/15/08 ..................................... 499
U.S. TREASURY NOTES - 65.4%
2,200 7.75%, due 2/15/01 ................................... 2,318
1,200 7.50%, due 11/15/01 .................................. 1,271
2,070 7.25%, due 8/15/04 ................................... 2,253
1,310 6.875%, due 3/31/00 .................................. 1,339
3,900 6.50%, due 10/15/06 .................................. 4,143
U.S. TREASURY PRINCIPAL STRIPS - 7.1%
1,975 0.00%, due 2/15/07 ................................... 1,227
-----
TOTAL U.S. GOVERNMENT SECURITIES ..................................... 16,631
-----
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 2.8%
INVESTMENT COMPANIES:
$480 SSgA Prime Money Market Portfolio ................... $ 480
-----
TOTAL TEMPORARY INVESTMENTS ............................................. 480
-----
TOTAL INVESTMENTS - 98.8% ............................................ 17,111
Other Assets, less Liabilities .......................................... 207
-----
NET ASSETS .......................................................... $17,318
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 58 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO MANAGED BOND FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO Managed Bond Fund outperformed its peer funds for the quarter, six
and 12 months ending June 30, 1998. The Fund returned 2.44% for Class A shares
and 2.05% for Class B shares, not including the effects of sales charges, for
the quarter compared to 2.05% for average intermediate investment grade debt
funds according to Lipper Analytical Services, Inc. The six and 12 month
comparisons are 3.85% and 10.13% for Class A shares and 3.15% and 8.91% for
Class B shares, not including the effects of sales charges, versus 3.61% and
9.42% for their peers, respectively.
[PHOTO OF MICHAEL HUGHES]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIODS ENDED JUNE 30, 1998 1 YEAR SINCE INCEPTION* 1 YEAR SINCE INCEPTION*
<S> <C> <C> <C> <C>
Class A 5.17% 4.65% 10.13% 5.76%
Class B 3.91% 4.96% 8.91% 5.35%
</TABLE>
INVESTMENT VALUE WITH SALES CHARGE
SAFECO MANAGED BOND FUND CLASS A: $12,175
SAFECO MANAGED BOND FUND CLASS B: $12,336
LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX: $13,634
<TABLE>
<CAPTION>
AFECO SAFECO LEHMAN BROTHERS
INVESTMENT VALUE MANAGED BOND MANAGED BOND GOVERNMENT/
WITH SALES CHARGE FUND CLASS A FUND CLASS B CORPORATE INDEX
<S> <C> <C> <C>
02/28/94 $9,550 $10,000 $10,000
03/31/94 $9,231 $9,666 $9,755
04/30/94 $9,223 $9,657 $9,674
05/31/94 $9,231 $9,666 $9,657
06/30/94 $9,218 $9,653 $9,634
07/31/94 $9,318 $9,757 $9,827
08/31/94 $9,340 $9,780 $9,831
09/30/94 $9,266 $9,703 $9,683
10/31/94 $9,272 $9,709 $9,672
11/30/94 $9,245 $9,680 $9,655
12/31/94 $9,263 $9,699 $9,718
01/31/95 $9,386 $9,828 $9,905
02/28/95 $9,541 $9,991 $10,135
03/31/95 $9,587 $10,038 $10,203
04/30/95 $9,709 $10,167 $10,344
05/31/95 $10,059 $10,533 $10,778
06/30/95 $10,137 $10,615 $10,864
07/31/95 $10,067 $10,541 $10,822
08/31/95 $10,193 $10,674 $10,960
09/30/95 $10,305 $10,791 $11,072
10/31/95 $10,469 $10,962 $11,235
11/30/95 $10,675 $11,178 $11,420
12/31/95 $10,870 $11,382 $11,588
01/31/96 $10,887 $11,400 $11,660
02/28/96 $10,627 $11,127 $11,412
03/31/96 $10,514 $11,010 $11,317
04/30/96 $10,509 $11,004 $11,239
05/31/96 $10,514 $11,009 $11,219
06/30/96 $10,593 $11,092 $11,370
07/31/96 $10,626 $11,127 $11,396
08/31/96 $10,646 $11,148 $11,369
09/30/96 $10,734 $11,239 $11,571
10/31/96 $10,843 $11,347 $11,841
11/30/96 $10,965 $11,467 $12,058
12/31/96 $10,877 $11,369 $11,925
01/31/97 $10,884 $11,368 $11,939
02/28/97 $10,858 $11,335 $11,964
03/31/97 $10,715 $11,179 $11,822
04/30/97 $10,863 $11,327 $11,994
05/31/97 $10,946 $11,406 $12,106
06/30/97 $11,056 $11,511 $12,251
07/31/97 $11,378 $11,839 $12,626
08/31/97 $11,231 $11,664 $12,484
09/30/97 $11,397 $11,843 $12,680
10/31/97 $11,577 $12,007 $12,883
11/30/97 $11,592 $12,028 $12,952
12/31/97 $11,723 $12,154 $13,088
01/31/98 $11,917 $12,343 $13,272
02/28/98 $11,866 $12,276 $13,246
03/31/98 $11,885 $12,284 $13,287
04/30/98 $11,927 $12,303 $13,353
05/31/98 $12,066 $12,435 $13,496
06/30/98 $12,175 $12,336 $13,634
</TABLE>
*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 Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 59 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE MANAGED BOND FUND MANAGER
Last year, I made some strategic changes to increase the Fund's
competitiveness, adopting a more balanced approach. I limited the range in which
the portfolio's average maturity would be allowed to fluctuate and concentrated
my efforts on creating additional value through sector rotation, yield curve
positioning and credit selection.
The market environment over the last 12 months has been particularly
favorable towards fixed-income securities. Inflation is low and shows no signs
of accelerating. The economy, which grew very rapidly during the first quarter,
is showing welcome signs of moderation due to the continuing Asian economic
crisis. The Federal Reserve, which has not
HIGHLIGHTS
-------------------------------
<TABLE>
<CAPTION>
PERCENT OF
BONDS BY TYPE NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
U.S. Treasury Securities ............................................ 47%
Asset Backed Securities .............................................. 27
Corporate Bonds ...................................................... 22
Cash & Other .......................................................... 4
----
100%
----
----
</TABLE>
CURRENT YIELD (30-DAY) CLASS A ......................................... 4.00%
CURRENT YIELD (30-DAY) CLASS B ......................................... 3.16%
WEIGHTED AVERAGE MATURITY .......................................... 8.7 YEARS
changed the Fed Funds Rate since March 1997, is likely to remain on hold for the
next several months, at least. The growing federal budget surplus is shrinking
the available supply of U.S. Treasury Bonds, causing them to richen.
The objective of the Managed Bond Fund is to provide as high a level of total
return as is consistent with relative stability of capital through the purchase
of investment-grade debt securities. Preservation of capital is in part achieved
by the fund's mandate to maintain a 50% weighting in U.S. government securities.
The Fund makes modest changes in its average maturity in response to interest
rate trends and further distinguishes itself from its index and its peers
through selection.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
S&P CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
AAA: 76%
AA: 1%
A: 17%
BBB: 2%
Cash & Other: 4%
During the quarter, we moved portions of the portfolio into and out of
investment-grade corporate bonds as this sector cheapened, richened and
cheapened again relative to U.S. Treasuries. We sold some government and
corporate holdings in the very rich 10-year maturity sector of the yield curve
and bought a higher-yielding combination of securities
- 60 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
with maturities of two and 20 years. Finally, we concentrated our holding in
issues insulated from the problems in Asia, such as U.S. Treasuries and agency
mortgage-backed securities and notes.
At quarter end, the Fund held 47% of its assets in U.S. Treasury obligations,
21% in high-grade corporate bonds, 20% in mortgage-backed securities, 1% in U.S.
agency debentures, and 7% in AAA asset-backed securities. The portfolio's
effective duration was 5.7 years on June 30, 1998, slightly longer than the
duration of the Lehman Brothers Government/Corporate Bond Index at 5.5 years.
The wild card for the fixed-income markets is the continuing Asian economic
crisis. If the crisis continues to worsen, U.S. economic growth could be
adversely affected. Under this scenario, U.S. Treasuries will increase in value
due to a flight to quality from global investors, diminished inflationary
pressures, and the perception that the next Fed move will be to lower interest
rates. Corporate bonds would underperform Treasuries as earnings come under
increased pressure. If the Asian economic crisis abates, U.S. economic growth
could re-accelerate, increasing inflationary pressures and the likelihood of a
Fed tightening. Under this scenario, U.S. Treasuries would decrease in value and
corporate bonds would outperform. We will watch the world economy closely and
invest accordingly.
Michael Hughes
- -------------------------------
Michael Hughes joined SAFECO as a portfolio manager in January 1997. He began
his investment career in 1983. He graduated magna cum laude with a B.S. in
finance from University of Colorado in Boulder and holds an MBA from the
University of Southern California in Los Angeles. He is a Chartered Financial
Analyst.
- 61 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MANAGED BOND FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
<C> <S>
- -----------------------------------------------------------------------------
ASSET BACKED SECURITIES - 26.8%
COLLATERIZED MORTGAGE OBLIGATION (CMO) - 19.8%
$150 FHLMC REMIC 1587
6.50%, due 10/15/08 ................................... $152
150 FNMA 1997-M5 C
6.74%, due 8/25/07 ..................................... 157
130 FNMA G93-33J
6.75%, due 6/25/22 ..................................... 134
150 FNMA REMIC 1993-11
7.35%, due 6/25/07 ..................................... 155
75 FNMA REMIC 1992-108
7.00%, due 7/25/07 ...................................... 78
125 FNMA REMIC 1993-44PH
6.75%, due 5/25/19 ..................................... 128
100 FNMA REMIC 1993-23
6.70%, due 7/25/19 ..................................... 101
200 FNMA REMIC 1993-55
6.50%, due 2/25/05 ..................................... 204
CONSUMER (FINANCE) - 3.5%
108 AFG Receivables Trust
6.20%, due 2/15/03 ..................................... 108
90 Premier Auto Trust
6.20%, due 1/06/01 ...................................... 90
FINANCIAL (DIVERSIFIED) - 2.0%
38 Chevy Chase Auto ABS Series 1996-1 (Class A)
6.60%, due 12/15/02 ..................................... 38
74 DLJ Commercial Mortgage Corp. 1998-CF1 A1A
6.14%, due 10/15/06 ..................................... 74
MANUFACTURING (SPECIALIZED) - 1.5%
85 Harley Davidson Eagle
6.20%, due 1/15/03 ...................................... 86
----
TOTAL ASSET BACKED SECURITIES ......................................... 1,505
----
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CORPORATE BONDS - 21.3%
AUTOMOBILES - 2.2%
$120 Hertz Corp. Notes
7.00%, due 7/01/04 .................................... $125
BANKS (MAJOR REGIONAL) - 0.9%
50 U.S. Bancorp
6.75%, due 10/15/05 ..................................... 52
BUILDING MATERIALS - 1.8%
100 Hanson Overseas
6.75%, due 9/15/05 ..................................... 103
ENGINEERING & CONSTRUCTION - 1.9%
97 Halliburton Co.
6.75%, due 2/01/27 ..................................... 106
FINANCE (CONSUMER) - 1.7%
90 Household Finance Corp.
7.25%, due 7/15/03 ...................................... 94
FINANCIAL (DIVERSIFIED) - 4.6%
105 General Motors Acceptance Corp.
6.875%, due 7/15/01 .................................... 108
80 St. Paul Companies, Inc.
7.33%, due 8/18/06 ...................................... 87
60 St. Paul Companies, Inc.
7.05%, due 3/07/07 ...................................... 64
INVESTMENT BANKING/BROKERAGE - 3.7%
95 Donaldson, Lufkin & Jenrette, Inc.
6.90%, due 10/01/07 ..................................... 99
115 Lehman Brothers Holding, Inc.
6.05%, due 4/15/08 ..................................... 115
RETAIL (COMPUTERS & ELECTRIC) - 3.0%
160 Tandy Corp.
6.95%, due 9/1/07 ...................................... 166
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 62 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MANAGED BOND FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (GENERAL MERCHANDISE) - 1.4%
$ 75 Sears Roebuck Acceptance Corp.
6.75%, due 9/15/05 ................................... $ 77
----
TOTAL CORPORATE BONDS ................................................. 1,196
----
U.S. GOVERNMENT SECURITIES - 47.8%
U.S. FEDERAL AGENCY NOTES - 1.0%
50 Federal Home Loan Mortgage Corp.
6.943%, due 3/21/07 ..................................... 54
U. S. TREASURY NOTES - 18.3%
50 7.50%, due 11/15/16 ..................................... 60
325 7.25%, due 8/15/04 ..................................... 354
265 6.50%, due 10/15/06 .................................... 281
325 6.375, due 9/30/01 ..................................... 333
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
U. S. TREASURY PRINCIPAL STRIPS - 28.5%
$ 710 0.00%, due 5/15/07 ................................... $ 435
1,875 0.00%, due 2/15/07 ................................... 1,164
----
TOTAL U.S. GOVERNMENT SECURITIES ...................................... 2,681
----
TEMPORARY INVESTMENTS - 3.7%
INVESTMENT COMPANIES:
210 SSgA Prime Money Market Portfolio ...................... 210
----
TOTAL TEMPORARY INVESTMENTS ............................................. 210
TOTAL INVESTMENTS - 99.5% ............................................. 5,592
Other Assets, less Liabilities ........................................... 26
----
NET ASSETS ........................................................... $5,618
----
----
- -----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 63 -
<PAGE>
OVERVIEW OF THE
SAFECO MUNICIPAL BOND FUND
AND SAFECO CALIFORNIA TAX-FREE INCOME FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The municipal bond market was little changed for the quarter and six months
ending June 30, 1998, and total returns were modest for both periods.
In a flat market the three keys to performance are: 1. staying fully invested
since bonds yield more than money market instruments; 2. holding the longest
bonds available because longer bonds yield more than shorter ones; and 3. buying
the lower quality bonds because lower-rated bonds yield more than higher-rated
ones. I have consistently practiced the first two strategies, but I am reluctant
to downgrade quality. The meager additional yields that lower-quality bonds
currently offer don't seem worth the additional risk. Fortunately, two out of
three has been good enough to produce good results.
[PHOTO OF STEPHEN C. BAUER]
Over the last six months, long-term municipal yields fluctuated only slightly
to end the period at 5.22%. The taxable bond market rallied much more
aggressively and long Treasury yields fell to 5.63% on June 30. (On June 15 the
U.S. Treasury 30-year bond closed at a yield of 5.57%, the lowest yield in the
18-year history of the long-term government bond.)
The underperformance by the tax-exempt market caused the ratio of tax-exempt
to taxable bond yields to rise to 93%. This means munis currently pay on a
tax-free basis 93% of what a similar-length taxable treasury bond yields. This
is the highest ratio since 1995 and compares to 84% one year ago.
There are two reasons for the extraordinary cheapness of the muni market: low
absolute yields and heavy new issue supply. Yields near 25-year lows, coupled
with the record-high stock market returns, have created little demand for
long-term muni bonds. On top of this, is a new issue market, which brought $146
billion in supply over the last six months.
At the same time, the U.S. Treasury market has enjoyed increased demand from
foreign investors fleeing weakened Asian currencies and benefited by shrinking
supply due to the
- 64 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Federal budget surplus. It is no surprise that munis are cheap compared to
Treasuries. And that creates an attractive opportunity for high tax bracket bond
investors.
In the extremely stable market that municipal bonds have enjoyed this year,
the only aberration is the relationship between tax exempt and taxable bonds. As
long as current economic conditions persist, however, I don't see this changing.
Historically, low rates will continue to encourage issuers of new debt while
discouraging investors. The best hope for the municipal market is a correction
in the stock market, which would encourage equity buyers to reevaluate their
asset allocation and to see bonds in a more attractive light.
- 65 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO MUNICIPAL BOND FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO Municipal Bond Fund returned 2.63% and 10.06% for Class A shares
and 2.23% and 9.26% for Class B shares, not including the effects of sales
charges, for the six months and 12 months ended June 30, 1998, compared to its
peer group's 2.26% and 8.39% total returns. According to the Lipper Analytical
Services, Inc. ranking of general municipal bond funds, Class A shares were 10th
and Class B shares were 31st of the 233 fund classes tracked.
