<PAGE> 1
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ANNUAL
REPORT
September 30, 1995
MAILING ADDRESS:
SAFECO MUTUAL FUNDS
P.O. BOX 34890
SEATTLE, WA 98124-1890
FOR ACCOUNT INFORMATIONS:
OR TELEPHONE TRANSACTION
NATIONWIDE: 1-800-624-5711
SEATTLE: 545-7319
TTY/TTD: 1-800-438-8718
SAFECO
STOCK FUNDS
SAFECO GROWTH FUND
SAFECO EQUITY FUND
SAFECO INCOME FUND
SAFECO NORTHWEST FUND
[LOGO] SAFECO
MUTUAL FUNDS
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<PAGE> 2
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PERFORMANCE INFORMATION
FOR THE PERIODS ENDED SEPTEMBER 30, 1995
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SAFECO GROWTH FUND - SAFECO EQUITY FUND - SAFECO INCOME FUND
ILLUSTRATION OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[GRAPH 1]
INVESTMENT VALUE AS OF SEPT. 30, 1995 Chart appears here comparing the
total return of a $10,000 investment
SAFECO GROWTH FUND: $35,291 in the Fund made 10 years ago as
compared to the performance of the
SAFECO EQUITY FUND: $47,700 applicable index.
SAFECO INCOME FUND: $31,211
S&P 500 INDEX: $44,122 (W/DIVIDENDS)
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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<S> <C>
President's Letter 2
SAFECO Growth Fund 3
SAFECO Equity Fund 8
SAFECO Income Fund 13
SAFECO Northwest Fund 19
Financial Statements 24
Notes to Financial Statements 28
Report of Independent Auditors 36
</TABLE>
The performance of the Funds assumes the reinvestment of all dividends and
capital gains. The Standard & Poor's 500 Index is an unmanaged index of 500
stocks weighted by market capitalization; the index has been adjusted to
reflect reinvestment of dividends on securities in the index. The Northwest
50(TM) Index is an index of 50 Northwest companies weighted by their regional
impact.
Operating expenses have been applied to the Funds, but not to the indices.
If Fund operating expenses had been applied to the indices, their values would
have been lower. Investment returns are historical and not predictive of future
performance.
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<PAGE> 3
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SAFECO NORTHWEST FUND
ILLUSTRATION OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[GRAPH 2]
INVESTMENT VALUE AS OF SEPT. 30, 1995
[CHART APPEARS HERE COMPARING
SAFECO NORTHWEST FUND: $16,108 THE TOTAL RETURN OF A $10,000
INVESTMENT IN THE FUND MADE
NORTHWEST 50(TM) INDEX: $16,897 (W/DIVIDENDS) ON THE FUND'S INCEPTION DATE
AS COMPARED TO THE PERFORMANCE
S&P 500 INDEX: $18,113 (W/DIVIDENDS) OF THE APPLICABLE INDEX.]
<TABLE>
<CAPTION>
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10 YEAR OR
AVERAGE ANNUAL TOTAL RETURN 1 YEAR 5 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SAFECO Growth Fund 23.93% 20.04% 13.44%
SAFECO Equity Fund 21.59% 21.33% 16.91%
SAFECO Income Fund 21.04% 15.03% 12.05%
S&P 500 Index 29.71% 17.22% 16.00%
- --------------------------------------------------------------------------------
SAFECO Northwest Fund 19.01% N/A 10.96%*
Northwest 50(TM) Index 25.57% N/A 11.81%*
S&P 500 Index 29.71% N/A 13.47%*
- --------------------------------------------------------------------------------
</TABLE>
* Inception date of the Northwest Fund was February 7, 1991. Index graph
comparison begins on February 28, 1991.
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<PAGE> 4
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LETTER FROM THE PRESIDENT
NOVEMBER 1, 1995
DEAR SHAREHOLDER:
[PHOTO] David F. Hill
As it was in 1994, so it has been in 1995: The health of the U.S. economy is
the theme driving the financial markets. The marked difference between the two
years is the change in investor perception of the economy.
Investors now seem to see the economy as growing at healthy, sustainable
levels with little inflationary pressure. This change in attitude, coupled with
the concept of declining interest rates, has brought surprising strength to both
the bond and stock markets.
The stock market as measured by the S&P Index climbed 29.71% in the 12
months ending September 30, 1995. The bond market as measured by the Lehman
Brothers Government/Corporate Index returned 14.35% over the same period. These
gains far outpace historical averages.
The slow domestic economic growth, low inflation and falling interest rates
that we are experiencing creates an environment that is traditionally beneficial
for bonds. The same circumstances are generally positive for the stocks of
companies that are able to grow their earnings. Companies whose earnings don't
meet analysts' expectations are likely to disappoint investors. In this climate,
stock picking ability is critical to good performance.
Beyond that, it is not our practice to prognosticate. We don't believe we
can predict short-term trends or be successful timing the market. So, we try to
stay fully invested in the best positions at the best prices we can find.
We urge investors to take a longer view to investing as well.
Our advice is, as always, don't try to divine what the market will do
tomorrow or next month. Concentrate instead on making sure your investment
vehicles are of high quality and that they match the time horizons of your
investment objectives.
To help investors do that, we offer educational materials, including the
SAFECO Mutual Funds Personal Financial Planning Program. Please call us for your
free copy of this educational booklet and planning worksheets. For automated
performance information, try our new menu-driven price and yield line. We've
upgraded and expanded this service to provide historical performance as well as
dividends and capital gain information. To access it simply dial 800-835-4391
(545-5113 in Seattle).
As always, we truly value your continued confidence in SAFECO Mutual Funds.
Sincerely,
/s/ David F. Hill
- ------------------------
David F. Hill, President
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<PAGE> 5
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REPORT FROM THE FUND MANAGER
SAFECO GROWTH FUND
NOVEMBER 1, 1995
Over the 12 months just ended, the SAFECO Growth Fund rose 23.93% while the
average growth fund gained 25.87% according to Lipper. It's been an unbelievably
strong market, so strong that as I worked to limit our exposure in stocks that
had experienced huge run-ups, I was unable to keep up with the S&P and the peer
group average. Moving to a more conservative positioning caused the portfolio to
underperform.
Operating under the theory that if you don't reap profits, a portfolio can
quickly go to seed, I sold or reduced holdings I felt had reached their full
value. Several of the sales (GREEN TREE FINANCIAL, SAFECARD SERVICES, ROBERTS
PHARMACEUTICAL, MARK IV INDUSTRIES, and SHAW INDUSTRIES) were among our largest
holdings on March 31.
Gains taken on smaller positions included top performers COMPDENT and UUNET
as well as INTERPOOL, MIDWEST EXPRESS and REDHOOK ALE. (I bought on the initial
public offering of internet access provider Uunet and microbrewer Redhook and
then sold them as I couldn't get enough shares at a reasonable price to form a
full position.)
I did sell several small holdings in which I simply lost hope -- BMC WEST,
GROWTH ENVIRONMENTAL, BOLLINGER INDUSTRIES and CYGNE DESIGNS -- but the losses
on these were minimal compared to the gains from our other sales. The net result
was an unusually large capital gain for shareholders, $5.499 per share on
September 30.
With the proceeds, I generally invested in better known companies whose
sales should hold up even if the economy doesn't, and whose prices are generally
cheaper than the market. In simplest terms, I have tried to take our profits
before the market takes them back by selling stocks I think reached the top of
their range and buying stocks that have room to move up.
I bought and then sold MOTOROLA and TEXAS INSTRUMENTS when their prices
climbed to our target. I'm still holding two other silicon chip makers, INTEL
and NATIONAL SEMICONDUCTOR. These two are less worrisome then the rest of the
sector as they have lower prices (based on earnings) than their peers. Intel
especially stands to benefit by the expected doubling of the personal computer
market. And National Semiconductor has a more diverse end market than its peers.
Another high tech company I'm comfortable holding is SEAGATE TECHNOLOGY. Its
pristine balance sheet and great cash flow make it seem less treacherous than
the sector as a whole. A market leader, Seagate is setting the standard for
high-end disc drives.
I also moved 5% of net assets back into MICROS SYSTEMS, an electronic cash
register company that we've profited by in the past. And, I added to our
positions in POLARIS, the manufacturer of recreational all-terrain, water and
snow vehicles, and YOUTH SERVICES INTERNATIONAL, a company that develops and
operates residential centers for troubled youths.
SCOTT PAPER is new to our portfolio. It's a well managed company, and,
having just agreed to merge with KIMBERLY CLARK, it could become a blockbuster
tissue company.
I bought three health maintenance organizations whose prices sank on
disappointments within the group -- I've since sold UNITED HEALTH CARE, but I'm
(Continued on next page.)
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<PAGE> 6
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REPORT FROM THE GROWTH FUND MANAGER (CONTINUED)
holding US HEALTH CARE and MID ATLANTIC MEDICAL SERVICES. The upward trend in
HMO enrollments should continue no matter what the economy does. As well, people
will eat and drink -- no matter what the economy does. Thus, I also hold and
like CANANDAIGUA WINE and PHILIP MORRIS. And I added RJR NABISCO, another
stable, non-cyclical company with a low price to earnings ratio and a high
yield.
Philip Morris, already a leader, continues to add market share, especially
overseas. It has a huge cash flow, low multiples and superior management.
Through acquisitions and superior cost cutting, Canandaigua has expanded its
product line without diluting its earnings -- and shows no sign of stopping.
Among its brands, the company now controls four of the five major table-wine
lines -- Almaden, Inglenook, Taylor and Paul Masson.
THORN APPLE VALLEY, held hostage by high hog prices, is not meeting my
expectations. However, I'll continue to hold it waiting for pig prices to cycle
down. I held on to two other positions that were poor performers over the last
six months: MIKOHN GAMING makes silicon chips for slot machines and stands to
benefit as new gambling centers open. EZCORP is a pawn shop chain that's simply
undervalued.
OSTEX INTERNATIONAL, which grew 125.3% to occupy about 1% of net assets, is
the most interesting of our top performers. A new Seattle-based company, Ostex
won FDA approval to manufacture and market home diagnostic kits that measure
bone loss associated with osteoporosis.
I honestly don't know what to expect next from the market. About our
portfolio, however, I feel pretty good. As I said earlier, the Fund is now
largely invested in companies whose sales should hold up even if the economy
doesn't, whose prices are generally cheaper than the market, and whose size
bodes for lower price volatility. SAFECO Growth Fund is hopefully positioned for
a steady climb.
[PHOTO] Thomas M. Maguire
/s/ Thomas M. Maguire
- --------------------------------------
Thomas M. Maguire, Growth Fund Manager
- --------------------------------------------------------------------------------
Completing his M.B.A. at the University of Washington, Tom 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.