The Fund classes slightly underperformed the 10.77% posted by the Lehman
Brothers Long municipal bond index for the 12 months ended June 30, 1998, but
that is to be expected. It's nearly impossible for a bond fund to beat a bond
index because the index has no expenses, no cash
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIODS ENDED JUNE 30, 1998 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C> <C> <C> <C>
Class A 5.11% 5.34% 8.08% 10.06% 6.31% 8.57%
Class B 4.26% 5.74% 8.45% 9.26% 6.06% 8.45%
</TABLE>
INVESTMENT VALUE WITH SALES CHARGE
SAFECO MUNICIPAL BOND FUND CLASS A: $21,741
SAFECO MUNICIPAL BOND FUND CLASS B: $22,497
LEHMAN BROTHERS LONG MUNICIPAL BOND INDEX: $24,643
<TABLE>
<CAPTION>
SAFECO SAFECO LEHMAN BROTHERS
INVESTMENT VALUE MUNICIPAL BOND MUNICIPAL BOND LONG MUNICIPAL
WITH SALES CHARGE FUND CLASS A FUND CLASS B BOND INDEX
<S> <C> <C> <C>
06/30/88 $9,550 $10,000 $10,000
07/31/88 $9,599 $10,051 $10,067
08/31/88 $9,648 $10,103 $10,107
09/30/88 $9,864 $10,329 $10,336
10/31/88 $10,136 $10,613 $10,571
11/30/88 $10,017 $10,489 $10,457
12/31/88 $10,216 $10,697 $10,639
01/31/89 $10,452 $10,944 $10,890
02/28/89 $10,295 $10,780 $10,737
03/31/89 $10,295 $10,780 $10,746
04/30/89 $10,537 $11,033 $11,061
05/31/89 $10,734 $11,240 $11,318
06/30/89 $10,869 $11,382 $11,490
07/31/89 $10,981 $11,498 $11,642
08/31/89 $10,884 $11,397 $11,465
09/30/89 $10,875 $11,387 $11,430
10/31/89 $10,981 $11,498 $11,581
11/30/89 $11,178 $11,705 $11,827
12/31/89 $11,246 $11,776 $11,914
01/31/90 $11,115 $11,639 $11,794
02/28/90 $11,243 $11,773 $11,927
03/31/90 $11,227 $11,756 $11,939
04/30/90 $11,055 $11,576 $11,793
05/31/90 $11,405 $11,942 $12,126
06/30/90 $11,510 $12,053 $12,245
07/31/90 $11,731 $12,284 $12,461
08/31/90 $11,426 $11,964 $12,165
09/30/90 $11,404 $11,941 $12,146
10/31/90 $11,621 $12,169 $12,403
11/30/90 $11,944 $12,507 $12,717
12/31/90 $11,994 $12,559 $12,773
01/31/91 $12,184 $12,758 $12,945
02/28/91 $12,237 $12,813 $13,036
03/31/91 $12,252 $12,829 $13,067
04/30/91 $12,457 $13,044 $13,269
05/31/91 $12,583 $13,176 $13,426
06/30/91 $12,540 $13,130 $13,400
07/31/91 $12,739 $13,339 $13,607
08/31/91 $12,932 $13,542 $13,803
09/30/91 $13,139 $13,758 $14,003
10/31/91 $13,280 $13,905 $14,149
11/30/91 $13,237 $13,861 $14,167
12/31/91 $13,647 $14,290 $14,504
01/31/92 $13,529 $14,166 $14,496
02/28/92 $13,563 $14,203 $14,518
03/31/92 $13,547 $14,185 $14,555
04/30/92 $13,674 $14,319 $14,694
05/31/92 $13,905 $14,560 $14,909
06/30/92 $14,206 $14,875 $15,197
07/31/92 $14,752 $15,448 $15,754
08/31/92 $14,450 $15,131 $15,543
09/30/92 $14,478 $15,161 $15,612
10/31/92 $14,163 $14,830 $15,351
11/30/92 $14,596 $15,284 $15,783
12/31/92 $14,841 $15,540 $15,988
01/31/93 $14,986 $15,692 $16,139
02/28/93 $15,634 $16,370 $16,889
03/31/93 $15,388 $16,114 $16,686
04/30/93 $15,600 $16,335 $16,914
05/31/93 $15,689 $16,428 $17,054
06/30/93 $16,011 $16,765 $17,375
07/31/93 $15,949 $16,701 $17,392
08/31/93 $16,373 $17,145 $17,838
09/30/93 $16,557 $17,337 $18,086
10/31/93 $16,602 $17,384 $18,120
11/30/93 $16,392 $17,164 $17,901
12/31/93 $16,720 $17,508 $18,362
01/31/94 $16,923 $17,720 $18,579
02/28/94 $16,422 $17,196 $17,964
03/31/94 $15,588 $16,323 $16,892
04/30/94 $15,603 $16,338 $17,022
05/31/94 $15,790 $16,534 $17,221
06/30/94 $15,616 $16,351 $17,014
07/31/94 $15,975 $16,728 $17,452
08/31/94 $15,986 $16,740 $17,488
09/30/94 $15,592 $16,326 $17,082
10/31/94 $15,258 $15,977 $16,558
11/30/94 $14,945 $15,649 $16,121
12/31/94 $15,341 $16,064 $16,693
01/31/95 $15,905 $16,655 $17,427
02/28/95 $16,574 $17,354 $18,137
03/31/95 $16,695 $17,481 $18,355
04/30/95 $16,669 $17,455 $18,346
05/31/95 $17,445 $18,267 $19,128
06/30/95 $17,071 $17,876 $18,775
07/31/95 $17,153 $17,961 $18,871
08/31/95 $17,375 $18,193 $19,137
09/30/95 $17,504 $18,329 $19,287
10/31/95 $17,870 $18,713 $19,754
11/30/95 $18,366 $19,231 $20,264
12/31/95 $18,636 $19,514 $20,580
01/31/96 $18,696 $19,577 $20,668
02/28/96 $18,490 $19,362 $20,416
03/31/96 $18,068 $18,919 $20,042
04/30/96 $17,932 $18,777 $19,962
05/31/96 $17,962 $18,808 $19,972
06/30/96 $18,226 $19,085 $20,280
07/31/96 $18,450 $19,319 $20,480
08/31/96 $18,384 $19,250 $20,454
09/30/96 $18,756 $19,639 $20,908
10/31/96 $18,973 $19,854 $21,163
11/30/96 $19,405 $20,282 $21,618
12/31/96 $19,228 $20,086 $21,488
01/31/97 $19,127 $19,972 $21,445
02/28/97 $19,318 $20,162 $21,677
03/31/97 $18,981 $19,801 $21,302
04/30/97 $19,200 $20,034 $21,553
05/31/97 $19,530 $20,353 $21,971
06/30/97 $19,754 $20,590 $22,253
07/31/97 $20,566 $21,413 $23,063
08/31/97 $20,203 $21,025 $22,756
09/30/97 $20,461 $21,297 $23,084
10/31/97 $20,627 $21,444 $23,282
11/30/97 $20,773 $21,588 $23,489
12/31/97 $21,184 $22,005 $23,919
01/31/98 $21,377 $22,182 $24,175
02/28/98 $21,355 $22,152 $24,163
03/31/98 $21,363 $22,137 $24,197
04/30/98 $21,162 $21,920 $24,066
05/31/98 $21,599 $22,376 $24,538
06/30/98 $21,741 $22,497 $24,643
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 66 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
S&P CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
AAA: 40%
AA: 21%
A: 22%
BBB: 11%
BB: 1%
Not Rated: 3%
Cash & Other: 2%
and no call features. The difference between the performance of the fund and its
peer group is the better measure of success.
Activity in the Muni Bond Fund was directed at attractive new issues in the
marketplace. Two new positions for the Fund were District of Columbia G.O.
5.25%, due 2027 at a yield of 5.39%, and Washington State Health Care Facilities
Authority for Swedish Health System 5.25%, due 2026 at 5.58% yield. Both issues
were insured and carry AAA ratings.
HIGHLIGHTS
------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE STATES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
California ............................................................. 22%
Washington .............................................................. 13
Texas .................................................................... 9
Illinois ................................................................. 7
New York ................................................................. 7
</TABLE>
CURRENT YIELD (30-DAY) CLASS A ......................................... 4.03%
CURRENT YIELD (30-DAY) CLASS B ......................................... 3.62%
WEIGHTED AVERAGE MATURITY ......................................... 24.1 YEARS
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
San Joaquin Hills Transportation
Corridor Agency Senior Lien Toll
Road Revenue ........................................................ 4.6%
Illinois Educational Facilties Authority
Adjustable Demand Revenue
(University of Chicago) .............................................. 3.7
Wyoming Community Develpoment
Authority Housing Revenue ............................................ 3.6
Alaska Housing Finance Corp.
(General Housing Purpose) ............................................ 3.2
Austin Combined Utility System ......................................... 3.1
</TABLE>
- 67 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO CALIFORNIA TAX-FREE INCOME FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the year ended June 30, 1998, the California Tax-Free Income Fund was one
of the best of the bunch. With a total one-year return of 10.91% for Class A
shares and 10.10% for Class B shares, not including the effects of sales
charges, Lipper Analytical Services, Inc. ranked Class A shares third and Class
B shares 10th of 100 California tax-exempt funds, which returned 8.61% on
average. For the six months the Fund returned 2.36% for Class A shares and 1.97%
for Class B shares, not including the effects of sales charges, compared to the
peer group's 2.28%.
The California Tax-Free Income Fund had little activity during the last six
months. I took advantage of the slight downtick
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIODS ENDED JUNE 30, 1998 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C> <C> <C> <C>
Class A 5.92% 6.00% 8.24% 10.91% 6.98% 8.74%
Class B 5.10% 6.37% 8.59% 10.10% 6.68% 8.59%
</TABLE>
INVESTMENT VALUE WITH SALES CHARGE
SAFECO CALIFORNIA TAX-FREE INCOME FUND CLASS A: $22,076
SAFECO CALIFORNIA TAX-FREE INCOME FUND CLASS B: $22,797
LEHMAN BROTHERS LONG MUNI BOND INDEX: $24,643
<TABLE>
<CAPTION>
SAFECO SAFECO
CALIFORNIA TAX-FREE CALIFORNIA TAX-FREE LEHMAN BROTHERS
INVESTMENT VALUE INCOME FUND INCOME FUND LONG MUNI
WITH SALES CHARGE CLASS A CLASS B BOND INDEX
<S> <C> <C> <C>
06/30/88 $9,550 $10,000 $10,000
07/31/88 $9,576 $10,027 $10,067
08/31/88 $9,619 $10,072 $10,107
09/30/88 $9,845 $10,309 $10,336
10/31/88 $10,137 $10,615 $10,571
11/30/88 $9,984 $10,455 $10,457
12/31/88 $10,196 $10,676 $10,639
01/31/89 $10,440 $10,932 $10,890
02/28/89 $10,290 $10,774 $10,737
03/31/89 $10,284 $10,769 $10,746
04/30/89 $10,523 $11,019 $11,061
05/31/89 $10,737 $11,243 $11,318
06/30/89 $10,852 $11,364 $11,490
07/31/89 $10,977 $11,494 $11,642
08/31/89 $10,843 $11,354 $11,465
09/30/89 $10,840 $11,351 $11,430
10/31/89 $10,945 $11,461 $11,581
11/30/89 $11,140 $11,665 $11,827
12/31/89 $11,206 $11,734 $11,914
01/31/90 $11,082 $11,604 $11,794
02/28/90 $11,217 $11,745 $11,927
03/31/90 $11,196 $11,724 $11,939
04/30/90 $11,026 $11,546 $11,793
05/31/90 $11,364 $11,899 $12,126
06/30/90 $11,473 $12,013 $12,245
07/31/90 $11,691 $12,242 $12,461
08/31/90 $11,400 $11,937 $12,165
09/30/90 $11,383 $11,920 $12,146
10/31/90 $11,671 $12,221 $12,403
11/30/90 $11,944 $12,506 $12,717
12/31/90 $11,987 $12,552 $12,773
01/31/91 $12,169 $12,743 $12,945
02/28/91 $12,206 $12,782 $13,036
03/31/91 $12,179 $12,753 $13,067
04/30/91 $12,368 $12,951 $13,269
05/31/91 $12,489 $13,077 $13,426
06/30/91 $12,428 $13,014 $13,400
07/31/91 $12,619 $13,214 $13,607
08/31/91 $12,793 $13,396 $13,803
09/30/91 $13,026 $13,639 $14,003
10/31/91 $13,166 $13,786 $14,149
11/30/91 $13,092 $13,709 $14,167
12/31/91 $13,492 $14,127 $14,504
01/31/92 $13,445 $14,079 $14,496
02/28/92 $13,448 $14,082 $14,518
03/31/92 $13,450 $14,083 $14,555
04/30/92 $13,548 $14,187 $14,694
05/31/92 $13,753 $14,401 $14,909
06/30/92 $14,023 $14,684 $15,197
07/31/92 $14,497 $15,180 $15,754
08/31/92 $14,219 $14,889 $15,543
09/30/92 $14,321 $14,996 $15,612
10/31/92 $13,923 $14,579 $15,351
11/30/92 $14,380 $15,058 $15,783
12/31/92 $14,570 $15,257 $15,988
01/31/93 $14,722 $15,416 $16,139
02/28/93 $15,390 $16,115 $16,889
03/31/93 $15,182 $15,897 $16,686
04/30/93 $15,405 $16,130 $16,914
05/31/93 $15,468 $16,197 $17,054
06/30/93 $15,757 $16,499 $17,375
07/31/93 $15,737 $16,478 $17,392
08/31/93 $16,179 $16,941 $17,838
09/30/93 $16,375 $17,147 $18,086
10/31/93 $16,376 $17,147 $18,120
11/30/93 $16,121 $16,881 $17,901
12/31/93 $16,498 $17,275 $18,362
01/31/94 $16,744 $17,533 $18,579
02/28/94 $16,304 $17,072 $17,964
03/31/94 $15,481 $16,211 $16,892
04/30/94 $15,426 $16,152 $17,022
05/31/94 $15,569 $16,303 $17,221
06/30/94 $15,420 $16,147 $17,014
07/31/94 $15,778 $16,521 $17,452
08/31/94 $15,773 $16,516 $17,488
09/30/94 $15,372 $16,097 $17,082
10/31/94 $15,001 $15,707 $16,558
11/30/94 $14,723 $15,417 $16,121
12/31/94 $14,980 $15,686 $16,693
01/31/95 $15,668 $16,406 $17,427
02/28/95 $16,434 $17,208 $18,137
03/31/95 $16,567 $17,347 $18,355
04/30/95 $16,493 $17,270 $18,346
05/31/95 $17,423 $18,244 $19,128
06/30/95 $16,890 $17,686 $18,775
07/31/95 $16,966 $17,766 $18,871
08/31/95 $17,233 $18,045 $19,137
09/30/95 $17,366 $18,184 $19,287
10/31/95 $17,828 $18,668 $19,754
11/30/95 $18,483 $19,354 $20,264
12/31/95 $18,896 $19,787 $20,580
01/31/96 $18,828 $19,715 $20,668
02/28/96 $18,589 $19,464 $20,416
03/31/96 $18,037 $18,886 $20,042
04/30/96 $17,876 $18,718 $19,962
05/31/96 $17,893 $18,736 $19,972
06/30/96 $18,243 $19,103 $20,280
07/31/96 $18,452 $19,321 $20,480
08/31/96 $18,406 $19,274 $20,454
09/30/96 $18,847 $19,735 $20,908
10/31/96 $19,079 $19,966 $21,163
11/30/96 $19,594 $20,475 $21,618
12/31/96 $19,380 $20,239 $21,488
01/31/97 $19,172 $20,010 $21,445
02/28/97 $19,393 $20,229 $21,677
03/31/97 $18,959 $19,764 $21,302
04/30/97 $19,246 $20,052 $21,553
05/31/97 $19,612 $20,421 $21,971
06/30/97 $19,904 $20,706 $22,253
07/31/97 $20,941 $21,755 $23,063
08/31/97 $20,476 $21,276 $22,756
09/30/97 $20,755 $21,553 $23,084
10/31/97 $20,929 $21,721 $23,282
11/30/97 $21,132 $21,919 $23,489
12/31/97 $21,568 $22,356 $23,919
01/31/98 $21,795 $22,577 $24,175
02/28/98 $21,748 $22,514 $24,163
03/31/98 $21,723 $22,474 $24,197
04/30/98 $21,464 $22,192 $24,066
05/31/98 $21,999 $22,731 $24,538
06/30/98 $22,076 $22,797 $24,643
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 68 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
S&P CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
AAA: 58%
AA: 3%
A: 15%
BBB: 13%
Not Rated: 3%
Cash & Other: 8%
in prices in May to do two swaps in order to partially offset gains taken
earlier this year.
Stephen C. Bauer
- -------------------------------
Stephen C. Bauer joined SAFECO in 1971 as a fixed-income analyst. He became a
fund manager with the inception of the SAFECO Municipal Bond Fund in 1981, and
is President of SAFECO Asset Management Company. Bauer holds a B.S. in
microbiology and an M.B.A. from the University of Washington.
HIGHLIGHTS
------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE TYPE OF BONDS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Local General Obligation - Limited Tax .............................. 17%
Lease Rental ......................................................... 12
Hospital ............................................................. 10
Toll Road ............................................................. 8
Utilities - Water ..................................................... 7
</TABLE>
CURRENT YIELD (30-DAY) CLASS A ......................................... 3.94%
CURRENT YIELD (30-DAY) CLASS B ......................................... 3.40%
WEIGHTED AVERAGE MATURITY ......................................... 24.1 YEARS
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
San Francisco Bay Area Rapid Transit
District Revenue ................................................. 4.5%
Los Angeles Wastewater System
Revenue ........................................................... 4.5
Airports Commission City and County
of San Fancisco International
Airport Revenue ................................................... 4.4
San Joaquin Hills Transportation
Corridor Agency Senior Lien Toll
Road Revenue ...................................................... 4.4
Redding Joint Powers Financing
Authority Solid Waste and Corporation
Yard Revenue ...................................................... 4.3
</TABLE>
- 69 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
BONDS* - 97.8%
ALABAMA - 1.7%
$ 2,000 Alabama Special Care, Facilities Financing Authority of
Birmingham (Daughters of Charity, Providence Hospital and
St. Vincent's Hospital)
5.00%, due 11/01/25 ................................ $ 1,914
1,310 Board of Trustees Alabama Agriculture and Mechanical
University Revenue
5.50%, due 11/01/20 [MBIA] ........................... 1,429
1,000 Citronelle Industrial Development Board Pollution Control
Revenue
8.00%, due 12/01/12 .................................. 1,080
4,250 Jefferson County Sewer Revenue
5.70%, due 2/01/20 [FGIC] ............................ 4,492
ALASKA - 3.3%
495 Alaska Housing Finance Corp. Collateralized (Veterans
Mortgage Program)
6.50%, due 6/01/31 ..................................... 509
17,000 Alaska Housing Finance Corp. (General Housing Purpose)
5.00%, due 12/01/18 ................................. 16,596
ARIZONA - 1.8%
9,800 Phoenix Civic Improvement Corp. Wastewater System Lease
Revenue
4.75%, due 7/01/23 ................................... 9,252
CALIFORNIA - 21.9%
3,600 Airports Commission City and County of San Francisco
International Airport Revenue
6.00%, due 5/01/25 [FGIC] ............................ 3,903
1,500 Foothill/Eastern Transportation Corridor Agency Toll Road
Revenue
5.00%, due 1/01/35 ................................... 1,428
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CALIFORNIA (CONTINUED)
$ 2,500 Los Angeles County Certificates of Participation (Disney
Parking Project)
5.50%, due 9/01/21 ................................. $ 2,510
13,000 Los Angeles Department of Water and Power Electric Plant
Revenue
5.25%, due 11/15/26 ................................. 13,031
5,000 Los Angeles Wastewater System Revenue
4.70%, due 11/01/19 [FGIC] ........................... 4,710
2,200 Metropolitan Water District of Southern California
Waterworks Revenue
5.75%, due 3/01/14 ................................... 2,236
5,250 Northern California Power Agency Geothermal Project Revenue
5.00%, due 7/01/09 ................................... 5,251
Pittsburg Redevelopment Agency Los Medanos Community
Development Project Tax Allocation
11,995 5.80%, due 8/01/34 [FSA] ............................ 13,103
6,400 4.625%, due 8/01/21 [AMBAC] .......................... 5,933
2,000 Redding Joint Powers Financing Authority Solid Waste and
Corporation Yard Revenue
5.00%, due 1/01/23 ................................... 1,910
8,750 Sacramento County Sanitation District Finance Authority
Revenue
4.75%, due 12/01/23 .................................. 8,233
10,000 San Francisco Bay Area Rapid Transit District Revenue
5.00%, due 7/01/28 [AMBAC] ........................... 9,742
1,700 San Francisco City and County Redevelopment Financing
Authority Tax Allocation Revenue
4.75%, due 8/01/18 [FGIC] ............................ 1,611
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 70 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CALIFORNIA (CONTINUED)
$ 8,010 San Joaquin County Public Facilities Financing Corp.
Certificates of Participation Capital Facilities Project
4.75%, due 11/15/19 [MBIA] ......................... $ 7,587
25,000 San Joaquin Hills Transportation Corridor Agency Senior Lien
Toll Road Revenue
5.00%, due 1/01/33 .................................. 23,818
Southern California Public Power Authority Power Project
Revenue (Multiple Projects)
4,085 / /5.50%, due 7/01/20
(Prerefunded 7/01/00@100) ............................ 4,217
3,165 5.50%, due 7/01/20 ................................... 3,183
COLORADO - 0.3%
1,000 Colorado Housing Finance Authority Multi-Family Mortgage
Revenue
8.30%, due 10/01/23 .................................. 1,100
220 Colorado Housing Finance Authority Single Family Residential
Housing Revenue
8.75%, due 9/01/17 ..................................... 225
DISTRICT OF COLUMBIA - 1.9%
10,000 District of Columbia General Obligation
5.25%, due 6/01/27 [MBIA] ............................ 9,955
FLORIDA - 0.6%
2,750 Mid-Bay Bridge Authority Revenue
6.05%, due 10/01/22 .................................. 2,947
GEORGIA - 2.4%
6,750 Atlanta Water and Sewage Revenue
4.50%, due 1/01/18 ................................... 6,261
5,000 Municipal Electric Authority Project One Special Obligation
Fourth Crossover Series
6.50%, due 1/01/20 ................................... 5,864
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ILLINOIS - 7.1%
Illinois Dedicated Tax Revenue (Civic Center)
$ 3,975 7.00%, due 12/15/10 [AMBAC] $ 4,315
1,525 / /7.00%, due 12/15/10 [AMBAC]
(Prerefunded 12/15/00
@102) ................................................ 1,662
17,500 Illinois Educational Facilities Authority Adjustable Demand
Revenue (University of Chicago)
5.70%, due 12/01/25 ................................. 19,048
5,000 Metropolitan Pier and Exposition Authority McCormick Place
Convention Complex Hospitality Facilities Revenue
7.00%, due 7/01/26 ................................... 6,307
4,770 University of Illinois Auxiliary Facilities System Revenue
5.75%, due 4/01/22 ................................... 4,948
INDIANA - 5.2%
200 Beech Grove Economic Development Revenue (Westvaco Corp.)
8.75%, due 7/01/10 ..................................... 204
11,000 / /East Chicago Elementary School Building Corp. First
Mortgage
7.00%, due 1/15/16
(Prerefunded 1/15/03
@102) ............................................... 12,438
7,715 Hammond Multi-School Building Corp. First Mortgage Revenue
6.20%, due 7/10/15 ................................... 8,242
6,450 Indianapolis Gas Utility System Revenue
4.00%, due 6/01/11 [FGIC] ............................ 6,052
KENTUCKY - 2.3%
12,000 Louisville and Jefferson Counties Metropolitan Sewer
District Sewer and Drain System Revenue
5.00%, due 5/15/30 [FGIC] ........................... 11,646
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 71 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MARYLAND - 1.9%
$5,125 Baltimore Project and Revenue (Water Projects)
5.00%, due 7/01/24 [FGIC] ........................... $5,140
5,000 Maryland Health and Higher Educational Facilities Authority
Revenue (University of Maryland Medical System)
4.75%, due 7/01/23 [FGIC] ............................ 4,694
MASSACHUSETTS - 4.0%
8,295 Massachusetts Bay Transportation Authority General
Transportation System
5.00%, due 3/01/27 [FGIC] ............................ 8,061
5,140 Massachusetts Housing Finance Agency (Rental Housing and
Mortgage Revenue)
6.20%, due 7/01/38 [AMBAC] ........................... 5,466
Massachusetts Water Resources Authority General Revenue
4,500 6.00%, due 4/01/20 ................................... 4,664
2,500 4.75%, due 12/01/23 .................................. 2,326
MICHIGAN - 1.4%
5,250 Detroit Water Supply System Revenue
4.75%, due 7/01/19 [FGIC] ............................ 4,982
2,000 University of Michigan Hospital Revenue
6.375%, due 12/01/24 ................................. 2,110
MISSOURI - 2.0%
5,000 Missouri Health and Education Facilities Authority
Educational Facilities Revenue
5.00%, due 11/15/37 .................................. 4,857
5,000 University of Missouri System Facilities Revenue
5.80%, due 11/01/27 .................................. 5,328
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
NEW JERSEY - 0.3%
$ 1,275 / /New Jersey Turnpike Authority Revenue
10.375%, due 1/01/03
(Escrowed to Maturity) ............................. $ 1,472
NEW MEXICO - 0.5%
2,500 Farmington Collateralized Pollution Control Revenue (Tucson
Gas and Electric Co.)
6.10%, due 1/01/08 ................................... 2,502
NEW YORK - 6.6%
4,025 Long Island Power Authority Electric System General Revenue
5.25%, due 12/01/26 .................................. 3,984
New York City Municipal Water Finance Authority Water and
Sewer System Revenue
2,205 6.00%, due 6/15/19 ................................... 2,254
2,100 5.00%, due 6/15/17 [FGIC] ............................ 2,072
New York Dormitory Authority State University Educational
Facilities Revenue
4,400 7.50%, due 5/15/11 ................................... 5,364
5,250 7.50%, due 5/15/13 ................................... 6,679
5,500 5.25%, due 5/15/15 ................................... 5,668
1,500 5.00%, due 7/01/15 ................................... 1,497
6,500 Urban Development Corp. Correctional Facilities Revenue
5.375%, due 1/01/25 .................................. 6,531
NORTH CAROLINA - 2.3%
11,000 North Carolina Eastern Municipal Power Agency Power System
Revenue
6.00%, due 1/01/22 .................................. 11,766
OKLAHOMA - 1.2%
5,590 McGee Creek Authority Water Revenue
6.00%, due 1/01/23 [MBIA] ............................ 6,349
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 72 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
PENNSYLVANIA - 0.9%
$ 5,000 Centre County University Area Joint Authority Sewer Revenue
4.75%, due 11/01/20
[MBIA] ............................................. $ 4,730
SOUTH CAROLINA - 1.3%
1,040 Charleston County Pollution Control Facilities Revenue
5.90%, due 8/01/03 ................................... 1,041
5,500 Pickens and Richland Counties Hospital Facilities Revenue
5.75%, due 8/01/21 [AMBAC] ........................... 5,626
TEXAS - 9.4%
10,000 Austin Combined Utility System Revenue
12.50%, due 11/15/07 [MBIA] ......................... 15,884
Austin Water, Sewer and Electric Revenue
3,825 14.00%, due 11/15/01 ................................. 4,453
65 / /14.00%, due 11/15/01
(Prerefunded 5/15/99 @100) .............................. 67
60 / /14.00%, due 11/15/01
(Prerefunded various dates/prices) ...................... 67
1,600 / /Coastal Industrial Water Authority Water Revenue
5.50%, due 12/15/09
(Escrowed to Maturity) .............................. 1,628
2,000 Houston Water and Sewer System Junior Lien Revenue
5.375%, due 12/01/27 [FGIC] .......................... 2,042
15,000 Matagorda County Navigation District #1
5.15%, due 11/01/29 [MBIA] .......................... 14,769
2,260 Texas Municipal Power Agency Revenue
5.50%, due 9/01/13 [FGIC] ............................ 2,261
7,500 Waco Texas Health Facilities Development Corp. Hospital
Revenue
5.00%, due 11/01/25 .................................. 7,303
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
UTAH - 0.4%
$1,900 Intermountain Power Agency Power Supply Revenue
6.00%, due 7/01/23 .................................. $1,917
VIRGINIA - 0.2%
1,055 / /Richmond Metropolitan Expressway Authority Revenue
5.60%, due 1/15/13
(Escrowed to Maturity) ............................... 1,100
WASHINGTON - 13.1%
7,000 CDP-King County III Lease Revenue (King Street
Center Project)
5.25%, due 6/01/26
[MBIA] ............................................... 6,979
Douglas County Public Utility District #1 Wells
Hydroelectric Revenue
5,055 8.75%, due 9/01/18 ................................... 6,662
2,200 8.75%, due 9/01/18 ................................... 2,951
2,500 Everett School District #2 Snohomish County Unlimited Tax
General Obligation
6.20%, due 12/01/12 [MBIA] ........................... 2,786
2,200 King County Housing Authority Pooled Housing Revenue
6.80%, due 3/01/26 ................................... 2,345
1,650 King County Limited Tax General Obligation (Various Purpose)
4.75%, due 1/01/19 ................................... 1,561
2,255 King County Public Hospital District #1 Hospital Facilities
Revenue (Valley Medical Center)
5.50%, due 9/01/17 [AMBAC] ........................... 2,282
4,800 Lewis County Public Utility District #1 Cowlitz Falls
Hydroelectric Project Revenue
6.00%, due 10/01/24 .................................. 5,014
4,000 Port of Seattle Revenue
6.00%, due 12/01/14 [AMBAC] .......................... 4,189
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 73 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
WASHINGTON (CONTINUED)
$ 2,944 Seattle Housing Authority Low Income Housing Revenue (Mt
Zion Project)
6.60%, due 8/20/38 .................................. $3,238
3,000 Washington Health Care Facilities Authority Revenue (Fred
Hutchinson Cancer Research Center)
7.375%, due 1/01/18 .................................. 3,270
10,000 Washington Health Care Facilities Authority Revenue (Swedish
Hospital Medical Center)
5.25%, due 11/15/26 [AMBAC] .......................... 9,956
8,500 Washington Public Power Supply System Nuclear Project #1
Revenue
6.00%, due 7/01/17 ................................... 8,832
4,000 Washington Public Power Supply System Nuclear Project #2
Revenue
6.30%, due 7/01/12 ................................... 4,536
2,610 Washington Public Power Supply System Nuclear Project #3
Revenue
5.50%, due 7/01/18 ................................... 2,621
WISCONSIN - 0.2%
1,000 Wisconsin Health and Educational Facilities Authority
Revenue
6.00%, due 10/01/12 [MBIA] ........................... 1,024
WYOMING - 3.6%
$18,375 Wyoming Community Development Authority Housing Revenue
5.60%, due 6/01/29 ................................ $ 18,637
------
TOTAL BONDS ......................................................... 502,429
------
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 0.7%
INVESTMENT COMPANIES:
3,471 Federated Tax-Exempt
Money Market Fund, Inc. ............................. 3,471
------
TOTAL TEMPORARY INVESTMENTS ........................................... 3,471
------
TOTAL INVESTMENTS - 98.5% ........................................... 505,900
Other Assets, less Liabilities ........................................ 7,815
------
NET ASSETS ......................................................... $513,715
------
------
- -----------------------------------------------------------------------------
</TABLE>
* The provider of the guarantee of timely payment of both principal and
interest is identified in the brackets at the end of each bond description.
The guarantors applicable to this portfolio and the percentage of the
portfolio they guarantee at the period end are as follows:
/ /Prerefunded bonds are collateralized by securities (generally U.S. Treasury
securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
<TABLE>
<S> <C>
Municipal Bond Investors Assurance
Corp. [MBIA]....................... 14.1%
Financial Guaranty Insurance Corp.
[FGIC]............................. 12.2
AMBAC Indemnity Corp. [AMBAC]...... 9.7
Financial Security Assurance, Inc.
[FSA].............................. 2.6
----
38.6%
----
----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 74 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
BONDS* - 92.4%
$5,000 Airports Commission City and County of San Francisco
International Airport Revenue
4.90%, due 5/01/19
[MBIA] .............................................. $4,823
4,750 Arcade Water District Water Revenue
5.00%, due 11/01/27 [FGIC] ........................... 4,621
California Health Facilities Financing Authority Insured
Health Facility Revenue (Catholic Health Care West)
2,250 4.75%, due 7/01/19 [MBIA] ............................ 2,122
2,500 5.125%, due 7/01/24 .................................. 2,453
3,715 California Statewide Communities Development Authority
Certificates of Participation (Childrens Hospital of Los
Angeles)
4.75%, due 6/01/21 [MBIA] ............................ 3,488
20 Concord Redevelopment Agency Tax Allocation Central Concord
Redevelopment Project
8.00%, due 7/01/18 ...................................... 21
3,750 Culver City Redevelopment Financing Authority Tax Allocation
Revenue
4.60%, due 11/01/20 [AMBAC] .......................... 3,469
4,195 Foothill/Eastern Transportation Corridor Agency Toll Road
Revenue
5.00%, due 1/01/35 ................................... 3,993
670 Inglewood Insured Hospital Revenue (Daniel Freeman Hospital)
6.75%, due 5/01/13 ..................................... 731
1,200 / /Los Angeles Convention and Exhibition Center Authority
Certificates of Participation
9.00%, due 12/01/20
(Prerefunded 12/01/05
@100) ................................................ 1,560
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$3,800 Los Angeles Department of Water and Power
Waterworks Revenue
4.75%, due 11/15/19
[FGIC] .............................................. $3,604
5,000 Los Angeles Wastewater System Revenue
5.00%, due 6/01/28 [FGIC] ............................ 4,871
3,585 Metropolitan Water District of Southern California
Waterworks Revenue
5.00%, due 07/01/37 .................................. 3,472
2,500 Northern California Power Agency Geothermal Project Revenue
5.00%, due 07/01/09 .................................. 2,500
Palm Desert Financing Authority Tax Allocation Revenue
2,595 5.625%, due 4/01/23 [MBIA] ........................... 2,720
4,260 5.10%, due 10/01/27 [MBIA] ........................... 4,183
2,350 Palomar Pomerado Health System California Insured Revenue
4.75%, due 11/01/23 [MBIA] ........................... 2,199
4,435 Pittsburg Redevelopment Agency Los Medanos Community
Development Project Tax Allocation
4.625%, due 8/01/21 [AMBAC] .......................... 4,111
Pleasanton Joint Powers Financing Authority Reassessment
Revenue
1,610 6.20%, due 9/02/17 ................................... 1,696
1,785 6.15%, due 9/02/12 ................................... 1,917
4,900 Redding Joint Powers Financing Authority Solid Waste and
Corporation Yard Revenue
5.00%, due 1/01/23 ................................... 4,680
2,000 Riverside County Certificates of Participation (Capital
Projects)
6.125%, due 11/01/21 ................................. 2,167
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 75 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$2,500 San Bernardino County Cerificates of Participation (Medical
Center Financing Project)
5.50%, due 8/01/24 .................................. $2,537
4,000 San Diego County Certificates of Participation Central Jail
5.00%, due 10/01/25 [AMBAC] .......................... 3,895
5,000 San Francisco Bay Area Rapid Transit District Revenue
5.00%, due 7/01/28 [AMBAC] ........................... 4,871
4,000 San Gabriel Valley School Finance Authority Revenue (Pamona
Unified School District)
5.50%, due 2/01/24 ................................... 4,068
5,000 San Joaquin Hills Transportation Corridor Agency Senior Lien
Toll Road Revenue
5.00%, due 1/01/33 ................................... 4,764
4,000 San Jose Redevelopment Agency (Merged Area Redevelopment
Project Tax Allocation)
4.75%, due 8/01/22 ................................... 3,733
3,000 Santa Rosa Wastewater Revenue (Subregional Wastewater
Project)
5.00%, due 9/01/22 [FGIC] ............................ 2,926
Southern California Public Power Authority Power Project
Revenue (Multiple Projects)
2,665 / /5.50%, due 7/01/20
(Prerefunded 7/01/00
@100) ................................................ 2,751
1,335 5.50%, due 7/01/20 ................................... 1,343
900 Stanislaus Waste to Energy Financing Agency Solid Waste
Facility Revenue
7.625%, due 1/01/10 .................................... 953
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
State of California General Obligation Bonds
$2,500 5.625%, due 09/01/24 ............................... $ 2,615
1,075 5.625%, due 10/01/23
[FGIC] ............................................... 1,124
------
TOTAL BONDS ......................................................... 100,981
------
TEMPORARY INVESTMENTS - 6.0%
INVESTMENT COMPANIES:
1,115 Provident Bankshares Corp. .......................... 1,115
5,461 SEI Tax-Exempt Trust Institutional Tax-Free
Portfolio ............................................ 5,461
------
TOTAL TEMPORARY INVESTMENTS ........................................... 6,576
------
TOTAL INVESTMENTS - 98.4% ........................................... 107,557
Other Assets, less Liabilities ........................................ 1,792
------
NET ASSETS ......................................................... $109,349
------
------
- -----------------------------------------------------------------------------
</TABLE>
* The provider of the guarantee of timely payment of both principal and
interest is identified in the brackets at the end of each bond description.
The guarantors applicable to this portfolio and the percentage of the
portfolios they guarantee at the period end are as follows:
/ /Prerefunded bonds are collateralized by securities (generally U.S. Treasury
securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
<TABLE>
<S> <C>
Municipal Bond Investors Assurance
Corp. [MBIA]....................... 18.2%
AMBAC Indemnity Corp. [AMBAC]...... 15.2
Financial Guaranty Insurance Co.
[FGIC]............................. 15.9
----
49.3%
----
----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 76 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO Washington State Municipal Bond Fund returned 8.65% for Class A
shares and 7.82% for Class B shares, not including the effects of sales charges,
for the year ending June 30, 1998 compared to 8.91%, the Lipper Analytical
Services, Inc. average for Washington funds. For the six months, the Fund
returned 2.56% for Class A shares and 2.11% for Class B shares, not including
the effects of sales charges, versus the competition's 2.65%.
[PHOTO OF BEVERLY R. DENNY]
The Fund came in below the Lehman Brothers Long Municipal Index return of
10.77%, which is a national index and not as valid a performance yardstick as
other Washington funds which participate in a limited market that is currently
high-priced with few attractive selections. This is
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIODS ENDED JUNE 30, 1998 1 YEAR 5 YEAR SINCE INCEPTION* 1 YEAR 5 YEAR SINCE INCEPTION*
<S> <C> <C> <C> <C> <C> <C>
Class A 3.76% 4.58% 5.04% 8.65% 5.54% 5.97%
Class B 2.82% 4.95% 5.56% 7.82% 5.28% 5.71%
</TABLE>
INVESTMENT VALUE WITH SALES CHARGE
SAFECO WASHINGTON STATE MUNI BOND FUND CLASS A: $12,946
SAFECO WASHINGTON STATE MUNI BOND FUND CLASS B: $13,285
LEHMAN BROTHERS LONG MUNI BOND INDEX: $14,769
<TABLE>
<CAPTION>
SAFECO SAFECO
INVESTMENT WASHINGTON STATE WASHINGTON STATE LEHMAN BROTHERS
VALUE MUNI BOND FUND MUNI BOND FUND LONG MUNI
WITH SALES CHARGE CLASS A CLASS B BOND INDEX
<S> <C> <C> <C>
03/31/93 $9,550 $10,000 $10,000
04/30/93 $9,612 $10,065 $10,137
05/31/93 $9,652 $10,107 $10,221
06/30/93 $9,885 $10,351 $10,413
07/31/93 $9,854 $10,319 $10,423
08/31/93 $10,123 $10,600 $10,690
09/30/93 $10,240 $10,723 $10,839
10/31/93 $10,259 $10,742 $10,859
11/30/93 $10,098 $10,573 $10,728
12/31/93 $10,303 $10,788 $11,005
01/31/94 $10,463 $10,956 $11,135
02/28/94 $10,104 $10,581 $10,766
03/31/94 $9,539 $9,988 $10,123
04/30/94 $9,584 $10,035 $10,201
05/31/94 $9,719 $10,177 $10,321
06/30/94 $9,553 $10,003 $10,197
07/31/94 $9,794 $10,255 $10,459
08/31/94 $9,759 $10,219 $10,481
09/30/94 $9,522 $9,971 $10,238
10/31/94 $9,268 $9,705 $9,923
11/30/94 $9,051 $9,478 $9,661
12/31/94 $9,412 $9,855 $10,004
01/31/95 $9,796 $10,258 $10,444
02/28/95 $10,166 $10,645 $10,870
03/31/95 $10,219 $10,701 $11,000
04/30/95 $10,189 $10,669 $10,995
05/31/95 $10,601 $11,100 $11,463
06/30/95 $10,408 $10,899 $11,252
07/31/95 $10,472 $10,965 $11,310
08/31/95 $10,607 $11,107 $11,469
09/30/95 $10,682 $11,185 $11,559
10/31/95 $10,914 $11,428 $11,839
11/30/95 $11,166 $11,692 $12,144
12/31/95 $11,284 $11,816 $12,333
01/31/96 $11,330 $11,864 $12,386
02/28/96 $11,225 $11,754 $12,235
03/31/96 $11,009 $11,528 $12,011
04/30/96 $10,949 $11,465 $11,963
05/31/96 $10,971 $11,488 $11,969
06/30/96 $11,098 $11,621 $12,154
07/31/96 $11,210 $11,739 $12,274
08/31/96 $11,178 $11,705 $12,258
09/30/96 $11,397 $11,934 $12,530
10/31/96 $11,494 $12,028 $12,683
11/30/96 $11,700 $12,247 $12,956
12/31/96 $11,619 $12,166 $12,878
01/31/97 $11,551 $12,087 $12,852
02/28/97 $11,661 $12,183 $12,991
03/31/97 $11,459 $11,976 $12,766
04/30/97 $11,603 $12,118 $12,917
05/31/97 $11,791 $12,293 $13,168
06/30/97 $11,915 $12,414 $13,336
07/31/97 $12,320 $12,827 $13,822
08/31/97 $12,157 $12,661 $13,638
09/30/97 $12,305 $12,795 $13,834
10/31/97 $12,372 $12,867 $13,953
11/30/97 $12,448 $12,938 $14,077
12/31/97 $12,622 $13,109 $14,335
01/31/98 $12,734 $13,216 $14,488
02/28/98 $12,749 $13,211 $14,481
03/31/98 $12,764 $13,219 $14,501
04/30/98 $12,679 $13,123 $14,423
05/31/98 $12,893 $13,339 $14,706
06/30/98 $12,946 $13,285 $14,769
</TABLE>
*The Fund's inception was March 18, 1993. Graph and average annual return
comparison begins March 31, 1993.