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- 4 -
<PAGE> 7
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HIGHLIGHTS
SAFECO GROWTH FUND
AS OF SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
TOP TEN HOLDINGS PERCENT OF NET ASSETS
================================================================================
<S> <C>
Canandaigua Wine Co. 9.8%
(Wine Manufacturer/Distributor)
Philip Morris Cos., Inc. 6.2%
(Food, Beverage & Tobacco Company)
MICROS Systems, Inc. 5.2%
(Electronic Cash Register Manufacturer)
Intel, Corp. 5.0%
(Microcomputer Components Manufacturer)
US Healthcare, Inc. 4.7%
(Health Maintenance Organizations)
RJR Nabisco Holdings Corp. 4.2%
(Food & Tobacco)
Scott Paper, Co. 4.1%
(Paper Company)
Seagate Technology, Inc. 4.0%
(Magnetic Disk Manufacturer)
Thorn Apple Valley, Inc. 3.3%
(Meat Packer)
National Semiconductor Corp. 3.1%
(Semiconductor Manufacturer)
<CAPTION>
TOP FIVE PURCHASES (APRIL THROUGH SEPT.) COST
================================================================================
<S> <C>
RJR Nabisco Holdings Corp. $9,384,739
(*)United Healthcare Corp. 9,314,619
Intel Corp. 7,745,100
US Healthcare, Inc. 7,355,665
*Motorola, Inc. 7,267,543
<CAPTION>
TOP FIVE SALES (APRIL THROUGH SEPT.) PROCEEDS
================================================================================
<S> <C>
(*)Green Tree Financial Corp. $14,296,493
(*)United Healthcare Corp. 10,895,134
(*)Motorola, Inc. 10,087,552
(*)Texas Instruments, Inc. 8,800,878
(*)Safecard Services, Inc. 6,786,422
<CAPTION>
TOP FIVE PERFORMERS (APRIL THROUGH SEPT.) PERCENT RETURN
================================================================================
<S> <C>
Ostex International, Inc. 125.3%
(Medical Diagnosis/Treatment Developer)
Anesta Corp. 114.9%
(Drug Dispensing)
LTX Corp. 88.1%
(Test Equipment)
(*)Uunet Technologies, Inc. 85.7%
(Internet Services)
(*)Compdent Corp. 78.8%
(Dental Insurance)
<CAPTION>
BOTTOM FIVE PERFORMERS (APRIL THROUGH SEPT.) PERCENT RETURN
================================================================================
<S> <C>
(*)Growth Environmental, Inc. -77.3%
(Environmental Consulting Company)
(*)Bollinger Industries, Inc. -64.2%
(Consumer Fitness Products)
(*)Cygne Designs, Inc. -50.0%
(Apparel Manufacturer)
Mikohn Gaming Corp. -32.7%
(Gaming Machines)
Ezcorp, Inc. -28.3%
(Pawn Shops)
</TABLE>
- --------------------------------------------------------------------------------
(*)Security sold, no longer in portfolio.
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- 5 -
<PAGE> 8
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HIGHLIGHTS
SAFECO GROWTH FUND (CONTINUED)
As of September 30, 1995
================================================================================
SAFECO GROWTH FUND
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS AS OF SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
[GRAPH 3]
Large: 36.6% ($1 Bil. and above)
Medium: 19.6% ($500 Mil. - $1 Bil.) [PIE CHART APPEARS HERE]
Small: 38.7% (Less than $500 Mil.)
Cash & Other Assets, Less Liabilites: 5.1%
================================================================================
SAFECO GROWTH FUND
TOP FIVE INDUSTRIES AS A PERCENT OF NET ASSETS
AS OF SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
[GRAPH 4]
Computer Systems: 17.4%
Food & Tobacco: 18.7%
Wine & Spirits: 9.8% [BAR CHART APPEARS HERE]
Health Care: 8.4%
Drugs & Hospital
Supplies: 6.5%
Portfolio of Investments
SAFECO GROWTH FUND
As of September 30, 1995
<TABLE>
<CAPTION>
SHARES OR PRINCIPAL AMOUNT MARKET VALUE (000'S)
================================================================================
<S> <C>
COMMON STOCKS - 94.9%
AUTOS & AUTO PARTS - 1.4%
64,000 (*)(-)Andros, Inc. $1,136
75,000 (*)Miller Industries, Inc. 1,312
BROADCAST MEDIA - 0.2%
73,500 (*)Children's Broadcasting Corp. 404
BUILDING MATERIALS - 3.2%
105,900 (*)(-)ABT Building Products Corp. 1,721
152,800 (*)Fibreboard Corp. 3,954
COMMERCIAL SERVICES - 1.5%
45,000 (*)Renters Choice, Inc. 1,378
124,000 (*)Youth Services International, Inc. 1,240
COMPUTER SYSTEMS - 17.4%
146,000 (-)Intel Corp. 8,778
257,000 (*)MICROS Systems, Inc. 9,188
25,200 (*)(-)Mizar, Inc. 230
145,000 (*)(-)Quantum Corp. 3,172
166,800 (*)Seagate Technology, Inc. 7,026
140,000 (*)(-)Western Digital Corp. 2,223
CONSUMER PRODUCTS & SUPPLIERS - 2.4%
202,000 (*)Celebrity, Inc. 1,414
169,100 (-)Fingerhut Co., Inc. 2,727
DRUGS & HOSPITAL SUPPLIES - 6.5%
70,000 (*)Anesta Corp. 761
255,000 (*)(-)Ethical Holdings PLC 2,295
81,300 (*)Maxxim Medical, Inc. 1,301
377,600 (*)Medex, Inc. 4,012
75,000 (*)(-)Ostex International, Inc. 1,678
165,200 (*)Penederm, Inc. 1,487
</TABLE>
- --------------------------------------------------------------------------------
(*) Non-income producing security.
(+) Affiliated issuer as defined by the Investment Company Act of 1940 (the
Fund owns 5% or more of the outstanding voting shares of the Company).
(-) New to Portfolio since last Report.
See Notes to Financial Statements
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<PAGE> 9
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Portfolio of Investments
SAFECO GROWTH FUND (CONTINUED)
As of September 30, 1995
<TABLE>
<CAPTION>
SHARES OR PRINCIPAL AMOUNT MARKET VALUE (000'S)
================================================================================
<S> <C>
ELECTRICAL EQUIPMENT & ELECTRONICS - 4.1%
135,000 (*)LTX Corp. $ 1,704
200,000 (*)(-)National Semiconductor Corp. 5,525
FINANCIAL SERVICES - 1.6%
16,885 (*)Alleghany Corp. 2,887
FOOD & TOBACCO - 13.7%
130,000 Philip Morris Cos., Inc. 10,855
227,200 (-)RJR Nabisco Holdings Corp. 7,356
313,000 (+)Thorn Apple Valley, Inc. 5,869
HEALTH CARE - 8.4%
115,000 (*)Amrion, Inc. 1,366
261,000 (*)(-)Mid Atlantic Medical Services, Inc. 5,122
235,000 (-)US Healthcare, Inc. 8,313
HOUSEHOLD PRODUCTS - 0.5%
150,000 (*)Media Arts Group, Inc. 956
LEISURE TIME - 4.5%
130,500 (*)Mikohn Gaming Corp. 750
111,700 Polaris Industries, Inc. 4,929
150,000 (*)(-)Station Casinos, Inc. 2,306
MANUFACTURING - 3.4%
62,500 Furon Co. 1,172
75,600 (-)Industrial Training Corp. 765
156,362 Mark IV Industries, Inc. 3,479
164,500 (*)(+)Speizman Industries, Inc. 596
OFFICE EQUIPMENT & SUPPLIES - 2.1%
197,000 (*)Day Runner, Inc. 3,645
PAPER PRODUCTS & SUPPLIES - 5.4%
106,500 (*)(-)Crown Vantage, Inc. 2,370
149,200 (-)Scott Paper, Co. 7,236
POLLUTION CONTROL - 3.3%
232,000 Landauer, Inc. 4,408
188,500 (*)Serv-Tech, Inc. 1,484
RESTAURANTS - 0.6%
160,000 (*)(-)NPC International, Inc. $ 1,040
RETAIL - 3.6%
181,000 (*)Damark International, Inc. 1,290
236,550 (*)Ezcorp, Inc. 1,272
210,670 (*)HaroldGs Stores, Inc. 2,028
284,500 (*)Tuesday Morning Corp. 1,778
TELECOMMUNICATIONS - 0.6%
45,000 (*)(-)Summa Four, Inc. 1,080
TRANSPORTATION - 0.7%
54,300 (*)Interpool, Inc. 937
13,000 (*)(-)Midwest Express Holdings, Inc. 293
WINE & SPIRITS - 9.8%
355,300 (*)(-)Canandaigua Wine Co. 17,276
--------
TOTAL COMMON STOCKS 167,524
--------
SHORT-TERM INVESTMENTS - 5.6%
INVESTMENT COMPANIES:
$4,838 Short-Term Investments Co.
(Prime Portfolio) 5
U.S. AGENCY NOTES:
9,920,000 Federal Home Loan Mortgage Corp.
6.30%, due 10/02/95 9,916
--------
TOTAL SHORT-TERM INVESTMENTS 9,921
--------
TOTAL INVESTMENTS - 100.5% 177,445
Liabilities, less Other Assets (962)
--------
NET ASSETS $176,483
========
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
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<PAGE> 10
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HIGHLIGHTS
SAFECO EQUITY FUND
AS OF SEPTEMBER 30, 1995
================================================================================
SAFECO EQUITY FUND
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS AS OF SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
[GRAPH 5]
Large: 75.9% ($1 Bil. and above)
Medium: 7.2% ($500 Mil. - Bil.) [PIE CHART APPEARS HERE]
Small: 12.4% (Less than $500 Mil.)
Cash & Other Assets, Less Liabilites: 4.5%
================================================================================
SAFECO EQUITY FUND
TOP FIVE INDUSTRIES AS A PERCENT OF NET ASSETS
AS OF SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
[GRAPH 6]
Food & Tobacco: 11.0%
Banking and Finance: 10.5%
[BAR CHART APPEARS HERE]
Utilites - Telephone: 9.5%
Electrical Equipment & Electronics: 6.7%
Computer Software: 5.8%
REPORT FROM THE FUND MANAGER
SAFECO EQUITY FUND
NOVEMBER 1, 1995
For the 12 months just ended, the SAFECO Equity Fund returned 21.59%.
Meanwhile, according to Lipper, the average growth and income fund returned
23.08%.
I took over the Fund in the first quarter of 1995. During that quarter our
Mexican companies crashed with the peso and 10 of the 11 REITs we owned lost
value. Thus, our most recent twelve-month return is below that of our peer group
and the S&P 500.