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the
maximum contingent deferred sales charge (5% in the first year, decreasing to
0% after six years) for Class B shares. Fund performance has not been
restated to reflect Rule 12b-1 fees prior to September 30, 1996 (initial
public offering date of Class A and Class B shares). Such fees will affect
subsequent performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 77 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE WASHINGTON MUNICIPAL BOND FUND MANAGER
due to a scarcity of long local bonds, high demand and the type of deals coming
to market. Further skewing the comparison is the fact that a bond index has no
expenses, no cash and no call features.
The Fund had a large inflow of cash (about 5 percent of net assets) at the
end of the first quarter. I bought Spokane General Obligation (GOs) bonds on
March 23. Unfortunately, Murphy's Law applied, and the money left in early April
necessitating the sale of the Whatcom GOs. In May, the Fund received another
large inflow. I bought Seattle Water System Revenue bonds and a new issue of
Seattle Wastewater bonds came to market. Neither one was cheap, but preferable
to money market rates. Both Seattle bonds have good structure with 5% coupons
and 2027 maturities that extend the Fund's duration.
As of June 15, the Fund may invest in bonds subject to the Alternative
Minimum Tax (AMT). As always, I will continue to look for long, discount bonds
that represent value in the market. With a longer duration, the Fund should
outperform its peer Washington Funds during market rallies when interest rates
drop.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
S&P CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
AAA: 46%
AA: 26%
A: 17%
Not Rated: 11%
Beverly R. Denny
- -------------------------------
Beverly R. Denny came to SAFECO from T. Rowe Price in 1991. She holds an MBA
from the University of Virginia and a B.S. in finance/ economics from Babson
College. She is a Chartered Financial Analyst.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE TYPE OF BONDS NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Housing ................................................................ 18%
Local General Obligaton - Limited Tax ................................... 18
Hospital ................................................................ 14
University Revenue ...................................................... 11
Electric Utility - Hydroelectric ......................................... 9
</TABLE>
CURRENT YIELD (30-DAY) CLASS A ......................................... 3.43%
CURRENT YIELD (30-DAY) CLASS B ......................................... 2.93%
WEIGHTED AVERAGE MATURITY ......................................... 23.9 YEARS
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Renton Limited Tax General Obligation ................................. 4.5%
Housing Authority of Vancouver Clark
County Pooled Housing Revenue ........................................ 4.3
Grant County Public Utility District #2 Wanapum Hydroelectric
Revenue .............................................................. 4.1
Washington Higher Education Facilities Authority Revenue and Refunding
Revenue (Gonzaga Univerisity Project) ................................ 4.1
Washington State Housing Finance Commission Housing and Nonprofit
Revenue (Seattle University Auxiliary Service Project) ............... 4.0
</TABLE>
- 78 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
<C> <S>
- -----------------------------------------------------------------------------
BONDS* - 100.3%
ILLINOIS - 2.4%
$200 Wood Dale Industrial Development Revenue
4.75%, due 9/01/25 .................................... $200
WASHINGTON - 97.9%
300 Bellingham Housing Authority Housing Revenue (Cascade
Meadows)
5.20%, due 11/1/27 [MBIA] .............................. 296
315 Grant County Public Utility District #2 Wanapum
Hydroelectric Revenue
6.375%, due 1/01/23 .................................... 336
350 Housing Authority of Vancouver Clark County Pooled Housing
Revenue
5.50%, due 3/1/28 ...................................... 351
100 Kent Limited Tax General Obligation
5.75%, due 12/01/26 [MBIA] ............................. 106
300 King County Housing Authority Pooled Housing Revenue
6.80%, due 3/01/26 ..................................... 320
250 King County Limited Tax General Obligation (Various
Purposes)
4.75%, due 1/01/19 ..................................... 237
200 King County Public Hospital District #1 Hospital Facilities
Revenue (Valley Medical Center)
5.25%, due 9/01/15 [AMBAC] ............................. 201
200 Kitsap County School District #401 Unlimited Tax General
Obligation (Central Kitsap)
5.50%, due 12/01/11 .................................... 209
100 Kitsap County Sewer Revenue
5.75%, due 7/01/16 [MBIA] .............................. 105
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$250 Klickitat County Public Utility District # 1 Electric
Revenue
5.75%, due 10/01/27 [FGIC] ............................ $263
100 Lewis County Public Utility District #1 Cowlitz Falls
Hydroelectric Project Revenue
6.00%, due 10/01/24 .................................... 104
200 Municipality of Metropolitan Seattle General Obligation
5.65%, due 1/01/20 ..................................... 206
200 Municipality of Metropolitan Seattle Sewer Revenue
6.30%, due 1/01/33 [MBIA] .............................. 217
350 Renton Limited Tax General Obligation
5.75%, due 12/01/17 [MBIA] ............................. 371
Seattle Drainage and Wastewater Utility Improvement Revenue
175 5.25%, due 12/01/25 [MBIA] ............................. 175
200 5.00%, due 11/01/27 .................................... 194
250 Seattle Housing Authority Low Income Housing Revenue (Mt
Zion Project)
6.60%, due 8/20/38 ..................................... 275
300 Seattle Municipal Light and Power Revenue
5.00%, due 7/01/20 ..................................... 293
Seattle Water System Revenue
200 5.25%, due 12/01/23 .................................... 201
300 5.00%, due 10/01/27 [FGIC] ............................. 290
300 Spokane County General Obligation
5.10%, due 12/01/18 .................................... 298
100 Tacoma Sold Waste Utilities Revenue
5.50%, due 12/01/19 [AMBAC] ............................ 104
200 Tukwila Limited Tax General Obligation
5.90%, due 1/01/14 ..................................... 214
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 79 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$100 Washington Certificates of Participation Municipal Lease
Obligation (State Office Building Project)
6.00%, due 4/01/12 .................................... $105
200 Washington Health Care Facilities Authority Revenue
(Franciscan Health System/St. Joseph Hospital and Health
Care Center, Tacoma)
5.625%, due 1/01/13 [MBIA] ............................. 209
150 Washington Health Care Facilities Authority Revenue (Grays
Harbor Medical Center)
5.90%, due 7/01/23 ..................................... 158
250 Washington Health Care Facilities Authority Revenue
(Highline Community Hospital)
5.00%, due 8/15/21 ..................................... 238
200 Washington Health Care Facilities Authority Revenue
(Northwest Hospital, Seattle)
5.75%, due 11/15/23 [AMBAC] ............................ 208
100 Washington Health Care Facilities Authority Revenue (Swedish
Hospital Medical System)
6.30%, due 11/15/22 [AMBAC] ............................ 110
250 Washington Higher Education Facilities Authority Revenue
(Pacific Lutheran University Project)
5.70%, due 11/01/26 .................................... 262
350 Washington Higher Education Facilities Authority Revenue and
Refunding Revenue (Gonzaga University Project)
4.75%, due 4/01/22 [MBIA] .............................. 331
250 Washington State Housing Finance Commission Revenue (Horizon
House Project)
6.125%, due 7/01/27 [MBIA] ............................. 265
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$325 Washington State Housing Finance Commission Housing and
Nonprofit Revenue (Seattle University Auxiliary Service
Project)
5.30%, due 7/01/31 ................................... $ 324
200 Washington State Various Purpose General Obligation
5.25%, due 1/01/19 ..................................... 201
200 Yakima-Tieton Irrigation District Revenue
6.20%, due 6/01/19 [FSA] ............................... 217
----
TOTAL BONDS ........................................................... 8,194
----
TEMPORARY INVESTMENTS - 2.0%
INVESTMENT COMPANIES:
164 Federated Tax-Exempt Money Market Fund, Inc. .......... 164
----
TOTAL TEMPORARY INVESTMENTS ............................................. 164
----
TOTAL INVESTMENTS - 102.3% ............................................ 8,358
Liabilities , Less Other Assets ....................................... (190)
----
NET ASSETS ........................................................... $8,168
----
----
- -----------------------------------------------------------------------------
</TABLE>
* The provider of the guarantee of timely payment of both principal and interest
is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio and the percentage of the portfolios
they guarantee at period end are as follows:
<TABLE>
<S> <C>
Municipal Bond Investors
Assurance Corp. [MBIA] ............ 24.8%
AMBAC Indemnity Corp. [AMBAC]...... 7.5
Financial Guaranty Insurance Corp.
[FGIC]............................. 6.6
Financial Security Assurance, Inc.
[FSA].............................. 2.6
----
41.5%
----
----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 80 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO MONEY MARKET FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In the 12-month period ending June 30, 1998, the SAFECO Money Market
Fund's total return was 4.88% for Class A shares and 4.81% for Class B
shares, not including the effects of sales charges. This was slightly lower than
the average money market fund return of 4.96%, calculated by Lipper Analytical
Services, Inc. The Money Market Fund's return was very attractive compared to
the Consumer Price Index, which rose 1.68% for the 12 months ending June 30,
1998. [PHOTO OF NAOMI URATA]
For the six months, the Fund returned 2.35% for Class A shares and 2.30% for
Class B shares, not including the effects of sales charges, compared to the peer
funds' return of 2.42%.
Interest rates from 1 to 120 days remained inverted over the first half of
the year (the one-day rate was more than the 120-day rate), reflecting a belief
that the Federal Reserve will not change the Federal Funds rate in the near
term. From 120 days out to one year, yields climbed sharply reflecting the
possibility that the Fed may take action toward the end of the year.
It appears that the Fed will hold rates steady for the third quarter, but may
increase rates slightly toward the end of the year if growth continues at a high
pace. On the one hand, the Asian crisis is expected to slow the Gross Domestic
Product growth from 5.4% in the first quarter to about 1.2% due to a
deterioration in trade and a reduction in inventories. On the other hand,
consumer spending remains very strong, and we see a modest pick up in consumer
prices, especially medical care.
As a result, I have been buying securities with short maturities out to 30
days and long securities in the one-year area. This lowered the average maturity
of the Fund from 83 days on December 31, 1997 to 53 days on June 30, 1998. As
the one-year pieces mature I plan to buy more, although the yields are lower now
than when I first started buying them a year ago.
- 81 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE MONEY MARKET MANAGER
I diversify the portfolio so that I have no more than 5% of any one issuer. I
look for issuers with a large amount of commercial paper to distribute or with
slightly lower ratings as their offerings are often cheaper. I added some new
names to the portfolio to take advantage of the attractive overnight rates. Two
large issuers of overnight securities I added were BP America, a subsidiary of
British Petroleum, and UBS Finance, a financing arm of Union Bank of
Switzerland. I hold a number of floating rate securities with attractive yields.
If the Fed should start to raise rates, these floaters will help the Fund to
respond quickly as their interest rates roll to the higher levels.
Naomi Urata
- -------------------------------
Naomi Urata joined SAFECO in 1993 as a fixed-income analyst and began managing
the SAFECO Money Market Fund in August of 1994. She holds a Master in Management
from Yale University and is a Chartered Financial Analyst.
HIGHLIGHTS
- -------------------------------
7-DAY WEIGHTED AVERAGE MATURITY ...................................... 53 DAYS
TOTAL RETURN (1 YEAR) CLASS-A .......................................... 4.88%
TOTAL RETURN (1 YEAR) CLASS-B .......................................... 4.81%
- 82 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MONEY MARKET FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMERCIAL PAPER, BANK NOTES, CERTIFICATES OF DEPOSITS AND FLOATING RATE
NOTES* - 88.4%
BANKS (FOREIGN) - 4.5%
$8,100 Bayerische LandesBank
5.81%, due 12/17/98 ................................. $8,098
BANKS (MAJOR REGIONAL) - 13.4%
8,000 Bankers Trust
5.91%, due 8/07/98 ................................... 8,000
BancBoston
5,000 5.90%, due 7/23/98 ................................... 5,000
3,000 5.84%, due 8/05/98 ................................... 3,000
8,000 *Fleet National Bank
6.01%, due 4/15/99 ................................... 8,024
BANKS (REGIONAL) - 4.0%
7,100 *American Express Centurion Bank
5.58%, due 1/14/99 ................................... 7,100
CHEMICALS - 2.2%
4,000 Formosa Plastics Corp.
5.53%, due 7/08/98 ................................... 3,996
FINANCE (AUTO) - 2.7%
4,800 General Motors Acceptance Corp.
7.50%, due 6/01/99 ................................... 4,874
FINANCE (CONSUMER) - 1.6%
2,871 Associates Corp. of North America
6.10%, due 7/01/98 ................................... 2,871
FINANCE (DIVERSIFIED & BUSINESS) - 12.5%
Finova Capital Corp.
5,469 6.50%, due 7/01/98 ................................... 5,469
4,000 5.54%, due 7/16/98 ................................... 3,991
4,000 Heller Financial, Inc.
5.63%, due 7/02/98 ................................... 3,999
9,000 *PHH Corp.
5.60%, due 11/03/98 .................................. 8,996
FINANCE (MORTGAGE CO.) - 4.4%
Countrywide Funding
4,000 5.65%, due 7/02/98 ................................... 3,999
4,000 5.54%, due 7/09/98 ................................... 3,995
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (LONG TERM CARE) - 0.8%
$1,450 *+Bowie Assisted Living L.L.C.
5.75%, due 7/01/23 .................................. $1,450
INVESTMENTS (BANK/BROKERAGE) - 18.8%
8,000 #*Goldman Sachs and Company (144A)
5.66%, due 7/13/99 (acquired 4/08/98) ................ 8,000
8,000 *+Shearson Lehman Hutton Holding, Inc.
5.78%, due 5/23/01 ................................... 8,000
Merrill Lynch & Co., Inc.
8,200 *5.73%, due 12/21/98 ................................. 8,200
1,594 5.70%, due 7/02/98 ................................... 1,594
Salomon Smith Barney Holdings, Inc.
4,000 5.59%, due 7/10/98 ................................... 3,994
4,000 5.54%, due 7/17/98 ................................... 3,990
MUNI'S (MUNICIPALITIES) - 5.5%
2,970 *+Chicago, Illinois General Obligation Unlimited
5.65%, due 1/01/01 ................................... 2,970
7,000 City of St. Paul Minnesota
5.72%, due 8/14/98 ................................... 7,000
MUNI'S (STATES) - 1.2%
2,085 *+Maryland Health and Higher Education Facilities Authority
3.55%, due 1/01/28 ................................... 2,085
MUNI'S (TAXABLE) - 2.8%
2,000 *+Business Financial Authority of the State of New Hampshire
5.70%, due 6/01/28 ................................... 2,000
1,000 *+Village Green Finance Co. L.L.C.
5.61%, due 11/01/22 .................................. 1,000
2,000 *+Wake Forest University
5.61%, due 7/01/17 ................................... 2,000
OIL (DOMESTIC INTEGRATED) - 5.1%
8,820 +BP America, Inc,
10.00%, due 7/01/18 .................................. 9,231
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 83 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MONEY MARKET FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (GENERAL MERCHANDISE) - 4.5%
$8,000 *+Racetrac Capital, L.L.C.
5.61%, due 4/01/18 ................................. $ 8,000
TOBACCO - 4.3%
B.A.T. Capital Corp.
4,000 5.70%, due 7/14/98 ................................... 3,992
4,000 5.62%, due 7/14/98 ................................... 3,992
------
TOTAL COMMERCIAL PAPER, BANK NOTES, CERTIFICATES OF DEPOSITS AND FLOATING
RATE NOTES* ......................................................... 158,910
------
CORPORATE BONDS - 14.9%
BANKS (FOREIGN) - 4.5%
8,000 Abbey National Bank
5.875%, due 12/22/98 ................................. 7,997
BANKS (MAJOR REGIONAL) - 4.4%
8,000 *U.S. Bank Corp.
5.52%, due 10/21/98 .................................. 7,998
FINANCE (DIVERSIFIED & BUSINESS) - 4.5%
8,100 *+Morgan Stanley, Dean Witter, Discover and Co.
5.79%, due 3/13/01 ................................... 8,100
TOBACCO - 1.5%
2,671 Philip Morris Cos., Inc.
7.375%, due 2/15/99 .................................. 2,696
------
TOTAL CORPORATE BONDS ................................................ 26,791
------
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
U.S. GOVERNMENT AND AGENCY SECURITIES - 0.3%
Federal National Mortgage Association Discount Notes
$500 5.30%, due 8/25/98 ................................. $ 500
------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES ............................. 500
------
TOTAL INVESTMENTS - 103.6% .......................................... 186,201
Liabilities, less Other Assets ...................................... (6,546)
------
NET ASSETS ......................................................... $179,655
------
------
- -----------------------------------------------------------------------------
</TABLE>
+ The Fund has a right to sell the specified security at an exercise price equal
to the amortized cost of the security plus interest, if any.
# Security is 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 market value of such security is $8,000,000 and
represents 4.5% of net assets.
* Securities have variable rates which change periodically based on specified
market rates or indices. Rates shown are those in effect on June 30, 1998.
SEE NOTES TO FINANCIAL STATEMENTS
- 84 -
<PAGE>
This page left blank intentionally.
- 85 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
(In Thousands, Except Per-Share GROWTH EQUITY INCOME
Amounts) FUND FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments, at Cost $ 1,505,823 $ 1,352,851 $ 367,578
----------- ----------- -----------
----------- ----------- -----------
Investments, at Value
Unaffiliated Issuers $ 1,211,196 $ 1,836,143 $ 481,409
Affiliated Issuers 446,408 -- --
----------- ----------- -----------
Total Investments at Value 1,657,604 1,836,143 481,409
Cash -- 1 --
Receivables
Investment Securities Sold 6,639 26,300 41
Trust Shares Sold 22,241 7,033 3,185
Dividends and Interest 1,369 2,100 2,003
Forward Currency Contracts Open, Net -- -- --
Deferred Organization Expense -- -- --
----------- ----------- -----------
Total Assets 1,687,853 1,871,577 486,638
LIABILITIES
Payables
Investment Securities Purchased 32,601 15,043 3,474
Trust Shares Redeemed 8,465 12,392 179
Dividends -- 4,526 2,738
Investment Advisory Fees 655 740 241
Organization Expense -- -- --
Other 320 503 105
----------- ----------- -----------
Total Liabilities 42,041 33,204 6,737
----------- ----------- -----------
NET ASSETS $ 1,645,812 $ 1,838,373 $ 479,901
----------- ----------- -----------
----------- ----------- -----------
NO-LOAD CLASS:
Net Assets $ 1,611,927 $ 1,786,754 $ 476,563
Trust Shares Outstanding 61,352 80,441 17,926
----------- ----------- -----------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 26.27 $ 22.21 $ 26.59
----------- ----------- -----------
----------- ----------- -----------
CLASS A:
Net Assets $ 24,172 $ 41,590 $ 1,673
Trust Shares Outstanding 921 1,871 63
----------- ----------- -----------
Net Asset Value and Redemption
Price Per Share $ 26.22 $ 22.23 $ 26.64
----------- ----------- -----------
----------- ----------- -----------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 27.47 $ 23.28 $ 27.90
----------- ----------- -----------
----------- ----------- -----------
CLASS B:
Net Assets $ 9,713 $ 10,029 $ 1,665
Trust Shares Outstanding 376 453 62
----------- ----------- -----------
Net Asset Value and Offering Price
Per Share* $ 25.85 $ 22.14 $ 26.67
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
* For Class B shares, the redemption price per share may be lower as a result
of applying contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
- 86 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO SAFECO
NORTHWEST BALANCED INTERNATIONAL SMALL COMPANY U.S. VALUE
FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at Cost $ 55,528 $ 17,155 $ 13,992 $ 50,944 $ 9,959
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
Investments, at Value
Unaffiliated Issuers $ 74,264 $ 18,420 $ 18,072 $ 55,191 $ 10,873
Affiliated Issuers -- -- -- -- --
----------- ----------- --------------- --------------- -----------
Total Investments at Value 74,264 18,420 18,072 55,191 10,873
Cash -- -- 734 -- --
Receivables
Investment Securities Sold 1,310 -- 19 63 --
Trust Shares Sold 25 76 35 2,431 49
Dividends and Interest 27 136 68 24 16
Forward Currency Contracts Open, Net -- -- 30 -- --
Deferred Organization Expense -- 10 10 10 15
----------- ----------- --------------- --------------- -----------
Total Assets 75,626 18,642 18,968 57,719 10,953
LIABILITIES
Payables
Investment Securities Purchased 1,527 -- 356 245 --
Trust Shares Redeemed 15 -- 1 611 84
Dividends -- 118 -- -- 29
Investment Advisory Fees 44 11 16 38 7
Organization Expense -- 11 11 11 16
Other 41 16 35 (51) 10
----------- ----------- --------------- --------------- -----------
Total Liabilities 1,627 156 419 854 146
----------- ----------- --------------- --------------- -----------
NET ASSETS $ 73,999 $ 18,486 $ 18,549 $ 56,865 $ 10,807
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
NO-LOAD CLASS:
Net Assets $ 69,522 $ 17,193 $ 17,527 $ 54,646 $ 10,173
Trust Shares Outstanding 3,737 1,412 1,313 3,350 852
----------- ----------- --------------- --------------- -----------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 18.60 $ 12.18 $ 13.34 $ 16.31 $ 11.95
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
CLASS A:
Net Assets $ 2,009 $ 501 $ 428 $ 1,267 $ 168
Trust Shares Outstanding 109 41 32 78 14
----------- ----------- --------------- --------------- -----------
Net Asset Value and Redemption
Price Per Share $ 18.48 $ 12.18 $ 13.37 $ 16.25 $ 11.94
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 19.35 $ 12.75 $ 14.00 $ 17.02 $ 12.50
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
CLASS B:
Net Assets $ 2,468 $ 792 $ 594 $ 952 $ 466
Trust Shares Outstanding 135 65 45 59 39
----------- ----------- --------------- --------------- -----------
Net Asset Value and Offering Price
Per Share* $ 18.26 $ 12.18 $ 13.29 $ 16.02 $ 11.92
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
</TABLE>
- --------------------------------------------------------------------------------
* For Class B shares, the redemption price per share may be lower as a result
of applying contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
- 87 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
(In Thousands, Except Per-Share HIGH-YIELD INTERMEDIATE-TERM MANAGED
Amounts) BOND FUND U.S TREASURY FUND BOND FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments, at Cost $ 75,638 $ 16,573 $ 5,398
------------- ----------------- ----------
------------- ----------------- ----------
Investments, at Value $ 77,622 $ 17,111 $ 5,592
Receivables
Trust Shares Sold 1,071 342 7
Interest 1,528 265 53
Deferred Organization Expense -- -- 4
------------- ----------------- ----------
Total Assets 80,221 17,718 5,656
LIABILITIES
Payables
Investment Securities Purchased -- -- --
Trust Shares Redeemed 377 302 --
Dividends 500 75 20
Investment Advisory Fees 42 8 3
Organization Expense -- -- --
Other 31 15 15
------------- ----------------- ----------
Total Liabilities 950 400 38
------------- ----------------- ----------
NET ASSETS $ 79,271 $ 17,318 $ 5,618
------------- ----------------- ----------
------------- ----------------- ----------
NO-LOAD CLASS:
Net Assets $ 77,345 $ 16,271 $ 5,224
Trust Shares Outstanding 8,456 1,561 598
------------- ----------------- ----------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 9.15 $ 10.42 $ 8.73
------------- ----------------- ----------
------------- ----------------- ----------
CLASS A:
Net Assets $ 1,341 $ 425 $ 215
Trust Shares Outstanding 147 41 25
------------- ----------------- ----------
Net Asset Value and Redemption
Price Per Share $ 9.14 $ 10.43 $ 8.74
------------- ----------------- ----------
------------- ----------------- ----------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 9.57 $ 10.92 $ 9.15
------------- ----------------- ----------
------------- ----------------- ----------
CLASS B:
Net Assets $ 585 $ 622 $ 179
Trust Shares Outstanding 64 60 20
------------- ----------------- ----------
Net Asset Value and Offering Price
Per Share* $ 9.14 $ 10.42 $ 8.73
------------- ----------------- ----------
------------- ----------------- ----------
</TABLE>
- --------------------------------------------------------------------------------
* For Class B shares, the redemption price per share may be lower as a result
of applying contingent deferred sales charge.
** Also represents offering price per share.
SEE NOTES TO FINANCIAL STATEMENTS
- 88 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO
SAFECO CALIFORNIA WASHINGTON STATE SAFECO
MUNICIPAL TAX-FREE MUNICIPAL BOND MONEY MARKET
BOND FUND INCOME FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at Cost $ 444,450 $ 99,439 $ 7,923 $ 186,201
---------- ----------------- ----------------- ---------------
---------- ----------------- ----------------- ---------------
Investments, at Value $ 505,900 $ 107,557 $ 8,358 $ 186,201
Receivables
Trust Shares Sold 2,231 526 7 1,514
Interest 8,034 1,775 137 2,026
Deferred Organization Expense -- -- -- --
---------- ----------------- ----------------- ---------------
Total Assets 516,165 109,858 8,502 189,741
LIABILITIES
Payables
Investment Securities Purchased -- -- 291 --
Trust Shares Redeemed 115 44 -- 9,203
Dividends 2,101 397 29 724
Investment Advisory Fees 175 48 4 78
Organization Expense -- -- -- --
Other 59 20 10 81
---------- ----------------- ----------------- ---------------
Total Liabilities 2,450 509 334 10,086
---------- ----------------- ----------------- ---------------
NET ASSETS $ 513,715 $ 109,349 $ 8,168 $ 179,655
---------- ----------------- ----------------- ---------------
---------- ----------------- ----------------- ---------------
NO-LOAD CLASS:
Net Assets $ 512,016 $ 107,815 $ 7,722 $ 178,492
Trust Shares Outstanding 35,143 8,334 703 178,492
---------- ----------------- ----------------- ---------------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 14.57 $ 12.94 $ 10.99 $ 1.00
---------- ----------------- ----------------- ---------------
---------- ----------------- ----------------- ---------------
CLASS A:
Net Assets $ 879 $ 686 $ 203 $ 840
Trust Shares Outstanding 60 53 18 840
---------- ----------------- ----------------- ---------------
Net Asset Value and Redemption
Price Per Share $ 14.58 $ 12.95 $ 11.00 $ 1.00**
---------- ----------------- ----------------- ---------------
---------- ----------------- ----------------- ---------------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 15.27 $ 13.56 $ 11.52 --
---------- ----------------- ----------------- ---------------
---------- ----------------- ----------------- ---------------
CLASS B:
Net Assets $ 820 $ 848 $ 243 $ 323
Trust Shares Outstanding 56 66 22 323
---------- ----------------- ----------------- ---------------
Net Asset Value and Offering Price
Per Share* $ 14.55 $ 12.94 $ 11.01 $ 1.00
---------- ----------------- ----------------- ---------------
---------- ----------------- ----------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
* For Class B shares, the redemption price per share may be lower as a result
of applying contingent deferred sales charge.
** Also represents offering price per share.
SEE NOTES TO FINANCIAL STATEMENTS
- 89 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six-Month Period Ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
GROWTH EQUITY INCOME
(In Thousands) FUND FUND FUND
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends (Net of Foreign Taxes
Withheld of $23 in the
International Fund) $ 3,387 $ 13,213 $ 5,201
Interest 2,738 1,460 1,670
---------- ---------- ----------
Total Investment Income 6,125 14,673 6,871
EXPENSES
Investment Advisory 3,197 4,262 1,400
Transfer Agent 936 1,601 334
Shareholder Service - Class A 11 41 2
- Class B 6 8 1
Distribution - Class B 19 23 4
Legal and Auditing 9 15 10
Custodian 24 44 11
Reports to Shareholders 49 160 31
Trustees 4 7 4
Amortization of Organization
Expenses -- -- --
Other 35 127 30
---------- ---------- ----------
Total Expenses Before
Reimbursement 4,290 6,288 1,827
Expense Reimbursement -- -- --
---------- ---------- ----------
Total Expenses After Reimbursement 4,290 6,288 1,827
---------- ---------- ----------
NET INVESTMENT INCOME (LOSS) 1,835 8,385 5,044
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain (Loss) from:
Investments in Unaffiliated
Issuers 61,028 57,481 35,976
Investments in Affiliated Issuers 2,060 -- --
Foreign Currency Transactions -- -- --
---------- ---------- ----------
Total Net Realized Gain
(Loss) 63,088 57,481 35,976
Net Change in Unrealized
Appreciation (Depreciation) 67,524 154,193 10,500
---------- ---------- ----------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCY 130,612 211,674 46,476
---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 132,447 $ 220,059 $ 51,520
---------- ---------- ----------
---------- ---------- ----------
- -----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 90 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO SAFECO
NORTHWEST BALANCED INTERNATIONAL SMALL COMPANY U.S. VALUE
FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends (Net of Foreign Taxes
Withheld of $23 in the
International Fund) $ 161 $ 106 $ 192 $ 84 $ 109
Interest 31 220 9 140 7
---------- ---------- -------------- -------------- ----------
Total Investment Income 192 326 201 224 116
EXPENSES
Investment Advisory 272 62 94 192 38
Transfer Agent 96 21 24 54 9
Shareholder Service - Class A 2 1 -- 1 --
- Class B 2 1 1 1 1
Distribution - Class B 7 2 2 2 1
Legal and Auditing 8 7 7 7 5
Custodian 3 2 14 2 --
Reports to Shareholders 12 3 3 5 2
Trustees 3 3 3 2 3
Amortization of Organization
Expenses -- 2 2 2 2
Other 9 -- 1 14 --
---------- ---------- -------------- -------------- ----------
Total Expenses Before
Reimbursement 414 104 151 282 61
Expense Reimbursement -- -- (15) -- --
---------- ---------- -------------- -------------- ----------
Total Expenses After Reimbursement 414 104 136 282 61
---------- ---------- -------------- -------------- ----------
NET INVESTMENT INCOME (LOSS) (222) 222 65 (58) 55
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain (Loss) from:
Investments in Unaffiliated
Issuers 5,942 724 (462) 2,380 371
Investments in Affiliated Issuers -- -- -- -- --
Foreign Currency Transactions -- -- 175 -- --
---------- ---------- -------------- -------------- ----------
Total Net Realized Gain
(Loss) 5,942 724 (287) 2,380 371
Net Change in Unrealized
Appreciation (Depreciation) (699) 4 2,731 (18) 254
---------- ---------- -------------- -------------- ----------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCY 5,243 728 2,444 2,362 625
---------- ---------- -------------- -------------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 5,021 $ 950 $ 2,509 $ 2,304 $ 680
---------- ---------- -------------- -------------- ----------
---------- ---------- -------------- -------------- ----------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 91 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six-Month Period Ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
HIGH-YIELD INTERMEDIATE-TERM MANAGED
(In Thousands) BOND FUND U.S TREASURY FUND BOND FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 3,517 $ 545 $ 156
Dividends 45 -- --
------ ----- -----
Total Investment Income 3,562 545 156
EXPENSES
Investment Advisory 254 46 13
Transfer Agent 60 23 1
Shareholder Service - Class A 1 -- --
- Class B -- 1 --
Distribution - Class B 2 2 1
Legal and Auditing 8 7 7
Custodian 3 1 1
Reports to Shareholders 9 3 1
Trustees 3 3 3
Interest Expense 7 -- --
Amortization of Organization
Expenses -- -- 3
Other 13 1 2
------ ----- -----
Total Expenses 360 87 32
------ ----- -----
NET INVESTMENT INCOME 3,202 458 124
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net Realized Gain on Investments 468 4 46
Net Change in Unrealized
Appreciation (Depreciation) (443) 118 35
------ ----- -----
NET GAIN ON INVESTMENTS 25 122 81
------ ----- -----
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 3,227 $ 580 $ 205
------ ----- -----
------ ----- -----
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 92 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO
SAFECO CALIFORNIA WASHINGTON STATE SAFECO
MUNICIPAL TAX-FREE MUNICIPAL BOND MONEY MARKET
BOND FUND INCOME FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 14,065 $ 2,710 $ 222 $ 5,031
Dividends -- -- -- --
---------- ------ ----- ------
Total Investment Income 14,065 2,710 222 5,031
EXPENSES
Investment Advisory 1,051 271 25 443
Transfer Agent 159 36 1 227
Shareholder Service - Class A 1 -- -- --
- Class B 1 1 -- --
Distribution - Class B 2 2 1 --
Legal and Auditing 12 9 8 9
Custodian 12 5 1 7
Reports to Shareholders 17 4 1 13
Trustees 4 3 3 3
Interest Expense -- -- -- --
Amortization of Organization
Expenses -- -- -- --
Other 39 9 2 6
---------- ------ ----- ------
Total Expenses 1,298 340 42 708
---------- ------ ----- ------
NET INVESTMENT INCOME 12,767 2,370 180 4,323
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net Realized Gain on Investments 7,955 2,640 203 --
Net Change in Unrealized
Appreciation (Depreciation) (6,163) (2,620) (174) --
---------- ------ ----- ------
NET GAIN ON INVESTMENTS 1,792 20 29 --
---------- ------ ----- ------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 14,559 $ 2,390 $ 209 $ 4,323
---------- ------ ----- ------
---------- ------ ----- ------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 93 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO GROWTH FUND
--------------------------
SIX-MONTH
PERIOD
ENDED JUNE YEAR ENDED
30 DEC. 31
(In Thousands) 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 1,835 $ (568)
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 63,088 75,558
Net Change in Unrealized
Appreciation (Depreciation) 67,524 45,096
---------- -------------
Net Change in Net Assets
Resulting from Operations 132,447 120,086
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class -- --
- Class A -- --
- Class B -- --
Net Realized Gain on Investments
- No Load Class -- (74,345)
- Class A -- (487)
- Class B -- (167)
---------- -------------
Total -- (74,999)
NET TRUST SHARE TRANSACTIONS
No-Load Class 841,851 397,579
Class A 19,482 4,018
Class B 7,992 1,293
---------- -------------
Total 869,325 402,890
---------- -------------
TOTAL CHANGE IN NET ASSETS 1,001,772 447,977
NET ASSETS AT BEGINNING OF PERIOD 644,040 196,063
---------- -------------
NET ASSETS AT END OF PERIOD $1,645,812 $ 644,040
---------- -------------
---------- -------------
- ---------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 57,128 28,647
Reinvestments -- 3,210
Redemptions (23,164) (14,724)
---------- -------------
NET CHANGE 33,964 17,133
---------- -------------
---------- -------------
AMOUNTS:
Sales $1,465,633 $ 645,275
Reinvestments -- 72,072
Redemptions (596,308) (314,457)
---------- -------------
NET CHANGE $ 869,325 $ 402,890
---------- -------------
---------- -------------
- ---------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 94 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO INCOME FUND SAFECO NORTHWEST FUND
SAFECO EQUITY FUND -------------------------- --------------------------
----------------------------
SIX-MONTH SIX-MONTH
SIX-MONTH PERIOD PERIOD
PERIOD ENDED YEAR ENDED ENDED YEAR ENDED ENDED JUNE YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 30 DEC. 31
1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 8,385 $ 15,563 $ 5,044 $ 9,889 $ (222) $ (113)
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 57,481 61,477 35,976 32,768 5,942 6,678
Net Change in Unrealized
Appreciation (Depreciation) 154,193 176,522 10,500 39,169 (699) 7,326
------------- ------------ ----------- ------------ ----------- ------------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 220,059 253,562 51,520 81,826 5,021 13,891
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class (8,241) (15,501) (5,037) (9,866) -- --
- Class A (153) (35) (11) (10) -- --
- Class B -- (2) (6) (7) -- --
Net Realized Gain on Investments
- No Load Class -- (61,064) -- (32,644) -- (4,031)
- Class A -- (295) -- (57) -- (84)
- Class B -- (139) -- (65) -- (76)
------------- ------------ ----------- ------------ ----------- ------------
TOTAL (8,394) (77,036) (5,054) (42,649) -- (4,191)
NET TRUST SHARE TRANSACTIONS
No-Load Class 89,303 464,573 28,321 72,866 39 11,654
Class A 30,566 3,709 824 524 554 926
Class B 5,829 3,122 765 685 1,192 967
------------- ------------ ----------- ------------ ----------- ------------
TOTAL 125,698 471,404 29,910 74,075 1,785 13,547
------------- ------------ ----------- ------------ ----------- ------------
TOTAL CHANGE IN NET ASSETS 337,363 647,930 76,376 113,252 6,806 23,247
NET ASSETS AT BEGINNING OF PERIOD 1,501,010 853,080 403,525 290,273 67,193 43,946
------------- ------------ ----------- ------------ ----------- ------------
NET ASSETS AT END OF PERIOD $ 1,838,373 $ 1,501,010 $ 479,901 $ 403,525 $ 73,999 $ 67,193
------------- ------------ ----------- ------------ ----------- ------------
------------- ------------ ----------- ------------ ----------- ------------
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 15,487 36,752 2,590 4,060 634 1,888