However, following that slow start, the Fund picked up enough speed to
outpace its peer group over the last six months, and the S&P 500 over the last
three months. For the quarter ended September 30, the Fund returned 8.45% to the
S&P's 7.94%. For the six months, it was Equity Fund 17.02%, average growth and
income fund 15.80%.
The portfolio (and its six-month results) now reflects my preference for
consistent growth and special situation companies.
I've found the most consistent growth records are held by larger, more
established companies such as PHILIP MORRIS and AT&T, our top holdings. Tobacco
sales overseas are booming. By the year 2000, half of PHILIP MORRIS' profits are
expected to come from outside the U.S.
We bought AT&T on strong fundamentals and the stock moved up on the news it
would be split into three companies -- a telephone service unit, a manufacturing
arm and a computer section. Meanwhile, our local telephone companies U S WEST
and GTE have given us consistent growth on the wire line side and rapid growth
on their non-traditional ventures.
FEDERAL NATIONAL MORTGAGE ASSOCIATION, another steady grower, buys mortgages
and holds or pools them into mortgage-backed securities. Given the favorable
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- 8 -
<PAGE> 11
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interest rate environment and the fact that people keep buying and refinancing
homes, Fannie Mae should be able to grow earnings.
Banking and finance stocks, 10.5% of our net assets, outperformed the broad
market, and so did technology. In our own portfolio, three of the five top
performers belonged to the high tech sector. Tech stocks will continue to
appreciate as computers further entrench themselves into our lives, but not
without some corrections. In fact, we bought INTEL during a price correction and
watched it fall a bit further. ADVANCED MICRO DEVICES slipped when it announced
product release delays.
Technology is an attractive industry, but even unattractive industries have
good companies worth owning. The purchase and sale decisions I make are not
based on a market or industry outlook, but on qualities the analysts and I see
in individual companies. We look for companies that have a franchise, superior
management and an ability to grow earnings and dividends at above average rates.
MOBIL OIL, for example, is a proven performer with an intelligent approach to
cost-cutting, and outstanding potential for appreciation. The 5.1% of net assets
we have invested in Mobil and TEXACO exposes us to the important, but currently
out-of-favor, oil sector.
SALOMON is a special situation. Here's a stock that is unloved and
out-of-favor. While Salomon has recovered from its government bond trading
scandal, its share price hasn't -- yet. We think the company has superior
earnings and appreciation potential.
[PHOTO] Rich Meagley
I believe in owning companies that I know well and have conviction in.
During the last six months I sold a number of minor positions, including several
real estate investment trusts. (REITs as a group underperformed the market. Of
those we kept, CROWN AMERICAN REALTY joined our bottom performers when it cut
its dividend and HGI REALTY made the list when its stock contracted under the
costs of acquiring another outlet mall REIT.)
We're currently at 55 stocks, down from 67 on March 31. These stocks belong
to companies that I am happy to have and to hold -- unless their growth stalls
or they become too pricey.
I'm not interested in long shots, I'm interested in consistent growth. I'm
managing Equity Fund not to shoot out the lights in any one year, but to shine
over the years.
/s/ Rich Meagley
- ---------------------------------
Rich Meagley, Equity Fund Manager
- --------------------------------------------------------------------------------
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, is a
Chartered Financial Analyst and is an avid golfer.
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<PAGE> 12
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HIGHLIGHTS
SAFECO EQUITY FUND (CONTINUED)
AS OF SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
TOP TEN HOLDINGS PERCENT OF NET ASSETS
================================================================================
<S> <C>
Philip Morris Cos, Inc. 4.6%
(Food, Beverage & Tobacco Company)
AT&T Corp. 3.3%
(Telephone Company)
Federal National Mortgage Association 3.3%
(Mortgage Broker)
NationsBank Corp 3.2%
(Bank)
Motorola, Inc. 3.2%
(Communications Equipment Manufacturing)
Knight-Ridder, Inc. 2.9%
(Newspaper Publisher)
Salomon, Inc. 2.9%
(Brokerage)
Hartford Steam Boiler Inspection & Insurance Co. 2.8%
(Insurance & Engineering Company)
PNC Bank Corp. 2.7%
(Bank)
GTE Corp. 2.6%
(Telephone Company)
<CAPTION>
TOP FIVE PURCHASES (APRIL THROUGH SEPT.) COST
================================================================================
<S> <C>
Federal National Mortgage Association $17,631,321
Mobil Corp. 14,407,128
Intel Corp. 12,614,790
Advanced Micro Devices, Inc. 10,630,040
Georgia Pacific Corp. 10,422,275
<CAPTION>
TOP FIVE SALES (APRIL THROUGH SEPT.) PROCEEDS
================================================================================
<S> <C>
(*)Maybelline, Inc. $9,953,625
(*)Glaxo Holdings plc (ADR) 8,781,352
(*)West One Bancorp 7,923,282
(*)Giddings & Lewis, Inc. 6,695,750
(*)Genzyme Corp. 6,670,628
<CAPTION>
TOP FIVE PERFORMERS (APRIL THROUGH SEPT.) PERCENT RETURN
================================================================================
<S> <C>
MacNeal-Schwendler Corp. 40.2%
(Software Products Manufacturer)
Motorola, Inc. 39.8%
(Communications Equipment Manufacturing)
Hewlett-Packard Co. 38.5%
(Computer Hardware)
Schering-Plough Corp. 38.5%
(Pharmaceutical Company)
Neostar Retail Group, Inc. 37.6%
(Specialty Software Retailer)
<CAPTION>
BOTTOM FIVE PERFORMERS (APRIL THROUGH SEPT.) PERCENT RETURN
================================================================================
<S> <C>
Crown American Realty Corp. -36.5%
(Real Estate)
Advanced Micro Devices, Inc. -17.8%
(Electronic Circuits Manufacturer)
Crompton & Knowles Corp. -5.9%
(Textile Dye Manufacturer)
Intel Corp. -4.7%
(Microcomputer Components Manufacturer)
HGI Realty, Inc. -4.0%
(Real Estate)
</TABLE>
- --------------------------------------------------------------------------------
(*)Security sold, no longer in portfolio.
================================================================================
- 10 -
<PAGE> 13
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO EQUITY FUND
AS OF SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SHARES OR PRINCIPAL AMOUNT MARKET VALUE (000'S)
===================================================================================
<S> <C>
COMMON STOCKS - 94.7%
BANKING & FINANCE - 10.5%
100,000 (-)First Interstate Bancorp. $10,075
200,000 Fleet Financial Group, Inc. 7,550
132,700 J.P. Morgan & Co., Inc. 10,268
284,000 NationsBank Corp. 19,099
575,000 PNC Bank Corp. 16,028
CHEMICALS - 2.6%
587,200 Crompton & Knowles Corp. 8,735
580,000 Ethyl Corp. 6,452
COMPUTER HARDWARE - 1.4%
98,000 Hewlett-Packard Co. 8,171
COMPUTER SOFTWARE - 5.8%
701,000 (*)Information Resources, Inc. 9,376
380,200 MacNeal-Schwendler Corp. 6,463
401,000 (*)Mentor Graphics Corp. 8,371
117,000 (*)Microsoft Corp. 10,588
DRUGS & HOSPITAL SUPPLIES - 3.2%
126,000 Schering-Plough Corp. 6,489
129,500 Warner-Lambert Co. 12,335
ELECTRICAL EQUIPMENT & ELECTRONICS - 6.7%
300,000 (*)(-)Advanced Micro Devices, Inc. 8,737
200,000 (-)Intel Corp. 12,025
250,000 Motorola, Inc. 19,094
FINANCIAL SERVICES - 3.3%
125,600 SEI Corp. 2,575
450,000 Salomon, Inc. 17,212
FOOD & TOBACCO - 10.2%
311,900 American Brands, Inc. $13,178
179,500 Dole Food Co., Inc. 6,215
330,000 Philip Morris Cos., Inc. 27,555
518,700 Smart & Final, Inc. 10,050
294,250 Tasty Baking Co. 4,193
HOUSEHOLD PRODUCTS - 3.5%
137,254 Block Drug Co., Inc. 5,319
100,000 (-)Colgate-Palmolive Co. 6,662
300,000 Paragon Trade Brands, Inc. 4,650
96,500 WD-40 Co. 4,077
INSURANCE - 5.6%
87,000 American International Group, Inc. 7,395
396,000 Equitable Cos., Inc. 9,702
345,400 Hartford Steam Boiler Inspection
& Insurance Co. 16,709
LEISURE TIME - 2.1%
326,400 Callaway Golf Co. 5,059
175,600 (-)Polaris Industries, Inc. 7,748
PAPER & FOREST PRODUCTS - 5.6%
125,000 (-)Georgia Pacific Corp. 10,937
154,000 Weyerhaeuser Co. 7,026
230,000 Willamette Industries, Inc. 15,352
PETROLEUM & PETROLEUM SERVICES - 5.1%
150,000 (-)Mobil Corp. 14,944
244,000 Texaco, Inc. 15,769
POLLUTION CONTROL - 0.9%
296,700 Landauer, Inc. 5,637
- --------------------------------------------------------------------------------
</TABLE>
(*) Non-income producing security.
(-) New to Portfolio since last Report.
See Notes to Financial Statements
================================================================================
- 11 -
<PAGE> 14
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO EQUITY FUND (CONTINUED)
AS OF SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SHARES OR PRINCIPAL AMOUNT MARKET VALUE (000'S)
================================================================================
<S> <C>
PUBLISHING - 2.9%
299,700 Knight-Ridder, Inc. $ 17,570
REAL ESTATE INVESTMENT TRUSTS - 2.9%
334,000 Crown American Realty Corp. 2,756
401,100 HGI Realty, Inc. 9,626
377,000 South West Property Trust 4,807
RETAIL - 3.7%
269,000 (-)Gap, Inc. 9,684
176,000 (-)May Department Stores Co. 7,700
287,700 (*)NeoStar Retail Group, Inc. 4,927
TELECOMMUNICATIONS - 3.3%
300,000 AT&T Corp. 19,725
TRANSPORTATION - 0.8%
200,000 Airborne Freight Corp. 4,900
U.S. FEDERAL AGENCIES - 3.3%
190,000 (-)Federal National Mortgage Association 19,665
UTILITIES-TELEPHONE - 9.5%
500,800 Century Telephone Enterprise Co. $ 15,212
403,400 GTE Corp. 15,833
253,700 (-)Houston Industries, Inc. 11,195
311,000 U S WEST, Inc. 14,656
WINE & SPIRITS - 1.8%
300,000 Seagram Co., Ltd. 10,763
--------
TOTAL COMMON STOCKS 566,839
--------
PREFERRED STOCKS - 0.8%
FOOD & TOBACCO - 0.8%
122,000 ConAgra, Inc. $1.6875 Convertible 4,911
--------
TOTAL PREFERRED STOCKS 4,911
--------
SHORT-TERM INVESTMENTS - 5.8%
U.S. AGENCY NOTES:
$34,487,925 Federal Home Loan Mortgage Corp.