Reinvestments 356 3,734 168 1,608 -- 200
Redemptions (9,908) (15,034) (1,599) (2,517) (535) (1,329)
------------- ------------ ----------- ------------ ----------- ------------
NET CHANGE 5,935 25,452 1,159 3,151 99 759
------------- ------------ ----------- ------------ ----------- ------------
------------- ------------ ----------- ------------ ----------- ------------
AMOUNTS:
Sales $ 329,448 $ 682,623 $ 66,531 $ 94,489 $ 11,620 $ 32,688
Reinvestments 7,883 72,547 4,467 38,272 -- 3,464
Redemptions (211,633) (283,766) (41,088) (58,686) (9,835) (22,605)
------------- ------------ ----------- ------------ ----------- ------------
NET CHANGE $ 125,698 $ 471,404 $ 29,910 $ 74,075 $ 1,785 $ 13,547
------------- ------------ ----------- ------------ ----------- ------------
------------- ------------ ----------- ------------ ----------- ------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 95 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
<TABLE>
<CAPTION>
SAFECO BALANCED FUND
--------------------------
SIX-MONTH
PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31
(In Thousands) 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 222 $ 328
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 724 637
Net Change in Unrealized
Appreciation (Depreciation) 4 760
------------- ----------
Net Change in Net Assets
Resulting from Operations 950 1,725
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class (213) (322)
- Class A (5) (4)
- Class B (4) (3)
Net Realized Gain on Investments
- No Load Class -- (613)
- Class A -- (9)
- Class B -- (15)
------------- ----------
Total (222) (966)
NET TRUST SHARE TRANSACTIONS
No-Load Class 2,836 4,661
Class A 274 86
Class B 445 210
------------- ----------
Total 3,555 4,957
------------- ----------
TOTAL CHANGE IN NET ASSETS 4,283 5,716
NET ASSETS AT BEGINNING OF PERIOD 14,203 8,487
------------- ----------
NET ASSETS AT END OF PERIOD $ 18,486 $ 14,203
------------- ----------
------------- ----------
- ---------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 513 555
Reinvestments 11 43
Redemptions (230) (167)
------------- ----------
NET CHANGE 294 431
------------- ----------
------------- ----------
AMOUNTS:
Sales $ 6,178 $ 6,388
Reinvestments 130 495
Redemptions (2,753) (1,926)
------------- ----------
NET CHANGE $ 3,555 $ 4,957
------------- ----------
------------- ----------
- ---------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 96 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO U.S. VALUE FUND
SAFECO SMALL FUND ---------------------------
SAFECO INTERNATIONAL FUND -------------------------- APRIL 30,
---------------------------- 1997
SIX-MONTH SIX-MONTH (COMMENCEMENT
SIX-MONTH PERIOD PERIOD OF
PERIOD ENDED YEAR ENDED ENDED JUNE YEAR ENDED ENDED JUNE OPERATIONS)
JUNE 30 DEC. 31 30 DEC. 31 30 TO DEC. 31
1998 1997 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 65 $ 78 $ (58) $ (75) $ 55 $ 71
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions (287) 258 2,380 909 371 386
Net Change in Unrealized
Appreciation (Depreciation) 2,731 213 (18) 2,742 254 660
------------- ------------ ----------- ------------ ----------- -------------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 2,509 549 2,304 3,576 680 1,117
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class -- (364) -- -- (54) (70)
- Class A -- (5) -- -- (1) (1)
- Class B -- (4) -- -- -- --
Net Realized Gain on Investments
- No Load Class -- (19) -- (540) -- (372)
- Class A -- -- -- (7) -- (5)
- Class B -- (1) -- (9) -- (9)
------------- ------------ ----------- ------------ ----------- -------------
TOTAL -- (393) -- (556) (55) (457)
NET TRUST SHARE TRANSACTIONS
No-Load Class 375 3,437 29,719 6,538 504 8,423
Class A 84 142 1,001 100 27 122
Class B 201 222 516 260 234 212
------------- ------------ ----------- ------------ ----------- -------------
TOTAL 660 3,801 31,236 6,898 765 8,757
------------- ------------ ----------- ------------ ----------- -------------
TOTAL CHANGE IN NET ASSETS 3,169 3,957 33,540 9,918 1,388 9,417
NET ASSETS AT BEGINNING OF PERIOD 15,380 11,423 23,325 13,407 9,417 --
------------- ------------ ----------- ------------ ----------- -------------
NET ASSETS AT END OF PERIOD $ 18,549 $ 15,380 $ 56,865 $ 23,325 $ 10,807 $ 9,417
------------- ------------ ----------- ------------ ----------- -------------
------------- ------------ ----------- ------------ ----------- -------------
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 546 932 6,105 1,808 178 946
Reinvestments -- 20 -- 26 2 15
Redemptions (493) (627) (4,349) (1,330) (117) (119)
------------- ------------ ----------- ------------ ----------- -------------
NET CHANGE 53 325 1,756 504 63 842
------------- ------------ ----------- ------------ ----------- -------------
------------- ------------ ----------- ------------ ----------- -------------
AMOUNTS:
Sales $ 7,008 $ 10,948 $ 104,866 $ 24,781 $ 2,138 $ 9,962
Reinvestments -- 230 -- 364 22 162
Redemptions (6,348) (7,377) (73,630) (18,247) (1,395) (1,367)
------------- ------------ ----------- ------------ ----------- -------------
NET CHANGE $ 660 $ 3,801 $ 31,236 $ 6,898 $ 765 $ 8,757
------------- ------------ ----------- ------------ ----------- -------------
------------- ------------ ----------- ------------ ----------- -------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 97 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
<TABLE>
<CAPTION>
SAFECO HIGH-YIELD BOND
FUND
--------------------------
SIX-MONTH
PERIOD
ENDED YEAR ENDED
JUNE 30 DEC. 31
(In Thousands) 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 3,202 $ 5,097
Net Realized Gain (Loss) on
Investments 468 954
Net Change in Unrealized
Appreciation (Depreciation) (443) 1,194
---------- -------------
Net Change in Net Assets
Resulting from Operations 3,227 7,245
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class (3,166) (5,073)
- Class A (20) (11)
- Class B (16) (13)
Net Realized Gain on Investments
- No Load Class -- --
- Class A -- --
- Class B -- --
---------- -------------
Total (3,202) (5,097)
NET TRUST SHARE TRANSACTIONS
No-Load Class 6,258 18,821
Class A 1,084 155
Class B 232 250
---------- -------------
Total 7,574 19,226
---------- -------------
TOTAL CHANGE IN NET ASSETS 7,599 21,374
NET ASSETS AT BEGINNING OF PERIOD 71,672 50,298
---------- -------------
NET ASSETS AT END OF PERIOD $ 79,271 $ 71,672
---------- -------------
---------- -------------
- ---------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 5,009 12,626
Reinvestments 238 362
Redemptions (4,433) (10,838)
---------- -------------
NET CHANGE 814 2,150
---------- -------------
---------- -------------
AMOUNTS:
Sales $ 46,224 $ 112,308
Reinvestments 2,197 3,238
Redemptions (40,847) (96,320)
---------- -------------
NET CHANGE $ 7,574 $ 19,226
---------- -------------
---------- -------------
- ---------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 98 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO INTERMEDIATE-TERM
U.S. TREASURY FUND SAFECO MANAGED BOND FUND SAFECO MUNICIPAL BOND FUND
-------------------------- -------------------------- --------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD PERIOD PERIOD
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1998 1997 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 458 $ 886 $ 124 $ 227 $ 12,767 $ 25,677
Net Realized Gain (Loss) on
Investments 4 (57) 46 (21) 7,955 6,632
Net Change in Unrealized
Appreciation (Depreciation) 118 416 35 163 (6,163) 17,239
---------- ------------- ---------- ------------- ---------- -------------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 580 1,245 205 369 14,559 49,548
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class (436) (844) (118) (216) (12,744) (25,652)
- Class A (10) (30) (4) (7) (13) (17)
- Class B (12) (12) (2) (4) (10) (8)
Net Realized Gain on Investments
- No Load Class -- -- -- -- -- (5,345)
- Class A -- -- -- -- -- (4)
- Class B -- -- -- -- -- (4)
---------- ------------- ---------- ------------- ---------- -------------
TOTAL (458) (886) (124) (227) (12,767) (31,030)
NET TRUST SHARE TRANSACTIONS
No-Load Class 457 674 521 280 7,288 3,479
Class A 57 (346) 66 2 482 66
Class B 187 202 57 14 315 382
---------- ------------- ---------- ------------- ---------- -------------
TOTAL 701 530 644 296 8,085 3,927
---------- ------------- ---------- ------------- ---------- -------------
TOTAL CHANGE IN NET ASSETS 823 889 725 438 9,877 22,445
NET ASSETS AT BEGINNING OF PERIOD 16,495 15,606 4,893 4,455 503,838 481,393
---------- ------------- ---------- ------------- ---------- -------------
NET ASSETS AT END OF PERIOD $ 17,318 $ 16,495 $ 5,618 $ 4,893 $ 513,715 $ 503,838
---------- ------------- ---------- ------------- ---------- -------------
---------- ------------- ---------- ------------- ---------- -------------
- -------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 330 1,062 85 439 3,086 6,156
Reinvestments 23 43 3 18 549 1,401
Redemptions (286) (1,054) (14) (422) (3,079) (7,286)
---------- ------------- ---------- ------------- ---------- -------------
NET CHANGE 67 51 74 35 556 271
---------- ------------- ---------- ------------- ---------- -------------
---------- ------------- ---------- ------------- ---------- -------------
AMOUNTS:
Sales $ 3,428 $ 10,738 $ 735 $ 3,703 $ 44,826 $ 86,878
Reinvestments 239 434 30 152 7,961 19,903
Redemptions (2,966) (10,642) (121) (3,559) (44,702) (102,854)
---------- ------------- ---------- ------------- ---------- -------------
NET CHANGE $ 701 $ 530 $ 644 $ 296 $ 8,085 $ 3,927
---------- ------------- ---------- ------------- ---------- -------------
---------- ------------- ---------- ------------- ---------- -------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 99 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
<TABLE>
<CAPTION>
SAFECO CALIFORNIA TAX-FREE
INCOME FUND
--------------------------
SIX-MONTH
PERIOD
ENDED YEAR ENDED
JUNE 30 DEC. 31
(In Thousands) 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 2,370 $ 3,764
Net Realized Gain (Loss) on
Investments 2,640 367
Net Change in Unrealized
Appreciation (Depreciation) (2,620) 4,618
---------- -------------
Net Change in Net Assets
Resulting from Operations 2,390 8,749
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class (2,347) (3,744)
- Class A (12) (9)
- Class B (11) (11)
Net Realized Gain on Investments
- No Load Class -- (360)
- Class A -- (2)
- Class B -- (2)
---------- -------------
Total (2,370) (4,128)
NET TRUST SHARE TRANSACTIONS
No-Load Class 19,417 11,712
Class A 227 326
Class B 345 374
---------- -------------
Total 19,989 12,412
---------- -------------
TOTAL CHANGE IN NET ASSETS 20,009 17,033
NET ASSETS AT BEGINNING OF PERIOD 89,340 72,307
---------- -------------
NET ASSETS AT END OF PERIOD $ 109,349 $ 89,340
---------- -------------
---------- -------------
- ---------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 2,294 2,534
Reinvestments 114 231
Redemptions (862) (1,773)
---------- -------------
NET CHANGE 1,546 992
---------- -------------
---------- -------------
AMOUNTS:
Sales $ 29,665 $ 31,480
Reinvestments 1,474 2,867
Redemptions (11,150) (21,935)
---------- -------------
NET CHANGE $ 19,989 $ 12,412
---------- -------------
---------- -------------
- ---------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 100 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND SAFECO MONEY MARKET FUND
-------------------------- --------------------------
SIX-MONTH SIX-MONTH
PERIOD PERIOD
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 180 $ 349 $ 4,323 $ 8,347
Net Realized Gain (Loss) on
Investments 203 (9) -- --
Net Change in Unrealized
Appreciation (Depreciation) (174) 321 -- --
---------- ------------- ---------- -------------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 209 661 4,323 8,347
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class (170) (326) (4,297) (8,324)
- Class A (6) (15) (17) (15)
- Class B (4) (8) (9) (8)
Net Realized Gain on Investments
- No Load Class -- -- -- --
- Class A -- -- -- --
- Class B -- -- -- --
---------- ------------- ---------- -------------
TOTAL (180) (349) (4,323) (8,347)
NET TRUST SHARE TRANSACTIONS
No-Load Class 407 440 1,869 15,267
Class A (159) 11 303 243
Class B 4 19 (91) 307
---------- ------------- ---------- -------------
TOTAL 252 470 2,081 15,817
---------- ------------- ---------- -------------
TOTAL CHANGE IN NET ASSETS 281 782 2,081 15,817
NET ASSETS AT BEGINNING OF PERIOD 7,887 7,105 177,574 161,757
---------- ------------- ---------- -------------
NET ASSETS AT END OF PERIOD $ 8,168 $ 7,887 $ 179,655 $ 177,574
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
- --------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 115 601 219,511 322,894
Reinvestments 4 7 4,013 7,794
Redemptions (96) (563) (221,443) (314,871)
---------- ------------- ---------- -------------
NET CHANGE 23 45 2,081 15,817
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
AMOUNTS:
Sales $ 1,258 $ 6,413 $ 219,511 $ 322,894
Reinvestments 42 78 4,013 7,794
Redemptions (1,048) (6,021) (221,443) (314,871)
---------- ------------- ---------- -------------
NET CHANGE $ 252 $ 470 $ 2,081 $ 15,817
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 101 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
This financial report is on the 15 SAFECO Mutual Funds that issue Class A and
Class B shares (collectively, "Advisor Classes"). Each Fund is a series of one
of the following trusts (each a "Trust") listed below. Each Trust is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company.
SAFECO Common Stock Trust
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Income Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
SAFECO U.S. Value Fund
SAFECO Taxable Bond Trust
SAFECO High-Yield Bond Fund
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO Managed Bond Trust
SAFECO Managed Bond Fund
SAFECO Tax-Exempt Bond Trust
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
SAFECO Money Market Trust
SAFECO Money Market Fund
Effective September 30, 1996, certain SAFECO Mutual Funds began issuing two
new classes of shares--Class A and Class B shares. These classes of shares are
sold by financial advisors to shareholders and have associated sales and
distribution charges, unlike the no-load class of shares (which are sold
directly to the shareholder with no associated sales or distribution charges).
Each class of shares represents an interest in the net assets of the fund.
- 102 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
In connection with issuing the Advisor Classes, the Funds adopted a Plan of
Distribution (the "Plan"). Under the Plan, each Advisor Class (with the
exception of the Money Market Fund Advisor Classes) pays the distributor, SAFECO
Securities, Inc., as a service fee 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 the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles, which
permit management to make certain estimates and assumptions at the date of the
financial statements.
SECURITY VALUATION. Investments in equity securities are valued at the last
reported sales price, unless there are no transactions in which case they are
valued at the last reported bid price. Bonds are stated on the basis of
valuations provided by a pricing service, which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining value. When valuations are not readily available, securities are
valued at fair value as determined in good faith by the board of trustees.
Temporary investments are valued at amortized cost which approximates market.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
The cost of the portfolios is the same for financial statement and federal
income tax purposes. Realized gains and losses from security transactions are
determined using the identified cost basis.
- 103 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Securities purchased on a
when-issued or delayed basis for the Taxable Bond Trust, Managed Bond Trust and
Tax-Exempt Bond Trust may be settled a month or more after the trade date. The
securities purchased are carried in the portfolio at market and are subject to
market fluctuation during this period. These securities begin earning interest
on the settlement date. As commitments to purchase when-issued securities become
fixed, the Funds segregate liquid assets in an amount equal to the total
obligation.
INCOME RECOGNITION. Dividend income less foreign taxes withheld (if any) for
the Common Stock Trust is recorded on the ex-dividend date or upon receipt of
ex-dividend notification in the case of certain foreign securities. Bond
premiums and original issue discounts are amortized to either call or maturity
dates for the Managed Bond Trust, Tax-Exempt Bond Trust and Money Market Trust.
Market discount on bonds purchased after April 30, 1993 is recorded as taxable
income at disposition for the Tax-Exempt Bond Trust. Interest is accrued on
bonds and temporary investments and bonds daily.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. For the Growth, Northwest,
International, and Small Company Funds, net investment income (if any) is
declared as a dividend to shareholders as of the last business day (ex-dividend
date) of December. For the Equity, Income, Balanced, and U.S. Value Funds, net
investment income (if any) is distributed as of the last business day of March,
June, September and December. Net investment income for the Taxable Bond Trust,
Managed Bond Trust, Tax-Exempt Bond Trust and Money Market Trust is declared as
a dividend to shareholders as of the close of each business day and payment is
made as of the last business day of each month. Net realized gains on
investments, if any, are normally distributed to shareholders at the end of
December.
Income dividends and capital gain distributions are determined in accordance
with income tax regulation which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign exchange contracts. Undistributed/
- 104 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
overdistributed net investment income may include temporary financial reporting
and tax basis differences which will reverse in the subsequent year.
FEDERAL INCOME AND EXCISE TAXES. Each Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies by distributing substantially all taxable income to their shareholders
in a manner which results in no tax to the Funds. Therefore, no federal income
or excise tax provision is required. In addition, the Tax-Exempt Bond Trust
intends to satisfy conditions which will enable them to pay dividends which, for
shareholders, are exempt from Federal income taxes. Any portion of dividends
representing net short-term capital gains, however, is not exempt and is treated
as taxable dividends for Federal income tax purposes. In addition, income which
is derived from amortization on bonds purchased below their issued price after
April 30, 1993, is treated as ordinary income for Federal income tax purposes.
FOREIGN CURRENCY TRANSLATION. The accounting records of the International
Fund are maintained in U.S. dollars. All assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars at prevailing
exchange rates. Purchases and sales of investment securities, and dividend and
interest income, are translated at the rates of exchange prevailing on the
respective dates of such transactions. The International Fund does not isolate
that portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments. Reported net realized
gains or losses from foreign currency transactions arise from gains or losses
realized between the trade and settlement dates on securities transactions, the
difference between the amounts of dividends, interest, and foreign withholding
taxes recorded on the International Fund's books and the U.S. dollar equivalent
of the amounts actually received or paid. Net unrealized foreign exchange gains
and losses arise from changes in the value of assets and liabilities other than
investments in securities, resulting from changes in the exchange rate.
- 105 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
FOREIGN EXCHANGE CONTRACTS. The International Fund may enter into foreign
currency exchange contracts as a way of managing foreign exchange rate risk. The
International Fund may enter into these contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date as a hedge or
cross-hedge against either specific transactions or portfolio positions. The
objective of the International Fund's foreign currency hedging transactions is
to reduce the risk that the U.S. dollar value of the International Fund's
foreign currency denominated securities will decline in value due to changes in
foreign currency exchange rates. All foreign currency exchange contracts are
"marked-to-market" daily at the applicable translation rates resulting in
unrealized gains or losses. Realized and unrealized gains or losses on foreign
currency contracts are recorded on settlement date of the foreign currency
exchange contract and are included in the Statements of Assets and Liabilities
and the Statement of Operations. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
- 106 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT TRANSACTIONS
Following is a summary of investment transactions during the six-month period
ended June 30, 1998.
<TABLE>
<CAPTION>
(In Thousands) PURCHASES* SALES**
- --------------------------------------------------------------------
<S> <C> <C>
Growth Fund $1,122,803 $269,193
Equity Fund 388,631 288,780
Income Fund 126,394 118,031
Northwest Fund 18,169 16,268
Balanced Fund 9,008 5,664
International Fund 2,776 2,144
Small Company Fund 44,814 18,780
U.S. Value Fund 3,138 2,714
High-Yield Bond Fund 27,701 21,482
Intermediate-Term U.S. Treasury Fund 996 519
Managed Bond Fund 2,835 2,330
Municipal Bond Fund 90,455 84,148
California Tax-Free Income Fund 38,680 24,937
Washington State Municipal Fund 3,472 3,326
- --------------------------------------------------------------------
</TABLE>
* Excludes short-term securities. Purchases include $3,081, $996, and $1,043 of
U.S. Government securities for Balanced, Intermediate-Term U.S. Treasury, and
Managed Bond Funds, respectively.
** Excludes short-term securities. Sales include $1,838, $519, and $1,013 of
U.S. Government securities for Balanced, Intermediate-Term U.S. Treasury, and
Managed Bond Funds, respectively.
- 107 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. COMPONENTS OF NET ASSETS
At June 30, 1998, the components of net assets were as follows:
<TABLE>
<CAPTION>
GROWTH EQUITY INCOME NORTHWEST
(In Thousands) FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments in Which there is an
Excess of Value Over Identified Cost $ 264,446 $ 510,314 $ 124,292 $ 25,224
Aggregate Gross Unrealized Depreciation
on Investents in Which There Is an
Excess of Identified Cost Over Value (112,665) (27,022) (10,461) (6,488)
----------- ----------------- -------------- --------------
NET UNREALIZED APPRECIATION 151,781 483,292 113,831 18,736
ACCUMULATED NET INVESTMENT INCOME (LOSS) 1,835 -- -- (222)
ACCUMULATED NET REALIZED GAIN ON
INVESTMENT TRANSACTIONS 63,088 57,481 35,976 5,942
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 1,429,109 1,297,600 330,094 49,543
----------- ----------------- -------------- --------------
NET ASSETS AT JUNE 30, 1998 $ 1,645,813 $1,838,373 $ 479,901 $ 73,999
----------- ----------------- -------------- --------------
----------- ----------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
SMALL
BALANCED INTERNATIONAL COMPANY U.S. VALUE
(In Thousands) FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments and Foreign Currency in
Which There Is an Excess of Value Over
Identified Cost $ 1,712 $ 5,339 $ 8,578 $ 1,334
Aggregate Gross Unrealized Depreciation
on Investments and Foreign Currency in
Which There Is an Excess of Identified
Cost Over Value (447) (1,227) (4,331) (420)
----------- ----------------- -------------- --------------
NET UNREALIZED APPRECIATION 1,265 4,112 4,247 914
ACCUMULATED NET INVESTMENT INCOME (LOSS) -- 10 (58) --
ACCUMULATED NET REALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS 724 (287) 2,380 371
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 16,497 14,714 50,296 9,522
----------- ----------------- -------------- --------------
NET ASSETS AT JUNE 30, 1998 $ 18,486 $ 18,549 $ 56,865 $ 10,807
----------- ----------------- -------------- --------------
----------- ----------------- -------------- --------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
- 108 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
HIGH-YIELD INTERMEDIATE-TERM MANAGED MUNICIPAL
(In Thousands) BOND FUND U.S TREASURY FUND BOND FUND BOND FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments in Which There Is an
Excess of Value Over Identified Cost $ 2,312 $ 566 $ 194 $ 61,628
Aggregate Gross Unrealized Depreciation
on Investents in Which There Is an
Excess of Identified Cost Over Value (328) (28) -- (178)
----------- ----------------- -------------- --------------
NET UNREALIZED APPRECIATION 1,984 538 194 61,450
ACCUMULATED NET REALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS 129* (249)* 25* 7,955
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 77,158 17,029 5,399 444,310
----------- ----------------- -------------- --------------
NET ASSETS AT JUNE 30, 1998 $ 79,271 $ 17,318 $ 5,618 $ 513,715
----------- ----------------- -------------- --------------
----------- ----------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
WASHINGTON
CALIFORNIA STATE
TAX-FREE MUNICIPAL
INCOME FUND BOND FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments in Which There Is an
Excess of Value Over Identified Cost $ 8,351 $ 436
Aggregate Gross Unrealized Depreciation
on Investents in Which There Is an
Excess of Identified Cost Over Value (233) (1)
-------------- --------------
NET UNREALIZED APPRECIATION 8,118 435
ACCUMULATED NET REALIZED GAIN ON
INVESTMENT TRANSACTIONS 2,640 203
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 98,591 7,530
-------------- --------------
NET ASSETS AT JUNE 30, 1998 $ 109,349 $ 8,168
-------------- --------------
-------------- --------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* At December 31, 1997, these funds had the following amounts of accumulated net
realized losses on investment transactions that represented capital loss
carryforwards for Federal income tax purposes, which expire as follows:
<TABLE>
<CAPTION>
EXPIRATION
AMOUNTS DATES
--------- ---------
<S> <C> <C>
High-Yield Bond Fund $339 1998-2000
Intermediate-Term U.S. Treasury Fund 253 2001-2005
Managed Bond Fund 21 2005
</TABLE>
- 109 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES. 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:
<TABLE>
<S> <C>
EQUITY, INCOME AND GROWTH FUNDS: NORTHWEST FUND:
First $100 million .75% First $250 million .75%
Next $150 million .65 Next $250 million .65
Next $250 million .55 Next $250 million .55
Over $500 million .45 Over $750 million .45
BALANCED AND U.S. VALUE FUNDS: INTERNATIONAL FUND:
First $250 million .75% First $250 million 1.10%
Next $250 million .65 Next $250 million 1.00
Over $500 million .55 Over $500 million .90
SMALL COMPANY FUND: INTERMEDIATE-TERM U.S. TREASURY FUND:
First $250 million .85% First $250 million .55%
Next $250 million .75 Next $250 million .45
Over $500 million .65 Next $250 million .35
Over $750 million .25
HIGH-YIELD BOND AND WASHINGTON FUNDS: MANAGED BOND FUND:
First $250 million .65% First $100 million .50%
Next $250 million .55 Next $150 million .40
Next $250 million .45 Over $250 million .35
Over $750 million .35
MUNICIPAL AND CALIFORNIA FUNDS: MONEY MARKET FUND:
First $100 million .55% First $250 million .50%
Next $150 million .45 Next $250 million .40
Next $250 million .35 Next $250 million .30
Over $500 million .25 Over $750 million .25
</TABLE>
- 110 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SAFECO Asset Management Company pays sub-advisory fees to Bank of Ireland
Asset Management Company (U.S.) Limited for providing investment research and
advice to the International Fund.
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.
LINE OF CREDIT. The Trust, together with all other management investment
companies for which SAFECO Asset Management Company serves as investment
advisor, has a line of credit arrangements with certain financial institutions.
Under these arrangements, $75 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at June 30, 1998.
AFFILIATE OWNERSHIP. At June 30, 1998, SAFECO Insurance Company of America,
owned 450,000 shares (11% of outstanding shares) of the Northwest Fund, 500,000
shares (30%) of the Intermediate-Term U.S. Treasury Fund and 502,372 shares
(68%) of the Washington Municipal Bond Fund; SAFECO Asset Management Company
owned 688,168 shares (50%) of the International Fund, 519,268 shares (34%) of
the Balanced Fund, 500,000 shares (55%) of the U.S. Value Fund, and 452,103
shares (70%) of the Managed Bond Fund.
DEFERRED ORGANIZATION EXPENSE. Costs related to the organization of the
International, Balanced, Small Company, U.S. Value, and Managed Bond Funds have
been deferred and are being amortized to operations over a period of sixty
months. These costs were advanced by an affiliate and are being reimbursed by
the Fund over a sixty-month period.
EXPENSE REIMBURSEMENT. During the six-month period ended June 30, 1998,
SAFECO Asset Management Company voluntarily reimbursed certain expenses of the
International Fund.
- 111 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
DEALER CONCESSIONS. SAFECO Securities, Inc. retained the following amounts in
dealer commissions from sales of Class A Shares during the six-month period
ended June 30, 1998:
<TABLE>
<CAPTION>
COMMISSIONS
RETAINED
- -----------------------------------------------------
<S> <C>
Growth Fund $ 56,204
Equity Fund 33,725
Income Fund 2,661
Northwest Fund 5,240
International Fund 195
Balanced Fund 3,937
Small Company Fund 1,309
U.S. Value Fund 102
High-Yield Bond Fund 4,118
Intermediate-Term U.S. Treasury Fund 295
Managed Bond Fund 396
Municipal Bond Fund 1,268
California Tax-Free Income Fund 1,275
Washington State Municipal Bond Fund 5
- -----------------------------------------------------
</TABLE>
- 112 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. INVESTMENTS IN AFFILIATES
Each of the companies listed below is an affiliate of the Growth Fund because
the Fund owned at least 5% of the company's voting securities during the
six-month period ended June 30, 1998.
<TABLE>
<CAPTION>
(In Thousands) SHARES AT SHARES AT MARKET VALUE
BEGINNING END OF JUNE 30
SECURITY OF PERIOD ADDITIONS REDUCTIONS PERIOD DIVIDENDS 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
American Buildings Co. 360 -- -- 360 -- $ 10,722
BNC Mortgage, Inc. -- 484 -- 484 -- 5,320
Compass International
Services Corp. -- 700 -- 700 -- 6,652
Concepts Direct, Inc. 348 147 (16) 479 -- 7,312
Damark International, Inc. 480 255 -- 735 -- 6,247
Dura Pharmaceuticals, Inc. -- 2,666 -- 2,666 -- 59,645
Emmis Broadcasting Corp. -- 1,209 -- 1,209 -- 57,791
Family Golf Centers, Inc. 1,061 958 (286) 1,733 -- 43,863
First Commonwealth, Inc. 327 35 (6) 356 -- 5,346
Funco, Inc. 354 -- -- 354 -- 5,004
Hall, Kinion & Associates,
Inc. -- 899 -- 899 -- 6,009
Harold's Stores, Inc. 516 26 -- 542 -- 4,134
Innotrac Corp. -- 602 -- 602 -- 5,718
IntelliQuest Information
Group, Inc. 41 799 -- 840 -- 8,399
ITEQ, Inc. -- 837 -- 837 -- 6,221
Lifeline Systems, Inc. 524 -- (10) 514 -- 9,517
MICROS Systems, Inc. 669 669 -- 1,338 -- 44,280
Nastech Pharmaceutical
Co., Inc. 407 202 -- 609 -- 4,948
Nortek, Inc. -- 439 -- 439 -- 13,502
Open Plan Systems, Inc. 244 -- -- 244 -- 565
PCD, Inc. -- 424 -- 424 -- 7,266
Penederm, Inc. 728 -- -- 728 -- 14,554
Phoenix International
Ltd., Inc. 415 208 -- 623 -- 10,116
PolyMedica Industries,
Inc. 337 549 -- 886 -- 7,974
Precision Auto Care, Inc. -- 607 -- 607 -- 5,994
Recovery Engineering, Inc. -- 423 -- 423 -- 8,906
Schlotzsky's, Inc. -- 504 (11) 493 -- 7,888
Suburban Lodges of
America, Inc. 303 1,226 -- 1,529 -- 23,120
TRM Copy Centers Corp. 186 512 -- 698 -- 9,952
Teardrop Golf Co. -- 414 -- 414 -- 4,140
Telco Systems, Inc. -- 696 -- 696 -- 9,870
Tetra Technologies, Inc. 710 -- -- 710 -- 11,712
Waterside Capital Corp. -- 118 -- 118 -- 1,342
Weider Nutrition
International, Inc. 728 -- -- 728 55 12,379
-------------
$446,408
-------------
-------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- 113 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. COMMITMENTS
At June 30, 1998, the International Fund had open forward foreign currency
exchange contracts obligating it to receive or deliver the following foreign
currencies:
<TABLE>
<CAPTION>
(In Thousands)
U.S. DOLLAR UNREALIZED
CURRENCY IN EXCHANGE SETTLEMENT VALUE AS OF APPRECIATION
TO BE DELIVERED FOR DATE JUNE 30, 1998 (DEPRECIATION)
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
143 British Pound $ 237 07/27/98 $ 238 $ (1)
442 German Marks 247 07/17/98 245 2
319 German Marks 179 09/25/98 178 1
23,339 Japanese Yen 170 09/09/98 170 --
25,273 Japanese Yen 186 08/28/98 184 2
26,561 Japanese Yen 200 08/18/98 193 7
26,151 Japanese Yen 183 09/16/98 191 (8)
27,823 Japanese Yen 217 07/13/98 201 16
295 Swiss Francs 202 08/13/98 196 6
870 Swiss Francs 574 07/07/98 574 --
313 Swiss Francs 212 07/31/98 207 5
--
$ 30
--
--
- ------------------------------------------------------------------------------------------
</TABLE>
- 114 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GROWTH FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 22.39 $ 16.97 $ 15.45
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) -- (0.02) (0.02)
Net Realized and Unrealized Gain on
Investments 3.83 8.44 1.77
------ ------ ------
Total from Investment Operations 3.83 8.42 1.75
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- --
Distributions from Realized Gains -- (3.00) (0.23)
------ ------ ------
Total Distributions -- (3.00) (0.23)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 26.22 $ 22.39 $ 16.97
------ ------ ------
------ ------ ------
TOTAL RETURN+ 17.11%* 49.61% 11.35%*
NET ASSETS AT END OF PERIOD (000'S) $ 24,172 $ 4,076 $ 187
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.99%** 1.06% 1.12%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS 0.06%** (.33%) (.58%)**
PORTFOLIO TURNOVER RATE 47.34%** 82.57% 82.93%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 115 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GROWTH FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 22.19 $ 16.94 $ 15.45
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) (0.05) (0.08) (0.05)
Net Realized and Unrealized Gain on
Investments 3.71 8.33 1.77
------ ------ ------
Total from Investment Operations 3.66 8.25 1.72
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- --
Distributions from Realized Gains -- (3.00) (0.23)
------ ------ ------
Total Distributions -- (3.00) (0.23)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 25.85 $ 22.19 $ 16.94
------ ------ ------
------ ------ ------
TOTAL RETURN+ 16.49%* 48.70% 11.15%*
NET ASSETS AT END OF PERIOD (000'S) $ 9,713 $ 1,402 $ 116
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.83%** 1.88% 1.87%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (0.82%)** (1.16%) (1.38%)**
PORTFOLIO TURNOVER RATE 47.34%** 82.57% 82.93%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 116 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO EQUITY FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 19.55 $ 16.62 $ 15.85
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.08 0.14 0.04
Net Realized and Unrealized Gain on
Investments 2.68 3.77 1.35
------ ------ ------
Total from Investment Operations 2.76 3.91 1.39
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.08) (0.14) (0.04)
Distributions from Realized Gains -- (0.84) (0.58)
------ ------ ------
Total Distributions (0.08) (0.98) (0.62)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 22.23 $ 19.55 $ 16.62
------ ------ ------
------ ------ ------
TOTAL RETURN+ 14.14%* 23.56% 8.78%*
NET ASSETS AT END OF PERIOD (000'S) $ 41,590 $ 7,247 $ 2,894
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.88%** 1.24% 0.97%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 0.92%** 0.74% 1.38%**
PORTFOLIO TURNOVER RATE 35.09%** 34.26% 59.34%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 117 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO EQUITY FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 19.55 $ 16.60 $ 15.85
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) (0.02) 0.02 0.02
Net Realized and Unrealized Gain on
Investments 2.61 3.79 1.33
------ ------ ------
Total from Investment Operations 2.59 3.81 1.35
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- (0.02) (0.02)
Distributions from Realized Gains -- (0.84) (0.58)
------ ------ ------
Total Distributions -- (0.86) (0.60)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 22.14 $ 19.55 $ 16.60
------ ------ ------
------ ------ ------
TOTAL RETURN+ 13.25%* 22.93% 8.50%*
NET ASSETS AT END OF PERIOD (000'S) $ 10,029 $ 3,565 $ 355
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.97%** 1.81% 1.75%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (0.25%)** 0.12% 0.51%**
PORTFOLIO TURNOVER RATE 35.09%** 34.26% 59.34%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 118 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INCOME FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 24.02 $ 21.15 $ 20.03
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.21 0.51 0.12
Net Realized and Unrealized Gain on
Investments 2.62 4.98 1.65
------ ------ ------
Total from Investment Operations 2.83 5.49 1.77
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.21) (0.51) (0.12)
Distributions from Realized Gains -- (2.11) (0.53)
------ ------ ------
Total Distributions (0.21) (2.62) (0.65)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 26.64 $ 24.02 $ 21.15
------ ------ ------
------ ------ ------
TOTAL RETURN+ 11.78%* 26.15% 8.85%*
NET ASSETS AT END OF PERIOD (000'S) $ 1,673 $ 742 $ 193
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.29%** 1.14% 1.03%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 1.84%** 2.50% 2.66%**
PORTFOLIO TURNOVER RATE 55.01%** 52.14% 37.84%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 119 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INCOME FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 23.95 $ 21.12 $ 20.03
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.12 0.38 0.10
Net Realized and Unrealized Gain on
Investments 2.72 4.94 1.62
------ ------ ------
Total from Investment Operations 2.84 5.32 1.72
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.12) (0.38) (0.10)
Distributions from Realized Gains -- (2.11) (0.53)
------ ------ ------
Total Distributions (0.12) (2.49) (0.63)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 26.67 $ 23.95 $ 21.12
------ ------ ------
------ ------ ------
TOTAL RETURN+ 11.85%* 25.35% 8.60%*
NET ASSETS AT END OF PERIOD (000'S) $ 1,665 $ 798 $ 112
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.01%** 1.83% 1.79%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 1.12%** 1.79% 1.99%**
PORTFOLIO TURNOVER RATE 55.01%** 52.14% 37.84%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 120 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO NORTHWEST FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 17.25 $ 14.06 $ 13.78
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) (0.09) (0.06) (0.01)
Net Realized and Unrealized Gain on
Investments 1.32 4.39 0.29
------ ------ ------
Total from Investment Operations 1.23 4.33 0.28
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- --
Distributions from Realized Gains -- (1.14) --
------ ------ ------
Total Distributions -- (1.14) --
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 18.48 $ 17.25 $ 14.06
------ ------ ------
------ ------ ------
TOTAL RETURN+ 7.13%* 30.79% 2.03%*
NET ASSETS AT END OF PERIOD (000'S) $ 2,009 $ 1,354 $ 369
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.68%** 1.42% 1.40%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (1.15%)** (.61%) (.39%)**
PORTFOLIO TURNOVER RATE 45.35%** 55.42% 67.32%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 121 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO NORTHWEST FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 17.09 $ 14.03 $ 13.78
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) (0.12) (0.10) (0.03)
Net Realized and Unrealized Gain on
Investments 1.29 4.30 0.28
------ ------ ------
Total from Investment Operations 1.17 4.20 0.25
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- --
Distributions from Realized Gains -- (1.14) --
------ ------ ------
Total Distributions -- (1.14) --
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 18.26 $ 17.09 $ 14.03
------ ------ ------
------ ------ ------
TOTAL RETURN+ 6.85%* 29.93% 1.81%*
NET ASSETS AT END OF PERIOD (000'S) $ 2,468 $ 1,204 $ 232
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.24%** 2.09% 2.18%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (1.71%)** (1.30%) (1.19%)**
PORTFOLIO TURNOVER RATE 45.35%** 55.42% 67.32%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 122 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO BALANCED FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.60 $ 10.69 $ 10.38
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.13 0.28 0.09
Net Realized and Unrealized Gain on
Investments 0.58 1.45 0.44
------ ------ ------
Total from Investment Operations 0.71 1.73 0.53
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.13) (0.28) (0.09)
Distributions from Realized Gains -- (0.54) (0.13)
------ ------ ------
Total Distributions (0.13) (0.82) (0.22)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 12.18 $ 11.60 $ 10.69
------ ------ ------
------ ------ ------
TOTAL RETURN+ 6.09%* 16.29% 5.07%*
NET ASSETS AT END OF PERIOD (000'S) $ 501 $ 205 $ 110
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.58%** 1.52% 1.35%++**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 2.31%** 2.55% 3.01%**
PORTFOLIO TURNOVER RATE 70.75%** 101.22% 36.10%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 1.70%.