6.30%, due 10/02/95 34,488
--------
TOTAL SHORT-TERM INVESTMENTS 34,488
--------
TOTAL INVESTMENTS - 101.3% 606,238
Liabilities, less Cash and Other Assets (7,656)
--------
NET ASSETS $598,582
========
</TABLE>
See Notes to Financial Statements
================================================================================
- 12 -
<PAGE> 15
================================================================================
REPORT FROM THE FUND MANAGER
SAFECO INCOME FUND
NOVEMBER 1, 1995
So far, 1995 has been a great year for the markets and for SAFECO Income
Fund. For the 12 months ended September 30, 1995 the Fund returned 21.04%
beating its equity income peer group's average return of 19.99%. For the six
months ending September 30, the SAFECO Income Fund's total return was 14.74%.
Over the 12 months, the Fund's dividend income was 4.3% while the S&P Index
yielded 2.4%.
Increases in corporate earnings, subdued price inflation, lower interest
rates and modest economic growth sustained rallies in both the stock and bond
markets over the last six months.
Our large stake in convertible securities -- which do best when both the
stock and bond markets are rising -- helped us outperform our peer group and
beat the S&P yield. They also kept us from matching the S&P's total return as
the S&P is comprised entirely of common stocks.
(Usually issued as bonds or preferred stock, convertibles are generally
convertible to common stock at a set price. They pay a higher yield than the
issuer's common stock, and provide greater price appreciation potential than its
bonds.)
Our 9.6% weighting in banking and finance also contributed to our fine
performance. Given the favorable interest rate environment, banks' earnings
improved beyond expectations. NORWEST common stock was up 29%, while
BANKAMERICA, BOATMEN'S and KEYCORP were each up 22% for the six month period.
The WASHINGTON MUTUAL convertible preferred was up 18%. Another financial
holding that did well was the TRAVELERS convertible preferred, up 24%.
Telephone stocks (9.4% of net assets) did well due to relatively stable
earnings and restructuring activity. GTE is especially attractive as its local
telephone business is growing consistently and its cellular holdings are growing
rapidly.
[PHOTO] ARLEY HUDSON
AT&T CORPORATION has increased 30% since we bought it in late May. The
company appears to have positioned itself to produce strong earnings growth.
Our railroad stocks rose on continuing earnings growth, good cost controls
and new merger activity. UNION PACIFIC was up 21%, while the NORFOLK SOUTHERN
was up 12%. The BURLINGTON NORTHERN convertible preferred gained 20%.
Drugs outperformed the overall market as investors sought stable,
non-cyclical investments. MERCK was up 27% over the six months. AMERICAN HOME
PRODUCTS completed its merger with AMERICAN CYANAMID, began cutting costs and
climbed 18%. Most of the new company's products are over-the-counter and not
subject to the price pressures pharmaceutical drugs are facing.
My largest purchase of the period was another non-cyclical consumer products
company, COLGATE-PALMOLIVE. Colgate gives us some international diversification
as two-thirds of its operating profits now come from outside North America.
WEYERHAEUSER is benefiting by the recovery in paper products and ready to
benefit by an
(Continued on next page.)
================================================================================
- 13 -
<PAGE> 16
================================================================================
REPORT FROM THE INCOME FUND MANAGER (CONTINUED)
increase in housing starts. Its large private holdings make this company less
subject to the expensive restrictions its competitors face in the national
forests.
The Fund's two holdings in high technology did very well as this sector has
led the market so far in 1995. The NATIONAL SEMICONDUCTOR Convertible preferred
was up 56% for the six months. And our SEAGATE TECHNOLOGY convertible debenture
is up 41% since we bought it in April.
As share price gains were driven by good and growing earnings, so share
price setbacks followed earnings disappointments and lowered expectations.
MINNESOTA MINING & MANUFACTURING fell 2% due to a disappointing earnings
report. Prices of real estate investment trusts were flat, or down slightly, due
to expectations of slower earnings growth. As a group, our oil stocks (8.8% of
net assets) posted meager gains or losses depending on individual company
earnings.
The gas and electric utility holdings in the portfolio were flat due to lack
of earnings direction. However, I did buy HOUSTON INDUSTRIES, one of the largest
electric utilities in Texas, when it received a favorable rate decision and
announced it would use proceeds from the sale of its cable TV operations to
retire debt and buy back stock.
In addition to buying the Seagate previously mentioned, I bought a number of
other convertible securities. They included new positions in REPAP ENTERPRISES,
a Canadian paper producer benefiting by the weak Canadian dollar as it sells
into the world market; AMERICAN GENERAL, a provider of annuities, consumer
credit and life insurance; ADVANTA CORPORATION, a credit card company involved
in residential mortgages and small business lending; and GENERAL SIGNAL, a
supplier of industrial, electrical control and telecommunications equipment and
systems.
Even with the additional convertibles, the Fund's assets remain about 65%
invested in stocks. In selecting stocks I always look for value. That value
coupled with our relatively high yield reduces our downside risk should the
market weaken.
The stock market has outperformed most people's expectations to date in
1995, and amazingly, earnings growth has kept pace. That's kept price earnings
multiples at reasonable levels. The S&P Index is currently selling at about 15
times estimates of 1995 earnings and 13.5 times estimates of 1996 earnings. By
historical standards, these valuations are average and less than average. My
best estimate is that earnings multiples will remain at current levels and that
the market will continue to advance, albeit at a slower rate. Rest assured, our
portfolio is positioned to move with it.
/s/ Arley Hudson
- ---------------------------------
Arley Hudson, Income Fund Manager
- --------------------------------------------------------------------------------
Vice President Arley Hudson joined SAFECO in 1973. He has managed SAFECO Income
Fund since 1978, is a Chartered Financial Analyst and is a graduate of the
University of Washington School of Banking and Finance.
================================================================================
- 14 -
<PAGE> 17
================================================================================
HIGHLIGHTS
SAFECO INCOME FUND (CONTINUED)
As of September 30, 1995
<TABLE>
<CAPTION>
TOP TEN HOLDINGS PERCENT OF NET ASSETS
================================================================================
<S> <C>
GTE Corp. 4.0%
(Telephone Company)
GATX Corp. $3.875 Cumulative Convertible 2.8%
(Railway & Terminal Operator)
American Home Products Corp. 2.7%
(Pharmaceuticals)
Weyerhaeuser Co. 2.5%
(Forest Products)
Texaco, Inc. 2.4%
(Oil Company)
Royal Dutch Petroleum Co. 2.3%
(Oil Company)
ConAgra, Inc. $1.6875 Convertible 2.2%
(Foods)
Union Pacific Corp. 2.1%
(Transportation)
Minnesota Mining & Manufacturing 2.1%
(Office Products)
AGCO Corp. $25 Depository Convertible Exchangeable 2.1%
(Farm Machinery)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES (APRIL THROUGH SEPT.) COST
================================================================================
<S> <C>
Colgate-Palmolive Co. $4,058,600
American General Corp. $3.00 Convertible 3,287,715
Houston Industries, Inc. 3,109,450
AT&T Corp. 3,032,350
Advanta Corp. Class B Series 95 SAILS 2,277,625
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES (APRIL THROUGH SEPT.) PROCEEDS
================================================================================
<S> <C>
*Amoco Canada Petroleum Co., Ltd. 7.375%, 9/01/13 $5,187,500
*Nynex Corp. 2,782,882
*West One Bancorp 2,698,125
Ford Motor Co. 8.40% Cumulative Convertible 2,329,885
*Capstone Capital Trust, Inc. 2,160,000
- --------------------------------------------------------------------------------
</TABLE>
*Security sold, no longer in portfolio.
<TABLE>
<CAPTION>
TOP FIVE PERFORMERS (APRIL THROUGH SEPT.) PERCENT RETURN
================================================================================
<S> <C>
RJR Nabisco Holdings Corp. $0.835 Convertible 62.9%
(Food & Tobacco)
National Semiconductor 3.25% Convertible 56.1%
(Semiconductor Manufacturer)
Seagate Technology, Inc. 5.00%, due 11/01/03 41.1%
(Magnetic Disk Manufacturer)
AGCO Corp. $25 Depository Convertible Exchangeable 38.8%
(Farm Machinery)
*Paradigm Technology, Inc. 32.1%
(Semiconductor Manufacturer)
</TABLE>
<TABLE>
<CAPTION>
BOTTOM FIVE PERFORMERS (APRIL THROUGH SEPT.) PERCENT RETURN
================================================================================
<S> <C>
*RJR Nabisco Holdings Corp. -39.0%
(Food & Tobacco)
Sears Roebuck & Co. -30.9%
(Retail Chain)
*Summit Health, Ltd. 7.50%, due 4/01/03 -19.5%
(Healthcare Provider)
*Allstate Corp. -10.1%
(Insurance Co.)
Repap Enterprises, Inc. 8.50%, due 8/01/97 -9.3%
(Paper Manufacturer)
</TABLE>
================================================================================
-15-
<PAGE> 18
================================================================================
HIGHLIGHTS
SAFECO INCOME FUND
As of September 30, 1995
================================================================================
SAFECO INCOME FUND
NET ASSET CAPITALIZATION WEIGHTINGS
(CAPITALIZATION OF COMMON & PREFERRED ONLY)
AS A PERCENT OF NET ASSETS AS OF SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
[GRAPH 7]
1. Large: 51.1% ($1 Bil. and above.)
2. Medium: 5.9% ($500 Mil. - $1 Bil.)
3. Small: 21.5% (Less than $500 Mil.) [PIE CHART APPEARS HERE]
4. Bonds: 17.3%
5. Cash & Other Assets, Less Liabilities: 4.2%
================================================================================
SAFECO INCOME FUND
TOP FIVE INDUSTRIES AS A PERCENT OF NET ASSETS
AS OF SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
[GRAPH 8]
Transportation: 9.8%
Banking & Finance: 9.6%
Utilities - Telephone: 9.4% [BAR CHART APPEARS HERE]
Petroleum/Services: 8.9%
Paper & Forest Products: 6.4%
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of September 30, 1995
<TABLE>
<CAPTION>
Shares Or Principal Amount Market Value (000'S)
=================================================================================
<S> <C>
COMMON STOCKS - 61.5%
BANKING & FINANCE - 7.0%
71,271 (-)BankAmerica Corp. $ 4,267
70,000 Boatmen's Bancshares, Inc. 2,590
60,250 Keycorp 2,064
100,000 Norwest Corp. 3,275
105,000 US Bancorp 2,966
CHEMICALS - 1.0%
35,000 Grace (WR) and Co. 2,336
CONGLOMERATES - 2.1%
80,000 Minnesota Mining & Manufacturing Co. 4,520
DRUGS & HOSPITAL SUPPLIES - 3.7%
70,000 American Home Products Corp. 5,941
40,000 Merck and Co., Inc. 2,240
ELECTRICAL EQUIPMENT & ELECTRONICS - 1.5%
50,000 General Electric Co. 3,187
FOOD & TOBACCO - 1.0%
50,000 American Brands, Inc. 2,113
HOUSEHOLD PRODUCTS - 2.8%
60,000 (-)Colgate-Palmolive Co. 3,998
50,000 WD-40 Co. 2,112
INSURANCE - 1.9%
85,000 Hartford Steam Boiler Inspection
& Insurance Co. 4,112
LEISURE TIME - 3.2%
89,900 Polaris Industries, Inc. 3,967
100,000 Sturm Ruger & Co., Inc. 3,125
MANUFACTURING - 0.7%
73,068 Mark IV Industries, Inc. 1,626
- ---------------------------------------------------------------------------------
</TABLE>
(-)New to Portfolio since last Report.
See Notes to Financial Statements
================================================================================
-16-
<PAGE> 19
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND (CONTINUED)
As of September 30, 1995
<TABLE>
<CAPTION>
Shares Or Principal Amount Market Value (000'S)
==================================================================================
<S> <C>
PAPER & FOREST PRODUCTS - 4.0%
50,000 Kimberly-Clark Corp. $ 3,356
120,000 Weyerhaeuser Co. 5,475
PETROLEUM & PETROLEUM SERVICES - 7.5%
24,000 Atlantic Richfield Co. 2,577
50,000 Exxon Corp. 3,612
40,000 Royal Dutch Petroleum Co. 4,910
80,000 Texaco, Inc. 5,170
POLLUTION CONTROL - 1.1%
125,000 Landauer, Inc. 2,375
REAL ESTATE INVESTMENT TRUSTS - 4.8%
150,400 HGI Realty, Inc. 3,610
62,000 Kranzco Realty Trust 1,046
150,000 Mark Centers Trust Co. 1,838
148,600 Omega Health Care Investors 3,975
RETAIL - 3.1%
30,000 Blair Corp. 1,020
70,000 J.C. Penney Co., Inc. 3,474
62,039 Sears Roebuck & Co. 2,288
TRANSPORTATION - 3.2%
30,000 Norfolk & Southern Corp. 2,242
70,000 Union Pacific Corp. 4,638
UTILITIES-ELECTRIC DISTRIBUTION - 2.2%
58,171 Eastern Utilities Associates 1,411
75,000 (-)Houston Industries, Inc. 3,309
UTILITIES-GAS DISTRIBUTION - 1.3%
90,000 Northwest Natural Gas Co. 2,790
UTILITIES-TELEPHONE - 9.4%
60,000 (-)AT & T Corp. $ 3,945
35,000 Bell Atlantic Corp. 2,148
30,000 BellSouth Corp. 2,194
220,000 GTE Corp. 8,635
75,000 U S WEST, Inc. 3,534
-------
TOTAL COMMON STOCKS 134,011
-------
PREFERRED STOCKS - 17.0%
AUTOS & AUTO PARTS - 1.2%
25,000 Ford Motor Co.
8.40% Cumulative Convertible 2,559
BANKING & FINANCE - 1.9%
40,000 Washington Mutual Savings Bank Series C
6.00% Convertible 4,210
ELECTRONICS - 0.9%
20,000 National Semiconductor
3.25% Convertible 2,000
FINANCIAL-MISC. - 1.2%
60,000 (-)Advanta Corp. Class B Series 95 SAILS 2,520
FOOD & TOBACCO - 3.5%
120,000 ConAgra, Inc. $1.6875 Convertible 4,830
400,000 RJR Nabisco Holdings Corp.
$0.835 Convertible 2,700
INSURANCE - 2.4%
62,000 (-)American General Corp. $3.00 Convertible 3,426
25,000 Travelers, Inc. Series B 5.50% Convertible 1,850
</TABLE>
See Notes to Financial Statements
================================================================================
-17-
<PAGE> 20
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND (CONTINUED)
As of September 30, 1995
<TABLE>
<CAPTION>
Shares Or Principal Amount Market Value (000'S)
==================================================================================
<S> <C>
PAPER & FOREST PRODUCTS - 1.6%
70,400 James River Corp. of Virginia
$3.375 Cumulative
Convertible Exchangeable $ 3,485
TRANSPORTATION - 4.3%
44,400 Burlington Northern, Inc. Series A
6.25% Cumulative Convertible 3,430
100,000 GATX Corp.
$3.875 Cumulative Convertible 6,050
--------
TOTAL PREFERRED STOCKS 37,060
--------
CORPORATE BONDS - 17.3%
Convertible Subordinated Debentures:
BANKING & FINANCE - 0.7%
$1,500,000 Landmark Bancshares Corp.
8.75%, due 11/01/98 1,470
COMPUTER SYSTEMS - 1.2%
1,600,000 Seagate Technology, Inc. 5.00%, 11/01/03 2,674
CONGLOMERATES - 1.9%
4,132,000 Cooper Industries, Inc.
7.05%, due 1/01/15 4,158
CONSUMER PRODUCTS - 0.8%
1,515,000 Interface, Inc. 8.00%, due 9/15/13 1,640
DRUGS - 1.2%
2,400,000 Bindley Western Industries, Inc.
6.50%, due 10/01/02 2,610
ELECTRICAL EQUIPMENT & ELECTRONICS - 2.2%
2,000,000 (-)General Signal Corp. 5.75%, due 6/02/02 2,045
2,800,000 MagneTek, Inc. 8.00%, due 9/15/01 2,831
ENTERTAINMENT - 1.0%
2,182,750 Time Warner, Inc. 8.75%, due 1/10/15 2,281
MACHINERY - 2.1%
$1,250,000 (-)AGCO Corp. 6.50%, due 6/01/08 4,503
PAPER & FOREST PRODUCTS - 0.8%
1,615,000 (-)Repap Enterprises, Inc. 8.50%, due 8/01/97 1,704
PETROLEUM & PETROLEUM SERVICES - 1.4%
2,500,000 Pennzoil Co. 6.50%, due 1/15/03 2,972
RETAIL - 1.7%
1,500,000 Eagle Hardware & Garden, Inc.
6.25%, due 3/15/01 1,161
2,500,000 Price/Costco, Inc. 6.75%, due 3/01/01 2,537
TRANSPORTATION - 2.3%
2,150,000 Alaska Air Group, Inc.
6.875%, due 6/15/14 1,758
3,700,000 Interpool, Inc. 5.25%, due 12/15/18 3,321
--------
TOTAL CORPORATE BONDS 37,665
--------
SHORT-TERM INVESTMENTS - 4.2%
INVESTMENT COMPANIES:
9,157,681 Short-Term Investments Co.
(Prime Portfolio) 9,158
--------
TOTAL SHORT-TERM INVESTMENTS 9,158
--------
TOTAL INVESTMENTS - 100.0% 217,894
Liabilities, less Other Assets (24)
--------
NET ASSETS $217,870
========
- ----------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
================================================================================
-18-
<PAGE> 21
================================================================================
REPORT FROM THE FUND MANAGER
SAFECO NORTHWEST FUND
November 1, 1995
The SAFECO Northwest Fund delivered a 19.01% total return for the 12 months
ended September 30, 1995. The Northwest 50(TM) Index gained 25.57% for the
period, while the average growth fund gained 25.87% according to Lipper. For the
six months just ended, the Fund returned 15.16%.
While a 19% return is noteworthy, a number of poor performers and an initial
poor showing by the banks kept us from keeping pace with our benchmarks. As the
period closed, I abandoned several laggards, liquidating our positions in: EAGLE
HARDWARE (wounded in the hardware store war), ADVANCED TECHNOLOGY LABORATORIES
(the price recovered but additional gains were unlikely), MK RAIL (the outlook
for its parent MORRISON KNUDSON is dismal) and PROCYTE (the biotech company
whose placebo appeared to work as well as its product).
Banks and savings and loan stocks, which comprise 24% of net assets, helped
us and hurt us. After dragging down performance for the first half of the year
ending September 30, all our financial holdings were up over 20% for the second
half -- except US BANCORP whose share price was dampened by costs associated
with its acquisition of WEST ONE. Conversely, West One's share price skyrocketed
and we sold, choosing to take profits, rather than the additional US Bancorp
stock we'd receive in the merger.
HILLHAVEN also climbed when it became an acquisition target. (I sold the
Tacoma-based health care provider in early October when it was taken over by
VENCOR, a Kentucky holding company.)
Our retail positions comprise 10.6% of net assets. The video rental store
HOLLYWOOD ENTERTAINMENT, experienced its first price correction since its stock
was offered, and I took the opportunity to buy more. PRICE/COSTCO stock
appreciated enough to return it to our top ten holdings. Comparable store sales
have trended up while new store openings and the expenses associated with them
are down.
[PHOTO] Charles R. Driggs
ALBERTSON'S, a consistent grower and one of the best grocery stocks
available, maintains its place in our portfolio, as does BOEING. Boeing stock
moved far and fast, climbed a little ahead of itself and fell off its 52-week
high. Still, it makes sense to hold this stock, as orders are growing.
NIKE has had a good run-up, 48.9% in six months. Shoe and apparel sales are
brisk, domestically and in Europe. Margins are high and orders for future
product are heavy.
MICROSOFT'S stock has begun to cycle with product releases. It climbed to
$109 in late July, in anticipation of the August release of Windows '95. The
stock ended September at $90. During the run-up, I took profits, reducing the
size of our position from 8.5% to 5% of net assets. Microsoft remains a core
holding for us. This is a huge, but still growing company that's done a great
job capitalizing on trends.
(Continued on next page.)
================================================================================
-19-
<PAGE> 22
================================================================================
REPORT FROM THE NORTHWEST FUND MANAGER (CONTINUED)
Delays in the night goggle manufacturer FLIR'S delivery schedule took a
heavy toll on its stock price, but our other technology stocks, most notably
SEMITOOL, the silicon wafer cleaning company, were outstanding performers. From
Kalispell, Montana, Semitool rode the wafer/chip shortage wave to be our
run-away winner.
We initiated positions in LATTICE SEMICONDUCTOR and EGGHEAD. Egghead, a
specialty software retailer with 179 stores in the U.S. and Canada as well as
catalog sales, has languished for some time. But the company's turnaround plans,
which include a move to Spokane to cut costs, appear promising. I bought a
little early at $11. Since then, the stock has stabilized at $8.
Lattice Semiconductor designs and develops programmable logic devices. Its
stock fell when the company's key silicon wafer supplier announced potential
delivery problems. We bought and it's moved up 32.5% from there.