- 123 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO BALANCED FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.60 $ 10.70 $ 10.38
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.08 0.18 0.06
Net Realized and Unrealized Gain on
Investments 0.58 1.44 0.45
------ ------ ------
Total from Investment Operations 0.66 1.62 0.51
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.08) (0.18) (0.06)
Distributions from Realized Gains -- (0.54) (0.13)
------ ------ ------
Total Distributions (0.08) (0.72) (0.19)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 12.18 $ 11.60 $ 10.70
------ ------ ------
------ ------ ------
TOTAL RETURN+ 5.67%* 15.21% 4.85%*
NET ASSETS AT END OF PERIOD (000'S) $ 792 $ 331 $ 115
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.34%** 2.28% 2.11%++**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 1.59%** 1.78% 2.23%**
PORTFOLIO TURNOVER RATE 70.75%** 101.22% 36.10%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 2.46%.
- 124 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERNATIONAL FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.55 $ 11.29 $ 10.39
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) 0.13 0.20 --
Net Realized and Unrealized Gain on
Investments and Foreign Currency
Transactions 1.69 0.29 0.95
------ ------ ------
Total from Investment Operations 1.82 0.49 0.95
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- (0.21) (0.05)
Distributions from Realized Gains -- (0.02) --
------ ------ ------
Total Distributions -- (0.23) (0.05)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 13.37 $ 11.55 $ 11.29
------ ------ ------
------ ------ ------
TOTAL RETURN+ 15.76%* 4.30% 9.19%*
NET ASSETS AT END OF PERIOD (000'S) $ 428 $ 295 $ 154
RATIO OF EXPENSES TO AVERAGE NET
ASSETS++ 1.97%** 1.87% 1.41%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS 1.23%** 0.26% (.23%)**
PORTFOLIO TURNOVER RATE 26.20%** 22.13% 18.51%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would have been 2.15%, 2.13% and 1.72% for
the period ended June 30, 1998 and the periods ended December 31, 1997 and
1996, respectively.
- 125 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERNATIONAL FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.53 $ 11.28 $ 10.39
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.08 0.18 --
Net Realized and Unrealized Gain on
Investments and Foreign Currency
Transactions 1.68 0.22 0.93
------ ------ ------
Total from Investment Operations 1.76 0.40 0.93
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- (0.13) (0.04)
Distributions from Realized Gains -- (0.02) --
------ ------ ------
Total Distributions -- (0.15) (0.04)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 13.29 $ 11.53 $ 11.28
------ ------ ------
------ ------ ------
TOTAL RETURN+ 15.26%* 3.48% 8.96%*
NET ASSETS AT END OF PERIOD (000'S) $ 594 $ 331 $ 112
RATIO OF EXPENSES TO AVERAGE NET
ASSETS++ 2.86%** 2.64% 2.17%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (0.82%)** 0.51% (1.15%)**
PORTFOLIO TURNOVER RATE 26.20%** 22.13% 18.51%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would have been 3.04%, 2.90% and 2.47% for
the period ended June 30, 1998 and the periods ended December 31, 1997 and
1996, respectively.
- 126 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO SMALL COMPANY FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 14.21 $ 11.81 $ 11.51
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) (0.03) (0.06) (0.01)
Net Realized and Unrealized Gain on
Investments 2.07 2.80 0.31
------ ------ ------
Total from Investment Operations 2.04 2.74 0.30
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- --
Distributions from Realized Gains -- (0.34) --
------ ------ ------
Total Distributions -- (0.34) --
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 16.25 $ 14.21 $ 11.81
------ ------ ------
------ ------ ------
TOTAL RETURN+ 14.36%* 23.21% 2.61%*
NET ASSETS AT END OF PERIOD (000'S) $ 1,267 $ 271 $ 135
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.58%** 1.52% 1.42%++**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (.69%)** (.60%) (.50%)**
PORTFOLIO TURNOVER RATE 94.23%** 60.81% 73.47%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 1.62%.
- 127 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO SMALL COMPANY FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 14.07 $ 11.79 $ 11.51
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) (0.09) (0.10) (0.04)
Net Realized and Unrealized Gain on
Investments 2.04 2.72 0.32
------ ------ ------
Total from Investment Operations 1.95 2.62 0.28
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- --
Distributions from Realized Gains -- (0.34) --
------ ------ ------
Total Distributions -- (0.34) --
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 16.02 $ 14.07 $ 11.79
------ ------ ------
------ ------ ------
TOTAL RETURN+ 13.86%* 22.23% 2.43%*
NET ASSETS AT END OF PERIOD (000'S) $ 952 $ 396 $ 103
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.56%** 2.29% 2.18%++**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (1.61%)** (1.35%) (1.28%)**
PORTFOLIO TURNOVER RATE 94.23%** 60.81% 73.47%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 2.41%.
- 128 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO U.S. VALUE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
APRIL 30, APRIL 30,
1997 1997
(COMMENCEMENT (COMMENCEMENT
SIX-MONTH OF SIX-MONTH OF
PERIOD ENDED OPERATIONS) PERIOD ENDED OPERATIONS)
TO DECEMBER TO DECEMBER
JUNE 30 31 JUNE 30 31
-------------------------------------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.18 $ 10.00 $ 11.18 $ 10.00
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.03 0.08 (0.01) 0.02
Net Realized and Unrealized Gain on
Investments 0.76 1.65 0.75 1.65
------ ------ ------ ------
Total from Investment Operations 0.79 1.73 0.74 1.67
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.03) (0.08) -- (0.02)
Distributions from Realized Gains -- (0.47) -- (0.47)
------ ------ ------ ------
Total Distributions (0.03) (0.55) -- (0.49)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 11.94 $ 11.18 $ 11.92 $ 11.18
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ 7.08%* 17.24%* 6.62%* 16.63%*
NET ASSETS AT END OF PERIOD (000'S) $ 168 $ 133 $ 466 $ 221
RATIO OF EXPENSES TO AVERAGE NET
ASSETS** 1.72% 1.48% 2.46% 2.29%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS** 0.57% 1.03% (0.18%) 0.20%
PORTFOLIO TURNOVER RATE** 54.57% 36.37% 54.57% 36.37%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 129 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO HIGH-YIELD BOND FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
SIX-MONTH ELEVEN-MONTH SIX-MONTH FOR THE
PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31+ JUNE 30 DECEMBER 31+
-------------------------------------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 9.12 $ 8.83 $ 9.12 $ 8.83
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.36 0.69 0.32 0.63
Net Realized and Unrealized Gain on
Investments 0.02 0.29 0.02 0.29
------ ------ ------ ------
Total from Investment Operations 0.38 0.98 0.34 0.92
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.36) (0.69) (0.32) (0.63)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 9.14 $ 9.12 $ 9.14 $ 9.12
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN* 4.21% 12.49% 3.78% 11.77%
NET ASSETS AT END OF PERIOD (000'S) $ 1,341 $ 259 $ 585 $ 355
RATIO OF EXPENSES TO AVERAGE NET
ASSETS** 1.22% 1.10% 2.04% 1.81%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS** 7.79% 7.65% 7.04% 6.87%
PORTFOLIO TURNOVER RATE** 56.72% 85.06% 56.72% 85.06%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized. Total return excludes the effects of sales charges. If
sales charges were included, the total return would be lower.
** Annualized.
+ For the period from January 31, 1997 (initial issue date of Class A and
Class B shares) through December 31, 1997.
- 130 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.35 $ 10.11 $ 10.10
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.26 0.55 0.15
Net Realized and Unrealized Gain on
Investments 0.08 0.24 0.01
------ ------ ------
Total from Investment Operations 0.34 0.79 0.16
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.26) (0.55) (0.15)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 10.43 $ 10.35 $ 10.11
------ ------ ------
------ ------ ------
TOTAL RETURN+ 3.35%* 8.03% 1.63%*
NET ASSETS AT END OF PERIOD (000'S) $ 425 $ 365 $ 704
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.39%** 1.32% 1.07%**++
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.11%** 5.36% 6.07%**
PORTFOLIO TURNOVER RATE 6.43%** 82.36% 125.42%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets for the period ended December 31,
1996 would have been 1.30%.
- 131 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.35 $ 10.12 $ 10.10
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.23 0.48 0.14
Net Realized and Unrealized Gain on
Investments 0.07 0.23 0.02
------ ------ ------
Total from Investment Operations 0.30 0.71 0.16
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.23) (0.48) (0.14)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 10.42 $ 10.35 $ 10.12
------ ------ ------
------ ------ ------
TOTAL RETURN+ 2.95%* 7.27% 1.55%*
NET ASSETS AT END OF PERIOD (000'S) $ 622 $ 432 $ 223
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.91%** 1.87% 1.72%**++
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.61%** 4.78% 5.35%**
PORTFOLIO TURNOVER RATE 6.43%** 82.36% 125.42%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets for the period ended December 31,
1996 would have been 1.95%.
- 132 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MANAGED BOND FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 8.60 $ 8.35 $ 8.35
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.19 0.39 0.11
Net Realized and Unrealized Gain on
Investments 0.14 0.25 --
------ ------ ------
Total from Investment Operations 0.33 0.64 0.11
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.19) (0.39) (0.11)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 8.74 $ 8.60 $ 8.35
------ ------ ------
------ ------ ------
TOTAL RETURN+ 3.85%* 7.78% 1.34%*
NET ASSETS AT END OF PERIOD (000'S) $ 215 $ 146 $ 140
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.49%** 1.45% 1.30%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.40%** 4.68% 5.22%**
PORTFOLIO TURNOVER RATE 93.68%** 176.50% 136.29%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 133 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MANAGED BOND FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 8.60 $ 8.35 $ 8.35
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.14 0.32 0.09
Net Realized and Unrealized Gain on
Investments 0.13 0.25 --
------ ------ ------
Total from Investment Operations 0.27 0.57 0.09
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.14) (0.32) (0.09)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 8.73 $ 8.60 $ 8.35
------ ------ ------
------ ------ ------
TOTAL RETURN+ 3.15%* 6.91% 1.15%*
NET ASSETS AT END OF PERIOD (000'S) $ 179 $ 120 $ 100
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.42%** 2.23% 2.07%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 3.24%** 3.79% 4.45%**
PORTFOLIO TURNOVER RATE 93.68%** 176.50% 136.29%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 134 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 14.53 $ 13.99 $ 13.82
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.33 0.68 0.18
Net Realized and Unrealized Gain on
Investments 0.05 0.70 0.17
------ ------ ------
Total from Investment Operations 0.38 1.38 0.35
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.33) (0.68) (0.18)
Distributions from Realized Gains -- (0.16) --
------ ------ ------
Total Distributions (0.33) (0.84) (0.18)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 14.58 $ 14.53 $ 13.99
------ ------ ------
------ ------ ------
TOTAL RETURN+ 2.63%* 10.17% 2.52%*
NET ASSETS AT END OF PERIOD (000'S) $ 879 $ 390 $ 311
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.01%** 0.95% 0.82%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.56%** 4.86% 5.04%**
PORTFOLIO TURNOVER RATE 33.99%** 13.52% 6.66%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 135 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 14.52 $ 13.98 $ 13.82
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.29 0.60 0.15
Net Realized and Unrealized Gain on
Investments 0.03 0.70 0.16
------ ------ ------
Total from Investment Operations 0.32 1.30 0.31
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.29) (0.60) (0.15)
Distributions from Realized Gains -- (0.16) --
------ ------ ------
Total Distributions (0.29) (0.76) (0.15)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 14.55 $ 14.52 $ 13.98
------ ------ ------
------ ------ ------
TOTAL RETURN+ 2.23%* 9.56% 2.27%*
NET ASSETS AT END OF PERIOD (000'S) $ 820 $ 502 $ 112
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.55%** 1.53% 1.50%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.02%** 4.22% 4.42%**
PORTFOLIO TURNOVER RATE 33.99%** 13.52% 6.66%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 136 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 12.94 $ 12.23 $ 12.07
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.29 0.58 0.15
Net Realized and Unrealized Gain on
Investments 0.01 0.76 0.19
------ ------ ------
Total from Investment Operations 0.30 1.34 0.34
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.29) (0.58) (0.15)
Distributions from Realized Gains -- (0.05) (0.03)
------ ------ ------
Total Distributions (0.29) (0.63) (0.18)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 12.95 $ 12.94 $ 12.23
------ ------ ------
------ ------ ------
TOTAL RETURN+ 2.36%* 11.29% 2.83%*
NET ASSETS AT END OF PERIOD (000'S) $ 686 $ 460 $ 122
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.93%** 0.91% 0.89%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.55%** 4.52% 4.84%**
PORTFOLIO TURNOVER RATE 52.97%** 9.83% 10.52%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 137 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 12.93 $ 12.22 $ 12.07
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.24 0.48 0.12
Net Realized and Unrealized Gain on
Investments 0.01 0.76 0.18
------ ------ ------
Total from Investment Operations 0.25 1.24 0.30
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.24) (0.48) (0.12)
Distributions from Realized Gains -- (0.05) (0.03)
------ ------ ------
Total Distributions (0.24) (0.53) (0.15)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 12.94 $ 12.93 $ 12.22
------ ------ ------
------ ------ ------
TOTAL RETURN+ 1.97%* 10.46% 2.56%*
NET ASSETS AT END OF PERIOD (000'S) $ 848 $ 501 $ 101
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.69%** 1.63% 1.64%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 3.70%** 3.71% 4.08%**
PORTFOLIO TURNOVER RATE 52.97%** 9.83% 10.52%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 138 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.95 $ 10.53 $ 10.45
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.23 0.46 0.12
Net Realized and Unrealized Gain on
Investments 0.05 0.42 0.09
------ ------ ------
Total from Investment Operations 0.28 0.88 0.21
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.23) (0.46) (0.12)
Distributions from Realized Gains -- -- (0.01)
------ ------ ------
Total Distributions (0.23) (0.46) (0.13)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 11.00 $ 10.95 $ 10.53
------ ------ ------
------ ------ ------
TOTAL RETURN+ 2.56%* 8.64% 1.94%*
NET ASSETS AT END OF PERIOD (000'S) $ 203 $ 360 $ 336
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.44%** 1.32% 1.31%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.25%** 4.39% 4.49%**
PORTFOLIO TURNOVER RATE 85.85%** 11.67% 15.96%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 139 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.97 $ 10.55 $ 10.45
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.19 0.38 0.10
Net Realized and Unrealized Gain on
Investments 0.04 0.42 0.11
------ ------ ------
Total from Investment Operations 0.23 0.80 0.21
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.19) (0.38) (0.10)
Distributions from Realized Gains -- -- (0.01)
------ ------ ------
Total Distributions (0.19) (0.38) (0.11)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 11.01 $ 10.97 $ 10.55
------ ------ ------
------ ------ ------
TOTAL RETURN+ 2.11%* 7.75% 1.94%*
NET ASSETS AT END OF PERIOD (000'S) $ 243 $ 239 $ 211
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.19%** 2.13% 2.06%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 3.48%** 3.58% 3.71%**
PORTFOLIO TURNOVER RATE 85.85%** 11.67% 15.96%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 140 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MONEY MARKET FUND
CLASS A
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.02 0.05 0.01
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.02) (0.05) (0.01)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00
------ ------ ------
------ ------ ------
TOTAL RETURN 2.35%* 4.97% 1.21%*
NET ASSETS AT END OF PERIOD (000'S) $ 840 $ 537 $ 295
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.97%** 0.72% 0.55%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.71%** 4.91% 5.01%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
- 141 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MONEY MARKET FUND
CLASS B
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31
---------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.02 0.05 0.01
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.02) (0.05) (0.01)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00
------ ------ ------
------ ------ ------
TOTAL RETURN 2.30%* 4.94% 1.21%*
NET ASSETS AT END OF PERIOD (000'S) $ 323 $ 414 $ 106
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.96%** 0.78% 0.54%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.71%** 4.85% 4.96%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
- 142 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES
<PAGE>
SAFECO MUTUAL FUNDS
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
David H. Longhurst
Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
Chase Manhattan Bank
(International Fund)
CLIENT SERVICES*:
Monday-Friday,
5:30am-7:00pm, Pacific Time
NATIONWIDE: 1-800-528-6501
DEAF AND HARD OF HEARING
TTY/TDD SERVICE: 1-800-438-8718
*All telephone calls are tape-recorded
for your protection.
MAILING ADDRESS:
SAFECO Mutual Funds
Advisor Class Shares
P.O. Box 34890
Seattle, WA 98124-1890
INTERNET:
www.safecofunds.com
E-MAIL: [email protected]
GMF 4068 8/98
RECYCLE LOGO Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
- -TM-A trademark of SAFECO Corporation.