We were unable to acquire a full position in the initial public offering of
REDHOOK ALE as its stock shot out of our price range. I am holding another IPO,
R-B RUBBER PRODUCTS of McMinnville, Oregon. R-B processes used tires into rubber
surfaces.
BARRETT BUSINESS SERVICES and FLOW INTERNATIONAL are also new to the
portfolio. I bought Barrett when the stock dipped on disappointing earnings.
Based in Portland, Barrett provides 4,500 client companies with temporary and
leased staff services. Sales have grown at 39% per year and earnings at 55% per
year over the last five years. Flow International, a company that uses water-jet
technology, is appreciating under new management. It was up 37.8% for the
period.
We expanded our existing holdings in MONACO COACH, PARAGON TRADE BRANDS,
SECURITY FEDERAL, WHOLESOME & HEARTY FOODS, MACHEEZMO MOUSE RESTAURANTS and
ARROW TRANSPORTATION during the period. The latter two proved disappointing.
Arrow expanded its carrying capacity but hasn't been able to grow sales to
utilize it. Meanwhile, there is some doubt that the restaurant chain can
maintain its healthy-fare niche.
Though the employment and personal income outlook for Puget Sound have been
adjusted downward, they still outpace national averages. Furthermore, the
Northwest stretches far beyond Puget Sound. On the whole, we have a regional
economy that is diverse and strong. I view our portfolio as I do the Northwest
economy -- with a great deal of upside potential. We've cleaned out the weak
links and are holding shares of what we think are the Northwest's finest
companies, priced to appreciate.
/s/Charles R. Driggs
- --------------------
Charles R. Driggs, Northwest Fund Manager
- --------------------------------------------------------------------------------
Charles Driggs has 27 years in securities analysis in the Northwest. He
joined SAFECO in 1984 as a utility and financial services expert and took the
helm of SAFECO Northwest Fund in November 1992. Driggs holds a Bachelor of
Science in Investments from Portland State University in Oregon.
================================================================================
-20-
<PAGE> 23
================================================================================
HIGHLIGHTS
SAFECO NORTHWEST FUND (CONTINUED)
As of September 30, 1995
<TABLE>
<CAPTION>
TOP TEN HOLDINGS PERCENT OF NET ASSETS
================================================================================
<S> <C>
Hillhaven Corp. 6.9%
(Health Care Provider)
Boeing Co. 6.8%
(Aerospace)
NIKE, Inc. (Class B) 5.8%
(Athletic & Leisure Footware & Apparel)
US Bancorp 5.3%
(Bank)
Albertson's, Inc. 5.1%
(Grocery Chain)
Washington Mutual Savings Bank 5.0%
(Savings & Loan)
Microsoft Corp. 4.5%
(Personal Computer Software)
Price/Costco, Inc. 4.1%
(Wholesale Membership Warehouse)
Lattice Semiconductor Corp. 4.1%
(Systems Software Developer)
Longview Fibre Co. 3.8%
(Forestry)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES (APRIL THROUGH SEPT.) COST
================================================================================
<S> <C>
Lattice Semiconductor Corp. $1,226,000
Monaco Coach Corp. 662,500
Egghead, Inc. 527,340
Macheezmo Mouse Restaurants, Inc. 518,125
Barrett Business Services, Inc. 434,248
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES (APRIL THROUGH SEPT.) PROCEEDS
================================================================================
<S> <C>
*West One Bancorp $1,813,876
Microsoft Corp. 980,000
Mentor Graphics Corp. 755,053
*Eagle Hardware & Garden, Inc. 572,875
*Advanced Technology Laboratories, Inc. 452,250
- --------------------------------------------------------------------------------
</TABLE>
*Security sold, no longer in portfolio.
<TABLE>
<CAPTION>
TOP FIVE PERFORMERS (APRIL THROUGH SEPT.) PERCENT RETURN
================================================================================
<S> <C>
Semitool, Inc. 78.6%
(Silicon Chip Manufacturer)
Redhook Ale Brewery, Inc. 73.6%
(Brewery)
NIKE, Inc. (Class B) 48.9%
(Athletic & Leisure Footware & Apparel)
Flow International Corp. 37.8%
(Cleaning Systems Manufacturer)
Cascade Bancorp 37.5%
(Bank)
</TABLE>
<TABLE>
<CAPTION>
BOTTOM FIVE PERFORMERS (APRIL THROUGH SEPT.) PERCENT RETURN
================================================================================
<S> <C>
Macheezmo Mouse Restaurants, Inc. -44.1%
(Restaurant Chain)
Arrow Transportation Co. -25.5%
(Liquid Chemical Transporter)
Flir Systems, Inc. -21.0%
(Night Vision Detection Equipment)
*MK Rail Corp. -12.1%
(Locomotive Manufacturer)
Egghead, Inc. -11.4%
(Retail Software & Hardware)
</TABLE>
================================================================================
-21-
<PAGE> 24
================================================================================
HIGHLIGHTS
SAFECO NORTHWEST FUND
As of September 30, 1995
================================================================================
SAFECO NORTHWEST FUND
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS AS OF SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
[GRAPH 9]
1. Large: 49.2% ($1 Bil. and above.)
2. Medium: 12.4% ($500 Mil.- $1 Bil.)
[PIE CHART APPEARS HERE]
3. Small: 37.9% (Less than $500 Mil.)
4. Cash & Other Assets, Less Liabilities: 0.5%
================================================================================
SAFECO NORTHWEST FUND
TOP FIVE INDUSTRIES AS A PERCENT OF NET ASSETS
AS OF SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
[GRAPH 10]
Banks: 12.3%
Savings & Loans/Savings Banks: 11.8%
Retail-Other: 10.6% [BAR CHART APPEARS HERE]
Health Care: 8.8%
Electrical Equipment & Electronics: 8.2%
PORTFOLIO OF INVESTMENTS
SAFECO NORTHWEST FUND
As of September 30, 1995
<TABLE>
<CAPTION>
SHARES OR PRINCIPAL AMOUNT MARKET VALUE (000'S)
=================================================================================
<S> <C>
COMMON STOCKS - 99.6%
AEROSPACE - 6.8%
40,000 Boeing Co. $2,730
APPAREL MANUFACTURING - 5.8%
21,000 NIKE, Inc. (Class B) 2,334
AUTOS - 2.5%
77,000 * Monaco Coach Corp. 972
5,000 * SMC Corp. 50
BANKS - 12.3%
24,200 * Cascade Bancorp 363
36,450 Keycorp 1,248
63,000 Northrim Bank 520
75,000 US Bancorp 2,119
37,800 West Coast Bancorp, Inc. 671
BEVERAGES - 0.2%
2,300 *(-)Redhook Ale Brewery, Inc. 68
BUILDING MATERIALS - 2.6%
20,000 * BMC West Corp. 280
40,000 TJ International, Inc. 760
CHEMICALS - 0.2%
25,000 *(-)Concep, Inc. 78
COMMERCIAL SERVICES - 1.2%
31,200 *(-)Barrett Business Services, Inc. 476
COMPUTER SOFTWARE - 5.3%
10,000 * Mentor Graphics Corp. 209
20,100 * Microsoft Corp. 1,819
10,000 * ThrustMaster, Inc. 85
- ---------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(-) New to Portfolio since last Report.
See Notes to Financial Statements
================================================================================
-22-
<PAGE> 25
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO NORTHWEST FUND (CONTINUED)
As of September 30, 1995
<TABLE>
<CAPTION>
SHARES OR PRINCIPAL AMOUNT MARKET VALUE (000'S)
=================================================================================
<S> <C>
ELECTRICAL EQUIPMENT & ELECTRONICS - 8.2%
93,000 * Flir Systems, Inc. $ 1,139
40,000 *(-)Lattice Semiconductor Corp. 1,625
5,000 * Merix Corp. 160
15,000 * Semitool, Inc. 375
FOOD - 1.9%
68,100 * Wholesome & Hearty Foods, Inc. 749
HEALTH CARE - 8.8%
92,080 * Hillhaven Corp. 2,785
27,000 * Spacelabs Medical, Inc. 763
HOUSEHOLD PRODUCTS - 1.9%
50,000 * Paragon Trade Brands, Inc. 775
INDUSTRIAL PRODUCTS & SUPPLIERS - 2.8%
81,500 Univar Corp. 1,141
MACHINERY-DIVERSIFIED - 1.1%
37,600 *(-)Flow International Corp. 437
PAPER & FOREST PRODUCTS - 3.8%
101,300 Longview Fibre Co. 1,545
POLLUTION CONTROL - 0.2%
16,000 *(-)R-B Rubber Products, Inc. 68
RESTAURANTS - 1.1%
115,000 * Macheezmo Mouse Restaurants, Inc. 431
RETAIL-GROCERS - 7.1%
60,000 Albertson's, Inc. 2,048
57,000 * Carr-Gottstein Foods Co. 342
21,684 Quality Food Centers, Inc. 450
RETAIL-OTHER - 10.6%
62,000 * Hollywood Entertainment Corp. 1,329
20,000 Nordstrom, Inc. 835
95,000 * Price/Costco, Inc. 1,627
57,500 *(-)Egghead, Inc. 467
SAVINGS & LOANS / SAVINGS BANKS - 11.8%
51,175 Interwest Savings Bank 793
20,000 Security Bancorp 405
114,345 * Sterling Financial Corp. 1,529
75,000 Washington Mutual Savings Bank 1,988
TRANSPORTATION - 3.4%
20,000 Airborne Freight Corp. 490
140,000 * Arrow Transportation Co. 350
20,000 Expeditors International of Washington, Inc. 540
-------
TOTAL COMMON STOCKS 39,968
-------
SHORT-TERM INVESTMENTS - 1.7%
INVESTMENT COMPANIES:
$686,775 Short-Term Investments Co.
(Prime Portfolio) 687
-------
TOTAL SHORT-TERM INVESTMENTS 687
-------
TOTAL INVESTMENTS - 101.3% 40,655
Liabilities, less Other Assets (515)
-------
NET ASSETS $40,140
=======
- ---------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
================================================================================
-23-
<PAGE> 26
==============================================================================
STATEMENTS OF ASSETS AND LIABILITIES
As of September 30, 1995
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
GROWTH EQUITY INCOME NORTHWEST
(In Thousands, Except Per-Share Amounts) FUND FUND FUND FUND
=====================================================================================================================
<S> <C> <C> <C> <C>
ASSETS
Investments, at Value
Common Stocks (Identified Cost $135,511,
$467,393, $102,689, and $29,179, respectively) $161,059 $566,839 $134,011 $ 39,968
Common Stocks of Affiliates
(Identified Cost $8,418) (Note 4) 6,465 -- -- --
-------- -------- -------- --------
Total Common Stocks 167,524 566,839 134,011 39,968
Preferred Stocks (Identified Cost $3,641,
and $31,502, respectively) -- 4,911 37,060 --
Corporate Bonds (Identified Cost $34,449) -- -- 37,665 --
Short-Term Investments 9,921 34,488 9,158 687
-------- -------- -------- --------
Total Investments 177,445 606,238 217,894 40,655
Cash -- 4 -- --
Receivables
Trust Shares Sold 4,152 25 368 6
Dividends and Interest 557 1,825 1,360 60
Investment Securities Sold 2,473 -- -- --
Deferred Organization Expense (Note 5) -- -- -- 1
-------- -------- -------- --------
Total Assets 184,627 608,092 219,622 40,722
-------- -------- -------- --------
LIABILITIES
Payables
Investment Securities Purchased 4,949 5,723 -- 214
Dividends 3,050 3,051 1,598 321
Investment Advisory Fees 95 279 116 26
Trust Shares Redeemed -- 354 -- --
Organization Expense -- -- -- 1
Other 50 103 38 20
-------- -------- -------- --------
Total Liabilities 8,144 9,510 1,752 582
-------- -------- -------- --------
NET ASSETS $176,483 $598,582 $217,870 $ 40,140
======== ======== ======== ========
Shares Outstanding 11,150 39,097 11,400 2,786
======== ======== ======== ========
Net Asset Value Per Share
(Net Assets Divided by Trust Shares Outstanding) $ 15.83 $ 15.31 $ 19.11 $ 14.41
======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
===============================================================================
-24-
<PAGE> 27
================================================================================
STATEMENTS OF OPERATIONS
For the Year Ended September 30, 1995
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
GROWTH EQUITY INCOME NORTHWEST
(IN THOUSANDS) FUND FUND FUND FUND
========================================================================================================================
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from Unaffiliated Issuers $ 1,809 $ 15,034 $ 7,964 $ 467
Dividends from Affiliates (Note 4) 66 224 -- --
Interest 292 1,378 2,699 47
--------- --------- --------- ---------
Total Investment Income 2,167 16,636 10,663 514
--------- --------- --------- ---------
EXPENSES
Investment Advisory Fees (Note 5) 1,107 3,151 1,348 269
Shareholder Servicing Costs (Note 5) 305 1,018 298 97
Loan Interest 128 28 -- --
Custodian Fees 39 51 23 10
Reports to Shareholders 15 46 19 5
Legal and Auditing Fees 17 26 17 13
Trustees' Fees 4 5 4 4
Amortization of Organization Expenses -- -- -- 4
--------- --------- --------- ---------
Total Expenses 1,615 4,325 1,709 402
--------- --------- --------- ---------
NET INVESTMENT INCOME 552 12,311 8,954 112
--------- --------- --------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain on Investment Transactions
from Unaffiliated Issuers 46,016 43,166 9,277 1,432
Net Realized Loss on Investment Transactions
from Affiliates (Note 4) -- (650) -- --
--------- --------- --------- ---------
Total Net Realized Gain 46,016 42,516 9,277 1,432
Net Change in Unrealized Appreciation (10,634) 52,564 20,170 4,956
--------- --------- --------- ---------
NET GAIN ON INVESTMENTS 35,382 95,080 29,447 6,388
--------- --------- --------- ---------
Net Change in Net Assets Resulting from Operations $ 35,934 $ 107,391 $ 38,401 $ 6,500
========= ========= ========= =========
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
================================================================================
-25-
<PAGE> 28
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended September 30
<TABLE>
<CAPTION>
SAFECO GROWTH FUND SAFECO EQUITY FUND
------------------------- --------------------------
(In Thousands) 1995 1994 1995 1994
========================================================================================================
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 552 $ (200) $ 12,311 $ 4,322
Net Realized Gain on
Investments 46,016 20,876 42,516 13,155
Net Change in Unrealized
Appreciation (10,634) (12,312) 52,564 18,088
--------- --------- --------- ---------
Net Change in Net Assets
Resulting from Operations 35,934 8,364 107,391 35,565
NET EQUALIZATION CREDITS (DEBITS) 2 -- 73 616
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income (557) -- (12,378) (4,933)
Net Realized Gain on Investments (46,001) (20,672) (42,473) (13,160)
NET TRUST SHARE TRANSACTIONS 30,997 9,693 133,164 245,823
--------- --------- --------- ---------
TOTAL CHANGE IN NET ASSETS 20,375 (2,615) 185,777 263,911
NET ASSETS AT BEGINNING OF PERIOD 156,108 158,723 412,805 148,894
--------- --------- --------- ---------
Net Assets at End of Period $ 176,483 $ 156,108 $ 598,582 $ 412,805
========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Sales 26,526 28,734 29,460 38,169
Reinvestments 2,736 1,067 3,370 1,201
Redemptions (27,099) (29,081) (23,460) (21,516)
--------- --------- --------- ---------
Net Change 2,163 720 9,370 17,854
========= ========= ========= =========
INCREASE (DECREASE) IN AMOUNTS
Sales $ 490,890 $ 564,076 $ 419,705 $ 518,200
Reinvestments 43,424 19,089 50,729 16,538
Redemptions (503,317) (573,472) (337,270) (288,915)
--------- --------- --------- ---------
Net Change $ 30,997 $ 9,693 $ 133,164 $ 245,823
========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
================================================================================
-26-
<PAGE> 29
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the Year Ended September 30
<TABLE>
<CAPTION>
SAFECO INCOME FUND SAFECO NORTHWEST FUND
-------------------------- --------------------------
(In Thousands) 1995 1994 1995 1994
========================================================================================================
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 8,954 $ 9,034 $ 112 $ 129
Net Realized Gain on
Investments 9,277 2,934 1,432 1,055
Net Change in
Unrealized Appreciation 20,170 (6,382) 4,956 888
--------- --------- --------- ---------
Net Change in Net Assets
Resulting from Operations 38,401 5,586 6,500 2,072
NET EQUALIZATION CREDITS (DEBITS) (39) (105) (1) (3)
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income (8,912) (8,932) (110) (128)
Net Realized Gain on Investments (9,283) (2,554) (1,432) (1,037)
NET TRUST SHARE TRANSACTIONS 7,093 (6,404) (1,200) (4,152)
--------- --------- --------- ---------
TOTAL CHANGE IN NET ASSETS 27,260 (12,409) 3,757 (3,248)
NET ASSETS AT BEGINNING OF PERIOD 190,610 203,019 36,383 39,631
--------- --------- --------- ---------
Net Assets at End of Period $ 217,870 $ 190,610 $ 40,140 $ 36,383
========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Sales 1,662 1,323 832 5,148
Reinvestments 833 559 84 74
Redemptions (2,145) (2,244) (1,019) (5,546)
--------- --------- --------- ---------
Net Change 350 (362) (103) (324)
========= ========= ========= =========
INCREASE (DECREASE) IN AMOUNTS
Sales $ 30,024 $ 23,315 $ 11,348 $ 64,759
Reinvestments 15,463 9,648 1,202 921
Redemptions (38,394) (39,367) (13,750) (69,832)
--------- --------- --------- ---------
Net Change $ 7,093 $ (6,404) $ (1,200) $ (4,152)
========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
================================================================================
-27-
<PAGE> 30
================================================================================
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The SAFECO Common Stock Trust ("Trust") is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust consists of the SAFECO Growth Fund, SAFECO Equity
Fund, SAFECO Income Fund, and SAFECO Northwest Fund (together "the Funds"). The
following is a summary of significant accounting policies consistently followed
by the Trust in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
SECURITY VALUATION. Investments in 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. Short-term investments are valued at
amortized cost.
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.
INCOME RECOGNITION. Dividend income less foreign taxes withheld (if any) is
recorded on the ex-dividend date. Interest is accrued on short-term investments
and bonds daily.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net investment income is
declared as a dividend to shareholders as of the last business day (ex-dividend
date) of March, June, September and December. Net gains realized from security
transactions, if any, are normally distributed to shareholders at the end of
September and December.
EQUALIZATION. The Funds have followed the accounting practice known as
equalization by which a portion of the proceeds from sales and cost of
redemptions of Trust shares equivalent, on a per-share basis, to the amount of
distributable net investment income on the date of the transaction was credited
or charged to undistributed income. As a result, undistributed net investment
income per share was unaffected by sales or redemptions of a Fund's shares.
Beginning October 1, 1995, the Funds discontinued the practice of equalization
accounting. Therefore, future distributions of net investment in come will be
unaffected by trust share transactions. The change does not affect net assets,
net asset value, or net investment income of the Funds.
FEDERAL INCOME AND EXCISE TAXES. The Funds intend to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies by distributing substantially all taxable income to their shareholders
in a manner which results in no tax to the Funds. Therefore, no federal income
or excise tax provision is required.
================================================================================
-28-
<PAGE> 31
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. TRUST SHARE INFORMATION
(As of September 30, 1995)
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
GROWTH EQUITY INCOME NORTHWEST
(In Thousands) FUND FUND FUND FUND
============================================================================================
<S> <C> <C> <C> <C>
Trust Shares Authorized Unlimited Unliminted Unlimited Unlimited
Par Value Per Share $ .001 $ .001 $ .001 $ .001
Paid in Capital $ 152,870 $ 497,816 $ 177,773 $ 29,351
- --------------------------------------------------------------------------------------------
</TABLE>
3. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
GROWTH EQUITY INCOME NORTHWEST
(In Thousands) FUND FUND FUND FUND
==================================================================================================================
<S> <C> <C> <C> <C>
Purchases for the Year Ended September 30, 1995 $ 168,731 $ 365,439 $ 59,938 $ 7,056
========= ========= ========= =========
Sales for the Year Ended September 30, 1995 $ 184,649 $ 278,166 $ 67,827 $ 8,217
========= ========= ========= =========
UNREALIZED APPRECIATION (DEPRECIATION)
AT SEPTEMBER 30, 1995
Aggregate Gross Unrealized Appreciation for
Investment Securities in Which There
is an Excess of Value Over Identified Cost $ 32,850 $ 106,043 $ 42,869 $ 12,754
Aggregate Gross Unrealized Depreciation
for Investment Securities in Which There
is an Excess of Identified Cost Over Value (9,256) (5,327) (2,774) (1,965)
--------- --------- --------- ---------
Net Unrealized Appreciation $ 23,594 $ 100,716 $ 40,095 $ 10,789
========= ========= ========= =========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
-29-
<PAGE> 32
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS IN AFFILIATES
Each of the companies listed below is an affiliated company of a Fund
because the Fund owned at least 5% of its voting securities during the year
ended September 30, 1995.
<TABLE>
<CAPTION>
SHARES AT SHARES MARKET VALUE
BEGINNING AT END SEPTEMBER 30,
(In Thousands) OF PERIOD ADDITIONS REDUCTIONS OF PERIOD DIVIDENDS 1995
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
SECURITY
SAFECO Growth Fund
Speizman Industries, Inc. 165 -- -- 165 -- $ 596
Thorn Apple Valley, Inc. 313 -- -- 313 $ 66 5,869
SAFECO Equity Fund
Malan Realty Investors, Inc. 219 -- (219) -- 224 --
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
- 30 -
<PAGE> 33
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT ADVISORY FEES AND
OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES. SAFECO Asset Management Company receives
investment advisory fees from the Funds. For the Growth, Equity, and Income
Funds, the fee is based on average daily net assets at the annual rate of 75/100
of one percent on the first $100 million declining in three levels to 45/100 of
one percent on net assets over $500 million. For the Northwest Fund, the fee is
based on average daily net assets at the annual rate of 75/100 of one percent on
the first $250 million declining in three levels to 45/100 of one percent on net
assets over $750 million.
TRANSFER AGENT FEES. SAFECO Services Corporation receives shareholder
servicing 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.
AFFILIATE OWNERSHIP. At September 30, 1995, SAFECO Insurance Company of
America ("SAFECO Insurance"), a wholly owned subsidiary of SAFECO Corporation,
owned 500,000 shares of the Northwest Fund.
DEFERRED ORGANIZATION EXPENSE. Costs related to the organization of the
SAFECO Northwest Fund have been deferred and are being amortized to operations
over a period of sixty months. These costs were advanced by the Investment
Adviser and are being reimbursed by the Fund over the same time period. If any
of the original seed money shares are redeemed by SAFECO Insurance prior to the
end of the amortization period, the redemption proceeds will be reduced by a pro
rata share of the unamortized organization expense as of the date of redemption.
================================================================================
- 31 -
<PAGE> 34
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GROWTH FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 17.37 $ 19.20 $ 13.98 $ 17.95 $ 11.14
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.07 (0.02) (0.02) (0.01) 0.05
Net Realized and Unrealized Gain (Loss)
on Investments 4.07 0.78 5.39 (3.15) 7.77
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 4.14 0.76 5.37 (3.16) 7.82
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.07) -- -- -- (0.05)
Distributions from Realized Gains (5.61) (2.59) (0.15) (0.81) (0.96)
---------- ---------- ---------- ---------- ----------
Total Distributions (5.68) (2.59) (0.15) (0.81) (1.01)
---------- ---------- ---------- ---------- ----------
Net Asset Value at End of Period $ 15.83 $ 17.37 $ 19.20 $ 13.98 $ 17.95
========== ========== ========== ========== ==========
TOTAL RETURN 23.93% 3.88% 38.43% -17.83% 70.22%
NET ASSETS AT END OF PERIOD (000'S) $ 176,483 $ 156,108 $ 158,723 $ 127,897 $ 155,429
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.98% 0.95% 0.91% 0.91% 0.90%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 0.34% -0.12% -0.10% -0.10% 0.36%
PORTFOLIO TURNOVER RATE 110.44% 71.18% 57.19% 85.38% 49.86%
AVERAGE COMMISSION RATE PAID $ .0292 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
- 32 -
<PAGE> 35
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)
SAFECO EQUITY FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
----------------------------------------------------------------------
1995 1994 1993 1992 1991
====================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 13.89 $ 12.54 $ 9.53 $ 10.38 $ 8.43
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.34 0.23 0.17 0.15 0.17
Net Realized and Unrealized Gain (Loss)
on Investments 2.59 1.83 3.79 (0.09) 2.37
----------- ----------- ----------- ---------- ----------
Total from Investment Operations 2.93 2.06 3.96 0.06 2.54
----------- ----------- ----------- ---------- ----------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.34) (0.23) (0.17) (0.15) (0.17)
Distributions from Realized Gains (1.17) (0.48) (0.78) (0.76) (0.42)
----------- ----------- ----------- ---------- ----------
Total Distributions (1.51) (0.71) (0.95) (0.91) (0.59)
----------- ----------- ----------- ---------- ----------
Net Asset Value at End of Period $ 15.31 $ 13.89 $ 12.54 $ 9.53 $ 10.38
=========== =========== =========== ========== ==========
TOTAL RETURN 21.59% 16.51% 41.77% 0.41% 30.39%
NET ASSETS AT END OF PERIOD (000'S) $ 598,582 $ 412,805 $ 148,894 $ 74,383 $ 71,586
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.84% 0.85% 0.94% 0.96% 0.98%
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 2.38% 1.72% 1.50% 1.34% 1.70%
PORTFOLIO TURNOVER RATE 56.14% 33.33% 37.74% 39.88% 45.21%
AVERAGE COMMISSION RATE PAID $ .0402 -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
- 33 -
<PAGE> 36
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)
SAFECO INCOME FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
-----------------------------------------------------------
1995 1994 1993 1992 1991
=========================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 17.25 $ 17.79 $ 16.27 $ 15.35 $ 12.89
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.82 0.81 0.78 0.80 0.81
Net Realized and Unrealized Gain (Loss)
on Investments 2.71 (0.30) 1.52 0.96 2.53
-------- -------- -------- -------- --------
Total from Investment Operations 3.53 0.51 2.30 1.76 3.34
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.82) (0.81) (0.78) (0.80) (0.83)
Distributions from Realized Gains (0.85) (0.24) -- (0.04) (0.05)
-------- -------- -------- -------- --------
Total Distributions (1.67) (1.05) (0.78) (0.84) (0.88)
-------- -------- -------- -------- --------
Net Asset Value at End of Period $ 19.11 $ 17.25 $ 17.79 $ 16.27 $ 15.35
======== ======== ======== ======== ========
TOTAL RETURN 21.04% 2.98% 14.35% 11.75% 26.43%
NET ASSETS AT END OF PERIOD (000'S) $217,870 $190,610 $203,019 $181,582 $181,265
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.87% 0.86% 0.90% 0.90% 0.93%
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 4.55% 4.59% 4.55% 5.06% 5.58%
PORTFOLIO TURNOVER RATE 31.12% 19.30% 20.74% 20.35% 22.25%
AVERAGE COMMISSION RATE PAID $ .0541 -- -- -- --
- ----------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
- 34 -
<PAGE> 37
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)
SAFECO NORTHWEST FUND
<TABLE>
<CAPTION>
FOR THE NINE OCTOBER 18, 1990
MONTHS (COMMENCEMENT
FOR THE YEAR ENDED FOR THE YEAR OF OPERATIONS)
ENDED SEPT. 30 SEPT. 30 ENDED DEC. 31 TO DEC.31
------------------- ------------ ------------------- ----------------
1995 1994 1993 1992 1991(+) 1990(++)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 12.59 $ 12.34 $ 12.59 $ 11.37 $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.04 0.04 0.02 0.06 0.19 0.11
Net Realized and Unrealized Gain (Loss)
on Investments 2.35 0.59 (0.25) 1.53 1.44 --
------- ------- ------- ------- ------- -------
Total from Investment Operations 2.39 0.63 (0.23) 1.59 1.63 0.11
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.04) (0.04) (0.02) (0.06) (0.19) (0.11)
Distributions from Realized Gains (0.53) (0.34) -- (0.31) (0.07) --
------- ------- ------- ------- ------- -------
Total Distributions (0.57) (0.38) (0.02) (0.37) (0.26) (0.11)
------- ------- ------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 14.41 $ 12.59 $ 12.34 $ 12.59 $ 11.37 $ 10.00
======= ======= ======= ======= ======= =======
TOTAL RETURN 19.01% 5.19% -1.86%(**) 14.08% 14.93%(X) N/A
NET ASSETS AT END OF PERIOD (000'S) $40,140 $36,383 $39,631 $40,402 $26,434 $ 5,000
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.09% 1.06% 1.11%(*) 1.11% 1.24% 1.43%(*)
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 0.31% 0.33% 0.18%(*) 0.55% 1.26% 5.47%(*)
PORTFOLIO TURNOVER RATE 19.59% 18.46% 14.05%(*) 33.34% 27.71% NONE
AVERAGE COMMISSION RATE PAID $ .0064 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(+) Includes $.06 per share of net investment income earned on the initial seed
money investment prior to February 7, 1991. The shares were first offered
to the public on February 7, 1991, at $10.06 per share.
(++) These per share data and ratios relate to the performance of the initial
seed money investment of SAFECO Insurance Company of America only, since
Fund shares were not yet available to the public.
(**) Not annualized.
(*) Annualized.
x Total return from February 7, 1991, (initial public offering)
to December 31, 1991, not annualized.
================================================================================
- 35 -
<PAGE> 38
================================================================================
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF THE SAFECO COMMON STOCK TRUST
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments in securities, of the SAFECO Common
Stock Trust (comprising, respectively, the SAFECO Growth Fund, SAFECO Equity
Fund, SAFECO Income Fund, and SAFECO Northwest Fund) as of September 30, 1995.
For the SAFECO Growth Fund, SAFECO Equity Fund, and SAFECO Income Fund, we have
audited the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. For the SAFECO Northwest Fund, we have audited the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the two years in the period ended September 30, 1995, for the
nine-month period ended September 30, 1993, for each of the two years in the
period ended December 31, 1992, and for the period October 18, 1990
(commencement of operations) to December 31, 1990. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective funds constituting the SAFECO Common Stock Trust at
September 30, 1995, the results of their operations, the changes in their net
assets, and financial highlights for the periods referred to above, in
conformity with the generally accepted accounting principles.
/s/ ERNST & YOUNG L.L.P.
------------------------
Seattle, Washington
October 26, 1995
================================================================================
- 36 -
<PAGE> 39
================================================================================
SAFECO FAMILY OF FUNDS
STABILITY OF PRINCIPAL
SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund
TAXABLE BOND INCOME
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund
TAX-FREE BOND INCOME
SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
HIGH CURRENT INCOME
WITH LONG-TERM GROWTH
SAFECO Income Fund
LONG-TERM GROWTH
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Northwest Fund
- --------------------------------------------------------------------------------
For more complete information on any SAFECO Mutual Fund, including management
fees and expenses, call or write for a free Prospectus. Please read it carefully
before you invest or send money.
================================================================================
- 37 -
<PAGE> 40
================================================================================
SAFECO STOCK FUND Bulk Rate
U.S. Postage
BOARD OF TRUSTEES PAID
Boh A. Dickey, Chairman SAFECO
Barbara J. Dingfield Insurance Co.
Richard W. Hubbard
Richard E. Lundgren
L.D. McClean
Larry L. Pinnt
John W. Schneider
OFFICERS
David F. Hill, President
Ronald L. Spaulding,
Vice-President and Treasurer
Neal A. Fuller,
Vice-President and Controller
INVESTMENT ADVISOR
SAFECOE Asset
Management Company
DISTRIBUTOR
SAFECO Securities, Inc.
TRANSFER AGENT
SAFECO Services Corporation
CUSTODIAN
U.S. Bank of Washington, N.A.
